Divisional performance measurement of 3 real estate company:- Emaar properties division Aldar properties division Ezdan real estate co.

1. DIVISIONAL PERFORMANCE
MEASUREMENT
ON
EMAAR PROPERTIES ALDAR PROPERTIES EZDAN
REAL ESTATE CO.
By EMAAR BY GROUP 5

2. We chose three real estate companies of GCC,
Aldar Properties
Emaar Properties
Ezdan Holdings
and analyzed their financial statements of the previous eight years for a
divisional performance measure.
We chose these companies because:
1. Real Estate companies re-invest their earnings and do not retain
them.
2. They seek capital gains rather than passive cash flows.
3. Real Estate have more transactions of investments than the others
and investment is a big criterion for divisional performance
measurement.

3. •Established in 1997, is one of the worlds most
valuable real estate development companies.
•Listed on the Dubai Financial Market.
•Emaar’s level of project development skills are
highlighted by its iconic assets in Dubai like
Burj Khalifa, The Dubai Mall and the fountain
associated along with Downtown Dubai.
•Standard & Poor gave a BBB- credit rating to
the company because Emaar properties have
maintained a consistent performance.

4. •Based in Abu Dhabi
•Benefits worth Us$ 12 billion.
•Aldar Properties is a strong partner of
the Abu Dhabi government, which is a
major shareholder.
•Created some of Abu Dhabi's most
famous and complex ventures like
Formula 1 offices on Yas Island, Shams
Abu Dhabi group on Reem Island, etc.

5. •Ezdan is the largest real estate company of Qatar
established in 1993.
•Listed on the Qatar Exchange
•Manages about 14,500 housing units mainly in Al
Wakra an Al Wukair
•Owns more than 18,300 diverse real estate units
in Doha.
•53% of the total revenue of Ezdan holding is
through rental revenue through Ezdan Real Estate

6. • Divisional Income:
Division revenues minus division costs
•Each company’s real estate revenue was considered and costs pertaining
to real estate was subtracted from it so as to obtain the divisional income.
•Just like investors use accounting income to assess a firm's performance,
firms use a division’s income to assess divisional performance.
•But divisional income is not the best measure for a divisional performance
of a company because it doesn’t consider on the investment made on that
particular segment of the company and uses only the operating income of
that segment which causes a narrow focus.

7. • Return on Investment (ROI):
Ratio of profits to investment in the asset that
generates those profits
ROI = Divisional income ÷ Divisional assets
• ROI as a performance measure is better than divisional income
because it provides a comparison of different size divisions.
• But if a divisional manager’s performance is evaluated based on
ROI, then their incentives will not be aligned with a corporate goal.

8. RETURN ON
INVESTMENT 2006 2007 2008 2009 2010 2011 2012 2013
ALDAR 79.5 58.3 66.9 13 -150 10.7 22 18.5
EMAAR 46 40 18.4 8.9 7.4 5.1 5.5 9.7
EZDAN 59 10.9 28.6 100 0.3 1.1 0.8 3.1

9. -200
-150
-100
-50
0
50
100
150
2006 2007 2008 2009 2010 2011 2012 2013
ALDAR
EMAAR
EZDAN
• ROI of Emaar is low because
gains are low and should be
increased.
•ROI of Ezdan:
First low, 2007- sharp cut in
rental revenue.
Peak in 2009- overall increase in
divisional income
Bottom in 2010 – large amounts
of investments.
•ROI of Aldar has been high-low-
stable.
•Went negative in 2010 because
costs and expenses were way
too high.

10. •Residual Income (RI):
This is the excess of actual profit over the cost of invested capital in the
unit.
RI = NOPAT – Capital charge
(capital charge = weighted average cost of capital * average invested capital)
•One way of calculating economic profit is by calculating economic value
added
Economic Value Added
EVA = adjusted NOPAT – Capital charge
ROI and RI are short term concepts which deal only with the current
reporting period whereas managerial performance measures should
focus on future results that can be expected because of present actions.

11. EVA 2006 2007 2008 2009 2010 2011 2012 2013
ALDAR -290224 253462 1451024 -960454 5812112040641 3255022 826281
EMAAR 3837448 3846706 24424921404702 17703111603178 1606329 2365321
EZDAN -106771 -300255 -309219 136508 31477 307278 154706 908617

12. -2000000
-1000000
0
1000000
2000000
3000000
4000000
5000000
2006 2007 2008 2009 2010 2011 2012 2013
ALDAR
EMAAR
EZDAN
•EVA has fluctuations
mainly because of
changes in profits
•With the help of EVA, we
can easily compare the
divisional performance of
each company
• Emaar has the best
performance in these
three.
•Although Aldar has a
very unstable
performance, it stands
second
•Ezdan’s performance is
not at that great but there
are great chances of
improvement.

13. In the divisional performance measurement of Emaar, Aldar and Ezdan
Properties, we analyzed the various financial performance measures like
ROI, RI and EVA.
EVA is the best performance measure as it gives the managers an incentive
to invest only in those projects which earn more than the cost of capital
unlike ROI. Thus, the corporate goal of performance is fulfilled through EVA.
Therefore, Divisional Performance-wise, Emaar is the best of three.
However, there are also other non-financial divisional performance
measures like competitiveness, product leadership, productivity, quality,
innovation and flexibility which can evaluate a company on its performance.