SYN prop e tech SA

BOVESPA:SYNE3

Earnings Call Transcript 2023-Q4

[Operator]

Good morning ladies and gentlemen, welcome to the SYN video conference to discuss the results for the fourth quarter of 2023. This video conference is being recorded and the replay can be accessed on the company's website ri.syn.com.br.

The presentation will be also available for download. [Operator Instructions]

I'd like to reinforce [indiscernible] declaration are based on beliefs of Syn administration and current information [indiscernible]. These statements may involve risks and uncertainties as they relate to future 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 forward-looking statements.

Presenting this video conference, Mr. Hector Leitao, CFO and Investor Relations of the company.

Now I would like to give the floor to Mr. Leitao who will start the presentation. Please Hector, you can proceed.

[Hector Bruno de Carvalho Leitao, executive]

Good morning, and thank you so much for being here. I will start my presentation for the fourth quarter achievement. In October '23, we sell the asset Suarez Trade, a corporate building in Salvador outside our core regional investment. The transaction was BRL 14 million and 2/3 representing our market share and is equivalent to BRL 9 million on SYN market share. We were acknowledged one more time for top ranking open corps, in this we achieved the third place for Real Estate Services.

We are [indiscernible] in the real estate market this recognition from all the players in the market. And after the subsequent event specified in February, we announced the swap of the asset exchanging 37.7% of Tietê Plaza Shopping and 37.5% of the company that has 85% of Cerrado, 32% of Cerrado Mall market share. In exchange, we delivered 20% of JK Tower D and E with funds quota [indiscernible] other partner. And in exchange, we have financial additional benefit BRL 57 million in cash.

And we have a decrease of our gross debt in BRL 60 million. So this swap has a neutral effect, a little big positive in net debt. And after that, a few weeks later, we announced XP. We sell part of our portfolio, BRL 1.850 billion and the transaction of portfolio, 51% of Grand Plaza shopping mall, 32% at Sao Paulo, 70% Shopping Metropolitano, 52.5% Tietê Plaza Shopping that also of our [indiscernible] market share in Cerrado 85% after the swap and 23% Shopping D.

Next page, we are going to see the conclusion of these 2 transactions and our portfolio with these development, so basically, we have 10% of Grand Plaza, 60% Shopping Cidade São Paulo, 10% Metropolitano and Tietê, 0% in Cerrado, Shopping D 8.6% and 10% in JK Towers. And it's important to highlight this transaction are about to be fulfilled, precedent conclusions. We did not recognize them in the balance transaction. So there is no impact in the accrual proxy or dividend distributions up to the moment that we concluded this transaction.

So the focus is totally on execution, but we have precedent conditions and transactions likely impacting operational performance, our physical occupancy was superior than last year, the fourth quarter, 90% occupancy compared to 92.7% last year. The division among malls 95.8% of physical vacancy and later on, I will deep dive more information about the malls. Triple A buildings 81% on vacancy and Class A offices 86.5% and what's new on this quarter, we believe the first for CLD warehouse in Dutra Highway, excellent location, we delivered the Phase I with 51% of rental, and it's an interesting demand to occupy [indiscernible] portfolio in 87,000 square meters in our participation that we have just deliver.

This is the physical occupancy of malls. We closed the quarter 95.8% compared to 95.3% last year. So what happened in the year, more than increase of occupancy was qualification. And later on, we are going to see the impact on sales of the mall with is [indiscernible] and financial occupancy was basically flat compared to previous year.

Talking about sales, we grew 9.5% in the total year. and same-store sales of 6.4% a year. And then what is the complement of this growth of 9.5% or this replacements that we have been doing more qualification on the mix, better operators. So the result has better sales. And this replacement represented 3% of growth of total sales and kiosk an event with a lower market share shower, the robust growth in nontraditional revenue of the company in temporary rentals on kiosk stand, renting and allocating our operations in the space of the mall and another line of revenues nationwide.

When you use the mall and then a billboard for important brands, the ones that are already in the mall or brand, that are not the retail bricks and mortar, but we get closer to this brand, so we can extract, more value of our assets and rental of same-stores, we concluded the year with 6%. And in the quarter, 2.9%. This drop in the quarter in October and November, there was a higher impact in the electronic appliances and entertainment. This was a cultural fact because in December, we see a SSR -- SSS is growing. And in general, we see a growth of sales superior to the fourth quarter and rent as well. So it was a cultural drop that we see it's not going to be recurrent. The trend is keeping the robust growth that we presented in 2023.

Financial performance now. The result was that better in '23 in fact in the quarter. We closed at BRL 55 billion NOI a growth of 17%. And in the year represented the BRL 200 million NOI, a growth of 11% compared to the previous year, this growth is meaningful because of the malls representing 80% of our results. So in this middle table we see that we concluded this quarter with BRL 45.8 million NOI growing 23% and underneath in the year, we grew 15.9%, reaching BRL 164 million NOI. So the growth is very robust this year on revenue, although the GPM was negative, we can reduce the discount [indiscernible] of sales performance.

So the rental base was constant this year because of the index [indiscernible] we remove the discounts that we are carrying since the pandemic [indiscernible] the operation. And finally, office is on the right-hand side of the graph, no volatility in the result this year. The quarter represents a drop of 5%. And in the year, a drop of 2% closing the year in BRL 34 million NOI, '23. And the intent was imported in linear adjustment of discount and grace period last year, [indiscernible].

Excluding this effect, we have a growth underneath the inflation, 3%. Talking about EBIT (sic) [ EBITDA ] operational results without surprises in costs and expenses, NOI growing and naturally, we have an interesting impact in adjusted EBITDA in the quarter, it grew 32.6%. Almost BRL 50 million in EBITDA. And in the year, BRL 173.8 million EBITDA, growing 11.6%. In this we are going to show more ahead there was a positive current leverage of the company.

About adjusted financial result in the quarter, we closed with net expenses of BRL 19 million, aligned and better than last year. And in the year, we closed the year with a drop of 16.4% in net expenses, closing BRL 95.6 million. And basically, the most relevant effect is somewhat worse in [indiscernible] we have been doing since in the end of 2021, 2022, there was also repayment in 2023. We pick the [indiscernible] and the lower scale, it was going to be more meaningful. The impact of the beginning of central banking interest rate and a positive impact in lower scale for this year.

I believe we are going to see a drop of this financial [indiscernible].

Now to conclude the results adjusted net profit, BRL 12 million compared to BRL 3.4 million in the previous year, an expressive growth. And in the year we conclude with 11.5% on profit compare a loss of BRL 15.6 million last year. In these 2 effects, the effects of growing NOI at the mall, especially and the work of managing the liabilities, especially in 2022 with good results. CapEx of excluding depreciation. We reached BRL 21.6 million in the quarter, growing of 53%. And in the year, we concluded with BRL 48 million compared to BRL 20 million last year. The growth is 134%.

Moving to talk about leverage in debt performance. I'd like to hit your attention. Total debt and adjusted EBITDA pro forma in the first table. We concluded the quarter 4.4x compared by 5.25x in the previous quarter. And here, we see the impact of growth, all the development growth, leveraging the company and this is a matter of when that is going to be ongoing. It doesn't matter the transaction, I believe the company will leveraging with the development spending in the stable financial covenants according to the contract IFRS consolidated not only pro forma, also, we have 4.5x compared 5.3x previous quarter. So we have interesting room for covenants and [indiscernible] another covenant that is also important are the assets and net corporate, we have room that is very interesting growth in the year 3x and the limit minimum is 1.4x. So we are nice on the financial covenants.

And to conclude the financial results, we show that the amortization time line has not changed in the last quarter the operator on amortization that is important in the next 12 months, just in 2024 and the amortizations for 2025 [indiscernible] on the second semester. We have more than 12 months effect to the amortization that is relevant and on the right-hand side, our indebtness is the same, almost 40% IPCA spread is 6.5% and 6% in CDI, and the spread is 1.5%. So we have a profile of det that is comfortable aligned with our cash generation.

I believe in the moment, that we have to releverage to base these amortizations. We are going to have a company that is levered lower in a good timing and we move with a cost that is very low of indebtedness, very competitive. Now we can open up the floor for Q&A session.

[Operator]

We are going to start the Q&A extension for investors and analysts. [Operator Instructions] The first question comes from Gustavo Cambauva, BTG Pactual.

[Gustavo Cambauva, analyst]

I'd like to ask 2 questions about the action that you announced. The first, you can talk about the samples and the procedure to conclude the transaction. Precedent conditions, you can talk more about what you are overcoming and also expectations of a time line to conclude [indiscernible] sales.

And my second question, if you have anything was going to be done with the resources connected to the table that you showed about indebtness when the transaction is concluded, the company, you will have a surplus of cash that is very big. My question is if you define the volume that is going to be distributed as dividend or it's going to be reinvested in the business in some specific assets, if you are going to observe M&A to understand what's going -- how this resource is going to be used when the transaction is concluded.

[Hector Bruno de Carvalho Leitao, executive]

Thank you, Cambauva, for the questions. We are going to clarify many questions with your question. So good reflection, since you bring the first one. We had this negotiation in a very fast way. We have just signed MOU. What's going on right now? We start [indiscernible] that in the end of the day, even if it's bigness, we received [indiscernible] multiplied by fixed diligence thereof [indiscernible] this is the first topline we understand the structure, where is that the SPE, the partners, who they are in order to start in parallel running technical imaging, engineering -- and I believe that in the following 2 and 3 weeks we are going to see these going on.

So people do well the details of the development about the time line. We expect by the end -- by the middle of the year, so the diligence, signing contracts and in the middle of the way, it all depends on the right of way and approved by [indiscernible]. This is not exactly our authority declining [indiscernible] and about the resources on the mission we are going to receive by December next year, about BRL 850 million. We first go on to focus on executing the transaction that are too many thus far and our preceding condition, so we can conclude in the same format that we agreed with the XP.

And then we have not decided not yet. What is probable is to have a mix of both payment of the debt, that the company with that leverage closer to the other players. And this healthier balance, it doesn't matter what we distribute on dividend, we are going to be comfortable to be back on business, where we can leverage to buy assets, to have a consortium with other investors in order to purchase something bigger, but we're going to have room in the balance in order to go for M&A.

And our idea is exactly to follow this strategy through for many years to be more asset light in fact, with an investment 15%, 20% managing the asset with partners and investors that are strategic with it. So that's our mindset here. Probably it's going to be a mix of both scenarios. And the percentage of this scenario, we are going to announce timely as we take the decision.

[Gustavo Cambauva, analyst]

That's perfect. It's clear. I have a follow-up question about investing in more things. As a context, I'd like to understand what is the Class of benefit that you are observing because you have a [indiscernible] of offices, and it was concentrated shopping mall. Now you are selling shopping mall, you balances more. I would like to understand what you are excited about doing shopping malls, office buildings or get back to warehouses. I'd like to understand what is the class of asset that is in your higher interest right now.

[Hector Bruno de Carvalho Leitao, executive]

I believe that shopping malls and offices have the same importance in our business. The warehouse not so much, warehouse is depending on the opportunity, investing together with XPX, JV, and I believe that we are going to see good opportunities for office in the next 12, 18 months. And shopping malls is always strategic. The higher the class [indiscernible], you have reported gain of sales from [indiscernible]. So these 2 classes of assets have hiring purpose. Warehouse depend on the opportunity for our business.

[Operator]

Next question is the investor named [indiscernible].

[Unknown Analyst]

So proud one more profitable quarter recently, that is a relevant [indiscernible] sales of data at the malls. With these sales, [indiscernible] it was to close the quarter with the recurring profit in the next results.

[Hector Bruno de Carvalho Leitao, executive]

Thank you so much. Thank you for your comments. These MOUs that we sign, the contract of swap and the MOU do not impact our results not yet. Until they are concluded, accounting, they do not have any impact in the revenue of this development, is not going to the [indiscernible] and the swap is not yet and if nothing has happened that we closed this operations.

And after the transaction, pre-transaction we see that the company is having an interesting recovery of the results. So we see 2021 better than 2023 on result wise. After the closing, we should see a company equally profitable and we are going to be lighter on our debt. That is the biggest problem of our result is leverage. So we should not see some kind of worsening or decrease of our results because here, we have good management on how we have on NOI and the financial results when you pay debt.

I would say that this [indiscernible] is pre and post is good, they are better than what we have seen so far.

[Operator]

Next question is [indiscernible]

[Unknown Analyst]

Any expectation in sales renting swap or any other destination for ITM, what is annual expense?

[Hector Bruno de Carvalho Leitao, executive]

Thank you for your question. ITM is an asset that is very specific because it's old be 45,000 ABL, and we have 20,000 in the real estate fund. To understand the structure, different from the other developments. We do not have a control on this development. We have a majority in a fund, but that is [indiscernible] and other partners that hold 25%. The decisions are slower than what we are using to taking when we control the development, the CR in real estate front. The expectation over there on rental is low.

We do not have demand or the advantage that we want to occupy the trade-offs. You can occupy a development of 45,000, you rent [indiscernible], it's not worth it because you have to reactivate on [indiscernible] and that is expensive. And then you have a minimum critical balance, so you can start renting in ITM, what we have been serving on ITM are changes of use. We are studying the class of assets that you mentioned, to extract the best value out of that development.

We have been studying with advisory companies. We provoke the market to understand the demand. There is no expectation short term to solve the problem of ITM, but we have comparative that we have made the execution, it's hard is a change of [indiscernible]. We need to start study permits. We need to have the demand, but the takeaway message, it's not forgotten.

We are going to focus on solving this is our biggest problem on vacancy of ITM. So we are aware and focus on solving this occupancy.

[Operator]

[Operator Instructions] Next question is Leonardo [indiscernible].

[Unknown Analyst]

What is the accounting impact in the profit if the most transaction is fulfilled, I am asking in order to have an idea how much we have free for dividends.

[Hector Bruno de Carvalho Leitao, executive]

Thank you for your question, Leonardo. In this transaction. First, we do not have price allocation per asset. The reasoning of the deal was global price and the profitability for the fund considering the paid price. So we went from [indiscernible] We arranged the transaction, good [indiscernible]. And then of course, we have an idea on how much the cost will be because we have the percentage of every development and then the tax changes depending on price allocation, and this depends on the buyer.

We estimate an estimate number that 30% of the transaction with 30% of gross margin of this transaction before taxes, before any other accounting effect, if you consider the cost compared to what we are selling is a margin, 30% conservative 30%, 35%. The conservative number just for you to have an idea on the specific process in this transaction. And then the dividend to be distributed, it will depend on the moment when we conclude the transaction in a moment, what's going to be worth doing.

We have met already all the possibilities on what to do that we are conservatively focusing on the execution of the business first in the next month. And then in the right moment, observe the macro situation of the country and the opportunities in the future, we take these decisions and submit to the shareholders' approval. Thank you so much.

[Operator]

[Operator Instructions] Next question is from Marcelo [indiscernible] investor.

[Unknown Analyst]

In the strategy of the company is there a possibility of divesting the assets or even migrating to a structure of real estate funds, seeking higher efficiency and recognition of value from the market.

[Hector Bruno de Carvalho Leitao, executive]

Good morning Marcelo, thank you so much for asking. About total divestment the company -- the focus of the company is to be asset light. This means that we still have assets. The company is not planning any type of liquidation or total divestment. And that's why we always place that the condition on our view except some specific cases that we do not control, we do not manage.

But there is an important point in the negotiation we keep the management of the assets. And this choice of total divestment has a low capability to [indiscernible] what we are excited always observing opportunities generating realm to the shareholders. That's what we are going to do if we execute on the transaction.

And then clear pacing the balance, so we can be open to M&As in the future. So plan A is to increase their return on invested capital. What we have been doing with this divestment, if you holding part of the development with certain control managing it. With voice in the governance of each development and I believe the main point of this trend is to continue using this structure real estate fund. Today, with the enforced taxation, we do not know what comes in the tax reform, we do not know for sure. But within our structure, this migrations has a high cost, ITBI cost and you have high cost capital gain as well.

So we always assess the possibility of migrating a company to real estate fund, but the payback is low normally because the operation of the fund is more expensive than FP, but the gain capital is going to be at this site [indiscernible] a different tax or plus ITBI that you pay. We do not see room not now generating value or with a good return to migrate this way. So probably, we are going to keep on working the same store structure that we have currently.

[Operator]

[Operator Instructions] Next question is Eduardo [indiscernible]

[Unknown Shareholder]

First of all, congrats on the transaction, congrats on management. I am a shareholder for a long time. I'm so pleased as usual and proud to be with you. My question is the following. I think it's very good that during the transaction, you save 60% of the fund in Sao Paulo [indiscernible]. And you said that it was about to be expanded, but this project, it's been approved or not. That's a question that I have that I do believe in the fact that on top of that, I would like to hear about Brasilio Machado, have you so? Maybe you mentioned then I got lost. And my final question a while ago you purchased 10% of CondoConta. I would like to hear about that.

[Hector Bruno de Carvalho Leitao, executive]

Thank you, Eduardo. Good question. Let's see. I will start by the final one, CondoConta. We purchased 10% of CondoConta, it's a bank for condominium and then what happened after the high interest rate with [indiscernible] of the strategy, the first point, we reduced the cash burn [indiscernible] radically focusing on the core of the company, the banking services revenue.

And then we experienced a period of stabilization on costs and started following the revenue. Our perspective for this year is a breakeven in CondoConta by the end of the year. And we see expressive growth in number of condominiums. We grew twice the number of condominium last year. And this year, we hope to triple that. So it's an investment that we are very excited.

With the big size of the market, 500,000 condominiums in the country that are not well served that are part of CondoConta.

The second question is Brasílio Machado. We are about -- we provide all the documents in the city administration. We are in the regulated term for city administration and [indiscernible] with the permit. So everything is going well with Brasílio Machado.

And the first question was Cidade São Paulo Mall, great. Cidade Paulo Sao Paulo, the construction work is approved. Pending for approval with the other participants of the condominium. If you remember, there is a mall and in the same land developed also corporate building. And then the expansion considers common area between the 2 condominiums. So we are going to determine the arrangement, covenants and all the aspects of management of this part, there is a common area between 2 entities mall and office building. So the construction work is okay.

Everything is correct. We are doing the process already. And these aspects of negotiations with the other part, the office building is about to be concluded. So these expansions, we estimate to start to work this year, second semester, and the opening would be in 2024 year in the end -- what I mean is the end of 2025.

[Unknown Shareholder]

And what is the increase of area to be rented?

[Hector Bruno de Carvalho Leitao, executive]

The mall currently has 17,000 meters. We increased 95% 4000 extra area [indiscernible]. We are so excited about it, based on your comment, the portfolio that we have after the transaction at XP, when it concludes, is our portfolio is 70% of the increase of productivity NOI per square meter, improving 70%, and because we concentrating [indiscernible] concentrating the operation at Sao Paulo [indiscernible] 85%. So we have a portfolio with more value because of this mix -- better mix. So this snapshot is much better in this portfolio. That is the point of view that is positive transaction.

[Operator]

The Q&A session is over. We would like to pass the floor to Mr. Hector Leitao for his final consideration.

[Hector Bruno de Carvalho Leitao, executive]

Thank you so much for your interest in our call. 2023 was a year that was very good to us. We had good results in our operation shopping mall with a robust growth, how the corporate buildings were managed. There was no triggers on growth in the building, but the evolution is very interesting and '24 is going to be a better year for the corporate buildings as well.

It does [indiscernible] transaction our core here is to value the development and this valuation comes from our management, team work on making the development for attractive for the clients -- shopping mall clients, the tenants of warehouse and corporate building, the differentiation of our company from the others bringing up [indiscernible] in our portfolio. In addition to the break we offer, we provide services excellently. I'd like to congratulate SYN the team for the work you have been doing with confidence, and thank you so much, and I wish you all a good day. Thank you so much.

[Operator]

This SYN video conference is over. We'd like to thank you so much for your attendance. Thank you all and good afternoon.