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Nakheel to buy UK property, set up Reit

Developer sees value in assets, may sell shares in US$700m trust in S’pore in ’08

(DUBAI) Nakheel PJSC, the Dubai, United Arab Emirates-based developer of the world’s biggest manmade islands, will buy UK real estate investment funds and start a real estate investment trust, or Reit, as it expands into property asset management.

‘UK Reits are trading at a 30 per cent to 40 per cent discount now and that’s a huge opportunity,’ chief financial officer Quek Kar Tung said in an interview in Dubai on Sunday. ‘There’s no Reit market in Dubai yet, so we’ll be looking to build an international portfolio.’

Nakheel plans to start its first US$700 million Reit in the first or second quarter. The company will put homes from its Gardens and International City projects in Dubai into the trust, Mr Quek said. The trust will probably sell shares in Dubai and Singapore, he said.

State-owned Nakheel, which has US$30 billion of projects under way in Dubai, is seeking to diversify its sources of income away from domestic construction projects by expanding overseas and into fund management. A unit of Dubai World, the company has about US$7 billion of assets for its fund venture and will acquire more in January when it takes control of fellow Dubai World company Istithmar Real Estate, according to Mr Quek.

The UK benchmark FTSE All-Share Real Estate Index slumped by 38 per cent this year on falling commercial property values, higher borrowing costs and stricter controls on credit. Land Securities Group plc, the biggest British Reit, on Nov 14 said that it will split itself into three companies after its shares slumped. The stock trades at about 30 per cent below the company’s net asset value, according to Lehman Brothers Holdings Inc.

Dubai properties yield as much as 12 per cent to investors, more than double the yield in Singapore, Mr Quek said.

Listing Nakheel’s first Reit in Singapore would allow the company to take advantage of the Asian city state’s experience in trading land trusts and the ‘low cost of funding’ there, he said.

Since it was founded in 2003, Istithmar has bought New York properties including 280 Park Avenue, 450 Lexington Avenue, W Hotel Union Square and the Knickerbocker Hotel at 6 Times Square. In November 2006 it bought London’s Adelphi building for US$567 million as part of a plan to capitalise on surging demand for hotel rooms and office space in major Western cities.

 

Source: Bloomberg (Business Times 27 Nov 07)

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