HBR Realty Empreendimentos Imobiliários S.A. (HBRE3) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the HBR Realty video conference to discuss the results for the fourth quarter '24. This video conference is being recorded, and the replay can be accessed on the company's website, ri.hbrrealty.com.br. The slide deck is also available for downloading. [Operator Instructions]. Before proceeding, we underscore that the forward-looking statements made herein based on the beliefs and assumptions of HBR Realty's management and on current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should consider that events related to the macroeconomic environment, the segment itself and other factors could cause results to differ materially from those expressed in these forward-looking statement. Present at this video conference are Mr. Alexandre Nakano, CEO; Mr. Alexandre Dalpiero, CFO and IRO; and Mr. Alexandre Bicudo, the Chief Operating Officer. I would like to give the floor to Mr. Nakano, who will begin the presentation. You may proceed.

[Interpreted] Well, good afternoon, everybody. First of all, I thank you for your time and your availability in attending this earnings release for the fourth quarter 2024. We have 2 participants from the Board, Alexandre Dalpiero, who was with us at the last call. He is the CFO and IRO of the company, bringing in his experience in the retail and realty market. And for the first time, we have Alexandre Bicudo, the Chief Operating Officer with vast experience in the retail market and on the part of tenant. And this is one of the most important verticals that we have. Very well, having said that, we will now go to the results for the fourth quarter 2024. We have several positive messages, and we continue on that trajectory that we set forth in the past, Realty Development that is carried out through the conception and construction of developments so that we can then go on to obtaining revenues for rents within that development. It's important to understand that this cycle of real estate market is a lengthy one. We're part of that cycle. And beginning in the second half of this year and especially in 2026, we will put into operation several assets that are still part of our agenda for development. Of course, without bringing in anything new into the company, our main indicators, whichever you want to look at revenues, EBITDA or others will be automatically enhanced. Further ahead, I would also like to refer to the recycling agenda, which is a topic that always arises. I will explain to you the company's status as part of the sale of our asset. On Slide #3, I begin with our key messages. I would like to highlight 2 points for the first time, the company reached BRL 50 million in net revenue for the entire year of 2024, BRL 150 million. And for the fourth quarter, our revenues were BRL 40 million, an increase of 11.4%. The second message silently and as part of what was planned with Marriott, we inaugurated the Hotel W near the JK Shopping Mall. This is the first W brand hotel in Brazil, and we're very confident with this asset because of the appeal it has, because of the W brand, because of the construction of this asset and especially because of its privileged location near the Faria Lima and outstanding shopping malls. Our GLA will increase by almost 10,000 square meters in operation. For the fourth quarter performance, I highlight 3 points gross revenue with a growth of almost 7%, reaching BRL 45 million in net revenue and 11% growth with a net revenue of almost BRL 41 million. NOI, BRL 31.9 million with a growth of 32 -- 3.1%. In the middle column, operational highlights in the opportunities vertical. The highlight, of course, was the W Hotel in December. It's under a soft opening, and it will continue with soft opening until we understand that it can become more mature. We haven't truly inaugurated it and the Hilton that is at a good cruising speed and something that is very satisfying to us. The lodging revenue because of Hilton and Ibis had a 25% growth quarter-on-quarter, +Box at all of our releases, we have reported an increase in revenues, and it wasn't different in the fourth quarter '24, where we reached 41% more than the previous year with a record occupancy rate of 88.6%. So +Box, of course, is surpassing its own operation. In the ComVem vertical, a slight increase in GLA. We're referring to 2 restaurants under the W1 lease to [indiscernible], who will, of course, have a restaurant that stands aside and the other Japanese restaurants, they should inaugurate in 60 to 90 days. Now the net revenue surprised us. It was robust, consistent, almost 50%, and the NOI almost 60%. And I say that it surprised us because as I mentioned previously, ComVem was always our bet. We knew and we continue to believe that ComVem will continuously deliver that soundness to our figures. Well, the more we have operation, the more GLA we have in operation with the maturity of our rents, we will be able to achieve these revenues quarter-on-quarter. Sales grew 37% and same-store sales almost 10%, once again showing that the new GLA has been well absorbed. And in terms of the maturity of the GLA that everything is in operation. The occupancy rate reached 85%. In the HBR Mall vertical in Hilton and opportunities, we have Suzano at cruising speed. They're both doing very well. We're planning an expansion and what we have presently, we have excellent occupancy rates for the 2 malls and Olinda ahead, growing in its maturity period. Olinda has reached the desired maturity and Urupema is the newest mall in this platform. And Alexandre Bicudo will refer to this further ahead. Net revenue totaling BRL 5.6 million, growth of 6.9% same-store sales, 4% occupancy rate standing at 91% for the 4 malls. As part of the corporate 3A buildings, a message that the market is always unknown. But to speak specifically of our Faria Lima asset, it continues to be our main leasing company, and it is paying the rents correctly on the right date. We shouldn't have any surprises with our main tenant. Net revenue totaled almost BRL 6 million with a growth of 7%. Occupancy rate, 100%. The works on 3A Pinheiros, [ Rua João Moura ] at the end of the year reached 95.5% completion, and perhaps an explanation here because the end of the work was pushed over to the first quarter of 2025. I don't know if you will recall, but some time ago, when we announced the lease, this tower was built to be an office tower. When carrying out the lease to a hospital, of course, there are adaptations that need to be made in the asset in the venture, especially the escape routes. So we had to carry out adaptations in the emergency stairway. This, of course, delayed our schedule, but all of this was well ascertained with the Einstein Hospital. And in the coming weeks, we should have the ability to begin. We will sign the contract and Einstein Hospital can begin its works in the asset, and our work in the Paulista has reached 12% of completion in the fourth quarter. I will now give the floor to Alexandre Bicudo, who will continue the presentation.

[Interpreted] Thank you, Alexandre. Good afternoon to everybody, and I will speak about these figures in more detail. On Slide #5, we begin with ComVem. The initial comment, we had a very good year with all of the ComVem under 2 points of view. First of all, relevant inaugurations for example, the one in Moema, Vila Madalena in São Paulo at the end of the year, the 2 restaurants that will be inaugurated in the coming months in the W Hotel. These were significant deliveries in significant locations in the city of São Paulo, qualifying our portfolio even more. The second relevant point is that we're in a process of maturity with these assets. As an example, we have an important agreement with BCP, where we had several inaugurations of relevant stores, restaurants, and they're ever more bringing in more people, more revenues, and leases to ComVem. To speak about the sales in the fourth quarter '24, we had sales of BRL 90.6 million, representing an increase of 37% over the year '23. In same-store rent, an increase of 10% over 2023 in rents, and this reflects the maturity that I referred to. We had BRL 7.5 million in the fourth quarter, 20.6% over last year, and in same-store sales, 4.5%, an increase of 8% vis-a-vis 2023. The occupancy rate is maintained at 85% as we add new centers. And with the maturity of these centers, the goal is to increase the occupancy rate. We had a fourth quarter with 17 contracts signed, representing 1.128 square meters in new leases. We have a pipeline of contracts and project that should enable us to have a positive outlook of inauguration in the first quarter of '25 already. Now let's speak about the mall market and simply to put this in context, we have 4 malls the mature mall with 35 GLA, Suzano with 25,000 GLA, Olinda with 50,000 square meters of area rented and Urupema with 9,500 square meters inaugurated in 2023 in the center of Mogi. The portfolio is relatively small, of course, and each is at a different development stage. Regarding total sales during the year in the fourth quarter, BRL 536 million, representing an increase of 9.9% vis-a-vis the previous year. Same-store sale of BRL 482 million, also representing an increase of 6% when compared to last year. Total rents, BRL 28.3 million, representing 9% vis-a-vis 2024. And in same-store rents, a rent of BRL 18.5 million, representing an increase of 4% vis-a-vis the previous year. Now let's go on to the operational performance of malls. The net revenue for the fourth quarter was BRL 19 million, a growth of 6.7% compared to the fourth quarter '23. 23 stores opened, 19 new signed contracts and an occupancy rate of 91%. Now to speak in detail about the occupancy rate and the stage of each of the malls, it's worthwhile making some comments in Mogi, we have a mall that is highly consolidated, very mature. It is the prevalent mall in the city with an occupancy above 99%. This is an indicator that is not very normal in malls, and it shows how important this enterprise is. In Suzano, we have a well-occupied mall with 98% occupancy rate. The challenge here is to increase the rents and increase qualification. In these 2 cases, this is our focus, rent and qualification. In the specific case of Suzano, we had a strategic vacancy from a new lease. Presently, we are negotiating with a large retail store that will add further value to this enterprise. Regarding Patteo Olinda recently inaugurated, it is a large mall, 50,000 GLA, with a 50% occupancy with a positive outlook. We're working to add more activities, especially in the field of gastronomy. And the outlook is that it is undergoing an interesting process of maturity and is very important for the region. The Patteo Urupema, this is the smallest mall in our network. There has been a drop in the occupancy rate from the third to the fourth quarter to 86%. Now this is because of a single store that did not have good performance. And we're taking this opportunity to review our mix to find an activity that will generate traffic and increase activity at this enterprise. We're confident that this will be good for the venture in the short and medium term in Urupema. We had new hiring, new opening of stores, stores like [indiscernible] that always have had very good performance. We also had a mega store [indiscernible] that should be inaugurated in the coming weeks. From that viewpoint, therefore, we're looking for domestic brands in the market operated by local entrepreneurs. We're also working on Patteo Urupema with a corporate activity to ensure that the synergy that we have and our market knowledge of the city of Mogi and Suzano that are neighboring cities can help us optimize commercial effort so as to leverage the activity and the occupancy rate of Urupema, and we have seen positive result. Finally, we're reinforcing this development so that it can become an alternative for entertainment and gastronomy in the region. Urupema has the best theater rooms in the city. So all of this allows us to be confident that Urupema will have the development that we expect. I return the floor to Nakano.

[Interpreted] Thank you, Bicudo. We're now going on to Slide 8 to speak about our corporate vertical. Very quickly, I will go through the highlights. Some have already been mentioned. So net revenue of almost BRL 6 million with a growth of 7% quarter-on-quarter. NOI margin, 91% for the period. Occupancy rate still standing at 100%. And I spoke about Pinheiros and Paulista. In the time line to the right, you will see the estimated schedule for the delivery of these assets. Now we're not focused on the delivery schedule. I would like to highlight the quality of the construction. First of all, the location and our excellence in project and the quality of construction. If you look here, you will see that our platform is a very rich one. However, this does not mean that we will not think about postponing some of the projects that are within this time line. Whatever we can postpone to readapt the necessary intensity of capital, well, if we have the joystick in our hands, we will do this. In Slide number 9, as part of opportunities, I already gave you a quick overview at the beginning. The W is undergoing a soft opening. We're happy with the occupancy level and the hotel. In these 2.5 months since its opening, it has followed our planning, lodging, including Hilton and W at the end of the month is at 25% and the +Box that represents 41% year-on-year. We signed this in January '25, but the transactions were carried out at the end of '24. The sale of Ibis, this asset is no longer part of the company's portfolio. We go on to Slide 10 to speak about upcoming deliveries. I will not read about all of them. Klabin has already been inaugurated. It was for the closing in '24. This asset is operating. It is well leased. [ Decarto ] with 4,000 meters will inaugurate in the coming days. It's a ComVem that I will use very much as an example of ComVem that we want to bring to the market as part of our platform. And we have those of Cyrela that we acquired and the corporate building. In the graphs above analysis of the GLA evolution, you should see that the company is pointing to the fact that its strategy is focused on 3A and ComVem. The bar in the middle is larger in these 2 platforms, as you can observe because this is the strategic path the company has chosen, the retail part and corporate construction. Well, the delivery schedule, we have significant delivery volumes as of the second half of 2025 and forward. And an explanation on the recycling of assets as this is a topic that will arise in the questions. And I would like to begin early for that. As we said at the end of the last year, when we reported the third quarter, we invited Bradesco BBI to sell Rua João Moura and minority participations in Mogi Suzano without losing control. Of course, we never went out to the market without being sure that we would continue to have full control of the malls. At the beginning of the fourth quarter, we received a pack of proposals, some very interesting, and we set aside 2 or 3 for each asset to continue on with our conversations. In November, December, the market changed and the funding capacity of several pools that were making bids at the time was severely hampered. So some of the proposals were taken off the table because of a complete lack of capacity for fundraising in the market and not because the assets stopped being attractive or the development was no longer attractive. Unfortunately, this was an external circumstance that we did not imagine, which come about so quickly at the end of the year. This does not mean that our agenda has come to a halt. The company continues on its process of sale. Evidently, ourselves, the sellers and the buyers have to be more creative to fit in the sale of these assets because of the present day macroeconomic scenario. We are conversing with 1 or 2 proposals for each asset. Of course, the process has been lengthened because of the market situation. We have conversations for Rua João Moura, Hilton, Faria Lima and more recently, perhaps the self-storage platform, a superficial proposal, but as part of the strategy we communicated to the market is something we always imagine that would focus on the retail part. And we would stay with the retail and corporate part. So yes, we are a selling market. We're not going to do anything crazy. We're not going to burn out our enterprises. We have good constructions. And because of this, we have had conversations with 1 or 2 player for each development. The fundamentals of our assets are very good, and this increases the responsibility of the executive corp of the company. We do have to carry out the sales and this future delivery does require recycling. So we hope that during this first or second quarter, we will be able to sign a contract for these conversations. And of course, the market will be communicated. But the non-sale at the end of '24 was due to external sales and not the company's desire per se. We're not thinking of acquisitions, and we're devoting all of our energy to operation so that the absorption of rents can become ever more efficient and sales as well. Very well. I will give the floor to Dalpiero to speak about the company's financial data.

[Interpreted] Thank you, Nakano. Good afternoon. Here, we have another earnings call. I did participate in the third quarter. And now I will speak about the closing of '24. We are on Page 12. Net revenue increasing 11.4% year-on-year, BRL 41 million in the fourth quarter '24. In the annual view, we have a milestone, BRL 150 million in 2024, representing a growth of 4% year-on-year. If we look at NOI, an improvement quarter-on-quarter 3% and for the entire year, an increase of 1%. We continue on to Page 13, looking at the same data in the IFRS version. Net revenue with an increase of almost 13% quarter-on-quarter and year-on-year. This represents an increase of 6.3% with a volume of BRL 162 million in the NOI of IFRS. This figure is BRL 35 million for the quarter, BRL 130 million for the entire year of 2024. We go on to Page 14, still speaking about financial data. Adjusted EBITDA from the managerial perspective comparing year-on-year, we have a drop of almost 2% quarter-on-quarter, a drop of 3%. This figure can be fully explained because of the reclassification between line. This increases our asset base, leading to a higher depreciation and amortization base. We have an increase of BRL 30 million year-on-year, negative BRL 63 million, impacted mainly because of our CapEx investment cycle that increased because of financial expenses in managerial net revenue, a drop of 63% year-on-year, BRL 47 million visa-vis BRL 31 million in '23. This drop because of a drop in the fair value of assets. It's the valuation or appreciation of the PPI. And this appreciation should not have continued exponentially throughout 2024. Now the [ AVJ ] in our accounts in the case of a real estate developer has stages in the process. You go from the plot, from the plot to a construction, a construction that is delivered, a construction that has cash flow. And throughout that process, we have the appreciation of the asset. And of course, this appears in our balance. This is a noncash event, therefore. We go on to Page 15 to speak about our investments, CapEx. Here, we have broken down the values for '25, '26, '27 until 2030. Now this is one of the figures that we have jointly with the recycling agenda we're working intensely on this. The company has reviewed project by project and our capacity of what we can postpone, delay and perhaps move away from the projects. This is what we're doing in-house. And throughout 2025, we will communicate each of these movements. In the sale of asset agenda, this is our main priority, especially because of the market movements. We have a longer period focused on that agenda, but not due to the company. Now we go on to Slide 16 to speak about our indebtedness. Our net debt totals BRL 1.3 billion at the end of 2024. When we look at the net debt and properties for investment ratio, we're standing at 36%. Although we have a slightly high leverage, this leverage converses with the value of the assets that are being delivered and our investment becomes a building. And with the recycling, this will become cash. I think it's important to mention this vision. Another relevant vision is to highlight the lengthening of our debt. Although we have a leverage that is above what we desired explained by our investment cycle, we do have a calm distribution of our debt throughout the years. There is no short-term pressure and the debt indexes are quite friendly. 90% of our debt in TR plus IPCA plus 5, IPCA plus 6. So the debt profile we have, even though it is above what we want, does not have a profile that will be pressured presently in the market. Very well. We can now go on to the Q&A questions, and we can go on to that next stage. Therefore, we will now go on to the question and answer session for investors and analyst. Should you wish to pose a question please write in your name and your company in the Q&A icon.

The first question is from Bradesco BBI. The ComVem segment had several operating enhancements. Could you give us more color on the change of tenants, for example.

Thank you for your attendance and for the question. This is Nakano speaking to you. There was not a change in mix, in fact. What happened was a maturing of the tenant. The tenants are doing well. They became more mature. They enhanced their operations. There is an incredible increase in the flow of ComVem. I think ComVem is being understood by the final user and stores with a good performance have been changed year-on-year. Very modestly, I would like to say that this did not surprise us, although it was something robust. It is the natural path for ComVem. If you project ComVem through the years of what is about to come in we have 25 ComVem. They're all in very good locations in the state of São Paulo. They have robust rent and automatically, therefore, quarter-on-quarter, you will see a growth in the indicators. We're now attempting to increase the revenues or bring them in-house. That is to say renting the stores and ensuring the tenants can do their work at a faster pace. And the increase in figures is due to the increased maturity of the platform.

The next question comes from [ Mateus ]. The CapEx that you use for the development of ventures was below that of previous quarters. Is the idea to maintain those levels going forward?

Hello. I will answer this question for Mateus. In fact, we have created that agenda. We briefly referred to that on the third quarter, that adjustment in our route. I remember making that analogy, and it's important to redeem it. We began the year 2024 with interest rates at 9% and at the end, we ended up with 12%. This was a macro change, a violent change during the trajectory. And there are projects that we begin and that we have to conclude. Notwithstanding this, at the end of the third quarter and beginning of the fourth quarter, the company focused on the projects to see what we could save, what we could postpone. And this work will continue on in 2025, 2026. And of course, we will communicate this through different channels in 2025. Every time we improve the expenses for each project and we maintain our commitment that, yes, we are going to work on that agenda for a mix of assets that will help us in terms of our leverage and open up room for a new harvest of investment in real estate CapEx.

Next question from Lucas [indiscernible]. Patteo Urupema continues to bring negative impacts. When do you think you will reach a breakeven situation? And which is your vision for 2025?

This is Alexandre Bicudo. Thank you for your question. We're quite confident that in 2025, we will have that reversion and that we will reach that breakeven point. We're acting on several fronts. First of all, the commercial front, we had a very good fourth quarter with the signing of new contracts and inauguration of new stores. As I mentioned before, we have a relevant inauguration pipeline for the first quarter. Commercially, we are strengthening our corporate work so as to optimize our market growth in Mogi das Cruzes and in Suzano. These are markets where we have entrepreneurs that can and should be interested in expanding their work at Urupema. So that commercial part is very relevant for us. When it comes to positioning, we're reinforcing Urupema as a center for gastronomy and entertainment. As I mentioned before, our movie theaters are very relevant. They're the most streamlined in the city. We have a relevant offer for the public at large. We have restaurants like [ Sava ] that are very attractive for the Mogi das Cruzes market and financially, we are working ever more with the development of the mall so as to reduce discounts, to reduce the default rates and of course, ensure that the mall will mature and go beyond that problem of default and discounts. And it is our understanding that the year 2025 will be very positive for the Patteo Urupema.

The next question comes from Matheus Meloni from Santander. Could you give us more details on the worsening of the cost of the 3A platform?

Okay. [Audio Gap] of 2023. When those costs are compared with 2024, it seems that we have a worsening. When we look at the platform and eliminate that, we have a rate of 5%, even though the IPCA had significant changes at the beginning of the year. We were able to maintain interesting performance when it comes to 3A. And as Nakano mentioned, the 3A has occupancy rates of 3A and a very good outlook for future deliveries.

The question-and-answer session ends here. We would like to return the floor to the company's CEO, Alexandre Nakano, for the closing remarks.

Once again, I would like to thank all of you for your attendance. I thank you for your questions. Time is always very short. So we are all at your entire disposal should you have additional doubts or should you require additional explanations. As a final message, HBR is a company for real estate development. Since the beginning of the real estate cycle, the project, the land, the approval of the construction and much more, all of these stages, we have been able to surplus with excellence. Recycling is the last box in this cycle. We have not come to a standstill and throughout 2025 in a more challenging environment, we hope to give you some good news. Our control panel has several pools. Now we're always looking at cash at present and all of the decisions that we make to sell or to postpone an asset or one venture or another is always done by focusing on the company cash. Once again, we are not impacting the company without focusing on the cash. And we hope that in the coming months or weeks, we can come with good news for all of you. Once again, thank you very much, and have a good afternoon.

The HBR Realty video conference ends here. We would like to thank all of you for your attendance. Have a very good afternoon. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]