Ezdan Holding Group Q.P.S.C. (ERES) Earnings Call Transcript & Summary

Good day, and welcome to the Ezdan Holding Group Third Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Roy Thomas. Please go ahead, sir.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Ezdan Holding Group's third quarter 2021 financial results conference call. On this call, from Ezdan Holding Group, we have Tamer Fouad, the Group Chief Financial Officer; and Taha Moursi, the Financial Controller and IR Officer. We will conduct this conference call with management first reviewing the company's results followed by a Q&A. I will turn the call over now to Taha Moursi. Go ahead, Taha.

Good afternoon, everyone. Thanks, Roy, for your introduction. First, we will start with a disclaimer that some of the information that will be discussed here might contain projections or other forward-looking statements regarding future events or future financial performance of Ezdan Holding Group. These forward looking statements include all matters that are not historical facts. Any forward-looking statements speaks only as of when it is made. Ezdan undertakes no obligation to publicly update or publicly revise any forward the looking statements, whether as a result of new information, future events or otherwise. We will discuss today the financial performance and financial position for Ezdan for the 9 months ended September '21. Investor presentation for this conference call is now available at Ezdan website, www.ezdanholding.qa under Investor Relations section. In regards to the financial performance of the Group for the period of 9 months ended September 30, '21, Ezdan achieved a net profit to its owner with around 233 million compared to around 209 million, with an increase of around 25 million, representing 22%. The main changes in profit or loss statement was rental income increased by around 4%. Other operating revenue increased by around 37%. Operating expense increased by around 20%. Dividend income decreased by around 25%. Finance costs decreased by around 6%. Impairment losses for doubtful receivables decreased by 12 million. ForEx loss increased by around 22 million. During the current period, the main ratios for the financial performance was as following. Percent of operating expense compared to rental income was 21% compared to 19%. Total gross margin was 79% compared to 81%. Net profit margin was 22% compared to 20%. Earnings per share was going to QAR 0.009 compared to QAR 0.008. Regarding components of profit or losses statement, Ezdan recognized a rental income of 921 million compared to 887 million, with an increase of 34 million, representing around 4%. Rental revenue from residential and commercial segments, representing about 86% from total revenue of Ezdan, increased by around 3%, with 19 million, considering that average monthly rental rate in '21 was 4,400 compared to 4,600 during the same period in 2020, and average occupancy rate was stable at 84%. Rental revenue from hotel segments, representing around 10% from total rental revenue for Ezdan, decreased by around 5 million. Average occupancy rate for hotels sector was around 49% during '21 compared to 48% during 2020. Rental revenue from malls segment, representing 4% from total rental revenue for Ezdan, increased by around 20 million due to the decision of Ezdan Board of Directors to waive all tenants in malls from rent during March, April and May 2020 for COVID-19. In addition, average occupancy rate in malls was 76% during the current period compared to 61% during the previous period. For other operating revenues, Ezdan achieved other operating revenue of 64 million compared to 47 million, with an increase of 17 million, representing around 37%. Other operating revenue from residential segment has increased by around 7 million; for hotel segment, increased by around 3 million; for malls segment, has increased by around 7 million. Regarding operating expenses, operating expenses in here were 211 million compared to 176 million, with an increase of 36 million, representing 20%. The main components of operating expenses were staff benefits of 47 million compared to 36 million, electricity and the water charges with 73 million compared to 62 million, maintenance expenses was 24 million compared to 15 million. Operating expense for residential segment increased by 35 million; for hotels decreased by 3 million, and for malls, increased by 4 million. Operating profit from main operations was around 773 million compared to 758 million, with a gross margin from main operations of 79% compared to 81%. Operating profit from residential and the commercial segment was 674 million compared to 683 million, with a gross margin of 82% compared to 86%. Operating profit from hotel segment was 61 million compared to 58 million with gross margin of 60% compared to 57%. Operating profit from malls was 38 million compared to 16 million, with gross margin of 65% compared to 50%. Investment income, representing the dividend income and the share of results of equity accounted investees, was 116 million compared to 137 million with a decrease of 21 million, as dividend income has decreased from 93 million to 70 million. General and admin expenses have decreased by around 1 million, which was mainly due to increase in utilities by around 3.5 million, and the staff benefits expenses by around 1.5 million, while other categories of G&A expense have decreased in total by around 4 million. Regarding finance costs, finance costs were around 543 million compared to 580 million, with a decrease of 37 million, representing 6%. The main reason behind such decrease in finance costs was modification of terms for specific borrowings and decrease of profit rates, [indiscernible], which had started during the second half of 2020. Regarding the financial position of the Group as at September 30, '21, the Group has total assets of QAR 50 billion, equivalent to USD 15.7 billion, with an increase of QAR 779 million, equivalent to USD 215 million. Total liabilities were around QAR 15.8 billion, equivalent to USD 4.9 billion, with an increase of QAR 439 million, equivalent to USD 120 million. And total equity, including non-controlling interest, was around QAR 32 billion, equivalent to USD 8.9 billion, with an increase of QAR 339 million, equivalent to USD 93 million. Cash and bank balances have increased by around 400 million, representing 61%, resulted mainly from net cash flows from operations. Investment properties have increased from 44.5 billion to 44.8 billion, with an increase of 0.3 billion, representing mainly [indiscernible] during the period. Equity investments have been increased by 105 million with a balance of 2.7 billion, as at 30 September '21 compared to 2.5 billion as at 31 December 2020, and increase was mainly due to changes in market value equity investments. Investments in equity accounted investees and joint venture have decreased by 10 million as a result of offset between dividends received by 35 million and the share of results of 45 million. Due to released parties increased by 2 billion. Movement in balances with the related parties representing mainly development costs charged by main contractor and related parties, SAK Holdings, was around 0.2 billion and borrowings of 1.8 billion through other related parties. Islamic borrowings have decreased by 1.6 billion. That decrease resulted mainly from net payment of around 2.1 billion and the finance cost of around 0.5 billion. Retained earnings have increased by 236 million, which is representing net profit of 230 million and the gain on the disposal of equity investments of 2 million. Revaluation reserve has been increased by 103 million as a result of increase in fair value of equity investments. The share capital of Ezdan was around QAR 26.5 billion, equivalent to USD 7.3 billion. Regarding cash flows, net cash flows from operating activities was 679 million compared to 623 million. Net cash flows from investing activities was 94.5 million compared to 96 million. Net cash flows used in financing activities was 344 million compared to 116 million. Thanks. Operator, you can start questions now.

[Operator Instructions] We will take our first question from Zohaib Pervez from Al Rayan.

My question is on the residential segment. You mentioned that your occupancy was stable at 84%. So -- but as you can see in the third quarter, even in the second quarter, you have had higher revenue. So are you increasing your rent? Or what is driving this growth in your revenues for residential, even though occupancy is stable?

Thanks, Zohaib, for your questions. It is a valid question, because as I mentioned, occupancy rate we mentioned here, it is based on the average occupancy rate for the full period, from January to September, it was stable during the '21 and 2020. And the main reason behind the increase in rental revenue was introduction of new units in the market, which resulted in increase in rental revenue from residential segment.

So how many new units were introduced?

The exact figure is not available now, but we are talking about from 1,500 to 2,000 units.

1,500 to 2,000 units. And these are -- this is from Ezdan Oasis, right, I'm assuming?

That's correct.

Okay. And any other, and going forward -- for Q4 and going forward, do you plan on releasing more units?

For the funding, as we mentioned in many occasions before, we still have a pipeline for Ezdan 4,000 units, around 4,000 units under construction. We estimate that these units will come to the stock of Ezdan within the fourth quarter of 2021 or the first half of 2022.

Okay. And sorry, these 4,000 are also part of Ezdan Oasis or this is another project?

No, it is new project.

Our next question comes from Anastasios Dalgiannakis from Al Faisal.

We have seen reports for Tower II that tenants there were being evacuated for renovation. And they were being told that the tower will be handed over to the government for the World Cup. Would you mind elaborating, please, if [indiscernible] renovate the other towers and what exactly is the agreement you have with the government?

Regarding the renovation, of course, we are talking here about the financial performance of the company. Of course, there is a renovation for properties of Ezdan. One of this renovation, it is in Ezdan Towers. It is a normal process, considering that we are approaching World Cup 2022. So it is a matter of normal process of the Ezdan Real Estate -- Ezdan Holding Group to renovate its hotels before World Cup.

But you do not have a particular offtake agreement with the government to lease units from Ezdan at particular rates for a particular duration?

As you know, any agreement with related parties has a clause of confidentiality agreement. We are happy to be more transparent about this information. But unfortunately, we can't disclose it in such a conference call, as long as we are not permitted to disclose it. Once we have the permission to disclose such information, of course, we would be more than happy to disclose it.

[Operator Instructions] It appears we have no further questions at this time. I'd like to turn the conference back to your speakers today for any additional or closing remarks.

Thanks, everyone. If anyone have additional questions, you can drop us an e-mail through [email protected]. Thanks.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.