SYN prop e tech S A : 4Q21 Conference Call Transcription

Conference Call Transcript

4Q21 Results

SYN (CCPR3 BZ)

February 25, 2022

Operator:

Good morning, ladies and gentlemen. Welcome all to SYN's videoconference to discuss the 4Q21.

This videoconference is being recorded, and the replay can be accessed on the Company's website, ri.syn.com.br. The presentation is also available for download.

We would like to inform that the attendees will be only watching the videoconference during the presentation, and then we will start the Q&A session when further instructions will be provided.

For those who are watching the videoconference in English, these are the suppositions of SYN's administration, and these declarations should involve risks and uncertainties, and they regard future events, so they depend on circumstances that might or might not happen. Investors, analysts and journalists should consider that events on the macroeconomic environment, the segment and other factors may have the results different from what is expressed in the prospective declaration.

We have in this video. Mr. Thiago Muramatsu, the CEO of SYN, and Mr. Hector Leitão, CFO and IRO of the Company.

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

Thiago Muramatsu:

Good morning. First of all, I would like to thank you for your time, your interest on following up our results. I believe 2021, as 2020, were two years that were really atypical, and a year later, after 2021, we forget about the turbulence of the beginning of the year.

Here in São Paulo, we started the year with the shopping malls and stores closed, in March and April the development closed here at the Company. There were lots of changes on the business model of the companies, and instability because of the advent of the pandemic up to 2021, and then we had the 2H, in general lighter on health and the pandemic, but there was a macroeconomic process in Brazil that was so turbulent as the sanitation crisis.

But in spite of these difficulties, we had 2021 as a special year. This year we had more transactions in the beginning of the year, January, February, we announced an association that we have with XPX. We announced in the beginning of the year, the transaction of BH, and also a debt emission, and most of the things that we negotiated and treated in 2021 were fruitful in the 4Q.

So this quarter was filled with transactions, highlighting the first one, which was the biggest one that we have ever executed, the sale of our portfolio of a triple A transaction in Faria Lima.

So in two separate transactions, one with Brookfield, we sold our Financial Center participation, (04:06)with Brookfield, total value of R$1.8 billion, and this transaction of R$105 million, 486,000 m² in BR Malls, we were partners. This transaction within our strategy since our follow-on, it was meaningful to leave the assets that we can control, and then we had one more transaction selling a share that we have, 2/3 of the share that we have in CLD, that is a project for logistic warehouse, with a value that was interesting in monetary values, and also high profitability. We were carrying it for many years.

And the acquisition, to conclude the year, of five floors in Tower D of WT JK. We had almost the totality of both towers, D and E. There were five floors missing that we acquire after the transaction.

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Conference Call Transcript

4Q21 Results

SYN (CCPR3 BZ)

February 25, 2022

So the transactions that we had in the main Triple As were 36,000 of area, and the acquisition of the towers, a little bit more than 22,000 m². So it was meaningful to have this acquisition, in addition to the value of this strategic consolidation, so we can have 100% of the building.

And complementing a little of what we believe, in our transactions we had at debt emission in April 2021, and part of the resources that we raised with the sales we prepaid in January, the 7th debenture, and the anticipated rescue of the ninth.

And outside the context of financial business, sales and acquisition and also debt, in the middle of the transactions, we could communicate our first ESG report in the final call, and mention about it. We showed everything that we have in our assets, not only our assets, but also the assets that are under our management.

Practical aspects on the environmental, we show in our institute what we do on social, and everything we have on governance, Novo Mercado, and also internal governance that is superior to the minimum requirements to be within this Novo Mercado.

Advancing to the next slide, talking about the recovery, this recovery, I believe little by little is to lose the importance, because I believe the restrictions are decreasing. We have in our portfolio just one restriction, its occupation restriction, building. And I believe that the advance of vaccination program, and also the contamination is not so severe, taking us back to normal life in our shopping malls. And I believe this graph is really interesting to follow, and from this point on it is not so meaningful.

Let's talk about the flow of vehicles. We finalized the year with almost 80% of the flow of vehicles in 4Q19, and it is noticeable that some of the malls had a drop on their flow in 2019, people were not going to the malls, and also a change in the way people transport. Most of the people using transport apps, private cars, people using alternative transport systems to get to the buildings.

So when you see the flow of people in our shopping malls, it is disconnected. We have similar to the flow in 2019, and the sales, when you see the sales conversion, in the 4Q we were above 90% compared to this sales in 2019, and we see that the average ticket is increasing, and we do believe that with the normalization of the flow in the malls, the sales will increase meaningfully from this point on.

Advancing, the slide talking about operational performance of our assets. These graphs of occupation, physical and financial, reflect the portfolio that we sell. Just to give you the dimension of our portfolio, it was a little bit more than 30% compared to the ABL that was sold, 99% occupation. Of course, this will bring down our occupation rate. But when you separate leasing to Class A, Triple A and shopping malls, we see the advances that we had. Specifically in shopping malls, we could advance compared to occupation in the past.

Triple A offices that we sold were the totality occupied, and here in this graph, in this comparison of occupation of Triple As, it is worth mentioning that these five floors that we bought, they are open. They are vacant. We have an interesting work to work on this real estate already, with good demand, above what we expected it. I believe it is a matter of time to fill this gap on Triple A offices.

To Class A offices, we have some groups that are different of offices. We have three buildings in Chácara Santo Antonio, one in Rio de Janeiro, one is Salvador, then this one in Vila Olimpia, and one in Vila Leopoldina, ITM. And within this pool of portfolio of Class A, ITM is outside this Class A category, but it is here, and there is a unique characteristic, a peculiar characteristic because of the format that this building was conceived. Its occupation is different from a traditional building.

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Conference Call Transcript

4Q21 Results

SYN (CCPR3 BZ)

February 25, 2022

So we have the openings. The building is a robust, 45,000 m² ABL, so it is worth not least a small occupant, 1,000, 2,000 m², because we have to open up this development. So we have to make it work totally for a small corporation.

The renting process is very different, it takes time, but we are sure, we are having dialogs and it seems that it is attractive. When we remove this building from the general context, the occupation raises meaningfully.

I believe there is a special line for Birmann 10, that we concluded the full rent of this building in December 2021. The building that we bought in 2019 and we rented half. And there was a dialog back then to increase occupation, then the pandemic hit, and I believe all the tenants held up their expansion movements. But with this improvement of this scenario, we could also rent it.

Our portfolio in Chácara Santo Antonio is 100% rented, Class A Rio de Janeiro also full. We have a vacancy in percentage, it is fairly straight, but when we see the potential revenue in area, it is not so meaningful. So I believe this really breathes the occupation of the buildings.

When we talk about shopping malls, in most of the malls, we kept the occupation rates similar to 2019, with a very small variation in some malls. A very positive highlight is Metropolitano mall. There was in 2019, at the end of the year, 2% of vacancy, and we delivered 2021 with 3%. So in percentage and area, this mall had a higher evolution in its occupancy, and consequently, there was an expressive improvement on its result.

So we are trying to be conservative, but we are really optimist in what we have for our estimate. Shopping malls for this year, January, operationally speaking, was beyond what we expected, but considering results, it was superior to what we estimated for January. February is also a little bit better, so we are really excited with the results that the malls can give this year.

We had an operational work that was intense, and I believe this is reflecting in this bottom line of the shopping mall operations.

Talking about sales and the stores, we finalize the 4Q 21% above 2020, and in this flow, we finished with 2.3 million, 1 million below the 4Q19 and a little bit above 4Q20. I believe I mentioned already the flow of our malls.

For the financial performance, I pass the microphone to Hector.

Hector Leitão:

Good afternoon, everybody. Talking about revenue, I would like to reinforce the revenue, the sales Thiago mentioned, on the right hand side. Total revenue, it was R$1.6 billion, R$1.3 billion of this revenue on sales.

And it is important to highlight, as we has sales in SPE, when we sold our share. There are some effects that are complex here in the balance, and it is interesting to all the participants to observe the explanatory note, they are really important complements.

We see basically a revenue of R$1.3 billion, and the rest of the profit of the transaction already consolidated in other revenue operational expenses. So the profit of the operation of these sales was R$1.2 billion, and the revenue of sales, we sold a little bit more, R$1.9 billion. So it is important to have a disclaimer, so things get conciliated.

About the rental revenue, we had an interesting growth in 2021, 10%, and here we have different effects, a good growth on shopping malls, 18%. As Thiago mentioned, the increase of flow of vehicles, the increase of sales generated to us an interest increase on rent and NOI.

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Conference Call Transcript

4Q21 Results

SYN (CCPR3 BZ)

February 25, 2022

And for offices, we had a year where Triple As had a good performance, and Class had a performance a little bit worse, especially with the return of ITM spaces that was already programed. So we conclude the year with 10% of growth and 14.3% of growth compared to 2019, concentrated on Triple A buildings. In 2019, it was the acquisition of JK Towers, and they matured the revenue for the last two years.

And on the page, we talk about NOI. And as a highlight in this page, I would like to talk about shopping malls. In the 4Q there was robust growth compared to 2020, 50%, and we see a higher growth, a superior result to 2019. And I would like to highlight Metropolitano Shopping Mall. Since 2019, it decrease the vacancy in 12% to 3%, so there was a good reduction in direct costs in that building and rental growth. And all the other malls recovering already compared to 2020, except for Cidade de São Paulo, which still has a flow lower than 2019 because of home office. The audience that used to have lunch at the mall, they are not back to their offices. Banco do Brasil tower on top of the mall, they are back, 30% of the workers, and other offices nearby returned with few people, 10%, 20% of the staff.

And then in 2021, we concluded NOI of shoppings of 14.7% growth, and a drop in 2019 of 17%, but explained by the 1Q that was bad. So the estimate of impact was R$10 million NOI in the 1Q, because of the closure. It was a measurable impact, a negative impact throughout the other quarters as well because of discounts and lower rent.

NOI for buildings now, this year we had the sales of Triple As in November. So this drop was really expensive, 24% historically explained by the sales of Triple A, the impact was R$10 million, and explained as well, when we see year after year, we should have a growth compared to 2020 and 2019. So great part of the impact, compared 2019 and 2020, is this sale. We lost this revenue in the final month, in December.

And then we talk about EBITDA and FFO, adjusted here excluding non-recurring effects, especially sales. So we had a year that we had a growth of 14% and a decrease of 2% compared to 2019. And I would like to highlight, in addition to NOI that I commented, and huge recovery of default of payment impacting in 10% positive compared to 2019, and a good efficiency in G&A, excluding the effects and the expenses with the sales that had a positive impact on EBITDA.

When we see FFO, the impact of the debt is negative. 2021 compared to 2020, a drop of 25%, but the impact is R$40 million of the debt compared to 2021. So we started from a Selic of 2% to 9.25%. Now we have a debt connected to IPCA, 6.5, that annually cost is 17%. This was a big detriment, so we have growth that is expressive compared to 2019 and 2020.

Talking about debt. Here there is a disclaimer, the importance of sales. We finished the year here accounting R$700 million, there were sales in some SPEs where we have partnership and a reduction of capital to leave that partnership. I cannot consolidate these SPEs, I do not recognize this cash that we had over there.

So the effect is R$350 million, entering in our balance from the 2Q on. These reductions are ongoing, they are limited companies, and it takes them 90 days to get this cash back.

Gross debt, R$1.6 billion. We decreased in R$40 million the debt, paying Morizono, a R$60 million updated debt, and so we finished with total net debt of R$950 million.

When we see covenant financial, there is this space compared to what we consider covenant. First, what we have in the obligation is 7x, and then we always aim 4x and 5x, and then throughout, there is the effect of the sales. In 2022, we are going to see if these indicators reach 5x.

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Conference Call Transcript

4Q21 Results

SYN (CCPR3 BZ)

February 25, 2022

So this is a little bit of the takeaway message for you, and underneath this graph, we can see that the financial expenses had a robust growth this year that was explained by Selic and IPCA, 10% by the end of the year.

On the next slide, we see amortization schedule. There were two subsequent events that I would like to highlight: the prepayment of 7th debenture of R$35 million, and prepayment of R$100 million of the 9th debenture, plus R$50 million that were already hired for amortization. And then we are going to have more extraordinary payments this year, R$200 million and R$300 million. So that is the strategy of capital allocation, get this surplus cash and paid debt. That is an investment with a return that has no risk and is not with Selic reaching levels of 12% throughout this year.

This amortization schedule is distributed throughout the years. There is no pressure concerning the amortization for the following years, aligned to our cash flow generation, and the debt price is in CDI and 22% IPCA.

So throughout the year, we are going to pay some debts in CDI, and then we are going to increase the exposure of IPCA as we amortize, and maybe refinance with another index profile.

And then we will move to the Q&A session now.

Elvis Credendio, BTG Pactual:

Good morning. I have two questions. The first is about the offices portfolio, how do you see the pipeline for rental in 2022, and how do you see leasing spread? Because there are regions with high vacancy, what do you think? Maybe you need to be more aggressive in prices to rent these buildings that you have?

And the second question is about M&A. You were really active in the final months, but then I would like to understand if you see room for more recycling this year, especially on the demand side on your assets, and the other end as well how do you imagine the buyer, if you could have a movement, because you have firepower of CPP and SPX. That is. Thank you so much.

Thiago Muramatsu:

Elvis, I will try to answer your questions. On the demand side, I would like to remind you that, although we had this portfolio of Triple A sold, we keep on managing it for Brookfield and CPIB, the current owners.

Answering your questions about prices, we have seen that this demand is really heated. At the end of the year, we have the rental of our portfolio that we kept indoors in Birmann 10, and also the acquisition of these five floors with lots of demand. In the portfolio that we sold, we had 1% vacancy, and this 1% is being demanded as well.

And talking about prices, the negotiations that we are doing on revision and eventually renewal, we could get better prices, above 15%, 20% higher. So this region here, Faria Lima and JK, they have a small supply and a growing demand. So it is healthy, normally.

For what we see, the demand is really interesting, with prices, for example, of our building, WTJK, we bought it and the performance is better than our underwriting, and we have these floors open, vacant, that we can acquire in levels that are above what we had imagined, R$180, R$200, just to have an idea on how this demand is high. I do not know if I have answered the first part of your question.

About M&A, the profile of assets that we currently have in our portfolio, talking about recycling, they are obviously not so liquid than the other buildings that we sold in the end of last year. A

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