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

Good day, and welcome to the United Development Company Q3 2020 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mehmet Aksoy. Please, go ahead.

Hi. Good afternoon, ladies and gentlemen. This is Mehmet Aksoy from QNB Financial Services. I would like to welcome everyone to United Development Company's Third Quarter 2020 Financial Results Conference Call. On this call from UDC, we have Mr. Maher Omar Naim, who is the Executive Director of Financial Planning; and we have Mr. Karim Farhat, Financial and Business Planning Director. We will conduct this conference call first with brief comments on the presentation followed by the Q&A. I will now hand the call over to Mr. Naim and Farhat to get us started. Please, go ahead.

Yes, please. Hello, everyone. I hope everyone is doing well. Just to give a brief about United Development Company financial performance for the quarter -- for the third quarter of the year 2020. The company has achieved a revenue of almost QAR 850 million as compared to QAR 1.3 billion with a reduction of 36%. While the net profit recognized for the same period is QAR 123 million compared to QAR 343 million of the last period as well with a reduction of 64%. And the profit attributable to the equity holders, shareholders of the company, is almost QAR 96 million as compared to QAR 319 million with a reduction of 70%. The main reason, of course, for the reduction in the net profit is led by the reduction in revenue and the reduction of revenue is primarily led by the current situation of the COVID-19 outbreak as well as the challenges that is facing the overall real estate market, which affected the supply -- the demand currently and the wellness of the customers to buy real estate properties. And also, we have given as a support, as we've been always saying, as a support to our clients because of the current situation of the corona outbreak, we have given also waivers, which also impacted our profitability. The waivers amounted to QAR 41 million approximately. Also, our subsidiary company, Qatar Cool, has given waiver in the magnitude of QAR 15 million as well. So overall, QAR 60 million waiver has been given throughout the year, and it has been reported up to end of September 2020. So this is an -- from an overall perspective, the financial performance. We are -- we anticipate this because this is now currently the market. And we are working very hard monitoring the market and to enhance our performance as much as we can within the possible -- if there are to overcome such obstacles and hopefully, by year-end, we will still be working on profitability, of course, hopefully. But the market is, yes, as you guys all know, is tough. The challenges are extremely tough, but we are coping with such challenges, and we will hope to continue overcoming such challenges in an acceptable manner. If you guys have any questions, please do. We are ready to answer your questions.

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

This is Zohaib Pervez from Al Rayan Investment. My call is regard -- my question is regarding the urban development revenues. For the third quarter of this year, they are QAR 136 million compared to about QAR 700 million in the third quarter of 2019. Could you give us some sense of what is the rationale for this decline? Is it lower development revenues?

No, the...

And nearly similar question as far as -- sorry, please.

Yes. I'm just asking, you mentioned the urban development revenue?

Yes.

The urban development revenue is QAR 454 million as compared to QAR 930 million of last year. If you see, lot number [indiscernible]

Yes. That's for the 9 months.

Yes.

Right. So what is the rationale? Is it just the waivers? Or is it -- is it just...

It is waiver contributed mostly and a reduction also in the number of properties being sold as compared to prior period due to the current market situation. But the waivers have contributed heavily and significantly in such a reduction.

So did you provide waivers in the third quarter also this year?

No, no, no. But this is an overall, isn't it? It's from -- the waivers have been taken into account in a Q2, but this -- the financial statement is up to. So it includes, of course, the waiver as well.

So can you give us some sense of how -- what is the development revenue in the first 9 months from this -- in this urban development? And what is the recurring -- what is the distribution between the 2?

Okay. The -- overall, as we said, the development -- the urban development revenue consists of sale of properties, leasing of residential units and retail units as well and all the other related items to the property. As you see, it consists approximately if we compare it to the almost 50% of our overall revenue for the 9 months. And usually, it is not very much significant to the recurring as much as the nonrecurring. We are reaching towards a good sizable recurring revenue percentage, which we are taking advantage based once the development is almost completed. We will reach the target recurring revenue, which is acceptable. Okay. And such guidance is not disclosed. We do not disclose it, but we are going through the right track, and the recurring revenue is increasing as we speak year-on-year.

Okay. So that's very good. So for in the first 9 months, you have QAR 454 million. What percentage is recurring income of this, 30%? Like 70% of it...

We don't provide such information.

Okay.

No guidance [indiscernible].

Okay. No worries. The other question is regarding the infrastructure and utilities. Third quarter, we saw an increase quarter-over-quarter. This is just because of seasonality? Or you have increased more capacity over here?

This is good in line with that capacity, the revenue of mainly our subsidiary, Qatar Cool, upon the commencement of the services of the district cooling. So it increases as and when third-party development is finished. There will be revenue associated with that, which is consist of collection, capacity as well as consulting. So this just goes in line with that as well.

Okay. And my last question is actually on the Qatar Cool deal. Where are we currently in the process? Could you give us some color on that?

It is now -- one of the partners who own 44%, they have expressed their intent to sell their shares. In accordance to the company rules, each holder can participate in buying its share. UDC have expressed an interest to buy its share of such shares of the shareholder. And we are still working on that. They have still not -- no conclusion. So we expect if there is any decision to be made or to be concluded, we might have a visibility on this towards the end of the year. But we expressed our intention, our potential intention, to buy the allocated number of shares to UDC. So as of now, we are still working on this and nothing has been yet concluded.

We'll take our next question now from Gunjan Gupta from Juma Al Majid Group.

I have one question about this. In September, there was news about that Qatar authorities are asking real estate developers if they can come and -- to participate for the residential apartments for the -- even for 2022 World Cup. Is UDC participating in that or not?

Of course, UDC will -- we want -- will not indeed -- not participate on this. We really want to participate on this, but there is still no conclusion to this, and it's still under discussion with the relevant authorities. And no conclusion has been made. However, yes, indeed, we want to participate as all the developers in the state of Qatar want to participate. This is a national duty on all real estate developers to support the government when it comes to this. But it's still no conclusion has been made yet or has been reached yet.

Okay. Okay. And with regards to your provisioning, of course, the provisioning has drastically gone down in second -- from the second quarter, it has come down drastically, the provision of trade receivables. So if you could just give some highlights, like how you're looking at the market now, in general, the outlook on real estate, any improvement? How is the market looking now post the waivers are over? Is the demand picking up when next to how you're looking it?

Well, the challenges are still there. The market is a little bit maybe it's picking up. But for year 2020, in general, even though after considering the waiver, it's still a very difficult year. And the recovery is not going to be easy or maybe it will not be fully witnessed within the same year, the year 2020. So we hope the market will pick up hopefully. And if towards the end of the year, if not by beginning of 2021, but the challenges are still there on the overall real estate market. However, now maybe there is movement is much better like than before the first 6 months of the year. People seems they are getting -- I'm sorry to say this, but maybe they are getting used to the COVID. So almost life is getting back to normal, and businesses is a bit picking up, but the challenges are still there, and it's not up to the expectation.

With regards to your leasing portfolio, are you giving any discounts heavy? Or is it just up to the market rates when?

No, we are not giving discount heavily. It's up to market rates, but we are giving promotions. If -- for instance, if someone signs a 12-month residential leasing agreement, we give a month or 2 free. So this is a promotion activities, the initiatives that we have -- that we are embarking.

And how much is the occupancy now in Pearl-Qatar?

From a residential point of view, you can say up to 50% because this has been invested based on -- because of the outbreak and because of a lot of employees leaving back to their countries. So we have been impacted a bit on this as well. But we are recovering up. The leasing activities during the third -- the fourth quarter is witnessing an increase. So hopefully, we will recover up when it comes to residential leasing, we shouldn't be having any problems. But as I said, this is -- as a result of the current situation and a lot of employees leaving the country and going back to their home countries.

Our next question now comes from [ Mitt Patt ] from Axience.

This is regarding your follow-up -- this is just a follow-up on what you -- the guidance that you gave on the occupancy. You mentioned that for the residential portfolio, it is -- their occupancy is somewhere around 50%. And if I compare this with FY '19, so can I -- how -- what was the occupancy in FY '19? Is it [ 15% to 30% ] right now?

You can say a reduction of almost 10%.

Okay. Okay. Makes sense. Okay. And in terms of -- as compared to FY '19, so far this year, what is the net effect on the rental per square, let's say, per unit or per square meter that you are offering to your clients?

Can you elaborate, please?

Yes. So I suppose, is there any decline in your rental per unit of, say, apartments or per unit of, say, square meters? Or is it flat?

As I clearly mentioned, there is no decline, but we are going -- we are giving a promotion to potential clients -- tenants and to existing tenants of our renewal as well, which is in a magnitude of 3 months, 1 month or 2 months to the year end.

We will go to our next question now from [ Mostafa Amir ] from [ The Commercial Bank ].

My question was regarding your debt profile. The debt has gone up recently. And has UDC benefited from the current interest rate environment? And my second question would be on the development projects. How are they faring in this current environment? And are you on track for all of these developments that you have mentioned in your presentation?

Yes, I will answer your second part of the question. Yes, the development is on track. We have our development activities. There is a slight delay by contractors due -- when COVID have started or it was there when -- due to the outbreak of COVID, there was an issue of availability of laborers because some of the laborers were in quarantine. And some of the companies are not able to bring replacement and so forth. But there has been the recovery plan on place and the development activities is going very much well. As I said, there is a slight delay in completion, but it was the overall completion, this will be recovered, and we do not anticipate major delay in project completion. As for the debt portfolio, I will let Karim Farhat to answer your query on this regard. Go ahead, Karim.

Yes. Hello. The debt portfolio, basically, all our portfolio, we have reduced our interest rate to be competitive with the market, and this is evident in our financial statements. All the projects are secured financing, and they are on line, on track. The reason for the increase, definitely, is because we've announced all these projects, and they are -- as Maher said, they are on track. And the increase in that is basically the drawdown that's happening, which is in lieu of the progress that's happening with the project.

[Operator Instructions] We now have a question from [ Mohammad Azeem ] from Faisal Investments.