I’m Still Standing!

Damac launched The Trump Estates Park Residence in Dubai, with the 4-bedrooom villas going on sale on 05 August. This comes a week after the developer launched Golf Vita Residential Towers overlooking the Trump International golf course.

With a third  launch – following its US$ 572 million Polo Residence and US$ 117 million Polo Residences, both in Meydan City – Invest Group Overseas is planning to spend a further US$ 136 million on a new residential tower.

Nakheel confirmed that it had awarded four contracts, valued at US$ 117 million, in relation to its Deira Island waterfront project; they encompass a district cooling plant (US$ 26 million), a sewage treatment facility (US$ 62 million), a substation (US$ 25 million) and piling work (US$ 4 million). Having already awarded a US$ 1.1 billion Deira Mall construction contract to United Engineering Construction in April, the developer has already invested over US$ 2.0 billion in the project.

Troubled Arabtec has won a US$ 99 million contract to build a new mall in Dubai South which will serve a new community with 15k residential units. This will be the focal point of the Emaar South project – a JV between Emaar and Dubai World Trade Centre – which will also include a golf course, hotels, parks, schools and other facilities.

ALEC has won a US$ 163 million contract for Jumeirah Living Marina Gate. Located in Dubai Marina, the tower project, to be completed by Q4 2019, will include 389 private residences, 104 serviced apartments and 15 villas.

Dubai Investments Real Estate Company has secured a local US$ 300 million finance package for its US$ 818 million Mirdif Hills development. The Dubai Investment subsidiary has already started work on the only freehold location in Mirdif, with the mixed-use development being launched in clusters over a period of time.

According to the Dubai Land Department, there was a 16.8% increase in the value of H1 transactions, to US$ 36.0 billion, as the total number rose 25.9% to 35.6k, with Business Bay, Al Barsha South 4 and Jebel Ali the main three contributors; in terms of value, the leading locations were Palm Jumeirah, Business Bay, Burj Khalifa and Dubai Marina. DLD confirmed that in H1, 68 real estate projects were registered, with a total value of US$ 5.7 billion, and that 24 projects, which had initiated in previous years, had been completed. Over the past 18 months, the government agency announced that there had been 95k transactions valued at US$ 106.3 billion.

Core Savills expect that there will be further declines in rents covering Dubai’s freehold clusters but the situation will improve in 2018. However, there will be continued pressure on rents in secondary locations, such as Discovery Gardens and Jumeirah Village, (whilst Dubai Marina and JLT show better rental prospects). The agency also commented that these softer rents have yet to have a noticeable impact on demand but prices have remained sluggish.

The number of visitors to Dubai in H1 reached levels of 8.0 million – an impressive 10.6% increase compared to H1 2016. There was no change, with India, Saudi Arabia and the UK the top three source countries, as Western Europeans accounted for 21% of the total. There were notable increases in numbers from China and Russia – up 55% to 413k and 97% to 233k. The emirate’s hotel room portfolio has increased by 5% to 104k and the 676 establishments posted a 1% rise in occupancy levels to 79%.

Although the output index dipped in July (month on month), there were healthy gains in output and new orders (now at 61.0 and 62.0 respectively) according to the Emirates NBD Dubai Economy Tracker Index which was unchanged at 56.3. The best performing sectors were wholesale/retail (57.9), followed by travel/tourism (56.3) and construction (54.8). Firms still had difficulties passing on rising costs, with margins yet again being squeezed, with the end result of flat employment growth.

Last year, Jebel Ali Free Zone reported a 16.7% expansion in its non-oil foreign trade to 27.9 million tonnes, with a value of US$ 80.2 billion. The three main trading partners, accounting for 28.2% in value, were China (US$ 11.3 billion), Saudi Arabia (US$ 7.0 billion) and Vietnam (US$ 4.3 billion). Machinery, electronics and electrical goods accounted for 49% of the total trade followed by petrochemicals (16%) and food/FMCG (8.0%). On a regional basis, Asia Pacific was the leading location accounting for US$ 32.4 billion (40.4%) of total trade with the Middle East (US$ 27.2 billion) and Europe (US$ 9.9 billion).

H1 saw a 2.4% increase in the number of UAE mobile phone subscribers to 18.7 million. etisalat claimed 10.5 million (a 3.0% increase) and du was 1.2% higher at 8.2 million. It is estimated that mobile phone services account for 80% of the telecoms’ revenue. In H1, total sales reached US$ 8.6 billion with etisalat taking the lion’s share – US$ 6.9 billion (79.8%).

H1 short-term monetary deposits at the UAE Central Bank totalled US$ 119.8 billion, as the June value rose US$ 7.6 billion (6.8%) from the beginning of the year. Such deposits account for 30.1% of the total UAE bank deposits which now stand at US$ 397.8 billion.

Dubai Chamber of Commerce expects that consumer spending in the emirate will grow at an annual compound growth rate of 7.5% and that the total spend will top US$ 261 billion within five years. Accounting for about 45% of the country’s GDP, this is a major economic factor, with the UAE posting the highest consumer spend in the region at US$ 103k. The housing sector, at US$ 75.7 billion, accounts for about 41% of the total, followed by food and transport at US$ 24.8 billion and US$ 16.7 billion respectively.

Al Futtaim Capital has increased its stake in the local fit-out specialist Depa to 26.6%, having recently acquired a further 12.6% for US$ 29 million (77.8 million shares). This makes AFC the largest shareholder, followed by Arabtec, with a 24.0% stake. In June, the company announced the resolution of a long-standing US$ 245 million dispute which had a positive impact on its cash flow.

H1 results were a mixed bag. On the plus side, Emaar Properties posted a 14.4% rise in Q2 profits to US$ 395 million, as revenue increased by 1.9% to US$ 1.0 billion. Meanwhile, Emaar Malls, floated in 2014, posted a 5.0% hike in Q2 profits. It is expected that the developer will have a further IPO towards the end of the year – as it hives off 30% of its development business.

Damac Properties posted a US$ 436 million H1 profit on revenue of US$ 954 million (and booked sales of US$ 1.1 billion); in H1, the developer delivered 3.1k units, including 1.1k in Damac Hills. Its reported gross debt was US$ 1.5 billion, with cash balances totalling US$ 2.3 billion.

Even though its revenue declined by 6.0% to US$ 561 million, Arabtec posted a US$ 11 million Q2 profit (following a US$ 51 million loss in the same period last year). H1 comparative figures show a 2.0% hike in revenue to US$ 1.2 billion and net profit at US$ 16 million – compared to a deficit of US$ 63 million last year. Over H1, the contractor had reduced its share capital by US$ 1.3 billion (to wipe out previous losses) and raised US$ 409 million via a rights issue.

Although still in a loss position, Drake & Scull posted a smaller Q2 loss of US$ 50 million (compared to US$ 57 million a year earlier), including a one-off US$ 19 million impairment charge, as revenue fell 18.0% to US$ 180 million; its accumulated losses stand at US$ 515 million. To clean up its balance sheet, the company is proposing a 75% share write-down (to cancel the accumulated losses) along with a US$ 136 million cash injection by its largest shareholder, Tabarak Investments. It will also sell off non-core assets, including its One Palm investment, and attempt to recover some of its receivables, amounting to US$ 354 million.

Locally listed Gulf Navigation posted a 35.7% hike in H1 profits to US$ 5 million. The result sees the company’s balance sheet improving, now with positive net current assets of US$ 31 million, compared to a US$ 25 million deficit six months earlier. It is still aiming to add a further 20 vessels to its fleet, and boost profits by 300%, over the next four years.

With H1 revenue declining by 4.4% to US$ 113 million, Dubai Refreshments’ profit fell 27.4% to US$ 11 million. The company’s Q2 profit was off 11.9% to US$ 7 million compared to a year earlier. It will be interesting to see the effect of the increase in excise duty has when introduced in October.

Losses at DXB Entertainments grew in Q2 to US$ 78 million from US$ 11 million a year earlier, as both operating expenses (up to US$ 77 million from US$ 14 million) and marketing (up from US$ 2 million to US$ 10 million) moved higher. YTD, the park’s losses have widened from US$ 22 million (H1 – 2016) to US$ 157 million. Despite this, it has invited tenders for the construction of the Six Flags project, covering 3.5 million sq ft, that is expected to cost US$ 708 million.

Dubai Investments recorded a 15.1% decline in Q2 profits to US$ 49 million, with revenue falling 11.0% to US$ 159 million. YTD, profits have fallen by 6.5% to US$ 349 million. Over H1, the company posted a 35.5% hike in revenue to US$ 191 million on the back of strong real estate sector projects which account for 55% of turnover.

Amlak Finance recorded a Q2 US$ 1 million profit, compared to a US$ 10 million loss in the same period of 2016, as impairment costs were reduced and operating costs fell by 30.6%.

Amanat Holdings posted a 10.9% fall in Q1 profits to US$ 3 million, as revenue fell 3.0% to US$ 4 million. However, H1 profits moved higher by 12.8% to US$ 7 million.

Shuaa Capital posted a 147% hike in H1 profits to US$ 10 million – its highest half yearly profit return since the halcyon days of 2009 – as revenue jumped 44.8%. Q2 profits were 124% higher at US$ 3.3 million, as revenue dipped 31.9% to US$ 8.3 million. (This month, it has also acquired 11% of Kuwait-based Amwal International Investment).

Aramex, the Middle East’s largest courier company, saw Q2 revenue 3.6% higher at US$ 311 million but net profit declining 22.8% to US$ 26 million. Two major factors impacted the fall in profit – the Egyptian pound devaluation last  November and a one-off adjustment to its investment in Egypt’s AMC Logistics.

Another local company affected by the fact that the Egyptian currency has fallen by almost a half in the past seven months is MAF. The conglomerate indicated that, if forex rates had remained constant over the period, it would have seen revenue 12% higher and ebitda 9% to the good. It still posted healthy numbers with both revenue and ebitda 4% higher – at US$ 4.3 billion and US$ 545 million. Over the next five years, it expects to double the size of its 21 malls and invest US$ 8.2 billion in the country to open ten new City Centre malls, six hotels, 28 cinemas and 40 Carrefour supermarkets.

The DFM opened Sunday (30 July) at 3606 and nudged slightly higher, moving up 16 points (0.4%) to close the on 3624. Volumes improved closing on Thursday – 17 August – on 234 million shares, valued at US$ 79 million, (cf 98 million shares for US$ 36 million, on Thursday, 27 July). Emaar Properties was US$ 0.02 higher at US$ 2.32, with Arabtec dropping US$ 0.01 to US$ 0.89. For the month of July, Emaar was 6.1% higher at US$ 2.25 whilst the revamped Arabtec was trading at US$ 0.94 (from US$ 0.78).

By Thursday, Brent Crude was US$ 1.22 (2.4%) higher from its 27 July close at US$ 52.71, with gold climbing US$ 35 to US$ 1,295 by 17 August 2017. Brent started July trading at US$ 48.77 but recovered well to close on 31 July, 7.7% higher at US$ 52.52. Meanwhile, gold recorded a 2.2% gain in July to close at US$ 1,268.

Q2 results saw Exxon return a 97% jump in Q2 net income to US$ 3.35 billion which would have been greater if not for Imperial Oil’s loss, caused by problems in its Alberta oil sands operations. Meanwhile, Chevron posted a US$ 1.45 billion quarterly profit – a major improvement on its US$ 1.47 billion deficit over the same period in 2016.

British Airways’ owner, IAG (that also has Iberia and Aer Lingus in its portfolio) posted a 37.0% hike in H1 operating profits to US$ 1.1 billion and, after exceptional items, the profit was still 13.8% up on the same period in 2016. The group experienced a massive IT failure in May that resulted in payments of US$ 76 million to affected customers and it “lost” US$ 52 million because of the fall in sterling. Its CEO, Willie Walsh, expects the good news to continue for the rest of the year, especially as its new budget airline, Level, launched in March, has begun to show early signs of traction.

In July, Chinese house prices, on an annual basis, all increased but July data indicates that the worrying growth of the past few years may be ending, as monthly prices in Beijing fell 0.1%. In July, property investment eased 4.1%, down on the 7.9% posted a month earlier – an indicator that this overheated sector may be cooling; this may dampen even further in the coming months and could reach a 2% level within a year.

Authorities have been trying to clamp down on the shadow banking sector and this will have a knock-on effect on real estate. It is estimated that banks have already used up to 80% of their annual credit quota in the first six months of 2017 and, that being the case, lending growth is bound to soften, with the effect of increasing finance costs. At the end of last year, outstanding yuan loans had jumped 13.5% and this is expected to fall to 12.4% by the end of 2017.

In June, Japan’s industrial production jumped 1.6% – an improvement on the 3.6% contraction recorded a month earlier and on an annual basis was 4.9% higher. Industrial output is expected to continue its upward trend in the coming months. The main drivers in the upturn included chemicals, electrical machinery and transport equipment. Consequently, shipments headed north – 2.3% in June and 5.1%, year on year. Both export prices, up 2.5%, and producer prices – 2.6% higher – expanded on an annual basis. More interesting was the fact that the economy grew by 4.0% in Q2 on an annual basis and the 1.0% quarterly increase meant that the economy has grown over each of the past six quarters.

With a marked improvement in its economy and consumer confidence rising to decade-high of 111.2 in July, the only negative factor in the eurozone continues to be its sluggish inflation level. The June rate of 1.3% is expected to remain at around this level for the rest of the year and is still some way off the ECB’s 2.0% target.  Its President, Mario Draghi, will be reluctant to curtail the bank’s unprecedented stimulus package of the past three years, which currently stands at a monthly level of US$ 70.6 billion, until wage levels shift northwards and catch up with inflation.

A Visa study indicated that July UK consumer spending had declined by 0.2%, month on month and 0.8% over the past twelve months; this resulted in falls over the past three months – its longest period of decline in over four years. The main driver behind this result is the fact that wage levels have not kept up with inflation so that the general public have less to spend and what they buy is becoming more expensive. July witnessed major falls in spending on transport (down 6.1%) and clothing – 5.2% off in the month.

The IMF External Sector Report showed concern that some of the major economies – especially those of the US and the UK – were in continuing external current account deficits, whereas the likes of China and Germany headed in the opposite direction with on-going surpluses. Interestingly, the study concluded that the euro’s valuation was in line with the bloc’s fundamentals but that it was probably too low by some 15%, in relation to Germany’s high current account surplus.

Despite almost dire IMF warnings of its economy heading south, including the fact that it considered the greenback overvalued by as much as 20%, the US continues in positive territory posting a 2.6% Q2 annualised growth hike, driven by increased business expenditure and a boost in consumer spending (which accounts for 67% of the country’s economy). Labour costs in Q2 were 0.5% down from 0.8% in the previous quarter. However, the country’s national debt now tops US$ 20 trillion (of which China and Japan both chip in US$ 1.1 trillion) and most agree that this figure should be reined in by a combination of measures, including improving productivity, boosting savings and passing structural reforms that so far have eluded Donald Trump.

There is no doubt that the last eight months have seen a steep learning curve for the US President but he has defied many who thought he would not even last that long. With the appointment of General John Kelly as Chief of Staff – and the demise of many insiders, including the likes of Bannon (Chief Strategist), Coney (FBI Director), Priebus (Chief Strategist) and Scaramucci (Communications Director) – some sort of normality and stability should return to the White House. After 200 days in office, the Donald Trump can tweet I’m Still Standing!

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