Log Commercial Properties e Participacoes SA

BOVESPA:LOGG3

Earnings Call Transcript 2021-Q4

[Operator]

Hello, ladies and gentlemen. Welcome to the video conference of results of LOG CP Fourth Quarter 2021. With us are Mr. Sergio Fischer, CEO; and Andre Vitoria, CFO and Director of IR. The presentation is being recorded and translated simultaneously. The translation is available upon clicking on interpretation. If you are listening in English, you can mute the original audio. [Operator Instructions]

Statements that may be made during this video conference concerning the perspectives of business, operational goals and financial ones are based upon projections of the company that can or not happen. Investors may understand -- should understand that macroeconomic and political as well as operational aspects may affect that and may differ from those foreseen in the future the fourth quarter of 2021. The floor is with Mr. Sergio Fischer.

[Sérgio De Souza, executive]

Thank you for the participation on the call of fourth quarter 2021, the best year of our history records in all our cycle of businesses 10 plots of land, 10 cities, 519,000 million square meters. We have approximately 9% land bank dedicated to that conclusion and the record projects approved BRL 449 million, double the same period last year.

In 2021, deliveries 5 projects in 6 cities, 221,000 square meters in GLA. We reinforced our capacity of growth in all areas of the country with considerate yields. We had 10 projects simultaneously with more than 1,500 collaborators, employees in construction sites.

And when we think in interest rates, the demand for our assets will keep on growing in e-commerce in the countries. E-commerce had an expressive result in 2021. To meet that demand, our infrastructure and our quality will only increase. Our portfolio has 63% of GLA connected to e-commerce. Gross absorption, 78.5%.

Being present in the main consumption centers in Brazil, we keep on with that mindset, 86% out of this -- the [ Cornhill ] Sao Paulo. LOG consolidates more and more as a strategic partner of these companies. We have BTS with 5 contracts with 500 million square meters, 3% in the stabilized vacancies compared to 11% in general. We have contractual readjustments, 0.6% above the average inflation.

Our structure for the administration of the condominiums LOG ADM having our clients become loyal and trust worthy of our administration. 2021 was very productive, and we are prepared to keep on growing as planned. For 2022, the expectation of indicators, it's even more strong, 400 million square meters to be delivered and most of that is relocated.

[André de Ávila Vitória, executive]

Thank you, Sergio. I'd like to talk about our generation of values. Greenfield fourth quarter '21, BRL 73 million in new projects, in the year BRL 291 million. That generation of value is and will be -- will have caps and relevant yields that tell us apart in the market.

We are recognized by the main capital institutions in the market. We captured BRL 700 million without burdening our assets, 11% of our PL is our debt. BRL 900 million is our cash flow, BRL 3.8 billion for investment in assets. We have been investing in the growth of our business organically with leveraging in the levels of what the market set, taking the company to a new level gradually with the delivery of new assets and better prices.

Default disclosed to 0. EBITDA, 95% or higher than the previous year. 79.2% was our margin. The net revenue accrued 169% compared to the same period of last year. We had a net revenue of BRL 383.2 million yield with dividends at BRL 0.86 per share.

In 2021, 77% of our condominiums are supplied from the free market of energy from renewable energies with a reduction of 26% in costs for our rentals. Our inventory of emissions of CO2 are ongoing, and they will be presented in our Board.

Next reports on sustainability. In 2022, we had social actions that were very important. Our social center in [indiscernible] helping the community in the qualification of basic and professionalizing [indiscernible]. This initiative is permanent and it has been growing stronger and expanding to [indiscernible] focused on health care. 600 consultations of [indiscernible] as per demand.

Thank you. And now we are going to Q&A.

[Operator]

[Operator Instructions] Our first question Gustavo Cambauva, analyst outside of BTG Pactual.

[Gustavo Cambauva, analyst]

Two questions. If you would firstly comment on how you're seeing the capacity of passing on the inflation on rents. Apparently, you've been very close to IPCA, but 2022 has a scenario of high inflation. May you face difficulties or you're going to keep on going in terms at least when it comes to rentals? 83% of the GLA was delivered. I would like to hear about the segments and who were the renters? Is e-commerce the major driver of yours or in terms of companies? If you have seen more companies or companies of smaller ones located renting smaller areas?

[Sérgio De Souza, executive]

This is Sergio. Thank you for the questions. I'll start with the second. When it comes to pre-rental -- pre-leasing, the number is very strong. Our business has the characteristic of having a lease in the -- very close to the number of built area. And our people is organizing to be ahead of the game so because the market is very much warmed up. 2022 will be a record year for us. We are prepared. Our construction work is advanced more than 400 million square meters in GLA. And that comes our businesses comes from our client basis. The relationship with the local deal -- leases is that.

And on your second question, we have seen a very positive moment in the factor in terms of the capacity of precipitation. We've been able to pass on the price of inflation. And I think that we are going to go even slightly above this year. And we have a new level, a new tier in terms of prices, maintaining the yields that we have as goal here. Yes, we are going to keep on repassing on at least the inflation and trying to go above that.

[Operator]

Our next question is by [indiscernible] an analyst sell-side.

[Unknown Analyst]

I think you can hear me now, right? Please let me know.

[Sérgio De Souza, executive]

Yes, you're -- we're with you.

[Unknown Analyst]

The dynamics of investments, how are you seeing the year of 2022 with the interest rates slightly above in terms of a level? And the asset sales, how are the conversations from a strategic standpoint?

[Sérgio De Souza, executive]

This is Sergio. We have been talking about that for a while and the cycle and the closure of this capital cycle is a strategy that we are going to maintain. Our goal is to maintain the BRL 300 million that we had last year. We have topics that pop up here and there about new strategies. But what we can ascertain is that spreads. I think we are at a very good level. We have been talking with the different sectors, the 2 different sectors.

The cap, the spread had a little contraction, but very marginal yet. So we have our assets but historically, we had assets at 12% and this year, the scenario is kind of marginal what allows us to have gross margins that are relevant for this moment. And we are going to keep on going that way. There is a demand, funds and traditional investments, and we are here to do more than we did last year.

[Operator]

Our next question is Bruno Mendonca, a sell-side analyst, Bradesco BBI.

[Bruno Mendonca, analyst]

Costs, how do you see the trend in CapEx of construction? Is the cost of construction is stabilizing or kind of giving room to save some areas, maybe you can respond to that based on the deliveries of 2022? LOG, competition-wise, you've always had a differential in terms of construction, the square meter. Your differential, your competitive edge is increasing? Or is there a different trend? How are you doing in the market? That's my question.

[Sérgio De Souza, executive]

The construction cost, the year is a little better. Things started slightly slower than last year. We hope that the construction cost reached as a plateau and even drops. When it comes to steel, we see that happening. And the metallic structures that we are budgeting for are presenting different numbers that are more optimistic.

Deliveries in 2022, as we have a lot of BTS with major stake, we are maintaining a yield of 12%. These deliveries of 2022 will be maintained in the order of 12%. We hear a word of mouth about the competition that nevertheless, they are 20% or something in that order above us. I don't think that difference increased or decreased, it's stable.

[Operator]

Our next question is by Alex Ferraz, Itau BBA, sell-side analyst.

[Alex Ferraz, analyst]

I have 2 questions. The first 1 has to do with the demand for e-commerce. We have seen new players in this market, sloppy for instance, with more aggressive strategies. And even heated up the competition in this market. Did you feel affected by the strategy of these new players in the market in the way that may have changed your strategy? My second question, the industrial market, [indiscernible] GDP has sales classification that is very good. But how is it going? Are you going to accelerate the leasing of the lots or what?

[Sérgio De Souza, executive]

This is Sergio. Demand of e-commerce, independent on the macro scenario, which was challenging last year. We see e-commerce growing double digits and things are very optimistic for e-commerce. Our sector is somehow protected from that -- from the problem that the market has faced. We have been looking for new operations. Clients are looking for -- people looking for being closer to the major centers in Brazil. That is no different from before, but it has gone a little stronger in terms of competition due to these new competitors.

I haven't personally seen any major change in demand, and there is no growth in demand because of that. That is different. E-commerce is growing, and we have BTS under demand. And we have been very optimistic. GDP, our strategy has been always paying attention to the size of the project, 6,000 million square meters. We've always been very aggressive in our strategy. I think I will see a great consolidation. It's a platform of e-commerce [indiscernible]. We see a speed of sales that has even gone up and are in line with the project.

[Operator]

Our next question is André Mazini, sell-side Analyst from Citibank.

[André Mazini, analyst]

The average tickets that is in [indiscernible], how would that dynamic may change if you were to change BTS? We see that your BTS is very customized. The technology seems to be more and the construction looks more modern. These BIs would be a factor to increase the average tickets and leases and/or rentals would be [indiscernible]. Secondly, the profitability of the cash flow that was very profitable in the last quarter. I think you'll have double-digit profitability level. So what are your strategies now within the risk standards and trends that you have seen in the market, maybe the curve maybe longer and have been able to get profits now may be higher than even than last year?

[Sérgio De Souza, executive]

This is Sergio speaking. The average ticket, you see that as we deliver the assets, the trend is to increase. I think it's important to mention that the company 10 years ago was just very focused on Southeast with an average ticket in [ Sao Paulo and Minas ] and it's diversifying. It's nearer BRL 16, BRL 17. Some BTS has some PIs, and that is on the ticket of location ticket. So you'll see that increasing as the BTSs are delivered. Some of them are above the average, way above the average. Of course, they are exceptions. And March will have the revenue very promising.

[André de Ávila Vitória, executive]

This is Andre. Well, in terms of our treasury, we have maintained a very conservative strategy. We have been managing that position. We have a solid cash flow with the construction works that we have in place, and we have this focus and [indiscernible] reality that can actually do the -- what we call, the offset of the financial expenses. In the last trimester quarters, we have been by that policies -- those policies. We have financial expenses that we can actually fix with our financial policy.

[Operator]

Our next question is Fanny, sell-side analyst from Santander Bank.

[Fanny Oreng Avino, analyst]

Most of my questions are answered here. Would you go deeper into what investments are and what are the demands of these additional investors? In the end of the fourth quarter, we saw new partnerships

[Audio Gap]

of partnership. Would that type of partnership would be interesting to you?

[Sérgio De Souza, executive]

What have we seen? The spread has decreased by -- according by the cap, some assets below 7, that currently are at 7.5, a very optimistic scenario, as I mentioned earlier, we want to do that. That is in the strategy for us, not with the closure of capital of each asset. We have seen demand, the real estate funds and traditional ones. We are not going to go the same line as because it's important to understand the moment of the investment of the company. We grow and we do these recyclings. There is a very promising opportunities, and we are hoping for more than last year.

[Operator]

Our next question is Raul Grego, sell-side of Eleven Financial.

[Raul Grego Lemos, analyst]

This is a follow-up on investments that you have emphasized, what do you foresee this year in terms of dynamics of investment? Will it be towards BTS because it sells easier? Or do you think about having investment in community -- investment as a LOG. How would the dynamic be in the portfolio and what we would be able to see in terms of changes, if you would be able to comment a little further on that?

[Sérgio De Souza, executive]

This is Sergio. We have the intention of doing both moves, BTS and speculative part. There is great demand for both. You have to have the right audience, but it's very likely that we'll go for both directions. There is room for both, certainly.

[Operator]

Our next question is by Mr. [indiscernible] sell-side analyst.

[Unknown Analyst]

I think my question was answered actually. But thank you for the opportunity anyways.

[Operator]

Now Marcelo [indiscernible] buy-side analyst.

[Unknown Analyst]

Within the segment of speculative warehouses, if the new costs of the assets are already seen somehow or whether that will take some time? That was the question by Marcelo.

[Sérgio De Souza, executive]

We have a very positive position in terms of price and that position came from 2 movements. The cost of production went up, construction costs went up by 30% in the sector and new investments are coming on that base and -- basis and IGP-M and IPCA has led us on to think more efficiently. We have seen that recovery happening very fast. Construction costs have gone up very fast. But now we see very positive scenario for the future.

[Operator]

Q&A is closed. Now I'd like to pass the floor to Mr. Sergio for his final remarks.

[Sérgio De Souza, executive]

I'd like to emphasize 3 points that I think are important here. Scenario macro interest rates are higher and how that will impact the sector. We have 2 drivers of demand for LOG e-commerce, 1 of them that I don't think will change. I think we'll keep on growing compared to other countries more developed, we are behind and that will keep on going and especially out of the area, [indiscernible] Sao Paulo and another flight quality that we have seen in [indiscernible]. The quality of the assets

[Audio Gap]

investments. I think those drivers will not be impacted despite having a more challenging year.

Operational 2022, we believe will have a record year, very relevant. And we are going to deliver more than 400,000 square meters in GLA, mostly BTS. We'll take the company to a new level and will start speaking the fruits of our labor in the same level as the operational recycling. I mentioned a lot here. What is important for LOG, we'll keep on doing. We are not concerned because our balance report is very positive and recycling is to go up in terms of price. I thank you all for being with us today, and have a great day.

[Operator]

The video conference of results of LOG is hereby closed and adjourned. The mail at logcp.com.br is open for questions. Thank you all for your participation. Have a great day. Thank you.

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