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

Hello, and welcome to the United Development Company Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Roy Thomas to begin the conference. Roy, over to you.

Thanks, Gavin. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to United Development Company's fourth quarter and year-end 2023 financial results conference call. On this call from United Development Company, we have Maher Omar Naim, the Executive Director for Financial Planning; and Karim Farhat, the Executive Director for Finance. 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 Maher Naim. Go ahead, Maher.

Good afternoon, everyone. This is United financial statements for the year ended December 31, 2023. The company has achieved -- has made a revenue of QAR 2 billion compared to QAR 1.8 billion of a prior period with an increase of 13% and the net profit for the company reached to approximately QAR 402 million compared to QAR 390 million of prior year with an increase of 3% and the net attribute -- and the net profit attributable to the equity shareholders with round up is almost QAR 402 million, which is compared to prior period as well, it's QAR 388 million with an increase of 4% as well. And the earnings per share reached to QAR 0.114 compared to QAR 0.110. As I stated previously on all our previous investor calls, the company is still working on its development activity, mainly on Gewan Island, and the net profit achieved prior period, considering the market condition is considerable, a good achievement for the company and the development activities, as I stated, it is still ongoing. Hopefully, during the year 2024, it will witness completion of certain projects out of the overall Gewan Island projects and we will continue the remaining in the year 2025. So I leave now the floor to you. Should you have any questions, please go ahead.

Gavin, you can open it up for questions, please.

[Operator Instructions] Your first question comes from the line of Zohaib Pervez from Al Rayan Investment.

I wanted to know about the Qatar Cool deal that is in the process at the moment. As I understand, you are planning on selling 40% of the company to QIA. This is the same 40% that you bought from Tabreed, correct? And that -- I mean the deal is for QAR 800 million, you bought it for QAR 400 million. So should we expect a QAR 400 million gain on the deal? That's my first question. My second question is on, you just talked about the Gewan Island handover. Could you tell us the time line when it will be hand -- when will the handover start? And what will be the impact on revenue from this handover? I mean as I understand, the land parcels were already handed over. Only the apartments are going to be handed over. Could you give us more insights into that?

Thank you very much for your question. Regarding Qatar Cool transaction, it's still -- no such a transaction is in the process of being executed. We have received an offer. And we disclosed on the month of December, the receipt of such offer. Still, there has been no approval, nor acceptance or rejection of such offer and it is a 40% sale of UDC share in Qatar Cool for QAR 800 million, as we clearly disclosed, but there is no such transaction being executed. I just want to make, as of now, we simply received an offer and it is under internal review -- internal assessment. And once a conclusion is made, of course, UDC will make the appropriate disclosure to the public and the stock market and QFMA as well. And with respect to Gewan, Gewan, yes, towards maybe end of the year, there we will start the handover as planned to -- for the [ next use ] residential units for whoever clients who bought, this is the target. And of course, if this happens, this will have a positive increase on the revenue. And [ landlords ], majority of them have been recognized. That is -- we are expecting within the year 2024 based on the overall completion of the infrastructure and the handover.

I've got 2 quick follow-ups to that. You said that the Qatar Cool deal is still -- proposal has been brought forward. So what is keeping you from why -- what's the discussion.

As we clearly mentioned, it's under assessment. It's a major transaction. So this needed, of course, to be assessed internally. And then once a conclusion is made, the Board of Directors, of course, will approve or disapprove this and then we will make the appropriate decision. And just -- and I will make the appropriate announcement. Just to make it clear for you, it's not we bought it QAR 400 million. And then we are selling it for QAR 800 million, we will receive -- we will recognize a gain of QAR 400 million. No, this is not the case. Of course, you will have to see how much you are getting compared to the equity value of the 40%. And then this will be how much the gain is because the equity is changing year-by-year based on the time frame. So if we executed, let's say, end of March, then you will have to see how much the equity portion of the 40%, and that will be the difference of which between the selling price and the equity value will be the gain from sale.

Okay. The other question is on the Gewan. You mentioned that apartments should be handed over. How many apartments will be handed over -- planned to be handed over during 2024?

Whoever, both from us. It will be a good number and the plan whatever has been sold. And hopefully, whoever -- we will make such announcement as soon as it is appropriate. But hopefully, towards the -- within the year itself, 2024. Let's hope Q3 or beginning of Q4.

[Operator Instructions] Your next question comes from the line of [ Rob Skipper ] from [ Ashmore ].

Maybe just following up on Gewan a little bit. So just to make sure I've got it right. So if everything goes to plan, everything is going to be handed over by the end of this year in infrastructure and development.

Everything sold depending on the client availability. From a UDC point of view, once the project is completed, once we get QCD approval and certain regulatory approval, mainly QCD, Kahramaa and so forth. Then the units will be available for handover. So it's mainly 2 or 3 phases. The first one or three phases is the completion of the work and then several Kahramaa approval, Civil Defense approval, MOI approval for the CCTV, once these are all in place, the clients will be contacted for handover. Should the client be available to come then the handover will come. Otherwise, upon the client availability, of course, we will be sending notices. We will be calling the clients to come and take over. But the handover will not be made unless physically taken offer by the clients whoever bought the units.

Yes. Yes. Okay. Got it. And then in terms of the inventory on Gewan like how much of the total project has been sold and how much is in inventory?

You know, we have 585 units. Some of them are allocated for sale and some of them are allocated for leasing. And the appropriate announcement will be made once the handover process starts or a bit prior to that.

Okay. Got it. Okay. I guess jumping back a little bit. So just looking at the core kind of Urban Development segment as reported. So I think there is kind of 14% year-on-year revenue growth. I just wondered if you could give us a little bit of color there on the mix between development sales versus recurring income on that revenue line?

Well, the Urban Development, it consists sale of residential unit, sale of land developed, revenue recognition of such and residential leasing and retail leasing as well. So the increase is mainly due to the increase in volume of residential sales, okay, and the land developed from a revenue recognition point of view, and other recurring revenue, which is residential, retail leasing as well as residential leasing.

Okay. But primarily from residential sales, you said.

To be honest with you, it's a mix of all these; land, units, retail leasing, residential leasing. Keeping in mind that [ we now ] introduced last year in the year 2022, we had gated compounds that they were completed towards the end of the year 2022. So the residential leasing was not recognized because the revenue of such was not or the units were not available for lease. So during the year 2023, we managed to lease a good number of residential villa from the gated compound. And accordingly, also this helped for the increase in the residential revenue.

Yes. Okay. Got it. And then in terms of outlook for this year, maybe you could give us some color on those segments for 2024. And what do you think might be [indiscernible]?

It's extremely difficult, and we are not allowed to give an outlook. So -- but we hope things will be good.

Okay. Got it. And then just in terms of profitability. So, yes, I mean, Urban Development, very good profit after tax growth despite, obviously, kind of higher financing costs. So could you just talk a little bit about that profitability and why the margins were so good? Were there any one-offs in there?

It depends on the type of the products being recognized this year compared to prior year. And it takes into account, as I told you, the new products that have been introduced. And in respect to the financing costs, the increase in the financing cost, this is an impact all the real estate or all companies are facing due to the increase in the lending rate, which is set by the regulator. So the base rate -- the base rate without bank margin is 6.25% compared to almost 3.5% prior period or 4% or even lesser.

Yes. Of course, yes. Okay. And then just last one. Do you have any guidance in terms of CapEx in the group for 2024?

Whatever remaining in Gewan, this will be the CapEx as of the year 2024 as of now.

And is there any -- could you put -- is there a number you put on that in riyals.

Not that much of a measure, but because it's nearing completion. If you come and visit Gewan, you will see the buildings are ready, everything is ready and we are just doing the internal work inside the residential units. So it's mainly decoration, fit out, tiles, all this, the ceiling, so the major costs already incurred of the development, which is the core and shell [ lenders ].

Your next question comes from the line of Mark [indiscernible] from [ TFI ].

I have one question, which relates to your other operating income line in your financials. I just wanted to get a breakdown of what's represented in the other operating income line?

Our -- this is -- it mainly consists of nonrecurring items that have occurred through the year including settlements with contractors, including other type of settlement. So the effects of such settlement have been appropriately reflected in the financial statements. So you will not see this in the year 2024 onwards.

Okay. Because you had it in 2022 and 2023, but you don't think that will repeat in 2024.

No.

Okay. My second question relates to your -- the revenue and income that you're getting from the school, at least when driving past it, it's very, very busy. And then again, could you just give an update also on the hospital that you're doing?

The school is doing well, yes. It is doing well as all other schools here in Qatar. And we have a good number of students, so hopefully, throughout the years, the school will be a very good profitable business. So it is really doing good. We started -- we closed the year 2022 by 700 students, now we are almost 1,260 students.

Do you think it will make a significant contribution.

Yes. And the capacity is 2,500. When we started the school, we are starting gradually with the classes like it was up to Grade 9. This year, we will open Grade 10. The next year, we will open Grade 11, then 12 and 13. And with respect to the hospital, we are -- there are the fit out work and the final completion work at site. The hospital is on already constructed property. So we are -- hopefully the hospital could commence soft opening towards Q3 2024.

I mean your capital injection into that subsidiary is done, and it's all -- you don't see any further injection there or...

No, no, no. And as I told you keeping in mind, we are not building. It's already a completed property then constructed property. So the only thing that's been done is the completion fit out medical equipment. And we've done -- yes, no, there's no further major CapEx related to the hospital.

Okay. Then just -- sorry, one further question, if I may. Could you just give your outlook for your properties in terms of rental income and occupancy in 2024, whether you're seeing a bit of demand increase or what the trends are for your overall rental portfolio, both on the residential and the commercial.

Well, there are challenges in the market, but we are not saying that UDC has another or a niche market. And indeed, it is. There is demand. We cannot deny the fact that there is demand on the Pearl Island. It is -- if you have been to the Pearl Island, it's one stop for all. So the demand is there. Indeed, it is not as the occupancy level we reached in 2022 when the World Cup happened, from a residential point of view, where we reached 90% almost. But really, it is a very good occupancy compared to the market. This is for residential as well. And we are expecting that the demand will increase going forward. Keep in mind, we have the hospital, we have the school. All such employees are residing in the Pearl Island, so the occupancy will keep on growing. And the [ retail ], it is really also doing good because, again, it is a destination for investors to come and invest to the Pearl due to the -- that, again, it is one destination for all. People living here, they will go to the shopping malls, retail shops, restaurant and so forth. So it is good compared to the market. Of course, we hope for this to be improved. And considering the challenges in the market, I think we are in a good position compared to what the market situation is.

The next question comes from the line of Zohaib Pervez from Al Rayan Investment.

Could you tell us what is the occupancy on your residential units and your commercial space?

No, we cannot give guidance, and we've been always mentioning this.

Okay, no problem. And could you give us some idea if the rental rates, I mean, in 2023 compared to 2022 have gone down, have gone up? Just an indication would be great.

Stable. You see, if you want to convert the rental rates for 2022, people were paying QAR 70,000 and QAR 50,000 because of the World Cup. So this is not even a benchmark to start with. But taking the effect of the World Cup outside, excluding it, it is very much stable.

Stable, okay. And the other question is on the fourth quarter, your Urban -- just the fourth quarter, your Urban Development revenues were about QAR 600 million. Is it safe to say that there was a large land transaction in that quarter because the margins were also quite high and usually [indiscernible].

Large recognition of revenue from all real estate site -- from all real estate [ demand ].

Sounds good. My last question is on the Others segment in the revenue. In the revenue, the breakdown there is a segment called Other, this will be the school and this will be only the school? Or there are other things in this segment?

Any other -- we have UTS, which is a technology-related, all other small operations that the company has, it goes under Others, which you can see a note to the financial statement, the activities of the companies being consolidated among which Urban Development is known, Infrastructure is Qatar Cool and Marina, Hospitality is known, and the rest are all our Others.

Great. I mean you just touched on Hospitality. So let me ask my last question there. I mean, Hospitality, we've seen over the last 2 years, the revenues have nearly doubled, but the profit -- the losses have actually gone -- increased quite a lot from like QAR 10 million in '21 to QAR 55 million in '23. What is your strategy on this segment? How do you see it going forward? And, yes.

Again, same as the market norm. It's not a major investment for us. It's a business that complements our core business. And we select whatever to invest in. And whatever the market is facing, we are facing the same, but as I told you, keeping the advantage that the Residential, the Pearl, who lives in the Pearl does not leave the Pearl mainly during weekends and so. So they would come all to the F&B outlets, among which the ones are owned by UDC.

So you keep -- you plan to keep it like status quo, this segment.

Yes. And of course, we are very much eager for any improvement that happens in the market. I think all of us are living here when we go over the weekend, you can see how the F&B outlets all over the market, there is a big impact, but I believe there might be a corrective measure on the market itself, and there will be improvement on the sector.

Your next question comes from line of [ Irfan Ibrovic ].

Congratulations for the successful year behind us. I pretty much have maybe a long-term question related to the UDC. So all these core projects are nearing completion in this year. So my question would be what's next for UDC from the core business area [indiscernible] pretty much is, I would say, completed projects now that the hospital, school and Gewan Island are done, are you planning perhaps an expansion in other GCC countries on some now UDC definitely a respected player or is it still some local-related projects.

We'll have my colleague, Karim, who will answer this question.

Yes, we are -- we'll be expanding -- we're looking into Saudi through our Qatar Cool arm and there's a lot of business happening in Saudi Arabia in the case of district cooling of all the projects that are there. We are already active under our company that we created called, Diarona, which is a JV with Marubeni and Ajlan, and this is a growth area for us and we do own 90% of that company. Other than that, we'll keep on enhancing on our recurring revenues that are coming online as we mature through our real estate portfolio. But yes, our expansion in the region is mainly Saudi where we see the market is growing there with a lot of potential in this area.

[Operator Instructions]. And there are no further questions at this time. So I'd like to hand back to Roy.

If there are no further questions, we would like to thank both Maher and Karim for the results update and answering all the queries and look forward to speaking to you all for the first quarter 2024 results conference call. Thank you.

Thanks a lot. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.