JHSF Participacoes SA

BOVESPA:JHSF3

Earnings Call Transcript 2024-Q3

[Mara Dias, executive]

Good afternoon, and welcome to the webcast of JHSF Participações to disclose the results of Q3 2024. Today with us are Breno Perez Vicente, CFO; Augusto Martin, CEO, and myself, Mara Boaventura Dias, IRO. Sullivan is our Libre interpreter, and this attests to our commitment to being more inclusive.

The presentation is being webcast simultaneously on YouTube and via Zoom, and you may access to the presentation from our company's website. [Operator Instructions].

Before proceeding, we would like to clarify that any forward-looking statements that may be made during this conference call relating to the company's business projections are based on the assumptions on the part of the company's management and on information currently available. They involve risks and uncertainties, which relate to future events. Changes in macroeconomic policy or legislation may affect the projections disclosed in this webcast.

I now turn the floor over to Augusto Martin, our CEO.

[Augusto Juniror, executive]

Good afternoon. Thank you all very much for participating in this webcast, and we are now going to start the presentation.

Before talking about different business areas, we have here the operational and financial highlights of Q3 2024, and they confirm the success of our strategy. Our business lines have been very successful, and we have also been able to diversify the risk by focusing on recurring income businesses. We are developer -- real estate developers. We focus on this. We have new launches, new projects and we will continue on this vertical.

However, JHSF has gone beyond real estate development and this by following our customers in their own universe. So we have developed recurring business lines to serve our high-income clients. This was achieved through the hard work of our dedicated team. They surpassed expectations. They overdeliver, and this has allowed us to make our diversification even more relevant for the company.

JHSF today is a leading company in the high-income sector in Brazil. We look here at the figures, expressive growth in terms of gross results in recurring income, operational success, robust growth in all business lines. And when we look at the consolidated figures, the company has seen a growth in net profit by 20%. And we have been able to recycle our capital, which is extremely important for the company at this point in time. And then to give you a little bit more color about our investments.

In this quarter, we are delivering BRL 180 million in investments in projects with a very relevant yield on cost. The yield on cost is above 20%. So the growth in margin that we are going to see in every business line in addition to what we are having in terms of results allow us to project growth in all of these verticals. We are going to see greater cash generation coming from recurring business lines.

And then if we look at malls, we are delivering the first phase of Casa Fasano in the Usina, Sao Paulo project. Casa Fasano has always been extremely important for the event sector and it's going to operate in Q3. It is connected to the Cidade Jardim compound. We also have the Boa Vista Town Center, which is going to open in Q1 2025. The center is going to be delivered to the stores and partners by year-end.

And also, we are beginning to work on the Shops Faria Lima. And we believe that this is the most exclusive point in Faria Lima in the crossroad between Faria Lima and [indiscernible].

In terms of hospitality and gastronomy, we have some major highlights. Boa Vista Surf Lodge hotel is moving forward. It's going to be operated according to Fasano standards. We are going to start operating at the end of the year, at New Year's Eve actually. So our customers will be able to spend New Year's Eve together with us by the pool.

We have also announced our international expansion Fasano Sardinia and Fasano Cascais, both our asset-light operations in destinations that Brazilian and foreign clients look for in terms of their trips, two major projects to further our international expansion.

And now in the residential rental and the clubs. We have also invested in Fasano Club, which is connected to Fasano Residents and this is going to open at year-end. Also the Sao Paulo Surf Club is moving forward in terms of the work. It's going to open in the first half of 2025. There's going to be a pool with waves and it's going to be the first Surf club in Sao Paulo, just 10 minutes away from Faria Lima.

And also the new rental units have been delivered in Fasano residence and Golf residents, and they have been sold already.

We have spent to put this all up together. In the Executive Airport, the new domestic and international terminals have been delivered and this has improved the quality of service and the exclusivity that we provide to our clients. As we said in our release, once the airport reaches its full capacity, all the hangars are occupied. We have a waiting list. And this has enabled us to announce the expansion of the hangars. We're going to go from 12 to 16 hangars. We are going to start the works in the beginning of 2025, and they should be delivered by year-end.

And they -- we expect them to be fully occupied as well. This attests to the success of our airport. This is nearly BRL 180 million an investment in these business lines, but they will allow us to deliver even better returns. And now in terms of our operational performance in the malls business. The -- they are now leaders in terms of performance, in terms of growth of sales and in terms of the S indicators. We continue to focus on high income clients and international brands now come to us as a destination for their operations.

This quarter, we had VAN CLEEF who opened their flagship with us at Cidade Jardim. Creed also at Cidade Jardim. It's a very traditional brand and new brands, which are in the pipeline. We have this mix and this focus on the high-income segment, and this allows us to grow sales. We grew by 25% relative to Q3 2023, and the real growth was 20%. We are market leaders in terms of sales performance.

Catarina Fashion Outlet grew 38%. Cidade Jardim grew 23%. When we look at the S indicators, SSS and SAS, we are also leaders in terms of performance, 15% in same-store sales and 15% in -- same-store sales. And in terms of results, we see a 30% growth in the 9 months to now and 80% relative to the first 9 months of 2023.

We will have the Town Center in Boa Vista Village next year, and the beginning of the works in the Shops Faria Lima and this brings us a very bright outlook. We would like to highlight when we have the accumulated growth, you should remember that Catarina Fashion outlet is twice as large, and we don't have still the full result for a year of the expansion of Catarina Outlet.

In Q4, we are going to have the opportunity to see the yearly performance of the expansion of Catarina Outlet. The shopping mall has almost doubled in terms of size.

Then moving to hospitality and gastronomy. In these business lines, we have improved our RevPAR and our average daily rates by nearly 20%. The occupation rate is now nearly 54%. And our clients and critics have granted the Readers' Choice Award, in terms of gastronomy was a major improvement in terms of the average Couverts in terms of value and also new international destinations. Fasano Sardinia and Fasano Cascais, which are going to bring in more revenue for our business.

The results have not grown, and I would like to highlight what happened in this quarter. We had an impact of the sharing program, the profit sharing program, and the beginning of the investments we are making in the Boa Vista Surf Lodge in the Boa Vista Village. And in this quarter, we are training the team. We are recruiting the team. This is something we do before the operation starts, so we can provide the best possible service. So in this quarter, we are allocating costs to this operation, and we are not yet seeing the results because the enterprise is going to open at the end of the year.

The outlook is really good because of the new destinations and the new operations. And also, we are seeing an improvement in terms of RevPAR and average daily rates and average couverts. So we expect very good results in terms of margins in the next few quarters.

Moving now to the airport business. As I said in the beginning, the airport is now operating at full capacity, and we are announcing with joy, a new expansion. We opened the latest expansion, which gave us 12 hangars at the end of last year. It has reached full capacity, and we are now announcing the expansion of the airport for 2025 to serve those customers who are in the waiting list for our hangers.

The operational performance is very good, 31% increase in terms of flights taking off and landing. The payback and the return, the yield on cost of this project is very good given that the infrastructure is now fully available. So we only have to expand the hangars. So for the midterm, these are projects that will bring in good margins and good returns for our recurring income business.

In terms of Liter filled significant growth by 27% and a very expressive results, 90% growth in the gross profit in the 9 months of -- relative to the 9 months of 2023, and the EBITDA doubled in terms of size and reached BRL 28 million. So the airport is giving us good results. The expansion is now in the maturing phase. And we are announcing a new expansion to meet this demand and to allow the airport to continue to grow.

In terms of the ROIC and the payback for the hangers. The investment is relatively low, given the infrastructure that we have. The hangar is between BRL 5 million to BRL 8 million for us to build it. But the expenses does not increase proportionate -- in proportion to the hangars. We have 50 flights per day. We can go up to 100 or 200, and the expenses will be approximately the same. So it is a relatively low investment and we do have the demand. We have a slight overbooking. The demand is growing. So it's a no-brainer really to make the investment.

Moving on to rentals and clubs at JHSF residences. We have new units which have been delivered and sold and they offer a unique quality and services. They are high standards. The decor is high standard as well. We provide top services and the Clubs as well, we are moving forward. So we now have 64 units for rental with an NOI stabilized at BRL 50 million. In Q3, we have more than doubled the number of units leased relative to Q3 2023.

And in this quarter, we hosted the first addition of Boa Vista Surf Invitational. Clients came with their families and professional surface came, [indiscernible] and served with us. So this was the first edition of this type of event, which connects our clients to our business.

In terms of gross profit, a growth by nearly 100% relative to the 9 months of 2023. And in the EBITDA, it was 103%. We went from BRL 17 million to BRL 24 million. So this business line has been growing in terms of the number of units, which are being rented. The Club business is doing really well. And as we said, by year-end, we are going to open the Fasano Club in Sao Paulo. And in the first semester, we are going to open the Sao Paulo Surf Club. The outlook for the midterm is really good.

In terms of JHSF capital, there was a fast growth in terms of AUM and the fundraising. JHSF Capital focuses on high income real estate and is connected to our ecosystem. It is the first asset manager focusing on real estate for the high income segment. And we now have over BRL 2.3 billion in AUM, which also contributes to our strategy in terms of using third-party capital in asset-light operations, such as Fasano London fund raise. This fund is going to raise GBP 66 million.

So JHSF capital is giving us new opportunities for investment. Our investors can come with us and invest through these funds. And we do have a robust pipeline in Brazil and abroad. Additionally, the capital was the M&A advisory exclusive in terms of the capital recycling. So JHSF Capital has been working with us in our recurring business lines.

Now in terms of the real estate development in the first quarter, there was a growth in contracted sales relative to Q3 2023, a growth by 44%. We have a new section of Marginal Pinheiros. There was a major improvement in the region, which allowed us to start the beginning of the works of Reserva Cidade Jardim. And we have also seen an improvement in the mix, and we now have nearly BRL 1 billion in Q3 2024 because of the PoC and the revenue to be appropriated. The total was nearly BRL 1.4 billion in terms of receivables.

We are doing the right thing for the company. We are preserving inventory, preserving margin values. Last quarter, we also announced something similar. We have been growing sales, whilst preserving margins. And in the mid to long term, we want to preserve the results of this business unit, and we are going to continue to move forward in this way. We have a clear vision and a clear idea of the value of these projects, and the company is going to continue to look at the sales velocity, and we will continue to align this with our expectations for these projects.

There was a decrease in the profit because of the mix in terms of unperformed revenue and performed revenue. But going forward, given the expressive growth by nearly BRL 1 billion in terms of unperformed receivables. And if we look at the history of our results, we have a margin of above 40%. So we believe that these projects will perform in the mid- to long term whilst maintaining margins and profit at healthy levels. We are going to continue to focus on our margins in the real estate development business line, and now for the consolidated.

[Mara Dias, executive]

Let me just explain what we mean by performed and unperformed or appropriated or nonappropriated. For real estate, when we sell, we have a revenue, which is included in the P&L. If we sell Reserva Cidade Jardim, we built the marginal road. We started the construction works. We gained traction in the sales, but not all of the sales have translated into results into income. So the costs incurred, which are the metrics for us to account for what we have sold are still at 20%. So for each BRL 1, only 20% of that has been translated into the P&L.

We have over BRL 1 billion to appropriate. We have received part from the customer. So when we talk about appropriated and to be appropriated, this has to do with what was translated into the P&L. So projects like Reserva, Boa Vista Village, where we have buildings. There are some products there where we are still building the houses. So not everything that has been sold appears in the P&L, and this is to be appropriated. And then as we continue to build, we are able to appropriate the sales to the P&L. So this is the mismatch. It has to do with the PLC.

[Augusto Juniror, executive]

Thank you, Mara. Now moving to the consolidation of our recurring income business. The numbers attest the success of our strategy. The gross revenue grew by 18%, and has reached BRL 265 million, a 22% growth relative to the 9 months of 2023. The gross profit grew nearly 20%, and 29% in the 9 months relative to 2023. In terms of EBITDA, a growth by nearly 40% this year relative to last year and the net profit, 114% in the 9 months in 2024 relative to the 9 months of 2023.

When we look at the consolidated numbers for recurring income business, they show that, obviously, the real estate development business line is going to continue to be a focus. Reserva Cidade Jardim for instance. We have started the construction works. These are going to be 4 iconic buildings, and this is part of our history, it's in our DNA. But as I said, JHSF has become stronger as we decided to go beyond real estate development.

So when we look at the investments that the company is making, nearly BRL 180 million in the quarter. The new projects we are working on for the recurring income business. All of that shows us that we have chosen the right route to diversify the risk in our business. The company has become stronger and is now in a more secure position to face the macroeconomic cycles in the country, particularly the interest rate cycle.

This allows the company to be a unique case. We build on the strength of our real estate development business and also on our focus on recurring income. We have become leaders in the market, in the high-income market. At the end of the quarter, we know that we are on the right path. We are highly motivated, and we have a lot of hope that we are going to see even better results in the next few quarters.

And this is our consolidated results. There was an increase in terms of net income by 21%, relative to Q3 2023. The impact that Mara explained in terms of the appropriated revenue, because of the mix of sales. But as the construction works move forward, we can expect a good return. And in the midterm, as these business lines mature, we expect even better results.

I'm going to turn the floor over to Breno, who is going to talk about the capital structure and the issuances.

[Breno Vicente, executive]

Good afternoon. This year has been very important for the company. We have taken advantage of changes in the capital markets to do a better job in terms of liability management. We make two issuances. And we also sold minority stakes. We look to allocate the company's capital in a more efficient way. And we also focus on assets that we want to have, assets for high-income segments in Sao Paulo, the Southeast. So these movements were extremely important.

We have sold shop in Faria Lima, approximately BRL 650 million which includes a convertible debenture we have with XP, which is going to be converted until the end of the works of the Faria Lima Shopping in the capital markets, 2 major issuances, BRL 1.3 billion, which were well received by the market. In the first operation, we issued BRL 700 million for the rental vertical of the company, and we raised, with a longer series, at a rate of CDI plus 0.59% And in November, we completed a CRI issuance of BRL 600 million, where we were more aggressive in terms of duration, 10, 12 and 15 years and the rate was very attractive, the lowest rate we have ever accessed in this market. A swap rate of CDI plus 0.6% per annum.

So we moved from an average maturity term from 5.4 years to 6.2 years. We continue to work on the capital structure. There are opportunities in the short term that we are addressing -- we are focusing particularly on the maturities of 2025 and 2026. And just to reinforce, when we talk about BRL 650 million that we got in that sale, we have the finalization of Shop Faria Lima, but also we sold our stakes in Bella Vista Shopping in Salvador, Ponta Negra in Manaus. And this was to align us to our strategy of focusing on the high income segment. So this total value includes these two other transactions.

In Ponta Negra, we have an 18% stake remaining, but this BRL 651 million includes these three assets. On the next slide, you can see what we have been doing. And the strategy is to have maturities less concentrated in the short term. We shouldn't see what we see here in 2025 and 2026. It should be a longer structure and the maturity should match the maturity of our investments. We invest for the long term. And of course, the funding has to match the length of our assets or the maturity of our assets.

That's why approximately 85% of our debt is in the capital markets. It's a market we have been going to very often, with different issuances. We always look at market opportunities. So we are going to try and lengthen our debt. We are dealing with 2025 and 2026. And in the next few quarters, you should see this ongoing work that we have been focusing on. 91% of the company's debt is within the capital markets. The duration is 6.2 years, and this should increase in the next few quarters. Net debt of 3.9 -- gross debt of BRL 3.9 billion. XP malls, BRL 121 million. In cash, we have BRL 1.330 billion. And in terms of receivables, BRL 1.270 billion. The net debt is BRL 1.235 billion, 1.73x in terms of net debt over EBITDA. And in terms of shareholders' equity, 40%. We have been successful, and we continue to look to the opportunities in the market.

I just wanted to say that there are four main highlights for us, which motivate us to continue to work. First, the confirmation of the success of our strategy. The results attest to the success of our strategy and the commitment of our team. We have been able to deliver the results that we expected. JHSF has become stronger with this diversification. In terms of risk as well, we are committed to results in the short, medium and long term in a responsible manner so as to preserve the value of our inventory.

We also want more predictability for our business. And these results attest to the operational success of our projects, our leadership in certain sectors and the new investments we have announced, especially internationally.

We now have brands that we can take globally. And from the point of view of the capital structure, we have been very successful in recycling the capital. We are committed to using more third-party capital within the company, which will allow us to make the necessary investments. The success of the issuances in the capital markets. The results were fantastic. And we are committed to continue with all this focus. So these were the four highlights that I wanted to convey to you.

[Mara Dias, executive]

Thank you, Augusto. Thank you, Breno. We are now going to start the Q&A session. To ask your question live you may raise your hand. And if you prefer to ask your question in writing, use the Q&A icon.

[Unknown Executive]

The questions we are unable to answer now will be answered by our IR team.

[Mara Dias, executive]

Can we open the floor to Pedro, please?

[Pedro Lobato Garcia Fernandes, analyst]

I have actually two. The first one is I would like to understand the pipeline until 2024. Sao Paulo Surf Club, the residential business and Fazenda Santa Helena. So could you give us an update on these two projects and others that you may be able to share with us?

And then the company has had a high volume of receivables in the last few quarters. This is something we always talk about in the calls. But are you thinking about anticipating these receivables? So how do you see that?

[Unknown Executive]

Thank you, Pedro, for attending. Thank you for your questions. In terms of the pipeline, we have, generally speaking, we have just delivered Casa Fasano at the end of Q3 and it's going to start operating in Q4. And the outlook is really good. Then at the end of the year, we are going to deliver the Boa Vista Surf Lodge operated by Fasano, and is going to start operating at the end of the year as well, until the end of the year and the start of operation of Fasano Club, which is linked to complex of Cidade Jardim.

In the beginning of next year, Boa Vista Village Town Center, it's an outdoor shopping mall is going to start operating in the beginning of 2025. Then again, for the beginning of 2025, the Sao Paulo Surf Club will begin to operate. So we have 5 major enterprises, which demand a lot of investment in the last few months. We have accelerated investments in Q3. And in terms of the results of these projects, we believe that the results are going to be very good.

Then in this quarter, we announced the beginning of the construction works of Shopping Faria Lima, a multiuse enterprise. And also, we are going to begin Reserva Cidade Jardim. The construction works now that the marginal works have been delivered. So this is an idea of what you can expect in terms of revenue generation.

[Mara Dias, executive]

You also talked about the new launches in the real estate development business. We have a new project in Braganca called Santa Helena. It's at the final phase of approvals and permits. This should be launched in the first semester of 2025. In Sao Paulo, within the club -- within the Sao Paulo Surf Club, we also have residential project. It should be called Real Parque Residence. It hasn't been launched yet. We are going to open the Club. And then seeing when we will be able to launch this new project, probably next year once the Club has been delivered.

We try to launch these products in the best possible time and this to allow us to preserve the value of our inventory. We look at the return the profitability. We are not going to burn value and just to launch and give discounts. The right time will be when the conditions are right, but this will probably match the Club opening. And then in the region of Castelo in Porto Faliz, we have the Boa Vista Village. We should finish the construction works of the Lodge within Boa Vista of tennis, and we should start the works of two enterprises in the village.

Surfside, which is by the pool, by the surf pool and then the Homes, Village house. So these are two projects we are going to start building shortly. And these are the ones that I didn't mention before.

[Unknown Executive]

I think the strategy that you commented on in terms of capital recycling and the sale of assets and anticipation of receivables, these are complementary strategies. There's no trade-off there. We sold Ponta Negra in Bella Vista because of the company's strategy of focusing on high income assets and probably in Sao Paulo. So this has to do with our strategy. And then in terms of the receivables, we might anticipate some receivables, but we are studying the most efficient way to do it.

We might use the receivables flow. It's a very expressive amount, high quality, which can be converted into capital. And this reduces our gross debt. We always look at the strategies via capital via funds. So these are complementary strategies.

[Unknown Analyst]

Mr. Matthew Malone from Santander. First, I would like to understand a bit more about the rental segment. How many units are currently for location, what is the occupation rate and the pipeline for delivery in the -- in Q4 and in 2025?

And then in the real estate development business, why was the margin hurt in the quarter.

[Mara Dias, executive]

So let's take the last part of your question. The margin basically has to do with the POC. It's an accounting effect. We have more products than plots. In Q3, we sold plots with a very high margin. And this had an effect in the accounting book. So basically, this is what happened. It's an accounting effect.

And then in terms of rental income, we have 64 units, that are not ready yet, but are being sold. They are being gradually sold because we make an adaptation to rent them. We furnish these units. So this is a rental where customers have everything that they need and we need a period to adapt these units, which are ready for rental. We are halfway through. We saw the CapEx, the investment made in these 64 units. They are worth a bit over BRL 1 billion. They are the guarantee of the first CRI for BRL 700 million, but they are still being sold. The trend is for us to -- by the end of the first quarter of next year to sell all of them, 100%.

In terms of pipeline, we have new units. In the release, you see by location in Cidade Jardim and Reserva, 20% of the total of the PGV is going to be for location. And we calibrate that as we sell the project. We also have Boscia project in Sao Paulo, and these are going to be houses for rental. This hasn't started yet. And in Vista Village, we have some units which are going to be left for rental. But for the time being, 64 are being sold. Have we answered everything?

Can we listen to Elvis please, from BTG.

[Elvis Credendio, analyst]

On my side, I have two questions. First, about the financial results. When we look at the financial revenue, the number is negative. Could you explain what happened? And what can we expect in terms of financial results going forward?

And then cash generation for next year, what do you expect in terms of operational cash generation? And how does that match or not the company's investment plans?

[Unknown Executive]

Thank you for your questions, Elvis. In terms of financial results in the balance sheet, a large part of the financial expense has to do with projects under development, and this is capitalized in the cost of the project. So when you compare different periods that have more projects relative to a period where there are less projects, you see the mismatch.

In terms of financial results, the debt is in transition, so to speak. We made some issuances. We are paying for some operations that have a cost higher than we wanted. So we are now lengthening the debt profile and lowering the costs. This has been lowering. The financial cost is lower and continues to decline. In March, it was CDI plus 2.22% on average, and now we are below 1.80%. And we are always looking for the best opportunities in terms of debt swap -- sorry.

So when you look from an accounting point of view to the cost, the cost has been going down and will continue to go down going forward. We haven't been able to swap the debt as we wanted. We are working with debenture holders, bondholders. We are sitting down with them and talked to try and reduce the costs, but the accounting effects come from the projects. And if you compare different periods, you see this mismatch. But what we have been doing is working to reduce the costs.

Yes, cash generation. As we said, we made a lot of investments in the last few years, the strategy for recurring income required a lot of investment. We doubled Catarina fashion outlet in terms of size. At the end of the year, we are delivering the Town Center, pool in the Surf Club also by year-end. So it's a year -- with a lot of deliveries. A lot of CapEx was invested in the last 2 years, and we are going to see that mature as of Q4 and in 2025.

In terms of residents, we are halfway through. The units are being sold. So very soon, the projects will come to maturity. There will be a relevant growth in terms of cash generation in the next few quarters.

In terms of real estate development, very difficult to estimate it because projects mature at different points, and we have the PoC. In Reserva, for instance, customers are interested. We are selling a lot. But the PoC is very low, 20%. So a lot of it is not seen in the P&L. We should see that in the next few quarters.

The message I wanted to convey, I can give you some more refined models and numbers in the future, but what we see is better results in Q4 and 2025 as the CapEx comes to fruition.

[Mara Dias, executive]

We have some questions that we received in writing and I'm going to complement some of the answers. There was a question about Sao Paulo Surf Club.

The opening date will be in Q1. The pool will be ready by year-end. We are working on the landscaping. You are not able to see it from the road, but we are working on the landscaping. And we want to deliver the pool with the chain, with the club so that members can use it with quality.

Also, from the point of view of investors, the financial part of the club, what is the profitability like?

There are two things. You have the club itself and the sale of memberships. The margin is very similar to what you see here in the P&L. And then it's the operations, and that's similar to an operation to a restaurant, sale of food, beverages, members go there, they serve and they have food and beverages. So the costs have to do with the operation of the pool and with the operation of the restaurant, for example. The margins at Fasano would be very similar to the operation of the Club.

Then there was a question about Santa Helena. We have not launched Santa Helena yet. We have not started the construction works. We are at the permit phase. But this is a different destination. It's not like Fazenda Boa Vista. Fazenda Boa Vista was anchored, so to speak, with Hotel Fasano but Braganca is a different thing. We have worked in the landscaping of Fazenda and that's a very well-known destination.

So these were the main questions. I won't be able to answer all of them. We will answer all these questions by e-mail. I don't know if Breno or Augusto would like to say anything?

[Unknown Executive]

No, just thank you all, and we remain available. Should you require any further clarification or should you require any answers. Thank you so much for attending.