Dubai-based Palmon Group, a diversified family conglomerate, is hunting for assets to build up its newly launched logistics and industrial real estate investment trust, Manrre Reit, ahead of a planned initial public offering in 2020, its founders said.
"The target is to increase the Reit's portfolio to Dh500 million, then list it on either the Dubai Financial Market or Nasdaq Dubai stock exchanges by 2020, with the IPO process starting next year," Kunal Lahori, co-director of the fund and executive director of Palmon Group, told The National in an interview.
Reits are listed funds that own income-producing commercial real estate and distribute about 80-90 per cent of their income as dividends to shareholders.
The investment instruments are gaining popularity in the Arabian Gulf as investors seek more liquid real estate assets than standalone buildings. The UAE's largest Reit, Emirates Reit, has more than $1 billion of real estate assets under management.
Manrre Reit has been seeded with Dh215m of logistics and industrial assets from the Palmon family property portfolio and expects to reach the Dh500m asset value by 2020, Mr Lahori said. It is currently in talks to acquire new Dubai real estate. If the deal completes, the acquisition would increase the value of the Reit by an expected 10 per cent from Dh215m.
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The Reit is regulated by the Dubai Financial Services Authority and launched to ‘qualified investors’ – which include private family offices, institutional investors and professional and private clients – last week.
Its existing portfolio comprises 19 real estate properties across the UAE, 62 per cent of which are logistics assets, 23 per cent are industrial, 8 per cent are offices and 7 per cent are staff accommodation assets.
The Reit aims to acquire pre-leased commercial properties generating annual yields of at least 9-10 per cent and priced at between Dh5m-Dh50m, Mr Lahori said. The preference is for properties occupied by multinationals or large local corporates for a minimum of five years with no break clause, in line with the founders’ low-risk strategy.
Mr Lahori and joint fund director Meher Mirchandani, who is also a managing director of Palmon Group, said the Reit will prioritise the logistics and industrial sector when selecting new assets. They say rents have remained “relatively stable” in this sub-segment of the UAE real estate sector, which overall has witnessed declining sales and rental values during a three-year oil price slump, especially in office and residential.
However, now is a good time to purchase office assets because prices are low and higher yields of around 9-9.5 per cent are possible, according to Ms Mirchandani.
Manrre Reit is also looking to acquire property through sale and leaseback deals, which are becoming increasingly popular in the region as investors shed assets to ease their bottom lines, but continue to operate them.
In time, the Reit may consider build-to-suit investments as well, but off-plan property is expected to account for a small proportion of the total portfolio, the founders said. Build-to-suit investments are properties that are commissioned by the occupier/tenant to meet their own needs.
Palmon Group expects to recruit a dedicated chief executive for Manrre Reit in the months before the planned IPO.