SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the video conference of SYN to discuss the results of the second quarter 2023. The conference is being recorded, and you can access the replay at the company's site, ri.syn.com.br. The presentation is available for download. [Operator Instructions].

Before resuming I'd like to use this opportunity to say that declarations are based on beliefs and suppositions of SYN and the information that the company has available. This declaration might bring risks and uncertainties considers that they concern. Future events, they depend on circumstances that may or may not occur.

Investors, analysts, and journalists may consider that the events with the macroeconomic environment, segment, and other factors that make the results materially different from the ones expressed in the respective prospective declarations.

Here presenting this video conference, Mr. Thiago Muramatsu, President of SYN; and Mr. Hector Leitao, Financial Director of Investors Affairs of the company. Now I would like to pass the microphone to Mr. Muramatsu, who will start his presentation. Please Thiago, the floor is yours.

[Thiago Muramatsu, executive]

Good morning, everybody. I'd like to thank you so much for your attendance for this call. We are going to talk about the quarter and perspectives going for the second month -- the second semester.

And to start, I would like to talk about operational performance. that we are so pleased with the results, they are improving. We see in physical and financial occupancy after we bring more the results -- financial results that they had a good performance in the second quarter.

We start, physical occupancy, we left '21, 88.4% to '22, 90.7%. And this quarter, we're finalizing 91.9%. And there is a relevant allocation in the third quarter at Grand Plaza that was the full allocation of the commercial beauty. It's -- this occupied in 2022. Now we finalize its occupation and it brings an impact that is relevant in physical occupation improving it.

Going to financial occupation, we had a growth leaving 90 -- 91%. And now there is this growth of 1.4%, leaving 90.7% and reaching 92.1%. This result is not considering this final allocation in July.

Going to the next slide and detailing corporate buildings. We also had an increase in the physical and financial. So we finalized the quarter with occupation of 83.5% (sic) [ 85.5% ] and [ 88.2% ] financial on AAA buildings [ see ] that has an occupancy that is lower, but the market share in the financial results is less relevant when we compare it physical and financial in AAA 83% and financial we are almost 90%. Class A that is more uniform. We have 3 buildings in Chácara Santo Antônio totally located and the vacancy is a little bit higher in Brazil and Machado and also in 5 states.

And talking about malls, especially in the financial occupancy, the way it is higher than the offices here, we have some improvement when you see. In the second semester, 94.2%, not considering -- it is also considering the building Grand Plaza. So now we are closer to 95% of physical occupation and financial 93% (sic) [ 93.5% ] that is going to increase because of these occupation. Malls, is still malls. Their sales, their result was positive in sales, especially.

And outlook, when we see IGP-M deflation [indiscernible] in the last 12 months, we leave -- we see the contribution to grow 7.3%. Part of the 3.3%, the same-store sales, representing BRL 20 million replacing. We have been doing -- and this increased BRL 21 million in this quarter sales.

We have been investing in kiosks and events And this added the second quarter last year plus BRL 8 million. So this quarter, BRL 750 million sales, growing 7.3% based on last year that is the actual growth.

The same stores, we closed the quarter, 3.3%, underneath the previous quarters, and I believe that the previous quarter -- the previous year that important event was -- rest of pandemic affecting the final quarter of '22, '23, and the slowdown of inflation that contributed for lower results on sales of stores. And renting of the stores, we keep the number that is high, closing an 8.1% of growth in the ranking of the stores.

Financial perform, I pass this microphone to Hector.

[Hector Bruno de Carvalho Leitao, executive]

Thank you so much. Thank you for the attendance financial performance. When we see properties, we had a growth of 9% in NOI, consolidated in the quarter. And we called the semester 8% of growth that is really concentrated in top line revenue. And then we had a good evolution in the last years on costs. And now the highest contribution in results is really renting -- renting in the properties. Shopping mall, the growth is 11%, very robust. We closed the quarter in BRL 40 million NOI compared to BRL 36 million the previous year.

And in the semester, BRL 79.8 million, considering recovery of default and BRL 70 million the previous year, a growth of 13.7%. We are so pleased with this result, considering the great part of the rents are adjusted by the IGP-M that is negative. The actual growth is robust, and it pleases us that the strategy is correct.

Offices, we have the growth in the quarter of 5.8%, BRL 8 million -- BRL 8.5 million on result. And in the semester, a drop of 7%, closing BRL 16 million NOI on offices per semester. And I commented last quarter that was the linear effect on Birmann 10. Excluding this effect, there is the growth of 3% positive compared to negative IGP-M that is the base for most of the contracts.

Following the analysis, adjusted EBITDA operational results, adding services, expenses in office, it is 14% growth explained by the performance of the assets, nothing new about expenses and other results on services. And here, the robust growth is the consequence of asset performance.

When you see the semester, we are flat compared to previous year, and there is an impact that I commented last quarter. The first quarter '22, we had a reversion of bonus payment at the company. If I exclude this effect, we have a growth of 11% EBITDA positive. Financial result that was the leverage of result on the result improvement. Year-over-year, there is a drop of financial result net 44%, we improved. We were in net expenses, BRL 38 million, now it's BRL 21 million. And then we had some factors -- important factors to comment.

The first one is our acceleration strategy, paying gross debt, and then you have the cost of payment and what you pay on that. This is strategy the result, SELIC is a little bit over. And then we had also positive effect on IPCA slowing down. Big part of our debt is IPCA, we're going to see the numbers later. This helped to bring the cost down and also financial revenue that is better.

Even if the cash reduced, we had some good performance of applications and observing the semester a drop of 30%, closing with net expenses of BRL 51.8 million compared to BRL 72 million the previous year. Following up, net profit observing adding all the variations. We have an improvement -- expressive improvement. Net profit adjusted almost BRL 3 million in the quarter compared a loss of BRL 15 million of the previous year quarter and a loss of BRL 6.4 million in the semester compared to BRL 20 million loss in the previous semester.

When we see FFO adjusted, excluding depreciation effect and the cash effect we closed, the quarter and the semester with cash generation, BRL 12 million compared BRL 6 million of negative FFO -- BRL 6.6 million final quarter and BRL 2.9 million previous semester. So briefing up, operation now is doing well. We have robust growth in the assets, especially shopping malls, with good recovery.

Since last year, the strategy and the expenses are well controlled, fixed expenses of the company. And the financial result improves based on the strategy of debt payment that is accelerated that we had last year. Net interest rate dropped, so we are seeing in [indiscernible] the perspective is very positive for the following quarters as well.

Following up that we closed the quarter with BRL 292 million and gross debt BRL 1 billion, a reduction of over BRL 230 million compared to the last quarter. Net debt, BRL 784 million. When we see the leverage, there was an improvement 6x to 5.87x in this quarter, especially because the adjusted EBITDA of the last 12 months, we see EBITDA rate better, growing every quarter. So we are going to see this leverage reduction in the following quarters as well.

When we see financial confidence, IFRS vision, there was a good improvement, [ 5.3x ] to 5.16x, and we have room for more leverage 7x and another important covenant and corporative that we have room 2x and the obligations. We are comfortable.

And finally, the final slide showing amortization, we pay the debt with shorter term, we allocated the debt. In the next 1.5 years and 18 months, we have a small amortization that with amortization that are monthly, we do not have obligations in the following months. In 2025, we are going to have BRL 200 million of amortization. The debt profile, 25% is IPCA and the rest is CDI. So here justifying that IPCA is slowing down, and it's important answering for part of the drop in the debt cost of financial expenses, and the average cost IPCA debt is CDI, the average spread is 1.5%. That is very low considering the macro outlook. So the equation is doing well with the profile of that, the financial part is over here. Now we are going to start the Q&A session.

[Operator]

[Operator Instructions] Our first question is written by Mr. Fernando [ Teliz ]

[Unknown Analyst]

Congratulations on the results the company has [indiscernible] start the societary structure of the company, what is the ratio of the market share? And there is one more question. If I may ask another question, what about the results of Barra Metropolitano Mall especially on sales, renting and vacancy?

[Unknown Executive]

Fernando, the first question that you asked about SPX Honestly, I do not know if this is the name of the company, but we have a society of 50 of a manager real estate. So we have 2 funds. We have some information about the performance of these 2 funds and now our participation that our societary participation is in the holding that is the managing holding. I do not know if I have answered your question, anything you can complement later.

And about the Metropolitano Barra Mall, this mall is growing a lot in the last years. Especially after 2019 onwards, there was drop in 2020 but since then, we are recovering well. It's growing a lot. Just to give you a perspective about the sales we have by the end of this first and second quarter, we have a growth of over 10% compared to the first semester last year. Our vacancy is low. We have less than 4% of vacancy. And we sold, we also are growing more than 10% compared last year. It's following the trend of the other malls.

[Operator]

[Operator Instructions] Next question is from Mr. Daniel [ Mao ]

And he says, have you consider the sales of any asset in the mall sector?

[Unknown Executive]

Daniel, I believe I have answered, we communicated and it was on the media. We had a process for a possible of 2 malls, Grand Plaza and Cidade São Paulo. And we do it normally, talk about sales and acquisitions in all the classes of assets that we have. So since 2019, we had some acquisitions and divestments as well. And I'm telling you that we have been working trying to find the best opportunities. So if we find a good opportunity of sales, we maximize it.

But if there is a good opportunity for acquisition as well, we are going to do it. So we try to be very pragmatic, always trying to observe good opportunities that come up and try to have an arbitrage of prices that we see in the private market, but not public market between 2 players.

Also in the case talking about [indiscernible] transaction, the prices sometimes we take prices like this, and it was out in the media. That's why we communicated. There was no specific problem about that transaction. It was something that is a habit.

[Operator]

[Operator Instructions] Our next question is coming from [indiscernible] from [ Sangro ] Investments. And he says [indiscernible] investor as an individual. And I would like to know your strategy to decrease the debt for 2025 was that SYN cash is lower and lower?

[Unknown Executive]

Thank you so much for the question. We have some choices for 2025. The first is that we can roll out this debt data finance to pay this obligation in 2025, it's always a choice and it's usual in the market. The second analysis is that we start generating cash, especially on selling drop. The assets are growing double digit, and we are going to see a cutoff on the interest rate, bringing results.

In the following months, we are going to assess. And it always depend on the if you're going to releverage, it depends if you have new projects to invest. If you do not have it, what is the capital cost of the shareholders. Everything is part of the equation to decide if we are going to bring it up or down the leverage. But I believe the most important point, we have seen this decrease of balance in the cash is a rational choice, is not a concern. This cap is really comfortable toward considering that we have the rent revenue, and there is low volatility in the results, and we are going to generate more cash from these assets in the following years, maybe the calculation, BRL 300 million in cash is BRL 200 million, but we have to remember there is a positive match starting today this quarter.

We see already a positive FFO, and we expect -- this is not a guidance, but the interest rates dropping and the assets growing well. We continue to see a positive trend.

[Operator]

Next question is Mr. [indiscernible] And he says, congratulations on the results. Lower SELIC probably we referred the loss. Question, considering midterm interest rate, is there a possibility of follow-on?

[Thiago Muramatsu, executive]

Thiago, here. It's hard to tell you about follow-on. We believe we have a disconnection on what we believe is the value of the company versus the value of negotiation in the market. So the price is a new issuance that is very low. At this point, we do not see any possibility or follow-on. But then again, as I mentioned about the assets, we try to be opportunistic when we see a window. So we always follow, of course, the capital market.

And if there is a good window indicating a good perspective on a good follow-on, we are going to do it, of course.

[Operator]

[Operator Instructions] Next question is from Mr. Carlo Zehir, [indiscernible]

[Unknown Analyst]

Please, can you talk a little bit about the market point of view from July on and the first days of August? Can we have an expectation that the third quarter '23 is better than the second quarter '23? And the fourth quarter '23 according to the seasonality of the sector, is it going to improve? Based on it and the drop on the interest rate, do you expect that to profit in 2023?

[Unknown Executive]

Thank you, for your question. July and the beginning of August was very good. The second quarter, there is a slowdown, although 7% was our robust result NOI It was worse than the first 3 and in the second quarter, it was robust. The third quarter, it started so well. The flow in the malls is increasing. The sales in July will grow 15%. So there is an acceleration compared to the second quarter. Same-store sales is double digit compared to 3% that we presented at least is what we saw in July.

According to this data, we expect that the third quarter is good as well. Fourth quarter, you are right, the seasonality is interesting, especially because of Christmas. The end of the year is very good for malls, but the book profit [indiscernible] this factor of seasonality with the linearization of rent, normally, you have double rent, most of the stores, especially the second line stores, they are linear throughout the year. So the cash result is stronger than the book profit. when you see the seasonality of the final quarter. So we do not see increase on accounting results.

Based on your second question, I believe 2023, we're going to have accounting results that is more limited. But of course, if you calculate our gross debt that is more than BRL 1 billion. Every percentage point of SELIC is representative in our result and IPCA as well. And I believe we are going to follow a positive trend on growth on accounting results as well.

[Operator]

[Operator Instructions] Q&A session is over. We would like to pass the floor to Mr. Thiago Muramatsu for his final considerations at the company.

[Thiago Muramatsu, executive]

I believe that during the Q&A, we answered questions and we talked about it. We had a second quarter considering as good quarter and that the first 40 days, the second semester, we see good news on sales and flow. We mentioned that, of course, there was vacation period, but we are going to keep a good growth pace.

And we are talking with possible new tenants, building -- commercial buildings and malls, and we feel that the second semester has good perspective. I believe [ Board ] that I will get back there 3 months from now with good news about the third quarter as we did for the second quarter. One more time, I'd like to thank you so much for your attendance at this call. And if you have comments or questions left, the IR team is at your service to help you well. Thank you so much.

[Operator]

This video conference of SYN is closed. We thank you so much for your participation. Have you all a great afternoon.

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