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Let the falcon guide you
UAE Real EstateRecovery slow, yet deep value at current levels
MARCH 2011
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
• Property development and sales
• Investment properties
• Construction/contracting segment
• 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
Let the falcon guide you
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
Target Price AED2.14
Upside 57.3%
Let the falcon guide you
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
Target Price AED0.24
Upside 6.4%
Source: Al Mal Capital analysis
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
Target Price AED4.01
Upside 35.8%
Let the falcon guide you
9
Coverage Universe: Trading Multiples
Source: Bloomberg, Al Mal Capital analysis
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
Premium (Discount) %
(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
Premium (Discount) %
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
Premium (Discount) %
(67.7%) (69.2%) (69.0%) NM NM (37.8%) (67.7%)
Let the falcon guide you
10
SOROUH: STANDING TALL ON SOUND LIQUIDITY
ALDAR: RESTRUCTURING EASES FUNDING CONCERNS
UAE REAL ESTATE SECTOR: TRENDS & OUTLOOK
UAE REAL ESTATE SECTOR: OVERVIEW & SUMMARY
DEYAAR: LACKING STRATEGIC DIRECTION
EMAAR: A DIVERSIFIED PROPERTY PLAY
3
11
29
49
72
97
11
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
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
Let the falcon guide you
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)
Let the falcon guide you
17
Sector to benefit from counter-cyclical measures and
Government support (2/2)
Source: UAE Central bank, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: UAE Central bank, Al Mal Capital analysis
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)
Let the falcon guide you
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
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
21
However, prices to continue downtrend until 2014
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
24
Rental yields— rentals in Dubai to bottom out by 2012;
yields to peak up from 2013
Source: Colliers International, Al Mal Capital analysis
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
Let the falcon guide you
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)
Let the falcon guide you
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
Source: Colliers International, Dubai Department of Tourism and Commerce Marketing
Dubai could witness oversupply situation in 4- and 5- star hotel category
Let the falcon guide you
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
Source: Colliers International, Dubai Department of Tourism and Commerce Marketing
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
Let the falcon guide you
28
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: LACKING STRATEGIC DIRECTION
EMAAR: A DIVERSIFIED PROPERTY PLAY
Let the falcon guide you
Standing tall on sound liquidity
Sorouh Real Estate
March 2011
Let the falcon guide you
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
Target Price AED1.78
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
Let the falcon guide you
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
Let the falcon guide you
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
• Property development and sales
• Investment properties
• Construction/contracting segment
• 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%
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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)
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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%
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
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%
Let the falcon guide you
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
Source: Company filings, Company Website, Al Mal Capital analysis
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
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
New supplies narrowing the demand-supply gap
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)
Let the falcon guide you
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
Let the falcon guide you
44
Sorouh — Financial Statement
Sorouh Income Statement
Source: Company filings, Al Mal Capital analysis
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%
Let the falcon guide you
45
Sorouh — Financial Statement
Sorouh Balance Sheet
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
46
Sorouh — Financial Statement
Sorouh Cash Flow Statement
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
47
Sorouh — Financial Statement
Sorouh Ratio Analysis
Source: Company filings, Al Mal Capital 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%
Let the falcon guide you
48
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: LACKING STRATEGIC DIRECTION
EMAAR: A DIVERSIFIED PROPERTY PLAY
Let the falcon guide you
Restructuring eases funding concerns
Aldar Properties
March 2011
50
Let the falcon guide you
Source: Bloomberg, Al Mal Capital analysis
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
Target Price AED2.14
Upside 57.3%
Price (13 Mar 2011) AED1.36
Market Cap. (AED Mn) 3,377
Market Cap. (USD Mn) 919
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
Let the falcon guide you
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%
Estimates 2008A 2009A 2010A 2011F 2012F 2013F
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)
NAV approach 50% 2.62
DCF approach 25% 1.39
P/BV approach 25% 1.92
Weighted average fair price
2.14
Let the falcon guide you
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 Book (TTM) 0.23x
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
• Property development and sales
• Investment properties
• 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%
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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)
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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%
Let the falcon guide you
57
Investment Thesis New restructuring plan eases funding concerns (1/2)
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
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
Let the falcon guide you
60
ValuationValuation looks compelling; restructuring to provide long-term stability
Source: Bloomberg , Al Mal Capital analysis
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
Aldar Properties UAE 919 0.23 0.40 0.39
Dar Al Arkan KSA 2,419 0.65 0.56 0.51
Emaar Properties PJSC UAE 4,444 0.62 0.57 0.52
Sorouh Real Estate UAE 765 0.47 0.44 0.37
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
Emaar Economic City KSA 1,417 0.76 0.77 0.81
SODIC Egypt 389 1.28 1.60 1.30
Peer group average 0.63 0.62 0.60
Aldar premium/
(discount)%(63.6%) (35.7)% (34.0%)
STOCK PRICE (AED) AND P/BV BAND
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
Let the falcon guide you
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
Let the falcon guide you
62
Valuation
Comparative Valuation (P/BV)
VALUATION METRICS
Current peer group average 0.63x
Fwd (FY11E ) peer group average 0.60x
Aldar Historical P/BV average 0.75x
Target P/BV Multiple 0.56x
FY 11 BVPS (AED) 3.46
Fair price (AED) 1.92
Let the falcon guide you
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)
Discount factor 0.95 0.89 0.83 0.78
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
Add: Value of investments 4,235
Less: Total Debt (AED Mn) 28,234
Equity Value 3,591
No. of Shares Outstanding (Mn) 2,578
Fair value per share 1.39
VALUATION INPUTS
Risk Free Rate 2.6%
Beta 1.7
Expected market return 11.0% Post tax cost of debt 5.5%
Cost of Equity 17.0%
WACC 9%
Terminal Growth Rate of rental income 3%
Let the falcon guide you
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
New supplies narrowing the demand-supply gap
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)
Let the falcon guide you
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
Let the falcon guide you
66
Sensitivity Analysis
Source: Al Mal Capital 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
Let the falcon guide you
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%
Let the falcon guide you
68
Aldar — Financial Statement
Aldar Balance Sheet
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
69
Aldar — Financial Statement
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)
Let the falcon guide you
70
Aldar — Financial Statement
Aldar Ratio Analysis
Source: Company filings, Al Mal Capital analysis
Key ratios 2008A 2009A 2010A 2011F 2012F 2013F
Profitability ratios
Gross Profit Margin 53.9% 22.4% 16.1% 23.3% 24.1% 25.1%
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%
Financial leverage 3.10 3.98 3.65 6.12 6.68 6.67
RoE 21.5% 6.0% NM NM 2.7% 4.9%
Let the falcon guide you
71
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: LACKING STRATEGIC DIRECTION
EMAAR: A DIVERSIFIED PROPERTY PLAY
Let the falcon guide you
A diversified property play
March 2011
Emaar Properties
Let the falcon guide you
73
Emaar: Investment Summary (1/2)
Diversified revenue stream, limited funding risk
Source: Bloomberg, Al Mal Capital analysis
RATING Outperform
Target Price AED4.01
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
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09
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AED
EMAAR DFMGI
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74
Emaar: Investment Summary (2/2)
Diversified revenue stream, limited funding risk
Source: Bloomberg, Al Mal Capital analysis
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
Estimates 2008A 2009A 2010A 2011F 2012F 2013F
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%
Valuation approach Weight Price (AED)
NAV approach 50% 4.49
DCF approach 25% 3.48
P/BV approach 25% 3.55
Weighted average fair price
4.01
Let the falcon guide you
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 Book (TTM) 0.62x
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%
Let the falcon guide you
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)
Let the falcon guide you
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%
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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
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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
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
80
Investment Thesis
Funding risk limited — refinancing of debt not a concern
Source: Company filings, Company Website, Al Mal Capital analysis
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
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81
ValuationValuation looks attractive — stock to trade at premium (1/2)
Source: Bloomberg , Al Mal Capital analysis
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
Let the falcon guide you
82
ValuationValuation looks attractive — stock to trade at premium (2/2)
Source: Bloomberg , Al Mal Capital analysis
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
Barwa Real Estate Qatar 3,417 1.17 1.27 1.27
Talaat Moustafa Egypt 2,245 0.54 0.54 0.49
Dar Al Arkan KSA 2,419 0.65 0.56 0.51
Emaar Economic City KSA 1,417 0.76 0.77 0.81
Aldar Properties UAE 919 0.23 0.40 0.39
Sorouh Real Estate UAE 765 0.47 0.44 0.37
Deyaar Development UAE 357 0.21 0.21 0.20
SODIC Egypt 389 1.28 1.60 1.30
Peer group average 0.58 0.60 0.58
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
Let the falcon guide you
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
Let the falcon guide you
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
Let the falcon guide you
85
Valuation
Comparative Valuation (P/BV)
VALUATION METRICS
Current P/B peer group average 0.58x
Fwd (FY11E ) peer group average 0.58x
Emaar historical P/BV average 0.74x
Target P/BV Multiple 0.63x
FY 11 BVPS (AED) 5.66
Fair price (AED) 3.55
Let the falcon guide you
86
Valuation
DCF
VALUATION INPUTS
Risk Free Rate 3.2%
Beta 1.77
Expected market return 14.0% Post tax cost of debt 5.0%
Cost of Equity 22.3%
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
Discount factor 0.87 0.74 0.62 0.53
Present Value of FCFF 2,640 1,695 (205) 167
Sum of Present Value 4,296
Present value of Rental Terminal Value 21,276
Enterprise Value (Total Present Value) 25,572
Add: Cash Available 5,042
Less: Total Debt 9,410
Equity Value 21,204
No. of Shares Outstanding (Mn) 6,091
Fair value per share 3.48
Let the falcon guide you
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%
Let the falcon guide you
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
Let the falcon guide you
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)
Let the falcon guide you
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
Let the falcon guide you
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
Source: Al Mal Capital analysis
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
Let the falcon guide you
92
Emaar — Financial Statement
Income Statement
Source: Company filings, Al Mal Capital analysis
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%
Let the falcon guide you
93
Emaar — Financial Statement
Balance Sheet
Source: Company filings, Al Mal Capital analysis
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
Property, plant and equipment 5,414 6,822 8,539 10,606 12,423 15,406
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
Let the falcon guide you
94
Emaar — Financial Statement
Cash Flow Statement
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
95
Emaar — Financial Statement
Ratio Analysis
Source: Company filings, Al Mal Capital analysis
Key ratios 2008A 2009A 2010A 2011F 2012F 2013F
Profitability ratios
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
Financial leverage 2.3 2.2 2.1 2.1 2.0 2.0
RoE 0% 1% 8% 8% 8% 9%
Let the falcon guide you
96
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: LACKING CLARITY ON STRATEGIC DIRECTION
EMAAR: A DIVERSIFIED PROPERTY PLAY
Let the falcon guide you
Strategic plan lacks clarity
Deyaar Development
March 2011
Let the falcon guide you
98
Deyaar: Investment Summary (1/2)
Strategic plan lacks clarity
Source: Bloomberg, Al Mal Capital analysis
RATINGMarket perform
Target Price AED0.24
Upside 6.4%
Price (13 Mar 2011) 0.23
Market Cap. (AED Mn) 1,312
Market Cap. (USD Mn) 357
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
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100
150
200
250
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Nov
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Jan-
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AED
DEYAAR DFMGI
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99
Deyaar: Investment Summary (2/2)
Lacking clarity on strategic direction
Source: Bloomberg, Al Mal Capital analysis
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
Valuation approach Weight Price (AED)
NAV approach 50% 0.28
DCF approach 25% 0.17
P/BV approach 25% 0.23
Weighted average fair price
0.24
Let the falcon guide you
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 Book (TTM) 0.21x
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%
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
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
Source: Company filings, Al Mal Capital analysis
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
Let the falcon guide you
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
Let the falcon guide you
105
Valuation
Valuation looks attractive, but stock to trade at a discount
Source: Bloomberg , Al Mal Capital analysis
Company Country
Market
Cap.
(USD Mn)
PB
CurrentFwd
FY10
Fwd
FY11
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
Sorouh Real Estate UAE 765 0.47 0.44 0.37
Barwa Real Estate Qatar 3,417 1.17 1.27 1.27
Deyaar Development UAE 357 0.21 0.21 0.20
Peer group average 0.65 0.67 0.65
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
STOCK PRICE (AED) AND P/BV BAND
0.1
0.7
1.3
1.9
2.5
Pric
e in
AED
0.20x 0.23
Fair va lue: 0.24
Let the falcon guide you
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
Let the falcon guide you
107
Valuation
Comparative Valuation (P/BV)
VALUATION METRICS
Current peer group average 0.65x
Fwd (FY11E ) peer group average 0.65x
Deyaar Historical P/BV average 0.38x
Target P/BV Multiple 0.20x
Fwd (FY 11E) BVPS (AED) 1.14
Fair price (AED) 0.23
Let the falcon guide you
108
Valuation
DCF
VALUATION INPUTS
Risk Free Rate 2.9%
Beta 1.25
Expected market return 10.3% Post tax cost of debt 3.0%
Cost of Equity 12.1%
WACC 10.9%
Terminal Growth Rate of rental income 2%
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
Enterprise Value (Total Present Value) 697,328
Add: Cash Available 690,966
Add: Value of investments 587,292
Less: Total Debt 984,639
Equity Value 990,947
No. of Shares Outstanding (‘000) 5,778,000
Fair value per share 0.17
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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
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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)
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111
Deyaar — Financial Statement
Income Statement
Source: Company filings, Al Mal Capital analysis
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
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112
Deyaar — Financial Statement
Balance Sheet
Source: Company filings, Al Mal Capital analysis
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
Property, plant and equipment 35,298 34,723 31,567 43,030 47,223 47,398
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
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113
Deyaar — Financial Statement
Cash Flow Statement
Source: Company filings, Al Mal Capital analysis
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
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114
Deyaar — Financial Statement
Deyaar Ratio Analysis
Source: Company filings, Al Mal Capital analysis
Key ratios 2008A 2009A 2010E 2011F 2012F 2013F
Profitability ratios
Gross Profit Margin 36.9% 10.8% 8.6% 15.6% 15.6% 14.4%
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%
Financial leverage 1.83 1.68 1.30 1.58 1.61 1.58
RoE 9.7% 0.4% NM 1.8% 2.1% 1.0%
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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.
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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
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