Dubai developer Union Properties plans sale of non-core assets to fetch Dh1b – will that be enough?
These sales could bring down accumulated losses to below 50% in 2 years
Dubai: Union Properties has come up with a plan of action to handle its Dh2.9 billion in accumulated losses – generate Dh1 billion in proceeds from sale of all non-core assets in the next two years.
The Dubai developer has given its most detailed accounting of how to emerge from the sustained run of indifferent performances in recent years, capped by a Dh1 billion loss for 2021. But the current management reckons that a turnaround is possible, which is where the sale of non-core assets comes in.
If the plan succeeds, the Dh1 billion netted will ‘allow to deleverage from bank loans and invest in new projects’.
Union Properties’ accumulated losses to capital is expected to drop below 50 per cent by December 2025. But given that currently, this ratio is above 50 per cent, UP is ‘required to call for a general assembly meeting to vote on either dissolving the Group or to continue its activity with an appropriate restructuring plan within 30 days of issue of these consolidated financial statements’.
“The management has prepared a short- and medium-term strategy plan for a period of three years from the date of these consolidated financial statements,” the developer said.
“There is a high probability that the Group will have adequate resources to continue its operation in the foreseeable future,” UP added in trying to win over the confidence of shareholders who will vote on the plan.
Cost cutting
The cost ‘rationalization’ measures will continue to further increase operating profits and ‘de-leverage the balance-sheet’. Union Properties did turn a profit for 2022, but it does pale against the sort of numbers other big developers generated during the period and riding the Dubai boom.
Union Properties believes the boom will lift its numbers too. “Now is the right environment for the company to reinvent itself as a strong developer in the UAE.”
Win on debt restructure?
The latest update provides an update on parts of the debt restructuring that’s ‘successfully completed’. The current management had been in protracted talks with lenders, including Emirates NBD, to carve up a working arrangement that would also ease the pressure on UP on payment obligations.
This allows Union Properties to be in a ‘strong position to leverage its deep expertise, reputation, and highly sought after land bank locations to drive growth and capture opportunities’.
“The restructuring supports improved profitability and cash flow generation by effectively reducing financing costs,” the statement added.
But the talks with Emirates NBD on the legacy debt is yet to be completed. But the one with Emirates NBD is yet to be completed. UP will update the market of ‘any developments as it continues to deliver its turnaround strategy’.
Get the profitability going
All through 2022, Union Properties’ ‘primary focus’ was to put a floor under its profitability drop. And transform into an ‘organisation that is able to generate sufficient profit and free cash flow on a sustainable basis, a path to ensure stable performance and solid shareholder returns’.
UP has thus stated its case to shareholders that a turnaround is still well within the domains of possibility. Market watchers say the management has done enough to get shareholders to agree to the plans.
What Union Properties has been emphasising is ‘fiscal discipline’ – ‘This management has shown laser-focus on costs,” said an analyst. “But a sustained turnaround will need UP to show they have the funds to launch new projects. That’s the crunch.”