Emirates REIT, managed by Equitativa (Dubai) has reported its unaudited first half financial results for the period ended 30 June 2017.
“The first half of the year was marked by strong operating cash flow conversion to profits and demonstrates the efficiency of our property and tenant management. Our defensive portfolio of prime assets and the doubling of our team has helped us continue to grow rents and identify strong acquisition opportunities. We continue to strengthen Emirates REIT’s track record in the education sector and are pleased to be handing over BCCS on budget and in less than a year. Despite market challenges, the REIT continues to perform well and return a high dividend to shareholders,” said Sylvain Vieujot, CEO of Equitativa Dubai.
Growth in rental income
Emirates REIT saw rental income grow 22 per cent to $25.4 million in the first half of the year (H1 2016: $20.9 million). Service fees and other income rose six per cent to $2.8 million, leading to $28.3 million in property income generated in H1 2017 (+20 per cent). This primarily reflects incremental leasing of office units at Index Tower, income from Jebel Ali School and rental payments from British Columbia Canadian School. Total occupancy across the portfolio reached 83 per cent as at 30 June 2017. The weighted average unexpired lease term was up to 8.2 years from 6.2 years in H1 2016.
The annualised rental income continues to grow and passed the AED 200 million mark as of August 2017.
Improved flow-through of rental income to FFO
In a challenging market environment, the REIT continues to grow its occupancy, increase its rental rates and achieve a strong increase in its rental income. In addition, Equitativa’s hands-on property management and proactive optimization of the portfolio continues to improve the financial performance of the REIT. Consequently, this combined strategy significantly improved the flow-through of income to FFO. The REIT was able to convert most of its additional rental income to FFO, resulting in a 67 per cent increase in FFO, or cash profit, to $8.3 million in the first half of the year (H1 2016: $5 million).
Increase in portfolio valuation and net asset value
The total portfolio value as of 30 June 2017 was $772.1 million, a year-on-year increase of 6.9 per cent (30 June 2016: $722.0 million). The net asset value was $1.63 per share, or $487.8 million, (30 June 2016: $1.57 per share or USD 469.4 million). Valuation gains on the total portfolio in H1 2017 were $10.0 million (H1 2016: $18.8 million), reflecting the increase in contracted cash flow.
As expected, and highlighted in previous quarterly statements, the decrease in revaluation gains year on year, which is a result of the maturing portfolio that generates more stable cash flows, led to a lower net profit of $18.3 million for the first half (H1 2016: $23.8 million).
Further operational progress
The first phase of the new British Columbia Canadian School is being delivered. The opening of the school is pending authority inspections. This leasehold plot in Dubai Investments Park was acquired by the REIT and immediately leased back to the school. The estimated IRR on this project is expected to exceed 12 per cent. The owner fit out and leasing of Index Mall is now well underway. The 73,650 sq. ft. Mall will be a prime destination featuring a variety of shops, food and beverage outlets and amenities, connected to DIFC’s Gate Avenue, which is due to open in H1 2018.
Total debt as at 30 June 2017 was $300.2 million. The LTV ratio of the REIT stood at 36.8 per cent, well below the REIT’s regulatory maximum LTV of 50 per cent.