Markaz: A resilient start to 2019 with AUM reaching a 5-year high

Net profit to shareholders KD 3.64 million, a 113% y-o-y growth

Manaf A Al-Hajeri

KUWAIT: Kuwait Financial Centre “Markaz” reported total revenues of KD 7.38 million during Q1 2019 compared to KD 4.90 million in Q1 2018. Net profit attributable to shareholders of Markaz was KD 3.64 million (EPS 8 fils per share) for Q1 2019, with a margin of 49 percent.

Manaf A Al-Hajeri, CEO of Markaz, said in a statement, “I am pleased to announce that Markaz has started 2019 on a positive note, delivering a sustainable financial performance across our asset management, investment banking and principal investments. Asset management fees reached KD 1.77 million up by 6.2 percent y-o-y and investment banking fees, a very transaction timing driven business, were at KD 0.15 million for the quarter. Our principal investments delivered revenue of KD 5.36 million, an increase of 82.1 percent y-o-y, and achieved 3.84 percent quarterly returns on shareholders equity. The AUM at the end of the quarter touched a five-year high at KD 1.16 billion, registering a growth of 12 percent y-o-y.

Developed markets ended the quarter positively, with the NASDAQ Composite Index and the S&P 500 Index advancing 16.5 percent and 13.1 percent respectively. Encouragingly, the MSCI World Index expanded as well gaining 11.9 percent and emerging markets rebounded with the MSCI Emerging Market Index gaining 9.6 percent. The constructive dialogue between China-US on their negotiations and the conservative position taken by the Federal Reserve with no anticipated rate hikes for the rest of the year have contributed to the upswing.

Coming to the GCC markets, the Saudi Arabia benchmark was the top performer and gained 12.7 percent in the quarter. In the UAE, both Dubai and Abu Dhabi markets recorded gains after recovering from losses during Q4 2018, with the Dubai index gaining 4.2 percent and the Abu Dhabi index gaining 3.2 percent. Kuwait was the GCC’s second highest performer, with the All-Share Index gaining 10.6 percent on higher volumes led by large caps and the banking sector. The Kuwait markets would further benefit from the anticipated upgrade to emerging market status by MSCI in June 2019. In line with the market, Markaz’ equity funds achieved notable growth with Markaz Investment & Development Fund (MIDAF) and Markaz Fund for Excellent Yields (MUMTAZ) recording returns of 7.90 percent and 8.67 percent YTD respectively.
The GCC economies have started to show initial signs of stabilization in Q1-2019 with government led initiatives such as relaxation in restrictions on foreign property ownership, implementing new visa regulations and adopting economic stimulus plans. These measures are expected to be positively reflected across real estate pricing dynamics.

Despite the sharp decline in oil prices and unstable geopolitical conditions last year, resulting in weak performance of GCC real estate markets, the MENA Real Estate team was successful in maintaining occupancy levels across its portfolio of income generating assets. Occupancy rates were about 95 percent in Markaz managed assets across Kuwait, UAE and KSA. In addition, leasing activities commenced in Al-Rihab, a 148 unit residential compound in Riyadh, with initial positive feedback. During Q1 2019, Markaz also commenced the roll-out of in-house property management activities for select assets as part of its ongoing initiatives to reduce operating costs. Markaz’s flagship fund, MREF was able to weather market conditions and register a positive YTD total return of 1.04 percent to investors during the quarter.

Internationally, commercial real estate continued its positive trend in Q1 2019 with property prices marginally increasing by approximately 0.5 percent (CPPI) and the NAREIT index increasing by 16.7 percent during the quarter. Stability in Federal Reserve rates in 2019 is expected to have a positive impact on REIT values and the NAREIT index.

Real estate fundamentals remained stable with estimated YTD rent growth of industrial 2.2 percent, office 0.8 percent and multifamily 0.5 percent. Vacancy rates across asset classes have also remained stable with completions matching demand levels. However, in the near term, elevated supply levels in the industrial and multifamily sectors are expected to result in marginally higher vacancy rates.

During Q1 2019, Markaz started construction on two new industrial development projects in the US located in Stockton, California and Phoenix, Arizona. Our development strategy will continue to target locations with strong fundamentals, rental growth and development projects with inherent competitive advantages. Our International Real Estate team continues to expand its investment program designed to capitalize on value-add opportunities in the US and selected European markets such as Poland and Germany. The Kuwaiti M&A market started 2019 strongly with a substantial number of transactions across various sectors such as energy and banking. In Q1 2019, our Investment Banking team received many requests for various advisory mandates and interest from both buyers and sellers for M&A transactions. Sectors such as education, healthcare and food and beverage continue to attract strong interest from potential buyers. We expect more transactions going forward as the valuation gap between buyers and sellers continues to converge. We are now in the final stages of closing existing mandates. Our Investment Banking team continues to leverage its sector experience and execution excellence to deepen relationships with existing and potential clients.

Overall, the global capital markets have recorded a positive start to the year although sentiment remains unpredictable and continues to be impacted by muted industrial growth forecasts and persisting geopolitical tensions. As the markets tread with caution, the Markaz management team is focused on providing customized and insightful advice to its core corporate and investor clients with a view to achieving their wealth management objectives. Markaz capital market team completed the first listing of the year on Boursa Kuwait for Al-Manar Finance and Leasing Company during February 2019. Markaz also assisted United Projects Company for Aviation Services in raising funds through a capital increase with total size of KD18 million. We also continue to streamline our business operations by refining internal procedures and lowering costs without compromising quality. Markaz is one of the leading wealth management and investment banking financial institutions in the region that gained the trust and loyalty of its clients over the last 40 years.”