Dar Al-Arkan Annual Financial Report under IFRS (3297C)

TIDM44GO

RNS Number : 3297C

Dar Al-Arkan International Sukuk II

30 April 2012

Dar Al-Arkan publishes its audited consolidated financial statement under IFRS for the year ended December 31, 2011.

Dar Al-Arkan today released its audited consolidated financial statement under IFRS for the year ended December 31, 2011. A detailed analysis of the Dar Al-Arkan's 2011 performance is presented in its 2011 Board of Directors report, of which the key highlights are mentioned below.

Key Highlights on Dar Al-Arkan's 2011 Directors Report

Independent valuation overseen by CMA shows 53% increase in market value above book value for the majority of our real estate assets.

The Capital Market Authority (CMA) oversaw an independent valuation of a large sample of Dar Al Arkan's real-estate assets. Selecting assets with a book value of SAR 9.7 billion, accounting for 52% of the Company's total real estate portfolio of SAR 18.6 billion, the CMA asked the Company to have them independently valued. Each property was evaluated by at least two by independent local and international real estate valuators selected by CMA. The sum of the average valuations amounting to SAR 14.8 billion for the selected sample implies an inherent surplus of SAR 5.1 billion above the value recorded in Company's books. Based on the valuation methodology employed and the sampling done, the Company's management believes that the market value of these assets which equaled 153% of book value is reasonably indicative of the general value improvement across the Company's total real estate portfolio of SAR 18.6 billion. If this value improvement were to be captured in the Company's books it would have a very significant positive impact on its financial statements. However, in accordance with SOCPA, the accounting standards applicable in the Kingdom, all real estate investments are recorded in the Company's books at the lower of cost or book value and cannot be recorded at market value. (See page 8 of the report for details)

Dar Al-Arkan maintains profitability in 2011 at improved gross margins.

Dar Al-Arkan has reported its financial results for the year ended 31 December 2011. Revenues amounted to SAR 3,313 million compared to SAR 4,142 million in 2010. Net income was SAR 1,088 million compared to SAR 1,456 million in 2010. Earnings per share fell to SAR 1.01 versus SAR 1.35 in 2010. Notwithstanding the noted decreases, the gross profit margin remained healthy exceeding 41%. (See page 24 of the report for details).

Dar Al-Arkan Balance sheet growth maintained during 2011 (+7.6% shareholder equity, +3.4% asset base).

Total assets at year-end grew to SAR 24.1 billion from SAR 23.3 billion year-end 2010, representing a 3.4% increase. Shareholder equity at year-end grew to SAR 15.6 billion from SAR 14.5 billion year-end 2010, representing 7.5% increase. Hence, Dar Al-Arkan remains the number one real estate development company in Saudi Arabia in terms of asset base. (See See page 25 of the report for details).

111% Increase in cash.

Cash at year-end grew to SAR 2.5 billion, from SAR 1.2 billion year-end 2010, representing 111% increase. This net increase was achieved after meeting all debt obligations, including financing costs of SAR 374 million and principal repayment of SAR 549 million. In addition, SAR 845 million was invested in Investment Properties and an added SAR 1,003 million was invested in the Company's projects (Shams ArRiyadh and Shams Al-Arous) as well as in the Company's land portfolio. (See page 25 of the report for details).

Delivering on Strategy - Rental income kicks off.

For the first time in the Company's history, the year 2011 witnessed the creation of a third source of income - lease and property management revenues. Even though leasing revenues represented a marginal contribution this year, it shows that the Company is actively moving towards realizing returns from its investment in constructing lease assets over the last two years. With the majority of the leasable assets beginning to generate revenues in 2012, a more substantial contribution from leasing revenues can be expected in the coming years. (See page 6 of the report for details).

Housing is a Government Top Priority.

The positive outlook is further strengthened by the Royal Decrees announced in March, 2011 to address the housing needs for the Saudi population. In this context, the government has created the ministry of housing, with an independent budget of SAR 4 billion (US$1.1 billion). For the first time the Real-Estate sector will have its voice in the ministerial council. The government announced the Injection of SAR40billion (US$10.7billion) of new capital to the REDF, in addition to SAR15bn (US$4bn) injected previously in 2010. The Saudi Government raised the ceiling of the REDF loan program to Saudi citizens from SAR 300,000 (US$80,000) to SAR 500,000 (US$ 133,000). It also eliminated the prerequisite of owning land in order to qualify for the REDF loan. The Government authorized the REDF to lend money to buy constructed housing units, allowing the REDF applicants to use their REDF loan towards the purchase of a constructed unit from a developer. The REDF also signed agreements to guarantee additional loans requested by REDF applicants with the local commercial banks. (See page 4 of the report for details).

Development Projects.

Infrastructure works continued - Shams ArRiyadh.

The first phase of Shams ArRiyadh project stands at a 56% completion at 2011 year-end (SAR 1.8 billion) from total estimated investment of SAR 3.2 billion. The National Water Company commenced works in 2011 for the water supply and the construction of the main storage cistern to serve the entire project area. (See page 19 of the report for details).

Value creation continued for Shams Al Arous.

Palestine road extension was completed in August 2011 and inaugurated by the Deputy Mayor of Jeddah City in the attendance of the Company's Chairman. This fully operational road opens a new access to the East of Jeddah city and our project. Also the floor area ratio (FAR) was raised increasing the built-up area for Shams Al Arous by 100%. (See page 20 of the report for details).

Land sales started at Al-Tilal.

Within the project development activity, Dar Al-Arkan is shifting the emphasis towards plots rather than properties as a result of the changes in the market's dynamics. The focus on individual land plot sales is intended to effectively capture value from property market growth as result of the great financial stimulus program for the sector adopted by the Government. During 2011 retail sale of developed land parcels were initiated. (See page 20 of the report for details).

Leasing continued at Al-Qasr.

The leasing of the residential units continued for Al-Qasr Master planned community (1,375 residential units as rental properties) at year-end grew to 52%. The majority of lease contracts for these units are long-term, ranging between 3 and 5 years signed with government agencies and private entities. This is in line with the Company's goal of focusing on long-term contracts with good profit margins compared to lease contracts with individuals. Furthermore, the steady cash flow source generated from these long-term contracts will allow the Company to ease the process of obtaining financing facilities guaranteed by the income-generating leased assets. (See page 18 of the report for details).

Al Qasr Mall - 75% leased out.

98% of the Mall's construction work has finished as of 2011 year end. 75% of the Mall's leasable space has been rented and it is projected to reach 85% by the time of the Mall's inauguration. The Mall opening is expected during Q2 2012. The Mall has attracted a large renowned tenant mix which includes such as, Carrefour, Al Othaim Company, Dar Al Bander Co./Land Mark Group (Centre Point, City Max, Iconic, Shoe Express, Carpisa, Bossini, New Look & Koton), Red Tag, SACO, Al Shaya (H&M, Peacock, Payless, Next, Vision Express, Pink Berry, Claire's, Castania Nuts, Mother Care, Boots, Dorothy-Parkins, MilanoEvans, Victoria), Dana for Trading Co. (Mango, ADK, Blanco, Fridays Project), Anwal for Trading Co. (Cache cache, Etam & Etam Lingeria, Prafios & Marrow) (See page 18 of the report for details)

Qasr Khozam Area Development Project.

Qasr Khozam project is the largest regeneration project for scattered developments in the city of Jeddah and the first Public Private Partnership project (PPP) of its kind. The properties survey and valuation sheets were completed, the project master plan has been approved by the Ministry and Municipality and Rural Affairs the compensation mechanism, the plans and designs of the project's infrastructure are in progress. Permissions required for processing land title deeds were obtained for the first phase (the land delivered to Khozam Development Company by Jeddah Development and Urban Regeneration Company, with an area of 250,000 square meters); demolition work has already been completed for this phase and preparation for the next stage of work is underway. (See page 21 of the report for details).

PIF approves Finance for Qasr Khozam Project.

Public Investment Fund PIF issued its initial approval to participate in financing the project. The remaining amount shall be financed by commercial banks and other financial institutions. The PIF commitment is a key strategic step supporting the Company's efforts to appeal to other government agencies and commercial banks to secure additional financing required for the project. (See page 23 of the report for details).

Geographical Diversification of Real Estate Portfolio.

Dar Al Arkan diversifies its Real-Estate portfolio risk across the major cities in Saudi Arabia, which contains 70% of the population and 70% of the wealth concentration as well. At year-end, the portfolio concentration risk was (45% Riyadh, 41% Jeddah, 6% Makkah, 5% Medinah, and 3% Eastern Province). (See page 26 of the report for details).

Dar Al-Arkan Look Back (2007-2011).

Worldwide economic uncertainty commenced in Q3 2008; first, the global financial crisis; then the Euro zone sovereign countries crisis and lastly the social and political unrest across much of the Middle East countries. These events triggered major investors' upheaval. Consequently, this negative socio-economic environment limited the financing opportunities all over the world. Dar Al-Arkan was not immune to this negative environment, particularly during the last three years where raising new financing became exceptionally difficult.

Despite this challenging economic environment, Dar Al-Arkan due to its robust business, was able to honor its financial obligations without any delay. During the past five years Dar Al-Arkan has paid its loans, service its interest costs, finance charges and paid-out dividends. Payments totaling SR 9.3 billion, of which SR 4.3 billion were paid as dividends during 2007, 2008 and 2010, and SR 5 billion repaid as maturing loan principal, finance installments and finance charges. Additionally, DAAR delivered more than 4,000 residential units, and continued with the development of its projects (SAR 6 billion remarked to projects under progress), built investment properties asset (SAR 2.8 billion of finished rental asset) and acquired SAR 4 billion as new land (recorded at historical cost or market value, which is lower).

It is clear that net cash outflows during the past five years is about SAR 20 billion, of which SAR 5 billion repaid as maturing loan principal, finance installments and finance charges and SR 4.3 billion were paid as dividends distributions, SAR 6 billion spent in the development of the company's projects, SAR 4 billion were the net positive increase on the Company's land bank.

Acknowledging that during that period the Company was able to raise SAR 10 billion of debt, in the mean time there was no cash injections from equity. This despite the last five years period, containing a period of three and half years which the world suffered the worst financial crisis in the history of mankind. This demonstrates the extent of sophistication and strength of the company as the total external cash inflows was SAR 10 billion while the net cash outflows were SAR 20 billion. (See page 30 of the report for details).

Dar Al-Arkan financing cost trending down.

The average financing cost during the years 2007, 2008, 2009, 2010 and 2011 was 7.5%, 6%, 4%, 5% and 4.9% respectively. Due to the noticeable decrease in interest rates over the past few years in response to the global financial crisis, the average financing cost decreased from 7.5% in 2007 to an average of 4.9% in 2011; a decline of 34.7%. (See page 31 of the report for details).

Dar Al-Arkan Sukuk attracts investor interest across the most prominent international financial centers.

Dar Al-Arkan Sukukholders' geographical distribution analysis showed that Dar Al-Arkan Islamic Sukuk issuance attracts attentions of debt investors across the most prominent and international financial centers around the world. i.e. (London, Dubai, Bahrain, Singapore, Malaysia, Switzerland, USA, Hong Kong, Luxemburg ...etc). (See pages 33-35 of the report for details).

GOSI maintains 4.05% ownership in Dar Al-Arkan.

General Organization for Social Insurance maintained its 4.05% ownership stake in Dar Al-Arkan. GOSI is represented on Dar Al-Arkan Board by their General Manager for real-estate investments Mr. Abdul Rahman Bin Abdul Aziz Al Hossain. (See page 41 of the report for details).

Dar Al-Arkan attracts institutional and foreign investor attention.

Ongoing dialog and communication with investors, analysts and the financial community is a key strategic objective to Dar Al-Arkan. During 2011 Dar Al-Arkan Management met a variety of local and international investors (165) including institutional investors from the buy side and sell side and individual investors. (See pages 44 of the report for details).

To download 2011 BoD report, please click on the following link.

2011 Board of Directors Report

http://www.rns-pdf.londonstockexchange.com/rns/3297C_-2012-4-30.pdf

This information is provided by RNS

The company news service from the London Stock Exchange

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