Emirates REIT on being sharia-compliant

Mar 21, 2016
<p>Dubai-based trust doing well despite challenging macroeconomic conditions and cheap oil&nbsp;</p>

Oil prices and regional tensions have taken their toll on the Islamic finance sector. The number of Islamic funds dropped in 2015 and total global Islamic assets under management declined to $58 bn during the fourth quarter of 2015, from $60.65 bn at the end of 2014, according to a report from the Malaysia International Islamic Financial Centre last month.

At the same time, the Financial Times reports that sharia-compliant funds suffered their worst sales in four years, falling more than 74 percent on 2014’s figures.

But Magali Mouquet, executive director responsible for IR at Emirates REIT, says that as one of only three sharia-compliant real estate investment trusts (REITs) in the world, adhering to Islamic finance principles has brought only opportunities to the Dubai-based trust.

‘For me, being sharia-compliant is more of an advantage,’ Mouquet explains, though the opening up of the UAE’s real estate market to outside investors is what she highlights first when she talks about the company. ‘[Being sharia-compliant] makes things easier for me – I have more investors because I have all the sharia institutions.’

Mouquet says other investors – those perhaps looking for an SRI angle rather than a focus on Islamic finance principles – are also interested in the trust, which offers ‘guaranteed transparency’. Around 60 percent of the trust’s investor base comes from Gulf Cooperation Council countries, with most of these being sharia-compliant. Malaysia and Indonesia also have notable sharia-focused investors, she adds.

‘We are actively diversifying both geographically and between sharia and non-sharia investors, so we can maintain a stable stock,’ Mouquet says. ‘This means if a US investor goes out, a Saudi investor can come in easily.’

Understanding sharia

When asked whether sharia and non-sharia investors have different focuses, she points out that in fact she doesn’t get a lot of questions from sharia investors ‘because from the moment we say we are sharia-compliant, they know what we are talking about.

‘It’s more the non-sharia shareholders that have questions. Sometimes they don’t really understand what it means to be sharia-compliant, which translates as greater sustainability and more transparency in our accounts – and in our business in general. Plus I’m not allowed to rent to any arms dealers or anything like that!’

Emirates REIT, which saw its assets increase 78 percent to $594 mn by year-end 2014, has been sharia-compliant since its launch in 2010, with Mouquet joining in 2013 ahead of the trust’s Nasdaq Dubai listing in April 2014. ‘Real estate is by its essence very much sharia-compliant,’ she explains. ‘And we’re actually 100 percent sharia-compliant – we don’t have any tolerance factor.’

Aside from it being an easy selling point (for a REIT), there are two reasons for the trust’s sharia-compliance. ‘First of all, we identified that there was a lack of sharia-compliant products in the market,’ says Mouquet. ‘Secondly, we initially partnered with [sharia-compliant] Dubai Islamic Bank.’

While the oil price might not be affecting Emirates REIT now, that wasn’t the case when it hit a five-year low in December 2014. ‘Our share price went from a premium to NAV to a discount to NAV,’ Mouquet explains. ‘But we’ve been stable for a year, more or less, and are still outperforming the market.’

She also says the opening of the Saudi market last year had little impact ‒ ‘We were already talking to the Saudis’ ‒ and she hasn’t seen much from Iran yet, either. Instead, she cites a slowdown in the real estate market, which presents itself as a communication challenge rather than a business challenge because ‘we have a good balance sheet to be in a buyers’ market’, as well as liquidity in banks and the trust’s share price.

While that might not quite be the responsibility of IR, Mouquet says she is monitoring the share price a lot: ‘We are at a huge discount right now – it’s a great opportunity for investors and I need to make sure people understand that.’

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