Plans for the Makkah project by Jabal Omar Development include hotels, shops, air-conditioned prayer facilities, and housing. AP
Plans for the Makkah project by Jabal Omar Development include hotels, shops, air-conditioned prayer facilities, and housing. AP
Plans for the Makkah project by Jabal Omar Development include hotels, shops, air-conditioned prayer facilities, and housing. AP
Plans for the Makkah project by Jabal Omar Development include hotels, shops, air-conditioned prayer facilities, and housing. AP

Property

Saudi Arabia's Jabal Omar swings to yearly profit as revenue climbs and expenses drop

More than 100 per cent fall in operating costs also helped profitability

Sarmad Khan
Sarmad Khan
Abu Dhabi

February 18, 2019

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Jabal Omar Development, a Riyadh-listed real estate company, swung to full-year profit as revenues climbed and expenses fell.

The developer reported a profit of 193.78 million Saudi riyals (Dh189.76m) for the 12-month period ending December 31, it said in a statement to the Saudi stock exchange, where its shares are traded. The company reported a 601m riyals loss in 2017.

Revenues for the period surged 245 per cent to 1.96 billion riyals on the back of 1.21bn worth of sales from residential units. The developer recorded no sales in the 2017 fiscal year, it said in the regulatory filing. Jabal Omar’s hotel revenues climbed by 28 per cent at the end of 2018, while revenues from commercial centre operations increased by 60 per cent, it added.

A more than 100 per cent fall in operating costs also helped profitability as developer’s other income climbed to 243m riyals. Operating expenses also fell, by 13 per cent.

“During this year, financial charges increased by 187m riyals mainly due to the full-year recognition of the sale and lease-back transaction,” the company said. “Management was [also] able to better manage expenses despite the expansion in operating and investment activities.”

The construction sector in Saudi Arabia has struggled in the past few years on the back of the three-year oil slump which began in the middle of 2014. Prices of oil have increased from lows of less than $30 per barrel in the first quarter of 2016 to hover around $60 per barrel, which has revived economic momentum and boosted construction activity in the kingdom.

The construction sector in Saudi Arabia’s is set to grow 5.5 per cent year-on-year in 2019, according to Fitch Solutions. Overall, the sector in the broader Middle East and North African region is forecast to grow at the fastest pace globally this year as regional governments continue to invest in infrastructure projects and rebuild conflict areas.

Jabal Omar, which is one of the biggest publicly listed real estate companies in Saudi Arabia, is developing a multi-use mega-project spanning 2 million square metres near the Great Mosque in Makkah.

The company raised $135m through an Islamic bond last year to fund the development of property projects in and around Makkah.

Shuaa Capital, the UAE financial services group, was the sole arranger for the private placement of the five-year sukuk, according to Shuaa’s January 9 statement to the Dubai Financial Market

Proceeds from the sukuk will help to diversify Jabal Omar’s capital base as it develops projects around Makkah, according to the statement, which did not specify which of the projects will be funded through the sale of Islamic bonds.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Middle EastRiyadhOilSaudi Arabia