x Abu Dhabi, UAEWednesday 17 January 2018

Results will reflect deep property challenges

Companies that have managed to diversify their business and include large amounts of recurring revenue will post stronger numbers.

Property developers and builders are likely to report third-quarter financial statements that reflect the deep challenges facing the sector, analysts say. 

But those companies that have managed to diversify their business and include large amounts of recurring revenue will post stronger numbers. A consensus of analysts forecasts for Emaar Properties, Arabtec, Aldar Properties and Drake & Scull by Reuters shows combined profits of Dh604.1 million (US$164.47m), with Emaar the only company to show an increase on the same period last year.

For the development companies, the significant change over the past year is the amount of finished property being delivered. Aldar has begun handing over the Al Bandar project at Raha Beach, while Sorouh Real Estate is finishing Sun and Sky Towers on Reem Island and Emaar is passing keys over to buyers in Downtown Burj Khalifa. Chet Riley, an analyst at Nomura Securities, wrote in a report on the property sector that the number of hand overs of finished property and the fate of defaulted units would play an important role in the year ahead. "Operational delivery is a key revenue driver," he said. "Real estate companies are coming to the business end of the development cycle and delivering units to the market. Defaults that get 'put back' into inventory for later resale or leasing still need to be financed and this remains the imminent, looming challenge."

The biggest concern in the market right now is how Aldar will handle its upcoming obligations, Mr Riley said. The developer is expected to report a net loss of about Dh230.9m for the quarter, according to the average of four analysts surveyed by Reuters. Aldar reported a net profit of Dh427.2m for the third quarter last year. Contractors are also facing issues related to the challenging property environment, with increasing provisions for stalled work.

However, the market leaders -Arabtec and Drake & Scull - are making headway in diversifying their exposure to other countries in the region. Arabtec's shares were pushed up this week on news that its long-stalled contract to build the 403-metre-tall Okhta Centre project in St Petersburg is moving ahead, despite community protests. Drake & Scull has started acquiring companies in the region, including two in Saudi Arabia.