CAIRO: Palm Hills, Egypt’s second-biggest listed developer, swung into a loss in the first quarter, dragged down by political upheaval that analysts expect has frozen sales and increased cancellations.
The firm has been dogged by the turmoil that swept president Hosni Mubarak from power and the graft probes against businessmen linked with his administration.
It reported on Tuesday a first-quarter net loss of LE 36.2 million ($1.6 million) compared with a year-earlier net profit of LE 107 million.
Palm Hills’ share price has tumbled 61.4 percent this year as investors fret about the firm’s debts and liabilities as it is swept up in legal challenges to its land bank.
"Real estate companies are reporting weak numbers because operations have been hit by the revolution," Harshjit Oza of Beltone Financial said.
The firm’s gross margin turned to an LE 8.2 million loss, according to Palm Hill’s financial statement, which gave no figure for new sales or cancellations.
"Margins are declining. On one side, you have no sales, you are still paying your bills, still paying your employees, but on the other you have costs and no deliveries," Oza said.
Egypt’s once booming real estate sector is reeling from a string of legal challenges to land holdings since a court ruled last year that a sale of state land to Talaat Moustafa Group (TMG), the country’s biggest developer, was illegal.
Palm Hills, whose chairman is among those facing graft charges, is fighting two suits contesting its land holdings. In April, a court ruled that a state land sale to Palm Hills was illegal and scrapped the contract.
Sales
Palm Hills said earlier this year it expected few if any new reservations or contracts in the first half of 2011 and that it would halve construction spending to LE 1 billion because of disruptions to the economy.
Analysts expect it suffered very high cancellations in the first quarter and had no new land sales.
The firm sells homes off-plan, or before they are built, and does not recognize some revenue until the units are delivered to clients, which can take as long as five years from the original sale date to appear on the company’s books.
Its first-quarter revenue fell to LE 193.5 million from LE 198 million a year earlier. Revenue, however, plunged 75 percent from the fourth quarter of 2010, an indication that sales may have tumbled.
While Q1 results should not be used as a benchmark for the firm’s future profits, Palm Hills will face a challenge to rebuild its balance sheet, analysts said.
"Definitely that is a concern and it’s a very big concern. They have one of the weakest balance sheets among real estate developers in Egypt," Beltone’s Oza said.
The company has said it would return some land to help it manage cash flows. It has already proposed to return two plots.
Three analysts polled by Reuters forecast an average net profit of LE 92.3 million, but the ranges were very wide, with one forecasting first-quarter profit of LE 7 million and another forecasting LE 237 million. –Additional reporting by Sarah Mikhail
