ENBD REIT , the Shari’a compliant real estate investment trust managed by Emirates NBD Asset Management Limited, has announced its financial results for the year ended 31st March 2021, prepared in accordance with International Financial Reporting Standards (“IFRS”) and audited by Deloitte. As at 31st March 2021, ENBD REIT’s Net Asset Value (“NAV”) was USD 180 million or USD 0.72 per share (decreasing by 17% on the previous year), with the total value of the property portfolio at USD 360 million (decreasing by 12% on the previous year). ENBD REIT’s Loan-to-Value (“LTV”) ratio stood at 52%.
Downward movement on valuations was driven by the dual pressures of a softening real estate market and pandemic-induced economic pressures that affected gross rental income. Occupancy in the portfolio remained healthy, with management providing a range of solutions to support tenants in genuine financial distress in order to secure income. Meanwhile, in an effort to continue to reduce costs, management reduced fund and portfolio management expenses significantly, while the Fund benefited from lower finance costs due to a lower lending rate environment.
ENBD REIT’s Board of Directors has proposed a final dividend of USD 4,400,000 or USD 0.0176 per share – equivalent to 2.44% of NAV and 4.10% of the share price – for the 6 month period ending 31st March 2021, subject to shareholder approval at the Annual General Meeting (“AGM”). The total dividend payable to shareholders for the year is USD 9,250,000 – equivalent to 5.13% of the cum-dividend NAV and 8.62% of the share price. Following the AGM and subject to shareholders’ approval, the shares will trade ex-dividend on 7th July 2021, with the record date set as 8th July 2021 and the payment date on 27th July 2021.
Anthony Taylor, Head of Real Estate at Emirates NBD Asset Management, said:
“The 2020-21 financial year was challenging, with soft market conditions exacerbated by the Covid-19 pandemic. During the year, we sought to safeguard occupancy rates to limit downward movement on rental income, while reducing fund and operating expenses throughout the portfolio. While occupancy rates were affected by a sustained softening of the real estate market and weak economic indicators, blended occupancy in the portfolio remained healthy, which can be attributed to our active and flexible leasing strategy. We also negotiated the renewal of our largest tenant, Oracle, at The Edge building, for a further five-year term. This agile approach to leasing and cost management has seen net rental income from the portfolio increase 8% year-on-year, excluding valuation movements.
Earlier in the year, we took the decision to offer rental relief to tenants who most needed it, which proved important for securing occupancy and long-term income. As pressures in the market have continued to impact valuations, we have been using this as an opportunity to renegotiate contractual leases with tenants at lower rates that are in line with market benchmarks, while extending contractual lease terms further into the future. This has enabled material cost savings for tenants during short-term uncertainty, while locking in longer-term occupancy, thereby improving the portfolio’s weighted average unexpired lease term to over 4 years.
With lower occupancy in some office buildings, we have taken the opportunity to enhance value in the portfolio by initiating several capital work projects, with minimal disruption to occupants. These programmes kicked off at the beginning of the calendar year and we expect all projects to be finalized before the end of 2021. The upgrades should add significant value to certain assets, making them more attractive to existing tenants and materially improving the leasability of vacant space .”
In response to the Covid-19 pandemic, ENBD REIT actively worked with tenants to create solutions that would be mutually beneficial on a long-term basis. Rent relief was assessed on a case-by-case basis to ensure it was impactful enough for those who were in severe need, as opposed to blanket relief that would have had a negligible impact for all tenants. Towards the end of the year, the REIT finalized the majority of the rental relief contracts as the market began to stabilize.
“We have worked to further reduce costs by looking at opportunities that exist in a lower lending rate environment. Earlier in the year we acted to reduce future financing costs by securing a hedging facility with Mashreq Bank, to hedge 56% of total outstanding debt, while leaving room for further hedging if the market indicates that lending rates are to start rising again. It is also worth mentioning our appreciation to our lenders, Standard Chartered and Mashreq Bank, who have been supportive and constructive in working with the REIT team to address and resolve issues relating to LTV covenants. We continue to work closely with our lenders to ensure that our financial position remains in line with their expectations.
In difficult macroeconomic circumstances, ENBD REIT has maintained its commitment to shareholders by paying an annualised dividend that we consider to be reasonable in light of market conditions, despite remaining off our target levels. As we look to the year ahead, we will continue to optimise costs and take measures to boost the performance of individual assets, while considering opportunities for strategic disposals that will be to the advantage of our portfolio and our shareholders.”
Given challenging market conditions and with the aim to maintain the integrity, robustness and accuracy of the property portfolio, ENBD REIT has revised its valuation policy for the financial year 2021-2022 onwards. The REIT will conduct a tender process from a pre-qualified list of valuers ahead of its next valuation cycle. The revised valuation policy has a rotation mechanism in line with international best practice and each external valuer will be invited to present to the Board at least annually to explain their assumptions and movements in valuation during that period. The revised valuation policy has been approved by the Board of Directors and Oversight Committee.
While management and the Board acknowledge that the dividend for FY 2020-21 is off target in normal market conditions, and the improved dividend yield is a result of a discount to NAV on the share price, management remains committed to managing the portfolio actively and to delivering on a range of revenue-generating and cost-saving initiatives. ENBD REIT intends to continue paying dividends on a semi-annual basis.