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Aldar Properties (ALDR.AD)
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, pent-up 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 13.68 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.
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Current Price: AED 7.69 Country: United Arab EmiratesFair value Target: AED 13.68 Sector: Real EstateRecommendation: BUY Exchange: Abu Dhabi Securities Market
July 9th 2007
Initial CoverageEquity Research
Sector Coverage TeamRoy Cherry+9714 3199 [email protected]
Lara Hourani+9714 3199 [email protected]
Aldar Properties performance vs. SC UAE Index
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SC UAE Index rebasedAldar Properties (AED)
Year Net profit (AED’ 000)
BV (AED’ 000)
EPS (AED)
BVPS (AED)
RoAE (%)
P/E (x)
P/BV (x)
Dec-09E 4,297,390 16,508,615 1.28 6.95 31.8% 6.00 1.11
Dec-08E 3,338,187 10,532,054 0.99 5.14 40.4% 7.7 1.5
Dec-07E 2,177,307 5,995,564 0.65 3.32 47.0% 11.8 2.3
Dec-06 1,249,677 3,270,978 0.37 1.90 46.2% 20.6 4.1
52-week 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. 2006 1.00%
Note: BV and All ratios are based on gradual dilution except for the EPS and P/E ratios which are based on full dilution.
Equities research
July 9th, 2007 2
Aldar Properties
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 .......................................................................................................................... 10
hoSpitAlitY SEgMEnt ............................................................................................................... 11
REtAil SEgMEnt .......................................................................................................................... 12
REal EstatE DEvElopmEnts ..................................................13
Al RAhA gARDEnS ...................................................................................................................... 13
Al RAhA BEACh ........................................................................................................................... 14
YAS iSlAnD ................................................................................................................................... 15
othER DEvElopMEntS UnDERwAY .......................................................................................... 16
map of alDaR’s REal EstatE DEvElopmEnts ..........................17
maJoR opERatIng lInEs ........................................................18
pRopERtY SAlES .......................................................................................................................... 18
invEStMEnt pRopERtiES ........................................................................................................... 19
lAnD SAlES .................................................................................................................................. 21
lanD bank ............................................................................22
AppRAiSED lAnD BAnk vAlUE .................................................................................................. 23
ADjUStED nAv ............................................................................................................................. 23
swot-analysIs .....................................................................24
fInanCIal analysIs anD foRECasts ......................................25
valuatIon ............................................................................28
fInanCIals ...........................................................................29
appEnDIx ..............................................................................31
July 9th, 2007 �
Aldar Properties
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, pent-up 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 2011. 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 13.68 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.
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Equities research
July 9th, 2007 �
Aldar Properties
Company overview
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 re-organize 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 non-national 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 long-term development plans include a number of mixed-use 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 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 Properties
Source: Aldar, SHUAA Capital
Aldar Laing O’Rourke Construction Aldar formed a JV with Laing O’Rourke, a leading international construction firm, in 2006. 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.
AseelAbu 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%.
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
July 9th, 2007 �
Aldar Properties
New Conventional mortgage ventureAbu 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.
InshaaInshaa 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 236-unit project that is expected to be delivered to owners soon.
A&T CoolAldar 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 2009. 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 LandAldar 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
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%.
Source: Aldar, SHUAA CapitalNote: 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%).
Aldar's Shareholding Structure
Abu Dhabi Government, 25.4%
Free Float, 74.6%
Aldar's Shareholding Structure
Abu Dhabi Government, 25.4%
Free Float, 74.6%
More than 25% of the company is owned be the
government of Abu Dhabi
Equities research
July 9th, 2007 �
Aldar Properties
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; andSeveral members of Aldar’s board hold top position within government entities.
Convertible bonds
Aldar issued convertible bonds in Q1 2007 for a value of AED 9.3 bn, with a maturity date in Q4 2011. 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 lock-up period of six months, which expires on 10 September 2007.
Every USD 1,000 certificate can be converted into 645.16 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.
The number of shares post full conversion is estimated to increase from 1.725 bn to 3.355 bn shares.
Source: Aldar, SHUAA Capital
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Aldar's Number of Shares Pre and Post Conversion of Bonds
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Aldar's Number of Shares Pre and Post Conversion of Bonds
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500,000
1,000,000
1,500,000
2,000,000
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Issued convertible bonds for AED 9.3 bn in Q1 2007
The conversion price is AED 5.7
July 9th, 2007 7
Aldar Properties
Strategy
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 third-party 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 take-off of these large master-planned ‘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.
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
Equities research
July 9th, 2007 �
Aldar Properties
Abu Dhabi Real estate market overview
Competition
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.
Source: Aldar, Zawya, annual reports, SHUAA Capital
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.
TDICTDIC 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 2009.
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 2018. However, unlike Aldar, TDIC’s objective is to develop the master plan and then sell almost all plots to private investors.
Sorouh Real EstateSorouh 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 built-up 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 high-rise towers by 2011. Sorouh has not
Estimated Value of Developments Launched by Leading Abu Dhabi Real Estate Companies
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Aldar TDIC Sorouh Tamouh Reem Al QudraReal Estate
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Estimated Value of Developments Launched by Leading Abu Dhabi Real Estate Companies
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Largest real estate developer in Abu Dhabi
Managing the tourism investment zones for ADTA
Sorouh’s land bank exceeds 20 mn sqm
July 9th, 2007 �
Aldar Properties
yet performed an independent land bank valuation. Like Aldar, Sorouh was also granted land from the Abu Dhabi government.
Tamouh InvestmentsTamouh 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 DevelopersReem 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 EstateAl 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 15-23 floors in addition to a four-star hotel.
ManazelManazel was established as a private joint stock company in 2006 in Abu Dhabi, with a paid-up 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
Abu Dhabi’s residential real estate market is expected to continue suffering from a supply shortage at least up to 2009. 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 2004.
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.
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
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
Equities research
July 9th, 2007 10
Aldar Properties
Source: Colliers International, SHUAA Capital
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 associ-ated growth in population which has been fuelled by the influx of expatriates seeking work in Abu Dhabi. Consequently, pent-up 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 non-existent 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% rent-cap put in place in Q1 2007 and delayed enforcement).Consequently disposable income levels should stabilize beyond 2009 and therefore free up more pent-up demand.Potential drop of overall occupancy levels from current 98-100% to around 90%, which should continue to meet investor criteria.Construction delays will smoothen and stretch delivery schedules, while cumu-lative demand continues to grow.
Office segment
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.
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Additional Annual Residential Unit Supply and Demand in Abu Dhabi 2006-2011
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Additional Annual Residential Unit Supply and Demand in Abu Dhabi 2006-2011
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Demand continues to exceed supply
July 9th, 2007 11
Aldar Properties
Source: Colliers International, SHUAA Capital
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 2010. 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
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 2006. In comparison, the average occupancy rate in the Middle East (ME) was estimated to be 70% in 2006. 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 2006.
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.
Additional Annual Office Supply and Demand in Abu Dhabi 2006-2011
-
50,000
100,000
150,000
200,000
250,000
2006E 2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
Additional Demand Additional Supply
Additional Annual Office Supply and Demand in Abu Dhabi 2006-2011
-
50,000
100,000
150,000
200,000
250,000
2006E 2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
Additional Demand Additional Supply
Average Daily Room Rates, Revenue Per Average Room and Average Occupancy Rates in Abu Dhabi 2003-2006
-
100
200
300
400
500
600
700
2003 2004 2005 2006
AED
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Occ
upan
cy ra
te
ADR RevPAR Average Abu Dhabi Occupancy Rate Average ME Occupancy Rate
Average Daily Room Rates, Revenue Per Average Room and Average Occupancy Rates in Abu Dhabi 2003-2006
-
100
200
300
400
500
600
700
2003 2004 2005 2006
AED
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Occ
upan
cy ra
te
ADR RevPAR Average Abu Dhabi Occupancy Rate Average ME Occupancy Rate
Large deliveries expected in 2009
Existing secondary grade stock expected to see
decline in occupancy rates
Average occupancy rates appreciated from 68% to 84%
Around 9,500 hotel rooms in Abu Dhabi
Equities research
July 9th, 2007 12
Aldar Properties
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 2009-2010, when an estimated 7,300 rooms are scheduled for completion. Most of the additional supply is expected to be absorbed by the existing pent-up demand, which has been the primary reason behind the supernormal growth in ADR and RevPAR since 2003. We anticipate a gradual decline of the average occupancy rate in Abu Dhabi hotels to begin in 2009 and culminate in 2010. 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 grow in Abu Dhabi over the next four years, from an estimated 0.7 mn sqm in 2006 to 1.5 mn sqm by 2010. 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 2010. 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.
Source: Colliers International, SHUAA Capital
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 2006. This figure is expected to appreciate further with the ongoing economic growth and the growing number of tourists visiting Abu Dhabi.
Additional Annual Hotel Room Supply and Demand 2007-2011
-
1,000
2,000
3,000
4,000
5,000
6,000
2007E 2008E 2009E 2010E 2011E
Room
s
Additional SupplyAdditional Demand
Additional Annual Hotel Room Supply and Demand 2007-2011
-
1,000
2,000
3,000
4,000
5,000
6,000
2007E 2008E 2009E 2010E 2011E
Room
s
Additional SupplyAdditional Demand
Estimated Total Retail GLA in Abu Dhabi in 2006 and 2010
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2006 2010E
Squa
re m
eter
Estimated Total Retail GLA in Abu Dhabi in 2006 and 2010
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2006 2010E
Squa
re m
eter
Rising ADR and RevPAR in 2007 and 2008 expected
Retail GLA is expected to more than double by 2010
Rising rents of retail space
July 9th, 2007 1�
Aldar Properties
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 GardensAl Raha BeachYas Island
Aldar is also developing eight additional properties in Abu Dhabi that are expected to be completed between 2007 and 2010.
Al Raha Gardens
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 73,500 280 2007
Phase two 123,500 470 2008
Phase three 167,500 638 2008
Total 364,500 1,388
Source: Aldar, SHUAA Capital
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 60-80% of the price prior to completion, which is more advantageous to the company from a cash flow perspective.
Source: Aldar, SHUAA Capital
•••
Breakdown of NSA per Phase at Al Raha Gardens
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Phase one Phase two Phase three
Squa
re m
eter
Breakdown of NSA per Phase at Al Raha Gardens
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Phase one Phase two Phase three
Squa
re m
eter
1,388 villas in Al Raha Gardens
Exclusively to UAE nationals
NSA almost 364,500 sqm
Equities research
July 9th, 2007 1�
Aldar Properties
Al Raha Beach
Al Raha Beach is a mixed-use 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.
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.
Source: Aldar, SHUAA Capital
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 2011. 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.
Source: Aldar, SHUAA Capital
Breakdown of Total BUA at Al Raha Beach
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Phase one Phase two Land for sale
Squa
re m
eter
Breakdown of Total BUA at Al Raha Beach
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Phase one Phase two Land for sale
Squa
re m
eter
Breakdown by Segment of NSA & NLA in Al Raha Beach Phase One
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Residential O�ce Retail Hotel Other
Squa
re m
eter
NSA NLA
NSA, 60%
NLA, 40%
Breakdown by Segment of NSA & NLA in Al Raha Beach Phase One
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Residential O�ce Retail Hotel Other
Squa
re m
eter
NSA NLA
NSA, 60%
NLA, 40%
A total BUA of 7.9 mn sqm
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
July 9th, 2007 1�
Aldar Properties
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 Q4 2011. 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 2006. No land price appreciation has been assumed going forward.
Yas Island
Yas Island is Aldar’s largest development. This is a mixed-use 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.
All in all the development is expected to cover an estimated 24.85 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 24.85 mn sqm, Aldar expects to sell around 35% to third party developers over the next 8-10 years. This is equal to 8.7 mn sqm of land for sale. The project is expected to be fully completed by 2016.
This leaves 16.15 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 master-plan 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 2009.
Source: Aldar, SHUAA Capital
Breakdown of the Estimated Total NLA to be Completed by Aldar in 2009 on Yas Island
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Residential O�ce Retail Hotel Leisure
Squa
re m
eter
Breakdown of the Estimated Total NLA to be Completed by Aldar in 2009 on Yas Island
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Residential O�ce Retail Hotel Leisure
Squa
re m
eter
3.25 mn sqm of land on Al Raha Beach
expected to be sold
Aldar’s largest development is expected to host
the 2009 F1 GP
Covers an estimated 24.85 mn sqm of land
Only 0.9 mn sqm of net area expected to be completed by 2009
Equities research
July 9th, 2007 1�
Aldar Properties
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 2011. 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
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 2007. The total NSA and NLA of these eight properties is estimated at 0.83 mn sqm.
Source: Aldar, SHUAA Capital
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 non-residential 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 - 298,200 298,200 2010
Al Gurm Resort 151,500 56,600 208,100 2008
Coconut Island 77,800 25,400 103,200 2009
Abraj Towers - 91,900 91,900 2008
Al Mamoura - 65,500 65,500 2008
Injazaat - 24,000 24,000 2008
Ruwais Shopping Mall - 20,700 20,700 2008
Royal House - 12,500 12,500 2007
Total 229,300 594,800 824,100
Source: Aldar, SHUAA Capital
Breakdown by Development of the Total NSA and NLA of Aldar's Other Developments
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
CentralMarket
Al GurmResort
CoconutIsland
AbrajTowers
Al Mamoura Injazaat RuwaisShopping
Mall
RoyalHouse
Squa
re m
eter
NSA NLA
NSA, 28%
NLA, 72%
Breakdown by Development of the Total NSA and NLA of Aldar's Other Developments
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
CentralMarket
Al GurmResort
CoconutIsland
AbrajTowers
Al Mamoura Injazaat RuwaisShopping
Mall
RoyalHouse
Squa
re m
eter
NSA NLA
NSA, 28%
NLA, 72%
3.25 mn sqm of land expected to be sold
on Yas Island
Eight more properties are under development
All non-residential space to be kept as investment property
July 9th, 2007 17
Aldar Properties
MAP of Aldar’s real estate developments
Yas
Isla
nd
(2
4.85
mn
sqm
)
Ab
raj
(0.1
5 m
n sq
m)
Al R
aha
Gar
den
s
(0.3
6 m
n sq
m)
Al R
aha
Bea
ch
(7.9
3 m
n sq
m)
Al G
urm
Res
ort
(0
.21
mn
sqm
)
Dia
bet
es C
ente
r
(3,6
00 s
qm)
Co
con
ut I
slan
d
(0.2
0 m
n sq
m)
Al B
atee
n
(0.1
0 m
n sq
m)
Al M
amo
ura
(0.0
2 m
n sq
m)
Cen
tral
Mar
ket
(0.4
5 m
n sq
m)
Min
a Z
ayed
Exist
ing
land
ban
k (B
UA)
Pote
ntia
l add
ition
s to
land
ban
k
Equities research
July 9th, 2007 1�
Aldar Properties
Major operating lines
Property sales
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 2011. 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.
Source: Aldar, SHUAA Capital
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
Source: Aldar, SHUAA Capital
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 non-nationals 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 2003.
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.
Total Completed NSA Per Annum by Aldar 2007-2011
-
100,000
200,000
300,000
400,000
500,000
600,000
2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
Total Completed NSA Per Annum by Aldar 2007-2011
-
100,000
200,000
300,000
400,000
500,000
600,000
2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
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
Average selling price exceeds AED 12,000
Aldar to generate revenue from transfer of properties
July 9th, 2007 1�
Aldar Properties
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.
We estimate that Aldar will develop an estimated AED 20 bn worth of investment property by 2011. 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.
Source: Aldar, SHUAA Capital
We estimate that Aldar will achieve an average yield on cost of development of investment properties in the range of 10-11% 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 2009-2010, 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.
Operational investment propertiesAldar 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%.
•
•
Total Completed NLA per Annum by Aldar 2007-2011
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
Total Completed NLA per Annum by Aldar 2007-2011
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
Investment properties for an estimated AED 20 bn
Expected yield of 10-11%
Currently operating two investment properties
Equities research
July 9th, 2007 20
Aldar Properties
Al Jimi Mall is situated in the city of Al Ain in the emirate of Abu Dhabi, approximately 160 kilometers from the city of Abu Dhabi. The mall was acquired by Aldar in 2005. The NLA at this retail property is estimated to be 46,600 sqm.
The mall is fully occupied with over 100 tenants. The top five tenants produce approximately 55% of the rents. The average lease term is estimated to be 10 years while the average annual rental rate per sqm is almost AED 600. Aldar has achieved an impressive yield of 22% on this property to date.
Operational investment properties
Property NLA/Sqm Occupancy Est. yield 2006
Diabetes Center 3,600 100% 13%
Al jimi Mall 46,600 100% 22%
Source: Aldar, SHUAA Capital
July 9th, 2007 21
Aldar Properties
Land sales
Land sales are expected to begin playing a more important role in Aldar’s business starting 2007, once land sales of serviced plots in Al Raha Beach begin. Land is also expected to be sold on the Yas Island starting in 2008. In total, we estimate that Aldar will sell 6.5 mn sqm of land on Al Raha Beach and Yas Island by 2011.
Unlike raw land, these serviced plots will form part of Aldar’s master plan and will have infrastructure in place. Developers buying these plots will have to comply with the master plan in their property designs and development.
The estimated average effective cost of land development on Al Raha Beach is AED 960 per sqm of BUA, while we estimate the average selling price to be AED 2,200. A total of 3.25 mn sqm is expected to be sold as serviced land from the Al Raha Beach master development to third party developers between 2007 and 2011.
We expect, Aldar to start selling land on Yas Island in 2008 at an estimated average price of AED 2,000 per sqm. Based on our estimates, the average cost of land development is 15% higher at Yas Island than at Al Raha Beach, which is located almost on the main highway that links Abu Dhabi and Dubai. Yas Island will require more extensive and expensive infrastructure as it is further away from Abu Dhabi city and is a separate island with no infrastructure in place. We estimate that over 3.25 mn sqm of serviced land will be sold on Yas Island by 2011.
Source: Aldar, SHUAA Capital
Total Estimated BUA of Land Sold per Annum by Aldar 2007-2011
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
Total Estimated BUA of Land Sold per Annum by Aldar 2007-2011
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2007E 2008E 2009E 2010E 2011E
Squa
re m
eter
In total 6.5 mn sqm of land to be sold by 2011
Equities research
July 9th, 2007 22
Aldar Properties
Land bank
The Aldar’s current land bank is estimated to be 34.3 mn sqm of BUA. Based on our projections, we expect the company to consume 12 mn sqm of BUA from its existing land bank by 2011. This should leave 65% of the current land bank available for revenue generating activities post-2011, such as land sale, development of property for sale or investment properties for lease. Moreover, we expect Aldar to be granted further land in Abu Dhabi over the next five years. However, without assuming any land addition between 2007 and 2011, the company should have a remaining land bank of 22.3 mn sqm.
Development Plot size/Sqm Est. BUA/Sqm Used BUA during period/Sqm Remaining land bank/Sqm
Yas Island (A) 18,099,000 18,099,000 4,725,000 13,374,000
Yas Island (B) 6,749,500 6,749,500 - 6,749,500
Al Raha Beach 5,562,500 7,927,000 5,755,500 2,171,500
Al Gurm Resort 1,844,000 208,000 208,000 -
Al Raha Gardens 1,061,000 364,500 364,500 -
Coconut Island 689,500 206,500 206,500 -
Jimi Mall 178,000 58,000 58,000 -
Central Market 64,000 452,600 452,600 -
Abraj Towers 47,000 153,000 153,000 -
Al Bateen 103,200 103,000 103,000 -
Al Mamoura 19,000 19,000 19,000 -
Diabetes Centre 3,600 3,600 3,600 -
Total 34,420,300 34,343,700 12,048,700 22,295,000
Source: Aldar, SHUAA Capital
We are not including in the above table any expected additions to the land bank over the next five years, however, we do expect Aldar to be granted a further 5-15 mn sqm of land before 2011.
The remaining land bank is almost twice the land Aldar is expected to utilize in the five year period between 2007 and 2011. In theory, this means that the company could proceed with the remaining land bank for almost 10 years, assuming the same pace of development and the same distribution between NSA, NLA and land area sold. If we assume that everything else remains the same, the company could triple its investment property portfolio and increase its recurring cash flows. We expect this first five year period to increase the revenue generating capacity of land available for development over the subsequent periods, as we expect an appreciation in:
land pricesProperty pricesYields
This appreciation is expected to be fuelled by the continued economic, population and tourism growth in Abu Dhabi over the next five year period (see appendix for more details). Even in the event of a correction in property prices in the next five years due to over supply, we expect a net price/yield appreciation between 2007 and 2011.
Every remaining square meter of land should be capable of generating revenue that equals current levels with an adjustment for the net price/yield appreciation. In terms of profitability, we expect the appreciation in land value, property prices and yields (appreciation in yields is expected on development cost and not market value of property) to be higher than the potential rise in development costs. The primary reason being that the cost of land is nil and net infrastructure costs are almost finalized at this stage.
•••
Current land bank is 34.3 mn sqm
Additions to current land bank expected
Remaining land bank in 2011 is expected to be 22.3 mn sqm
July 9th, 2007 2�
Aldar Properties
Appraised land bank value
Aldar’s current land bank has an estimated appraised value of AED 38.3 bn, according to CB Richard Ellis (CBRE). However, the valuation conducted by CBRE excludes the second part of Yas Island, which is referred to as Yas Island (B) in the previous table. In addition, it excludes the land at Al Bateen, Al Mamoura and the Diabetes Centre. The total size of all excluded plots is approximately 6.9 mn sqm or 20% of Aldar’s total current land bank.
Source: Aldar, CBRE, SHUAA Capital
The appraised land bank value per share is estimated to be AED 11.4, when assuming full conversion of the convertible bonds issued in Q1 2007 by Aldar. The undiluted land bank value per share is AED 22.2.
Adjusted NAV
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 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 diluted adjusted NAV.
Source: Aldar, CBRE, SHUAA Capital
Appraised land bank value per share
-2.04.06.08.0
10.012.014.016.018.020.022.024.0
Undiluted Fully diluted
AED
per
sha
reAppraised land bank value per share
-2.04.06.08.0
10.012.014.016.018.020.022.024.0
Undiluted Fully diluted
AED
per
sha
re
Adjusted NAV per Share and Share Price Premium/(Discount) to NAV
-2.004.006.008.00
10.0012.0014.0016.0018.0020.0022.0024.0026.00
Undiluted Fully diluted
Adj
uste
d N
AV, A
ED p
er s
hare
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Prem
ium
/(di
scou
nt)
Adjusted NAV per share Premium/(Discount) to Nav
Adjusted NAV per Share and Share Price Premium/(Discount) to NAV
-2.004.006.008.00
10.0012.0014.0016.0018.0020.0022.0024.0026.00
Undiluted Fully diluted
Adj
uste
d N
AV, A
ED p
er s
hare
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Prem
ium
/(di
scou
nt)
Adjusted NAV per share Premium/(Discount) to Nav
80% of land bank is valued at AED 38.3 bn
Fully diluted adjusted NAV per share is AED 14.7
Equities research
July 9th, 2007 2�
Aldar Properties
SWOT-analysis
Strengths
• The largest land bank in Abu Dhabi.
• Establishing partnership with key real estate players and �nancial institutions in Abu Dhabi to provide mortgage �nance.
• Strong relationship with the government of Abu Dhabi.
• Aldar’s management has international real estate development experience.
• Entered into a JV with the region’s largest district cooling service provider, Tabreed, to capture the demand for this type of service in Aldar’s developments.
• One of Aldar’s developments will host the Abu Dhabi F1 Grand Prix in 2009, on a seven years renewable contract.
Opportunities
• Strong economic growth in the gulf region as a whole, and more speci�cally in the UAE and Abu Dhabi.
• Annual population growth of around 7% in Abu Dhabi, fuelled by growing number of expatriates coming to work in the booming UAE economy.
• Shortage of property supply in all real estate market segments in Abu Dhabi combined with continued strong growth in demand, driven by economic and population growth.
• Government recently adopted a new property law allowing expatriates to purchase properties in Abu Dhabi on a renewable 99-year leasehold contract basis. 80% of Abu Dhabi residents are non-nationals.
• Another law was adopted in 2004, which gave nationals the right to buy and sell freehold property.
• F1 Grand Prix, an opportunity to attract visitors to Yas Island’s other leisure destinations and hotels.
Threats
• New entrants into the Abu Dhabi real estate development market, in addition to existing market players.
• Continued rise in cost of construction material.
• Further increases in the mortgage interest rates.
• Geopolitical instability in the immediate vicinity of the UAE.
Weaknesses
• Company has a short operating history, with barely any track record, as it has yet to deliver any signi�cant portion of its projects.
• Income has to date been dominated by fair value gain on investment properties, which is not unusual for a real estate developer on the take-o�, but nevertheless a weakness.
Strengths
• The largest land bank in Abu Dhabi.
• Establishing partnership with key real estate players and �nancial institutions in Abu Dhabi to provide mortgage �nance.
• Strong relationship with the government of Abu Dhabi.
• Aldar’s management has international real estate development experience.
• Entered into a JV with the region’s largest district cooling service provider, Tabreed, to capture the demand for this type of service in Aldar’s developments.
• One of Aldar’s developments will host the Abu Dhabi F1 Grand Prix in 2009, on a seven years renewable contract.
Opportunities
• Strong economic growth in the gulf region as a whole, and more speci�cally in the UAE and Abu Dhabi.
• Annual population growth of around 7% in Abu Dhabi, fuelled by growing number of expatriates coming to work in the booming UAE economy.
• Shortage of property supply in all real estate market segments in Abu Dhabi combined with continued strong growth in demand, driven by economic and population growth.
• Government recently adopted a new property law allowing expatriates to purchase properties in Abu Dhabi on a renewable 99-year leasehold contract basis. 80% of Abu Dhabi residents are non-nationals.
• Another law was adopted in 2004, which gave nationals the right to buy and sell freehold property.
• F1 Grand Prix, an opportunity to attract visitors to Yas Island’s other leisure destinations and hotels.
Threats
• New entrants into the Abu Dhabi real estate development market, in addition to existing market players.
• Continued rise in cost of construction material.
• Further increases in the mortgage interest rates.
• Geopolitical instability in the immediate vicinity of the UAE.
Weaknesses
• Company has a short operating history, with barely any track record, as it has yet to deliver any signi�cant portion of its projects.
• Income has to date been dominated by fair value gain on investment properties, which is not unusual for a real estate developer on the take-o�, but nevertheless a weakness.
July 9th, 2007 2�
Aldar Properties
Financial analysis and forecasts
Aldar’s reported operating income to date has been unindicative, for the simple reason that no revenue from property sales has been recognized. The payment terms applied during the launch of Al Raha Gardens, meant that 85% of the price would be paid by the buyer on completion. This meant that revenue could not be recognized due to the risk of the buyer defaulting, even with Aldar’s employment of the percentage of completion method.
Starting in 2007, we expect the above to change due to the completion of 280 villas in Al Raha Gardens phase one and the company beginning to recognize revenue from Al Raha Beach properties, which are sold with payment terms that mean most of the purchase price will be collected before completion. Moreover, Aldar has announced that land sales will commence on Al Raha Beach this year.
Revenue
Aldar’s main sources of revenue going forward are expected to be land and property sales, coupled with income from investment properties. Our projections result in a total revenue of AED 2.4 bn in 2007, AED 7.0 bn in 2008 and AED 9.2 bn in 2011. In comparison, Aldar recorded operating revenue of AED 397 mn in 2005, on the back of raw land sales. Revenue dropped to AED 188 mn in 2006, when no land sales occurred and no property sales were recognized.
Source: Aldar, SHUAA Capital
The company is expected to recognize revenue from property sales in 2007 to a value of AED 1.44 bn followed by AED 5.35 bn in 2008. The completion of Al Raha Gardens phase one in 2007 and phases two and three in 2008, means full recognition of revenue will be simultaneous with the completion of each phase. The new payment terms employed on all properties launched after Al Raha Gardens will allow recognition of revenue from sale of these properties to be almost in tune with Aldar’s construction progress. This is one of the key reasons behind the projected growth in property sales in 2008. Based on the current property development pipeline, property sales are expected to drop to AED 1.96 bn in 2011. The estimated average price for Aldar’s developments is AED 12,270 per sqm of NSA, which in our view is very much inline with prevailing market prices in Abu Dhabi.
Meanwhile, land sales are expected to take-off as the company begins to sell land at Al Raha Beach in 2007 and at Yas Island in the subsequent year. We project that Aldar will sell land for AED 932 mn in 2007 and AED 1.5 bn in 2008. Revenue from Land sales is projected to reach AED 5.25 bn by 2011. The estimated selling price of land is AED 2,200 per sqm on Al Raha Beach and AED 2,000 per sqm on Yas Island.
Revenue from investment properties is projected to rise from 26 mn in 2007 and 169 mn in 2008 up to AED 1.98 bn in 2011. The primary reasons behind this growth in income from investment properties include the growing investments made by Aldar into its investment property portfolio and the subsequent completion and operation of these properties. As mentioned in previous sections, Aldar is expected to invest an estimated AED 20 bn in its investment property portfolio over the next five year period with an estimated yield of 10-11%.
Aldar's Revenue 2005-2011
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2005 2006 2007E 2008E 2009E 2010E 2011E
Land sales Contract revenue Property sales Rental income Transfer fees Other
AED
‘000
Aldar's Revenue 2005-2011
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2005 2006 2007E 2008E 2009E 2010E 2011E
Land sales Contract revenue Property sales Rental income Transfer fees Other
AED
‘000
Completion of 280 villas and initiation of land sales in 2007
Revenue is projected to reach AED 2.4 bn in 2007
Equities research
July 9th, 2007 2�
Aldar Properties
Fees on property transactions within Aldar’s developments coupled with other operating income are projected to generate AED 5.8 mn in 2007 and AED 12.4 mn in 2008. By 2011 the same revenue lines are expected to contribute AED 19 mn.
EBITDA
Aldar’s EBITDA saw severe fluctuations in the first two years of operations, with the company making a gain of AED 287 mn in 2005 and a loss of AED 230.7 mn in 2006. The EBITDA margin dropped below zero in 2006 from a record 72% in 2005. However, both years do not reflect a state of normal operations as they were skewed: in 2005 the firm sold raw land to a value of AED 328 mn at no cost and in 2006 no land or property sales were booked.
Going forward, Aldar’s EBITDA will be strongly influenced by the sources of revenue in each year and their level of contribution. Revenue from investment properties is estimated to have a blended gross profit margin (GPM) of 65%, land sales are estimated to have an average GPM of around 50% compared with 23% on property sales. Hence, the higher the revenue generated from land sales and investment properties, the greater the GPM and EBITDA margin.
Source: Aldar, SHUAA Capital
While we project selling, general and administration (SG&A) expenses to reach AED 846 mn in 2011 from an estimated AED 300 mn in 2007, Aldar’s EBITDA margin is expected to improve from 22% in 2007 to 37% in 2011 due to growing revenue from investment properties and land sales over the next five years. Consequently, Aldar’s EBITDA is projected to reach AED 520 mn in 2007, AED 1.65 bn in 2008 and AED 3.44 bn in 2011. EBITDA is projected to have a CAGR of 60% over the projected period.
Net profit
Aldar is expected to record almost AED 10 bn in fair value gains on investment properties over the next five years. Consequently, the company’s bottom line will be significantly higher than its EBITDA. We project that Aldar will record a net profit of AED 2.18 bn in 2007, AED 3.34 bn in 2008 and AED 5.33 bn in 2011. The resulting CAGR of net profit during the projected period is 25%.
Source: Aldar, SHUAA Capital
Aldar's EBITDA 2005-2011
(500,000)
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
2005 2006 2007E 2008E 2009E 2010E 2011E
AED
'000
Aldar's EBITDA 2005-2011
(500,000)
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
2005 2006 2007E 2008E 2009E 2010E 2011E
AED
'000
Aldar's Net Profit 2005-2011
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2005 2006 2007E 2008E 2009E 2010E 2011E
AED
'000
Aldar's Net Profit 2005-2011
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2005 2006 2007E 2008E 2009E 2010E 2011E
AED
'000
Projected EBITDA for 2007 is AED 520 mn
Almost AED 2.2 bn in projected net profit for 2007
July 9th, 2007 27
Aldar Properties
Dividend policy
Aldar distributed 5% cash dividend in 2005 and 8% in 2006 on share capital, which was an estimated 11% of net profit. We expect the company to maintain a dividend distribution level of 8% on share capital throughout the projected period.
Development of investment properties
Aldar’s expansion of its investment property portfolio is estimated to require AED 20 bn of investments in the run-up to 2011. We expect most of the development work on investment properties to take place during 2008 and 2009, when we estimate Aldar will make additions of AED 8.6 bn and AED 5.9 bn respectively.
Source: Aldar, SHUAA Capital
Meanwhile, Aldar is expected to make an estimated AED 10 bn in fair value gains on land and investment properties over the next five year period. Consequently, investment property assets are expected to reach AED 31.5 bn by 2011.
Debt
Aldar issued convertible bonds for a total of AED 9.3 bn in Q1 2007 with a Q4 2011 maturity and an initial lock up period of six month. The conversion price is AED 5.7. Bond holders can put in a notice requesting conversion starting September 2007. However, Aldar decides whether to accept conversion or pay cash. We are assuming all bonds will be gradually converted to shares.
In addition, the company recently received a syndicated loan with a three year draw down schedule to a total value of AED 7.7 bn with maturity in Q3 2011. We expect Aldar to take on additional debt with an approximate value of AED 5.5 bn over the next five years.
Debt-to-EquityIndustry norms indicate that regional real estate developers have a low debt-to-equity ratio, as most of them have been able to fund their developments through pre-sales of properties. In addition, few developers have made the same strategic commitment as Aldar to develop an investment property portfolio.
The company’s debt-to-equity ratio increased from 3% in 2005 to 20% in 2006. We estimate that the same ratio will peak at 195% in 2007, before beginning to decline sharply as the pace of conversion of the convertible bonds begins to pick up and the company’s development activities of investment properties slow down.
Source: Aldar, SHUAA Capital
Aldar's Estimated Annual Additions to Investment Properties
-1,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000
10,000,000
2006 2007E 2008E 2009E 2010E 2011E
AED
'000
Aldar's Estimated Annual Additions to Investment Properties
-1,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000
10,000,000
2006 2007E 2008E 2009E 2010E 2011E
AED
'000
Aldar's Debt-to-Equity Ratio 2005-2011
0%20%40%60%80%
100%120%140%160%180%200%
2005 2006 2007E 2008E 2009E 2010E 2011E
Aldar's Debt-to-Equity Ratio 2005-2011
0%20%40%60%80%
100%120%140%160%180%200%
2005 2006 2007E 2008E 2009E 2010E 2011E
Additions to investment properties peaking in 2008 and 2009
Debt-to-equity ratio peaks in 2007
Equities research
July 9th, 2007 2�
Aldar Properties
Valuation
We initiate coverage on Aldar Properties with a Buy recommendation based on a target value of AED 13.68 per share, implying an upside of 78% to the current market price of AED 7.69 per share. The target value is based on a Discounted Cash Flow (DCF) valuation, under the assumption of full conversion of outstanding convertible bonds. The convertible bonds have a conversion price of AED 5.7, The full conversion increases the total number of outstanding shares from 1.725 mn to 3.355 mn.
The DCF of Aldar Properties’ core business is based on a five year forecast period and a terminal value. The weighted average cost of capital (WACC) used is 8.8% and is based on a cost of equity of 11% and a cost of debt of 6.25%. The cost of equity was based on a risk free rate of 5.70% derived from the yield on a simulated 10-year Qatar sovereign, an equity risk premium of 5.0% and an industry beta of 1.03 To calculate the terminal value we used a terminal growth rate of 4%.
Sensitivity analysis of fair value per share (AED)
Terminal growth rate/WACC 7.8% 8.8% 9.8%
3% 14.25 11.19 9.02
4% 18.21 13.68 10.70
5% 24.99 17.49 13.08
We arrive at a fair value target of AED 13.68 per share, implying
an upside potential of 78%
July 9th, 2007 2�
Aldar Properties
Financials
Consolidated Balance Sheet (AED ‘000)
Year to December 2005 2006 2007E 2008E 2009E 2010E 2011E
Cash and bank balances 1,759,850 894,981 6,426,054 1,909,126 3,330,106 1,605,501 3,266,027
Amounts due from customers for contract work 54,359 - - - - - -
Amounts due from customers for property sales - - - 919,793 1,815,280 1,958,434 -
Amounts due from customers for land sales - - 698,829 1,317,587 861,838 234,818 -
Recievables from project finance - short term - 2,000 2,000 2,000 2,000 2,000 2,000
Advances for land 30,734 30,734 30,734 30,734 30,734 30,734 30,734
Advances and prepayments 40,312 146,211 46,164 65,535 115,878 195,288 231,396
trade and other receivables 47,894 4,850 2,650 14,935 44,185 137,096 164,652
Development wip 9,073 854,285 3,185,816 2,488,364 2,378,442 773,727 -
Total current assets 1,942,222 1,933,061 10,392,248 6,748,075 8,578,462 4,937,598 3,694,809
property, plant and equipment 4,050 13,006 100,490 614,313 234,299 236,437 237,718
intangible assets 23,149 38,070 38,070 38,070 38,070 38,070 38,070
investment properties 157,351 1,571,766 3,418,948 7,469,803 18,208,165 27,781,499 31,486,112
investment properties under development 268,561 1,267,965 4,234,967 10,650,076 8,541,696 2,075,904 566,339
investment in associates - 120,051 120,051 120,051 120,051 120,051 120,051
investment in jv - - 10,541 10,541 10,541 10,541 10,541
Available for sale financial assets 76,504 71,200 71,200 71,200 71,200 71,200 71,200
Receivables from project finance - 38,467 38,467 38,467 38,467 38,467 38,467
other receivables - 55,100 96,202 281,142 297,970 364,780 368,690
Total non-current assets 529,615 3,175,625 8,128,935 19,293,662 27,560,459 30,736,948 32,937,188
Total assets 2,471,837 5,108,686 18,521,183 26,041,737 36,138,921 35,674,547 36,631,997
trade and other payables 175,806 548,619 464,836 1,326,507 837,476 1,003,091 949,750
Current portion of longterm debt - - 1,498 1,543 5,028,701 4,128,453 816,502
Advances from customers - - 242,612 - - - -
Borrowings - short term 4,600 618,293 618,293 618,293 618,293 618,293 618,293
obligations under finance lease - short term 15,920 16,285 16,285 16,285 16,285 16,285 16,285
Total current liabilities 196,326 1,183,197 1,343,524 1,962,628 6,500,755 5,766,122 2,400,830
Advances from customers 78,805 513,896 - - - - -
Bank borrowings - long term 19,879 16,802 2,591,692 6,268,606 7,600,747 3,268,542 2,451,991
Convertible bond - - 8,448,246 7,114,312 5,335,734 3,557,156 -
obligation under finance lease - long term 29,393 15,436 15,436 15,436 15,436 15,436 15,436
Retentions 4,813 104,729 120,438 138,504 159,280 183,172 210,647
provision for EoSB 1,036 3,648 6,283 10,197 18,354 25,696 33,772
Total non-current liabilities 133,926 654,511 11,182,095 13,547,055 13,129,551 7,050,002 2,711,846
Total liabilities 330,252 1,837,708 12,525,619 15,509,683 19,630,306 12,816,124 5,112,676
Total equity 2,141,585 3,270,978 5,995,564 10,532,054 16,508,615 22,858,422 31,519,321
Total liabilities and shareholders equity 2,471,837 5,108,686 18,521,183 26,041,737 36,138,921 35,674,547 36,631,997
Equities research
July 9th, 2007 �0
Aldar Properties
Consolidated Income Statement (AED ‘000)
Year to December 2005 2006 2007E 2008E 2009E 2010E 2011E
Revenue 396,764 187,523 2,405,059 7,028,539 7,449,257 9,119,498 9,217,254
Direct costs (51,302) (156,689) (1,583,672) (4,978,367) (4,506,676) (5,379,987) (4,931,984)
Gross profit 345,462 30,834 821,387 2,050,173 2,942,581 3,739,511 4,285,270
Selling & marketing expenses (32,630) (77,518) (110,480) (143,003) (211,320) (273,711) (334,022)
General & administrative expenses (25,657) (183,965) (191,017) (258,354) (376,648) (448,440) (511,639)
EBITDA 287,175 (230,649) 519,891 1,648,816 2,354,613 3,017,359 3,439,610
Depreciation & amortization (607) (3,167) (3,889) (5,788) (7,463) (17,862) (18,719)
EBIT 286,568 (233,816) 516,002 1,643,028 2,347,151 2,999,498 3,420,891
net interest 355,917 67,814 (90,694) (157,841) (253,761) (233,799) (96,668)
gain on disposal of subsidiary 5,324 - - - - - -
fair value gain on investment properties 34,684 1,414,415 1,750,000 1,850,000 2,200,000 2,000,000 2,000,000
other income - 1,264 2,000 3,000 4,000 5,000 6,000
Net profit 682,493 1,249,677 2,177,307 3,338,187 4,297,390 4,770,699 5,330,223
Key Ratios
Year to December 2005 2006 2007E 2008E 2009E 2010E 2011E
Growth
Revenues - -53% 1183% 192% 6% 22% 1%
EBitDA - -180% - 217% 43% 28% 14%
net income - 83% 74% 53% 29% 11% 12%
Shareholders equity - 53% 83% 76% 57% 38% 38%
Assets - 107% 263% 41% 39% -1% 3%
Margins & profitability
EBitDA margin 72% -123% 22% 23% 32% 33% 37%
net profit margin 172% 666% 91% 47% 58% 52% 58%
RoAE 32% 46% 47% 40% 32% 24% 20%
RoAA 28% 24% 12% 13% 12% 13% 15%
Valuation
number of shares 1,500,000 1,725,000 1,806,501 2,051,004 2,377,009 2,703,013 3,355,022
p/E (undiluted) 19.44 10.61 6.09 3.97 3.09 2.78 2.49
p/E (gradual dilution) 19.44 10.61 6.38 4.72 4.25 4.36 4.84
p/E (fully diluted) 37.80 20.65 11.85 7.73 6.00 5.41 4.84
DpS (gradual dilution) 0.05 0.08 0.08 0.08 0.08 0.08 0.08
Shareholders equity (gradual dilution) 2,141,585 3,270,978 5,995,564 10,532,054 16,508,615 22,858,422 31,519,321
Bv per share (gradual dilution) 1.43 1.90 3.32 5.14 6.95 8.46 9.39
p/Bv (gradual dilution) 5.39 4.06 2.32 1.50 1.11 0.91 0.82
July 9th, 2007 �1
Aldar Properties
Appendix
Abu Dhabi: A thriving economy
The emirate of Abu Dhabi produces an estimated 2.5 mn barrels of oil a day and is estimated to have total recoverable oil reserves of over 90 bn barrels, which makes Abu Dhabi’s oil reserve the fourth largest in the world. Abu Dhabi holds around 90% of the UAE’s total recoverable reserves. Existing oil reserves are sufficient to maintain the current level of production for at least 100 years. Add to the oil reserves around 20 trillion cubic meters of natural gas in Abu Dhabi, which constitute an estimated 4% of global reserves, and you have a strong base for the economy.
On the back of rising oil prices and a strong economic liberalization initiative taken by the government in cooperation and coordination with the private sector, the UAE added a staggering 45% to its real GDP in the three years from 2004 to 2006. The economy is projected to grow 7.2% in 2007 and 6.5% in 2008. Growth is expected to remain above 5% per annum till 2011, taking the real GDP up to an estimated 522 bn. The UAE’s real GDP is now the second highest in the Arab world, after Saudi Arabia.
Source: EIU
On a GDP per capita basis, the UAE ranks among the highest in the world and the second highest in the region. While the UAE’s GDP per capita was estimated to be AED 120,000 in 2006, Abu Dhabi’s GDP per capita was estimated at AED 193,000. The country with the highest GDP per capita in the region is Qatar with an estimated AED 227,000 per capita. In Saudi Arabia, the largest economy in the region, the same was AED 50,000.
Source: EIU, ADCCI, SHUAA Capital
Real GDP of the UAE 2006-2011
-
100,000
200,000
300,000
400,000
500,000
600,000
2006 2007E 2008E 2009E 2010E 2011E
AED
'000
,000
Real GDP of the UAE 2006-2011
-
100,000
200,000
300,000
400,000
500,000
600,000
2006 2007E 2008E 2009E 2010E 2011E
AED
'000
,000
Nominal GDP Comparison per Capita
-
50,000
100,000
150,000
200,000
250,000
Qatar Abu Dhabi Switzerland USA UK UAE Saudi-Arabia
AED
Nominal GDP Comparison per Capita
-
50,000
100,000
150,000
200,000
250,000
Qatar Abu Dhabi Switzerland USA UK UAE Saudi-Arabia
AED
Abu Dhabi’s oil reserves sufficient for 100 years
GDP per capita in Abu Dhabi is among the highest in the world
Equities research
July 9th, 2007 �2
Aldar Properties
The booming economy is fuelling population growth
This economic growth story is one of the key drivers behind the growth in population, as more and more foreigners arrive in the UAE in search of a better job market, rising salaries and the non-existing income tax.
Source: EIU, SHUAA Capital
On the back of the increasing arrival of foreigners, the estimated population of the UAE is expected to reach 6.4 mn in 2011 up from 4.9 mn in 2006. Abu Dhabi is estimated to have recorded a 7% population growth in 2006, one of the highest growth rates in the world. The UAE as whole recorded a 6.5% growth. Meanwhile, the regional giant, Saudi Arabia saw a 2.8% population growth. To put this growth into perspective, the population of the USA increased by 1% in the same year. The primary UAE destinations for new residents are Abu Dhabi and Dubai. It is estimated that nearly 80% of the UAE population are non-nationals.
Abu Dhabi’s growing accessibility
In 2005 Abu Dhabi International Airport saw an estimated 5.4 mn passengers passing through the airport, up 0.2 mn from 2004. With the rise of Abu Dhabi’s Etihad Airways, the number of passengers increased by 20% to almost 6.5 mn in 2006. To meet the growing demand for Abu Dhabi International Airport, the government of Abu Dhabi has launched an extensive expansion plan of the Airport. Over AED 20 bn are being spent on taking this Airport’s passenger handling capacity up to 20 mn in 2010.
Etihad is expected to play a key role in making Abu Dhabi an accessible destination, which is a key success factor for Abu Dhabi’s tourism related projects. Etihad, which is owned by the Abu Dhabi government, has been given the means to play its strategic role in the diversification of the Abu Dhabi economy. To meet this objective, Etihad ordered 12 more planes from Airbus in June 2007, on top of the four A380’s already ordered. The plan is to double the current fleet of 26 planes in the next five years. Etihad Airways alone carried over 1 mn passengers in the Q1 2007, an increase of 175 per cent on Q1 2006, when 0.37 mn passengers flew with the Abu Dhabi-based airline.
We expect the continued expansion of Etihad Airlines and the ongoing investments in key infrastructure facilities, such as the new Abu Dhabi International Airport, coupled with the investments being made in tourism projects in Abu Dhabi, to have a strong positive impact on tourist arrivals in the emirate.
The government of Abu Dhabi is targeting 3 mn tourist arrivals by 2015, up from today’s 1 mn. Meanwhile, Dubai is targeting 15 mn tourists by the same year, up from an estimated 5 mn currently. To achieve their targets both emirates are investing heavily in their respective airlines, airports and tourist attractions.
Population Growth Comparison
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Abu Dhabi Qatar UAE Saudi-Arabia USA Switzerland UK
Perc
ent g
row
th
Population Growth Comparison
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Abu Dhabi Qatar UAE Saudi-Arabia USA Switzerland UK
Perc
ent g
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Population growth at 7%
Growing number of passenger arrivals
Abu Dhabi government is targeting 3 mn
tourists by 2015
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Equities research
July 9th, 2007 ��
Aldar Properties
Research
Head of Research
walid Shihabi+9714 3199 [email protected]
Chief Economist/Strategist
Mahdi h. Mattar, ph.D.+9714 3199 [email protected]
Strategy and Economics
Ahmad Shahin+9714 3199 [email protected]
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Ryan Ayache+9714 3199 [email protected]
Data
Ahmad Shahin+9714 3199 [email protected]
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Mohamed El nabarawy, CfA+9714 3199 [email protected]
george Bishara+9714 3199 [email protected]
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Marc hammoud+9714 3199 [email protected]
jessica Estefane +9714 3199 834 [email protected]
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kareem Z. Murad+9714 3199 [email protected]
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Layout & Design
jovan Ruseski+9714 3199 [email protected]
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Mohamad Bleik+9714 3199 [email protected]
Elias Bakhazi+9714 3199 [email protected]
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tala Al-Sahsah+9714 3199 [email protected]
Yazen Abu gulal+9714 3199 [email protected]
International Sales
nadine haddad+9714 3199 [email protected]
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fares Mechelany+9714 3199 [email protected]
Brokerage
Diya Al Sarraj+9714 3199 [email protected]
nadeem outry+9714 3199 [email protected]
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This document has been issued by SHUAA Capital for informational purposes only. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment or subscribe to any investment management or advisory service. This document is not intended as investment advice as to the value of any securities or as to the advisability of investing in, purchasing, or selling any security. SHUAA Capital has based this document on information obtained from sources it believes to be reliable. It makes no guarantee, representation or warranty as to its accuracy or completeness and accepts no responsibility or liability in respect thereof or for any reliance placed by any person on such information. All opinions expressed herein are subject to change without notice. This document may not be reproduced or circulated without the prior written consent of SHUAA Capital psc.
