Good morning, ladies and gentlemen. Welcome to Multiplan's Conference Call about the Second Quarter of 2018 Results. Today with us are Mr. Eduardo Peres, COO. Mr. Armando d'Almeida Neto, CFO and Investor Relations Officer. Mr. Hans Melchers, Planning and Investor Relations Director. And Mr. Franco Carrion, Investor Relations Manager. We would like to inform you that the presentation for this call is available for download at ir.multiplan.com.br. Please note that participants will be in listen-only mode during the company's presentation. At the end, we will have a question-and-answer session when further instructions will be given. Should you need assistance during the call, please press star zero two to reach the operator.
Before proceeding, let me mention that forward-looking statements that might be made during this call in relation to the company's business outlook, operating and financial projections and targets, are beliefs and assumptions of Multiplan's management, as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions, because they refer to future events and therefore they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors may affect the future results of the company, thereby leading to results that differ materially from those expressed in such forward-looking statements.
Now, I would like to turn the floor over to Mr. Armando d'Almeida Neto, CFO and Investor Relations Officer, who will start the presentation. Mr. d'Almeida, you may proceed.
Thank you, ladies and gentlemen. Good morning, and we thank you very much for participating in our conference call to discuss our second quarter of 2018 results. We will start with remarks about our performance, and afterwards we will answer questions. At the end of the first quarter, we knew that this year's events calendar would bring about many challenges, especially in terms of our sales performance. I refer specifically to the second quarter, in which differently from last year, when the Easter holiday was in the first quarter, plus the additional distraction of the World Cup, plus a high comparison base with last year. In 2017, tenant sales grew 8.7%, and we posted the highest increase in same-store sales since 2014. It was 6.7%. Nevertheless, we could not foresee the truckers' strike and its impact on the whole economy.
We kept the tradition this quarter of delivering consistent growth in sales in all 45 quarters since the company went public in 2007, and completing 11 years today or this year, posting in the second quarter a 2.2% sales increase. We highlight the sales performance of Pátio Savassi Shopping Center in Belo Horizonte, which benefited from the expansion carried out last year, besides the [Vila Olímpia] in terms of s hopping, ParkShopping São Caetano, and Santa Úrsula shopping centers with higher than average portfolio growth. More details about sales will be seen in the managerial report. As you can see, we are happy with the sales results achieved, especially considering the high number of stores and areas changed in the quarter and which did not contribute to the sales results as they were being prepared for their openings.
Same-store sales were a - 0.8%, and same-area sales - 5.6%, mainly impacted by the truckers' strike and the high comparison base. In the first half of the year, SSS and SAS were positive, going up 1% and 0.9% respectively. Shopping malls occupancy rate remained unaltered when compared to the first quarter of this year at 97.3%, and it would have been 97.7% when excluded the areas delivered last year, evidencing our success in continuing to attract investment even in times of uncertainty. Likewise, the occupancy rate of Morumbi corporate office tower remained unchanged, 97.2%. The occupancy cost was also practically stable at 13% over sales. Gross revenue went up 7.2%, driven by the 4.7% increase in rent revenue, 6.1% in services, and 6% in parking revenue. Revenue from sale of real estate reached BRL 4.2 million in the quarter.
We believe that we have delivered strong growth, mainly when we take into account the decrease in flow during the trucker strike. Rent revenue increased, mainly driven by the contribution from the rental of new areas and the renegotiation of rents and merchandising. The highlight here, the ParkShoppingBarigüi . Same-store rent was 3.2%, delivering 2.7% in real growth, more than the effect of the IGP-DI adjustment, which was 0.5%, continuing the recovery of real growth, which was started in the second quarter of 2017. The highest real growth delivered since 2014. Now turning to expenses. Those of shopping centers were unaltered in spite of the 8% increase in GLA vis-à-vis last year.
Headquarters expenses went up by 13.3%, mainly due to the new costs related to the establishment of the fiscal council, the higher expenses with our digital innovation strategy, and also the collective bargaining provision expenses with share-based compensation, as they are mark-to-market, had a reversal of BRL 28.5 million in this quarter. Now turning to our results. NOI went up 4.9% with a 45 basis point increase in the margin, reaching 89% of the quarter. EBITDA raised 21.2% with an 84% margin, a 910 basis point increase impacted by the reversal of the share-based compensation. FFO increased 35% with a strong margin 70.7%, benefiting from the reduction in financial expenses, the reversal of the share-based compensation provision, and also the interest rates and the announcement of interest on equity of BRL 110 million.
Lastly, net income went up 39.4%, reaching BRL 145.7 million in Q2, with the year-to-date BRL 243.8 million in the half year. Our indebtedness at the end of the quarter was 2.27x the EBITDA, and the average cost of the gross debt, 7.66% per year. In this quarter, we also issued successfully straight debentures amounting to BRL 300 million, half-yearly interest and payment of the principal at the end of six years. With this, our debt amortization flow became even more stable and with no concentration of maturities on any years or any need for rollout. CapEx in the quarter was BRL 68.1 million, driven mainly by the investment in the new ParkJacarepaguá shopping center, including a new land that we acquired next door to the mall, plus revitalizations.
About MULT3, our shares, in spite of the almost 13% drop in one year, we had a daily traded value of 25.7% higher in this quarter. Last Friday, we held an extraordinary shareholders meeting. We approved the share split of 1: 3 or 1: 3. Since this last Monday, the shares are being traded according to this split. With that, we expect to further improve the tradability of our shares. In summary, we have not finished our challenges. We continue to invest and at the same time returning profit to our investors without changing our financial leveraging strategy nor our future growth capacity. We added new areas. We grew sales and revenues. At the same time, we improved our main operating margins.
I will stop here, but before concluding, I would like to thank our investors and analysts and journalists who are present for their confidence and attention. I also thank all our associates for their dedication and the endeavors made to deliver the results presented here.
Now, I would like to turn the floor over to the operator to start the Q&A session.
Now, we will start the Q&A session. In order to ask a question, please press star nine on your telephone. The first question comes from Alex Ferraz from Itaú BBA. Alex?
Good morning, Armando. Thank you for the presentation. I have two questions. The first one has to do with delinquency. If we look at gross and net delinquency, they increased in this quarter. Of course, there was an impact referring to the truckers' strike in May, a higher uncertainty in the scenario. I would like to know when this will be going back to normal, and maybe receivables that were. Were they paid in June, the ones that were due in May? Same-store sales, we saw that home and office items went up double digit. What was the impact? What was the reason for this increase? Was it because of the World Cup or the comparison base was low?
Alex, thank you for the questions. I would like to start by the large one, home and office. The World Cup, of course, there was an impact, but this year, there is another thing, which is a weak growth base. In 2014, it dropped not only because of the last World Cup, but also because of the economic situation. We have been feeling more in this sense.
Since last year, if I'm not mistaken, there has been a recovery with a positive growth. In this quarter, specifically, this was the highlight. I would also to highlight, as you mentioned, the effect of the strike. Two segments that really felt the pressure, services and food. Clearly because of difficulty to arrive and to move and many things that could not really work or operate during these days. I'm going to answer a few questions, and I am sure that I will be repeating this quite often. One factor is the comparison base. We had the World Cup and Easter. We knew this beforehand, and of course, we did know about the trucker strike. But in comparison to the strong base of last year, the moment in which the Brazilian economy had, and also in the second quarter, the FGTS and helping to boost economy.
This is the strong comparison base, and this is a very important factor for this result. Regarding delinquency, I do agree with you, and certainly, there was a delay. Because of the strike, there was a drop in sales, and it was a one-off situation. Because of that, we had a slightly higher delinquency. But overall, and specifically in our case, we had some one-off effects regarding the mix and the stores that we took back. This created this situation, the short-term situation that has already been solved and part had already been recovered now in July. But this change in mix makes the shopping center much better prepared and with updated mix and much more demand from consumers. This means opportunities.
Opportunities that we have been mentioning for a few years already, because when you have a weak economy, you do have some opportunities as well. I hope I have answered your two questions.
Thank you very much, Armando. Very clear.
Luiz Maurício Garcia from Bradesco.
Good morning. Good morning, everyone. Thank you, Armando. I have two questions. You talked about the performance of the segments, and maybe you could say a few words about the performance of shopping centers. We see that some shopping centers had lower performances, suffering more with the crisis in Rio Grande do Sul and Minas Gerais. On the other hand, when you consider these, the comparison base is weak. Maybe we will see a recovery in the near future because of that. How do you see this dynamic? How do you see this great correlation?
From now on, what about the performance of these shopping centers? The second one, you highlighted this here, same-store rent with a strong real growth. From now on, there is a major challenge as well of the strong growth of the IGP-DI to 7.8% of the second quarter and pressure on the adjustment of contract. How do you see all that? Do you expect to implement this fully or something more gradual? How do you see the high inflation as the IGP-DI was ahead of the other inflation indicators, which was higher than the others?
Luiz, good morning, and thank you for the questions. In summary, we would have to go shopping by shopping and the particular characteristics of each one of the shopping. Let's take the Rio de Janeiro situation, which is being affected by the economy of the state. The performance has been very positive in spite of the economic situation of the state of Rio de Janeiro.
What I see is the following. We would have to look at what happened in each one of the shopping centers in Rio, in the BarraShopping. We saw a major change in mix, as I said before, and we have large areas now, and that will allow us to better qualify, so to say, our project and increase our revenues because of that, and bring about synergies to the consumers. This is one example that I gave of Rio de Janeiro, and in the specific case of the store. It happens also in other shopping centers in other cities as well. You talked about Belo Horizonte and [audio distortion] Ribeirão Preto, and there are the specifics. They have the same store chains.
And one example of Canoas, for instance. Shopping mall selling well, higher than our expectations in our sales planning the first quarter, in spite of the economic situation of the state. Some things are a little bit obvious. I would like the backdrop to be better and to have tailwind, but not necessarily this is the only reason why the performance is impacted. The change in mix is very important. I said that in other conference call, you cannot make an omelet without breaking the eggs. So you really have to break the eggs first in order to be able to have the omelet afterwards.
This is Eduardo. It is important to have this mix change. In terms of the same-store rent, we do not see any difficulty in terms of transferring this, quite the opposite. In moments of higher IGP-DI, we have been able to transfer this. And right now, we are transferring this with a gradual reduction in discount. It is small, but this is being done gradually and keeping delinquency rather under control. A slight increase in this quarter, this is true. But we have already given the necessary explanation. It was mainly because of the strike and the change in mix. And this higher IGP-DI will make this adjustment.
There is a delay there, but it will increase over time. Will it be able to have a 2.7 real growth? Well, this is a challenge. I cannot answer this either yes or no, because it will depend on the moment of the economy and the political and economic environment that we have in place if we have a higher inflation. But what I can say is that the sales are very positive, and we are going to have real growth. But it is difficult to say or to have a macro analysis of the impact from now on. We are confident in our portfolio and the management of our portfolio, always consistently improving it in order to face any situation whatsoever in terms of occupancy rate and everything.
Thank you very much.
When you talk about change in mix, you have the cases, for instance, of BarraShopping, Belo Horizonte. You have a positive effect, not only because the performance was bad before or the comparison base was low. But certainly, there will be synergy in other shopping centers as well, not only the Shopping Barra for Belo Horizonte or the whole chain. Going back to same-store sales, the change in mix is desirable when the tenant no longer attracts or no longer performs the role that he is supposed to play.
Thank you very much.
The next question comes from Mr. Luis Stacchini from Credit Suisse.
Good morning, everyone, and thank you for the presentation. I have two questions. One has to do with same-store sales. We saw that the most impacted segment seems to be the segment related to a flow of people, restaurants, and services. So same-store sales, if we include these two segments, what would be the situation, and how would it compare with the first quarter of 2018? And what is your expectation regarding recovery? It makes sense to expect a recovery in the segments that suffered a little bit more in this quarter. So could you please tell us how you see the dynamics at the beginning of this month? It would be very interesting if you could do that.
And the second question I would like to ask has to do with the drop in turnover in your portfolio. You had a slightly lower change in tenants or maintenance. Are you expecting a better moment in order to capture more advantageous rental or key money? Do you have a reduction in requests from tenants? Why was it that you had this reduction in turnover?
Luis, good morning, and thank you. All the time, we try to understand, and we explore in order to have a better performance. What we were able to identify was the effect of the World Cup and the holidays in March, and instead of March, and the truckers strike, and comparing this to last year. With no growth this year, we would have doubled our sales growth. With same-store sales that were slightly negative, we would have a positive situation in same-store sales only for the effect of analysis if we have now the effect of the World Cup.
Keeping the same sales of last year with zero growth, which is not the case, because we haven't seen growth. When you look specifically at the World Cup, and the times, and the schedule of the games, this really hindered sales productivity and growth of sales, specifically during the opening game, which was on June 17. There was a huge decrease on the day vis-à-vis last year. Everybody sold less, even food court and gourmet. They thought they would be selling more for delivery, for instance, for home delivery, but this did not happen. We know that in the third quarter, we have a comparison day that was even higher last year. We do have this challenge ahead of us, and together with the uncertainties regarding the elections.
But we trust there will be a gradual recovery, such as we have been saying to you in the last couple of years, and this is what we have been seeing happening. When you talk about the turnover, the turnover is another internal discussion here. It was slightly lower than the last one than the comparison with last year, but much higher when you compare with five, six years ago. five, six years ago, maybe seven years ago, we talked about 2%, 3% turnover, and now we talk about 5%, 6%, very much similar to what we see in other countries and other continents as well. Turnover is low in Brazil, the difficulty of setting up of tenants, et cetera. I go back to another point, the point of opportunity that was already mentioned here.
In fact, the challenge becomes an opportunity. If we had the same stores that we had 20 years ago, what would be the attraction? You have to go ahead. You have to surprise the consumers positively. We are dedicated to that. We have to look ahead and understand and be able to execute. This brings about the opportunity to change our mix. I believe that during this last quarter, there were some distractions, like many people traveling and going out on vacation, plus what has already been mentioned. The response was a little bit lower. We expect to resume this.
Thank you very much.
Marcelo Motta from JP Morgan.
Good morning. I have two questions. Could you please talk about G&A? You mentioned a few things that were not recurrent in the release. Could we expect a level of travel point, something of the revenue? Could you tell us about your outlook for the pace of construction? Is it a little bit early to say anything, but could you tell us about the pipeline of your construction of shopping centers?
Marcelo, good morning. G&A, we must understand that we are investing in innovation, digital innovation. This is a major challenge. This is not a retail company. This is a property company. It is very difficult to create that. This is an area of innovation, which means that we will continue to seek ways to bring facilities and better services to consumers. This expense is a recurrent one, as well as the fiscal council that was created during the extraordinary shareholders meeting. We should expect an impact over the year. With the duration of the council, we will have this impact.
I am not going to talk about any percentages over the net revenue. I am not going to mention any figure, but they are recurrent. We see no problem regarding demand in shopping centers. This is a matter of strategy. It has to do with looking or expecting or waiting for a better moment, because this is the reason why we just wait for a better moment.
Thank you.
Gustavo Cambauva from BTG Pactual. Gustavo?
Good morning, everyone. I have two questions. One, along the same lines of the digital transformation that you mentioned, or digital innovation. I understand a lot of things are still being developed, but also you had the acquisition of Coolab at the beginning of the year. What are you considering as a digital platform, or what kind of initiative is being considered in the company or by the company? Is there any disclosure that you can give us regarding these digital initiatives? That would be very interesting.
My second question has to do with residential. Development was worse in the last few quarters, and there was a good recovery in this quarter. Have you carried out any promotions or stronger marketing, or do you see already an improvement in the segment overall? Thank you.
Gustavo. Good morning. I do not really understand your question about the digital platform.
I am going to reformulate my question. What kind of initiative are you developing? You have a partnership with Coolab, and you have a higher investment in G&A because of that. What could we expect in terms of marketplace, or what kind of initiatives are you considering in the digital area? Something new that you might have in your pipeline.
I would love to say a lot of things, but we cannot say anything because of competition. I have already shared this with you quite a few times. We intend to create a platform, web-based or an app, that might allow us to bring the shopping center to the consumers' homes for 24 hours so that they can do their research and they can buy with home delivery. For those who do not live next door to a shopping center or in the same city, having the convenience of delivery. As I said, this is more in the sense of materializing what we already have. We have already delivered this in helping our consumers with many apps that were created for you to place an order in the food court or pay for parking via the app.
There are many other initiatives that we are working on. I would like to add to something that Eduardo said recently. Many of these initiatives are together with the previous question regarding expenses. They are recurrent because this is the biggest area today. Many of these initiatives also aim at reducing cost, ultimately, be it with higher results. What we have, of course, is an investment that is not an investment as CapEx. It is an investment mainly in relation to the cost of payroll and everything that we must have in order to take this ahead. We trust that we will be able to return this with many initiatives being put in place. Later on, we will be giving you more transparency.
Regarding the sale of real estate, there was really a one-off situation, mainly in Ribeirão Preto. In Ribeirão Preto, and mainly residential, I do not see a recovery. I think the issue of termination created a lot of insecurity, and for the industry, this is not good. It should be more clear. You can only price and launch new units when you have more transparency. This is improving gradually. Then maybe you have some situations, isolated situations in one city or another. But we haven't seen this quite often, or the uncertainty brought about by the contract termination situation. We could do more, but we have a more conservative stand for the short run because of that.
Thank you.
We would like to remind you that in order to ask a question, you should press star nine. Duriel from Morgan Stanley.
I have two questions. The first one, could you update the performance of the tenants for the month? Do you have the supply chain of tenants totally recovered after the strike? My second question is about the same-store rent and same-area rent. We still see a difference between the two metrics. What is causing this difference between same-area rent and same-store rent? Do you believe that there will be a convergence between these figures because the turnover is decreasing significantly? These are my two questions.
Good morning, Duriel. Thank you for the question. So sales in July and supply chain. We believe that the impact of the strike is already passed. In relation to July, this is not an easy month because of the comparison base. The sales in July last year grew 9.3%. So it's not easy vis-a-vis this comparison base, and even more so with the World Cup and how passionate we are for soccer.
Also because of lots of people traveling. The results of July up to the first two weeks were not spectacular, but as expected. In relation to same-store rent and same-area rent. There is a different view in sales when you talk about rent. When you rent new stores, when you have a new contract, you have a contract that will be in force for X many years instead of having the step-up, the concept of step-up. When you have a new store, this is discounted because this is when the person is paying the key money and making investments in inventory, in people.
When you compare the same-store rent with the same-area rent. When you compare the same-store rent and same-area rent, you make a comparison that is not really valid because of the commercial relationship. We usually charge a lower rent at the beginning because of the expenses that the tenant is having. He has zero sales. He will start from scratch, from zero. This is only natural. And two, three years ago, there was a more bearish view because the rent that was in the same area became the same-store rent. And this evidence is what I am explaining to you. You cannot look at the same-area rent the way you look at sales, same-area sales. This is totally different because you have a better operator or not, and you can see the impact right away.
This is different because of the contract, which is different. When you think about the IGP-DI, which was 0.5%, the same-area rent was 1.8% or 1.3% growth, real growth. And 3.2% with 2.7% real on the other side. Same-store rent and same-area rent cannot be compared the same way you compare with sales, because this is not going to bring a clear result to you about how they are performing.
And sometimes you give discounts to tenants because they are making investments. Was there another point?
Oh, you asked about the turnover. I answered this question a while ago. This was not a big drop. I have to look at the history. I have to look how it was and the evolution. I look at the turnover regarding the economic situation at the moment. I have no doubt whatsoever that if we had 3.4% in the country and strong growth in sales, the turnover would be much lower, and our difficulty would be to find areas in order to accommodate or to fit new tenants. Turnover is an opportunity to revitalize shopping centers, and the shopping centers are different among each other, and we see this as an opportunity.
The reduction of turnover was small, mainly when you compare to historical levels, and very much driven by distractions and vacations. The response is slower.
Thank you.
In case you have a question, please press star nine. Now we close the Q&A session, and we would like to give the floor back to Mr. Armando d'Almeida Neto for his closing remarks. Mr. d'Almeida?
I am going to give the microphone to Eduardo.
I would like to give you a bullish view of the operations area. I believe that the worst is over. We have already turned the page on that, and we have been working with aggressive targets and very feasible objectives. This will have an impact on the whole company. The changes and the proximity with the elections bring about a different perspective for the economy. We are very bullish, and we think this is going to happen, and we believe that we will close the year with a better situation than the one that we have today. This year we had to face many challenges. The challenges were extreme, and we were able to grow in rent and results, in revenues, and we were able to grow in spite of the headwind.
This shows our dedication, our focus to bring the company with more efficiency, more results. This is the commitment that we have with our investors. I would like to thank you very much. The call is short, I know, but our investor relations department is available to you at all times if you still have questions or if you have any doubts that have not been clarified during the call. Once again, thank you very much for your attention and for the trust placed on the company. Have a good afternoon.
Multiplan's conference call about the second quarter 2018 results is closed. We thank you very much for participating and wish you all a very good day.