Emirates Reit to see better performance in 2019, EFG-Hermes says

Reit is projected to record a 9.6 per cent year-on-year rise in revenue to $76.6 million in 2019

Emirates REIT, which invests in education, commercial and retail sectors, has a portfolio of 10 properties including Dubai's Index Tower. Antonie Robertson / The National

Emirates Reit, the UAE’s largest real estate investment trust, is expected to perform better this year after a "tough" 2018 but risks remain due to market conditions, according to Egyptian investment bank EFG-Hermes.

The company is projected to record a 9.6 per cent year-on-year rise in revenue to $76.6 million (Dh281.3m) in 2019 following its acquisition of the Lycee Francais School in May last year and an increase in the overall average occupancy at The Index tower in Dubai, EFG-Hermes said in a report last week. Net operating profit is forecast to jump to $37m in 2019 from $33m last year.

"We expect 2019 to be a better year for [the] reit’s operational performance, with no major negative surprises in the asset portfolio," EFG-Hermes said.

Reits are listed funds that own income-producing commercial real estate and are legally obliged to distribute a proportion of their income, usually 80 or 90 per cent, as dividends to shareholders. The investment vehicles are becoming increasingly popular in the Arabian Gulf as investors seek more liquid real estate assets than standalone buildings.

Despite a better year than last so far, some risks remain, particularly with more re-evaluation losses, the report said.

"The overall market conditions weighing down on occupancies and lease rates, especially in the office segment, will result in muted revenue growth rate - assuming no acquisitions - and offer some downside risk to our bottom-line estimate due to possible further revaluation losses, though we think this is a low-probability scenario," EFG-Hermes said.

In 2020, The Index tower retail space is expected to show its impact for Emirates Reit.

"Management has recently indicated that the ground floor of the retail space is already 50 per cent leased, with preparation in the garden area undergoing and, potentially, the start of leasing of the first floor; thus, we assume overall occupancy of 45 per cent in 2020," EFG-Hermes said.

It estimates rental revenue of $3m from The Index retail space and $20.9m from the office space in 2020, assuming occupancy of 50 per cent.

The bank's estimates assume no new acquisitions, it said.