Emaar Q1 profits fall 44% as chairman turns to commodities business

Shares in the Dubai real estate giant Emaar fell sharply yesterday on news of a 44 per cent slump in first quarter profits to $114 million with delivery of apartments and villas crashing from 1,300 in the same period a year ago to 270.

The news came a week after Emaar chairman Mohamed Alabbar revealed that he has been spending most of his time creating a privately-owned commodities conglomerate, largely in Africa. Emaar shareholders are hardly going to be impressed.

Commodities play

Given the recent topping out of commodity prices analysts wondered if this might be a repeat of the Emaar purchase of John Laing Homes in the US just before the subprime crisis, a badly timed acquisition that cost $1 billion in write-offs. But without more information about the new company structure and debt, that would be unfair.

Mr Alabbar has called in consultants to examine future strategy at Emaar, the classic response for a management that does not really know what to do next. Emaar does have a problem because its profitable project build-out in Dubai is pretty much finished, while its many overseas investments and joint ventures are at best moving forward slowly.

It is hardly an ideal time to be delivering a massive project like the Eighth Gate in Damascus or in Egypt where the group has projects in Uptown Cairo and Marassi. Indeed, many regional businesses have suffered from all kinds of delays and setbacks this year because of the Arab Uprisings.

Elsewhere in India, where Emaar is reckoned to be the largest foreign landowner, there is still no sign of the initial public offering to activate its joint venture. There has also been talk of a sale of the Indian venture but nothing concrete has emerged.

Overseas revenues

It is not all bad news from overseas. Emaar expects to start generating revenues from India, Saudi Arabia, Jordan, Pakistan and Turkey this year. The idea has always been to replicate the successful Dubai development model in other countries.

That is easier said than done. Emaar has benefited from being partly government-owned in Dubai and immense first-mover advantage in this once dynamic real estate market. Now that Dubai real estate has lost its mojo Emaar is forced to rely on its diversification abroad, apart from its strong hospitality and retail revenues in Dubai.

In theory building up a business overseas while Dubai was booming was a very sensible approach, because any developer knows that real estate is prone to cycles. But delivering on that strategy may now test the nerves of shareholders.

They will want to be reassured that Mr Alabbar still has his heart in the business he set up from a $3 billion IPO in 1997 with the active support of the Dubai Government. There are probably some difficult and bold decisions to be made in the near future, and Mr Alabbar is still best qualified to make them.