Emaar Properties took a Dh172 million writedown on its investment in Dubai Bank.
Hit by writedowns, Emaar sees profits fall 69%
Emaar Properties, Dubai's largest developer, reported a 69 per cent drop in profit for the second quarter as it took a Dh172 million writedown on its investment in Dubai Bank.
The company yesterday posted a profit of Dh250m (US$68m) for the quarter, compared with Dh802m for the same period last year. Total revenue for the quarter was Dh2.03 billion, a 23 per cent decrease on a year earlier.
Emaar's cash flow was aided by the continued delivery of apartments in Burj Khalifa, the world's tallest tower, and space in the Boulevard Plaza commercial project in downtown Dubai. Emaar also started delivering villas in the Umm Al Qawain Marina project.
But the company handed over only 244 units in the second quarter, compared with 612 in the second quarter last year, following Burj Khalifa's opening in January.
The Dh172m impairment on the stake in Dubai Bank was expected this year, according to analysts. The bank was taken over by the Government, which promised to inject cash into the Islamic lender.
Emaar owned a 30 per cent stake in the bank. The other 70 per cent was owned by the Dubai Banking Group, a division of Dubai Holding.
While the property business slowed in the second quarter, the company reported a 24 per cent increase in revenue from its rental and hospitality businesses compared with the same period last year.
The retail sector also exhibited strength, with visitors to Dubai Mall increasing to 26.2 million in the first half of this year compared with 23.7 million in the same period last year.
The rental and hospitality businesses now account for 41 per cent of the company's total revenue.
This "should provide a comfort base to investors", said Chet Riley, an analyst with Nomura Securities.
"They've started developing a relatively strong business model and that should help subsidise the development business."
Gross margins "increased significantly" in the first half of the year compared with last year, Emaar said.
Emaar was particularly hard hit by the downturn in the Dubai property market, with prices falling as much 50 per cent since 2008. The company has recently moved to diversify in other markets, including large master-planned developments in Egypt, Syria and Morocco.
But those projects have produced little revenue and several projects have stalled.
"The bulk of the [development] business going forward is tied up in overseas development," Mr Riley said. "By their own admission it has been problematic."
Earlier this year Emaar said it was establishing a "core management team" to develop a five-year "strategic action plan" for the company.
The focus is on "identifying and strengthening our operations by taking into account the current social, economic and political changes across all our key markets", Mohamed Alabbar, the chairman of Emaar, said yesterday.
"By repositioning the company with greater emphasis on its growth businesses and markets, Emaar is setting the pace for a successful 2011."