Description of the Event:
Mulkia Investment Company in its capacity as the manager of Mulkia Gulf Real Estate REIT Fund (“the Fund”) announces that it has received a letter from Messrs./Gulf Real Estate Company as the main tenant of the West Avenue property owned by the Fund regarding its unwillingness to continue the lease contract signed with it, starting from the end of the mandatory period of the contract, which expires on 01/11/2022 AD.
The fund manager would like to clarify to the units holders that the property is currently sub-tenanted by the Gulf Real Estate Company, as the main tenant, to several sub-tenants. As the main components of the property are leased to several tenants, including Saco for Tools and Equipment, Saudi Carrefour Company and other tenants with contracts extending from 5 to 15 years in the future. The occupancy rate for the entire property (sub-lease contracts) is approximately 93%, according to the data available to the fund manager. During the coming period, the fund manager will appoint a property manager for the property or rent the property with one main contract to an entity that manages, operates and sub-leases the property according to the offers received. In the event that a property manager is appointed for the property, the contracts of the existing tenants (sub-contracts) will be transferred to the Fund, starting from the date of the end of the mandatory term of the main tenant contract of Gulf Real Estate Company.
The Impact Caused by the Event:
It is expected that there will be a decrease in the fund’s total annual revenues, starting from the date of 01/11/2022, by no more than 5% on an annual basis, as a result of the presence of unleased areas in the property in the event that they are not leased in the coming period. On the other hand, the Fund will have the possibility to increase rents during the coming years, unlike the elapsed contract, which stipulates specific rents that do not allow the Fund to increase the rent according to market conditions during the contract period of 20 years, starting from the effective date of the contract on 01/11/2017.
The fund manager also expects an accounting adjustment to be made as a result of this event, represented by a reduction in the rental income item, based on the accounting treatment of IFRS 16 (lease contracts). It should be noted that this treatment will not affect the expected cash flows of the fund or cash dividends, as It is considered a non-cash accounting settlement.