Jabal Omar’s hospitality portfolio improves ‘significantly’; debt at SAR 10.7 bln: CEO

Khaled Al Amoudi, CEO of Jabal Omar Development

Jabal Omar Development Co. reported significant improvement in the hospitality portfolio as hotel occupancy rates rose on a strong recovery in the Hajj and Umrah sector, CEO Khaled Al Amoudi told Argaam in an interview.

The balance sheet also improved, thanks to the effective measures the company took to control costs, enhance efficiency and increase the gross leasable area (GLA), he added.

The developer posted robust results for Q3 2022 and the nine-month period.

In the third quarter, it pushed the recovery in revenues higher as the restrictions previously imposed on travelers to the Kingdom as well as the social distancing measures at the Grand Mosque were lifted.

Jabal Omar’s total debt stands at SAR 10.7 billion, of which some have lower financing costs, backed by the company’s transformation plan. The company finances the different phases of its project by the outstanding facilities and loans, the CEO said.

On the other hand, Al Amoudi added that the impact of higher interest rates and the global macroeconomic conditions will be reflected on all real estate activities and indebted firms. Jabal Omar plans to mitigate this impact on its balance sheet.

Financing costs reached SAR 15 million in Q3 2022, dropping 92% year-on-year (YoY). This was driven by the positive initiatives launched by Jabal Omar, as part of the capital restructuring strategy under its transformation plan.

Here's the full interview with Khaled Al Amoudi:

Q. Can you comment on Jabal Omar’s results, as the company swung to a profit of SAR 153.11 million in Q3 2022, from SAR 270 million loss in Q3 2021?

A. The company reported robust results for the three- and nine-month period ended September 2022. It pushed revenue recovery higher, as the restrictions previously imposed on travelers to the Kingdom as well as the social distancing measures at the Grand Mosque were lifted. The resumption of Hajj and Umrah activities also helped raise occupancy rates at Jabal Omar’s hotels. The company witnessed significant improvement in its portfolio, thanks to malls amid a recovery in the business and consumer sectors.

Occupancy rates in the hospitality assets year to date neared the pre-pandemic levels. On the operating level, Jabal Omar demonstrated the most efficient performance, thanks to adopting a more resilient and effective cost structure, which in turn drove profit margins to a great extent.

The company successfully introduced and implemented a transformation plan, in addition to the proactive efforts on the asset management level, as well as the effective measures taken for cost control.

Financing costs reached SAR 15 million in Q3 2022, dropping 92% year-on-year (YoY). This was driven by the positive initiatives launched by Jabal Omar, as part of the capital restructuring strategy under its transformation plan.

Q. How did the settlement agreement of Alinma Makkah Real Estate Fund reflect on Jabal Omar’s performance?

A. The company closed a landmark deal in the third quarter, through which it converted all the debts of Alinma Makkah Real Estate Fund to ordinary shares. On Sept. 1, Jabal Omar increased its capital to SAR 11.55 billion, through issuing 225.13 million new ordinary shares to the Alinma Makkah Fund unitholders in consideration of the settlement of SAR 5.3 billion debts owed to the fund. Accordingly, Jabal Omar freed up SAR 540 million in cash to pay the fund’s annual rent. Jabal Omar owns 16.42% of the fund, saving SAR 451 million for more productive, value-enhancing use.

Q: How was the improvement in operations and commercial activities of malls as well as occupancy rates in Q3 2022?

A: The portfolios of hotels and hospitality assets improved significantly, as hotel occupancy rates rose, due to the strong recovery of Hajj and Umrah sectors. We also witnessed improvement in our financial position, thanks to the active procedures taken by the company to control costs, enhance efficiency and increase GLA.

Hotel revenues soared by 338% to SAR 499 million during the first nine months of 2022 compared with a year earlier. Meanwhile, Q3 2022 hotel revenues surged by 524% year-on-year (YoY) to SAR 156 million. Net operating income of hotels leapt 904% YoY to SAR 193 million in 9M 2022, and climbed 475% to SAR 60 million in Q3 2022.

Malls revenues rose 245% YoY to SAR 69 million in 9M 2022, and 300% to SAR 40 million in Q3 2022. Net operating income increased by 671% to SAR 54 million in the nine-month period, driven by the active procedures followed by the company to enhance its operating efficiencies and control costs. Meanwhile, net operating income rose by 725% to SAR 33 million compared with a year before.

Q: What is the company's plan to cut losses that represent 12% of capital? What are your forecasts for the company's performance and occupancy rates in Q4?

A: We will focus on completing the outstanding phases of the project. We are expected to complete the development and partial operation of a total of 2,613 new hotel rooms, in addition to adding more than 5,000 square meters (sqm) of the GLA to our mall assets by Ramadan. This will contribute to supporting and developing our operating portfolio and boosting our financial position, due to the rise in occupancy rates in the medium and long term.

The second phase was 89.54% complete and the construction works will likely be completed in Q1 2023. Meanwhile, the third phase was 94.63% completed and the construction works are expected to be finished in Q1 2023. As for the fourth phase, it was 62.31% completed, and the construction works would be finished in Q3 2024.

Q: How was the company's volume of loans in Q3 2022? How was the firm impacted by interest rates?

A: Loans reached SAR 10.7 billion, part of which has lower financing costs due to the company’s total comprehensive transformation plan. We also finance the different phases through the existing facilities and loans. As for interest-rate hikes globally, they will impact all real estate activities and companies with debts. We are also mapping out plans to ease the impact of interest-rate hikes on the company's balance sheet.