TBY talks to Ali Lootah, Chairman of Nakheel, on the development of the retail sector, growing interest in the middle-income sector, and cultivating steady income.

Ali Lootah
Ali Lootah was appointed Chairman of Nakheel in March 2010. Under his leadership, Nakheel has recorded YoY profit growth, with year-end profits totaling USD2.9 billion between 2010 and 2014. With a degree in civil engineering from Clarkson University in New York, Lootah has nearly 30 years of experience in the federal government; as Assistant Deputy Minister of Public Works he handled several infrastructure projects, government facilities buildings, and housing projects across the Northern Emirates of the UAE. He is also vice chairman of Mashreq Bank, honorary vice chairman of the Italian Business Council, and a member of numerous boards.

Nakheel is developing the largest mall portfolio in the Middle East and, with the retail sector maintaining growth at 5%; what is Nakheel's strategy in developing its mall portfolio?

We are investing AED16 billion to bring our total retail leasing space to more than 17 million square feet, which will make us the largest retail developer in the region. First and foremost, we are expanding to better service our existing communities, such as Palm Jumeirah, Al Furjan, Discovery Gardens and International City. Previously, these all needed enhanced services and facilities, and when we looked to introduce retail centres in these and other areas we had excellent responses from the retailers. With most of our retail developments – be they large-scale destination malls or smaller scale community retail developments – we have managed to secure a high level of pre-leases even before starting construction. For example, our Night Souk at Deira Islands was 100% pre-leased before construction began and we do not usually break ground with anything less than 70%. This has been most encouraging and is all part of our strategy directed towards enhancing our recurring income. We are increasing this stream of revenue through residential leasing, retail, hospitality, and F&B. Our focus is on diversifying across the board and we feel positive about this policy due to the quality of our locations. In our sector you must have favourable locations, and we have that in abundance. We are introducing new F&B/leisure facilities in the form of Nakheel Clubs at some of our communities, complementing our existing, highly-popular Clubs at Jumeirah Islands and Jebel Ali Village. Overall, we have studied and planned for where we expect to be in 2020—with an AED7 billion bottom line. In terms of large-scale destination projects, we are currently developing malls at Palm Jumeirah, Jumeirah Village, Nad Al Sheba,and Deira Islands as well as further extending our existing Ibn Battuta Mall and Dragon Mart retail hubs, where significant first-phase expansions opened last year.

What has been the key driver for Nakheel's diversification strategy?

Markets fluctuate so we need a strong base to maintain growth. It's that simple. In previous years, Nakheel very much concentrated on taking on a good quantity of projects with an acute focus on development, but strategically we thought it essential to have diversity in our portfolio. We continue to move ahead with new retail, hospitality and residential leasing projects while also maintaining our core business of development. We have more projects to be announced and are always open to new ideas as to how to further diversify the portfolio. We think that is imperative and we think long term because no business can succeed through shortsightedness. We are confident that the business is on the right trajectory.

You continue to report healthy profits, largely driven by decisions to invest in income-generating assets. How was this strategized and delivered?

The strategy was to generate more recurring income and we have certainly moved toward that goal. We will see greater results as a result of that strategy by next year, and that will have a positive impact on the balance sheet and will ultimately replicate itself year on year. We have many projects under construction; for example, in Nad Al Sheba we have 1,400 new units in the residential segment. In the retail segment we have Al Khail Avenue, Nakheel Mall, Deira Mall and The Pointe, adding to recently completed retail projects such as Jumeirah Islands Pavilion and Dragon Mart 2. On the residential leasing side, we have Golden Mile 3 on Palm Jumeirah, where leasing began earlier this year. We have more than 20,0000 residential leasing units in the pipeline.

Nakheel is planning to deliver another 5,800 hotel rooms and apartments leading up to 2020. How is the company differentiating itself in this competitive sector?

When it comes to hospitality projects it's a matter of location – and we have very strong locations. We are concentrating on securing good returns by focusing on the mid-scale segment, for which there is a great need in Dubai, although we also have some luxury hotels in our project range, too. On The Palm we have the five-star St. Regis, plus we have a luxury hotel component in our new PALM 360 project. However, most of our expansion is on the mid-scale side. Currently we have two hotels operating; one next to Ibn Battuta and one next to Dragon Mart, and we are more than happy with their performance. Construction has started on our hotel at Al Khail Avenue, for which Double Tree by Hilton will be the operator, and at two new hotels at Dragon Mart and Ibn Battuta Mall. We have released a construction tender for our joint venture project with RIU Hotels & Resorts at Deira Islands. The St Regis, part of The Palm Tower on Palm Jumeirah, is also currently being built. Overall, we are making big strides and are working hard to bring new names to Dubai to add variety to the existing players in the market. We are looking at partnerships and we are talking to new companies that are very much interested in cooperating with us on a similar model to our joint ventures with Spain's RIU and Thailands's Centara Hotels & Resorts, both of which are under development at Deira Islands, our new waterfont city. The RIU is a new concept for Dubai: an all-inclusive, family beach front resort with 800 rooms. Our second joint venture, with Centara, is for a 550-room resort, also at Deira Islands. We continue to explore new partnerships for hospitality where we bring in international, reputable brand to invest with us as partner, not purely as an operator.

Why do you feel that the middle-income segment is becoming more important for the hospitality and residential sectors?

With hospitality we believe catering for this segment is a must for Nakheel, as we are part of the Dubai Government with a key role to play within its strategy to bring 20 million tourists to Dubai each year by 2020. This segment is a major focus for our hospitality business.
On the residential side, people have a lot of choice, and if they cannot afford it they can lease and have options to move. I think that is a different segment. We are focusing on niche markets within the residential area in order to minimize risk.

Last year, Nakheel repaid a AED4.4 billion bond, issued back in 2011. What advantages has that given the company?

We are now completely debt-free following full payment of our trade creditor in sukuk last August. This repayment marked the end of our financial restructuring, which began in August 2011, with all creditor obligations now fulfilled. In a commercial sense we always look for the best option, and a bond is not the cheapest. We have a healthy balance sheet, a lot of assets, and a few banks have been in touch with us stating that they are more than happy to supply capital. When it comes to borrowing, banks see our vision, our strategy, our growth—they see that we are growing in a healthy and resilient manner. Our vision is to build a bigger portfolio and drive recurring income. We are diversifying more and more, and we are constantly looking at new ideas. It is important not to hedge everything on one strategy. The market may have cooled down, but we had the funds to pay our debt due to our continued diversity. For 2017 our recurring income will comfortably exceed AED2 billion.