Dubai’s financial regulator has fined the manager of Emirates Reit, the United Arab Emirates’ largest sharia-compliant real estate investment trust, $210,000 for “misleading statements”.
The Dubai Financial Services Authority said Equitativa failed to take reasonable steps to report relevant information to the auditor. The regulator also said it had identified concerns about its valuation practices.
Emirates Reit, which cancelled a proposed restructuring of a $400m sukuk, or Islamic bond, earlier this year amid a bondholder revolt, said none of the findings alleged any financial impropriety and had no impact on its financial statements.
“Having agreed to settle with the DFSA, Equitativa can now turn its full attention to reinvigorating Emirates Reit and accelerating its plans for growth,” it said.
The regulator found that Equitativa did not make provision for $2m owed to it by a school in Dubai and did not reduce the valuation of the asset to reflect the lack of an operator at the start of the next academic year.
“Rather, the school was presented as 100 per cent occupied with a secure tenant,” the regulator said. This meant that its net profit for the six months to the end of June 2018 was “overstated”, it added.
Equitativa included the provision and an impairment on the school in its 2018 financial statement published the following year.
“Investors have the right to expect that information provided by a fund manager about the performance of the fund is accurate, complete and not misleading,” said F Christopher Calabia, the DFSA’s chief executive.
The regulator has also accepted an enforceable undertaking from Equitativa to address concerns over valuation practices. While the DFSA said it had found no breaches of its legislation, it said Equitativa would appoint an independent valuation expert to review fund valuation reports for 2022.
Equitativa said it had provided 200,000 documents and conducted thousands of hours of work to comply with requests during the DFSA’s almost two-year investigation at significant financial and reputational cost.
Advisors to the fund welcomed the closure of the probe, saying it would allow Emirates Reit to refocus on growth, taking advantage of the booming real estate sector driven by the emirate’s successful handling of the pandemic.
But a person close to the bondholders said refinancing the sukuk would now be trickier given the regulatory penalty, adding that raising money may prove difficult if new investors balk after the regulator’s criticisms.