Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good morning. Thank you for waiting. Welcome to the conference call of LOG Commercial Properties for the Earnings of Q4 2020. We have with us Mr. Sérgio Fischer, CEO of LOG; and Mr. André Vitória, CFO and Investor Relations Officer. We informed that this event is being recorded and translated simultaneously. And all participants will be in the listen mode only during the company's presentation.

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

To begin the Q4, 2020 conference call, I would like to pass the floor to Mr. Sérgio Fischer, CEO of LOG.

[Sérgio De Souza, executive]

Good morning, and thank you for participating in our conference call for Q4 for LOG. Before talking about the results, I'd like to mention 3 points. First, the new accelerated, the new accelerated growth curve. At the end of 2020, we revised the original all for 1 plan for the 1.4 all for 1 plan, delivering 1.4 million square meters of ABL by the end of 2024. We acquired another 500,000 meters, and we will reach 1 million square meters in our land banks for the next 3 years of production. We have been able to have good negotiations in buying plots of land without competition and in a very attractive way. Through exchange and partner.

Second, as we develop the new assets, greenfield assets, we have seen an increase in the value generation captured as a result of the spread between development yields and cap rates already established in the market. We have given good results in all the years since our foundation. We have had a significant value in our GLA.

In 2021, we had a record activity in construction with more than 400,000 meters produced. Third point, we will maintain active and more relevant our recycling of asset. We concluded Q4 2020 with the second set of sales of assets to our real estate investment fund LGCP11.

Today, we have more than BRL 1 billion and have in mature assets ready for sale. The gross margin has been close to 50%. Now going into the demand for warehouses, we saw robust growth in 2020 in e-commerce. Some data show that from 6% of e-commerce in total retail in 2019, now we're close to 10% of e-commerce in 2020. We have seen the growing demand in all regions of the country with our good geographic diversification. We are well positioned to take advantage of this additional demand. And today, 40% of our clients are directly or indirectly linked to e-commerce. We have a record level of occupation with only 3% vacancy during the year.

I'd like to see the 2/3 of these rentals were made by our own commercial internal team. And our client base has been the great -- or have been the greatest clients for you. Now we have had -- we have strong demand, accelerated growth and recurrent value generation in the development of our assets. This places in a unique position. Now Andre will talk about the financial highlights.

[André de Ávila Vitória, executive]

Thank you, Sergio. In line with this important cycle of value generation that LOG has had, I'd like to share with you some of our financial highlights. In 2020, we had a different year, but LOG's results were very expressive. The solid indicators we have today reflect the best commercial moment of the company. The growth of revenue was around 10% when we compare year-over-year. This performance has been constant during the last few years and shows the resilience of our business model even in difficult periods. We have an EBITDA of BRL 255 million during the year, 39% higher than in 2019. We report a net profit of BRL 143 million in 2020. Comparatively 53% higher than the previous year.

Our cash position is robust, approximately BRL 750 million. We have the lowest delinquency in the last 5 years, close to 0, this index is very relevant and reflects the quality of our client portfolio. We had a quantum leap in 2020 in GLA. The satisfaction increased a lot during the last year due to the proximity we have had with each of our clients in all our operations.

Our cost of debt is low. CDI plus 1%. Net debt, only BRL 56 million, representing 1.8% of the PL. In other words, revenue in EBITA growing solid liquidity and low leverage. These indicators place LOG in a very comfortable position to continue with our growth plan, the all for one, 1.4. In this sense, with the cash generation of our operation or even through debt, what I would like to really highlight to you is what Sergio said, the recycling of assets that we considered the best option to support this growth.

LOG develops greenfield assets. So the recycling of assets to our real estate fund LGCP11. Together with other vehicles may be considered an internal source of revenue. And this generates a lot of value for the company. We will continue with our ESG practices with sustainable actions for the environment at the beginning of our projects and also helping in communities around our projects, always with the best governance practices.

We'd like to close our presentation now. We would like to begin the Q&A session. Thank you very much to all.

[Operator]

[Operator Instructions] Mr. Gustavo Cambauva from BTG Pactual.

[Gustavo Cambauva, analyst]

I have 2 questions in reality. The first, could you please comment? In the past, you mentioned that you could grow well also in built to suit. How do you see the demand for build to suit? And is there demand? Looking at the deliveries, even the warehouse, you're delivering with low vacancy rates. So I'd like to understand, is it interesting to look more at BTS, build to suit?

And my second question the purchase of plots of land for new projects. You announced that you bought more plots of land for your offer for 1 project, 1.4. So are you having any difficulty in finding plots of land? Do you have competition, new players to grow in the cities where you are present?

[Sérgio De Souza, executive]

Cambauva, Sergio speaking. Thank you for the question. Build-to-suit, we have some operations in progress. We should announce some build-to-suit projects. We will continue focus in this in speculative, but also in BTS. The dynamic will be. Depending on the yield we can obtain. We're very focused on yield. We have a target of 12% return a year. BTS has had some additional competition. Sometimes we see some players being more aggressive in prices, and we're not going to enter any price war. If we have a BTS, it is because we will be able to obtain 12%.

In terms of speculation, there has been a strong demand. We have been mentioning that our client base has been responsible for our growth. We have been able to lease many projects during the construction. And these new cities.

In your second question about land -- plots of land, many times, the plots of land we study are shared with clients that ask us for new operations. So some plots of land have pre-approval. We don't see competition. Very little. With the exception of São Paulo, a lot of competition, but we're not going into São Paulo, the prices are too high, but a lot of opportunities in other consumption centers like the ones we bought this year in [ Baleine ] we have a project, Fortaleza II. We're going into receive a lot of good opportunities without competition in centers outside São Paulo.

[Operator]

Our next question comes from Mrs. Gabriela Moraes from Itau BBA.

[Gabriela Moraes, analyst]

You had a forecast to increase GLA by -- we'd like to have more details about this forecast. Should it be concentrated in the deliveries in some quarters or during the whole year? Also concerning inflation, the price of construction material, we'd like to understand, are you concerned with inflation in construction material?

[Sérgio De Souza, executive]

Gabriela, thank you for the question. Concerning deliveries. We said we will have a record year in terms of production. We're not going to deliver 400,000 [ meters]. This is a prediction at the end of 2022, we have more, but during the year, a little above 200,000 ABL. A lot of concentration in the second semester. And also in some deliveries in Q3 and a little in Q4.

Concerning the cost of construction material, we have felt the pressure. We thought prices would go down at the end of year. This didn't happen. A lot of price increases in steel, more increases in the price of steel coming. We're very exposed to steel prices because we use steel structures. These are the highest cost in our projects, steel structures. Also, the trend is to have higher construction costs. I believe that only in the second semester, we will see prices going back to normal.

On the other hand, what have we seen during the price of rental has gone up in a uniform way in Brazil. The price of leases have gone up, so our forecast is to have a small upside even with the pressure of the cost of construction. And we see also lease prices going up, rental prices going up.

[Operator]

Our next question comes from Mrs. Nicole Inui, Bank of America.

[Nicole Inui, analyst]

I'd like to know more about demand. I know that e-commerce is stronger, but are these really e-commerce companies or companies trying to increase their capacity in e-commerce. What kind of companies are really increasing the demand? Also, lease prices, rental prices. Do you see more space to increase construction in São Paulo? So the price of rental leases.

[Sérgio De Souza, executive]

Nicole, Sergio speaking. Concerning demand, we've seen, in general, e-commerce, demanding more and more space, a lot of these large e-commerce players closing very good deals with us. So all the large e-commerce operations we have made are outside the southeast of the country, outside São Paulo and Rio. And all for large names. So all the clients those who are negotiating -- are negotiating -- they're entering into new regions, new geographic regions, and we have record negotiations in record number of negotiations in progress. Almost half of the ABL or GLA is in negotiation, and we should close this in Q1.

More than 80% of this GLA and divided between large players with large operations and also retailers or logistics operators which have had an impact due to e-commerce. Now the price of the leases, price of rental, every city has its own way. In Belo Horizonte in the state of Minas Gerais, prices have gone up well. São Paulo had a price increase in the past, but there's still a trend. But we have seen a positive trend in all of the country.

We don't have 1 -- really 1 geographic location that is above the others now.

[Operator]

Our next question from André Mazini, Citibank.

[André Mazini, analyst]

Congratulations for the results. On Page 3, there is a good graph. You separate a bit from net profit and rental activities. How do you calculate the gains in development. Are these projects that have already been sold to your fund in investment are these projects that are sold? Also a follow-up on e-commerce. The market in Brazil, we have a lot of players in LatAm in warehouses.

Now Amazon has been in Brazil for 5 years and also some players from China. This is, do you believe the Chinese players will accelerate their growth in Brazil? So can you give us some details? The new players coming into e-commerce in Brazil.

[Sérgio De Souza, executive]

Mazini, Sergio here. Thank you for the questions. Let me begin with this 1 about e-commerce. I have said a lot. Brazil went from 5%, 6% e-commerce to almost 10% in 2020. So there is a lot of space for growth. We should -- Brazil should have more than twice the share of retail in e-commerce. So in Brazil, we see commerce stronger and stronger. E-commerce shouldn't grow the way it grew last year, but it's still growing. There is a growth trend. And especially outside the southeast of Brazil, São Paulo and Rio. All the players are organizing themselves for this.

So all these players you mentioned. The Chinese, they're still a little shy. I haven't seen a great demand on the part of Chinese. I know that there has been 1 player, but we haven't felt this. But I believe there is a market for everyone. And this will happen. We will see more activity from the Chinese.

In terms of caps, power business, as we develop, we've stressed this -- the greenfield assets we're generating with working at around 12%, 12.5%. So the gross margin of 50% is the one, we have seen. Now how do we capture this value in the product cycle? As we develop these projects, we have this value -- the value is captured during the development cycle.

This year, we will have a record production. As I mentioned, you will see a more relevant. You will see more and more greenfield operations in our year-end report. It generates -- it generates revenue, and we also have a lot of greenfield. So this year, you will see the same thing. How do we capture comparing with recycling, selling to the real estate fund. So when we sell these properties, you will not see the revenue in our GLA. You will see in cash. But we stabilize the assets. We may have additional revenue when we have synergy when we sell. So that's the dynamics.

I'd like to highlight this because this will become more and more relevant in our year-end reports with our plan all for 1, 1.4. Our plan has generated more than 1,000 per GLA. If you multiply that by the number of meters we have, you will see what we will capture in the next few years. So you sold 2,500 meters of strip malls you sold this at market prices. When do you believe you will sell the rest of the strip malls? We have a little under 15,000 square meters in the last 2, 3 years, we sold strip malls in a recurring way. We want to be focused on warehouses, 100%, we have negotiations in progress for strip malls, but we don't want to leave money on the table. We want to sell at a good price. With the same process of greenfield, we want to capture the value in the sale, and we're studying this, but we will do this without any hurry. It's not very relevant for our business.

[Operator]

Our next question comes from [ Lucas Lu ] XP Investments.

[Unknown Analyst]

We're seeing the real estate funds very capitalized in warehouses. We'd like to know about the divestment strategy. Do you see an acceleration by selling to your fund or sale to other players? Especially in the region in São Paulo?

[Sérgio De Souza, executive]

Sergio speaking, there -- we don't have a rule. How do we see this? We had -- we have the 2 sets of sales this year. We should sell more than in the past. But nothing stops us from selling to other funds in the market. We have focused on a GCP because we have been selling to the minority owners and maintaining contact with them. This is very important. Clients, these clients have made this grow, so we don't want to lose this content, so in the cases where -- in the cases where we have only 1 less, we may recycle. We may sell. There is a scarcity of quality projects, so we may sell more.

[Operator]

[Operator Instructions] We would like to close the Q&A session. I would like to pass the floor to Mr. Sergio for his final comments.

[André de Ávila Vitória, executive]

Well, Andre speaking, before passing the floor to Sergio, I'd like to supplement an important piece of information about delinquency. So we show we have the lowest delinquency in the last 5 years, close to 0, and this is linked to the quality of our portfolio. The quality of our clients. We added a quantum leap in 2020.

In GLA, and this is due to the way we have been maintaining this close relationship with the clients and obviously, this has helped us in the growth plan and the deliveries in the last few years. So in this sense, the way we have been managing these contacts. And this good relationship with clients has been fundamental for us to have these financial results. These robust financial results.

Now I'd like to pass the floor to Sergio with his final comments.

[Sérgio De Souza, executive]

I'd like to thank you all for participating. I'd like to reinforce 3 points that I mentioned, which are very important. Our new growth plan with 40% upside in relation to the previous, is a very strong result. We began the year with strong demand in the market. And now we are prepared many construction projects beginning, and we will have a very positive performance better than last year, in the next few quarters.

And also second point, the value generation. This will be very relevant for us. We develop greenfield assets. We will capture immense value with our growth plan, and this will be seen in a robust way in 2021. You will see in the releases this year. You will see this in the year-end report in a positive way.

And third, the recycling strategy. As I said, we will continue with this strategy. It's very important independent of a good source of funding. We have a very good position. We will increase the value of the recycling activities, this is another relevant point that I would like to highlight. Thank you very much for participating, and we wish you all a good day.

[Operator]

The conference call of LOG Commercial Properties is concluded. We thank you for participating. We wish you a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]