DUBAI, (Reuters) – Dubai’s Emaar Properties said on Tuesday third-quarter results at U.S. unit John Laing Homes (JLH) would be below earlier forecasts due to the subprime mortgage crisis.
Shares in Emaar, the largest Arab property developer by market value, tumbled to a 28-month low on Sunday as foreign investors seeking safer assets sold the stock, fearing mortgage defaults would hurt its operations in the United States.
“Third-quarter JLH results are going to be lower than earlier estimates — not incurring losses, but profits won’t be high,” Amit Jain, chief financial officer of Emaar Dubai, said on a conference call for analysts.
Emaar’s shares fell a further 1.46 percent on Tuesday to its lowest close since April 12, 2005, having tumbled 7.8 percent in the past five days.
Emaar’s home building subsidiary, John Laing Homes in the United States, made up 16 percent of group revenues in the second quarter. The slowing U.S. housing market was one of the reasons the Dubai developer had missed analysts’ profit forecasts for that quarter, too.
That was before the rising defaults on U.S. subprime mortgages — loans made to less creditworthy individuals — spilled into global credit markets in July, driving up borrowing costs and triggering a flight from risky assets.
Uncertainty about a deal with the Dubai government has increased the perception of risk surrounding Emaar.
The company’s shares have fallen about 14 percent since Emaar said on March 19 it would give the government a majority stake by swapping stock for land with Dubai Holding, owned by the emirate’s ruler.
Emaar has yet to give details of the deal, including the extent and value of the land that will be exchanged for stock.
The proposed land-for-shares deal with Dubai Holding was being looked at, and may be finalised in September, Emaar said during the call.
The deal could increase Emaar’s land holdings in Dubai by 55 percent, giving the developer more room to expand at home until foreign projects start generating profit, analysts have said.
Emaar operates in 16 countries, but Dubai accounts for more than 80 percent of revenue.
Emaar bought John Laing for $1.05 billion in June 2006 as the U.S. housing market was peaking after five years of expansion. With defaults on mortgages and a glut of new homes, housing construction in the U.S. is sliding.
U.S Commerce Department data showed last week that building permits, an indicator of construction plans, and housing starts fell to 10-year lows in July.