Adnoc deal paves way for more global institutions to invest in UAE property, experts say

Investment by asset managers in the country is still below global levels, but this could change if GREs decide to monetise non-core assets

Abu Dhabi, United Arab Emirates. May 24, 2015///

Abu Dhabi skyline, view from Fairmont construction site near Marina Mall, for stock. Abu Dhabi, United Arab Emirates. The  Burj Mohammed Bin Rashid Tower is the tall pointed tower on the left. Mona Al Marzooqi/ The National 

Section: National
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The $5.5 billion (Dh 20.2bn) deal between Abu Dhabi National Oil Company and Apollo Global Management into UAE property is both “substantial and significant” as it paves the way for further investment by global institutions into the emirate’s property market, according to the head of Savills’ Abu Dhabi office.

“It's a great, strategic move for Abu Dhabi,” said Edward Carnegy.

Some of the terms of the deal are confidential, such as the yield Apollo will earn in return for investing $2.7bn for a 49 per cent stake in Abu Dhabi Property Leasing Holding Company (ADPLHC) – the vehicle that owns the portfolio of properties in which Apollo has invested.

However, it shows Abu Dhabi is open for business, that it "is a welcoming destination for foreign direct investment [and] an attractive destination for global capital,” Mr Carnegy said.

Adnoc’s deal with Apollo is the latest in a series of transactions by the state-owned oil company to unlock value from non-core assets. It retains a majority share in ADPLHC and will maintain full control over the “select real estate and social infrastructure assets” in the portfolio, which is being leased back to the company under a 24-year master lease agreement.

“This a landmark institutional investment and Adnoc is paving the way for such investment from global institutions into Abu Dhabi and the UAE market,” Andrew Ausama, associate director at Core Real Estate, said.

Institutional investment in the UAE's property market is not new, but it is still rare. Apart from a few notable examples, such as Brookfield’s Dh5bn joint venture with Meraas to co-own retail assets, it has largely been confined to the Dubai office market.

These have typically been deals involving a single building, such as the sale and leaseback of Standard Chartered’s Downtown Dubai headquarters to the Kuwait Investment Authority or the sale of U-Bora Towers in Dubai’s Business Bay to Senyar Real Estate. In Abu Dhabi, one notable transaction to date has been SinoGulf Investments’ Dh658m sale of International Tower to Aldar Properties in 2017.

"The low levels of activity have been underpinned primarily by the scarcity of institutional grade assets being made available to the market and not the lack of demand,” Taimur Khan, head of research at Knight Frank Middle East, said.

“In fact, recent deal activity shows that investors are willing to pay competitive yields for best-in-class assets."

The UAE has plenty of institutional grade property, Mr Carnegy said, but much of it sits in portfolios owned by government bodies or government-related entities and to date there haven’t been the opportunities for institutions to invest in them. He now expects other organisations to do similar deals.

“We have heard of others in the pipeline,” he said.

“As global investor confidence rises on the back of such large-scale transactions and as more government and semi-government entities look towards unlocking capital from non-core assets such as real estate … we expect further investment opportunities to arise in the UAE market, garnering interest from international investors, sovereign wealth funds, private equity and pension funds,” Mr Ausama said.

Given the current economic backdrop, Mr Khan also expects more businesses, “both private and GREs (government-related entities)” to look at selling yielding assets and “use the proceeds as a capital source for their core business”.