Investor appetite for REITs ramps up in Gulf

New apartments stand under construction at the Al Qasr residential project, built by Dar Al-Arkan Real Estate Development Co., in Riyadh, Saudi Arabia, on Wednesday, Oct. 13, 2010. Builders in the Persian Gulf region, hit by slumping orders in their home countries, are eager to expand in Saudi Arabia when lending picks up. Photographer: Waseem Obaidi/Bloomberg via Getty Images
Updated 03 July 2018
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Investor appetite for REITs ramps up in Gulf

LONDON: Regional appetite for real estate investment traded funds (REIT) is ramping up, say market experts, as investors get to grips with the relatively new financial instrument and authorities throw themselves behind promotional campaigns.
In Saudi Arabia, Riyadh-based Mefic Capital is expected to list its new REIT on the Tadawul exchange this month following a successful subscription period in May.
The company will list SR879.5 million ($235 million) of its REIT units following a successful subscription period in April and May, joining the 13 REITs currently listed on the exchange.
Over in the UAE, the Dubai Financial Market (DFM) on Sunday signed an agreement with Dubai Land Department to promote the listing of REITs by providing various incentives to companies.
The DFM is also set to develop a new platform for the listing and trading of REITs, said Essa Kazim, chairman of the DFM, in a statement on July 1.
Simon Townsend, head of valuation, advisory and consulting at CBRE Middle East, said that Gulf markets were becoming more aware of such funds.
“The region has seen a growth of these REIT funds as the market has become more familiar with these vehicles and structures,” Townsend told Arab News.
The use of REITs allows investors to gain exposure to the real estate market through allowing the collective ownership of fully-constructed real estate assets that generate regular income.
The market for these types of funds has been growing throughout the Gulf since the the first REIT was launched in 2014 on Nasdaq Dubai.
Since then, Abu Dhabi, Saudi Arabia and Bahrain have all brought in regulatory frameworks for the use and listing of the funds. Oman finalized its regulation at the beginning of the year.
Townsend said the structure is particularly appealing to smaller investors keen on obtaining real estate exposure.
“Investors whether individuals or small/mid-size investment groups have been able to invest with clarity in components of the real estate market that traditionally have seen high barriers to entry such as large-scale commercial properties where entry prices have historically only enabled the larger investors to benefit,” he said.
Mefic Capital’s REIT will provide investors access to the Saudi and UAE real estate market through eight properties. Only Saudi citizens or companies with a Saudi presence exclusively will be able to invest in the fund.
Management fees have been set at 0.35 percent, with a guaranteed minimum 2 percent annual return when the fund doesn’t meet a 5 percent investment threshold, making it the first listed real estate fund in Saudi Arabia to have a guaranteed return.
The success of the 1.23 billion riyal REIT demonstrates market demand for this kind of instrument, said Alain Sfeir, corporate partner at Clyde & Co. in Saudi Arabia, the law firm that advised Mefic Capital, in a statement.
“The size of the fund’s public offering gives you an indication of the appetite for Saudi diversified investment opportunites at the moment,” he said.

Decoder

What are REITs?

Real Estate Investment Traded Funds, or REITs, are financial instruments that allow all types of investors to obtain investment exposure to the Real Estate Market. This is achieved through collective ownership of constructed developed real estate qualified to generate periodic and rental income. REITs can invest locally, regionally and globally, where the total asset value outside the Kingdom shall not exceed 25% of the fund's total asset value. (Source: Tadawul.com)


Britain unveils “short and sharper” code for companies

Updated 35 min 13 sec ago
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Britain unveils “short and sharper” code for companies

  • The new code emphasises the need for boards to refresh themselves, become diverse and plan properly for replacing top jobs
  • Company remuneration committees should also take into account workforce pay when setting director pay

LONDON: Companies in Britain must strive to rein in excessive executive pay and make boards more diverse under a new “short and sharper” corporate code, published on Monday.
The Financial Reporting Council (FRC) has updated its code of corporate standards for publicly listed companies, which must comply with it or explain to shareholders if they do not.
The new code comes as the watchdog, which oversees company governance standards and accountants, faces a review to see if it can uphold high corporate standards to maintain Britain’s attractions as a place to invest after Brexit.
British lawmakers have called for tougher corporate govenance standards following a row between food retailer Tesco and its suppliers and the collapse of retailer BHS and outsourcer Carillion. And shareholders have become much more active in terms of rejecting some executive pay deals.
“To make sure the UK moves with the times, the new code considers economic and social issues and will help to guide the long-term success of UK businesses,” FRC Chairman Win Bischoff said.
“This new code, in its short and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.”
There is a new provision for greater board engagement with the workforce to understand their views — aimed at reinforcing an existing provision in law since 2006 which has had a patchy impact.
This, along with a requiremnent to have “whistleblowing” mechanisms that allow directors and staff to raise concerns for effective investigation, mark the biggest broadening of corporate standards in many years, the FRC said.
“The new code is much stronger on abilities to raise concerns in confidence,” said David Styles, FRC director of corporate governance.
It also emphasises the need for boards to refresh themselves, become diverse and plan properly for replacing top jobs.
It introduces a requirement for companies to explain publicly if a board chair has remain unchanged for more than nine years.
Company remuneration committees should also take into account workforce pay when setting director pay.
“To address public concern over executive remuneration... formulaic calculations of performance-related pay should be rejected,” the watchdog said.