Leading Dubai developer Union Properties reported a AED 1.5 billion loss for 2010, citing a drop in valuation of its properties. Shares of Union Properties declined as much as 7 per cent to 36 fils. The news lead to a substantial drops in stock prices of other developers, including Emaar in Dubai and Aldar in Abu Dhabi.
Shareholder equity in the company last year fell to AED 3.9bn, down from AED 5.4bn in 2009, when the company reported a net loss of AED 498,000.
Revenue for last year fell to AED 2.8bn, compared with AED 5.4bn a year earlier.
Once the second-largest developer in the emirate, Union is best known for MotorCity, the racing-themed mixed-use development in Dubai. But the company has been buffeted by the downturn in the market.
Last November the company announced the sale of the Ritz-Carlton to a private company in Abu Dhabi for AED 1.1bn to finance is mounting debt.
Union Properties is partially owned by the Emirates NBD Bank, which is partially owned by Dubai government.
February 15, 2011
Analysis and Forecast: Increasing Risk
This is another blow for the badly damaged Dubai real-estate market. Union Properties has been supported by government-backed Emirates NBD Bank, but has been struggling to pay of its mounting debt. It has resorted to selling prized assets, such as the Ritz-Carlton. The company now appears to be at a stage in trying to pay of any debt it can, through selling of assets, at much reduced values than at peak.
The company, like other Dubai developers, find it unviable to launch any new projects, as the emirate is bloated with empty residential and commercial property. The main income for the group now is from running its properties. The developer, like other Dubai developers who focus on Dubai properties, is effectively turning into a facility management company. This is a totally different business model with much reduced returns than in the past. However, the difficulty the developer faces is the massive debt it has, with questions about whether its property portfolio can pay off the debt. Returns from its current operations will in no way be sufficient to pay off the debt.
Although the Dubai government, through Emirates NBD Bank or directly could bail the developer out, it is unlikely it would and real estate developers in Dubai continue to face serious difficulties with an ultimate increased risk of bankruptcy.