Building Wealth: Khalaf Al Habtoor’s future plans

Khalaf Al Habtoor’s father made his living buying and selling pearls. The son became a billionaire by buying and selling — and building — hotels.

The 62-year-old founder and chairman of Al Habtoor Group LLC in Dubai deployed his hotel, engineering and auto businesses to amass a fortune worth at least $2 billion, according to data compiled by Bloomberg. In an interview in his office, decorated with photos of him with Britain’s Queen Elizabeth II and former US president Jimmy Carter, Al Habtoor put the figure at closer to $4 billion.

As Dubai emerges from a property downturn that sent prices down more than 65 per cent, Al Habtoor is now spending $1.3 billion on a complex located on the emirate’s main commercial strip. It will include three five-star hotels with more than 1,600 rooms, tennis courts, a garden, shops, restaurants and a theatre.

To him, it’s a fitting investment for an emirate that’s on the mend.

“Our hotels are from 80 to 90 per cent occupied, with an average room rate in Dubai of $400,” Al Habtoor said as he sat in front of a set of mahogany bookcases in a white kandura, the national dress of the UAE. “It is much higher than last year. There is a clear sign of recovery.”

Dubai, home to the world’s No. 1 international airline, Emirates, and the tallest tower, Burj Khalifa, is benefiting from an increase in visitors and trade. In February, 19 per cent more passengers arrived at its international airport over the same period a year before. A record 51 million travellers arrived in 2011. The emirate received 9.3 million tourists last year, up 10 per cent from 2010, its tourism department said on March 7. Hotel revenue jumped 20 per cent.

Hotels and offices

Al Habtoor is poised to benefit from the new traffic. His group owns and operates five hotels managed by Hilton, with three in Dubai, after the demolition of the Metropolitan Hotel, and two in Beirut. He also has seven residential and office properties in the emirate.

His auto retailer, Habtoor Motors, has 13 showrooms throughout the UAE and a leasing division with 8,000 rental cars. In addition, the group owns and runs two international private schools and has a 28 per cent stake in contractor Habtoor Leighton Group, a joint venture formed in 2007 between Habtoor Engineering and Australia’s Leighton Holdings Ltd.

The $2 billion valuation for Al Habtoor’s empire is based on estimated sales at his hotel, auto, real estate and education businesses. Sales were then compared to the average enterprise value-to-earnings before interest, tax, depreciation and amortisation and price-to-earnings multiples of similar publicly traded companies.

His stake in Habtoor Leighton Group was calculated based on the value Leighton Holdings put on its stake in the venture as of December 2011. Al Habtoor in a later e-mail declined to comment about how he values his net worth.

Taking care

“He is a very successful person who started from scratch and built Habtoor Group,” said his brother, Sultan Al Habtoor, who manages the automotive business. “We are all there, but without him Habtoor Group will not be what it is today. He built the base. He’s the one who’s taking care of us.”

Al Habtoor grew up with two brothers and four sisters. His father worked in the pearl trade, a mainstay of the region’s economy centuries before its oil-fuelled construction boom. He bought and sold pearls as well as gold in the emirate.

Al Habtoor got his start in the construction industry at the age of 15, working full-time at an Abu Dhabi builder. He soon became the company’s youngest manager. His schooling stopped at seventh grade.

Theatre-building

In 1970, at 21, Al Habtoor struck out on his own, forming Al Habtoor Engineering. The country’s rapid push to modernise provided ample opportunities for contracts. One of his earliest was for Dubai’s first movie theatre.

Beginning in 1975, the UAE embarked on a plan to double its number of hospitals and Al Habtoor made a name for himself as a hospital specialist. By the 1990s his focus had broadened, in tandem with the government’s development plans, to airports, shopping malls and hotels such as the sail-shaped Burj Al Arab.

Like many of the region’s prominent family businesses, Al Habtoor’s group has diversified. His 29-year-old auto division is the country’s sole distributor for Mitsubishi, Bentley and Bugatti. That brand monopoly is particularly valuable in a country rife with both bargain-shopping expats and wealth-flaunting locals who prize luxury cars.

Women’s tennis

Al Habtoor himself is unabashed about enjoying his fortune. A sports enthusiast, he spends almost two hours a day playing tennis and sponsors an annual women’s tennis tournament that has at least a $75,000 purse. It was the first tennis competition dedicated to women in the Middle East.

He also founded Al Habtoor Polo, a team with 40 horses and eight full-time grooms that competes internationally. Al Habtoor’s two sons both play under the family banner.

Falling values

Al Habtoor sold a 45 per cent stake in Habtoor Engineering to Leighton in September 2007 for A$870 million ($896 million). The sale personally netted Al Habtoor almost $364 million. As of December, Leighton valued its equity stake in Habtoor Leighton Group at $387.2 million, 21 per cent less than six months earlier. Al Habtoor’s stake is now worth less than $250 million.

Al Habtoor was also one of the Middle Eastern investors who bought shares in Barclays as the British lender sought funds during the credit crisis. He sold his stake in December 2009 at a “minor” loss at 322 pence apiece, after being disappointed when the lender cut its dividend, he said in an October 10 interview.

Like Las Vegas

Al Habtoor is still ready to make big bets on his home turf. To make way for his new Habtoor Palace complex, he is tearing down the 33-year old Metropolitan Dubai, the first hotel for Habtoor Group. Al Habtoor says the centerpiece of the new project will be a 1,000-seat theatre with a hydraulic central stage and movable floors that will host Las Vegas and Broadway-style productions. The performances will be the first permanent shows of their kind in the emirate.

The Palace will consist of two towers rising from a five-story base and will also have a spa, Michelin-star themed restaurants and designer shops. The new property will replace a hotel that hosted actors Omar Sharif and Jean Claude Van Damme as well as officials such as Prince Michael of Kent and former US president George HW Bush.

Al Habtoor “moved with the emirate, but I’d like to think as his friend that he helped the emirate move as well”, said Paul Rayner, a former banker with Barclays and Credit Suisse whom Al Habtoor recruited from retirement to become his senior adviser across the group.

In addition to the hotel projects, Al Habtoor is also looking to buy commercial property or hotels in Europe, namely in Paris and London, and has no intention to get involved in new industries.

“I have a policy,” he said, sipping coffee from a porcelain cup. “We don’t do anything unless we know it. We expand within our own group.”