Dubai’s Nakheel 2014 Net Profit Jumps 43.2% Despite Revenue Slump

Dubai developer Nakheel expects to maintain profit growth of 40 per cent seen last year in 2015 and 2016, its chairman said on Wednesday, as it benefits from diversifying into the retail and hospitality sectors.

The positive outlook from Ali Rashid Lootah came after the state-owned company reported a 43.2 per cent jump in full-year profit for 2014 to Dhs3.68 billion ($1 billion), despite a substantial drop in revenue.

“We see the same trend will continue for this year. We are very optimistic we will maintain similar (profit) growth for this year and next year. A lot of the new projects we launched are in the phases of getting delivered this year and next, so there are still good years to come,” Lootah told a press conference.

Nakheel was one of the developers worst hit by Dubai’s real estate crash, which knocked 49 per cent off prices between the third quarter of 2008 to the market bottom in the second quarter of 2009, according to data from consultants Cluttons.

The sector has since rebounded and Nakheel paid off its pre-crisis bank debt four years ahead of schedule. Property prices in Dubai were among the fastest-rising in the world in the 18 months to June 2014, causing fears of another bubble bursting, but prices stabilised in the second half of the year.

Nakheel’s profit growth in 2014 came despite a 24.7 per cent decline in revenues to Dhs7 billion, which Lootah attributed to securing higher margins on the properties it was selling and the writing back of a Dhs460 million provision against a project on Palm Jumeirah, the palm-shaped islands off Dubai’s coast, which Nakheel developed.

“Although the revenue dropped, we had a better margin because of our measures to control costs,” said Lootah.

“Our (2015) revenue will stay around the same (as of 2014) but we have healthy margins. We will increase revenue when we complete the new retail, hospitality and leasing portfolio,” he added.

He said that once all the projects in these sectors were completed in 2017, it would generate around Dhs7.5 billion of gross revenue, compared to the Dhs1.3 billion of net revenue it created in 2014. There was around a 15 per cent differentiation between gross and net revenue, he added.

The malls Nakheel was currently building would be financed by bank loans, while it hoped to have 30,000 leasable residential apartments and villas by 2017, Lootah said, up from 17,000 at the end of 2014.

Nakheel expected to secure Dhs7 billion worth of new construction contracts in 2015 and hand over 1,200 villas, up from Dhs5.3 billion of contracts in 2014.