Image: Emirates REIT
Emirates REIT has navigated a remarkable turnaround in 2024, achieving record-breaking property income, strategic asset sales, and successful sukuk refinancing.
As CEO of Equitativa Group, Thierry Delvaux is focused on positioning Emirates REIT for sustained growth. In this interview, Delvaux delves into the key drivers behind the REIT’s success, the evolving UAE real estate landscape, and his strategic vision for 2025 and beyond.
Thierry, congratulations on the impressive growth of Emirates REIT in 2024. Could you walk us through the key strategies that drove this turnaround, particularly in terms of raising occupancy levels and divesting assets at a premium?
It is a simple strategy with two stages. The first one was to rapidly increase the occupancy rate by 9.1 percentage points between July 2023 and the end of December 2024 and the gross rental revenue for commercial assets by 28 per cent.
The second stage was to take advantage of the strong market and sell selected assets at a premium to reduce our finance-to-value (FTV) to below 30 per cent.
We achieved this by the end of the summer, which put us in a great position to complete the refinancing of the sukuk in December.
The refinancing with a new sukuk was a significant achievement. What were the challenges involved in this process, and how did it contribute to the REIT’s performance and stability moving forward?
First, I have to say we started with a great portfolio. We began by engaging with Fitch who, as a global rating agency, would have an impartial and global view on the performance and the future potential of Emirates REIT. I am glad we achieved a BB+ instrument rating for our sukuk, which put us in a great position to attract very high-quality investors to invest in the new sukuk. The profile of the investors holding the bond has dramatically changed and so did the pricing.
Our achievements in 2023 and 2024 made refinancing much easier. With a clear view of the balance sheet and income growth, it was then easy to convince foreign real estate investors to buy our bond. HSBC London has been a great partner and drove the entire process.
Over the past few years, Dubai’s real estate market has seen substantial growth. How do you assess the current investor sentiment and prospects for the UAE real estate sector in the short to medium term?
Emirates REIT is operating in the office space and education sectors, two sectors that are still largely undersupplied. Unfortunately, investors are still shy in these two sectors favouring other asset classes instead. I think this trend will persist in the medium term.
With the growing interest in REITs as an investment vehicle, how do you see this trend evolving in the UAE over the next five-10 years, and which asset classes do you consider the most promising?
Managing a REIT is not a simple exercise. There are many different parts which need to be very well managed.
Now that REITs may be exempt from corporate tax, it will become an even more compelling vehicle for real estate investment in the UAE. I am convinced we will see the number of REITs increasing in the next five years.
The most promising asset class in my view is Office. The demand currently exceeds by far the supply of space. That is why rents are going up so fast. The education market is also vibrant, with not enough schools to accommodate the demand from students.
What are your strategic priorities for Emirates REIT for the year? Are there particular opportunities or sectors you’re targeting for expansion or further investment?
Our strategy for 2025 is to ensure that assets in our portfolio deliver the best possible returns through higher occupancy, rental uplifts and cost optimization. We always consider dispositions and investments but in 2025 we will mainly focus on optimising profit and delivering dividends to our shareholders.
Sustainability and ESG are becoming increasingly important in global real estate. How do you plan to incorporate these factors into Emirates REIT’s growth strategy, and what role do you see them playing in the UAE market?
Our portfolio is already very sustainable, with Index Tower being one of the most energy-efficient buildings in Dubai. However, we did not market this and are now in the process of getting the portfolio “certified” to be recognised as such by investors and occupiers.
The UAE’s real estate sector has garnered significant attention from global investors. What do you believe makes Dubai such an attractive investment destination in today’s market, and how do you see its role in the global real estate landscape evolving?
Dubai is agile and fast-paced. It can adapt quickly, and innovate extremely fast, making it a very appealing place for investors.
I think this is only the beginning and through our hard work, we are proud to bring our small contribution to Dubai becoming a world-leading financial and real estate market.
Finally, what do you foresee as the main challenges and opportunities for the UAE’s real estate market in 2025 and beyond, and how is Emirates REIT positioned to capitalise on these trends?
I believe the office market is heavily under-supplied and there is room for significant new stock. This undersupply will help us maximisse our occupancy and the rates across the portfolio. The challenge for Dubai is to incentivise developers to build office assets, which has proved to be difficult.
If demand continues to outstrip supply, we are likely to see pre-leasing emerging as the only option for organisations looking to secure future space.
However, a surge in the number of pre-lease commitments will further limit availability. As a result, we can anticipate a challenging time ahead for companies seeking good quality space – and significant room for growth in rental returns.
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At a glance: Emirates REIT in 2024
April 18: Equitativa, the manager of Emirates REIT, reported its highest-ever property income for FY 2023, along with strong growth in assets. Total property income reached $74m, marking a commendable 10 per cent year-on-year increase from FY2022. Net property income surged by 12 per cent to $62m, driven by strategic asset performance optimisation. Operating profit witnessed a significant upswing, amounting to $44m, reflecting a 37 per cent increase over the previous year.
July 18: Equitativa sells Trident Grand Mall, a two-floor retail component of Trident Grand Residence in Dubai Marina’s popular Jumeirah Beach Residence. The agreed purchase price is Dhs74m, which is above the asset’s most recent valuation.
October 21: Equitativa sells Office Park, a Grade A commercial asset in Dubai Internet City, to TECOM Investment (a wholly owned subsidiary of TECOM Group). The agreed sale price of Dhs720m represents a substantial premium over the property’s fair valuation as of June 30, 2024.
December 6: Emirates REIT agrees to fully refinance its existing sukuk, due December 2025, with a new 205m sukuk due in December 2028. The new sukuk is rated BB+ by Fitch.
Note: REIT is the acronym for real estate investment trust.
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