By Ed Attwood www.arabianbusiness.com
Emaar’s surprise move to issue a 10 percent dividend in 2011 is likely to increase pressure on the firm to offer similar pay-outs in the coming years, analysts have said.
The Dubai developer faced pressure from shareholders last month, after initially indicating that it would not issue a dividend.
Shareholders initially requested a dividend of as much as 30 percent, which chairman Mohammed Alabbar said could harm Emaar’s financial position.
“Now that Emaar has paid a dividend, there could be continued pressure to maintain a cash dividend at least at the current level going forward,” Chet Riley, an analyst at Nomura Securities, told Arabian Business.
“Emaar has just used the capital markets to issue both a Sukuk and a convertible bond, with both being well subscribed.
“Issuing a dividend may concern some bond holders as this ultimately reduces the level of free cash available for repayment of current and future liabilities,” Riley said.
There is concern amongst some observers that UAE real estate firms or construction companies currently don’t have the cash to support dividend programmes.
One analyst – speaking on condition of anonymity – claimed that a local culture of “dividend-hungry investors” had forced Emaar to issue a dividend, when the money would have been better off distributed in operations.
Another analyst stated that the dividend would not have a major impact on Emaar, given that the developer will not require a large capital expenditure programme this year.
Emaar is currently focusing on completing its Dubai projects, particularly commercial units and in the Downtown Dubai area.
The firm has benefited from its revenues from hospitality and malls – which have held up strongly during the economic slowdown – although there are concerns that retail rents could slip when tenancies are reviewed.
“Emaar’s Dubai Mall, while clearly driving a significant premium to other malls in Dubai and in the region, may come under pressure as three-year and other relatively short- to medium-term leases come to an end in the next 18-36 months,” said Rasmala Investment real estate analyst Saud Masud.
“If we are wrong on rental pressure then that would clearly benefit Emaar’s share price.”