Strategies of Aldar Properties Company Based in the United Arab Emirates - Research Paper Example

Financial Services Table of Contents About Aldar Properties Aldar Properties is a real estate investment and development company based in United Arab Emirates. The business of the company involves sales, development, construction, investment and management of properties and real estate (Reuters-a, 2010). Economic Environment and its impact on the company Abu Dhabi, the capital of UAE, comprises 85 percent of the country’s land area. The city accounts for 10 percent of oil resources of the world and accounts for 90 percent of indigenous oil production. The income thus generated is used for the development of modernized infrastructure. Besides this the economy has no corporate, income, personal or withholding tax. Also there are no controls on foreign exchange or other such restrictions like trade barriers or quotas (Aldar-a, 2010). The economic condition of the nation is such that Aldar’s performance remained unperturbed even in 2009 when the global economy was passing through tough economic situation. Even during this year the company maintained a robust performance with the net asset value of the company growing to AED 16,650 million from AED 16032 million. The performance of the company has consistently outpaced the sector and despite of the prevailing economic uncertainty the company board is expecting a strong performance in 2010. The regional stability and resilience offered by Abu Dhabi has provided a strong platform for the company to move forward. Over the years the company has been able to strengthen its position and made its operations resilient in the rapidly changing business environment. Aldar has taken positive measures to adapt itself in the changing economic scenario making it capable of taking on any business challenges successfully (Aldar Properties PJSC, 2009). Background information, important projects and achievements Aldar Properties was founded in 2000. It is headquartered in Abu Dhabi and got listed on Abu Dhabi Securities Exchange in the year 2004 when the company made its first IPO of AED 1.5 billion. The first development of the company was Al Jimi Shopping Centre in Al Ain, the only retail property in UAE to have won an international award. Aldar Properties is leading the development of the capital region and is working towards establishing Abu Dhabi as a dynamic market for real estate by developing things that can act as a yardstick of quality. The significant developments of the company include Yas Island, Al Raha Beach, Central Market, KQ, Al Gurm Resort, Al Raha Gardens, Al Mamoura, Motor World, Cleveland Clinic Abu Dhabi, Al Jimi Mall, Al Falah, Baniyas Towers, Noor Al Ain and Al Ruwais Mall (Aldar-b, 2010). Industry environment and associated risks The real estate sector in the country comprises of stable and calm Abu Dhabi and a struggling Dubai. The increased construction activities over the years coupled with the lack of revenue from its oil resources has taken a toll. Although the situation in Abu Dhabi stabilized in Abu Dhabi in 2009 the conditions still remain difficult with reduced leasing and sales activities. The government has come forward in supporting the real estate market by announcing plans for the development of 17000 villas in the various locations of Abu Dhabi. Various other changes have been flagged to reinstate the confidence of the investors in the local property market. Even though the overall outlook of the nation is positive but the speed of the recovery process is likely to vary across the regions (ReportLinker, 2010). As per Fitch rating agency despite the initiation of the stabilization process, the credit outlook for the real estate sector in UAE is negative. According to Al Natoor, the Director of the rating agency’s EMEA Corporate team of Dubai the growth rate of the sector is likely to be stagnant and the chances of a resurfacing of contraction cannot be entirely ruled out (AME Info FZ LLC-a, 2010). Strategies of Aldar Properties & business risks The company is focused on developing strategies that can ensure long term financial performance. The sales and management team of the company have created strategies that can ensure that the customers get a positive experience in their dealings with the company even after the process of handover. The company was established to provide high-class property and real estate development in Abu Dhabi. By sponsoring “Abu Dhabi Golf Championship” the company aims at establishing the capital as an important international tourist and golfing destination. BY way of this the company wants to attract the international audience to the region. As per Ronald Barrott, the former CEO of Aldar "ALDAR's vision is to build sustainable cohesive communities and to offer world class sporting facilities in a number of our developments, including golf courses. Sport is an important social catalyst that transcends boundaries of culture, age and gender, bringing together the community and creating a sense of pride. Sporting events are the perfect means through which to build a sense community," (AME Info FZ LLC-b, 2007). Arabian Construction Company (ACC) entered into an AED 2.7 billion contract with Aldar Properties relating to erection of 3 towers in the capital region. This is the “single largest building agreement” in the history of the Abu Dhabi. The large scale business projects have made Aldar an important developer in the region. Its launch of Yas Island in UAE in 2006 was worth US$40 billion which ranks among the large real estate projects in the region (The Lebanon Weekly Monitor, 2007). The huge cash resources and undrawn credit lines have made the company in good stead in taking care of its financial obligations. Yas Island a mega development of the company is an important entertainment and tourist destination of UAE (Arabian Business Publishing Ltd, 2010). Owing to the increased uncertainties relating to receivables of Yas Island and the type of support from the government for the company in the future, Deutsche Bank lowered the price target on the company’s stock. Moody also lowered the ratings of the company on the ground that there is no formal agreement of support between the government and real estate developer. If the government does not support the real estate sector in the country then there is a risk that the industry would continue to stagnate (Cordeiro, 2010). Management & Ownership The management team of the company comprises of John Bullough, the company’s Chief Executive Officer; Shafqat Malik, Chief Financial Officer; Sami Asad, Chief Operating Officer and Mohammed Al Mubarak, Chief Commercial Officer (Aldar-c, 2010). Analysis of company’s financial resources The profit of the company for the year 2008 increased by nearly 77.3% to $936 million as compared to the previous year’s figure of $528 million. The liquidity position of the company is fairly strong as indicated by the current ratio of 1.76 which is higher than the industry current ratio of 0.68. This is on account of adequate cash reserves of the company. The debt component of the company is very high as indicated by the total debt to equity ratio of 218.64 which is nearly double the ratio of the industry. A high debt component is not in the financial interest of the company as it exposes the company to undue financial burden even during rough times making it vulnerable to bankruptcy. The cost of servicing debt often burdens the business profitability resulting in low returns. This seems to be true in the case of Aldar Properties as well as the return generated by the company over the last twelve months has been negative. The long term growth rate of the company is favorable at 30%. The Gross margin of the company is 23.11% which is close to the industry average of 26.12% but the Operating margin and the Net Profit margin of the company over the last twelve months is negative. It can be because the administrative and operating expenses of the company are very high. This has possibly weighed the profitability of the company. The beta of the company is 1.67 making it vulnerable to market fluctuations i.e. in the event of a fall in the market the stock of the company will also get battered heavily (Reuters-b, 2010). Servicing opportunities to the company The bank can serve as the company’s agent for documentation and structuring. It can counsel the company on various transactions. Like the bank can guide the company whether undertaking a transaction will be in the long term interest of the company by giving guidance about the anticipated cost of funding and the expected returns. The bank can also act as the company’s counsel aiding it to assess various investment options. In matters relating to capital mix the bank can assist the company management in achieving the desired balance between debt and equity. Other than this the bank can assist the company in any Follow-on-public-offers (FPO) by underwriting the shares of the company and issuing it in times of improved market situations. The banks can facilitate fast disbursal of loans to the company enabling it to tap the crucial business opportunities. As this will be done on the basis of the relations between the company and the banks it will reduce any delays in the fund disbursal which is one of the hurdles faced by the companies in getting loans and credit facilities. Reference Aldar-a. (2010). About Abu Dhabi. Retrieved on October 27, 2010 from http://www.aldar.com/about_abu_dhabi.en Aldar-b. (2010). ALDAR Developments. Retrieved on October 27, 2010 from http://www.aldar.com/aldar_developments.en Aldar-c. (2010). Executive Management Team. Retrieved on October 27, 2010 from http://www.aldar.com/executive_management_team.en Aldar Properties PJSC. (2009). CHAIRMAN’S STATEMENT. Reports and consolidated financial Statements. Retrieved on October 27, 2010 from http://www.adx.ae/english/news/pages/aldar%20properties%20pjsc%20fs%202009%20eng_02-14-10%2011_20_37%20pm.pdf AME Info FZ LLC-a. (2010). Fitch: Dubai Real Estate corporates face major refinancing risks. Retrieved on October 27, 2010 from http://www.ameinfo.com/238058.html AME Info FZ LLC-b. (2007). ALDAR Properties keeps a 'virtual eye' on Abu Dhabi Golf Championship. Retrieved on October 27, 2010 from http://www.ameinfo.com/107583.html Arabian Business Publishing Ltd. (2010). ALDAR Properties. Companies. Retrieved on October 27, 2010 from http://www.arabianbusiness.com/companies/aldar-properties-66458.html Cordeiro, B. (2010). Deutsche Bank cuts Aldar Properties price target. Arabian Business Publishing Ltd. Retrieved on October 27, 2010 from http://www.arabianbusiness.com/deutsche-bank-cuts-aldar-properties-price-target-89938.html ReportLinker. (2010). United Arab Emirates Real Estate Report Q2 2010. Summary. Retrieved on October 27, 2010 from http://www.reportlinker.com/p0183206/United-Arab-Emirates-Real-Estate-Report-Q2.html Reuters-a. (2010). Overview. ALDAR PROPERTIES COMPANY. Retrieved on October 27, 2010 from http://www.reuters.com/finance/stocks/overview?symbol=ALDR.AD Reuters-b. (2010). Financials. ALDAR PROPERTIES COMPANY. Retrieved on October 27, 2010 from http://www.reuters.com/finance/stocks/financialHighlights?symbol=ALDR.AD The Lebanon Weekly Monitor. (2007). Corporate News. Retrieved on October 27, 2010 from http://www.rebuildlebanon.gov.lb/images_Browse/Week%20Rep38%201709- 2209.pdf Read More