LONDON: Dubai schools are in the sights of sale-and-leaseback investors as funds seek stable returns in an otherwise volatile regional real estate market.
Dubai Investments this week led a consortium to fully acquire Kent College Dubai via its subsidiary Al Mal Capital in a sale and leaseback transaction, highlighting the growing investor appeal of the Gulf’s education sector.
“Investor interest in the education sector has spiked in recent years,” said Craig Plumb, head of research MENA at the consultancy firm JLL.
“This is driven by a combination of increased competition and declining returns from traditional sectors of the real estate market and strong demand for alternative assets such as schools and medical facilities,” he said.
The sale-and-leaseback structure of the deal is also an increasingly popular way for investors to gain exposure to the education sector. A leaseback agreement involves a company selling an asset and leasing it back from the buyer. It can be a useful strategy for companies needing to release cash from an asset to invest elsewhere, while still requiring the asset to operate.
“Sale-and-leaseback structures are one of the preferred means for investors to gain exposure to the growing education sector in the UAE,” said Plumb.
“They offer investors the advantage of long-term leases to established and specialist operators, with many of these leases being on a ‘triple net basis’ thereby reducing the management time and effort required from investors,” he said.
Investing in sale-and-leaseback structures also provides investors in the real estate market with a source of recurring income. In a DFM filing, Naser Nabulsi, vice-chairman and CEO of Al Mal Capital, said the company was committed to carrying out transactions in the “income generating real estate space both regionally and internationally.”
The Dubai Investments deal follows news initially announced in June, and clarified on Monday in a DFM filing, that the Bahrain-based Gulf Finance House had entered a BD21 million ($55.6 million) sale-and-leaseback transaction with Promoseven, to lease the British School of Bahrain back to GFH.
One of the first sale-and-leaseback agreements in the Gulf educational sector was announced in 2013 when the US-based firm PineBridge Investments acquired a GEMS campus in Dubai, leasing it back to the original owner over a 20-year period.
According to a report from consultancy firm Strategy&, released this year, educational institutions have “increased appetite” for sale-and-leaseback deals due to high land costs and a “restrictive funding environment” in the region.
Andrew Thomson, a real estate specialist based in Dubai at Gowling WLG, said that limited financing options were part of the reason for the appeal of these types of transactions.
“Sale-and-leasebacks will become increasingly popular in the Middle Eastern market as banks are no longer willing to provide finance to regional borrowers at the rates they are used to,” he said.
“Regional companies, particularly family groups tend to have large real estate portfolios and will look to utilize sale and leasebacks to get access to finance no longer available from traditional institutions.”
According to a JLL report last year, 1,100 additional schools will be required across Dubai, Abu Dhabi, Jeddah, Riyadh and Cairo. Around 350 of these will need to be private sector schools. An additional 36 private schools are needed in Dubai alone by 2020.
Kent College Dubai is the first international campus of Kent College Canterbury from the UK. It is operated by a subsidiary of Hashem Khoory, a Dubai-based family conglomerate with interests in education, real estate and health care.
The Dubai campus has a capacity of 2,200 students and opened in 2016.
Dubai Investments this week led a consortium to fully acquire Kent College Dubai via its subsidiary Al Mal Capital in a sale and leaseback transaction, highlighting the growing investor appeal of the Gulf’s education sector.
“Investor interest in the education sector has spiked in recent years,” said Craig Plumb, head of research MENA at the consultancy firm JLL.
“This is driven by a combination of increased competition and declining returns from traditional sectors of the real estate market and strong demand for alternative assets such as schools and medical facilities,” he said.
The sale-and-leaseback structure of the deal is also an increasingly popular way for investors to gain exposure to the education sector. A leaseback agreement involves a company selling an asset and leasing it back from the buyer. It can be a useful strategy for companies needing to release cash from an asset to invest elsewhere, while still requiring the asset to operate.
“Sale-and-leaseback structures are one of the preferred means for investors to gain exposure to the growing education sector in the UAE,” said Plumb.
“They offer investors the advantage of long-term leases to established and specialist operators, with many of these leases being on a ‘triple net basis’ thereby reducing the management time and effort required from investors,” he said.
Investing in sale-and-leaseback structures also provides investors in the real estate market with a source of recurring income. In a DFM filing, Naser Nabulsi, vice-chairman and CEO of Al Mal Capital, said the company was committed to carrying out transactions in the “income generating real estate space both regionally and internationally.”
The Dubai Investments deal follows news initially announced in June, and clarified on Monday in a DFM filing, that the Bahrain-based Gulf Finance House had entered a BD21 million ($55.6 million) sale-and-leaseback transaction with Promoseven, to lease the British School of Bahrain back to GFH.
One of the first sale-and-leaseback agreements in the Gulf educational sector was announced in 2013 when the US-based firm PineBridge Investments acquired a GEMS campus in Dubai, leasing it back to the original owner over a 20-year period.
According to a report from consultancy firm Strategy&, released this year, educational institutions have “increased appetite” for sale-and-leaseback deals due to high land costs and a “restrictive funding environment” in the region.
Andrew Thomson, a real estate specialist based in Dubai at Gowling WLG, said that limited financing options were part of the reason for the appeal of these types of transactions.
“Sale-and-leasebacks will become increasingly popular in the Middle Eastern market as banks are no longer willing to provide finance to regional borrowers at the rates they are used to,” he said.
“Regional companies, particularly family groups tend to have large real estate portfolios and will look to utilize sale and leasebacks to get access to finance no longer available from traditional institutions.”
According to a JLL report last year, 1,100 additional schools will be required across Dubai, Abu Dhabi, Jeddah, Riyadh and Cairo. Around 350 of these will need to be private sector schools. An additional 36 private schools are needed in Dubai alone by 2020.
Kent College Dubai is the first international campus of Kent College Canterbury from the UK. It is operated by a subsidiary of Hashem Khoory, a Dubai-based family conglomerate with interests in education, real estate and health care.
The Dubai campus has a capacity of 2,200 students and opened in 2016.
