Real Estate Investment Traded Funds – REITs
What are Real Estate Investment Traded Funds (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. REITs consist of units, where each unit represents ownership in the underlying real estate. REITs are traded on the Exchange just like equities during trading hours. In addition, REITs are required to distribute at least 90% of the fund’s net profits to the unit holders annually, as per the instructions issued by the Capital Market Authority (the CMA).
With regards to control and supervision, similar to other investment vehicles, REITs adhere to the rules and regulations issued by the CMA. REITs also abide by the high standards of transparency and disclosure that are already applied in the current equity market.
Characteristics of REITs
- Conditional income: If they are profitable, REITs are required to distribute a minimum of 90% of the funds net profits annually to its unit holders.
- Additional investment opportunity and increased diversification.
- Easy to invest in as REITs are similar to equities.
- High transparency as REITs must disclose periodical financial statements similar to the other listed equities.
Listing & offering Requirements
|Fund Legal Type||Closed – ended fund|
|Number of Investors||Minimum 50 investors|
|Initial Offer||Minimum SAR 100 Million|
|Nominal Value per Unit||SAR 10 per unit|
|Assets Ownership||The assets must be registered under the name of third party (custodian) and owned by the unit holders|
|Distributions||At least 90% of the fund’s net profits must be distributed annually to the unit holders|
|Leverage||The borrowing of the fund's must not exceed 50% of the total assets value of the fund|
|Investment||At least 75% of the fund's total assets value according to the last audited financial statements must be invested in constructed developed real estate qualified to generate periodic and rental income|
|Vacant Lands||The fund manager is prohibited from investing in vacant lands|
|Real Estate Development||The fund manager is allowed to invest up to a maximum of 25% of the fund's total assets value according to the last audited financial statements in real estate development whether on real estates owned by the fund manager or not, and to renovate or redevelop these properties|
|Real Estate Outside the Kingdom||The fund manager shall not invest more than 25% of the fund's total assets value according to the last audited financial statements in properties outside the Kingdom|
|Public Ownership||At least 30% of the total REIT units are owned by unit holders from the public|