Jul 26 2010   | Source: The National 

Union Properties near to sealing deal to sell Ritz-Carlton hotel

Union Properties, Dubai’s third-largest property developer, missed its asking price of Dh1.5 billion (US$408.3 million) in the sale of the Ritz-Carlton, which is to be sealed this week, its chairman says.

The sale is part of the company’s plans to offload assetsand raise cash to pay debts and finish projects.

Khalid bin Kalban said the terms of the deal were still being “exchanged” with a buyer from the UAE, with an official announcement expected this week.

Union “almost” got its asking price for the hotel, which is located at Dubai International Financial Centre (DIFC), he said, but declined to name the buyer or provide any further details.

The investor from the UAE was in the running with a company from Saudi Arabia.

Union Properties, which will use some of the proceeds to complete projects such as the multibillion-dollar Motor City in Dubai, originally attracted about seven parties who were interested in the luxury hotel, which is expected to open by the end of the year.

Simon Cooper, the president and chief operating officer of Ritz-Carlton Hotels and Resorts, told The Nationalin May the company’s management contract would not be affected by a sale of the Dubai property.

Occupancy levels at the emirate’s hotels reached 79 per cent during the first three months of this year, a rise of 7.8 per cent from the same period last year.

As the emirate’s property sector boomed, Union Properties bankrolled master developments such as the Green Community and Motor City, which was to comprise hundreds of homes, offices and a Formula One theme park.

But a debt market freeze towards the end of 2008 and a sharp decline in house projects has left many developers struggling to attain funds to complete projects, forcing them to sell off assets. Union Properties said in February it had Dh14bn worth of sellable assets.

The company, which is 47.69 per cent owned by Emirates NBD, accumulated Dh6.5bn of debt during the boom, of which Dh2.8bn has been rolled over for repayment to next year from last.

“If the transaction [with the Ritz-Carlton] happens it will help cashflow, but will suit the debtholders rather than the shareholders,” said Yazan Abdeen, a fund manager at ING Investment Management.

Union Properties also borrowed about Dh1bn from Emirates NBD towards the end of last year to finance the completion of the Ritz-Carlton and two other projects at DIFC – Index tower and Limestone House.

“I think it’s a shame that they had to go through the process of selling the Ritz-Carlton because it is a trophy asset and one that will certainly do well in the DIFC,” said Chet Riley, an analyst with Nomura.

“But it’s a requirement that they finish and sell it for funds. Part of the proceeds, I suspect, will go towards repaying the working capital facility that Emirates NBD gave them. Then it comes down to what portion will be put back into the existing development programme and what’s going to be available for general corporate purposes.”

Other assets which Union Properties may sell include two Marriott Executive Apartment blocks, one in Deira and the other in the Green Community, Mr bin Kalban told The National in April.

It is also looking to sell a 50 per cent share in Emicool, its district-cooling unit.

Meanwhile, the delivery of property and rental income from its portfolio of villas and apartments are expected to buoy profits for the rest of the year.

The company said at the end of last year it would transfer 5,000 units, divided equally between residential and commercial, to its rental portfolio, which could provide revenue of up to Dh500 million a year.

For the first quarter of this year, Union Properties’s profit climbed 67 per cent from the same period last year thanks to the handover of property.

The return to profit followed losses last year totalling Dh498m.

Earnings for the second quarter of this year are expected to be reported next week, Mr bin Kalban said.

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