Tuesday, Jul 31, 2012

--National Housing boosted second quarter net profit, seen strengthening 2H12

--Due diligence on Aldar-Sorouh merger going very well but will be lengthy and thorough

--Second half will be driven by more leasing and handovers

(Recasts. Adds quotes, further details and updates share price.)

By Tahani Karrar-Lewsley

OF ZAWYA DOW JONES

DUBAI(Zawya Dow Jones)--Abu Dhabi-based developer Sorouh Real Estate (SOROUH.AD) said it is looking forward to a strong second half after it posted a 33% year-on-year rise in second-quarter net profit Tuesday and said it's making "good progress" on the due diligence on a possible merger with Aldar Properties.

The developer said in an emailed statement earlier that its second-quarter net profit came in at 166.6 U.A.E. million dirhams ($45.4 million) compared with AED125.3 million in the year ago period.

Profit for the period exceeds Securities & Investment Co (SICO) expectations of AED57.5 million.

Sorouh said earnings per share for the second quarter was AED5.6 versus AED4.2 in the year ago period.

"The quality of earnings continues to improve through the diversification and strengthening of revenue streams," Abubaker Seddiq Al Khouri, Sorouh's managing director said in an emailed statement.

Al Khouri said National Housing, which added AED1.2 billion for the first half of 2012, was now an important contributor to the quarterly revenue mix along with the increased amount of leasing income. At the same time, Sorouh "is continuing to invest across our development portfolio to ensure that it meets the demand for high quality product with a pipeline of some 7,000 units."

Revenues for the period came in at AED681.3 million versus AED1.2 billion a year ago. About AED82 million in revenue was derived from the release of contingencies and provisions, the developer said.

"The company is well on track to reach its target of AED500 million of annualised recurring income by 2014," it said in the statement.

Sorouh Chief Financial Officer Richard Amos said in a results conference call later Tuesday the company is looking forward to a strong second half in 2012 as it leases and delivers more units.

"The second half will be driven by continued emphasis on leasing and delivery in Al Rayyana, Tala Tower and Boutik Mall as well as National Housing--all of those will drive revenues in the future so we can look at the second half with a good level of confidence," said Amos.

Gurjit Singh, the company's chief operating officer, said that although Abu Dhabi's residential supply would continue to outstrip demand over the coming quarters and put pressure on rentals, quality properties in good locations will be less affected.

"In the next six months another 5-8% decrease [is seen] in rental levels across the board... but this is very much subject to location and quality," Singh said adding the market is seeing a trend of residents wanting to upgrade to better quality residences.

Sorouh is currently undergoing a due diligence for a possible state-backed merger with Aldar Properties after first announcing it would study the merger in March.

"We are making very good progress on the merger," said Amos, adding however the due diligence process will be "lengthy and extremely thorough".

Like Dubai, Abu Dhabi's real estate sector has suffered from an oversupply and commercial real estate services firm CBRE anticipates significant new office and residential supply will enter the market in 2012 causing vacancy rates to rise further and sale and rental prices to fall.

Sorouh shares are trading +3.9% at AED1.07 Tuesday.

-By Tahani Karrar-Lewsley, Dow Jones Newswires; +971-4-446-1686; tahani.karrar@dowjones.com; Twitter: @ZDJnews

Copyright (c) 2012 Dow Jones & Co.

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(END) Dow Jones Newswires

31-07-12 0757GMT