Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the rating of United Real Estate Company's (URC) KWD40mn unsecured bond at BBB- with a Stable Outlook.The ratings are also underpinned by the support and financial strength of its majority owner KIPCO which remains one of the biggest and most diversified holding companies in the Middle East and North Africa. While good improvement was seen in the first three months of this year, this bond rating remains constrained by the Company's high concentration in a number of investment holdings and its relatively high level of debt.
2011 was an eventful year for United Real Estate Company (URC) which saw a significant expansion of the Company's balance sheet with the consolidation of a number of acquired associate companies from within the KIPCO Group. While rental income improved, the very high net profit posted by the Company for 2011 was due largely to the high valuation gains from the step acquisition and business combination of these acquired companies. A negative impact of these acquisitions was the substantial rise of the Company's overall debt, which also caused leverage to rise.
Management focused on reducing this debt and to this end a number of asset sales plan options have been formulated. One such asset sale was recently completed and the proceeds, as well as available cash balances, were used to repay a significant proportion of borrowings in Q1 2012. This successful asset sale has also enabled the Company to achieve an exceptionally high net profit for the first three months of this year.The Company's liquidity remains tight, however this is a fairly common feature of companies whose business model combines real estate development with property rental business, as is the case with URC.
Rental income, from its core operations, remains the Company's most stable source of cash flow although growth in this area is likely to be constrained by the soft rental market conditions, as well as the oversupply position in certain segments of the real estate sector in Kuwait. Prospects for growth, however remains good with a number of projects due to be completed in the second half of the year.A further significant reduction of total debt to a more manageable level as well as an improved and sustained growth of the Company's core rental income could put an upward pressure on these ratings.
Commenting on this matter, Mr. Mohammed A. Al-Saqqaf, CEO of URC, stated, "URC is supported by three main pillars; a financially strong and large holding company such as KIPCO being the main shareholder of URC, prime assets in prime locations, as well as a professionally dedicated management team. Accordingly, the company's near and mid-term outlook is excellent, and the management is continuing to exercise its approved strategy of streamlining its operations and enhancing its income producing portfolio, although the purchase and sale of assets is also an integral part of the business model of any real estate development company."
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.
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© Press Release 2012
