Global Arab Network - Capital Intelligence (CI) announced that it has affirmed the rating of United Real Estate Company’s (URC) KWD40mn unsecured bond at ‘BBB-’ with a ‘Stable’ Outlook.

With the completion of the capital increase and the successful placement of this bond in 2010, URC’s financial standing has strengthened with a lower leverage and an improved debt maturity profile.  At end 2010, about half of the proceeds of the issue were still held in cash and deposits.  URC’s portfolio of high end properties continue to enjoy a high rate of occupancy, despite weaker real estate market conditions and the consequent softening of rental rates.  Whilst URC has a track record of consistent profit generation, operating cash flow and profitability are likely to remain under pressure in view of the development phase of a number of projects and the fairly substantial capital commitment, as well as the acquisition plan. The latter would be the future diversification of sources of rental income, although during this development phase, actual amounts are likely to remain modes. Consequently, debt level is likely to increase, although to remain at a manageable level.

While CI has affirmed the ratings, any further weakening of the Company’s earnings profile could put downward pressure on the ratings.  The ratings are also underpinned by the support and financial strength of its majority owner KIPCO, and so any changes in these areas (an indication of reduced support or a reduction of KIPCO’s ownership) would also have a negative impact on the ratings.

KIPCO increased its stake holding in URC, making the Company one of its subsidiaries in 2010.  The KIPCO Group is one of the largest diversified holding companies in the Middle East with total assets of approximately KWD5.7 billion and an equity base of KWD560mn at end 2010.  The Group has substantial ownership interests in a portfolio of over 50 companies operating across 21 countries.   At end Q1 2011, KIPCO reported a net profit of KWD8.1mn - an increase of 300% compared to the same period last year.

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.