Aldar Properties (ALDR.AD)

Transcription

1 (ALDR.AD) Equity Research Initial Coverage July 9th 2007 Current Price: AED 7.69 Country: United Arab Emirates Fair value Target: AED Sector: Real Estate Recommendation: BUY Exchange: Abu Dhabi Securities Market Sector Coverage Team Roy Cherry Lara Hourani Aldar Properties (Aldar) is the leading real estate developer in Abu Dhabi, with more than AED 200 bn worth of developments planned for the next ten years and a land bank with over 34 mn sqm. Its major master developments include: Al Raha Gardens, Al Raha Beach and Yas Island. Aldar develops properties for sale and for its investment property portfolio in all key real estate market segments. In addition, the company plans to begin land sales this year out of its vast land bank. The Abu Dhabi real estate market is regarded as one of the fastest growing in the region, fuelled by: strong economic growth, one of the highest GDP per capita figures in the world, an estimated population growth rate of 7%, continued shortage in property supply across all major market segments, pentup demand accumulating for the last five years and new property legislations allowing expatriates who constitute an estimated 80% of the population to purchase leasehold property with 99 year renewable leasehold contract. We initiate coverage on Aldar with a BUY recommendation. Our fair value target of AED per share (based on full conversion of outstanding convertible bonds) implies an 78% upside potential to the current price of AED 7.69 per share. Our fair value is based on a DCF valuation. Year Net profit (AED 000) BV (AED 000) Dec09E 4,297,390 16,508, % Dec08E 3,338,187 10,532, % Dec07E 2,177,307 5,995, % Dec06 1,249,677 3,270, % EPS (AED) BVPS (AED) Note: BV and All ratios are based on gradual dilution except for the EPS and P/E ratios which are based on full dilution. RoAE (%) P/E (x) P/BV (x) 52week high (AED) 7.72 Number of shares ( 000) 1,725,000 Number of shares post full conversion of bonds ( 000) 3,355,022 Free Float 75% Market cap (AED 000) 13,265,250 Market cap (USD 000) 3,611,754 Div. Yld % Price/Index level May2005 Aldar Properties performance vs. SC UAE Index Jul2005 Sep2005 Nov2005 Jan2006 SC UAE Index rebased Aldar Properties (AED) Mar2006 May2006 Date Jul2006 Sep2006 Nov2006 Jan2007 Mar2007 May2007 Jul2007

2 Equities research Contents Investment highlights...3 Company overview...4 Corporate structure... 4 Aldar s shareholding structure... 5 Convertible bonds... 6 Strategy...7 Abu Dhabi Real estate market overview...8 Competition... 8 Residential segment... 9 Office segment Hospitality segment Retail segment Real estate developments...13 Al Raha Gardens Al Raha Beach Yas Island Other developments underway MAP of Aldar s real estate developments...17 Major operating lines...18 Property sales Investment properties Land sales Land bank...22 Appraised land bank value Adjusted NAV SWOTanalysis...24 Financial analysis and forecasts...25 Valuation...28 Financials...29 Appendix...31 July 9th,

3 Investment highlights Aldar Properties (Aldar) is the leading real estate developer in Abu Dhabi, with more than AED 200 bn worth of developments planned for the next ten years and a land bank of over 34 mn sqm. Its major master developments include: Al Raha Gardens, Al Raha Beach and Yas Island. Aldar develops properties for sale and for its investment property portfolio in all key real estate market segments. In addition, the company plans to begin land sales this year out of its vast land bank. The Abu Dhabi real estate market is regarded as one of the fastest growing in the region, fuelled by: strong economic growth, one of the highest GDP per capita figures in the world, an estimated population growth rate of 7%, continued shortage in property supply across all major market segments, pentup demand accumulating for the last five years and new property legislations allowing expatriates who constitute an estimated 80% of the population to purchase leasehold property with 99 year renewable leasehold contract. Aldar is expected to develop and sell an estimated 1.4 mn sqm of net sellable area over the next five years. In addition, the company is expected to develop a further 2.1 mn sqm of net leasable area for its investment property portfolio during the same period. Moreover, we expect the company to sell an estimated 6.5 mn sqm of serviced land within its master developments. The operational strategy of the company puts a greater emphasis on the development of a large investment property portfolio than most other UAE based developers. In the long run, Aldar plans to keep an estimated 50% of its developments in its investment property portfolio, as the company believes this will secure the long term stability of its cash flows. The short term consequence of this strategy is a higher initial investment outlay and a greater need for financing, as the investment properties under development will not generate any revenue until they become operational. In the long run, this will be offset by steady and recurring cash flows. Based on the appraised value of existing land bank the undiluted adjusted net asset value (NAV) per share is estimated to be AED 23.2, which suggest Aldar is trading a at a 67% discount to undiluted adjusted NAV. However, the diluted value is approximately AED 14.7 per share, which indicates that Aldar shares are trading at a 48% discount to adjusted NAV. Aldar s EBITDA is projected to reach AED 520 mn in 2007, AED 1.65 bn in 2008 and AED 3.44 bn in EBITDA is projected to have a CAGR of 60% over the projected period. We initiate coverage on Aldar with a BUY recommendation. Our fair value target of AED per share (based on full conversion of outstanding convertible bonds) implies an 78% upside potential to the current price of AED 7.69 per share. Our fair value is based on a DCF valuation. July 9th, 2007

4 Equities research Company overview The core business is real estate development for sale and lease The government supported the establishment of Aldar with free land Over AED 200 bn of planned developments Aldar Properties (Aldar) was established in Abu Dhabi in October 2004 and underwent an Initial Public Offering (IPO) in 2005 and was subsequently listed on the Abu Dhabi Securities Market (ADSM). The company s core business is real estate development for sale and lease, combined with operation and management of real estate properties. The establishment of Aldar was not an event in isolation, but a step in tune with a wider economic reform drive launched by the oil rich government of Abu Dhabi. The major objective was to achieve greater diversification of the Abu Dhabi economy. To that end, the government began to activate and reorganize a number of sectors, while encouraging increased participation by the private sector. Consequently, the government began to liberalize the real estate sector of Abu Dhabi by supporting the establishment of real estate developers capable of building a more modern Abu Dhabi. In doing so, the government granted land free of charge to a number of developers, of which Aldar was the largest recipient. In addition, a new property law was passed in Abu Dhabi, that allowed foreigners to own property in areas designated by law. The law granted the nonnational population, which constitute an estimated 80% of the population, the right to own property on the basis of 99 year renewable leasehold. Meanwhile, UAE nationals were granted the right to transact freehold property freely in Abu Dhabi for the first time. So far, the above approach in the real estate sector resembles to a great extent the model established in Dubai a few years earlier. These events set the stage for Aldar s advance into pole position in Abu Dhabi s real estate development market. The company s longterm development plans include a number of mixeduse mega projects in Abu Dhabi city with an estimated development value in excess of AED 200 bn. Corporate structure Aldar currently owns stakes in seven joint ventures (JV) involved in district cooling, construction and home financing. Aldar Properties Aldar Keppel Land (51%) United Arab Emirates Aseel (20%) United Arab Emirates Aldar NCHT(50%) United Arab Emirates Inshaa (20%) United Arab Emirates Aldar Laing O Rourke Construction (51%) United Arab Emirates A&T Cool (50%) United Arab Emirates New Conventional mortgage venture (25%) United Arab Emirates Aldar Laing O Rourke Construction Aldar formed a JV with Laing O Rourke, a leading international construction firm, in The aim was to bring onboard a specialized construction firm that can support the implementation of Aldar s large scale plans. The JV secures for both companies a high level of commitment to a long term relationship. The JV should have no or minimum impact on the income statement, as it will be working predominantly on Aldar projects. On consolidation, any profit will reduce the development costs of the projects. Aseel Abu Dhabi had, until recently, no domestic mortgage provider. To fill this gap, complement and facilitate their own business, three of Abu Dhabi s largest developers established this Islamic Sharia compliant JV with one of the leading Abu Dhabi based banks, First Gulf Bank (FGB). In addition to Aldar, Sorouh Real Estate (Sorouh) and Reem Developers (Reem) each hold a 20% stake. FGB holds the remaining 40%. July 9th, 2007

5 New Conventional mortgage venture Abu Dhabi Commercial Bank (ADCB) recently announced that a conventional home mortgage company is in the making in Abu Dhabi with ADCB, Aldar, Sorouh and Reem having equal shares in the venture. Further details are not available at this stage. Inshaa Inshaa is a real estate development and management company jointly owned by FGB, Aldar, Sorouh and Reem. FGB owns a 40% stake while the three developers own 20% each. Inshaa is taking over FGB s real estate unit, which currently manages 5,500 units, in addition to the development of the Beach Villas; a 236unit project that is expected to be delivered to owners soon. A&T Cool Aldar recently entered into a JV on a 50:50 basis with Tabreed, the Middle East s leading district cooling provider. The two companies agreed to join hands to provide cooling services of 1 mn tons of refrigeration (TR) for two of Aldar s major master planned developments, Al Raha Beach and Yas Island. The Yas Island project is expected to be supplied with 0.6 mn TR from 15 cooling plants with the first phase becoming operational in The JV is also planning to set up eight plants on Al Raha Beach to supply that community with 0.4 mn TR. Aldar Keppel Land Aldar is developing together with Keppel Land the Al Muneera property in Al Raha Beach. Plans also exist to launch joint developments on Yas Island, at a later stage. Aldar National Company for Hotels and Tourism Aldar and the National Company for Hotels and Tourism (NCHT), an Abu Dhabi based hotel investment company, are jointly developing the Coconut Island development on a 50:50 basis. Aldar s shareholding structure More than 25% of the company is owned be the government of Abu Dhabi The government of Abu Dhabi holds 25.4% of Aldar s shares through a number of its investment arms. With its 14.1% share, Mubadala Development Company (Mubadala) is the government institution with the largest stake in Aldar. The free float is estimated to be around 74.6%. Earlier this year, the government of Abu Dhabi passed a law allowing foreign ownership of Aldar s shares. However, foreign ownership is not permitted to exceed 40%. Aldar's Shareholding Structure Abu Dhabi Government, 25.4% Free Float, 74.6% Note: Abu Government owns shares in Aldar through Mubadala (14.1%), Abu Dhabi Retirement Pension and Benefits Fund (5.0%), National Corporation for Tourism and Hotels (2.1%), Abu Dhabi National Hotels Company (2.1%) and Abu Dhabi Investment Company (2.1%). July 9th, 2007

6 Equities research Based on the above it is clear that the government of Abu Dhabi is the largest shareholder. However the influence of the government on the company is even greater than what its share suggests, for the following reasons: All of Aldar s land bank has been granted by the government of Abu Dhabi with the exception of Al Jimi Mall s land plot; The land awarded to Aldar is expected to generate an estimated 45% of the total property supply in Abu Dhabi over the coming years, making it by far the most privileged and dominant realty company in Abu Dhabi; Infrastructure costs are partially reimbursed to Aldar by the government; and Several members of Aldar s board hold top position within government entities. Convertible bonds Issued convertible bonds for AED 9.3 bn in Q The conversion price is AED 5.7 Aldar issued convertible bonds in Q for a value of AED 9.3 bn, with a maturity date in Q The bond issue which is structured to conform with Islamic Sharia principles, is secured against a land value of 120% of the bond. Aldar s land bank is estimated to have an appraised value in excess of AED 38 bn (20% of the land bank has not yet been appraised, hence, the value of that portion is not included). The terms of the issue include an initial lockup period of six months, which expires on 10 September Every USD 1,000 certificate can be converted into shares in the company at a conversion price of AED 5.7, subject to Aldar s acceptance. The company has the option not to accept conversion and instead pay the bond holders in cash the market value of shares. Given the current share price, we are assuming all bonds will be gradually converted to shares. Number of shares '000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 The number of shares post full conversion is estimated to increase from bn to bn shares. Aldar's Number of Shares Pre and Post Conversion of Bonds Preconversion Postconversion July 9th, 2007

7 Strategy Consolidating its position in Abu Dhabi Will seek expansion into mature and emerging markets Emphasis on development of an investment property portfolio Will consider partial exit of investment properties in the long term Development and sale of serviced land plots Establishing asset management services Entering mortgage and district cooling markets The company s primary strategic objective, in the short to medium term, is to consolidate its position as the leading real estate developer in Abu Dhabi through the successful development and timely delivery of master planned communities, business districts and tourist destinations, while remaining in conformity with the broad strategic objectives of the Abu Dhabi government. In the process, it plans to unlock substantial value associated with the expansion of Abu Dhabi s total urban area at a time of resurgent interest in Abu Dhabi as a vibrant economy and a unique destination. In the long term, Aldar will seek opportunities for international expansion into mature and emerging markets. This geographic expansion is one of the key aspects of the company s strategy, though, it remains at the planning stage. The wish to expand beyond its home turf is something Aldar shares with most other major developers of the region. However, what sets Aldar apart from the majority of other developers is the fact that its focus is also on mature markets rather than exclusively on emerging ones. The objective is to blend the existing risk exposure of the company with real estate development and investment in lower risk markets. Entry into mature markets is expected to be through the acquisition of an established real estate development company with a strong portfolio of investment properties. The potential venture into emerging markets will be on the basis of strategic alliances with leading local companies. The operational strategy of the company puts a greater emphasis on the development of a large investment property portfolio than most other UAE based developers. Aldar plans to keep an estimated 50% of its developments in its investment property portfolio, as the company believes this will secure the long term stability of its cash flows. The short term consequence of this strategy is a higher investment outlay and greater need for financing, as the investment properties under development will not generate any revenue until they become operational. In the long run, this will be offset by steady and recurring cash flows. In the long term, Aldar will consider exiting some of its investment properties through sale of properties to special purpose vehicles jointly owned by Aldar and other investors. Eventually, securitization of real estate property could also become an available option in the UAE, and one that Aldar is likely to utilize. In utilizing its extensive land bank, Aldar is also expected to sell serviced plots of land within its master developments, initially in the Al Raha Beach development and subsequently on Yas Island, to thirdparty developers, who would have to comply with Aldar s master plan for the specific development. The objective is to exit a proportion of the land assets, in favor of developing more property for sale and investment properties. In addition, by allowing third party developers to participate in its developments through land sales, Aldar is seeking to achieve a wider level and higher pace of development activity to ensure the takeoff of these large masterplanned cities within the city. To complement its property development and investment activities, Aldar is establishing its asset management services. These will include property management and maintenance services. These services will be provided to sellable and leasable properties developed by the company. Aldar is also planning to capitalize on the ongoing expansion of Abu Dhabi and the expected growth in supply of real estate property and the attached growth in demand for mortgages and district cooling services. The company has already formed JVs in both these sectors with leading companies, such as Tabreed and FGB. Aldar and its partners (Sorouh, Reem and FGB) in the Islamic mortgage venture, Aseel, control an estimated 60 70% of the property supply in Abu Dhabi over the next five years. July 9th,

8 Equities research Abu Dhabi Real estate market overview Competition Largest real estate developer in Abu Dhabi With over AED 200 bn worth of projects announced, Aldar is by far the largest developer in Abu Dhabi, followed by the Tourism Development and Investment Company (TDIC) and Sorouh with AED 100 bn and AED 50 bn respectively in property under development. In total, properties for an estimated AED 460 bn are under various stages of development by the leading seven real estate developers in Abu Dhabi. This indicates that Aldar controls almost 45% of the property supply in Abu Dhabi over the next 10 years, based on currently announced developments. AED billions Estimated Value of Developments Launched by Leading Abu Dhabi Real Estate Companies 0 Aldar TDIC Sorouh Tamouh Reem Al Qudra Real Estate Source: Aldar, Zawya, annual reports, SHUAA Capital Manazel Dubai based master developers are absent from Abu Dhabi, and the same can be said about most Abu Dhabi developers activities in Dubai. Smaller developers do transcend the borders, by buying land from the respective master developers in Dubai and Abu Dhabi. However, it is unlikely, in our opinion, to see Emaar Properties, Nakheel or Dubai Properties active in Abu Dhabi at a large scale anytime soon. Nor are we likely to see Aldar developing a large project in Dubai. A key reason behind this phenomenon is the fact that in Dubai, Dubai based master developers are granted free land and related concessions and the same is true for Abu Dhabi master developers. Managing the tourism investment zones for ADTA TDIC TDIC is a public joint stock company established in 2005, with the Abu Dhabi Tourism Authority (ADTA) as the only shareholder. ADTA s main role is to establish and direct the tourism strategy of the Abu Dhabi emirate. In doing so, ADTA supports various companies in Abu Dhabi, in addition to TDIC. This support was manifested when ADTA played a key role in securing the F1 Grand Prix for Abu Dhabi, which is expected to take place on Aldar s Yas Island development in TDIC s role is to manage the tourism investment zones on behalf of ADTA, which at this stage is primarily Saadiyat Island. In exercising its role, TDIC will develop a master plan for the entire island, which covers an area of around 27 square kilometers with an estimated AED 100 bn worth of developments to be completed by However, unlike Aldar, TDIC s objective is to develop the master plan and then sell almost all plots to private investors. Sorouh s land bank exceeds 20 mn sqm Sorouh Real Estate Sorouh is the second major listed real estate developer in Abu Dhabi. It was established in 2005 and got listed in the same year on the ADSM. As one of the leading master developers in Abu Dhabi, Sorouh currently has over AED 50 bn worth of developments in the pipeline. Sorouh has an estimated land bank that exceeds 20 mn sqm in plot area. It is fair to assume that Sorouh s land bank is larger than 20 mn sqm, in terms of builtup area (BUA), given the relative high density of its Shams Abu Dhabi project, which is expected to deliver 22,000 residential units spread over 100 highrise towers by Sorouh has not July 9th, 2007

9 yet performed an independent land bank valuation. Like Aldar, Sorouh was also granted land from the Abu Dhabi government. Major Abu Dhabi based private developer Developing a proportion of Al Reem Island Al Qudra Holding s real estate arm Focusing on low to mid income segment Tamouh Investments Tamouh Investments (Tamouh) is a private master developer owned by Royal Group, a leading Abu Dhabi based holding company. The Chairman of Royal Group is H.H Sheikh Tahnoon Bin Zayed Al Nahyan, a member of the ruling family in Abu Dhabi. Tamouh Investments is currently developing the north eastern section of the Al Reem Island, the same island Sorouh is developing its Shams Abu Dhabi project on. Tamouh is building both the Marina Square and the City of light developments on Al Reem Island, which have a combined BUA of more than 1 mn sqm. The company is also planning to develop UNI Cyber City next to Abu Dhabi International Airport. This will include a college town or educational zone with a total BUA of around 4.5 mn sqm. Reem Developers Reem is a private real estate development company established in 2004, with Najmat Abu Dhabi as its main master development. The company is developing Najmat Abu Dhabi on Al Reem Island next to Sorouh and Tamouh s developments on the same island. Al Qudra Real Estate Al Qudra Real Estate (AQRE) is a fully owned subsidiary of Al Qudra Holding, a leading Abu Dhabi based business conglomerate. AQRE has at least six property developments currently underway, including Danet Abu Dhabi, Zayed Bay, Mussafah Desert Towers and Ain El Emarat. Danet Abu Dhabi, which is AQRE s largest project, is a mixed use master development that comprises of 34 towers ranging from 1523 floors in addition to a fourstar hotel. Manazel Manazel was established as a private joint stock company in 2006 in Abu Dhabi, with a paidup capital of almost AED 2.5 bn. The company has already established a niche for itself in the Abu Dhabi market by specializing in developing homes for the low to medium income segments of the population, which have been almost totally ignored by most Abu Dhabi and Dubai based developers. Manazel has already started developing projects with a total BUA exceeding 1.5 mn sqm in Abu Dhabi and Dubai. Work is also currently underway to enter the Jordanian market as well as other markets outside the UAE. Residential segment Shortage of residential supply till 2009 Planned supply in 2009 is estimated to be 140,000 units New units offer higher standards than existing housing stock Abu Dhabi s residential real estate market is expected to continue suffering from a supply shortage at least up to The current occupancy levels in Abu Dhabi city are extremely high, with most areas showing full occupancy levels. Rents in Abu Dhabi city, have increased by an estimated 25% annually since The chart beneath clearly illustrates that Abu Dhabi s additional annual supply in high growths locations (HGL) in 2007 is expected to be a meager 1,100 units while the additional annual demand in the same year is projected to be 21,500. The first large scale deliveries in Abu Dhabi are expected to take place in 2008 when 10,000 units are expected to be handed over, however this figure is still expected to fall short of additional demand which is projected at 23,000. In comparison, the planned supply in 2009 is estimated to be a remarkable 140,000 units assuming no delays in construction. We expect these predominantly community based units to offer much higher standards than what currently prevails in Abu Dhabi. The current housing stock in Abu Dhabi is dominated by apartments in congested and high density areas with extreme shortage of parking space. Yet these residential units have reached almost the same rental levels of units in Dubai s master planned communities, which offer higher standards. July 9th, 2007

10 Equities research Residential units 160, , , ,000 80,000 60,000 Additional Annual Residential Unit Supply and Demand in Abu Dhabi ,000 20, E 2007E 2008E 2009E 2010E 2011E Additional Demand Additional Supply Source: Colliers International, SHUAA Capital Demand is expected to absorb most of the supply beyond 2008 We anticipate that demand in Abu Dhabi for apartments and villas in master planned communities, where most of the units planned for delivery beyond 2008 will be located, will be capable to absorb most of this supply. The primary reasons include: Demand in Abu Dhabi for residential units, has been exceeding supply for almost five years, due to the rapid growth of the economy and the associated growth in population which has been fuelled by the influx of expatriates seeking work in Abu Dhabi. Consequently, pentup demand is piling up in Abu Dhabi due to the continued absence of sufficient supply. Supply in 2009 is expected to create property class and segment diversity, which is currently almost nonexistent in Abu Dhabi. Occupancy levels in existing stock are expected to decline in favor of new units, this is expected to lead to a decline in prevailing rental levels in 2009/2010 of current stock in reflection of the lower comparative qualities with new master planned supply. Overall rental growth will be suppressed and reach normal growth levels as oppose to the supernormal growth levels experienced for the last five years (supernormal growth in rent is expected to continue at least till 2009, as we assume limited compliance from landlords with the 7% rentcap put in place in Q and delayed enforcement). Consequently disposable income levels should stabilize beyond 2009 and therefore free up more pentup demand. Potential drop of overall occupancy levels from current 98100% to around 90%, which should continue to meet investor criteria. Construction delays will smoothen and stretch delivery schedules, while cumulative demand continues to grow. Office segment Demand continues to exceed supply The Abu Dhabi office market has seen rents increase by an estimated 150% since 2002, with office space currently estimated to be at full occupancy levels. Going forward, we estimate additional annual demand in 2007 for office space in Abu Dhabi at 29,000 sqm of gross leasable area (GLA) while new supply is expected to be around 15,000 sqm. In 2008, additional supply is expected to exceed additional demand in the Abu Dhabi office market. We estimate that 49,000 sqm of additional office space will reach the market in 2008 compared to a 34,500 sqm growth in demand. The oversupply in 2008 is likely to be absorbed by the demand reserve that has been piling up over the years as organizations have been finding it hard to expand their offices due to the lack of available office space. July 9th,

11 250,000 Additional Annual Office Supply and Demand in Abu Dhabi ,000 Square meter 150, ,000 50, E 2007E 2008E 2009E 2010E 2011E Additional Demand Additional Supply Source: Colliers International, SHUAA Capital Large deliveries expected in 2009 Existing secondary grade stock expected to see decline in occupancy rates The big change in the Abu Dhabi office space market is expected in 2009 and 2010, provided all announced projects are completed on time. A record 153,000 sqm and 193,000 sqm of GLA are expected to reach the market in 2009 and 2010 respectively, while additional demand is projected at 41,500 sqm in 2009 and 50,000 in Most of this supply is expected to be of high international standards. As a result, existing secondary grade office space in Abu Dhabi is likely to suffer from migration, as companies move offices to more adequate space located in well defined business districts. Currently, Abu Dhabi city is unusual in the sense that it does not offer a defined business district. A substantial part of Abu Dhabi s current office stock is made of converted residential units. We expect this new supply to result in reduced occupancy rates and enforce a correction in rental rates of existing secondary grade supply with poor location and facilities. However, before this potential correction occurs, we expect office rents to continue appreciating. Hospitality segment Average occupancy rates appreciated from 68% to 84% Abu Dhabi hotels have experienced strong growth since 2003 fuelled by an increase in business visitors and tourists combined with limited new supply. According to HVS International, the average occupancy rate appreciated from 68% in 2003 to 84% in In comparison, the average occupancy rate in the Middle East (ME) was estimated to be 70% in Meanwhile, the average daily room rate (ADR) and revenue per average room (RevPAR) of Abu Dhabi hotels increased by more than 90% and 130% respectively between 2003 and AED Average Daily Room Rates, Revenue Per Average Room and Average Occupancy Rates in Abu Dhabi % 80% 70% 60% 50% 40% 30% 20% 10% 0% ADR RevPAR Average Abu Dhabi Occupancy Rate Average ME Occupancy Rate Occupancy rate Around 9,500 hotel rooms in Abu Dhabi Source: HVS International The total number of hotel rooms in Abu Dhabi is estimated to be around 9,500. However, ADTA s plans for the Abu Dhabi hospitality industry include an addition of a further 17,000 rooms by 2018, with an estimated 45% in the five star category. Almost 65% of Abu Dhabi s existing hotel rooms are in the four and five star categories. July 9th,

12 Equities research 6,000 5,000 4,000 Additional Annual Hotel Room Supply and Demand Rooms 3,000 2,000 1, E 2008E 2009E 2010E 2011E Additional Demand Additional Supply Rising ADR and RevPAR in 2007 and 2008 expected Source: Colliers International, ADTA, SHUAA Capital We expect a continued rise in occupancy levels combined with increasing ADR and RevPAR during 2007 and 2008, when supply is expected to remain scarce. ADR growth is expected to stabilize starting , when an estimated 7,300 rooms are scheduled for completion. Most of the additional supply is expected to be absorbed by the existing pentup demand, which has been the primary reason behind the supernormal growth in ADR and RevPAR since We anticipate a gradual decline of the average occupancy rate in Abu Dhabi hotels to begin in 2009 and culminate in However, Abu Dhabi s average occupancy rate is not expected to drop below the current regional average of 70%, as the local economy continues to record strong growth and tourist arrivals continue to increase at a projected CAGR of almost 12%. Retail segment Retail GLA is expected to more than double by 2010 Retail GLA is expected to grow in Abu Dhabi over the next four years, from an estimated 0.7 mn sqm in 2006 to 1.5 mn sqm by The retail GLA per capita is expected to reach almost 0.8 sqm from the current 0.5 sqm. In comparison, retail GLA per capita in Dubai was estimated to be over 1 sqm in 2006 and it is expected to exceed 2 sqm by Meanwhile, retail space per capita in the MENA region is estimated to be around 0.5 sqm, in contrast to the USA where the same ratio is almost 1.7 sqm per capita. Square meter 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 Estimated Total Retail GLA in Abu Dhabi in 2006 and 2010 Source: Colliers International, SHUAA Capital E Rising rents of retail space The limited availability of high footage retail space at the moment in Abu Dhabi is regarded as the primary reason behind the estimated 30% increase in 2006 retail rental rates. This trend of rising rental rates is expected to continue in the run up to 2010 in shopping centre/mall space at the expense of conventional street located retail space. Both Al Wahda Mall and the Marina Mall expansion were completed this year, their combined GLA is estimated to be in the region of 180,000 sqm. Another shopping centre is expected to reach the market later this year namely Khalidiya Mall, which has an estimated size of 46,000 sqm. In addition, Madinat Zayed will be refurbished and placed under the management of EMKE Group. Retail spend per capita in Abu Dhabi is estimated to have exceeded AED 6,500 in This figure is expected to appreciate further with the ongoing economic growth and the growing number of tourists visiting Abu Dhabi. July 9th,

13 Real estate developments Aldar s current development plans include three master planned communities and a basket of other properties scattered across Abu Dhabi city. The three master developments are, in order of expected completion: Al Raha Gardens Al Raha Beach Yas Island Aldar is also developing eight additional properties in Abu Dhabi that are expected to be completed between 2007 and Al Raha Gardens 1,388 villas in Al Raha Gardens Exclusively to UAE nationals Al Raha Gardens is a community style development that comprises of 1,388 villas delivered over three phases. The villas are spread over a landscaped area with all the major amenities such as schools, sports facilities, parks and a retail center. The location is on the main highway between Abu Dhabi and Dubai. Al Raha Gardens was launched for sale on freehold basis in tranches starting June 2005, exclusively to UAE nationals. These were the first properties that could be sold to UAE nationals on freehold basis in Abu Dhabi. The first batch of villas was sold out in less than one hour. An estimated 85% of all properties are sold, with the last remaining villas expected to be launched for sale later this year. Development NSA/Sqm Units Completion year Phase one 73, Phase two 123, Phase three 167, Total 364,500 1,388 NSA almost 364,500 sqm The total estimated net sellable area (NSA) in Al Raha Gardens is approximately 364,500 sqm of residential space, with an estimated average selling price per sqm of AED 7,800. The payment terms under which these villas were sold are 15% paid on booking and the remaining 85% paid on delivery. These terms will not apply to the last tranch or any other of the developments being launched by Aldar at this stage. The new payment terms will require the gradual payment of 6080% of the price prior to completion, which is more advantageous to the company from a cash flow perspective. Square meter 180, , , , ,000 80,000 60,000 40,000 20,000 Breakdown of NSA per Phase at Al Raha Gardens Phase one Phase two Phase three July 9th,

14 Equities research Al Raha Beach A total BUA of 7.9 mn sqm Al Raha Beach is a mixeduse waterfront development spread over a land area of 5.7 mn sqm with a total BUA of 7.9 mn sqm alongside an 8.5 km stretch of natural beachfront, on the main highway leading into Abu Dhabi from Dubai. The development is located at a short distance from the current city centre of Abu Dhabi and the expanding Abu Dhabi International Airport. The government of Abu Dhabi, together with Aldar, is currently working on building part of the required infrastructure for the Al Raha Beach development. Al Raha Beach was one of the first designated areas in Abu Dhabi where expatriates could buy property. 3,500,000 3,000,000 In its first phase, this development is expected to utilize an estimated 35% the total BUA available. Around 40% of the total BUA will be sold as serviced plots starting this year, and 25% will be kept by Aldar for a second phase of developments at Al Raha Beach. Breakdown of Total BUA at Al Raha Beach Square meter 2,500,000 2,000,000 1,500,000 1,000, ,000 Phase one Phase two Land for sale A combined NSA and NLA of 1.4 mn sqm in phase one 60% for sale and 40% to be part of investment property portfolio In phase one, Aldar is expected to develop a total NSA and net leasable area (NLA) of 1.4 mn sqm, divided into eight communities and 11 distinguished zones completed between 2009 and The 1.4 mn sqm is effective sellable and leasable space produced out of the total BUA for phase one (adjusted for the JV with Keppel Land in the Al Muneera property). Aldar s new headquarter will also be located in the area (around 75% of that building will be leased out). It is expected that Al Raha Beach will be home to over 120,000 residents, once fully completed. An estimated 60% of the total net area developed in this first phase is sellable, with the remaining 40% going to Aldar s investment property portfolio. Therefore, the total NSA is estimated to be 0.8 mn sqm, while the NLA is approximately 0.6 mn sqm. The residential segment is expected to be the largest in terms of size, with 75% of the total net area developed in phase one being in that segment. An estimated 80% of all residential space is sellable. All office, retail and hospitality space will be kept by Aldar as investment property. 1,400,000 Breakdown by Segment of NSA & NLA in Al Raha Beach Phase One Square meter 1,200,000 1,000, , , ,000 NLA, 40% 200,000 Residential Office Retail Hotel Other NSA NLA NSA, 60% July 9th,

15 3.25 mn sqm of land on Al Raha Beach expected to be sold As we pointed out earlier, around 40% or 3.25 mn sqm of the total BUA is expected to be sold by Aldar to third party developers as serviced land. We expect Aldar to initiate sale of land on Al Raha Beach in 2007, with land being fully sold by Q We estimate that the average selling price of land at Al Raha Beach is AED 2,200 per sqm of BUA, which we believe to be a reasonable price, as land in central Abu Dhabi was selling at levels above AED 2,500 in No land price appreciation has been assumed going forward. Yas Island Aldar s largest development is expected to host the 2009 F1 GP Covers an estimated mn sqm of land Yas Island is Aldar s largest development. This is a mixeduse project with residential, office, hotel and leisure facilities including a Formula One (F1) race track, a Ferrari Theme Park and a water park. The Abu Dhabi F1 Grand Prix (GP) will take place in 2009 on the F1 race track under development by Aldar in the heart of Yas Island. The GP was awarded earlier this year to Abu Dhabi on a renewable seven year term. The development is expected to include approximately 30 hotels with an estimated 16,000 rooms. In addition to thousands of apartments, almost 500 villas and a shopping mall with over 300,000 sqm of retail area. The location of Yas Island is on the peripheries of Abu Dhabi city in the immediate vicinity of Al Raha Beach next to one of the UAE s main highways. The estimated drive time between Yas Island and Dubai is 40 minutes. Only 0.9 mn sqm of net area expected to be completed by 2009 Square meter 500, , , , , , , , ,000 50,000 All in all the development is expected to cover an estimated mn sqm of land on a natural island, with a BUA of equal size due to a relatively low floor area ratio (FAR) of one. Out of the total BUA of mn sqm, Aldar expects to sell around 35% to third party developers over the next 810 years. This is equal to 8.7 mn sqm of land for sale. The project is expected to be fully completed by This leaves mn sqm of the BUA to be developed by Aldar by 2016, which we estimate can generate a minimum of 9.7 mn sqm in total NSA and NLA. The net area is based on a 60% building efficiency ratio (BER), which is equal to the lowest estimated BER out of Aldar s ongoing property developments. The next five years on Yas Island At this stage we would like to stress the fact that the masterplan and feasibilities associated with this development remain to be finalized. We expect the final touches to be made later this year. What is fairly clear in terms of development at this stage is what needs to be in place by the time the 2009 GP begins. We understand from Aldar that the race track, the Ferrari theme park, hotels, one golf course and less than a thousand residential units will be ready by then, all of which is expected to be leasable space developed by Aldar. We estimate that these properties will require Aldar to develop almost 0.9 mn sqm of NLA on Yas Island by Breakdown of the Estimated Total NLA to be Completed by Aldar in 2009 on Yas Island Residential Office Retail Hotel Leisure July 9th,

16 Equities research 3.25 mn sqm of land expected to be sold on Yas Island Land sales on Yas Island are planned to begin in 2008, with the company expected to sell an estimated 3.25 mn sqm of land by This leaves almost 5.45 mn sqm of land available for sale on Yas Island alone at a later stage. We estimate the average selling price will be AED 2,000 per sqm of BUA on Yas Island with no appreciation assumed during the projected period. This compares to an estimated average selling price of AED 2,200 per sqm of BUA at Al Raha Beach, which is at a more advanced stage of development, and to AED 2,500 at a another master development in Abu Dhabi developed by one of Aldar s competitors. Aldar is expected to attempt to ensure the success of the total project by pricing land at competitive rates in the first phase; a standard approach among regional developers. This means that land sold in the second phase should have a higher market value and thus also a higher price. Other developments underway Eight more properties are under development Aldar is currently developing eight other properties in Abu Dhabi. The largest property among the other developments is the Central Market, which is located in the heart of Abu Dhabi s city centre, followed by Al Gurm Resort and Coconut Island. However, the first property to be completed is the Royal House, which is expected to stand ready in late The total NSA and NLA of these eight properties is estimated at 0.83 mn sqm. 350,000 Breakdown by Development of the Total NSA and NLA of Aldar's Other Developments NSA, 28% 300,000 Square meter 250, , , ,000 50,000 Central Market NSA Al Gurm Resort NLA Coconut Island Abraj Towers Al Mamoura Injazaat Ruwais Shopping Mall Royal House NLA, 72% All nonresidential space to be kept as investment property Around 72% of the net area developed in other developments will remain in Aldar s investment property portfolio. The remaining 28% is sellable area. All nonresidential and an estimated 44% of residential space is expected to remain as investment property. Only the Al Gurm Resort and Coconut Island offer properties for sale. Coconut Island is being developed with the National Company for Hotels and Tourism through a JV. (The Coconut Island s area in the chart, refers only to Aldar s 50%.) Development NSA/Sqm NLA/Sqm Total Completion Year Central Market 298, , Al Gurm Resort 151,500 56, , Coconut Island 77,800 25, , Abraj Towers 91,900 91, Al Mamoura 65,500 65, Injazaat 24,000 24, Ruwais Shopping Mall 20,700 20, Royal House 12,500 12, Total 229, , ,100 July 9th,

17 MAP of Aldar s real estate developments Existing land bank (BUA) Potential additions to land bank Mina Zayed Central Market (0.45 mn sqm) Al Bateen (0.10 mn sqm) Al Mamoura (0.02 mn sqm) Coconut Island (0.20 mn sqm) Diabetes Center (3,600 sqm) Al Gurm Resort (0.21 mn sqm) Al Raha Beach (7.93 mn sqm) Al Raha Gardens (0.36 mn sqm) Yas Island (24.85 mn sqm) Abraj (0.15 mn sqm) July 9th,

18 Equities research Major operating lines Property sales Change in payment terms allows Aldar to book revenue in tune with construction progress An estimated 1.4 mn of NSA is expected to be completed by 2011 Revenue from property sales is expected to appear on a regular basis on Aldar s income statement starting in 2007, as the company completes the first phase of Al Raha Gardens. In addition, the changed payment terms of property sales will allow Aldar to book revenue in tune with sales progress and percentage of completion, rather than on handover of completed properties. Based on current plans, Aldar is expected to develop and complete an estimated 1.4 mn sqm of NSA in the run up to However, we stress that the total NSA expected to be developed by 2011 could rise above 1.4 mn sqm if Aldar launches further projects over the next five years. With its current land bank, assuming no further additions, Aldar is capable of developing significantly more than 1.4 mn sqm. Another factor that we believe could take this figure further up is the potential regional and global expansion of Aldar through JVs and acquisitions. 600, ,000 Total Completed NSA Per Annum by Aldar Square meter 400, , , , E 2008E 2009E 2010E 2011E Average selling price exceeds AED 12,000 The estimated average price per sqm of NSA for all developments expected to be sold by Aldar over the projected period is AED 12,270, whereas the average cost of development is estimated to be AED 9,470. However, properties will be selling in a wide price range. The margin on property sales is estimated to be 23% on average for the projection period. Average price, cost and payment terms for property sales Average price (AED) 12,270 Average cost (AED) 9,470 Average margin 23% Payment terms 60%80% paid before completion The limited output and diversity of freehold/leasehold real estate property on the Abu Dhabi real estate market makes it almost impossible to conduct a reasonable comparative price analysis. As mentioned earlier, the properties being built by Aldar are among the first properties ever to be available to buy and sell on freehold/leasehold basis for nationals and nonnationals alike. Meanwhile, the Abu Dhabi market continues to suffer from a supply shortage, and this shortage is not only of quantity but also of quality and diversity of property classes. As a direct consequence, rents have more than doubled in Abu Dhabi since Aldar to generate revenue from transfer of properties Aldar will also generate revenue on the transfer of properties by charging a transfer fee on any secondary market transaction of properties it has already sold. However, this revenue is very low in comparison to the major lines of revenue. July 9th,

19 Investment properties Unlike most of its competitors in Abu Dhabi and the UAE, Aldar is investing heavily into its investment property portfolio right from the start. The contribution from investment properties, which will be in the form of rental income and revenue from hotels and leisure parks, will begin to show stronger growth in 2008, as more properties are completed. Investment properties for an estimated AED 20 bn We estimate that Aldar will develop an estimated AED 20 bn worth of investment property by This figure excludes fair value gain on investment properties. The total completed NLA, based on current plans, is estimated to be 2.1 mn sqm. All this NLA is expected to be located in the emirate of Abu Dhabi. 1,200,000 1,000,000 Total Completed NLA per Annum by Aldar Square meter 800, , , , E 2008E 2009E 2010E 2011E Expected yield of 1011% We estimate that Aldar will achieve an average yield on cost of development of investment properties in the range of 1011% per annum throughout the period. The main factors that will allow this to materialize include: low cost of land, which reduces cost of development and results in higher yield at market rents; continued supply shortage in all segments of the Abu Dhabi real estate market in the run up to , which is expected to continue fuelling yields. We expect Aldar to make fair value gains on investment properties of almost AED 10 bn between 2007 and 2011, as a result of rising market value of property and the fact that Aldar can book the value of the land where these investment properties are developed. Land with for sale property developments remains booked at cost, which happens to be negligible, as most of the land has been granted for free by the government of Abu Dhabi. With the rising value of its investment properties, Aldar is expected to consider partial exit from some of its properties in the future in order to realize a capital gain and get access to cash for new developments on its vast land bank. Currently operating two investment properties Operational investment properties Aldar currently has two investment properties in its portfolio: Al Jimi Mall and Imperial College London Diabetes Center, both of which are located in the emirate of Abu Dhabi. Al Jimi Mall is in the city of Al Ain, the second largest city in the Abu Dhabi emirate. The diabetes center is the result of a partnership between Imperial College London and Mubadala. The land on which the center is built is owned by Mubadala, who engaged Aldar to develop the property and lease it back to Mubadala on a 15 year contract. This property is located on Mussafah Road in Abu Dhabi, next to Zayed Military Hospital Building. The center was completed in April 2006 with an estimated NLA of 3,600 sqm. The property enjoys a 100% occupancy rate at a rental rate of AED 1,000 per sqm and year. The estimated yield achieved on this property is just over 13%. July 9th,