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

[Foreign Language]

We have another question from [ Ankit Bansal from South Capital ].

I have a couple of questions on the financials and the business as well. I'll start with the P&L. So I was looking at the finance cost and comparing the finance cost for first quarter of '23 with second quarter of '23. The finance expenses in the cash flow statement and the P&L, they are almost similar for the first quarter of '23. However, for the second quarter, the cash flow number is 345. And in the P&L, it's just 171. When I go in the detailed financials description, I guess this is coming from capitalization of the finance costs. So what I would like to know is that is the finance -- is this capitalization of finance cost entirely coming from second quarter? And to which project or land bank does this relate to? Like why is the number so big for second quarter? It's QAR 156 million of capitalized finance costs. That's my first question.

Yes. Thank you for your question. Yes, you are right. The decrease in finance cost in Q2 compared to Q1 related to capitalization of finance cost, this happened because after we received back our 2 projects in Wakra from the Supreme Committee, there was some [indiscernible] work, some amendments happened to the project. So we were entitled to recapitalize, again, on the same project. That's why we started to capitalize on that Q2. And this work should be done by -- already done in Q2. So we would not expect further capitalization in Q3 on the same project. So it was a temporary capitalization.

So it's only for the second quarter?

Sorry?

And how do you -- this is only for the second quarter, right? This was not in first quarter...

Yes, yes, yes. It was already -- the related work completed in the second quarter, and we don't expect any further capitalization in Q3.

And how do you estimate this number? I mean this number is quite big. So your annual interest expenses are like 7% of the -- your interest cost is roughly 7%. So how do you [ explain this ]?

Yes. We are talking about 2 mega projects. We are talking about in general -- in total more than QAR 6 billion as the 2 projects. So it's -- we do our calculation and the percentage based on our weighted average of borrowing rate and the total part to be subject to the work. So we did our calculations, and we calculated our capitalization for that.

Okay. Okay. And secondly, when I go to the receivables, there was additional allowance for expected credit loss and receivables of QAR 108 million for the first half of '23. Can you elaborate where this is coming from? Which clients are these? And do we expect this to keep on coming in the coming quarters?

This receivable -- this is a provision related to -- mainly to 2 [ anchor tenants ] we had in Q1 -- mainly from Q1 and Q2. And now we are in the settlement negotiations with both of them. And for sure, we already -- we have our legal cases and all these things already done. And now we are in the settlement phase with them. [Foreign Language] we are hoping before the year-end to come to a conclusion or to come into a settlement with both of them.

Okay. And from a run rate perspective, what is the run rate quarterly like for coming quarters? Is it fair to say QAR 50 million we can expect [indiscernible] every quarter [indiscernible]?

Yes, as you know, it's very hard to budget for an impairment because, again, as we mentioned, we are in the settlement and maybe they will start paying from next month so we will not have such amount. But it's very hard to put a budget for -- or an estimate for provision. So I don't actually to give you any number not based on [ a real study ].

No problem. And I wanted to talk about the fair valuation gain on investment properties. So this number was around QAR 300 million -- QAR 311 million for the first half. Can you give a sense of which major projects is this coming from? Like the bulk of it is coming from which projects?

It's mainly from the 2 Wakra projects. These projects are subject -- most of that period for the last year was under development. And we started the operation, and we already concluded the construction contract this year. So mainly, the impact -- positive impact came from the 2 Wakra projects.

Right. So these are built for QAR 6 billion, including the land cost, and then there are capitalized expenses and [indiscernible].

Yes, you are right.

Okay. Okay. All right. And a final question on the project. So yes, so these 2 Wakra projects, they are -- they were handed over back to you in March, I guess, so March or April. So what's been the leasing progress since then? And also, if you can talk about leasing progress at Mukaynis worker compound because I believe that project is also 50% occupied currently. So if you can give some idea about interest from clients [indiscernible] expected time line to get these leased out?

Yes. So the Madinatna occupancy rate is currently standing around 20% in the residential side. And in terms of the shops, it's around 86% leased. Barahat Al Janoub, which is the Argentine village, is around 10% on the residential side, and 90% of the shops are -- have been leased. The current occupancy in -- sorry?

Yes, so Madinatna, you said 20% on the residential. So that's 1,400 units, so [ equal to about ] 7,000. Okay. Yes. And you were talking about Mukaynis.

Mukaynis, the residential is around 40%. The shops are 100% leased.

Okay. And any indications as to how long it might take to get this leased out or interest on clients? I mean what's your expectation?

No, it's slowly building up. I mean we are actively marketing in the market. But again, it's a summer period. So we don't anticipate a significant pickup until probably the fourth quarter of this year. So slowly, gradually, it is ramping up. Hopefully, we can close the year on a much higher note.

Sure. And if you can talk about the macro situation with the worker accommodation dilemma. So last year, there was a lot of construction activity happening in the country for the past few years. A lot of those projects [ are already built. They are ready ]. So is this the year when the number of construction workers in the country or, in general, local workers, the population of workers is going down compared to last year? And where do you think the future demand will come from? Will it be from the north gas expansion project? Or what could be the single source of demand for blue collar workers coming to the country who would need this accommodation? Just trying to understand...

Yes. I mean you rightfully pointed to the project, the North Field expansion project. Apart from that, I think the government is also continually -- continuing and developing the main infrastructure projects. The Qatar rail network is still also work in progress. So we don't really see a significant slowdown that has been talked about at length in the media. But the numbers also on -- from our side, the numbers are not that bad in terms of occupancy. We're not seeing really a sharp drop or a drop in the occupancy.

Sure. Sure. And on the north gas field, I mean, you have some projects, and you also have land on the northern side of the country. So would that [indiscernible]?

Mainly in Al Khor, and we are the main -- we cater to QatarEnergy's needs in terms of occupancy, providing residential accommodation for their workers -- not workers, but this is their staff working in the north.

Right. So...

[indiscernible] Yes.

But would QatarEnergy be able to use the space in Barahat Al Janoub, which is in the south? Or is that a location which is not right for them and they would go for, I mean, [indiscernible] in the north?

This is not necessarily to cater to QatarEnergy, and it's actually to the wide market.

Understood...

And we are in talks as well with the anchor tenants to take up multiple buildings in both projects.

You mean Mukaynis and Barahat Al Janoub?

No, no. Barahat Al Janoub and Madinatna.

[Operator Instructions] It seems like we don't have any questions at all. Oh, we have one more from Zohaib Pervez from Al Rayan Investment.

[Foreign Language]. This is Zohaib Pervez from Al Rayan Investment. So you've mentioned that you're selling of the land in Lusail. And if I understand your land, this is about 60% of your land bank. So how do we see your future strategy with regard to development if a large part of your land bank is sold off? So are you going to buy more land? And if you're planning on buying more land, do you have any ideas there? Or how do we see the -- going forward your strategy for development? That's my first question. The other question is, there has been some change in your associates. You have, I think, changed an associated into selling into your trading portfolio. So which associate is this? And what can we expect? And is there any like -- are you going to be selling it soon, later? Could you give us some idea on that? Third question is on the proceeds from your land sale. Can you expect a special dividend because of this? Or this will all be used for repayment of debt?

Thanks for your question. Let me answer the second and the third question first. About the associate question, we had [indiscernible] Insurance, or [ BIM ]. It was one of our associates. We hold -- up to the end of the last year, we were owning 20% of the company. We sold the 5% in Q1, and now the 15% has been reclassified from associate to investment through profit or loss. So we already sold the 5%. However, the remaining 15% is a reclassification from the associate to the financial investment through profit or loss. The third question about the proceeds. As we mentioned in the advertisement, the full sale price will be used to settle a part of our facilities balance. I cannot comment for sure about dividends or something like that. This is subject to the year-end and the Board recommendation to the general assembly. But it is clear in our plan and in the advertisement that the QAR 6.3 billion will be fully used to settle facilities. For the first question, my colleague will answer your question about that.

So with regards to the development strategy, now the sale of one project, which is, as we said, 60% of the overall land bank, it's only one project out of around potentially 10 or 11 projects. So we still have a considerable land bank to work on with [ accessible holding ] within Lusail city itself. So we're still assessing the way forward for most of these projects. And soon, there will be some announcements made on future potential developments coming in the pipeline.

Sorry, is my understanding correct that the land that has been sold is 60% of your total land bank?

It's almost, yes.

We have [ 55 million ] square meters, and the land sold is 3.4?

3.6. 3.4?

Yes, 3.4.

Yes. Okay. So do you plan on buying more land than in the country?

Not at the moment.

Not at the moment. Okay. And my other question, last question, taking the liberty of asking too many questions like other participants [indiscernible]. Your expenses reduced significantly, so did your -- but the revenue is down. Is this -- is my understanding correct that this is because the COVID contract and the worker contract finished and your expenses related to those contracts are not there and the revenues are also not there? Is it because of that your revenues and expenses are lower in this quarter?

For sure, if you are referring to the operating expense -- the rental operating expense, yes, you are right. Last year, we had -- yes, we had -- last year, we had revenue came from the quarantine, which was higher operating cost. This year, we have the contract with the Supreme Committee, and we have the revenue from that trend, but we're at a very minimal operating cost. So this has affected negatively our profit margin on the rental income. So you are correct in your [ thought ].

Seems like we don't have any other questions as of the moment. I'd now like to hand over to the management for their closing remarks. Back to you, Roy Thomas.

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