Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2021-Q3

[Operator]

Hello, ladies and gentlemen. Good morning. Welcome to LOG Commercial Properties Video Conference Third Quarter 2021. We have with us today Mr. Sérgio Fischer, CEO and André Vitória, CFO; and Officer of Investor Relations. We inform you that the presentation is being recorded and translated simultaneously. [Operator Instructions]

Declarations that may be made here related to business, operational goals and others as well as financial objectives are projections of the company and may not happen. Political, macroeconomic and other operational factors may affect the company's future and lead to results that differ materially from those expressed in such future considerations.

In order to open the video conference of the results of the third Q of 2021, Mr. Sérgio Fischer.

[Sérgio De Souza, executive]

Good morning, everyone. Thank you for participating in the video of the conference of third Q the 2021, we have observed a growing demand for quality infrastructure in large consumption centers. In the third quarter of 2021, we have 2 new BTS contracts for relevant and e-commerce player. The first 33,000 square meters of GLA and in Ceará and the second with 74,000 square meters.

During this year, we have had 5 BTS contracts totalizing 313,000 square meters of GLA. Our team has a record -- records -- has had records. We have had 665,000 square meters of gross absorption and high volume and pre-lease confirming this good moment of the company and the excellent quality of our assets. We have at the end -- by the end of the year, a forecast of only 2.67% of vacancy. We are pleased with the growth of the company.

The retail, especially e-commerce has done great process of expansion. This positive scenario is reflected in our operations with 62% of the portfolio with activities related directly or indirectly. We believe it will be ongoing with expressive growth for logistic warehouses, especially for LOG that have high standard assets around important consumer regions in Brazil.

The increased demand for quality warehouses has brought a new reality. And comparing to the third quarter of 2021 to last year, our rental prices, our lease prices contractual -- have had contractual adjustments of 1.3% above inflation, considering the operating portfolio.

Our plan 1.5 follows the expected pace. We delivered 4 assets totalizing 114,000 square meters of GLA in the third quarter of 2021. In 3 different states with 85% pre-leased, we are going to almost double fold the assets by next year. We have quite more than 300,000 people in our construction websites. That is 1,300. We continue to have land negotiations and now already have at home, almost 90% of the land bank needed for the completion of all by 1.5.

We have achieved 18 cities in 16 states. We are in almost every region of the country. 60% of the population of Brazil in radius of 100% -- 100 kilometers.

[André de Ávila Vitória, executive]

Thank you, Sérgio. We focus on growth, generation of value, value in active greenfield. In the trimester, we had BRL 67.4 million of generated value, accruing BRL 218.5 million, this generation of value is, is and will be continuing to be recognized. Our results continue to be expressed. In the third Q of 2021, we have achieved a revenue of BRL 94.7 million, 43% greater than the third quarter of 2020. EBITDA in this trimester was BRL 96.1 million, 57% in growth concerning to last year. The revenue keeps on growing and defaults are near 0 in the order of 1.7.

Our balance sheet is very healthy. Our cash flow is BRL 1.1 billion, with BRL 3.5 billion in assets with properties for investments. We captured BRL 450 million in that after a swap resulted in a cost of CDI plus 1.3% without our assets. Our cost of our debt is low. CDI plus 1.6%, and the liquid debt represents 7.5%. Our ESG continues to go in stronger with programs, educational and professionalizing, and we plan on expanding that.

I would like to start now the Q&A session.

[Operator]

[Operator Instructions] Pedro Lobato from Bradesco BBI.

[Pedro Lobato Garcia Fernandes, analyst]

So we have 2 questions. First, the dynamics of leasing. How are you dealing with the repassing of inflations comparing all the new contracts and competition-wise? Have you felt professionalization of places in the area or in the southeast of Brazil that areas that weren't competitors in the past. Have you been looking into those areas out of your typical region?

[Sérgio De Souza, executive]

This is Sérgio. Thank you for the question. Let's start with the competition. We have seen players that are more robust, and we see them checking 1 or another market. We see that nothing strong and nothing that would concern us. Competition, especially out of the Southeast is very little. We like to mention that the competition is where we get our clients from as well because we are in a good position. And in the short term, we don't see that changing.

The major players are trying to implement 1 or -- project or another randomly. What we have seen in the last 12 months is that the dynamics of prices are very positive, not only specification of new contracts that we have had the capacity to pass on to -- to move on to a new stage nationally that is. And we have existing clients that we have been able to show numbers, share numbers in this lease over 1.3, 13% in the inflation. We have been to repass area in kinds, 20 to 21 that is.

So we keep on going strong, and we see the force in that sector, and there is a very strong room for us to keep on expanding in the short term.

[Operator]

Our next question is by Mr. Elvis Credendio, BTG Pactual.

[Elvis Credendio, analyst]

I have 2 questions here next to my -- recycling with this scenario with higher interest rates, cap rates may be higher, I would like to understand how is the appetite of the company to recycle assets? Even with lower margins, if that's the case, do you think you will end up recycling less than forecast? And my second question is the growth plan of the company. You have 1.5 million of square meters. That is a macro scenario and more challenging and recycling and the cost of debt is slightly higher. How would that be in terms of the plan of growth in terms of speeds? Do you think you would revise the speed at which you plan on delivering results over the next year or not?

[Sérgio De Souza, executive]

Thank you, Elvis. This is -- Elvis, that's Sérgio. The 2 questions are interconnected. We are still delivering the quality. We don't see this scenario changing. It's a quality. We have had quality in terms of ROI. We believe that there is the possibility for us to take that even further up the cost of construction are stabilized in a very high level, and there may be a reduction in those costs, especially when it comes to the price of steel. And this dynamic of prices that we have mentioned, we plan on even improving but not in this semester, we have been able to deliver quality, and we don't plan on changing that.

In terms of recycling, independent on the funnel of this growth, we want to maintain that. We are going to maintain, and we understand that this macro scenario, this interest rates in the order of 2 digits will have a reduction in spreads, caps may go slightly above and have a reduction in margin. But we are very comfortable that the transactions that we have had recently nearly BRL 500,000. The gross margin is of BRL 544,000.

If we work to bring a little more cap and lessened the spread, we would still be above 30%, which is still a very good level. Our appetite doesn't change, hasn't changed. We understand that there is a sense in what we are planning. We want to keep on having assets of high quality, we have been contacted by even competitors. Our appetite is not different. It's no different from before. There has been an adaptation, but we have -- we have had the search from funds in the real estate area. We are going to increase at a certain point. We have had demands that are ongoing. So while it remains like that, we are going to keep the plan for growth with the necessary caution there is.

[Operator]

Our next question comes from Alex Ferraz from Itau BBA.

[Alex Ferraz, analyst]

BTS, you mentioned here that they are warehouses with tech specifications that are state-of-the-art. How do you see the cost of the square meter, the portfolio and the lease as well within the portfolio. How do these warehouses compared to the average in the portfolio? When you have a lot to deliver, you will end up forcing the vacancy in certain directions. This growth, in other words, this is stabilized, is more sales of assets or you have other points of that came from the portfolio?

[Sérgio De Souza, executive]

This is Sérgio. Stabilized vacancy, it was very marginal. This movement where we had historic record from the company, anything below 5% is still very strong. We are always having the -- having new clients -- clients, some clients leave because their operations move on to different places. That's why there is vacancies, 2.1% to 2.7%. We understand as a normal movement in the markets and in our type of business. So it's not concerning.

There is a use that's very strong. And below 5%, we are still satisfied. BTS wise, they are very specific within a specification that is very typical of them. We put to you that this is an investment done out of United States, this is the first 1 with that type of specification. And this is a CapEx that is much higher than the square meters. And the important part here is that we are with these 2 contracts with a target of more than 11%, that we consider super positive with that. So I think that would respond to your question.

[Operator]

The next question comes from Raul Grego from Eleven Financial.

[Raul Grego Lemos, analyst]

The strategy of the company with the growth and comparing the demand for BTS or for pre-leasings doesn't affect the long-term plan of the company in terms of adjustment of the price of leasings and rentals. Even with contracts, if they are going to be reviewed, we are going to see more contracts of long term with -- in comparison to traditional contracts.

[Sérgio De Souza, executive]

Sérgio here, you are right, that's very important. We like this strategy of retail. Because of that dynamic, we can pass on the price and just as we found fit. We are going to continue with the retail strategy with that type of projects, these opportunities, BTS, we are not going to stop looking at them. But they are never going to go above 50%, which is the ceiling of within the plans of the company. We are going to speculate. We understand a dynamic of a demand that is higher, a client that is much more ample to strategize them but more focused on this strategy plan that I mentioned.

[Raul Grego Lemos, analyst]

It's to understand whether there will be a difference -- a change or whether it's a complementary action? And so that we understand what kind of changes may be underway? Another question, with the increase of costs of CDI, for instance, the select indicator. If you're being able to raise rental while maintaining spread and cost.

[Sérgio De Souza, executive]

Sérgio again. Yields, that's it. We have been able to keep yield around 12%. Even with this pressure, we have a bias that's positive now. We have stabilized on a high level, and we can have that balanced out in the medium term, spread is very strong. Specification is better and better, and that is affecting the yield. BTS, that's what you commented. They are complementary. They complement each other. BTS may have -- maybe more interested for third parties, we can have recycling more focused on BTS and maintaining all the while our portfolio as it is in the company.

[Operator]

The next question is from André Mazini, Citibank.

[André Mazini, analyst]

This last point that Sérgio mentioned, BTS has more liquidity for other players, considering that the SELIC rate is going -- is going up at least see the GP is going up. We know that the office in Sao Paulo was having some interesting changes. It's not only a real estate market. It's more than that. Would you have a portfolio outside the access, Rio Sao Paulo. BTS is another portfolio.

Do you think -- do you consider buying and going into these different portfolios expanding to that. Do you think having structures outside this area and going outside the excess Rio, Sao Paulo. And if my question was clear. I would like you to talk about further about BTS contracts, they are longer than the conventional ones. But when we look at Chile and the United States of America, they reach up to 30 years.

The average in Brazil is 10 years. Would there is room for going up in terms of BTS, with shorter contracts and modular limits, threshold-driven?

[Sérgio De Souza, executive]

Sérgio again. With regards to the liquidity of assets that I mentioned earlier, it is a matter of fact that we have had conversations with additional players, all very excited with the matter of BTS. These clients that we have are very strong ones. So independently on the region, we know that the -- that it is important, but we have had Pernambuco and Ceará for instance, that have been very strong areas and people understand that, that's a good field.

Eventually, occasionally, we'll have steps we will tread on to these different areas. BTS, BRL 270 million was a good number. We'll keep on looking at those points, and we'll have transactions in that level. BTS periods and deadlines in terms 10 to 15 years is what we have seen. The chance of that -- those clients actually quitting altogether at the end of the period is very slim. It's a lot of investment. It's a lot of employment generation. Three -- we have clients with 3 shifts with more than 2,000 people employed. So it's a win-win situation. But in terms of dynamics of markets, it has been between 10% and 12%.

[Operator]

Our next question comes from Aline Caldeira from Bank of America.

[Aline Caldeira, analyst]

Congratulations on the results. Thank you for giving me the room here. I think my question is about the regions. Next year will be very important in terms of delivery. And what you are seeing mostly is out of the access Rio Sao Paulo. Can you give us an idea of what you still have to deliver and to deliver not only by the end of this year but next year. And are you seeing leasings, having the rental prices going up, is there an area that stands out among the others or not?

[Sérgio De Souza, executive]

Well, rentals, we like to show numbers that I think are interesting that LOG. If we take 2021, 665,000 square meters of lease area for -- to existing clients in any region of Brazil that those are our very base. It has been nationwide. There isn't much disparity between regions. We understand that there are areas that much more active than others and affect prices, but it has been very linear 1 or another case that from time to time kind of changes the trend. Next year, we'll have a very strong delivery more than 400,000 square meters, a little more out of this 400,000 in the fourth quarter, in the next 3, 4 months, we'll have deliveries in the North, South, Northeast. So it's very linear. there will not be outstanding regions.

I would like to focus on pre-lease -- pre-leasing. We opened that number with all this delivery that we had 114,000 square meters of UBL that have been pre-leased. It's a very strong number. We have a curve here that is probably going to stabilize, stabilize the asset in to the 90% of leasings accomplished. And it's a totally different reality. It shows the strength of our sector currently. And when we look ahead, we look into the future, we have deliveries of a certain volume for the early months of next year within UBL. This is a moment that is unique and will be delivering a lot of things in 2022 and a lot of things pre-leased. It was a very clear question.

[Operator]

The next question comes from Alexandra from Sara Invest.

[Unknown Analyst]

The pressure of cost on enterprises and construction and the margin concerning the costs, how they have been affected?

[Sérgio De Souza, executive]

This is Sérgio. Our costs increased in terms of -- in the order of 30% metal structures are more than 1/3 of our raw material, and it has been increased in terms of prices. Positively, we have been able to pass on the price to maintain stability. So on a positive note, we don't see a negative bias in that sense. We see the possibility to increase that yield once we understand that very soon we'll have a drop in the cost of the steel and dynamics have been ongoing. But this is what we have as information so far, costs have grown. But I think we -- in the mid-term, we can even improve these prices.

[Operator]

The next question is from [indiscernible] from Santander.

[Unknown Analyst]

My question is, you have a e-commerce basis of clients, very large. Most of the Brazil the ones in Brazil. We know there is a constant demand on growing for solutions last mile. I know there is a lot of space room to grow in the warehouse market, but there is a point that may impair your expansion in the market. Last mile, how do you see that?

[Sérgio De Souza, executive]

Last mile we know that quite well. We hear from our clients. Each client has a different type of operation. One is -- Amazon is one, MercadoLibre is a different one. They have their own ways. We consider our whole portfolio, not only operational but development as well as a capacity to serve 15 kilometers from the center of that populational region with MercadoLibre, for instance, and we haven't had a problem. We see that we have last mile in our whole project, but there are operations that are very central. We have studied many projects in that sense.

We now that we have seen a lot of difficult situations. We have a leasing rental price very much higher than the average. We're not going into that now. Our clients are not requiring that at this point. We are keeping with our model of business. And so therefore, the last mile is explained within this context.

[Operator]

The Q&A session is adjourned. Mr. Sérgio, please share your final considerations with us.

[Sérgio De Souza, executive]

Thank you all for the call. I would like to bring a point to light here. Delivery, we will have as Aline question. We have delivered 114,000 square meters in the next quarters, we'll have a lot of delivery. The vacancy of the company altogether is to grow, that is not a point of concern. We see a demand that is stronger and stronger, and that is mapped out. 85% was pre-leasing is very positive. That's why we like to point out the vacancy that it's at a very stable level.

In the next quarters, we'll have a slightly increase in vacancies. But as long as we are below 5 or 4, we are satisfied and we'll have a change in the portfolio of the company in the next quarters. And we are very excited for 2022 to arrive despite all the challenges that we see ahead of us. Operationally, our business is doing well, and we are going to deliver a lot in the future. Thank you all and until next time.

[Operator]

The video conference of results of LOG is here adjourned. If you have doubts, please contact at ri.logcp.com.br. Have a great day.

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