Sao Carlos Empreendimentos e Participacoes SA

BOVESPA:SCAR3

Earnings Call Transcript 2021-Q3

[Fábio Itikawa, executive]

Good morning, everyone, and welcome to São Carlos presentation about the third 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 this presentation relate to prospects, forecasts and operating and financial targets of São Carlos are based on the belief 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 circumstance 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]

Hello, everyone. It is my pleasure to talk about São Carlos third quarter 2021 results. I'd like to start by sharing with you our capital allocation strategy detailed on Page 2 of the presentation. We operate in 3 different segments: office, convenience centers and multifamily. In the office space, our focus has been on, first, developing new services to our clients, especially in the FlexOffice space; and second, looking for opportunistic acquisitions in São Paulo in the value-add space. In convenience centers, we've been growing a lot over the past quarters both organically and inorganically. And I have the pleasure to announce a project we have closed after the third quarter, just in last October. It was a sale-leaseback transaction in the amount of BRL 380 million, very high profitability, and we will give more details about that transaction later. SC Living is the name of our newly formed platform in the multifamily space. We have acquired our first building in that space just now in this quarter. It's located in Vila Olímpia, one of the wealthiest and most attractive regions of São Paulo. And we've done that acquisition in partnership with JFL Living, which will operate that building. So it's a great way for us to put our feet in the business, learn more about it, and we intend to grow a lot in this segment over the coming years. We do see a huge potential in the multifamily space in Brazil over the next years. Finally, I would like to talk a little bit about the new area we created in São Carlos called São Carlos New Ventures. The objective of this area is to spot opportunities to invest in other platforms, other verticals in the real estate space in Brazil as well as start-ups in the real estate area, the proptechs. We have done our first investment in the quarter in that specific proptech space, which is a company called Clique Retire, which is a leading provider of smart lockers in Brazil, a last-mile solution to e-commerce. So we think that there is a lot of other projects like this that we can find, spot and execute upon, and we are very excited to do more of those over the coming years. Now I'd like to move to Page 3 and talk more about the pillars of our strategy, so how we can create value over time. The company has been very successful and profitable over the past 21 years because it had these pillars, and these pillars will continue to be the foundation for growth and value creation in São Carlos. First of all is an active portfolio approach, which means that we do have our internal teams and our internal structure to make sure we create value in the properties we own. The second is to make sure we have the right profile of assets, regions, clients and contracts, meaning the right diversification strategy so that we can bet on the right segments and grow over time our business. Third, we have to make sure we've got the right team, the best team in our fields. And we do have, in my opinion, the best team in the sector, and that has been a very important distinctive factor of our success over time. And finally, our culture, the fact that we have a strong ownership culture in our firm and a long-term vision in everything that we do. So the result of that combination is a very disciplined approach to capital allocation. Now I'd like to move to Page 4 and give you more details about our results on these 3 dimensions. First of all, we have just performed our valuation of our portfolio through the use of international consulting firms. And the value of our portfolio has reached BRL 5.1 billion, a growth of 4.1% over last year. I think this result is a great result because interest rates in Brazil have gone substantially up over these last 12 months, and our portfolio value has increased as well. So it's a sign that we have made the right bets, we have bought the right properties in the right locations, and we have sold the ones that were ready to be sold. Our NAV per share reached BRL 70 in this quarter, again showing the great value that we have in the firm in the company right now. In terms of profitability, our gross revenues from leases reached BRL 60.9 million. It's a growth of 8.9% on the same asset base. So it's close to inflation measured by IPCA. And therefore, it shows that even in moments of crisis, in the middle of the pandemic, the company has been able to maintain a solid growth in revenues due to the quality of its portfolio and the experience of our team. In terms of capital structure, I'd like to highlight the fact that we have only long-term debt in the company. The average term of our debt is around 8.5 years and a low cost of debt. By the end of the quarter, our cost of debt was -- nominal cost of debt was 6.1%, which is lower than the Selic rate, the base rate in Brazil. So it is low kind of leverage and long-term nature. Our net debt-to-portfolio value ratio was at 22.2% by the end of the quarter, which shows a substantial space for future investments by São Carlos. With that, I would like to pass the word to Fábio Itikawa, our CFO, who will give you more details about our results. Thank you.

[Fábio Itikawa, executive]

Thank you, Felipe. I will continue the presentation on Slide 5 to comment the third quarter results of 2021. The company continues with strong performance in the year with gross revenues increasing 2%; FFO increasing 4%; and net income reaching BRL 31 million, an increase of 5% in the year. It is important to highlight the profitability of our operation with EBITDA margin reaching 73% and FFO margin reaching 34% in the 9 months of 2021. Portfolio closed the quarter with an increase of 4% in the last 12 months, reaching 4 -- BRL 5.1 billion. Portfolio closed the quarter with an increase of 4% in 12 months, reaching BRL 5.1 billion. The portfolio value does not include the recent sale-leaseback transaction of BRL 382 million conclude in October. On Slide 6, we detail the gross revenue performance in the quarter. Consolidated gross revenues decreased 6% in the quarter impacted by the properties sold in the third quarter of 2020 and the properties under retrofit that they -- did not generate revenues in 2021. Same asset basis consolidated gross revenues grew 9%, in line with the inflation in the period. Best Center revenues increased 20% in the quarter boosted by the acquisitions in 2021, the lower vacancy rate in the portfolio at 8.9% and the sales performance of our tenants. Gross revenues considering the same asset basis grew 19% in the last 12 months. On Slide 7, we highlight the Best Center performance in our convenience center platform. Same-store sales reached 9% in the quarter, and total tenant sales in our portfolio increased 26% in the last 12 months. Same-store rent considering cash revenues reached 20%, and total cash revenues from lease increased 23%. The charts below demonstrate the M&A activity in the platform. As of today, Best Center acquired BRL 430 million in assets with an average cap rate of 9% per year plus inflation, reaching a portfolio value of BRL 1.1 billion. Finally, on Slide 8, we demonstrate the company's solid capital structure. We reduced our gross debt in 7%, reaching BRL 1.5 billion at the end of quarter. We reduced our average cost of debt to 6.1% per year, which is equivalent to 97% of the Selic rate. Our leverage ratio, measured by the relation of net debt to portfolio value, reached 22% in the quarter. At the bottom of this slide, we demonstrate the amortization schedule of our debt, where we have a stable amortization flow and a comfortable cash position to meet the principal payments in the coming years. We closed the quarter with a cash position of BRL 225 million and a strong balance sheet to take advantage of investment opportunities with high returns in all of our platforms. I thank you all for listening. We are [ always available ] to clarify any questions you may have. Have a great day.