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					                                            SAUDI ARABIA REAL ESTATE SECTOR
                                            Fertile Ground for Real Estate Developers
                                                                                                                       19 october 2009




CONTENTS                                 • Strong Fundamental Story: Saudi Arabia’s real estate sector benefits from a very strong fundamental
                                         story driven by a large, growing and young population. The current percentage of homeownership is low,
EXECUTIVE SUMMARY                  2
                                         at c45%, with potential for significant growth. We estimate that yearly demand will increase at a rate
I. MARKET OVERVIEW                 3     faster than population growth, particularly once mortgages allow more people to own homes. Saudi
II. STOCK OVERVIEW                 8     Arabia escaped the worst of the world financial crisis, and we believe the overall economic environment is
SAUDI REAL ESTATE (AKARIA)         9     solid. We consider it well-placed to benefit from strong economic (non-oil real) growth of 4.5% in 2010e
DAR AL - ARKAN                    24     and 4.6% in 2011e.
IV. REAL ESTATE PRICES HAVE
                                         • Major Catalyst is Mortgage Law: All real estate stocks will benefit from the passing of a mortgage law,
STABILISED                        42
                                         which we expect will happen in the next twelve months. Currently there is limited mortgage financing
V. CONSTRUCTION COSTS HAVE               available, as the lack of a regulatory framework is a major obstacle, particularly on
MODERATED                  44
                                         enforcement/foreclosure. Companies like Dar Al-Arkan and Akaria are likely to benefit the most from the
VI. OFFICE SPACE IN DEMAND, BUT          new law, given their residential focus. We expect a very strong rally in the real estate sector when the law
COULD BE REACHING RETAIL                 passes.
OVERSUPPLY                    45
VII. MORTGAGE & DEVELOPMENT              • Initiating with ST/LT Buy on Akaria: Akaria is our favourite developer. It has a solid balance sheet with a
FINANCING LIMITED           46           net cash position of SAR688 million, a growing recurring revenue base and potential for strong growth
VIII. REGULATORY CHANGES                 from new development projects. Akaria's healthy mix of residential, commercial and retail properties are
FAVOR INCUMBENTS                  48
                                         well-located. We particularly like its villas in the Diplomatic Quarter (which it is expanding) and its
                                         commercial space at the new Akaria Plaza in Riyadh’s Central Business District. Our LTFV of SAR33.50 per
IX. DEVELOPMENT OF NEW
                                         share implies 27% upside potential. The company’s rental properties make up 40% of our value, its land
CITIES                            49     bank (13.8 million in total) makes up 31%, while cash and investments and the Binban project account for
X. A PRIMER ON EMAAR                     the remaining 29%.
ECONOMIC CITY AND KAEC            50
XI. DEMOGRAPHIC TRENDS
                                         • A Slightly More Cautious ST/LT Accumulate on Dar Al-Arkan: We also like Dar Al-Arkan due to i) its
                                         large land bank, which it has consistently traded at a profit, ii) its solid record of execution for its
POINT TO GROWING DEMAND           55
                                         development projects, and iii) its expanding rental portfolio. However, we are more cautious on the
XII. CITY VIEWS                   58
                                         company due to lack of detailed information regarding its land bank; the operational risks we see attached
APPENDIX I – MAJOR PROJECTS              to its new project in Jeddah, Khozam Palace; and the financing of its SAR2.25 billion sukuk due in March
IN RIYADH                         65     2010 out of its cash flows, which we believe will limit the company's short-term ability to invest in land or
APPENDIX II – MAJOR PROJECTS             pay dividends. Our LTFV of SAR19.15 implies a 15% upside potential, and we initiate with a ST/LT
IN JEDDAH                         66
                                         Accumulate recommendation.

                                         • A Primer on Emaar EC: We have included a primer on Emaar EC, although we have not decided to
                                         initiate on the stock at this time given a great deal of uncertainty over financing and the final masterplan.
                                         We believe the economic cities, including King Abdullah Economic City (KAEC), will be a major driver of
                                         construction activity within Saudi Arabia, and Emaar EC is well-placed to take advantage of public support
                                         for new economic development. However, the company, by itself, does not have enough money or
                                         financing to build KAEC on its own, and will likely have to resort to government support, either in the form
                                         of infrastructure investment or more direct financing that could dilute current shareholders’ stakes. While
                                         we believe KAEC will be successful over the long term, this may not result in stock outperformance.




                                          SECTOR NOTE

                                          Companies Analysed in this Report
                                          Company                          Rating       LTFV    Price*   Upside      Mkt. Cap               EV
                                                                           ST / LT      (SAR)   (SAR)             (SAR)    (USD)    (SAR)        (USD)
Jan Pawel Hasman
                                          Saudi Real Estate (Akaria)      Buy / Buy     33.50   26.30     27%     3,156     842     2,504         668
+20 2 3332 1139
jpawel@efg-hermes.com                     Dar al-Arkan                    Acc. / Acc.   19.15   16.60     15%     17,928   4,781   25,775        6,873

Patrick Gaffney                           *Prices as at 18 October 2009
+20 2 3332 1080
pgaffney@efg-hermes.com
                                          Source: TASI, EFG-Hermes
             KINDLY REFER TO THE
             IMPORTANT DISCLOSURES AND                                                                                                                   1
             DISCLAIMERS ON BACK PAGE
                                FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                              19 october 2009
                                SAUDI ARABIA REAL ESTATE SECTOR




                                EXECUTIVE SUMMARY

                                VERY STRONG RESIDENTIAL MARKET DRIVEN BY DEMOGRAPHICS
                                Long-term trends are very positive for the Kingdom of Saudi Arabia's (KSA) residential market. The major
                                characteristics of the residential market are i) a young and growing population that is ii) increasingly
                                urban and iii) characterised by a low home ownership percentage. We believe the market will also benefit
                                from iv) a shrinking household size, as young people increasingly move out of their parents' home when
                                they marry. We estimate annual demand of 160,000 new units each year, with unmet demand of up to
                                50,000 units.

                                OUR SHORT-TERM VIEW ON THE MARKET IS CAUTIOUSLY OPTIMISTIC
                                We believe new residential housing targeted at the middle-income segment has strong promise in the
                                Saudi Arabian market, given powerful pent-up demand and a growing number of young people that would
                                like to own their own homes. We believe prices have been fairly stable over the past year, but we expect
                                them to start to increase again in 2010e and 2011e, particularly if liquidity comes back to the market
                                either through higher oil prices, stock market performance or mortgages. The secondary property market
                                is very small, which means that developers and the government are the main recourse for buyers and will
                                therefore benefit from the expected positive growth trends. Additionally, while a large number of projects
                                have been announced, we believe a number have been delayed owing to the financial crisis and new
                                regulations. This is likely to benefit those developers able to launch within the next year. Dar Al-Arkan,
                                with its Al Qasr project, which launched this year, and Shams Alriyadh project, launching next, should
                                benefit the most from strong demand in the near term.

                                THE STOCKS HAVE NOT DONE WELL
                                Since the beginning of 2008, all Saudi real estate stocks have fallen. The decline accelerated after the
                                world financial crisis in August, with a mild recovery in November and December before stocks fell again
                                at the beginning of 2009. Although stock performance has improved since spring 2009, all are well below
                                their early 2008 prices and all except Jabel Omar are down 40% or more.

                                WE INITIATE ON AKARIA AND DAR AL-ARKAN - PREFER AKARIA
                                We are buyers of both Akaria and Dar Al-Arkan, but we prefer Akaria because of its steady recurring
                                revenue streams and stronger balance sheet. While Dar Al-Arkan has a better track record for
                                development and the ability to grow, it is heavily dependent on buying and selling land profitably, while
                                Akaria’s business model is simpler and steadier. Also, we believe Dar Al-Arkan's inability to roll over its
                                SAR2.25 billion sukuk, due to be repaid in March 2010e, has hurt its short-term ability to grow or pay
                                dividends. Both companies trade with a high correlation to the wider KSA market, particularly Akaria, so
                                any changes in sentiment for the overall market are likely to affect both companies significantly.

                                NEW MORTGAGE LAW SHOULD LIFT ALL BOATS
                                Historically, very limited financing has been made available to homebuyers. While banks have offered
                                mortgage-like products for some time, many are fearful of expanding without final government approval
                                of mortgage loans. We expect the mortgage law, which has been delayed by almost a year due to the
                                financial crisis, will benefit all real estate companies, but particularly those like Dar Al-Arkan and Akaria
                                that target the middle-income segment of the population.

                                CREDIT COULD LIMIT GROWTH AT DEVELOPERS
                                Real estate companies generally have limited access to credit from banks or from the bond market. While
                                some have been more successful than others, namely Dar Al-Arkan, we believe banks are very risk averse
                                when it comes to real estate companies. This negatively impacts the companies, especially when
                                combined with the difficulty of selling off-plan. This is probably a bigger concern for Dar Al-Arkan given its
                                heavily leveraged business model, but even Akaria’s growth plans, which we believe will need financing
                                could be limited. We expect this will reverse in the medium term, say towards the end of 2010e,
                                particularly if a mortgage law is passed and demand picks up.




    KINDLY REFER TO THE
2   IMPORTANT DISCLOSURES AND
    DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                      19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




I. MARKET OVERVIEW
ECONOMIC GROWTH REMAINS ROBUST DESPITE CRISIS
Our economist believes that Saudi Arabia is in one of the strongest positions, both in the MENA region
and globally, to withstand the current economic crisis and continue to support growth. We believe the
government's investment programme will remain intact and will be the main driver of economic growth,
as a result we expect economic activity to remain solid, resulting in real non-oil GDP growth remaining
above 4.0% in both 2009e and 2010e.

ECONOMY BOLSTERED BY STRONG INVESTMENT IN INFRASTRUCTURE
After years of strong oil prices and successful management of the boom, Saudi Arabia is in an extremely
strong position to adopt a counter-cyclical policy. Fiscal policy will remain expansionary in the near term,
and we forecast an acceleration in government spending. There is a vital need to upgrade infrastructure
and increase the productive base in Saudi Arabia, and the drop in prices for raw materials and increased
slack in the construction sector means the investment environment has actually improved. However, the
government is the driver of investment right now, because private sector activity continues to be weak.
The investment programme will predominately focus on the domestic side. Although decelerating with
the fall in global asset prices, private consumption should also remain relatively supported by a marked
drop in inflation. With the substantial build-up in its net foreign asset position, Saudi Arabia can easily
afford the forecasted surplus in 2009e.

Figure 1: Drivers of Non-Oil Real GDP Growth                  Figure 2: Non-Oil and Overall GDP Growth
Percentage change, Y-o-Y                                      %, unless otherwise stated


                        Other
                        Government Services                     7%               Non-Oil GDP          Overall GDP
                        Financial & Real Estate                 6%
                        Transport & Communication
                        Construction                            5%
   6.0                  Manufacturing                           4%
   5.0                                                          3%
   4.0                                                          2%
   3.0                                                          1%
   2.0                                                          0%
   1.0                                                         -1%
   0.0                                                         -2%
                                              2009f

                                                      2010f
                                      2008e
          2004

                 2005

                        2006

                               2007




                                                                                                            2009f

                                                                                                                    2010f
                                                                        2004

                                                                               2005

                                                                                       2006

                                                                                              2007

                                                                                                     2008




Source: SAMA, EFG-Hermes estimates                            Source: SAMA, IMF, and EFG-Hermes estimates



STRONG RESIDENTIAL DEMAND NOT MET BY SUPPLY
There is high demand for property, especially at the lower end of the market, which is not currently being
met, with unmet demand as high as 50,000 units per year, according to the government. The lack of a
regulatory framework for mortgage financing means that low and middle-income households do not have
access to financing to buy property. Consequently, the government has been responsible for housing
many of these households, particularly at the lower end, but it has not been able to meet demand.

OUR TAKE ON CURRENT DEMAND FIGURES
We estimate total KSA property demand over an economic cycle is approximately 160,000 new
residential units per year. This is driven by i) new family formation (mainly marriages), ii) changes in
household size (moving out of traditional houses), and iii) replacement demand. This is the underlying
demand for housing, we believe it can fluctuate widely over the economic cycle. Additionally, if the
mortgage law is passed, we expect demand will increase significantly as mortgages will allow more people
to access the housing market.




                                                                                                                            3
                                FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                               19 october 2009
                                SAUDI ARABIA REAL ESTATE SECTOR




                                • Marriages: We base the new demand on marriages, because we believe most young couples purchase
                                homes around the time of their marriage. Saudi Arabia has seen an increase in marriages over the past five
                                years, to more than 130,000 a year from less than 100,000, driven by an increasing population and
                                improved economic conditions that have allowed men to afford marriage. We assume that 75% (or
                                100,000) of newly married couples will enter the housing market. It is worth bearing in mind that the
                                percentage of people entering the housing market could increase with the mortgage law, resulting in a
                                higher demand estimate.

                                • Change in household size: We also assume that some couples that previously lived in traditional homes
                                or with family members will move out, adding another 25,000 to our demand estimate. There are about 1
                                million traditional houses in Saudi Arabia, about 30% of total residential units. Jizan province, on the Red
                                Sea and abutting Yemen, has the highest percentage at 72%. Hail and Al Baha also have high percentages
                                of traditional homes at 46% and 41%, respectively.

                                • Replacement demand: Our replacement demand calculation is based on 1% of current housing unit
                                stock. This is a fairly low percentage, but we believe it is appropriate because of the relatively young age
                                of most of the housing stock. This is likely to increase over time (say 20-30 years) to reach closer to 2-3%.

                                Figure 3: Housing Demand Build Up
                                                                 Units         Assumption
                                From new marriages              95,000     75% of new marriages
                                From change in hh size          25,000     Assumes gradual shift
                                Replacement demand              40,000       1% of households
                                Total demand                   160,000
                                Source: EFG-Hermes estimates



                                SAUDI GOVERNMENT ESTIMATES DEMAND TO BE 200,000 PER YEAR
                                In the Eighth Development Plan, the government forecasts a demand of 900,000 units over the 2005-
                                2010e period. To meet this expected demand, it aims to construct one million housing units during the
                                period. The Development Plan outlines provisioning for loans to construct 90,000 units through the Real
                                Estate Development Fund (REDF), construction of 35,000 social housing units through the Ministry of
                                Social Affairs, and the remaining 875,000 units to be built by the private sector, with the government
                                supporting the construction of 225,000 units.

                                Figure 4: Demand for Housing by Administrative Region per Eighth Development Plan
                                                           2005-2010e (1425-430h)                                  Per Year
                                                New        Replacement Unmet                        New     Replacement Unmet
                                  Province                                            Total                                         Total
                                               Demand        Demand      Demand                    Demand     Demand      Demand
                                   Riyadh        160            20         40         220            32          4           8        44
                                   Mecca         170            25         44         239            34          5          8.8      47.8
                                  Medina          34             5         20          59            6.8         1           4       11.8
                                  Qassim          20             5         12          37             4          1          2.4       7.4
                                  Eastern
                                                  118           20         27         165           23.6        4          5.4        33
                                   Region
                                    Jizan          30            5          30         65            6           1          6         13
                                 Other Total      95.5          22.5        97         215          19.1        4.5       19.4        43
                                    Total        627.5         102.5       270        1000         125.5       20.5        54        200
                                Source: Ministry of Economy and Planning




    KINDLY REFER TO THE
4   IMPORTANT DISCLOSURES AND
    DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




DEMAND SHOULD CONTINUE TO INCREASE FASTER THAN POPULATION GROWTH
We expect demand will continue to increase at a gradual pace over the next twenty years due to i) the
young population, ii) a move to smaller household size, iii) the replacement of older housing at a slightly
faster rate than currently, and iv) growing home ownership. However, demand in each year could be
volatile because of the cyclical nature of housing.

SEGMENTATION OF HOUSING DEMAND BY INCOME
There is very little income data in Saudi that gives a sense of the exact size of different populations
segmented by income. We assume that about a fourth of the Saudi population falls into the middle-
income bracket, making between SAR7,000-15,000 per month, and demands about 40,000-50,000 homes
a year, or a little more than one fourth of our total demand picture. These homes cost around
SAR450,000-550,000 for apartments and SAR1.0-1.2 million for villas. We assume that the higher-end
market is smaller than the middle-income market, and that prices start at SAR1 million for apartments
and SAR1.5 million for villas.

LIMITED SUPPLY RESULTS IN UNMET DEMAND
Saudi Arabia’s high demand for housing has not been met on the supply side, with the government
forecasting unmet demand of 270,000 units during the 2005-10e period, or more than 50,000 units per
year. Other sources validate this, with Dar Al-Arkan citing a similar figure for unmet demand each year
until 2014a. Jones Lang LaSalle has said that it expects 380,000 units to be built between 2008 and
2012e, or about 76,000 per year, well below our demand estimate. However, up to 15% of units are
unoccupied, according to Dar Al-Arkan. We attribute this large figure to greater demand at the low end of
the market, but greater supply at the high end, as most developers are more interested in high-end
properties, because of higher margins. This could hamper some developers if they exclusively focus on the
high end. Dar Al-Arkan and Akaria have traditionally focused on middle-income and upper middle-income
homebuyers, so they should weather any oversupply better than other developers.

OFFICE MARKET - SOME ROOM TO GROW
The office market has been relatively solid, with high occupancy rates and increasing rents. The three
major markets are Riyadh, Jeddah and Khobar. In some parts of Riyadh buildings have a low occupancy,
but we have heard from real estate sources that this is because owners are waiting for one tenant to come
in and take the entire space, rather than having multiple tenants. While there is a fair amount of building
activity in the office sector, we believe the risk of oversupply is probably greater in the “B” class market
than in the “A” market. Prices should remain fairly steady, in line with inflation.

RETAIL MARKET NEARING EXCESS SUPPLY
The retail market has been very strong in recent years, although we believe it has weakened over the past
year, due in part to the financial crisis and in part to the specific nature of the Saudi market. Franchise
owners, such as Savola or Hokair, have developed much of the retail space and they place their own
brands within these malls. Independent malls, those not associated with a retailer, are likely to have
greater difficulty in renting space. Total per capita gross leasable area, GLA, is relatively low compared to
other GCC countries, particularly Dubai, but room for growth is limited, in our opinion, given the much
lower levels of tourism.

CONSTRUCTION MATERIAL COSTS HAVE FALLEN
Prices of cement and steel, the major construction materials, have fallen considerably from their 2008
highs. We expect they will remain at current levels, albeit with some fluctuations, for the next year. There
are three different trends affecting the market. Firstly, Saudi Arabia is not immune from changes in
international prices for steel and cement. Although the government has been willing to halt exports in
order to stabilise local prices, this has failed to dampen volatility, and we expect changes elsewhere to
continue to affect the Kingdom. Secondly, there are extensive expansion plans in Saudi Arabia for both
cement and steel. This new capacity should result in easier local access to these basic materials, although
we expect any excess to be exported. Finally, labour costs have not historically been a major issue for
construction companies, but they are likely to become a bigger part of costs as wages for labourers rise.




                                                                                                              5
                                FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                              19 october 2009
                                SAUDI ARABIA REAL ESTATE SECTOR




                                NEW ECONOMIC CITIES WILL DRIVE CONSTRUCTION GROWTH
                                The Saudi Arabia General Investment Authority (SAGIA) is planning the development of four new
                                economic cities that will drive construction growth. Each one is focused on different goals that match up
                                with a competitiveness cluster methodology. The official goals of the cities are to i) create a million jobs,
                                ii) house 4-5 million units, and iii) contribute more than USD150 billion to annual GDP. One city, KAEC
                                managed by Emaar EC, has already been though an initial public offering and is publically traded. Two
                                others, KEC and PABMEC, have announced public offerings in the near future.

                                NEW REGULATIONS CAUSING SHORT-TERM DELAYS - WILL BE GOOD LONG TERM
                                The government has become much stricter with real estate companies, delaying the passage of the
                                mortgage bill and forbidding off-plan sales without prior government approval. We believe this was partly
                                due to the global financial crisis, which made the government wary of an expansionary real estate sector,
                                and partly because of particular problems with a specific developer that was selling off-plan. The new
                                regulation, together with the postponed mortgage law, has caused project delays. However, these should
                                be temporary and we expect incumbents to benefit from the new off-plan regulation, as it will be harder
                                for new developers to enter the market. We also believe a stronger regulatory regime will help foster
                                demand by increasing consumer trust in real estate companies, especially those that sell off-plan and have
                                gained government approval.




    KINDLY REFER TO THE
6   IMPORTANT DISCLOSURES AND
    DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                        19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Figure 5: Map of Saudi Arabia

                                                                                                   Riyadh
                                                                                       Dar Al -Arkan:
                                                                                         Shams Alriyadh
                                                                                         Al Qasr Project
                                                                                       Akaria:
                                                                                         Akaria Plaza
                                                                                         Diplomatic Quarter
             Medina                                                                      B inban
                                                                                         R iyadh Technology Valley
 Dar Al-Arkan:                                                                         Others:
   Tilal
                                                                                         Kin g Abdullah Financial District
 Others:                                                                                 Al Gamra Project
   Knowledge Economic City                                                               Ajmakan Project



                                                             Iraq
          Jo rdan

                               Jouf
                                                     Northern Border                       Iran
                      Tabuk

                                           Hail
                                                      Qassim
  Egypt
                                                                     Riyadh               United Arab Emirates
                                      Medina
                                                                                                                  Oman

                                         Mecca

                             Jeddah
                                                                                      Eastern
           Sudan                                                                      Province

                                                         Asir


                                                     Jizan


                                           Red Sea

                                                                    Yemen

                                                                                         Mecca
                    Jeddah
                                                                              Jabel Omar:
   Dar Al-Arkan :                                                                Rebuilding of Jabel Omar
      Khuzam Palace
      Shams Al-Arous                                                          Others :
   Akaria:                                                                      Ajyad Castle
      Akaria Tower                                                              Jabal Khandama Development

   Others:
     Jeddah Central District
     Ruwais District
     Emaar Economic City

Source: EFG-Hermes




                                                                                                                             7
                                          FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                                                                                                                                                           19 october 2009
                                          SAUDI ARABIA REAL ESTATE SECTOR




                                          II. STOCK OVERVIEW
                                          We are initiating coverage on two KSA real estate stocks, Akaria and Dar Al-Arkan. There are three other
                                          public real estate companies in the country, Emaar the Economic City (Emaar EC), Jabal Omar, and
                                          Arriyadh. While all are involved in real estate development, each one is distinct from the others.

Figure 6: Saudi Real Estate Companies
                                     Rating                         LTFV                    Price                   Upside                        MktCap                                        EV                                        P/E                                                                P/B
                                     ST / LT                        (SAR)                   (SAR)                                            (SAR)     (USD)                                  (SAR)                   2008               2009e 2010e                                2008                    2009e 2010e
Saudi Real Estate (Akaria)          Buy / Buy                       33.50                   26.30                    27%                      3,156     842                                    2,504                  27.0                28.7  23.4                                 1.0                      1.0  1.0
Dar al-Arkan                        Acc. / Acc.                     19.15                   16.60                    15%                     17,928    4,781                                  25,775                   7.6                8.0   7.7                                  1.5                      1.3  1.1
Emaar Economic City                    N/R                           N/R                    11.00                    N/R                      9,350    2,493                                   8,055                  N/M                 N/A   N/A                                 1.1x                     N/A   N/A
Jabal Omar                             N/R                           N/R                    19.85                    N/R                     13,327    3,554                                  13,266                  N/M                 N/A   N/A                                 2.0x                     N/A   N/A
Arriyadh                               N/R                           N/R                    13.20                    N/R                      1,320     352                                    1,147                  16.7                N/A   N/A                                 0.9x                     N/A   N/A
Note: 2008 P/Es for Emaar EC and Jabal Omar are not meaningful (NM) because of negative earnings in that year at both companies
Source: Company disclosures, EFG-Hermes estimates



                                          STOCK PERFORMANCE HAS BEEN WEAK
                                          The Real Estate Index has tracked the TASI closely. Performance has been weak since 4Q2008, although it
                                          has rebounded slightly in recent months owing to improved retail investor confidence and greater global
                                          investor risk appetite. Jabal Omar is the exception, the stock has performed better than the Index.

                                          Figure 7: Real Estate Stocks Performance Chart vs. TASI

                                                  120
                                                                                                                                                    Real Estate Index                                                                                        TASI
                                                  100
                                                   80
                                                   60
                                                   40
                                                   20
                                                    0
                                                        01-Jan-08

                                                                    01-Feb-08
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                                                                                            01-Apr-08
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                                                                                                                     01-Jun-08
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                                                                                                                                                                                              01-Dec-08

                                                                                                                                                                                                          01-Jan-09

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                                                                                                                                                                                                                                                                        01-Jun-09
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                                                                                                                                                                                                                                                                                                             01-Sep-09
                                                                                                                                                                                                                                                                                                                         01-Oct-09



                                          Source: Tadawul, EFG-Hermes estimates




              KINDLY REFER TO THE
8             IMPORTANT DISCLOSURES AND
              DISCLAIMERS ON BACK PAGE
                            AKARIA – FROM RENTALS TO DEVELOPMENTS
                                                                                                                                 19 october 2009
                            SAUDI ARABIA | REAL ESTATE & HOTELS



                              Short-Term Rec.: Buy                                     Current Price*: SAR 26.3
                              Long-Term Rec. : Buy                                     LT Fair Value : SAR 33.5

                            • Initiating with a ST / LT Buy Recommendation: We initiate coverage on Saudi Real Estate Co. (Akaria)
                            with a ST/LT Buy recommendation based on i) solid, growing recurring revenues from well-located rental
                            properties and ii) a valuable land bank throughout Saudi Arabia. We also like Akaria's move into real estate
                            development, although it carries greater risk than the current recurring rental model. We caution that
                            catalysts for Akaria are few and far between, and the stock will likely trade with the market for some time.

                            • Rentals Make Up Majority of LTFV of SAR33.50: Akaria's rental portfolio comprises 40% of our
                            estimated LTFV of SAR33.50 per share, the largest portion of our valuation. Its land bank, for which we use
                            a premium to book value, accounts for 31%. We value its Binban project at SAR2.07 per share, or just 6%.
                            We estimate company’s cash and investments are worth SAR7.68 per share, or 23% of our total value.

                            • Growing Recurring Revenues from Rentals: We expect revenues from Akaria's rental portfolio will grow
                            nicely over the next few years with the addition of the recently opened Akaria Plaza in Riyadh's Central
                            Business District and new villas in Riyadh's Diplomatic Quarter. We expect a 14% growth rate in 2009e
                            and 26% in 2010e, before falling to 10% in 2011e.

                            • Land Sales Volatile and Less Profitable than Rentals: Akaria also sells land, albeit not in a consistent
                            manner, with some quarters more land-sale heavy than others. Also, gross margins on land sales at c40%
                            are almost 20pps lower than rentals and about 10pps below Dar Al-Arkan's land sales. However, we
                            believe Akaria’s land bank provides a way for the company to bring in cash flows when needed for
                            development or paying dividends.

                            • Positive on Move into Real Estate Development, But Brings Risks: We are positive on Akaria's move
                            into real estate development with its first major project Binban north of Riyadh. The company has other
                            projects in the works, including the King Saudi University Science Park, which could drive earnings in the
                            future. However, Akaria does not have experience constructing buildings and marketing full real estate
                            development projects, and we believe this will increase risk at the company compared to its recurring
                            rental model.




                              December Year End                         2008a         2009e      2010e     2011e         30                            Price (SAR)              TASI (Rebased)
                              Revenue                                      225           216        289       313
                              Operating Profit                             110           112        141       151
                              EBITDA                                       130           131        161       172        25
                              Net Income                                   117           117        148       160
                              EPS (SAR)                                   0.98          0.97       1.23      1.33
                              DPS (SAR)                                   1.00          1.00       1.00      1.00        20

                              Net Debt (Cash)                            (711)         (698)      (589)     (430)

                                                                                                                         15
                              P/E (x)                                      27.0         27.0       21.3      19.7
                              EV / EBITDA (x)                              18.9         18.9       15.3      14.4
                              P/BV (x)                                     1.03         1.03       1.02      1.00
                                                                                                                         10
                              P/CF (x)                                     26.9         23.9       21.5      19.5
                                                                                                                              18-Oct-08

                                                                                                                                          18-Dec-08



                                                                                                                                                      18-Mar-09
                                                                                                                                          18-Nov-08

                                                                                                                                                      18-Jan-09
                                                                                                                                                      18-Feb-09

                                                                                                                                                                   18-Apr-09
                                                                                                                                                                  18-May-09
                                                                                                                                                                               18-Jun-09
                                                                                                                                                                                18-Jul-09
                                                                                                                                                                                            18-Aug-09
                                                                                                                                                                                            18-Sep-09
                                                                                                                                                                                            18-Oct-09




                              Div. Yield                                  3.8%         3.8%       3.8%      3.8%
                              RoAE                                        3.8%         3.8%       4.8%      5.1%
                              Figures in SAR million, unless otherwise stated


                              Estimate Changes                                                                      Stock Data
                                                                 2008a             2009e             2010e          Last Div. Date                                         SAR1.0 on 11 Apr 09
                              (SAR mn)                                            Old     New        Old    New     Mkt. Val. / Shares (mn)                                    SAR3,156 / 120
                              Revenue                              225            N/A      216       N/A     289    Av. Mthly Liqd. (mn)                                              SAR286
                              EBITDA                               130            N/A      131       N/A     161    52-Week High / Low                                       SAR28.80 / 16.75
                              EBITDA Margin                      57.9%            N/A    60.6%       N/A   55.8%    Bloomberg / Reuters                                    SRECO AB / 4020.SE
                              Net Income                           117            N/A      117       N/A     148    Est. Free Float                                                      31%

                            *Prices as at18 October 2009

KINDLY REFER TO THE
IMPORTANT DISCLOSURES AND                                                                                                                                                                               9
DISCLAIMERS ON BACK PAGE
                                 AKARIA
                                                                                                               19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 EXECUTIVE SUMMARY
                                 We initiate coverage of Saudi Real Estate Company (Akaria) with a ST/LT Buy recommendation and a
                                 LTFV of SAR33.50 per share. Akaria is distinguished by its growing recurring revenues that come from its
                                 expanding rental portfolio. It has a solid balance sheet and a stable dividend that provides a cushion to
                                 investors. In addition, its land bank of 13.8 million sqm gives us comfort. While the operations of the
                                 company are solid, the stock is highly correlated to the market, which we believe is due to low liquidity
                                 and majority ownership by the government. We believe liquidity will improve as the company becomes
                                 more transparent to investors, but this may take some time.

                                 INVESTMENT POSITIVES

                                 STRONG RECURRING REVENUES
                                 Akaria receives most of its revenues from its rental assets in Saudi Arabia. In 2008, 75% of its revenues
                                 were from rental and maintenance operations. We believe these rental revenues will increase as Akaria
                                 opens new rental properties such as Akaria Plaza, which is open now, and new residential units in the
                                 Diplomatic Quarter, which will likely start producing revenue in 2011e. Given a high occupancy rate in
                                 most of its buildings, we expect rents will grow at least with inflation, and should provide solid yields for
                                 the company.

                                 LAND SALES VOLATILE, BUT CAN DRIVE GROWTH AND PROFITS
                                 Land sales from Akaria’s 13.8 million sqm land bank, while volatile, can help boost growth and cash flows
                                 for the company and provide a cushion for investors. Akaria is not as dependent on pure land sales as
                                 other companies such as Dar Al-Arkan, although land sales were 25% of total revenues in 2008, which is
                                 down significantly from about 40% in 2007. We believe this is due to weak sales in the second half of the
                                 year, but it does point to the volatility of land sales. Moreover, margins can also fluctuate – they were as
                                 high as 85% in 2005, but were just 40% in 2008. However, this is very good for cash flows, especially
                                 since most of Akaria’s 13.8 million sqm land bank was purchased a long time ago and, we believe, at low
                                 prices.

                                 NEW PROJECTS SHOULD EXPAND SCOPE OF COMPANY
                                 We like that Akaria has expanded geographically and operationally. Its new development in Binban will
                                 likely be a mix of sales and rentals about 30 kilometres outside of Riyadh, and it is building a mixed-use
                                 office tower in Jeddah. It has also won a contract to master plan the King Saudi University Science Park,
                                 which could provide significant returns to the company, depending on its final role in the project. We
                                 believe all of these projects expand on Akaria's real estate development and management experience with
                                 fairly low risks.

                                 STEADY DIVIDENDS, DESPITE EARNINGS VOLATILITY
                                 Akaria pays a nice dividend, and it has been stable for the past two years, despite a fall in earnings in
                                 2008. The company paid out SAR122 million (SAR1 per share) in May 2009 for 2008 earnings, we
                                 estimate, and this was in line with the payout in 2008, which was also SAR1 per share. We believe the
                                 company will strive for a steady dividend, more so in absolute value terms than as a payout ratio. While
                                 the yield is minimal at 4%, it does provide some cushion to investors.

                                 VERY SOLID BALANCE SHEET WITH NO DEBT
                                 The company does not have debt and carries a cash balance of SAR692 million, or SAR5.77 per share.
                                 While Akaria may have to raise debt in the future, depending on the timing of its projects, we do not
                                 expect this to be a major issue for the company, given its expected solid recurring revenues. In total, we
                                 estimate that it will spend about SAR4.2 billion on four main projects, with SAR2 billion at Akaria Tower in
                                 Jeddah and SAR1.5 billion for Binban, which will be phased over seven years. We also believe reasonable
                                 leverage may be good for investors by boosting equity returns.




     KINDLY REFER TO THE
10   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




INVESTMENT RISKS

LOW LIQUIDITY AND HIGH CORRELATION WITH SAUDI MARKET
Akaria’s shares are highly correlated with the Saudi stock market. In Figure 9 below, we plot the
company’s share price versus the TASI, and it is difficult to separate the two. We think this likely has to do
with i) low liquidity of the stock, at least compared to other real estate companies, and ii) high
government ownership. We believe management is becoming more transparent with investors, and this
could help increase the interest in the stock and relieve liquidity issues. However, this may take some
time.

FEW CATALYSTS
We do not see major catalysts for the stock, particularly after the opening of Akaria Plaza, which may
have increased investor interest. Management rarely talks to investors, although that is changing, and the
company is not mentioned in the press frequently. Additionally, progress on projects will likely be minimal
over the next year, until new residential units in the Diplomatic Quarter open in 4Q2010e. Prior to that,
we could see some announcements on Akaria Tower in Jeddah or the King Saudi University Science Park,
which may boost shares in the near term.

EXECUTION RISK ON NEW PROJECTS IS HIGH
We like that Akaria is expanding by building larger projects that are different from the majority of ones it
has done in the past. These new projects will take different skills than previous projects. The company is
also expanding geographically, which will be good in reducing its concentrated exposure to the Riyadh
market, but could also increase execution risk there as well.

VALUATION LOOKS COMPELLING
Akaria's valuation looks compelling at current levels, in our opinion. Our LTFV of SAR33.50 per share is
based on a sum-of-the-parts valuation methodology and represents a 27% upside potential to the current
share price. The majority of the company's value stems from its rental portfolio, which we believe is worth
SAR13.44 per share, or 40% of the total value. The land bank is second at SAR10.31 per share (31%) using
a 25% premium to book value. We estimate that the Binban project, north of Riyadh, is worth SAR2.07
per share. The remainder is composed of net cash of SAR5.73 (17%) and investments at BV of SAR195
(6%). Note that cash is 22% of the current trading price.

Akaria trades at a relatively high P/E ratio of 27.0x 2009e earnings, 21.3x 2010e and 19.7x 2011e, but we
believe this is partly due to the large net cash balance. If we stripped out cash and investments in
associates from its share price and investment and interest income from its earnings (using the same
zakat rate), we would get P/Es of 21.2x in 2009e, 17.2x in 2010e and 15.6x in 2011e. These are still high,
but we believe it is mainly due to the non-levered business model and our belief that investors do not buy
Akaria for earnings, but rather for its land bank and stable revenues. The Saudi market currently trades at a
P/E of around 17x 2009e and 12x 2010e.

BACKING INTO IMPLIED RENTAL PRICES AND LAND PRICES
We also looked at the current price to ascertain implied values for Akaria's rental properties and land bank.
We first took the current price of SAR26.30 per share, and backed out SAR5.73 per share in cash, SAR1.95
per share in investments at book value. This left SAR18.62 per share.

To find the implied rental value, we subtracted the book value of land (SAR8.23 per share), which left just
SAR10.39 per share. This values the rental properties at SAR4,857 per sqm of land, or 19.2x our estimate
of 2009e free cash flow.

To find the implied land bank value, we subtracted cash and investments and our estimated DCF value of
its rental properties or SAR21.12 per share, which left SAR5.17 per share, or about SAR620 million for a
land bank of 13.6 million sqm. This implies a price of SAR45.63 per sqm, well below the book value of
cSAR80 per spm.




                                                                                                            11
                                 AKARIA
                                                                                                                                                                                                                                       19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 I. BACKGROUND
                                 The Saudi Real Estate Company (Akaria) is a real estate development company that was founded in 1976
                                 and is located in Riyadh. It develops and manages residential and commercial real estate properties.

                                 BUSINESS MODEL
                                 Akaria develops and manages real estate properties in the Kingdom of Saudi Arabia. It has a large rental
                                 portfolio of around 280,000 sqm (land, the company does not provide BUA) and has a land bank of 13.8
                                 million sqm dispersed throughout the Kingdom. The company builds properties, mainly commercial, to
                                 add to its rental portfolio, and also sells units directly to buyers. A small portion of its revenues have
                                 historically come from land sales.

                                 In the beginning of 2008, the company invested in a mortgage company, Dar Al Tamleek, of which it now
                                 owns 10%, which should allow it to better compete in the residential housing segment. It also has
                                 investments in related real estate and building material companies such as Knowledge Economic City and
                                 Hail Company for Cement and United Company for Glass.

                                 MAINLY GOVERNMENT OWNERSHIP
                                 The Saudi Arabian government owns almost 70% of Akaria. Of this, the Public Investment Fund owns
                                 64.5% and the Pension Fund owns 4.7%. We do not expect this ownership stake to change. It likely
                                 provides Akaria an incentive to continue paying regular dividends.

                                 Figure 8: Ownership Structure of Akaria
                                                  Public Investment Fund
                                                  Retirement Pension Agency
                                                  Free Float

                                    31%                                                               64%




                                   5%




                                 Source: Akaria


                                 HOW THE STOCK TRADES
                                 Akaria follows the overall stock market almost perfectly, with a correlation of 99.5% since the beginning
                                 of 2008 and a beta, as computed by Bloomberg, of 1.1. We attribute this to the company’s ownership
                                 profile.

                                 Figure 9: Stock Trading
                                 In SAR, unless otherwise stated

                                     60                                                                                                       Price (SAR)                                  TASI (Rebased)
                                     50

                                     40

                                     30

                                     20

                                     10
                                          13-Jan-08

                                                      13-Feb-08

                                                                  13-Mar-08

                                                                              13-Apr-08

                                                                                          13-May-08

                                                                                                       13-Jun-08

                                                                                                                   13-Jul-08

                                                                                                                               13-Aug-08

                                                                                                                                           13-Sep-08

                                                                                                                                                       13-Oct-08

                                                                                                                                                                   13-Nov-08

                                                                                                                                                                               13-Dec-08

                                                                                                                                                                                            13-Jan-09

                                                                                                                                                                                                        13-Feb-09
                                                                                                                                                                                                                    13-Mar-09

                                                                                                                                                                                                                                13-Apr-09

                                                                                                                                                                                                                                            13-May-09

                                                                                                                                                                                                                                                        13-Jun-09

                                                                                                                                                                                                                                                                    13-Jul-09

                                                                                                                                                                                                                                                                                13-Aug-09

                                                                                                                                                                                                                                                                                            13-Sep-09

                                                                                                                                                                                                                                                                                                        13-Oct-09




                                 Source: EFG-Hermes

     KINDLY REFER TO THE
12   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                                19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




II. PROJECT EXPECTATIONS
CURRENT RENTAL PORTFOLIO
The majority of Akaria’s revenues, around 70%, stem from rental assets, and the company supplements
these revenues with land sales from its land bank of 13.8 million square metres (sqm). The majority of its
rentals are located in Riyadh and are a mix of commercial, retail and residential properties.

Figure 10: Commercial, Residential and Office Space, YE2008
                                                       Showrooms/                                     Townhomes
                                             Offices                Buildings   Apartments   Villas
                                                          Retail                                      /Twinhomes
First Commercial Centre (Akaria 1)              59         135
Second Commercial Centre (Akaria 2)            211         137
Third Commercial Centre (Akaria 3)             148          43
The Sixty Commercial Complex                   129          30
The Sixty Residential & Commercial Complex     79          46                      103
Eastern Buildings Complex (Olaya)                                      21          338
North Buildings Complex (Olaya)                                        25          370
Western Buildings Complex (Olaya)                                      8           161
Southern Buildings Complex (Olaya)                                     5           100
Diplomatic Quarter                                                                 122        66         132
Akaria Plaza (Under Construction)              305         19
Total                                          931        410          59         1194        66         132
Source: Akaria



Akaria 1, 2, 3 - These are the oldest assets that the company owns and are centrally located in Riyadh’s
Business District. They are composed of 418 offices and 229 showrooms/retail areas. The company has
started refurbishment of Akaria 1 and 2 in order to bring up rents and increase occupancy. Occupancies of
its offices are very high, around 96%, according to management, but lower for its retail spaces at around
70%.

Figure 11: Rental Occupancy Rates, YE2008
                                             Percentage
Type of Property
                                              Occupied
Residential Units in Olaya                      99.72%
Commercial Showrooms/Retail Shops               69.79%
Office Space                                    96.02%
Residential Units in Diplomatic Quarter        100.00%
Source: Akaria



The Sixty Complexes - These are two residential and commercial complexes with 208 offices, 76
showrooms/retail locations, and 103 apartments.

Olaya Complexes - These are residential buildings of apartments in the Olaya area of Riyadh. They
include 969 apartments.

Diplomatic Quarter - Akaria leased land from the government in the Diplomatic Quarter of Riyadh to
build apartments and villas. It currently has 122 apartments, 66 villas and 132 townhomes for rent in the
neighbourhood. It is building on another 220 land plots (we estimate this will equate to 100 villas and 240
townhouses) over the next two to three years (more below). The original lease agreement is for 99 years.
Akaria does not have the right to sell these units, because the land is owned by the government.




                                                                                                               13
                                 AKARIA
                                                                                                                             19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 UPCOMING PROJECTS
                                 Akaria also has a number of projects in various stages of completion. Many of these will start construction
                                 over the next two years and will start to come online in late 2011e or 2012e.

                                 Figure 12: Planned Projects
                                                                        Stage / %                                                     Cost          2
                                                                                            Expected Delivery Type of Project                Land (m )      BUA
                                                                        Completed                                                   (SAR mn)

                                             Akaria Plaza                     97%                1Q2009          Offices & Retail     c310      20,000     405,492


                                                                                               Design to be
                                      Akaria Tower (Jeddah)          Feasibility study          finished in         Mixed-use        2,000
                                                                                                 4Q2009e

                                                                  Submitted designs
                                 Res. Units in Diplomatic Quarter                                                                              220 plots
                                                                  to municipality of                               Residential        420
                                              (Riyadh)                                                                                          of land
                                                                       Olaya
                                                                                                                    Residential,
                                   Res. Units north of Riyadh in    In design/feasibility                               some
                                                                                                                                     1,500
                                             Banbaan                    study stage                              retail/commercia
                                                                                                                          l

                                   King Saud University Science       In final design          Expect design      Commercial/
                                                                                                                                    Unknown 2.2 million
                                              Park                         stages           finished in 1Q2009    educational

                                 Revamp Akaraia Neighbourhood
                                   and Revitalise Commercial             Studying                                  Commercial       Minimal
                                        Centres (1, 2, 3)

                                 Source: EFG-Hermes estimates



                                 Akaria Plaza - This is a new commercial complex of three integrated buildings in Riyadh’s Central Business
                                 District. Construction is complete, and the company has started to lease out space in the building. It is
                                 composed of 305 offices and 19 retails spaces. Akaria Plaza started to add revenues to Akaria's top line in
                                 3Q2009.

                                 The building, with a built-up area of 72,100 sqm (59,000 sqm of office space and 13,100 of retail space) is
                                 located on approximately over 20,000 sqm of land. The building cost around SAR300 million and was
                                 expected to generate rental income of SAR60 million, according to the company when the project was
                                 announced. This equates to a gross yield of 20%. Recent price quotes have been around SAR1,200 per
                                 sqm per annum for commercial space. We expect retail prices will be around SAR2,500 per sqm per year.
                                 These prices imply rental revenues of around SAR100 million per year, if the full building is rented. We
                                 expect occupancy rates will be around 90% for retail and 80% for offices in 2010e, resulting in revenue of
                                 SAR86 million.

                                 Figure 13: Akaria Plaza Estimated Revenues
                                                                                                    2
                                                                          2                 Rent/m /year                                      Expected Revenue
                                 Unit Type                         BUA (m )                                            Occupancy
                                                                                               (SAR)                                              (SAR mn)
                                 Commercial                        59,000                      1,200                      80%                       56.6
                                 Retail                            13,100                      2,500                      90%                       29.5
                                 Total / Average                   72,100                      1,194                      82%                       86.1
                                 Source: EFG-Hermes estimates



                                 Expansion in Diplomatic Quarter - Akaria has finished design and engineering work and is in the process
                                 of qualifying contractors for this expansion of its rental unit complex in Riyadh. Construction of the 220
                                 plots should take about 12-18 months to complete. As with the original Diplomatic Quarter units, the


     KINDLY REFER TO THE
14   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                                           19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




company does not have title to the land, rather it leases it in a long-term lease, and cannot sell the units.
We expect these units will be completed and commence operation by 4Q2012e.

We do not know the exact mix of units (villas versus townhouses versus apartments), but we assume that
half of them will be villas and half townhouses, so that the total number of units will be 340. Villas
currently rent for about SAR180,000 per unit per year, and townhouses for SAR120,000. This would add
SAR54 million in revenues per year once fully occupied. Given a shortage of appropriate housing for
expats in Saudi Arabia and Akaria’s current occupancy rates achieved in the Diplomatic Quarter, we
expect occupancy will be around 100%.

Figure 14: Diplomatic Quarter Land Plot’s Estimated Revenue
                                                        Rent/unit/year                                    Expected Revenue
Unit Type                          Units                                            Occupancy
                                                            (SAR)                                             (SAR mn)
Villas                              100                    225,000                     100%                     22.5
Town Homes                          240                    130,000                     100%                     31.2
Total                               340                    157,941                     100%                     53.7
Source: EFG-Hermes estimates



We believe it will cost the company about SAR1.0 million to build each villa and SAR800,000 for each
townhouse. While this is fairly expensive, these will be high-end units with solid yields. This would imply a
total spend, including infrastructure costs, of cSAR300 million. This compares to the cost of the original
investment in 320 units (122 apartments, 66 villas, and 132 townhouses) of around SAR200 million.

Binban Residential Neighbourhood - This very large residential project located about 30-40 kilometres
from Riyadh is in the design stages currently, according to management. The first phase will have about
500 units - a mix of duplexes, apartments, villas - and a small business centre. In total, the company
expects to have 3,000 units on more than 2 million sqm and will likely sell some of these and keep the
rest as rental properties. The final designs and contracts should be tendered in the middle of 2010e, and
the first units will be finished by the beginning of 2012e. We believe these units will be targeted at
middle-income buyers, given the distance of the suburb from Riyadh.

To provide an idea of how much this could add to revenues, we have made some assumptions. Akaria will
target middle-income households, so we do not expect villas to cost more than SAR500,000, duplexes
SAR350,000 and apartments SAR250,000. Rent for villas will likely be around SAR50,000 per year with
occupancy low at first before growing. Duplexes will likely rent for SAR35,000 per year, and apartments
SAR20,000 per year. If we assume that the 3,000 units are equally divided between rental and sale units,
we estimate Akaria could get almost SAR550 million from sales and about SAR40 million in recurring
rental revenues (assuming a 70% occupancy rate). We have not included office or retail space, which
should add recurring revenues.

Figure 15: Binban Potential Revenues over Life of Development
                                                           Starting Price / Rent    Percentage Sold /      Expected Revenue
                                           Units
                                                             per unit (SAR)*         Occupancy Rate            (SAR mn)
For Sale
  Villas                                    500                  500,000                  100%                   250.0
  Duplexes                                  500                  350,000                  100%                   175.0
  Apartments                                500                  250,000                  100%                   125.0
For Sale Total (Avg. Price)                1,500                 366,667                  100%                   550.0
For Rent                                                                                                      (Per annum)
  Villas                                    500                   50,000                   80%                    20.0
  Duplexes                                  500                   35,000                   70%                    12.3
  Apartments                                500                   20,000                   60%                     6.0
For Rent Total (Avg. Price)                1,500                 758,833                   70%                   1,138
*Starting price does not include an increase in prices, which we believe will be around 7%, slightly above inflation
Source: EFG-Hermes estimates




                                                                                                                             15
                                 AKARIA
                                                                                                              19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 The company expects to spend SAR1.5 billion to develop Binban, and we believe the first phase will cost
                                 around SAR300 million, or 20% of the total, given the infrastructure investment at the early stages of the
                                 project. We include SAR73 million in our model in 2010e, SAR103 million in 2011e, and SAR132 million in
                                 2012e. As we get more information on the project, we will incorporate it into our model.

                                 Akaria Tower in Jeddah - Akaria has completed the feasibility study and hired Atkins, an international
                                 design team, for the preliminary design of the project. Management expects the tower, on 50,000 sqm in
                                 the Al Nahda neighbourhood, will cost approximately SAR2 billion and will take at least two years to
                                 construct. It will include a commercial complex, a hotel, and 300,000 sqm of apartments, according to the
                                 company. We do not expect the tower to start adding revenues until 2013e at the earliest. We have not
                                 included the tower in our model currently. We assume construction costs will be financed through debt or
                                 equity of some sort, but the company does not have the cash flows to build it, based on our calculations.

                                 We do not yet know full details on the project, and therefore have included it within our land bank NAV
                                 estimate within our valuation at this point rather than valuing it separately.

                                 Riyadh Technology Valley - Akaria is working with King Saudi University to develop a science and
                                 research and development park near the university. The university has set aside 2.2 million square metres
                                 for this project. Akaria is working with Jorung, a Singaporean industrial park consulting company, and SRI,
                                 an American non-profit science research institute. The company is finalising the master plan of the
                                 project currently. We do not yet know the role Akaria will play in the development, and we have not
                                 included it in our model or valuation. As we learn more about the project, which we believe could be
                                 profitable for the company, we will include it.

                                 LAND BANK
                                 Akaria also has a large land bank of 13.8 million sqm, of which we estimate that 13.6 million is raw land.
                                 Some will be used for its future projects, while the company will likely sell the rest to drive short-term
                                 revenues. Land sales fluctuate widely, from SAR26 million in 2006 to SAR93 million in 2007 falling to
                                 SAR57 million in 2008. We expect land sales will fall again in 2009e to just SAR25 million, given the
                                 general economic weakness, before rebounding to SAR50 million in 2010e.

                                 Figure 16: Akaria's Land Bank
                                 Area in square metres, unless otherwise stated

                                        Site                                                    Situation      YE2008       YE2007
                                 1      Old Headquarter Land                                    Buildings        1,671        1,106
                                 2      Old Sixty Land                                          Buildings       10,000       10,000
                                 3      Olaya Land                                              Buildings      235,581      323,459
                                 4      Sixty Land #2                                           Buildings        9,407        9,407
                                 5      Riyadh - Al Tukhasasi & Al Thimama Roads             Investments       430,000      430,726
                                 6      Shaeeb Al Daya Land - Al Qusaim Road                 Investments       600,000      648,188
                                 7      Tukhassasi Road Extension - Cordoba Neighbourhood    Investments       190,484      119,894
                                 8      Talal Riyadh Land                                    Investments        76,541       59,861
                                 9      Basateen Land                                        Investments       244,623      244,623
                                 10     Sixty Commercial Plots                               Investments         2,241        2,241
                                 11     Damman Land - West of the Industrial Area            Investments     5,677,630    5,675,630
                                 12     Damman Land - King Fahd Airport Rd.                  Investments     3,941,966    3,941,966
                                 13     Jeddah Land - King Abdulaziz Rd.                     Investments        49,800       49,800
                                 14     Riyadh Land - King Fahd Airport Road                 Investments        30,000       30,000
                                 15     Binban Salbukh Rd.                                   Investments       648,189      596,700
                                 16     Land in south Binban (#13)                           Investments       871,597      871,597
                                 17     Land in south Binban (#15)                           Investments       519,059      519,059
                                 18     Medina - Land on Third Ring Road                     Investments        63,493       63,493
                                 19     Medina - King Khaled Road                            Investments       157,280
                                 20     Medina - Al Qusaim Road                              Investments         1,579
                                 21     Medina - Al Qusaim Road                              Investments        85,572
                                        Total                                                               13,846,713   13,597,750
                                 Source: Akaria




     KINDLY REFER TO THE
16   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                                19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




INVESTMENTS IN REAL ESTATE SECTOR-RELATED BUSINESSES
Akaria has several investments in real estate projects and building material companies. We value these at
book, given our limited knowledge of their operations or financials.

Figure 17: Akaria's Investments - YE2008
In SAR million, unless otherwise stated

                                       %   Company Share
Company                                                     Paid    Remaining                Remarks
                                     owned    of B/V
Saudi Company for Centre of                                                        This is a souq in Saudi in old
                                     25.00%     150         150        0
Ma'iqaliya                                                                               Riyadh near Batha

United Company for Glass             15.00%     30          30         0

Dar Al Tamleek                       10.00%     100         25         75               Mortgage company
                                                                                    30% owned by Savola - in
Kanan Co. for RE Development          2.11%    35.67       35.67       0
                                                                                 Medina - has SAR2.4 bn project in
Knowledge Economic City
                                      9.48%    78.65       78.65       0         Economic city located in Medina
Development Co.

Hail Co. for Cement                   5.00%     60          16         44

Total                                          454.32      335.32     119
Source: EFG-Hermes estimates




                                                                                                                    17
                                 AKARIA
                                                                                                                 19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 III. FINANCIAL STATEMENT FORECASTS
                                 After a slow 2009e, where we forecast sales and net income will fall, we look for a jump in 2010e as more
                                 rental area is added with the full opening of Akaria Plaza. We look for a positive progression of sales and
                                 earnings through our forecast period, as new rental areas are added and sales of its project in Binban start.
                                 We doubt that any of the company’s other projects will affect the income statement, although we could
                                 see some cash outflows as preliminary work is done on the Jeddah Tower.

                                 Figure 18: Sales and Gross Margin Trends
                                 In SAR million, unless otherwise stated

                                     450                              Land    Rentals          Binban      Gross Margin               80%
                                     400                                                                                              70%
                                     350                                                                                              60%
                                     300
                                                                                                                                      50%
                                     250
                                                                                                                                      40%
                                     200
                                                                                                                                      30%
                                     150
                                     100                                                                                              20%
                                      50                                                                                              10%
                                       0                                                                                              0%
                                               2004       2005        2006   2007       2008       2009e   2010e      2011e   2012e


                                 Source: Akaria, EFG-Hermes estimates



                                 2009E ESTIMATES
                                 We expect revenues at Akaria will fall due to fewer land sales at the company that more than offset a rise
                                 in rental revenue from the opening of Akaria Plaza. The decline in land sales results in improved gross
                                 margins for the company as a whole, because land sales have a gross margin of around 40% compared to
                                 real estate revenues at 60%-plus. We estimate SG&A will be around 6% of sales, but this will be more
                                 than made up by net other income, which is mainly profits from associated companies. These
                                 assumptions result in net income after zakat of SAR117 million, or SAR0.97 per share.

                                 2010E ESTIMATES
                                 Rental revenue will likely benefit from the first full year of Akaria Plaza, and we expect the plaza can add
                                 SAR70 million-plus to revenues. This coupled with a rebound in land sales could lead to an almost 40%
                                 increase in total revenues to SAR289 million. We expect gross margin would fall due to a shift in the mix
                                 as well as slightly lower margins at Akaria Plaza than the older buildings (60% vs. 62%). We expect SG&A
                                 to increase to 7.6% of sales, and other income to slightly decrease to SAR20 million, given minimal insight
                                 into these revenues. These assumptions should result in net income of SAR148 million, or SAR1.13 per
                                 share, up 27% Y-o-Y.

                                 2011E ESTIMATES
                                 We look for another increase in revenues to SAR313 million, or 8% Y-o-Y. This is driven entirely by
                                 growing rental revenues, as we believe Akaria will continue to improve its yields on its properties. We
                                 expect flat land sales revenues. Gross margin remains mostly unchanged at 56.5%, but we look for SG&A
                                 to increase to almost 9% of sales, as the company starts work on its Binban project. With flat other
                                 income, net income after zakat comes to SAR160 million, or SAR1.33 per share, up 8% Y-o-Y.

                                 2012E ESTIMATES
                                 The addition of sales at Akaria’s project in Binban should bump revenues to above SAR400 million, or 30%
                                 above our 2011e estimate. There is a very high risk to these figures, because they depend heavily on
                                 construction progress and delivery of units, which Akaria will have some control over. Note that we expect
                                 Akaria will sell 200 units, evenly mixed between apartments, duplexes and villas, in 2012e.


     KINDLY REFER TO THE
18   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                                      19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Binban will also likely have a lower gross margin than rentals or land sales, and we expect gross margin
will fall to just below 54%. SG&A will likely continue to rise to c10% of sales, as the company invests in a
sales force for Binban. These estimates, and flat other income, should result in net income of SAR194
million, or SAR1.61 per share.

CAPEX EXPENSES
We estimate Akaria will spend about SAR4 billion on its upcoming projects. This is based on
announcements by the company (for Binban and the two Akaria Plazas) and our estimates of the cost to
build units in the Diplomatic Quarter. This will be spread over the next three to four years, although the
company could be more measured with its spending in Binban, given that it is able to take a phased
approach there.

Figure 19: Summary of Cash Flows (2007a-2012e)
In SAR million, unless otherwise stated

                                     Cash from Operations                       Cash from Investments
                                     Cash from Financing                        Net change in Cash
      600
      400
      200
           0
     (200)
     (400)
     (600)
     (800)
    (1,000)
                   2007a              2008a           2009e             2010e            2011e             2012e

Source: Akaria, EFG-Hermes estimates



We expect Akaria will raise debt to finance its project in Jeddah, because it does not have the ability to
finance it through its cash flows. At this point, because we do not have more information on when the
project will start or specifics about it, we have not included it in our model and have only included the
land as part of the land bank within our valuation. When the company provides more details and we feel
comfortable with the start dates and potential for the project, we will add it to our model.

Separately, we have not included spending on the Riyadh Valley of Technology in our model. We do not
yet know what role Akaria will play as master planner.

Figure 20: Estimated Capital Expenditures
                                                                            Estimated Construction      Construction
Projects                          Total (SAR mn)            Status
                                                                                  Start Date                Period
Akaria Plaza - Riyadh                      308          Completed                  1H2006             Approx. three years
Diplomatic Quarter - Riyadh                300     Qualifying contractors          1H2010               12-18 months
Binban                                    1,500        Design stage                                    At co. discretion
Phase I (500 Units)                        300         Design stage               4Q2010e                 Two years
Akaria Tower - Jeddah                     2,000     Preliminary Design                                    Two years
Total                                     4,108
Note: We also include maintenance capital expenditure as well as minimal expenditures on Riyadh Valley of Technology in
our model
Source: EFG-Hermes estimates




                                                                                                                          19
                                 AKARIA
                                                                                                                       19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 IV. VALUATION
                                 We value Akaria using both discounted cash flow (DCF) and sum-of-the-parts methodologies. We believe
                                 the best way to value the company’s rental portfolio is through a DCF analysis. The company also has a
                                 few projects, for which it will sell units. We value one of these, the Binban project, like we do for other real
                                 estate companies, using a DCF approach. However, for its land holdings we use a NAV methodology. We
                                 also include almost SAR700 million (SAR5.77 per share) in net cash and SAR234 million (SAR1.95 per
                                 share) in investments (at book value).

                                 Figure 21: Valuation
                                 In SAR million, unless otherwise stated

                                                                           Value     Per Share (SAR)    % of Total
                                 Rental Properties                         1,615               13.45          40%
                                 Binban Project                              248                2.07           6%
                                 Land Bank                                 1,236               10.30          31%
                                 Book Value of Investments                   234                1.95           6%
                                 Net Cash (excl. ST Investments)             688                5.73          17%
                                 Total                                     4,020               33.50        100%
                                 Source: EFG-Hermes estimates


                                 RENTAL PROPERTIES
                                 We use a DCF methodology to value Akaria's rental properties at SAR1.6 billion, or SAR13.45 per share.
                                 We have included the addition of Akaria Plaza and new residential units in the Diplomatic Quarter in our
                                 sales forecast. We use a WACC of 10%, in line with our assumption for other Saudi companies, and a
                                 terminal growth rate of 3%. About 76% of the value comes from the terminal value, mainly due to capital
                                 expenditure assumptions that result in negative FCF in 2011e and 2012e.

                                 Figure 22: DCF for Rental Properties
                                 In SAR million, except for per share values

                                                        2008     2009e 2010e 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e                   CAGR
                                                                                                                                             (09-18e)
                                 Recurring revenues       168      191         239    263     285      342    368    390   410   426     439       9%
                                 (excl. land sales)
                                 NOPAT                      78       91        115   128      145      169    186    202   214   224   234       10%
                                 Free Cash Flow           (81)       65         39   (57)   (193)      127    142    155   164   173   181       11%
                                 Terminal Value                                                                                      2,806
                                 Discounted                          65        35    (47)   (147)      88      89    89     86    83 1,305
                                 LTFV                   1,615
                                 LTFV per Share         13.45
                                 Shares Outstanding       120
                                 % from TV               76%
                                 Source: EFG-Hermes estimates


                                 This valuation is sensitive to changes in our WACC and long-term growth rate assumptions, given the
                                 weight of terminal cash flows, as can be seen in the table below.




     KINDLY REFER TO THE
20   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                           19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Figure 23: Sensitivity Analysis
In SAR, unless otherwise stated

                                     WACC
                     6.6%    8.1%    9.6%    11.1% 12.6%
              1.0%   19.10   14.51   11.66    9.77  8.45
Growth Rate

              2.0%   22.16   15.96   12.37   10.08 8.53
Terminal



              3.0%   27.16   18.18   13.45   10.61 8.76
              4.0%   36.24   21.66   15.08   11.42 9.15
              5.0%   56.79   27.59   17.57   12.63 9.77
Source: EFG-Hermes estimates


BINBAN
Our valuation for Binban of SAR248 million, or SAR2.07 per share, is also based on a DCF methodology.
We assume that the company will sell 1,500 units and rent out 1,500 units. We use a 10% WACC, in line
with our assumptions for other real estate developments, and a long-term growth rate of 3% for rental
properties.

Figure 24: Binban Valuation by Type of Unit
In SAR million, unless otherwise stated

Valuation Summary                                Valuation
Residential for Sale - Villas                         55.7
Residential for Sale - Duplexes                       37.0
Residential for Sale - Apartments                     22.5
Residential for Rent - Villas                         84.7
Residential for Rent - Duplexes                       38.1
Residential for Rent - Apartments                     10.1
Total                                                248.3
Source: EFG-Hermes estimates



LAND BANK
We value the land bank at a 25% premium to book value of SAR988 million. We use a higher premium to
book for Dar Al-Arkan of 75%, but this is mainly due to a much faster turnover that results in cash
earnings for the company. Akaria does not purchase much land each quarter, and it sells a relatively small
amount each year. We do not believe this will change, so the value to investors is muted, somewhat,
when compared to a land trader like Dar Al-Arkan which sells more than SAR1 billion in land each quarter
and adds to its land bank rigorously.




                                                                                                        21
                                 AKARIA
                                                                                                19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 V. FINANCIAL STATMENTS
                                 Income Statement (December Year End)
                                 In SAR million, unless otherwise stated
                                                                           2008a     2009e      2010e       2011e      2012e
                                 Revenues                                   225.0     215.8      289.1       313.0      407.7
                                 COGS                                      (97.9)    (87.5)    (125.6)     (135.2)    (185.9)
                                 Gross Profit                              127.1     128.3      163.5       177.8      221.7
                                 Sales & Marketing Expenses                  (1.4)     (1.4)      (1.7)       (1.9)      (2.5)
                                 General & Administrative Expenses         (15.2)    (15.0)     (20.2)      (25.0)     (36.7)
                                 Operating Profit                           110.5     111.9      141.5       150.9      182.6

                                 EBITDA                                    130.3     130.9      161.4       171.8      207.4

                                 Other Income, Net                           26.6      21.3       19.7       17.8       16.5
                                 Net Income before Zakat                   137.1     133.2      161.2       168.7      199.1
                                 Zakat                                     (20.1)    (16.4)     (13.0)       (8.8)      (5.4)
                                 Net Income                                  117       117        148         160        194
                                 EPS                                         0.98      0.97       1.23       1.33       1.61
                                 Source: Akaria, EFG-Hermes estimates



                                 Balance Sheet (December Year End)
                                 In SAR million, unless otherwise stated

                                                                           2008a     2009e     2010e       2011e      2012e
                                 Cash and Cash Equivalents                   61.0     445.3     336.0       177.6       56.5
                                 Short-Term Investments                     649.9     252.9     252.9       252.9      252.9
                                 Net Receivables                             11.8      11.8      15.0        16.3       21.2
                                 Net Inventory                                 1.7       3.1       4.1         4.1        5.6
                                 Investment Land for Sale                    60.3      17.9      17.9        17.9       17.9
                                 Advance Payments and Other Receivables      16.7      10.8      14.5        15.7       20.4
                                 Total Current Assets                      801.5     741.8     640.3       484.3      374.4
                                 Investments and Financial Assets           453.2     455.8     465.8       465.5      459.1
                                 Projects under Construction                311.6      20.0      30.4        68.5       87.8
                                 Net Investments                            1,602     1,944     1,984       2,084      2,224
                                 Property and Equipment, net                   6.1     26.1     118.5       187.9      238.8
                                 Total Long-term Assets                    2,373     2,446     2,599       2,806      3,010
                                 Total Assets                              3,174     3,188     3,239       3,290      3,384
                                 Rents Received in Advance                   49.1      57.2      71.7        78.9       85.6
                                 Dividends Payable                             0.0       0.0       0.0         0.0        0.0
                                 Provision for Zakat Tax                     19.2      19.2      19.2        19.2       19.2
                                 Other Credit Balances                       20.6      21.2      28.8        32.1       44.6
                                 Total Current Liabilities                   88.9      97.6     119.8       130.2      149.4
                                 End of Service Benefits                     11.1      12.9      13.9        14.9       15.9
                                 Total Liabilities                          100.0    110.5     133.7       145.1      165.3
                                 Total Net Worth                           3,074     3,077     3,105       3,145      3,219
                                 Liabilities and Net Worth                 3,174     3,188     3,239       3,290      3,384
                                 Source: Akaria, EFG-Hermes estimates




     KINDLY REFER TO THE
22   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
AKARIA
                                                                 19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Cash Flow Statement (December Year End)
In SAR million, unless otherwise stated

                                            2008a     2009e      2010e      2011e      2012e
Net Profit before Zakat                      137.1     133.2      148.2      159.9      193.7
Depreciation & Amortisation                   19.8       19.0       19.9       20.9       24.8
Other Operating Cash Flows                  (17.0)    (19.4)      (17.7)     (15.7)     (14.3)
Change in Working Capital                   (22.8)      (0.5)      (3.5)      (2.9)      (3.1)
Total Operating Cash Flows                  117.2     132.3       146.9      162.2      201.1
Capital Expenditures                       (127.2)     (34.9)   (102.7)    (107.6)      (70.2)
Free Cash Flow                              (10.0)      97.4       44.1       54.6      130.9
Other Investing Cash Flows                (426.3)      408.9      (33.5)     (93.0)   (132.0)
Cash Flow before Financing                (436.3)     506.3        10.6     (38.4)       (1.1)
Dividends Paid                            (122.1)    (122.0)    (120.0)    (120.0)    (120.0)
Change in Cash                            (558.4)     384.3     (109.4)    (158.4)    (121.1)
Source: Akaria, EFG-Hermes estimates




                                                                                         23
                            DAR AL-ARKAN – LAND TRADER IN DISGUISE
                                                                                                                          19 october 2009
                            SAUDI ARABIA | REAL ESTATE & HOTELS



                              Short-Term Rec.: Accumulate                           Current Price*: SAR 16.60
                              Long-Term Rec. : Accumulate                           LT Fair Value : SAR 19.15

                            • A Land Trading Company Disguised as Real Estate Company: We initiate coverage on Dar Al-Arkan
                            with a ST/LT Accumulate recommendation. We like its first-mover position in the Saudi real estate
                            market, its ability to buy and sell land consistently at a very high profit, and real estate development
                            operations that cater to the middle class, a poorly supplied segment. However, the stock appears close to
                            fully valued, and earnings and valuation depend heavily on the company’s ability to buy and sell land
                            profitably, which could become more difficult with increased competition.
                            • Land Bank Makes Up Majority of our LTFV of SAR19.15: More than 80% of our valuation stems from
                            the company’s land bank, which is booked at SAR15 billion (at cost) on its balance sheet, according to
                            management. We estimate that it is comprised of between 35-50 million sqm (based on an average cost
                            of SAR300-400 per sqm, in line with historical costs), although management does not provide the size of
                            the land bank. We use a premium to book value of 75% in our valuation, which we believe is appropriate,
                            given a c50% margin on land sales and a fast turnover (average life of 2.5 years). The company has been
                            effective at profitably selling land, but future growth could be difficult if competition for land increases.
                            • Inexpensive on a P/E Basis: Dar Al-Arkan also looks inexpensive on a P/E basis with a P/E on 2009e
                            earnings of 8.0x and for 2010e earnings 7.7x. We believe this speaks to the company’s ability to quickly
                            turn around land purchases and drive earnings, which is helped by a levered business model. On a P/B, the
                            company trades at 1.3x 2009e and 1.1x 2010e. It is difficult to make comparisons with other real estate
                            companies given very different business models and accounting methods, but Dar Al-Arkan appears to be
                            attractively priced on a relative basis as well.
                            • New Real Estate Projects Could Drive Earnings: Real estate sales have never been more than 30% of
                            total sales, and in 9M2009 were just 9%. We expect this will increase, given a growing real estate
                            portfolio (current book value of SAR1.5 billion) and the addition of Shams Alriyadh, a large project of more
                            than 3,189 villas that will start to be sold next year. If the company reaches its target of delivering
                            2,500-3,000 units per year, we expect real estate sales could increase to 50% of revenues in the long
                            term.
                            • Sukuk Repayment Minimal Risk – But Business Model Demands Leverage: We do not believe
                            Dar Al-Arkan will have problems financing its SAR2.25 billion sukuk due March 2010 out of cash flows and
                            bank loans. However, this has limited its ability to pay dividends, and we believe has hurt its land
                            purchases and even, to some extent, its investments in developments. We believe Dar Al-Arkan’s business
                            model depends on leverage, and without it, growth will likely be limited. However, we believe the stock
                            will perform well if the company is able to access financing in substantial amounts, which could happen in
                            2H2010e.



                              December Year End                         2008a      2009e     2010e       2011e           20        Price (SAR)   TASI (Rebased)
                              Revenue                                    5,611      5,694     5,636       6,774
                                                                                                                         19
                              Operating Profit                           2,644      2,442     2,526       2,936
                              EBITDA                                     2,694      2,482     2,573       3,018          18

                              Net Income                                 2,356      2,237     2,326       2,756          17
                              EPS (SAR)                                   2.18       2.07      2.15        2.55
                                                                                                                         16
                              DPS (SAR)                                   2.25          -         -           -
                              Net Debt (Cash)                             6919       6625      4518       3,519          15

                                                                                                                         14
                              P/E (x)                                      7.61      8.01     7.71        6.51
                                                                                                                         13
                              EV / EBITDA (x)                               9.4      10.2      9.8         8.4
                              P/BV (x)                                      1.5       1.3      1.1         0.9           12
                              P/CF (x)                                      6.5       4.4      7.7        10.1           11
                              Div. Yield                                   14%        0%       0%          0%
                                                                                                                              18-Oct-08
                                                                                                                              18-Nov-08
                                                                                                                              18-Dec-08
                                                                                                                               18-Jan-09
                                                                                                                               18-Feb-09
                                                                                                                              18-Mar-09
                                                                                                                               18-Apr-09
                                                                                                                              18-May-09
                                                                                                                               18-Jun-09
                                                                                                                                18-Jul-09
                                                                                                                              18-Aug-09
                                                                                                                               18-Sep-09
                                                                                                                              18-Oct-09




                              RoAE                                         21%       17%      15%         16%
                              Figures in SAR million, unless otherwise stated



                              Estimate Changes                                                                    Stock Data
                                                               2008a            2009e            2010e            Last Div. Date                 SAR3.0 on 20 Apr 09
                              (SAR mn)                                      Old      New     Old       New        Mkt. Val. / Shares (mn)          SAR17,928 / 1,080
                              Revenue                           5,611       N/A      5,694   N/A       5,636      Av. Mthly Liqd. (mn)                     SAR1,369
                              EBITDA                            2,694       N/A      2,482   N/A       2,573      52-Week High / Low                 SAR18.8 / 11.90
                              EBITDA Margin                    48.0%        N/A     43.6%    N/A      45.7%       Bloomberg / Reuters             ALARKAN / 4300.SE
                              Net Income                        2,356       N/A      2,237   N/A       2,326      Est. Free Float                               11%

KINDLY REFER TO THE         *Prices as at 18 October 2009
IMPORTANT DISCLOSURES AND                                                                                                                                         24
DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




EXECUTIVE SUMMARY
We initiate coverage with a ST/LT Accumulate recommendation and a Long-Term Fair Value (LTFV) of
SAR19.15 for Dar Al-Arkan, the largest publicly-traded real estate developer in Saudi Arabia. While many
investors think of it is as a company that mainly builds residential units for sale, the majority of its
revenue (more than 90% in 9M2009) was from land sales. It has been very effective in profitably buying
and selling land, and has about SAR15 billion in land (booked at cost) on its balance sheet. It is growing its
development arm. It started with small developments of 250-300 units, and has just finished a 3,000-plus
unit development in south Riyadh. It is also now branching out into the redevelopment of Jeddah’s
downtown. It also has a growing rental portfolio of SAR1.5 billion that will likely drive recurring revenue in
the future. Dar Al-Arkan went public in December 2007 and is still 70%-owned by its founders.

INVESTMENT POSITIVES

A PROFITABLE TRADER IN LAND
We view Dar Al-Arkan’s ability to build a large land bank at competitive prices as the major strength of
the company. While we do not know the exact size or location of the land bank, we can see from the
gross margins on its land sales (52% in 2008, 48% 9M2009) that the company has been able to purchase
its land bank at good prices and then turn around and sell them profitably. We find this especially
impressive, given an average life of its land bank of 2.5 years. Management has stated that its land bank
has a book value of SAR15 billion, recorded at cost, including land attributable to existing projects. While
we believe management has access to a wide network or sellers, there is no guarantee that future land
bank purchases will be as profitable as they have been historically, particularly if competition for good
land plots increases as new developers come into the market.

STRONG TRACK RECORD OF DEVELOPMENT
Dar Al-Arkan has a strong development record. It has completed 20 projects over 15 years, and recently
completed the construction of a large complex with more than 3,000 villas and apartments. Management
targets completing 2,500-3,000 units per year, up from the current 1,000 units. While we believe this is an
achievable goal in the long run and one that will result in strong earnings for the company, the company's
current financial situation means that this will take some time. In our model, which extends through
2012e, we assume a much smaller amount of sales from residential units than implied by 2,500-3,000
units. Note that Dar Al-Arkan uses a network of contractors for its projects.

DAR AL-ARKAN UNIQUELY BENEFITS FROM GROWING SAUDI REAL ESTATE MARKET
We believe Dar Al-Arkan is one of the best positioned companies to benefit from a growing real estate
market in Saudi Arabia, given its middle-income target market and its ability to buy land at good prices in
developing areas. When a new mortgage law is passed, we expect Dar Al-Arkan will benefit more than
other companies, given its target market of middle-income consumers, who have unfulfilled demand for
mortgages. Management has said that up to 80% of buyers of its apartment units use financing of some
sort. Even for its villas, we believe the market will grow, as financing allows more people to buy larger
units.

GROWING RENTAL PORTFOLIO SHOULD RESULT IN RECURRING REVENUES
We expect Dar Al-Arkan’s rental portfolio, currently SAR1.5 billion, but mostly current work in progress, to
drive strong recurring revenues for the company. We estimate that rental revenues will equal SAR300
million at Al Qasr by 2011e. Dar Al-Arkan has increasingly included mixed-use components in its projects,
including a mall at Al Qasr and more than 3 million square metres (sqm) of built-up area (BUA) of
commercial space at Shams Alriydah, and we expect it will continue to do so at its Shams Al-Arous and
Qasr al-Khozam projects. This also gives the company some flexibility if it decides to sell these assets at
some point in the future to free up cash, which we believe would be possible with the Al Qasr mall.




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                                 DAR AL-ARKAN
                                                                                                               19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 NEW, BIGGER PROJECTS SHOULD DRIVE REVENUE GROWTH
                                 Two projects in Jeddah, Qasr al-Khozam and Shams Al-Arous, still in the planning stages should drive
                                 strong revenue growth at the company going forward. In a change from its usual strategy of new
                                 developments, Dar Al-Arkan has entered into an agreement with the Jeddah Urban Redevelopment
                                 Company (JURDC, a government institution) to revitalise the Khozam Palace (Qasr al-Khozam) area,
                                 which covers 4 million sqm in central Jeddah and is expected to have a built-up area of 15 million sqm.
                                 While this project carries significant risk, from both an operational and financial perspective, we believe
                                 successful execution will result in high returns for the company. We also like that it is in partnership with

                                 the government, which will hopefully provide more security for the company. For the second project,
                                 Shams Al-Arous, Dar Al-Arkan is planning to build 10,000 residential units in phases.

                                 INVESTMENT RISKS

                                 MORE FINANCING NEEDED FOR BUSINESS MODEL
                                 We believe Dar Al-Arkan’s business model needs a substantial amount of long-term financing to grow
                                 quickly and that depending solely on operating cash flows would result in slower and potentially less
                                 profitable growth. The company has announced projects that will cost more than SAR15 billion, and these
                                 are to be completed by 2016e. It also needs to replenish its land bank to the tune of about SAR2.5 billion
                                 each year to maintain its current revenue growth. While it can garner solid cash flows from its current
                                 land bank and developments, we believe it cannot sustain its current revenue figures without additional
                                 long-term financing. It has a SAR2.25 billion sukuk due in March 2010 that it has committed itself to pay
                                 off, and it has another SAR3.75 billion sukuk due in 2012, which we believe it will have to roll over. It was
                                 able to raise SAR750 million locally in May 2009, but this is a small amount, given its large investments.
                                 Until the capital markets reopen, the company will likely not pay dividends (it did not in 2009) and could
                                 face either delays at its projects or replenishing its land bank, both hurting future growth for the company.

                                 CONCENTRATED VALUATION IN LAND BANK
                                 The greatest amount of value at Dar Al-Arkan comes from its land bank, which we estimate is worth
                                 SAR17.7 billion. While this appears reasonable to us, given historical margins of its land sales, we do not
                                 know where the land bank is located or what the cost per sqm has been. Management has said that it
                                 would like to increase its disclosure on its land bank, but it has been resistant so far for competitive
                                 reasons. We believe one potential reason is that the company benefits from buying up land around its
                                 projects through middlemen, and then selling this land at a profit when its projects are announced. It has
                                 said that historically its land bank has been located near/adjacent to its projects.

                                 KHOZAM PALACE PROJECT PRESENTS UNIQUE OPERATIONAL RISKS
                                 Dar Al-Arkan's Khozam Palace project (also called Qasr al-Khozam) is a unique project for the company. It
                                 is an urban revitalisation project in partnership with the municipality of Jeddah. The 4 million sqm area in
                                 Jeddah is a run-down area in the centre of the city, with only 13% of the 6,000 buildings in the area
                                 considered to be in "good" condition, according to a survey conducted on behalf of the project. The
                                 government has committed to moving people from the area and demolishing the poor buildings. Dar Al-
                                 Arkan's role will be to develop the land for sale, but its 2011e start date and 2015e end-date on
                                 construction could be optimistic. Also, the SAR10 billion cost estimate is much larger than for any of its
                                 projects so far, and the financing needed for this project could be difficult to obtain. We believe its
                                 cooperation with the government, which appears very committed to the revitalisation of Jeddah and will
                                 be responsible for relocating residents, mitigates these risks somewhat.

                                 VALUATION APPEARS COMPELLING
                                 We reach a LTFV of SAR19.15 per share based on a DCF approach for Dar Al-Arkan's current projects and
                                 using a 75% premium to book value for its land bank, which makes up the majority of our valuation. We
                                 use a premium to book value for the land bank, given that it is recorded at cost and that the company has
                                 a long history of quickly selling land profitably. The average mark-up on land has been around 100% (50%
                                 gross margin) and the average life of its land bank is just 2.5 years. We also believe land sales attributable
                                 to its Khozam Palace joint venture deserve a premium to the book value of the land there, given the good
                                 location and the likely high demand. The company also has net debt of SAR6.74 per share as of September
                                 2009.


     KINDLY REFER TO THE
26   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




CATALYSTS
A number of events could be catalysts for Dar Al-Arkan shares over the next 12 months, including a
potential mortgage law, refinancing of its sukuk due in March 2010 (which has been a concern for
investors), and sales launches for its projects.

i) We believe Dar Al-Arkan will benefit more from a new mortgage law than any of the other publicly-
traded developers. This is due to its middle-income target customers, who are expected to be the largest
users of mortgage finance. Even if the number of mortgages grows gradually, the shares will likely benefit
in the short term.

ii) We also believe financing has been a major concern for investors in Dar Al-Arkan, and the company's
ability to obtain more bank loans or another sukuk would relieve this concern and put the company on a
better footing.

iii) Finally, sales launches appear to have had little impact on share prices historically, although new
projects could improve sentiment on the stock, in our view. Also, strong sales figures for projects like
Shams Alriyadh and Khozam Palace may also be viewed positively.




                                                                                                           27
                                 DAR AL-ARKAN
                                                                                                                                                         19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 I. BACKGROUND
                                 Dar Al-Arkan was founded in 1994 and is one of the largest residential real estate developers in Saudi
                                 Arabia. It is headquartered in Riyadh and had 421 employees at the end of 2008.

                                 The company has three main business areas

                                 • Land development: It develops infrastructure on raw land and then sells that to third-party developers
                                 and individual buyers.

                                 • Master-planned lifestyle communities: Dar Al-Arkan develops residential and commercial properties
                                 that it then sells. It currently has four major projects on-going: Al Qasr and Shams ar-Riyadh in Riyadh, al-
                                 Tilal in Medina, and Al Khozam Palace in Jeddah. The company has historically targeted middle-income
                                 home buyers.

                                 • Property management: It also develops properties for future leasing. It currently has a portfolio of
                                 properties worth about SAR1.5 billion, and management expects these to start adding rental revenue in
                                 late 2009e.

                                 STOCK PERFORMANCE
                                 The company went public in December 2007 at SAR56.00 a share, or SAR28.00 after share splits and
                                 bonus shares. The founding shareholders sold 30% of their stake, but continue to hold 70%.

                                 Dar Al-Arkan has fallen 41% since it went public. Dar Al-Arkan has a very high correlation with TASI (the
                                 Saudi stock index) – both have fallen about 50% since Dar Al-Arkan's IPO. However, shares of Dar Al-
                                 Arkan have not tracked other real estate stocks as closely, except for Akaria, which has an almost perfect
                                 correlation with TASI. While the decline in Dar Al-Arkan’s share price has been generally in line with the
                                 performance of the Saudi market, we also believe that some of the decline can be attributable to investor
                                 concerns over funding for its projects.

                                 We believe shares have traded mainly on sentiment over general real estate as well as specific financing
                                 concerns the company faces. Note that shares do not appear very sensitive to bonus shares, or at least the
                                 effect is short-lived, as can be seen in late October 2008 and October 2009.

                                 Figure 25: Dar Al-Arkan Stock Price Performance vs. TASI

                                                                                         Price (SAR)               TASI (Rebased)
                                    20
                                    18
                                    16
                                    14
                                    12
                                    10
                                         18-Oct-08


                                                     18-Nov-08


                                                                 18-Dec-08


                                                                             18-Jan-09


                                                                                           18-Feb-09


                                                                                                       18-Mar-09


                                                                                                                     18-Apr-09


                                                                                                                                 18-May-09


                                                                                                                                             18-Jun-09


                                                                                                                                                          18-Jul-09


                                                                                                                                                                      18-Aug-09


                                                                                                                                                                                  18-Sep-09


                                                                                                                                                                                              18-Oct-09




                                 Source: EFG-Hermes




     KINDLY REFER TO THE
28   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                                         19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




II. LAND BANK AND PROJECTS
LAND BANK DRIVES EARNINGS
The main driver of earnings at Dar Al-Arkan is its land bank. It represented more than 90% of total
revenues and 95% of profits in 9M2009. While management does not disclose the total area it owns, we
believe it could be as large as 50 million sqm, based on the book value at cost of SAR15 billion and an
average cost of SAR300 per sqm, which is in line with the cost recorded on the income statement in 2008
and 9M2009. The SAR15 billion amount includes land reserved for projects, we believe. Management has
stated that the land bank is sufficient for projects for the next five years and that about 40% of it is
located in Riyadh, 40% in the Western Provinces (Mecca and Medina) and 20% in the Eastern Province.
The company does not plan to expand beyond the five major cities (Riyadh, Jeddah, Mecca, Medina and
the Dammam/Khobar conurbation).

We estimate that the company will need to spend about SAR2.5 billion a year to replenish its land bank,
although the Khozam Palace project will allow it to record high land sales outside of its normal land
trading operations. According to management, the average life of its land bank is approximately 2.5 years,
showing good turnover. While the company has been very successful in finding good plots of land, we
believe this may become more difficult as the number of competitors increases. However, Dar Al-Arkan
appears to have a good network of suppliers and middle-men.

Our Buy recommendation depends heavily on Dar Al-Arkan's ability to continue to buy and sell land, but
given management's solid track record, we believe it is reasonable. First, it has been able to sell land very
profitably for many years, even during downturns such as in 4Q2008 or 2009. In the last three quarter,
which we had expected would be weak, the company has been able to increase its land sales to SAR3.8
billion from SAR3.4 billion, or 13% higher Y-o-Y, despite very negative sentiment on real estate
worldwide. Second, the company is able to take advantage of its developments in selling land. For
example, we believe it buys up large pieces of land, most likely from many different sellers. It then
announces a project that will use part of that land and sells the remainder after prices have gone up.
Management has said that historically a sizeable portion of land sold has been near its developments.
Third, Dar Al-Arkan does not focus on land in the centres of urban areas, rather it buys on the outskirts
and is able to benefit from expanding urban areas. This reduces risk, because this land is usually less
expensive, and the company can wait for the city area to expand and for these plots of land to become
valuable.

Figure 26: Revenues and Costs of Land Sales
Revenues & Costs in SAR million (LHS), estimated Price and Cost in SAR (RHS), unless otherwise stated

                           Revenue          Costs         Est'd price per sqm        Est'd cost per sqm
   1,600                                                                                                          900
   1,400                                                                                                          800
   1,200                                                                                                          700
                                                                                                                  600
   1,000
                                                                                                                  500
     800
                                                                                                                  400
     600                                                                                                          300
     400                                                                                                          200
     200                                                                                                          100
       0                                                                                                          0
              1Q2008       2Q2008      3Q2008       4Q2008       1Q2009         2Q2009     3Q2009       4Q2009e


Source: Dar Al-Arkan, EFG-Hermes estimates




                                                                                                                        29
                                           DAR AL-ARKAN
                                                                                                                                19 october 2009
                                           SAUDI ARABIA REAL ESTATE SECTOR




                                           PROJECTS OVERVIEW
                                           Dar Al-Arkan has four projects under construction currently and just announced one more on 11 October
                                           2009. It finished selling villas in its Ishbiliyah project in 1H2009. Of the four on-going projects, we ascribe
                                           the greatest value to Al Qasr, given the large number of units, although we believe Khozam Palace could
                                           drive future earnings at the company.

                                           Note that we do not include Khozam Palace or Shams Al-Arous in our valuation as separate
                                           developments, given the minimal information we have on them now. They are, however, included in the
                                           value of our land bank, to which we ascribe a premium to book value.

Figure 27: Dar Al-Arkan Projects
Project              Location Area (sqm)        Cost   Percentage End Date       BUA    Residential            Retail (sqm)   Offices   Mall rental   Residential
                                                        Complete                (sqm) Area (sqm)l                             (sqm)     Area (sqm)      Units
Ishbiliyah Project   Riyadh      700,00    SAR378 mn      100%       2009      c160,000 c160,000                   N/A         N/A         N/A           420
Al Qasr Project      Riyadh     813,389     SAR1.8 bn      95%      2009e      776,200   455,065                  65,000      19,123      78,000        3,054
                                           (mixed use)   (mixed   (mixed use);
                                            + SAR950 use), 50%     YE2010e
                                            mn (mall)     (mall)     (mall
Al Tilal - Phase     Medina   2.2mn (total SAR375 mn       99%      2010e                160,000                   N/A         N/A         N/A           500
One Project                     project)
Shams Arriyadh       Riyadh      5.0 mn     SAR5.8 bn      25%     YE2012e      5.0 mn     2 mn                3 mn (BUA)      N/A         N/A          3,189
Alriyahd Project                                                                                                  mixed
                                                                                                               comm./retail
Khozam Palace        Jeddah      4.1 mn      SAR 10 bn    In progress    2015e       15 mn         TBA             TBA         TBA         TBA           TBA
Project*
Shams Al-Arous       Jeddah     3.0 mn       SAR 7.5 bn      Just        2016e         TBA         TBA             TBA         TBA         TBA           TBA
                                                          announced
*Dar Al-Arkan will only develop and sell land in Khozam Palace (or Qasr al-Khozam). It will not build all 15 mn sqm of BUA
Source: Dar Al-Arkan, EFG-Hermes


                                           OUTSOURCED CONSTRUCTION LIMITS COST VOLATILITY
                                           Dar Al-Arkan does not construct its projects, but rather it contracts the construction out to construction
                                           companies. For a project to build 3,000 units, Dar Al-Arkan could use as many as 10 contractors. The
                                           terms are usually fixed, but, given volatility in building materials prices over the past year, we believe this
                                           will change and increase construction cost volatility for the company. It also utilises Turner Construction
                                           Company for project management in a long-standing strategic agreement.

                                           MORTGAGE AFFILIATE SHOULD HELP SALES
                                           Dar Al-Arkan helped establish Saudi Home Loans Company (SHL), the first independent Shariah-compliant
                                           mortgage provider in Saudi Arabia, and owns 15% of SHL. Other partners in the venture include Arab
                                           National Bank (ANB), Kingdom Installment Company, and the International Finance Corporation, the
                                           private sector arm of the World Bank. Currently, Dar Al-Arkan sources customers, and SHL uses ANB’s
                                           branches to service them. The affiliate was founded in 2007 with a capital of SAR2 billion and started
                                           operations in late 2008 with SAR1 billion available for loans. The company is still in launch mode based on
                                           our conversations with industry professionals.

                                           ISHBILIYA PROJECT
                                           Overview: This 700,00 sqm project in the north of Riyadh is 100% sold, according to management. The
                                           project consists of a full community composed of 649 villas, with prices of the final phase of around
                                           SAR1.0-1.2 million per unit. The last phase consists of 166 units. Ishbiliya should have no impact on the
                                           income statement or cash flows after 2Q2009.

                                           Prices and Costs: Dar Al-Arkan spent around SAR377.6 million, or SAR539 per sqm of land, or
                                           SAR581,000 per unit. The company expected to generate total revenues from the project of SAR523.4
                                           million, which equates to SAR750 per sqm, or around SAR800,000 per unit.




              KINDLY REFER TO THE
30            IMPORTANT DISCLOSURES AND
              DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                           19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Figure 28: Real Estate Units Sales, 2007-08
                                2007       2008
Units Sold                      1,220      1,101
Revenue Recognition (SARmn)     1,321       990
SAR per Unit                  1,082,932   899,524
Source: Dar Al-Arkan


AL QASR PROJECT
Overview: This is a large apartment development of more than 800,000 sqm in the south of Riyadh. There
will be more than 3,000 apartments in total in the development when it is finished, along with 254 villas,
19,0123 sqm of office space, 65,000 sqm of ground floor retail space, and a shopping mall with net
leasable area of 78,000 sqm. Project construction was started in 2005, and Dar Al-Arkan expects it will
complete commercial and residential construction by December 2009e and the mall by year-end 2010.

RESIDENTIAL
Sales Start: The company started selling units in 2008, and management expects to sell all units by the
end of 2009. As of September 2009, 1,194 units have been sold and 539 remain. We estimate most sales
will happen in 2009e, but that 25% of the villas and 20% of the apartments will spill over into 2010e. This
is later than management expects. It expects all or almost all sales will be completed in 2009. The
company will keep 1,318 apartment units for rent. We do not expect it will have a problem renting these
units, although we do look for occupancy to reach 90% in 2012e, from 70% in 2011e and 50% in 2010e.

Sales: We use an average price of SAR850,000 per villa and SAR475,000 per apartment unit. This results in
total revenue of more than SAR900 million, with villa revenues of SAR216 million and apartments at
SAR703 million.

Costs: Dar Al-Arkan is targeting total cost of SAR2.5 billion, and construction was 95% complete as of
September 2009. We believe each villa costs Dar Al-Arkan around SAR650,000 to build and each
apartment SAR375,000. This results in about a 22% overall margin.

COMMERCIAL AND RETAIL
We assume that Dar Al-Arkan will complete Al Qasr’s commercial and mixed-use retail space in 2009e,
while the mall will take until the end of 2010e. We assume occupancy will reach 85% for the mall and
retail spaces and 90% for commercial offices. Our rental price estimates are based on comparable rents,
with discounts for Al Qasr's location in the southern, more downscale part of town. However, rents could
increase as more people move to the area and all of the units are occupied.

We estimate office space will cost around SAR134 million, or around SAR7,000 per sqm. Retail space will
be less expensive at just SAR5,800 per sqm, or cSAR240 million. We believe the mall will be the most
expensive to build at SAR9,000 per sqm, for a total of SAR700 million. In total, all rental properties
(excluding apartments) will cost the company SAR1.1 billion.

PROJECT RISKS
The major risk with Al Qasr is that the company will not be able to sell these properties or rent them out
profitably. In terms of sales, only 539 units are still remaining, and the company has been successful in
selling about two-thirds of its inventory. For rentals, we believe the large undersupply of middle-income
housing in Saudi will stimulate demand and result in strong occupancy rates. Also, the nice designs and
new construction may attract people in the area that have been unhappy with their current housing.

AL TILAL PROJECT - MEDINA
Overview: Al Tilal is a 2.2 million sqm development in the south of Medina, located a 15-minute drive
from the Prophet’s Mosque. Dar Al-Arkan has announced only phase one of the project, consisting of 500
units, although management had previously announced that it would build 2,000 units in total. We
include just phase one in our model and valuation of the project. This will comprise 499 units.
Construction of the remaining phases has not been scheduled as of yet, and there could be a change to
the original plan to construct 2,000 units. We do not know the reason for the delay.



                                                                                                         31
                                 DAR AL-ARKAN
                                                                                                              19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 Sales: Dar Al-Arkan sold about 145 of the 499 units of phase one as of September 2009. We expect 225
                                 units will be sold in all of 2009e, and that the remaining 274 will be sold in 2010e at around SAR900,000
                                 per unit. We believe the delay in sales is due partly to the financial crisis, which resulted in weak demand
                                 in the Kingdom, and due to delays in connecting utilities to the units and completing delivery. Dar Al-
                                 Arkan had previously delayed some sales by pushing them to the end of the year, and it is now offering
                                 attractive financing. Customers can sign up for 25-year financing (we assume through its SHL JV), which
                                 requires a 10% down payment. We believe cash flows to Dar Al-Arkan will be unchanged – meaning that
                                 they will be received when the contract is signed.

                                 Costs: Management has indicated that the first phase of the project (500 villas) will cost around SAR375
                                 million, or SAR750,000 per villa. We use this assumption in our model, with about 85% of the project
                                 expenditure spent as of the end of 2008. As of September 2009, 99% of construction was complete. We
                                 do not include new costs for Al Tilal in 2010e.

                                 Figure 29: Villa Types in Tilal
                                 Type                   Size (sqm)         Number
                                 Al Rowshan Villa          305              252
                                 Al Dar Villa              334               43
                                 Al Rouda                  346                4
                                 Al Retaj                  351               24
                                 Al Iwan                   303               24
                                 Al Nakheel                317               80
                                 Al Aqueeq                 344               16
                                 Al Huda                   360                4
                                 Al Asima                  310               36
                                 Al Mahrousa               314               16
                                 Total                                      499
                                 Source: Dar Al-Arkan



                                 Risks: Dar Al-Arkan has delayed delivering units at Tilal because the municipality was unable to connect
                                 utilities to the development. It had originally expected all units to be sold as of 2009e, but we do not
                                 expect this to happen. We also believe general negative sentiment on real estate in 2H2008 and 1H2009
                                 delayed sales. However, it could also be due to relatively high prices for Medina and a smaller market
                                 there, and sales may take even longer than we forecast. If the problem has been with the product, then
                                 future sales in the project beyond phase one could be difficult without a change to the master plan.

                                 SHAMS ALRIYADH PROJECT
                                 Overview: This is a project of 3,189 villas in the north of Riyadh stretching over 5 million square metres
                                 (sqm). Dar Al-Arkan started construction of phase one in the second half of 2009e, according to
                                 management. Each phase will consist of 250-500 villas, and Dar Al-Arkan will introduce them to the
                                 market gradually, in order not to flood the market with all 3,000 villas at the same time. The company
                                 looks to build and sell all of its units over three years and complete construction at the end of 2012e, but
                                 we assume that it will take a little over four years to sell all of the units.

                                 Figure 30: Villa Types and Services
                                 Villa Size      Number of           Service        Number of
                                                   Villas                            Services
                                 400 sqm           1510            Hyper malls           5
                                 600 sqm            822          Shopping centres       6
                                 800 sqm            292              Schools            13
                                 1000 sqm           239             Mosques             16
                                 1200 sqm           185           Petrol stations        2
                                 1500 sqm           141
                                 Total             3189
                                 Source: Dar Al-Arkan




     KINDLY REFER TO THE
32   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




RESIDENTIAL
Sales start: Dar Al-Arkan expects to start sales in 2Q2010e, although it will not deliver these until 2011e,
when it will start recognizing revenues. We estimate the company will sell around 160 units in 2010e,
before increasing that to c1,000 units per year after that. Note this is in line with management’s
expectations, which we believe is reasonable, given recent sales of Al Qasr and our belief that the Saudi
real estate market will have improved from its weakness in 2009 by then. In September, 25% of
construction was complete. Dar Al-Arkan expects to complete the project by the end of 2012e, but in our
model we conservatively assume that construction and sales will continue into 1H2014e.

Pricing: Dar Al-Arkan has not yet set prices for Shams Alriyadh, but we estimate that the average price
will be SAR1.45 million in 2010e, and this will increase with inflation at around 5%. This is at the high end
of the middle-income segment for Saudi and higher than the average price at its other developments.

Sales: We estimate that Shams Alriyadh will contribute SAR5.1 billion in revenues from residential sales to
Dar Al-Arkan’s top line and SAR1.5 billion in gross profit.

Costs: Dar Al-Arkan is targeting a total cost for the project of SAR6 billion. We assume each villa will cost
SAR1.05 million, with a slight increase due to inflation over the period. Our gross margin assumption is
32%, slightly above Dar Al-Arkan’s margins at Ishbiliya given our high sales price assumptions.

COMMERCIAL
Dar Al-Arkan plans to build more than 470,000 sqm of commercial and retail space in BUA of 3 million
sqm. Based on progress so far, we do not expect commercial spaces will open for rentals until 2011e, and
occupancy will be very low that year (we estimate around 10%) before growing to reach 85% occupancy.
As with our assumptions for Al Qasr, rents are based on comparable spaces, with a discount for Shams
Alriyadh.

We estimate the commercial space will cost around SAR2.4 billion, or around SAR5,000 per sqm. These
are in line with our assumptions for Al Qasr. Note that the company has said that it would spend SAR5.80
billion on Shams Alriyadh, and our total cost assumption for the project is slightly higher than this at
SAR5.86 billion.

PROJECT RISKS
The two main risks are i) a somewhat distant location from the centre of Riyadh and ii) upper middle-
income units could be oversupplied in the Saudi market. While the location is a bit far from central Riyadh
(about 20km outside of the city), there are a number of developments in the same area. Limitless, The
Land and Tameer are developing residential projects over a total area of almost 18 million square metres.
This should create a critical mass for the area that would alleviate some buyers’ concerns over the
distance. However, this does make us a bit more concerned about an oversupply of high-end units,
although we are not certain how many of these projects will be completed, especially over the next three
years, given the delays because of the financial crisis.

QASR KHOZAM PROJECT - JEDDAH
Overview: Qasr Khozam (Khozam Palace) is a joint venture (JV) with Jeddah Development and Urban
Regeneration Company (JDURC) to develop the Khozam Palace area, spread over 3.7 million sqm in
central Jeddah. The JV was established on 25 April 2008. Dar Al-Arkan expects the total BUA of the
project will be 15 million sqm and will include residential units, luxury hotels and shopping malls, and will
be completed over five years. Dar Al-Arkan has 51% ownership of the JV. JDURC has completed its survey
of privately-owned real estate in the district. The commercial value of real estate will be set and then
owners will be given compensation and requested to leave within a year’s time frame, according to media
reports.




                                                                                                          33
                                 DAR AL-ARKAN
                                                                                                                19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 Figure 31: Map of Jeddah with Khozam Palace Area Highlighted




                                 Source: Google Earth, Dar Al-Arkan



                                 Phases: Management said that the master plan has received preliminary approval from the municipality,
                                 but that the final approval is forthcoming. Based on this, we expect the project will be divided into four
                                 stages, with the first stage, in downtown Jeddah, in progress. The second stage will include the Al-Sabeel
                                 district. There are about 6,000 homes that the JV will have to demolish. Dar Al-Arkan plans to start
                                 construction in 4Q2010e and expects to complete the full project by 3Q2015e.

                                 Figure 32: Khozam Palace Project
                                 Stage                                                sqm
                                 Al Balad (Downtown) Area                          270,566
                                 Al Sabeel Area                                    950,000
                                 Khuzam Area                                     2,500,000
                                 Al Nuzla Area                                   combined
                                 *This excludes 40,000 sqm given to the Organisation of the
                                 Islamic Conference (OIC) to build its new headquarters
                                 Source: Dar Al-Arkan



                                 Expected Revenues: It is difficult to forecasts sales for the full project, particularly without detailed figures
                                 on prices per sqm anticipated or when sales will start. We expect Dar Al-Arkan will start selling land in
                                 2012e. We have land sales increasing to SAR6 billion in 2012e, to account for the start of Khozam. We
                                 believe the company may focus on these sales rather than traditional land sales, given the prime location
                                 and the large size of the expected BUA.

                                 Cost: Dar Al-Arkan expects the project will cost SAR10 billion, shared with JUDRC in proportion to
                                 ownership in the JV (51:49). This money will be spent over six years, and we expect spending in the later
                                 years will be financing by sales in the earlier years. The company will not have to redevelop the whole four
                                 million sqm area, because it will keep some of the current properties intact.

                                 Risks: We believe this project is the most risky of Dar Al-Arkan’s current projects, particularly because it is
                                 a redevelopment project with residents currently living on the land. We expect delays will be likely, given
                                 the large number of current residents that may delay leaving their homes, although some have already
                                 handed over titles to the municipality. Also, working with the government may result in bureacratic delays
                                 that the company has not faced in its newer projects. Dar Al-Arkan has never run a project like this, and it
     KINDLY REFER TO THE
34   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




may find it more difficult than building new homes on virgin land. As with its other developments, it will
sign up contractors for the actual construction, which we believe partially mitigates the operational risk of
revitalising within a current city environment.

Figure 33: Condition of Buildings in Khozam Palace Area



                                          Good
                                          13%
          Poor
          39%



                                                 Medium
                                                  48%




Source: JDURC


SHAMS AL-AROUS PROJECT
Dar Al-Arkan’s latest project is Shams Al-Arous, a mixed-use project located 12km east of Jeddah. It is
located on 3 million sqm of land and is expected to comprise 10,000 residential units and commercial and
retail space, although the exact amount is unknown. Residential units will include a mix of villas and
apartments. Infrastructure, including utility hook-ups, is already in place, according to management, and it
expects to start construction at year-end 2010e. In the first of three phases, it will build 2,000 residential
units, and these are expected to be completed 18 months from the start date. Revenues therefore could
be partially included in 2012e, but we have not included them at this time. The total cost of the project is
SAR7.5 billion, with the first phase expected to cost SAR1.5 billion. We did include an estimate for costs of
SAR500 million in 2010e, SAR1 billion in 2011e, and SAR1.5 billion in 2012e.

As with Khozam Palace, we have not included Shams Al-Arous in our valuation as a separate project, given
insufficient information. The land is included in the land bank calculation.

RENTAL PROPERTIES
Dar Al-Arkan is building a rental portfolio composed of residential and commercial properties. We believe
the company ended 3Q2009 with total rental assets of SAR1.5 billion. These properties will likely start
adding revenues in 4Q2009e, and we will start to see the affect on the income statement in 2011e. The
main driver of growth will be the opening of rentals in Al Qasr in 2009e, the mall in Al Qasr in 2010e, and
mixed-use rentals in Shams Alriyadh in 2011e.

Figure 34: Estimated Rental Revenues, 2009-2012e
In SAR million, unless otherwise stated


    400
    350
    300
    250
    200
    150
    100
     50
      0
            2009e       2010e       2011e        2012e


Source: EFG-Hermes estimates

                                                                                                          35
                                 DAR AL-ARKAN
                                                                                                                      19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 III. FINANCIAL REVIEW
                                 The company’s business model is to sell land and residential units, but the majority of its sales and
                                 revenues come from land sales.

                                 Figure 35: Revenue, Gross Profit and Gross                    Figure 36: Contribution of (2008a-2012e)
                                 Profit Margin (2008a-2012e)
                                 In SAR million (LHS), unless otherwise stated                 In SAR million, unless otherwise stated

                                                        Revenue (LHS)                              4,500
                                                        Gross Profit (LHS)                                      Khozam Palace
                                                                                                   4,000        Shams Arriyadh
                                                        Gross Profit Margin (RHS)
                                  10,000                                                 55%       3,500        Al Tilal
                                                                                                                Al Qasr
                                                                                                   3,000
                                    8,000
                                                                                         50%       2,500
                                    6,000                                                          2,000
                                    4,000                                                          1,500
                                                                                         45%
                                    2,000                                                          1,000
                                                                                                     500
                                        0                                                40%
                                                                                                       0
                                               2008a

                                                       2009e


                                                               2010e


                                                                       2011e


                                                                                 2012e



                                                                                                             2009e      2010e       2011e   2012e


                                 Source: Dar Al-Arkan, EFG-Hermes estimates                    Source: Dar Al-Arkan, EFG-Hermes estimates



                                 2009E
                                 During 9M2009, total revenue declined by 2% Y-o-Y to SAR4.2 billion, of which over 90% was generated
                                 from sales of land. Gross margin for the first months fell to 46%, mainly due to decline in profitability in
                                 land sales, which had been very profitable in 2008 when real estate was booming in Saudi. We believe
                                 that the company will close 2009e with revenues of SAR5.7 billion, implying a slight increase Y-o-Y, but
                                 we expect gross profit margin will fall 5 percentage points to 46%. While SG&A cost control has been
                                 good, it represents just a nominal 2.5% of total revenues. Finance costs will also likely fall, because the
                                 company has started to capitalise interest related to projects. For 9M2009, finance expenses were just
                                 SAR115 million, compared to SAR288 million last year. After zakat, these assumptions result in net profit
                                 of SAR2.2 billion (EPS of SAR2.07) in 2009e, down just 5% despite the fall in gross margin mainly due to
                                 interest capitalisation.

                                 2010E
                                 In 2010e, we expect the top line to decine slightly, as Dar Al-Arkan completes sales at Al Qasr and Al Tilal
                                 and records similar land sales revenue to 2009e of SAR5 billion. Gross margin grows on slightly higher land
                                 sale gross margin. We expect SG&A will fall slightly to SAR131 million, given the lack of project launches.
                                 And financing expenses should also fall due to the payback of its sukuk. These assumptions result in a 4%
                                 increase in net income to SAR2.3 billion, or SAR2.15 per share.

                                 2011E
                                 By 2011e, land sales will continue to make up a large portion of revenues, but we should start to see a
                                 significant amount of revenues from Shams Alriyadh of SAR1.5 billion and the addition of rental revenue
                                 from Al Qasr properties. This should result in a 20% Y-o-Y growth rate in total revenues. Our gross margin
                                 assumption falls about 100 bps to 47%, because of the change in mix. SG&A will likely start to increase
                                 with the Shams Alriyadh and Khozam Palace preparations, but that should be offset by lower finance
                                 expenses due to a lower debt burden. We expect net income of SAR2.8 billion and EPS of SAR2.55.




     KINDLY REFER TO THE
36   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                                   19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




2012E
Sales jump in 2013e due to the addition of Khozam Palace land sales. We look for total revenues of SAR8
billion, SAR2 billion is from Khozam Palace, and SAR1.7 billion from Shams Alriyadh. The addition of
Khozam Palace, which we believe will carry a slightly lower margin of 40%, to the mix is likely to result in
another 100 bps decline in gross margin to 46%. An increase in SG&A to SAR180 million, and an increase
in depreciation as rental properties at Shams Alriyadh are added, result in an EBITDA margin of 43%,
down 2 percentage points from 2011e. These assumptions along with higher finance costs of SAR148
million and minority interest of SAR315 million due to the joint venture for Khozam Palace result in net
income of SAR2.82 billion, up 2% Y-o-Y, and EPS of SAR2.61.

DEBT AND CASH
Dar Al-Arkan had a cash position of SAR1 billion at the end of 3Q2009, up from SAR460 million in
2Q2009. Net debt in 3Q2009 reached SAR7.3 billion as the company added SAR704 million in new debt,
including a SAR750 million sukuk. Its current debt-to-equity ratio is relatively high at 0.62x, as befits its
business model

Although the company is able to generate strong operating cash flows (SAR2.8 billion in 2008; SAR3.3
billion in 9M2009), its needs to raise financing to continue growing strongly, particularly since it has to
pay back a SAR2.25 billion sukuk in March 2010. Once the credit markets return to normality, we expect
the company to raise more debt as it works to roll over its SAR3.75 billion sukuk due in 2012e.

Figure 37: Summary of Cash Flows (2008a-2012e)
In SAR million, unless otherwise stated

                                             Cash from Operations      Cash from Investing
    15,000
                                             Cash from Financing       Net Change in Cash
    10,000

      5,000

          0

     (5,000)

    (10,000)

    (15,000)
                    2007a            2008a           2009e          2010e         2011e        2012e

Source: Dar Al-Arkan, EFG-Hermes estimates



DIVIDENDS
Dar Al-Arkan has historically paid out dividends with a high pay-out ratio that sometimes exceeded 100%.
The company discontinued this practice in 2009e, although it did pay out bonus shares. We do not expect
the company to return to paying dividends until it can be assured it will roll over the 2012 sukuk, and even
then it will depend on construction expenses for its projects.




                                                                                                           37
                                 DAR AL-ARKAN
                                                                                                              19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 IV. VALUATION
                                 We initiate coverage with a LTFV of SAR19.15 for Dar Al-Arkan using a sum-of-the-parts methodology.
                                 The main driver of value is its land bank, followed by the Al Qasr and Shams Alriyadh projects. Note that
                                 we include Khozam Palace and Shams Al-Arous projects in the land bank, because of the difficulty of
                                 valuing them without more information. These projects could result in a higher valuation, when we have a
                                 better understanding of the value drivers there.

                                 Figure 38: Dar Al-Arkan Sum-of-the-Parts Valuation
                                                       Ownership     Land (sqm)     Value       Value Per    % of Total            Methodology
                                                                                 (SAR mn)     Share (SAR)        Value
                                 Al Qasr                    100%         813,389    2,967             2.75         11%          DCF calculation
                                 Al Tilal                   100%         550,000      271             0.25          1%          DCF calculation
                                 Shams Arriyadh             100%       5,059,000    1,845             1.71          7%          DCF calculation
                                                                                                                      1.75x book of land for sale
                                 Land Bank                  100%       Unknown      22,885          21.19         82%
                                                                                                                                 (excl. projects)
                                 Enterprise Value                                   27,969          25.90        100%
                                 Net Debt                   100%                    (7,284)         (6.74)                    From 3Q2009 BS
                                 Equity Value                                       20,685          19.15
                                 Source: EFG-Hermes estimates



                                 On a multiples basis, Dar Al-Arkan is trading at a relatively low P/E of 8.0x on 2009e earnings and 7.7x
                                 2010e. This is low for Saudi, which has recently traded around 17x 2009e and 12x 2010e. It is also
                                 relatively low compared to real estate companies across the region, although it is difficult to compare
                                 companies because of very different business models (some are heavy in rentals, some use off-plan sales
                                 to finance construction) and accounting standards (revenue recognition at delivery versus percentage of
                                 completion).

                                 LAND BANK
                                 Dar Al-Arkan's land bank recorded at cost is worth SAR15 billion, according to management. We use a
                                 75% premium to this after taking out land related to the three projects included in our valuation
                                 separately. We assume the company’s land has an average cost per sqm of SAR300, and we use this
                                 estimate to reach a book value for land (excluding the projects) of SAR13.1 billion. We then apply a 75%
                                 premium to this to reach a total value of SAR22.9 billion. Our premium is based on i) historically high
                                 gross margins for land sales at the company of around 50%, implying a 100% mark up, ii) a short life of
                                 2.5 years for its land sales, meaning that the total SAR13 billion could be sold quickly and result in strong
                                 cash flows for the company, and iii) a substantial increase in land prices over the past three years, which
                                 has in some areas been above 100% (such as in north Jeddah), according to media reports.

                                 AL QASR PROJECT
                                 We estimate the total value to Dar Al-Arkan of its Al Qasr project is SAR3.0 billion, or SAR2.75 per share.
                                 This represents 11% of our enterprise value. We use a DCF with a WACC of 10% and a long-term growth
                                 rate of 3%.

                                 About 90% of Al Qasr’s value stems from rentals. Sales of villas and apartments are just 10% of the value,
                                 but that is because we assume the company has received the majority of its cash from past sales already
                                 and these represent just the remaining sales to be done in 4Q2009e and 1H2010e.




     KINDLY REFER TO THE
38   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                              19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Figure 39: Al Qasr Valuation
In SAR million, unless otherwise stated

Type                             Valuation   % of Total
Villas for Sale                         71          2%
Apartments for Sale                    247          8%
Residential Rentals                    617         21%
Office Rentals                         181          6%
Mall Rentals                         1,047         35%
Mixed-use Retail Rentals               804         27%
Total                                2,967       100%
Source: EFG-Hermes estimates


AL TILAL
Al Tilal accounts for about 1% of our estimated enterprise value, because i) it is fairly small, with just 499
units, and ii) about 145 of these units have already been sold, and we assume that the company has
already received some cash to these. We use a WACC of 10%, although the project is fairly insensitive to
changes in the discount rate, given a very short time frame, we expect sales will be completed next year.

SHAMS ALRIYADH
Shams Alriyadh is worth SAR1.8 billion, or SAR1.71 per share, according to our analysis. We estimate that
the sale of almost 3,200 villa results in a value to Dar Al-Arkan of SAR820 million, or slightly less than our
estimate for the full project. The remainder stems from mixed-use commercial/retail space of 3.0 million
sqm. We assume a leasable area of 472,000 sqm, based on media reports, although this could be lower
than the final figure. We estimate this will be worth SAR1 billion to the company. We use a WACC of
10% for the project and a long-term growth rate of 3% for the rentals.




                                                                                                           39
                                 DAR AL-ARKAN
                                                                                                   19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 V. FINANCIAL STATEMENTS
                                 Income Statement (December Year End)
                                 In SAR million, unless otherwise stated

                                                                               2008a      2009e     2010e      2011e     2012e
                                 Revenue                                        5,611      5,694     5,636      6,774     8,018
                                 COGS                                         (2,766)    (3,069)   (2,932)    (3,596)   (4,365)
                                 Gross Profit                                  2,845      2,624     2,704      3,178     3,653
                                 Gross Margin                                    51%        46%       48%        47%       46%
                                 SG&A Expenses                                  (150)      (142)     (131)      (160)     (184)
                                 Other Operating Expenses                          (1)         -         -          -         -
                                 EBITDA                                        2,694      2,482     2,573      3,018     3,469
                                 EBITDA Margin                                  48%        44%       46%        45%       43%
                                 Depreciation & Amortization                     (50)       (40)      (47)       (82)    (123)
                                 Operating Profit                              2,644      2,442     2,526      2,936     3,347
                                 Operating Margin                               47%        43%       45%        43%       42%
                                 Finance Expenses                              (245)      (157)     (149)      (120)     (148)
                                 Other Income / Expenses                           17          6         9         11        13
                                 Net Income before Zakat Provision             2,417      2,290     2,386      2,827     3,211
                                 Zakat Provision For The Year                    (60)       (53)      (60)       (71)      (80)
                                 Minority Interest                                  -          -         -          -    (315)
                                 Net Income                                    2,356      2,237     2,326      2,756     2,815
                                 EPS                                            2.18       2.07      2.15       2.55      2.61
                                 Source: Dar Al-Arkan, EFG-Hermes estimates



                                 Balance Sheet (December Year End)
                                 In SAR million, unless otherwise stated

                                                                               2008a      2009e     2010e      2011e     2012e
                                 Cash and Cash Equivalents                        716      1,714       171        271       720
                                 Net Receivables                                  949        543       775      1,881     2,046
                                 Projects Under Construction                    1,269      2,600     2,404      2,393     2,362
                                 Other Debit Balances                           1,794        957       957        957       957
                                 Total Current Assets                          4,728      5,814     4,308      5,502     6,085
                                 Fixed Assets, net                                120        108       121        133       143
                                 PUC and Investments                          14,070     16,042    16,227     16,923    18,692
                                 Other Debit Balances                           1,247      1,274     1,260      1,248     1,238
                                 Total Assets                                 20,164     23,239    21,917     23,807    26,159
                                 ST Debt                                        1,635      2,650       900      3,750         -
                                 Accounts Payable                                 171        300       301        335       306
                                 Other Credit Balances                            613        615       615        615       615
                                 Total Current liabilities                     2,420      3,565     1,816      4,700        921
                                 LT Debt                                        6,000      5,689     3,789         39     3,039
                                 Other Credit Balances                              8         10        11         11        12
                                 Total Liabilities                              8,427     9,265     5,617      4,751     3,972
                                 Total Shareholder's Equity                   11,736     13,974    16,300     19,056    22,187
                                 Total Liabilities and Shareholder's Equity   20,164     23,239    21,917     23,807    26,159
                                 Source: Dar Al-Arkan, EFG-Hermes estimates




     KINDLY REFER TO THE
40   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
DAR AL-ARKAN
                                                                  19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Cash Flow Statement (December Year End)
In SAR million, unless otherwise stated

                                               2008a     2009e     2010e        2011e     2012e
Net Profit before Zakat                         2,417     2,290     2,386        2,827    3,211
Depreciation & Amortisation                        50        40         47          82       123
Other Operating Cash Flows                          4         2          3           3         3
Change in Working Capital                         296     1,766       (97)     (1,135)     (246)
Total Operating Cash Flows                     2,766     4,099      2,339       1,777     3,091
Capital Expenditures                          (3,802)   (1,087)     (747)        (485)     (483)
Free Cash Flow                               (1,036)     3,013      1,592       1,292     2,608
Other Investing Cash Flows                    (1,169)   (2,693)       516        (293)   (1,408)
Cash Flow before Financing                   (2,204)        320     2,107          999    1,199
Net Financing                                   (426)       678   (3,650)        (900)     (750)
Change in Cash                               (2,630)        998   (1,543)           99      449
Source: Dar Al-Arkan, EFG-Hermes estimates




                                                                                         41
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                                                                                                      19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 IV. REAL ESTATE PRICES HAVE STABILISED
                                 RESIDENTIAL UNIT SALE PRICES
                                 There is minimal information on real estate prices in Saudi Arabia, although some hard data and anecdotal
                                 evidence points to a relatively stable situation for real estate prices. This is partially helped by a small
                                 secondary market for housing, and we believe developers have been holding the line on prices as much as
                                 they can. Land sales are more likely to see fluctuations and anecdotal evidence points to a fall in prices for
                                 large plots of land in non-centrally located areas. Land prices within cities, particularly Jeddah, have held
                                 up, according to our industry sources, owing to a scarcity, particularly for large plots. This could change
                                 with the revitalisation of three districts in Jeddah, which will expand the universe for land within the city.

                                 The notary publics of Riyadh and Ad Dammam report real estate transaction volumes and values, which
                                 show a continued high level of activity. The total value of contracts has fallen from the highs in 2008 but
                                 is still relatively high, particularly in Riyadh, where over a four-week period it has been about SAR6 billion.
                                 It is harder to pick out trends for average prices per sqm, which have seen significant volatility, but we do
                                 know that they have not fallen significantly.

                                 Figure 40: Real Estate Contracts Signed in Riyadh (trailing four weeks)
                                 In SAR million, unless otherwise stated

                                     18,000                                                                      Value of Contracts (LHS)                                      Avg. Price per sqm                                                                    600
                                     16,000
                                                                                                                                                                                                                                                                     500
                                     14,000
                                     12,000                                                                                                                                                                                                                          400
                                     10,000
                                                                                                                                                                                                                                                                     300
                                      8,000
                                      6,000                                                                                                                                                                                                                          200
                                      4,000
                                                                                                                                                                                                                                                                     100
                                      2,000
                                          0                                                                                                                                                                                                                          0
                                                                                                        Apr-08




                                                                                                                                                                                                                           Apr-09
                                                 Nov-07

                                                             Dec-07

                                                                        Jan-08
                                                                                   Feb-08
                                                                                              Mar-08


                                                                                                                   May-08

                                                                                                                             Jun-08
                                                                                                                                      Jul-08

                                                                                                                                               Aug-08

                                                                                                                                                        Sep-08
                                                                                                                                                                 Oct-08

                                                                                                                                                                          Nov-08

                                                                                                                                                                                   Dec-08

                                                                                                                                                                                            Jan-09
                                                                                                                                                                                                      Feb-09
                                                                                                                                                                                                                Mar-09


                                                                                                                                                                                                                                      May-09

                                                                                                                                                                                                                                                 Jun-09

                                                                                                                                                                                                                                                            Jul-09
                                 Source: Ministry of Justice



                                 We saw a similar trend in Ad Damman, where transactions are steady, albeit lower, and prices have stayed
                                 relatively strong. Prices in June averaged above SAR900 per sqm, a high figure.

                                 Figure 41: Real Estate Contracts Signed in Ad Dammam (trailing four weeks)

                                                                                                                Value of Contracts (LHS)                                   Avg. Price per sqm
                                     4,000                                                                                                                                                                                                                           1,000

                                                                                                                                                                                                                                                                     800
                                     3,000
                                                                                                                                                                                                                                                                     600
                                     2,000
                                                                                                                                                                                                                                                                     400
                                     1,000
                                                                                                                                                                                                                                                                     200

                                          0                                                                                                                                                                                                                          0
                                                                                                       Apr-08




                                                                                                                                                                                                                             Apr-09
                                              Nov-07

                                                          Dec-07

                                                                      Jan-08

                                                                                 Feb-08
                                                                                            Mar-08



                                                                                                                  May-08

                                                                                                                            Jun-08

                                                                                                                                      Jul-08

                                                                                                                                               Aug-08

                                                                                                                                                        Sep-08

                                                                                                                                                                 Oct-08

                                                                                                                                                                          Nov-08

                                                                                                                                                                                   Dec-08

                                                                                                                                                                                             Jan-09
                                                                                                                                                                                                       Feb-09
                                                                                                                                                                                                                  Mar-09



                                                                                                                                                                                                                                        May-09

                                                                                                                                                                                                                                                   Jun-09




                                 Source: Ministry of Justice



     KINDLY REFER TO THE
42   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                              19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




RESIDENTIAL RENTAL PRICES
The rental market remains robust, and both locals and foreigners face limited supply in our opinion.
Foreigners, particularly those who want to live in residential compounds, have seen long waiting lists and
rental price increases every year for several years. We expect this will continue given limited supply
expansion. Locals are also facing a supply shortage, although this is more prevalent in the lower-income
and middle-income segments of the market. More than 50% of households live in rented or owner-
supplied units. We do not believe that additional supply, both in rentals and sales, will alleviate this, and
expect rents to continue to increase.

Our economist believes that higher rents will drive inflation over the next few years. We currently forecast
annual average inflation of 4.8% in 2009e, down from 9.9% in 2008. In our models, we assume that rents
for compounds catering to foreigners (like Akaria’s villas in the Diplomatic Quarter) will increase above
inflation. For non-compound rentals, we assume an increase in line with inflation.

Figure 42: Akaria Rental Revenues (2004-2Q2009)
In SAR million, unless otherwise stated


    200

    150

    100

     50

      0
            2004

                   2005

                          2006

                                 2007

                                          2008

                                                 1Q2009

                                                          2Q2009




Source: Akaria



COMMERCIAL RENTS
Office rental prices appear to have held up so far in Riyadh, but Jeddah may be facing a slightly more
difficult period because of the addition of new supply. Going forwards, we expect Jeddah to recover
somewhat, but that Riyadh may face greater difficulties as new supply comes on line. We believe "A” class
space will hold up better than “B” class, although the two cannot be entirely segmented. Additionally,
many buildings in Riyadh are either unoccupied or under-occupied, because the landlord is waiting for a
single tenant to come in and take over the whole building.

In our models, we increase rental prices in line with inflation, which may be too conservative for certain
projects like Akaria Plaza, a newly opened building that is centrally located in Riyadh’s CBD district. Other
companies, such as Dar Al-Arkan, may face a more difficult situation, because it is building mixed-use
areas near its developments in the belief that it will create its own demand.

RETAIL RENTS
Retail is probably the segment most likely to face oversupply issues, in our view. According to Colliers
International, a real estate research firm, existing expansion plans will result in a total of 7 million sqm of
GLA in the Kingdom by 2010e, compared to 3.1 million sqm expected in Dubai. This is most likely to be a
problem for independent developers that are not tied to one of the large firms (mostly family-owned) that
have rights to franchise licences. These larger firms usually build malls around their franchises, and then
attract smaller retailers that want the flagship stores to drive traffic. Independent developers are not able
to do this as effectively, and we believe they will suffer in the case of oversupply. For the publicly-traded
companies, Dar Al-Arkan, which plans to develop more than 3 million sqm of commercial and retail BUA,
is likely face the greatest difficulties. However, this should be mitigated by the residential developments
that will be contiguous to this area and will drive demand from the population living there. Also, the
commercial and retail space in its development Al Qasr will fill a gap in the south of Riyadh, which lacks
malls or quality commercial space.


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                                         FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                                                                                  19 october 2009
                                         SAUDI ARABIA REAL ESTATE SECTOR




                                         V. CONSTRUCTION COSTS HAVE MODERATED
        All real estate companies        All real estate companies should benefit from the recent significant reduction in steel and cement prices,
          should benefit from the        which should allow them to build units more profitably. The average price of steel in 1H2009 fell 55% Y-
     significant reduction in steel      o-Y, although some increases in steel prices have been recorded since the beginning of the year. Cement
                            prices       prices have followed a volatile path over the past two and a half years. Prices rose in 2007 to reach a high
                                         of USD76 per ton in 4Q2007 (based on an average of prices for four major cement companies) and then
                                         fell at the beginning of 2008 before rising to a high of USD73 per ton in 3Q2008. Prices fell to a low of
                                         USD62 per ton in 4Q2008, but have increased in 2009 to between USD66-67 per ton.

                                         The local authorities responded to the escalation of building material prices in mid-2008 by partially
                                         banning exports, although this had a much smaller impact than the dramatic decline in worldwide building
                                         material prices. We believe that similar regulatory intervention could be expected whenever cost increases
                                         are significant and hurt local Saudi buyers.

                                         Because of the decline in construction material prices, real estate companies have been able to
                                         renegotiate contracts with construction companies. For example, Emaar EC was able to cancel a SAR1.4
                                         billion contract with Saudi Bin Ladin Group, citing the decrease in building material costs. We have heard
                                         that other companies are doing the same. While this is positive in the short term, volatility makes it
                                         difficult for both construction companies and developers to price their products and services accurately.
                                         However, we expect this volatility will likely continue, and should result in more variable-cost contracts
                                         that will directly impact on margins for developers, rather than fixed-cost contracts that shielded
                                         developers from the worst of the price changes. The volatility is especially difficult for companies that sell
                                         on an off-plan model, because higher steel prices cause an immediate cut in realised profits.

       Shortage of quality labour        Securing quality labour remains another challenge for the construction process in Saudi Arabia. Increasing
             remains a challenge         inflation, increasing living costs (mostly rent), exchange rate fluctuations and considerable improvements
                                         in the Asian economies make it more difficult to attract qualified workers to execute ambitious
                                         development plans. This effectively increases the contribution of the cost of labour to overall construction
                                         costs. We estimate that labour costs in the Kingdom have risen in 2009, albeit less than they did in 2008.
                                         The development of six new economic cities, requiring substantial amounts of manpower, may put further
                                         pressure on labour costs.

                                         Figure 43: Average Cement Prices 1Q07-2Q09                                                         Figure 44: Steel price
                                         USD per ton, unless otherwise stated                                                               SAR per ton, unless otherwise stated


                                            80                                                                                                6,000

                                            76                                                                                                5,000
                                                                                                                                              4,000
                                            72
                                                                                                                                              3,000
                                            68
                                                                                                                                              2,000
                                            64                                                                                                1,000
                                            60                                                                                                     0
                                                  1Q2007
                                                           2Q2007
                                                                    3Q2007
                                                                             4Q2007
                                                                                      1Q2008
                                                                                               2Q2008
                                                                                                        3Q2008
                                                                                                                 4Q2008
                                                                                                                          1Q2009
                                                                                                                                   2Q2009




                                                                                                                                                                         Apr-08




                                                                                                                                                                                                                                Apr-09
                                                                                                                                                       Dec-07
                                                                                                                                                                Feb-08


                                                                                                                                                                                   Jun-08
                                                                                                                                                                                            Aug-08
                                                                                                                                                                                                     Oct-08
                                                                                                                                                                                                              Dec-08
                                                                                                                                                                                                                       Feb-09




                                         Source: Company disclosures                                                                        Source: Media reports




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44           IMPORTANT DISCLOSURES AND
             DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




VI. OFFICE SPACE IN DEMAND, BUT COULD BE REACHING RETAIL OVERSUPPLY
OFFICE SPACE
High-quality office space has historically been scarce, with demand always outstripping the available
supply. Rapid economic growth in the Kingdom, during and after the second oil boom in 2005, gave rise to
a number of new businesses and increased the demand for quality office space. In the past, lack of high
standard commercial property space encouraged landlords to convert residential villas or apartments into
office space. However, this practice has recently been curbed by a new law whereby no residential
property may serve as a commercial outlet or office space.

The new regulation has put short-term pressure on supply in the country's main business hubs, such as
Riyadh or Jeddah, and will likely result in further rent escalation. However, rents are not yet as high as in
other part of the GCC region, mainly due to a limited amount of speculation on raw land prices. The
existing imbalance is expected to level out with arrival of new projects specifically addressing the shortage
of A class office space, such as King Abdullah Financial Centre in Riyadh.

We believe that the extent of pent up demand for quality office space gives scope for many developers to
operate their properties profitably, even after the creation of high-rise office buildings encompassed in the
CBDs of newly developed projects. This is especially the case in Jeddah, which has historically suffered
from office space shortage. Currently, only Riyadh has a clearly laid-out, and already congested, CBD,
while office space areas in Jeddah are scattered all over the city. On the other hand, Mecca and Medina
look less attractive in terms of potential investment in the office space sector. Neither of these cities
currently suffers from an actual shortage, as evidenced by the average rents being approximately half of
those in Riyadh or Jeddah while the occupancies are moderate.

RETAIL SPACE
The relative prosperity of local society makes Saudi Arabia an attractive market for internationally
recognised brands and branded shopping chains. This pushes up commercial rental yields, especially in
Riyadh and Jeddah where we estimate an average annual retail space rent of SAR800-1,100 per sqm,
depending on the location of the outlet.

Due to poor transparency in the market, together with uncertainty surrounding many already announced
projects, it is hard to accurately estimate how much new GLA will be supplied in the short term.
Anecdotal evidence suggests a range of between 0.5 million to 1 million sqm of new space becoming
operational by 2011e, most of which is destined for Riyadh. This is a significant amount, and may put
some downward pressure on current rents or force landlords to offer more flexibility to their tenants.

Saudi Arabia ranks fifth in A.T. Kearney’s 2009 Retail Apparel Index in terms of attractiveness of potential
investment in its retail industry. This is mainly due to its economic growth potential and the affluence of
its residents.

Figure 45: A.T. Kearney Retail Apparel Index Ranking
                              2008          2009
India                           2             1
Russia                          3             2
China                           4             3
United Arab Emirates           20             4
Saudi Arabia                    7             5
Source: A.T. Kearney



The nature of the Kingdom’s retail industry is gradually changing, and more stress is being put on the
entertainment aspect of the shopping experience. Newer shopping mall projects often encompass
cinemas and other outlets suitable for family outings. This increases their construction costs while limiting
the available net leasable area, which currently contributes to c70% of total constructed area.



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                                                                                                                                  19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 VII. MORTGAGE AND DEVELOPMENT FINANCING LIMITED

                                 MORTGAGE LAW IN LIMBO
                                 Although the Shura Council passed a mortgage law almost a year ago, it is still under discussion by the
                                 Council of Ministers and has yet to be signed by the King. It appears that the government is wary of
                                 issuing a mortgage law currently, given the recent financial crisis.

                                 However, we expect it to be finally issued within the next year. Once issued, we believe all real estate
                                 stocks will benefit, particularly those that focus on middle-income homebuyers such as Akaria and Dar Al-
                                 Arkan.

                                 While banks have been offering mortgages for a few years, the amount of real estate financing to
                                 consumers is a mere 8.9% of total consumer credit, just 2.1% of total credit and around 1% of GDP. This
                                 leaves considerable room for growth. The main characteristics of these mortgages are listed below.

                                 • Types of Mortgages: The main product used is a Shariah-compliant loan that is similar to a marked-up
                                 sale product (marabaha). Rajhi also offers musharaka (lease arrangement), erad (for real estate
                                 investment), and istisnaa (for construction financing) to its customers.

                                 • Financing Rate: Because mortgages are Shariah-compliant, they do not carry interest rates. However,
                                 banks currently charge a fixed rate of around 4.5-4.75%. Since the agreement does not have an
                                 amortising component, the effective rate is closer to 8%.

                                 • Terms: Tenors can be as high as 25 years (Al Rajhi). Down payments can be as low as 0%.

                                 • Default Rates: Both Saudi Home Loans (SHL) and al Rajhi say their default rates have been very low. For
                                 SHL, this is partly due to its very short history – it has only been issuing mortgages since March 2008. For
                                 Rajhi, and we assume for other banks, it is able to keep default rates low by requiring a salary assignment.

                                 • Early Payment: Banks will allow early payment, as with normal, amortising mortgages. However, this is
                                 somewhat at the discretion of the bank, because there is no amortising portion.

                                 THE GOVERNMENT IS STARTING TO SUPPORT MORTGAGES FINANCIALLY
                                 The government gave preliminary approval in late May 2009 for the establishment of a real-estate
                                 financing company, expected to launch operations in 2010e, according to Okaz newspaper. The state-run
                                 Public Investment Fund, PIF, will grant a long-term loan to the new firm, provided a stake in it is owned by
                                 a public sector corporation. This, along with other financing companies that have been created with real
                                 estate developers, should help to develop the market.

                                 Figure 46: Real Estate Financing Small Part of Total Consumer Credit
                                 In SAR billion, unless otherwise stated


                                                      Real Estate Financing          % of Total Consumer Credit                   % of Nominal GDP

                                     20                                                                                                                        10.0%

                                     15                                                                                                                        8.0%
                                                                                                                                                               6.0%
                                     10
                                                                                                                                                               4.0%
                                      5                                                                                                                        2.0%
                                      0                                                                                                                        0.0%
                                            2002


                                                     2003


                                                             2004


                                                                     2005


                                                                              2006


                                                                                     1Q2007


                                                                                              2Q2007


                                                                                                       3Q2007


                                                                                                                4Q2007


                                                                                                                         1Q2008


                                                                                                                                    2Q2008


                                                                                                                                             3Q2008


                                                                                                                                                      4Q2008




                                 Source: SAMA



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46   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                            19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




BANK CREDIT TO REAL ESTATE DEVELOPERS HAS DRIED UP…
Saudi banks have historically had a low exposure to the building and construction segment (7% of total
credit), and credit to the sector dried up with the onset of the financial crisis. We expect the market for
bank loans will improve over time, as the real estate market improves. Real estate companies have little
access to other financing methods, so are likely to have to depend heavily on bank loans; although these
loans will only be available to companies with a strong track record or close ties to larger industrial
groups. For example, Dar Al-Arkan, which has a strong development track record, has been able to access
murabaha from banks to the tune of SAR1.6 billion, and we expect this will increase to as much as SAR2
billion as it pays off a sukuk due in March 2010e.

…AS HAS THE SUKUK MARKET
The sukuk market, which has previously been a source of capital for many Saudi companies, has been very
quiet for the past year. While Dar Al-Arkan was able to raise SAR750 million in a five-year term sukuk in
mid-May, it is only one of two Saudi Arabian companies that have issued sukuks in 1H2009. Dar Al-Arkan
will pay SIBOR +4%, up from its previous sukuks which had payments of LIBOR +2% (for a three-year
term sukuk) and LIBOR +2.25% (for a five-year term sukuk). In addition, the sukuk was raised from the
local market. We expect Saudi businesses will have a difficult time raising money from foreign sources for
some time, given the recent Saad Al-Gossaibi problems. We believe the market for Islamic sukuks will
grow, but it will take some time and have minimal impact on real estate companies as a whole.

TWO NEW IPOS ANNOUNCED IN REAL ESTATE
Over the past year two economic cities, Prince Abdulaziz bin Mousaed Economic City in Hail and
Knowledge Economic City in Medina, have announced their intention to issue equity to the public. Both
will offer 30% of their shares via IPOs. They will follow Jabal Omar and Emaar Economic City in selling
shares to the public to finance undeveloped projects. While the original announcements indicated that
IPOs were imminent, these plans have been delayed and we do not now know when to expect them.




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                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 VIII. REGULATORY CHANGES FAVOR INCUMBENTS

                                 OFF-PLAN SALES NEED APPROVAL
                                 The Council of Ministers recently forbade off-plan real estate sales by developers without ministry
                                 approval. The new resolution was passed by the Council of Ministers on 9 March 2009. The rule covers all
                                 types of real estate sales, not just residential. Developers will have to register their properties with a
                                 special property committee that will be run by the Ministry of Commerce and Industry, SAMA, and other
                                 ministries and municipalities. The rule also requires an escrow account, into which the developer must
                                 deposit all instalments and other project financing for each property. Al Jadaan Partners, a law firm in
                                 Riyadh, sees the resolution as an interim measure until a newly planned ‘Real Estate Developments
                                 Guarantee Law’ is enacted, probably later this year.

                                 The committee will create a register and issue licences for qualified developers. We do not know at this
                                 stage if the registry will be public, but it would be a step towards increasing transparency in the market if
                                 it were. Dubai has a similar registry that it publishes publicly. There is a possibility that the committee will
                                 also create a "special registry" that will have all sale agreements between the register and purchasers of
                                 units, according to Al Jadaan Partners. Existing developers are required to apply in order to receive a
                                 licence.

                                 We believe large developers will have few problems complying with the new regulations, although the
                                 process could slow down some developments. We also expect most developers will receive approval for
                                 off-plan sales, as long as they can show a track record and sufficient capital for the project. Saudi Arabia is
                                 mainly an end-user market, rather than an investor market, and it should not be difficult for most large
                                 developers to comply. The regulations could, however, make it difficult for new developers without access
                                 to capital or a long track record.

                                 RESIDENT FOREIGNERS CAN BUY HOMES
                                 Resident foreigners can buy homes in Saudi Arabia. Although access to financing is limited, Saudi Home
                                 Loans offers mortgage financing through Shariah-compliant mechanisms. The regulation, passed 9
                                 November 2000, allows non-Saudi individuals and companies to own properties for private
                                 accommodation purposes. Real estate ownership in Mecca and Medina continues to be limited to Saudi
                                 nationals, although there are exceptions in special cases. In the two cities, foreigners are able to rent
                                 properties for a maximum of two years, subject to renewal, according to Jabal Omar.




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48   IMPORTANT DISCLOSURES AND
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FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                       19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




IX. DEVELOPMENT OF NEW CITIES
Historically, the real estate market in Saudi Arabia has been very fragmented and over 90% of housing
needs were addressed by small-scale developers and individuals, with little participation of big firms active
elsewhere in the region. However, the Saudi government's plan for new economic cities has changed this.
The new cities are mainly being developed outside of the major population centres and planned centrally.
The ambitious scheme seeks to build six new cities (four of which have reached development stage), and
the government hopes they will drive future growth in the country. The projects are being developed
according to a Public-Private-Partnership (PPP) framework, whereby the overall vision of the Saudi
authorities is implemented by private sector companies. The Saudi Arabian General Investment Authority
(SAGIA) hopes to create over a million new jobs and accommodation for 4-5 million residents in the six
newly established areas by 2020. Smaller industrial areas are also being developed within existing cities,
also to drive job creation.

We discuss King Abdullah Economic City (KAEC) in detail in the next section.

Figure 47: Saudi Arabian New Economic Cities
                                                                    2                                         Reported
       Name            Location          Developer(s)        Size (m )               Focus
                                                                                                             Investment
  King Abdullah      Rabigh, north                                                                        USD50 bn (SAR187
                                          Emaar EC           168 mn       Light industry, port, resorts
  Economic City        of Jeddah                                                                                bn)

  Jizan Economic                       MMC (Malaysia),                      Heavy industries and          USD30 bn (SAR112
                         Jizan                               100 mn
        City                         Saudi Bin Ladin Group                  agricultural industries             bn)
  Prince Abdulaziz
                                      Al Mal Investment                                                    USD8 bn (SAR28
    Bin Mousaed        Near Hail                             156 mn      Transportation and logistics
                                          Company                                                               bn)
   Economic City
    Knowledge                         Savola Group, Taiba                                                    USD6.7 bn
                        Medina                                4.8 mn     Knowledge-based industries
  Economic City                             Holding                                                          SAR25 bn

   Not Launched          Tabuk                                                                                  TBA

   Not Launched       Ras Al Zour                                             Mining, aluminum                  TBA

Note: Expected investment is from media reports and press releases - these are not EFG Hermes’ estimates
Source: SAGIA, company disclosures, and media reports



JIZAN ECONOMIC CITY (JEC) NEAR JIZAN
This will be located 60 kilometres northwest of Jizan City on 100 million sqm and is expected to cost
USD27 billion (SAR96 billion). JEC aims to be a heavy industrial zone and facilities such as an aluminium
plant are currently being built there. It will have access to 12 kilometres of coastline and a state-of-the art
sea port. The city will provide accommodation to 300,000 people. MMC and the Saudi Bin Ladin Group
are the land owner and master developer of the JEC Project.

PRINCE ABDULAZIZ BIN MOUSAED ECONOMIC CITY (PABMEC) NEAR HAIL
Transportation and logistics hub built on 156 million sqm of land. Investment size is expected to be USD8
billion (SAR28 billion). It will create 55,000 jobs for a population of 300,000 and Al Mal Investment
Company is to be the sole developer. The company has announced its intention to sell 30% of the venture
to the public via an initial public offering (IPO) within the next six months.

KNOWLEDGE ECONOMIC CITY IN MEDINA
This will be located on 4.8 million sqm and have a total BUA of 9 million sqm to attract SAR25 billion
worth of investments. The project is expected to add 20,000 new jobs to the area and host a population
of 50,000. Savola Group, Taiba Holding Company, Akaria and the government currently own more than
85% of the venture. The developer would like to undertake an IPO by the end of 2009e. It plans to sell
30% of the company to the public.

Two other economic cities are being planned for Tabuk and Ras Al Zour.

                                                                                                                          49
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                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 X. A PRIMER ON EMAAR ECONOMIC CITY AND KAEC
                                 King Abdullah Economic City (KAEC) is the largest of the economic cities, covering 168 square kilometres.
                                 It is located at the Red Sea coast around 100 kilometres north of Jeddah, and plans to accommodate two
                                 million people. Emaar EC, a publicly-traded subsidiary of UAE-based Emaar Properties, is the master
                                 developer of the project. The city will have a port able to handle up to 10 million TEUs (twenty-foot
                                 equivalent container units) annually, a light industrial zone, a resort zone, residential zone and a central
                                 business district (CBD) with a total of 3.8 million sqm of prime office and mixed-use commercial space. It
                                 is expected to be completed by 2025e. The total investment cost of the project is estimated at USD50
                                 billion, although not all of this will be borne by Emaar EC.

                                 SHARE PERFORMANCE
                                 Share performance has been very volatile for Emaar EC since the initial public offering, and almost none of
                                 it is because of fundamentals – the company has not consistently posted profits yet. The share
                                 performance appears to be driven by three main things: i) advance sales for smaller projects within Emaar
                                 EC, ii) corporate events such as management changes, and iii) speculation on government support towards
                                 the project.

                                 Share performance has been highly correlated to the overall stock market and to other real estate stocks,
                                 so a positive view on the real estate sector in Saudi Arabia is likely to mean a robust performance for
                                 Emaar EC as well.

                                 Figure 48: Emaar EC Price Performance Against TASI

                                    15.0                                                 Emaar EC            TASI (rebased)
                                    14.0
                                    13.0
                                    12.0
                                    11.0
                                    10.0
                                      9.0
                                      8.0
                                      7.0
                                                                                                    Apr-09
                                            Oct-08


                                                     Nov-08


                                                              Dec-08


                                                                       Jan-09


                                                                                Feb-09


                                                                                           Mar-09




                                                                                                                 May-09


                                                                                                                          Jun-09


                                                                                                                                      Jul-09


                                                                                                                                               Aug-09


                                                                                                                                                        Sep-09



                                 Source: TASI


                                 STRENGTHS OF EMAAR EC

                                 Inexpensive Land - Well-Situated
                                 KAEC is well situated on the Red Sea, not far from Jeddah, King Abdullah University of Science and
                                 Technology (KAUST), and Petro Rabigh. It has a natural port, and we expect it will be connected to the
                                 upcoming high-speed train network that the government plans to build across the Kingdom. We believe
                                 KAEC has strong potential as a resort destination from Jeddah, which is already a natural vacation spot for
                                 Saudis that want to escape from Riyadh and other cities in the hot central areas of the country during the
                                 summer. KAEC should therefore be able to tap into this market with its beach front areas and new
                                 developments, including a marina.

                                 Government committed to KAEC success
                                 We believe the government is committed to the success of the KAEC and will help support its
                                 development. The government has stressed many times that the city will be developed solely through
                                 private investment, but we believe this is not possible in the current climate. Given that the government
                                 views its economic cities strategy as a way to create job and housing opportunities, and it has invested a
                                 great deal of time and money into them, we believe it will step in to make sure KAEC is a success. We
                                 believe any support may take the form of infrastructure spending, guarantees for debt, or pushing
                                 government wholly- or partially-owned companies to move operations into the free zone. We discuss the
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FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                             19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




potential risks to this below, but we believe government support is positive for the development of the
city - which is distinct from saying that it is good for the stock.

RISKS TO THE BUSINESS MODEL

Critical Mass May be Years Away
We believe KAEC will be a success, given the government’s support, but it may be a very long time
coming. KAEC is a substantial piece of land far from any population centre. It must attract both residents
as well as companies to employ those residents, preferably at the same time. This could take a very long
time and require government support that may not be forthcoming in the short term.

Mixed use could limit appeal of city as residential area
Emaar EC is moving towards situating KAEC as a mixed-use city with both residential and industrial areas.
While the light-industrial plots that the company has already built fit well with residential areas, we are
concerned by announcements about large industrial projects, like an aluminium plant. Such projects may
not fit with an upscale residential or resort experience, even if located some kilometres away.

Government aid may dilute shareholders
We expect the government will step in to aid KAEC if the company faces financial difficulties, given the
importance it attaches to the new economic cities. However, we do not know, at this point, what form
this aid will take. We believe it could be a mixture of debt, equity and government subsidies to attract
industries to the city. We are concerned, however, that any equity component will dilute current
shareholders, while any debt portion, although possibly offered on reasonable terms, could leave Emaar
EC with a high debt burden in the near term.

No Guarantee of Dividends
We do not expect, nor believe it is prudent, for Emaar EC to pay dividends for many years. Investors will
see no stable return on their investment for some time.

STRATEGY

Emaar EC launched sales of residential units and plots in its industrial zone in 2007. Since then, there has
been a significant change in the appetite of real estate investors for high-end residential units. Owing to
this change, Emaar EC has made modifications to its strategy. It is now offering land plots within some of
its developments, such as in Bay La Sun, for third-party developers. It has also launched a middle-income
residential housing project that is expected to have 22,000 units. We expect the next phase will include
resort offerings, which can be attractive even with minimal other development around them. Separately,
the company has also started to put a greater focus on attracting jobs to the development through its
industrial zone. It hopes that as businesses move there, managers and other mid-level staff, who can
afford homes within its developments, will move into KAEC.

Where will the people come from?
Emaar EC, and the economic cities strategy generally, stands firmly behind the belief that "if you build it
they will come." Supporting this is i) a very large number of young people in Saudi Arabia that are
searching for good jobs, ii) lack of city housing at affordable prices, and iii) relatively close proximity to
Jeddah, the second-largest city in Saudi Arabia. However, without compelling job opportunities, we believe
it will be hard for Emaar EC to attract residents. While employees of KAUST and PetroRabigh are likely to
find Emaar EC attractive, many will have housing provided by their employers. Even if all of them did live
in Emaar EC, this would be less than 3,000 people.

Where will the money come from?
We expect Emaar EC will raise funds for its development through three main sources: land sales, third-
party industrials and the government. We do not believe it has the financing ability to fund the
development on its own. We believe the government will support the company, particularly in regards to
infrastructure developments. Emaar EC has also embarked on land sales within its developments. These
sales will allow third-party developers to take some of the risk and fund new properties. Emaar EC can
then use these funds to finance its infrastructure spending and its own development. Finally, we believe
the infrastructure for the industrial projects is likely to be undertaken by the companies themselves. For


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                                                                                                              19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 example, new aluminium smelters will need to supply their own electricity, meaning that they will have to
                                 build their own power plants.

                                 DEVELOPMENTS

                                 Residential, Commercial and Resorts

                                 Bay La Sun - Emaar EC's first project to launch was Bay La Sun, a residential community made up of
                                 luxury apartments, most of which targeted the high-end market. The starting price for some units was
                                 around SAR500,000. The development covers about 2.3 million sqm and was launched in September
                                 2007. The company took a phased approach, waiting to sell a majority of units in one building before
                                 starting sales in another. Emaar EC originally expected to hand over units at the beginning of 2009, but
                                 they have been delayed. Recent press announcements have disclosed a September 2009 hand-over date,
                                 but we do not know if this has occurred.

                                 We do not know the full expected costs of Bay La Sun, but we expect it is considerable, given the amount
                                 of infrastructure (canals, roads, bridges, etc.) that needed to be created. To give an idea of the size, Emaar
                                 EC originally signed a SAR1.4 billion contract with Saudi Bin Laden Group (SBG) to develop 16 residential
                                 towers within Bay La Sun. However, in September 2009 it cancelled these contracts citing the decline in
                                 building material prices. We expect the contract will be renegotiated without hurting the relationship with
                                 SBG, mainly because Emaar EC signed a new contract with SBG for the port the same day it cancelled the
                                 Bay La Sun contract. The new cost will probably still be more than SAR1 billion, even after the decline in
                                 steel and cement prices.

                                 Esmerelda - Esmerelda is a townhouse and golf community in KAEC spread over 160,000 sqm. Emaar EC
                                 launched the development in mid-2008 and expects to hand over units in 2010e. The suburb consists of
                                 townhouses and villas and a golf course. At the original launch demand was high and around 95% of the
                                 units offered for sale were sold, although the exact number was not disclosed. The second phase also
                                 received a strong response. Total expected cost of the project has not been disclosed, although Emaar EC
                                 signed a SAR147 million contract for the golf course.

                                 Hawadi - After the onset of the financial crisis, Emaar EC changed tack and launched a development
                                 targeted at middle-income homebuyers, Hawadi, which will comprise 22,000 units. Emaar EC debuted
                                 Hawadi at Jeddah Cityscape in June 2009, and it is setting prices between SAR200,000 and SAR1 million
                                 and offering owners 36 different designs. The project will extend over nine square kilometres and will
                                 accommodate 60,000 residents, although the company has released just Phase I. The development of the
                                 project will take 15 years.

                                 Land sales – Emaar EC launched the sale of 250,000 sqm of land plots in Bay La Sun in February 2009.
                                 These land plots will be sold to third-party developers, who can then develop residential, commercial and
                                 mixed-use buildings. The developers will have to follow design guidelines from Emaar EC in order to
                                 maintain consistency with the overall plan, and they will be required to construct within a specified
                                 period. We believe these sales will be helpful in driving positive cash flows to Emaar EC and allow
                                 continued infrastructure work on the rest of the city.

                                 Industrial zones
                                 Emaar EC has designated 63 million sqm for industrial use, both light and heavy industry. Light industry
                                 will mainly be fabricators and other small industries that will be able to take advantage of the port. The
                                 company has started to hand over some plots of land, with full services: in March, it handed over plots in
                                 the light industrial zone to investors. Phase IA covers 1.5 million metres, and the company expects to
                                 develop 4.3 million metres by 2012e. Once completed, the industrial zone within KAEC is expected to
                                 cover 63 million sqm and house 2,500 factories employing 150,000 people.

                                 In terms of heavy industry, Emaar EC has focused on attracting companies heavily reliant on electricity
                                 supplies, such as aluminium smelters. In terms of light industry, SAGIA and Emaar EC signed a MoU with
                                 Sanofi-Aventis in April 2009 to establish an entity of the leading global pharmaceutical company in KAEC.
                                 We believe Sanofi-Aventis will use the location to supply drugs throughout the region via a manufacturing
                                 centre. With regard to heavy industry, in July 2009, Emaar EC signed an agreement with Tharawat

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52   IMPORTANT DISCLOSURES AND
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FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Development to build two plastic and aluminium plants in the city. These plants are expected to come on
line in 2011e and provide 600 job opportunities.

Sea Port
KAEC will include a large sea port that will be built to provide logistical support to the industrial zones
within the city. A new contract for Phase I of the port was signed in September 2009 with SBG. SBG will
finance, develop and operate the port. According to Emaar EC and SBG, it is expected to cost SAR4 billion,
start operations in 2012e, and have an annual capacity of 1.7 million containers. We assume that this new
contract means the cancellation of Emaar EC's contract with DP World that was signed in April 2008.
When the original contract was signed, an operational port was promised by 2010e, but we do not believe
much progress has been made. We expect DP World may have been conflicted about building a world-
class port facility near its other ports in Jeddah.

Emaar EC’s new contract with SBG probably relieves it of financing the port, but also limits its potential
upside from running the port. However, we believe the trade-off is worth it, given the significant expenses
associated with building a port and Emaar EC’s many other obligations within KAEC. Additionally, a
working port will act as a magnet to attract businesses to the city, which will help Emaar EC sell land and
developments, its core competency.

FINANCIAL RESULTS

Emaar EC has not yet realised an operating profit since it started reporting results in 2006. It started
recognising revenues in 3Q2008, as it partially completed units in Phase I of the project. We do not expect
the company to report positive earnings for some time, although land sales (which began in February
2009) could result in earlier-than-expected profits, depending on when Emaar EC's recognises them.

Figure 49: Income Statement, (December Year End)
December Fiscal Year End    2006a      2007a 1Q2008       2Q2008 3Q2008 4Q2008            2008a 1Q2009 2Q2009
Revenues                        -          -      -            -     43.8   57.8           101.6    82.4   83.8
Cost of revenues                -          -      -            - (141.1)  (80.8)         (221.9)  (84.2) (64.9)
Gross Profit                    -          -      -            -   (97.3) (23.0)         (120.3)   (1.8)  18.9

Marketing Expenses            (9.2)    (41.1)    (8.6)     (24.1)     (43.3)    (13.9)    (89.9)     (4.4)     (13.6)
G & A Expenses               (14.3)   (128.7)   (48.2)     (50.7)     (60.8)    (29.2)   (188.9)    (58.2)     (61.0)
                                                                                                               (54.5)
Operating Profit             (23.4)   (169.8)   (56.8)     (74.8)    (201.5)    (66.1)   (399.2)    (64.3)    (110.2)

EBITDA                      (21.1)    (157.1)   (50.8)     (68.2)    (195.3)    (60.4)   (374.7)    (58.4)    (103.6)
Memo: Depreciation             2.4       12.7      5.9        6.6        6.2       5.7      24.5      (5.9)      (6.5)

Marabaha income               60.3     206.7      37.8       34.6        34.8     33.5     140.6       7.7        2.8
Other Expenses              (49.8)        0.0       0.0        0.0        0.0      0.0        0.0
NI before Zakat             (12.9)       36.9   (19.0)     (40.2)    (166.7)    (32.6)   (258.5)    (56.6)    (107.4)
Zakat                          0.0     (10.6)     (0.3)      (0.3)     (15.1)   (17.9)     (33.5)     (5.8)      (5.8)
Net income                  (12.9)      26.3    (19.3)     (40.4)    (181.8)    (50.5)   (292.0)    (62.3)    (113.1)
EPS                         (0.02)      0.03    (0.02)     (0.05)     (0.21)    (0.06)    (0.34)    (0.07)     (0.13)
Source: Emaar EC



The company’s balance sheet shows a cash balance of SAR1.3 billion as of 2Q2009, although much of this
was due to SAR3.4 billion raised in investments in 4Q2008, which was a reversal of the same 2007 figure.
The company has recorded steady progress in construction, reporting SAR4 billion in property and
equipment as of 2Q2009. This is mainly due to developments in Esmeralda and Bay La Sun, which are
close to being delivered, and its industrial park, for which it started delivery this year. Further deliveries
should start to show positively on the income statement over the next two years. Net income will result
in an improvement in shareholder’s equity, which has fallen from SAR8.5 billion to SAR8.0 billion as of
June 2009.




                                                                                                                  53
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                              19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 Figure 50: Select Balance Sheet Accounts, (December Year End)
                                                                2006a       2007a 1Q2008 2Q2008 3Q2008 4Q2008                         2008a 1Q2009 2Q2009
                                 Assets
                                 Cash and Cash Equivalents       4,574       639.8       286.3       168.3        95.7      2,219     2,219       1,625       1,295
                                 Accounts Recievables               5.4       17.8        77.3       101.7       176.7      227.8     227.8       335.4       284.9
                                 Total Current Assets            4,585       675.5       3,779       3,670       3,672      2,503     2,503       1,965       1,971
                                 Investment Property             3,780       3,776       3,774       3,770       3,761      3,743     3,743       3,743       3,525
                                 Property and Equipment          272.2       895.7       1,222       2,016       2,682      3,281     3,281       3,926       4,030
                                 Total Assets                    8,637       8,747       8,775       9,456      10,116      9,532     9,532       9,638       9,530
                                 Liabilities
                                 Current Liabilities             180.5       263.1       309.7       1,031       1,846      1,294     1,294       1,452       1,398
                                 Non-Current Liabilities            0.1         1.3         1.8         2.3       28.3       47.8      47.8        58.2       116.9
                                 Total Liabilities               180.6       264.4       311.5       1,033       1,875      1,342     1,342       1,510       1,515
                                 Total Shareholder's Equity      8,456       8,483       8,463       8,423       8,241      8,191     8,191       8,128       8,015
                                 Total Liabilities and SHE       8,637       8,747       8,775       9,456      10,116      9,532     9,532       9,638       9,530
                                 Source: Emaar EC



                                 Figure 51: Selected Cash Flow Items, (December Year End)
                                                              2006        2007       1Q2008       2Q2008      3Q2008     4Q2008      2008       1Q2009      2Q2009
                                 Cash from Operations
                                 NI before Zakat               (12.9)         36.9     (19.0)       (40.2)     (166.7)     (32.6)    (258.5)      (56.6)     (107.4)
                                 Depreciation                     2.4         12.7        5.9          6.6         6.2        5.7       24.5          5.9         6.5
                                 Provisions & Donations          72.1          1.2        0.5          0.5         1.0        1.2        3.1          0.9       55.7
                                 Murabaha Income               (60.3)     (206.7)         0.0          0.0         0.0    (140.6)    (140.6)        (7.7)       (2.8)
                                 Development Properties         (5.3)       (10.5)     (33.0)         15.6       176.1      248.0      406.6       195.1        17.1
                                 Recievables                    (5.4)       (12.4)     (59.5)       (24.1)      (75.0)     (51.3)    (210.0)     (107.6)        50.5
                                 Payables                      108.5          72.0       46.3       123.5        297.1      541.0    1,007.9       152.3      (26.4)
                                 Deferred Income                  0.0          0.0        0.0          0.0        25.0       18.3       43.3          9.5         3.1
                                 Zakat Paid                       0.0          0.0        0.0       (10.6)         0.0        0.0     (10.6)          0.0     (33.4)
                                 Cash from Operations           99.1      (106.7)      (58.8)        71.2       263.6      589.7       865.7      191.7       (37.2)
                                 Cash from Investing
                                 Capital Expenditures         (274.6)     (634.4)     (294.7)      (797.0)     (839.7)    (891.4)    (2,823)     (792.7)     (296.4)
                                 Real Estate Investment       (2,080)         0.0                                              0.0        0.0
                                 Unlisted Investments             0.0     (3,400)                                           3,400      3,400
                                 Murabaha Income                 60.3       206.7                                           140.6      140.6         7.7         2.8
                                 Other Investments                            0.0                                            (4.8)      (4.8)
                                 Cash from Investing          (2,294)     (3,828)     (294.7)      (797.0)     (839.7)     2,645      713.1      (785.0)     (293.6)
                                 Cash from Financing
                                 Short-term Loans                  -             -          -       607.9       503.4     (1,111)           -          -           -
                                 Share Capital                 6,769             -          -           -           -           -           -          -           -
                                 Cash from Financing           6,769             -          -       607.9       503.4     (1,111)           -          -           -

                                 Starting Cash Balance             -      4,574.2       639.8        286.3       168.3      95.7      639.8        2,219       1,625
                                 Change in Cash                4,574      (3,934)     (353.5)      (118.0)      (72.6)     2,123      1,579      (593.3)     (330.7)
                                 Ending Cash                   4,574        639.8       286.3        168.3        95.7     2,219      2,219        1,625       1,295
                                 Source: Emaar EC




     KINDLY REFER TO THE
54   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                                19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




XI. DEMOGRAPHIC TRENDS POINT TO GROWING DEMAND
Saudi Arabia's demographic profile is a fertile ground for housing development. It has a young, growing
population that is increasingly urbanising, and reducing household sizes. The percentage of home
ownership is low, at 45%, and even lower in the large cities.

SAUDI ARABIA HAS A YOUNG AND GROWING POPULATION.
Of the total population of 27.6 million, 75% are below 35 years old, according to the 2007 census. Unlike
other Gulf countries, such as the United Arab Emirates, the vast majority of the population (75%) are
Saudi nationals.

Saudi Arabia’s population growth rate has slowed, but is still high at 2.7% per year, according to UN
statistics. In comparison, world population growth is about 1.2% per year.

Figure 52: Saudi Population by Age Bracket (2007)
In millions, unless otherwise stated


                                                                            Non-Saudi                Saudi
    3.0
                 70% of population below 35 years old
    2.5
    2.0
    1.5
    1.0
    0.5
    0.0
           0-1

                   1-4

                         5-9

                               10 - 14

                                         15 - 19

                                                   20 - 24

                                                             25 - 29

                                                                       30 - 34

                                                                                 35 - 39

                                                                                           40 - 44

                                                                                                      45 - 49

                                                                                                                50 - 54

                                                                                                                          55 - 59

                                                                                                                                    60 - 64

                                                                                                                                              65 - 69

                                                                                                                                                        70 - 74

                                                                                                                                                                  75 - 79

                                                                                                                                                                            80+
Source: Central Department of Statistics and Information



54% OF SAUDI’S POPULATION IS IN RIYADH AND MECCA PROVINCES
Saudi Arabia has 3.4 million households, with 54% located in two provinces: Riyadh and Mecca. Eastern
Province, where most oil fields and oil workers are, has almost 500,000 households, or 14% of the total.
Medina is located about 340 kilometres from Mecca, and 380 kilometres from Jeddah, and is often
included within the Mecca province when discussing demand. Medina includes 7% of the total Saudi
households.




                                                                                                                                                                                  55
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                                                                              19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 Figure 53: Saudi Households by Province (2007)
                                 In million, unless otherwise stated


                                    1.4
                                                                        Mecca and Riyadh represent 54% of all households
                                    1.2
                                    1.0
                                    0.8
                                    0.6
                                    0.4
                                    0.2
                                    0.0


                                                                                          Asir




                                                                                                                                                                                                           Jouf
                                             Mecca




                                                                                                        Medina




                                                                                                                                                                                            Baha
                                                                        Province




                                                                                                                                   Qassim


                                                                                                                                               Tabouk
                                                            Riyadh




                                                                                                                    Jizan




                                                                                                                                                                               Najran




                                                                                                                                                                                                                     Northern
                                                                                                                                                               Hail
                                                                         Eastern




                                                                                                                                                                                                                      Border
                                 Source: Central Department of Statistics and Information



                                 URBANISATION HAS ALSO INCREASED SIGNIFICANTLY
                                 KSA's urban population has seen strong and sustained growth, reaching 81% of the population in 2005
                                 (up from 21% in 1950) according to UN statistics. Out of the total population, almost 20 million people
                                 live in urban areas. There are five major cities with more than 750,000 inhabitants, according to the
                                 Ministry of Economy and Planning. The urban population is expected to grow faster than the rural
                                 population, to reach 86% of the total population in 2030e.

                                 Figure 54: Urban Population in Saudi Arabia, 1950-2030e
                                 In million (LHS), unless otherwise stated


                                                                                                         Urban Population (LHS)
                                     40                                                                  Urban Population as % of Total (RHS)                                                                        100%

                                                                                                                                                                                                                     80%
                                     30
                                                                                                                                                                                                                     60%
                                     20
                                                                                                                                                                                                                     40%
                                     10
                                                                                                                                                                                                                     20%

                                      0                                                                                                                                                                              0%
                                                                                                                                                                      2010e

                                                                                                                                                                               2015e

                                                                                                                                                                                        2020e

                                                                                                                                                                                                   2025e

                                                                                                                                                                                                             2030e
                                            1950

                                                     1955

                                                                 1960

                                                                          1965

                                                                                   1970

                                                                                                 1975

                                                                                                         1980

                                                                                                                 1985

                                                                                                                            1990

                                                                                                                                       1995

                                                                                                                                              2000

                                                                                                                                                        2005




                                 Source: United Nations Department of Economic and Social Affairs, Population Division



                                 HOUSEHOLD OWNERSHIP IS LOW
                                 Household ownership is around 45%, according to the 2004 census, but this percentage is lower in large
                                 cities such as Riyadh, where it is just 35%. Other sources peg it even lower, with the IMF estimating the
                                 homeownership rate at just 38%, and other media reports have said as low as 20%. According to the
                                 2007 census, household ownership among Saudi households is much higher, at 62% but overall ratio for
                                 all households was not provided. We believe the current ownership may range from 30-45% if all
                                 households, including expatriate families, were included.




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56   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                         19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Figure 55: Household Ownership (2004)


   90%
   80%
   70%                                                                                                 Average ownership at 45%
   60%
   50%
   40%
   30%
   20%
   10%
    0%



                                            Asir




                                                                                                Jouf
              Baha




                                                       Qassim




                                                                                                                                      Tabouk
                         Jazan




                                                                Northern



                                                                            Najran


                                                                                      Madinah




                                                                                                          Eastern



                                                                                                                    Makkah


                                                                                                                             Riyadh
                                   Hail




                                                                                                           Prov.
                                                                 Border
Source: Central Department of Statistics and Information



AVERAGE HOUSEHOLD SIZE IS SHRINKING
The average size of a Saudi household has fallen from 6.1 people per household in 2004 to 5.7 in 2007.
We expect this trend to continue as i) urban populations increase, ii) Saudi families move into apartments
and villas and out of traditional family homes, and iii) population growth slows and children grow up.
Generally, we believe the world is moving to smaller household sizes, and Saudi Arabia will be no
exception.

Figure 56: Average Household Size by Province (2007)

                                                   Average household size at 5.7 individuals per household in 2007
   9.0                                             Average household size at 6.1 individuals per household in 2003
   8.0
   7.0
   6.0
   5.0
   4.0
   3.0
   2.0
   1.0
   0.0
                                                                                                Asir
            Jouf




                                                                                                           Baha


                                                                                                                    Medina




                                                                                                                                      Mecca
                                                   Province

                                                                 Qassim




                                                                                     Tabouk
                     Northern




                                          Jizan




                                                                           Najran




                                                                                                                             Riyadh
                                 Hail




                                                    Eastern
                      Border




Source: Central Department of Statistics and Information




                                                                                                                                               57
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                  19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 XII. CITY VIEWS
                                 All real estate is local, and that is just as true in Saudi Arabia, where each city and region has its own
                                 demand drivers. In this section we detail the major cities in the Kingdom and their characteristics.

                                 RIYADH
                                 The city is one of the largest urban areas in the world. It has a population of 4.6 million, which is growing
                                 at 4.2% a year, according to the High Commission for the Development of Arriyadh. The infrastructure in
                                 place is good, but not great, with a decent road system that is not overloaded. Northern expansion is
                                 mainly middle-income developments, while southern expansion inclines towards lower-income or lower
                                 middle-income. This is evidenced by Dar Al-Arkan's higher-end development, Shams Alriyadh, in the north
                                 and its lower-end project, Al Qasr, in the south. Apartments are limited (about 35% of total housing
                                 units), and demand for villas is much stronger. Per capita income in Riyadh is higher than in other cities.

                                 Riyadh is a very large city, with an urban area of 1,000 square kilometers, and the city has historically
                                 grown out rather than up. The main characteristics of Riyadh’s housing market are: i) a young and growing
                                 population, ii) villas rather than apartments, with just 30% of residents living in apartments, iii) a very low
                                 homeownership percentage at just 35%, iv) limited financing available or utilised, and v) a fragmented
                                 real estate market, with a high percentage of people building their own house.

                                 DEMOGRAPHICS
                                 In Riyadh province, 65% of the population is under the age of 30. Population growth is above 4% a year,
                                 meaning that its population should double every 18 years if this rate is maintained. The migration rate is
                                 1.2% a year, according to HCDR, as Saudis and non-Saudis come to the city for work.

                                 Figure 57: Riyadh Province Population by Age               Figure 58: Riyadh Province Population by
                                 Bracket (2007)                                             Nationality (2007)


                                     Less Than 1 to 19      20 to 39    40 to 59     60+                        Saudi    Non-Saudi




                                             18%          3%
                                                                                                      31%
                                                                              40%


                                                                                                                                        69%
                                                39%




                                 Source: Central Department of Statistics and Information   Source: Central Department of Statistics and Information



                                 There are about 750,000 residential units in Riyadh, but only about 30% of these are apartments. The vast
                                 majority of apartment-dwellers are renters, while the majority of villa-dwellers are owners.




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58   IMPORTANT DISCLOSURES AND
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FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                       19 october 2009
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Figure 59: Types of Housing In Riyadh Province By Type of Tenure (2007)*

                                           Owned     Rented      Other     Provided by Employer

   250,000
   200,000
   150,000
   100,000
     50,000
           0
                     Apartment          Villa       A Floor in a         Traditional       Other     A Floor in a
                                                        Villa              house                     Traditional
                                                                                                        House


*Includes statistics for Saudi households only
Source: Central Department of Statistics and Information



FINANCING
More than 50% of homes are financed through personal sources, while another 40% of financing is from
loans from the Real Estate Development Fund (REDF). Only 6% of homes are financed through loans from
institutions.

Figure 60: Types of Financing Used for Home Purchase (2004)

                Personal Finances         Loan from REDF
                Loan from Institution     Other/Don't Know

                                 2%
                       6%




                                                           51%
               41%




Note: REDF = Real Estate Development Fund
Source: High Commission for the Development of Arriyadh



DEMAND
Using similar assumptions as for our Kingdom-wide forecasts, we believe total demand in Riyadh will
average 31,750 per year. Real estate is a cyclical business, and we expect actual demand will fluctuate
from year to year. This number is built up from an annual expectation of 18,000 new marriages in the city,
6,250 new units needed from changes in household size, and 7,500 in replacement demand. Riyadh's
demand is 20% of total demand in the Kingdom, roughly in line with the percentage of the population.




                                                                                                                    59
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                    19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 Figure 61: Annual Housing Demand in Riyadh
                                 Reason of Acquisition                          Units
                                 From new marriages                            18,000
                                 From change in hh size                         6,250
                                 Replacement demand                             7,500
                                 Total demand                                  31,750
                                 % of Total in KSA                               20%
                                 8th Development Plan                          44,000
                                 Source: Ministry of Economy and Planning, EFG-Hermes estimates



                                 JEDDAH
                                 Jeddah is Saudi Arabia’s second largest city with a population of more than three million. It is strategically
                                 located on the Red Sea and is the gateway for pilgrims journeying to the holy cities of Mecca and Medina.
                                 The city has spread out from its central core, which was originally just 1 kilometre across 60 years ago
                                 with about 30,000 people, to 51 kilometres across north to south. This north-south expansion will be
                                 accentuated by the construction of the King Abdullah Economic City, which is about 90 km north of
                                 Jeddah.

                                 Jeddah is similar to Riyadh in many ways, in that it has a young and growing population with a similar mix
                                 of Saudis and non-Saudis. The real estate market is slightly less fragmented than in Riyadh, mainly
                                 because of large urban renewal projects. In contrast to Riyadh, the finance capital of the Kingdom, Jeddah
                                 is a trading and (religious) tourism centre, given its historical role as a port and initial entry point for
                                 pilgrims. Jeddah’s apartment to villa split is almost the reverse of Riyadh, with apartments representing
                                 65% of residential homes. Finally, infrastructure in Jeddah is poor, which we believe necessitates greater
                                 expenditure by developers than in Riyadh.

                                 Note, many of the demographic statistics are for the Mecca province, of which Jeddah is the largest city.

                                 Major characteristics of the Jeddah real estate market are: i) a young and growing population, ii) a large
                                 percentage of apartment dwellers at 65%, although villas are still the homeowners dream, iii) low
                                 percentage of home ownership at just 39% (for Mecca province), iv) poor infrastructure that puts a
                                 greater burden on developers (only 20% of the population is connected to the water mains), and v) three
                                 major urban regeneration projects in central Jeddah.

                                 DEMOGRAPHICS
                                 66% of Jeddah’s population of 3.4 million is under the age of 30. About 35% of the total population is
                                 non-Saudi, a higher percentage than in any other city, probably due to the high number of pilgrims that
                                 come through the province.

                                 Figure 62: Mecca Province population by age                  Figure 63: Mecca Province population by
                                 bracket (2007)                                               nationality (2007)

                                     Less Than 1 to 19      20 to 39    40 to 59     60+                          Saudi    Non-Saudi



                                                          5%
                                            18%
                                                                              40%                                                          38%


                                                                                                      62%
                                                37%




                                 Source: Central Department of Statistics and Information     Source: Central Department of Statistics and Information



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FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                      19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




Apartments are more common in Jeddah than in other parts of the Kingdom. For the Mecca province as a
whole, 44% of households are in apartments while the figure in Jeddah is closer to 60-65%. However, we
believe villas are still in high demand in Jeddah itself, since they are seen as a symbol of upward mobility.

Figure 64: Types Of Housing In Mecca Province By Type Of Tenure (2007)*

                                          Owned      Rented    Provided by Employer    Other

   250,000
   200,000
   150,000
   100,000
     50,000
           0
                  Apartment           Villa         A Floor in a     Traditional      A Floor in a      Other
                                                        Villa          house          Traditional
                                                                                         House


*Includes statistics for Saudi households only
Source: Central Department of Statistics and Information



DEMAND AND SUPPLY (MAJOR DEVELOPERS AND PROJECTS)
We forecast annual demand of 21,250 units in Jeddah. This represents 13% of total demand in the
Kingdom. We assume new marriages will result in 9,000 new units, 6,250 units will be needed from
changes in household size, and 6,000 units in replacement demand.

Figure 65: Annual Housing Demand in Jeddah
Reason of Acquisition                           Units
From new marriages                              9,000
From change in hh size                          6,250
Replacement demand                              6,000
Total demand                                   21,250
  % of Total in KSA                              13%
8th Development Plan                           28,680
Note: We assume that 60% of demand in Mecca Province is attributable to Jeddah
Source: Ministry of Economy and Planning, EFG-Hermes estimates


Jeddah has seen a great deal of real estate project announcements over the past three years as a large
number of developers outside of Saudi Arabia have entered the market. There are also three major urban
renewal projects that, if successful, will change the face of central Jeddah. Other major developments
include: Emaar’s Jeddah Gate with Oula; Kingdom Holding’s Kingdom Tower; and Dar Al-Arkan’s Shams
Al-Arous. We provide more details on major projects in Jeddah in Appendix II.

Urban Regeneration Projects
The Jeddah municipality, through the Jeddah Urban Development Company, has designated three large
areas in central Jeddah for redevelopment. The municipality is a partner in all three of these projects, and
it will provide the companies with the land and will work to resolve any property and title issues with the
current landowners. For homes that will be demolished, homeowners will be compensated, according to
the size and location of the property.

The three projects are modelled on the successful redevelopment of the Solidere area in central Beirut.

iv) Al Khozam Palace, a 3.72 million sqm district, is being developed by Dar Al-Arkan.

v) Jeddah Central District, a 6.0 million sqm area to be master-planned by Solidere and developed by
Construction Development Company Ltd. (Saudi Arabia), Siraj Capital (Saudi Arabia), Commercial Real
                                                                                                                61
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                     19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 Estate Company (Kuwait) and Venture Capital Bank (Bahrain). The municipality-owned Jeddah Urban
                                 Development Company is also a partner.

                                 vi) Ruwais District, a 1.8 million sqm neighbourhood in Jeddah surrounded by Al Andalus Road from the
                                 west, Medina Road from the east, Kind Abdullah Road from the south and Palestine street from the north.
                                 The area is disorganised and its redevelopment plans assume a buyout of existing land and properties in
                                 the form of a share swap, similar to the redevelopment plans for the Jabel Omar area in Mecca. Existing
                                 properties will be cleared to make space for new infrastructure, residential and commercial buildings.
                                 Construction at the development is expected to start in 2009, with the work undertaken by Al-Ruwais
                                 Union Company for Real Estate Development.

                                 MECCA
                                 The real estate market in Mecca is characterised by the high number of religious tourists it receives every
                                 year. The city has a permanent population of 1.7 million, and it receives more than 3 million in religious
                                 pilgrims each year. During the Hajj period, hotel and furnished apartments run at close to 100%
                                 occupancy. Note that we do not have specific demographic data on the city of Mecca. Information on the
                                 province of Mecca is included above in the section on Jeddah.

                                 RELIGIOUS TOURISM
                                 Mecca has a population of around 1.7 million. Religious tourism is the key industry in the city of Mecca,
                                 which hosts Masjid Al Haram (the Grand Mosque) - Islam's holiest site visited by millions of pilgrims from
                                 all over the world. Hajj, the Islamic pilgrimage to Mecca that takes place once every year, is one of the
                                 pillars of Islam and must be performed by every adult Muslim at least once in a lifetime. Currently, the
                                 Hajj season attracts as many as 3 million pilgrims to Mecca each year. The local authorities are planning
                                 to extend the capacity of the Grand Mosque, to allow it to accommodate more than double in the next
                                 ten years. Aside from obligatory Hajj, Islam encourages its followers to perform Umrah, or the lesser
                                 pilgrimage, which attracts over 6 million additional pilgrims annually to Mecca and Medina.

                                 Despite its religious significance and long history, the central areas of Mecca are relatively poorly
                                 developed and do not provide sufficient infrastructure for the growing pilgrimage traffic. A number of
                                 initiatives are therefore being undertaken to improve accommodation and communication facilities in the
                                 city. Five mega projects are currently being developed in Mecca, including that of Jebel Omar, which
                                 involves the redevelopment of the central areas of Mecca in the direct neighbourhood of the Grand
                                 Mosque.

                                 DEMAND
                                 We estimate Meccans will demand 16,000 new units each year, or about 10% of the total demand of the
                                 Kingdom. We assume demand for 7,000 units will come from new marriages, 5,000 from changes in
                                 household size and 4,000 from replacement demand.

                                 Figure 66: Annual Housing Demand in Mecca
                                 Reason of Acquisition                          Units
                                 From new marriages                             7,000
                                 From change in hh size                         5,000
                                 Replacement demand                             4,000
                                 Total demand                                  16,000
                                 % of Total in KSA                               10%
                                 8th Development Plan                          19,120
                                 Note: We assume that 35% of demand in Mecca Province is attributable to the city of Mecca
                                 Source: Ministry of Economy and Planning, EFG-Hermes estimates




     KINDLY REFER TO THE
62   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                          19 october 2009
SAUDI ARABIA REAL ESTATE SECTOR




MEDINA
Like Mecca, Medina is also a religious pilgrimage site, with more than half a million religious tourists each
year and a permanent population of 1.3 million. The government is building the Knowledge Economic City
north of Medina that will have 30,000 residential units, offices, a retail area with 1,200 shops and a theme
park.

Medina is the second holiest site in Islam. Like Mecca, it is a site of pilgrimage for Umrah and half a million
foreign visitors each year. It is about 200 miles from Mecca and has a population of 1.3 million.

DEMOGRAPHICS
Similar to the rest of the Kingdom, about 43% of the population of the province of Medina is under the
age of 20, and another 16% are between 20 and 29 years old. It’s percentage of non-Saudis, at 25%, is
relatively low, which may be due to non-Muslims not being allowed to set foot in Medina.

Figure 67: Medina Population By Age Bracket                         Figure 68: Medina Population By Nationality
(2007)                                                              (2007)


     Less Than 1 to 19      20 to 39    40 to 59     60+                                Saudi     Non-Saudi



                         5%                                                     25%
            17%
                                               43%



              35%                                                                                             75%




Source: Central Department of Statistics and Information            Source: Central Department of Statistics and Information



The majority of people in the province live in apartments, followed by traditional houses. Just 7% live in
villas, the lowest percentage for any province.

Figure 69: Types of Housing in Medina Province by Type of Tenure (2007)
In units, unless otherwise stated

                                           Owned     Rented     Provided by Employer      Other

     60,000
     50,000
     40,000
     30,000
     20,000
     10,000
          0
                  Apartment            Villa         A Floor in a        Traditional      A Floor in a        Other
                                                         Villa             house          Traditional
                                                                                             House


*Includes statistics for Saudi households only
Source: Central Department of Statistics and Information




                                                                                                                           63
                                 FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                               19 october 2009
                                 SAUDI ARABIA REAL ESTATE SECTOR




                                 DEMAND
                                 We estimate total demand in Medina is 14,000 units per year, with 7,000 from marriages, 5,000 from
                                 changes in household size and 2,000 in replacement demand. This is 9% of the total demand in Saudi
                                 Arabia.

                                 Figure 70: Annual Housing Demand in Medina
                                 Reason of Acquisition                          Units
                                 From new marriages                             7,000
                                 From change in hh size                         5,000
                                 Replacement demand                             2,000
                                 Total demand                                 14,000
                                 % of Total in KSA                                9%
                                 8th Development Plan                          11800
                                 Source: Ministry of Economy and Planning, EFG-Hermes estimates



                                 EASTERN PROVINCE
                                 Three cities in the Eastern Province, Ad Damman, Khobar and Dhahran, represent one large conurbation
                                 with a population of over one million. Business in the Eastern Province is mainly oil, with both SABIC and
                                 Aramco having large plants located here. It is also very close to Bahrain, and it receives visitors from there.




     KINDLY REFER TO THE
64   IMPORTANT DISCLOSURES AND
     DISCLAIMERS ON BACK PAGE
                                          FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                        19 october 2009
                                          SAUDI ARABIA REAL ESTATE SECTOR




                                          APPENDIX I – MAJOR PROJECTS IN RIYADH

 Project name           Developer                                     Area      Investment   Construction   Comment
                                                                           2
                                                                      (mn m )   cost (bn)    End
 Al Wasl                Dubai-based Limitless                         14.1      SAR45        2015e          Mega mixed-use project featuring 55,000
                                                                                                            residential units (villas, townhouses and
                                                                                                            apartments), seven five star hotels, offices, and
                                                                                                            shopping malls.
 Durrat Al Riyadh       Dallah Albaraka                               3.2       SAR3                        Mixed-use project, including a five star hotel.
                                                                                                            The project was launched in March 2007. Sales
                                                                                                            started in April 2007.
 Ajmakan project        Partnership between Saudi-based Al Shoula     1.7       SAR6         4Q2013e        Mega mixed-use with residential, commercial
                        Holding Group, UAE-based Taameer                                                    and hotel space.
                        Holding and the Land Company for
                        Property Development and Investment.
 Shams Alriyadh         Dar Al-Arkan                                  5.0                    2011e          The project features residential and commercial
                                                                                                            units.
 Al Qasr Project        Dar Al-Arkan                                  0.8                                   The project features residential and commercial
                                                                                                            units.
 King Abdullah          Rayadah Investment Company                    1.6       SAR36                       Tendered for infrastructure June 2009.
 Financial District
 Information            Rayadah Investment Company                    0.5       SAR6.2       2Q2013e
 Technology &
 Communication
 Complex
 Al Gamra Project       Al Injaz for Real Estate Development          2.5                                   Injaz is currently finalising the project details
                        Company                                                                             including the development plans, the timeline
                                                                                                            for sales and delivery of the plots.
 Rawabi Rumah           Al-Shoala Group of Establishment              31        SAR27                       Luxury villas, retail centres and commercial
                                                                                billion                     space. Integrated community with educational
                                                                                                            institutions, hospitals and hotels.
 (Al Malka)             Tameer Holding                                2.2       N/A                         Will provide 14,000 units (apartments, villas and
                                                                                                            townhouses)
Source: Media reports, company disclosure, and EFG-Hermes estimates




                                                                                                                                                           65
                                           FERTILE GROUND FOR REAL ESTATE DEVELOPERS
                                                                                                                        19 october 2009
                                           SAUDI ARABIA REAL ESTATE SECTOR




                                           APPENDIX II – MAJOR PROJECTS IN JEDDAH


 Project name         Developer                         Area          Investment   Construction   Comment
                                                             2
                                                        (mn m )       cost         End
 Jeddah Central       Solidere and Jeddah Urban
 District             Development Company
 Al Jawharah          Damac                             3.0           SAR800       2010e/2011e    Damac received a licence to start infrastructure work in
                                                                      million                     February 2009. Infrastructure work is expcted to start in
                                                                                                  March 2009.
 Jeddah Gate          Emaar Properties                  0.11          SAR6         2011e (P1)     230,000 sq m of commercial space and 75,000 sqm of
                                                                      billion                     gross area for retailers.
 Khuzam Palace        Dar Al-Arkan and Jeddah Urban     3.7           SAR580       2014e
                      Development Company                             million
 Dubai-Jeddah         Sama Dubai and Al Shaullah                      SAR7.23      2012e
 Towers                                                               billion
 Kingdom City         Kingdom Holding                   7.1           SAR100                      23 million sqm of BUA. Kingdom Tower is located within
                                                                      billion                     Kingdom City.
 Andalusia            Kinan International Company                     SAR143                      268,000 square meters of BUA.
 Square Towers        (Real Estate arm of Savola                      million
                      Group)
 Lamar Towers         CAYAN and Zahran Real Estate                    SAR2         2010e/2011e    Two residential towers, offices and a mall.
                      Investment                                      billion
 Al Mutlaq            Al Mutlaq Group                                 SAR800
 Business Avenue                                                      million
 New Rayadah          Saudi Rayadah Investment          2.6                                       Master plan is currently with Municipality andwaiting for
 Project              Company                                                                     approval, will then tender infrastructure (August 2009).
Source: Media reports, company disclosure, and EFG-Hermes estimates




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DISCLOSURES
We, Jan Pawel Hasman and Patrick Gaffney, hereby certify that the views expressed in this document accurately reflect our personal views about the securities and
companies that are the subject of this report. We also certify that neither we nor our spouse[s] or dependants (if relevant) hold a beneficial interest in the securities
that are traded in the Tadawul stock exchange. EFG-Hermes Holding SAE hereby certifies that neither it nor any of its subsidiaries owns any of the securities that are
the subject of this report.

Funds managed by EFG-Hermes Holding SAE and its subsidiaries (together and separately, "EFG-Hermes") for third parties may own the securities that are the
subject of this report. EFG-Hermes may own shares in one or more of the aforementioned funds or in funds managed by third parties. The authors of this report may
own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio over which they have no discretion. The
Investment Banking division of EFG-Hermes may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this
report or are mentioned in this report..

DISCLAIMER
This Research has been sent to you as a client of one of the entities in the EFG-Hermes group. This Research must not be considered as advice nor be acted upon by
you unless you have considered it in conjunction with additional advice from an EFG-Hermes entity with which you have a client agreement.

Our investment recommendations take into account both risk and expected return. We base our long-term fair value estimate on a fundamental analysis of the
company's future prospects, after having taken perceived risk into consideration. We have conducted extensive research to arrive at our investment
recommendations and fair value estimates for the company or companies mentioned in this report. Although the information in this report has been obtained from
sources that EFG-Hermes believes to be reliable, we have not independently verified such information and it may not be accurate or complete. EFG-Hermes does not
represent or warrant, either expressly or implied, the accuracy or completeness of the information or opinions contained within this report and no liability whatsoever
is accepted by EFG-Hermes or any other person for any loss howsoever arising, directly or indirectly, from any use of such information or opinions or otherwise
arising in connection therewith. Readers should understand that financial projections, fair value estimates and statements regarding future prospects may not be
realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This research report is
prepared for general circulation to the clients of EFG-Hermes and is intended for general information purposes only. It is not intended as an offer or solicitation or
advice with respect to the purchase or sale of any security. It is not tailored to the specific investment objectives, financial situation or needs of any specific person
that may receive this report. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs.
GUIDE TO ANALYSIS
EFG-Hermes investment research is based on fundamental analysis of companies and stocks, the sectors that they are exposed to, as well as the country and regional
economic environment. Two investment ratings are offered for each stock, a Short-Term rating and a Long-term rating.

The Short-Term (ST) rating is based on the analyst’s best expectations on the shorter-term price movements of the stock. Short-Term is defined as any time up to six
months of the rating being applied to the stock. While shorter-term drivers could include quantifiable facts and figures, the analyst may also consider non-
quantifiable issues such as the analyst’s view on investor sentiment, potential news flow on the stock or the sector, or other issues which could impact share price
movements.

The Long-Term (LT) rating is based on the percentage upside or percentage downside of the stock price to the analyst’s Long Term Fair Value (LTFV). Long Term is
defined as any time period beyond 1 year. The LTFV is based on the analyst’s current expectations of the equity fair value of the company on a per share basis which
is normally based on rigorous and fundamental long-term analysis of the company’s financial potential. Of course, any such analysis is based on the analyst’s
expectations for the future and are always considered estimates.

For both the Short-Term and Long-Term ratings for any investment covered in our research, the ratings are defined by the following ranges in percentage terms:

Rating                               % upside (downside)
Buy                                  25% and above
Accumulate                           10 to 25%
Neutral                              (10%) to 10%
Reduce                               (10%) to (25%)
Sell                                 (25%) or more downside

EFG-Hermes policy is to update research reports when appropriate based on material changes in a company’s financial performance, the sector outlook, the general
economic outlook, or any other changes which could impact the analyst’s outlook or rating for the company. Share price volatility may cause a stock to move
outside of the longer-term rating range to which the original rating was applied. In such cases, the analyst will not necessarily need to adjust the rating for the stock
immediately. However, if a stock has been outside of its longer-term investment rating range consistently for 30 days or more, the analyst will be encouraged to
review the rating.

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CONTACTS AND STATEMENTS
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2 33 32 1140 | Fax +20 2 33 36 1536 which has an issued capital of EGP 1,939,320,000.


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