ENBD REIT (CEIC), the shari'a-compliant real estate investment trust managed by Emirates NBD Asset Management Limited, has executed a profit rate swap with leading UAE bank Mashreq on its AED400 million facility, which will hedge 56% of the REIT’s total outstanding debt. 

 

The agreement will fix the variable rate of Eibor for a two-year period starting June 2021 and ending June 2023, said a statement from ENBD REIT.

 

In light of the Covid-19 pandemic and soft real estate market conditions, ENBD REIT’s management are 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% of total expenses as of 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.

 

Emirates NBD Asset Management Head of Real Estate Anthony Taylor 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," he added.

 

Mashreq Bank Head of Corporate and Investment Banking Group Joel Van Dusen said: "We are pleased to provide ENBD REIT with this customized solution and 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," he stated.

 

In June, ENBD REIT announced a management fee reduction of 20 bps, equating to a 13% reduction in total management fees (capped at 25% on the previous year's fee), for 6 months effective until December 31, 2020.