Riyad REIT. RIYAD REIT (a real estate investment traded fund listed on the Saudi Arabian Stock Exchange) RIYAD CAPITAL FUND MANAGER. November 2016 G

The admission and listing of the units in Riyad REIT has been approved by the Saudi Arabian Capital Market Authority dated 8/2/1438H (corresponding to...
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The admission and listing of the units in Riyad REIT has been approved by the Saudi Arabian Capital Market Authority dated 8/2/1438H (corresponding to 8/11/2016G).

TERMS AND CONDITIONS

"‫صندوق" الرياض ري ـ ــت‬ Riyad REIT RIYAD REIT (a real estate investment traded fund listed on the Saudi Arabian Stock Exchange)

RIYAD CAPITAL FUND MANAGER November 2016 G.

Capital: SAR [500,000,000] Price Per Unit: SAR 10 Units Issued on Listing Date: [50,000,000]

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Important Notice These Terms and Conditions contain detailed information relating to the Riyad REIT (the “REIT”) and the offering of units in the REIT. When purchasing units in the REIT, investors will be treated as relying solely on the basis of the information contained in these Terms and Conditions, copies of which are available for collection from the website of Riyad Capital (www.riyadcapital.com) or the Saudi Arabian Stock Exchange (“Tadawul”) at (www.tadawul.com.sa).

Prospective investors must read the entirety of these Terms and Conditions before purchasing units in the REIT. An investment in the REIT involves certain risks and may not be suitable for all investors. Investors must be willing to assume the risks associated with an investment in the REIT, which are described in Section 2.7 of of Part 2 of these Terms and Conditions.

These Terms and Conditions have been prepared by Riyad Capital (the “Fund Manager”), a Saudi Arabian limited liability company with Saudi Arabian commercial registration no. 1010239234, and an Authorized Person licensed by the Saudi Arabian Capital Market Authority (the “CMA”) under license no. 07070-37, in accordance with the provisions of the Real Estate Investment Funds Regulations issued by the Board of the CMA pursuant to Resolution No. 1–193-2006, dated 19/06/1427H (corresponding to 15/07/2006G) based on the based on the Capital Market Law issued under Royal Decree No. M/30 dated 2/6/1424H (corresponding to 31/07/2003G) (the “Real Estate Investment Funds Regulations”) and the provisions of the Real Estate Investment Traded Funds Instructions issued by the CMA pursuant to its resolution number 6-130-2016 dated 23/1/1438H (corresponding to 24/10/2016G (the “REIT Regulations”).

These Terms and Conditions include information that has been presented in compliance with the requirements for registration and admission to listing of the units of the REIT on the Saudi Arabian Stock Exchange (the “Tadawul”) in accordance with the Real Estate Investment Funds Regulations and the REIT Regulations.

The offering of units in the REIT has been approved by the CMA on 8/2/1438H (corresponding to 8/11/2016G). The Fund Manager has submitted an application to the CMA for the registration and admission to listing of the Units on Tadawul. All relevant regulatory and corporate approvals required to establish and offer the REIT have been granted, including approvals pertaining to the publication of these Terms and Conditions and all supporting documents have been submitted to the CMA. These Terms and Conditions have been prepared so that investors may consider the opportunity to purchase units in the REIT. The use of these Terms and Conditions for any other purpose is prohibited.

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The Fund Manager accepts full responsibility for the accuracy of the information contained in these Terms and Conditions, and affirms that according to the best of its knowledge and belief, and after making all possible reasonable enquiries, there are no other facts or omissions from these Terms and Conditions that would make any statement contained herein misleading. Investors should not treat the Fund Manager’s opinions in these Terms and Conditions as a recommendation to purchase units in the REIT.

The CMA does not bear any responsibility for the contents of these Terms and Conditions and does not opine or provide any warranties regarding the accuracy or completeness of these Terms and Conditions. Further, the CMA shall not be responsible for any financial loss resulting from any provision contained in these Terms and Conditions or any reliance thereon.

Prospective investors should consult with their own representatives, including accountants and legal advisers, with respect to legal, tax and other matters pertaining to the REIT or an investment therein.

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1.

Introduction................................................................................................................................................................................................. 15

2.

Terms............................................................................................................................................................................................................. 15 2.1

Name and Type of The Fund ................................................................................................................................................... 15

2.2

Address of the Head Office of the Fund Manager ......................................................................................................... 15

2.3

Fund Period ................................................................................................................................................................................... 15

2.4

Fund Objectives........................................................................................................................................................................... 16

2.5

Fund’s Investment Objectives ............................................................................................................................................... 16

2.6

Summary of Fund Strategies .................................................................................................................................................. 16

2.7

Risks of Investing in the Fund ................................................................................................................................................ 18

2.8

Subscription .................................................................................................................................................................................. 27

2.9

Fees, Charges and Commissions ........................................................................................................................................... 27

2.10

Evaluating Fund Assets............................................................................................................................................................. 30

2.11

Trading of Units ........................................................................................................................................................................... 31

2.12

Termination and Liquidation of the Fund ......................................................................................................................... 31

2.13

Fund Board..................................................................................................................................................................................... 31

2.14

Fund Manager .............................................................................................................................................................................. 35

2.15

Custodian ....................................................................................................................................................................................... 37

2.16

Auditor ............................................................................................................................................................................................ 38

2.17

Financial Statements ................................................................................................................................................................. 38

2.18

Conflicts of Interest ................................................................................................................................................................... 38

2.19

Reporting to Unitholders......................................................................................................................................................... 39

2.20

Other Information ...................................................................................................................................................................... 41

2.21

Amendments to Terms & Conditions.................................................................................................................................. 43

2.22

Governing Law and Dispute Resolution ............................................................................................................................ 44

Schedules Schedule A – Certain Definitions Schedule B – Summary Financial Disclosure

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DIRECTORY NAME OF FUND

Riyad REIT

MANAGER

Riyad Capital Head Office Building Prestige Center Takhassusi Street P.O. Box 21116 Riyadh 11475 Kingdom of Saudi Arabia www.riyadcapital.com

CUSTODIAN

KSB Capital

AUDITOR

Ibrahim Al Bassam and Abdul Mohsen Al Nemr Chartered Accountants

SHARI’AH BOARD

The Shari’ah Board of Riyad Capital: 

Sheikh Abdullah Bin Salman Bin Manie (Chairman)



Sheikh Dr. Abdullah Bin Mohammed Al Mitlaq (Member)



Sheikh Dr. Mohammed Bin Ali Al Qari (Member)

REAL ESTATE VALUATORS

Colliers International and Barcode Ltd.

LEGAL COUNSEL

The Law Office of Mohammad Al-Ammar (in affiliation with King & Spalding LLP)

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In the name of Allah, the most merciful, the most gracious PART 1: Executive Summary

This summary should be read as an introduction to these Terms and Conditions and is qualified in its entirety by the more detailed information included in these Terms and Conditions, including the terms and conditions contained in Part 2. Any decision to invest should be based on a consideration of these Terms and Conditions as a whole. Certain terms used herein but not defined, when mentioned in these Terms and Conditions shall have the meaning given in Schedule A. Overview Riyad REIT is a closed-ended a Shari’ah-compliant real estate investment traded fund. The REIT operates in accordance with Real Estate Investment Funds Regulations and REIT Regulations issued by the CMA. The REIT is listed on the Tadawul and units of the REIT shall be on traded on the Tadawul in accordance with its rules and regulations. The Capital of the REIT is SAR [500,000,000]. The REIT has a term of 99 years, which is extendable in the discretion of the Fund Manager with the prior approval of the CMA.

Investment Objectives and Strategy The primary investment objective of the REIT is to provide Unitholders with current income by investing in incomeproducing real estate assets in Saudi Arabia. The Fund Manager is targeting to distribute to Unitholders an annual cash dividend of no less than 90% of the REIT’s Net Profits. It is expected that the amount of such annual dividend will increase over the REIT’s term as the number of income-producing properties in the REIT’s portfolio increases. While the REIT will primarily invest in developed real estate assets which are ready for use, the REIT, however, may invest in real estate development projects; provided that (i) at least 75% of the REIT’s total assets are invested in developed real estate assets which generate periodic income and (ii) the REIT may not invest in vacant land. The targeted returns contained in these Terms and Conditions are based upon a number of estimates and assumptions that are inherently subject to change. Accordingly, actual results during the periods covered may vary from the targeted returns, and those variations may be material and adverse. Manager The REIT is managed by Riyad Capital. Riyad Capital is a Saudi Arabian limited liability company with Saudi Arabian commercial registration no. 1010239234, and an Authorized Person licensed by the CMA under license no. 07070-37 to carry out investment businesses and financial services. Riyad Capital is the investment arm of Riyad Bank and is

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headquartered in Riyadh. Riyad Capital offers its clients a broad range of financial services and solutions including financial advisory, arranging, custody, dealing and asset management. Riyad Capital currently manages the Riyad Real Estate Income Fund, a private open-ended Shari’ah-compliant Saudi Arabian real estate fund (the “Riyad Real Estate Income Fund”). The Riyad Real Estate Income Fund held its closing in June 2015 with a capital of SAR 500,000,000 and its capital was fully deployed prior to listing the REIT. The REIT will be listed on the Saudi Market Exchange under the name “Riyad REIT”. Riyad REIT Investment Policy The REIT seeks to own and manage a real estate portfolio with stable occupancy rates. It is targeted for such portfolio to occupy strategic locations in major commercial areas in order to take advantage of their competitive edge. The REIT may, a secondary basis, invest in development opportunities with profitable growth potentials that cater for specific real-estate needs, previously unavailable in certain areas. An added value is expected, in the medium term, to be created to Unitholders in such development projects. In the long term, the REIT’s investment portfolio will continue to focus on attractive investment opportunities in different real-estate sectors, including, but not limited to, offices, trade exhibitions, houses, hospitality facilities, warehouses, etc. in order to build a real-estate base with diverse and stable income for Unitholders as well as achieve reasonable increase in the portfolio value. Summary of Investment Portfolio The REIT’s investment portfolio consists of the following properties: -

Tamayouz Center, Riyadh; Izdihar Commercial Centre, Riyadh; Fursan Tower, Riyadh; Ascot Tahliya Tower, Jeddah; Alshati Tower, Dammam; Ascot Corniche Tower (under development), Al Khobar.

The fund has invested more than SAR 420,000,000 since its establishment on 9 June 2015. The REIT initially acquired three properties in the city of Riyadh and has expanded its geographical reach through the acquisition of the Shati Towers in the city of Dammam in the Eastern Province. As a result of the foregoing transaction, the REIT’s lease base expanded significantly, as well as the average remaining lease period as a result of entering into a long-term in connection with the Brera Hotel. The REIT is also focused on the hospitality sector in the city of Jeddah, and thus has acquired the Ascot Hotel in Jeddah, which is the first hotel for the Ascot Company in Saudi Arabia.

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The following is a profile acquired properties: Tamayouz Center This property is a combination of commercial showrooms and office space with net rentable area of approximately 6,500 square meters. The property is distinct for its strategic location on the intersection of Al-Imam Abdullah bin Saud bin Abdulaziz and Khaled bin AlWaleed Street in Qurtoba District, which is considered to be a very central part of the wider area. The occupancy percentage for this property is 86% of net rentable area.

Izdihar Commercial Centre This property is a commercial property located on Othman Bin Affan Road, which is a main commercial area witnessing increasing traffic and commercial activity in general. The total rentable area is equal to 4,400 square meters and the property is fully occupied by various tenants. Fursan Tower This property is a commercial property with a net rentable area of 8,000 square meters. It is located on King Fahd Road in the Olaya District of Riyadh. The property is distinct for its strategic location between the Kingdom Centre and Al Faisaliah Towers in one of the main business hubs in Riyadh The property is situated closely to Al Anoud Towers (Novotel Hotel) and Sulaiman Al Habib Hospital. The property is fully occupied and is generally considered ideal for office space and three or four star hotels. Ascot Tahliya Tower This property consists of 22 floors and is located on Tahliya Street (Prince Mohammed bin Abdulaziz Street), which is one of the most popular commercial streets in the city of Jeddah. The Hotel is the tallest commercial building on Tahliya Street and also consists of showrooms in addition to the 125 hotel apartments, a business center and a health club. The Saudi Telecom Company (STC) is the sole tenant of the property which is operated by Atyaf Company for a period of 15 years. Shati Towers This property is a newly built property with an estimated net rentable area of 13,300 square meters and is located on Prince Mohammed Bin Fahd Street in the Beach District of Dammam. The occupancy level of this property is approximately 88% occupied by about 25 tenants. The property has been renting 45% of the rentable area of the property to Hotel Brera (four stars) under a long-term lease. In this regard, it is noted that the Beach District has become a popular area for the construction of luxury housing, recreational activities, shopping and offices in Dammam.

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Portfolio Index Existing Properties 5 Total Acquisition Cost SAR 420,000,000 Rentable Area 46,000 square meters No. of Tenants 84 Tenants 12 Months Current Leases SAR 34,000,000 Percentage of Income Generating Assets from Total Assets 84%

Properties under Development 1 Amounts Paid for Development Projects SAR 65,000,000 Areas Under Development 25,000 square meters Average Rent Period 7.5 years Portfolio Operating Levels 94% Percentage of Development from Total Assets 13%

A summary of the acquisition of the asset portfolio during the period prior to listing The previous phase of the REIT's investment activities focused on building a diversified portfolio of real estate located in popular commercial locations, which includes a wide variety of tenants and consists of various business sectors. Commercial property located in popular locations and main roads as stronger occupancy potential in the long term compared to less popular sites. In terms of asset size, the REIT has diversified its assets between multiple tenant mediumsized properties (buildings and shopping centers) and single tenant medium-sized properties (such as hotels), in order to minimize risk profile. Net Rentable Space Distribution by Sectors

Net Rentable Space Distribution by Property

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Portfolio Details: Tamayouz Center

Izdihar Centre

Commercial property located on the intersection of Imam Abdullah Bin Saud Bin Abdulaziz with Khalid Bin Alwaleed.

Commercial property located on the intersection of Othman Bin Affan with Osama Al-Ansari street

General View of the property

General View of the property

Acquisition date

August 2015

Acquisition date

December 2015

Location

Riyadh (Granada)

Location

Riyadh (Alizdihar)

Net leasable space

6,400 sqm

Net leasable space

4,400 sqm

Occupation

86%

Occupation

100%

Tenants

17

Tenants

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Property Benefits

Property Benefits



Located on main commercial intersection



Commercial property occupied with 100% of its capacity.



Multiple tenants (i.e. Maghrabi Company, Tadrees Company and Sinan Automotive Co)



Located in popular commercial area



Located near Nakheel Mall



Long term leasing contracts providing stable cash flows

Property Location

Property Location

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Fursan Towers

Shati Tower

Commercial property located on King Fahd Road near Kingdom Tower and Al-Anoud Tower

Newly established complex containing commercial showrooms, office space and a four-stars hotel

General View of the property

General View of the property

Acquisition date

March 2016

Acquisition Date

February 2016

Location

Riyadh (Olaya)

Location

Dammam (Alshati)

Net leasable space

8,000 sqm

Net leasable space

13,300 sqm

Occupation

100%

Occupation

88%+

Tenants

14

Tenants

25

Property Benefits

Property Benefits



Fully leased



New building currently leased



Located near Dr. Suleiman Al-Habeeb Hospital





Located in central commercial area

45% of the net rentable space is leased by Barbra Hotel pursuant to a 15 years lease



Located on the main road of the Beach District, Prince Mohammad Bin Fahd Road



The property is considered to be a main building in the Beach District

Property Location

Property Location

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Ascot Tahliya Tower

Ascot Corniche Tower

New tower containing showrooms and a five-stars hotel, fully leased building.

A project consisting of 18 floors to be operated by international company specialized in hotel apartments.

General View of the property

General View of the property

Acquisition date

August 2016

Acquisition date

June 2015

Location

Jeddah

Location

Khobar (Cornich)

Net leasable space

14,338 sqm

Net leasable space

25,000 sqm

Occupation

100%

Occupation

172

Tenants

2

Tenants

Second quarter of 2018

Property Benefits 

Newly built



85% of the tower is leased to Atyaf Company (Operator of Ascott Hotel), with a 15 years leasing contract



Located on the main road in Andalus District, Prince Mohammad Bin Abdulaziz Road, Altahliya



The tallest building on Tahliya street.

Property Location

Property Location

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INVESTMENT PORTFOLIO SUMMARY

REIT Name and Type

Riyad REIT, a closed-ended real estate investment traded fund established under the laws and regulations of the Kingdom of Saudi Arabia (“Saudi Arabia”), regulated by the Saudi Arabian Capital Market Authority (the “CMA”).

Investment Objective

The primary investment objective of the REIT is to provide its investors with current income by investing in construction developed income-producing real estate assets in Saudi Arabia. While the REIT will primarily invest in such assets, the REIT may opportunistically invest in real estate development projects; provided that (i) at least 75% of the REIT’s total assets are invested in developed real estate assets which generate periodic income and (ii) the REIT may not invest in vacant land.

REIT Capital

SAR [500,000,000]

Unit Price

SAR 10

Minimum Investment

N/A

Fund Currency

Saudi Arabian Riyal (SAR).

Manager

Riyad Capital (the “Fund Manager”), a Saudi Arabian limited liability company with Saudi Arabian commercial registration no. 1010239234, and an Authorized Person licensed by the CMA under license no. 07070-37, manages the REIT.

Fund Term

The REIT has a term of 99 years, which is extendable in the discretion of the Fund Manager with the prior approval of the CMA.

Dividend Policy

The Fund Manager is targeting to distribute to Unitholders an annual cash dividend of no less than 90% of the REIT’s Net Profits.

Shari’ah Compliance

The REIT will make its investments and conduct its affairs in a manner that is compliant with Islamic Shari’ah and approved by the Shari’ah Board of Riyad Capital.

Valuation Frequency

At least semi-annually (every six months) by two independent evaluators.

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Management Fee

1% per annum of the REIT’s total asset value.

Custody Fee

SAR 100,000 annually.

Transaction Fee

The REIT will pay the Fund Manager a transaction fee of 1% of the purchase or sale price of each real estate asset acquired or sold by the REIT.

Transaction Expenses

The REIT will be responsible for all transaction costs, such as asset acquisition costs and relating financing, advisory and legal costs.

Other Expenses

The REIT shall be responsible for all fees related to transactions with third parties as well as consulting and legal fees, compensation and allowances paid to Fund Board members. Such expenses also include all services provided by third parties, like legal and consulting services, real-estate consultants and related insurance costs and any other professional expenses, including expenses of listing Fund units. It is expected that such expenses shall not exceed 0.5% of the total value of the REIT’s assets.

Trading

Units shall be traded in the same way as shares listed on Tadawul. Hence, Unitholders may sell or purchase units directly through Tadawul during the hours of daily trading. Notwithstanding any other provision, trading in the REIT’s units shall be free and shall not be subject to prohibition stated in Article 16(A) of the Real Estate Investment Funds Regulations concerning trading of “Related Parties” in the REIT’s units.

Risk Factors

Risk level is medium. There are certain risks related to the investment in the REIT. These risks are described in Section 2.7 of the Terms and Conditions and must be considered carefully prior to making an investment decision in relation to the offer Units.

Governing Law

The REIT shall be governed by the laws of Saudi Arabia and the regulations implemented by the CMA. The investments of the REIT shall comply with the Regulation of Ownership and Investment in Real Estate by Non-Saudis.

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Waivers

A request for waiver has been made in connection with the registration requirement of having a certain number and percentage of Unitholders from the public as per article B(2) of Part 4 of the REIT Regulations. The Fund Manager shall comply with the foregoing requirement within a period of one year from the Listing Date.

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PART 2: Riyad REIT Terms & Conditions 1.

Introduction

This document (the “Terms & Conditions”) sets out the terms and conditions of Riyad REIT, a real estate investment traded fund established in the Kingdom of Saudi Arabia (“Saudi Arabia” or the “Kingdom”) under the Real Estate Investment Funds Regulations and the REIT Regulations issued by the Saudi Arabian Capital Market Authority (the “CMA”). The REIT is managed by Riyad Capital (the “Manager”), an Authorized Person licensed by the CMA under license number 07070-37. Subject to the approval of the CMA, the REIT shall be listed on the Tadawul. Units in the REIT are denominated in Saudi Arabian Riyals (SAR) and shall be traded on Tadawul. 2.

Terms

2.1

Name and Type of The Fund The name of the REIT is “Riyad REIT”. The REIT is a real estate investment traded fund established in Saudi Arabia under the Real Estate Investment Funds Regulations and the REIT Regulations.

2.2

Address of the Head Office of the Fund Manager Name: Address:

Website: 2.3

Riyad Capital Head Office Building Prestige Center At Takhassusi Street P.O. Box 21116 Riyadh 11475 Kingdom of Saudi Arabia www.riyadcapital.com

Fund Period The term of the REIT is 99 years from the date on which the Units are listed (the “Listing Date”) on the Saudi Arabian Stock Exchange (“Tadawul”) and become available for trading (the “Fund Term”). The Fund Term shall be renewable for additional periods in the discretion of the Fund Manager, subject to the prior approval of the CMA.

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2.4

Fund Objectives The primary investment objective of the REIT is to provide its Unitholders with current income by investing in income-producing real estate assets primarily located in Saudi Arabia. The REIT intends to fund the acquisition and operating costs through the Capital, Shari’ah-compliant financing as well as revenues from Fund investments.

2.5

Fund’s Investment Objectives The REIT intends to invest in a portfolio of income-producing real estate assets in Saudi Arabia. The Fund Manager is targeting to distribute to investors an annual cash dividend of no less than 90% of the REIT’s Net Profits. It is targeted that such percentage shall increase over the REIT’s term as the number of income-producing properties in the REIT’s portfolio increases.

2.6

Summary of Fund Strategies The main objective of the REIT is to provide Unitholders with a consistent and growing cash distribution from its real estate investment portfolio and to periodically distribute such amounts to Unitholders. The REIT will seek to maximize shareholder value by (a) the reinvestment of retained income back into attractive real estate assets, after distributing not less than 90% of its Net Profits, (b) the potential capital appreciation from improving yields and (c) repositioning of the under-performing properties. The REIT also seeks to increase the value and returns to Unitholders by improving net operating income through the reduction of expenses of the growing asset base partly by taking advantage of the economies of scale. Description of the Types of Assets the Fund will Invest In The Fund Manager will buy and sell properties that fit within the REIT’s investment strategies. The REIT intends to acquire and maintain a diversified portfolio of real estate properties by pursuing different strategies including the following: -

Acquisition of high quality income-generating properties

-

Acquisition and enhancements of underutilized income-generating properties

While the REIT will primarily invest in developed real estate assets which are ready to generate income, the REIT may opportunistically invest in real estate development projects; provided that (i) at least 75% of the REIT’s total assets are invested in developed real estate assets which generate periodic income and (ii) the REIT may not invest in vacant land. The REIT’s portfolio will initially consist of the following assets (which are described in detail in Part 1 above): Investment Concentration Policies The REIT will mainly target investments in locations within major cities in Saudi Arabia that are expected to generate attractive return and value appreciation. These areas encompass positive demographic characteristics,

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strong growth in business activities, positive inflow of investment, favorable supply/demand dynamics and solid infrastructure. Although initial Fund investments are in Saudi Arabia, the REIT may diverse its investments by investing a maximum of 25% of its total asset value in real estate located outside the Kingdom. Subject to the restrictions on investments in development projects and investments outside the Kingdom, there are no concentration or diversification requirements limiting the size of an investment or its proportional percentage of the Capital of the REIT. Borrowing Rights The Fund Manager may leverage the REIT by utilizing Shari’ah-compliant financing. Such leverage shall not exceed a ratio of fifty percent (50%) of the REIT’s total asset value. The amount of leverage incurred will depend upon (a) the specific facts in connection with a particular financing and (b) prevailing market conditions. Methods and Ways to Invest the Liquidity Available in the REIT The REIT may make investments of available cash in Murabahas and other short-term Shari’ah-compliant investments provided that such investments shall not exceed 25% of the total value of the REIT’s assets. Such investments may be made with the Fund Manager or any bank regulated by the Saudi Arabian Monetary Authority, including Riyad Bank, or with funds managed by the Fund Manager or any other manager, provided that such funds include money market funds, trading funds and real estate income-producing funds. Investment Decision Making Process Studying real estate markets The REIT will rely on the Fund Manager’s Asset Management Division and external advisors and consultants to regularly assess the most attractive sectors in the real estate market. The Fund Manager will continuously examine the trends and cycles in the real estate market as well as market fundamentals and sector characteristics to capitalize on real estate market opportunities and sustain the the REIT’s long-term objectives. Purchase of real estate: In pursuing possible new opportunities in the real estate market, the Fund Manager will adopt a systematic investment process to identify opportunities and efficiently execute transactions. Such process will be phased, starting from exploring opportunities through sorting and evaluation and ending with adoption and implementation. Disposal of Real Estate The REIT generally intends to hold properties on a long-term basis. However, the Fund Manager will regularly evaluate every asset within the portfolio and recommend a strategy for each

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property, including disposition decisions. This will be made after an in-depth analysis considering, but not limited to, the following factors: a)

sale price with respect to potential income;

b)

the strategic fit of the property with respect to the overall portfolio;

c)

the strategic fit of the property with respect to the allocation strategy by sectors; and

d)

any change in market conditions affecting the Fund investments.

Prior to any disposal, the Fund Manager will seek valuations of the relevant asset from two independent evaluators. 2.7

Risks of Investing in the Fund Investment in the REIT involves significant risk factors and is suitable only for persons who can afford the complete or partial loss of their investment. The below risks describe factors that could affect the REIT’s investments and could affect the REIT’s Net Asset Value and investment proceeds. It is important that prospective investors review and understand these risk factors before making an investment in the REIT. However, each investor should note that the below risk factors are not an exhaustive list of the risks relating to an investment in the REIT. An investment in the REIT does not entail any guarantee that such investment shall be profitable or that an investor shall not incur any loss. As such, each prospective investor shall take into account each of the aforementioned risk factors prior to purchasing units in the REIT. Each investor bears full responsibility for any financial loss resulting from an investment in the REIT unless such loss is due to the fraud, gross negligence or wilful misconduct of the Fund Manager. a. Risk Factors Related to the REIT

Nature of Investment Risk Investment in the REIT requires a commitment as described herein with no assurances of return on invested capital. There can be no assurance that the REIT will be able to realize positive returns on its investments in a timely manner, if at all. The REIT’s assets may not be able to be sold or otherwise disposed of or, if sold, may not be able to be sold at a price perceived by the Fund Manager to represent fair value or in the timeframe desired by the REIT. Accordingly, the REIT may never realize any return on its assets.

Limited Experience Risk The Fund Manager has limited experience in managing real estate investment traded funds. Further, the REIT Regulations have only been recently issued and as such their application is still untested in certain aspects. Therefore, the Fund Manager may have to spend considerable time and effort to ensure the REIT complies with

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the REIT Regulations and other applicable regulatory requirements implemented by the CMA and Tadawul. As such, the Fund Manager’s focus and attention on the day-to-day management of the REIT’s assets would be diverted and such may have a detrimental impact on the REIT’s operations, financial position and returns to Unitholders.

Liquidity Risk The Units of the REIT will be traded on the Tadawul. This can be taken as implying that there will be an active liquid market for the Units or that it will develop or, if it does develop, that it will be maintained as it is. If a market of high liquidity is not developed or maintained, the liquidity and trading price of the Units could be adversely affected. In addition, if such a market does not develop, relatively small transactions may have a significant impact on the Units and their price, and transactions may be difficult to execute at a stable price. A limited number of Unitholders may result in reduced levels of liquidity which may adversely affect: (i) an investor’s ability to realize some or all of its investment; and/or (ii) the price at which such Units trade in the secondary market. In addition, a substantial proportion of the Units may be issued to a limited number of investors, which could adversely affect the development of an active and liquid market for the Units.

Changes in Price Risks General movement in local and international stock markets and real estate markets, prevailing and anticipated economic conditions and profit rates, financing costs, investor sentiment and general economic conditions may all affect negatively the market price of the Units. The market for the Units may fluctuate and a lack of liquidity can have an adverse effect on the market value for the Units. Accordingly, the purchase of such Units is only suitable for investors who can bear the risks associated with such investments.

Trading at a Discount Risks The Units may trade at a discount to the offered price and Unitholders may not retrieve the full value of their investment. The Units may trade at a discount to the offered price for a variety of reasons, including adverse market conditions, a deterioration in investors’ perceptions of the merits of the REIT’s investment strategy and investment policy or an excess of supply over demand in the Units.

Distributions Fluctuation Risks Although the REIT is required to distribute to Unitholders at least 90% of its Net Profits on an annual basis, there can be no assurance as to the actual amount of any distributions which will be made by the REIT. Furthermore, and except for the foregoing amount to be distributed, the declaration, payment and amount of any dividends or distributions by the REIT are subject to the recommendation of the Fund Manager and will depend upon, among other things, the performance of the REIT, the REIT’s financial position and cash requirements and the ability of the REIT to comply with the applicable legal requirements for paying distributions.

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Substantial Sale of Unit Risks Subsequent sales by the Unitholders of a substantial number of Units may significantly reduce the Unit’s trading price. Also, any rumors that such sales might occur, could materially and adversely affect the market price of the Units and return to Unitholders.

Reflection of Underlying Value Risks The traded market price of the Units may not reflect the value of the underlying investments of the REIT. Stock exchanges, including the Tadawul, may experience extreme price and volume volatility from time to time, and this, in addition to general economic, political and other conditions, may materially adversely affect the market price for the Units. The price at which the Units may be quoted will be influenced by a number of factors many of which are outside the REIT’s control whereby they have an effect on the real estate investment sector or equity markets generally.

Distribution and Leverage Risks Distribution requirements and leverage restrictions under the REIT Regulations may limit the REIT’s ability and flexibility to pursue growth through acquisitions. The REIT is required is required to distribute to Unitholders at least 90% of its Net Profits annually (not including disposition proceeds). Furthermore, in order to maintain its status as a real estate investment traded fund, the REIT’s leverage must not exceed 50% of its total Capital. As a result, the REIT has limited ability to make improvements to its property or pursue growth through acquisition of additional properties.

Unit Liquidity Risks Except upon termination of the REIT at the expiry of its term, Unitholders will only be able to realize their investment through secondary transactions in the market and receiving annual returns from the REIT’s Net Profits. Although the Units will be traded, the liquidity of Units in real estate investment traded funds may be less than the market liquidity of shares of listed companies. It is possible that there may not be a liquid market in the Units and Unitholders may have difficulty in selling the Units at the quoted market price and/or the prevailing NAV per Unit, or otherwise. Further, the CMA has the right to suspend or limit trading in the Units of the REIT. Any suspension or limitation on trading in the Units may affect the ability of Unitholders to realize their investment.

Underlying Asset Liquidity Risks The REIT’s portfolio consists of real estate assets. Real estate assets are generally illiquid and, as such, it may be difficult or impossible for the REIT to sell any of its underlying assets for a particular price at any particular time. It

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may be difficult for the REIT to sell its real estate assets (particularly at times of market downturn and specifically those assets that are categorized as larger real estate assets), and the price achieved on any such realization may be at a significant discount, especially if the REIT is forced to dispose of any of its assets in a short period of time. This may reduce the value of the Units and adversely impact the performance of the REIT and return to Unitholders.

Dilution Risks If the REIT decides to increase its capital in the future, it may require further financing by issuing units in return for in-kind contributions or a rights offering. Unless the existing Unitholders participate in such rights offering, the rights offering may be dilutive to the REIT’s existing Unitholders as their proportionate ownership and voting interest may be reduced and the percentage that their Units represent of the total Capital.

No Assurance of Investment Returns Risk There is no assurance that the REIT will be able to generate returns for its investors or that the returns will be commensurate with the risks of investing in the REIT and the nature of the transactions described herein. It is possible that the Units may fall in value or that investors might lose some or all of the capital they have invested. There can be no assurance that returns for the REIT will be achieved.

Operating History Risk The fund was established in June 2015. Thus, the REIT has no long operating history itself upon which Unitholders may evaluate its performance or any track record of success of the assets. Although Unitholders may consider the Fund Manager’s real estate fund management experience (including the Riyad Real Estate Income Generating Fund), the nature of, and the risks associated with the REIT’s future investments may differ substantially from those investments and strategies undertaken historically by the Fund Manager (including those of the Riyad Real Estate Income Generating Fund). Past results of the Fund Manager and the fund are not necessarily indicative of future performance.

Changes in Market Conditions Risk The future performance of the REIT would largely depend on changes in the supply and demand conditions of the real estate sector, which may be affected by regional and local economic and political conditions, increased competition thereby a decline in the value of real estate, potential limited availability of mortgage funds or an increase in mortgage rates, and fluctuations of supply and demand. These changes could have a significant adverse impact on the performance of the REIT by reducing rental income or decreasing the NAV of the REIT.

Dependence on Key Personnel Risk The success of the REIT will principally depend on the performance its management team, including the members of the Fund Board. The loss of the services of any of the members of its management team, in general (whether

21

such loss is through resignation or otherwise), or the inability to attract and retain additional personnel, could materially affect the REIT’s business and ability to acquire, dispose of and manage assets, hence reducing returns to investors. b. Risk Factors Related to the REIT’s Assets

Real Estate Investments Risk An investment in the Units of the REIT is subject to certain risks associated with the ownership of real estate related assets and the real estate industry in general. The value of the REIT’s investments may be adversely affected by, among other things, declines in the value of real estate, illiquidity of an investment, risks related to regional and local economic conditions, natural disasters, terrorism, environmental liability, increases in financing costs, the financial condition of tenants, increases in real property taxes, changes in zoning laws and increase in competition.

Availability of Appropriate Investments Risk Some, but not all, of the investments of the REIT have been selected by the Fund Manager as of the date hereof, and investors in the REIT will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding future investments. There can be no assurance that the Fund Manager will be able to identify future investments that meet the REIT’s investment objectives, particularly in the current market environment. The business of identifying and structuring investments suitable for the REIT is highly competitive and involves a high degree of uncertainty. The Fund Manager’s inability to identify suitable investments may adversely affect the ability of the REIT to produce the desired returns, hence reducing the dividends available to investors and/or the NAV of the REIT.

Development Risks While it is not intended that a large portion of the REIT’s portfolio will consist of development projects, the development of real estate projects in Saudi Arabia presents several specific risks. The risks in building and successfully marketing a new development include, but are not limited to: (i) delays in timely completion of works; (ii) cost overruns; (iii) inability to generate lease agreements to forecast levels; and (iv) force majeure resulting from factors beyond the REIT’s control and specific to the contracting industry (including adverse weather and environmental conditions and lack of building material that would hinder the development and construction works). New project commencement also carries other risks such as the receipt of zoning, occupancy and other required governmental approvals and permits and development costs in connection with projects that are not pursued to completion. The successful completion of such projects will have a direct and significant impact on the value of the Units and any failure to complete a project could reduce dividends and the NAV of the REIT.

Increase in Construction Costs Risk

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The construction costs for a property development may exceed forecasts for various reasons including, but not limited to, delays due to industrial disputes, disputes with sub-contractors, an increase in the cost of building materials, equipment and labor, inclement weather and unforeseen problems and circumstances. Any increase in construction costs would reduce the net income of the REIT and as a result reduce the cash available for dividends to the Unitholders. If possible, cost overruns will be mitigated by entering into lump sum fixed time and price construction contracts with contractors with appropriate provisions made for contingencies. However, there is no assurance that the mitigating measures undertaken will be able to eliminate the risk of incurring substantial cost overruns that result in losses to investors. In such instances, recourse to the contractors may be limited.

Infrastructure Risk For the properties under development, the REIT will be relying on the Saudi government and relevant municipality for providing all the necessary infrastructure to the development sites including sewage, electricity, water and roads. If the government and municipality do not complete the infrastructure projects in a timely fashion or as currently expected, this could delay the REIT’s ability to complete or operate the properties and could detrimentally affect the performance of the REIT due to the delay in commencement of operation of the properties as planned that would also adversely affect the returns to Unitholders.

Leverage Risk The assets of the REIT may be leveraged, which may adversely affect the income earned by the REIT or may result in a loss of principal. Increases and decreases in the value of the REIT’s portfolio will be magnified when the REIT uses leverage. For example, leverage may cause greater swings in the REIT’s Net Asset Value or cause the REIT to lose more than it has invested. The use of leverage creates an opportunity for increased returns, but at the same time involves a higher degree of risk and may increase the exposure of the REIT and its investments to factors such as rising costs of leverage and downturns in the economy. Moreover, the assets of the REIT may be pledged to a lender (in the interest of the Fund) and such lender may claim the assets upon an event of default (as specified in the financing documents) by the SPV, the Fund Manager or the REIT.

Actions by Competitors Risk The REIT competes with other owners, operators and developers of real estate in Saudi Arabia, some of which may own properties similar to REIT’s properties in the same submarkets. If the REIT’s competitors lease commercial and/or residential space similar to the REIT’s properties or sell assets similar to the REIT’s properties at valuations below the REIT’s valuations for comparable assets, the REIT may be unable to lease or selling its commercial and residential space all. Such may result in an increase in REIT expenses in connection with the preservation and maintaining the property and also expose the REIT to loss of income from the property, and hence a decrease in the levels of distribution to Unitholders.

23

Potential Inability to Complete Divestitures on Advantageous Terms Risk The REIT will divest itself of its properties and other assets when the Fund Manager believes it is the appropriate time to sell. The REIT’s ability to dispose of properties on advantageous terms depends on factors beyond its control, including competition from other sellers and potentially the availability of attractive financing for potential buyers. If the REIT is unable to dispose of its assets on favorable terms or on the timing the Fund Manager would otherwise dispose of the assets, then its financial condition, results of operations, cash flow and ability to make distributions to the investors could be adversely affected.

Counterparty Default and Credit Risks The REIT will be exposed to a credit risk of parties with whom it conducts business and may also bear risk of settlement default. The REIT will, in certain circumstances, be fully subject to the default of a counterparty to comply with contractual obligations, including the landowners, lending banks, property managers and/or contractors. A default by a counterparty in its contractual obligations or payments due to the REIT could reduce the income of the REIT and distribution to Unitholders.

Risk of Inability of Tenants to Meet Lease Obligations The REIT’s results would be adversely affected if a significant number of the REIT’s tenants were unable to meet their lease obligations. If a tenant seeks the protection of bankruptcy, insolvency or similar laws, such tenant’s lease may be terminated in the process and result in a reduction of cash flow to the REIT. In the event of a significant number of lease defaults and/or tenant bankruptcies, the REIT’s cash flow and ability to make distributions to the investors would be adversely affected.

Risk of Possible Inability to Renew Leases or Re-let Space as Leases Expire The REIT will derive most of its income from rent received from the tenants of the properties. Accordingly, the REIT’s financial condition, results of operations, cash flow and its ability to make distributions to the investors could be adversely affected if it is unable to promptly re-let or renew expiring leases, or if the rental rates upon renewal or re-letting are significantly lower than expected. If a tenant experiences a downturn in its business or other type of financial distress, then it may be unable to make timely rental payments or renew its lease. Further, the REIT’s ability to rent space and the rents that it can charge are impacted, not only by tenant demand, but by the number of other properties it has to compete with to appeal to tenants.

Risk of Uninsured Losses The REIT will carry commercial liability, property and other types of insurance covering all the property that it owns and manages in types and amounts that it believes are adequate and appropriate given the relative risks applicable to the property, the cost of coverage and industry practice. Certain losses, such as those due to terrorism, windstorms, floods or seismic activity, may be insured subject to certain limitations, including large

24

deductibles or co-payments and policy limits. The REIT may incur material losses in excess of insurance proceeds and may not be able to continue to obtain insurance at commercially reasonable rates. If the REIT experiences a loss that is uninsured or that exceeds its insured limits with respect to one or more of the properties, then it could lose the capital invested in the damaged properties, as well as the anticipated future revenue from those properties. Any such losses could adversely affect its financial condition, results of operations, cash flow and ability to make distributions to the Unitholders.

Risk of Property Valuations The Fund Manager may use internal valuations in several contexts in relation to the REIT. The valuations performed by the Fund Manager will only be an estimate of the value of a property and are not a precise measure of the value that may be obtained in connection with a sale of that property. Ultimate realization of the market value of a property depends to a great extent on economic and other conditions beyond the control of the REIT and the Fund Manager, including, without limitation, general market conditions. Further, valuations do not necessarily represent the price at which a property could be sold given that market prices of the REIT’s properties can only be determined by negotiation between a willing buyer and seller. If the REIT were to liquidate its assets, the realized value may be more than or less than the estimated valuation of such assets. In periods of economic volatility in which there is a perceived greater uncertainty as to value estimates and fewer comparable transactions against which to measure value, the difference between the concluded value for a real estate asset and the ultimate market value for that asset may increase. Further, relative uncertainty as to cash flows in a distressed market can adversely affect the reliability of property value estimates and negotiations between a buyer and seller, and potentially returns to Unitholders. c. Other Risk Factors

Legal Status Risk The REIT is a contractual arrangement between the Unitholders and the Fund Manager. Such contractual arrangement is governed and supervised by the CMA. The REIT does not have its own legal personality as such and the extent to which a Saudi government agency or a Saudi court would uphold such distinction between the legal status of the REIT and that of the Fund Manager is unclear and to our best knowledge untested.

Legal, Tax and Regulatory Risks The information herein is based on existing published legislation at the time of issuing these Terms and Conditions. Legal, tax, zakat and regulatory change in the investment environment in the Kingdom, or otherwise, may occur during the Fund Term which could have an adverse effect on the REIT, its investments, or individual investors. Currently, no taxes are being assessed on mutual funds in the Kingdom, but there is no assurance that the current tax regime in the Kingdom will not change.

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Government and Municipality Approvals Risk The REIT may fail to achieve its investment objective in case any applicable municipal approval or consent is denied or not granted on acceptable terms. In such case, the REIT may not be able to complete an investment or may not be able to complete the development of a real estate project.

Saudization Risk The Saudi Arabian government may require the employment of a high percentage of citizens of the Kingdom in the development of the Kingdom’s real estate sector (Saudization). It is unclear at this point to what extent the REIT and its investments will be required to implement Saudization polices. Saudization may require the hiring of additional employees or additional training and other costs which would entail higher operating costs than originally anticipated, which would be deducted from the REIT’s net income and thus reduce distributions available to Unitholders.

Third-Party Litigation Risk The activities of the REIT’s assets subject them to the risks of becoming involved in litigation by third parties. The expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments would be borne by the REIT and would reduce net assets and reduce potential distributions to Unitholders.

Limitation/Specification of Liability and Indemnification Risk The Terms and Conditions limit the circumstances under which Fund Manager, its shareholders, directors, officers, employees, agents and affiliates, and the members of the Fund Board will be held liable to the REIT and the Unitholders. As a result, Unitholders may have a more limited right of action in certain cases than they would have in the absence of such provisions. In addition, the REIT may be liable for certain claims, losses, damages and expenses of the Fund Manager, the Custodian, developers, property managers, their respective officers, directors, employees and affiliates, the members of the Shari’ah Board and the members of the Fund Board for certain claims, losses, damages and expenses arising out of their activities on behalf of the REIT, provided such person acted in good faith and in a manner reasonably believed to be in the best interests of the REIT and was neither grossly negligent nor engaged in fraud or willful misconduct. Such indemnification obligations could materially impact the returns to Unitholders.

Forward-Looking Statements This document may contain forward-looking statements relating to future events or the future performance of the REIT or its expected assets. In some cases, forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plans,” “projects,” “should,” “will,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, prospective investors should specifically consider

26

various factors, including the risks outlined herein. These factors may cause actual events or results to differ materially from any forward-looking statement.

The foregoing does not purport to be a complete or exhaustive explanation and summary of all the risk factors involved in an investment in Units in the REIT. It is strongly recommended that all potential investors seek independent advice from their own professional advisors. 2.8

Subscription The REIT is a closed-ended real estate investment traded fund with a Capital of SAR 500,000,000 divided into 50,000,000 Units of SAR 10 each. Subscription for Units The Capital has been fully allocated and the REIT will not be offering Units to members of the public prior to the Listing Date. Minimum Participation There is no minimum limit for holding Units by a Unitholder in the REIT. Capital Increase If the Fund Manager determines that REIT requires an increase in its Capital, the REIT may increase its Capital and raise equity funding through accepting cash contributions pursuant to the issuance of tradable rights as applicable on license companies in accordance with the regulatory rules and procedures issued pursuant to the Companies Law. In such case, existing Unitholders will have priority rights to participate in any rights offering. Additionally, the REIT may increase its Capital through in-kind subscriptions and any such increase shall not be considered to be rights issue.

2.9

Fees, Charges and Commissions (a)

Fees and Charges

The following is a summary of the main fees and charges to be paid by the REIT or by investors to the Fund Manager and other advisors and service providers. Additional information is available in the Summary of Financial Disclosure set forth in Schedule B hereto: (i)

Subscription Fees

Upon issuing new Units in the Fund, the Fund Manager may collect subscription fees of no more than 2% of the subscription amount. There shall be no subscription fees payable upon the trading of Units, as trading of units is subject to the fees prescribed by the Saudi Stock Exchange.

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(ii)

Management Fee

The REIT will pay the Fund Manager an annual management fee (the “Management Fee”) equal to 1.2% of the REIT’s total asset value. The Management Fee will be calculated and paid in arrears in semi-annual installments. (iii)

Custodian Fee

The REIT will pay the Custodian an annual fee (the “Custodian Fee”) of SAR 100,000 annually. The Custodian Fee shall be calculated and paid in arrears in semi-annual installments. (iv)

Auditor Fee

The REIT will pay the auditor an annual fee of SAR 30,000. (v)

Financing Fees

The Fund shall bear all financing costs, fees, expenses and charges related to arrangement and structure of Sharia complaint financing of the Fund, if any and such financing will be negotiated on an arm’s length basis. (vi)

Unit Registration and Listing Fees

The Fund shall pay certain fees in consideration for certain services rendered by Tadawul, as follows: Registration fee: -

SAR 50,000 plus SAR 2 per unitholder, subject to a maximum of SAR 500,000 shall be paid to Tadawul in return for setting up a register of unitholders. SAR 300,000 shall be paid to Tadawul in return for managing the register of unitholders.

Listing fee: -

SAR 50,000 as initial listing fees. 0.03% of the market value of the REIT (subject to a minimum of SAR 50,000 and a maximum of SAR 300,000) as listing fees.

(vii) Transaction Fee The REIT will pay the Fund Manager a transaction fee (the “Transaction Fee”) of 1% of the purchase or sale price of each real estate asset acquired or sold by the Fund in consideration of the Fund Manager conducting due diligence, negotiating the purchase or sale terms and completing the transaction. The Transaction Fee shall be payable after the closing of the purchase or sale of each real estate asset. Other than the Transaction Fee, no fees will be paid to any Related Parties (as defined in the Real Estate Investment Funds Regulations) in connection with the acquisition or disposition of any investments.

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Additionally, the Fund may pay a real estate brokerage fee if a property is sold or bought through a real estate broker. Such fee will depend on the broker efforts in consummating the transaction and in all cases such fee shall be no more than 2.5% of the property price. (viii)

Property Management Fees

Each property manager will be paid fees negotiated on an arm’s-length basis. It is expected that each property manager will be paid fees no more than 7% of the collected rental income from the relevant property. (ix)

Developer Fees

If the REIT invests in any development projects, the developer of each such project will be paid fees negotiated on an arm’s-length basis. It is expected that any developer will be entitled to a development fee of no more than 7% of construction costs. (b)

Expenses

The REIT shall be liable for all costs and expenses attributable to the activities and investments of the REIT. The REIT will be responsible for all third party transaction costs, advisory and legal costs, allowances and compensation of the Fund’s Board of Directors, in addition to all third party services such as legal, advisory, consulting and related insurance costs and other professional services, including the costs of listing the Units. It is expected such expenses will not exceed 0.5% of the REIT’s total asset value. The Fund Manager will be responsible for all of its overhead expenses of managing the REIT, including the compensation of its employees, the costs of the Shari’ah Board and the cost of its facilities and office space. (c)

Liability

The Fund Manager shall, to the best of his knowledge and belief, take all necessary steps in favor of the Unitholders. The Fund Manager and its directors, officers, employees, agents, advisers, affiliates and personnel, the Custodian, each developer, each property manager, the Shari’ah Board and the members of the Fund Board shall not have any liability to the REIT or to any investor for any loss suffered by the REIT that arises out of any acts or omissions of that party in connection with the conduct of the affairs of the REIT; provided that any party seeking to rely on such provision has acted in good faith and in a manner reasonably believed to be in the best interests of the REIT and was neither grossly negligent nor engaged in fraud or willful misconduct. (d)

Summary Financial Disclosure

The expected fees and expenses to be charged and incurred by the REIT are set forth in the Summary Financial Disclosure set forth in Schedule B hereto. (e)

Dividends and Distributions

The Fund Manager is targeting to distribute to Unitholders an annual cash dividend of no less than 90% of the REIT’s Net Profits. It is envisaged that the amount of the annual dividend will increase over the REIT’s term as the number of income-producing properties in the REIT’s portfolio increases. The Fund Manager may distribute such

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amounts more than once a year. 2.10

Evaluating Fund Assets (a)

Method of Evaluating the REIT’s Assets

The Fund Manager shall evaluate the REIT assets based on an evaluation prepared by two independent evaluators. Under existing arrangements, as at the date of listing the Fund, the valuators, Colliers International and Barcode Limited, shall value the assets in the REIT’s initial portfolio. The Fund Manager has the right to change or appoint any new valuator for the REIT without any prior notice to the Unitholders. Such appointment will be made considering the Fund Manager’s responsibility to the Unitholders. The price of one Unit will be calculated by deducting total liabilities of the REIT, including any finance liabilities, fees and expenses payable by the REIT during the relevant period, from REIT total assets, and the output will be divided by the number of the REIT Units for the same period. Such price shall be an indicative price of the REIT’s units. The value of the REIT’s total assets is the sum of all real estate assets, cash and receivables and the market value of all investments together with the current value of any other assets held. The Fund Manager shall exercise its reasonable judgment in determining the values to be attributed to assets and liabilities, provided it is acting in good faith in the interest of the REIT and Unitholders. The net assets of the Fund shall be owned by the Unitholders, and the Fund Manager or Custodian shall not have any interest in or claim against such assets. Creditors of the Fund Manager and the Custodian shall not have any entitlement to the REIT assets. (b)

Number and Timing of Evaluation

The Fund Manager shall value the Fund’s assets by appointing two independent valuators accredited by the Saudi Authority for Accredited Valuators, but not less than once every six months and at such other times as it determines necessary (each such day, a “Valuation Day”). The Fund Manager may postpone the valuation of the REIT’s assets after obtaining the approval of the CMA, in accordance with Article 22 of the Real Estate Investment Funds Regulations. In case of discrepancy between the valuations prepared by both valuators, the average of both amount shall be adopted. (c)

Manner of Announcing the Unit Price

The Fund Manager shall announce the unit price of the REIT within sixty (60) Business Days from the respective evaluation date. Such information shall also be made available on the website of the Tadawul and that of the Fund Manager.

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2.11

2.12

Trading of Units (a)

The Units are traded in the same way as trading listed companies shares on Tadawul. Therefore, Unitholders and investors can trade during the normal trading hours on all Business Days directly through Tadawul.

(b)

Notwithstanding any other provision, trading in the REIT’s units shall be free and shall not be subject to prohibition stated in Article 16(A) of the Real Estate Investment Funds Regulations concerning trading of “Related Parties” in the REIT’s Units.

(c)

Subscription to or buying REIT’s Units shall be considered a perusal of these Terms and Conditions and an implied approval of the Fund’s Terms and Conditions.

Termination and Liquidation of the Fund The REIT may be terminated (a) at the end of the Fund Term, (b) if the REIT exits or sells all its assets and all proceeds of such dispositions have been distributed to the Unitholders, (c) there is a change to the laws, regulations or other legal conditions or there are material changes to the market conditions in Saudi Arabia and the Fund Manager such as a justified reason to terminate the REIT or (d) if the termination of the REIT is required pursuant to a decision by the CMA or under its regulations (each a “Termination Event”). All Termination Events require the approval of the Fund Board and the CMA. Unitholders and the CMA will be notified within thirty (30) days of the occurrence of a Termination Event. If the REIT is terminated, following written notice to the CMA, the listing of the Units will be cancelled and a time schedule of liquidation will be announced then the liquidation measures will take place. The Fund Manager shall appoint a liquidator who shall cause the REIT to be wound down with assets of the REIT distributed to the Unitholders. For the avoidance of doubt, the Fund Manager may act as the liquidator, and the assets of the REIT may be distributed to the Unitholders in-kind in case the disposal of the REIT assets was impossible or the Fund Manager considered so to be in the best interests of the Unitholders.

2.13

Fund Board The Fund Manager will appoint the Fund Board to provide oversight over certain actions of the REIT and to act as a fiduciary for the benefit of the REIT and its Unitholders. The Fund Board will work with the Fund Manager to ensure the success of the REIT. (a)

Composition and Member Qualifications

The Fund Board will be composed of 5 members appointed by the Fund Manager, from which 2 are independent. Any amendment to the composition of the Fund Board shall be announced on the Fund Manager’s and the Tadawul’s websites. The Fund Board comprises the following members:

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Mr. Ali Abdul Rahman Al Quwaiz (Chairman) Mr. Al Quwaiz is currently the CEO of Riyad Capital. He has a Bachelor degree in Business Administration from Portland University. He obtained one-year on-the-job training at Chase Manhattan Bank in NY, in addition to cumulative management training at Harvard Business School and INSEAD. He has more than 25 years of experience in banking and finance, ten years in the Project Financing Department in SIDF and 15 years in Merchant Banking and capital markets in local banks. Mr. Adel Ibrahim Al Ateeq (Member) Mr. Al Ateeq is currently the Head of Asset Management at Riyad Capital. He holds an MBA in finance and investment from Pittsburgh University. He is also a certified Personal Financial Planner and a Certified Wealth Manager. He has more than 15 years of experience in financial markets and fund management. Prior to joining Riyad Bank, he worked at the Saudi Arabian Monetary Authority (SAMA). Mr. Raed Ghaith Barakati (Member) Mr. Barakati currently serves as the Director of the Individual Investments Department within Riyad Capital. Previously, Mr. Barakati served as Director of Investment Banking within Riyadh Capital. Mr. Barakati has more than 15 years’ experience in investment banking and corporate banking and holds a Master's degree in Business Administration from Suffolk University in 2001. Mr. Barakati received a Bachelor's degree in Business Administration from King Fahd University of Petroleum and Minerals. Mr. Faisal Abdullah Aldheim (Independent) Mr. Aldheim is the founder of the Office of Faisal Aldhim Advocates and Legal Consultants, which was founded in 2008. Mr. Aldheim is a certified arbitrator of the Ministry of Justice and a member of the Lawyers Committee in Riyadh Chamber of Commerce and member of the advisers to the Minister of Justice. Mr. Aldheim is also member of many private and governmental committees and participated in a number of conferences and workshops as speaker and lecturer. Mr. Aldheim is author of several newspaper articles and a founder of companies operating in different sectors. Mr. Aldhrim holds a Bachelors degree in Law from King Saud University in 2004. Mr. Mohammed Abdel-Hamid Al-Mubarak (Independent) Mr. Al-Mubarak currently serves as Director of Real Estate Investments within MAS Holdings. Mr. Al-Mubarak had previously served as Portfolio Manager at Riyad Capital and also spent almost eight years before that within the Corporate Finance and Mutual Funds Department within the Saudi Arabian Capital Markets Authority. Mr. AlMubarak holds a Bachelor's degree in Finance from King Faisal University and a Master's degree in Finance from the University of Cambridge. Member Suitability The Fund Manager represents that in relation to each member of the Fund Board, such member:

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(b)

is not subject to any bankruptcy or liquidation proceedings;

(c)

has not previously committed any fraudulent, dishonest or untrustworthy act; and

(d)

has the requisite skills and expertise that would render him to qualify to be a member of the Fund Board.

The Fund Manager represents that each independent director is in compliance with the definition of an independent director as mentioned in the Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority. (b) Remuneration The independent members of the Fund Board shall be entitled to SAR 3,000 annually. The non-independent members of the Fund Board will not receive any remuneration. However, the REIT will bear all actual travel and accommodation expenses incurred by each Fund Board member to attend meetings. Meetings The Fund Board shall meet at least once every six months. Also, the Fund Board may meet as and when requested by the Fund Manager or as otherwise determined necessary. All Fund Board resolutions shall be adopted with the approval of the majority of the Fund Board members present at any meeting at which a quorum is present. Quorum for attendance purposes shall be satisfied by the attendance of the majority of Fund Board members and any action or decision that can be taken by the Fund Board at a meeting can also be taken by separate out-ofmeeting written consent signed by a majority of the members of the Fund Board. Such approval may be sent via email. (c) Responsibilities and Services The members of the Fund Board shall have the following responsibilities: (a)

ensuring that the Fund Manager carries out its responsibilities in a manner that would achieve the overall interest of Unitholders in accordance with these Terms and Conditions and the Real Estate Investment Funds Regulations and the REIT Regulations;

(b)

approving all material contracts, decisions and reports involving the REIT, including but not limited to development agreements, custody agreements, marketing agreements and valuation reports.

(c)

approving these Terms and Conditions and any amendments thereto;

(d)

approving any conflict of interest disclosed by the Fund Manager;

(e)

approving the appointment of the auditor nominated by the Fund Manager;

(f)

meeting at least twice annually with the compliance officer of the Fund Manager and AML/counterterrorism reporting officer to ensure that the Fund Manager is in compliance with all applicable rules

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and regulations; (g)

ensuring that the Fund Manager discloses all material information to Unitholders and other stakeholders; and

(h)

working in good faith, reasonable care and diligence to achieve the overall interests of the REIT and Unitholders.

The Fund Manager shall provide all necessary information regarding the affairs of the REIT to all Fund Board members in order to enable them to carry out their duties. (d) Other Funds Managed by members of the Fund Board None of the Fund Board members currently manage any other investment public investment fund in Saudi Arabia (including real estate investment traded funds), except for Mr. Ali Al Quwaiz and Adel Ateeq who are board members of the following funds: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Riyad Money Fund (USD) Al Shamekh Fund Al Shuja’a Fund Al Mokdam Fund Al Hadi Fund Riyad Equity Fund 2 Riyad Gulf Fund Global Equity Fund Commodity Trading Fund (SAR) Commodity Trading Fund (USD) Balanced Income Fund Al Shamekh Sharia Compliant Fund Al Shuja’a Sharia Compliant Fund Al Mokdam Sharia Compliant Fund Global Property Fund Natural Resources Part Riyad Equity Fund 1

18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31.

American Stock Fund European Stock Fund Japan Stock Fund South East Asia Fund British Stock Fund International Fund Technology Fund Telecommunication Fund Future Equity Fund US Dollar Bond Fund International Bond Fund Riyad Money Fund (SAR) Riyad Small and Medium Cap Fund Riyad Real Estate Fund - Burj Rafal Riyad - Technology Fund 32. Riyad Equity Fund 3 33. Emaar Fund

(a) The Fund Manager may, on its own initiative, call for a meeting of the Unitholders. (b) The Fund Manager must call for a meeting of Unitholders within 10 days from receiving such written request from the Custodian. (c) The Fund Manager shall call for a meeting of Unitholders by announcing the invitation on its website and that of Tadawul, and by sending a notice in writing to all Unitholders and the Custodian giving a minimum of 10 days’ notice and a maximum of 21 days’ notice of the meeting. The announcement and notice must specify the date,

34

place and time of the meeting and the proposed agenda. The Fund Manager must at the same time as sending a notice to Unitholders regarding any meeting, provide a copy of any such notice to the CMA. (d) The Fund Manager must call for a meeting of Unitholders within 10 days of receiving a written request from a Unitholder or more who individually or collectively hold at least 25% of the Fund Units. (e) The quorum required to conduct a meeting of the Unitholders shall be such number of Unitholders holding collectively at least 25%of the value of the Fund Units. (f) If the quorum requirements set out in paragraph (e) above are not met, the Fund Manager shall call for a second meeting by announcement on its website and that of Tadawul and shall send a notice in writing to all Unitholders and the Custodian giving not less than 5 days' notice of the second meeting. At the second meeting, any number of Unitholder(s) holding any number of Units present in person or represented by a proxy shall be deemed to satisfy quorum. (g) Every Unitholder shall be entitled to appoint a proxy to represent such Unitholder at a meeting of the Unitholders. (h) Each Unit held by a Unitholder shall represent one vote at the meeting of Unitholders. (i) The Unitholders meetings and its deliberations and voting on decisions may be conducted through teleconference in accordance with requirements set out by the CMA. (j) A resolution of the Unitholders is enforceable subject to the consent of Unitholders owning %50 of the total Fund Units who attend the meeting either in person, proxy or via tele-conference. 2.14

Fund Manager (a)

Name: Address:

Website: (b)

Name and Address of the Fund Manager Riyad Capital Head Office Building Prestige Center Takhassusi Street P.O. Box 21116 Riyadh 11475 Kingdom of Saudi Arabia www.riyadcapital.com Fund Manager as an Authorized Person

Riyad Capital is a Saudi Arabian limited liability company with Saudi Arabian commercial registration no. 1010239234, and an Authorized Person licensed by the CMA under license no. 07070-37 to carry out investment

35

businesses and financial services. Riyad Capital is the investment arm of Riyad Bank and is headquartered in Riyadh.Riyad Capital offers its regional and international institutional and high-net worth clients a broad range of financial services and solutions including financial advisory, arranging, custody, dealing and asset management. (c)

Fund Manager Services

The Fund Manager shall appoint an investment portfolio manager registered with the CMA in accordance with the Authorized Persons Regulations issued by the CMA to overlook management of the REIT assets. The Fund Manager will provide management and other services to the REIT, including but not limited to the following: (a)

sourcing and executing acquisitions and dispositions for the REIT;

(b)

setting out the decision-making procedures that should be followed when executing the business of the REIT;

(c)

informing the CMA of any material event or development that might affect the REIT’s business;

(d)

complying with all laws and regulations valid in the Kingdom relating to the REIT’s business;

(e)

managing the REIT’s assets for the benefit of the investors in accordance with the Terms and Conditions;

(f)

ensuring the legality and validity of all contracts concluded for the benefit of the REIT;

(g)

implementing the REIT’s investment strategies described herein;

(h)

arranging, negotiating and executing Shari’ah-compliant debt financing documentation on behalf of the REIT;

(i)

appointing the Shari’ah Board and securing their approval that these Terms and Conditions are in compliance with Islamic Shari’ah;

(j)

overseeing the performance of the REIT’s contractual counterparties;

(k)

arranging the liquidation of the REIT upon its termination;

(l)

providing the Fund Board all necessary information relating to the REIT to enable the Fund Board members to perform their responsibilities completely; and

(m)

consulting with the Fund Board to ensure compliance with the CMA’s regulations and the Terms and Conditions.

The Fund Manager shall be liable for any losses incurred by the REIT as a result of the Fund Manager’s gross negligence or deliberate misconduct.

36

(d)

Potential Conflicts between members of the Fund Board, Fund Manager and Fund

Potential conflicts of interest between the Fund Manager and the REIT are set forth in Section 2.18 herein. The Fund Manager shall not have any interest in or claims against the REIT assets, except in its capacity as a unitholder. Creditors of the Fund Manager shall not have any interest in any REIT assets. (e)

Material Conflicts of Interest

The Fund Manager declares that there is no conflict of interest which may have any impact on the Fund Manager in carrying out its duties towards the REIT. (f)

Delegation to Third Parties

The Fund Manager shall be responsible for managing the REIT, and shall be liable for the appointment of any third party for carrying out any of the foregoing responsibilities. The Fund Manager may solicit the services of third parties (including providers of administrative services) in order to enhance the performance of the REIT. The Fund Manager intends to appoint a developer on an arm’s-length basis for all development projects of the REIT. The Fund Manager will appoint a property manager for each property of the REIT. As for the Ascot Corniche Tower, Ramla Real Estate Development Company has been appointed as developer to carry out the development works. Ramla Real Estate Development Company was founded in 2014 and is currently developing projects in various cities in the Kingdom totalling up to SAR 1,500,000,000. Among the most prominent projects being developed by the company is Ramla Tower in Riyadh, along with Ascot Corniche Tower. (g)

Investment in the REIT

The Fund Manager may be entitled to invest in Units in the REIT, whether through subscription or buying Units from Tadawul. The Fund Manager shall disclose any investment it has in the REIT at the end of each financial year in the summary of financial disclosure. 2.15

Custodian Name: KSB Capital Company Address: P.O. Box 395737, Riyadh 11375 Kingdom of Saudi Arabia The Custodian will form one or more Saudi Arabian limited liability companies (each an “SPV”) to hold title to the assets of the REIT. Such structure shall maintain tax efficiency and regulatory compliance and provide maximum legal protection for Unitholders. The assets of the REIT shall not be mortgaged by a third party. However, such assets may be mortgaged in favour of or acquired by a Saudi bank pursuant to any financing arrangements.

37

2.16

Auditor Name: Address:

Tel:

Ibrahim Al Bassam and Abdul Mohsen Al Nemr Chartered Accountants P.O. Box 28355 Riyadh 11437 Kingdom of Saudi Arabia +966(11)2065333

Fax: +966(11)2065444 The Fund Manager may change the REIT’s auditor from time to time with the approval of the Fund Board. Notice will be provided to all Unitholders and the CMA upon the replacement of the auditor. 2.17

Financial Statements The Fund’s financial year (“Financial Year”) shall be from January 1 to December 31 each year. Financial statements of the Fund will be prepared by the Fund Manager on both a semi-annual basis (unaudited) and an annual basis (audited) in accordance with the standards of the Saudi Organization of Certified Public Accountants (SOCPA). The annual financial statements shall be audited by the Fund’s auditor. Financial statements of the Fund will be reviewed by the Fund Board and made available to the CMA as soon as they are approved and made available to Unitholders within a maximum of 25 days from the end of the period covered by unaudited financial statements and 40 days from the end of the period covered by audited financial statements, by publishing them on the Fund Manager’s and Tadawul’s websites.

2.18

Conflicts of Interest Conflicts of interest may exist or arise from time to time between the REIT on the one hand and, on the other hand, the Fund Manager or its affiliates, directors, officers, employees and agents thereof, and other funds sponsored or managed by them. If the Fund Manager has a material conflict of interest with the REIT, it will make a full disclosure to the Fund Board as soon as practicable. The Fund Manager and the Fund Board will attempt to resolve any conflicts of interest by exercising their good faith judgment considering the interests the REIT, its Unitholders and all affected parties or entities taken as a whole. The Fund Manager has initially identified the following potential conflicts of interest:



Similar Riyad Capital Vehicles

Riyad Capital manages and expects to continue to manage its own proprietary account and other investments and accounts with objectives similar in whole or in part to those of the REIT, including other collective investment vehicles which may be managed or sponsored by Riyad Capital and in which Riyad Capital or its affiliates may have an equity interest. In addition, subject to the limitations set forth herein, Riyad Capital and its affiliates may in the future sponsor or serve as fund manager, investment manager or general partner with respect to investment funds or other collective investments, one or more of which may invest in properties similar to those in the REIT’s portfolio,

38

provided that such other activity does not impair the success of the REIT. 

Conflicts of Interest Regarding Transactions with the Fund Manager and its Affiliates

The REIT may engage in transactions with the Fund Manager or its affiliates or other entities in which Riyad Capital has a direct or indirect interest. For example, certain affiliates of Riyad Capital may provide services to the REIT. All transactions between the REIT and the Fund Manager, its affiliates and entities in which Riyad Capital holds a direct or indirect interest will be disclosed to the Fund Board. However, the Fund Manager and Fund Board shall use their good faith commercially reasonable efforts to cause the terms of the agreements between the Fund Manager and its affiliates, on the one hand, and the REIT, on the other hand, to be prepared on an arm’slength basis. 

Fund Board

The Fund Board will oversee the resolution of conflicts of interests. As of the date of these Terms & Conditions, the Fund Board is composed of appointees of the Fund Manager. The members of the Fund Board have fiduciary duties to the Unitholders under the Real Estate Investment Fund Regulations and will use their best efforts to resolve all conflicts by exercising their good faith judgment. 

Related Party Transactions

The REIT may from time to time enter into transactions with Related Parties, provided such arrangements are disclosed to the Fund Board and are on market standard terms. In case a Related Party, including another fund or collective investment vehicle established by the Fund Manager, wishes to enter into a transaction with the REIT, the Fund Manager will obtain the approval of the Fund Board and the purchase price paid or received by the REIT must be consistent with independent valuations.

The foregoing does not purport to be a complete or exhaustive explanation and summary of all the potential conflicts of interest involved in an investment in Units in the REIT. It is strongly recommended that all potential investors seek independent advice from their own professional advisors. 2.19

Reporting to Unitholders The Fund Manager shall report and disclose the following information to the CMA and Unitholders without any delay: (a)

any material development affecting the Fund assets, its counterparties, financial position or general course of business of any other change that would result in the Fund Manager voluntarily resigning from its position as fund manager, and which reasonably may affect the Unit price or have significant effect on the Fund's ability to meet its commitments in respect of debt instruments;

(b)

any transaction to purchase, sell, lease or mortgage a Fund asset at a price equal to or greater than 10% of the Fund's total assets value in accordance with the latest reviewed interim financial statements or audited annual financial statements, whichever is more recent;

39

(c)

any losses equal to or greater than 10% of the Fund's Net Asset Value; according to the latest reviewed interim financial statements or audited annual financial statements, whichever is more recent;

(d)

any changes in the composition of the Fund Board committees;

(e)

any dispute including any litigation, arbitration or mediation where the value involved is equal to or greater than 5% of the Fund’s Net Asset Aalue according to the latest reviewed interim financial statements or audited annual financial statements, whichever is more recent;

(f)

any increase or decrease in the Fund’s Net Asset Value equal to or greater than 10% according to the latest reviewed interim financial statements or audited annual financial statements, whichever is more recent;

(g)

the increase or decrease in the gross profit of the Fund, equal to or greater than 10% according to the latest audited annual financial statements;

(h)

any transaction between the Fund and a Related Party or any arrangement through which the Fund and a Related Party invest in any project or asset or provide financing thereto in an amount equal to or greater than 1% of the Fund’s gross revenue according to the latest audited annual financial statements;

(i)

any interruption in the Fund’s core activities equal to or greater than 5% of the gross revenues according to the latest audited annual financial statements;

(j)

any change in the Fund’s auditor;

(k)

an appointment of a replacement custodian for the Fund;

(l)

the passing of any judgment, decision, order or declaration by a court or tribunal, whether at first instance or at appeal, which may adversely affect the Fund's utilisation of any portion of its assets which in aggregate value represents a value exceeding 5% of the Net Assets Value according to the latest reviewed interim financial statements or audited annual financial statements, whichever is more recent; and

(m)

any suggested change to the Fund's capital.

In addition, the Fund Manager shall disclose the following information at least once every six months: -

any principal, material or significant changes that affect the operations of the Fund; and a statement of distributions showing the amounts distributed to Unitholders.

40

The Fund Manager shall prepare and submit annual reports to the Unitholders including the following information: (a) (b) (c) (d)

the underlying assets in which the Fund invests; the assets which the Fund is targeting to invest in; an illustration of the leased and unleased properties in relation to the total assets owned by the Fund; a comparative illustration covering the Fund's performance over the last three fiscal years (or since inception of the Fund) explaining the following: -

(e)

a performance record showing the following: -

(f) (g)

(h)

2.20

the Net Asset Value of the Fund's assets at the end of each fiscal year; the Net Asset Value per Unit at the end of each fiscal year; the higher and lower Net Asset Value per unit for each fiscal year; the number of issued Units at the end of each fiscal year; the distribution of income per Unit; and the expense ratio of the Fund.

the total return for one, three and five years (or since inception of the Fund); the annual total return for each year of the past ten years (or since inception of the Fund); a table showing the fees and commissions incurred by the Fund in favour of third parties throughout the year. In addition, the record shall disclose any circumstances that would call for the Fund Manager to waive or reduce any fees.

if fundamental changes have occurred during the relevant period which affected the performance of the Fund; the Fund Board’s annual report that would include but not be limited to the topics discussed and decisions issued by the Fund Board, including the issues regarding the performance of the Fund and its achievement of its objectives; a statement about the special commissions earned by the Fund Manager during the relevant period, stating clearly the purpose of the commissions and how they would be utilized.

Other Information

a. Voting Rights The Fund Manager acknowledges that Unitholders are entitled to exercise all rights associated with their Units including, but not limited to, the right to vote at Unitholder meetings, increase of capital by way of rights issuance or accepting in-kind contributions. In addition, the approval of the Unitholders shall be obtained in relation to any fundamental change to the Fund, and for this purpose, either of the following changes shall be considered to be a ‘fundamental change’:

41

-

an important change in the nature of the Fund or its objectives;

-

a change that may have an adverse and material effect on the Unitholders or their rights with respect to the Fund.

-

a change that has an impact on the Fund’s risk profile; and

-

an increase in the capital of the Fund.

b. Shari’ah Board The REIT will make its investments, finance its investments and conduct its affairs in a manner that is compliant with Islamic Shari’ah. The Shari’ah Board of Riyad Capital (the “Shari’ah Board”) has reviewed and approved these Terms & Conditions, including the REIT’s structure and investment strategies. The Shari’ah Board includes the following members: Sheikh Abdullah bin Sulaiman AI Manea (Chairman) He is a member of the Council of Senior Scholars in the Kingdom and the former chairman of Mecca courts. He was appointed as general deputy of the chairman of the Committee for Scientific Research and Ifta, Da'wah and Guidance in 1396H and he is an advisor of many Islamic financial institutions around the world. He has authored many books and papers on Islamic banking. Sheikh Dr. Abdullah Bin Mohammed Al Mitlaq (Member) He is a member of the Council of Senior Scholars in the Kingdom of Saudi Arabia and a member of the Standing Committee for Ifta. He is also the former head of the Comparative Fiqh Section at the High Judicial Institute and an advisor of many Islamic financial institutions. He has authored many books and papers on Islamic financial transactions. Sheikh Dr. Mohammed Bin Ali Al Qari (Member) He is a professor at King Abdul Aziz University, Islamic Economics Section in Jeddah and the former chairman of the Islamic Economics Research Centre at the University. He is an expert at the Fiqh Society at the Islamic Conference Organization in Jeddah and is an advisor of many Islamic financial institutions around the world. He has authored many publications and papers on Islamic banking. c. Developers The Fund Manager shall contract with a developer for each property, as needed, in case there is a property developed by the REIT. The developer shall prepare the master plan for each project, secure and maintain all necessary approvals and contracts with the consultants and design and oversee the project. It shall contract with the contractors required for the completion of the project in accordance with the project design approved by the Fund Manager. Further, it shall take delivery of the completed project from the contractors and initiate the marketing and sales campaigns for the project. The Fund Manager may change the property developer from time

42

to time based on its performance. d. Property Managers The Fund Manager shall appoint a manager for each property. The property manager shall be responsible for the administrative affairs of the property, including the development of management rules and policies, the permanent follow-up of the property and the affairs of its tenants, the follow-up of the collection of rents, the follow-up of periodic maintenance and the exploitation of property to effectively achieve the best returns. The Fund Manager shall change the property manager for any property from time to time subject to its performance. e. Complaint Proceedings If during the Fund Term a Unitholder has any questions or complaints relating to the operations of the REIT, such Unitholder should contact: Quality and Complaint Division Riyad Capital Head Office Building Prestige Center At Takhassusi Street P.O. Box 21116 Riyadh 11475 Kingdom of Saudi Arabia E-mail: Tel: Website: 2.21

[email protected] 9200012299 8001240010 www.riyadcapital.com

Amendments to Terms & Conditions The Fund Manager shall modify these Terms and Conditions after obtaining the approval of the Unitholders on any proposed fundamental change. After obtaining the approval of the Unitholders, the Fund Manager shall also obtain the approval of the CMA on the relevant change. In this regard, any of the following changes shall be considered to be fundamental: (a)

an important change in the nature of the Fund or its objectives;

(b)

a change which may have an adverse and material effect on the Unitholders or their rights with respect to the Fund;

(c)

a change that has an impact on the Fund’s risk profile;

(d)

an increase in the Fund's capital.

43

The Fund Manager shall provide updated Terms and Conditions to the CMA within 10 days from any change, in addition to the Custodian as soon as they are updated. The Fund Manager shall publish a copy of the Terms and Conditions on its website and that of Tadawul, and must also announce any updated Terms and Conditions on its website and that of Tadawul, within (10) days from any updates, including the annual updates on the Fund’s performance. The Fund Manager shall announce on its website and that of Tadawul any details regarding the fundamental changes to the Terms and Conditions, prior to 10 days from the entry into force of the change. 2.22

Governing Law and Dispute Resolution These Terms and Conditions form a legally binding contract between the Fund Manager and each Unitholder. Subscribing for and purchasing Units in the REIT is a deemed consent to these Terms and Conditions. These Terms and Conditions shall be governed and construed in accordance with the laws and regulations applicable in the Kingdom. The Fund Manager and each investor will seek to resolve amicably any dispute arising out of or in connection with these Terms and Conditions and the matters contemplated herein. In the event that a dispute cannot be settled amicably, it may be referred by either party to the Committee for the Settlement of Securities Disputes established by the CMA.

44

Schedule A “Transaction Fee” shall have the meaning set forth in Clause 2.9(a)(vii) herein; “Authorized Persons Regulations” means the regulations of the same name made by the CMA under Resolution Number 1-83-2005 on 21/05/1426H (corresponding to 28/06/2005G) as amended or re-enacted from time to time; “Business Day” means a day on which banks are open for business in Riyadh, Saudi Arabia. “CMA” shall have the meaning set forth in Clause 1 herein; “Custodian” means the authorized person in name of one of its subsidiaries the REIT’s real estate assets are registered; “Custodian Fee” shall have the meaning set forth in Clause 2.9(a)(iii) herein; “REIT” shall have the meaning set forth in Clause 1 herein; “Fund Board” means the board of directors of the REIT; “Fund Manager” shall have the meaning set forth in Clause 1 herein; “Fund Term” shall have the meaning set forth in Clause 2.3 herein; “Capital” means the Unitholders’ share capital in the REIT; “Real Estate Investment Funds Regulations” means the regulations of the same name made by the CMA under Resolution Number 1-193-2006 dated 19/6/1427H (corresponding to 15/7/2006G), as amended, restated or supplemented from time to time; “Kingdom” shall have the meaning set forth in Clause 1 herein; “Management Fee” shall have the meaning set forth in Clause 2.9(a)(ii) herein; “Listing Date” shall have the meaning set forth in Clause 2.3 herein; “Net Asset Value” or “NAV” means the net asset value of the REIT as determined pursuant to Clause 2.10 herein; “Net Profits” means the cyclical generated profits from the operation and leasing of real estate after deducting administrative, banking and general depreciation and finance costs and tax deductions. Such profits shall not include capital gains or losses arising from the sale of real estate or other investments. “Offering” means the public offering of Units hereunder; “Related Party” means any of the following: (a) the Fund Manager; (b) the Custodian;

A-1

(c) any developer appointed by the REIT; (d) any property manager appointed by the REIT; (e) any valuation company retained by the REIT to value the REIT’s assets; (f) the REIT’s auditor; (g) each member of the Fund Board; (h) any Unitholder owning more than 5% of the REIT’s Units; (i) any individual or entity that controls or who is an affiliate of one of the aforementioned parties; and (j) any of the executive managers or any employees of one of the abovementioned parties. “Riyad Capital” shall have the meaning set forth in Clause 1 herein; “SAR” means a Saudi Arabian Riyal, the lawful currency of the Kingdom; “Saudi Arabia” shall have the meaning set forth in Clause 1 herein; “Shari’ah Board” shall have the meaning set forth in Clause 2.20(b) herein; “SPV” shall have the meaning set forth in Clause 2.15 herein; “Subscription Fee” shall have the meaning set forth in Clause 2.9(a)(i) herein; “Tadawul” means the Saudi Arabian Stock Exchange; “Terms & Conditions” shall have the meaning set forth in Clause 1 herein; “Transaction Fee” shall have the meaning set forth in Clause 2.9(a)(viii) herein; “Unit” means a unit in the REIT; “Unitholder” means an investor investing in and holding one or more Units;

A-2

Schedule B Summary Financial Disclosure Fund Class

A real estate investment traded fund

Fund Objectives

The primary investment objective of the REIT is to provide its investors with current income by investing in income-producing real estate assets primarily located in Saudi Arabia. The REIT intends to fund the acquisition and operating costs through the Capital, Shari’ah-compliant financing as well as revenues from REIT investments.

Targeted Dividends

Annually 90% of the REIT’s Net Profits

Closed / Open

Closed Ended

Fund Term

99 years from the date on which Units are admitted and listed in the Saudi Stock Exchange (Tadawul) and made available for trading.

Fund Manager

Riyad Capital

Custodian

KSB Capital

Base Currency of the Fund

Saudi Riyals (SAR)

Subscription Fee

Management Fee Auditor Fee Financing Fee

Upon issuing new units in the REIT, the Fund Manager may collect subscription fee no more than 2% of the subscription amount. Subscription fee shall not be applied upon the units traded in the REIT, as trading of units is subject to the fees prescribed by the Saudi Stock Exchange. The REIT will pay the Fund Manager an annual management fee (the “Management Fee”) equal to 1.2% of the total asset value of the REIT. The Management Fee will be calculated and paid in arrears in semi-annual installments. The REIT will pay the auditor an annual fee of SAR 30,000. The REIT shall bear all financing costs and fees, costs and expenses related to arranging and structuring the Shari’ah-compliant financing for the REIT, if any. The financing shall be negotiated on an arm’s-length basis. Registration fee: -

Unit Registration and Listing Fees

SAR 50,000 plus SAR 2 per unitholder, subject to a maximum of SAR 500,000 shall be paid to Tadawul in return for setting up a register of unitholders. SAR 300,000 shall be paid to Tadawul in return for managing the register of unitholders.

Listing fee: -

SAR 50,000 as initial listing fees. 0.03% of the market value of the REIT (subject to a minimum of SAR 50,000 and a maximum of SAR 300,000) as listing fees.

B-3

Custodian Fee Property Management Fees

Developer Fees

The REIT will pay the Custodian an annual fee (the “Custodian Fee”) of SAR 100,000. Such fee shall be payable on a semi annual basis. The negotiated Property Management Fees will be paid on an arm’s-length basis. It is expected that each property manager will be paid fees no more than 7% of the collected rental income from the relevant property. If the REIT invests in any development projects, the developer of each such project will be paid fees negotiated on an arm’s-length basis. It is expected that the developer will deserve an amount of no more than 7% of construction costs.

Transaction Fee

1% of the purchase or sale price of each property asset

Other Expenses

No more than 0,5% of the total asset value of the REIT on annual basis.

A-4

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