George Kostas. (Asharq Al-Awsat)
Dubai, Asharq Al-Awsat—Last week, regional real estate giant Majid Al Futtaim Group announced that its revenues for the first half of 2014 had jumped 14 percent year-on-year, marking a successful period during which the Group’s retail arm opened 12 new hypermarkets. Earlier in July the Group opened two new hotels in its Bahrain City Center shopping complex, The Westin Bahrain City Center and Le Méridien Bahrain City Center.
Since opening its first mall in Dubai in 1992, the Group has expanded into one of the largest developers of shopping malls and hypermarkets in the MENA region, opening Dubai’s famous Mall of the Emirates and being the sole franchisee in the region for French retail giant Carrefour. It has since formed a number of subsidiaries, including Majid Al Futtaim Properties and Majid Al Futtaim Retail which together manage the shopping malls, hotels, gated communities, and the hypermarket sides of the business, respectively.
Asharq Al-Awsat met with the chief executive of Majid Al Futtaim Properties, George Kostas, who joined the Group in 1992 following a role with real estate contractor and developer Brookfield Multiplex, to discuss the company’s general expansion plans, its recent financial performance, and its long-awaited push into the Saudi Arabian market.
Asharq Al-Awsat: Tell us about Majid Al Futtaim Properties’ business strategy . . .
George Kostas: Our growth strategy aims to establish Majid Al Futtaim Properties as MENA’s leading diversified real estate and property services company.
Our objective is to prudently and sustainably grow our three existing businesses in shopping malls, hotels and master-planned community developments across MENA in both existing and new markets by promoting a culture of exemplary customer experiences, delivering products that always meet expectations, and building loyalty by making customer satisfaction a central goal.
We also aspire to be much more than what we are today by expanding into those real estate classes or businesses that we aren’t currently in but are a natural extension to our core skills and expertise. To achieve this we are investing significantly in our organization [and] how we are structured. The level of empowerment and independence we are delegating to our business units . . . enable that growth. Most important of all is the enormous investment we understand we must make in our people.
Our business plan sets a road map to double the size of our business over the next five years. All of these projects are owned; they are on our balance sheet and they are funded.
Q: What is the size of Majid Al Futtaim Properties’ portfolio currently?
Majid Al Futtaim Properties currently owns and operates 17 shopping malls across MENA with a total GLA [gross leasable area] of more than 1.1 million square meters [1.3 million square yards], and a collective footfall of more than 175 million visitors annually. Our hospitality portfolio includes 11 hotels adding up to about 3,000 rooms. The occupancy rate at our hotels averaged over 80 percent in 2013. We are also developing 4 million square meters [4.8 million square yards] of mixed-use communities in Sharjah, Muscat, Oman, Beirut and Lebanon, collectively delivering more than 10,000 residential units. The value of Majid Al Futtaim’s assets is more than 39 billion Emirati Dirhams [11 billion US dollars], 87 percent of which belong to Majid Al Futtaim Properties.
Q: Which sectors is the company eyeing for expansion during the coming period?
The retail and hospitality sectors continue to be key growth platforms for Majid Al Futtaim Properties. We have a strong pipeline of shopping mall developments in Egypt, the UAE, Oman, and soon in Saudi Arabia. We are assessing expansion opportunities in other areas that complement our core business.
Q: It was previously announced that Majid Al Futtaim was looking to invest about 22 billion dirhams (6 billion dollars). How will the company fund these investments?
Majid Al Futtaim Properties has strong revenue streams—which supports the expansion of the business. In addition, we have a solid, diversified long-term debt profile, supported by a BBB credit rating—the highest for a private company in the Middle East—which provides us with access to funding at competitive rates whether through loans or securities.
Q: Residential real estate development is considered to be one of the main growth sectors in the region. What are Majid Al Futtaim’s plans in this regard?
As mentioned earlier we have three very large, mixed-use master-planned developments that we are actively developing in the UAE, Oman and Lebanon. Other than just being very successful projects in their own right, they also provide an excellent platform with which to build a stronger . . . regional [and] diverse development business.
Strategically, we see a long-term sustainable business for us in residential development and so we are building our regional capabilities, [as well as] cementing our customer brand and recognition to enable a thoughtful and well-planned expansion across MENA. At the same time, we are investigating opportunities for similar projects.
The Group has announced large investments in Egypt recently. What are the projects you intend to launch, and why now?
We have a strong commitment towards the Egyptian market. We started buying land in Egypt right after building City Centre, Deira in 1995. We have been heavily invested in Egypt for decades now—20 years as an investor and more than 10 years with presence on the ground.
We are progressing well with our 4.9-billion-Egyptian-pound [685-million-dollar] Mall of Egypt development and working towards an opening in January 2016. We have signed leases for 70 percent of Mall of Egypt’s GLA—162,500 square meters [194,300 square yards]—but will hold the remaining 30 percent and reassess the retail mix closer to opening.
Mall of Egypt will combine a unique range of retailers with the most comprehensive leisure offering in North Africa. It will include Ski Egypt, a 17-screen cinema, a family entertainment center, and over 50 food and beverage outlets. It will also have 6,500 parking spaces directly accessible from the Al-Wahat [Bahareya] highway.
Besides Mall of Egypt, our 16.5-billion-pound [2.3-billion-dollar] investment plan includes a major expansion of City Centre, Maadi, and the development of two new shopping malls in the Almaza and Nasr [City] districts. Our aim is to add more than 300,000 square meters [360,000 square yards] of retail space to our portfolio in Egypt over the coming five years.
So far, we have created more than 3,500 direct jobs in Egypt and our investment plan is expected to add more than 125,000 direct and indirect local jobs over the coming five years.
Q: What are the company’s revenues and net profits? What is the optimum return you look to achieve for an investment?
In 2013, we saw our revenue increase by a strong 13 percent to 3.5 billion dirhams [953 million dollars] and EBITDA [earnings before interest, taxes, depreciation, and amortization] rise by around 14 percent to 2.2 billion dirhams [600 million dollars], contributing about 67 percent of the group’s EBITDA.
Like any good developer we make sure our projects achieve our cost of capital plus a reasonable return for the level of risk associated with a project. Each project is unique and needs therefore to be assessed on [its] individual merits.
Q: The Group is assessing opportunities in Saudi Arabia. Have you identified any opportunities already, and in which sectors?
We have been very interested in the Saudi market for a long time now and have spent a considerable amount of time researching and understanding the major cities. We plan to establish ourselves in Riyadh first and then expand once we have a proven track record.
Q: What are the key challenges facing the company and what are the solutions?
Our challenge is to make sure we continue to attract individuals of the highest caliber, develop their skills, and induct them into the Majid Al Futtaim family. We are a proud local company that has a broad international footprint. Our local heritage is important to us and we understand that long-term sustainability for our business means we must continue to attract top-quality local talent in all our markets and develop them to ensure they can lead and grow our businesses wherever we operate—whether it is Emiratis in the UAE, Egyptians in Egypt, Lebanese in Lebanon, Bahrainis in Bahrain, or Omanis in Oman; and hopefully soon Saudis in Saudi Arabia.
Q: Are you looking to grow through acquisitions—if so, in which sectors?
We are open to acquisition opportunities; however, our focus is on organic growth.
Q: Family businesses often become public companies as part of their natural development. Are you considering an IPO (initial public offering)?
No.
What’s your view of the UAE’s economy and how is it helping Majid Al Futtaim in delivering on its strategy?
The UAE’s economy is growing strongly and indications are we should see a consistent and stable growth trend over the next few years. This is important to us as—notwithstanding we are focused on diversifying both asset classes and geographies—our businesses in Dubai and the broader UAE remain the engine room for enabling our growth.
Musaid Al-Zayani
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