The Dubai-listed developer books provisions and slashes value of investments
Union Properties swings to record Dh2.3 billion quarterly loss
Union Properties (UP), the developer whose board went through an overhaul in May, reported its worst-ever quarterly loss on Tuesday after it wrote down the value of investments and booked provisions to cover accounting errors of the firm’s previous management.
The company recorded a Dh2.3 billion net loss for the three-month period ending June, which contrasts with a Dh71.7 million profit for the same period in 2016, it said in a statement to Dubai Financial Market (DFM). Its shares, which fell by as much as 10 per cent during early trade, recovered to close trade 4.3 per cent lower at 82 fils, their lowest level this year.
The firm, primarily known for its projects in Dubai’s Motor City development, said it booked Dh2.8bn in provisions for the second quarter as a one-time charge for “the accounting irregularity by the previous management”, Union Properties chairman, Nasser Bin Yousef, said in the statement.
The provisions also include the restatement of a Dh503m gain in its 2015 account, relating to fair-value improvement applied to the unbuilt gross-floor-area on a plot of land in Motor City; valuation losses on its investment properties and the managed wind-down of its contracting subsidiary, Thermo.
“We are confident that with the developments we are planning this year, we will quickly bring back the recognised value for the long-term sustained growth of the company,” Mr Bin Yousef said.
UP said that a full overview of provisioning has been commissioned by auditors KPMG and had been disclosed to the regulator and to the shareholders of the firm.
“The provisions reflect the new management team’s prudent approach to risk and in its treatment of unbuilt or floating gross floor area from an accounting standpoint,” the company said.
Craig Plumb, head of MENA research at property consultants JLL, said UP’s move to write down value of investments is not “indicative of what’s happening in the property market as a whole as the market’s been pretty flat in areas like Motor City and Dubai Investment Park where Union Properties has its developments”.
Dubai’s property market, which recovered strongly from the 2009 property crash, has softened again in the past years as oversupply and persistently low oil prices affected investor sentiment. UP results cap a poor second quarter for most of Dubai's listed developers, following weaker financials from Damac Properties and Deyaar Development. Damac, which is US President Donald Trump’s business partner in Dubai, recorded a 21 per cent drop in net profit, below analysts' estimates. Deyaar, last month, posted a 42 per cent decline in quarterly profit.
UP went through an impromptu reshuffle at board level, which saw the resignation of former chairman Khalid bin Kalban and two other directors. Mr Bin Yousef, who took over as the firm, launched an in-depth investigation of accounting practices within the company, dating as far back as 2013. The company also appointed Ahmed Khouri as the new chief executive last month.