A) These instructions aim to regulate the offering, registration, management, operations, and supervision of all activities related to traded real estate investment fund units in the Kingdom.

B) These instructions do not prejudice the provisions contained in the Capital Market Law and its executive regulations.

• A) The term (Law) wherever mentioned in these instructions refers to the Capital Market Law issued by Royal Decree No. (M/30) dated 2-6-1424 AH.

• B) The words and phrases mentioned in these instructions shall have the meanings assigned to them in the Law, in the glossary used in the Capital Market Authority’s regulations and rules, and in the Real Estate Investment Funds Regulation, unless the context dictates otherwise.

• C) For the purpose of applying the provisions of these instructions, the words and phrases listed below shall have the meanings indicated opposite each of them, unless the context dictates otherwise.

• Net Fund Profits: Means the total returns of the fund after deducting the total expenses and fees borne by the fund.

• Net Fund Assets: The monetary value based on the total value of the assets of the traded real estate investment fund minus its liabilities.

• Traded Real Estate Investment Fund: A real estate investment fund whose units are publicly offered and traded on the main market, and whose primary investment objective is to invest in real estate developed through construction, capable of generating periodic and rental income, and a specified percentage of the fund’s net profits is distributed in cash to the unit holders in this fund during its operation period, on an annual basis at a minimum.

• Constructively Developed Real Estate: Real estate that is developed, ready for use, and meets regulatory requirements, including residential, commercial, industrial, agricultural, and other types of real estate.

• Major Unit Holder: A person who owns 5% or more of the units of the traded real estate investment fund.

• Public Unit Holders: For the purpose of these instructions, means anyone who owns one or more units in the traded real estate investment fund, provided that they are not among the following:

• (1) Major Unit Holder.

• (2) The fund manager and its affiliates.

• (3) Members of the fund’s board of directors.

• Third: General Provisions

• a) The offering, operations, and management of the publicly traded Real Estate Investment Fund in the Kingdom must be in accordance with these instructions and the Real Estate Investment Funds Regulation, to the extent that it doesn't conflict with the nature of the Fund.

• b) The Fund Manager must appoint one or more custodians in the Kingdom under a written contract, provided that the person is licensed to practice custody activities; to handle the custody of the Fund's assets and related documents. The appointed custodian must not be the related Fund Manager, the sub-Fund Manager, or an affiliate of the Fund Manager or the sub-Fund Manager. The custodian appointed in accordance with this paragraph must separate the assets of each publicly traded real estate investment fund from their own assets and from the assets of their other clients, and must keep all necessary records and other documents that support the performance of their contractual obligations. These assets must be independently identified by registering the securities and other assets of each fund in the name of the custodian for the benefit of that fund, and the real estate assets of the fund must be registered in the name of a person affiliated with the custodian. The assets of the publicly traded Real Estate Investment Fund are considered to be owned collectively by the unit holders of that fund.

• c) The custodian may appoint one or more third parties or any of their affiliates to act as a sub-custodian for any publicly traded real estate investment fund whose assets they hold, provided that this is done under a written contract. The custodian must pay the fees and expenses of any sub-custodian from their own resources. The appointed sub-custodian must be a person licensed to practice custody activities.

• d) Notwithstanding what is stated in paragraph (c) of this clause, a sub-custodian may be appointed outside the Kingdom to hold the Fund's foreign investments, provided that they are established, licensed, and subject to supervision by a regulatory authority with at least similar regulatory standards and requirements to those applied by the Authority, and that they are appointed under a written contract.

• e) The real estate assets of the publicly traded Real Estate Investment Fund may be registered in the name of a person affiliated with an entity licensed to provide loans that has provided a loan for the benefit of the Fund, as a guarantee for the loan.

• f) The Fund Manager must appoint one or more companies to manage the properties - after ensuring they have obtained the necessary approvals and licenses to carry out their work and activities from the relevant government authorities - that will manage the invested real estate. That company must have the necessary experience in the field of real estate and its management, where applicable, and be responsible for all services related to property management, including - but not limited to - property management and maintenance, leasing services, and rent collection. The Fund Manager may agree with the tenant - under the lease agreement - that the tenant will manage and maintain the property during the lease term.

• g) A unit holder's purchase of any unit in a publicly traded Real Estate Investment Fund from the market is considered an acknowledgment of their review and acceptance of the Fund's terms and conditions.

• h) Notwithstanding what is stated in paragraph (a) of Article (16) of the Real Estate Investment Funds Regulation, any related party may buy or sell any of the Fund's units after the units have been listed.

• i) No person or group of persons who, according to the Fund's terms and conditions at establishment, own 5% or more of the Fund's units, may dispose of the subscribed units during the first year of trading the units of the relevant Fund.

• j) The units of the publicly traded Real Estate Investment Fund must be registered with the Depository Center.

• k) A unit holder has the right to exercise all rights associated with the units, including - but not limited to - the right to vote at unit holder meetings.

• l) The total value of the Fund's assets may be increased by accepting in-kind contributions or by accepting cash contributions, or both, according to the following mechanism:

  • 1. The Fund Manager must obtain the Authority's approval to offer additional units for the Fund by accepting in-kind contributions or by accepting cash contributions, or both.

  • 2. After obtaining the Authority's approval referred to in sub-paragraph (1) of paragraph (l) of this clause, the Fund Manager must obtain the approval of the unit holders - through an ordinary fund resolution - to offer additional units for the Fund by accepting in-kind contributions or by accepting cash contributions, or both.

  • 3. If the increase in the total value of the Fund's assets is by accepting cash contributions or cash and in-kind contributions, the period for offering the new units shall be a minimum of five (5) days and not more than six (6) months from the date of the Authority's approval.

  • 4. If the value of the units to be offered is collected, the offered units must first be allocated to the Fund's unit holders registered on the day of the unit holders' meeting, and then the remaining units - if any - shall be allocated to the rest of the subscribers. Any surplus shall be refunded in cash to all subscribers - if any - within a period not exceeding fifteen (15) days from the end of the offering period specified in the Fund's terms and conditions, provided that the ownership or usufruct of the real estate to be acquired is transferred for the benefit of the Fund and that the new units are listed on the market within a period not exceeding sixty (60) days from the end of the offering period. The units that have been allocated to the subscribers in-kind at a rate of 5% or more through the process of increasing the total value of the Fund's assets in accordance with paragraph (l) of this clause may not be disposed of during the first year of their trading.

  • 5. If the increase in the total value of the Fund's assets is by accepting in-kind contributions, the additional units shall be allocated to the subscribers in-kind immediately after the unit holders' approval referred to in sub-paragraph (2) of paragraph (l) of this clause, provided that the ownership or usufruct of the real estate to be acquired is transferred for the benefit of the Fund and that the new units are listed on the market within a period not exceeding sixty (60) days from the date of the unit holders' approval. The units that have been allocated to the subscribers in-kind at a rate of 5% or more through the process of increasing the total value of the Fund's assets in accordance with paragraph (l) of this clause may not be disposed of during the first year of their trading.

  • 6. Notwithstanding what is stated in sub-paragraph (3) of paragraph (l) of this clause, and in the event that the minimum amount to be collected as specified in the Fund's terms and conditions is not collected, the Fund Manager must cancel the offering and return the subscribers' money without any deduction within a period not exceeding five (5) days from the end of the offering period.

• m) The Fund Manager must publish all information required to be disclosed under Clause Eight of these instructions on their website and the market's website, and that information must be complete, clear, correct, and not misleading.

• n) Notwithstanding what is stated in paragraph (e) of Article Three of the Real Estate Investment Funds Regulation, it is prohibited to make any fundamental change to the Fund's terms and conditions during the offering period.

• o) The Fund's terms and conditions shall specify a percentage of the entire offering to be allocated to institutional investors.

• p) It is a condition for the Fund Manager, when acquiring the assets of an existing real estate investment fund managed by the same Fund Manager, that the acquired assets have achieved net rental profits after deducting all expenses for the last three years for the developed and income-generating properties.

• q) The Fund Manager must begin offering and issuing the Fund's units within six (6) months from the date of the Authority's approval of the application. If the applicant fails to do so within the specified period, the Authority's approval is considered null and void.

• r) In the event of a violation of any of the restrictions stipulated in these instructions or the Fund's terms and conditions due to a change in circumstances beyond the control of the Fund Manager and the violation is not remedied within five (5) days from the date it occurred, the Fund Manager must immediately notify the Authority in writing, indicating the action taken and the time required to remedy the violation. The Authority may, at its sole discretion, change that period.

• s) The Authority may exempt any person subject to these instructions from applying any of their provisions, in whole or in part, based on a request received from them or on its own initiative.

• t) The Fund Manager must submit an updated copy of the Fund's terms and conditions to the Authority within (10) days of any change to them, as well as to the custodian immediately after they are updated. They must also publish a copy of the Fund's terms and conditions on their website and the market's website, and they must also announce the updated copy of the Fund's terms and conditions on their website and the market's website within (10) days of any update to them, including the annual update of the Fund's performance.

• u) The Fund Manager must establish policies and procedures for monitoring the risks that affect the Fund's investments, and these policies and procedures must include conducting a risk assessment process at least annually. The risk assessment report must be published on the Fund Manager's website and the market's website.

• v) All concluded lease agreements must be legally documented to ensure the preservation of the rights of all parties.

• w) The Fund Manager must announce the details of fundamental changes to the Fund's terms and conditions on their website and the market's website ten (10) days before the change takes effect.

• x) The Fund Manager must disclose all establishment and offering expenses for the publicly traded Real Estate Investment Fund's units if they are charged to the Fund.

• y) The Fund Manager must submit a statement of the offering results to the Authority within ten (10) days from the end of the offering period, and must disclose them on their website and the market's website.

• z) A member of the Fund's board of directors may not vote on any decision made by the Fund's board of directors regarding any matter in which that member has a direct or indirect personal interest, and any such interest must be disclosed to the Fund's board of directors.

• aa) To achieve the independence of a board member, the following must be adhered to:

  • 1. The independent member of the Fund's board of directors must be able to perform their duties and express their opinions and vote on decisions objectively and impartially, which helps the board of directors make sound decisions that contribute to achieving the Fund's interests.

  • 2. The Fund's board of directors must conduct an annual assessment of the extent of the member's independence and ensure that there are no relationships or circumstances that affect or could affect it.

  • 3. Notwithstanding the definition of an independent member of the Fund's board of directors contained in the Real Estate Investment Funds Regulation and the Glossary of Terms Used in the Capital Market Authority's Regulations and Rules, the following, for example and not limitation, are incompatible with the necessary independence of a member of the board of directors of a publicly traded real estate investment fund:

    • a. Owning 5% or more of the Fund's units or of the units of another fund under the management of the same Fund Manager, or being a first-degree relative of someone who owns this percentage.

    • b. Representing a legal person who owns 5% or more of the Fund's units or of the units of another fund under the management of the same Fund Manager.

    • c. Representing a legal person who owns 5% or more of the shares of the Fund Manager or an affiliate of the Fund Manager or the custodian or an affiliate of the custodian.

    • d. Being a first-degree relative of any of the members of the board of directors of the Fund or any other fund under the management of the same Fund Manager.

    • e. Being a first-degree relative of any related party to the Fund.

    • f. Working or having worked as an employee during the last two years for the Fund Manager or any related party to the Fund, or owning controlling shares in any of those parties during the last two years.

    • g. Receiving financial amounts from the Fund in addition to the board of directors' membership remuneration.

• A) The following must be fulfilled when submitting the fund units offering application:

  • 1. Type of fund: The traded real estate investment fund must be of the closed type.

  • 2. Minimum fund establishment: The minimum total value of the fund's assets at the time of establishment must not be less than (500) million Saudi Riyals.

  • 3. Nominal value of the unit: The nominal value of the unit must be (10) Riyals.

  • 4. Subscription consideration: Unit holders' subscription from the public must be for cash only.

  • 5. Subscription limit: The minimum subscription limit must not exceed (1000) units per unit holder.

• B) The fund manager must comply with the following at all times:

  • 1. Investment policy: The value of the fund's investments in real estate developed constructionally and capable of generating rental and periodic income must not be less than (75%) of the total value of the fund's assets, according to the latest audited financial statements.

  • 2. Distributions: The percentage of profits distributed to unit holders must not be less than (90%) annually from the net profits of the fund.

  • 3. Asset restrictions:

    • A. The fund manager is not allowed to invest in undeveloped lands, and is permitted to invest a percentage not exceeding (25%) of the total value of the fund's assets, according to the latest audited financial statements, in any of the following:

      • 1. Real estate development, whether for properties owned by the fund manager or not.

      • 2. Renovation and redevelopment of properties.

      • 3. Property repurchase agreements.

      • 4. Cash and equivalents, licensed investment fund units by the Authority, real estate companies.

      • 5. Usufruct rights.

    • B. The fund manager is prohibited from investing more than (25%) of the total value of the fund's assets, according to the latest audited financial statements, in properties outside the Kingdom.

  • 4. Borrowing: The fund's borrowing must not exceed (50%) of the total value of the fund's assets, according to the latest audited financial statements.

  • 5. Fund asset requirements: Subject to the provisions of Article (21) of the Real Estate Investment Funds Regulations, the fund manager must ensure the following:

    • A. All fund properties must be owned under valid title deeds.

    • B. The properties under investment must have approved planning or construction by an official statement from the competent authority, along with evidence of their readiness for lawful use.

    • C. Submission of reports from accredited valuers, and publishing them on the fund manager’s website and the market’s website during the offering period, provided that the reports include an assessment of market rents and that the valuation period does not exceed three months from the offering start date. In case there are more than two accredited valuers, the fund manager must publish all reports from the accredited valuers.

    • D. The fund manager must change the accredited valuers every five years at most, and those who have completed this period may be reappointed after one year from the date of the last contract.

• C) The fund manager must provide a declaration from each accredited valuer confirming their compliance with the Accredited Valuers Law and its executive regulations, and with any regulations issued by the Saudi Authority for Accredited Valuers (Taqeem), and that the scope of work for the valuation reports is appropriate for the fund manager’s request purpose and valid for use in a public offering, including the market rental value if it differs from the contractual rental value in the property lease contracts.

• A) The fund manager who wishes to offer units of the real estate investment fund traded on the market must submit his application to the Authority.

• B) In addition to the requirements set forth in Article Three of the Real Estate Investment Funds Regulations, the fund's terms and conditions must include all necessary information to enable potential unit holders to make an informed and well-founded decision regarding the investment offered to them, provided that it contains the information set forth in Annex No. (1) of these instructions.

• C) Upon submitting the offering application, the fund manager must provide the Authority with a binding agreement for the sale of the real estate subject to the investment or a binding agreement for the transfer of usufruct of the property - in the case of the fund investing in usufruct rights, taking into account what is stated in subparagraph (5/A/3) of paragraph (B) of item Fourth of these instructions - as specified in the fund's terms and conditions upon completion of the fund units offering and before their listing.

• D) Upon submitting the offering application, the fund manager must provide the Authority with a memorandum of understanding between the fund manager and the company managing the properties to manage the fund's properties, or a lease contract in case of agreement with the tenant to manage the properties, as applicable.

• E) Upon submitting the offering application, the fund manager must provide the Authority with the names of at least two receiving parties.

• F) Upon submitting the offering application, the returns from any tenant must not exceed (25%) of the total returns of the fund.

• G) The fund manager who wishes to register and offer units of a traded real estate investment fund must submit an application to the Authority including the information required under these instructions, and simultaneously submit an application to the market to list those units in accordance with the provisions of the listing rules.

• H) The fund manager is not permitted to publicly offer the fund units before making the necessary arrangements to list those units on the market in accordance with the listing rules.

• I) The Authority's approval of the offering application is conditional upon the following:

  • 1. The Authority receiving a notification from the market confirming the issuance of the market's conditional approval of the listing application submitted under the listing rules.

  • 2. The market not withdrawing its conditional approval referred to in subparagraph (1) of paragraph (I) of this item.

  • 3. The Authority being convinced that the information contained in the terms and conditions is complete and meets the requirements stipulated in the Law and its executive regulations.

• J) The fund manager must transfer ownership of the real estate to be acquired or its usufruct for the benefit of the fund, and the units offered must be listed on the market within a period not exceeding (60) days from the end of the offering period.

• A) The fund manager must obtain the Authority's approval for the proposed fundamental change to the fund.

• B) After obtaining the Authority's approval pursuant to paragraph (A) of this clause, the fund manager must obtain the approval of the unit holders in the fund - through an ordinary fund resolution - for any proposed fundamental change to the fund.

• C) For the purposes of these instructions, the term "fundamental change" means any of the following cases:

  • 1. A significant change in the fund's objectives.

  • 2. A change that may have a material and adverse effect on the unit holders or their rights in relation to the fund.

  • 3. A change that affects the risk profile of the fund.

  • 4. An increase in the total value of the fund's assets through accepting cash or in-kind contributions, or both, in accordance with the provisions of paragraph (L) of clause three of the instructions.

• A) The fund manager may call for a meeting of unit owners on his own initiative.

• B) The fund manager must call for a meeting of unit owners within (10) days from receiving a written request from the custodian.

• C) The fund manager must call for a meeting of unit owners within (10) days from receiving a written request from one or more unit owners who collectively or individually own at least (25%) of the value of the fund units, and the fund manager must stipulate this in the fund’s terms and conditions.

• D) The call for a meeting of unit owners shall be made by announcing it on the fund manager’s website and the market’s website, and by sending a written notice to the custodian at least (10) days before the meeting and not more than (21) days before the meeting. The announcement and notice must specify the date, place, time of the meeting, and the proposed decisions, and the fund manager must immediately send a copy to the Authority without delay.

• E) A meeting of unit owners shall not be valid unless attended by unit owners who collectively own at least (25%) of the value of the fund units, unless the fund’s terms and conditions specify a higher percentage.

• F) If the quorum specified in paragraph (E) of this clause is not met, the fund manager must call for a second meeting by announcing it on his website and the market’s website and by sending a written notice to the custodian at least (5) days before the date of the second meeting. The second meeting shall be valid regardless of the percentage of units represented at the meeting.

• G) Each unit owner may appoint an agent to represent him at the meeting of unit owners.

• H) Each unit owner may cast one vote at the meeting of unit owners for each unit he owns at the time of the meeting.

• I) Major unit owners are not allowed to vote at the meeting of unit owners on decisions related to the acquisition of real estate assets owned or beneficially owned by them.

• J) Meetings of unit owners may be held, and participation in their deliberations and voting on their decisions may be conducted by means of modern technology in accordance with the regulations set by the Authority.

• K) A decision shall be effective with the approval of unit owners representing more than (50%) of the total units present at the meeting of unit owners, whether their attendance is in person, by proxy, or by means of modern technology.

• A) Submitting a request to the Authority to merge traded real estate investment funds

• 1. The fund manager may submit a request to the Authority for approval to merge a number of traded real estate investment funds, offered in accordance with the Real Estate Investment Funds Regulations and these instructions, after obtaining the approval of the unit holders of all related funds through a special resolution.

• 2. The merger shall be by merging one or more funds into an existing fund.

• 3. Unit holders must be disclosed the details of the merger process on the fund manager’s website and the market’s website, at least (21) days prior to the date of executing the merger.

• 4. The details of the merger process must be stated in the fund reports prepared by the fund manager in accordance with the Real Estate Investment Funds Regulations and these instructions, depending on the type of offering.

• 5. The fund manager must disclose the costs resulting from the merger process.

• B) Additional information to be provided to unit holders

• 1. The fund manager must provide all unit holders with complete information about the proposed merger process that enables them to reach an informed decision, as follows:

  • A. It must be written clearly, accurately, and not misleading.

  • B. It must include in detail all the consequences and expected effects of the proposed merger process.

• 2. It must include a detailed comparison of the fees for services, commissions, and management fees imposed on the related funds.