UP sees 12% rise in 2008 profit

Dubai-based real estate company Union Properties (UP) has reported 12 per cent increase in net profit at Dh763.1 million for the year ended December 31, 2008, after provisions, the company said in a statement without giving quarterly figures.

Revenues for the year rose 24 per cent to Dh3.64 billion, the company said.

Union Properties' board has proposed the distribution of 10 per cent bonus shares, the company said in a separate statement.

However, the company made a loss of Dh37.6 million in the fourth quarter, according to calculations based on previous earnings reports.

The fourth quarter loss was due to lower land sales. Profit for the corresponding quarter in 2007 was Dh213m.

Revenues for the year rose 24 per cent to Dh3.64bn. Higher margin land sales made up a smaller share of total revenue in 2008, while lower margin contracting work rose.

"The decrease in land sales increased the contribution of contracting and other operating activities in the revenue mix for 2008, which drove the overall 2008 margin to drop compared to 2007," it said.

Contracting activities continued to be the main contributor to revenues, the firm said.

Union Properties said it took a Dh500m provision against potential loss on contracting activity, but said it was on schedule to deliver current projects.

"We think it was prudent to take a provision on its contracted-related activities since this signifies that the company is watchful of likely non-payment and potential losses given that the construction sector is in slowdown mode currently," said Sana Kapadia, vice-president, equity research at EFG-Hermes in Dubai. Land sales made up a smaller share of total revenue in 2008, while contracting work made up a larger share.

"The decrease in land sales increased the contribution of contracting and other operating activities in the revenue mix for 2008, which drove the overall 2008 margin to drop compared to 2007," it said. Contracting activities continued to be the main contributor to revenues, the firm said.

The handover of properties in MotorCity and the DIFC was on schedule to start in 2009.

The issuance of Dh2.5bn of non-convertible bonds will depend on market conditions, Union Properties said.

The issuance was approved by shareholders in January. The firm said in December it planned to issue convertible bonds to strategic investors as securing project financing from banks becomes difficult during the global financial crisis.

Morgan Stanley said in a report this month Dubai property prices had fallen by an average of 25 per cent since their peak in September.

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