United Development Company Q.P.S.C. (UDCD) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. This is Zaid Al-Nafoosi from QNB Financial Services. I would like to welcome everyone to United Development Company Second Quarter 2020 Financial Results Conference Call. It's my pleasure to introduce from United Development Company, Mr. Maher Naim, he's the Executive Director of Financial Planning; and Mr. Karim Farhat, he's Financial and Business Planning Director. We will start this conference call with a presentation on the company's performance for the quarter, followed by a question-and-answer session. I will now hand over the call to Mr. Naim to get us started. Please go ahead, sir.

Thank you very much. Hello, everybody. I hope everyone is safe and keeping good health. Just to give a brief -- a very brief on the company's -- on United Development Company financial performance for the first half of the year 2020, the company has achieved a revenue of -- a consolidated revenue of QAR 563 million as compared to QAR 912 million for the same period in last year. And the net profit achieved by the company is QAR 101 million compared to QAR 237 million of the prior period, while -- then with having a reduction of 58% compared to prior period. And the net profit attributable to equity holder of the company is QAR 87 million compared to QAR 224 million, with a reduction of 61%. The overall performance of the company is in line with the prevailing market condition, which has been, at least the real estate market, which has been very much affected by the coronavirus, the spread of the coronavirus, which affected the purchasing power and the demand in the real estate market from a purchasing point of view. This indeed affected the company overall revenue since the sales transaction have reduced compared to prior period from a value point of view. As well as this year, in this quarter, the second quarter of the year, part of UDC contribution to the society from a social responsibility point of view, UDC announced during the spread -- the initial spread of the coronavirus of a rent waiver of 3 months rent waiver starting for the month of April, May, June, in the magnitude of almost QAR 441 million, which has been recognized and recorded in this second quarter of the year. So also this impacted the revenue to be reduced by, in particular, the retail leasing revenue to be reduced by QAR 41.5 million as rent support given to all retailers and F&B outlets in the Pearl Island. Having said this, this is, as expected, the net profit, of course, this is not as our initial expectation at the beginning of the year. But to be practical, this is in line with the market condition. As a matter of fact, even we have revised our budget for the year 2020 for the remaining period of the year 2020 to be in line with the current market situation, with the impact -- with the negative impact that the coronavirus is affecting the real estate market accordingly. So this is about it, in a very brief format, in a very brief form. The profitability is reduced by 58%, and this is indeed due to the current market situation, affecting the real estate market and the reduction and the sales volume as compared to prior period. I leave the floor to you. Should you have any questions, we will be more than happy to answer these questions.

[Operator Instructions] We will now take our first question.

This is Zohaib Pervez from Al Ryan Investment. I just wanted to have a little bit more information on Qatar Cool. And correct me if I'm wrong, but the Infrastructure and Utilities segment is primarily Qatar Cool, correct? And quarter-on-quarter, we saw that there's been some good revenue growth there. Could you give us some idea what led to this growth, considering that you do see Qatar Cool gave some waivers to retail and F&D?

You're most welcome. This is the, indeed, infrastructure and utility is primarily related to Qatar Cool. Any increase in revenue would be primarily due to the commencement of the services for a new or for recently completed towers or buildings. So accordingly, it increased. Having said this, also, yes, there has been a waiver also for F&B outlets for also the district cooling consumption and so forth, but there has been more, in particular, revenue recognized for properties that have commenced or at least the revenue recognition have commenced for properties, primarily in the second quarter of the year.

Okay. Could you give us an idea of how much addition was to the total for Qatar Cool during second quarter because of these new buildings that you are mentioning, and capacity wise I think?

Yes. Well, this is, in general, within the magnitude. Go ahead. Go ahead, Karim.

Yes, we have around 3,500 tons, actually, been signed in.

Sorry, could you -- I could not get that number. Could you repeat that, please?

Yes. 3,500 tons.

3,500 tons was added in sectors?

Yes. It is measured in refrigeration tons.

Yes. Yes, that's correct. That's correct. And my last question is, do you plan on -- are all the waivers done? I mean, by the end of second quarter, all the waivers that were provided for the leasing and for the Qatar Cool have all been finished now? And from third quarter, is my assumption correct that we are back to the normal business?

Through -- until -- as of now, this is exactly the case. All the waiver has been recognized and the book of accounts during the second quarter of the year. So as of now, there is no more waiver and let us see how things goes in Q3 and Q4.

[Operator Instructions] We will now take our next question. [Operator Instructions]

I guess [indiscernible], since there's no other questions, so I have a couple of other questions. Could you give us some idea on how the occupancy is post the COVID situation. Have you lost tenants? Has it been stable? Please, if it could be there between the 3 commercial, residential and office categories.

Well, we'll -- yes, we'll give you the occupancy in respect to the retail leasing and residential leasing as well. Honestly, to the contrary, the occupancy as compared to Q2 or the first half of 2019 has slightly increased. It's in the range of 6% because it has increased as compared to 62% of first half of 2019. There is more retailers opening, yes, but we are not recognizing revenue from them due to the rent waiver that has been given by UDC. As opposed to the residential leasing, it has been impacted, okay, due to the COVID and due to the people being -- leaving their jobs and going back home. It has reduced in the magnitude to be approximately from 40% to 45% as compared to approximately 60% in prior period.

Okay. So 40% to 45% from 60%, 65%. And have you -- Are you providing any further, like 1 month fee, those kind of payment plans for leasing?

Well, we are still giving our -- yes, we are giving our promotion 1 month free or district cooling cost free. So our promotion is still there, okay? And this promotion is a kind of a temporary promotion that is being reviewed on periodic basis. And we accordingly decide the right promotion. But yes, promotions, we did not start promotion.

Okay. So considering the current situation that residential occupancy has probably reduced, and even though retail has been stable. Do you believe -- do you think that this will have -- this will negatively impact margins going forward? Or margins should remain similar to second quarter because second quarter saw the margin -- gross margin specifically improving? I don't know if I am correct, yes?

Yes, we are targeting to maintain the same. There might be a reduction due to the residential leasing decline, but it should not be that much of a big difference though.

[Operator Instructions] It appears there are no additional questions at this time.

Thank you, Daniel. If there are no further questions, I would like to thank Mr. Maher Naim and Mr. Karim Farhat, also our operator here, Daniel, and everyone else participating on this call. Please do reach out to us at QNB Financial Services or United Development Company's teams if you have any further questions or inquiries. Thank you very much, and please stay safe, and goodbye.

Thank you very much, folks.

Thank you very much .

Thank you very much.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect.