Riyad Capital, the fund manager of Riyad REIT Fund, announced that the impact of COVID-19 precautionary measures on the fund’s revenue in 2020 will depend on the duration of the lockdown and travel restrictions.
The fund manager said in a bourse statement that it is taking proactive measures to maintain the stability of its business and ensure the continuity of operations.
The fund manager said that its portfolio consists of 18 properties totaling 309,000 square meters (sqm) of leasable area located in 8 cities in Saudi Arabia and the United States and occupied by around 150 tenants.
It added that each of the fund’s 4 business components will be impacted differently as mentioned below.
- With regard to its domestic income producing real estate assets, the fund manager said it has 10 properties totaling 96,431 sqm (31% of total portfolio) that are projected to generate 39% of fund’s gross revenues in 2020.
As of April 22, the fund manager received several rent revision requests from tenants affected by the precautionary measures. Although COVID-19 has caused disruption to normal business activities, many tenants continue to utilize office and retail spaces for work-from-home activities, and for critical business operations.
The fund manager said it is still evaluating these requests on a case-by-case basis, and added that 1 tenant, with 115 sqm of space and approximately SAR 60,000 of rental revenue (0.04% of total portfolio) has requested to terminate the lease.
The request however is under consideration and the process will follow the normal regulatory requirements of the lease agreement.
- The company’s international real estate portfolio consists of 4 properties totaling around 83,000 sqm (27% of portfolio), and are projected to generate 27% of fund’s gross revenues in 2020.
It added that there is no material impact on the returns of international real estate portfolio as of April 22.
- The fund’s domestic operating assets (hotels) consist of 3 properties totaling 124,241 sqm (40% of portfolio) and are projected to generate 34% of gross revenues in 2020.
Riyad REITs investment in the hospitality sector is aligned with the tourism and entertainment objectives that serve as a cornerstone of Vision 2030.
It noted that Saudi Arabia’s hospitality sector would be a main beneficiary of the evolving trends, such as 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.
It further noted that the operating hotel assets are very sensitive to disruptions in economic and leisure activities.
Therefore, the fund manager said 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.
However, it added that the extent of these declines will depend on the duration of the restrictions.
It also added that a part of the pandemic’s impact on hotels could overlap with the historically lower hotel occupancy period during Ramadan and summer months, which could be a relatively positive outcome.
If restrictions extend beyond the summer months, hotel operating assets will begin losing revenue from the higher seasonality period – leading to lower projected revenues.
Riyad Capital is working with hotel operating companies such as Marriott, Ascott, and Boudl to stabilize the business in operating assets and cost reduction initiatives, such as providing a home away from home for returning nationals or guests affected by border closures or people who have self-isolated.
- With regards to its 4h business segment, i.e. repositioning developments, the company has property totaling 5,900 sqm (approx. 2% of portfolio). The Hilton property on King Fahad Road in Riyadh is still under development and is expected to open in 18 months.
The fund manager said the current redevelopment plans are ongoing and it does not see disruptions in these plans.
It further noted that it has been taking various prudent steps to increase cash reserves by targeting to distribute 90% of Funds from Operations (FFO), instead of full distribution.
The fund manager will continue to evaluate and monitor the conditions and announce any material impacts in due course.
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