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

Good day, and welcome to the Ezdan Holding Group Quarter 1 2022 Results Call. Today's conference is being recorded. At this time, I would 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 First Quarter 2022 Financial Results Conference Call. On this call from Ezdan, we have Tamer Fouad, the Group Financial -- Chief Financial Officer; and Taha Moursi, the Financial [ 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 Fouad. Go ahead, Tamer.

Good afternoon, everyone. Thanks to Roy for your introduction. First, we'll start with the 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 include -- speaks only as of when it is it made, is then undertakes no obligation to publicly update or publicly revise any forward-looking statements, whether as a result of new information, future events or otherwise. We'll discuss today our financial performance and the financial position for Ezdan for Q1 2022. Investors [ representation ] for the conference call is now available at the Ezdan website, www.ezdanholding.qa under Investor Relations section. In regards to the financial performance of the Group for Q1 2022, Ezdan achieved a net profit to its owners with around QAR 153 million compared to QAR 147 million. [ Ezdan's ] loss statement contains changes in the following components: Rental income increased by around 21%, investment income decreased by 17%, other operating revenue decreased by around 8%. Operating expenses increased by around 41%, finance costs increased by 9%. ForEx loss increased by around QAR 2 million. For Q1 2022, [indiscernible] ratios of financial performance was as following: percent of operating expenses compared to rented income was 19% compared to 16%. Total gross margin was 83%, compared to 87% for 2021. Net profit margin was 35% compared to 38% for 2021. Regarding components of profit or loss statement, Ezdan recognized the rental income of QAR 361 million for 2022 compared to QAR 298 million for 2021, with an increase of QAR 63 million, representing around 21%. Rental revenue from residential and the commercial segment, representing about 89% from total revenue. [ Office then ] increased by around 23%, with QAR 60 million compared to Q1 2021, considering that average occupancy rate was around 93% for Q1 2022 and 83% for Q1 2021. Rental revenue from hotel segment, representing around 8% from total rental revenue of Ezdan, increased by around QAR 2 million. Average occupancy rate for hotels was around 41% for Q1 2022, compared to 45% for Q1 2021. Regarding mall segments, rental revenue from mall segments representing 3% from total rent revenue of Ezdan, increased by around QAR 0.5 million. Average occupancy rate in malls was around 78% for Q1 2022, compared to 73% for Q1 2021. For other operating revenue, Ezdan achieved other operating revenue of QAR 21 million, compared to QAR 23 million, with an increase of QAR 1.8 million, representing around 8%, compared to 2021. Other operating revenue from residential segment decreased by around QAR 1.1 million, and other operating revenue from hotel segment decreased by around QAR [ 0.8 ] million. Regarding operating expenses, operating expenses incurred for Q1 2022 were QAR 74 million, compared to QAR 52 million for 2021, with an increase of QAR 22 million, representing 41%. The main components of operating expenses were tough benefits of QAR 19 million for Q1 2022, compared to QAR 15 million for Q1 '21. Electricity and water charges was QAR 19 million for Q1 2022, compared to QAR 11 million for Q1 2021. Maintenance expenses were QAR 9 million, compared to QAR 7 million. Operating expense from residential segment increased by QAR 18 million, for hotels increased by QAR 2 million and for malls increased by QAR 1.2 million. Operating profit from main operations was around QAR 309 million compared to QAR 969 million, with a gross margin from main operations of 81% for Q1 2022, compared to 84% for Q1 2021. Operating profit from residential and the commercial segment was QAR 277 million, compared to QAR 236 million, with gross margin of 84% in 2022 compared to 87% in 2021. Operating profit from hotel segment was QAR 20 million during Q1 2022 -- while the Q1 2021, with gross margin of 60% in Q1 2022, compared to 64% in Q1 2021. Operating profit from mall segment was QAR 12 million compared to QAR 13 million, with gross margin of 64% for Q1 2022 compared to 70% in Q1 2021. Investment income, representing in dividend income and the share of results of equity-accounted investees, was QAR 70 million for Q1 2022 compared to QAR 84 million for Q1 2021, with a decrease of QAR 14 million. As dividend income decreased from QAR 70 million to QAR 55 million, and share of results increased by QAR 300,000, general and admin expenses have increased by around QAR 3.6 million, which was mainly due to increase in professional and legal fees expense by around QAR 3 million, and other categories of [ G&D ] expense have increased in total by around 800,000. Regarding finance [ clauses ] for 2022, finance costs was QAR 185 million, compared to QAR 169 million, with an increase of QAR 16 million, representing 9%. Now, we will move to the financial position of the Group. As of 31 March 2022, the Group has total assets of QAR 52 billion, with an increase of QAR 1.7 billion compared to December 2021. Total liabilities were around QAR 19 billion, with an increase of QAR 0.9 billion compared to December 2021. And the total equity, including noncontrolling interest, was around QAR 33 billion, with an increase of QAR 0.8 billion compared to December 2021. Cash and bank balances have increased by around QAR 1 billion, representing 86% resulted mainly from net cash flows from operations and the new borrowing indirectly through other [ list party ]. Investment properties have increased from QAR 44.8 billion to QAR 44.9 billion, with an increase of QAR 129 million, representing mainly capitalized [ expenditures ] during the period. Equity investments has been increased by QAR 634 million, with a balance of QAR 3.3 billion compared to QAR 2.7 billion as at 31 December '21. Such an increase was mainly due to changes in market value of equity investments. Investments in equity-accounted investees and joint ventures have decreased by QAR 22 million as a result of offset between dividends received by QAR 36 million and the share of results of QAR 14 million. Due to related [ bases ] increased by QAR 931 million, movement in balances with the release bars representing mainly and development costs charged by main contractor and related party SAK Holdings with around QAR 100 million and a borrowing of around QAR 824 million and directly through other related party. Islamic borrowings and [ Suku ] have decreased by QAR 60 million. That decrease resulted mainly from -- is offset between [indiscernible] payment of around QAR 231 million and the finance costs of around QAR 165 million. Retained earnings have increased by QAR 153 million, which represents net profit for Q1 2022. Revaluation reserve has been increased by QAR 634 million as a result of increase in fair value of equity investments. Regarding cash flows, net cash flows from operating activities were QAR 281 million, compared to QAR 299 million for Q1 2021. Net cash flows from investing activities was QAR 73 million for Q1 2022, compared to QAR 106 million for 2021. Net cash flows from investing activities for Q1 2022 was QAR 578 million, compared to net cash flow used in financing activities of QAR 126 million for Q1 2021. Thanks. Operator, you can start the session for questions, please.

[Operator Instructions] We will take our first question today from Zohaib Pervez of Al Ryan Investment. Please go ahead.

My question is on the residential segment. You mentioned your revenues are higher and significantly higher. Is this because of a higher occupancy or is it because of higher rental rates? That's my first question. My second question is on dividends. I would have assumed that considering the dividends paid out last year from the -- profits of last year were higher, then how come your dividend income has declined, even though your portfolio has actually increased? So what was the reason for the decline in dividends? Dividend income?

Regarding first, residential, there is two components resulted in an increase in rental revenue for residential. These two components were increase in the occupancy rate and increase in the average rate for the rent. So the two components affect increasing in residential revenue by 20%. This is answer for your first question. Regarding dividends income, according to the standards, I have to recognize dividends when it is declared from the AGM, from the investees. One of the investees -- the AGM has been postponed after the date of the financial statements, so I will recognize these dividends in the Q2, not Q1. So [Foreign Language], in Q2, compared to Q2 2021, I think the dividends will be the same.

I've got a follow-up on the residential segment. Could you give us some sense of what was the occupancy rate before in 1Q '21 and what was in 1Q '22? And how much did the rental rates increase?

As I mentioned, the average rate in 2021, we are talking about 83% during Q1 2021, compared to 93% during the Q1 2022. And the increase in rates, we are talking about the range from 10% to 20%.

Okay. Your units are still 26,000, which are available, right? You haven't released any -- no new units for the market? Or you have?

Yes, we increased around 1,500 units from December 2021 till 31 March 2022 through tranches during Jan, Feb and the March.

So now, the total available units are 27,500?

[ 27,500 ], yes.

Okay. Thank you.

[Operator Instructions] We will take our next question from Mohamad Adal of AFII.

Thank you for taking my question. So I have -- My first question is on operating expenses. So I can see that the staff benefits has increased, utilities. So this increase is basically, inflation? Or you will start hiring more, preparing for the World Cup, et cetera? Also, for the utilities. This is due to the increase in units or increase in -- are you increasing the number of units or increasing as in utilization rate, also, occupancy rate. What I'm trying to figure out here is why the growth rate in your utilities benefits surpass your growth rate and your revenues, I think.

Regarding your first part of your questions, of course, operating [ balance ] has been increased mainly from staff benefits and utilities. As you mentioned now, the staff benefit and 20 March 2021, the minimum limit for labor wages has been increased. So this has affected the Q1 2022, compared to Q1 2021. And the second part is, there is some increase in the staff during Q1 2022 compared to Q1 2021, but that doesn't relate directly to [ World Cup ]. It is related directly to increase in the units available to the market. If we return back to the end of Q1 2021, we have around 25,000 units. Now, we have around 27,500 units. So of course, this will require additional staff to be hired. And regarding the utilities, the same -- I think it will be the same reason. We mentioned, the occupancy has been increased from 83% to 93%. In addition, when we -- the increase in units also have increased the utilities compared to last year.

Okay. So -- okay. So basically, I will take the first part of the answer on the staff. So now -- so you said you hired more because the number of units has increased. So what I mean here is, so the number of units has increased, but you didn't -- let's say, then, most of them -- is what I mean, I won't see if the margin will improve through the year. So we start renting more on the use, rate increase. I know that expense rate will never be 100%, but I think it may go another 2 -- couple of percent, right? 200 basis points or so. And if this happens, how this will affect your operating margins? And I have another follow-up on interest rates. So now that the Fed is increasing the interest rate that we may see around 1.75 basis point increase during this year. I know that the QCB didn't increase the lending rate yet, but eventually, they will do. So let's say, assuming for everyone -- for every 1% increase in the lending rate here in Qatar, how this will affect your interest rates?

Okay. So you have two parts of your questions regarding the first staff benefits, it is following up questions. And the second one is regarding interest rates. You already mentioned, in my answer for staff benefits, the major part for increasing the staff benefits, not directly to the hiring goods. And you stop now, it is related directory to the increase in the minimum limit for labor wages. This increase, this has -- this contributes more than 60% of this increase and the other 40% is coming from additional staff, when is then is hiring new staff. It is not directly related to the occupancy rate in the first place. No, it is mainly related to the new units in the market. Regarding your second part, which is the lending rate. Till now, lending rates not affected by the Fed announcement, I think, in March. So till now, no effect on the finance cost on us. In addition, also, most of our rates, it is fixed with the banks, so it is not floating. So I think no significant impact, if there is announcement of additional lending rate coming from Qatar Central Bank.

Thank you. Thank you very much.

[Operator Instructions] At this time, we have not received any further telephone questions. I would like to hand the conference back to Roy Thomas for any additional or closing remarks.

All right. If there are no further questions, we would like to thank Ezdan Holding Group's management for the results update and also, for answering all the queries. And we look forward to speaking to you all for the next quarter results. Thank you.

Thank you.

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.