SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Transcript 2021-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the SYN video conference to discuss the results for the third quarter of 2021. This video conference is being recorded and the replay can be accessed on the company's website, ri.syn.com.br. The presentation is also available for download.

Please be advised that all attendees will only be watching the video conference during the presentation, and then we will start the Q&A session, when further instructions will be provided. For those who are watching the video conference in English, we advise you to download the presentation at the company's website.

Before I proceed, I would like to emphasize the looking-forward statements are based on the beliefs and assumptions of SYN management and the current information available with the company. These statements may involve risks and uncertainties as they relates to further 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 that could cause results to differ materially from those expressed in their respective looking-forward statements.

Presenting this video conference are Mr. Thiago Muramatsu, CEO, CFO and Investor Relations Officer of SYN; and Mr. Hector Leitão, Financial Superintendent of SYN.

Now I would like to hand the floor over to Mr. Thiago Muramatsu, who will start the presentation. Mr. Thiago, you can proceed.

[Thiago Muramatsu, executive]

First of all, good afternoon to all of those who are with us during these results video conference.

From the second quarter call to this one, we've had an important move, especially in terms of the sales of assets. So let me go to the part of achievements here. And we want to explain in more detail the transaction, talk a little about the results for the quarter, and how -- as we said, in the teleconference for the second quarter, we had a positive -- prospective for the leasing for offices and shopping centers, and that has been confirmed, we were able to show those numbers. And those are the highlights.

We defined here 2 enterprises, Faria Lima Financial Center and Tower D of the JK complex. And in the third semester, with the change of our names, we also had the change in our ticker in B3, and we also entered as a part of the B3 Index for small caps.

As I had mentioned before, we have signed -- in the subsequent events, we have signed with Brookfield to sell the assets that we have for 4 buildings: FL Financial Center, Faria Lima Square, JK 1455 and over -- and Miss Silvia Morizono; around 49,000 square meters with a price of around BRL 1.774 billion. In this period, we've had -- we have signed for selling our participation in JK Financial Center. We have 66.57% of the total area, that means 4,864 square meters. The price was a transaction of BRL 25,000 per area.

Before advancing, we have these 2 transactions, and most of the analysts and investors have talked to me or to Hector and Filipe and [ IR ] teams to check doubts and understand a little better the transaction. So I can even consider the questions that may arise in Q&A. One of the main reasons why we took -- we carried out the transaction is that we try to work with focus on profitability for stakeholders and specialist shareholders. And so, we found a good opportunity here, because it's a moment the interests are in a tendency of going up, and it will continue. So there is a strong correlation between the value of assets and the interest rates. So we were able to find a point of price that made sense for the exchange, correlation with an attractive rate of 5%. And we also have a moment when we found a tax efficiency for the transaction, so the buildings are all in the company since they were open, so we had attribution window for the transaction to make sense, even though we know there may be an appreciation in the price of the rent.

So these 2 effects brought an unique opportunity, and we are still managing the buildings, which is very important for us. We want to prove ourselves as managers as well. Since our follow-on, we want to have a structure where we put part of the capital in this investment of capital where we would split the capital risk, also adding less capital and adding to our operational leverage to manage the buildings, and so this brings an additional return for shareholders. And the transaction of the JK Financial Center has to do with an effort we have carried out for some years to invest in assets that we have no control. So these building, it's one we didn't manage the building as a whole. We were a [ minoritary ] owner of the complex. So we had plans to make these investments, especially in this property as we have done with some transactions with XP in this line of leaving the assets, so we don't have the control of.

Continuing on, talking especially about the shopping centers, shopping malls, we have some of what we see as the first and second wave for our resume and the sales recovery, where we have period that was stronger in the opening in July, then we have an acceleration, and we were expecting a strong Black November, Black Friday. And in the beginning of November, there were some signals of a second wave, and it ended up going until December, in January. End of December, beginning of January, we started having some restrictions again, and then in March, April, closures again, and the recovery is above last year. We started -- we ended up focusing on sales, and we have sales flow that is very close to the one we had back into 2019. And there are some regional differences in Brazil. So when you look at the behavior in certain cities or regions, they vary a lot. And in the regions we are present, we can notice the difference. But it seems the signs show that from November on, we are going to have a strong recovery of sales.

And talking a little about offices. Our office is in Faria Lima Avenue, and on our day-to-day, I've spent very little time working from home. I've always come to the office, and we see traffic on the streets. We see people walking during lunch. We have a crowd. And we still have an occupation restriction, but we can see the life coming back to normal. And when we see the numbers of our offices, the assets we have -- we manage, in the beginning of the year, we had a population of around 10% to 15% in the buildings, and now this numbers in some of offices are around 70%, 75%, so over 40% of the building's capacity going back to be used in all offices. So I think this is one of the evidence that the return is real, and that is why I have always been very excited with the recovery of our properties.

One topic I talked a little during the second quarter conference was ESG. And I mentioned we were gathering some information we had of all the practices we carried out inside the company. And now in the past month, we were able to disclose a report. It was published. And if you want to know more about the work we have done related to the environment, social and governance, we will have the report that was prepared by the [ IR ] department, and I congratulate everyone that is involved, because it was an excellent work you did.

And some of the highlights of this report, one for each area, some commitments as well for the next years. So in the environment, most of the water resources of our assets, shopping malls and the buildings, are from alternative sources, 85% of them, and half of the enterprise use incentivized energy.

Beside in the social aspect, we have every year a census inside the company, and among several factors, we analyze age, gender, ethnicity, and we try to bring the most diversity inside the company. We think that is very important. We've highlighted a relative point that is 50% of directors and 60 -- 57% of managers and superintendents are female today. We have a Diversity Committee, where we gather groups of some minorities to discuss how we can bring more diversity inside the company, and we can do it internally and externally.

In the social aspect, we also have the Instituto SYN, where we have a percentage of the profit of the company being direct to the institute based on 3 pillars, which the employment, entrepreneurship and relationship, and we want to bring this positive impact. And we have some campaigns internally. Last year, we were able to gather 80 tons of food that were distributed in the area surrounding our shopping malls, and we were able to help with over 100,000 doses of vaccinations.

In terms of governance, we have independent members. Besides the members of the Controlling Board, the President, Vice President, the rest of the Board is independent. We have the Committee of Audit and Compliance and we also have a committee for people.

Talking a little about the goals that we have for the next years, in 5 years, in terms of water resources, we want to get to 90% of them coming from alternative sources of water. In the energy, we have -- within 5 years, we want to have 100% of the electricity consumed from incentivized sources. We want to raise the level of recycling for our -- 70%. And in the next 5 years, we want to use majority of sustainable materials and the use of ETA and ETEs in our enterprises, so we have the treatment of effluents.

Talking a little about our operational highlights, we start with the occupation -- sorry, the occupancy index. In the past 5 quarters, we had a decrease in physical occupation of 1%, but that 1% is impacted by the variation of area that we have specifically for the offices. We have the ITM impact, and it's still most offender in this vacancy, we get till 70%. And for the shopping malls, in Grand Plaza, we have a small commercial tower that is available with around 4,000 square meters. And if we don't consider the tower, consider only the shops, they reach a level of occupation of around 91%. So we have the occupation here and -- for offices and shopping malls.

For sales, we've had a growth in total sales. We've also had reached a level of 87% of what we had in 2019. In the flow of cars in the parking lot, we were able to have BRL 3 million -- sorry, BRL 2 million in the third quarter of 2021, and you had BRL 3 million in the third quarter of 2019. So it went from this number to the other.

And now Hector is going to talk a little about the financial highlights.

[Hector Bruno Franco de Carvalho Leitão, executive]

So talking about the financial highlights -- first of all, thank you all for your presence in the conference.

In terms of gross revenue, our growth was around 16% with BRL 116.6 million as revenue, and the highlights here are the shopping malls, as Thiago mentioned. The return has been interesting and the business in the offices are become more flat, more stable. In the net revenue, we had a non-recurring -- non-current event that was the sales of -- one of our units. And then when we compare it to 2021, we have a growth of 20%, and it adds to the net revenue. Parking lot and service provision that had an increase in these aspects. So it was a good recovery for shopping malls.

When you see the net revenue -- when you look at NOI, it's the same impact. We had a growth of 14.6%, with a stable margin. And what we have here is the growth of EBITDA of 44.1%, and besides the revenues and costs of -- operational expenses of shopping malls, we have a recovery of that, and we had an impact here. And so we were able to recover all that in a strong pace. If you want to see more about that, we received more in rent than we had before, and this impacted in the accounting indicator. We also had some other effects in SG&A. One of those is the reversion of legal action around BRL 2 million. And the other ones, in different lines, related to commercial expenses and all that related to the enterprise.

In terms of net profit, we have the sales of 2021, and discounting debt, we have a growth of 45% in profit. And if you consider the adjusted FFO, we see a growth of 18% in IFRS and 1.1% in pro forma. The impact here being in the financial net expenses, we see throughout the semester, a growth of 2% in Selic, and it caused a negative impact of BRL 50 million in our results. And as I always explain the difference between IFRS and pro forma is the corporate debt, where we have 100% almost of the debt, with the balance in comparison to the enterprise balance. So that's why you have a difference. But with the financial difference, you have a growth that you can see here.

And when you see the indebtment, we can see we have for the indebtedness, the net debt and our main [ covenant ] was a 4.3x. When you see the evolution of the financial expenses, we reached a balance of BRL 43.7 million in comparison to BRL 33 million in the previous year. And when you talk about our amortization's timetable, we have a very stable timetable, very coherent to our cash generation. So in the past 3 months, we still have BRL 6.5 million in amortization and in the next year, 25%. So you can see the cost of the debt that has gone very close, especially in the corporate one that is around 100% added to the Selic index.

And then, I conclude the financial part, and we can start the Q&A session now.

[Operator]

[Operator Instructions] Our first question is from Mr. Gustavo Cambauva.

[Thiago Muramatsu, executive]

Mr. Gustavo, we can't listen to you.

[Gustavo Cambauva, analyst]

[Foreign Language]

[Thiago Muramatsu, executive]

Now we can hear you, Mr. Gustavo.

[Gustavo Cambauva, analyst]

I'm sorry. But well, I had 2 questions. The first, if you could talk a little about the sales of assets you mentioned in the beginning, I wanted to understand if -- well, what is the expectation? I know there are some steps to conclude the sales. So want to know your expectation on when it will be concluded? And if you could talk a little about the use of the resources coming from the sales, so, basically, when we look here the impression is that the company has the potential to pay a high dividend and reduce the leverage and invest in new assets. So I wanted to know how is it for you the use of around 2,000 -- sorry, BRL 2 million gross, how much will be for dividend? How much to reduce the leveraging? What are you going to do in this aspect?

And my second question is about the Class A offices. You talked about the vacancy and mentioned ITM, but there are some other Class A offices with a very high vacancy. I wanted to know how you see the perspective for these segments? Because we have seen more of a quality in the Triple A. And so for Class A, I think, it's struggling a little more. So what do you think the performance will be like in the future? So these are my questions.

[Thiago Muramatsu, executive]

Thank you, Cambauva. Let me start by the second question. We now, apart from ITM, we have 2 offices that are 100% rented, and Birmann 10 is 50% vacant, and Brasilio Machado is around 50% as well. And there is one more 50%. And so these are [ doubts ] that we have today. In Birmann 10, we've had some conversations to rent 100% of it. So the conversation -- the negotiation is interesting, and we are positive about concluding it maybe this year or the next quarter of next year.

And Brasilio Machado has a problem in one of its spaces. We are regulating it differently from the other offices. It is one is at Vila Olimpia in a region that we believe there is a very high liquidity. So as soon as we conclude the regulation of some floors, we will be able to rent it a little faster, because now we are a little stuck in the past semesters.

And finally, for the [ Suarez Trade ], it's an office building in Salvador. We have commercialized scenario there, but it's a market that it's more difficult for negotiation. We have changed a little our technique there, but it's a small area. Our participation is a little over 1,500 square meters. It's not going to make so much of a difference in terms of financial impact, because the rental price is around BRL 40 or BRL 50 per square meter.

So these are the Class A offices. ITM will be a little more challenging for a traditional kind of rental, because it's an enterprise with 45,000 square meters. And we have a demand for renting 2,000 or 3,000 square meters, but it has to be a little more robust to justify the enterprise. So maybe 3,000 square meters, financially will not make sense, but we have started some alternatives of use for the enterprise. And we hope that in 2022, we will be able to solve the problem we have there with the vacancy.

Now in terms of your first question, we are now in a good moment in the negotiations. So when you talk about the MOU, you know it as well as we do that you have the commercial terms and we start negotiating the terms, and there's nothing that concerns us. What concerns us here is the term, the deadline, to conclude the transaction, not only sign the documents, but really closing all that inside this year, maybe in the next 20 day, we are working with that.

And with what you said about recent proceeds and all that you said, you do -- you're right about the around BRL 2 million of capital entering the company, a little less that after the taxes. We always have a very conservative view. We have discussed on the Board the alternatives, the possibilities, and we have 3 great uses for the capital, which is reduction of the leveraging, especially in the capital moment we are [ living ], some divisional dividend and reinvestment. If I were to say the percentage I was going to do to each of those items, actually, it's not defined. So that is a discussion that we are doing right now and we are thinking about the distribution, how we can be more efficient with capital and bring more of our return over capital.

You know we have changed in August the Board of the company and we brought people from different profiles and people that come from the start-up and from other Boards, infrastructure, education, for instance. So we are trying to get the most of the knowledge the Board can bring to us, so we can think of what to do with the capital. And what we can say so far is that the idea of reallocating the capital one part will be in technology, but one part will not. And it is very relevant when we consider the capital we're going to raise in the size of the company. But we are going to start with that, but we are not going to buy to any company and spend half of these resources in M&A, nothing like that. It will be a smaller purchase.

And we are also considering how to allocate the capital in new investments in a way that we can have a better leverage with third-party capitals as well together with the partnership that we have with SPX. We are partners of [ CIB ]. And now we have our new partnership with group with the management of the 3 enterprises, and there may be new opportunities of business, because the CEO, the one responsible for properties, has -- being a CEO here too. And I believe we have some alternatives still to explore.

So right now, I don't have a final answer, but we are working on it to see how we're going to work with this capital.

[Operator]

[Operator Instructions] Our next question is from Mr. Alex Ferraz from Itaú BBA.

[Alex Ferraz, analyst]

I have a question related to not so much about results, but also sales. Thinking about your portfolio today, your per sales portfolio, you have some shopping malls and you have single way assets. And in this reinvestments, I wanted to know what you're thinking about the mix about the assets to have office Triple A, to explore new fronts, maybe in the area of sheds and maybe SPX, what would be your portfolio from now on? And if there will be any changes in it?

[Thiago Muramatsu, executive]

Good question, Alex. What I can answer right now is, well, there are things that are being discussed and defined, but right now, our appetite for investment in part of this capital will not be to increase our participation and our exposure in shopping malls. We understand you have upsides in the investments we have. We have smaller investments to expand, with the highlight for a possible expansion of the Cidade Sao Paulo. There are 2 other shopping malls that we can increment their area. Our participation is low. So it's around BRL 40 million, BRL 50 million.

And in terms of SPX, we are interested in growing our participation. With the fund we have of them of BRL 300 million, so we have a capital of around BRL 90 million inside that fund, inside that initial resource of BRL 150 million with SPX. And inside the fund, we are looking at projects of residential corporation and logistic industrial sheds. We also have some investments in industrial sheds where we can work in a partnership or together with the fund with the SPX to be a little more [indiscernible]. Then in the office line, we are going to compose the portfolio. And while we were selling to Brook, repurchased something 2019, we bought their offices in 2019. So we are trying to have a little more of an opportunity and there is a buyer whereas the same mindset. So other opportunities may come inside this partnership in the future.

But I believe that's it. I don't know if I have answered exactly your question, but from what we can talk so far, I believe that's our intention.

[Alex Ferraz, analyst]

Great, Thiago. And the second question regarding to earnings. You -- we see a recovery of the revenue in malls. I know the city of Sao Paulo is returning, so Grand Plaza and Tietê have a better performance. So what are the highlights here?

[Thiago Muramatsu, executive]

What we have seen in a micro panorama for the shopping malls in Brazil, in Southeast and here, Janeiro, have a better performance. It's a little different in our portfolio. What has come back to the pre-pandemic levels is the first one, the Shopping Metropolitano. And on the other hand, the ones struggling more as they have most with more exposure to the passing flows. So the Shopping Cidade Sao Paulo, even though it has advanced area with a high income, they had a good audience around the offices and tourists, especially on the weekends.

And so this mall has struggled more in our portfolio. And Shopping Cidade Sao Paulo was the most productive, and it's because our lease space was closed, and we believe in January, there will be a ramp-up because of the news we have heard from the main offices there around the mall, and the tower of Banco do Brasil, for instance. And Shopping D with more -- higher movement of people, this one is in [indiscernible] it has grown in the info. And the other 3, Tietê, Grand Plaza and Shopping Cerrado have presented a recovery before those 2 ones. So from now on, Shopping Cidade Sao Paulo and Shopping D will be the ones recovering more and the others will grow, but in a lower rate. And I believe this is the general panorama that we have.

[Operator]

Next question, Mr. Pedro Lobato with Bradesco BBI.

[Pedro Lobato Garcia Fernandes, analyst]

My question is about vacancy being most, how do you feel the commercial activities in your expectations looking forward?

[Thiago Muramatsu, executive]

Pedro, we have talked in other quarters that the turnover was very high in the peak of the pandemic, but also people see it as an opportunity to enter the mall with a lower CapEx. So there was a consolidation of smaller franchises that were increasing their participation in several malls these guys are present. So we still have a demand for rental areas, but the part of contract termination have stopped. On the next months, we know that in retail, it's the time for focusing on Christmas sales, and investing stock and structural plan for Christmas, but we still have an interesting pipeline being negotiated. If we talk in numbers, it is around 1% of our [ deal ] in negotiation. So the expectation for the last quarter, it's not strong in rental, because January, February are the months that historically are not so good for retail, but we see an interesting move in that direction.

[Operator]

[Operator Instructions] Our next question is made by [ Mr. Eduardo Sauma ]. And his question is, how is the XP fund? I see you have captured BRL 50 million. What assets are you going to purchase? Do you have any continuity?

[Thiago Muramatsu, executive]

Thank you for your question, Eduardo. We haven't concluded this transaction. XP has raised around BRL 50 million. And additionally, they have an internal debt inside the fund leverage where they were the creditors. And we are probably going to instead of 13 real estate, just one, the [ Estação Biaga ]. We are still on the path to conclude, and when we finish the -- define what we're going to do, we are going to let you know, but it's about the sales of [ Estação Biaga ] for now.

[Operator]

[Operator Instructions] Our next question is by [ Mr. Leandro Stanzani ]. You still haven't started to expect use of the BRL 1.9 billion, but you could at least say if you could pay more dividends than in 2017? Thank you, Leandro.

[Thiago Muramatsu, executive]

[ Leandro ], I would like to answer that with precision, but we are still discussing it on the Board on how to use the resources, sensing the alternatives. So in 2017, it was BRL 347 million in dividends. So I still don't know. We don't have any definition if the distribution will be superior to that or not. It will all depend on the route we are going to follow and our investment pipeline in the short-term for that definition. But as soon as we define it, you can be sure we will let you all know.

[Operator]

Our next question is by [ Mr. Adriano Victor ]. Mr. Adriano, you can open your mic.

[Unknown Analyst]

Related to the performance of the malls, if you could bring us some more granularity? Because we know the city of Sao Paulo was affected in the offices and tourism region, and when thinking of the assets' gross sales, we see 80% of your NOI was from shopping malls. And Cidade Sao Paulo will be relevant. One-third of the NOI will be from there. And so you become a company of shopping also with the best shopping malls, and this mall was affected, and it boosts the sales down. So what is the level of these specifically assets? Because when it recovers, how much it's going to bring as a result?

[Thiago Muramatsu, executive]

Yes, we can give you an idea specifically about this mall. We have around 30% below what was the sales on this mall in 2019. NOI, it's a little below what we had in 2019. And when we think about what had planned for 2021 -- sorry, 2020, and what we have for next year in terms of sales and NOI, we are talking about numbers above the ones we had in 2019 when we see rental and our delinquency, we are going to perform better in 2022 in comparison to 2019 in almost and especially the ones -- the shopping mall Cidade Sao Paulo.

[Unknown Analyst]

Yes, so that recovery is going to be very relevant, right?

[Thiago Muramatsu, executive]

Yes. And Grand Plaza is also very relevant in our portfolio. We have numbers above the ones from 2019 and Metropolitano with 80% and planning for 2022, that is very interesting. So I believe these 3 malls in comparison to the participation that we have, the largest participations that we have, they are going to have an interesting recovery for 2022.

[Unknown Analyst]

And when we talk about the Tietê, we have a project, [ MRV ] project, residential project on the side, and we have another one close by. Can you feel structural increment because of those initiatives?

[Thiago Muramatsu, executive]

These assets is the one we see with most potential of growth on the short term. We have normal potential for growth. We have that in Metropolitano in an area that is -- has been only developed 10% of the total area. So it has a potential for a mega shopping mall. And when we talk about Tietê, we also see a huge potential there in a region that we call an immediate region around the mall. And what we see that the new enterprise that are people that are moving in, so the projects partially delivered for the families to live.

The audience is young couples with or without children. And the main driver of these people to go to the mall is entertainment and food. So we have focused a lot on these operations for this mall. Tietê has the potential of expansion of 7,000 or 8,000 square meters. We are considering to focus it on food and experience of the end user. And so we are very excited with these malls, Tietê especially, because it is isolated in an area that is becoming more dense. So we see the effects of all that. And in the future, if you look at the flow of vehicles stagnating, the number of people will grow because people can access our malls very easily.

[Unknown Analyst]

That's great. And just one more question. I know you still haven't considered on the Board the investment, but given a risk of a tributary reform, your expectation is being dividends this year?

[Thiago Muramatsu, executive]

Probably. It makes sense.

[Operator]

[Operator Instructions] Since there are no more questions, we are concluding our Q&A session. I would like now to hand the floor over to Mr. Thiago Muramatsu to make the company 's final remarks.

[Thiago Muramatsu, executive]

Thank you once again to all of you who have participated and made questions during the call. We are at your service to answer any other questions you may have later on.

And to summarize everything we have talked about, we are very excited in all fronts. The next quarters shown very promising in the shopping malls, flow and sales improvements, and we have, in the office aspect, a rental possibility for short and mid-term of most of our portfolio that is vacant, even though we have had a good movement in the third quarter. And we are very focused now on concluding the transactions and discussing on the Board how we are going to use the resources as soon as the transactions are concluded. And we are going to keep everyone up-to-date about all that, and we are going to announce all the decisions made.

Thank you all. And we are available if you have any more questions. Thank you. Good afternoon.

[Operator]

The SYN video conference is now closed. We appreciate your participation, and have a good day.

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