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While discussing different investment options for expats in Saudi Arabia, we also talked about investing in REITs. There are 19 REITs registered on the Saudi stock exchange but here we will discuss the 4 best of them.
What is a REIT?
The Real Estate Investment Trust (REIT) is a company that owns real estate properties, rents them out to different tenants, collects money from them, and distributes the income to its shareholders.
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Buying a REIT is as good as buying a real estate property in Saudi Arabia, with the added benefit of selling it whenever you want. Here are the four best REITs to invest in the Saudi stock exchange.
Bonyan REIT Fund
Bonyan REIT, with the symbol 4347, is my favorite REIT to buy in the Saudi stock market for many reasons, as explained below.
Portfolio: Bonyan REIT targets smaller areas such as Rashid Mall in Abha, Rashid Mall in Madina, and Rashid Mall in Najran.
If you travel throughout the country, you might have noticed that these smaller areas appreciate value, which is also reflected in their books. You rarely find any impairment recorded in the preceding five years.
They focus on smaller cities, with limited entertainment opportunities in those cities, so they will continue to get a higher yield.
Level of Debt: Bonyan REIT has a minor level of debt among the 4 REITs we are discussing here.
Management: The management of Bonyan REIT is Saudi Fransi Capital which has a good reputation in the market.
Dividend Yield: The average dividend yield of Bonyan REIT in the preceding five years is around 5% to 6%.
Al Ahli REIT Fund 1
The second best REIT to buy in the Saudi stock exchange is the Al Ahli REIT fund 1 with the symbol of 4338 due to the reasons explained below;
Portfolio: Al Ahli REIT fund 1 owns Andulas Mall in Jeddah, Andulas Hotel in Jeddah, one office building in Jeddah, and another in Riyadh. The allocation of Andulas Mall in their total portfolio is around 70%.
They don’t raise funds from investors to buy property. Instead, they mortgage the current property, obtain loans and go for another property. As they do not buy properties too often, you will find almost no impairment in their books.
Level of Debt: Al Ahli REIT fund 1 has a high amount of debt on its balance sheet, but it is mainly because they are not raising more funds from its shareholders, which is a good sign. Once these properties’ mortgages are paid off, the REIT will all own them.
Management: Al Ahli REIT fund 1 is with Al Andulas Property Company which also owns a 69% share of the REIT.
Dividend Yield: The average dividend yield of Al Ahli REIT fund 1 in the preceding five years is around 5% to 6%.
SEDCO Capital REIT
Our third pick among the REITs listed on the Saudi stock exchange is SEDCO Capital REIT, with the symbol 4344.
Portfolio: SEDCO Capital REIT mainly focuses on entertainment projects, such as Adjan Walk in Khobar and Atelier La Vie in Jeddah, that account for around 45% of their total assets. These places have high-end restaurants and cafes where young girls and boys love to go; therefore, this area will continue to thrive.
The remaining 55% of the portfolio is in comparatively safer assets such as office buildings and schools. As they keep adding more assets into their portfolio, you often find heavy impairment costs in their financial statements.
Level of Debt: SEDCO Capital REIT continuously expands by taking more money from the public. This is precisely opposite to what Al Ahli REIT 1 has been doing. Their debt levels are manageable as they prefer raising money from investors by secondary offering rather than going to banks.
Management: SEDCO Capital REIT is managed by the well-known SEDCO group, which owns 12% of the company.
Dividend Yield: The average dividend yield of SEDCO Capital REIT in the preceding five years is around 5% to 6%.
Alinma Hospitality REIT
The fourth best REIT in our Saudi Stock Exchange portfolio is Alinma Hospitality REIT with the symbol of 4349 due to the reasons explained below.
Portfolio: The portfolio of the Alinma Hospitality REIT comprises of 3 hotels in Riyadh and 2 in Jeddah. All these hotels are newly built and rented to different companies on a long-term contracts.
Level of Debt: They are running with zero debt at the moment which gives them a competitive edge over other REITs because they have the margin to expand by taking loans.
Management: Alinma Hospitality REIT is managed by Alinma Investment, which owns 10% of the company.
Dividend Yield: The average dividend yield of Alinma Hospitality would be the highest in the industry due to zero finance cost.
What is Impairment?
If the value of real estate purchased by the REIT is below the asset’s market value, REITs are required to book it as a loss in the financial statements.
Remember that REITs incur around 8% to 10% as a transaction cost when they buy any property in Saudi Arabia. Once the property purchase is complete, they must immediately book the transaction cost in the financial statements.
Therefore, if you find a heavy impairment expense just after the purchase of a property by a REIT is complete, ignore it.
Disclaimer
All the information presented above is for educational purposes only, not investment advice. Therefore, investors are required to do their own research before they invest in any of these stocks. We are not responsible for your loss caused by any of the above-mentioned information.
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