Union Properties shares have fallen to their lowest price on record after the company said it made significant provisions to cover losses for contracting costs and declining property valuations. The developer of Dubai's Motor City said it had swung to a loss of Dh498 million (US$135.5m) last year, sending its shares down by 2 per cent to close at Dh0.49 yesterday.
Rising defaults among homeowners have hurt the profits of developers this year. Struggling investors have been missing payments on properties that were bought off-plan and are now worth up to 50 per cent less than they paid for them. Union Properties, which lost about 90 per cent of its value in the past 18 months because of the downturn, is depending on asset sales and rentals to boost its income.
Its earnings before provisions for the year was Dh373m, while revenue stood at Dh4.4 billion, the company said in a statement to Dubai Financial Market. Saud Masud, a property analyst at UBS bank, said developers across the board would continue to make provisions for several more quarters as property values continued to decline. "We're in the early-to-mid cycle of this property downturn and we've got a long way to go," Mr Masud said.
"Many companies have liquidity issues and they have assets on the balance sheet which are losing value." The company's chairman, Khalid bin Kalban, said in November that it was looking to sell a 50 per cent stake in its district cooling unit, Emicool, as well as other assets across a vast portfolio that included retail, hotel, commercial and residential properties, to boost cash flow. The company has also put a Dh1.5bn price tag on its Ritz-Carlton hotel, which is due to open this year at the Dubai International Financial Centre.
"It's very realistic that these assets can be sold, for the right price," said Mr Masud. "The main thing is liquidity and keeping things running. When assets become non-core, they tend to be parted with in lieu of liquidity." Union Properties is looking to the rental sector to generate income from its units coming on to the market this year. It plans to transfer 5,000 units, divided equally between residential and commercial, to its rental portfolio, which will be worth an estimated Dh500m a year.
The residential units are unsold properties or those on which customers have failed to keep up payments. The company is also counting on the handover of property within Motor City, the Green Community, Index Tower and Limestone House in the first part of this year for additional revenue. Mr bin Kalban said last month that repayments on the firm's Dh6.5bn debt, which were due to begin this year, had been delayed until 2011.