KSA Reits Landscape 2020

KSA REITs Landscape 2020

AGM-Head of Research Senior Analyst Talha Nazar Jassim Al-Jubran +966 11 2256250 +966 11 2256248 [email protected] [email protected] KSA REITs Landscape November 2020

Table of Contents

Executive Summary ...... 3

KSA REITs vs. global peers ...... 4

REITs liquidity as a parameter ...... 5

KSA REITs sector registers losses in H1-20 ...... 6

Scoring mechanism: ...... 7

REITs performance scorecard ...... 11

REITs market data ...... 12

MEFIC REIT ...... 13

Mulkia - Gulf Real Estate REIT ...... 14

Musharaka REIT ...... 15

AlAhli REIT Fund 1 ...... 16

Bonyan REITS ...... 17

Derayah REIT ...... 18

Al Masha’ar REIT ...... 19

AlMa’athar REIT ...... 20

Taleem REIT ...... 21

Al Rajhi REIT ...... 22

Executive Summary

• KSA economy contracts in Q2-20 but outperforms peers: Saudi Arabia’s GDP contracted 7.0% in Q2-20, as the economy was hit by restrictions to contain the spread of COVID-19 and the sharp decline in oil prices. However, the economy was more resilient than those other emerging markets such as Turkey, Brazil, South Africa, and India, which contracted 9.0%, 11.4%, 17.2%, and 23.5%, respectively. After the restrictions were lifted toward the end of June, economic activities started gaining momentum; oil prices have also recovered to some extent. The economy is expected to perform better in H2-20. As per IMF, KSA’s GDP is forecast to contract 5.4% in FY20 and grow 3.1% in FY21.

• COVID-19 adversely impacts REITs: To restrict the spread of COVID-19, Saudi Arabia began gradually imposing lockdowns on March 25, 2020, starting with major cities such as Riyadh, Mecca, and Medina. International and domestic flights were grounded from mid-March, and Umrah and Hajj visits were also suspended. The standstill in

economic activity impacted all sectors, particularly the retail, commercial, and hotel sectors, and weighed on rental

income received by REITs from these sectors. However, operating expenses remained high, thus significantly dragging the profits. Most of the funds offered discounts or revised rents to clients hit by the lockdowns. Financial pressure due to the pandemic trickled down into lower dividend payments from REITs. Dividend payments for H1- 20 from KSA REITs declined 34% Y/Y, with Al Rajhi REIT being the only fund recording Y/Y increase in amount of cash dividend paid.

• REITs remains a good investment option amid lower interest rates: SAMA reduced the repo rate by 125bps in March to enable the economy to fight against COVID-19. As of October 25, 2020, the 3M SAIBOR stood at 0.85%, down 138bps YTD. Amid low interest rates, the TASI REITs sector, with current dividend yield at 5.8%, remains a good investment option for investors seeking regular income.

• Subdued real estate sector adds to REITs’ concerns: In 9M-20, transaction volumes in Saudi Arabia’s real estate market decreased 28% compared with the same period a year earlier, with the total value of residential transactions down 38% Y/Y over the same period. As the real estate market and REITs’ performance are directly proportional, REITs sector is expected experience continued pressure. However, the government’s efforts to promote affordable real estate and replacement of 15% VAT with 5% transaction tax should boost the residential and commercial real estate sectors. This in turn should benefit the REIT funds exposed to these sectors.

• Ranking the REITs universe: The TASI universe includes 17 listed REITs; it thus becomes imperative to evaluate the attractiveness of the REITs and rank them based on the valuation and operational parameters. Valuation parameters such as price-to-funds from operations (FFO), implied cap rate, and expected dividend yield and operational parameters such as FFO pay-out ratio, asset growth rate, lease contracts’ quality and

strength, and borrowing-to-total assets. Moreover, the sectoral and geographical diversifications of the funds and liquidity of stocks were also given due importance.

KSA REITs vs. global peers

As mentioned above COVID-19 outbreak has negatively impacted dividends from KSA REITs. TASI REITs index dividend yield declined to 5.8% as of September 2020 from 6.2% at the end of FY19. However, in comparison with global and developed markets REIT indices, KSA REITs still provide better dividend yield to investors. As of September 2020, dividend yield for global REIT indices such as MSCI World REIT and S&P Global REIT stood at 3.47% and 4.46%, respectively, while REITs in the US (MSCI US REIT) and Europe (FTSE EPRA Nareit Developed Europe Index) had dividend yield of 3.79% and 4.13%, respectively.

Global REITs indices - Dividend yields 7.0%

6.0% 5.80%

5.0% 4.46% 4.13% 3.79% 4.0% 3.47% 3.0%

2.0%

1.0%

0.0% MSCI World MSCI US REIT S&P Global REIT FTSE EPRA TASI REIT REIT Nareit EuropeIndex

Source: MSCI, S&P, FTSE Russell, Bloomberg, Aljazira Capital Data as of September 30, 2020

As it stands in October 2020, KSA has shown more resilience to the spread of COVID-19 in comparison with most of other countries. Economic activities are gaining back momentum in KSA, thus rental income for REITs is expected to improve in near future. This should reflect in increased dividend yields as well. On other hand, the US and Europe are facing probable second wave of the pandemic. Hence, KSA REITs prospects look better compared to their global peers.

REITs portfolio distribution

TASI REITs Index MSCI US REITs Index 5.6% 0.3% 9.9% Apartments Specialized 3.2% 11.5% Commercial Residential 10.0% 4.7% Educational 26.6% Industrial Hotels Health Care 12.7% 10.9% Offices Retail Retail Diversified 9.7% 42.5% 11.5% 17.7% Warehouses Hotels 7.7% Industrial 15.5% Offices

Source: MSCI, Argaam, Aljazira Capital

TASI REITs Index has maximum concentration of assets in Commercial sector at 42.5% of total assets, followed by Offices (12.7%) and Apartments (11.5%). Whereas, MSCI US REITs Index has highest contribution from Specialized REITs at 26.6%, followed by Residential (17.7%) and Industrial (15.5%) sector.

REITs liquidity as a parameter We analyzed activity, width, and changes in the ease of entering and exiting a trade during times of illiquidity in the Saudi Arabian REITs market. We ranked the 17 listed REITs by the average turnover over the last 6 months to gauge the ability of stocks to absorb a large buy or sell order. AlJazira REIT stood at the top of the table indicating a good liquidity in the stock. The downside deviation measures the extent of a drop in a REIT’s trading activity when the REITs market is experiencing a downward movement in liquidity. The downside deviation measure looks as how distant a drop in a REIT’s trading activity is only when the total REITs market is experiencing a drop in liquidity. A lower figure is more favourable as a participant in a REITs transaction can expect a lower drop in trading activity when the market is down. At the end of that scale Taleem and Bonyan experience the quickest dryness when trading in the REITs market is contracting.

Taleem and Bonyan experienced maximum deviation when trading in the REITs contracting market. Spread cost indicates how much one would pay to come in and out of a trade instantly. A lower spread percentage indicates that the market is at a consensus as to what the REIT’s price is. A higher spread price is an indicator of an illiquid asset as lower participation leads to inefficient price discovery and therefore would increase trading costs if a participant were to want to exit or enter a trade quickly as the market price would be farther from the closest price the counterparty would be willing to buy or sell at.

Most Active by Daily Turnover Downside Deviation Spread Cost Average 6 Downside Bid-Ask REITs M Turnover REITs Deviation REITs Spread to (SAR mn) Price MEFIC AB Equity 1.90% ALJAZIRA AB Equity 18.4 ALRAJHI AB Equity (R1) 0.17% ALJAZIRA AB Equity 1.94% MEFIC AB Equity 15.4 MEFIC AB Equity (L1) 0.18% DERAYAHR AB Equity 2.18% JADWA AlHaramain AB Equity 7.4 MUSHREIT AB Equity (R1) 0.19% SEDCO AB Equity 2.24% MUSHREIT AB Equity 6.1 DERAYAHR AB Equity (R1) 0.19% ALRAJHI AB Equity 2.25% JADWA AlHaramain AB Equity MAATHER AB Equity 5.5 (R1) 0.21% RYDREIT AB Equity 4.8 MASHAAR AB Equity 2.33% RYDREIT AB Equity (R1) 0.22% SWICORP AB Equity 4.2 RYDREIT AB Equity 2.34% SWICORP AB Equity (L1) 0.23% ALKHABEE AB Equity 4.1 MUSHREIT AB Equity 2.39% AL KHABEE 0.23% DERAYAHR AB Equity 4.1 ALAHLI AB Equity 2.42% ALJAZIRA AB Equity (R1) 0.24% JADWAREI AB Equity 3.8 JADWA AlHaramain AB Equity 2.44% MAATHER AB Equity (R1) 0.25% MASHAAR AB Equity 3.6 MAATHER AB Equity 2.48% MULKIA AB Equity (R1) 0.25% ALRAJHI AB Equity 3.4 SWICORP AB Equity 2.53% ALAHLI AB Equity (R1) 0.26% TALEEM AB Equity 3.1 JADWAREI AB Equity 2.61% MASHAAR AB Equity (R1) 0.31% MULKIA AB Equity 1.8 ALKHABEE AB Equity 2.67% SEDCO AB Equity (R1) 0.32% ALAHLI AB Equity 1.8 MULKIA AB Equity 2.77% JADWAREI AB Equity (L1) 0.36% BONYAN AB Equity 1.1 BONYAN AB Equity 2.88% BONYAN AB Equity (L1) 0.39% SEDCO AB Equity 1.0 TALEEM AB Equity 3.07% TALEEM AB Equity (L1) 0.42% Source: Argaam, Aljazira Capital Research Source: Argaam, Aljazira Capital Research Source: Argaam, Aljazira Capital Research

16.00 14.00 Value Traded Averages 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Value Traded (Mn) Alahli MEFIC Taleem Bonyan SEDCO Derayah Al-Jazira Alkhabeer Al Maather Musharaka Mulkia Gulf Al Mashaar Riyad REIT Jadwa Saudi Al Rajhi REIT Jadwa Alhara Swicorp Wabel

10M-2019 10M-2020 2020 10M Average

KSA REITs sector registers losses in H1-20

REITs’ H1-20 earnings performance in Saudi Arabia was negatively impacted by the lockdowns imposed during Q2-20 to control the spread of COVID-19. In H1-20, the sector recorded a net loss of SAR 116mn as against the net profit of SAR 307mn in H1-19. Of the total 17 REITs, 6 recorded losses during the period, with the SWICORP WABEL REIT posting the highest net loss of SAR 141mn. The sector’s bottom line was impacted by lower rental income (-4% Y/Y; SAR 705mn), higher operating expenses, and provisions against impairment in real estate investments (SAR 334mn). Funds for operations also declined 13% Y/Y to SAR 404mn.

Fig. 3: REITs H1-20 financial performance

Net proﬁt/loss (SAR mn) Bonyan REIT MEFIC REIT Al Rajhi REIT Jadwa REIT Saudi SWICORP WABEL REIT DERAYAH REIT SEDCO CAPITAL REIT AlAhli REIT 1 JADWA REIT ALHARAMAIN MASHAAR REIT MULKIA REIT AL Maather REIT TALEEM REIT MUSHARAKA REIT ALKHABEER REIT ALJAZIRA REIT RIYAD REIT -150.0 -100.0 -50.0 0.0 50.0 100.0 150.0

Source: Tadawul, Argaam, Aljazira Capital

The TASI REITs index performance reflected the adverse effects of the COVID-19 outbreak and subsequent precautionary measures. The sectoral index plummeted by around 20% from 4,369.4 points at the beginning of February to 3,501.8 points in May. The REITs most exposed to the hospitality and retail sectors and had presence in Mecca and Medina regions were the most impacted. However, the index recovered with the decrease in the number of new COVID-19 cases and subsequent gradual resumption of business activities. As of October 25, 2020, the TASI REITs index stood at 4,139.0 points, representing approximately 75% recovery from the fall witnessed since the COVID-19 outbreak.

Fig. 4: TASI REITs Index – Performance since the COVID-19 outbreak

4,800

4,500

4,200

3,900

3,600

3,300 Jul 2020 Apr 2020 Oct 2020 Jun 2020 Feb 2020 Mar 2020 Aug 2020 Sep 2020 May 2020

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Scoring mechanism:

As of November 2020, 17 REITs were listed on the Tadawul Index. Each REIT was tested on nine quantitative parameters, each parameter carrying a distinguished weight. The parameters were chosen based on two factors: valuation attractiveness and operational efficiency.

Valuation Operational Attractiveness Efficiency

FFO payout ratio Price/FFO Ranking: Ranking: REIT with higher and consistent FFO This will test the pricing attractiveness of payout ratio attracts higher investments. the REIT. It is an indication as to how many Higher the ratio better the ranking years it will take for REIT to earn enough to pay back what one pays as a price. Asset growth The REIT with lower ratio will be given the better ranking Ranking: Higer ratio better ranking. Higher asset growth suggests better net operating income over the coming years Implied cap rate Ranking: Borrowings/Total Assets This ratio represents the cap rate that would Ranking: result in an NAV equal to REIT’s stock price. Lower the borrowing ratio better the Higher the ratio better the ranking ranking as we assume the fund has more scope to expand with future borrowings

Dividend yield Lease contract strength Ranking: Ranking: Investors will be enticed to deploy funds Longer lease tenure suggest stable inflows wherein higher dividend is expected on through the years. Higher the tenure, every riyal invested. Hence, higher expected better the ranking. dividend yield, better ranking

Quality of contract Liquidity Ranking: Ranking: There are few funds which have Investor would prefer more liquid stocks as executive bonds for most lease periods they provide flexibility to investors to get in and and these executive bonds raise the out of the stock at their will. quality of contracts.

Ranking Methodology:

• Price-to-FFO: The pricing attractiveness of a REIT was tested based on the ratio of its CMP to the funds it has generated for a given period (FFO). FFO is a measure of the cash generated by a REIT; companies engaged in real estate use FFO as an operating benchmark. A REIT trading at a lesser market price for a given FFO per share is preferred. MEFIC REIT is the most attractive fund in the sector from this perspective as it is trading at the lowest P/FFO of 9.0x.

• Implied Cap Rate: The implied cap rate indicates the yield of net operating income (NOI) produced at a certain share price. It is used as a benchmark for an investment decision, and also as a hurdle rate by a REIT manager to constitute a property portfolio. The REIT that generates the highest yield of NOI at its current market price is preferred. The MEFIC REIT is the most attractive fund in the sector from this perspective due to its implied cap rate of 13.0%. 7 © All rights reserved KSA REITs Landscape November 2020

• FFO pay-out ratio: The FFO payout ratio is calculated by taking a REIT’s current annual dividend rate and dividing it by its FFO per share. It is a useful metric for analyzing a REIT’s ability to cover its dividend payments. A payout ratio above 100% indicates that the REIT’s current dividend is higher than its cash income from operations, and the REIT may need to pull from its cash reserve to help cover the dividend. Although a payout ratio above 100% in the short term is not necessarily a concern, it is not sustainable in the long term; therefore, the REIT’s dividend payment plan may require adjustments. However, we preferred a REIT that tends to have a high and consistent payout ratio. Thus, Alkhabeer REIT with a payout ratio of 175% has been given the highest ranking under this parameter.

• Dividend Yield: REITs is an asset class that distributes almost all of its earnings in the form of dividends. It is therefore imperative to evaluate the dividend yields of different REITs. The dividend yield is an estimate of the dividend-only return of a stock investment. Preference was given to the fund with the highest dividend yield. In the current scenario, the MEFIC REIT scored the highest with a yield of 8.0%.

• Asset Growth (Y/Y%): The funds invested in portfolios registering the highest asset growth on a Y/Y basis were preferred. Increase in asset size implies rise in net operating income, which eventually helps in generating better valuation. Al Rajhi REIT has been rated highest in this parameter due to its asset growth of 35.6% Y/Y.

• Borrowings/Total Assets: As per regulations, REITs cannot borrow funds valuing more than 50% of its total assets. Hence, while determining the ranking, preference was given to funds that had not borrowed large sums and thus had scope for future expansion on the basis of available leverage. Al Masha’ar and AlJazira REITs have no debt and thus ranked higher.

• Lease Contract Strength: In an economy such as KSA, investors seek continued and sustainable returns from REIT asset classes. To offer such sustainability, it is important for REIT portfolios to include properties that have long lease impending contracts and where inflows are not an issue. The Al Masha’ar is the REIT having longest outstanding lease tenure, hence given the highest rank in this bracket.

Outstanding lease tenure Period 1 to 4.99 Years 5 to 9.99 Years Above 10 Years

Score 1 2 3

• Quality of Contract: A few funds hold executive bonds for most lease periods; such bonds raise the quality of contracts. Musharaka, Alkhabeer, AlMasha’ar, and Jadwa AlHarmain hold such executed contracts.

• Liquidity: We ranked the listed REITs by the average turnover over the last 6 months to gauge the ability of stocks to absorb a large buy or sell order. AlJazira REIT stood at the top of the table with highest average 6M turnover. We also took downside deviation and spread cost into account while ranking REITs on liquidity.

To evaluate the qualitative aspect of REITs, individual real estate REIT portfolios need to be understood. The REITs are judged on the basis of their concentration risk. Thus, it is imperative to identify and analyze the diversification of each REIT in terms of sectors as well as geography. In an ideal scenario, REITs with the most diverse portfolios are given the highest ranking, and those with extreme concentration in a particular sector or geography may not receive a high ranking.

Real Estate Portfolio: sector and geographic distribution REIT Apartments Commercial Offices Hotels Industrial Educational Warehouse Retail Riyad REIT √ √ √ √ √

Jadwa REIT AlHaramain √ √ √

AlMa'ather REIT √ √ √ √ √ √

Musharaka REIT √ √ √ √

Mulkia - Gulf Real Estate REIT √ √ √ √ √

AlMasha’ar REIT √ √

AlAhli REIT 1 √ √ √ √

Derayah REIT √ √ √ √ √ √ √

SWICORP WABEL REIT √ √

Jadwa REIT Saudi √ √ √ √ √ √

AlJazira REIT √ √

Taleem REIT √

SEDCO CAPITAL REIT √ √ √ √ √

Al Rajhi REIT √ √ √ √ √

MEFIC REIT √ √ √ √ √

Bonyan REITS √ √ √ √

Alkhabeer REIT √ √ √ √

Source: Argaam, Aljazira Capital Research

REIT Riyadh Jeddah Khobar Dammam Mecca Jubail Other Riyad REIT √ √ √ √ Washington, San Francisco

Jadwa REIT AlHaramain √

AlMa'ather REIT √ √ Unaizah

Musharaka REIT √ √ √ √ Al Kharj, Dubai

Mulkia - Gulf Real √ √ √ Khamis Mushayt Estate REIT

Al Masha’ar REIT √

AlAhli REIT 1 √ √

Derayah REIT √ √ √ √ √ Al-Hasa

SWICORP WABEL REIT √ Hafr Al-Batin, Tabuk, Dawadmi

Jadwa REIT Saudi √ √ √

AlJazira REIT √

Taleem REIT √

SEDCO REIT √ √ √ √

Al Rajhi REIT √ √ √ √ Khamis Mushayt

MEFIC REIT √ √ √ Dubai

Bonyan REITS √ Dubai, Abha, Medina, Jazan

Alkhabeer REIT √ √ Tabuk

Source: Argaam, Aljazira Capital Research

REITs performance scorecard | parameters Asset Implied FFO Borrowings/ Lease REITs Price/ Dividend Payout growth contract Quality of Liquidity Weighted FFO Cap Rate yield Total Assets contract Rank ratio (Y/Y %) strength

Weight 10% 15% 25% 7.5% 7.5% 5% 10% 10% 10%

MEFIC REIT 9.0x 13.0% 8.0% 72.3% -0.4% 35.9% 2.2 0 1 1

Mulkia REIT 16.5x 6.4% 7.8% 114.3% 34.4% 33.3% 2.4 0 0 2

Musharaka REIT 16.7x 10.8% 7.9% 123.3% -1.8% 30.1% 1.3 1 1 3

AlAhli REIT 1 16.6x 6.8% 7.6% 113.5% 33.2% 26.3% 1.7 0 0 4

Bonyan REIT 14.5x 8.0% 7.2% 108.5% -0.2% 8.6% 2.3 0 0 5

Derayah REITS 13.9x 6.6% 6.9% 99.2% 1.2% 37.4% 1.6 0 1 6

AlMasha’ar REIT 14.9x 7.1% 6.6% 95.8% -5.4% 0.0% 3.0 1 0 7

AlMa'athar REIT 13.3x 9.0% 6.8% 93.9% 4.7% 9.4% 1.5 0 1 8

Taleem REIT 15.6x 7.6% 5.4% 80.1% 20.4% 15.3% 3.0 0 0 9

Al Rajhi REIT 21.5x 4.7% 7.1% 100.5% 35.6% 33.8% 1.9 0 0 10

Jadwa AlHaramain 16.6x 6.9% 6.3% 93.3% -10.8% 24.6% 2.5 1 1 11

Jadwa Saudi REIT 15.6x 5.7% 5.6% 101.6% 4.0% 7.4% 1.6 0 0 12

SEDCO REIT 17.6x 4.6% 7.4% 116.7% -10.0% 46.4% 2.0 0 0 13

Alkhabeer REIT 30.4x 5.1% 6.8% 174.6% -0.9% 36.9% 1.5 1 0 14

SWICORP WABEL REIT 24.1x 2.8% 6.1% 128.2% -12.7% 0.8% 2.0 0 0 15

Riyad REIT 16.2x 4.7% 6.1% 91.0% 19.7% 28.9% 1.4 0 1 16

AlJazira REIT 41.0x 1.8% 2.8% 164.3% -8.4% 0.0% 1.0 0 1 17

Note: Price to FFO and Implied Cap rate are calculated on the basis of reported figures in the Annual Reports of the respective funds. Note: DividendYield is based on closing price of October 29th, 2020. 11 © All rights reserved KSA REITs Landscape November 2020

REITs Market Data Units Average 3M Market Book Market Dividend Debt value Borrowings/ Properties REITs (mn) turnover Cash Price value/Unit yield value value/Unit (mn) Total Assets (,000)

AlMa'athar REIT 9.30 9.14 9.43 7.9% 60.5 9% 61.4 596.5 12,272 15.2

Mulkia - Gulf Real 8.66 9.44 9.73 7.8% 340.8 33% 68.1 963 2,741 17.8 Estate REIT

Musharaka REIT 8.90 10.22 9.01 8.3% 402.1 30% 88.0 1,039.1 6,701.7 39.4

SWICORP WABEL 7.05 8.12 8.13 8.9% 8.5 1% 118.0 928.8 6,297.3 41.3 REIT

AlAhli REIT 1 8.56 9.63 9.6 7.8% 501.6 26% 137.5 1,817.1 3,398.4 6

AlMasha’ar REIT 7.65 9.59 9.59 6.8% 0.0 0% 57.2 539.7 8,252.6 8.5

Derayah REIT 10.64 9.01 9.22 7.3% 589.4 37% 107.5 1,463.7 6,006.2 12

Bonyan REITS 8.68 8.82 10.13 7.3% 149.8 9% 162.9 1,621.3 1,632.4 27.2

MEFIC REIT 7.00 9.68 9.89 7.3% 445.3 36% 73.3 939.9 28,130 8.3

SEDCO CAPITAL 8.94 9.24 9.63 7.5% 487.9 46% 60.0 1,007.2 1,430.5 26.1

Al Rajhi REIT 9.18 9.43 9.76 7.2% 791.3 34% 161.9 2,229 5,923.6 0.2

Jadwa REIT Saudi 13.00 9.59 11.18 7.0% 123.1 7% 158.0 1,592.6 12,146 25.4

Jadwa AlHaramain 7.24 8.31 9.55 7.0% 181.7 25% 66.0 709.9 12,146 16.3

Alkhabeer REIT 9.20 8.85 8.98 8.0% 364.3 37% 66.4 746.8 6,585 20.4

Riyad REIT 8.10 9.35 9.73 6.3% 689.3 29% 171.7 1,608.4 8,961.6 6.9

Taleem REIT 11.96 10.39 10.57 5.8% 98.9 15% 51.0 561.8 6,248.6 1.8

AlJazira REIT 17.28 8.85 8.07 4.3% 0.0 0% 11.8 102.7 32,963 0.7

Note: Dividend Yield is based on closing price of October 29th, 2020

MEFIC REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 13th Nov 2018 CMP (02nd Nov, 2020) SAR 7.10 Fund Size SAR 1,2300mn • Dividend: Semi Annual NAV/unit SAR 9.68 • Fund manager: Middle East Financial Investment Company Management Fee 0.35% • Major shareholder: Awj For Investment Co. 3M Average Turnover 27,856,178.68 • Foreign ownership: 0% FFO/unit 0.61 • 13th largest fund by Market Cap Divident Distribution FY19 0.63 SAR/Share Price/FFO 8.2x Fund performance (Rebased) P/E (REIT-TASI) 26.59 120 110 Total Revenue (TTM) SAR 54,460,000 100 90 Net Profit (TTM) SAR 1,428,000 80 70 Debt (H1-20) SAR 445.3mn 60 Occupancy Rate (%) 84% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 Mar-20 Feb-20 P/B 0.64 Nov-20 Nov-19 Dec-19 Aug-20 Sep-20 May-20 MEFIC REIT TASI Market Value of Assets/Unit 9.89 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

9.0% 5% 6% 8.0% 8.0% 12.0% 7.0% 16% 16.1% 6.0%

5.0% 71.9% 73% 4.0%

3.0% 2.8%

2.0% Commercial Hotle Apartments Dubai Riyadh Mecca Jeddah FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

MEFIC REIT MEFIC REIT took its place at the top of our scoring framework, and was mainly driven by its highly favourable Price to FFO ratio which stood at two standard deviations in the more favourable direction from its peers- Suggesting an undervaluation by the market considering its profitability. The fund also lead its peers with an implied cap rate of 13%, compared to a 6.6% market median, and an above average liquidity over the REITs market. While the fund pays a highly modest FFO payout ratio, an investor could prefer the sustainability of its conservative payout. The fund is highly exposed to commercial real estate which saw a 6% decline in rent prices in the Riyadh and Dammam. MEFIC fund will withhold cash dividend for H1-20, due to tightened liquidity, and to maintain creditors’ trust and to boost its financial position. However, the company indicated that there is no negative consequences on future’s dividend payment. Thus, we expect a repricing potential once the economy is out of the COVID-19 woods.

Mulkia - Gulf Real Estate REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 05th Nov 2017 CMP (02nd Nov, 2020) SAR 8.66 Fund Size SAR 751mn • Dividend: Quarterly NAV/unit SAR 9.44 • Fund manager: Mulkia Investment Company Management Fee 1.0% • Major shareholder: Gulf Real Estate Co. 3M Average Turnover 2,706,961 • Foreign ownership: 0.73% FFO/unit 0.60 • 14th largest fund by Market Cap Dividend Distribution FY19 0.68 SAR/Share

Price/FFO 16.5x Fund performance (Rebased) P/E (REIT-TASI) 26.59 120 110 Total Revenue (TTM) SAR 66,110,000 100 90 Net Profit (TTM) SAR 14,610,000 80 Debt (H1-20) SAR 340.8m 70 60 Occupancy Rate (%) 100% Jul-20 Oct-20 Apr-20 Jan-20 Jun-20 P/B 0.85 Mar-20 Feb-20 Nov-19 Dec-19 Nov-20 Aug-20 Sep-20 May-20 Mulkia REIT TASI Market Value of Assets/Unit 9.73 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

2% 1% 9.0% 8.4% 8.0% 18% 7.0% 6.9% 6.0% 5.7% 31% 5.0% 52% 4.0% 3.0% 80% 15% 2.0% 1.0% 0.0% Khamis Mushayt Riyadh Commercial Hotel Apartments FY18 FY19 FY20E Jeddah Dammam

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook While Mulkia comes at a pricing at just slightly above the market’s Price/FFO median of 16.3, it experienced a notable growth in its assets at 34.4%, second in place after the leading 35.6% for that same metric. With a liquid market activity and a 6.9% dividend yield, Mulkia possesses some favourable specifications to offer. Mulkia offers an added diversity advantage for investors, amongst different sectors, with a focus on commercial property nationwide.

Musharaka REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 01st Oct 2017 CMP (02nd Nov, 2020) SAR 9.01 Fund Size SAR 880mn • Dividend: Semi-Annual NAV/unit SAR 10.11 • Fund manager: Musharaka Capital Management Fee 1.2% • Major shareholder: Agzalla for Trading and Real Estate Investment Co. 3M Average Turnover 6,557,638 • Foreign ownership: 1.86% FFO/unit 0.57 • 8th largest fund by Market Cap Dividend Distribution FY19 0.70 SAR/Share Price/FFO 16.7x Fund performance (Rebased) P/E (REIT-TASI) 26.59 130 120 Total Revenue (TTM) SAR 98,200,000 110 100 Net Profit (TTM) SAR 40,360,000 90 80 Debt (H1-20) SAR 402.14m 70 60 Occupancy Rate (%) 98% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 P/B 0.78 Mar-20 Feb-20 Nov-19 Dec-19 Nov-20 Aug-20 Sep-20 May-20 Musharaka REIT TASI Market Value of Assets/Unit 9.01 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

4% 7% 7.9% 12% 7.8% 7.8% 18% 7.7% 7.6% 21% 7.6% 5% 7.5% 5% 7.4% 7.4% 67% 60% 2% 7.3% 7.2% 7.1% Warehouses Appartments Dubai Al Kharj Dammam 7.0% Commercial Hotels Riyadh Jubail Khobar FY18 FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook With a high implied cap rate and dividend yield scoring Musharaka at second place based on those metrics, the fund offers an attractive investment vehicle with a high payout for its investors. Musharaka has slightly shorter outstanding lease contract strength; however, it scores high on the quality of contract. The fund’s holdings are concentrated with residential properties that make up approximately 60% of its portfolio. While 60% of its holdings are in Dammam and 18% in Riyadh, it would be reasonable to deduct that Dammam will follow the same trends in housing performances as Riyadh, Jeddah, and Khobar that saw an increase in housing price sales in 2020, and an expected increase in residential homes supply by the end of 2022 (Knight Frank, 2020).

AlAhli REIT Fund 1

• Closed ended - Sharia compliant REIT’s statistics • Listing date: 08th Jan 2018 CMP (02nd Nov, 2020) SAR 8.56 Fund Size SAR 1,375mn • Dividend: Semi-Annual NAV/unit SAR 9.63 • Fund manager: NCB Capital Management Fee 1.0% • Major shareholder: Al Andalus Real Estate Co. 3M Average Turnover 3,354,706.50 • Foreign ownership: 0.69 % FFO/unit 0.49 • Fifth largest fund by Market Cap Dividend Distribution FY19 0.65 SAR/Share

Price/FFO 16.6x Fund performance (Rebased) P/E (REIT-TASI) 26.59 130 120 Total Revenue (TTM) SAR 144,354,000 110 100 Net Profit (TTM) SAR 30,906,000 90 80 Debt (H1-20) SAR 501,629,000 70 60 Occupancy Rate (%) 95% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 P/B 0.91 Mar-20 Feb-20 Nov-19 Dec-19 Nov-20 Aug-20 Sep-20 May-20 AL Ahli REIT TASI Market Value of Assets/Unit 9.59 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

10.0% 13.5% 8.4% 8.0% 27.2% 6.8% 6.0% 5.2%

10.8% 62.0% 4.0%

86.5% 2.0%

0.0% Reatail Hotels Ofﬁces Jeddah Riyadh FY18E FY19E FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook AlAhli REIT1 has an attractive dividend yield as its FY19 DY stood at 7.6% which is above the industry average of 6.6%. The fund has generated reasonable operating income in the recent periods suggested by its implied cap rate of 6.8%. Its FFO pay-out ratio though amongst the highest in the industry while its expected dividend yield stands at a 5.2%. Going forward, the fund seeks to add income generating quality assets with an aim to diversify its investments. The fund plans to remodel its propriety Al-Andalus Mall, which could make the prosperity more attractive for prospective tenants. The fund also plans to retain the occupancy rates, and stabilize vacancies with competitive rent prices.

Bonyan REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 25th Jul 2018 CMP (02nd Nov, 2020) SAR 8.68 Fund Size SAR 1,628.8mn • Dividend: Semi-Annual NAV/unit SAR 8.82 • Fund manager: Saudi Fransi Capital Management Fee 0.50 % • Major shareholder: Abdul Rahman Saad Al Rashid and sons Co. 3M Average Turnover 1,618,680.34 • Foreign ownership: 0.0% FFO/unit 0.52 • Fourth largest fund by Market Cap Dividend Distribution FY19 0.74 SAR/Share Price/FFO 14.5x Fund performance (Rebased) P/E (REIT-TASI) 26.59 120 110 Total Revenue (TTM) SAR 98,813,000 100 90 Net Profit (TTM) SAR 63,515,000 80 Debt (H1-20) SAR 149,800,000 70 60 Occupancy Rate (%) 87% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 P/B 0.93 Mar-20 Feb-20 Nov-19 Dec-19 Nov-20 Aug-20 Sep-20 May-20 Bonyan REIT TASI Market Value of Assets/Unit 10.13 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

8.0% 7.5% 13% 7.0% 12% 34% 6.0% 5.7%

17% 5.0%

29% 4.0% 2.9% 3.0% 59% 14% 22% 2.0% 1.0% Medina Jazan Abha 0.0% Commercial Apartments Hotels Dubai Riyadh FY18 FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook Bonyan REIT Fund. Its P/FFO ratio stood at 14.5x, favourably below the sector’s median ratio, while its implied cap rate ratio is 8.0. The fund has a history of high dividend payout. We anticipate the fund to maintain the nature of its payout with an expected dividend yield of 8.5% for FY21 based on the current market price. The fund has a generous FFO payout ratio at 108%, however it posses a low debt level which provides it with an opportunity to access cheap financing; in addition the low interest environment also provides the added impetuous. Bonyan offers a wide geographic diversification across the nation and an exposure to several facets of the real estate market with a concentration on commercial property. However, Bonyan experiences a lacklustre market activity with a lower turnover than its peers, which is also reflected in its spread costs and downward deviation when the market is drying up.

Derayah REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 26th Mar 2018 CMP (02nd Nov, 2020) SAR 10.66 Fund Size SAR 1,172mn • Dividend: Quarterly NAV/unit SAR 9.01 • Fund manager: Derayah Financial Company Management Fee 0.85% • Major shareholder: Khaled Abduaziz Soliman Al-Mukairin 3M Average Turnover 579,592.3 • Foreign ownership: 1.78% FFO/unit 0.75 • Sixth largest fund by Market Cap Dividend Distribution FY19 0.75 SAR/Share Price/FFO 13.9x Fund performance (Rebased) P/E (REIT-TASI) 26.59 130 120 Total Revenue (TTM) SAR 118,380,000 110 100 Net Profit (TTM) SAR 2,420,000 90 80 Debt (H1-20) SAR 589,400,000 70 60 Occupancy Rate (%) 98% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 Mar-20 Feb-20 Nov-20 Nov-19 Dec-19 Aug-20 Sep-20 P/B 1.08 May-20 DERAYAH REIT TASI Market Value of Assets/Unit 9.22 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

2% 8.0% 18% 7.8%

7.5% 26% 17% 7.1% 7.0% 9% 1% 6.5% 6.3% 12% 56% 41% 10% 6.0%

2% 6% 5.5%

Apartments Educational Retail Al-Hasa Dammam Jeddah 5.0% Commercial Ofﬁces Warehouses Jubail Khobar Riyadh FY18 FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook Derayah REIT has a diversified portfolio both in terms of geography and sectors. The diversified portfolio enables the fund to stay resilient amid the impact of COVID-19. Its stock price remained steady compared to the TASI REITs index, as it has a lower exposure to the retail sector, as well as the COVID-19 impacted Mecca and Medina regions. It has a P/FFO of 13.9x, lower than the industry median of 15.3x. The implied cap rate of 6.6% generated by the fund matches industry median. Derayah REIT offers good liquidity in the stock to the investors, in addition to diversity advantage at comparatively lucrative P/FFO.

Al Masha’ar REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 18th Jan 2018 CMP (02nd Nov, 2020) SAR 7.81 Fund Size SAR 572.4mn • Dividend: Semi-Annual NAV/unit SAR 9.59 • Fund manager: Muscat Capital LLC Management Fee 1.0% • Major shareholder: Eskan For Development and Investment Co. 3M Average Turnover 1,000,652.55 • Foreign ownership: 0.02% FFO/unit 0.38 • 16th largest fund by Market Cap Dividend Distribution FY19 0.52 SAR/Share Price/FFO 14.9x Fund performance (Rebased) P/E (REIT-TASI) 26.59 130 120 Total Revenue (TTM) SAR 38,690,000 110 100 Net Profit (TTM) SAR 520,000 90 80 Debt (H1-20) NIL 70 60 Occupancy Rate (%) 100% Jul-20 Oct-20 Apr-20 Jan-20 Jun-20 Mar-20 Feb-20 Nov-19 Dec-19 Nov-20 Aug-20 Sep-20 P/B 0.75 May-20 AL Masha'ar REIT TASI Market Value of Assets/Unit 9.59 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

8.0% 7.3% 7.0% 6.4% 6.0%

5.0% 4.7% 4.0%

3.0%

2.0% 100.0% 100% 1.0%

0.0% Hotels Mecca FY18 FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook AlMasha’ar fund 100% exposure to Mecca region and Hotels sectors, both of which were severely hit by lockdown and travel ban due to COVID-19 outbreak. The fund’s dividend yield is expected to drop significantly to 4.7% in FY20 from 6.4% in FY19. Its P/FFO ratio stood at 14.9x, which is below the sector’s median ratio, while its implied cap rate ratio is 7.1%. Its debt free balance sheet provides scope for expansion and diversification of the portfolio.

AlMa’athar REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 22nd Aug 2017 CMP (02nd Nov, 2020) SAR 9.21 Fund Size SAR 613.7mn • Dividend: Annual NAV/unit SAR 9.14 • Fund manager: Osool & Bakheet Investment Management Fee 0.5% • Major shareholder: Sahary Arabian Real Estate Co. 3M Average Turnover 1,262,926.5 • Foreign ownership: 1.14% FFO/unit 0.49 • 11th largest fund by Market Cap Dividend Distribution FY19 0.62 SAR/Share Price/FFO 13.3x Fund performance (Rebased) P/E (REIT-TASI) 26.59 140 130 Total Revenue (TTM) SAR 54,460,000 120 110 Net Profit (TTM) SAR 11,240,000 100 90 80 Debt (H1-20) SAR 60.5mn 70 60 Occupancy Rate (%) 93% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 Mar-20 Feb-20 Nov-20 Nov-19 Dec-19 Aug-20 Sep-20 P/B 1.01 May-20 Al Ma'ather REIT TASI Market Value of Assets/Unit 9.43 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

5% 3% 10.0%

%15 8.4% 8.0% %29 7.1%

6.0% 5.5% %31 %15 4.0%

%7 92% 2.0% %3 0.0% Apartments Educational Ofﬁces Khobar Riyadh Unaizah FY18 FY19 FY20E Commercial Hotels Warehouses

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook AlMa’ather fund targets to invest in the Saudi hospitality, health and educational sectors to create a diversified low-risk portfolio. Its P/FFO ratio stood at 13.3x, which is below the sector’s median ratio, while its implied cap rate suggests relatively high yield of 9.0%. FFO pay-out ratio has consistent and stand currently at 93.9%. Asset portfolio is currently concentrated in the Riyad region, but it is well-diversified across various sectors. The fund’s strong balance sheet with low leverage level should support in further expanding its assets.

Taleem REIT

• Closed ended - Sharia compliant REIT’s statistics • Listing date: 30th May 2017 CMP (02nd Nov, 2020) SAR 12.10 Fund Size SAR 510mn • Dividend: Quarterly NAV/unit SAR 10.39 • Fund manager:: NCB Capital Management Fee 0.75% • Major shareholder: Mohammed Bin Ahmed Al Rashid and Sons Holding Co. 3M Average Turnover 467,647.76 • Foreign ownership: 0.67% FFO/unit 0.80 • 10th largest fund by Market Cap Dividend Distribution FY19 0.62 SAR/Share Price/FFO 15.6x Fund performance (Rebased) P/E (REIT-TASI) 26.59 140 130 Total Revenue (TTM) SAR 45,500,000 120 110 Net Profit (TTM) SAR 32,830,000 100 90 80 Debt (H1-20) SAR 98,900,000 70 60 Occupancy Rate (%) 100% Jul-20 Oct-20 Apr-20 Jan-20 Jun-20 P/B 1.16 Mar-20 Feb-20 Nov-19 Dec-19 Nov-20 Aug-20 Sep-20 May-20 TALEEM REIT TASI Market Value of Assets/Unit 10.57 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

6.5%

6.0%

5.5% 5.3% 5.1%

100% 100%

4.5% Educational Riyadh FY18 FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook Taleem REIT has P/FFO of 15.6x which is below the industry median of 16.3x. The fund’s implied cap rate of 7.6% indicates its ability to generate strong operating income in the recent periods. The fund’s assets have expanded at solid pace of 20.4%. Moreover, the fund’s lower debt level (~15% total assets) supports further expansion in near future. The stock looks lucrative at its current valuation given its strong lease contracts. Taleem REIT is among the few funds which have maintained their dividend payment despite COVID-19 impact. Its dividend yield is expected to improve to 5.3% in FY20 from 5.1% in FY19.

Al Rajhi REIT

• Closed ended - Shariah compliant REIT’s statistics • Listing date: 20th March 2018 CMP (02nd Nov, 2020) SAR 9.23 Fund Size • Dividend: Semi-Annual SAR 1,619mn NAV/unit • Fund manager: Al Rajhi Capital Company SAR 9.43 Management Fee 0.8% • Major shareholder: Al Khaleej Training and Education Company 3M Average Turnover 616,616.42 • Foreign ownership: 1.51% FFO/unit 0.55 • Second largest fund by Market Cap Dividend Distribution FY19 0.45 SAR/Share Price/FFO 21.5x Fund performance (Rebased) P/E (REIT-TASI) 26.59 120 110 Total Revenue (TTM) SAR 144,600,000 100 90 Net Profit (TTM) SAR 8,400,000 80 70 Debt (H1-20) SAR 791,250,000 60 Occupancy Rate (%) 100% Jul-20 Oct-20 Apr-20 Jun-20 Jan-20 Mar-20 Feb-20 Nov-20 Nov-19 Dec-19 Aug-20 Sep-20 P/B

May-20 0.98

Al Rajhi REIT TASI Market Value of Assets/Unit 9.76 Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Real estate portfolio Geographic Distribution Dividend Yield (%)

10% 6.0% 5.9% 11% 19% 5.8% 5.7% 23% 26% 55% 5.5% 5.5% 26% 10% 18% 2% 5.3%

Commercial Educational Dammam Jeddah Khamis Mushayt Khobar Ofﬁces Retail 5.0% Warehouses Riyadh FY18 FY19 FY20E

Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital Source: Bloomberg, Tadawul, Argaam, Aljazira Capital

Fund Outlook Al Rajhi REIT invests primarily in income-generating, developed real estate assets wherein it invests at least 75.0% of its assets. The fund’s assets grew incredibly at 35.6% Y/Y, despite tough economic condition. The implied cap rate of 4.7% generated by the fund is lower than the industry median of 7.1%. The fund’s FFO pay-out ratio stands at 100.5%. Al Rajhi REITs was the only REIT to increase dividend payment during H1-20. Dividend yield is expected at 5.7% in FY20, better than FY19. The stock also offers good liquidity preferred by the investors.

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