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Find out more about Real Estate Investment Traded Funds (REITs), Exchange Traded Funds (ETFs) and Close-ended Investment Traded Funds (CEFs) below.

  • REITs
  • ETFs
  • CEFs

Real Estate Investment Traded Funds

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: Distributed profits to unit holder to be no less than 90% of the fund's net profits.
  • Ease of Investment: REITs are characterized with the transparency of their regulations and ease of dealing with its units - both buying and selling - similarly to equities listed on the main exchange.
  • Existing Real Estate: REITs contain established, developed, ready to use and income generating real estate assets from rental or operational use.
  • High Transparency: The fund manager is obligated to publish periodical reports on the funds’ performance being disclosed on the Saudi Exchange's website similarly to other reports by listed equities on the main market.

Listing & offering requirements

Fund Legal Type

Closed – ended fund

Number of Investors

Minimum 200 investors

Initial Offer

Minimum SAR 500 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

Exchange Traded Funds

What are exchange traded funds (ETFs)?

ETFs are investment funds that track an index, and are divided into equal units which are traded on the exchange during official trading hours. ETFs enjoy advantages of both mutual funds and stocks at the same time.

Investing in ETFs

  • Primary Markets: ETF Units are created and redeemed by the Fund Manager
  • Secondary Markets: ETF Units are traded on the Exchange

Characteristics of ETFs

Traded on Exchange (Flexibility)

Yes

Visibility into Holdings (Transparency)

Daily

Units Creation and Redemption

Follows the Fund’s Terms and Conditions

Number of Units

Open ended: Changes at end-of-day based on creations and redemptions

Pricing

Primary Markets: Net Asset Value (NAV)
Secondary Markets: Market determined, close to the iNAV

Market Maker

Listing requirement

Liquidity

Primary Markets: Large minimum transaction size following the Fund’s Terms and Conditions
Secondary Market: Intraday, any trade size, supported by Market Maker

Investors

Primary Markets: Follows the Fund’s Terms and Conditions
Secondary Markets: All Types

Closed-Ended Investment Traded Funds

What are closed-ended investment traded funds (CEFs)?

CEFs are investment funds available to the public and its units are traded on the market during trading hours similar to Real Estate Investment Traded Funds “REITs”. It aims to facilitate investments in different sectors and fields. Also, CEFs units represent ownership of the fund's assets. CEFs like other securities in the market, are subject to supervision by the Capital Market Authority and Saudi Exchange, each according to their duties. Capital market regulations also oblige CEFs to have high levels of transparency and disclosure by publishing periodic reports for the fund on the website of the Saudi Exchange.

Characteristics of closed-ended investment traded funds (CEFs)

  • An investment opportunity: providing more liquidity to investors by buying and selling fund units during trading hours
  • Ease of investment: CEFs are distinguished by clarity of their regulations and ease of trading their units - buying and selling - similar to shares and real estate investment traded funds listed on the Saudi Exchange.
  • Transparency requirements: The fund manager is obligated to submit periodic reports according to the activity of each fund, and they are displayed on the Saudi Exchange website like other reports of companies listed on the Saudi Exchange.
  • Assets Diversification: CEFs are characterized by the diversity of investment fields in one fund. Closed-ended traded investment is an asset or a group of investment assets in one fund, and they differ from Real Estate Investment Traded Funds (REITs) in the way of dividend distribution and ownership of assets and investments, as closed-ended traded funds are not allowed to invest in real estate investments.

Offering and listing criteria

Criteria Main Market

Number of Unitholders

At least 200 unitholders

Public Ownership

At least 30%

Type of Investors

All types of investors

Minimum Market Cap

SAR 300 million

Leverage

The fund's borrowing may not exceed 30% of its net asset value

Legal Structure

Closed ended fund

Nominal Value

SAR 10 per unit

What are the investment scopes and limitations of CEFs in the Main Market?

Investment Scopes

There are many asset classes available for the fund manager to invest in, for example, but not limited to:

  • Financial Securities
  • Private funds
  • Private companies
  • Money markets
  • Multi-assets

Investment Restrictions

  • CEFs may invest money and assets of the fund in private funds, provided that such investments do not exceed (25%) of the fund's net assets value. Also, CEFs feeder fund or fund of funds may not invest in private funds.
  • The Fund manager may not invest money and assets in real-estate investments
  • The fund manager may not invest more than (25%) of the fund's net assets value in a single illiquid asset.
  • The borrowing of the fund may not exceed (30%) of its net assets value.

A table for comparing CEFs, REITs, ETFs, and equity in the Main Market

Characteristics Closed-ended Investment Traded Funds - CEF Real Estate Investment Traded Funds - REIT Exchange Traded Funds - ETF Equity – Main Market

The Legal Structure

Closed ended fund

Closed ended fund

Open ended fund

Public company

Minimum Market Cap

SAR 300 million

SAR 500 million

SAR 10 per unit

SAR 300 million

The Nominal Value

SAR 10 per unit

SAR 10 per unit

N/A

SAR 10 per unit

Number of Investors

At least 200 unitholders

At least 200 unitholders

N/A

At least 200 shareholders

Profit Distribution

There is no requirement to distribute profits

At least 90% of the fund’s net profits must be distributed annually to the unit holders

There is no requirement to distribute profits

There is no requirement to distribute profits

Leverage

The fund's borrowing may not exceed 30% of its net asset value

The fund's borrowing may not exceed 50% of its net asset value

The fund's borrowing may not exceed 10% of its net asset value

N/A

Public Ownership

At least 30%

At least 30%

N/A

At least 30%

Trading Hours

Trading in the market during official trading hours

Trading in the market during official trading hours

Trading in the market during official trading hours

Trading in the market during official trading hours

Fluctuation Limits

±10%

±10%

±10%

±10%

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