• Two new launches: Residential tower at Aykon, spa villas at Akoya 02 Damac Properties (Damac) has had two new launches in 2Q16; i) its first residential 60-storey tower at its Aykon City, comprising apartment units; and ii) a spa villas launch at Akoya Oxygen. This is in addition to the release of more clusters for old launches at Akoya Oxygen and Akoya by Damac. We note that the Akyon City launch took place in Ramadan, an interesting timing, given the weakness in real estate activity that is usually associated with the month. Earlier in June, management indicated that contracted sales YTD at Aykon City totalled cAED900mn, of which cAED400mn were completed in 2Q16, indicating steady market demand. We expect total contracted sales in 2Q16 at cAED1.9bn, roughly in line with the trend seen in the last three quarters, but c12% weaker Y-o-Y. Our numbers for contracted sales in 2016e reflect a roughly similar Y-o-Y weakness (-14%) to AED7.8bn, but c11% above management’s guidance of AED7.0bn.
• Projects execution is on track, according to management Contracts worth cAED3bn were awarded in 1H16, according to Damac management. The design of Akoya Oxygen’s golf course is complete, and the company is in the process of selecting a main contractor for it. The golf course at Akoya by Damac is completed, and the handover of c766 villas is planned before year-end. Our assumptions incorporate AED3.5bn in outflows for the year, of which c45% is to be directed to Damac Oxygen and c33% to Akoya by Damac.
• Reported numbers to likely disappoint the market We expect revenue of AED1.7bn in 2Q16, down 27% Y-o-Y on relatively lower contribution of sale of villas (and therefore less recognised land sales), GPM at 55% (unchanged Y-o-Y) and net income at AED771mn (2Q15: AED1.4bn), which may disappoint the market. Management has guided for AED1bn in income from cancellations in 2016-17e, of which AED312mn were reported in 1Q16. Our expectations for 2Q16 incorporate AED100mn in income from cancellation and AED539mn for 2016e. We expect a 4% drop in revenue Y-o-Y in 2016e and 10% in net income. Management is guiding for flat growth Y-o-Y in revenue and net income for the year.

Mai Attia
Sara Boutros