SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, ladies and gentlemen. Welcome to SYN Videoconference to discuss the Fourth 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.

We would like to inform the attendees, who will be only 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, these are the suppositions of the administration and also the information that is currently -- these declarations should involve risks and uncertainties. And they regard future events, so they depend on circumstances that might or might not happen. Investors, analysts and journalists should consider the events on the macroeconomic environment, the segment and other factors may have the results different from what expressed in the perspective declaration.

We have in this video, Mr. Thiago Muramatsu, the CEO of SYN; and Mr. Hector Leitao, CFO and IRO of the company. Now I would like to give the floor to Mr. Thiago Muramatsu, who will start the presentation. Please, Thiago, you can proceed.

[Thiago Muramatsu, executive]

Good morning. First of all, I'd like to thank for your time, your interest on following up our results. I believe 2021 and 2022 were 2 years that were really atypical. And a year later in -- after 2021, we forget about the turbulence of the beginning of the year in Sao Paulo. We started the year with the shopping malls and stores closed. March and April, the development closed here at the company. There was lots of changes on the business model of the company and in stability because of the advance of the pandemic up to 2021. And then we have the second semester in general lighter on health and a pandemic, but there was a process, a macroeconomical process in Brazil that was so turbulent at the patient prices, but because of these difficulties, and in spite of the difficulties, we had 2021 our special year. This year, we had more transactions at the beginning of the year. January, February announced an association that we have with XPX.

We announced also in the beginning of the year, the transaction of VH and also a data emission. And most of the things that we negotiated and treated in 2021 were footfall in the final quarter. So this quarter was filled with transactions highlighting the first one that was the biggest one that we have ever executed, the sale of our portfolio of triple agent section in Faria Lima, so into separate transactions. One with Brookfield result, our financial center participation. On MOO with Brookfield, total value out to BRL 1.8 billion and this transaction of BRL 105 million to 486 in square meters. In we -- were partners, this infection within our strategy since our follow-on, it was meaningful to have to lease the assets that we can control.

And then we have one more transaction selling our share that we have, 2/3 of the share that we have in [ CLB ], that is a project for logistic warehouse with the value that was interesting in monetary values and also high profitability. We're carrying it for many years and yes decision to conclude the year of 5 floors in tower DB of WTJK-- we had almost the totality of both towers. DME, it was 5 floors missing that we acquire after the transaction.

So the transactions that we had in the main AAAs was 36,000 area and the acquisition of the towers a little bit more than 22 square meters sold. It was meaningful to have this acquisition in addition to the value of this strategy, consolidation, so we can have 100% of the building and complementing a little of what we deliver, not transactions. We had a debt in April 2021 and part of the resources that we raised with the sales we prepaid in January, the seventh debenture and anticipate rescue of the ninth and outside the context of business, financial business sales and acquisition and also debt in the needle of the transactions, we could communicate our first ESG report in the final call and mentioned about it, we showed everything that we have in our assets, not only our assets but also the assets that are under our management, practical aspects on the environmental. We show in our institute what we do on social and everything we have on lower finance, new markets and also internal governance that is superior to the minimum requires to be within this new market.

Advancing to the next slide, talking about the recovery. This recovery, I believe, little by little it's losing importance, because I believe the restrictions are decreasing. We have in our portfolio, just one restriction is occupation, restriction building and I believe that the advance of vaccination program and also the contamination is not so severe taking us back to normal life in our shopping malls. And I believe this graph is really interesting to follow. And from this point on, it's not so meaningful.

Let's talk about the flow of vehicles. We finalized the year almost 80% of the flow of vehicles in 2019, final quarter. And it's noticeable that some of the malls had a drop on their flow in 2019. That people were not going to the mall and also the change of the way people transport, most of people using transport apps, private cars, people using alternative transport systems to get to the buildings. So when you see the flow of people in our shopping malls, it's disconnected. We have similar to the flow in 2019. And the sales, when you see the sales conversion, the final quarter, we were above 90% and compared to the sales in 2019.

And we see that the average ticket is increasing, and we do believe that with the normalization of the flow in the malls, the sales will increase meaningfully from this point on. Advancing this slide talking operational performance of our assets. This rest of occupation, physical and financial reflect the portfolio that we sell. Just to give you the dimension of our portfolio was a little bit more than 30% compared to BL that was sold, 99% occupation of course. This will bring down our occupation rate. But when you separate this into Class A, AAA and shopping malls, we see the advances that we have specifically shopping malls, we would advance compared to occupation in the past.

AAA offices that we sold were the totality occupied. And here, in this graph, in this comparison of occupation of AAAs, it's worth mentioning that these 5 floors that we bought, they are open. They are vacant. We have an interesting work to work on this real estate already with good demand above what we expected I believe it's a matter of time to fill this gap on AAA offices to Class A offices. We have some groups that are different of offices. We have 3 buildings in Sacra Santo Antonio, one in here, Janiero, one in [ Sajador ]. That is one in [indiscernible] and one in ITM. And within this fall of portfolio Class A, ITM, is here. And there is a unique characteristic, peculiar characteristic because of the format that this building was conceived.

Its occupation is different from a traditional building. So we have big openings, the building is robust, 45,000 square meters ABL. So it's worth not least a small occupant of 1,000 to 2,000 meters, because we have to open up this development. So we have to make it work totally for a small occupation. The renting process is very different. It takes time, but we are sure, we are having dialogues and it seems that each gender rate is attractive. When we remove it, this building, the general context, so the occupation raises meaningfully. I believe there is a special highlight for V10 that we concluded the full rental of this building in December '21, the building that we bought in '19, and we rented half. And there was a dialogue back then to increase occupation and the pandemic hit. And I believe all the tenants held up their expansion movements. But with this improvement of this scenario, would also rent, it's our portfolio, is 100% rented. Class A, Janiero also full.

We have a vacancy -- a percentage have straight. But when we see the revenue potential revenue in area is not so meaningful. So I believe this really briefs the occupation of the buildings. When you talk about shopping malls, most of the malls we kept, the occupation rate similar to 2019. We got a small variation in some malls, a very positive highlight is Metropolitano mall. There was in 2019, the end of the year, 2% of vacancy and we delivered '21 with 3%. So in percentage, an area this mall had a higher evolution in its occupancy. Then consequently, there was an expressive improvement on its result. So we are trying to be conservative, but we are really optimistic in what we have for estimate, shopping malls for this year, generally this month, operationally speaking was beyond what we expected. But considering the results, it was superior to what we estimated for January, February is also a little bit better. So we are really excited with the results that the malls can give this year. We had an operational work that was intensively, and I believe this is reflecting in this bottom line of the shopping mall operations.

Talking about sales and the stores we finalized in the fourth quarter, 21% above 2020. And it is low, we finished 2.3 million, 1 million below the fourth quarter 2019 and a little bit of both of 2020. I believe I mentioned already the flow of our malls for the financial performance, I pass the microphone to Hector.

[Hector Bruno de Carvalho Leitao, executive]

Good afternoon, everybody. Talking about revenue, I'd like to reinforce the revenue, the sales, Thiago mentioned. On the right-hand side, total revenue net, it was 1.6%, 1.3% of this revenue on sales. And it's important to highlight that we had sales in SPE when we sold our share, there are some effects that are complex here in the balance. And it's interesting to all the participants observed the explanatory notes, they are really important complement. We see basically a revenue of BRL 1.3 billion in the revenue and the rest of the profit of the transaction already consolidated in other revenue operational expense. So the profit of the operation of the sales was BRL 1.2 billion, and the revenue of sales, we sold a little bit more 1.9.

So it's important to have a disclaimer. So things get consolidated. And what about the rental revenue, we had growth, interesting growth, in 2021, 10%. And here, we have different effects, a good growth on shopping malls, 18% and lots of what Thiago mentioned, the increase of flow of vehicles, the increase of sales generated to us, an interest increase on rent, NOI. And for offices, we had a year where AAAs had a good performance, and Class A had a performance a little bit worse, especially with the return of ITM spaces that was already programmed. So we conclude the year with 10% of growth and 14.3% of growth compared to '19, concentrated on AAA buildings in '19, it was the acquisition of JK Towers and mature the revenue for the last 2 years.

And for next slide. Next page, we talk about NOI. And as a highlight in this page, I would like to talk about shopping malls. In the final quarter, there was a robust growth compared to 2020, 50%. And we see a higher growth, superior result to 2019. And I would like to highlight Metropolitano Shopping Mall since 2019, decreased the vacancy in 12% to 3%. So there was a good reduction on rent cost in the building and rental growth and all the other loans recovering already compared to 2020, except for Cidade Sao Paulo that still has -- slower than 2018, I think because of home office.

The audience that you should have lunch at the mall, they are not back to their offices, the good Brasil tower on top of the mall, they are back 30% of the workers and other offices nearby in return with few people to staff, 10%, 20% of the staff. And then in 2021, we conclude NOI of shopping of 14.7% growth and a drop compared to 2019 of 17%, but explained by the first quarter that was there. So we the estimate, that impact was BRL 10 million NOI in the first quarter because of the closure. It was a measurable impact, a negative impact throughout the other quarters as well because of discounts and lower rent.

NOI for buildings now, the year we had the sale of AAA in November. So this drop was really expressive 24% is totally explained by the sales of AAA and impact was BRL 10 billion. Then explain as well when we see year-after-year, we should have growth compared to 2020 and 2019. So great part of the impact -- great part of the impact compared '19 and '20, the sales we lost this revenue in the final month in December. And then we talk about the regional FFO, adjusted here exclude the non-recurring effects, especially sales. So we had a year that we had a growth of 14% and a decrease of 2% compared to 2019. And I would like to highlight in addition to NOI comment, a good recovery of default of payment impacting 3% positive compared to 2019 and a good efficiency in D&A, excluding the effects and the expenses with the sales that had a positive impact on EBITDA.

When we see FFO, the impact is negative of the debt, '21 compared to '20, a drop of 25%, but the impact is BRL 40 million of the debt compared to 2021. So we started from SELIC of [ 2, 2 9 ]. Now we have a debt connected by PCA, 6.5. The delivery cost is 17%. This was a big decrement. So we have a growth that is expensive compared to '19 and '20. Talking about debt here. There is a disclaimer, the important sales -- we finished the year here accounting with BRL 700 billion. There were sales in some of SPEs, what I have partnership and a reduction of capital to leave that partnership, I cannot recognize, I cannot consolidate this SPF, I cannot recognize this cash that we had over there.

So the effect is BRL 350 million cash entering in our balance from the second quarter on these reductions are ongoing. They are limited companies. It takes them 90 days to get this cash, gross debt, 1.6 billion, we decreased in BRL 40 million, the debt paying Morizono, BRL 60 million update debt. And so we finished with total net debt, BRL 950 million. When we see covenant financial, there is this space compared to what we consider covenant. First, but we have the obligation is 7 times, and then we always aim 4 and 5 times. And then throughout that is the effect of the sales. In 2022, we are going to see if these indicators reaches high service. So this is a little bit of the take-away message for you. And underneath this graph, we can see that the financial expenses had a robust growth this year that was explained by SELIC and IPCA, 10% in the end of the year.

Next slide, we see amortization schedule. There were 2 subsequent events that I would like to highlight. The repayment of BRL 735 million and prepayment of BRL 100 million of the inventory plus BRL 60 million that were already higher for GB. And then we are going to have more extraordinary payments this year BRL 200 million and BRL 300 million. So that's the strategy of capital allocation at this surplus cash and paid debt that is an investment with a return that has no risk, and it's not with SELIC reaching levels of 12% from this year. And beyond the schedule, this amortization schedule is distributed throughout the year. There's no pressure concerning the amortization for the following years aligned to our cash flow generation and the debt prices in [ DI ] and 22% in PCA. So throughout the year, we are going to pay some debt. CDI and then we are going to increase the exposure of PCA as we amortized and maybe in refund finance with another index profile.

And then we see the Q&A session now.

[Operator]

[Operator Instructions] The first question comes from Mr. Elvis Credendio.

[Elvis Credendio, analyst]

I have 2 questions. The first is about the offices portfolio, how do you see the pipeline for rental in 2022? And how do you see leasing spread? Because there are regions with high vacancy. What do you think, maybe you need to be more aggressive in prices to rent these buildings that you have? And the second question is about M&A. You were reactive in the final month, but I'd like to understand if you see room for more recycling, especially on the demand side on your assets. And the other end as well, how do we imagine the buyer, if you do have no movement, because you have higher power of [ BP SPX ]. That's it.

[Thiago Muramatsu, executive]

Let's see. I'll try to answer your questions. I believe on the demand side, I'd like to remind you that although we had this portfolio sold, we keep on managing it for Brookfield and CPIB, the current owners. Answering your questions about prices, we have seen that it's really heated the demand. We -- in the end of the year, we have the rental of our portfolio that we can, in-doors and maintain and also the acquisition of the 5 floors with lots of demand. In the portfolio that we sold, we had 1% open vacancy, and this 1% is being demanded as well. And talking about prices, the negotiations that we are doing on revision and eventually renewal, we could get better prices above 15%, 20% higher.

So this region here, Faria Lima and JK. They have a small supply and a growing demand. So it's healthy normally for what do we see a demand that is really interesting with prices, for example, from our building WP, JK, we bought it and the performance is better than our underwriting. And we have these floors to open, vacant that we can acquire in levels that are above what we had imagined, BRL180 to BRL100. Just to have an idea on how this demand is high. I don't know if I have answered the first part of your question.

About M&A, the profile of assets that we currently have in our portfolio, talking about recycling, they are obviously not so liquid than the other buildings that we sold in the end of last year. A potential buyer for this type of asset, a mass portfolio would be real estate funds because of the interest rate, they are not the best way of selling. So we do not have any -- we are not in a hurry for any movement. As we said in the first moment of the sales of our portfolio, AAA, what we have, we are aware of the situation not to lose any opportunity when it comes for acquisition or sales.

And talking about AAA assets that are closer to the type of real estate that PCP and eventually SPX would like to get into, we have seen opportunities of acquisition as well, but we are still in our pipeline under construction, it's ongoing. We left at the end of the year, so we can execute all the transactions. Our partners here talk, but nothing so hot, not now, okay.

[Operator]

Eduardo [ Selman ], the next question is yours.

[Unknown Analyst]

Three questions, very brief. Business strategy, asset like that you are adopting, of course, your AAA offices are in this line, and the final acquisition also fits in this line when you have a lower percentage, but your portfolio on shopping malls and also, A, is not distinguished, not yet. What is your idea to transform into asset like sales? The previous question was similar to this -- the idea is to mature or to look for a buyer. We are going to see this transaction on BR Malls as well. Do you have any idea to transform your portfolio? Mr. [indiscernible] you mentioned, but I do not understand your portfolio, A, in addition to ITM and things that are outside Sao Paulo. What else is the vacancy in portfolio A.

[Thiago Muramatsu, executive]

I will start with the last one, because it's the easiest one. We have the Brasilio Machado, this one, there is vacancy, there is high, a situation that is very specific and you were treating with the partners, and we could solve it. So this year, we can follow and rent it -- we have in our participation [ 4.5000 ] meters. That is another vacancy in addition to ITM in Sao Paulo. Then talking about the strategy of to the asset like our position, starting with M&A. As Elvis commented, we have PPIP, and we also have SPX, we are partners investing through funds with other investors and our percentage is smaller. These 2 work fronts, on capital, in addition to our own capital. The idea is to work with percentages that are lower whenever possible to work with the capital of these partners.

What we have in our offices, we have basically 2-thirds of the portfolio of the property opposite towards asset-light strategy like we had in JK, we acquired 30% and the partner got 70%. This is a different configuration of companies, this association and the percentage were established in 2016, '17. And now part of this portfolio is already located, rented with loan agreements, there is no contract out of these ones that are about to expire. We had an agreement that is renewed for 5 and 10 years. We are really nice and maintaining the occupancy of these assets. And I believe that the difficulty is always have been a buyer site dialoguing with us. So eventually, we can have a divestment partially or totally. So as I mentioned, we are aware, there is no pressure. We are not in a hurry, but if someone would like to buy it. We buy it as we have in AAA with our partners and classic building similar to Vimal. We have been talking to people active prospection eventually to have an acquisition.

And finally, the shopping malls. The movement on BR Malls, I believe we are not participating of any of these conversations. The conversations are on, but I'm not participating. I'm not going to place an opinion about the portfolio we showed here that in the final quarter, the performance was better than 2019. The estimate that we have for this year, it's a better year than 2019. And I believe that we start entering a level of maturity of these assets. But today, we still think we have to squeeze these 2 shopping malls portfolio. So we are not thinking about it actively or and not even divestment. Again, we are putting things into practice, the expansion of the mall, we have the expansion under development on going in 3 of the 6 malls that we have.

[Unknown Analyst]

Can I have a follow-up question?

[Thiago Muramatsu, executive]

Yes.

[Unknown Analyst]

Because of the sales and also because of the capital reduction, BRL 300 million for the company short term, I do not know if you can have short-term dividend. Is that an expectation?

[Thiago Muramatsu, executive]

You can ask. You can ask. It's okay, you can ask whatever. I do not know if I'm going to answer or not. No, no, I'm just joking. I'm joking. So we had a variable distribution in the end of the year and also the minimum dividend that we had for 2021, so we do not have a specific conversation to distribute dividend. It all depends, if we are going to allocate this capital more efficiently, that's what for a company that is intensive on capital allocation is the most important part of this discussion is going to be if we have used or not for this capital and the efficient use for this capital rather than having a dividend or put this money in cash or any other business.

[Operator]

Next question is [ Camilla Bocchi ].

[Thiago Muramatsu, executive]

Your voice is very low.

[Camilla Bocchi, analyst]

My question is about, your association with SPX, you said that you are going to invest but also manage the funds and the projects. And if you have an update of the status of this project?

[Thiago Muramatsu, executive]

How is the configuration of this association? We have a JV, 50-50 like PX in the management. So we have this management company for funds and assets focusing on real estate. When you have 50%, we have 50% and peer through, [ Dato ] that was our CEO. He is the manager of these assets now. So now we have a fund, CP, multi-strategy with some investments already consolidated in the case is CMV that I commented in this call is the fund more than BRL 300 million. And then we have another project in collaboration, household project in the extra capital that we are studying, 4 and 5 projects are located.

Specifically talking about CFD, that is the biggest one in the fund. We have already started the construction work. It was approved last year. And then we have already started the work there. Land-leveling, hiring, great part of what city construction work for the first phase. The term that we have -- we are co-investor in this fund. We have a percentage, and we have a commitment of this investment a little bit of BRL 60 million in funds. SPX, more BRL 60 million, to have the same, things again, putting a small percentage, 5% and 10%. And these funds, investments there are several ideas that we have been discussing. We cannot talk about any. What we have to talk about. I believe that what is interesting is to identify that we are not focusing in a single asset class. We have been serving offices and also developing of logistic warehouse and household corporation for becoming partners with some development company by land, for exchange. And for that, we have a big support, especially on household development project. Different from what we have, that is a CP, focusing tier and warehouse for development is a development for sales. As soon it's open and located and rented. The first one is a little bit different from what we have in the company. So that's it. I don't know if I have answered all your questions.

[Camilla Bocchi, analyst]

Yes, it's clear now.

[Operator]

[ Andrea ], the floor is yours.

[Unknown Analyst]

I'd like to talk about shopping malls. We saw an improvement on revenue on this quarter. When we see the sales, they are under what it was in 2019. Can you talk about this performance in the corporate level asset that is going up, that is positive already, another one that hit our attention to see your point of view?

[Thiago Muramatsu, executive]

With similar to what I talked in the last call, we can separate the malls in 2 blocks. I believe that the malls that depend on passage, they have a location that is prevalent for the flow of passengers. See that Sao Paulo shopping, they suffer more because of the lower flow of people to work, to go to school every day as we see it. But these malls are improving better. They are recovering better levels similar to 2019. This will happen in the second quarter this year, 2022. And the other malls, if I am going to number 2, Metropolitano Mall, they were mature before the pandemic. These malls are from 2013. They get economic cycle in Brazil. That was bad, but with robust growth on sales and rent.

And they keep on answering well to this recovery. Just to give an idea, in December, Metropolitano Mall and Tiete mall, they were close, over 2019 was excellent Christmas and Metropolitano was year '19. But NOI of this mall over '19, because we have a higher efficiency on default and condominium. We reduce 15% nominal system. [indiscernible] is a little mall in Santo Andre recovering well, but its growth is flat, it's not as robust on the maturation mass I commented before. [ Tejado ] is also more where the area is Goiania, is a growing area, also growing double digits since its opening.

And these malls have been recovering well. But as the shopping list in maturation, hoping the 16, the region is primary to be consolidated is all suffered more with vacancy and these 2 effects are opposite that involve their gross margin, future. It's maturing, but there is failed generating higher vacancy during the pandemic. In general, the second Christmas was excellent, generating good results, financial results in general over 2019, almost 10% in NOI, February is also an interesting month to us. The perspective is good and it's confirmed for this year that mall will have a recovery that is very robust.

I do not know if I have answered your question.

[Unknown Analyst]

Yes, you have. It's clear.

[Operator]

[Operator Instructions] We are getting more questions. No further questions, we conclude the Q&A session. I would like to pass the microphone to Mr. Thiago for his final considerations, please. Thiago, go ahead.

[Thiago Muramatsu, executive]

I believe we have discussed a lot, the year of 2021, we talked about our expectation for 2022. Just to conclude, I believe that we have a year, although lots of challenge in the macroeconomic scenario, political as well. We have here the operational aspect when we can work intensively. We have been working on it and the numbers of 2021 reflects our work. And we are really optimistic on the performance of our assets this year. And this business model that we have and we are trying to apply -- so we would like to invite you all investors, and if you have comments, I want to talk to me or Hector, please free to connect us directly or through [ Felipe] and Bruno in our RI channel. Thank you so much, and have you all a great day.

[Operator]

The video cast is closed. We thank you so much for your participation. Good afternoon.