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Abu Dhabi, UAESaturday 20 October 2018

Exclusive: Damac to maintain Dh5bn of annual sales amid debt reduction plan  

Dubai developer is working to pay down $500m of debt over the next 2-3 years

Adil Taqi, chief financial officer of Damac Properties, said the company aims to maintain sales above Dh5bn to cover overheads amid a debt reduction plan. Chris Whiteoak / The National
Adil Taqi, chief financial officer of Damac Properties, said the company aims to maintain sales above Dh5bn to cover overheads amid a debt reduction plan. Chris Whiteoak / The National

Damac Properties is targeting at least Dh5 billion ($1.36bn) of annual sales to cover its costs while it works to pay down debt over the next three years and increase its profits after a challenging period, its chief financial officer said.

“We’d like to maintain sales at a certain level to keep our overheads covered,” Adil Taqi told The National in an interview on Tuesday. “If you consider we reached around Dh7bn in 2016 when the market first softened, we believe [a target of] Dh5bn is reasonable during the current low cycle.”

Demand for Damac’s pipeline of luxury and affordable units remains strong, he added, and land values in Dubai as a percentage of gross development value remain low – around 30 per cent compared to 60 per cent in London or Hong Kong, making the emirate “an extremely attractive market”.

“If you’re in the right city and you’ve got the right platform it’s impossible not to make money, but what is possible is to get the liquidity wrong. Right now our eyes are very closely on liquidity and how we manage that going forward,” Mr Taqi said.

The second largest Dubai-listed developer posted its third quarterly profit drop in a row in August, with net profit down 46 per cent year-on-year to Dh378.2m as of June 30. Developers across the UAE have seen their earnings plummet in the past three years as low oil prices hit consumer purchasing power and caused a market downturn.

Sales prices and rents have continued to fall in most UAE communities throughout 2018, however many analysts say the market is close to the bottom and prices could start to recover from 2019.

Damac has around $1.45bn (Dh5.32bn) of debt on its balance sheet, including $180m in commercial bank loans and the rest from private placements or capital market deals. The company, which issued a $400m sukuk in April, aims to bring the debt to below $1bn by paying down $500m over the next two to three years.

While this strategy is being implemented there are no plans to raise further debt or tap the markets for new financing unless there is a compelling need, Mr Taqi told The National during the Cityscape property exhibition on Tuesday.

Damac – which instigated a thorough shake-up of its sales team around a year ago, shedding staff and recruiting new staff without reducing overall headcount – will continue to identify cost-saving measures to stay as lean as possible. The company will also be selective about what parcels of land it brings to market, to ensure that the cost of construction and sales does not impact its bottom line, the CFO said.

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Damac looks to reduce its debt by $500m over 3 years amid tough market conditions

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It could be another year before Dubai sees a recovery of property values to pre-2016 levels, the last market peak, but the combination of attractive payment plans and lower pricing levels is creating fresh opportunities for buyers and means “the end is closer than we think”, he added. “The downside risks for buyers are a lot lower than the upside potential, which I think can excite the market.”

Damac aims to do two things during the interim period: move the ready inventory it has, at sensible prices and payment plans, and pay down its debt. The decline in profits Damac registered in the past 12 months has come after “phenomenal growth” that was fundamentally unsustainable – in 2014, Damac’s earnings jumped to Dh11bn from just Dh400m three years earlier, Mr Taqi said.

Damac would consider a tie-up with another developer if it gave the company access to desirable new land, capital and know-how, and Saudi Arabia and Oman are appealing markets for entry in future, the CFO said. However, there will be “no significant capital deployment” until the debts are paid down.