ENBD Reit agrees profit rate swap with Mashreq Bank on Dh400m debt

Fixed interest rate until 2023 allows the fund to hedge 56% of its outstanding debt

ENBD Reit’s says it remains focused on mitigating the impact of Covid-19 on its business. Courtesy of ENBD

ENBD Reit, the Shari’a-compliant real estate investment trust, has agreed a profit rate swap with Mashreq Bank on its Dh400 million facility, allowing the fund to hedge rate fluctuation risk on more than half of its total outstanding debt.

The agreement will fix the variable Emirates Interbank Offered Rate (Eibor), a key benchmark for lending in the country, for a two-year period starting in June 2021, ENBD Reit said in a statement on Monday.

With financing costs being the Reit's single largest expense – 47 per cent of total expenses in the first quarter of this year – ENBD Reit “intends to benefit from lower finance costs” by fixing the rate paid, which will help improve its profitability, it said.

“Given a lower interest rate environment, we have a compelling opportunity to reduce our finance costs,” Anthony Taylor, head of real estate at Emirates NBD Asset Management, which manages the Reit, said.

Dubai's real estate market has slowed in the wake of a drop in oil prices that began in 2014, as well as concerns about an oversupply of properties. The coronavirus pandemic has added to the woes of the sector. However, with the economy opening up and commercial activity picking up pace, the volume of transactions has increased in recent months.

In July, the market witnessed 493 sales of completed villas and townhouses, the highest number in a single month, according to real estate portal Property Finder. Demand for villas and townhouses has increased as people look for homes with more outdoor space following movement restrictions to stem the spread of Covid-19, which temporarily kept people confined to their homes.

ENBD Reit said on Monday it remains focused on mitigating the impact of the pandemic on its business. It has already negotiated down a number of service contracts to lessen the impact of a sustained softening in the real estate market.

“Our priority this year is to manage down costs, and maintain them at optimal levels.” Mr Taylor said.

In May, the Reit announced a rent relief initiative across its portfolio of properties for tenants affected by the coronavirus-inflicted economic slowdown. The move was aimed at reducing the financial burden of tenants through rent-free periods, the postponement of cheques or rescheduling rental payment plans, it said in a statement at the time.

In June, ENBD Reit also announced a management fee reduction of 20 basis point, equating to a 13 per cent reduction in total management fees – capped at 25 per cent on the previous year's fee – for a period of six months.

Income and occupancy in its portfolio of 11 properties across Dubai has remained relatively healthy, it said on Monday.