Real estate giant Solidere’s results are projected to show a rise in profits to $111.1 million for 2016 compared to an $87.2 million loss in 2015, thanks to improved property sales, FFA Private Bank said in report about the company.
“We forecast net profits for 2016 at $111.1 million [compared to $87.2 million loss in 2015]. We highlight that 2015 results were weighed by material provisions mostly allocated for impairments and contingencies, which are not expected in 2016,” FFA said.
Solidere recorded net profits of $72.1 million in the first six months of 2016 compared to a loss of $28.71 million in the same period of 2015.
The company is one of the largest real estate developers in the Middle Eastern region.
Solidere has rebuilt the devastated Downtown Beirut area after late former Prime Minister Rafik Hariri came to power in 1992.
It is also the only real estate firm listed on the Beirut Stock Exchange.
“We update our forecasts ahead of 2016 earnings on stronger revenue from land sales in the back half of the year. We maintain our cautious view on shares given [the] lack of visibility on cash flow for the medium term as [a] renewed sense of optimism from recent political developments has not yet translated into increased demand for high-end real estate,” FFA said.
FFA projections on the performance of Solidere are fairly credible due to its well-researched analysis.
It noted that there was a slight improvement in real estate transactions in Lebanon in general in 2016.
“[The] number of real estate transactions was slightly higher in 2016, up 1.4 percent year-on-year to 64,248 from 63,386 in 2015, reversing a decreasing trend witnessed in 2015 and reflecting an improvement in the real estate sector throughout the year. The total value of real estate transactions grew by 5.9 percent year-on-year, reaching $8.5 billion in 2016 from $8.0 billion in 2015, while construction permits increased 2.8 percent year-on-year and cement deliveries were up 1.4 percent year-on-year,” FFA said.
It attributed the good results to the political developments such as the election of a president and formation of the government.
“While the recent local political developments resulted in a renewed sense of optimism, the outlook for the next months will depend on government efforts to ratify the state budget and agree on an electoral law for the upcoming parliamentary elections. Subsequently to the end of Q4 2016, real estate transactions rose in volume in the first two months of 2017 yet declined in value given a lower portion of transactions in Beirut, which represents the highest value among other regions,” FFA said.
The bank also forecast a reasonable rise in from the land sales in Downtown in 2016.
“We forecast an increase in revenue from land sales in 2016 while rental revenue [is] expected [to be] flat to lower despite [a] stronger contribution from [the] North Souks,” FFA added.
It expected revenues from land sales at the end of last year to be around $213 million.
“We update our forecast for revenues from land sales to $213.0 million in 2016, which includes additional deals expected to be recognized in the back half of the year, up from $26.8 million in 2015. Revenues from land sales remain the main driver of Solidere revenues in line with the company’s strategy, with gross revenues expected to reach $276.2 million up from $91.3 million in 2015,” FFA said.
It added that the revenues from rents in the North Souks will offset the lower lease income in other areas of Downtown.
“Rental income [is] forecast [to be] roughly stable at $55.7 million as revenue from [the] North Souks (which includes the Cineplex, food court, entertainment center and L-Building) and parking spaces [is] expected to offset slightly lower lease income in the pre-Souks/South Souks portfolio. Revenues from rendered services are expected at $7.2 million, slightly above [the] 2015 level while revenues from hospitality continue to wind down,” FFA said.
