Sorouh profit up despite decline in rental prices

Abu Dhabi developer Sorouh Real Estate saw profit jump in third quarter, but missed analysts expectations.

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Sorouh Real Estate's profit jumped 13 per cent in the third quarter, despite a Dh50.7 million (US$13.8m) provision for the decreased value of its investment property.

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The company generated Dh67.3m in net profit for the quarter, compared with Dh59.2m in the same period a year ago, aided by handovers in the Sun and Sky Towers, the company's flagship project on Reem Island.

But the Abu Dhabi developer missed the consensus forecasts of analysts, who were expecting profits closer to Dh131m, according to a Bloomberg News survey.

The big difference was the Dh50.7m provision, which reflected the decline in Abu Dhabi rental prices. Residential rents have fallen more than 40 per cent since the peak reached in 2008, according to analysts.

"We took these provisions as a prudent thing to do in a market where rents continue to fall," said Richard Amos, Sorouh's chief financial officer.

Sorouh generated Dh890m in the quarter, compared with Dh388m in the same period last year. And it continues to bolster its recurring revenue income, including the handover of leased apartments in Al Murjan, its tower in the Danet complex, which was completed in July.

But the market has been wary of UAE property companies. The share price closed at Dh1.01 yesterday, up from a low of 89 fils on October 18, but far off its high of Dh1.46 on May 4.

The third-quarter results were a "broadbased miss due to slower deliveries and provisions", said Saud Masud, a senior analyst with Rasmala Investment Bank.

The numbers are also a sign the "Abu Dhabi market is remaining under pressure", he said.

Sorouh expects to hand over another 200 apartments in Sun and Sky Towers, which should boost revenue and profits in the fourth quarter, Mr Amos said.

But analysts will be closely watching the company's margins, which have been hovering at less than 20 per cent.

"We continue to find margins relatively weak, particularly considering the bulk of the product currently recognised was sold at prices realised in 2006 and 2008 at a substantial premium to where they stand today," said Mohammad Kamal, an analyst for Arqaam Capital.