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

Ladies and gentlemen, thank you for standing by, and welcome to the Ezdan Holding conference call. I would now like to turn the call over to Roy Thomas. Please go ahead.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Ezdan Holdings Group's Third Quarter 2022 Financial Results Conference Call. On this call from Ezdan Holding Group, we have Tamer Fouad, the Group Chief Financial Officer; and Taha Moursi, the Group 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 now over to Taha Moursi. Go ahead, Taha.

Good afternoon, everyone. Thanks, Roy, for your introduction. First, we will start with the disclaimer. Some of the information discussed here might contain projections or other forward-looking statements regarding future events or future financial performance of Ezdan Holdings 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-looking statements, whether as a result of new information, future events or otherwise. Today, we will start with discussion of financial performance of -- and the financial position for Ezdan for third quarter. Investor presentation for this conference call is now available at Ezdan website, www.ezdanholding.qa, under Investor Relations section. First, we'll start with the financial performance of the group for the third quarter. The group achieved a net profit to its owners with around QAR 321 million compared to QAR 233 million. Profit or loss statement to contain the changes in the following main factors: Rental income and other operating revenue increased by around QAR 268 million. Investment income increased by a net amount of QAR 529 million. Operating expenses increased by around QAR 43 million. There was a revaluation loss of QAR 641 million in investment properties. Finance cost was increased by QAR 19 million. Profit or loss decreased by around QAR 3 million. The main ratios for financial performance was as following: Percentage of operating expenses when compared to rental income was 20% compared to 21%. Operating gross margin was 80% compared to 79%. Net profit margin was 17% compared to 22%. Earnings per share was QAR 0.012 compared to QAR 0.009. If you go in detail for the components of profit or loss statement, it is then recognized the rental income of QAR 1.176 billion compared to QAR 921 million, which means increased by QAR 250 million, representing around 28%. Residential and the Commercial segment rental revenue representing about 89% from the total rent revenue of Ezdan increased by around 31% with QAR 248 million compared to the previous period, considering that the average occupancy rate was around 91% for 2022 compared to 84% for previous periods with average unit rate of 4,700 compared to 4,400 [ small ] rate per unit. In addition the group, the average total units available for rent increased from 25,000 to around 30,000 units on 30 September 2022, and the development plan that the group applies starting the fourth quarter in 2021. Rental revenue from Hotel segments representing around 7% from total rent revenue of Ezdan was almost the same compared to 2021. Rental revenue from Malls segments, representing 4% from total rent revenue of Ezdan increased by around QAR 8 million, considering that average occupancy rate in Malls was 82% compared to 76% for 2021. For other operating revenue, Ezdan achieved other operating revenue of QAR 77 million compared to QAR 64 million with an increase of QAR 13 million, representing around 20% compared to 2021. Other operating revenue from Residential segment has increased by around QAR 9 million. Other operating revenue from Motor segment increased by around QAR 4 million and for Malls was almost the same. Operating expense in care for third quarter were QAR 254 million compared to QAR 211 million, with an increase of QAR 43 million representing 20%. The main components of operating expenses were increasing soft benefit with QAR 62 million for third quarter 2022 compared to QAR 47 million for third quarter 2021. And the main reason for such increase was the increase in the number of units, as mentioned in the reason for rental revenue. Electricity and water charges was QAR 78 million for 2022 compared to QAR 73 million for 2021. Maintenance expenses with QAR 29 million for 2022 compared to QAR 24 million for previous periods. Operating expense in Mall -- for Residential segments increased by QAR 33 million, for Hotels increased by QAR 7 million and increased for Malls by only QAR 2 million. Operating profit from main operations was around QAR 1 billion for 2022 compared to QAR 773 million, with a gross margin from main operation of 80% compared to 79%. Operating profit margins from Residential and the Commercial segment was QAR 894 million compared to QAR 671 million with gross margin of 83% compared to 81%. Operating profit from Hotel segment was QAR 61 million compared to QAR 64 million with gross margin of 58% compared to 63%. Operating profit from Malls segment was QAR 44 million compared to QAR 38 million with gross margin of 66% compared to 65%. Investment income, representing mainly in dividend income, share of results and the gain on sale of equity accounting investees and joint venture, dividends increased by QAR 17 million. And there was net gain on sale of equity accounted in this season and joint venture was around QAR 576 million. And the share of results from accounting investees has decreased by QAR 64 million. General and admin expenses have increased by around QAR 8 million, which was mainly due to increase in professional and legal fees expenses by around QAR 3 million. The staff benefits increased by QAR 3.5 million, and other categories of G&A expenses have increased in total by around QAR 1.3 million. Regarding financial costs. Finance cost was QAR 562 million compared to QAR 543 million with an increase of QAR 18 million, and there was revaluation loss was around QAR 641 million during the period. Now we will move to the financial position of the group as at 30 September 2022. The group had total assets of around QAR 47 billion, with decrease of around QAR 3 billion compared to December 2021. Total liabilities were around QAR 14 billion with an decrease of QAR 4 billion compared to December 2021, and total equity, including the noncontrolling interest was around QAR 33 billion with an increase of QAR 1 billion compared to December 2021. Regard the components of assets, cash and the bank balances have decreased by QAR 756 million, representing 69%, resulted mainly from settlement of sukuk during the period. Investment properties have increased from QAR 44.8 billion to QAR 46 billion with an increase of QAR 1.3 billion, representing mainly the net between the additions and capitalized expenditure during the period of QAR 1.9 billion and a revaluation loss of QAR 1.6 billion. Equity investments, investments in equity accounting indices and the joint venture have balance of 0 as at 30 September 2022 compared to QAR 2.7 billion and QAR 0.8 billion consequently as at 31 December 2021, and that's because of the loss of control of our subsidiaries as mentioned in disclosure #16, financial statements. Due to related parties decreased by QAR 2.2 billion, movement in balances of the related parties representing mainly settlement of balances with the main contractor and related party, SAK Holding, as mentioned in disclosure #16, financial statements. Islamic borrowings and sukuk have decreased by QAR 2 billion. That decrease was mainly due to settlement of sukuk with around QAR 1.8 billion. Retained earnings have increased by QAR 2 billion, which represents net growth from third quarter. In addition, recognition of revaluation gain of disposal of equity investments. Revaluation reserve is 0 as a result of realization of balance within the recent earnings. The share capital of Ezdan was QAR 26.5 billion as at 30 September 2022. And finally regarding the cash flows, net cash flows from operating activities were QAR 697 million compared to QAR 679 million. Net cash flows from investing activities was QAR 77 million compared to QAR 94 million, and the net cash flow used in financing activities was QAR 1.6 billion compared to net cash flow used in financing activities of QAR 344 million. Thanks. With that, we can start session of questions.

[Operator Instructions] Our first question comes from Zohaib Pervez from Al Rayan Investments.

So I've got 2 questions. Firstly, why did you take an impairment on your investment properties, especially when the rental rates are higher, the occupancy is so good? So what led to this impairment? Do you want me to ask the second question also? Or should we do one at time?

You can ask second question to take them together.

Together. Okay. So my second question is that you have utilized your investment portfolio to pay off the related parties, correct? Which was the financing received from other related parties, right? And there were 2 borrowings from related party. One was on which you are paying the commercial rates and the one that did not have any commercial rates. So which one was paid off, the one on which the commercial rates are being paid or the one which has no commercial rates or nothing to be paid on it?

Thanks, Zohaib. You have 2 questions. The first one regarding the investment property revaluation loss. Revaluation loss, it is represented revaluation that has been done by independent valuer. It then depends on the valuer, the one who makes revaluation assessment. He take in consideration the expectation for cash flow during the next year, not only the rental rates or occupancy. No, there is other factors, including the inflation rate, the [ capital ] that will be -- are projected to be expensed for the investment properties with percentage, the discount rate, terminal yield, all these factors together. So the -- all this -- and what has been done and assessed by independent valuer. It has resulted in a revaluation loss of QAR 641 million.

Sorry. Sorry.

And these figures will be assessed again as the year ends. Because, as you know, we are now an interim financial statements. And according to the standards and the framework for financial statements, there should be conservative approach that's applied in the financial statement. And this assessment will be done again as the year ends.

Okay. I thought this was only done once a year at the end of the year. Is it done like every quarter?

Not every quarter, but when there is an indication or there is an discussion with our independent valuer, and there is an indicator for revaluation loss. We have to record this one according to the standard to comply with the conservative approach for the framework of financial statements. .

Is there any other -- any more impairment that is expected? Or this is full and final?

No. At the year-end, we don't know what we'll be having. Maybe there will be a further impairment or this one will be adjusted.

Okay. And is this related to any specific property?

No. Because the amount is still a big which is QAR 641 million, but if we take a percentage from our investment to abroad, we are talking about 1.4% only from the investment abroad. So we are talking about the full portfolio. So there is properties up, there is properties down. So the net effect of this one, it has decreased 1.4% from the portfolio.

Okay. Sounds good.

And regarding the second one, according to the AGM that has been done in April 20, 2022, the shareholders of Ezdan has agreed to settle the share of SAK and their due amounts through cash or income. So the management has decided based on this 1 to settle this among -- through income, which is the equity investments. This equity investment has been used to settle related baht. Of course, you noticed that the related baht -- the related baht has decreased by QAR 2.2 billion. This include the construction that has been done because it will increase the liability. So in addition to the share of SAK and the properties and the borrowings, which carry noncommercial rates.

Sorry. So the borrowings, which did not pay any finance cost were paid off, correct?