Sao Carlos Empreendimentos e Participacoes SA

BOVESPA:SCAR3

Earnings Call Transcript 2022-Q2

[Fábio Itikawa, executive]

Good morning, everyone, and welcome to São Carlos' presentation for the second quarter of 2021 results. I am Fábio Itikawa, CFO and IR Officer. And with me today is Felipe Góes, the company's CEO.

Before proceeding, please bear in mind that eventual forward-looking statements made in these presentations related to prospects, forecasts and operating financial types of São Carlos are based on the beliefs and assumptions of São Carlos' management and on information currently available. These statements involve risks and uncertainties, given that they refer to future events and therefore, depend on circumstances that may or may not occur. Changes in Brazil's macroeconomic policies or in the legislation and other operating factors could affect the future performance of São Carlos and lead to results that differ materially from those expressed in these forward-looking statements.

Now I'll turn the presentation to Felipe.

[Felipe Góes, executive]

Good morning, everyone. It is my pleasure to talk about São Carlos' second quarter of 2022 results. I'll start with a summary of the quarter, which is detailed on Page 2 of the presentation.

After more than 2 years of the COVID-19 pandemic, we observed in this quarter the positive effect of the back-to-the-office movement through the gradual and consistent increase in the flow of people in our office buildings. The demand for office space recover. As a result, our new leasing contracts totaled 18.300 square meters in the quarter. It's a record since the start of the pandemic.

As a result, vacancy rate reduced 2.7 basis points in the quarter. Our total portfolio value reached BRL 5.7 billion, a growth of 13% in 12 months.

Now moving on to profitability. Our gross revenues from leases grew 9%, achieving almost BRL 70 million in the second quarter. Best Center gross revenue increased 90%, reaching BRL 18.3 million in the quarter. So Best Center is growing very fast, and that is a result of the acquisitions that we've done over the past 12 months as well as the growth of revenues in our existing portfolio.

The company EBITDA reached BRL 45.8 million in the quarter, an increase of 7.3% in 12 months. I'd like to highlight Best Center very strong profitability with an NOI margin of 92% and an EBITDA margin of 73% in the quarter.

Moving on to capital structure. We ended the quarter with a nominal cost of debt of 11.6%, which is equivalent to almost 89% of the Selic rate, which is Brazilian basic interest rate. So we are running our debt at a lower cost than the Brazilian average basic rate. And that is due to a great profile of debt that we have built over the years. Our net debt to portfolio value was 31.5% by the end of the quarter, which is a healthy level for a company like ours with a long-term debt with low cost.

We are confident in the recovery of the real estate sector, but we remain aware of short-term challenges. Thus, our priority are in combating vacancy, recycling consolidated assets, managing financial liabilities and developing new avenues for growth. We know that our success lies in capital allocation discipline and on our team's unique expertise. These are the essential factors to continue to generate value for our shareholders.

I'd like to thank you very much, and I will now pass the word to Fábio Itikawa, our CFO, who will give you more details about our results.

[Fábio Itikawa, executive]

I will continue the presentation on Slide 3 to give you a brief overview of the financial performance of the company in the quarter.

Consolidated gross revenue grew 9% in the quarter, in line with the inflation in the last 12 months. Best Center gross revenues increased by 91% in the quarter boosted by the properties acquired and developed in the last 12 months. NOI margin in the quarter reached 86% consolidated basis.

EBITDA grew 7% in the quarter, reaching BRL 46 million with a margin of 68%. FFO was impacted by the financial expenses of the properties acquired in the last 12 months, especially in the Office segment. Those properties are under complete retrofit and they are not generate any revenues.

In portfolio, GLA increased 26% in the last 12 months, reaching 515,000 square meter, and the portfolio value grew 13% at BRL 5.7 billion.

Finally, NAV per share ended the quarter at BRL 69 in line with the NAV per share in the last 12 months.

Move on to the next slide, I would like to highlight the financial performance of Best Center, our convenience center platform. Gross revenue grew 91% in the 12 months, reaching BRL 18 million, reflecting the accelerated M&A activity with the acquisition of 80,000 square meter of GLA and the organic growth coming from tenant sales performance in our portfolio.

Portfolio market value of Best Center reached BRL 1.1 billion, an increase of 64% in the last 12 months. Best Center's EBITDA grew 117% in the quarter, reaching BRL 13 million.

I would like to emphasize that we are growing fast with the Best Center platform but with high profitability. The NOI margin moved from 89% in the second quarter of 2021 to 93% in the second quarter of 2022, and EBITDA margin reached 70% in the second quarter of 2022 versus 66% in the same period of 2021.

On Slide 5, we give you more details about the Best Center growth in the quarter. Inorganic growth, same-store sales in the quarter grew 15% and total sales of our tenants increased 42% in 12 months. As a consequence, same-store rent increased 14% in the last 12 months. And total revenues from lease grew 96% in terms of cash revenues.

In expansion, Best Center acquired properties that totaled 80,000 square meter of GLA and developed 8,000 square meter of GLA in new convenience center in the last 12 months. The portfolio closed the quarter with 172,000 square meters of GLA, an increase of 105% in 12 months.

For future expansion, Best Center could developing 2 convenience centers totaling 5,000 square meter of GLA. We have 1 expansion in existing convenience center that will add up 1,000 square meter of GLA and 8 plots of land for future development.

On Slide 6, the physical vacancy rate dropped from 22.2% in the first quarter of 2022 to 19.5% in the second quarter of 2022. New leasing agreements totaled 18.300 square meter of GLA, comprised of 16.800 square meter in Office and 1.500 square meter in Best Center. New leasing in Office occurred mainly in Rio de Janeiro properties and to some extent in São Paulo properties in our portfolio.

Finally, on Slide 7, we demonstrate the company's solid capital structure. Our net debt-to-portfolio ratio reached 31% and the nominal cost of debt closed the quarter at 11.6%, below the current market interest rate.

To conclude, I would like to highlight the company's ability to raise financing at interest rate below basic interest rates, the Selic rate. The company raised financing in the quarter that totaled BRL 304 million with interest rate below the Selic rate.

I thank you all for listening. We are always available to qualify any questions you may have. Have a great day.