Solidere frustrated by sliding share price

Reuters

Source: Reuters

Reported by Mirna Sleiman

Lebanese property developer Solidere expects to report lower profits for 2012, its general manager said, describing the company's share price as "severely undervalued" because of political instability and Syria's civil war.

Solidere, the largest publicly traded company in Lebanon, has seen its revenues fall as it spends more on building infrastructure and its sales drop because of political tensions. "I don't expect our profit in 2012 to be the size of the previous year," Mounir Douaidy said in an interview on Tuesday. "A lot of money had to be spent to finish off the infrastructure. This doesn't bring immediate profit. It's mainly spending and not revenue-generating."

Solidere, founded in 1994 by former Lebanese Prime Minister Rafik al-Hariri, is expected to report its 2012 earnings in coming months. It posted a 17 percent fall in its 2011 net profit to $163 million, with revenue dropping to $242 million from $337 million in the previous year.

The company, set up to rebuild central Beirut which was destroyed in the 15-year civil war that ended in 1990, has so far spent over $1 billion on infrastructure and expects to spend $200 million more in the coming five years, Douaidy said. The company will complete an entertainment centre and a cinema complex in central Beirut by the end of 2013, mainly funded through the firm's internal cash flow. The complex will be added to its $1.3 billion real estate portfolio. "We still have to work on infrastructure for five years, mainly on the remaining part of the Beirut Waterfront Development. Generating income will come from the sale of land and rental income and this will increase gradually over time, once we stop investing heavily in building."

The sale of land currently represents about 85 percent of revenues and rental income about 10-15 percent. The company now generates slightly more than $50 million of rental income per year, but wants to raise that. "Our strategy is to lease the properties that we build rather than to sell them," said Douaidy, who worked at accounting firms in London before going into real estate and construction management in the Middle East and Europe.

NOT FAIR

The war in neighbouring Syria has hit Solidere's share price hard by worsening political feuding and the security situation within Lebanon. But Douaidy said investors should look at the company's fundamentals rather than outside factors.

"The net asset value of the company (assets minus liabilities and debt) is estimated at $8 billion compared to a book value of $2 billion. This shows that the share price does not reflect the true value of the assets," he said. "We are trading at a severe undervalue to the true value of the assets." There has been speculation that the Syrian war could in some ways benefit the Lebanese real estate market, as refugees from Syria put money into property. But Douaidy said he hadn't seen any increase in Syrian investment in central Beirut and was not aware of an inflow of Syrian money into Lebanese real estate.

Solidere had a land bank of 4 million square metres of built-up area when it was established. The company sold and developed 2.1 million square metres, and is now left with 1.9 million, Douaidy said. Solidere's shares closed at $12.35 on the Beirut stock exchange on Monday, down 5 percent from the end of last year and down 33 percent since the end of 2010, before the Syrian conflict erupted. "The reason is definitely nothing to do with the fundamentals of the company. It's really outside factors," Douaidy said. "The market is not reflecting the fair value."