Emaar and Aldar results make market hold its breath

Second-quarter earnings for property companies such as Emaar and Sorouh are expected to be released as early as this week.

Those who love a good mystery should stay tuned for the second-quarter earnings of the UAE property companies. Among the analysts who follow the sector there is a wide range of forecasts, thanks to a combination of choppy land sales, one-off transactions and uncertainty of how aggressively the developers will provision against defaults.

"We view property developers as 'earnings black boxes' and subject to significant forecasting risk," said Chet Riley, a property analyst at the Japanese firm Nomura Securities. That might be another way of saying your guess is as good as ours. Second-quarter earnings are expected as early as this week. There is broad agreement that they will be better than last quarter, but still lag last year's results.

Most analysts think Emaar Properties, the UAE's largest listed developer, will post strong numbers. The consensus among analysts from EFG-Hermes, Nomura, UBS and Shuaa is for a net profit of Dh958 million (US$260.8m), but UBS is much less bullish than the rest. Saud Masud, the property analyst for the Swiss bank, projects net profit of Dh404m, citing potential challenges related to Emaar's international portfolio.

The performance of the other property firms is increasingly important to gauge the health of the overall property market, he said. "I don't think it really matters if Emaar alone does well if the rest don't. It all needs to relate to the market story of how other developers, contractors and banks are doing," said Mr Masud. Analysts also have a wide span of numbers for Abu Dhabi's second-biggest property developer, Sorouh Real Estate, with a consensus forecast from analysts for net profit of Dh93m. According to Mr Riley, Sorouh is expected to announce an "income-smoothing transaction", as it has done in recent quarters.

Aldar Properties, Abu Dhabi's biggest developer, is expected to post a net loss of Dh141m, according to the analysts' consensus. "We assumed Aldar made no land sales during [the second quarter], that handovers have yet to commence in Al Bandar and Al Gurm and that there were no fair value gains on investment portfolio," said Roy Cherry, an analyst at Shuaa Capital in Dubai. Smaller developers are also expected to be under pressure. Many are in need of revenues because it is more difficult for them to get financing like the bigger players. The shares of the smaller firms - including RAK Properties, Deyaar Development and Union Properties - are already trading well below their nominal share value of Dh1.

"Cash available is important for smaller developers; it is a genuine crisis because many of them may not be able to have access to capital or equity and many of them need to queue up for cash payments. The pressure is enormous; they need to find a way to find financing or go bust," said Mr Masud. Mr Riley is projecting RAK Properties will report a net profit of Dh66m for the latest quarter, a drop of 10 per cent from the same period last year. He assumed it would realise revenue from the handover of some villas in the Mina Al Arab district in the second quarter. He sees a net loss for Deyaar of Dh15m.

For Union Properties, the consensus among analysts was for a net profit of Dh33m, with the estimates ranging from Dh7m to Dh83m. While the analysts may differ on their forecasts, they largely agree there may be room for optimism for the year after Ramadan, as many of the issues hanging over the property sector start to be resolved. [e-mail]