MENA property. A deep dive into MENA retail. Summary of recommendations

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1 I n d u s t r y I n d i c a t o r s M a r c h Mohammad Kamal mohammad.kamal@arqaamcapital.com Mohamad Haidar, CFA Arqaam Capital Research Offshore s.a.l MENA property A deep dive into MENA retail Larger mall formats in MENA capture the bulk of retail footfall, but only in grade A assets. is 2% of regional GLA, 6% of FF Footfall growth appears resilient, but average spend/visit should weaken in 216. Footfall looks solid in Kuwait, where we continue to see value in Mabanee What the market thinks of Emaar Malls: The market currently implies a sustainable 15-2% weakening in tenant sales in (a product of both footfall and visitor spend)- we think this is unfair given rigid escalation clauses and tenant turnover schedules Retail rentals in hold massive upside: +2x to align with Avenues Mall (Kuwait), +5x to. We continue to play Aldar We review data on 3+ retail and shopping across 22 countries in MENA, and investigate malls densities, footfall and asset types/formats. We include most of the registered formalized retail in MENA, with assets sizes ranging from at least 1k sqm, and up to 7k sqm in GLA. The exercise aims to link observed footfall figures and mall GLA sizes with rental rates, and to identify outliers. The data suggests that footfall is strongly correlated with rental rates, as expected, and that (i) rental rates appear warranted, for the volume of visitors it receives/annum, while (ii) (Aldar Properties) aligns closer with it in term of footfall than it does by rental rates, suggesting strong upside risk to Aldar s recurring income portfolio. The Avenues Mall in Kuwait continues to produce exceptionally strong visitor numbers. What the market is pricing in: We work backwards from Emaar Malls market cap, and infer the rental revenues implied in current market price (c.aed 2bn in rentals from in FY 16e, using a cap rate of 6.3%). We then calculate the market-implied tenant sales priced in at an occupancy cost ratio of 14.6% FY 16e. We conclude that the market is pricing in expectations that tenant sales in should structurally drop by 15-2% in FY 16e+ to AED 13.9bn (vs. c.aed 16.7bn in FY 15A), which places in-line with Deira on implied rents/sqft, and similar to on retail spend rates. This in our view unfair, as produced +9% growth in footfall and no material weakening in tenant sales in FY 15A. Though a weakening in sales/visitor is very likely in 216, a commensurate and immediate drop in overall rentals is unlikely. c.2% of tenancies expire in 216, the majority of which are based on outdated rental rates set in FY 11-13A. Even though tenants may wield added bargaining power in the current macro climate, the majority of tenancy agreements are likely to be renewed/replaced at substantially higher base rents (e.g. FY 15A +25%). We remain buyers of Emaar Malls. rental growth potential is huge: We expect footfall at to reach 2m visitors in its first full year of operations. In the context of the 225k sqm of GLA, of which 9%+ is currently occupied, this implies footfall of 9 visitors/sqm/annum, which we believe has massive growth potential ( 228 visitors/sqm/annum, Avenues Mall 178 visitors/sqm/annum). Summary of recommendations ALDAR UH Aldar Properties Price target AED 3.6 EMAAR UH Emaar Properties Price target AED 9.6 EMAARMLS UH Emaar Malls Price target AED 3.6 MABANEE KK Mabanee Co. Price target KWD 1.1 REIT DU Emirates REIT Price target USD 1.51 Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice.

2 March MENA retail market overview: Correlating mall densities with GLA and store sizes across MENA, and against global benchmarks We gather information on 3+ fully operational retail and shopping across 22 countries in MENA, highlighting data on malls densities, sizes and asset types/formats. MECSC data extends to over 12 retail in, 5+ in KSA, 3+ in Egypt and 13+ malls in 19 other countries. We include most of the registered formalized retail in MENA, with assets sizes ranging from at least 1k sqm, and up to 7k sqm in GLA. This exercise aims at establishing a link between observed footfall figures, malls GLA sizes, and rental rates. We seek to identify upside risks to rentals for select malls in the region, based on tenant sales volumes and trends. P.S.: We note that outcomes from our survey exclude data on 125 retail facilities (in 17 countries in MENA) currently being developed and not yet operational. Larger mall formats attract the bulk of footfall, but only in quality grade A assets Exhibit 1: Large, tier 1 malls enjoy the highest densities: The is well ahead of malls in MENA, at 8m annual footfall (229 visits/sqm/annum), followed by The Avenues in Kuwait (178 visits/sqm/annum) and Mall of the Emirates in Dubai (177 visits/sqm/annum) Footfall (m) The Avenues Mall of the Emirates Al Wahda Mall Citystars- Stars Centre Aliat Mall Dragon Mart Complex Mirdif Mall of Arabia Alrashid Mall Morocco Mall Dalma Mall Safeer Mall - Sharjah 1, 2, 3, 4, 5, 6, GLA size (sqm) Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 2

3 - The Avenues- Kuwait Les Quatre Temps- France Mall of the Emirates- Mall of America- US Le Forum des Halles- France Part Dieu- France West Edmonton Mall- Canada Intu Trafford Centre- UK Al Wahda Mall- The Walk at JBR Safeer Mall - Sharjah The Avenues Fars Shopping Complex Morocco Mall Mall of the Emirates Dubai Festival City Mall Mirdif The Pearl Qatar - Retail Mall of Arabia Cairo Festival City Mall Mall of Dhahran Dragon Mart Complex Citystars- Stars Centre Dalma Mall Isfahan Alrashid Mall Deira Marina Mall - Abu Dhabi Doha China Mall Al Salaam Mall Red Sea Mall Bawadi Mall Mall of Arabia - Jeddah Rimal Centre Ibn Battuta Mall Al Kout Amwaj Mall Mecca Mall Al Wahda Mall Al Qasr Mall Joud Mall Hayat Mall Al Andalus Mall Granada Centre 36 Mall Al Ghurair Centre Tablo Mall Safeer Mall Al Othaim Mall- Rabwa BurJuman The Avenues Mall Citymall Deerfields Townsquare Park Avenue Panorama Mall - Riyadh March malls in MENA rank among the top 1 busiest malls in the world by footfall densities: We list below the top 5 largest malls in MENA by GLA, and note that 27 malls of the top 5 in MENA receive more than 1m visitors each year, 13 malls enjoy a 2m+ footfall while 3 malls record more than 4m visitors each year, ranking among the top 1 busiest malls in the world. Exhibit 2: Top 5 malls in MENA by GLA size (sqm): (3 rd largest mall in MENA by size) enjoys the highest footfall numbers at 8m visitors/annum, followed by The Avenues mall (Kuwait) at 48m visitors (4 th in MENA by GLA), and Mall of the Emirates at 42m visitors/annum (8 th largest in MENA) 8, 7, 6, 5, 4, 3, 2, 1, Exhibit 3: Other global benchmarks include Les Quatre Temps malls in France (46m+ footfall), Mall of America in the US (4m footfall), Stratford Centre in the UK (42m footfall) and Le Forum des Halles in France (38m+ visitors) Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 3

4 Dragon Mart Complex Fars Shopping Complex China Mall Mall of Arabia Sattarkhan Great Mall The Avenues Isfahan Alrashid Mall Abraj Al Bait Shopping Center Citystars- Stars Centre Al Othaim Mall- Rabwa Mall of the Emirates The Pearl Qatar - Retail Hera's International Mall Madinat Zayed Shopping Red Sea Mall Kish Trade Centre Mirdif Mall of Dhahran Al Ain Mall Dubai Festival City Mall Dalma Mall Mecca Mall Aden Mall Marina Mall - Abu Dhabi Bawadi Mall Al Othaim Mall- Dammam Sahara Centre Doha Deira Oasis Mall Al Kout Hayat Mall Morocco Mall Mall of Arabia - Jeddah Al Wahda Mall Al Ghurair Centre Porto Cairo Dolphin Land Shopping Mall Al Salaam Mall Seef Mall - Seef District BurJuman Al Othaim Mall- Buraidah Al Othaim Mall- Khurais Al Qasr Mall Cairo Festival City Mall Bawabat Al Sharq Shopping Dragon Mart Complex Fars Shopping Complex China Mall Mall of Arabia Sattarkhan Great Mall The Avenues Isfahan Alrashid Mall Abraj Al Bait Shopping Center Citystars- Stars Centre Al Othaim Mall- Rabwa Mall of the Emirates The Pearl Qatar - Retail Hera's International Mall Madinat Zayed Shopping Red Sea Mall Kish Trade Centre Mirdif Mall of Dhahran Al Ain Mall Dubai Festival City Mall Dalma Mall Mecca Mall Aden Mall Marina Mall - Abu Dhabi Bawadi Mall Al Othaim Mall- Dammam Sahara Centre Doha Deira Oasis Mall Al Kout Hayat Mall Morocco Mall Mall of Arabia - Jeddah Al Wahda Mall Al Ghurair Centre Porto Cairo Dolphin Land Shopping Mall Al Salaam Mall Seef Mall - Seef District BurJuman Al Othaim Mall- Buraidah Al Othaim Mall- Khurais Al Qasr Mall Cairo Festival City Mall Bawabat Al Sharq Shopping March Anchor tenants are instrumental for footfall Anchor tenants drive visitor numbers: The top 5 largest malls in MENA by store count are designed with at least 3 outlets, the largest being Dragon Mart in Dubai (2,562 stores), followed by Fars Shopping Complex in Iran (2,5 stores) and China Mall in Sharjah (2, stores). Store sizes, on average, range between sqm/store, including anchor tenants (defined as stores with GLA sizes of 1.8k+ sqm). for instance shows an average store size of 292 sqm, including anchor tenants (3.8k sqm/store, 3% of GLA) and retail tenants (c.19 sqm/store). Anchor tenants are usually high-volume global retail brands that operate on the basis of long lease terms (1 years+), and are useful for attracting footfall to the broader mall asset. Exhibit 4: Top 5 malls in MENA by store count: 4 out of the top 1 largest malls by store count also hold the highest footfall numbers (top 1 malls by footfall highlighted) 3, 2,5 2, 1,5 1, 5 Exhibit 5: Top 5 malls in MENA by store size (sqm): larger average store sizes suggest a greater proportion of anchor tenants, which in turn drive greater footfall across the broader mall asset, relative to comparable malls Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 4

5 March The concentration of super regional malls is highest in the GCC, and specifically in Qatar, KSA and, in which 23%, 21% of 15% of total retail assets are super regional malls. These malls are characterized by high footfall rates (18m visitors/mall/annum) relative to regional malls (8m average footfall) and smaller community (4m footfall) and neighborhood (1m footfall). On average in MENA, 14% of total retail are classified as super regional malls. Super regional mall: GLA >8k sqm Regional mall: 4k sqm< GLA <8k sqm Community centre: 12.5k sqm< GLA <4k sqm Neighborhood centre: GLA< 12.5k sqm Exhibit 6: 14% of the total mall formats in MENA are super regional malls, which on average receive at least 18m visitors/mall each year Exhibit 7: High footfall rates in super regional malls coincide with larger GLA and store counts Malls count Average GLA (sqm) , 16, 14, 155, , 1, 8, 6, 53, , 2, 25,42 6,832 Super regional malls Regional malls Community Neighborhood Super regional malls Regional malls Community Neighborhood Average footfall (m) Average outlets count Super regional malls Regional malls Community Neighborhood Super regional malls Regional malls Community Neighborhood Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 5

6 Iran Kazakhstan Georgia Morocco Qatar Saudi Arabia Iraq Kuwait Egypt Jordan Lebanon Algeria Syria Yemen Oman Sudan Azerbaijan Nigeria Palestine Tunisia Iran Georgia Yemen Saudi Arabia Kuwait Egypt Qatar Iraq Sudan Morocco Jordan Syria Lebanon Azerbaijan Oman Algeria Nigeria Tunisia Saudi Arabia Egypt Kuwait Oman Qatar Jordan Lebanon Iran Syria Morocco Iraq Algeria Yemen Kazakhstan Palestine Azerbaijan Georgia Nigeria Sudan Tunisia Kuwait Jordan Oman Saudi Arabia Kazakhstan Lebanon Egypt Morocco Algeria Qatar Iraq Syria March Footfall concentration is highest in Kuwait Retail visitation is highest in Kuwait: We note around 123 fully operational malls in the, at an aggregate GLA of c.6m sqm, which combined, attract more than 557m visitors each year. This is by far the largest in MENA, followed by KSA (2.6m sqm GLA, 351m annual footfall) and Egypt (1.2m sqm GLA, 114m annual footfall). In relative terms, footfall concentration is highest in Kuwait at 137 visits/sqm/annum, though this may not necessarily correlate with spend/visit. Conversely in Qatar, we observe the lowest footfall concentration rates in MENA at 46 visits/sqm/annum, which in our view suggests a strong case for retail saturation risk. Exhibit 8: Malls in MENA: leads in malls penetration Exhibit 9: but Kuwait is highest in footfall concentration Malls count Average footfall/gla (visits/sqm) Average GLA (sqm) 9, 8, 7, 6, 5, 4, 3, 2, 1, Average store count Source: MRCSC, Arqaam Capital Research We note that destination retail attracts tourism-based footfall, but not necessarily retail spend: We observe higher levels of retail spend/capita in city centre malls, which residents usually use for dedicated shopping and retail, as opposed to destination mall assets (Dubai Mall, The Avenues, ) which enjoy higher footfall numbers, but generally produce lower spend/visitor. Rents/sqft however are highest at malls operating at both high footfall and total spending rates (, Mall of the Emirates). Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 6

7 March Retail rentals in hold massive upside risk: +2x to align with Avenues Mall (Kuwait), +5x to align with, owned and operated by Emaar Malls (85% owned by Emaar Properties) is the regional benchmark for super-regional retail property assets. The below comparison suggests that if rentals are linked to (i) footfall, and (ii) store yields (sales/sqm), using a single metric (sales/sqm/visitor), (operated by Aldar) holds massive upside risk to rentals, while Avenues Mall (operated and owned by Mabanee (in Kuwait) holds 35-45% in upside risk to rentals, in order to be adequately benchmarked against. rental growth potential is huge: We expect footfall at to reach 2m visitors in its first full year of operations. In the context of the 225k sqm of GLA, of which 9%+ are currently occupied, this implies footfall of 9 visitors/sqm/annum, which we believe has massive growth potential ( 228 visitors/sqm/annum, Avenues 178 visitors/sqm/annum). This should support substantial rental upside, as average lease rates at (USD 2.5k/sqm) and Avenues Mall in Kuwait (by Mabanee) remain well-ahead. Given that the asset is newly built, rents/sqm are currently well behind those at comparable retail destinations in MENA (-67%), but projected footfall (2m in 16e), is closer (-55%). This supports the argument for substantial rental growth in the next 3-5 years. Exhibit 1: Retail footfall-spend is significantly higher in compared to Kuwait, and specifically in Dubai. appears as a clear outlier, given its positioning as a tourist draw, rather than a dedicated retail destination (Mall of the Emirates and outlets, for example) Tenant sales/sqft/visitor (USD) Muscat Sharjah Alexandria Mirdif Avenues Mall Deira Mall of the Emirates Rents/sqft (USD) Source: Company Data, Arqaam Capital Research * Rent assumptions for MAF city centre malls are based on an occupancy cost ratio of 18% (benchmarked against Marina Mall) and tenant sales figures for year 214 (from MAF prospectus) Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 7

8 March What the market thinks of Emaar Malls: The market currently implies a 15-2% weakening in tenant sales in stores (which is a product of footfall and average spend/visitor). This is unlikely, despite considerable macro challenges What the market is pricing in: We work backwards from Emaar Malls market cap, and infer the rental revenues implied in current market price (using an appropriate cap rate), and arrive at c.aed 2bn in rentals for in FY 16e. We then calculate the market-implied tenant sales value expected in FY 16e in stores, using FY 15A occupancy cost ratio of 14.6%. Exhibit 11: Market-implied turnover rent for in FY 16e market-implied rentals (AED m) Current mkt cap 36,699 Less: Regional and community malls 2% discount to implied value 5,386 Residual market-implied value 31,314 market-implied FY 16e 3.8% implied cap rate * 1,19 FY 16e implied 6% FCF margin 1,997 occupancy cost ratio achieved in FY 15A 14.6% Market-implied tenant sales value in stores in FY 16e 13,658 FY 15A tenant sales in 16,739 Market-implied weakness in retail-spend in (18.4%) Source: Company Data, Arqaam Capital Research *FY 16e numbers exclude contributions from The Fashion Avenue expansion in, which warrants a low cap rate of 3.8% (equivalent to a cap rate of 6.3% in 18e) What does this imply regarding expected footfall and retail spend going forward? We conclude that the market is pricing in a weakening in tenant sales in by 15-2% in FY 16e to AED 13.9bn (vs. c.aed 16.7bn in FY 15A), which places in-line with Deira on implied rents/sqft, and similar to on retail-spend rates. This in our view unwarranted, as Emaar Malls produced no material change in tenant sales across its portfolio in 215, and a +9% growth in footfall. Though the case for significantly weaker retail sales in 216 is compelling (via a slowdown in tourist numbers and discretionary spending), the translation into sustainably weaker rentals in difficult to defend, in our view. c.2% of rentals are due for renewal in each of the incoming 3 years, and are based on rental rates set in , 2% below current rentals (at an implied occupancy cost of 12.2%, which when regionally benchmarked, is low). We continue to play Emaar Malls: The market current values EMG at an implied cap rate of 8.1% on FY 18e FCF, compared to 6.3% by our valuation. We maintain our rating and AED 3.6 TP on Emaar Malls in place. Copyright 216, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 8

9 March Important Notice Exhibit 12: Market-implied footfall and retail-spend rates for 1. Author, regulator and responsibility Arqaam Capital Limited ( Arqaam ) is incorporated in the Dubai Tenant International sales/sqft/visitor Financial Centre ( DIFC )(USD) and is authorised and regulated by the Dubai Financial Services Authority ("DFSA") to carry on financial services in and from the DIFC. Arqaam publishes and distributes (i.e. issues) all research. 7. Arqaam Capital Research Offshore s.a.l. is a specialist research centre in Beirut, Lebanon, which assists in the production of research issued by Arqaam Alexandria Muscat Mirdif Avenues Mall Sharjah 2. Purpose This document is provided for informational purposes only. Nothing contained in this document constitutes investment, legal, tax or other advice or guidance and should be disregarded when considering or making investment decisions. 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