Dubai-based developer Union Properties on Tuesday posted a loss of more than 2.2 billion UAE dirhams ($610 million) for the three months to June 30, compared with a profit of 71.7 million dirhams for the same period last year, as it reported a massive writedown in the value of its investment properties.
A statement accompanying accounts filed for the period show that the company has written down the value of its investment property portfolio by 2.07 billion UAE dirhams as a result of four factors.
Firstly, it said that it has discovered a "suspected irregularity" around a transaction completed in 2015, which led to a revaluation gain being recorded on a 1.68 million square foot plot of land to which it does not have adequate title and ownership rights over.
It said the suspected irregularity was "identified based on new evidence identified by the company's board of directors during the six month period", and that it has reported the incident to the regulatory authorities.
The company said that it has had to write off the 503 million UAE dirham fair value gain that had been reported on this asset in 2015.
Secondly, it said that it has employed a third-party consultant to update its masterplan for the Motor City community, and found that the available land on which it is able to develop is smaller than previously thought.
It said that it is only likely to be able to build on 12 million sq ft of a 14 million sq ft site, and has written off the value of the remaining 2 million sq ft completely. This has led to a further valuation loss of 690 million UAE dirhams.
Thirdly, the company also commissioned independent valuer Valustrat Consulting to assess the value of the rest of its portfolio. It said the new valuation indicated "an expected significant increase in new supply of plots of land" in and around its existing bank. This, and the fact that other developers have increased activity and are delivering more units has led to "more competition and reduced prices for developed properties as well as land prices". This has led to a further 1.2 billion dirhams being written off the value of its investment properties. Its remaining portfolio has been valued at just over 3.6 billion dirhams.
Finally, the company has said that it is working on a "managed wind down" of Thermo, its mechanical, electrical and plumbing (MEP) contracting business, which will cost it a further 196 million dirhams.
New chairman Nasser Butti Omair Bin Yousef, who was appointed in May following a contested board meeting which saw former chairman Khalid Bin Kalban removed from his post, said that the actions being taken "are in line with protecting the intrinsic value of the UP brand and its proud heritage and take a one-time charge for the accounting irregularity by the previous management".
“We are confident that with the developments we are planning this year, we will quickly bring back the recognised value for the long-term sustained growth of the company,” he said