Earnings Call: Q2 2021

Jul 29, 2021

Quarterly report

Ladies and gentlemen, a very good day. Thank you for waiting. Welcome to the teleconference of LAG Commercial Properties referring to the results of the Q2 of 2021. We have with us Mr. Sergio Fisher, CEO of Log and Mr. Andre Vittoria, CFO of Directors of Relations with Investors. We informed that this event is being recorded and translated simultaneously. Participants will be listeners only. And Soon after, we'll start the Q and A session when further instructions will be provided. Just in case you need assistance during the conference, please request the help of an operator by pressing asterisk 0. We'd like to clarify further the declaration and statements during this teleconference related to perspectives of businesses. Goals, financial goals and operational goals are projections of the company that may or not happen. We should understand that political and macroeconomic factors and other factors may affect the future of the company and lead on to results that differ materially from those that are expressed here. In order to open the floor, I would like to pass the floor to Mr. Sergio Fischer, President of Log. Good morning all, and thank you all for being here. I'll start with good news. The new BTS that has been closed with UBL in Beijing for activities with construction works for the 1st trimester of this year. It wasn't forcing in our initial plan, so we are up scaling our 4 sailboat delivery up to 1,500,000 in the Q1 of 2020 We are going through the best moment. Our absorption was 2x greater than the expected for 2020. We have 1415,000 square meters BL of 93%. Out of the whole loads. Out of the axis, Rio Sao Paulo and 89% of the contracts actually with vacancy of 2%. Online, we have doubled throughout the company throughout our period in Wholesale is a company is a trend for the next years, responsible for 84% of the growth subsumption of the next year. We have activities that are mainly due to e commerce, and we are going to deliver new assets. We are more than company and properties. We are delivering value. In the 2nd trimester of 2021, we have Major impact with the new assets that have been generated, and we have had Major gains in this part. We have BTS Extreme at BTS272 million 272,000 square meters, more than twice the investment. It was done through an independent contractor that is responsible for most of our assets. The competition of this recycling, 55,000 Square Meters, BRL 55,000,000 in results, 44% above the average. The 2nd semester, EUR 227,000,000 ABL and EUR 1,000,000 in 15 above the average. A major part was actually above the average. We have assets in house. We have our strategy of geographic diversification, 37 cities, 17 states throughout the country. Penn Construction works from north to south. We are committed to the delivery of our growth plan. We are building in 2021 400,000 square meters of UBL, and we are to deliver that more than 50% are pre leased. That demonstrates the power of our business. We are the greatest and the best portfolio in the sector, And these characteristics combined bring us a competitive and unique competitive edge. I would like to pass the floor on to Andre. Thank you, Sergio. We have consistent results. We have in the second quarter BRL 78 BRL0.4 million, 3.5 fold greater than last period. EBITDA was €76,500,000,000 almost threefold the same period 2020. The revenue keeps on growing. Our cash flow is BRL89 million. We have BRL3.2 billion in assets as properties Peace for Investment. We are showing over and over that the recycling of assets mean more than an alternative of funding for our investment. It's part of our strategy. We are going to recycle assets, mature that are within the proportions, maintaining our cash flow and our plan throughout the plan, 1.5. We made public our ranking along the agencies, and we are Pointing out our quality of credit, our cost of debt is low. CDI, 1.5%. The liquids, the bet is plus 1.3. In this quarter, we have the sustainability report that has the best results and impact on all levels, including Sustainability. We have joined the global path of UN with the largest initiative, entrepreneurial of the world. We'd like to go to Q and A now. Thank you, Cobras, and thank you all. Thank you. We would like to start now the Q and A session. Our first question comes from Mr. Alex Fajas, Itau BBA. Good morning, Sergio, Andres. Thank you for the presentation. I have two questions in one. First, Build to Suit. We have this announcement, 95,000 square meters in the industrial park. We that there has been a comment that possibly there would be a 4th agreement. In general terms, whenever we have an announcement of build to suit, these contracts should be the same size as the previous ones? Or we have smaller ones within the pipelines? Or any announcement should be relevant. Bill Sussut, this is my second question. Should we expect a review of the plan once a year? Or Could we wait more sequential reviews, if you would say so? Good morning. Thank you for your question. This is Sergio. In the 1st semester, we had 2 BTSs, BTS that weren't in the plan that we're actually above the plan, 1st quarter and the second in the second trimester, the industrial park of Betin. We have a third one in July, and we have a 4th undergoing negotiations in August. There's 2 new ones, July and August. They are not going to justify an alteration of the plan because the BTS are going to go according to exchange the speculation for BTS. Day Major Projects, and the sum of those in this quarter are going to go above 100,000 Square Meters of BTL Construction Works already started to be delivered by the end of next year. Well, thank you. That's quite clear. Our next question comes from Andre Mazzini from Citibank. Serge, Andre. Thank you for the call. First of all, recycling wise, you sold the stream up for a 3rd party, Sao Macao, if I'm not mistaken, a real estate fund. We thought that with interest rates going up, the real estate market would change dramatically with more capturing. It seems that it's off the negotiation table. When it comes to real estate capturing. And when it comes to 3rd parties, will there be further recycling if interest rates go 78 or in that order? Or will we step back? And vacancy wise, we can see that it's a very low level. Please let us know about your initiatives in terms of numbers for Log to be the chosen party. And mentioning that also, I'd like to point out competition services. And I remember you mentioned providing forklifts if a leasing party needs and e commerce as well. And I think that point would go even above and beyond my statement and is still within that line. That sector is not major in Brazil. I think the economy is different in Brazil. When do you believe that will take off in Brazil considering all the risks that we have and what would be the boosters. Sergio here. Thank you for the question. Solar Energy. It doesn't make sense yet. Our projects require energy in medium level Pension. Our projects actually Have that in mind for the future. What we have done recently in the last few years is change our projects In exchange with the free market, a reduction in the order of 25% in order of In that order, in the reduction of bills of consumers, when we think solar energy, We are discussing, trying to understand and trying to see how that will unfold in the future, and we'll see certainly results in the near future. Services wise and our differential, our competitive edge. We are becoming one stop shop for many clients. We see leases that used to be robust that we are actually decreasing. We are going for clients that know our assets, our specs in terms of quality. So we have that as a major differential, and that has been playing a major part in our leasings. We sell the demand of the clients. We know where they have to be, where they are installed, and they are much more Sisted in that sense and the assets that we have had here in Log ADM that manages the projects in the end. We do not have any concrete project at this point. We are still undergoing the studies regarding IoT and Innovation, things that we'll certainly disclose in the future. I think I dealt with your question. Is there anything that I left out? A real estate that is sold to 3rd parties, so Macau, how is that scenario in terms of capturing 3rd parties and others. Yes, what we have seen is that We our call center is searched from 3rd parties. We see that there is an appetite from that those third parties. That was not the plan initially. We didn't think that would drop. We do not Stat Debt to drop. We'll make some adaptations for those investors and our funds. We have the intention, a very solid intention, to have more and more ABL in there with transactions that are pacely and in a timely fashion. And we have to do we are planning to do something in the near future in a robust way. As I mentioned, in the last 18 months, we recycled more than EUR 500 1,000,000 in assets. That's an important strategy for funding not only for the growth of the company, but 30, CDI of Capital. We have steady stats that are very important. This €500,000,000 with a spread in the order of 44%, which is highly relevant, and we'll keep on acting on that. Now regarding your point, the raising, the increasing of interest rates, We have some advantage in our business. The pipeline we are delivering, we are in the order of 12% and yield on cost. We see a compression of spreads that may happen that will report a gross margin that is around 35% or even above. If we are to close. The tables the dealing tables in that order were SO. Thank you. I think that was all. Reminding you that in order to ask questions, you can dial. We're sending your question via the web chat. Our next question comes from Bruno Mendoza Bradesco, BBI. Good morning. Thank you for the space to ask a question. Uncertainties in the real estate market. We have the tax reform. And on that points. You must I believe you must have discussed that. A lot of people believed that would be a worsened scenario, but it didn't go either way. Did you change your mindset in terms of leveraging the company, feeding up some projects or changing some plans, running a leverage on a more temporary fashion. In that order, how would you be your mindset in that scenario? A second question would be leases. We see the costs increasing in construction work. And so You mentioned that you are still delivering in the order of 12%, but The increasing curve in order to compensate the inflation, how do you deal with balancing out increasing costs and inflation. I'll start with Liz, and then I'll pass on to Andre for the topic on leveraging. New leases now. It's keeping up with GPM. In the last 12% 12 months, it's in the order of 34%. GPM is according to IPCA. We haven't been able to pass on the totality of IPC. Clients are renegotiating, asking for discussions that will give more longer deadlines. We have clients that allow us to deal with especially clients that are paying less. Now in the second quarter, the same leased areas. Comparing 1st and second trimester's quarters, We have a growth in the order of 25% or more that has been improving the player as a whole, even for new businesses. We have seen that nationwide, prices gaining momentum and increasing. Margins are doing well at our level. And we have the impact in the construction civil construction sector that is unavoidable and undeniable. And we have been a settling in that sector. We are very optimistic in maintaining the yields. We have maintained that in the order of 12%, and we have been dealing accordingly with the levels of leases prices. Andre, floor is yours. Structure wise, as we have in the company currently for funding. Independently, on the tax reform On the account of the market, which is very volatile, the perspectives concerning the windows that we have are that we can explore. We have had equity this year. We have to assess that structure and monitor that constantly within our assessment. That wise, we have very low leveraging. We can keep on pushing that likely further to balance out with capital. On the other hand, the tax reform, that was a pillar that had a greater attention given to with higher volume. And we are still assessing the alternatives in terms of recycling. It depends on the moment. It depends on the windows of opportunity that we find in terms of the market, but we have to have those 3 alternatives. Depending on the moment, we can use either one or the other alternative. Sealing numbers or maximum numbers, could we think in that sense? We have a balance that is very solid. We do not have a ceiling number. We have an opening and an open mind to events with that, but we do not have a metrics at this point or a ceiling that I would be able to disclose at this point. Thank you for the answer. Our next question comes from Mr. Gustavo Kambauve, BTG Pactual. Good morning. How do you see the competitive scenario in your market? Vacancy is very low. And I would like to understand these greater players that have been very focused on Sao Paulo, Rio de Janeiro, Whether you have seen a greater movement towards the Northeast or Center East, whether there are different levels competition, or you see that more locally or more nationwide? This is Sergio. Thank you. The dynamics are still the same, Mr. Kambaova. The very few players organizing these sectors are focused on developing in Sao Paulo because that's where we have more traffic. Random ones, Delaison to Salvador, but not nationwide as we are. We don't see competition, to be very honest. We have been able to replace very healthy without major disagreements, and I don't think that will change. This is the scenario we work with, and I think we'll be drinking for a very Clean Water Spring, to be very honest, and these markets are in high demand. Thank you. Thank you, and a great day. Questions. I remind you, please press asterisk1 or send your questions through the web chat. Please hold on. Bear with us while we collect the questions. Our next question comes from Ms. Alina Caldera, Bank of America. Good morning. Congratulations on the result. You mentioned that most of the absorption was strongest in this quarter. And demand wise, how you see the demand in different areas, BTS wise and speculation wise as well. Thank you. Alina, thank you for your question. This is Sergio. The demand is strong nationwide. We have been able to show that clearly with the our assets, not only BTS. We have players that went through a major operation sometimes, and they tend to Take that on to BTS, and there is a competition that is higher in that level. We have been able to deliver a quality asset And doing that with many players in this sector, and we have been able to gain some major operations. Demand wise, a continental country as Brazil, we have consumption centers that are far from the Northeast and similar areas. So that area is still not a major Market. We have seen in relevant cities with 3000000, 4000000 inhabitants, we see these major platforms. We have closed deals with this great deals in this platforms and regionalizing With an effective delivery of high level of quality, at the end, we have seen that demand. We have Felt that clients are planning with us our growth path. We have some new cities that in the past weren't in our radar. Of course, we study, the scenario to see whether we have enough information to make a decision. But that has been something that has been steady, and we are optimistic. If you see the delivery, in the short term, we are going to deliver the half the plan by halfway through next year, 400,000 square meters of the original plan, and most of that is preleased. And as They are delivered. That number will near 100%. We are very optimistic. E commerce is transforming. It will change e commerce as a scenario in Brazil. We see an appetite with these players, the amount of ABL that we have seen Overseas, and that's a trend for the upcoming years. Thank you. Thank you for your answer. 2. Our next question comes from webcast, Renaud Nudy. Is there any perspective in terms of OpEx for the next quarters. And thank you, Andrea here. We are at a very distinct level compared to previous years. We see stability in terms of maintenance, in terms of OpEx. When we don't see a marginal growth in terms of expenses compared to the Q1 of this year, We have that trend to keep at a very stable level. There is a natural growth, marginal growth, and we adapt our structures to keep on growing and growing on our daily processes as we have been doing and will keep doing. Thank you. D Web Chat. Webcast brings a question from Mr. Paulo. Could you comment on the demand from players that are not from e commerce. This is Sergio. Thank you. In the sector, we have 2 major drivers: e commerce, that is at a very impressive level and Flight Quality. Brazil has an industrial park that is in the order of 160,000 square meters of warehouses, only 15% 15%, 1 5% Out of those are of quality, and we have to work on that. That is a demand that has always been there. And when we change projects and we think of new fronts, we think of changing operations 4, more modern operations and more active operations. This has had decades of investments. We have grown by 1,000,000 of ABL per year, and That is a demand that is ongoing for an foreseeable future, and that would be that for now. Or you can send your questions through the web chat room. Mr. Lucas Vroom, XP Investments. Good morning. Congratulations on the results. I would like to ask A brief question. Given your robust growth plan and the impact of the pandemic, You see the that the approvals of the pipeline are have some risks. And I would like to see how you were planning on working on that, Lucas. Thank you for your question. This is Sergio. The pandemic impacted Very specifically, at certain areas, certain municipalities, what we have been doing is to anticipate approvals. Town halls are understanding that the Impact is highly positive for municipalities, and we have been Having approvals in the order of 6 months or less, generating employment. There are BTS points that we are studying. In some points, we have 5,000 New Job Opportunities, which is highly relevant. That added to the attacks generation, municipalities major. And our business organizes the space of the city. We are taking things that are unorganized throughout the municipality and organizing in certain areas. Therefore, we have a strong argument to have approvals. The pandemic certainly held back some approvals, but it wasn't impacting after all. Thank you. Once again, I'd like to remind you that for questions, type 1 or send your questions through the web chat room. We have a question from the webcast firm, Rodrigo from Santeepar. Is there any perspective of payment of dividends. This is Andre. Dividends wise and the paying of those, the company assesses that constantly. And so that's part of the structure that we assess. We are going to maintain 25%, which is the minimum required by the Legal Framework. Questions? Answer is 1. And you can send your questions through the webcast chat. Please hold on the floor to Mr. Sergio and Andre for final considerations. Thank you for the participation of all. I would like to emphasize the perspectives of growth that we have. As I mentioned earlier, there is a rhythm that is rather consistent. We have deliveries in the 3rd and 4th quarters with record deliveries way prior to the foreseeable deadlines. We have the idea of doubling the portfolio of the company as previously foreseen. So we are going to hit historic records. We have new businesses in place. We will revisit our at this point in the future. Thank you all for the participation, and a great day to all. Thank you. The conference call of LAG Commercial Properties is adjourned at this point. We thank you all for being with us and have a great day.