imposed by the Dubai Financial Services Authority

A fine of 771 thousand dirhams on “Equitativa” for violating the “reporting regulations”

The Dubai Financial Services Authority has completed its investigation into Equitativa.

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Yesterday, the Dubai Financial Services Authority published a notice of a decision to impose a fine of $210,000 (771,225 thousand dirhams) on Equitativa Dubai Limited (Equitativa), and accepted an enforceable undertaking from it.

Equitativa is the manager of Emirates REIT (CEIC) Limited and listed on the NASDAQ Stock Exchange, (Emirates REIT or the Fund), and the entity responsible for providing its reports.

The Dubai Financial Services Authority concluded that Equitativa, on two occasions during 2018, issued misleading statements regarding a school in Dubai Investments Park (the school), which is one of the 11 assets of the Emirates REIT Fund, in violation of the Collective Investment Law of 2010, and failed to take acceptable measures to ensure that relevant information was provided by it or its employees to the entity responsible for auditing the accounts of the Emirates REIT Fund, in violation of Clause (e) of Rule No. (9-3-5) of the Collective Investment Rules . The investigations also identified concerns about Equitativa's fund valuation practices, but these do not constitute breaches on its part.

On August 28, 2018, Equitativa published the semi-annual financial statements of Emirates REIT for the period ended June 30, 2018. At the time of publishing the financial statements, the (school) had defaulted on rent payments and had informed Equitativa that it would not operate The school in September 2018. Accordingly, Equitativa filed a criminal case for bounced checks and decided to terminate the lease agreement with the operator. However, Equitativa did not include a provision in the financial statements for some or all of the approximately $2 million due from the school, nor did it reduce the valuation of the asset to reflect the fact that there was no operator at the start of the school year in September 2018, which means that The financial statements of the Emirates REIT Fund did not comply with the relevant requirements contained in the International Financial Reporting Standards, and that the fund's net profit for the six months until June 30, 2018 was exaggerated.

The fine was reduced by 30% because Equitativa accepted the settlement offer made by the Dubai Financial Services Authority. Without this settlement, the fine would have reached $300,000.

The DFSA has also accepted an enforceable undertaking from Equitativa to address concerns about its valuation practices, including: to provide complete and timely information to those responsible for evaluating the fund, and to maintain sufficient records to demonstrate compliance with Rule 13-4-22 under Part III. The rules of collective investment, the use of sound and appropriate assumptions in the reports submitted to those responsible for evaluating the fund, and that the details mentioned in the reports submitted to those responsible for the evaluation process related to the information relied upon and the assumptions made are sufficient.

Equitativa has agreed to take action to address these concerns and will appoint an independent valuation expert to review the 2022 Emirates REIT valuation reports, although no violations of applicable legislation by the DFSA have been identified.

In addition, Equitativa will appoint a qualified person with valuation experience to join the Emirates REIT Oversight Committee.

The Dubai Financial Services Authority has ended its investigation into Equitativa.

Get accurate information

Christopher Calabia, Chief Executive of the DFSA, said: “Investors have the right to expect accurate, complete and non-misleading information about the performance of the fund from the fund manager, and that the financial statements issued by a company reflect the true state of the business.

The importance of this expectation is evident when it comes to publicly traded funds such as Emirates REIT.”

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