Damac Properties (Damac) management team (Hussain Sajwani, Chairman and Adil Taqi, CFO) held a conference call today to discuss the 1Q16 results. Below are the main highlights from the call.
• New 2016 guidance numbers Management has guided for 2016 contracted sales of AED7bn, implying a 23% drop Y-o-Y, adding that 2Q16 would be a weak quarter due to seasonality and the month of Ramadan, which typically sees slower activity and fewer new launches. On reported figures, management expects to at least meet 2015 figures for revenue and net income. Guidance on gross profit margin remains unchanged, at 50%+, which management is expecting to beat, with variances across the quarters, depending on the sales and construction activities. Guidance for leverage remains unchanged at AED4.6bn (USD1.25bn). Management is comfortable with meeting its previously announced commitment to dividends for the year.
• Aykon City contracted sales represent c25% of total sales in 1Q16; more launches in Akoya project in 2H16 Contracted sales for Aykon City reached cAED500mn in 1Q16 and AED800mn YTD. Average selling price for launched units in the project was around AED1,900/sqft. Management is guiding for more launches in Akoya and Akoya Oxygen in 2H16, which would imply more land sales to be recognised in 2016 results.
• Income on cancellations is related to old sales and the trend is for lower cancellations Management has confirmed that there are no early signs of deterioration in collections, which remained healthy during the quarter and thus no provisions were recorded. Booked income on cancellations during the quarter (AED312mn) are related to old sales for 2011 sales returns. Damac typically collects 40% of the value of the unit in case a buyer defaults on payment; however, such procedure is subject to: i) the completion of the legal procedures to close the default case; and ii) a two-year expiry policy since the date of the closure of the legal case for default. Following these two steps, the company would typically record the amount as cancellation income in the income statement. It is worth noting that Damac recorded AED480mn in income from cancellations in 2015. Management guided that it expects yet AED735mn (USD200mn) to be recognised over the coming six quarters, making total income from cancelation in the range of AED1bn to be recognised in 2016-17.
• Early repayment on Sukuk was made at par Damac has repaid USD25mn (AED90mn) of its sukuk in 1Q16. Management is looking at options to repay the sukuk when it is due in 2019 and sees a bond repayment as unlikely, given its size.

Mai Attia
Sara Boutros