MEFIC REIT Capital is approaching the Saudi stock market, after receiving the approval of the Capital Markets Authority of Saudi Arabia (CMA), to be the first in the kingdom that guarantees returns for its unit holders.
MEFIC, which is Sharia compliant, is getting ready to be listed in the Saudi market once the underwriting on Wednesday is finalized for 70% of the units, with a size of 1.2 billion SAR, noting that the fund includes eight properties.
MEFIC capital aims to provide a net return of 7.5% in the first year, which is the highest in Saudi Arabia and it is expected that net returns would reach the same percentage in 2019, to rise during the next three years to 7.7% in 2020, 7.9% in 2021 and 8.4% in 2022.
MEFIC REIT intends to provide a minimum threshold return of 5%. In a situation where the return falls below the minimum threshold, MEFIC Capital, as the REIT’s manager would infuse to a maximum extent of 2% (guarantee), thereby aiming to bring the return to 5% for a period of eight years.
As for the gross return on value of asset, it is expected to rise from 8.2% this year to 9% in 2022.
MEFIC REIT is one of the most diversified listed funds in term of geographic locations as its footprint includes Riyadh, Jeddah and Mecca in Saudi Arabia, in addition to Dubai in the United Arab Emirates.
It is also one of the most diversified listed funds in term of sector coverage as its properties operate in residential, retail, office, dining district and hospitality sectors.
Speaking to Al Arabiya, Turki Al Fozan, head of Real Estate Investments at MEFIC Capital, confirmed that the listed MEFIC REIT Fund guarantees a minimum return for eight years in a Sharia-compliant method, to become the first listed real estate fund with a guaranteed return in Saudi Arabia.
Fozan explained the mechanism of guaranteeing the return, which makes it compliant with the provisions of the Sharia, and is included in the contract appendix in the form of a donation from the company's capital, and “voluntarily and in a binding manner, accordance with the provisions of the Sharia.”
Fozan explained that the expected return for the first year of the MEFIC REIT Fund is 7.5%, while promising a minimum return of 5% which lasts for 8 years for unitholders only. The guarantee cannot be sold later, and when the unit is sold in the future, the guaranteed return doesn’t transfer with it. This is an advantage for the unitholders and has important strategic objectives, most notably the protection of the Fund from bidding in the future.
Why the guaranteed return?
Fozan revealed that the purpose of granting the guarantee is in fact in accordance with the framework and objectives of the real estate funds, which are essentially “non-speculative assets and there is no significant difference between the units; which is how it is supposed to be in this type of asset.”
He stressed the importance of the return guarantee for the future stability of the fund because founding investors view it as a long-term asset, similar to bonds or checks in guaranteeing the return because of the strength of the assets within the fund.
Fozan stated that the founders want the unitholders to enjoy a strong guarantee so that way they will not sell, so the assets in the fund are protected from many speculative aspects that other funds face.