Q3 2019 Earnings Call
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Good morning, everyone and thank you for waiting welcome to go out to me includes a two shopping centers third quarter 29000 results conference call with US here today, we have missed a condensate is saatchi C O and Ms., Christina Bates CFO and Investor Relations Officer.
We would like gene for.
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Got you got to me Dotcom Duck, the art slashed art.
We had the slide presentation is also available for download participants may view the slides in any order they wish before proceeding let me mention that forward looking statements are based on the beliefs and assumptions have you got to me My management.
And on information currently available to the company they involve risks uncertainties assumptions because they relate to future thing and before depend on circumstances that may or may not occur.
Investors and analysts should understand that general economic conditions industry conditions and other operating factors could also affect future results.
And could cause these results to differ materially from those expressed in such forward looking statements.
We will now give the floors to mr. catalysts years, it's actually who will begin today's presentation. Please mr. cartons per seat.
Good morning, everyone I, just Uh huh.
Once again.
Oh.
Good fun.
Okay.
As I mentioned earlier I think the a these parents to present.
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Oh, unlike last quarter.
Okay.
Level last year remember last year.
Then.
Strikes in Brazil.
Third quarter last year.
Right.
I think even if they come is getting better.
Yeah.
On slide you got to me.
Oh, Yes, we were able to go down indicators, reflecting.
Yeah.
Our team remodeling, especially the techniques I think there's a lot of work in that area.
A lot of football important brands coming.
Oh.
And your future.
And then we couldn't function.
Improving expense.
Right.
Well.
If I am optimistic, especially about the success of our.
Business.
Summation of anybody any trouble I mentioned comedy channel player.
Just a lounge.
Last week.
Finally to present, the major staff <unk> company.
I came to both the physical and digital and being able to offer our.
Roll off the bat.
Retail brands, not only with them on that but also into other markets in the near future.
We have a strong Brent credibility.
That's a little bit continues to be besides.
Correct.
Yes.
Good pharma I mentioned that we have around 19.
And brands right now, but if we have what or negotiate because a lot of new brands that we'll be able.
Each of Oh slot in very early.
Okay.
Yes.
And I think it I would be in a major differentiation in winning.
Over new customers from malls and other markets.
Oh, saying lined with the change I think the remote say focusing our efforts.
Right and I said I'm on a synergistic with our business. Therefore, we so and as I mentioned.
Mistakes anybody can you guys should the sue.
ER and ER, which account for the overall performance for the club the only one month July and August anybody can you put in office continues to.
Thanks.
We think our portfolio.
He was going to have good Oh, a lot of a new transactions.
Future Bye.
Having more opportunities to buy.
That assets or better position our own existing property data, we think it's more.
Well to our strategy for the near future.
Also I was touching developing surrounding areas of on most.
Came back more strongly we send a fractional sale of land for the construction of both residential Oh is anybodys are not anybody so it turns out.
Then a lot of that in a recent past.
Then we stop later with them into recession, and I think it's coming back.
Strong area that would help.
See around the malls and and help the.
The neighborhood to relieve infant intra side and then strain follower over.
Zones and that means lines around them.
It also helps to monetize our construction potential boosted caught it did quantify flow between our malls and thing and as I mentioned in the near future.
We also believed that the ER we are very.
Well position to face challenges in the coming months.
As I mentioned I think we've reinvested.
Strongly in the innovations physically and online.
We mentioned it let's call that we did this strategy Wi Fi food to enforce you know.
A lot of connection of foodservice is being.
Do back to almost for the Oxford platform Regis Lounge and.
A new content for mostly back in the one which is a loyalty program that would be available on our malls and and we see button, it's funded loans last.
I think we when we have design.
Our goals of being.
Strain on the G., so area and that concludes our physical properties and I'm very excited about.
The results in the near future.
Judging combining both falls and serving our customers no matter, where they are when they are.
Thinking of.
Human dumping do you think of it but to me and I think that would be fares.
Welcome to us in the near future.
Now taking talking about the highlight.
Third quarter 2019, we have the total sales reached 3.3 billion.
2.4% above last year.
Accumulated 10 billion in in 2019 same era sales.
Grew 4.2% and same store sales were up 3.1%.
Same area rent and same store rent came a little bit.
Hi Inn in terms of results increasing 6.2.
Same area rent and same store rent increased 8.8%.
We had that net revenues, reaching 182.
And 4% in the third quarter, 2.7% EBITDA.
Reaching 168.5 million.
Almost 20% above last year Weve EBITDA margin.
Strong position reached.
92.4% when you exclude the sales assets of EBITDA EBITDA would be a 155 million also represent a very strong marginally 5%.
Net income.
Reaching 886.9 million.
32% above last year, and 418.9 and train to 7.7% of last year.
Strong.
I would continue to leverage the company. So the club we had then.
And reduction of 1.2% below.
Point to below last year, two times 2.5 times.
EBITDA, which is a strong reduction compared to last year with zero point 42.
There is some pretty staking shopping center.
So the stake of but any Kashi as I mentioned and we also distraction of sales of the land first as residential solace that I mentioned, okay. So cava attorneys Bonanza anyway.
So that you put into.
And we are as I mentioned earlier in my introduction, we launched their legacy program, but any one now is would be available throughout our properties.
You know the 70% from Brazil.
Strong for us because it connects and gives our tenants too.
Shop around the properties and have benefits is no matter, where they leave and come to some phone for example.
Able to reach.
Benefits that were not available in the past.
We also subsequent events we had the sale.
So I was taking about to be for an operator.
We also had a very successful said addition of about any talks fashion our conference of fashion in Brazil being the best.
You know speakers from international such as.
If I wanted to know line.
Vast Brazilian.
The speakers as well.
Series of three days a series of.
Lectures and workshops, it's been very strong.
Content for our models also.
When we.
I mentioned them or.
Within online.
Sean.
President with you would think of it continues to do that for many years and amount show.
Five.
Our e-commerce .
There was a very interesting I'm going to talk a little bit of their further with some details of the indicators that we have already.
And we were going to it.
Negotiate.
Some credit line and real estate credit line that we mentioned.
Her presentation with more detail.
On page five we had the sales of the to negotiate it for the anomalies that I mentioned, which is very relevant to us.
We are getting out some of the folks that we can we not drew our participation in focusing on buying more of the provinces that we're seeing very strategic to us and I think that we will see that in the near future.
And that above those two assets is important to our brands. It's a very important thing for the company. So they are.
Dropping to use the Vetri brand in 18 months from when the transaction.
So impacts page six you have.
The location of the both towers that we develop.
The blue.
Hello is the one that shows the wonder what's being done now the other ones would be foot in the future.
The retention.
But I mean, you're putting it on page seven of the Blue Buffalo shows the location of the tower I think is our new neighborhoods have informed there's a lot of construction and new residential towers being done around the mall I think that help us lot in the near future both Sorocaba and you put.
Two.
The neighborhood.
Get more events.
Going.
Page eight we had about three to six to five.
As I mentioned you have you can have on look.
On and then if you haven't been able to.
To enter the.
Our platform I recommend you do so I think it's very consistent we have 90 brands already on on.
For the platform, we have few more coming into next few days and I think will be ending the year with more than 100 brands and that's a lot of excitement in our markets evolve. This platform I think that we will be reaching.
We plan to reach the food, Brazil next year.
We are now only serving the state or some follow but weve contain next year to grow to other markets and table.
To have our customers being reached Oliver Brazil, we already have people because we can be able to see throughout the mechanism is see the amount of people that are nominal from other state.
Andrew the platform, serving the platform and I think that will be very interesting the moment VP and the other states to be able to serve them and enrich and really had declines.
We are the investments.
And to lounge.
Around 15 million nice.
Over two years that we dedicated to put this platform.
Two.
Talking about a little bit of other projects in progress.
Moving to page.
And.
The gallery at target its dollars annually.
Just starting construction.
We'll be.
Scheduled to open. Another 21 is has a total agility of 14500 meters square meters.
725 million of Capex and it will be will.
Keep 55% of based hour and I think that will be of.
Again, it's very important reinforcements of.
Selling general and also transforming one of the last couple of similar mainly mode now into a mixed use project and we have other opportunities to launch other Tom in the future in the same property and we're very excited every year. We started right now and I think that will help a lot.
The mall and the.
India as as well so now.
Going to the results.
The first at the scene associated explain in more detail. Thank you.
Good morning, everyone and thank you for be either call. This morning.
Going straight into page 12, the main performance indicators.
Carlos has mentioned so.
We we have the sales cashiers and then as a subsequent event after the third quarter. The sale of not please so we have a decrease in October gently.
To 809000 square meters and decrease will be soon afterwards, and the number of wells, we talked about total sales at 3.3 billion for the quarter and same store sales clean at 3.1 seem area sales communion footprint to for the nine month nine month period, we have the same numbers that footprint Forum.
5.2.
Great different from the nine month period 18.
And in terms of rent same store rent at 8.8 Vincent area rent.
6.2, very similar to the nine month period, the also well above what we sign 18.
Occupancy cost comes in to 11.9 to slightly below about precedent flat from last year.
At this rate a little bit lower considering all the different the changes.
Turn over that we're having for the mix and.
Qualifying the mix and certain of our in a few or no.
And not delinquency rate coming in regular at 7.4% hearing healthy number.
Page 13, RPM now we closed the quarter at gross revenues 209 million has an increase of 3.6.
Revenues as Kelly mentioned 182 million an increase of 2.7 for the nine month period 543 million for net revenues an increase of 4.2 part of the story here.
Thank you.
For them for them nine month period.
Rapid deceleration of discounts for the first semester, but not so much since the third quarter.
Especially given that the economy was exactly as we had imagined truly first began the year.
And.
Also the delay in turnover of the mix has kept us from some decreasing further aren't discounts, but I think thats going to pickup.
In the months to kind of when we when we pick up again on the.
Thank you can see as Arnold.
Came in at 53 million HDI.
Costs and expenses, an increase of 54, 15%, sorry, which is basically the difference and vacancies that we pay for the condominium cost the came cost.
If they can areas and that's what makes the cost cost line increase and for the nine month period 156 million highs and increases 11. Similarly, the same camp cost that we pay for today Canary other operational revenue came in at 300% increase for the quarter, which is exactly the sale on Kashi is and also.
The new towers, the residential task that counts as mentioned.
And for the nine month period 48 million has an increasing 166%.
EBIT that came in 180 968 million highs and increasing 19.4%.
Thats period 435, an increase of nine.
It's important to point out both.
The decrease in the.
Financial.
Expenses, so financial expenses honest does it probably in the lines here, but financial expenses came in.
27.
Okay.
First marriage creeping.
Thank you now correct K, but I'll tell you that number anyway. So net financial expenses came in at 27 million high which is a decrease of about 14%.
And.
Again, I think that decrease and the.
And finally cure rates.
So that we've been de leveraging the company and.
And also decreasing the spread on a different tasks instrument that we half of which will go into little bit further so.
Net profit came in at 86 million highs.
Which is an increase of 32% comes as mentioned for the nine month period to engine to midnight, which is an increase of almost 10% and AFFO. Similarly came in at 118.8.
Hi, guys, which is an increase of almost 28% and for the nine month period 297 million has an increase of 11.7%.
So just talking briefly about gross revenue than the rent revenues and how they break down on page 14. So we saw an increase for the nine month period at 4.2% of gross revenues.
Coming from the rent expense the rent.
Revenues management fees.
3% coming from parking and a decrease in others, where we look at the breakdown of the rent. After news I mean, we're seeing minimum rent going coming along basically and and little bit around inflation and overage coming in so the portion that exceeds going in rent coming in at healthy 28%.
And.
Temporary rentals at 18.
Similar behavior, we look at the quarter.
We see revenues coming in at 6.4 and management fee screen at 2.1.
Slight decrease in the parking and others. When we look at the breakdown of the rent increases minimum rent and about 3% overage coming and quantify and temporary rent coming in 32% over last year related.
Well, we look at page 15 on cost and expenses.
For the nine month period, we see the cost coming in at 15% over.
Last year and expenses coming in at 4.2.
Quarter.
It's 19% of cost and 7.8% of expenses total increase about 15.4, and we look at the breakdown of the expenses actually we see a decrease in the admin expenses in the nine month period at 1.4.
The biggest differences on share based compensation, we now have they share based compensation, which has grant every year as opposed to one every five years. So every new grant we will see an increase in this number until we stabilize and because we invest in three years, we'll see that stabilizing company.
The year after that.
And for the three court for the.
Third quarter routine. Similarly, admin expenses came in at 7.1 share based compensation again, because it's a new grant, 25% and then pre operation expenses.
Decreasing 85%.
But first of all number.
On page 16, we'll see the debt profile causes already mentioned, we had we closed.
September .
Point 4 billion United net debt.
Which means basically that we ended the quarter at 2.35 times net debt to EBITDA, which is a great decrease for us.
Back to last quarter, but also compression last year.
And cost of debt coming in that 113% CDAI, an average debt term of 4.4.
And I.
I think I dunno very.
Spread out.
Mission table, which.
We will have to rethink and we plan our debt structure as we go along.
On page 17, we look at that profile basically all linked to the CDIY, which is great for us which means that as the syndicate decreases we capture that cash flows.
Very small portion of PR.
Which actually is can relate to what we're going to talk about next.
And then original question of others, which is linked to the consumer index, but it's actually swapped back into CDIY. So basically also.
Well look on page 18, as an example of what we do when we think about.
Data on how we look for opportunities to continue to decrease.
Our cost of debt.
And clearly we live in a volatile country. So.
Many years ago, when we did a lot of cash will be added which is the securitization of.
Receivables on top of.
The real estate, we had a data of TR plus 95.
I wish sounds great. When you have a facility, which is over 10%, but not anymore.
We have the option to prepaid down stat, and instead, we renegotiated to at different times two different rates. So basically it was going to happen on this.
Particular loan is that we have.
On.
Our.
Rates are going to be always about 100 basis points over the selig capped at 8.6.
So already we see if we take the lifetime value of this debt again on.
Value.
About 30 million high which will be capturing over the spread of lifetime of staff.
And to end, we have on page 20, our guidance.
We ended the nine month period net revenue growth about 4.2 for slightly below our guidance, but we are confident that we will meet our guidance grant on the lower back, but we will be within our guidance towards year end.
Which is 5% to 10% EBIT margins coming in at almost 78%. So on the higher end of our band and Capex coming in at 88 million has which is well below.
Got it.
And I, we will probably end capex below our guidance given that we've put phone a lot of opening new stores into the next month and then also.
Spilling over into next year.
So with that we and our presentation and we are.
A couple for any questions you may have thank you.
Yes.
Thank you Sir the floor is now open for questions. If you had a question. Please press star one on your touch from at this at this anytime.
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Okay.
First question comes from Andre from Citibank.
Hi, Good morning, Carlin, Chris Thanks for the call. So my first question is an occupancy right. So the vacancy is a little bit up over 7% currently that sell it would be higher than peers. So what can be entering the company. There. How it has always been very mindful of the tenant.
Tenancy gets into the most.
Once you have the best then makes a force, but only adrienne.
There's a trade off of having a lead albeit of a higher vacancy level de beers. So how are you guys thinking of you straight off right now if it would make sense to.
To increase occupancy.
Maybe we have I do want to see separate tenants, but we've spent and.
That later down the road you guys can can you get out Scott yet Viet churn right.
And that in more specifically if it's the occupancy level is already increased in the fourth Q. Okay. So the trade off between having to add the optimal techniques and increasing the occupancy level at a faster pace. The second question is about what they need.
65 are forced to you guys do you guys had it been cleared that you started out as a marketplace. But my question is if you would make sense eventually to have some some one p. write some actually carry some inventory.
I don't think it's the idea right now but.
The trade off of having some inventories that you can get it may be an even better client experience you have you diminished.
Chances on having Stockouts and when you you actually look at the mall portfolio do you guys have the retail operation right, which we could think as kind of one piece of course is very small so how would you guys think about that and actually looking at some peers like farfetched for instance, the always done to marketplace operation and most recently.
I'm correct. The also started one fee.
I don't the exact reasons for doing that but if thats.
Something that would make sense eventually thank you very much.
Thank you Andrea.
So first question I think that economies has psychosis and I think we we are in the cycle that a lot of our properties have LPG too.
Read to redo our.
Our anchoring.
And I think we need of that as I mentioned earlier.
I think a gap because we thought we will be faster pace to introduction the introduction of new any partner tenancy in some of our properties I think we I.
I think we we need to later, one or two quarters, but I think now we have in the end of the lot of.
Openings and important openings to although malls in brasilia marketplace, if they don't create.
And then sort of comment and others.
And I think this part of the game.
We're very innovative as you mentioned that we don't want to be equal to other peers and do the mom and pop stores that everybody is doing and we are always.
Ahead of the game trying to create opportunities for our most of the different and to attract and new set of customers. I think we are doing that in the meat of that so I think that that will.
We are acting with the global economy that will help us to be faster on on reducing reduction on vacation.
Thank you said.
And in the near future.
Got it is 65.
Yes, I think we again have.
In the marketplace, it's basically a marketplace, but we've been we've had a company to be effective into create depreciations and we will use our off.
Opportunities if we if we have in our hands.
You can be one of them to really be again different from the market to create.
Verisk experience into spring products that are not available in our markets to our customers.
We've been doing that in the physical space for many many years I mean weve.
Brought many many brands that were not present in Brazil.
Along many years and I think.
You got to me three sides creates a new options for us too in a different way in a more easy way.
We don't have to have the physical investment, but we'll be able to two on to enhance the.
A variety of projects in our marketplace and that could be a possibility. We're we have sold any idea.
Into this platform for the near future and so that's why I mentioned that we're very excited with the.
Combination with the physical world that we have especially because we are in the main markets. So our customers realize any no a lot of important brands.
And the 265 allow us to go and distribute data throughout Brazil in a much faster way in English.
Ill.
We are much stronger presence that we never had so have a every opportunity will be analyzed by us just.
Complement to come the answer.
Our idea is not to carry inventory, okay. We don't want to carry inventory from the other brands, what we have seen actually especially from the international brands is that because of the economy through six five.
They are thinking about having a separate inventory for just for us on the three to five platform the inventory will belong to the different brands okay.
And we'll be separate because it will be it will be disconnected from the store, but in terms of how much the different brands are going to be importing into the country and so on.
Then thinking about increasing their aim for it.
They can then be able to serve to six five appropriately. Okay. So that's actually good news.
Thank you.
Great perfect just a quick follow up on on the vacancy questions. If we consider the temporary leaves that some peers actually use that you increased your occupancy levels, let's say I stored that has three year lease rate, which is different from from the norm. If the five year lease that would be.
Something like.
And 150 days higher occupancy is that do that estimate correct.
Thank you.
Hi on that so basically what happens is that we don't when we announce our occupancy we don't include temporary rent okay. So.
So that.
The experience to them.
End user to the consumer is that you'll see a mall that.
Or occupying than what we are reporting or case, so normally occupancy we take only what is what we call permanently switches for a five year nieces okay.
But the experience is very different.
Great, but the difference in terms of dips in the occupancy level of debt will be a 100 bids for 150 Bips is that is that a fair estimate.
I'll leave that for you to estimate and there.
You can see that is quite big instead, we have lots of different lines for temporary would have breakdown temporary rent okay.
So I'll leave that to you.
Sure Fair enough. Thank you good morning, guys.
Thanks.
Ladies and gentlemen, the floor is now open for questions. If he has a question Keith Christmas on nine touch phone.
Thank you, ladies and gentlemen, there no further questions at this time Mr. Catalyst change. Thank you. Please proceed with your closing remarks.
So I just want to thank you once again for participating on conference call and again, if you have any further questions. Please let our investor relations team to now be glad to answer. Thank you very much have everything.
This concludes equal at Tunis Conference call you may disconnect. Your lines at this time. Thank you once again.
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