Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, good morning. Thank you for waiting, and welcome to the conference call for LOG Commercial Properties. [Operator Instructions]

Now I would like to pass the floor to Mr. Sérgio Fischer, CEO of LOG; and Mr. Felipe Gonçalves, CFO and Investor Relations Officer. Please, Mr. Sérgio, you may proceed.

[Sérgio De Souza, executive]

Good morning. Thank you once again for participating in our conference call at LOG. Q1 2020 was very good, and we trust in the future of our business in spite of the turbulent times ahead of us.

Before talking about the results, I would like to talk more about our actions at the time of the pandemic. Our main concern is with people. Since March 15th, we have 90% of our employees working at home, especially those who are at risk in terms of health, and those

whose activities are not affected by distance. It was the best decision. We have no cases of infection among our employees and families. We also took many administrative measures, such as prohibition of external meetings in the office, and we canceled trips. Also availability of alcohol gel and mask for all employees. The way we see it, we hired also health technicians. We tripled cleaning and hygiene in the condominiums, and we also implemented shifts in the restaurant to avoid crowds.

We have 15,000 people circulating in our projects. We also look outside. We continued with donations for the purchase of respirators, and also the donation of food and space for community health. We took on this commitment to not layoff anyone during the next 60 days. We continue looking at the business.

In terms of business, the crisis has not affected us directly or indirect. Our undertakings continue open all the time, all the process continue open all the time. We have a crisis committee, and we are looking at the request of our tenants on a case by case basis

we believe in long-term relationships. And we offered, as we mentioned in the release, to postpone payment, and also deferring rent for the second semester 2020. Due to the quality of our clients and average duration of our portfolio, we are being very successful in our conversation.

Now looking at the future, the future is very promising. We foresee the Brazilian market lacking projects like ours and opportunities like ours. There are many obsolete assets and clients that are migrating to Class A assets, the flight to quality. But we believe in the bright future. Due to this, we continue acquiring plots of land. We acquired 3 plots of land during this quarter to replenish the land bank for our growth. We continue with our plan and our goals in spite of the delays that may happen. We had a strong quarter in terms of sales with 75,000 square meters absorbed. With this, our vacancy stabilized at 4.5%, and physical vacancy, 5.6%. In April, we closed a new contract with [indiscernible]. This contract is of additional 11,000 square meters and may reach 44,000 square meters in future spaces. We also have other projects, the PIB and we also have a quality undertaking.

We have begun to work with Arcelor in April, and we want to deliver in this for Q1 2021 with 11.6% growth. Our projects are 88% rented before they are delivered, so they continue normally.

Before passing the floor to Felipe, I would like say that we customize business model with modular sheds, also geographic diversification and a quality land bank. We are very well positioned, with an excellent client portfolio.

Now I would like to pass the floor to Felipe.

[Felipe Gonçalves, executive]

Thank you. Good morning. As we have been speaking, we have a comfortable cash position. The event in Q4 2019 and also the global operation gives us comfort. In April, we received 95% of everything that was sold. The deferred payments mentioned by Sérgio are not relevant this year because the strategy estimating the flow for 2020. We are evaluating the best alternatives for LOG and for our

clients.

We are always alert to the market for new opportunities to lessen our debt, the maturity of our debt. But we believe that this is not the right time due to the high costs. So we did not get any new loans. Our debt is totally linked to the CDI index, and now we have also the [indiscernible] We have our spread and return on investment, and cost of funding is a little higher.

And, to finalize, our general cash condition, the adjusted EBITDA was 1.8x the volume of interest payment in this record.

Now, I would like to go on to the Q&A session.

[Operator]

[Operator Instructions]

Mr. Alex Ferraz, Itaú BBA has a question.

[Alex Ferraz, analyst]

I have two questions. The first has to do with the purchase of plots of land and the scenario for this year, the uncertainty. You could accelerate the purchase of plots of land. I believe it is easier to negotiate now. And it is clear that you are helping the tenants who are suffering a little more. But do you have requests to renegotiate rent prices? Well, most of the portfolio is doing well. Those projects that are suffering, we have some, so please comment on this.

[Sérgio De Souza, executive]

Let's begin for the purchase of land. We have made with expansion. We are buying more plots of land than we had imagined. And because of this -- we are working on this. Most of the purchases are in city with no risk. They are the Midwest, Northeast and Southeast. We don't see competition, so we made good purchases. So it is very good time to buy plots of land.

So we are, as I said, we are working also on the approval of new projects in order to build faster if we see demand for this. We have analyzed this on a daily basis. And we have these deferred payments. We are charging interest on them, looking for payments from tenant, very small discounts, very few discounts from tenants who are suffering more impact than others. But we are catering to all of them. And if the client is suffering, we negotiate with them. So we are being able to for those who are returning, we are renting in a short space of time. So we have been able to rent those who are returning for some who are returning in a fast way.

[Operator]

[Operator Instructions] Our next question comes from André Mazini, Citibank.

[André Mazini, analyst]

My first question is on the operations. You are in many states. Did any of the cities ask you to stop the construction or the operation, was there a lockdown? Or is everything open with the safety measures?

[Sérgio De Souza, executive]

Thank you for the question. All our projects are open and working. Our business has good characteristic. We have projects that are involved in food and pharmaceutical product distribution, so we did not have any project to close down. Now what we have seen with the level of activity of our clients with a drop of 15% in the number of trucks in this period is due to some operations involved in cosmetics and apparel, which are suffering a little. This drop is around 15%, 15% drop.

[André Mazini, analyst]

The next question has to do with the receivables. What criteria are you using to defer payments? We know that some clients ask for same that are accepted and some don't deserve. So what is the criteria? How do you separate those who actually need deferred payment and those who do not need? For example, do you observe time, for example, less people working or -- in these projects in these clients? How do you monitor the activity of the clients to see if they need deferred payments or not?

[Sérgio De Souza, executive]

The fact that we can control since we have the information. We know how many employees each clients have. We know the level of activity. So for us, it's very easy to monitor the activity of the client. We have some cases that we have to monitor more closely. We look at many factors, not only the client's operation but we look at the impact on the client cash. We need all this information to make a decision.

We're very optimistic. We wish to have a partnership and keep the clients in our condominium. So we want to be close to the client, and the relationship with the client is also very important. 50% of the new rentals are with recurring clients. So these clients will allow us to grow in the future. So we are very well, and we count on them for future business.

[Operator]

Our next question comes from Mr. Raul from Eleven.

[Raul Grego Lemos, analyst]

I would like to understand a little better the new contracts. What were the conditions, price and the spreads? Do you have real gain in rental prices? Can you give some information about it?

[Sérgio De Souza, executive]

So we have ascribed strong level of activity. It has been very positive. The total vacancy is low for the half. So we were able to pass on the inflation to the contract. We were able to recover the amounts due to inflation and a little more in terms of increase. We don't believe that prices will fall, but we have to negotiate. We believe this year, we will renew the contract, increasing the price by the amount of inflation during the year.

[Operator]

[Operator Instructions] So we'd like to close the Q&A session. Now I would like to pass the floor to Mr. Sérgio and Mr. Felipe for their final comments.

[Felipe Gonçalves, executive]

Felipe speaking. I have 3 quick messages. So our -- we have a solid position, financial position. We are prepared for the payment in the next 24 months. And therefore, we are working to improve conditions and also delivery.

So in terms of growth, we continue with our strategy, buying plots as land. And we are always looking at client activity and working on our strategy. We will continue executing our plan during the next few years in order to maintain a robust balance and deliver what we had delivered and even a little more.

So we, as I said, we're always looking at the interest rate in the long term. And I tend to find the opportunities. We're always looking at cash flow. We believe that this interest rate may drop in the short term, so we are working to have a solid position. Thank you.

[André de Ávila Vitória, executive]

Thank you for participating. We know these are difficult times with the crisis, but we have a quality portfolio, good quality portfolio, and this allows us to continue. We are working to mitigate the impact, and we are analyzing the projects in all the geographies. And I believe this. We are continuing with our strategy and we are analyzing the market consumption. We will also analyze our product mix. And we believe in our flight to quality, clients coming to Class A projects that we have. We'd like to thank you all for participating.

[Operator]

The conference call of LOG Commercial is concluded. We thank you all, and we wish you a good day.

[Statements in English on this transcript were

spoken by an interpreter present on the live call.]