ENBD REIT hedges AED 400m facility with Mashreq Bank

ENBD REIT (CEIC) PLC (“ENBD REIT” or the “Fund”), the Shari’a-compliant real estate investment trust managed by Emirates NBD Asset Management Limited, has executed a Shari’a-compliant profit rate swap with Mashreq Bank, on its AED 400 million facility, which will hedge 56% of the REIT’s total outstanding debt. The agreement will fix the variable rate of EIBOR for a two-year period starting June 2021 and ending June 2023. 

In light of the Covid-19 pandemic and soft real estate market conditions, ENBD REIT’s management are focused on mitigating impact on the business by reducing costs and maintaining them at minimal levels. With cost of financing the REIT’s single largest expense, amounting to 47% of total expenses as at 31st March 2020, by fixing EIBOR at these lower rates ENBD REIT intends to benefit from lower finance costs for the next three years, on a significant portion of its facilities, thereby improving profitability. 

Anthony Taylor, Head of Real Estate at Emirates NBD Asset Management, said: 

“Our priority this year is to manage down costs, and maintain them at optimal levels. This has already been achieved in a number of areas, in both our property portfolio and at fund level, having announced earlier this year the reduction of our management fees and discounts on Board and Committee remuneration. Given a lower interest rate environment, we have a compelling opportunity to reduce our finance costs – the REIT’s single largest expense – into the future. We have taken that opportunity by agreeing a profit rate swap with Mashreq Bank, which will hedge more than half of our total outstanding debt until June 2023.”

Joel Van Dusen, Head of Corporate and Investment Banking Group, at Mashreq Bank, said:

“Mashreq is pleased to provide ENBD REIT with this customized solution and we remain highly committed to supporting clients with their diverse funding requirements, particularly during this challenging period. The transaction reaffirms our ability to offer innovative risk management solutions specific to our customers’ needs, enabling them to mitigate and hedge specific risks as well as provide more certainty.”

In June 2020, ENBD REIT announced a management fee reduction of 20 bps, equating to a 13% reduction in total management fees (capped at 25% on the previous year's fee), for 6 months effective until 31st December 2020. The REIT’s Board and Committees approved a 13% discount on remuneration for the same period, with both initiatives supported by shareholders at the Virtual AGM hosted on 1st July. The total dividend payable to shareholders for the year ended 31st March 2020 was USD 10,000,000 – equivalent to an annualised dividend return of 4.35% of the cum-dividend Net Asset Value (“NAV”), and 11.2% of ENBD REIT’s share price. 

Income and occupancy in the REIT’s portfolio of 11 properties across Dubai has remained relatively healthy, with management having provided a range of solutions to support tenants in genuine financial distress due to the economic disruption caused by the Covid-19 pandemic.