Allos S.A. (ALOS3) Earnings Call Transcript & Summary

Good afternoon, and thank you for waiting. Welcome to the earnings call of Allos for the discussion of the results regarding the Second Quarter of 2025. We have here with us Mr. Rafael Sales, President; Vicente Avellar, Director of Operations; and Ms. Daniella Guanabara, Financial Director and Investor Relations. We inform you that this event is being recorded. [Operator Instructions] This event is being transmitted simultaneously via webcast, you can access it on the [ allos.comir ], where you get the presentation. The replay of this event will be available for 1 week. So we would like to tell you that any questions are going to be asked through the Zoom app. And on the webcast, you have to submit the question directly through the ir -- ri@allos.com. But before proceeding, we would like to clarify that any statements that are done in this earnings call regarding the business perspective of the company, projections and operational goals are based on beliefs of the company as well as based on information that is currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and premises, and they regard to future events. So they depend on circumstances that may or may not occur. Investors have to understand that the general economic conditions, industry conditions and operational factors might affect the future performance of the company. And might translate into results that are different from the forward-looking statements. Now I would like to give the floor to Mr. Rafael Sales. He will start the presentation. Mr. Rafael, the floor is yours.

Good afternoon, everyone. Thank you very much for the interest in the Allos. We are concluding another quarter that we had sustained results by sales we accelerated the growth of revenue, and we had gains of efficiency and cost and expenses. We had nominal drops, contextualizing the gains in scale. Now let's start the presentation, and I would like to comment that we are very satisfied with the evolution of our app, the benefit app and the second quarter we have over 25 malls and the engagement is 25% of the tenants that give awards and our apps, we provide benefits in new malls. This is a very expressive number for our base. Once we reduce the implementation costs of this tool, which is very important for our engagement, engagement of the consumers. This landmark demonstrates the maturity of our system. We have 34 malls and benefits. We're going to give you more details on the next quarters details on the participation of consumers and other important data. So you can measure the importance of this tool. Also, I'd like to highlight the signature of helloo and Aena for the commercialization of media. The 7 airports of the country in 10 years, the operation started in June in 5 airports. And on the other airports, the implementation will be gradual as the contracts are going to be finished. Now let's go to -- I wanted to discuss about the operational highlights. This second quarter, the sales on our malls are -- we have the advance of 5%. We have the same-store sales that grew 7% and the difference of growth in sales in same-store sales continue to make -- to show that we have a great work with the tenants that have better sales than the previous quarters. We deliver better experiences, more charming experiences for our clients of our malls. This has translated into better results. As you can see in this in the same-store rent that was 7.7%. Now in the second quarter, a growth that is very expressive above inflation. Regional highlights the growth is from the Southeast and the North, the 10.7%, 3.3%. Another important indicator is the sales per square meter, and we like to compare in the pre-pandemic in 2019 that shows that we had a CAGR of 8%, a total growth of 60% in the sales per square meter. We also have a good performance that the malls are kept busy, and we're bringing news, important news, new products, new experiences for our customers. We have used our database. We identified the trends and our resources of technology so we can do adequate pricing and we can be more agile in the signature of the contracts. 188 new contracts signed in these quarters important restaurants that we are going to show you, [ project 1 ] for example, we have a good invoicing traditional Portuguese restaurant for Niteroi and so on, with new operations in the shopping mall of the company. Dani will present you the indicators, the operational indicators. Slide 3, we talk about the financial results. The net revenue has gotten to BRL 655 million (sic) [ BRL 656.4 million ], growing 8.8% (sic) [ 8.4% ] With highlights for the growth of rent, 16% and indicators of same-store rent and 7.7%, a real growth on the base of salaries. The result of the parking is 2 digits in this quarter, 13% and 21%, respectively. This is sustained by the growth of media that had a jump of 34% in the period, reinforcing that -- but we don't have anything of the airports. So the second quarter, we don't have those results. In the NOI, we had a growth of 8.5%, BRL 580 million (sic) [ 579.8 million ] with 10.7%. We have important gains with the cost reductions, nominal plus BRL 800 million and of expenses, which is the nominal drop in the quarter. So we have a margin of NOI of 93.3% and a margin EBITDA of 72%. The FFO BRL 305 million in the quarter, the growth in regards to the previous quarter which is a great step once the Selic rate went from 10.5% to 15% and the FFO by action, we had an improvement of profitability has grown 9%. So this is important not only for the growth of the results but by the reduction of the base of shares with the repurchase. And before we give the floor to Dani, I wanted to conclude that regardless of the scenario, the company continues to generate a lot of sustainable growth, and we're going to keep the strategy of returning capital to the shareholder once it's possible we can balance what we have in our business and what we need to return with the demand and the cost of money in Brazil, it's natural that we have higher pays for our shareholders since we generated cash. This quarter, we returned BRL 450 million amongst dividends and interest of our capital, repurchase of shares. If we compare this with the FFO, we are returning 80% of the FFO in the first 6 months of the year. Even with the strategy of the return to the capital of the shareholders, we are continuing to invest in our business and just 1.7x of EBITDA, which has a high level of leverage, challenging scenario as the one that we are going through. And the macroeconomic scenario. So Dani, I'll give you the floor, and then we'll come back for the Q&A. Thank you.

Thank you, Rafael. Have a wonderful afternoon, everyone. The next slide, we observed that in the second quarter of '25, we activated 188 contracts in the shopping malls of the of the company. 77 just in June, with a highlight for 1 Adidas in Shopping Parque Belem, Pobre Juan restaurant, 1 Vans in Catuai Maringa and 2 Natura stores, 1 in the shopping [indiscernible] and another 1 in Shopping [indiscernible] . We would like to highlight that the recent launches and a COACH in Manauara shopping new line of team in Bahia and the Shopping De La Caxias and new stores. Occupancy rate at the end of the second quarter was 96.4%, an increase of 11 bps in regard to the same period of the previous year. Slide 5, we have the occupancy cost at closing 10.2% in the second quarter of the year, 20 bps below what was reported last year because of the good performance of sales in the shopping malls of the quarter. The delinquency was 1.9% net, a drop of 60 bps in regards to the first quarter of '25 also pushed by the strong performance in sales that impacts directly the financial health of the tenants. Slide 6, we realize that the second quarter of '25, our average rate of debt was equivalent to CDI plus 0.75%. This level of cost is a reflection of the actions and liability management that we've done over the last quarters. On the profile of our debt, we closed this period with 98.2% indexed to the CDI and 1.8% prefixed. Our leverage continues to be low 1.7x net debt over EBITDA. The next slide. In this quarter, we have the continuity to several case studies that show the strength of our portfolio. This time, we talked about our shopping malls in the center, East and Southern regions. Allos has a market share of sales, 23% in the center in the Midwest and 13% South. If you look at the growth of our shopping malls and in regions, our CAGR in the Midwest is 15.6% and the CAGR in the South, 8.7% between 2019 and 2024. Continuing to the next slide. We talk about our media business, which is one of the highlights of growth of the company. The media line delivered a revenue of BRL 46 million the second quarter of '25, 31% higher than what was registered in the second quarter of '24, which is 6.4% of the gross revenue of the company and 110 bps higher than representative -- the representativeness of it in the second quarter of '24. helloo had an important expansion of the market when they signed a partnership with Neo to commercialize out-of-home media in 17 airports for the next 10 years. As commented by Rafael, the operation started in June in 5 of these airports, including Congonhas airport. The next art, we're going to continue to operate gradually as the previous contracts are going to close. With these initiatives, helloo, reaffirmed the preference for media -- digital media and wholesale improving its frontiers in connecting new brands and public in different formats and different retail environments. I apologize. Next slide, the benefits program. In the second quarter, over 25 miles received the app and the program. In May, which was the first complete month after the implementation of these enterprises overcame the projections of performance and they captured 17% of MV in a month, and 16% of the tenants are delivering benefits. Total, we have 34 malls with the Benefits Program app installed, contributing for the strengthening of the ecosystem Allos. Then in the presentation we bring you a few highlights, recent highlights of our sustainability journey. In June of 5, our first Allos Sustainable Day, a meeting with investors and specialists in sustainability. It occurred in Parque Dom Pedro Campinas to deliver advances in initiatives and the next challenge is related to the agenda of sustainability of the company until 2030. Besides that, Allos was recognized with 10 cases -- winning cases in Abrasce 2025 awards. And the -- we have Paseo de Aguas Creo Shopping, Rio de Janeiro Shopping and Shopping Leblon earning awards. In 2024, Shopping Leblon strengthened its commitment to the social transformation when we invested on with private partnerships in the municipal school [indiscernible]. The school -- Public school received the school reinforcement mentorship for educators art and cultural expositions. The creation of the students were exposed in the shopping mall reinforcing the connection of the community and the enterprise. Thank you for your interest in Allos and now let's start the Q&A session. Thank you.

[Operator Instructions] Our first question, Herman Lee, Bradesco BBI.

Two questions on our side. First, about sales. Same-store sales accelerated to 7.4% in the quarter. I wanted to understand more how do you see the sustainability of this in the next quarters? Can you give us more color in that sense? How is the consumption environment in the second quarter would be nice. Second question about the sites which seem promising. So I wanted to understand if there is metrics for impact for the tenants, maybe monetizing of the app and what is the rollout for the rest of the company.

Thank you for your question. About the monetization, we -- it's still very new. Really, the adherence is very positive and seems very good, we can't say that it was because of this tool that we had better sales. Where the investments on the tenant will have the best choices with us and with the shopping mall. We are more equipped to operate. And then on the long term, we're going to have benefits for this tool, both in revenue of the company and better sales for the tenant as it was helloo in the past, and we have the benefits for the reality, engagement with the tenant. Now in terms of sales, the July month was an acceleration in regards to the previous quarter, mainly on the lines that are along cinema, entertainment, and because of the movies that are in this period, and we had last year a big success with a few movies, a few launches, this July month is weaker. But other segments are growing a lot in a fashion, and the operations of store is not so strong but it's positive -- and we -- for the indication, we have the growth of sales. So certainly, the month of June is with the comparison base that is more difficult between cinema and last year, in August, we see the main results.

Next question, Ana Julia Zerkowski.

Well, we have 2 questions. First, in regards to the IGPM. Well, thinking about this trajectory that is weaker, if you can share with us how is the company's mind in regards to the growth of rent? And can that move anything maybe with a change of guidance that sort of thing. And another question in regards to the guidance, we would like to understand if you keep the guidance of 2025? Or is there any changes thinking EBITDA, CapEx, dividends for this year?

This is Dani. In the first part, where we say IGPM there is still the positive carryover of IGP because every rent goes through the last 12 months. So we sell the positive carryover of GP for the second quarter. And in regards to the guidance, we're not going to modify any of the guidance for dividends, EBITDA or even the multiuse projects, multi-use we increased.

I would add, Dani, we saw what we expected in the second quarter, which confirms our expectation of the guidance.

Next question is from Kennedy from Citibank.

I have 2 on our side. I want to understand, first, in regards to the guidance of CapEx, which is BRL 450 million on the dynamics, the band is a bit lower on the guidance and because the adjustments structural -- the shopping malls, they don't happen in the fourth quarter, can we expect on the lower band, the expectation of the company. And if yes, where are you getting this economy? Is it positive? We've seen this dynamic? Second question in the contracts of helloo with the airports, just to make it clear, is there a ramp-up of maturation in regards to this revenue because the size of the contract, BRL 70 million per year, we have the full in the third quarter. Is there anything that we should be expecting?

This is Dani. Thank you for your question. In regards to the guidance of the CapEx, you are right. We are aiming for the bottom of the guidance for this year. There is a specific point that we implemented the RP in the second quarter was an absolute success you're going to see a reduction of CapEx because of that. And the intensity of the CapEx for the next year is lower. So there is a trend of being at the bottom this year. And for next year, we're not going to have this for the RP in the CapEx. And now for the second quarter of the helloo -- about helloo, we have a maturation of this invoicing with July because we have important airports such as [indiscernible] that does come in next year, and this contract will reach maturity but from next year until the end 10 years. So we're going to continue to see the invoicing from July, and that should be growing throughout the next months.

Congratulations on the results.

Next question is from Ruan Argenton from XP.

Congratulations on your results. Two questions on your side, on the occupancy, we see an effect of growth above the same-store sales above this quarter, we observed that the occupancy cost they dilute if we compare year-on-year. I imagine that the biggest effect here is -- the new mix that you're getting for the better sales, it helps with this effect. So we realize that when we you look at condominium, we see a diluted level. So I wanted to understand how you see the occupancy cost for the future. We are doing a catch-up of growth, capturing effectively these higher harvest of lease and spreads. So I want to know how do you see the occupancy -- do you think that we can keep this level? And the second question is about the operational and PDD. We see that the operational expenses are dropping. We see -- we want to understand the motivation of what we see up ahead. And when we see delinquency is the provision level is stable and the curve might be normalized, implicit with the level of provision that should be more stabilized.

This is Rafa. Well, in fact, your conclusion is correct. The cost of the same-store rent or the growth of the same-store rent about the same-store sales, is what we expect to continue, but not opening too much because of the capture of IGPM, but also because the positive spread and the step-up of the contracts that are going to go for 12 months. So it's natural that it occurs, and this is the objective improving profitability. And the occupancy cost dropping is because of new contracts, new results -- and we indicated and concluded that this is correct and these harvest of new contracts, they're going to do a ramp-up -- and they're going to grow according to the contracts with these step-ups that we predict with the good results. And we expect that the occupancy cost is better. The operational cost that we had are sustainable, and an important part of our strategy to gain synergies in regards to cost, but I'm going to give the floor to Dani, and she can give you more details.

This is Dani. So speaking of the drop in operational cost, the effect in the quarter is the reduction of costs with the low occupancy. We have occupancy above 90%. So we expect that we continue in the second semester. And we have a more normalized level and it depends on the behavior of the delinquency. And we have to say that delinquency is a behavior that is very good in July. We have a good recovery level. So it's beneficial for the delinquency indicator in the future and complementing on the cost. We've tried to find a series of efficiencies of the condominiums and this impacts the open stores but even examples as the 1 that we have with the satellite of stores that are anchors that we can continue with this benefits the tenants and this allows for a reduction in the occupancy cost of these stores. This is a strategy that we've exemplified and this has helped with the -- we understand that this is a positive situation for us.

Our next question is from Mario Simplicio from Morgan Stanley.