Valuation Case

Global Research Kuwait
Global Investment House
Table of Contents
1 2 3 4 5 6 7 8
Investment Summary ............................................................................................................ Industry Overview .......................................................................................................... Peer Group Overview ...........................................................................................................
1 3 9
Company Overview ............................................................................................................... 12 SWOT Analysis ....................................................................................................................... 17 Financial Overview ................................................................................................................ 18 Valuation Methods & Assumptions ................................................................................ 24
Sensitivity Analysis ............................................................................................................... 25
January 2007
Commercial Real Estate Company Al Tijaria

Reuters Code: CRCK.KW Listing Kuwait Stock Exchange Market Price: (December 27, 2006) 285Fils
January 2007
Hold
Investment Summary
The Commercial Real Estate Company (CRC), also known as "Al Tijaria", is considered to be one of the oldest and experienced players in Kuwait's real estate market. The company was listed on the Kuwaiti stock exchange on 21/12/2004. All nancial aspects of CRC are governed by Sharia ( Islamic) laws and regulations. CRC's current portfolio of projects is concentrated in the residential segment considering that it is the most important segment of the real estate market in Kuwait. However, the focus is now shifting to other sectors with an increasing potential for growth such the commercial segment. The company has been also venturing into new vital sectors such as the medical sector and the educational sector. Average occupancy rate is over 90% for most of CRC's properties, which is considered to be one of the highest occupancy rates within Kuwait. During 2002, the company acquired 90% of Kuwait Resorts Company, engaged mainly in managing and operating Kuwait Hilton Resort. However, the company has recently sold a 59.24% stake in Kuwait's Resorts Company decreasing the company's holding to 30.76%, and recognizing a net gain on investments of KD14.13mn. Operating revenues stood at KD37.1mn in FY05, increasing by 51% from RO24.5mn in FY04. Net prot rose by 23% in FY05 to reach KD33.1mn compared to KD26.9mn in FY04. EPS stood at 27.2Fils for FY05 , up from 22.1Fils in FY04. Revenues from sales of land and real estate constituted 55% of operating revenues at the end of FY05, followed by prot from investment properties (27.9%), hotel income (16.9%), and other income (0.2%). Operating revenues witnessed a decline of 2.7% to reach KD14.1mn in 9M06 compared to KD14.5mn in the corresponding period last year mainly on the back of a decline of hotels revenue. Net prot stood at KD27.8mn in 9M06 which is 39% higher than the KD20mn reported in the corresponding period of FY05, and included the KD14.13mn one-off gain of the divestment in Kuwait's Hilton Resort. CRC's assets for the year ended 2005 stood at KD284mn, growing by 22% on a year on year basis. The company's assets are well structured, concentrated more into productive real estate operating assets, and less focused on securities investments. Total assets declined by 3.3% in 9M06 to reach KD274.4mn, owing to deconsolidating the group's nancial statements following the divestment of Kuwait Resorts Company. The company is planning to continue ahead with the strategy adopted in 2005 of exploring new markets outside the borders of Kuwait either through expanding activities into other
January 2007
countries such as Saudi Arabia, Bahrain, and Morocco or through forging strategic alliances with other international players, and acquiring different assets or stakes in renowned companies in the eld that complements the company's scope of activities. CRC's stock closed at 285Fils on December 27th 2006, trading at a P/E of 10.3x its 2006 projected earnings, compared to a forward P/E of 11.02x for listed real estate companies on KSE. We have arrived at the share valuation of CRC using two methods: DCF valuation and relative valuation. The weighted average share value of the company using the two methods is 272Fils, representing a discount of 5% to its current market price. We therefore initiate our coverage of CRC stock with a "HOLD" recommendation.
Table 01: Investment Indicators for CRC CMP (KD) 285 Revenues from Operations (KD Mn) 31.5 29.1 37.1 24.5 Shares in issue (mn) 1,340.7 Operating Net EPS Prot Prot (KD Mn) (KD Mn) (Fils) 19.2 27.2 20.3 15.8 35.8 27.5 18.7 33.1 28.3 12.9 26.9 22.7 Market Cap (KD mn) 382 BVPS ROAE (Fils) 159.7 152.7 159.8 152.3 (%) 13.0 17.9 17.4 13.7 52 - week Hi/ Lo 341-241Fils P/E (x) 14.1 10.3 11.3 15.2 P/BV (x) 1.8 1.9 2.0 2.3
Year 2007F 2006F 2005A 2004A

-
Source: Company annual reports, Global Forecasts. 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 December 27th 2006.
Chart 01: Relative Performance of CRC vs. Market Indices

200.0
150.0
100.0
50.0 9-Apr-05 2-Apr-06 2-May-05 9-Jul-05 2-Jul-06 8-Oct-05 25-Apr-06 1-Oct-06 12/12/06 11-Mar-06 31-Jul-05 24-Jul-06 23-Nov-05 22-Aug-05 24-May-05 17-May-06 15-Aug-06 17-Dec-05 14-Sep-05 20-Nov-06 16-Mar-05 30-Oct-05 29-Dec-04 20-Feb-05 15-Jun-05 13-Feb-06 26-Jan-05 21-Jan-06 10-Jun-06 29-Oct-06 9-Sep-06 10/01/07
The Commercial Real Estate Company
Real Estate Index
General Index
Source: Reuters, Global Research
January 2007
Industry Overview
The GCC real estate sector grew at unprecedented levels over the past few years fuelled by high oil revenues and abundant levels of liquidity in the region. Construction projects planned or under development in GCC have crossed the US$ 1 trillion mark. Other factors that have contributed to the trend include high government capital spending, easy availability of credit and the establishment of real estate funds investing in the region. Kuwait had its share of the regional real estate boom, with the real estate sector growing by 6.3% on a year on year basis and accounting for 6.7% of GDP in 2005. Real estate investment funds ooded the market in Kuwait with a total of seven funds managing around US$295mn in local and GCC markets. Key drivers of the real estate sector in Kuwait Political stability after the fall of Saddam Husseins regime. The economic boom in Kuwait was the main driver for growth in the real estate sector in Kuwait with a Nominal GDP growth rate of 35% in 2005, the highest in GCC, and a budget surplus of US$23bn, the second highest in GCC after Saudi. Abundant liquidity on the back of record high oil prices reaching US$75.76/b, with Kuwait being the second highest oil producer in GCC following Saudi. Rapid population growth, with a growth of 8.3% in 2005. Increase in employment opportunities and inow of expatriates which accounted for 67% of Kuwait's total population in 2005 and grew by 11% on a year on year basis. Favorable demographic prole with around 29% of total population in the age group of 15-30. Higher purchasing power with a per capita GDP of US$28,100 compared to an average per capita GDP of US$17,425 for the entire GCC region. Salaries increased by 8% in 2006, while ination is estimated at 3.5% in 2006. Variety of home nancing products such as Ijara. (for a detailed analysis of the real estate sector in Kuwait please refer to our sector report on Kuwait Real Estate, July 2006)
Industry Structure Real estate in Kuwait is broadly divided into three main segments; Residential, Investment and Commercial.
Residential The residential segment has been the most important segment of the real estate sector in Kuwait, and is comprised of the freehold market and the rental market. In the absence of regulations allowing foreign ownership of real estate in Kuwait, the freehold market in the form of villas and houses is only targeting Kuwaitis while the rental market is mainly in the form of residential apartments and is dominated by expatriates. Investment This segment represents investments in land and construction of either villas
or buildings for the purpose of rent. The construction usually takes the form of high rise apartment buildings. Although not substantially different from the residential segment, the possible difference that may be cited is the nal user not being the investor and is unlikely to become the owner of the property.
January 2007
Commercial This segment represents the construction of commercial complexes and sale or rent of spaces in commercial complexes either for ofce use or for retail use. The main commercial areas in Kuwait are Kuwait City, Sharq, Farwaniya, Hawally and parts of Salmiya. While commercial space in Kuwait City comprises largely of ofces, Salmiya, Hawally and Farwaniya mostly have retail commercial space.
Chart 02: Buildings Mix in 2005

Vacant Buildings 13%
Mixed Use 14%
Commercial 6% Residential 67%
Source: Public Authority for Civil Information
Industry Performance Historically, the residential segment represented the bulk of activity within the Kuwaiti real estate market. However, activity in investment properties and commercial properties segments has been steadily on an upward trend at the expense of that of residential properties whose share of the total market activity has been declining over the last few years from 85.5% in 2000. The economic boom in Kuwait associated with high oil prices in the region have led to the increase in job opportunities and the inux of expatriates into the country which prompted increased activity within the residential segment, increasing its relative importance in the market. During 2005, the value of residential sales stood at 56.17% of the total real estate sales. Real estate activity in 2005 saw a drastic increase in prices across the segments and a weakening of activity in terms of volume in both residential and investment property segments. Residential property segment is estimated to have grown by 52.84% in terms of value to KD2.61bn. On the other hand, residential units sold are estimated to have declined by 32.37% to 7,483 units in 2005. The value of investment property sales is estimated to have increased by 92.24% to a new landmark of KD1.871bn, while units sold declined sharply by 54.63% to 1,004 units. The increased demand for residential space has pushed up apartment rents which appreciated by almost 20-30% in 2005. So far, the bulk of supply of residential space has been concentrated in the construction of apartment buildings targeting expatriates. However, lately there has been signals of an oversupply situation with vacancy rates increasing to 12.95% in 2005 up from 11.32% in 2004 forcing a slight correction in apartment rents. Currently, there are 30,000 apartments estimated to be in oversupply.
January 2007
Unlike the other segments, commercial property units sold is estimated to have seen an increasing trend, elucidating the relative attractiveness and unsaturated state of this segment. Number of units sold in this segment estimated to have increased by 52.63%, while the sales value estimated to have more than doubled, growing more rapidly 113% to KD162mn. The same trend of real estate activity improving in terms of value and declining in terms of volume was seen across the governorates. By governorate, Farwaniya and Hawally together constitute more than 50% of total unit sales nationwide. Unit sales in these two governorates formed 27.7% and 26.6% of the total market respectively. These were followed by Al Ahmadi and Mubarak Al Kabeer governorates, which contributed 18.5% and 12.8% of total sales respectively. As for residential units sold, Farwaniya governorate accounted for 29.1% of market sales or 1,631 units. On the other hand, activity in Mubarak Al Kabeer saw a weakening with residential units sold declining by 54.7%. In the case of investment property segment, Hawally governorate accounted for almost half of all activity. Medan Hawally and Salmiya, which are within this governorate, attracted a lot of activity as old buildings are being demolished, and replaced by bigger buildings. Farwaniya ranked second in terms of units sold followed by Ahmadi, the latter being helped by heavy activity in coastal areas such as Fahaheel, Mangaf and Mahbula. A number of commercial and entertainment venues have sprouted in the governorate, along with schools, clinics and other facilities, catering to the needs of a growing population of expatriates residing in this area. Industry Outlook Major Upcoming Projects A number of new projects are currently in the pipeline, which includes Failaka Island Project, Kuwait University Project, the Ring-road Project, the Bubiyan Island Project and Project Kuwait. Mega Projects Agency (MPA), a division of the Ministry of Public Works, is charged with overseeing the development of the states two most important infrastructure projects, Failaka and Bubiyan. Such projects are bound to affect the real estate market in Kuwait. Moreover, it is stated that the Public Authority for Housing Welfare is executing 27 housing projects at a value of KD153mn. Out of these projects is the establishment of housing plots, residential units and public facilities and services in the Fahad Al-Ahmad housing project, East Sulaibikhat, Jaber Al-Ahmad city, and Saed Al-Abdullah area. Brief highlights of some projects are stated below.
Silk City project The Silk City Project at the Subiyah peninsula, is considered as one of the largest additions to real estate development in Kuwait. It will comprise residential and commercial areas, schools, and hospitals. The city will be built on 250 square kilometers, and is expected to house 500,000 residents. The project will be built on a BOT model, by Tamdeen Real Estate and Ajiyal Real Estate companies. The completion date of the rst phase will be within a period of 5-7 years. Jabr Al-Ahmad Township and Sabbeya projects Jabr Al-Ahmad project is already under construction and due for completion in two years. It will have 1220 housing units to accommodate 78,000 residents. Sabbeya project located at the north of Kuwait city is to construct 50,000 residential units in the area. The project will also require developing a new 75 km motorway and 36 km causeway from Kuwait city.
January 2007
Liberation City project The project is a KD50bn investment to be built gradually within 25 years. It involves the construction one of the highest skyscrapers in the world, Kuwait Tower, with 1.1km height over 250 oors. The tower will be the center of the Silk City. The project will contain commercial, tourist and entertainment establishments in addition to residential units to accommodate 700,000 residents. Arefijan and the Khairan projects - Two major residential projects are also slated for
execution, being offered to the private sector on a BOT basis over a 20 year period, namely; the Arejan and the Khairan Residential Projects. The Arejan project costing $1.87bn is to be a comprehensive residential area with associated facilities to house more than 100,000 people. It is a new city with estimated area of 40 square kilometers and comprises more than 11,000 residential units. The Khairan Residential Project is a massive 40 square kilometers project which would add 26,000 residential units, at a cost of more than US$20bn.
Failaka Island Project - The estimated US$5bn project is to be developed on a 20-50 year
BOT basis and calls for the construction of tourism infrastructure on the 43-square-kilometer island, including hotels, chalets, leisure and entertainment facilities. The Ministry of Public Works has received tenders from nine local companies for executing the project. Moreover, the Mega Projects Authority is said to oat a BOT investment project for the construction of a water station and a 165-megawatt electricity plant in addition to a water distillation station at an estimated cost of US$25mn.
Bubiyan Island Project The estimated US$6bn development of Bubiyan involve the
construction of a new port, container terminal and residential and commercial infrasturcure on the island. The Bubiyan seaport project is a US$6bn investment with the aim of opening (2.5mn ton a year) port by 2008. Nineteen companies were pre-qualied for the rst phase tender covering the construction of road and bridge access to island, plus railway option at a cost of US$200-300mn. The second stage will cover the dredging of 40KM long, 260m wide, 14m deep approach channel at a cost of US$500mn.
Kuwait University Project The project has an estimated KD1bn value, aiming to bring all
the current university faculties, currently spread across the capital, under one roof. The new educational facility will be co-educational and accommodate up to 40,000 students. Local consultants are doing the designs for the dormitories, sports facilities and auditoriums as well as all the individual faculties.
The International Hospital and South Surra hospital projects The international Hospital
project is a KD8mn investment to construct a private hospital in Salmiya. The hospital is a 52-bed facility with a built-up area of 6000 square meter. The South Surra Hospital is a 1050bed facility with estimated investment of KD50-60mn, it is expected to be the largest general purpose hospital in Kuwait.
The first ring road project The US$100mn rst ring road project involves the upgrade of 2.5km of carriage way, 10 bridges and a division of existing underground utilities. The project also involves the construction of an 800 meter long stretch of single-lane overpass and a 1.5km section below ground.
January 2007
Project Kuwait & 4th refinery project Project Kuwait entails US$8.5bn development of the strategically vital Northern Oilelds, to achieve production levels of 5mn b/d by 2020 from about 2.8mn b/d today. The 4th renery project is expected to be the worlds largest Greeneld renery project and is scheduled to come on stream in April 2010. It would raise the countrys rening capacity to 1.5mn b/d with estimated overall investment of US$6.3bn.
Table 02: Landmark projects in Kuwait Expected Project Type Term. Date City of Silk Khairan Residential City Project Kuwait Bubiyan Island Failaka Island
Source: Global Research.
Estimated Cost (US$ bn) 86 27 8.5 6.0 5.0
Developer Tamdeen Real Estate Co./ Ajial Real Estate Co. Public Authority for Housing Welfare Kuwait Petroleum Corporation (KPC) Mega Projects Agency (MPA) Mega Projects Agency (MPA)
Mixed use Residential Industrial Tourism Tourism
2010 2016 2014
Outlook Looking forward vacancies in apartment buildings are expected to widen because developers are still erecting new complexes at a breakneck pace. Unless there is further economic activation, an oversupply situation will persist. The only way to address the oversupply situation is to change the regulations and allow non-Kuwaitis to own property, which is not a possible scenario. The story is quite different for the supply of housing of Kuwaiti nationals which is witnessing a clear shortage. Demand for commercial real estate space is on the rise and is expected to increase further in the course of the coming years as the steaming economy and booming consumer spending persist in triggering business expansion, contributing to an increase in the net absorption of commercial space, in both retail as well as the ofce segments. To benet from this latent demand, several real estate companies launched projects in the commercial segment. However, most of these projects in the segment are of high-end nature. This is a natural consequence of land prices being extremely high. It is estimated that the total supply of commercial space coming into the market by 2007-09 would reach 750,000sq.m. Among the main projects coming up in the commercial segment is the US$250mn Kuwait Business Town (KBT) project which will transform downtown Kuwait into a central business district. KBT will consists of nine ofce towers, shopping malls, and a hotel.
January 2007
Chart 03: Potential for growth across real estate segments in Kuwait
Retail Villas Apartments
Ofces
Increasing growth potential
Decreasing growth potential
Source: Global Research
January 2007
Peer Group Overview

There are 29 listed real estate companies on Kuwait Stock Exchange at present with a total market cap of KD3bn on December 27th 2006, forming 7.3% of the total market cap of listed companies on KSE. The combined revenues for listed real estate companies stood at KD168mn approximately in FY05, while the combined net prot amounted to KD442.8mn. Combined revenues grew by 24% on a y-o-y basis while combined net prot grew by 153%, indicating that bottom line performance of the sector was affected to a great extent by the growth in non-core revenues, mainly gains from the stock market which witnessed superior performance in 2005. Total assets of listed real estate companies amounted to KD2.7bn at the end of FY05. Our peer group consists of 6 companies including CRC, Kuwait Real Estate, United Real Estate, National Real Estate, Salhia Real Estate, and Tamdeen Real Estate. The following criteria were used to select the Peer Group: 1) Assets Size; 2) Revenues from Real Estate Operations; and 3) Market capitalization. Our selected peer group formed 43.2% of the total market cap of listed real estate companies on KSE as of December 27th 2006, 69% of combined revenues, 43% of combined net prot, and 52% of total assets. Asset Structure During 2005 and before the recent stock market downturn, most of the real estate companies increased their investment portfolios at the expense of their core operating assets. Bigger investments portfolios might have been a favorable situation in 2005, however, the situation has now reversed. CRCs core operating assets formed 75% of its total assets at the end of FY05, while its investments portfolio constituted 16% of total assets. Among our peer group, United Real Estate Company had the least exposure to investment in securities and the highest share of core operating assets with investments and core operating assets forming 2%, and 92% of the companys total assets respectively at the end of FY05. Chart 04: Peer Group Asset Structure
KD mn
300
200
100
0
Commercial Real Estate Tamdeen Real Estate National Real Estate Kuwait Real Estate Salhia Real Estate United Real Estate
Other Assets
Core Operating Assets
Investment Portfolio
Source: Companies 2005 annual reports , Global Research.
January 2007
Operating Performance Owing to the surge in stock prices in 2005, net prot for most of the real estate companies beneted from the investment portfolio in their assets and not from real estate operations, which is not a good indicator of the sustainability in the companies earnings as it suggests over reliance on stock market gains in supporting bottom line performance. In selecting our peer group, we focused on companies with the highest contribution of revenues from real estate operations to the companies net prot. In absolute value, CRC reported the highest operating prot in FY05, standing at KD18.6mn. However, in terms of the highest contribution of prot from real estate operations to net prot, the company came third after United Real Estate, and Tamdeen Real Estate. In absolute value, Kuwait Real Estate Company reported the highest net prot of KD62mn, however it is worth noting that the investment portfolio of the company constituted 70% of the companys assets at the end of FY05. Operating prot constituted 12% of Kuwait Real Estates net prot in FY05. Table 03: Operating prot (In KD000) United Real Estate Tamdeen Real Estate Commercial Real Estate Salhia Real Estate National Real Estate Kuwait Real Estate Operating Prot 11,800 5,509 18,650 9,066 16,157 7,677 Net Prot Operating prot/ Net Prot 12,550 94% 8,185 67% 33,127 56% 17,501 52% 54,745 30% 62,108 12%
Source: Companies annual reports for FY05, Global Research.
Protability The company recorded a ROAE of 17.4%, while ROAA stood at 12.8% which were the third highest ROAE and ROAA in the peer group. To dilute the effect of investment portfolios and investment income on protability, we have adjusted the ROAE and ROAA in order to reect protability from real estate operations. After adjusting for non core operations, CRC recorded the third highest ROAE in the peer group, and the second highest ROAA. Table 04: Protability ROAE % 12.7 17.4 34.6 17.1 5.5 39.9 21.2 ROAA % 6.9 12.8 26.0 8.02 3.5 29.1 14.4 Adjusted ROAE % 12.5 10.0 24.7 5.9 1.2 2.9 9.5 Adjusted ROAA % 7.3 9.8 21.3 3.3 1.4 6.9 8.3
United Real Estate Commercial Real Estate National Real Estate Salhia Real Estate Tamdeen Real Estate Kuwait Real Estate Peer Group Average
Source: Companies annual report forFY04, and FY05, Global Research.
Adjusted ROE = Net Prot from Real Estate Operations/ Average Shareholders Equity Adjusted ROA = Net Prot from Real Estate Operations/ Average Core Operating Assets
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January 2007
Trading Comparables CRCs stock closed at 285Fils on December 27th 2006, trading at a P/E of 10.3x its 2006 projected earnings, compared to a forward P/E of 18.4x for its peer group, and a forward P/E of 11.02x for listed real estate companies on KSE. Table 05: Trading Comparables Market Cap (KD 000) Commercial Real Estate 389,049 Kuwait Real Estate 135,183 United Real Estate 124,640 National Real Estate 360,434 Salhia Real Estate 179,507 Tamdeen Real Estate 142,464 Peer Group Total & Avg. 1,331,277 Sector Total & Avg. 3,078,935
Price (Fils) 285 164 230 560 570 420 -
EPS ( Fils) 27.6 38.2 77.7 12.2 19.4 -
BVPS Forward (Fils) P/E 153 10.3 185 183 6.0 307 7.2 272 46.6 412 21.6 18.4 11.02
P/BV 1.9 0.9 1.3 1.8 2.1 1.0 1.5 1.61
Source: Companies latest nancial results, Global Research. - EPS for CRC is based on our projected 2006 earnings while EPS for the remaining peer group is annualized based on the latest disclosed nancial results. - We have excluded Kuwait Real Estate from the Peers forward P/E since the company recorded negative earnings in the 9-month ending September 2006. - Market Cap, P/E and P/BV are calculated based on closing market prices on KSE as of December 27, 2006.
January 2007
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Company Overview
The Commercial Real Estate Company (CRC), also known as Al Tijaria, was established in 1968, and is considered to be one of the oldest and experienced players in the eld. The main focus of Al-Tijaria is directed towards commercial property investment in Kuwait and the Gulf. CRCs major projects include Al Manar, and Al Lodan residential complexes, Al Shorouq, and Al Bodour ofce towers. Other projects in the pipeline include the X-zone entertainment project, and the Green hills residential complex in Kuwait as well as Hajer and Al Maqam towers in Mecca, and Ain Athari Park in Bahrain. All nancial aspects of CRC are governed by Sharia (Islamic) laws and regulations. The company had been assigned a credit rating of BBB+ by capital intelligence, and has been awarded the ISO 2000:9001 certication for nancial and managerial achievement and the Euro Money Award as the best company in property development in the housing sector in the Gulf. CRC started with a paid-up capital of KD0. 54mn. Capital was increased twice during 1997 through issuing 1.495 billion shares at a par value per share of 100Fils increasing the paid-up capital to KD150mn, then another KD500mn shares were issued at par bringing the paid-up capital to a total value of KD200mn. During 2001, accumulated losses amounting to almost KD78mn forced the company to reduce its paid-up capital to KD121.8mn. Those losses have occurred on the back of the declining value of the companys investments and the full amortization associated with the companys investment in Kuwait Real Estate Co. During 2006, the companys paid up capital was increased through a stock bonus issue which increased the paid up capital from KD121.8mn to KD134mn divided over 1.34bn shares at a par value per share of 100Fils. During 2002, CRC acquired 90% of Kuwait Resorts Company, engaged mainly in managing and operating Kuwait Hilton Resort, and started preparing consolidated nancial statements as of December 2003 incorporating the nancial statements of the commercial real estate company (parent company) and Kuwait Resorts Company. During 2006, the company sold a 59.24% stake in Kuwaits Resorts company decreasing the companys holding to 30.76%. Other associate companies include Arab Ready-Mix Concrete Center Company (49.56%), Industrial & Financial Investment Company (18.23%), and Markets Complex Co. (18.36%). CRC was listed on Kuwait Stock Exchange on 21/12/2004. Major shareholders of CRC include Wedyan Real Estate Company (9.51%), Kuwaiti International Investment company (9.18%), and Al Nojoom Real Estate and Al Baraka Kuwaiti General Trading and Contracting Company (6.52%). The company follows a stable dividend policy, with a cash dividend equal to 6%, 7%, 8% for FY02, FY03, FY04, respectively. In addition, it distributed shares in kind of Kuwait Real Estate company equal to 2 non voting shares for each 100 shares of commercial Real Estate for FY03, and shares in kind of Kuwait Real Estate company equal to 4 non voting shares for each 100 shares of commercial Real Estate for FY04. Cash dividends of 11% were distributed for FY05 in addition to bonus shares of 10% of share capital.
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January 2007
CRCs core business is real estate development and investment, with a focus on divesting low performing nancial and real estate assets and replacing them with stronger performing assets, improving land available for private residence, developing commercial and investment property projects using distinctive and creative designs and concepts, and the active participation in high value privatization and B.O.T projects. In addition to the real estate business, CRC is also engaged in private property portfolio management. Among the funds managed by the company; the Real Estate Center Fund, Al Dar Real Estate Fund, Real Estate investments portfolio of the Kuwait Public Transport Co., Commercial Islamic Fund, and Al Markaz Real Estate Fund. The main revenue sources for CRC are investment properties, land and real estate held for trading, and hotel income representing the companys share in revenues from Kuwait Hilton Resort, and Rester Beach Resort (formerly Sar Al Dana Hotel). Revenues from sales of land and real estate constituted 55% of operating revenues at the end of FY05, followed by prot from investment properties (27.9%), hotel income (16.9%), and other income (0.2%). Chart 05: Revenue Mix
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2002 2003
Other Operating Income
Hotel Income
Prot from Land & Real Estate Held for Trading
Prot from Investment Properties
2004
2005
Source: Company, Global Research.
CRC is following a conservative business strategy focused on minimizing risk exposure for its projects and investments through diversication across different segments of the real estate business as well as geographical diversication across markets with a promising outlook. Initially, the Kuwaiti market was the focus of the companys activities and investments. However, the year 2005 marked the rst attempts to explore new markets outside the borders of Kuwait either through expanding the companys activities into other countries such as Saudi Arabia, Bahrain, and Morocco or through forging strategic alliances with other international players, and acquiring different assets or stakes in renowned companies in the eld that complements the companys scope of activities.
January 2007
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CRCs current portfolio of projects is concentrated in the residential segment considering that it is the most important segment of the real estate market in Kuwait. However, the focus is now shifting to other sectors with an increasing potential for growth such the commercial segment. The company has been also venturing into new vital sectors such as the medical sector and the educational sector. Most of the properties in CRCs portfolio are freehold, with an average occupancy rate of over 90% for most of the companys properties, which is considered to be one of the highest occupancy rates within Kuwait. Local Operations CRCs major projects include Al Manar, and Al Lodan residential complexes, Al Shorouq, and Al Bodour ofce towers. Other projects in the pipeline include the X-zone entertainment project, and the Green hills residential complex. The company is also engaged in the hospitality business through its current investment in the Hilton Resort, and its fully owned Rester Beach Resort, which was previously under the name of Sar Al Dana Resort. The year 2005 witnessed the launch of several real estate projects for CRC. It launched three projects worth more than KD50mn which are set to open concurrently at the end of 2006 or beginning of 2007. The projects are the 40-storey Kuwait Trade Center costing KD21mn; the Symphony Complex (commercial and residential complex) worth KD27mn; and the Dome Complex, a KD4mn restaurant project. In 2006, CRC announced that it is nalizing plans for four projects worth KD118mn. The rst project is a KD100million project in the area of Al Mahboulah and the remaining KD18mn are distributed between another three projects in the Abu Halifa area including the residential project Green Hills, the tourism project Garden and the recreational project X Zone. The company has also increased its local portfolio of properties with the addition of two recent acquisitions namely Al Shouafat commercial Complex in Al Sharq area at a value of KD9.5mn and Al Rihab commercial complex in Hawally at a value of KD17mn. The company has recently established Al Shifaa Al Kuwaitia Medical Care Services Company, and signed a contract to build, operate and manage a maternity and pediatrics hospital in Kuwait in Al Mahboula area at a total value of KD20mn in collaboration with the Medical Center of Hamburg University. The new hospital will be owned by Al Shifaa Al Kuwaitia Medical Care Services Company. Another two companies were established in 2006, Al Areen Real Estate company, and Al Mutajara Real Estate. The three companies are fully owned by CRC. CRC has also invested in the educational services sector through the alliance with the International Integrated Educational Services Company to establish and operate an integral college implementing the Australian educational system.
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January 2007
International Operations Saudi Arabia CRC invested 20% in Hajer Tower in Mecca. The tower is one of the house towers project, on the door of King Abdul Aziz, at the threshold of the Kaaba. It consists of 31 oors, 10 oors of which are occupied by Movenpick Hotel, and the remaining oors consists of furnished hotel apartments that are serviced by the administration of Movenpick Hotel. In August 2006, CRC along with Venture Capital Bank and Siraj Co. entered into an alliance for developing the downtown in Jeddah City, Abha City Center considered to be the most important touristic region in the Kingdom of Saudi Arabia. This alliance is led by the Construction Development Co. (Saudi Arabia), in addition to a group of international, regional and local investors. CRC signed in June 2006 a KD176mn contract to build Al-Maqam Tower in Mecca. ALMaqam Tower is one of the seven towers of Al-Bait Al-Maqam Tower project on the King Abdul Aziz Waqf in the yard of royal campus. The project involves the following parties; Commercial Real Estate Company (30%), Market Complex Company (25%), Bin Laden Group Company (25%), Industrial and Financial Investments Company (10%), Hajj and Oumra Services Group (5%), Al Masa Real Estate Investment Company (5%). Bahrain The Ain Athari park project in Bahrain is a B.O.T project in participation with the Markets Complexes Company (Kuwait) and Gulf Construction Company (Bahrain). The project is spread over 170,000 sqm, and is 5 min away from the bridge of King Fahd. CRC along with the Markets Complex Company and the Al Khaleej Development Company (Bahrain) have acquired a 324,000 sqm piece of land in Bahrain, for a total cost of KD16.3mn equally divided among the three partners. CRC acquired 6.82% of Venture Capital Bank in Bahrain, which is the Middle East and North Africas (MENA) rst specialist venture capital and private equity bank regulated by Bahrain Monetary Agency (BMA) with a paid up capital of US$66mn and a GCC widespread shareholder base comprising 80 high net worth individuals and corporate investors. VCBank is considered the rst Islamic bank to invest in promising small to medium enterprises (SMEs) with growth potential, with the focus of exploring investment opportunities in the Gulf region and the Middle East, especially Bahrain and Morocco in the rst stage, then Iran and Turkey at a later stage. The company entered into a strategic alliance with the top nancial and investment companies in Bahrain and Kuwait, to form Commercial Venture Real Estate VREC, which is a Bahraini joint-stock company established in March 2006. The alliance include Venture Capital Bank (VCB) (50%), Commercial Real Estate Company (20%), Securities Group (10%), Industrial Investments Company (10%), Kuwait Resorts Company (5%) and Commercial Complexes Company (5%).
January 2007
15
Morocco CRC along with Venture Capital Bank signed a Memorandum of Understanding (MoU) with the Caisse De Depot et De Gestion (CDG) in the Kingdom of Morocco to invest in joint projects between the three establishments and their strategic investors in different economic sectors in the Kingdom of Morocco, provided that CDG Development would provide the necessary support and facilitate the investment process for such opportunities. In return, Venture Capital Bank and Commercial Real Estate Company and their partners and investors would provide all the technical, nancial and administrative capabilities and means to exploit such opportunities. CDG is a public nancial institution that manages 35% of the institutional savings reserves in the Kingdom of Morocco and manages more than US$10bn in the form of assets. In September 2006, the company entered in partnership with Venture Capital Bank and other investors from Morocco for a US$500mn housing project. The Moroccan government granted them 105 Hectares of land to build 24 thousand residential units in Rabat and Marrakesh in a three year period. Table 06: Snapshot of CRCs Portfolio Project Segment Lodan Building Residential Al Manqaf Villas Residential Al Zahraa Villas Residential Al Yarmouk Villas Residential Al Manar Complex Residential Green Hills Complex Residential Gardens Complex Residential Al Bodour Tower Al Shorouq Tower Kuwait Trade Center Al Shorouq Tower 2 Symphony Towers Hilton Resort & Hotel Rester Beach Resort X-zone project The Dome Ain Athari Park Hajer Tower Ofce/Retail Ofce/Retail Ofce/Retail Ofce/Retail Hotels/Ofce/Retail Hotels Hotels Recreational Recreational Recreational Hotel Apartments
Country/City Kuwait/ Salmiya Kuwait/ Manqaf Kuwait/ Surra Kuwait/ Yarmouk Kuwait/ Bneid Al Gar Kuwait/ Mahboula Kuwait/ Mahboula Kuwait/ Sharq Kuwait/ Sharq Kuwait/ Kuwait City Kuwait/ Sharq Kuwait/ Salmiya Kuwait/ Manqaf Kuwait/ Al Egila Kuwait/ Abu Halifa Kuwait/ Abu Halifa Bahrain Saudi Arabia/ Mecca
Stage Completed Completed Completed Completed Completed Design & Development Under-Construction Completed Completed Under-Construction Under-Construction Under-Construction Completed Completed Design & Development Under-Construction Under-Construction Acquired 20%
16
January 2007
SWOT Analysis
Strengths CRC has been in business for over 35 years High occupancy rates, over 90%. Diversied portfolio, stretched over various business segments and regions. High quality of earnings, relying on core revenue operations. Limited exposure to stock market investments. Stable dividend policy. Opportunities The company has shifted its focus to the commercial segment which is heavily undersupplied in Kuwait. Rise of various forms of home nancing such as Ijara. High liquidity levels in the region. The recent stock market downturn has shifted the focus to more safer havens of investment such as real estate. Allowing foreign properties in Kuwait. ownership of
Weaknesses Lack of steady revenue stream since most of CRCs properties are freehold. The increase in the price of building materials might impact the companys margins. Lack of clarity and transparency in the sector.
Threats Geopolitical threats. Economic slowdown. The continued increase in land prices in Kuwait might impact the feasibility of the companys projects.
January 2007
17
Financial Overview
Revenues and Expenses CRC is characterized by high quality of earnings which is measured by the degree to which core operating revenues have contributed to the bottom line growth. To illustrate the point, CRCs net prot grew by 23% at the end of FY05 while net operating prot grew by 42%. In other words, CRC is mainly relying on recurring sources of income which implies stability in the companys earnings. Operating revenues grew by 51% to reach KD37.1mn at the end of FY05. Revenues from sales of land and real estate constituted 55% of operating revenues at the end of FY05, followed by prot from investment properties (27.9%), hotel income (16.9%), and other income (0.2%). Revenues from sales of land and real estate grew by 85%, recording the highest y-o-y growth rate in FY05 to reach KD20mn, followed by real estate rental revenues which grew by 70% to reach KD5.6mn in FY05. Rising prices of building materials has negatively impacted market, including CRC. The increase in prices of building materials is estimated to have resulted in rise of construction cost by 50% during the past couple of years. Operating expenses as a percentage of operating revenues increased to 35% in FY05 compared to 28% in FY04. CRCs gross prot margin declined from 70% in FY04 to 64% in FY05. Table 07: Operating Prot Breakdown Amount in KD000 Real estate rental income Operating expenses Net real esate rental income (A) Prot from sale of investment properties (B) Change in fair value of investment properties ( C ) Prot from investment properties A+B+C Sales of land and real estate Cost of sales of land and real estate Prot from sale of land and real estate (D) Other costs (E) Impairement/reversal of impairement loss ( F ) Prot from Land & Real Estate held for trading D+E+F Hotel Income Other operating income Operating revenues Operating expenses Gross prot Depreciation Administrative expenses FX differences Operating prot
Source: Company.
2003 3,098 (925) 2,173 1,702 9,756 13,632 14,322 (6,628) 7,694 (904) 120 6,910 5,113 127 34,239 (8,457) 25,781 (2,466) (1,703) 21,613
2004 2005 3,336 5,686 (1,003) (1,130) 2,333 4,556 (24) 5,181 4,686 7,514 9,217 10,863 20,048 (5,164) (10,938) 5,699 9,110 (997) (1,286) (808) 366 3,894 8,190 5,911 6,274 40 109 24,523 37,145 (7,165) (13,354) 17,358 23,791 (2,771) (2,521) (1,713) (2,500) (119) 12,874 18,650
18
January 2007
CRCs non operating prot increased from KD17.1mn in FY04 to KD18.3mn in FY05. Nonoperating prot included prot from available for sale investments of KD14.18mn, and the companys share in operating results of associates of KD4.1mn. Protability Net prot rose by 23% in FY05 to reach KD33.1mn compared to KD26.9mn in FY04, with a net prot margin of 86.1% at the end of FY05. EPS stood at 28.3Fils for FY05 , up from 22.7Fils in FY04. ROAE and ROAA stood at 17.4% and 12.8% in FY05 respectively, compared to 13.7% and 11.3% in FY04. Asset Structure CRCs assets for the year ended 2005 stood at KD284mn, growing by 22% on a year on year basis. The companys assets are well structured, and less focused on securities investments. Around 75% of CRCs total assets are concentrated into productive real estate operating assets. Total assets stood at KD274.4mn in Sep-06. Investment properties stood at KD80.4mn in 9M06, constituting the major part of CRCs assets, around 29%, and followed by projects in progress which formed 15% of total assets. Chart 06: Asset Structure 2005
Others 1.8% Net Fixed Assets 11.2% Cash Receivables & other debit 1.8% balances 5.0% Land and real estate held for trading 12.5%
Chart 07: Asset Structure 9M06

Net Fixed Cash Receivables & other debit Assets 3.9% balances 2.6% 8.5% Land and real estate held for trading 11.9%
Investment Properies 27.3%
Investments available for sale 16.3% Investment in joint project 2.8% Investment in associates 9.1%
Investment Properies 29.3%
Investments available for sale 11.1% Investment in joint project 2.9% Investment in associates 14.7%
Projects in progress 12.1%
Projects in progress 15%
The companys investment available for sale decreased by 34% in 9M06 to reach KD30.5mn, down from KD46.34mn at the end of FY05. Investments available for sale constituted 11.1% of total assets in 9M06, and included 35% investments in quoted shares, 45% in unquoted shares, and 20% investments in quoted and unquoted real estate funds. Investment in associates increased by 56% to reach KD40.3mn in 9M06 compared to KD25.9mn for FY05 on the back of the companys divestment of a 59.2% stake in Kuwait Resorts Company, and recording the remaining 30.76% stake as investment in associate company. The company had also concluded the establishment of the associate company; Al Makam Tower Company; in associaiton with Market Complex Company, Bin Laden Group Company, Industrial and Financial Investments Company , Hajj and Oumra Services Group, Al Masa Real Estate Investment Company. The newly formed company will be handling the development of Al Makam Tower Company in Saud jointly with Other associate companies include Arab Ready-Mix Concrete Center Co. (49.56%), Industrial Financial and Investment Co. (18.23%), and Kuwait Commercial Markets Complex Co. (18.36%).
January 2007
19
Investment in joint projects amounted to KD7.9mn in 9M06 and represents the companys 20% investment in Hajer tower in Mecca. Funding Sources CRC is low leveraged with a debt/equity ratio of 0.34 in FY05. The companys total debt stood at KD66.9mn in FY05. Considering the companys adherence to Islamic Sharia principals, CRCs long term debt is mainly in the form of Murabah, Ijara, and the companys recently issued Islamic bonds (Sukuk). During 2005, the company raised KD28.8mn through the US$100mn Sukuk offering, underwritten by Senior Lead Manager Kuwait Finance House (Kuwait), Lead Manager Boubiyan Bank, in addition to Deutsche Bank, Emirates Islamic Bank, Gulf Investment Corporation, Kuwait Financial Centre, Liquidity Management Centre, Bank Muscat, Arab Islamic Bank (Palestine) and Arab Insurance Group. The Sharia compliant lease-to-own Islamic security will mature in July 2010, and offers a semi-annual return of 125 basis points over LIBOR. It was the rst corporate Sukuk offering to be assigned a rating of A- by Capital Intelligence. The Sukuk offering has been approved by the Bahrain Monetary Agency and was listed on the Bahrain Stock Exchange. Interim Results Operating revenues witnessed a decline of 2.7% to reach KD14.1mn in 9M06 compared to KD14.5mn in the corresponding period last year mainly on the back of a decline of hotels revenue which declined signicantly by 93% to reach KD0.3mn compared to KD4.9mn in the corresponding period in FY-05 following the divestment of a 59.2% stake in Hilton Resort which was the main driver of hotels revenue for CRC. Prot from investment properties increased by 97% to reach KD6.1mn, while prot from land and real estate held for trading increased by 52%. Operating prot increased by 40% in 9M06 to reach KD8.8mn compared to KD6.2m in the corresponding period at the end of FY05.
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January 2007
Table 08: Operating Prot Breakdown Amount in KD000 Real estate rental income Operating expenses Net real esate rental income (A) Prot from sale of investment properties (B) Change in fair value of investment properties ( C ) Prot from investment properties A+B+C Sales of land and real estate Cost of sales of land and real estate Prot from sale of land and real estate (D) Other costs (E) Impairement/reversal of impairement loss ( F ) Prot from Land & Real Estate held for trading D+E+F Hotel Income Other operating income Operating revenues Operating expenses Gross prot Depreciation Administrative expenses Operating prot
Source: Company.
9M06 4,684 (683) 4,001 2,155 6,156 6,329 (2,703) 3,625 (837) 2,788 353 1,478 14,161 (3,386) 10,775 (118) (1,855) 8,802
9M05 4,109 (686) 3,423 (54) (243) 3,126 6,572 (3,301) 3,271 (548) (892) 1,831 4,998 68 14,558 (4,535) 10,023 (2,009) (1,729) 6,285
In light of the sluggish stock market performance in 2006, proceeds from available for sale investments was slashed to KD5.9mn during 9M06 compared to KD13.9mn recorded in the corresponding period at the end of FY05. The companys share in the operating results of associates witnessed an increase of 65% to reach KD2.6mn compared to KD1.5mn in the corresponding period at the end of FY05. Following the deconsolidation on the back of the divestment of Kuwait Resorts Company, CRCs share in the revenues according to its remaining stake in Kuwaits Resorts company are now recognized as Groups share in operating results of associates. The company reported a net prot of KD27.8mn in 9M06 which is 39% higher than the KD20mn reported in the corresponding period at the end of FY05, including a net gain of KD14.13mn from the divestment in Kuwaits Resorts. Excluding the one-off gain, net prot will stand at KD13.7mn, representing a decline of 37.56%.
January 2007
21
Table 09: 9-month Results P & L Account Amount in KD000 Operating Revenues Operating Expenses Gross Prot Depreciation of property, plant, and equipment Prot from investments held for trading Prot from available for sale investments Groups share in operating results of associates Prot from sale of companys share in afliate Co. Administrative Expenses & Other charges Prot from sale of associates EBIDTA Financing Charges Earnings Before KFAS, NLST, BoD KFAS Contribution BoD Remuneration NLST Net Prot
Source: Company.
9M-06 14,161 (3,386) 10,775 (118) (257) 5,963 2,641 14,139 (1,855) 24 31,313 (2,598) 28,715 (232) (72) (560) 27,851
9M-05 14,558 (4,535) 10,022 (2,009) 1,287 13,967 1,596 (1,729) 295 23,431 (2,607) 20,824 (177) (403) 20,245
CRCs total assets declined by 3.3% in 9M06 to reach KD274.4mn compared to 283.9mn at the end of FY05. The decline in total assets came on the back of deconsolidating the groups nancial statements following the divestment of Kuwait Resorts Company. The companys net xed assets decreased from KD31.8mn at the end of FY05 to KD7mn in 9M06 after the disposal of KD24.8mn representing the net xed assets of Hilton Resort. Debt/Equity ratio declined to 0.31 in 9M06 from 0.34 at the end of FY05, with a total debt of KD59.7mn as opposed to a total debt of KD66.9mn at the end of FY05.
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January 2007
Key Assumptions Operating revenues for 2007, and 2008 are expected to witness a remarkable growth, taking into account that ve new projects are expected to be completed within 2007, and 2008 as follows:Table 10: CRCs Future Projects Project Al Dome G16 residential project Shorouq Ofce Tower 2 Symphony Complex Kuwait Trade Center
Source: CRC.
Delivery Date End 2006 Beginning 2007 Q2 2007 Q4 2007 H1 2008
Going forward, hotel revenues only include revenues from "Rester Beach Resort", formerly "Sar Al Dana Resort". Operating expenses as a percentage of operating revenues is projected at 40% going forward. Depreciation was assumed at 6% of gross xed assets. Administrative expenses and other charges are assumed at 6% of revenues. Proceeds from operating results in associates in 2006 ( where the company owns 20% or more) is estimated according to the annualized net prots of associates based on their latest nancial results. We expect a decrease in the size of investments available for sale, hence proceeds from available for sale investments are expected to witness a continuous decline accordingly. Projected net prot for the year 2006 include the net gain of KD14.13mn resulting from the sale of a 59.24% stake in Kuwait's Resorts Company. Pay-out ratio (including both cash and stock dividends) stood at 67%, and 65% in FY04, and FY05 respectively. Going forward, payout ratio is projected at 65% until 2009.
January 2007
23
Valuation Methods & Assumptions

Two valuation methods have been used to arrive at the fair value of CRC, the Discounted Cash Flow (DCF) discounting the company Free Cash Flow to Firm (FCFF)- along with the Price to Earnings (P/E) relative valuation method. We have assigned an 80% weight to the DCF valuation and 20% to the P/E valuation, since the relative valuation is very volatile and subject to market sentiment and other qualitative factors. DCF Method The DCF model is based on a 4-year (FY2006-FY2009) forecast period for the Free Cash Flow to Firm (FCFF). Forecasted free cash ows and the terminal value are then discounted at the companys Weighted Average Cost of Capital (WACC). The following assumptions have been used in our DCF valuation: 1. Risk Free Rate (RFR) of 6.25%, as per the latest discount rate announced by the Central Bank of Kuwait (CBK) on 3rd of July 2006. 2. Equity risk premium of 6%. 3. Considering the lack of historical data for the company as it was listed in 2004, beta was assumed to be 1. 4. A terminal growth rate of 4% has been assumed. 5. Using the above assumptions, we have arrived at a cost of equity of 12.25%. 6. Based on CRCs actual average cost of debt of 7.6%, we arrived at a WACC of 11.2%. Based on the assumption discussed above, we arrived at a fair value for CRC of 264Fils per share. Table 11: Free Cash Flow to Firm
FREE CASH FLOW CALCULATION (gures in KD) Discounting Factor Free Cash Flow Discounted FCFF Total NPV of FCF Less: Value of Debt (As of 9M06) Plus: Cash & Investments (As of 9M06) Fair Value of the Firm No. of shares outstanding Fair Value per share
Source: Global Research.
2006F 0.01
2007F 1.01
2008F 2.01
2009F 3.01
Terminal Value 3.01
46,741,736 18,998,661 13,277,663 26,425,005 383,380,258 46,687,534 17,070,174 10,731,378 19,211,788 278,729,199 372,430,073 (59,723,935) 41,330,141 354,036,279 1,340,707,720 264
24
January 2007
Sensitivity Analysis
We provide below a sensitivity analysis table, illustrating possible values given different growth rate and WACC assumptions. The shaded area represents possible outcomes: Table 12: Sensitivity analysis 264 9.2% 10.2% 11.2% 12.2% 13.2% 3.00% 310 268 237 212 192 Terminal Growth Rate 3.50% 4.00% 4.50% 334 362 396 285 305 328 264 250 281 222 233 246 200 209 219 5.00% 439 356 300 260 229
WACC
Relative Valuation Method We arrived at CRCs share fair value via the relative valuation method using the following inputs: 1. Forward P/E for listed real estate companies on KSE based on annualized 2006 EPS, and market prices on December 27th 2006. 2. CRCs projected EPS for 2006. Based on the assumption discussed above, we arrived at a fair value for CRC of 304Fils per share. Weighted Average Valuation The weighted average fair value of CRC based on DCF, and relative valuation method is 272Fils per share. The stock closed at 285Fils on KSE at the end of trading on December 27th 2006 which implies that the weighted average value of CRCs share is at a discount of 5% to its current market price. At this current market price, CRCs share is trading at a P/E multiple of 10.1x the 2005 earnings, and forward multiples of 10.3x and 14.1x the projected 2006 and 2007 earnings respectively. We therefore recommend a HOLD on CRCs share at its prevailing price levels. Table 13: Weighted Fair Value Per Share Fair Value per share (Fils) As per FCFF Method 264 As per P / E multiple 304 Weighted Fair Value Per Share CMP ( December 27th 2006)
(Source: Global Research)
Weight 80% 20%
Weighted Value (Fils) 211 61 272 285
January 2007
25
Balance Sheet
2003A 3,094 7,252
26
121,883 13 55,345 (5,556) 5,817 2,995 28,043 208,539 245,049 121,883 13 21,988 (9,136) 8,598 5,777 5,255 31,299 185,677 233,658 121,883 13 22,735 (12,446) 11,987 9,166 5,289 36,168 194,793 283,993 134,071 13 7,348 (10,830) 15,685 12,829 5,289 40,266 204,672 281,787 134,071 13 7,348 (10,830) 18,489 15,607 5,289 44,190 214,177 288,745 134,071 13 7,348 (10,830) 21,725 18,813 5,289 48,717 225,146 300,721
6,138 111 36,957 53,552 82,801 3,190 10,715 19,156 32,194 (2,741) 29,453 46,182 245,049 9,175 18,239 27,414 7,460 382 35,256 1,254 -
2004A 5,759 851 6,530 110 36,444 49,694 46,521 372 25,436 32,270 39,431 (5,503) 33,928 45,436 233,658 11,513 20,372 31,884 14,288 484 46,656 1,325 -
2005A 5,185 1,739 14,217 97 35,411 56,648 46,342 7,894 372 25,946 3,000 34,328 39,889 (8,023) 31,866 77,598 283,993 19,598 23,508 43,106 43,403 649 87,158 2,042 -
2006F 15,130 15,938 27,622 58,690 32,440 7,894 41,513 47,066 15,943 (8,980) 6,963 87,221 281,787 15,972 6,422 22,393 53,851 871 77,115 -
2007F 12,726 8,706 21,547 42,979 30,818 7,894 42,343 36,804 17,533 (10,032) 7,502 120,405 288,745 13,920 6,454 20,373 53,027 1,168 74,568 -
2008F 4,285 9,286 16,808 30,379 29,277 7,894 43,190 32,542 20,491 (11,261) 9,230 148,209 300,721 12,817 6,776 19,593 54,415 1,567 75,575 -
2009F 5,653 9,505 13,111 28,270 27,813 7,894 44,054 36,142 25,992 (12,821) 13,172 155,352 312,697 11,725 7,115 18,840 54,511 2,102 75,453 -
January 2007
Amount in KD000 Cash & Cash Equivalents Investments held for trading Investments at fair value through prot & loss Receivables & other debit balances Inventories Land and real estate held for trading Current Assets Investments available for sale Investment in joint project Goodwill Investment in associates Investment in unconsolidated subsidiaries Other Long term Debit balances Projects in progress Property Plant & Equipment (Gross) Accumulated Depreciation Net xed Assets Investment Properties TOTAL ASSETS Payables & other credit balances Term nancing - current portion Current Liabilities Long-term Financing End of service indemnity TOTAL LIABILITIES Minority interest Proposed dividend SHAREHOLDERS EQUITY Share capital Gain on Sale of Treasury Shares Changes in Fair Value Reserve Treasury stock Statutory reserve Voluntary reserve Groups share in associates reserve Retained earnings Total shareholders equity TOTAL LIABILITIES & EQUITY 134,071 13 7,348 (10,830) 25,294 22,348 5,289 53,710 237,244 312,697
Income Statement
2003A 34,239 (8,457) 25,781 (2,466) (1,703) 21,613 1,324 545 3,649 (834) (1,397) 327 162 (208) 25,180 (226) (73) 24,882 (131) 27,866 (247) (103) (575) 26,940 (2,298) (3,793) (312) 34,226 (291) (123) (685) 33,127 (933) 1,723 4,152 15,453 14,185 14,139 8,110 3,081 (4,109) 37,003 (314) (133) (741) 35,815 1,178 1,343 12,874 18,650 15,782 (119) 19,235 9,326 3,544 (4,046) 28,059 (238) (101) (562) 27,158 (1,713) (2,500) (1,958) (2,118) (2,771) (2,521) (957) (1,052) 17,358 23,791 18,696 22,405 25,219 (1,230) (2,259) 21,731 10,725 4,075 (4,152) 32,379 (275) (116) (648) 31,340 (7,165) (13,354) (10,392) (9,057) (8,339) 24,523 37,145 29,088 31,461 33,558 2004A 2005A 2006F 2007F 2008F 2009F 34,351 (7,629) 26,722 (1,560) (2,312) 22,851 12,334 4,686 (4,159) 35,712 (303) (128) (715) 34,565
January 2007
Amount in KD000
Operating revenues
Operating expenses
Gross prot
Depreciation of property, plant, and equipment
Administrative expenses & other charges
Foreign currency exchange difference
Operating Prot
Prot from investments held for trading
Prot from sale of companys share in afliate Co.
Prot from available for sale investments
Groups share in operating results of associates
Amortization of good will
Financing charges
Gain/Loss from sale of investments in associates
Add: other income
Minority interest
Extraordinary items
Earnings Before KFAS, NLST, BoD
KFAS contribution
27
BoD remuneration
NLST
Net Prot
Cash Flow Statement

2003A 25,389 2,521 2004A 27,997 2005A 34,538 2006F 37,003 2007F 28,059 2008F 32,379 2009F 35,712
28
834 (14,185) 42 (366) 3,793 165 17,694 13 (7,729) 9,537 455 (1,542) 18,429 (291) (123) (685) 17,330 (460) (12,585) (3,000) (7,894) (47) (3,213) 704 8,974 491 (18,195) 18,740 (5,635) 92 (7,048) (1,397) 1,046 5,799 (775) 3,867 3,094 1,523 (3,029) 8,960 (3,580) (8,266) (1,776) (4,661) 3,843 3,094 5,759 (17,166) 1,549 (3,507) 7,673 2,143 1,127 (32,121) (418) 32,252 (3,311) (9,844) (3,120) 15,559 768 5,759 5,185 4,109 222 31,471 97 (1,721) 7,788 1,739 (3,627) 35,747 (314) (133) (741) 34,559 4,046 297 22,206 7,233 6,075 (2,052) 33,462 (238) (101) (562) 32,561 (8,110) (7,704) (7,319) 4,152 399 26,765 (580) 4,739 (1,103) 29,821 (275) (116) (648) 28,781 (58) 145 (120) (898) (491) 1,397 139 13,206 (111) (5,569) 2,744 (3,885) 5,535 11,920 (226) (73) 11,621 (10,951) (4,782) (4,659) 10,988 (5,868) 2,934 (6,347) (245) (10,724) 23,946 (12,738) 3,000 (9,623) (15,567) 3,081 (15,386) 13,903 8,110 (1,275) (6,638) 1,617 (12,167) (4,109) (2,042) (23,339) 9,945 5,185 15,130 (1,590) 10,262 (33,185) (830) 3,544 1,622 7,704 (12,474) (792) (17,653) (4,046) (22,491) (2,404) 15,130 12,726 (15,453) 105 808 2,298 102 12,655 1 (459) (3,711) 2,299 1,672 12,457 (247) (103) (575) 11,532 933 372 (2,958) 4,262 (27,803) (847) 4,075 1,541 7,319 (14,411) 1,712 (20,371) (4,152) (22,811) (8,441) 12,726 4,285
2,466 (1) (162) (9,756) (1,702) (3,649) (327) (4,686) 24 (4,152) (6,953) 4,159 535 30,326 (219) 3,697 (1,092) 32,712 (303) (128) (715) 31,565 (5,501) (3,600) (7,144) (864) 4,686 1,464 6,953 (4,005) 434 (22,467) (4,159) (26,192) 1,368 4,285 5,653
Amount in KD000 Prot before tax, extraordinary items, KFAS payment, NLST and BoD remuneration Adjustments: Depreciation of property plant & equipment Gain/Loss on sale of property plant and equipment Reversal of impairment in value of projects in progress Loss in JV investment change in fair value of investment properties Prot from sale of investment properties Groups share in operating results of associates Prot from sale of companys share in afliate Co. Prot from sale of investment in associates Change in the fair value of associates Amortization of Good Will Reversal of the decrease in the value of investments available for sale Prot from sale of investments available for sale Change in the fair value of investments for sale Doubtful debts Impairment/ write back of impairement in value of land & real estate held for trading Prot from investments at fair value through prot&loss Change in fair value of investment held for trading Murabahat Cash dividends Financial Charges Employees end of service indemnity Operating prot before changes in operating assets & liabilities Decrease / (Increase) in Inventories Decrease (Increase) in Receivables& other debit balances Decrease (Increase) in Land & Real Estate held for trading Decrease (Increase) in Investments at fair value (Decrease) Increase in Payables & other credit balances Cash from operations Payment of Employee Terminal Benets Interest Received Extra-ordinary item KFAS payment BoD remuneration NLST Paid Net cash from operating activities 2,771 (1) (5,181) (1,723) 957 (3,081) 1,052 (3,544) 1,230 (4,075) 1,560 (4,686) -
INVESTING ACTIVITIES Changes purchase of property,plant, and equipment Payments for projects in progress Investment in unconsolidated subsidiaries Investment in joint project Payment for JV investment Payments for purchase of investment properties Proceeds from sale of investment properties Investments in associates Proceeds from sale of investments in associates Proceeds from dividends of associates Groups share in associates reserve Changes in Fair Value Reserve Changes in investments available for sale Proceeds from investments available for sale Murabahat Cash dividends received Net cash from investing activities
January 2007
FINANCING ACTIVITIES Paid Liabilities arising from purchase of investment properties Proceeds from term nancing Purchase of treasury shares Proceeds from sale of treasury shares Changes in Fair Value Reserve Dividends paid Murabahat Finance charges paid Minoritys share in subsidiary capital Net cash from nancing activities
Inc (dec) in cash & cash equivalents Opening cash & cash equivalents Closing cash & cash equivalents
Ratios Global Research Kuwait

Unit % % % % % % % X X days days X X X X X 2.0 0.3 37 267 9.9 1.4 2.3 0.2 0.2 1.6 0.4 94 527 3.9 0.7 0.8 0.1 0.1 1.3 0.5 102 425 3.6 0.9 1.1 0.1 0.2 2.6 1.4 189 625 1.9 0.6 1.4 0.1 0.2 2.1 1.1 143 602 2.6 0.6 4.4 0.1 0.2 1.6 0.7 98 585 3.7 0.6 4.0 0.1 0.2 75.3 63.1 72.7 14.3 12.6 17.5 12.2 70.8 52.5 109.9 13.7 11.3 15.5 15.2 64.1 50.2 89.2 17.4 12.8 15.6 16.1 64.3 54.3 123.1 17.9 12.7 16.4 15.9 71.2 61.1 86.3 13.0 9.5 11.5 12.0 75.2 64.8 93.4 14.3 10.6 12.2 13.1 2003A Commercial Real Estate Company 2004A 2005A 2006F 2007F 2008F 2009F 77.8 66.5 100.6 15.0 11.3 12.8 13.7 1.5 0.8 100 587 3.7 0.6 3.1 0.1 0.1
January 2007
X 0.12 0.19 0.34 0.29 0.28 0.27 0.26 25.8 177.0 1340.7 285.0 382.1 11.1 1.6 65
Protability Ratios Gross Prot Margin Operating Prot Margin Net Prot Margin Return on Average Equity Return on Average Assets Return on Core Operating Assets Return on Capital Employed Liquidity & Activity Ratios Current Ratio (CA/CL) Quick Ratio Average collection period Payables Days on hand Debtors Turnover Creditors Turnover Net Fixed Asset Turnover (average) Total Assets Turnover (average) Equity Turnover (average)
Leverage Ratios Debt/Equity Ratio
29
Valuation Ratios EPS total ls 20.8 22.7 28.3 27.5 20.3 23.4 Book value per share - BVPS (in ls) ls 171.1 152.3 159.8 152.7 159.8 167.9 No. of Shares Outstanding ( in mn) mn 1218.8 1218.8 1218.8 1340.7 1340.7 1340.7 Price Per Share ls NA 345.0 320.0 285.0 285.0 285.0 Market cap KD Mn NA 420.5 390.0 382.1 382.1 382.1 P/E multiple X NA 15.2 11.3 10.3 14.1 12.2 P/BV multiple X NA 2.3 2.0 1.9 1.8 1.7 Dividend payout ratio % 29 67 65 65 65 65 Historical P / E & P / BV multiples pertain to respecitve year -end prices, while those for future years are based on closing prices on KSE as of December 27, 2006.

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Global Research Kuwait

Global Investment House

Sensitivity Analysis ............................................................................................................... 25

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Commercial Real Estate Company Al Tijaria

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Year 2007F 2006F 2005A 2004A

Chart 01: Relative Performance of CRC vs. Market Indices

The Commercial Real Estate Company

Real Estate Index

Source: Reuters, Global Research

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Chart 02: Buildings Mix in 2005

Mixed Use 14%

Commercial 6% Residential 67%

Source: Public Authority for Civil Information

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Estimated Cost (US$ bn) 86 27 8.5 6.0 5.0

Mixed use Residential Industrial Tourism Tourism

2010 2016 2014

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Increasing growth potential

Decreasing growth potential

Source: Global Research

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Peer Group Overview

Core Operating Assets

Source: Companies 2005 annual reports , Global Research.

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Source: Companies annual reports for FY05, Global Research.

Source: Companies annual report forFY04, and FY05, Global Research.

Commercial Real Estate Company Al Tijaria

Global Research Kuwait

Global Investment House

Price (Fils) 285 164 230 560 570 420 -

EPS ( Fils) 27.6 38.2 77.7 12.2 19.4 -

P/BV 1.9 0.9 1.3 1.8 2.1 1.0 1.5 1.61