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November 19, 2017,   9:15 AM

Nakheel's Return To Profits Signals A New Era For The Developer

Mary Sophia


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When Ali Rashid Lootah was appointed the chairman of the board of directors at Nakheel in 2010, he had his task cut out for him. Battered from overleveraging the Dubai’s property boom and saddled with writing off assets worth about $20 billion, Nakheel was at the brink of a $16 billion restructuring when he joined. But more importantly, the Dubai-government owned developer, which built the famous man-made archipelago Palm Jumeirah, had to deliver thousands of homes and erect many planned master communities across Dubai.

“To simplify it, it was challenging,” says Lootah as he sits back in the executive boardroom in the inner sanctum of Nakheel’s corporate offices. “Because of the support we had from Dubai government who stood by the company, I must say we delivered all our commitments and we managed to keep that behind us. With Nakheel, I think we managed to satisfy and convince all the parties and it was not an easy exercise to convince everyone. We managed to convince the trade creditors, contractors, the banks, and most importantly our partners the investors.”

If anyone could have turned around Nakheel’s fate, it was Lootah. With 30 years of experience in federal government’s Public Works Department, he came from a solid background of engineering and had experience in handling large scale projects as a deputy minister for Public Works prior to joining Nakheel. A civil engineer himself, he set himself and his team members as well as the board a tough schedule as the restructuring began.

“We were meeting on a weekly basis in the beginning. We were like an executive board and we had to get things done quickly and get approvals quickly. We would start by 8 in the morning and finish by 2. To get the ball rolling you need to take quick decisions. To get things moving, it is a matter of taking the right decisions quickly.”

Lootah and his team’s conviction paid off as the developer pivoted from loss-making entity to one of the profitable local developers in the region. But it did not change overnight for the company. Nakheel took about six years to repay its $2.1 billion debt, albeit it was ahead of schedule in paying it off. The developer has also been posting a consistent growth in profits and revenues. Nakheel’s net profit reached AED 4 billion ($1 billion) in the first nine months of this year. Although its latest revenue figures were unavailable, the developer earlier revealed that their revenues reportedly rose from AED 800 million ($218 million) in 2008 to AED 2.5 billion ($650 million) in H1 2017.

One of the main factors helping Nakheel redeem its profits is its diversification strategy. Once heavily concentrated in building freehold developments, Nakheel has made inroads into hospitality and retail while expanding its leasehold portfolio to distribute its risks evenly. It seems to have paid off for the developer.

“We have excellent growth and we have to maintain (this growth rate) because we cannot have just one field, so we diversify. We managed to increase our recurring income, since 2008 and now, by 450% (from non-development projects and activities),” says Lootah.

Beyond Palm Jumeirah

As its books come to order, Nakheel seems to have a full pipeline of new residential and mixed used developments. Even as the wider market suffers from a slowdown in contract awards, Nakheel seems to be a step ahead. Lootah says that the company has awarded contracts worth more than AED 8 billion ($2.1 billion) in value. He predicts that the company could be awarding up to AED 12 billion ($3.2 billion) this year.

Most of these awards are coming from the company’s Deira Islands project, a destination that emerged from its earlier plans to build Palm Deira. Like Palm Jumeirah, Deira Islands is built through reclaimed land and spans about 15.3 square kilometers. It will feature a night souq and Deira Mall along with a number of hotels situated alongside its waterfront. Lootah, after all, is hoping that Deira Islands will come to be a landmark destination like Palm Jumeirah but in the older part of Dubai.

“If you look at the size of Deira, it is very small so the price of land is much higher than other parts. Therefore, logically speaking, it is better to have a development or landscape where you can get a better price. If you really compare a square foot of land in Deira to (new Dubai) then it will be five to six times higher in price.”

It is not just Deira that Nakheel is targeting. Lootah says Jebel Ali is also an area of interest, a promising part of Dubai due to its proximity to the Expo 2020 site and the massive sea port. It is also an area where Nakheel has a considerable presence in leasing residences through communities such as Jebel Ali Gardens, Jebel Ali Village, Veneto and Badrah communities. As it solidifies its presence in Jebel Ali, it is developing another development Madinat Al Arab Waterfront in Jebel Ali.

“Land in Jebel Ali is already sold so we are building more infrastructure to meet the demand in that area. We think the future of development will be there. All our future developments after Deira will be there,” confirms Lootah.

The development of Jebel Ali might also lead to Nakheel reviving its Palm Jebel Ali project, which was put on hold after Dubai’s property bust. Lootah expalains that it is a long-term project and the company will decide depending on the market performance. “We have to identify if there is an immediate need for it,” explains the Chairman.

With a need for affordable housing clearly echoing across the emirate, Nakheel is also expanding its portfolio of middle income housing. The developer, which built the sprawling International City, is further developing a tower consisting of 1,140 apartments in the precinct. Lootah, however, becomes cryptic when asked about further developments.

“We go as per the market needs,” he says. “I think there is a lot of demand from the higher middle class for housing. There is luxury as well but only in certain areas and locations. But the majority of the market is (demanding) middle and high middle segments.”

A Different World

With a sizeable leasing portfolio of homes, Nakheel’s shift to expanding within the retail industry was only natural. Its retail projects portfolio is today valued at AED 16 billion ($4.3 billion) while the company has about 17 million square feet in operation or in the pipeline. Meanwhile it has expanded two of its flagship malls -Ibn Battuta Mall and Dragon Mart- and is building the Pointe Mall and Nakheel Mall in Palm Jumeirah along with Al Khail Avenue and The Circle Mall in Jumeirah Village Triangle and Jumeirah Village Circle respectively, and the 1.2 million square feet Nad Al Sheba Mall.

Aside from retail, a growing area of focus for Nakheel is also its fast expanding AED 5 billion hospitality portfolio. It currently operates ibis Inn at Dragon Mart and Premier Inn at Ibn Battuta Mall but has plans to bring in over 5,800 rooms and serviced apartments to Dubai’s market to meet the need for more hotel rooms. It recently broke ground for a AVANI Hotel at Ibn Battuta Mall, its second hotel in the site while it is building another Premier Inn hotel at Dragon City.

Lootah is quick to point out that Nakheel’s 18-hotel strong hospitality portfolio is not just mid-scale brands, although there are plans for a number of them. It is building two hotels in Palm Jumeirah; of which one will be operated by Starwood St. Regis while others are being operated by Spanish Hospitality giant RIU Hotels and Resorts. Although the contribution of the hospitality sector to Nakheel’s bottom line is yet to pick up, Lootah is confident of their performance and are far from concerned about a worrisome influx of hotel rooms in Dubai that have been pushing down room rates.

This perhaps stems from Lootah’s confidence in Dubai’s potential for growth. Something that he hopes will reflect on Nakheel too as he envisions a promising future for the brand he turned around. It might not be too hard considering the developer’s balance sheets but as Lootah points out: “The challenge is to keep it (profits) up. We try to have a growth in profits and that is our strategy. We do have a target,” he smiles. “But I can’t disclose it; we need to keep some surprises.”

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