Kuwait Financial Centre “Markaz” (KSE: Markaz, Reuters: MARKZ.KW, Bloomberg: MARKAZ:KK) reported Total Revenue of KD 14.07 million during 9M 2019 compared to KD 15.1 million in 9M 2018. Net Profit attributable to shareholders of Markaz was KD 3.45 million (EPS 7 fils per share) for 9M 2019 with a margin of 24.5%.
Mr. Manaf A. Alhajeri, CEO of Markaz, said in a statement, “For the period ended September 2019, Markaz registered a strong performance with a light decline due to the markets volatility during August and September, where GCC markets were under pressure as geopolitical uncertainties and risk reached new levels, negatively impacting investor sentiment in the region. Markaz delivered Total Revenue of KD 14.07 million, a decline of 6.9% compared to the same period in 2018. This was primarily due to equity market conditions resulting in a loss in the third quarter of KD 1.67 million from Investments at Fair Value through P&L as compared to a Q3 2018 gain of KD 2.87 million. Furthermore, the 3Q 2018 financials also benefitted from exceptionally strong investment banking fee income of KD 1.08 million. Earnings per Share was impacted by the expense of interest payments at developments that were handed over as previously capitalized and other operating expenses that are now incurred. All these factors impacted our profit and loss account but not cash flows as our Net Debt remained flat compared to the end of 2Q 2019.
At a business unit level, our income from Principal Investments was up marginally to KD 8.2 million, contributing 58% to Total Revenue and generating an annualized return of 6.32% on total investments. Investment Banking fees were KD 0.46 million, lower compared to same period last year and a reflection of the strategic nature of mergers and acquisitions. Asset Management fees for the 9 month period were up by 7.5% to KD 5.53 million and the AUM at the end of the period closed at KD 1.10 billion with a 3% y-o-y growth.
Due to the geopolitical volatility in the GCC, the KSA market, with the highest weighting in the S&P Pan Arab benchmark, declined most by 4.3%, followed by the Kuwait and Qatar indices which declined by 3.8% and 2.0% respectively during the quarter. In contrast, the UAE benchmark registered a slight increase of 0.32% in the quarter. With these challenging market conditions in mind, performance of our funds were impacted but generally in line with benchmark indices. Markaz Investment and Development Fund (MIDAF) and Markaz Islamic Fund (MIF) had negative returns of 4.33% and were Forsa Fund and Markaz Mumtaz Fund posted negative returns of 4.25% and 4.22% respectively during the quarter. Our Asset Management strategy continues to actively manage capital in order to mitigate market risks and as a result, on a year to date basis, Forsa, Mumtaz, MIDAF and Islamic fund have delivered positive results of 12.69%, 10.11%, 9.51% and 7.58% respectively.
With the weakening global economy, the US Federal Reserve lowered its interest rates by 25bps twice during the quarter. Markaz offers private placement funds for its qualified and professional clients, which cover a variety of asset classes such as fixed income, international equities and real estate.
The real estate market continues to remain relatively weak in the UAE region with both real estate rental rates and sale values under continuous pressure. Despite these market conditions, Markaz’s MENA real estate team was able to maintain occupancy levels of 95% across its portfolio in Kuwait, UAE and KSA. Markaz real estate fund (MREF) delivered positive returns of 2.9% on a YTD basis with a monthly cash distribution of 5% p.a. During the last quarter, Markaz took handover of two new residential development properties, Business Bay in Dubai and Shams in Abu Dhabi. Markaz team has started to rent units in both locations and as occupancy improves, the contribution to Net Rental Income is expected to increase steadily. Markaz MENA real estate team continues to actively manage our portfolios and implement cost saving initiatives such as in-house property management to enhance operational efficiency and improve profitability. The team continues to evaluate various strategic initiatives to create shareholder value.
International commercial real estate registered another quarter of growth with property prices increasing by 0.5% (CPPI) and the NAREIT index by 6.1%. The reduction in US interest rates resulted in lower short term borrowing rates thereby providing strong tailwinds for the commercial real estate sector. Underlying real estate fundamentals have remained robust with all sectors experiencing rent growth, except for the retail sector which has lower absorption levels. During the quarter, we successfully exited the Royal 10 office development project in Dallas, TX which generated a net investor internal rate of return of 13.27%. Furthermore, we delivered another profitable exit for our investors at the Chandler Shopping Centre in Arizona USA delivering a gain of KD 0.82 million. We continue to evaluate select development properties, in both US and European markets with strong demand and supply dynamics which give Markaz a competitive advantage.
Our investment banking team continued to closely track potential transactions, particularly in the financial services sector, and focused on closing existing mandates. Markaz is also currently working as part of a consortium to submit a bid for a PPP project released by the Kuwait Authority for Partnership Projects (KAPP). Our capital markets team successfully acquired CMA approval for two potential bond issuances on behalf of corporate clients.
Global markets remained positive after the Federal Reserve rate cuts and US China trade war showed early signs of stabilizing. However, GCC markets remained volatile due to recent geopolitical risks, which are clearly impacting investor sentiment. Our management teams remain fully committed and disciplined as we steer ourselves in this challenging environment with an aim to deliver sustainable financial performance. Markaz is one of the leading wealth management and investment banking financial institutions in the region that has gained the trust and loyalty of its clients over the last 45 years.”