Aldar Properties: A new chapter

Aldar has begun a new phase of development in Abu Dhabi

ANALYSIS, Projects, Cityscape abu dhabi, Merger, Yas mall

Aldar Properties chairman Abubaker Seddiq Al Khouri was in a confident mood when announcing the firm’s first three major new projects since last year’s merger with Sorouh Real Estate – and, indeed, since it took the decision to start building Yas Mall in 2011.

The three projects, Ansam, Al Hadeel and Nareel Island, have a combined development value of $1.36bn (AED5bn), and went on offer at last week’s Cityscape Abu Dhabi, with investors being asked to register their interest, but with no prices for the units due to be released until next month.

Al Khouri said the projects were the first of 23 that it has identified for delivery in the near-to-medium term.

“When we were working on our integration, one of the tasks we worked on very closely was to prioritise the places and the investments that we wanted to focus on for the next three-to-five years.”

Aldar and Sorouh, which were Abu Dhabi’s two biggest property firms, were in talks for more than a year about a potential merger. Terms were agreed in March last year, and the deal completed in June.

The merger involved the Abu Dhabi Government buying some assets from Sorouh shareholders for cash. It holds a 37% stake in the combined entity.

Al Khouri said that the integration of the firms had been anticipated to take between 18-24 months, but had actually been completed within six.

He also said that it had provided a “quantum leap” in terms of how the business is performing. Its full-year profits increased by 67% for 2013 to $610mn (AED2.25bn) – largely due to a one-off gain from the deal.

By the end of the year, its gearing (net debt to equity) had reduced to 58%, compared to 144% in the legacy Aldar firm at the end of 2012. This improved its standing with ratings agencies, which in turn made raising further funds (through a $750mn sukuk in January) both cheaper and more straightforward.

As a result, the target for annual synergy benefits from the deal were increased by 45% from an initial $24.5mn-$30mn to $39.5mn-$40.8mn.

Al Khouri points out that the company’s current market cap of almost $10bn (AED36.2bn) is more than four times the $2.2bn (AED8bn) Aldar’s shares were trading at prior to the merger.

On an operational level, the one thing it hasn’t achieved yet is appointing a CEO. Most of the other senior positions in the combined board were agreed when the the deal was approved by shareholders in March 2013.

“We have finalised everything in the integration plan, including the selection of the top management, except for the CEO,” Al Khouri said.

“We have been searching for the past six months. I’m very active in that search. We are looking at different candidates. I believe that we will be able to choose one over the next three months. But we have a very strong management team, strong processes and policies in the company and I am acting as CEO on a daily basis until we find one.”

He added that the firm had managed to keep on with its project delivery programme in the same period.

This included delivery of its own units, plus some big-ticket projects for the government’s national housing programme, including major schemes at Al Falah in Abu Dhabi, Al Sila’a in the Western Region and Al Ghuraibah in Al Ain.

Aldar also recently won more projects under the same initiative, including a further 996 villas at Al Falah, 275 at Al Ghuraibah in Al Ain and 1,020 units at Zone K on Yas Island. These have a combined value of around $1.55bn (AED5.8bn).

More of its own projects at Al Ghadeer on the Abu Dhabi-Dubai border, Gate Towers and at alrayyan have been handed over in the last nine months, leaving completion of Yas Mall as its last big legacy project (other than the plaza being developed for the UAE Government in Kazakhstan).

It is expected to complete within a month, according to Al Khouri, but a decision has been taken to hold back its launch until the weekend of the Abu Dhabi F1 Grand Prix in late November to give tenants the chance to complete fit-outs and to benefit from the additional publicity.

He said the firm now has a stronger balance sheet and a development strategy of which projects within its 77mn m2 land bank to tackle first. The first three identified have been chosen because they are in “infrastructure-enabled” areas, according to chief development officer Gurjit Singh.

Ansam, for instance, sits on a site at Yas Island overlooking the Yas Links Abu Dhabi Golf Club. It will contain 540 fairway apartment units on an island where district cooling, power, water and other utilities are already in place. It is the first Yas Island site at which expats can buy homes.

Al Hadeel, which sits over the bay at Al Raha Beach next to the existing Al Bandar blocks, also has infrastructure in place.

It will contain 230 apartments and townhouses, with retail and leisure units on a ground floor beach promenade level.

Finally, Nareel Island at Al Bateen is part of what was once planned by the firm as Coconut Island. Aldar had originally proposed to build homes for UAE nationals within a gated community on the island, but is now developing the infrastructure and selling 143 plots of between 1,000m2-5,000m2 on which people can build their own villas. Plots can also be combined so mansions can be erected.

Deputy CEO Mohamed Al Mubarak said: “The island shaping has been completed, so everything underground is pretty much done. Now we are going to work on everything over ground.”

This includes main roads and a new bridge link onto the island.

Singh said all three sites are “very well located” in terms of their proximity to the city of Abu Dhabi, as well as the main economic points between Abu Dhabi and Dubai, such as the airport and Khalifa Port.

“They also offer a very clear lifestyle proposition, which is quite different from some of the other developments within the Abu Dhabi conurbation. This is why we chose to launch in those locations.”

Construction work for all three projects is set to begin either late in 2014 or early in 2015, under a three-year programme due to complete by March 2017. Tenders for main contracts are likely to be issued in July.

“It will go through a very clear tendering process,” Singh added. He said that the firm had carried out an in-depth market analysis and has chosen schemes with an “obvious” demand.

“Planning will continue for the other 20 developments so that these are implemented on a bite-sized, gradual basis over the next five to eight years,” he said.

Among the 20 sites being considered for further development is land around the Al Ghadeer development, which is close to the Expo 2020 site on the Abu Dhabi-Dubai border.

Al Mubarak said these initial projects are “just the tip of the iceberg”.

“With the land bank we have, we are in a very strong position moving forwards.”

Mat Green, CBRE Middle East’s head of research, said that there had been a “rebound” in residential activity on Abu Dhabi over the past 12 months, driven both by government intervention and positive economic growth.

Government moves to make public sector employees live in Abu Dhabi to receive housing allowances and the removal of a rental cap have increased rents and sale prices, which Green believes are both set for “sustained” growth.

“Residential rentals in the capital have already achieved significant growth during the first quarter of 2014, with an average rise of close to 10%. The revival of the residential sector is likely to encourage further new development launches over the coming months, while we also expect to see work restart on some stalled projects as market conditions improve.”

Al Khouri also highlighted the role the government had to play in supporting the industry through investment in infrastructure, pointing to the announcement made last week that Abu Dhabi’s Executive Council, chaired by Crown Prince Sheikh Mohammed bin Zayed Al Nahyan, had approved a spend of $10.1bn on infrastructure projects such as housing, healthcare and education as part of its previously-announced, $90bn five-year plan.

“It is important that we focus on the economic diversification in order to achieve benefits for investors, clients and stakeholders,” he said.

Having said this, a revival of office-led developments could still be some way off, as conditions remain unfavourable. Unlike residential, office market rents seem to be stuck in the doldrums, A Q1 2014 report released by Jones Lang LaSalle last week showed that rents have continued to stagnate at around AED1,540 per m2 for Grade A and AED1,180m2 for Grade B space.

Vacancy space in the city remains high, though, at 39%, and could even increase throughout 2014 as more new supply comes onto the market.

Cluttons states that demand for office space is unlikely to improve, but that rent for Grade A space should hold up, due to the fact that more government-owned firms will continue to take up space.

The firm’s Middle East chief executive, Steve Morgan, said: “We have witnessed a widening gap between Grade A and secondary office space in recent months and we expect this to widen further.

“With stable rents at the top end of the market, many occupiers are capitalising by moving into space that they perceive to be of a higher quality.”

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