Interview: 2018 will be ‘active’ year for Saudi REITs

Activity in Saudi Arabia’s real estate investment trusts (REITs) market is set to gain pace this year, given the Capital Market Authority granting approval for listing of up to seven REITs on Saudi Stock Exchange (Tadawul) in the past two months, Raya Majdalani, Research Manager, Knight Frank, told Argaam in an exclusive interview. Majdalani believes demand for REITs will remain solid in the Kingdom as it offers liquidity and easy access to real estate investments, exposure to institutional quality commercial real estate as well as stable dividend income.

“The number of successful listings and the number of applications that are currently in the pipeline clearly show that Saudi Arabia has, in a short period of time, taken the lead over its GCC peers in terms of number of existing REITs in the market,” she added.

Below are excerpts from our interview with Majdalani.

Q: How do you perceive the REITs market in Saudi Arabia?

A: Following the implementation of a regulatory framework paving the way for the use and the listing of REITs in Saudi Arabia, the market has been buoyant with the listing of nine REITs on the Tadawul in just over a year. This rapid take-up shows appeal for the asset class including a growing interest from capital houses and asset managers to set up REITs as well as a strong demand for exposure to the real estate sector via a REIT structure. While we believe, this bodes well with a real need for investing capital in the kingdom’s real estate market, it is certainly still early to judge the ramifications of the REIT market on the wider real estate market.

Q: Do you think Saudi Arabia has taken the lead over its GCC peers in launching REITs?

A: The number of successful listings and the number of applications that are currently in the pipeline clearly show that Saudi Arabia has, in a short period of time, taken the lead over its GCC peers in terms of number of existing REITs in the market.

Looking at the UAE, there are currently two REITs listed on the Nasdaq in Dubai. In Abu Dhabi, the first REITs were established as private REITs on the ADGM in 2017.  In the UAE, the uptake of the REIT market has, so far, been relatively soft (despite that a legal framework has been in place for over 10 years in the DIFC) implying a significant room for more REITs launching and listing in the market.

Q: Do you see demand rising for REITs in the Kingdom?

A: In Saudi Arabia, nine REITs have been listed on the Tadawul in just over a year, and we have seen most REITs initially trading at a high premium to NAV, which reflects pent up demand for exposure to the real estate sector via a REIT structure.

Going forward, we believe that demand for REITs will remain solid in the kingdom given the benefits that REITs offer to investors including: liquidity and easy access to real estate investments;  exposure to institutional quality commercial real estate a sector that is typically illiquid and has large minimum entry requirements; effective tool for portfolio diversification; stable dividend distribution noting that Saudi REITs are required to distribute a minimum of 90 percent of their profits as dividends to shareholders and potential capital appreciation.

Q: Do you expect more REITs to be launched this year?

A: There is potential for more REITs to be launched this year in Saudi Arabia given the important number of application that are currently in the pipeline. In the last two months, the Capital Market Authority has announced the approval to list up to seven REITs on the Saudi Stock Exchange (Tadawul), which indicates that the appetite is still strong for capital houses, financial institutions and asset managers to establish, launch and list REITs in Saudi Arabia.

In this context, 2018 is likely to be another active year for REITs in the Kingdom.

Q: Are you advising any Saudi companies to launch REITs?

A: We are involved with a number of existing and new REITs, across our advisory service lines.