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Dubai property company woes continue

Deyaar sees third consecutive loss, of 243 million dirhams; Union Properties swings to loss in second-quarter; Drake & Scull net profit nearly halves.

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August 14, 2010 2:41 by



Second-quarter earnings from Dubai-based property and construction companies fell short of expectations, in a sign the battered sector’s problems have further to run.

Dubai’s second-largest property developer by market value Deyaar reported its third consecutive quarterly loss on Thursday, while Union swung to a loss. Contractor Drake & Scull’s profit almost halved.

Deyaar made a loss of 243 million dirhams ($66 million) in the three months to end-June, compared with 76.4 million dirhams a year ago. EFG-Hermes forecast a net profit of 19 million dirhams for the quarter.

Deyaar said in a statement it continued to maintain a conservative approach, taking “significant” provisions in the quarter.

“There’s a financial stalemate with the banks – banks aren’t giving project finance or mortgage finance and until that happens…I can’t see the property market improving drastically,” said Chet Riley, property analyst at Nomura.

House prices have plunged some 50 percent since the global financial crisis hit, resulting in billions of dollars in project cancellations and thousands of job cuts, while oversupply has dampened hopes of a quick turnaround in prices.

Deyaar plans to hand over five projects in 2010.

While Deyaar is relatively well capitalised with a small debt burden, its strategy post 2011 is unknown, Riley said.

Deyaar’s shares edged 0.3 percent higher on Thursday, outperforming Dubai’s bourse, which fell 0.7 percent.

FROM BETTER TO WORSE

After a 66 percent rise in first quarter net profit, Union Properties returned to a loss of 349 million dirhams in the second quarter, according to Reuters calculations.

EFG Hermes forecast a net profit of 33 million dirhams for the quarter.

First half net loss stood at 299.13 million dirhams, due to non-cash provision against valuation of properties, reflecting property market conditions, the company said in a statement, adding it will focus on completion and handover of two properties in Dubai during the remainder of the year.

Shares of Union Properties closed 0.8 percent higher.

In January, Credit Suisse slashed its price target for the stock to 0.03 dirhams from 0.80 dirhams and said even if the company overcame its liquidity squeeze, there would not be much equity left after meeting its debt obligations.

“Union Properties issue remains liquidity. It will have to continue to make asset sales and monetise developments so that it can ultimately repay its loans that have been restructured,” said Riley.

He said he saw a weakness in the share price of both companies, in line with general market weakness, while results “capped off a bad earnings season for UAE real estate companies”.

BRANCHING OUTSIDE A BATTERED MARKET

Contractor Drake & Scull International, which is focusing on winning contracts outside its home market, saw its second-quarter net profit slashed by nearly half to 44.5 million dirhams.

Analysts polled by Reuters in July forecast an average net profit of 51.8 million dirhams for the quarter.

Zeina Tabari, chief corporate affairs officer at Drake, attributed the almost 49 percent drop year-on-year to changing market conditions.

“Revenues dropped because most of the projects executed were in Dubai and projects outside the UAE will take time to generate revenues, which will be in the second half,” Tabari said.

Drake — which specialises in mechanical, engineering and plumbing (MEP) businesses — has been rapidly expanding its operations outside Dubai, where house prices plunged some 60 percent since their peaks in 2008.

“Drake & Scull’s numbers are roughly in line with our expectations. With record year-to-date contract awards the company is well positioned for a stronger second half,” said Roy Cherry, senior VP of research at Shuaa Capital.

(By Tamara Walid and Matt Smith. Editing by Jason Benham and David Cowell)



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