Mohamed Alabbar: The only way is up

Emaar chairman Mohamed Alabbar looks back at what made his company a world beater, the pain of the recession that followed, and what the future holds for both him and the company
By Anil Bhoyrul
Sun 31 Mar 2013 10:01 AM

Over the course of two hours, the many sides to Mohamed Alabbar all come out. Casually dressed, sitting in the lounge at one of the many great hotels he built, The Address Downtown Dubai, Alabbar is busy juggling his iPhone, a cup of black coffee and a croissant. This is Alabbar the family guy: warm, engaging, charming and carefree. You would never guess he runs a $9.3bn company, as he shows me a video of his daughter appearing in a school play.

“She’s gonna be a star,” he says proudly.

By the time the second course of coffees and croissants arrive, the Emaar chairman is ready for introspection. He starts to bare his soul. We have just come out of the worst financial crisis in living memory, and boy, does he know it. Kicked, lampooned and cornered, Emaar went from stock market darling to investor pariah.

“If I had the chance to do this all again, I would probably go private… Normally, I’m a fast learner, but on this one it took me a bit of time for things to sink in, and realise that it’s a continuous pressure. You have to be man enough to handle the pressure, but I realised late,” he says.

Ninety minutes later, the metamorphism is complete. The passion, the swagger and the drive are back. Shares are rallying, towers are rising, profits are rocketing. Emaar’s obituary writers, not for the first time, have been put out of business. And what a business Emaar now is, with a staggering $167bn of future projects in the pipeline.  When you cut to the chase, make no mistake: Emaar is back. Mohamed Alabbar is back.

“In the next ten years, I hope that I will have built at least three more Downtowns. Will I do the world’s tallest tower again? Of course I want to. I am looking. I have a wish. I will try.”

Don’t bet against him doing just that, as the latest phase of Emaar and Alabbar’s rollercoaster ride begins to take shape. This is a company that has delivered an average of $1.8bn worth of projects every year for the last thirteen years. The 2012 results showed an 18 percent rise in net profits to $577m from $2.24bn of revenues, numbers that have been good enough to give the stock market a heavy dose of endorphins.

The shares have moved up 85 percent in the last year, with January alone recording a 30 percent jump – that’s the best start to a year since the company went public in 2000. Last July, the share price was AED2.85, this week it is at about AED5.40.  What investors like most about Emaar is its recurring revenues, with the shopping malls and retail side of the business accounting for $740 m last year – a 27 percent increase on the previous year. Good? Clearly not good enough. “I think we will do better,” says Alabbar.

That would be some achievement. Forget Marlon Brando resurrecting his career in The Godfather, or Bill Clinton’s second term in office. History may well judge the Emaar story and the Alabbar story – both intrinsically linked – as the greatest comeback of all. It was never meant to be so good in the first place, it was never meant to go so wrong, and it was never expected to turn around again so spectacularly.

All this has taken place in the space of fourteen years. Back then, Emaar launched its first project at Emirates Hills, led by a 39-year-old hotshot with plans to take on the world. In 1999, Alabbar already had an impressive track record, having been director general of the Department of Economic Development, and having launched the Dubai Shopping Festival. Three years earlier, Advertising Age named him as one of the “International Marketing Superstars of the Year.”

But property? That was a whole new ball game.  The world knew Alabbar, but nobody knew Emaar.

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“I remember when we opened, our sales were not good. First of all, maybe we were little too early. Secondly, people didn’t trust us because they didn’t know us. People preferred that they deal with possibly somebody with a track record. Or probably they didn’t understand this thing of living on a golf course or a community,” he says.

They soon did. Emirates Hills went on to become one of the world’s prime real estate locations. A seven-bedroom villa there today could cost you $20m.

Emaar had a heady start with its historic IPO in 1997 oversubscribed ten times. A year later, the company’s post-issue paid-up capital more than doubled to AED2.65 bn from AED1bn, following a rights issue and an extra preferential issue of 65 million shares allocated to the Dubai government. In 2000, Emaar listed on the Dubai Financial Market, becoming the first property company to offer shares to foreign nationals.

That was just a taste of things to come. Within two years, the projects at Dubai Marina and Arabian Ranches were launched, and Emaar made its first foreign foray, into India’s Hyderabad.

At this point, historians would surely cite the 2002 change in law that opened up freehold sales as the game changer, sparking a huge rush in property demand. Alabbar, however, doesn’t buy this.

“I think the game changer was when the government launched its own companies [Nakheel and Dubai Properties]. That was the game changer for me. Because I said, they have an unfair advantage over us. And both of them have their own municipality, which means I have to deal with Dubai Municipality. They don’t have to. They have their own building permits and they are the government. They have the right to do anything they want. They can get a much bigger land bank than us. This is when I said, I have to do an absolutely perfect job here in Dubai, but I have to look abroad as well. That’s when I started looking at Egypt, Lebanon, Turkey and Saudi Arabia. Which is good. I didn’t have to. I could have just stayed here and relaxed.”

Relaxation was certainly far from his mind as the company’s massive and aggressive expansion plans took shape. The Burj Khalifa and Dubai Mall projects were announced in 2003, and over the next three years, the growth rate was nothing short of phenomenal –24 major project announcements by 2006, the scale of which dwarfed Emirates Hills. Giorgio Armani teamed up with Alabbar. A $4.4bn Uptown Cairo project;  $7.35bn projects in India; the $27bn King Abdullah Economic City in Saudi Arabia and $3.6bn projects in Pakistan are amongst some of the highlights.

But what was really marking out Emaar was its desire and ability to do the spectacular. Big and good wasn’t enough - only the biggest and best would suffice. Much of this, Alabbar, says, was being driven by his boss, the Ruler of Dubai HH Sheikh Mohammed Bin Rashid Al Maktoum. “He is really the man who saw tomorrow, without a doubt,” he says.

In fact, Alabbar reveals, the original design for the Burj Khalifa was just for ninety floors.

“I was very happy with that. I had nine designs. My meeting with him [HH Sheikh Mohammed] was very short. Really, very, very short, like ten-fifteen minutes and he just left. I had to chase him and asked: “So, should we start construction?”  He said “I think you should try harder.”  Another two months, and I presented again. When he gave me the go-ahead, it was a good percentage taller than anything else. But then after that we started pushing for even higher, to achieve 828 metres,” says Alabbar.

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In May 2002, Emaar’s shares were AED 2.02. By June 2005, they had peaked at AED 47.65, and Emaar was on track to become the biggest property developer on the planet, worth over $36bn.

Did Sheikh Mohammed ring Alabbar to congratulate him? “He expected us to do that,” says Alabbar.

As Alabbar observed then, “to move to the next stage of its development as a truly global entity,” Emaar issued a 1:1 rights issue increasing its number of shares from over 2.835 bn to 6.091bn. With more shares floated, share prices dipped.

On 28 January 2006, Emaar’s annual results for 2005 were released. They showed profits of $1.289bn, a jump of 180 percent on the previous year. Incredibly, on the very same day, several analysts were quick to suggest the profits growth was lower than expected, and the share price sank nearly 3 percent the same day.

For Alabbar, success had become a double-edged sword. “Of course, unfortunately you know the share prices go down and the shareholders are not happy. Then you remember that more because we are in the business of making people happy. When they are not happy, it’s tough. I want people to be happy, people to do well. Because that reflects on my company, my people, and my customers as well,” he says.

The day after the 2005 results were announced, the shares traded at AED22.70.  Exactly six months later, they were just AED10.85, losing more than half their value. There was no shortage of expansion and diversification, but Alabbar, looking back, admits he had learned the hard way about the demands of running a public company.

He admits that given the chance to do it all again, he would “go private.”

Alabbar explains: “The reason is mainly the idea of taking decisions for you to enhance your quarterly results, or your annual results, besides keeping in mind the long-term value creation of what you need to do and what you create for the company, is something I am struggling with. We need to make decisions based on this year’s profit being better than last year’s profits. Sometimes if I could just shift things around, the year after that will probably be so much higher by strategically not making certain moves in this year.”

He adds: “You are exposed to accounting standards that keep changing all the time. We have accounting standards now, that basically, even if you pay me in full for your apartment I can never put it in my profit-and-loss account, unless I give you the key. Then there is a stranger accounting standard, which would be based on percentage of completion, and your profit keeps going like a yo-yo.”

Despite that, Emaar still recorded a 35 percent profit growth in 2006, to $1.735bn. Crucially, the company had diversified, effectively going from home builder to dream builder. In his results statement on January 30 2007, Alabbar looked back at the previous twelve months as a “defining year”, adding that his international expansion and diversification strategies were “coming to fruition.”

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“We have to keep going. We have to grow it. When you keep thinking like that, you grow it and you make ten [decisions] and you make a mistake in two. Unfortunately, people don’t forgive once there is a mistake. We are human beings.”

The company had taken on healthcare and education, its hotel developments started taking shape, and projects in Saudi Arabia, India, Egypt and Jordan were well under way. The stock price would never get back to the dizzy heights of AED47, but Alabbar was undeterred and seemingly unstoppable. A raft of hospitality and leisure projects were rolled out (which would later become of great importance), and by the spring of 2008, the Burj Khalifa had crossed 629 metres in height, making it the tallest manmade structure on the planet.

The now-famous The Address Hotels + Resorts brand was launched, and by September 2008, Alabbar was getting set for the launch later that year of The Dubai Mall, the world’s biggest shopping destination.

The world, of course, changed on September 15, 2008, with the crash of Lehman Brothers. The aftershock would see property prices in Dubai dive by 60 percent, and a near four-year brutal recession was to follow. Dubai had been a dream for speculators – something that was about to become a nightmare for the emirate.

Alabbar says that six months before the property crash, he had an inkling that dark days were ahead. He explains: “Prices were moving up, and as we put prices up customers were buying. So we did an analysis of names. At every launch, we followed the names on our system, of people who were buying. We realised that at every launch, about 60 percent were the same names. Then we started looking at these names and the faces, and we started chasing them on other developers’ sales centres. They were the same faces. So immediately, we cut our budget that year by 30 percent, because there was a lot of flipping.”

He adds: “We compared sales per square foot in Dubai with those in New York, Chicago, Singapore, and Toronto. Our prices were a little up there, a little too much for us. If you looked at the increase in home prices, the increase in level of income, it was unmatched. There was something wrong, but we did not know what. We should have cut our budget by 80 percent. We made a mistake.”

At what point did Alabbar realise the property market had finally crashed? He says, candidly: “When basically our sales turned into nothing. It stopped actually. It was tough. Very tough.”

Worse soon followed as Alabbar cut his own salary and that of his senior executives by 50 percent.  Most other staff took a 30 percent pay cut. He says: “I never thought it would be as bad and as long. Here is where you differentiate between the boys and the men. Tighten your belts, cut your costs. Unfortunately we had to take certain decisions, pull back projects. Are you able to decide that, and are you able to take it through? Are you able to cut staff salaries?”

Alabbar adds: “I think the world, including us, we just hired [too many people]. There was too much profit.  It was mostly the boom that was moving the business. It was not because of the staff we had.  You just hire anybody, he looks so brilliant. But he is not brilliant. The market was flying. But today, hiring is a very serious matter with us. A very serious matter. You spend one dollar, we watch you. Really, very carefully, we will never ever, at least me and my senior staff, will never forget the lesson.”

But the crash became a crisis and for many people and companies, a catastrophe. However, the only man who didn’t appear fazed by what was happening around him was HH Sheikh Mohammed.

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“He said, ‘listen guys, this is life. It will all pass’. He said that’s why there is a day and there is a night. That’s why there is winter and there is summer. And he said there are days, hard days for the good men to stand and learn and become better. He has a gift, and he believes in us. He believed that we will endure.”

The support from HH Sheikh Mohammed no doubt helped Alabbar keep going, despite an ever-deepening global recession.  What’s interesting about Emaar during this phase is that despite the cutbacks, it didn’t stop building. Curiously, the list of key Emaar dates on its website shows the company to be at its most active between 2009 to 2012. Not only was there the spectacular opening of Burj Khalifa, but there was also a quick-fire expansion of its hospitality & leisure and shopping malls & retail divisions. The Address Hotel + Resorts was fast becoming an iconic brand with global aspirations, while The Dubai Mall had crossed 30 million visitors in less than a year since its opening (and it had opened during the recession).

Around the same time, there was no shortage of bankers lining up to tell Alabbar he needed to borrow more.

“Of course being a public company, people are monitoring our debt level. You’ve got analysts harassing you all the time, and also some of the analysts were saying that our balance sheet is not efficient because we do not have lot of debt,” he says, adding: “I was tempted [to take on more debt], but I think we used to have a discussion with V K Gomber [Emaar’s CEO who passed away in 2010] – God rest his soul - and we both used to say, these bankers they come and tell us our balance sheet is not efficient because we do not have a lot of debt. But you know, we don’t like to go through receptions where all the bankers will point fingers at us and say, ‘Oh you know something, we have given Emaar $200m’. We don’t like them to say that about us.”

Alabbar made the right call – billions of dollars of debt has been an albatross around the neck of many rival companies struggling to come out of the recession. Not so Emaar. Its current debt is just 19 percent of the total assets of the company, which stands at about $17bn and has continued to roll out the big projects.

In September last year, The Address The BLVD sold out on the first day of launch. Ditto The Address Residence Fountain Views launched in January this year. Ditto The Address Residence Sky View launched in February. There has been similarly huge response to its Emaar Square project in Turkey, and plans are under way to roll out The Address Hotel brand in Kenya, Egypt and London.

The Dubai Mall, meanwhile, last year saw 65 million visitors, over 20 percent jump on the previous year.

With the Dubai economy set to grow by close to 4 percent this year, confidence is growing and, yes, people are queuing up again to buy off-plan property from Emaar.

Does this all sound like a case of déjà vu? Alabbar admits he can never stop the speculators, but he can certainly try and catch them out this time around.

“When you have a boom, you will have speculators. It’s a fact. We all have a bit of greed in us. We all want to make little bit more. As long as the bankers are careful – we need help from everybody – developers have to be careful, bankers have to be careful, the regulators have to come and help us. But human beings will always jump up and down to make that extra dollar. Our system is a bit more sophisticated now. If you are a flipper and you have flipped, our systems will know who you are. They will not sell again to you,” he says.

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It may be one thing to curtail speculators, but what about developers? After the crash in 2008, there was no shortage of half-built towers leaving thousands of investors out of pocket. Could that happen again if the boom goes too fast?

“I am worried. I think rules need to be more strict,” says Alabbar, adding: “Somebody needs to look at what other countries are doing, somebody needs to look at the track record of these companies, who are the owners, what is their capital base, what is their financial strength like? If you sell half the building, but the balance of the building is not sold, do you have enough money to continue the building? Because you are depending on RERA’s account. So do you stop? RERA should be able to check if this person has enough funding to finish the building even if he sold off plan.”

Could that ever happen with Emaar? His voice rises. “No way. That will never ever happen in Emaar. Never. Never.  Never. I promise you that.”

So what now for Emaar? With an 85 percent one-year return on the shares, Alabbar’s investors all have big smiles on their faces. Since June last year the price has steadily risen from AED2.80, getting close earlier this year to AED6. HSBC has put a revised price target of AED7.7, while in private some analysts suggest AED10 by the end of the year is not out of the question.

Alabbar’s investors, however, seem to be incredibly loyal. There are around 45,000 shareholders in the company and nearly 60 – 70% of those who hold the total 6bn plus shares listed on the DFM have never actively traded the shares. Through thick and thin, they have stuck by Emaar.

“These are people who have been holding Emaar shares since the company’s inception. They see the value we create, as a long-term investment,” he says.

As for Alabbar, he certainly has his hands full. Another Downtown, twice the size of the original one, is being created in Cairo. He says a Downtown in Turkey “looks interesting”, as does one in Riyadh. 

But most intriguingly of all, Alabbar admits he has his eye on building the world’s tallest building - again. Prince Alwaleed’s Kingdom Tower project in Jeddah is being touted as the eventual successor to the Burj Khalifa’s crown, with the Saudi prince hopeful of building a 1km high tower.

He may need to hurry up - Alabbar reveals he is looking at plans to build an even taller tower, somewhere in Asia. “It will be a little taller than the one in Saudi Arabia,” he says.

So what does the coming decade hold for him?

“In ten years time I will be 63. I think I will still be doing large-scale developments. I hope I will be a little wiser. And I will still be at Emaar as long as they still want me. I work for the shareholders. As long as they think I add value, I will be there,” he says.

And build the world’s tallest tower for the second time?

“I would like that. It would be very special.”

Only a fool would bet against him.

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