Running the Numbers Across a Small Saudi Portfolio, Not One Asset

A worked example of three Saudi assets held together, showing how income shocks behave differently at portfolio level and what the structure of the debt decides.

A portfolio is not three models stapled together. Income shocks average differently, costs spread differently, and the structure of the debt decides whether a problem at one asset stays there. The illustrative example below holds three Saudi assets side by side and tests the same loss of income at two different places in the portfolio.

The situation

An investor holds three Saudi income assets and wants to understand the portfolio rather than the assets: what the blended return is, how a single income shock behaves depending on where it lands, and whether a single facility across all three helps or harms.

Assumptions (illustrative)

• Asset A: twelve residential units, net operating income SAR 420,000, price SAR 6,500,000.
• Asset B: eight residential units, net operating income SAR 290,000, price SAR 4,200,000.
• Asset C: a single-let commercial building, net operating income SAR 310,000, price SAR 4,000,000.
• Total price SAR 14,700,000, with acquisition costs assumed at 7 per cent, or SAR 1,029,000.
• A single portfolio facility of SAR 8,000,000 at an assumed all-in cost of 6.5 per cent, giving service of SAR 520,000.
• Fixed costs continuing at an empty Asset C assumed at SAR 70,000 per year.

Step 1: Build the portfolio statement

SAR 420,000 plus SAR 290,000 plus SAR 310,000 equals SAR 1,020,000 of net operating income. Capital committed is SAR 14,700,000 plus SAR 1,029,000, or SAR 15,729,000.

Portfolio net yield on total capital is about 6.49 per cent, against about 6.94 per cent on price alone. The difference is the acquisition cost, paid three times rather than once, which is one of the real costs of assembling a portfolio in small pieces.

Step 2: Compare the asset yields

Asset A yields about 6.46 per cent on price, Asset B about 6.90 per cent and Asset C about 7.75 per cent.

Asset C carries the highest yield and the most concentrated risk, since one tenant provides all of its income. The blended figure conceals that, which is why a portfolio statement should always sit beside the asset-level detail rather than replacing it.

Step 3: Lose the single tenant at Asset C

Asset C income becomes zero while SAR 70,000 of fixed costs continue, so it contributes negative SAR 70,000. Portfolio net operating income becomes SAR 420,000 plus SAR 290,000 less SAR 70,000, or SAR 640,000.

A single lease event removes about 37 per cent of portfolio income. Diversification across three assets did not help here, because the loss was concentrated in one indivisible income stream.

Step 4: Lose the same amount of income spread across units

At Asset A, two of twelve units empty for six months at an average SAR 46,667 per unit per year removes about SAR 46,667, taking Asset A to SAR 373,333 and the portfolio to SAR 973,333.

Portfolio income falls by under 5 per cent. The same type of event, a tenant leaving, produces a loss of 37 per cent in one place and under 5 per cent in another, entirely because of how the income is divided.

Step 5: Cover under each case

Base cover is SAR 1,020,000 divided by SAR 520,000, about 1.96 times. With Asset C empty it becomes SAR 640,000 divided by SAR 520,000, about 1.23 times. With the spread voids at Asset A it is about 1.87 times.

The single facility absorbs the spread voids comfortably and is strained by the single-tenant void. The portfolio has one break point, and it is set by its least divisible income stream rather than by its average.

Step 6: What the debt structure decides

If instead each asset carried its own facility, with Asset C borrowing SAR 2,200,000 at service of SAR 143,000, then Asset C alone fails its cover test while Assets A and B continue unaffected at cover of about 1.9 times and 2.0 times on their own facilities.

A single cross-collateralised facility usually buys a better rate and transmits every problem across the whole portfolio. Separate facilities cost more and contain a failure within one asset. That is a structural choice, not an administrative one.

What changes the answer

• Re-letting Asset C within six months rather than twelve halves the income loss and lifts portfolio cover to about 1.60 times for the year.
• Reducing the portfolio facility to SAR 6,500,000 lowers service to about SAR 422,500 and raises stressed cover with Asset C empty to about 1.51 times.
• Adding a fourth multi-let asset of similar size reduces Asset C's share of portfolio income and therefore its ability to breach the covenant alone.
• Management cost per asset falls as the portfolio grows, so a fourth asset improves the blended cost ratio even at an identical gross yield.
• Acquisition costs of 7 per cent paid on three separate purchases consume about SAR 1,029,000 that a single larger asset would have incurred once.

What the numbers tell you

• Diversification protects against frequent small events and does little against one indivisible income stream.
• The portfolio break point is set by its least divisible asset, not by its average yield.
• Acquisition costs paid repeatedly on small purchases are a genuine drag on a portfolio built in pieces.
• A cross-collateralised facility usually prices better and spreads every problem across the whole holding.
• Always keep asset-level statements beside the portfolio statement, because the blended figure hides exactly the concentration that matters.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira builds the numbers on a Saudi property with you before you commit: rent and cost evidence, condition and capital expenditure, the appraisal and the sensitivities that decide whether the deal survives a bad year. The investment decision stays yours, and so does the advice of your licensed tax and legal advisers.