Dubai property meltdown: developers struggle with poor profits
* Many UAE developers seeing plummeting profits
* Drake & Scull said it breached financial covenants on some bank facilities in 2016
* Company incurred annual loss of AED815.3 million last year
Like many other developers in the UAE, Dubai-based Drake & Scull is grappling with declining revenues on the back of challenging conditions in construction sector.
The building company said on Thursday that it breached financial covenants in relation to a sukuk-syndicated facility and other bank facilities in 2016, after having incurred losses last year.
The company incurred an annual loss of AED815.3 million ($222.01m) last year, as low oil prices and an economic slowdown hit the construction sector in the Gulf region, the company said in its consolidated financial results.
Drake & Scull was not able to comply with reporting requirements requested by its lenders for a conditional waiver valid until the end of 2016 and, therefore, breached financial covenants on sukuk and other debt facilities.
These loans are now overdue on their principal and interest payments, and they are technically payable on demand, the company said.
Developers bogged down
The slowing economy and real estate market, coupled with reduced public spending and a weaker business sentiment, have put a damper on UAE developers’ quarterly profits.
Among the listed construction firms, Emaar Properties and Damac Properties were the only two companies to report positive figures for the fourth quarter of 2016.
Quarterly net profits of Arabtec, Aldar Properties and Drake & Scull fell significantly during the period.
Mohamed Alabbar, chairman of Dubai’s largest listed real estate developer Emaar Properties, had said earlier this year
The builder of the world’s tallest tower, Burj Khalifa, and the upcoming The Tower, slated to be 100m taller than the Burj, reported a 56 per cent rise in fourth-quarter net profit.
The developer, in which Dubai’s government owns a minority stake, made a net profit of AED1.61 billion ($438.4m) in the three months to December 31. That compares with a profit of AED1.03bn in the year-earlier period.
Damac reported a 1.3 per cent rise in its Q4 net profit. The developer reported a net profit of AED854.6m ($232.7m) for the period under review. This was up from AED844m reported for the year-ago period.
Full-year 2016 net profit was AED3.69bn, down from AED4.51bn in 2015, the company said in a statement sent out to the media.
The state-linked builder of Abu Dhabi’s Formula One circuit reported a 0.9 per cent decline in fourth quarter net attributable profit.
Aldar made a net profit of AED727.9m ($198.2m) in the three months to December 31. That compared with a profit of AED734.6m in the prior-year period.
Dubai contractor Arabtec Construction reported a wider fourth-quarter loss as it made a net loss of AED2.95bn ($803.4m).
This compares with a net loss of AED403.74m in the corresponding period of 2015.
The company reported a net loss attributable to the shareholders of its parent Arabtec Holding of AED3.41bn for the year 2016, compared with a loss of AED2.35bn the year earlier.
Arabtec has been struggling for more than two years because of a sagging construction market, as well as internal strife among shareholders and a number of senior management changes.
Drake & Scull
Dubai-based Drake & Scull has said its net loss for the fourth quarter of 2016 amounted to AED490m, compared to a profit of AED14.7m a year earlier.
The contractor’s 2016 net loss amounted to AED786.9m ($214.4m), narrowing from a loss of AED938.8m in the previous year.
Revenues shrank to AED3.24bn last year from AED4.20bn in 2015.
(With inputs from Reuters)