Union Properties, Dubai's third-largest property developer, reported a loss of Dh227.9 million (US$62m) in the second quarter as the company saw its investment properties lose value. The company wrote down Dh304m in the value of its rental buildings in the first half of the year, blaming "the current conditions of the property market".
Most of the Dh1.29 billion in revenue came from the recognition of profit made on previous sales of homes that were delivered in the second quarter. Property developers generally recognise profit for properties as they are finished. Analysts said Union Properties was troubled by the sharp downturn in the property sector, but it seemed to be dealing with the issues. In the second quarter alone, the company restructured short-term debt worth about Dh956m so that it could now be paid over six years.
"All in all, they are possibly over the hump," said Chet Riley, an analyst at Nomura Securities in Dubai. "They are still over-leveraged and there is a high degree of risk off the balance sheet. But it appears that they are managing the situation." Analysts said cash reserves were becoming an increasingly critical issue for Union Properties. It had just Dh79m as of the second quarter, down from Dh251m in the first quarter. Sana Kapadia, an analyst at EFG-Hermes, said in a research note that the company's "liquidity position is far from healthy".
Another concern for the company was the delivery of units, which slowed in the second quarter, Ms Kapadia wrote. "The impact of slower deliveries, with a greater proportion now expected to spill over into 2010, look likely to reduce our revenue and earnings forecasts for 2009 sharply," she said. "While the company believes it will be able to rent some of its unsold inventory, given the underlying weak Dubai market, we believe high occupancy levels and hence positive cash flows on any new rental properties will also take longer to take shape."
An inability to get financing has hampered Union Properties over the past few months. In February, Union Properties put the construction of its Dh1.69bn Formula One theme park, originally due to open this year, on hold because of a shortage of finance. The company is also going through a management shake-up. In June, Simon Azzam stepped down as chief executive after serving as a senior executive for 23 years. The company chose Khalid al Jarwan, a former executive of Dubai Investments Group and Abu Dhabi National Oil Company, as general manager. Mr al Jarwan has yet to make any official statements on behalf of the company.
The company's shares rose 3.6 per cent, or Dh0.04, in trading Thursday, closing at Dh1.15. @Email:bhope@thenational.ae
