uae real estatecontent.argaam.com.s3-external-3.amazonaws.com/ceb...uae real estate sector emaar is...

Let the falcon guide you

UAE Real EstateRecovery slow, yet deep value at current levels

MARCH 2011


2

UAE REAL ESTATE SECTOR: TRENDS & OUTLOOK

UAE REAL ESTATE SECTOR: OVERVIEW & SUMMARY 3

11

29

49

72

97

SOROUH: STANDING TALL ON SOUND LIQUIDITY

ALDAR: RESTRUCTURING EASES FUNDING CONCERNS

DEYAAR: STRATEGIC DIRECTION LACKS CLARITY

EMAAR: A DIVERSIFIED PROPERTY PLAY


3

Middle East real estate companies— trading at discount to

emerging market peers

Source: Bloomberg, Al Mal Capital analysis

Current ------P/E------ ------P/BV------P/E P/BV 2010E 2011E 2010E 2011E

Middle EastAldar Properties NM 0.23 NM NM 0.40 0.39Dar Al Arkan 5.7 0.65 5.2 4.0 0.56 0.51Emaar the economic city NA 0.76 NM NM 0.77 0.81Sorouh Real Estate PJSC 6.2 0.47 6.4 3.8 0.44 0.37Deyaar Development PJSC NM 0.21 NM 5.0 0.21 0.20Barwa Real Estate Company QSC 8.4 1.17 15.3 39.2 1.27 1.27Talaat Moustafa Group Holding 12.8 0.54 8.5 5.5 0.54 0.49Emaar Properties PJSC 8.2 0.62 7.4 6.0 0.57 0.52SODIC NA 1.28 25.1 7.9 1.60 1.30

Average 8.3 0.66 11.3 10.2 0.71 0.65Asia China Resource Land 10.6 1.54 15.7 16.9 1.40 1.30Agile Property 7.5 1.98 14.3 11.4 1.70 1.40SINO Land co 11.2 1.10 16.6 16.8 1.00 1.00Shanghai Forte Land 4.5 1.00 11.4 9.4 0.71 0.60DLF 20.3 N/A 45.6 19.4 1.33 1.13Untiteach 14.6 N/A 28.4 14.2 1.40 1.00Ayala Land 31.3 3.01 33.2 22.5 2.83 2.53Jababeka 58.2 0.74 NM 18.5 0.80 0.80

Average 19.7 1.60 23.6 16.1 1.40 1.20Russia and Emerging EuropeAFI Development N/A 0.74 21.6 24.2 0.52 0.52GTC N/A N/A 16.2 6.6 1.08 0.98LSR 0.7 1.98 27.5 13.9 2.20 1.80OPEN Investments N/A 0.38 5.8 6.4 0.25 0.25Average 0.7 1.03 17.8 12.8 1.01 0.90Latin AmericaJHSF Participacoes SA 6.6 1.30 10.8 7.4 1.30 1.18Cyrela 9.8 1.70 8.3 7.6 1.47 1.23EVEN Construtora e Incorporadora SA 6.3 1.21 6.0 5.9 1.12 1.00

Inpar SA 17.3 0.76 16.2 11.2 0.63 0.58LPS Brasil - Consultoria de Imoveis SA 18.2 19.6 18.5 12.9 5.50 3.98

Average 9.6 1.24 12.0 9.0 1.13 1.00

Middle East real estate companies are trading at asignificant discount to their emerging market peers

In terms of current multiples, Middle East real estatecompanies are trading at an average discount ofmore than 50% on P/B basis compared to their peersin Asia, Russia and Latin America

In terms of forward multiples, Middle East real estatecompanies trade at an discount of 40.0-45.0% on FY2011E P/B basis compared to their peers in Asia,Russia and Latin America

Whilst we expect recovery to be slow, we believe thisis already priced in and the UAE Real Estate sectoroffers deep value at current levels


4Source: Al Mal Capital analysis, *Based on JLL Middle East Investor Sentiment report Oct. 2010

UAE Real Estate Sector Outlook

Prices to remain under pressure in the near to medium term

Segment

Residential Demand –Supply scenario

• Oversupply expected to peak in 2011

• According to MEED demand-supply equilibrium expected to be reached post 2015

• Market is expected to remain undersupplied at least until 2015

Office Demand – Supply scenario

• Market is expected to remain oversupplied in the medium term

• Demand likely to remain sluggish

• Market is expected to remain oversupplied in the medium term

• Demand likely to remain sluggish

Retail Demand – Supply scenario

• Market is likely to see limited supply coming by 2013

• Demand is expected to be supported by growth in tourism

• Market is expected to remain undersupplied at least until 2013

• Growth in retail spending by tourists is expected to drive demand

Real Estate prices • Prices are expected to continue decline until 2013 and bottom-out by the end of 2013

• Prices are expected to continue decline until 2014 and bottom-out by the end of 2014

Anticipated timing of real estate market recovery*

• Beyond 36 months • Beyond 36 months

Dubai Abu Dhabi


5

UAE Real Estate Sector: Requirements for recovery

Dec 2009 Dec 2010 Dec 2009 Dec 2010

Macro Economic Real Estate

Global economic stability Increased occupier demand

Recovery in oil prices Stabilization of pricing levels

Stability in employment levels Increasing transaction levels

Financial / Liquidity Supporting Factors

Recovery in equity markets Recovery in tourism

Recapitalization of banking sector

Concerted Government action

Increased funding available to real estate sector

Required Underway Achieved

Source: Jones Lang LaSalle, Al Mal Capital analysis


6

UAE Real Estate Sector

Emaar is the most diversified property play in UAE

Source: Company Filings, Zawya Projects, Al Mal Capital analysis

EMAAR

ALDAR

DEYAAR

SOROUH

• Development of residential and

commercial property for sale

• Emaar Malls

• Emaar Hospitality

• Emaar Healthcare

• Largest real estate developer in the Middle East in terms of salesand market capitalization

• Presence across all real estate sub-segments

• Significant presence in international markets outside UAE

• Sales of AED12.2 Bn in 2010

• Real estate development and

management

• Leasing and property management

• Electrical contracting and maintenance

• Land sales

• Property development and sales

• Investment properties

• Construction/contracting segment

• Land sales




• Engaged in office and residential real estate development

• Operations primarily concentrated in Dubai

• Sales of AED483.3 Mn in 2010E

• Engaged in land sales, and residential community development inAbu Dhabi

• Sales of AED1.21 Bn in 2010

• Largest real estate developer in Abu Dhabi, in terms of marketcapitalization

• Engaged in land sales, and real estate development in Abu Dhabi

Business Segments Business Description


7

Investment Summary (1/2)

Stable revenue growth (CAGR of 18.9% during 2010-2013), driven by strong pipeline of residential

rental projects in Abu Dhabi

Strong foothold in Abu Dhabi’s attractive residential sector with 89% of the project pipeline in

residential segment

Highest EPS growth (Projected to rise from AED0.01 in 2010 to AED0.38 in 2012) amongst its regional

peers and strong EBITDA margin (34.8% and 45.8% in 2011 and 2012)

Attractive valuation as the stock trades at a discount of 38.6% to its peer group average in terms of

forward 2011E P/B multiples

However, discount is unjustified and the magnitude should be lower considering that Sorouh offers the

best opportunities in Abu Dhabi’s residential real estate market

Sorouh Outperform

Target Price AED1.78

Upside 63.5%

Source: Al Mal Capital analysis

New restructuring plan eases Aldar’s funding concerns, as the company would receive AED10.9 Bnfrom sale of certain infrastructure assets on Yas Island in 2011

Aldar recognized AED11.3 Bn related to impairment charges under the new restructuring plan during4Q 2010, which impacted its bottom-line during 2010

However, we expect Aldar to be profitable from 2012 onwards driven by strong overall top-linegrowth. Aldar is projected to make net profit of AED246 Mn in 2012, further rising to AED465 Mnduring 2013

Aldar’s rising share of investment property is likely to provide top-line stability. Total revenue isexpected to grow at a CAGR of 15.0% during 2011-2014 to reach AED 10.0Bn by 2014

Valuation at a considerable discount- Aldar is trading at a discount of 34.0% to its peers on the basis ofFY 2011E P/B multiple

Magnitude of discount is unjustified as the new restructuring plan is expected to strengthen Aldar’scapital structure and help meet its financial obligation.

Aldar Outperform


Upside 57.3%


8

Investment Summary (2/2)

Steady progress on current projects, coupled with the rise in recurring income, is expected to supporttop-line growth in 2011 and 2012

Deyaar is expected to report net profit of AED118.5 Mn (EPS of AED0.021) in 2011; it is expected toincur a loss of AED423.3 Mn in 2010. Net income is further expected to register a growth of 15.7% YoYin 2012, resulting in an EPS of AED0.024

However, the company lacks clarity on strategic direction and visibility on international projects islimited

Deyaar is trading at a deep discount of 69.0% to its peers on the basis of FY 2011E P/B multiple

We believe the discount is justified, given the lack of long-term direction, which clouds earnings andEPS visibility

Deyaar

Market

perform


Upside 6.4%


Emaar’s revenue is projected to grow at a CAGR of 8.6% during 2010-2014, compared to the negativeCAGR growth of 12.0% during 2005-2009, driven by steady progress on its property sales and rentalprojects coupled with expansion in international markets such as Saudi Arabia, Turkey and Egypt

Post 2013, revival in prices, coupled with Emaar’s focus on the high margin rental business, is expectedto boost net income and margins

Emaar’s net income is projected to grow at a CAGR of 14.8% during 2010-2014 from AED2.45 Bn in2010 to AED4.25 Bn in 2014, translating into strong EPS growth

Robust balance sheet and ability to refinance debt, due to strong capitalization and stable cash flowgeneration capacity

Upside bias as the stock trades at a discount of 9.7% to its peer group average in terms of forward(FY2011E) P/B multiples

Discount is unjustified and expect Emaar to trade at a marginal premium given its more diversifiedbusiness model and stable EPS growth compared to its UAE peers, such as Aldar and Deyaar, which arecurrently incurring losses

Emaar Outperform


Upside 35.8%


9

Coverage Universe: Trading Multiples


COMPANYMKT CAP(USD Mn)

P/B P/EROE

(TTM)

EPS CAGR (2010-13)

P/B(TTM)CUR FY10E FY11E CUR FY10E FY11E

Sorouh 765 0.47 0.44 0.37 6.2 6.4 3.8 4.4% 267.1% 0.47

Peer Avg. 0.60 0.62 0.60 8.8 9.1 13.0 0.60

Premium (Discount) %

(21.3%) (27.8%) (38.6%) (29.3%) (29.4%) (71.0%) (21.3%)

Aldar 919 0.23 0.40 0.39 NM NM NM NM NM 0.23

Peer Avg. 0.63 0.62 0.60 8.3 8.5 11.7 0.63


(63.6%) (35.7%) (34.0%) NM NM NM (63.6%)

Emaar 4,444 0.62 0.57 0.52 8.2 7.4 6.0 8.1% 6.5% 0.62

Peer Avg. 0.58 0.60 0.58 8.3 8.8 12.6 0.58


7.7% (5.1%) (9.7%) (0.6%) (16.5%) (52.3%) 7.7%

Deyaar 357 0.21 0.21 0.20 NM NM 5.0 NM NM 0.21

Peer Avg. 0.65 0.67 0.65 7.1 8.6 8.0 0.65


(67.7%) (69.2%) (69.0%) NM NM (37.8%) (67.7%)


10




UAE REAL ESTATE SECTOR: OVERVIEW & SUMMARY

DEYAAR: LACKING STRATEGIC DIRECTION


3

11

29

49

72

97

11


Dubai’s growth mantra – “build and they will come”….adopted

by Abu Dhabi as reflected in its 2030 plan

Source: UAE Central bank, Al Mal Capital analysis

Historically, Dubai has always been willing to take additional risks and help the Emirate’s Government achieve its growth targets

Dubai successfully coined the “build and they will come” philosophy through:

Significant investments in large scale infrastructure projects by dredging the Dubai Creek during the 1960s and 70s

Kicked off the “build and they will come philosophy” for Dubai

Building of the Jabel Ali Port and free zones in the 1970’s

Establishment of Dubai International Airport and its subsequent expansions over the 1960-2010 period

In the last decade, the philosophy has been exemplified by the real estate sector, marked by mega projects such as ‘The Palm’ (2003), ‘The World’

(2003), and the Burj Khalifa (2010)

After Dubai, Abu Dhabi now adopts the “build and they will come” mantra with its 2030 plan

Abu Dhabi has also taken on the same mantra with its 2030-Urban Structure

Framework Plan

The plan envisages a city with a population of ~3 Mn by 2030 compared to ~1

Mn in 2009

The plan aims to attract 7.9 Mn annual tourists by 2030 compared to ~2 Mn

in 2009

To support the growth in population and tourist arrivals, the Abu Dhabi

Government plans to invest in transportation, hospitality, education and

healthcare

The Abu Dhabi Government is committed to investing USD400 Bn under its

Abu Dhabi Economic Vision Plan 2030


12

UAE: Dubai was the epicenter of the regional real estate

boom…and bust

Source: Colliers International, Al Mal Capital analysis

Strategic shift for UAE developers with greater emphasis on investment income Key real estate

players started moving from being mainly developers to landlords in order to earn stable rental income from unsold stock

Weakening population trend

and oversupplyLiquidity squeeze

Higher degree ofspeculative investment

Significant foreign investment inDubai’s real estate sectorcompared to other GCC countriessupported by the Emirates'greater integration with the restof the world and abundance ofcheap capital

Foreigners accounted for 30% ofthe transactions in Dubai during2008, up from an average of 10%between 2001 and 2007

Limited end-user driven demandDubai developers’ off-plansales model led to a booming realestate market and attractedspeculative investments

The U.S. subprime mortgage

market collapse led to a global

credit crunch. This crisis almost

froze credit flow, resulting in a

collapse in asset and oil prices

Banks have had to rein in soaring

credit growth and rebalance their

books in the face of falling asset

prices and expectations of rising

loan defaults

Slowdown in economic activity led

to many expatriates leaving the

Emirate. This adversely affected

housing demand, which had

grown above the trend growth in

population

The Dubai real estate sector witnessed significant price correction and was the most adversely impacted in the GCC,

given the higher degree of speculative investment in the Emirate


13

Across GCC, real estate prices corrected the most in Dubai

Price corrections in Dubai’s real estate sector were the most severe amongst

GCC countries, largely due to the higher degree of speculative investments in

the Emirate

Average residential price in Dubai declined 52% between 3Q 08 and 2Q 10,

significantly higher than the 27% in Riyadh and 32% in Doha

Average residential rentals in Dubai were down 49% between 3Q 08 and

2Q 10 compared to 37% in Abu Dhabi, 31% in Doha, and 6% in Riyadh

Average office rentals in Dubai tumbled 61%, during the same period as

against the 24% and 21% declines reported by Doha and Abu Dhabi,

respectively

Revenue Per Available Room (RevPar) for Dubai hotels also plummeted

49% between 3Q 08 and 2Q 10, much higher than the 30% in Riyadh and

27% in Qatar

Also, residential yields were comparatively low

During 2008, residential yields in Dubai stood at 6% compared to 8% in

Doha and 9% in Riyadh

Falling rents reduced yields, which made the sector less attractive and

drove down capital values


RESIDENTIAL PRICE DECLINE IN GCC (%)

RESIDENTIAL RENTAL DECLINE IN GCC (%)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 1Q 10 2Q 10

Pric

e (U

SD/s

qm)

Riyadh Jeddah DubaiAbu Dhabi Doha (Qatar)

0

100

200

300

400

500

600

3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 1Q 10 2Q 10

Ren

t (U

SD/s

qm)

Riyadh Jeddah Dubai Abu Dhabi Doha


14

No escape for Abu Dhabi despite strong fundamentals

The boom in the real estate prices in Abu Dhabi between 2005 and 1H 08

was primarily driven by fundamentals

Shortage across sub-segments, coupled with speculative investment

demand initially, led to a boom in prices

Despite strong fundamentals, Abu Dhabi’s real estate sector could not

escape the correction in the regional real estate sector

While residential prices declined 47% between 3Q 08 and 2Q 10, office

rentals tumbled 37% during the same period

This price correction was largely driven by a combination of factors such as:

Heightened risk of the ongoing economic slowdown

Evaporation of speculative investment demand

Worsening investor and consumer sentiment, mainly after Dubai World’s

debt default

Financing squeeze amid curtailed credit flow across the region

Dubai properties acting as a substitute, with people working in Abu

Dhabi and living in Dubai, given the higher rents in Abu Dhabi, thus

reducing yields and capital values


Price differentiation between Dubai and Abu Dhabi increased significantly

following the steeper correction in Dubai, as prices in Dubai corrected

faster than in Abu Dhabi

Thus the price correction in Abu Dhabi was inevitable

RESIDENTIAL PRICE DIFFERENTIAL-DUBAI vs ABU DHABI

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 1Q 10 2Q 10

Pric

e (U

SD/S

qm)

0

500

1,000

1,500

2,000

2,500

Dubai (LHS) Abu Dhabi (LHS)

Price di fferentia l (RHS)Price differentiation between Abu Dhabi and Dubai peaked during 1Q 09


15

Future UAE supply being reduced through large number of

real estate project cancellations

The UAE accounted for 58% (AED1.1 Trn) of the total real estate and

construction projects in GCC followed by Saudi Arabia (19%) during 1Q 09

Dubai and Abu Dhabi together accounted for 77% (~AED850 Bn) of the

Emirates' total real estate and construction projects

Evaporation of speculative demand and significant price corrections led to

a large number of projects being either cancelled or put on hold

The UAE witnessed the highest number (38.6%) of projects either

cancelled or on hold in the construction sector, followed by Oman

(6.6%) during 1Q 09

The value of real estate and construction projects either put on hold or

cancelled in the UAE was more than USD75 Bn

By contrast, only 1.5%, or ~USD20 Bn, of the total construction and real

estate projects were either put on hold or cancelled in Saudi Arabia

during 1Q 09

Real Estate Regulatory Agency (RERA) in Dubai has unveiled a plan to

control supply

RERA will not allow developers to construct new projects unless they

have sufficient funds to complete them on schedule

RERA is also taking initiatives to help revive stalled projects

Introduced the Tayseer scheme to fund stalled projects

Source: Colliers International, MEED Project, Al Mal Capital analysis

Dubai , 42%

Abu Dhabi , 35%

Ajman, 3%

Others , 20%

REAL ESTATE PROJECT BREAKDOWN IN UAE

STATUS OF CONSTRUCTION PROJECT ACROSS GCC-1Q 09

98.5%97.8%97.7%97.0%93.4%

61.4%

6.6%38.6% 1.5%2.2%2.3%3.0%

0%

20%

40%

60%

80%

100%

UAE Oman Bahrain Qatar Kuwait KSA

Active Hold/Cancel led


16

Sector to benefit from counter-cyclical measures and

Government support (1/2)

Despite the downturn, UAE’s macro-fundamentals continue to remain

sound

The IMF expects the UAE economy to expand by 2.4% in 2010 and

accelerate at an average rate of 3.9% during 2011-15

The external balances of trade should improve from 4.0% of GDP in

2009 to 6.7% in 2015, with the expected revival in exports

The strong fiscal surplus amassed by the UAE Government enabled it to implement counter-cyclical measures

The budget spending in 2009 increased 21% to AED42.2 Bn. Budget spending is further expected to increase by 6.3% in 2011 to reach AED43.6 Bn

A substantial part of the budget has been allocated for infrastructure investments

USD10 Bn has been raised through the issue of bonds to fund

diversification and restructure Government-linked entities

Abu Dhabi Government also stepped up efforts to shore up UAE’s economy

USD400 Bn investment under Abu Dhabi Economic Vision 2030 to

continue as planned

Guaranteed funds for USD22 Bn zero-carbon Masdar City project

Source: IMF, Al Mal Capital analysis

UAE BUDGET SPENDING

UAE REAL GDP GROWTH (2008-2015)

21.1 21.7 22.7

27.9 28.4

34.9

42.2 41.043.6

0

5

10

15

20

25

30

35

40

45

50

2003 2004 2005 2006 2007 2008 2009 2010E 2011E

AED

Bn

254 224 240 255 277 299 323 348

5.1%

-2.5%

4.1%4.1%4.1%

3.9%3.2%2.4%

0

50

100

150

200

250

300

350

400

2008 2009 2010F 2011F 2012F 2013F 2014F 2015F

USD

Bn

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Nominal GDP (LHS) Real GDP growth (RHS)


17

Sector to benefit from counter-cyclical measures and

Government support (2/2)


All these measures taken by the Federal Government have or aare likely to breathe fresh life into the UAE

economy

AED50 Bn lending facility by the UAE central bank

Banks directed to provide details of loans>AED10 Mn

Infrastructure investments and repayment of AED3.9 Bn by Nakheel to its trade creditors

AED25 Bn in 2-yr deposits with local banks

Injection of USD4.4 Bn in new capital

Higher fiscal spending and approval of Dubai World to alter terms on its USD24.9 Bn debt

USD swap facilities to local banks

Measures taken by UAE Government

Restructuring of the two largest mortgage finance companies


18

Gradual recovery in availability of financing as well as

investor sentiment

Mortgage financing in UAE slowed down during 2009, reacting to the

collapse in the Emirate‘s real estate sector

Mortgage financing grew by a mere 12.6% YoY in 2009 to AED141.7Bn,

after the 122.8% YoY growth recorded in 2008

Lenders became more cautious and tightened lending criteria

However, real estate financing in the UAE is gradually picking up

Residential mortgage finance has grown by 14.4% during December

2009-October 2010

On YoY basis, mortgage financing in UAE increased by 17.1% during

October 2010

Credit to the construction sector has also increased 2.1% during

December 2009-October 2010

Mortgage lenders have begun to reduce rates in 2011

Value and volume of real estate transaction increased 50% and 49%

QoQ, respectively, during Q2 2010

This, in turn, could unlock significant housing demand, especially in the

affordable housing segment


MORTGAGE FINANCE IN UAE

GROWTH IN BANKS CREDIT IN UAE

880,000

900,000

920,000

940,000

960,000

980,000

1,000,000

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep-

09O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb-

10M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-

10A

ug-1

0Se

p-10

Oct

-10

AED

Mn

-1.20%

-0.90%

-0.60%

-0.30%

0.00%

0.30%

0.60%

0.90%

1.20%

Total credit (LHS) % MoM Growth (RHS)

144.4 145.7149.1 150.4

164.0163.2162.2161.4159.8

143.4

130135140145150155160165170

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-

10

Aug

-10

Sep-

10

Oct

-10

AED

Bn

0%

5%

10%

15%

20%

Real estate mortgage loans (LHS)

YoY Growth (RHS)


19

Dubai residential segment — oversupply likely to continue

exerting downward pressure on prices

The residential segment in Dubai is expected to remain oversupplied,despite projects cancellations and delays

Housing supply estimated to have increased by 12% or 41,000 units in2010 to reach 371,000 units

Total residential demand was expected to be 266,000 in 2010, leadingto an oversupply of 105,000 units

We expect the oversupply situation to continue in the medium- to long-term

Oversupply is likely to peak in 2011 and reach 119,000 units

This is expected to apply downward pressure on housing prices in Dubai

Prices and occupancy levels are likely to continue declining until 2013

We expect average prices in Dubai to fall by a further 5% and 4% in2011 and 2012, respectively

Prices are expected to continue decline in 2013 and bottom-out by theend of 2013

With the gradual revival in private sector activity and improving marketsentiments, we expect prices to stabilize from 2014 onwards


264 266 273 283 296330

371392 400 404

66105 117 108119

0

50

100

150

200

250

300

350

400

450

2009 2010E 2011F 2012F 2013F

Hou

sing

uni

ts (

000'

)

Tota l Demand Tota l Supply Oversupply

DUBAI RESIDENTIAL SUPPLY 2009-2013

DUBAI RESIDENTIAL OVERSUPPLY 2009-2013

404

330

2141

0

50

100

150

200

250

300

350

400

450

2009 2010E 2011F 2012F 2013F 2014F

Hou

sing

uni

ts (

000'

)

Tota l supply Net new supply

8 4


20

Abu Dhabi residential segment to remain undersupplied

Abu Dhabi’s residential segment, unlike that in Dubai, is likely to remain

undersupplied

Housing delivery rates have been significantly lower than demand, so

far. During 2009, Abu Dhabi faced a cumulative shortage of ~48,000

units

Total demand for residential units is forecast to reach ~278,000 by

2013, an increase of approximately 52,000 units from 2009

We expect demand to receive a boost with the establishment of Abu

Dhabi Finance Company, set up to enhance the availability of mortgage

finance in the Emirate

The Urban Planning Council expects undersupply to extend beyond 2013,

and continue at least until 2015

Undersupply would peak during 2010 to reach ~32,160 units before

gradually declining through 2013

Supply is forecasted to reach ~251,228 units in 2013, indicating a

deficit of approximately ~26,300 units during the same year

Prices in Abu Dhabi could see an upward trend only post 2014


FUTURE RESIDENTIAL DEMAND-ABU DHABI 2009-2013

HOUSING DEMAND-SUPPLY GAP IN ABU DHABI

225.8 226.2241.9

259.1277.5

18.37

0.320.32

17.2115.78

0

50

100

150

200

250

300

2009 2010 2011 2012 2013

Res

iden

tial

uni

ts (

000'

)

02

46

810

1214

1618

20

Total hous ing demand (LHS) New demand (RHS)

226 226242

259278

177194

210229

251

48

26

313232

0

50

100

150

200

250

300

2009 2010 2011 2012 2013

Res

iden

tial

uni

ts (

000'

)

0

10

20

30

40

50

60

Res

iden

tial

uni

ts (

000'

)

Tota l hous ing demand (LHS) Tota l hous ing Supply (LHS)

Shortage


21

However, prices to continue downtrend until 2014


We believe, despite overall shortage in the Abu Dhabi’s residential market, prices

should continue to decline until 2014 due to:

Demand for housing units, especially for medium to high-income segment,

should see an increasing preference for Dubai over Abu Dhabi given prices in

Abu Dhabi are still costlier than in Dubai

New supplies narrowing the demand-supply gap

Expected sluggishness in private sector activity should continue to dent

investor confidence

We believe, the current level of premium that Abu Dhabi is enjoying over Dubai

should decline as more properties are delivered in to the market and Dubai

remains a substitute

Given the expected decline in premium and fact that prices in Abu Dhabi

have not so far fallen as much as Dubai, prices in Abu Dhabi should continue

to fall at a greater rate and for longer than Dubai

Hence, prices in Abu Dhabi could to see an upward trend only post 2014

Abu Dhabi’s Expensive proposition compared to Dubai coupled with new supplies coming in to the market should continue to put downward pressure on prices until 2014


22

Growth of expatriate population remains key to sustainable

housing demand in UAE over the long term

Residential demand in the UAE is primarily driven by expatriates rather

than locals

Expatriates account for nearly 85% of UAE’s population compared to30% in Saudi Arabia

The UAE had amongst the fastest growing populations in the world (CAGR

of 5.6% during 2001-2009)

It has one of the youngest population bases among GCC countries

Approximately 53% of the population is between the ages of 20 and39, compared to the GCC average of 44% for the same age group

The pipeline of key public infrastructure projects and gradual revival in

economic activity are expected to create more employment opportunities

for expatriates in the UAE

Lower housing and office costs as a result of the economic crisis again

make the UAE an attractive base for multinationals looking to do business

in the region

The quality of life in the UAE and the tax free status should allow the

Emirate to attract knowledge workers required to drive a growing

economy


Saudi Arabia

Qatar

UAEKuwait

Oman

Bahra in0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0% 10% 20% 30% 40% 50% 60% 70%

% Population between 20-39

Popu

lati

on C

AG

R (

2001

-09)

Size of the bubble represents population size as of 2009

UAE’S YOUNG POPULATION BASE

PROPORTION OF EXPATRIATES IN GCC COUNTRIES (%)

15% 22%40%

70% 75%

85% 78%60%

30% 25%

0%

20%

40%

60%

80%

100%

UAE Qatar Kuwait Saudi

Arabia

Oman

Locals Expatriates


23

Office rentals to stay subdued amid wave of new supply

The office segments in both Dubai and Abu Dhabi are likely to remain

oversupplied, given the expected wave of new supply

We expect office space in Dubai to expand at a CAGR of 21.8% during2009-2012 to reach 6.5 Mn sqm by 2012, up by 80.6% over 2009

Office space in Abu Dhabi is also expected to register a healthy CAGR of13.9% over 2009-12 to reach 2.4 Mn Sqm

Demand on the other hand would take time to absorb the new supply

Demand from the private sector would be limited, as it remainscautious on expansion plans

International companies could also follow a selective approach whencarrying out their expansion plans in Dubai and Abu Dhabi

Demand for office space in Dubai would reach 3.2 Mn sqm by 2012 More than half the supply would remain under-absorbed

According to Colliers International, the oversupply in Dubai is expectedto be absorbed only in 2015

Demand for office space in Abu Dhabi is projected to reach 2.3 Mn Sqmby 2012, suggesting oversupply of 0.1 Mn sqm

We expect office rentals in UAE (Dubai and Abu Dhabi) to continue theirdownward trend in 2011 and 2012


DUBAI OFFICE DEMAND-SUPPLY 2008-2012

ABU DHABI OFFICE DEMAND-SUPPLY 2008-2013

1.31.6

2.02.3 2.4

1.31.58 1.78

2.2 2.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010E 2011F 2012F

Sqm

Mn

Office supply Office demand

3.03.6

5.26.2 6.5

2.6 2.6 2.8 2.9 3.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2008 2009 2010E 2011F 2012F

Sqm

Mn

Office supply Office demand


24

Rental yields— rentals in Dubai to bottom out by 2012;

yields to peak up from 2013


Rental market in both Dubai and Abu Dhabi witnessed significant

correction following the global credit crunch

Average residential rentals in Dubai and Abu Dhabi were down 49%

and 37%, respectively between 3Q 08 and 2Q 10

Also, average office rentals in Dubai and Abu Dhabi tumbled 61%

and 21%, respectively between 3Q 08 and 2Q 10

While office vacancy rates in Dubai increased from 2% in 3Q 08 to 33% in

2Q 10, vacancy rates in Abu Dhabi grew from 1% to 8% during the same

period

Considering the significant pipeline of new supply, we expect rentals in

Dubai to continue declining and bottom out by the end of 2012

However, prices would continue to decrease, thus pushing up yields from

2013 onwards

Also, mortgage rates are likely to continue declining—eventually, mortgage

would cost lower than rental yields

This, in our view, could stabilize the property prices in Dubai by 2014

Rentals in Dubai will be further supported by the Emirate emerging as an

alternative for Abu Dhabi, besides attracting people from other Emirates,

such as Sharjah, as better infrastructure and other amenities make it a

more affordable destination

However, rental yields in Abu Dhabi are likely to be higher than in Dubai

due to shortage across sub-segments

RESIDENTIAL RENTAL DECLINE IN UAE (%)

RENTAL YIELDS IN DUBAI AND ABU DHABI

0

100

200

300

400

500

600

3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 1Q 10 2Q 10

USD

/sq

m

Dubai Abu Dhabi

7.8% 7.6% 7.4% 7.6% 7.7%

9.5% 9.7% 9.7% 9.7% 9.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010E 2011F 2012F 2013F 2014F

Dubai Abu Dhabi

Renta l yield in Dubai

to peak up from 2013


25

Hospitality segment continues to offer attractive opportunities in

both Dubai and Abu Dhabi (1/2)

Tourist arrivals in Dubai continue to increase despite the global economic

slowdown

Hotel guest arrivals in Dubai increased 9.0% YoY during 1H 10

Occupancy rates were also sustained at 71.7% during 1H 2010, despite

an increase in hotel rooms

Hotel occupancy rates stood at 81.5% and 70.0% in 2008 and 2009,

respectively

The growth in guest arrivals was driven by an increase in leisure tourism in

Dubai

The Abu Dhabi hospitality market also remained buoyant in 1H 10

Guest arrivals grew 16.0% YoY during 1H 10

Although the occupancy rate declined by 2%, it still remained healthy

at 64% during 1H 10

Source: Colliers International, Dubai Department of Tourism and Commerce Marketing

GUESTS ARRIVAL AND OCCUPANCY RATES IN DUBAI

DUBAI NEW HOTEL ROOM SUPPLY 2008-2013

40,000

27,000

4,9001003,414

3,5861,000

0

10,000

20,000

30,000

40,000

50,000

2008 2009 2010E 2011F 2012F 2013F 2013F

Hot

el r

oom

s

Tota l supply Net new supply

71.7%

77.3%

81.4%80.4%

69.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2006 2007 2008 2009 1H 2010

Hot

el g

uest

s (M

n)

60%

64%

68%

72%

76%

80%

84%

Hotel Guests (LHS) Occupancy rates (RHS)


26

Hospitality segment continues to offer attractive opportunities in

both Dubai and Abu Dhabi (2/2)

Going forward, the hospitality segment in Dubai and Abu Dhabi is expected to

offer attractive opportunities

The Dubai Department of Tourism and Commerce Marketing expects the

Emirate to attract 15 Mn tourists by 2015 compared to the 4.2 Mn during 1H

2010, a CAGR of 29% over 2010-2015

Visitors to Abu Dhabi are forecast to increase from 1.5 Mn in 2009 to more

than 2.1 Mn by 2013, an increase of 40%

Expected increase in tourist arrivals should help both Dubai and Abu Dhabi to

absorb some of the new supply and sustain hotel occupancy rates, especially

in the low-cost hotel segment

However, Dubai could witness an oversupply situation in the 4- and 5- star hotel

category, given that supply in this segment is expected to increase by 43%

between 2009 and 2013


Dubai could witness oversupply situation in 4- and 5- star hotel category


27

Retail segment in Abu Dhabi holds potential to unlock

significant value

A young population, coupled with growing tourism, is driving strong brandawareness, and hence, preferences

High GDP per capita of ~USD65,000 should drive expansion in the retail

sector, particularly non-food retail

According to Colliers International, Abu Dhabi is currentlyundersupplied with retail space of approximately 700,000 sqm,accounting for 110% of the existing retail space

Demand for retail space is expected to remain high

Emergence of Abu Dhabi as an international tourist destination, drivenby the Abu Dhabi 2030 plan, is likely to support growth

Proportion of tourist spending could increase to more than 11% of thetotal retail spending in Abu Dhabi by 2013

Retail spending by tourists is expected to grow at an annual rate of14.4% between 2009 and 2013, as they look to make the most of the

Emirate’s duty free offerings

As for Dubai, the retail segment should see limited supply coming in themarket by 2013

The supply of retail space in Dubai will increase by only 2.3% over2009-12 from 2.25 Mn sqm in 2009 to 2.30 Mn sqm in 2013


Citizens ,

41.4%

Non-Citizens ,

47.4%

Touris ts ,

11.1%

14.4%

5.4%4.5% 3.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Touris ts Tota l Citizens Non-Citizens

RETAIL SPENDING BY GROUPS IN ABU DHABI 2009-2013

RETAIL SPENDING GROWTH IN ABU DHABI 2009-2013


28



11

29

49

72

97






Standing tall on sound liquidity

Sorouh Real Estate

March 2011


30Source: Bloomberg, Al Mal Capital analysis

Sorouh: Investment Summary (1/2)

Strong balance sheet, sound liquidity position

SOROUH: Sound balance sheet and liquidity position Significant presence in Abu Dhabi’s attractive residential segment should boost top-line

Undersupply in Abu Dhabi’s residential segment is likely to extend beyond 2013, and continue at

least until 2015 – undersupply peaked during 2010 to reach ~32,160 units

Sorouh is well placed to capture the growth in Abu Dhabi’s residential segment – majority of

Sorouh’s residential projects are expected to be completed at a time when Abu Dhabi would still

be facing a housing shortage

Its strong foothold in the residential segment and the expected pick up in land sales volume are

likely to boost Sorouh’s top-line in 2011 and 2012. We expect Sorouh’s revenue to grow 94.8%

and 4.2% YoY to AED2.35 Bn and AED2.45 Bn in 2011 and 2012, respectively

This should result in healthy bottom-line and EPS growth. We expect Sorouh’s net income to

grow to AED750.2 Mn in 2011 compared to just AED16.2 Mn in 2010. We also expect net

income to increase 40.4% YoY in 2012 to AED1053.1 Mn, translating into an EPS of AED0.38

compared to AED0.27 in 2011

Growing presence in hospitality market to lend greater stability to rental income

Abu Dhabi is expected to witness strong growth in tourist arrivals, primarily due to the

Government’s efforts to promote the Emirate as a tourist destination

Visitors to Abu Dhabi are forecast to increase from 1.5 Mn in 2009 to more than 2.1 Mn by 2013

This should boost the demand for hotel rooms in Abu Dhabi

This, in turn, should boost Sorouh’s rental income from investment properties. Share of revenues

from investment properties is expected to rise to 39.3% in 2013, further increasing to 46.5% in

2014, compared to a meager 4.5% in 2009 and 13.3% in 2010

RATING Outperform


Upside 63.5%

Price (13 Mar 2011) 1.09

Market Cap. (AED Mn) 2,809

Market Cap. (USD Mn) 765

Shares Outstanding 2,625

Price 52wk H/L 2.62/0.98

Ticker (Bloomberg) SOROUH UH

Ticker (Reuters) SOR.AD

020406080

100120140160

Dec

-08

Feb

-09

Apr

-09

Jun-

09

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

DFMGI SOROUH


31Source: Bloomberg, Al Mal Capital analysis

Sorouh: Investment Summary (2/2)

Strong balance sheet, sound liquidity position

Strong balance sheet and liquidity position

The company’s debt to equity ratio, at 27%, is one of the lowest in the sector

Comfortably placed to meet its financial obligations in 2011 (AED1.3 Bn) and 2012 (AED380.4 Mn)

Projected to have net cash surplus of AED1.2 Bn in 2011 and AED1.8 Bn in 2012

Attractive valuation

At its current P/E of 6.2x, Sorouh trades at a discount of 29.3% to its peer group average of 8.8x. Interms of P/B, Sorouh trades at a discount of 21.3% versus the peer group average of 0.60x

In terms of forward multiples, Sorouh trades on a 0.37x 2011E P/B and 3.8x 2011 P/E, a discount of38.6% and 71.0% on a P/B and P/E basis, respectively, versus a peer group average of 0.60x2011P/B and 13.0x 2011P/E

We believe the discount is unjustified and should be significantly lower

Sorouh offers the best exposure to substantial opportunities in Abu Dhabi’s residential andhospitality segment

Highest EPS growth (Projected to rise from AED0.01 in 2010 to AED0.38 in 2012) amongstits regional peers and strong EBITDA margin (34.8% and 45.8% in 2011 and 2012 )

Our valuation based on the NAV, DCF and P/BV multiple methodologies returns a weightedaverage target price of AED1.78, an upside of 63.5%

Estimates 2008A 2009A 2010A 2011F 2012F 2013F

Revenues (AED 000’) 3,723,428 3,102,708 1,205,176 2,347,818 2,446,830 2,027,209

EBITDA (AED 000’) 1,695,678 625,445 325,643 817,635 1,121,121 846,332

EBITDA margins 45.5% 20.2% 27.0% 34.8% 45.8% 41.7%

Net income (AED 000) 1,784,268 494,998 16,179 750,222 1,053,085 800,899

Debt/Equity 64.4% 34.4% 27.1% 26.8% 19.6% 15.1%

Dividend Yield 9.2% 9.2% 0.0% 4.2% 5.9% 4.5%

Valuation

multiples2009A 2010A 2011F

EPS (AED) 0.19 0.01 0.27

P/E 13.7 6.4 3.8

P/B 1.08 0.44 0.37

BV/share 2.30 2.45 2.96

Valuation approach Weight Price (AED)

NAV approach 50% 1.85

DCF approach 25% 1.71

P/BV approach 25% 1.71

Weighted average fair price

1.78


32

Sorouh Real Estate OverviewSignificant presence in Abu Dhabi residential sector

Source: Company filings, Al Mal Capital analysis

KEY FACTS

Revenues (AED Mn)-FY 2010 1,205.2

Net income (AED Mn)-FY 2010 16.2

Price to Book (TTM) 0.47x

Price to Earnings (TTM) 6.20x

ROA-FY 2010A 0.1%

ROE-FY 2010A 0.3%

Debt/Equity 27.1%

• Established in 2005, Sorouh is engaged in the business of real estate development and land sales, primarily in the Emirate of Abu Dhabi

• Sorouh’s core business involves developing residential and commercial property for investment and sale

• The company has a substantial land bank of 57.7 Mn sqm

• The company operates in four major segments:

• Land sales




• Some of Sorouh’s landmark developments include Golf Gardens, Shams Abu Dhabi, The Gate

District and Towers on Reem Island and Alghadeer

• Sorouh is an integral part of the Abu Dhabi Government’s 2030 development plan

• Abu Dhabi Government holds ~7% stake in Sorouh through Abu Dhabi Investment

Company

• UAE (Abu Dhabi, Dubai)

BUSINESS OVERVIEW >

SEGMENTS >

MARKETS SERVED >

SOROUH’S SHAREHOLDING PATTERN

Al Joud

Investment ,

11.63%

Abu Dhabi

Investment

Company ,

6.97%

Publ ic,

81.40%


33

Investment ThesisIncreasing proportion of investment property to provide top-line stability

Historically, land sales have been the largest revenue driver for Sorouh

Contributed c.95% and 51% to Sorouh’s top-line in 2008 and 2009,respectively

However, its share declined to 30.5% during 2010 due to fall in landprice in Abu Dhabi and low land sales volume

Share of land sales to total revenue is projected to increase to 58.5%(AED1.37 Bn) and 61.8% (AED1.51 Bn) in 2011 and 2012, respectivelydriven by expected growth in land sales volume which should off-setdecline in price during 2011 and 2012

However, land sales is projected to start declining from 2013 onwards, asSorouh focuses more on rental revenues

Share of land sales to total revenue is projected to decline to 42.7%and 31.6% in 2013 and 2014, respectively

Sorouh is actively following a strategy of increasing the share of incomefrom investment property in its revenue mix in the long term Share of revenue from investment property is expected to be 12.0%

(AED280.8 Mn) and 25.2% (AED616.7 Mn) in 2011 and 2012,respectively

Share of revenues from investment property to rise to 39.3% in2013, further increasing to 46.5% in 2014

Driven by the strong residential rental project pipeline, particularly AlRayyana and Khalidiya village, which are expected to be fully deliveredby 2014

Together Al Rayyana and Khalidiya Village are projected to contributeAED1.01 per share to our estimate of AED3.02 per share for rentalproperties

Rising share of investment property likely to provide stability to revenue, asit would ensure recurring income


SOROUH’S REVENUE MIX BY SEGMENT (%)

GROWTH IN REVENUE FROM INVESTMENT PROPERTY

86.2% 94.9%

51.1%

37.9%

13.2%

17.8%

4.5%

17.4%

12.0%25.2%

39.3%46.5%

6.5%

38.8%

11.8% 13.0% 18.0% 21.9%

42.7%31.6%

61.8%58.5%

30.5%

13.8% 1.7%3.4%

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011F 2012F 2013F 2014F

Land sales Property development and sales

Investment Properties Construction/ Contract revenue

320140 210 281

617796 891

640

200

400

600

800

1,000

2007

2008

2009

2010

A

2011

F

2012

F

2013

F

2014

F

AED

Mn

-100%

-50%

0%

50%

100%

150%

Revenues (LHS) % Growth (RHS)


34

Investment Thesis Healthy balance sheet and sound liquidity to help navigate through troubled times (1/2)

Sorouh enjoys a strong balance sheet and liquidity position

The company’s debt to equity ratio at 27.1% in 2010 is one of the

lowest in the sector

Debt to total asset ratio at 12.5% is significantly low compared to

56.9% for Aldar Properties and 15.1% for Emaar Properties

The company also enjoys the highest quick ratio (1.8x) among its local

as well as regional peers

The company has been able to effectively manage debt repayment

outflows with operating cash flows

During 3Q 2010, the company repaid a AED1.2 Bn non-convertible

sukuk

The company also raised a AED1.5 Bn club loan on favorable terms,

repayment of which is closely matched to cash inflows


DEBT-TO-EQUITY RATIO OF GCC REAL ESTATE PLAYERS

QUICK RATIO OF GCC REAL ESTATE PLAYERS

1.8

1.51.3

0.77 0.700.49

0.30

0.0

0.5

1.0

1.5

2.0

Soro

uh

Tala

at

Mou

staf

a

Dar

Al A

rkan

Dey

aar

Dev

elop

men

t

Emaa

r

Prop

erti

es

Uni

ted

Dev

elop

men

t

Ald

ar

Prop

erti

es

431.6%

219.3%

135.6%

55.5%27.1% 23.0% 15.8% 8.7% 0.0%

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

Bar

wa

Ald

ar

Uni

ted

Dev

p

Dar

Al

Ark

an

Soro

uh

Emaa

r

Prop

erti

es

Dey

aar

Tala

at

Mou

staf

a

EEC

Peer group average-104%


35

Investment Thesis Healthy balance sheet and sound liquidity to help navigate through troubled times(2/2)

We believe the company is comfortably placed to repay its financial

obligations in 2011 and 2012, totaling AED1.7 Bn

A significant earnings boost is expected in 2012, as the company

starts generating rental income from projects such as Al Rayyana, Al

Ain Mall and Sas Al Nakhl

Sorouh’s cash balance stood at AED1.3 Bn as of December 2010

Land sales are expected to pick up in 2012 compared to 2010 and 2011

due to higher sales volume

Infrastructure work on key projects, such as Shams Abu Dhabi, is

complete and can be sold without incurring any additional cost

Our analysis suggests that the company will have cash surplus of

AED1.25 Bn in 2011 and AED1.99 Bn in 2012

The company is projected to incur total capital expenditure of

AED773 Mn over 2011-12


2011 2012

Outflows AED (‘000)

Debt repayment due (1,339,556) (394,677)

Capex (750,539) (78,299)

Working capital (154,789) (118,449)

Total (A) (2,244,884) (591,424)

Inflows AED (‘000)

Net income 750,222 1,053,085

Cost of development 823,316 529,189

Total (B) 1,573,538 1,582,274

Net Balance (671,346) 990,849

Opening Cash Balance 1,920,515 997,123

Surplus/(Deficit) 1,249,169 1,987,972

SOROUH’S FUNDING POSITION

LIQUIDITY ANALYSIS

-1,734 -1,921

3,156

2,240

-273-829

-4,000

-2,000

0

2,000

4,000

6,000

Capex

(2010-12)

Working

capita l

Debt

repayment

due

Current

cash

balance

Op. cash

flow (2010-

12)

Net

balance

AED

Mn


36

Investment Thesis

Lulu Island could add significant value

Source: Company filings, Company Website, Al Mal Capital analysis

Sorouh received land at Lulu Island for free from the Government of Abu

Dhabi

The company recently announced plans to develop Lulu Island into a

high-end mixed-use development

However, the project currently lacks visibility with respect to timeline

and completion schedule

We have used a conservative approach to value Lulu Island

We have only valued the saleable land area for Lulu Island, given the

lack of visibility

Based on our assumption, the project could add AED0.59 per share to

our valuation

It would add 13.2% to our NAV valuation (before discount)

Going forward, the project holds significant potential to add further value,

if the company manages to develop the project

Total Built up Area (000's) 5,000

Selling Price (AED/ sqm) 990

Gross Market Value of land 4,950,000

Cost of Development 3,465,000

Gross margin 30%

Net Value of Land 1,485,000

Number of Shares 2,500,000

Value per Share 0.59

LULU ISLAND VALUATION

SOROUH’S NAV BY SEGMENTS

Development

Projects , 1.2%

Renta l

Properties ,

67.2%

Land Bank,

18.4%

Lulu Is land,

13.2%


37

Investment Thesis

Well placed to leverage housing segment potential

Majority of Sorouh’s current developmental projects focus on the

residential segment

89% of the properties for sale are in the residential segment

The company is well placed to benefit from the attractive dynamics in Abu

Dhabi’s affordable housing market with projects such as Al Rayyana and

Khalidiya Village

Projects of the other Abu Dhabi developer such as Aldar focus on thehigh-end residential segment

Sorouh’s project deliveries are also well timed

Most of its current projects are likely to hit the market before 2012

Major residential projects, such as Golf Gardens, and Sun & Sky Towers,have been completed and are in the process of being handed over,which increases revenue visibility

Abu Dhabi is expected to face a shortage of 121,000 housing unitsduring 2010-13


Name Completion Date

Units/BUA for rent in

sqm

Al Rayyana 3Q 2011 1,537 units

Al Ghadeer 2012 261,000 sqm

Khalidiya Village 2012 43,000 sqm

Gate Tower 2011 741,000 sqm

PROJECT PIPELINE BY SEGMENT 2010-2014

Res identia l ,

89%

Commercia l &

Reta i l , 11%

SOROUH’S KEY RESIDENTIAL PROJECT PIPELINE


38

ValuationValuation at a discount to peer average

Source: Bloomberg , Al Mal Capital analysis

Company Country

Market

Cap.

(USD Mn)

PB

CurrentFwd

FY10

Fwd

FY11

Sorouh Real Estate UAE 765 0.47 0.44 0.37

Aldar Properties UAE 919 0.23 0.40 0.39

Emaar Economic City KSA 1,417 0.76 0.77 0.81

Dar Al Arkan KSA 2,419 0.65 0.56 0.51

Emaar Properties PJSC UAE 4,444 0.62 0.57 0.52

Deyaar Development UAE 357 0.21 0.21 0.20

Barwa Real Estate Qatar 3,417 1.17 1.27 1.27

Talaat Moustafa Group Egypt 2,245 0.54 0.54 0.49

Peer group average 0.60 0.62 0.60

Sorouh premium/

(discount)%(21.3%) (27.8%) (38.6%)

Sorouh is currently trading at a P/B multiple of 0.47x (peer group average of 0.60x), a discount of 21.3% to its peers on TTM basis

In terms of forward multiple, Sorouh is trading at a discount of 38.6% to its peers on the basis of FY 2011E P/B multiple

We believe the magnitude of the discount is unjustified and should be significantly lower for Sorouh as,

It offers the best exposure to substantial opportunities in Abu Dhabi’s residential and hospitality segment

It is expected to witness highest EPS growth amongst its regional peers. EPS is projected to rise from AED0.01 in 2010 to AED0.38 in2012

Sorouh has strong and liquid balance sheet

STOCK PRICE (AED) AND P/BV BAND

1

2

3

4

5

6

7

8

9

10

Jan-08 Jul -08 Jan-09 Aug-09 Feb-10 Aug-10 Mar-11 Sep-11

Pric

e in

AED

Fa i r va lue: 1.78

0.6x 1.51


39

Valuation

NAV Method

Rental properties AED ‘000 AED/share

Tilal Liwa Hotel 1,665,000 0.67

Sun & Sky towers- Commercial 1,673,371 0.67

Al Rayyana 2,127,267 0.85

Al Ain Mall 1,659,725 0.66

Khalidiya Village 408,902 0.16

Al Ghadeer 3,510 0.001

Total 7,537,775 3.02

Lulu Island Valuation

Total Built up Area (000's) 5,000

Selling Price (AED/ sq-m) 991

Gross Market Value of land 4,950,000

Cost of Development 3,465,000

Gross margin 30%

Net Value of Land 1,485,000

Number of Shares 2,625,000

Value per Share 0.59

Development Projects AED ‘000 AED/share

Gate Towers 51,028 0.02

Watani 61,255 0.02

Al Ghadeer 15,997 0.01

Total 128,280 0.05

NAV ESTIMATE AED ‘000 AED/share

Total NAV:

Development Projects 128,280 0.05

Rental properties 7,537,775 3.02

Land bank 2,069,119 0.83

Total NAV (net of liabilities') 6,229,371 2.49

NAV of Lulu Island 1,485,000 0.59

Premium / (discount) to NAV (%) (40%)

Estimated NAV 4,628,623 1.85


40

Valuation

Comparative Valuation (P/BV)

VALUATION METRICS

Current peer group average 0.60x

Fwd (FY11E ) peer group average 0.60x

Sorouh Historical P/BV average 0.88x

Target P/BV Multiple 0.58x

FY 11 BVPS (AED) 2.96

Fair price (AED) 1.71


41

Valuation

DCF

VALUATION INPUTS

Risk Free Rate 3.2%

Beta 1.67

Expected market return 11.5% Post tax cost of debt 5.1%

Cost of Equity 17.1%

WACC 14.1%

Terminal Growth Rate of rental income 2%

DCF Valuation (in AED ‘000) 2011F 2012F 2013F 2014F

NOPLAT 808,245 1,094,455 830,288 724,459

Add: Depreciation & Amortization 57,186 69,831 80,753 91,406

Less: Change in working capital (2,030,549) (164,945) 908,094 645,839

Less: Capex (758,915) (87,930) (75,947) (74,080)

Free Cash Flow to Firm (FCFF) (1,924,033) 911,411 1,743,189 1,387,625

Discount factor 0.79 0.69 0.61 0.53

Present Value of FCFF (1,517,121) 630,042 1,056,445 737,262

Sum of Present Value 906,627

Present value of Rental Terminal Value 3,217,494

Enterprise Value (Total Present Value) 4,124,120

Add: Cash Available AED Mn) 2,035,155

Add: Value of investments 353,552

Less: Total Debt (AED Mn) 2,019,412

Equity Value 4,493,415

No. of Shares Outstanding (Mn) 2,625,000

Fair value per share 1.71


42

Valuation

Assumptions

Residential prices should continue to decline until 2014 due to:

Demand for housing units, especially for medium to high-income

segment, should see an increasing preference for Dubai over Abu

Dhabi given prices in Abu Dhabi are still costlier than in Dubai


Prices in Abu Dhabi are likely to see an upward trend post 2014

Revenues continued to fall in 2010 (61.1%), after declining in 2009

(16.7%)

Revival in land sales volume and growth in rental income is

expected to boost revenue in 2011

Total revenue is projected to increase 94.8% and 4.2% YoY to

AED2.35 Bn and AED2.45 Bn in 2011 and 2012, respectively

Revenue from investment properties is projected to increase in

2012 to AED 616.7 Mn, contributing 25.2% to total revenues

Driven by the strong residential rental project pipeline,

particularly Al Rayyana and Khalidiya village which are expected

to be fully delivered by 2014

RESIDENTIAL SALES PRICE IN ABU DHABI

SOROUH’S REVENUE 2009-2014

6,500

4,640

3,6753,344 3,144 3,018 2,988

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008A 2009A 2010E 2011F 2012F 2013F 2014F

Pric

es (

USD

/sqm

)

2,348 2,4472,027 1,917

1,205

3,103

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2009A 2010A 2011F 2012F 2013F 2014F

AED

Mn

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Total revenues (LHS) % Growth (RHS)


43

Valuation

Assumptions

EBITDA declined by 47.9% YoY to AED325.6 Mn in 2010, led by a fall in

the top-line

We project Sorouh to report EBITDA of AED817.6 Mn in 2011, with an

EBITDA margin of 34.8%

EBITDA margin is expected to pick up in 2012 and stabilize thereafter due

to:

Reduction in cost of revenue

Significant increase in high-margin rental revenues

We expect Sorouh to incur total capital expenditure of AED997 Mn over

2011-2014

We expect the company to incur capital expenditure to fund large

projects such as Al Rayyana and Sas Al Nakhl

Approximately 50% of the planned capital expenditure over 2011-14

will be incurred on these projects

A majority of the capital expenditure will be incurred on developing

investment properties

Company plans to fund capital expenditure through operating cash

flows

SOROUH’S EBITDA AND MARGINS 2010-2014

SOROUH’S CAPEX 2010-2014

325.6

817.6

1121.1

846.3745.6

0

200

400

600

800

1,000

1,200

2010A 2011F 2012F 2013F 2014F

AED

Mn

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

EBITDA (LHS) Margin % (RHS)

759

88 76 74

0

100

200

300

400

500

600

700

800

2011F 2012F 2013F 2014F


44

Sorouh — Financial Statement

Sorouh Income Statement


Income statement (AED ’000) 2008A 2009A 2010A 2011F 2012F 2013F

Total Revenue 3,723,428 3,102,708 1,205,176 2,347,818 2,446,830 2,027,209

Growth % 60.4% (16.7%) (61.2%) 94.8% 4.2% -17.1%

Cost of revenue (1,426,924) (2,179,703) (673534) (1,103,154) (880,382) (715,380)

Gross Profit 2,296,504 923,005 531,642 1,244,664 1,566,448 1,311,830

Gross Profit Margin (%) 62% 30% 44% 53% 64% 65%

S,G&A 600,826 297,560 205,999 427,029 457,191 465,498

EBITDA 1,695,678 625,445 325,643 817,635 1,121,121 846,332

EBITDA Margin (%) 45.5% 20.2% 27.0% 34.8% 45.8% 41.7%

Provisions 30,188 159,274 154,997 22,256 23,195 19,217

Operating profit 1,665,490 466,171 170,640 795,379 1,086,062 827,115

Profit from associates 51,174 (50,547) 48,655 11,739 12,234 10,136

Finance income 120,508 80,688 59,600 9,603 4,986 5,771

Other Income 79,312 142,771 88,152 46,956 48,937 40,544

Finance Cost (80,262) (122,790) (103,242) (113,455) (99,134) (82,667)

Net Income before tax 1,784,268 494,998 16,179 750,222 1,053,085 800,899

Tax 0 0 0 0 0 0

Net Income after tax 1,784,268 494,998 16,179 750,222 1,053,085 800,899

Minority Interest (73,890) 12,213 8,740 37,511 52,654 40,045

Net Income after tax & Minority Interest 1,858,158 482,785 7,439 712,711 1,000,430 760,854

Net Margin (%) 47.9% 16.0% 1.3% 32.0% 43.0% 39.5%

Dividend per share (AED) 0.12 0.12 0.0 0.05 0.08 0.06

Dividend Yield (%) 9.2% 9.2% 0.0% 4.2% 5.9% 4.5%


45


Sorouh Balance Sheet


Balance sheet (AED ’000) 2008A 2009A 2010A 2011F 2012F 2013F

Shareholders' Equity 5,949,666 6,026,621 6,059,214 6,931,021 7,731,366 8,340,049

Minority Interest 8,658 97,968 118,760 149,244 201,899 241,944

Long term liability 2,137,373 1,145,844 1,681,690 1,911,746 1,598,423 1,337,253

Long term loans 1,989,243 1,082,906 1,630,117 1,831,985 1,515,646 1,253,645

Other long Term Liabilities 148,130 62,938 51,573 79,761 82,777 83,608

Working Capital 3,679,567 3,646,859 4,576,106 4,165,851 4,428,992 4,722,708

Current Assets 12,523,263 10,073,976 10,350,206 7,088,401 6,819,570 6,720,849

Cash and other equivalents 6,839,040 2,763,448 1,306,861 997,123 1,154,114 1,892,636

Trade and other receivables 2,393,052 2,859,883 3,117,382 2,111,746 2,182,410 1,765,415

Development work in progress 2,474,754 3,778,406 5,273,146 3,304,764 2,809,049 2,387,692

Other Current Assets 816,417 672,239 652,817 674,768 673,996 675,106

Current Liabilities 8,843,696 6,427,117 5,774,100 2,922,550 2,390,578 1,998,141

Bank borrowings- short term 105,191 19,375 12,543 26,269 2,740 2,270

Trade and other payables 6,727,418 5,297,568 5,721,948 2,756,672 2,248,229 1,856,261

Other Current Liabilities 2,011,087 1,110,174 39,609 139,609 139,609 139,609

Plant, Property & Equipment 87,716 172,476 152,550 202,934 219,064 212,683

Investment properties 357,636 983,130 1,009,131 2,394,998 2,810,404 3,143,283

Investment properties under development 572,769 257,223 665,519 305,590 122,236 48,894

Intangible Assets 651,581 612,806 445,083 597,857 590,383 582,908

Other Non Current Assets 2,746,428 1,597,939 1,011,275 1,324,781 1,360,609 1,208,768

Total Non-Current Assets 4,416,130 3,623,574 3,283,558 4,826,161 5,102,695 5,196,537

Total Assets 8,095,697 7,270,433 7,859,664 8,992,012 9,531,687 9,919,245


46


Sorouh Cash Flow Statement


Cash Flow (AED ’000) 2009A 2010A 2011F 2012F 2013F

Profit for the year 494,998 16,179 712,711 1,000,430 760,854

Depreciation of PPE 25,258 28,860 51,208 62,169 71,251

Amortization of intangible assets 9,002 4,863 7,474 7,474 7,474

Finance income (80,688) (59,600) (9,603) (4,986) (5,771)

Finance costs 122,790 103,242 113,455 99,134 82,667

Other Adjustments 1,057,288 423,198 (3,772) (9,218) (9,305)

Cash Flow - Operations (1,586,168) (449,183) 716,684 1,036,556 1,504,287

Net changes in working capital (3,214,816) (965,925) (154,789) (118,449) 597,116

Cash flows from investing activities 13,178 582,164 (607,412) (293,131) (308,501)

Payments for PPE (200,050) (23,142) (75,130) (78,299) (64,871)

Payments for investment properties (2,270) (473,915) (656,137) (415,406) (332,879)

Payments for investment properties under development (195,266) 0 102,513 183,354 73,342

Finance income 80,688 0 9,603 4,986 5,771

Other Adjustments 170,802 1,079,221 11,739 12,234 10,136

Cash flows from Financing activities (2,308,519) (605,955) (1,032,664) (586,433) (457,264)

Repayment of bank borrowings (92,885) (107,932) (369,478) (394,677) (307,880)

Bank borrowings raised 1,205 1,700,000 525,378 54,809 45,409

Dividends paid (330,082) (5,710) (142,542) (200,086) (152,171)

Other Adjustments (1,886,757) (2,182,657) (1,046,022) (46,480) (42,622)

Cash at the beginning of the year 5,517,319 1,605,669 762,736 (160,656) (3,665)

Cash flow during the year (3,881,509) (472,974) (923,392) 156,992 738,521

Cash at the end of the year 1,605,669 1,132,695 (160,656) (3,665) 734,857


47


Sorouh Ratio Analysis


Key ratios 2008A 2009A 2010A 2011F 2012F 2013F

Profitability ratios

Gross Profit Margin 61.7% 29.7% 44.1% 53.0% 64.0% 64.7%

EBITDA Margin 45.5% 20.2% 27.0% 34.8% 45.8% 41.7%

Operating Margin 44.7% 15.0% 14.2% 33.9% 44.4% 40.8%

Net Profit Margin 47.9% 16.0% 1.3% 32.0% 43.0% 39.5%

Return on Average Assets 10.5% 3.2% 0.1% 6.4% 8.8% 6.7%

Return on Average Equity 30.0% 8.3% 0.3% 11.3% 14.4% 10.0%

Liquidity ratios

Current Ratio 1.4 1.6 2.4 2.4 3.1 3.3

Quick Ratio 0.0 0.0 1.1 1.0 1.2 1.3

Leverage ratios

Debt/Equity (%) 64.4% 34.4% 27.1% 26.8% 19.6% 15.1%

Valuation ratios

P/E x 2.0 13.7 6.4 3.8 3.8 5.0

P/BV x 0.64 1.08 0.44 0.37 0.50 0.46

EV/EBITDA x 0.38 9.46 8.94 5.52 3.58 3.56

Du Pont Analysis

Net margin 47.9% 16.0% 1.3% 32.0% 43.0% 39.5%

Asset Turnover 22.0% 22.7% 8.8% 19.7% 20.5% 17.0%

Financial leverage 2.85 2.27 2.25 1.72 1.54 1.43

RoE 30.0% 8.2% 0.3% 10.8% 13.6% 9.6%


48



11

29

49

72

97






Restructuring eases funding concerns

Aldar Properties

March 2011

50



ALDAR: New restructuring plan eases funding concerns Funding risks are manageable, given the new restructuring plan is in place

Before restructuring, we expected Aldar to face a funding shortage of ~AED4.8Bn in 2011

However, Aldar’s new restructuring plan announced in January 2011 should help the companyovercome its funding worries

Aldar intends to issue AED2.8 Bn worth of convertible bonds to the Government-ownedMubadala Development Company in 2011

Aldar would receive AED10.9 Bn as sales reimbursement for certain infrastructure assetson Yas Island in 2011

After considering Aldar’s restructuring plan, we expect the company to have a surplus ofAED1.17 Bn in 2011

Also, Aldar enjoys strong sovereign support, as the Abu Dhabi Government holds a 38.3%indirect stake in the company

However, Aldar recognized AED11.3 Bn related to impairment charges during 4Q 2010, whichfurther negatively impacted its bottom-line during 2010

Aldar offers opportunity in the Abu Dhabi real estate sector

Fundamentals of the Abu Dhabi real estate market remain intact and continue to offer attractiveopportunities

Shortage across a majority of the real estate sub-segments — residential segment to remainundersupplied until 2015

Aldar is well placed to capture this opportunity with several key projects, such as Yas Island andAl Raha Beach , expected to come on-stream, post 2011

This could boost Aldar’s top-line growth over 2011-2014. We expect Aldar’s revenue to grow ata CAGR of 15.0% during 2011-2014 to reach AED 10.0Bn by 2014

RATING Outperform


Upside 57.3%

Price (13 Mar 2011) AED1.36



Shares Outstanding 2,578

Price 52wk H/L 4.82/1.22

Ticker (Bloomberg) ALDAR UH

Ticker (Reuters) ALDR.AD

Aldar: Investment Summary (1/2)New restructuring plan, sovereign support to help navigate through troubled times

020406080

100120140160180

Dec

-08

Feb

-09

Apr

-09

Jun-

09

Aug

-09

Oct

-09

Dec

-09

Feb

-10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

ALDAR DFMGI Index

51


Source: Bloomberg, Al Mal Capital analysis, *Adjusted for AED11.3 Bn impairment charges

Aldar: Investment Summary (2/2)New restructuring plan, sovereign support to help navigate through troubled times

Rising share of high margin rental revenues and decline in cost of sales to boost margins

We expect real estate prices in Abu Dhabi to continue decline in 2011 and 2012 However, Aldar’s focus on its high margin rental business and expected decline in its cost of sales

following recent restructuring, is likely to boost EBITDA margins in 2012 EBITDA margins are projected to rise marginally to 4.1% in 2012 EBITDA margins are expected to rise to 7.0% and 10.8% in 2013 and 2014, respectively. We expect

Aldar to report net loss of AED452 Mn in 2011, due to fall in land sales and higher cost of sales Valuation attractive; funding concerns overstated

Aldar is currently trading at a discount to its peers in terms of current and forward P/B multiple

At the current P/B of 0.23x, Aldar trades at a discount of 63.6% versus a peer groupaverage of 0.63x current P/B

In terms of forward multiple, Aldar trades on a 0.39x FY11E P/B, a discount of 34.0% versusa peer group average of 0.60x 2011E P/B

However, we believe that the magnitude of discount should be lower as,

The new restructuring plan is expected to strengthen Aldar’s capital structure and helpmeet its financial obligation

Also, we expect Aldar to capitalize on the attractive dynamics of Abu Dhabi’s real estatesector and back in profitability in 2012

Our valuation based on the NAV, DCF and P/BV multiple methodologies returns a weighted averagetarget price of AED2.14, an upside of 57.3%


Revenues (AED Mn) 4,978 1,979 1,791 6,588 9,426 10,163

EBITDA (AED Mn) 1,759 (1,174) (891) (150) 386 712

EBITDA margins 35.3% NM NM NM 4.1% 7.0%

Net income (AED Mn) 3,447 1,007 (1,358)* (452) 246 465

Debt/Equity 140.9% 232.4% 219.3% 353.0% 348.7% 348.1%

Dividend Yield 5.1% 7.1% NM NM 1.7% 3.3%

Valuation

multiples2009A 2010E 2011F

EPS (AED) 0.39 (0.53) (0.18)

P/E 5.9 NM NM

P/B 0.77 0.40 0.39

BV/share 6.46 3.40 3.46

Valuation approach

Weight Price (AED)





2.14


52

Aldar Properties Overview

Significant presence in Abu Dhabi real estate sector

Source: Company filings, Zawya, Al Mal Capital analysis, Adjusted for AED11.3 Bn impairment charges

KEY FACTS

Revenues (AED Mn)-FY 2010 1,791.1

Net income (AED Mn)-FY 2010 (1,357.7)*


Price to Earnings (TTM) NM

ROA-FY 2010 NM

ROE-FY 2010 NM

Debt/Equity 219.3%

• Established in 2004, Aldar is Abu Dhabi’s largest listed real estate development company

• Land sales and property development are the company’s core businesses

• Land sales accounted for 75% of the company’s total revenue in 2009. Aldar did not

generate revenue from land sales in 2010

• The company operates through three major segments:

• Land sales



• The company is increasingly focusing on diversifying it revenue base towards rental revenue

• The share of rental revenues from investment property is projected to rise to 23.4% by

2014, compared to 6.3% and 15.6% in 2009 and 2010E, respectively

• Abu Dhabi Government is the key stakeholder in the company

• Abu Dhabi Government holds a 38.3% indirect stake in the company

• UAE (Abu Dhabi, Dubai)

BUSINESS OVERVIEW >

SEGMENTS >

ALDAR’S SHAREHOLDING PATTERN

MARKETS SERVED >

Mubadala ,

27.70%Publ ic,

47.78%

National

Corp. for

Tourism &

Hotels ,

3.00%

Abu Dhabi

Inv. Co. ,

5.63%

Nat. Bank

of Abu

Dhabi ,

4.95%

Other ,

10.94%


53

Historically, land sales have been the largest revenue driver

Contributed around 75.0% to Aldar’s top-line in 2007 and 2008

Contribution to total revenue declined significantly to 5.2% in 2009, dueto the fall in prices and weak real estate activity. Land sales did notcontribute to Aldar’s revenue mix in 2010

This negatively impacted Aldar’s revenue in 2010

Aldar’s total revenue during 2010 declined 9.5% YoY to AED1.79 Bn

Land prices in Abu Dhabi declined by more than 15% during 2010

The significant fall in top-line was reflected in Aldar’s profitability

Aldar reported a net loss of AED1.36* Bn during 2010, as against anet profit of AED1.01 in 2009

Aldar recognized AED11.3 Bn related to impairment charges during4Q 2010 which further impacted its bottom-line during 2010

We expect the company to continue to report a loss in 2011, given theenvironment in the real estate sector is expected to remain challenging

Aldar is expected to report a net loss of AED452 Mn during 2011compared to a loss of AED1.36* Bn in 2010

We expect Aldar to return to profitability and report net profit of AED246 Mnin 2012

Source: Source: Company filings, Al Mal Capital analysis, * after adjustment for impairment charge of AED11.3 Bn

ALDAR’S REVENUE AND NET INCOME 2009-2010

Investment Thesis No contribution from land sales hurt Aldar’s top-line in 2010

572634

277 227 200

505

859889

-563

-314-475

-731

497427

254163

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1Q09 2Q09 3Q09 4Q09 1Q10A 2Q10A 3Q

2010A

4Q

2010A

AED

Mn

Revenue Net income


54

Investment Thesis Rising proportion of investment property is likely to provide top-line stability

Going forward, development and rental revenues are expected to form a

greater part of Aldar’s revenue mix

Driven by the strong rental project pipeline, which includes Baniyas

Towers and Yas Island Phase 2

The share of revenue from investment property is projected to be 3.8%

(AED249 Mn) and 5.7% (AED539 Mn) in 2011 and 2012, respectively,

compared to 15.6% (AED273 Mn) in 2010

The share of rental revenues jumped in 2010, as Aldar did not

generate revenues from land sales

Majority of Aldar’s future rental projects would start yielding rental

revenues from 2012

Share of rental revenues from investment property is projected to rise to

23.4% (AED2.34 Bn) by 2014

Rental revenues to be driven by the launch of 7 hotels on Yas Island

Yas Island (rental projects) is likely to start contributing to Aldar’s rental

income from 2012 onwards

Yas Island (rental projects) seen contributing 55.4% and 62.1%

to total rental income in 2012 and 2013, respectively

Rising share of investment property to lend stability to revenue, as it

should ensure recurring income

Source: Source: Company filings, Al Mal Capital analysis

ALDAR’S REVENUE MIX BY SEGMENT

CONTRIBUTION OF YAS ISLAND TO RENTAL INCOME

55.4% 62.1%77.1%

44.6% 37.9%22.9%

0%

20%

40%

60%

80%

100%

2012 2013 2014

Renta l revenues from othersRenta l revenues from Yas Is land

21.8%

74.9%

5.2%8.2% 9.4%

9.0%

9.5%

2.5% 1.4%

6.3%

15.6%

3.8% 5.7%14.2% 21.2%7.5% 7.1% 9.0% 12.5%

22.4%

74.2%63.3%

80.5% 77.8% 71.1%

54.6%

75.1%

23.4%11.0%

0%

20%

40%

60%

80%

100%

2007A 2008A 2009A 2010A 2011F 2012F 2013F 2014F

Res identia l properties Land RevenuesRenta l Revenues Others


55

Investment Thesis Yas Island and Al Raha Beach projects to fuel property sales, post 2010

Aldar is expected to start realizing revenue from Yas Island and Al Raha

Beach, which would boost its revenue from property sales

These two projects should contribute AED18.49 Bn to total revenue

during 2011-13

They are projected to add a total of AED0.96 per share to our NAV from

development projects

Revenue from the sale of properties is projected to increase from

AED1.11 Bn in 2010 to AED7.23Bn in 2013

Aldar also aims to gradually build a portfolio of other income, which

includes schools and revenue from the contracting business

We expect Aldar to generate other revenues of AED494Mn in 2011

(7.5% of total revenues), increasing to AED1.26 Bn (12.5% of total

revenues) by 2014


REVENUE BREAKDOWN OF ALDAR’S PROPERTY SALES

GROWTH IN REVENUE FROM OTHER BUSINESS

0

3,6954,711 4,852

2,547

265

1,018

2,078 2,140

2,809

841

591

548 235

110

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010A 2011F 2012F 2013F 2014F

Al Raha Beach Yas Is land Other

370494

668912

1,257

0

200

400

600

800

1,000

1,200

1,400

2010A 2011F 2012F 2013F 2014F

AED

Mn

28%

30%

32%

34%

36%

38%

40%

Other Revenues (LHS) % Growth (RHS)


56

Investment Thesis High debt to equity is justified, given Aldar’s higher working capital needs and capital expenditure

Aldar is highly leveraged with a net debt to equity ratio of 219% as of 2010

Outstanding debt of AED28.2 Bn as of 2010

Well above regional peer group average of 104%

Other UAE real estate players have comparatively lesser debt

Also, Saudi real estate players have less debt

They have investment property-based business models, meaning they

require lower amount of debt

Investment property-based business models generate a recurring

stream of rental revenue

However, the high debt-to-equity ratio is justifiable

Aggressive focus on development properties with capital expenditure

of AED8.8 Bn over 2010-2014

Higher working capital requirement to commence development


Debt type Issue size (AED Mn) Maturity

Syndicated Infrastructure

loan2,552 2010

Syndicated Infrastructure

loan3,882 2011

Term Loan 1,100 2011

DEBT-TO-EQUITY OF GCC REAL ESTATE PLAYERS

ALDAR MAJOR OUTSTANDING DEBT

136%

32% 27% 16% 9% 0%

432%

219%

56%

0%

60%

120%

180%

240%

300%

360%

420%

480%

Bar

wa

Ald

ar

Uni

ted

Dev

p

Dar

Al

Ark

an

Emaa

r

Prop

erti

es

Soro

uh

Dey

aar

Tala

at

Mou

staf

a

EEC

Peer group average 104%


57

Investment Thesis New restructuring plan eases funding concerns (1/2)


Aldar was walking a financial tightrope amid increasing concerns aboutfunding

Our analysis before the restructuring of Aldar suggested that the companywould face a shortage of ~AED4.8 Bn in 2011

This included total debt of ~AED5.6 Bn and convertible bonds worth

~AED4.2Bn, both maturing in 2011

We also assumed the company would not receive the outstandingreceivable of AED2.8 Bn from the Government of Abu Dhabi

Aldar would also incur total capital expenditure of AED7.3 Bn in 2011

However, we believe Aldar’s new restructuring plan announced in January2011 should help the company overcome its funding hurdles

Our analysis after considering Aldar’s restructuring plan suggests thatthe company would have a surplus of AED1.17 Bn in 2011

2010A 2011F

Outflows (AED Mn)

Debt repayment due (5,985) (9,902)

Capex (2,696) (6,750)

Working capital (4,824) 10,409

Total (13,505) (6,242)

Inflows (AED Mn)

Net income (1,231) (446)

Cost of development 913 4,567

Total (318) 4,121

Total inflow/Outflow (13,823) (2,122)

Opening cash balance 10,313 493

Net outflow (3,511) (1,629)

Funding excess/shortage (3511) 1,171

FUNDING EXCESS/(SHORTFALL) CALCULATION

ALDAR’S LIQUIDITY ANALYSIS

(9,446)(5,585)

(15,887)

-10,313

-3,803

(5,632)

-25,000

-20,000

-15,000

-10,000

-5,000

0

Capex

(2010-12)

Working

capita l

Sukuk

maturi ty

Current

cash

balance

Op. cash

flow

(2010-12)

Net

balance

AED

Mn


58

Investment Thesis New restructuring plan eases funding concerns (2/2)

We, now, believe Aldar can meet its funding challenges in 2011

Our rationale is driven by a series of steps taken by Aldar as part of its

restructuring plan that would help its overcome funding troubles

Under the plan, Aldar would receive AED10.9 Bn as salesreimbursement for certain infrastructure assets on Yas Island in2011

Aldar intends to issue AED2.8 Bn worth of convertible bonds to

Government-owned Mubadala Development Company in 2011

Sale of residential units and land valued at AED5.5 Bn to theGovernment of Abu Dhabi

Also, Aldar’s debt repayment in 2011 includes a convertible debt payment

of AED4.2 Bn

Aldar can roll over 50% of the convertible debt or seek fresh

Government financing

However, Aldar recognized AED11.3 Bn related to impairment charges

during 4Q 2010 which further impacted its bottom-line during 2010


5,985

9,902

2,204

4,067

5,519

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014

AED

Mn

ALDAR DEBT MATURITY (2010-2014)

DEBT REPAYMENT BY YEAR (2010-2014)

21.6%

35.8%

8.0%

14.7%

19.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2010 2011F 2012F 2013F 2014F


59

Investment Thesis

Strong sovereign support further enhances our optimism

Aldar enjoys an unrivaled position as part of the Abu Dhabi Government’s

development program

Abu Dhabi Government is Aldar’s key financier and stakeholder

Indirect holding of Government of Abu Dhabi in Aldar stands at 38.3%*

Aldar’s strategy is closely aligned with the Government's long-term vision

under plan 2030

Aldar is the primary contractor for Abu Dhabi’s modernization plan

Government support has been extended to Aldar in other forms via the

awarding of public infrastructure projects

Historical analysis suggests that the Government of Abu Dhabi has always

extended support to Aldar

In 2008, Aldar to sold AED3.5 Bn worth of bonds to state-controlled

investment firm Mubadala

We remain optimistic of the Abu Dhabi Government’s continued support

to help Aldar overcome its funding woes

Aldar intends to issue AED2.8 Bn worth of convertible bonds to

Government-owned Mubadala Development Company in 2011 as a

part of its new restructuring plan

However, the conversion of convertible bonds would increase the

Government’s stake in Aldar to 44%

Source: Company filings, Al Mal Capital analysis , * combined stake of Mubadala, Abu Dhabi Investment Company and National Bank of Abu Dhabi

INDIRECT GOVERNMENT OWNERSHIP IN ALDAR

17.0% 17.0%

25.0%

38.0% 38.0% 38.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

2005 2006 2007 2008 2009 2010


60

ValuationValuation looks compelling; restructuring to provide long-term stability


In terms of forward multiple, Aldar is trading at a discount of 34.0% to its peers on the basis of FY 2011E P/B multiple

We believe the magnitude of discount should be lower as,

Concerns related to Aldar’s funding position should subside with new restructuring plan

The new restructuring plan is likely to strengthen Aldar’s capital structure and help meet its financial obligation

Aldar offers significant exposure to Abu Dhabi’s attractive real estate sector and is expected to be back in profitability in 2012

Company Country

Market

Cap.

(USD Mn)

PB

Current Fwd FY10Fwd

FY11


Dar Al Arkan KSA 2,419 0.65 0.56 0.51





Talaat Moustafa Group Egypt 2,245 0.54 0.54 0.49


SODIC Egypt 389 1.28 1.60 1.30


Aldar premium/

(discount)%(63.6%) (35.7)% (34.0%)


1

5

9

13

Feb-08 Aug-08 Feb-09 Sep-09 Mar-10 Sep-10 Apr-11 Oct-11

Pric

e in

AED

Fair value:2.14

1.860.6x


61

Valuation

NAV Method

Rental properties AED Mn AED/share

Al Jimi Mall 777 0.3

Diabetes Centre (commercial) 60 0.0

Al Mamoura 874 0.3

Baniyas Towers 929 0.4

Injazat Data Centre 186 0.1

Abraj Towers 191 0.1

Raha Gardens Phase 4 (36,000sqm food,

beverage, retail, and 12000sqm leisure)512 0.2

Raha Gardens Phase 4 (300 keys) 122 0.05

Central Market (phase 2, retail) 300 0.1

Central Market (phase 2, offices) 331 0.1

Central Market (phase 2, hotels, 500 keys) 208 0.1

Raha Beach (phase 2) (24) (0.01)

Noor Al Ain( retail, 300 key hotel) (109) (0.1)

Yas Island (Phase 1, 7 hotels and Leisure) 5,224 2.0

Yas Island (Phase 2, 23 hotels and Leisure) 3,429 1.3

Yas Island (Phase 1 and 2) 385 0.1

Total 13,679 5.31

Development Projects AED Mn AED/share

Al Raha Gardens 40 0.02

Al Raha Beach 1,004 0.39

Coconut Island 14 0.01

Yas Island 914 0.35

Al Bateen 3 0.001

Noor Al Ain 35 0.01

Al Gurm 9 0.003

Total Development Projects (AED Mn) 2,004 0.78

NAV ESTIMATE AED Mn AED/share

Total NAV:

Development Projects 2,04 0.78

Rental properties 13,679 5.31

Land bank 1,465 0.57

Total Net NAV 11,255 4.37

Premium / (discount) to total NAV (40%)

Estimated NAV 6,753 2.62


62

Valuation


VALUATION METRICS



Aldar Historical P/BV average 0.75x





63

Valuation

DCF

DCF Valuation (in AED Mn) 2011F 2012F 2013F 2014F

NOPLAT 21 388 489 498

Add: Depreciation & Amortization 389 428 466 505

Less: Change in working capital (2,475) (26) 1,194 (660)

Less: Capex (830) (952) (793) (944)

Free Cash Flow to Firm (FCFF) (2,896) (162) 1,357 (601)


Present Value of FCFF (2,752) (144) 1,126 (466)

Sum of Present Value (2,236)

Present value of Rental Terminal Value 27,395

Enterprise Value (Total Present Value) 25,159

Add: Cash Available AED Mn) 2,432


Less: Total Debt (AED Mn) 28,234

Equity Value 3,591

No. of Shares Outstanding (Mn) 2,578


VALUATION INPUTS

Risk Free Rate 2.6%

Beta 1.7



WACC 9%



64

Valuation

Assumptions

Revenues continued to decline in 2010 (-9.5%) after a dismal 2009 (-60.2%)

Property sales and rental income are expected to provide stable revenues,

going forward

Property sales are projected to average around AED6.6 Bn during 2011-13

Revenue from property sales are projected to rise in 2011 and 2012,

contributing 80.5% (AED5.30 Bn) and 77.8% (AED7.34 Bn) to total revenues,

respectively

Two major projects, Al Raha Beach and Yas Island, could contribute

significantly to Aldar’s top-line in 2012

RESIDENTIAL SALES PRICE IN ABU DHABI

ALDAR’S PROPERTY SALES REVENUES

Residential prices should continue to decline until 2014 due to:

Demand for housing units, especially for medium to high-income

segment, should see an increasing preference for Dubai over Abu

Dhabi given prices in Abu Dhabi are still costlier than in Dubai


Prices in Abu Dhabi are likely to see an upward trend post 2014

6,500

4,640

3,6753,344 3,144 3,018 2,988

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008A 2009A 2010E 2011F 2012F 2013F 2014F

Pric

es (

USD

/sqm

)

1,4701,107

5,304

7,336 7,227

5,466

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009A 2010A 2011F 2012F 2013F 2014F

AED

Mn

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

400.0%

Property sa les (LHS) % Growth (RHS)


65

Valuation

Assumptions

We expect Aldar to continue reporting a loss in 2011

We expect Aldar to report EBITDA of AED(150) Mn in 2011

EBITDA margins are projected to rise marginally to 4.1% in 2012

Post 2012, focus on high margin rental business and expected decline in its

cost of sales should further drive Aldar’s EBITADA margins

EBITDA margins are expected to rise to 7.0% and 10.8% in 2013 and 2014,

respectively

Significant increase in rental revenues, which have high margins of ~80-85%

should also help boost Aldar’s EBITDA margins

We expect Aldar to incur total capital expenditure of AED8.8 Bn over 2011-

2014

We assume it will incur capital expenditure to fund large projects, such as

Yas Island and Al Raha Beach

More than 80% of the total capital expenditure will be incurred on the Yas

Island and Al Raha Beach project

ALDAR’S EBITDA AND MARGINS 2010-2014

ALDAR’S CAPEX 2010-2014

(891)

386712

1,080

(150)

(1,000)

(500)

0

500

1,000

1,500

2010A 2011F 2012F 2013F 2014F

AED

Mn

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

EBITDA (LHS) Margin % (RHS)

1,713

2,357 2,439 2,304

0

500

1,000

1,500

2,000

2,500

3,000

2011F 2012F 2013F 2014F

AED

Mn


66

Sensitivity Analysis


Bull case:

5% increase in price realization acrossproject revenues and land revenues

Supply in the residential segment is 5%lower than the base case

Household size in Abu Dhabi decreasesby 1

Base case:

No change in price realization in landsales and project revenues

No change in residential supply

Residential segment supply rises by 3%

No change in household size

Bear case:

Additional 5% contraction in pricerealization across project revenues andland revenues

Supply in residential segment increasesby further 5%

Household size in Abu Dhabi increasesby 1

SENSITIVITY GRAPH OF NAV VALUE

2.490.01 0.06

0.05 2.62 0.06 0.100.04

2.82

1.5

2.0

2.5

3.0

3.5

NAV Bear case Household s ize

increases by 1

Supply increase

by 5%

Growth in prices

is 5% lower

NAV Base Case Growth in prices

is 5% higher

Supply decrease

by 5%

Household s ize

decreases by 1

NAV Bul l case

AED


67

Aldar — Financial Statement

Income Statement

Source: Company filings, Al Mal Capital analysis, *adjusted for AED 11.3Bn impairment charges

Income statement (AED Mn) 2008A 2009A 2010A 2011F 2012F 2013F

Total Revenue 4,978 1,979 1,791 6,588 9,426 10,163

Growth % 305.8% -60.2% -9.5% 276.7% 43.1% 7.8%

Cost of revenue (2,295) (1,537) (1,503) (5,052) (7,152) (7,608)

Gross Profit 2,683 443 288 1,536 2,274 2,556

Gross Profit Margin (%) 53.9% 22.4% 16.1% 23.3% 24.1% 25.1%

EBITDA 1,759 (1,174) (891) (150) 386 712

EBITDA Margin (%) 35.3% NM NM NM 4.1% 7.0%

Other gains (net) 8 114 16 121 125 128

Finance Costs (372) (262) (718) (978) (1,221) (1,357)

Profit Before Taxation 3,447 1,007 (1,358) (452) 246 465

Zakat Provision 0 0 0 0 0 0

Tax rate (%) 0% 0% 0% 0% 0% 0%

Profit After Tax 3,447 1,007 (1,358)* (452) 246 465

Net Margin (%) 69.2% 50.9% NM NM 2.6% 4.6%

EPS (AED) 1.34 0.39 (0.53) (0.18) 0.10 0.18

Dividend Yield (%) 5.1% 7.1% NM NM 1.7% 3.3%


68


Aldar Balance Sheet


Balance sheet (AED Mn) 2008A 2009A 2010A 2011F 2012F 2013F

Assets

Development work in progress 7,130 10,808 13,878 16,230 19,830 24,192

Trade and other receivables 5,640 14,609 5,453 5,119 5,216 3,258

Cash and bank balances 12,066 10,313 2,432 764 32 (590)

Total Current Assets 24,837 35,730 28,116 22,397 25,513 27,403

Non-Current Assets

Property, plant and equipment 1,831 12,400 6,675 7,121 7,650 7,984

Intangible assets 163 40 25 41 67 99

Investment properties 5,149 7,696 3,022 3,174 3,332 3,499

Investment properties under development 15,804 7,116 5,271 6,329 6,837 7,125

Other Non-Current Assets 1,983 3,243 4,235 4,155 3,423 3,067

Total Non-Current Assets 24,930 30,495 19,228 20,820 21,309 21,774

Total Assets 49,767 66,224 47,344 43,217 46,822 49,177

Liabilities

Current Liabilities

Trade payables 7,419 6,556 6,171 6,226 8,162 10,190

Advances from customers 2,178 2,444 2,688 2,491 3,173 3,964

Current Borrowings 2,663 4,696 10,473 2,204 4,067 5,519

Total Current Liabilities 12,260 13,697 23,797 10,920 15,402 19,673

Non-Current Liabilities

Convertible bonds 4,236 4,290 0 0 0 0

Advances from customers 0 0 0 0 0 0

Non convertible bonds 3,739 8,311 8,320 8,320 4,620 30

Borrowings – long term 11,954 21,400 9,441 14,891 17,854 20,497

Total Non-Current Liabilities 21,474 35,877 19,300 24,292 23,805 22,202

Equity

Share Capital 6,584 6,646 7,198 11,455 11,403 11,362

Convertible bonds – equity component 181 181 181 181 181 181

Non interest bearing convertible bond 3,563 3,563 3,563 3,563 3,563 3,563

Retained earnings 5,885 6,441 (6,514) (7,013) (7,352) (7,624)

Shareholder's Fund 16,032 16,650 4,247 8,005 7,614 7,301


69


Cash Flow Statement

Source: Company filings, Al Mal Capital analysis, Adjusted for AED11.3Bn impairment charges

Cash Flow (AED Mn) 2008A 2009A 2010A 2011F 2012F 2013F

Cash flows from operating activities

Net profit 3,447 1,007 (1,358)* (452) 246 465 Depreciation of property, plant and equipment 25 94 514 385 422 459

Amortization of intangible assets 0 0 0 4 5 7 Investment income (480) (464) (266) (126) (91) (46)

Finance costs 163 169 682 1,176 1,251 1,204 Fair value gain on investment properties (1,533) (1,961) 6,992 (151) (159) (167)

Project costs impairment and write-off 311 526 3,703 0 0 0 Increase in long-term retentions payable 625 501 (0) (447) 248 343

Increase in trade and other receivables (4,048) 839 763 467 707 2,394 Increase in trade and other payables 4,281 (965) (345) 54 1,936 2,028

Increase in advances from customers 1,496 292 244 (196) 682 791

Addition to development work in progress (3,115) (1,359) (2,702) (2,353) (3,600) (4,362)

Directors’ remuneration 0 0 0 0 0 0 Net cash inflow from operating activities 1,350 (1,025) (2,715) (1,923) 658 2,060

Cash flows from investing activitiesPurchases of property, plant and equipment (1,485) (837) (1,743) (830) (952) (793)

Additions to investment properties (11,740) (14,537) 0 (1,058) (507) (289)

Net cash outflow from investing activities (19,385) (13,485) 1,975 4,149 (1,399) (1,075)

Cash flows from financing activities

Net proceeds from issue of convertible bonds 21,644 17,504 0 0 0 0 Borrowings raised 0 0 4,795 2,794 3,330 3,572

Borrowings repaid (4,266) (1,851) (4,293) (5,612) (2,204) (4,067)Interest paid (493) (907) (1,386) (1,176) (1,251) (1,204)

Net cash inflow from financing activitiesNet Increase in cash and cash equivalents (1,833) (543) (2,015) (1,668) (732) (622)

Cash and cash equivalents at beginning of the year 5,059 3,226 2,663 648 (1,020) (1,752)Cash and cash equivalents at end of the year 3,226 2,683 648 (1,020) (1,752) (2,373)


70


Aldar Ratio Analysis





EBITDA Margin 35.3% NM NM NM 4.1% 7.0%

Operating Profit Margin 35.3% NM NM NM 4.1% 7.0%

Net Profit Margin 69.2% 50.9% NM NM 2.6% 4.6%

Return on Average Assets 9.5% 1.7% NM NM 0.4% 0.7%

Return on Average Equity 29.1% 6.2% NM NM 2.7% 5.0%

Liquidity ratios

Current Ratio 2.0 2.6 2.2 2.1 1.9 1.8

Quick Ratio 1.4 1.8 1.4 1.3 1.0 0.9

Leverage ratios

Net Gearing (%) 27% 51% 79% 57% 57% 62%

Debt/Equity (%) 140.9% 232.4% 219.3% 353.0% 348.7% 348.1%

Valuation ratios

P/E x 1.4 5.9 NM NM 18.8 10.0

P/BV x 0.29 0.77 0.40 0.39 0.24 0.23

EV/EBITDA x 9.1 NM NM NM 73.2 43.7

Du Pont Analysis

Net margin 69.2% 50.9% NM NM 2.6% 4.6%

Asset Turnover 10.0% 3.0% 3.8% 9.6% 15.3% 16.1%


RoE 21.5% 6.0% NM NM 2.7% 4.9%


71



11

29

49

72

97






A diversified property play

March 2011

Emaar Properties


73

Emaar: Investment Summary (1/2)

Diversified revenue stream, limited funding risk


RATING Outperform


Upside 35.8%

Price (13 Mar 2011) AED2.95

Market Cap. (AED Bn) 16.3

Market Cap. (USD Bn) 4.4

Shares Outstanding 6,091Mn

Price 52wk H/L 4.20/2.35

Ticker (Bloomberg) EMAAR UH

Ticker (Reuters) EMAAR.DU

EMAAR: Well placed to benefit from diversified operations Recovery in property sales and rental business to boost revenue and net income

Emaar’s revenue is projected to grow at a CAGR of 8.6% during 2010-2014, compared to thenegative CAGR growth of 12.0% during 2005-2009

Revenue to grow 6.6% YoY and 9.5% YoY to reach AED12.96 Bn and AED14.19 Bn in 2011

and 2012, respectively, driven by steady progress on Burj Dubai and Bawadi projects Emaar’s net income is projected to grow by 5.5% (AED2.58 Bn) and 10.4% (AED2.85 Bn)

YoY in 2011 and 2012, translating into an EPS of AED0.42 and AED0.47, respectively Post 2013, revival in prices coupled with Emaar’s focus on the high margin rental business, is

expected to boost EBITDA and net income margins EBITDA margins are projected to rise to 26.8% in 2014, compared to 22.4% in 2011 and

21.4% in 2012

Net margins are also expected to improve to 25.1% in 2014, compared to 19.9% and20.1% in 2011 and 2012, respectively

International expansion to help sustain top-line growth

Emaar Properties is rapidly expanding outside the UAE, with new projects in markets such asSaudi Arabia, Egypt and Turkey

We have a positive outlook on the property markets of Egypt, Saudi Arabia and Turkey,given the attractive dynamics of the housing sectors in these countries, driven by theacute shortage of residential units, coupled with a growing and young population base

Expansion in these markets should help Emaar to diversify its revenue stream and sustaingrowth.

Share of revenue from the International segment is expected to increase to 8.2%(AED1.06 Bn) in 2011 and 18.1% in 2012 (AED2.57 Bn) compared to 6.6% in 2009

0

50

100

150

200

250

Dec

-08

Mar

-09

May

-09

Jul-

09

Oct

-09

Dec

-09

Feb

-10

May

-10

Jul-

10

Sep

-10

Dec

-10

Feb

-11

AED

EMAAR DFMGI


74

Emaar: Investment Summary (2/2)

Diversified revenue stream, limited funding risk


Well placed to capture opportunities in UAE’s hospitality industry

Tourist arrivals in Dubai are expected to grow at a CAGR of 29.0% during the period 2010-15 This growth is expected to be driven by increasing leisure tourism in both Dubai and Abu Dhabi.

This, in turn, should drive the demand for hotel rooms and help sustain occupancy rates

Emaar’s revenue from hospitality is projected to grow at a CAGR of 34.8% during 2009-12 fromAED667 Mn to AED1.63 Bn

Growth in hospitality revenue is also expected to drive Emaar’s rental revenue. Total Rentalrevenue is projected to grow at a CAGR of 6.6% during 2010-13 from AED3.51 Bn to AED4.25 Bn

Attractive valuation At the current P/E of 8.20x and current P/B of 0.62x, Emaar trades at a discount of 0.6% and

premium of 7.7%, respectively, versus the peer group average of 8.25x current P/E and 0.58xcurrent P/B

In terms of forward multiples, Emaar trades on a 0.52x 2011E P/B and 6.0x 2011 P/E, a discount of9.7% on a P/B basis and a discount of 52.3% on P/E basis, versus a peer group average of 0.58x2011P/B and 12.6x 2011P/E

We believe the discount is unjustified and expect Emaar to trade at a marginal premium due toEmaar’s stable EPS growth (14.3% CAGR 2011-13) compared to its UAE peers, such as Aldar andDeyaar, which are currently incurring losses. Also, Emaar offers the most diversified property playamongst its UAE peers

Our valuation based on the NAV, DCF and P/BV multiple methodologies returns a weightedaverage target price of AED4.01, an upside of 35.8%

Valuation

multiples2009A 2010A 2011F

EPS (AED) 0.05 0.40 0.42

P/E 68.4 7.4 6.0

P/B 0.82 0.57 0.52

BV/share 4.7 5.1 5.7


Revenues (AED Mn) 10,717 8,413 12,150 12,957 14,188 16,365

EBITDA (AED Mn) 3,172 2,222 2,285 2,907 3,039 3,640

EBITDA margins 29.6% 26.4% 18.8% 22.4% 21.4% 22.2%

Net income (AED Mn) 124 289 2,448 2,582 2,851 3,370

Debt/Equity 32% 30% 23% 28% 23% 29%

Dividend Yield 0% 0% 0% 3.3% 3.7% 5.2%






4.01


75

Emaar Properties Overview

Presence across real estate sub-segments

Source: Company filings, Zawya, Al Mal Capital analysis

KEY FACTS

Revenues (AED Bn)-FY2010 12.15

Net income (AED Bn)-FY2010 2.45


Price to Earnings (TTM) 8.20x

ROA-FY2010 3.7%

ROE-FY2010 8.1%

Debt/Equity 23%

• Established in 1997 and listed on the DFM in September 2000, Emaar is UAE’s largest listed real estate development company

• Property development is the company’s core business, where Emaar focuses on developing and selling residential and commercial real estate in both Dubai and international markets

• Revenue from investment property is expected to make an increasing contribution to the top-line, going forward

• The company operates through four major segments:• Development of residential and commercial property for sale, both in UAE and

international markets• Emaar Malls• Emaar Hospitality• Emaar Healthcare

• Residential and commercial property development segment is the single largest contributor to the company's total revenues

• It accounted for 74.1% and 71.1% of Emaar’s top-line in 2009 and 2010, respectively

• Rental income accounted for 28.9% of the company's top-line during 2010

• Emaar also has a significant presence in the international markets compared to its UAE peers

• Emaar currently has on-going projects in key markets, such as Egypt, Saudi Arabia, Turkey, Lebanon, Canada, Syria and Pakistan

• Share of revenue from the international segment to Emaar’s total revenue is expected to be 8.2% in 2011 and 18.1% in 2012

UAE (Dubai, Abu Dhabi), Saudi Arabia, Egypt, Turkey, India, Pakistan, Syria and Canada

BUSINESS OVERVIEW >

SEGMENTS >

MARKETS SERVED >

EMAAR’S SHAREHOLDING PATTERN

UAE Govt.,

31.2%

Publ ic,

68.8%


76

Investment Thesis

Completion of key projects boosts top-line in 2010

Emaar’s revenue surged during 2010, led by the revival in its property sales

business

Emaar’s total revenue in 2010 increased 44.4% YoY to AED 12.2 Bn

This was largely driven by the completion of key projects such as Burj

Dubai and Dubai Marina

Revenue from property sales increased 38.5% to reach AED8.6 Bn

Revenue growth was further helped by the strong performance of its

hospitality business

Emaar’s hospitality revenue grew 130.4% YoY to AED1.54 Bn during

2010

This was led by the launch of Armani Hotel and Residences in 2Q 2010

Going forward, we expect Emaar’s revenue to expand at a CAGR of 8.6%

during 2010-2014, compared to negative CAGR growth of 12.0% during

2005-2009

Strong top-line performance resulted in improved profitability

Emaar reported a net income of AED2.45 Bn during 2010, while the

company had reported a net profit of AED289 Mn in 2009

Source: Company filings, Al Mal Capital analysis,

EMAAR’S REVENUE GROWTH DURING 2010 (%)

EMAAR’S NET INCOME GROWTH DURING 2010

228

-1,293

636 719 760 795612

274

-1,500

-1,000

-500

0

500

1,000

1Q

2009

2Q

2009

3Q

2009

4Q

2009

1Q

2010

2Q

2010

3Q

2010

4Q

2010

AED

Mn

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Net income (LHS) %QoQ Growth (RHS)

1,5401,949

2,8862,652 2,782

3,8302,924

1,940

0500

1,000

1,5002,0002,5003,000

3,5004,0004,500

1Q

2009

2Q

2009

3Q

2009

4Q

2009

1Q

2010

2Q

2010

3Q

2010

4Q

2010

AED

Mn

-20%

-10%

0%

10%

20%

30%

40%

50%

60%Revenue (LHS) %QoQGrowth (RHS)


77

Investment ThesisStrong mix of retail projects to help sustain investment property revenues

In the last two years, Emaar has focused on increasing its share of revenuefrom investment property

Share of revenue from investment property grew from 10% in 2008 to25.9% in 2009 and 28.9% in 2010

We expect Emaar to sustain the share of revenue from investmentproperty, going forward

Rental revenue is projected to grow at a CAGR of 6.6% during 2010-13to reach AED4.25 Bn by the end of 2013

Share of revenue from investment property is expected to be 29.9%(AED3.87 Bn) in 2011 and 29.3% in 2012 (AED4.15 Bn)

This should be led by a strong mix of retail and hospitality projects suchas Dubai Mall, Dubai Marina Mall, Address brands of hotels and resorts

Emaar Mall, with GLA size of 325,000 sqm, is expected to be a key growthdriver of revenue from the investment property segment

Emaar Mall should account for an average 32% of the total rentalincome over 2011-2014

Emaar Mall segment is expected to witness an average occupancy rateof 95% during 2010-2014.

Average occupancy is expected to be 99% in 2011 and 2012 comparedto 98% in 2010

Emaar’s rental business forms 51.6% of our NAV valuation of AED7.46 pershare (before discount)

Sustainability of investment property revenue is expected to providestability to overall revenue by offering a recurring revenue stream

Source: Company filings, Al Mal Capital analysis, *Property Sales includes revenue from International segment

EMAAR’S REVENUE MIX BY OPERATING SEGMENT (%)

EMAAR’S NAV BY BUSINESS SEGMENT

10.0%25.9% 28.9% 29.9% 29.3%

90.0%74.1% 71.1% 70.1% 70.7%

0%

20%

40%

60%

80%

100%

2008 2009 2010A 2011F 2012F

Renta l income Property sa les*

Rental , 51.6%

Hospita l i ty,

21.0%

Emaar

International ,

6.3%

Property sa les ,

21.1%


78

Investment Thesis Stability in hospitality business to further support rental revenue stream

Emaar’s rental revenue from its hospitality business more than doubledduring 2010 to reach AED1.54 Bn

Launch of Armani Hotel and Residences in 2Q10 and full year revenuesfrom the Address Dubai Mall are projected to have doubled hospitality

revenue in 2010

Continued growth in the number of hotel guests as tourist arrivals inDubai increased 9% YoY to 4.2 Mn during 1H 2010

Increasing RevPar driven by an improvement in ADR and occupancylevels hotel revenues increased 6% YoY in H1 2010

After achieving high growth during 2010, we expect growth of rental

revenue from the hospitality business to slow down during 2011-2014

However, Emaar should be able to sustain the share of rental revenue fromthe hospitality business in its total rental revenue

Share of rental revenue from the hospitality business is projected tobe 37.9% (AED1.47 Bn) in 2011 and 39.3% (AED1.63 Bn) in 2012

Emaar is well placed to benefit from the attractive dynamics in Dubai’shospitality segment

Emaar’s brand name and large size in the UAE should enable it tobenefit from economies of scale to give it an edge in the sector

The Dubai Department of Tourism and Commerce Marketing expectsDubai to attract 15Mn tourists by 2015, compared to 4.2 Mn during H12010

Number of tourist arrivals in Dubai is expected to grow at a CAGR of29.0% during 2010-2015


REVENUE BREAKUP OF EMAAR’S RENTAL BUSINESS

GROWTH IN REVENUE FROM HOSPITALITY BUSINESS

667

1,537 1,4671,634 1,676 1,736

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2009 2010A 2011F 2012F 2013F 2014F

AED

Mn

-5%

15%

35%

55%

75%

95%

115%

135%

155%Hospita l i ty revenue (LHS) % Growth (RHS)

30.6%43.8% 37.9% 39.3% 39.4% 39.4%

69.4%56.2% 62.1% 60.7% 60.6% 60.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010A 2011F 2012F 2013F 2014F

Hospita l i ty Emaar Mal l and Commercia l


79

Investment Thesis

International expansion could diversify revenue base

Emaar is increasingly expanding its presence outside the UAE

International revenues are projected to grow at a CAGR of 38.3% over

the period 2011-14

It should account for 8.2% (AED1.06Bn) and 18.1% (AED2.57 Bn) of the

total revenue in 2011 and 2012, respectively

Within international markets, Emaar is increasing its foothold in the high

growth markets of Egypt, Saudi Arabia and Turkey

We have a positive outlook on Egypt, Turkey and Saudi Arabia’s

property market, given the shortage of housing units in these countries

While Saudi Arabia is expected to experience a shortage of 0.7 Mn

housing units, Egypt would require 40,000 housing units per year in the

affordable segment by 2014

Turkey would require 500,000 new housing units by 2015 to meet the

shortage of housing units

The combined revenue from Egypt, Saudi Arabia and Turkey is

projected to account for 57.0% (AED605 Mn) of the total international

revenue in 2011 and 52.7% (AED1.35 Bn) in 2012

Expansion in the international market makes the company less vulnerable

to the current downturn in the Dubai property market

Dubai’s real estate development sector continues to be a high risk

proposition, due to continued oversupply and expensive mortgage

financing


EMAAR’S REVENUE FROM INTERNATIONAL SEGMENT

INTERNATIONAL REVENUE BY COUNTRIES

456

1,215 1,254 1,293605

1,354 1,440 1,512

0

500

1,000

1,500

2,000

2,500

3,000

2011F 2012F 2013F 2014F

AED

Mn

Others Egypt, KSA and Turkey

1,061

2,569 2,694 2,805

0

500

1,000

1,500

2,000

2,500

3,000

2011F 2012F 2013F 2014F

AED

Mn

0%

20%

40%

60%

80%

100%

120%

140%

160%

International Revenue % Growth


80

Investment Thesis

Funding risk limited — refinancing of debt not a concern


Emaar has limited debt, as reflected in the low debt to equity ratio

The company’s debt to equity ratio stood at 23% during 2010,

compared to the average of 128% for its UAE and regional peers

Low debt to equity ratio is justifiable, given that:-

Emaar uses off-plan sales to fund development projects

Emaar receives land grant from the Dubai Government, which reduces

the initial capital outlay of projects

Emaar has reasonably sufficient liquidity:-

Emaar’s cash balance stood at AED5.0 Bn as of 2010

Emaar should generate AED5.07 Bn in free cash flow during 2010-12

Emaar could have a cumulative shortage of AED603 Mn by the end of 2012

Emaar has an AED3.7 Bn Musharaka Islamic Syndicated facilitymaturing in 2012

However, we expect the company to refinance this debt, given itsstrong capital base and cash flow generation abilities

Emaar’s net debt to equity stands as low as 22%

EMAAR’S FUNDING SHORTAGE & DEBT MATURITY

EMAAR’S NET DEBT TO EQUITY

8.0%

13.2%14.7%

10.3%

5.3%5.4%

4.3%

22.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2007 2008 2009 2010E 2011F 2012F 2013F 2014F

1,672

314

3,728

-603

1,500

-603-1,000

0

1,000

2,000

3,000

4,000

2010 2011 2012

AED

Mn

Debt repayment Cumulative funding (shortage)/surplus


81

ValuationValuation looks attractive — stock to trade at premium (1/2)


Since July 2009, Emaar had mostly traded in a P/B multiple range of 0.50x-0.80x

Its share price declined 8% in 2010, outperforming the DFM (Emaar fell by 8% in 2010 compared to DFM’s 12.6% decline)

We believe the stock holds further upside potential due to:

Emaar’s relatively limited funding risk compared to its regional peers

Stable earnings and EPS growth (CAGR 14.3% during 2011-2013)

Emaar has the most geographically diversified revenue stream compared to its UAE peers

RoaA is projected to increase to 4.5% in 2013, compared to 0.4% in 2009 and 3.7% in 2010, driven by strong earnings growth

STOCK PRICE (AED) AND P/BV BAND RETURN ON AVERAGE ASSETS

15.2%

13.5%

0.2% 0.4%

3.7% 3.7% 4.0%4.5%

5.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2006 2007 2008 2009 2010A 2011F 2012F 2013F 2014F2

6

10

14

Jan-08 Jul -08 Jan-09 Jul -09 Feb-10 Aug-10 Feb-11 Sep-11

Pric

e in

AED

Fa i r va lue: 4.01

0.6x 3.38


82

ValuationValuation looks attractive — stock to trade at premium (2/2)


In terms of forward multiple, Emaar is currently trading at a discount of 9.7% to its peers on the basis of FY 2011E P/B multiple

We believe the discount is unjustified and expect Emaar to trade at a marginal premium due to:

Diversification into international markets (Saudi Arabia , Turkey and Egypt), which provides a cushion during troubled times

Other listed UAE real estate companies are heavily debt laden and have limited exposure in international markets. Emaar to witness

stable EPS growth (14.3% CAGR 2011-13) compared to its UAE peers. Regional peers such as Aldar and Deyaar are currently loss

making

Company Country

Market

Cap.

(USD Mn)

PB

CurrentFwd

FY10

Fwd

FY11

Emaar Properties UAE 4,444 0.62 0.57 0.52


Talaat Moustafa Egypt 2,245 0.54 0.54 0.49

Dar Al Arkan KSA 2,419 0.65 0.56 0.51





SODIC Egypt 389 1.28 1.60 1.30


Emaar premium/

(discount)%7.7% (5.1%) (9.7%)

HISTORICAL PRICE-TO-BOOK MULTIPLE OF EMAAR

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10


83

Valuation

NAV Method (1/2)

Existing rental retail space AED Mn AED/share

Downtown Dubai (excl. Dubai Mall) 1,200 0.20

Dubai Mall 12,188 2.00

Dubai Marina Mall 1,359 0.22

Gold & Diamond Park (Dubai) 1,800 0.30

Various Emaar Community Retail Space 2,813 0.46

Existing leasable Commercial space AED Mn AED/share

BD Commercial Units 1,749 0.29

DM Commercial Units 892 0.15

Commercial leasable properties under construction AED Mn AED/share

BD Commercial Units 1,456 0.24

Total NAV of Rental Assets 23,456 3.85

NAV Hospitality business AED Mn AED/share

The Address Downtown Dubai 1,592 0.26

Al Manzil Hotel 1,332 0.22

Qamardeen Hotel 1,129 0.19

The Palace The Old Town 1,487 0.24

The Address Dubai Mall 1,734 0.28

The Address Dubai Marina 989 0.16

The Address MontgomerieDubai 76 0.01

The Dubai Polo & Equestrian Club 40 0.01

NuranMarina Residences 328 0.05

NuranGreens Residences 845 0.14

Total NAV of Hospitality business 9,551 1.57

NAV Property Sales AED Mn AED/share

Burj Dubai Development 5,911 0.97

Dubai Marina 273 0.04

Arabian Ranches 34 0.01

Emirates Living 217 0.04

L'Usailly 1,007 0.17

Umm Al Quwain Marina 696 0.11

JV with Bawadi 1,521 0.25

Total NAV of Properties sales 9,659 1.59

NAV Emaar International AED Mn AED/share

Emaar Misr for Development 1,235 0.20

Emaar Middle East 55 0.01

Emaar DHA Islamabad Limited 139 0.02

Emaar GIGA Karachi Limited 215 0.04

Emaar IGO 330 0.05

MetnRenaissance Holdings 196 0.03

Emaar Turkey (Tuscan Valley) 299 0.05

Emaar Properties (Canada) Ltd. 330 0.05

Emaar Tinja 100 0.02

Total NAV-International 2,900 0.48


84

Valuation

NAV Method (2/2)

Consolidated NAV AED/share

Emaar UAE

Emaar Property sales Business 1.59

Emaar Rental Business 3.85

Emaar Hospitality Business 1.57

Emaar International 0.48

Total NAV of Emaar Properties 7.48

Less: Discount 40%

Total Net NAV 4.49

VALUATION INPUTS

Risk free rate 3.2%

Expected market return 14.0%

Beta 1.77

Cost of equity 22.3%

No. of shares outstanding (Mn) 6,091


85

Valuation


VALUATION METRICS

Current P/B peer group average 0.58x


Emaar historical P/BV average 0.74x





86

Valuation

DCF

VALUATION INPUTS

Risk Free Rate 3.2%

Beta 1.77



WACC 18.7%

Terminal Growth Rate of rental income 2.0%

DCF Valuation (in AED Mn) 2011F 2012F 2013F 2014F

NOPLAT 3,606 3,439 3,707 4,326

Add: Depreciation & Amortization 1,224 1,390 1,643 1,866

Less: Change in working capital 1,464 1,048 (737) (767)

Less: Capex (3,265) (3,575) (4,942) (5,107)

Free Cash Flow to Firm (FCFF) 3,029 2,302 (330) 317


Present Value of FCFF 2,640 1,695 (205) 167

Sum of Present Value 4,296

Present value of Rental Terminal Value 21,276


Add: Cash Available 5,042

Less: Total Debt 9,410

Equity Value 21,204

No. of Shares Outstanding (Mn) 6,091



87

Valuation

Assumptions

RESIDENTIAL SALES PRICE IN DUBAI

REVENUE FROM INVESTMENT PROPERTY

Sales prices in Dubai are expected to decline by 5% in 2011 compared to themore than 40% fall in 3Q08-3Q10

Prices are expected to continue decline until 2013 and bottom-out by the

end of 2013

Share of revenue from investment property is projected to increase from10% in 2008 (AED1.08 Bn) to 29.3% by 2012 (AED4.15 Bn)

Rental revenue is projected to grow at a CAGR of 6.6% during 2010-13 toreach AED4.25 Bn by the end of 2013

Emaar Mall is expected to account for 52.0% of our NAV valuation ofEmaar’s rental business

Revenue from the hospitality business is projected to grow at a CAGR of34.8% during 2009-12 from AED667 Mn in 2009 to AED1.63 Bn in 2012

5,420

3,080 2,850 2,708 2,599 2,547 2,547

0

1,000

2,000

3,000

4,000

5,000

6,000

2008A 2009A 2010E 2011F 2012F 2013F 2014F

Pric

es (

USD

/sqm

)

1,076

2,177

3,511 3,872 4,154 4,254 4,407

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2008A 2009A 2010A 2011F 2012F 2013F 2014F

AED

Mn

CAGR-(2010-13) 6.6%


88

Valuation

Assumptions

OCCUPANCY RATE OF DUBAI MALL (%) Emaar Malls business is projected to witness average occupancy of 95% over

our explicit forecast period

Dubai Mall is projected to have 98% occupancy rate in 2010

Occupancy level is projected to increase to an average of 99% over 2011-14

The Address Dubai Mall, one of Emaar’s own hospitality brands, is projectedto have occupancy of 92% over 2010-14

International

revenue

Revenue from the international market is likely to account for 18.1% (AED2.57 Bn) of the total revenue in 2012

The markets of Egypt, Saudi Arabia and Turkey should be key contributors, accounting for more than 50% of the

company’s total revenue from the International segment

98.0%

100.0%

100.0%

98.0%

98.0%

97.0% 97.5% 98.0% 98.5% 99.0% 99.5% 100.0% 100.5%

2010A

2011F

2012F

2013F

2014F


89

Valuation

Assumptions

EBITDA is expected to increase 27.2% YoY and 4.5% YoY to AED2.91Bn and3.04 Bn in 2011 and 2012, respectively

Revival in margin post 2013, due to recovery in prices and better costefficiency

Significant increase in high-margin rental revenues — gross margin fromthe segment averages 70% compared to 55-60% for the property salessegment

Emaar is expected to generate free cash flow of AED5.07 Bn over 2010-12

Assuming the company does not refinance in 2012, it will have a

cumulative shortage of AED603 Mn by the end of 2012

We expect Emaar to be able to refinance its AED3.7 Bn Musharaka

Islamic Syndicated facility in 2012 given its strong capital base and cash

flow generation abilities

EMAAR’S EBITDA AND MARGINS 2010-2014

EMAAR’S DEBT MATURITY SCHEDULE 2010-2014

1,672

314

3,728

237 250

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010A 2011F 2012F 2013F 2014F

AED

Mn

2,2852,907 3,039

3,6404,526

0

5001,000

1,500

2,0002,500

3,000

3,500

4,0004,500

5,000

2010A 2011F 2012F 2013F 2014F

AED

mn

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

EBITDA (LHS) Margins % (RHS)


90

Valuation

Assumptions

We expect Emaar to incur total capital expenditure of AED16.9 Bn over2011-2014

Capital expenditure to fund large international projects in Saudi Arabia,Egypt and Canada

Emaar is likely to incur about 60% of this expenditure on expanding itsportfolio of international projects

EMAAR’S CAPEX

3,2653,575

4,942 5,107

0

1,000

2,000

3,000

4,000

5,000

6,000

2011E 2012E 2013E 2014E

AED

Mn


91

Valuation

Sensitivity Analysis

Bull case:

Increase in selling price by AED500 persqm

Increase in retail rent by AED500 persqm

Increase in commercial rent by AED500per sqm

Base case:

Decrease in selling price by 10%

Decrease in retail rent by 5%

Decrease in commercial rent by 12%

Bear case:

Decrease in selling price by AED500 persqm

Decrease in retail rent by AED500 persqm

Decrease in commercial rent by AED500per sqm


SENSITIVITY GRAPH OF NAV VALUE

0.05

0.05

3.24

1.06 0.13 4.49 0.13

0.21

4.89

-

1

2

3

4

5

6

NAV Bear Case Decrease in

Sel l ing Price by

500 AED

Decrease in

Retai l rent by

500 AED

Decrease in

Commercia l rent

by 500 AED

Base Case Increase in

Commercia l rent

by 500 AED

Increase in

Retai l rent by

500 AED

Increase in

Sel l ing Price by

500 AED

NAV Bul l Case

AED


92

Emaar — Financial Statement

Income Statement


Income statement (AED Mn) 2008A 2009A 2010A 2011F 2012F 2013F

Total Revenue 10,717 8,413 12,150 12,957 14,188 16,365

Growth % (40.0%) (21.5%) 44.4% 6.6% 9.5% 15.3%

Cost of revenue (5,487) (4,314) (7604) (8492) (9342) (9855)

Gross Profit 5,230 4,099 4,547 4,465 4,847 6,510

Gross Profit Margin (%) 49% 49% 37% 34% 34% 40%

EBITDA 3,172 2,222 2,285 2,907 3,039 3,640

EBITDA Margin (%) 29.6% 26.4% 18.8% 22.4% 21.4% 22.2%

Selling, general and administrative expenses (1,905) (1,912) (2,028) (2,172) (2,628) (3,959)

Other Operating Expenses (363) (288) (233) (349) (349) (349)

Finance costs (75) (217) (355) (254) (239) (137)

Finance income 422 356 265 234 562 647

Profit before tax 4,189 2,028 2,478 2,558 2,827 3,347

Income tax Credit 3 24 (1) 24 23 23

Net profit (Attributable to equity holders) 124 289 2,448 2,582 2,851 3,370

Net Margin (%) 1.2% 3.4% 20.1% 19.9% 20.1% 20.6%

EPS (AED) 0.03 0.05 0.40 0.42 0.47 0.55

Dividend Pay-Out Ratio 0% 0% 0% 25.0% 25.0% 30.0%

Dividend Yield (%) 0% 0% 0% 3.3% 3.7% 5.2%


93


Balance Sheet


Balance sheet (AED Mn) 2008A 2009A 2010A 2011F 2012F 2013F

Assets

Bank balances and cash 5,393 2,267 5,042 2,706 2,924 6,296

Trade receivables 1,058 981 902 1,267 1,328 1,666

Other receivables, deposits and prepayments 3,511 3,211 2,855 3,211 3,211 3,211

Development properties 26,799 31,076 26,492 30,804 30,375 30,129

Securities 867 937 694 937 937 937

Loans to associates 1,636 2,005 2,232 2,005 2,005 2,005

Investments in associates 8,314 7,861 7,592 7,861 7,861 7,861


Investment properties 13,248 8,546 8,110 7,830 7,471 7,113

Goodwill 439 439 46 439 439 439

Total assets 66,680 64,145 62,504 67,665 68,974 75,064

Liabilities and Equity

Advances from customers 18,109 15,888 9,889 16,558 18,138 18,398

Trade and other payables 9,680 9,545 8,939 6,494 5,573 5,246

Interest-bearing loans and borrowings 9,174 8,625 9,410 8,956 7,082 9,874

Retentions payable 1,079 1,160 1,149 1,160 1,160 1,160

Provision for employees’ end-of-service 37 47 59 47 47 47

Total liabilities 38,079 35,266 31,204 33,215 32,000 34,725

Equity

Share capital 6,091 6,091 6,091 6,091 6,091 6,091

Treasury shares (1) (1) 0 (1) (1) (1)

Employees’ performance share program (2) (2) (2) (2) (2) (2)

Reserves 14,432 14,711 14,924 15,291 15,617 16,031

Retained earnings 7,586 7,878 10,018 12,811 14,977 17,886

Total Equity 28,601 28,879 31,300 34,450 36,974 40,338

Total Liability and Equity 66,680 64,145 62,504 67,665 68,974 75,064


94


Cash Flow Statement


Cash Flow (AED Mn) 2008A 2009A 2010A 2011F 2012F 2013F

Cash flow from operating activities

Profit before tax 4,189 2,028 2,478 2,558 2,827 3,347 Depreciation 295 636 805 1,225 1,382 1,647 Trade receivables 162 18 (45) (3) (61) (338)Other receivables, deposits and prepayments (868) 75 272 0 0 0Development properties, net (5,824) (3,020) 2,953 102 429 246 Advances from customers, net 4,016 (2,221) (5,999) 824 1,580 260 Trade and other payables 4,259 54 (490) (2,011) (921) (327)Retentions payable 24 82 (11) 0 0 0

Income tax, net (4) (3) 3 23 23 23 Net cash (used)/ from operating activities 6,132 (1,632) 464 3,198 5,668 5,628

Cash flow from investing activities

Purchase of property, plant and equipment (5,840) (1,734) (770) (2,709) (2,841) (4,272)Net cash used in investing activities (2,681) (2,790) (2,798) (2,709) (2,841) (4,272)

Cash flow from financing activities

Dividend paid (1,199) (4) (1) (276) (768) (818)Interest-bearing loans and borrowings 2,802 2,005 2,489 1,897 1,988 2,990

Repayment of interest bearing loans and borrowings (537) (809) (1,672) (314) (3,862) (198)Funds invested by non-controlling interest, net 92 17

Net cash from financing activities 1,160 1,210 (2,259) 1,337 (2,609) 2,016

Net Cash (used in)/ from continuing operations 4,611 (3,213) (1,386) 1,825 218 3,372Net cash used in discontinued operations (1,537) (113) 0 0 0 0

Net foreign exchange difference 11 (30) (12) 0 0 0

Cash and cash equivalents at the beginning 2,132 5,175 1,860 475 2,299 2,517

Closing Cash and Cash Equivalents 5,175 1,860 1,773 2,299 2,517 5,889


95


Ratio Analysis




Gross Profit Margin 49% 49% 37% 34% 34% 40%

EBITDA Margin 30% 26% 19% 22% 21% 22%

Operating Profit Margin 28% 23% 19% 15% 13% 13%

Net Profit Margin 1% 3% 20% 20% 20% 21%

Return on Average Assets 0.2% 0.4% 3.7% 3.7% 4.0% 4.5%

Return on Average Equity 0.4% 1.0% 8.1% 7.9% 8.1% 9.0%

Liquidity ratios

Current Ratio 1.3 1.5 1.5 1.6 1.5 1.6

Quick Ratio 1.1 1.4 1.3 1.3 1.2 1.3

Leverage ratios

Net Gearing (%) 10% 17% 12% 8% 3% 4%

Debt/Equity (%) 32% 30% 23% 28% 23% 29%

Valuation ratios

P/E x 114.0 68.4 7.4 6.0 7.0 5.9

P/BV x 0.73 0.82 0.57 0.52 0.55 0.51

EV/EBITDA x 7.5 11.9 10.6 8.1 7.1 6.1

Du Pont Analysis

Net margin 1% 3% 20% 20% 20% 21%

Asset Turnover 0.2 0.1 0.2 0.2 0.2 0.2


RoE 0% 1% 8% 8% 8% 9%


96



11

29

49

72

97



DEYAAR: LACKING CLARITY ON STRATEGIC DIRECTION



Strategic plan lacks clarity

Deyaar Development

March 2011


98

Deyaar: Investment Summary (1/2)

Strategic plan lacks clarity


RATINGMarket perform


Upside 6.4%

Price (13 Mar 2011) 0.23



Shares Outstanding 5,778 Mn

Price 52wk H/L 0.52/0.21

Ticker (Bloomberg) DEYAAR UH

Ticker (Reuters) DEYR.DU

DEYAAR: Strategic plan lacks clarity Steady progress on current projects likely to boost profitability

Deyaar’s current projects are progressing well, which increases the possibility of the company

returning to profitability in 2011

We expect Deyaar to report net profit of AED118.5 Mn in 2011 after an expected loss of

AED423.3 Mn in 2010. This should translate into an EPS of AED0.021 per share. Net income is

expected to further register a growth of 15.7% YoY in 2012, translating into an EPS of AED0.024

Revenue from property sales is projected to increase from AED181.3Mn in 2010 to AED882.6Mn in 2011 and AED895.9Mn in 2012

Deyaar also plans to diversify its revenue source through rental and contract revenue. Deyaar’sService and Contract revenue is projected to increase at a CAGR of 15% over the period 2010-14.Share of Service and Contract revenue is expected to increase from 19.4% in 2009 to 29.1% in2011 and 31.7% in 2012

High concentration in Dubai and lack of strategic direction

Dubai accounts for 86% of Deyaar’s total revenue, highlighting its limited international exposure

Dubai-centric operations make the company more vulnerable to the current downturn in the

Emirate‘s property market

Deyaar ‘s strategic direction lacks clarity and a well defined long-term plan

Lack of direction and clarity on future projects make Deyaar less attractive than its peer group

0

50

100

150

200

250

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep

-09

Nov

-09

Jan-

10

Mar

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

AED

DEYAAR DFMGI


99

Deyaar: Investment Summary (2/2)

Lacking clarity on strategic direction


Reasonably strong balance sheet

Deyaar is reasonably leveraged with a net debt to equity ratio of 15.8%

Adequate capitalization, with net debt gearing at 9%

Deyaar’s debt maturity profile is also well balanced through to 2012

Valuation at deep discount

In terms of forward multiples, Deyaar trades on 0.20x 2011E P/B and 5.0x 2011 P/E, a discount of

69.0% and 37.8%, respectively, versus the peer group average of 0.65x 2011PB and 8.0x 2011PE

We believe the discount is justified and Deyaar should continue to trade below its peers, owing to

its lack of clarity on its long-term strategic direction, which limits earnings and EPS visibility

Our valuation based on the NAV, DCF and P/BV multiple methodologies returns a weighted

average target price of AED0.24, an upside of 6.4%

Estimates 2008A 2009A 2010E 2011F 2012F 2013F

Revenues (AED 000’) 1,382,617 1,835,082 483,300 1,244,967 1,312,570 1,084,210

EBITDA (AED 000’) 407,034 39,746 24,372 163,589 181,072 130,558

EBITDA margins 29.4% 2.2% 5.0% 13.1% 13.8% 12.0%

Net income (AED 000) 663,729 24,905 (423,350) 118,534 137,101 66,297

Debt/Equity 11.8% 16.7% 15.8% 16.9% 18.9% 25.3%

Valuation

multiples2009A 2010E 2011F

EPS (AED) 0.005 (0.073) 0.021

P/E 111.5 NM 5.0

P/B 0.50 0.21 0.20

BV/share 1.17 1.10 1.12






0.24


100

Deyaar Development Overview

Significant presence in Dubai

Source: Company filings, Zawya, Al Mal Capital analysis

KEY FACTS

Revenues (AED Mn)-FY 2010E 483.3

Net income (AED Mn)-FY 2010E (423.3)


Price to Earnings (TTM) NM

ROA-FY 2010E NM

ROE-FY 2010E NM

Debt/Equity 15.8%

• Deyaar was established in 2002 as the real estate arm of Dubai Islamic Bank

• Deyaar shares were listed on the Dubai Financial Market (DFM) in September 2007

• The company operates through three major segments:

• Real estate development and management

• Leasing and property management

• Electrical contracting and maintenance

• The majority of the company’s projects are located in Dubai’s Business Bay and other prime

locations such as Dubai Marina, The Waterfront, and Jumeirah Lake Towers

• The UAE is Deyaar’s key end market. It accounted for 86% of Deyaar’s total revenues in 2010

• Dubai Islamic Bank is the largest shareholder with a 43% stake as of October 2010

UAE (Dubai), Lebanon and Turkey

BUSINESS OVERVIEW >

SEGMENTS >

MARKETS SERVED >

DEYAAR’s SHAREHOLDING PATTERN

Dubai

Is lamic

Bank,

43.00%

Emirates

Investment

Authori ty,

2.75%

Publ ic,

54.25%


101

Investment ThesisProgress on delayed projects to boost revenue in 2011, 2012

During 2009, several of Deyaar’s key development projects were stalled

amid a liquidity squeeze in the market and slump in demand

The continued project delays, coupled with the fall in real estate prices in

Dubai, negatively impacted Deyaar’s top-line in 2010

The company’s 9M 2010 revenue declined 52.7% YoY

However, Deyaar is on track to deliver these projects in 2011 and 2012

Deyaar is expected to complete key projects such as Al Seef, Hamilton

Residency, Mayfair Residency, and Windsor Manor

Revenue from property sales is projected to rise from AED181.3 Mn in

2010 to AED882.6 Mn in 2011, and AED895.9 Mn in 2012

Deyaar also aims to double the size of its other revenue stream from the

property management portfolio over the next five years

Plans to further diversify revenue sources through recurring rental

income

Share of Service and Contract revenue is expected to increase from

19.4% in 2009 to 29.1% in 2011 and 31.7% in 2012. The share would

further rise to 54.1% by 2014

Deyaar’s Service and Contract revenue is projected to increase at a

CAGR of 15% over the period 2010-14


GROWTH IN PROPERTY SALE REVENUE IN 2011 & 2012

DEYAAR’S REVENUE MIX BY SEGMENT (%)

1,3831,835

483

1,245 1,313

1,025

1,480

181

883 896

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 2010E 2011F 2012F

AED

Mn

Total Revenue Property sales

80.6%

37.7%

71.0% 68.7%56.4%

46.5%

19.4%

62.3%

29.0% 31.3%43.6% 53.5%

0%

20%

40%

60%

80%

100%

2009 2010E 2011F 2012F 2013F 2014F

Property sales Services and Contract revenue


102

Investment Thesis

Healthy balance sheet to help survive in troubled times

Reasonably leveraged with a net debt to equity ratio of 15.8%, well below

the average of 104% for the peer group

Outstanding debt of AED985 Mn as of September 2010

Cash of AED291.2 Mn as of September 2010

Other GCC real estate players have higher debt

While Barwa has a debt to equity ratio of 431.6%, Aldar’s debt to

equity ratio stands at 219.3%

Deyaar’s debt maturity profile is also well balanced through to 2012

The company has adequate capitalization and we do not expect any

funding shortfall for Deyaar

Net debt gearing stands at 9%

Going forward, debt to equity ratio is expected to increase to 18.9% by

2012 from 15.8% in 2010 and 16.9% in 2011

Aggressive focus on development properties and the resultant capital

expenditure

We expect Deyaar to incur total capital expenditure of AED4.0 Bn over

2011-14


DEBT-TO-EQUITY OF GCC REAL ESTATE PLAYERS-2010

DEYAAR’S DEBT MATURITY PROFILE

1,130 1,000 1,087 1,2461,683

2,112

18.9%

25.3%

16.9%15.8%16.7%

31.6%

-

500

1,000

1,500

2,000

2,500

2009 2010E 2011F 2012F 2013F 2014F

AED

Mn

0%

5%

10%

15%

20%

25%

30%

35%

Total debt (LHS) Debt to equity ratio

218.6%

135.6%

55.5% 31.9% 27.1% 15.8% 8.7% 0.0%

431.6%

0%

100%

200%

300%

400%

500%

Bar

wa

Ald

ar

Uni

ted

Dev

p.

Dar

Al

Ark

an

Emaa

r

Prop

erti

es

Soro

uh

Dey

aar

Tala

at

Mou

staf

a

EEC


103

Investment Thesis Concentration in Dubai makes Deyaar more vulnerable to current downturn

Deyaar has significant exposure to Dubai compared to its peers

In 2010, 94% of its project portfolio was focused on Dubai

Dubai accounted for 90% of Deyaar’s total revenue compared to 45%for Emaar in 2010

Despite Deyaar’s plans to expand into international markets, such asLebanon and Turkey, a significant proportion of revenue is likely tocontinue to come from Dubai

UAE should account for 77.7% (AED434.8 Mn) and 67.3%(AED967.5 Mn) of Deyaar’s total revenue in 2011 and 2012,respectively

On the International front, the company has existing developments inTurkey, Lebanon and Kazakhstan

There is a lack of visibility on these projects in terms of theirconstruction progress and completion times

Projects are yet to be reflected in the company’s books

Concentration in Dubai makes the company more vulnerable to the currentdownturn in the regional property market

Dubai’s real estate sector continues to be a risky proposition, given theoversupply situation across majority of the sub-segments, lack ofavailability of cheap mortgage and the Emirate’s high debt burden

Prices are expected to decline by average 5% in 2011, compared to themore than 40% fall during 3Q08-3Q10


Dubai , 94%

International ,

6%

SHARE OF REVENUE BY GEOGRAPHIC SEGMENT

DEYAAR’S PROJECT PIPELINE BY SEGMENT 2010-2014

27.0%14.0%

73.0%86.0%

10.0%22.3%

32.7% 25.7% 24.7%

90.0%77.7%

67.3% 74.3% 75.3%

0%

20%

40%

60%

80%

100%

2008 2009 2010E 2011F 2012F 2013F 2014F

International UAE


104

Investment Thesis Lack of clarity on strategy and visibility on future projects could hurt top-line growth, post 2012

Source: Company filings, Company Website, Al Mal Capital analysis, *International projects excludes revenue from Turkey

Deyaar appears to be suffering from lack of clarity and strategic direction

Deyaar replaced its CEO in April 2010, as part of a major management

reshuffle

Lack of strategic clarity and long-term vision on projects

DPO (distressed asset fund) was not closed, with strategic investors

withdrawing commitments

The company lacks a clearly defined strategy for its future projects, and

hence, could struggle to sustain its growth in revenues

We expect the company’s revenue from property sales to decline by

32.5% and 26.0% in 2013 and 2014, respectively

Highly vulnerable to non-completion of future projects on time

Lack of clarity on international projects makes Deyaar more vulnerable to

non-completion of projects on time

A mixed-used project in Lebanon has been delayed by over two years

REVENUE FROM PROPERTY SALES 2010-2014

DEYAAR’S REVENUE BREAKDOWN 2011-2014

181.3

882.6 895.9

605.0

447.6

0.0

200.0

400.0

600.0

800.0

1000.0

2010E 2011F 2012F 2013F 2014F

AED

Mn

-100%

0%

100%

200%

300%

400%

500%

Property sales revenue (LHS) % Growth (RHS)

277.5428.8

279.1434.8

967.5883.8

805.1733.6

48.5241.1

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

2010E 2011F 2012F 2013F 2014F

Rev

enue

(A

ED M

n)

International UAE


105

Valuation

Valuation looks attractive, but stock to trade at a discount


Company Country

Market

Cap.

(USD Mn)

PB

CurrentFwd

FY10

Fwd

FY11



Dar Al Arkan KSA 2,419 0.65 0.56 0.51






Deyaar premium/

(discount)%(67.7%) (69.2%) (69.0%)

Share price has declined 49.3% in 2010, compared to DFM’s 12.6% decline

Deyaar is currently trading at a P/B multiple of 0.21x (peer group average of 0.65x), a discount of 67.7% on TTM basis

Forward P/B multiple is at a discount to peer group average on the basis of FY11 BPS

Though at the current level valuation looks attractive, we believe the discount is justified and expect Deyaar to continue trading at a discount to itspeers

Our rationale is driven by

– Lack of strategic clarity limits earnings and EPS visibility

– Comparatively higher exposure to Dubai and lack of visibility on future projects


0.1

0.7

1.3

1.9

2.5

Pric

e in

AED

0.20x 0.23

Fair va lue: 0.24


106

Valuation

NAV Method

Property sales AED ‘000 AED/share

Al Seef l 9,668 0.002

Clayton Residency 1,867 0.0003

Coral Residence 2,422 0.0004

Hamilton Residency 658 0.0001

Jade Residence 790 0.000 1

Madison Residency (Tecom) 1,456 0.0003

Mayfair Residency 2,450 0.0004

Oakwood Residency (IMPZ) 20,468 0.004

Ruby Residence (Dubai Silicon Oasis) 7,766 0.001

Sapphire Residence (Dubai Silicon Oasis) 2,405 0.0004

Al Seef II 39,876 0.007

Windsor Manor 9,234 0.002

Fairview Residency 8,262 0.001

Mirar Residences 11,512 0.002

Bristol Residency 10,151 0.002

Deyaar Park - Homes 28,685 0.005

51@BusinessBay 27,314 0.005

The Burlington 6,915 0.001

Oxford Tower 2,087 0.0004

The Metropolis 2,206 0.0004

Bristol Executive 5,797 0.001

Deyaar Park - Offices 34,972 0.006

Project- Solidere waterfront-Residential 69,399 0.012

Project- Solidere waterfront-Commercial 17,770 0.003

Project-Block 18-Resdiential 74,638 0.013

Project-Block 18-Commercial 4,656 0.001

Total 403,423 0.07

Rental and service income AED ‘000 AED/share

Rental and Service income 165,021 0.029

Book NAV AED ‘000 AED/share

Bank balances and cash 690,966 0.1

Accounts and notes receivable 467,436 0.1

Properties held for sale 422,736 0.1

Properties under construction 2,702,104 0.5

Land held for future developments 1,608,189 0.3

Investments in associates 587,968 0.1

Property, plant and equipment 32,177 0.01

Investment properties 1,945,040 0.3

Goodwill 968,964 0.2

Total Assets 9,425,580 1.6

Total Liabilities (4,524,075) (0.8)

NAV ESTIMATE AED ‘000 AED/share

Total NAV:

Property sales 403,423 0.07

Rental and Service income 167,021 0.029

Book NAV 4,901,505 0.85

Total NAV 5,469,949 0.95

Premium / (discount) to NAV (%) (70%)

Estimated NAV 1,640,985 0.28


107

Valuation


VALUATION METRICS



Deyaar Historical P/BV average 0.38x


Fwd (FY 11E) BVPS (AED) 1.14



108

Valuation

DCF

VALUATION INPUTS

Risk Free Rate 2.9%

Beta 1.25



WACC 10.9%


DCF Valuation (in AED ‘000) 2010E 2011F 2012F 2013F 2014F

NOPLAT 17,549 153,958 168,099 116,784 98,388

Add: Depreciation & Amortization 14,804 18,043 19,709 19,677 16,640

Less: Change in working capital (750,628) 708,267 40,410 (289,958) (133,812)

Less: Capex (445,545) (1,067,219) (1,124,630) (954,919) (874,099)

Free Cash Flow to Firm (FCFF) (1,163,820) (186,950) (896,412) (1,108,416) (892,883)

Discount factor 0.92 0.83 0.75 0.67 0.61

Present Value of FCFF (868,257) (155,108) (670,871) (748,271) (543,720)

Sum of Present Value (2,986,227)

Present value of Rental Terminal Value 3,683,555


Add: Cash Available 690,966


Less: Total Debt 984,639

Equity Value 990,947

No. of Shares Outstanding (‘000) 5,778,000



109

Valuation

Assumptions

Revenue from property sales is projected to rise to AED882.6 Mn in 2011

from AED181.3 Mn in 2010. It is further expected to rise 1.5% YoY in 2012 to

AED895.9 Mn

The company is likely to deliver its delayed projects during this period

Prices are expected to fall by average 5% in 2011, compared to the more

than 40% decline in 3Q08-3Q10

Revenue from property sales are expected to start declining, post 2012,

given the lack of visibility on new projects

Revenues from income producing assets are projected to drive revenue

growth from 2012 onwards

Contract and Service revenues are projected to increase at a CAGR of 15%

from AED302.0 Mn in 2010 to AED527.1 Mn in 2014

Contract and Service revenues could account for almost half of the

company's revenue by 2014

DEYAAR’S PROPERTY SALES REVENUE 2010-2014

DEYAAR’S RECURRING INCOME 2010-2014

181.3

882.6 895.9

605.0

447.6

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1000.0

2010E 2011F 2012F 2013F 2014F

AED

Mn

302.0362.4 416.7

479.2 527.1

0.0

100.0

200.0

300.0

400.0

500.0

600.0

2010E 2011F 2012F 2013F 2014F

-20.0%-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%25.0%

Recurring revenue (LHS) % growth


110

Valuation

Assumptions

EBITDA is expected to decline by 38.7% YoY to AED24.4 Mn in 2010, led by a

fall in the revenue

We expect Deyaar’s EBITDA to increase to AED163.6 Mn in 2011 led by

recovery in top-line

EBITDA is further projected to rise by 10.7% YoY in 2012 to AED181.1 Mn,

translating into an EBITDA margin of 13.8% compared to 13.1% in 2011

We expect Deyaar to incur total capital expenditure of AED4.0 Bn over 2011-

2014

We believe the company will incur capital expenditure to fund large

international projects in Lebanon and Turkey

Majority of the capital expenditure will be incurred on expanding the

portfolio of international projects

Company plans to fund the capital expenditure by raising additional debt

during 2011-2014

DEYAAR’S EBITDA AND MARGINS 2010-2014

DEYAAR’S CAPEX 2010-2014

445.5

1,067.2 1,124.6954.9 874.1

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

2010E 2011F 2012F 2013F 2014F

AED

Mn

181.1163.6

24.4

130.6 110.6

0.0

50.0

100.0

150.0

200.0

2010E 2011F 2012F 2013F 2014F

AED

Mn

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

EBITDA (LHS) Margins % (RHS)


111

Deyaar — Financial Statement

Income Statement


Income statement (AED ’000) 2008A 2009A 2010E 2011F 2012F 2013F

Total Revenue 1,382,617 1,835,082 483,300 1,244,967 1,312,570 1,084,210

Growth % 30.8% 32.7% -73.7% 157.6% 5.4% -17.4%

Cost of revenue (873,027) (1,637,493) (441,900) (1,050,273) (1,108,260) (927,808)

Gross Profit 509,590 197,589 41,400 194,694 204,310 156,401

Gross Profit Margin (%) 36.9% 10.8% 8.6% 15.6% 15.6% 14.4%

EBITDA 407,034 39,746 24,372 163,589 181,072 130,558

EBITDA Margin (%) 29.4% 2.2% 5.0% 13.1% 13.8% 12.0%

Other operating income 156,565 122,913 106,326 124,497 131,257 108,421

Selling, general and administrative expenses (268,026) (287,106) (130,177) (165,232) (167,467) (148,039)

Other Income/ Expenses 252,241 23,254 (412,182) 0 0 0

Finance costs (15,409) (33,683) (42,394) (44,071) (50,971) (62,990)

Income from deposits 28,768 17,559 13,677 8,646 19,973 12,503

Profit before tax 663,729 40,526 (423,350) 118,534 137,101 66,297

Income tax 0 (15,621) 0 0 0 0

Net profit 663,729 24,905 (423,350) 118,534 137,101 66,297

Net Margin (%) 48.0% 1.4% NM NM 10.4% 6.1%

Dividend yield % 0% 0% 0% 0% 0% 0%

EPS 0.11 0.005 (0.073) 0.021 0.024 0.011


112


Balance Sheet


Balance sheet (AED ’000) 2008A 2009A 2010E 2011F 2012F 2013F

Assets

Bank balances and cash 641,194 683,867 432,282 998,632 625,133 390,963

Accounts and notes receivable 1,062,520 577,081 117,756 425,573 432,915 330,861

Prepayments and other assets 727,557 556,392 144,990 373,490 393,771 325,263

Properties held for sale - 542,017 542,017 542,017 542,017 542,017

Properties under construction 3,775,254 2,673,692 1,483,893 1,457,679 1,746,852 1,713,398

Land held for future developments 1,587,493 1,611,334 1,450,201 1,450,201 1,450,201 1,450,201

Advances for purchase of land 1,126,094 1,222,299 289,980 746,980 787,542 650,526

Investments in associates 656,018 586,870 586,870 586,870 586,870 586,870


Investment properties 1,729,030 1,899,943 2,205,341 2,571,818 2,993,267 3,477,934

Goodwill 968,964 968,964 968,964 968,964 968,964 968,964

Total assets 12,309,422 11,357,182 8,253,861 10,165,254 10,574,754 10,484,394

Liabilities and Equity

Accounts payable and accruals 1,923,969 1,362,797 670,813 1,594,333 1,682,359 1,408,430

Advances from customers 2,712,519 1,944,854 181,330 882,603 895,851 604,983

Islamic finance obligations 574,921 955,242 867,399 984,610 1,167,969 1,622,822

Other borrowings 216,504 174,924 132,280 102,011 78,477 60,484

Other liabilities 147,666 167,686 73,709 154,834 166,133 137,413

Total liabilities 5,575,579 4,605,503 1,925,531 3,718,392 3,990,790 3,834,133

Equity

Share capital 5,778,000 5,778,000 5,778,000 5,778,000 5,778,000 5,778,000

Statutory reserve 152,263 155,278 112,943 124,796 138,507 145,136

Exchange translation reserve (874) (7,943) (7,943) (7,943) (7,943) (7,943)

Retained earnings 785,482 812,620 431,605 538,286 661,677 721,344

Non-controlling interests 18,972 13,724 13,724 13,724 13,724 13,724

Total Equity 6,733,843 6,751,679 6,328,329 6,446,863 6,583,964 6,650,261

Total Liability and Equity 12,309,422 11,357,182 8,253,861 10,165,254 10,574,754 10,484,394


113


Cash Flow Statement


Cash Flow (AED ’000) 2008A 2009A 2010E 2011F 2012F 2013F

Cash flow from operating activities

Profit before tax 844,862 40,526 (423,350) 118,534 137,101 66,297Depreciation 14,019 11,793 14,804 18,043 19,709 19,677

Provision for employees’ end-of-service benefits 7,329 5,765 5,765 5,910 4,974 5,024Income from deposits (63,764) (17,559) (13,677) (8,646) (19,973) (12,503)Finance costs 18,297 33,683 42,394 44,071 50,971 62,990

Working capital changes:Accounts and notes receivable (732,093) 485,439 459,325 (307,817) (7,342) 102,054Prepayments and other assets (307,742) 171,165 411,402 (228,500) (20,281) 68,508

Properties held for sale 0 (542,017) 0 0 0 0Properties under construction, net (3,654,106) 1,101,562 1,189,799 26,214 (289,173) 33,454

Land held for future developments 367,888 (23,841) 161,133 0 0 0Advances for purchase of land (1,033,553) (96,205) 932,319 (457,000) (40,562) 137,016Retentions payable 98,069 15,626 (98,166) 76,791 7,319 (32,739)Accounts payable and accruals 427,179 (576,793) (691,984) 923,521 88,026 (273,929)

Advances from customers 2,539,871 (767,665) (1,763,524) 701,272 13,249 (290,868)Net cash used in operating activities (1,781,433) (193,621) 59,997 910,816 (56,975) (116,024)

Cash flow from investing activities

Purchase of property, plant and equipment (33,368) (11,977) (11,648) (29,506) (23,902) (19,852)Investment properties, net (658,019) (143,711) (305,398) (366,477) (421,449) (484,666)Net cash used in investing activities (852,928) (146,592) (138,701) (387,337) (425,378) (492,016)

Cash flow from financing activities

Islamic finance obligations received 664,179 496,249 266,457 638,090 673,203 571,650Islamic finance obligations paid (1,347,594) (115,928) (354,300) (440,942) (160,000) 0Net movement in other borrowing 214,427 (41,580) (42,644) (110,206) (353,378) (134,790)Finance costs paid (18,297) (33,683) (42,394) (44,071) (50,971) (62,990)Net cash from financing activities 2,798,110 305,058 (172,881) 42,872 108,854 373,871

Increase / (Decrease)in cash and cash equivalents 163,749 (35,155) (251,585) 566,350 (373,500) (234,169)

Net foreign exchange difference (874) (7,069) 0 0 0 0

Cash and cash equivalents at the beginning 457,384 620,259 578,035 326,450 892,800 519,301

Cash and cash equivalents at the end 620,259 578,035 326,450 892,800 519,301 285,131


114


Deyaar Ratio Analysis


Key ratios 2008A 2009A 2010E 2011F 2012F 2013F



EBITDA Margin 29.4% 2.2% 5.0% 13.1% 13.8% 12.0%

Net Profit Margin 47.4% 1.6% NM 9.5% 10.4% 6.1%

Return on Average Assets 0.3% NM 1.3% 1.3% 0.6%

Return on Average Equity 0.4% NM 1.9% 2.1% 1.0%

Liquidity ratios

Current Ratio 0.9 1.1 1.0 0.8 0.8 0.7

Quick Ratio 0.5 0.8 0.7 0.5 0.5 0.4

Leverage ratios

Debt/Equity (%) 11.8% 16.7% 15.8% 16.9% 18.9% 25.3%

Valuation ratios

P/E x 2.7 111.5 NM 5.0 12.1 25.0

P/BV x 0.0 0.50 0.21 0.20 0.25 0.25

EV/EBITDA x 0.4 53.0 91.3 10.7 12.6 22.6

Du Pont Analysis

Net margin 48.0% 1.4% NM 9.5% 10.4% 6.1%

Asset Turnover 11% 16% 6% 12% 12% 10%


RoE 9.7% 0.4% NM 1.8% 2.1% 1.0%


115

Institutional Sales

Jalal Faruki +971 4 360 1103

Akram Annous +971 4 360 1113

Research

Irfan Ellam +971 4 360 1153

Disclaimer:

This report is not an offer to buy or sell nor a solicitation to buy or sell any of the securities mentioned within. The information and recommendations contained in

this report were prepared using information available to the public and sources Al Mal Capital believes to be reliable. Al Mal Capital PSC does not guarantee the

accuracy of the information contained within this report and accepts no responsibility or liability for losses or damages incurred as a result of investment decisions

taken based on information provided or referred to in this report. Any analysis of historical facts and data is for information purposes only and past performance

of any company or security is no guarantee or indication of future results. Al Mal Capital PSC, or its “related group companies” (which may include any of its

branches, affiliates and subsidiaries) or any director(s) or employee(s) of the said companies, individually or collectively, may from time to time take positions or

effect transactions related to companies mentioned in this report. Al Mal Capital PSC and its related group companies may have performed or seek to perform

investment banking or any other financial or advisory services for the companies mentioned in this report.


Office 302, Downtown Dubai

Emaar Square 4, Sheikh Zayed Road

P.O. Box 119930

Dubai

UAE

Tel: +971 4 360 1111

Fax: +971 4 360 1122

www.almalcapital.com


uae real estatecontent.argaam.com.s3-external-3.amazonaws.com/ceb...uae real estate sector emaar is...

Documents