Dar Global — More luxury brand retailer than housebuilder

Dar Global develops and sells high-end residential dwellings styled and branded in conjunction with some of the world’s most highly regarded brand owners, such as Versace (voted the world’s ninth most popular luxury brand in Luxe Digital’s 2023 survey), Dolce & Gabbana and Lamborghini. Its clients are often some of the wealthiest individuals in the world. It adopts a ‘capital-light’ strategy that limits capital requirements and offers scope for growth. It currently has 11 luxury developments in six different countries with a gross development value (GDV) of c US$5bn. Dar Global was established to consolidate the international (ie non-Kingdom of Saudi Arabia-located) real estate assets of the Dar Al Arkan Real Estate Development Company (DAARE) into a London-listed vehicle that could facilitate a platform for international growth.

Dar Global’s property portfolio is unique and trying to value the assets against a quoted peer group is hard. We value the group on a multiple of net asset value/shareholders’ funds basis as we believe the company will generate a return on equity in the high teens, well in excess of its cost of capital. This approach implies a group equity value of c US$930m, which offers c 40% upside from the current share price. The company’s conservative revenue recognition policy implies that this approach arguably understates the profit potential in the forecast years, thus hiding potential value. It also gives no credit for the value of non-residential assets in the portfolio, nor the company’s future plans to expand into hospitality, thus suggesting further upside potential.

Dar Global’s current portfolio is likely to result in strong revenue growth in FY23 versus FY22, with strong year-on-year growth in future years as more projects are launched and subsequently revenue is recognised. We anticipate further revenue growth in FY24, reflecting the launch of several projects in FY23, and substantial growth in EBITDA over the period, with the EBITDA margin growing from 20.7% in H123 to c 28% by FY24 and FY25, below the company’s target of 30%, implying potentially conservative forecasting. The ‘capital-light’ business model adopted by Dar Global is likely to see net cash rise in FY23 and FY24. This ‘capital-light’ model is designed not only to limit upfront capital requirements but also to be scalable, implying that other projects could be brought into the portfolio in the future, adding value. This may include the development of a portfolio of hospitality projects currently in the planning stage.

Dar Global is a property developer that operates across six international geographies and, as such, there are numerous sensitivities and potential risks that could have an impact – positively or negatively – on the reputation, sales or profitability of the group. That said, there are some sensitivities, particularly around interest rates, which would affect a domestic mass-market housebuilder but are likely to have little or no impact on Dar Global. This is because Dar Global builds luxury branded second homes targeted specifically at HNWIs and UHNWIs, who are essentially cash buyers, which is a completely different marketplace, and arguably one that is growing in the long term due to the increasing concentration of wealth, rather than declining.

Dar Global was established to consolidate the international (ie non-Kingdom of Saudi Arabia-located) real estate assets of DAARE (market cap: US$4.3bn) into a London-listed vehicle that could facilitate a platform for international growth. Dar Global develops and sells high-end residential dwellings styled and branded in conjunction with some of the world’s most highly regarded brand owners such as Versace (voted the world’s ninth most popular luxury brand in Luxe Digital’s 2023 survey), Dolce & Gabbana and Lamborghini. By definition, its clients are often some of the wealthiest individuals in the world.

Dar Global’s business model focuses on the development of real estate projects comprising second or third homes, typically in prime locations in the Middle East and Europe. The high quality of the developed properties and excellent locations in some of the most desirable places to live, such as Dubai or the Costa del Sol region in southern Spain, are expected to attract very wealthy customers, some of whom may be interested in making additional purchases in different locations for investment purposes or for personal use.

In the near future, the group also intends to expand its focus into hospitality assets with the aim of acquiring or building hotels and realising the value in them after a period of three to five years of operation, once the hotel’s or resort’s revenue streams stabilise. Target markets for hospitality expansion include southern Spain, Dubai, the Maldives, Athens and London.

The group launched its first residential development project in Dubai in 2017 and has expanded its portfolio of projects to 11, four of which are in Dubai, three in Spain and one each in Oman, Qatar, Bosnia and the UK. The first three of these projects, Urban Oasis Tower and the DaVinci Tower by Pagani in Dubai and Sidra in Bosnia, are expected to be completed in 2024.

The GDV of the portfolio as at 30 June 2023 stood at US$5.0bn.

Dar Global targets the development of luxury branded second homes, primarily in Dubai and the GCC region, and actively markets the properties to wealthy clients in this area, as well as other ‘hot spots’ around the world, via a team of more than 100 dedicated sales professionals in eight international offices and broker relationships in 63 cities globally. It is locked into global wealth super-trends, targeting wealthy customers who can afford to purchase a property without the need for a mortgage and who may be interested in purchasing more than one property.

The residences are branded with well-known luxury names, which the company believes unlocks price premiums in a competitive market, thus helping with brand awareness. In addition to the luxury brands mentioned above, Dar Global has collaborated with W Residences in Dubai, The Trump Organization at Aida in Oman, and with Missoni, Pagani and Elie Saab for interior design at the Urban Oasis Tower and Da Vinci Tower by Pagani, both in Dubai, and Les Vagues in Qatar.

Dar Global targets a return on investment of over 15% in the GCC region and over 12% in other international locations that tend to be more mature. It tends to operate a ‘capital-light’ business model where some projects include joint developer agreements with landowners, with projects largely financed via off-plan pre-sales. As at end-December 2022, Dar Global had pre-sold 90% of its Urban Oasis (total 465 units) development, 31% of its DaVinci Tower (total 85 units) and 98% of its W Residences (total 385 units).

Over the last 24 months, Dar Global has analysed more than 120 projects and has 13 assets in the pipeline, which would have a total cost of c US$3.6bn. These pipeline assets are in a range of attractive locations, including Greece and the Maldives.

The main board1 of Dar Global has a number of very experienced individuals who have worked in relevant international roles in a number of related companies, which adds to the wealth of knowledge and ability on the board. The key executives are described below.

Non-executive chairman – David Hunter: David became a director on 6 February 2023. He started his career as a chartered surveyor, becoming a leading fund manager, ultimately as managing director of Aberdeen Asset Management’s £6.5bn international property fund management business. He has since built a successful listed company directorship career that has seen him serve on the board as a non-executive director and chair of a number of London Stock Exchange-listed real estate companies including GCP Student Living, Capital & Regional and Custodian REIT. He is the former chairman of South African Property Opportunities, an investment manager in real estate projects in South Africa and sub-Saharan Africa (formerly AIM-listed on the London Stock Exchange), and of NR Nordic and Russia Properties, which specialises in real estate opportunities in the Nordic and Baltic regions, as well as Baltic Russia. Until early 2022, David was senior independent director of Yatra Capital, an Indian real estate investment company.

Chief executive – Ziad El Chaar: Ziad joined Dar Global in May 2017. He has more than 20 years of experience in real estate development and investment, and 10 years’ experience in corporate governance, board affairs and regulatory compliance. Prior to joining the group, Ziad was the CEO – ventures and business development at Emaar Properties, CEO at DAARE and managing director and executive director on the board of directors of the publicly listed DAMAC Properties, a direct competitor of Dar Global, during which time he focused on operational achievement and the companies’ development and strategic plans. Ziad holds a master’s degree in business administration from the American University in Beirut.

Chief financial officer – Shivaraman Iyer: Shivaraman joined Dar Global in June 2022. He brings over 38 years of international working experience to the group as chief financial officer, overseeing financial operational performance, investment strategy, portfolio management and group restructuring. Shivaraman has held leadership and senior management roles with several prominent organisations, including SVP Finance at the DAMAC Group, CFO at Aldar Laing O’Rourke and at Al Raha International. He has gained sector-wide financial and operational expertise in real estate development, property and asset management, and contracting in several countries including the UAE, India, Qatar, Russia and Hungary.

Vice chairman and non-executive director – Yousef Al-Shelash: Yousef became a director on 6 February 2023. He is the chairman and one of the founders of Dar Global’s major shareholder, Dar Al Arkan Real Estate Development, established in 1994. Yousef holds several leadership positions in organisations across the Middle East. He gained prominent status by being a founder, partner and manager of many entities inside and outside Saudi Arabia, which operate in various real estate and financial activities. Yousef is one of the founders and chair of the board of Saudi Home Loans since 2008 and of Al Khair Capital in Saudi Arabia since 2009. He is a board member of Al Anma Towers, Al Dar Al Arabiya and Dar Al Khaleej Al Arabiya. He obtained an MSc in law and legal proceedings from the Institute of Public Administration Al-Riyadh and a BSc in Shari’ah from Mohamed Bin Saud Islamic University, Saudi Arabia. He also earned diplomas in both banking and combating financial crime.

Dar Global has a number of strengths that give it an edge over its competition. Firstly, it prefers joint developments where a partner supplies the land and the profits are split in line with agreements. Dar Global also tends to sell off-plan. Both either reduce the need for upfront capital or bring forward cash flows. Secondly, it often seeks a luxury brand partner that will design the interior of a development. The advantage here is that with a brand partner, the development can command up to a 30% price premium versus a similar non-branded development. Furthermore, Dar Global has an incentivised internal salesforce and an extensive external broker network that look to secure sales. The company expects both these routes to market to at least more than double in size.

Three of the 11 current projects of the group (W Residences Dubai – Downtown, Aida in Oman and Les Vagues in Qatar) are based on joint development agreements (JDAs) with the owners of the land on which the relevant project is located. In each case, the cooperation with the landowner is based on three points:

The value of such arrangements for the group is that it does not have to finance the purchase of land for the project and, therefore, the project can be effectively financed mostly from payments made by customers purchasing residential units on an off-plan basis. The reduction in capital expenditure requirements allows the group to improve returns, accelerate its growth and simultaneously develop a larger number of projects than in the circumstances where it would have to purchase land upfront for its projects.

The group currently has four co-branded projects, three of which are in Dubai. These include W Residences Dubai – Downtown, being developed in cooperation with Marriott; Urban Oasis, with interiors designed with the cooperation of high-end Italian fashion and design house Missoni; and the DaVinci Tower, with interiors designed with the cooperation of high-end Italian automotive and design house Pagani. In addition, five low-rise residential buildings that constitute the group’s Les Vagues project in Qatar will have interiors designed in cooperation with Elie Saab, the world’s first Arab designer to be admitted to the fashion industry’s governing body, Chambre Syndicale de la Haute Couture.

The success of the group in developing co-branded projects to date was illustrated when it put residential units in its W Residences Dubai – Downtown project on the market in Q122 and all units were sold out off-plan within 45 days. The benefits of cooperation with fashion brands and hoteliers include their contribution to the design of the project and to marketing campaigns and an uplift in both the volume of sales and the price at which properties are sold to customers. For example, the directors believe, based on third-party research discussed later in this note, that branded residences can trade at a 30% premium to non-branded residential stock.

Dar Global has its own rapidly growing sales and marketing team of more than 100 dedicated sales professionals in eight international offices and broker relationships in 63 cities globally. This network was, in large part, developed over the years by the group’s major shareholder, DAARE. The group is currently engaged in a process whereby each of these brokers will have a contract in place with one or more of the group’s sales offices in Dubai (opened in 2017), Sarajevo, Bosnia (opened in 2017), Beijing, Marbella, Spain and London (each opened in 2022). Brokers currently account for a significant majority of residential units sold in the group’s projects and this extensive network of brokers provides the group with a competitive advantage, at least compared to other developers of a similar size. In addition, DAARE has a proprietary database of approximately 40,000 customers, to which the group has and will continue to have access, which provides it with an additional competitive advantage. As at 30 June 2023, Dar Global had sold 1,281 units to buyers from 89 different countries highlighting its global appeal.

The group’s long-term goal is to increase the number of employees in the marketing and sales team to approximately 200 and to sell a majority of its residential units through its own sales team, which, the directors believe, is likely to increase the group’s profitability. Employees in sales teams responsible for operating and managing sales offices are compensated on a salary plus commission basis. Commissions are paid in line with local practices which implies rates of 5–6% in GCC countries, 5% in Spain and 1–2% in the UK.

The group divides the project development process into six separate stages. Each of these stages is described below.

Typically, Dar Global sells units on its residential projects to the end-buyer after stage four (land development) in the project development cycle and such units are referred to as being sold ‘off-plan’. In the case of the DaVinci Tower by Pagani, sales to customers commenced after stage five (superstructure) in the project development cycle as it was already built when purchased. This happened because the group acquired the J1 Tower when the construction work on that building was fully completed. Residential units being sold in this building are referred to as being sold ‘prefinished’ as work on the refurbishment of this building is continuing.

Dar Global deliberately targets HNWIs and UHNWIs as potential buyers of its high-end and often branded developments. The collective wealth of these groups grew by 7.1% pa in the three years to 2021 and grew over 5% pa in the seven years to 2022, despite declines in 2018 and 2022 (source: Knight Frank). The concentration of wealth is expected to continue to grow, implying that the percentage of the population that enjoys such wealth is likely to have doubled in the 10 years to 2026 in many countries and regions. Currently, according to Capgemini, these wealthy individuals have increased their defensive cash reserves at the expense of volatile equity assets, implying that they are in a better position now to purchase a Dar Global residence than perhaps they were a year ago.

Dar Global deliberately targets the wealthiest individuals in the world, often referred to as HNWIs or UHNWIs, because this group of potential customers is more likely to have the capital available to purchase a second or third home without the need for traditional forms of funding such as a mortgage. In effect, they are cash buyers and this has the effect of reducing the possibility that a property purchase may fall through.

There are many definitions of HNWIs and UHNWIs. According to Knight Frank’s The Wealth Report, 2023, a HNWI is someone with a net worth of US$1m or more, including the primary residence, and an UHNWI is someone with a net worth of US$30m or more, again including their primary residence.

HNWIs and UHNWIs are found on every continent and are increasingly nomadic in their lifestyles, meaning they are likely to travel between locations and are therefore likely to desire a base of their own in those places. Furthermore, the accumulated wealth of this group tends to rise annually. As shown in Exhibit 2 below, the total value of the global HNWIs and UHNWIs rose on average by 5.1% pa between 2015 and 2022, which included a 3.6% decline in 2022 as global interest rates entered a rate rising cycle. Between 2018 and 2021 the annual rate of wealth growth had been 7.1% pa.

The North American group is the largest by value and rose the fastest over the period, expanding total wealth by over 50%, with the relatively small Middle Eastern group also expanding strongly, by almost 50%. In 2022, the total wealth of global HNWIs and UHNWIs declined by c 3% but we believe that in the longer term the trend of rising wealth is likely to continue.

This view is supported by the chart above, which highlights that, for example, in 2016 just over 1% of the population of the UAE was a HNWI or an UHNWI, and that by 2026 this proportion as a percentage is expected to almost double. The same is true in many other countries and regions around the world, thus steadily expanding the number of potential Dar Global customers.

Exhibit 4 below highlights how the asset allocation of HNWIs changed between January 2022 and January 2023. As global interest rates have risen over the last year, HNWIs have become more defensive and have switched capital from riskier assets, such as equities and alternative investments, to cash in an attempt to preserve capital in volatile markets. It therefore follows that with growing numbers of HNWIs sitting on increasing liquid cash reserves, this population of potential customers are in a better position to buy a Dar Global property when the cycle reverses.

This positive outlook is supported by Knight Frank’s Global Branded Residences Report, 2023 edition. In the report it commented that although the global population of UHNWIs had declined by 3.8% in 2022 due to sharply higher interest rates and more challenging geopolitical conditions, more positive long-term trends lead it to expect the population of UHNWIs to rise by 28.5% between 2022 and 2027, led by the US and China, with other countries such as Canada, Australia, India, Germany and the UK also seeing substantial growth in the number of UHNWIs. At a regional level, growth will be led by Australasia, Asia and the Middle East, which plays to Dar Global’s core client base.

Hotel stays, a proxy for travel, dropped significantly during the COVID-19 pandemic but have been recovering steadily. Flight data highlight some regional differences, with Asia experiencing the slowest progress, perhaps due to extended COVID-19 shutdowns in China. However, global travel is forecast to exceed pre-pandemic levels by 2027, with significant growth in Africa, the Middle East and Asia. Asia dominates in terms of expected future growth, but Europe and North America also offer opportunities with increased mobility. This fits with Dar Global’s ambition to develop a portfolio of hospitality assets in the medium term.

Future demand for second homes, including branded residences, is expected to be driven by rising affluence, increased mobility and the desire of wealthy investors to expand their residential property portfolios. According to Knight Frank, around 17% of UHNWIs purchased homes in 2022, with demand boosted by the pandemic. In 2023, c 15% of UHNWIs are considering a purchase, according to its survey, with key target destinations being the US, UK, Australia, Spain and France.

Dar Global launched its first residential development project in Dubai in 2017 and the group has expanded its portfolio of projects to 11, four of which are in Dubai, three in Spain and one each in Oman, Qatar, Bosnia and the UK. The first three of these projects, Urban Oasis by Missoni and the DaVinci Tower by Pagani, both in Dubai, and Sidra in Bosnia, are expected to be completed in 2024.

All properties are 100% owned by Dar Global, bar the W Residence, where the land is owned by the Uranus Contracting Company and the post-completion profits are split 50%/50%, Les Vagues, where the Qetaifan Projects company owns the land and profits are split 70%/30% in favour of Dar Global, and Aida, where the land is owned by The Omran Group and the profits are split 80%/20%, again in Dar Global’s favour.

A summary of the group’s projects is listed below.

The exhibits below highlight the geographical locations of Dar Global’s portfolio and the images give a flavour of both the external and internal look of these luxury branded second homes. Of the six shown, five are being developed in association with global brands including Lebanese fashion house Elie Saab, supercar designer Pagani and W Residences, a luxury branded hotel group. Partnership with a luxury brand is important to Dar Global because branded residences can trade at a 30% premium versus non-branded residential stock, according to property valuers Savills (quoted in Savills Branded Residences Report 2022), although Savills notes that this can vary considerably depending on location. Savills noted that in emerging markets where luxury brands appeal to a growing number of HNWIs, schemes on average command a 54% premium, and in other markets where there is little or no competition, a branded property can achieve a valuation that is double the non-branded average.

The charts below show the GDV in US dollars of Dar Global’s portfolio. Its development in Oman is clearly the largest, accounting for c 48% of the entire portfolio, followed by Dubai with 20% and Qatar with 7%. Collectively these three countries account for 75% of the total, with Spain accounting for another 23%. Bosnia and the UK (London) account for the remaining 2%.

On a project by project basis, clearly the Aida project in Oman is the largest and Manilva (Tabano) in Spain is the next most important. After that, Urban Oasis (Dubai), the DaVinci Tower (Dubai), W Residences (Dubai), Les Vagues (Qatar) and Tierra Viva (Benahavis, Spain) account for c 5–8% each and the remaining developments are all quite modest, accounting for c 1% of the portfolio GDV each. Aida has a GDV of US$2.4bn and is being developed under a JDA with the Oman Tourism Development Company (OMRAN) in partnership with The Trump Organization. It is a 10-year, 10-phase project that began taking sales in March 2023. By the end of June it had taken 115 sales. At the end of the project, profits will be split 80%/20% in favour of Dar Global.

In addition to its existing projects, Dar Global is conducting negotiations regarding the acquisition of land for future projects or negotiations with potential partners regarding joint development of projects in several jurisdictions in which it already has projects and/or offices, including in the UAE, Qatar, Spain and the UK. The group is also involved in ongoing negotiations regarding projects in countries in which it currently does not have any presence, such as Greece.

In the near future Dar Global intends to expand into hospitality assets. It plans to acquire existing hotels or to build new premises and to sell them on after a period of three to five years once the resort’s revenue streams have matured. Target markets include southern Spain, Dubai, the Maldives, Athens and London. The assets would be operated by third-party hospitality operators.

We understand that there are 14 potential projects in the pipeline, with other assets totalling US$3.6bn under consideration.

Dar Global has adopted an ESG strategy to mitigate its environmental effects and to build social value while developing a compelling product with luxury service and amenity offerings. Such strategies include property-wide initiatives, including:

They also include residence-based initiatives such as:

Dar Global is a property developer that operates across six international geographies and as such there are numerous sensitivities and potential risks that could have an impact, positively or negatively, on the reputation, sales or profitability of the group. That said, there are some sensitivities, particularly around interest rates, that would affect a domestic mass-market housebuilder, but are likely to have little or no impact on Dar Global. This is because it builds luxury branded second homes targeted specifically at HNWIs and UHNWIs, which is a completely different marketplace, and arguably one that is growing in the long term due to the increasing concentration of wealth, rather than declining.

Although Dar Global is a residential construction company, it is not subject to many of the sensitivities that would usually affect a typical mass-market housebuilder. For example, the fortunes and the share prices of many regional and national housebuilders are influenced by the direction and absolute level of mortgage interest rates, because a large proportion of buyers require financial support. In the case of Dar Global, it targets high-net-worth and ultra-high-net-worth buyers who, by definition, are largely ambivalent to interest rates as they are typically cash buyers.

Housebuilders also have limited pricing power because the prices of their products are usually several multiples of the income of purchasers and the buyer’s ability to borrow is limited by a lender’s willingness to lend, and/or regulatory constraints.

We believe the biggest sensitivity is price. Dar Global’s total portfolio has a GDV (ie a sales value) of US$5.0bn and a 1% increase or decrease in this amounts to US$50m, versus a current market capitalisation of US$662m (it should be noted here that not all the land of the developments is 100% owned by Dar Global, but this gives an indication of the huge potential sensitivities). Clearly, a 10% fluctuation on sales value would move the GDV by US$500m.

Dar Global targets a 30% EBITDA margin on average so a 1% change in total costs would have a material, but smaller, impact on the potential valuation.

Dar Global offers significant opportunity, but of course with opportunity comes risk. Below are some of the main risks we have identified that have the potential to affect the group’s operations and ability to execute and therefore profitability and cash flow. For example, the group:

Dar Global’s property portfolio is unique, containing 11 different properties in six countries. We have therefore chosen to value the group on a multiple of net asset value/shareholders’ funds basis as we believe the company will generate a return on equity in the high teens, well in excess of its cost of capital. This approach implies a group equity value of c US$930m, which offers c 40% upside from the current share price. The company’s conservative revenue recognition policy implies that this approach arguably understates the profit potential in the forecast years, thus hiding value. It also gives no credit for the value of non-residential assets in the portfolio, nor its future plans to expand into hospitality, thus adding further upside potential.

We have chosen to value Dar Global on a multiple of shareholders’ equity basis as this is a well understood valuation methodology for a property developer. Furthermore, considering that Dar Global is a relatively early stage company, we have based our valuation on the estimated shareholders’ equity in FY25, rather than FY23 or FY24, which we believe gives a fairer reflection of the potential valuation.

We believe that Dar Global’s revenue will steadily increase in FY24 and FY25, which is likely to see growing profits and an improving return on average shareholders’ equity, from 16.5% in FY24, to 18.5% in FY25. We believe these returns are consistent with the company’s targets. We have applied a 1.5x multiple to the shareholders’ funds, which gives a valuation of US$930.6m.

It is worth noting that high-end residential developer Berkeley Group of the UK is perhaps a reasonable comparative to look at how the market rewards returns; see Exhibit 14. Historically, Berkeley Group has traded in a range of 1.4x to 2.7x P/NAV, with it achieving valuations towards the top end on the range when it was generating a return on equity of c 25% (range: 21% in 2014 to 34% in 2018).

We believe that 1.5x is a realistic multiple given Dar Global’s expected returns and limited track record, and that a higher figure could be justified in the future assuming Dar Global either achieves or exceeds the expected returns. Looking at Exhibit 14, it is clear that the market has ascribed a premium P/NAV in periods where Berkeley Group has achieved higher returns. Using this chart as a guide, if Dar Global was to achieve a 20% return on equity, a P/NAV of 2x may be justified. Exhibit 15 shows the implied valuations and upside from a range of P/NAV multiples.

In arriving at the valuation of US$930.6m (US$5.17/share), we have taken the implied valuation for FY25. This implies c 40% upside in the current market value This figure is supported by our ‘high level’ DCF calculation of the portfolio, but we recognise that modelling such a bespoke portfolio over an extended period has numerous uncertainties.

To sense check our valuation further, we note that the valuation of US$930.6m implies earnings multiple of 8.8x FY25 retained earnings. This is a c 20% premium to the sector average of the stocks in Exhibit 16, but considering the materially superior return on equity (18.5%) anticipated, we believe this is an undemanding premium. We believe that a higher premium could be justified, implying further potential upside.

It is also worth noting that Dar Global’s revenue recognition policy is arguably conservative, which implies that both revenues and profits are understated and therefore also that the return on shareholders’ equity could be somewhat higher, implying, in differing circumstances, even greater upside potential. For example, its three Spanish developments – Tierra Viva, Marea and Manilva – are expected to launch sales in 2023 and 2024, but are not expected to recognise revenue until each development is fully complete in 2026, 2027 and 2029, respectively. Collectively, these three developments have a GDV of over US$1.1bn and all revenue and profit falls outside the forecast period.

Furthermore, the group’s largest development, Aida in Oman, is expected to recognise just c US$105m of revenue by the end of FY25 (of which US$25m is expected in FY24), although it is a 10-year, 10-phase project with a total GDV of over $2.4bn.

Dar Global’s current portfolio is likely to result in very strong revenue growth in FY23 versus FY22 (H1 revenue increased more than threefold), with strong year-on-year growth in future years as more projects are launched and subsequently revenue is recognised. We anticipate further revenue growth in FY24, reflecting the launch of several projects in FY23, and substantial growth in EBITDA over the period, with EBITDA margin growing from 20.7% in H123 to c 28% by FY24 and FY25, below the company’s target of 30%, implying potentially conservative forecasting. The ‘capital-light’ business model adopted by Dar Global is likely to see net cash rise in FY23 and FY24, matching payments with income under its JDA model. This ‘capital-light’ model is designed to not only limit upfront capital requirements, but also be scalable, implying that other projects could be brought into the portfolio in the future, adding value. This may include the development of a portfolio of hospitality projects currently in the planning stage.

Dar Global has adopted a conservative revenue recognition policy. On most developments, with the three Spanish developments as notable exceptions, the company only recognises revenue once 20% of the development has been completed by cost and 20% of the cash has been collected. The same principle applies to Urban Oasis and the Pagani Tower, but the terms are even more conservative, in our view. In reality, this means that initial cash down payments from sales of typically 20% of the purchase price are received, followed by a series of cash payments up to, and in some cases beyond, the completion of the project. It also implies that cash flows are received before construction begins, and that there is a cash inflow from sales as construction proceeds, reducing the need for working capital.

Exhibit 17 below attempts to describe the revenue recognition of the current portfolio of projects. In 2022, the only ongoing project for which revenue was recognised was Urban Oasis. In 2023, this is expected to be joined by the Pagani Tower, W Residence and Sidra, which are expected to recognise revenue until 2028 and 2026. In 2024, Dar Global expects to commence revenue recognition from DG1 and the full recognition of the single unit in Old Park Lane, London, which drives our revenue growth forecast in the year.

2024 is also the year that Dar Global begins to recognise the first revenues from its largest project, Aida, in Oman. This development, which accounts for nearly 50% of the current GDV of the portfolio, is expected to contain 10 separate phases, with the majority of the revenue being recognised in the second half of its 10-year life, thus supporting long-term revenue streams.

The three Spanish developments are different in so far as the revenue from these projects is only expected to be recognised once each project is completed. In the case of Tierra Viva, this is expected to be 2026, Marea in 2027 and the largest of the three, Manilva, in 2029. However, Dar Global expects to receive cash flow from sales from 2023 and 2024 on these projects, supporting our view that the revenue recognition policies adopted by Dar Global are conservative.

Collectively, the projects imply recognised revenue of US$268.8m in FY23, rising strongly to US$309.4m in FY24 and US$391.6m the following year. Our EBITDA forecast also rises with revenue and the margin expands as absolute revenue rises faster than costs. This implies that the EBITDA margin increases from 20.7% in H123 to 22.8% in FY23 and to c 28% in FY24 and FY25. It should be noted that this is arguably a conservative margin given the company’s stated target margin of over 30% over the medium term.

Dar Global ended H123 with net cash of US$112.0m, which we estimate will rise to US$161.9m at end FY23, driven by cash deposits from sales of properties on previously launched developments. We anticipate a similar situation in FY24 following the launch of several developments in 2023, with net cash at the end of FY24 rising to US$396m, reflecting both the sales profile and the timing of development costs. This is reflected in the ‘advances from customers’ line in the balance sheet.

The H123 interim statement noted that Dar Global arranged a US$200m revolving credit facility with the ultimate parent entity, which at the half year was entirely undrawn. This implied total available liquidity of more than US$290m at the end of June and that it has sufficient resources for at least 12 months from that date.

Dar Global adopts a ‘capital-light’ model, preferring to launch projects ahead of the commencement of construction, and to also partner with landowners, thus avoiding substantial upfront capital costs, as discussed earlier in the note.