Qatar First Bank (QFB) has exited its first US real estate investment ahead of schedule as the Islamic bank capitalized on the better-than-expected performance of the North American property market. VINEETA TAN reports.
The asset in question is Kennedy Flats, a multifamily residential building the bank acquired in May 2018 as part of an operational overhaul, which saw QFB adopting a fee income model in a bid to turn around financial performance. That year, the bank suffered a QAR482 million (US$131.57 million) loss, moving deeper into the red after losing almost QAR270 million (US$73.7 million) the year before.
The new strategy also involved the bank focusing on bolstering its Islamic real estate business. The Kennedy Flats asset was the second of at least 11 real estate assets QFB has acquired. To date, QFB has raised over US$300 million from clients and is currently managing over US$1 billion in assets. The expected holding period for the Connecticut property was five years, with a projected return of 8% per year, net of costs and fees.
“However, real estate markets performed better than expected and QFB was able to sell shares in the property and will be returning capital and profit to investors earlier than anticipated,” said the bank.
Investors are set to receive their capital as well as capital gains and 8% coupons each year, translating to an internal rate of return of 9%, after 3.5 years since their initial investment.
QFB management is taking this early divestment as a positive signal to further bolster its real estate business strategy.
“Now we need to scale up this successful business model and as you may know we are increasing QFB’s share paid-up capital; with a larger balance sheet, QFB will be able to make more transactions and pursue more deals at the same time,” QFB Chairman Sheikh Faisal Thani Al Thani, shared. “QFB’s increase in share paid-up capital is allowing us to position QFB for its next growth phase. Same successful business model, but better, bigger and faster.”
The Shariah bank at its most recent extraordinary general assembly meeting last month agreed to raise its paid-up nominal share capital by 60% to QAR1.12 billion (US$305.72 million) from QAR700 million (US$191.07 million) by way of a rights issue. It generated its highest half-yearly net profit in five years in June 2021, netting QAR41 million (US$11.19 million). Real estate income reached QAR37 million (US$10.1 million) during the first half of this year.