Property off the Beaten Path

09/11/2008 12:00 am EST


David Stevenson

Columnist; Adventurous Investor, The Investors Chronicle; Financial Times

David Stevenson, editor of Adventurous Investing, finds a way to profit from real estate in the Middle East.

One of the most exciting new ideas in global investing has been MENA, the Middle East and North Africa. It’s a story motivated in part by soaring oil revenues but also structural change. Stock markets throughout the region are booming as the Gulf investors in particular invest more and more of their proceeds into local markets. But it’s not just Gulf investors muscling in on the action. Russian investors are extremely active and a host of new ETFs/mutual funds have been launched both in the UK and the US.

The big growth story is property and especially residential property. Anyone who’s ever been to Dubai will realize that in this region ownership of a great property is the ultimate goal of most Arabs. But not everyone is buying in Dubai. North African property developments are sprouting up at an astonishing rate and Cyprus and Turkey in particular are becoming hot destinations.

Sitting at the centre of this boom is a London-listed (AIM) investment fund called Dolphin Capital (LSE: DCI). Dolphin is Miltos Kambouride’s (a one-time Soros business partner) newest vehicle and invests a stack of money into large, town-scale residential property developments in places like Cyprus, Turkey, and the Dominican Republic.

It builds “master plan” turnkey developments—virtual towns—and then sells them on to the growing middle classes in the developing world, plus rich foreigners.

DCI lowers its risk by acquiring its land sites at deep discounts, using low bank debt, financing the majority of each project’s costs by the pre-sales of residential units, and exiting each investment on a self-liquidating portfolio (sale of the residential units).
This growth story is not reflected in the share price, which has sunk from over 200 pence to a recent low of around 80 pence. Some re-evaluation of risk was deserved, but not as much as this. The shares are now at a huge discount to net underlying asset value. I think a hefty discounting of future risk is in order, but with the shares trading at around 85 pence, a 65% discount is overdoing it.

Miltos himself has bought £2 million worth of shares personally in the last month, which suggests there is something of an anomaly there. Plus, the current valuation is supported more than 50% by cash on the balance sheet. The company is cheap compared to net asset value, and Dolphin is buying back shares.

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