Alandalus Property Co. has settled all debts by the end of 2018, Hathal Alutaibi, the company’s chief executive officer told Argaam in an exclusive on Wednesday.
“All options are available for the company to study the optimum financing structure and generate the highest profit,” Alutaibi said.
“The company’s real estate assets traded at a book value of nearly SAR 500 million last year, while the fair value of its investments stood at SAR 2.35 billion,” he continued.
In the interview, the CEO highlights how the company would rather aim to cut reliance on conventional retail stores and focus on the fashion and accessories business.
Excerpts from the interview:
Q: Can you brief us about Alandalus’ core operations? How did the company deal with the recent sector slowdown?
A: The company is developing income-generating real estate assets to achieve steady income growth for shareholders. Alandalus does not acquire, rezone or sell land plots. The company invests in income-generating assets in the retail real estate sector, namely malls.
Alandalus also operates in the development of its own projects and co-owns assets with other partners.
Q: How do you see consumer shift in the retail real estate sector? How would it impact the consumer pattern on leasing revenue from these malls?
A: The conventional retail industry has faced many challenges. Retail stores previously represented the biggest share in malls, when compared to restaurants and entertainment activities. Consumers today have shifted to entertainment activities. Therefore, the company will focus on offering more entertainment facilities to meet client demand.
The developer is working on the preliminary designs of Alandalus Mall to go in line with the change in consumer pattern. The retail property sector was restructured on the introduction of online trading platforms.
On the other hand, leasing revenue from Alandalus malls are still solid, but the company is looking to cut reliance on conventional retail stores as they reached maturity. Alandalus rather aims to focus on the fashion and accessories sector, and to offer open areas for restaurants, cafes, sports clubs, games and cinema halls.
The company is also keen on balancing its operations to reduce correlation risks that should not exceed 10 percent of any business activity. The same matter applies to the company’s tenants.
For consumers and shopping, the target category of the Kingdom’s population is on the rise, with their needs steadily growing. The government is shifting now to the development of the Saudi entertainment sector, as the most popular shopping destinations regionally and overseas focus on tourism.
In light of Alandalus strategy, any project to be developed or acquired going forward will go in line with the government trends and market developments.
Read: Alandalus Property’s net profit slumps 59% in FY 2018
Q: How many projects are owned by the company?
A: Our portfolio comprises high-quality assets in prime locations, with strong occupancy rates and solid revenue. These assets are Alandalus Mall, Hayat Mall, Dareen Mall, Sahafa Center, Tilal Center, Yarmouk Center and Al-Marwa Center, and Staybridge Suites hotel.
Other ongoing projects include a hospital in western Jeddah, which is being developed in joint venture with Dr. Sulaiman Al-Habib Medical Group. The hospital is part of Alandalus Square project.
The company’s partner is completing the required site groundworks. The hospital is expected to be launched in Q2 2022.
In addition, Alandalus owns a 25 percent holding in Aljawhara Mall, located near King Abdullah Sports City.
Q: What about the company’s land inventory?
A: Alandalus does not have a land inventory. It is either utilizing the available land areas or planning to reuse them. Alandalus is not a conventional real estate developer. The company owns 25 percent of a land plot in Al-Sawari, Jeddah. The land plot was allocated for building Panorama Mall for Sorouh El Marakez Co.
However, the project was stalled amid economic slowdown as Sorouh’s board of directors was requested to determine the optimum purpose of the land.
Alandalus owns a 10,000 square meter land beside Alandalus Mall. Other land plots were evacuated for Jeddah’s new hospital. The company is studying new integrated operations with Alandalus Mall to enhance its competitive edge.
Q: What is the market value of Alandalus’ property assets?
A: Tadawul-listed firms cannot record the fair value of real estate assets in their financial statements. The value is only announced in financial disclosures. Our assets traded at a book value of SAR 500 million, while their fair value stood at SAR 1.6 billion by the end of 2018.
The fair value of affiliates’ assets reached SAR 745 million, bringing the total fair value of the group’s entire investments to SAR 2.35 billion.
Q: What are the latest developments about Al-Marwa Mall, scheduled for launch in Q4 2018?
A: Construction of the mall is 100 percent complete, with all infrastructure services supplied. We’ll soon announce the project’s material developments.
Read: Alandalus Property plans 10% dividend for FY 2018
Q: What about Staybridge Suites hotel revenue growth, and mall occupancy rates by the end of2018?
A: The hospitality segment has largely contributed to the group’s higher revenue and gross profit. The hospitality business, represented by Staybridge Suites hotel, recorded revenue of SAR 24.4 million in 2018, compared to SAR 7.2 million a year earlier.
The hotel began operations in H2 2017. Its occupancy rate hit 62 percent last year – in line with peers’ average.
For our malls, Alandalus Mall was the key contributor with SAR 140.3 million revenue in 2018, compared to revenue of SAR 138 million a year earlier.
Revenue from other malls decreased. Occupancy rates in Alandalus’ malls varied, with Hayat and Alandalus reporting the highest rates at 98 percent and 95 percent, respectively.
Occupancy rate in other centers stood between 95 percent and 100 percent.
Q: Did the company adjust the leasing value for its malls in 2018?
A: The company did not introduce any change to the leasing value of malls. However, it grants discounts to some tenants, in light of certain standards such as the fulfillment of full payments, solid credit records, commitment to improve sales and product showcasing.
Alandalus aims to help store tenants continue and grow their business amid economic slowdown. Accordingly, it grants cash discounts to its tenants.
Q: How can you justify a drop in Alandalus’ annual and quarterly profit?
A: Overall, the company reported healthy revenue and gross profit. The decline in its annual profit is attributed to selling a 31.27 percent stake in AlAhli REIT Fund (1) along with an increase in general and administrative expenses due to fund management fees.
In addition, the company recorded a capital gain of SAR 23 million from selling a land plot to build Jeddah’s new hospital in 2017. Alandalus also incurred goodwill impairment losses of SAR 6 million from Hamat Co. and saw higher zakat provisions, when compared to 2017.
Q: Can you give us more details about selling 31 percent of AlAhli REIT Fund (1)?
A: The company sold Alandalus Mall and Staybridge Suites hotel to AlAhli REIT Fund (1), in which shareholders or unit holders own 31.27 percent. Accordingly, the company now receives 68.73 percent income from both assets, instead of 100 percent previously, which weighed on its 2018 figures.
Read: Alandalus to commence Jeddah project works in Q1 2019
Q: Why did the company sell Alandalus Mall and Staybridge if they deliver solid revenue and income? Did the company’s deal with AlAhli REIT Fund (1) pay off?
A: Alandalus Property owns a 68.73 percent stake in the fund. The fund was offered for the public and distributed profit of SAR 2 per unit in 2017 and SAR 1 per unit in 2018. The developer completed repayment of all debts worth SAR 1.8 million by the end of 2018.
Meanwhile, the company generated a strong capital gain from selling its standout Alandalus Mall.
Q: Is the company planning any debt instrument issuance in the near term?
A: All options are available. We will study the optimum financing structure to generate strong profit. The company has not yet planned any debt instruments, but the move is likely.
Q: Are there any other updates for the company’s shareholders?
A: The company has a strong commitment toward its shareholders. It announced several mega future projects to maintain growth and aggrandize income.
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