Mabanee: Real estate

Mabanee price & index relative performance Mabanee market ratios THE COMPANY:Mabanee is a shareholding real estate firm widely known for owning The Avenues shopping mall. It was listed on the Kuwait Stock Exchange in late 1999 and is currently the largest real estate company, with a market capitalisation of $2.7bn, representing around 32% of the Kuwaiti real estate sector. The Avenues is designed to unfold in four phases, three of which are currently operational. Phase I was completed in April 2007 and Phase II opened in April 2008, adding to the company’s success and bringing in a target market and unique offering that was new to Kuwait. The launch of Phase III construction took place in October 2009 at a total cost of KD171m ($610.7m) and began operations in 2012. As the latest phase becomes fully occupied, this is expected to increase Mabanee’s rental income and witness growth in the company’s bottom line in the near future. The mall rental income accounts for roughly 90% of the company’s revenues, while the remainder is driven by advertising services for tenants. Mabanee has great exposure to the local retail market, which makes up 98% of its gross leasable area, with an office building accounting for the rest. Mabanee’s success depends on its strategic partnerships with local and international retailers. The company’s largest shareholder, Alshaya Group, which has a 35.8% stake in Mabanee, owns franchise rights in the region for 63 international retail brands. According to Mabanee, a significant portion of their stores is currently occupied by Alshaya. The growth in total assets for Mabanee has stemmed mainly from the development of The Avenues mall, with a total construction cost of KD314m ($1.12bn). Total assets registered a compound annual growth rate (CAGR) of 15% from 2007 to 2012 on the back of a large increase in investment properties, which grew from KD100.7m ($359.6m) in 2007 to reach KD341.7m ($1.22bn) by December 2012. On the liabilities side, Mabanee’s total liabilities reported a CAGR of 13% from 2007 to 2012 to reach KD190m ($678.6m) from KD102m ($364.3) in 2007 on increased leveraging to finance the expansion of The Avenues. Nevertheless, the firm’s financial leverage ratio improved to 0.67x by the end of December 2012 on the back of healthy net profits coupled with a strong growth in equity base as the company increased its capital during the same period. Total debt grew by 12.7% from KD114.8m ($410.01m) by end of 2011 to KD129.3m ($461.8m) at the end of December 2012. Driven by its robust operations, Mabanee is well positioned to service its debt obligations in the future and has the capacity to borrow additional funds in order to finance its expansion plans.

In 2012 Mabanee was able to increase its net income from investment properties to KD48m ($171.4m) from KD37.7m ($134.6m) in 2011, representing an increase of 28%, powered by The Avenues. In addition, profit from operations grew 34% to KD36.5m ($130.3m) in 2012 compared to KD27.3m ($97.5m) in 2011, which resulted in net profit increasing in 2012 to KD33.3m ($118.9m) up from KD20.8m ($74.2m) the previous year. The growth in earnings resulted in healthy returns for shareholders with return on average equity improving to 19.5% in 2012 up from 15.2% in 2011, while return on average assets stood at 9.6%.

DEVELOPMENT STRATEGY: Mabanee is considered to be among Kuwait’s premier and most stable real estate firms. Mabanee has managed over the course of the last five years to shift its major source of income from trading in real estate to core operating sustainable recurring income. This venture is strengthening the company’s footing in the real estate sector in Kuwait and the region as well as enabling it to use The Avenues as a cash cow to finance its strategy for growth. The completion of Phase III is likely to improve revenue outlook significantly, especially given the strong rental income and the associated placement fees. In addition, the company has increased its stake in Al Rai Logistica to 98.1%, fostering its vision to diversify and replicate its successful business model with plans to expand outside Kuwait. Going forward, Mabanee has confirmed the launch of Phase IV, which will only include retail.