Q3 2020 Iguatemi Empresa de Shopping Centers SA Earnings Call
The station and despite all the challenges that it could be 19 of the crisis has been causing.
Not only Brazil, but all over the world.
We were very.
Okay nice to tool to implement all the protocols.
And the addition of the quality of our portfolio was we'll fund amounted to help us in this process.
Given a lot of secured three to the to our public and I think where we hope to soon we operate again, we for all of our assets at the 92.
2019 levels.
Especially when you're thinking about adding some pollen JK are aware ready at this level.
I remember that and most of the international brands mentioned to me that Brazilians are.
In Brazil, there were no tourists tourist it's mainly local customers and this is very beneficial to us at this moment because all Brazilians are in Brazil, and the as you everybody knows there.
A lot of important consumers all over the world and now they are shopping with us. So I think that would play a very important role in our recovery, especially in the high end malls and but we've seen a recovery in all the segments.
[music].
It's important to highlight it today out all of our enterprise as I walk in Wifi.
With the extension in schedules 11 of our malls operating 12 hours wanting.
Wanting 11 hours in two in 10 hours and another two in eight hours.
That originally change do more than south, which also change to operate in 10 hours, but it was in November.
We know that we saw our television capacity evolving from 33% to 69% in September.
The effect of these marked improvement was also reflecting the advents of our sales which has been growing.
Reaching 773 million.
In September two and Twentytwenty down only by 23%.
So when you look at September, but very different from move from would you June where we had almost 70% drop of sales now we have 223%.
Only and going up and as you will see that this October we have already one third of our portfolio.
Yeah.
Last year, one third of our portfolio around 90% of what it was last year and only one third a little bit down in that are between 80%. So I think we are moving fast into the normal again, especially as I highlighted we have a lot of the things are good.
Expectations due to the international brands in some of our malls and other even the fashion brands offer.
Operating better.
Data and reaching positive.
Positive level.
We continue to adopt the stance that is divergence fared inflows to our stakeholders, especially the store keepers treaties.
Discounts on retail rental charges and cost savings on condominium lines and promotion funds.
Although we started the process of fuqua election, evaluating each case, you got to meet together with the mall industry do not.
Did what no one else has done in other parts of the World I mean, we've extended the.
The.
The charge of brands in some period and we are rebalancing these balance in putting billions in the hands of the does enter printers, helping them to maintain their operation teams in most difficult moment is decreased so we give that in the beginning a lot of help for our clients.
During the <unk> session at the beginning of the pandemic you've got roughly 65 vessels has its performance leverage in the in this period.
As I mentioned last call I'm, just excited has been a very good.
Good surprise for us.
Because we started.
Because we believe as a company that we want to be an off and online company service our customers not only in our own.
Oh.
Our malls, but also online where were not present and as as a as a as a mall and I think this is.
Going quite well, even when our malls are open right now, we still have growth and interest 65, especially going to other states.
We expanded to 10, new capitals in in this quarter, reaching several other series ended in this year of course in the cost of these regions as well to increase the word cymetrix treats expires experience to places where we're not.
Two presented such as capsules like Salvador Fortaleza his seat equity Chiba and many others we.
We also.
We already have more than 350 brands is exceptional.
How many brains one to be interest 65, 350 brands are more than a typical mall have in Brazil.
And we have more than 15000 products available on this platform enrollment.
We also integrate and excludes space have gotten into six five increase in about an area, which has a very high end condominium during.
This period, and it's going quite well.
Showing that the our ability to follow our customers doing during.
Weekend, which are so it's also a challenge for us in them in the past and now we are able to do that and B.
With our customers in many different occasions off there.
Their lives and their times.
For leisure or.
On a different places there where they go I.
I think the guys is also has brought us an opportunity to win new customers strengthening these arm of business and we expect to be all over Brazil next year. The third quarter was also marked by the return of some events but.
But a new formats we.
We held of which also became a very famous.
A conference that we do in Brazil. The fourth edition have gotten me talk fashion, which is I think now Brazil, most famous fashion luxury company conference.
At this time was 100% digital there were three days of Unprecedent content, we were able to bring peace.
People like Greenest, Tatro Graydon Carter, Jim Buss, it Jim, but it's a valley along with many famous Brazilians.
Fashion upgrades of industries of brands in Brazil, and it was very important to get together. These important names of national International fashion.
Business and more than 300 entry.
Thousand people attend this.
This conference.
On line, we were able to reach to the whole country and we have deeper from any regions of Brazil. We were we're also very happy with the results of that event in gaining strength every year and bringing more in very relevant discussions about the industry and the consumer trends and behavior that directly impact our business is also an opportune.
We need to think about our models.
Other models of experience to attract the public such as holding.
Div in special events, we did boulevard food experience, which were some cabins that we put out in our parking lots and people had food experience has been extremely successful we had the come back subsidies driving gains which were very important and some other.
Events that were also highly appreciated by our customers. We hope we will continue to plan every step of the company through.
So really folks.
Folks are now operating with all the safety that is new moment recall requires.
And also taking care of the people and attentive to digital innovations, which on it were very.
Happy to see the combination of our portfolio with trees, what metrics five and I think that.
Creates a huge avenue of opportunities through our company in the future and to work with this omni channel consumption experience.
And now talking about the highlights of the quarter print.
In slide three we have the operation state the state to show that we are now all the.
Our R&D yellows.
Lines, we can see that all of our malls are open D.
The numbers show the hours. They open daily we have a lot of malls in our brain was two hours some of them 10 hours and the ones were eight hours just change was the ones in the south.
Let me pause on I can try to balance to 10 hours. When you move to slide four we show the operation and the capacity of idea of it utilization and sales you can see that we are going on as I mentioned moving up in.
All these dimensions capacity of to utilization, reaching 69% and sales, 77% showing that we have very.
We've been productive even.
Even if we have.
Lightly less capacity, we were sales are improving better okay.
Sober show that this continues a continuous trend and it's getting even better and that it's a it's a good sign that we are going back to normality and even grow in.
Some parts of our portfolio and I believe others, we reached that soon.
Any operation starts on page five we show that it's not only the stores are open, but we have restaurants beauty salons Keats operations jeans cinemas interiors back of course with some restrictions, but they all back end experience is back I think thats vital and very important to reach the numbers we are talking about.
We have the right in the highlights we have the total sales, reaching 1.8 billion and pipes page seven.
45% drop.
Versus last years.
We have some same store sales 30.7, 0.5% down same era sales 42.9 so.
Same store revenue.
We're better dropping on 28.5 in some area range to 32.8% in the quarter.
Net revenue reached 182.1 million only 1.1 below last year EBITDA was.
Reaching 134 million.
20% drop versus last year with EBITDA margins too in a good position around 73.6% net income was $161.6 million a.
A drop of 29.2% last year.
Full reaching 98.1 below 17%.
Andy leverage ended the quarter at 3.1.
Times.
Adapter over EBITDA.
Which raised above last year zero point.
45.
Moving to the expansion of the equity matrix is five what I mentioned in my introduction, we opened five new capitals, we opened florianopolis of adorable zones for solid in a SIFI. So we were able to reach the northeast of Brazil, which is a place were not present in I think was to have same recurrence.
Sales on that which is I think we'll grow a lot in the play in and we hope to find to reach the north of Brazil, and some other capitals quite soon.
And next year.
So we're now presenting 11 capitals in 28 cities.
Annual survey of Great place to work showed that 90% of favorability.
Classifying you got to me as a great place to work those very important. So I think we were able to manage during this crisis farewell and unify our people and work together to go across this crisis and I think the company did quite well and and this number show how engage in.
The United we were.
To to fight this difficult period.
We had a subsequent events extension of the opening hours as I mentioned, we came from eight hours to 12 hours in most of our malls from eight out of 10 hours you put it in working with some customers and.
And recently in portfolio Agri from eight to 10 hours.
We have the issuance of 500 500 million in the venture is the first series with a 100 million with 2.5 FDA.
Five years terms in amortization of maturity second one was 400 million CDAI plus 2.57 year in terms of.
From an amortization two equal installments, starting in 2016 16, showing that we are well also pay attention to our.
And to adapt and how we can really work goes smoothly through this time.
Drive through systems being phased out that's due to the.
The return of sales I know as the most operating 12 hours 10 hours people are going to them all of our experienced back in and you see the sales that I mentioned, so dr. sutent.
[music].
It's not relevant anymore, why shop assistant and became a very important service to high end customers, which are attached to our loyalty program one button. The one its going quite well and we are strengthening.
Strengthening these operation and as I mentioned for the for physicians about any talks fashion, which became a very relevant conference of luxury in Brazil.
And in.
Talking about projects in progress the project that we have is the E. Obviously tower in you got any in a shopping gallery and compete for us.
As I mentioned, we have the strategy of turning on properties mixed use.
Projects. This is one of the few they didn't have that so we're we're adding and it's going quite well it's supposed to be the best office tower in components and it's scheduled to be ready by the end of the next year.
Now I'll give the floor to cut Sheena, so she will detail a little bit more of the operating and financial results of third quarter for instance, when thank you very much.
Hi, good morning to everyone and thank you for being with US in our in our conference call going straight to page 12, and talking about the main operational indicators as Carlos has mentioned our total sales were 1.8 billion highest which is a drop of 45 in the quarter.
And same store sales in the same area sales 37, and 42% decline.
Respectively and in terms of rents same store rents at 28% area rents at 32 cents decline and when we look at the nine month period to enable closer the numbers. So same store sales at 37% and seen ourselves at 45% drop and then same store rents syncing area rents have 45 and for is to.
7% decline respectively.
Occupancy costs came.
Came up to 14.4%.
As you can see our rents are are recuperating faster than than sales for this quarter and next is what has impacted our occupancy cost so going from an average of about 12 to 14, and we've had an occupancy rates decline.
When we look at third quarter over third quarter of 0.9 percentage points 90 Bips.
Which is I guess expected for for.
What we have in terms of our scenario and our net delinquency rate at 13% so higher than we normally post but.
But given that we were probably the most aggressive company in charging rent as of the beginning of the third quarter. This is.
Totally understandable and again add to the delinquency rate that we plan to recuperate as sales continue to improve in our malls.
Well look at the MPN Allen page 13, we see gross revenue is $179 million in either.
A decline of 14% and that net revenues at 182, which is flat year on year basically due to our.
What we are doing now in terms of linearization of discounts.
Given outs during the current period.
Which is still a positive number and this quarter at 65 million highs.
Cost and expenses together was a decline of 2% and we'll see the breakdown of that going forward.
Other operational revenue that 4 million high.
Here and when we compare to 19 member that 19, we had the revenue from one of the towers that we negotiated in that period, so not comparable.
And we have the better closing 134 million high decline.
Decline of 20%. Furthermore, I still healthy margin of 74%.
I think going further down what is worth mentioning still is the net.
Financial expenses at 20 million the eyes.
A substantial drop of 23%.
The net profit coming in at 61 million, the EIS, which is a decline of 29% and FFO coming in 98 million units as defined in 17.
When we look at the next page is this a reconciliation of what we used to report without the linearization of the EM.
Discounts.
We'll continue to do this and hopefully at some stage will be able to.
Go back to not linear I discount the tool.
And so we work all show always the effects of watch.
What's our plan now would be without telling you transition.
When we go into page 15.
We can see we see rentals, a declining at 3.8, and we'll see the breakdown of that going forward management fees, which are based on <unk> as a percentage based on the amount of rents collected and the amount of condominium charge to the tenants because of the decline in both numbers, we see a decline in management fees as well as 30% parking.
Think I decline of 65%.
I was remembering that much of our valet services were closed during the third quarter and relations substantial part of the revenue.
And other is increasing 35%, which is basically the results of our retail operations. Both in number of stores that we have increased over the period and also the E Commerce platform, which has it gotten interest expire which had only inaugurated in October of last year.
When we look at the breakdown of the rent revenues on the next page, we see minimum rent growing at 4.5, which is basically the inflation pass through of the period and we see the overage portion, which is what exceeds the minimum rent obviously declining at 18%.
And what really got hit was temporary rents, which is basically marketing and media spaces that we sell in our properties.
And obviously with the properties not being fully open and also from the companies that normally use the space as having cut their marketing sand, we see a substantial decline.
In the end this number.
Next page at the breakdown of costs and so everything that is related to the mall operation has declined person now third party that promotional fund and parking within a tight and all the numbers. The increase in other is basically do as I said to the retail operations of 365 and the new store.
I was asking.
The retail business, our business unit for stores.
When we look at expenses.
On the next page, we see a decline in personnel and third party as you know we did we had a reduction of of.
The head count.
In July and this reflects basically reflects the reduction of personnel and third party.
The share based compensation as just the amortization of our grants of last year and as it continues to amortize over the five months five sorry year period of of the program.
On page 19, we see the debt profile, we see total debt further for September closing at $2.8 billion behind and cash and cash equivalents at 1.2 billion highs, which leaves us with net debt.
Debt of 1.7, 12 month Rolling EBITDA had a decline here to 552 million highest which gives us the three point 11 times net debt to EBITDA number still comfortably below our covenants.
And a total cost of debt, which will show better on the next page at 164%. The average term is 3.5 and this does not include the 500 million highs in debentures that were issued.
In October so with the 500 million, we'll see.
Amortizations and 25, 26, and 27 on the amortization timetable below which will also give us plenty of space and to deal with the Amortizations of next year 2021.
And finally on the last page, we see the debt profile is as usual, we've seen 81% of our debt linked to the CDAI that follow on the bottom line graph, we see the selic yet to and our total cost of debt at 3.1.
The difference here is basically due to the TR debt, which is almost a 100% fixed and that produces that little spread over other selling key but still very very low for Brazilian hits.
History.
And with that we finish our we conclude our presentation and we are open to any questions. You may have thank you.
Thank you the floor is now open for questions if.
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Our first question is from Nicole E. Luis <unk> from Bank of America. Please Nicole you May proceed.
Great. Good morning. Thank you so much for the call I have two questions I think it's it's clear we're seeing now.
Big improvement in sales I wanted to ask you a little bit on traffic you know the parking revenue was considerably lower in the third quarter and you said part of it you have the the valet parking wasn't wasn't working but what you're seeing in October and now that you know in these first few days November are you seeing.
That that gap between traffic recovery traffic and sales are starting to close it and how do you see it.
When we speak about the end of the year when normally a the shopping malls have you know a lot of promotions and events that that bring traffic to the malls.
Are you going to be holding any those.
Those events are those promotion. So so how do you see traffic performing through to year end and then my second question is on vacancies can you talk a little bit about the uptick in the vacancy rate in this quarter was this focus on acre satellite stores on specific mark just to kind of understand a little bit.
Where we're seeing that the store closures. Thank you so much.
Hi, Nicole so on on traffic I think you know this.
This quarter was a quarter, where we began very low of course, because we were leaving that total shut down into the beginning of the period and then incurred as you see on sales and the ramp the it was a massive ramp up throughout the quarter. So the numbers are all over the place now as it's really complicated to understand because also you have different operating hours for differ.
More than you had a law that were open shut down reopen so it through and and of course a parking. This is really really important now.
But.
Now the everybody's open and I think looking forward, what we see especially in October is that we have more to already positive a lot of malls during posting positive numbers on traffic compared.
Compared to 19 on weekends, Somalia overall as I said you know on the on the Valley. We have of course, we are leaving the total shutdown you can't even imagine handing your car over to a third person asked so all the valleys valet parking is were closed until September and even though and we didn't open all of them together. So we're still.
In the process of reopening. So I think parking has has has has an important uptake and towards the end of the quarter and which is really important for us I guess for the fourth quarter, but on your on your on your point about end of year and promotions and so on.
We still have restrictions so.
What you typically see in our mall is not where you're going to see this year, because we can't have leased half flash mobs, which literally had math.
Masses and methods of crowds around the central part of what the Mi Sunpower for example, or when you have a father Christmas arriving for one of them all of them you have hundreds and thousands of people together. So we just can't do that in.
In this current scenario. So so I think all those events that we typically see we will be seeing in.
At during the holiday season. This year, however on the flip side, we've been seeing productivity of sales really increase because you know we were saying in our Portuguese call earlier, we have.
Brazilians one our customers are typically Brazilians. So we don't have like you have for example in the Middle East where 60% of your customers are far in on their their on tourism, while our customers live here and nobody's traveling so we've seen a behavior of of all this consumption being at home and we think.
As a positive effect for us. So we have things that are compensating I would say okay for for maybe what we would typically have in terms of promotions because everybody's here. Okay. So it's early to say.
But its 77 promotion, we do have what we work on different phases, we will work with the apps and things. So we don't have the line plus we do have.
The intent.
Incentivating Nikos summer to the shop and them all but we won't have we will have a different system, but of course, we don't a lot over the year.
The.
The person all the decorations Christmas decoration duration will be different in our wagler Nancy.
You know for the cloud is a different thing we will have to work with it so but we will have.
Promotion, we will have incentives, but very carefully designed.
To keep people apart from each other.
And then on your second question relating to vacancies and one of the things that we were we were noticing is that.
Weve see I think most of the industry if not all of them have seen a drop in occupancy rates. Okay. So I think this is expected.
We have.
Clearly, it's been a difficult period to manage cash and those tenants who came into the pandemic not totally equated on their cash flows have had difficulties in our leaving so it's not just our portfolio you'll see this across the board in the industry. What we do have is that we've been saying this loss.
Here that we had a lot of things coming in this year.
Of course, nothing came in as scheduled so we have a lot of new stores like supermarkets or.
Restaurants, and big stories, like how longer hours and we even have some international stores are coming back.
I've been years as we've said, we had new international brands coming into the country. We have some for next year is scheduled for next year. So we have a lot of new things coming in.
As I.
Lets say third quarter fourth quarter and 2021. So I think this is a temporary sort of moment in our in our occupation rent and.
Clearly as sales to recuperate and everything has been very positive so far in October has been great.
I think we'll see this number improve.
Thank you that was very.
Thank you.
Our next question is from Mr. Nikolai Lippmann from Morgan Stanley. Please Sir you May proceed.
Thank you. Thank you very much and thanks question on Carlos calling for for taking my question.
I was wondering if you can go into some of the details there is obviously an unusual situation.
With high receivables.
When would you when would you make a decision about what.
The bubbles to to talk to sort of write down what should we think about that as a as fourth quarter.
Event or would it be over the course of 21 so.
So that's question number one and question number two.
Is is related to how if you are changing the way you have remediating.
The people out in the field in terms off off off trying to focus on on on on cash collection.
You have thought about any changes with 21 remediation true to your senior your senior people that that's it. Thank you very much.
Hi, Nick So you know.
In terms of our receivables I think what you see on the balance sheet is what we intend to collect we do we do.
Update our provision for bad debt and a bad receivables every quarter and what we so what you see in the balance sheet is already net of what we've provided for K.
There is a lot of conversations going back and forth still on this is the result of which as it reflects a reflection of our.
Delinquency rate of course, you know think about the movement of going from second quarter to third quarter. I think we were the company who was most.
I would say sort of adamant about charging rent again, okay and you can see that in the revenue numbers. When you look against our peers because our revenue have been much better than we've seen so far in the industry.
And that's a direct result of what Weve been charging but of course, you know there's some effects on the on the delinquency rate and that delinquency rates reflects on our accounts receivable, but there is no doubt in our mind that we're going to collect this this rent okay. Because the end game for this is.
Removing the tenant from the from them all there, okay and I don't think anybody wants to get to that stage not at not them. So if.
If you think about the situation, where we're charging zero rent and then we come into.
A moment, where we're charging between 50% to 70% of rent clearly nobody is happy about it but sales have proven that it's doable and that it makes sense. Okay. So so so.
So it's just I think a matter of time before we.
Bring down that accounts receivable.
And the delinquency rate that goes with it okay.
Talking about in terms of room integration I think the you know this is a very exceptional time, so I think what's really important.
That we I mentioned that you know our team really get together to to go through this time and I think that was incredibly important we had this 90% of fiber availability [laughter] ER and I think that show you know how.
Well, we work together.
But we are we will I think it's easier. It's early to say no. We're analyzing all the possibilities were seen to benchmarks and see what the market is.
Trying to do no the especially the market the companies that were affected by this so we haven't set of ore mine, but of course, we're going to have something.
Thought by the end of the year.
I know.
Say that a team that suffers together stays together because [laughter] and say you cover your I think.
What we did is we really came together during this pandemic, there's not that we haven't before but.
It does bring the team closer you know.
So that's good news.
I'm glad to see that things are clearly starting to improve so best of luck and thanks very much for taking my question. Thank.
And we do thank you.
Our next question is from.
Webcast participants.
It's from Mr., John Mims from from Hi, Hi, Claire.
He did say he sees congratulations for this encouraging set of results I have two questions first what is your logic.
What is your outlook on leasing activities and Oh Coupet C N.
Okay, let's see in upcoming parents secondly.
What drove the increase in the delinquency rates and how do you see the training.
How do you see this trending going forward. Thank you.
No. Thank you for your participation and.
And your questions I think we kind of covered but just to reinforce the answers.
As I said I think in terms of leasing and occupancy I think we've had.
During the second quarter, we had we didn't have very many people move because we second quarter was a quarter, where we basically exempted rent and we did decrease to the charge of the Cam and the marketing front substantially so nothing was happening very much in second quarter, and those who who entered the pandemic maybe.
Not totally ready.
In terms of their cash position and their Oh, the health of their their business made the movements in the third quarter. So the decrease and you'll see this across the board. It's not just after you know everybody that published results. So far we'll see probably a decrease on and because especially because there's this movement.
Of of what happened from second quarter to third quarter.
So I think and but we have a lot of new things coming in a big big stores and also new stores in terms of the Brazilian brands International brands I mean, I can't remember when was the last time, we talked about a new international brand coming into the country. So I think we're very excited about having all these new stores coming in with Us in an act.
Six to 12 months and so it's not a concern and.
And we're working on our should see improvements in the next few months in terms of the second question I mean, just a bit far away on without like losses. So I have two other delinquency. So in terms of the delinquency I think we are also mentioned and I can remember I've mentioned, a hero in the Portuguese call earlier, but we work.
Probably the company that.
Whereas most Uh huh.
Adamant about charging rent as we reopen them all so while we were charging rent between 50% to 70% with other players still charging 10% of ran to 20% of rent and we were charging already above 50%. So of course, there's always a.
Some kind of friction here and tracking the ramp and I think the delinquency reflects that friction.
But were not also concerned I think well one because we charge more rent than our peers I think we often times, even with the delinquency. The net cash position that we were able to to put into the company was was extremely positive.
And and this is a matter of negotiation over time I don't see this as a problem and as as sales improve we should be able to collect everything and go back to their normal delinquency levels. As this pandemic kind of you know mallows out okay. So I hope that answers your questions.
Yeah.
Thank you remember if you have a question please press star one.
Ladies and gentlemen, there are no further questions at this time.
Mr. Carlos de Saatchi. Please proceed with your closing remarks.
[laughter].
Just thank you once again for participating in our conference. He wasn't he comes from third call quarter of 2020.
And if you have any further questions for the please let us know through our IR in the investments being.
No we were glad to answer any further questions. Thank you very much once again, thank you all.
In the next call. Thank you.
This concludes economies conference call you may disconnect. Your line at this time and have a nice day.
Ill.
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