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A N N U A L

R E P O R T

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Abu Dhabi Property Opportunity Portfolio seeks to capitalize on the emerging property markets of the UAE. It has made opportunistic acquisitions of real estate assets across the UAE with a strategic focus on the Emirate of Abu Dhabi

Fund Highlights NAV per unit

AED 13,587

Real estate assets

69

Ext. maturity date

19 Jan 2012

Portfolio Horizon

3+1 years

Original equity

AED 557m

Gearing

0%

ROE (31 Dec 2009)

1%


Contents 4 .

Exec utive S u m m ary

5 .

A s s et Profile

7 . M ark et O ver vi ew 8 . Revaluation s 9 .

Portfolio Updat e and St rat egy

1 1 .

Balanc e S he et

1 2 . Statement o f I ncom e 1 2 . Statement o f Changes

3


Executive Summary

The full emergence of the global financial crisis over the past year severely disrupted capital markets worldwide. ADPOP has not been immune from the resulting impacts and, along with the entire real estate sector, has seen falling asset values and tight credit conditions. Notwithstanding this, asset values appear to have stabilized in Q4 2009 and ADPOP has undertaken a pro-active capital management strategy, deferring and minimizing capital expenditure and pursuing selective asset disposals where possible. An overview of current portfolio activities and performance to date is summarized as follows: ••

Since inception in January 2008 ADPOP has achieved a return on equity of 1%.

••

Net Asset Value (NAV) has progressed as follows:

Par Value (Jan 2008):

AED 13,472 per unit

31 December 2008:

AED 16,203 per unit

31 December 2009:

AED 13,587 per unit

•• The portfolio currently contains 69 assets. Independent valuations were undertaken as at 31 December 2009, reporting a market value of AED 607.73m, a 10.3% decrease in value for the 6 month period to 31 December 2009 (H2).

Khalifa A Khalifa A Khalifa B Khalifa B MBZ City MBZ City Rawdhat Rawdhat Al Reem Island Al Reem Island Capital Dictrict Capital Dictrict Royal Marina Villas Royal Marina Villas The World - Nakheel The World - Nakheel

17% 17% 5% 5% 45% 45% 4% 4% 16% 16% 1% 1% 3% 3% 9% 9%

Villa Plots Villa Plots Reem Island High Rise Reem Island High Rise Rawdhat High Rise Rawdhat High Rise MBZ High Rise MBZ High Rise Khalifa A & B High Rise Khalifa A & B High Rise Income Producing Income Producing The World - Nakheel The World - Nakheel

20% 20% 16% 16% 4% 4% 36% 36% 8% 8% 7% 7% 9% 9%

•• Despite an overall decrease in value, the portfolio’s best performing assets, Khalifa A and Khalifa B villa plots, showed minor increases in value. •• ADPOP disposed of 3 villa plots within Mohammed Bin Zayed City (MBZ), achieving Net Annualised Returns in excess of 20%, equating to a net profit of AED 2.16m. •• ADPOP has continued to seek interest in the disposal of commercial/high rise land assets throughout H2 2009. Brokers report that the market is showing limited demand for such assets and consequently no disposals have been made. •• Plot C82, Rawdhat is currently under review, with the intention to develop in joint venture with a suitable developer or contractor, subject to attractive profitability and financing availability.

A DPO P Performanc e The chart (right) evidences ADPOP performance from inception against the Kuwait Stock Exchange (KSE), Abu Dhabi Securities Exchange (ADX) and more specifically the ADX Real Estate Index which comprises developers such as ALDAR, Sorouh and RAK Properties.

40% 20% 0% -20% -40% -60%

4

ADX Real Est Index

KSE Index

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09

09

v0 No

p Se

09 ADPOP

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09

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ADX Index

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-80%


Asset Profile

As at 31 December 2009 there are sixty nine (69) assets contained within ADPOP, the majority of which are vacant land assets within Abu Dhabi. A summary of asset locations are shown below:

K h a l ifa C ity A, Abu Dhabi: Khalifa City A is strategically located between the Abu Dhabi highway to the north and the main arterial route to the airport immediately south. The development currently accommodates approximately 7,000 residents with a projected population of 53,000. In March 2009 the Urban Planning Council (UPC) approved the expansion of Khalifa City A with development of approximately 4,500 new villas and 100 apartment buildings together with schools, parks, hotels, retail facilities and public transport including a tram route that will service Raha beach, Raha Gardens, Khalifa City A and the Capital District.

M o h amed Bin Z ayed C ity ( MB Z), Abu Dhabi: Situated immediately east of the Musaffah Industrial Area, MBZ is a 320 acre master planned community that will, upon completion, have an estimated population of 85,000. Most of ADPOP’s MBZ high rise plots are contained within Sector Z29, an area of approximately 590,000 sq.ft. identified for 156 towers. KEO, the master planners for MBZ have confirmed hand over dates for 3 of ADPOP’s plots. Infrastructure will be completed by August 2010 for sector Z6 and September 2010 for sector ME8.

C api t al Dis tric t & K halifa B Cit y, Abu Dhabi : Capital District (formerly New Khalifa City), and Khalifa B are located to the south of Khalifa A, east of Musaffah and MBZ. Once completed, the 4,500 hectare Capital District will serve as a second government and economic centre in Abu Dhabi and would eventually accommodate 370,000 residents. Khalifa B will benefit from the adjoining Capital District area, and the proposed Transit Phase 1 which will provide light metro access to the airport and existing CBD.

R a w dhat, Abu Dhabi: Rawdhat is a predominantly residential community, master planned for the professional expat lease market. Infrastructure works are scheduled to be completed in Q1 2010. As at December 2009, 80% of the infrastructure works were complete and construction had commenced on 3 towers.

5


Asset Profile

(cont.)

S HA MS Abu Dhabi, Reem Island: Master planned by Sorouh, SHAMS will feature a high density island development situated within close proximity to the existing Abu Dhabi commercial district. SHAMS Abu Dhabi will have an estimated population of 53,000 residents. Construction Update: 90% of bridge works are now completed with all bridges scheduled for completion by March 2010. Road and utility infrastructure is now 35% complete with the areas surrounding Sorouh’s signature Sun and Sky Towers being prioritized. Sub developers have commenced construction on 26 plots representing approximately 50% of the total GFA. ADPOP owns two land plots identified for high rise residential development. Royal Marina Villas

Royal Marina Villas :

Situated behind the Marina Mall, Abu Dhabi. The Royal Marina Villa project features an exclusive residential development with each villa featuring direct ocean frontage. ADPOP owns Villa 16 which is being actively marketed for sale, with tenant in situ.

S eychelles Island, Du bai: Seychelles Island is part of Nakheel’s ‘World’ development, featuring approximately 250 manmade islands in the shape of the world’s continents. ADPOP holds an 80% interest in the Seychelles Island comprising 25,300 sq.m. of land area together with an additional 20,743 sq.m. of seabed land. Nakheel reports that land reclamation is now complete with 70% of the project having now been sold. The latest island was sold in August 2009 and a total of 33 islands have now been handed over.

400.0

Gross Purchase Price

350.0

Valuation (Dec 30 2008)

837 319

Valuation (Jun 30 2009)

300.0 275

AED m

Valuation (Dec 31 2009)

242

250.0

200.0

144

150.0

100.0

130

94

90

92

100

84

100 76

44

50.0

29

32

27

28

54 37

31

25 6

Khalifa A

6

Khalifa B

MBZ City

Rawdhat

Al Reem Island

7

7

Capital District

7

16

20

18

54

54

19

Royal Marina Villas

Seychelles


Market Overview

A bu Dhabi: Abu Dhabi is well placed in the region having suffered far less from the global economic downturn than other Emirates within the UAE, and indeed other countries within the GCC. Abu Dhabi has been less exposed to problems in the debt markets in comparison to Dubai and benefits from a lower break-even cost for the production of oil compared to both Saudi Arabia and Oman. This, along with strong economic stimulus through continued government spending on infrastructure, has left Abu Dhabi well positioned with its economy accounting for 60% of UAE’s total GDP.

G o v ernment Spending: According to Oxford Business Group, private sector investment in Abu Dhabi has reduced in 2009, however in the public sector Abu Dhabi is expected to proceed with all of its major developments. Research by DTZ estimates that the government will spend in excess of US$200bn on infrastructure projects over the next five years, including the development of roads, electricity networks, water supplies, port relocation, and housing.

F i n anc ial Mark ets : By the first quarter of 2009 the UAE federal government had pledged AED 120 billion to the local financial sector in a bid to kick start lending and aid economic recovery. Notwithstanding this, by the end of Q2 2009 these moves had yet to prompt banks to begin lending again at sufficient levels. On the plus side, oil prices have risen steadily throughout 2009 to over $75 in Q4.

R e al Es tate Sec tor: Property consultants, Asteco reported that investor demand for real estate in 2009 focused only on those projects that made significant construction progress, including Raha Beach (Aldar), Al Reef (Manazel) and Marina Square (Tamouh). Short term speculators exited the market with the dominant purchaser group being end users who sought superior quality product for owner occupation. Market fundamentals are not expected to alter sufficiently during the course of 2010 to entice any sizable demand for off-plan projects, however some price growth is expected in the later part of 2010 due to the improved availability of end user finance.

O u tl o ok : Given strong government spending in infrastructure, the attractive business environment, with low tax rates, inexpensive labour and energy together with few trade and exchange controls in the region it is expected that we will see a recovery in Abu Dhabi’s economic performance in 2010 and 2011. However the real estate market is expected to lag other sectors in the pace of recovery and valuations are not expected to pick up materially, especially in the early part of 2010.

7


Revaluations

Independent valuations were undertaken by Asteco on all of the portfolio’s assets as at 31 December 2009. Overall the valuation evidenced weaker market conditions, reporting a 10.3% (AED 69.8m) decrease in value of the portfolio since the reported H1 2009 internal valuation. Notwithstanding this, the portfolio has made a consolidated unrealised gain of AED 16.35m from cost value since inception in addition to a AED 2.7m surplus on sales. Despite limited demand for land assets, particularly high rise plots, revaluations did show moderate value growth in some areas of Abu Dhabi, namely Khalifa A, Khalifa B and MBZ. Furthermore, despite an overall reduction in land values from June to December 2009, Asteco reported that valuations remained largely unchanged in Q4 2009, indicating that valuations have now stabilised having bottomed around the middle of 2009. A summary of performance by location is shown in the below chart:

Location

No. of Plots

WA Purchase Date

Cost Value

Valuation 31-Dec-09

Unrealised Gain / Loss

Commercial Khalifa A

2

8-Feb-07

30,395,200

28,000,000

-2,395,200

Khalifa B

3

20-Oct-07

20,752,000

18,000,000

-2,752,000

MBZ

19

22-Jan-08

197,109,370

230,500,000

33,390,630

Rawdhat

1

18-Jun-08

43,665,582

24,595,000

-19,070,582

Al Reem Island

2

18-Nov-07

84,019,740

100,020,000

16,000,260

Residential Khalifa A

17

14-Jan-08

63,476,469

72,045,000

8,568,531

Khalifa B

4

1-Feb-08

7,769,500

10,300,000

2,530,500

Capital District

3

27-Nov-07

6,034,000

7,000,000

966,000

MBZ

16

21-Jan-08

45,379,534

44,750,000

-629,534

Other

8

Royal Marina Villas

1

8-Mar-08

16,308,132

19,000,000

2,691,868

Seychelles, Dubai

1

14-Feb-08

76,469,435

53,520,000

-22,949,435

Total Property Assets

69

5-Jan-08

591,378,962

607,730,000

16,351,038


Portfolio Update & Strategy

Disposals: In light of recent volatility in financial markets and impediments to financing and transacting real estate, ADPOP is considering the disposal of the following assets: •• High Rise Plots located in Mohamed Bin Zayed City and SHAMS Abu Dhabi. Strategic disposals are being pursued where an annualised return in the region of 15% can be achieved. •• Villa 16, Royal Marina Villas, Abu Dhabi is currently being marketed. Proceeds from these asset sales will be used for plot installment payments, distributions and future development commitments, placing the portfolio in a good position for future growth. 6 villas (Plot SE4 50) within Khalifa A City

The remaining assets in ADPOP are intended to be liquidated prior to extended portfolio expiry during 2011.

A c q uisitions: In light of current economic conditions and with a substantial existing land bank, ADPOP has adopted a restrained approach to new investments during the last 6 months, with no further acquisitions having been made.

D e v e lopment: Plot C82 Rawdhat is under consideration for development subject to attractive profitability and financing availability. In light of current economic conditions, this project will be subject to continual review and deferral where appropriate.

9


Portfolio Update & Strategy (cont.)

Income Producing Assets:

Property

Development

Description

ADPOP contains four income producing assets, providing a total gross rent of approximately AED 2,192,860 p.a., a summary of which is shown in the adjoining table.

ME12 C4

Mohd. Bin Zayed City

18 apartments

ME12 C57

Mohd. Bin Zayed City

4 apartments

SE4 50

Khalifa A City

6 villas

ME-12 plots both contain older style flats which are rented significantly below market levels. Given the poor condition of these buildings ADPOP is currently investigating whether these land plots are suitable for redevelopment.

Villa 16

Royal Marina Villas

Luxury Villa

O utlook : While we are unable to predict the duration of current financial market volatility, we emphasize that ADPOP is underpinned by quality real estate assets and is well placed to reward long-term investors with unit price growth. On behalf of Management and the Board we thank unit holders for their continued support during this challenging period.

10


Balance Sheet

as at December 2009

AED

Assets Cash at Banks

9,118,389

Murabaha Receivables

37,990,865

Account Receivables

17,662,587

Investment Property

607,738,604

Total Assets

672,510,445

Liabilities Due to contractors Accounts Payable and other credit balances

104,905,245 5,431,167

Total Liabilties

110,336,412

Net assets attributable to unit holders

562,174,033

Net assets value per unit based on 41,375 units outstanding

13,587.3

Par value per unit based on 41,375 units outstanding

13,471.6

11


Statement of Income For the period from 1 January 2008 to 31 December 2009

AED

Change in Fair Value of investment property Murabaha income Gain on sale of investment property Other income

17,461,855 8,803,198 961,299 3,722,087

Total Revenue

30,948,439

General and Administrative expenses Management fees

3,137,903 23,324,177

Total expenses Change in net assets attributable to unit holders

26,462,080 4,486,359

Statement of Changes i n n e t a s s e ts a t t r ibuta ble to unit holders For the period from 1 January 2008 to 31 December 2009 AED

Issue of units during the period Change in net assets attributable to unit holders

Balance at 31 December 2009

12

557,387,673 4,336,359

561,724,032


Cont act Det ails United Arab Emirates: Ross Kemp Arady PJSC PO Box 44262 Abu Dhabi United Arab Emirates Phone: +971 2 447 2542

Kuwait: Mohammed Al Ali Al Aman Investment Co. P.O. Box 12466 Shamiya 71655 Kuwait Phone: +965 182 2626


PO Box 44262, Abu Dhabi, United Arab Emirates

Tel +971 2 447 2542 w w w. a r a d y. c o m

Fax +971 2 447 2546

Email info@arady.com


ARDY