Arabian Centres Co. — Interim / Quarterly Report 2021

Feb 4, 2021

Arabian Centres Co. announces its Interim Financial Results for the Period Ending on 2020-12-31 ( Nine Months )

4321 · 04/02/2021 08:04:49 · Announcement #61834 · View on Saudi Exchange

Arabian Centres Co. announces its Interim Financial Results for the Period Ending on 2020-12-31 ( Nine Months )

Element List	Current Quarter	Similar quarter for previous year	%Change	Previous Quarter	% Change
Sales/Revenue	469.4	557.5	-15.802	464.8	0.989
Gross Profit (Loss)	248.9	361.7	-31.186	254.8	-2.315
Operational Profit (Loss)	200.8	292	-31.232	210.3	-4.517
Net Profit (Loss) after Zakat and Tax	95.6	110.6	-13.562	111.1	-13.951
Total Comprehensive Income	88.2	111.7	-21.038	149.4	-40.963
All figures are in (Millions) Saudi Arabia, Riyals

Element List	Current Period	Similar period for previous year	%Change
Sales/Revenue	1,410.1	1,689.2	-16.522
Gross Profit (Loss)	802.4	1,120.8	-28.408
Operational Profit (Loss)	677.1	928.6	-27.083
Net Profit (Loss) after Zakat and Tax	359.7	545.8	-34.096
Total Comprehensive Income	413.8	543	-23.793
Total Share Holders Equity (after Deducting Minority Equity)	5,923	5,884.5	0.654
Profit (Loss) per Share	0.75	1.14
All figures are in (Millions) Saudi Arabia, Riyals

Element List	Explanation
The reason of the increase (decrease) in the net profit during the current quarter compared to the same quarter of the last year is	Net Profit decreased by 13.6% to SAR 95.6 million in Q3-FY2021 compared to

SAR 110.6 million in the same quarter of the previous year, primarily driven by the net impact of the following:

• Revenues: Decreased by 15.8% in Q3-FY2021, the equivalent of SAR 88.1 million, compared to Q3-FY2020, driven mainly by the amortization of special, previously disbursed nonrecurring discounts aimed at addressing the impact of COVID-19 on ACC’s tenants. The total expected exposure of COVID-19 on ACC’s net rental revenue amounts to SAR 569.0 million, to be realized over the term of outstanding lease contracts. ACC recognized SAR 62.4 million in nonrecurring, COVID-related rent discounts during Q3-FY2021, bringing the total recognized amount since Q4-FY2020 to date to SAR 214.2 million. Revenues were further affected by a reduction in the rental rates applied to contracts renewed during Q3-FY2021, concentrated at C-class centres, and a slight decrease in the Company’s like-for-like occupancy rate from 93.7% in Q3-FY2020 to 90.2% in Q3-FY2021.

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• Gross Profit: Decreased by 31.2% in Q3-FY2021, the equivalent of SAR 112.8 million, compared to Q3-FY2020, driven mainly by the decrease in total net revenues and an increase in the cost of revenue as the Company ramped up operations at assets newly launched during the period (Nakheel Mall Dammam, U-Walk and the extension at Nakheel Mall in Riyadh).. Gross profit was further impacted by a slight increase in depreciation expense for the period. Depreciation of investment properties increased to SAR 79.4 million in Q3-FY2021 from SAR 71.8 million in Q3-FY2020, while the depreciation of right-of-use assets increased to SAR 45.8 million in Q3-FY2021 from SAR 41.4 million in Q3-FY2020, driven mainly by the continued ramp-up of operations at new assets introduced during the period.

• Other Income: Increased by SAR 47.7 million in Q3-FY2021 compared to Q3-FY2020, mainly due to the receipt of SAR 40.3 million from the disposal of a subsidiary’s equity stake in Aswaq Almustaqbal Company for Trading, the company which holds ownership of Panorama Mall in Riyadh. The increase was additionally driven by discounts granted to ACC during the quarter by landlords on leased lands and shopping centres, amounting to SAR 3.8 million.

• Advertisement and Promotion Expense: Increased by SAR 2.6 million, compared to Q3-FY2020.

• Impairment Loss on Accounts Receivable: Increased by 79.2%, the equivalent of SAR 18.2 million, compared to Q3-FY2020. This increase was due to the Company’s adoption of a more conservative approach on receivables following the impact of COVID-related centre closures and an update of the company’s model of internal credit loss (ECL) estimates. It should be noted that ACC wrote off an amount of SAR 54.9 million in Q3-FY2021 and has treated this as a one-off transaction (non-recurring).

• General and Administrative Expenses: Increased by 11.4%, the equivalent of SAR 5.1 million, compared to Q3-FY2020, driven mainly by the continued ramp-up of operations at newly launched assets (Nakheel Mall Dammam, U-Walk and the extension at Nakheel Mall in Riyadh) and an increase in employee salaries and benefits.

• Finance cost: Decreased by 58.1% in Q3-FY2021, the equivalent of SAR 85.6 million, compared to Q3-FY2020, driven primarily by a write-off of transaction costs amounting to SAR 63.5 million following the completion of a refinancing transaction during Q3-FY2020. The decrease was further driven by more favorable financing rates compared to those prevailing one year previously.

• Interest Expense on Lease Liabilities: Increased by 21.7%, the equivalent of SAR 6.7 million, compared to Q3-FY2020, mainly driven by interest expenses on lease liabilities associated with the extension at Nakheel Mall in Riyadh, which began operations during Q3-FY2021. Interest expense on lease liabilities was further increased as a result of growing interest expenses related to Nakheel Plaza following on contracts renewed at the end of Q3-FY2020.The reason of the increase (decrease) in the net profit during the current quarter compared to the previous period of the current year is Net Profit decreased by 14.0% to SAR 95.6 million in Q3-FY2021 compared to

SAR 111.1 million in Q2-FY2021, primarily driven by the net impact of the following:

• Revenues: Increased by 1.0% in Q3-FY2021, the equivalent of SAR 4.6 million, compared to Q2-FY2021, driven mainly by a decrease in the amount of COVID-related rent discounts recognized by ACC during Q3-FY2021. ACC recognized SAR 62.4 million in nonrecurring, COVID-related rent discounts during Q3-FY2021, down by SAR 6.3 million from the SAR 68.7 million recognized during Q2-FY2021.

• Gross Profit: Decreased by 2.3% in Q3-FY2021, the equivalent of SAR 5.8 million, compared to Q2-FY2021, driven mainly by an increase in the cost of revenue, driven in turn by increases in security, cleaning, and repairs and maintenance expense as ACC continued to ramp up operations at its three newly launched properties (Nakheel Mall Dammam, U-Walk and the extension at Nakheel Mall in Riyadh). Security expense increased to SAR 19.6 million in Q3-FY2021 from SAR 15.0 million in Q2-FY2021, cleaning expense increased to SAR 18.6 million in Q3-FY2021 from SAR 14.1 million in Q2-FY2021, and repairs and maintenance expense increased to SAR 13.7 million in Q3-FY2021 from SAR 11.9 million in Q2-FY2021.

• General and Administrative Expense: Increased by SAR 5.7 million compared to Q2-FY2021, driven mainly by the continued ramp-up of operations at new assets introduced during the period.The reason of the increase (decrease) in the net profit during the current period compared to the same period of the last year is Net Profit decreased by 34.1% to SAR 359.7 million in 9M-FY2021 compared to

SAR 545.8 million in 9M-FY2020, primarily driven by the net impact of the following:

• Revenues: Decreased by 16.5% in 9M-FY2021, the equivalent of SAR 279.1 million, compared to 9M-FY2020, driven primarily by the restriction of activity at shopping centres during Q1-FY2021 as a result of the COVID-19 pandemic and government efforts to contain the spread of the disease. Revenues were further impacted by the extension of special, nonrecurring discounts to help address the impact of COVID-19 on ACC’s tenants. The total expected exposure of COVID-19 on ACC’s net rental revenue amounts to SAR 569.0 million, to be realized over the term of outstanding lease contracts. ACC recognized SAR 62.4 million in nonrecurring, COVID-related rent discounts during Q3-FY2021, having previously recognized SAR 68.7 million in such discounts during Q2-FY2021 and SAR 62.7 million during Q1-FY2021. Since Q4-FY2020, Arabian Centres has recognized a cumulative SAR 214.2 million in COVID-related rent discounts to tenants, with an attendant effect on the Company’s net rental revenue. Revenues were further affected by a reduction in the rental rates applied to contracts renewed during 9M-FY2021, concentrated at C-class centres, and a slight decrease in the Company’s like-for-like occupancy rate from 93.7% in 9M-FY2020 to 90.2% in 9M-FY2021.

• Gross Profit: Decreased by 28.4% in 9M-FY2021, the equivalent of SAR 318.5 million, compared to 9M-FY2020, driven by the decrease in total revenues. Gross profit was further impacted by heightened depreciation expense for the period. Depreciation of investment properties increased to SAR 228.8 million in 9M-FY2021 from SAR 203.8 million in 9M-FY2020, driven mainly by the inauguration of U-Walk and Nakheel Mall Dammam during 9M-FY2020 and Nakheel Mall Extension during Q3-FY2021. Meanwhile, depreciation of right-of-use assets increased to SAR 141.6 million in 9M-FY2021 from SAR 118.4 million in 9M-FY2020, mainly due to the inauguration of U-Walk at the end of Q2-FY2020 and of the Nakheel Mall Extension at the beginning of Q3-FY2021, as well as an increase in depreciation of right-of-use assets related to Nakheel Plaza, based on the contracts renewed at the end of Q3-FY2020.

• Other Income: Increased by SAR 126.4 million in 9M-FY2021, compared to 9M-FY2020, mainly due to the discounts granted from landlords on leased lands and shopping centres during the period, amounting to SAR 76.7 million. The increase was further driven by the disposal in Q3-FY2021 of a subsidiary’s equity stake in Aswaq Almustaqbal Company for Trading, the company which holds ownership of Panorama Mall in Riyadh, yielding SAR 40.3 million.

• Advertisement and Promotion Expense: Increased by SAR 10.5 million, compared to 9M-FY2020.

• Impairment Loss on Accounts Receivable: Increased by 87.4%, the equivalent of SAR 50.5 million, compared to 9M-FY2020. Such losses had been at an elevated level due to the temporary closure of the Company’s shopping centres as a result of the COVID-19 pandemic during Q1-FY2021. The increase was due to the Company’s adoption of a more conservative approach on receivables following the impact of COVID-related centre closures and an update of the company’s model of internal credit loss (ECL) estimates. It should be noted that ACC wrote off an amount of SAR 80.9 million in Q2-FY2021 and has treated this as a one-off transaction (non-recurring).

• Interest Expense on Lease Liabilities: Increased by 33.7%, the equivalent of SAR 28.0 million, compared to 9M-FY2020, mainly driven by interest expenses on lease liabilities associated with the launch of the U-Walk shopping centre and the extension at Nakheel Mall in Riyadh. Interest expense on lease liabilities was further increased as a result of growing interest expenses related to Nakheel Plaza following on contracts renewed at the end of Q3-FY2020.Statement of the type of external auditor's report Unmodified conclusionReclassification of Comparison Items Certain comparative figures have been reclassified to conform to the current period’s presentation.Additional Information Other Financial Highlights:

• The Company recorded an EBITDA of SAR 331.4 million in Q3-FY2021, down by 20.7% compared to Q3-FY2020, with a 4.4 percentage point contraction in the EBITDA margin to 70.6%. The decrease in EBITDA was driven by reduced Gross Profitability, increased Impairment Losses on Accounts Receivable, and an increase in Advertisement and Promotion and General and Administrative Expenses. EBITDA amounted to SAR 1,073.4 million in 9M-FY2021, down by 16.8% compared to 9M-FY2020, with a 0.3 percentage-point contraction in the EBITDA margin to 76.1%.

• Recurring EBITDA, which normalizes for the effects of non-recurring items, recorded SAR 349.8 million in Q3-FY2021, down by 16.3% compared to Q3-FY2020, with a 0.4 percentage point contraction in the recurring EBITDA margin to 74.5%. Recurring EBITDA booked SAR 1,128.9 million in 9M-FY2021, down by 12.5% compared to 9M-FY2020, with a 3.7 percentage-point expansion in the recurring EBITDA margin to 80.1%.

• Funds from operations (FFO) decreased to SAR 182.0 million in Q3-FY2021, down by 4.5% compared to Q3-FY2020 mainly due to the decrease in net profit for the current period. The FFO margin recorded 38.8% in Q3-FY2021, up from 34.2% in Q3-FY2020. FFO recorded SAR 609.9 million for 9M-FY2021, down by 21.2% compared to 9M-FY2020, with the FFO margin declining by 2.5 percentage-points to 43.3% for the period.

• Net Cash Generated from Operating Activities decreased to SAR 717.6 million in 9M-FY2021, down by 17.2% compared to 9M-FY2020, mainly due to the negative accrued revenue recorded following the recognition of nonrecurring COVID-related discounts granted to ACC’s tenants to address the impact of COVID-19. ACC has fully recognized the cash impact from all COVID-related discounts granted to tenants.

• Cash used in Investing Activities recorded SAR 192.4 million in 9M-FY2021, down against the SAR 374.6 million recorded in 9M-FY2020, primarily due to increased proceeds from the disposal of available-for-sale investments, as well as the disposal of subsidiary’s equity stake in Aswaq Al Mustaqbal for Trading Company and from Amlak International for Real Estate Finance Company (noncore investment). Total CAPEX in 9M-FY2021 excluding the SAR 174.4 million related to the disposals amounted to SAR 366.1 million.

• Arabian Centres’ holdings of cash and cash equivalents recorded SAR 793.6 million as at Q3-FY2021, up from the SAR 177.7 million recorded in Q3-FY2020. While further optimizing the Company’s capital structure, the transaction reflected management’s commitment to active cash management and proactive approach to risk management.

• In Q3-FY2021, Arabian Centres reduced the lease liability of SAR 112.8 million related to the Company’s under-construction U-Walk Jeddah Centre (formerly Zahra Mall). This amount reflects a reduction of 13.4% from the SAR 842.6 million lease liability recorded at the close of FY2020.Attached Documents  

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