Multiplan Empreendimentos Imobiliarios SA

BOVESPA:MULT3

Earnings Call Analysis

Robust Earnings and Expansion Plans Mark Multiplan's Momentum

Multiplan, celebrating its golden jubilee, reported a record net income and record sales growth, signaling the onset of its vision for the next 50 years. With seven mall expansions scheduled for the next two years and multiple projects in its infancy stage, Multiplan is committed to enhancing customer experiences and improving operational efficiency. Expansive technology initiatives, like the reimagined Multi app, aim to extend the mall experience to customers' smartphones, increasing convenience and cutting costs. Reflecting on administrative expenses, the company plans to invest in its future through one-offs and incentivize its workforce to support growth. The retailer interaction, both with listed and non-listed tenants, remains dynamic, addressing growing space demands and experiential offerings. Multiplan stands prepared for further growth with a healthy capital structure despite a seasonal spike in marketing expenses due to its 50th-anniversary celebrations.

Company's Stride Toward the Future

As we evaluate the financial and strategic discussion from this earnings call, we can appreciate the company's robust performance, with a record net income and vigorous growth in both sales and foot traffic during its 50th anniversary. With a forward-looking approach, the company is actively expanding, with 7 future expansions planned over the next two years, 3 already underway and 4 ready to launch. Amidst these plans, the CEO has highlighted their effective team alignment and goal-setting as pivotal factors contributing to their recent achievements.

Digital Strides and Operational Improvements

Diving into digital strategy, the company's app, Multi, boasts 5.5 million downloads and 18 million interactions, demonstrating substantial user engagement and setting a record performance. By April, they plan to have 100% of the shopping mall parking lots updated, enhancing the customer experience. This digital expansion aligns with the company's aspiration to be omnipresent in their customers' lives, suggesting a limitless opportunity for growth within their digital offerings.

Financial Health and Tenant Dynamics

The rent revenue grew 5.1%, outpacing inflation, which was 3.9%, indicating a healthy financial standing. The company acknowledges the natural variations in numbers due to a changing tenant mix and differing discounts, which are inherent with record turnovers. Their strategy remains market-driven, always aiming to optimize the tenant mix to enhance foot traffic and overall shopping mall vitality.

Focus on User Experience

The introduction of free-flow, gate-less access to parking lots is a strategic move aiming to improve customer experience by eliminating inconveniences commonly associated with parking access. The company emphasizes this is but one of the initiatives to enhance client satisfaction.

Leveraging and Prospective Growth

The company celebrated a slight decrease in leverage from the previous year and highlighted their large and positively surprising cash flows. They also returned significant capital to investors and yet managed to reduce debt, thanks to strong operational results. With various investments in progress that will consume cash, all growth opportunities, including M&A, are evaluated with a strategy-first mindset. The mention of a prosperous environment even in a traditionally mixed first-quarter emphasizes the company's confidence in continuing growth.

Managing Expenses and Celebrating Milestones

The delight over 50 years in operation is matched by the company's admission that such milestones will incur costs, including planned celebrations and marketing investments. The company also alluded to unexpected one-offs, suggesting a dynamic approach to cost management in the face of evolving circumstances.

Revitalization and Retail Demand

The discussion around the revitalization of MorumbiShopping offered insights into how reconstruction efforts improve sales and rent revenue, citing successful revamps of other properties like Belo Horizonte. The company is seeing growth in tenant demand, particularly in the food and beverage sector and from online companies seeking physical retail presence. Again, the adaptability of their shopping malls to these trends is emphasized, indicative of the company's ability to meet evolving consumer and retailer demands.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen. Welcome to the Earnings Call of the Fourth Quarter of 2023 of Multiplan. We have here with us today the Executive Directors of the company. And we inform all participants that the presentation of the results is available for download at the website, ri.multiplan.com.br. Before I proceed, we would like to clarify that anything that might be said during the earnings call regarding the business perspectives of the company, projections and operational goals are based on beliefs and studies of the Board of Directors of Multiplan based on information that is available to the company.

Forward-looking statements are not assurance of performance because they involve uncertainties and therefore, we depend on circumstances that may or may not materialize. Investors should understand that macroeconomic conditions, industry conditions and other operational factors might affect the forward -- the result of the company and might lead to results that are materially different from the forward-looking statements.

Therefore, I'd like to give the floor to Mr. Eduardo Peres, CEO. He will start the presentation. Mr. Eduardo, please continue.

[Eduardo Peres, executive]

Good morning. Thank you to everyone that is listening. I would like to thank you and start this call in a different way. Let's talk about what can we implement? When have we implemented over the last few months? It's been about a year since I've been the CEO. And we really focused on getting the objectives and expectations of the team correct, so we can reach the objectives. We managed to do so, and we managed to translate this into action.

Everybody knows what they should do to achieve what we should -- what we want, what are the expectations and the goals of the company. So why don't you comment very quickly on the indicators that you have in hand, we had a net income that is a record. We've had growth -- record growth of sales -- of foot traffic, it's the 50th anniversary of the company. And this is where we are going to start talking about the next 50 years from now on.

It's important to mention that the company is very active. We have 7 expansions programmed for the next 2 years, 3 already building and the works and 4 are ready to start. We are not going to stop. We are looking at other opportunities. Nothing is close to Multiplan in terms of opportunities.

Are we going to continue to grow with greenfield expansion? So it's first in, first out. The -- what I want to -- what I wanted to highlight is something very important that we've discussed over the last few years, which is our digital strategy. Multi, it had a great performance last year. It reached 5.5 million downloads, 18 million interactions. It's [ terrific ] record. And it's growing. This app is growing as time goes by. Our objective is that it is really a facilitator and the presence of Multiplan -- well, Multiplan will be at the homes of people. And because this is a digital activity, it's limitless. We can add whatever we think it's important for the working of this app and the shopping malls. It's important to mention that the free flow, the initiative removed -- well, to update the parking lots of the shopping mall will be implemented by April of this year.

So by April, we are going to have 100% of the updates on the shopping malls on the parking lots. So we also have an enterprise of success in Porto Alegre. We got to the first phase, 60% of the sales of what is available. We will start the second phase, which is left 80% between April and May, and there is a close neighborhood that we are doing, and we are also going to implement the internal infrastructure works of Golden Lake. So this is a year that the company has really worked for its objectives. I can see a great union, people are motivated to continue to grow. It's been 50 years getting to 1 billion, it's important, yes, very important. But much more important is what we're going to do ahead. The company is dedicated to continue to grow, improving the equipment, so we can bring more diversity and complement the enterprises that we have today.

Thank you very much, and let's go to the questions.

[Operator]

[Operator Instructions] First question Gustavo Cambauva from BTG Pactual.

[Gustavo Cambauva, analyst]

I want to ask you a question about the revenue on rent. The growth, where we see that it is -- well, there might be a drop of vacancy that the company had if it -- and the same-store rent. The revenue of rent is growing. Well, less than what you are showing in the same-store rent. I know that there is the turnover that might fit with the numbers. It might give you the difference with the basis of the same-store rent and the growth of the rent revenue but I wanted to understand with you. How are the conditions -- commercial conditions that are being negotiated with the new tenants in the shopping malls? Are you practicing a step-up in the rents that is stronger than what it was? Or do you have maybe a difficulty after all these years that you raised the rent to continue to raise rents very strongly to new tenants? Or is there anything on the profile of the mix of the tenants that are coming in with lower rents? Well, if you can tell us more about the qualification of that turnover to -- so we can understand how the rent revenue will evolve from now on.

[Eduardo Peres, executive]

Well, this is Eduardo Peres. And Armando?

[Armando Neto, executive]

Gustavo, first of all, well, we would never imagine that the rent would grow as along with the inflation, while there was a deflation. And rent actually grew 5.1%. You have a same-store rent that is here with a real rent based on the index of IGP-DI. It's not with the inflation is 3.9%. This is very positive. When you have a record turnover as we had this year, of course, we have a mix. You have discounts. All of that is natural. And all of that creates the -- well, some differences in the numbers. This is natural. But the rent grows at the moment -- with the rate of inflation. Occupancy grows, this has a positive pressure in the growth of rent. The conditions that are negotiated are always market. Nobody does anything outside of the market, the market is always sovereign in that. And obviously, it changes a lot depending on the mix that you had.

Well, putting beverages is different than a jewelry store. And that mix that is changing is reflecting on that. And things are temporary. Well, you're always going to change the mix of the shopping mall. And Gustavo, I wanted to tell you one thing. Just so you know of the challenges that we face here. And on the day-to-day, Multiplan practices this to improve the enterprises that we have. Well, there are tenants that they pay -- they are doing well but they do not -- they're not attractive.

And so when they are not attractive, they compromise maybe a full floor. So you change the tenant for a different one that has a worse condition but that has a lot of foot traffic. So you're going to have that floor working out again. So you have to see the change. It's not store per store. You have to look at the whole ecosystem. When you qualify the mix. And you complement the shopping mall as a whole, holistically, you cannot just take into account tenant per tenant. That's the wrong path. And everything that we are doing in the mix shows that we are on the correct path.

[Gustavo Cambauva, analyst]

Okay. Yes, you answered.

[Unknown Executive]

Just a follow-up very quick. It's more of an effect of changing the mix and then the expectation is that with this flow and the shopping mall qualification, you think that we should all throughout these years, we should see if the number of revenue of rent of location will grow as well as the same-store rent.

[Operator]

Next question, Tainan Costa, UBS.

[Tainan Costa, analyst]

Eduardo, Armando, I wanted to explore the access Multi, Eduardo even talked about this, you opened 100% of the parking lots. Well, can you remind us what is the main focus of this strategy is reducing cost, generating revenue, improving the user experience? And also, I wanted to get your opinion if that idea of the Multi access but will coexist with [indiscernible] part or [indiscernible] or that removal of the gate, you can only get in with the Multi app and what they generate user experience that is not so good for the client because they could not use the other platforms.

[Armando Neto, executive]

Okay. Thank you for the question. The idea -- initial idea what originated the free flow gateless access through the parking lot is the opposite. So the -- we can see that the client is annoyed because you come and go, and the antenna doesn't read it, and we developed the technology to give a better experience to the client. Here, we're talking about an initiative that is on its baby steps but it's going fast on its baby steps.

We have partners that are looking -- seeking the company to be a part of this project. I cannot say who the partners are but this is an ambitious project that goes -- it goes to the future and it focuses on the improvement of the experience of the people that walk that come to our malls. We reimagine the app Multi to really make a toolbox and an extension of the shopping mall in the mall -- in the cellphones of the people. So we are just at the beginning of our journey. I see it with great eyes it's future. And Eduardo, just to complement your question, what Eduardo said, it's the most important thing. Our focus is on the client to make the experience better. The rest is a consequence. So monetizing, yes, it's an opportunity that we've shown last year, reducing expenses, it's immediate. Can you just imagine how the payment system was in the past with hundreds of people working in the cash registers and you just -- with the app, you reduce it and it's an operational efficiency and a cost reduction? When you are working with the credit card also, there is a cost. All of that is a consequence of a desire to service a client better. And many other partnerships are going to work with always with this objective. It's not just monetizing per monetizing but to service the client. This is the money on the long term.

[Tainan Costa, analyst]

Just a follow-up. At the end of the day, these platforms should coexist or the access of Multi is the only path into the mall?

[Unknown Executive]

Now we never forced an ever oblige people to get into the excess Multi access. This is one of the platforms that you can access to shopping malls. If you want to get the ticket and -- well, you're going to have the possibility. If you want to pay through the app of Multi but not doing the registration, you can also do so. We chose to convince the client that this is a good product. There is no obligation.

[Operator]

Next question is from Andre Mazini from Citi Bank.

[André Mazini, analyst]

Eduardo, Armando, my question is the power of the tenants. We saw that M&A that will probably happen between [indiscernible] we did the math and basically, it's going to double the share of rent that these 2 players are going to pay. It's half of the size. Well, they had the same size. One or the other and now they together are going to double the size with the shopping malls. By our math, it's not gigantic. It's going to be 2% to 4% in the total rent, depending on the asset. But this movement of the tenants being closer, do you think that really increases the bargaining price with them and a lot of their sales are with the shopping mall operators, more than they pay for the rent? So 4% of rent that comes from [indiscernible], it's more than the share of the sales through the shopping mall. So how does it work that -- their bargaining power? They become bargaining a key account that is larger, the relationship changes. What can you tell us about the dynamic?

[Eduardo Peres, executive]

Andre, Eduardo. Well, I believe that things are going to continue as they are. For you to look at the participation of closing in our mix is 30% of the mix. Our desire is that all those M&As work out and that we have others and that brings bigger to retail. Multiplan is a place for tenants to work, and I don't think that we should change the relationship. It's going to improve the relationship. I understand it this way. I don't see it as negative. I see it as very positive, and I hope that retail and other brands are going to come to be able to add and to some add to the public that goes to our mall.

[Unknown Executive]

And Eduardo, there was a lot of questions about the tenants that the -- as the tenants are growing, we become stronger as well.

[Operator]

Next question is from Ygor Altero, XP.

[Ygor Altero, analyst]

I wanted to understand, given the level of deleverage, which is very low in the company. I wanted to understand what you see in opportunities. And if you can tell us more details while you're talking about expansion. So I wanted to understand how it's your month for greenfield, the M&A issue. And the second question -- second point is the occupancy dynamic. So seasonally, the -- this quarter -- the first quarter is more challenging but are we going to see more leveraging on the first quarter? What can you tell us?

[Armando Neto, executive]

Ygor, this is Armando. If I understand correctly, you have 3 questions, right? Leverage about opportunities for growth, M&A, greenfield. And the third about the perspective of the first quarter, right?

[Ygor Altero, analyst]

Perfect, yes, with occupancy.

[Armando Neto, executive]

Okay. Leverage, we earn another 25 basis points in regards to '22 to '23. I think that primarily, this is a great operational result in regards to the cash flow of the company as very big, surprising us positively. And looking at the resources, we had a record of returning the money to the investors through the leverage on our own capital and CapEx, which is 3x. And even so we had a deleverage of the company and I think that this is because of the operational results. Well, the market -- and we have several investments that are in expansions that Eduardo commented and that are going to consume our cash.

Looking ahead, well, Eduardo commented in the -- in the initial comments that all opportunities are taking into consideration. These opportunities are discussed in terms of strategy and capital allocation and return on investment. So M&A, sometimes we have interesting opportunities but they're expensive. And we have had great opportunities to continue to grow through the development of expansions or as we did are in [indiscernible] in 2021. So we look at everything. We look at everything and we see what the best allocation is. We have a capital structure that allows us to do so, grow, returning the money to the investor and sometimes getting deleverage in 2023.

And last but not least, the first quarter traditionally, seasonally, we saw that exchange of mix that is high but there is an environment that is prosperous. You can look at the sales of last year. So we have 8 -- 8.9% different on what we see the retail that is weaker. Well, there is a prosperous environment. There is another indicator you can look at the bad debt, it's negative in the third and fourth quarter. So I'm giving you several indicators to show you that we are doing very well. And this is what is guiding the decision of the company to continue to grow, to continue to invest in seizing opportunities.

[Operator]

The next question comes from Marcelo Motta from JPMorgan.

[Marcelo Motta, analyst]

Two questions on my side. First one, when you comment the expenses -- administrative expenses, you mentioned some one-offs. If you can quantify that incentive remuneration, so we can understand what is the normalized level of the EBITDA margin of the company? And the second question is about the celebration of the 50 years of the company and this year. Congratulations to the company but I wanted to understand if that might take you to an increase of commercial expenses, if you can have more marketing campaigns and how can that line evolve throughout that year?

[Unknown Executive]

Motta, thank you for your questions. First, we are very proud to be able to get 50 years in operation is much higher than what it was, and this is a reason for pride and joy. And this is a celebration that is going to have expenses. We are -- of course, I'm going to celebrate the 50th anniversary. And we're looking as we told you, the next 50 years. This is what we are working. What Eduardo has commented initially. We are here thinking about the next 50.

In regards to the one-off expenses in the fourth quarter as part of having a success in reaching a revenue that was much higher than what we planned, it's part of provisioning as part of taking care of the shopping malls and having expenses with marketing that we had in the fourth quarter. So we can make a more prosperous and better shopping mall. So there's always going to be one-offs. I would love that the balance sheet would be as planned. But things change, they're -- they evolve. Some things are good. Some things are better. The expenses is not something good but you're planting something good in the future.

Now in regards to the provision of bonus, we had a great result that we reached. So you -- if you don't stimulate the people you kill the growth of the next year. So here, we are very stimulated and the company is very focused in continuing to grow. I hope I answered your 2 points.

[Operator]

Next question is from Fanny, Santander.

[Fanny Oreng Avino, analyst]

I have 2 questions. The first one is in regards to the revitalization of MorumbiShopping, I want to understand if you can give us an example of the last revamp that you did and what was the impact of growth of sales and also growth of rent?

And the second question is in regards to the demand of the retail. And how do you see the demand for the next -- for the new stores in 2024? Well, you see a certain expansion of some tenants of the listed ones, and I wanted to get your opinion on the nonlisted ones. And on the line, I was at MorumbiShopping this week. And I've seen a lot of the stores that have experiences. Well, you have the reservation store. And all the stores have an experience for the tenants and they demand a higher ABL. So do you see the rollout of this type of store that is happening? And there was just one question. And on the line of the demand, well, you can see MorumbiShopping, the amount of data to native brands that are coming to the shopping mall. So how do you see the opportunities of bringing these stores to the other shopping malls?

[Eduardo Peres, executive]

Thank you, Fanny. This is Eduardo. Let me go step by step. If I forget something please let me know. So let's start by the revitalization of Morumbi. Morumbi, we'll have an update as Belo Horizonte did. We had 100% of Belo Horizonte. We -- Morumbi is one of the crown jewels of Multiplan. Morumbi deserve to receive all the revitalization. What is the effect of that by the ROI in Belo Horizonte? Well, the shopping mall after the revamp of revenue of rent of sales, you invest and modify an environment that is very good. Things are going to be better. So that will happen in MorumbiShopping that is happening at [indiscernible]. We trust strongly and very happy to fix things that can improve. This is the DNA of Multiplan. We've always done that well and we will continue to do so.

Second question -- second part of your question that comes to mind about tenants and the demand of tenants. Well, since last year, we felt an increase for the -- we're seeking more space, whether if it's an experience. Well, food and beverages has grown a lot. And I'd like to mention the shopping mall as a flexible platform. We -- those are [indiscernible] shopping mall is the consumer that chooses, not ourselves. So this is a growing number, yes. There are several companies that are online. And today, they seek them out to be also a physical store. Did I answer everything? Yes? You have the experience and -- well, to me, it's very clear. We come from this week, we had 140 proposals in the committee. So it's very good for the week of Carnival.

[Fanny Oreng Avino, analyst]

Well, just another follow-up. Do you see from some of the brands more demand for the ABL or the GLA?

[Eduardo Peres, executive]

Well, it's higher than what we see in the other malls. Do you see these brands trying to do a roll out for the other shopping malls of Multiplan? And we see and we stimulate this. As we say, well, we work with the tenants. And sometimes, we have 2 stores and add the capacity of having 8, 9, 10, we're going to propose. Well, this is happening and we are expecting that this will happen.

[Operator]

Now we would like to thank for -- thank you for all the questions and the interest. We will now close the Q&A and we will invite anybody that still has a question to get in contact with the IR -- Investor Relations area. Now we'll give the floor to Eduardo Peres. You may take it away.

[Eduardo Peres, executive]

Thank you very much. Once again, I would like to thank you. Thank the team of Multiplan that are dedicated enormously to deliver the objectives that we've written. The company is growing and to be 50 seems -- it means looking at the next 50 years. I would like to thank the trust of all the investors that have followed us. I'm very optimistic for the future. Thank you very much.

[Operator]

The earnings call of the fourth quarter of 2023 of Multiplan is closed. You have a nice day.

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