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Business Close-up: Solidere
Business Close-up: Solidere
"Once complete, the Beirut Souks will be a key source of rental income for Solidere" Fourteen years after opening for business, the Lebanese Company for the Reconstruction & Development of Central Beirut (Solidere), looks very different, as does the Beirut business district it was launched to revive. Solidere has worked on a series of projects in the Lebanese capital, transforming the business centre that was ravaged by civil war. It has restored damaged buildings, built roads, infrastructure, commercial and residential real estate, and has started to reclaim land that will be used to extend the city centre. Phase one of the reconstruction project was completed in 2004, and phase two is scheduled to end in 2025. As it makes progress towards redeveloping Beirut, the company is reviewing its plans for the future. Solidere now aims to pursue projects abroad. In 2006, shareholders approved the creation of Solidere International (SI), which was incorporated in the Dubai International Financial Centre (DIFC) in July 2007. The creation of SI was a turning point for the company as it is through the new arm, in which it holds a 33 per cent stake, that Solidere is developing projects in Egypt and the UAE. Company snapshot Date established: 1994 Main business sectors: Real estate development Market capitalisations: $3.2bn Chairman: Nasser Chammaa Structure With paid-up capital of $1.65bn and a market capitalisation of about $3bn, Solidere dominates the Beirut Stock Exchange and its global depository receipts are listed on the London Stock Exchange. Eventually, SI will also list. It has an authorised capital of $1.5bn, of which $700m is paid up. Its other shareholders are Gulf and Lebanese investors. Outside Beirut, SI has established separate companies to pursue its projects. In Cairo, Solidere Egypt has partnered with the Sixth of October for Development & Investment Company (Sodic) to develop two mixed-use town centres in the suburbs, to the east and west of the city. Its role in the reconstruction of Beirut city centre has made the company a household name in Lebanon. Solidere was established during the premiership of the late Rafik Hariri and his family retains a stake in the company, which describes itself as a 'government-empowered private development corporation'. Solidere's existing land bank emanates from property lots in the city centre, which it swapped with their pre-war owners for shares in the company. The rest of the company's capital was raised through cash subscriptions to an initial public offering. Operations Solidere in Beirut and its international subsidiary are separate organisations, although they share personnel and board members. Staff members from the parent company have been seconded to work on projects launched by SI. In Beirut, Solidere has completed several projects, including the renovation of the banking district and office blocks in the conservation area. Its first residential real estate project was completed in 2000, in Saifi, and its other residential schemes in Wadi Abou Jamil and Zokak el-Blatt are now occupied. The company is focusing on completing the Beirut Souks retail project in 2008, which stalled initially because of administrative and legal disputes. It has also suffered from a shortage of Syrian labourers following the conflict in 2006, as well as rising labour costs. It has been resilient to the economic uncertainty that has beset Lebanon following the war between Hezbollah and Israel in June 2006, and the ongoing political deadlock that continues to deprive the country of a president. However, its developers have been affected by some delays. The development of a retail complex has stalled in the Riad el-Solh area on land Solidere sold to a private developer. The disruption is due to ongoing demonstrations opposing the development. Ambitions Solidere's share price has remained high recently, trading at about $21 in early February, in contrast to lows of about $5 in 2001 and 2002. The shares are liquid and an average of 200,000 shares change hands on a trading day. The company has little debt and will retain the $50m it owes in short-term bank loans. It is not looking at new ways to raise financing but is anticipating an increase in rental income. It expects its rental revenue of $21m to increase to $65m once its starts to receive rents from the Beirut Souks project. By 2012, this income is expected to double to $130m. The company's overriding source of revenue is from the sale of land and property to Lebanese and Gulf investors. It has benefited from soaring real estate prices. Overseas expansion is a key objective. SI is expanding rapidly, with plans for projects in Morocco, Algeria, Turkey and Saudi Arabia. However, expansion overseas has already stretched resources and has precipitated a rapid expansion in its staff to about 350 people. The finance department alone has doubled in size over the past year. MEED assessment As its land bank in central Beirut diminishes and its projects progress, the company recognises that it must expand out of its home territory to maintain profits and momentum. Establishing operations in foreign markets will benefit the company through its exposure to a broader range of investors. But it will also pose challenges. Beyond Lebanon, Solidere does not enjoy a monopoly or a special relationship with the government. Expansion will plunge the company into more competitive, less familiar markets. The company will have to capitalise on its brand name and success in Beirut in its search for project opportunities and partners. But relying on its existing staff to work on these projects will place a severe strain on resources and slow the pace of growth. SI will have to grow rapidly in size and develop new talent if the subsidiary is to maintain the pace of its developments. Its focus on Beirut is at risk, and Solidere must continue to complete projects in the capital to sustain its legacy as a national symbol of reconstruction. Solidere projects Beirut Souks The commercial and leisure complex, which covers 110,000 square metres of retail floor space and 60,000 sq m of pedestrian areas has been subject to delays, but completion is scheduled for 2008. Its 2,500-space underground car park is already complete. The souks have been designed by five separate architects. The South Souks comprise 270 shops, an office building and a food hall. The jewellers' block has 70 shops at ground level, with offices for jewellers on its upper floors. The North Souks will include leisure and retail facilities such as cinemas, restaurants, games arcades, a department store, shops and multi-use buildings. Once complete, the Beirut Souks will be a key source of rental income for Solidere, which has stopped leasing its residential properties. New Waterfront district The New Waterfront district will cover 29 hectares of the 73 hectares of reclaimed land that will expand the central Beirut district. Reclamation is due for completion in 2008, when infrastructure construction will start. The land extension has involved an environmental clean-up and adds 3.5 kilometres to the coastline. The plan for New Waterfront district includes two marinas, a park, a corniche and quayside walks. Commercial and residential developments will be built around Beirut Marina to the west, which has births for 186 boats and will have a yacht club and customs and immigration buildings. The marina has a breakwater and a two-line defence structure. A marina is also planned for phase two. The development is intended to attract businesses, including financial institutions, residents and tourists. Cairo Solidere is pursuing its first two schemes in Egypt in partnership with the Sixth of October for Development & Investment Company (Sodic). Infrastructure construction is due to start soon on the first phase of both schemes, which are the Westown development in Sheikh Zayed City in the western suburbs of Cairo, and Eastown to the east of the city in New Cairo. The mixed-use developments, which will include residential, commercial and retail facilities and hotels, are expected to create jobs and tourism income. Westown will cover 1.2 square kilometres and have a built-up area of 2.4 sq km, including a 3,000-unit office park, five residential neighbourhoods providing housing for 40,000 residents, a 120,000 sq m mall, five hotels and a central park. The Eastown development will be next to the American University in Cairo and close to the airport. It will cover 850,000 sq m with a built-up area of 1.7 sq km and include a retail area, business park, entertainment district and a souk. The dev-elopment will house 30,000 residents. Public spaces account for more than one-third of the developments scheduled for completion in 2011. Ajman Solidere International is developing a $13.6bn project with the Ajman Investment & Development Authority to create a city in the emirate. It is scheduled for completion in 2017. The Al-Zorah project is in the masterplanning phase and construction of the infrastructure is due to start in 2008. The project will be a mixed-use development covering 10 sq km. It is planned to stretch along at least 3km of coastline and will include commercial, residential, recreational, educational and healthcare facilities. It will also include a golf course, marina and hotels. The Ajman government will provide land for the project, which will be financed through a mixture of equity, including a private placement, pre-sales, and debt.
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