Rental income from properties will generate $79.9m annually and company will sell properties
Dar Al Arkan Real Estate Development Co, Saudi Arabia’s biggest property company by market value, can repay 7.8bn riyals ($2.1bn) of debt maturing within five years without tapping the bond market again, according to its general manager.
“We are on sound footing to manage all of our debts,” Saud Al Gusaiyer said in an interview in Riyadh Dec 1. The loans are “nothing compared with our assets.”
Rental income from properties in Mecca, Medina and Riyadh will generate $79.9m a year and the company plans to raise money by selling residential properties and land in its portfolio, though not fixed assets, Al Gusaiyer said. Dar Al Arkan has total assets worth $6.13bn, according to its third quarter balance sheet.
Debts include a $999.8m Islamic bond, or Sukuk, due in July 2012, one for$199.9m maturing in 2014 and another totaling $453.2bn due in 2015. Moody’s Investors Service cut its credit rating on Dar Al Arkan on Nov 11 to Ba3, the third highest non investment grade, citing the maturing debt and a decline in land sales that hurt earnings.
“Concerns about the company’s liquidity position are overstated,” Majed Azzam, a real estate analyst at AlembicHC, said in an email.
He added: “The company’s total assets are held at cost, with plot sales margins averaging 45 percent, thus the market value of these assets could be as high as double.” AlembicHC upgraded Dar Al Arkan to “overweight” from “buy” last month.
“Dar Al Arkan will need to balance its available cash between debt servicing and reinvestment,” said Asim Bukhtiar, an equity analyst at Riyad Capital. “Continued weakness in land sales are expected through 2011, which could mean cash conservation at the expense of project delays.” Riyad Capital downgraded Dar Al Arkan to “hold” from “buy” in October.
Third quarter profit fell 53 percent to $77.2m, the company said Oct 20. Revenue declined 40 percent to $242.6m.
Dar Al Arkan has declined 36 percent in Riyadh trading this year, compared with a 3.6 percent gain for Saudi Arabia’s benchmark stock index.
Al Gusaiyer says he expects revenue to increase next year as demand for housing exceeds supply by about 40 percent. He also said he’s confident that Saudi authorities will approve a new mortgage law in the first quarter aimed at increasing lending in the kingdom.
“The real estate market is good,” in Saudi Arabia, Al Gusaiyer said. “Since the beginning of the 1970s, real estate has always been on the increase or on hold, but never in decline.”
Dar Al Arkan shares fell 0.6 percent, to 8.90 riyals at the 3:30 pm close in Riyadh on Saturday. The stock has lost 37 percent this year, compared with a 4.9 percent gain for Saudi Arabia’s benchmark stock index.