Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome. Good morning. Thank you for waiting. And welcome to the conference call of LOG Commercial Properties. We inform that this event is being recorded and translated simultaneously. [Operator Instructions]

Before proceeding, we would like to clarify that any statements made in the conference call concerning the business outlook of the company, forecasts as well as operating and financial targets represent the opinions and assumptions of the company's Board, which may or may not occur.

Investors should understand that political factors, economic conditions and other factors may affect the company's future and lead to results that differ materially from those expressed in such forward-looking statements.

Now I would like to pass the floor to Mr. Sérgio Fischer, LOG's CEO; Mr. André Vitória, CFO and Investor Relations Officer; and Mrs. Luciana Zanini, Director of Financial Planning and Investor Relations.

Mr. Sérgio, you may proceed.

[Sérgio De Souza, executive]

Good morning. Thank you once again for participating in our conference call for LOG's earnings. Q2 was very good. We trust in the future of the company, and we continued, prepared and well positioned to take advantage of the opportunities with the expansion of e-commerce and also, we closed the company with the best quarter.

Before talking about the results, I would like to talk about our commitment to help our clients and team to go through these difficult times. I would like to also recognize the efforts of our employees. We closed Q1 since the beginning of the pandemic. We took many measures to minimize the risks for the thousands of people who circulate daily in our projects.

We hired health technicians. We tripled the cleaning efforts, and we implemented shifts in the restaurants and educational campaigns for our clients and outsourced parties. Also, we suspended meetings outside the company and trips, and we implemented strict isolation measures.

We will continue to alert and in a disciplined way, also heeding all the recommendations of the authorities. In terms of business, our undertakings continue open. We're part of the supply chain of essential sectors of the economy such as food distribution, pharmaceutical products and cleaning products.

We have an executive committee to take care of tenants' requests on a case by case. We accepted some requests to defer payments from tenants and some discounts. This diminished as the months went by. Until now, we have had very little delinquency, and this shows the great portfolio we have and our exposure, which is pulverized by many sectors. We have the lowest net delinquency in the last 12 months.

Since Q3 '19, which shows that our strategy is correct. We continue working. And we built many partnerships and this has helped us in our conversation and results. We have promising expectations for the future. We see the Brazilian market as lacking projects -- Class A projects and many going from obsolete projects to Class A quality. Also the isolation increased e-commerce simultaneously in all the regions of Brazil, increasing the search for logistics space in many cities where we have Class A assets.

There are estimates of -- for the acceleration of the natural evolution of e-commerce in 3 or 4 years because of the pandemic. In Brazil, we have half of the volume in the U.S. and 3x less than in China for e-commerce. We believe that the change in habit is profound and significant. And part of this transition will remain as a legacy after the pandemic.

Publications suggest that 1/4 of the Brazilian population bought via the Internet for the first time. And this shows that it doubled since 2019. And this, especially in beverages and food. Large operators have positioned themselves to take care of their clients with more quality, and they have tried to reduce the last mile.

All of them with our business model. We calculated more than 1/3 of the Brazilians is less than 150 kilometers from our projects. We are in 11 states and many of them with quality -- with good quality. We believe that the demand towards flight to quality, and this will boost our business in the next few years.

We launched at the end of 2019, the plan All for One to add 1 million square meters to our portfolio. For this, we proposed to buy 700,000 meters of plots of land. Of these 312,000 square meters of land were already bought until the closing of Q2 '20. And this through our intelligence. We defined our expansion based on our client base, which minimizes risks.

Our growth thus has a virtuous cycle. We had a very strong semester with a record rentals at LOG. We signed 231,000 square meters in total. And thus, we continue with a strong and we have rented 95.5% of our space. We delivered 28,600 square meters, 98% already rented. We began 2 new projects, 1 a new contract for -- with a potential of 44,000 square meters, and this in Betim and Belo Horizonte in the state of Minas Gerais. This is the first project of sheds, and it is a quality project.

Before introducing our new CFO, André, I would say -- I would like to say that we trust in our quality projects, modular sheds and also with an excellent portfolio of clients.

[André de Ávila Vitória, executive]

Thank you, Sérgio. It's a great pleasure to be part of the team for LOG. We will continue producing many good things, as we showed during the last quarter. Our performance indicators continue solid. We have 13% growth in operational revenue, net revenue, and we had 13.7% growth in adjusted EBITDA in relation to the same quarter last year.

And also, we had an increase of almost 42% of FFO adjusted year-after-year with BRL 23 million. The combination between cost of funding at historical lows and the return yield of 12% have given us record spreads.

Our management model is very competitive. We saw this in our relationship policy with clients and the result of actions during the pandemic. For example, the net delinquency in the last 12 months, closed the quarter at 0.57%, the lowest since September 2019. And the rent collection in July is at 100%, including the deferred rentals that mature this month.

So all these impacts had a limited impact on cash. Without any negative effects expected in the next quarter. More than 80% of these deferred payments given or have to do with April, May and June. And we see only a reduction of 18% in receivables. They will be amortized in the second semester. We have a potential for accelerated growth. We have a forecast of accelerated growth. We have a net debt of only BRL 135.7 million.

We're always alert to the market for new opportunities to lengthen the profile of our debt. We continue looking at interest rates in order to have more free cash for investments. We evaluate also opportunities to recycle capital by investment funds through FII LGCP11, which worked very well the first issuance. The fund has an approved capital of BRL 1 billion.

We continue to offer the same experience of a diversified portfolio, maintaining the control over the asset. The rhythm will be determined by market opportunities and the demand for capital in our expansion plan.

Now I would like to pass the floor to Luciana, and she will comment our participation in the stock market.

[Luciana Zanini, executive]

Good morning. In relation to the stock market, in our stock market, we had a positive recovery after a period of volatility, which began in March. In turn, and especially in terms of liquidity, we reached -- here, we reached BRL 14.6 million in ADTV 30. Another point is that our share dispersion and the free float is interesting.

We have 53% foreigners and 47% Brazilians. Brazilians, 39% represent more than 23,800 individuals or 18.4% of our free float is represented by individuals. So we -- thus, we close our presentation, and now we will go on to the Q&A session. Thank you very much to all.

[Operator]

[Operator Instructions] Our first question comes from Enrico Trotta, Itaú BBA.

[Enrico Trotta, analyst]

2 quick questions. The first, the deferred rentals. So these were -- these payments of rentals, were they deferred to the second semester? Do you see any trend to have an increase in delinquency of these rentals? You said that until now, everyone has paid. Is there a risk of delinquency in the second semester? Also explain what type of lessees or tenants do you have? Is there -- do you have a specific segment? Are they in a specific segment? Also, in the second question, we see an acceleration in retailers looking for logistics projects. Is this concentrated in the southeast of Brazil? Or do you see demand in other regions of Brazil where you have sheds? Please explain this.

[Operator]

Please wait. Please wait while -- please wait for the answer from the speaker. In a few instance, the speaker will be answering the question.

[Sérgio De Souza, executive]

Okay. Sorry. We had a technical problem. Okay. The 2 questions. First, deferred payments. We -- actually, it's the opposite. What we did -- just a second, we're adjusting the sound -- we received more than 70%. We had some cases of discounts. So for example, apparel, there was a concentration in apparel. We had to negotiate with them. Other sectors did very well. And food and beverage was good. Well, we don't see any increase in delinquency in the future. We have a good clients base. The deferred payments were already made. They already collected. So we don't see delinquency in the future.

Now concerning e-commerce, the greatest demand we had was outside the southeast of Brazil. We are close to consumption centers. E-commerce has grown a lot. Some statistics say that it doubled -- e-commerce double during the pandemic. And we have seen demand on a national scale, very strong in the northeast of Brazil too, and south and southeast with a lot of demand. So we've seen an increase, not only in the southeast, but on a national scale, all over the country, we've seen increasing demand.

[Operator]

Our next question comes from André Mazini, Citibank.

[André Mazini, analyst]

First question. Our rentals and vacancy, total vacancy dropped, and we see here stabilization. Now André, you rented 120,000 square meters. You delivered 61,000 meters. I imagine that you had some churn so you deliver 61,000. So some people, some tenants left, who left? Who is leaving? Who's joining probably e-commerce, right? That's my first question. And the second question on contract. You say that average contract is 93 months, almost 8 years. So if you could tell us the built-to-suit and modular sheds. For example, do you review these contracts? Or is it the same contract during the whole term?

[Sérgio De Souza, executive]

Thank you for the question. You are right. We have a lot of churn, but not because of the pandemic. This is a normal churn, people changing, 10%. We see this as a positive effect. So we have new entrants. The good news is that we're being to rent, we are told, 120 days before. And we are being able to rent the spaces before the previous tenant leaves.

Now concerning new entrants what we closed this semester, 70% to 3 sectors: E-commerce, pharmaceutical and transportation companies. And in the other sectors, the same. Now concerning contracts. All contracts have the right to be reviewed, they can be reviewed. For example, we have a lot of proximity with our clients. We have a good relationship. We always understand their needs. And we review terms during the contract. Churn is typical. Now concerning the type modular sheds, on average, we are for 4, 5 years, the contract is modular.

[André Mazini, analyst]

And the reviews every 3 years?

[Sérgio De Souza, executive]

Contract reviews every 3 years. But we never had a review in our history, we never had. So well, some clients require expansion, these are the case. The relationship is very good. We talk to clients on a daily basis. 70% was -- we had these cases of deferred rental payments during the pandemic, but legally, they have the right to review the contract every 3 years.

[Operator]

[Operator Instructions] Our next question comes from Pedro Hajnal, Bradesco BBI.

[Pedro Hajnal, analyst]

Congratulations for the results. First of all, in relation to your portfolio in this semester, we saw an increase in occupation from e-commerce companies, 11% right now. What are your expectations in terms of growth? How much do you believe e-commerce can represent in the next few years? And the second question, concerning projects, new projects, you have -- you see an increase in demand for sheds, okay? Can you accelerate construction, also those who are -- which are being built, do you have any projects to be delivered this year? Are they rented already?

[Sérgio De Souza, executive]

Okay. Pedro, Sérgio. Let me begin with the second question. Our schedule was not affected the construction. We delivered 20,000 square meters. We -- 98% is rented. We have 2 new projects, construction projects, which should be delivered in Q4, and they are already rented. So the -- so we have a project that was to be delivered next year. We're trying to deliver this year. The another is in Minas Gerais, which will be delivered in Q4 and 70% is already rented. Now concerning acceleration of the construction projects.

Normally, we have projects and construction in these areas. What we see, demand is going up to the projects that we began were beginning in Q3. We are accelerating, yes. This is due to the demand in all sectors, including e-commerce. Now your question about the percentage of e-commerce. 11% is for clients that do only e-commerce, but almost 40% includes operators that have e-commerce operations. They are not 100% dedicated, but they have e-commerce transactions. And the trend we believe that now we're going to 25% in e-commerce, we believe we might reach 40% of rentals for e-commerce.

[Operator]

Our next question comes from webcast, Thiago Lucchesi.

[Thiago Lucchesi, analyst]

I would like to know what could be the impact of the new tax on your earnings, LOG's earnings, the new tax?

[André de Ávila Vitória, executive]

Thiago, André. Thank you for the question. So after they delivered this LOG project to Congress. We understand that since we are part as middle persons in the chain, we should be affected, but not a material effect. Also, according to our studies, service companies and some of our suppliers may be affected with the new tax. We will continue monitoring the reforms in Congress, they are not approved yet to have a more concrete idea of this impact. So we will wait for the time being.

[Operator]

[Operator Instructions] Since there are no more questions, we would like to conclude the Q&A session. I would like to pass the floor to Mr. Sérgio, Mr. André and Mrs. Luciana for their final comments.

[Sérgio De Souza, executive]

Well, thank you very much for participating. These are our final comments. First, the growth. We're very happy with the growth. We began 2 new projects. In 2021, we will have a lot of deliveries in our portfolio, new projects. Together with this, the record spread that we have had. So close to cost of funding is very low. So we have a record spread. And with this, I would like to talk about the investment fund. We did the IPO in December. We're studying to really have this growth. We're analyzing it. Soon we should announce new movements. Thank you very much, and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]