BR Properties SA

BOVESPA:BRPR3

Earnings Call Transcript

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to BR Properties Third Quarter of 2022 Results Conference Call. With us here today, we have Martin Jaco, CEO; and Andre Bergstein, CFO; and IR Officer. This event is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through BR Properties' website, www.brpr.com.br/ir, where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event concluded.

Now I'll turn the conference over to Martin Jaco. Mr. Martin, you may begin your presentation.

[Martín Jaco, executive]

Thank you, and good morning, everyone. Thank you for your interest and presence in the third quarter 2022 results of BR Properties. In terms of the structure of this call, I'll make a brief introduction. Then the second part, the detailing of the results by Andre. And the last -- the third and last session will be a Q&A with enough time for all the questions and doubts that you might have.

So starting with introduction. We are very pleased with the results of BR Properties on the third quarter, which came in line with what we expected, what the management expected and above the expectations of the market. And mainly, our pleasure comes from being able to deliver all the strategy that we designed by the end of the -- by the third quarter of last year when we announced to the market. We remember that last year we announced that we wanted a strategy in order to: first, reduce the debt of the company; and second, give back resources to our shareholders. The objective was to maximize the value of the shareholders and the company.

We even mentioned that the way of doing that will be through a sale. With the sale resources, the idea was to pay debt and return capital to the shareholders. We identified a possibility of sale of the portfolio. That turned out to be the largest sale transactions of commercial properties directly commercial properties in the country. And most important, we were able to execute it within the optimistic scenario related to timing. It was a complex transaction, a very difficult transaction, but we were able to deliver and complete the transaction by the third quarter of 2022, and we can see the results as we speak.

It's important also to stress that the success of delivering these strategies due to the capacity and quality of all the team of BR Properties that always work in order to deliver more than the expected. So I'd like to thank everybody, everybody that works in BR Properties, all the team that we have, for this amazing achievement.

Therefore, once we completed all this transaction in the third quarter of this year, we already can perceive all the benefits of the strategy, the well-succeeded strategy that we were able to provide. So Andre will go into details, as I mentioned, but some of them I would like just to stress right now.

First of all, the company was able to pay 100% of its debt, something around BRL 3 billion. That turned the company into a negative net result to a positive net result. The third quarter in the company, we were able to perceive a margin, an FFO margin of 71%, which is the highest margin ever registered in the history of the company, therefore showing the success of this strategy. Remember, that we always say we don't care about side, but we do care about being efficient and profitable.

From the operational side, the company now being smaller and more efficient, it's also perceiving its occupancy. Occupancy today that comes in both physical and financial is around 95%. That means almost 100% [ or almost ] complete occupation.

Also, the strategy 2 years ago of returning -- resuming investment in the logistics sector proved to be very assertive. Not only we have the occupancy in Jarinu almost 100%, but now we just completed 150,000 square meters of new property, state-of-the-art logistics space in Cajamar. A few days ago, we were able to receive the permits for occupation. Therefore, all the leasing activity that we've been discussing with the tenant probably will now be accelerated since we have all the permits for starting occupations and tenants will start making their decisions right now. We do expect that still this year we have a contract sign in Cajamar, but the idea is to complete the leasing by this year and the first semester of 2023.

Not only we have the existing properties in Jarinu and Cajamar, but just to remind everybody, that we still have potential expansion both in Jarinu and Cajamar, that we'll take them over as soon as we see that the market is there and we complete the leasing of Cajamar. So a very good perspective on the logistics sector for the company.

And continuing on the operational side, the focus of the company will continue to be, as we always said, in leasing. So now the leasing of Cajamar is a priority in the company, and we hope we can deliver news very soon to all of you.

Also, as a subsequent event, it happened on October 15, we carried out the capital reduction, turning back BRL 2.42 approximately per share to our shareholders. It was included in the strategy. So with this capital reduction, we completed the first phase of our plan.

Last but not least in terms of importance, on the third quarter, in August of third quarter, we were able to release our first sustainability report. The idea was to give a light, to give the main highlights of what the company has been doing over the last 15 years. We are also very proud of this report, and we leave the company at your entire disposal. Whoever needs any clarifications, any doubt or suggestion, we'll be more than pleased to discuss this issue with you.

Looking ahead, we still have a lot of things to do in the company, not only the logistics, as we just mentioned, but we have a future discussion. We have capital -- cash in the company, zero debt. So all the assets that we have are free of any type of debt. And we'll still have to receive 30% of the sale by middle of next year, around BRL 1.8 billion. And of course, there's -- some investors and shareholders ask, and we said the same to everybody, yes, the discussion of advancing this payment and maybe returning new capital to the shareholders is on the table, is under discussion. And as soon as we have a definition regarding this issue, we'll come to the market and make all the announcements that are required.

So this is pretty much in a nutshell what happened in the third quarter. Again, we are very happy we have been able to deliver the strategy that we promised last year. But in terms of the third quarter results, all the detail, I'll pass now the word to Andre. Andre, please?

[André Bergstein, executive]

Thank you, Martin. Good morning, everyone, and thank you very much for attending the call today. So regarding the financial highlights of the third quarter of 2022, I would like to talk about the following points. First, in the third quarter, our net revenue reached BRL 84.8 million. Year-to-date, net revenues totaled BRL 266 million. It's worth mentioning that revenues coming from sold properties still represented around 20% of the total revenues from the quarter, and some revenues that were being recognized during lease agreements periods were fully anticipated, generating about 40% of the total amount of revenues.

In the third quarter, G&A expenses, excluding vacancy expenses, stock options plan, taxes and other nonrecurring expenses amounted to BRL 16.8 million. In the first 9 months of this year, G&A totaled BRL 48.9 million. The G&A for this quarter was impacted by nonrecurring expenses indirectly related to the asset sales. Cost from the layoff for certain employees and the provision of retention bonuses made the G&A expenses of the quarter a little higher than the BRL 16.8 million. But the BRL 16.8 million would be kind of the recurring G&A expenses of this quarter.

The company third quarter adjusted EBITDA was BRL 40.4 million. The margin achieved was 48% in the quarter. Year-to-date, the adjusted EBITDA was BRL 161 million with a margin of 61%. The adjusted net financial results totaled BRL 17.2 million, a positive amount, corresponding to a nominal increase of BRL 80 million comparing to last quarter, when we adjusted net financial result accounted for an expense of BRL 63 million in the quarter -- in the last quarter. This reversal on financial result is explained by the amortization of 100% of the company's debt issuance during the third quarter and by the increasing financial income due to the strong cash position related to the portfolio sale to Brookfield that happened in July.

The net income of the company in the quarter got to BRL 50 million, and the company posted in the third quarter an FFO of BRL 60 million with a margin of 71% in the quarter, the highest level ever recorded in the company. The FFO year-to-date got to BRL 62 million. In the third quarter, the average rent per square meter per month of the same commercial property portfolio was up 16% in the last 12 months, and the average rental grew by 3.1% versus the last quarter, the second quarter of '22. The increase was mainly explained by the inflation rental adjustments in Passeio Building. In this quarter, consolidated financial and physical vacancy rates were 5.4% and 4.9%, respectively. According to the general meeting held on April 26, in which the distribution of complementary dividends in the amount of BRL 41 million was approved, the company paid the second installment on September 13 (sic) [ September 30 ] in the amount of BRL 13.8 million, which was equivalent to BRL 0.029 per share. The last installment will be paid in December.

In July, as Martin has already mentioned, we conclude the sale to Brookfield, including 12 real estate properties owned by the company for the amount of approximately BRL 6 billion. Upon completion of the transaction, 70% of the total amount was paid and 30% will be received in July '23. This 30% will be adjusted by inflation and SELIC, inflation until the end of the year, IPCA and SELIC from January until July.

Throughout the third quarter of the company, as we mentioned, amortized all the debt in the amount of almost BRL 3 billion, plus prepayment premium when applicable. In August, we published with great satisfaction, as also mentioned by Martin, our first annual stability report as of 2021. It was a very deep work that was done by the company and the company that we hired to help us getting impressions and comments from all our stakeholders, service providers, board members, analysts, investors, all of them. So we think that we conclude a very good work that shows really what matters for us in terms of ESG, which is something that we've been taking care and doing a lot of efforts on it since the beginning of the company 15 years ago.

And finally, on October 14 the company paid the amount of BRL 1.125 billion of the capital reduction, which was equivalent to BRL 2.42 per share.

Well, those were the financial highlights of BR Properties in the third quarter of 2022. We will now open for the Q&A session. Thanks very much.

[Operator]

[Operator Instructions] As there are no questions, the question-and-answer session is concluded. I would like to invite Mr. Martin to proceed with his closing remarks. Please go ahead, sir.

[Martín Jaco, executive]

Thanks, everyone, for participating in the third call -- results call of BR Properties. If any doubt or clarification may arise, do please call us, we'll be more than happy to assist in any doubt. Thank you very much, and have a nice weekend.

[Operator]

That does conclude BR Properties conference call for today. Thank you very much for your participation, and have a nice day.