ANNUAL REPORT 2019 1 Crown Prince Mohammad Bin King Salman Bin Salman Bin Abdulaziz Abdulaziz Al Saud Al Saud The Custodian of Deputy Premier the two Holy Mosques and Minister of Defense 2 3 TABLE OF CONTENTS COMPANY OVERVIEW 6 MESSAGE OF THE CHAIRMAN 8 STRATEGIC REVIEW 10 MESSAGE OF THE CEO 10 OUR MARKETS 11 OUR STRATEGY 14 OUR OPERATING MODEL 15 RESIDENTIAL AND COMMERCIAL DEVELOPMENT 16 PROPERTY MANAGEMENT AND LEASING 32 OUR CAPABILITIES 34 HUMAN RESOURCES INITIATIVES 36 SALES & MARKETING HIGHLIGHTS 37 INFORMATION SYSTEMS 40 FINANCIAL REVIEW 41 MESSAGE OF THE CFO 41 BUSINESS ACTIVITIES 42 THE COMPANY’S SUBSIDIARIES 42 INVESTMENTS IN SUBSIDIARY COMPANIES AS DEFINED BY THE RULES OF THE CAPITAL MARKET AUTHORITY (“CMA”) 43 DESCRIPTION OF COMPANY’S ACTIVITIES AND CONTRIBUTION TO REVENUES 43 FINANCIAL HIGHLIGHTS 44 DEBT PROGRAM 48 RELATED PARTY TRANSACTIONS 50 INVESTOR RELATIONS AND SHAREHOLDER INFORMATION REVIEW 52 STOCK PERFORMANCE 52 INVESTOR COMMUNICATION 53 INVESTOR INFORMATION 54 BOARD OF DIRECTORS 55 ABOUT THE BOARD 55 MEMBERSHIP OF THE BOARD 57 INTEREST IN CONTRACTUAL SECURITIES AND UNDERWRITING RIGHTS 58 MEETINGS ATTENDANCE 59 BOARD COMMITTEES 60 BOARD UNDERTAKINGS 61 RISK FACTORS 62 GOVERNANCE AND REGULATION 65 CORPORATE GOVERNANCE 65 THE PROVISIONS OF THE CORPORATE GOVERNANCE REGULATIONS, UNLESS APPLICABLE, AND THE REASONS FOR THIS 65 REMUNERATION AND COMPENSATION PAID TO THE BOARD MEMBERS AND SENIOR EXECUTIVES AND COMPENSATION 66 PENALTIES AND FINES 66 INTERNAL AUDIT 67 CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT 69 4 5 COMPANY OVERVIEW YANBU DAMMAM Al Mourjan Juman Project Seashells Project Capital 10.8 Billion Saudi Riyals DUBAI I Love Florence Tower Assets MEDINA 28 Naeem El Jiwar, Billion Saudi Riyals JEDDAH Al Manar, Golden Coast, Investments in Lands and Properties Shams Al Arous, Qasr Khozam 19 Billion Saudi Riyals RIYADH MECCA Qurtoba, Al Rabie Azizia Towers Shams Al Riyadh Abrar Towers Ishbiliyah, Al Mesyaf Al Qasr Mall Al Munsiyah, Al Falah, Parisiana, Al Tawoun, Al Yarmouk 1994 2005 2007 2013 2017 2018 2019 Founded on Dar Al Arkan Issuance of the first Opening of Al Qasr Launching I Love Launching Mirabila Opening of 15 28 Dec 1994 becomes a joint Sukuk in the value Mall in Riyadh Florence tower in the first phase of screen VOX cineplex stock company by of $600 million Dubai as the first Shams Ar Riyadh in Al Qasr Mall ministerial decree in Feb 2007 and international project development in the number 1021 maturing in Mar Saudi capital Issuance of 10th 2010, listed on the Sukuk in the value Dubai NASDAQ Issuance of Sukuk in of $600 million the value of $500 in Oct 2019 and Listing of Dar Al million in Mar 2018 maturing in Feb Arakan on the Saudi and maturing in Apr 2025, listed on the Stock Ex- change 2023, listed on the Dubai NASDAQ Tadawul Dubai NASDAQ 6 7 CHAIRMAN’S MESSAGE Yousef Abdullah Al Shelash Chairman On behalf of the Board of directors, I am Sukuk X, a $600M Islamic Sukuk that was hugely delighted to present Dar Al-Arkan’s Annual oversubscribed by local, regional and international Report, for the year ending 31st investors. We are very proud of being a pioneering December 2019. Saudi corporate in this universe and of the trust credit investors have in our stewardship of their capital. Dar Al Arkan will not only be known “ for being a premier developer of These actions allowed us to continue to build bricks and mortar but also for being liquidity on the balance sheet, in preparation for capital deployment, as the Saudi market rebounds on the frontier of using technologies from its recent slump. Having this flexibility will that improve efficiency and allow us to access attractive opportunities and productivity and reduce customer will position us as a partner of choice for private acquisition costs. and government entities in search of development know how. 2019 marks the 25th year of operation for At Dar Al Arkan we aspire to be the premier real Dar Al Arkan, a quarter of a century in the estate developer in the Kingdom. The real estate service of our customers, investors and our sector is a major contributor to the economy, beloved Kingdom. What had started as an and guided by the Saudi Vision2030, under entrepreneurial project in 1994 is today a leading the guidance of the Custodian of the Two Holy publically listed Saudi corporate and a standard- Mosques, King Salman Bin Abdulaziz Al Saud, and bearer for the real estate sector. Our journey The Crown Prince Mohammad Bin Salman Bin together has been filled with achievements; from Abdulaziz Al Saud, our solutions aim to play an our first urban development project in Riyadh, Al integral role in delivering on the objectives of the Taawon, followed by Ishbilia, Parisiana the 3,500 Vision2030 for the real estate sector. units’ community and Al Qasr Mall with the first 15-screen cinema multiplex in Riyadh, to the Looking to the future, we recognize that relaunch of Shams Ar Riyadh in collaboration with the real estate sector is ripe for digital and Roberto Cavali. In addition to our maiden project technological evolution. This sector has been outside our home market, the I Love Florence run historically along very traditional lines. We tower in Dubai. see great opportunities to deploy technologies across the value chain to bring the sector into This journey has not been without its challenges. the 21st century. We will bring in solutions for Together we weathered local economic Customer Relationship Management (CRM), use corrections and global financial crises. These trials Big Data and Artificial Intelligence (AI) in lead only made us stronger, adding to our experience generation and management as well as Blockchain in managing market volatility and changing applications in contract development. In addition, operating environments. Today, I am proud to we will investigate the adoption of Smart Home say that twelve years past our 2007 listing on solutions in our product development. Dar Al Tadawul, Dar Al Arkan is a major player not only in Arkan will not only be known for being a premier the Saudi real estate market but also in the Saudi developer of bricks and mortar but also for being public equities market as well as the global debt on the frontier of using technologies that improve capital markets. efficiency and productivity and reduce customer acquisition costs. With underlying markets improving, 2019 was another successful year. We witnessed a rebound Turning to all our stakeholders, I would like to in our margins, which averaged 24% for the thank my fellow Directors for their honest and full year 2019. Furthermore and after building wise counsel during the year. On behalf of the considerable liquidity during 2017 and 2018, we Board, I would also like to express our gratitude started replenishing our land bank and ended to Dar Al Arkan’s management and most the year as net investors having deployed SAR importantly the entire staff for their hard work. It 5.4 billion. The strength of our financials and is only through their exceptional work ethic and operating model was recognized by the markets dedication that we can deliver superior results. as our share price delivered sector leading returns. 2019 has been another stellar year in the Dar Al Arkan is always anchored in prudent and storied history of this firm. As we look forward, conservative financial management. A milestone with optimism, to the years ahead, we remain for 2019 was the repayment in May of Sukuk IX, steadfast in our ambitions and confident in our SAR 1.5 billion from our internal resources. In ability to generate superior shareholder value. October, we completed the successful issuance of 8 9 STRATEGIC REVIEW OUR MARKETS Message of the C.E.0 The Saudi market represents a secular growth Total Population (Age/Gender) as of Jun 2019 opportunity for real estate development. The drivers of growth are anchored in 4 pillars: 80+ FEMALE 75-79 MALE 70-74 • Positive demographic trends Dar Al Arkan is indeed very well 65-69 “ 60-64 positioned to not only benefit from • Structural supply deficit the Saudi real estate market changes 55-59 • Relatively low home ownership penetration 50-54 but to effectively take a leading role • Government focus and support 45-49 in shaping the outcomes. 40-44 35-39 A young and growing population with circa 30-34 60% below the age of 30 and a total 25-29 population expected to reach 37.4 million by 20-24 2024. The evolving labor mobility and societal 15-19 Anand Raheja norms are increasing demand for housing stock 10-14 Chief Executive Officer for young professionals and newly formed 5-9 0-4 2019 was a transition year in many respects. Furthermore, our completed projects, Al Tilal families. Internally, we had a passing of the baton in Madina and Parisiana in south Riyadh are Source: General Authority of statistics (2019) both at CEO and CFO levels. Importantly, seeing improved interest especially from the these changes were seamless with internal beneficiaries of the Ministry of Housing Sakani appointments, as I moved from CFO to CEO program. and my colleague Philip Antony, a twelve years veteran of Dar Al Arkan’s Finance We are strong believers that new operating department, took over the CFO brief. These models will drive the next growth phase in the changes underline the depth of talent at senior Saudi residential market. Partnerships between management levels, but also critically signal asset owners and developers, private and public Population (mn) a continuity in the execution of our current sectors, as well as novel living concepts will strategic direction set by the board of directors.