* Aldar has diversified from property sales into rentals, hotels
* This helped mitigate against volatility in real estate sector
* First-quarter net profit rises 36 pct to 618 mln dirhams
* Revenue falls 19.5 pct to 1.38 bln dirhams, but profit margin up (Adds details, CFO quote)
By Matt Smith
DUBAI, May 14 (Reuters) - Abu Dhabi’s Aldar Properties reported a 36 percent rise in first-quarter net profit on Thursday as costs fell and earnings from its rental business surged.
Aldar, like other developers in the United Arab Emirates such as Dubai’s Emaar Properties, has diversified its income away from property sales and into recurring revenue businesses - such as residential, office and retail rentals, plus hotels and hospitality.
This has helped mitigate volatility in the country’s real estate sector - which has gone from boom to bust to boom again - and Aldar has now reported rising profits in seven out of the last eight quarters.
It made a net profit of 618 million dirhams ($168.3 million) in the three months to March 31, it said in a bourse statement. That compared with a profit of 453.4 million dirhams in the corresponding period of 2014.
Analyst SICO Bahrain had forecast Aldar - builder of Abu Dhabi’s Formula One circuit - would make a quarterly profit of 509.2 million dirhams.
Aldar’s first-quarter revenue fell 19.5 percent to 1.38 billion dirhams, year-on-year, but its quarterly gross profit margin rose to 47 percent, from 20 percent.
The higher margin was due to “a significant improvement in the quality of our earnings”, Chief Financial Officer Greg Fewer said. “This is set to continue,” he added.
Quarterly gross profit from recurring revenue jumped 61 percent to 368 million dirhams.
Aldar’s first-quarter revenue included 579 million dirhams from property development and sales, 453 million dirhams from investment properties - residential, office and retail rentals - and 157 million dirhams from its hotel business.
Direct costs dropped to 737.5 million dirhams, from 1.37 billion dirhams in the prior-year period.
The company’s borrowing costs fell to an average of 2.75 percent, from 5 percent a year earlier, Fewer said, after it paid off some debt and ratings agencies upgraded the company.
This enabled finance charges to fall 59 percent quarter-on-quarter, Fewer said.
The company booked property sales and reservations of 1.2 billion dirhams in the first quarter.
Aldar reduced its gross debt to 8.2 billion dirhams, from 9.2 billion dirhams at the end of 2014. This helped cut its net debt-to-equity ratio to 16 percent from 25 percent at the end of last year.
State-owned fund Mubadala Development Co owns 30 percent of Aldar, Thomson Reuters data shows. (Additional reporting by Stanley Carvalho; Editing by Anand Basu and Pravin Char)