Operator: Hello, everyone, and thank you for joining the Aldar Properties 9M2026 financial results. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two to remove yourself from the question queue. If you have joined us online, you can submit a text question via the Q&A button on your browser. It is now my pleasure to hand over to your host, Mr. Faisal Falaknaz, Group Chief Financial and Sustainability Officer, to begin. Please go ahead when you are ready.
Faisal Falaknaz: As-salamu alaykum. Hello, everybody, and thank you for joining today's call to discuss Aldar's financial results for the nine-month period of 2026. The first nine months have been marked by a shifting operating landscape, but also by the underlying strength of Abu Dhabi's economic fundamentals and the resilience of our diversified business model. Abu Dhabi remains an attractive destination for businesses and residents, supported by ongoing investment in connectivity, economic diversification, and quality of life. Demand remains resilient, while a more controlled development pipeline is helping maintain a favorable supply-demand balance. This is sustaining demand for high-quality residential communities and the commercial, retail, and logistics infrastructure that supports them, with Aldar serving as both a contributor to and a beneficiary of that growth. At Aldar, we have spent several years building the scale, capabilities, and diversified portfolio to both withstand challenges and capitalize on opportunities.
Faisal Falaknaz: Our investment in new destinations, strategic partnerships, and recurring income assets is increasingly translating into material earnings growth across the Group. Against that backdrop, Aldar has delivered a resilient nine months underpinned by a sizable backlog, disciplined execution, and the defensive qualities of our recurring income platform, notwithstanding softer development sales and a weaker hospitality performance year on year, which I will cover in more detail. At group level, revenue increased 11% year on year to AED 26.2 billion. EBITDA rose 20% to AED 9.4 billion, and net profit after tax increased 19% to AED 7.1 billion. Within Aldar Development, group sales totaled AED 18.9 billion in the first nine months, down 34% year on year, reflecting the measured approach to new launches we adopted during the H1 of the year in response to market conditions.
Faisal Falaknaz: Meanwhile, Aldar Development's EBITDA increased 21% to AED 6.1 billion, driven by project delivery and revenue recognition against our sizable backlog, which today stands at AED 71.6 billion, including AED 59.3 billion in the UAE, providing strong visibility over the next two to three years. Aldar Investment delivered another period of strong earnings growth, with a 21% increase in adjusted EBITDA to AED 2.8 billion, supported by high occupancy, steady rental growth across core asset classes, and contributions from recent acquisitions and completed develop-to-hold assets. Assets under management increased to AED 57 billion. We remain focused on prudent capital deployment while continuing to progress on our develop-to-hold pipeline, which now stands at AED 21.3 billion, supporting further diversification and income growth over the coming years. Our balance sheet remains robust, with Group liquidity of AED 38.2 billion, underpinning our strategy and counter-cyclical approach. Turning to slide number 4.
Faisal Falaknaz: We summarize recent announcements across the group year to date. I will focus on the most recent developments in the Q3 and into October, while reminding you of the key progress made earlier in the year. At group level, we continue to strengthen our financial position. In the Q1, we completed $2 billion hybrid issuances, and in the Q2, we closed the AED 5 billion, five-year syndicated sustainability-linked revolving credit facility. In the Q3, London Square secured the £100 million accordion option on its revolving credit facility maturing in 2030. On land replenishment, back in February, we announced the expansion of our Dubai Holding JV with two additional plots with a combined GDV of around AED 38 billion. We also added about AED 23 billion of GDV in Abu Dhabi through a private joint venture.
Faisal Falaknaz: In Q3, we announced Marsa Al Saadiyat, a new waterfront destination on Saadiyat Island, with a GDV of more than AED 60 billion. We also unveiled Yas Point, a new waterfront destination on Yas Island, with a GDV of AED 6 billion. The Q3 has seen a significantly accelerated development launch program, with seven new projects launched across Abu Dhabi, bringing the year-to-date total to 12 launches. Launches were well-received, reinforcing the depth of demand for appropriately positioned products. More specifically, on the 12 launched projects in 2026, 73% has been sold as of the end of September. Meanwhile, on total live projects, pipeline is 94% sold. Within Aldar Investment, the Aldar-Mubadala-Masdar City joint venture acquired The Link earlier in the year, and in the Q3, Masdar City Square for AED 918 million, adding more than 41,000 square meters of Grade A commercial space with occupancy of 99%.
Faisal Falaknaz: We also expanded our industrial and logistics platform through the acquisition of three assets in KEZAD earlier in the year. In September, we established a strategic partnership with Arada, supporting our expansion into complementary Northern Emirates markets. The first agreement included the sale of land plots on Yas Island to Arada in Q1, and a joint venture at Seih Sdeirah in Q3, with an expected GDV of AED 11 billion. In October, we agreed to forward purchase of AED 1.1 billion residential rental portfolio in Aljada, making our first real estate investment in Sharjah, and an important addition to our future income-generating residential portfolio. This brings us to AED 6.6 billion in new develop-to-hold projects year to date, which includes value housing units in Mohammed bin Zayed City and Bani Yas, a residential and retail development in Dubai Studio City, and new or expanded education facilities.
Faisal Falaknaz: Turning to slide 5. On Aldar Development, the business maintained strong earnings momentum during the first nine months, demonstrating the benefit of our sizable revenue backlog and continued execution across the existing development project pipeline. Revenue increased 14% year on year to AED 19.4 billion, while EBITDA rose 21% to AED 6.1 billion. Group Development sales reached AED 18.9 billion in the first nine months, with sales in the UAE totaling AED 14.4 billion. I would also note that reported sales do not fully reflect underlying demand, as sales from our late September launches, including Talay Beach, and Yas Riva Reserve, are not reflected in this figure. With that said, UAE sales have now surpassed AED 20 billion year to date.
Faisal Falaknaz: This demonstrates resilient demand for well-located, family-oriented communities and provides strong evidence of the ramp-up in launch activity into the second half, while we remain disciplined on pricing, phasing, and payment plans. International development sales strengthened during the period, with SODIC recording AED 3 billion of sales, an increase of 99% year-on-year, supported by a number of new launches. London Square recorded AED 1.4 billion of sales, up 177%, including four new launches and further land acquisition activity in the UK. As highlighted earlier, our AED 71.6 billion development backlog continues to provide substantial earnings visibility over the next two to three years. Turning now to slide 6, you will see further detail on our UAE development sales, customers, collections, and handovers. Our buyer mix remains highly diversified. Overseas customers represented 28% of nine-month UAE sales. Resident expats, 50%. UAE nationals, 22%.
Faisal Falaknaz: Together, overseas and expatriate residence buyers accounted for AED 11.3 billion or 78% of UAE sales. This broad customer mix is an important feature of our development platform, reflecting the continued appeal of Abu Dhabi to both end users and international investors, as well as the reach of our sales network. Sales of existing inventory remained an important contributor, accounting for 49% of sales, demonstrating sustained interest across our established communities and buyer demand across overseas expat residents and UAE nationals. On project delivery, we handed over 1,900 units during the first nine months. Already more than double the number handed over in 2025. We now expect to hand over around 2,600 units for the full year, reflecting changes to project completion schedules. These are principally related to contractor performance predating the regional conflict rather than as a consequence to it.
Faisal Falaknaz: We have also remained disciplined in how we respond to changing market dynamics. While we have not introduced price cuts, we have provided flexibility through 50/50 payment plans on recent new launches, with 15% of the purchase price to be collected within the first year. This has supported demand while preserving our pricing and collections discipline. Cash collections remained solid at AED 3.9 billion in Q3, taking the nine-month total to AED 11.4 billion, in line with contractual payment schedules and demonstrating continued buyer commitment. Default rates remain low and manageable. Ninety-day defaults currently stand at 2.7% of sold value as of the end of September. By Emirates, rates stood at about 2% in Abu Dhabi, about 4% in Dubai, and about 6% in Ras Al Khaimah. This uptick is driven mainly by payment extension requests and milestone timing rather than genuine walkaways.
Faisal Falaknaz: Terminations remain very low, and the large majority of the backlog is secured. Turning briefly to construction costs, our exposure remains substantially protected by the existing contract structures, with 89% of the UAE backlog already awarded, predominantly under lump sum fixed price contracts, of which 50% of these awarded projects are already significantly advanced in construction. While we have seen some upward pressure on construction costs with increases in the order of 5% to 10% on new awards, we continue to actively manage these pressures across both existing live and newly awarded projects. We have mitigated a significant portion of the impact through competitive tendering, early procurement, alternative logistic routes, co-procurement arrangements, forward purchasing of materials, and advanced payments to contractors. On slide 7, you will find details on Aldar Investment, whose diversified recurring income platform now has AED 57 billion of assets under management.
Faisal Falaknaz: Revenue increased 13% year-on-year to AED 6.5 billion in the first 9 months, while adjusted EBITDA rose 21% to AED 2.8 billion. In the Q3 alone, adjusted EBITDA increased 27% year-on-year to almost AED 1 billion. Turning to slide 8, the investment properties portfolio delivered strong growth, with adjusted EBITDA increasing 34% year-on-year to AED 2 billion. Portfolio-wide occupancy remained high at 96%, supported by long-term lease structures and high-quality assets. Commercial adjusted EBITDA increased 19% to AED 767 million, with portfolio occupancy remaining high at 99%. Performance benefited from strong demand for grade A office space supported by long-term leases, rental rate growth, and high-quality tenant base comprising government-related entities and established corporates. Residential adjusted EBITDA remained broadly stable at AED 391 million, with occupancy of 97%, excluding temporary vacancies associated with the Eastern Mangroves refurbishment and Strata unit divestments.
Faisal Falaknaz: 9-month adjusted EBITDA rose 3%. Retail adjusted EBITDA increased 71% to AED 719 million, supported by the integration of The Galleria Luxury Collection into our retail JV with Mubadala in 2025. Contribution from the redeveloped Al Jimi Mall following its reopening in late 2025, pre-leasing activity at the newly completed Saadiyat Grove, and healthy performance across the established portfolio. Retail portfolio occupancy stood at 87%, or 94% excluding Reem Mall. Our prime retail assets remain strongly occupied, with Yas Mall at 96% and The Galleria Luxury Collection at 97%. Meanwhile, Saadiyat Grove is already 84% pre-leased. Industrial and logistics EBITDA more than doubled to AED 151 million, with occupancy at 98%.
Faisal Falaknaz: Growth reflects the expansion of our logistics portfolio through the 2025 acquisition of Al Markaz and the recent KEZAD acquisitions, together with the completion of the Emirates Snack Foods build-to-suit facility in Q2 and phase 1 of NIP in Q3, along healthy demand for modern logistics space. Finally, on the Abu Dhabi rental freeze introduced earlier in the year and discussed at our half-year results, under which rental caps were reduced from 5% to 0%, our exposure has been immaterial, and our understanding remains that this is a temporary government-led initiative. We estimate total annual revenue impact to be no more than AED 10 to 15 million. As a reminder, a significant portion of our commercial and residential portfolio is located in free zones and therefore exempt from the measure, while long-term bulk and corporate residential leases provide additional protection.
Faisal Falaknaz: Turning to slide 9, covering hospitality and leisure, education, and Aldar Estates. Starting with hospitality, importantly, the business has remained profitable despite the impact of regional travel disruption on international demand. Adjusted EBITDA was AED 179 million, down 15% year-on-year, with an occupancy at 57% compared with 69% a year earlier. Average daily rates increased 14% to AED 720, demonstrating our ability to maintain pricing in a challenging environment, although RevPAR decreased 6% to AED 410. Looking ahead, we anticipate a strong Q4 supported by Abu Dhabi's busy events calendar, including the confirmed Formula 1 Abu Dhabi Grand Prix, Abu Dhabi Golf Championship, and Abu Dhabi Finance Week. These events should support a seasonal improvement in demand. In education, adjusted EBITDA declined 5% to AED 201 million, largely reflecting one-off calendar related revenue recognition. Excluding this one-off, adjusted EBITDA increased 4% year-on-year.
Faisal Falaknaz: Notably, enrollment across our operated schools increased more than 10%, driven by organic growth, with no new schools opening this academic year. We now have more than 19,800 students across our operated schools and more than 38,000 across the combined 27 operated and managed schools. Another development during the period was the transition of Kent College Dubai to Rugby School Dubai brand. Aldar Estates maintained its positive trajectory with adjusted EBITDA increasing 16% to AED 364 million. Growth was supported by new mandates, contract renewals, and continued progress across its property management, facility management, and integrated community services businesses. The platform now manages over 146,000 residential units and 2.5 million square meters of retail and commercial office space, with a combined order book of AED 2.9 billion. Turning to slide number 10 and our key balance sheet metrics.
Faisal Falaknaz: At the end of September, total available group liquidity stood at AED 38.2 billion, comprising AED 18.3 billion of free and unrestricted cash and AED 19.9 billion of committed undrawn bank facilities. This reflects the proactive and counter-cyclical approach that we have taken to funding and liquidity management over the recent years. As mentioned earlier, this includes the $2 billion of hybrid note issuances completed earlier this year and our AED 5 billion sustainability-linked revolving credit facility. These transactions have diversified our funding sources and reinforced our ability to invest selectively throughout the cycle. We have maintained a prudent leverage profile with net debt to adjusted EBITDA of 1.3x and adjusted EBITDA to interest expense at 6.9x, including the 100% interest expense impact of our AED 13 billion debt accounted hybrid capital.
Faisal Falaknaz: The debt maturity profile remains well spread, with an average senior debt maturity of 4.2 years and no material refinancing requirements until the mid of 2028. Our financial position provides the capacity to progress our development and develop-to-hold pipeline and pursue attractive investment opportunities while maintaining the same disciplined approach to leverage and capital deployment. Turning briefly to sustainability, slides 11 and 12 provide an overview of our framework and progress during the first nine months. We continue to integrate sustainability across our developments, existing assets, and operating businesses with a focus on resource efficiency and responsible development. We remain ahead of our 2026 design efficiency targets, with a 34% reduction in energy use intensity by design against the ASHRAE 2007 benchmark and a 42% reduction in water use intensity against the Estidama baseline. All new developments achieved a two-star Fitwel rating.
Faisal Falaknaz: In Abu Dhabi, 80% of new developments launched during the period achieved a three-pearl Estidama design rating. Across existing assets, energy and water consumption both declined by 2%, and all investment opportunities underwent ESG due diligence. On human capital, Emiratisation remains a priority, with UAE nationals representing more than 45% of the group's workforce. To close, turning to slide 13 on guidance. As we approach the end of the year, we are encouraged by the progress made across the business, particularly the pickup in development activity during the Q3, alongside strong earnings growth across the group. Against this backdrop, we are maintaining the full-year 2026 guidance communicated at the H1 results. For group development sales, our full-year guidance remains at AED 30 to 34 billion, with AED 18.9 billion achieved in the first nine months.
Faisal Falaknaz: This requires a stronger Q4 contribution, and we remain confident in our ability to deliver against that range. Our confidence is supported by the expected conversion of sales from late September launches, additional sales of existing inventory, a new middle-income launch in Dubai, and one more potential launch in Abu Dhabi, as well as contributions from our international businesses. Aldar Development EBITDA guidance remains AED 8.9 billion to AED 9.3 billion, while our UAE property development and sales gross profit margin guidance remains unchanged at 37% to 39%, supported by a 9-month margin of 38% for the group. Our full-year adjusted EBITDA guidance is unchanged at AED 12.3 billion to AED 12.7 billion, representing continued strong growth relative to last year. Aldar Investment adjusted EBITDA guidance also remains unchanged to add AED 3.7 billion to AED 3.9 billion, reflecting continued rental growth, high occupancy, and contributions from our expanding income-generating portfolio.
Faisal Falaknaz: Our guidance for M&A capital deployment and develop-to-hold capital expenditure is also unchanged at AED 3 billion to AED 4 billion each for the full year. As indicated at H1, we expect to revisit our medium-term guidance following completion of the annual budgeting and business planning cycle, with updated targets to be provided alongside our full-year 2026 results in February. Importantly, our long-term ambition to achieve more than AED 20 billion in net profit by 2030 remains unchanged. In summary, the strength of our 9-month performance and our financial position are the result of the strategy we have executed consistently over the many years to scale and diversify the business. We enter the Q4 with substantial earnings visibility from our development backlog, a growing recurring income platform, and the balance sheet capacity to pursue opportunities through the cycle.
Faisal Falaknaz: Our priorities remain unchanged: to calibrate launches carefully to demand, protect pricing and margins, progress delivery of our residential backlog, and develop to hold pipeline and deploy capital with discipline. With that, we conclude today's presentation and welcome your questions. Thank you very much.
Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to remove yourself from the question queue. When preparing to ask your question, please ensure your device is unmuted locally. If you have joined us online, you can submit a text question via the Q&A button on your browser. The first question today comes from Charles Boissier of UBS. Your line is now open. Please go ahead.
Charles Boissier: Yes. Hi. Hi, Faisal. Three questions on the launches, default rate, and guidance. On launches, you just mentioned about potential new launches in Q4. At H1, you also highlighted Cultural District, Saadiyat, Marsa Al Saadiyat, and the Dubai Master Plan as H2 opportunities, and Marsa has been unveiled now. Which of these should we expect to actually launch for sale in Q4, and which have potentially moved into 2027? Related to it, how much of the AED 30 billion to AED 34 billion full-year sales guidance depends on those remaining launches versus inventory? That is the first question. Thank you.
Faisal Falaknaz: Sure. On the launches, late September, we launched Talay and Talay Beach. That was the first projects we launched on our Marsa development, and we have sold over AED 4 billion already on that. That, however, rolls over into Q4. We launched Yas Riva Reserve Villas, where we sold over AED 1 billion already, and that is also going to roll into Q4. We launched Sei, which are the Saadiyat apartments. That is the first project we launched on the Saadiyat Cultural District since March, and we have sold over AED 500 million on what we have already launched. In terms of upcoming launches, the large master planned plot that was contributed earlier in the year in the Dubai Holding joint venture, the 3.5-million-plus square meter plot that sits between Sheikh Mohammed bin Zayed Road and Sheikh Zayed bin Hamdan Al Nahyan Street, that is plan to be launched in the next few weeks.
Faisal Falaknaz: It is going to be focused on townhouses, it is going to be focused on middle income, and we think the ticket prices are going to be quite attractive to buyers. There is one more potential launch that we might do in Abu Dhabi, which we will communicate to the market at the right time. I would say again, if you see the press release, year to date, sales in the UAE have crossed AED 20 billion. That is not including what we have already done on international. I would say Q4 is typically a busy season when it comes to sales. There are a lot of events and activations that are going to happen in Abu Dhabi, Formula 1 Abu Dhabi Grand Prix and the Abu Dhabi Golf Championship, which we are sponsoring, Abu Dhabi Finance Week.
Faisal Falaknaz: I would say again, on the back of that, we feel very confident in terms of hitting the AED 30 billion to AED 34 billion of guidance, which is also going to include, we think, a good Q4 of sales, especially for SODIC.
Charles Boissier: Okay, great. On default, you brought up the 2.7% default rate, which I think historically has been closer to 1%. Can you clarify what you classify as default? Given many are extension requests, you also mentioned on this call, how much typically cures versus actually cancel? For those that do cancel, how much of the purchase price have you typically already collected? Can you tell us? Thank you.
Faisal Falaknaz: We define default rate as anything that goes beyond 90 days. Prior to the incidents, we were at 1%. We are now at about 2.7%. I would say it is a relatively big jump, but on an absolute basis, it is nothing that we are entirely worried about. Year to date collections are more than AED 11 billion. I would say the majority end up paying, I think it is just a matter of the recent market circumstances where people are asking for extension. Some people are trying their luck. Some people are struggling with liquidity. What gives us comfort is two thirds of the portfolio is significantly in the money in terms of where the prices are today for the market and where the original prices were sold. So it is highly unlikely that those buyers walk away.
Faisal Falaknaz: In terms of terminations, we have done less than 10 terminations year to date, so they have been quite minimal. Again, the majority do end up paying. In some instances in terms of taking back the equity. As you know, there are certain regulations in Dubai and Abu Dhabi, where depending on the construction progress, you can retain up to 40% of the amount paid by the customers. So in some instances, it makes sense to keep the customer in default to get to a certain threshold of construction so that you can retain a larger portion of that equity. Again, in general, I think the terminations per se, have been quite minimal.
Charles Boissier: Sorry, when you mentioned two-thirds being in the money, could I clarify exactly how you calculate it and to what extent that could actually change depending on what happened to market prices?
Faisal Falaknaz: This is my back of the envelope map, but roughly, anything that we launched from 2021 till today, or probably 2022, because most of what we have launched in 2021 has started getting handed over. If you look at how much market prices have gone up since then, those customers who have bought are significantly and deeply in the money. I would say where you have the highest risk in terms of being close to the OP price is anything that we launched in the second half of last year.
Charles Boissier: Yeah.
Faisal Falaknaz: But the incentive not to default there is that people have paid a decent amount of equity, right? Even if people feel that they do not want to proceed, they are going to lose their equity. It also makes it less likely for them to walk away. The last thing I would say is that prices in Abu Dhabi have held quite strongly, especially in the secondary market. You do not really see that much distress. You might find some opportunities here and there, but in general, I think the prices have held very strong, which is again, why we are not worried that people are going to walk away. Their equity would have to be significantly wiped off for somebody to decide to walk away.
Charles Boissier: Okay, very clear. Apologies, last question. On the guidance, I have of course noted the Arada land sales on Yas Island and congratulations. Just wanted to know how much of that is in 9M2026 versus closing in Q4, and do you still require further land sale to achieve the AED 8.9 to 9.3 billion development EBITDA guidance? Thank you.
Faisal Falaknaz: Arada was actually booked in Q1. That sale was done back then, I think was more than AED 600 million. The recognition happens through time. We have taken somewhat of a recognition when we booked that sale, and that is going to continue flowing through, and that typically land sales have a very good sales margin. We were anticipating significantly more land sales throughout the year, which is now going to roll over into next year. What happened when we announced the strategic partnership with Arada, where they are going to do more stuff in Abu Dhabi, and we are going to do more stuff in Sharjah. We rolled in that land sale that happened earlier in the year in the announcement itself. What was added was this joint venture in Seih Sdeirah.
Faisal Falaknaz: The first tranche of the land sale was 100% land acquisition from their side. The second tranche was a development JV in Seih Sdeirah. The development JV is going to have at least 1 million square meters of land, integrated mixed-use residential development. Then obviously on the back of that, we announced our first entry into Sharjah, where we did a forward purchase of a residential rental portfolio in Aljada District, which is next to the University City in Sharjah, which is a community that we liked very much. As you know, we like the forward funding model because it is very friendly to our balance sheet. It also alleviates some of the operational pressure from us. There is a lot of win-wins that is going to come from this strategic partnership, and watch this space. There is going to be more announcements coming over time.
Operator: Thank you. The next question comes from Rahul Bajaj of Citi. Your line is now open. Please go ahead.
Rahul Bajaj: Thank you. Hi, Faisal. Rahul from Citi. I have a couple of questions, actually. The first one is on the sharp increase in occupancy or utilization that we have seen in the school portfolio. I think it has gone from early 70s to close to 80% in this quarter. What is going on there? If you could please help us understand. Is it market share gains that we are seeing? Or is it just the population growth which is flowing through and increasing your occupancy for the schools that you have? That is my first question. My second question is on the promotion plans that you have had in the last few months to push sales. You mentioned about 50/50 plan. How long do we expect these plans to continue?
Rahul Bajaj: Have you made changes to the plans over the last few months, or the same plans which you started at the start of the conflict that continues as we stand today? Those are my two questions. Thank you.
Faisal Falaknaz: On the schools, if you look at our operated schools, which is the capacity that you should be more focused on, it is 79% as of Q3. We added about 2,000 students across our 13 operated schools. We grew 10%. Taaleem, don't want to speak on their behalf, I think they announced about 6%. GEMS, I think, announced 3%, 4%. So I think relatively, the growth in Abu Dhabi has been quite strong. I think it is a function of both capture of market share. Two, inner immigration, maybe from other cities coming into the Emirates. Lastly, overseas. Well, people moving from overseas to becoming residences. One data point I have been quoting over the past few months has been when the crisis started, we lost about 300 students who left due to the geopolitical situation.
Faisal Falaknaz: When the new academic year started, my team tell me that we added over 600 students from overseas. So on a net-net basis, we are still seeing a positive outer immigration, sorry, coming into the city. So that is on the school enrollment. We haven't opened any new schools, by the way, with the exception of one of our schools, which is Noya, that has opened new classes. This is pretty much a like for like comparison. On the payment plans, I think following March, the first launch we did in April, which was Yas Park Place, I believe we went out with 50/50, then we started doing 55/45. I think now, just given the sentiment today and the market and the competition that is out there, we felt for us, 50/50 is a good sweet spot where we stand today.
Faisal Falaknaz: It gives a good balance between being competitive to the market and being disciplined from a financial point of view, because 50% is our breakeven for our construction cost, so it covers our working capital. What we are giving up by not doing the 60%, 70% payment plans is the buildup of profits in escrow, which we are going to come out later in the third and fourth year. I think that is the main trade-off from having those payment plans. The second concession that we have made is we used to collect 25% in the first year, now we are collecting almost 15% in the first year, again, responding to the competitive market that is out there, while maintaining, we think, good discipline. When are we going to start shifting the payment plans again? I don't know. Obviously we are quite agile. Again, always focused on being disciplined.
Rahul Bajaj: Got it. Thanks, Faisal. Just one quick follow-up on the earlier question regarding Arada. You have entered the Sharjah market now. Is there more coming up on Sharjah and other northern Emirates? Is that the new frontier you are looking at to grow, with maybe a bit of saturation coming in Dubai in terms of supply side?
Faisal Falaknaz: The UAE, I think, will always be the focus market for us. Geographic diversification into Sharjah is a no-brainer. We should have probably done it earlier, but we never found the right opportunity. I think we would be keen to grow that franchise into Sharjah. There is nothing eminent that we can announce today, but it is surely something we are interested in looking at. The other area that I have always highlighted to investors has been on the back of the industrial resiliency that the country is now focused on. I think there are going to be opportunities in the East Coast in places such as Khor Fakkan and Fujairah, that will create industrial and logistics opportunities for us. Again, we do not have anything today, but we are surely doing a lot of business development and seeing if we can participate in some of the mandates that are happening there.
Operator: Thank you. The next question comes from Rashad Kawan of Morgan Stanley. Your line is now open. Please go ahead.
Rashad Kawan: Hi, Faisal. Congrats on the results. Two questions from me, please. First one, it looks like in the hospitality segment, things are sequentially improving quarter-on-quarter, from an occupancy perspective, which makes sense. Can you talk about how tenant sales and foot traffic in the retail segment evolved through Q3, so Yas Mall, The Galleria Luxury Collection, et cetera, versus where we were in Q2? That is the first question.
Faisal Falaknaz: I will give you the year-to-date numbers. Sales are up 2% on general. Footfall is slightly down, I think predominantly because of Yas Mall and the drop in tourism on the back of the flight disruptions. Then we have seen some parts of the portfolio continue to outperform last year, like Al Jimi Mall, for example, which has undergone a massive transformation. Our community assets where we have very strong domestic demand. The Galleria Luxury Collection on the luxury side, we have seen still year to date, somewhat of a drop. I would guess the drop is somewhere between 4% to 6%, but again, not that significant in the greater scheme of things. I think what is more important is the tenant OCRs continue to be in very healthy places in general, on average, somewhere between 10% to 12% to 13% maximum.
Faisal Falaknaz: As the leases roll over, we've continuously had the opportunity to push up rents, which is why you see that very strong growth on the retail portfolio. Even if you adjust for the addition of The Galleria through the merger, the transformation of Jimi, still that portfolio on an organic basis is looking at double-digit growth.
Rashad Kawan: Excellent. Makes sense. Second question, you talked about construction costs moving 5% to 10% higher on new development contracts. Can you talk a bit about the, I think you addressed some of it, but can you give a bit more detail around the mitigation efforts that you're doing to try and offset or partly offset the rising costs here? I know there are lots of moving parts, but do you have a sense of, if things continue as they are, what you're looking at roughly in terms of gross margins on these new projects?
Faisal Falaknaz: Okay. The efforts are quite extensive, and we've been proactive since March. The first thing we did is identify the high-risk items with long lead times, with especially projects in their last year of construction, where we needed to order a lot of elevators, AC equipment, MEP equipment. Anything with a long lead time, we proactively started ordering in advance, knowing the logistical challenges that were there. I think everybody has typically adapted. Everybody's now taking account of those long lead times today. That action was especially important not to delay obviously the progress and the completion and the handover of those projects. I think the first line of defense has been the contractor themselves, fixed price contracts. We have fixed price contracts with the contractors, and we haven't been subsidizing anybody today.
Faisal Falaknaz: What we have been doing is supporting them by negotiating strategic framework agreements given our scale. We can negotiate at scale, then we can extend some of those beneficiary rates that we're getting from our suppliers. We're quite diligent in terms of making sure we make our payments once the cost certificates are certified to make sure that the contractors get their liquidity as quickly as possible. If you talk about the newer contracts, we have been awarding since the beginning of the crisis. I think we naturally benefit again from scale. Contractors generally don't want to upset us. We're one of the largest awarders, sorry, not contractors. Awarders of contracts in the city on both the Aldar side and the government side, which we manage a significant portfolio of.
Faisal Falaknaz: And so we get the benefit of that economies and scale in terms of our commercials. Nevertheless, the cost escalations are a reality that we have to live with. In general, 5% to 10% cost escalations, and we tend, again, to try to offset some of that cost escalations by a number of initiatives. One, we are trying, in some instances, to do more advanced payments for contractors. If we used to pay them 10% advance on the back of a bank guarantee in the past, we now are paying them 15% to give them just more liquidity and the ability to order more material in advance. The other thing, remember, those contracts are typically three to four-year contracts, and so we are asking the contractors, in some instances where the prices are very high, saying, "Fine, don't price material that needs to be ordered three years from today.
Faisal Falaknaz: Let's keep those as a provisional sum, and we will take the risk, and we will wait until the market prices normalize." So it is quite a fluid situation. It is a reality that costs have gone up. What is the impact on margins? That is not easy to say. I would say from an opportunity cost, have we seen a decrease in the new projects in terms of margins? Yes, 100%. But it does not mean we are going to be missing our targets, right? We are still very much committed to our 40% GP margin target on the UAE PDS business. The guidance this year is 37% to 39%. We are already at 38%. The ambition is to cross that 40% GP margin. We have a portfolio of projects, things as low as 30%, things as high as 70%. It depends on the infrastructure requirements.
Faisal Falaknaz: It depends on the prices or the GDVs that we can achieve on those projects. It depends on whether the land is something we have bought recently or something that has historically been sitting on the books on a low-cost basis. So it is not a simple answer, but I would say we are still confident that we can continue pushing up margins by also being more cost-efficient, driving more efficiency in our developments. So yeah, I still feel quite confident despite the current circumstances.
Operator: Thank you. The next question is from Steve Bramley of HSBC. Your line is now open.
Steve Bramley: Okay.
Operator: Please go ahead.
Steve Bramley: Thank you very much. Good afternoon. Good set of numbers, Faisal, so well done to you and team. I just had a few questions really. Number one, just going back to your Q4 launches. So one of your major competitors in this emirate was indicating that it is taking about a month to get to 60% pre-sales. I guess your activity in Q4, with the exception of one launch, will be in Abu Dhabi. I am just curious how the timeline for pre-sales has moved out in Abu Dhabi post-conflict. That is my first question. Do you want me to ask all three at one go or one at a time?
Faisal Falaknaz: Let me go with the first one.
Steve Bramley: Okay.
Faisal Falaknaz: With everything that we launched in Q3, which were the seven launches, we have sold over 73%. So I would say that is a very good indication of the velocity of sales that we have been able to see. So seven launches out of 12.
Steve Bramley: Which is which, sorry?
Faisal Falaknaz: We sold more than 73% already.
Steve Bramley: Okay. Would you say your sort of launch size has shrunk a little bit just because maybe the market is not quite as receptive? Or would you say that the average lot size for your phases are the same pre-conflict?
Faisal Falaknaz: I would say there has been a general moderation since the beginning of the year. In H1, we have surely moderated how much we are putting out to the market, which is why you have seen the drop year-on-year. For context, in Q3, in 3 months, we sold, if you include what is rolling over into Q4, in 3 months, we sold more than what we did in the first 6 months of the year. That is a very strong indication of the pickup in sentiment that we have seen. Sorry again, what was the question again, Steve?
Steve Bramley: No, I was just wondering whether the units per phase on average were smaller numbers or lesser numbers that you are releasing on the
Faisal Falaknaz: It depends. You look at Marsa was over AED 6 billion of GDV. That is quite sizable.
Steve Bramley: Yeah.
Faisal Falaknaz: Commercially, the phasing becomes more important, right? Anyways, you need to launch phase by phase to make sure that you are not committing a lot to the market. That is the way we generally do things, even pre-March, is we release building by building. The moment we sell 50%, 60% of one building, we release the building after. So that I am not releasing 10 buildings and just hoping I sell throughout all of them. No, you need to cascade your release of the buildings or the phases themselves.
Steve Bramley: Okay. Thank you. Excuse me. My second question just comes back down to handovers. I think, unless I misheard, I think you said 2,600 is now the expected handover number for this year. If I look back at your H1 Q2 presentation, I think it was 3,700, so that is the difference. I hear what you say about the contractors and providing them with a bit more capital up front. We, I think, appreciate that there has been some building materials price inflation. The logistics piece is more problematic, but it is still getting through.
Faisal Falaknaz: So yes. Let me, I am sorry, Steve, to interrupt you.
Steve Bramley: No, go for it. Yeah.
Faisal Falaknaz: I know where you are going. We are pushing handovers to next year. But in general,
Faisal Falaknaz: in general, this has been more related to the specific contractor's performance and not related to the current challenges in the supply chain.
Steve Bramley: Yeah. You are right. You slightly preempted a bit too early. What is going on with the contractor thing? It is a timing issue, right? It is you as well.
Faisal Falaknaz: It is contractors being contractors. This was the case pre-crisis. I think we
Faisal Falaknaz: just need to get better in terms of making sure that we maintain our promised delivery timelines. It is not great for the customer having to push those handovers to next year. It is not great for us in terms of profit releases, because when we hand over, the customer makes the last payment. It is something that we are surely conscious of, and it is something that we want to continue improving going forward. We have improved significantly. Last year, we handed over about 900. This year, if we do the 2,500, 2,600, then it is a significant improvement, but we need to elevate and start hitting that 4,000, 5,000, 6,000 unit handed over run rates eventually.
Steve Bramley: Yeah. Okay. Understood. Sorry, my last question. Just in this sort of logistics piece, you as a company, and quite rightly so, have been pretty much front foot on deploying capital into that subset. Absolutely right, as far as I am concerned anyway. I am just curious, number one, are you thinking of changing the rate or where you are deploying capital post-conflict into that sector? Secondly, in your view or your experience, how is the warehousing space from the logistics sheds, et cetera, how is the usage changing and maybe the latency, just out of curiosity?
Faisal Falaknaz: Sorry, if you can clarify, Steve, the first question is
Steve Bramley: Capital deployment. Are you making any
Faisal Falaknaz: Deploying capital into recurring income?
Steve Bramley: Yeah, specifically into that subset. Are you changing
Faisal Falaknaz: Warehousing.
Steve Bramley: I'm sorry?
Faisal Falaknaz: Warehousing, industrial and logistics, specifically.
Steve Bramley: Yeah, warehousing, logistics. Any change post-conflict?
Faisal Falaknaz: I'd say pre-conflict, we had a strong conviction into the asset class. I'd say post-conflict, we have a much stronger conviction now on the back of the industrial resiliency, again, that the country wants to invest in. I mentioned the opportunities that might come up in the East Coast.
Steve Bramley: Okay. Mm-hmm.
Faisal Falaknaz: I mentioned in the past having discussions with the Ministry of Industry and Advanced Technology, the MoIAT, which is headed by His Excellency Sultan Al Jaber. We are discussing with them a strategy which is going to take time. That is not going to happen in a day and night, where we have highlighted the high-risk items that are currently being imported from abroad. They are manufactured from abroad, and then they are brought in here. So part of that industrial resiliency is attracting those manufacturers to come and set up here in the country, which creates an opportunity for us to be the real estate partner for those manufacturers and create industrial clusters for expertise. The government can play a role where they provide certain subsidies and land, and it becomes a win-win situation for both the government and the private sector.
Faisal Falaknaz: I would say we have seen a lot of increased demand from certain providers. My team were telling me there is a new word. So there is just in time, and just in case. Now, a lot of the manufacturers are keeping excess inventory just in case. So I would say, no, in general, there has been a good pickup and demand for our warehousing facilities. So the one we have announced, Emirates Snack Foods, which is a cold storage facility that has already been occupied. There are two in the pipeline with Dubai South, where we are already in discussion with a tenant to take on both those facilities. NIP, again, phase 1, which we said was completed, we have 60% pre-leasing already. So no, I would say the demand in the sector is very strong. I expect to see more competition from the market.
Faisal Falaknaz: We have seen a lot of players come into the market and try to participate in the space. Remember, the stuff we acquired from KEZAD were on a bidding process. Those were not bilateral transactions. But we ended up winning those bids because we had the conviction, and we were competitive on those prices.
Operator: Thank you. The next question is from Taher Safieddine of JPMorgan. Your line is now open. Please go ahead.
Taher Safieddine: Yes. Hi, Faisal. It's Taher from JPMorgan. Just maybe two questions from my side. The first one is just on the UAE development portfolio. I'm just looking, and I can see there's around AED 23 billion worth of unsold inventory sitting in your project pipeline, which is quite a high number. So I just want to understand your thoughts.
Faisal Falaknaz: Sorry?
Taher Safieddine: Sorry.
Faisal Falaknaz: I have AED 23 billion. Which page is that AED 23 billion?
Taher Safieddine: AED 23 billion. I'm looking at page 34. So I'm just looking at total GDV of AED 126 billion and the net sales value of AED 103 billion. So I'm just assuming this is unsold within projects that have already been launched.
Faisal Falaknaz: No. The actual inventory on the books in terms of what is committed and launched is just over AED 16 billion. I think in the past, we were typically trading around AED 10 billion to AED 12 billion of inventory on a run rate basis because we keep replenishing, obviously.
Taher Safieddine: Yeah.
Faisal Falaknaz: I think in the past, for us at the group, the way we define inventory, or sales from inventory, is anything that we launched last year. You will notice from our sales this year, 49% of our sales come from inventory. I say the inventory is not typically very sticky. We have very good rollover of inventory. The other thing I would say, more than 80% of the inventory has two to four years to be delivered. So we have a lot of time before that inventory becomes readily available. I think, again, given the velocity of sales that we have today compared to pre-March, I think it is only natural to see inventory levels go up. The second thing, we have really ramped up our launch activity in Q3 to catch up. So again, naturally, we would have seen that inventory levels go up.
Faisal Falaknaz: I would say the inventory level probably went from, again, AED 11 billion, AED 12 billion, let us call it, to around AED 16 billion plus today. But it is surely not the-
Taher Safieddine: Okay
Faisal Falaknaz: AED 23 billion.
Taher Safieddine: Okay. All right. Well, I am clear. Maybe just to follow up on this since we are on the topic of the UAE development, is this new Dubai launch. We are seeing some ads about the launch, 55/45 payment plan. I have seen prices of around AED 1,600 per square foot. So I just want to understand maybe high level your positioning. You are coming to the Dubai market with a new launch where the big guys like the Emaar and the DAMAC have not been launching any new projects, maybe mainly focusing on selldown of inventory. It is quite a bold move from you to come into the market, maybe at this point, with a relatively big new launch on the villas or on the townhouse side. So I just want to maybe get your thoughts. Is it the payment plan?
Taher Safieddine: Is it the price per square foot in terms of entry point that could differentiate this and potentially make it a success? From a margin perspective, does this qualify to be maybe more on the lower end in terms of margin profile compared to what you usually generate in Abu Dhabi?
Faisal Falaknaz: First of all, don't believe anything a broker tells you because we have not officially launched.
Taher Safieddine: Okay.
Faisal Falaknaz: Whatever you see circulating is just broker nonsense. We are launching nevertheless. Prices per square foot, what I can tell you, it will be sub AED 1,500 per square foot. Tickets, high AED 2 million handle. Okay, so below AED 3 million for sure. Townhouses, is it bold? You never know till you try, right? What we want to do is we want to put out a reasonable number out as what we call phase 1 and test the market. We think there is demand for good affordable homes, and we have already been sounding it, which is why you see a lot of those broker leakages. We are getting good interest. Now we have leads, and those leads have to be actually converted before we say it is actually doable. But I think, yeah, we are fairly confident. I think the sentiment has somewhat improved.
Faisal Falaknaz: I think launches have somewhat come back to Dubai lately. Let's see. We never know till we try.
Taher Safieddine: Okay. All right. I am clear. Maybe the second question is just on the recurring portfolio, clearly a very solid performance in the first 9 months of the year. Maybe just looking into next year, Faisal, just in terms of sectors. Clearly, there are a few handovers on the develop-to-hold pipeline that are coming through, right? There are a few that are on the industrial logistics and so on. I just maybe want to get your thoughts on, are you still comfortable with the recurring portfolio in terms of sustaining this performance into 2027? That would be maybe the first part of the question. The second part is from an M&A or a deployment, sorry, point of view, is there still room or high-quality assets available in the market of Abu Dhabi that you are looking at?
Taher Safieddine: Maybe if you can just elaborate on what specific sectors you want to look at, from a total asset breakdown. Where do you feel you are actually under-indexed versus over-indexed? We know that you have done a lot on commercial, and then you ramped up industrial and logistics. More recently, residential leasing seems to be a focus. I just could maybe look at it over the medium term, how should we expect the assets breakdown to go through by segment?
Faisal Falaknaz: We will come back to you with the guidance, obviously, in February in terms of how next year is looking. However, what I would say is both on the development business and the investment business, we are expecting double-digit growth on the back of organic growth. Supply-demand dynamics in Abu Dhabi continue to be extremely favorable.
Faisal Falaknaz: I can give numerous examples where we continue to push up rents, ADGM being one of them, significantly under-rented.
Taher Safieddine: Yeah.
Faisal Falaknaz: We are renewing this at double the rates even during the crisis. We have tenants who were at 2.5, and we are renewing them at 5 or 6. That is a reality. M&A, we have a pipeline. We always have a pipeline, and we are one of the most active in the market. Naturally, a lot of things come to us. Our biggest feeder in terms of asset acquisitions has been our shareholder, Mubadala.
Faisal Falaknaz: They have been extremely supportive in consolidating a lot of their UAE real estate ownership into us. In terms of ready assets, I think that portfolio has obviously, now majority has been acquired by us. There is still some. They are still feeding us significant land, which will have a significant recurring income component, especially on NAMI, the North of Al Maryah. The reason we are able to double our rents is the significant shortage of office space today in the market in Abu Dhabi. I would say yes, going forward, we do have to probably rely more on us incubating deals more from outside the ecosystem, I would say, both in Abu Dhabi and Dubai. We remain confident. Over the past few years, the biggest challenge that you guys have been giving us is the speed of our deployment.
Faisal Falaknaz: While we have missed, and sometimes we have overperformed in many other times, the most important thing is the track record which we want to maintain. It is always a balance, right? Between deploying and making sure that whatever you are deploying is achieving the alpha or required return that our shareholders would find accretive.
Taher Safieddine: Sorry, this Mubadala JV, do you have an option to buy out the remaining stake of Mubadala as part of the JV agreement?
Faisal Falaknaz: In all our JVs with Mubadala, it starts with a 60-40 JV with a path towards consolidation. Yes, there is a path in all those JVs, the recurring income JVs.
Taher Safieddine: Yeah
Faisal Falaknaz: The develop-to-sell JVs are self-liquidating in nature. But the develop-to-hold JVs, we typically have a path towards consolidation, which we have exercised in the past. The first example was the Al Maryah Tower.
Taher Safieddine: Yeah.
Faisal Falaknaz: We also have those options on the Masdar JV and The Galleria JV as well.
Taher Safieddine: Okay. Very clear. Thank you.
Operator: Thank you. The next question comes from Evgenii Annenkov of Jefferies. Your line is now open. Please go ahead.
Evgenii Annenkov: Hi, Faisal. Thank you for the presentation and opportunity. Just one question from my side on the project management services. I see that the backlog is down 5% year on year, and I also see that you reported a net outflow from new awards of $6 billion. Can you clarify, was it a cancellation of some earlier awards? Overall, I wonder when you believe we can start seeing a bigger inflow of the government awards for the business so you start playing an even bigger role in the Capex super cycle. Thank you.
Faisal Falaknaz: I wouldn't read too much into it. I think it's a timing thing. Obviously, the government has been spending a lot into different sectors, including energy and logistical security and other things. I'd say expect this backlog to continue picking up going forward. It's only a timing thing. We have more than enough of this backlog. What you also need to look at is what is currently under construction. There's a significant amount, I think over AED 40 billion, AED 50 billion that is currently under construction. We spend over AED 1 billion on behalf of the government, AED 1 billion to AED 1.5 billion every month. That's not changing any time soon. Sorry, AED 60 billion is under construction. That's not changing any time soon, including the fixed price contract that we have on Balghaiylam. Again, I wouldn't read too much into it.
Faisal Falaknaz: It is just a timing thing.
Evgenii Annenkov: Thank you. Overall, Q4 is typically very strong. Last year was AED 18 billion, so we might see this year potentially something of similar magnitude, right? Around fiscal renewal.
Faisal Falaknaz: Yes. Hopefully, yes. That is the plan.
Evgenii Annenkov: Thank you.
Operator: Thank you. Due to the interest in time, this now concludes the Q&A portion of today's call. I would like to hand back to Mr. Faisal Falaknaz for closing remarks.
Faisal Falaknaz: Again, thank you very much. We remain to be very optimistic. Hopefully, we expect Q4 to be another stellar quarter for Aldar. Again, I want to reiterate, we remain to be quite confident about the guidance. We look forward to announcing full year results, and I know everybody has been asking us what the guidance is looking as next year. We are concluding our planning for next year, and hopefully we will be in a very good position in February to tell you how things look like. Thank you.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
