Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the video conference of results of LOG Commercial Properties' Second Quarter 2022. We have with us Mr. Sérgio Fischer, CEO; and André Vitória, CFO and Director of IR.

This presentation is being recorded and transmitted simultaneously. Interpretation is the icon for those who should chose so. And you can mute the original audio during the presentation. [Operator Instructions]

Statements during this conference are related to future projections, economic and other projections may or not occur. Investors must understand that politics, macroeconomic and other factors may affect the future of the company and differ from the considerations that are herein disposed.

To start this session, Mr. Sérgio Fischer, the floor is yours.

[Sérgio De Souza, executive]

Good morning, everyone. Thank you for the participation in the second Q of LOG. We had great development with 3 assets, 171,000 square meters, Ceará, Pernambuco and Minas Gerais States, 240,000 square meters. The construction activities are within expected, 105,000 square meters and 208,000 within the plan. We plan closing 2022 in 400,000 square meters. Our execution capacity, we have had 8 simultaneous projects with 1,900 people in construction sites. We sold 2 assets BRL 424 million. We are to deliver in the fourth quarter in the region of [indiscernible].

The gross margin of 33%, 3% above the projection recycling of assets. We have accumulated BRL 1 billion in sales, 40% of our projections so far. We have clients per segment. We have vacancies stabilized in 2%. The lease contracts are slightly above the projection. Our growth has been leveraged by e-commerce and the room lease, and it needs to keep on growing over the next years reflected on the high demand for our assets.

Even with the macroeconomic scenario being somehow chaotic, we are still growing in great consumption centers. With the -- our real estate work, we are working to prepare the areas for commercialization trading in the least time possible. 15% landbank for the conclusion of the plan with the trading and the negotiations of plots of land that are very positive. Log ADM, we are serving our clients ever so more efficiently, with the management of more than 1 million square meters with retention of clients with [ RPS ] remaining at high levels.

[André de Ávila Vitória, executive]

Mr. André Vitória with you. We have had the best results, BRL 136 million. We have had, during this quarter, our capacity has added value with greenfield assets, BRL 104 million in generated value. We have the strategy of recycling of assets being -- those are our main fundings for the company.

When it comes to fund raising, we have BRL 400 million in debentures, CDI plus 1.65%. Within 5 years, our fundraising requires no guarantees required to our great history. We had AA+ by the agencies of classification. We have that reflected in a very positive way in the results.

Assets above the average ticket reflect the assets and the net revenue in BRL 54 million, 47% above the same period last year. Default, net 0.6%. Administrative OpEx, in other words, reflect our growing efficiency operationally speaking. Financial result was increased by the CDI and the debt. Debt and the swap had a negative effect of 36 -- BRL 36 million. LOG is focusing on many initiatives [ SIG ], decarbonization in ESG, eliminating almost all the emissions of the company and helping our neighboring communities with more than 8,000 hours in Aracajú, [ Petin ] and in Minas Gerais. Now we are moving to our Q&A.

[Operator]

[Operator Instructions]

Our first question. Mr. [ Igor Altero ], he's from XP.

[Unknown Analyst]

Congratulations on the results, and thank you for the presentation. Two questions from our side. Recycling, you mentioned these asset sales in the order of BRL 400 million and that the assets are solid despite the macro scenario. How are discussions for respective sales? If you could actually comment on that in terms of cap rate. Do you expect the trading in the order of the 8% that you mentioned? And ease of procedures, do you plan on expanding? And the second question is related to how you see yield on cost. The scenario starts to slow down. How do you sense that in terms of debt and costs for the third Q?

[Sérgio De Souza, executive]

This is Sérgio. Yield on cost. We believe, Igor, that the worse that we had to face is behind us. We have been able to have great performances. The trend is increasing on yield on cost because not only considering the assets that we have built, but we are being able to get great prices. And in the second semester, we have the yields projected to be greater than the same period last year. Recycling is strategic. It has been recurring and ongoing. BRL 300 million last year with this operation. This year, we have beat -- hit a new record and we are always negotiating and trading assets. Our assets have a great demand and the liquidity that we used to have from last year.

There is great selectiveness, but we still see a demand that is very growing. We have more than BRL 1 million in trading negotiations and conversations. That doesn't mean that we'll hit that mark, but close to that. We have to combine that with procedures with the plan of growth of the company. We cannot sell great stakes at this point and freeze our cash flow. This has been very well done in terms of fundraising with capital for new investments. We'll see new operations. Caps are below those numbers. That's very important. We have to deliver the gross margin, that is a must and that's how we'll keep on working.

[Operator]

Mr. Bruno Mendonca, next question, Bradesco BBI.

[Bruno Mendonca, analyst]

Two questions. The average ticket from Amazon. How is the pipeline with a growing level of tenants, tenant improvements? You mentioned speculation. And you mentioned that, that was a different level, how is that going and a provocation to understand how things are going. The delivery and the levels of vacancies is very low. The vacancy in the previous quarters was at 0, couldn't we have charged a little higher price and vacancy in delivery in a scenario that needs to elevate the price in order to get greater results?

[Sérgio De Souza, executive]

This is Sérgio. Thank you. And thank you for the provocation. We do that day in, day out here. We question that. The market is very strong. We have been able to invest in yield. We are serving our clients. 75% of the operations are closed. We cannot leave that client out of the demand. We have a lot of variables where LOG is one-stop shop for many clients. We want to serve those clients well cautiously day in, day out with the management of the condos so that they can grow with us and they can take advantage of our -- what we can offer. The pipeline this year, a major participation will be speculative, speculation in other words. We must have new BTS. But different from what we have seen, it will be more speculative in pipeline with BTS. We'll see difference in the prices BRL 20 per square meter.

[Operator]

Our next question, Mr. André Mazini, Citibank.

[André Mazini, analyst]

Thank you for the question. It's the follow-up from Amazon. The company has increased representativeness. We are almost in 24% with -- of revenue coming from that tenant. It's Amazon. The risk of credit is AAA. Now contract-wise, the terms are longer than the average, it's 10 years, the average is 5. You have that provision. And if you want to go -- if they want to leave that contract prior to that period, they would have to pay for the whole period and that actually raises a question. How is the deployment of the [ TI ] after amortization in the improvements for the major e-commerce companies?

[Sérgio De Souza, executive]

Thank you, Mr. Mazini. This is a Sérgio again. The relevance of Amazon in our business is not only a contract. There's a number of contracts. There are a number of things in the open. There must be an increase in warehouses, and we'll keep on sealing many deals with them. This one, specifically, was a deal with BTS. They pay the whole slope and the [ QI ] was capital from Amazon. It's a contract that is very settled. We don't see much of a difference or change along the time due to that. And we have specification under American terms. There is a structure of value beside QI that's why this ticket is above the average tickets that we have. Changing lanes here, the sales that you had was the securities and real estate buying at Selic at [ 3.25 ].

[André Mazini, analyst]

I know the Selic rate was lower. Nevertheless, do you think you can still keep on selling in the real estate market and securities? Or should we consider underrating other than Selic that may not -- may be much more of a difficulty for them?

[Unknown Executive]

Yes, I understand what you're saying. This scenario is different. The fundraising is much harder. So last year, we had proposals. None requested in terms of [ pricing ], but there are discussions, undergoing development that a lot of discussions with other international investors. There is major appetite in that sense. And as soon as interest rates start dropping, things will grow, will increase. Where last year, the transaction that we had was with a margin of 44%, this year, it was 33%, and we have the possibility to increase that in the medium term.

So far, we have discussions undergoing. But for securities and real estate, yes, we have the possibility of leveraging that, and we must divulge in the medium term, something in that sense.

[Operator]

Our next question comes from Mr. [ Andre DB ] from Itau.

[Unknown Analyst]

This is a follow-up that I have. If you could actually comment further your sales process, if you had other buyers, if you had competition not only this one, but other potential buyers. And when you mentioned this answer to Mr. André, these funds that are undergoing discussions, there is a round of capitalization ongoing or what?

[Sérgio De Souza, executive]

Thank you. This is Sérgio. We have no transaction that would depend upon the funds -- raising funds. It's not an easy scenario for that. So that will not be a condition for acquisitions. These sales from this week wasn't planned. We were approached. And actually, the development actually took a direction that were less very interesting for us. It wasn't even delivered yet. Secondly, there are discussions undergoing. I don't want to go into details at this point. We have international investors, as I mentioned, and international investors have long term perspectives over the economics of the country. The curve of interest rates will change along the time. And we have interest in selling. We must keep on going with this strategy. And we have to see our assets, and we'll keep with our pipeline.

[Operator]

Our next question comes from Mr. Marcelo Motta from JPMorgan.

[Marcelo Motta, analyst]

Two very quick questions. If you could actually comment on the release of CapEx in the second semester of the year. We know that there will be deliveries. We know that, so far, you actually have explained, but we'd like to understand the warehouse -- planning for warehouses for next year. And the -- in the line of orders that you mentioned, what is recurring and what wouldn't be?

[André de Ávila Vitória, executive]

This is André. Let me start with the second question in terms of revenue. We have an expressive growth in that period. Activities of location and attached to a statement from our clients that impacted positively the value of the revenue in this quarter. In this case, the real estate was relocated. The building was relocated and has generated revenue again. Sérgio, the floor is yours.

[Sérgio De Souza, executive]

Thank you. Projections-wise, we are preparing for 2023 for at least indicators that are in the order of at least what we delivered in 2022 and we want new deliveries. Construction work is starting. Some of them are advanced. Some are starting. So that defines the CapEx for the second quarter. We aim at maintaining that level for the second semester.

[Operator]

Our next question comes from Mr. [ Rafael Brader ] from Safra Bank.

[Unknown Analyst]

I'd like to go into more detail and questions in the matter of budgeting. You have a volume of production like how do you see inflation in the -- seeing the end? So what are you expecting for the remainder of this year?

[Sérgio De Souza, executive]

This is Sérgio. Thank you. We believe that the worst is behind us. This sector, the metallic structure is very impacting. We have seen in the second semester of last year. The structure is going up very robustly, and we see that the manufacturing floors are more [ idle ]. And the concern with the prices of construction are behind us. But altogether, we understand that the costs will not go up in a relevant manner. They will even decrease, if I'll be honest.

[Operator]

Our next question comes from Gustavo Cambauva, BTG Pactual.

[Gustavo Cambauva, analyst]

My question is to help understand how you see the effect of the inflation on lease prices thinking the future. We have the expectation of high inflation rates even for the next year. I'd like to understand your standpoint how you will pass that on to the lease prices. The sector has a good level of demand, but companies in all segments have been suffering retail, wholesale with margin pressure and after all, logistics end up becoming -- become a component that counting -- account -- has to be accounted for. Does this persistent inflation levels concern you? Or do you think that will be easy to pass on to lease prices?

[Sérgio De Souza, executive]

This is Sérgio. Thank you. This quarter, we were slightly above the inflation, 0.1% above inflation in line with last quarter, and we have been able to pass on the inflation and we plan on -- keep on going that way. This sector is actually promising, very prospective and the perspectives are good. And looking ahead, we haven't had a lot of request for discounts on the account of this scenario that you mentioned. What -- it's a very isolated cases depending on the project, the location, the prices that have been negotiated. But looking ahead, we believe that will be above the inflation rates. I think and hope that the worst of the inflation rates are behind. Last year, we had a good result. And I think that during the same period this year, it will be even easier.

[Operator]

Our next question comes from Mr. Jorel Guilloty from Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I have 2 questions. First of all, I'd like to understand your pipeline. I understand that you have a [ park ] being constructed triggers for the rest of the pipeline. Is there anything specific or this pipeline is fixed? And the second question is the Torino park (sic) [ Parque Torino ], one of the assets sold, how much revenue is being generated by that asset?

[Unknown Executive]

Mr. Jorel, thank you. Pipeline-wise, we have seen the dynamics here is that the LOG clients that have many locations with us. They understand our pipeline, they understand what we have ahead of us. That's why we have been able to have 3 lease rates very good because we are preparing for future growth and flat quality. That is something that -- something very important.

Brazil has 170,000 square meters of warehouses. The pre-lease is very easy to deal with. At the end of the day, it's been very advantageous. They pay the square meter by the square meter, but the cost of occupation, final occupation is better that this sector is not as scared, if you will, of this scenario as a whole in the country because they see growth in the future.

Our pipeline needs a level of pipeline that is steady to start construction. We see -- and we can tell what clients to start with. And we can actually marry ABL with the absorption of the [Foreign Language]. And furthermore, here, we see here that we have control, as I said. [indiscernible] this semester, we showed that and numbers show per se, keeping up with the evolution of those assets that you asked.

[Wilfredo Jorel Guilloty, analyst]

Is this recent? Is this a project that is at 100% of capacity? Or do you believe it is still stabilizing?

[Sérgio De Souza, executive]

This is Sérgio. The level of location is very strong. It's been delivered recently. The conclusion was December 2021. It's normal that we have a curve of lease, it's 9%. Full occupation, and we see that this is positive for the market. We have to have development. We have -- we don't have that as the case. We have a revenue that has been set, BRL 22.

[Operator]

Our next question comes from Fanny Avino from Santander.

[Fanny Oreng Avino, analyst]

This is a simple question because I've got most of my questions. Is there any sector of the industry that you see as the main demand having seen the macroeconomic scenario deteriorated? And the second one is more in the sort of a strategic question. How do you define recycling assets and that you will remain -- keep in your base?

[Sérgio De Souza, executive]

This is Sérgio. Thank you for the question. This is not a decision. It takes into consideration some variables, taxes. The fiscal matter is very important. This sector embraces the area. We have to see if there is upside. There is a series of variables that we have taken into consideration. There isn't a revenue specifically that we could actually touch upon or mentioned upon now. In all sectors, we serve all sectors of the industry. We see speculative warehouses in the radar of many different industries to be honest. That's why that's not a concern. We cater for the specific request of different sectors.

[Fanny Oreng Avino, analyst]

Food and beverage is one sector that actually requires -- has actually a good level of demand. [indiscernible] for them, and I would highlight that e-commerce. Do you see any decrease in the demand? The deacceleration is something that you noticed? Do you see a problem or you -- discussions keep ongoing?

[Unknown Executive]

Well, Ms. Fanny, this is an industry that grew a lot due to the pandemic due to the consumer habit changes. We have seen changes in sales in the next -- in the past months. We see LOG organizing. Some of them are organizing the logistics mesh. And I do not see personally looking at the average. Some projections show 2023 in electronics, growing in the order of 22%. If that happens, we'll have a bottleneck, a lack of available warehouses. We may have had, due to the macro scenario, some drops. Nevertheless, on the way out in the -- this point that we are in the pandemic. We still are depending on consumers and demands. We have -- the industry that I mentioned, the latter one, deciding that.

[Operator]

[ Rodrigo Santiago ] now.

[Unknown Analyst]

Concerning the sales of the assets to FI in -- NAV of the sales were only concerning those sales or LOG as just a whole?

[André de Ávila Vitória, executive]

This is André. Effectively, the NAV was above 3% as we reported earlier.

[Operator]

Our next question comes from [ Gustavo Carlos ].

[Unknown Analyst]

Would you comment, please, [ FF ] image change concerning the first quarter and the second quarter of 2022?

[André de Ávila Vitória, executive]

This is André again. We had a growth of FFO per location compared to the second quarter of 2022 (sic) [ 2021 ], 20%. When we think these margins in our financial statement, we have this developed [indiscernible]. This fluctuates from trimester to trimester or from quarter to quarter or -- in this quarter, we had the operation of EcoSwap, repurchase of shares. It fluctuates from quarter-to-quarter, but it changes from year to year. The fluctuations actually are due to our operation, the fluctuations in operations.

[Operator]

Q&A is officially closed. Now we would like to pass the floor to Mr. Sérgio for the final considerations.

[Sérgio De Souza, executive]

Thank you all for being with us in this fall. Looking into the future, I'd like to leave a message of growth. We keep on going with our plan. We have our clients with great demand. If we keep on delivering with quality and return on that quality, we'll have this spread within cap of sales and evaluation. If we keep on going in that direction that is the trend, we'll keep on indicators and the rate that points towards growth. The operation of -- the operational side of the company is doing quite well, and that is seen in our financial statements. Thank you all, and have a great day.

[Operator]

The video conference of IR is closed. You can send your questions [e-mail]. Thank you all, and have a wonderful day.

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