Abu Dhabi-based Eshraq Properties has shelved merger and acquisition plans in favour of developing its own projects. This, after it failed to reach a deal to merge with Reem Investments.
Ajit Joshi, a member on Eshraq’s board of directors and investment director at ADCM Altus Investment Management, said Eshraq is instead focusing on developing its land bank as soon as possible. His comments come after Eshraq in late June said it is dropping plans to merge with Reem; a deal that would have created Abu Dhabi’s second largest listed property developer.
A statement at the time said the process could not be completed, as the two parties “have not been able to agree on major commercial matters underpinning the deals.”
Speaking to Gulf News, Joshi said there were “valuation differences between the two companies.” The deal, if completed, would have seen Eshraq acquire all of Reem’s assets in return for new shares issued to Reem investors. No cash would have been involved in the transaction.
“We may have certain expectations, the Reem board or shareholders may have certain expectations, and sometimes they don’t match,” he said.
Two days after Eshraq announced it was dropping the Reem plans, the company had said it was still eyeing acquisitions, adding its excess liquidity “remains ideal for acquisition of income-generating assets.”
But Joshi said while Eshraq is still interested in acquiring new properties, it is currently not in any talks about pursuing any M&A deals. “Now is a good time to invest in distressed assets, so we’re looking at what can generate income and that we can acquire.”
The company is developing three projects; two in Abu Dhabi and one in Dubai. In the capital, Eshraq is developing a residential tower that is to be completed in the second quarter of 2020. Located on Reem Island, it has a development cost of Dh200 million.
Eshraq is also in the design phase of another residential project in Abu Dhabi, with the units available on sale to Emiratis. Located in Between the Two Bridges, the project could cost Dh800 million to Dh900 million.
In Dubai, the company is developing the first phase of a project that will include two residential buildings and one for hotel apartments. Construction in Jumeirah Village Circle will start soon, and is expected to take 30-32 months, with a cost of about Dh350 million.
Asked about higher supply and slow demand pushing rents and property prices down, Joshi said he expected to see an improvement soon. “Where we see prices right now is they’re very close to the cost of construction plus what we would call a healthy margin for a developer,” he said.
“I think by early next year, we should start to see the green shoots in the industry. We’re actually already seeing them, with rents stabilising, at least in our properties. Eventually, the cycle will stabilise and it will reach a healthy supply/demand level.”
As for financial outlook specific to Eshraq, the developer is expecting an uplift from investment income this year. In 2017, Eshraq reported a net profit of Dh32.2 million, a spike from the Dh301 million in losses in 2016.
In its latest financial statement, the developer recorded Dh14.7 million in profit for H1-2018, compared to Dh318 million in losses in 2017. By the end of this year, if Eshraq is generating net profit as expected, it will look at giving out dividends, Joshi said.