Eshraq Properties swung to a first-quarter loss as its bookkeeper Ernst & Young said the developer had not established the fair value of a hotel it bought in 2012.
Eshraq, listed in Abu Dhabi, reported a Dh7.97 million loss for the first three months of 2015 – down from a Dh42.7m profit a year earlier. Revenues tumbled by almost 90 per cent.
The losses came off the back of a 89.9 per cent fall in revenues, which slumped to just Dh6.9m from Dh69.19m the previous year.
Ernst & Young said that it had not been able to conduct a full audit because the developer did not perform a purchase price allocation exercise when it acquired its key completed asset, a Dh120 million hotel – because it did not depreciate the property and equipment of the hotel.
“A review is substantially less in scope than an audit conducted in accordance with international standards on auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit,” said the Ernst & Young partner Raed Ahmad.
Eshraq, which listed on the Abu Dhabi Securities Exchange in 2011 and is backed by Saudi shareholders, has been hit hard by the global financial crisis.
Since the crisis it has put development work on its three major Abu Dhabi projects on hold and has focused on selling land plots.
The company reported that during the three months to the end of March 2015 it had terminated two agreed land sales, incurring a loss of Dh7.8m.
Eshraq did not say how it had incurred the losses. Calls to the personal mobile phones of two company executives were unanswered.
In a separate statement to the ADX yesterday, Eshraq said that it had ended negotiations to buy a shopping centre in Abu Dhabi after a failure to reach an agreement with the seller.
Eshraq listed in 2011 as the first initial public offering completed on the ADX since the global financial crisis that was not forced by regulatory requirements.
The company’s flagship project, The Gateway, a mixed-use scheme of 15 towers and two blocks of serviced apartments, located between the Maqta Bridge and the Sheikh Zayed Bridge in Abu Dhabi appears to remain stalled. Work on Eshraq’s two other development schemes, which includes up to 500 flats on Reem Island in the capital, also appears to have made little progress.
In September 2012 Eshraq announced it had bought the Nuran Marina Apartments in the Dubai Marina area from Emaar for an estimated Dh120m in what was at the time regarded as an attempt to boost company assets and move away from the Abu Dhabi market. The block is understood to be the company’s main completed asset.
In March 2013 Eshraq said it had applied for a secondary listing on Saudi Arabia’s stock market – a first for a UAE company – as part of a plan to develop property in Riyadh, Dammam and Jeddah. To date the company has not completed a secondary listing.
“It is not a normal thing for a listed company to have to include notes from its auditor saying that it has not been able to conduct a full company audit,” said Sebastien Henin, head of asset management at The National Investor.
“Eshraq faces strong issues concerning the company’s transparency. Any attempts to provide better visibility as to the company’s current strategy would be greatly appreciated by investors.”
Eshraq shares fell 4.82 per cent in trading yesterday to close at 79 fils.
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