THE TURN­AROUND MAN

ALI RASHID LOOTAH ON NAKHEEL’S COME­BACK AND ITS FU­TURE

Gulf Business - - FRONT PAGE - TEXT BY AARTI NA­GRAJ

FIVE YEARS ON, the chair­man AD­MITS IT WAS A TOUGH – but good – LEARN­ING EX­PE­RI­ENCE. The com­pany has now RE­PAID ALL OF ITS DHS7.9 BIL­LION BANK DEBT (four years ahead of sched­ule), is de­liv­er­ing old and new projects, and also re­ported STRONG PROFIT GROWTH IN 2014.

Anaerial image of Palm Jumeirah, the man­made is­land shaped like the desert tree, has ar­guably be­come one of the most pop­u­lar sym­bols of the new Dubai – mas­sive, in­no­va­tive and ex­trav­a­gant.

The de­vel­op­ment, cre­ated by Dubaibased de­vel­oper Nakheel, was also one of the last mega projects to take shape be­fore the prop­erty crash hit the emi­rate fol­low­ing the 2009 fi­nan­cial cri­sis. Govern­ment-owned Nakheel, which had ini­tially planned two more Palm projects in Deira and Jebel Ali, was among the hard­est hit. Se­verely in debt, it was forced to un­dergo an $11 bil­lion re­struc­tur­ing plan, with sev­eral projects scaled back and oth­ers put on hold.

In 2010, in the midst of this cri­sis, Ali Rashid Lootah was handed the reins of the com­pany and tasked with turn­ing around its for­tunes – an un­en­vi­able role given the eco­nomic sit­u­a­tion.

Five years on, the chair­man ad­mits it was a tough – but good – learn­ing ex­pe­ri­ence. The com­pany has now re­paid all of its Dhs7.9 bil­lion bank debt (four years ahead of sched­ule), is de­liv­er­ing old and new projects, and also re­ported strong profit growth in 2014.

“I learned a lot – we all learned a lot. It was a very tough les­son, but we man­aged to pass the fi­nal exam,” he says jok­ingly.

NUM­BER CRUNCH­ING

E ar­lier this year, Nakheel re­ported that its full-year profit for 2014 jumped by 43.2 per cent to reach Dhs3.68 bil­lion ($1 bil­lion), com­pared to a 27 per cent profit hike in 2013.

“We are de­liv­er­ing on our prom­ises and that’s what has helped us in gain­ing more and more cus­tomers, sales and prof­its. This is the re­sult of five years of our hard work from 2010, and now we are see­ing the out­come,” he ex­plains.

Rev­enues dropped by 24.7 per cent to Dhs7 bil­lion be­cause of higher mar­gins and the writ­ing back of a Dhs460 mil­lion pro­vi­sion against a pro­ject on Palm Jumeirah.

How­ever, Lootah is op­ti­mistic that the de­vel­oper will main­tain sim­i­lar profit growth of around 40 per cent in 2015 and 2016, mainly boosted by its grow­ing re­tail, leas­ing and hos­pi­tal­ity busi­nesses. The com­pany is look­ing to ex­pand its res­i­den­tial leas­ing port­fo­lio from 17,000 units in 2014 to 30,000 units by 2017, while its leasable re­tail space area dur­ing the same pe­riod is es­ti­mated to grow from 2.5 mil­lion sqft to 10 mil­lion sqft.

Its re­tail de­vel­op­ments in­clude Dragon Mart, Ibn Bat­tuta Mall, Nakheel Mall and Ho­tel, The Pointe at Palm Jumeirah, Deira Is­lands Mall, Jumeirah Vil­lage Tri­an­gle Mall and a num­ber of neigh­bour­hood malls.

Nakheel is also plan­ning to have 10 ho­tels and re­sorts op­er­a­tional across Dubai by 2020, lo­cated at Palm Jumeirah, Ibn Bat­tuta Mall and In­ter­na­tional City.

Re­cur­ring rev­enue from all these seg­ments is ex­pected to grow from Dhs1.3 bil­lion at end-2014 to Dhs7.5 bil­lion by end-2017, when most of the projects are due to be com­pleted.

“The push into these seg­ments will help us in the long term,” Lootah in­sists.

“It has al­ways been our view that we need to have more as­sets for the com­pany and that’s our long-term strat­egy – but we are not out of our nor­mal de­vel­op­ment. We are still there [within res­i­den­tial/com­mer­cial real es­tate], we are still sell­ing.”

Lootah is tight lipped, how­ever, re­gard­ing pro­ject launches this year. “We have cer­tain ideas in mind, but we have to see the mar­ket be­hav­iour,” he adds, re­fus­ing to dis­close any fur­ther de­tails.

MAR­KET MAT­TERS

A lways the talk of the town, Dubai’s prop­erty mar­ket has come a long way since its crash in 2009, which sent prices plum­met­ing al­most 60 per cent.

Fol­low­ing a mod­er­ate re­cov­ery in 2012, res­i­den­tial house prices again be­gan boom­ing in 2013, and con­tin­ued to main­tain dou­ble-digit growth well into 2014.

With the launch of mega projects and a rise in off-plan sales, fa­mil­iar alarm bells started sound­ing, with the In­ter­na­tional Mone­tary Fund also ex­press­ing con­cerns about the for­ma­tion of another prop­erty bub­ble in Dubai.

How­ever, a slew of gov­ern­men­tal reg­u­la­tions in­tro­duced post-cri­sis

in­clud­ing a hike in the prop­erty trans­ac­tion fee from two to four per cent and a re­duc­tion in loan-to-value (LTV) lev­els, and in­creas­ing sup­ply, helped level the mar­ket.

Av­er­age res­i­den­tial prices are ex­pected to see ei­ther flat growth or de­cline by up to 10 per cent this year, real es­tate con­sul­tancy JLL said in its re­cent re­port. Ac­cord­ing to the Dubai Land Depart­ment, the num­ber of res­i­den­tial trans­ac­tions fell 30 per cent last year, with val­ues down 14 per cent.

Lootah con­cedes that the mar­ket has slowed, but stresses that there are still buy­ers be­cause Dubai is the best avail­able op­tion.

“We have not seen our prices drop, it’s all rel­a­tive. We are still sell­ing – ev­ery day – and there are still peo­ple who are buy­ing land­form prop­er­ties for de­vel­op­ment as an in­vest­ment,” he says.

“I think the cor­rec­tion is good and nor­mal but we don’t see the panic and the drop in prices we saw be­fore. We don’t see any dis­tress of­fload­ing or sales.”

He points to a re­cent re­port, which re­veals that prices in Palm Jumeirah are higher than they were in 2008. “So peo­ple have to ex­pect some slight ad­just­ment in prices but it’s not be­low what they bought.”

Mar­ket fluc­tu­a­tions and cy­cles are typ­i­cal of any real es­tate mar­ket world­wide, and the cur­rent slow­down is also good for Dubai, he adds.

“It’s good, be­cause it will be re­ally bad for Dubai if the prices get too ex­pen­sive. Growth in other coun­tries is be­tween one to two per cent. Why is it in Dubai we al­ways want 10 per cent? It’s greed.”

KEEP IT FREE

“THE GOOD THING IN DUBAI is that NOONE IN­TER­VENES, there’s no in­flu­ence to ad­just the mar­ket; THE MAR­KET AD­JUSTS IT­SELF. It is not the pol­icy of the DUBAI GOVERN­MENT TO OVER-REG­U­LATE the mar­ket. They be­lieve in a free mar­ket. Each de­vel­oper should HAVE A MIND OF HIS OWN,” he states.

O ne way to en­sure that the emi­rate doesn’t price out po­ten­tial in­vestors is to en­sure the mar­ket is well-reg­u­lated, say some ex­perts. More reg­u­la­tions, specif­i­cally in the off-plan seg­ment, will keep out spec­u­la­tors and so-called ‘flip­pers’, it is sug­gested.

How­ever, Lootah ar­gues that the mar­ket al­ready has plenty of reg­u­la­tion to pro­tect in­vestors.

“The good thing in Dubai is that no-one in­ter­venes, there’s no in­flu­ence to

ad­just the mar­ket; the mar­ket ad­justs it­self. It is not the pol­icy of the Dubai govern­ment to over-reg­u­late the mar­ket. They be­lieve in a free mar­ket. Each de­vel­oper should have a mind of his own,” he states.

It is now a com­pletely dif­fer­ent mar­ket from pre2008. The Nakheel chair­man be­lieves, with lessons from the cri­sis re­flected in the “very care­ful” ap­proach of in­vestors, de­vel­op­ers and banks. “De­vel­op­ers may an­nounce projects, but in­vestors will de­cide whether it’s worth it or not. If peo­ple see an op­por­tu­nity, they buy,” he ex­plains.

Nakheel’s in­vestors are also pre­dom­i­nantly end-users, says Lootah, which helps sta­b­lise the mar­ket.

On a mi­cro-level, Nakheel asks in­vestors to com­mit by giv­ing post-dated cheques, of which it has seen less than one per cent de­fault. “So that makes peo­ple re­spect their com­mit­ments – if I am com­mit­ted to build, you should be com­mit­ted to pay me.” Another way in which spec­u­la­tors have been kept at bay is through in­creased sup­ply in the mar­ket, he says. “When we launch, we are re­leas­ing units in big num­bers be­cause I want to keep spec­u­la­tors out. If we have a good num­ber of prop­er­ties in the mar­ket, spec­u­la­tors can’t make money. Peo­ple will buy from us and not the sec­ondary mar­ket.”

IN THE SHAD­OWS

A part from a fi­nan­cial blow, Nakheel also re­ceived a strong blow to its image fol­low­ing the prop­erty crash in Dubai, in­clud­ing sev­eral dis­putes from un­happy in­vestors.

While is­sues con­cern­ing the com­pany con­tinue to crop up – it has pre­vi­ously can­celled fa­cil­i­ties be­cause of un­paid ser­vice charges and re­cently in­creased ap­pli­ca­tion fees to ex­tend units – Lootah says the over­all per­cep­tion of Nakheel has changed and con­tin­ues to change.

“If we didn’t have a good image and a good rep­u­ta­tion, we would not be able to sell,” he states.

Re­gard­ing ser­vice charges, which have given the firm some neg­a­tive press, Lootah points out that Nakheel has the cheap­est fees in Dubai, com­par­ing like to like.

“We still have more than Dhs600 mil­lion out­stand­ing in ser­vice charges and we are still pur­su­ing the own­ers,” he says.

“Peo­ple don’t want to hon­our their com­mit­ment. They want free ser­vices – we can­not give ser­vice if we don’t col­lect money. It’s un­fair to the other in­vestor who is pay­ing his dues.” Lootah ad­mits that some ten­ants may suf­fer be­cause of this, but ad­vises them to take le­gal ac­tion against their land­lord.

While in­vestors af­fected by Nakheel’s trou­bles af­ter the fi­nan­cial cri­sis have come around, Lootah ar­gues. “Those who were pa­tient with us on the old projects have now made good money. They re­cov­ered their costs and have been com­pen­sated for their pa­tience,” he says.

This is be­cause Nakheel kept pre-2008 prices, while the cur­rent price of some of those prop­er­ties has dou­bled, he adds. “To per­form what we have per­formed and the size what we are to­day con­sid­er­ing all the bash­ing we had and with peo­ple still buy­ing from us – all of this tells you there is trust.”

WHAT NEXT?

The one ques­tion that Lootah is asked at ev­ery press meet is whether Nakheel is plan­ning to go pub­lic. I re­it­er­ate the query, and re­ceive the same re­sponse – “Not for the time-be­ing.”

“It de­pends on the share­hold­ers, but it will not hap­pen soon. Noth­ing be­fore we pay our sukuk,” he clar­i­fies. The com­pany’s Dhs4.4 bil­lion Is­lamic bond is due in Au­gust 2016.

“I think it will be good when we go to the mar­ket, to go with a good size com­pany – if I’m an in­vestor, I would look at the fu­ture growth,” he says.

Nakheel’s ri­val de­vel­oper Emaar raised $1.6 bil­lion from an IPO of its re­tail­ing unit, Emaar Malls Group (EMG) in Septem­ber 2014. The com­pany sold two bil­lion shares of EMG, rep­re­sent­ing a 15.4 per cent stake, on the Dubai Fi­nan­cial Mar­ket.

Fol­low­ing the suc­cess­ful list­ing, Emaar has said that it is mulling an IPO of its hos­pi­tal­ity busi­ness in the near fu­ture.

Con­sid­er­ing its di­ver­si­fi­ca­tion strat­egy, Nakheel may look to do some­thing sim­i­lar, and place part of the busi­ness for sale on the mar­ket, con­firms Lootah. “We will do that if we need cash.”

The com­pany is also mulling the prospect of ex­pand­ing in­ter­na­tion­ally in the longer-term, he re­veals. “A lot of peo­ple ap­proach us from out­side the coun­try, but we don’t want to touch any­thing un­til we clear all our com­mit­ments.”

Ul­ti­mately though, the chair­man’s mes­sage for the fu­ture is clear-Nakheel is here to stay. “We still have a lot of beau­ti­ful as­sets, we still have a lot of ar­eas to de­velop and we have plenty of op­tions in Dubai and out­side. It will be a growth story.”

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