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

Good day, and welcome to the Barwa Real Estate Q2 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tamer Elsayed, Group Financial Officer.

Thank you so much. Welcome, everybody. I wish you all a very warm welcome to Barwa Real Estate's Half Year 2022 Post Results Conference Call. I'm Tamer Elsayed, 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 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 half year 2022 financial statements on 9 of August, 2022. 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 June 30, 2022, we have operating units of 7,289 residential units and there are around 58,000 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 96% 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 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 half year 2022. To begin with, our total operating revenues stood at QAR 932 million as against QAR 1.38 billion for the half year 2021. Our total operating profit came in at QAR 601 million against QAR 683 million in the half year 2021. Our profit after-tax for the half year 2022 stood at QAR 545 million as against QAR 537 million in the half year 2021. On the balance sheet side, our financial position remains strong with net debt balance of QAR 15 billion and net debt to equity at 0.72. We have adequate liquidity and balance sheet strength to pursue our growth agenda. Also, we keep working or refinancing part of our facilities to enhance our liquidity ratios and the cash follow projections. 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 will now take our first question from Lee Beswick from QNB.

Could you just -- on page, I think it's 26 of the presentation. You talked about your deliveries, particularly sort of 1, 4 and 5. And I noticed that they've been delayed because they were due to come I think a couple of months ago, and you've put now August and October. Are they definitely going to be ready in August -- August and October? Obviously, I'd say that with obviously in mind that the World Cup is obviously zero building during the World Cup, so you have to finish it now. So is it going to be ready? All 3 of these projects, 4 of these projects are going to be ready?

I think you are referring to 2 projects in Al Wakra, which are dedicated to the 2022 World Cup and we have also the schools. For the -- in general, yes, there is a little delay in the 3 projects due to the market conditions and to what's happening around the world, which affected the chain of raw materials and such things. Now we are targeting for the -- 2 Wakra projects we are targeting end of August as a completion date. The good thing that still we have time before the World Cup, which will start on third -- last week of November. So yes, Inshallah, we will meet the deadline. For the schools, we already handed over 5 out of 8 schools. The other 3, Inshallah, expected to be handed over in the fourth quarter this year.

Next up, we have Abdullah Amin from QNB.

Can you just explain why the rental income was down year-on-year for the first half?

Regarding the rental income, 2021, we had the project, Mukaynis Compound. It was almost fully leased to Qatar Discovery for the quarantine. And now after recession in Qatar is much better, so we start to receive gradually the block from Qatar Discovery. And we're doing the -- we're just leasing them and we'll be introducing them to the market gradually.

I have 2 more questions. One is regarding the impairment. Where is this impairment coming from? If I go to footnote 19 which refers to footnote 6 and then footnote 6 refers to footnote 18. Is there impairment between the group holdings or this is something with Ashghal?

Regarding the impairment, it's mainly coming from one bulk deal where we have some receivables, one tenant and one specific project. Due to our internal policy, we took the doubtful impairment. And this will be -- once the collection starts, we will be doing the reversal of impairment.

One last question. Regarding the financial expenses, they are up 35% year-on-year. Given the high interest rate environment and expected interest rate increases, what's the strategy going forward? And how do you foresee reducing it going forward so that you can pay more dividends or have more free cash flows?

We are now in negotiation with all our lenders or our banks to revisit the commercial terms of the facilities trying to enhance the finance cost rate, and for sure, to enhance the repayment schedule. So Inshallah, by this -- the half year -- the second half year of 2022, by the end of this half, we will finalize all the agreements or the deals with the banks, Inshallah.

Yes, but with interest rates high these days and if it's expected to go further, how do you foresee that the bank will reduce rates for you given that your loans have increased from QAR 14 billion to QAR 16 billion as well?

The good thing about Barwa, our good credit record with all the banks, this will help us to renegotiate the terms with the banks. And this normally happens in such situations because the rate is going up. And for sure, it doesn't mean that I have to pay finance rate or finance cost rate on a 6% or a 5.5%. Normally, in such situation, we negotiate with the banks. And normally, they are accepting that thing considering the good record with the banks. And for sure, we are trying our best. But Inshallah, Inshallah, we will have good terms with the banks and we can finish all the deals before the end. And we got -- we think now we got good positive feedbacks here. I mean, we got positive feedback. But for sure, subject to finalization with the banks.

We appreciate it. I think Barwa has a very good standing in the financial markets. But is there a strategy to reduce the debt because from QAR 14 billion to QAR 16 billion, is there a strategy to reduce debt so that you don't have higher finance charges when interest rates go up? Are you planning something on that side?

If you have a look on our cash flow, you will see that we keep always paying from our facilities. However, for the last 2 years, there was a big or a significant increase in our facilities balance because of Al Wakra project. The 2 projects we are talking about, almost QAR 6 billion. Before Al Wakra, our balance of facilities was always around QAR 8 billion to QAR 10 billion. So now we increased the balance in the last 2 years just because of Al Wakra. But at the same time, we are keep paying all the facilities. And you will see in the cash flow, we already settled around QAR 700 million in the first half year of 2022. So we keep working on repay of our facilities, but at the same time, we keep looking into the settlement or the repayment schedule to match with our cash flow projections. Yes, Inshallah, we target to decrease the balance of QAR 16 billion around -- within the next 3 years. Inshallah, it will go to smaller with a significant decrease in the loan balance.