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

Good day, and welcome to the Barwa Real Estate Q1 2022 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.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Barwa Real Estate Company's First Quarter 2022 Financial Results Conference Call. On this call, from Barwa Real Estate, we have Tamer El-Sayed, the group's Chief Financial Officer; Tariq Al Jaber, the Investment Management Director; Dr. [ Abdulla Al Kaabi ], the Director for Development; Abdulla Khalfan, the Financial Controller; and Mohamad Daakour, the Budget & 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. I wish you all a very warm welcome to Barwa Real Estate quarter 1, 2022 post results conference call. I'm Tamer El-Sayed, the group's Chief Financial Officer. 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 quarter 1, 2022 financial statement on 24th of April 2022, and the investor presentation is available on Qatar Stock Exchange website as well as the Barwa Real Estate website in the Investor Relations section. Please let me start by giving you a brief introduction about 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, retention rooms and offices. As of 31st March 2022, we have operating units of 7,289 residential units and 38,000 labor rooms in addition to commercial offices, hospitality and other operating portfolio components, which are detailed in our Investor Relations presentation. Approximately 88% of our total operating revenue and about 97% 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 meters were in 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 quarter 2022. To begin with, our total operating revenue stood at QAR 582 million as against QAR 540 million for Q1 2021. Our total operating profit came in at QAR 415 million against QAR 362 million in Q1 2021. Our profit after tax for the Q1 2022 stood at QAR 235 million as against QAR 192 million in Q1 2021. On the balance sheet side, our financial position remains strong with net debt balance of QAR 13.9 billion and net debt to equity at 0.67. We have adequate liquidity and balance sheet strength to pursue our growth agenda. During the first quarter, we have announced the sales of our shares in Imtiaz Group for the value of QAR 375 million. Also, we are working on refinancing parts of our facilities to enhance our liquidity ratios and the cash flow projections. With this, we can start the questions-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 now take the first question from Danah AlOthman from NBK Capital.

I have a couple of questions mainly regarding rental income. So do you provide any segmental breakdown of the rental income portion? Second question is, I see there's an increase in rental income. Can we know where is this coming from exactly? There was also an increase in investment properties. So were these new investment properties leased at higher rates or previous rental properties have re-rated higher? And have the yields gone up on previous investment properties? Also can we have a clearer picture on the agreements between PWA to develop its public schools by 2022? These are mainly the questions.

First question regarding the segment. In fact, we don't provide the segmentation because most of our projects are mixed use, but the main part of our project are residential. So from the rental income, we see the major portion of the revenues is coming from the residential rental income. As for your second question, you were asking about the increase in rental income. In fact, we don't have increase. In Q1 2021, we had reported at QAR 442 million and we are keeping the same figures in 2022.

Regarding the third question, for the schools, PWA partnership [indiscernible], so we have already signed. The financial close of the project is already done. So for the school package, our financial close has already been done for the project and the project is due for completion in the next few months. And once the project is getting completed, we will have our monthly income generated from Ashgal. The PPP agreement is signed, the financial close, is done and the project is due for completion in 2 months' time. So this is the latest update from the project.

And was this -- sorry, just 2 follow-up questions. So for the increase in rental income, this was basically like an overall increase since 2020 versus 2021, and the current rental income. So this is basically for the rental income. So QAR 442 million was in 2021, which is the same rental income now. This was increased versus previous rental income? And the second one is, will these 8 schools be leased back to the government? And do you have lease back rates?

Yes. Regarding first for the rental income, the increase from 2020 until 2022 is mainly coming from a couple of projects which started operation in 2020 and late 2019, like the affordable house project, Mukaynis project, and Barwa warehouses and Al Khor Extension That's for the rental income. Of course, the PWA...

Yes, so this agreement is under the PPP agreement. So this will be fully leased to the government. We are not taking any kind of market risk. And we will be generating a guaranteed monthly return from Ashgal.

We will now take the next question from [indiscernible] from Al Rayan Investment.

This is Zohaib from Al Rayan Investment. I have a question on your consultancy revenue stream. This has declined about like 20% in the quarter. Could you give us some sense of what is leading to this decline? As I understand, this is coming from -- this is mostly from your facility management business. That's my first question. Secondly, could you give us an update on the 2 projects that were being developed in Al Wakra. Where we stand on the development front?

For the first question regarding the decrease in consultancy revenue. In fact, the consultancy revenue is generated from consultancy facility management, the project management, and other services like hotel operations. In December 2021, our contract for operating 1 hotel in Medina finished, expired. So we don't have another generating any revenue anymore from the hotel operation in that hotel. In addition, we have some projects under project management already finished and we had demobilization done in Q1. So that's why you have this decrease in service revenue. As for the 2 projects, Al Wakra projects, our colleague Dr. Abdulla will give you more details.

Regarding the Madinatna project and Barahat Al Janoub project, both the projects are in a good shape. And both of them have an overall percentage of 90%. And we started already furnish part of the project, and we are in a good shape with 2 projects.

So these projects will be completed in the second quarter? I think April was the deadline, right?

[Foreign Language].

Okay. And my last question is on the package, the school package. So as per what you have in the presentation, they are being completed in the second quarter, so would it be safe to assume that the rental income for all these projects should start from the third quarter?

Yes, so from July onwards, we have our revenue coming from Ashgal. So you can assume, from third quarter that our revenue will be coming.

Could you give us some sense of how much is the revenue from these 8 schools?

It is around QAR 7 million per month. Not per -- this is for all the 8 schools together, not per school. It is the entire package, QAR 7 million around.

[Operator Instructions] We'll now take the next question from [ Mohamed Adel ] from AFI. [Operator Instructions] We will now take the next question from Lee Beswick from QNB.

Apologies if this has been asked already. Could you just say how much the new projects which are due to be completed this month or have been completed this month, Barahat Al Janoub and Madinatna, how much they're going to contribute to revenue going forward?

We already announced 1 of the 2 projects already signed the 6-month lease agreement with the government 2022. Now we are in the final stage of the negotiation for the second project, which is the Barahat Al Janoub. So [Foreign Language] once the deal is concluded, for sure, it will be announced.

[Operator Instructions] As there are no further questions, I would like to hand the call back over to your host 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 for answering all the queries and look forward to speaking to you all for the next 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.