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United Real Estate Company’s bond rating affirmed

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the rating for United Real Estate Company’s (URC) KWD60mn unsecured bond at ‘BBB’. The rating is underpinned by the Company’s sound financial profile in terms of a fairly stable and acceptable leverage ratio, as well as an appropriate debt maturity profile, sustained growth of rental income and the track record of profitability, notwithstanding the decline seen in the nine months to end Q3 2014.

The rating also reflects the Company’s well-established franchise and its sizeable and unencumbered portfolio of income generating assets, as well as its good rental growth prospects. The controlling ownership of the KIPCO Group (Kuwait Project Company), together with its demonstrated support, also remains an integral factor to the rating of the bond. The main constraints on the rating are the Company’s tight liquidity with some dependence on short-term revolving facilities, the relatively high level of debt in relation to income generation and the consequential reliance on refinancing and asset sales for servicing of large debt facilities. The Outlook for the bond rating is ‘Stable’.

URC remains a leading real estate development company in the MENA region. Its well established franchise and sound financial metrics, as well as being an important part of one of the largest holding companies in the MENA region, remain among the Company’s strong supporting factors.

Over the past two years, one-off events have impacted the Company’s financial indicators, although these events have largely been positive. In 2012, the Company’s earnings were significantly boosted by gains from a substantial asset sale, while in 2013 there was a sizeable decline of borrowings with the deconsolidation of United Tower Company (UTC). The latter was the result of the payment of dividend in kind which reduced its stake in the company, and consequently this investment was reclassified as an associate. Nonetheless, at end Q3 2014, the Company’s asset base was characterised by its sizeable portfolio of high end properties with good occupancy rates and its growing book of hotels. Recent additions to the asset base include the Salalah Garden Mall and the Salalah Garden Residences Hotel in Oman, and the forthcoming completion of the Abdali Mall in Jordan. The Company’s portfolio of developed properties and hotels is the mainstay of the Company’s high and growing level of rental income which remains a major support factor to the bond rating. The modestly improving real estate market has aided sales, as well as positive revaluations which in turn have boosted earnings in recent periods. That said, net profitability declined in 2013, but to a large extent this was distorted by the substantial one-off gain in 2012. Although there was a further decline in the first nine months of 2014, it should be noted that there was no revaluation gain. Valuation is usually conducted at end year and management anticipates further revaluation gains in Q4 2014. This, together with the expected gain on a sale that is near finalisation may still see net profit maintained for the full year 2014.

On the liabilities side, 2013 saw the successful issue of the bond under review which in turn aided the timely repayment of an existing KWD40mn bond in the same year. The Company’s level of debt remains high in relation to income generation, and consequently there remains a reliance on asset sales and/or refinancings for large borrowings such as the bond under review which constrains the rating. The Company’s debt maturity profile and leverage remained acceptable at end Q3 2014. However, liquidity remains tight and is a constraint on the rating.

URC was established in 1973 and its shares are listed on the Kuwait Stock Exchange. The Company remains one of the larger players in the real estate sector in Kuwait and the wider MENA region. URC is an indirectly-held subsidiary of the KIPCO Group which remained one of the biggest diversified holding companies in the MENA region. At end Q3 2014, the Group’s consolidated assets totalled KWD9.1 billion, it had an equity base of KWD1.3 billion and reported a net profit of KWD63.1mn.

Primary Analyst
Agnes Seah
Credit Analyst
Tel: +357 2534 2300
E-mail: [email protected]
Secondary Analyst
Darren Stubing
Senior Credit Analyst
E-mail: [email protected]

Rating Committee Chairman
Morris Helal
Senior Credit Analyst
E-mail: [email protected]