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

Hello, and welcome to the Barwa Real Estate Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome [ Vivian ] to begin the conference. [ Vivian ], you may now begin the conference call.

Thank you, Elie. Good afternoon to you all. Thank you for joining us for the Barwa Real Estate 3Q 2023 Earnings Conference Call. My name is [ Vivian ], Senior Research Analyst at QNB Financial Services. On today's call, we have 5 members from the Barwa management team. We've got the CFO, Tamer El-Sayed. We've also Anuj Mittal, the Asset Manager; Mohamad Daakour, who is the Budget & Planning Controller. We've got Abdulla Khalfan, who is the Financial Controller. We have Saud Aldolaimi, who is the Development Manager. As usual, the management will go over the financial performance and we have a question and answer segment immediately after the presentation of the numbers. I will now turn over the call to Tamer El-Sayed, the Group CFO, to begin the call. Tamer, please go ahead.

Thank you so much, [Foreign Language]. Welcome, everybody. On behalf of myself and all other speakers today, we wish you all a very warm welcome to Barwa Real Estate Q3 2023 Post Results Conference Call. I am Tamer El-Sayed, the Group Chief Financial Officer for 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 here-in whether as a result of new information, future events or otherwise. Barwa Real Estate declared the Q3 2023 financial statements on 17th of October. And the investor presentation is available 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 5.5 million square meter built up area in operation, which consists of residential project, labor rooms, warehouses, retail showrooms and offices. As of 30 of September 2023, we have operating units of 14,069 residential units and around 55,000 labor rooms in addition to commercial offices, hospitality and other operating portfolio components, which are detailed in our Investor Relations presentation. Approximately 81% of our total operating revenue and about 95% of our operating profits are generating through these assets. Furthermore, Barwa has a land bank approximately 5.5 million square meters, of which 5.4 million square meters 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. Here, I would like to drive your attention to our announcement on 20th of July 2023 that Lusail Golf Development Company, a fully owned subsidiary, reached an agreement to sell 2 plots of land with an area of approximately 3.5 million square meters located in Lusail area. The total agreed selling price is about QAR 6.4 billion, the sale proceeds are expected to be collected over the period up to the second quarter of 2024 and will be used to partially settle the group's financial obligations. The transaction is still under progress, and we expect it to be concluded subject to soon -- subject to complete all the related procedures. Now I would like to highlight some key points on the performance of the company for the Q3. To begin with, our total operating revenue stood at QAR 1,353 million, as against to QAR 1,420 million for the Q3 2022. Our total operating profit came in at QAR 940 million, against QAR 917 million in Q3 2022. Our profit attributable to the equity holders of the parent for Q3 2023 stood at QAR 779 million, as against QAR 742 million in 2022. On the balance sheet side, our financial position remains strong with a net debt balance of QAR 14.9 billion and the net debt to equity at QAR 0.69. We have adequate liquidity and balance sheet strength to pursue our growth agenda. Also, we keep working on refinancing part of our facilities to enhance our liquidity ratios and the cash flow projections. With this, we can start with 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 have our first question from Mustafa Ameer from Al Rayan Investments.

Could you tell me when can we expect the deal to be finalized the Lusail land deal. And once it is finalized and as per your announcement, it seems you will have a gain in your P&L. So when do you think this -- we can see this being realized on the -- on your P&L? Second question is regarding -- did you also receive -- already received payment from the seller first installment or advance?

Thank you for your question. For the first question about completing the sale, we expect it to be completed in this quarter, so maybe in November or December. And for sure, it will be announced to the market once completed. And at that time, we will have a more accurate number about the gain of the transaction. About the advance, up to 30 of September, we received QAR 1.2 billion as an advance on the account of the sale transaction.

Sounds good. Just one more question. You recorded some fair value gains on your properties. Could you let us know to -- for which properties this gain was realized on?

Yes. Well, the increase in the valuation gain is due to the expansion of the land lease contract for the [indiscernible] project with the government.

I have a follow-up question regarding the occupancy levels. What are your occupancy levels in Madinatna and your residents and your other accommodations please?

So overall, for the Madinatna, currently, we are around 35%. And for the other -- the Janoub, it is around 18%.

Okay. And what about the labor accommodations as an overall -- what are you standing at [indiscernible]?

Overall, the labor accommodation is in the region of [indiscernible] above 50% of already.

Our next question is going to come from Mark Thomas from TFI.

My first question is about the improvement in margins. Obviously, the rental revenue is lower, but your rental operating profit is up. To what do you attribute that? And is that margin here to stay, like you expect that to continue going forward?

Well, this is -- the increase in the net rental income is due to the decrease -- we have a decrease in the occupancy rate and the labor camps projects and which led to saving in the operating expenses, which led the gross profit to go high.

Okay. So I mean do you expect to refill those labor camps? Or how do you anticipate the trend for the rest of the year and for next year? Is this more likely how we'll see things settle?

See, the overall the remaining quarters, we don't see it going to be very accelerated speed. We are managing it. But it's going to be in the same level. We don't see it much attraction on it as of now.

Okay. I wanted to follow up on the question just quickly of the fair value gain. Last year, you posted a fair value gain also, to what was that attributable? And obviously, this year, you've extended the land lease. So that's a revaluation. But is there anything in the horizon for next year? Those are my sort of 2 questions. What was last year's attributable to? And do you foresee any potentially in the next year?

For -- the last year, that was another extension for a land lease contract with the government, which had a positive effect on the valuation that was related to Madinatna and Barahat Al Janoub projects. In the future, the valuation is subject to assumptions. Whatever happens in the future, it will be reflected in the assumption under and in the valuation. So we cannot guarantee or we cannot assure you about any valuation gain or losses in the future.

Okay. Would you -- I don't know if you could outline your CapEx plan? Like just where you're expecting to spend money in the coming few years and what your CapEx budget is?

For now, as we are disclosing in the Investor Relations, we have one project in progress, which is Madinat Al Mawater Phase III. We are talking about QAR 200 million as a budget for that project. Other than that, we are working now our asset and development finance. We are reassessing all our land bank portfolio to put the right plan to monetize -- how to monetize these assets by developing or selling or develop to lease, develop to sell, we are working on that. But for sure, what we have now is the [ Mawater ] Phase III.

Okay. Is there any plan to do any changes with your international portfolio? It's my final question, like say, Cyprus, Bahrain, the few odd bits around?

So regarding the international portfolio, we are currently working on a land parcel in Morocco, and the discussions are happening with the interested party on it. So the agenda or the focus is to sell that asset. Regarding there is a [indiscernible] discussion happening on one of the assets in London, the North Row asset, so the discussions are still in a primarily stage, and we will advise you once we have -- will get any kind of a confirmation on that.

I mean is the strategy to maintain them if they're good investments? Or is it to divest them over time? What is the overall plan for them? Is it...

Yes. As of now, we are taking it on a case-by-case basis on it. But definitely, we are monitoring the market on it. But there are like the -- we have our own focus. So we consider like the Morocco is definitely, we will -- if we get a good value of it, we will try to exit from these investments.

Okay. Just one final question. With the Qatar's plan to expand its LNG output and all of the activity going on, does that benefit you in any way in terms of renting labor camps or gets more to the construction phase. Do you see any way that would impact your business?

Yes, yes, definitely. And this is the focus of this. We are quite kind of attractive of this announcement, and we consider that the recent announcement will give a lot of boost to the labor camps on it. And we are currently evaluating the market. And we consider in the -- by the next quarter of 2024, there should be some more traction in the market for it.

Question is going to come from Abdullah Ahmed from [indiscernible].

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