isc dll study - final report - july 2012

The Investor for Securities

FINANCIAL FEASIBILITY REPORT

JULY, 2012

PREPARED BY: COLLIERS

INTERNATIONAL

PREPARED FOR: THE INVESTOR FOR

SECURITIES.

Ref Code: HBU/ISC/11.06.2012

FINAL

COLLIERS INTERNATIONAL 2 of 109 Financial Feasibility Report

Version Control

Status Final

Project ID HBU/ISC/11.06.2012

Filename/Document ID ISC.DLL Study - Final Report - July 2012

Last Saved 24 July 2012

Owner Bilal Siddiqui / Mohammad Al Aqqad

Director Ibrahim Al Rashed / Sari Anabtawi

Approved by Imad Damrah

Date Approved 24 July 2012

COLLIERS INTERNATIONAL KSA

[1] Almas Tower

King Fahad Road

PO Box 5678

Riyadh 11432

Tel: +966 (1) 4661517

[2] Jameel Square Tower

Prince Mohammed bin Abdulaziz St (Tahlia)

Tel: +966 (2) 6105900

www.colliers-me.com

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TABLE OF CONTENTS 1 Project Introduction 5

2 Executive Summary 6

3 Site Location Analysis 7

3.1 Macro Location 7

3.2 Micro Location 8

3.3 Site Accessibility 10

3.4 Proximity to Demand Generators 13

3.5 SWOT Analysis 16

4 Competitive Review 17

4.1 Laban 7 18

4.2 Dharat Laban 4 19

4.3 Laban 6 20

4.4 Laban 5 21

4.5 Summary of Comparable Land Subdivision 22

4.6 Market Research Key Findings 23

5 Development Concept 25

5.1 Rationale for the Concept 25

5.2 Parcel A 27

5.3 Parcel B 30

5.4 Parcel C 32

5.5 Land Subdivision Pricing Strategy 40

6 Financial Analysis 44

6.1 Scenario A 44

6.2 Scenario B 47

6.3 Conclusion 50

7 Summary Conclusion 51

8 Limitations of This Report 52

APPENDICES

1 Saudi Arabia Macroeconomic Overview 55

2 Microeconomic Analysis 67

2.1 Location and Area 67

2.2 Demographic overview 67

2.3 Riyadh city Expansion 72

3 Residential Segment 76

3.1 Overview 76

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3.2 Characteristics 77

3.3 Residential Supply 81

3.4 Performance 82

3.5 Demand Supply Analysis 91

3.6 Large Scale Developments 95

3.7 Outlook 108

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1 PROJECT INTRODUCTION Colliers International has been appointed by The Investor for Securities. (Client

orISC) to assess the financial viability of the development concept on a parcel of

land (the Subject Site) measuring a total of approximately 1.36 mn sqm. The

Subject Site is located in west Riyadh, at the intersection of Western Ring Road

and Makkah Road.

Based on Colliers understanding of the Clients requirements, the principal

purpose of the study is summarized as follows:

1 Investigate the market and site potential for land development (i.e. land

subdivision development options) through market research (e.g. demand,

supply and comparable/best practice case studies)

2 Determine critical success factors or key ingredients for success (including

typical plot size, road width and innovative suggestions to differentiate the

Subject Site from competing developments)

3 Test the financial viability of the land subdivision development concept on the

Subject Site

This report details Colliers market findings, site assessment and development

recommendations for the Subject Site. The report also includes financial viability

assessments on the proposed development recommendations.

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2 EXECUTIVE SUMMARY Colliers International is committed to assess the financial viability of a land

subdivision development concept for the Subject Site which measures

approximately 1.36mn sqm.

The Subject Site is located in west Riyadh at the intersection of Western Ring

Road and Makkah/Jeddah Road.

The Subject Site shows good potential for land subdivision, while varying parcel

sizes could be allocated to different land uses:

Parcel A: Land to be used primarily for residential purposes, while a large land

provision is to be used for a retail development.

Parcel B: Similar to its immediate surrounding area, Parcel B could be

developed through conventional land subdivision.

Parcel C: Given its large land size and excellent location, parcel C could

include:

A Semi Gated Community

A Gated Community (Residential Compound)

Large Superblock for Mixed Use Development (Retail and Residential)

Conventional Land Parcels for Commercial and Residential

The following exhibit summarizes the financial viability assessment of the

development concept. The results indicate that the land subdivision concept is

able to achieve an IRR of 20% (rounded IRR) under Scenario A and an IRR of

17% (rounded IRR) in Scenario B:

Exhibit 1: Project Cash flows and IRR Summary

In SAR Scenario A Scenario B

Total Revenue 1,599,556,891 1,613,701,538

Total Land Cost (1,116,762,920) (1,116,762,920)

Total Infrastructure Cost (71,723,749) (72,483,080)

Total Capital Expenditure (1,188,486,669) (1,189,246,000)

Net Cash Flow 411,070,222 424,455,538

Payback Period Q9 Q11

IRR c.20% c.17%

Source: Colliers Analysis, 2012,

Note: IRR computed using quarterly results, some rounding error may occur.

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3 SITE LOCATION ANALYSIS This section of the report describes the nature, location and accessibility of the

Subject Site. In this section, Colliers analysed the areas surrounding the Subject

Site and the potential demand generators to determine appropriate land

subdivision development options.

3.1 MACRO LOCATION

Riyadh is located in the centre of Saudi Arabia, is the capital of the country and its

largest city. The subject site is located in west Riyadh. The following exhibit shows

the location of the Subject Site within Riyadh:

Exhibit 2: Macro Location of Subject Site

Sources: Google Maps, 2012

Colliers Research, 2012

The Subject Site is located at the junction of Makkah Road and Western Ring

Road, two of Riyadhs major thoroughfares. The land parcel is irregularly shaped

and measures approximately 1.36 mn sqm.

Subject Sites

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3.2 MICRO LOCATION

For ease of reference, Colliers divided the Subject Site into three parcels: Parcel A

(250,922 sqm), Parcel B (200,058 sqm) and Parcel C (910,925 sqm). The Subject

Site is located in close proximity to Dhahrat Laban, Tuwaiq and Uraija Al Gharbi

Districts. The following exhibit depicts the distance between the Subject Site and

nearby thoroughfares:

Exhibit 3: Micro Location of Subject Site



The Subject Site is a raw land parcel that requires minor levelling which will result

in additional excavation work. This will lead to increased infrastructure spending.

Parcel B

Parcel A

Parcel C

Area: c.250,922 Sqm

Area: c. 200,058 Sqm

Area: c. 910,925Sqm

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The Subject Site enjoys excellent visibility due to its presence at the junction of

Makkah Road and Western Ring Road. The site has good overall accessibility;

however, certain sections of the land are currently difficult to access due to its

significant size. This is due to the relatively undeveloped infrastructure in the

surrounding area, apart from the major thoroughfares. The following exhibit

illustrates the surrounding land use of the Subject Site:

Exhibit 4: Surrounding Land Use of the Subject Site

Sources: Colliers Research, 2012

Google Maps, 2012

Note: The site boundaries illustrated in the above exhibit are indicative only.

The residential areas surrounding the Subject Site comprise primarily low to mid

income districts (e.g. Tuwaiq and Dhahrat Laban). The eastern section of the

Subject Site is within close proximity to the Diplomatic Quarter and offers high end

residential areas (including palaces). A number of palaces are also located on the

western side of Al Wadi Road, which adds increased security to the area. Other

land uses surrounding the Subject Site include:

Hospitality developments: The Ritz Carlton

King Saud University

GCC Council

King Khalid Eye Specialist Hospital

Diplomatic Quarters

King AbdulazizConference Centre

The Ritz Carlton

Wadi Hanifa

Yamamah Palace

Courtyard by Marriott

Dhahrat Laban

Tuwaiq Uraija Al GharbiUraija Al Awsat

HospitalityResidential Government Other

Subject Site

Hijrat Laban

Large Palace

Police Station

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Governmental institutions: King Abdulaziz Conference Centre

Other developments: Wadi Hanifah and Diplomatic Quarters

The residential areas surrounding the Subject Site have a shortage of commercial

developments with only minor street retail presence on Al Wadi Road.

The following exhibit illustrates the Subject Site and its parcel shapes:

Exhibit 5: Parcel Shapes and Various Snapshots

Source: Colliers Research, 2012

Notes: The parcel sizes are not drawn to scale.

Additional pictures of Parcel C are not available due to high security of the area.

3.3 SITE ACCESSIBILITY

The Subject Site has good overall accessibility due to its prominent location on the

junction of Makkah Road and Western Ring Road. The three land parcels are all

corner plots with road frontages which allows for improved accessibility. However,

certain parts of the parcels are currently inaccessible due to the significant size of

the Subject Site and the undeveloped nature of the land.

The following exhibit illustrates the access points to the Subject Site:

Parcel A

Parcel B

Parcel C

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Exhibit 6: Subject Site Accessibility

Parcel A Parcel B

Parcel C


A

Access from Western Ring Road Access from Makkah Road

B


C


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Riyadhs upcoming public transport works will further improve access to the

Subject Site through its east to west Mono Rail on King Abdullah Road and its

major Bus Route, which passes by Parcel C.

The project is divided into two phases:

Phase 1 measures 25 km and will operate between Olaya Road and Batha

Road, connecting North Ring Road to South Ring Road

Phase 2 is expected to connect Sheikh Jaber Al Ahmed Al Sabah Road to West

Ring Road through King Abdullah Road

The citys public transport project is expected to commence in the near term and

has an expected completion date of late 2016/early 2017. The Subject Sites

proximity to the nearest bus station will be beneficial to future users of the

envisaged development. The following exhibit illustrates the location of the Subject

Site in relation to Riyadhs planned major and minor public transportation works:

Exhibit 7: Major and Minor Public Transport Links

Sources: ArRiyadh Development Authority, 2012


Subject Site

Proposed Metro

Major Bus Route

Peripheral Bus Route

Minor Bus Route

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3.4 PROXIMITY TO DEMAND GENERATORS

3.4.1 KING KHALID INTERNATIONAL AIRPORT

The Subject Site is located approximately 39 km (radial distance) from King Khalid

International Airport. The airport can be accessed in 45 60 minutes through two

primary routes:

Prince Salman Road: 48 km

Northern Ring Road: 45 km

The following map illustrates the aforementioned routes between the Subject Site

and the airport:

Exhibit 8: Proximity to King Khalid International Airport



3.4.2 PROXIMITY TO OTHER DEMAND GENERATORS

A number of major demand generators of the Subject Site are located east of the

site while west of the Subject Site houses primarily new and upcoming residential

areas. The following exhibit depicts the land use of the area surrounding the

Subject Site and its demand generators:

Subject Site

King Khalid International Airport

Western Ring Road

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Exhibit 9: Area Surrounding the Subject Site and its Key Demand Generators

Demand

Generator

Description

KSU - Riyadh

Techno Valley

King Saud University is seeking to develop a 1.7 million sqm science

and technology park known as the Riyadh Techno Valley on its

Riyadh campus. Main research & development areas of interest are

bio-technologies, pharmaceuticals, water, chemicals,

petrochemicals, energy, ICT, and information security.

KSU - King

Saud University

Endowment

The King Saud University and its endowment projects comprise 11

separate buildings and are major demand generators in the area.

The project will include a convention centre, a retail mall, a medical

building, 50 floors of a seven star hotel tower, a 250 key five star

hotel, 2 serviced apartment buildings and 5 office buildings. Amongst

expansion projects underway is a five star hotel and serviced

apartment under contract by Hilton Hotels and Resorts.

King Abdullah

Financial District

Upon Completion, King Abdullah Financial District will become a

major Central Business District (CBD) and will house properties for

the financial sector and related industries. Buildings as a part of King

Abdullah Financial District include the headquarters of Capital Market

Authority, Stock Exchange, financial institutions, rating agencies,

consultants, and IT providers. King Abdullah Financial Business

Districts can be easily accessed via the Western/Northern Ring Road

from the Subject Site, and its effect on the sites will be less marked

than that of other demand generators.

ITCC Complex

Diplomatic Quarters

King Saud University

King Abdulaziz

Conference Centre

KAFD

Wadi Hanifa

The Ritz Carlton

Subject Sitec.10 Km

Completed

Under Construction

Legend

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Demand

Generator

Description

Information

Technology and

Communications

Centre

The Information Technology and Communications Centre is

expected to be completed in Q3 2013 and will include a mix of

residential and commercial buildings. The project will span 776,000

sqm and will primarily contain buildings for IT companies, technical

business centres, and buildings for research, training and

development, as well as software production companies. Support

buildings under the project include hotels, restaurants, a convention

centre, residential apartments, a technical college and government

service buildings.

Ritz Carlton

Upon completion in 2011, The Ritz Carlton became one of the most

popular hotels in Riyadh due to the hotels prestigious style and

unique decor. The hotel features 493 rooms, 3 restaurants and over

5,800 sqm of conference space. Similar to the Intercontinental Hotel,

Ritz Carlton benefits from a high number of government and foreign

embassy functions mostly due to its location. The hotel is situated

immediately across from the diplomatic quarter and the neighbouring

King Abdulaziz International Conference Centre.


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3.5 SWOT ANALYSIS

Strengths Weaknesses

Given the significant size of the land parcels, the site

could be developed into a major urban site.

Located in low density / upcoming area, apart from the

city centre traffic congestions.

Bordered by major thoroughfares, Makkah Road and

Western Ring Road.

Good accessibility due to the Subject Sites corner

location at the intersection of Makkah Road and

Western Ring Road.

The Subject Site (Parcel C) is adjacent to Wadi Hanfia,

which is considered as an attractive area for residential

developments due to its attractive typography.

The sites typography comprises levelled and

unlevelled fields.

The Subject Site is located far from Riyadhs major

CBDs.

Site attractiveness is relatively weak (compared to

North and Northeast Riyadh) as the surrounding area

is mostly upcoming, hence it will take considerable

time to be considered as an established

neighbourhood.

Opportunities Threats

Due to location and size of the Subject Site, potential

land subdivision could offer major urban generation

opportunities (releasing significant amounts of

commercial and residential units), which could further

extend Riyadhs economic activity towards the west.

The area surrounding the Subject Site is characterised

by mostly low population density neighbourhoods

which may induce demand for a potential commercial

development.

The proximity of Wadi Hanifa and the excellent

connectivity of the Subject Site provide opportunities

for suburban community developments such as

residential compounds and semi gated communities.

The areas shortage of relevant activity for residential

developments such as schools, hospitals and retail

creates challenge for the development of an attractive

residential development.

North and northwest Riyadh are becoming the prime

focus of many developers and landowners, thus quick

development of the site will increase future potential

demand opportunities.

The envisaged development should seek to increase

footfall in the surrounding area as the natural (i.e.

population and urban) growth of the city is primarily

concentrated in the north.

Source: Colliers Analysis, 2012

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4 COMPETITIVE REVIEW The purpose of this section is to provide an in-depth assessment of west Riyadhs

Urban Land Development. This includes master planned communities (under

development and completed) and land subdivision (traditionally subdivided land).

Exhibit 10: Location of Sampled Masterplans


Google Maps, 2012

To further understand the nature and success factors of each of the above

mentioned masterplans, Colliers evaluated the masterplans separately through the

following case studies:

Number Masterplan Name Total Area (Sqm)

1 Masterplan 7 1,290,000

2 Masterplan 4 6,200,000

3 Masterplan No. 6 1,230,000

4 Masterplan No. 5 4,280,500

1

12

2

3

3

4

4

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4.1 LABAN 7

Masterplan No. 7 is located in Al

Ahmadiyah District of west Riyadh. The

masterplan consists of primarily

residential developments (villas and

apartments) while a limited number of

commercial developments (mostly line

shops) are situated on the major roads.

Masterplan No. 7 is located

approximately 1.7 km south of the

Subject Site.

The following exhibit summarizes the features of Masterplan No. 7:

Exhibit 11: Masterplan Configuration

Land Subdivision Configuration

Land Size (Sqm) c.1,290,000

Target Segment Mid Income

Sellable Land (% of Total Land) 61.5

Sellable Land (Sqm) 793,350

No. of Superblocks 81

Max. Size of Block (Sqm) 32,850

Min. Size of Block (Sqm) 5,750

Typical Size of Block (Sqm) 9,750

Typical Road Width (M) 20

Built-Up Area / Plot Characteristics

Typical Residential Plot Size (Sqm) 400

Typical Commercial Plot Size (Sqm) 900

Maximum Building Height G+3

Average Residential Land Price (SAR/Sqm) 1,850

Average Commercial Land Price (SAR/Sqm) 2,200

Average Sale Price of Apartment (SAR/ Sqm) 3,350

Average Sale Price for Villa (SAR) 2,700


Note: * due to large variation between the block and land parcel sizes, Colliers

assumed typical block sizes based on an estimated average.

Masterplan No. 7 has been

traditionally subdivided with the

essential infrastructure and

requisite civic facilities.

The masterplan is 80%

developed.

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4.2 DHARAT LABAN 4

Masterplan No. 4 is located in the Dharat

Laban District of west Riyadh and is

situated adjacently to parcels A and B of

the Subject Site. The masterplan is one of

the largest in Dharat Laban and comprise

a variety of residential and commercial

developments. The typical residential

developments within the masterplan are

villas targeting the middle and upper mid

income classes. Western Ring Road passes through the masterplan.

The following exhibit summarizes the features of Masterplan No. 4:



Land Size (Sqm) 6,200,000

Target Segment Middle Income t

Sellable Land (% of Total Land) 60


Sellable Land (Sqm) 3,720,000








Maximum Building Height N/A


Average Commercial Land Price (SAR/Sqm) 1.500

Average Sale Price of Apartment (SAR/ Sqm) N/A



Note: * due to large variation block and land parcel sizes, Colliers assumed typical

block sizes based on an estimated average.

FINAL


4.3 LABAN 6

Masterplan No.6 is located in Al Ahmadiyah

District of west Riyadh and is situated

adjacently to parcel C of the Subject Site.

The masterplan comprise a variety of villas

and apartments alongside commercial

developments (primarily line shops) along

30m wide roads.

The following exhibit summarizes the

features of Masterplan No. 6:




Target Segment Middle Income

Sellable Land (% of Total Land) 62.2


Sellable Land (Sqm) 765,060








Maximum Building Height G+3


Average Commercial Land Price (SAR/Sqm) 2,200

Average Sale Price of Apartment (SAR/ Sqm) 3,350





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4.4 LABAN 5

Masterplan No. 5 is located in the Dharat

Laban District of west Riyadh, and is

adjacently situated to Masterplan No. 4. The

masterplan mostly constitute of villas that

target the middle and upper mid income

classes. Al Riyadh Football Club is known as

Masterplan No. 5s unique development.

The following exhibit summarizes the features

of Masterplan No. 5:




Target Segment Upper Mid

Sellable Land (% of Total Land) 61


Sellable Land (Sqm) 2,611,105








Maximum Building Height N/A


Average Commercial Land Price (SAR/Sqm) 1.500

Average Sale Price of Apartment (SAR/ Sqm) N/A





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4.5 SUMMARY OF COMPARABLE LAND SUBDIVISION

For the purpose of our analysis, Colliers assessed each of the previously outlined

land subdivisions based on their accessibility and location relative to Riyadh, and

their level of competition with the Subject Site:

Exhibit 15: Competitive Masterplans Rating

Masterplan Location Accessibility Level of Competition

Masterplan No. 7

Masterplan No. 4

Masterplan No. 6

Masterplan No. 5

Legend

Above

Average Average

Below

Average

Source: Colliers Assessment, 2012

Exhibit 16: Snapshot of Research Masterplans

Category Masterplan No. 7 Masterplan No. 4 Masterplan No. 6 Masterplan No. 5

Land Size (Sqm) 1,290,000 6,200,000 1,230,000 4,280,500

Target Segment Upper Mid Low Income Upper Mid Low Income

Sellable Land (% of Total Land) 61.5 60 62.2 61

Non Sellable Land (% of Total Land) 38.5 40 37.8 39

No. Blocks 81 310 65 163

Typical Size of Block (Sqm) 9,750 10,250 8,600 7,800

Typical Road Width (M) 20 20 20 20

Sellable Land (Sqm) 793,350 3,720,000 765,060 2,611,105

Typical Residential Plot Size (Sqm) 400 600 400 600

Typical Commercial Plot Size (Sqm) 900 900 900 900

Average Residential Land Price

(SAR/Sqm) 1,850 1,000 1,850 1,000

Average Commercial Land Price

(SAR/Sqm) 2,200 1,500 2,200 1,500

Average Sale Price of Apartment (SAR/

Sqm) 3,350 N/A 3,350 N/A

Average Sale Price for Villa (SAR/Sqm) 2,700 2,250 2,700 2,250


The above mentioned masterplans follow the regulations determined by the

Ministry of Municipal and Rural Affairs (MOMRA);

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According to the researched sample, the percentage of sellable land/total land

area is between 60% and 63%.

Nearly 43% of the total land area is designated for civic facilities and amenities

such as roads, pedestrian walkways, mosques and public gardens.

Based on results from the research sample, plot sizes of villa residential offerings

in west Riyadh are significantly larger than those in north Riyadh and range from

400 to 600 sqm per plot.

Land prices are much lower in west Riyadh than in north Riyadh. Masterplans 4

and 5 have an average residential land price of SAR 1,000/Sqm while

Masterplan 6 and 7 show an average price of SAR 1,850/Sqm.

4.6 MARKET RESEARCH KEY FINDINGS

Riyadh has observed an undersupply of housing due to a rising population and

declining household sizes. Although the soaring demand in the citys residential

market has provided great opportunities for landowners and investors, excessive

land trading and speculations have resulted in overcrowding with high occupancy

rates and residential density.

The unsatisfactory housing situation is further reflected by the sharp increase in

residential units sale and rental prices as well as the sale prices for serviced

plots/blocks. Colliers key findings and observations are listed below:

Riyadh is experiencing sustained growth in residential demand; however

residential supply is mostly limited and are widely driven by small, mid and infill

developers without the financial capacity to fulfil the overall demand.

Riyadh has a limited amount of large-scale residential master planned

communities, most of which are either at early stages of planning and/or are

currently on hold. Block and infill residential developers are taking the lead in

driving the residential supply of finished/completed homes in Riyadh.

Riyadhs low to mid-income population drives a large proportion of the citys

demand for residential housing, particularly in the southern and western districts.

Demand for upper mid and high-end residential units is high in the northern and

north-western parts of Riyadh where more of the recent/upcoming masterplan

communities and land subdivision are located.

North and north-west Riyadh have observed an increase of traditionally

subdivided lands (land-subdivision) developed by infill and block developers as a

result of improved road networks. Land prices (raw and serviced) in these areas

have also taken a major hike in recent years due to the announcement and

completion of the new Ring Road and Prince Salman Bin Abdulaziz Road.

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West Riyadh has seen slower growth when compared to north Riyadh. North

Riyadhs success in attracting high real estate activity is primarily due to the

good road network that links the area to central, west and east Riyadh and major

upcoming developments within the area (such as Rafal Tower, KAFD etc.)

Large-scale master planned residential communities (e.g. Ajmakan by the Land

Holding and Durrat Al Riyadh by Dallah Al Baraka Group) are progressing slowly

with a few stopping completely (i.e. Al Juwan by Ewaan stopped work completely

and has sold the land under development while Nassamat Arriyadh by Thabat

Company has been cancelled). On the contrary, land-subdivision is rapidly

expanding towards northern and western peripheries of Riyadh, and the delivery

of residential supply is mostly driven by mid scale and infill developers. The

following summarizes the status of master planned communities in Riyadh:

Some of the announced master planned communities failed to obtain

approvals due to their inability to comply with the municipalitys development

guidelines.

Some of the master planned residential communities are on hold until the

Mortgage Law is effectively implemented, as affordability remains a key barrier

for potential homeowners. A high proportion of Riyadhs households are highly

exposed to car and other personal loans which exceeds 35% to 40% of their

monthly income. This has disqualified many from obtaining mortgages from

banks and/or home financing companies.

Another major factor affecting the progress of master planned residential

communities is the continuous increases in land prices. Zoning policies are not

very clear and can indirectly generate land price increases; hence fewer

margins can be achieved by master-developers.

Demand momentum on housing units within master planned communities

situated at the outskirts of Riyadh is limited. This is primarily attributed to the

lack of functioning public facilities and services in the area which are the

responsibility of the municipalities. These facilities/services are highly effective

in the inducement of demand and include schools, mosques, civil defense

facilities, police stations, postal services, and health facilities. Consequently,

many of the previously announced master planned communities in areas

without these facilities/services are either on hold or are still in their planning

stages.

Financial institutions and banks are reluctant to offer full financing resources to

these projects due to landowners/master-developers inflated land prices, low

equity contributions, and excessive reliance on off-plan sales.

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5 DEVELOPMENT CONCEPT

5.1 RATIONALE FOR THE CONCEPT

Colliers research show that master planned communities customized plans have

allowed the developments to gain competitive advantage over conventional land

subdivision. However, master planned communities are more cost prohibitive and

require extensive capital for planning and execution. Potential revenue is often

realized after a holding period of greater than 5 years.

On the contrary, the land-subdivision approach is more cost effective for large

scale urban land and is limited only to the development of infrastructure. The

following exhibit details the differences between conventional land subdivisions

and master planned communities:

Exhibit 17: Conventional Land-Subdivision vs. Master planned Communities

Conventional Land Subdivision Master planned Communities

Follows similar patterns of surrounding land-uses

Consists of varying land-uses and housing subdivisions,

with no clear discernible centres

Dwelling types are limited to low density single and

multi-family dwellings. Low density housing tends to

spread out over larger land areas

Keeps all land-uses separated rather than integrated

Maintains a gridiron rather than interconnected street

pattern

Does not comprise a district centre, and is less compact

and non-conducive to the use of public transportation

Creates a development pattern that is distinguished from its

surrounding land-uses

Consists of commercial and residential land-uses with clear

and discernible centres

Majority of residential dwellings are within a 5 minute walk (i.e.

c600m) from the developments commercial/mixed-use centre

Dwelling types ranging from single family to multi-family

homes (high dense community), located within clustered

neighbourhoods that are supported by green space and civic

services

Children's play grounds are conveniently located throughout

the neighbourhood

Interconnected road network designed for efficiency


FINAL


The following exhibit indicates the development concept for each of the Subject

Sites land parcels on a macro level:

Exhibit 18: Development Recommendations and Rationale

Parcel Development Recommendation Rationale

Parcel A

Part of Parcel A could be sold to

developers/sub developers for retail

use. The remaining land can be

developed with the requisite primary

infrastructure (e.g. electricity, water,

sewerage and roads), and then

offered as commercial & residential

plots (primarily apartment buildings).

Colliers envisages this parcel to serve the retail needs of the surrounding

districts due to its excellent accessibility compared to the other parcels.

The retail component envisaged is in the form of neighbourhood box stores

which will serve the households in the surrounding area as it is an

upcoming location. These households will require a neighbourhood store in

the foreseeable future as the resident population grows. Since the land

size of Parcel A will not be able to completely cater to retail components

(land size greater than 250,000 Sqm) the remaining land can be developed

with relevant apartment block infrastructure and sold as blocks and/or

superblocks, consistent with the surrounding area.

Parcel B

Parcel B could be developed with the

requisite primary infrastructure (e.g.

electricity, water, sewerage and

roads). The land could then be

offered as serviced residential parcels

(i.e. blocks and superblocks) to

individual investors, mid-scale and

infill developers to be developed into

developments that are consistent with

the surrounding land use.

This option is primarily attributed to the characteristics of the surrounding

area which is purely residential with a large supply of commercial land

alongside major roads (i.e. Al Wadi Road).

Parcel C

Parcel C could be developed into

multiple offerings including a fully

integrated semi-gated/ gated

community, and residential land (i.e.

blocks and superblocks).

Primarily attributed to the large size of the site (approximately 900,000

sqm) as well as the profile/character of the neighbouring district (upper

mid-income residential district as opposed to the lower mid income districts

surrounding of Parcel A and B).

Parcel C is located adjacent to Wadi Hanifah and is a suitable location for a

gated/semi gated community.

The remaining land near Western Ring Road can be developed into

traditional land subdivisions with blocks/superblocks/individual land parcels

for sale.


It should be noted that in conventional land subdivision, commercial land within a

residential neighbourhood is positioned only alongside roads that are a minimum of

30 m in width. These lands are typically developed into apartment buildings by sub

developers, with some offering retail line shops on the ground floor.

FINAL


5.2 PARCEL A

Parcel A could serve the retail needs of the surrounding districts given its excellent

accessibility, size, and shape. Parcel A is located within close proximity to exits of

Makkah Road and Western Ring Road. The following exhibit provides a depiction

of the indicative land use strategy of Parcel A:

Exhibit 19: Indicative Land Use Strategy for Different Options


The retail use of Parcel A can vary depending upon the choice of the developer but

Colliers envisages the following retail developments to have good market potential

within Parcel A:

Exhibit 20: Exemplary Retail Developments for Parcel A

Retail Use Example Typical Land Area (Sqm)

Neighbourhood Centre Euromarche 40,000-60,000

Outlet Mall Dubai Outlet Mall 40,000-60,000

Cultural Fair Grounds Global Village in Dubai 100,000-350,000

Big Box Stores Centrepoint/Hyper Panda 30,000-50,000

Retail Souq Souk Al-Mubarakiya in Kuwait 40,000-60,000

Wholesale Market Fruit, Vegetable, Fish, Poultry 50,000-70,000

Indoor Amusement Park Rides, Bumper Cars, Video

Arcade, Go Karting 20,000-40,000

Stand-alone Showrooms Toyota, Kia, Home Centre 15,000-60,000


An attractive retail offering on Parcel A could be a hybrid concept of a

neighbourhood centre (such as Euromarche and Hyper Panda on Thakasussi

Street) with supporting anchor stores and shared parking:

Anchor stores could include names such as Centrepoint, Furniture Stores, and

Extra.

Exit/Entry Point

Exit/Entry Point

Retail Use

Area: c.60,000-80,000

Typical Land Subdivison

Area: c.170,000-190,000

FINAL


Large grocery stores could include names such as Hyper Panda, Euromarche,

Othaim, and Lulu Hypermarket.

The neighbourhood centre could offer small F&B outlets such as Baskin

Robbins, Dunkin Donuts, KFC, Mc Donalds, and Kudu.

It is recommended that the Client secure a buyer for the retail component in the

early stage of the project development. This will allow the Client to better

understand the area size requirement of the developer and whether raw land is

preferred over developed land. Given the large size of the retail component, it is

believed that raw land will be more attractive to a developer. Raw land also allows

added flexibility while subdividing the land according to the retail concept and

design.

Since the land size of Parcel A will not be able to completely cater to retail

components (land size greater than 250,000 Sqm) the remaining land can be

developed with relevant infrastructure and sold as blocks and/or superblocks. The

end product for these land parcels would be apartment blocks, which is consistent

with the land use of the surrounding area and the recommended retail use. The

following exhibit provides snapshots of apartment developments in Dhahrat Laban:

Exhibit 21: Apartment Developments in Dhahrat Laban


Google Images, 2012

Villa developments on Parcel A will not be in demand given the parcels closeness

to retail developments. Given the heavy traffic and high footfall of areas with retail

developments, a mid to high density final dwelling product is more suitable for the

FINAL


parcel. The commercial component will also be limited as most of the commercial

needs of the surrounding area (immediate, and to a certain extent, west Riyadh)

would be met by the retail component. The following exhibit provides an indicative

land use strategy for Parcel A:

Exhibit 22: Indicative Land Use Strategy for Parcel A

Factor Description

Land Size 250,922

Retail Use 70,000

Net land for Subdivision (Sqm) 180,922

Road and services (%) 37

Net Sellable Area 113,981

Residential

Residential Area (%) 70

Residential Area (Sqm) 79,787

Residential Product Apartments

Target Segment Low Income

Plot Size Residential (Sqm) 750

No. of Plots 106

Building Height G+2-3F

Residential and/or Commercial

Commercial Area (%) 30

Commercial Area (Sqm) 34,194

Plot Size Commercial (Sqm) 900

Building Height G+3F


FINAL


5.3 PARCEL B

Parcel B can be developed by taking the surrounding area into consideration. This

has been the case with Masterplan No. 4 and Masterplan No. 5 as identified in the

Competitive Review Section. The following exhibit illustrates an indicative land use

strategy for Parcel B:

Exhibit 23: Indicative Land Use Strategy for Parcel B


Parcel Bs surrounding area mostly comprises apartment developments (with and

without retail line shops) alongside commercial streets and villa developments on

internal roads. The following exhibit provides a snapshot of villa developments in

Dhahrat Laban:

Exhibit 24: Villa Developments in Dhahrat Laban


Residential plots in Dhahrat Laban (Masterplan No. 4 and Masterplan No. 5) are

one of the largest in Riyadh. This is due to the low cost of land in the area and its

targeted segments affordability and preferences. The area has attracted buyers

who are willing to compromise on location (instead of north and northwest Riyadh)

in exchange for larger sized residential plots. The following exhibit illustrates the

residential characteristics of Dhahrat Laban:

Typical Land Subdivison


FINAL


Exhibit 25: Dhahrat Laban Residential Characteristics

Factor Value

Average Villa Sales Price (SAR/Sqm) 2,230


Building Height Villa G+1.5F

Building Height Apartments G+2-3F


It is important for the development on Parcel B to suit the needs of the surrounding

area and its targeted segment of low to mid income households. The following

exhibit illustrates Colliers land use strategy for Parcel B:

Exhibit 26: Indicative Land Use Strategy for Parcel B

Factor Description

Land Size 200,059

Road and services (%) 35


Residential

Residential Area (%) 60

Residential Area (Sqm) 78,023

Residential Product Villas

Target Segment Low & Mid Income

Plot Size Residential (Sqm) 600

No. of Plots 130

Building Height G+1.5F


Commercial Area (%) 40

Commercial Area (Sqm) 52,015

Plot Size Commercial (Sqm) 900

Building Height G+2-3F


FINAL


5.4 PARCEL C

Due to the large land size of Parcel C and its attractive location, a mix of residential

concepts could be developed on the land. Colliers recommendations are:

1 Typical serviced plots for sale

2 Large mixed use superblock for coherent development

3 Semi gated community

4 Gated community

5.4.1 SERVICED RESIDENTIAL PLOTS

Residential serviced plots surrounding parcel C (within Masterplan No. 6 and

Masterplan No. 7) are larger in size than those in north Riyadh. This is primarily

attributed to the targeted segment of the area.

Potential tenants surrounding the Subject Site prefer larger plot sizes, however

Colliers has observed that the finishing quality of the end product is average. On

the other hand, tenants in north Riyadh opt for smaller plot sizes but the quality of

finishing of the end product is much higher.

The following exhibit illustrates a comparison between north Riyadhs typical

residential plots and those in Masterplan No. 7:

Exhibit 27: Difference in Plot Sizes in North & West Riyadh


25 m

12 m

North Riyadh

Typical Plot Size: 300 Sqm

20 m

20 m

Masterplan No. 7

Typical Plot Size: 400 Sqm

FINAL


The following exhibit illustrates the development concept for the serviced plots

within Parcel C:

Exhibit 28: Typical Land Subdivision Characteristics

Factor Surrounding Area Subject Development

Residential

Type Villas Villas

Road Width 15 M 18 M

Average Plot Size 400 Sqm 400 Sqm

Building Height G+1.5F G+1.5F


Type Apartments + Ground Floor Retail Apartments + Ground Floor Retail

Road Width 30 M 30 M


Building Height G+2-3F G+2-3F


Colliers Recommendation, 2012

The following should be noted:

Parcel C should be developed to create synergy with its surrounding area.

Wider roads with internal green spaces could be offered by the subject

development to differentiate the development from the surrounding area. The

large plot sizes recommended for the subject development also require wider

roads to be used as parking for visitors and residents extra vehicles.

Small commercial plots may aid in absorption, while two adjacent small size plots

can be combined into a sizable commercial plot (i.e. 1,200 sqm).

5.4.2 LARGE MIXED USE SUPERBLOCK

The parcel adjacent to the palace and Al Wadi Road offers an attractive

development potential for a coherent mixed use development. The mixed use

development is envisaged as mid rise apartment buildings offering apartment units

for sale and ground floor retail line shops for lease. The development concept is

the same as typical land subdivisions, however, the commercial nature of the

concept require the plots to be separated by 30 m wide roads.

5.4.3 SEMI GATED COMMUNITY

A semi-gated community is expected to be an attractive offering on Parcel C given

its large land size, location suitability, attractive topography and surrounding views

of Wadi Hanifah. A semi-gated community offers typical freehold villas in a

masterplan setting with gated entrance(s). The differentiating feature of a semi-

FINAL


gated community is its security provisions which help to foster a greater sense of

community.

Semi-gated communities are rare in the Kingdom, with merely two such

communities in Riyadh, both of which are developed by Rafal. Blncyay was the first

semi-gated community in Riyadh, which was completed and sold out by 2010. Al

Rabia Community is the second, which is expected to be completed by the second

quarter of 2013. The following exhibit provides snapshots of Blncyah and Al Rabia:

Exhibit 29: Snapshots of Blncyah and Al Rabia Communities

Blncyah

Al Rabia


Rafal

Blncyah has a limited number of large units with an average sale price between

SAR 3 mn - SAR 3.5 mn, whilst the remaining are sold at an average of SAR 1.5

mn - SAR 1.8 mn.

The more affordable units were sold during the projects shell and core phase,

while the more expensive units were sold post-completion, at largely discounted

rates.

FINAL


Blncyah project by Rafal is the first community to introduce a professional Facility

Management Program through the creation of a Home Owners Association

where homeowners are registered in the Ministry of Social Affairs. Rafal is also

incorporating the same strategy into its other projects (Rafal Tower and Al Rabia

Community).

Owners of properties in Blncyah pay an average of SAR 6,000/annum towards

the maintenance of facilities and amenities (security, upkeep of gardens, etc.).

The maintenance charge is dependent upon the size of each unit. Al Rabia

Community is currently under construction but is expected to command similar

maintenance charges.

Blncyah and Al Rabia are expected to have an average of 2 cars per unit and

their buyers have an estimated age of 41 years.

The following exhibit illustrates the Blncyah and Al Rabia communities:

Exhibit 30: Blncyah and Al Rabia Community


Roads within the communities are wider than that of typical masterplans.

Blncyahs side roads and internal roads are 20m and 15m wide, respectively.

Whereas Al Rabia side roads and internal roads are 15m and 12 m wide,

respectively.

Both communities have one single entrance, which has 24/7 security.

Both communities have provision for civic facilities such as mosque and

community centres, while Al Rabia also offers a liner garden.

The following exhibit illustrates a semi-gated community concept for parcel C:

Blncyah Al Rabia Community

Blncyah

Status: Completed

Land Area: 85,956 Sqm

No. of Units: 144

Average Plot Size: c.300 Sqm

Typical Road Width: 20 m

Al Rabia Community

Status: Under Construction

Land Area: 120,000 Sqm

No. of Units: 224

Average Plot Size: c.300 Sqm

Typical Road Width: 15 m

FINAL


Exhibit 31: Semi Gated Community Characteristics

Factor Typical Semi Gated Community Subject Development

Type Villas Villas

Road Width 15 20 M 15 - 20 M


Building Height G+1.5F G+1.5F


Colliers Recommendation, 2012

5.4.4 GATED COMMUNITY (RESIDENTIAL COMPOUND)

The development of a gated community for high income expatriate households on

parcel C is expected to be incurring high demand due to its location. The parcels

main attractive location features are:

close to the major highway intersection of Makkah Road and Western Ring Road

surrounding land use comprise high end palaces which gives the area a high

level of security

frontage on Wadi Hanifa which secludes one side of the site, thereby resulting in

higher security

Residential compounds require large land areas capable of offering green spaces

and community facilities (swimming pools, banquet halls, gym, etc.). The following

exhibit lists the number of units within Riyadhs high end compounds along with

their land area and density:

Exhibit 32: Riyadh Compounds Land Area and Densities

Compound Name

Total No. of

Units

Total Land Area

(Sqm)

Density

(Du/Ha)

Al Yamamah Village - 2 210 403,200 5

Arizona Golf Resort Compound 168 270,000 6

Kingdom City Compound 427 227,000 19

Sedar Village 250 220,800 11

Hamra Compound 404 220,000 18

Eid Compound 315 200,000 16

Cordoba Oasis Compound 271 164,000 17

Arabian Home Village 316 108,000 29

Al Waha Garden Village 185 73,100 25

Al Wadi Compound -1 98 40,330 24

Average 264 192,643 17


FINAL


High end compounds in Riyadh have large land areas with a high portion of space

dedicated towards greenery and community facilities. Out of the 29 facilities and

amenities within the compound sample, 13 widely used featured are considered

basic compound offerings that is necessary for the premium that is placed on

compounds over regular residential developments. The most common facilities and

amenities found in the research sample are full/Olympic size swimming pools and

recreation centres with basic lounges and facilities such as gyms and sports courts.

The least common facilities are golf courses, boutique stores, theatres and

housekeeping services.

Exhibit 33: Most Common Compound Facilities & Amenities


The following chart details the extra facilities and amenities found in the researched

comparable sample. These facilities are not necessary to the success of a

compound but provide the development with a competitive edge.

55%

100% 100%

82%73%

82%

64%73%

45% 45% 45% 45% 45%

0%

20%

40%

60%

80%

100%

120%

Tra

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FINAL


Exhibit 34: Extra Compound Facilities & Amenities


The following exhibit portrays snapshots of facilities in residential compounds:

Exhibit 35: Typical Compound Snapshots

Source: Zamil Real Estate, 2012

Colliers extended experience in conducting feasibility studies for gated

communities indicate that a financially attractive compound must have a land price

at or below SAR 650/sqm. The Client may have difficulty attracting potential

developers given its land price of SAR 800/sqm. However, potential developers

may be willing to purchase a portion of the Subject Site at a premium for the

36%

27%

18%

36%

27%

9%

18%

27%

9%

36% 36%

9%

18%

27%

18%

9%

0%

20%

40%

60%

80%

100%

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FINAL


development of a residential compound due to its attractive location. The sale

could increase the absorption rate of Parcel C, thereby resulting in a higher return

for the overall development.

5.4.5 CONCLUSION

Parcel C can be subdivided into three major development offerings:

5 conventional/typical land subdivision

6 mixed use superblock

7 a portion of parcel C could be sold to a developer for the development of a

semi-gated community

8 a portion of parcel C could be sold to a developer for the development of a

gated community

The following exhibit illustrates the land use strategy of parcel C:

Exhibit 36: Indicative Land Use Strategy for Different Options


Note: The above boundaries in the above exhibit are indicative only.

Colliers conducted a financial analysis on the above mentioned options and found

no major difference (i.e. gain or loss) between the recommended options and that

of typical land subdivision for the whole parcel. Nevertheless, the provision of gated

and semi-gated community will lower the financial risk of the development. The

following exhibit provides an indicative land use strategy for Parcel C:

Typical Land Subdivision

Area: c.540,000 Sqm

Semi Gated Community

Area: c.100,000 Sqm

Gated Community


Mixed Use Superblock

Area: c.60,000 Sqm

FINAL


Exhibit 37: Indicative Land Use Strategy for Parcel C

Factor Description

Land Size 910,925

Road and services 40%


Commercial Area 109,311

Residential Area 437,244

Target Segment Upper Mid Income

Plot Size Residential 400

No. of Plots 1,093

Plot Size Commercial 900


5.5 LAND SUBDIVISION PRICING STRATEGY

Competitive masterplans in the areas surrounding the Subject Site have been

analysed and compared to variables important to potential occupiers of the Subject

Site. The pricing comparable adjustment matrix displays a weighting for key

variables as illustrated by the exhibit below:

Exhibit 38: Pricing Matrix


Comparable Criteria Weighting

EXISTING COMPARABLE DEVELOPMENTS

PROPOSED

DEVELOPMENT

(Must be 100%)

The Subject

Location to Riyadh City

Boundaries100%

Location in Relation to City

Centre & CBDS100%

Site Accessibility 100%

Location in Relation to Social/

Civic Services100%

Surrounding Neighborhood Profile 100%

Total 100% 100% Estimated Rate

Current Average Price (SAR/m2)

PROPOSED DEVELOPMENT

The likhood %

1

2

3 4

56

FINAL


1 Comparable criteria forming the basis of the sale prices are:

Proximity of Subject Site to Riyadh City Boundaries: Location is

considered one of the most important factors in assessing the comparative set

as it is a primary determinant for prospective tenants.

Proximity of Subject Site to City Centre & CBDs: Proximity to the city

centre and major CBDs is essential for a residential

community/neighbourhood.

Site Accessibility: Ease of access to major thoroughfares is critical for

residential tenants.

Proximity of Subject Site to Social/Civic Services: Proximity to restaurants,

retail areas, and neighbourhood supporting facilities is highly recommended

for a residential neighbourhood.

Surrounding Neighbourhood Profile: Rents and sale prices of residential

areas depend on the locations level of development.

Active Footfall in the Surrounding Area: Rents and sale prices within a

commercial area are highly dependent on the level of footfall surrounding the

Subject Site. Active foot within the surrounding area of the site is extremely

important for commercial developments.

2 Weighting for each comparable criterion is derived from local and international

real estate pricing strategies, and differs by asset class (e.g. land, office tower

and retail mall).

3 Weighting is allocated to each assessment criteria by comparable development.

4 The subject development is given a score of 100% and is compared to each

competing developments based on the designated criteria. For example, if the

location of comparable 1 is better than that of the subject development, then the

score for comparable 1 would be less than 100%.

5 Current asking/bidding price for comparable developments.

6 The sale price of the proposed development is derived in two stages: Stage 1

involves multiplying the overall score of a comparable by its sale prices in order

to arrive at the market value of the comparable. Stage 2 (likelihood) involves

allocating a weight to the competitiveness of the subject development with the

relative comparable. The sale price is then derived by multiplying the outputs of

stage 1 and stage 2.

Colliers pricing strategy for the development concept of parcels A, B and C are

illustrated below:

FIN

AL

CO

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RS

INT

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NA

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L

42 o

f 10

9

Fin

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ort

PARCEL A & B

Exhibit 39: Residential Plots Pricing Strategy (A & B) Exhibit 40: Commercial Plots Pricing Strategy (A & B)

Comparable Criteria Weighting No. 4 No. 5

Subject

Development


Boundaries 30% 120.0% 125.0% 100%

Location in Relation to

City Centre & CBDs 10% 120.0% 125.0% 100%

Site Accessibility 20% 120.0% 130.0% 100%


Social/ Civic Services 15% 110.0% 125.0% 100%

Surrounding

Neighborhood Profile 25% 100.0% 100.0% 100%

Total 100.0% 113.5% 119.8% Estimated Rate

Current Average Price

(SAR/Sqm) 1,000 1,000

Proposed development

1,135 1,198 1,166

The likelihood %

50.0% 50.0%


Subject

Development


Boundaries 30% 105.0% 115.0% 100%


City Centre & CBDs 10% 105.0% 115.0% 100%




Active Footfall in the

area 25% 100.0% 100.0% 100%



(SAR/Sqm) 1,500 1,500


1,556 1,680 1,618

The likelihood %

50.0% 50.0%


FIN

AL

CO

LLIE

RS

INT

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NA

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NA

L

43 o

f 10

9

Fin

ancia

l Feasib

ility R

ep

ort

PARCEL C

Exhibit 41: Residential Plots Pricing Strategy (C) Exhibit 42: Commercial Plots Pricing Strategy (C)


Subject

Development


Boundaries 30% 105.0% 115.0% 100%


City Centre & CBDs 10% 105.0% 115.0% 100%




Surrounding

Neighborhood Profile 25% 100.0% 100.0% 100%



(SAR/Sqm) 1,850 1,850


1,924 2,035 1,980

The likelihood %

50.0% 50.0%


Subject

Development


Boundaries 30% 100.0% 105.0% 100%


City Centre & CBDs 10% 100.0% 105.0% 100%




Active Footfall in the

area 25% 100.0% 100.0% 100%



(SAR/Sqm) 2,200 2,200


2,200 2,266 2,233

The likelihood %

50.0% 50.0%


FINAL


6 FINANCIAL ANALYSIS Colliers developed a comprehensive financial model based on quarterly results to

assess the financial viability of the subject development. The major differentiating

factor of the two scenarios tested by Colliers is the construction timeline

assumption.

6.1 SCENARIO A

Scenario A assumes that the Client will develop the infrastructure of parcels A, B,

and C together in year 1. Colliers believes that sellable plots within this option will

likely be sold over a project life of 13 quarters.

6.1.1 LAND AND INFRASTRUCTURE COST

According to the Client, the Subject Site has total land area of 1,361,906 sqm and

an estimated land cost of SAR 800/sqm. The Client will incur a 2.5% commission in

addition to land cost for the acquisition of the land and a basic infrastructure cost of

SAR 55/sqm. Colliers assumed an annual inflation cost of 2.5% for the

infrastructural development of the land. The following exhibit illustrates the phasing

of the land and the cost of infrastructure:

Exhibit 43: Phasing of Land and Infrastructure Cost

Description Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13

Land Cost 100% - - - - - - - - - - - -

Infrastructure Cost 25% 25% 25% 25% - - - - - - - - -

6.1.2 AREA SCHEDULES

The following exhibit provides the area schedule for the entire development:

Exhibit 44: Area Schedule by Parcel

Description Parcel A Parcel B Parcel C

Total Area (Sqm) 250,922 200,059 910,925

Facilities and Amenities (%) 37 35 40

Sellable Area (%) 63 65 60

6.1.3 REVENUE ASSUMPTIONS

Colliers undertook detailed demand/supply estimation for Riyadhs serviced

residential plots. Based on the results of this analysis, Colliers proposes the

following absorption for the serviced residential plots within the subject

development:

FINAL


Exhibit 45: Absorption of Serviced Residential Plots by Type

No. Of Plots Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13

Parcel A

City Demand 3,951 3,979 4,007 4,035 4,063 4,092 4,120 4,149 4,178 4,207 4,237 4,266 4,296

Expected

Absorption - - - - 30 31 31 14 - - - - -

Balance Plots 106 106 106 106 76 45 14 - - - - - -

Parcel B

City Demand 3,951 3,979 4,007 4,035 4,063 4,092 4,120 4,149 4,178 4,207 4,237 4,266 4,296

Expected

Absorption - - - - 30 31 31 31 7 - - - -

Balance Plots 130 130 130 130 100 69 38 7 - - - - -

Parcel C

City Demand 1,021 1,028 1,035 1,042 1,050 1,057 1,064 1,072 1,079 1,087 1,095 1,102 1,110

Expected

Absorption - - - - 126 127 128 129 130 130 131 132 60

Balance Plots 1,093 1,093 1,093 1,093 967 840 713 584 454 324 193 60 -


Notes: Market share for low and mid-end plots is estimated at 0.75%.

Market share for upper mid end plots is estimated at 12%.

Absorption computed using quarterly results; some rounding errors may occur.

The following exhibit illustrates the absorption rate of serviced commercial plots

within the subject development:

Exhibit 46: Absorption of Serviced Commercial Plots by Type

Type Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13

Parcel A Internal

Commercial - - - - 30% 30% 30% 10% - - - - -

Parcel A Retail

Area - - - - - - - 100% - - - - -

Parcel B - - - - 30% 30% 30% 10% - - - - -

Parcel C - - - - 30% 30% 30% 10% - - - - -


Colliers assumed an annual revenue escalation rate of 3.5% for the sale price of

serviced plots (residential and commercial).

Parcel As retail block is expected to be sold in Q8. The large size of the land will

require appropriate marketing to achieve a financially attractive sale price. Colliers

estimates the block to achieve an estimated sale price of SAR 1,360/sqm, if sold

as raw land.

FINAL


Based on these assumptions and the pricing strategy detailed in the previous

section of this report, the result of Collierss financial viability assessment on the

subject development are as follows:

Exhibit 47: Project Cash Flow and IRR Calculation (Consolidated)

In SAR (Millions) Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13

Total Cash In - - - - 268 271 273 278 115 112 114 115 53

Land (1117) - - - - - - - - - - - -

Infrastructure (18) (18) (18) (18) - - - - - - - - -

Total Cash Out (1135) (18) (18) (18) - - - - - - - - -

Net Cash Flow (1135) (18) (18) (18) 268 271 273 278 115 112 114 115 53

Payback Period Q9

IRR 19.51%


Note: IRR computed based on quarterly results; some rounding errors may occur.

The project is estimated to achieve an IRR of 19.51% through the sale of serviced

plots over a project life of 13 quarters. The table below shows the impact on IRR by

changes in infrastructure cost and revenue (-20% to 20% in increments of 5%).

Exhibit 48 Sensitivity Analysis

% Change in

Variable

Infrastructure Cost

-20% -15% -10% -5% 0% 5% 10% 15% 20%

Rev

en

ue f

rom

Sa

le o

f S

erv

ice

d

Plo

ts

-20% 5.22% 5.03% 4.85% 4.66% 4.48% 4.29% 4.11% 3.93% 3.74%

-15% 9.10% 8.90% 8.71% 8.52% 8.33% 8.14% 7.95% 7.76% 7.57%

-10% 12.90% 12.71% 12.51% 12.31% 12.11% 11.92% 11.72% 11.53% 11.34%

-5% 16.65% 16.45% 16.25% 16.04% 15.84% 15.64% 15.44% 15.24% 15.04%

0% 20.35% 20.14% 19.93% 19.72% 19.51% 19.31% 19.10% 18.90% 18.69%

5% 23.99% 23.77% 23.56% 23.35% 23.13% 22.92% 22.71% 22.50% 22.29%

10% 27.58% 27.36% 27.14% 26.92% 26.71% 26.49% 26.27% 26.06% 25.84%

15% 31.13% 30.91% 30.68% 30.46% 30.24% 30.01% 29.79% 29.57% 29.35%

20% 34.64% 34.41% 34.18% 33.95% 33.72% 33.50% 33.27% 33.05% 32.82%


FINAL


6.2 SCENARIO B

Scenario B assumes the infrastructure of parcels A and B will be developed

simultaneously while for parcel C will be developed at a later stage. The sellable

plots within this option will likely be sold over a project life of 15 quarters.

6.2.1 LAND AND INFRASTRUCTURE COST

Scenario B and A follows the same assumptions on land area, land cost, land cost

acquisition charges, infrastructure cost and infrastructure cost inflation. The

following exhibit details the phasing of land and infrastructure cost of Scenario B:

Exhibit 49: Phasing of Land and Infrastructure Cost

Description Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15

Land Cost 100% - - - - - - - - - - - - - -

Infrastructure

Cost (Parcel A) 33% 33% 33% - - - - - - - - - - - -

Infrastructure

Cost (Parcel B) 33% 33% 33% - - - - - - - - - - - -

Infrastructure

Cost (Parcel C) - - - 30% 30% 40% - - - - - - - - -

6.2.2 AREA SCHEDULES

The following exhibit provides the area schedule for the entire development (similar

to Scenario A):

Exhibit 50: Area Schedule by Parcel

Description Parcel A Parcel B Parcel C

Total Area (Sqm) 250,922 200,059 910,925

Facilities and Amenities (%) 37 35 40

Sellable Area (%) 63 65 60

6.2.3 REVENUE ASSUMPTIONS

Based on detailed demand/supply analysis, Colliers proposes the following

absorption for the serviced residential plots within the subject development:

FINAL


Exhibit 51: Absorption of Serviced Residential Plots

No. Of

Plots Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15

Parcel A

City

Demand 3,951 3,979 4,007 4,035 4,063 4,092 4,120 4,149 4,178 4,207 4,237 4,266 4,296 4,326 4,357

Expected

Absorption - - - 30 30 31 15 - - - - - - - -

Balance

Plots 106 106 106 76 46 15 - - - - - - - - -

Parcel B

City

Demand 3,951 3,979 4,007 4,035 4,063 4,092 4,120 4,149 4,178 4,207 4,237 4,266 4,296 4,326 4,357

Expected

Absorption - - - 30 30 31 31 8 - - - - - - -

Balance

Plots 130 130 130 100 69 39 8 - - - - - - - -

Parcel C

City

Demand 1,021 1,028 1,035 1,042 1,050 1,057 1,064 1,072 1,079 1,087 1,095 1,102 1,110 1,118 1,125

Expected

Absorption - - - - - - 128 129 130 130 131 132 133 134 46

Balance

Plots 1,093 1,093 1,093 1,093 1,093 1,093 965 837 707 577 445 313 180 46 -


Notes: Market share for low & mid-end plots is estimated at 0.75%.

Market share for upper mid end plots is estimated at 12%.

Absorption computed using quarterly results; some rounding errors may occur.

The following exhibit illustrates the absorption rate of serviced commercial plots

within the subject development:

Exhibit 52: Absorption of Serviced Commercial Plots by Type

Type Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13

Parcel A Internal

Commercial - - - 50% 50% - - - - - - - -

Parcel A Retail

Area - - - - - 100% - - - - - - -

Parcel B - - - 30% 30% 40% - - - - - - -

Parcel C - - - - - - 30% 30% 30% 10% - - -


Colliers assumed an annual revenue escalation rate of 3.5% for the sale price of

serviced plots (residential and commercial).

FINAL


Parcel As retail block is expected to be sold as raw land in Q6 with an estimated

sale price of SAR 1,360/sqm.

Based on these assumptions and the pricing strategy detailed in the previous

section of this report, the result of Collierss financial viability assessment on the

subject development are as follows:

Exhibit 53: Project Cash flows and IRR Calculation (Consolidated)

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15

Total Cash In - - - 102 103 180 216 187 183 136 114 115 117 119 41

Land (1117) - - - - - - - - - - - - - -

Infrastructure (7) (7) (7) (15) (15) (21) - - - - - - - - -

Total Cash Out (1124) (7) (7) (15) (15) (21) - - - - - - - - -

Net Cash Flow (1124) (7) (7) 87 87 159 216 187 183 136 114 115 117 119 41

Payback Period Q11

IRR 17.43%


Note: IRR computed based on quarterly results; some rounding errors may occur.

The project is estimated to achieve an IRR of 17.43% through the sale of serviced

plots over a project life of 15 quarters. The table below shows the impact on IRR

changes in infrastructure cost and revenue (-20% to 20% in increments of 5%).

Exhibit 54 Sensitivity Analysis

% Change in

Variable

Infrastructure Cost

-20% -15% -10% -5% 0% 5% 10% 15% 20%

Rev

en

ue f

rom

Sa

le o

f S

erv

ice

d

Plo

ts

-20% 4.99% 4.83% 4.66% 4.50% 4.34% 4.18% 4.02% 3.86% 3.70%

-15% 8.36% 8.20% 8.03% 7.87% 7.70% 7.54% 7.38% 7.22% 7.06%

-10% 11.67% 11.50% 11.34% 11.17% 11.00% 10.84% 10.67% 10.51% 10.34%

-5% 14.92% 14.75% 14.58% 14.41% 14.24% 14.07% 13.91% 13.74% 13.57%

0% 18.11% 17.94% 17.77% 17.60% 17.43% 17.26% 17.09% 16.92% 16.75%

5% 21.26% 21.08% 20.91% 20.74% 20.56% 20.39% 20.22% 20.04% 19.87%

10% 24.36% 24.18% 24.00% 23.83% 23.65% 23.48% 23.30% 23.13% 22.95%

15% 27.42% 27.24% 27.06% 26.88% 26.70% 26.52% 26.34% 26.17% 25.99%

20% 30.43% 30.25% 30.07% 29.89% 29.71% 29.53% 29.35% 29.17% 28.99%


FINAL


6.3 CONCLUSION

The following exhibit summarises the differences between Scenario A and B:

Exhibit 55: Differences between Scenario A & B

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15

Scenario A 13 Quarters

Revenue

Cost

Equity Required SAR 87 Million

Scenario B 15 Quarters

Revenue

Cost

Equity Required SAR 42 Million


The difference between the two scenarios is the amount of equity the client has

to inject during the course of the project. Scenario A would require a higher

equity contribution as the infrastructure of the parcels is developed

simultaneously until Q4 after which the project revenues are realised.

For Scenario B, the infrastructure of Parcel A and B are developed together,

while for Parcel C it is developed at a later stage. The revenue from the sale of

serviced plots of Parcel A and B start at Q4 which can be used to finance the

infrastructure cost of Parcel C in Q5 & Q6, thereby reducing equity required in

Scenario B.

The following table provides the consolidated financial analysis conclusion for both

scenarios:

Exhibit 56: Scenario A vs. Scenario B (Consolidated)

In SAR Scenario A Scenario B

Total Revenue 1,599,556,891 1,613,701,538

Total Land Cost (1,116,762,920) (1,116,762,920)

Total Infrastructure Cost (71,723,749) (72,483,080)

Total Capital Expenditure (1,188,486,669) (1,189,246,000)

Net Cash Flow 411,070,222 424,455,538

Payback Period Q9 Q11

IRR 19.51% 17.43%


Note: IRR computed using quarterly results, some rounding error may exist

FINAL


7 SUMMARY CONCLUSION

SITE OUTLOOK

The Subject Site is well located at the intersection of Western Ring Road and

Makkah Road.

West of the Subject Site is mostly undeveloped while the east of the site is home

to a number of the citys important demand generators. This will induce demand

for the residential and commercial components of the subject development.

The Subject Sites direct frontage and visibility on two of Riyadhs major

thoroughfares will positively affect the residential and commercial components of

the subject development.

RECOMMENDATIONS

Traditional land subdivision concepts could be exercised on the parcels.

Parcels A and B can cater to the low-mid income class while parcel C can cater

to the upper mid income.

Colliers tested the financial viability of both the semi-gated/gated and traditional

subdivision concepts on parcel C and found no difference in financial returns.

However, the gated/semi-gated concept could lead to lower development risks

and higher attractiveness for the remaining subdivided plots.

The recommended land subdivision under scenarios A and B are financially

viable with a consolidated IRR of 19.51% and 17.43% for Scenario A and

Scenario B, respectively.

FINAL


8 LIMITATIONS OF THIS

REPORT This Report has been prepared in accordance with the terms of contract (the

Contract) signed between Colliers International and The Investor for Securities

Co. (the Client).

This Report is provided solely for use by the Client in accordance with the terms

of reference set out in the Contract, and should be used for this purpose only.

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This Report has been delivered on the basis that you shall not quote our name;

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You may disclose the whole or part of the report to your legal and other

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FINAL


Nothing in this report constitutes a valuation or legal advice. This Report is not a

prospectus and does not constitute or form any part of an offer or invitation to

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interested parties are advised to carry out their own due diligence, investigations

and analysis of any information co

isc dll study - final report - july 2012

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