Developer 'in a pretty strong position' and aims to help its sub-developers to pay their bills.
Sorouh on track despite profit drop
Sorouh Real Estate, the second-largest property developer in Abu Dhabi, has reported a 76 per cent drop in third-quarter profit as it was hit by more late payments from struggling sub-developers. Net income fell to Dh187.2 million ($54.8m), from Dh765.2m in the same quarter last year, but executives said the company was well positioned to steer through the next year.
Profit grew 26 per cent on the previous quarter, driven by the handover of 367 villas in the Golf Gardens development in the capital, as well as leasing income from nearly all of its 886 rental units there, said Richard Amos, the newly appointed chief financial officer of Sorouh. "It's a totally different revenue mix for us this quarter," Mr Amos said. "We are at the beginning of a delivery of an exciting pipeline of projects.
"We feel we're in a pretty strong position." The company had Dh4 billion in cash and "almost no debt on the balance sheet", he said. Still, the lack of bank financing for home buyers and sub-developers hit the company's revenues as the proportion of late payments advanced to 10 per cent of its total payments, up from 8 per cent in the previous quarter. The company was "not unduly worried" about these late payments because most of its debtors had already paid between 50 per cent and 60 per cent of the amount owed to the company, lessening the likelihood of default.
Sorouh said it did not intend to repossess land sold to sub-developers that were late on their payments, instead opting to create a working group aimed at helping them to obtain financing and make progress on their projects. "I think our efforts are now more in terms of assisting the sub-developers getting their approvals and matching them with skills they need or financing," Mr Amos said. "That is the first step."
Chet Riley, an analyst at Nomura Securities, said Sorouh demonstrated it had a "sensibly managed development portfolio with quite a strong balance sheet". But questions remain over how the company will sustain cash flow over the next six months, with few properties due for completion. Mr Riley said the rising sense of recovery in the market over the past few months was a "false dawn" for the property sector.
"Banks aren't ready to take the real estate risk," he said. "Unless you are a Tier 1 or A grade developer, then you can forget about getting finance. That's where the casualties are going to come, the sub-developers. "Master developers like Aldar and Sorouh have a key role to play in helping these guys. Ultimately, they have to do it to protect their own profits." Sorouh expects its next handover of property by the middle of next year when the Sun and Sky Towers on Reem Island are scheduled to start receiving occupants.
Gurjit Singh, the chief operating officer of Sorouh, said the company had already leased out about 55 per cent of a podium connecting the two buildings. Sorouh said it had been cutting costs since late last year by reducing spending on marketing and advertising, renegotiating construction contracts and laying off staff. Sorouh has reduced prices for buyers at two large projects - Alghadeer and the Gate District - by as much as 35 per cent and extended payment plans to encourage them to keep paying.