solidere annual report 2005

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The Master Plan

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FINANCIAL HIGHLIGHTS

CHAIRMAN’S MESSAGE

THE PROJECT

REVIEW OF OPERATIONS

EXISTING CITY CENTER SITE DEVELOPMENT

EXISTING CITY CENTER MASTER PLANNING

NEW WATERFRONT DISTRICT SITE DEVELOPMENT

NEW WATERFRONT DISTRICT MASTER PLANNING

REAL ESTATE STRATEGY

RESTORATION

SALE AND RENTAL STRATEGY

CORPORATE FUNDING AND TREASURY

SOLIDERE SHARES AND GDRs

MANAGEMENT SYSTEMS AND STUDIES

CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT

BALANCE SHEET

STATEMENT OF INCOME

STATEMENT OF CASH FLOWS

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

NOTES TO THE FINANCIAL STATEMENTS

EXTRACTS OF STANDALONE FINANCIAL STATEMENTS

BALANCE SHEET

STATEMENT OF INCOME


STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

BOARD OF DIRECTORS GENERAL MANAGEMENT

At the heart of Lebanon’s capital, Beirut city center is anurban area thousands of years old, traditionally a focus ofbusiness, finance, government, culture and leisure. Itsreconstruction constitutes one of the most ambitious urbanrevitalization projects of our times.

The Lebanese Company for the Development and Reconstructionof the Beirut Central District s.a.l. (Solidere) is a joint-stockcompany established on May 5, 1994.

It is based on Law 117 of 1991, which regulates Lebanese realestate companies aiming at the reconstruction of war-damagedareas, in accordance with an officially approved master plan. Itsshare capital is US$1.65 billion.

As it spearheads and oversees this project, Solidere is bringinglife to Beirut’s central district and turning it into the finest citycenter in the Middle East.

The Company issues annual and semi-annual reports to itsshareholders. Solidere’s activities through the end of 2005 arealso summarized in its twelfth Annual Report.

This Annual Report includes for the first time consolidatedfinancial statements, which consolidate the accounts of BeirutWaterfront Development s.a.l., a subsidiary with 50% Solidereshareholding. The consolidated financial statements, as well as the standalone financial statement, are prepared and audited inaccordance with international standards.

3solidere annual report 20052 solidere annual report 2005

2005 2004

Summary of Operations (in US$ million)Gross land sales 252.8 169.4

Gross rental income 20.8 18.6

General and administrative expenses 11.5 10.1

Net income 108.5 54.1

Sales backlog* 1,119.2* 78.5

Stock Data per Share (in US$)Earnings 0.6858 0.3400

Shareholders’ equity 11.62 10.84

Stock price range

A shares 6.87–19.00 4.290–8.770

B shares 6.87–19.25 4.350–8.720

GDRs 7.63–18.00 4.975–8.125

Financial Data (in US$ million)Cash/cash equivalents and securities 121.1 119.6

Accounts and notes receivable 272.8 210.9

Properties held for development and sale 1527.4 1607.3

Investment properties 160.5 158.7

Total liabilities 282.0 435.6

Retained earnings 185.6 82.9

Legal reserves 46.7 35.8

Treasury stock (38.5) (69.8)

Total shareholders’ equity 1845.1 1695.3

Financial Ratios (%)Return (interest income) on liquid assets 4.68 4.43

Debt to equity ratio 7.09 13.98

CONSOLIDATED FINANCIAL HIGHLIGHTS

* As at March 31, 2006.


CHAIRMAN’S MESSAGE

Beirut city center continues to be a most sought-after place by visitors and residents as well asinvestors. We are particularly gratified to see the intense and growing interest expressed by a largeand diversified network of investors, including some key business figures and institutions in theArab world.

This of course is justified. Over the past 12 years, one of the finest city centers in the Middle Easthas evolved in Beirut. Together with a remarkable location and other attributes, it enjoys newinfrastructure and beautifully landscaped open spaces, with many new ones planned for the nextfew years. A range of mutually supportive land uses, residential, hotel, institutional, office andretail activities, form the basis of a coordinated and sustainable development both in terms ofurbanism and economics.

The city center is reinvigorated as the Lebanese capital’s focus of government, business andbanking. We have also succeeded in emphasizing downtown living, culture, heritage and civicvalue, while creating a magnet of tourism, shopping and leisure. The conservation area is full ofshops and cafés, Beirut Marina with yachts and boats, and the whole city center is vibrant withpeople and events. Downtown Beirut has become an artistic destination, and exhibitions are heldthroughout the year in the Planet Discovery exhibition hall, partly within our artists-in-residenceprogram, in the Saifi Village Quartier des Arts and in other galleries.

Launched in 2005, Beirut Souks are advancing rapidly for delivery in the second half of 2007 for theSouth Souks, and by end 2008 for the North Souks. Ongoing real estate activity also includesfacilities in Saifi Village, Wadi Abou Jamil and Zokak El Blatt, around the Souks, around BeirutMarina, and in high-density zones in the hotel district, Martyrs’ Square axis, south and north edgesof the city center. Wadi Abou Jamil is being revived as a quiet residential neighborhood, thanks todesign concepts initiated with the help of excellent local, regional and international architects. In the new development areas, modern high-rise apartment buildings and hotels commandexceptional sea and mountain views.

Out of a 4.7 million sq m target floor area for the city center, including the new waterfront district,2.6 million sq m have been so far the subject of development: 819,500 sq m have been completed,675,500 sq m are under construction and the balance in various stages of development.

Investors’ interest in our project is such that demand sometimes precedes the delivery ofdeveloped land. The latest illustration is the early purchasing of sites in the new waterfront district,for delivery to investors on completion of land reclamation. We have taken measures to expeditethe reclamation works after termination of the Radian contract in February 2006, and will informinvestors about the planned timing of site delivery. We will soon launch the design of infrastructurefor the new waterfront district, integrating Formula One capability and comprising an upgradedrange of utility networks.

The Martyrs’ Square axis international urban design competition, under the auspices of theInternational Union of Architects, was an unqualified success. Utilizing the best features of thewinning scheme together with contributions from our consultants and in-house team, we prepareda new sector plan for the area. A number of government decrees ratified BCD Master Planamendments reflecting the new sector plans for the Martyrs’ Square axis, Ghalghoul, Souks, hoteland waterfront districts.

We have now moved into Phase Two of the project and have adapted our strategies accordingly. In addition to the Beirut Souks, we intend to focus on several large-scale real estate projects to enhance our rental revenues. We will also complete the remaining restoration work in our Wadi Abou Jamil and Zokak El Blatt residential properties.

Within our strategy to attract businesses and residents, direct broadband connection will, by thelast quarter of this year, ensure high speed connectivity, state-of-the-art technology for broadbandcommunication and multimedia services in all BCD buildings. Other special services provided bySolidere, some with participating property owners and users, supplement regular municipalservices. We continue to stimulate real estate projects by providing advice to investors, building onour recent urban and design studies for new development sectors. Our idea of selling developmentblocks with concept designs proved to be efficient in ensuring coherence of architecture, enhancingthe esthetics of each sector and giving a time advantage to buyers-developers.

Financially, 2005 was a boom year, with a record net profit of US$108.5 million, US$125.6 millionbefore income tax. This represents a 100% increase on 2004 profits, mainly due to surging landsales to Lebanese and Arab investors. The growth in demand has been accompanied by an appetitefor larger-size projects, commanding higher land prices, and a trend towards front-ended deals interms of cash. Recognized sales reached US$253 million, the highest level since inception. Wehave also established a record in new sales. The US$1.1 billion signed in the first quarter of 2006are equivalent to the cumulative recognized sales since inception. These new sales include twosubstantial deals representing major multiuse projects on the Martyrs’ Square axis, totaling384,240 sq m in floor area.

We have stopped selling finished products in order to build a portfolio of income-generatingproperties. The liquidity derived from increased sales and rentals, coupled with cash deals, wasused in part to reduce the Company’s debt to US$129.74 million at end 2005 and US$51 million atend March 2006.

During 2005, the share performance was good on very active trading. Shares A and B closed theyear at US$17.98, respectively 118% and 122% above 2004. The GDRs closed at US$17 on theLondon Stock Exchange, 127% above 2004. The upward trend continued this year. During the firstquarter, shares A and B respectively peaked at US$26.01 and US$25.89 and closed at US$21.79 andUS$21.66, with the GDRs closing at US$21.87.


Endeavoring to promote investor relations, we have participated in international and regionalconferences. A road show in KSA, other gulf countries, the US and UK early this year had as itsobject to enhance liquidity and create more trading in the Solidere shares on the Beirut StockExchange by providing shares from existing shareholders through a secondary offering. The deal,involving 4.125 million shares, was four times over-subscribed.

Operationally, we intend to concentrate on activities that are revenue generating. These includerental revenues, expected to increase to US$65 million after delivery of the Beirut Souks. We alsointend to export our expertise outside the BCD perimeter. Solidere has brought together a broadrange of disciplines into a highly competent, multi-tasking team, who has further gained a uniqueprofessional and business expertise through the cumulative experience of Beirut city centerreconstruction and renewal. The Solidere team has to its credit an unmatched track record in thesuccessful planning, financing, management and implementation of large urban projects and canoffer services and consultancy in similar projects in the Middle East and the world.

The liquidity enjoyed by the Company, and expected to continue in 2006 and thereafter, will bepartly used to complete the Beirut Souks and renovation projects, implement land development ofthe new waterfront district, and develop some selected real estate projects. One is a retail andentertainment project that will form a fifth magnet to the Souks. Others include new officebuildings. Relying on growing demand for office use, to be further enhanced by our broadbandnetwork, we are commissioning world class architects to design three office buildings, two in thehotel district and one on Martyrs’ Square. Two of these projects already have prospective end-users. Financially, we intend to implement a dividend distribution program as well as a sharebuyback program with a view to cancel these shares and reduce capital. This, we believe, will havea positive impact on the share value and will be to the advantage of shareholders.

To conclude, Solidere is at a lifetime peak in its activity and results. As a land bank, it is both sellingmore development land and commanding higher prices. Its portfolio of revenue generating assetsis increasing at a healthy pace. New lines, added to its core activities, are expected to increase theCompany’s bottom line. Coupled with low overheads, a low cost of land, now mostly spent, and debtretirement, the results are expected to boost cash holdings dramatically. The increased liquiditywill be mainly used for dividend distribution and share buybacks, as well as for identifying strategicopportunities for new development. Your Company is truly at a turning point on its solid coursetowards meeting all its targets.

NASSER CHAMMAAChairman and General ManagerMay 10, 2006


THE PROJECT

The Beirut Central District reconstruction isdeemed as one of the most ambitious urbanregeneration ventures of our time.

Drawing on the site’s natural assets andrich heritage, the BCD Master Plan aims tocreate the finest city center in the region,endowed with a new waterfront district,and accommodating a sustainable, broadmix of facilities totaling 4.69 million sq m of floor space.

Beirut city center enjoys a prime location at the heart of Lebanon’s capital. Slopingdown towards the waterfront, the sitecommands fine views of the sea with asurrounding landscape of mountains andhills. It is easily accessible from all parts of Beirut, including port and airport. Majorroads converge on it from its east, southand west, and line its 1.5 km seafront to the north.

Continuously inhabited for more than5,000 years, the site bears the marks of 11 civilizations, from the Canaaniteto the Ottoman. Beirut’s maritime and trading legacy dates back to thePhoenicians. Its Roman law school was the most prominent in the Empire.Its urban character and architecturalstyle were formed during the Ottomanperiod and the French mandate, whenit became the seat of public institutions.

Independent Lebanon grew into abooming service economy, thanks to its inherent assets, educated populationand liberal political and economicsystem. Beirut was a lively, modern,cosmopolitan city, its city center afocus for regional trade, business,finance and tourism.

Growth was thwarted at the onset ofhostilities in 1975. With the return topeace and stability, Lebanon’s economy re-emerged in the 1990’s, sustained by a national recovery and developmentprogram. Massive public investmentwas coupled with macro-economicpolicies designed to stimulate privatelocal and foreign investment. WhileBeirut city center benefited from thisfavorable environment, its entireregeneration is being achieved withoutrecourse to public funds.

In 2005, the country suffered a greatloss with the assassination of formerprime minister Rafic Hariri. Mr. Haririwas the godfather of national recovery. To him were owed the vision andinspiration for the rebirth of Beirut. In spite of the tragic circumstances,Solidere successfully pursued itsefforts to make Beirut city center a sought-after environment of thehighest quality.

The Master Plan

The Master Plan is a carefullyformulated, detailed, coordinated andphased action plan for the traditionalcity center and its modern extension onthe new waterfront.

The plan subdivides Beirut city centerinto 10 sectors, each with its owncharacter. Some are existing cityneighborhoods brought back to life,others are defined by topography or bynew boundaries created in the urbanfabric. The plan involves the recovery ofthe public domain, with the installationof a complete infrastructure. It alsoprovides an urban design frameworkfor restoration and new construction.

The plan reflects the site topographyand natural features, protects views ofthe sea and mountains and createspublic spaces, including gardens,squares, belvederes, promenades andtrails. Recognizing the city’s heritage, it also unearths layers of its history. It preserves surviving buildings andtownscape features and re-establishes the urban fabric and neighborhoodstructures. It ensures the harmoniousintegration of old and new, combiningtradition with innovation, control withcreativity in architectural expression.With the prime objective of creating a vibrant city center, it accommodatesa broad mix of land uses, includingbusiness, public, residential, hotel,recreational and cultural facilities.

The project covers some 191 ha (472acres) of land: 118 ha (292 acres) as the traditional BCD and a 73-ha (180-acre) extension reclaimed from the sea.Close to 98 ha (242 acres) will consistof public space, of which 59 ha (146acres) in roads and 39 ha (96 acres) inlandscaped open spaces.

Allocated for development are 93 ha(230 acres), including 22 ha (54 acres)of retained, public or religious property,with the following built-up area (BUA)guidelines.

Phase One 1994 - 2004 Infrastructure in the traditional BCDand the treated part of the originallandfill. Detailed sector planningrelating to the existing as well as newdevelopment areas. Landscaping andunderground parking design andexecution. Historic core restoration;renovation of the banking district,Starco and Lazarieh centers; northernWadi Abou Jamil, Zokak El Blatt andSaifi redevelopment; Beirut Souksdesign and underground construction.

New construction includes Solidere’sUN House, Saifi Village, embassycompound, Rue de France multiusecomplex; Bank Audi, Medgulf andBankers’ Association headquarters,Monroe hotel, Al-Bourj and Atriumoffice buildings, the Consulting Clinics,Block 24 and Parkview Realtyresidential buildings.

Ongoing real estate projects involvepredominantly residential clusters in Saifi and Wadi Abou Jamil; BeirutMarina facilities; residential and hoteltowers facing the Beirut Marina andwaterside city park; and inception ofother landmarks.

Completed on the new waterfront:marine works, defense structure, sea promenades and Beirut Marina;major advances in land treatment and reclamation.

Phase Two 2005 - 2024This phase, which started with thelaunching of the Beirut Souks above-ground structures, will also finalize thetraditional city center, by redeveloping the Saifi and Wadi Abou Jamil urbanvillages and establishing prime newareas in the Serail corridor, hoteldistrict and Ghalghoul sector. Its focuson the Martyrs’ Square axis and thenew waterfront district will intensify the thrust towards making Beirut citycenter a favored location to globalbusinesses, financial and otherspecialized services and institutions, a prime residential area, touristdestination and cultural hub.

Real estate development includesfacilities around the Beirut Marina and on the Martyrs’ Square axis; high-density zones comprising theBeirut Trade Center, The Landmarkand other gateway towers on thesouthern edge of the city center; and northeast gateway towers marking the point where the coastalhighway terminates in the city center.

The phase involves completing theinfrastructure in the new waterfrontdistrict, landscaping the waterside park and corniche promenades;developing the eastern marina;coordinating with the port authorityover the development of the first basin and launching developments with a distinct architectural style.

Solidere

Solidere was initially capitalized with US$1.82 billion: US$1.17 billion as contributions in kind of propertyright holders, and US$650 million as cash subscriptions following anoversubscribed initial offering. Afterthe retirement in 1997 of 17,000,129shares, representing recuperatedproperties, its capital now stands atUS$1.65 billion.

Solidere’s duration was extended by decree 13909 of 2005 from 25 yearsto 35 years, starting from May 10, 1994,the date of its registration at theCommercial Register.

The Company has established a solidbase for BCD prosperity through highvalue-added land development action,competitive real estate projects andproperty management services.

Real estate projects are implementeddirectly, in joint venture with partners,and through or in liaison with otherdevelopers. By encouraging the returnof previous owners and tenants, and by supporting third-party developers,Solidere accelerates the pace ofconstruction while reducing its risk.

As lead developer and supervisorybody, the Company controls the pace,components and quality of BCDdevelopment. Solidere outsourcesconstruction to focus on its corecompetencies: managing real estateproject development, marketingdevelopment land, marketing andservicing rental properties.

The Company provides managementand operation services to publicutilities, infrastructure, marinas, car parks and landscaped open areas.

Floor Space sq m percentage

Offices 1,582,000 33.7Residential 1,959,000 41.8Commercial 563,000 12.0Government / Cultural 386,000 8.2Hotels 200,000 4.3

Maximum Total 4,690,000 100.0


Infrastructure

Beirut city center has a 3.6-km ringroad, 8.4 km of primary roads and 16.6 km of secondary, tertiary andpedestrian streets. Expansions to the prewar grid accommodate trafficand facilitate land parceling for realestate development.

Three major axes form the ring roadsystem: George Haddad street to theeast; the widened Fakhreddine street tothe west; Fouad Chehab avenue to thesouth, with a bridge doubled in capacityand new interchange and underpassesproviding fast access to airport, port,east, west and central Beirut. Avenuescut across the city center north-south.Park Avenue links the traditional citycenter to the hotel and waterfrontdistricts. The Martyrs’ Square axislinks Damascus road to the harborsideavenue. Weygand, Zeitouneh, and Portstreets, widened and extended towardsTrieste street, form major east-westboulevards. Functional in its westernsection, the BCD corniche is to skirt thewaterfront district. New local streetswere created in Wadi Abou Jamil.

Two major road improvements wereamong Master Plan amendmentsratified in Council of Ministers’ decree16163 of 2006. One is the road linkingthe north of Martyrs’ Square to Triestestreet while accommodating importantarcheological sites in the ancient Tellarea. The other is an improvement ofthe George Haddad - Fouad Chehabjunction, creating grade separation atthe intersection. Among pedestrianstreets, the year 2005 saw thecompletion of Bechara Al Mouhandessstreet, east of Maarad, overlookingHadiqat As-Samah. Half of the six-meter space is used as terraces byrestaurants and cafés along the street,the rest serving as a pedestrian way.

The water supply network consists of30 km for drinking water and 38 km forirrigation. The water disposal systemcomprises a sewage pumping station,28-km sewage piping and 26-km stormwater drainage.

Solidere implemented civil works,including culverts, relating to powersupply and installed the 66 and 220 KVpower cables, a 220 KV link betweenthe Beirut pine forest station and theBCD, and a 240 MW substationtransforming high-tension powertransmitted by Electricité du Liban intomedium voltage; local transformers inturn convert it to low voltage electricityfor domestic use. After other areas ofthe existing city center, Mina El Hosnwas equipped in 2005 with duct banksfor its medium voltage cables, withBachoura and north Saifi to follow.Public lighting has been installedeverywhere, with necessary meters,low-voltage cabling, lighting fixturesand feeder pillars. Tunnels have beenequipped with lighting, stand-bygenerators, control and safety systems.

Civil works were also implemented fortelecommunications networks, withduct banks for low current networks,cable TV and telephone services.

Broadband NetworkThe Company obtained in 1998 a build-and-operate license for broadbanddistribution of a wide range of servicesincluding high speed internet, IPTV,video on demand, video conferencing,data center facilities and virtual privatenetworking for corporate clients.Solidere intends to build and operate afully IP network, using advancedtelecom technology based on a fiber-optic backbone connecting eachbuilding in the BCD to the network. Theservices are expected to be availablefrom the last quarter of 2006.

Beirut city center will be transformedinto a 24 hour IT zone which will attractmultinational companies and otherresidents who will benefit from theprovision of multimedia and broadbandcommunication services.

Beirut city center, revitalized thanks tosound urban planning and design, newinfrastructure and fine landscaped publicspace, has become a regional attraction,a choice location for living and working,as well as a cultural, tourist, leisure andshopping destination.

Solidere prepares development sites forinvestors wishing to develop real estateproperties in central Beirut. Its activities in this respect involve town planning,parceling and urban management, sitepreparation, archeological investigation,infrastructure, landscaping, hardscapingand street furniture.

The reconstitution of the public domainand laying of infrastructure, completed in the existing city center, will extend to the new waterfront district. As per its1994 agreement with the Council forDevelopment and Reconstruction, Solidereimplements these works on behalf of theState in return for an allocation of 29 ha of development land on the new waterfront.

EXISTING CITY CENTERSITE DEVELOPMENT

The ring road1-2 Fouad Chehab bridge with

interchange at city center southwestern entrance

3 George Haddad street

1

32


Operation and Maintenance

Solidere operates and maintainsinfrastructure and the reconstitutedpublic domain until their delivery to theState. These services cover: tunnelsand underpasses, roads and sidewalks;street furniture, traffic lights and streetlighting; utility ducts and manholes,sewage pumping station and network,storm water networks; irrigation stationand network, trees and landscapedopen spaces. The Company does notreceive any payment in considerationfor these services, and has raised withState authorities the issue of the costsincurred for which it intends to seekcompensation. These costs werecompounded by handover delays.

As per Law 117 of 1991 and theagreement with the State, ratified indecree 5665 of 1994, infrastructureand the public domain are to bedelivered upon completion to CDR,representing the State. Primaryinfrastructure and utilities, includingthe ring road with its bridges andoverpasses, main and secondaryroads, and the sewage pumpingstation, were delivered to the State inearlier years. Utility networks inMaarad, Foch-Allenby, Zokak El Blatt,Riad El Solh and Saifi were deliveredto the State in 2003; Wadi Abou Jamilnetworks in 2004. In January 2005,CDR took delivery of sidewalks.

Archeology

Extensive archeological excavationsand research yielded evidence oncivilizations spanning 5,000 years.Solidere supported the rescuing and preservation of this heritage and financed the teams working under the supervision of theDirectorate General of Antiquities.

Research proceeded in 2005 in fivearcheological sites on public space,development lots, or built lots underrestoration. The documentation,digitizing and evaluation of the resultsprovide data for a new synthesis ofBeirut’s urban history.

New discoveries have confirmed thelocation of more monumental buildingsalong the Decumanus Maximus, themain east-west street of the Romancity defined by the alignment of theHellenistic city, which became thealignment of the Medieval city wall.Excavations of a Phoenico-Persiancemetery below a Roman open space(Eastern Forum?), partly destroyedduring the construction of SoukSursock in the Ottoman period, haveprovided new benchmarks for theancient growth of the city. Articles byarcheologists of the fourteen teamsthat worked in the BCD continue to bepublished in scientific journals.

Solidere initiated the integration ofarcheological sites within the cityfabric. The main features in thisapproach are Hadiqat As-Samah andthe Heritage Trail. The landscaped areaon block 94 will feature in its designthe memories of geological and urbanhistory. A city history museum near the ancient Tell, to be the starting andending point of the trail, will celebratemajor Beirut finds.

Operation and maintenance of streetlighting, sewage and storm waternetworks, are undertaken by theMunicipality under the supervision ofSolidere. However, Solidere remains incharge of the control room in tunnelsand the sewage pumping station. Therepair of damage to street furnituredue to car accidents or to vandalismacts is monitored by the Company, withrelated documentation and claims sentto the Municipality.

Solidere continually upgrades its sitelogistics services: cleaning, pestcontrol, safety, security and trafficmanagement. In a city center imageimprovement program, undertaken incollaboration with participatingproperty owners and users, Solidere is implementing the following services,to supplement those provided by theMunicipality: surveillance security,door-to-door waste collection; streetand sidewalk washing and streetfurniture cleaning; pest control andunderground utilities; maintenance ofopen spaces, trees and planters; andstreet decorations during holidays.Solidere is installing a CCTV securitysurveillance system to cover all sectorsin the BCD. The first phase of thissystem covering the Foch-Allenbysector became operational by endFebruary 2006.

16 solidere annual report 2005

Hardscaping and Street Furniture

Hardscaping and street furniture wereupgraded at Solidere’s expensebeyond the agreement with the State.Street and sidewalk paving, as well asstreet lights, were designed tocomplement the character of eachsector. Sidewalks have been upgradedfrom concrete to granite tiles andkerbs.

Solidere undertook the integrateddesign of street furniture, signage andpublic area lighting, and commissionedpublic art for the city center. Plaqueswith new postal codes were installed on completed buildings. Developmentcontrols were generated in a publicdomain master plan established withthe help of Jean-Michel Wilmotte(France) and Ziad Akl.

The street furniture being installedbased on the new designs includesadvertising billboards, telephonebooths, benches, street kiosks, busshelters, street name signage instainless steel, and street balustradesdestined to contain sidewalk cafés. The signage manual prepared bySolidere has been approved by theMunicipality of Beirut.

Decree 14881 of 2005 regulates the use of the municipal public domain.Areas adjoining Parliament and thedeputies’ office building are kept freefor security reasons. Elsewhere in the conservation area, restaurants and cafés are allowed the use of areasimmediately facing them provided theydo not extend over building entrances.A four-meter pedestrian passage clearof outdoor furniture is to be maintainedat the center of the street. The outdoorfurniture used on the public domainmust conform to Solidere specificationsas per Wilmotte and Akl’s designs.

Parking Facilities

Pending completion of sufficient spaceunderground, 20 vacant lots assignedfor surface parking provide 3,418 carspaces servicing 10,000 customers per day. They include a car park in the eastern section of the waterfrontdistrict with a free shuttle service tothe existing city center. Some surfaceparking is moving to new locations tomake room for development.

Underground public parking facilitiesprovided by Solidere include the BeirutSouks car park with a final capacity of2,500 spaces and currently providing1,200 spaces; and the 108-space, four-level Weygand street car park toppedby a garden. Serving the northern partof Foch-Allenby, the private car parkjointly developed by Solidere andowners of neighboring properties hasbecome operational in the 280-spacesection owned by Solidere, which willbe topped by a landscaped square.

Two car parks under public property in Martyrs’ Square and near the GrandSerail, tendered out as BOT projects by the Council for Development andReconstruction (CDR), have not beenimplemented. The international urbandesign competition winning team,currently undertaking the design ofMartyrs’ Square, is integrating with it a new design for the parking structurebelow the square. The project is crucialfor the development of that majorsector and should be delivered by 2008according to a parking strategy studyconducted for Solidere. The Company is offering its assistance to CDR for itsimplementation on a BOT basis.

In its resolution 21 of 2005, the Councilof Ministers instructed CDR to proceedwith the design and construction of theRiad El Solh car park, also under publicproperty, in coordination with Solidere.


Landscaping

The public domain is designed tocomprise 60 parks, gardens, squares,historical trails and sea promenades,the most important of which is thewaterside city park. This will amount to some 39 ha, equivalent to the entiregreen space area in the remainder ofmunicipal Beirut. Thus the city center,which constitutes 10% of the capita l ’ sarea, will contain half its green area,providing relief for a dense city.

Solidere has been vindicated in itsquest for quality and for a uniqueintegration of public domain design:pedestrianized areas and streets linedwith trees or incorporating planters orwide medians landscaped with trees,shrubs and colorful plants; as well asin its commissioning of public art.

Fine public spaces are perceived toexert a significant impact on land sales.They have also made central Beirut thecity’s main meeting point. The socialpromenading use of public spaces,encouraged by the Mediterraneanclimate and lifestyle, has made the citycenter a most active destination forBeirutis as well as visitors from therest of the country and from Arab andoverseas countries.

Among completed spaces are GibranKhalil Gibran garden facing UN House;Roman Baths garden and public space;Fouad Chehab gardens overlooking thecity; Riad El Solh Square; and DebbasSquare. Adjoining public and religiousbuildings are landscaped spaces inNejmeh Square, facing the BeirutMunicipality, cascading under theGrand Serail with Omar Onsi garden at street level, along the CDR stairs,near the Serail entrance, between theEvangelical church and National Music Conservatoire.

The next few years are expected to seethe implementation of other openspaces that ‘remember the past whilecreating a livable urban environment’.

Designed by Gustafson-Porter (US-UK),Hadiqat As-Samah (the Garden ofForgiveness) is to be constructed in a2.3-hectare site on which Solidere hasrelinquished its development rights.The garden, overlooked by severalplaces of worship and with a designreflecting Lebanon’s varied landscapeand numerous historical layers, will bea place of calm reflection. The westernterrace wall was completed and workwas started on the continuation of thepedestrian street and retaining wall onthe west side of the garden.

Gustafson-Porter are also designingthe garden adjoining St Elias Greek-Catholic church.

Machado and Silvetti Associates (US)completed in 2005 the design of CastleSquare on block 94. They were alsocommissioned to design the adjacentcastle belvedere, a garden containinghistoric remains and affording fineviews of the port first basin. The openspace, overlooking the ancient Tell onthe Martyrs’ Square axis at the site ofthe Iron Age city, includes a promontoryabove the Crusader castle remains.

Samir Kassir Square, for which LouisDerbre (France) was commissioned tocreate the sculpture, Amir Amin Squarein Bachoura, Saifi Square, Omar DaoukSquare in Wadi Abou Jamil, provideother landscaped areas, as well asprivate spaces in Saifi, Zokak El Blattand Mina El Hosn near Planet Discovery.

In 2005, landscaping works involvedcompleting Wadi Abou Jamil Squareand the space near St Elias church,both designed by Thibaud Urbanisme et Paysage (TUP) (France) and Rafic El Khoury; as well as adding trees inWeygand, Foch and Allenby streets,upgrading trees in Zeitouneh and inWadi Abou Jamil and upgrading the Mina El Hosn open space next toStarco’s northwestern corner.

The design for the Rafic Hariri garden,by Vladimir Djurovic LandscapeArchitecture, was approved, withAntoine Berberi commissioned for thesculpture. So were their concepts forupgrading Amir Amin Square and for a new landscape of Nejmeh Square. The concept design for the CDR openspace on the Serail hill was undertakenby Frederic Francis. The pedestrianbridge leading to the Beirut Marina isunder design by Nadim Karam.

Gustafson-Porter presented theirconcept designs for Harbor Square,located on block 93 over part of theancient harbor, and for hardscapingand landscaping the hotel district andthe Old Shoreline Walk.

The elevated Mina El Hosn Square inthe hotel district is the culmination of a series of south-to-north open spacesalso serving as view corridors. Detaileddesign of the part falling between theeastern and western plots of block 17is being developed by Vladimir Djurovic.

The Old Shoreline Walk is a sequenceof connected spaces representing thesubmerged old shoreline. All Saints’Square, Shoreline Gardens (blocks 11and 25), Zeitouneh Square and SantiyehGarden, in Sectors B, C and E (hoteldistrict, Serail corridor and Souksdistrict), are the main components ofthe first phase of this project. A laterphase, starting with Jean-Paul IISquare, will prolong the walk into theOttoman Wall Walk in Sector D (newwaterfront district).

Work started on the Heritage Trailpedestrian circuit, with informationpanels under preparation, togetherwith a tourist map of archeologicalsites and historic buildings.


1 Rafic Hariri gardenVladimir Djurovic

2 Hadiqat As-Samah, Garden of ForgivenessGustafson-Porter

3 Inset: Rafic Hariri memorial gardenGustafson-Porter

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3 All Saints’ Square4 Zeitouneh Square5 Shoreline Gardens6 Santiyeh GardenGustafson-Porter

Old Shoreline Walk

1 Mina El Hosn SquareVladimir DjurovicNet bridge by Nadim Karam

2 Hotel district corridorGustafson-Porter

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7 Wadi Abou Jamil block 63 squareThibaud Urbanisme et Paysage

8 Castle Square and Castle BelvedereMachado and Silvetti Associates

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Land Use

Solidere’s concepts, planning anddevelopment control framework have so far been based on working with individual developers or end-users, not selling for speculation. The Company did not prescribe a landuse plan, preferring to give mixed-useindications for each sector in line withits belief that such a concept is moreconducive to a natural development of the city. The process was thus market-driven, the developers selecting landuses with the approval of Solidere.

The range of investors has recentlyextended to new categories and theCompany is now approached byinvestment banks. These like the Beirutcity center project; want to be part of it,deeming that it provides blue-chipinvestment opportunities; and trustSolidere as lead developer.

EXISTINGCITY CENTERMASTER PLANNING

Sector H - Martyrs’ Square Axis

Sector H follows the south-to-northaxis formed by Bechara El Khoury andDamascus streets, to reach Triestestreet bordering the first basin of theBeirut port. It includes importantsymbolic sites: Garden of Forgiveness,Mohamad Al Amin mosque, St GeorgeMaronite cathedral, PM Rafic Haririgravesite, Martyrs’ Square itself; aswell as the archeological area aroundthe ancient Tell. Its development blocksare defined by Fouad Chehab avenue tothe south, George Haddad street andsector I (Saifi) to the east and south,Syria street and sector G (conservationarea) to the west, Trieste and Portstreets to the north and northwest.

Solidere prepared amendments of the Master Plan as far as the Martyrs’Square axis (sector H). Following theinternational urban design competition,the Company, borrowing the winningscheme’s treatment of the axis as asequence of four clearly differentiatedsections, each attuned to its context,added important ideas of its own,based on other studies.

In order to guide them, a number ofland use strategies were prepared. The objective is to create sustainableactivities that generate enough valueto allow Solidere to sell BUA at a goodprice. The highest price is on thewaterfront. Sites on important publicspaces come next: all along the OldShoreline Walk, Martyrs’ Square, andaround the squares. But it is not justproximity to public spaces that addsvalue. It is also the views, especiallysea and mountain views.

Solidere is first considering theMartyrs’ Square axis, then will address the new waterfront district.

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With a view to make the Martyrs’Square axis a destination, not a transitarea, Solidere removed the north-southhighways through the corridor thatwere part of the initial Master Plan.This will shift traffic at the ancient Telllevel to the eastern side only. Throughtraffic is discouraged by addressingaccesses to and from Fouad Chehaband George Haddad streets.

Other ideas contributed by Solidereinclude extending the scope of SaifiVillage to some sections of the Martyrs’Square axis, improving pedestrian linksbetween Monot and Maarad streets,and strengthening the east façade ofMartyrs’ Square.

The land use strategy study for thissector, aiming at preserving Beirut’scharacter, was commissioned to IanHogan, urban planner, Ken Conway,urban development economist, andGaia-Heritage, cultural advisor.

A workshop was held, grouping theabove consultants, the competition-winning designers and Solidere’s urbandevelopment team. This workshopproduced the sketch plan from whichthe Master Plan amendments evolved.The sector plan and resulting changesto the Master Plan were approved inCouncil of Ministers’ decree 16163 of2006. Following is a review of thesector plan, from south to north.

Martyrs’ Square axis1 Greek team winning scheme2 Aerial picture3 Master Plan amendments model

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Southern section: the Threshold

The southern section, constituting thethreshold to the Martyrs’ Square axis,can also be thought of as forming aneast-west continuity with Saifi Village.

An important feature of the Martyrs’Square axis plan involves creating, in the development block at itssouthwestern end, a new gatewaytower with 120 m maximum heightalong Bechara El Khoury street, therest of the block along Syria streetretaining its 40 m height.

To its north, lot 987 Marfaa, site of the City Center Dome, is planned as a mixed-use development and majorcultural destination, containing a public square, retail, entertainment,residential and hotel use.

Open space is created to enhance each building, and to create linksbetween Debbas Square garden, the buildings in the eastern part of the mid section, and the City CenterDome site. A pedestrian connection to Monot street is established, and a diagonal movement is createdthrough these development blocks to reach the Maarad area, also goinginto the Martyrs’ Square corridor.

In Solidere’s strategy, the City CenterDome site should be connected to therest of Beirut city center, especiallySaifi Village, and to the peri-centraldistricts, including Basta and Monot.The Dome building could be preservedand used as the first major focus of theCompany’s cultural strategy, throughcreating 7,000 sq m BUA for a center of contemporary art. It would haveconnections with Saifi Village Quartierdes Arts and with smaller culturalactivities in private developmentsdistributed along the Martyrs’ Squareaxis. For instance, lot 1524 Marfaa,designed by Arata Isosaki, wouldcontain a music venue. Other aspectsof Solidere’s strategy are stimulatingthe office market, promoting centralBeirut as a regional business centerand offering smaller residential unitsfor the Lebanese market.

Mid section: the Memorial Site

The Martyrs' Square axis mid sectioncovers in its western part the sites ofthe Garden of Forgiveness, Mohamad Al Amin mosque and PM Rafic Haririgravesite, along with the developmentblocks west of Bechara El Khoury street.

Master Plan amendments introduced in order to accommodate the Garden of Forgiveness, involve property swaps and allow the creation of a footbridge,pergolas and enclosing garden walls.The gravesite of Mr. Hariri and hiscompanions will take the form of amemorial garden, under design byGustafson-Porter. No building will beerected at this site. Lots 1524 and 1489Marfaa comprise the mid-rise BeirutGardens residential building, and Bab El Saray hotel, designed as a low-risebuilding symbolizing the gateway intothe historic core.

At the center of the section is Martyrs'Square. The Greek team that won theinternational urban design competitionis preparing the concept design for its landscape scheme together with the underground car park. The car

The concept is to have a continuouscolonnade facing Martyrs' Square, to create a strong urban statementrepresenting the 21st centuryexpression of the 1920's Maarad streetcolonnade, the signature feature ofBeirut's historic core. It will be a two-to three-story stone arcade, 15-m high.The height of the development blocksforming the edge east of the squarewas increased to a 52 m maximum,with a mandated setback at maximumcornice height of 36 m.

The spine of tall buildings, with 52 mmaximum height, on this edge is tocontinue into the southern section (the Threshold), as well as extendingto the northern section of the Martyrs'Square corridor.

Among the sector H amendments tothe Master Plan is the removal of thepolice station reconstruction on lot1085 Saifi, site of the former Ottomanpolice station. The lot is planned tohouse the Rafic Hariri library.

Behind the Martyrs' Square frontagebuildings, building height is reduced to 32 m instead of the 40 m maximumformerly allowed in the Master Plan (24 m, with a setback at 16 m), with the creation of two blocks planned tofeature typical Saifi Village courtyardsand pedestrian streets.

The northeastern part of lot 1076 Saifiwill house the Ministry of ForeignAffairs, to be designed in the form of a reconstruction of the former PetitSerail palace. Its site forms part of aproperty swap with the governmentinvolving the above lot 1085 Saifi, site ofthe former Ottoman police station.

Martyrs’ Square axis 1 Martyrs’ Square: Greek team landscaping concept

2 Southern section: the Threshold3 Mid section: the Memorial Site

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park design will be used to re-launchthe project on a BOT basis. The Greek team is therefore integrating the design of the substructure with that of the square itself.

In the eastern part of the mid section, a main amendment to the Master Planintroduced by the sector plan is thecreation of new streetwall controls that will incorporate a two- to three-story arcade.

Because of gardens, low-rise buildingsand archeological penetrations in thenorthern section, the strong edge westof Martyrs' Square was lost, leaving a single streetwall edge to the squareon its east side. Solidere aims toemphasize this edge with increasedheight; to establish façade guidelinesfor the elevation facing Martyrs'Square; and to commission the designof one building in the elevation.

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Northern section: the Trench

An important amendment, based onstudies by Dar Al-Handasah, relates to grade separation and creates a newroad system involving a two-way roadlink (Byblos street) east of Martyrs’Square axis, and no link on the west.The access in and out of Martyrs’Square was, in the Master Plan,through a continuation of Bechara El Khoury street across the square and down to Trieste street.

The plan cancels the section betweenWeygand and Trieste streets, leaving a shorter, tertiary road which goesbehind Al-Bourj building to reachHassan Al Kadi and Foch streets. The canceled road would have cut theancient Tell in two.

This solution provides a larger areaaround the ancient Tell and theCrusaders’ castle, which are among theimportant archeological remains whichSolidere is striving to integrate into theurban fabric.

The traffic of the canceled road isdirected to Byblos street, turning thelatter into a two-way traffic street. The change also affects accesses andfootprints of adjacent lots, especiallylots 1474 and 1475 Marfaa, which are separated by a well showingimportant archeological finds.

Solidere has incorporated in its culturalstrategy the Beirut city museum, to be created on the public domain facing Al-Bourj building, with a link betweenthe museum and the Tell. An earlyconcept design for the museum wasprepared by Michel Macary (France),who also contributed to the design and finishes of the new road schemeacross, included in the sector plan.

In the eastern part of the Martyrs’Square axis northern section (sub-sector Hc), the urban design is basedon a planning study by Koetter Kim(US). A main change is an increase intower height to a 160 m maximum,from the former Master Plan maximumof 120 m. This was done to compensate

some losses in BUA which Solidere has taken in the rest of sector H, due to the conservation of archeology, andthe reduction of building heights nearSaifi Village and for the Ministry ofForeign Affairs building to 32 and 24 mrespectively, instead of the maximum40 m formerly allowed.

Solidere further wants to encouragelinking the sub-sector to the Beirutport first basin quayside, through twopedestrian bridges across Triestestreet: one linking sub-sector Hc tosub-sector Dc on the Beirut port firstbasin, another linking the archeologicalarea of the ancient Tell to the samesub-sector.

In addition to designing Martyrs’Square with its underground parking,the Greek team may work on thearcheological park to the north, whileMachado and Silvetti (US) undertakethe castle belvedere garden.

The Sea GateThe Sea Gate envisioned in the Martyrs’Square axis urban design study is notpart of sector H, but of sub-sector Dcnorth of sector H. Solidere may considerthe introduction of a water featureextending onto the first basin, but rejectsthe idea of an elevated road on Triestestreet. Any change to sub-sector Dc willrequire an amendment of the recentlyissued decree 15803 of 2005 relating tosectors A and D of the Master Plan.

The Cultural CorridorSolidere’s concept for a Martyrs'Square cultural corridor was developedin detail by Gaia-Heritage. The strategyenvisages twinning projects withsimilar cultural projects in otherMediterranean cities, with fundingpotentially sourced from the EuropeanUnion. The cultural corridor includes:

The center of contemporary art,where artists can be promoted locallyand internationally, will stimulate the Lebanese public’s exposure tocontemporary art. Together with theQuartier des Arts and a proposed artauction house in Saifi, the center willcreate a strong artistic magnet,positioning Beirut as the place for arts in the Middle East and on theinternational art market.

The Beirut city history museum,located on the Tell archeological site,will use classical conservation methodsand the latest audiovisual technologiesto present the history of the city fromthe first human settlements.

The museum of the Mediterranean will provide a large exhibition space on Lebanon and the Mediterraneanbasin. It will host a research center with a specialized library, and majorinternational thematic exhibitions.

The congress hall and center ofperforming arts will have a dualfunction, as a venue for internationalconventions, and as a national centerfor opera, music, dance and theater.

1 The Ottoman jetty2 The port first basin3 Museum of the Mediterranean4 Archeological park 5 Beirut city history museum6 Garden of Forgiveness7 Rafic Hariri library8 Center of contemporary arts9 Saifi Village Quartier des Arts

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Urban Design Strategy

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solidere annual report 2005

Northern section urban planning designKoetter Kim

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Cultural Corridor Ian Hogan / Kevin Conway


Sector B - Hotel District

Sector B was originally envisioned as a mixed-use district, with podiums and towers on setbacks planned on the basis of that assumption. As aresult of a shift in market demand, the district is acquiring a residentialcharacter, with only three hotels andthree office buildings to date.

The redesign of the whole corridor was made, with modifications destinedto enhance it for residential and touristuse. The revised sector B plan, withconsequent amendments to the BCDMaster Plan, was ratified by Council ofMinisters’ decree 15780 of 2005.

The changes, which stress open spaceand capture views, include increases in the heights of some developmentblocks; parceling the blocks into eastand west plots, instead of north andsouth ones as in the initial sector plan;and changes in streetwall controls.

The adjustments to setbacks andheight increases result in slender,elegant towers, focusing on sea views,with increased (up to 4 m) floor heights,thus enhancing property values. Butthe total built-up area for the sectorremains the same.

The height increases maintain thehierarchy of maximum heights to thenorth, gradually reducing them to meetthe scale of residential buildings inWadi Abou Jamil.

There is no reduction in buildingheight to the west of the Mina El HosnSquare central green corridor. On thecontrary, a clear edge is created onthese blocks to match the highbuildings on the opposite side ofFakhreddine street. The increases inmaximum building heights compared to the Master Plan are, from north tosouth (cadastral zone Mina El Hosn):lot 1421, Platinum Tower, from 120 to140 m; lot 1399, Dib and Town Towers,from 90 to 110 m; lot 1396, DamacProperties Lebanon project, from 75 to 90 m.

On the eastern side of Mina El HosnSquare, building heights are slightlylower than on the western side, exceptthe parts overlooking the square,where heights may reach 110 or 120 m.Changes in maximum building heights,compared to the Master Plan, are asfollows, from north to south: lot 1401,Beirut Tower, lot 1422, New BeirutTower, from 90 to 106 m; lot 1398, from75 to 90 m, with 75 m to the east; andlot 1397, from 75 to 120 m in thesouthwestern part facing lot 1015overlooking the square; 90 m with 75 mto the east in the rest of the block.

Streetwall control amendments ratifiedin the decree involve among others lot1353, The Dana of CCC. The design asapproved by Solidere gives the propertyan address facing the sea with roundedarchitectural features at the east andwest ends, thus removing streetwallcontrol there, in line with what is donein the Marina Towers and the FourSeasons Hotel.

Sector I - Saifi

Council of Minister’s decree 16163 of 2006 approved the Master Planamendments relating to sector I,which involve smoothing in and out accesses between Fouad Chehab and George Haddad streets.

Vehicles coming from the west willuse a tunnel, yet to be designed,without having to go through trafficlights. Those coming from the eastcan go north on George Haddad. This improvement will reduce trafficwithin the city center.

Sector E - Souks District

Proposed changes to the Master Planbasically include a pedestrian bridgeacross Park boulevard to link to Jean-Paul II Square.

Other Master Plan Issues

A small number of religious andprivate lots were found to be slightlytrespassing on the public domain.Solidere coordinated efforts withconcerned public agencies to legalizetheir situation. Council of Ministers’decree 15384 of 2005 ratified aproperty swap between the private and public domain covering a totalland area of 318 sq m.

Sector J and The Landmark

Council of Ministers’ decree 16184 of 2006 ratified amendments of theMaster Plan as far as sector J.

The main changes were eliminatingthe tower on the site south of AmirAmin garden, featured in the originalMaster Plan, and transposing it to theLandmark site, north of the garden.The decree approves The Landmarkscheme as designed by Jean Nouvelon lot 1520 Bachoura, and grants itspecific exemptions from BCD andLebanon construction law regulation.

The Landmark exemptions involvecanceling streetwall controls,modifying pedestrian passages byremoving part of the north-southpassage and adding an east-westpassage; exemption from providinglandscaping on 50% of un-built areas.The former Master Plan maximumheight of the tower is increased from40 to 164 m with a 55 m-high podium.

Other exemptions relate to technicalissues: location of the technical floor,direct sunlight, ventilation, claustra(musharrabiya); and to the BUAcalculation for cinemas’ halls anddouble volumes (more than 5.50 m of height).

Sector J amendments also include an increase in the heights of the twogateway buildings framing GibranKhalil Gibran garden at the southernedge of the city center. To the west of the garden, the tower height on lot1132 Zokak El Blatt is increased from90 to 130 m. To the east of the garden,the tower on the western part of lot739 Bachoura is increased in heightfrom 120 to 150 m along the two roadsframing the development block, FouadChehab avenue and Ghalghoul street;while the part of the block behind thetower, facing Amir Amin garden, isdecreased in height to 40 m.

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NEW WATERFRONTDISTRICTSITE DEVELOPMENT

The new waterfront district will connectdirectly to the west with the city’swaterside drive and corniche esplanade,and to the east with the historic first basinof the port. A prime, active, multiuse districtwith extensive green areas and boldarchitecture, it commands fine views of thesea, with a picturesque landscape of hillsand mountains across the bay to thenortheast. When completed, it will contain acity waterside park, two marinas, cornicheand quayside promenades, with 29 ha ofnew waterside development land.

Altogether some 73 ha of reclaimedland is now enclosed within a terracedsea defense system designed towithstand centennial storms. Its uniquecaisson structure is limited in height to5.5 m above sea level so as to protectsea views from deep within the city’shistoric core. The sea defenses provideharbor enclosures for two marinas.

Beirut Marina hosted 128 boats in thelast year. It is edged by a public townquay designed to house watersiderestaurants and shops alongside ayacht club and apartments. An iconicbridge will link it to the hotel district.Providing an uninterrupted 3.5-kmextension of the Beirut shoreline,corniche promenades, marina andharbor quaysides will represent morethan four times the area of seafrontpublic space currently available on and around the Beirut peninsula.

A comprehensive sector plan has laid the ground for the waterfrontdistrict development, and the early purchasing of sites is brisk, for delivery to investors on completion of reclamation.


Marina Development

Steven Holl Architects (US) werecommissioned in November 2002 toundertake the design of the buildingsand public space around the marina.This includes a town quay of watersiderestaurants and shops; a yacht clubwith apartments above; and harbormaster, customs and immigrationbuildings on the quayside. High-PointRendell (UK) were appointedconstruction managers.

Developing these facilities is BeirutWaterfront Development s.a.l. (BWD),established in April 2004 with 50%shareholding for each of Solidere andStow Waterfront Development s.a.l.(Stow). Solidere contributed in kind20,000 sq m of BUA on 22,341 sq m ofland; Stow contributed US$31.6 million.Council of Ministers’ decree 14704 ofJune 30, 2005 allowed BWD, with lessthan 100% Lebanese shareholding, toown the regrouped lots 1455 and 1456Mina El Hosn.

The design submitted by Steven Holl inAugust 2004 was gradually amendedfollowing BWD and Solidere comments.The project is integrated into the citycenter through direct access to thecorniche promenade to the north, and a footbridge over the corniche to thesouth, designed by architect-sculptorNadim Karam, providing access to the town quay restaurants and shops.Landscape designs were developed forthe entry plaza, quayside and extensionof the corniche sidewalk above,creating open-air terraces in the formof a ‘stone beach’ over the restaurantsand shops.

The project file presented to BeirutMunicipality in January 2005 involvedsome exemptions from the BCDregulations, mainly a 2-m heightincrease for the yacht club building to13 m above the reference point.

Civil works for the marina were part of important marine works delivered in 2002, as per the 1994 agreementwith the State, and also comprising a breakwater and a two-line defensestructure protecting the marina and the new waterfront.

The US$298 million project cost waspartly financed with a US$107.3 million,10-year loan, concluded in 1996 withBNP Paribas and Banque Indo-Suez,with US$7.3 million COFACE guarantee.Solidere continued repayment of theloan in 2005, with US$30.7 millionoutstanding at year end.

Beirut Marina was put at the disposalof Solidere in 2002, as per a 1997agreement with the State granting theCompany the right to operate themarina and below-corniche car parkfor a 50-year period.

Solidere undertook at its own expense,and with the relevant public authorities’supervision, the construction ofnecessary installations, includingaccess and circulation roads, surfaceparking on the breakwater,underground car park below thecorniche and on-site development,

pontoons, harbor master, customs andimmigration facilities, and utilities forthe boats; and issued marina by-lawsaddressing such matters as generalservices administration, operation, boat traffic, pedestrian and vehicularcirculation, environmental protectionand public safety.

The pontoons, mooring and servicebollards, utilities, network ducting,designed by Groupe Camille Rayon(France) together with an additionalquay providing improved shelter intimes of northerly winds, were allcompleted in 2004.

The connecting of utilities: water,electricity, fire line, telecom / internet,cable TV, was delayed by the closure of the north quay access after theexplosion of February 2005, which also caused damage to the electricityroom and water tank. Only in December2005 was Solidere allowed to withdrawthe damaged standby generator andelectric switches for repair.

Beirut Marina

Beirut Marina, located at the heart ofthe capital, entered its fourth season in April 2005. Its capacity stands at 186 boats ranging from 5 to 65 m, 75%of the mooring area accommodatingboats of more than 25 m length.

By the end of 2005, Solidere had signed medium- or long-term leases(three, five or ten years) for 28 boats,and one-year leases for 100 boats.Temporary portacabins have been usedfor harbormaster and public authoritiesactivities, pending completion of themarina development, as per StevenHoll’s design.

Following the Directorate General forUrbanism (DGU) recommendations on November 2, 2005, the exemptionswere ratified by Council of Ministers’decree 16546 of 2006. This will pave theway for the building permit issuance,after which Holl, teaming up with Nabil Gholam, will complete thedetailed design.

BWD commissioned the restaurantconsultant Ulysses (France) to conducta market study with a view to select anoptimal type and size mix, as well asestablish a typical rental agreement for the quayside restaurants.

Meanwhile, BWD launched a design-and-build tender for undergroundstructural work and construction ofthree basement floors. The contract forthese works is scheduled for signaturein April 2006.

A fast track approach will use up downconstruction, based on a technologyspecific to underground constructionbelow sea level, that may be appliedthroughout the new waterfront district.The project target completion date issummer 2008.

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Other Works

Solidere submitted to the Municipalitythe building permit application for the400-space, below-corniche car parkdesigned by Dar Al-Handasah. Thisfollowed the issuing by the Council ofMinisters of decree 15803 of 2005,ratifiying Master Plan amendmentsrelating to sectors A and D, and ofresolution 59 of 2005, appointing theMunicipality as State representative for the project. The permit will allowcompleting the design and launchingthe tendering process, with worksexpected to start by summer 2006.

Designed by Nadim Karam, workingwith Arups structural engineers (UK),the net bridge overlooking BeirutMarina is part of the overall plan toconnect the marina to surroundingareas and give public access to thetown quay.

Land Reclamation

The design-and-build contract forPhase Two of land reclamation wasawarded to Radian International (US).The contract, covering 18 ha of land,plus extensions below sea level,involves the excavation, sorting andtreatment of 5 million cubic meters of debris and waste materials.

The works, supervised by FairhurstInternational (UK) until October 2005,and controlled by Bureau Veritas(France), started in April 1999 and werescheduled for completion in April 2004.The contract was the subject of adispute which went in 2003 before aninternational arbitration tribunal underthe rules of the International Chamberof Commerce (ICC). The tribunal issuedits award in July 2004.

The award required Radian to remedythe defects in the works at no cost toSolidere, to cover all arbitration legalcosts, and to provide Solidere with aplan showing how Radian proposed tocontinue the works to comply with thecontract. Lengthy negotiations, aimedat obtaining such a proposal, proved tobe fruitless. Moreover, the contractorsuspended the progress of the works

on February 14, 2005 and ignored allinstructions to return to work. Finally,the contractor refused to reimburseSolidere's legal costs. Accordingly,Solidere terminated the Radian contracton February 10, 2006. Both Radian andSolidere submitted further requests forarbitration to ICC.

Solidere is taking measures to expeditecompletion of the project and intends to inform investors about the plannedtiming of delivery of development land.In December 2005, Hornagold & HillsInternational - H2i (UK) were appointedconstruction manager, and work isunder way to split the project intooperations packages to be executed by separate contractors.

The US$56 million project is financedby means of three bank loans, with a consolidated repayment schedule. A six-year, locally syndicated loan ofUS$22 million, concluded in March2000, finances its local content. Theloan was fully drawn and repaymentsstarted, with a US$2.3 million amountoutstanding at end 2005. On its UScontent in equipment, engineering and construction services, the project

benefits from US$14.7 million in exportcredit financing and US$10 million inadditional local financing, concluded in2001. These amounts were fully drawn,and the amount of US$18.7 million wasoutstanding by end 2005.

The backfilling and consolidation of clean material at the end of thereclamation process will allow thedelivery of sites for infrastructure,development and public space.

Development studies for infrastructure,parks and high-density structures onthe new waterfront district started witha 2004 feasibility study, financed by a US$450,000 grant from the USDepartment of Trade. The study, by Paul Rizzo Associates (US), provides the basis for developing 20 ha of land in the eastern part of the district, inpartnership with private investors.

A section of this area was leveled,equipped with temporary roads andparking areas, and leased to BeirutInternational Exhibition and LeisureCenter. Activities hosted in temporarystructures currently include exhibitionhalls, conference areas, a banquetpavilion and a seaside restaurant.


The new waterfront district elicitedearly indications of interest on the partof developers. In response to theirdemands, Solidere proposed a plan forsectors A and D, which, together withrelated general and special regulationsof the Master Plan, received officialapproval in Council of Ministers’ decree15803 of 2005.

The plan is a development of the 2001planning study by a consortium of USfirms: Skidmore Owings & Merrill(SOM) for urban design, Sasaki forlandscaping, and Parsons Brinckerhofffor transport planning. The studyprovided a conceptual urban designframework for the district; integratedlandscaping guidelines for the newcoastal corniche; and resolved theconnection to the city and to the twomarinas at the northwestern andnortheastern ends of the city center.

The detailed plan was completed in2001 and submitted to the relevantauthorities for review and approval. The higher council for Urban Planningand the Beirut city municipal councilapproved it in 2002 with somequalifications, which were left to thegovernment’s decision. In 2002, theSOM design was the only non-Americanproject to win a Charter Award of theCongress for the New Urbanism (US).

The plan aims at turning the newwaterfront into the destination andclimax of Beirut’s citywide corniche.Upon completion of the Beirut Marinatown quays, corniche promenade,eastern marina quayside and Beirutport first basin promenade, the citycenter will provide an uninterruptedextension of the Beirut shoreline. The terraced corniche promenade, over 1.3-km (0.8-mile) long, with awidth varying between 45 and 110 m,will be a socially active pedestrianarena, with views to the sea, Jouniehbay and Mount Sannine.

The street network, designed to fit aMonaco-style Formula One Grand Prixcircuit, received FIA’s preliminarytechnical approval in 2002. The track is to run clockwise along 4.8 km withthe starting grid on the coastalcorniche. Where streets are less thanthe standard 12 m width, constructionworks are to dismantle the existingsidewalk, widen the carriageway andinstall safety barriers and debris fences prior to the race event. On the40-m wide upper corniche promenade,temporary stands are to be installed toaccommodate spectators during races.

Sector A comprises the waterside park,corniche, land, quays and breakwateraround Beirut Marina. Leisure, sportingand tourist activities are the dominantones. The decree lists an outdooramphitheatre in the waterside park;infrastructure and developments for the Formula One racing; developmentsfor the yacht club and related services,hotels, tourist and exhibition centers,sports courts, restaurants and cafés.

The Beirut Marina yacht club buildingis subject to a maximum height of 11 mabove corniche level. No permanentconstruction is allowed on the marinaquays and breakwater, apart frominfrastructure or buildings relating toport management, such as customs,immigration, petrol station or carparks. Restaurants and shops built astemporary structures along the townquay are not to exceed the height of thefinished corniche promenade above.

Sector D comprises the developmentblocks and public domain extendingnorth of Sector E (Souks district) toreach the corniche promenade, andeast of the waterside park to reach the Beirut port first basin and theeastern marina.

Planned as an exemplar of moderndevelopment, it is a multiuse districtwith a wide range of commerce andretail services, office, tourist and hotelspace, convention centers, exhibitionand cultural facilities, together withextensive residential development. Italso includes a part of the Formula One track. The provisions relating todevelopments on the Beirut Marina arealso applicable on the eastern marina.

Development lots should have specifiedminimum areas: 750 sq m subject toencompassing an 18 x 18 m square, insub-sectors Da, Dc and Dd; 1500 sq msubject to encompassing a 25 x 25 msquare, in sub-sectors Db and De.

Two streetwall controls are applied andview corridors are created to preservesea and mountain views. SW5 requiresa 3 m setback at the 36 m height. SW6is similar to SW5 with the additionalrequirement of a 5.5-m high arcade onthe street frontage.

Building heights and envelope controlsensure a careful distribution of floorspace. The majority of development isat medium density (40 or 52 m height).with a limited number of high-rise sites (90, 120 and 160 m height) planned indistinctive locations and landmarkbuildings framing spectacular views tothe sea and mountains.

The road widening and addition of newroads in the sector plan result in largerareas dedicated to public domain. Thetotal built-up area remains unchanged,with no increase in development areasallocated to Solidere.

The ratification of the sector plan willpave the way for starting the detaileddesign for infrastructure, hardscapingand landscaping, preceding real estatedevelopment in the district.

NEW WATERFRONTDISTRICTMASTER PLANNING

New waterfront district urban planning design modelSkidmore Owings & Merrill


South Souks

Having previously completed the 2500-space underground car park, built withDimitri Alatzas Asociados (Spain) asmanagement system consultant andnow operational, as well as the design,building permit and tendering process,Solidere launched in 2005 the SouthSouks, first phase of the Beirut Soukssuperstructures development.

The project involves construction of theSouks core, designed by Rafael Moneo(Spain) and Samir Khairallah Partners;and the jewelers' block, designed byKevin Dash (UK) and Rafik Khoury;together with the underlying streetsand other public spaces, for whichOlivier Vidal (France) is space andlandscaping consultant.

The South Souks incorporate theMamluk Zawiyat Ibn Iraq shrine,Byzantine period shops, remnants ofthe medieval city wall, late Phoenico-Persian harborside settlement andother unearthed artifacts and mosaics.

Works on the US$50.6 million contractawarded to Société d'Entreprises A.R. Hourié, started in July 2005, arescheduled for completion by summer2007. Internal partitioning and fit-outworks tailored to specific units willgradually be delivered to users.

In the Souks core, around 200 shops orother retail units of various sizes andvolumes are aligned along streets andaround squares, with shops, cafés orrestaurants on one ground floor, oneground floor with a mezzanine, or twofull floors. Block M accommodates anumber of fine retail outlets on streetlevel in Weygand, the main entrance ofJamil and Arwam streets, and a foodhall in Tawila street, with four upperfloors of intelligent offices.

The site topography has been exploitedadvantageously, with streets situated at different levels. The north-southAyyas, Tawila, Arwam and Jamil andthe east-west Bustros, Sayour andlower Arwad streets are at lowerground floor level, while upper Arwadstreet is at upper ground floor level.Arwam street has an major entrance atstreet level which extends to becomean upper ground level at Ajami Square.

A covered meeting place with seatingand restaurants is planned in thesquare. Other features include threefountains, planters, benches, room forcafé external seating, informationdesks and screens, ATM machines, anda CCTV system for security.

The jewelers' block is almost entirelysold. It comprises four parts, witharound 80 shops on ground floors andoffices for jewelers on upper floors.Two blocks with façades on Weygandand Allenby streets, D and E, havethree and four floors respectively. BlockF, with façades on Tawila and Sayourstreets, has a ground floor for jewelryshops and one upper floor dedicatedfor a large restaurant. Block W has apartially restored façade on Allenbystreet, with upper floors as offices.

The delivery of the South Souks in the second half of 2007 will allow the leasing of shops, as well as therealization of pre-sales previouslyconcluded for jewelers ’ retail and office space. The revenue elements of the project will reinforce theCompany’s policy to generate funds to shareholders.


The launching of the Beirut Souks is aconsecration of the city center's characteras a global retail district and constitutes a major step towards completing a criticalmass there.

Quality space earlier put on the market bySolidere includes such new construction as UN House, Saifi Village, the embassycompound and the Rue de France complex.Alongside its own projects, the Companycontinues to develop and share withinterested investors real estate andarchitectural concepts relating to Saifi orWadi Abou Jamil residential clusters and to other commercial or multiuse projects.

Beirut Souks

Beirut Souks are re-emerging as alively shopping and entertainmentcenter, a regional retail destination and a magnet both for local residentsand visitors.

At the heart of Beirut, the new Souksare integrated within the city's historiccore, close to the hotel district and new waterfront. With direct links to the airport and metropolitan transportnetwork, they enjoy easy car andpedestrian access from up-markethotel, residential and office areas.

The Souks have been designed in fiveseparate commissions by internationaland Lebanese architects. 110,000 sq mof floor space are interspersed among60,000 sq m of landscaped pedestrianareas that follow the ancient street gridimplanted since pre-Roman times.

A unique environment has thus beencreated, integrating archeologicalfeatures and gardens and consecratingthe historic value of the place whileusing the state-of-the-art technology of modern commercial centers.

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Retail units will form shopping streetsthat offer a concentration of the finestlocal and international retail brands.

Visitors can stroll along the streets,some covered with skylights and anatural aeration system, such as SouksTawila, Jamil and Arwam, and othersopen to the sky, such as Souks Ayyas,Bustros and Sayour, and enjoyshopping or entertainment in a widevariety of shops, restaurants and cafés.

REAL ESTATESTRATEGY

Beirut Souks 1 Jewelers’ block and Souk Ayyas 2 Key plan3 Jewelers’ block Weygand elevation

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Other Real Estate Projects

Lot 1144 Zokak El BlattThe lot 1144 Zokak El Blatt residentialbuilding designed by Fouad Menem hasbeen completed. It offers 2,158 sq m of floor space on five floors with access to an inner garden, and six basementsproviding 128 parking spaces for theneighborhood, of which 14 dedicated to the building users.

Grand TheatreSolidere is developing around theGrand Theatre an integrated project on 2,370 sq m of land, consolidating the lot 891 Bachoura historic building,lot 870 building and vacant lot 1521.The concept design by ArchitectureStudio (France) obtained approval fromthe Directorate General of Urbanism inApril 2005.

The project offers a total floor area of11,850 sq m over four floors and fivebasements. The main use is a boutiquehotel enjoying a roof swimming pool,restaurants and bars offering artisticperformances. Shops are located atstreet level below the arcades, as wasthe case before the war demolitions.The building permit file is soon to besubmitted to the Beirut Municipality.

Block 93Implemented by Solidere, the car parkjointly developed with owners of sixproperties in blocks 93 and 87, provides700 spaces on four underground levelstotaling 31,200 sq m of floor area, withtwo main access ramps on Foch andAllenby streets. Civil works werecompleted in 2005 for all but twoproperties, one of which still awaits abuilding permit. Now operational, the280-space section owned by Soliderewill be topped by a landscaped square.


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North SouksThe next phase of the Beirut Souksdevelopment covers the North Souks,consisting of a department store andmultiuse building designed by NabilTabbarah; an entertainment complexand a multiuse building designed byValode et Pistre (France) and AnnabelKarim Kassar. This phase will allowleasing and management agreementswith anchor tenants and operators.

The department store is inspired by the architecture of Khan Antoun Bey,the Ottoman caravanserai formerly on its site. The multiuse buildingcomprises offices, restaurants and a commercial gallery. A landscapedsquare with a fountain faces thedepartment store and the restoredMajidiya mosque.

The development of this part of theNorth Souks is expected to start uponobtaining the building permit, which isin progress, and completing / updatingthe related tendering process. Facilitiesshould be completed within 14 to 18months. Internal partitioning and fit-out works tailored to specific units willgradually be delivered to the users.

The entertainment complex comprises14 modern cinemas above ground withgenerous lounges and concessionareas, a retail / entertainment magnet,restaurants, a multimedia store, gamesarcades and retail extending to KhanAntoun Bey Square.

The multiuse building comprises retailat ground floor level, retail or offices onthe first and offices on the second floor.

Management and ServicesBeirut Real Estate Management andServices (BREMS) was established bySolidere and Aswaq Management andServices s.a.l., subsidiary of Sociétédes Centres Commerciaux (France), a leader in shopping mall managementin Europe.

Its object is to carry out real estateactivities, sales and leasing activities,shop fitting, property and facilitymanagement, rental management,marketing management. An assistanceagreement was signed with BREMS forthe Beirut Souks.

Souk Tawila1 Model2 Construction site

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Grand Theatre section and southwest viewArchitecture Studio

Lot 1144 Zokak El Blatt enjoyslandscaped space and sports facilities


Le Passage de HoyekSolidere has commissioned the JerdePartnership (US) to design a multiusecomplex in lot 1338 Mina El Hosn, tocreate a fifth magnet to Beirut Soukson Patriarche Hoyek street. The floorarea of 16,382 sq m over 3,739 sq m of land comprises shops, restaurants,cafés, night-clubs and a boutique hotelwith associated apartments.

The architecture, inspired by Beirut'sPigeon Rock, has the character ofweathered rock: sliced, chiseled andcut away. Surfaces facing the streetsare striated and layered, while interiorfaçades looking onto the courtyard aresmooth and honed.

The multi-level design makes use ofthe sloping site to provide access toseveral retail levels, with a continuouscirculation route created around anactive central square. The visitor'scuriosity will be aroused by sneakpreviews of the interior from theexterior and of upper levels from below.

The project distributes retail andleisure uses complementing BeirutSouks on the lower floors, in the formof a 'vertical village' that can attractpedestrians up through the project, and will have continuing, but changing,patterns of use troughout the day andnight. The upper floors will host aboutique hotel and nightclubs.

Lot 1487 Mina El HosnSolidere commissioned Joe Geitani forthe design of a commercial developmenton lot 1487 Mina El Hosn. The projectconsists of two blocks with 8,865 sq mof floor area on nine floors, consistingof office space with retail at ground andpossibly first level; and four parkingbasements providing 109 car spaces.

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Solidere Development Concepts

Solidere's strategy has always been to stimulate high quality real estatedevelopment in the city center. Itssupport to investors has expanded inthe last year to cover project design.

In addition to the development briefs,based on sector plans and adapted toproject sites, the Company engaged in consultancy with Lebanese andinternational architects to prepareconcept designs for a number of lots,with obvious benefits for prospectivebuyers, to whom Solidere sometimessells land with a real estate program,architectural design, and possibly adevelopment package.

178 Saifi VillageIn Saifi Village, new developmentdesigned in the Lebanese vernacularstyle blends with buildings restored totheir original glory. Public realm designand landscaping convey an appealingand communal ambience of gardens,courts and walkways. The character of the Village was recently enhanced by the Quartier des Arts designers' and art galleries.

This success led Solidere to initiateconcepts for extensions to Saifi Village.A number of development lots wereaccordingly sold with their concepts.

1 Lot 800 Mina El Hosnresidential tripletAyman Sanioura

2 Le Passage de Hoyekmultiuse complexJerde Partnership

3 Lot 1487 Mina El Hosncommercial developmentJoe Geitani

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Lot 800 Mina El Hosn In Wadi Abou Jamil, Solidere initiated the design and implementation of fivepredominantly residential clusters of various sizes, involving restorationand infills. The use of such clusters as a typology on the city scale, incombination with detailed andindividual residential buildings, ismeant to reinforce urban integration.

A variety of design concepts werecontributed by international and Lebanese architects, with experience in Mediterranean and Middle Easterncountries reflecting responsiveness to local context, culture and climate.Market interest has led to the sale of practically all the properties withcluster concepts.

Lot 800 Mina El Hosn, still held bySolidere, is a triplet designed by AymanSanioura and combining restorationand new construction. The 1,400 sq mfloor area comprises two twin restoredLevantine houses plus an infill building,with four floors each, located betweentwo streets, a lower, entrance level,street, and Rue de France at the upperlevel. The infill building was designedin a similar style, with two basementfloors linking the three buildings.

178 Saifi Village, a cluster designed byNabil Gholam on 2,937 sq m of land,offers 10,100 sq m of residential and670 sq m of commercial floor space.The cluster is formed of five buildingswith façades along the streets. They areorganized in a traditional way around agarden courtyard, which constitutes30% of the total site area, providingprivate terrace gardens. In the center isa three-floor, five-flat building from the1940s, restored by Solidere.

Inspired by the Beirut architecture of the 1950s, the five- or six-floorbuildings use materials and pastelcolors faithful to the neighborhood'scharacter. The 45 apartments enjoyinteriors with beautiful volume andhigh ceilings. Taking into account theMediterranean climate, they draw onthe best features of the central hallplan to create a well-balanced, well-oriented, well-lit space ensuringoptimum efficiency and minimumenergy costs. Ranging from one to fourbedrooms, the latter as penthouseduplexes, the apartments benefit frommodern amenities. The building hasobtained a building permit.


wadi abou jamilsector rendering


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Recuperated and Sold BuildingsSolidere successfully completed therecuperation process, giving formerowners and tenants the opportunity to regain their rights in the buildingsretained for preservation.

Beside fulfilling the requirements thatapply to all other restoration projects,recuperation contracts outlined thefinancial rights and responsibilities ofinvolved parties, be they returneeowners or tenants.

At the conclusion of the recuperationprocess, a total of 146 built lots wererecuperated: 127 buildings are nowfully restored, six are under restoration,of which one after sale to a third party,and 13 are under study, of which threeafter sale to a third party.

Lot 16 Marfaa is an office building withretail on the ground floor. Designed byPierre Neema with 415 sq m of floorarea, the building is under restoration.In the Foch-Allenby area, cadastralzone Marfaa, El Patio development onlot 1144 is under restoration as a hotel.The project, designed by Joe Chehwan,has a floor area of 2,158 sq m.

Under restoration in Mina El Hosn is lot 702, designed by Jean Harfouche asan office building with retail at groundfloor, and covering 3,032 sq m of floorspace. A private residence, designed byPierre El Khoury Architecte on lot 771,and covering 1,883 sq m of floor area,is under study at Beirut Municipality.

Of retained built lots whose ownershipdevolved to Solidere, 37 original lots,regrouped into 31 lots, had been sold'as is' by the end of 2005, while one hadbeen leased 'as is' to be restored by itsuser. Restoration is proceeding on thepart of buyers / users, with 28 built lotsready, two under renovation and oneunder study.

1 Bab Idriss area2 Lazarieh center and

Markazia Monroe Suites3 Foch street at dusk


RESTORATION

Restoration Process

In the Master Plan, 265 buildings and27 public or religious buildings wereretained for preservation. These werecarefully restored in accordance with a set of rules established by Solidere in cooperation with urban planningauthorities, and which involve sectorplans and restoration guidelines.

Restoration briefs established for the retained buildings were based on architectural and photogrammetricsurveys, damage assessment andhistorical research on original designsand materials. The briefs provideguidelines for articulating the designand restoration strategy to be adoptedin each individual case, and are stricterfor those buildings deemed of heritageor architectural value.

Projects go through preliminary designapproval, restoration permit issuance,mobilization of site works, façade andmaterial sample approval, siteinspection, and finally occupancypermit procedure.

Solidere has a dedicated team tomonitor implementation. Restoredbuildings are maintained on a regularbasis. To that effect, owners provide the Beirut Municipality with a signedcommitment to undertake generalcleaning and façade maintenance every five years.

Stone repair was important in theFoch-Allenby and Nejmeh-Maaradareas, both notable for their faithfulreconstitution of elaborate façadesand high quality stone masonry.

City center restoration combinesauthenticity with a progressive outlook.Buildings are rejuvenated through theuse of skylight atria, roof gardens orglazed roofs. Interiors are modern andfitted with equipment for functionality,comfort and efficiency. In residentialneighborhoods, this is allied with asensitivity to the Mediterraneantypology. In office buildings, open plans allow optimal and flexible use of floor area.

The final product of restoration isquality space with special character. Its success has confirmed that heritagebuildings can survive and even creategreat value, provided they are adaptedto the needs of contemporary life and business.

In Beirut city center, the re-emergence of the historic core and peripheral urbanvillages is recognized as a conservationshowpiece. Restored buildings withbeautiful façades and modern interiorsenjoy landscaped squares and pedestrianstreets, with numerous cafés and shops as popular meeting places at all times.

With its rich heritage of religious, public,institutional and commercial buildings, the‘vieille ville’ witnessed a high demand for a broad range of office, retail, cultural andrecreational uses. Saifi, Wadi Abou Jamiland Zokak El Blatt are urban villages. 1

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Zokak El BlattLot 670 Zokak El Blatt, a two-storybuilding restored by Solidere as perFouad Menem's design, obtained fromthe Directorate General of Urbanism anapproval for two additional floors and isnow awaiting building permit approvalfrom Beirut Municipality. The parkingspaces required for the building permitare to be provided in adjacent lot 1144,a six-story infill building with 128 carspaces on six basement floors.

Wadi Abou JamilIn Wadi Abou Jamil, Mina El Hosncadastral zone, lot 1015 is a five-storyresidential building which was restoredby Solidere following Ziad Akl's design. An underground car park servicing thebuilding is covered by a private garden.The apartments and the shops on thenorth side street level are all occupied.

Two buildings are under restoration asper Fouad Menem's design. Lot 799 is a seven-story building including one- to three-room flats and two duplexapartments with roof gardens. Lot 955is a seven-story building with twoapartments per floor.

Religious buildings

Nineteen places of worship attest tothe spiritual value of central Beirut.Solidere has assisted in the gradualrestoration of 18 of them, with 13 nowin use and drawing increasing numbersof people. The new Mohamad Al Aminmosque took on a profound meaningwhen the late PM Rafic Hariri was laid to rest near it.


Solidere Buildings

Solidere took the lead in the restorationprocess, undertaking showcase work on its properties and closely monitoringother parties' projects.

The 44 built lots remaining with Soliderewere regrouped into 41 lots, includingfive co-owned buildings. Of these, 37 lots were the object of restoration by the Company. The other four are beingrestored by third parties, respectively theco-owners and the leaseholder, with onecompleted, two under restoration andone under study. In addition, Solidereundertook the restoration of two lots onbehalf of the Islamic Wakfs, with onecompleted and another under way.

By year end, 23 buildings had beenrestored: 12 residential buildings in Saifi, Wadi Abou Jamil and Zokak El Blatt, and11 for office use with retail at street levelin the Maarad and Foch-Allenby areas:they include five built lots (six buildings)serving as Company premises.

The implementation of restorationconcepts is proceeding in 14 Soliderebuilt lots, with five at the constructionstage and nine under study.

Solidere leases space in its restoredbuildings. By end 2005, 80 agreementsrelating to commercial buildings orsections thereof, and 109 agreementsrelating to residential properties, hadbeen signed. This had resulted in theoccupation of around 16,300 sq m ofcommercial space and 20,100 sq m ofresidential space.

Saifi VillageIn addition to the restoration, as perFouad Menem's design, of the existingbuilding in 178 Saifi Village, Soliderecompleted two projects designed byErga Group. Lot 332 is a building of four floors, with one apartment each,all leased; the ground floor retail unitswere leased as part of Quartier desArts. Lot 741 contains four buildingsaround an internal garden. The threerestored buildings are occupied and the four-story infill building is nowcompleted. A 50-space car park falls under the garden and in threebasement floors of the new building.


Real Estate Leasing

Solidere has increased its portfolio ofincome-generating properties. UNHouse and Lot 1 Zokak El Blatt areeach leased to a single institutionaltenant. One compound is dedicated forembassy use. The Company also leasesspace in its buildings, in car parks andmooring spaces in the Beirut Marina.

At end 2005, leased property value wasUS$160.5 million (US$158.7 millionafter depreciation): US$120.6 million inbuildings, US$43.2 million in land andUS$8.3 million in other assets.

Gross rental income was US$20.8million, against US$7.5 million in 2000,US$10.2 million, US$14.1 million andUS$15.4 million in 2001 to 2003, andUS$18.6 million in 2004. Downpaymentsreceived on lease agreements aretreated as deferred revenues and notrecognized as income.

Residential leases relate to new andrestored flats in Saifi, Zokak El Blattand Wadi Abou Jamil. Leased officespace relates to UN House, lot 1 ZokakEl Blatt and the embassy compound.Other commercial space relates tooffices and shops in restored buildings,as well as shops in Saifi Village.

Sale Procedure / Payment Schemes

A sale agreement which includes pre-development and constructionstandards and timetables, as well aspayment conditions, is signed upfront.Sales are expressed in terms of floor orbuilt-up area (net development rights).

Property transfer is registered beforethe Real Estate Registrar upon signingthe final sale deed, following fulfillmentof technical and legal conditions,together with the mortgage contract incase of finance. Solidere pursued in2005 its policy of offering buyers thepossibility to either pay cash or deferpart of the sale price payment, thusenabling them to better plan thefinancing of their investments.

Concomitant with the property transferregistration, the buyer / developerprovides Solidere with a first-degreemortgage on the sold property, as aguarantee against any outstandingpayments. A bank guarantee alsoprovides security for proper and timelyexecution of all construction works.

Périmètre Immobilier commercial building


SALE AND RENTAL STRATEGY

The past year and the beginning of thecurrent one have seen a dramatic increasein land sales. Thanks to the strong interestin Beirut city center, many projects, some of important proportions, are under way,stimulated by Solidere's incentive policiesin offering investors development concepts.Real estate sale and rental activity is alsoincreasing at a healthy pace, sustained bydemand for quality space and services.

As a land bank with a considerableproperty portfolio, Solidere markets a wide range of built or un-built lots for residential, office, hotel, retail andother specialized uses.

In the early years, sales mainly involvedun-built lots and existing buildings sold'as is' for renovation or development.The delivery of Solidere real estateprojects led to a growing volume ofsale and leasing operations involvingfinished products, new or preservedbuildings or parts thereof. A flexiblemarketing policy, allowing for revisionand adjustment according to demandand other circumstances, resulted in a healthy mix of sales and leases.

This ensured a speedy recovery andoccupation of the historic core andresidential neighborhoods, and an early launching of developments in new sectors of the city center.

Solidere has encouraged the return of previous property owners or tenants. It has attracted magnets to the citycenter, and was instrumental in therelocation of expatriates and foreigncompanies there. Its clientele includesindividual clients; public and privatelocal institutions; Lebanese and foreignbanks, corporations and businesses;international organizations and foreignembassies, for which specificallydesigned buildings were constructedfor long-term leases.

After offering in 2004 a land-for-sharesales scheme, Solidere pursued in 2005its support to investors by providingland for sale with associated concepts.The Company monitors the demandand supply of real estate in the citycenter, to the benefit of all.

Sales Record

In any given year, the sales recognizedin the income statement consist ofclosed deals negotiated in that yearand in preceding ones. On the otherhand, the deals negotiated up to thatyear and not closed during the year,make up the sales backlog at year end.

Aggregate sales of US$1.1 billion havebeen recognized from inception to end2005 (1,003,000 sq m of floor space, of which 218,600 sq m in 2005). Thesales backlog as at March 31, 2006amounted US$1.12 billion. Recognizedsales rose from US$22.5 million in1995 to US$92.4 million in 1996 andUS$144 million in 1997. The 1998 fall toUS$117.9 million was later aggravatedby Master Plan issues which delayedconstruction permits. Sales fell in 1999to US$37.5 million and plummeted toUS$6.3 million in 2000. This trend wasreversed in 2001 and 2002, with salesrespectively jumping to US$77.5 millionand US$128.9 million. Sales in 2003were only US$80.6 million, due toaccounting standards for recognition,but jumped again in 2004 and 2005 torecord levels of US$174.5 million andUS$252.8 million respectively.

Elie Saab fashion boutique

Sales Results

A combination of strong demand andincentives was successful in stimulatingland sales. The discounts on land saleprices offered in 2004 within the land-for-share sales scheme were reflectedin the sales value for the year 2005, aswere some additional built-up areassold to buyers-developers whose dealshad been closed several years earlier.

Gross land sales of US$252.8 millionwere recognized during the year 2005,(US$169.4 million in 2004). Solidere hasstopped selling finished products in order to build a portfolio of income-generating properties. However, SaifiVillage deals closed in previous yearsand recognized in 2005 amount toUS$1.1 million, 568 sq m of floor area(US$11.1 million, 6,270 sq m in 2004).

The backlog of negotiated sales notclosed during the year amounted toUS$112.6 million at end 2005. Due tothe surge in demand, the sales backlogjumped to US$1.12 billion at March 31,2006. To those figures must be addedcommitments of US$33 million relatingto the pre-sales of units in the BeirutSouks jewelers' block, concluded anumber of years ago.

Downpayments received on signeddeals as at end 2005 amount toUS$41.6 million: US$33.4 million fromland sales, US$6.5 million from sale ofresidential space, and US$1.7 millionfrom sale of space in the Beirut Souksjewelers' retail and office block. Downpayments are treated as deferredrevenues, to be recognized as part ofrevenues only upon sales realization.


On the Martyrs' Square axis, CanadianBank headquarters designed by AxelSchultes on lot 1524 Bachoura, offers 6,300 sq m of floor space with retail on ground floor.

Beirut Gate, an important developmenttotaling 178,506 sq m of floor area onlots 987 (site of the City Center Dome),1523, 1525, 1526, 1542 and 1544Bachoura and lot 901 Saifi, is understudy. This development consists ofseveral projects, each on a separatesite and by a different architect, with aland use mix ranging from residentialto office, retail and cultural activities.

On the western side of Martyrs' Squareare Beirut Gardens and Bab El Saray.

Designed by Arata Isozaki (Japan) andErga Group on lot 1524 Marfaa, BeirutGardens offers 17,110 sq m of floorspace. This residential development,integrating cultural activities (mediacenter, exhibition and music venues), is under study at Beirut Municipality.The façades overlooking the Garden ofForgiveness and Martyrs' Square arecovered by a marble skin treated as ascreen with a computer-generatedgeometric pattern. This creates anambiguous space between inside andoutside and gives the building a three-dimensional impression from outside.

Bank Audi and Starco, CDR in the background

Named after the medieval city gate thatformerly stood nearby, Bab El Saray isunder construction on lot 1489 Marfaa.The project, designed by Kevin Dash(UK-Australia) and Hani Murad as ahotel, with retail on ground floor, offers17,500 sq m of floor space.

Behind the spine of the tall buildings (52 m maximum height) on the Martyrs’Square eastern side, part of lot 1076Saifi will house the Ministry of ForeignAffairs. The building, to be inspired bythe former Ottoman Petit Sérail, willhave a 12,990 sq m floor area.

Northwest of Martyrs' Square, tworesidential developments overlookingthe Tell archeological site are understudy. Marfaa 94 on lot 1475 offers10,700 sq m of floor space. Designed by Axel Schultes, 1474 Marfaa, offers8,270 sq m of floor space on eight upperfloors, and underground parking floors.

Northeast of Martyrs’ Square, the high-density mixed-use Phoenician Village is under study. Comprising block 118on Martyrs’ Square axis and block 144on the port first basin quayside, it is the largest development to date, with205,735 sq m floor area. It contains fourtowers, stepping in height to a 160 mmaximum, incorporating office, hoteland residential use around a centralplaza, active with multi-level retail.

At the city center southern gateway,The Landmark luxury development,designed by Jean Nouvel (France) onlot 1520 Bachoura, offers 70,000 sq mof floor space distributed into a thirty-seven floor hotel and apartment toweroverlooking Riad El Solh Square, andtwo ten- and eleven-story buildingscontaining offices, retail and a cinemaentertainment complex. The buildingpermit application is proceeding, afterratification of requested derogations indecree 16184 of 2006.

In Saifi, two developments are underconstruction: Saifi Village 2, designedby Nabil Gholam on lot 146 and soldwith its concept, offering 22,350 sq m of floor space; and Al Dalal residentialbuilding, designed by Atelier desArchitectes Associés (AAA) on lot 1077,with 4,688 sq m of floor space. SaifiKhan, designed by Elias Issa on lot 752,is under restoration with 3,770 sq m offloor space. Al Mashrek Insuranceoffice building, designed by Nabil Azaron lot 1080 with 2,301 sq m of floorspace, is under study at BeirutMunicipality. On lots 1059 and 1069,Saifi Square and Al Mada residentialbuildings respectively offer 5,095 sq mand 6,350 sq m of floor space; they areboth under design by Nabil Gholam.


Developers' Projects

Progress was registered in 2005 for anumber of large projects. (Also seeExisting City Center Master Planning.)

In Wadi Abou Jamil, cadastral zoneMina El Hosn, Solidere has sold nineresidential clusters together with theirconcepts. The Courtyard, designed byMaha Nasrallah, is under constructionon lot 1371 with 5,096 sq m of floorspace. Wadi Gardens, designed by Dar Al Omran (Jordan) on lot 1392 with24,000 sq m of floor space, is understudy at the Beirut Municipality.

Under study at Solidere are: BeirutVillage One and Beirut Village Two,designed by Giancarlo De Carlo (Italy)on lots 1370 and 1379, with respectively11,778 sq m and 15,313 sq m of floorarea; as well as five buildings with a total floor space of 19,179 sq m,designed by Dimitri Porphyrios (UK-Greece): Med Invest on lot 1440, DBAon lot 1365, DBA2 on lot 1439, DBA3 onlot 1395 and Stow Wadi on lot 1407.

Nine other residential buildings are inprogress. Under construction are twoprivate residences: lot 911, designed by Abdel Wahed Al Wakeel (UK-Egypt)and ARC Group with 1,500 sq m of floorarea, and lot 855, designed by NabilGholam with 1,063 sq m of floor area;as well as the Mina El Hosn 1466residential building, designed by FouadMenem with 1,773 sq m of floor area.

Under study at Beirut Municipality area private residence on lot 771 and threeresidential buildings: Mira Real Estate,designed by Erga Group on lot 1478with 3,528 sq m of floor space, Cedarand Pine Houses, designed by MahaNasrallah on lot 1133 with 1,500 sq mof floor space, and The School RealEstate, designed by Bechara Bacha onlot 1380 with 2,272 sq m of floor space.Still under design: a private residenceon lot 1375, by Charles Hadifé, with1,407 sq m of floor space, and NewZone Real Estate, a residential buildingby Tripod Architecture on lot 1477, with3,477 sq m of floor space.

The Royal Hotels and Resorts boutiquehotel on lots 824, 1430, 1457, designedby Ziad Akl with interiors by PhilippeStarck (France), has a floor space of11,700 sq m, integrating infill buildingsand Levantine houses to be restored.

Complementing it, serviced apartmentsdesigned by Ziad Akl on lot 1410, offer2,950 sq m of floor space. The project is under study at Beirut Municipality.

Al Mawared Bank headquarters aredesigned by Zaha Hadid (UK-Iraq) onlot 1383 with 7,580 sq m of floor space.The project includes ground floor bankservices, eight upper floors includingbanking executive offices, auditoriumand amenities (café, gym and library)on the first basement level, and sixunderground parking levels.

Two other office buildings are inprogress. Greenline Real Estate,designed by Batimat on lot 1393 with2,229 sq m of floor space, is underconstruction. Luna Company, offering4,084 sq m of floor space on lot 1394, is under design by Diyar Consultants.

In Zokak El Blatt, a private residencedesigned by Farouk El Sheikh on lot 77with 5,711 sq m of floor space, and ThePavilions residential complex, designedby R & K Consultants on lot 1128 with9,500 sq m of floor space, are underconstruction.

Wadi Abou Jamil cityscape,Grand Serail and embassy complex in the background


Machado and Silvetti Associates (US) onlot 1464, has 14,102 sq m of floorspace. Garden View, designed by NabilGholam, has 13,095 sq m of floorspace. Both are under study at BeirutMunicipality. On lot 111, the GrandHyatt Hotel, designed by MichaelGraves (US) and Dar Al-Handasah with26,637 sq m of floor space, is understudy at Beirut Municipality. On lot1369, Architecture Studio (France),selected among four competitionrunners, is designing the Rotana Hotelwith 21,155 sq m of floor space.Designed by Lo Mauro & ReggianiAssociati (Italy) and Raed Abillamah,Bemo House, with 10,831 sq m ofmixed office and residential floor spaceon lot 1363, is under study at Solidere.

At the city center northwest gateway, in the hotel district, Mina El Hosncadastral zone, are seven high-riseluxury residential developments andhotels overlooking the Beirut Marina.Four are under construction. On lot1354, the Marina Towers complex,designed by Kohn Pedersen FoxAssociates (US) and Dar Al-Handasah,offers 35,938 sq m of floor area: MarinaTower, with 400- to 500-sq m flats;Marina Gardens, with 300- to 350 sq mflats; and Marina Courts, with 100- to250-sq m flats (still under study atBeirut Municipality). The Four SeasonsHotel designed by Dar Al-Handasah onlot 1418 offers 35,938 sq m of floor area.

Designed by Ricardo Bofill (Spain) andNabil Gholam on lot 1421, PlatinumTower offers 53,887 sq m of floorspace, its requested height increasehaving been approved in decree 14687of 2005. Beirut Tower, designed byWimberley Allison Tong & Goo (US) andSamir Khairallah on lot 1401, offers36,559 sq m of floor space. On theadjacent lot 1422, New Beirut Tower,with same developer and designer andoffering 26,000 sq m of floor area, isunder study.

The Dana of CCC, designed by KevinDash and Al Salam on lot 1353, offers12,800 sq m of floor space. Amongamendments ratified by decree 15780of 2005 was the removing of streetwallcontrols on its two main façades. The project is under study at BeirutMunicipality. Under design by MichaelGraves (US) and Ayman Sanioura on lot 1399 are the two 110-m highresidential Dib and Town Towers, withretail on street level, offering a totalfloor space of 48,600 sq m.

Within walking distance from the NewBeirut Tower are two other luxuryresidential developments, twointernational hotels and a mixed-usebuilding. Capital Plaza, designed by


Near the Beirut Souks, Mina El Hosncadastral zone, four residentialbuildings are under construction: 1330 Park Avenue, designed by ImadHajj Ali on lot 1330 with 4,654 sq m of floor space; Luna One, designed by Diyar Consultants on lot 1331 with 2,757 sq m of floor space; CapitalGardens, designed by Erga Group on lot 1327 with 5,659 sq m of floor space;and 45 Park Avenue, designed byLaceco on lot 1337, with 6,403 sq m offloor space.

Three residential developments areunder study: Mina Two, designed byAxel Schultes (Germany) and Batimaton lot 2, with 14,000 sq m of floorspace; Media Fan, designed by JoeGeitani on lot 134, with 5,581 sq m offloor space; and Park Palace, designedby Fouad Menem on lot 1339, with12,060 sq m of floor space.

In Foch-Allenby, in Marfaa cadastralzone, four office developments are inprogress. Under construction are theBank of Kuwait and the Arab World,designed by Abdel Wahed Al Wakeel(UK-Egypt) and Arc Group on lot 1470, with 8,300 sq m of floor space; andFoch 126, designed by Nabil Gholam onlot 126, with 2,190 sq m of floor space.Fochville, designed by Nabil Gholam onlot 1497 with 5,554 sq m of floor space;and Radium on lot 114, designed by R & K Consultants with 2,400 sq m offloor space, are under study at theBeirut Municipality.

Four residential buildings are also inprogress. Under construction: Foch 94,designed by Nabil Gholam on lot 1498,with 7,320 sq m of floor space; FochResidence, designed by Batimat on lot1466, with 5,012 sq m of floor space;and Starway, designed by NachaatOwaida on lot 1464, with 3,000 sq m of floor space. Under study at BeirutMunicipality: lot 108 residentialbuilding developed by Banque du CréditLibanais and designed by Erga Group,offering 2,798 sq m of floor area.

Under construction are: Hilton Hotel,designed by Butec and AAA on lot 129,with 11,150 sq m of floor area; threeoffice developments, Two Park Avenue,designed by Samir Khairallah on lot1334, with 13,950 sq m of floor area,Berytus Parks on lot 1344, designed by Pierre El Khoury Architecte, with 11,628 sq m of floor space, and thesecond Medgulf building, designed by Nachaat Owaida on lot 1348, with 2,514 sq m of floor space.

Closer to the Souks, the Semiramisresidential building, designed by Robert Adam (UK) and Fouad Hanna /Fadlo Dagher on lot 1458 Marfaa with6,500 sq m of floor space, is understudy at Beirut Municipality.

Signs of vigorous construction1 Around the Beirut Souks2 Berytus Parks and Hilton hotel 3 Marina Towers and Four Seasons


Also at year end, the Company had fivelease agreements totaling 33,630 sq mof floor space in new office buildings:UN House, lot 1 Zokak El Blatt andmost of the embassy compound.

In the Maarad and Foch-Allenbyrestored office buildings, 25 leaseagreements for 8,640 sq m, one saleagreement for 2,604 sq m of officespace, as well as 22 lease agreementsrelating to 4,084 sq m of retail space,had been signed.

Solidere provides complete full-timeoperation and maintenance for all itsproperties. These include the new andrestored buildings, the Souks andWeygand street car parks. In UNHouse, electro-mechanical and civilworks are provided as per an operationagreement with ESCWA.

Extending its services to other propertyowners, Solidere signed agreementsfor the marketing of several third-partyproperties, prior to undertaking theirmanagement and maintenance.

The Company is currently offering such buildings the following services:technical maintenance, cleaning,safety, security and the maintenance of landscaped areas; marketing, leasemanagement, including drawing upbudgets, arranging insurance,collecting rents, preparing assetsinventories, subscribing to utilities,tackling co-ownership issues, andpaying real estate and municipal taxes.

Solidere expects to derive increasingrevenues from property managementservices in the coming years.

Property Marketing

The Company has been successful inmarketing its residential, commercialand institutional space, new andrestored. Alternative schemes wereoffered until 2004 for residential space:simple lease, lease with option to buyor outright sale. Buyers could alsobenefit from payment facilities. From2005, property sales or options to buywere discontinued, with only leasescontinuing to generate income flows.

The 136 new Saifi Village apartments,totaling 30,700 sq m of floor area, hadall been marketed by end 2003: 38(7,408 sq m) leased; seven (1,351 sq m)leased with an option to buy; and 91(21,900 sq m) sold, 55 (12,452 sq m)after exercising options to buy.

Concurrently, 39 agreements totaling9,783 sq m of floor space had beensigned for restored houses or flats.They represent 4,374 sq m of leases,2,590 sq m of leases with options tobuy and 2,819 sq m of sales, of which1,433 sq m as a result of exercisingoptions to buy. Lease agreements hadbeen signed for a nursery (240 sq m)and for 32 shops (3,304 sq m), as partof the Quartier des Arts.

In Zokak El Blatt, 75 apartments, with 13,903 sq m of floor space, hadbeen the subject of agreements. Theyrepresent 11,051 sq m of leases and2,853 sq m of sales, of which 979 sq mas a result of exercising options to buy.

In Mina El Hosn, nine agreements for3,432 sq m of residential floor spacehad been signed: 372 sq m of leases,1,562 sq m of leases with options tobuy and 1,497 sq m of sales, of which408 sq m as a result of exercisingoptions to buy.

Future Prospects

Solidere is firmly relying on growth in its rental income as it steps up thedelivery of new and restored buildings.

Both sale and rental revenues areexpected to be strongly boosted upondelivery of the Beirut Souks, by far the most important Solidere real estateproject. Rentals are then expected toreach close to US$65 million.

Property Management Services

Saifi Village restored buildings


developers’ projects1 Dib and Town Towers

residential developmentlot 1399 Mina El HosnMichael Graves / Ayman Sanioura

2 The Landmarkmultiuse developmentlot 1520 BachouraJean Nouvel

3 Beirut Gardens residential buildinglot 1524 MarfaaArata Isosaki / Erga Group

4 Merit Corporation headquarters lot 1536 MarfaaNabil Gholam

5 Rotana Hotel lot 1369 Mina El HosnArchitecture Studio

6 Marina Courtresidential development lot 1354 Mina El HosnKohn Pedersen Fox Associates / Dar Al-Handasah

7 Bemo House office and residential buildinglot 1363 Mina El Hosn Lo Mauro & Reggiani Associati / Raed Abillamah

8 Al-Mawared Bank headquarters lot 1383 Mina El HosnZaha Hadid

87

4


65

1 2 3


5 6

10


1 2 3 4

7

8 9

1 Saifi Khanresidential buildinglot 749 SaifiElias Issa

2 Royal Hotelserviced apartmentslot 1410 Mina HosnZiad Akl & Partners

3 Mina El Hosn 1466residential buildingFouad Menem

4 The Capital Gardensresidential buildinglot 1327 Mina El HosnErga Group

5 Media Fanresidential buildinglot 1347 Mina El HosnJoe Geitani

6 Mokhtara residential building lot 1468 MarfaaErga Group

7 Cedar House and Pine Houserestored developmentlot 1133 Mina El HosnMaha Nasrallah

8 Capital Plazaresidential buildinglot 1464 Mina El HosnMachado and Silvetti

9 Park Palaceresidential buildinglot 1339 Mina El HosnFouad Menem

10 Bab El Sarayhotel development lot 1489 MarfaaKevin Dash / Hani Mourad

11 Foch 94residential development lot 1498 MarfaaNabil Gholam

11


CORPORATE FUNDINGAND TREASURY

Treasury

The balance sheet at year end showspositions of US$102.3 million for cash,US$9.6 million for investments insecurities and US$10 million for bankoverdrafts.

The Company maintained its previouspolicy of investing its liquid funds inassets presenting minimum risk, andwith top-ranking banking and financialinstitutions in the domestic andinternational markets, including somestructural products that carry highreturns with guaranteed capital. Forefficient cash management, Soliderealso arranged with local banks certainrevolving current overdraft facilities,utilized and refunded according to cashneeds and availability.

During 2005, Solidere made 73 cashinvestments totaling US$236 million.These figures include investmentsmade in 2005 which matured in thesame year or will mature in 2006 orlater. The Company pursued again thisyear a strategy of short-term cashinvestments, with a weighted averageholding period of about 44 days. Around304 points were secured on averageover the median 2005 three-monthLIBOR rate.

Interest income earned during the yearon the aggregate cash investments wasequivalent to an annualized interestrate of about 5.6%. This includes anannualized rate of return of 8.2% oninvestment in securities.

Corporate Funding

In line with the decisions made by theCompany’s management in 2004 toreduce borrowing levels by acceleratingbank loan repayments, this strategywas pursued in 2005, utilizing growinglevels of liquidity generated from landsales. Previous flexible and low costshort-term funding arrangements withlocal banks were maintained in parallelfor optimum cashflow management.

The two locally syndicated corporateloans, US$100 million each, which wererefinanced in 2004 for the second timewith shorter term and lower interestrates, were again considered by theCompany for prepayment. At end 2005,prepayment notices were issued for the remaining outstanding principals of US$40 million and US$30 millionwith Fransabank and Arab Bankrespectively. Both of these loans werefully repaid by end March 2006.

Solidere continued repayment on theUS$107.3 million, ten-year marineworks loan concluded in 1996 with BNP Paribas and Banque Indo-Suez,with US$7.3 million as COFACEguarantee premium. Half-yearlypayments of US$7.7 million in principalrepayment and interest at 7.39% perannum had started in 2001. Theoutstanding balance was US$31 millionat end 2005 and US$22.4 million by endFebruary 2006. Having reached a debt-equity ratio of 20%, Solidere reducedthe loan collateral from US$37 millionto US$30 million in 2003 and US$18.5million in 2004. The collateral is to bereduced progressively to represent atall times two principal maturities plusaccrued interest.

Consolidated repayment continues onthe three loans used to finance landreclamation works:

A US$22 million locally syndicated loanconcluded in 2000, with Citibank N.A. -Beirut Branch as lender, arranger andagent; Banque Libano-Française s.a.l.and Byblos Bank s.a.l. as co-lenders.The loan has a tenor of 6 years withrepayments ending in June 2006. It issubject to an interest rate of one-yearLIBOR plus 4%. The remaining balanceat year end is US$2.3 million.

Two parallel facilities concluded withCitibank N.A. - Beirut Branch in 2001 to the amount of US$24.7 million: aUS$14.7 million export credit financingwith guarantee from the US Export -Import Bank, repaid in 10 semi-annualinstallments, at an interest rate ofLIBOR plus 0.25%; and a US$10 millionlocal facility with a matching tenor. The remaining balance at year end is US$16.4 million.

In 2005, the Company resorted to more flexible arrangements, mainlytemporary overdrafts, at a lower costthan term loans. This practice waspursued to replace the discounting ofsales receivables, as a less costlyfinancing of temporary cash shortfalls.At end 2005, Solidere had outstandingoverdrafts of US$10 million with twolocal lenders.

At year end, Solidere’s indebtedness tobanks amounted to US$129.4 million,substantially lower than the 2004 levelof US$234 million. By end March 2006,the debt fell to US$51 million, all ofwhich in long-term loans.

The Company maintains a debt-to-equity ratio of less than 20%, both as a self-imposed limitation decided bythe Board of Directors and to fulfill acovenant of the COFACE guaranteedloan. By end 2005 the debt-equity ratiodropped to 7%, substantially lower thanthe 13.98% ratio by end 2004.

With a view to buy the floor and hedgeagainst possible future LIBOR rateincreases, Solidere entered towardsend 2001 into a five-year interest swapagreement with Citibank on a notionalamount of US$100 million.

The interest rate to be paid in the firstyear was fixed at 4.39%, compared to a5% rate to be received from Citibank. Inthe second year, the interest rate wasfixed at 3.58% compared to 4.94% to be

received. In 2004, the fixed ratecontract was unwound and replaced bya floating rate arrangement at LIBORplus 1.4%, with a cap of 5%. This five-year arrangement will mature in 2006.

At end 2005, Solidere had 4.3 milliontreasury shares outstanding, of which 2 million shares were sold in 2005 witha two-year put back option. The pricewas US$10.3 per share, with the strikeprice at maturity, December 14, 2007,of US$11.44 per share. By end March2006, the option is deemed expired aspart of these shares were traded.Another 600,000 shares with a put backoption maturing on February 24, 2006were deemed finally sold as the optionwas not exercised by the investor at thematurity date.

The sales deals signed under the land-for-share sales program launched inJune 2004 generated 3 million shares,which were delivered to Solidere duringthe year and were still held at end 2005with a view to be retired.


A SHARES - DAILY TRADESHARE PRICE

VOLUME OF SHARES TRADED

SHA

RE

PRIC

E US

$SH

AR

E PR

ICE

US$

VOLU

ME

VOLU

ME

SOLIDERE SHARES: VOLUME AND PRICE MOVEMENT 2005

B SHARES - DAILY TRADE


Trading was very active in 2005. ShareA closed the year at US$17.98, a 118%increase over the previous year closingprice. Share B closed at the same level,a 122% rise over the 2004 closing level.The GDRs, which are traded in theLondon Stock Exchange, similarlymoved up by more than twofold, closing the year at US$17, a 127%surge compared to the previous year.

Both shares fluctuated between a highof US$19 and a low of US$6.87. Tradingwas active, with a total of around 53 million shares changing hands, for a cumulative value of US$614 million.This represents around 32.12% of theCompany capital changing hands. The average daily volume was about204,000 shares worth US$2.4 million.The average price for the year wasconsequently about US$11.66, a 58.63%increase compared to the previous year.

Exchange Listings & Ticker Symbols

Beirut Stock ExchangeSOLIDERE A sharesSOLIDERE B shares

Kuwait Stock ExchangeSOLIDERE ASOLIDERE B

London Stock ExchangeGDRs SOLAq.L

Starting with PM Hariri's assassinationon February 14, major tragic eventsmarked the year 2005 in Lebanon.Since it is Mr. Hariri's vision that madepossible the creation and the successof Solidere, the Company was watchedwith special interest throughout 2005.

Beside tragedy, however, a series of positive political developmentsoccurred in the country. These,combined with strong fundamentalsand substantial accomplishments thatmade Solidere a brand name all overthe region, alleviated most investors'concerns and helped the shares recoupmost of their lost ground shortly afterFebruary 14.

The success of the share listing inKuwait starting March 8 added acomforting signal to the market. Theshares continued their upward thrustfor the rest of the year, reaching theirall time high in December.

This positive move continued in 2006 as the shares reached a new high ofUS$26 before some profit taking pulledthem back to the lower twenties levelearly in March.

SOLIDERESHARES AND GDRs

Research and Investors’ Relations

The Company pursued its investors’relations efforts in 2005, participatingin several financial, investment andreal estate conferences and exhibitions.

Solidere addressed the Arab EconomicForum organized by Al Iktissad walAamal, in response to Arab support for Lebanon’s economic recovery, andas a tribute to PM Hariri’s crucial rolein promoting investment opportunitiesin the country. Solidere emphasized itssustained success that elicited positiveresponses from the various investorsectors due to the improved financialsituation and fundamentals.

The Company also participated in the2005 meeting of the Conference BoardMiddle East Business Leaders Councilheld at AUB, and addressed the subjectof competitive challenges in the Arabworld, stressing Solidere’s successes in the face of the various challengesencountered in the reconstruction anddevelopment process.

In December 2005 Solidere participatedin the conference organized by MerrillLynch in London and New York, andheld several one-on-one meetings withinternational fund managers andanalysts, giving an update on latestfinancial and operational achievements.

To reach regional and Arab investors,Solidere participated for the secondconsecutive year in Dubai’s Cityscape,together with a number of Beirut citycenter developers, and addressedconference participants on its latestachievements and fundamentals.

Financial research resumed in 2005after a period of bearish interest in theCompany, with research papers andvaluations issued by Lebanon’s BankAudi and Egypt’s leading investmentbankers, EFG Hermes.

The Company continued to receive atits premises numerous visitors withdiverse profiles.

Analysis of share prices

72 solidere annual report 200572 solidere annual report 2005

MANAGEMENTSYSTEMS AND STUDIES

Management Systems

An FTP server was introduced to easefile exchange over the internet and tomaintain bandwidth management andnetwork security at peak, using thelatest hardware and software solutions.

A new system is used to automateviolation issuing and follow-up. Othersystems were rewritten to meet newrequirements as far as treasury, stockmanagement and urban development.

A new journal printing report wasdeveloped to meet Ministry of Financerequirements and fill revenue forms forboth the ministry and the Municipality.

The GIS data base and informationsystem is now completed.

As a result of the substantial increasein investment into the BCD, a newurban planning strategy has beeninitiated for the new waterfront district,involving some increase in density

Shareholders

Board of Directors

General Counsel

Corporate Reporting and Publications

Urban Development

Land Development

Real Estate Development

Chairman - General Manager

General Manager

General Management

Planning & Operations

Broadband Network

Investor Relations

Business Development

Land Sales

Property Sales and Leasing

Project Development

Sales & ProjectDevelopment

Promotional Activities

Property ContractAdministration

Property ServicesManagement

Property Maintenance

Services

General Services

Finance

Tendering, Contracting andProcurement

Human Resources

Finance & Administration

IT-MIS

through transfers of built-up area fromthe traditional BCD. Greater emphasison office use is envisaged, as well asthe creation of a major focus of mixeduse activity around the East Marina,incorporating international conventionand cultural uses. The urban designstudy will be completed by mid 2006.

Solidere’s new objectives in sector Jare to further reduce built-up areas bylimiting building heights and increasinggreen areas; providing for a concert hallfronting the Theatre District Square;eliminating construction over tunnelsnear Beirut Trade Center; transferringthis and other saved built-up area tothe New Waterfront District.

The urban design study for the WadiAbou Jamil market square area is duefor completion by mid 2006.

The traffic impact studies for Saifi,Wadi Abou Jamil and the Souks areawere completed in 2005. The transportmodeling study updating the Beirut

citywide traffic model was completed in February 2006. The study is usefulfor assessing traffic around projects inthe BCD and for the design of Martyrs'Square and its car park.

A public transport planning project is tobe launched in May 2006. Its purpose isto develop a long-term strategy forpublic transportation, including parkingprovision, bus routing to and throughthe city center, and tram or potentiallight rail networks for the city.

Work is proceeding on the BCD’s 3Dcomputer model. In addition to its core use for town planning, buildingmassing and development briefs, themodel will be a major communicationsand marketing tool. The model will becontinually updated as new projectsand Master Plan amendments areconfirmed.

Urban and Strategic Studies


INDEPENDENT AUDITORS’ REPORT

To the shareholdersThe Lebanese Company for the Developmentand Reconstruction of Beirut Central District S.A.L.Beirut - Lebanon

We have audited the accompanying consolidated balance sheet of The Lebanese Company for the Development andReconstruction of Beirut Central District S.A.L. (a Lebanese joint stock company) known as SOLIDERE and its interest in jointventure, (the Company), as of December 31, 2005 and the related consolidated statements of income, changes in shareholders’equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of The LebaneseCompany for the Development and Reconstruction of Beirut Central District S.A.L. and its interest in joint venture as of December31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with International FinancialReporting Standards.

Beirut, LebanonMarch 15, 2006 Deloitte & Touche Ernst & Young


December 31, 2005 2004Notes US$ US$

AssetsCash and bank balances 4 111,535,548 115,933,035Prepayments and other debit balances 5 25,771,367 15,740,225Accounts and notes receivable, net 6 272,820,638 210,894,461Investments in securities 7 9,579,440 3,650,907Properties held for development and sale, net 8 1,527,484,124 1,607,296,508Investment properties, net 9 160,487,428 158,720,275Fixed assets, net 10 19,477,370 18,748,885Total Assets 2,127,155,915 2,130,984,296

LiabilitiesBank overdrafts 4 10,020,182 10,596,118Accounts payable and other liabilities 11 73,312,685 82,060,356Dividends payable 12 10,266,707 11,430,866Deferred revenues and other credit balances 13 55,099,426 61,583,981Deferred credits 14 3,900,000 35,911,930Loans from banks and financial institutions 15 129,399,059 234,050,237Total Liabilities 281,998,059 435,633,488

Shareholders’ EquityIssued capital at par value US$10 per share: 16100,000,000 class (A) shares 1,000,000,000 1,000,000,00065,000,000 class (B) shares 650,000,000 650,000,000

1,650,000,000 1,650,000,000Legal reserve 17 46,717,354 35,864,534Retained earnings 87,892,299 34,183,162Cumulative changes in fair value of interest rate swap agreement 11 (861,982) (3,557,815)Cumulative changes in fair value ofavailable-for-sale securities 7 (233,180) -Surplus on sale of treasury shares 14 2,508,180 -Net income for the year less legal reserve 97,675,378 48,681,791Less: Treasury shares 12 & 18 (38,540,193) (69,820,864)Total Shareholders’ Equity 1,845,157,856 1,695,350,808

Total Liabilities and Shareholders’ Equity 2,127,155,915 2,130,984,296

The accompanying notes form an integral part of these statements

CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF INCOME


Revenues from land and real estate sales 235,256,243 174,523,834Revenues from rented properties 20,793,378 18,612,382Cost of land and real estate sales (107,378,218) (92,001,530)Charges on rented properties 19 (6,479,558) (7,092,861)Gain on sale of investment properties 9 297,436 1,695,723Net revenues from operations 142,489,281 95,737,548

General and administrative expenses 20 (11,493,031) (10,130,652)Depreciation (1,432,625) (1,130,781)Provision for doubtful receivables and write-offs 5 & 6 (298,693) (739,083)Impairment loss on properties held for development and sale 8 (1,685,783) -Provision for contingencies and other charges - (1,820,362)Interest income 21 15,614,324 8,344,243Interest expense (17,490,405) (26,045,835)Net income for the year before income tax 125,703,068 64,215,078

Accrued income tax 11 (17,174,870) (10,122,897)

Net income for the year 108,528,198 54,092,181

Basic earnings per share 22 0.6863 0.3400



CONSOLIDATED STATEMENT OF CASH FLOWS


Cash flows from operating activitiesNet income for the year before income tax 125,703,068 64,215,078Adjustments to reconcile net income to net cash provided by operating activities

Depreciation 23 4,387,126 4,016,561Gain on sale of investment properties 9 (297,436) (1,695,723)Provision for doubtful receivables and write offs 6 298,693 739,083Provision for contingencies and other charges 11(d) 515,000 1,820,362Sale transactions against acquisition of treasury shares 23 6,360,898 18,273,003Loss from cancellation of sales - 6,000,000Interest income 21 (15,614,324) (8,344,244)Interest expense 23 18,692,698 27,192,664

Changes in working capitalPrepayments and other debit balances (5,547,336) 3,700,073Accounts and notes receivable 23 (62,864,840) (26,846,226)Properties held for development and sale 23 74,485,876 26,575,960Accounts payable and other liabilities 23 (27,044,859) 1,546,916Deferred revenues and other credit balances 23 (6,484,555) 48,953,635Interest received 9,552,249 1,363,042Income tax paid (10,122,897) -

Net cash provided by operating activities 112,019,361 167,510,184

Cash flows from investing activitiesPledged term deposits with banks 1,761,170 12,538,342Investments in securities 23 (6,202,863) (3,650,907)Receivable from recuperated properties 23 981,303 327,206Proceeds from sale of fixed assets 28,202 -Proceeds from sale of investment properties 9 1,098,486 11,084,658Acquisition of fixed assets 23 (1,757,748) (1,021,691)Acquisition of investment properties 9 (627,759) (3,323,760)

Net cash (used in)/provided by investing activities (4,719,209) 15,953,848

Cash flows from financing activitiesBank loans (settlement) (104,651,178) (85,517,758)Dividends paid 12 (963,659) (736,022)Deferred credits (13,000,000) -Treasury shares 23 4,786,691 (49,006,387)Proceeds from sales of treasury shares 14 20,600,000 -Interest paid (16,132,387) (20,028,942)

Net cash used in financing activities (109,360,533) (155,289,109)

Net change in cash and cash equivalents (2,060,381) 28,174,923Cash and cash equivalents — Beginning of the year 74,089,924 45,915,001

Cash and cash equivalents — End of the year 23 72,029,543 74,089,924

The accompanying notes form an integral part of these statementsC

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Notes to the Consolidated Financial Statements for the year ended December 31, 2005

1. Formation and Objective of the Company

The Lebanese Company for the Development and Reconstruction of Beirut Central District S.A.L. (SOLIDERE) was established asa Lebanese joint stock company on May 5, 1994 based on Law No. 117/91, and was registered on May 10, 1994 under CommercialRegistration No. 67000. The articles of incorporation of the Company were approved by Decree No. 2537 dated July 22, 1992.

The objective of the Company, is to acquire real estate properties, to finance and ensure the execution of all infrastructure worksin the Beirut Central District (BCD) area, to prepare and reconstruct the BCD area, to reconstruct or restore the existing buildings,to erect buildings and sell, lease or exploit such buildings and lots and to develop the landfill on the seaside. This operation istreated as one segment and the Company operates currently in Beirut only.

The duration of the Company is 25 years, beginning from the date of establishment. An extraordinary general assembly dated June29, 1998 resolved to amend the duration of the Company to be 75 years beginning from the date of establishment. During 2005,the Council of Ministers approved the extension of the duration of the Company for 10 years.

The Company’s shares are listed on the Beirut stock exchange and Global Depository Shares (GDS) are listed on the London stockexchange. Furthermore, the Company’s shares were listed on the Kuwait stock exchange during the year 2005.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with International Financial Reporting Standards.

These financial statements relate to Solidere and its interest of 50% of the results and net equity of the joint venture, BeirutWaterfront Development S.A.L.

The financial statements are prepared under the historical cost convention as modified for the measurement at fair value offinancial assets and derivatives, as applicable.

The significant accounting policies are set here below:A. Basis of PresentationIn view of the long term nature and particulars of the Company’s operations, the financial statements are presented on the basisthat the operations have realization and liquidation periods spread over the duration of the Company and which are subject tomarket conditions and other factors commonly associated with development projects; as such, the balance sheet is shown as“unclassified” without distinction between current and long-term components.

B. Foreign CurrenciesThe functional and presentation currency is U.S. Dollars, in accordance with the applicable law, which reflects the economicsubstance of the underlying events and circumstances of the Company. Transactions denominated in other currencies aretranslated into U.S. Dollars at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities statedin currencies other than the U.S. Dollar are translated at the rates of exchange prevailing at the end of the period. The resultingexchange gain or loss which is not material is reflected in the statement of income.

C. Accounts and Notes ReceivableAccounts and notes receivable which are originated by the Company are stated at amortized cost less any amount written off andprovisions for impairment. An assessment is made at each balance sheet date to determine whether there is objective evidencethat accounts or notes receivable may be impaired. If such evidence exists, the estimated recoverable amount of that asset isdetermined and any impairment loss, based on the net present value of future anticipated cash flows discounted at originaleffective interest rates, is included in the statement of income. The carrying amount of the asset is adjusted through the use ofan allowance account.

D. Investments in SecuritiesAll investments in securities are initially recognized at cost, being the fair value of the consideration given including directlyattributable transaction costs.

Held-to-Maturity SecuritiesHeld-to-maturity securities which have fixed or determinable payments which are intended to be held to maturity, aresubsequently measured at amortized cost, less provision for impairment in value. This cost is computed as the amount initiallyrecognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of anydifference between the initially recognized amount and the maturity amount. Amortized cost is calculated by taking into accountany discount or premium on acquisition. Any gain or loss on such investments is recognized in the statement of income when theinvestment is derecognized or impaired.

Available-for-Sale SecuritiesAvailable-for-sale securities are those non-derivative financial assets that are designated as available-for-sale or are notclassified in any other category. After initial recognition available-for-sale financial assets are measured at fair value with gainsor losses being recognized as a separate component of equity until the investment is derecognized or until the investment isdetermined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement ofincome.

The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted marketbid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value isdetermined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to thecurrent market value of another instrument, which is substantially the same, discounted cash flow analysis and option pricingmodels.

E. OffsettingFinancial assets and financial liabilities are only offset and the net amount is reported in the balance sheet when there is a legallyenforceable right to set-off the recognized amounts and the Company intends to either settle on a net basis, or to realize the assetand the liability simultaneously.

F. Properties Held for Development and SaleProperties held for development and sale are stated at the lower of cost and estimated net realizable value. Costs includeappraisal values of real estate plots constituting the contributions in kind to capital (A shares), in addition to capitalized costs.Capitalized costs comprise the following:

. Project direct costs and overheads related to the properties development, construction and project management as a whole,as well as acquisition, zoning, and eviction costs.. Indirect costs, such as overheads, which were partially allocated to properties held for development and sale.

G. Investment PropertiesInvestment properties which represent rented and vacant available for rent properties are stated at cost less accumulateddepreciation and any impairment in value.

Depreciation is computed using the straight-line method over the estimated useful lives of the properties, excluding the cost ofland, based on the following annual rates:

Buildings 2%Furniture, fixtures, equipment and other assets 9%-15%Marina 2%

The carrying values of investment properties are reviewed for impairment when events or changes in circumstances indicate thatthe carrying value may not be recoverable. If any such indication exists and the carrying value exceeds the estimated recoverableamount, the investment properties are written down to their recoverable amount.

H. Interest in a joint ventureThe Company has an interest in a joint venture. A joint venture is a contractual arrangement whereby two or more partiesundertake an economic activity that is subject to joint control.



When the Company contributes or sells assets to the joint venture, any portion of gain or loss from the transaction is recognizedbased on the substance of the transaction. When the Company sells assets to the joint venture, the Company does not recognizeits share of the profits from the transaction until the joint venture resells the assets to an independent party.

The joint venture is proportionately consolidated until the date on which the Company ceases to have joint control over the joint venture.

I. Fixed AssetsFixed assets are stated at cost net of accumulated depreciation and any impairment in value. Depreciation is computed using thestraight-line method over the estimated useful lives of the assets based on the following annual rates:

Buildings 2%Furniture and fixtures 9%Freehold improvements 9%Plant 10%Machines and equipment 15%-20%

The carrying values of fixed assets are reviewed for impairment when events or changes in circumstances indicate that thecarrying value may not be recoverable. If any such indication exists and the carrying value exceeds the estimated recoverableamount, the fixed assets are written down to their recoverable amount.

J. Treasury SharesOwn equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profitor loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Treasury shares are recorded and carried at their reacquisition cost.

Treasury shares previously marked down due to sharp decrease in market price are marked up through retained earnings up tothe average cost of acquisition. Gains on sale of treasury shares are recorded under a reserve account in shareholders’ equity,losses are charged to retained earnings if the surplus account does not have a balance enough to absorb the loss.

K. Revenue RecognitionRevenue on land and real estate sales transactions is recognized on the basis of the full accrual method as and when the followingconditions are met:

. A sale is consummated and contracts are signed.. The buyer’s initial (in principle over 25% of sales price) and continuing investments are adequate to demonstrate acommitment to pay for the property.. The Company’s receivable is not subject to future subordination.. The Company has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance asale and the Company does not have a substantial continuing involvement with the property.

If any of the above conditions is not met, the initial payments received from buyers are recorded under deferred revenues andother credit balances. Amounts are released to revenue as and when the above conditions are fulfilled.

Financial assets (including treasury shares) received in return for the sale of land and real estate are valued at fair market value.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

Interest income is recognized as interest accrues using the effective interest method accrued on a time basis, by reference to theprincipal outstanding and the applicable interest rate.

L. Cost of SalesCost of properties sold is determined on the basis of the built up area (BUA) - permitted right to build in square meters - on thesold plots based on the terms of the sales agreements. The cost of one square meter of BUA is arrived at by dividing, total

estimated cost of the land development project over total available BUA after deduction of the BUA relating to recuperatedproperties and those relating to the religious and public administrations.

M. Financial Liabilities and Equity InstrumentsFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements enteredinto. Treasury shares sold where the buyer has the option to put back to the Company are treated as deferred credits. Thedifference between the original sales proceeds and option strike price is treated as interest which is accrued using the effectiveinterest rate method.

N. Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets thatnecessarily take a substantial period of time to be ready for their intended use, are added to the cost of those assets, until suchtime that the assets are substantially ready for their intended use.

All other borrowing costs are reflected in the statement of income in the period in which they are incurred.

O. Derivative Financial InstrumentsDerivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into andare subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities whenthe fair value is negative.

Fair values are generally obtained by reference to quoted market prices, discounted cash flow models and pricing models asappropriate.

Cash flow hedges are a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with arecognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of thegain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profits or loss, such aswhen hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedgeditem is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount ofthe non-financial assets or liability.

P. TaxationCurrent TaxIn accordance with law No. 117/91, the Company was exempt from corporate income tax on profit for a period of 10 years fromthe date of establishment, ending on May 10, 2004.

Effective May 10, 2004, income tax is determined and provided for in accordance with the Lebanese tax laws. Income tax expenseis calculated based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of incomebecause it excludes items of income or expense that are taxable or deductible in future years and it further excludes items thatare never taxable or deductible. The Company’s liability for current tax is calculated using tax rates enacted at the balance sheetdate. Provision for income tax is reflected in the balance sheet net of taxes previously settled in the form of withholding tax.

Rental income is subject to the built property tax in accordance with the Lebanese tax law.

Deferred taxDeferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between thetax bases of assets and liabilities and their carrying amounts.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assetis realized or the liability is settled, based on laws that have been enacted at the balance sheet date.



Deferred income tax assets are recognized for all deductible temporary differences and carry-forward of unused tax assets andunused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporarydifferences and the carry-forward of unused tax assets and unused tax losses can be utilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is nolonger probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

Taxes payable on unrealized revenues are deferred until the revenue is realized.

Current tax and deferred tax relating to items that are credited or charged directly to equity are recognized directly in equity.

Value added tax (VAT)Revenues, expenses and assets are recognized net of the amount of VAT except:

. Where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case theVAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and. Receivables and payables that are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in thebalance sheet.

Q. ProvisionsProvisions are recognized when the Company has a present obligation as a result of a past event whereby it is probable that it willresult in an outflow of economic benefits that can be reasonably estimated.

R. Employees’ end-of-service benefitsThe Company provides end-of-service benefits to its employees. The entitlement to these benefits is based upon the employees’final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits areaccrued over the period of employment.

S. Use of EstimatesIn preparing the financial statements in conformity with International Financial Reporting Standards, management is required tomake estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet andreported amounts of revenues and expenses during the reporting period. The most significant estimate relates to the estimatedtotal cost of the BCD project.

3. Interest in a Joint Venture

The Company entered into a joint venture agreement on February 11, 2004, with Stow Waterfont S.A.L. (Holding) to establishBeirut Waterfront Development S.A.L. with a 50% stake in the joint venture’s total capital amounting to US$19,900. The mainactivity of the joint venture is to develop, operate, manage, exploit and sell real estate properties in the Marina area in BeirutCentral District.

As per the terms of the agreement, on December 31, 2005, the Company sold properties to the joint venture with an aggregatecost of US$10,100,000 from properties held for development and sale, to joint venture for a total consideration of US$31,600,000.The other venturer will contribute cash of US$31,600,000 to the joint venture. As of December 31, 2005, the amount contributedby the other venturer amounted to US$21,060,000.

The share of the assets, liabilities, income and expenses of the jointly controlled entity at December 31, 2005 and 2004, which areincluded in the consolidated financial statements, are as follows:

December 31, 2005 2004US$ US$

AssetsCash and bank balances 9,282,897 4,214,439Prepayments and other debit balances 17,493 25,397Properties held for development and sales 6,344,896 975,033Fixed assets, net 66,700 65,328

15,711,986 5,280,197

LiabilitiesBank overdrafts 2,089 -Accounts payable and other liabilities 60,353 5,281,964

62,442 5,281,964

Income and Expenses Period fromApril 21, 2004

Year Ended (Establishment Date)December 31, December 31,

2005 2004US$ US$

General and administrative expenses (121,658) (73,180)Depreciation (8,600) (1,422)Interest income 212,086 62,885Net income for the year before income tax 81,828 (11,717)

Accrued income tax (10,517) -Net income/(loss) for the year/period 71,311 (11,717)

4. Cash and Bank Balances

Cash and bank balances are composed of the following:


Cash on hand 93,902 95,513Current accounts 20,446,999 45,917,144Short term deposits 61,508,824 38,673,385

82,049,725 84,686,042Pledged term deposits 29,485,823 31,246,993

111,535,548 115,933,035



Term deposits mature in January 2006 (December 31, 2004: Term deposits mature in January 2005). The average yield on the termdeposits as of December 31, 2005 was approximately 4.68% (4.43% for 2004).

Pledged term deposits include an amount of US$18.5million as of December 31, 2005 (US$18.5million as of December 31, 2004)pledged against the loan provided to the Company and guaranteed by “COFACE” as explained in Note 15. It also includes depositsof US$10.9million (US$12.8million as of December 31, 2004) pledged against a stand-by letter of credit to the extent of aboutUS$3.5million (US$3.5million as of December 31, 2004) and a deposit pledged against a local bank loan to the extent ofUS$7.4million (US$9.2million as of December 31, 2004) as explained under Note 15 and Note 25 (h).

Bank overdrafts in the amount of US$10,018,093 as at December 31, 2005 represent short-term facilities granted by local banks.The average interest on these overdrafts as of December 31, 2005 was approximately 6.86%.

In the cash flow statement, cash and cash equivalents include cash on hand, current accounts, and short term deposits and bankoverdrafts as explained under Note 23(n).

5. Prepayments and Other Debit Balances

Prepayments and other debit balances are composed of the following:


Accrued interest income 6,062,077 6,981,201Due from joint venture shareholder 5,270,000 -Prepaid expenses 517,362 419,148Advance payments to contractors 7,302,639 1,585,821Advances to employees 1,700,331 1,651,234Deferred tax assets 193,264 -Other debit balances 4,564,668 4,941,795Investment in non-consolidated subsidiaries 161,026 161,026

25,771,367 15,740,225

Due from joint venture shareholder represents 50% of a balance due from the other venturer, since as of December 31, 2005 theCompany has contributed its full share in the Beirut Waterfront Development S.A.L. the joint venture entity, whereas the otherventurer has not yet settled its full contribution.

Advance payments to contractors include an amount of US$6,211,679 relating to a contractor involved in the execution of the“Souk” Project.

Other debit balances include an amount of US$2,358,000 representing a claim receivable in connection with an arbitrationregarding a dispute with one of the Company’s contractors as explained under Note 25 (j).

Investments in non-consolidated subsidiaries are carried at cost as they are not material and consist of 9 inactive subsidiaries (9inactive subsidiaries in 2004). The principal activity of these subsidiaries, which are incorporated in Lebanon, is to acquire,construct, lease and manage real estate properties in the BCD.

During the year ended December 31, 2005, the Company wrote-off irrecoverable debit balances amounting to US$159,033 (Nil forthe year ended December 31, 2004).

6. Accounts and Notes Receivable, Net

Accounts and notes receivable are composed of the following:


Notes receivable 282,568,976 208,680,815Accounts receivable 18,745,807 25,555,779Receivables from tenants 5,936,288 2,285,503Interest receivable on discounted notes 883,946 1,395,039Less: Unearned interest (34,963,059) (26,800,743)Less: Provision for problematic receivables (351,320) (221,932)

272,820,638 210,894,461

The Company’s credit risk exposure is spread over 109 counter-parties; 6 customers constitute 50% of the total exposure and103 customers constitute the remaining 50% as of December 31, 2005 (as of December 31, 2004, 89 counter-parties; 6 customersconstitute 48% of the total exposure and 83 customers constitute the remaining 52%).

Notes receivable, which resulted mainly from sales (and recuperations in previous years), carry the following maturities:


Doubtful balances 365,935 349,560Overdue 4,247,835 1,512,0022005 - 64,120,3012006 83,025,595 50,937,1232007 79,029,806 44,719,7342008 43,251,153 17,527,9242009 33,925,664 12,247,7192010 23,299,352 12,964,6702011 and thereafter 15,423,636 4,301,782

282,568,976 208,680,815

The average yield on accounts and notes receivable was 5.87% as of December 31, 2005 (5.17% as of December 31, 2004).

The provision for problematic receivables has been established to meet probable defaults of certain clients whose notesreceivable aggregate to US$365,935 as of December 31, 2005 (US$349,560 as of December 31, 2004



The movement in the provision for problematic receivables during the year was as follows:


Balance at the beginning of the year 221,932 4,336,110Additions 200,660 221,932Write-back of provision (61,000) -Write-offs (10,272) (4,336,110)Balance at the end of the year 351,320 221,932

During the year ended December 31, 2005, the Company wrote-off accounts and notes receivable amounting to nil (US$517,151for the year ended December 31, 2004).

7. Investments in Securities

During 2004 and 2005, the Company purchased several investments in capital guaranteed structured products, issued by foreignfinancial institutions, whereby a considerable part of the price was financed by a loan from the issuing foreign bank. The financialassets and the financial liabilities resulting from these transactions are offset and the net amount is reported in the balance sheetsince the Company has a legally enforceable right of set-off and the Company intends to settle them on a net basis at maturity.Coupon rates depend on certain conditions being satisfied which vary depending on the instrument, but mainly is related to theLibor rate. This portfolio has yielded income of 9% in 2005.

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a.4 Eviction costs represent the costs of relocating previous settlers out of the BCD area which were mainly paid through theCentral Fund for the Displaced (a public authority). This caption is stated net of US$21.8million as of December 31, 2005(US$21.8million as of December 31, 2004) representing a 10% charge on recuperated properties appraised values collected fromoriginal owners other than religious and governmental recuperated properties.

a.5 Capitalized costs represent allocation of direct overheads. Costs capitalized during the year ended December 31, 2005amounted to US$3.8million (US$3.9million for the year ended December 31, 2004).

b. Real estate development projects include the following:


Construction and rehabilitation of buildings 325,733,826 309,841,780Cost of land 76,938,653 71,888,653Cumulative costs 402,672,479 381,730,433Less: Cost transferred to investment properties, net (174,705,279) (170,722,946)

Cost transferred to fixed assets (18,141,961) (18,102,717)Cost of real estate sold (44,164,255) (44,164,255)

165,660,984 148,740,515

The net cost of real estate development projects includes cost incurred in connection with the construction of a shopping mall in theamount of US$70.07million and offices and residential complexes as of December 31, 2005 (US$64.6million as of December 31, 2004).

An impairment loss of US$1,685,783 was recognized in the statement of income in the year 2005 that represents non-recoverablecharges included in the cost of some of these properties.

9. Investment Properties, Net

Investment properties are composed of the following:

Transfer fromProperties

Balance as at Held for Balance as atDecember 31 Development Transfers to Transfer from Disposals December 31

2004 Additions and Sale Fixed Assets Fixed Assets and Sales 2005US$ US$ US$ US$ US$ US$ US$

CostLand 43,211,293 - - (705,237) - (240,082) 42,265,974Buildings 120,582,069 359,674 3,982,333 (1,349,571) - (618,552) 122,955,953Marina 4,838,122 - 2,064,008 - 31,970 - 6,934,100Other assets 3,446,730 268,085 - (457,934) 1,052,061 - 4,308,942

172,078,214 627,759 6,046,341 (2,512,742) 1,084,031 (858,634) 176,464,969

Accumulated DepreciationBuildings 11,225,640 2,566,224 - (207,406) - (57,584) 13,526,874Marina 169,892 65,536 - - - - 235,428Other assets 1,962,407 322,686 - (81,188) 11,334 - 2,215,239

13,357,939 2,954,446 - (288,594) 11,334 (57,584) 15,977,541Net Book Value 158,720,275 160,487,428

The change in fair market value of the available-for-sale securities is recorded under “Cumulative changes in fair value ofavailable-for-sale securities” in shareholders’ equity net of deferred tax in the amount of US$41,150 as of December 31, 2005.

8. Properties Held for Development and Sale, Net

Properties held for development and sale consist of the following captions:


Land and land development works, net (a) 1,361,823,140 1,458,555,993Real estate development projects, net (b) 165,660,984 148,740,515

1,527,484,124 1,607,296,508

a. Land and land development works include the following cost items:


Acquired properties (a.1) 959,007,209 957,290,502Pre-acquisition costs (a.2) 9,412,802 9,412,802Infrastructure costs (a.3) 620,490,858 609,496,262Eviction costs (a.4) 259,962,995 259,962,995Capitalized costs (a.5) 58,287,311 55,371,924Cumulative costs 1,907,161,175 1,891,534,485Less: Cost of land sold, net (462,046,261) (356,800,726)Less: Cost of land transferred to

real estate development projects (76,938,653) (71,888,653)Less: Cost of infrastructure transferred to

real estate development projects (6,353,121) (4,289,113)1,361,823,140 1,458,555,993

a.1 Acquired properties consist mainly of the aggregate initial appraised value attributed to the plots included in the BCD area ofUS$1,170,001,290 net of the recuperated properties. The aggregate appraised value is determined in accordance with Decree No.2236 dated February 19, 1992 based on the decision of the Higher Appraisal Committee, which was established in accordance withLaw No. 117/91. Acquired properties include the value of purchased and exchanged properties as well.

Law No. 117/91 stated the requirements for property recuperation and exemption, in this respect properties appraised atUS$255million were recuperated by original owners and properties appraised at US$133million were not claimed for recuperation.

a.2 Pre-acquisition costs include technical and master plan studies incurred during the set up period of the Company.

a.3 Infrastructure costs as at December 31, 2005 include an amount of US$279million (US$279million as of December 31, 2004)relating to the sea front defense and marina works, an amount of US$143million (US$141million as of December 31, 2004) relatingto infrastructure works executed in the traditional BCD area, and an amount of US$74million (US$72million as of December 31,2004) relating to the cost of land reclamation and treatment. It also includes the cost of an electricity power station in the amountof US$42million (US$42million as of December 31, 2004), and other costs which relate mainly to demolition and archeology. Thiscaption includes capitalized borrowing costs totaling US$39.2million up to December 31, 2005 (US$37.95million up to December31, 2004). During the year ended December 31, 2005, borrowing costs of US$1.25million were capitalized (US$1.1million for theyear ended December 31, 2004).



Investment properties include rented and available for rent properties. These represent mainly a property leased out to theMinistry of Foreign Affairs and Emigrants, for use by an international agency. It also includes residential complexes, an embassycomplex, and other restored buildings.

During the year ended December 31, 2005, the Company sold property having an aggregate net book value of US$801,050 for totalproceeds of US$1,098,486 which resulted in a gain of US$297,436 recorded in the statement of income (net book value ofUS$9.4million, total proceeds of US$11.1million and gain of US$1.7million for the year ended December 31, 2004).

The fair value of the investment properties is estimated by management at around US$248million based on current market prices(US$245million as of December 31, 2004). There has been no valuation of these properties by an independent valuer.

10. Fixed Assets, Net

Fixed assets are composed of the following:

Transfer fromProperties

Balance as at Held for Balance as atDecember 31 Development Transfers to Transfer from Disposals December 31

2004 Additions and Sale Fixed Assets Fixed Assets and Sales 2005US$ US$ US$ US$ US$ US$ US$

CostsLand 4,374,955 - - 705,237 - - 5,080,192Buildings 9,358,592 71,139 10,552 1,796,737 - - 11,237,020Furniture and fixtures 2,207,664 88,877 4,920 2,150 (3,680) - 2,299,931Freehold improvements 2,933,720 128,790 23,772 2,480 (125,936) - 2,962,826Plant 1,853,266 - - - - - 1,853,266Machines and equipment 10,395,459 1,468,942 - 6,138 (954,415) (93,537) 10,822,587

31,123,656 1,757,748 39,244 2,512,742 (1,084,031) (93,537) 34,255,822

Accumulated DepreciationBuildings 1,149,705 212,799 - 207,406 - - 1,569,910Furniture and fixtures 1,564,536 186,684 - - (11,334) - 1,739,886Freehold improvements 1,537,041 255,508 - 948 - - 1,793,497Plant 926,404 185,327 - - - - 1,111,731Machines and equipment 7,197,085 1,351,438 - 80,240 - (65,335) 8,563,428

12,374,771 2,191,756 - 288,594 (11,334) (65,335) 14,778,452Net Book Value 18,748,885 19,477,370

The depreciation for the year ended December 31, 2005 was split between an allocation to properties held for development andsale and a charge to the statement of income of US$759,076 and US$1,424,081, respectively (US$759,075 and US$1,129,360respectively, for the year ended December 31, 2004).

11. Accounts Payable and Other Liabilities

Accounts payable and other liabilities consist of the following:


Accounts payable (a) 34,266,982 38,909,622Accrued charges and other credit balances (b) 11,066,954 10,621,585Taxes payable (c) 20,941,184 13,259,117Due to joint venture shareholder (d) - 5,265,000Provision for end-of-service indemnity and other charges (e) 3,658,217 3,300,801Liability under interest rate swap agreement (f) 996,790 3,540,509Accrued interest payable 2,382,558 7,163,722

73,312,685 82,060,356

a. Accounts payable as of December 31, 2005 and 2004 include balances in the aggregate amount of US$13.8million due to theLebanese Government in consideration of the exchange of assets agreement explained in Note 25(f).

b. Accrued charges and other credit balances as of December 31, 2005 and 2004 include an amount of US$8.5million representingproceeds received in respect of a performance bond executed against a contractor for improper performance of contracted worksunder arbitration. The Company recognized a liability against the cash proceeds since the outcome of the subject arbitration isnot yet certain Note 25(j).

c. Taxes payable consist of the following:


Accrued income tax 17,172,643 10,122,897VAT Payable 872,818 495,689Taxes withheld 414,641 590,531Tax on gain from sale of treasury shares 442,620 -Property tax payable 2,038,462 2,050,000

20,941,184 13,259,117

The accrued income tax was estimated as follows:

Period fromDecember 31, May 10, 2004 to

2005 December 2004US$ US$

Income before tax 125,703,068 64,215,078Less losses of subsidiary (11,717) 11,717Non deductible losses pertaining to the tax exemption period - 4,612,200Non deductible provisions and charges 3,121,600 4,651,085Rent revenue from built up property (Net) (14,313,819) (6,004,099)Taxable income 114,499,132 67,485,981Applicable tax rate 15% 15%Accrued income tax 17,174,870 10,122,897



The applicable tax rate is 15% according to the Lebanese tax laws. The tax returns for the years 2004 and 2005 are still subject toexamination and final tax assessment by the tax authorities. Any additional tax liability is subject to the results of this review.

Property tax payable in the amount of US$2.04million as at December 31, 2005 is included under the caption “Cost of RentedProperties” in the statement of income (US$2.05million as at December 31, 2004).

d. As of December 31, 2004 due to joint venture shareholder, represents 50% of the balance due to the other venturer, since atthat date the Company did not contribute its share in the joint venture entity, as explained under Note 3.

e. The movement of provision for end-of-service indemnity and other charges is as follows:


Balance at the beginning of the year 3,300,801 1,509,263Additions 515,000 1,820,362Settlements and others (157,584) (28,824)Balance at the end of the year 3,658,217 3,300,801

f. The Company has entered into an interest rate swap transaction to provide a cash flow hedge against upward volatility of thecost of funds related to the medium term borrowing referred to under Note 15.

On February 25, 2005, the Company restructured the long term loan of US$100million and thereby restructured the 3 year interestrate swap agreement on a notional amount of US$100million by replacing it by two new contracts in line with the restructuring of the loan.

The first contract extends for a period of two years effective December 20, 2004 for a notional amount of US$60million for the firstyear extending from December 20, 2004 till December 20, 2005; decreasing to US$40million for the year extending fromDecember 20, 2005 till December 20, 2006. During the two year period of the agreement, the interest to be received is determinedat 12-month Libor and the interest to be paid is set at 6.5%.

The second contract extends for a period of 18 months from April 21, 2005 till October 21, 2006 for a notional amount ofUS$40million for the first 3 quarters extending from April 21, 2005 till July 21, 2005. The notional amount decreases toUS$30million for the fourth quarter and then to US$20million and US$10million for the fifth and sixth quarters, respectively.During the term of the agreement interest to be received is determined at 3-month Libor set at the beginning of each quarter andthe interest to be paid is set at a rate of 6.3%. The Company will settle/receive the net interest amount on December 20, 2005 forthe first two quarters and on December 20, 2006 for the remaining four quarters.

The Company settled US$2,623,267 included under “Interest expenses” in the statement of income for the year ended December 31, 2005 (US$2,905,125 for the year ended December 31, 2004).

As of December 31, 2005, the valuation of this derivative instrument as provided by the arranger bank on the basis of unwind orcancellation value of the transaction amounted to negative US$1,014,096 (negative US$3,557,815 as of December 31, 2004). Thechange in fair value is recorded under shareholders equity under “Cumulative changes in fair value of interest rate swapagreement” net of deferred tax in the amount of US$152,114 as of December 31, 2005.

12. Dividends Payable

The breakdown of dividends payable is summarized as follows:

December 31 2005 2004General Assembly DividendDate per Share Declared Paid Payable Payable

US$ US$ US$ US$ US$

June 29, 1996 0.20 30,918,413 28,782,737 2,135,676 2,376,429June 30, 1997 0.25 40,367,172 36,764,445 3,602,727 3,913,846June 29, 1998 0.25 39,351,753 34,860,051 4,491,702 4,894,494June 23, 2003 stock dividends

36,602 246,09710,266,707 11,430,866

The outstanding balance of unpaid dividends relates mostly to unclaimed dividends and dividends pertaining to undelivered class(A) shares.

13. Deferred Revenues and Other Credit Balances

Deferred revenues and other credit balances consist of the following:


Cash down payments and commitments on sale contracts 41,654,460 48,194,170Deferred rental revenue and related deposits 13,444,966 13,389,811

55,099,426 61,583,981

Cash down payments and commitments on sale contracts include balances aggregate to approximately US$33.4million that relateto 10 sale contracts with an aggregate potential gross sales value of US$543.5million as of December 31, 2005 (US$42millionrelating to 19 sale contracts with an aggregate potential gross sale value of US$84million as of December 31, 2004). This captionalso includes down payments totaling US$1.66million (US$1.8million as of December 31, 2004) on sale of units in the shoppingmall project corresponding to a potential gross sales value of US$33million.

Deferred rental revenue and related deposits represent down payments on lease and rental agreements and reservation depositsfor the rental of real estate properties.

14. Deferred Credits

Deferred credits represent put options on treasury shares which are classified as interest bearing liabilities.

a. The Company sold on February 24, 2003, 600,000 shares (360,000 “A” shares and 240,000 “B” shares) from treasury shareswith a sale back option for a total consideration of US$3.9million at US$6.50 per share. The sale back option can be exercised ata strike price of US$7.61 per share after 3 years subject to certain conditions specified in the sale contract. The strike pricerepresents the selling price plus accumulated interest. Until such time as the Company’s commitment to buy back these shareslapses, the proceeds will be reflected as deferred credit.



Subsequent to the balance sheet date the buyer did not exercise the option to sell back these shares to the Company and as aresult deferred credits were offset against treasury shares.

b. The Company sold on April 3, 2002 to a local financial institution, 1,004,004 shares (607,212 “A” shares and 396,792 “B”shares) from treasury shares with a sale back option for a total consideration of US$6,011,930 at US$6 per share, which includesan option premium of $0.987 per share. The sale back option can be exercised at a strike price of US$7.10 per share for a periodnot exceeding 3 years subject to certain conditions specified in the sale contracts. The strike price represents the selling priceplus accumulated interest. Until such time as the Company’s commitment to buy back these shares lapses, the proceeds will bereflected as deferred credits.

The buyer did not exercise the option to sell back the shares during the specified period ending March 2005 and therefore thebuyer retained the above mentioned shares. As a result, the Company derecognized these treasury shares from its books againstdeferred credits in the amount of US$6,011,930, previously received, and accrued interest payable in the amount of US$1,116,498.

c. The Company sold on June 27, 2003 to a local financial institution, 4,000,000 shares (2,600,000 “A” shares and 1,400,000 “B”shares) from treasury shares with a sale back option for a total consideration of US$26million at US$6.50 per share. The sale backoption can be exercised at a strike price of US$7.63 per share in the period starting on January 1, 2005 and ending on December14, 2005, to be paid after one year from this date, subject to certain conditions specified in the sale contract. The strike pricerepresents the selling price plus accumulated interest. In parallel, the Company also had a buy back option at the same strike price.Until such time as the Company’s commitment to buy back these shares lapses, the proceeds will be reflected as deferred credits.

On June 14, 2005, the Company exercised the option to buy back these shares. Contrary to what was originally agreed upon, thepurchase price of 2,000,000 shares out of the aggregate shares was set at US$7.52 instead of US$7.63 per share, settled duringthe first half of the year 2005. The Company subsequently sold these shares for a total consideration of US$18,000,000 during thesame period. The ownership of the remaining 2,000,000 shares was transferred to the Company on December 14, 2005 and thepurchase price of US$15,260,000 was paid on the same date with offset to deferred credits in the amount of US$13,000,000 andaccounts payable and other liabilities in the amount of US$2,260,000 representing interest accrued up to December 14, 2005.

d. On June 3, 2005, the Company signed a contract with a third party effective December 15, 2005 to sell with a sale back option,2,000,000 shares from its portfolio for a total consideration of US$20,600,000 at US$10.3 per share. The sale back option can beexercised at a strike price of US$11.44 per share during the period ending December 14, 2007. The buyer did not abide by the saleback option related terms and conditions of the contract and as a result the Company derecognized both the liability and thetreasury shares from its balance sheet. The gain on the sale of the treasury shares in the amount of US$2,950,800 net of tax inthe amount of US$442,620 was reflected under reserves from gain on treasury shares in the shareholders’ equity.

Interest in the amount of US$630,820 has been accrued on the deferred credits up to December 31, 2005 (US$4,195,507 up toDecember 31, 2004).

15. Loans from Banks and Financial Institutions

This caption consists of the following:


Syndicated local bank loans 40,000,000 160,000,000Local bank loan 40,000,000 -“COFACE” guaranteed loan 30,654,857 45,982,285Syndicated loan 2,314,821 6,944,462Local bank loan 7,000,000 9,000,000Loan guaranteed by Export - Import Bank of the United States 9,429,381 12,123,490

129,399,059 234,050,237

Maturities of the loans from banks and financial institutions are as follows:


2005 - 44,651,1792006 82,336,358 142,336,3572007 40,021,537 40,021,5372008 4,694,109 4,694,1092009 2,347,055 2,347,055

129,399,059 234,050,237

Syndicated Local Bank LoansThe Company entered on January 16, 2003 into a three year loan agreement with a syndicate of local banks for an amount ofUS$100million payable in April 2006. This loan is subject to interest at the rate of 3 month Libor + 4.25% (with a floor of 7.5%)payable quarterly.

The Company entered on December 10, 2004 into a 3 year loan agreement with a syndicate of banks for an amount of US$60millionpayable in 3 yearly installments of US$20million on December 20, of each year. This loan is subject to an interest rate of 12 monthsLibor + 2.75% payable yearly.

According to the covenants of the above loan agreements, the Company was required to maintain a debt to equity ratio below 25%,and maintain ownership of not less than 1million square meters of built-up-area free from any security to third party and maintainnet tangible assets of a minimum of US$1billion.

Local Bank Loan The Company entered on December 20, 2004 into an 18 months loan agreement with a local bank for an amount of US$60millionpayable in 6 quarterly installments in the amount of US$10million each, starting July 21, 2005. This loan is subject to an annualinterest rate of 3 month Libor + 2.5%, payable quarterly upon the maturity of the installments. The total amount of this loan waswithdrawn on April 21, 2005. This loan was fully settled in the subsequent period on February 28, 2006.

“COFACE” Guaranteed LoanFor the purpose of partially financing the sea front defense works, the Company signed in 1996 a 10 year “COFACE” guaranteedloan agreement for an amount of US$107.3million of which US$7.3million represents a guarantee premium. This loan, which wasfully drawn, is scheduled for settlement starting February 2001 through 14 semi annual payments in the amount ofUS$7.66million each. The Loan is subject to an interest rate of 7.39% per annum payable semi annually starting August 1998. TheCompany withdrew the total amount of the loan, and total settlements up to December 31, 2005 amounted to US$76.66million(US$61.34million up to December 31, 2004). Under the terms of the loan contract, the Company is required to maintain a pledgeddeposit of US$23.6million with the lending bank starting from the date of the first withdrawal. The pledged deposit wassubsequently reduced in 2004 to US$18.5million. Moreover, the Company is required to maintain a debt to equity ratio of no morethan 20% and to maintain a minimum balance of US$53.6million of cash and cash equivalents (as defined by the lending bank).

For the purpose of partially financing the waste treatment project with a total cost in the amount of approximately US$53million,the following loan agreements were signed by the Company:

Syndicated LoanOn March 21, 2000 the Company signed a 6 year loan agreement with a syndicate of banks for an amount of US$22million. Theperiod in which this loan could be withdrawn ended on December 29, 2002. Total withdrawals up to December 31, 2005 and 2004amounted to US$20.26million. This loan will be repaid by one installment in the amount of US$1.74million and eight equal semi-annual installments. Eight installments in the total amount of US$17.95million were made as of December 31, 2005 (sixinstallments in the total amount of US$13.31million as of December 31, 2004) and thus the balance of the loan decreased toUS$2.31million as at December 31, 2005. This loan is subject to an interest rate of 3 month Libor plus 4%. According to the



covenants of this loan agreement, the Company is required to maintain a debt to equity ratio not greater than 25%, maintaintangible assets of a minimum of US$1billion and maintain accounts and notes receivable of not less than US$75million free fromany liens, assignments or similar charges. In addition to that, the Company should maintain the number of treasury shares below11,610,000 shares.

Local Bank LoanIn July 2001, a complementary loan agreement in the amount of US$10million was signed with a resident foreign bank. The totalamount of the loan was withdrawn up to December 31, 2004. This loan shall be paid in 10 equal semi-annual installments startingOctober 25, 2004 and ending April 27, 2009. An installment of US$2million was made during 2005 in addition to an installment ofUS$1million during 2004 and thus the balance of the loan decreased to US$7million as of December 31, 2005. The loan is subjectto an interest rate of 3 month Libor plus 1%. The Company shall maintain a pledged fund of not less than 102% of all outstandingprincipal and interest amounts, and should maintain a debt to equity ratio not exceeding 25% and total tangible net assets shouldnot be less than US$1billion free from any liens including permitted liens.

Loan Guaranteed by Export - Import Bank of the United StatesIn July 2001, the Company signed an “Export Financing Credit Agreement” in the amount of US$14.71million to support thepurchase of engineering and construction services and equipment from the United States for the waste treatment project. Thisloan is guaranteed by the Export-Import Bank of the United States and financed by a resident foreign bank. An amount ofUS$13.47million had been drawn up to December 31, 2004. Subsequently, up to December 31, 2005 no amounts were drawn. Thisloan shall be paid in 10 approximately equal successive semi-annual installments, the first of which shall be due and payable onOctober 25, 2004. An installment of US$2.7million was made during 2005 in addition to an installment of US$1.35million during2004 and thus the balance of the loan decreased to US$9.43million as at December 31, 2005. This loan is subject to an interestrate of 0.25% per annum above Libor. According to the contract terms, an irrevocable stand-by letter of credit in the amount ofUS$3.57million was submitted to the Export - Import Bank. Moreover, the Company is required to maintain a minimum balanceof cash and cash equivalents of US$30million and the number of treasury shares should not exceed 10,131,829 shares orUS$76million in aggregate.

16. Capital

Capital consists of 165,000,000 shares of US$10 par value, authorized and fully paid and divided in accordance with Law 117/91into the following:

. Class “A”, amounting to 100,000,000 shares represented contribution in kind of properties in the BCD, based on theresolutions of the High Appraisal Committee. All Class A shares were deemed to have been issued and outstanding since theestablishment of the Company.. Class “B”, amounting to 65,000,000 shares represented capital subscription in cash and are all issued and fully paid at theestablishment of the Company.

Class “A” and Class “B” shares have the same rights and obligations.

As of December 31, 2005, the Company had 10,191,750 “A” shares listed on the London Stock Exchange in the form of GlobalDepository Shares (GDS) (9,091,750 “A” shares as of December 31, 2004).

17. Legal Reserve

In conformity with the Company’s articles of incorporation and the Lebanese Code of Commerce, 10 % of annual net income isrequired to be transferred to legal reserve until this reserve equals one third of capital. This reserve is not available for dividenddistribution.

18. Treasury Shares

This caption includes 4,342,000 shares class (A) and (B) as of December 31, 2005 (8,685,000 shares as of December 31, 2004), ofwhich 600,000 shares are subject to an option (5,604,000 shares subject to an option as of December 31, 2004).

The treasury shares outstanding as of December 31, 2005 and December 31, 2004 were stated at the weighted average cost.

According to its articles of incorporation, the Company may purchase up to 10% of its share capital without the existence of freereserves, provided that it shall resell these shares within a period not exceeding eighteen months.

This caption includes 600,000 shares as of December 31, 2005 that are subject to a sale back option (5,604,000 shares as ofDecember 31, 2004). This caption includes also 3,685,000 shares as of December 31, 2005 that are acquired from sale ofproperties (3,012,000 shares as of December 31, 2004).

19. Charges on Rented Properties

Charges on rented properties includes the following:


Depreciation expense 2,954,447 2,885,780Real estate taxes 2,038,462 2,451,150Maintenance and other related expenses, net 1,486,649 1,755,931

6,479,558 7,092,861

20. General and Administrative Expenses

General and administrative expenses is composed of the following:


Salaries, benefits and related charges 7,201,368 6,551,022Board of directors’ remuneration 144,000 144,000Administrative expenses 4,147,663 3,435,630

11,493,031 10,130,652

In addition to the above, salaries, benefits and related charges and administrative expenses amounting to US$3.8million werereallocated to construction cost during the year ended December 31, 2005 (US$3.9million during the year ended December 31, 2004).

21. Interest Income

Interest income is comprised of the following:


Interest income from notes and accounts receivable 12,570,326 6,347,418Interest income from banks 3,043,998 1,996,825

15,614,324 8,344,243



22. Earnings per Share

The computation of earnings per share is based on net income for the period and the weighted average number of outstandingclass (A) and (B) shares during each period net of treasury shares held by the Company.

The weighted average number of shares to compute basic earnings per share is 158,143,126 shares as of December 31, 2005(158,759,725 shares as of December 31, 2004).

23. Notes to the Statements of Cash Flows

a.Non-cash transactions in the operating and investing activities related to the proceeds from recuperated properties are detailedas follows:


Non-cash proceeds from recuperation (182,300) (91,290)Decrease in receivables from recuperated properties (616,703) (19,525)

(799,003) (110,815)

b. Depreciation was applied as follows:


Depreciation of fixed assets - Note 10 2,191,756 1,889,856Depreciation of investment properties - Note 9 2,954,446 2,885,780Less: Depreciation allocated to the cost of properties

held for development and sale (759,076) (759,075)Depreciation charge for the year 4,387,126 4,016,561

c. Interest expense consists of the following:


Interest charged as period cost 17,490,405 26,045,835Interest expense allocated to cost of properties heldfor development and sale 1,202,293 1,146,829Total interest expense 18,692,698 27,192,664

d. Non-cash transactions in the operating activities include sale of properties of total cost of US$10,100,000 to a joint ventureentity for a total consideration of US$31,600,000 recorded under “investment in a joint venture” for the year ended and as atDecember 31, 2005.

e. Non-cash transactions in operating and financing activities include the effect of the non-exercise of the option to sell backtreasury shares from a local bank to the Company (Note 14). Non-cash transactions in operating and financing activities also

include the exercise of an option to buy treasury shares from a local bank against an amount of US$13,000,000 from deferredcredits and US$1,116,498 from accounts payable and other liabilities (Note 14).

f. Non-cash transactions in operating and investing activities include sales of built up area against acquisition of treasury sharesfor an amount of US$6,360,898 for the year ended December 31, 2005 (US$18,273,003 for the year ended December 31, 2004).

g. Non-cash transactions in investing activities include a transfer for the amount of US$2,224,148 from investment properties tofixed assets for the year ended December 31, 2005 (Nil for the year ended December 31, 2004).

h. Non-cash transactions in operating and investing activities include a transfer of an amount of US$6,046,341 from propertiesheld for development and sale to investment properties for the year ended December 31, 2005 (US$53,991 for the year endedDecember 31, 2004)

i. Non-cash transactions in operating and investing activities include a transfer of an amount of US$39,244 from properties heldfor development and sale to fixed assets for the year ended December 31, 2005 (Nil for the year ended December 31, 2004).

j. Non-cash transactions in the investing activities include transfers from fixed assets to investment properties in the amount ofUS$1,072,697 for the year ended December 31, 2005 (US$666,225 for the year ended December 31, 2004).

k. Non-cash transactions in financing activities include the effect of markup of treasury shares for an amount of US$5,027,346 forthe year ended December 31, 2005 (US$17,210,545 for the year ended December 31, 2004).

l. Non-cash transactions in investing activities include the change in fair value of available-for-sale securities net of deferred taxin the amount of US$274,330 offset against “Cumulative change in fair value of available-for-sale securities” and “prepaymentsand other debit balances” in the amount of US$233,180 and US$41,150, respectively, for the year ended December 31, 2005.

m. Non-cash transactions in financing activities include fractions and options dividends in the amount of US$200,500 transferredfrom dividends paid during the year ended December 31, 2005.

n. Cash and cash equivalents comprise of the following:


Cash 93,902 95,513Current accounts 20,446,999 45,917,144Short term deposits 61,508,824 38,673,385Bank overdrafts (10,020,182) (10,596,118)

72,029,543 74,089,924

24. Related Party Transactions

These represent transactions with related parties, i.e. significant shareholders, directors and senior management of theCompany, and companies of which they are principal owners and entities controlled, jointly controlled or significantly influencedby such parties. Pricing policies and terms of these transactions are approved by the Company’s management.

Cash and bank balances include US$139,692 as of December 31, 2005 (US$252,273 as of December 31, 2004) representing currentbank accounts with a local bank who is a significant but minority shareholder of the Company. The Company had obtained asyndicated loan of US$100million which was managed and financed by that bank and which was settled during 2004. Interestexpense for 2004 relating to this loan amounted to US$8.1million.


General and administrative expenses include legal fees in the amount of US$120,000 for the year ended December 31, 2005related to one of the firm’s legal counselors who is also a member in the Company’s board of directors (US$161,799 for the yearended December 31, 2004).

Certain directors are members of the boards of directors of banks with whom the Company has various banking activities.Transactions with the joint venture are disclosed under Note 9.

Income arising and expenses incurred from the Company’s transactions with other related parties, other than those disclosed inthe financial statements, do not form a significant portion of the Company’s operations.

Total benefits paid to executives and Board members (including salary, bonus and others), included within General andAdministrative expenses, for the year ended December 31, 2005 amounted to US$1,431,500 (US$1,505,284 for the year endedDecember 31, 2004).

25. Commitments And Contingencies

a. An agreement between the Company and the Council for Development and Reconstruction (“CDR”) was promulgated throughDecree No. 5665 dated September 21, 1994, duly approved by the Council of Ministers. By virtue of this agreement, the Companywas granted 291,800 m2 of the reclaimed land surface (totaling 608,000 sqm) against the execution by the Company of the sealandfill and infrastructure works.

b. The total projected cost for completion of the BCD project has been estimated by management to be approximately US$2billion.This amount is used as a base for the determination of cost of sales.

c. Commitments for contracted works not executed as of December 31, 2005 amounted to approximately US$111.4million(US$67.9million as of December 31, 2004).

d. A lawsuit was raised in 1999 against the Company by the “CDR” claiming reimbursement of an amount of LL5.4billion(US$3.6million) plus interest. This balance represents payments previously made by the “CDR” in connection with the appraisal ofthe properties in the BCD area and other tender documents. No provision was set up against this claim since, on the basis of theadvice received from the Company’s legal advisor; the directors are of the opinion that this claim is not based on sound legalgrounds.

The Company has submitted to the “CDR” claims aggregating US$13.6million representing mainly change orders toinfrastructure works in the traditional BCD which were incurred by the Company on behalf of the Government. These claims wereneither approved nor confirmed by the concerned party nor recorded as receivables in the accompanying financial statements.

e. The Company is a defendant in various legal proceedings and has litigations pending before the courts and faces several claimsraised by contractors. On the basis of advice received from the external legal counsel and the Company’s technical department,the directors are of the opinion that any negative outcome thereof, if any, would not have a material adverse effect on the financialcondition of the Company.

f. On June 7, 1997, the Company signed an exchange agreement with the Lebanese Government. By virtue of this agreement, theCompany acquired additional built up area of approximately 58,000 m2 and 556,340 Class A shares in exchange for approximately15,000 m2 and the payment of US$38.7million to restore governmental buildings. US$25million has already been paid andaccounted for and the balance of US$13.8million continues to be included under accounts payable. According to the terms of theagreement, the Company undertook to build a governmental building and to conclude ten finance leases over seven years forcertain buildings belonging to the Lebanese Government. In 1999, the government canceled the exchange and finance leaseagreement. The implementation and the effect of cancellation is not yet determined and has not been reflected in theaccompanying financial statements.

g. In prior periods, the Company submitted to the Ministry of Culture and Higher Education claims totaling US$17.7millionsrepresenting compensation for delays that resulted from excavation works. These claims were not yet approved nor confirmed by

the concerned authorities nor recorded as receivables in the accompanying financial statements.h. The Company has as a stand-by letter of credit in the amount of US$3,566,993 to be gradually decreased starting June 2007 toreach US$3,035,622 in June 2011. This instrument is issued in guarantee of the US$14.7million US Export Import Bank of theUnited States facility amounting to US$9.43million as of December 31, 2005 (US$12.12million as of December 31, 2004).Throughout its life, this stand-by letter of credit shall be fully covered by a cash collateral (Note 4).

i. For the purpose of enhancing and improving land value in Zokak Al Blat area and to settle the recuperation of a lot in that area,the Company signed in 2002 an agreement with the Armenian Orthodox prelacy to demolish the building on the recuperated lotand to transfer corresponding building rights to another adjacent lot with minimum building rights of 4,900 m2 against ceding ofowners’ shares from both lots. Additionally, a built up area of 5,335 m2 (US$2,700,000) remains as a contingent loss to theCompany in case the prelacy decides to build this area within the next 10 years following this agreement.

j. During 2003, the Company entered into a dispute with one of its contractors regarding what the Company considered to be adefect in the land remediation works performed by the contractor. The contractor denied this issue and commenced an arbitrationin relation to this matter on May 19, 2003. In the request for arbitration, the contractor sought a non-monetary relief that there isno defect in the works performed, and made monetary claims against the Company in the total amount of US$1,079,533, inaddition to claiming for the payment of its legal and other costs incurred in connection with the arbitration for an amount ofUS$2,226,569. The Company made counter claims for non-monetary relief that there exists a defect in the works performed bythe contractor and claimed for the payment of its legal and other costs incurred in connection with the arbitration for an amountof US$3,004,711. In 2004, the Company collected the performance bond amounting to US$8.5million. On July 12, 2004, theInternational Court of Arbitration ruled that the contractor pay the Company the sum of US$2,188,000 in respect of the Company’scost of arbitration, and additional costs incurred in the amount of US$170,000, in addition to the execution of remedial works atthe contractor’s own cost.

On June 21, 2004, the contractor requested arbitration in a second case against the Company to confirm the right to extend theproject’s execution period and increase the cost of works. The total claims by the contractor in this arbitration amounted toUS$32million representing the increase in the cost of works, other unpaid amounts and amounts the contractor alleged to havebeen illegally withdrawn by the Company from the performance bond mentioned above.

During 2005 and early 2006, both the Company and the contractor filed counter arbitrations against each others that are stillpending as at December 31, 2005.

No assessment was set at this early stage concerning the probable basis of any financial settlement that might result of theclaims in these arbitrations.

No provision was set up against these claims as the legal counsel representing the Company in the arbitration is of the opinionthat the Company has strong defenses against all allegations made by the contractor.

26. Financial Instruments

a. Fair Values of Financial Assets and LiabilitiesThe carrying book value of financial assets and liabilities are not materially different from their fair values applicable at thebalance sheet date.

b. Credit RiskThe Company’s credit risk is primarily attributable to its liquid funds and receivables. The amounts presented in the balancesheet are stated at net realizable value, estimated by the Company’s management based on prior experience and the currenteconomic conditions.

The Company trades mostly with recognized, credit worthy third parties and in addition receivable balances are monitored on anongoing basis. It is the Company’s policy to mortgage sold properties as collateral until the full settlement of receivables.

The Company credit risk exposure is spread over 109 counter-parties; 6 customers constitute 50% of the total exposure and 103



customers constitute the remaining 50%.c. Interest Rate RiskThe Company’s interest rate risk arises from the possibility that changes in market interest rates will affect the value of interestearning assets and interest bearing liabilities primarily relating to long term debt obligations with a floating interest rate.

The Company’s policy is to manage its interest cost using a mix of fixed and variable rate debts.

d. Liquidity RiskLiquidity risk is the risk that an institution will be unable to meet its net funding requirements. Liquidity risk can be caused bymarket disruptions or credit downgrades, which may cause certain sources of funding to dry up immediately.

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdraftsand bank loans.

27. Comparative Information

Bank overdrafts have been reclassified from cash and banks balances to a separate line item “Bank overdrafts” under liabilitiesin the balance sheet. Comparative amounts, totaling US$10,596,118, have been reclassified accordingly.

28. Approval of Financial Statements

The Board of Directors approved the financial statements for the year ended December 31, 2005, on March 14, 2006.


EXTRACTS OF STANDALONE FINANCIAL STATEMENTS



AssetsCash and bank balances 3 102,252,651 111,718,596Prepayments and other debit balances 4 22,096,374 15,714,828Accounts and notes receivable, net 5 272,820,638 210,894,461Investments in securities 6 9,579,440 3,650,907Properties held for development and sale, net 7 1,521,139,228 1,606,321,475Investment properties, net 8 160,487,428 158,720,275Investment in a joint venture 9 31,609,950 9,950Fixed assets, net 10 19,410,670 18,683,557

Total Assets 2,139,396,379 2,125,714,049

LiabilitiesBank overdrafts 3 10,018,093 10,596,118Accounts payable and other liabilities 11 74,864,832 76,778,392Dividends payable 12 10,266,707 11,430,866Deferred revenues and other credit balances 13 65,849,426 61,583,981Deferred credits 14 3,900,000 35,911,930Loans from banks and financial institutions 15 129,399,059 234,050,237

Total Liabilities 294,298,117 430,351,524

Shareholders’ EquityIssued capital at par value US$10 per share: 16100,000,000 class (A) shares 1,000,000,000 1,000,000,00065,000,000 class (B) shares 650,000,000 650,000,000

1,650,000,000 1,650,000,000Legal reserve 17 46,710,223 35,864,534Retained earnings 87,904,016 34,183,162Cumulative changes in fair value of interest rate swap agreement 11 (861,982) (3,557,815)Cumulative changes in fair value of available-for-sale securities 6 (233,180) -Reserves from gain on treasury shares 14 2,508,180 -Net income for the year less legal reserve 97,611,198 48,693,508Less: Treasury shares 12 & 18 (38,540,193) (69,820,864)

Total Shareholders’ Equity 1,845,098,262 1,695,362,525

Total Liabilities and Shareholders’ Equity 2,139,396,379 2,125,714,049


BALANCE SHEET STATEMENT OF INCOME


Revenues from land and real estate sales 235,256,243 174,523,834Revenues from rented properties 20,793,378 18,612,382Cost of land and real estate sales (107,378,218) (92,001,530)Cost of rented properties 19 (6,479,558) (7,092,861)Gain on sale of investment properties 8 297,436 1,695,723

Net revenues from operations 142,489,281 95,737,548

General and administrative expenses 20 (11,371,373) (10,057,472)Depreciation (1,424,025) (1,129,359)Provision for doubtful receivables and write-offs 4&5 (298,693) (739,083)Impairment loss on properties held for development and sale 7 (1,685,783) -Provision for contingencies and other charges - (1,820,362)Interest income 21 15,402,238 8,281,358Interest expense (17,490,405) (26,045,835)

Net income for the year before tax 125,621,240 64,226,795

Accrued income tax 11 (17,164,353) (10,122,897)

Net income for the year 108,456,887 54,103,898

Basic earnings per share 22 0.6858 0.3400





Cash flows from operating activitiesNet income for the year before income tax 125,621,240 64,226,795Adjustments to reconcile net income to net cash provided by operating activities

Depreciation 23 4,378,527 4,015,140Gain on sale of investment properties 8 (297,436) (1,695,723)Gain on sale of properties to a joint venture (10,750,000) -Provision for doubtful receivables and write 5 298,693 739,083Provision for contingencies and other charges 11(d) 515,000 1,820,362Sale transactions against acquisition of treasury shares 23 6,360,898 18,273,003Loss from cancellation of sales - 6,000,000Interest income 21 (15,402,238) (8,281,358)Interest expense 23 18,692,698 27,192,664

Changes in assets and liabilitiesPrepayments and other debit balances 1,312,075 3,705,571Accounts and notes receivable 23 (62,864,840) (26,846,226)Properties held for development and sale 23 69,755,739 27,550,993Accounts payable and other liabilities 23 (23,425,233) (3,735,050)Deferred revenues and other credit balances 23 (6,484,555) 48,953,635Interest received 9,355,350 1,300,157Income tax paid (10,122,897) -

Net cash provided by operating activities 106,943,021 163,219,046

Cash flows from investing activitiesPledged term deposits with banks 1,761,170 12,538,342Investments in securities 23 (6,202,863) (3,650,907)Receivable from recuperated properties 23 981,303 327,206Proceeds from sale of fixed assets 28,202 -Proceeds from sale of investment properties 8 1,098,486 11,084,658Acquisition of fixed assets 23 (1,747,777) (954,942)Acquisition of investment properties 8 (627,759) (3,323,760)Investment in a joint venture - 9,950

Net cash (used in)/provided by investing activities (4,709,238) 16,030,547

Cash flows from financing activitiesBank loans (settlement) (104,651,178) (85,517,758)Dividends paid 12 (963,659) (736,022)Deferred credits (13,000,000) -Treasury shares 23 4,786,691 (49,006,387)Proceeds from sales of treasury shares 14 20,600,000 -Interest paid (16,132,387) (20,028,942)

Net cash used in financing activities (109,360,533) (155,289,109)

Net change in cash and cash equivalents (7,126,750) 23,960,484Cash and cash equivalents — Beginning of the year 69,875,485 45,915,001

Cash and cash equivalents — End of the year 23 62,748,735 69,875,485


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34(6

9,82

0,86

4)34

,183

,162

(3,5

57,8

15)

--

48,6

93,5

081,

695,

362,

525

Net

inco

me

for

the

year

--

--

--

-10

8,45

6,88

710

8,45

6,88

7C

hang

e in

fair

val

ue o

f int

eres

tra

te s

wap

agr

eem

ent

--

--

2,69

5,83

3-

--

2,69

5,83

3C

hang

e in

fair

val

ue o

fav

aila

ble-

for-

sale

sec

uriti

es-

--

--

(233

,180

)-

-(2

33,1

80)

Tota

l res

ult o

f the

yea

r-

--

-2,

695,

833

(233

,180

)-

108,

456,

887

110,

919,

540

Gai

n on

sal

e of

trea

sury

sha

res

--

--

--

2,50

8,18

0-

2,50

8,18

0A

lloca

tion

of 2

004

net i

ncom

e-

--

48,6

93,5

08-

--

(48,

693,

508)

-A

lloca

tion

to le

gal r

eser

ve

from

200

5 ne

t in

com

e-

10,8

45,6

89-

--

--

-(1

0,84

5,68

9)-

Effe

ct o

f mar

k up

of

trea

sury

sha

res

--

(5,0

27,3

46)

5,02

7,34

6-

--

--

Trea

sury

sha

res

trad

e an

d la

nd s

ale

exch

ange

(net

)-

-36

,308

,017

--

--

-36

,308

,017

Bal

ance

at

Dec

embe

r 31

, 200

51,

650,

000,

000

46,7

10,2

23(3

8,54

0,19

3)87

,904

,016

(861

,982

)(2

33,1

80)

2,50

8,18

097

,611

,198

1,84

5,09

8,26

2

The

acco

mpa

nyin

g no

tes

form

an

inte

gral

par

t of t

hese

sta

tem

ents


Chairman and General ManagerNasser Chammaa

Vice-Chairmen

Nabil Boustani

Maher Beydoun

BOARD OF DIRECTORSGENERAL MANAGEMENT

General ManagerMounir Douaidy

Raphael Sabbagha

Fouad Al Khazen

Joseph Asseily

Abdulhafiz Mansour

Maher Daouk

Sarkis Demerdjian

Mosbah Kanafani

Sami Nahas

Basile Yared

Members of the Board

solidere annual report 2005

Documents