Saudi Arabia's Jadwa REIT acquires two properties in Makkah

The combined 148m riyal investment doubles the fund's portfolio

The housing programme is a welcome move that will help tackle the issue of affordable housing. Fahad Shadeed / Reuters

Saudi Arabia's Jadwa REIT Al Haramain has acquired two properties, doubling its portfolio as the sharia-compliant real estate investment fund looks to build the number of properties under management in the holy cities of Makkah and Madinah

The real estate trust fund, managed by the investment management and advisory firm Jadwa Investment, bought the properties for a combined value of 148 million riyals (Dh144.9m), the fund said in a statement on Saudi stock exchange (Tadawul) where it is listed.

“The acquisitions are a continuation of Jadwa REIT Al Haramain’s strategy to create value to its unit-holders by expanding its real estate portfolio into value add assets that benefits from the strong fundamentals of the two holy cities,” according to the statement.

A number of real estate companies and investment houses have set up real estate investment trusts (reits) in the kingdom in the last few years as financial regulators have allowed them to traded publically. The investment vehicles, which trade on a bourse like a share, invest in income yielding properties and distribute dividends to reit-holders.

Jadwa REIT bought a hospitality property close to the Grand Mosque in Makkah, primarily used for Haj and Umrah pilgrims for 125m riyals, , which will be financed through an existing Islamic debt facility, it said without giving details.

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The property is leased for eight million riyals and carries an initial acquisition yield of 6.6 per cent. The lease term on the asset, which the fund has purchased from a “related party”, will end in August 2021.

The fund has also acquired a retail property, also in close proximity to the Grand Mosque, for 23m riyals, which offers an initial acquisition yield of 6.7 per cent, according to the statement.

The new acquisitions are expected to increase the investment vehicle’s funds from operations by 11 per cent in 2018, compared to the pre-acquisition estimates and it will be “positively” reflected on future dividends distributions.

The REIT Al Haramain, which was launched through an initial public offering in April this year with an initial size of 660m riyals, has also acquired Tharawat Alandlusia Hotel and Tharwat Altaqwa Hotel during the same month.

Saudi Arabia’s Al Rajhi Capital is among the latest investment management companies to launch the IPO of its Al Rajhi REIT Fund. The public offering for 42.67 million units of the fund, priced at 10 riyal each, will open between January 1 to January 14, according to an Al Rajhi bourse filing.

Musharaka REIT Fund, which raised US$95.1m was the biggest IPO on Tadawul in the third quarter of this year, while Al Maather REIT Fund, valued at $49.7m was the other real estate investment vehicle to go public during the quarter, according to an EY report.