Mabanee: Real Estate

THE COMPANY: Mabanee is a public shareholding real estate company that is widely recognised for owning The Avenues shopping mall. It was listed on the Kuwait Stock Exchange in November 1999 and is currently the largest real estate company in the sector, representing around 27% of the total real estate sector market capitalisation, which amounts to $1.7bn. The Avenues mall is designed to include four phases, two of which are currently operational. Phase I of The Avenues started construction during 2004 and opened in April 2007. The opening of phase II came in April 2008, bringing in a new target market and unique tenant offering. Phase III construction was launched in October 2009 and is estimated to cost around KD150m ($540.75m) and open in April 2012. The mall rental income accounts for roughly 90% of Mabanee’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. Mabanee’s success depends on its partnerships with local and international retailers, which helps attract other major tenants and local consumers. Mabanee’s largest shareholder, Al Shaya Group, owns a 35.8% stake in the company and has franchise rights in the region for 63 international retail brands. According to Mabanee, a significant portion of their stores are currently occupied by Al Shaya group. The growth in total assets for Mabanee has stemmed mainly from the development of The Avenues mall, which has a total construction cost of around KD314m ($1.13bn). Total assets registered a compound annual growth rate of 23% between 2005 and 2010, mainly on the back of a significant increase in investment properties, which grew from KD6.4m ($23.07m) in 2005 to reach KD239m ($861.59m) by June 2011. Since April 2007, Mabanee’s operations and revenues structure has changed significantly, as it has become more strategically centered on its new mega-mall operations. Income from mall operations reached KD18.9m ($68.13m) during its first nine months of operations in 2007. Out of total income, an estimated KD32m ($115.36m) is considered recurring income from The Avenues. This number is projected to increase significantly, as operations for phase III are expected to start sometime during the second quarter of 2012.

During the first half of 2011, Mabanee increased its revenues from investment properties to KD18.8m ($67.77m), up from KD17.7m ($63.8m) in the first half of 2010, representing an increase of 6%. As a result, net profit increased during the first half of 2011 to KD11.6m ($41.82m), or 11.8% up from the KD10.4m ($37.49m) reported in the same period of 2010.

Mabanee’s total debt increased by 6% from KD100m ($360.5m) by the end of 2010 to KD106m ($382.13m) as of July 2011. 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.

DEVELOPMENT STRATEGY: Mabanee is considered to be among Kuwait’s premier and most-stable real estate companies, particularly as a result of owning The Avenues mall. Mabanee has managed over the course of the last three years to shift its major source of income from market speculations to core operating and sustainable recurring income. This venture is strengthening Mabanee’s footing in the real-estate sector in Kuwait and the region. It is also enabling it to use The Avenues as a cash cow to finance its strategy for growth while at the same time maintaining a healthy capital structure and reducing its overall cost of capital.

According to Mabanee, a portion of phase III will be handed over to incoming tenants in the third and fourth quarters of 2011, while the remaining space will be handed over by the first quarter of 2012. This is likely to improve the revenue outlook significantly, especially given the strong rental income and associated placement fees. In addition, Mabanee is planning to increase its stake in Al Rai Logistica Co, fostering its vision to diversify and replicate its own successful business model, with plans to eventually expand outside of the country.