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14th September 2014

Global Economy & Global Real Estate

Emaar May Raise $1.58 Billion From Malls Unit Share Sale

Source: Bloomberg / Personal Finance

Investors will have a chance this month to own part of a dancing fountain, an underwater zoo and an ice-skating rink in the desert sheikhdom of Dubai.

Emaar Properties PJSC (EMAAR), owner of the world’s biggest shopping center, said yesterday that it’s seeking to raise as much as $1.58 billion from the initial public offering of its malls unit in the United Arab Emirates’ biggest IPO since 2007.

Emaar Malls Group PJSC plans to sell 2 billion of its founders’ shares, or about 15 percent of its equity, in a price range of 2.5 dirhams to 2.9 dirhams apiece, according to a company statement to the Dubai Financial Market. The final price will be determined through a book-building process and will probably be set on Sept. 29., Dubai-based Emaar said.

“The company has top-quality assets in a high-margin business with strong growth and cash-generation ability,” Taher Safieddine, an analyst at Shuaa Capital PSC in Dubai, said by phone. “Even at the top end Emaar is leaving some upside.”

A retail boom spurred by an increase in tourist arrivals is helping propel growth in Dubai and underpinning investor demand for the largest IPO in the U.A.E. since port operator DP World Ltd.’s (DPW) $4.96 billion offering seven years ago. About 75 million visitors passed through Emaar’s flagship Dubai Mall last year, while the emirate’s economy is set to expand about 5 percent this year, the International Monetary Fund said in May.

Market Value

The share sale, which began yesterday and ends on Sept. 24 for individual investors and Sept. 26 for institutional investors, could raise 5.8 billion dirhams ($1.58 billion) at the top of the range. The mid-point will value the company at about 35.1 billion dirhams, Emaar said. The shares will list on the Dubai Financial Market on Oct. 2, Emaar said last week.

Emaar Malls’ profit increased 24 percent in the first half to 617 million dirhams, while revenue climbed 15 percent to 1.26 billion dirhams, according to a company statement.

The parent company plans to distribute 5.3 billion dirhams of the IPO proceeds as a dividend, it said last month, and will make the payment as part of plans to distribute about 9 billion dirhams to its owners, including the Dubai government.

Shuaa’s Safieddine, who rates Emaar Properties buy, expects both revenue and profit at the company’s malls business to grow at more than a 10 percent in 2015 and 2016.

Rent Charges

The company charges mall tenants the higher of base rent or turnover rent, according to Safieddine. Tenants pay Emaar around 15 percent of all sales, compared with 2 percent to 8 percent charged by global peers, he said. Stores operating in the Dubai Mall sold 15 billion dirhams worth of goods last year.

Still, “at the upper end of range, this IPO would be very expensive,” Mohammed Ali Yasin, managing director of NBAD Securities LLC in Abu Dhabi, said by phone yesterday. “Emaar Malls would be priced at about 30 times 2014 earnings.”

Emaar Properties is focusing on recurring hotel and mall revenue to cushion itself from property market shocks. The Dubai Mall features hundreds of stores as well as an aquarium, a skating rink and some of the world’s most expensive cupcakes and is the world’s sixth largest mall by gross leasable area.

Emaar Malls’ assets include four shopping malls and 30 community-shopping and retail centers with a total gross leasable area of around 5.9 million square-feet (548,127 square-meters). The properties had 95 percent occupancy during the first half of 2014, according to Emaar.

Emaar shares fell 0.4 percent to 11.20 dirhams as of 12:32 p.m. in Dubai and have gained 61 percent this year.

Bank of America Merrill Lynch, JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) are the joint global coordinators and bookrunners for the IPO. HSBC Holdings Plc (HSBA), EFG-Hermes Holding SAE, National Bank of Abu Dhabi PJSC (NBAD) and Emirates Financial Services PSC are the joint bookrunners, while Emirates NBD PJSC (EMIRATES) and National Bank of Abu Dhabi are lead receiving banks. Rothschild is the financial adviser.

-By Zainab Fattah and Arif Sharif

Scottish Independence Could Be Boost for London Property

Source: Bloomberg / Luxury

London’s property market could benefit if Scotland votes for independence and some financial institutions decide to relocate to the U.K., according to Rightmove Plc.

London would be a “logical destination, creating extra employment and knock-on demand for homes,” Rightmove said in its monthly house-price survey today. The report showed asking prices for homes in the capital rose 0.9 percent in September from August, ending three months of declines.

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc said last week they plan to move their legal bases to England if Scotland votes for independence on Sept. 18. The latest polls show the referendum result is too close to call.

“Whilst it’s all speculation at present, the drop-off in foreign-based buyers could be replaced in part by individuals and companies moving out of an independent Scotland,” said Miles Shipside, a director at Rightmove. “Their funds and target price brackets may not be as high as those of overseas investors, but could they nevertheless put a further strain on the capital’s limited housing supply?”

London’s property market has shown signs of cooling in recent months and Rightmove said average asking prices in the capital are now 5.9 percent below their peak in May. The slowdown is partly related a surge in prices since early 2013 that stretched affordability. In addition, foreign buyers were hit with tax increases and a strengthening pound.

Disruption Risk

Rightmove also said that average asking prices for homes in England and Wales increased 0.9 percent in September from August and were up 7.9 percent from with a year earlier. In London, asking prices reached 557,792 pounds ($906,000), more than double the U.K. average, after rising 13 percent over the past year.

On a national level, there’s a risk that Scottish independence could unsettle consumers and disrupt the housing market, Rightmove said.

The “possible implications for the economic outlook for the rest of the U.K. could cause uncertainty in the minds of potential home-movers contemplating a large long-term financial commitment,” Shipside said. “Should the independence vote win the day, then there could be months of uncertainty with the forthcoming general election causing further disruption.”

-By Fergal O’Brien

U.K. Home Value Rally Seen Stalling by Property Brokers

Source: Bloomberg / Luxury

U.K. real estate brokers, having predicted the performance of the housing market in England and Wales for the past decade, indicate the current three-year rally is coming to an end.

The CHART OF THE DAY compares price expectations of estate agents and surveyors compiled by the Royal Institution of Chartered Surveyors with the actual performance of the housing market, as measured by the Office for National Statistics.

“The overall picture appears to be one of a slowing in price growth as opposed to falling house prices,” Bloomberg economist Niraj Shah said. “While house-price growth may have peaked, underlying support for prices will come from a lack of new homes being built.”

U.K. home-price growth expectations fell the most in four years during the first half, according to RICS. London house prices rose at the slowest pace in more than three years last month, leading a cooling across the country, as tougher mortgage rules took effect and the prospect of higher interest rates deterred potential buyers.

Value gains in London, which led the U.K. since 2009, slowed in the past six months. Eleven percent of the capital’s districts by post code recorded increases in August, down from 87 percent in February, according to researcher Hometrack Ltd.

The data compiled by RICS show the balance between estate agents and surveyors expecting price gains and those seeing declines. RBS Economic Insight posted a similar graph on Twitter last week.

-By Neil Callanan