SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Transcript 2022-Q2

[Operator]

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

Before proceeding, I would like to emphasize that the forward-looking statements are based on the beliefs and assumptions of 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 circumstances that may or may not occur. Investors, analysts and journalists should be aware of events related to the macroeconomic environment, the industry and other factors could cause results to differ materially from those expressed in the respective forward-looking statements.

Present in this video conference is Mr. Thiago Vieira Muramatsu, CEO of SYN; and Mr. Hector Leitao, CFO and IRO of the company.

Now I would like to give the floor to Mr. Thiago Vieira Muramatsu, who will start the presentation.

Please, Thiago, you can proceed.

[Thiago Muramatsu, executive]

Good morning, everyone. Thank you for your availability for our quarter results about what happened in this quarter. So starting our meeting now talking about what happened in this quarter, we start with the main events we did an anticipation of payment of BRL 98 million, of 98% of return from one of the series that we emitted in 2021, 2020, that was due to 2024. We were trying to optimize a bit of our cash flow of our bank growth. We got our first debenture with a payment of BRL 100 million in May of 2022. We also did a dividend share in 2022. In the end of May, also with a data x -- day tax of 16th of May 22. And then we did a technology investment, a small investment inside of this strategy that we should do some investments in technology that is CondoConta that is a digital bank focused on houses on neighborhoods.

They also have some corporative ones in this round, we did an investment of $4.8 million -- $4.4 million. So we can have a share in the startup. I think that an event that we would like to highlight in this quarter is Jaguar Parade that is an action that is using continuity of other parades we did in the past, and this Jaguar Parade has a focus in raising funds for raising awareness for the protection of the spotted lions in their natural habitat.

And we had several different art pieces, and they were exposed in different shopping malls here in Santo Andre, here in Sao Paulo. Some of these pieces will go to New York, where they will be auctioned and all the funds will be reverted for the -- for raising awareness. One of these pieces that will be auctioned is from Northeast that we supported that is called BAKARI from Santo Andre. He did a live painting of this Jaguar that he put in the shopping. We had one with an incredible reach.

We had this exposition that we did, right, in relation to website visits. We had more than BRL 1.6 billion and it impacted more than 1 million people. Now talking about the operational side, we had a physical and financial occupying that is very close to this year's rate as well. Even though we had a very interesting commercial activity in our shopping malls, we had lots of replacements and that happened a lot in the first quarter as well. When we saw that these replacements, they are new occupations that are more productive than the last ones.

So from the shopping side, we are having these classifications that are very productive in a general manner, you will see in the financial side how this is showing up to be very productive, seeing discounts and seeing payers and nonpayers, and thinking that even though we had a similar level from the other quarters, the quality that we've been doing and the volume that we are doing of negotiations is very positive for our portfolio.

When we see the occupation of different classes, I think that these -- this class portfolios, they are very impacted by these sort of things. I believe this is in the next slide. I think that the shopping malls, I already talked a bit.

Before we go into offices, let's talk about the sales that we had a very good increase in store sales and total sales and the same-store sales, we had quarter. We had a very interesting growth of 60%. And when we see our parking influx from the second trimester 2019 to the second trimester 2022, we have decrease of almost 20%. We add up other opportunities show up. Obviously, when we see this influx of people, the flux of people is not going down in the same proportion. So we have 20% less in the vehicle influx.

But we have a compensation in the flux of people. And when we talk about productivity and real estate of parking spots, we have been able to enjoy these vacancy, let's say, of this 20% of our parking spots to other usages like media, like storages, like used car retail, utilizing it for events. And when we see in relation to the financial part of our parking business, we have in the consolidated growth of more than 14% even though. So I think that, that's the productivity that we've been trying to do, so we don't get the real estate in a stagnant manner.

From the time that Itau had -- we obviously been working in these assets, but it is an asset that is -- we have some difficulties in allocating it. When we look to the AAAs that we have a financial occupation that is near 90%. We have 2 other actives that we consider in this category in shopping Cidade and Rio de Janero that is on [indiscernible] . It's a neighborhood that we have lots of -- it's a heavy neighborhood headed in Rio Janero because Cidade is 100% allocated. We have a high vacancy in 2 assets in Salvador and in Brazil, Machado, I believe that in Machado in the next quarters, we will have good news regarding Machado Soares has a good representative year inside the -- this vacancy basket. So I believe that in the next quarters, we will have a good increment here in our occupying occupancy rates.

Now I'll give the floor to Hector to talk about the financial results that is a bit different from the operational.

[Hector Bruno de Carvalho Leitao, executive]

Good morning, everyone. Thank you, Thiago. Thank you, everyone. Let me start talking about the assets, the NOI. When I look at the total NOI from the quarter versus 2021, we had a decrease of 16%. And when we look at the semester, we see a decrease of 10.4% and the big impact here, the great -- the reason for this now for us because last year, we sold 5 corporative buildings plus the shopping mall in Biaga Station, and these assets would bring, if you see the same base of last year, the same database of the last year would bring BRL 14 million more of results so to separate a bit of these effects of what portfolio and what is the asset here in the right side as we see the NOI of the same properties comparing the same assets. And then we have growth of 43.5%.

We've reached 45.5% of NOI in the second quarter. And in the semester, we reached BRL 90.2 million of NOI a growth of 61%. And here, I would like to highlight something that is very important, and you need to be very mindful of what we opened in the release is the linearization effect of discount that is impacting a lot of our results and we have a criteria changing this semester. So since the beginning of the pandemic in 2020, most of the companies started linearizing the discounts that we're giving to the shopkeepers throughout their contracts because these discounts were conditioned should the payment -- should their payments, if they were payment paying right after the discounts.

And with the auditors, we understood that, that should be linearized according to the financial rules and that had an important impact in our balance. So when we get rid of this effect, we see a better result of our NOI. So here, we have this already adjusted. Another impact that we had in this trimester is for us to stop linearizing these discounts because we understand that the pandemic and the contractual grounds changed, we are kind of normalizing here, and we stopped linearizing these temporary discounts that we considered in the trimester.

So this also had an important impact versus the second quarter of 2021. So the really clear this now from the numbers, we are aligning this here with you. But we'll talk about this once again later because when we look at the results, it looks like we are worse than we are justly because of these effects of linearization that impact our results right here, but it's not an impact on the bank growth.

Here in the next slide, looking to segments. We see clearly the shopping malls are the great highlights of the semester. We end up 5.8% in relationship in 2019 and a lot in relation to 2021. It's what Thiago said, we are trying to up the productivity of real estate. So we are getting smaller house complex, so they can so that the shop owners, they can handle the rent and also we've been trying to find solutions for the parking spots that are vacant. We have some -- we have people working hard in the shop segment, so we can increase the productivity of the real estate.

When we look to the semester, we have an increase of 8% in relationship in 2019 and 83% relationship 2021. An important commentary is when we look at the cash flow in shopping, the impact is even bigger. We are almost doing 18% in 2019, and this difference is because of PDD of people that now say that will have a greater lag in relationship to the financial one. We have a criteria that we consider a loss after 12 months of a person not paying and that kind of mix things, differ a bit. But the great news is that shopping malls are having an interesting recovery from the sales side and also capitalizing the spaces.

At the side -- looking towards buildings now, I think it is a segment that is a bit more resilient during the pandemic in terms of getting paid and getting rent and leasing squared. So we don't see an increase that's so big as the last year, we grew only 11.8%. And when we look towards the semester, we have a growth of 7% in relationship, 2021. Thiago said that the Triple A buildings are well located, and we have more bargaining power to increase rent, and that's been happening. And in the Class A buildings, we have part of the portfolio that has an important vacancy. So we didn't have any rent alteration.

But on the other hand, the ones that are renting it are good renters, and they have a long contracts with a quality of renters that are very high. So we had a very stable behavior. So from the Triple A, we are going up. And in the Class A, we are having stabilization. And when we look at the adjusted EBITDA, looking at the actives and the DNA of the company, we see a fall from the last year the same level from 2019. When we look to the semester, we have a follow-up of 23% in relation to the last year. And here the great explanation once again, is that we have a portfolio that was a bit smaller.

And from the expenses side, we have less expenses now that mitigates a bit this result. When we look to our financial demonstrations, it looks like we have growth of SG&A in the semester, but it's because of the bonus reduction that was very high in the last year, in 2019, actually more than the last year. And we have a bit more of commercial expenses in this year than last year because we've been having movements of new allocations that is a bit higher than normal to make upfront against these vacancies, but I believe that in the renting rates, we will have expenses that are much lower than '19 and '21, and we have more structured, and we are more efficient in expenses.

In the FFO side, aggregating EBITDA and the net expenses and tax rates, we had a result of minus EUR 15 million in the second quarter. It is a lot worse than the other trimester shown here, but this can be explained by the increase of the inflation rate and we have an acceleration of the main tax fund hearing in Brazil, the interest rate -- of the interest rate. So the Central Bank is increasing the interest rate. We went from 12% to almost 14% currently. And this has a very important impact in our financial results. We've been an intensive capital segment. Obviously, we feel the impact very strongly of the interest rate surge.

Here, we can see in the next slide, we closed the trimester with BRL 600 million in the bankroll and with debt of BRL 300 million. We increased the net debt shot from BRL 594 million to BRL 1.125 million because of the dividends that we've paid in some investments in CapEx, but we diminished the net total debt for amortization and should pay things as Thiago commented. We have the ending of the trimester with a leverage that is very comfortable, 5.83x without the sales effects, we would get in a level of 5 that is very comfortable in our corners.

And I think that the message here is that we've been having the management of bankroll and debt that is very comfortable about due date and financial requirements. And we've been working a lot to maximize the capital allocation here. So we've been doing that a lot for payments, and we will do one more that I will talk about in the next slide.

Talking about amortization. As I said, we have a very comfortable situation of amortization in the next year in 2024. We may anticipate this amortization, so we can diminish the cost of the bankroll vis-a-vis the debt number. So it will be in a very comfortable situation in the next 2 years. It relates to refinancing, it is a strategy since we will have a high volatility period in the next quarters, be it to inflation, through interest expectatives. They have been getting better, but in elections, they tend to be volatile. So this strategy is that our horizon is very far away of financing. And if we have a good window to your debt, and we will do that, and we are aware of that.

And in the right side, we see a bit how 30% of our debt is indexed to the interest rate, the IPCA and the rest is CDI. Here, we have a photo of the cost that percent of the core quality that is very impacted to the interest rate hike. So this debt can go up to 20%. So we have a very important impact in the first semester, but it is a good news, we have the expectations of lowering the interest rate in the next semester. So we can see this debt level go down to 15%. So we believe that from now on, we will have a scenario that is a bit clearer of what we are going to do. And I think that's it. We are in a very, very comfortable situation.

I think that end the financial part, I'm done.

[Operator]

[Operator Instructions] Our first question is from [ Mr. Carlos Pererra ] from insider.com.

[Unknown Analyst]

In balance, you have assets for -- to sell for BRL 115 million, please can you deliver some more details about these assets. How is this negotiation going? What are the perspectives for the partnership with XPX?

[Hector Bruno de Carvalho Leitao, executive]

I can answer the first one and the second one can go to you, okay? Thank you, Carlos. Thank you for the question. These assets that we have on the ballots that are available for sale, they are not necessarily in a negotiation. We've been commenting for a long time now that we have a recycling of asset strategy, we see a lot the return over capital, and we are less patrimonialist. In the beginning of the year, we were seeing some possibilities of having a good negotiation in those things we've been going through a great sale that was very successful last year. So because of technical reasons, if we were to do this sale, we were to sell these, we carry this active from permanent available to sale, but that doesn't mean that we have negotiations going on because if there were, we should release a relevant fact about that to the market.

So to make that very clear nowadays, we don't have any negotiation going on about these assets. We don't have anyone interested. We don't have anyone talking about it, nothing in that regard. It's just -- it was just, we were carrying these assets from the last quarter, and that doesn't have any financial results. In terms of results and numbers, just to make everything clear, then you can tell me if I answered your question.

[Thiago Muramatsu, executive]

Thank you, Hector. I think that the other question from the partnership with XPX. Last week, we made a new multi-strategy fund with them. And we have a diverse allocations inside the real estate segment. Obviously, it was not the best point of capitation. But our respective chance is that we keep growing the portfolio of assets and also [indiscernible] in the next years. So the idea is really to make this fund growth. We have some strategies that we've been working inside, and we are waiting for the right time to put all these strategies to use in the market.

Nowadays, we have 2 funds that are already in course. There is the total fit that is an alternate strategy where we have the development of a warehouse of residential corporation, and we also have these other e-mobility funds where we have bricks and papers inside the strategy of this one. So the idea is to grow once the market leaves a window open.

[Operator]

So let's go to the next question of Andre.

[Unknown Analyst]

About the occupation costs and the efficiency of these house complexes, do you see more space for gains in that front? How that evolved during 2019? And what do you see as a trigger for a rent increase in 2019?

[Thiago Muramatsu, executive]

I can start, Hector. Efficiency -- space for efficiency, there's always this. I believe that we've been working to firstly, not increase that caused and trying other alternatives, so we can keep the cost at the level that it is or even decrease it. So should talk a bit about how these costs increased on 2019. I'll go back even further from 2016 to 2022. So in the last 5.5 years, we didn't have any nominal increase in the complexes inside shopping malls, you can have an increase of 5%, a decrease of 10%. So in general, nominally, since 2016, if you put inflation during this time, we had decreasing more than 40% in this cost. So it's not something that is small and punctuate something that is very expressive.

And obviously, that opens a space for us to increase the rent in shopping malls, and we can increase this rent with negotiations where the costs for the shop owner, we can decrease the shopping tax, so he can pay the rent higher. And I believe that's what's been happening more rapidly in this last semester, how we can keep the rate in the shopping mall, the lowest possible and with the increase of sale, we can increase rent and maybe increasing the same proportion.

[Operator]

Our next question is from [ Isabelle Bedi ].

[Unknown Analyst]

Which will be the value best into dividends in the semester?

[Hector Bruno de Carvalho Leitao, executive]

Can I answer here, Thiago? Isabelle, thank you for the question. We should not pay dividends, right, in the next trimester because we only pay dividends by a law if we have any profit that has been accumulated from other periods. And we don't have that, we remunerated our shareholder a lot in the last 6, 7 months. And we should have rate when we -- as I talked in the last semesters by financial space to go through. So we won't have that space to give dividends. So I believe that our focus in the next semester is to make our assets more productive and increase the capital structure and reach the optimal capital structure of the company.

[Operator]

Our next question comes from [ Sukagosh ].

[Unknown Analyst]

Does the company has any expansion plan until the end of the year?

[Thiago Muramatsu, executive]

Hope so , we do have some expansion projects for 3 of our 6 shopping malls that are going on right now in different stages of approval in the town hall. Some of those -- we are trying to start in the next 12 months. So I do not think it is very probable in -- until the end of the year. But in the next 12 months, we will have at least 2 projects of expansion going on at the same time.

[Operator]

Our next question is from [ Carlos Harera ] from insider.com.

[Unknown Analyst]

About the acquisition of 10% of CondoConta? Is it already in the balance of the second quarter? If not, when will it come in? And can you please explain what kind of synergies could have between the company on CondoConta?

[Hector Bruno de Carvalho Leitao, executive]

In relation to the balance, yes, it is already in the investment account. Do you want to talk about synergies, Thiago?

[Thiago Muramatsu, executive]

Yes, yes. So Thiago, what we've been looking at is technology that is inside of our actuation spectrum, some things that are a bit far out and somethings are a bit closer. I think that the main synergy that we can bring it's not about integrating the solution with CondoConta inside our property. It's more like take our know-how as managers of house complexes and shopping centers. They are not that different from residential complexes. So bringing this more corporative mindset inside on the contract, so we can offer a solution that is more complete and eventually, obviously there could be a synergy, and we could pass part of households of our corporative complex inside CondoConta. I believe that is more of a question of the growth of this platform alongside our knowledge and know-how, so they can improve their CondoConta solution.

[Operator]

[Operator Instructions] Our next question is from [ Jado Pint ].

[Unknown Analyst]

The fair value of our properties that is on our explicative reports is what's on the discounted bank flow flux. Did you make the fair value case, if you were going to sell them by reposition costs, considering the value of the meter squares of the selling of the last year.

[Thiago Muramatsu, executive]

I believe that valuation questions, they don't have a correct answer. We understand which is the value of the assets that goes through a mix of lots of things. Of course, the bank flux is one of them. We have the increase of rent, it's something which we are mindful of. So I believe that it is a basket of variables and different methodologies of valuation that we use to estimate the value of these assets during a transaction.

And when we put the value in the explicative reports, we are following financial criteria, so we can demonstrate the value of our properties, but when we go to a sale negotiation, in fact, we have several and several different factors and methodologies that we use, so we can arrive at the adequate sale price. I think it is interesting when you see the fair price of the properties that we sold in the last years, was being accounted in our balance, we try to sell them for a bit higher than the financial price.

[Operator]

Our next question is from Elvis Credendio from BTG.

[Elvis Credendio, analyst]

I have 2 questions. I'd like to understand how you're seeing the takeout of discounts in the next trimesters. We saw that in store sales, in the same level as 2019, do you think that, that diminishing should be bit quicker or a bit slower. And then about the offices, do you want to update us how are the negotiations going the allocation is going from the ITM and other investments as well that will be interesting.

[Thiago Muramatsu, executive]

Do you want to answer first, Hector?

[Hector Bruno de Carvalho Leitao, executive]

Okay. Yes. Thank you, Elvis. Thank you for the question. We have some lag. We have some lag, so we can see that in the balance because usually, we give discounts about 3 months, right? At the limit 6 months, depending on the case, if the store owner is coming in right now in some new allocations, this would have if he needs a 3 months or so before launching. So I think that in negotiation, of course, we will have a discount. We will have a -- we reduced the discounts, of course, but that will be very gradual. We will see that during the trimesters. And we will show what is the impact of last quarters and trimesters in our money flow, in our cash flow, but as Thiago said, the trigger is right here, the trigger is sale, right?

If we can keep increasing sales, then of course, we have the power to take the discounts out in a quicker manner, I don't want to be a futurologist right here, but that will depend a lot on the sales, and how we are projecting that forward. And we've been seeing, yes, a very good recovery in the Cidade Sao Paulo shopping. That's been the asset that has a very big representative in our results and has numbers that are lower than in 2019s, and that's a lot because of our hybrid work and that could and that should keep going on permanently, but we are seeing the frequents of tourists in office in the Paulista area has been slowly going up. So I think that in the sales side, they will go up. We will have a great job increase a lot because of the Cidade Sao Paulo Shopping Mall.

And as I said, as the discounts are temporary, we can have a power of rent increase very quick if those sales increase fast enough. Thiago, move forward.

[Thiago Muramatsu, executive]

So continuing with the second question of Elvis. So besides our portfolio, besides our own portfolio, we are still [ managers ] from the portfolio that we sold to [indiscernible]. So we've been perceiving the market dynamics in the first semester, it was very, very strong. We could increase the value of the rents in our buildings in the IPO that Hector showed us. But in this month of July, normally it is a month that is a bit weaker. The decision takers, they are on holidays, or they are not all together to take decisions. So let's see now in this start of semester, so we can take decisions and have allocations. And this year is not very typical, we will have the elections, and we will have the World Cup that has a lower impact, but we have lots of decisions that will be moved forward to the next year.

Having that said, I believe that in our asset portfolio, and we have not that many assets with vacancy. The CEO and the Forex trade has a dynamic that is a bit different because of the market localization. In Forex trading, we've made some allocations, even though it is the best building in the country, it has a movement that is a bit more controlled. We did some locations in this year, but we have been trying to bring movement to the building. The CEO, in my opinion, is the best building in the [indiscernible], but the market in Rio de Janeiro shrunk a bit, and they are very concentrated in the middle area. So good building in Baha. And on these neighborhoods, they have a bit of difficulties to move around and the location difficulties in Rio de Janeiro. It's about the middle area here.

So we have these challenges in Rio de Janeiro, but talking about Brazil Machado, that is a big piece that we have in our portfolio. And when you see in our participation, they are small participations. So we have 2,500 meters in 2,500 meters. Brazil Machado is 4,000 meters. And in Brazil Machado, I believe that in this one, we've been having very interesting rents. So I think that there is where we will have good news to give during the second semester.

Finally, talking about ITM that has a big cost because of its size and not because of the rent represent ability there, the great challenge is that it is a big asset of offices. And there, you have an efficiency question where you need a big renter so you can get the whole hotel because it is a price year to rent this whole hotel if you are going to get it vacant, you know you have empty spaces. So this is a big asset we eventually have 10, 15 meters, but it is a bit slower.

[Operator]

Our next question is from [ Hacto Zesalis ].

[Unknown Analyst]

How do you analyze the price of the actions of the shares right now, since the market debt is getting closer to the assets of the company?

[Thiago Muramatsu, executive]

Thank you for the question. I think that I don't know if you had the correct reading of the balance. You can see the value that comes from the historical level of assets. I think that it doesn't reflect as the fair value of the assets, seeing that in the October of last year, when we announced the selling of our 4 buildings here in Faria Lima . The market cap of the company was almost 1B and 700 and B 600, and we sold BRL 1.8 billion. So we always had this point of unmatching inside the private market in the asset transaction and in the public market of share trading -- of stock trading actually. So I believe that this reading of the market cap is a historical view of the assets as depreciation then eventually the selling price, the individual selling price of each of the properties.

[Operator]

The Q&A session is over. Now I'll give the floor back to Thiago Muramatsu, so he can make the final considerations of the company.

[Thiago Muramatsu, executive]

So I believe that after 2 years, almost of struggle and fight because of the restrictions, it's imposed especially to the shopping malls. I think that things little by little are getting back to normal and the operational results of the trimester and the semester as well reflect a very positive movements inside our perspective. Of course, that is a bit obfuscated because of the interest rate, and how that impacts our balances.

But in our view and the view of most of the economies that we are talking to, the trend of stabilization and the interest rate falling, it is very interesting for our results of the business as a whole. And we have a perspective that is very optimistic in relation to the operational side because we are getting better quarter-to-quarter and me and Hector have been working a lot to keep that going. So I would like to thank everyone again for all the questions. I think that the questions they capture a lot about what we have as a perspective for our portfolio, for our company. And obviously, me and Hector and now the team IR here is at your disposition to understand anything that you need to see clearer how our company is doing today. So thank you, everyone, and good morning.

[Operator]

That's the end of the video conference. Thank you for your participation, and good afternoon.