Second year of profit for Nakheel

Cityscape: Increases in residential leasing and retail revenue is helping the bottom line for Nakheel, the Dubai developer.

Nakheel, which built the Palm Jumeirah and the World, has leased 70 per cent of the 20,000 units in its rental portfolio. Mike Young / The National
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Nakheel expects to report a second consecutive profitable year after leasing out thousands of new apartments across the emirate.

Leasing activity increased 75 per cent over the year as the developer of some of Dubai's most significant projects slowly emerges from a Dh60 billion (US$16.33bn) restructuring process.

The company earned a profit of Dh860 million last year. In 2009, it reported a Dh76.6bn loss, primarily attributable to write-downs on the value of its property portfolio.

"I can assure you that we will be profitable this year also," Ali Rashid Lootah, the chairman of Nakheel, said ahead of the opening of Cityscape Global. "It's not going to be less than that [Dh860m] figure."

Nakheel, which built the Palm Jumeirah and the World, has leased 70 per cent of the 20,000 units in its rental portfolio, up from 40 per cent a year ago, Mr Lootah said. The company rents 150 units a week, he said.

"It's definitely good for any developer to have a rental portfolio," said Majed Azzam, an analyst with AlembicHC. "It gives you stability."

Nakheel is also receiving a revenue boost from retail leasing, which has has grown 15 per cent in the past year, primarily in the Dragon Mart and Ibn Battuta Mall, he said. Nakheel has already announced plans to expand the Dragon Mart centre and build two new community shopping centres.

The company is also developing plans for the long-anticipated shopping mall on Palm Jumeirah, Mr Lootah said.

The developer is planning to increase its existing revenue streams after the restructuring completed last month, which included its formal separation from its parent, Dubai World.

Nakheel stopped selling residential units last year to focus on finishing its existing projects. The company has identified a roster of projects it expects to complete in the next two years, while the remaining projects, including several planned man-made island developments, have been placed on long-term hold.

Nakheel will need Dh8.8bn to finish construction of the short-term developments, the company said in a prospectus for a sukuk issued last month to partially repay creditors. But it still has Dh27.66bn of debt, according to the prospectus.

"Rental income will not pay the debt," Mr Azzam said.

But Mr Lootah said Nakheel would not need to raise any more money to finance the projects. As part of the restructuring the Dubai Government has committed $7.3bn to support the company.

"No way will we need more than that," Mr Lootah said.

He said the company had no immediate plans to sell assets.

"We don't expect to sell anything in 2012. In 2013 we will see. If we need to sell, we will sell. But we are going to be careful selecting what to sell and when to sell. We are not going to sell our assets cheaply."

Nakheel has been selling land plots on "frond N" of Palm Jumeirah and has been able to raise prices 20 per cent in the past five months, Mr Lootah said.

But much of the company's focus will be on existing customers, including buyers in stalled developments, Mr Lootah said. So far owners of Dh6.2bn worth of Nakheel homes have consolidated their interest from long-term projects into short-term developments, or sold their credit in their units, Mr Lootah said. About Dh9.9bn worth of homes were eligible for the consolidation programme. The company has been able to reduce its customer liabilities from Dh33.9bn to Dh7bn in the past two years, according to the bond prospectus.

"Hopefully by the end of next year we will achieve 85 to 90 per cent [reduction]," he said.

He also vowed to enforce the contracts of buyers refusing to make their payments in the World collection of man-made islands.

"We will make sure they pay. We have a contract and they have to respect that commitment."

Although the company is focusing only on its short-term projects, Nakheel may restart stalled villa projects, with demand for larger homes growing in some areas.