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03 December 2023

'Right time to consolidate assets under Reit vehicle'

DIFC Reits must be listed and traded on a recognised exchange. (PATRICK CASTILLO)

By Staff Writer

With the current valuation of real estate assets in the UAE, and in particular Dubai, presenting an attractive opportunity for investment, this is an ideal time to raise funds and consolidate assets under a real estate investment trust (Reit) fund vehicle, according to Al Tamimi & Company.

A Reit offers transparency, liquidity and confidence to the local and international market, making it attractive both to international institutional investors as well as local investors. It is the right time for Reit, which is established in the Dubai International Financial Centre (DIFC), the legal firm said in a newsletter

Reit is an entity that may invest in various kinds of real property, property-related assets, units in audited property funds and up to 40 per cent in cash or government and public securities.

Real property assets typically include office buildings, shopping centres, residential towers and hotels. The principle behind a Reit is that it is possible for an average investor to acquire an interest in such a portfolio together with substantial rental income without loss of liquidity since DIFC Reits must be listed and traded, for example, on a recognised exchange such as Nasdaq Dubai.

An investor who holds shares in a Reit is not entitled to control the purchase or sale of properties in a Reit. Rather, the acquisition of shares in a Reit gives the investor part ownership in the property held by the trust and attendant rental income, without the typical problems associated with direct physical ownership and management. In addition, a Reit also provides investors with diversity in a portfolio, which has the benefit of spreading risk, according to Al Tamimi.

Kuwait and Middle East Financial Investment Company said in a report in late 2009 that the GCC holds the seed for a rather good potential for Reits. Huge opportunities in undeveloped real estate in Saudi Arabia signalled a good potential for Reits, where investors hold $267 billion (Dh981bn) in Shariah-compliant assets as of August 2008.

In September, Olivier Laroche, Senior Manager of AT Kearney Middle East, said most developers in the Middle East have assets suitable for Reits on their balance sheets and their numbers rose with the crisis.

On a regional scale, one of the earliest established Reits in the GCC was in 2006, by HSBC & Daman "The Arabian Real Estate Investment Trust (Areit)". On a global scale, Reits have a global market capitalisation of $700bn in 2009. The trusts are a medium-risk investment class delivering returns ranging from five to 10 per cent on average.


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