2012 - REAM | Real Estate Company

1840-888www.ream.com.kw

Trusted Partners

Annual Report

2012

يا أيها الذين آمنوا لا تأ كلوا أموالكم بينكم بالباطل إلانكم ولا تقتلوا أنفسكم إن أن تكون تجارة عن تراض م

الله كان بكم رحيما

His HighnessSheikh Sabah Al-Ahmed Al-Jaber Al-SabahAmirOf The State Of Kuwait

His Highness

Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah

Crown PrinceOf The State Of Kuwait

His HighnessSheikh Sabah Al-Ahmed Al-Jaber Al-SabahAmirOf The State Of Kuwait

His Highness

Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah

Crown PrinceOf The State Of Kuwait

INDEXChairman’s SpeechReport of Sharea Advice & Control PanelBoard of Directors Members of the BoardExecutive ManagementOur Commitment to you: Our ClientReam HistoryOur Vision-Our Mission-Our Values-Our ClientsGoals-Our ServicesProperty Management-Leasing -Brokerage-ValuationsAdvisoryAuctionsConsultancy Services- Financial ManagementMaintenance & ServicesOur Partners-Our PeopleOur Systems Our Processes - Our PriceFinancial ReportOur Offices

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Thanks to Allah Almighty and Peace and Blessings be on the master Messenger and His family members and companionsDear shareholders,There is no doubt that the reader and observer of the world economy in the year 2012 recognizes that there were major events and facts in this year that directly impacted the slow recovery of the world economy. The same has the largest impact on the future of the world economy and the limit of expectations of its recovery or at least mitigation of the risks of slippage into world economic recession. The most important event that has attracted the attention of economists all over the world is the financial abyss which is eminent for the US economy. The issue of financial abyss has become a main concern for all. The agreement of US politicians and economists on clear and specific strategy to avoid slippage into the financial abyss is considered the most important event that will largely impact the forecasts of the economy in 2013. The other event which impacts the world economy will be the trend of European Sovereign debts and the extent of deterioration of the economic situation in the rescue European countries, notably Greece and Spain. The third event is the forecasted growth rate of the rising economies, notably China and India. The increase of the GDP of such countries will largely depend on the improvement of economic climate in USA and EU countries.Contrary to the general trends of the world economy, growth in the Middle East shall be, according to the economic analysts, strong in view of the consistency and stability of the oil prices. It should be taken into consideration that the political crises in the region will have significant impacts on the future of the region’s economy in 2013. The Syrian crisis may be the most important political crisis impacting the region economies including the political maneuvers between USA and Russia which will be amongst the most important impacts on the optimism regarding the world reaching geopolitical balance point and the relevant impact on the economic process.Despite of the risks of the potential slowdown of the world growth in view of the above mentioned facts, in particular developments in the Euro zone and the financial abyss in USA resulting in reduction of the world demand on oil, the fundamentals of the domestic economy are still strong as the domestic economic growth is still high. As a result of the increase of this growth and the increase of oil production quantity and the continuous increase of oil prices to an average of 115 US$/barrel, Kuwait economic will be able to grow in view of the increase of financial surplus. This means that there would be sufficient room to execute such policies that would maintain the strong growth and increased government expenditure and promote the execution of the development plan and the improvement of the average income per capita. Regarding Arab Financial markets, Kuwait stock exchange market was the least rising Arab market in 2012 despite of all efforts over the year to activate the economic situation and handle the consequences of the financial crisis. Kuwait 15 index was up at 1.3% and the stock market value increased up to about 103.9 billion dollar against 100.9 billion dollar in 2011.

ChAiRmAN’S SPeeCh

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The rate index of Kuwait Stock Exchange Market by the end of 2012 closed at 5934.28 points, 2.06% higher than the first day of trading in the same year 2012. The index closed on the first trading day of 2012 at 5814.2 points and posted the highest level this year at 6492.4 points on 7/5/2012.On the other hand, UAE, Saudi Arabia and Egypt exchange markets posted the best performance where the market value of Saudi and UAE stocks increased to about US$ 50 billion and the market value of Qatari stocks increased to US$ 132.2 billion against US$ 128.4 billion in 2011. The market value of Muscat stock exchange market in Oman increased to about US $ 22.2 billion against US$ 19.6 billion. Bahrain market was the only negative growth market in 2012 when its market value decreased to US $ 15 billion against US $ 16.5 billion in 2011.Real Estate Portfolios:The company has managed through its executive staff to increase the efficiency of strategic portfolios under the company’s management. The company has achieved occupancy rate at more than 95% of the total units under management in addition to high collection percentage of more than 95% of the real revenues.Company’s Business ResultsThe total shareholders’ equity of the current year is KD 15,650,550 in comparison with KD 15,332,566 in 2011.Dividends and DistributionsThe return rate of the paid-up capital is about 6.4%. The total operating revenues of the present year is about KD 2,505,933 in comparison with the operating revenues of the last year amounting KD 2,424,479, at an increase rate of 3.3% approximately. The board of directors of the company has recommended the distribution of dividends at 5% of the capital (5 fils/share) at the amount of KD 519,750 as follows:

Amount Statuary reserve 10% 74,021Voluntary reserve 10% 74,021Contribution to Kuwait Institution for Advancement of Science 6,638Board of directors remuneration 35,000Contribution to Kuwait Manpower Support Fund 18,191Zakat share (1%) 7,284Distribution of cash profit to shareholders at 5% 519,750Profit carried forward 17,043Previous carried forward profit applied to the year’s distributions -Minority’s equity 5,868Total 746,080

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The company’s future ambitions are mainly focused on the development of its business in view of its strategy in 2012 through which it is contemplated to achieve considerable returns for the company shareholders. The achievements of the company wouldn’t have been made but for Allah and the collective cooperation of all parties including members of the board of directors through their continuous support and the executive management, who did their best effort to keep pace with the market conditions, positively reflected on the company’s results.Finally, I would like for myself and on behalf of members of the board of directors and all staffs of the company to extend the most sincere thanks and gratitude to His Highness Amir of State of Kuwait, Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah and His Highness Crown Prince Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah for their continuous support for the private sector and the development. We pray to Almighty Allah to guide us to the right route and make our efforts successful for the interest of our dear country.We avail ourselves of this opportunity to express our sincere thanks to our kind customers for their continuous and fruitful cooperation for developing and upgrading the company’s business and services. We also thank all our company staff who have not saved any efforts to develop the business for achieving the interest and goals of the company as well as to the company’s auditors and Sharia board for their efforts.Peace and Blessings be upon you.

Faisal Abdullah Al-MattarChairman

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Report Of Sharea Advice& Control Panel

Dr. Isam Khalaf Al-Anzi (Head)Dr. Nazem Mohamed Al-MisbahDr. Sulaiman Maarafi Safar

Dr. Khaled Shujaa Al-OtaibiDr. Ibrahim Abdullah Al-SubaieiDr. Nayef Mohamed Al-Ajmi

Thanks to Allah and Peace and Blessings be on His MessengerDear Shareholders of Real Estate Asset Management Co. (Ream)Peace and Blessings be on youIn view of our engagement for the Sharea advice and control assignment, we have audited and reviewed the Company's contracts and transactions during the period from 1/1/2012 until 31/12/2012. Our liability is limited to the provision of independent opinion about the Company compliance with the provisions of Islamic Sharea in terms of its business and activity.Based on the Sharea auditing report filed by the Sharea Control Department which audited your documents according to the decisions of the panel in light of the standards and restrictions issued by the Accounting and Auditing Authority of Islamic Financial Institutions which necessitate planning and execution of audit and review procedures for collecting all necessary information, explanations and declarations to give reasonable assurance that the Company is bound with the provisions of Islamic Sharea stated by us and we believe that the audit works performed by the department provide reasonable ground for giving reasonable opinion.It is noted that it is the Company management which is responsible for execution of contracts and transactions according to the provisions of Islamic Sharea as explained by us.In view of the foregoing, the panel states the following:1.During the respective period, the Company fulfilled its duties with respect to the execution of contracts and transactions in accordance with the provisions of Islamic Sharea as stated in our Sharea opinions, directives and decisions during the stated period and we could not find out any violations in conflict with this opinion.2.Zakat was calculated in accordance with the Panel-approved principles.Blessings be upon God's Messenger and his family and companions.Thanks to Allah

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Board of Directorsmembers of the Board

1- Faisal Abdullah Al-Mattar Chairman Of The Board2- Khalid Mohammad Al-Shaheen Vice Chairman Of The Board3- Hamad Abdulateef Al-Barjas Board Member4- Waleed Mohammad Al Nasser Board Member5 -Hamed Ahmad Al-Awadhi Board Member6- Abdullah Ali Suwailem Board Member7- Saoud Abdulaziz Al-Rumaih Board Member

4 5

1 2

3

6 7

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executive management

8 96 7

1 4 52 3

10 11 12 13 14

Adel A. Al-Sabeeh C.E.O.Ibrahim I. Al-Kandari Deputy C.E.O. Tareq A. Al Zaidan Assistant C.E.O.Feras A. Al-Rushaid Manager of Financial & Administrative Dept.Yahia A. Samak Asst. Finance Dept. ManagerSalman H. Ajmi Asst. Properties Dept. ManagerJamal A. Kelani Asst. Maintenance Dept. Manager

Ahmad I. Al-Zerbawi Asst. Admin. Dept. ManagerEmad M. Al- Hanini Asst. I.T. Dept. ManagerFayza A. Ibrahim Head Internal Audit SectionSalah A. Mohammad Head of Real Portfolio Section Ashraf Samir Mustafa Head of AccountsSulaiman Y. Al-Khanine Portfolio ManagerNizar A. Al-Subaie Portfolio Manager

1-2-3-4-5-6-7-

8-9-10-11-12-13-14-

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Our Commitment to you: Our ClientREAM has now been active as a market leader in the property sector in Kuwait for over two decades, during the last 12 months we have undertaken a fundamental review of all our activities to ensure that we are at the forefront of the property sector in Kuwait.We have always prided ourselves on the diligence, care and trustworthiness which REAM delivers to its clients with its services and we have now implemented a policy which ensures that they truly meet best practice standards in the international market place.Our clients, staff and shareholders are at the forefront of our endeavours and assure you of our continuing commitment to implement a vigorous strategy to deliver the highest standards across our comprehensive range of services.During the last year we have pursued policies which place customer care and best practice at the centre of our ethos.

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This has involved a major review with Knight Frank, an international firm of asset and property consultants to review every one of our activities and service lines, including our marketing, agency, management and professional services so that REAM retains its premier position within the Kuwait market.

We have acquired prime office space for our staff who are supported by effective guidance and training with the latest in IT and office systems. Our website has been completely remodelled and we are determined to continue to elevate our business standards to grow the turnover of our business and set the standard for others to follow.

We take this opportunity to thank our clients, shareholders and staff for all their support over the last 12 months with the commitment to serve you in the very best manner through the exciting challenges that the future will bring. REAM is now exceptionally well placed to provide outstanding performance for the future.

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Ream historyEstablished in 1993, as a Kuwaiti shareholding closed company, Real Estate Asset Management (REAM) has developed a strong foundation of experienced Board Members.Driven by strength of leadership, sound business principles and ethical qualities, together with a high caliber and proactive management team the company has grown to become a market leader in Kuwait’s real estate sector.With two decades of practical experience both in Kuwait and United Arab Emirates; REAM has been extremely successful and highly profitable throughout challenging global and regional economic circumstances.REAM has long been recognized for success and leadership in the commercial real estate services marketplace and has a number of highly regarded and distinguished clientele, setting the company apart from its competitors.Currently REAM, on behalf of their clients, manage a portfolio of some 600 buildings ranging from highly sophisticated high rise towers, to commercial office complexes, shopping malls and retail outlets with internationally recognised and established brands, to multi let residential properties with over 6,500 individual tenants.

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More recently REAM has taken the initiative to modernise the company through a very focused and comprehensive ‘Change Management Programme’. These strategically focused areas of works have seen the implementation of the latest ‘Best in Class’ systems, processes and procedures, and further internationally recognised training and development of our people.The Corporate Governance practices of REAM are designed to strengthen the ‘Board of Directors’ oversight of management and to serve the long-term interests of our shareholders, employees and other stakeholders.Furthermore, the companies corporate identity and its brand guidelines have also been comprehensively enhanced and its web site elevated to a world class standard, with the latest business and social technological applications. Our corporate collaterals have been further developed to represent our commitment and drive to make REAM more successful now and for the foreseeable future.

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Our VisionTo be a respected leader in the real estate industry; a preferred and trusted partner of choice.

Our missionDeliver integrated real estate projects that add real value to the communities we serve, implemented with care and attention to detail, fusing imagination with best practice professionalism.

Our Values• trust, integrity, respect, creativity. • build our reputation by empowering our staff and partners to achieve excellence.• create an enduring legacy for the communities we serve.• honour our agreements and conduct business professionally with integrity and respect.

Our Clients• give back to the communities where we live and work. • to treat our clients with honesty, transparency and fairly.• to embrace our values by the provision of ‘best in class’ service.• to devote our time to achieve common interest.

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Goals• treat everyone fairly, honestly, and with dignity and respect.• accept responsibility and be accountable for our actions.• creating value by delivering the highest quality service to.

Our ServicesWe have led the local industry in establishing a strong footprint and offering a full spectrum of services, and ‘state of the art’ technology. We continue to lead in superior client service, volume of business activity, financial performance and many other measures.We provide a myriad of services which are as follows:-Asset Management – our team will consider the life cycle of the product be it Commercial, Hospitality, Residential or Industrial Sectors, through initial feasibility, full design to development, handover and ongoing operations and its subsequent disposal. Our consultancy provision complements the customer requirements, with a unique set of skills and turn-key solution unavailable in the local market place.

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Property managementOur highly focused team will establish an execution plan for the asset of the Real Estate and provide the following services as a complete package, under a ‘one stop shop’ approach or as an individual menu;-• property and contract management.• marketing to international standards.• capital expenditure management.• bid solicitation and presentation.• tender services.• vendor selection and contract procurement.• input on and inspection of contractor performance.

Leasing• lease management.• lease creation.• budgetary establishment.• local and regional marketing.• defaulters and legal process.• financial collections.• customer satisfaction surveys.

Brokerage• buying and selling the property.• property information package.• local and regional marketing.• contract establishment.• legal process.

ValuationsOur specialised team has extensive experience in the valuation of all types of properties, ranging from residential apartments and commercial offices to shopping malls and retail complexes. REAM have developed a unique valuation model, which when combined with ‘up to date’ market information and specific details of the property to be valued, its use and function, will ensure REAM provides an accurate reflection of ‘fair market value’.Our services include the following valuations:• of an existing building, an investment opportunity or a valuation for land/plots.• of real estate assets or plant, machinery and equipment.• an independent valuation of review services.• of a real estate company, fund, investment management business or equity holding.• understand the current and anticipated future value of real estate loan collateral.• real estate due diligence or market studies and / or advice on post-merger integration.• if your business is undergoing change and you are seeking to align your real

estate portfolio with business strategy and optimise value, reduce cost or improve operational efficiency.

• you face complex real estate investment decisions requiring an objective appraisal of financial and non-financial issues to assist with the decision-making process.

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AdvisoryWe understand the differing perspectives of an investor seeking to optimise the value of an income producing asset or development opportunity versus an occupier seeking to minimise cost. REAM can align long dated assets and liabilities with a more fluid business strategy.We use our experience and industry knowledge and advisory capabilities to deliver real estate strategy solutions to both owners and occupiers.REAM has experienced and dedicated professional staff, with ‘best in class’ procedures and systems.Our existing client base has gained reductions in financial expenditure by the introduction of shared savings initiatives and business opportunities to expand their business.Our advisory team specialise in: • advisory services to assist with post acquisition real estate integration and synergy identification.• advisory in real estate investments in emerging markets, we have experience of undertaking

feasibility and market studies globally.• inward real estate investors to Kuwait and other markets.•we can deliver a full range of impartial valuation and due diligence services.

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AuctionsREAM are well positioned and have practical experience within the local market place to deliver your auction needs, through a complete turn-key solution. More recently REAM has had first hand experience in auctioning a number of residential properties through an open ascending price auction. REAM have created a thorough due diligence process, which ensures the bidders have the latest relevant information available, to make a smooth transactional process, thus ensuring the ‘true underlying value’ of the property is experienced for both seller and buyer.Types of auction can be as follows:• open ascending price auction.• sealed bid auction.• bidding fee auction.• dutch auction.• sealed first price auction.• commodity auction.• combinational auction.REAM will provide best the option for you to consider.

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Consultancy Services• highest and best use study.• feasibility studies.• development execution.• capital expenditure assessment.

Financial managementREAM is superior in managing the budget and finances for each owner in the most cost-effective manner possible to keep expenses low by the use of:-• budget preparation.• maintenance and assessment management.• account payable management.• automated book-keeping services.• audit and tax management.• liaison with accountant on year-end audits.• liaison with attorney on legal matters.

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• insurance administration.• collections.• detailed monthly reports.• balance sheet.• trial balance.• income statement.• accounts receivable/payable.• financial and budget analysis.• supplier Cost - Financial Audit.Our financial expertise is highly regarded within the Real Estate sector by the provisions of high end services, where we are the market leaders in this field.

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maintenance & Services• provide planned preventative maintenance in accordance with HVCA standards.• meet Kuwait regulatory requirements in all aspect of maintenance.• establish and manage specialised sub-contractor works to ensure highest service levels performance

for routine inspections and repair.• ensure the health, safety and welfare of tenants by maintaining the services to a good standard.• out of hours call out for our staff to meet agreed service levels.• life safety of systems operated and maintained by planned maintenance and testing.• completion of full annual inspections.

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Our PartnersWe have chosen our partners, who have both International exposure and professional experience in world class service delivery. Our partners, in joint collaboration, extend our traditional service lines through a combination of dedicated professional staff and ‘tried and tested’ programmes, which can be customised for local market conditions.Century21 are an internationally recognised company providing high quality real estate and brokerage services to over 8000 offices throughout the world. REAM have signed a franchise agreement for delivery of real estate services to Kuwait, Egypt, Lebanon and United Arab Emirates.Amlak provide high quality real estate and brokerage services for delivery of real estate services to Kuwait, Egypt, Lebanon and United Arab Emirates.Amlak Oman has been established to provide development and construction services to the Sultanate of Oman. REAM has established a strategic alliance with Knight Frank, who have become the world’s largest privately owned global residential and commercial property consultancy. In the 1960s the firm expanded into Europe, and in the decades that followed, acquired offices in Asia-Pacific, Australia, Africa, the Middle East and the Caribbean.

Our PeopleOur people are the company’s greatest asset and come from every corner of the business world and, collectively or individually, provide essential long-term or interim property management services. The diverse and multi-talented members of the team are far more than experts and leaders in their fields, we consider them relationship-builders at heart, who know that it takes trust, partnership, responsiveness and dedication to make a business the very best it can be.The intensive change management initiative ensures the continuance of the training and development of our staff through a carefully managed and controlled programme.

Our values are also communicated through this requirement, thus our team ensure.• delivery of exceptional performance.• achievement of success.• values of integrity, honesty and loyalty.• identifiable to our customers.• dedicated to service.

Our people are driven by a passion for innovative problem-solving and a love of collaboration. As a further sign of commitment, we are developing and implementing ongoing training programs to support our policy and raise environmental awareness among our employees and business partners.

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Our SystemsREAMs ICT systems have been thoroughly modernized with the introduction of ‘Best in Class’ Informational, Technological and Communicating operating systems to meet our client’s needs and desired stages of growth.Our efforts have been immense, ensuring that the latest software and hardware products streamline processes and procedures, releasing manpower hours, reducing environmental impact and serving the client with ease of access, immediate information availability, ultra modern and unwavering commitment to service delivery.Enterprise Resource Platform – the customer relationship management, the property management systems, the financial software has been fully integrated within the company, with the latest security access and control provisions. The system will provide automated reports, statistical and quantitative information, which will be used for continuous improvement of our service delivery. Systems enhanced are as follows:-

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Call Center – a modern environment, combined with the latest telephony services, with internationally recognized ‘helpdesk’ software with a ‘365 day * 24’ hour operating control area, staffed by both Arabic and English speaking personnel. The latest customer survey application complements the initiative and is used to measure and then to improve the service. Web Site – aesthetically pleasing to the eye, this modern looking website is user friendly with all of the latest social and professional applications. The web-site can provide full property management services to our present and new customers, including live chat technology directly with the call centre, search capabilities with easily controllable parameters, interface with Google and pricing index for apartments. In meeting the modern age, our website allows use of all the latest social media functions such as face book, twitter, linkedIn to enable and empower our customers. Mobile Phone Application – our application has been customized in a ‘user friendly’ way, so whilst the customer is on the move, they can receive the latest updated information on the property database.

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Our ProcessesREAM have spent considerable time updating the existing process and procedures in the company to meet international ‘Best in Class’ standards and to meet our ever evolving regulatory and legal requirements. There has been the introduction of property management manual.

Our PriceWe will ensure that our price remains competitive and provides excellent ‘value for money’. We will endeavour to reduce expenditure by introducing the ‘shared savings initiatives’ utilising our vast experience and local and international knowledge and understanding of best practices.

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Real estate Asset management Company (ReAm) – KSC (Closed) and Subsidiaries

Kuwait31 December 2012

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Consolidated financial statements and independent

auditors’ report

Real Estate Asset Management Company (REAM) – KSC (Closed) and Subsidiaries Consolidated Financial Statements - 31 December 2012

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independent auditors’ report To the Shareholders Real estate Asset management Company (ReAm) – KSC (Closed)Kuwait

Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated financial statements of Real Estate Asset Management Company (REAM) (A Kuwaiti Closed Shareholding Company) and Subsidiaries, which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Real Estate Asset Management Company (REAM) and Subsidiaries as at 31 December 2012, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory RequirementsIn our opinion, proper books of account have been kept by the Company and the consolidated financial statements, together with the contents of the report of the Company’s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Companies Law No. 25 of 2012, and by the Company’s articles of association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No. 25 of 2012, nor of the Company’s articles of association, as amended, have occurred during the year ended on 31 December 2012 that might have had a material effect on the business or financial position of the Company.

Dr. Shuaib A. Shuaib(Licence No. 33-A)of Albazie & Co.Member of RSM International

Kuwait20 February 2013

Abdullatif M. Al-Aiban (CPA)(Licence No. 94-A) of Grant Thornton – Al-Qatami, Al-Aiban & Partners

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Notes 31 Dec. 2012

31 Dec. 2011

KD KD

IncomeOperational income 7 2,505,933 2,424,479Operational expenses 7 (1,517,316) (1,314,733)Net operational income 988,617 1,109,746Profit on deposits with Islamic financial institutions 33,408 56,729Gain on sale of an investment property 11 674,921 27,066(Loss)/gain on sale of available for sale investments (1,342) 203,216Dividends income 62,173 79,355Other income 29,371 21,234Impairment loss in value of available for sale investments 10 (323,302) (145,224)Impairment loss in value of investment properties 11 - (64,597)Write back of provisions no longer required 63,600 83,793

1,527,446 1,371,318

Expenses and other chargesGeneral and administrative expenses 8 664,966 654,580Depreciation and amortisation 39,312 36,274Provision for lawsuits and doubtful debts 77,088 97,237

781,366 788,091Profit for the year before contribution to KFAS, provision for NLST, contribution to Zakat and board of directors’ remuneration 746,080 583,227Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS) (6,638) (5,233)Provision for National Labour Support Tax (NLST) (18,191) (14,515)Contribution to Zakat (7,284) (5,806)Board of directors’ remuneration 26 (35,000) (35,000)Profit for the year 678,967 522,673

Attributable to :Owners of the parent company 673,099 520,904Non-controlling interests 5,868 1,769

678,967 522,673Earnings per share attributable to the owners of the parent company (Fils) 9 6.47 5.01

Consolidated statement of incomeConsolidated statement of income

The notes set out on pages 35 to 62 form an integral part of these consolidated financial statements.

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31 Dec. 2012

31 Dec. 2011

KD KD

Profit for the year 678,967 522,673

Other comprehensive income:Exchange differences arising on translation of foreign operations 1,902 (3,437)Available for sale investments:-Net change in fair value during the year (162,250) (363,049)-Transferred to consolidated statement of income on sale 1,198 156-Transferred to consolidated statement of income on impairment in value 323,302 145,224

Total other comprehensive income/(loss) 164,152 (221,106)

Total comprehensive income for the year 843,119 301,567

Attributable to:Owners of the parent company 837,251 299,798Non-controlling interests 5,868 1,769

843,119 301,567

Consolidated statement of comprehensive income



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Notes31 Dec.

201231 Dec.

2011KD KD

AssetsNon-current assetsAvailable for sale investments 10 3,756,296 2,618,883Investment properties 11 9,191,913 9,797,014Property and equipment 12 125,229 108,474Intangible assets 13 152,121 160,346Goodwill 421,545 421,545

13,647,104 13,106,262Current assetsCash in hand and at banks 14 287,922 524,412Deposits with Islamic financial institutions 15 2,800,000 2,850,000Investment in wakala contract 16 30,720 30,484Accounts receivable and other debit balances 17 805,134 600,112Due from real estate owners 18 12,220 83,331

3,935,996 4,088,339Total assets 17,583,100 17,194,601Equity and liabilitiesEquityShare capital 19 10,450,000 10,450,000Share premium 1,812,000 1,812,000Share options reserve 34,000 34,000Treasury shares 20 (64,654) (64,654)Treasury shares reserve 1,271 1,271Legal reserve 21 830,297 756,276Voluntary reserve 22 830,297 756,276Cumulative changes in fair value (48,936) (211,186)Foreign currency translation reserve 1,955 53Retained earnings 1,804,320 1,798,530Equity attributable to owners of the parent company 15,650,550 15,332,566Non-controlling interests 86,582 80,714Total equity 15,737,132 15,413,280Non-current liabilitiesProvision for end of service indemnity 23 436,604 402,419Current liabilitiesAccounts payable and other credit balances 24 888,789 802,318Due to real estate owners 18 515,709 549,986Provision for lawsuits 25 4,866 26,598

1,409,364 1,378,902Total liabilities 1,845,968 1,781,321Total equity and liabilities 17,583,100 17,194,601

Faisal Abdullah Al-MatarChairman

Consolidated statement of financial position


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2,00

034

,000

(64,

654)

1,27

175

6,27

675

6,27

6(2

11,1

86)

531,

798,

530

15,3

32,5

6680

,714

15,4

13,2

80

Profi

t for

the

year

--

--

--

--

-67

3,09

967

3,09

95,

868

678,

967

Oth

er c

ompr

ehen

sive

inco

me

--

--

--

-16

2,25

01,

902

-16

4,15

2-

164,

152

Tota

l com

preh

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e in

com

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r the

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r -

--

--

--

162,

250

1,90

267

3,09

983

7,25

15,

868

843,

119

Tran

sfer

red

to re

serv

es-

--

--

74,0

2174

,021

--

(148

,042

)-

--

Cas

h di

vide

nds p

aid

--

--

--

--

-(5

19,2

67)

(519

,267

)-

(519

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)

Bala

nce

as a

t 31

Dec

embe

r 201

210

,450

,000

1,81

2,00

034

,000

(64,

654)

1,27

183

0,29

783

0,29

7(4

8,93

6)1,

955

1,80

4,32

015

,650

,550

86,5

8215

,737

,132

33

Real Estate Asset Management Company (REAM) – KSC (Closed) and Subsidiaries Consolidated Financial Statements - 31 December 2012 Consolidated statement of changes in equity (continued)

The

note

s set

out

on

page

s 35

to 6

2 fo

rm a

n in

tegr

al p

art o

f the

se c

onso

lidat

ed fi

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ts.

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ty a

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ners

of t

he p

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pany

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are

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sh

ares

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e

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ulat

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curr

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tr

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-co

ntro

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sts

Tota

lK

DK

DK

DK

DK

DK

DK

DK

DK

DK

DK

DK

DK

D

Bal

ance

as a

t 1 Ja

nuar

y 20

1110

,450

,000

1,81

2,00

034

,000

(82,

397)

-69

8,13

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8,13

06,

483

3,49

01,

916,

418

15,5

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5478

,945

15,6

15,1

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Profi

t for

the

year

--

--

--

--

-52

0,90

452

0,90

41,

769

522,

673

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er c

ompr

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sive

loss

--

--

--

-(2

17,6

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(3,4

37)

-(2

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06)

-(2

21,1

06)

Tota

l com

preh

ensiv

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ss)/

inco

me

for t

he y

ear

--

--

--

-(2

17,6

69)

(3,4

37)

520,

904

299,

798

1,76

930

1,56

7

Tran

sfer

red

to re

serv

es-

--

--

58,1

4658

,146

--

(116

,292

)-

--

Sale

of t

reas

ury

shar

es-

--

17,7

431,

271

--

--

-19

,014

-19

,014

Cas

h di

vide

nds p

aid

--

--

--

--

-(5

22,5

00)

(522

,500

)-

(522

,500

)

Bal

ance

as a

t 31

Dec

embe

r 201

110

,450

,000

1,81

2,00

034

,000

(64,

654)

1,27

175

6,27

675

6,27

6(2

11,1

86)

531,

798,

530

15,3

32,5

6680

,714

15,4

13,2

80

34


Note31 Dec.

201231 Dec.

2011KD KD

OPERATING ACTIVITIESProfit for the year before contribution to KFAS, provision for NLST, contribution to Zakat and board of directors’ remuneration

746,080 583,227

Adjustments:Depreciation and amortisation 255,983 210,700Loss/(gain) on sale of available for sale investments 1,342 (203,216)Impairment loss in value of available for sale investments 323,302 145,224Impairment loss in value of investment properties - 64,597Profit on deposits with Islamic financial institutions (33,408) (56,729)Dividends income (62,173) (79,355)Gain on sale of an investment property (674,921) (27,066)Loss on sale of property and equipment - 59Foreign currency exchange adjustments (11,216) 68Provision for lawsuits and doubtful debts 77,088 97,237Write back of provision no longer required (63,600) (83,793)Provision for end of service indemnity 68,741 60,623

627,218 711,576Changes in operating assets and liabilities:Accounts receivable and other debit balances (206,834) (213,624)Due from/to real estate owners 36,834 37,817Accounts payable and other credit balances 19,358 (258,015)Provision for end of service indemnity paid (34,556) (13,284)Net cash from operating activities 442,020 264,470INVESTING ACTIVITIESProceeds from/(investment in) deposits with Islamic financial institutions 50,000 (600,000)Profit on deposits with Islamic financial institutions received - 56,729Purchase of available for sale investments (1,385,600) (996)Proceeds on sale of available for sale investments 85,793 581,390Additions on investment properties - (111,174)Proceeds on sale of an investment property 1,080,000 116,994Paid for purchase of property and equipment (51,373) (77,658)Proceeds on sale of property and equipment - 503Paid for investment in wakala contract (236) (150)Dividends income received 62,173 79,355Net cash (used in)/from investing activities (159,243) 44,993FINANCING ACTIVITIESCash dividends paid (519,267) (522,500)Proceeds on sale of treasury shares - 19,014Net cash used in financing activities (519,267) (503,486)Net decrease in cash in hand and at banks 236,490 (194,023)

Cash in hand and at banks at beginning of the year 524,412 718,435Cash in hand and at banks at end of the year 14 287,922 524,412

Consolidated statement of cash flows



35

1- Incorporation and activities of the parent companyReal Estate Asset Management Company (REAM) - K.S.C. (Closed) (“the parent company”) was incorporated and authenticated at the Ministry of Justice – Real Estate Registration Department under Ref. No. 15 Vol. 447 dated September 12, 1993 and registered at the Commercial Register under Ref. No. 53705 dated 7 November 1993.

The parent company’s main activities are as follows:

- The management of commercial, residential or industrial real estate, and the organization and administration of free markets, supermarkets, commercial and industrial exhibitions and its related legal aspects.

- Rental and renting of real estate or commercial, residential, and industrial complexes.- To carry out various civil, electrical, sanitary and mechanical maintenance and the execution

of its various commitments including cleaning, environment protection, and related services.

- To carry out real estate, economical, technical and engineering studies and consultancy assignments relating to the objectives of the parent company.

- To act as an intermediary or as a broker for buying and selling real estate, and commercial, residential or industrial projects.

- Importing and exporting equipment, tools and materials relating to the above items.- Managing the execution of real estate projects.- To undertake security tasks.- Acquisition, buying and selling real estate companies’ shares and bonds for the parent

company inside and outside Kuwait.- Acquisition, development and selling properties and lands for the parent company, inside

and outside Kuwait, in addition to the management of properties owned by others, all in accordance with the respective laws and regulations and with due reference to the prohibition to trade in the private residence sector as stipulated in these laws.

- Utilization of excess funds available at the parent company by way of investing in financial and real estate portfolios managed by specialized companies and parties.

- Representing companies of similar objectives to that of the parent company inside and outside Kuwait.

- Direct investment for erecting the infrastructure of areas and projects whether residential, commercial, industrial or environmental, and the management of real estate sites in accordance with the BOT (Build, Operate and Transfer) system.

- Development, investment, and management of engineering laboratories associated with real estate investments.

- Acquisition and management of hotels, health clubs and touristic sites including renting and leasing.

- Management, operating, investing, renting and leasing hotels, clubs, motels, hotel residences, hostels, picnic areas , gardens, exhibitions, restaurants, cafeterias, residential complexes, touristic and health resorts, sporting and leisure sites and shops of all categories and levels including all basic services and ancillary services associated with them and other necessary services for them.

- Organizing real estate exhibitions associated with the parent company’s projects in accordance with the rules stipulated by the Ministry.

- Launching real estate auctions in accordance with the Ministry’s regulations;- Acquisition and management of commercial and residential complexes;- Managing, establishing and acquiring real estate companies and companies with similar

objectives to that of the parent company.

Notes to the consolidated financial statements

36


The parent company has the right to have an interest or to take part in any manner with the authorities that practice similar operations, or that may help it to achieve its objectives inside Kuwait or abroad. The parent company can also acquire these authorities or companies, or merge them with it.

The objectives for which the parent company was established shall be practiced according to Islamic Sharia, and the parent company shall not analyze the above objectives as it allows it directly or indirectly to deal in usury or work against Islamic Sharia rules.

On 29 November 2012 the Companie Law No. (25) of 2012 was issued by an Amiri Decree. This law is to be implemented and was effective on the date of its publication in the Official Gazette. Companies already established at the time this law comes into effect shall adjust their circumstances in accordance with the provisions of the law within six months of it coming into force and as specified in the executive regulations.

The parent company’s registered address is P.O. Box 29910, Al-Safat 13153, State of Kuwait.

The consolidated financial statements were authorized for issue by the Board of Directors on 20 February 2013. The shareholder’s general assembly has the power to amend these consolidated financial statements after issuance.

2- Basis of preparationThe consolidated financial statements of the group have been prepared under historical cost convention except for financial assets available for sale that have been measured at fair value.

The consolidated financial statements have been presented in Kuwaiti Dinars (“KD”).

The group has elected to present the “statement of comprehensive income” in two statements: the “statement of income” and “statement of comprehensive income”.

3- Statement of complianceThe consolidated financial statements of the group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board (IASB) and applicable requirements of Ministerial Order No. 18 of 1990.

4- Changes in accounting polices The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those used in previous year.

4.1 IASB Standards issued but not yet effectiveAt the date of authorisation of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the group.

Management anticipates that all of the relevant pronouncements will be adopted in the group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the group’s consolidated financial statements.

Notes to the consolidated financial statements (continued)

37


4 Changes in accounting policies (continued)4.1 IASB Standards issued but not yet effective (continued)

Standard or InterpretationEffective for annual periods beginning

IAS 1 Presentation of Financial Statements – amendment 1 July 2012IAS 27 Consolidated and Separate Financial Statements - Revised as IAS 27 Separate Financial Statements 1 January 2013IAS 32 Financial Instruments: Presentation – amendments 1 January 2014IFRS 7 Financial Instruments: Disclosures – amendment 1 July 2013IFRS 9 Financial Instruments: Classification and Measurement 1 January 2015IFRS 10 Consolidated Financial Statements 1 January 2013IFRS 12 Disclosure of Interest in Other Entities 1 January 2013IFRS 13 Fair Value Measurement 1 January 2013Annual Improvements 2009-2011 1 January 2013

4.1.1 IAS 1 Presentation of Financial StatementsThe amendment to IAS 1 requires entities to group other comprehensive income items presented in the consolidated statement of comprehensive income based on those:

a) Potentially reclassifiable to consolidated statement of income in a subsequent period, and b) That will not be reclassified to consolidated statement of income subsequently.

The group will change the current presentation of the consolidated statement of comprehensive income when the amendment becomes effective.

4.1.2 IAS 27 Consolidated and Separate Financial statements – Revised as IAS 27 Separate Financial Statements

As a result of the consequential amendments, IAS 27 now deals with separate financial statements.

4.1.3 Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)The Amendments to IAS 32 add application guidance to address inconsistencies in applying IAS 32’s criteria for offsetting financial assets and financial liabilities in the following two areas:

• the meaning of ‘currently has a legally enforceable right of set-off ’• that some gross settlement systems may be considered equivalent to net settlement.The Amendments are effective for annual periods beginning on or after 1 January 2014 and are required to be applied retrospectively. Management does not anticipate a material impact on the Group’s consolidated financial statements from these Amendments.

4.1.4 Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)

Qualitative and quantitative disclosures have been added to IFRS 7 ‘Financial Instruments: Disclosures’ (IFRS 7) relating to gross and net amounts of recognised financial instruments that are (a) set off in the statement of financial position and (b) subject to enforceable master netting arrangements and similar agreements, even if not set off in the statement of financial position. The Amendments are effective for annual reporting periods beginning on or after 1 January 2013 and interim periods within those annual periods. The required disclosures should be provided retrospectively. Management does not anticipate a material impact on the Group’s consolidated financial statements from these Amendments.


38


4 Changes in accounting policies (continued)4.1 IASB Standards issued but not yet effective (continued)

4.1.5 IFRS 9 Financial Instruments: Classification and MeasurementThe IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2011, with the replacement standard to be effective for annual periods beginning 1 January 2015. IFRS 9 is being used in phases and to date phase 1 has been issued. The main phases are:

• Phase 1: Classification and Measurement • Phase 2: Impairment methodology • Phase 3: Hedge accounting In addition, a separate project is dealing with derecognition.

Although earlier application of this standard is permitted, the Technical Committee of the Ministry of Commerce and Industry of Kuwait decided on 30 December 2009, to postpone this early application till further notice, due to the non-completion of the remaining stages of the standard.

4.1.6 IFRS 10 Consolidated Financial StatementsIFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements. It revised the definition of control together with accompanying guidance to identify an interest in subsidiary. However, the requirements and procedures of consolidation and the accounting for any non-controlling interests and changes in control remain the same.

4.1.7 IFRS 12 Disclosure of Interests in Other EntitiesIFRS 12 is designed to complement the other new standards. It sets out consistent disclosure requirements for subsidiaries, joint ventures and associates, as well as unconsolidated structured entities. The disclosure requirements are extensive and will result in significant amounts of new disclosures for some companies. Structured entities were previously referred to in SIC 12 as special purpose entities. The disclosures required by IFRS 12 aim to provide transparency about the risks a company is exposed to through its interests in structured entities.

4.1.8 IFRS 13 Fair Value MeasurementIFRS 13 does not affect which items to be fair valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. The adoption of this standard is not expected to have a significant impact on the financial position and performance of the group.

4.1.9 Annual Improvements 2009-2011 (the Annual Improvements)The Annual Improvements 2009-2011 (the Annual Improvements) made several minor amendments to a number of IFRSs. The amendments relevant to the Group are summarised below:

Clarification of the requirements for opening statement of financial position:• clarifies that the appropriate date for the opening statement of financial position is the

beginning of the preceding period (related notes are no longer required to be presented)• addresses comparative requirements for the opening statement of financial position

when an entity changes accounting policies or makes retrospective restatements or reclassifications, in accordance with IAS 8.

Clarification of the requirements for comparative information provided beyond minimum requirements:• clarifies that additional financial statement information need not be presented in the form

of a complete set of financial statements for periods beyond the minimum requirements.• requires that any additional information presented should be presented in accordance

with IFRS and the entity should present comparative information in the related notes for that additional information.



39

4 Changes in accounting policies (continued)4.1 IASB Standards issued but not yet effective (continued)4.1.9 Annual Improvements 2009-2011 (the Annual Improvements) (continued)

Tax effect of distribution to holders of equity instruments:• addresses a perceived inconsistency between IAS 12 ‘Income Taxes’ (IAS 12) and

IAS 32 ‘Financial Instruments: Presentation’ (IAS 32) with regards to recognising the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction

• clarifies that the intention of IAS 32 is to follow the requirements in IAS 12 for accounting for income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction.

Segment information for total assets and liabilities:• clarifies that the total assets and liabilities for a particular reportable segment are required

to be disclosed if, and only if: (i) a measure of total assets or of total liabilities (or both) is regularly provided to the chief operating decision maker; (ii) there has been a material change from those measures disclosed in the last annual financial statements for that reportable segment.

The Annual Improvements noted above are effective for annual periods beginning on or after 1 January 2013. Management does not anticipate a material impact on the Group’s consolidated financial statements from these Amendments.

5- Significant accounting policies The significant accounting policies adopted in the preparation of financial statements are set out below:

5.1 Basis of consolidationThe Group financial statements consolidate those of the parent company and all of its subsidiaries. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through more than half of the voting rights. All subsidiaries have a reporting date of 31 December. (OR The financial statements of the subsidiaries are prepared for reporting dates which are typically not more than three months from that of the Parent Company, using consistent accounting policies. Adjustments are made for the effect of any significant transactions or events that occur between that date and the reporting date of the Parent Company’s financial statements.)

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

When a controlling interest in the subsidiaries is disposed off, the difference between the selling price and the net asset value plus cumulative translation difference and goodwill is recognised in the consolidated income statement.


40


5- Significant accounting policies (continued)5.1 Basis of consolidation (continued)

5.1.1 GoodwillGoodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The consolidated financial statements incorporate the financial statements of Real Estate Asset Management Company (REAM) – KSC (Closed) (parent company) and the following subsidiaries:

Name of subsidiaryCountry of

incorporationPercentage of

ownership

Amlak Real Estate Services and Consulting Co. – KSC (Closed) Kuwait 75%Amlak Integrated Projects – WLL Sultanate of Oman 100%

5.2 Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

5.2.1 Rental incomeRental income is recognised on an accrual basis.

5.2.2 Real estate management feesIncome from real estate management is recognised when services are rendered, on accrual basis, and in accordance with the contractual agreements.

5.2.3 DividendsDividend income is recognised when the shareholders’ right to receive the payment is established.

5.2.4 Interest income and similar income Interest income is recognised on accrual basis using the effective interest method

5.2.5 Gain on sale of investmentsGain on sale of investments is measured by the difference between the sale proceeds and the carrying amount of the investment at the date of disposal, and is recognized at the time of the sale.


41


5- Significant accounting policies (continued)

5.3 Operational expensesOperational expenses are recognised in the consolidated statement of income utilisation of service or at the date of their origin.

5.4 Finance costsFinance costs are calculated and recognised on a time proportionate basis taking into account the principal finance balance outstanding and the income/cost rate applicable.

5.5 Property and equipment Property and equipment (comprising fittings and furniture) are initially recognised at acquisition cost or manufacturing cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Group’s management.

Property and equipment are subsequently measured using the cost model, cost less subsequent depreciation and impairment losses. Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of equipment. The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits arising from items of equipment.

Material residual value estimates and estimates of useful life are updated as required, but at least annually.

When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is recognised in the consolidated income statement.

Depreciation is computed on a straight line basis over the estimated useful lives of property and equipment as follows:

- Furniture 5 years- Equipment and electrical tools 5 years- Computers 5 years- Vehicle 5 years

5.6 Projects in progressIncurred costs are charged to construction or production of capital assets under projects in progress till construction or production of these assets is complete, at which time it is reclassified as property and equipment or investment properties. Costs include all direct costs and other costs attributable on reasonable basis.

5.7 Intangible assetsIntangible assets are stated at cost less accumulated amortization and impairment losses, if any. Intangible assets are amortized on the straight-line method basis over the estimated useful period.

5.8 Investment propertyInvestment properties, which are properties held to earn rentals and/or for capital appreciation, are carried at cost, which includes purchase price and transaction costs less accumulated depreciation and impairment losses. Land on which the investment property is erected is not depreciated. Depreciation is computed on a straight-line basis over the useful life of the buildings.


42


5- Significant accounting policies (continued)5.8 Investment property (continued)

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Gains or losses arising on the retirement or disposal of an investment property are recognized in the consolidated statement of income.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

5.9 Investment in associatesAssociates are those entities over which the Group is able to exert significant influence but which are neither subsidiaries nor joint ventures. Investments in associates are initially recognised at cost and subsequently accounted for using the equity method. Any goodwill or fair value adjustment attributable to the Group’s share in the associate is not recognised separately and is included in the amount recognised as investment in associates.

Under the equity method, the carrying amount of the investment in associates is increased or decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the associate, adjusted where necessary to ensure consistency with the accounting policies of the Group.

Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment.

The difference in reporting dates of the associates and the Group is not more than three months. Adjustments are made for the effects of significant transactions or events that occur between that date and the date of the Group’s consolidated financial statements. The associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any differences between the carrying amount of the associate upon loss of significant influence and the fair value of the remaining investment and proceeds from disposal are recognised in the consolidated income statement.

5.10 Impairment testing of non financial assetsNon-financial assets are tested individually for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell.

All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the recoverable amount exceeds its carrying amount.



43

5 Significant accounting policies (continued)

5.11 Financial instruments

5.11.1 Recognition, initial measurement and derecognitionFinancial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below.

A financial asset (or, where applicable a part of financial asset or part of group of similar financial assets) is derecognised when:

• rights to receive cash flows from the assets have expired; • the Group has transferred its rights to receive cash flows from the asset or has assumed

an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement and either a) the Group has transferred substantially all the risks and rewards of the asset or b) the Group has neither transferred nor retained substantially all risks and rewards of

the asset but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass- through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the Group’s continuing involvement in the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in consolidated income statement.

5.11.2 Classification and subsequent measurement of financial assetsFor the purpose of subsequent measurement are classified into the following categories upon initial recognition:

• cash and cash equivalent• loans and receivables• available-for-sale (AFS) financial assets.• investment in wakala contract

All financial assets except for those at FVTSI are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

• Cash and cash equivalentsCash and cash equivalents comprise cash on hand and bank balances which are subject to an insignificant risk of changes in value.


44


5 Significant accounting policies (continued)5.11 Financial instruments (continued) 5.11.2 Classification and subsequent measurement of financial assets (continued)

• Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest rate method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group.

The Group categorises loans and receivables into following categories:

• Trade receivablesTrade receivable are stated at original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred

• Due from related partiesDue from related parties in financial assets originated by the parent company by providing service directly to those related parties that have fixed or determinable payments and are not quoted in an active market.

• AFS financial assetsAFS financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. Financial assets whose fair value cannot be reliably measured are carried at cost less impairment losses, if any. Impairment charges are recognised in profit or loss. All other AFS financial assets are measured at fair value. Gains and losses are recognised in other comprehensive income and reported within the fair value reserve within equity, except for impairment losses, and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset is disposed of or is determined to be impaired, the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss and presented as a reclassification adjustment within other comprehensive income.

The Group assesses at each reporting date whether there is objective evidence that a financial asset available for sale or a group of financial assets available for sale is impaired. In the case of equity investments classified as financial assets available for sale, objective evidence would include a significant or prolonged decline in the fair value of the equity investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss is removed from other comprehensive income and recognised in the consolidated income statement.

Reversals of impairment losses are recognised in other comprehensive income, except for financial assets that are debt securities which are recognised in profit or loss only if the reversal can be objectively related to an event occurring after the impairment loss was recognised.


45


5 Significant accounting policies (continued)5.11 Financial instruments (continued) 5.11.2 Classification and subsequent measurement of financial assets (continued)

• Investments in wakala contractThis represents an agreement wakala whereby the company pays an amount of money to another party to invest it in accordance with certain terms against a minimum limit of the yield (a percentage of the invested amount). Investment in wakala is carried at amortised cost less provision for impairment by using the effective yield rate wakala income is calculated on a time proportionate basis.

5.11.3 Classification and subsequent measurement of financial liabilitiesThe Group’s financial liabilities include, trade and other payables and due to related parties.

The subsequent measurement of financial liabilities depends on their classification as follows:

• Trade payablesLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. • Due to related partiesDue to related parties represent financial liabilities originated by these related parties by providing service to the parent company that have fixed or determinable payments and are not quoted in an active market.

5.11.4 Amortised cost of financial instrumentsThis is computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

5.11.5 Trade and settlement date accountingAll ‘regular way’ purchases and sales of financial assets are recognised on the trade date i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

5.11.6 Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

5.11.7 Fair value of financial instrumentsThe fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 30.


46



5.12 Equity, reserves and dividend paymentsShare capital represents the nominal value of shares that have been issued and paid up.

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.

Share option reserve represents of remuneration is granted to the group’s employees (including executive directors) in the form of share-based payment transactions, wereby employees render service in exchange for shares or rights over shares (“equity settled transactions”).

Statutory and voluntary reserves comprise appropriations of current and prior period profits in accordance with the requirements of the companies’ law and the parent company’s articles of association.

Other components of equity include the following:• foreign currency translation reserve – comprises foreign currency translation differences

arising from the translation of financial statements of the Group’s foreign entities into KD• Fair value reserve – comprises gains and losses relating to available for sale financial

assets

Retained earnings includes all current and prior period retained profits. All transactions with owners of the parent are recorded separately within equity.

Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting.

5.13 Provisions, contingent assets and contingent liabilitiesProvisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material.

Contingent assets are not recognised in the consolidated financial statements, but are disclosed when an inflow of economic benefits is probable.

Contingent liabilities are not recognised in the consolidated statement of financial position, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

5.14 Treasury sharesThe company’s holding in its own shares is accounted for as treasury shares. Such shares are stated at cost as a deduction within equity and no cash dividends are distributed on these shares.

Gains resulting from the sale of treasury shares are taken directly to equity under “gain on sale of treasury shares reserve”. Should the reserve fall short of any losses from the sale of treasury shares, the difference is charged to retained earnings then reserves. Subsequent to this, should profits arise from sale of treasury shares an amount is transferred to reserves then retained earnings equal to the loss previously charged to these accounts.



47


5.15 Segment reportingThe Group has two operating segments: the real estate and investment segments. In identifying these operating segments, management generally follows the Group’s significant services for each segments. Each of these operating segments is managed separately as each requires different approaches and other resources. All inter-segment transfers are carried out at arm’s length prices.

For management purposes, the Group uses the same measurement policies as those used in its financial statements. In addition, assets or liabilities which are not directly attributable to the business activities of any operating segment are not allocated to a segment.

5.16 Foreign currency translation

5.16.1 Functional and presentation currencyThe consolidated financial statements are presented in currency Kuwait Dinar (KD), which is also the functional currency of the parent company. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

5.16.2 Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

5.16.3 Foreign operations In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the KD are translated into KD upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period.

On consolidation, assets and liabilities have been translated into KD at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into KD at the closing rate. Income and expenses have been translated into KD at the average rate over the reporting period. Exchange differences are charged/credited to other comprehensive income and recognised in the foreign currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognised in equity are reclassified to profit or loss and are recognised as part of the gain or loss on disposal.

5.17 End of service indemnityThe Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period in accordance with relevant labour law and the employees’ contracts. The expected costs of these benefits are accrued over the period of employment. This liability, which is unfunded, represents the amount payable to each employee as a result of termination on the reporting date

With respect to its Kuwaiti national employees, the Group makes contributions to the Public Institution for Social Security calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when due.


48



5.18 Taxation

5.18.1 Kuwait Foundation for the Advancement of Sciences (KFAS)The contribution to KFAS is calculated at 1% of taxable profit of the Group in accordance with the modified calculation based on the Foundation’s Board of Directors’ resolution, which states that income from associates and subsidiaries, Board of Directors’ remuneration, transfer to statutory reserve should be excluded from profit for the year when determining the contribution.

5.18.2 National Labour Supporting taxThe National Labour Support Tax (NLST) is calculated at 2.5% of the group’s profit in accordance with the Ministry of Finance resolution No. 24 for the year 2008 and Law No. 19 for the year 2000.

5.15.3 ZakatContribution to Zakat is calculated at 1% of the profit of the Group in accordance with the Ministry of Finance resolution No. 58/2007 effective from 10 December 2007.

6- Significant management judgements and estimation uncertainty

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. However uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

6.1 Significant management judgments In the process of applying the Group’s accounting policies, management has made the following significant judgments, which have the most significant effect on the amounts recognised in the consolidated financial statements:

6.1.1 Classification of financial instrumentsJudgements are made in the classification of financial instruments based on management’s intention at acquisition.

The Group classifies financial assets as held for trading if they are acquired primarily for the purpose of short term profit making.

Classification of financial assets as fair value through income statement depends on how management monitors the performance of these financial assets. When they are not classified as held for trading but have readily available fair values and the changes in fair values are reported as part of profit or loss in the management accounts, they are classified as fair value through income statement.

Classification of assets as loans and receivables depends on the nature of the asset. If the Group is unable to trade these financial assets due to inactive market and the intention is to receive fixed or determinable payments the financial asset is classified as loans and receivables.

All other financial assets are classified as available for sale.


49


6 Significant management judgements and estimation uncertainty (continued)6.1 Significant management judgments (continued)

6.1.2 Classification of real estate Management decides on acquisition of a real estate whether it should be classified as trading, property held for development or investment property.

The Group classifies property as trading property if it is acquired principally for sale in the ordinary course of business.

The Group classifies property as property under development if it is acquired with the intention of development.

The Group classifies property as investment property if it is acquired to generate rental income or for capital appreciation, or for undetermined future use.

6.2 Estimates uncertainty Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different

6.2.1 Impairment of associatesAfter application of the equity method, the Group determines whether it is necessary to recognise any impairment loss on the Group’s investment in its associated companies, at each reporting date based on existence of any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the consolidated income statement.

6.2.2 Impairment of available for sale equity investmentsThe Group treats available for sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgment.

6.2.3 Fair value of financial instrumentsManagement apply valuation techniques to determine the fair value of financial instruments where active market quotes are not available. This requires management to develop estimates and assumptions based on market inputs, using observable data that market participants would use in pricing the instrument. Where such data is not observable, management uses its best estimate. Estimated fair values of financial instruments may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date.

7- Operational income/expenses

31 December 2012 31 December 2011Income Expenses Income Expenses

KD KD KD KD

Commission on rent collection and leasing 2,066,953 1,098,848 2,035,953 902,262Maintenance works 60,633 161,071 97,864 210,970Security works 204,725 166,858 218,171 167,975Brokerage works 173,622 90,539 72,491 33,526

2,505,933 1,517,316 2,424,479 1,314,733


50


8- General and administrative expenses

31 Dec. 2012

31 Dec. 2011

KD KD

Salaries and wages 286,899 285,114Other employee benefits and allowances 158,543 173,317Other miscellaneous expenses 219,524 196,149

664,966 654,580

9- Earnings per share attributable to the owners of the parent company

There are no diluted ordinary shares expected to be issued. The information necessary to calculate basic earnings per share based on the weighted average number of outstanding shares during the year is as follows:

31 Dec. 2012

31 Dec. 2011

Profit for the year attributable to the owners of the parent company (KD) 673,099 520,904Weighted average number of outstanding shares (Share) 103,989,883 103,949,993Earnings per share attributable to the owners of the parent company (Fils) 6.47 5.01

10- Available for sale investments

31 Dec. 2012

31 Dec. 2011

KD KD

Investments in quoted securities 44,620 373,056Investments in unquoted securities 1,814,258 1,455,716Investments in managed investment portfolios 1,884,702 770,013Investments in managed investment funds 12,716 20,098

3,756,296 2,618,883

It was not possible to reliably measure the fair value of unquoted securities amounting to KD1,685,504 (31 December 2011: KD96,511) due to non availability of reliable method that could be used to determine the fair value of such investments. Accordingly, these investments are stated at their cost less impairment losses, if any. Management is not aware of any circumstances that would indicate any further impairment in the value of these investments as of the date of consolidated statement of financial position.

The movement of available for sale investments during the year is as follows:

31 Dec. 2012

31 Dec. 2011

KD KD

Balance at beginning of the year 2,618,883 3,358,954Additions 1,385,600 996Disposals (87,135) (378,174)Change in fair value 162,250 (217,669)Impairment loss in value of available for sale investments (323,302) (145,224)Balance at the end of the year 3,756,296 2,618,883



51

10 Available for sale investments (continued)

Available for sale investments are denominated in the following currencies:

31 Dec. 2012

31 Dec. 2011

KD KD

Kuwaiti Dinar 3,295,445 2,522,134US Dollar 203,164 57,062Saudi Riyal 14,970 14,970Sterling Pound 225,600 -UAE Dirham 17,117 24,717

3,756,296 2,618,883

11- Investment properties

Lands Buildings

Investment properties

under construction

Total31 Dec.

2012

Total 31 Dec.

2011KD KD KD KD KD

CostAt beginning of the year 3,159,828 5,089,670 1,939,797 10,189,295 10,236,151Additions - - - - 111,174Disposals (302,005) (142,152) - (444,157) (89,928)Transferred from investment properties under construction 653,573 1,286,224 (1,939,797) - -Impairment in value - - - - (64,597)Foreign currency exchange differences 13,053 - - 13,053 (3,505)At end of the year 3,524,449 6,233,742 - 9,758,191 10,189,295

Accumulated depreciationAt beginning of the year - 392,281 - 392,281 218,467Charge for the year - 213,140 - 213,140 173,814Relating to disposals - (39,143) - (39,143) -At end of the year - 566,278 - 566,278 392,281

Net book value At end of the year 3,524,449 5,667,464 - 9,191,913 9,797,014

The fair value of the completed investment properties as estimated by independent valuers as of 31 December 2012 amounted to KD10,337,927 (31 December 2011: KD10,515,825).

During the year, the Group sold a local investment property for a sale value amounted to KD1,080,000 (2011: KD116,994), which resulted in a profit of KD674,921 (2011: profit of KD27,066) recorded in the consolidated statement of income for the year.


52


12- Property and equipment

Furniture

Equipment & electrical

tools Computers Vehicle TotalKD KD KD KD KD

CostAt beginning of the year 107,531 73,720 151,885 4,375 337,511Additions 12,281 4,116 34,976 - 51,373At 31 December 2012 119,812 77,836 186,861 4,375 388,884

Accumulated depreciationAt beginning of the year 61,542 45,473 121,384 638 229,037Charge for the year 12,775 8,758 12,208 877 34,618At 31 December 2012 74,317 54,231 133,592 1,515 263,655

Net book value At 31 December 2012 45,495 23,605 53,269 2,860 125,229At 31 December 2011 45,989 28,247 30,501 3,737 108,474

13- Intangible assets

Franchise Computer software

31 Dec. 2012 31 Dec. 2011

KD KD KD KDCostAt beginning of the year 297,556 12,998 310,554 310,554At end of the year 297,556 12,998 310,554 310,554

Accumulated amortisationAt beginning of the year 144,162 6,046 150,208 137,306Charge for the year 5,825 2,400 8,225 12,902At end of the year 149,987 8,446 158,433 150,208

Net book value at end of the year 147,569 4,552 152,121 160,346

Intangible assets represent the right to sell the international commercial franchise “Century 21” and are amortised over 25 years and computer software is amortised over 3 to 5 years.

14- Cash in hand and at banks

31 Dec. 2012 31 Dec. 2011KD KD

Cash in hand 42,047 130,202Cash at banks 245,875 394,210

287,922 524,412


53


15- Deposits with Islamic financial institutionsThe effective rate of return on deposits with Islamic financial institution was 1.9% (31 December 2011: 2%) per annum. These deposits have an average maturity of one year.

16- Investment in wakala contractInvestment in wakala contract represents a deposit contract singed with an Islamic Financial Institution and it is renewed every month and bears a variable rate of return with a minimum percentage of 2% (31 December 2011: 2%) per annum.

17- Accounts receivable and other debit balances

31 Dec. 2012

31 Dec. 2011

KD KD

Trade receivables 165,519 155,949Receivables from sale of available for sale investment 38,087 296,448Payment to purchase available for sale investment - below 281,500 -Accrued profits and income 183,742 124,740Prepaid expenses 42,150 31,309Staff receivables 49,436 51,944Retentions against bank guarantee 42,062 41,580Refundable deposits 159,671 14,292Other debit balances 135,443 141,106

1,097,610 857,368Provision for doubtful debts (292,476) (257,256)

805,134 600,112

The advance payment to purchase available for sale investment represents the Group’s share in the investment in a foreign real estate portfolio under establishment.

The fair value of accounts receivable and other debit balances approximated their carrying values as at 31 December 2012 and 31 December 2011.

18- Due from/to real estate ownersThe group has entered into various transactions with real estate owners and the balances are represented as follows:

Total TotalRelated parties Others

30 Dec.2012

31 Dec. 2011

KD KDConsolidated statement of financial position Due from real estate owners 7,514 4,706 12,220 83,331Due to real estate owners 116,345 399,364 515,709 549,986


54


19- Share capital The share capital of the parent company consists of 104,500,000 shares with par value of 100 Kuwaiti fils per share (2011: 104,500,000 shares with par value of 100 Kuwaiti fils per share) and all shares are paid in cash.

20- Treasury shares

31 Dec. 2012

31 Dec. 2011

Number of treasury shares (share) 510,117 510,117Percentage of treasury shares to paid up capital (%) 0.49 0.49Market value (KD) 51,012 68,356Cost (KD) 64,654 64,654

21- Legal reserve

As required by the Companies Law and the parent company’s Articles of Association, 10% of the profit for the year before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), provision for National Labour Support Tax (NLST), contribution to Zakat and board of directors’ remuneration is transferred to legal reserve. The parent company may resolve to discontinue such transfer when the reserve equals 50% of the share capital. This reserve is not available for distribution except in cases stipulated by Law and the parent company’s Articles of Association.

22- Voluntary reserve

As required by the parent company’s Articles of Association, 10% of the profit for the year before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), provision for National Labour Support Tax (NLST), contribution to Zakat and board of directors’ remuneration is transferred to the voluntary reserve. Such transfer may be discontinued by a resolution of the shareholders’ general assembly upon recommendation by the board of directors.

23- Provision for end of service indemnity

31 Dec. 2012

31 Dec. 2011

KD KD

Balance at the beginning of the year 402,419 355,080Charge for the year 68,741 60,623Paid during the year (34,556) (13,284)Balance at the end of the year 436,604 402,419



55

24- Accounts payable and other credit balances

31 Dec. 2012

31 Dec. 2011

KD KDTrade payables 310,203 141,819Contractors payable 1,933 1,918Retentions payable 39,296 35,095Staff payable 4,788 1,667Income received in advance 19,552 23,355Accrued expenses 168,535 219,023Accrued leave 115,323 98,860Deposits to others 25,985 26,855Due to Kuwait Foundation for the Advancement of Sciences 6,638 7,565Due to National Labour Support Tax 18,191 14,515Due to Zakat 7,387 5,806Board of Directors’ remuneration payable (note 26) 35,000 35,000Other credit balances 135,958 190,840

888,789 802,318

25- Provision for lawsuits

31 Dec. 2012

31 Dec. 2011

KD KDBalance at the beginning of year 26,598 92,409Charge for the year 34,268 17,982Reversal of provision no longer required (56,000) (83,793)Balance at the end of the year 4,866 26,598

26- DividendsThe Board of Directors have proposed to distribute cash dividend of 5 Fils per share from the paid up share capital to the shareholders of the parent company for the year ended 31 December 2012 and such proposal is subject to the approval of the general assembly of the shareholders.

Board of Directors of the parent company proposed to deduct the mount of KD35,000 to the Board of Directors’ remuneration account for the year ended 31 December 2012, which conflicts with the provisions of article 229 of the companies Law No. 25 of 2012 for determining the remuneration of board of directors. The above remuneration is subject to approval of the shareholders’ general assembly (note 24).

After approving the consolidated financial statements for the year ended 31 December 2011, the general assembly of shareholders held on 2 April 2012 approved to distribute cash dividends of 5 Fils per share from the paid up share capital to the shareholders of the parent company who are recorded as of the date of the general assembly for the year ended 31 December 2011. Further, the general assembly approved to pay a remuneration amounting to KD35,000 to the board of directors for that financial year.


56


27- Related party transactionsThe group has entered into various transactions with related parties such as shareholders, key management personnel, associated companies, and other related parties in the normal course of its business concerning financing and other related services. Prices and terms of payment related to these transactions are approved by the parent company’s management. Significant related party transactions and balances are as follows:

31 Dec. 2012

31 Dec. 2011

KD KDConsolidated statement of financial positionDue from a related party:Kuwait Awqaf Public Foundation (major shareholder) 7,514 59,810Accounts receivable and other debit balances (major shareholder) 39,196 296,448

Due to related parties:Public Authority for Minors’ Affairs (major shareholder) 116,345 138,446

Consolidated statement of incomeOperational income (commission on rent collection and leasing) 941,048 932,567Operational expenses (real estate portfolios management expenses) 555,218 550,214General and administrative expenses (rent expenses) 60,072 5,006Board of directors’ remuneration 35,000 35,000

Benefits to key management personnelShort-term benefits 69,000 69,000Other long-term benefits 12,383 12,383

28- Segment reportingThe group is divided into operational divisions to manage its various lines of business. The group operates mainly in the State of Kuwait and, accordingly, does not have a secondary segment. For the purposes of primary segment reporting, the parent company’s management has classified the group’s services into the following business segments:

• Real estate management operations: represented in the management and leasing of real estate.

• Investment operations: represented in real estate investment and investments in shares.• Brokerage operations: represented in real estate brokerage services on sale and purchase

of real state properties


57


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58


29- Financial risk managementIn the normal course of business, the group uses primary financial instruments such as cash in hand and at banks, receivables, financial Islamic investments, available for sale investments and payables and as a result, is exposed to the risks indicated below.

a) Rate of return riskFinancial instruments are subject to the risk of changes in value due to changes in the level of rates of return. The effective rates of return and the periods in which the financial assets and liabilities are repriced or matured are indicated in the respective notes.

b) Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligation causing the other party to incur a financial loss. Financial assets which potentially subject the group to credit risk consist principally of receivables. The bank balances of the group are deposited in high credit worthy financial institutions. Receivables are presented net of allowance for doubtful debts.

The maximum group’s exposure arising from default of the counter-party is the nominal amount of cash and deposits at banks, accounts receivable, due from real estate owners and other debit balances.

c) Foreign currency riskThe group is exposed to foreign currency risk on transactions that are denominated in a currency other than the Kuwaiti Dinar. The group may reduce its exposure to fluctuations in foreign exchange rates through the use of derivative financial instruments. The group ensures that the net exposure to foreign currency risk is kept to an acceptable level, by dealing in currencies that do not fluctuate significantly against the Kuwaiti Dinar.

The group had the following significant exposures denominated in foreign currencies, translated into Kuwaiti Dinar at the closing rate at the end of the year:

31 Dec. 2012

31 Dec. 2011

KD KDUS Dollar 55,256 57,060UAE Dirhams 7,528,740 7,624,120Saudi Riyal 14,970 14,960Qatari Riyal 38,100 372,380Sterling Pound 6,440 -

If the Kuwaiti Dinar had strengthened/weakened against the foreign currencies assuming the sensitivity given in the table below, then this would have the following impact on the profit for the year:

30 Dec. 2012 31 Dec. 2011

Inc/(Dec)Profit

for the period Inc/(Dec)

Profit for the period

% KD % KDUS Dollar ± 5 2,763 ± 5 2,853UAE Dirhams ± 5 376,437 ± 5 381,206

Saudi Riyal ± 5 748 ± 5 748

Qatari Riyal ± 5 1,905 ± 5 18,619

Sterling Pound ± 5 322 ± 5 -



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29 Financial risk management (continued)c) Foreign currency risk (continued)

Exposures to foreign exchange rates vary during the year depending on the volume and nature of the transactions. Nonetheless, the analysis above is considered to be representative of the group’s exposure to foreign currency risk.

d) Liquidity risk Liquidity risk is the risk that the group will encounter difficulty in raising funds to meet commitments associated with financial instruments. To manage this risk, the group periodically assesses the financial ability of customers and invests in bank deposits or other investments that are readily realizable.

Maturity Table for financial liabilities

31 December 2012Amount

Financial liabilities: 1 monthKD

Accounts payable and other credit balances Cash on hand and at banks 888,789Due to real estate owners Total equity 515,709Total capital resources 1,404,498

31 December 2011Amount

Financial liabilities: 1 monthKD

Accounts payable and other credit balances Cash on hand and at banks 802,318Due to real estate owners Total equity 549,986Total capital resources 1,352,304

e) Financial instruments’ price riskFinancial instruments’ price risk is the risk that fair values of financial instruments decrease as the result of changes in level of equity instruments and the value of individual stocks. The exposure to non-current equity instruments price risk arises from the parent company’s investment portfolio.

The following table demonstrates the sensitivity to a reasonable possible change in financial instruments indicators as a result of changes in the fair value of available for sale investments, to which the group had significant exposure at the end of year.

31 Dec. 2012 31 Dec. 2011

Change in equity

instruments price

Effect on comprehensive

income

Change in equity

instruments price

Effect on comprehensive

income

% KD % KDKuwait Stock Exchange ± 5 2,231 ± 5 18,853Portfolio manager ± 5 94,235 ± 5 38,501Fund custodian ± 5 636 ± 5 1,005


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30- Financial assets and liabilities

30.1 Categories of financial assets and liabilitiesThe carrying amounts of the group’s financial assets and liabilities as stated in the consolidated statement of financial position may also be categorized as follows:

31 Dec. 2012 31 Dec. 2011Carrying

valueFair

value Carrying

valueFair

value KD KD KD KD

Financial assetsCash in hand and at banks 287,922 - 524,412 -Deposits with Islamic Financial institutions 2,800,000 - 2,850,000 -Investment in wakala contract 30,720 - 30,484 -Accounts receivable and other debit balances 805,134 - 600,112 -Available for sale investments 1,685,504 2,070,792 96,511 2,522,372Due from real estate owners 12,220 - 83,331 -

5,621,500 2,070,792 4,184,850 2,522,372Financial liabilitiesAccounts payable and other credit balances 888,789 - 802,318 -Due to real estate owners 515,709 - 549,986 -

1,404,498 - 1,352,304 -

Fair value represents amounts at which an asset could be exchanged or a liability settled on an arm’s length basis. In the opinion of the parent company’s management, except for certain available for sale investments which are carried at cost less impairment in value and other assets which suffered from impairment in value, the carrying amounts of financial assets and liabilities as at 31 December 2012 and 31 December 2011 approximate their fair values. 30.2 Fair value hierarchy for financial instruments measured at fair valueThe following table presents the financial assets which are measured at fair value in the consolidated statement of financial position in accordance with the fair value hierarchy.

This hierarchy groups financial assets into three levels based on the significance of inputs used in measuring the fair value of the financial assets. The fair value hierarchy has the following levels:

- Level 1: quoted prices (unadjusted) in active markets for identical assets;

- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3: inputs for the asset that are not based on observable market data (unobservable inputs).

The level within which the financial asset is classified, is determined based on the lowest level of significant input to the fair value measurement.


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30 Financial assets and liabilities (continued)30.2 Fair value hierarchy for financial instruments measured at fair value (continued)

The financial assets measured at fair value in the consolidated statement of financial position are grouped into the fair value hierarchy as follows:

At 31 December 2012 Level 1 Level 2 Level 3 Total Note KD KD KD KD

Assets at fair valueAvailable for sale investments:Direct participations in companies’ capitalInvestments in quoted shares a 44,620 - - 44,620Investments in managed investment portfolios b - 1,584,802 - 1,584,802Investments in managed investment funds b - 12,716 - 12,716Unquoted securities c - - 428,654 428,654Total assets 44,620 1,597,518 428,654 2,070,792

At 31 December 2011 Level 1 Level 2 Level 3 Total Note KD KD KD KD

Assets at fair valueAvailable for sale investments:Direct participations in companies’ capitalInvestments in quoted shares a 373,056 - - 373,056Investments in managed investment portfolios b - 770,013 - 770,013Investments in managed investment funds b - 20,098 - 20,098Unquoted securities c - - 1,359,205 1,359,205Total assets 373,056 790,111 1,359,205 2,522,372

Fair value measurementsThe financial assets classified in level 3 uses valuation techniques inputs that are not based on observable market data. The financial instruments within this level can be reconciled from beginning to ending balances.

Changing inputs to the level 3 valuations to reasonably possible alternative assumption would not change significantly amounts recognised in the consolidated statement of income, total assets or total liabilities or total equity.

a) Investments in quoted shares Quoted shares represent all listed equity securities which are publicly traded in stock exchanges. Fair values have been determined by reference to their quoted bid prices at the reporting date.

b) Investments in managed investment portfolios and funds The underlying investments in managed portfolios and funds represent quoted securities and unquoted securities. They are valued based on latest reports received from the managers.

c) Unquoted securities The consolidated financial statements include holdings in unlisted securities which are measured at fair value. Fair value is estimated using various models like discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates.


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31- Capital risk managementThe group’s objectives when managing capital resources are to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for external users and to maintain an optimal financial resources structure to reduce the cost of capital. In order to maintain or adjust the optimal financial resources structure, the group can amend the cash dividends paid to shareholders, decrease share capital, issue new shares, sell assets to reduce debt or obtain additional loans.

The share capital consists of the following:

31 Dec. 2012

31 Dec. 2011

KD KD

Cash in hand and at banks Cash on hand and at banks 287,922 524,412Deposits with Islamic Financial Institutions 2,800,000 2,850,000Equity Total equity 15,650,550 15,332,566Total financial resources Total capital resources 18,738,472 18,706,978

32- Contingent liabilities At the reporting date the company had contingent liabilities in respect of outstanding bank guarantees amounting to KD128,222 (2011: 10,000).

33- Comparative figuresCertain comparative amounts have been reclassified to conform to the presentation of the financial statements for the current year. Such reclassification does not affect the consolidated financial statements of net assets, equity, and operation results for the previous year. Also it does not affect the net decrease in cash in hand and at banks for that year. The reclassification is as follows:

Amounts as reported in the

issued consolidated financial

statements 31 Dec. 2011

Reclassified amounts

Amounts after reclassification

KD KD KDOperational expenses:Commission on rent collection and leasing 688,294 213,968 902,262Maintenance works 203,451 7,519 210,970Security works 142,283 25,692 167,975

247,179

General and administrative expenses:Other employee benefits and allowances 333,507 160,190 173,317Other expenses 283,138 86,989 196,149

247,179


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Our Company Offices

Head Office – Management:

Kuwait, Khaled Ibn Al Waleed Street,Al Dhow Tower, 12th floor.Tel: (965) 229 66500Fax: (965) 229 66530P O B: 29910, Safat 13153 Kuwait.Website: www.ream.com.kw E-mail: [email protected] Technical support: [email protected]

City Office, Salmiya & Maintenance Dept.

Sharq- Al Shwafat Building, Gate 7, Ground, And Mezzanine Floor.Tel: (965) 1882121- 224 16692 - 224 16693Fax: (965) 224 58033 - 22445855

Branch Offices:

Hawally office:

Beirut Street, Monira Commercial Center, Plot 19201, next to Hawally Fire Brigade.Tel: (965) 226 11205-226 61925-226 61971Fax: (965) 226 23974

Al Othman Portfolio Office:

Hawally, Ibn Khaldoun Street.Tel: (965)22647353/4/5Fax:(965) 22610825

Call Center: 1-840-888

• Property Management• Residential Units• Commercial Units• Furnished Apartments• Private Property• Facility Management

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Documents

2012 - REAM | Real Estate Company