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Sorouh Profit Climbs on Higher Revenue, Drop in Costs

Sorouh Real Estate PJSC, Abu Dhabi’s second-biggest developer by market value, reported a 14 percent increase in third-quarter profit as the company cut costs and generated more revenue.

Net income rose to 67.3 million dirhams ($17 million), or 3 fils a share, from 59.3 million dirhams, or 2 fils, a year earlier, Sorouh said in a statement today.

Sorouh expects to hand over the keys to 7,000 homes over the next four years, excluding government housing, Chief Financial Officer Richard Amos said in April. Developers in the United Arab Emirates, whose capital is Abu Dhabi, are generally paid in installments as construction progresses on homes. They receive a final sum when the property is delivered to its buyer.

“We continue to see pick-up in sales and leasing demand during the period, partly driven by our innovative lease-to-own and rent-to-own products,” Managing Director Abubaker Seddiq Al Khouri said in the statement. Sorouh handed over around 340 units to customers during the period, he said.

Sorouh rose 1 percent at the close of trading in Abu Dhabi, extending yesterday’s 6.4 percent gain. The shares have declined 38 percent this year, giving the company a market value of 2.63 billion dirhams.

Third-quarter revenue rose to 890.5 million dirhams from 387.8 million dirhams a year earlier. Expenses declined 32 percent to 44.7 million dirhams.

Margins to Widen

“We’re expecting to hand over more than 200 units in the fourth quarter and we are expecting the margins to be better, so the profits will be strong,” Amos said on a conference call today.

The earnings missed the average estimate of three analysts for a profit of 131 million dirhams, according to data compiled by Bloomberg. This was caused by unexpected impairments to properties at 22.5 million dirhams and impairments to goodwill of a similar amount, analyst Jan Pawel Hasman at EFG-Hermes said in a note to investors today.

“The impairments most likely reflect the bearish sentiment on prevailing market trends in rental yields and property prices in Abu Dhabi in anticipation of the upcoming supply, which is likely to put further pressure on profitability,” said Hasman.

Property values in Abu Dhabi have declined 45 percent since the market’s peak in mid-2008 after banks curtailed lending and demand waned.

To contact the reporters on this story: Tamara Walid in Dubai at twalid@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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