Exclusive Interview: Nakheel’s Turnaround Man, Ali Rashid Lootah

An aerial image of Palm Jumeirah, the man- made 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 Dubai- based 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

Earlier 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.”

mArket mAtters

Always 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

One 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 pre- 2008. 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

Apart 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.”

THE PROBLEM PROJECTS

On Palm Jebel Ali

Lootah says that Palm Jebel Ali is a long-term project for Nakheel and they will launch when the market is right. “Palm Jebel Ali is almost seven to eight times the size of Palm Jumeirah – it’s not easy. Hence it is very costly, with regards to infrastructure and everything. But we have a commitment to it, and will not cancel the project.”

On The World Islands

Lootah says that Nakheel sold the development as is and it is hard-pressed to do more. “We encourage people to develop. People who were in default, we invited them and gave them a seven-year payment plan and started totally fresh with them. But it’s up to them to develop.”

“It will start moving – I’m very confident a lot of people will move. Developers are slowly launching and talking about it. I know a couple of serious investors – something is going to happen soon.”