IAS 40 helps UP report AED349 mn profit for 9 months

Valuation gain at AED822 mn turns the tables for company

DUBAI/October 13: The fair valuation gain to the tune of AED821.99 million has come to the rescue of Union Properties (UP) this time helping the company post a net profit of AED348.78 million for the nine-month ending September 30, 2020.

The company has reported a profit of AED509.2 million for the three-month-period ending September 30, 2020.  The chairman of UP, Khalifa Hasan Al Hammadi, said the company has cleaned and restructured its balance sheet and transformed Union Properties into one of the most solid and transparent companies listed on the Dubai Financial Market (DFM).

“All our focus will be on our operations and business development. We are dedicated to keep on with this positive momentum through transactions and projects that will add value for our shareholders,” he added.

The IAS 40 accounting standard allows property companies to carry out fair valuation of investment properties in possession and book the upward revision in valuation as profit through the profit & loss (P&L) statements of the company, and this has helped UP turn the tables on its loss-making trail.

But for the fair valuation gain thus booked, the company would have repeated a loss at AED473.21 million for the nine-month period. The performance this time has assumed relevance for the fact that it has helped the property major come out of the list of companies with accumulated losses exceeding 50 per cent of their share capital.

On the operational side for the nine-month period, the company’s direct cost at AED291.09 million has exceeded its revenue at AED286.32 million.

Moreover, the company has incurred a loss of AED54.96 million on account of the financial instruments it holds in its books and another AED234.52 million loss from the disposal of an associate during the said period. But the fair valuation gain was large enough to absorb these losses.

Fair valuation gain

During the current year, in accordance with the directions of Dubai Development Authority (DDA), the company had appointed an independent third party surveyor to perform a detailed survey of the entire land bank at Dubai Motorcity.

“Based on the official third party surveyor report that was issued and received during the current quarter ending September 30, the company has now calculated additional Gross Floor Area (GFA),” the company added.

And accordingly, the value of AED822 million has been adopted in the valuation of the Motorcity land bank, which in turn reflected in the Group’s financials as on September 30, 2020 as additional income.

“The necessary validation on the revised affection plans are expected to be received before December 31, 2020,” the company explained as part of notes to its financials.

E&Y qualified 2019 accounts

The issue of valuation gain to the tune of AED351 million with regard to the same land parcel had prompted the company’s earlier auditors, Ernst & Young, to ‘qualify’ the accounts of 2019, when the company reported a loss of AED218.81 million.

Qualifying accounts by auditors is viewed seriously by investors.  During 2019 too, UP group had undertaken a full review of the Masterplan for Dubai Motorcity and had submitted for the approval of the regulatory authorities, a formal request for the issuance of revised affection plans with amended gross floor areas (GFA’s).

Taking objection to the valuation gain of AED352 million thus booked on account of this GFA during 2019, the then auditors of UP, E&Y, had noted that “as a result of this matter, we consider that the loss for the year is understated by AED351 million with a corresponding overstatement in the carrying amount of investment properties and equity as of December 31, 2019.”

 

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