TECOM Group invests AED 1.7 billion in strategic projects

The Board of Directors at Dubai's TECOM Group has approved a strategic acquisition and development plan to support its next phase of growth.

The expansion plan will involve TECOM investing AED 966 million to acquire commercial and industrial assets from Dubai Holding Asset Management (DHAM) and earmarking AED 689 million to develop grade A offices in Dubai Design District (d3).

The strategic acquisitions are in line with the Group’s clearly defined roadmap to achieve sustainable growth and continue delivering strong performance through strengthening its portfolio of flexible and high-quality commercial and industrial assets.

The investment plan will enable the Group to further cement its leading position in developing integrated business ecosystems and enabling growth across key strategic sectors within Dubai. It will also seek to unlock greater returns for shareholders over the mid to long-term.

"This plan is not just an expansion of our asset base, it is a strategic move to harness favourable market dynamics and drive our vision forward, reinforcing our commitment to Dubai and the UAE’s growth and will unlock greater value for our shareholders and other key stakeholders," said Abdulla Belhoul, Chief Executive Officer of TECOM Group.

"Thanks to our prudent financial management, optimised capital structure, and strong financial performance so far this year, we have the financial means to execute these deals while maintaining a healthy cash profile. We look forward to updating the market as we execute our growth agenda," he added.

.@TECOMGroupDubai invests AED 1.7 billion in strategic projects as it embarks on its next phase of growth.https://t.co/7bfj7DxMjD pic.twitter.com/6VWfcK1a3r

— Dubai Media Office (@DXBMediaOffice) May 15, 2024

The strategic acquisition and development plan includes the following assets:

1. Operational Grade A office space buildings in Dubai Internet City: TECOM Investment FZ LLC, a TECOM Group subsidiary, will acquire two grade A office buildings from DHAM with a combined value of AED 420 million. The office buildings have a gross leasable area (GLA) of 334,000 sq.ft. with high occupancy level consisting of a loyal and quality customer base that includes leading regional and international tech companies. The acquisition will have an immediate positive impact on the Group’s financial performance while also supporting the commercial assets portfolio.
2. Industrial land located in Dubai Industrial City: The Group’s subsidiary Dubai Industrial City LLC will acquire several plots with total area 13.9 million sq.ft. of strategically located, well-connected land plots allocated for industrial leasing from DHAM for a combined value of AED 410 million to enhance the Group’s land bank and satisfy robust and sustained demand for this asset type. The acquisition of the target land plots is expected to have a positive impact on the Group’s financial performance over the short and medium term, along with further enhancing revenue predictability, given the long-term nature of the lease contracts.
3. Future Grade A office spaces in d3: Dubai Design District FZ LLC, one of TECOM Group’s subsidiaries, will acquire 629,000 sq.ft. gross floor area from DHAM for AED 136 million within “Design Quarter”, a mixed-use development located in phase 2 of the creative district. The Group intends to earmark AED 689 million to develop 6 grade A office buildings with an expected total GLA of 503,000 sq. ft. D3 has been one of the Group’s most sought-after specialised districts with high occupancy rates and existing offices nearing full capacity.

Conducive market conditions

According to recent industry reports, Dubai’s office market continues to see strong occupier demand, driving average occupancy levels to 93% in Q4 2023 compared to 88% in Q4 2022.

The average occupancy level across TECOM Group’s business districts was 91% (as of 31 March 2024), with d3 occupancy rates reaching 98% for the same period. The industrial segment is also continuing to demonstrate robust growth, which is driving occupancy rates higher and leading to a notable increase in rental rates.

Positive impact on the Group’s financial performance

The acquisition of the two fully leased operating assets in Dubai Internet City, will have an immediate impact on the Group’s top-line.

The remaining acquisitions will further enhance TECOM Group’s revenue visibility by attracting new customers, further diversifying its customer base while maintaining its current healthy EBITDA margins. Furthermore, the strategic acquisitions will support portfolio value appreciation.

Well-funded for the planned expansion plan

The Group is well funded for the planned transactions from existing sources, driven by its solid financial performance, underpinned by a healthy leverage position and ample liquidity, with the option to tap into up to AED 3.2 billion from its existing revolving credit facility, which was refinanced in 2023 at more competitive financing terms.