Wake Up And Smell The Coffee

Chestertons paint a gloomy picture of the Dubai real estate landscape and forecast further pressure on property sales prices and rental rates, as the addition of new stock and tough economic conditions take hold. It estimated that the emirate recorded its highest quarterly fall since 2014 in apartment sales prices at 5% in Q1, with the same figure for villas. Rentals also fell in both categories at 2%. The report also noted that there was a 10% rise in recorded transactions for completed residential units, whilst the off-plan sector was 19% lower. Locations that witnessed the biggest falls in apartment sales prices were Business Bay and Silicon Oasis (both 9% lower), with 8% falls recorded in Dubai Sports City, Jumeirah Village Circle and The Greens; in the villa market, the big losers were Palm Jumeirah, the Meadows and Springs all shedding 8% in value.

Azizi Developments continue to award construction contracts – this week for three low rise buildings to Tasmeem Building Contracting. The US$ 28 million deal covers 242 1-2 B/R apartments in its Meydan Avenue development – Azizi Gardens, Azizi Park Avenue, and Azizi Greenfield. The Dubai-based company is currently working on more than 200 projects this year.

Hilton has no qualms about the state of the hospitality sector as it announced plans to triple the number of its ME properties to 122, from its current number of 41 by 2023. Over 50 of the new properties will be found in the UAE (including four opening in the country this year) or Saudi Arabia.

By adding further properties – especially in City Walk, Downtown and Dubai Marina – fäm Properties will more than treble its portfolio value of Dubai holiday homes to US$ 272 million by year-end. The Department of Tourism and Commerce Marketing has recently launched a plan to develop a timeshare market in Dubai to help broaden the tourism sector.

A fairly rare event took place in Q1 – UAE hotel demand (at 5.2%) outpaced the supply line of 4.0% which resulted in improved occupancy figures for the sector, 1.1% higher at 83.4%. However, other indicators declined – average daily rates, by 3.4% to US$ 182 and revenue per available room, 2.3% to US$ 152. Overall ME occupancy was up 0.9% to 70.6%, with falls for both ADRs (4.5% to US$ 164) and RevPAR (3.7% to US$ 116).

HH Sheikh Mohammed bin Rashid Al Maktoum has issued Law No. (8) of 2018 in relation to Dubai Health Authority (DHA) that will enhance the emirate’s position as a global healthcare hub. His aims include “to offer the best healthcare facilities and services and attract top healthcare establishments, the best medical personnel and the most advanced technologies.”

Dubai fitness levels will continue their upward trend, as the RTA announce plans to extend the emirate’s cycle lanes to 316 km this year and to 850 km over the next decade. Apart from making Dubai one of the best global cities for cyclists, it will also introduce plans to support other “non-mechanical mobility means.” Any improvement in national fitness levels will be a boost for the Dubai economy – with a more productive and efficient workforce and a reduction in medical expenses and “sickies”.

Nakheel is teaming up with Al Nasr Sports Club to build a US$ 81 million mall in Al Khawaneej district. The JV will result in a three-floor retail, dining and entertainment centre, with a total built up area of 775k sq ft and parking for 700 vehicles.

UK’s export agency is to provide US$ 136 million finance for phase 4 of Dubai World Trade Centre, including an on-site hotel. UK Export Finance has already assisted in the first three phases and the latest will see over 50% of supplies emanating from the May government coffers.

To celebrate the 100th birthday of his father Sheikh Zayed, his son and succeeding UAE President, Sheikh Khalifa bin Zayed Al Nahyan has ordered that all government employees receive a bonus of one month’s salary – estimated to cost US$ 436 million. The bonus applies to both current and retired employees.

DP World’s new cruise passenger terminal in the Cypriot port of Limassol opened this week that will allow for the first time the biggest cruise ships in the world to berth at the island. A three-party consortium led by DP World is hoping manage an inland container depot in Egypt’s 6th of October City. If successful, DP will become the operator to create a central distribution centre and further develop the infrastructure to improve connections to the African continent. Last year, the Dubai-based port operator signed an agreement with SCZone to develop an integrated special economic zone in Ain Sokhna.

Following apparent delays in getting the flying taxi project off the ground in Dubai, Uber Technologies has reopened a contest to select the first “testing” city outside of the US, with Dallas and LA already selected. The company hopes to start demonstrator flights by 2020 and have intra-city operations by 2023.

It is reported that Mediclinic is set to acquire two clinics – City Centre and Me’aisem – from Majid Al Futtaim. The private health-care group is likely to partner with MAF in future locations, including gaining traction in some of the seller’s malls and entertainment complexes, as it further expands its operations.

A statement to the DFM confirmed that Bahrain-based GFH Financial Group had invested up to US$ 150 million for what was a possible 85% stake in the Dubai incentives and lifestyle app The Entertainer, founded by Australian entrepreneur, Donna Benton in 2001. The company had a US$ 35 million+ turnover last year and is operational in fifteen countries.

ENOC sold 249 million barrels in 2017 and is confident that the US$ 1 billion expansion to its Jebel Ali refinery will result in both a 50% increase in the supply of oil-related products and enhanced production that will meet taxing Euro 5 requirements. In January, work started on a 16.2km pipeline extension that will be able to carry 2k cub mt of jet fuel per hour to the new airport.

There is an interesting hearing in the DIFC, involving a complex matrimonial dispute (involving Russian oil tycoon Farkhad Akhmedov and his ex-wife Tatiana) and a US$ 540 million superyacht impounded in Dubai. The London Court has ruled that the 115 metre ‘Luna’ be given as part of the divorce settlement and its validity is being questioned in the local jurisdiction of the DIFC.

Shuaa Capital registered a 52.9% fall in Q1 profits to just over US$ 3 million, although revenue moved 4.0% higher to US$ 9.0 million. Over the period, the Dubai group’s total asset base stood at US$ 354 million and net assets at US$ 237 million.

Dubai Holding is to set up a next generation digital bank and will spend up to US$ 272 million over the next five years; it already has plans to expand into areas of the MENA region. With the aim to provide an on-demand, fully customisable and engaging experience to both businesses and individuals, it expects to start rolling out services next year. It will also introduce bespoke banking services including a state-of-the-art loan and deposit offerings platform to benefit SMEs.

Q1 passenger traffic at Dubai World Central was only 0.2% higher, touching 334k, driven by a 217% jump in Russian and CIS numbers to 191k. Cargo, over the same period, was 8.9% higher at 230k tonnes. The new airport is currently used by fifteen passenger carriers and twenty scheduled cargo operators, with the number growing.

Emirates posted a 67.0% hike in annual profits (ending 31 March) to US$ 1.1 billion, as revenue rose 8.0% to US$ 27.9 billion. Over the period, its cash balance was 33.0% higher at US$ 6.9 billion. Staff will receive a five-week bonus. Following the release of the figures, Emirates Chairman HH Sheikh Ahmed bin Saeed Al Maktoum confirmed that the airline has never had merger discussions “in any way, shape or form” with Etihad but that they could share facilities and services in the future.

At the same time, dnata, part of the Emirates Group, posted its highest ever revenue figures of US$ 359 million, 7.0% up on the previous year and, more impressively, 68% of the total emanating from its ever-growing overseas assets. The 59-year old air services provider is to invest US$ 163 million in new facilities and possible acquisitions out of its year-end cash balance of over US$ 1.3 billion.

Arabtec posted its highest quarterly profit since Q3 2014 at US$ 17 million (271% higher than in the same period in 2017), with revenue of US$ 654 million. The Dubai builder seems to be operating in much improved circumstances, as its backlog is at US$ 4.4 billion, with almost the same amount in the value of submitted tenders.

Aramex posted a 12.6% jump in Q1 profits to US$ 28 million on the back of a 7.6% rise in revenue to US$ 324 million. The local logistics giant expects to benefit from the huge growth in e-commerce activities and is focusing on boosting its operational efficiencies and enhancing its B2B and freight-forwarding capabilities.

Dubai Investments saw a 25.3% hike in Q1 profits to US$ 99 million, driven by the acquisition of a further 50% of Emirates District Cooling (Emicool); revenue rose 33.0% to US$ 253 million. Over the period, total assets were 12.9% higher at US$ 5.2 billion.

Ithmaar posted a US$ 72 million annual loss last year compared to a US$ 14 million profit a year earlier, driven mainly by unrealised foreign exchange losses; its revenue was 5.0% lower at US$ 392 million.

As a result of falling volumes – and therefore less commission – Dubai Financial Market posted a 52.2% fall in Q1 profit to US$ 13 million, as quarterly trading value slumped 57.3% to US$ 5.6 billion. With the holy month of Ramadan on the horizon, and the onset of summer holidays, it is unlikely that there will be much of an improvement in Q2.

The DFM opened on Sunday (06 May), at 2948, and continued its downward trend, losing another 66 points (2.2%), to close at 2882 by Thursday, 10 May. Emaar Properties was down US$ 0.11 at US$ 1.36 (Dhs 4.99), having shed 28.1% (US$ 0.53) YTD, whilst Arabtec lost US$ 0.04 to close on US$ 0.47. Volumes traded higher, more than doubling to 244 million shares on Thursday, valued at US$ 102 million, (compared to 102 million shares worth US$ 51 million the previous Thursday – 03 May).

By Thursday, Brent Crude, surged during the week – US$ 3.85 (5.2%) higher to close on US$ 77.47, with gold US$ 9 up to US$ 1,322 by 10 May 2018.

BT is to shed 13k jobs over the next three years, with middle management and back office staff being the main targets. The UK’s biggest telecoms operator is to hire 6k front line engineers, as it moves to ultrafast broadband and the next generation of mobile networks. The troubled company has been bedeviled by last year’s Italian accounting scandal and has seen its share value almost halve over the past two years. Although it paid US$ 17.0 billion in 2016 for mobile phone operator EE, the company is seen by analysts to be too slow to the ever rapidly changing environment and needs to become a much leaner organisation to survive.

Another leading UK operator, Vodafone is to buy Liberty Global’s operations – in Czech Republic, Germany, Hungary and Romania – for US$ 22.0 billion. This will help in its target to become a leading “next generation network” in Europe, with 54 million cable and fibre homes on its customer base. The acquisition will see the company’s revenue becoming more European oriented (up to an expected 75% of its total turnover), as well as earning more of a ratio from its fixed line and TV services

Having finally come to an agreement with US regulators and agreed to a US$ 4.9 billion settlement for its nefarious role its packaging and sale of mortgage-backed securities before the 2008 financial crisis, RBS is expected to take a US$ 1.4 billion hit in the next quarter’s accounts. This then should pave the way for the UK government to start ridding itself of its 71% stake, costing US$ 45.5 billion, needed then to bail out the troubled bank. (Only last month, Barclays paid a US$ 2.0 billion fine to the Department of Justice to settle similar claims).

Walmart is to pay US$ 16.0 billion for a 77% share in one of India’s leading web-based retailers, Flipkart, as it continues its on-going battle with Amazon (which holds an estimated 27% of the country’s e-commerce market) and others for market domination. It already operates 21 wholesale cash-and-carry stores across the country.  At the same time, the US retail giant is planning to sell Asda (which it bought for US$ 10.8 billion in 1999) to Sainsbury’s in the UK.

New York’s iconic 110-year old Plaza Hotel is about to change hands, with Dubai-based Indian Shahal Khan and US partner agreeing to pay US$ 600 million for the Central Park property. It is reported that UK billionaire brothers, David and Simon Reuben, will finance 69% of the deal. This could be scuppered if the owners of the remaining 25% stake (Kingdom Holdings and Ashkenazy) decide to take up the right of first refusal and buy at the same valuation. The hotel, formerly owned by the current US president who sold it for US$ 325 million was featured in. numerous films including Home Alone in which Donald Trump had a cameo role.

According to IATA, ME passenger traffic (measured in revenue passenger kilometre) continues its upward trajectory, rising 9.5% in March compared to a year earlier, as capacity (measured in available seats kilometre) grew at the slower rate of 6.4%; load factor was 2.3% higher at 82.4%. On a global comparison, all three indicators were higher – passenger demand (10.6%), capacity (6.6%) and load factor, 2.9% up to 81.5%. Higher fuel prices in Q2 will present problems to airlines if prices rise to cover the extra costs incurred.

In China, the April Caixin composite output index rose 1.5 to 52.3, month on month, with increases noted in both the service (which was 0.6 higher to 52.9) and manufacturing sectors. Driven mainly by service providers, new business rose at a slightly faster rate. With the dollar regaining some lost ground in April, China’s foreign reserves took somewhat of a hit by falling US$ 18.0 billion to US$ 3.1 trillion, caused by falling asset prices. It seems that despite positive economic vibes, some are backing that the yuan – which shed 0.9% against the greenback in April – will weaken further, after registering its highest quarter-on-quarter gains in a decade in Q1.

With weaknesses seen in both consumer spending patterns and private sector activity growth, there was only a marginal increase in April eurozone retail sales. When the latest composite PMI – down 0.1 to 55.1 – is factored in, then there is bound to be a slowing in the bloc’s GDP, growth following a sluggish Q1. Despite the disappointing figures, the economy should still hit its 2018 target growth of 2.3%. However, the lack of inflation growth in the eurozone continues to worry the authorities as the level fell to 1.2% in April – still some way off the bank’s 2.0% target.

April UK retail sales fell at their quickest year on year monthly rate – 3.1% (and 4.2% on like for like basis) – since 1995. Although there is a marked weakening in the sector, the biggest driver was the fact that Easter started in March (compared to April last year). However, with the recent demises of stores such as Maplin, New Look and ToysRUs there is no doubt that the downward spiral will continue until there is more of an equilibrium between inflation and wage growth

Once again, a prediction by the Bank of England Governor, Mark Carney did not materialise. Over the past five years, he has signaled likely rate hikes only to find that economic data headed in the opposite direction. With sterling sagging and some weak economic indicators, it seems that any rate hike, that looked a certainty only a few weeks earlier, is off the cards for some time. The Canadian banker has just over a year before he leaves his position and there is every chance that he may have already seen his last rate hike.

Not satisfied with two leading brands, Nescafé and Nespresso, Nestle (the world’s largest food and drinks company) is to pay Starbucks US$ 7.1 billion to sell its coffee in retail outlets outside the café’s chain. The Swiss-based company, with its huge distribution network, hopes that this deal will see a significant boost in the sector’s revenue from its current level of US$ 2.0 billion. Nestle also expects to strengthen its fairly weak position in the US market (where it has only 3% share and Starbucks – 15%) and probably move away from its “boring instant coffee tag” and focus more on the “roast and ground” side. It is estimated that a US$ 8 jar of Nescafé instant coffee makes 158 cups, (US$ 0.051 per cup), whereas a US$ 8 bag of Starbucks coffee beans yields 34 cups – US$ 0.235 per cup. Nescafé has finally realised that the sleeping giant has had to Wake Up And Smell The Coffee.

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