Luke Coppini joined Midi in September 2008 as chief financial officer, after 18 years with the Mizzi Organisation. In September 2012 he was appointed CEO and set about restructuring Midi. He spoke to Vanessa Macdonald about the impact of delays on the project and its profitability.

Luke CoppiniLuke Coppini

Shareholders expect a return of their investment and, over the last few years, the Midi ones may have been disappointed...

Midi has always been perceived as a long-term project. It cannot be judged purely on its performance on Tigne Point to date, which is only 80 per cent completed. Let us not forget it also includes Manoel Island in which Midi invested considerably – not only on restoration but also on designs and planning.

The last few years have been tough for us for various reasons, not the least being the financial crisis which forced us to retrench. But a major factor was the delay in the issue of the permits for Tigne Point – three years before we got the green light for Tigne North. During this time, we were paying €10,000 a day in interest on our loans.

One of the problems was your gearing – which was 76 per cent. It went down to 45 per cent in 2013. Are you now in a much more comfortable place?

The annual interest bill on the €40 million bond alone reaches €2.8 million. With the interest on bank borrowing, you get a total of around €4 million every year.

The last few years have been tough for us for various reasons, not least being the financial crisis which forced us to retrench

That is why the last two years were tough. We had very little to sell but were still paying all the interest. This is why I pushed to make it a leaner and more flexible operation which can adapt to changes very fast. We are now back on track.

Up to three years ago, Midi employed 50 people but we are now down to 24. I will never go back to such a large workforce. For example, even though we have three phases under way, which cost about €55 million, we have outsourced our project management on a pay-by-use basis.

The biggest achievement over the last year was the restructuring of its financial debt...

In April 2013, Midi took the decision after consulting its shareholders to sell off the Point Shopping Mall which automatically put Midi in a much healthier position. We knocked €48 million off borrowings.

But you lost recurrent revenue...

It gave us the impetus to move forward on the other phases. We must keep one thing in perspective: Midi is a project development company. We could have held on to the mall for a few years but the ultimate objective was to offload it. Ideally we develop, get full occupancy, allow it to mature and offload.

Q1 is ready this month for delivery next year, and Q2 will start in the second half of 2014 for launch in mid-2015. You are also selecting the contractor for the Business Centre...

These three phases could have, at least technically, started two years ago. There were various reasons for the delay in issuing the permit. Mepa and government wanted to ensure that the development was exactly in line with what was allowed in the deed.

But time costs money – and not only in financing costs but also in administration. We had €35 million of funding in place – but banks started to become cautious about property because of the financial crisis, and we had to renegotiate funding for each phase separately.

On the strength of our performance on Q1, we opted to go faster on Q2. We are doing our homework and looking at what the market wants. Things have changed – for example, the IIP scheme, bachelor pads, more expats on the island... So the configuration has to be adjusted depending on what the market wants.

The Q1 apartments sold for €6,200 per square metre. A record for Malta. Could the next phases get even higher prices?

On Tigne, the Q2 phase will be similar. But on Manoel Island it depends very much on the configuration. I believe that Malta in general is moving that way. Not for Maltese buyers but also with foreigners.

Obviously to command those sort of prices you need to provide a good product.

In your recent results, you said you would have a boutique hotel at Tigne Fort, whereas the original plans envisaged a larger hotel...

The space earmarked for a hotel was used for the shopping mall. A 300-room hotel would have posed more problems than benefits in terms of accessibility etc. But there is interest in a low-profile but high end boutique hotel, very quiet and luxurious, with a commercial rationale. There are many foreign residents who cannot accommodate all their friends and relatives in their flats. And the Business Centre could also generate demand for accommodation.

At the beginning of the project, people were speculating with the apartments. Is that still the case?

We have 12 years experience at Tigne Point behind us and know all the pitfalls of a project development of that size

The mix has shifted towards buy-to-live. In Q1, we are looking at 60 per cent foreign owners, most of whom – especially those who own the more expensive properties – use them as their homes. Some are second and third time buyers at Midi.

The Maltese, especially those who own smaller apartments, usually buy them to rent – and the rental income is very good, especially from foreign executives.

Our experience with the 281 units sold to date is that there only a very few who are selling what they bought 5-7 years ago.

What will the Business Centre offer that other upmarket developments do not?

We have a lot of interest already. It will be the top one on the area. We are not looking at the lower end rentals. It is a very unique location and will have 12,500 sq.m. of rentable office space with a catering proposition on the ground floor overlooking the piazza. We have very strong interest from local companies, banks, gaming companies and others.

We are about the adjudicate the contract following an extensive months-long evaluation process, as it is a very complex building – partly because of the Garden Battery which runs right through it!

Obviously the minute we sign the development contract, we can start to sign off leases as I will know what my opening date will be. We are looking at late 2016/early 2017.

It breaks my heart that you spent all that money on the restoration of Fort Manoel but it is hardly being used.

We spend a lot on remedial works and maintenance – €20,000 a year just to weed it. We do use it for one-off events like concerts, weddings and corporate events. We could have leased it out for a reasonable return over the past three or four years. The problem is that tenants would want a lease of at least 7-10 years, which I cannot give, as investment that needs to be carried out for the final use of the fort.

The Fort at Manoel Island has been tastefully restored.The Fort at Manoel Island has been tastefully restored.

You have the permit for Lazzaretto. What now? You are planning a casino and 54 residential apartments.

This is another complicated site to develop but a fantastic one. There is a very strong obligation to restore it. It is the only phase on Manoel Island on which we already have a full development permit.

There is commercial space in the vaults – offices, retail, catering and so on – and a casino in the Palazzo Vecchio.

We have not commenced for the simple reason that we want to make sure that it dovetails nicely with the rest of the Manoel Island development. As you can imagine, Manoel Island is very attractive not only to investors and property developers but also to designers and international architects and firms, who ask us to let them come up with designs.

We want to firm up the master plan and the probability is that we will seek a strong strategic investor – in the interest of all 750 shareholders. We need to make sure that Manoel Island will generate the value-added that it merits. To do that, we need a strong financial back up.

And we need to start the project with one permit – and not one for each of the seven phases – so that we can start and keep going until we finish. I cannot risk a repeat of what happened in Tigne Point where we finished T10 but could not start the next phase. It will need to start and finish within a seven-year period. The deed binds us to finish the whole project by 2023.

I understand that you have six or seven serious investors interested although not all will pursue it further. Do you need government’s permission to take them on board?

Midi can transfer up to 40 per cent of a phase under the same deed to third parties. Anything above that, we would need government’s consent.

A strategic partner might have a very different outlook to local investors when it comes to the expected return on investment. They might have higher expectations...

The 2000 deed was based on the 1993 development brief.

The master plan has to be done in consultation with the government, investors and shareholders etc. It could actually be less dense than the maximum 95,000 sq.m. in the deed.

The density of Manoel Island can never be equivalent to Tigne Point. There is a fundamental limitation: we cannot develop higher than Lazzaretto. Secondly, we are developing a brownfield site and more or less redeveloping – as stipulated in the deed – areas which have already been developed in some way. And the developed footprint will be around 28 per cent of the available land.

We have been in discussion with some very serious people and they believe we should even more selective in our development.

We reckon the full development application should take 9-12 months for Mepa to process according to its targets.

We plan to submit it not later than January next year. Which means that by the end of next year, we will have everything sorted out, including funding, ready to really get going in January 2016.

I have heard people ask why we are still at the master plan stage but this is one of the most crucial stages. We have 12 years experience at Tigne Point behind us and know all the pitfalls of a project development of that size.

To be fair, Manoel Island is a much safer development as there is much less excavation, no underground road network, no tunnels, no Garden Batteries.

It should be much safer to develop within the timeframes as long as you have the right project management and the right organisation.

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