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

Hello, everyone. Welcome to Barwa Real Estate Conference Call. Please note that this call is being recorded. I'd now like to hand over to our moderator for today, Roy Thomas. Please go ahead.

Thanks, Elie. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Barwa Real Estate Company's Second Quarter and First Half 2024 Financial Results Conference Call. On this call from Barwa Real Estate Company, we have Tamer ElSayed, the Group Chief Financial Officer; Anuj Mittal, the Asset Manager; Saud Aldolaimi, Development Manager; Abdulla Khalfan, Financial Controller; and Mohamad Daakour, Budget and 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 Elsayed. Go ahead, Tamer.

Thank you. [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 Half year 2024 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 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 half year 2024 financial statements on 29th July 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 Barbara 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 meters built-up area in operation, which consists of residential projects, labor rooms, warehouses, retail showrooms and offices. As of 30th of June 2024, 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 79% of our total operating revenue and about 91% 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 were in 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 the prevailing market demand. Now I would like to highlight some key points on the performance of the company for the half year 2024. To begin with, our total operating revenue stood at QAR 921 million as against QAR 922 million for half year 2023. Our total operating profit came in at QAR 634 million as against QAR 660 million in half year 2023. Our profit attributable to the equity holders of the parent for the half year 2024 stood at QAR 557 million as against QAR 550 trillion in half year 2023. On the balance sheet side, our financial position has been improved compared to 2023 with a net debt balance of QAR 10.1 billion and net-debt-to-equity at 0.46. 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 cash flow 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] Our first question comes from [indiscernible] from Al Rayan Investment.

This is [indiscernible] from Al Rayan Investment. I've got 3 questions. Firstly, you recorded about QAR 233 million of fair value gains. This was for what projects you recorded these gains for? Second question is on associate income. It seems like the first quarter was a loss of QAR 40 million. Now it's been reversed. So could you give us some color on what led to the reversal in this segment? The third is on the cash balance that you have. You have approximately QAR 2.8 billion in cash. So how much of this will be utilized? And I'm assuming all the payments are done for the Lusail land bank. So what payments more you will do to -- for deleveraging of the balance sheet?

Okay. Your first question is regarding the fair value gain. It's mainly coming from the [indiscernible] projects, [indiscernible], and the second question? Can you repeat your second question, please?

Sir, the second question is on the associate income. What is leading to the volatility between the 2 quarters. First was a loss, I think, of QAR 40 million. And the second is actually reversal things like. So what led to this change?

The loss is coming from one of our associates with under liquidation.

And this quarter, there was a gain, I think. It was reversed.

Yes, just there is a minor reverse regarding to an excess provision [indiscernible].

Because this is the referred company is -- there is a company, one of the -- our associates is under liquidation. So based on the liquidated report, we have recorded our provision or reversed as per the report. And during the liquidation, there may be in the beginning some conservative -- to be conservative about the assumptions. With the time they are getting more accurate numbers. So from quarter to other, we will build on the liquidated report, we will record our losses or profit.

And when do you think this will close? This will...

I cannot -- we cannot guarantee this. It's along the process between tax and settling the liabilities and [fight] with the banks. It's a longer process. We cannot give assurance about how long it may take.

This is the ready-mix company, right?

Yes, you are right.

The third is on further reduction in your debt because you still have quite a large cash setting on your balance sheet?

Yes, because the balance, including the last installment received for Lusail land, which not utilized yet to settle the debt.

But this will be -- I mean, the debt will -- more than debt will be paid down, right?

Yes, yes. For sure.

And any idea how much of this cash would be used for the debt repayment?

It should be used in full. The 1.6.

The 1.6. So of the QAR 2.8 billion that's on your balance sheet, how much more will you be using cash, using the cash to pay down the debt, another QAR 1 billion?

QAR 1.6 billion.

Our next question comes from Seki Mutukwa from Ashmore.

Two questions, please. One is relating to, I think, it's Slide 18 in the results piece you put out in the presentation. When you're referring to the residential sector, retail and commercial, there is a sort of general trend of oversupply, I would ask, I would suggest. I'm curious that if you look at the Qatar Real Estate index bounce from sort of lows of April, just to understand what is sort of driving that rebound? Maybe something about methodology, I may not understand on that side, please? And then the second question is more straightforward is just in terms of your rental operating margins hovering about sort of 79%, do you see this as a sort of stable level I think that normalized? Or what is your...

On the first point regarding [indiscernible] what time you wanted to understand about the retail and the commercial component and in terms of the performance of Barwa portfolio. So just to let you know, we are currently having a stabilized portfolio of around the commercial [indiscernible] around 78%. And at Barwa we always [indiscernible] in a long-term view on our competitive pricing and in terms of how we position our products, so although there is always a short-term flip in the market depending on the domestic factors, international factors on it. But as far as Barwa is concerned, our portfolio is managing quite a stabilized occupancy in the last so many years [indiscernible] also is paid in the region of around 78%. So we are still holding.

For the second question about the margin. The net rental income, mainly in our net rental income, mainly from rent and other supplementary services. For example, in case of labor camps, we are giving some extra services in addition to the rooms like catering, laundry and such things to the label. For the rent, we are quite sure about our net profit margin. However, for the supplementary service and for sure, it's being impacted by the competition in the market. So the margin for such service, it may be impacted after or according to the competition in the market, it may go down, it may go high. But for the rental itself isolated, it's quite stable.

Our next question comes from [ Ali Asad ] from [indiscernible].

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Our next question comes from [ Shabbir Kagalwala ] from Al Rayan Investments.

We probably asking the same question, which was last colleague was asking that could you repeat the occupancy levels across the different segments and also in Argentina and Madinatna?

So for the residential, the average occupancy is 74%. For commercial retail it is 78%. For worker accommodation, it is 51% and for warehouses, it is around 93%. Regarding Madinatna, the current occupancy stands at 56% and for the [indiscernible] neighborhood, it is around 43% -- 46%.

And so the labor -- the labor segment interest is being impacted because of the Argentine or because of the [indiscernible]?

No, no. If you overall see the -- there is a challenge in the labor market for quite some time now. But our portfolio is still managing a 51% occupancy on that. Other than that, if you overall see the Qatar is also focusing on the economic diversificating efforts where they are -- there is a possibility of emerging a new project. We have recently heard about this [indiscernible] project which has been launched by QatariDiar, it's a massive development of 8 million-kilometer square meters. So these kind of a project plus other, there were some news articles about [indiscernible] and [Karama] plus the metro, the Doha Metro also so there is a overall -- there is a stress in the market, but we believe that in the medium to long term, these projects will stimulate the demand in the labor market also. But for Barwa, we can speak that our portfolio currently holds the 51%, which is comparison to our peers, we are doing reasonably good, I would say.

Are you providing any discounts on rental discounts?

Yes.

In Argentine and Madinatna?

We don't provide any special discounts to anybody. It is based on the internal strategy that we discussed with the [indiscernible] and then we carry out the business plan that we agreed during the beginning of the year.

So, I'm sorry, are you providing or you're not providing discounts?

No, we are not providing any discount. There is always a market trend to provide a grace period when the new tenant comes. So it depends on the profile of the tenant, what kind of use agreement that we are having with it. So it is a combination of factors. We do provide a grace period.

Okay. So then 3 months basically.

Yes, yes, yes.

Yes. So I mean just a suggestion on the -- every quarter, we ask about these occupancy levels from going forward, if you could just include these occupancy levels in your presentation, it would be much easier and probably we could stop our...

Yes, your point is well taken, and we will incorporate that going forward.

Our next question comes from Seki Mutukwa from Ashmore.

Sort of a follow-up linked to what Shabbir was talking about. Just in the market, in general, from your competitors, what kinds of sort of grace periods are being provided nowadays? And how does that compare to the biggest periods or on average. So what I mean by that is are people getting sort of 3 months discounts nowadays, whereas the norm was 1.5% and maybe sort of 1 month when the times were good, just to understand how that looks, please?

Yes. See, there is no such definite kind of answer to it. It depends on client to client, it also depends what is your loyalty in terms of the tenant loyalty with the property. If he's really staying for the last couple of years. So there could be a discount of 2 months. It could go up to 3 months on that. But basically, if you really see the downturn, if we see at Barwa, again, I'm speaking on behalf of Barwa only, the property that we have. So most of our assets are very stabilized for Madnatna that we have it. It depends on client-to-client basis, but we have seen that I would say the worst has gone in 2023, 2024 is much more kind of a progressive, it is more positive for us and it is reflecting in our leasing numbers on that. So it ranges from 1 to 3 months in special cases, I would say that.

As of right now, we don't have any pending questions. I'd now like to hand back over to the management for the final remarks.

Thank you, everybody, for joining us for half year 2024 post results conference call. Thank you, everybody. Have a good day.

Thank you, everyone, for attending today's call. Have a wonderful day. You may now disconnect.