SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to SYN video conference to discuss the second quarter '24 results. And this video conference is being recorded and replay could be watched at the company's website, ri.syn.com.br. This presentation will also be available for download. [Operator Instructions] Before starting, I'd like to use this opportunity that the prospective declaration is based on beliefs and suppositions of SYN administration and current information, and this declaration could bring risks and uncertainties considering they regard future events. So they depend on circumstances that might or might not happen. Investors, analysts and journalists consider that events related to the macroeconomic environment in this segment and other factors may make these results different from the ones here expressed.

Presenting this video conference, Mr. Thiago Muramatsu, Director and President of SYN; and Mr. Hector Leitao, Financial Director and Investor relationship with customers in the company. I pass the floor to Mr. Thiago Muramatsu to start this presentation. Thiago, please, the floor is yours.

[Thiago Muramatsu, executive]

Thank you. Good morning, everybody. Thank you for your time and availability for this call. I'd like to start about the achievement. This quarter was very active, and I believe people here were looking forward to see this according to the last quarter, and they were concluded now in this quarter. I will talk about them very briefly. First, we have the swap of assets. We announced this in the beginning of the year. This swap, we had an exchange of participation that we have in the Towers JK, participation in Tietê Plaza Shopping and Cerrado shopping. So we received 37.5% of Tietê Plaza, 37.5% of the participation in XP, 85% of Cerrado shopping and then we received BRL 19 million referring to 37.5% of the debt that we had in Tietê Plaza Shopping.

In exchange, we gave 20% of JK Towers D and E also BRL 79 million debt that were connected to this 20% market share of the malls, I mean the towers. And then we gave BRL 57 million cash. So this configuration we had a market share of 62.5% in Cidade and 85% in Cerrado shopping. This was aligned with the transaction that we announced on February 27, the transaction with XP Mall, selling the malls.

So to recap, it was 6 shopping malls selling in our portfolio in a total BRL 1.850 billion. The participation is 51% in Grand Plaza, 32% in Cidade, 70% in Metropolitano, 52% (sic) [ 52.5% ] in Tietê, 37.5% this was referring to this exchange, this swap; 85% of Cerrado and then we received 31.22%, [ 37 x 85% ] and 23% of shopping D.

This transaction was concluded 4 months after the announcement, and then we could fulfill it successfully. And after this conclusion, we had a market share of 10% in Grand Plaza, 60% in Cidade, 10% in Metropolitano, 10% in Tietê selling our total participation in Cerrado and 12% in Shopping D. In addition to that, we announced in this quarter that we signed an MOU for divesting Brasilio Machado with total of BRL 32.5 million paid in 6 parts. And we are in the process to sign it, and we observe the conclusion of the signature within this quarter.

In addition to that, there was a subsequent event, prepayment of 13th debenture. It was the most expensive debenture that we had in our debt portfolio, the most expensive debt. This debt cost to us, CD+05 in March expires. So we [indiscernible] anticipate this debenture.

Another point that here is not considered as a subsequent event, but we communicated yesterday after the market closed after we announced the results, the distribution of dividends BRL 440 million paid on September 2. And this dividend payment was BRL 440 million because it was accounting profit in this operation that we finalized. Finalized with a little bit more. We have legal deductions and it was the profit to be distributed BRL 440 million. And then we distributed -- the Board approved the distribution of the distributed amount. After dividend payment, we are going to have cash that is very high leverage low and then we have to receive by the end of the year, one more part, BRL 360 million with correction of CDI plus price adjusts, around BRL 384 million, BRL 400 million. And then we understand that there is room to return more to the shareholders and the distribution of dividend is based on our profit accounted in our PL and used already. In its totality for this distribution, we are analyzing now to have capital reduction to return more for the shareholders.

And it depends on negotiations with the creditors, we are going to keep everybody informed about our next steps and the volume of this capital as a relevant fact. Following up with this presentation, here we have a little bit more of the cash flow of the transaction we had. It was not paid totally in the closing -- receiving at closing BRL 941 million, more than half of the volume.

There was the payment of taxes that was optimized. We tried to use -- the loss that we had accumulated, fiscal credits that we have, so could have a cash payment of this transaction, BRL 70 million. And the first installment, BRL 360 million, this is the absolute value. So you have the correction of CDI price adjusted to be paid by the end of the year. And next year, we have one more part BRL 550 million nominal value should be corrected by the CDI and paid in the end of next year.

When we observe the transaction in general net profit BRL 1.780 billion. In 2025, we are going to receive BRL 1.230 billion. We have the remaining portfolio, information a reduction that was being considering ABL of the malls, reducing 70% -- 77% over from 127 to 29 meters, 10% reduction of profits. This swap was 20% in JK Towers and the rest is the same.

Although currently, we have our portfolio reduced by half in the ABL, we do believe that quality-wise, we have improved a lot. In the sales, we sold part of both that had a lower productivity than the remaining portfolio, and the remaining portfolio has a higher concentration in the city of Sao Paulo, and we do believe that is more resilient. Also when we pick up, sometimes we see crisis, it is fast return.

Talking about operational performance, starting with the malls. We improved here in our occupation. I believe it's one of the occupations that we had in the last year, the highest one, we could reach 96% of our occupied portfolio.

In the other quarters, '22 and '23, we had vacancy in the corporate building, commercial buildings that we had in our Plaza. Not considering the vacancy that we had last quarter compared to this one, increase of 1.2% considering the vacancy that is allocated now from 94, we raised to 96. Financial occupation was better more than 2% second quarter '23, second quarter '24. Observing the sales of the malls, we grew 2.6% in total sales. We built up the store sales, replacement of stores and the increase in [indiscernible] From 750, we reached 769. Same-store sale 1%. And here, there was probably all the companies listed had the same mismatch when we compare same-store sale because of changing Easter dates.

And in the quarter, there was a semester with a growth of 2.4% in sales, same-stores and rental same-store, 3% raise. All these numbers are considering our portfolio, the old portfolio without considering the sold ones. Just to reinforce what I mentioned before, about improving the quality of the portfolio and productivity after the sales, if we consider the same numbers, but with our percentage -- current percentage, the same-store sale we would raise almost 2% from 1%, we doubled the quarter. Rental, the same, would follow this movement almost 1% [ tripled ]. And something that we did in the last year, lots of replacement of stores with low productivity for higher productivity stores. So when we see the replacement, it is more representative in the growth of sales than the same-store sales and observing the comparison with the new portfolio that we have, we would be close to 3% of growth in sales.

Corporate buildings, it was flat quarter after quarter 85% to 83%, we lost some areas in a building, but in compensation, we have a good prognosis of rental of these Triple As, suffering a great impact because of the change of participation so lower market share of a building that had higher occupation. And finally, here, the occupation in our warehouse currently, it's 2/3 of the area already occupied, 1/3 that is left for occupation we have negotiations ongoing, advanced negotiations, and we do believe that we are going to see a good evolution by the end of the year, occupying this warehouse. That's the first phase. The other phases are under construction and for rental, but they are going to be ready next year.

So we are keeping the sales effort into the area that we have opened in Phase I. So we are optimistic that we are going to finalize this rental by the end of the year. Passing the floor to Hector, so he can talk more about the financial performance at SYN.

[Hector Bruno de Carvalho Leitao, executive]

Good morning, everybody. Thank you so much for your attendance in our conference. I will start by informing you about net profit and main indicators. But before the effect of selling in our balance with some characteristics, and it's important to clarify, in the first point of the profit of the sales already in the year, no important effect of receivables that we are having in the profit, financial revenue and all the other parts adjusted by CDI. Of course, we are going to see results, financial results during the period where we have receivables in our balance, but the result is already here.

Net profit. There was this market share of BRL 440 million in net profit, the rest is operational effects and some other effects, nonrecurring from other elements not related to the sales. Another impact that the sales would generate, we sold more than 75% of our [ DL ] shopping malls and 60% of the result, so we are going to see the top line of the company EBITDA lower than what we presented before, around BRL 10 million EBITDA that we lost every month, so BRL 120 million per year thinking that in run rate EBITDA, we estimate around BRL 85 million -- BRL 80 million.

And the new company will have lower EBITDA, but we expect to see good margins, better margins because we are having a leverage that is not motivated and more productive malls. Considering NOI, the productivity is expected 70% better with this new configuration in our portfolio, more concentrated in the Southeast where we have more influence, more know-how. And we expect to a see a company with a balanced, more adjusted paying the shareholders and having room as well to have acquisitions and grow again with the new portfolio.

So the strategy of recycling the portfolio, we commented about it. This is our strategy. So we closed the quarter with a profit of BRL 463.8 million as Thiago commented, BRL 440 million distributed. The legal reserve meeting in our balance as a reserve, 5%. That's why we are distributing all the profit possible to be distributed. EBITDA, we closed BRL 644.7 million in the quarter, expressive growth because of the sales, the sales that was responsible for BRL 560 million of this EBITDA. FFO, almost BRL 500 million.

Adjusted result, nonrecurring effect aside, we closed the quarter with almost BRL 10 million profit and lost last year, the first semester, BRL 6 million. EBITDA, BRL 77.6 million compare BRL 81 million last year, dropping 4. If we adjust this EBITDA loss from the sales in June, we have 1 month less of results in this portfolio because we sold, we would have around 9% with it.

So the operational aspect of the company is doing well as it has been doing well in the other quarters. So this is one more effect of sales, FFO BRL 25.9 million on the first semester compared to BRL 12 million last year. Even with the sales effect, we see improvement of FFO because we do not have much financial expenses, BRL 14 million better than last year in expenses.

Next slide, we are going to see the NOI accrual in the semester, closing almost BRL 92 million, dropping 4%, adjusting it, same property NOI, we would have a growth of 7%. The same for shoppings, 7% adjusted with the participation compared to this decrease of 4.6%. Offices and a swap of assets, we sold 20% of the 30 that we have in JK Towers, losing results in offices as well that is recurrent.

So adjusting it, this result, we would have grown 6%. In general, the operational result of the quarter was good, the semester as well and these effects of sales distort the analysis but the takeaway message is the development is answering according to the expected. Leverage this quarter has a different piece of data. We closed with net cash, BRL 200 million, gross debt BRL 1.019 billion, BRL 1.219 billion available. So this net cash, BRL 200 million will be distributed and still have leverage that is low.

Considering receivables that we still have from the sales, we have net cash that is negative. So net debt on EBITDA is negative 1.2 on the quarter and financial covenants, IFRS negative here. We have more cash than debt.

And finally, the last slide, we see the terms and expiration dates. And this schedule is considering the prepayment of the 13th part, the end of July. Removing out of this schedule, BRL 160 million amortization of interest accrued by the end of July. For this year, we only have amortization monthly of our debt, BRL 30 million that we have in one of the SPS, amortization that is irrelevant.

And for the next years, we have BRL 135 million of amortization. The schedule is mild on the debt. 2028, we have debt with the expiration, but the cash flow is well equated for the next years and receivables at XP December next year. We have the possibility, either reducing this debt or having acquisitions to add our operational results matching these debt terms. We have an optionality that is good in our hands. This idea of expiration dates, the cash, net cash to pay more to shareholders and have the option that's the best for the company, considering profitability.

That's it. And finally, our debt costs dropped compared to the last quarter, 1.3 because of the prepayment of this debt. In IPCA, we have a debt of 6.5%. That is good, almost CDI. So that cost, we also have a level of leverage that is good and good cost as well.

Closing the session on financial results, we can open up the floor now for Q&A.

[Operator]

We are going to start the Q&A session for investors and analysts. [Operator Instructions] First question is Gustavo Cambauva, BTG Pactual Bank.

[Gustavo Cambauva, analyst]

I'd like to ask 2 questions. The first is about dividends. You commented -- Thiago commented about the opening session about this negotiation that you're having with creditors to clear more room for capital reduction. And then my question is the following. First, do you have any idea of timing? And also, if there is a penalty that needs to be paid for the creditors in order to have these renegotiations of debt and capital reduction. And still about this topic, if you're thinking about in this first point, in this first moment, in this year, one more distribution for the shareholders different from December '24 that you have to receive or if there is the possibility as well of eventually having an anticipation of receivable of 2025 as well.

I understand that is connected already to the assets and the operation. Maybe the risk of not receiving is almost zero, maybe it's cheap to have a financial operation to anticipate this receivable in 2025 and maybe the distribution right now could be higher. And my second question is related to D&A that you commented in the presentation of margin expectations to have NOI margin that is higher for the company after the sales. Cidade São Paulo Shopping Mall is very relevant now in the portfolio to have NOI margin higher. But my question is EBITDA.

I mentioned that you are not going to have any relevant cut on expenses, fixed expenses, NOI that is much lower accounting dropping, so if we could see a drop in EBITDA margin or if you have been working some kind of effort to reduce [ G&A ] of the company in order not to have operational this motivation because of the sales. These are my questions.

[Thiago Muramatsu, executive]

Answering your first question. What is the limitation that we have here. We have a limit, according to our debentures issued to reduce capital. So what we are talking and deciding to see if you can have more elasticity. And in the beginning, the negotiation, there is no additional cost. It's just commercial negotiation and in a balance that is new with better leverage. We do not believe that we are going to face problems on this aspect. And this calculation that we are doing on the debt, what we have to receive in December this year and next year, in order to have the calculation of how much would be possible to distribute keeping the company with a good level of leveraging and also with the room for as Hector said or optionality and eventually go for other investments.

Time frame for this business. We believe that our objective we solve all these questions and then reduce capital this year. And the volume-wise, we do not have a certainty. I'm not going to give you any guidance because later on, I will let you down or people will get so much happy about it. Let's leave this to the right moment when we have the close number, and then we announce it here very briefly.

I will answer the first part of your second question. This first one is answered already. And about our D&A, as you mentioned, we do not see that we are having a reduction of D&A even because our work has not changed. Although we sold market share in our malls, the management is with us, the operational daily activities the most are with us still. And for a while, we are having an offset of what we have of D&A, how we receive administration fees. So in the margin, this will improve. With a lower participation, we have higher revenue of administration fee of these malls that we manage. Some of them we received and it was coming from one pocket and leaving by another pocket because of tax deficiency, and we are going to receive a tax in participation that we did not receive. Leverage, there was no change because we still manage these malls. But we had a pace of having a D&A positive piece and this will improve in the margin as well. EBITDA, Hector can talk more about it.

[Hector Bruno de Carvalho Leitao, executive]

EBITDA, I believe EBITDA without the adjust of stationery, we always communicate the margin EBITDA [ O ] margin as is and expect please. That is our parking operation. EBITDA margin in total, it will get worse, you're right because of the representativeness of services compared to the [ O ], we are going to have an expressive drop on revenue of rental, and we are going to increase the revenue and the margin EBITDA of parking area is low because we received all the revenue and pass great part to the development. That's how we work in our balance.

The legal characteristic of our business. We consolidate this result, so we penalize the margin. When we see the adjusted margin of parking area, it's going to be better because D&A, as Thiago said, we paid with our services. So having better assets with more NOI margin, we have better expression on EBITDA. For a while, we are going to have adjusting D&A on the assets. So if you have SPS with the assets, with less rental, you can renegotiate some expenses like auditing expenses, negotiation of expenses of administration fee, real estate, PL lower in these assets. So we still have time to adjust D&A not related to people, but other costs are third parties that we can reduce in time. And in the T, zero is not going to be reflected on the results.

But generally speaking, we hope that the bottom line net profit FFO, we are going to have better margins. EBITDA as the detail of services that will be penalized. But in general, that's it. And you mentioned back to the debt. All these negotiations. As a premise, we do not have any fee. Our penalty to negotiate waivers for reduction. If we do not have any repayment, there is no possibility of having a relevant cost on this debt negotiations. That's it.

[Gustavo Cambauva, analyst]

That's great. It's clear. Maybe a follow-up question very briefly about capital reduction. Just to understand, maybe you're going to announce this year later, what I'm going to ask right now. Throughout the year, we are going to see more movements. I understand that maybe the distribution advance, but have you considered part of 2025 could be anticipated to be distributed this year. As I understand that's the way you're going.

[Thiago Muramatsu, executive]

Yes, yes, you're right exactly. The idea in these renegotiations to open up room also to have a part of this reduction, part of what we are going to receive in 2025. About the timing, Cambauva, we have a time to sum up the assembly and the creditors manifestation, everything is 90 days. In order to have the payment this year, we need in the beginning of September [ top ] to have a signal from everybody. I believe that's not take long in order to open up a little about this plan this year about the payment of the shareholders. We have 15 days ahead of us to have all the planning and execution.

[Operator]

Next question is Renaldo Francisco, an investor.

[Unknown Attendee]

I'm so proud for this result. A question, SYN will get half of ABL. Is that the possibility of new malls? What about the expansion of Cidade São Paulo Shopping Mall.

[Thiago Muramatsu, executive]

Answering to your question, we reduced meaningfully our ABL, ABL managed is the same level. And I believe that the balance now is configurated in a way, as I showed in the beginning, we have room to go to new acquisitions plans. And then we have a comment. We try to see opportunistic. It's not about them all. We also observed logistic offices. We are aware of the opportunities of the market as soon as we have something that makes sense. We believe with this new balance and distribution of dividends, we have room, interesting room to invest in new properties. The expansion of Cidade São Paulo, the expansion, we are under negotiation to start something. But by the end of this year and the beginning of next year, we are going to start the work in this expansion.

[Operator]

The Q&A session is closed. We would like to pass the floor to Mr. Thiago Muramatsu for his final considerations.

[Thiago Muramatsu, executive]

I believe we talked about the main events in the past, a little bit of the future as well. And we do believe that the company in this new format is lighter, is more efficient. This company will generate good results because we have this new balance. We are seeking other opportunities on investments and the investments focusing more in finding new opportunities to grow our ABL, our own and the managed one. And we are going to keep you all informed on the next steps on capital reduction and eventually new investments. I'd like to thank you so much. Have you all a great day.

[Operator]

SYN video conference is closed. We thank you so much for your attendance, and have you all a great afternoon.