US foray hits Emaar earnings

Emaar Properties, the developer behind the Burj Dubai, posted a Dh1.76 billion (US$479 million) loss in the fourth quarter of last year as the Dubai property market slowed and the firm’s foray into the US market was hit by a recession.

Its most significant loss came from investments in John Laing Homes, one of the largest home builders in the US.

Mohammed Ali Alabbar, the chairman of Emaar, said the company would focus on completing projects this year and suspend all new projects to assist in reducing supply to meet the new market conditions.

“The primary focus of Emaar in the last quarter of the year was to mitigate the negative impact of the global financial crisis by facing up to the new economic realities and identifying innovative strategies to sustain businesses in an unprecedented downturn,” he said.

Emaar bought John Laing Homes as US home prices were rising in June 2006 for Dh3.85bn, but it has been hit hard by the subprime lending crisis and recession, especially in recent months. John Laing Homes recently announced it was cutting staff and reducing its operations.

Emaar said it wrote down Dh1.77bn on its investment in the company in the fourth quarter, as well as another Dh919m because of the lowered value of the company’s inventory of land and homes. The write-downs wiped out what would have been a profit of Dh924m in the fourth quarter.

Bobby Sarkar, an analyst at Al Mal Capital, said Emaar had a reasonably good quarter except for the losses related to John Laing Homes.

“If you exclude the John Laing Homes goodwill and inventory write-downs, the company reported Dh0.15 earnings per share, which, although below consensus, presents a better picture than the headline number of a loss of Dh0.29 for the fourth quarter of 2008,” he said, adding that Emaar’s decision to make substantial write-downs indicated that Emaar was trying to put the bad news behind it.

Since the market turned at the end of the summer, Emaar has laid off more than 100 employees and introduced strategies to encourage more home buying, including two schemes which make it easier for buyers when mortgages are hard to get.

Emaar is expecting to open the Burj Dubai this year, which has been topped off with an antenna at 818 metres, according to contractors involved with the project. The tower is the tallest in the world, beating the Taipei 101 in Taiwan by about 309 metres.

It also plans to open two hotels under a new brand, The Address.

Property companies across the country are feeling the effects of a lack of access to credit and falling prices. Dubai property prices fell 8 per cent in the fourth quarter of last year, the first quarterly decline since foreign ownership became legal in 2002, according to Colliers International, a property consultancy.

Property companies are reviewing their strategies for this year, including changing the pace of projects, lowering prices and cutting costs. More than 3,000 layoffs have been announced in the sector in the past few months and more are expected.

When Emaar bought John Laing Homes in 2006, executives said it would allow them to expand Emaar’s reach into the booming US home market and take advantage of John Laing Homes’s expertise for international projects. But the company has not been able to weather the worsening economic conditions in the US.

Linda Mamet, a spokeswoman for John Laing Homes, said that staff had been cut across the company’s operations, particularly in southern California and Colorado.

The company did not say exactly how many jobs had been cut. Media in Colorado and California have reported that construction projects have also begun stalling, including the Banning Lewis Ranch in Colorado Springs and the Madrone in Hollywood.

John Laing Homes has retained Development Specialists, a legal consultancy, to assist in evaluating its operations.

Mr Sarkar said the next questions for Emaar relate to the details of its strategy for this year, including information about its cash position and whether it will lower prices to sell more of its inventory.

Emaar’s shares declined about 0.5 per cent in trading before the earnings report was released. It has lost 87.5 per cent of its value since the beginning of last year.

bhope@thenational.ae The National

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