United Real Estate Company (UREC was incorporated in Kuwait in 1973, and was listed on the Kuwait Stock Exchange in 1984. The company was privatized in 1995 and Kuwait Projects Company (Holding) K.S.C. (KIPCO) became its major shareholder with a controlling stake. In 2001, KIPCO transferred its stake in the company to its subsidiary United Gulf Bank B.S.C. which currently holds 34.32% of UREC's shares.
UREC's core operating assets amounted to KD162mn in FY06, forming 84% of the company's total assets. The rental portfolio constituted 56% of total core assets. Geographically, 82% of the company's assets are concentrated in Kuwait, however UREC has a strong presence across countries such as Egypt, Jordan, Lebanon and the UAE through its subsidiaries and affiliates.
UREC's portfolio includes commercial complexes, hotels, resorts, residential buildings, shopping centers, high rise office buildings as well as mixed-use projects (office, retail, and residential). The company is the developer of the Marina Mall project, one of the largest BOT projects in the sector, and is considered as one of Kuwait's favorite shopping destination.
In addition, UREC has invested through its subsidiaries in numerous hotels and tourism projects such as the five-star Fairmont Heliopolis Hotel in Egypt and the four-star Bhamdoun Hotel in Lebanon as well as numerous other projects across the Middle East.
Future projects for UREC include the landmark development, "United Towers" (previously "Kuwait Business City"). In addition, UREC has started projects in Lebanon, Jordan, and Oman, with a focus on the retail and hospitality segments. The company is also negotiating to acquire pieces of land in Sharm el Sheikh, and Cairo in Egypt. Other upcoming projects include the development of the five star Rawcheh hotel in Lebanon, the Verdun Mall project in Lebanon, a mall and a hotel in Jordan, and a long term lease retail project in Salalah in Oman.
Business Strategy
Recently, UREC adopted new strategies which mainly focus on expanding and diversifying the geographic base of its operations. The company has started the development of projects in other potential markets such as Jordan and Oman. The company will also continue to leverage on its expertise in the commercial segment through focusing on the development of distinctive retail and offices properties. In addition, UREC is planning to increase its investments in industrial real estate and hospitality sectors through its strategic holdings in "United Warehousing and Refrigeration Company" (UWRC) and "Dhiyafa Holding Company" (DHC) respectively.
Financial Performance
Revenues from operations consisting of rental income, hotel revenues, and other operating revenues stood at KD11.8mn.UREC's operating revenues are mainly generated from its rental portfolio. Marina Mall revenues accounts for almost 65% of the company's rental revenues, while the remaining rental revenues comes from residential, and commercial rentals.
Following the launch of the Marina Hotel in 2005, the company recorded a net hotel operating revenue of KD0.43mn in FY05, which witnessed a significant increase of 139% in FY06 to reach KD0.95mn. Revenues from overseas hotels operations that are coming from the Sheraton Heliopolis hotel in Egypt, and Bhamdoun hotel in Lebanon are recognized in share of income of associate companies.
In March 2006, the company sold two investment properties, Al Shahid, and Al Madina office towers and a plot of land for development related to the Kuwait Business City project to the newly formed company "United Towers Company Holding" (previously "Al Ufoq United Management Company"). The sale of land for development resulted in a gain of KD3.6mn. UREC acquired 42.5% in "United Towers Company Holding".
The company has also increased its equity interest in "Dhiyafa Holding Company" from 30% in FY05 to 49% in FY06. It sold its holdings in Bhamdoun Company, and Al Rawcheh Company in Lebanon and a stake in its associate company, "Gulf Egypt for Hotels and Tourism" to "Dhiyafa Holding Company", which resulted in a gain of KD3.26mn on sale of subsidiaries, and a gain of KD2.73mn on sale of share in associate companies.
Net profit for FY06 amounted to KD13.5mn, increasing by 8% from KD12.5mn reported in FY05. The increase in net profit came mainly on the back of one-off gains of KD9.6mn from the sale of subsidiaries, associates, land for development and investment properties. Profits from Kuwait's operations formed 73% of UREC's profits, while Lebanon contributed 19%, Fujeira (6%), and Egypt (2%).
Valuation
We have arrived at the share valuation of UREC using two methods: DCF valuation and relative valuation. Based on the weighted average valuation approach we have reached a fair value for UREC of 214fils, given a current market price of 194fils on June 5, 2007, the stock is currently trading at 10.4% below the fair value. Therefore, we initiate our coverage on UREC's stock with a "BUY" recommendation.
Investment Indicators for UREC
Market Price (fils) Shares in issue Market Cap (KDmn) 52 - week Hi/Lo
194 728,364,093 141.3 174-245fils
Year Revenues from Operations Operating Profit Net Profit EPS BVPS ROAE P/E P/BV
(KD Mn) (KD Mn) (KD Mn) (Fils) (Fils) (%) (x) (x)
2008F 11.84 10.27 14.14 19.4 187.5 10.6 10.0 1.0
2007F 11.72 8.82 11.20 15.4 178.5 9.6 12.6 1.1
2006A 11.67 7.67 13.55 25.6 188.8 13.6 9.0 1.2
2005A 12.56 7.93 12.55 23.7 179.1 12.9 13.6 1.8
Source: Company Annual Reports, Global Estimates.
- Actual P/E and P/BV multiples are based on the respective year end prices, while those for future years are based on current market price on KSE on June 5, 2007.
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