Asset diversification to help Derayah REIT hedge against volatility

Derayah REIT’s geographical diversification of assets will likely reduce overall risk and improve returns on the portfolio, Derayah Financial Corporation CEO Mohammed Al Shammasi told Argaam.

Subscription to Derayah REIT’s initial public offering (IPO) started last Wednesday and will extend to Sunday, January 7, 2018.

Despite volatility in property prices, Saudi investors are still seeking real estate investments in the Kingdom, Al Shammasi said in an interview, adding that most successful deals were struck during periods of recession.

Q. Can you give us an overview of Derayah REIT’s assets?

A: The fund covers several real estate segments, including housing, offices, warehouses, and hotels. It owns 15 assets in Riyadh, Dammam, Jubail, Al Ahsa, Al Khobar and Jeddah, which implies lower risks. Asset diversification also helps investors hedge against short and medium-term price volatility.

Q. Do you think the timing is right for an initial public offering (IPO), given market conditions?

A: Small investors, who cannot afford investment in real estate properties, can turn to REITs, which represent an important, new category for trading on the Saudi Stock Exchange (Tadawul). Saudi investors can also buy/sell REITs during any business day.

Q. The Saudi market regulator has recently approved requests of several REITs to list shares on Tadawul. Do you think this will weigh on investor turnout?

A: The fund manager should have studied the offering’s feasibility, and each investor chooses the best option. Offerings of both Al Masha'ar REIT and Al Ahli REIT were successfully completed.

Q. Investors think that subscription at SAR 10/unit is unfeasible, given lower prices, as some units trade below the SAR 10 level. What do you think?

A: The unit price depends on investor’s assessment of the fund’s properties as well as the expected return. It is difficult to evaluate the funds’ performance over this short period.

Q. Some say that REITs are being listed in order to dispose of real estate properties during the ongoing economic slowdown. What are your thoughts on this?

A: Most successful commercial deals were concluded during the industry slowdown, when prices were down. The average return of real estate properties over 2012-2014 hit 6-7 percent, compared to the current returns of 7-8 percent, reflecting lower property prices.