Dubai’s Emaar Said to Consider Spinning Off Malls Unit
Emaar Properties PJSC (EMAAR), the developer that makes up almost a quarter of Dubai’s benchmark stock index, is considering spinning off its malls unit and Turkish business as it looks for ways to boost shareholder returns, according to two people briefed on the company’s internal discussions.
The builder of the Dubai Mall, the world’s largest by area, would list its shopping-center business on the emirate’s exchange when market conditions are favorable, the people said, asking not to be identified because the talks are private. The Turkish unit probably would be listed in Istanbul, they said.
Emaar has increasingly relied on revenue from malls and hotels after the collapse of Dubai’s property market in 2008 caused demand for homes and offices to evaporate. The developer will build more than 1,000 homes in Istanbul and also has operations in at least 12 countries including China, India, Indonesia and Egypt.
Emaar has no immediate plans to list the units, according to a spokesperson who asked not to be named, citing company policy. Chief Financial Officer Amit Jain declined to comment when reached on his mobile phone.
“The retail business is very stable for Emaar, while the property sales business is lumpy by nature,” Shuaa Capital analyst Asjad Yahya said by telephone. “As a result, the retail and hospitality businesses are effectively being priced at lower multiples than their peers,” said Yahya, who has a buy rating on the stock.
If these businesses are listed separately, investors would be able to value them in comparison with similar businesses, Yahya said. “That can potentially bring significant value,” he said.
Emaar’s shares, which make up 22.3 percent of the Dubai Financial Market General Index (DFMGI), climbed 1.5 percent to 4.13 dirhams and were trading at 4.09 dirhams as of 12:47 p.m. in Dubai. The shares have gained 69 percent in the last 12 months, raising the company’s market value to 24.8 billion dirhams ($6.75 billion). The stock was valued at almost 15 dirhams at the end of 2007. Dubai’s government is the largest shareholder in the company with a 31 percent stake, data compiled by Bloomberg show.
Spinning off the malls “could improve visibility on Emaar’s operations and shield its attractive investment properties portfolio from risks inherent in the international development business,” said Jan Pawel Hasman, a Cairo-based analyst at EFG-Hermes Holding SAE. “Nonetheless, the extent of benefits for shareholders will also depend on the final valuation of such a spinoff.”
In December, Emaar obtained a $500 million loan from a group of banks to develop its second Turkish project, which includes a hotel and one of the city’s largest malls. The company’s first development, Tuscan Valley, includes 540 homes, according to the company’s website.
“Listing companies such as Emaar’s unit in Turkey on local stock exchanges is a good strategy as it would make it easier for those units to tap funding locally in both equity and debt markets,” Shuaa’s Yahya said. Emaar typically raises funding in the same markets where the projects are planned, he said.
The company has 13.5 billion dirhams of debt, with 2.57 billion dirhams of it coming due in 2014, according to data compiled by Bloomberg.
In addition to Dubai Mall, Emaar’s retail assets include Dubai Marina Mall, Gold & Diamond Park, Souk Al Bahar as well as several retail outlets in its housing developments such as the Marina Walk, Arabian Ranches, The Greens, Emirates Hills and Downtown Dubai. The company is also building Egypt’s largest mall in Cairo, according to its website. Malls and hotels contributed as much as 51 percent of the company’s income in the three quarters through September.
The Address, Emaar’s hotel management company, operates five hotels owned by the Dubai-based parent company in the city. Hotel occupancy rates in the Dubai averaged 75 percent in 2012, among the highest in the world, after conflicts elsewhere in the Middle East and North Africa drove more Gulf tourists to the emirate, according to STR Global.
Dubai’s economy is headed for its biggest expansion in five years, driven by a 16 percent gain in the hotel and restaurant industries. Gross domestic product increased by 4.1 percent in the first half of 2012, putting the emirate on track to reach the government’s forecast of 5 percent for the year, the Dubai Statistics Center said in November.
Emaar has delayed the opening of hotels in France and Indonesia, Hotelier Middle East reported in February, citing an unidentified Emaar spokesperson. The Address Retreat Marassi Golf & Spa, The Address Uptown Cairo and The Address Jnan Amar Polo Retreat in Marrakech are among projects Emaar delayed, the magazine said.
The United Arab Emirates’ biggest developer, which also has a partnership with Italian fashion designer Giorgio Armani, opened an Armani-branded hotel in Dubai and another in Milan. In 2005, Emaar secured the right to build at least 10 Armani hotels and resorts in cities including Paris, New York, Tokyo and Shanghai.
The company in 2008 abandoned a plan to spin off its Emaar MGF Land Ltd. (EMGF) unit in India, the builder of the Commonwealth Games Village in the country, after cutting the offer price as global equity markets slumped.
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