Frequently Asked Questions
- What are REITs?
- How can you invest in REITs?
- Who are REITs stakeholders?
- What are the main characteristic of REITs?
- What are the risks of REITs?
- What types of assets can REITs own and manage?
- What is the difference between REITs and Real Estate Investment Funds (REIFs)?
- What is the difference between REITs and Equity?
- What is the total trading commission of REITs?
What are REITs?
Real Estate Investment Traded Funds, known as “REITs”, are real estate funds that are traded as units in the capital market.
REITs enable all types of investors to invest in income generating real estate assets which are developed and ready for use.
Moreover, REITs are required to distribute a portion of their net income to unit holders in cash at least once a year.
How can you invest in REITs?
As with equities, there are two ways to invest in REITs:
- Upon IPO, when Investment funds are listed by REITs fund managers (Primary Market).
- After listing fund units in the market, where investors are able to buy fund units just like equities (Secondary Market).
Who are REITs stakeholders?
- The fund manager should appoint a licensed custodian entitled to retain fund assets and any related documents in accordance to a written contract. A fund manager should also be independent, as it is not allowed for the designated custodian to be the fund manager or assistant manager of the fund.
- The designated custodian should separate all REIT’s assets from any personal assets or other clients’ assets. All records needed to support performances of contractual responsibilities should be maintained, and separately allocated by registering all securities and other assets of the investment fund under the name of the custodian of the same investment fund. REITs assets are registered under the name of a company affiliated to the custodian. Furthermore, REITs assets should be collectively owned by shareholders of this fund.
- A fund manager is obligated to assign a specialized real estate management company after obtaining all approvals from relevant government authorities. This is to manage real estates allocated for investment. This company should have necessary expertise in managing real estate, and should be responsible for executing property management activities including, but not limited to, property management, property maintenance, and leasing services and collection.
What are the main characteristic of REITs?
- Liquidity (flexibility): REITs are listed on stock exchanges and traded throughout the trading times and dates.
- Low initial cost for real estate investments.
- Regular distribution of cash dividends based on clear, specific, and governing rules and regulations.
- High transparency: REIT issuers must abide by stringent disclosure and continuous obligations requirements.
What are the risks of REITs?
For more information regarding REITs risks, please read the REIT prospectus and terms & conditions (T&Cs).
What types of assets can REITs own and manage?
REITs can own residential and commercial facilities ranging from small offices to big malls, warehouses, health facilities, hotels, and so on.
REITs can also invest locally, regionally, and globally in accordance with rules and regulations issued by the regulator (the Capital Market Authority). However, a REIT total value of the real estate assets outside the Kingdom of Saudi Arabia should not exceed 25%.
What is the difference between REITs and Real Estate Investment Funds (REIFs)?
- REITs are flexible to buy and sell, while REIFs are more complicated in terms of subscription and liquidation.
- REITs are highly transparent compared to REIFs.
- A REIT is obligated to distribute 90% of its net income annually, while a REIF is not obligated to distribute any percentage of its net income.
What is the difference between REITs and Equity?
|IPO||Yes: through units||Yes: through shares|
|Trading||Traded on the equity market during trading hours||Traded on the equity market during trading hours|
|Dividends||Through rents paid by tenants, and distributed by the fund manager annually||Through dividends which are decided to be paid to shareholders by the general assembly of the company|
|Profits||90% of net income is to be distributed||No obligation of profit distribution|
|Liquidity||Continuously traded during trading hours||Continuously traded during trading hours|
What is the total trading commission of REITs?
The total trading commission of REITs is the same as equities market, which is 15.5 bps on each trade with no minimum commission.