Tightrope walkers

CW looks at the economic tightrope the region continues to balance on

Aldar's financial health is reflected in its ongoing developments like Al Muneera at Al Raha Beach.
Aldar's financial health is reflected in its ongoing developments like Al Muneera at Al Raha Beach.

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Emaar Properties is clearly back in business with the announcement that it had recorded a net operating profit of $826million for 2010, a figure 31% higher than the $633million of 2009.

Annual revenue for 2010 was $3.308billion, 44% higher than the 2009 figure of $2.29billion. In a statement on its results, Emaar described 2010 “as a landmark year that highlighted the company’s commitment to delivery of projects and creation of prime real-estate assets.”

Net operating profit during the fourth quarter (September to December) 2010 was $188million, which is similar to the third quarter (July to September) 2010 net operating profit of $187million. Revenue for the last three months of 2010 was $1.043billion, 38% higher than the Q3 2010 revenue of $757million.

The company’s shopping malls and retail and hospitality subsidiaries contributed significantly to the year’s revenues, with about 24% of the total revenues from these two business segments.

Shopping malls and retail revenue was $517million, while hospitality revenue was $272million.

In terms of construction, Emaar handed over 3,500 units in the UAE in 2010, including over 770 units in the iconic Burj Khalifa in Dubai, the world’s tallest building, and over 420 units in international markets.

The statement added that, highlighting the strong fundamentals of the company, Emaar successfully executed two public offerings, including a convertible bond of $500million in September 2010 and a $500million Sukuk in January 2011.

Both offerings were the first by a corporate entity out of the region post the global financial crisis, and received overwhelming response from the investors.

“In a year that was marked by cautious optimism, timely delivery of property and consolidation of core businesses, Emaar Properties took bold initiatives that have a far-reaching potential in driving sustained returns for our stakeholders.

Opening 2010 on a positive note with the grand inauguration of Burj Khalifa, Emaar highlighted the company’s ability to undertake and deliver complex projects to world-class standards,” said Emaar Properties PJSC chairman Mohamed Alabbar.

Establishing the tower as a global icon, as rated by the Council on Tall Buildings & Urban Habitat, Emaar had also emphasised the positioning of the 500 acre Downtown area as the most dynamic ongoing developmental area in Dubai, said the statement.

“Dubai, having entered its next phase of growth, will continue to be a key market, where we will continue delivering a superior lifestyle experience to our customers. We see 2011 to be a signature year for Emaar, with significant revenue streams from international operations kicking in,” said Alabbar.

In addition to the handover of homes in Jeddah Gate and Al Khobar Lakes in Saudi Arabia by Emaar Middle East, Emaar Syria will set a new milestone with the commercial centre in its master-planned community, The Eighth Gate.

In Turkey, Emaar has already handed over homes in the first phase of its Tuscan Valley project, while Emaar Turkey, a fully-owned subsidiary, is progressing with the second phase.

Emaar Turkey is also forging ahead with the New Istanbul project, which will also feature a large shopping mall. In Egypt, Emaar Misr will welcome the first residents of Uptown Cairo and Marassi.

Emaar’s sterling results were in stark contrast to Aldar Properties’ full-year results for 2010. Abu Dhabi’s leading property developer reported a loss of $3.44billion, before impairments and fair value losses, it reported.

With developments of $5.17million under construction at year end, Aldar stated that 2010 saw continued project delivery.

Al Bandar, the first residential development within Al Raha Beach, was handed over to residents in Q3, while Al Muneera and Al Zeina are expected to be completed this year.

HQ, the company’s international grade-A office building, was completed in Q4, while at Central Market the Souk opened in Q3. At Yas Island, the Yas Links golf course opened in Q1, while the iconic Ferrari World opened in November.

“Despite the challenging market conditions that prevailed in 2010, Aldar forged ahead with its commitment to delivering high-quality developments and infrastructure that will have a positive long-term impact for Abu Dhabi,” said Aldar chairman Ahmed Al Sayegh.

Thus, despite the continuation of several key projects, the steep drop in regional property values had a marked impact on Aldar’s results.

A write-down in the value of its assets to market prices, which served to compound the loss, was aimed “to reflect the adverse conditions in the real-estate market in the UAE.”

The company sought to bolster its financial footing by restructuring its debts, which also weighed on the half-year results up to June 2010. In December, the company sold its Ferrari World themed amusement park.

Aldar’s financial health is of great concern to the construction industry, particularly in Abu Dhabi, where it continues to be a major driver of projects.

The restructuring of Aldar would not affect its relationship with MEP contractor Voltas, which has executed major Aldar projects such as Ferrari World on Yas Island, and is currently working on the Central Market development.

“They have been very positively supporting us. There is a great relationship. We consider Aldar as one of our key customers. We are certain that they will restructure themselves well; they have the government supporting them. It is a great model, and we look forward to doing a lot more work with Aldar,” said Voltas executive VP and COO Shaukat Ali Mir.

“Aldar has just announced other Yas Island projects, such as a shopping mall and waterpark, and we look forward to bidding on all these projects as well. The tenders are all due to be submitted by February, so the award should take place by April or May.

“Aldar’s current restructuring will not hamper in any way the plans they have for their new developments. They have huge support from the government. Most of these real-estate companies, be they private or public, have all been affected by the downturn.

I suppose it is a question of reorganisation. Aldar is one of the key real-estate companies in Abu Dhabi, and I think they will survive and do very well, in my personal opinion,” said Mir.

It is interesting how the economic vagaries generated by the financial crisis have affected Emaar and Aldar respectively.

Dubai saw a major contraction in its construction market, which had a significant impact on developers such as Nakheel, while the Abu Dhabi market was seen as being more lucrative and sustainable.

Even in the face of renewed construction activity, the continuing decline in property values has proved a major impediment to cash flow and hence ongoing development.

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