Aldar Properties PJSC (ALDAR) Earnings Call Transcript & Summary

Okay. So thanks, Taher. So first, on provisions, so, yes, so as part of our full review and valuations of year-end of numbers, but definitely a couple of isolated cleanups. So we've got construction subsidiary Pivot and we're reviewing their contract closures. I mean there are some provisions that we've taken there to reflect increased costs and a challenging contracting environment. We have a joint venture with a partner, just some loans into some real estate assets, not that large. We've just conditioned those to reflect some recoverability issues with some of those -- the -- to some of those loans. And then, I'd say to the usual sort of bits and bobs. And together, those 2 comprise into that AED 100 million level that you were describing. So that's on provisions. In terms of the like-for-like in Slide 9 in the pack, so we definitely need to credit Christopher Wilson with inventing this, which we're all together absorbing as we speak. It's a great reflection and very accurate, I must say, about -- a great way to think about like-for-like performance. I'm just thinking about your question and across the various segments, so -- and what's -- what drives that. I mean -- and so the first comment would be on retail. And like-for-like rates are really defined by Yas Mall. And because we've got these November renewal dates, so again, this was year 5 and all the renewals really happen in -- at the same time in November. Whilst we stagger now -- the guys are being very good at staggering the new renewals on an annual basis, so 2, 3, 4, or 5-year clusters, they generally are around that November number. So it's like you reset in November. And so how does that trend over Q1, Q2, Q3, Q4, that's kind of hard to peg. So I'd look at the annual number on that. I think that's the best way to think about retail. In terms of commercial, very sticky, government and business enterprises who generally aren't as sensitive to prices, your retail tenant or your residential consumer. So I -- there will not be any intra-year trend worth mentioning there. And on residential, they are much more active, and I'd say we're stabilizing. I think we saw a pretty steady quarterly performance across the portfolio, and I'm just thinking amongst the destinations. And yes, I think that commentary is pretty consistent between Shams and our off-island developments, like Rayyana and Yas. So I think stability to make a long -- or consistency, I should say, would be a better word. And then your third question was about NOI guidance. I'm sorry, could you elaborate on that again?

Yes. is this purely organic? Or is there an M&A component attached to it?

Yes, purely organic. I mean the only -- you can call it inorganic would be the bridges, assets that are -- that we're investing into to, so the develop to hold that should come on in the mid- or tail end of the fourth quarter. So that would represent sort of inorganic in that sense. But it's all -- there's nothing in the acquisition bucket under that AED 1.8 billion guidance.

And just one follow-up, again, on one of the new slots, which is the key adjacent business. I mean just looking at this business, it has been doing extremely well on an annual basis in terms of growth, especially on an NOI level. And just within this, I mean, how to think about adjacent businesses? These are more noncore assets. Clearly, they're doing well. Looking at, for example, just Aldar Education, I mean, in terms of the numbers, is this a key focus area for you in terms of maybe more growth, adding more schools or M&A? Or potentially, I don't know, like a divestment would make sense given, I mean, it's becoming much more lucrative in the mix versus where it was a couple of years ago.

Yes. No, look, I mean, I remember the way we answered these questions even 3, 4 years ago, which was with the line, these are valuable, highly valuable, but noncore. And the academy side, the messaging back then was, look, highly valuable noncore, but there's so much hope, like low-hanging fruit that we want to improve before we entertain some sort of a monetization or an exit or something like that. And I look back over 48 months, that's exactly what's been going on. And I think you're really starting to see now the fruits of the work that the management team down there has been doing, and it's significant. They're creating a ton of value. They are absolutely embedding themselves within a highly privatization-oriented government as the #1 provider of education in Abu Dhabi. And indeed, that's what's driving a lot of that growth there. So I mean, look, we are very happy to continue working with the existing team and riding this kind of growth going forward. Clearly, I think it's past fixing low-hanging fruit, and we're in the valuation on optimization now. And other exit opportunities in this, which is probably -- by everyone's admission, probably the most well-followed sector in our country in terms of foreign direct investment and other things. To explore combination or monetization opportunities for what is and what remains a valuable, but noncore business. But that is just run by an excellent team who continues to dominate the market here. And I think that same theme, highly valuable noncore absolutely applies to Khidmah, Provis and the cooling assets. The only sub comment I would make, we have recently split Khidmah and Provis. We used to just call it Khidmah, which is our facilities management and property management. It was under one entity called Khidmah. We split them now. Provis is the property management entity, and Khidmah is the facility management entity. Property management, we definitely view as, let's say, slightly more core. I mean they manage our residential portfolios, and they manage our commercial office portfolios very ably. And they're the best in the market at it. But PM is an integral part of the alpha we create by the professional managing of our properties. So it's core to us in that sense. Facilities management, a little bit more of a commodity. We benefit from our scale. But indeed, even across our projects Provis tenders, FM contracts to the whole market, when we want to attract and contract at our various properties. And we don't always use Khidmah. We will use whoever the best FM providers at the time. So that might just put some context around how we think about those 2 businesses.

[Operator Instructions] The next question comes from Jonathan Milan from Waha Capital.

Just a few questions on my side. Could you comment on the extent of the decline in average rents in Yas Mall and the latest trend of renewals? And what percentage of the units have been renewed? And do you think that you may have to reprice units that were repriced, say, 3 years ago or 2 years ago down further next year and the year after that? Also what percentage of your office portfolio, which was leased on very -- which was put on long-term leases on the office with the government is expiring in 2020, 2021, 2022? And how much of premium is it to current market rates? And how much of a decline can we see? And the third question is what's the current capacity utilization at the schools in a sense that once they reach peak capacity, given the massive growth, will you consider acquiring more schools or building more schools?

Okay. Jonathan, thank you. Okay. So the first question was the extensive decline in like-for-like in retail. So the first thing to point out is that 2019 was year 5 of our renewal cycle, which means we signed leases in 2014 that then got renewed in 2015. And so we've had some correcting going on in that market, the most aggressive of which would -- are going to be recorded in this, the fifth year, as we remedy the over renting. And we were highly successful opening this mall in 2014, and the market kind of had VAT and the other structural shifts that reduced then. So you've got 5 years of cumulative market declines wrapped up in this. But notwithstanding that, we're still just seeing 9% overall like-for-like declines in the -- in overall lease rates in Yas Mall. Your second question was on what percent of the office portfolio is renewing the next few years, I mean, our weighted average lease tenure across the -- that particular portfolio is 4.8 years, so that should give you -- I mean that should give you a good flavor for what would be coming out in 2021, 2022 and 2023. Just proportionately, I'd be saying less than 25% in that sense. Your third question was on schools. And so across the -- so the way that 22,000 student-basis split, it's between schools that we own, which is about 8,000 students, like they're in our network of schools that we own and operate, and the balance coming from schools that we manage on behalf of third parties, whether it's ADNOC or the government of Abu Dhabi increasingly. And so across our own network, we're over 80%, which is just based on seats. And I must say that there is a pretty reliable growth rate that comes from those. So we're 80% of capacity, but because some of our schools are very new, growth comes almost automatically as, right now, let's say, senior cohorts are nonexistent in some of the schools since they opened. And as a current grade 9 class moves into grade 10 next year and a current -- another school, a current grade 10 class moves into the -- for the first time into grade 11, so on and so on, you have an automatic sort of growth uptake, and that's exactly the kind of predictable growth that we've been seeing in our owned school portfolio over the last 3 or 4 years.

Okay. And just one thing, a couple of questions just on the Yas and the office. So Yas Mall, do you think you have -- you must reprice a bit further in November 2020, November 2021 because contracts that were renewed in, say, '17, for example, or '18 were renewed at higher rates than the current one. So do you think you'll see another like-for-like decline mid-single digit, say, this year? And on the office side, how much of a like-for-like decline do you think you should see? Because some of these, I understand it's 4.5 years, but some of these are quite old, 7, 8, 9 or 10 years old. And I think they are at a 20% premium to current market rates. So how much of a like-for-like decline do you expect to incur on the office side?

Yes. So on the retail side, first, I mean, yes, we are expecting like-for-like declines to be coming in our retail portfolio for the reasons you mentioned and just for the market. So we'd be forecasting kind of mid-single-digit declines coming from that portfolio, reflecting those sort of topics, just to give you a flavor. And then you asked about the commercial office portfolio and just in terms of over renting. Again, it's pretty sticky. I mean, I think people that want to stay in their location, I mean, generally, the commercial decision that these tenants make is they want to be in a building, they want to be in a precinct. They invest heavily in the facilities, and there is a stickiness that comes from that. So our ability to renew, dare I say, unit at a higher rate, I hope none of my tenants are on the call right now, but you're effectively saying, "Are you going to switch? Are you going to burn all your investment and move?" And you trade on that. And that's kind of how that works. So -- and I think the year of 2019 that we had reflected that dynamic, and we saw sort of that single-digit -- low single-digit rerating, and I'd expect a similar balance in the future.

[Operator Instructions] Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to the company.

Okay. Thank you, everybody, for dialing in. And we look forward to speaking to you in the next quarter. Thanks a lot.