Barwa Real Estate Company Q.P.S.C. (BRES) Earnings Call Transcript & Summary

Good day, and welcome to the Barwa Real Estate Quarter 2 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Roy Thomas. Please go ahead, sir.

Hello everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Barwa Real Estate Company's Q2 2021 Financial Results Conference Call. On this call, we have Tamer El-Sayed, Barwa Real Estate Company's Group Chief Financial Officer; Tariq Al Jaber, Investment Management Director; Mohammed [ Ismail ] Al-Emadi, Director for Technical Services; Abdulla Khalfan, Financial Controller; and Mohamad Daakour, Budget and Planning Controller. We will conduct this conference call with management first reviewing the company's results followed by a Q&A. I will turn the call over now to Tamer El-Sayed. Go ahead, Tamer.

Thank you so much. [Foreign Language]. Welcome, everybody. On behalf of myself and my colleagues, we wish you all a very warm welcome to Barwa Real Estate First Half 2021 Post Results Conference Call. I am Tamer El-Sayed, the Group Chief Financial Officer of Barwa Real Estate. At the beginning, I would like to thank QNB Financial Services to host this call on behalf of Barwa Real Estate. Please note that except for the historical facts, statements made by the management may contain a projection or other forward-looking statements regarding future events or future financial performance of Barwa Real Estate. These forward-looking statements are not guarantees or promises of future performance. Barwa undertakes no obligation to update or revise any forward-looking statement contained herein, whether as a result of new information, future events or otherwise. Barwa Real Estate declared the June 30, 2021 financial statement on July 27, 2021. And the investor presentation is available on Qatar Stock Exchange website as well as on Barwa Real Estate website in the Investor Relations section. Please let me start by giving you a brief introduction on Barwa Real Estate. We are one of the leading real estate developers in Qatar with expertise in developing, leasing and managing real estate assets. In total, we have about 3.6 million square meters built up area under operation, which consists of residential project, labor rooms, warehouses, retail showrooms and offices. As of June 30, 2021, we have operating units of 8,148 residential units and 37,340 labor rooms in addition to commercial offices, hospitality and other operating portfolio components, which are detailed in our Investor Relations presentation. Approximately 86% of our total operating revenue and about 98% of our operating profits are generated through these assets. Furthermore, Barwa has a land bank, approximately 7.8 million square meters, of which 5.4 million square meter is within Qatar. Of this, we own approximately 4.4 million square meters, while the rest is leased. Looking forward, Barwa plans to selectively monetize this land bank by selling or developing properties based on the prevailing market demand. Now I would like to highlight some key points on the performance of the company for the first half 2021. To begin with, our total operating profit -- operating revenue stood at QAR 1,038 million as against QAR 780 million for the comparative period. The net rental income has witnessed an increase with the percentage of 34% compared to the first half 2020. Our total operating profit came in at QAR 683 million against QAR 522 million in the first half 2020. Our profit after tax for the period stood at QAR 537 million as against QAR 588 million in the first half 2020. On the balance sheet side, our financial position remains strong with net debt balance of QAR 10.9 billion and the net debt-to-equity at 0.5. We have adequate liquidity and balance sheet strength to pursue our growth agenda. With this, we can start with the question-and-answer section. Again, thank you for joining the call, and we will be happy to answer any questions that you may have. I now hand over to the moderator at QNB Financial Services to file any questions. Thank you.

[Operator Instructions] We can now take our first question from Zohaib Pervez from Al Rayan Investment.

I've got 3 questions. Firstly, we can see that your operating cost and G&A has gone up. And in the distribution of this -- in the financials, you could say that it's primarily because of the maintenance cost. Could you give us an idea what is leading this growth in the maintenance cost? That's my first question. The second question is how much more debt would be required to complete the projects that are ongoing? And my third question is, there is an increase in the receivable provisioning. Could you give us a sense of what is leading to this increase?

Thanks for your questions. I will start with the first question about the increase in the operating expense. The increase in the operating expense, for sure, it comes with -- to cover the increase in the revenues. And we have 2 line of operating revenue. We have rental income, and we have consulting and other services income. For the rental income, it covers -- the OpEx is covering different things. It covers our maintenance and for the project. It covers -- sometimes we are providing like laundry service. We are providing catering. So the cost or the operating cost will cover also the cost for these services, for the laundry and for the catering. That's why you will find there is increase in the OpEx. However, for sure, the increase in the revenue side was much higher, which means that the efficiency of our cost is much better compared to the last year. For the G&A, I see there is no increase in the G&A. Actually, we have a saving in the G&A. So I hope this covers the first question. The second question about the debt. Yes, please?

Sorry, the G&A, I meant, if you take out the provisioning that was done last year and then there was like a QAR 36 million general provision. If you take that out, then it's kind of an increase.

Yes. No. If you remove -- it's in the provision. You'll find that was like QAR 97 million last year and QAR 93 million this year. Still we are in the same range.

Okay. No worries. Okay.

Okay. For the second question about the expectation for the loan balance. Now all the loans we are getting now is to cover our new project. And now we have -- in progress we have 2 Wakra projects. We have Mawater Phase 3 -- Madinat Al Mawater Phase 3, and we have School Package I, the one under the PPP. And we have another one project which now is almost done, and we are completing. So our expectation for the loan now is to cover the need for to complete those projects. And we are talking about -- for now, we are talking about QAR 4 billion remaining to complete -- between QAR 3.5 billion to QAR 4 billion to complete this project. Okay.

The line just dropped in the middle. You said you need QAR 2.3 million to QAR 4 million of more debt to cover, correct? Sorry....

Between QAR 3 billion to QAR 4 billion to cover the completion of the projects under construction. Other than that, we are managing our debt portfolio. Yes, 2 Wakra, Mawater -- Madinat Al Mawater Phase 3 and School Package I. Other than that, the current debt portfolio -- yes, the current debt portfolio we are managing, and we are settling part of it. As you see from our cash flow, we already settled about QAR 700 million from our original debt portfolio. We are doing some refinance for the part of it, to manage our cash flow in a better -- in the best way we can. So we are -- yes, we are getting debt to cover the new projects. But in the same time, we are settling part of the current debt, and we do refinancing for the other part. Okay?

Okay.

Yes. So for the third question, sorry, I forgot it.

The third question...

Yes. So the increase in the provision for doubtful debts, right? This -- we have our policy to cover the provision for the doubtful debt. And this -- for the impairment and for the doubtful debts. This cover the impairment in investments and the doubtful debt from the receivables. So we are implementing our provision policy. For sure, this may be changed in the next quarter. And maybe we will collect some of the due payments or the due receivables, and this will be reflected in the next quarter. So we do this assessment on a quarterly basis to cover the impairment of our investments and also the collectability of our accounts receivable. And based on that, we record our provisions. So sometimes it may like -- it comes from like a time difference. Maybe on end of June, there is some receivables, not collected as per the policy we have to provide for. And maybe we will collect this later on July or in August, and we will reflect this or reverse to this provision later on.

Okay. So it's safe to say that much of this provisioning is because of the timing issue and not because there is -- some receivables have gone -- actually gone bad?

No. It's a provision. It's about a doubtful debt. But if you have some of these receivable already done or whatever, we will write it off, not providing a provision. So it's all about implementing our policy. And then our policy, we try to keep it conservative as much as we can.

[Operator Instructions] We can now take the next question from Zohaib Pervez from Al Rayan Investment.

I guess there's no other questions. So I've got 2 more questions, if I may. What -- there's a decline in the other income. Could you give us some sense as what led to this decline? Last year, it seems that was a very big number. So it would be better if you could tell us what happened last year in second quarter, sir?

Only one question or two questions?

Yes. So the other question is you have properties for sale -- available for sale in your balance sheet, about QAR 11,053 million, I think. Is this only related to the Dara A project, which was recently, I mean, not so long ago handed over? Or is this like across a number of projects?

Thanks for your questions. For the first question about the other income, other income, last year, we had like provisions or we have accruals for some liabilities. And for -- in the last year, there was no need for that. So we did recognize it in the second quarter. That's why we have it as an other income last year. And for sure, by nature, other income is not a recurring item. So maybe 1 year, you will find it as -- you will find some amounts. Maybe the next year, it will be zero. So it's not a recurring line by its nature. So that's why we have this decrease in the current year. For the other one -- the other question is the trading property available for sale, yes, you are right. It's about Dara A.

Hello?

Yes. You got the answer?

Sorry, the line dropped. Sorry. If you could...

Yes. The second question about the trading properties available for sale. Yes, it covers Dara A project, the unsold units.

We can now take our next question from Meet Bhatt from Axience.

This is Meet Bhatt. So my question is with regards to the value of the land bank. If I can correct -- if I can recollect, in Q1 '21 call, you mentioned that the land bank is what somewhere around $9 billion. Is that value unchanged? Or is there -- are there any revisions?

Thanks for your question. There is no significant changes between the year-end and the quarter 1 and the quarter 2. There is no significant change in the land value.

[Operator Instructions] It appears there are no further questions at this time. I'd like to now pass the call back over to today's host for any additional or closing remarks.

Yes. If there are no further questions, we would like to thank Barwa Real Estate Company's management for the results update and look forward to speaking to you all for the next quarter results. Thank you.

Thank you so much and have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.