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Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the conference call of CCP to announce the results of the third quarter of 2019. The audio and slides are being simultaneously transmitted on the Internet at Investor Relations website, www.ccpsa.com.br/ri. [Operator Instructions]

Before continuing, this conference call may contain forecasts about future events, which are subject to risks and uncertainties that might lead such forward-looking statements not to come true or they will be materially different from expected. These forward-looking statements issue an opinion on the date they are expressed, and CCP is not obliged to make them true considering new information. Today with us, we have Mr. Pedro Daltro, CEO; and Mr. Thiago Muramatsu, CFO and IRO. Mr. Daltro, you may start.

[Pedro Daltro Dos Santos, executive]

Good morning, everyone. This is our first conference call after the event, and we have quite a few things to report. So what we did this quarter in July? We had the prepayment of the 8th issue of debentures, and this is important because this is part of a liability management of the company, and we worked on that in the third quarter, and we're still working on the third -- fourth quarter intensively to reduce and improve our debt terms. So this payment is important. And Thiago is going to talk more about that, but this is part of liability management which started in January this year, and it's continuing and it's be -- even stronger in the fourth quarter.

In September, we broke the partnership with Delivery Center, a company that takes deliveries of food and products. CCP acquired approximately 8% of the company, and we may get to 14%. So these estimates on Delivery Center will make it possible for us to create synergy between our office and shopping mall portfolio, turning our current users of our building into consumers of our malls. We also have Birmann 10 rent showing as a very attractive option because of the way we acquired it in installments in a very interesting way. So this rent before we planned provides the return for that project.

We have also closed the quarter with a nominal leasing spread of 15.6%, which is a considerable gain as compared to the second quarter this year. It's the second quarter in a row with positive leasing spread after almost 4 years were negative leading to that. So we see a strong recovery of our lease projects.

With the closing of the quarter, we have finished our public offering of primary distribution. I think we were successful. So the total amount that was raised will depend on the exercise, and -- but it will range between BRL 800 million and BRL 900 million.

So we have finished the acquisition of the 18th floor of Faria Lima Financial Center. It's a unique project in our portfolio. The lease price is the highest in our portfolio. And as part of our growth strategy, it was also part to buy a share in buildings that we already control. So we are in Faria Lima Financial Center. So in this manner, we have closed the quarter with a growth of -- in the adjusted EBITDA of almost 35%.

Now going to the next slide, talking about occupancy rate. So this has been a very -- a quarter of very intense work with significant areas. CCP has never had low financial occupancy rates. It's always between 88% and 90%. But in the second quarter this year, we have seen that we have excluded Birmann 10 because it is a building that we have not yet finished paying for it. So it's still stabilizing. It was completely empty. So it went from -- the typical occupation went from 88.5% to 88.5%. So these are historically high rates and probably the highest ever in our company. Financial occupation, excluding Birmann, was 94.3%; including Birmann, 93%.

This quarter, we leased almost -- in this quarter, we leased 6,000 -- almost 7,000 square meters, 3,000 square meters of office area approximately and approximately 12,500 square meters in the mall area. So this has been a very -- 1,800 in malls. So it was very good in terms of occupancy.

And so next slide you can see sales and its evolution along the third quarter of 2019. This reduction in vacancy in a shopping mall has led to a growth of 6.6 -- 7.6% in sales as compared to the same quarter last year. And we have also had a significant growth in parking lot flow, almost 10%. Here, we had a contribution that was very positive of our mall in Goiânia, Shopping Cerrado and Shopping Metropolitano in Rio de Janeiro. And these are malls whose sales have been growing 30% to 20% quarter-on-quarter.

On the next slide, you can see same-store sales and same-store rent growth. In case of same-store sales, is 30 -- is 3.3%. So our growth was above inflation. And because of our change in our mix, if we compare the same areas, we got to almost 4%. So we have quite interesting work in terms of changing our mix, and this work is leading to higher productivity in our malls.

In same-store rent, because of higher sales and reduction of discounts, we were able to increase it by 7.1% as compared to the same quarter last year. And here, differently from the second quarter last year when we had the truck drivers' strike, this year we didn't have it. So this is a quite significant growth.

So next slide, you have our leasing revenues in all the classes of assets. So we have had a growth that was above inflation, and we are seeing a phenomenon which we already expected. In a recovery of Class A offices, usually it's a economic recovery starting Triple As and goes to Class A. So Class A here was a highlight, growing 8.3%. And so the malls are maturing. So every quarter, we have a reduction in this number. In this manner, in the case of the office market, we had a leasing spread of 15.6%. And I don't have other numbers here, but I think this is the highest since 2013, and we are very excited with what lies ahead.

So Thiago is now going to talk about the financial highlights.

[Thiago Muramatsu, executive]

Good morning. So now continuing our conference call. Going to Slide #7, we can see the net revenue of the quarter growing 7.4%, very much in line with the growth that we have especially in lease and in services. When we look at year-to-date numbers, there is a drop of 9.5% because last year, we sold Cidade São Paulo with BRL 62.4 million booked in the first quarter. So if we discount it, our growth was close to 8%.

Now looking specifically at lease revenue, the growth is 2%, and this is because of the effect we have of the reduction of our revenues of assignment of the right of use. If we discount it, our growth would have been almost 5%. So year-to-date numbers, this revenue is slightly mitigated because it's in line with previous quarter's. So our growth was 5.3%.

Now on Slide #8, on the left hand side, we have NOI year-to-date numbers. The effect is very similar with lease revenues. In the first quarter, our growth was 4.3%; in the year, almost 8%. And so in both cases, we see that we have had a quite significant improvement in margin year-on-year. So we grew practically 2%. Now this is the growth of our margin as a result of the reduction in vacancy, as Pedro mentioned before. In our adjusted EBITDA, our -- the growth has been very interesting in the quarter of almost 35%. When we look at year-to-date numbers, the growth was 16%, very much based on the reduction of expenses.

So our margin and -- going from 51% to 64% if we compare quarter-on-quarter and 61% to 66% if we compare the first 9 months of the year.

And if we think of the effects of the margin if we considered our parking operations with a slightly lower margin affecting the overall margin, if we consider this in the quarter, we would have got to close to 75% margin and year-to-date number slightly above 76%.

Now on Slide #9, getting to our bottom line. The net profit in the quarter was BRL 25 million; year-to-date number was BRL 43 million. But the most interesting here, discounting accounting effects and nonrecurring effects in the quarter and year-to-date numbers, we have similar growth, so approximately 28% quarter-on-quarter if we look at the adjusted FFO, so -- if we compare year-to-date numbers and year-to-date numbers.

Now going to debt on Slide 10. And so first, financial expenses. So we had a reduction of 0.5% in our financial expenses comparing quarter-to-quarter. But as Pedro mentioned before, we prepaid our eighth issuance of debentures. We paid the prepayment fee. Excluding the effect of this prepayment, we had a reduction close to 5% if we compare quarter-on-quarter.

And so the last before I -- in my part, this is our net structure on Slide 11, total net debt over adjusted EBITDA of the last 12 months. Our leverage rate is 24.1x. So it's quite significant as compared to the last quarter when we had 4.9. Now we have 4.11. It was close to 8%. We got to 8%. So we are seeing the first reflects of our debt negotiation, the work that we've been conducting, a reduction of our production debt at 9.85% to 8.5% this quarter. This is a real estate credit that we fixed that. And we are working on our other debts, and we hope the next quarter we'll be able to present even better results in terms of reduction of our indebtedness.

I think we are only going to have a clearer picture towards the end of the year and the reflects of that in our financials in the beginning of next year. And this is all I had to say.

[Operator]

[Operator Instructions]

If there are no questions, I would like to turn the conference to Mr. Pedro Daltro for his closing remarks.

[Pedro Daltro Dos Santos, executive]

So summarizing our conference call. We are very excited with the results -- or with the performance of CCP. We think that over the next 12 months, we have a lot of work to do in terms of liability management, which we are already doing. We have a great potential of renegotiating our debt, and we have a contract in the banks with good partners, and this process is very healthy.

Our CapEx, we'll be dividing in acquisitions and development. I think that over the next 12 months, we'll be able to allocate between BRL 900,000 to BRL 1 million arising from the public offering.

So on the end of the company, there's a lot for us to do, and next year will be a very interesting period. Most of our portfolio will be going through a review. In the next 15 months, our lease team is very busy in those discussions, and you can already see the results in the second quarter, in the third quarter. And we hope that the same thing will happen in future quarters.

We're also excited with our digital channel. We have gone through an exponential growth period. This month, we are going to have our Black Friday. It will be our second. We cannot yet forecast the results, but we hope that our results are as good as last year. So we hope to keep on that pace over the next 12 months.

So I think that our next conference calls are going to be very interesting because we are going to deliver the strategy here of liability management and CapEx and the growth of our digital channel.

I now close out my presentation. Our Investor Relations team will be available to any additional questions you might have. Thank you very much.

[Operator]

The conference call of CCP has ended. We thank you very much for your attendance and wish you a good afternoon. Thank you.

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