HBR Realty Empreendimentos Imobiliários S.A. (HBRE3) Q2 FY2025 Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to HBR Realty's video conference to discuss the second quarter results of 2025. This video conference is being recorded, and the replay can be accessed on the company's website. The presentation is also available for download. [Operator Instructions] Before proceeding, we would like to emphasize that forward-looking statements are based on the beliefs and assumptions of the company's management and on current information available to the company. These statements may involve risks and uncertainties as they relate to future events, which, therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should take into account that events related to the macroeconomic environment, the industry and other factors could cause results to differ materially from those expressed in the forward-looking statements. Today with us are Mr. Alexandre Nakano, CEO; Mr. Alexandre Dalpiero, CFO and IRO; and Mr. Alexandre Bicudo, COO. I now turn the floor over to Mr. Nakano to begin the presentation.

Good morning to all. Thank you so much for your interest in the company's results. I'm going to start with Slide 3 with the highlights for Q2 2023. Before the highlights, I would like to say that we have achieved a milestone, BRL 50 million in terms of net revenue. This shows us that we are on the right track in terms of the quality of our enterprises, the rentals as well. So by reaching this milestone, we feel even more energized to move ahead and improve the company's results even more. The net revenue, as I said, grew by 36%. EBITDA was 19% comparing Q2 2025 with Q2 2024. In the opportunities platform, the gross revenue was BRL 22 million. And remember, we include the hotels here, self-storage and parking lots. The highlight is the W Hotel, which we opened in December 2024. We have an arrangement with Marriott. We started the operations very smoothly. We had a soft opening for three months, and then we ramped up the operations. This is why in Q2, we see a marked improvement in the gross revenue, which grew nearly 61% relative to Q1 2025. In the wholesale business, it is the second semester that is really good between September and December. So we expect to have better results there in the second semester. This is the main business under the opportunities platform. The occupancy rate is 80% on the platform. In terms of ComVem, -- you will hear more from Bicudo later, but this business line has been growing substantially. If we look each ComVem as an enterprise, we have different size for different enterprises. But when we pull them all together, it's as if we had three or four medium-sized malls. But ComVem is a convenience type of retail, and this gives it a lot of resilience. And this is what the figures demonstrate. Net revenue grew 47% relative to Q2 2024 and quarter-on-quarter, Q1 and Q2, it grew by 11%. The NOI increased by 70% and totaled nearly BRL 5 million in the period, and the margin has been improving and is approaching the shopping mall margin. So the ComVem business is a type of retail that we really believe in. And this margin is going to grow as we deliver new ComVems. They are in more upscale neighborhoods in Sao Paulo. The rents are going to be better and the NOI is going to be better as well because of the location. So we should see an improvement as new ComVems are delivered. And then again, I would like to highlight BCP and Vila Madalena, which have grown substantially by 154% versus Q2 2024. We acquired BCP knowing that we had to catch up in certain regards, and this is happening. So we have replaced some operations. There was some revamping. The cinemas now have more VIP halls. So we have a better flow. The average ticket also has improved. And we have new operators, which also have allowed us to improve the results. And then Pinheiros. The stores under the Einstein Hospital, we have just delivered that 3,000 square meters, and we are going to open this in October. The refurbishment is already taking place. The occupancy rate is 85%. And remember, we added 10,000 square meters in Q2. So we have been delivering good GLAs whilst maintaining the occupation. That is our commercial department has been able to maintain the occupancy rate and the GLAs as well. In the HBR 3A, the net revenue was BRL 5 million, a growth by BRL 5.5 million. The 3A Paulista has achieved 20% in terms of the construction progress. Pinheiros, 3A Pinheiros, we have delivered this to Einstein and Einstein is now refurbishing the towers. They are going to open it next year. The occupancy rate is 100%. And even the new towers will be opened after they have been rented out so that we can maintain 100% occupancy rate under the 3A platform. In terms of the malls, the net revenue was BRL 18 million, a growth by 8% relative to Q2 2024. NOI was BRL 15 million, a growth by 12% relative to Q2 2024, and the margin was 85.1%, an increase by 3.1 percentage points relative to Q2 2024. The highlight for Mogi Shopping and Olinda was the increase in gross revenue. The sales grew as well by 10% and the occupancy rate for Mogi is 92% and Suzano, 97%. Actually, Mogi, 100%. The NOI has increased substantially, even though the shopping mall has 100% occupancy rate. So this means that the shopping mall grows despite the fact there are not new shops there. For Mogi, we can -- we are going to do an expansion. We have to refuse some operators because we don't have the store space. So we are expanding it, and this should be announced very shortly. I will now turn the floor to Alexandre Bicudo, who's going to talk about ComVem and the shopping malls.

Thank you, Nakano. Good morning to all. For ComVem, the second quarter was very good. We made relevant deliveries. We see the results of Klabin and some other ComVem enterprises have matured such as BCP and Vila Madalena. As regards to sales in Q2, BRL 101.4 million, that is a 32.1% growth relative to Q2 2024. In terms of SSS, BRL 75 million, plus 29%. In terms of rents, total of BRL 8.8 million, a growth by 29.1% relative to Q2 2024 and same-store rents, an increase by 5.7%. The occupancy rate is 85%, which we believe, it's a good occupancy rate, especially if we consider our portfolio. We keep launching new enterprises, and they have to mature. In terms of NOI, nearly BRL 5 million, we grew by 70% relative to Q2 2024. So this is a very, very good figure. In terms of sales, they have been growing in terms of CAGR by 16.7% since 2022, and it has been very strong and constant. Despite the increase in GLA, we still keep an occupancy rate of 85%. In Q2, we opened 18 stores, nearly 5,000 square meters. And we highlight Decathlon at Klabin, which we opened at the end of May. And this is a very successful operation with very good sales. In the first semester, we opened 45 ComVem stores, 12,000 square meters in terms of GLA. So we will have -- we will see 2025 as the record year in terms of the opening of ComVem shops. Moving on to the malls now. The results are very good, as Nakano said, four malls in the portfolio in terms of total sales, BRL 452 million, a growth by nearly 10% relative to last year despite the challenging scenario. In terms of same stores, BRL 413 million, a growth by 7.2%. And the highlight is Suzano, 11.3% growth and Urupema as well, 10.2%. This shows that the enterprise is maturing. In terms of rents, BRL 29 million in Q2, a 7.1% growth relative to Q2 2024. And the highlight here is Mogi, a mature shopping mall, nearly 100% occupation. The rents have grown by 8.3% and Olinda also 7.8% growth. In terms of same-store rents, there was a growth by 5%. And the highlight is Mogi, 5.8% and Olinda, 4.1%. Moving on. In terms of the performance, the net revenue in the period was BRL 17.6 million, an increase by 8%. And we highlight Mogi, a growth by 13% and Olinda, a growth by 8%. The NOI was BRL 15 million in the period, an increase by 12.1% in the quarter, and the NOI margin reached 85.1%. In terms of occupancy rate, it was 92% across the portfolio. And I would like to make a few comments here. Mogi has 100% of occupancy rate. We have been working to have better shops with new rents or refurbishings, revamping of existing shops and also to improve this shopping mall, which is quite mature. At Suzano, 97% of the floor space is occupied. In the first semester, sales was strong, especially Riachuelo. We are going to open Riachuelo in the beginning of October, and this is going to increase the flow into the shopping mall. In addition to the opening of Riachuelo, we are going to have the refurbishment of CNA, and this is going to improve our anchor shops. In Olinda, the occupancy rate is 86% -- there is a maturation period that we expect. We have made major sales in Q2 with -- we have sold a store to [ Roney ], a cosmetic shop, and the outlook is really good. And then in [ Urupema ], 76% of occupation in Urupema, it is in the process of maturation. We have one of the spaces. We are looking for an anchor shop to occupy the space, which is going to improve the attractiveness of the Urupema shopping mall. It was a very good second quarter. Nakano, please.

Thank you, Bicudo. I'm going to talk now about 3A. I have talked about the main highlights. But in addition to those, we have an occupancy rate of 100%. We have made new deliveries. We are having discussions, and we want to maintain 100% occupancy rate in the new towers. For Itaim 2 and Paulista, we are having discussions with a mono user. If you look at the right-hand side graph, you will see and we said that in previous calls, is that we are very careful in managing our cash. We discussed the projects that we are going to start, those we are going to postpone and those we are going to exit. We had a corporate tower in [indiscernible] in the Pinheiros marginal. And in Enxovia and Chucri Zaidan , we have been monitoring the movements of the corporations in that area. The vacancy in that region is very high. This puts pressure on rental prices. And we have to gauge that to see if we can pay for the investment at the current rental rates. We have been talking with the other partner in this tower. We might exit that and turn it into a residential project with the developer. The other projects are moving on nicely. We have Faria Lima -- Chipre Faria Lima. We are going to participate in the auction. Then in terms of the opportunities, the W Hotel is the main enterprise in this vertical because of its relevance and size. And +Box is well positioned. We have three assets. I'm going to talk about recycling 2 of these 3 assets. But +Box has proven to be a very good business for us in terms of occupancy, in terms of growth in gross revenue. And as regards to the W Hotel, we had a soft opening in January, February and March. And in April and May, it broke even. It has the potential to become a very successful enterprise. And in Q3 and Q4, you will see a much better result in terms of RevPAR of the hotel. As regards to the Hilton Garden Inn, the due diligence has been carried out. The buyer is now formatting a fund to absorb the hotel. And in the next few days, we should be signing the final documents. And in terms of +Box [ Mice Box ] we are going to recycle two assets. On Slide 10, we have the next deliveries. On the left-hand side, you see the projects we are going to deliver. On the left-hand side, at Brigadeiro, 1,000 square meters. We are talking with GPA, and we should have a supermarket there. In the other projects, we have projects with Cyrela, and we have been following up on the progress of the construction, especially here, Itaim 2. The construction work is going really well. It should be delivered at the end of 2025, the beginning of 2026, and we are discussing with the renter. And then on the right-hand side, you see the GLAs that we have been developing, and we are focusing very much on ComVem and the towers. In terms of deliveries, we are going to deliver most of them in '26, '27 and '28. And this is the end of the pipeline that we have contracted so far. In ComVem, ComVem includes the ones that I mentioned, which are within Sao Paulo, very well positioned in very important crossroads or corners and the rents tend to be a lot higher than the ComVems that we currently have. With these deliveries, the NOI of ComVem is going to increase as they ramp up operations. Now I'm going to turn the floor over to Dalpiero.

Let's look at the financial performance on Slide 12. We have net revenue at record levels. We achieved BRL 50 million, a 36% increase relative to Q2 2024, which is very important. The increase in net revenue reflects the good performance of the verticals opportunities, but also ComVem, which has been performing very nicely, the shopping malls and also in a more stable way, 3A. When we look at the revenue bar, we see a good distribution of net revenue between opportunities and the shopping malls, and we are going to see an increase in the yellow bar here, which will reflect the performance of the W Hotel. When we look at the NOI, there was an 11% increase relative to Q2 2024. And in terms of the IFRS, the increase is by 15%, nearly 15%. And then we have this graph here to show the stability in terms of SG&A and taxes. This has become stable. And when we compare BRL 21.9 million in the first months of 2025, there was a reduction of nearly 3% relative to the first semester of 2024. The ratio between net revenue and SG&A is at its lowest, and this has to do with our careful review of expenses quarter after quarter, we have deliveries, but we maintain our discipline in terms of restraining costs as much as possible. So this figure should now remain flat, but I just wanted to highlight it in this quarter. Then we have the EBITDA. Adjusted EBITDA was nearly BRL 22 million in Q2 2025. A substantial increase with a margin of 43.5%. This is supported by the growth in platform and the strict control of administrative expenses. As you can see here, EBITDA grew 19% and 22% in terms of IFRS. In terms of FFO, the negative FFO increased in managerial levels, and this can be explained by the increase in financial expenses because of leverage. Leverage, as we said, and Nakano is going to give you more color about it, we are going to focus on reducing the leverage with the exit of the assets that are being negotiated. And then the impact on net income has to do with the increase in financial expenses. So we went from a loss of BRL 19.5 million to BRL 33.1 million. And as regards to CapEx, this is the CapEx to be incurred in 2025, most of it has been contracted. And this has to do with Paulista, the Cyrela deliveries, which should take place this year or in the beginning of next year. And in 2026, CapEx should be a bit higher. But as Nakano said, we are focusing on delaying and maybe exit projects as well. And then in terms of net debt on the next slide, you have the amortization schedule. There is no major concentration in none of the next five years, which means that we feel comfortable in terms of debt, whilst we know that it has to be decreased and will be as feasible. And here, I finalize and I open the Q&A session.

[Operator Instructions] Our first question comes from Mr. Meloni. I would like to understand the impairments in the quarter and what we can expect going forward.

The impairment had to do with the unities of the Fortaleza enterprise. We receive these units as the result of a swap and they were sold. We had 60%, 70% sold, and we have 20%, 30% still in stock, and they have been adjusted based on the latest selling prices. We made this adjustment and this adjustment accounts for the increase in impairment. We are also looking into exiting some projects, which may give rise to adjustments. We have assets which are marked and then the price at which they are going to be sold. But this mostly has to do with the units we have in-house that relate to the Fortaleza hotel.

The second question comes from Carlos Eduardo. Given the growth in the portfolio in this quarter, how did you manage to keep G&A lower relative to the previous quarters?

I spoke a little bit about SG&A when I made my presentation here. Nakano, Bicudo and myself, we have been focusing on administrative expenses. We have been focusing on improving operations because we know it is very important to maintain expenses as low as possible. We focus on improving operations. And obviously, when you increase revenue, you dilute your cost base. But we went from over 30% down to 22% by focusing also on expenses. When we look at expenses alone in comparison with previous periods, the expenses have been decreasing. I believe they should remain flat from now on. So it's both focusing on the operations to have better results, but also focusing on expenses. As Nakano says, expenses are like mails. We have to cut them every week. Otherwise, they grow, and this is what we have been doing.

The next question comes from Mr. Lee. Two questions. First is relative to costs. The revenue has grown because of the contribution of the W Hotel, but the costs as well have increased. When can we see costs and margins converge at a level that you see as ideal? And then the second question has to do with ComVem. Quarter-on-quarter, SSS was 30%. Can you tell us what the outlook is and why this was so?

I'm going to start by answering the first part of the question. Thanks for allowing us to explain this to our investors. I remember what Nakano said in the beginning of this video conference. W Hotel is a luxury hotel. It's in the high end in terms of services. So since the soft opening, when 50%, 70% of the rooms were opened, the number of people available to serve the hotel was all there. So the costs were being incurred since Q1, especially because it's a luxury hotel. It's a very simple example, but our investors should understand it. We have 50 bedrooms in a hotel that has 179 bedrooms. I know the occupancy is going to be a few rooms. But in reception, we will have five people, two people to see the guests through in the elevator. The restaurant will have all the staff because people who go to this type of hotel, they want maximum quality. We cannot have a shortage of people serving the guests regardless of the fact that there are 5 or 10 guests. You would think that people are already there to provide the services before the guests arrive or before the occupancy rate is high. But the hotel is now breaking even. And then from now on, the revenue will come in and be seen. This is going to be seen from now on. In the first semester -- or rather the first semester is not the best in terms of season, but the second semester is much better in terms of tourism and events. And as regards ComVem, I'm going to turn the floor over to Bicudo. ComVem depends on the mix. We have ComVem in the main corners and crossroads of Sao Paulo, and we will continue to do so. The city continues to grow. There are more and more buildings, people move around and convenience stores are increasingly needed in Sao Paulo. We have been able to improve the mix, and we are also able to improve it, which improves sales. I now turn the floor over to Bicudo, to give you more color about ComVem.

That's exactly right. We are still a company that has a portfolio with a lot of new operations. So we have new operations starting and ramping up. We also have revamping and refurbishing as is the case of BCP. So we have stores who have just rented shops and are in ramp-up phase. BCP very clearly, some restaurants, ComVem, Vila Madalena, ComVem Lima. And generally speaking, our commercial activities are really good. We sometimes replace operations -- we try to make retail more attractive to clients. And this enables us to have an improved performance under the same-store sales concept. And just to add to what has been said, in terms of the W hotel, we have Marriott managing it. They operate more than 2.5 million bedrooms and thousands of hotels. So they are very experienced. Within the hotel, there are two basic revenue streams, beverages and food and bedrooms. Bedrooms should be 80% and food and beverages 20% or 70-30. So what we have been doing with Marriott is looking at what we need to do to reach these percentages like 32%, and we need to improve that. And we have been working very closely with Marriott. So today, a dish in the restaurant that is sold at BRL 100, what is the cost of that for the hotel? So we are being very granular there. In terms of conveying, the good news in this quarter was the sales at Decathlon. They sold 50% above our expectation. They are very happy. And as a consequence, the stores around Decathlon are also making more money because Decathlon attracts a lot of people, and these people circulate in other stores. So this is what enables us to increase total sales, SSS and the rental as a consequence.

Our next question comes from Mr. Antonio Pascal. What is your opinion about the sale of assets? Have you seen an increase -- an improvement in the scenario for the second quarter? Is there any assets you think are essential to keep in the portfolio and therefore, shouldn't be sold?

Thank you for being here. Thank you for your interest. I'm going to talk a little bit about the recycling of assets. There are recurring questions about it. Last year, we mandated Bradesco BBI to sell some of our assets, and we received very good proposals, very good offers. But with the deterioration of the macro economy in Brazil, these offers were just withdrawn. So we were unable to sell the assets. The prospective buyers and the funds recoiled and withdrew the offers. And we said that in the first semester, we were going to look for alternatives. To be able to get offers. We have always been very clear that we're not going to sell for the sake of a sale at any price. This is a commitment we undertook before the controlling shareholder, the other shareholders. We said we would continue to try and sell assets, but we would not destroy value. The net is that you will have good news in the next few weeks. We have been having discussions relative to three assets. Two +Box, [ Mice Box ], and you should expect the announcement next week and two other assets, and we should make this announcement in the next few weeks. So what we need is to bring in cash to the company so that we can start a new cycle of development, pardon me, and also to de-leverage the company. By year-end, we should cut 30% of the value of our debt, and that is by year-end. We have been discussing with very experienced people in the market. We don't want speculators. We want people who really have the funding and are committed. So it's not a matter of which assets we want to sell or not. There is a certain time in the market. It's not a time for selling malls. In the -- at the current time, there is demand for corporate towers. So these are the assets we have been discussing about. But it's not W Hotel. W Hotel has achieved breakeven. It's going to take 1 or 2 years for it to mature. If we wish to sell it now, we would either get a very low price or we will get the right price, but the buyer would require a certain guarantee in terms of remuneration. So we have to gauge that all very carefully. So I think in the next few weeks, you will see good news coming from this side of the business.

Our next question comes from Mr. Andre Estelles. Congratulations for the results. Our questions have to do with the sale of assets. The company has promised to sold strategic assets for 18 months, but we have seen nothing of the sort. And what about the M&A agenda?

Thanks for being here. I think I gave a little bit of color in that regard. The sale hasn't happened yet because there was a deterioration in the market, especially at the end of last year. There is a lot of uncertainty. We see the political scene, which is very unclear. We don't know what's going to happen. So we have been very selective in terms of who we are discussing with. We are discussing these issues with people who have the funding and who are really interested in acquiring the assets. So 12, 18 months is the period you mentioned, and we have been trying to do it. But now there are less funds looking to buy assets. They are expecting an improvement in the macroeconomic and political scenario in Brazil.

Our next question comes from [indiscernible] I would like to understand what you think in terms of the sale of assets. Have you seen an improvement in the scenario for the second quarter? Is there any asset that would not be sold?

I think Nakano has spoken extensively about this. We are not focusing on retaining any of these assets. We just want to calibrate the timing and the assets. So Nakano talked about shopping malls. It's not a good time now for shopping malls to sell them. Then he talked about W Hotel in terms of the ramp-up and the maturation of the hotel. But we also have other assets which are mature and may be used, may be sold. And this will be done with serious and with the right players, as Nakano said.

Our next question comes from Mr. Sui Mitsu. Could you comment on the expectation in terms of the conclusion of the rent review of 3A Faria Lima?

Thank you, Sui Mitsu for being with us and for following the company. We are going to start rediscussing the rent in the beginning of October. We expect to complete it. It depends on WeWork and what they are going to say. We are very positive in terms of what we can achieve during this rent agreement review. We know that rents have increased substantially in the Faria Lima region. We have all the numbers in our favor. The market is in our favor. So we think this will be a brief discussion. Anyway, it's going to last three months at least to be completed.

The Q&A session is now ended. We would like to turn the floor to Mr. Nakano for his final remarks.

Once again, I would like to thank you all for your interest in HBR. You saw that the operational numbers, especially in the ComVem line of business show that we made the right bet. I don't want to sound arrogant, but we're not surprised. We always knew that we had the ability to deliver -- so our focus is on moving forward in the next enterprises. The projects that we now have are well positioned. Some are maturing. When you take same-store sales at the shopping malls in ComVem you see the improvement. This shows that sales are improving for those shop owners. So in terms of retail, we are very happy with the numbers we presented to you. In terms of 3A, we are focusing on the new -- on the next deliveries and the review of the rental agreement of Faria Lima. But we think that we have good locations and good assets. So we are going to be able to attract good stores and good operators. The construction or rather the refurbishment has been started by Einstein in the building. And this shows how much we are able to attract renters like Einstein. They were -- the tower was going to be an office building, and we were able to change it to become a hospital. And this, of course, means we have to change elevators, ensure greater accessibility, oxygen tower and so on, but we were able to refurbish the building so that Einstein could occupy it. In terms of the opportunities vertical, +Box is doing really well. We are going to announce potentially the sale of two units to a major player in the market and also the W Hotel, which has been performing really well. Occupancy is within our expectation, slightly higher sometimes and the restaurants, which are a very important revenue flow. It's different from Hilton, where the bedrooms account for most of the revenue. So food and beverages, catering, restaurants, this is a very important revenue stream for the W Hotel, and they have been performing really well, especially the restaurants. And looking at HBR, -- we continue to focus on operational efficiency. We have been increasing the GLA, but we have maintained SG&A within the plan, within the budget despite the new GLAs. You see that the G&A margin relative to revenue has been decreasing, which attests to our efficiency, and we hope to maintain that. And then the recycling of assets, all of you are very interested in that. We have our cockpit. We have different ways to control the company, different panels. The most important now is the cash position of the company, and we look at that very carefully. And this has to do with the recycling of assets. We have to do it in a healthy way. We know we have to recycle without destroying value. I hope we will be able to do that. And in the next few weeks, you should expect some action there. Once again, thank you all for attending. Our team including Natalia in the IR team, we are all available to take your questions and clarify any doubts. Thank you so much, and have a lovely weekend.

The video conference of HBR is now ended. Thank you all for participating, and have a lovely day.