Emaar doubles provisions to cover asset writedowns

Emaar Properties, the largest property developer in the country, saw its profits drop more than 62 per cent in the fourth quarter after two companies it owns stakes in wrote down the value of their assets.

Emaar Properties, the largest developer in the region, has reported earnings that are worse than expected after booking Dh417 million (US$113.5m) in provisions for the fourth quarter of last year.

Fourth-quarter profits fell by 62 per cent to Dh274m compared with the same period in 2009 after two partly owned companies wrote down the value of their assets and costs rose.

The company more than doubled provisions compared with the same period in 2009, after Amlak Finance and Dubai Bank, both affiliated companies, wrote down the value of their assets, an Emaar spokesman said.

"The provisions primarily relate to provisions made by both these entities in respect of their assets," the spokesman said.

Amlak, which was once the largest lender to homebuyers in the UAE but stopped issuing loans two years ago, had until now refused to revalue almost Dh4 billion of property investments and advance payments on unfinished developments. Emaar owns a 66 per cent stake in the company.

Emaar was also dealing with the rising cost of doing business, an income statement published yesterday shows. While its revenues increased by 28 per cent to Dh3.8bn in the final three months of last year from Dh2.98bn in the same period in 2009, its cost of sales rose by 69 per cent to Dh2.6bn.

Chet Riley, an analyst at Nomura Securities, said Emaar was probably facing a combination of holding costs for undelivered units in its projects and increased operating costs. Even more writedowns were likely to come in the first part of this year.

"We look at this as impair in 2010 and repair in 2011," Mr Riley said. "Especially if you consider that most of their revenue came out of Dubai, this is a fairly good result."

Emaar has emerged as one of the healthiest property developers in the UAE because of its strong recurring revenues from retail, hotels and malls. About a quarter of its revenues last year were from these three categories, the company said.

"In a year that was marked by cautious optimism, timely delivery of property and consolidation of core businesses, Emaar Properties took bold initiatives that have a far-reaching potential in driving sustained returns for our stakeholders," said Mohamed Alabbar, the chairman of Emaar.

It reported net profits of Dh2.4bn for last year, compared with Dh327m in 2009 when it wrote off huge investments in a US property company, John Laing Homes.

Emaar has also been raising new finance in recent months, with the issuance of a convertible bond worth $500m in September and a $500m sukuk last month.

"Both offerings were the first by a corporate entity out of the region post the global financial crisis and received overwhelming response from the investors," it said.

The new funds have been used in large part to convert short-term debt to debt with a longer maturity.