Chairman said that company 'got involved in businesses that were not core'.
Union Properties is close to selling its Ritz Carlton hotel in Dubai and plans to dispose of other assets after the developer “got distracted” during the property boom and took on projects and businesses that were a poor fit, its chairman said.
Khalid Bin Kalban, who took over when chief executive officer Simon Azzam resigned a year ago after 23 years in charge, said: The company “got involved in so many businesses that were not core. I don’t understand the rationale.”
Union Properties, Dubai’s third largest developer, halted projects after credit dried up in the financial crisis and an increasing number of customers defaulted. In 2009, the company reported its first full year loss and suspended work on F1-X, a Formula One theme park in the MotorCity development at the Dubai Autodrome race track.
In an interview, Bin Kalban said: “MotorCity was created around the concept of having a superior race arena and many people would question the wisdom of getting involved in that. The company got involved and it wasn’t a core business.”
The chairman said he’s in discussions with seven potential buyers for the Ritz Carlton in the Dubai International Financial Center and is “very close to concluding a deal” that may include cash and the assumption of debt tied to the project.
In the past two months, Union Properties sold a building in the Umm Suqeim neighborhood for more than 140 million dirhams ($38 million) to supermarket operator Spinneys, he said.
Proceeds from planned asset sales will go toward completing its Index project in July and Limestone House in August. The Ritz Carlton will open in September if it hasn’t been sold by then, the chairman said.
The developer is looking to bring in partners to complete F1-X, the chairman said. Union Properties will first finish the 80 story Index, an office and residential tower, and the Limestone House apartment building in the DIFC and then turn to projects that are 70 percent to 75 percent complete. It also plans to finish the Renaissance hotel and the Marriott Courtyard in MotorCity, Bin Kalban said.
Union Properties has about $74.1 million of liabilities due this year. Bin Kalban said he expects to collect about half of that amount from property buyers in 2010 and 2011 after renegotiating repayment terms with defaulters.
Unlike many Dubai developers, Union Properties wasn’t born out of the city’s property boom. The company was founded in 1987 and first sold shares to the public in 1993.
Azzam stepped down in June 2009 without naming a replacement. That put the company in the hands of Bin Kalban, a former UAE Central Bank official who also holds the title of CEO at Dubai Investments.
Union Properties holds assets in some of the oldest and most popular parts of Dubai such as Jumeirah, Al Satwa and Al wasal which are almost 100 percent occupied and have held their value better than other parts of the city, Bin Kalban said.
The chairman plans to sell some of those older assets because market prices are “better than what we have on the books” and managing small, scattered housing compounds is costly and time consuming.
Divisions such as Emirates District Cooling, known as Emicool, Property Investments & Development, Electro Mechanical Contracting, or Thermo, should also be sold, Bin Kalban said.
He said: “This is where Union Properties got distracted. Everybody was following the model that whatever you get into, you will make money.”
The developer’s main business has “nothing to do with Emicool and any other facility or contracting activity.”
He said that selling the units “may take some time because of the liquidity issues.”
The company scrapped plans to expand in Asia and Europe after projects stalled in its home market. Bin Kalban blamed a “mismatch” of funding, which was largely based on sales of uncompleted properties.
Union Properties has fallen 47 percent in Dubai trading this year, cutting its market value to $332.1 million. The June 7 closing price of 36.6 fils compares with 5.15 dirhams at the peak on July 24, 2008.
Bin Kalban said the company will be able to settle around $163.3 million of liabilities against halted projects. Contractors are owed no more than $54.45 million, he added.
The company, which last year reported a loss of $135.5 million, is counting on the tourism industry to help it weather the crisis.
Union Properties plans to create a legal entity to better manage and grow its hospitality business. It owns five hotels in Dubai, including the Courtyard Marriot, Marriot Executive Apartments and the Renaissance Hotel.
The chairman said: “There is a jam in the system and money isn’t circulating."
I'd be more impressed if they paid their bills. Ours has been unpaid for over a year.