Emaar Profit Surges as Biggest Dubai Developer Rides Rebound

Emaar Properties PJSC, the skyscraper builder that accounts for about a fifth of Dubai’s main stock index, reported a 50 percent increase in third-quarter profit as signs mount that the desert sheikhdom’s property crisis is receding.

Net income rose to 581 million dirhams ($158 million), or 10 fils a share, from 387 million dirhams, or 6 fils, a year earlier, as recurring income from assets like shopping malls climbed, the Dubai-based company said in a statement today. The average of six analyst estimates compiled by Bloomberg was for earnings of 389 million dirhams.

Emaar, builder of the world’s tallest tower and the biggest shopping mall by floor space, was at the center of Dubai’s real-estate driven rise and fall at the end of the last decade. Now the emirate’s biggest developer is seeing rising profits as a surge in home prices followed a rebound in hotel visitors and shopping tourists.

“These results are strong and should support the stock’s performance,” Taher Safieddine, an analyst at Shuaa Capital PSC with a buy recommendation on the stock and a price estimate of 7.01 dirhams, said in a note to clients. Emaar’s main real estate markets, residential, hospitality and retail, “continue to build on the healthy recovery seen in recent months.”

Home values, which climbed at the fastest pace in the world in the second quarter, stoked concern that the market may be overheating, prompting the emirate’s government to double property transaction fees as it tries to rein in the speculators.

Steadier Growth

Property price increases will slow down over the next 12 months after the return of speculators sparked “unsustainable” gains, Jones Lang LaSalle Inc. said on Oct. 3. Earlier this week, Goldman Sachs Group Inc. said concerns that a property bubble is forming are exaggerated as new regulations focused on curbing speculation and an increasing supply will keep values down.

Construction driven by borrowing and speculation made Dubai into the world’s fastest-growing property market in the years leading up to 2008. The credit crisis hit near the end of 2008, causing home prices to fall by as much as 65 percent and driving the emirate to the brink of bankruptcy.

While Emaar’s profit tumbled in the two years through 2009, it avoided net losses that many of its peers suffered. That’s partly because some of its biggest projects, including the Dubai Mall and the Burj Khalifa skyscraper, were finished or near completion when the market collapsed.

Recovery Incomplete

Real estate values are still 36 percent below their 2008 peak even after rising by about a third from a low in the second quarter of 2011, Goldman Sachs said.

Emaar said third-quarter revenue climbed 43 percent to 2.35 billion dirhams from a year earlier. The cost of sales rose 48 percent to 1.2 billion dirhams.

The bulk of the 1.1 billion dirhams in property sales in the third quarter may have come from the sale of completed inventory in Dubai, Shuaa said.

“We do not rule out some land sales that might have taken place as market activity picks up and Emaar launches new projects” including Dubai Hills, where land plots were offered to investors, Safieddine said.

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 after the company shifted its focus away from building and selling homes. International operations contributed 10 percent of the total, it said. Emaar has businesses in countries including Egypt, Turkey and India.

Malls, Hotels

Revenue from malls and hotels climbed 22 percent in the third quarter to 1.03 billion dirhams, Shuaa estimated.

Emaar is benefiting from rising rental income. Revenue from malls climbed 26 percent in the third quarter from a year earlier, while revenue from hotels including Armani Hotels & Resorts, grew 14 percent, Shuaa estimated.

The earnings were published after the close of trading in Dubai. Emaar has jumped 63 percent this year compared with a 79 percent surge for the Dubai Financial Market General Index. Emaar closed 0.3 percent higher today at 6.1 dirhams.

Before it's here, it's on the Bloomberg Terminal.