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By Hanan Alnufaie
RIYADH — Saudi Stock Exchange (Tadawul) held on Sunday the listing ceremony of Riyadh REIT units as the first Real Estate Investment Traded Fund (REIT)to be listed on the Saudi capital market, with a capital of SR 500,000,000 divided to 50,000,000 units.
Riyadh REIT of Riyadh Capital has been listed within the REITs sector, which is a newly created independent sector, complementary to the existing equity market sectors.
Tadawul has recently announced plans to list a number of Real Estate Investment Traded Funds in the capital market in the upcoming months. Not only will REITs provide access for all segments of investors to invest in the real estate sector, but it will also entitle investors to periodic rental income from developed real estate in the form of dividends.
Regarding the listing Riyadh REIT on the capital market as the first REITs in Saudi Arabia, CEO of Riyadh Capital Ali Al-Guwaiz said: “Income generating real estate trusts will give investors a unique opportunity to share the ownership of real estate that not only have stable financial performances, but also regularly distribute dividends. REITs could also be liquidated if needed, which decreases risks that usually accompany such real estate investments. It is expected that the REITs sector will create opportunities for listing large numbers of commercial real estate with high returns, which will probably lead in turn to make REITs the biggest investment sector in the Saudi market.”
Moreover, REITs’ low investment average cost, coupled with a face value of SR10 per unit, provides additional investment opportunities for small investors. This is in accordance with the respective Real Estate Investment Traded Funds Instructions announced by the Capital Market Authority last Oct. 30.
The instructions state that a REIT’s capital should not be less than SR100 million and required 75% of the REIT’s total assets value to be invested in constructed developed real estate qualified to generate periodic, rental income in accordance with the latest audited financial statements.
In addition, it is permitted to invest a maximum of 25% of the total value of fund assets in real estate under development. The instructions also permit investing in a variety of real estate sectors including residential, commercial, industrial, and agricultural sectors inside Saudi Arabia or abroad, provided that total investments abroad shall not exceed 25% of the total value of fund assets in accordance with the latest audited financial statements. As for dividends, instructions state that REITs are required to distribute at least 90% of the fund’s net profits to unit holders annually.
Instructions also prohibit REITs from investing in vacant lands, and will not exceed borrowing more that 50% of the total value of fund assets in accordance with the latest audited financial statements.
Officials confirmed that REITs are subject to higher transparency requirements compared to traditional investment tools in the real estate market. With this in mind, fund managers are obliged to disclose all needed information on the REIT’s website as well as Tadawul’s website.
© The Saudi Gazette 2016
