Swicorp Wabel REIT offers highest net return, says CEO

Swicorp Wabel REIT offers investors the highest net return at 7.7 percent, compared to local peers with average net yields of 7.19 percent, based on their market prices that dropped below SAR 9.00, Saud Al-Tassan, chief executive of Swicorp told Argaam in an exclusive on Tuesday.

The fund capitalized on market recessions and price corrections to offer such a high return.

Al-Tassan urged investors to consider REIT’s asset values and acquisition prices to assess unit values, rather than relying on nominal prices that do not reflect the actual value of investment opportunities.

Here is the full interview:

Q: Do you think the timing of Swicorp Wabel REIT’s initial public offering (IPO) is favorable amid the current property market conditions?

A: Regardless of the market trends, investors are always looking for a periodical income with the lowest potential risk. REITs offer suitable investment opportunities in the real estate market, and investors can choose the best option in light of their outlook for the market, region and yield. We were keen to offer a unique and geographically diversified product through Swicorp fund in fast-growing, underpenetrated cities to win a leading position.

We also benefitted from market recessions and price corrections to offer investors the highest net return at 7.7 percent, which is 6.98 percent in average higher than peers based on the April 2 closing prices. Swicorp Wabel REIT offers investors a superior net return at the current subscription price, compared to other REITs which saw their market prices dropping below SAR 9.00 and offer average net returns of 7.19 percent based on April 2 closing prices.

Q: What makes Swicorp Wabel REIT attractive for investors, compared to other available options?

A: The fund targets the highest net yield to investors of 7.7 percent in 2018 based on the nominal value, and up to 8.30 percent in 2020.

In addition, its assets are geographically diversified across the unserved cities of the Kingdom, which are distinguished by the lack of competitors and low alternative investments. Construction of Swicorp’s acquired assets was completed in 2015 and 2016.

The fund has high occupancy rates at 96.38 percent average with over 420 tenants, which in turn reduces concentration risks. Also, more than 50 percent of our lease contracts ensure a gradual increase in lease and have a tenor between five and 20 years.

Meanwhile, Wabel Alarabia for Investment, the main owner of the fund’s assets, offered promissory notes of SAR 18 million as a guarantee for potential defaults by tenants in 2018 and 2019 - equal to almost 18 percent of the target net leases.

Q: Why did Swicorp Wabel REIT focus on the retail sector?

A: The REIT targets properties developed by Wabel Alarabia for Investment, such as Al Makan Mall brand, a community mall distinguished by diversified tenants and options for shoppers. Therefore, it ranks among the commercial destinations targeted by Saudi consumers amid less entertainment options in the target cities.

Meanwhile, the gross lease area (GLA) per capita in the target cities is much less than other districts. The rate stands at 1.26 percent in Dubai, 2.14 percent in the United States and nearly 0.18 percent in the cities eyed by Swicorp’s fund. This low rate not only helps mitigate potential risks of lease value declines, but also the risks faced by retail sectors in other countries, such as online shopping.

Going forward, the local retail sector will be bolstered by several factors, including the operation of cinemas and other entertainment arrangements.

The footfall at Al Makan four malls hit 8 million visitors in 2017.

Q: What are your future plans for asset acquisition and geographical diversification?

A: We developed a unique strategy for the fund, which will translate into aggrandizing unit holders’ returns in the short term. We’re looking for aggressive expansions through acquiring high-quality-and-yield assets in the short term. The target deals will be financed through Sharia-compliant facilities and the fund’s capital increase.

Q: Do you think that REITs’ offering prices at SAR 10 per unit is feasible, while most market prices dropped below that level?

A: Investors should always consider REITs’ asset values and acquisition prices to assess unit values, rather than the nominal prices that do not reflect the actual value of investment opportunities. The offering price at SAR 10.00 per unit includes a discount of 5 percent in average, compared to the market value of acquired assets. Accordingly, Swicorp offers the best yield, backed also by other factors, such as lower fees.

Q: Some investors think that offering REITs in an IPO is an opportunity for disposal of properties, what do you think?

A: Wabel Alarabia for Investment, the main owner of the fund unit, is committed not to sell 50 percent of total units for six months starting from the fund’s listing date. Wabel Alarabia for Investment is a long-term strategic partner which seeks to participate in the fund’s expansions.

In addition, the fund manager has invested SAR 35.4 million in the fund, equal to 3 percent of the fund’s total units.

The units in-kind, however, accounted for 70 percent of the fund’s units, while 30 percent of its capital was offered to the public.