Emaar Properties PJSC said the “current environment” makes it a good time for the Dubai property developer to consider spinning off its retail business into a separate company to increase investor returns.
“These units are doing extremely well. We probably in the future will have to look at it again and see if we should entertain that and what that would bring in value to our shareholders,” Chairman Mohamed Alabbar said in a Bloomberg Television interview yesterday. “I haven’t taken any decision yet.”
Emaar, owner of the world’s biggest shopping mall by floor space, relied on revenue from its malls and hotels for growth when the 2008 collapse of Dubai’s property market caused demand for homes and offices to evaporate. The developer’s third-quarter profit surged 50 percent amid a recovery in Dubai that followed gains in hotel visitors and shopping tourists.
Emaar, the United Arab Emirates’ largest publicly traded developer, has considered spinning off the retail businesses before, Alabbar said in the interview. He didn’t elaborate.
“The retail business is the crown jewel of Emaar’s recurring portfolio,” said Taher Safieddine, an analyst at Shuaa Capital PSC with a buy rating on the stock. “It’s a high-margin business and a cash cow.”
Emaar’s retail business, which includes large malls and community shopping centers, is expected to generate 3.2 billion dirhams ($871 million) in revenue by the end of the year, Safieddine said. The business accounted for 32 percent of Emaar’s third-quarter revenue, he said.
A 50-50 split between recurring revenue and so-called property sales and trading would be a “good number,” Alabbar said. “I hope in the coming, maybe three years, we can achieve that,” he said.
The value of Emaar’s property sales are expected to exceed $2.5 billion this year and remain at a similar level in 2014, Alabbar said.
Recurring revenue from malls, hotels and leisure accounted for 44 percent of Emaar’s total income of 3.3 billion dirhams in the first nine months of this year.
“The value of the retail business remains subdued when mixed with property sales and the hospitality businesses,” Shuaa’s Safieddine said. A spin-off of the retail unit would increase the business’s valuation, he said. Retail stocks are less volatile and therefore more attractive to investors in the region than other types of shares.
Property sales in Dubai are recovering after almost five years of stagnant values following a property crash that saw prices drop by about two-thirds. Home prices surged at the highest pace in the world in the second quarter, prompting Dubai’s government to double property-transfer fees and the central bank to impose limits on mortgage lending.
“Prices are reasonable” and supply and demand will balance out “no doubt,” Emaar’s chairman said. Dubai’s government may apply more regulations “to minimize the pain in case of a crisis,” he said.
Emaar doesn’t need to raise any new funding now, Alabbar said. The developer “stretched” some of its loans over a longer period of time and doesn’t have any need to restructure any debt at this time, the chairman said.
The developer has 9.11 billion dirhams of debt, with 1.84 billion dirhams coming due in 2015, data compiled by Bloomberg shows.