Saudi Arabia's largest developer is on the cusp of completing the largest mall in the country, which will provide it with a steady cash flow to smooth out its volatile revenues.
Dar Al Arkan's Al Qasr Mall in Riyadh is 85 per cent complete and is aiming to start commercial operations by the second half of this year, said Mostafa el Maghraby, an analyst at Global Investment House in Kuwait.
Mr el Maghraby initiated coverage on Dar Al Arkan with a strong buy rating and price target of 11.37 Saudi riyals a share. Shares of the company were up 0.5 per cent to 8.65 riyals yesterday. Al Qasr Mall features a gross leasable area of 75,584 square metres - or about half the size of Dubai's Mall of the Emirates - including 8,780 sq metres already leased to Carrefour, the French retailer.
"It's good to make the move to make some sort of recurring income, because [property] sales are volatile like any other developer's, depending on the timing of the delivery of the project. Recurring income irons out the volatility," Mr el Maghraby said.
The Al Qasr project, estimated to be worth 1.8 billion riyals, involves more than just the mall, with more 1,700 residential homes for sale, 1,318 residential units for renting, and significant commercial space.
Dar Al Arkan, established in 1994, is a master developer of large-scale projects, generally up to 5 million sq metres.
Saudi Arabia's residential market suffers from undersupply, especially in the low and middle-income segments. "We estimate that a current shortage of 700,000 units exists in the market and an additional 1.2 million new units will be needed by 2014, offering attractive potential for realtors," Mr el Maghraby said.
Dar Al Arkan's property developments are tailored to people in the middle-income bracket. Future developments are concentrated in Riyadh and Jeddah although the company's extensive land bank of about 32 million sq metres extends throughout the kingdom.