Union Properties reports Q1 net loss as it pursues turnaround strategy

Developer posts a net loss of $3.4m for the period, primarily due to finance costs related to legacy debt

Union Properties says revenue rose during the quarter on Dubai's rebounding property market. Pawan Singh / The National

Dubai developer Union Properties reported a loss for the first quarter of 2022 as it embarks on a revised turnaround strategy to restructure legacy debt and return to profitability.

The company recorded a net loss of Dh12.5 million ($3.4m) for the three months ended March, primarily due to Dh17m in finance costs related to legacy debt, which the "new management team continues to make progress" in restructuring, the developer said in a filing to the Dubai Financial Market on Friday.

That compares with a net profit of Dh5.6m reported in the first quarter of 2021. The previous year's figures also included one-off gains of Dh6.9m from the sale of an asset, the developer said.

Revenue from contracts rose by 7.6 per cent annually to Dh105.7m in the first quarter, largely due to the continued rebound in Dubai’s property sector and a significant improvement in the performance of the group’s subsidiaries, it said.

The developer's shares were trading 1.58 per cent higher at 26 fils on the Dubai Financial Market at 10.50am UAE time.

The results marked an "improved quarter for Union Properties as we increased our revenues and drove cost efficiencies across the business", managing director Amer Khansaheb said.

"We are also beginning to see the benefits of our business turnaround strategy and are confident that we will see further positive progress in the months ahead. In the meantime, our focus remains on addressing the company’s legacy issues head on, restructuring our debt and rebuilding shareholder trust.”

Union Properties ran into problems last year after the UAE's market regulator, the Securities and Commodities Authority, filed a complaint against its senior executives in October, accusing them of forgery, abuse of authority, fraud and causing damage to the interests of the company.

A new board was appointed in December, and a complete financial and accounting review was conducted by a third party, which uncovered "widespread fraud and misconduct by the company’s former management involving forgery, misappropriation of funds and various other financial violations", Union Properties alleged.

Earlier this month, its shareholders voted for the company to continue operating and approved a revised turnaround strategy at its annual general meeting, after the developer reported a 2021 net loss of Dh966.76m, pushing the ratio of its accumulated losses to capital to 68.3 per cent.

Under UAE law, if the accumulated losses of a joint stock company reach half of its issued capital, shareholders are required to decide whether to continue with the company's activities or to dissolve it.

The value of total accumulated losses as of March 31 stood at Dh2.9 billion, mainly due to the fair value loss of more than Dh3.17bn related to investment properties recorded in the 2017 and 2021 financial years, Union Properties said.

The company's turnaround strategy aims to tap into its existing real estate portfolio and adjacent services subsidiaries to capitalise on the current momentum in the Dubai property market.

The strategy is already showing "positive results, with good progress on cost efficiencies". Administrative and general expenses are down 21.2 per cent a year, the company said.

The merging of property and cold store management operations with Edacom, its community management subsidiary, was a "significant factor" in reducing costs and improving operational efficiencies during the quarter.

Revenue growth was supported by Dubai Autodrome, which reported a 38 per cent increase in revenue and a 61.2 per cent rise in net profit during the first three months of the year.

This was attributed to the launch of the Motorsport Business Park 2 warehouse complex, an increased uptake of corporate group packages and major international motorsport events, the company said.

Earnings before interest and tax stood at Dh5m, about the same amount as in the same period last year.

As part of measures to address the accumulated losses, the company plans to close existing projects, focus on its core-business activities, acquire new projects in the UAE and improve operational efficiency.

It also plans to recover misappropriated funds through legal procedures, develop its landbank, focus on cash-generating activities and restructure outstanding debt to reduce finance costs.