Capital Intelligence confirms ratings to Dar Al-Arkan Real Estate

The strong ratings reflect both endogenous and exogenous factors. DAAR has a long-term track record of very good profitability, aided by an extensive and well-located land bank principally in the main cities of the Kingdom. Crucially, these are booked at cost so there is likely to be significant value within the balance sheet.

The Company's balance sheet is well structured including a good base of more stable medium- and long-term funding.

Although DAAR's revenue over the last few years has been strong, it has been somewhat reliant upon land sales. Going forward, however, revenue streams should become more diversified as residential and other commercial projects such as shopping malls are completed. Over the next 3-5 years, the Company plans large scale residential and land projects which will require capital.

However, these projects are viewed as very promising, are in prime locations and will be phased. DAAR's leverage is currently manageable and, provided market conditions do not deteriorate significantly in Saudi Arabia, and which is not expected, CI is of the opinion that cash flow from sales will remain strong in the foreseeable future and hence good debt and interest coverage will be maintained. Strong revenue and cash flow going forward should be achievable given DAAR's business model, very good management, and market position.

Relative to other Gulf markets, the Kingdom's real estate sector has not been severely impacted by the regional and global downturn over the past year or so. The market fundamentals for the Saudi residential real estate market are solid. Driven by continued strong demand, population growth and advantageous demographics, there currently exists a shortfall of residential units in the Kingdom.

This undersupply is forecast to be maintained for some years, thus providing strong demand for DAAR's services. Importantly, DAAR holds the leading position in residential housing development in the Kingdom (it has currently little competition, particularly in the middle market segment).

Moreover, it is strategically focused on the bigger, less risky, and expanding middle income market. In addition, the imminent new mortgage law in Saudi will expand the provision, and hence demand, of mortgages significantly.

DAAR was established in 1994 by six business families with extensive real estate development experience in the Kingdom. These six families remain the principal shareholders of the Company, owning approximately 70%.

DAAR's main activities are the purchasing of undeveloped land and development of infrastructure, and the construction of apartment blocks and villas catering primarily to the middle income market.