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. Now I'd like to welcome Mr. Shahan Keushgerian to begin the conference. Shahan, over to you.

Thank you. Hello, everyone. I want to welcome you to Barwa Real Estate's Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. So on this call, from management, we have Tamer Elsayed, Group CFO; Tariq Al Jaber, Business Development Director, Mohamad Daakour, Budget and Planning Controller; Abdulla Khalfan, Financial Controller; and finally, Saud Al Dolaimi, Development Manager. So as usual, we will conduct this call with first management reviewing the company's results, followed by a Q&A session. I will turn the call over now to 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 Year-end 2023 Post Results Conference Call. I am Tamer Elsayed, Group Chief Financial Officer of Barwa Real Estate Group. 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 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 the 2023 financial statements on 12th of February 2024, 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 1 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 meters as built-up area in operation, which consists of residential projects, labor rooms, warehouses, retail showrooms and offices. As of 31st December 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 80% of our total operating revenue and about 94% of our operating profits are generated through these assets. Furthermore, Barwa has a land bank approximately 2 million square meters, of which 1.9 million square meters within Qatar. Of this, we own approximately 900,000 square meters, while the rest is leased. Looking forward, Barwa plans to selectively monetize this land bank by selling or developing properties based on prevailing market demand. Now I would like to highlight some key points on the performance of the company for the financial year 2023. To begin with, our total operating revenue stood at QAR 1.8 billion as against QAR 2.1 billion for the financial year 2022. Our total operating profit came in at QAR 1.25 billion against QAR 1.38 billion in the year 2022. Our profit attributable to the equity holders of the parent for the financial year 2023 stood at QAR 1.230 billion as against QAR 1.14 billion in the financial year 2022. On the balance sheet side, our financial position has been improved compared to 2022 with a net debt balance of QAR 12.6 billion and the net debt-to-equity at 0.57. We have adequate liquidity and balance sheet strength to pursue our growth agenda. Also, we keep working on our refinancing part of our facilities to enhance our liquidity ratios and the cash flow projection. 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] Our first question comes from Seki Mutukwa of Ashmore.

My first question, please, relates to just what we've seen in the portfolio in terms of rental income, just giving a sense of overall occupancy and also what's just been going on with rents on a like-for-like basis, appreciating you have sort of a diversified portfolio. But any color on how that was towards the end of 2023? And then any thoughts you have about 2024, please?

So the average occupancies in the residential sector, around 67%; on the commercial sector, it's around 83%; worker accommodation, 52%; and warehouse and workshops, 96%. What was the other question, please?

It was getting a sense of absolute rental on a sort of like-for-like basis, whether you've -- what you saw towards the end of the year? Whether that has sort of stabilized, you're starting to see an appreciation in rents yet? And also outlook for 2024, just along that, please.

Yes. The rental that we had on our portfolio, it was quite stabilized during the year 2023. So we have not seen any kind of -- definitely after the World Cup, there was a certain -- in the first quarter. But as you understand, Barwa always maintains a portfolio metric and the rental strategy of continuing in a manner where there is no as such decline in the occupancy as well as the rental yields on it. So our rental portfolio remains the same as it was in 2022. We have not seen much significant kind of a decline on it. Regarding the 2024, we are assuming a base case scenario. We understand that the market is currently going through a difficult time in terms of the oversupply in most of the asset classes, but we are still managing to maintain a good portfolio occupancy on it. And we believe that 2024 is going to be the same in that respect.

Got it. And maybe I'll squeeze in just one last one for me. Just in terms of the commercial portfolio or commercial assets across Qatar, what have you seen in terms of valuations there? Are you -- obviously, across the globe, particularly Europe and the U.S., we're seeing a lot of that coming down...

Our exposure to commercial is very limited to a couple of buildings within Doha. So we don't have much exposure, and it's not representative of the market.

Our next question comes from the line of [ Mark Converse of TFI ].

Last couple of years, you've posted revaluation gains when I believe you've handed over projects to tenants. What's the pipeline looking like for 2024 and going forward? Are there any potential projects finishing that could have a sort of similar financial impact as we've had the last couple of years?

Could you repeat the question again?

Yes, you've booked revaluation gains in the last 2 financial years. And earlier, in the last quarter call, you mentioned it's because you handed over some new real estate to the tenant who was paying, and so you revalued the property. And my question to you is, is there any more properties finishing this year where you could be able to repeat those revaluation gains? How is the pipeline looking on that side of the business?

Nothing this year, but probably in the following years. We're working on a few concepts right now and a few projects that will be rolled out within the next few years.

Okay. Would you be able to elaborate a bit more because there are quite a few projects listed in your presentation. To which ones you might be referring to is the next one that might finish?

Well, 3 of them are being assessed -- finished? Not finished, but 3 of them are being assessed at feasibility stage right now. So the launch of these projects might -- 1 of them might be rolled out in 2024. We might initiate the project in 2024, but I don't assume that more than 1 or 2 will be -- will break ground within 2024.

Okay. Obviously, you've successfully managed to reduce debt with the sale of land to the government in Lusail. Are there any other plans to potentially sort of change the structure of your lands or buildings and lower debt? Or are you comfortable where you are now in terms of sort of the debt to assets equation?

First, we didn't announce that it was sold to the government. Still, we're not closing the buyer for the Lusail Golf land.

Okay. Apologies.

Yes, no worries. As of now, we're still assessing all the opportunities. If we receive any good opportunity for any transactions, for sure we will assess that and we'll take the accurate decision according to the position at that time.

Our next question comes from the line of [ Ajan Allahabadi ] from Al Rayan Investments.

This is Zohaib Pervez from Al Rayan Investments. A couple of questions. Firstly, it seems that you have already recognized the gain on this land transaction that you have done. Is my understanding correct?

Yes. We recognized the gain from the land.

Gain is recognized. But another approximately QAR 3 billion is expected in the first half of this year, right?

Yes, under Q2, cash to be received. We are working towards it. We'll receive one portion in January and the remaining will be in Q2.

Okay. And you've been reducing debt also, but I see that your interest cost has not gone down that much. In the fourth quarter, it was about QAR 200 million. In September quarter, it was QAR 193 million. So is it because the cash was received later? Why do you think the finance cost is not being -- it's not coming down?

Yes, it's mainly from -- because cash will be received -- was received later. And also because if you look at the income statement, we had capitalized finance cost. That's why before in the first quarter, we had capitalized finance cost. After that, it was almost part of that expense. So that's why you don't see the decrease. But starting '24, the position will be much better. You will see the decrease.

Is any more finance cost being capitalized at the moment? Or -- I think there are no ongoing CapEx...

A small portion, very small portion related to the projects under construction. It's a small portion.

Sounds good. And my last question is regarding the occupancy for the labor segment. You said there's occupancy about 52%, right? Is it being -- this is because the Argentine labor accommodation is -- the occupancy there is low and it's impacting the entire portfolio, or is it like across the portfolio? Because I think Salwa and Argentine are the ones which are the one with a low occupancy, right?

Yes. It's basically Salwa and the Argentine village. Aventine village is going up. Right now, we have 30% occupancy. Salwa is a challenging one due to its location and other related issues.

Okay. But are you seeing any light at the end of the tunnel? Are you seeing inquiries, anything that will give you some hope that probably the occupancy is going to improve further? Or you think that for some time the occupancy is going to remain around the same?

No, no. Of course, we're getting a lot of interest, especially on the Argentine village. So we're very positive on Argentine village that we can reach a stabilized occupancy by the end of this year.

So what would be your stabilized occupancy level?

It should be in the -- one second, just a second...

Around 68%.

68%.

Okay. So you expect it to go to 68%. Sounds good.

Our next question comes from the line of [ Abdullah Ahmed of Abdel Al-Bakr ].

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[Foreign Language] Next question, please.

Our next question comes from the line of [ Ajan Allahabadi ] from Al Rayan Investments.

This is Zohaib again. My question is more on your strategy going forward. You have sold off the land, which made a large portion of your land bank. So do you plan on buying more land and to replenish this as your land bank? Or you plan to deleverage your balance sheet through sale of other projects? I mean what is your strategy for now?

I think we still have around 2 million square meters that we still need to work on developing and rolling out. So there is no plan to acquire or replenish basically the land bank.

So the plan is only to develop the 2 million? And what about delevering your balance sheet through sale of other projects?

It depends on like if we find that it's more feasible for us to exit a land at this stage and just sell it, if it's economically more feasible, then we will do that.

There appear to be no further questions at this time. I'll now hand the call back to Mr. Shahan Keushgerian.

Okay. If there are no more questions, then we can wrap up the call. I'd like to thank Barwa's management for giving us an update, and we'll pick this up again next quarter. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.