Union Properties last year sold the Index Tower to Emirates NBD. Antonie Robertson / The National
Union Properties last year sold the Index Tower to Emirates NBD. Antonie Robertson / The National

Property

Union Properties first-quarter profit plummets 84%

UP’s shares on the Dubai Financial Market reacted negatively to the earnings news, closing 9.7 per cent lower at Dh1.21, down from Dh2.36 a year ago.

Sananda Sahoo

May 11, 2015

The Dubai developer Union Properties yesterday reported an 84 per cent drop in first-quarter net profit on a sharp decline in other income.

Profit during the first three months of the year touched Dh28.1 million, down from Dh179.7m during the same period last year. Other income came in at Dh4.3m for the quarter compared with Dh103m a year earlier. The category last year mainly consisted of saving Dh100m thanks to a liabilities settlement with contractors of certain projects, it said.

UP's shares on the Dubai Financial Market reacted negatively to the earnings news, closing 9.7 per cent lower at Dh1.21, down from Dh2.36 a year ago.

“The decline in bottom line was driven by a drop in other income and revenue from construction activities,” said Harshjit Oza, an analyst with Naeem Brokerage in Giza, Egypt.

Union Properties said that gains from contracting activities shrank in the first quarter even as its sales and property management revenue increased.

The developer did not release any new projects in the quarter. Last month, Union Properties said it had signed a deal with Riyadh-based Naif Al Rajhi Investment to enter the real estate market in Saudi Arabia.

The gain on the sale of investment properties fell to Dh68m from Dh77.7m year-on-year, but the developer reported a Dh16.5m gain on valuation of properties. It did not report the gain on valuation of properties for the first quarter last year.

The company was not available for comment.

During the quarter, it sold an investment property with a carrying value of Dh495.3m, resulting in a net gain of Dh68m.

After 2010, to shore up its cash balance, the developer sold some of its key assets such as the Ritz-Carlton Hotel and substantial stakes in Limestone House and Index Tower to Emirates NBD.

Despite a slowdown in the Dubai real estate market, some other developers such as Emaar and Nakheel reported strong results in the first quarter.

Emaar’s net profit of Dh1.02 billion for the period was 7 per cent higher than the Dh957m reported a year earlier. Nakheel more than doubled its net profit in the first quarter to Dh1.35bn, up from Dh629m.

Among the factors that contributed to the slowdown in Dubai’s real estate sector since last summer were “regulatory changes, [such as] higher transaction taxes and tighter mortgage lending restrictions, the surging [US dollar] making Dubai property relatively more expensive for foreign investors, and weaker sentiment on the back of the sharp decline in oil prices”, Emirates NBD said in a note last month.

ssahoo@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”