REIT Funds, in Saudi Arabia 2021, an Overview

REIT funds listed, in the Kingdom of Saudi Arabia, have taken over real estate units, worth as much as over SR2.2 billion, since the beginning of the year, through to August, Al Jazira Capital reported.

The units situated at various sectors, including warehouses, education, hotels, apartments and offices.

Some Reit funds aim at diversifying their portfolios, through concentration on much more sectors with proven resistance, such as the health care and education sectors.

Increasing investment via REITs is a positive indicator for the sector, especially following the slump last year, as more REITs bet on expanding their portfolios as they also expect the opportunities to increase, following the recovery, back to the levels seen before the pandemic.

Saudi Reits provide better returns for the investors compared to world counterparts, as their profit dividends stood at 4.51 per cent, based on the 2020 indicators, in comparison to the world figures.

The wold Reits provide less than 100 basis points compared to the Saudi Real Estate Investment funds.

For example, Moran Stanley Reit Profit Index for the emerging markets and the World S&P posted 2.78 and 3.24 per cent, respectively, while the profit dividends in the Morgan Stanley Reit indices-USA  and Europe’s FTSE for the European Reit, stood at 3.06 per cent and 2.78 per cent, respectively.

Moreover, Al Jazira Capital expect the Saudi Reit funds to improve their dividends, due to the continuous recovery of the economy.

In addition to expecting the real estate market to continue showing rising demand, in the short as well as the medium runs, backed by the Kingdom Vision 2030, a fact that would provide the local Reits with furthermore growth opportunities and consequently, guarantee their ongoing worldwide excellence.

With the gradual mitigation of curbs imposed to limit the outbreak of the Coronavirus, re-opening of malls and other retail shops, it is likely that the Reits would experience improvement in their rental reveneus.

Besides, crossing through world border following the opening and allowing foreigners from prescribed countries’ entry, are indications of the travel, tourism and hospitality sectors, subsequently backing up real estate funds with investments, in the aforementioned sectors.

In general, decreased interest rate at the real estate funds, would allow more borrowing to bolster their financial positions and to continue their strategic expansions, through taking over more new assets.

There are as many as 17 real estate fund, listed in the Saudi financial market, consequently it is necessary to assess their attraction and appeal to the public, in order to classify them based on the assessment and operational standards.

Similarly, the significance of geographical and sectorial diversification of the funds and the shares’ liquidity have been taken into consideration, too.

Based on the weighted rating, there are specific Reits among the best options, in the sector, Al Jazira Capital added.

However, due to the pandemic adversely impact on the profit, about 15 Reit out of 17 have decreased the percentage of profit dividends, in 2020, except Al Rajhi Reit which has increased its dividends, while Jadwa fund remained flat.

A host of other funds refrained to distribute the dividends, out right. Henceforth, the average of profit dividends decreased across the sector to 3.9 per cent, in 2019.

But, with the signs of recovery in the rent revenues, in the first half of 2021, and due to the improved expectations in the second half of 2021, the Reits dividends distribution for the real estate units’ owners are to rise, putting the average dividends, in the sector at 4.5 per cent, in 2021 and to move up to 5.2 per cent, in 2022, based on the current local market data, subsequently, much more better returns would be at the avail of those pursuing furthermore income.

Al Jazira Capital concluded that some real estate funds, in general, and REITs, in particular, are likely to realize dividends rates at 6+ per cent, while some of the would greatly benefit from their taking over latest deals.