|~|Alabbar-at-Davos-200.jpg|~|Emaar Chairman Mohammed Alabbar |~|There’s no easy way to get to Davos, the exclusive ski resort in Switzerland. The flight into Zurich from Dubai International Airport takes a shade over seven hours, but only then does the real trek begin — 161 kilometres of rugged, snow covered roads which lead to the annual base of the World Economic Forum.
One particular man making his annual visit there, however, is unlikely to have noticed the hours ticking away. Emaar chairman, Mohammed Alabbar, has had a lot to think about, plenty to celebrate and even more to contemplate.
The company he runs is now the world’s biggest property group by market capitalisation, worth over US$40 billion. Ten years ago, it didn’t even exist. Profits have soared by 180% in the past year to a staggering US$1.3 billion. Emaar’s projects include the iconic Burj Dubai tower, which will be the world’s tallest building in 2008.
It all sounds too good to be true. And maybe it is. Last Sunday, no sooner had Alabbar entered the final ski-lift into Davos than Dubai Financial Market entered a tailspin. Over four hours, more than US$3 billion had been wiped off the share value. The Davos chill, with temperatures plunging to minus ten Celsius, could be felt in the Dubai desert 2680 miles away.
The biggest culprit? Emaar, whose shares crashed to US$5.44 each — their lowest point in six months. Last summer, they were US$12.8 a shot. The financial community’s reward to Alabbar for delivering record results was to give his shares a hammering, taking the whole market down as a result.
So exactly what is happening at Emaar? Closer analysis of the property giant’s results paint a slightly different picture. Broken down, the fourth quarter of 2005 shows a net profit of US$283.1 million, up 60% on the previous year. However, that figure is actually down 11.9% from the previous three months. Or more to the point, Emaar Properties posted its third consecutive decline in quarterly profit.
Joe Kawkabani, fund manager of Dubai-based investment group Shuaa Capital, is one of many market experts who has been surprisingly coy in recent days, telling Arabian Business: “It’s a bit too sensitive to talk about. It’s bad for the market as there has been a drop in fourth quarter earnings, which the market didn’t take very well. I really don’t want to say any more.”
Kawkabani’s shyness is understandable. He is one of many fund managers who had confidently forecast Emaar’s profits to cross the US$1.4 billion mark in 2005. It didn’t happen. Not even close.
And an even closer examination of Emaar’s figures show that nearly US$100 million of the final quarter profits actually came from Emaar’s sale of Dubai Bank. Strip that out, and the decline in earnings begins to look significant. But Mohamed Alami of Naeed Brokerage says there is nothing to fear: “The shares going down reflect not a concern but an expectation. We were not that worried about it. It’s a minor correction. There is a correctional phase going on and this is it.”
He adds: “I would say that Emaar has performed very well, but not as well as expected. That’s why there has been a negative reaction in the market. In the short term, yes, there is going to be downturn on the share price. But the medium term is still good and long-term profits are just massive — I mean, really massive. Not even close to breaking even.”
Alami believes that Emaar’s share price, approaching the US$5 mark, is as low as it will go, saying: “The price is becoming so attractive that no matter what the profits are everyone buys into it. We are nearly at that value today.”
The official line from Emaar is that 2005 has been a “defining” year. And in many ways, it has. To date, Emaar has handed over 12,800 homes to owners in Dubai and launched more than 50 real estate projects across the region.
The Burj Dubai tower climbed to its twenty-fifth storey in height in January and will continue to average one floor per week. The company signed a partnership with Giorgio Armani S.p.A to build and manage ten Armani hotels and resorts around the world — one of its first hotels will be introduced in Burj Dubai.
Emaar further expanded its influence by rolling out its unique lifestyle models with ventures in Morocco (Amelkis II and Bahia Bay), Syria (Eighth Gate and Damascus Hills) and Egypt (Cairo Heights and Smart Village). Emaar’s regional expansion represents a total investment of more than US$30 billion.
And, arguably, the company’s most significant announcement was the launch of King Abdullah Economic City in December 2005 with an investment of more than US$267 billion. Another US$4 billion has been set aside for projects in India.
This massive rate of expansion, could, however, be the root of the share price fall last week. Some analysts point out that 2005 was the first year when a number of Emaar’s projects were due to have reached completion. The delivery of 12,800 homes is believed to be 20% fewer than expected, implying that construction delays have had an effect. All this at a time of rapidly rising construction costs.
But despite this, most experts believe that the sheer scale of Emaar’s project base and profits is enough to overcome any current blip. Wadah Al Taha, head of research at National Bank of Abu Dhabi, told Reuters last week: “Emaar is the leader in the market and I can assure you that if they continue this strategy of expansion, mainly targeting Saudi Arabia, it will be quite positive. Investors should take this into consideration and not just focus on the profits.”
Another Dubai-based fund manager, who asked not to be named, explains: “On the face of it, the figures are brilliant but nobody is quite sure how many homes have been delivered on time and how many are late. We are hearing rumours. And financial markets thrive on rumours.”
Alabbar himself is unsurprisingly bullish about the prospects for Emaar and the rest of the region’s property market. As his company’s shares were travelling south last week, he was, somewhat ironically, performing in a Davos debate headed ‘When the bubble bursts’.
He shares none of the pessimism of many market watchers, explaining to his audience that property in the MENA region is still a developing market. In addition, the demographics of the region, combined with the recent real increase in income levels, will ensure that there is continued investment in residential property.
“With Arab investors repatriating a significant percentage of capital invested in developed markets, the liquidity levels in the region are at an all-time high. Much of this capital is being channelled into the property market, because the real estate asset class has proved to be a stable investment option with a high return on investment,” he says.
Middle Eastern stock market indices saw an average growth of 80% in 2005. Alabbar’s point is that this is because of the rise in the property market. In other words: it’s all thanks to companies like Emaar.
He is probably right. But then again, there is the small fact that Saudi investors pumped US$8 billion of cash into the UAE stock market last year, and preceded to withdraw US$6.8 billion of it during the past three months. According to market makers at the Dubai Financial Market, a lot of these Saudi investors still hold shares in UAE companies, implying that they have taken a chunk of profit out of their favourite companies. It would appear that many investors believe Emaar has been a great investment for them — and it’s now time to pull out.
But in the long-term, (certainly in the UAE), few experts disagree that Emaar will deliver the goods. It is hard to find a seriously dissenting voice when it comes to either Emaar or Alabbar.
Mohamed Alami of Naeed Brokerage sums up the situation: “Emaar is locally liked. It is a cultural pillar. A lot of the projects though are still a work in progress, and there is a lot of value and revenue yet to come from them. And as for Alabbar, well, the guy is an icon for Emaar. He is a brand in himself.”||**||
Follow us on
