Investors would likely benefit from Union Properties's Ritz-Carlton sale

What's up Union Properties could use cash, and the sale of a luxury hotel could greatly aid it.

The scheduled opening in May of the Ritz-Carlton in the Dubai Financial Centre (DIFC) was to epitomise the ambitions of Union Properties to grow beyond a modest developer of small residential communities, office blocks and warehouses. The news this week that the firm is in talks to sell the luxury property before it opens must be humbling for company executives. But it is probably the best thing for investors. As the emirate's property sector boomed, Union bankrolled master developments such as Motor City, which was to comprise hundreds of homes, offices and a Formula One theme park. In the process it accumulated Dh6.5 billion of debt, of which Dh2.8bn has been rolled over for repayment to next year from last. The company also announced total losses of Dh498 million last year, mostly as the result of declining property values and provisions to cover contracting shortfalls. In other words, the company needs cash. So it makes sense for Union to scour its portfolio for sellable assets that could boost liquidity. There are reportedly at least two suitors for the Ritz-Carlton, which could fetch as much as Dh1.5bn. "The hotel is at DIFC and is a very valuable asset," said Majed Azzam, a property analyst at Al Futtaim HC Securities. "With tourism to Dubai picking up it should have good occupancy levels. But right now, Union Properties isn't in a strong position to negotiate." And that is the key question, whether the company will be able to command a suitable price. Union is also looking to sell a 50 per cent stake in its district cooling unit, Emicool, which has been valued at between Dh400m and Dh500m. "So as long as they can hold on to them and not sell at distressed prices, then they could be able to make some good return," Mr Azzam said. "However, timing is crucial." The company's shares closed at Dh0.46 yesterday, more than 30 per cent below their 52-week high of Dh1.33. [e-mail]