AlDar Company Valuation

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Executive summary

AlDar Properties Company is one of the frontrunners in the real estate sector in UAE. The strategic objectives of AlDar Company are to develop Abu Dhabi into a premiere capital city in the world as well as enlarge its business activities beyond United Arab Emirates. Consequently, the Group strives to create first-class products and services in order to attract more investors into the company as well as Abu Dhabi. Given that the real estate sector in UAE is extremely competitive, the Group has adopted a number of marketing strategies to sustain its leadership role in the market. AlDar’s marketing strategy is mainly consumer-driven. For instance, AlDar has employed product differentiation and social marketing to achieve a competitive edge over its rivals and remain relevant in the ever competitive UAE real estate sector. The real estate development projects undertaken by AlDar are aimed at satisfying the requirements of the customers. What more, the Group boasts of a solid financial performance that is likely to attract more investors and cement its leading role in the UAE real estate sector.

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AlDar Company Valuation

Aims and Objectives of the Report

This report will start with a brief introduction to the history of the Company as well as the nature of business that it engages in. The main aims and objectives of this report are identified as follows:

  • To analyze economic trends of AlDar Properties Company.
  • To analyze the real estate industry in which AlDar Properties Company operates in.
  • To analyze how AlDar Properties Company manages its operations
  • To analyze valuation models used by AlDar Properties Company

Introduction to the company

AlDar Properties Company is based in United Arab Emirates (UAE) and is one of the frontrunners in real estate business in the Kingdom. The Group was founded in 2004 and is owned by its founding shareholders, major institutions in Abu Dhabi as well as approximately 20,000 shareholders. The Company has two main strategic objectives which are (1) to enlarge its business activities beyond United Arab Emirates and (2) to develop Abu Dhabi into a premiere city in the world. The major projects undertaken by the Company include developing top-notch infrastructures such as the Central Market, the Noor Al Ain and the Ferrari World Theme Park in Abu Dhabi (Sayegh 5).

Economic Analysis

The real estate market conditions in 2011 were changeling to AlDar Properties Company. As a result, in FY2011, the Board embarked on a comprehensive assessment of the company’s business models, operations and finances that led to two large transactions with Mubadala development Company and the Abu Dhabi Government worth AED 36.2 billion. The first transaction (valued at AED 19.4 billion) was finished in January 2011 and entailed the issuance of convertible bonds (worth AED 2.8 billion) to Mubadala Development Company and sale of assets (estimated at AED 16.5 billion) to the Abu Dhabi Government. The second transaction (worth 16.8 billion) was concluded in December 2011and entailed a construction management deal (estimated at AED 2.6 billion), transfer of infrastructure (valued at AED 5 billion) and sale of assets valued at AED 9.2 billion. The main aim of undertaking these transactions was to generate a concrete financial base required to augment returns to the company’s stakeholders (AlMheiri 5).

Headline Results

In financial year ending 2011, the revenue of AlDar Properties Company increased to AED 6.7 billion compared to AED 1.8 billion realized in the previous year. In addition, profit for the FY2011 (before fair value movements and impairments) was AED 3.7 billion compared to loss of AED 1.4 billion recorded in 2010. AlDar Properties Company also estimated the value of its assets to reflect the circumstances that impacted the real estate market in the UAE in 2011. Consequently, the AlDar Company identified suitable provisions for fair value and impairment losses during the year. This resulted in earnings per share (eps) of AED 0.15 for FYE2011 compared to a loss per share of AED 4.39 in FYE2010 (AlMheiri 5).

Analysis of Income Statement

AlDar’s revenue is principally generated from rental income from investment properties, sale of completed projects and land and income from the Company’s operational businesses. In FYE2011, AlDar Properties Company earned an estimated AED 5.4 billion from completed projected as well as from the sale of land plots in comparison to AED 0.9 billion earned in FY 2010. The increase in revenue was mainly attributed to income earned from sale of land to Government of Abu Dhabi and augmented by a rise in sale of residential properties. The Group’s revenue from other operational businesses increased dramatically in FY2011 to AED 1.3 billion compared to AED 0.9 billion in FY2010. With respect to direct costs, AlDar’s direct operating costs included construction costs of projects, infrastructure development costs, operational businesses costs as well as costs attributed to the usual operating cycle of investment properties. The direct costs for the FYE2011 included AED 4.09 billion for costs of completed projects sold as well as AED 1.0 billion as costs incurred in operating businesses (AlMheiri 6).

The selling and marketing costs were 57% lower in the FYE 2011 compared to the previous year as a result of condensed marketing activities during FYE2011. What’s more, the general and administrative costs (apart from impairment losses) for the FYE2011 were estimated at AED 0.97 billion compared to AED 1.1 billion for the FYE2010. During the FYE2011, the general and administrative costs decreased by 11.5% compared to FYE2010 figures. This is mainly attributed to 22% decline in staff expenses as well as 96% decrease in pre-opening costs of operational businesses which were partly counterbalanced by a rise in amortization and depreciation charge by AED 76.1 million for the FYE2011 compared to the previous year. This was mainly attributed to a rise in operating assets (AlMheiri 6).

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The financial income of AlDar consists of finance income from project financing, profit on Islamic deposits as well as interest on bank deposits. On the other hand, the financial expenses of AlDar Company consist of interest payments on its external financing as well as associated hedging expenses. For the FYE2011, the net finance expenses of the Group were AED 0.98 billion in comparison to net finance expenses of AED 455 million incurred in the FYE2010. The rise in net finance expenses was principally attributed to the termination of capitalization of finance costs for finished projects as well as a decline in finance income caused by inferior cash balances (AlMheiri 6).

The overall decline in the AlDar’s plant, property and equipment is mainly attributed to fact that the Group’s assets were valued according to their recoverable amount with respect to the existing market situations. The remainder of the decrease was attributed to the sale of the Central Market project to Abu Dhabi Government during the FYE2011. Since the Central Market project is a mixed-used property, the project’s expenses were categorized partially under plant, property and equipment while the remainder of the expenses was classified under investment properties. AlDar’s investment properties portfolio is made up of both work-in-progress projects (including land) and finished projects. The decline in investment projects is principally attributed to the sale of Central Market project to Abu Dhabi Government. In addition, the Group undertakes a comprehensive analysis of fair value of its investment projects at every reporting time in order to synchronize them with the present market values. Most of these valuations are done by an autonomous valuer who employs suitable valuation methods. Consequently, during the FYE2011, AlDar Company recorded fair value losses estimated at AED 540.6 million on its investment projects (AlMheiri 7).

The UAE Real Estate Industry Analysis

The real estate industry is one of the fastest growing sectors in UAE. As of now, UAE is experiencing a construction boom. Although oil is the prime source of income for the country, real estate development is being carried out assertively to create a lee way for the creation of modern cities within Dubai and Abu Dhabi. As a result, there is an increasing demand for investment management firms and real estate developers in UAE. There is no doubt that the industry is turning out to be extremely competitive with numerous players, including Sorouh Real Estate and AlDar Properties Company as the frontrunners. The real estate boom in UAE is attributed to key construction projects undertaken by the government as well as several other construction projects. At the moment, the UAE real estate industry is the biggest construction market with active projects estimated at $350 billion since 2007 (Roberts 2).

Nonetheless, the real estate industry in UAE was badly affected by the 2008 global financial meltdown. For instance, in the 4th quarter of 2008, the real investment declined to about $15.8 billion from the previous quarter figures. In spite of the financial meltdown, the real estate industry in UAE is the most aggressive in the world. According to Table 1(see Appendix), it is apparent that the socio-economic, political, environmental and legal factors have considerable impact on the UAE real estate industry. Nevertheless, enormous construction project as well as government support are the main impetuses behind the rapid growth in UAE real estate industry (Basit 3).

Company Analysis

AlDar Properties is the frontrunner in the UAE’s real estate business with market capitalization estimated at $8 billion. In the financial year ending 2008, the Company’s net operating profit increased considerably to about $600 million (AED 2.2 billion) from $32 million (AED 120 million) in 2007 (Basit 4). Some of the products and services offered by AlDar include property management, construction, investments, real estate development and other related real estate services.

AlDar’s Corporate Vision

  • Rewarding ventures- The Group aims at providing profitable and steady investment ventures for its investors that will guarantee long-term benefits.
  • Long-term communities- AlDar’s vision is to provide attractive, efficient, modern and sustainable settings to facilitate socio-economic development in UAE.
  • Growth- AlDar aspires to attract inward investments as well as regulate expansion into global markets (Sayegh 5).

AlDar’s Corporate Mission

  • Undertake sustainable and first-class property development project that will guarantee maximum returns to its stakeholders
  • Plan its development projects efficiently to guarantee delivery of first-class products on time and within the budget.
  • Market Abu Dhabi as a premier capital city in order to attract foreign investments
  • Encourage personal career growth of staff via quality training as well as instituting and sustaining superior professional and ethics standards (Sayegh 5).

AlDar’s Marketing Strategy

Marketing plays an integral role in any business endeavor because it is mainly concerned with gratifying consumer requirements. In addition, it enables an organization to realize its strategic goals and objectives (Proctor 2). AlDar’s marketing strategy is mainly consumer-driven. The real estate development projects undertaken by AlDar are aimed at satisfying the requirements of its customers. In a consumer-based marketing strategy, the organization assesses the expectations of consumers on the products/services then employs its resources to create the products/services that meet consumer’s expectations. This marketing strategy is employed by AlDar Company (Bradley 5).

AlDar Company also employs differentiation as part of its marketing strategy. The Group has established a close collaboration with the government and various investment partners to achieve this goal. Social marketing is another marketing approach employed by AlDar. Under this approach, AlDar promotes itself as a socially responsible Company that value environment as well as the natural resources. AlDar strives to conserve the natural landscape of the site in addition to safeguarding the values and culture of the UAE inhabitants (Paley 16).

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In order implement a marketing strategy, marketing mix must be developed and utilized. The marketing mix employed by AlDar is depicted in Table 2 (see Appendix). As table 2 illustrates, marketing strategy is an integral component to any organization since it affects virtually all organization’s management and operations. A marketing strategy is used to convert organizational objectives and goals into tangible sets of programs and actions. Thus, a company’s goals and objectives can be achieved through an efficiently developed marketing strategy (Paley 16).

Valuation Models

The valuations of several assets held by AlDar Company have been integrated in the financial statements. For instance, the fair value of the shopping mall (acquired by the Company in 2005 on the basis of a long-term lease) was determined according to a valuation executed by CB Richard Ellis. The valuation was carried out on the basis of discounted cash flow. In addition, the fair value of land (deemed as investment property) is determined by the management by taking into account recent prices for comparable properties within the same location and similar situations. Adjustments are carried out to reflect any alterations in the location, nature or economic circumstances from the date of the transactions that took place at those prices (Sayegh 71). In addition, the fair value of interest rate swaps (considered as cash flow hedges) have been determined according to a valuation done by JC Rathbone (Sayegh 72).

AlDar Company projects are valued on the basis of a SOTP approach in which development sales are valued using a single-stage DCF and on the basis of the life of every project as well as its estimated sales and margins (Global Investment House 1). The same approach is also used to value government projects over which the Group receives fees for project management. The current work-in-progress projects (apart from retail portfolio) are valued on the basis of a two-stage DCF approach. The Group’s WACC is estimated at 13.8%, which is adjusted on the basis of the credentials of each project. On the other hand, the capitalization approach is used to value retail portfolio in which the capitalization rate is pegged at 9% (Global Investment House 1).

Conclusion

There is no doubt that AlDar Company is one of the leading players in UAE real estate sector. The Company has two main strategic objectives which are (1) to enlarge its business activities beyond United Arab Emirates and (2) to develop Abu Dhabi into a premiere capital in the world. AlDar Company was established for the intention of generating first-class property developments as well as offering stable and lucrative investment management portfolio to its shareholders. Although the UAE real estate industry is characterized by intense competition, AlDar’s solid financial performance in addition to sound marketing strategies are bound to offer the Group a competitive advantage over its rivals and enable it to maintain its leading role in the real estate business.

Works Cited

AlMheiri, Ali 2011, AlDar Properties PJSC: Reports and Consolidated Financial Statements for the Year Ended 31 December 2011. Web.

Basit, Abdul. Property Uncertainty will be over. 2008. Web.

Bradley, Schalk. Strategic Marketing: In the Customer Driven Organization, Chichester: Wiley. 2003. Print.

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Global Investment House 2012, AlDar in better position to maintain Ops: GCC real estate sector report. Web.

Paley, Norton. The Manager’s Guide to Competitive Marketing Strategies, London: Thorogood. 2006. Print.

Proctor, Tony. Strategic Marketing: An Introduction, London: Routledge. 2000. Print.

Roberts, Lynne. Abu Dhabi Plans Future of Capital. 2007. Web.

Sayegh, Ahmed. AlDar Properties PJSC: Reports and Accounts. 2008. Web.

Appendix

Table 1: PESTLE Analysis

PESTLE Analysis

Table 2: AlDar’s Marketing Mix

AlDar’s Marketing Mix

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