Emaar Properties, the largest developer in the region, has announced profits of Dh612 million (US$166.6m) for the third quarter, down about 7 per cent from the same quarter last year.
The results were lower than analyst estimates, pulled down by higher costs, a lower-than-expected delivery of units in the Burj Khalifa and the Dh75m impairment of one of its associates.
"We believe that the cost of running the hotels and malls is getting higher," said Chet Riley, an analyst at Nomura Securities. "Together with the holding cost of units that haven't been delivered, less Burj Khalifa deliveries and impairments, their profits missed our expectations." While Emaar's revenues were 5 per cent higher for the quarter at Dh2.78 billion, its costs rose by more than double to Dh1.75bn, an income statement shows.
The company did not identify which of its associates declined in value, but analysts said yesterday a 195.6m Saudi riyal (Dh191.5m) loss at its subsidiary Emaar Economic City in Saudi Arabia could account for it.
An even larger issue looming for Emaar is its 45 per cent stake in the troubled mortgage provider Amlak Finance.
Amlak has refused to revalue nearly Dh4bn of property investment and advances paid for unfinished developments, even though prices have dropped by an average of 50 per cent across Dubai and as high as 70 per cent in some areas.
Mr Riley said if Amlak revalued the investments downward by 50 per cent, it would wipe out most of the Dh2.1bn worth of shareholder equity in the company. That could mean a major impairment of Emaar's investment.
Emaar said it had delivered 45 per cent of the units in the Burj Khalifa, the tallest building in the world. Nomura had expected a delivery of about 54 per cent by the end of last month.
Property developers recognise revenue only after delivering finished units to buyers.
Mohamed Alabbar, the chairman of Emaar, said yesterday the results were "a testament to the strength of our diversified growth model".
Last month Emaar raised $500m through a five-year convertible bond it would use to repay short-term debt.