• 2017 outlook: fashion avenue expansion opening its doors; potential new acquisitions announced We expect the 600,000 sqft of added space in Fashion avenue to open its doors in 2Q17. We estimate 90% average occupancy once the expansion is operational and an average lease rate of cAED830/sqft. We believe that the coming three to four months will see substantial progress in the pace of leases concluded (at 45% in June, as indicated by management); with the most significant developments seen towards the opening date with F&B space being leased out at the end. Despite our expectations of a continued slowdown in sales turnover, we forecast total turnover of AED18.7bn in 2017 (+13% Y-o-Y) for the portfolio, primarily driven by the new expansion. Additionally, we expect the company to announce its first acquisition deal, acquiring further expansions in TDM from its parent.
• Further acquisitions are the option in the medium term In its 3Q16 earnings release, management listed a number of planned expansions, including: i) a dedicated retail district in Dubai Creek Harbour; ii) a boutique mall for high-end brands at Dubai Hills Estate; and iii) additional space at the Meadows. Thus, we expect to see further acquisitions in the medium term that will drive the growth story. It is worth noting that potential acquisitions from the parent would be concluded once the asset is 70% leased and will be valued by an independent valuer to determine the acquisition price. We have not accounted for any acquisition in our numbers.
• Maintain our Buy rating; growth story to continue We maintain our Buy rating on the stock, with our FV implying 22% upside. Investors’ concerns regarding weakness in tenant sales and its potential implications on EMG’s operations is unjustifiable, in our view, with rental income having proven resilient to sales weakness in 2015 and YTD. A slump in tenant sales (more than 10%) will start to have some negative implications on total rental income, in our calculations. We expect the new added space along with potential new acquisitions to continue to add a growth element to what we believe is a premium value stock.

Mai Attia
Sara Boutros