Deyaar chief looks to drive Dubai developer's recurring income

Deyaar’s plan to generate more recurring revenue has come a step closer as the Dubai developer’s nearly 1,000 hotel rooms and serviced apartments will be ready for occupancy by October next year.

The company only has a handful of retail units within its asset management portfolio but it is expected to add 198 serviced apartments when its Mont Rose project is complete in November, 347 in its Atria project in Business Bay by January and 408 hotel rooms in Al Barsha next year.

All of these will be managed by Millennium & Copthorne hotels.

“Deyaar since inception has been following one model, which is develop and sell,” Saeed Al Qatami, the chief executive, told journalists on a media tour of projects this week. “[It was] only after the crisis and from the restart of our projects, which is from 2014, [that] we started developing but not selling.”

Mr Al Qatami said that another hotel project is in the pipeline at its Midtown development in the International Media Production Zone. It is unclear whether this will be completed by the time Dubai hosts the Expo 2020 event.

The company is focusing mainly on the hospitality element of the market for generating recurring income and on three and four-star budget accommodation.

“We don’t want to compete with five-star because I think that segment has a lot of supply,” he said.

He said that although the first of these projects is likely to be handed over later this year, he did not expect significant income to be generated from these assets until the second half of 2019.

“Most of those income streams – you’re not going to see them in our financials now, you’re going to see them later in 2019-20. Because this is the hospitality sector. The first year of operation always is the foundation and set-up in terms of marketing and all of that.”

Alongside the asset-management arm, the company is also looking to build on its property management business, managing about 18,000 buildings mainly for third-party clients. Besides, its three-year-old facilities-management arm generated Dh40 million in revenue last year.

“This year, we are looking at about Dh55m to Dh60m,” Mr Al Qatami said.

In January, Deyaar reported a 67 per cent increase in revenue to Dh428.3m for last year, compared with Dh257.1m the previous year, which it attributed to construction progress at the Atria and Mont Rose. Profit attributable to equity holders dropped by 30 per cent to Dh216.1m.

Yet Aymen Soufi, an analyst with the Tunisian equity research company Alpha Mena, said that Deyaar’s profit margins had been volatile in recent years, which “raises some questions regarding earnings sustainability”.

“Over the past four years, 77 per cent of the company’s net income [on average] came either from a net reduction of provisions, impairment reversals or other non-cash income, including asset revaluation.

“Such items are literally at the management discretion, which, due to their recurrence, makes us question the company’s reporting quality.”

He also said that cash flow from operations weakened last year. “Since 2015, the company wasn’t able to generate enough cash from its operations to cover its capex and its debt prepayments,” Mr Soufi said. “Movements in term deposits with an original maturity of more than three months are coming to its rescue, but this can’t be done forever.”

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