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H1 2018 REITs on the rise: Sign of a construction boom in Saudi?

New data by PricewaterhouseCoopers (PwC) has shown a recent increase in real estate investment trusts (REITs). What could be driving this rise?

REITs on the rise

Investors continued to tread cautiously in the GCC equity markets in Q2 2018.

According to a new report by PwC, the Saudi stock exchange Tadawul saw 8 listings in H1 2018, together with a $13 million listing of an insurance company in Oman generated total proceeds of $893 million across GCC in H1 2018, compared to $610 million raised from 15 IPOs in H1 2017. The increase in proceeds is mainly due to the two REIT IPOs – Sedco Capital REIT ($173 million) and Bonyan REIT ($174 million).

The recent approval of Tadawul’s inclusion in the MSCI Emerging Markets index, which is to be completed in June 2019, is expected to attract foreign investment and provide a positive boost to the Tadwaul equity market.

The future trajectory of GCC equity markets will continue to depend on geopolitical developments, the stability of oil prices and the implementation of ongoing government reform policies and related privatization initiatives across the GCC region.

Steve Drake, Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East said: “The uncertainties in the macroeconomics of the region mean that the IPO window is narrower than it has been in the past. It is more important than ever for companies interested in capital markets funding to get ready early to capture the opportunity when it arrives.”

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Global IPOs

PwC’s press release reads: “Despite the challenging market conditions and the resultant reduction in deals volume by 25%, global IPO proceeds were up by 7%. In total, 300 IPOs raised $58.1 billion in Q2 2018 (2017: 398 and $54.1 billion; 2016: 253 and $35.2 billion).”

“Although the global IPO pipeline for 2018 looks promising, with global headwinds increasing, market volatility levels could further increase and the pipeline could fail to materialize,” they continued.

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Why the need for all these REITs?

PwC’s report explains that REITs remain the only primary source of IPO listings during H1 2018 in the GCC.

The Saudi Ministry of Finance (MOF) recently signed financing agreements for 17 projects in health, education and hospitality sectors with loans amounting to $201.5 million, Saudi daily Asharq Al Awsat reported.

The total MOF investments amounted to $410.6 million aimed in part to enhance basic services for citizens, and encourage private sector investment in service projects.

Deputy MOF for Revenues Tareq Abdullah al-Shuhaib explained that the agreements stipulate the establishment of 8 health projects, including hospitals and medical complexes, as well as 8 educational projects consisting of schools, universities and colleges.

They also include one hospitality project for a three-star hotel in Jizan.

The rise in REITs is likely for meeting this rising demand.

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