x Abu Dhabi, UAEFriday 21 July 2017

Dubai developer Emaar weighs up retail spin-off

Dubai developer said the current environment makes it a good time to consider spinning off its retail business into a separate company to increase investor returns.

Emaar is the UAE’s largest publicly traded developer.  Duncan Chard for the National
Emaar is the UAE’s largest publicly traded developer. Duncan Chard for the National

Emaar Properties 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,” the 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 per cent amid a recovery in Dubai that followed gains in hotel visitors and shopping tourists.

Emaar, the UAE’s largest publicly traded developer, has considered spinning off the retail businesses before, Mr Alabbar said in the interview. He did not elaborate.

“The retail business is the crown jewel of Emaar’s recurring portfolio,” said Taher Safieddine, an analyst at Shuaa Capital 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 centres, is expected to generate Dh3.2 billion in revenue by the end of the year, Mr Safieddine said. The business accounted for 32 per cent of Emaar’s third-quarter revenue, he added.

A 50-50 split between recurring revenue and so-called property sales and trading would be a “good number”, Mr Alabbar said. “I hope in the coming, maybe three years, we can achieve that,” he said.

The value of Emaar’s property sales is expected to exceed US$2.5 billion this year and remain at a similar level in 2014, Mr Alabbar said.

Recurring revenue from malls, hotels and leisure accounted for 44 per cent of Emaar’s total income of Dh3.3bn 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,”Mr Safieddine said. A spin-off of the retail unit would increase the business’s valuation, he added. 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 in which prices dropped 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,” Mr Alabbar said. Dubai’s Government may apply more regulations “to minimise the pain in case of a crisis”, he said.