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

Hello, and welcome to the Ezdan Holding Group conference call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Bobby Sarkar to begin the conference. Over to you.

Thank you, operator. Hello. Good afternoon, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Ezdan Holding's First Quarter 2023 Results Conference Call. So on this call, we have Tamer Fouad, who is the Group CFO at Ezdan; and Taha Moursi, who is the Financial Controller and IR Officer at Ezdan. So we will conduct this conference with management first reviewing the company's results followed by Q&A. I would like to turn the call over now to Taha. Taha, please go ahead.

Good afternoon, everyone. Thanks Bobby for the introduction. First, we will start with a disclaimer that part of the information 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-looking statements, whether because of new information, future events or otherwise. Today, we will discuss the financial performance and the financial position for Ezdan for first quarter '23. Investor presentation for the conference call is now available at Ezdan website, www.ezdanholding.qa, under Investor Relations section. Regarding the financial performance of the group [Audio Gap] Ezdan achieved a net profit to its owners with around QAR 91 million compared to QAR 153 million. Profit or loss statement contains mainly changes in the following factors: rental income and other operating revenue increased by around QAR 107 million; investment income decreased by around QAR 70 million; operating expenses increased by around QAR 15 million; financial costs increased by around QAR 74 million. For first quarter '23, the main ratios of financial performance were as following: percent of operating expense compared to rental income was 18% compared to 19%; operating gross margin was 82% compared to 81%; net profit margin was 19% compared to 55%; earnings per share was QAR 0.003 compared to QAR 0.006. Regarding the components of profit or loss statement, Ezdan recognized the rental income of QAR 467 million for first quarter '23 compared to QAR 361 million for first quarter '22 with an increase of QAR 105 million, representing around 29%. Rental revenue from Residential segment, which representing about 88% from total rental revenue, Ezdan increased by around 29% with QAR 91 million compared to '22. Considering that average occupancy rate was around 87% during the first quarter '23 compared to 93% during the first quarter '22 with average unit rate of 5,200 compared to 4,400 in '22. In addition, the group's average total units available for rent increased from 26,700 during the first quarter '22 to around 30,400 units during the first quarter '23. Rental revenue from Hotel segment, representing around 8% from total rental revenue, Ezdan increased by around 28% with QAR 8 million compared to first quarter '22. Considering that average occupancy rate increased from 41% during the first quarter '22 to around 61% during first quarter '23. Rental revenue from Mall segment, representing 4% from total rent revenue, Ezdan increased by around QAR 60 million, considering that average occupancy rate in malls was 89% for first quarter '23 compared to 78% for first quarter '22. For other operating revenue for first quarter '23, Ezdan achieved other operating revenue of QAR 23 million compared to QAR 21 million with an increase of around QAR 1 million, representing around 60% compared to first quarter '22; other operating revenue from Residential segment has decreased by around QAR 0.5 million; other operating revenue from Hotel segment increased by around QAR 2 million; other operating revenue for Mall segment decreased by around QAR 0.5 million. Regarding operating expenses, operating expenses incurred before first quarter '23 were QAR 89 million compared to QAR 74 million for first quarter '22, with an increase of QAR 15 million, representing around 21%. The main component of operating expenses were the staff benefits of QAR 23 million for first quarter '23 compared to QAR 19 million; Sewage of QAR 18 million compared to QAR 9 million; utilities charges with QAR 16 million compared to QAR 19 million; maintenance expense was QAR 12 million compared to QAR 9 million; operating expenses for Residential segment increased by QAR 15 million, for hotels increased by QAR 2 million. Operating profit from main operations was around QAR 400 million for first quarter '23 compared to QAR 309 million for first quarter '22, with a gross margin from main operations of 82% compared to 81%. Operating profit from the Residential and the Commercial segments were QAR 354 million compared to QAR [ 277 ] million with gross margin of 84% in first quarter '23 and the same percentage in first quarter '22. Operating profit from the Hotel segment was QAR 29 million during first quarter '23 compared to QAR 90 million with gross margin of 66% in first quarter '23 compared to 60% in first quarter '22. Operating profit from Malls segment was QAR 17 million compared to QAR 12 million with a gross margin of 72% compared to 63%. During the first quarter '23, there was no investment income compared to QAR 70 million investment income in first quarter '22, which was due to [ derecognized ] equity-accounted investees during the third quarter of '22 through a disposal of 7 of its subsidiaries, which own such investments. General and admin expenses have increased by around QAR 23 million, which was due to increase in professional fees expense. Regarding financial costs, for first quarter '23, finance cost was around QAR 259 million compared to QAR 185 million during first quarter of '22 with an increase of QAR 74 million. Now we will move to the financial position of the group as of 31 March '23. As of 31 March '23, the group has total assets of around QAR 47 billion. Total liabilities were around QAR 13.69 billion with a decrease of QAR 83 million compared to December '22. And the total equity including noncontrolling interest was around QAR [ 33.32 ] billion, with an increase of QAR 89 million compared to December '22. Cash and the bank balances have decreased by QAR 13 million representing around 3%. Investment properties balance was QAR 45.73 billion, with an increase of QAR 24 million, representing capitalized expenditures during the period. For Islamic borrowings, [indiscernible] decreased by QAR 62 million, which results from movement in Islamic borrowings from financial costs and repayments during the period. Retained earnings have increased by QAR 91 million, which represents a net profit for the first quarter '23. The share capital of Ezdan was QAR 26.5 billion as of 31 March 2023. Regarding the cash flow. Net cash flows from operating activities were QAR 350 million for first quarter '23 compared to QAR 299 million for first quarter '22. Net cash flows used in investing activities were QAR 19 million for first quarter '23 compared to net cash flows from investing activities of QAR 72 million during the first quarter '22. Net cash flows used in financing activities for first quarter '23 was QAR 340 million compared to net cash flow from financing activities of QAR 560 million for first quarter '22. Thanks. Operator, you can start session of questions now.

[Operator Instructions] We do have a question from the line of Mustafa Amir from Al Rayan Investment.

I'm sorry, I missed the part regarding the occupancy rates. What are the current occupancy rates across the 3 segments? If you can just highlight them again.

Okay. For Ezdan Real Estate, it is now around 87% to 88%, it is on average. For Hotels, it is around 66%. For Malls, around 89%.

Okay. That's quite sizable. That's very healthy occupancy rates that you have now. In terms of the rental rates and everything, are you seeing any weakness post the World Cup? And how do you think this will pan out for the rest of the year?

As I think we mentioned this matter in the conference call for December '22. As our [indiscernible] most of us was expecting a drop in the rental rates after World Cup. But what we see in the market, there was no significant drop down in the rental rate. And this reflecting our rental revenue has been increased compared to first quarter '22. Rental rate, of course, are not the same as during the World Cup, but not decreased too much. We can say that it has been stabilized just before the World Cup. So no significant decrease in the rental rates. And as we see the demand in the market for our units, I think we can expect the same rental rates during the remaining growth for the year. And for some areas in the state of Qatar, we expect increase in rates.

Okay. Just can I -- one more follow-up, if I may. Regarding your finance cost. Obviously, your finance costs have considerably increased with the rising rates. Have you been -- what is the management trying to do to sort of limit the impact of rate rises for Ezdan? And are the banks sort of open to more sort of negotiations on these rates?

I think the rates -- all of us know that there is no clear vision regarding the rates. The rates is -- all of the banks around the world is affecting by the rates coming from the Fed. So our management, it is to keep the rates and commercial rates and [indiscernible] And we can make the negotiation with banks to have like [indiscernible] about the rates itself. So at the end, it is a matter, I think, it is not under control of any one of us. So it is a matter of world economy, so we can't control such thing. What we can do it is to minimize and [indiscernible]

I would now like to turn the call over to Bobby Sarkar for closing remarks.

Okay. Thank you, operator. I guess we can end the call for today if there are no further questions. I want to thank Tamer and Taha for taking the time to speak to investors and keep us appraised about the results. And we will pick this up next quarter. Thank you very much guys.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.