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

[Interpreted] Good morning, ladies and gentlemen, and welcome to HBR Realty's video conference to discuss the results of the second quarter of 2026. This video conference is being recorded and may be replayed on the company's website at www.ri.hbrrealty.com.br, where you will also be able to download the presentation. [Operator Instructions] This video conference will be presented in Portuguese with simultaneous translation into English. [Operator Instructions] Before proceeding, I would like to clarify that forward-looking statements are based on the beliefs and assumptions of HBR Realty's management and on the information currently 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 take into account that events related to the macroeconomic environment, the industry segment, and other factors could cause results to differ materially from those expressed in the respective 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.

[Interpreted] Good morning to all. I would like to thank you for your time and for your interest in the company. Just to briefly summarize, this is a very special time for us. You will see the operating results, which are very robust. We have some records to present to you. We are also recycling assets. I would like to reiterate that the company, above all, is a real estate developer above all. And within the cycle of real estate, after the asset matures and the rents reach the levels that we expect and which are healthy for that asset, we recycle the assets. We are finalizing the first wave of development to start the second wave of development. We are going to give you a little bit more color later. And then at the end, I'm going to summarize the main milestones of the company in this quarter. And this has to do with a share exchange tender offer to acquire control of Elbor. We believe this is a very positive move, both for HDR and Elbor. This is going to be one single company, which is more robust but more agile and lighter. And this will bring good results to both companies and to the shareholders of both companies. On Slide 3, we see the highlights. The operating results were very strong on all the platforms. There were historic records in terms of NOI, EBITDA, and net revenue. We continue to focus on the costs. We now have the lowest ratio between SG&A and net revenue, which tells you that we are very strict in controlling costs, which makes the company very healthy. We want to do more with less. We want to have an asset-light structure that is, however, able to deliver the results that you can see here. Sales have grown in the ComVem platform, and Bicudo is going to tell you a little bit more about it. ComVem is a platform that has been growing very strongly. We have been focusing on it as this is one of the most important pillars for the company. We have 40 ComVem already operating, and we are developing another 22. The margin is 81%, a very good margin for retail, a shopping mall-like margin. And also the occupancy rate, which has been growing. We have delivered thousands of GLAs, but still we have been growing in terms of the occupancy rate of ComVem. This is excellent news. And we are running contrary to what others see in terms of active storefronts. On average, these storefronts have 20% occupancy, but ours has 80%. So we are kind of an outlier. And then in terms of opportunities, the highlight is W. The average occupancy was 52%, a record. But 2 weeks ago, it was 100% during the whole week because of the Harry Styles concert. His team stayed with us. And W is increasingly chosen by international companies and people who come to Brazil, and it's a great option in terms of hotels in São Paulo. The net revenue grew 40%, which reflects the occupancy and the revenue coming from food and beverages. In terms of 3A, the growth was 48%, which was driven by the renewal of a lease in Faria Lima. And Faria Lima now has rent that is considered level with others in the region. We are very well positioned, and we have been working to recycle, that is, to sell this asset. And we have projects under development. And I would like to highlight Paulista, with 81% of progress in the works. We are now finalizing the agreement to rent 100% of the floors. Once we have the permit to occupy, we will have all the floors rented out. And ComVem has a very good margin. The NOI grew by 27%. And I would like to look at the sales and rentals. You will see that sales grew by 11% and the rentals grew by over 22%. So the rents are maturing, are reaching a very good level. In some stores, this has been happening naturally. And in terms of percentages of the sales, we end up having over 23% in terms of growth. We delivered rather Giovannironchi in partnership with Curi, and this is for 2,000 square meters, of which 60% have been rented out. We are going to open, open it to the public in the next few weeks. And as regards HDR malls, we have mature shopping malls, but we have still been able to grow 7.3% with a margin of 84% in terms of NOI. Now I'm going to turn the floor over to [indiscernible], who is going to talk about the retail platform, especially ComVem.

[Interpreted] We operate ComVem, and we are recognized as good operators of convenience centers and active storefronts. So this makes us very happy. In terms of the numbers, BRL 7.7 million in terms of net revenue, a growth of 24.9% relative to last year. In terms of sales, sales grew 1.5% more relative to the same period of last year. And in the same stores concept, 4.2% increase. In terms of rentals, they grew 23.5%, and we reached BRL 10.9 million. SSR was an 8.2% increase. And this shows how mature the company is in terms of revenue and percentage of rentals and other metrics. In terms of occupancy rate, it is 87.3%, and it has remained stable relative to last quarter and grew 3.3 percentage points relative to Q2 2025. The NOI was 26.8%, with a margin that is very relevant, 81.2%. We continue to open stores. In 2026, we have opened over 5,000 square meters in terms of new stores, which is very important to renew and revitalize our centers. In terms of the shopping malls, it's a more stable growth. Total sales grew 7%, especially in Suzano, where we grew nearly 11%, which reflects the opening of an anchor store, and this made a positive impact in Suzano. In Olida, the growth was 9.3%. And there, Voli Cosmetic was opened in April. Then Urpema suffered from the impact of the revamping of the cinema. And this is a relatively small shopping mall, and the cinema has a strong impact on its revenue. This has been reversed. Now the cinema has reopened in July. With very relevant blockbusters, and we are going to open new shops as well. Lottery and then a gym, McDonald's, Buskabuska, and these are shops that are going to open by the end of Q3. Under same-store sales, we have been growing 4.8%. And we would like to highlight Olinda that has good anchor shops and telephone stores, which performed really well. And Urpema is still suffering because of the cinemas. In terms of total rentals, 7.7% growth, with Olinda growing very strongly because of the university as well, and then under the same-store rent, we have been growing 3%, and they suffered from the discounts that we had to give. So this was what I had to say. I'm now going to talk about the occupancy of the mall. In the portfolio today, the occupancy is 92.3%, which, in comparison with last year, is positive. And then in Buje, a mature shopping mall with an occupancy of 98.6%. We have been improving the retail by working with satellite stores. We have added some satellites such as Marovski. We are going to relocate Loxitan and other shops. So these are satellite stores, which gradually position Buje as a leader in the shopping malls in the region. Then the Suzano shopping, with an occupancy of 96.1%, very good. And in Suzano, we also want to improve the stores. There is a shop. There is going to be a Vivara as well. And the vacancy, which is quite small, has to do with a mega store of 400 square meters. So if we exclude that, the occupancy rate would be 99%. Then in Olinda, 92.3% of occupancy. It was impacted by the negotiation we had with Roli. And in Urpema, the occupancy rate is 82%. And this has to do with the gym that is going to open in the next few weeks. Very good prospects in this portfolio. The NOI was BRL 16.1 million, a growth of 7.3% relative to Q2 2025, with a margin of 84.2%. I now turn the floor over to Nakano.

[Interpreted] I would like to thank the team that works with retail. It's a very important portfolio for us. And this includes malls and the ComVem platform. And this growth is an important milestone for the company, especially what happened with ComVem. Our business rationale has a premise: the maturation of ComVem, and so much so that we are beginning to talk about the sale of these assets. And we see that there is appetite in the market for good bricks. In the next few months, we hope we will have good news with regard to ComVem, which will provide a proof of concept of the investment thesis of this platform. On Slide 8, I'm going to talk about the towers, the corporate towers. We have received a tower in Itai and the Olympia; we are now renting them out. We have been approached by some who want to rent these floors. Then we have the tower in Moema, the one we acquired from Cyrela. We should receive it in the second semester of 2026. The Paulista is 100% rented out, and we are just waiting for the permit to occupy. Then Faria Lima II is a corporate tower, and the one in Pedrosoarenga, which we call [indiscernible], we have received the permits from the municipality, and we should start working on them very shortly. The net revenue on the platform grew 40% and was BRL 7.6 million, which was driven by the contractual renegotiation of the Faria Lima tenant we work. The platform occupancy rate has remained consistently at 100%, and also the sales schedule; we expect good news for Faria Lima and also for interest in the shopping malls. We have been working and talking to good players. It's a challenging market that makes the conversations more difficult. But I do believe that when you have good bricks, good location, this allows us to fight in a good position in such a challenging market. So we have been having very good conversations, and we should have something to announce very shortly. On Slide 9, you will see that the star of HBR opportunities is W, where we saw a growth in net revenue by 8.2%. Mind you, we sold Hilton Garden Inn last year. So the comparison basis is a bit skewed, but W has been performing really strongly. The gross revenue was BRL 19 million, with an occupancy rate of 52%, and we are expanding revenues from lodging, food and beverages, and events. W is now on the radar of those who are interested in events, corporate, and tourism. We are hosting lots of events in the hotel. We did a flight by partnering with Marriott. The team is doing really well. And then we have Plus Box. We sold the 2 Plus Boxes in Tambore, and we were left with 1 unit on the Tietê marginal road. It has an occupancy of 50%, which is above our forecast. On Slide 10, it's just a summary of what I said before. We received Giovanni Bronchi from Cure, and 60% is now occupied. We are going to open it very shortly. Then in Ibirapuera Moema, which we acquired from Cyrela, we should receive it in the next few months. And then in Vimaova Cona, we have this tower, which we are now renting out. Then you see the GLA changes. We are focusing on Convey and 3A. And then the 22 conveys we are developing. And then below, we have the delivery schedule, which illustrates what we have under contract. And then up to 2029, we are finalizing the first wave, and we are starting the next wave of development. We are concentrating on ComVem and corporate for the next few years. Then, on the malls, we have the expansion of Moje, which is going to be delivered in the next few years. I will now turn the floor over to Dalpiero, who's going to give you details about our financial performance.

Thank you, Nakano. Thank you, Bicudo. Now, speaking about the financial results, they reflect the improvement we saw in all the platforms, as you heard. So we have an improvement in the operations, and you see an improvement in the net revenue, an increase relative to Q2 2025, an increase by 14%. When we say managerial, when we work with the proportions and IFRS for 100%. Sometimes people don't understand this methodology. So I would like to clarify again. When we talk about managerial net revenue, it is the proportional part of our stake. So there was an increase of 14% relative to Q2 2025. And when we look at the net revenue under IFRS, 7.2%. When we look at NOI from a managerial point of view, the increase was nearly 15%, and under IFRS, 10%. The improvement is across all verticals. And this arises from what Nakano and Bicudo have said: opportunities malls, conveying 3A, they are all performing better. And this is because of the wonderful team we have. On the next slide, we see SG&A net revenue. For the sixth consecutive quarter, we have improved on this indicator. Specifically here, we have 2 important variables. Yes, we have increased net revenue, but we have also reduced G&A. So this is a combination of operational efficiency, but also our diligence in relation to costs. I've been saying this for 4 or 5 quarters, but this is part of our DNA. We are never happy with business as usual. We always try to rationalize costs, gain efficiency, and optimize the team. And what we try to seek is efficiency between revenue and SG&A. Here, you can see the EBITDA, which reflects a relevant increase of 25% for adjusted EBITDA. So this is a result of the G&A, which is similar, and also the improvement in revenues. The FFO had a slightly worse performance. And then net income went from minus EUR 33 million to minus EUR 26 million, which reflects some efficiencies that we were able to achieve, but financial expenses impact our losses. Then on the next slide, we see CapEx, and we have been working on the CapEx. If we look at previous quarters, figures were above BRL 1 billion. But throughout the quarters, we have been managing CapEx. We have been deferring the expenses as we can. We have been managing delivery. So quarter-on-quarter, we have been employing solutions as needed. And going forward, we know where we are going to allocate CapEx in the next cycle. Moving on, we have our debt. Our debt increased 10% relative to Q2 2025, and this has to do with the deliveries. And remember, our business model is linked to financing CapEx. So we use leverage to implement CapEx. We don't spend CapEx on equity. We always use leverage. So sometimes we deleverage, and then we have slight increases, and then we have a great reduction once we sell the assets. The reduction of our debt will not happen organically. It's not something that will come from the operating revenue. It comes from the sale of assets, from the recycling of assets. We expect the debt to be reduced in the next 6 months. And looking at the structure of the debt, it is a healthy debt. The maturity is very long. There is no direct pressure in any year or quarter. And the breakdown of the debt is also healthy, and the indices are also very competitive. Higher leverage is a penalty because of the high interest rate. We are reducing leverage, but the profile of our debt is very healthy. If we were to convert all of our debt into the percentage of the CDI, it would be in the region of 80% of the CDI. I now turn the floor over to Nakano before the questions for his final remarks.

Thank you, Dalpiero. Thank you, Bicudo. A big thanks to the HBR team. The results were strong growth in our platforms. And to speak a little bit about the recycling of assets, I'm not giving any guidance. I'm not promising anything, but we are moving forward, and we are very consistent in that agenda. We are looking not only at selling the corporate tower in Faria Lima, but also at selling stakes in shopping malls. We were approached, and conversations are moving forward. So we continue with our focus. I always look at the cash position and the debt. And we are looking for this sale to decrease the company's debt. We expected this level of debt. We need a lot of capital during the development. It's a real estate development company. And also, we have to strengthen our cash position for the next projects we have in the pipeline. This is what we focus on. We see a lot of potential. I think an urban income fund would be a very good solution for ComVem. It's a challenge to operate ComVem, but it also gives a big opportunity in terms of revenue and consistent revenue. So the ComVem platform delivers what funds need: stable revenue, and the market understands that, and we have opened some conversations. So watch that space. We are moving in terms of recycling assets. And now, speaking about the acquisition of Elbow through the share exchange tender offer, we have explained this in many calls. The thesis is very clear. But I will remind you why we decided to go down that route. The 2 companies have the same DNA. They are both real estate developers, and both are undervalued in the market. We want to create a more robust company with better shares. By simplifying operations, we are going to have a more agile, lighter company with strong governance. At the end of the day, we are duplicating lots of efforts in governance, and we believe that by having just one company, we are going to become more agile and lighter, thus delivering more value to the shareholders. Elbor has a very good land bank. 95% of this is located in São Paulo in excellent locations, and 83% of this land bank is for middle- to high-income, which is very good for our convey platform as well. And with this, we want to have more robust revenue. We have 2 profiles of revenues, which are complementary. And this will allow us to deleverage. We want this to happen. We also want to optimize fiscal and tax structures. We will eliminate ITI when we acquire land from one another. So this is what we want, want a more robust company that is also more agile and lighter. And in parallel with the acquisition of Elbor, we have not stopped. All of our processes, all of our operations continue. You could see the results. We have been delivering positive results. This share exchange is now being assessed by CVM. And in the next few days, we will have CVM's official position. If everything goes well, by October, this process should be finalized. That's what I had to say. And I'm now going to open the Q&A session for us to clarify any questions you might have.

[Interpreted] [Operator Instructions] Our first question comes from Mr. Carlos Eduardo, an investor.

What explains the loss in the quarter? And when can we expect the company to go into profit?

This is Alexandre speaking. The loss in the quarter is a direct reflection of our debt. The financial expenses burn our profit, and that's why we went into loss this quarter. As I said when I was explaining the financial results and as Nacano and Rico said, we are going to solve this problem. The company has been working for many quarters for 6 or 8 quarters- we have been improving operations, and we have been improving our results quarter-on-quarter. And we have been acting on the debt. We sold BRL 500 million in assets. And we have made public that we are going to hire Bradesco to sell assets. And once these assets are sold, the situation will improve. Once we sell these assets, our leverage is going to be decreased significantly. And there will be a better alignment between operating results and financial expenses. Quarter after quarter, we want to take money from the banks and put it in the pockets of shareholders. And this is what we have been doing. So where is it happening, or when is it happening in the short term? And this is what we have been focusing on. Thanks for your question. Our next question comes from Ms. [indiscernible] Investor.

The net debt went up on a quarter-on-quarter basis and on a yearly basis. What is the leverage that you consider appropriate? Is there space for deleverage?

This has to do with our business model. As I have said before... Our mission here is to reduce leverage and obtain bottom line, improve the bottom line. But the leverage doesn't disappear overnight. It's a very competitive process. The market today is difficult in terms of the execution of transactions, but we are selling our good assets despite the challenging scenario. But this doesn't happen in a linear way. We are not going from BRL 1.6 billion to BRL 900 million in a straight line. The reduction will be clear and direct. We managed to reduce the leverage at the end of 2025. And now, with the CapEx project and the last mile, so to speak, of implementation that we need to do. We need the leverage, which is the case in the real estate sector. And this is all backed by the assets. So we take money from third parties to complete a project. And once that project is ready, it gives us revenue. We have recurring revenue, or we sell the assets. So during this period, when the leverage goes down, you will see some pick-up, which reflects the need for capital. Here, we had the deliveries of Cury in the CV platform and Infra, which is the one Nakano talked about in Vila Nova. So this increased our debt moderately. But in line with our deleverage plan, the leverage is going to be decreased substantially.

Our next question comes from Mr. Rodriguez, an investor.

Will the company continue to divest? What assets are eligible, and what defines the decision to sell?

Thank you, João Paulo. This is Nakano speaking. We do want to divest at the pace that we have been doing it. What is eligible today? All the assets that have reached maturity in terms of rentals are eligible. As Dalpiero said, we hired Bradesco BDI, and we have Faria Lima and stakes in the Mogi, Suzano, and Olinda Shopping. We have been holding conversations. We have seen proposals. We are refining some of these conversations, some of these proposals, and we should have good news on that front. In terms of criteria to sell assets, we were focused a lot on price. Price is essential, but we also have to focus on execution. At the end of last year, we received a firm proposal to sell Faria Lima. And at the last minute, the buyer changed the payment schedule, and we had to back down. This was bad news, but then turned out to be good news because the rent was lower in those days. Now we have managed to increase this rental by 50%. So we can talk now about higher values, higher amounts. Although that proposal had an earn-out clause relative to the renewal of this lease agreement. So now we look at price and the guarantee of execution of the proposal. This is extremely important given the challenges in the market overall.

The next question comes from Mr. Oliveira that ComVem has 87.3% occupancy and good sales as well. What drives the occupancy and the increase in sales of ComVem? And can we increase that?

This is Bicudo speaking. We are certain that the results we presented for ComVem will be sustainable in the next few quarters. The existing veins have been improving and have a higher occupancy rate. From planning, sales, and operations of Com, we work with a team that is very experienced and is dedicated to selling and operating the ComVem. We have expertise there and work in synergy with the stores, the towers, and the buildings where they are located, and we can work closely with them. And the brand has consolidated as an excellent operator of convenience centers. ComVem is recognized by the public and by store owners. The challenge is to continue to manage the new ComVem, but we also have good projects in good locations. We have projects and conveys in good locations, and we are going to work to improve the mix there. So we believe that all the indicators of convey will improve.