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ENBD Reit hedges Dh400M facility with Mashreq Bank

Staff Report/Dubai
Filed on August 24, 2020 | Last updated on August 24, 2020 at 02.48 pm
ENBD Reit's management is focused on mitigating impact on the business by reducing costs and maintaining them at minimal levels.

(Staff Report)

Emirates NBD unit's priority in 2020 is to manage down costs, maintain them at optimal levels

ENBD Reit, the Shariah-compliant real estate investment trust managed by Emirates NBD Asset Management, has executed a Shariah-compliant profit rate swap with Mashreq Bank on its Dh400 million facility, which will hedge 56 per cent of the Reit's total outstanding debt.

The agreement will fix the variable rate of Emirates Interbank Offered Rate (Eibor) for a two-year period starting June 2021 and ending June 2023.

In light of the Covid-19 pandemic and soft real estate market conditions, ENBD Reit's management is focused on mitigating impact on the business by reducing costs and maintaining them at minimal levels. With cost of financing the Reit's single largest expense, amounting to 47 per cent of total expenses as at March 31, 2020, by fixing Eibor at these lower rates ENBD Reit intends to benefit from lower finance costs for the next three years, on a significant portion of its facilities, thereby improving profitability.

Anthony Taylor, head of real estate at Emirates NBD Asset Management, said: "Our priority this year is to manage down costs and maintain them at optimal levels. This has already been achieved in a number of areas, in both our property portfolio and at fund level, having announced earlier this year the reduction of our management fees and discounts on Board and Committee remuneration. Given a lower interest rate environment, we have a compelling opportunity to reduce our finance costs - the Reit's single-largest expense - into the future. We have taken that opportunity by agreeing a profit rate swap with Mashreq Bank, which will hedge more than half of our total outstanding debt until June 2023."

Joel Van Dusen, head of the corporate and investment banking group at Mashreq Bank, said: "Mashreq is pleased to provide ENBD Reit with this customised solution and we remain highly committed to supporting clients with their diverse funding requirements, particularly during this challenging period. The transaction reaffirms our ability to offer innovative risk management solutions specific to our customers' needs, enabling them to mitigate and hedge specific risks as well as provide more certainty."

In June 2020, ENBD Reit announced a management fee reduction of 20bps, equating to a 13 per cent reduction in total management fees (capped at 25 per cent on the previous year's fee), for six months effective until December 31, 2020.

The Reit's board and committees approved a 13 per cent discount on remuneration for the same period, with both initiatives supported by shareholders at the virtual AGM hosted on July 1. The total dividend payable to shareholders for the year ended March 31, 2020 was $10 million - equivalent to an annualised dividend return of 4.35 per cent of the cum-dividend net asset value and 11.2 per cent of ENBD Reit's share price.

Income and occupancy in the Reit's portfolio of 11 properties across Dubai has remained relatively healthy, with management having provided a range of solutions to support tenants in genuine financial distress due to the economic disruption caused by the Covid-19 pandemic.


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