MEFIC REIT drops Plaza 1 renewal, takes impairment hit

MEFIC REIT Fund said its board approved on June 25 a decision not to renew the usufruct contract for the Plaza 1 property beyond its original term. The fund will record an impairment loss on the asset in the second quarter of 2025.

MEFIC Capital, the fund manager, said extending the Plaza 1 usufruct agreement was not commercially viable. The property is a commercial building in Riyadh, and the decision follows a review of lease income projections and operating costs.

The impairment charge will reduce the fund's net asset value for the quarter. MEFIC REIT did not disclose the size of the write-down or the property's carrying value in the statement.

Usufruct contracts in Saudi REIT structures give the fund the right to use and generate income from a property for a fixed period, typically 20 to 30 years, without owning the land. Non-renewal means the fund loses future income from that asset and must adjust its book value.

MEFIC REIT's portfolio includes commercial, residential, and educational properties across Saudi Arabia. The Plaza 1 property contributed a portion of rental income that will now need to be replaced through new acquisitions or lease-ups at other assets.

The fund's unit price has been under pressure this year as Saudi REITs face higher borrowing costs and softer commercial real estate demand in parts of Riyadh. The impairment adds a one-time hit to NAV that could weigh on the stock until the fund outlines a replacement strategy.

MEFIC Capital said it will provide further details in the Q2 2025 financial report, due by mid-August.