Aldar Properties PJSC (ALDAR) Earnings Call Transcript & Summary

Hello everyone, and welcome to the Aldar Properties Full Year 2023 Earnings Call. My name is Bruno and I'll be operating your call today. [Operator Instructions] I'll now hand over to your host and CEO, Talal Dhiyebi. Please go ahead.

Thank you. I would like to thank you all for joining us today to discuss Aldar's financial and operating performance for full year 2023. Aldar has continued to make strong progress on the implementation of its growth strategy. And this ongoing transformation is evident in our 2023 financial results. We achieved 40% year-on-your growth in net profit which reached AED 4.4 billion, with EBITDA rising 39% year-on-year to AED 5.1 billion. This strong performance resonated across all our core businesses, complemented by our sector and graphical diversification initiatives that are further driven significant value creation. Aldar Development recorded AED 27.9 billion in sales and a backlog of AED 36.8 billion, which effectively doubled our sales for 3 consecutive years from AED 23.6 billion in 2020 to just over AED 7 billion in 2021 to AED 14 billion in 2022 and AED 28 billion as I just mentioned in 2023. We had a record 14 launches across the UAE. Among them, [ debut ] offering in Dubai, where we formed a JV with Dubai Holding and launched Haven by Aldar in the same year. We also launched a new luxury product with Nobu branded residences in Saadiyat, Abu Dhabi, and another debut offering [indiscernible] all attracting strong demand. Overseas and resident expat buyers accounted for 66% of UAE sales, growing significantly year on year, affecting the strength of Aldar brand and reputation for creating market leading lifestyle communities. Aldar Development is now delivering at significantly elevated sales run rates, supported by our backlog. We expect to maintain this momentum as we scale the platform and deliver a differentiated and community-focused Master Plan developments that we are known for. Aldar Investment continued to excel. It is an active asset manager, reported 40% year-on-year growth and adjusted EBITDA to AED 2.3 billion. Through disciplines capital deployment and key acquisition over the last 2 years, we have rapidly expanded the platform, invested significantly in Grade A commercial assets, logistics, Aldar Estate and Aldar Education. 2022 acquisitions have ramped up, exceeding underwriting expectations and are meaningfully contributing to the bottom line. Occupancy at the prime ADGM Tower in Abu Dhabi Financial District has increased to 96% from 76% since it was acquired in mid-2022. The re-positioning of your Yas Mall has been a great success resulting in near full occupancy and increased footfall, both assets are contributing meaningfully [Technical difficulty] value. Logistics, Education, and Estates platforms have scaled up and will continue to grow in the coming years while complementing and adding value to both our development and investment property portfolios. More than ever, Aldar is realizing synergies across its platforms. Our teams are collaborating closely to drive growth, create value and deliver a progressive sustainability agenda. Turning to Slide 4. I'd like to touch on the progress we achieved since embarking on our transformational growth agenda in 2020. It's pretty much the introduction of our revamped operating model alongside an ambitious growth and expansion strategy, ushering in a transformative era for Aldar. Over the last 3 years, we experienced remarkable growth on a group and business level. Both group EBITDA and net profit more than doubled compared to 2020. Our development sales surged nearly eightfold and our revenue backlog experienced exponential growth, achieving a tenfold increase in the past 3 years. Meanwhile, our assets under management have more than doubled. And finally, Aldar's total market capitalization has increased by almost 70% to over AED 42 billion. As a UAE-centric real estate company, we see substantial and ongoing commercial opportunity as our home market of Abu Dhabi built on its status as an investment, work and lifestyle destination. The government is implementing a clear plan to drive capital inflows, provide world-class infrastructure and invest in renewable and clean energy to achieve net zero emissions by 2050. An increasingly vibrant and diversified economy will fuel further demand for high-quality real estate in the coming years as a differentiated community-first and experience-focused developer. Aldar is well positioned to play a central role in the country's socioeconomic progress. That's why we are and have been very focused on driving scale and enhancing diversification across our portfolio. Over the last 3 years, we have made strong progress, adding significant exposure to commercial, logistics and real estate services and asset classes. So our recently AED 5 billion develop-to-hold pipeline and AED 1 billion investment in logistics, we're also ramping up our commercial, retail, hospitality and logistics portfolios, leveraging our development and asset management expertise to drive margin expansion and returns. In parallel, we have expanded our platform into Dubai, Ras Al Khaimah, neighboring GCC, Egypt and recently into the U.K. and Europe. We see strategic opportunities beyond the UAE, which provides us with exposure to low correlated markets and asset classes, which are much more prevalent and established than more matured markets. In 2023, we acquired U.K.-based developer, London Square, invested in real estate private credit alongside Mubadala and Ares Management, while also entering into a strategic partnership with Carlyle to invest in direct logistics and self-storage assets. Our international footprint will remain a relatively small but important part of our increasingly diversified business. Turning now to Slide 5. I'd like to highlight our core growth drivers as we look ahead. On Aldar Development, we want to extend our market leadership as the leading destination builder that focuses on providing exceptional experiences to the communities we serve. We will do this in our home markets and internationally through strategic land bank replenishment, diversifying our target customer segments and product offering. From a customer engagement and [ journey ] perspective, we continue to develop our digital offering, creating new sales channels and growing our global brokerage network to drive synergies and cross-selling. We also continue to explore key regional markets such as Kingdom of Saudi Arabia and our focus remains on finding the right partner to gain a foothold as we did with Dubai Holding in Dubai. Looking at Aldar Investments, we benefit from a strong pipeline of potential deals across our target markets, and through our develop-to-hold pipeline, we need to enhance our disciplined expansion across core UAE market. We will lean into sectors such as logistics, where we are still underway, while exploring diversification into new products and alternative asset classes. Across our strategic investment in platforms such as Aldar Education and Aldar Estates, we continue to pursue further growth, drive value and broaden their respective offerings through bolt-on acquisitions. We've bettered our high-quality asset base with strong positioning, leveraging our asset management capabilities. We are further optimizing retail assets and transforming certain hospitality assets aligned with our resort destination focus. As we scale the Aldar Investment platform, enhance earnings growth and diversification, we maintain readiness to crystallize value through corporate action or monetization. Turning on to Slide 6. I will elaborate further on how we are approaching the international expansion to enable and support our sector diversification strategy. We see a number of long-term trends in mature markets that will also shape the UAE in coming years. And we want to ensure that Aldar is prepared and capitalizing on emerging opportunities by leveraging our market leadership and strong brand recognition. These trends include winning cities, digitalized economies and the rise of e-commerce, aging population and sustainability. This approach enables us to hone our international market focus and deploy capital into key areas such as homebuilding, real estate credit and alternative real estate opportunities. In practical terms, and on top of what we have announced today, we are exploring expansion into a number of alternative growth real estate asset classes. One important point to make is that exposure to the sectors and markets will remain ancillary, and it's around 40% of our capital deployment. Our home markets and core segments will firmly remain our focus and predominant destination for capital deployment. A key element of our approach is to bring benefits to Aldar's UAE business and support our future growth. So an enlarged sales network and leveraging client synergies through economies of scale from an increasingly integrated platform through strong strategic collaborations and partnerships and by building expertise and bring back know-how in trends shaping global markets. With that, I'll hand over to my colleague Faisal to talk you through the details on capital deployment, financial, operational performance, sustainability and our guidance for 2024.

Thank you, Talal. Moving on to Slide 7, we will take a look at our 2024 capital deployment. We have been fully committed to deploying capital and investing in our growth. We have always chosen to remain highly disciplined in how and where we deploy capital despite befitting from a strong investment pipeline. On the development front, we transacted AED 5.9 billion of capital, bolstering our land through the acquisition of Al Fahid Island, and we look forward to breaking ground and delivering a unique destination and offering to the market later this year. We also executed on our Dubai expansion through our JV Dubai Holding, in an accelerated timeframe. Internationally, we acquired London Square. I look forward to drive growth through land acquisitions when we have already made some progress in that regard. On the Aldar Investment front, we deployed almost AED 1.9 billion of capital with [ intention of ] AED 1.3 billion committed for the coming years. We expanded our platforms in Dubai with the acquisition of 7 Central and Kent College, further into Ras Al Khaimah with staff accommodation and further into the MENA region through Aldar Estates merger with Eltizam. We also committed first-time capital in private real estate credit and direct investments into logistics and self-storage assets alongside key partners. Looking ahead, vast majority of the deployments will be on income-generating assets across our core segments and new growth [ areas ] of focus. But there will also be some development and development to hold investments as we increasingly leverage our integrated platform to drive returns, diversification and skill while introducing offerings that bridge the existing gaps in the market. Turning to Slide #8 for more detail on Aldar Development. Ahead of diving into the details, just a brief mention on the reassessment of our operating segments and our financial statements going forward, aligned with management reporting London Square and [ Springfield ] would be presented together as an international subsegment replacing Egypt subsidiaries. Moving on, we continue to operate at a significantly elevated level with sustainable scale. Development sales have been doubling every year since 2020, reaching AED 27.9 billion in 2023. Additionally, our development revenue backlog reached an all-time high AED 36.8 billion, providing strong capability on future earnings. Overseas and residence expat buyers played a crucial role in our success, collectively accounting for 66% or AED 16 billion of UAE development sales. This contributed to our successful year UAE sales of AED 24.3 billion and UAE development revenue backlog of AED 29.1 billion, increasing 141% year-on-year. Notably, UAE sales of overseas AED 6.8 billion from AED 1.8 billion in the previous year, underscoring Abu Dhabi's growing appeal as a global investment and lifestyle destination. SODIC maintained its momentum in Egypt with healthy demand for recent launches, which witnessed price appreciation. SODIC sales increased 42% year-on-year in Egyptian pound, driven by strong demand across its key markets. We remain committed to expanding our SODIC platform in Egypt, with SODIC acquiring 2 new land plots and partnering with Nobu for 2 new projects. We also took significant steps toward geographic diversification in 2023. As Talal mentioned, we entered the Dubai [Technical difficulty] markets with successful project launches and acquired London Square, a U.K.-based mixed-use developer, marking our first international expansion beyond the MENA region. These initiatives position us for further growth and value creation in the years to come. On the development platform, our development platform continues to demonstrate strength and potential, and we are confident in our ability to sustain growth -- earnings growth by executing on our plans for enhanced scale. Turning to the Aldar Investment platform starting on Slide #9. Ahead of going into the detail, a brief note on the change to the operating statements as a result of the formation of Aldar Estate. Consequently, Aldar Investments, previous subsegment called Principal Investments has replaced by Aldar Estate would pivot and cloud be represented within other subsegments along outside other unallocated items. Moving on, our ongoing pursuit of diversification and expansion has not only resulted in outstanding performance throughout our portfolio, but has also solidified our position as prominent real estate investor and asset manager in the region. Full year revenue and adjusted EBITDA both rose 40% year-on-year, reaching AED 5.8 billion and AED 2.3 billion, respectively. This was driven by strong operational performance across the business and positive contributions from acquisitions made in '22 and '23. We took substantial strides to expand the platform, which paved way for new growth opportunities and synergies. This strategic approach not only increased our assets under management to AED 37 billion, but also further diversified our portfolio across asset classes and geographies. This year, we ventured into high-growth alternative investments, including private real estate credit and self-storage along with Carlyle, while simultaneously fostering our Aldar Logistic, Aldar Estate and Education businesses. As Talal mentioned, we also recently announced an overall combined AED 6 billion of investment in development to whole pipeline, cost arrange of commercial, retail and hospitality assets as well as logistic assets in Abu Dhabi and Dubai. Once these assets are completed, they will be part of the Aldar Investment Properties portfolio and will bolster long-term capital appreciation. Staying with Aldar Investments on Slide #10. Our income-generating investment portfolio continued to perform exceptionally well, driven the active leasing strategies, increasing rental rates and higher occupancy levels across the portfolio. Within our commercial property segment, we have seen continued strong business for prime Grade A office space from GREs and international corporates. This is evident by the near full occupancy across our ADGM, HQ and international platform with solid pricing activities for upcoming Al Maryah Tower scheduled to open in Q1 2024 with a 65 pre-lease rate. Meanwhile, our retail portfolio continued to benefit from robust consumer confidence, which has supported high occupancy and solid leasing activity. As Talal mentioned earlier, the repositioning of Yas Mall had great success, resulting in 97% occupancy, 12% increase in footfall, 22% rise in tenant sales. We aim to replicate this achievement to the redevelopment of Al Jimi and Al Hamra malls. Aldar Education continues to perform well marked by a 25% year-on-year increase in student enrollment in all operated schools, bringing our total student count to over 38,000 students driven by the acquisition of new schools. This has resulted to further completion of 3 greenfield schools this year, including Yasmina British Academy, Noya British Academy, Cranleigh Bahrain and additional new school in Saadiyat Island in the following academic year. Meanwhile, Aldar Estates has undergone a tremendous transformation over the last year. Driven by the strategic merger with Eltizam Asset Management and a series of key acquisitions, changed our real estate services offering. This culminated in selling the size of the portfolio, firmly establishing the business as the largest integrated property and facility management platform in the region. Turning to Slide number 11 to look at our balance sheet. We remain in a strong position. With AED 2.9 billion of free cash and AED 7.5 billion of committed undrawn facility, we remain active on the treasury front during the year and successfully raised $500 million through an inaugural green Sukuk, which forms part of our $2 billion program aligned with Aldar's Green Finance Framework. Additionally, we secured AED 4.8 billion in debt funding, including AED 2.5 billion in sustainability-linked loans with leading financial institutions, further strengthening Aldar Financial's [indiscernible] while promoting the peer development. This has extended the weighted average of the license debt for the group to 5.1 year with no material debt maturities until 2025. Our robust balance sheet, financial strength and liquidity places Aldar in a strong position to continue pursuing growth agenda and expansion strategy centered on its core UAE market. The next slide provides an update on Aldar's sustainability progress. We remained incredibly active across our sustainability efforts and initiatives during 2023, collaborated with a large number of partners to support our aim and drive sustaining and positive impact across the communities we serve. Our strong commitment to ESG is reflected in industry-leading ratings we achieved on ESG risk ratings of low risk from Sustainalytics with a score of 15.9 and maintained the top spot in the GCC and top quartile globally on the Dow Jones Sustainability Index. We also retained the BBB rating from MSCI, further demonstrating financial strength and responsible governance. From an operational perspective, we continue to upgrade our existing portfolio and have expanded the successful energy retrofit initiative while continuing to certify assets in line with key goals and platform standards. We actively participated at COP28 and leading strategic partnerships to support our 2050 Net Zero plan. To help eliminate landfill and food waste, Ecoloop was launched. It's a joint venture with Tadweer and Polygreen. And the provision of solar energy to our assets, we partnered with Yellow Door Energy, and to manage cooling, we joined forces with Johnson Controls. Participation at COP also saw the launch of the built environment sustainability driven led by our her excellence, Razan Al Mubarak, UN high-level champion for COP28 and supported by Aldar and other UAE's [ top real estate ] firms to drive the industry and their net zero transition. This initiative along -- these initiatives along with our ongoing commitment to innovation and partnerships, solidify our position as a leader in sustainable real estate, creating long-term value for our stakeholders. I would like to conclude by providing you with our 2024 guidance. You will notice we are slightly modifying our guidance metrics in order to provide more visibility and clarity. For Aldar Group, we are targeting between AED 6 billion and AED 6.3 billion in adjusted EBITDA, which equates to an uplift of about 40% from 2023/11. We continue to see positive sentiments in the UAE's core real estate market and remain bullish in sustaining elevated sales run rate. Therefore, we are targeting between AED 29 million and AED 31 billion in group development sales. Accordingly, the development business is targeting an EBITDA of AED 3.9 billion to AED 4.1 billion. For our Project Management Services platform, we are targeting an EBITDA of AED 500 million to AED 550 million. Aldar Investments continues to deliver strong operational performance and we'll pursue further value-accretive acquisitions to drive growth. Consequently, we are guiding AED 2.3 billion to AED 2.5 billion in adjusted EBITDA for 2024. While we remain cognizant of the uncertain global macroeconomic and geopolitical environment, Aldar is well positioned to benefit from the UAE strong fundamentals. With that, I'd like to conclude the presentation and open the floor for questions. Thank you.

[Operator Instructions] Our first question comes from Mohamad Haidar from Arqaam Capital.

Hello, everyone, congrats on the strong results. So we're looking at the capital deployment, AED 9 billion announced in 2023, another AED 6 billion on developed to hold. A big part of this is still not deployed. So what's your guidance on CapEx for the next 3 years is possible per annum, 2024, 2025 and 2026? That's my first. And how will this CapEx be funded given that available cash is AED 2.9 billion, will you be abiding by the existing LTVs for each segment? That's one. 2, what is the target NOI from these investments, especially on the asset national investment? Given that there are many counter parties involved and the ownership is not full, and the tax regime is a bit different. So what NOI should we expect for Aldar shareholders from these investments other than the guidance provided for 2024?

So just to answer your first question on capital deployment, the AED 9 billion is [Technical difficulty] AED 5.7 billion is development and then the other AED 3.1 billion is investments. The largest part of development is the acquisition of Al Fahid and Dubai Holding, all of which are paid through a payment plan over the next 5 years. And then on the investment side, AED 1.9 billion was put up front, while the rest are commitments that are going to be deployed over the next few years as they get called. In terms of CapEx decisions, this is not something that we aim on future projects but on the current project. So you take the AED 6 billion which developed the whole pipeline that we announced, this typically gets developed over a 3- to 4-year period. So you get S curve over that development. In terms of how they will be funded, then they will follow our debt policy, which on the investment side is 40% LTV in line with our financial guardrail. Moving on, on ROI on the international investments. So it depends on the asset class. You look at homebuilding or development, which is London Square, we're looking at least at high-teen equity returns. Look at something such as logistics or credit, then you're looking at something between low to mid-teens in terms of equity returns. And then on the tax side, yes, you're right. Those markets do have taxes. But obviously, there are ways to structure around minimizing the taxes as much as possible, as optimally as possible.

And any updates on the CIC for the UAE? Is it going to be 9% across the business? Or you're looking also for alternatives on that one?

It is 9% on the face of it. We've done a detailed impact assessment, getting ourselves ready [ essentially ] for its implementation. There's been a number of legislations announced by the UAE government, including the transitional tax rules when it comes to development. So just to reiterate, what will happen is our land bank will be assessed as of the end of 2023. And then that fair value will be used in terms of the COGS when those lands are monetized. So we're effectively not going to be paying taxes in the historical fair value gains. They're recognized on those plots and unit sales. There was a legislation on lease, which we're also closely following. We're still waiting for further clarity on that. Otherwise, on the global minimum tax, that hasn't yet been announced by the UAE in terms of timing. So we're still waiting further information.

Our next question comes from Taher Safieddine from JPMorgan.

This is Taher rom JPMorgan. Again, congrats on a solid set of results and an ambitious 2024 guidance. If I can just start from the guidance and just break it down into Aldar Development and Investments. I mean effectively, what you're telling the market is you're going to do another record after a very solid 2023, right, in terms of the sales. So if I can just stop there. Is the sales number, including Al Fahid Island, including also further launches in Dubai? And maybe if you can share how much of that will be in the UAE, that would be very helpful. And I think the second question on Aldar development. If we look at the massive growth in the backlog and how the P&L is transforming on the development, is it fair to assume that now we are moving into a very high gross phase for revenues and EBITDA on the development side, just given the size of the backlog, at least in the UAE, which is AED 29 billion and the average standard of 29 months? I mean, I'm just doing a calculation and we could easily see a revenue run rate north of AED 10 billion per annum. So maybe if you can share some color there on Aldar development KPIs. And then I have another question following on the recurring portfolio, please.

It's Talal. So yes, it's been a record sales year of the size of AED 30 billion. We are looking to maintain that run rate going into 2024. There's been good momentum since the start of year. We have been active in the market and had a couple of launches so far on Yas and Saadiyat. What's interesting is what I mentioned earlier in terms of the profile of the buyers that are different. There's been steady price increase, including places like Nobu on Saadiyat. Yes, it's a boutique development, but prices that have never been hit across the Abu Dhabi market. Yas is the highest price point per square foot that Yas has ever seen. We've been selling in Yas already a number of years. And that's not even a waterfront product, albeit a Parkside luxury living. So new products, new price points, new profile of buyers is part of a calculated diversified strategy on how we are maximizing the value of our destination, playing in each one of those segments, some of which that we do not penetrate in the past. Some of those segments, predominantly in luxury and the ultra-luxury segment, like Nobu with higher margins, obviously, a lower percentage of overall sales compared to the overall portfolio. But as a blend, we'd continue to maintain the guidance in terms of margins, at least on our UAE-based development. And we will continue launching projects in both Yas and Saadiyat. We will plan to bring product on Fahid Island this year as we are progressing with the master plan approval and then the product. So hoping to bring products to Fahid in the second half of this year. In Dubai, as part of the partnership with Dubai Holding, we had 3 sites. We launched Haven, which is predominantly sold out. We still have a number of units on hold that are pending final approval. So there's a small phase last on Haven, but you can consider that to be 80% sold. We'll be launching our second development in the first half of this year as well. So that will contribute towards our sales launches this year as well from the Dubai market. In Ras Al Khaimah, we launched Nikki and Rosso where that is phased release. It's a brand-new and hot market with a lot that's been going on and probably the third most attractive Emirate after Dubai and Abu Dhabi in terms of real estate and tourism performance. We've seen much higher than we had expected sales, but other than the performance of our hospitality assets and the transformation of our retail assets in late market. But back to answer your question on the sales perspective, that will be another contributing factor. And then obviously, we will have the contributions from SODIC in Egypt as well as London Square in the U.K. Overall, the UAE, we expect to remain within that overall AED 30 billion sales number, as I would say, the 70% to 80% of those sales will predominantly be from the UAE, albeit SODIC is phased up in pound significantly over the last few years. But over the next few years, we would see a significant ramp up of London Square as we want to ramp up that platform and extract more value and also enter new segments in the London market that will provide further diligence at future calls. I hope I answered your question when it comes to development. On your run rate, sorry, to answer the question, we announced a week ago or a few days ago, a large award between our own projects and government projects. So a lot of what we have launched with the exception of the last 3 or 4 projects, including Gardenia and Nobu are all now been awarded. So there will be significant ramp-up of development work under progress and IFRS revenues when it comes to the development revenue. So on a steady state, very close to the numbers that you had mentioned in terms of how you would model that going forward. I hope I answered your question on the development side. And I think you have one more.

Yes. This is very clear. Yes, just maybe one more on Aldar Investments. If I look at the adjusted EBITDA in 2023, it's around 2.25%, which is again above your guidance. But I'm just looking at the guidance for 2024, 2.3%, 2.5%. I just want to understand the buildup of this number because I just feel it's a bit more on the conservative side given the deployment that you've done in 2023 in terms of the acquisition. So maybe you can just help us understand, is this more like-for-like? Does it exclude the acquisitions that you've done? I'm assuming the development to hold are not into these numbers, but maybe if you can just also help us understand Aldar investment in terms of EBITDA guidance in 2024.

There's a few things happening, Taher. So on the residential portfolio in [Technical difficulty], we had a corporate tenant terminate, and so there was a one-off termination fee recognized this year, so -- '23, sorry. So '24, you can see the ramp-up of that coming back again. The other thing happening on the retail portfolio, obviously, the transformation of Al Hamra and Al Jimi, which will also start picking up as those projects are completed. And then lastly, the hospitality portfolio, which has done extremely well. We are planning a major transformation repositioning of those assets. So we will have some disruption to income on the hospitality portfolio. Otherwise, it's business as usual, and the portfolio continues to perform extremely well. We have the leasing cycle kicking in on a number of those assets where rates continue to go up. This guidance does include some capital to the deployment. But you'll notice that we took out the number from the guidance itself in terms of equity deployment because it becomes very subjective in terms of when we will deploy that capital. We want to make sure that whenever we put that capital out, we put it into the right asset for the right price. So we don't want to be pressured just to put more out. However, I mean, on the call, I'm very happy to tell you that we are committed to deploy at least AED 45 billion in terms of equity this year and to specifically recurring income assets. When those will happen? I cannot say early in the year or whatnot, but we do have a significant pipeline, various deals across asset classes, across geographies who are quite well advanced. So we are very confident again that we will be able to deploy.

Around your D-hold to, again, the announcement were very clear that the completion of that portfolio, which is at various stages, it's between 25% and 27%. So there's no contribution of the D-hold pipeline that we announced other than, obviously, the repositioning and extracting value from the existing portfolio. But the D-hold income will start to ramp up predominantly in the very late on second half of '25 and then rolling up into '26 and '27 and in different profile based on the different assets that are mentioned in that press release.

And just a follow-up. You said you are committed to how much in terms of deployment in 2024?

AED 4 billion to AED 5 billion, equity [indiscernible].

Okay. So the further deployment -- and the recurring portfolio?

Yes, of income-producing assets. So assets that are currently generating. Yes.

Perfect.

[Operator Instructions] Our next question comes from Steve Bramley from HSBC.

Congratulations on the results, clearly very impressive. I have a couple of questions, if I may. The first, just on your development. The gross margins in the fourth quarter came in, we think, at around about 33%, just looking at the materials that you provided. Last year, fourth quarter was low compared to the previous 3 quarters as well. Can you just give us a little bit of detail, a little bit insight into what that gross margin dropped?

Sorry, Steve, can you -- we couldn't hear you. What did you say? The margin dropped?

All right. Let me pick your phone now. Can you hear me now? Is it any better? Yes. Okay. Sorry about that. So I just started off by saying congratulations on results, but I just got a couple of questions. Firstly, just on your development margins. Looking at the materials that you've provided, we note that your fourth quarter gross profit margin, the property development sales business was down to about 33%, which looking at the yearly run rate on a quarterly basis looks meaningfully lower. Can you just give us a little bit of an insight, a little bit of the detail as to why that's coming in the low 30s?

So I think we had a bit of a delay when it came to the onboard of some projects. So that sometimes adds a little bit of volatility to the quarter. I wouldn't focus too much on the quarter. I would focus on the yearly results. You'll notice that our overall margins are in the high single digits. And usually, that margin generation is driven by land sales, which has a high margin. And our development land bank in Abu Dhabi is basically sitting at a low-cost basis, which is also driving that higher margin. But we have started paying for land now, both in Abu Dhabi, Dubai, and Ras Al-Khaimah, which is why we are guiding for 30% gross profit margin on average over the long term.

Right. Okay. [Technical difficulty] had no alternative investments, which I think also sounds interesting when real estate companies start to talk about deploying capital into alternative investments. And I realized for your business, it's as a percentage quite a small percentage. But having covered U.K. and European self-storage companies and there are some big companies out there in those markets, one of which is tied up with Carlyle. I don't know why you're bothering because it's a highly fragmented market. It's very difficult to deploy capital. IT systems, complicated expenses and mandatory within the self-storage space. So what's your thinking? Are you actually thinking about being a bit more aggressive from an M&A perspective? Because from a ground-up perspective, I think it would take you quite some time to build a meaningful platform. So can you just give us a sense as to why you're going down the route?

So Steve, just to say on the strategy. We did not finance capital allocation. It's not [indiscernible] the way we're doing it like London Square, either by acquiring a platform or doing it with a JV partner who is an expert in the space. On self-storage, we found this interesting because part of the strategy is bringing that know-how. So we want to build similar asset classes here in the UAE. Self-storage is one of them. Obviously, with the strong macroeconomic backlog that we have in the UAE, we see that this is something that can have a lot of potential here. Senior living, for example, with the change in regulations we've seen on the visa front, is also starting to become extremely interesting. I'll go back to what Talal said. Our strategy will always be focused majority on the UAE. But we'd decide that this was designed to go out internationally, allocate some capital there. We have to be honest, we did struggle somewhat deploying the alternative asset classes here as a function of the market itself, but the market is maturing. So we think this strategy, given where the market is there today in Europe will pay off over the long term.

Right. And is that -- is the thinking as well similar for logistics? Because again, pan-European markets are much more mature in terms of yield structures than you've got an idea. So what's your thinking there with logistics store? Have I misunderstood? Is your logistics focused more in the Middle East? Or also looking to deploy capital in pan-European markets?

Steve, it's Talal, I mean when we look the overall logistics sector, so we're looking at the alternative asset classes, it's logistics, it's warehousing, self-storage, purpose-built facilities, there's labs. There's a lot of things that are happening in the space in different markets. We think globally and historically, the way it is in many markets is you're absolutely right. It has been a very, very fragmented market. There's been a lot of focus on it lately with some big purpose-built facilities, but the majority of the market has been very, very either fragmented. And where it's not fragmented, it's non-transactable. So it is not easy, and it does take time [Technical difficulty] started over here in the UAE. I'll come back to the U.K. and how it works. But in the UAE, we started by an acquisition of Abu Dhabi Business Hub. We went into a number of partnerships with key port operators that had a lot of existing clients and needed a development partner to come and build purpose-built facilities for them. We're also sort of more speculatively building warehouse and storage facilities in key areas that we can underwrite as Abu Dhabi and Dubai is growing. So predominantly in that corridor between Abu Dhabi and Dubai that are only an hour away. But in fact, the Abu Dhabi Port, the KEZAD and Jebel Ali Freezone Alipio are only 20 minutes away. We own a lot of land within that corridor that we are focusing on. Obviously, the opportunities over there with a partner in that particular space at Carlyle has the team that's been very active in the ground in terms of fee origination, underwriting, coupled with our expertise in terms of what we can do. Some of those sites where warehouse and logistics have some greenfield opportunities that we can go out and expand, close by as well, which is something that we're actively looking at. But also when we talk to a lot of the clients that we currently have or that we're targeting, this concept of becoming a regional landlord for logistics is what we think quite a compelling one. So when we talk about Saudi and even other emerging markets where some of their currencies may have been under pressure, a lot of these international players do not mind contracting in more stable currencies being dollars or euros. I'm talking about outside Europe and emerging markets as in India, Turkey, you see in Egypt. So this concept of maybe in the past, we saw retailers from the region coming and building up capabilities and becoming regional shopping mall landlords. Not an aspiration that we necessarily have, but we have that sort of aspiration and bottom-up thinking when it comes to the logistics space. And we think we could generate a lot of [indiscernible] given our sort of win-win approach with customers. So it's still an area that we have not deployed as much capital as we would have liked to. It's a sector that we significantly believe in, and we would really like to grow significantly so that it has a proportionate weight and distribution alongside potentially for resi, commercial and retail portfolios. I hope that answers your sort of more at the macro level, but happy to have any follow-on questions on that.

Yes, yes. No, that was very helpful. Just a closing sort of question on that. From a quality management time, what is the incremental impact in order for you to run the sort of what will start off a fairly disparate businesses in alternative assets? Do you have to spend much management time doing this? Or is it relatively little?

Steve, it's a great question. And this has evolved significantly from 2020 we announced our operating model change, which if you look at the impact of that change compared to our peers on the development business, on the investment business, education, estates, more recently with logistics, both domestically and internationally, education business moving into Dubai, into Ras Al-Khaimah, acquiring new schools, repositioning them, that operating model is -- and again, when you talk about management, the way it's driven, so myself, Faisal, our capital allocation functions at the group look at capital allocation across the businesses, whether they're 100% owned like Aldar Development or Education or Hospitality or a majority-owned like Aldar Investments, Properties, if you followed a few years ago, are all fighting for capital, and we want to have that right risk-reward and that right capital allocation on where we believe the market is going. And to some degree, we're also so also a market maker. So other than then in a very disciplined way, allocating capital to the businesses that suit our transformation both agenda, it is then put in the right management team with the right incentives and clear direction on what they need to. So if I take any one of our business, even if I take SODIC in Egypt, and we look at the impact of that business with where we started from a sales perspective when we bought that with EGP 7 billion or EGP 8 billion, EGP 28 billion a few years ago, we came in, we made management changes, we restructured the business, we established the right governance, we sit on the board with their management day to day, even though we control 85% of that listed company on Aldar Logistics, we bought 70% of that platform from the previous owners. We kept them. They have some management capability, brought in our financial engineering to restructure some of the debt over there and to accelerate their growth, optimize their facility management costs to our platform. At London Square, we're going to be doing the same from incentivizing management team through long-term incentives to go out and acquire land that we think is in the right areas because they were capital constrained in the past, putting our disciplined roads that we have over there, but also flexing our muscles and our balance sheet, okay, compared to many other sort of peers in the U.K. and elsewhere where we are able to significantly drive synergies when it comes to even the debt side. So we're really about value creation. This is a big transformation of what Aldar was. But in each of these businesses, this is not something that we want to have. The right competence, incentive management team that work [indiscernible]. And then part what we do at the group as well, and you see it a lot coming across in everything that we say is making sure that they are then revenue and cost synergies and cross-selling across the group in everything that we do, whether we are handing over a unit or launching or doing a sales campaign with a major social global influencer and leveraging all of the brands together. And that's how we think we're able to extract more value out of each one of those, and that applies to every part of our business. So that's where I would say the executive management team were focused, but it is very much having competent chief executives of each one of these sort of half a dozen key business units that are very not only P&L focused, but P&L, customer sustainability, operationally focused to drive value creation in their respective businesses. That's what allowed us to where we are today, and that's what's going to be the key ethos of how we grow sustainably in the future.

Our next question comes from Mohamad Haidar from Arqaam Capital.

Normally, when you acquire an income-generating asset which is full or complete, the target yield used to be 7% to 8%. You enhance it to 6%, 6.5%. Given that you are developing the assets today on the AED 5 billion or AED 6 billion in the current few years, should we expect like a gross yield in the range of 10% to 11% and eventually like gross profit above AED 500 million from these assets?

So I'd say 9% to 10% rather than 11% is what we generally guide across that for the ones that we are developing on a stabilized basis. And then obviously, there's significant -- you see cap rate compression based on the quality of those assets, the quality of the tenants and how fast we can ramp that up and so on, and then really driving yield compression. So what we still think is a significant value creation. This applies to the D-hold, but it also applies to our wide investment portfolio because we still see opportunities for significant further sustainable yield compression given how attractive the market has been from foreign buyers. We still need more institutional buyers, and that will help drive value in that developed D-hold, but also in our existing portfolio, Haidar. So I hope that answers.

Excellent, excellent. And, Talal, given that so this will be developed on existing land, which was residual now it will be developed, will that trigger immediately like a revaluation of assets or gains on the P&L?

Yes, so they [Technical difficulty] to our IP. They go from land [indiscernible] to IP you see and it becomes IP once the asset is operational. So, yes, once the stabilizes, yes, because we fair value our IP, you will see a fair value gain kick in.

One thing I'd like to add connected with some of the things that you guys are saying, the majority of this developed to hold portfolio is on Yas and Saadiyat. At the same time, where we are going through our largest wave of handovers at Yas and I'm soon at Saadiyat, that drives the population as well as the incremental benefit and the attraction of having retail, hospitality and office assets in both Yas and Saadiyat also creates value for our existing [indiscernible] in general, how are existing assets like Yas Mall, our existing hospitality assets on the island that will benefit from the increase in office. Faisal has talked about in the past, we had leisure and then residential. We added the office when we built the media zone. We don't own that, we earn development fees, but that changed the dynamic by adding, I think we've seen a significant increase in [ F&B ]. We're now going to benefit from, for example, the Yas office building or the Saadiyat business park, but that also had incremental impact on Yas Mall or Saadiyat Grove in the future, which is part of the valuation story and I've always talked about being a destination and a lifestyle integrated developer. Same applies to our school.

Excellent. So Talal, this will be reflected in like higher price points for your residential components in these items.

We can see that today. It's whether it's in price points based on the products that we're doing, but also in terms of the attractiveness of what we give the lifestyle offering on Yas Island or on Saadiyat Island today from an amenity perspective, from an infrastructure perspective, from a safety and security perspective. I say this with all humbleness, is second to none globally. You may get a beautiful view or a beautiful weather elsewhere in the world, but it may not be safe. Or it may be safe and you may have significant traffic. Or if you don't have the traffic, you will not have the high quality of assets and activation that you've seen where you have Hamilton Show or [ Mariah Carey ] at the same time, 3 kilometers away from each other. So yes, that's bought people from around the world and coming and wanting to live here. That's why we went into Dubai or Ras Al-Khaimah as our debut. People respect what Aldar brand is. It is customer-centric, okay? So we are a people-focused business, and that's what we strive on and people that are connected to their customers. So when we went into Dubai, and we're not on the most prime and higher strip in Dubai, yet we achieved price points on that corridor in Dubai, on Mohammed bin Zayed Highway and Emirates road that our competitors in that segment have not before, and we hope to do that again in our next 2 launches. So it's the product, but it's also what we bring and that lifestyle offering, even in the more competitive markets.

Our next question comes from the Taher Safieddine from JPMorgan.

So don't mean to hijack the call, but maybe just a follow-up from my side. I guess it's 2 phases of the question. The first one is more of an ask. I mean if I look at the business, how it has transformed over the last couple of years, a huge amount of capital deployment. Is there any possibility that we can get a better disclosure on these different assets? I mean, clearly, you're expanding investment property, education. Estate now is shaping up to be the next big business. There are these international alternative assets and funds and so on and so forth. So would it be possible maybe to get not today, but in the future, further clarity on NOI or EBITDA or any kind of metrics that also helps us or the market to really price and read the acquisitions and capital deployment? Because I think the problem is today, yes, you have a very full plate and you seem to be continuing to push on these opportunities. So maybe if we can get an improved level of disclosure on that, this would be very helpful.

Taher, we will work on something. We always look, we listen and we will respond and see how we can help you understand this area better in terms of the assets and also the sectors and any other comparables around this, thing that will make you extract further value that is reflected in our growth. So happy to do so take it back with the team.

The second one is more of a question on the core business growth driver, you mentioned value extraction. So I just want to maybe get a bit of more details. Is this something that you are really talking because I remember in the previous call, you said you're not super stretched on monetization. You have a different view on that. We know that [ Apollo ], you put a price tag on maybe Aldar Investment Properties, you've deployed capital. But today, when I read recycle noncore and mature assets and also ensure residence for monetization, are you opening the door that potentially we could be looking at some kind of a corporate action within Aldar Investment Properties or Aldar Education or Aldar Estate? Because along the same lines, maybe if I look at the education business today, almost at $200 million EBITDA and you have further runway in terms of opening new schools. Clearly, the private education market and the UAE has shown very strong results. And then you have a listed peer, which is maybe trading at 14x of EBITDA, 26x PE. So your education business maybe could be worth $1 billion or something like that. But within this holding, maybe this is masked because we don't give it maybe the proper airtime. So I just really want to hear your thoughts on that angle, please.

So Taher, look, everything that we do is about value proposition. But what you need to understand is, so yes, there has been an IPO frenzy and a lot of activity that's happening in the market. And everyone has their reasons for what they do. We are in a very privileged position where we don't have to IPO to pay off a shareholder for any particular reason, except -- our #1 thing is how we can extract value for our shareholders. On education as an example, that business is worth $1 billion plus today. The growth rate that they've had over the last 10 years, 5 years, 3 years, 1 year, shows that if I went out today and IPO-ed it on last year's forward multiple, I will be leaving money the table because we know how long it takes to ramp up schools or schools that we bought that need to be revamped and optimized as the portfolio grows. We see significant growth in this. And also it's part of the overall value creation story of what we are doing all around post the completion of the merger of Eltizam with our state business, the property and facility management. We will be realizing some serious cost synergies and then in future revenue synergies. But more importantly, building up capability in what traditionally the market has not really picked up in both Abu Dhabi and Dubai in terms of key active horses when it comes to this space, which is very, very important as the real estate market matures. We have not been very active in the past. We sold a number of assets, including -- I can't name of the residential building, it will come back to me -- And the Western hotel, the golf course and a few other assets, whether the district cooling assets, both ones that we owned and some that we acquired as part of the TDIC transaction in 2018, the residential building was Al Marjan, that at the time, we told a 6.6% cap rate and the market was valuing us at 8% for our blended resi portfolio, but don't have enough of those. Today, we think it's important to monetize some of those assets that we think, you know what, they are there, we have seen the real value creation where it makes sense to sell something entirely, we will. Where it sense to sell something partially, we will look at that. Whether it's M&A and corporate activity at some of those businesses, we're always open. I'm not ruling it out, but we don't have a plan of I want to IPO 2 businesses every year for the sake of doing it. It has to make sense. We are seeing values get closer to where they need to be, but we still see significant upside and extraction of value, so what you said at the start, in a very disciplined way as we have promised you and as this management team has continued to demonstrate for quite a few years now.

We currently have no further questions. So I'd like to hand the call back to the management team for closing remarks. Over to you.

I want to thank you all for dialing in for a while. So good to connect with all of you. I thank you for your time for coverage and commitment as always with Aldar, and we promise you the same level of discipline, governance and transparency as embedded in our DNA. So thank you very much. Stay safe and stay well. See you very soon.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.