Emaar Properties will sell 20% of its UAE development portfolio in an initial public offering in November. This is the first IPO in the UAE capital markets in the last three years and follows bellwether offerings such as Emaar Malls and Emaar Misr. Emaar’s Dubai development’s adjusted net value is 24.1 UAE dirhams and I would not be surprised if the post IPO revalues the portfolio to 30 billion AED. The crucial issue for me, as always, is the pricing, valuation and secondary market trading prospects of the IPO. Of course, the rise in Emaar Property’s share price from AED 7 to as high as AED 8.9 after the development IPO was announced in June meant that the optimal strategy was to buy the parent’s shares on the news. However, given that oil prices have doubled since their lows the US dollar index has depreciated 8% in 2017, Emaar’s offplan sales have risen above a 10% amid a stressed secondary market and a de facto bank credit crunch, the fabulous margins in Dubai property development and the potential in Expo 2020, Emaar Development will be a profitable deal for investors upon its listing.
While the earnings of Emaar Development will be more volatile than those of its parent, it will also be a pure play vehicle on Dubai property development without exposure to retailing (Emaar Malls) or foreign markets (Egypt, Turkey, Saudi Arabia) risk. Emaar has unquestionably created the most formidable brand in Middle East property development, the reason its off-plan sales did not sag even as transactions, values and rentals declined in UAE real estate since 2014. In fact, Emaar Properties saw its discount to net asset value compress after the June announcement. This segment has exceptional earnings visibility till 2020, given Emaar’s development pipeline is at least 40 billion AED in this period.