SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the SYN video conference to discuss the results for the first quarter of 2022. This video conference is being recorded, and the replay can be accessed on the company's website, ri.syn.com.br. The presentation will be also available for download. [Operator Instructions]

For those who are watching this video conference in English, we advise you to download the presentation in the company website in the quarterly results section so you can see translated material.

Before proceeding, I would like to emphasize that the forward-looking statements are based on the beliefs and assumptions of the SYN Management and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on the circumstances that may or may not occur. Investors, analysts and journalists should be aware of events related to the macroeconomic environment, the industry and the other factors could cause results to differ materially to this presentation.

Mr. Thiago Muramatsu; and Mr. Hector de Leitao. Mr. Muramatsu, the floor is yours.

[Thiago Muramatsu, executive]

Good morning. And I would like to thank you so much, who reserves the time to follow our conference quarterly results. Talking about the achievements during this quarter, this quarter after the asset sales that we had in November and payment December last year, and part of this resource, we have paid dividends and partly was reserved for debt payment.

So here together, with Hector, we analyzed what we had on debt pay in full. And then we anticipate the payment within 2 operations in the quarter, 7th and 9th debenture, the 7th BRL 36 million with different collaterals, IPM, [indiscernible]. And the 9th debenture payment, almost BRL 100 million, and Grand Plaza real estate fund.

After the quarterly results, we have the results, and we also have to anticipate the 13th debenture that value over BRL 100 million. That was the repurchase of the first series of the 13th debenture. These 3 debts that we paid had the term that was closed. We could see the duration of this debt of the company in general. And we had cash flow freedom so we could work with investments, dividend payments and all the prepayment of debt. The prepayment of debt that we had in this quarter, we also communicated a dividend of BRL 80 million paid on May 30 this month.

Talking about operational performance. I believe that is a big change of the portfolio, and it's interesting to understand these changes reflected in our balance, in our TRE. Hector can talk about it. And it's interesting to see the portfolio divided into 3 big groups. We have shopping malls. We have Triple A offices and Class A offices. The final one has been suffering more with the occupation and the main sensor in this group is ITM, 35,000 meters of ABL that we have more than 35% in our part. Everything is open, is vacant. We had 17,000 vacancy in levers and the other buildings have higher vacancy, but the area is smaller.

And the rest of our Class A buildings are 100% leased. Triple A, this level of vacancy that is elevated now in this quarter is the consequence of the acquisition we had of 1,500 meters in Tower D, JK Complex building. We have a vacant area. This operation was interesting considering costs. We sold our portfolio of BRL 36,000 this square meters, and we acquired less than 25. So this has generated value in the acquisition part of what we acquired. We have already rented and the value is above our underwrite, and that is also that we have been working on it, but the good news is that there is good willing for renting and leasing that is high demand on Triple A shopping malls.

I believe, next slide, I can explain it better. Observing the shopping malls, and we have the numbers since 2019 and '20, January and February, these months were normal. Before the first result, March, it worth half of the month without restriction net '21. We had restriction in the first quarter. And then we reached the first quarter 2022 with a drop of BRL 627 million; in '19, for BRL 565 million in the first quarter '22. The main factor that we could not check near the sales in 2019 was Cidade São Paulo Shopping Mall that is a great dependency on offices and tourism. The office from March on, especially April, there was a return, more massive return of people to the offices, and then we can see the reflection of this in April and May. We had many -- with excellent flow in the malls, no exception. The sales perception for Mother Day was good.

So in some malls, the estimate numbers is overcoming the sales on Mother's Day 2019. So from this point on, we can reach closer and closer to the sales in 2019 and overcome it. The flow is not represented here, but basically, we see the same effect on sales. In our release, you can see in the detail, but the difference is that we can differently to make [indiscernible] real estate, the carting areas with the lower flow in outdoor also had profit. And in the end of the day, the revenue in the parking area is higher than in 2019, and the sales also -- productivity of sales is very good. Fewer people, but spending more. The average ticket is higher.

And this year, especially the very big launches in the movies, everything is going to back to the same levels that we have in '19 and higher in the financial aspect. You see that we are getting higher -- how about occupation when we see the first quarter '21 and '22, 91.8% compared to [ 95.1% ]. There is a piece of information that is important to understand this differencing in occupation. When we observe the occupation at store -- number of stores, we are so close to 2019. The big difference there is a little bit better. In the case of occupation, is a tower that we have a commercial building in [indiscernible], we consider in the ABL. When we see the effect of this commercial building that is not something related to retaining, it's occupied by companies small and midsized. We have this occupation effect on stores, the same levels that we had in 2019, the beginning of 2020. Observing the sales at the stores when we compare the first quarter 2021, we see the growth 63% observing the first quarter '22 compared to 2019. Comparing sales at the stores, we see a drop of 6.5%, explained by the effect the sale of Cidade São Paulo shopping mall.

Next slide. I mentioned about corporate buildings and the ITM is considering this occupation rate. When we exclude ITM plus Class A, it has 86.2% occupation, reflected what I commented that this area really representative in the occupation. The value of rent is not so representative as Triple A, and Triple A, we have the occupational rate, and there are 2 buildings Triple A within our portfolio and all the rest that we are still managing. And these buildings that was the acquisition in the beginning of this year and the occupation suffer, but this is not in our concern because we have there relevant demand to occupy this space is a matter of price and not so much demand.

And talking about prices in corporate buildings, it's not here in the presentation, but when we observe in our Class A, the same area per square meter, we have a small drop around 3% or 4%. But when we observe Triple A in the same period first quarter '21 and first quarter '22, there is an increase of 12%, and this is reflected on what I say about prices. The problem that we see in vacancy in Triple A is not different, but more proper prices that we understand for debt development. And from my side, I believe that [indiscernible].

[Hector Bruno de Carvalho Leitao, executive]

Thank you so much Thiago, and thank you so much all the attendees for your presence. I will talk about NOI. This was the highlight of our balance, what our performance -- operational performance in the assets. On the left-hand side, NOI plus PDD, we have a decrease of 16% compared to the last quarter, but there was an impact of BRL 20 million in the portfolio that we sold in the fourth quarter. To the right-hand side of the graph, we see the same properties. There was a growth of 32.5% concentrated in shopping malls, and I will talk more about it.

Observing shopping malls, we had a growth of 38.2%. Observing the same properties, observing 2019, we see a growth of 1.4% compared to '19. And here -- it's not here. The effect of default by handing this effect, we grew 8%, almost 9% compared to 2019. So the takeaway message, the shopping malls are returning powerfully in all the malls. The default aspect and also vacancies, we see the first quarter seasonally is that on contract decisions. We see a good settlement of vacancy and a good pipeline of new lease for the next quarters, and I believe the takeaway message for shopping malls, we are in a point in time that we are increasing, going up also March and Mother's Day were excellent than weekends on this stage, we were over 2019 double-digit in sales.

So we are so confident on the return of shopping malls. Talking about buildings, we also see some important events. 2021, there is a drop, but there were some events, non-recurring ones in 2021, causing this drop of 24%, an effect of linearization sign we received for contract terminations. When we remove these effects, we still have growth near 10%. So as Thiago mentioned, there is a stabilized price for Class A and a big challenge for ITM. Our asset data almost 100% vacant, And we have a growth that is interesting in Triple A rent. We can see throughout the other quarters.

Next slide, we see the adjusted EBITDA compared to last year, we had a drop of 5.5%, and 20% in 2019, the effect was Triple A sales are part of the station that we sold, BRL 20 million. So we are leveling up EBITDA with a smaller portfolio exactly because there was this interesting performance in operations in malls and D&A is well controlled. Basically, there was no event highlighted not even positive or negative in the D&A is well controlled compared to the previous years. We keep the same level on expenses.

But when we see these adjusted FFO, we add operational result, financial results. There is an expressive drop compared to '19 and '21, specifically compared to '21, there was basically BRL 15 million more on financial expenses compared to BRL 21 million. And if we exclude this effect, they would gain a result BRL 2 million under '21 with the recurrent revenue that operationally speaking, there was an interesting evolution. But the downside is that it was not the scale of CDI that was in consideration and the surprise for this quarter. Nobody expected was IPCA scale. As we observed, we are at level of 12% in the last 12 months.

And then we have a specific debt IPCA with a higher impact in our financial results. Observing that, as Thiago mentioned, we prepaid already in this quarter and even with the dividend distribution in this fourth quarter additional, we are going to have one more. We have a level of leverage that is under control. So we closed the quarter with a gross debt of [ 1.5, 1.87 ] and the cash of BRL 546,000 but we are in a capital reduction process this month, adding to our cash, almost BRL 347 million. So the net debt is almost BRL 600 million and covenant that is 3 or 0.4x and adjusting recurrent is 3x. So we have a debt that is well equated here.

And then talking about the amortization schedule, BRL 200 million in March, we are going to more BRL 200 million in the following months. But to me, we fulfill BRL 200 million, and we see that the following years, 2 years, we have space -- interesting space of services and debt to pay. And of course, we are going to analyze throughout this period. If eventually, we anticipate some prepayments, but the good news that photograph is that we are well acquainted with our cash compared to what we have of investment ahead of us. And highlighting that is 1/4 of our debt is connected to IPCA and the rest CDI. So in the following years, we see an amortization equity to our cash flow generation.

And then we can open up the floor for Q&A now.

[Operator]

[Operator Instructions] The first question is from Mr. [indiscernible]

[Unknown Analyst]

Can you talk more about the vacancy in [indiscernible] shopping mall and [indiscernible].

[Thiago Muramatsu, executive]

Yes, we can talk about it. [indiscernible] shopping mall, there was a very challenging beginning in 2019. We increased the occupation of the mall, the pandemic hit and everybody knows what happened. I don't need to repeat. We lost some operations, but now we could relocate great part of these operations. Some were locked in the first quarter, another after the end of the quarter. So our occupational level is higher than this result. We have now there 2 areas that are higher vacant that we have been working, and it's interesting because there we see 2 effects. There is a growth of the retailers' demand for the development we have been working with a higher qualification of the stores in that mall. So throughout this year, we are going to see the fix.

And the second point surrounding the mall was natural to happen when the mall goes to a site away from the big centers, we see real estate development, households around the mall. That region was residential households and storages and warehouses. So we see these warehouses giving place to buildings and houses, bringing a positive effect to the mall, and this is going to be part of a virtual cycle of renting. Answering to your question, I believe that we have for this year a good perspective to improve and improve a lot the shopping occupation.

[Operator]

Next question, Mr. Elvis Credendio. In the meantime, let's answer this question from Mr. Eduardo [indiscernible].

[Unknown Analyst]

How about JV and the regularization and commercialization of Brasilio Machado.

[Thiago Muramatsu, executive]

Eduardo, I believe we [indiscernible] Brasilio Machado. Brasilio Machado there was a permit for reform for improvement. We executed in the tower everything we did it. The neighboring tower remodeling is ongoing. The next 60 days, it's going to be concluded, then it is totally regularized. So we have started already the work there trading Brasilio Machado.

The demand over there, it's not a Triple A building. It's soft, but we see are any -- some people interested, but a great shift is, once we have the permit without any restriction. And I believe that for the following months, we see commercial activity over there in Brasilio Machado.

About JV. JV with XPS. We have now some projects in the first fund, BRL 350 million, and the main project, the CLD that we sold 2/3 of the market share to the fund, and this one is a project that is already ongoing, the construction work since the beginning of this year. So things over there are doing fine, and we have some other projects there in the beginning of investment, some construction work, others in preconstruction work, some sales have started already, and I believe that the expectation is to have a higher [indiscernible], but within what we capture -- what we have meant is enough. So for now, that seat, we are sending some other kinds of means, but what we have is this model.

[Operator]

Next question is Mr. Elvis Credendio.

[Elvis Credendio, analyst]

Can you hear me?

[Thiago Muramatsu, executive]

Yes.

[Elvis Credendio, analyst]

I'm sorry, the problem with my microphone. I have 2 questions. The first about shopping malls. If you can talk about the sales evolution and rent every month. You understand you see an acceleration in the year and talk more about the health of the retailers, the number of occupation default and the evolution now in the second quarter, as you see sales and rent the evolution.

Then my second question is about M&A. I would like to understand, what is the company's appetite for M&A. The market is not so competitive. And the association with CPP, you have management fee and it's meaningful to be more active in M&A because of this [indiscernible] I would like to understand the opportunities that you see, the interesting things and the segments that are more attractive.

[Thiago Muramatsu, executive]

Yes, I'll go for the first one. Elvis, about shopping mall, what we realize, it's an evolution every month in our portfolio. There are 6 malls and there was Cidade São Paulo representing a lot in our sales figure, and that mall benefit a lot from offices. January and February was a month flat for Cidade São Paulo shopping mall. March, we see the return of movement. In April, when the offices return in [indiscernible], we've seen our portfolio of growth of sales over there.

So in the same-store sales curve that was near 6% under the same period last year. April, we had same-store almost 5% positive and may going towards the same way, even better. Mother's Day was excellent and Easter was excellent, too. Every month, we see growing January and February. A little bit under March, the quarter [indiscernible] and next quarter, we expect the same-store that is positive compared to '19 rents, who we could be great part of [indiscernible] IPCA last year, but we still have to balance with discounts for the retailers of patient cost gets balanced.

But the good news that the default indicator is aligned to what we had in '19. Default in the condominium that is important as the owner, we need to cover this cost default. The first quarter was negative. We'll recover more condominium quotas then we demand. On rent, it's around 1.52% in almost all of the malls. It means that we are collecting and it's balanced with the finance of the retailers. What we expect for the following months is to adjust this discount, removing the discount as the sales go up. So I would say, there is no pressure on vacancy and default because we have the occupational cost balance, and we analyze store after store every month's discount request. We analyze the occupation cost, [ BRE ] and we discussed based on figures and numbers what we have in the market so they can pay. So that's the scenario that we can talk about default. Did you mention default? Yes, these were balanced.

Answering your second question about M&A. What are the sectors we see interesting than our appetite. Offices, you mentioned the association with CPIB is something that we see as a segment that is timely and with small participation. The challenge is to find good properties. So we can have acquisitions in a percentage that is lower. The vision is 10%, 20% of that property and CPIB or the fund that we are partners in SPX, trying to balance the return of the rent and the management fees and talking about -- it's not so competitive, as you mentioned, and this competitiveness getting lower because of interest rate. In order to have the calculation, we are so conservative. So it's harder to calculate because of the capital cost and the interest rate to find an opportunity to have something that is good for us.

We have seen something good, but all of them, there are 2 pathways. What is core? A lower participation, focusing on profitability of management and non-core possibility. So an acquisition, so it can have a turnaround of that property and eventually can have whatever is necessary to sell it after a few years -- 3- or 4-year stock. So this type of opportunity we observe, we are seeking to be judicious and have the best business possible.

A lot other segments, shopping malls, we have a big work-at-home, and we can see in our management result of our portfolio that is a sign in our properties. We have things to happen in the following years. We have been working hard, focusing on it. And about industrial, is a sector that at some point is intensive in capital. Loss of what we want to do in industrial, eventually at home, but a great part of it in association with SPX.

[Operator]

[Operator Instructions] No further questions. This Q&A session is over. I'd like to pass the microphone to Mr. Thiago Muramatsu for his final [ conversation ]. Go ahead, sir.

[Thiago Muramatsu, executive]

The takeaway message that we have already reinforced during this call is that although we had big degradation in our financial status because of the interest rate, we have a liability management work. So this can be mitigated as much as we can, and we can see the operational aspect with more agility. We have been doing it, and it's reflected something in our results. Our EBITDA growing a lot compared to the last year and a little bit above what we expected in our budget this year.

And the following months, we are in the middle of May already, so April was good. May is good so far. So we are carefully optimistic for the rest of the year and the following years as well. Any other comments or questions, you can come to us. Feel free to contact me or Hector Bruno, our people and our IR team. Thank you so much, and have a great day.

[Operator]

SYN video conference is over. Thank you so much for your participation, and have you all a great day.

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