Riyad REIT Fund — Capital/Financing Update 2020

Apr 23, 2020

Riyad capital Announces a Material Development to Riyad REIT Fund

4330 · 23/04/2020 14:19:01 · Announcement #58689 · View on Saudi Exchange

Riyad capital Announces a Material Development to Riyad REIT Fund

4330

RIYAD REIT

-2.71 %

1441/08/30     23/04/2020 14:19:01

Element List	Explanation
Description of the Event	Riyad Capital acting as the Fund Manager of Riyad REIT announces that the fund manager is carefully monitoring the impact of the COVID-19 pandemic, and the ongoing government efforts to manage and contain it. Guidance on impact on the REITs revenues and income during 2020 will be highly dependent on the longevity of lockdown and travel restrictions. Regardless of the duration of COVID-19’s impact on everyday life, we are taking proactive measures to maintain the stability of our business and ensure the continuity of operations.
The Impact Caused by the Event	Riyad REIT’s business model is diverse and is comprised of 4 main components: 1- Domestic Income Producing Real Estate Assets, 2- Investment in an International Real Estate portfolio which includes Income Producing Assets, 3- Domestic Operating Assets (Hotels), and 4- Repositioning Developments. Our portfolio consists of 18 properties totaling 309,000 sqm. of leasable area located in eight cities in Saudi Arabia and the United States and occupied around by 150 tenants. We believe each component will be impacted differently and have reviewed them independently.

Domestic Income Producing Real Estate Assets: 10 Properties totaling 96,431 sqm. (31% of portfolio) and projected to generate 39% of Fund’s Gross Revenues in 2020.

 As of April 22, 2020, we have number of requests for waiver or deferment of rental payment until the curfew is lifted. The total leasable area of these tenants totals 5,200 sqm. (less than 2% of total portfolio area) and the total revenue of the requested waiver/deferment is estimated at approx. SR 2,135,000 (less than 1.5% of Gross Potential Revenue). The evaluation of these requests will be dependent on each tenant individually. It should be noted that although COVID-19 has caused disruption to normal business activities, many tenants, and businesses continue to utilize office and retail space for remote working activities, delivery (F&B), and staff responsible for critical business operations.

 As of April 22, 2020, one tenant, totaling 115 sqm. of space and approximately SR 60,000 of rental revenue (0.04% of total portfolio) has requested to terminate the lease. The request is being reviewed and will follow the normal regulatory course of the lease agreement.

Investment in an International Real Estate Portfolio which includes Income Producing Real Estate Assets consisting of 4 Properties totaling around 83,000 sqm. (27% of portfolio); area based on Riyad REIT investments allocation in these international opportunities. International investments are projected to generate 27% of Fund’s Gross Revenues in 2020.

 As of April 22, 2020, there is no material impact on returns on international investments.

Domestic Operating Assets (Hotels): 3 Properties totaling 124,241 sqm. (40% of portfolio) and are projected to generate 34% of Fund’s Gross Revenues in 2020.

 Riyad REITs investments in the hospitality sector is aligned with the tourism and entertainment objectives that serve as a cornerstone of Vision 2030. We noted that hospitality would be a main beneficiary of the evolving trends that were taking shape in Saudi Arabia with the opening of the economy, opening of the tourism sector, and emerging entertainment sector. The momentum witnessed in the hospitality and entertainment sector at the end of 2019 and beginning of 2020 reflected early signs of Vision 2030 taking shape. The entertainment and F&B sectors generated significant activities, and hotels ran at notably higher occupancies. Combined with G20 events in 2020, expectations pointed towards a very strong year for entertainment, leisure, and hospitality.

 Operating assets are mostly dependent on daily occupancies which poses positive aspects, as well as challenges. On the downside, operating hotel assets are very sensitive to disruptions in economic and leisure activities. On the upside, these assets are well placed to lead a recovery when the economy opens up. Operating hotel assets are not prone to longer term vacancy trends that could hit a rental property. Therefore, the current pandemic conditions (travel restrictions, lockdowns in major cities, and drop in business activities) is expected to lead to material declines in anticipated revenue of operating assets. The extent of these declines will be highly dependent on the duration of the current conditions.

 When evaluating the impact of the pandemic on operating hotel assets, it is also important to align projections with the seasonality of the hospitality sector. Historically, hotels in Saudi Arabia run at lower occupancy levels during Ramadan and summer months. Depending on how long closures due to COVID-19 last, a bulk of the pandemic’s impacts could overlap with the historically lower hotel occupancy period – which could be a relatively positive outcome. If closures extend beyond the summer months, hotel operating assets will begin losing revenue from the higher seasonality period – leading to lower projected revenues.

 Riyad Capital, the Fund Manager, along with hotel operating managers (Marriott, Ascott, and Boudl) are working together to implement strategies to stabilize the business in operating assets. In addition to comprehensive property-level cost reduction initiatives, we are currently pursuing alternative sources of revenues by providing a home away from home for returning nationals, guests who are affected by border closures or people who have self-isolated. These initiatives, and its impact on operating assets, will be more evident in the coming months and will continue to be evaluated.

 In addition to operating initiatives that have been taken, we continue to use this period to facilitate property improvements plans on our flagship hospitality asset – Burj Rafal – as we progress towards the opening of JW Marriott Riyadh by Q4 2020.

Repositioning Developments: 1 Property totaling 5,900 sqm. (approx. 2% of portfolio).

 Alfursan Plaza is currently under redevelopment to position the asset as a Hilton property on King Fahad Road in Riyadh. The property is anticipated to open in 18 months. The property is well positioned at the center of Riyadh’s central business district, in very close proximity to Dr. Sulaiman Al Habib Hospital and multiple businesses.

 Current redevelopment plans are ongoing and we do not see disruptions in these plans.

 Due to the asset being a redevelopment, no revenues were projected for 2020, and therefore, there is no COVID-19 impact on the Fursan redevelopment. Additional Information In addition to property-level initiatives, we have also pursued overall fund-level initiatives. We have taken prudent steps to increase cash reserves by targeting to distribute 90% of FFO – per CMA requirements – as opposed to full potential distribution. The cash reserve could serve as a cushion for operating assets if needed. We have also requested a delay in financing expenses to the bank as per directives announced by Saudi Arabian Monetary Agency. This should provide an additional cash reserve cushion towards any potential operating requirements.

With a strong, well-diversified asset and tenant base in attractive markets both domestically and internationally, we believe that Riyad REIT is well-positioned to continue generating cash flows as well as long-term value creation under significantly softer economic conditions due to the pandemic. We will continue to evaluate and monitor the conditions and announce any material impacts as the situation evolves.

The Capital Market Authority and Saudi Exchange take no responsibility for the contents of this disclosure, make no representations as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this disclosure, and the issuer accepts full responsibility for the accuracy of the information contained in it and confirms, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts or information the omission of which would make the disclosure misleading, incomplete or inaccurate.