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CNBC Interview with HE Mohamed Khalifa Al Mubarak, Chairman, Aldar Properties

Following is the transcript of an exclusive interview with CNBC's Hadley Gamble and HE Mohamed Khalifa Al Mubarak, Chairman, Aldar Properties on the all new Capital Connection.

HG: Thank you so much for joining CNBC. I want to kick off by asking you, among your many portfolios, what's the most exciting thing that's happening for you right now in Abu Dhabi@?

KAM: That's a great question. So much to be honest with you. I think I'm in a very lucky situation that I'm involved with the spectrum of leisure and culture. And if we look what Abu Dhabi has brought in 2017 with the opening of the Louvre. It's been a fantastic development. I think the messages of the Louvre are even more important than the museum itself. But if you just focus on the architectural feat of the museum, it's brought people from all over the world to awe in this beautiful architectural building. Compounded with the number of visitors that we're getting on a weekly basis from all over the world. You know a little over 60% of the visitors in this museum are coming to the UAE for the first time. So they are getting their first impression of the UAE through the Louvre Abu Dhabi. So they get all the key messages that we want to broadcast to the world - whether it's acceptance or tolerance, and just the preservation of culture, of world culture.

That's from a cultural realm. And that happened in 2017. If we look at 2018, probably the most two exciting projects that I can think of: one is the Warner Brothers Abu Dhabi, which is a highly immersive indoor theme park. I believe at the moment, it's going to be the largest indoor theme park in the world. It brings to life all the fantastic characters from the Warner Brothers portfolio. Whether it's the DC characters or Looney Tunes or (inaudible). I think this is going to be a major addition to the landscape of theme parks in the UAE. The theming, the development, the design, the rides, are really second to none. So you're going to have a heart of a comic world and a heart of the cartoons here in Abu Dhabi. From a cultural realm, I believe of course it's the cultural foundation and of course the Qasr Al-Hosn museum. Obviously, Qasr Al-Hosn, as many people know, it's one of the oldest existing buildings here in the Emirate Abu Dhabi. It's a fort from the late 16th century that we'll be turning into a museum, that will tell the history of the fort, through the eyes of Abu Dhabi. And then side by side you will have the cultural foundation which is a building that was originally built by the late Father Shayk Zayed, which was again preserving world culture. So everything from music, to arts, to drama, there's going to be a really strong community centre right in the heart of Abu Dhabi. So these are two of the most exciting projects I'm working on.

HG: And this has other facets to it as well, doesn't it? Because we were talking earlier about cultural diplomacy and the opportunity for really the UAE to work with other Arab countries, including Iraq, to promote that cultural acceptance and that cultural nuance not just in the region but also globally. Talk me through that.

KAM: We believe here in Abu Dhabi that history is what really makes us. And these are words that were echoed by the late Father Shaykh Zayed. Everything we've been doing over the last several years is based on how we preserve culture. Whether it is in our museums, or whether it's in some of the efforts we do outside the realm of museums. We have a lot of relationships with several countries all over the world where we create our archaeology teams, where we excavate sites here and internationally. And, of course, with our partners like France and Saudi Arabia we've created ALIPH. And ALIPH is preserving culture in war torn countries or difficult situations. And we've already highlighted several key places that we want to go to, where we can actually spend the right funds and have the right effort in these places, whether we create no house there, that can last many many years. One of these places is Iraq. So we're looking at Mali, Iraq, and other places. So I think I'm also quite excited to see what the future holds in this with ALIPH.

HG: And when you talk about what happens next here in the UAE specifically. A lot of progress in terms of bringing more and more people to the Emirates. You know millions of people are here as expatriates. They live and work here. What are the some of the things on the horizon for folks living here in the UAE, not just from the cultural standpoint, but in terms of living and working here that you see coming on the line?

KAM: You know I think Abu Dhabi has set itself to become a home for all. It's a place where people feel safe. Its very community based. Yes it's a cosmopolitan, metropolitan city, and country, but it always has that essence of heritage an essence of culture and more importantly a sense of belonging. So, not only do the local indigenous people belong here, but we've also accepted that other people from other countries belong here in the UAE. In the future, I see a future where laws are created to bring in a view where many of these individuals truly call this place home, whether it is through a long term visa, whether it's through localization. There are several strategies and cell factors that are being worked on at the moment.

HG: It's all part of the natural evolution of the country.

KAM: Absolutely.

HG: Moving to something a bit more business friendly in terms of what you do with Aldar Properties. There's a move now to bring in more foreign investment. What's behind that strategy?

KAM: You eventually always outgrow your market. And as we've last seen, over the last several months with the announcement of the joint venture with Emaar - that is specifically focused on how we can bring in brand new clientele to Abu Dhabi. At the same time, how we can expand to Dubai and other areas where Emaar are available. That joint venture is a substantially large joint venture. The first phase of the joint venture is a 30 billion Dirham investment by both of these fantastic entities, focusing on Abu Dhabi and Dubai. I think what you get with Emaar is a fantastic track record, a fantastic track record in developing unbelievable projects. You get a fantastic brand name that has been world renowned at the moment. When people see Emaar, they understand they're going to get quality. And because of that, they have done a fantastic job of bringing international investors to Dubai. Abu Dhabi is still quite early in bringing international investors in the realm of real estate. But, the opportunities are quite vast. Our real estate laws continue to get stronger. The locations that we have that Aldar has are really second to none. They're all in investment zones that really create foreign ownership - whether it is in Yas Island or Al-Raha Beach and the new project that we have announced with Emaar is sitting in the heart of Saadiyat. Which is Saadiyat Grove, which is a mixed use development that's surrounded by three unbelievable museums - with the Zayed National Museum, the Guggenheim, and of course the Louvre.

HG: So this is an opportunity for Emaar to get involved in Abu Dhabi property space, as well as Aldar getting involved in the Duabi property space. So it seems like a rather natural cohesion. Are we going to at some point see a merger between Aldar and Emaar?

KAM: You know at the moment, we're just focusing on this joint venture. There's a lot that we have to do. These are two massive projects. The one in Abu Dhabi is close to 8.5 billion Dirhams, the one in Dubai is a little over 22 billion Dirhams. We want to first cement this JV as what it came up to be. So we want to finish these developments, at the highest quality we can, at the timeframe we announced, and share it with the people, and then we can discuss what the future can hold for both these entities.

HG: Do you feel like this is going to have a direct implication for Aldar's future properties, in terms of the profits and revenues?

KAM: Aldar's been growing at a very good state. You know last year 2017 in a difficult real estate market around the world, our gross profit was about 2.7 billion Dirhams. Our recurring revenue was 1.6 billion Dirhams. Both have seen growth. We did off-market sales of 2.5 billion dirhams. Again, in a market where people felt there were some difficulties. And people really trusted, in Aldar, trusted in the real estate sector here in Abu Dhabi. We focused on new streams, you know, we focused on mid-income housing. And you know you look at demographics in Abu Dhabi, that's a substantial amount of people who enter that realm. And that's why our sales did so well, 3.5 billion Dirhams in one year is quite healthy for Aldar.

HG: Whos' the target audience there?

KAM: It's the people living in Abu Dhabi. The people who have jobs in Abu Dhabi. The people who have resigned from their jobs, and are living right now in Abu Dhabi. It's really creating opportunities for everybody, both the local and the expat community. I think for a Arab expat, this is the perfect place to basically invest, and call this place home. You would get the opportunity to own your land, own your home. You live in a highly secure community, where everything is available for you. For your local, it is a place where you find some very healthy yields. Anywhere between 7-10% yields in many of our developments, so again it's quite optimistic for everybody.

HG: Talk to me a little bit about the outlook for the UAE in particular, not just Dubai but also Abu Dhabi, in terms of the property sector. A lot of worries about an overheating again once again in Dubai. What do you see happening on the horizon?

KAM: Real estate developers are getting smarter and smarter. They're all looking on what is the next phase, what the future holds, and what the future is not just necessarily 5-10 years, it's almost what every single year holds. Just focusing on Aldar. You know, we have really focused 2017 on what the retail spectrum's going to look like in the future. What is a retail horizon going to look like. We are in a retail recession - we understand that. What are the future of malls here in the UAE, and the future of malls in Abu Dhabi, are they going to look like the malls they are today? We have taken a very strong stance on what they want to look like. We understand where the market is, so the market is no longer in these large 5000 and 10000 square meter spaces. They are 200 to 500 square meter boxes.

HG: Is that because of e-commerce?

KAM: Obviously e-commerce plays a big role, but I think the customer has also evolved, has become a lot more experience based. When they go to a shopping center they don't want the conventional (inaudible), from corner to corner, they want to experience something different. So we want to move her, or him, from their computer in buying a a T-shirt or something, to go to a space where: one, they can feel they're getting immersed into something that's outside the home environment. They could have fun, they can relax, at the same time really sparkle their eyes with some fantastic retail from all over the world, and continuing changing. You know, the customer wants to go to a place where there's always something new. So, short term leases are going to become the way of the future, where almost every single year, you're going to a new space.

HG: It's tough isn't it? Because over the last couple of years you have the lower oil prices that's had an implication for the private sector in the UAE, and also regionally, and you're trying to bring people in you're trying to incentivize them to buy property, telling people essentially that you know, socioeconomically things are going to evolve in a natural way in Abu Dhabi, people are going to have the opportunities to really be here in a real way over the long term. What are some of the things that you see as challenges to that narrative, as challenges to getting that done? Because the private sector still is pretty depressed.

KAM: You know I think it's been clear from day one that we want to diversify from oil. And that's been the strategy of Abu Dhabi. And you can hence see the investments - whether it's in Medicare, in renewable energy, in culture, and infrastructure both hard and soft, space, infrastructure, and the list goes on. All these create jobs, all these create opportunities. And I think I always like to give two examples that I'm a part of. Two companies, or two entities, you have the Louvre Abu Dhabi, and you have Farah, Farah Leisure. The Louvre Abu Dhabi is a museum, and today the Louvre Abu Dhabi has created many jobs that were not existent. And many jobs were not only, were non-existent in Abu Dhabi, were non-existent for the local community. Today at Louvre Abu Dhabi, 60% of the staff who are working there are UAE nationals. These are curator's, mueseographers, in operations, in finance and marketing. Entering a brand new (inaudible). That is the perfect view of how you're diversifying from oil. At the same time you're creating opportunities for expats to come, and be a part of something greater than just city based. So the Louvre Abu Dhabi is a fantastic brand to be a part of, where they can come position themselves here, grow themselves here - spend 5, 10 15 years - either move on to something bigger and better or sustain and move to something bigger and better in the Emirates. You talk about Farah - Farah is an operating entity that operates theme parks. At the moment, it operates Ferrari World and operates the Yas waterpark. And very soon, the summit will start operating the Warner Brothers Abu Dhabi.

Right now we have over four and a half thousand jobs. These didn't exist, now they exist. Of the four and a half thousand jobs, close to 72% are expats. And the rest are filled by UAE Nationals. Again today, we have two nationals, that are wearing costumes. Today we have UAE nationals that are in customer service, we have in maintenance, we have in operations, food and beverage, again they did not exist, these jobs.

And the rest that are expats coming from all over the world, whether it's Eastern Europe, or Southeast Asia, all the way down to South America. I get it that people are coming here, they're understanding the culture, they're understanding what Abu Dhabi brings to the table. And many of them, once they see what we are offering, want to call this place home. Hence, Aldar comes in, and creates the opportunity. Tomorrow, we're going to be opening Cityscape Abu Dhabi. And in Cityscape Abu Dhabi, we're going to be releasing a project called Ghadeer, and we're going to have studios going for 280,000 Dirhams. That is a fantastic opportunity for young couples, individuals that have just gotten to the job market, to come and acquire a home in Abu Dhabi, a tangible home. And it's a quality home, so it's not in the middle of nowhere. It's 15 minutes to Dubai, half an hour to Yas Island. It is surrounded by beautiful landscaping. You have a lake right in front of you. I mean, the average person won't imagine that you can get a 280000 Dirham studio, with all the amenities that you have around it. And that's what's important to Aldar, and that's what makes Aldar's DNA. We are going to build quality homes, regardless of what income stream you sit in.

HG: So in terms of the growth outlook specifically for Abu Dhabi, what do you see next on the horizon?

KAM: So we'll talk about real estate and we talk about tourism. Tourism, we continue to see strong growth numbers. Last year we grew a little over 10%. We expect to see another double digit growth in Abu Dhabi. We see some strong visitations from of course China, India, Saudi, and continue to be strong growth from the U.K. and from France. Compounded with all the assets we talked about, the Zayed National Museum, the Guggenheim, the other theme parks, you know we have SeaWorld coming up soon, of course the malls. This is continuing to be a fantastic destination. So I see that continue growing and I see the private sector there - the hotel owners, the retail players, to see a strength in the market moving forward.

We talk about real estate itself. I think there's a big focus on mid to local housing here in Abu Dhabi. As I said in the past, there was a big focus on the high-net individuals. I think that market right now has been very saturated. I think there is a need for this mid-market and low income market to housing. Hence in 2017, we've had billion drops in sales. Ghadeer is our first push in low income housing, and over the next 3-4 days, we'll have a concrete view on how this market holds.

HG: And finally, what's the greatest challenge to growth particularly in Abu Dhabi? Is it going to be oversaturation? Is it going to be private sector woes? Is it going to be lower oil prices? What's the biggest challenge do you think to achieve what Abu Dhabi wants to achieve?

KAM: I don't really call it a challenge. The government will continue to invest in infrastructure. And that's everything from schools, universities, hospitals, museums etc. They're going to continue doing that. And as we've seen over the last several years, oil prices did not dictate any changes in that realm.

Where the private sector has to come in - they have to come in and fill the demand what the government's going to bring to the table. And you know today, there is still a - my view -, a under-supply in many of what the private sector can bring. So outdoor retail is still weak. Community retail is still weak. I think you still have a weakness in some of the 2 and 3 star sector hotels. You still need a lot more in forms of community aspects of the business. I think right now with the relocation of the media zone, there's going to be a huge movement of content creators to the new site at Yas Island with the incentive scheme that they're creating. So, there's still a lot of opportunities, and I think if you see what the track records have held for Abu Dhabi you can really see a bright future in the next five to 10 years.

HG: Thank you so much for joining CNBC.

ENDS


For more information contact Jonathan Millman, EMEA Communications Executive: Jonathan.Millman@cnbc.com


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