Sorouh to focus on revenues from rental
Published: Saturday, August 21, 2010 with 0 Comments
By Angela Giuffrida www.thenational.ae
Sorouh Real Estate is pinning its hopes on a rise in revenues from rental properties over the next two years after posting a second-quarter profit drop of almost 80 per cent.
Abu Dhabi’s second-largest developer by market value said yesterday net income for the quarter dropped to Dh30.8 million (US$8.3m) from Dh148.3m in the same period last year, missing analysts’ forecasts.
The decline was mainly due to a drop in land sales.
Sorouh is now counting on the delivery of homes at Sun and Sky Towers, on Al Reem Island, and Al Rayyana to boost rental income to Dh400m from Dh170m by the end of 2012.
Half of that will come from the completion of 1,500 units at Al Rayyana near Khalifa City at the end of next year, said Richard Amos, the chief financial officer of Sorouh. The company now leases about 900 properties.
“We’re constantly adding to the portfolio as we grow as a business and leasing revenue will continue to grow,” said Mr Amos.
Sorouh is already in discussions with an anchor tenant who will lease 25 per cent of the units at Al Rayyana for more than 10 years, said Gurjit Singh, the chief operating officer at Sorouh. “So that will give us a very strong income flow,” Mr Singh said.
Meanwhile, 1,150 apartments at Sun and Sky Towers will be delivered by the second quarter of next year.
About 80 per cent of those units have already been sold, which will boost Sorouh’s income once final instalments are paid.
Sorouh secured a Dh2.35 billion four-year loan facility in the second quarter to finance the construction of its projects in Abu Dhabi.
“We made some really good progress over the first half of this year and invested another Dh1bn in Sun and Sky Towers, The Gate and Al Rayyana,” said Mr Amos.
“All of that is the lifeblood of our future revenues because once they’re completed they’ll either be sold or rented, and these are the things that we’re investing in at this point in time.”
Land sales helped to lift Sorouh’s revenues last year and the first three months of this year, as property sales slowed and prices in Abu Dhabi fell 30 per cent from their peak in the middle of 2008.
Sorouh booked Dh900m worth of income after selling 15 plots of land at its Saraya development in the capital in the second quarter of last year.
The company sold another plot worth Dh210m in the first quarter of this year.
“There’s a tendency to focus on comparatives between the second quarter of this year and quarter two last year, which I don’t think is particularly helpful because they are two totally difference quarters,” said Mr Amos.
“In the previous quarter there were land sales which buoyed results, but you can’t sell land to fit in with reporting periods.”
Sorouh is among the major developers in Abu Dhabi that have been hired by the Urban Planning Council to build thousands of homes for nationals.
Despite the tough market conditions, the developer is better placed to weather the slowdown than some of its competitors, Chet Riley, an analyst at Nomura, said in a report.
“We are under no illusions that the environment remains tight and we also think the fundamentals in Abu Dhabi could deteriorate further and faster then Dubai,” Mr Riley said.
“But management appear to be proactively recycling their capital sources, which ultimately is what real estate companies should be doing.”
