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School’s in: UAE education is ripe for investment

The listing of more education-based real estate investment trusts will diversify UAE capital markets

GEMS Education was founded in 1959 with a single school in Dubai and is now a global education colossus that has partnered with the private equity firm CVC and Fajr Capital Shutterstock
GEMS Education was founded in 1959 with a single school in Dubai and is now a global education colossus that has partnered with the private equity firm CVC and Fajr Capital

Post-Covid, Dubai has seen an influx of affluent professionals and families from emerging markets as varied as Russia, India, East Africa, Central Asia and the wider Arab world – and that has made private schools an excellent investment. 

Private schools that offer British A-levels, the US high school diploma or the international baccalaureate have become essential for such families, as their children usually seek to secure admission at pre-eminent universities in the UK, Europe and the US. 

If they do not wish to study abroad, almost 100 university programmes or branch campuses now exist in the UAE, led by respected global education brands such as New York University and the Sorbonne in Abu Dhabi, the American University of Sharjah, and UK institutions such as the London Business School, Manchester University, Strathclyde University, Heriot-Watt, and Middlesex University in Dubai.

The existence of a global secondary school and university academic ecosystem facilitated by government initiatives such as Academic City and the Knowledge Village in Dubai over the past two decades has made the UAE a magnet for the regional business elite and a hub for Mena’s sunrise industries in fields as varied as software, fintech, management consulting, logistics and venture capital.

Industry clusters such as the Dubai International Financial Centre, Dubai Internet/Media City, DMCC and Dubai Healthcare City have created tens of thousands of high-paying technocratic jobs for university graduates that did not exist in the 1990s.

Dubai has spawned a number of highly successful education service providers that own and operate a spectrum of K-12 (ages five to 18) schools with curricula designed for the British, French, Indian, American and even Australian education systems.

GEMS Education was founded in 1959 with a single school in Dubai and is now a global education colossus that operates K-12 schools on five continents, educates 170,000 students from diverse socioeconomic backgrounds and has partnered with the private equity firm CVC in London and Fajr Capital in Dubai.

Private education is now big business in the UAE, and the recurrent nature of its cash flows makes it a magnet for global and regional private equity firms and investors looking to get into private schools investment.

The most significant recent milestone in the history of the UAE private education sector and the local capital markets was the IPO of Taaleem Holdings, an operator of 27 schools with primarily British and American curricula, on the Dubai Financial Market (DFM) in November 2022. 

The $204 million IPO was oversubscribed a phenomenal 47 times by UAE and regional investors, a testament to Taaleem’s status as the only pure-play education services provider on the DFM. The high valuation of Taaleem, at above 25 times earnings, also demonstrates that investors in the public markets are willing to pay a valuation premium for school operators, which should attract more listings from private school operators in the years ahead.

The growth in private education also creates investor demand for real estate investment trusts (REITs) that derive rental incomes from K-12 schools located in the UAE and other GCC states. 

Apart from rental income yields that are at least 200 basis points higher than the current one-year bank deposit rates, an education REIT can help diversify a commercial real estate portfolio, and thus reduce overall portfolio risk while acting as an inflation hedge. 

In addition, since a private education REIT can be listed on a stock exchange, it adds a liquidity dimension to GCC investors with existing exposure to illiquid bricks and mortar residential or commercial real estate. 

The education sector is also defensive, though vulnerable to sudden drops in the expat population, as was experienced after the post-Lehman financial shocks and global recession in 2008-09. The listing of more education REITs on the stock markets of Dubai and Abu Dhabi will deepen and diversify the UAE capital markets, as well as generate income opportunities for retail investors across the GCC.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also an adjunct professor of real estate investing and banking at the American University of Sharjah

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