Kuwait Financial Centre “Markaz” (KSE: Markaz, Reuters: MARKZ.KW, Bloomberg: MARKAZ:KK) reported a strong financial performance during the year, with Operating Revenues of KD 23.49 million compared to KD 15.30 million in 2018 a growth of 53.5%. Net Profit attributable to shareholders of Markaz was KD 6.96 million (EPS 15 fils per share) for 2019, with a margin of 30%. In the light of our positive financial performance during 2019, the Board of Directors has recommended a dividend of 10 fils per share.
Mr. Diraar Yusuf Alghanim, Chairman of Markaz, said in a statement, “The global equity market continued its growth momentum from the second half of 2018 into 2019, with all major equity markets delivering strong returns. This robust performance was underpinned by a low interest rate environment across major economies. Kuwait equities also benefited from MSCI’s decision to upgrade the State to an Emerging Market and became the best performer in the MENA region. However, the overall economic growth was held back by a combination of factors including slower global economic activity, volatile oil prices and heightened geopolitical tensions. With these market conditions in mind, I am proud to announce that Markaz was granted with prestigious awards during the year including “Best Investment Bank in Kuwait 2019” by Global Finance, “Kuwait Asset Manager of the Year” by Global Investor Magazine and one of our fund MIDAF was named the “Best Equity Fund in Kuwait” by MENA Fund Manager.
During the year, we continued to implement our core strategy of actively managing our funds, private portfolios and real estate investments on behalf of clients along with our proprietary investments. Revenue was primarily driven by the Asset Management division, which delivered growth of 12.6% year on year to KD 8.11 million. Net Rental Income was further supported by rental income from new properties added by Markaz during the year contributing KD 1.33 million, more than double as compared to last year and Gain from Investments at Fair Value through Profit or Loss contributed KD 9.9 million to our revenues as compared to KD 3.5 million in 2018.
Income from Principal Investments increased by 129% to KD 14.71 million, contributing 63% to Total Revenue and generating an annual return of 8.4% on total investments. Our Management Fees and Commission, which include asset management revenues of KD 8.11 million, declined by 2.7% as investment banking reduced its contribution to KD 0.58 million. Markaz AUM at the end of the period closed at KD 1.14 billion up 4.6% compared to 2018.
Global equity markets delivered outstanding returns in 2019 with a 25.2% gain in the MSCI World index. The GCC equity market continued to deliver growth for the fourth consecutive year with the MSCI GCC index increased by 5.9%. However, GCC equity markets relatively underperformed its global peers due to lower investor confidence in the political stability of the region. The Kuwait equity market was the best performing market in the MENA region with the All-Share Total Return Index achieving 23.7% in 2019. This performance was driven by large caps after MSCI’s decision to upgrade Kuwait to an Emerging Market and was also consistent with Markaz’s investment thesis for 2019. Forsa, Markaz Fund for Excellent Yields (MUMTAZ), Markaz Islamic Fund and Markaz Investment and Development Fund (MIDAF) recorded their highest annual returns in last 5 years with returns of 27.2%, 22.6%, 21.7% and 21.5% respectively.
A record year was set in 2019 for GCC Bonds and Sukuk markets where total value of primary issuances increased by 24% to USD 114 billion. The largest primary issuance market was the UAE, followed by Saudi Arabia and all time high issuances clearly demonstrating the growing importance of debt capital markets within the region. Overall S&P MENA Bonds and Sukuk Index delivered total return of 13.5%. The Markaz Fixed Income fund is a privately placed fund with investments in GCC fixed income instruments.
MENA Real Estate
The real estate market in the GCC region started to show signs of recovery in 2019 with rents stabilizing across Kuwait, Saudi Arabia and UAE and valuations stable in Kuwait and Saudi Arabia. After 5 years of declining real estate values, investor confidence in the asset class started to return in the region. During 2019, Markaz was able to maintain occupancy levels of 95% across its portfolio in Kuwait, Saudi Arabia and UAE. Markaz Real Estate fund (MREF) was able to withstand market conditions and deliver positive total returns of 4.1%. The fund continued its monthly cash distribution of 5% per annum. Markaz Gulf Real Estate Fund (MGREF) is a privately placed income generating real estate fund with investments across the GCC. In addition, we successfully manage a significant part of the National Real Estate Portfolio for Kuwait Investment Authority (KIA) with a focus on driving operational efficiencies. During the second half of 2019, Markaz took over the property management activity of the completed four projects, one each in Dubai and Kuwait and two in Abu Dhabi. These properties have started to yield rental income, which is expected to increase as occupancy levels continue to improve every month. Markaz launched property management services during the year with the initial inclusion of all Markaz properties in Saudi Arabia with the intention to also consolidate its UAE portfolios. In collaboration with the Advisory team, real estate team is working on the development of a master plan feasibility and design of a 300,000 sqm prime land plot in Kuwait. Overall, Markaz will continue to focus on enhancing operational efficiency and improve profitability.
International Real Estate
International commercial real estate continued its positive trend in last quarter of 2019 and property prices increased by 2.5% as per CPPI and NAREIT index, resulting in an annual increase of 28%. The US Federal Reserve cut interest rates three times during the year and the lower short term rates provided strong tailwinds for commercial real estate valuations. During 2019, Markaz successfully exited two development projects in Dallas, Texas and Arizona, delivering outstanding returns to our co-investors. Furthermore, as a part of our real estate development projects, we started construction of four different developments in 2019, including two industrial projects in Europe, one residential and one industrial project in the United States. We continue to seek select development opportunities with strong fundamentals and expand our new investment program designed to capitalize on value add opportunities in the United States as well as in selective European markets.
Markaz reviewed several M&A proposals and advisory assignments during the year and executed transactions of total value of $580 million. Sectors such as education, healthcare, food and beverage continue to attract strong interest from potential buyers and we expect more transactions going forward as valuations converge. Markaz is currently part of a consortium to submit a bid for a PPP project for the Kuwait Authority for Partnership Projects (KAPP). During the year, Markaz executed several key assignments including the listing of Al-Manar Financing and Leasing Company on Boursa Kuwait. Markaz also acted as a lead manager and subscription agent for United Projects Aviation Company to raise KD18 mn by way of a rights issue. Our investment banking team continues to closely work with various corporates on M&A and debt issuances, resulting in a strong pipeline for the year ahead.
International equity markets started 2020 on a positive note reflecting the US and China “phase one” trade agreement which has eased trade tensions between the two nations. Global growth is projected at 3.3% in 2020 and 3.4% for 2021 based on the downward revision to economic activity in certain emerging market economies. The GCC economy is expected to remain subdued during 2020 against a backdrop of weak global oil market, rising geopolitical tension and lower investor confidence. Under such challenging economic conditions, Markaz will continue to remain vigilant and formulate investment strategies to deliver returns while managing risks for our clients. In parallel, we endeavor to optimize internal control systems to manage costs, assess critical risks and improve overall efficiency. Investor relations at Markaz is focused on clear and insightful communication, liquidity in the trading of our shares and creating wealth for our shareholders. It is with great honour we are celebrating the 45th anniversary of the foundation of the firm in 1974. Markaz’s relentless and professional commitment to clients is, and always will remain, our highest priority.Markaz Financial ResMarkaz-Financial-Adults for 2019 Ad