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

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.


Technology will not replace labor despite rapid digital transformation

Updated 28 January 2020

Technology will not replace labor despite rapid digital transformation

  • Hayman said he believes technology should help people and offer them support rather than replace them
  • The UAE is among the top performers in the Middle East in terms of digital transformation in industrial sectors

ABU DHABI: Digital technology will not replace labor; the aim of it is to improve areas of inefficiency in different industrial sectors, CEO of AVEVA Group plc Craig Hayman told Arab News.

Most sectors around the world from retail to financial services and telecommunication, have been digitized in some way, according to Hayman.

But while this widespread introduction of digital technology inevitably reduces costs and increases efficiencies in the workplace, it is also seen by many as the death knell for their jobs.

A 2019 report by the Organization for Economic Co-operation and Development (OECD) estimates that approximately 14 percent of workers globally will face a high risk of their jobs one day becoming automated and “32 percent face major changes in the tasks required in their job and, consequently, the skills they would need to do their job.”

Another 2017 McKinzy&Company report said up to 800 million workers around the world could be replaced by robots by 2030.

But Hayman said he believes technology should help people and offer them support rather than replace them.

“In the industries AVEVA serves, there are so many areas of inefficiency that we are delivering improvement for without any replacement of labor. It is more about giving the people more tools to effectively do their jobs,” he added.

For example, Hayman said, a worker who is doing maintenance repair is given the tools to know more about the correct isolation procedures around this repair.

OECD’s 2019 report said the effect of digitization on labor will not be evenly distributed nor happen at a steady pace. “It is most likely to be concentrated in certain jobs, selected sectors and particular geographical areas, and may move in fits and starts,” the report adds.

While digital technology around the world began to witness a transformation in the last decade across different industrial sectors, the Middle East has become a major contributor to this transformation.

The UAE is among the top performers in the Middle East in terms of digital transformation in industrial sectors, Hayman said.

A 2016 report by McKinzy&Company also said the UAE ranks the top in adopting digital technology and it matches the world’s digital leaders on several metrics.

Hayman said he believes there is a strong digital ambition in the region. “I think some of the digital projects in the Middle East are starting to yield good results. We have seen this with customers like Al-Marai and Abu Dhabi National Oil Company (ADNOC).”

In the UAE’s oil and gas sector for example, there is ADNOC’s Panorama Digital Command Centre which is a real-time data visualisation centre that offers insights and identifies new ways to improve performance. “The Panorama Digital Command Centre is known around the world; that was an eight-week project for us almost two years ago,” Hayman said.

Abu Dhabi's Crown Prince Sheikh Mohamed bin Zayed Al Nahyan inaugurated ADNOC's advanced Panorama Command Centre and Artificial Intelligence (AI) platform on Nov 12, 2017. (WAM)

Saudi Arabia’s Aramco has also established tech projects such as “the use of robots and self-guided autonomous devices in remote inspection and maintenance in plant areas, and the installation of smart sensors with advanced analytic capabilities,” according to a 2018 report by Aramco.

When asked how much companies spend to digitize their services in the oil and gas sector, Hayman said about $250 billion a year was spent in capital expenditure in the oil and gas sector.

Saudi Arabia has adopted a digital transformation strategy that began in 2019 and is expected to conclude in 2022. The strategy’s “main components are digital health, digital education, e-commerce, and smart cities,” a 2019 report by the Saudi National Platform said.

On health, the Kingdom launched a telemedicine technology in which in 2019 it saved a million lives out of which 10,000 were critical, the Kingdom’s Minister of Communication and Information Technology Abdullah bin Amer Al-Swaha said in a panel discussion held in Davos at this year’s World Economic Forum.

Telemedicine is a technology that provides electronic clinical services to patients without an in-person visit.

In the digital education sector, Saudi Arabia established the Saudi Digital Library (SDL), which is said to be the largest collection of academic information resources in the Arab world, according to the Kingdom’s Ministry of Education. “SDL includes over 310,000 scientific references covering the different academic disciplines. The content of the library is continuously updated, providing huge resources of knowledge in the long run.”

When asked about the opportunities and challenges the digital trend creates for entrepreneurs, Hayman said if an entrepreneur can deliver technology in the context of trust and partnership, he or she is definitely moving on the right track.

A 2019 report by the World Economic Forum said digital technology can help the government and private sectors to create initiatives that form “a holistic global entrepreneurial ecosystem that enables sharing, learning and access to resources at a mass scale and at low cost.”