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

Good day, and welcome to the Barwa Real Estate Q3 2021 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Roy Thomas. Please go ahead.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Barwa Real Estate Company's Third Quarter 2021 Financial Results Conference Call. On this call, we have from Barwa Real Estate Company, Tamer El-Sayed, Group Financial Officer, Chief Financial Officer; Tariq Al Jaber, the Investment Management Director; Mohamed Esmail Al Emadi, Director for Technical Services; Abdulla Khalfan, the 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 Q&A. I will turn the call now over to Tamer El-Sayed. Go ahead, Tamer.

Thank you. [Foreign Language]. Welcome, everybody. On behalf of myself and my colleagues, we wish you all a very warm welcome to Barwa Real Estate Q3 2021 Post Results Conference Call. I'm 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 statements contained herein, whether as a result of new information, future events or otherwise. Barwa Real Estate declared the 30 September 2021 financial statements on 18th of October 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 projects, labor rooms, warehouses, retail showrooms and offices. As of 30 September 2021, we have operating units of 7,289 residential units and the 37,900 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 revenue and about 98% of our operating profits are generated through these assets. Furthermore, Barwa has a land bank, approximately 5.5 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 Q3 2021. To begin with, our total operating revenue stood at QAR 1,612 million as against QAR 1,191 million for the comparative period. The net rental income has witnessed an increase with the percentage of 31% compared to the Q3 2020. Our total operating profit came in at QAR 1,020 million against QAR 797 million in Q3 2020. Our profit after tax for the period stood at QAR 742 million as against QAR 727 million in Q3 2020. On the balance sheet side, our financial position remains strong with the net debt balance of QAR 11.1 billion and net debt-to-equity at 0.53. We have adequate liquidity and balance sheet strength to pursue our growth agenda. With this, we can start the question-and-answer session. 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 field any questions. Thank you.

[Operator Instructions] We'll go to our first question now from [ Mohammed Adil ] from [ Al Faisal ] Investments.

So I want to ask about the rental operation expenses. Obviously, the last couple of quarters has been trending upward compared to the last year and even sequential, on Q-over-Q, it's trending upward. What is the reason for that?

Thank you for your question. About the rental operating expense, part of our rental activities are to lease labor rooms, including catering and laundry services. The cost of such service is -- as a percentage is higher than the normal leasing activities. That's why we have the [ change ] in Q2 and Q3 because the increase in the rental income came mainly from providing such service to our tenants for the laundry and catering, for the labor rooms. That's why you have the increase in the operating expense compared to the increase in the rental income for the labor rooms, including the catering and laundry services. I hope this answered your question.

Our next question now from [indiscernible] from Al Rayan Investments.

This is Zohaib Pervez from Al Rayan Investment. I've got -- in your presentation, you've mentioned that the number of residential units you currently have is about 7,200, whereas in the last second quarter, the residential units were 8,100. So what -- why -- I mean, have you sold some project? Or what's the difference? That's my first question. The second question is, you have booked the QAR 70 million in profit on sale of property and project. Is this related in the third quarter only? Is this related to the sale of the land in Saudi Arabia?

Thank you for your questions. For the question number one, the change is one of our projects, which -- in Al Khor area. The purpose of that project has been changed from residential to labor. That's why it has been decreased from the number of residential units and increased the number of labor rooms. So it's only a change in the purpose of the lease. This is the change. For the second question about the QAR 70 million, it includes many things, mainly the sale of Saudi land, which we announced, it gave us a profit of QAR 46 million. And in addition to the recognition of our development margin for the School Package 1. As per the accounting treatment, we have to recognize the development margin for that project. So that gave us the QAR 70 million for Q2.

I'll just ask 1 more question and then I'll go back into the queue. Could you give us an update on where do you stand with the current project, the 2 projects in Al Khor and this education project. You also have Madinat Al Mawater. So if you could give us an update where is it? Are you on time? Is there something [indiscernible]?

My name is Mohammad Esmail Al-Emadi. I am the Technical Director. Regarding our projects now for the schools, we are on -- according to the progress, we are growing at the same achievement or the goals what we have put in the -- for our targets. We will deliver it by beginning -- before the beginning of the education year for 2022. So it will done by September 2022. So everything is going well regarding these ones. Now regarding the [ Motel ] cities, we are now in Part 3 (sic) [ Phase 3 ] of [ Motel ] cities. There's extensions. There is a demand. Now according to the demand which we'll see that there will be a showroom. There, as well, will be like service places for the cars like oil changing and all these things. So we are modifying the design to go according to the requirement of the market. So this is what's happening as updates for the projects.

And the projects that you're developing in Al Wakra?

Also Al Wakra is working according to the progress that we will deliver it on that time, and there is a communication with the government regarding that -- the achievements, how it's [indiscernible] working. And every -- all the participants or all the stakeholders are happy with the progress, and we are going according to the plan.

[Operator Instructions] We now have a follow-up question from [indiscernible].

There's nobody else asking questions, so I'll just ask. You -- how much from now to the completion of this Al Wakra project, the school project, Madinat Al Mawater, how much more CapEx is required for these projects? And this CapEx, would it be debt financed? Or you will like put in some equity into it also?

Thank you for your question. I will answer the second half of the question first. Both projects will be totally financed through debt. This is number one. As my colleague has mentioned, we are working as planned. And it's already -- it was announced before that -- the construction contract for the 2 projects, it's about QAR 5.5 billion. The total developable cost, it's about QAR 6 billion. We spent till now around QAR 3 billion. So we are talking about still remaining from QAR 2.5 billion to QAR 3 billion remaining spending.

Okay. On -- a separate question is, could you give us some idea on how -- what are the occupancy in your residential unit, labor rooms, warehousing?

This is Tariq Al Jaber from Asset Management. So currently, in the residential sector, we are averaging an occupancy across this sector between 95% and 99%. In the labor accommodation sector, we're averaging between 85% and 100% across our assets in this sector.

85% to 100% is including phase -- is like including all the phases of the Salwa project, right?

Only the operational zones.

So how -- which ones are the operational ones, the first and second?

Where is that? In Salwa?

Yes.

Yes.

The operational ones.

So Phase 1 and Phase 2 is operational and Phase 3 is still not operational, correct?

All are operational in Salwa.

[Operator Instructions] We have a question now from [ Mohamed Adil ] from [indiscernible] Investments.

Can you give us an outlook on the rental income for next year? I know that you have -- the government is committed to the local project. I'm not sure if there's another deals or no, but can you give us an outlook for the rental income? And how do you see the rental market through '22, especially with the World Cup? And also, are you -- the rental rate, do you expect [indiscernible] to see how much will be the...

Sorry -- [ Mohammad ], sorry, I will interrupt you because your voice is not clear to us. So most of your question, we didn't get it clear. Please, can you try to make it...

Can you hear me better, Esmail? Hello?

Yes, much better now.

So I'm asking about the rental income outlook as a number. What you -- as the growth -- what you are expecting for 2022? And also overall in the real estate market, what do you expect the rental rates? When -- will these increase in next year, especially [ with ] the World Cup?

Pardon me for the interruption, this is the operator. Your line is still muted.

So in general terms, we're expecting the rental rates to remain as they are. We have more projects also coming online from Al Wakra and Barahat Al Janoub and Madinatna. So these should continue to support the current income flows. I'm not sure I got the entire question, again. Your voice was a bit not clear. So I don't know if I've answered all your questions.

Yes, I was asking about -- like a [ new ] rental income, what growth you are expecting for the next year? So you have 2 projects -- are expected to be completed next year. So how much of this will add for the top line and in rental income? And also for Qatar as a whole, what you are expecting for the rental rate in the market as a whole?

So as contribution to the top line, we are expecting a high occupancy rate, so that will contribute in a good -- by a good margin to the top line. We are already in negotiation with certain parties to have a pre-engagement or a pre-signed leases so that we could, at least, at launch have 50 -- or above 50% of the project already leased. Any other questions?

Yes and -- okay. So is this agreement very soon -- I mean is it closed. So how much would we -- I mean, as a [ percentage to ] growth for the top line, how much do we expect from this?

It's still under negotiations. We cannot give a definitive number.

Thank you. As we have no further questions at this time. I'd now like to hand the presentation back over to your speakers today for any additional or closing remarks.

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 final quarter results. Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.