REIT boom gathers pace in Saudi Arabia

Real estate investment trusts (REITs) have sprung up across the region from Dubai (pictured) to Riyadh as investors seek indirect exposure to property. (Reuters)
Updated 19 December 2017
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REIT boom gathers pace in Saudi Arabia

LONDON: The boom in Tadawul-listed real estate investment trusts (REITs) continues with details emerging on Monday about one of the largest so far — a vehicle owned by Derayah Financial that will raise more than SR1.1 billion according
to a statement from the company.
Subscription for the Derayah REIT will start on Dec. 27 and end on Jan. 7, 2018, said the announcement.
Derayah added it would be one of the biggest and most diversified funds with properties in sectors that span offices, residential, warehouses, retail and hospitality.
The REIT is invested in 15 assets, located in six cities: Riyadh, Dammam, Jubail, Khobar, Jeddah, and Al-Ahsa.
Derayah Financial is licensed by the Capital Markets Authority, which announced the company’s plans to list on the Saudi stock exchange on Dec. 6.
During the subscription period, investors can apply for subscription via Riyad Bank, National Commercial Bank, Arab National Bank, and Derayah Financial. The minimum subscription amount is SAR10,000.
The company said the REIT would distribute at least 90 percent of its net profits every six months. Net yield to investors is expected to reach 7.22 percent in the first year of operations.
Commenting on the offer, the CEO of Derayah Financial Mohammed Al-Shammasi said: “As part of our efforts to present unique investment products to our clients, we are now launching the most diversified REIT in terms of the number of properties, the geographic distribution, and the number of tenants, with an attractive return on investment that is higher than the currently traded REITs.”
About six Saudi REITs have listed on the Tadawul in recent months following legislation passed at the end of 2016, clarifying the rules governing the listing of these property vehicles that have long been around in Europe and the US but are relatively new in the Gulf. Two have been launched since in Dubai since 2014.
In a comment posted on Knight Frank’s website, Raya Majdalani, regional research manager, said Saudi REITs were being driven by capital seeking exposure to the Kingdom’s commercial real estate market. He added every REIT that had been listed in the Kingdom initially traded at a large premium to Net Asset Value (NAV), indicating investor appetite for income producing real estate as well as the potential depth of the market.
Said Majdalani: “Over the longer term, REITs are expected to increase private-sector participation in the financing of real estate markets by accessing additional pools of capital. This is in line with government efforts to stimulate the real estate sector in Saudi Arabia by attracting private-sector investments while serving the broader target of the strategic economic reforms aimed at diversifying the Kingdom away from its dependence on the hydrocarbon sector.”
But he added there were a number of headwinds that could challenge the development of the REIT market in Saudi Arabia. A major factor would be the quality and supply of suitable assets that can be placed within REIT structures.
“In general the Saudi Arabian market is dominated by lack of instructional-grade real estate when compared to the markets of both emerging and mature REIT jurisdictions. As the success of the REIT market will in part rest on a sustainable pipeline of future assets, the softening of the current economic climate could hinder the development sector and with it future supply,” said Majdalani.
Historically, the main attraction of REITs for investors has been the dividend yield, based in part from rising rental income and portfolio growth — but there is also the potential to benefit from capital appreciation. But this, like everything else linked to the stock market, is not guaranteed.


Potential SABIC deal would affect Saudi Aramco IPO time frame, says CEO Nasser

Updated 20 July 2018
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Potential SABIC deal would affect Saudi Aramco IPO time frame, says CEO Nasser

JEDDAH: A potential deal to buy a stake in petrochemical maker SABIC would affect the time frame of Saudi Aramco's initial public offering (IPO), the oil firm's president and CEO Amin H. Nasser said Friday. 

The IPO of around 5 percent of Aramco, which was initially to take place this year but is now more likely to happen later, would be the world's biggest listing, raising up to $100 billion.

Nasser said that buying a stake in a chemical company like SABIC would positively affect Aramco's revenue, Al Arabiya reported.

“We are still in the very early stages of the discussion to buy a stake in SABIC,” the Aramco CEO said.

“Aramco is ready for the initial offer and the timing remains subject to the state's decision.”

Saudi Aramco said on Thursday it is looking at the possibility of buying a stake in SABIC, a move that could boost the state oil giant’s market valuation ahead of the planned IPO.
Aramco said in a statement that it was in “very early-stage discussions” with the Kingdom’s Public Investment Fund (PIF) to acquire the stake in SABIC via a private transaction. It has no plans to acquire any publicly held shares, it said.
In a separate statement, PIF also said talks about a sale were in early stages. “There is a possibility that no agreement will be reached in relation to this potential transaction,” it said.