DAMAC CALLS A HALT TO LAND DEALS

▶ After 68% Q3 decline, developer remains willing to enter into joint ventures but CFO rules out a merger

Damac Properties has stopped buying land for new developments but is open to joint ventures with other developers and land owners, even as the company reports its fourth consecutive quarterly decline, its chief financial officer said.

“We have decided for the foreseeable future that we are not buying land. If somebody has got land in a location where we are attracted to, we would [form] a joint venture with these people,” Adil Taqi told The National.

“That is possible, but a fullfledged corporate merger of the two balance sheets does not make sense.”

Damac, which yesterday reported a 68 per cent decline in third-quarter profit because of plunging revenues, has no plans to merge with another developer, Mr Taqi said. The company will consider joint ventures, barter or inventory deals with land owners in different parts of Dubai, he added.

“We are always open to structure this,” Mr Taqi said. Given the tighter credit market, the company is managing its capex carefully and will not invest in buying land for new developments.

Damac, whose chairman Hussain Sajwani is a business partner of US President Donald Trump, has struggled to maintain profit growth in the past few quarters in the wake of softer property market conditions.

It is difficult to predict accurately how the property market will behave in 2019 but the market trend “isn’t necessarily pleasing and the weak [property pricing] trend will continue”, Mr Taqi said.

Earlier this year, Egyptian investment bank EFG Hermes said operational and financial challenges are expected to put pressure on Damac. Cash flow issues are likely to push dividends lower and the developer may have to raise debt to meet Dh2.2 billion in repayment obligations over the next 24 months.

“Next year is going to be another difficult year,” Mr Sajwani said at a World Economic Forum event in Dubai on Monday, Bloomberg reported. “I would hope by the end of 2020, or 2021, we start coming out of this slowdown.”

There is less liquidity in the market available today than two years ago. However, it all depends on how the company manages its resources given the market situation, Mr Taqi said, when asked if Damac was facing liquidity issues. Anticipating the tougher credit situation, the company raised $400 million earlier this year, to be able to avoid raising further debt in the next three years, he added.

“That was a bold decision to go and borrow the way we did but that decision is paying dividends,” he explained.

In June Mr Taqi told The National Damac planned to reduce debt by $500m in the next three years. The company has no plans to borrow further and is on course to meet its debt reduction targets, he said.

Damac had total outstanding liabilities of Dh10.1bn at the end of the September, down from Dh11.5bn reported at the end of first nine months of 2017. The company reduced its debt by about Dh100m from the end of second quarter of this year, Mr Taqi said.

Damac’s net profit attributable to shareholders for the three-month period to the end of September fell to Dh230.8m missing the lowest median estimate of analysts polled by Bloomberg, the developer said in a regulatory filing to the Dubai Financial Market, where its shares are traded.

“Our medium to long-term outlook remains optimistic, as we push forward with our landmark developments at full force,” said Mr Sajwani.

Revenue for the third quarter plunged to Dh1.54bn from Dh2.29bn reported for the corresponding period in 2017. Although cost of sales fell to Dh1.08bn, financing costs climbed to Dh83.6m.

Damac’s net profit for the first nine months of the year more than halved to Dh1.09bn from Dh2.3bn reported for the same period in 2017.

In August, Mr Taqi said the company was targeting at least Dh5bn of annual sales to cover its costs while it works to pay down debt.

However, it may not be able to achieve the target in 2018 given the current market.

Still, hitting the Dh5bn mark remains a possibility for next year. Despite its difficulties, the company has managed to deliver 3,800 units in the first nine months, the most it has achieved compared to any other, Mr Taqi said.

Anticipating the tougher credit situation, the company raised $400m earlier this year to avoid raising further debt