Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, a very good day. Thank you for waiting. Welcome to the teleconference of LOG Commercial Properties referring to the results of the second quarter of 2021. We have with us Mr. Sergio Fischer, CEO of LOG; and Mr. Andre Vitoria, CFO of Directors of relations with investors. We inform that this event is being recorded and translated simultaneously.

[Operator Instructions] I would like to clarify further the declaration and statements during this teleconference related to perspectives of businesses, goals, financial goals and operational goals are projections of the company that may or not happen. We should understand that political and macroeconomic factors and other factors may affect the future of the company and lead on to results that differ materially from those that are expressed here.

In order to open the floor, I would like to pass the floor to Mr. Sergio Fischer, President of LOG.

[Sérgio De Souza, executive]

Good morning all, and thank you all for being here. I'll start with good news. The new BTS that has been closed with UBL in vetting for activities with construction work for the first semester of this year. It wasn't foreseen in our initial plan, so we are up scaling our foreseeable delivery up to 1.5 million in the first quarter of 2024. We are going through the best moment. Our absorption was 2x greater than the expected for 2020. We have 415,000 square meters BL of 93% out of the whole loads out of the Access Rio Sao Paulo, and 89% of the contracts actually with vacancy of 2%.

Online, we have doubled throughout the company throughout our period. In wholesale is a company -- is a trend for the next years, responsible for 84% of the growth absorption of the next year. We have activities that are mainly due to e-commerce, and we are going to deliver new assets. We are more than company and properties. We are delivering value.

In the second trimester of 2021, we have a major impact with the new assets that have been generated, and we have had major gains in this part. We have BTS Extrema BRL 272 million, 270,000 square meters more than twice the investment. It was done through an independent contractor that is responsible for most of our assets.

The competition of this recycling, 55,000 square meters, BRL 55 million in results, 44% above the average. The second semester, 227 ABL and BRL 1 million in -- and 15% above the average. A major part was actually above the average. We have assets in-house. We have our strategy of geographic diversification, 37 cities, 17 states throughout the country. Then construction works from now the north to south.

We are committed to the delivery of our growth plan we are building in 2021, 400,000 square meters of UBL. And we are to deliver that more than 50% are pre-leased. That demonstrates the power of our business. We are the greatest and the best portfolio in the sector. And these characteristics combined bring us a competitive and unique competitive edge.

I would like to pass the floor on to Andre.

[André de Ávila Vitória, executive]

Thank you, Sergio. We have consistent results. We have in the second quarter, BRL 78.4 million, 3.5-fold greater than last period. EBITDA was BRL 76.5 million, almost threefold the same period 2020. The revenue keeps on growing. Our cash flow is BRL 89 million. We have BRL 3.2 billion in assets as properties for investment. We are showing over and over that recycling now of assets mean more than an alternative of funding for our investment. It's part of our strategy. We are going to recycle assets mature that are within the proportions, maintaining our cash flow and our plan throughout the plan 1.5. We made public our ranking along the agencies, and we are pointing out our quality of credit.

Our cost of debt is low. CDI, 1.5%. The liquids, the debt is plus 1.3%. In this quarter, we have the sustainability report that has the best results and impact on all levels, including sustainability. We have joined the global path of UN, with the largest initiative, entrepreneurial of the world.

We'd like to go to Q&A now. Thank you, [ callers ], and thank you all.

[Operator]

[Operator Instructions] Our first question comes from Mr. Alex Ferraz, Itau BBA.

[Alex Ferraz, analyst]

I have 2 questions in one. First, build-to-suit. We had this announcement, 95,000 square meters in the industrial park. We see that there has been a comment that possibly there would be a fourth agreement. In general terms, whenever we have an announcement of build-to-suit, this contract should be the same size as the previous ones or we have smaller ones within the pipelines or any announcement should be relevant.

Build-to-suit, this is my second question. Should we expect a review of the plan once a year? Or could we wait more sequential reviews if you would say so?

[Sérgio De Souza, executive]

This is Sergio. In the first semester, we had 2 BTS that weren't in the plan that were actually above the plan, first quarter, and the second in the second trimester, the industrial part of the team. We have a third one in July, and we have a fourth undergoing negotiations in August. These 2 new one, July and August, they are not going to justify an alteration of the plan because the BTS are going to go according to exchange the speculation for BTS. They are major projects.

And some of those in this quarter are going to go above 100,000 square meters of BTL. Construction works already started to be delivered by the end of next year.

[Operator]

Our next question comes from Andre Mazini from Citibank.

[André Mazini, analyst]

First of all, recycling wise, you sold the stream up for a third party. So Macau, if I'm not mistaken, a real estate fund. We thought that with the interest rates going up, the real estate market would change dramatically with more capturing. It seems that it's off the negotiation table. When it comes to real estate capturing and when it comes to third parties, will there be further recycling if interest rates go to 7%, 8%, or in that order? Or will we step back?

And vacancy wise, we can see that it's a very low level. Please let us know about your initiatives in terms of numbers for LOG to be the chosen party. And mentioning that also, I'd like to point out competition services. And I remember, you mentioned providing forklifts if a leasing party needs and e-commerce as well? And I think that point would go even above and beyond my statement, and it's still within that line. And in that sector is not major in Brazil. I think the economy is different in Brazil. When do you believe that will take off in Brazil considering all the risks that we have? And what would be the boosters?

[Sérgio De Souza, executive]

Sergio here. Thank you for the question. Solar energy, it doesn't make sense yet. Our projects require energy in medium level [ nation ]. Our projects actually have that in mind for the future, what we have done recently in the last few years is change our projects in exchange with the free market, a reduction in the order of 25% in order of -- in that order in the reduction of bills of consumers. When we think solar energy, we are discussing, trying to understand and trying to see how that will unfold in the future. And we'll see certainly results in the near future.

Services-wise and our differential, our competitive edge, we are becoming one-stop shop for many clients. We see leases that used to be robust that we are actually decreasing. We are going for clients that know our assets, our specs in terms of quality. So we have that as a major differential, and that has been playing a major part in our leasings.

We sell the demand of the client. We know where they have to be, where they are installed, and they are much more assisted in that sense. And the assets that we have had here in LOG ADM, that manages the projects in the end. We do not have any concrete project at this point. We are still undergoing the studies regarding IoT and innovation, things that we'll certainly disclose in the future. I think I dealt with your question. Is there anything that I left out?

[André Mazini, analyst]

Real estate that you sold to a third party, so Macau, how is that scenario in terms of capturing third parties and others?

[Sérgio De Souza, executive]

Yes. What we have seen is that we -- our call center is searched from third parties. We see that there is an appetite from that -- those third parties. That was not the plan initially. We didn't think that would drop. We do not expect that to drop. We'll make some adaptations for those investors and our funds. We have the intention, a very solid intention to have more and more ABL in there with transactions that are [ phased ] and in a timely fashion. And if we have to do -- we are planning to do something in the near future in a robust way.

As I mentioned in the last 18 months, we recycled more than BRL 500 million in assets. That's an important strategy for funding, not only for the growth of the company but for the CDI of capital. We have steady steps that are very important, this BRL 500 million with a spread in the order of 44%, which is highly relevant, and we'll keep on acting on that.

Now regarding your point, the raising, the increasing of interest rates, we have some advantage in our business. The pipeline we are delivering, we are in the order of 12% yield on cost. We see a compression of spreads that may happen, that will report a gross margin that is around 35% or even above if we are to close the tables, the dealing tables in that order or so.

[Operator]

[Operator Instructions] Our next question comes from Bruno Mendonca Bradesco BBI.

[Bruno Mendonca, analyst]

Uncertainties in the real estate market, we have the tax reform. And on that point, you must -- I believe you must have discussed that. A lot of people believe that would be a worsened scenario, but it didn't go either way. Did you change your mindset in terms of leveraging the company speeding up some projects or changing some plants, running a leverage on a more temporary fashion. In that order, how would you be your mindset in that scenario?

A second question would be leases. We see the cost increasing in construction work. And so you mentioned that you are still delivering in the order of 12%. But the increasing curve in order to compensate the inflation, how do you deal with balancing out increasing costs and inflation?

[Sérgio De Souza, executive]

I'll start with lease, and then I'll pass on to Andre for the topic on leveraging. New leases now, it's keeping up with GRM. In the last 12 months, it's in the order of 34%. GTM is according to IPCA. We haven't been able to pass on the totality of IPC. Clients are renegotiating and asking for discussions that will give more longer deadlines. We have clients that allow us to deal with, especially clients that are paying less. Now in the second quarter, the same leased areas compared -- comparing first and second trimesters quarters, we have a growth in the order of 25% or more that has been improving the player as a whole even for new businesses. We have seen that nationwide prices gaining momentum and increasing. Margins are doing well at our level. And we have the impact in the construction -- civil construction sector that is unavoidable and undeniable.

And we have been a settling in that sector. We are very optimistic in maintaining the yields. We have maintaining that in the order of 12%. And we have been dealing accordingly with the levels of leases prices. Andre, the floor is yours.

[André de Ávila Vitória, executive]

Bruno, structure-wise, as we have in the company currently for funding. Independently on the tax reform on the account of the market, which is very volatile, the perspectives concerning the windows that we have are -- that we can explore, we have had equity this year. We have to assess that structure and monitor that constantly within our assessment. Bet-wise, we have very low leveraging. We can keep on pushing that slightly further to balance out with capital.

On the other hand, the tax reform, that was a pillar that had a greater attention given to -- with higher volume. And we are still assessing the alternatives in terms of recycling. It depends on the moment. It depends on the windows of opportunity that we find in terms of the market, but we have to have those 3 alternatives. And depending on the moment, we can use either one or the other alternative.

[Bruno Mendonca, analyst]

Ceiling numbers or maximum numbers, could we think in that sense?

[Sérgio De Souza, executive]

We have a balance that is very solid. We do not have a ceiling number. We have an opening and an open mind to advance with that, but we do not have metrics at this point or a feeling that I would be able to disclose at this point.

[Operator]

Our next question comes from Mr. Gustavo Cambauva BTG Pactual.

[Gustavo Cambauva, analyst]

How do you see the competitive scenario in your market. Vacancy is very low. And I would like to understand this greater players that have been very focused on Sao Paulo, Rio de Janeiro, whether you have seen a greater movement towards the Northeast or Center East, whether there are different levels of competition or you see that more locally or more nationwide?

[Sérgio De Souza, executive]

This is Sergio. Thank you. The dynamics are still the same, Mr. Cambauva. The very few players organized in these sectors are focused on developing in Sao Paulo because that's where we have more traffic. Random ones, Belo Horizonte, Salvador, but not nationwide as we are. We don't see competition to be very honest. We have been able to replace very healthily without major disagreements, and I don't think that will change. This is a scenario we work with. And I think we'll be drinking for a very clean water spring to be very honest. And these markets are in high demand.

[Operator]

[Operator Instructions] Our next question comes from Mr. Aline Caldeira, Bank of America.

[Aline Caldeira, analyst]

Congratulations on the results. You mentioned that most of the absorption was the strongest in this quarter. And demand-wise, how you see the demand in different areas, BTS-wise and speculation-wise as well?

[Sérgio De Souza, executive]

Aline, thank you for your question. This is Sergio. The demand is strong nationwide. We have been able to show that clearly with the -- our assets, not only BTS. We have players that went through a major operation sometimes, and they tend to take that on to BTS. And there is a competition that is higher in that level. We have been able to deliver a quality asset. And doing that with many players in this sector, and we have been able to gain some major operations.

Demand-wise, a continental country as Brazil, we have consumption centers that are far from the Northeast and similar areas. So that area is still not a major market. We have seen in relevant cities in -- with 3 million, 4 million inhabitants, we see these major platforms. We have closed deals with this great deals in this platforms and regionalizing with an effective delivery of high level of quality.

At the end, we have seen that demand. We have felt that clients are planning with us our growth path. We have some new cities that in the past weren't in our radar. Of course, we study the scenario to see whether we have enough information to make a decision. But that has been something that has been steady, and we are optimistic. If you see the delivery, in the short term, we are going to deliver the half the plan by halfway through next year, 400,000 square meters of the original plan. And most of that is pre-leased. And as they are delivered, that number will near 100%. We are very optimistic.

E-commerce is transforming. It will change e-commerce as a scenario in Brazil. We see an appetite with these players, the amount of ABL that we have seen overseas, and that's a trend for the upcoming years.

[Operator]

Our next question comes from webcast. Is there any perspective in terms of OpEx for the next quarters?

[André de Ávila Vitória, executive]

Andre, here. We are at a very distinct level compared to previous years. We see a stability in terms of maintenance, in terms of OpEx. When we don't see a marginal growth in terms of expenses compared to the first quarter of this year, we have that trend to keep at a very stable level. There is a natural growth, marginal growth, and we adapt our structures to keep on growing and growing on our daily processes as we have been doing and will keep doing.

[Operator]

[Operator Instructions] Webcast brings a question from Mr. Paolo. Could you comment on the demand from players that are not from e-commerce.

[Sérgio De Souza, executive]

This is Sergio. In the sector, we have 2 major drivers: e-commerce that is at a very impressive level and flight quality. Brazil has an industrial park that is in the order of 160,000 square meters of warehouse. It's only 15%, 15%, 1-5 percent out of those are of quality. And we have to work on that. That is a demand that has always been there. And when we change projects and we think of new fronts, we think of changing operations for more modern operations and more active operations. This has had decades of investments. We have grown by BRL 1 million of ABL per year. And that is a demand that is ongoing for a foreseeable future. And that would be that for now.

[Operator]

[Operator Instructions] Mr. Lukas Rump, XP Investments.

[Unknown Analyst]

Congratulations on the results. I would like to ask a brief question. given your robust growth plan and the impact of the pandemic. You see that the approvals of the pipeline are -- have some risks? And I would like to see how you are planning on working on that.

[Sérgio De Souza, executive]

Lukas, thank you for your question. This is Sergio. The pandemic impacted very specifically at certain areas, certain municipalities. What we have been doing is to anticipate approvals. Town halls are understanding that the impact is highly positive for municipalities. And we have been having approvals in the order of 6 months or less generating employment. There are BTS, the points that we are studying. In some points, we have 5,000 new job opportunities, which is highly relevant. That added to the tax generation to the municipalities major. And our business organizes the space of the city. We are taking things that are unorganized throughout the municipality and organizing in certain areas. Therefore, we have a strong argument to have approvals. The pandemic certainly held back some approvals, but it wasn't impacting after all.

[Operator]

[Operator Instructions] We have a question from the webcast room, [ Rodrigo ] from [ Santa Barbara ]. Is there any perspective of payment of dividends?

[André de Ávila Vitória, executive]

This is Andre. Dividends-wise and the pain of those, the company assesses that constantly. And that's part of this structure that we assess. We are going to maintain 25%, which is the minimum required by the legal framework.

[Operator]

[Operator Instructions] We'd like to pass on the floor to Mr. Sergio and Andre for final considerations.

[Sérgio De Souza, executive]

Thank you for the participation of all. I would like to emphasize the perspectives of growth that we have. As I mentioned earlier, there is a rhythm that is rather consistent. We have deliveries in the third and fourth quarters with record deliveries way prior to the foreseeable deadlines. We have the idea of doubling the portfolio of the company as previously foreseen. So we are going to hit historic records. We have new businesses in place. We will revisit our -- at this point in the future. Thank you all for the participation, and a great day to all.

[Operator]

Thank you. The conference call of LOG Commercial Properties is adjourned at this point. We thank you all for being with us, and have a great day.

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