Exchange: SAU | Sector: Real Estate | Industry: REIT Diversified
Q2 2024
Published: Jun 30, 2024
Earnings Highlights
Revenue of $16.60M down 48.1% year-over-year
EPS of $0.15 decreased by 53.1% from previous year
Gross margin of 94.3%
Net income of 7.75M
"N/A" - Management
Taleem REIT Fund (4333.SR) QQ2 2024 Earnings Analysis: Real Estate REIT Diversified — Revenue Decline Amid Strong Asset Quality and Steady Dividend Accretion
Executive Summary
Taleem REIT Fund reported QQ2 2024 revenue of SAR 16.60 million, down 48.1% year over year, with net income of SAR 7.75 million and earnings per share of SAR 0.15. Despite a sharp YoY revenue contraction, gross margin remained exceptionally high at approximately 94% (gross profit SAR 15.65 million on revenue SAR 16.60 million), underscoring a portfolio with favorable lease structures and strong operating leverage within the asset base. EBITDA stood at SAR 15.58 million and operating income at SAR 15.58 million, delivering an EBITDA and operating margin of about 93.9%. Net income margin was roughly 46.7% for the quarter. The company continues to pursue a 90%+ net income distribution policy, with a payout ratio reported at 1.053x, implying distributions exceeding current period net income and potentially drawing on reserves.
From a balance sheet perspective, Taleem carries a sizable asset base (Property, Plant & Equipment net of SAR 703.25 million; Total assets SAR 857.25 million) and a long-term debt load of SAR 297.63 million, yielding debt and leverage metrics that remain moderate (debt ratio ~0.347, debt-to-equity ~0.542). However, liquidity is tight on a cash basis, with cash and cash equivalents of SAR 0.55 million at quarter-end and a cash ratio of 0.052x, despite a high current ratio of 14.47x driven by substantial current assets. Operating cash flow is positive at SAR 10.94 million, contributing to a free cash flow of SAR 10.94 million, while financing activities remain a large cash outflow (dividends paid of SAR 8.16 million and net financing outflow of SAR 16.32 million). Net change in cash for QQ2 was negative SAR 5.94 million, with cash at period-end of SAR 0.553 million.
Looking ahead, the absence of formal forward guidance in the presented material necessitates a cautious stance. The Saudi REIT sector benefits from supportive macro and regulatory tailwinds, and Taleem’s high gross margins indicate a defensible asset quality. The critical driver for investors will be occupancy stability, rent collections, and any portfolio optimization that could sustain or grow net cash inflows and distributions. Monitoring management commentary on portfolio acquisitions, asset divestitures, occupancy normalization, and capex plans will be essential to assess the earnings trajectory and dividend sustainability.”,
Key Performance Indicators
Revenue
16.60M
QoQ: 0.00% | YoY:-48.05%
Gross Profit
15.65M
94.27% margin
QoQ: 0.00% | YoY:-41.81%
Operating Income
15.58M
QoQ: 0.00% | YoY:-40.48%
Net Income
7.75M
QoQ: 0.00% | YoY:-52.09%
EPS
0.15
QoQ: 0.00% | YoY:-53.13%
Revenue Trend
Margin Analysis
Key Insights
Revenue: SAR 16.60 million; YoY change: -48.1%; QoQ: 0.0%
Gross Profit: SAR 15.65 million; YoY change: -41.8%; QoQ: 0.0%
Operating Income: SAR 15.58 million; YoY change: -40.5%; QoQ: 0.0%
Net Income: SAR 7.75 million; YoY change: -52.1%; QoQ: 0.0%
EPS: SAR 0.15; YoY change: -53.1%; QoQ: 0.0%
Financial Highlights
- Revenue: SAR 16.60 million; YoY change: -48.1%; QoQ: 0.0%
- Gross Profit: SAR 15.65 million; YoY change: -41.8%; QoQ: 0.0%
- Operating Income: SAR 15.58 million; YoY change: -40.5%; QoQ: 0.0%
- Net Income: SAR 7.75 million; YoY change: -52.1%; QoQ: 0.0%
- EPS: SAR 0.15; YoY change: -53.1%; QoQ: 0.0%
- EBITDA: SAR 15.58 million; EBITDA Margin: ~93.9%
- Net Margin: ~46.7%
- Free Cash Flow: SAR 10.94 million; FCF per share: SAR ~0.214
- Operating Cash Flow: SAR 10.93 million; Cash Flow from Financing: -SAR 16.32 million; Dividends Paid: -SAR 8.16 million
- Cash at End: SAR 0.553 million; Cash Beginning: SAR 6.498 million; Net Change in Cash: -SAR 5.944 million
- Total Assets: SAR 857.25 million; Total Liabilities: SAR 308.27 million; Total Equity: SAR 548.98 million
- Long-Term Debt: SAR 297.63 million; Debt Ratio: 0.347; Debt/Equity: 0.542; Current Ratio: 14.47; Quick Ratio: 14.47; Cash Ratio: 0.052
- Payout Ratio: 1.053x; Dividend Yield: 1.48%
- Price-to-Book: 1.001x; Price-to-Sales: 33.13x; Dividend Payout Coverage Ratio: 1.336x
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
16.60M
-48.05%
0.00%
Gross Profit
15.65M
-41.81%
0.00%
Operating Income
15.58M
-40.48%
0.00%
Net Income
7.75M
-52.09%
0.00%
EPS
0.15
-53.13%
0.00%
Key Financial Ratios
currentRatio
14.47
grossProfitMargin
94.3%
operatingProfitMargin
93.9%
netProfitMargin
46.7%
returnOnAssets
0.9%
returnOnEquity
1.41%
debtEquityRatio
0.54
operatingCashFlowPerShare
$0.21
freeCashFlowPerShare
$0.21
dividendPayoutRatio
105.3%
priceToBookRatio
1
priceEarningsRatio
17.74
Net Income vs. Revenue
Expense Breakdown
Management Commentary
No earnings call transcript data was provided in the materials. As such, direct management quotes or themes are not extractable from the supplied data. The quantitative results suggest a focus on maintaining asset quality and dividend policy, with an emphasis on occupancy stability and portfolio optimization as key near-term drivers.
N/A
— Management
N/A
— Management
Forward Guidance
- Management guidance is not explicitly disclosed in the provided materials. Given the REIT’s mandate to distribute at least 90% of net income and the current cash and leverage profile, the company should prioritize cash flow generation to sustain distributions.
- Industry tailwinds in Saudi educational infrastructure and private education facilities could support long-term demand for education-related real estate assets. A potential path to growth would involve selective acquisitions or development within the education sector, supported by favorable regulatory frameworks for REITs in Saudi Arabia.
- Key factors to monitor: occupancy/lease renewals and rent escalations across properties, capex plans (maintenance vs. expansion), refinancing needs given the debt load, and discretionary distributions versus reserve accumulation to maintain sustainability under varying market conditions.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
4333.SR Focus
94.27%
93.90%
1.41%
17.74%
4339.SR
91.00%
84.20%
1.35%
14.03%
4330.SR
66.00%
18.80%
0.41%
48.00%
4340.SR
66.70%
67.80%
3.24%
7.87%
4334.SR
83.80%
69.60%
2.18%
12.02%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Base case: Taleem REIT Fund maintains stable operations with continued positive operating cash flow, but revenue volatility and a modest cash cushion imply a cautious stance on near-term distribution sustainability. The REIT’s robust gross margins and sizable asset base support earnings, yet the current cash balance and high payout ratio raise near-term liquidity and sustainability considerations. Investors should monitor occupancy trends, lease renewals, and any management commentary on portfolio optimization or acquisitions. If occupancy recovers and management prudently refurbishes or expands assets within the education sector, Taleem could improve its earnings trajectory and sustain distributions.
Upside scenario: A corrective rebound in occupancy and renewed lease growth leads to stronger revenue momentum, enabling a higher quality, potentially sustainable distribution profile and improved REIT metrics (lower payout reliance on reserves, better cash conversion). Valuation could re-rate given peer margins and robust asset quality.
Downside scenario: Prolonged weakness in education sector demand or liquidity constraints necessitate higher reserve funding or reduced distributions, pressuring near-term investor returns. Leverage and cash-flow sensitivity to financing costs could become more acute if market rates rise or debt maturity profiles require refinancing under less favorable terms.
Key Investment Factors
Growth Potential
Strong emphasis on education-sector real estate in Saudi Arabia provides a structural growth runway. Potential expansions via acquisitions or greenfield developments in alignment with national education infrastructure plans could lift occupancy and rental income, particularly if leases incorporate rent escalators and longer tenures.
Profitability Risk
Concentrated exposure to education/learning facilities; cyclical demand linked to student enrollment and education funding; high payout ratio could constrain reinvestment flexibility; liquidity constraints (low cash balance) raise funding risk for distributions and capex
Financial Position
Solid asset base and equity base with a moderate debt load. Liquidity is tight in cash terms, but the company generates positive operating cash flow and free cash flow. Leverage metrics are manageable, but the company faces ongoing financing needs to sustain distributions and potential growth.
SWOT Analysis
Strengths
Very high gross margin (~94%) indicating strong asset-level profitability and favorable lease structures.
Large, tangible asset base (PPE SAR 703.25m) supports earnings stability and collateral for financing.
Sustainable dividend policy (minimum 90% of net income) and support from local REIT framework.
Healthy current ratio (14.47x) reflects solid near-term asset coverage.