Emaar Initiating Properties (PJSC ) Coverage

UAE 23 Sep 2012 Real Estate

Price Target We initiate coverag e of , the largest real estate developer in Current Mkt.Price (AED) 3.58 GCC with a BUY rating and target price of AED 4.15 per share. The recent uptick in Target Price (AED) 4.1 5 investor sentiment towards real estate combined with Emaar’s traction in de- Upside / (Downside), % +15.9 risking its revenue sources from purely property development to mix of recurring revenue stream is in our opinion strong positives to narrowing the gap between Est. Dividend Yield, % +2.8 Emaar’s current market value and its estimated fair value Est. Total Return, % +18.7

Stock Information Dubai Real Estate Stabilizing DFM Code EMAAR Property and rentals in Dubai seem to have bottomed out since Q4’2011. Significant Bloomberg Code EMAAR DH Equity correction in prices since ’2009 has set a stage of attractive rental yields compared 3-M Avg. daily volume (‘000s)) 14,204 to other cosmopolitan cities in the region. Emaar remains the torch bearer of Dubai Shares outstanding (millions) 6,091 Real Estate and in many ways emblematic of what brand ‘Dubai’ stands for Market Cap. (AED millions) 21, 623 Emaar de-risking strategy is gaining traction 52W High (AED) 3.63 (19Sep 12) Emaar’s portfolio of recurring revenue assets now contributes roughly 40% of top-line 52W Low (AED) 2.33 (15Jan12) revenues compared to c.10% in 2008. Rental and Hospitality segment provide Price Performance revenue visibility; impart balance sheet liquidity and reduce overall business risk. 1M YTD 12M International operations provide medium term growth pipeline EMAAR 8.2% 43.7% 33% DFM General Index 3.7% 18.6% 11.0% Retail/Leasing portfolio is a high quality hard to replicate asset Key Valuations Metrics Retail segment provides good cash-flow visibility, low maintenance costs. Its prized location and brand equity contribute in terms of higher rental yield and low vacancy TTM P/E 12 Forward P/E 11 rates. Free cash from the segment remains a significant internal source of liquidity for P/B 0.67 Forward P/B 0.64 financing growth capex in Property and Hospitality segment Div. Yield, % c.3.0% Fwd. Div. Yield, % c.2.8% Relative Price Performance Combination of favorable macro tailwind in terms of reemergence of Dubai’s real 150 estate and micro factors in terms of Emaar’s traction in transforming its business

130 model from one reliant on Dubai real estate to more diversified revenue streams

110 will help stock price.

90 In our opinion the favorable stock outlook in terms of improving business 70 fundamentals and recent upbeat investor appetite for risk assets (after the FED Emaar DFM Realty Index DFM Main index 50 announcing third around of ‘Quantitative easing’) should support multiple expansion, Sep -11 Dec -11 Mar -12 Jun -12 Sep -12 especially, the gap between the current market price and the discount to Emaar’s Current Shareholding adjusted net asset value —we initiate with a BUY rating Govt. Of Dubai —c.31% Free Float —c.69% RESEARCH ANALYST Analyst: : Siraj S. Presswala Email : [email protected]

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 1 of 20

Investment Thesis

Dubai Real Estate Stabilizing Recent spate of news on Dubai real estate, makes us believe that property and Prices are competitively positioned rentals in Dubai seem to have largely bottomed out somewhere in Q4’2011. Since compared to other Asian property hot- beginning of 2012, both prices and rentals have selectively improved in key spots such as Mumbai, Shanghai, Singapore and Hong Kong. neighborhoods across Dubai. Delays/cancellation of some large scale projects has slowed the rate of new supply additions to the Dubai real estate market relative to the pre-bubble era.

Significant correction in prices since Q1’2009 has set a stage of attractive rental yields compared to other cosmopolitan cities in the region.

These factors combined with stable economy and rising influence of Dubai as a regional entertainment, business and retail hub have supported consolidation in

property prices. Foreign investors have been active in the up-market residential

space, as prices are competitively positioned compared to other Asian property hot-

spots such as Mumbai, Singapore and Hong Kong. We believe, Dubai’s USP as a rising global entertainment hub, favorable government policies supporting housing finance and ownership, stable political climate and superior infrastructure in addition to attractive prices (rental yield) are driving investor interest back into Dubai real estate.

Emaar remains the torch bearer of Dubai Real Estate and in many ways is emblematic of what brand ‘Dubai’ stands for.

Villa prices as of May’12 are up 21% y- The combination of favorable macro-micro factors of rising investor confidence in o-y whilst apartment prices have Dubai real estate and Emaar’s traction in successfully de-risking its business model increase 1% y-o-y. Rents for both are catalyst which in our opinion will contribute to narrowing the gap between segments have increased by about 10% y-o-y. Emaars’ current market value and its estimated fair value.

 Property prices and rental income seem to have largely bottomed out in Q4’2011

Property prices in key residential neighborhoods of Dubai seem to have bottomed out by late 2011 and from the beginning of 2012 have shown signs of rising. Many other neighborhood below the top rung have evidenced stabilization in prices and rentals after having corrected throughout 2009-2011 due to considerable over supply and waning investor interest.

Prices corrected roughly in the range of 25-60% based on various estimates for various category of properties from its Q3’2008 peak to its tough hit in Q2’2009.

According to market estimates prices for both villas and apartments are increasing since the start of 2012. Villa prices as of May’12 are up 21% y-o-y whilst apartment prices have increased 1% y-o-y. Rents for both segments have increased by about 10% y -o-y.

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Dubai Residential Property Price Indices Dubai Residential Property Rent Indices 500 125

400 100 300 75

200 50

100 25 Residential General Residential Apartment Residential Villa Residential General Residential Apartment Residential Villa 0 0 08 09 09 09 10 11 11 11 12 10 11 10 10 11 11 12 12 ------Jan-08 Jan Jan Jan Jan Jan-09 Jan Jan Jan Sep-10 Sep Sep Sep Sep-09 Sep Sep May May-10 May May-12 May-08 May May May May-09 Source: Jones Lang Lasalle, Various Industry sources, Vision Research Source: Jones Lang Lasalle, Various Industry sources, Vision Research Significant correction in prices since Q3’2008 has set a stage of attractive (residential) rental yields compared to other cosmopolitan cities in the region. According to a recent report by Global Property Guide, rental yields in Dubai are now one of the best among major cosmopolitan cities across the world.

Rental yields on residential apartments in Dubai are now among the best relative to other global cosmopolitan cities.

Yields have long been considered as single most important metric in ‘back of the envelope’ valuation of real estate assets. We expect the rich yields available in Dubai should provide backdrop for long term price appreciation, going forward.

Stabilization in supply supported by returning of normalcy in GDP growth post the crisis of 2008 has also favorably impacted return profile of existing development properties in the Emirate.

400 Dubai Residential Stock 10 Dubai Office Stock

380 3 8 Future supply 14 1 Completed stock 1 360 Future supply 6 24 Completed stock 340 381 4 Units '000sUnits

Million Sqm Million 7 368 6 6 5 320 338 344 2 4 324 300 0 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Source: Various Industry Sources, Vision Research Source: Various Industry Sources, Vision Research

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 3 of 20  Dubai’s rising influence as a global entertainment hub

Dubai is seen by many high net worth individuals particularly from the GCC and the Lure of Dubai real estate driven by UAEs sub-continent region as an ideal location for second home driven mainly by its stable and predictable political climate, proximity to business centers on both side of the Arabian Peninsula, UAE’s stable better infrastructure, and relatively and predictable political climate, better infrastructure, and relatively lower costs of lower costs of living compared to West. living compared to the West. More importantly, Dubai’s thriving entertainment and Dubai’s thriving entert ainment and hospitality industry, as well as, its emergence as a regional trading hub has hospitality industry and emergence as a favorably supported the recovery in Dubai’s real estate prices and investor interest. regional trading hub Indicators of Dubai’s emergence as an international trading and entertainment hub include statistics such as: • Passenger Arrivals at Dubai Airport • Hotel occupancy rates • Footfalls at Malls in Dubai relative to similar quality assets globally

In 2011, Dubai International Airport was fourth busiest airport by international passenger traffic and sixth busiest cargo airport in the world.

Hotel occupancy rates in Dubai average around 80% in 2011. Occupancy and ADR (Average Daily Rates) steadily increased since the 2008 slump, this strong performance in inspite of the fact that more supply has been added to the sector since 2008.

Footfalls in Dubai Mall, the largest mall in the world, stood at 54 million. Pertinent to note that the entertainment charm of Dubai remains intact and growing even when most of the world is in grip of an economic slowdown and consumption particularly in Europe has nosedived.

Emaar’s future and fortune is predominantly tied to the success of Dubai’s real estate and hospitality sector. The positive developments in Dubais’ real estate are supporting the traction Emaar is showing in terms of de-risking its business model.

Emaar de-risking strategy is gaining traction Emaar’s strategy is to de-risk is business model from cyclicality of its home Emaar’s strategy is to reduce markets’ real estate by increasing share of revenue from its international dependence on Dubai Real estate. operations; and to reduce dependence on property development by increasing revenue share of hospitality and retail operations.

 Reduce dependence on Dubai Real Estate by increasing focus on international operations.

Emaar’s strategy with its international expansion is to develop premium— mostly mix use—properties where it can leverage its brand and design expertise. Emaar has presence mainly in the MENA region (Egypt, Morocco, Lebanon, Syria, Jordan) where its brand recognition is comparatively higher and domestic markets have tourism potential. Markets such as Egypt, Turkey and India have significant growth potential, given the size of their economies.

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The advantages of spreading its operations internationally are mainly de risking the business from cyclical nature of local real estate demand and supply. And, maintaining a healthy pipeline of quality projects. Further wider operations provide growth options (proportional to the ever increasing size of balance sheet) to Emaar which would be hard to come by if, operations were limited to a single market.

Post the 2008 crash in domestic real estate prices and demand, Emaar’s international focus has gained more prominence as evident from the below chart.

Revenue Split -Domestic, International Assets Split -Domestic, International 15,000 25% 75,000 21,155 973 22,469 23,791 24,383 24,089 17.6% 20% 60,000 45% 10,000 637 1,428 15% 39.6% 39.2% 39.2% 11.5% 12.6% 45,000 35.9% 7.6% 8.0% 10% 5,000 30,000 33.0% 35% AED million AED million AED 209 265 5% 7,776 11,178 6,684 15,000 1,612 1,835 42,990 40,035 36,263 37,770 37,307 0 0% of share % international assets 0 25% Dec-09 Dec-10 Dec-11 Mar-12 Jun-12 of share % international revenue Dec-09 Dec-10 Dec-11 Mar-12 Jun-12 International Domestic % of Intl revenue International Domestic % of Intl assets Source: Company reports and Vision Research Source: Company reports and Vision Research

Share of revenue from international operations increased from 7.6% in 2009 to 12.6% in Q2’2012. Over the same period, share of international assets to total assets increased from 33% to 39%.

However, limited transparency and limited investor knowledge on international real estate valuations and challenges can increase the potential for Emaar being valued at the discount to what would be the case if operations were located fully in a single homogenous market. This drawback also remains a long term incentive for Emaar to realize value from its international portfolio through initial stock market listings, stake sale, exits, etc.

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Emaar’s International operations include pres ence in 10 countries across MEN; the Indian sub-continent; and N. America. Largest Presence outside UAE include: India (JV with local partner); Egypt and Morocco.

The table below provides brief on Emaar’s International portfolio currently under development

Country Projects under development Emaar's share Egypt Emaar Misr is developing three key integrated lifestyle communities in Egypt including: Emaar Misr,100% 1) Marassi (1544 acres on a 6.5 km stretch of Egyptian Mediterranean coastline, premium villas, golf course and 5 star hotel under The Address brand, deliveries started from 2011 onwards ), 2) Mivida (3.8 million sq m, mixed-use development, deliveries to begin from 2012), and 3) Uptown Cairo (4.5 million sq m, mixed-use residential,commercial and leisure developmentis located at thehighest point of downtown Cairo, deliveries to begin from 2012) India 1) Emaar with its JV partner MGF is currently undertaking projects in 7 Indian states. The company has land reserves of more than Emar MGF India -49%; 11,000 acres with total planned development of over 470 million sq ft,Projects arein various stages of development. Among key Emar APIIC India -74% projects is Mohali Hills, is a master-planned community spread over 3,000 acres in Mohali, Punjab. Emaar-MGF has opened a five star hotel with 90 rooms in Jaipur, which is operated by a subsidiary of India listed ITC Limited. 2) Emaar wtih its JV partner APIIC India, is developing an integrated project consisting of golf course, club house, boutique, hotel, township, on 535 acres of land at Hyderabad, India besides a business hotel and convention centre on adjoining leased land. Turkey 1) TUSCAN VALLEY -handed over the first phase of its gated community project. Construction of the second phase is progressing. 100% Alongside the premium houses, the Tuscan Shopping Arcade is also part of the second phase with 25 stores and approximately 3,700 square meters of rentable commercial space. 2) NEW ISTANBUL DEVELOPMENT -Emaar Turkey acquired approximately 75,000 sq m of prime land located in the Asian side of Istanbul to develop mix use projects. The development will include one of the largest malls on the Asian side of Istanbul with a total leasable area of 137,000 square meters. KSA 1) Al Khobar Lakes master-planned community in the Eastern Province, seton approximately 2.6 million sq m features morethan Emaar Middle East -61%; 2,000 private villas with retail and leisure amenities Emaar, The Economic City - 2) Jeddah Gate, another master-planned community in downtown Jeddah, approx half a million sq m of land.Jeddah Gate,when 30.50% completed, will have over 100,000 sq m of modern office spaces and over 30,000 sq m of gross leasable retail space 3) Makkah -The Emaar Residences at the Fairmont Makkah are located on floors 30 to 53 of theMakkah Clock Royal Tower,the second tallest tower in the world 4) King Abdullah Economic City (KAEC) is being developed by Tadawul listed associate Emaar, The Economic City. KAEC is a 168 million sq m development located on the Red Sea coast. It has six key components – the Sea Port, Central Business District, Industrial Zone, Educational Zone, Resort District and Residential Communities. In 2011, the Saudi Arabian Ministry of Finance signed a loan agreementwith Emaar.E.C,for SAR 5 billion (US$ 1.33 billion) to acceleratethe development of the second phase of KAEC. As of Dec'11 KAEC has completed the handover of a wide range of residential units, land plots in the Industrial Valley, Pakistan 1) Emaar DHA, the country subsidiary of Emaar Properties, delivered the first homes in Canyon Views, a master-planned Emaar Pakistan 67% community in Islamabad, and is now an established residential community. 2) Emaar Pakistan is also developing Crescent Bay, a mixed-use development in Karachi. Planned to featureover 5,000 freehold residential units in midriseand high-rise residential towers,a fivestar hotel,a shoppingcentrespread over an area of 65,000 sq m and twin office towers. The first residential tower is expected to be completed in 2013. N. America 1) Canada -Emaar Canada launched thesaleof its first project, Wills Creek situated in South Surrey, British Columbia. Thehomes 100% are scheduled for completion in 2012 and 2013. 2) USA -Beverly West features customized residences in a 22- building rising above Beverly Hills. Lebanon 1) BeitMisk -a residential community that spreads over approximately 655,000 sq mof an exceptionally pristinelocation in the 65% Northern Metn region. The project consists of a major residential development that will comprise villas, townhouses and apartment. Infrastructure for the development has been completed and the construction commenced in 2010 Syria 1) Emaar-IGO, a venture between Emaar Syria and IGO is developing The Eighth Gate project in Yafour, near Damascus. In 2011 60% commenced handover of office units in the first phase. 2) THE EIGHTH GATE MALL, SYRIA (UNDER DESIGN) has approximately 94,000 sq m of gross floor area and 65,550 sq m of net lettable area. The retail offer will feature fashion and accessories, extensive indoor/outdoor F&B, and an entertainment precinct.

Morocco Emaar Morocco is the wholly owned subsidiary of Emaar is currently developing Amelkis Resort, Tinja and Saphira in Morocco. 100% 1) TINJA -integrated community featuring residential, commercial, retail and tourismcomponents. The beach front project is ten- minute drive from Tangier International Airport and 20 minutes from the centre of Tangiers. 2) SAPHIRA -Situated along the coastline, in the capital city of Rabat, The project due to commence will provide high quality residential communities as well as a vast array of service and leisure facilities. 3) AMELKIS RESORTS A luxury residential, golf and leisuredevelopment in Marrakech spread over an area of over 3 million sq m. The villas and land plot are set around a 36-hole golf course. Jordan 1) SAMARAH DEAD SEA RESORT -features low-rise buildings located on the seafront. In 2011, Emaar Intl Jordan marked the 100% handover of three residential complexes – Buildings A, B and C – in thefirst phase.Buildings D,F andE –are partof thesecond phase. 2) The Company has also entered in a Joint Venture with Aabar, Abu Dhabi to develop a 285 room hotel. The work for the hotel commenced in the second half of 2011 and will be operated by Hilton.

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 6 of 20 Retail/Leasing portfolio is a high quality hard to replicate asset

In our opinion, the retail segment is the crown jewel of Emaar’s business. We consider the Retail segment, particularly Dubai Mall to be quality hard to replicate asset.

The value driver for Retail is similar in analogy to the Du Point Analysis of drivers of Return on Equity

Drivers of RoE –Du Pont Analysis Profit Margin X Asset turnover X Leverage Higher rentals X High occupancy X Low Value drivers in Retail Segment maintenance capex

Premium rentals, higher occupancy and lower cash costs results in significant generation of free cash from the segment. Emaar expects free cash of the magnitude of AED 1.2bn per year from the retail portfolio in Dubai. Emaar is able to command higher rental per unit of lettable space and at the same time enjoy high occupancy rates compared to average industry standard in the region mainly due to The mall segment is the crown jewel of the unique positioning of its mall assets, particularly . Emaar’s revenue producing assets. Du bai mall has highest footfalls in the world. The Dubai Mall boasts one of the highest footfalls in the world. The multiplicative effect of: • Convenient location — 820-metre long pedestrian link connecting the /The Dubai Mall to the Metro Station will be operational by 2013. • Size — one of the largest malls in the world with 3.62 m sqft Gross Leasable Area (‘GLA’); • Unique attractions within the mall — Dubai Fountain, Aquarium & Underwater Zoo, etc., and, • Dubai’s status as a tourist hotspot Are factors driving rentals and occupancy in Dubai Mall

The table below illustrates the difference in rental for different categories of Malls in UAE Mall Rentals UAE Q2'2012 AED per sq m % of Top Tier Rentals (mid-point) Top Tier 4,800-6,000 100% Second Tier 2,000-3,200 48% Retail segment has significant scale Neighbourhood 1,200-1,600 26% Source: various industry sources, Vision Research economies with low maintenance capex resulting into higher margins and substantial generation of free cashflow. As evident from the above industry statistic, premium malls such as Dubai Mall command upto 50% more rentals for each unit to lettable space and as much as 4 times the rentals for smaller community/neighborhood outlets. Although operating expenses are directly proportional to the size and class of the mall, the segment has significant operating leverage and hence larger malls are more profitable than smaller ones for a given occupancy level.

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 7 of 20 The Table below highlights performance of retail and leasing portfolio in terms of asset turnover (revenue / avg. assets) and Yield (operating profits / avg. assets)

Rental/Leasing portfolio 12,000 30% 10,137 27% 9,796 9,653 10,000 22% 9,585 25% 19% 8,000 20% 15% 14% 6,000 15% 10% Rental/Leasing portfolio has yield of 14% 8% 4,000 7% 10% (annualized) for H1’12. Segment yield 2,137 AED millions AED 1,901 1,510 1,294 2,000 957 5% (segment PBT to segment assets) has 660 806 690 - 0% doubled from 7% in 2009 to 14% in H1’12 Dec-09 Dec-10 Dec-11 Jun-12 Assets Revenue Op. Profit Yield Asset turnover Source: Company reports and disclosure, Vision Research Yield =Operating profit / avg. assets; Asset turnover = Revenue / Avg. Assets Key observations from the above chart • Revenue as a % of segment assets has steadily increased over the past three years (15% in 2009, 27% in H1:12) • Operating profit from the segment as % of assets (Yield) has steadily increased over the past three years (7% in 2009 to 14% in H1:12) • Segment assets have been constant, infact dropping modestly by 5% between Dec09 and Jun12 Dubai organized retail segment is increasingly fragmented into two classes Analysis and conclusion: with Mall of Emirates, Dubai Mall and • Steady increase in revenue as percent of assets has been driven primarily by Deira City Center being at the top tier and increase in revenue from Dubai Mall which opened in late 2008 other smaller local outlets in the next tier. • Large MNC luxury brands prefer to have Operating profit as percent of assets has almost doubled from 7% in 2009 to presence in either one or all of the top tier 14% in H1:12 (annualized basis). Increase in yield is mainly attributable to malls where footfalls are highest and multiplicative effect of increasing occupancy, premium rents for Dubai Mall hence demand in these malls is strong assets and favorable impact of operating leverage. • Stable low risk cash-flows combine with low maintenance expenses result in significant free cash generation from the segment portfolio. Emaar management expects AED 1.25bn of annual cash generation from the existing portfolio once occupancy in Dubai Mall also hits and stabilizes at 100%. At AED 1.25bn of free cash-flow, the cash yield from the current asset base will be in the range of 11-13% compared to investment grade Sukuk In our opinion, once occupancy level in from the region which yield in range of 5-7% Dubai Mall stabilizes, large part of revenue • Over the past three years, segment assets have remained almost constant as growth contribution from the leasing no new major development projects were added to the segment portfolio portfolio will taper-off. whilst coming on stream of Dubai Mall favorably impacted segment revenue and profits resulting into levering up of the segment bottom line • As per the last available update, occupancy in Dubai Mall is c.94% hence we estimate, the benefit of operating leverage to taper off in next few quarters (with only small room for increase in revenue through additional incremental increase in occupancy left). • In our opinion, next round of growth contribution from the segment will come from addition of new properties to the segment. The current development portfolio in the segment includes, mall assets coming up in Syria, Egypt, and Turkey.

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 8 of 20

The Retail and leasing segment portfolio is mainly composed of:

Location Assets Remarks Dubai Dubai Mall 3.62 m sqft of Gross Leaseable Area, 94% occupancy rate. World’s most-visited shopping and leisure destination, with more than 54 million visitors in 2011 (+15% from 2010). Planned expansion of 'The Dubai Mall',to add over 1 million squarefeet The current rental/leasing portfolio is to the existing 12m sqft development. 820-metre long pedestrian link directly connecting Dubai Metro Station. primarily located in Dubai and is conceived Souk Al Bahar Centrally located in the heart of Dubai and is directly linked to The Dubai Mall around the Emaar’s other milestone Marina Mall Shopping destination for residents and visitors of the Dubai Marina community. over 140 retail outlets. commercial and residential developments. Gold & Diamond Park 90 retail outlets dedicated to the gold and jewellery trade, 350 commercial units and 118 manufacturing units for the gold and jewellery industry Retail Community Centres Providing daily convenience retail to residents of the exclusive commerical / residential and mix use projects developed by Emaar. Portfolio includes: Arabian Ranches Community Centre, Emirates Hills Town Centre, Emaar Towers, , Marina Walk, The Greens Village, The Lakes Village, The Meadows Village and The Springs. Emaar Retail Manages operations for The Dubai Mall and Dubai Marina Mall’s leisure and entertainment brands including Dubai Aquarium & Underwater Zoo, Dubai Ice Rink, KidZania®, SEGA Republic, Reel Cinemas and ARMANI/CASA. In 2011, Emaar Retail recorded 4.75M visitors to its various attractions (+13% from 2010) Under Construction Syria The Eighth Gate Mall Approximately 94,000 sq m of gross floor area and 65,550 sq m of net lettable area when fully operational Turkey New Islanbul Center Approx. 137,684 sq m of net lettable area.When fully operational it will featureover 410 stores, 4,100 car parks and large scale Egypt Uptown Cairo Mall & Uptown Town Center Approx.family based 135,000 entertainment sq m of lettable amenities. area

Hospitality sector is a key contributor to recurring revenues of Emaar. And one of the cornerstones of Emaar’s de-risking strategy

The Hospitality segment of Emaar’s portfolio includes its chain of premium Hotels, service apartments and lifestyle experiences such as —chic cafes, restaurants, golfclubs, etc. primarily located in Dubai. The portfolio leverages Emaar competitive The current rental/leasing portfolio is advantage in terms of its valuable land bank in Dubai, its core competence in primarily located in Dubai and is conceived inception and design of grand lifestyle projects with unique positioning. around the Emaar’s other milestone commercial and residential developments. A closer look at the segment portfolio location reflects Emaar’s strategy of developing its leasing/hospitality assets around its residential or commercial projects. Examples include location of Armani Hotels and At.mosphere restaurant within Burj Khalifa, location of The Address hotel, chic restaurants like Downtown Deli and Madeleine Café within Dubai Mall, etc.

On 16Sep2012, Emaar announced plans to The Hospitality segments share in total revenues over the past 4 years has steadily build its first major hotel project since the increased from c.5% in 2008 to c.15% in 2011. The increase in Hospitality segment property slump in 2008-09 in downtown share in total revenue has been driven by recovery in Dubai’s hospitality industry Dubai. leading to improvement in average room rates and occupancy, plus, coming on stream of certain portfolio assets.

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GCC Hotel Performance (YTD May 2011–2012) UAE YTD Hotel avg. daily rates and occupancy 1,000 973 Country Occupancy, % Average Daily Rate (USD $)

May-11 May-12 May-11 May-12 950 925 90% 881 83% Kuwait 58% 54% 280 273 899 900 Qatar 69% 65% 273 269 79% 76% UAE (Dubai) 79% 83% 240 252 850 73% 70%

Bahrain 25% 39% 236 232 Occupancy, YTD KSA (Riyadh) 64% 64% 238 232 800 Oman 71% 73% 215 212 Daily Average Rates (AED) 750 50% Lebanon 52% 66% 202 208 May-09 May-10 May-11 May-12 Egypt 35% 42% 128 102 ADR Occupancy Source: Various industry sources, Vision Research Source: Various industry sources; Vision Research

The Hospitality segment of Emaar’s portfolio includes its chain of Hotels primarily in Hospitality segment includes 6 five star Dubai including four 5-star hotels under ‘The Address’ brand, two 5-star hotels under hotels, 2 four star hotels, 2 service ‘The Armani’ brand, a single golf club in the ‘Arabian Ranches’ and a golf resort in apartments and two golf club resorts ‘Emirates Hills’ gated community. all located in Dubai

The table below shows assets classified under the segment.

Emaar Hospitality Portfolio Brand Location Category Operator Capacity Avg. Occupancy Average Daily Operational 2011, % Rates since Armani Hotel at Burj Khalifa Dubai, UAE 5 Star Hotel Emaar/Emaar Subsidary 160 NA - 2010-Q2 Armani Hotel, Milan, Italy Milan, Italy 5 Star Hotel Emaar/Emaar Subsidary 95 NA - 2011-Q4 The Dubai Dubai, UAE 5 Star Hotel Emaar/Emaar Subsidary 196 91% 1,445 2008 The Address Dubai Mall Dubai, UAE 5 Star Hotel Emaar/Emaar Subsidary 244 83% 1,254 2009 The Palace The Old Town Dubai, UAE 5 Star Hotel Emaar/Emaar Subsidary 242 82% 1,147 2007 The Address Dubai Marina Dubai, UAE 5 Star Hotel Emaar/Emaar Subsidary 200 74% 830 2009 Al Manzil Hotel Dubai, UAE 4 Star Hotel 3rd party operator 197 83% 669 2007 Qamardeen Hotel Dubai, UAE 4 Star Hotel 3rd party operator 186 79% 568 2007 The Address Montgomerie Dubai Dubai, UAE Golf Club and resort3rd party operator 21 NA - 2006 Arabian Ranches Golf Club Dubai, UAE Golf Club and resortEmaar/Emaar Subsidary 11 NA - 2007 Nuran Marina Residences Dubai, UAE Service Apartments 3rd party operator 90 83% - 2006 Nuran Greens Residences Dubai, UAE Service Apartments 3rd party operator 148 83% - 2006 The Address Marassi, Egypt 5 Star Hotel Emaar/Emaar Subsidary 200 rooms + 152 Under Marassi Golf Resort & Spa serviced apts Construction

Other Hospitality Assets: At.mosphere Burj Khalifa, DubaiRestuarants Emaar/Emaar Subsidary 2011 Downtown Deli Dubai Mall, Dubai Restuarants Emaar/Emaar Subsidary 2010 Madeleine Café & Boulangerie Dubai Mall, Dubai Restuarants Emaar/Emaar Subsidary 2010 Saha Café Downtown, Coffee shop Emaar/Emaar Subsidary Dubai, UAE Boulevard Café Al Manzil hotel, Dubai,Coffee UAE shop Emaar/Emaar Subsidary Dubai Polo & Equestrian Club Dubai, UAE Emaar/Emaar Subsidary Dubai Marina Yacht Club Dubai, UAE Emaar/Emaar Subsidary Source: Company disclosures, Vision Research

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However, hospitality industry in general has historically been a cash guzzler, many times a victim of its own success.

Although currently in growth phase, • Although, occupancy and ADRs (‘Average Daily Rates’) in Dubai are going our prime concern is about the sectors strong now boosted by recent opening up of new tourist attractions such as ability to maintain long term return on Burj Khalifa and Dubai Mall, in the long run, we expect the Hospitality capital above its long term costs of segments return on capital to average near its costs of capital. capital. Emaar’s hospitality segment • Capacity in the industry in the initial stages of the cycle lags demand. In the being part of consolidated balance later stages, however, new capacity additions catch up with the demand sheet is mainly equity financed whilst demand starts stabilizing. • The inherent weakness of the sector is its inability to flexibly and economically adjust to the risk of change in future tourist trends (examples in the region include Bahrain’s hospitality industry after 2011 social unrest, Iran after recent escalation in international sanctions, etc.), redeployment of property into other uses—such as residential or commercial—based on demand supply patterns within the domestic real estate market. And the unfavorable impact of financial leverage in a down cycle when free cashflows evaporate. • We are of the opinion that spin-off of the hospitality segment when revenue growth prospects on current development plans and brand equity is high is

the best method to reward the shareholders.

• The chart below highlights a stylized Hospitality sector cycle and juxtaposes it

against Dubai hotel room supply forecast

Hypothetical Hospitality Sector, RevPAR and Occupancy cycle Dubai Hotels Room Supply 18 100% 70,000 16 20% growth in rooms 3,000 from 2011-14 3,500 14 75% 4,500 12 55,000 10 50% 8 6 subsequently rising capacity result in levelling of RevPAR 25% 40,000 62,250

4 in late stages of the cycle OccupancyLevel,% 58,750 in the initial phase of the cycle capacity intensifies 54,250 2 lower capacity result in competition reducing RevPAR 53,400 Revenue peravg. room, $ - RevPAR growth 0% Dubai aggregate hotel rooms 25,000 intial stage moderation intensifying excess capacity competition Jul-05 2012e 2013e 2014e RevPAR Occupancy Future Supply Current Supply Source: Vision Research Source: Various Industry sources and Vision Research • As mentioned previously, the hospitality portfolio of Emaar is a strong

contributor to the topline but at the same time it has been one of the largest

recipients of growth capex over the past 3 years.

• Notwithstanding the fact that the hospitality segment was a growth opportunity over the past 3 years and hence the heavy capex undertaken, Our key concern is the long term ability of this capex to produce yields better than its long term costs of capital.

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 11 of 20

Segment revenue as % of total revenue Segment capex as % of total capex 100% 100% 6% 1% 3% 16% 13% 25% 18% 26% 33% 10% 45% 8% 8% 34% 15% 18% 74% 57% 33% 74% 76% 59% 49% 45%

17% 19% 8% 10% 0% 0% Jul-05 Jul-05 Jul-05 H1'2011 Jul-05 Jul-05 Jul-05 H1'2011 Rental Hospitality Property Others Rental Hospitality Property Source: Company reports;Vision Research Source: Company reports;Vision Research

Hospitality Segment contribution to total revenue, capex, depreciation and operating profit

74% 75%

57% 55% 45%

33% 35% 25% 26% 22% 18% 14% 15% 15% 8% 8% 7% 8%

-5% Jul-05-1% Jul-05-2% Jul-05 H1'2011 % share in revenue % share in Capex % share in Depreciation % share in Operating Profit

Value unlocking opportunity exists through IPO/Stake-sale/spin-off of its international portfolio, subsidiaries and joint ventures, as well as, hospitality and retail assets. However, we see no near term catalyst that can propel the company in that direction. • Currently, Emaar is primarily viewed as pre-eminently Dubai based property developer. Emaar however is a collection of many businesses that have different risk-reward characteristics. • The property development business is cyclical in nature. Additionally, the segment has substantial exposure to liquidity risk and changes in fair value of inventory and land bank. Spinning of the recurring revenue • assets can create value unlocking The rental and leasing portfolio —mainly mall assets located in Dubai—is net opportunities for minority cash flow producer and can be construed similar to that of a corporate fixed shareholders. income bond. • The hospitality business provides topline stability—similar to that of the retail The recurring revenue business has business—but has low return on capital—not similar to retail. potential to be levered-up thereby • Ideally, on standalone basis, the retail and hospitality business can be levered increasing its return on capital up much more than Emaar’s current consolidated debt to asset ratio of 0.2 given the stable and visible cashflows from the business. • However, recapitalization of these segments can be achieved much more efficiently if the assets are spun-off from consolidated financial statement and capital providers (debt and equity) have a clearer view of its free cash producing potential. That would enable Emaar to generate return for its shareholders (share buyback, special dividend payout or via public issue) from these ass ets.

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 12 of 20 • Similarly, we believe, the full value of its foreign operations and joint ventures cannot be realized under a single consolidated balance-sheet due to

lack of adequate information and the structure through which they are

owned. Having said that, we do not see any medium term catalyst propelling

strategic decisions in this direction. • The recurring revenue model provides Emaar with revenue visibility and much needed balance sheet liquidity, something that the core property development operation lacks. International operations provide growth prospects (‘the next Burj Khalifa’).

H1’2012 Financial Update

H1'2012 financials (in AED '000s) Q1'11 Q2'11 H1'11 FY2011 Q1'12 Q2'12 H1'12 Sale of condominiums 374,957 265,572 640,529 1,112,640 276,177 699,331 975,508 Sale of villas 60,105 336,967 397,072 958,738 154,048 325,656 479,704 Sale of commerical units, plots and other 704,152 596,465 1,300,617 2,679,388 335,676 116,224 451,900 Total Property Development 1,139,214 1,199,004 2,338,218 4,750,766 765,901 1,141,211 1,907,112 % chg. yoy -33% -5% -18%

Revenue from Hospitality 335,798 283,768 619,566 1,224,438 403,130 316,612 719,742 % chg. yoy 20% 12% 16% Rental/Leasing Portfolio 507,517 548,966 1,056,483 2,137,128 651,796 642,204 1,294,000 % chg. yoy 28% 17% 22% Total Revenue 1,982,529 2,031,738 4,014,267 8,112,332 1,820,827 2,100,027 3,920,854 % chg. yoy -8% 3% -2%

Total costs (958,937) (1,064,366) (2,023,303) (3,876,781) (758,333) (964,702) (1,723,035)

Gross profit -Prop Dev 40.2% 35.9% 38.0% 44.8% 44.2% 43.2% 43.6% Gross profit -Hospitality 48.6% 37.0% 43.3% 40.1% 48.4% 38.6% 44.1% Gross profit -Leased 79.2% 78.6% 78.9% 75.6% 81.1% 80.9% 81.0% Gross profit -Total 52% 48% 50% 52% 58% 54% 56%

Finance Costs (124,420) (145,641) (270,061) (562,255) (169,809) (194,574) (364,383) % chg. yoy 36% 34% 35% Net profit 471,091 304,603 775,694 1,917,941 608,588 609,877 1,218,465 % chg. yoy 29% 100% 57%

EPS 0.07 0.04 0.11 0.29 0.10 0.10 0.20 % chg. yoy 43% 150% 82%

Total comprehensive income 478,166 282,812 760,978 1,081,815 805,945 (446) 805,499 % chg. yoy 69% -100% 6% Total Debt 12,299,490 12,323,246 12,323,246 11,120,811 12,522,464 12,557,883 12,557,883 C & CE 9,067,962 5,222,285 5,222,285 2,865,272 4,409,185 4,568,578 4,568,578 Net debt 3,231,528 7,100,961 7,100,961 8,255,539 8,113,279 7,989,305 7,989,305 151% 13% 13% Shareholders Equity 31,169,073 31,451,885 31,451,885 31,588,907 32,394,852 31,785,282 31,785,282 151% 13% 13%

Total Assets 63,248,197 61,935,494 61,935,494 60,054,106 62,153,187 61,396,198 61,396,198 % chg. yoy -2% -1% -1% Development properties 26,368,249 25,971,423 25,971,423 26,611,285 26,839,790 27,168,989 27,168,989 Property, Plant and equipment 8,410,456 8,348,429 8,348,429 8,300,420 8,522,131 8,146,724 8,146,724 Investment properties 8,147,024 8,116,897 8,116,897 7,998,584 7,960,349 7,877,093 7,877,093 Total 42,925,729 42,436,749 42,436,749 42,910,289 43,322,270 43,192,806 43,192,806 Gross debt to Assets 19% 20% 20% 19% 20% 20% 20% Devp prop, PPE & Invst. Prop to Assets 68% 69% 69% 71% 70% 70% 70%

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 13 of 20

• For six months ending June’2012 Emaar recorded negative 2% year-on-year growth in total revenues. Slight drop in revenues was entirely attributable to 18% drop in the property development segment offset by 22% increase in rental/leasing (malls) segment and 16% increase in the hospitality segment. • Drop in revenues in the property development sector was mainly impacted in  Rental segment continues to Q1’12 where revenues slid 33% y-o-y to AED 765M from AED 1,199M in outshine Q1’11.  Gross margins improved in all • Rental/leasing portfolio continues to remain a strong contributor in terms of three segments in H1’12 propelling overall growth. Rental segment continued to show strong traction compared to year ago period in topline with Q2’12 revenues just 1.5% off sequentially which is impressive  Leverage remains stable at 20% considering the fact that Q1’12 was positively impacted by Dubai Festival. of assets • Consolidated gross margin for H1’12 came in at 56% compared to 50% for  H1’12 EPS at AED 0.20 H1’11. Margin across all three segments showed improvement in both compared to AED 0.11 for quarters of H1’12 compared to H1’11. H1’11 • Finance costs for H1’12 increased 35% to AED 364M compared to AED 270M  Adjusting for fair value changes for H1’11. Increase in finance costs in first half of 2012 compared to 2011 is and FX impact income attributable to what we believe is increase in effective interest rate in H1’12 attributable to shareholders by about 100bps. increases by only 5% yoy • Net profit before fair value changes for H1’12 stood at AED 1,218M representing an increase of 57% from AED 776M for H1’11. • Net profit for Q2’12 recorded increase of 100% to AED c.610M from AED

305M in Q2’11 due to the fact that Q2’11 included adverse impact of AED -

172M of impairment charges (nil in Q2’12) and AED -75M share in loss of

associates (AED -47M for Q2’12). For H1’12 impairment charges stood at Nil compared to AED 172M in H1’11, loss in share of associates stood at AED - 68.7M compared to AED -202M in H1’11. • EPS for H1’12 stood at AED 0.20 compared to AED 0.11 for H1’11 representing an increase of 82% mainly boosted by lower share in impairment charges, share in loss of associates, favorable revenue mix (higher percentage of rental revenue) and improvement in gross margin. • However, total comprehensive income for H1’12 recorded only an increase of 5% compared to H1’11 to AED 805.5M from AED 761M with Q2’12 actually recording comprehensive loss of AED -446K mainly on account of foreign currency translation loss. • Total interest bearing debt (incl. Sakuk) as of Jun’12 stood at AED 12,558M

compared to AED 12,323M, representing an increase of 3% y-o-y.

• Net debt as of Jun’12 stood at AED 8,763M up 7% from AED 8,179M as of

Jun’11 and negative 1.7% from AED 8,914M as of Dec’11. • Fixed asset portfolio including development properties, property, plant and equipment and investment properties stood at 70.4% of the balance sheet compared to 68.5% of balance sheet as of Jun’11. • Leverage (gross debt to assets) is almost unchanged at 0.2 as of Jun’12 from Jun’11 and Dec’11. Total Assets as of Jun’12 stood at AED 61,396M compared to AED 61,935M (-1% yoy) and AED 60,054M as of Dec’11 (+2% ytd). •

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 14 of 20

Valuation • We value Emaar based on SOTP (Sum of the parts) methodology. We value

the property developments assets of Emaar based on adjusted Net Asset Value. And value the recurring revenue portfolio (Retail, Rental/leasing and Hospitality) using capitalization method. Further, liquid assets (cash and receivables) are valued at book. • Fair value of development portfolio especially outside Dubai is adjusted for country specific political risk and JV specific issues which may inhibit realization of full value of the underlying assets. • We consider the capitalization rate method to be a suitable way forward for valuing the annuity like cash flows and risk characteristics of Emaar’s recurring revenue businesses (rental and hospitality). We model its Mall assets to generate long term sustainable net yield (operating profit to fair value of assets) of 8% whilst other revenue generating assets including the Hospitality portfolio is expected to produce long term sustainable net yield of

5%. We discount the yield on the recurring revenue portfolio at a

capitalization rate of 10% which is consistent to our long term return forecast

for UAE equities. (5% GDP growth rate + 2% inflation + 3% equity risk premium).

Assets Adjusted Fair Value per Valuation Method used Value share (AED) (AED millions) Our valuation provides roughly c.16% Development 32,483 5.0 Adjusted net asset value upside from the current market price Properties Retail/Leasing 10,849 1.7 Capitalization method. 8% rental yield for excluding estimated dividend yield of portfolio Mall assets, 5% for other asets. 10% about 2.8% capitalization rate Hospitality segment 3,122 0.5 Capitalization method. 5% rental yield and 10% capitalization rate Other revenue 702 0.1 Capitalization method. 5% rental yield generating assets and 10% capitalization rate Other liquid assets 7,820 1.2 Book value less 10% hair cut with respect of trade receivables Investment in 1,774 0.3 Primarily 30% stake is Emaar Economic associates City, valued at current stock price less 30% holding company discount Total earning assets 56,750 8.8

Less: Liabilities + -29,899 -4.6 Book value as of Jun'12 plus 2% of contingent liabiliities contingent liabilities Adjusted Net asset 26,851 4.1 Adjusted for dilution value

(See Apendix for more detailed break -up of individual segment valuation and key assumptions)

Our valuation provides roughly c.16% upside from the current market price excluding estimated dividend yield of about 2.8% (incl. dividend yield, total return is estimated to be c.20% over a 12 month investment horizon)

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 15 of 20

Relative Valuation The Table below provides summary valuation ratios for Emaar’s peer group from UAE, GCC, the sub-continent and Asia pacific. Peeg Group -Multiples Domestic Peer Group GCC Peer Group Sub-continent Asia Pacific Median Emaar Properties Sorouh Real Aldar Union Rak DFM DFM Realty Emaar Dar Al Ezdan Real United DLF Ltd Sobha Henderson China Pjsc Estate Properties Properties Properties General Index Economic Arkan Real Estate Co Real Estate Developers Land Overs eas Company Pjsc Pjsc Index City Estate Dev Company Ltd Development Land & Invest Country UAE UAE UAE UAE UAE UAE UAE KSA KSA QA KW IN IN HK HK Mkt Cap (USD '000s) 5,722,323 864,893 1,401,600 352,966 190,610 30,875,344 8,390,960 2,266,100 2,879,280 15,113,793 465,054 6,161,784 587,742 16,099,946 20,400,883 2,879,280 TTM PE Ratio 9.08 7.67 4.67 6.40 14.33 19.26 100.00 9.43 59.97 5.87 28.44 15.82 7.66 9.55 9.49 Price to Book 0.67 0.49 0.66 0.52 0.20 0.68 0.76 1.15 0.68 2.00 0.59 1.34 1.63 0.65 2.03 0.68 EV to TTM EBITDA 7.45 9.48 9.70 14.53 6.33 7.15 8.42 29.88 10.97 168.87 5.80 14.84 7.34 51.03 9.20 9.48

Total Debt to Equity 15.57 18.75 45.50 42.37 19.62 15.73 17.14 36.82 30.67 14.72 32.45 39.54 5.23 21.24 24.82 21.24 Divident Yield 2.90 4.10 3.94 NA NA 4.03 2.23 4.55 0.99 1.50 1.96 1.91 2.56 Return on Equity 6.58 7.63 4.80 6.65 4.20 8.74 6.37 6.40 7.01 5.72 11.20 3.69 19.91 6.58

Forward PE Ratio 9.80 5.50 12.45 7.70 7.00 23.09 8.71 17.45 11.22 16.84 8.84 9.80 Forward PB Ratio 0.64 0.47 0.69 0.53 0.20 0.73 0.73 1.13 0.66 1.24 1.48 0.65 1.92 0.69 Est. EV to EBITDA 8.26 7.87 13.46 11.68 10.37 19.82 9.84 11.96 5.71 27.29 6.73 10.37 Source: Bloomberg

Key observations: • Emaar’s is trading close of the median of its peer group on key multiples (PE; PB & EV-to-EBITDA).

• Current valuations discounts Emaar’s relatively lower balance sheet gearing

(debt to assets) and its competitive advantage in terms of its highly profitable rental/leasing portfolio. • Valuations for large cap property developers is richer outside of the GCC region as measured on by PE ratio, dividend yield and EV to EBITDA • RoE for the peer group ranges between 4-7%

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 16 of 20

Key Risk to our investment thesis and price target

• Delays in execution and costs overruns: Currently revenues from the property

development segment contribute about 50% of the aggregate revenues. Delays in development, as well as, unit sales can make quarterly revenues quite volatile. Further, delays and costs over-runs adversely impact gross margins. Property development segment contributes about 40-45% to aggregate gross

profit. Emaar has over the years, diversified into property development

overseas. As the proportion of overseas development to total development pipeline increases, the risks associated with international project management, legal issues specific to each local joint venture partner, country real estate laws and importantly, real estate outlook in each country of operation will become

incrementally more important to valuation of Emaar.

• Global economic uncertainty: Real estate prices like any other asset class is negatively correlated to investor risk aversion and level of political stability. Currently the global economic outlook is hazy given the EU debt crisis, the

painfully slow recovery in the US and slowdown in China, Brazil and India.

Heightened investor risk aversion, if the global investment climate were to worsen over the next 12 months would adversely impact Emaar through delays in development, lower realizations and downward revaluation of its property and investment portfolio. Emaar’s operations in Egypt, Syria and Pakistan are

exposed to high level of country specific political risk and it is probable for

Emaar to write down the fair value of its operations in these countries, especially Syria over the next 12 month time horizon. We consider escalation of EU debt crisis culminating into one or more members leaving the monetary union and its cascading impact on capital flows across asset classes as one of

the primary risk factors in the short term.

• The Indian JV with MGF is riddled with legal issues surrounding it: Over the past four years Emaar and its JV partner MGF have tried to publicly list its operations in India but have repeatedly been unable to do so. One of the primary reasons behind this has been the legal issues surrounding alleged

irregularities involving its projects in the country. Emaar’s JV owns approx. 44m

sqm land bank in India (second largest after KSA), inability to realize value from its Indian operations could be a drag on the balance sheet. We have however conservatively not attributed any value to its Indian JV with MGF.

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 17 of 20 Appendix

Emaar: Per share valuation Assets Book Value as Fair Value Adjusted Remarks of Dec-11 as of Dec-11 Value in AED millions Liquid Assets Cash and bank balance 2,865 2,865 4,196Cash balance as of Jun'12 less deposits under lein Trade receivables 777 776 641Trade receivables as of Jun'12 less 10% hair cut Other receivables 2,758 2,759 2,523Other receivables as of Jun'12 less 10% hair cut Liquid Assets -Total 6,400 6,400 7,360

Development Properties UAE 14,097 17,254 17,254FairvalueasofDec'11.Althoughproperty prices in key locations have increased this year in Dubai, we conservatively take prices at fair value as reported on Dec'11 Egypt 5,126 10,382 7,267FairvalueasofDec'11less30%hair cut on Egypt's recenteconomic woes and the potential long term impact on the tourism sector post the growing political clout of Muslim Botherhood in the country. We remain bullish on the long term outlook for Egypt's economy and real estate but current political and economic instability could put downward pressure on Egyptian Pound and hence the fair value of real estate in dollar terms. Delays in development with ongoing projects in Egypt is also quite probable, given the economic malaise in the country. India 79 79 71Fair value as of Dec'11 less 10% hair cut due to legal complications related to the project in Hyderabad with APIIC Turkey 2,811 3,670 3,303FairvalueasofDec'11less10%hair cut considering the deepining recession in EU countries and the fact that EU remains the single largest trading partner of Turkey. Hence, we estimate the economic malaise to spread to Turkeyin terms of tourist arrivals and foreign direct investment in the countryin near term which could than have modestly adverse effect on Real Estate prices in Turkey KSA 1,638 1,911 1,911Fair value as of Dec'11 Pakistan 634 1,427 999FairvalueasofDec'11less30%haircut on account of Pakistan's political instability and rising inflationary pressure on face of slowing global economic environment. Combination of inflation and slowing economy could adversely impact currency exchange rate and hence fair value of domestic investments in dollar terms Canada & USA 938 938 0WevaluetheNAmericanassetsatzeroforsake of simplicitygiven the state of real estate in NAmerica and the level of vaccancy rate associated with new developments Lebanon 478 1,015 914FairvalueasofDec'11less10%haircut given that risk that the war in Syria may spill over to neighbouring Lebanon.We however remain bullish on the long term demand for premium property development in the country and Lebanon current resilence inspite of the unprecedented war in neighbouring Syria. Syria 286 286 0WevaluethedevelopmentinSyriaatzeroforsake of simplicity given the war like situation in the countryand absence of credible law and order condition Morocco 524 764 764Fair value as of Dec'11 Development properties - 26,611 37,726 32,483 We value the total development properties at c.8.5% discount to the fair value as of Dec'11 Total Investment in Associates Emaar MGF (49%) 2,695 - - We attach no value to Emaar investment in associates except Emaar Economic Citywhich is publicly listed. This Emaar The Economic City 2,168 - 1,774 is primarily due to the fact that there is no clear and efficient mechanism through which Emaar minority (30.50%) shareholders can realize value of their indirect holding in these associates through Emaar. Additionally, given Amlak Finance (48.08%) 724 - - the current amount of information, we cannot estimate the true earning power of these associates. We value Emaar Industries and 174 - - Emaar 30% stake in publicly listed Emaar Economic City at 30% discount to its current market price. The 30% Invst (40%) discount reflects the holding company discount. Dead Sea Co. for Tourist 137 - - and RE Invst (29.33%) Emrill Services (33.33%) 20 - - Other associates 113 - - Emaar Bawadi LLC (50%) 404 - - Turner Intl ME (50%) 251 - - Others - - - Investment in associates 6,684 6,389 1,774 -Total

Investment Securities 898 897 460 100% of book value as of Jun'12 Investment Properties Dubai Mall and Marina 6,586 11,986 9,589 The rental/leasing assets is Emaar's crown jewel in term of free cash generation and revenue visibility. The Mall segment imparts valuable liquidity to the capex intense property development and Hospitality segment. We Burj Dubai (Souk Al 456 766 383 howevervalue the asset based on capitalization method where we expect the Mall assets to generate long term Bahar and other retail sustainable net yield of 8% and other retail assets to generate long term sustainable net yield of 5%. We use locations) discount rate (capitalization rate) of 10% for valuing both assets (Malls and other retail). The discount rate Burj Dubai Business 159 394 197 reflects our long term estimate of return on UAE equities. Square Gold and Diamond Park 176 316 158 Dubai Marina (Retail) 100 281 141 Other 420 541 271 (plots/schools/clinics, etc.) Other retail locations 101 222 111 Investment Properties - 7,998 14,506 10,849 Total Loans and advances to 3,116 3,117 0 We attribute zero value to loans and advances to associates associates Fixed Assets Hotels, Convention 4,370 6,244 3,122 We value the hospitality business and other revenue generating assets based on Capitalization method. We center and Service aprts. estimate long term sustainable yield on these assets to average 5%. Our capitalization rate remains same at 10% as used in valuing of rental/leasing portfolio, based on our long term estimate for retun on UAE equities. Emmar Business Park 50 116 58 We attribute no value to self occupied assets and other fixed investment that are not directly revenue producing District Cooling Plant 371 371 186 and have limited resale value or liquid secondary market. At the Top 132 132 66 Leisure and 784 784 392 entertainment and medical center Other assets (Self 2,594 2,594 - occupied, CWIP, Sales center etc.) Fixed Assets -Total 8,301 10,241 3,824 Total asset (adjusted) 60,008 79,275 56,750 Ouradjusted fairvalue of Emaarrevenue producing and other liquid assets is roughly 7% discount to its book Less: Liabilities -28,746 -29,219 -29,877Reported total liabilities plus minority interest as of Jun'12 Less: off b/s liabilities - - -22 5% of contingent liabilities as of Jun'11 are deducted from our valuations estimate Net asset value 31,262 50,056 26,851 Nos. of shares 6,091 6,091 6,091 outstanding Impact of Dilution - - 387 Convertible notes Total diluted share count 6,091 6,091 6,478 Value per share (AED) 5.1 8.2 4.1

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 18 of 20 Financial Snapshot In AED millions, except per share data and ratios FY2009a FY2010a FY2011a FY2012e

Property Revenues 6,236,206 9,269,980 4,750,766 3,924,531 Hospitality Revenues 667,155 979,614 1,224,438 1,457,081 Rental/Leasing Revenues 1,509,901 1,900,680 2,137,128 2,607,296 Total Revenues 8,413,262 12,150,274 8,112,332 7,988,908 Gross Profit 4,099,456 4,546,744 4,235,551 4,433,844 Selling, General and Admin expenses (1,911,865) (2,028,190) (1,924,680) (1,897,366) PBT 2,027,754 2,478,450 1,953,750 2,139,323 Net Profit 289,376 2,477,011 1,917,941 2,139,323 EPS Diluted (AED) 0.05 0.40 0.29 0.31 Development Properties 31,075,718 26,492,486 26,611,285 27,688,117 Property, Plant and Equipment 6,821,705 8,539,290 8,300,420 8,554,060 Investment Properties 8,546,087 8,110,081 7,998,584 7,981,506 Total Assets 64,144,798 62,504,328 60,054,106 62,301,351 Gross Debt 8,625,104 11,168,543 11,120,811 12,557,883 Cash and equivalents 2,266,835 5,041,701 2,865,272 4,015,749 Net Debt 6,358,269 6,126,842 8,255,539 8,542,134 Shareholders equity 28,677,316 31,068,924 31,308,235 32,883,452

% change year-on-year FY2009a FY2010a FY2011a FY2012e

Property Revenues -35% 49% -49% -17% Hospitality Revenues 16% 47% 25% 19% Rental/Leasing Revenues 203% 26% 12% 22% Total Revenues -21% 44% -33% -2% Gross Profit -22% 11% -7% 5% Selling, General and Admin expenses 0% 6% -5% -1% PBT -52% 22% -21% 9% Net Profit 134% 756% -23% 12% EPS Diluted (AED) 67% 700% -28% 6% Development Properties 16% -15% 0% 4% Property, Plant and Equipment 26% 25% -3% 3% Investment Properties -35% -5% -1% 0% Total Assets -4% -3% -4% 4% Gross Debt -6% 29% 0% 13% Cash and equivalents -58% 122% -43% 40% Net Debt 33% -4% 35% 3% Shareholders equity 2% 8% 1% 5%

Key Ratios FY2009a FY2010a FY2011a FY2012e % share of property dev to total revenue 74% 76% 59% 49% % share of hospitality to total revenue 8% 8% 15% 18% % share of rental/leasing to total revenue 18% 16% 26% 33% Gross margin -consolidated 49% 37% 52% 56% Yield on rental/leasing assets 7% 8% 10% 13% EBIT margin 28% 25% 33% 36% EBITDA margin 35% 32% 43% 36% Capex as % of sales 30% 1% 19% 17% Depreciation as % of sales 8% 7% 9% 15% Gross debt to total assets 13% 18% 19% 20% Net debt to total assets 11% 11% 15% 15% Return on (avg.) Capital employed 4% 5% 4% 5% Return on (avg.) equity 1% 8% 6% 6%

Vision Research Notes: Shareholders equity excl minority interest; Yield on rental assets computed as PBT from the segment divided by avg. segment assets;

VISION INVESTMENT SERVICES CO. (S.A.O.C.) INITIATING COVERAGE: EMAAR PROPERTIES Page 19 of 20

Disclosure The author(s) certifies(y) that the opinion(s) on the subject security (ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. We also certify that neither the analyst nor his/her spouse or dependants (if relevant) hold any beneficial interest in the security (ies) mentioned in this report.

Disclaimer This report is provided for information purposes only. The report is based on information generally available and is deemed reliable but no assurance is given as to its accuracy or completeness. Vision Capital is not accountable for any decision based on the contents of this report. Neither the information nor the opinions contained are to be construed as an offer to buy and sell securities mentioned above. This report is not to be relied upon in substitution for the exercise of independent judgment. Investors should judge the suitability of the securities to their needs. Vision Capital makes no representation that the preparation or distribution of this report is in compliance with the legal requirements or regulations of any jurisdiction, and it disclaims all liability in case the preparation or distribution of this report is found to be non-compliant with any such legal requirements or regulations.

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