ab Global Equity Research Australia

Real Estate UBS Investment Research 12-month rating Buy Sunland Group Prior: Not Rated 12m price target A$4.95/US$4.25 - Initiation of coverage: Dubai the key to Price A$4.25/US$3.65 growth; Buy RIC: SDG.AX BBG: SDG AU 24 December 2007 „ Significant growth since listing in 1995 Sunland Group (ASX code SDG) is a low-geared (12% D/TA) A$1.4bn S&P/ASX Trading data (local/US$) 200 developer undertaking residential, commercial and hotel development, project 52-wk range A$4.57-3.10/US$4.24-2.56 management and funds management. The business was founded in Australia in Market cap. A$1.36bn/US$1.17bn 1983 and expanded into Dubai in December 2004. Shares o/s 321m (ORD) „ Delivery of Dubai business is key Free float 100% We expect Dubai to quickly rise to c51% of EBIT by FY09E with Sunland Avg. daily volume ('000) 750 involved in five Dubai projects (3,014 lots, end value A$3.5bn) and as project Avg. daily value (A$m) 3.2

manager on the A$4bn White Bay project. Delivery and growth of the Dubai Balance sheet data 06/08E operations is premised on adequately managing JV relationships, human resources, economic risks and project completion timing, and (important given strong Shareholders' equity A$0.56bn inflation) budgets. P/BV (UBS) 2.4x Net Cash (debt) (A$0.12bn) „ What Sunland offers at current prices Sunland is trading at 11.3x FY09E P/E (versus the emerging industrials at 14.5x) Forecast returns and offers a 3.5% FY09E DPS yield (emerging industrials c5.1%), and we estimate Forecast price appreciation +16.5% a five-year EPS CAGR (FY08-13E) of 11.6% pa, underpinned by the Dubai Forecast dividend yield 5.3% business. Forecast stock return +21.8% Market return assumption 11.6% „ Valuation – Initiating with a Buy rating Forecast excess return +10.2% Our three-stage DCF (calculated discounting diluted EPS) derives a one-year price target of $4.95 (beta 1.19 as observed, with five- to ten-year and terminal EPS EPS (UBS, A$) growth of 3.75% and 2.5%, respectively). This matches our secondary FY09E 06/08E 06/07 SOTP valuation of $4.95 using a weighted EBITDA multiple of 12.9x. We From To Cons. Actual therefore initiate coverage with a Buy rating. H1E - 0.072 - 0.118 H2E - 0.081 - 0.188 06/08E - 0.298 0.289 Highlights (A$m) 06/06 06/07 06/08E 06/09E 06/10E 06/09E - 0.377 0.347 Revenues 489 630 526 481 573 EBIT (UBS) 123 166 131 153 209 Performance (A$) Stock Price (A$) Rel. All Ordinaries Net Income (UBS) 72 88 95 120 169 5.00 200 EPS (UBS, A$) 0.289 0.297 0.298 0.377 0.532 4.00 Net DPS (UBS, A$) 0.120 0.126 0.140 0.177 0.250 150 3.00 100 Profitability & Valuation 5-yr hist av. 06/07 06/08E 06/09E 06/10E 2.00

EBIT margin % - 26.4 24.8 31.7 36.4 50 1.00 ROIC (EBIT) % - 27.6 22.6 20.3 24.9 EV/EBITDA (core) x - 6.5 10.6 9.8 7.6 0.00 0 10/04 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 PE (UBS) x - 10.5 14.3 11.3 8.0 Stock Price (A$) (LHS) Rel. All Ordinaries (RHS) Net dividend yield % - 4.0 3.3 4.2 5.9 Source: UBS Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. www.ubs.com/investmentresearch Valuations: based on an average share price that year, (E): based on a share price of A$4.25 on 20 Dec 2007 23:38 EST

John Freedman Chad Mikhael Analyst Analyst [email protected] [email protected] +61-2-9324 2453 +61-2-9324 3547

This report has been prepared by UBS Securities Australia Ltd ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 40. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Sunland Group 24 December 2007

Contents page John Freedman Analyst Executive summary 3 [email protected] +61-2-9324 2453 Financial forecasts 9 Chad Mikhael — EPS and DPS profile ...... 9 Analyst Valuation and recommendation 10 [email protected] +61-2-9324 3547 — Three-stage DCF valuation on earnings of $4.95 ...... 10

— SOTP valuation (EBITDA multiples) $4.95...... 11 Group overview 12 — History ...... 12 — Divisions ...... 12 — Organisational structure ...... 14 — Senior management overview...... 14 — Capital structure ...... 15 — Capital management ...... 15 — Stock performance ...... 16 Recent results and growth 17 Australian operations 19 — Multi-storey/Apartments (46% of FY08E EBIT)...... 19 — Land subdivision (17% of FY08E EBIT) ...... 20 — Residential housing (9% of FY08E EBIT) ...... 22 — Commercial/Industrial development (1% of FY08E EBIT) ...... 24 — Funds management (6% of FY08E EBIT)...... 25 — Hotel investments and operations (1% of FY08E EBIT) ...... 26 International operations 28 — Overview...... 28 — Development operations...... 28 — Project management ...... 29 — Funds management...... 29 UAE and Dubai overview 31 — Region overview (UAE) ...... 31 — Dubai ...... 34 Summary 38

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Sunland Group 24 December 2007

Executive summary

Overview: Sunland Group (ASX code SDG; market cap. A$1.37bn, free float c70%) is an integrated developer in the S&P/ASX 200. It has operations across property development (both multi-storey and residential), residential land subdivision, project management, hotel development and ownership as well as funds management. Sunland was founded in Queensland, Australia in 1983 and has operations across eastern Australia (Queensland, Victoria and New South Wales) and in Dubai (residential and hotel development since December 2004).

Sunland’s current share price is up 17.3% YTD to $4.25, driven by its continued expansion into Dubai. Its track record for growth and returns is strong with a DPS five-year CAGR (FY03-07) of 35% pa.

Chart 1: FY08E EBIT split by division Chart 2: FY07 EBIT/revenue margins split by division

Funds Mgmt International 70% 65% Comm & Ind 60% FY07a FY08e 6% Dev (incl proj Ops. 60% services) 1% 50% 21% 40% 37% Hotel 30% 26% 25% 25% 1% Urban Land 30% 22% Dev . 20% 12% 8% 8% 17% 10% 7% Multi-Storey 0% 46% Resid. Housing Mgmt Funds group Land Housing 9% Op's. Total SDG Total Subdivision Hotel Inv. & Multi-Storey

Source: UBS estimates Source: Sunland, UBS estimates

Gearing remains low: Sunland has gross assets of $780m, with very low gearing (debt to assets of 12.6%; or net debt/assets of nil). Sunland’s NTA as at June 2007 is $2.49, excluding deferred tax assets and liabilities. Sunland is currently trading at a large premium to NTA, given the value of its pipeline and value attributed to its corporate businesses.

Dubai – the key to future growth: Sunland first expanded its development Dubai pipeline – 3,014 multi-storey/ operations into Dubai in December 2004. Presently, it has 3,014 multi- apartment lots spread across five storey/apartment lots spread across five projects. Further, it is project managing projects the White Bay community masterplan project. The founder of Sunland Group, Mr Soheil Abedian, is now based in Dubai to oversee operations in his role as Managing Director of Sunland Group International.

In FY07, EBIT earned from Dubai operations was just 4%. Based on our estimates, we expect this to grow to 21% by FY08E and 51% by FY09E. Effective delivery and future growth of Sunland’s Dubai operations is premised on several factors:

(1) Joint venture relationships – Sunland has already established a joint venture with Emirates Investment Group (EIG) to construct resorts, and residential and commercial projects in the Gulf region. EIG is associated with Sheik Tariq bin Faisal Al Qassimi – a member of the ruling family of

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Sunland Group 24 December 2007

Sharjah (one of the seven emirates in the UAE) and also Chairman of the Economic Development Board in Sharjah.

EIG is presently a 50% JV partner in the A$854m Palazzo Versace, Dubai and A$577m D1 projects. Becfar (an investment entity of UK’s Balli Group and UAE-based investors Farbro Group and Arch Ltd) is a JV partner in the A$941m First Jebel Ali Waterfront project and $171 Culture Village projects. We anticipate the announcement of the JV partner for the A$1,000m Second Jabel Ali Waterfront project in the future. (See section entitled ‘International operations’ on page 28 for more detail.)

Sunland predominantly undertakes the role of construction manager within JV’s with the second largest contractor in Dubai, Arabtec. Contracts are cost-plus with margins at 8-10%. Therefore in periods of rising construction costs it is important to 1) allow for rising costs (presently running at 1%-1.5%/month); and 2) balance out a desire to lock away sales risk, via pre-sales, with maintaining an ability to lift revenue to recover rising costs where necessary.

Clearly the UAE is still an emerging market, with Sunland targeting c30- Sunland targets c30-50% margins on 50% margins on cost on these projects, as opposed to Australian cost on Dubai projects developments which typically target margins of c15-20%.

(2) Financing – Funding for development projects in the UAE is considerably different to Australia. In Australia, a developer will typically use equity to buy the land, and then use that (along with pre-sales) as security for debt- funding the construction costs. In the UAE, the land (similarly to Australia, worth c20% of total development costs) is typically purchased on a staged payment basis over two and a half years, with approximately five equal payments. This requires far less upfront equity from the developer. The early stage construction costs are funded from equity, until c10% construction completion is reached. After that point the developer is able to access a mixture of bank debt and buyer staged payments, which in the UAE are handed over as quantity surveyors certify staged completion. This imposes a much lower equity requirement than in Australia and as at June 2007, Sunland had an estimated c$50m (c10%) of its total equity in Dubai, although we have allowed for a ramp-up in equity in our group estimates.

(3) Staffing resources – In Dubai, Sunland has to compete with other UAE- Staff in Duabi office continuously rising based firms (both local and foreign) for human resources. To date, the – currently at c60 people group has been able to staff up its new operations with people predominantly from its Australian operations (who have themselves been backfilled). However, with c57 staff now in the UAE head office (c100 in Australia), future requirements will have to be met from new sources.

(4) Economic risks – The six nations that make up the Gulf Cooperation Council (GCC), which include the UAE, have been experiencing very strong economic growth in recent years. This has been underpinned by oil and gas wealth accumulation (with crude oil rising to cUS$90/barrel, and not having dipped below US$50/barrel in the past two years). In CY06 GDP growth was at 7.5% growth, well above the 3.5% average for 1990- 2002. With the UAE now focused on re-investing this wealth within the

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Sunland Group 24 December 2007

region to ensure future economic growth is sustained, a development boom ensued. This has resulted in high inflation (CY06: 9.5%, Global Insight). Looking ahead, a slowdown would impact the residential market (hitting demand and prices), and therefore affecting Sunland’s ability to execute and replenish its pipeline.

(5) Residential supply – As we detail in our ‘Region Overview (UAE)’ section (page 31), Dubai has experienced significant population growth (CY00-05 CAGR of 8.6% pa) which has underpinned strong demand in the residential real estate market. However, there are numerous residential development projects set to hit the Dubai market over the next few years, with real estate commentators concerned about a potential future oversupply. This could adversely affect Sunland given major projects hit the market over CY09-11.

However, potentially mitigating these risks are: 1) the large number of pre- sales that Sunland continues to make in its projects; 2) the increasingly sophisticated nature of the real estate market with foreigners now able to acquire freehold property; and 3) continued strong economic growth in the region, which will likely underpin continued population growth (largely expatriates).

(6) Project timing – it is well documented that there is a shortage of well- We have allowed for some Dubai qualified contractors (local or foreign) operating in the UAE – with major project delays in our estimates groups such as Al Habtoor Leighton and Arabtec rapidly expanding their work in hand (WIH). Coupled with strong development demand and tight development schedules, project delays are not uncommon.

In our forecasts of Sunland’s Dubai developments, we have allowed some time delays relative to management guidance as to when projects complete and sell, as illustrated in the following table. On the demand side, pre-sales in the two projects released to date have been good (69% of D1 and 75% of Versace condos pre-sold). However, given strongly rising construction costs, management is balancing the desire to lock away sales risk with the ever-increasing cost of construction (due to input pricing and delays).

Table 1: Dubai developments

Project name SDG est. dev. completion date UBSe sales completion forecast

Palazzo Versace, Business Bay CY09 CY11

Culture Village CY09 CY12

D1 Dubai, Business Bay CY10 CY12

Dubai Waterfront 1 CY11 CY13

Dubai Waterfront 2 CY13 CY15 Source: UBS estimates

Don’t forget Australia: Domestic operations should not be overlooked as by Australia pipeline – 6,369 multi- lots FY09 (on our numbers) these will still contribute 49% of earnings. Sunland spread across residential, multi-storey presently has a strong pipeline of land subdivisions (5,408 lots), residential and land subdivision housing (839 lots) and multi-storey (122 lots) projects yet to be completed or subject to approval. Sunland has benefited from its low exposure to the soft NSW residential market and has started to increase its exposure as the residential market (ex Western Sydney) begins to recover.

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Sunland Group 24 December 2007

Visibility of earnings: We are relatively conservative on our project replenishment (unidentified) assumptions in that the major growth segment, Dubai, has 100% identified revenue to FY11 and 90% in FY12 (the final year of our forecast). Domestically, given the group’s 20-year plus record, we are comfortable assuming some pipeline replenishment. The following table provides a breakdown of percentage revenue in each division from identified projects (including both under construction and subject to approval). Table 2: Visibility of revenue

(A$m) Jun-08E Jun-09E Jun-10E Jun-11E Jun-12E

Multi-storey (Aust) Revenue 277 121 165 40 55

… % identified 100% 100% 85% 0% 0%

Land subdivision (Aust) 78 83 89 96 102

… % identified 100% 100% 100% 100% 100%

Residential (Aust) 102 109 115 122 130

… % identified 100% 100% 100% 100% 22%

Commercial & Ind (Aust) 10 45 25 30 35

… % identified 100% 100% 0% 0% 0%

International developments 33 92 147 205 150

… % identified 100% 100% 100% 100% 90%

Funds Management 13 13 14 14 15

… % identified 67% 66% 0% 0% 0%

Total Revenue (excl other/eliminations) 513 463 555 507 487

Source: UBS estimates

Management: Sunland is headed up by Managing Director Sahba Abedian (a director since January 2001) in Australia; with founder Soheil Abedian (based in Dubai) the Managing Director of Sunland Group International.

Our recent visit to Dubai confirmed our view that strong, mutually beneficial relationships (particularly with joint venture partners founded or based in the region) are a key factor to success. Sunland’s relationships have to date proven worthwhile in providing access to opportunities in the UAE.

New geographic location: Management intends to decide in CY08 on its next geographic location for expansion using the Versace hotel rollout as its entry point. Possible locations are diverse and include North America, Russia, the Middle East, North Africa and Asia. We see some competitive tension between a desire to aim for a mature, Western economy versus the growth offered by emerging regions, particularly the Middle East. In effect, management has staked the company on the UAE (which we believe has been the right move as it should stay in ‘boom’ mode for at least five years). The decision as to where to next will be an important factor for investors.

EPS/DPS growth: Over FY08-13E, we forecast EPS and DPS CAGR of 11.6% pa. Management targets longer-term double digit NPAT growth (as opposed to EPS growth dependent on the timing of option exercise – See ‘Capital structure’ section on page 15). As illustrated in the following chart, relative to a mix of

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Sunland Group 24 December 2007 real estate developers and asset managers (albeit risk profiles vary), Sunland offers potentially strong future growth rates based on current estimates.

Chart 3: UBS FY 08-13E DPS growth pa Chart 4: UBS FY 08-13E EPS growth pa

12% 11.6% 12% 11.6% 10% 7.5% 10% 8% 6.2% 7.4% 8% 6% 6.4% 6.4% 4.5% 4.4% 4.0% 6% 4.7% 4% 2.6% 4.0% 2.9% 2% 4% 2% 0% 0% MFT Peet Mirvac MFT Sunland Peet LPT 300 S&P/ASX Stockland Mirvac Australand Sunland LPT 300 LPT S&P/ASX Stockland Australand

Source: UBS estimates Source: UBS estimates

Pricing metrics: We estimate that Sunland is currently trading at an FY09E P/E of 11.3x, relative to the broader market at 13.5x. Small caps are trading at c14.5x and the LPTs are trading at 16.9x.

We note our FY08E NPAT of $95m is in line with management guidance (recently reiterated at the AGM in November 2007).

With an estimated payout of 47% (Sunland is targeting 45-50%), Sunland offers a FY09E DPS yield of 4.1% (broader market at 4.5x).

Our estimated FY08 DPS of 14cps is also in line with management guidance (current FY08E DPS yield of 3.4%).

Chart 5: FY 08E DPS yield peer group comparison Chart 6: FY 08E EPS yield peer group comparison

12% 12% 10.3% 9.7% 10% 10% 7.2% 7.5% 7.3% 8% 6.8% 6.7% 6.5% 8% 6.8% 6.1% 6.0% 5.9% 5.8% 5.4% 5.4% 5.6% 5.4% 6% 5.1% 6% 4.7% 3.4% 4% 4%

2% 2%

0% 0% MFT MFT Peet Peet Trinity Trinity Devine Mirvac Mirvac Devine Becton Becton Sunland Sunland LPT 300 LPT 300 S&P/ASX S&P/ASX Stockland Stockland Australand Australand

Source: IRESS, UBS Research, consensus estimates (where no UBS coverage), Source: IRESS, UBS Research, consensus estimates (where no UBS coverage), Company reports. Prices as at close 20 Dec 07. Company reports. Prices as at close 20 Dec 07.

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Sunland Group 24 December 2007

Valuation: Our three-stage DCF derives a one-year price target of $4.95. We use a beta of 1.19 with five- to ten-year and terminal EPS growth of 3.75% and 2.5%, respectively. Our DCF derived price target is calculated using Diluted EPS given:

(1) the large number of options in place (31.5m or 9.8% of the register as at June 2007; (see ‘Capital structure’ section on page 15 for more detail); and

(2) a low payout ratio (target 45-50%; UBS estimate 47%) to fund future growth.

Our secondary SOTP approach also derives a valuation of $4.95 using a weighted company EBITDA multiple of 12.9x. For shares on issue we have used the average of shares on issue fully diluted and current shares on issue. This is premised on the fact that the options have various expiries to FY15 (although the bulk of these are due by 20 July 2009).

With a forecast implied 12-month return of 26.2%, we initiate coverage of Sunland with a Buy rating. Our detailed valuation analysis is provided on page 10.

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Sunland Group 24 December 2007 Financial forecasts EPS and DPS profile We forecast a five-year Cash EPS and DPS CAGR over FY08-13E of 11.6% pa. EPS CAGR over FY 08-13E of 11.6% pa Operating free cash flow rises strongly in line with the Dubai pipeline as it DPS CAGR over FY 08-13E of 11.6% pa comes through over 2008-12. Underpinning our growth estimates are:

(1) Operations in Dubai – Earnings contribution from this region rising from 21% in FY08E to 51% by FY09E. We remain conservative in relation to unidentified Dubai developments (causing a notable FY12E fall in NPAT of c27%). We see upside if Sunland can continue to replenish its pipeline with sizeable and financially attractive projects. EBIT/revenue margins from Dubai operations are estimated at 85% in our model (90% margin achieved in FY07) reflecting group overheads and zero tax treatment imposed by the Dubai government (compared to the 30% withholding tax applied to Australian corporate earnings); and

(2) Funds management – In FY07 Sunland successfully launched its first land fund. Sunland is targeting H208 to launch a second fund. We presently assume a January 2008 launch of a $39m land fund (i.e. of similar size to Sunland’s first fund by gross assets, with similar fees structures assumed). We have no further unidentified funds beyond this, providing some upside. Table 3: Sunland UBS financial forecasts (A$m)

EBIT 2006 2007 2008E 2009E 2010E 2011E 2012E

…Urban Land $26 $28 $23 $25 $27 $29 $31

…Housing $5 $5 $12 $13 $14 $15 $16

…Multi-storey $106 $113 $62 $27 $37 $9 $12

…Hotel Invs & Ops $1 $1 $0 $1 $1 $1 $1

…Commercial & Industrial $0 $0 $2 $7 $4 $5 $5

…Funds Management $0 $2 $8 $7 $7 $7 $8

…International incl Proj Services $0 $7 $28 $78 $125 $174 $127

…Other / Eliminations ($15) $10 ($4) ($5) ($5) ($6) ($6)

EBIT (Core) $123 $166 $131 $153 $209 $233 $194

…Growth 124% 22% 8% 27% 41% 18% -22%

NPAT $72 $88 $95 $120 $169 $200 $157

…Growth 124% 22% 8% 27% 41% 18% -22%

EPS - Normalised cps 28.9 29.7 29.8 37.7 53.2 62.8 49.2

…Growth 105% 3% 0% 27% 41% 18% -22%

EPS - Normalised (Diluted) cps 25.6 26.9 28.0 35.3 49.3 58.1 45.7

…Growth 102% 5% 4% 26% 40% 18% -21%

DPS cps 12.0 12.6 14.0 17.7 25.0 29.5 23.1

…Growth 15% 5% 11% 27% 41% 18% -22%

Source: UBS estimates

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Sunland Group 24 December 2007 Valuation and recommendation Three-stage DCF valuation on earnings of $4.95 We have valued Sunland on a three-stage DCF of diluted earnings basis and UBS three-stage DCF on earnings: have derived a fair value of $4.68. Our price target is $4.95. Fair value = $4.68 Our DCF derived price target is calculated using Diluted EPS given – Price target = $4.95 (1) the large number of Sunland options (31.5m or 9.8% of register as at June 2007; (see ‘Capital structure’ section on page 15 for more detail); and

(2) Sunland’s low payout ratio (target 45-50%; we assume 47%) to fund growth.

We have applied a five- to ten-year growth rate of 3.75% and terminal growth rate of 2.5%. Our ‘forward looking’ beta is 1.19. This has been derived in a factored manner, taking 51% of 1.33 (to reflect estimated FY09 earnings coming from Dubai) and 49% of 1.05 (for domestic operations). In terms of sensitivity, if we reduce our beta to 1.10, the price target rises to $5.20 (+5%).

We initiate coverage with a Buy rating. At $4.25, Sunland shows a c7.5% FY08E EPS yield and a c3.4% FY08E DPS yield. While the DPS yield is low (relative to broader equities at 4.1%), Sunland’s five-year CAGR from FY08- 13E is 11.6%.

Table 4: Valuation metrics

Rating Buy Price 4.25cps

Price target $4.95 Valuation $4.68

Upside to price target 16% Upside to valuation 10%

FY 08E cum-adj DPS yield 3.4%1 FY 08E EPS yield 7.5%

Valuation metrics

- Beta 1.19 - Terminal growth 2.5%

- 5-10 year growth rate 3.75% - 10yr Discount rate 11.8%

Source: UBS estimates. Priced as at 20 December 2007. Note: (1) as at 18 Dec 2007

DCF sensitivities Table 5: UBS fair value sensitivity

Change in discount rate

Change 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0%

in 5-10yr -3.0% 4.60 4.62 4.64 4.65 4.67 4.69 4.70 4.72 4.74

DPS -2.0% 4.61 4.62 4.64 4.66 4.68 4.69 4.71 4.73 4.75

growth 0.0% 4.62 4.63 4.65 4.67 4.68 4.70 4.72 4.74 4.76

Rate 2.0% 4.63 4.65 4.66 4.68 4.70 4.71 4.73 4.75 4.77

(%) 3.0% 4.63 4.65 4.67 4.68 4.70 4.72 4.74 4.75 4.77

Source: UBS estimates

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Sunland Group 24 December 2007

SOTP valuation (EBITDA multiples) $4.95 Our secondary SOTP approach also derives a valuation of $4.95 using a weighted company EBITDA multiple of 12.9x. For shares on issue we have used the average of shares on issue fully diluted and current shares on issue.

Chart 7: UBSE FY09 SOTP valuation

EBITDA Valuation: Low FY09e Mid FY09e High FY09e Earnings (Norm.) Split EBITDA EBITDA Value EBITDA Value EBITDA Value (%) $m Multiple $m Multiple $m Multiple $m

…Urban Land 16% $25.0 7.5x $188 8.4x $211 9.4x $235 …Housing 9% $13.0 8.0x $104 9.0x $117 10.0x $130 …Multi-storey 18% $27.2 10.0x $272 11.3x $306 12.5x $340 …Hotel Operations 0% $0.5 10.0x $5 11.3x $6 12.5x $6 …Commercial & Industrial 4% $6.8 6.0x $41 6.8x $46 7.5x $51 …Funds Mgmt 4% $6.5 8.5x $55 9.6x $62 10.6x $69 …International incl Proj Services 51% $78.3 13.3x $1,045 15.0x $1,176 16.7x $1,306 …Other / Eliminations -3% -$4.8 10.9x -$52 12.2x -$59 13.6x -$66 Totals/Weighted Average 100% $152.6 10.9x $1,658 13.0x $1,865 12.2x $2,072 …Less Interest bearing net debt -$215 -$215 -$215 Sum of the parts valuation $1,443 $1,650 $1,857

Shares on Issue: Shares on Issue (fully diluted) 350.1 350.1 350.1

Sum of the Parts per Share (cps - fully diluted) $4.12 $4.71 $5.30

Valuation Implied PE 10.9x 12.5x 14.1x Valuation Implied EPS Yield 9.2% 8.0% 7.1% Valuation Implied DPS Yield 4.3% 3.8% 3.3%

Sum of the Parts per Share (cps) - pre-dilution Low FY09e Mid FY09e High FY09e EBITDA Value EBITDA Value EBITDA Value Multiple $m Multiple $m Multiple $m

Shares on Issue (excluding options) 318.6 318.6 318.6

Sum of the Parts per Share (cps) $4.53 $5.18 $5.83

SOTP Valuation (Midpoint) $4.32 $4.95 $5.57

Source: UBS estimates

The table below provides an explanation on the multiples used in our valuation.

Table 6: UBS multiples

Division Multiple UBS comment

Urban Land 8.4x Small player in diverse market with long-term landbank

Housing 9.0x Niche player in high-end project home market

Multi-storey 11.3x Differentiated branding through Q1 and other projects

Hotel operations 11.3x Exclusive Versace JV offers effective market entry strategy

Commercial and industrial 6.8x New domestic division, yet to be proven

Funds management 9.6x 1st development fund successful with 2nd launch imminent

International incl proj services 15.0x EBITDA growth of 35% pa over next five years

Source: UBS estimates

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Sunland Group 24 December 2007 Group overview History One of Australia’s fastest organically growing developers: Sunland Group Limited commenced in 1983 as a ‘house and land’ developer on the Gold Coast under founder Soheil Abedian (current executive director and Managing Director of Dubai operations). It differentiated from much of its competition through its focus on modern architectural design and implementation.

Sunland listed on the ASX in 1995, with an issue share price of 10¢ (adjusted for a share split in FY00) and market capitalisation of $16.25m. In April 2005 Sunland entered the S&P/ASX 200. Today, Sunland has a market capitalisation of $1.46bn (free float c70%), with operations spread across Australia and Dubai.

Sunland’s current share price is $4.25 (up 17.3% YTD), with its DPS five-year CAGR (FY03-07E) a significant 35% pa. (We note that EPS on this basis is difficult to calculate given accounting standard changes to AIFRS during FY05, given particular impacts to timing of profit realisation from developments.) Divisions

Increasingly mixed business streams: From pure ‘house and land’ Chart 8: FY07 EBIT split by division developer when first established, Sunland now enjoys diversification across both Hotel a range of business streams and geographically in both Australia and Dubai. Proj. Serv. 1% Funds 4% Mgmt In the past two years Sunland has refocused on its core business talents. Notably, 2% Multi- in May 2007 Sunland completed the sale of its businesses Sunleisure (apartment Storey Land and leisure management business) and Sunkids (child care ownership and 72% Subdiv. 18% operation). We note that sale of these businesses was profitable for Sunland. Housing 3% Sunland has re-focused on up-market and luxury developments primarily in multi-storey and residential developments. Its growing land subdivision business Source: Sunland, UBS estimates. has been overlaid with a (still small) funds management business, in order to increase annuity-style income and smooth earnings given the timing of large development completions.

Its hotel operations (having commenced with the successful development of the Palazzo Versace, Gold Coast hotel and condominiums in 2000) are set to be expanded, leveraging its exclusive global roll-out agreement for a further 15 Palazzo Versace resorts executed with the House of Versace in FY07. Presently, a second Palazzo Versace resort is being developed in Dubai.

Australia: Sunland’s Australian business streams presently comprise:

Q Development operations: include multi-storey (apartments), residential housing and land subdivision.

Operations in these divisions were originally based in Queensland with a move into the Victorian market in January 2000, through current joint managing director Sahba Abedian. A further move into the NSW market was made in August 2003 with the Birchgrove development.

UBS 12

Sunland Group 24 December 2007

While presently operating in the NSW market, Sunland is yet to announce a marquee ‘Sunland’ branded multi-storey project in the state (similar to those such as Q1 in Queensland and Yve in Victoria).

Q Project services: including design, project and construction management.

Q Funds management: with the launch of its first land syndicate ($39m Sunland Diversified Land Fund in Australia, raising $20m of equity) in August 2006. Management has flagged the launch of a second fund in FY08 (in our forecasts).

Q Hotel ownership: the Palazzo Versace Hotel, Gold Coast Queensland.

In November 2006, Sunland announced that it had executed a Global Rollout Agreement with the House of Versace SpA for the exclusive licensing agreement to develop 15 hotels/resorts under the luxury brand of Palazzo Versace.

Chart 9: Sunland’s targeted FY10E Sunland’s Dubai business streams presently comprise: Dubai, UAE: EBIT split by geography

Q Development operations: including five projects:

(1) 80-storey residential tower known as ‘D1’ in a joint venture with EIG. Completion due 2010; Dubai Aust. 50% 50% (2) Development of the second Palazzo Versace in Dubai (in JV with EIG) comprising 213 suites and 169 luxury villas. Completion due in late 2009;

(3) First Jebel Ali Waterfront project (in JV with the Becfar Group) comprising

9,708sqm retail space, 8,965sqm commercial space and 742 apartments Source: Sunland; UBS estimates. split between serviced and residential lots. Completion due 2010;

(4) Second Jebel Ali Waterfront project (adjacent to the first Jebel Ali Waterfront project; 100% owned but likely to be developed in JV with a partner company) comprising 5,000sqm retail space comprising 1,170 apartments. Completion due 2013; and

(5) 26-storey mixed use residential tower in Culture Village (JV with the Becfar Group) comprising 191 apartments. Completion due 2010.

Q Project management: Sunland is project manager in each of the five projects noted above. Further, Emirates Sunland Group (a 50/50 JV Emirates International Holdings (EIG) and Sunland) is project managing the White Bay, Umm Al Quwain which is c50km from Dubai city.

Q Funds management: Sunland may look to expand its funds management business to Dubai in the medium term (not in our forecasts).

The geographic earnings mix: While earnings are still heavily skewed to Australia (97% in FY07), we anticipate a more balanced earnings split by region by 2010 of 50% Dubai/50% Australia by 2010 (UBS estimate) as Dubai developments complete.

UBS 13

Sunland Group 24 December 2007

Organisational structure Figure 1: Sunland Group Limited – organisation chart

BOARD OF DIRECTORS

MANAGING DIRECTOR Sahba Abedian

AUSTRALIA DUBAI

CHIEF OPERATING CHIEF OPERATING OFFICER OFFICE Mark Jewell David Brown

DESIGN / STATE GENERAL MGRS FINANCE AND GENERAL MANAGER FINANCIAL CONSTRUCTION David McMahon – QLD ACCOUNTING DESIGN AND CORPORATE SERVICES CONTROLLER PROJECT MGMT Kate Braybrook – NSW Grant Harrison DELIVERY Anne Jamieson Monica Murray SERVICES John Meyers - VIC Chief Financial Officer

SUNLAND FINANCE AND ARCHITECTURAL PROJECT MGMT & CONSTRUCTION SUNLAND DESIGN SUNLAND HOMES URBAN DEVELOPMENT SALES OFFICE MANAGEMENT CONSTRUCTIONS ACCOUNTING SERVICES DEVELOPMENT MANAGER

PROJECT DIRECTOR

Source: Sunland Note: Sunland Board of Directors include: Terry Jackman (Chairman); Soheil Abedian & Sahba Abedian (Executive Directors); John Leaver, James Packer & Ron Eames (Non Executive Directors). Senior management overview Sahba Abedian – Managing Director (Australian based): Mr Sabha Abedian is a qualified lawyer (admitted into the Supreme Court of Queensland), joining Sunland Group Limited in April 1998 as legal counsel/company secretary. In January 2000, Mr Abedian established Sunland’s Victorian operations.

Soheil Abedian – Executive Director (Managing Director of Sunland Group International, Dubai based): Mr Soheil Abedian co-founded Sunland Homes Pty Limited in 1983 to develop luxury housing projects. He has over 20 years of experience in architectural design, construction and project management in a wide range of developments. Mr Abedian is an honorary Professor at Griffith University (Business School – Gold Coast).

Grant Harrison – CFO and Company Secretary: Mr Harrison joined Sunland during 2000, following 16 years of experience in banking with Westpac, specialising in commercial, property and corporate finance transactions. Mr Harrison was appointed Chief Financial Officer in December 2004. He is also the Director of Sunland Funds Management Business.

Mr David Brown – Chief Operating Officer (Middle East): Former National Design Director for Sunland who relocated to the Middle East office in 2006 and is now COO of Dubai Operations.

Mr Mark Jewell – Chief Operating Officer (Australia): Former Executive Director of Sunland from 1997 to 2002 before leaving to pursue a career in property consultation to various development companies. Mr Jewell has returned to be COO of Australian Operations.

UBS 14

Sunland Group 24 December 2007

Capital structure Sunland has 321m of shares on issue, with a further 31.5m (9.8% of register) in options with an average excise price of $2.32 (current price $4.25). The largest holders of the 31.5m options include James Packer’s Cavalane Venture P/L (79% at a $2.50 strike price) and managing directors Sahba Abedian and Soheil Abedian (3%, at a $1.68 strike price).

Given option exercise prices, clearly Sunland’s EPS will be diluted as options are exercised. Below we include the equivalent diluted EPS if all options are exercised in FY08 (and assuming 4.5% interest received on option cash received).

Table 7: Diluted EPS (UBS estimate)

(A$m) FY08E FY09E FY10E FY11E FY12E

NPAT pre options 95 133 174 205 155

NPAT post options 98 136 177 209 158

Diluted share capital 350 350 350 350 350

EPS diluted 28.0 38.9 50.6 59.6 45.1

EPS pre dilution 29.7 41.7 54.6 64.5 48.5

Difference -5.8% -6.7% -7.3% -7.5% -7.1%

Source: UBS estimates

In terms of major shareholders, the founding Abedian family owns c17.7% of the register combined (excluding options), while interests of Cavalane Venture P/L and Continental Capital P/L (companies affiliated with non-executive directors) are 12.9% and 11.1% respectively.

Table 8: Major holders of Sunland

Name of Holding Company affiliation Position % held

Havannah Pty Limited /

Pacific Dev. Corp. Pty Ltd /

Sahba Abedian Abedian Family Executive Directors 17.70%

Cavalane Ventures Pty Ltd James Packer Non-executive Director 12.90%

Continental Venture Capital John Leaver Non-executive Director 11.12%

Source: Sunland, 2007 International Roadshow Presentation; UBS estimates. Excludes options. Capital management Sunland has a relatively conservative balance sheet with very low gearing (debt to assets of 12.6%; or net debt/assets of nil). Further, in light of the current credit market environment, Sunland is well placed with total bank loan facilities not utilised as at June 2007 of $232.5m (or 237% of current debt). Interest coverage is 2.1x.

Sunland’s NTA as at June 2007 is $2.49, excluding deferred tax assets and liabilities. Sunland currently trades at a large premium to NTA given the value of its pipeline and value attributed to its corporate businesses.

UBS 15

Sunland Group 24 December 2007

Funding for development projects in the UAE is considerably different to Australia. In Australia, a developer will typically use equity to buy the land, and then use that (along with pre-sales) as security for debt-funding the construction costs.

In the UAE, the land (similarly to Australia, worth c20% of total development Our forecasts show gearing going to costs) is typically purchased on a staged payment basis over two and a half years 31% by FY10 (which is in line or below with approximately five equal payments. This requires far less upfront equity most Australian developer peers) from the developer. The early stage construction costs are funded from equity, until c10% construction completion is reached. After that point the developer is able to access a mixture of bank debt and buyer staged payments, which in the UAE are handed over as quantity surveyors certify staged completion. This imposes a much lower equity requirement than in Australia and as at June 2007, Sunland had an estimated c$50m (c10%) of its total equity in Dubai, although we have allowed for a ramp-up in equity in our group estimates. Our forecasts show gearing going to 31% by FY10 (which is in line or below most Australian developer peers). Debt costs in the UAE are 4.25% (UAE Central Bank CD rate, in line with the US Federal Reserve rate given the US$/AED peg). Margins on developments vary widely depending on development specifics. Stock performance A consistent outperformer: Sunland has been a consistent outperformer since listing in 1995, providing a 34.9% cumulative annual compound return over the past 10 years, outperforming the S&P/ASX 200 Accumulative index +20% pa.

Despite a residential market slowdown in Australia over the past year, over the Sunland has provided a 34.9% year to 31 November 2007 Sunland provided a cumulative 30.8%. We would cumulative annual compound return attribute the substantial outperformance largely to its investment in a new over the past 10 years geography in the Middle East and the potential future roll-out of the Versace Hotel brand. Over this period, Sunland outperformed the S&P/ASX 200 Accumulative Index by 7.1% and the UBS RE Managers and Developers Index by 11.2%.

Chart 10: Sunland relative performance (accumulative return)

60.0%

50.0% 40.0%

30.0%

20.0%

10.0%

0.0%

-10.0% One month Three mths Six Mths One year Three years Five years

SDG UBS REM&D 300 S&P/ASX LPT 300 S&P/ASX 300

Source: UBS estimates, 31 November 2007. Note: UBS REM&D comprises LLC, ALZ, FKP, SDG and BEC (mkt cap weighted). Three- and five-year returns are Annual Compound Returns.

UBS 16

Sunland Group 24 December 2007 Recent results and growth

FY07 – a period of consolidation: Operating NPAT in FY07 was $88.1m (versus guidance of $85m), a rise of 22% y/y. EPS was 29.7¢ps (+2.8% on pcp), while DPS was in line with guidance at 13.5¢ps (+8.0% on pcp). The payout ratio for FY07 was 45% (versus 43% pcp). FY07 was a period of consolidation for core earning streams to focus on the offshore opportunity as well as taking advantage of strong markets in Australia. This included:

Q The establishment of a funds management division with the August 2006 launch of the Sunland Diversified Land Fund (equity $19.9m);

Q Further diversification into the non-residential development sector with the pre-sale of the new Virgin Blue Headquarters in Bowen Hills, Brisbane for $61m (12,400sqm NLA due for completion by August 2008); and

Q Increased contribution from non-development income through project services. Further, the sale of Sunkids and Sunleisure in May 2007 (c$21m profit over book) pointed to Sunland’s continual commitment to focus on its core operations.

FY08 – guidance of +8% earnings growth: Management has provided Management targeting $95m NPAT guidance of +8% earnings growth in FY08 to $95m NPAT (29.8¢ps pre- in FY08 dilution) – this was recently reaffirmed at the last AGM on 28 November 2007. This growth is premised on an increased project management and services income from Dubai projects, fees arising from the current A$39m Sunland Diversified Land Fund and the launch of new wholesale fund during FY08. In the longer term, management has a stated goal of double digit NPAT growth (EPS growth dependant on the timing of options exercise).

DPS has grown at 35% pa five-year (FY03-FY07) CAGR: Management is DPS payout ratio target of 45-50% committed to continued growth in DPS (no future growth guidance provided), with a DPS payout ratio of 45-50%. We estimate a five-year DPS FY08-13E CAGR of 10.6%.

Chart 11: Historical DPS growth and FY08E (cps)

14

35% 5-year CAGR (FY03- 7.00 12 6.75

FY07a) 6.25 10

8 5.00

6 7.00 6.75 6.25 4 6.00 5.00 2 3.00 0 2003 2004 2005 2006 2007 2008e INTERIM FINAL

Source: Sunland, UBS estimates

UBS 17

Sunland Group 24 December 2007

Table 9: FY07 results summary

(A$m) FY06 FY07 % ch y/y Multi-storey EBIT 103.3 113.3 9.6% Land subdivision EBIT 25.6 27.9 9.1% Project services EBIT 2.5 6.6 260.5% Residential housing EBIT 4.9 4.8 -1.0% Funds management EBIT 0.0 2.5 100.0% Hotel investments and operations EBIT 1.4 1.3 -12.4% Other 0.9 0.2 -83.4% Total EBIT 138.6 156.4 12.8% Finance costs -32.4 -46.3 42.9% Gain/(loss) on sale of PPE 4.1 -0.1 -103.4% Profit on sale of associate 0.0 9.0 100.0% Profit on sale of subsidiary 7.0 22.6 321.9% Share of net profit from associate 0.0 0.6 100.0% Unallocated corporate expenses -14.0 -18.0 28.5% Profit before tax 103.3 124.1 20.1% Tax -31.0 -36.0 16.2% NPAT 72.3 88.1 +21.8% EPS (cps) 28.9 29.7 +2.6% DPS (cps) 12.5 13.5 +8.0%

Source: Sunland, UBS estimates

Chart 12: FY07 EBIT split by division Chart 13: FY07 EBIT/revenue margin split by division

70% 65% Hotel Project 1% Services 60% 50% 4% 37% Funds Mgmt 40% 31% 26% 25% 2% 30% 20% Multi-Storey Land 8% 7% 72% Subdivision 10% 18% 0% Housing 3% Multi-Storey Funds Mgmt Funds Resid. Housing Resid. Project Services Total SDGgroup Urban Dev. Land Op's. & Inv. Hotel Source: Sunland; UBS estimates Source: Sunland; UBS estimates

UBS 18

Sunland Group 24 December 2007 Australian operations Multi-storey/Apartments (46% of FY08E EBIT) Key differentiator is the ‘Sunland’ brand: Sunland’s apartment division is active in Australia (south-east Queensland, Melbourne and Sydney), as well as Dubai.

The group has a distinctive brand with marquee projects such as the 80-storey Q1 tower (Australia’s tallest residential tower) and Circle on Cavill, both on the Gold Coast, and Yve in Melbourne. Sunland is also presently developing the 80- storey D1 apartment tower in Dubai (a sister project to Q1).

Sunland is currently seeking to locate a site for the development of a marquee product in Sydney (current pipeline only comprises a few small Sydney projects).

Current development projects: There are currently only two apartment projects being developed in Australia; namely, Balencea, Victoria (85 lots), and 36 Louisa Road, Birchgrove, NSW (6 lots). These should complete by 2009 and 2008, respectively. There are a further two projects subject to approval, including Marine Parade, Labrador, Queensland (19 lots), and Prince St, Cronulla, NSW (12 lots).

Table 10: Australian multi-storey projects (completed and under construction)

% of total Unsettled lots Total project Project name Total project lots Unsettled lots UBS comment lots unsettled (A$m) end value (A$m)

Projects completed

Q1 Completed in Sept 525 6 1% $9.8 $408.2 Surfers Paradise, Qld 2007

Circle on Cavill 644 144 22% $116.9 $455.1 Surfers Paradise, Qld

Avalon UBSe 95% sold by 170 62 36% $36.5 $104.1 Surfers Paradise, Qld FY08 end

Yve 210 1 0% $1.9 $176.4 St Kilda Rd, Vic

95 Cammeray Road UBSe both lots sold 2 0 0% $0.0 $9.0 Cammeray, NSW in FY08

Total 1,551 213 $165.1 $1,152.8

Projects under construction /

subject to approval

Balencea Completion due 85 85 n.a $106.0 $106.0 St Kilda Rd, Vic ¹ CY09

36 Louisa Road Completion due 6 6 n.a $45.6 $45.6 Birchgrove, NSW ¹ CY08

Marine Parade Completion due 19 19 n.a $40.8 $40.8 Labrador, Qld ² CY10

Prince Street Completion due 12 12 n.a $41.3 $41.3 Cronulla, NSW ² CY10

Total 122 122 $233.7 $233.7

Source: Sunland, UBS estimates. Notes: (1) Under construction; (2) Subject to approval

UBS 19

Sunland Group 24 December 2007

UBS estimates: We model each project separately using an average selling price (not escalated in future years) and unidentified pipeline to replenish projects completing in future years. We see our unidentified development pipeline as relatively conservative, with potential upside if large projects are secured.

Table 11: UBS estimates – multi-storey, Australia

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Project revenue

...Circle on Cavill, Gold Coast, Qld 93 51 8 - -

...Avalon, Gold Coast, Qld 97 9 - - -

...Q1, Gold Coast, Qld 33 5 - - -

...Yve, Melbourne, Vic 4 - - - -

…Cammeray, NSW 9 -

...Ballencea, Melbourne, Vic - 56 50 - -

…Birchgrove, NSW 42 - -

…Marine Parade, Qld - - 41 - -

…Cronulla, NSW - - 41 - -

...Unidentified projects - 15 25 40 55

Total revenue 430 277 136 165 40 55

% of group revenue 68% 53% 27% 29% 8% 11%

EBIT 113 61 30.0 36 9 12

% of group EBIT 68% 47% 18% 17% 4% 6%

EBIT/revenue margin 26% 22% 22% 22% 22% 22%

Source: UBS estimates Land subdivision (17% of FY08E EBIT) Over 5,000 lots controlled: Sunland currently has a pipeline of 5,005 lots across Queensland, Victoria and NSW. Of these, 2,004 lots (35%) are owned by the Sunland Diversified Land Fund.

Similar to other developers (Stockland, Delfin Lend Lease, etc), Sunland seeks to structure its acquisitions to manage capital efficiency, which may include:

Q Acquisition of land on deferred terms;

Q Acquisitions that are subject to re-zoning; and

Q Buying long options on land that is likely to be re-zoned for residential use.

UBS 20

Sunland Group 24 December 2007

Chart 14: Development lots controlled

90,000 84,945 75,000 60,000 57,000 45,000 33,800 29,016 30,000 14,809 13,653 12,000 10,241 8,591 8,526 15,000 5,005 0 AVJ ALZ BLP FKP Peet SDG MXG Mirvac Investa Delfin LL Stockland Source: Various company sources, UBS estimates.

Management is looking to grow this division with more acquisitions in the near term to provide further products for new funds. Its first fund, Sunland Diversified Land Fund, is presently tracking ahead of PDS forecasts, as detailed in the ‘Funds management’ section of this report.

Table 12: Land subdivision

Value of % of total unsettled lots Total project Project name Total project lots Unsettled lots lots unsettled (A$m) end value (A$m) UBS comment

Clover Hill, Sold into SDLF; completion 138 7 5% $1.7 $34.4 Mudgeeraba, Qld due Dec 2008

Allure 33 9 27% $4.4 $11.5 Coolum, Qld

Lilyvale 42 0 0% $0.0 $5.3 Caboolture, Qld

TOTAL 213 16 $6.1 $51.2

Projects under const. / subject to approval

Bushland Beach Sold into SDLF; completion 1833 1375 75% $213.6 $268.6 Townsville, Qld due Dec 2008

Highfields 106 90 85% $12.5 $14.8 Toowoomba, Qld

Bluestone Green 1049 962 92% $96.7 $105.5 Werribee, Vic

The Province 273 273 100% $56.6 $56.6 Highton, Vic

Chancellor 399 399 100% $122.7 $122.7 Bundoora, Vic

Palms Estate 119 78 66% $17.8 $27.3 Forster, NSW

Peregian, 50% JV with Bundaberg 1400 1400 100% $548.7 $548.7 Sunshine Coast, Qld Sugar; 10-15 year project

Tahmoor 229 229 100% $85.4 $85.4 Tahmoor, NSW1

TOTAL 5408 4806 $1,154 $1,229.6

Source: Sunland, UBS estimates. All 100% owned except for Peregian, a 50/50 JV with original owner Bundaberg Sugar

UBS 21

Sunland Group 24 December 2007

UBS estimates: Based on current projects, we have estimated that the average selling price of lots sold in FY08 is $162,000. Our modelled average price growth for land sold is 3.0% pa over the next five years, with the average lots sold at 5.5% average growth pa. There exists upside to our revenue estimates in this division coming from: (1) super lot sales into land funds (with Sunland looking to establish future land funds following positive track record of Sunland Diversified Land Fund, not in our forecasts); and (2) the Peregian Springs (1,400 lots), which has seen strong demand, having 19 sales/month, and will underpin lot sales for 10-15 years in this division once it commences (likely post CY11). Table 13: UBS estimates – land subdivision

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Revenue 76 78 83 89 96 102

% of group revenue 12% 15% 17% 16% 18% 20%

EBIT 27.9 23.3 25.0 26.8 28.7 30.6

% of group EBIT 17% 17% 15% 13% 12% 17%

EBIT/revenue margin 37% 30% 30% 30% 30% 30%

Source: UBS estimates Residential housing (9% of FY08E EBIT) Sunland originally commenced operations in 1983 developing luxury homes in Queensland. At present, this division comprises only 6% of FY08E EBIT with projects spread across Queensland, NSW and Victoria.

With c170 staff spread across these states, Sunland has all the in-house capabilities to execute projects from design to completion. Given the lower margins that residential housing provides (7% in FY07, impacted by a slowdown in the Australian residential market, particularly investor demand), we do not expect an increased investment in this division. With continued measured growth in higher-margin businesses, including land subdivision and funds management, we anticipate management will continue to concentrate on growth in these businesses.

UBS 22

Sunland Group 24 December 2007

Table 14: Residential housing

% of total lots Value of Total project Project name Lots Unsettled lots unsettled unsettled lots (A$m) end value (A$m) Completion due

Jefferson 64 12 19% $4.3 $22.2 Coomera, Qld

Greenwood Pocket 49 0 0% $0.0 $18.4 Fitzgibbon, Qld

Northbridge Residences 22 0 0% $0.0 $8.9 Varsity Lakes, Qld

Jardin Residences 62 0 0% $0.0 $25.7 Sanctuary Lakes, Vic

Casa 19 0 0% $0.0 $7.5 Acacia Gardens, NSW

TOTAL 216 12 $4.3 $82.7

Projects under construction / subject to approval

Greenvue 44 44 100% $15.7 $15.7 CY08 Pacific Pines, Qld

Arbour Residences 179 179 100% $53.8 $53.8 CY08 Burnside, Vic

The Collection 8 6 75% $15.1 $19.2 CY08 Prince Henry, NSW

Castel 51 34 67% $22.9 $33.8 CY08 Castle Hill, NSW

Emery 79 79 100% $44.5 $44.5 CY08 Narwee, NSW

Elysia 58 58 100% $24.9 $24.9 CY08 Penrith, NSW

The Parc 187 187 100% $85.5 $85.5 CY09 Tugun, Qld

Banksia Lakes 123 123 100% $120.7 $120.7 CY09 Sanctuary Cove, Qld

Thomas Street 35 35 100% $25.9 $25.9 CY09 Picnic Point, NSW¹

Bourton Road 74 74 100% $28.9 $28.9 CY10 Merrimac, Qld¹

TOTAL 838 819 $437.9 $452.9

Source: Sunland, UBS estimates. Note: (1) Subject to approval

Table 15: UBS estimates – residential housing

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Revenue 73 101 107 114 121 128

% of group revenue 12% 20% 23% 21% 29% 29%

EBIT 4.8 11.8 12.5 13.2 14.0 14.9

% of group EBIT 3% 9% 8% 5% 12% 13%

EBIT/revenue margin 7% 12% 12% 12% 12% 12%

Source: UBS estimates

UBS 23

Sunland Group 24 December 2007

Commercial/Industrial development (1% of FY08E EBIT) In leveraging its significant development experience, Sunland has recently expanded its business to include development of commercial and industrial assets. Current projects include:

Q The purpose-built Virgin Blue Limited (pre-sold to Virgin) airline headquarters at Bowen Hills, in Brisbane’s inner north ($61.1m end value). This 12,400 sq m development is due for completion in March 2008 and represents Sunland’s first stand-alone commercial project (Sunland has previously developed mixed-use projects such as Aria in Broadbeach and Circle on Cavill).

Q A smaller industrial project in Everett St, Townsville, Queensland (53 lots, $18.4m end value). This is currently being marketed for pre-sale with development expected to complete in 2008. Future projects flagged include a new industrial development in Townsville’s city region and a commercial and shopping centre complex in Bushland Beach, north of Townsville.

We do not see Sunland having any competitive advantage over more established developers in this sector. Therefore, we anticipate that Sunland will continue to take a measured approach to growth in this division, with pre-sales, such as the Virgin Blue headquarters, a feature. While markets (domestic supply and demand) remain healthy, Sunland should achieve reasonable performance in this space.

Table 16: UBS estimates – commercial/industrial development

Project end Unsettled value Project name Lots value (A$m) (A$m) UBS comment

Virgin HQ, Bowen Hills, Qld 1 $61.1 $61.1 Completion expected March 2008

Everett Townsville, Qld 53 $18.4 $18.4 Completion expected 2008

Total 54 $79.5 $79.5

Source: Sunland, UBS estimates.

UBS estimates: Aside from modelling these two projects, we have included some unidentified revenue in FY10 ($25m), FY11 ($50m) and FY12 ($50m), given Sunland’s intention to continue to grow this division. We shall revise our assumptions (and potentially bring forward our unidentified revenue), as projects are announced.

Table 17: UBS estimates – commercial/industrial development

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Revenue 0 10 45 25 30 35

% of group revenue 0% 2% 9% 4% 6% 7%

EBIT 0.0 1.5 6.8 3.8 4.5 5.3

% of group EBIT 0% 1% 4% 2% 2% 3%

EBIT/revenue margin n.a 15% 15% 15% 15% 15%

Source: UBS estimates

UBS 24

Sunland Group 24 December 2007

Funds management (6% of FY08E EBIT) First fund successfully launched in September 2006: In September First land fund launched… 2006 Sunland, through its wholly-owned subsidiary, Sunland Funds Management (SFM), announced the successful launch of its first land fund – a …second fund getting very close $39m Sunland Diversified Land Fund (the ‘Fund’). Details of the Fund are as follows:

Q The initial portfolio of the Fund comprises three residential land subdivision holdings – Bushland Beach, Townsville (Queensland), Arbour on the Park, Burnside (Victoria) and Clover Hill, Mudgeeraba on the Gold Coast (Queensland).

Q The fund aims to generate returns from the development and sale of lots in the project, with a forecast IRR of 20% over the term of the project, forecast to complete in March 2009.

Q A total $19.9m of equity was raised, with the National Australia Bank providing debt funding (may be drawn to a maximum amount of 60% of the LVR).

Q Sunland made a 15% cornerstone investment.

Q The fees derived from Sunland include:

(1) RE fees comprising: (i) establishment fee of 5.1% of the purchase price, (ii) management fee of 1.794% of the gross sale price received by the Fund, and (iii) a performance fee if the fund achieves returns in excess of the 20% IRR target;

(2) Development management fees at 3.5% of all infrastructure works; and

(3) Sales and marketing management fees at 3% of the gross sale price.

The fund is presently performing well above PDS targets. As at June 2007, the fund achieved 380 sales totaling $55.7m, with 68.1% of the total number of available lots sold. Investors in this fund have received a capital distribution of 40cps (c2x forecast dividend of 21c).

Second fund expected in 2H FY08: Sunland is currently finalising plans for a second fund (this time a wholesale fund), which is scheduled for release in 2H FY08. We presently assume a January 2008 launch of a $39m land fund (ie, of similar size to Sunland’s first fund, with similar fee structures assumed). We see upside to our forecasts if a larger fund is launched (in our view, it could be c2x the size of the first fund).

Table 18: UBS estimates – funds management

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Revenue 4 13 13 14 14 15

% of group revenue 1% 2% 3% 2% 3% 3%

EBIT 2.5 7.7 6.5 6.8 7.2 7.5

% of group EBIT 1% 6% 4% 3% 3% 4%

EBIT/Revenue Margin 65% 60% 50% 50% 50% 50%

Source: UBS estimates

UBS 25

Sunland Group 24 December 2007

Hotel investments and operations (1% of FY08E EBIT) Sunland’s hotel operations are based on Palazzo Versace hotels where it presently owns a 51% share of the Versace Hotel Gold Coast, is developing a second Versace resort in Dubai, and has an exclusive agreement with the House of Versace to roll out 15 of these resorts globally.

The concept is based on Sunland developing both a branded Versace hotel and branded villas on each site. The villas are then each sold for a profit which covers Sunland’s cost of developing the hotel (ie, leaving Sunland with a hotel at no cost). For the House of Versace, these resorts are fitted out with authentic Versace goods, meaning they sell a large bulk of goods in each resort (estimated at $50m for the Gold Coast resort). This provides Versace with an additional (and very profitable) selling outlet for its product. Other luxury branded resorts, such as Armani and Louis Vuitton, have since followed this model.

Palazzo Versace exclusive agreement: Sunland has an exclusive agreement with the House of Versace (Versace) to develop Palazzo Versace resorts around the world, following the success of the first Versace resort developed on the Gold Coast and completed in September 2000.

Sunland intends to utilise its exclusive rights to roll out Palazzo Versace resorts An exclusive agreement with the House and has indicated that it hopes to launch a new Palazzo Versace development of Versace every 18 months, with a view to launching a total of 15 resorts. Potential locations for the future rollout flagged by management include North America and Asia.

Under the agreement with Versace, Sunland is responsible for the development and financing of the projects, while Versace is responsible for the interior design and fitout with Sunland paying Versace a royalty for use of its trademark (this amount remains undisclosed).

Palazzo Versace, Gold Coast (51% ownership): Versace, Gold Coast, comprises 205 six-star rooms and 72 condominiums, with the latter being pre- sold during the development stage.

As part of the agreed joint venture formed with Emirates International Group (discussed in further detail in the following sub-section), a 49% share (A$85m) of Palazzo Versace, Gold Coast, was sold to Emirates International Group in August 2005.

Palazzo Versace, Dubai (50% ownership): In December 2004, Sunland announced that it had entered into a 50% joint venture with Emirates Investment Group (EIG), known as Emirates Sunland Group (ESG), to develop the second Palazzo Versace hotel and condominiums in the Arabian Bays, Dubai.

Details of the project are as follows:

Q Sunland has project management rights and responsibility for delivery of the project, while EIG will fund the project. Profits from the project will be shared 50/50.

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Sunland Group 24 December 2007

Q Project comprises 213 suites and 169 luxury villas (end value of the project is estimated at A$854.9m), with the villas to be pre-sold prior to completion. At present 75% of Versace condos have been pre-sold, reducing risk.

Q Development of the project commenced in early 2006 with completion At present 75% of Versace Hotel anticipated in late 2009. condos have been pre-sold

Q Construction will be undertaken by Arabtec (on a cost-plus contract arrangement), the second largest construction group in the UAE. Arabtec is listed on the UAE stock exchange (market cap over US$1bn), with previous developments including Burj Al Arab and the extension to the Dubai International Airport. As part of their agreement, Arabtec will also construct Sunland’s D1 development (discussed in more detail in the International operations section of this report).

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Sunland Group 24 December 2007 International operations (21% of FY08E EBIT) Overview Sunland presently has 3,014 multi-storey lots across five projects in its Dubai pipeline.

The expansion into Dubai was first announced in December 2004 when Sunland Major Dubai expansion with 3,014 multi- entered into a joint venture with Emirates Investment Group (EIG) to construct storey lots across five projects in the resorts, and residential and commercial projects in the Gulf region. EIG is the pipeline company associated with Sheikh Tariq bin Faisal Al Qassimi – a member of the ruling family of Sharjah, which is one of the emirates in the UAE, and chairman of the Economic Development Board in Sharjah.

Since 2004, Sunland has signed further joint ventures and improved high-profile relations. Its presence and commitment to the region as the next phase in growth is clear, with Mr Soheil Abedian, founder and joint managing director, moving to the region to overlook operations. Mr Abedian is managing director of the EIG. There is presently a team of around 57 Sunland staff based in Dubai, with this rapidly expanding as the business grows. Sunland’s JV partners in respective projects employ the majority of sub-contractors (UAE and offshore sourced) engaged on the projects. Development operations Development operations comprise five projects:

(1) D1 (50% ownership): 80-storey residential tower in a joint venture with EIG. Completion is due in 2010;

(2) Palazzo Versace, Dubai (50% ownership): 213 suites and 169 luxury villas in a joint venture with EIG. Completion is due in June 2009. (Further details provided in the previous section entitled ‘Hotel investments and operations’.)

(3) First Jebel Ali Waterfront project (50% ownership): comprising 10,000 sq m retail space, 10,500 sq m commercial space, 300 luxury apartments and 330 serviced apartments. The development is a joint venture with the Becfar Group. Completion is due in stages from early 2011;

(4) Second Jebel Ali Waterfront project (100% ownership): adjacent to the first Jebel Ali Waterfront project comprising 5,000 sq m retail space, twin residential towers and serviced apartments. Completion is due in 2013; and

(5) Culture Village (50% ownership): 26-storey mixed-use residential tower, also in a joint venture with the Becfar Group. Completion is due in early 2009.

In Table 19 we provide additional detail on each of these projects.

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Sunland Group 24 December 2007

Project management Sunland is looking to increasingly utilise its project management skills in Dubai by undertaking the project management role in each of the developments noted above. This provides Sunland with an additional source of revenue on each project (project management, design and service management fees) and an ability to bring its development skills ‘to the table’ in its joint venture relationships.

In addition to the project management of current projects where it has invested its own capital, Sunland (via its JV with EIG) is also project manager of a large community masterplan project in White Bay.

White Bay community masterplan project: Emirates Sunland Group is project managing the cA$4bn White Bay, Umm Al Quwain masterplanned community project (announced May 2006). It has no equity participation in the project. The project comprises approximately 10,000 dwellings (across 20 high- rise and medium-rise developments) and three hotels. The agreement is with Al Murjan Real Estate (LLC), a company incorporated with the emirate of Sharjah. Completion is scheduled for the end of 2011.

Under the terms of the agreement, a project management fee of 2% of total development cost will be paid to Emirates Sunland. We presently estimate a net realisation for the project of A$4bn and 40% margin achieved, with a project duration of eight years from the start of FY09. We note Al Murjan Real Estate is responsible for the reimbursement of all costs associated with the project management activities carried out by the JV. Funds management Sunland is looking to expend its funds management business to Dubai in the Sunland is embarking on expanding its medium term. We presently do not assume any funds management income from funds management business into Dubai the region in our forecasts (given no track record and unproven distribution channels for Sunland).

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Sunland Group 24 December 2007 43% of total value pre-sold (SDG 43% Feb 2007) announcement; 2,300 sq m site acquired for A$32m in Apr 2007 1.6ha site acquired for A$80m in Oct 2007 (purchase price paid over three years) 3.5ha site acquired for A$107m in price paid Feb 2007 (purchase over two years) c$577.3 c$165.7 c$941.1 c$854.9 c$854.9 c$1,000.0 Project end value, end value, Project (A$m) SDG share UBS comment - Construction commenced 2H06 - Completion due 2010 - Construction to commence 1H'CY09 - Completion early 2009 - Construction to commence in 2H'CY08 - Completion in 2013 - Construction to commence 1H08 - Completion early 2011 - Construction commenced 1H06 - Completion due 2009 ponsibilities Est. completion date - Joint Venture development with Becfar Group (sold 50% interest for A$33m) - Sunland responsible for design, project mgmt, construction & sales - 50% Sunland with - 50% COST PLUS construction agreement signed with Arabtec (largest construction group in UAE) - Joint Venture with Becfar Group - Sunland responsible for design, project mgmt, construction & sales Sunland 100% - 50/50 joint venture development with EIG - Sunland responsible for design, project mgmt, construction & sales on Joint ventures / Sunland res Mixed use project: 10,000 sq m retail space, 10,500 sq m commercial space, 300 luxury apartments & 330 serviced Residential project: 80 stories with 528 apartments Mixed use project: 26 stories Mixed use project: 5,000 sq m retail, twin residential towers, and serviced apartments Hotel resort project: 169 condominiums & 213 suites Dubai Waterfront 1 Project name D1 Dubai, Business Bay Project descripti Business Bay Palazzo Versace, Culture Village Dubai Waterfront 2 Table 19: Dubai projects Dubai Table 19: Source: Sunland

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Sunland Group 24 December 2007 UAE and Dubai overview Figure 2: United Arab Emirates

Source: Google Maps Region overview (UAE)

Q The significant growth in the Middle East has been underpinned by oil and gas wealth accumulation, with crude oil price currently cUS$90/barrel (having not dipped below US$50/barrel in the past two years). The estimated cost of extracting oil is cUS$20/barrel.

Q Overall, the six nations that make up the Gulf Cooperation Council (GCC) – including Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain and Oman – have experienced a strong 7.5% economic growth in CY06 (above the 3.5% average for 1990-2002).

Chart 15: Economic growth index with 1995 taken as base year

Source: IMF

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Chart 16: Economic growth index for major economies based on 2006

Source: Global Insight

Q Over the past few years there has been a significant shift in focus within the GCC to ensure that the wealth and liquidity created by strong commodity prices are adequately utilised to ensure strong and sustainable economic growth in the region long term. This is particularly important given the limitation of oil reserves (for example, these are estimated to run out in approximately eight years in Dubai) and/or a potential downturn in commodity prices.

Q These factors have led to an increased focus on government-led investments within the region undertaken across the infrastructure, tourism and leisure, real estate and industrial sectors. For example, in Dubai these include the Dubai Metro, Dubai International Airport expansion, Burj Dubai and Dubailand (further detail provided in ‘Dubai overview’ section). Overall, cUS$1,000bn in construction projects has been announced in the GCC (between 2005 and 2007), with 43% of this in the UAE.

Chart 17: Construction projects announced in GCC region (projects)

700 600 600 500

400 323 300 246

200 136

100 48 34 0 UAE Saudi Arabia Kuwait Qatar Oman Bahrain

Source: MEED

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Sunland Group 24 December 2007

Q This has also led to an increase in offshore investment with the World Investment Report (2006) noting a 250% y/y increase in global investments by GCC nations in 2005 to US$14.1bn. The IMF economic outlook notes that in 2006 the real non-oil GDP grew by 8% compared to real oil GDP at 1.5%.

Q Strong population growth has also underpinned growth in the region. Future growth will benefit from continued strong growth rates, with the IMF forecasting GCC population to nearly double by 2050 to 71.5m people. Many of these people will be expatriates, with a large number employed in the development sector (CIA World Factbook estimates c80% of the UAE population of 4.5m are expatriates).

Q Continued political and economic reforms are making the GCC region increasingly attractive for foreign investors. For the UAE particularly, the World Investment Report (2006) notes that it received cUS$12bn in foreign direct investment in 2005, up 40% y/y.

Table 20: Economic overview

GCC UAE

Population 36.5 million 4.5 million

Population growth rate 2.83% 4.00%

GDP US$592.8 billion US$168 billion

GDP real growth rate 7.5% 10.2%

Labour force 13 million 2.968 million

Inflation rate 4.77% 7.50%

Oil production 16.15 million bbl/day 2.54 million /bbl/day

Oil consumption 2.75 million bbl/day 400,000 bbl/day

Oil export 13.4 million bbl/day 2.5 billion bbl/day

Oil - proved reserves 477 billion bbl 97.8 billion bbl

Natural gas production 187.8 billion m3 46.29 billion m3

Natural gas consumption 147.3 billion m3 40.31 billion m3

Natural gas export 40.5 billion m3 7.18 billlion m3

Current account balance US$193.25 billion US$26.89 billion

Exports US$468 billion US$137.1 billion

Imports US$152 billion US$88.89 billion

Source: CIA World Fact book and IIF (2006)

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Dubai Figure 3: Dubai

Source: Google Maps

Overview

Q Dubai is one of the seven emirates making up the UAE. While each of the emirates tends to operate autonomously, the UAE is governed by a Supreme Council of Rulers comprising seven emirs, who in turn appoint a prime minister and the cabinet. Since 1833, Dubai has been ruled by the Al Maktoum dynasty, with the city’s current Prime Minister and Vice President of Dubai being Mohommad bin Rishad Al Maktoum.

Q According to the Dubai Tourism & Commerce Marketing Department (2006), it is estimated that only c5% of Dubai’s cUS$46bn economy was sourced from crude oil. Non-oil sources of revenue, including predominantly real estate, banking and tourism sectors, underpin the economy.

Q The Dubai government continues to make significant investments in the infrastructure and development. For example, the Dubai Metro is the first metro project in the city and has an expected cost of US$4.2bn for the first phase (www.dubaimetro.info). The Metro will look to alleviate the present traffic congestion in the city and, in turn, continue to draw tourists. The Department of Civil Aviation has committed US$4.1bn to expand the Dubai International Airport, with capacity to increase passenger traffic from 21.7m people in 2004 to 70m by 2016.

Land ownership and the mortgage market

Q In March 2006 the Dubai government passed legislation allowing foreigners freehold ownership (and 99-year leases) of land and property in certain designated areas. Each of Sunland’s developments falls within this designated area, allowing foreigners to acquire lots in its respective projects.

Q It is expected that there will be further development of property ownership and regulation legislation in this region as the residential market continues to mature (eg, clearly defined inheritance laws). This will instill further consumer confidence, particularly amongst foreigners, in making

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Sunland Group 24 December 2007

acquisitions in Dubai. We note that there has been a newly established Real Estate Regulatory Authority (RERA).

Q With strength in the real estate market there is an increasing number of participants in the mortgage market. It is estimated that more than 12 commercial banks presently offer fixed, floating and adjustable mortgages. The estimated average LVR is c70%, with mortgagees largely mid-income expatriates.

Q There exists no formal regulatory body that governs the administration of mortgages. This may cause some risk in the event of slowing economic growth resulting in a rise in defaults (note that with rental yields currently exceeding mortgage rates, defaults are low).

Population growth underpinning demand

Q Total area is 3,885 sq km, with a population of 1.4m in 2006, comprising 75% males and 25% females. It is estimated that c55% of the population is aged 16-35 years. (Source: Government of Dubai, Department of Tourism and Marketing).

Q It is estimated that the population will grow to c1.9m by 2010, implying a five-year (CY06-10E) CAGR of 6.3%. This compares to a CY00-05 CAGR of 8.6%. This equates to additional demand for residential units in the range of 40,000-50,000 units. (Source: EFG Hermes)

Q Expatriates make up c80% of Dubai’s population. Future growth in Dubai’s population is to be underpinned by the continual influx of these expatriates. It is estimated that 30% of the estimated expatriate population entering Dubai will have the means to acquire residential units. This is based on the expectation that c30% will be earning AED10,000+ (cUS$2700) per month, which is generally the minimum requirement by lenders.

Q Analysis from Prime Group (2007), the corresponding addressable market size for demand is 31,800 residential lots in CY07E, 33,900 in CY08E and 36,300 in CY09E. This is slightly conservative relative to EFG Hermes’ forecast of 40,000 to 50,000 in demand for lots each year.

Table 21: Prime Group demand forecasts for residential lots

2006 2007F 2008F 2009F

Population 1,509,000 1,615,000 1,728,000 1,849,000

Change in population 106,000 113,000 121,000

Addressable market (%) 30% 30% 30%

Addressable market share 31,800 33,900 36,300

Source: Prime Group (2007) estimates

Q Clearly, the main risk on the demand side is a slowdown in Dubai (or the broader UAE’s) economic growth, which in turn will cause a slowdown in expatriates entering the region (or to cause some to leave). Further, adverse events arising from political risk could also cause business activity to slow.

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Sunland Group 24 December 2007

Supply

Q In the past three years, demand has significantly outpaced supply causing significant increases in both selling prices (c18-50% in 2006) and rentals (c30%+ in 2006).

Q Large-scale developments in the region are being undertaken to balance the demand/supply mismatch. The largest developers in the region include Nakheel (52% of total estimated 2007 lot deliveries), Emaar Properties (c18%) and Dubai Properties (c7%), with other smaller domestic and international players, such as Sunland, also prominent in the region (‘others’<25%). (Source: EFG Hermes (Dec 2006)

Q The table below represents Prime Emirates’ expectations for delivery over the CY07-09 period, based on announced completion dates. A premium is applied for the smaller developments not included in the table.

Table 22: Planned roll-out schedule of residential units

2007F 2008F 2009F

Dubai Marina 9,000 8,667 8,667

Jumeirah Lake Towers 4,000 4,000 4,000

International City 10,000 10,000 -

City of Arabia - 10,000 -

Dubai Festival City 2,500 2,500 2,500

Discovery Gardens 6,000 11,000 9,000

Palm Jumeirah 3,000 2,900 2,900

Arabian Ranches 1,000 1,000 -

Views 1,066 1,066 1,066

Burj Dubai Downtown 1,800 4,525 4,525

Mohammad Bin Rashid Housing Program - 2,000 2,000

Other 3,102 10,552 17,752

Total 41,468 68,210 52,410

Premium 5.00% 10.00% 15.00%

Total Planned Roll-Out 43,541 75,031 60,272

Source: Prime Group (2007) estimates

Q Based on the above analysis, it is clear that if we assume no delays in project delivery, the supply of residential lots is forecast to significantly outpace demand in 2008 and 2009.

Potential future oversupply?

Q Future year forecasts on the state of the Dubai residential market varies amongst researchers given the diversion in estimated population growth, economic growth and (most critically) project delays given labour constraints.

Prime Group sees project delays alleviating the forecast supply/demand imbalance in 2008. It notes: “We expect the problem of delays to persist in the foreseeable future due to construction and utility capacity related issues, implying that actual delivery timelines will continue to lag announced roll-

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out schedules. This in turn should go a long way in ensuring that a sizeable oversupply does not occur until 2009”.

Q Overall, the cautious view on prices and potential oversupply in future years is qualified by several factors that must be considered, including:

— quality of product, location and style of product (villas versus apartment) will mean that some developments will be impacted more than others;

— pre-sales become a major factor for developers, with those able to secure more pre-sales much better positioned in a downturn;

— it is well documented that there is a shortage of well-qualified contractors (local or foreign) operating in the UAE. This factor, coupled with the strong development demand and tight development schedules, has caused many projects to be delayed. For example, the man-made island of Palm, Jumeirah (constructed by Nakheel) was expected to be fully developed by the end of 2008, but construction delays will see completion delayed to 2009.

Depending on the level of project delays (EFG Hermes in one analysis sees 50% of projects delayed from years 2008 to 2010 as realistic), prices may experience a softer landing; and

— population growth estimates may be proved conservative if current economic growth in the region continues to strengthen. This would underpin continued demand for residential lots and support residential unit prices.

Any increased supply in future years is expected to cause rents to fall. However, given the inherent under-renting of some properties (given the rental cap of 7% increase per year, although difficult to enforce), this correction may not be as pronounced as sale prices.

Other risks

Q Economic – The main risk to the continued solid economic growth in the region is the presently high inflation levels (CY06 CPI was 9.5%). The government is taking proactive steps to curb inflationary pressures (such a 7% rental cap increase per year) to ensure sustainable growth. In the event of an economic slowdown, a fall in the number of expatriates entering the region and/or leaving will significantly impact the real estate market.

Q Tax – The UAE is appealing to foreign investors given no taxation is imposed by the governments (albeit indirect taxes are imposed). This drove the high 90% EBIT/revenue margin achieved by Sunland in FY07, with the margin erosion due to head office business costs. Risks of higher taxes (although not envisaged in the near term) could affect the profitability of offshore investors.

Q Legal – The UAE is subject to a complex legal system comprising a combination of federal, emirate and Islamic law. While the UAE presently encourages foreign investment in the region (while maintaining strict

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controls on foreign ownership in certain regions), changes in these laws to further protect local interests could adversely affect foreign investors.

Q Security – We do not view security risks in the region as high-risk, given long-term stability both politically and socially. However, surrounding the UAE is an inherently unstable region. Summary Sunland is trading at a 11.3x FY09E P/E (versus the emerging industrials at Sunland is trading at a 11.3x FY09E P/E 14.5x) and offers a 3.5% FY09E DPS yield (emerging industrials c5.1%). We (versus the emerging industrials at estimate a five-year EPS CAGR (FY08-13E) of 11.6% underpinned by the 14.5x) and offers a 3.5% FY09E DPS Dubai business. In terms of Dubai, delivery and growth is premised on yield (emerging industrials c5.1%). adequately managing JV relationships, staffing resources, economic risks and project completion timing and budgets. Other key risks in doing business in the region include tax, legal and security risks causing instability.

We see potential upside to our estimates via growth of Sunland’s funds management business, and commercial and industrial development business. However, the lack of track record has kept our assumptions in relation to these businesses relatively conservative.

The continual rollout of the proven Versace hotels and resorts concept also provides upside. However, the decision to enter a new region does present some risk (given a lack of market knowledge and the stretching of resources) and will be watched closely by investors.

Valuation: Our three-stage DCF (calculated discounting diluted EPS) derives a Our three-stage DCF derives a one-year one-year price target of $4.95 (beta 1.19 as observed, with a five- to ten-year price target of $4.95 – we initiate and terminal EPS growth of 3.75% and 2.5%, respectively). This matches our coverage with a Buy rating secondary FY09E SOTP valuation of $4.95 using a weighted EBITDA multiple of 12.9x. We therefore initiate coverage with a Buy rating.

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Sunland Group 24 December 2007

Sunland (SDG.AX) 21-Dec-07 MARKET INFORMATION COMPANY DESCRIPTION Rating: Buy Sunland Group is an integrated property group in the S&P/ASX 200 with businesses Price (as of 21-Dec-07): 4.43 PROFILE- across property development (both multi-storey and residential), land subdivision, Price Target (12 months): 4.95 Issued Capital: 320.7 project management, hotel ownership and funds management. The business was Market Capitalisation: 1,363.0 originally founded in Queensland, Australia, in 1983 but now has operations across Avg. daily turnover (US$m) 2.8 Australia (Queensland, Victoria and New South Wales), as well as Dubai (residential Year end: June and hotel development since December 2004). Website: - Major Shareholders: -

INVESTMENT SUMMARY DIVISIONAL BREAKDOWN (A$m) 2007 2008E 2009E 2010E (A$m) 2007 2008E 2009E 2010E Total Revenue 630 526 481 573 Net profit [reported] $m 88.1 94.8 120.1 169.3 Division 1 76.2 77.8 83.4 89.4 Net profit [adjusted] $m 88.1 94.8 120.1 169.3 Division 2 73.4 102.5 108.7 115.3 EPS [reported] ¢ 29.729.837.753.2Division 3 430.0 277.0 121.1 164.6 EPS [adjusted, diluted] ¢ 29.729.837.753.2Division 4 9.810.010.711.5 EPS Growth % 21 0 27 41 PER [adjusted] x 10.514.311.38.0 PER relative [ex-fin weighted. avg] x 0.66 0.99 0.86 0.65 Dividend ¢ 12.614.017.725.0 Payout ratio % 43 47 47 47 EBIT 166.0 130.7 152.6 208.5 Dividend Yield % 5.8 4.7 6.0 8.4 Division 1 27.9 23.3 25.0 26.8 FCF Yield % 12.9 9.5 11.1 15.2 Division 2 4.812.313.013.8 Franking % 30303030Division 3 113.3 62.2 27.2 36.9 Shares [period-average, diluted] m 296.9 318.6 318.6 318.6 Division 4 9.7 -4.5 -4.8 -5.2

PROFIT AND LOSS PROFIT AND LOSS [HALF YEAR] (A$m) 2007 2008E 2009E 2010E (A$m) 1H07 2H07 1H08E 2H08E Revenue 630 526 481 573 Revenue 203 415 220 248 EBITDA 169.1 134.1 156.3 212.7 EBITDA 50.9 105.9 35.2 39.7 Depreciation & Amortisation -3.1 -3.4 -3.8 -4.2 Depreciation & Amortisation -1.6 -0.3 -0.3 -0.3 EBIT 166.0 130.7 152.6 208.5 EBIT 49.3 105.7 35.0 39.5 Net interest -41.9 -7.2 -14.5 -20.2 Net interest -3.8 -38.1 -3.4 -3.8 Equity Associated NPAT 0.00.00.00.0Equity Associated NPAT 0.00.00.00.0 Profit before tax 124.1 123.5 138.1 188.4 Profit before tax 45.5 67.6 31.6 35.6 Tax expense -36.0 -28.7 -17.9 -19.0 Tax expense -11.8 -11.8 -8.7 -9.8 Minority Interests 0.00.00.00.0Minority Interests 0.00.00.00.0 Dividends (preferred) 0.00.00.00.0Dividends (preferred) 0.00.00.00.0 Net Profit [reported] 88.1 94.8 120.1 169.3 Net Profit [reported] 33.7 55.8 22.9 25.8 Abnormal Gain/(Loss) after Tax 0.00.00.00.0Abnormal Gain/(Loss) after Tax 0.00.00.00.0

Net Profit [adjusted] 88.1 94.8 120.1 169.3 Net Profit [adjusted] 33.7 55.8 22.9 25.8

BALANCE SHEET ENTERPRISE VALUE (A$m) 2007 2008E 2009E 2010E (A$m) 2007 2008E 2009E 2010E Cash & equivalents 116 18 20 28 Market capital 922.1 1363.0 1363.0 1363.0 Accounts receivable 76 76 76 77 + net (cash) / debt 175.7 52.6 176.9 246.9 Inventory 503 703 853 878 + other adjustments 0.0 0.0 0.0 0.0 Fixed assets 43 43 43 43 Core Enterprise Value 1097.8 1415.6 1539.9 1609.9 Intangibles 0000 Investments 5555EV Ratios Other 38 39 39 39 EV / EBIT x 6.6 10.8 10.1 7.7 Total Assets 780 883 1036 1070 EV / EBITDA x 6.5 10.6 9.8 7.6 Accounts payable 128 131 134 137 EV / OpFCF [post-tax] x 6.5 10.6 9.8 7.6 Short term & long term debt 98 141 251 291 Provisions & other 55 51 51 51 Total Liabilities 280 322 436 479 Minorities 0000 Preferred securities 0000 Common Equity 500 561 600 591 Total Liabilities & Equity 780 883 1036 1070

CASH FLOW RATIOS (A$m) 2007 2008E 2009E 2010E 5 Yr. Avg 2007 2008E 2009E 2010E Operating income [EBIT, UBS] 166.0 130.7 152.6 208.5 Profitability Depreciation 3.1 3.4 3.8 4.2 Revenue growth % - 28.9 -16.4 -8.7 19.3 Net change in working capital 0.0 0.0 0.0 1.5 EPS growth % - 21.3 0.3 26.7 41.0 Other (operating) 0.00.00.00.0EBITDA margin % - 26.9 25.5 32.5 37.1 Pre-tax operating cash flow 169.1 134.1 156.3 214.2 EBIT margin % - 26.4 24.8 31.7 36.4 Interest (paid) / received -41.9 -7.2 -14.5 -20.2 Tax rate % - 29.0 23.2 13.0 10.1 Tax paid -36.0 -28.7 -17.9 -19.0 Return on Invested Capital % - 27.6 22.6 20.3 24.9 Other 0.0 0.0 0.0 0.0 Return on Equity % - 20.3 17.9 20.7 28.4 Operating cash flow 91.2 98.2 123.9 175.0 Capital expenditure 28.7 -186.8 -175.0 -125.0 Balance Sheet Free cash flow 119.9 -88.6 -51.1 50.0 Net Debt / EBITDA x - 1.0 0.4 1.1 1.2 Net (acquisitions) / disposals 0.00.00.00.0Net Debt / Equity % - -3.6 21.9 38.4 44.5 Dividends (Common) -37.4 -44.6 -56.5 -79.6 Capex / Depreciation x - <0 >10 >10 >10 Share Issues 161.3 0.0 15.0 0.0 Net interest cover [EBIT] x - 4.0 18.1 10.5 10.3 Book Value Per Share $ - 1.6 1.8 1.9 1.9

Source: Company accounts, UBS estimates. UBS valuations are stated before goodwill, exceptionals and other spcieal items. Note: For some companies, the data represents an extract of the full company accounts.

Source: UBS estimates

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Sunland Group 24 December 2007

Q Sunland Group

Sunland Group is an integrated property group in the S&P/ASX 200 with businesses across property development (both multi-storey and residential), land subdivision, project management, hotel ownership and funds management. The business was originally founded in Queensland, Australia, in 1983 but now has operations across Australia (Queensland, Victoria and New South Wales), as well as Dubai (residential and hotel development since December 2004).

Q Statement of Risk

Methodology utilised is a 12-month forward 3-stage DCF analysis, deriving a PV of DPS (norm.) utilising a discount rate derived from the CAPM approach. Risks include those associated with operating in the real estate investment/management environment, and risks associated with the regulatory, planning and capital raising environment. Valuation risks include the changing Rf rate under CAPM analysis.

Q Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

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Sunland Group 24 December 2007

Required Disclosures

This report has been prepared by UBS Securities Australia Ltd, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2 Buy Buy 55% 40% Neutral Hold/Neutral 36% 35% Sell Sell 9% 22% UBS Short-Term Rating Rating Category Coverage3 IB Services4 Buy Buy less than 1% 29% Sell Sell less than 1% 0% 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.

Source: UBS. Rating allocations are as of 30 September 2007. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event.

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Sunland Group 24 December 2007

KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case.

EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are : Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE) : Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.

Company Disclosures

Company Name Reuters 12-mo rating Short-term rating Price Price date Sunland Group SDG.AX Not Rated N/A A$4.43 21 Dec 2007 Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date

This report may contain a discussion and analysis of both equity and fixed income securities of the same issuer. The opinions or recommendations with respect to an equity security may be different from those for a fixed income security due to a number of factors including, but not limited to, the type of security involved and its characteristics, the nature of the market for that security, the analytical methodology employed for that type of security, the assumptions utilized under the particular methodology and the UBS rating system applicable to that type of security.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.

Sunland Group (A$) Price Target (A$) Stock Price (A$) 5.00

4.00

3.00

2.00

1.00

0.00 01-Oct-04 01-Apr-05 01-Jun-05 01-Oct-05 01-Apr-06 01-Jun-06 01-Oct-06 01-Apr-07 01-Jun-07 01-Oct-07 01-Dec-04 01-Feb-05 01-Aug-05 01-Dec-05 01-Feb-06 01-Aug-06 01-Dec-06 01-Feb-07 01-Aug-07 01-Dec-07

No Rating

Source: UBS; as of 21 Dec 2007

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Sunland Group 24 December 2007

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