Share analysis: Seef – Real estate

The Company

Seef Properties is primarily a mall operator and it manages Seef Mall, Bahrain’s second-largest shopping mall, with a gross leasable area (GLA) of 72,000 sq metres. Seef also has a serviced apartments division, through which it operates Fraser Suites, and a recreational facilities division that includes Magic Island, a family entertainment facility at its malls.

Seef was established in 1999 by the government of Bahrain as a public registered company under the Ministry of Industry and Commerce, and was listed on the Bahrain Stock Exchange (now the Bahrain Bourse) in 2007 as part of the government’s privatisation initiative. Paid-up capital currently stands at BD46m ($122m).

The Social Insurance Organisation is Seef’s largest shareholder, with a 22.1% share, followed by the Royal Charity Organisation (10.1%), Kuwait Finance House (7.4%) and the Bayan Group (6.9%). The majority of the company’s shareholding is public (53.5%).

Seef Mall is the company’s flagship development, accounting for about 70% of the company’s revenues. Located in the Seef District, the mall has more than 350 outlets and offers a variety of international consumer brands, alongside anchor tenants like Marks & Spencer and H&M. The mall also has two food courts with over 50 outlets and features a 16-screen cinema complex, operated by the Bahrain Cinema Company.

Seef’s revenues have risen steadily at a five-year CAGR of 3% to reach BD12.2m ($32.3m) in 2013. Profit growth has also been healthy over the period 2009-13 (9% CAGR), reaching a five-year high of BD10m ($26.5m) in FY2013. Top-line growth is supported by rising contributions from Fraser Suites and mall-based recreational facilities. Occupancy levels at Fraser Suites reached 72% in FY2013, up from 66% in 2012, with revenues rising 16% year-on-year (y-o-y) to BD2m ($5.3m) in FY2013, representing 17% of Seef’s annual revenues.

Seef’s 9M2014 earnings were up 3% y-o-y to BD5.2m ($13.8m), despite a six-month shutdown of Magic Island for refurbishments, owing to growth in Fraser Suites’ revenues, which were up 17.4%. Rising tourist inflows (up 16%) were the driving force behind the serviced apartment division’s improved operating performance.

Development Strategy

According to UK-based Cluttons, Bahrain’s retail market has been the best performing sector in the commercial space, driven by strong tourist inflows from neighbouring Saudi Arabia. Seeking to expand its footprint in the kingdom’s resilient retail space, Seef has undertaken a number of expansion projects scheduled to come online in 2014, making it a milestone year. Expansion projects include the inauguration of Muharraq Mall, expansion of Seef Mall and renovation of Magic Island at Seef Mall.

Muharraq Mall is scheduled to open in 4Q14 with a GLA of 30,000 sq metres. Importantly, 100% of the leasable area has been pre-let, indicating strong vendor demand for retail exposure. The mall will feature a cineplex operated by Qatar’s Grand Cinemas, and include anchor tenants such as Geant hypermarket.

Seef is also working to expand Seef Mall’s GLA by 2200 sq metres (3% of existing capacity) and renovate the Magic Island entertainment facility. After completion, the new Magic Island will include new attractions like 3D games and fluorescent bowling, which are expected to enhance Seef Mall’s attractiveness, particularly with families, generating incremental footfall.

The company has high earnings visibility due to the recurring nature of its revenues and stable cost structure. Seef has been a consistent dividend payer, with cash dividends on a rising trend, at a CAGR of 19% over the FY2008 to FY2013 period. The company is expected to continue to deliver shareholders a healthy dividend stream, which should rise with earnings on the back of its recent expansion projects.

Seef has a debt-free balance sheet and significant cash balances, which stood at BD 15.7m ($51.5m) as of September 30, 2014 and represented 12% of assets, providing significant balance sheet room to launch new projects. The company has previously indicated its plans for further development near Muharraq Mall, which could take the form of serviced apartments or offices.