Arriyadh Development Company

06 July 2010

The Saudi developer has seen profits grow, bucking the regional property slump

Company snapshot: Arriyadh Development Company

Date established 1994

Main business sector Construction of commercial, office and residential buildings

Main business region Riyadh, Saudi Arabia

Chairman Abdulaziz bin Mohammed bin Ayaf al-Miqren

Chief executive officer Khalid al-Dugaither

Key numbers for Arriyadh Development Company

$267m: Ardco paid-up capital

$366m: Ardco’s market capitalisation

$3.5bn: Value of Duhaira development project

Source: MEED

Ardco Structure

Arriyadh Development Company (Ardco) was established in 1994 with SR1bn ($267m) in paid-up capital. It aims to provide opportunities to investors and the local business community in the development of Riyadh city centre.

Ardco financial results
(SR)200720082009
Net income70,72579,17492,738
Source: Tadawul

The firm was founded by some of the capital’s leading business figures and is chaired by the mayor of Riyadh province, Abdulaziz al-Miqren. It is listed on the Saudi stock exchange, the Tadawul.

Ardco has grown in line with the development of Riyadh’s real-estate market and today has a market capitalisation of $366m and nearly 200 employees. Among its main investors are Emaar Arabian Shield for Investment, with a 9.6 per cent stake and Adyaar Holding Company, which owns 5.9 per cent of shares.

Ardco Operations

Ardco develops commercial premises, office and residential buildings, as well as parking and recreational areas. The company’s largest project to date is Riyadh’s Wholesale Market and it is proving a key revenue driver. Lease rates and occupancy levels at this development remained unaffected by the weakness in rents in Riyadh last year. The leasable area was even increased by the addition of kiosks due to high tenant demand. A new refrigeration facility will further support its operations and is due to be completed by the end of 2010.

Quarterly results 
 Q1 2009Q1 2010
Operating profit21,61722,827
Net profit22,04822827
Source: Tadawul

Other major projects include the Riyadh Car Auction. This is a major growth contributor for Ardco; it saw a 220 per cent increase in auctioned cars to 10,500 in the first quarter of 2010. The Attameer Centre, the Vegetable Fruit Market and the Batha Meat market are Ardco’s other major developments, along with Riyadh Hills and Technical Service City.

The lease income from these schemes provides most of firm’s income, which stood at SR155.5m last year. Since 2009, Ardoc has started to accrue land and property sales revenues, earning SR784,000 in 2009.

The company’s land developments include two major new schemes – the Duhaira District project, covering 750,000 square metres of prime space in the centre of Riyadh, and the Sunrise Cities residential development. The proposed SR13bn Duhaira project consists of residential, commercial, hotel, public facilities and infrastructure works and services, with a number of high-rise buildings. The Sunrise Cities project is potentially the largest in its portfolio, but is currently on hold. The development is to be sold as land plots, but there are some outstanding legal issues surrounding the sale of the land, which have yet to be resolved.

Ardco Ambitions

Having established its credentials in urban commercial and residential real estate development, the next phase of Ardco’s growth is likely to be focused on its Duhaira project. Sunrise Cities will also prove a focal point once legal issues over land sales are clarified. The two projects represent a step up in the company’s activities, with Duhaira forming part of a major urban renewal initiative for the capital on the site of an existing residential district. 

The Duhaira project is being financed through a build-operate-transfer scheme, with Ardco planning to acquire land and issue tenders for site clearing in October. The area will contain several 100-storey towers for completion by 2025 over nine stages. The masterplan and feasibility study on the mixed-use project will be ready by August, ahead of the land acquisition in September. 

The scheme is being undertaken by a consortium of public and private entities, including the Public Pension Agency and General Organisation for Social Insurance and other major property developers, such as the local Dar al-Arkan Real Estate Development Company and Dubai-listed Solidere International. On completion, it will house in excess of 7,000 people, along with hotels, education centres, healthcare facilities and office towers and museums.

There will also be ongoing expansion to Ardco’s other projects. At the Riyadh Transportation Centre, Ardco is in the final phase of adding service stations to the development. The expansion is due to start contributing to company revenues by next year. At its Attameer City in Riyadh, the company is setting up 180 new units for completion during 2010-2012.  

Ardco is now also looking to replicate some of its Riyadh-based successes outside the capital. For example, it is considering establishing a car auction market in Jeddah – modelled closely on its Riyadh-based success story.

A new focus on urban regeneration

Having established its credentials in the Riyadh real estate market over the past 15 years, largely focused on the city’s retail sector, Arriyadh Development Company is now plotting one of the most ambitious urban redevelopment schemes the kingdom has witnessed.

Duhaira, covering 750,000 square metres of space in central Riyadh, represents a new phase of growth for one of Saudi Arabia’s newer breed of property developers.

The next phase of Riyadh’s urban development will be more about redevelop-ment than greenfield sites

Craig Plumb, Jones Lang Lasalle

The move from relatively small-scale retail developments, such as the Riyadh Wholesale Market, to multi-billion-dollar mixed-use projects such as Duhaira may prove well timed, say analysts. “The next phase of Riyadh’s urban development will be more about redevelopment than greenfield sites – that’s the way it’s going,” says Craig Plumb, head of research at consultants Jones Lang Lasalle. “Duhairah is a good example of the way that, rather than growing outwards, Riyadh is consolidating through urban regeneration.” 

There is available space in the Saudi capital to create new offices, retail and housing units and hotels in a city of 5 million-plus. Even within Riyadh’s booming central business district, there are still a few undeveloped sites.

Furthermore, Riyadh’s growth opens up new opportunities for retail expansion, which is Ardco’s strongest suit. Jones Lang Lasalle expects the total stock of retail space in Riyadh to grow from about 2.3 million sq m to 2.9 million sq m by 2014.

Ardco’s move on Duhaira, undertaken in association with the Public Pensions Agency and real estate developer Dar al-Arkan and other developers, does not necessarily guarantee the firm a huge increase in revenues.

The company will be earning a development fee from Duhaira as well as a share of the profits, but, notes Ambereen Jiwani, an analyst at Bahrain-based Sico Research, the fee generated from Duhaira may not be significant in terms of contribution to future profitability.

There are other challenges Ardco will have to meet head on. The company does not fit the profile of the typical regional property developer, as it has more exposure to the commercial/retail real estate segment, rather than the residential.

This has proven beneficial in recent times, helping the company to ride out the regional property downturn, reporting a 17 per cent increase in profits last year. “The price drop has mostly impacted the residential and office segments, while the retail segment has been relatively immune,” says Jiwani.

This balance between the residential and the commercial could change. Plumb points out that prices and rents are rising in the residential sector in Riyadh, but weakening for most office developments.

In the residential sector, where Ardco’s presence is minimal, the growth is at the low-income end, with prices up to SR300,000, rather than the higher end in the SR500,000-SR1bn range.

Ardco, whose retail portfolio is largely made up of street stall-type developments, must also adapt to an environment in which demand – contrary to Riyadh’s residential market – is steadily shifting to air-conditioned, western-style shopping malls.

“When temperatures in Riyadh hit 50 degrees, it makes a lot more sense to be shopping in a mall environment than on a street,” says Plumb.

Outside Duhaira and the Sunrise Cities land development, Ardco has no major projects lined up. Much therefore will ride on the success of those two new megaprojects and on the expansion of existing schemes.

Sunrise Cities remains on hold, but if it does get off the drawing board, it could make a big impact on Ardco’s bottom line, generating new revenue streams. However, Sico’s Jiwani forecasts growth of Ardco’s revenue streams is likely to slow to single digits from an average of 14 per cent over the past three years.

Much of the company’s focus this year will be on the high-profile Duhaira development, as it prepares to acquire land and begin the tendering process on the city centre project.

But the company must not lose track of its less prestigious, but still strong-performing retail assets in the capital if it is to maintain the profit performance seen over the past couple of years.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.