Financial Review

Fourth Quarter Results

Revenues for the fourth quarter were AED 438m (Q4 2008: AED 532m), principally driven by the sale of land at alghadeer into a new joint venture company and recurring rental income from Sas Al Nakhl, Khalidiya Village and Al Oyoun.

Following the successful restructuring of alghadeer and as part of Sorouh’s ongoing strategy to attract third-party investors into selected projects, Sorouh sold the 643,000 square metres of land on which the first phase of alghadeer will be built to Al Sdeirah Real Estate Investment LLC (Al Sdeirah). Sorouh retains a 30% shareholding in Al Sdeirah. As a result of this land sale, Sorouh realised a profit of AED 293m. Sorouh has been appointed the development manager for the alghadeer project. Sorouh retains the title to the remaining 51.8 million square metres of land in Seih Sdeirah, held at nominal value.

During the year, Sorouh continued to focus on improving the quality of its earnings by increasing the amount of recurring income from leasing and rental properties. Sas Al Nakhl, Khalidiya Village and Al Oyoun Village are now all fully leased, resulting in their annual revaluation adding AED 53m to the income statement. Further rental income will be derived in 2010 from the investment portfolios in Sun and Sky Towers including the retail podium on Shams Abu Dhabi and in 2011 from Al Rayyana (previously known as Golf Gardens 2).

Due to recent market events and current economic conditions, Sorouh undertook, during this quarter, a comprehensive review of all its assets to ensure that values are accurately and prudently reported. As a result of this review, the Company has decided to increase provisions by AED 242m. 

During the period, Sorouh recognised a AED 51m loss from the investment in its 20% share of three associates – Aseel Finance PJSC, Green Emirates Properties and Al Maabar International Investment LLC.

General and Administrative expenses amounted to AED 66.2m (2008 Q4: AED 79.7m).

The resulting net profit for the quarter, after provisions, share of losses from associates and other sundry net income, amounted to AED 28.1m (2008 Q4: AED 46.4m).

Year-End Results

Revenues for the full year were AED 3.1bn (FY 2008: AED 3.7bn) driven by the sale of land plots on Shams Abu Dhabi, Saraya and alghadeer, the handover of Golf Gardens and an increase in rental income from investment properties. Over the course of the year, the Company focused on prudent management of operating and sales and marketing expenses, successfully reducing them by 41% to AED 233m (FY 2008: AED 394m) on a like-for-like basis.

Net profit for the full year, after provisions, was AED 495m (FY 2008: AED1.8bn), resulting in earnings per share of 19 fils (FY 2008: 74 fils).

The Company maintains a strong balance sheet with net assets as at the end of 2009 of AED 6.1bn (FY 2008: AED 5.9bn and AED 2.8bn of cash). Total bank borrowings are AED 132m, representing a debt-to-equity ratio of 2%.  This excludes the outstanding amounts of the asset-backed Sukuk Certificates, issued in the third quarter of 2008, which is a non-recourse facility.

Sorouh continues to focus its resources on its key Abu Dhabi projects: Sun and Sky Towers and The Gate Towers on Shams Abu Dhabi; infrastructure developments on Shams Abu Dhabi and Saraya; Tala Tower; Al Rayyana; alghadeer; and the mall in Al Ain.

Operational Review

All of Sorouh’s Abu Dhabi developments remain on track with the focus being on maintaining delivery schedules:

- Shams Abu Dhabi is making good progress. A number of sub-developers have started work and the amount of development activity has steadily increased across the site.
o Sun Tower and Sky Tower, at the entrance to Shams Abu Dhabi on Al Reem Island, remain on track for delivery in mid-2010. Over 60% of the retail podium is now pre-leased.
o The construction of Gate Towers is on schedule and has risen to level 9. The customer initiative launched in August 2009 is still underway with 60% of customers taking up the revised offer.
- alghadeer is progressing into the construction phase following the completion of the enabling works.  
- During the year, Sorouh established Khidmah, a property management company in which it owns 60%. Consequently, Sorouh and LLJ Property have decided to end their shareholders’ agreement. The termination of the shareholders’ agreement has no material financial impact on Sorouh.

Abubaker Al Khouri, Managing Director, Sorouh, commented: “For Sorouh, 2009 was a year of refocusing the business to reflect prevailing market conditions. In this context we have delivered a credible performance. We have concentrated on prudent cost management, our customers and keeping to delivery schedules on our existing developments. In doing so, we are proud to have delivered our first major sales development, Golf Gardens, to strong customer endorsement.

“We are approaching 2010 with cautious optimism, continuing our emphasis on increasing recurring income; cost control; cash collections and focusing our resources on key projects and delivery targets. Mid-year we will start handing over units in Sun and Sky Towers. This will be an important milestone for Sorouh, being the first development to be completed on Shams Abu Dhabi, our flagship development, which is part of the new central business district. Abu Dhabi continues to see a shortage of residential real estate and we will continue to play a strategic role in bringing quality property to the market to meet that demand.

“As part of Sorouh’s commitment to Plan Abu Dhabi 2030, we have started work on Watani, a master-planned community for UAE nationals. We are also working with the Government on the early stage development plans of a major master-planned community, Shamkha for UAE Nationals. Both will be launched at Cityscape Abu Dhabi in April. These projects represent significant potential for Sorouh.”

© 2010 Mena Report (www.menareport.com)