Aldar Properties sets up Dh20bn property investment unit

Subsidiary will hold recurring revenue assets including 5,000 residential units, plus 500,000 sqm of retail and commercial space

Aldar Investment, the fully-owned subsidiary of Aldar properties is starting fixed income investor meetings on 18 September. Sammy Dallal / The National

Aldar Properties, Abu Dhabi's largest real estate developer, is spinning off Dh20 billion ($5.4bn) of revenue-generating assets into subsidiary investment vehicle Aldar Investments.

Aldar Investments will be 100 per cent owned by Aldar but will be able to raise capital independently. About 5,000 residential units and 500,000 square metres of retail and commercial space will be transferred into the new vehicle over the coming weeks, along with Dh6bn of existing debt.

“Aldar Investments allows us to accelerate growth opportunities and unlock value for shareholders,” said Talal Al Dhiyebi, the Aldar chief executive.

The move comes after Aldar on Monday issued a statement on the Abu Dhabi bourse, where its shares are traded, saying its subsidiaries are allowed to own real estate under a government decree. Before the new vehicle was established, Aldar comprised two parts – a real estate development business and an asset management business, whose revenues came predominantly from residential and commercial rents. However, the latter was costly to run and the new structure is expected to streamline that operation.

“The recurring revenue assets are very capital-intensive … the main reason we borrow money as Aldar was to support the capital structure for these large and valuable assets,” the company’s chief financial officer, Greg Fewer, said yesterday. “By focusing them into a single company and raising debt out of this company, you get a more efficient operating platform, lower costs and higher growth opportunities.”

The move shows that Aldar’s portfolio “has matured, the market has matured and the logical next step is to legally reorganise our assets along focused lines that allow us to raise capital independent of [the parent]”, he added.

UAE property markets slowed in recent years following a three-year oil slump, with sales and rental prices softening owing to rising supply and a reduction in consumer purchasing power. Real estate companies are endeavouring to cut costs as the challenging market environment and rising costs squeeze margins.

Aldar posted a 10 per cent year-on-year increase in sales revenue in the second quarter of this year, but net profit dropped 28 per cent to Dh445m, pressured by a Dh190m loss on a revaluation of investment properties. At the time, Mr Fewer cited “headwinds in the retail portfolio” and resulting lease renewals as the cause.

Aldar entered into a strategic partnership with Dubai's Emaar Properties in April and acquired Dh3.7bn of assets from Abu Dhabi's Tourism Development and Investment Company.

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Mr Fewer said the establishment of Aldar Investments would help the company expand its investments “in jurisdictions outside Abu Dhabi”, and raise cheaper capital.

There are plans to issue a new sukuk at benchmark size, possibly this year, and explore other fundraising opportunities. Moody’s rated Aldar Investments at Baa1, one notch above Aldar’s, in a rating note on yesterday, boosting the group’s borrowing profile.

The rating reflects “the high-quality recurring revenue asset portfolio, with a stable tenant base and occupancy rates, which partially offsets its geographic concentration risk in the emirate of Abu Dhabi”, said Moody’s analyst Lahlou Meksaoui.

Aldar also has a $750m sukuk due to mature in December. “[The new vehicle] doesn’t change any of our existing debt policies nor our dividend promises we made to shareholders,” said Mr Fewer.