Dubai-listed developer Damac Properties has stopped buying land for new developments but is open to joint ventures with other developers and land owners, even as the company reports its fourth consecutive quarterly decline, its chief financial officer said.
"We have decided for the foreseeable future that we are not buying land. If somebody has got land in a location where we are attracted to, we would [form] a joint venture with these people," Adil Taqi told The National in an interview. "That is possible, but a full-fledged corporate merger of the two balance sheets does not make sense."
Damac, which reported on Wednesday a 68 per cent decline in third quarter profit because of plunging revenues, has no plans to merge with another developer, Mr Taqi said. The company will consider joint ventures, barter or inventory deals with land owners in different parts of Dubai, he said.
“We are always open to structure this," Mr Taqi said. Given the tighter credit market situation, the company is managing its capex carefully and will not invest in buying land for new developments, he added.
Damac, whose chairman is a business partner of US President Donald Trump, has struggled to maintain profit growth in the last few quarters in the wake of softer property market conditions. It is hard to predict accurately how the property market will behave in 2019 but the market trend “isn’t necessarily pleasing and the weak [property pricing] trend will continue,” he noted.
Earlier this year, Egyptian investment bank EFG Hermes said operational and financial challenges are expected to put pressure on Damac in 2018. Cash flow issues at the company are likely to push dividends lower and the developer may have to raise debt to meet Dh2.2 billion in repayment obligations over the next 24 months.
“Next year is going to be another difficult year,” Mr Hussain Sajwani, Damac chairman, said at a World Economic Forum event in Dubai on Monday, Bloomberg reported. “I would hope by the end of 2020, or 2021, we start coming out of this slowdown.”
There is less liquidity in the market available today than two years ago. However, it all depends on how the company manages its resources given the market situation, Mr Taqi said, when asked if Damac was facing liquidity issues. Anticipating the tougher credit situation, the company raised $400 million earlier this year, to be able to avoid raising further debt in the next three years, he added.
“That was a bold decision to go and borrow the way we did but that decision is paying dividend,” he explained.
In June Mr Taqi told The National Damac plans to reduce debt by $500m in the next three years. The company has no plans to borrow further and is on course to meet its debt reduction targets, he said.
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Read more:
[ Damac looks to reduce its debt by $500m over 3 years amid tough market conditions ]
[ Damac first quarter profit plummets 45% amid rising sales cost ]
[ Damac to experience 'cash flow pressure' in 2018, says EFG Hermes ]
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Damac has total outstanding liabilities of Dh10.1bn at the end of the September, down from Dh11.5bn reported at the end of first nine months of 2017. The company has managed to reduce its debt by about Dh100m from the end of second quarter of this year, Mr Taqi said.
Damac's net profit attributable to shareholders of the company for the three-month period to the end of September, fell to Dh230.8m missing the lowest median estimate of analysts polled by Bloomberg, the developer said in a regulatory filing to the Dubai Financial Market, where its shares are traded.
“Our medium to long term outlook remains optimistic, as we push forward with our landmark developments at full force,” said Mr Sajwani.
Revenue for third quarter plunged to Dh1.54bn from Dh2.29bn reported for the corresponding period in 2017. Although, cost of sales fell to Dh1.08bn, financing cost climbed to Dh83.6m for the developer.
Damac’s net profit for the first nine months of the year more than halved to Dh1.09bn from Dh2.3bn reported at the end of same period in 2017.
In August, Mr Taqi said the company is targeting at least Dh5bn of annual sales to cover its costs while it works to pay down debt, however, it may not be able to achieve the target in 2018 given the market situation.
Hitting the Dh5bn-mark is a possibility next year. Despite a difficult year, the company has delivered 3,800 units in the first nine months, the most it has achieved compared to any other, he added.
