Company Update: Aldar Properties

As Yas Viceroy Abu Dhabi breathes a sigh of relief in the aftermath of its most important weekend of the year, the Formula 1 Abu Dhabi Grand Prix, Hotelier catches up with Jahed Rahman, who heads up the hospitality & leisure division of the hotel’s asset manager, Aldar Properties.

Rahman explains why leveraging events such as the F1, and an ever-growing portfolio of leisure assets will be key to establishing a solid revenue stream

With the sell-out ‘race weekend’ hot on the heels of the opening of Yas Mall in November — Abu Dhabi’s largest shopping and entertainment destination — Yas Island has not only stolen the regional spotlight over the past month, it has taken the global stage.

Behind the island’s fast-growing leisure assets and world-class events is the hospitality & leisure division of Abu Dhabi’s largest property company, Aldar Properties, which was formed following the firm’s merger with Sorouh Real Estate in 2013 after a $10bn state bailout in 2010 rescued it from a market crash.

Young London investment banker Jahed Rahman was brought on board to assist, and following completion of the merger he stayed behind, seconded from his position at financial services company Credit Suisse to continue helping with the integration of the two firms. Under the advice of Rahman and the other bankers involved in the merger, Aldar Properties became a development management and asset management company.

Rahman was appointed as director of hospitality & leisure, Aldar Properties PJSC in the summer of 2013, and has since led the company’s active approach to growing the hospitality and leisure portfolio. The division currently owns and operates nine hotel assets across Abu Dhabi, located within Yas Island, and in downtown Abu Dhabi and the Western Region.

The portfolio encompasses 2536 keys, 2259 of which are situated on Yas Island. It also includes a number of leisure assets comprising Yas Links golf course, Yas Beach, Bandar Marina, a residential marina serving the Al Raha Beach community, and the new Yas Mall, which fills a gap in Abu Dhabi’s retail offering.

“The reason for the split is that during the merger and for a number of strategic reasons, we had held on to several assets over the last three or four years since developing,” Rahman tells Hotelier during our interview, which takes place in the presidential suite of the Yas Viceroy.

“Development companies cannot just be development companies if you want to have a stabilised share price. You need two revenue streams: one that is the big catch every time you sell apartments, villas, and the second bit, which is effectively asset management,” he explains.

“The steady stream of cash comes in because you’re letting offices, you’re letting residential space, and hotels that bring in revenue and so on and so forth.”

The hospitality and leisure division is now core to the company in that it not only diversifies revenue streams, but also increases the value of Aldar’s residential portfolio.

“All around the world people like living next to hotels and golf courses, so it’s not just a matter of ‘here’s a hotel to make money out of’, and of course we’re very focused on revenue management and yield management and on a return to our shareholders, but we also want to give back to the community and create value for the community, so those are the reasons why it has become a core focus,” says Rahman.

While in the past, affiliated operators were seen by the company as “service providers”, today Rahman claims they are “partners”, since the company’s asset management has become more of an active function than before.

Article continues on next page ...

Being a publicly listed company with a number of shareholders, Aldar’s main function is, of course, return on investment, but opening doors for operators is another major benefit the firm offers as a strategic partner of the government.

This partnership approach is highlighted in the relationship with the latest operator to join the firm’s portfolio: Marriott International. The Courtyard by Marriott World Trade Centre is set to open next month, marking Aldar’s 10th asset managed property.

“We’re currently opening the WTC Marriott so we’re working with TCA and Abu Dhabi Food Control Authority to make sure that we’ve got all the systems, processes, and practical aspects of the hotel in place before we need to open, because we obviously have a very short timeline between now and the opening date. It’s very useful that the owners have these connections, and that’s a big part of what Aldar does on the asset management side. We have those relationships and we offer those when GMs require them.”

The World Trade Centre was one of the assets that Aldar sold back to the government in 2009 as part of a capital injection. The firm now oversees it to ensure sufficient revenue is extracted and passed on, and a major part of this will rely on the new Marriott.

The hotel’s location, on a multi-purpose development with a residential tower, a commercial tower, a souk and a mall means food and beverage revenue will be what Rahman describes as “a low hanging fruit”.

“You’ll have people coming in from the all-day dining and for lunch from the mall and souk. Secondly, you’ll have people coming in from the commercial centre leased from Arabtec, and the third thing is ADNOC, so lunch is covered and the F&B at the weekend will be residential,” he says.

In terms of driving room occupancies, Rahman explains that the corporate market will be key, particularly those that have an account with ADNOC and Arabtec.

“We’ll be able to fill that hotel up through RFPs from those two very large institutions and in addition there are a lot of SMEs in the area we would target.”

A small number of leisure visitors from Saudi Arabia, Kuwait and Qatar will also be targeted, with the key marketing draw the hotel’s connectivity to Yas Island, and Yas beach — which Marriott Courtyard guests will benefit from during their stays.

While guests at the seven Yas Island properties gain access to the island’s leisure assets, even the two operating properties under Aldar outside of Yas Island — Tilal Liwa and the Hala Arjaan Rotana — capitalise on dual-marketing activities.

For example, guests that stay on Yas Island can be transported to Tilal Liwa to enjoy the Liwa Date Festival, the camel beauty contest and other cultural activities, while Tilal Liwa guests can benefit from the leisure attractons on Yas Island.

And while links to the firm’s leisure assets is a key benefit for operators under Aldar’s management, these are also proving crucial to the enhancement of Abu Dhabi’s destination offering as a whole.

Article continues on next page ...

Demonstrating Aldar’s success, the company last year saw occupancy growth of up to 15% compared to an average of
8-10% for the emirate. While average daily rates were more or less flat, and even dropped at some points throughout the year, Aldar saw increases in room rates.

“We’ve grown faster than the market; we have more facilities and connectivity,” reflects Rahman.

“If you think about what’s currently happening in terms of people coming to Abu Dhabi — for Yas Waterworld, for Ferrari World, for the plaza hotels, for F1 and the Flash events, our key focus points, the conferences and events that are currently going on in Abu Dhabi, and there’s a big focus on that — so marketing Yas Island is marketing Abu Dhabi, because there hasn’t historically been anything like this.”

Further afield, Rahman discusses the possibility of the firm carrying out a hotel acquisition in order to secure its debut Dubai property, which would also have links to Yas Island, but would not compete with the Dubai leisure offering, he explains.

“Dubai is a market that nobody can ignore, especially on the hospitality and leisure side, so it’s very interesting to us. Our focus is on a stable recurring revenue stream. In order to turn on the tap straight away, we think that acquisitions are the way to go and so we’re going to continue focusing on development, but we’re going to look at acquisitions.

“If you look at the Yas Island mantra it’s ‘live, stay, play’, so it’s focused on the diaspora of the global market, it’s focused a lot more on families than maybe Dubai is, although Dubai obviously still caters to families and we want this to be a focal point for corporate and for businesses coming out for conferences and for seminars on a larger strategic scale.

“So I think what we’re trying to say is we’re not competing with Dubai — we’re not creating direct competition for Dubai — we have a slightly differentiated offering and we’re happy with that,” he explains.

While Yas Island is adding value to Abu Dhabi and to Dubai, it is also being marketed for the first time as an independent destination.

“We’ve moved into a wider marketing initiative with Miral, with Etihad on offering the island as a destination which hasn’t historically been done — it used to be ad hoc bookings but now we go out to World Travel Market and AHIC. When we’re at the big road shows we market Yas as a MICE destination and we’re picking up a significant number of bookings.”

Article continues on next page ...

The firm is currently in discussions for a third theme park which would be managed by Miral, with the signing of a globally recognised household brand imminent. Additionally, a number of residential areas have been sold, so Aldar is expecting a resident population on the island soon. The firm also expects to add 1000 new room keys across the UAE and will introduce a number of F&B and leisure offerings. If an acquisition goes ahead, this will introduce new hotel brands to the UAE.

Despite the company’s ambitious plans, Rahman maintains that monopolising the market is not the intention, and refers to “a chicken and egg situation”.

“If you fast forward five to 10 years and you assume all goes well... I think there will be a perfect supply-demand balance in Dubai and there will probably be a supply imbalance in Abu Dhabi. Abu Dhabi, not having as many hotels as Dubai is one of the reasons why we really want to diversify.”

“We’re trying to bring people here so we that we can create demand, and so we can then create more hotels and on top of that we have to provide to the community, and at the same time we have to capture that business. That’s what our focus is with the TCA, and with Etihad and those guys.”

Aside from a government-to-government deal in Abu Dhabi Plaza Kazakhstan, for which an operator Aldar has never worked with before has recently been selected — Rahman asserts that the focus for the H&L Division will be firmly on the UAE for the next three years, especially since the company has had its fingers burned in the past as a result of launching into projects it wasn’t ready for.

“We’ve failed in the past,” admits Rahman. “We went too far too fast, into segments and industries and sub-verticals that we weren’t comfortable with and weren’t sure about.

“Going forward we will focus on our strengths, and get to a level of maturity where we are comfortable in external markets, and then we will look at those markets where we can apply the strengths and the lessons learnt.” Rahman concluded: “We will be making sure that the investment case works, which is critical.”