JHSF Participacoes SA

BOVESPA:JHSF3

Earnings Call Transcript 2024-Q1

[Mara Dias, executive]

Good afternoon. Welcome to the webcast to announce the results of the first quarter of 2024. Here today, we have Augusto Martins, CEO; and myself, Mara Boaventura Dias, IR role are representing the company here today. We also have Sullivan signed language interpreter with the aim of reinforcing our intention to be more diabetic and inclusive. This presentation is being simultaneously transmitted on YouTube and on Zoom. It can be accessed through the website ri.hsf.com.br. If you are on Zoom, ask your question in the Q&A section of Zoom, and then you click on raise hand, if you want to ask your question in audio.And before continuing, I would like to clarify that statements mean during this conference call relative to business projections are based on the company's management assumptions and on information currently available. For this reason, they involve risks and uncertainties as they are related to future events. Changes in the macroeconomic policy and legislation may also affect the projections or the forward-looking statements made here.Now, I'd like to give it over to Augusto, who's going to start the presentation. Augusto, please, you may start.

[Augusto Juniror, executive]

Thank you, Mara. Good afternoon. Thank you all for being here with us in our conference call. First of all, I would like to go over our highlights. So the first main highlight is the growth in recurring income in line with what the company has been publishing and disclosing to you every time we meet. In the quarter, the result reflects our focus that we have been having in recurring income with a growth in all our recurring income businesses. I'm going to mention the details of each one. And afterwards, we can give you more details.In shopping malls, our business has had a significant growth of almost 20% in consolidated sales with a highlight among the companies that publish information in this industry in Brazil. So this quarter has got very robust results. Hospitality and Gastronomy has also had a significant growth, good digit in terms of daily rates and cover. In airport, significant growth in terms of traffic and liters and a new accomplishment which is the MRO of Gulfstream, turning our airport into one of the main maintenance hubs for global brands. In our rental houses at JHSF residencies and clubs, we have new products being marketed for lease and also the maturation of our clubs with a growth of 180% in the adjusted EBITDA. And JHSF growth from R$ 0 billion to R$ 1.6 billion AUM, and we are going to give you more details in the next slides.Now, going into more details about the shopping malls. As I said before, this is a number that is a highlight in the industry, considering all companies that publish their performance, almost 20% growth, breaking the mark of R$ 1 billion in sales with a highlight of 44% and CFO as JA 15%; and CJM 12%, which stresses our focus on high income. So our projects are focused on high-income projects and the company has been doing this. So we want to be the leaders in a high-income sector, and we are specializing on this kind of asset. So when we choose our shopping malls to have the flagships and the stores. So this has made us have a significant growth of 19.4% growth reaching the mark of R$ 1 billion in terms of revenue.As to occupancy cost, it's still at a very attractive cost and the occupation in our malls is about 96%. Now as to sales indicators, so we -- same-store sales were almost 10% and also in same-store, same area sales and also in terms of rental indicators about 5%. So we have significant growth in gross revenue of almost 23%, and we reached BRL 83 million in Q1 '24 and adjusted EBITDA growing 32% or R$ 42 million in Q1. So when we look at this tenant sales in excess of R$ 1 billion, so thereby demonstrating that our shopping mall business is very robust.Now, in Hospitality and Gastronomy, also with the growth in revenue. More specifically, if we look at each one of the 2 businesses in hospitality, the average daily rates up by 12% with a significant adjustment in RevPAR in excess of 10%, getting to R$ 2,200 and the occupancy rate of 53%. In terms of Gastronomy, there is a drop. It's almost flat really in terms of number of covers.Now, when we look at the price of average cover, there is a growth of 13% quarter-on-quarter. So our gross revenue has grown 4% in the quarter, getting to R$ 19 million in revenue in the first quarter. The adjusted EBITDA dropped by 9.5%, but this is because in the first quarter, there was an unearn event in Q1 2023.Now on airports on Slide 6. So there is an expansion, as you can see. We have recently expanded our hangers from 9 to 12, and the first quarter already shows this maturity, this expansion. So we are looking and seeing a significant growth in terms of traffic and this is significant in terms of liters filled with a significant growth. And we are seeing in terms of revenue, the evolution of the maturity of this expansion and this movement and this demonstrates how successful our operation is with gross revenue getting to R$ 45 million EBITDA of R$ 20 million for this operation.As I said at the beginning, our airport also has the novelty of Gulfstream coming to our MRO operations and which makes our airports into one of the main hubs, not just for our customers, which have access to Catarina airport, but leading global brands that now have their maintenance operations in our airport. For those of you who are not familiar, I think that Gulfstream is one of the leading airplane manufacturers, executive airplane manufacturer. So this is a very important accomplishment.As now to rental houses, this is a business that we started a little more than 2 years ago, focusing on developing more income businesses, which is the brand of this business, the JHSF residences and now we have São Paulo Surf Club and Boa Vista Surf Club. We have been encouraging this with 2 objectives of having a recurring business and also meet the needs of our customer base that demanded having high-income rental houses in a professional and long-term model and with maintenance and concierge services, and this is our business of JHSF. So this has been growing quarter-on-quarter. And in this first quarter, we have a growth of 36% in terms of branded area. Boa Vista Surf Club also grew very successfully with a surf pool and thereby, we see a significant growth of 217% in gross revenue, getting to R$ 22 million in Q1 2024. And with EBITDA of R$ 18.8 million and annualized is about R$ 80 million. It's important to emphasize.And so we look at the EBITDA, but there's lots of areas being marketed without requiring CapEx. So this is ready inventory apartment and houses that were ready at the end of last year and spent the first quarter being adapted, and we rent them fully furnished with everything. So they will grow without us needing to allocate capital in a significant way because they're fully furnished already.Now as to JHSF capital. So it's a creation. We designed the structure of the business at the end of 2022, and we started operating slightly more than 1 year ago. If we look quarter-on-quarter, it's less than 1 year, and it plays an important role. This is a company's instrument in terms of financial businesses that one of its role is to support the company's expansion plan, organizing third-party capital, thereby making our capital structure more dynamic to fund our expansion, both local and international expansion. The first fund acquired 33% of asset that had a stake in Shopping Cidade Jardim. And then we had the first funds of JHSF Capital, reaching to R$ 1.6 billion AUM.So in Cidade Jardim mall, we had the first one and on the operation that was announced on Monday with XP malls. So JHSF Capital has the role of contributing to the company's expansion plan, both internationally and our recurring businesses to be more dynamic in terms of third-party capitals and through fund management contributing significantly looking into the future. So we have funds right now. So raising funds for Fazenda laundries and soon you're going to hear novelties for this fund and also funds that we are structuring here in Brazil to raise funds. It's an income fund. And shortly, we need to have a receivables fund. So the JHSF Capital has reached the mark of R$ 1.6 billion, and we are going to reach very shortly, R$ 5 billion being managed in the structure and it's a new business for the company with recurring income.Now getting to real estate development. So going from recurring income and going to development. If we look at the mix of products sold, we are selling more real estate and fewer lots. And these products make us have a backlog -- a revenue in the first quarter, that is lower than the -- in the first quarter of 2023. But as it evolves, we are going to see this revenue, the growth in revenue, the backlog being booked. So as a reminder, the company has already been reporting the strategy of preserving value of its inventory.So in the macroeconomic scenario with high interest rates that has a lot of pressure and as part of its lead bank with plots of land that have been bought without the pressure and also the company having the benefit of diversifying its businesses and the company has been developing it more intensely recently in terms of recurring. So it has this conservative approach of being able to hold the launches at the same time as we wait for a more favorable scenario, both in terms of sales and cost to take to the market. This is what we are doing.And so we also have a significant decrease and there is also a lower demand of capital. So accounts receivable inventory are flat around R$ 1.75 billion in Q1 2024. And revenue is basically due to this more conservative decision to hold back launches. So we have this drop in gross revenue and EBITDA, if we look quarter-on-quarter. As a reminder, at the end of last year, we had approximately R$ 800 million in terms of PSV to the rental houses. So products that were supposed to be sold, we shifted them to the new business of rental.So this is the consolidated numbers of recurring income. So it shows a very positive point, confirming the company's strategy. As we've been publishing, encouraging and doing our best here, which is to increase the businesses with these features, and we are seeing record results in recurring income segment getting to R$ 250 million of gross revenue, a growth of 24% comparing quarter-on-quarter, the first quarter of '24 to the first quarter of '23. And gross profit is R$ 115 million in Q1.The adjusted EBITDA of R$ 100 million, a 45% growth as compared to the first quarter of 2023 and a net income growing 150% from R$ 50 million to R$ 233 million in Q1 2024. So when we look at this consolidated snapshot of recurring income businesses, this reinforces our positive results and that JHSF has been using to develop its recurring income businesses that this quarter has showing records in terms, thereby confirming our strategy that we are showing. And so when we look at our development, we get to R$ 320 million of gross revenue and 60% gross profit and the net income, R$ 142 million in Q1 2024. These are the consolidated numbers.Now before turning starting our Q&A and turn it over to Mara, I would like first to stress that even though JHSF has no local operations in Rio Grande do Sul. We are in sympathy with the state of Rio Grande do Sul and through our businesses, we have directly contributed to the state, and we are now sharing the QR code taking you directly to the official website of the government of the state of Rio Grande do Sul for whoever wants to contribute.

[Mara Dias, executive]

Thank you very much. We are now going to start our questions-and-answer session. If you are watching us on Zoom and if you want to ask your question in audio, click on raise hand before asking your question. If you prefer, you can send your questions in writing in the Q&A. just wait a few minutes that we are going to collect the questions.We can open for the first question. I think this is Pedro.

[Pedro Lobato Garcia Fernandes, analyst]

Hello, good afternoon, Augusto and Mara. Thank you for the space. We have two questions to ask. So Mara said that 17% of ready inventory that you transferred from development to rental.How do you see this movement a long time, both for everything that is ready and what you're going to develop such as the Surf Club? And if you allow me, the second question is just an update about the village. I'm not sure whether it's back to normal. Thank you.

[Augusto Juniror, executive]

So Mara, I'm going to start answering the question. Thank you very much for your participation and your question. As to the inventory and the strategy, looking into the future, so development is very important activity for JHSF.And as I said, the company's benefit of having along the last few years developing other business lines in addition to development of everything focusing on high income businesses provides the company this possibility of being conservative, when the macroeconomic scenario is unsure.So we can decide the rate or the speed. So the benefit of having developed this long years if, we were 100% developers, we wouldn't have this possibility. The fact that we have these units with a significant volume increases the possibility of us being able to decide what we are going to do, depending on how favorable the scenario is for this activity.As to inventory, as part of the landbank, we have excellent plots of land and excellent opportunities that will take place a long time. And this is going to happen with more -- involving more third-party capital. That's why we created the JHSF capital to manage third-party capital, the landbank. This is we own already. So the CapEx to develop will be through third-party capital, so that the company has a lighter financial statement and a higher capacity to develop.And these products, as they were developed, part will be meant to sale for the direct marketing and part of it will be directed to our JHSF residents with the aim of taking to the market our product and this opportunity and the availability of markets for lease, and in a different way and the different approach that JHSF has towards its products, so most of the inventory will be allocated to rental through, JHSF Residence.I would just like to stress that the industry outside Brazil, Brazil traditionally real estate funds. We -- here, we focus more on shopping malls and empty spaces. And our residential income is one of the leading segments in other countries. So we want to have minority interests in this portfolio. As to the suite from the Public Prosecutors that they say that, there was undue division of the plot of land, and they suspend the JHSF construction in the region.Well, this action does not take into consideration the time. So the company has been buying land over 30 years. That's why we have this fractionation in this division than it was the pandemic. So our inventory is almost 100% taken by sales, we buy, but then we launch. And this evolution along time or the progress along time, we have four licenses.The licenses for development and each one of those environmental licenses look at the cumulative effects of those projects and the synergies so that every new project, the new environmental license that has been approved, but takes into consideration everything. And so JHSF always meets in a transparent way of the environmental licensing procedures that environmental authorities require.So these environmental licenses show the cumulative effect. So we have this review. And last Monday, the government of the state of São Paulo through the state attorneys has also presented an appeal against what had been decided. And the state of São Paulo says that the licensing of the projects we're looking at the synergistic cumulative effects. So they are saying basically that, even though they were done as a progress along time because of the time when the land was bought they are looking into the cumulative effect of these projects.So we are waiting now, for the decision on the appeal and then we will get back to you. It's not -- they don't think we did something wrong or illegal. This is -- we can prove very easily. And we did the licensing according to the timing that we had for the purchase of land. And we had a material fact that along time as we bought the land and developed it, everything was announced to the market.So the time sequence is also proven by all the disclosures that are required from a Publicly Traded Company. And we have states most of it was sugarcane plantation. So we bring all, the floor back to the region, reforestation, native forest and fauna. So we can -- we do provide an environmental benefit, not to mention the social. They are worried about the social impact that we leads to the region, when we have this kind of project. So -- so soon as we hear something on how they respond to our appeal, we will disclose it to you. Thank you very much.

[Mara Dias, executive]

So our next question is from Inger from XP.

[Unknown Analyst]

Hello. Good morning. So your deal with the XP Malls, what is the leverage that you're going to reach after the inflow of these funds? Do you see a room for any more sales, maybe reducing non-core assets and reducing the stake in the assets that you have just sold even further?

[Augusto Juniror, executive]

Inger, thank you, very much for your question. The company has been publishing and reporting to the market that despite the existing focus, we are going to be increasingly more focused on high income on projects and products. So this movement is a movement in line. In the case of Ponta Negra and Bela Vista, there are two great shopping malls that are not so compliant with our -- with the company's high income strategy. And this constant review of our assets in relation to this alignment with a high income strategy.And second, the recycling part of the capital of everything that is produced. And recycling the capital in high income and keeping the 51% control, but being able to sell minority interest, so that the company can expand or grow more-and-more with a liver capital structure. This will be our focus looking into the future that is aligned with this minority sale of interest and our pursuit for third-party capital to develop our growth projects. So this movement provides to the company.First, the objective of bringing in capital so that we can grow in a more conservative way and also to make our stakes in shopping malls, increasingly more aligned with a high income market. So part of the funds, we are going to start the construction work of the shopping mall in the city of São Paulo that was part of the M&A and to reinforce our another part to reinforce our capital structure. So we are going to reinforce our capital structure.I think that in leverage, we'll be able to see that it's going to get better in the second half of the year. So we have a bridge loan, it's in debt and cash. So we have reinforced cash for structured capture as we have already contracted it. We can't say much about it, but it involves, so the ready residential income with a very, very long profile with a, average cost well below what we have.So the debt profile is going to improve a lot after the second quarter. And then the capital structure overall is going to improve. You're going to have a better overview after the second quarter.

[Unknown Analyst]

Thank you very much, Inger. The next is Antonio Kastuchi from Santander.

[Mara Dias, executive]

Hi Antonio.

[Unknown Analyst]

Hi Mara. Thank you for taking my question. First, I would like to follow-up on Boa Vista Village. You have said a little bit. How do you see the sale of this project in the beginning of the second quarter? And is there any increase in cancellations? And what about the garage spaces that, have been recently delivered and whether there is more free space.

[Augusto Juniror, executive]

Well, thank you for your question. As to Village, as I said, we haven't much to say. We have no news in addition to what I have just said. And what is in the material fact that we have published. And so soon as we have something to tell, we will inform it.As to its impact in cancellations, it's almost neglectable for the time being. There is not a significant effect right now. So everything that is in our documents, in the explanation due to the timeline of all the approvals that took place along the 30 years that we have been buying land and developing the region. As to the Airport, it's a success as we told you since we share the numbers with you.Now for the 12 hangers, we are soon going to have a good problem, which is the lack of space. We have closed 100% occupancy. And very shortly, we will be looking and talking to you about the new expansion, for a new round, of new hangers because we are close to 100% occupancy, for the newly open hangers. Just to give you a few numbers, it's something about 120 jets that we have with full occupancy of our two hangers.

[Unknown Analyst]

Excellent. Thank you very much. So most of them, they are heavy jets and in terms of numbers, if we compare to other executive aircraft. In terms of numbers, well, it's lower because they're bigger airplanes, because they take up more space.

[Mara Dias, executive]

Thank you, Antonio. Augusto, we have a question from Itaú analyst, André did, and it's in writing. I think that we have addressed it. He's asking us. Could you please talk more about recurring income funds that we are thinking of structuring and it's in a pipeline, whether we think this kind of fund may work as a company for the company's assets and all kind of profile we are seeing.

[Augusto Juniror, executive]

André did ask the question, André, thank you for the question. So these funds are strategic for us. Once again, we're seeking third-party capital in our growth. So when we think of new units, new developments, all these plots of land are but this is not a swap there in the company. So one thing that we are going to do, we are going to bring third-party capitals along with the capital of the plot of land in this third-party capital will support the development of these residential units.Another possibility that we are structuring is a fund with units that have already been developed and that this fund will provide to investors the quality of JHSF products. And for those who pay rents. So the very positive credit risk when we look at the profile of our customers. So there are two strategies in parallel.One, to develop new units, new inventory with our products, bringing third-party capital for the land that we have already bought, thereby reducing the company's CapEx and giving -- creating the possibility that we can take part in this activity.And number two, we have units that have already been developed with very good quality of our assets and the income coming from rental according to the profile of the payers of our contracts.

[Mara Dias, executive]

So I'd like to emphasize that there is a large steel industry. And we are looking very much -- very much tailor-made. So the funds that we have structured for Cidade Jardim, we have three funds with three different demands from customers. So we have a tailor-made approach in terms of meeting the needs of investors. So this is kind of out of the box, when you look at the industry.And France, such as this, can take place, and they are welcome with assets and managers as we did recently, once again were 286, which is international private equity reference family in high-income lifestyle. And then, it's not just on this example, but for other ventures with other partners, this may happen, through our equity company.So Rafael from Safra is also in line. Rafael, you may ask your question.

[Rafael Rehder, analyst]

I have 2 questions to ask. I would like to focus more or less on the launches pipeline, so what about sales in April. And I would like to -- about your project in Real Pargue, whether it's going to be this year or next year? And the second question, I would like to go back to your rental units. So what is the yield on cost? Is there any difference between the Boa Vista units and Sao Paulo units? I would like to hear more on these details.

[Augusto Juniror, executive]

So footage is different. So here in Sao Paulo, we have about R$ 70,000 per month with 100 square meters. And in the interior, the same size is closer to R$ 35000. And as a reminder, at this price range, this includes everything. And it is fully furnished with lean and cutlery. They just go in with their personal belongings. There is also a concierge. So if they want to have a dinner, socially ban something, if they want or need anything, any problem, we have a very close and customized care. This is professional lease. This is very common already in the US and Europe. And this product is doing very well. So in the first quarter, we had to adapt and now they are ready to lease to be rented. And now you're going to see those sales reflected in our numbers.In terms of launches, including Santa Helena and Rio Parque, so we cannot yet give you a specific number, but they are advancing towards approval. So they are differently from Porto Feliz, this region is already consolidated. So it is a destination. So we feel that there is a different demand of people who want to work in that region. So I think that we will prelaunch the product.

[Rafael Rehder, analyst]

That's right.

[Augusto Juniror, executive]

Well, Rio Parque, while the real park, we are getting the approvals. And in Rio Parque, we have Sao Paulo Surf Club, that is going on fast. And then we are going to have some novelty regarding the real estate project in addition to Sao Paulo Surf Club. Thank you very much. Good afternoon.

[Mara Dias, executive]

Elvis from BTG is online.

[Elvis Credendio, analyst]

What is your outlook for CapEx and cash generation? What do you see for CapEx, working capital for your development business unit? And how is this going to be related to cash generation? Thank you very much.

[Augusto Juniror, executive]

I can go first and then you complement. Well Elvis, we talked about the fourth quarter about this in the Q4 call. So we had expansion in new businesses with CapEx. We had 2 significant expansions in shopping malls, both in Shopping Cidade Jardim and Catarina Fashion Mall. So in the outlet, you did not see cash generation, but you saw the expansion CapEx in the airport, as we said, had an expansion of 1 hanger, but there is another lane, and we completed this in Q4. So you saw CapEx and you did not see the cash generation.In terms of residential income, there was R$ 800 million in PSV, which is approximately 15,000 square meters of private area of apartments and houses for rental. So, you saw the CapEx, but it's about to start generating cash. So all these recurring income projects had expansion last year and you are still going to see the cash generation coming from them. So we have this recurring income unit. So you can see a little bit more about that. When you look at annualized numbers more into the future, you're going to see that.

[Elvis Credendio, analyst]

Also in our development cost, the cost that we have to be incurred related to development businesses, if you compare this year to Q1 last year is slightly more than R$ 1 billion lower. So we visited a few projects to reduce our costs to be incurred. So we are slightly more careful. So we have a slightly longer profile, so just reinforcing. Thank you for the question.

[Augusto Juniror, executive]

So the maturity of this recurring income businesses, although you were seeing them as already delivered, but along the year, they mature and there is a ramp up. And once again, in Q1, you see robust numbers already. But along the year, you're going to see the progress in the future and the inventory that we are developing that is allocated to income generation in terms of development. So we are very positive and optimistic for the rest of the year with margins of the strategy that we are implementing that we have intensified recently. And also another benefit will be the RM. So part of that is going to be redefined. So the operation that is going on, and that's why we can't give you more details, but this will contribute to the reduction of the company and longer times and even in further improvement of the company's capital structure.

[Mara Dias, executive]

Elvis, would you like to ask any other questions?

[Elvis Credendio, analyst]

No. Thank you.

[Mara Dias, executive]

Now we are getting close to 1 hour, but there are a few questions in the Q&A, two from the same person. One is how we buy our properties, whether we pay cash or if we take loans, Well, differently from most of the companies in our industry. We do not use swap, so we pay cash. So we pay, we had -- we buy large plots of land. So we buy at the prices of farms and we sell at city prices and they asked about the airport, which are the main competitors in Executive Aviation.

[Augusto Juniror, executive]

We are 24/7 international, not just for domestic flights and international. Our only competitor is ongoing, which doesn't have international. International would be Guarulhos and a little bit Viracopos, but 100% focused on executive aviation in high income, our airport is the only one that is 24/7 and international, which is a significant differential. And this is one of the reasons of our success. That are smaller airports, such as the one in Sorocaba, they compete with us, but not really significantly.

[Mara Dias, executive]

I get. This is it. If you haven't had time in this, we are getting to 1 hour of call. If you haven't been able to ask your question, we have an open channel. So we have our ri.jhsf.com.br. You can ask your questions. I would like to thank those of you who joined us on Zoom or on YouTube. Thank you very much for your presence here today. Thank you so much. See you.