S&P upgrades outlook on Emaar Properties to stable

Standard & Poor's Ratings Services on Monday revised its outlook on Dubai's Emaar Properties from negative to stable, saying the developer is expected to see growing recurring income.The agency also affirmed the company's 'BB' long-term corporate credit and senior unsecured debt ratings. The affirmation, S&P said, reflects the "good performance of Emaar's leasing and hospitality assets" which constitute an increasing share of total earnings (68 percent of earnings in first-half 2011 versus 28 percent in first-half 2010). "We believe this uptrend helps offset the uncertainties and the relatively short track record in Emaar's international development activities," S&P said in its report. It said Emaar's liquidity position was deemed "adequate", adding that it estimated Emaar's adjusted total net debt at $2.2bn as of June 30, 2011. The S&P report follows a report last week that said Emaar Properties was searching for buyers for two hotels in its flagship development Downtown Burj Dubai. Sources said the developer behind the world’s tallest tower was understood to be looking to sell off the Al Manzil and Qamardeen hotels, as well as other property assets in the Downtown area.The proceeds of the sale may be used to fund the completion of the developer’s unfinished projects in Dubai, the source said. S&P's report added: "We consider that Emaar is pursuing an aggressive international growth strategy in markets where it lacks a track record and it is significantly exposed to markets subject to political risk. "Mitigating these weaknesses are the increasing earnings contribution from more stable property investment and hospitality activities, the good track record and high quality of rental assets in Dubai, and geographical diversification of the development businesses." It said that the stable outlook reflected S&P's opinion that Emaar's relatively stable leasing activities and an improving performance of hospitality activities would balance uncertainties in international development activities. S&P added that it could upgrade Emaar if sales, margins, and collections in international operations prove resilient while the rental and hospitality assets continue to perform well. Emaar saw an 85 percent fall in its income from apartment sales during the second quarter, as demand for real estate continues to fall in the emirate. Revenues from sale of apartments were AED265.6m ($72.3m) in the second quarter, compared with AED1.7bn in the same period in 2010, the developer said. The developer saw a 69 percent drop in second quarter net profit to AED250m, its smallest quarterly profit in two years.