Gulf Construction Online - Union Properties swings to $263m net loss in 2021

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Union Properties swings to $263m net loss in 2021

28-03-2022

Union Properties, a leading UAE-based developer, has reported a net loss of AED966.76 million ($263.1 million) for FY 2021 compared to a net profit of AED201 million ($54.7 million) the previous year. However, its revenue for the 12-month period witnessed a 6.1% growth.

Announcing its financial results for the year ended December 31, 2021, Union Properties said the revenue from contracts with customers stood at AED398.70 million in 2021 up 6.1% compared to the previous year [largely driven by the recovery in the UAE’s real estate market as the country gradually lifted Covid-related curbs from the previous year].

Consequently, gross profit for the period increased to AED67.83 million compared to AED14.17 million in the previous year, supported by an 8.5% reduction in direct costs as the new management team focused on optimising its cost base and restructuring certain operations to deliver efficiencies across the business.

During the year, the newly appointed board changed the company’s independent valuer to Land Sterling, to assess the fair value of its property portfolio as of December 31.

Subsequently, the company discovered that the carrying value of its property portfolio had been inflated in prior years and Union Properties has booked a loss from the valuation of its properties amounting to AED1.11 billion in 2021 versus to a gain of AED 743.6 million in the previous year.

Consequently, the company faced an impairment of AED154.64 million relating to investments in quoted funds and quoted equities, which are suspected to have been misappropriated by the company’s former officials.

On the 2021 results, Managing Director Amer Khansaheb said: "2021 has been a difficult year for Union Properties as we uncovered widespread fraud and misconduct by the company’s former management involving forgery, misappropriation of funds and various other financial violations which has negatively impact the company’s financial health and been a severe breach of shareholder confidence."

Having discovered gross misconduct and widespread fraud that had been perpetrated by the former directors and management of Union Properties, new board members were appointed in December last year and a thorough forensic financial and accounting review was conducted by a third party.

The preliminary findings include violation of accounting standards and manipulation of records as well as misappropriation of funds and properties along with other violations, which took place over several years.

Union Properties' new management team is focused on strengthening the supervisory function of internal audit and compliance and controls, restructuring operations to achieve a leaner organisation, and recovering the misappropriated funds through the legal procedures.

It is also developing a new growth strategy to generate shareholder value and is considering unlocking value from its existing assets to free up capital to restart its development operations.

"Our focus, as the new board, is now on addressing these challenges head on and rebuilding shareholder trust. We have commenced the implementation of an emergency business restructuring programme to restore shareholder value and negotiations are ongoing with our two major creditors banks to restructure the loan facilities," stated Khansaheb.

"Good progress has been made with one of the local Islamic banks and the Dubai developer remained in constructive discussions with other major creditor bank," he said.

"We will also continue to review our entire portfolio in order to assess which assets are core and where we could generate further value and liquidity through the disposals of noncore assets," added Khansaheb.