Written by Shariah Stocks Screening

Shariah Stock Status Report :: Emaar Properties :: UAE :: 29th July 2020

TickerEMAAR UH
Company NameEMAAR PROPERTIES PJSC
Shariah ComplianceShariah Compliant
DP Ratio2.43%

Emaar Properties is a leading company that is engaged in real estate development. The company is located in the United Arab Emirates (UAE) and it was established in 1997.

Shares of Emaar properties are listed on Dubai Financial Market. The company has the distinction of having developed on of Dubai’s most famous project called the Burj Khalifa which is known as the tallest building in the world.

The company has earned a name in the domestic as well as in the international real estate development market. Emaar Properties has a global presence in more than 36 markets across the world including GCC, Middle East, Africa, Asia, Europe and the United States.

Brief History of Emaar properties

Mr. Mohammed Alabbar – started this Emaar Properties in 1997 with the mission to become the leading property developer in UAE and the globe. Emaar properties is the first company to have shares listed on the stock exchange whose stocks are available to foreign investors to trade after its IPO in the year 2000. Emaar Properties deals with property investment & development, property management services, retail, malls and hospitality.

Is Emaar Properties Shariah Compliant?

Incomes generated by companies can be primarily classified into two sources:

1. Income from core business activities and business operations.

2. Income from Non-operating and other activities.

As per the Shariah screening standards set up by the renowned Shariah Scholars Board of Islamicly, if the non-permissible income generated from operating business activities of a company is less than 5% of total income, the stock passes the Shariah compliance sector screening. To know more about Non-Permissible and prohibited business activities. Read more shariah screening criteria here

Operating business of Emaar properties

The operating income of the company consists of:

1. Revenue from Real Estate

  • Sale of condominiums
  • Sale of Villas
  • Sale of Commercial units, plots of Land and others

2. Leasing, retail and related activities

3. Hospitality

Tricky Areas

The tricky areas from the Shariah point of view in such real estate development companies is the revenue derived from retail and hospitality segment. Revenue from retails and hospitality typically include lease rental revenue from such business establishments which run restaurants (serving alcohol/pork), supermarkets (selling alcohol/pork/tobacco), Cinemas etc. Such lease rentals are considered non-permissible.

Further, it needs to be assessed if a real estate developer earns revenue from leasing commercial space to conventional financial service industries. Such lease rental revenue is also considered non-permissible. Studying the tenant profile, the company does seem to have revenues from such non-permissible areas but the exact revenue derived from such non-permissible activities has not been disclosed by the company. Thus, we have communicated with the management of Emaar Properties and have received a response from them. Based on their response, we have calculated the non-permissible operating income which was found to be less than 5% of their total income.

Segmental Revenue Break Up – Operating Income

Emaar Properties derives revenue from three segments:
– Revenue from Real estate
– Leasing and Retail
– Hospitality

The below table has a detailed revenue break up along with its Shariah compliance classification

Operating Revenue (in Millions of AED)

for year ended 31st December 2019

Segment DescriptionRevenueNon-Permissible Revenue% Non-Permissible RevenueComments
Sale of condominiums11,119.1200.00%Shariah Compliant
Sale of Villas5,191.3500.00%Shariah Compliant
Sale of Commercial units, plots of Land and others1,023.9400.00%Shariah Compliant
Leasing, retail and related activities1,298.0922.131.70%Based on the communication with the management of the company, Non-permissible revenue has been calculated
Hospitality5,953.43100.81.69%Based on the communication with the management of the company, Non-permissible revenue has been calculated
Total24,585.93122.930.5%
Screen & Invest in Halal Stocks With Islamicly Web
Screen & Invest in Halal Stocks With Islamicly App

Business Compliance With Shariah

Non-Permissible Income from Operating Activities of Emaar Properties

Total Revenue24,585.93
Non-Permissible Operating Revenue122.93
% of Non-Permissible Revenue0.50%

Since the revenue from non-permissible operations income is less than 5% of total income, Emaar Properties passes the Shariah business sector screening criteria.

Let us analyse the Non-operating income of the company

1. Other Operating Income
2. Finance Income
3. Other Income
Here, the finance income seems to be the only non-permissible income.
As per the Shariah screening criteria such non-operating non-permissible income is not considered for determining the Shariah business sector compliance. But such non-permissible non-operating revenue is included in calculating the dividend purification ratio.

Segmental Revenue Break Up for Non-Operating Income

Non-Operating Revenue in Millions of AED for year ended 31st December 2019

Segment DescriptionRevenueNon-Permissible Revenue% Non-Permissible RevenueComment
Other Operating Income525.75600.00%Shariah Compliant
Finance Income652.329528.3981%Finance Income includes Islamic income as well as conventional interest income earned from cash deposited with Banks
Other Income1,067.5100.00%Shariah Compliant
Total2245.592528.3923.53%

Non-Operating Revenue in Millions of AED for year ended 31st December 2019.

Revenue DescriptionNon permissible Revenue (millions of AED)
Non-permissible operating revenue122.93
Non-permissible non-operating revenue528.39
Total Non-permissible revenue651.32

This is worth mentioning that the total non-permissible income will be used to calculate the dividend purification Ratio

Shariah Financial Ratio Screen:

As Emaar Properties passes the sector compliance screening, the next step is to check the Shariah financial ratio compliance. (All figures in millions of AED as on 31st December 2019)

ParticularsAmountRemarks
Average Market Cap36690.106
Debt23101.901
Islamic debts11177.621
Adjusted debts11924.28
Debt Compliance Ratio32.50%– Within limits
Cash10326.822
Cash Compliance Ratio28.15%– Within limits
Total AR11169.742
Receivable Compliance Ratio30.44%– Within limits

Since all the ratios are within the limits, the stock passes the Shariah Financial ratio compliance.

Shariah Financial ratio Compliance: PASS

Dividend Purification Calculation

As Emaar properties passes the sector screening compliance as well as the financial screening compliance, investment in this stock is permissible as per the Shariah principles. But the income earned from non-permissible activities (operating business and non-operating business activities) needs to be cleansed and given to the charity. This is called dividend purification.

You can check the Shariah compliance of Emaar properties on Islamicly. It will be displayed as shown below:

The dividend purification for Emaar Properties is calculated as

Non-Permissible Revenue including interest income /Total Revenue

Hence the income to be purified for this stock is calculated as below:

Revenue DescriptionNon permissible Revenue (Millions of AED)
Total Revenue of the Company (Gross)26,831.52
Total Non-permissible revenue651.32
Dividend Purification Ratio2.43%

Islamicly App / Web version has calculated the DP ratio for this stock and you can see how it looks like on the App.

Click to check how to calculate Purification of Shariah Compliant Equities with ISLAMICLY

Source: All the above information is based on company website and the financial report as on 31st Dec 2019.

Conclusion

Based on our research, the data and the information provided above, EMAAR Properties is Shariah compliant as per Shariah principles. Since the compliance of stocks keeps changing on the basis of price change or financial numbers or increase and decrease in non-permissible income, Emaar properties may change its compliance in future.

To get the updated Shariah compliance status of Emaar Properties please download Islamicly App and check the most updated Shariah compliance status.

(Visited 624 times, 1 visits today)
Last modified: September 11, 2024
Close