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

Good afternoon, ladies and gentlemen, and welcome to HBR Realty's video conference to discuss the results with the first quarter 2025. This video conference is being recorded, and the replay can be accessed at the company's website, www.ri.hbrrealty.com.br. The presentation is also available for download. [Operator Instructions] Before proceeding, please bear in mind that the forward-looking statements are based on the beliefs and assumptions of HBR Realty's management and the 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 to take into account the events related to the macroeconomic environment, the segment per se and other factors could cause results to differ materially from those expressed in the forward-looking statements. Present at this conference are Mr. Alexandre Nakano, CEO; Mr. Alexandre Dal Freitas, CFO and Investor Relations Director; and Mr. Alexandre Bicudo, the COO. I would now like to turn the floor over to Mr. Nakano, who will begin the presentation. You may proceed.

Good afternoon, everybody. Welcome once again to the earnings results presentation for the first quarter '25. Before going to the key messages, I would like to broadly highlight some points beginning with our 4 business verticals. In the mall vertical, the year-on-year growth is very important especially for the malls that are more mature, 2 of them with occupancy of almost 100%, which means that they already require new expansions that we have been implementing lately. I am referring to the Mogi das Cruzes shopping, and in the agenda we report on the development of the platform more than on the operation of the 2 towers that are presently [Audio Gap] is a personal satisfaction because of the results it delivers. It is a platform with a great deal of focus on energy, and quarter-on-quarter, you will observe how thriving the growth of this convenience and proximity tower is and in opportunities highlight of the entire presentation is coming into operation of W into the platform very quickly. W enters with a very robust and important revenue. And it also comes in with its expenditures. So the revenue will have growth throughout the year, but most of the expenses begin on day 1, and this will be reflected in the figures. We are now on Slide 3, with key messages. Net revenue growing 9.5%. Adjusted EBITDA expanded 16.1%, increasing the margin 2.7 percentage points, and Patteo Klabin the great novelty with 7,000 square meters coming in with 91% of an occupancy rate, a true success. And this shows, once again, the power of the platform. Even with this additional 7,000 square meters, we maintain occupancy at 85%. Growth revenue with a growth of almost 6%, reaching BRL 43 million, and net revenue, almost BRL 40 million. NOI with a reduction of 3%, and Dalpiero will give you more color on that. This effect is explained because it comes in with revenues and expenses. Revenues are growing and the expenses are integral as of day 1. In the opportunities platform, we have gross revenue of almost BRL 5.5 million and +Box with BRL 1.3 million in gross revenue. We had the inauguration of the second +Box unit near the PKD bridge with 3,200 square meters and the sale of Hilton Garden Inn. In the coming 60 days, we should go on to the final documentation and settlement of the sale. Now the Garden Inn sale is underway and the conversation with the other understandings that we have mentioned here continue. In the last month, they have become much broader. And obviously, the macro market doesn't allow us to have too many options, but we have 1 or 2 good conversations in a month that we believe allow us to continue on with a negotiation. So we hope that throughout the year, we will be able to consolidate the sale of some of our understandings. Once again, we will offer you more details as we evolve in our conversations. ComVem had a net revenue reaching BRL 5.5 million, a growth of 25%. NOI with an expansion of almost 30%. And this is in accordance with our strategy. It's something we expected. But I present this to the market with a great deal of satisfaction because it means that the platform, the ComVem business, has been well accepted by tenants. NOI margin growing 2.8 percentage points, standing at 76.9%, and Patteo Klabin adding 7,000 square meters with a Decathlon store as an anchor and stores and restaurants on the ground floor, which means that we have reached 50,000 square meters of GLA in operation in a occupancy 2 towers occupied with a net revenue of BRL 5.3 million, growth of 1.6% per year. Corporate Paulista with 13.6% construction progress. And in April, the housing license for the corporate building, enabling us to begin works handed over to Albert Einstein, and this should be completed at the end of the second quarter -- mall -- semester. HBR sales reaching BRL 389.7 million, up by 4%. Rental BRL 33.5 million, occupancy rate 92%. And we signed what is called Poupa Tempo, which was inside the mall. We have put it outside with a wall separating them. And we were able to close a lease contract with Riachuelo that will begin the works to become part of the mall. I will give the floor to Bicudo, who will speak about the content platform and the malls.

Well, thank you, Nakano. Good afternoon, everybody, as Nakano just mentioned, we had a quarter with very good figures. In terms of total sales, BRL 78.6 million with a growth of 19.6% vis-a-vis the first quarter '24, and same-store sales 12%. Regarding rent, BRL 7.6 million of revenues from rentals with a robust growth of 22.4%. Regarding same-store, 7.8%. Now occupancy is maintained at a level that we deem to be quite satisfactory, 85%. We had several agreements inaugurated since the first quarter of '24. As a great highlights, the inauguration of Klabin Patteo with 7,000 square meters on January 27th, and we went beyond 50,000 meters in operation of GLA because of this asset. Now during that period, we had the signature of 17 contracts especially for ComVem Pinheiros that will be inaugurated this year and already has a growing occupancy rate. And we had something that is perhaps more relevant, 27 stores opened in the quarter. This is one of the most important quarters with almost 7,000 meters of GLA. This is very important for us. We have operations like schools, the restaurant Paparoto, therefore, significant movements of inauguration of stores. And we should have the same or similar activity of stores inaugurated during the rest of the year. Now we go on speaking about the malls. We had a good quarter once again. Total sales, as mentioned by Nakano, coming floor to BRL 400 million, an increase of 4% vis-a-vis last year. Urupema, same base, growing 26%, showing that there is room for development after the inauguration of the mall. Same-store BRL 356 million. Urupema, once again, with 16% growth in sales. We were impacted by the mismatch of Easter. It went from March to April. So there was this offsetting regarding total rents, 10.9% increase compared to last year and 18.6% of growth in Olinda. We mentioned the growth of rents during this period, same-store rent BRL 23 million, a growth of 4.4% vis-a-vis last year with a highlight for Mogi. And in Urupema, we still have a level of discounts because of its level of maturations. Now regarding the general performance, we had net revenue of BRL 16.9 million, a growth of 2.9% vis-a-vis first quarter '24. NOI -- I'm sorry, BRL 14.6 million, and occupancy rate standing at 92%. Mogi continues with a very interesting occupancy rate. We have worked incessantly in the lease of the enterprise, and this is gaining trust. We're also working on developing projects for expansion. This will add an additional 6,000 square meters and it will become consolidated as a benchmark in the city. In Suzano an interesting Novelty, the signature with Riachuelo, 1,600 square meters, and Riachuelo should inaugurate the store at the end of September, and we want Christmas with this operation -- operating at full steam. We have new operations as well or qualifications that means that are very interesting. As an example, we will have an expansion of CNA. We have Gelato Borelli and other very important inaugurations. In Olinda, the occupation is 86%. We have a thematic part. Urupema 75% occupancy rate, and we have a food court. And we're reviewing the mix of activities and operations. It is our understanding that we will replace stores that are leaving with others that will allow us to have a better mix. That is what I wanted to present. I will now turn the floor to our COO. We are now on Slide 8, our 3A corporate platform. I'm not going to refer to the highlights. I have already mentioned some of them. I'm going to stick to the time line of our assets in Pinheiros, the housing license was issued at the end of April. They're beginning the internal works. The forecast is to inaugurate this in 1 year for the public in general at the bottom of the building to the left of the picture, we will inaugurate this in September or October. Once again, this space of the street, and it will be launched before the hospital itself. If I do a building on Santo Amaro with 10,000 square meters. We are holding 2 conversations for lease for the users. Cotovia on Ibirapuera Avenue jointly with Cyrela. Well, it is part of ComVem. We have been working on the lease of 2 floors, 2,000 square meter each. Carandá, we're conversing with the lease with a user, Paulista, 13.6% of advance in the works, and there is a conversation ongoing and still very incipient for a lease. We're going to see if in the next quarter, we can get more traction out of this conversation. Pedroso Alvarenga this is a project that had legal approval. But with the change of the master plan, the plot was tripled in terms of area, usable area so we had to reapprove the project. In Chucri Zaidan Enxovia, this is a project that we're very fond of. We're intending to convert the tower in a residential building. We understand that the corporate market in the region will take 5 to 10 years to recover prices. Prices in the sense of paying for the investment. And in Chipre Faria Lima, we're going to speak to the city hall. The price has already been defined. And once again, it is within the terms that we have promised. On the next slide of opportunities, a great highlight is W Hotel inaugurated in December of last year. It is a project that has surprised the owners. Because of the results, it has invoiced BRL 3.2 million only in accommodation revenue. This hotel has a very strong component of beverages and food, representing 40% of the revenue volume. So it has had very good traction. And in the second quarter, the figures will be even better, so you will see how positive the operation of this asset is. +Box reaching 91% occupancy, a very good one. And it grew 19 percentage points vis-a-vis the first quarter '24. And the revenue growing almost 40%. There's a growth in the occupancy rate, but we're charging more and better within the +Box platform. And we have due diligence, in the next 40 to 60 days, we should be able to materialize this sale. For Hilton Garden, I talk about our coming deliveries. To the top at the right, you see the analysis of our evolution of GLA. When it comes to participation of the platforms, we have 95,000 for ComVem, 61% for 3A, 70,000 for malls and also 47,000 for opportunities. Each has their own characteristics. And our development is within ComVem and 3A. And if you look at the lighter gray columns, you will see which will be the development in the coming years. And this has also been designed in the table below. There is a linearity of deliveries. Not everything is concentrated in the same year. And we're thinking of distributing the CapEx. We'll be able to better work with the company cash. I will now give the floor to Dalpiero, who will refer to the financial data for the quarter.

Thank you, Nakano. Once again, I will speak to you about the HBR results. I will speak about the managerial revenue with an improvement of 9.5% year-on-year, totaling BRL 38.7 million in the first quarter '25. If we look at the revenues, the increase of 25% and the opportunity platform with an increase of 19.4% and vis-a-vis the first quarter '24. In opportunity, the highlight is the beginning of operations of Labotel. We have a higher impact on the revenues, of course, because the hotel is already providing expenditures. When we look at managerial NOI, there is a drop of 3%. And before referring specifically to that drop, I would like to speak about ComVem as it has a growth of almost 30% quarter-on-quarter, and the platform with a growth of 5%. When we look at that minus 3% figure, it's the impact of W Hotel and operational results. As Nakano mentioned at the beginning, we had the top opening of the hotels and several of the expenses have become part of our fix cost, and we have begun using the hotel. So in this first quarter, this impacted the net NOI. If we look at everything without this data, the platform is stable. And in the consolidated view, we had a growth of 6%. Now the hotel is performing well at a greater speed than we had scheduled, and we look upon this with very positive eyes. NOI, IFRS, the same drop of 2.6%. On the next slide, we speak about adjusted EBITDA. In the managerial view, the group was 16.1%, comparing it with the first quarter '24. Now the positive evaluation is because of the increase of net revenue, but here, we also have a reduction of 24.3% in expenses, 9% reduction in professional services and BRL 0.5 million in PPD. The positive result of EBITDA signals to the fact that the company has a great deal of focus, not only on revenue, but also all issues related to cost. The FFO negatively impacted when compared to the first quarter '24 because of the increase in financial expenses. Net profit also with an impact. We have 2 events here, the financial results for the period, an [ offenser ] in this equation, but we also have an accounting impact without a cash effect. We had an impairment that we recognized with an impact on net profit. In the next slide of CapEx and strategic asset sales, this is our CapEx curve. In the first quarter of '25, we have a stake of BRL 22 million for HBR. When we compare this with the first quarter of '24, we had BRL 72 million. So we're showing a reduction in CapEx expenditure. As we have announced and commented and mentioned today, we're looking at project per project in detail to see what we can postpone. And this is a reflection of that. In the sale of assets, once again, we signed a commitment in Rio. We're in the diligence phase. We continue to look at proposals for our assets. Now the great difference that HBR has is that it owns very good assets. Even with a more difficult macro scenario, we have been able to have positive conversations with possible buyers. And this year, we can possibly speak about other transactions. To close this slide, we have an increase in EBITDA, reduction in expenses and reduction in the speed of the expenses. So we reaffirm the company's commitment of having discipline regarding these figures to offer more value to the company. In the next slide, we have the managerial debt. Net debt of BRL 1.4 billion, 40% of the net debt over PPI ratio. We have a length and indebtedness profile. And we have several different rates. More than 80% of our debt is linked to real estate financing debts that, even in a scenario with an increase in interest rate, we managed to have protection. It's important to highlight our indebtedness profile and our capacity for payment. With this, we conclude the presentation, we can now go on to questions and answers.

[Operator Instructions] The first question come from Mr. Herman Lee from Bradesco.

Given the number of deliveries of GLA expected for 2025, which will be the increase in revenue for content? There has also been a reduction in margin. Could you explain why the reason for this effect?

Let me begin with content. I cannot tell you how much this will generate in revenues specifically. I'm going to interpret your question differently. What we can say is that quarter-on-quarter, we have a robust and sustainable evolution in margins and in the results of ComVem. All of us speak about this. We have a mantra for operational efficiency, and I think ComVem reflects this, we have a focus on the brand. We are able to present this in a very interesting way in the new areas where we carry out launches. And we have done other things concomitantly. We have leased it before we open it when we truly lease it, we already have revenues. We have occupancy higher than 85% and it continues reduction of concessions and discounts. So more important than giving you guidance for the 2026, guidance is to explain how we work with the platform to generate consistent results. Now we spoke about ComVem [indiscernible] that will open before the hospital itself with expressive occupancy rate. This added to this commitment, this discipline is what enables us to have results within the platform. When we speak about a reduction of the NOI margin, it was impacted by the opportunities platform. I mentioned this, and it relates to the W Hotel. With coming into operation of the hotel, initially, we have fixed costs in the operation and revenues come quite slowly. In January and February, we had carnival, which is not a strong period for accommodation in Sao Paulo. And our results show a volume that is higher than what we had expected. So this negative impact will tend to be a one-off item. And in the second and third quarters, we will have an expressive increase in results.

Our next question comes from Mr. Matheus Meloni from Santander.

First question, could you give us some update on 3A Pinheiros? How are the works and time line for delivery and implementation of Einstein Hospital? Could you give us more details on the ramp-up of W Hotels during the year? How long will it take for the asset to mature and be ready for a possible sale?

Matheus, thank you for the question or questions. Regarding 3A Pinheiros that I mentioned during the presentation, I will give you more details. The housing license came out in April. We delivered it to the Einstein Hospital. If you drive in front of the building, you will see the plate of Einstein Hospital. They're mobilizing to enter the building. Now based on our conversations and based on our interactions, this hospital will inaugurate at the end of the second quarter of the coming years. It's a highly complex work as we're dealing with a hospital. About the hotel, the maturation of our hotel as with shopping malls is always in the third or fourth year based on what we can see and of course, it would be irresponsible to say 3 months, but the hotel is doing very well, not only in terms of accommodation, but also in the restaurant and events front. Accommodation, well, the price -- the matured price is beginning with $500 per day. And we thought this would only happen in the second year. If you go in to book the hotel, the price is $500. So the price maturity has been reached, but you can always increase this. Maturation is above expectations and restaurants, for example, on Friday or Saturday night, if you don't have reservations, you will be turned down because they're not able to observe the number of customers. I do hope -- or this is a belief I have that we will put that asset for sale perhaps in the second semester of 2026 and continue on with what we had projected.

Our next question comes from Andre Santana, an individual person.

Can you speak more about this investment, which assets are being analyzed and which is the timing?

Thank you for the question, Andre. This disinvestment agenda, I always make it clear that HBR works in real estate development and selling as part of real estate development, we're aware of that, and we devote a great deal of energy to this thesis. As I said, at the end of the year, the market changed significantly. The buyer or the seller needs to be highly creative. What do we have in our showcase presently, assets that are mature that have a good financial equation. Faria Lima has reached maturity, [indiscernible], the equation is given. We have a long-term contract with Einstein Hospital. Hilton already had good operational maturity. Self storage also has very good maturity. We can begin speaking about sale. And if everything works well, upon maturity, we will sell these in 2026.

These are the enterprises that we believe we can proceed with the sale. As Dalpiero mentioned, this facility is a conversation because of the lack of money in the market at present, that money is geared to those who have a good construction, good bricks and we are in the positive side when it comes to break through a good construction. In the coming quarter, we can detail -- give you more details on all of these assets.

Our next question comes from Mr. Antonio Pascali.

Regarding the sale of assets, do you feel that the scenario is somewhat more favorable? Are there assets under more advanced negotiations? If affirmative, could you share with us which are these assets? Two, regarding ComVem an mall, will you give us more color in terms of what we can expect in terms of same-store sales and same-store rents? Also give us details on the assets.

Thank you for the question, Mr. Antonio. Regarding the sale of assets, I answered this in the previous question. All are under negotiation, some at more advanced stages than others. Now regarding the second question, I will ask Dalpiero to answer.

Now in terms of what we can expect in terms of same-store sales and same-store rents for coming periods, I can't offer any type of guidance. But when we look at the platform of ComVem and the malls, we see that they're going in the right direction. In malls, we will have consistent results. There was a mismatch in Easter this year. This impacted the same-store sales number. We are normalizing this in the second quarter. When we speak about rent, there are interesting outlooks. The assets, most of them are dominating in the regions. We capture value in rents throughout the year. A question that could be a variable of this is the economic scenario via the impact on the retail sector. There are other builders working with retail, and we haven't seen a loss of impulse related to that. What we are looking at are the sale and rent metrics being positive until the end of the year.

Our next question from Mr. Mateo Suarez from Market Makers.

There are several questions. If you could comment on efficiency gains for SG&A? If we can expect new gains going forward? And which will be the improvement of capital that will come from within the company, which is a term to decrease the growth of net debt or to decrease the amount of debt?

Thank you for the questions. It's important to speak about these points. We mentioned the comparison with the first quarter of '24, but we already have substantial gains in the new enterprises, and we began to make adjustments at the end of the year, and they will appear during this year. Without any type of guidance, we do hope to see a reduction of SG&A consistently throughout the quarters. The second part of the question, how much of the improvement in company capital will come from within the company? Now most of the enhancement will come from in-house. Why? We have looked at the costs. I'm referring to operational costs and fixed expenses, PTA, but we have also looked at the capital recycling, which will realign our capital structure. We look at project by project as Nakano mentioned. We have projects where we see the possibility of withdrawing, of discontinuing or postponing. So this means we have a readaptation of our capital expenses quarter-on-quarter, and we're quite mature in terms of this. We're putting order in the house basically and -- well, businesses don't happen overnight. We carry out these adjustments throughout the year. And the term for the reissuance of net debt depends on the recycling of assets. When our asset recycling gains force, we will see an expressive reduction in our leverage. So everything is part of our working strategy. We know that the reduction of leverage and net debt will come from all of this, but we never allow operational efficiency to become a secondary issue. We have a focus on all of these simultaneously.

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

Thank you. And allow me to carry out a very quick wrap-up of the call. You were able to see that the operational results are materializing. Now this change is a reflection of what we already knew about our potential, the potential of our enterprises and our rentals. They're in line with our in-house planning and all anchored to the ComVem. We understand that ComVem is gaining relevance -- ever more relevance in the company as part of the 3A platform. It's an enormous satisfaction to go through the building and see the placard of the Einstein Hospital. This was a true achievement, and we're very happy to see that we were chosen to have one of the best hospitals as part of our group and to carry out that social function in our enterprise. In the recycling agenda, the Hilton Garden is under sale and our brickwork, which is very good. We're conversing about it. We hope that in the coming months, we can offer you good news. Our leverage level, it's always in our radar. The cash flow of the company is also very important. So we are going to pursue with our development agenda with enormous responsibility when planning our growth. We know when to postpone, when not to postpone, when to speed up a sale. We control this very carefully when it comes to recycling and deleveraging our business. And I'm not trying to be more or less, it's not looking only at the rents. We work with real estate as a whole, the acquisition of land, all the way to the sale. And our purpose is to deliver responsibility and excellence at all stages of this real estate journey. We're with the first tranche, which is a traction for rentals and sales. I would like to thank all of you for your attendance, and I wish you a very Happy Mother's Day.

The HBR Realty video conference ends here. We would like to thank all of you for your attendance. Have a very good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]