Damac’s first-quarter profits drop 94% as Dubai property market slumps

Property developer Damac Properties reported a 94 per cent drop in first-quarter net profit on Wednesday, its smallest since going public in 2015, hurt by Dubai’s slumping property market.

Damac, owner and operator of the only Trump-branded golf club in the Middle East, said its net profit in the first three months of the year fell to Dhs31.1m ($8.47m) from Dhs483.9m in the same period a year earlier.

That compared with a forecast of Dhs270m by EFG Hermes.

Revenue fell 53 per cent to Dhs896.4m.

Damac shares fell 2.2 per cent in afternoon trade, reversing early gains. The stock is down nearly 40 per cent this year compared to a 2.3 per cent gain in the Dubai index.

Dubai property prices have fallen since a mid-2014 peak, hurt by weaker oil prices and muted sales.

S&P Global Ratings expects the downturn to continue this year, with residential property prices falling another 5-10 per cent due to a continued gap between supply and demand, before steadying in 2020.

Analysts warned the company was likely to continue facing challenges in the coming months with strong competition and the need to conserve cash for debt repayments.

The company’s off-plan sales – for properties not yet completed – looked weaker than those of its main rival, Emaar Development, said Ayub Ansari, an analyst at Bahrain’s SICO. That indicated the competitor’s growing dominance in the Dubai off-plan market, he said.

The company reported booked sales of Dhs1.2bn in the first quarter, down 26 per cent from a year earlier.

Damac pointed to debt payments in tough market conditions – it paid back $272m in sukuk, or Islamic bonds, in April and $125m in September last year – as a sign of its health.

“In a period of six months, amid difficult market conditions, we paid back $400m of debt …That is a strong statement,” said Amr Aboushaban, Damac’s head of investor relations.

The company had Dhs1.8bn in free cash at the end of the first quarter.

Damac was not in talks with any financial adviser or turnaround specialist, he said. “We’re not in any distressed shape or form.”

Damac did not pay a dividend in 2018 to keep cash for its debt repayment and an analyst warned the property firm could continue with the same policy in the coming year.

“We see zero catalysts for Damac over the next three years, as the company will likely reserve all cash to repay its 2022/23 sukuk,” Mohamad Haidar, an analyst at Arqaam Capital said in a note. “We expect Damac not to pay dividends until all sukuks are repaid.”

As of the end of March, the company had around Dhs4.3bn in outstanding sukuk and Dhs693m in bank debt.