Sorouh Real Estate: Real estate

THE COMPANY: Headquartered in Abu Dhabi, Sorouh Real Estate (Sorouh) is one of the largest real estate developers in the UAE. Formed in July 2003 and formally incorporated as a public joint stock company on July 26, 2005 with capital of Dh2.5bn ($680.46m), Sorouh is now one of the largest real estate developers listed on the Abu Dhabi Securities Exchange.

In November 2007 Sorouh won the award for “Best New Business” at the inaugural Middle East Business Achievement Awards. The group has already launched a number of major development projects such as its flagship project, Shams Abu Dhabi, including Sky Tower – slated to be the highest skyscraper in Abu Dhabi – and the Golf Gardens residential development, adjoining the Abu Dhabi Golf Club.

Early in 2012 it was announced that Sorouh and Aldar were in talks for a potential $15bn merger that was supported by the federal government and would be the largest consolidation of listed property assets in Abu Dhabi. At present, a due diligence for the deal remains under way, with representatives from both companies claiming that the discussions regarding the potential consolidation are at an advanced stage.

As of August 2012, Sorouh's shareholding is divided into 18.59% by major shareholders (those with shareholdings of 5% and above) and 81.41% by minority shareholders. The majority shareholders of the company include Al Gouad Financial Investment Company and Abu Dhabi Investment Council.

FINANCIAL PERFORMANCE: Profits for the first six months of 2012 went up by 33% to Dh232m ($63.15m), as Sorouh’s cost savings and higher other income offset a slight drop in its top line.

Despite construction revenues from the national housing project of the Abu Dhabi government almost tripling to Dh1.32bn ($359.28m), total revenues dropped 1% to Dh1.65bn ($449.10m) while the revenues from development business plunged to Dh174m ($4.36m) from Dh1.02bn ($277.63m) previously. However, the softness in overall revenues was offset by Sorouh’s effective cost management. Direct costs dropped by over 5% and financing costs decreased by 66%. Other income (mostly transfer, commission and management fees, and the income from the release of contingencies and provisions that are no longer required on completed projects) surged by 110% to Dh91m ($24.77m).

Going forward, Sorouh expects its recurring income to increase as it opens a mall in Al Ain (sometime in the last quarter of 2012). It will also hand over the Al Rayyana housing project soon and expects to deliver 375 apartments in a building it bought from Tamouh, another Abu Dhabi developer. The developer plans to deliver 9300 housing units in 2012 and in 2013, including 2300 in projects for UAE nationals.

Sorouh’s total assets remained firm at Dh14.1bn ($3.84bn). Its investment properties appreciated to Dh4.03bn ($1.10bn) from Dh3.31bn ($900.24m) as of end-2011 following higher expenditure on the Al Rayyana development and the completion of Boutik Al Ain. Liquid funds decreased – dropping to Dh1.12bn ($304.84m) from Dh1.84bn ($500.82m) – as collections from the delivery of units in the Sun and Sky Towers as well as from investment properties and plot receivables were offset by the payments made for development projects. Despite this, Sorouh has maintained its low-gearing status at 42% (compared to the property sector’s average ratio of 62%).

SHARE PRICE PERFORMANCE: Shares of Sorouh have rallied in 2012 after Abu Dhabi, holder of most of the UAE’s oil reserves, said it plans to resume stalled projects, including branches of the Louvre and Guggenheim museums. Its shares have surged by more than 39% year-to-date, and are looking at a medium-term support of Dh1.02 ($0.28) per share, with a strong support seen at Dh0.93 ($0.25). Resistance levels are seen at Dh1.30 ($0.35) and Dh1.42 ($0.39) per share. Note that these sentimental barriers were spotted as of September 30, 2012 and based on a closing price of Dh1.17 ($0.32) per share.