Property shares buffeted by results and a departure

The surprise departure of Aldar Properties' chief executive is not the only disconcerting news for the company.

The surprise departure of Aldar Properties' chief executive was not the only disconcerting news for the company yesterday.

Sorouh Real Estate, the second-biggest developer in Abu Dhabi behind Aldar, reported sluggish results, raising questions about Aldar's third-quarter earnings and the health of the Abu Dhabi property sector in general. Sorouh reported a net profit of Dh63 million in the third quarter, falling by 66 per cent against the same period last year.

At first glance, the figures show marked improvement against the second quarter this year - an increase of 215 per cent, which the company attributed to a plot sale, rental income from its investment portfolio, and construction contracts. But Sorouh missed analysts' consensus of Dh81m by a considerable margin.

After Sorouh's earnings were released, property stocks fell by 1.2 per cent on the Abu Dhabi Securities Exchange General Index. Aldar lost 0.8 per cent to Dh2.59 and Sorouh slipped 2.2 per cent to Dh1.75.

Sorouh is one of only two publicly-traded property developers based in Abu Dhabi. Aldar is yet to publish its results but analysts on average estimate the developer will post a net loss for the third quarter. Aldar's chief executive John Bullough stepped down yesterday. While the company said Mr Bullough's exit was "long planned", the abrupt disclosure is sure to concern some investors. From a valuation perspective, Sorouh is currently trading at price-to-book value of 0.73 times, the same level as Dubai's Emaar Properties. Aldar, by contrast, is trading at 0.84 times after its recent rally. The stock is up 5.2 per cent in the past two weeks.

"Last year, there was a clear valuation mismatch between Abu Dhabi and Dubai," said Chet Riley, an analyst at Nomura in Dubai. "We are seeing that normalise because most of the bad news has been priced into Dubai property stocks - but some of the bad news is yet to come to Abu Dhabi."

Sorouh's results also indicate developers are being forced to settle for lower margins as they reduce prices following the property crash last year. Property prices in Abu Dhabi have fallen by more than 30 per cent in some areas from their peak in mid 2008, according to Jones Lang LaSalle.