Arabian Centres signs SAR 969.78 mln land lease agreement, expects to develop Jawharat Al-Khobar at SAR 1.3 bln

Arabian Centres Co.'s building

Arabian Centres Co. (ACC) signed a lease and investment agreement for a 300,000-square meter land plot at a total value of SAR 969.78 million (binding for the first 20 years) to develop Jawharat Al-Khobar Mall and other mixed-use commercial facilities.

The 30-year agreement is renewable upon the consent of the two parties with an average annual lease value of around SAR 51.5 million, the company said in a bourse filing. 

ACC intends to initiate the construction works of Jawharat Al-Khobar Mall during the coming six months with a budgeted development cost ranging between SAR 1 billion-SAR 1.3 billion. The mall is expected to offer between 130,000 and 150,000 sqm of gross leasing area (GLA).  

The mall is expected to open between the second half of 2025 and the first half of 2026. It is estimated to generate annual revenues of between SAR 290 and SAR 330 million upon reaching operational stability.  

The mall will allocate space for mixed-use purposes (hotel and office facilities), which will be connected to the mall later. This will add up to 30% of additional returns in the future. The details of the mall designs, facilities and method of financing will be disclosed in due course. 

The financial impact of this contract is predicted to be reflected on the company’s financial statements starting from Q2 2023, ending on Sept. 30, 2022. 

Under the agreement terms, the lessor acknowledges that there are no disputes, mortgages or legal actions on the land subject of the contract. In case of land expropriation by the state in the public interest, the lessee has the right to collect the estimated compensation for the buildings and facilities built by it only. Moreover, ACC has the right to sublease the land subject of the contract or the facilities built on it, in whole or in part, in line with the contract term. 

The new mall will take ACC’s malls portfolio in Eastern Province to six, increasing its overall portfolio across the Kingdom (overall operational and under development malls) to 30. 

The land lease option is aligned with ACC’s broader strategy of committing to an asset-light model, which allows the company to maximize shareholders’ investment returns and mitigate risks that will arise from keeping all of its operational properties on its balance sheet. Therefore, ACC will enhance its financial and operational flexibility needed to roll out new locations rapidly and efficiently.  

In the near future, ACC targets to maintain a healthy and moderate level regarding its freehold versus leasehold policy for its investment properties, the statement noted.