Real estate

THE COMPANY: Mabanee is a shareholding real estate firm that is widely recognised for owning The Avenues Mall. It was listed on the Kuwait Stock Exchange in November 1999 and is currently the largest real estate company in the country, with a market capitalisation of KD824m ($2.84bn), representing around a third of the Kuwaiti real estate sector.

The Avenues is planned to include four phases, three of which are currently operational. The most recent phase ended in 2012 at a total cost of KD171m ($589.12m). The current occupancy for all three phases is 100%. Phase four of the mall is currently being planned and will increase gross leasable area (GLA) from 265,000 sq metres to around 360,000 sq metres by early 2018. The expansion will entail a capital outlay of KD220m ($757.94m). The Avenues experienced footfall of 48m in 2014, which has doubled since 2011.

Rental income from the mall accounts for over 80% of the firm’s revenues, while the remainder is driven mainly by advertising services for tenants and logistics revenue. Mabanee has high exposure to the local retail market, which makes up 98% of its GLA, while an office building accounts for the rest. The firm’s success depends on its partnerships with local and international retailers, which attract major tenants and local consumers alike. The company’s largest shareholder, Al Shaya Group, owns a 34.2% stake in Mabanee and franchise rights in the region for 63 international retail brands. According to Mabanee, Al Shaya currently occupies a significant portion of their retail spaces.

The growth in total assets for Mabanee has stemmed mainly from the development of The Avenues, which has a total construction cost of KD314m ($1.08bn). Total assets grew at a compound annual growth rate (CAGR) of 18.7% between 2009 and 2014, mainly on the back of significant increase in investment properties, which totalled KD459.8m ($1.58bn) by December 2014.

Mabanee’s total liabilities grew at a CAGR of 18.5% during 2009-14 to reach KD255.7m ($880.9m) on increased leveraging to finance the expansion of The Avenues. Nevertheless, the company’s debt-to-equity ratio decreased to 0.64 by end of December 2014 on the back of healthy net profits. Total debt increased by 30.7% year-on-year to KD168.4m ($580.17m) in the same month. Driven by its robust operations, Mabanee is well positioned to service its debt obligations in the future and borrow additional funds to finance its plans.

During 2014, Mabanee grew its rental income by 12.1% to KD69.47m ($239.34m) compared to KD61.95m ($213.43m) in 2013. This resulted in income for investment properties remaining almost flat in 2014 in spite of a significant fall in placement fees. Flattish net profit and growing shareholders’ equity led to a dip in return ratios in 2014. Return on average equity fell to 19.5% compared to 22.6% in 2013, and return on average assets contracted to 10.4% compared to 12.1% in 2013.

DEVELOPMENT STRATEGY: As owner of The Avenues, Mabanee is among Kuwait’s premier real estate companies. The mall has strengthened the firm’s footing in the country and the region, and it has used the shopping centre as a cash cow to finance its strategy for growth while maintaining an optimal capital structure.

The completion of phase four is likely to improve revenue outlook significantly, especially given the strong rental income and associated placement fees. Mabanee is working also on developing three other malls in Saudi Arabia and has bought two land plots. The firm is executing these projects in a 55:45 partnership with Al Fozan Group, which owns a majority stake in Saudi electronic retailer United Electronics Company.

The company’s expansion plan also includes construction of a 170-room, five-star hotel and a 250-room, four-star serviced apartment complex adjacent to The Avenues at an estimated cost of KD45m ($155.03m). These hotels are expected to open in late 2018, once phase four of the mall is complete. The firm is targeting business travellers for the five-star hotel and leisure visitors from Saudi Arabia for the fourstar apartments. Mabanee is currently seeking partnerships with hotel operators to undertake these projects.