Nakheel Reits to pave the way for more listings

(DENNIS B MALLARI)   

 
The possible listing of two real estate investment trusts, or Reits, by Dubai-based real estate developer Nakheel by the end of this year will set the ball rolling for the listing of more such instruments on the Dubai International Financial Exchange (DIFX).

The Dubai International Financial Centre (DIFC) took the lead in the region in terms of promoting the development of Reits by passing the Investment Trust Law and the Collective Investment Law No1 in 2006.

These laws and related regulations promulgated by the DIFC and the Dubai Financial Services Authority set down the formation and operation of Reits and the qualification criteria, as well as the rights and obligations of Reit operators and trustees.

Although some real estate developers do feel the instrument is not suitable for the region, Nakheel Chief Executive Officer Chris O’Donnell told Emirates Business that his company plans to list two Reits worth Dh2.8 billion on the DIFX by year-end.

A Reit is an entity that may invest in various kinds of real property related assets, such as hotels, office buildings, shopping centres and mortgages, secured by real estate. It may acquire, own, operate, develop, manage and sell real estate assets of all types, providing investors with access to a professionally managed, diversified portfolio of real estate properties.

The principal advantage of a Reit is that it permits an average investor to acquire an interest in such a portfolios together with substantial rental income, without any loss of liquidity in light of the fact that units in a Reit may be freely traded on a listed stock exchange.

It brings in liquidity and tradability to the market. A developer can sell his building to a fund in order to free up an asset, which in turn frees up cash to put into further development, thus providing an excellent strategy for people developing as well as investing in projects.

Although no Reit has yet been formed within the DIFC, the $200 million (Dh734m) Cayman Island-organised Arabian Real Estate Investment Trust was jointly developed and launched by HSBC Bank Middle East and asset management company Daman.

“The DIFX is very interested in listing Reits, which are an excellent and innovative way for investors to gain exposure to real estate. We are aware that a number of companies in our region are looking at issuing these instruments. Reits are part of the DIFX’s market of markets strategy to offer investors the widest range of investment opportunities in the region,” Mark Fisher, head of communications at DIFX, told Emirates Business last year. However, he did not wish to comment on the issue this time.

Evolvence Capital, the Dubai-based investment company managing $1.5bn, also plans to start a $1bn Reit this year.

According to Washington DC-based Patton Boggs, the DIFC expects to be the domicile for Reits, managing in excess of $10bn in assets by 2011. Indeed, as in many of the world’s major capital markets to date, Reits are quickly becoming a favourite method for attracting public ownership in real property investments in the UAE.

“The Reit vehicle is well-suited to the highly liquid marketplace in the UAE [and the Middle East generally], and it is likely that this form of investment will be increasingly utilised in the UAE,” the law firm said.

However, other real estate companies and real estate analysts do not think Reits are the right vehicle for raising funds in the UAE.

“A Reit is not a product for this market as the region is a tax-free one. In addition, it does not sit well for a development company but sits well for an investment company,” Aldar Chief Executive Officer Ronald Barrott said.

Philipp L Lotter, Vice-President and Senior Credit Officer at Moody’s Middle East, said: “Reits don’t exist and we don’t see any immediate listing happening.”