Sao Carlos Empreendimentos e Participacoes SA

BOVESPA:SCAR3

Earnings Call Transcript 2023-Q1

[Felipe Góes, executive]

Good morning, everyone. It is my pleasure to talk about São Carlos first quarter of 2023 results. I will start with the key highlights in the quarter, which are detailed on Page 2 of the presentation.

First, in regards to our active portfolio management, we have executed total sales of BRL 256 million in the quarter, 5.7% higher than NAV. As I like to say, the best way to assess an investment in real estate is when you sell the asset, not when you buy the asset. And here, we are selling 2 large buildings in -- one in São Paulo and the other in Rio. And both of them, we are selling at a price which is above NAV, above appraisal value. Therefore, we are delivering superior returns to our shareholders.

After the sales, our portfolio value reached BRL 5.3 billion, which represents an NAV per share of BRL 66.1. In terms of profitability, we have reached BRL 41.5 million in recurring EBITDA in the quarter with a margin of 65%. I highlight here the growth we've been delivering on the FlexOffice offer, which reached 8,800 square meters of lease GLA, a growth of more than 250% in 1 year. We believe that this offer is a great way to grow in the Office segment and to reduce vacancy over time.

In terms of capital structure, we have closed the quarter with an annual cost of that of 12.4%, which is 10% lower than the Brazilian basic interest rate. with an average debt term of 8.5 years. So this cost of debt with this maturity time is very much appropriate to the kind of business, to the real estate business that we are in. And because of that discipline in capital application over time, we've been able to create superior value to our shareholders. I think the key highlight -- in summary, the key highlight of the quarter is the execution of asset sales, which helps us to reduce our leverage position in an environment of high interest rates in Brazil.

To give you more details about those sales, I'll move now to Page 3 of the presentation, which we show, Jardim Europa building in São Paulo that was sold 5% above NAV at a cap rate of only 6%, a great price that we sold the asset. Just to give you a reference, we acquired this asset in 2010 by BRL 39 million. And Leblon Green, the office building in Rio that we acquired just a year ago at a price of BRL 54 million and sold now for BRL 91 million, which is almost 9% above NAV.

Talking about the asset sales in the Best Center platform. In the quarter, we managed to sell 3 assets, 2 of them leased to large Pernambucanas retail chain in Brazil. And the third one is a stand-alone store that we owned in São Paulo. Those sales were at NAV, very close to NAV and almost 10% higher than acquisition price. Therefore, again, creating value, delivering value to our shareholders.

I'd like now to move to Page 5 and give you a quick summary of the priorities that we have moving forward in the 3 platforms -- in the 3 investment platforms we have in São Carlos. In Office, our most important priority is reduction of vacancies, so fighting vacancy and the expansion of FlexOffice will continue to be paramount to that objective. We will selectively sell assets over time, sell assets over time. But given our capital structure, those sales will always be at appropriate price at the appropriate timing so that we can deliver high returns to our shareholders.

In the Best Center platform, current focus is the divestment of street stores so that we have the cash available to accelerate the growth and acquire plots of land as well as new centers so that we can continue to grow this highly profitable and unique platform in Brazil.

In the multifamily business, SC Living, the focus now is to continue to increase occupancy of the GO850 building. The building is performing quite well, as you will see in the presentation, but there is still a gap that we need to fill and we'll work to fill that gap of occupancy over the next months.

And we are currently working on developing the projects for office to residential conversion in 2 buildings in the downtown area of Rio where we have specific incentives from City Hall to perform those conversions. We are at the development phase at this point.

With that, I would like to pass the word to Gustavo Mascarenhas, our CFO, who will give you more details about our results. Thank you.

[Gustavo Mascarenhas, executive]

Thank you, Felipe. It's a pleasure to present our first quarter results. Our recurring results were mostly affected by our asset sales related to our recycling portfolio strategy. On the other hand, it was this strategy that reversed our loss to a BRL 15 million profit in the quarter.

On the next page, in our Office business, we saw an impact on our vacancy rate related to a partial termination of a corporate client, in addition to the impact of the asset sales that were fully leased. We continue to focus on reducing vacancy and expanding the FlexOffice platform.

At Best Center, our retail platform, disregarding the stores that we sold in the last 12 months, revenues grew by 2.5%, and same-store rates grew by 6.4%. Total sales grew by 8.7% and same-store sales grew by 5.7%, both above inflation.

At SC Living, we had a significant reduction in vacancy, ending the quarter with an occupancy rate of 64% with a good prospect for the next quarters. And we're still investing in the development of the office-to-residential conversion projects located in downtown Rio.

On the next page, we can see a good evolution in our capital structure, which reduced by 9% are net debt with a loan-to-value ratio of 30%. Our cash position and our debt schedule allow us to focus on our main priorities for the year.

Our conference call ends now, and I'd like to thank the audience.