While good improvement was seen in the first three months of this year, the 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 did improve, the very high net profit posted by the Company for 2011 was largely due 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. However, management is focussed on reducing this debt and, to this end, a number of asset sales plan options have been formulated. Indeed, 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. Although the Company’s liquidity remains tight, 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.
Nevertheless, prospects for growth remain 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.
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
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