MRV Engenharia e Participações S.A. (MRVE3) Earnings Call Transcript & Summary

Ladies and gentlemen, Good morning. Thank you for holding, and welcome to MRV's Fourth Quarter of 2022 Results Conference Call. Today with us, we have the CEOs of the company, Mr. Rafael Menin and Mr. Eduardo Fischer; and the Chief Financial and IR Officer, Mr. Ricardo Paixao. [Operator Instructions] Now I would like to turn the floor over to the CEO, Mr. Rafael Menin. Mr. Menin, you may proceed.

Good morning, everyone. Thank you for attending the call, for being with us in another call by MRV and Co. I would like to start today's conference call by saying, of course, at the snapshot of the quarter and of the year, is not a pretty one. We have presented or posted results that are worse than the historical results of the company due to an operation that had a margin of new sales in 2021 of approximately 18%, as shown on the MRV Day. This low margin comes from a pricing that didn't increase much in this last 2 years -- in these 2 years. And on the other hand, we faced high inflation rates in the same period. The cash flow of the company also deteriorated in part due to MRV operation with much lower profitability, but also due to the heavy investments we made in Resia, mainly land bank of all the companies. We have prepared MRV and Co to operate in a much bigger size than its current size and the investment made in Luggo and Urba as well. Those investments have taken place in a scenario of growing interest rates and that caused the company to have an impact in its income statements as well as on its leverage. However, when we look at the recent past of the company's snapshot and get a bit disturbed by it. On the other hand, we see -- we're very optimistic about the future of the company because the adjustments we made since the end of last year have started to show results in this year. For example, the investment in land bank that will be made in this year and in the next 2 years will be much lower than the size of the company. And that will obviously have an important impact on -- in the cash flow. The subsidiary companies did not require further capital and that will certainly increase or contribute for us to have an adjustment in cash generation that is significant. So I'd say that this COVID cycle, so to speak, has ended and we are now starting a new cycle as of 2023. So looking forward, we continue to see an operation wholesale price is going up, costs are stable, and sales volumes increased. Luggo, Urba and Resia have had capital increases, increasing the capital contribution on -- in the income statement of MRV and Co. So I am absolutely sure that the worst is over and we want to deliver at least what we promised at the MRV Day. If we look at what the company has done in this 15, 16 years after the IPO, certainly, MRV and Co is the company that delivered the best results in the sector. So with the current team, the low growth strategy for the company will certainly deliver in addition to MRV, but subsidiaries, Luggo, Urba and mainly Resia will deliver results that are more and more positive for the operation. And so I am sure and confident that the numbers of MRV and Co throughout 2023 will improve in every quarter in terms of income statement and cash flow and we'll -- we are sure that soon we'll again present results that can be compared to our background of operational excellence. Now I turn the floor over to Kaka.

Good morning, everyone. Thank you, Rafael. I would like to start by giving some further detail on MRV real estate development, giving some details about the figures. We closed 2022 7% lower and a gross margin of 19.2%. Our SG&A has grown below inflation. We had a major impact with increase in financial expenses due to higher leveraging and higher interest rates. Excluding the equity swap, that's not operational, we closed the year with 204 negative income. It was -- and that helped to recover the gross margin of new sales that closed the quarter '22 -- '21 at 19% and '22 at 29%. So important 10 percentage points in recovery of new sales. On MRV Day, we said that our goal is to reach an average price of 230,000 and the gross -- accounting gross margin within the company still has a quite negative impact from the vintages of 2021 due to the inflationary -- pressure of inflation faced by the sector. We expect the unit gross profit for 2023 and 31% of gross margin of new sales. So on Page 4 of the release, you can see 31% of gross margin of our new sales times the volume of units transferred in the year will result in a gross profit of new sales of BRL 2.4 million, which is twice the amount generated in '21 and 60% higher than 2022. The recovery of the book gross margin will be gradual because the vintages with the worse margins lose relevance in the reported results and from 2022 onwards with higher gross margin gain more relevance in the results. In the MRV Day, we say in this year, we talked about deleveraging -- that the goal for deleveraging we need -- we want to reduce the net debt over net equity between 19.3% to 28% in 2025. We also said how the data would be in our release and a commitment with you and all the market to also seek a new leveraging regarding EBIT. So net debt over net EBITDA should go back to 3.5x throughout 2024 and 2.5x throughout 2025. As Rafael said, these are the minimum levels we aim to attain. As for Resia, we separated in 2 distinct fronts: One, apartment rentals and other property sales. Starting with rentals, apartment rentals, the demand remains strong and we see this high speed of rentals for the Pine Ridge and Biscayne Drive which showed how many of them are leased. Our goal is to sell one of them in the second quarter of 2023. Also proof of how strong this market is, is the increase in rental prices of Resia, 8%, when compared to the fourth quarter of '21 and '20 and 45% when compared to rate in the last 2 years. That also confirms the strong market with a high demand for these products. The increase in interest rates and housing financing caused more companies to seek our products which strengthen our theory that it is a very solid and robust sector. In terms of property sales, in 2022, 1,207 units were sold, BRL 1.73 billion in PSV with an average gross margin of 33% and accumulated net revenue, BRL 1 billion. Since the acquisition of Resia, 13 projects have been sold, totaling $766 million, equivalent to BRL 3.8 billion in PSV with an average gross margin of 32.5%. Looking ahead, Resia has 7 developments already under construction in addition to 2 under stabilization, totaling 3,241 units to be sold by 2024. That's equivalent to a PSV of $887 million. Of this total, 300 will be sold in 2023 and half of it are already under stabilization. So now, this is what I had to say. Now we can move on to the Q&A session.

[Operator Instructions] The first question comes from Pedro from Credit Suisse.

Thank you for the presentation and for the questions. I have 2 questions. First, I would like to understand more about Pode Entrar, the housing program. Do you have any expectations for the program in terms of gross margin in the products you bid for? And how would that would impact the margin? And second, I would like to understand that in this debt estimate, if you consider Pode Entrar program or not? And the second question is about the sales performance in the first quarter. What have you found in January and February? Has it increased when compared to the last quarter? And what about prices?

This is Fischer speaking. Fischer speaking. We actually entered the project with almost 7,000 units. The term was 30 days as of January 26 and that didn't happen maybe because of the volume of units that were enrolled, more than 100,000. So the prospects are very positive. When looking at the several rules, we are well-positioned to be able to be awarded at least a portion of these units we filed for. As for the gross margin, it's similar to Luggo. These are construction with a lower gross margin, but the anticipation of funds that are very good for those who win the bid. So the gross margin is not low, but it's lower than the one we're aiming, which is 33%. The margin of new sales for '20 -- the end of '23. These Pode Entrar margins are lower, but the net margin is higher. And that's what's important in addition to the funds received in advance, which can be very important to us during 2023. In our covenants, we did not consider anything regarding Pode Entrar housing program. If it does become true, there will be an upside. As for sales, what we've seen in January in '20 -- February and March is a year that starts very well. Demand is strong. Sales are doing fine. And more importantly, we remain with our strategy of 2022 of increasing prices. So in January, prices are considerably higher than we closed December with. The same happened in February. So we are constantly increasing prices and with good volumes. The year has started well, even better than we had planned in operations terms. And that reinforces our optimistic view for the year that Rafael mentioned in the beginning. I hope I have answered your questions, Pedro.

Yes, you did.

The next question comes from Ygor Altero from XP Investments.

I have 2 questions. Still about the Pode Entrar housing program, I would like to understand a bit more in terms of leveraging. How you could benefit from it? And whether you believe that this could be implemented in the Level 1, providing a bigger guarantee for development -- real estate developers? As for the gross margin, the gross margin reported in this catch-up trend for new sales. Do you believe that in the first half of 2024 there will be a significant improvement in this difference?

This is Fischer speaking again. I will answer the first question and then Kaka will answer the second one. As for Pode Entrar program, yes, as I said in replying to Pedro's question, it is a very well-developed program because the risk there was a major problem in Faixa 1 and Level 1 is not to be received -- is not to receive, to get paid or when there is a transition from an administration. But now the funds are deposited in an escrow account with an initial payment of 15% and then transferred made in the semester. And then the year, it's good for the accounting point of view. This is very positive because the full amount gets to your account and that's very helpful in terms of leveraging. As for Level 1, this would be the best model according to the market's opinion. The sales -- this model of sales in Sao Paulo would provide a lot of guarantee and confidence for Level 1. We have mentioned that to the government. There is no decision regarding that. And apparently, this will not be the path to be followed. But again, a decision has not been made yet. But even though we are not operators in the Level 1 rank, it's important because that changes the risk perception for those who operate in Level 1. So the appetite would not be so high as in Sao Paulo, depending on the price. Now, okay, the second question. As for the reported margin, we noticed that in 2023, it started to go up compared to the level we observed now. This increase is stronger in the second quarter or second half of 2023 where higher vintages of new sales will become more important. And in 2024, this dynamic improves even more. It will be a growing margin from now on. And we believe that by the end of 2024, we'll get close to the gross margin of new sales that we have seen now.

The next question comes from Bruno Mendonca from Bradesco BBI.

Let's talk about cash generation. You said that the sales of products and the construction, Fischer said that the sales in January and February are doing well. But do you have any special strategy for the inventory that upon sale, generate some higher cash even though you have to give some discount, maybe it would be a way to accelerate this reversal of cash burn. Do you have any -- there's a clear figure in your guidance of changing that trend in this first half of the year. But somehow do you believe that could be accelerated? And also, if you win the bid, will that provide an important relief for the covenant? Would your sales strategy change in any way since the covenant would be better addressed? These are my questions.

Bruno, this is Rafael speaking. As for the sale of inventory units, I had a chance to talk to many people at the event we attended 2 weeks ago. The BTG conference I explained because it's not so usual to increase prices. It's not so simple. It depends on assessments, on the market dynamics. So we have had an important gain in prices that we achieved in the last months. And it's not part of our strategy to give -- to reduce prices. So despite the increase in prices, we've managed to have a better commercial performance. If we look at the month of October and compare it to November, November was better, December better than November, January better than December, February, as Eduardo said, per useful day was better than January -- per working day. And March seems to be going in the same direction. So despite price increases, we've been able to increase sales volume. Well, let's just funnel evolve -- the bank assessment evolve, this cost scenario is different. Competitors also re-priced their inventory. So it's not part of our strategy to change sales prices or be more aggressive in pricing. Our strategy is to continue to increase prices and increase volume. So we understand that the reduction of leveraging, cash generation and we have a more comfortable covenant depends exclusively on higher sales volume at a higher price on a monthly basis. Of course, depending on the volume we win, the bid could contribute to recover the cash generation sooner and therefore be more comfortable in terms of covenants. But we're not linking both events. It could be a tailwind that could accelerate the recovery in reducing leverage to have a -- to be able to generate cash sooner. But the strategy of price increases and volumes is very well set and we've been able to follow our plan very strictly, okay?

Okay. Just to make it clear, the Pode Entrar program, does it fall into the guidance of 40,000 units? Or would it be additional to that?

Pedro, it could be additional.

Our next question comes from Fanny from Santander.

I have 2 questions. As for the swap transaction, I would like to understand when and if these losses become just cash disbursement. I understand in January, you -- there was a swap transaction and there was one falling due in February. Could you give us more detail on that and if you want to continue with that type of transaction in the future? The second question is simple. You said there is a potential target to reach BRL 270,000 per unit until the end of the year. Does that include leaving some smaller towns, therefore the average price is higher? Or do you expect some times of adjustment in the caps of the programs?

Well, since you asked the first to me, Fanny, I'll answer that, okay. Well, in terms of swap, we've been marketing it to market. So it's been in the income statement throughout this period. What we did in the first quarters, 80% of the volume of purchase of -- equity purchases we made with swap have matured. And when it's time to renew, we settled the first swap contract and we renew it at a different price. So we now enter at a new price and there is a disbursement with this cash mismatch regarding assets and liabilities. So we made the settlement in February. It's not the strategy of the company to make money on that. We want to make money based on operation and our operational. When we saw that the share price was too low, we thought it would make sense to use the equity swap tool to purchase shares. So we have it renewed for another 1.5 years, but we're not -- we don't have to carry it until maturity. When it makes sense, we'll just sell it. Kaka, could you give us the disbursement, BRL 160 million for this 80%?

Yes.

Okay, thank you.

Hello, Fanny, this is Rafael speaking. I'll answer about the price. We ended the year of 2022 selling at BRL 208,000. And looking at the same mix of products, we'll close the year selling at BRL 225,000 considering that Sensia will be more relevant, the price would reach BRL 230,000 average. So if we consider a 5% inflation rate in the year, the gross margin from -- starts at 29% and we end the gross margin for new sales at 33%. So this is the strategy we have defined in the beginning of the year and that we presented at the MRV Day. We've been following this strategy and we've been able to deliver volume and prices in agreement with plan. If there is any positive change to the plan, of course, it could be a tailwind. And we work with some variables such as portfolio change and increase in prices, increase in sales over supply and depending on the correction that comes in the program, we work with these 3 metrics and try to obtain the best reduction in the portfolio, higher sales over supply and prices increasing a bit more. But at the end of the day, it's a combination of these 3 variables. And depending on what comes -- what we get in terms of the program, we'll try to work on the sweet spot of these 3 variables.

Just a follow-up. How much do you grow in Sensia for this year when compared to last year? And are you concerned about funding from savings because we see that the interest rates are going up and banks have provided lots of credit based on that.

And that's a good question, Fanny. First of all, we only launched a Sensia product with the contracts with the company. The second point is that 40% of Sensia sales have happened in a direct sales model. We grant the portfolio with INCC during the construction phase and IPCA plus 1 when the keys are delivered. Given the credit quality of this portfolio, we've been able to discount it at the par value. And the second -- the other 60%, in fact, we sell with a financing during the construction phase. Interest rates have gone up. It went from 8 to 9 point something. But even so, we've been attaining a good commercial performance. Month after month, the sales of supply has increased and Sensia is well located. We chose some cities strategically. And given the features of the product, the size of the apartment, the quality of the product, we've been able to be very assertive and sell well Sensia product. So it's not a concern. In terms of numbers, the volume of Sensia is small when compared to the total volume and it's a product that's very well fit and we'll have a sales oversupply that is adequate until the end of the year even in a high interest rate scenario.

The next question comes from [indiscernible] from the Bank of America.

I would like to go back to the margin discussion. I think it's interesting. As Kaka has said, it shows an increase in the margin reported by the company. For that to happen, the new vintages have to gain a higher share in the bottom line. Can you give some color about this vintage of 2021? And how do you expect the delivery of these construction of these apartments throughout the year? And how do you see the trade-off in this context, the trade-off between sales volume and growth of price, price growth. And these -- you sell products at a higher margin and these margins will be more comfortable. I would like to understand what's important for you.

Hello, [indiscernible]. Okay. As for the weight of the vintages, I'd say 70% to 80% of vintages 2021 are still going through our income statement. Giving you some more color, what we see is the gross margin for this year, starting at higher mark levels than we reported in the 4Q '22 and closing the year, ending the year close to 6% of reported gross margin. So 22.6% is the average gross margin or average margin throughout the year. So in terms of volume, what we've been doing is we're not letting go. We're still increasing prices, although we have volume. We've been -- we've had stronger sales volumes in the beginning of the year than we did before. We have more launches that we did in the fourth quarter and we'll continue with more launches in the second quarter of this year. So this helped to recompose the purchasing power of customers. So we are increasing prices and increasing volume. We've been able to deliver on the strategy well. You're right when you say that going from 19% to 29%, it was much more urgent than going from 29% to 33%. So our strategy to increase prices continues. Of course, it needs to be less aggressive now than we used to do in the past. And last year, this will help the sales oversupply and sales volume will increase prices less than we used to, but still increase.

Our next question comes from André Dibe from Itau BBA.

Thank you for the presentation, for the question. I have a question regarding the difference between the variation of reported gross margin and the adjusted gross margin that went down on a quarterly basis. When we see the level of interest capitalized in the quarter, it was a bit lower than the previous quarters, both in absolute figures as well as on a percentage of the balance of capitalized interest in the balance sheet. Could you comment on that, please?

Well, Andre, this is Ricardo speaking. First, it's important to note that we came from a scenario in which our corporate debt has gone up in time, fourth quarter against the first quarter. So it is -- it has gone up in time. And the higher interest rates caused our interest expenses to increase as well. When we consider what will be capitalized, we have to look at inventory as well. So we had more debt in terms of construction financing and that explains a bit of the direct allocation of this cheaper debt, so to speak directly to inventories. So we have more leftover of more expensive debt to go to the income statement. If ex all effects, we can see that the results of the fourth quarter of 2022 is very much in line with the first quarter of '22 in terms of provision for interest. And what was a bit different was the third quarter of '22 when we had more capitalized interest than before. So we had more interest than the possibility of capitalizing less that went to the income statement more. So we have a provision that is higher. It's a bit technical. I don't know if it's clear.

Our next question comes from Marcelo Motta from JPMorgan.

I have 2 questions. I believe that the strategy to improve the gross margin is clear. But when we look below the gross income, what initiatives could you make, for example, sales expenses, there are a lot of variables in terms of gains of efficiency in that line. Is there anything you can do like SG&A? You did decrease those. Can you also do something in other subsidiaries although it's marginal when things we can see at the gross margin, but that could help the business to recover? And the second question is, when we look at inventory level and sales oversupply, there was a discussion on MRV Day, whether you include some projects that have been launched, but they are available for sales. I mean, for this year, are you adjusting the figures that you report? How would the sales of supply have been in the fourth quarter? What should we expect for 2023? And if you include an inventory of units only available for sale, what level would it be because launches and sales, it seemed to be a bit high?

Okay, Motta. Let's start with SG&A. Speaking of SG&A of MRV, we believe that the size of expenses is okay. What is not okay is the role. So we have a role growing, SG&A growing below inflation, that would cause us to have a higher dilution of these expense lines in terms of the total contributing to the net result. As for Resia, we had a layoff of 25% of people that was an adjustment made in December 2022. So we still didn't have time to have that reflected in the income statement. But we have a mini guidance for the market. We'll see of Resia expenses 25% below than in the last 2 quarters. The second part of your question about sales oversupply. The way we disclose our launches has been identified and nothing changes. That's important to mention. We still require a minimum demand for sales in order to launch the next modules. So in terms of operations, a development of 1,000 units is divided in 5 modules of 200. We reported to the market launch of 1,000, when there were 200 units opened for sale. Once you sell all of them on a high percentage, you launched the second phase and then on. And as execution of construction follows the same and we noticed that, that was a bit confusing for the market. The market got the higher volume of launches for MRV applied to lower sales oversupply and therefore, reached a lower number of sales and revenue. Since we noticed that, that was causing confusion and concern about launches mismatched with sales, higher inventory rates that didn't have an impact. We started to show our report in a different way. On Page 10, you can see that if we adjust launches according to what's actually available for sale, it goes from an average SOS of 12% to 19% to 20%. So that's more similar to the adopt -- practices adopted by the market in general. And from now on, we'll start reporting it in that way, reporting launches by module instead of for the whole development. And just reinforcing something, Kaka, MRV is the only company that reports guaranteed sales. Sales are only taken to the balance sheet after a contract has been signed with the bank. That caused us to have apparent sales a bit lower when compared to other companies in the market. But if you make that adjustment, of course, the sales over supply will grow a bit, too.

Our next question comes from Elvis Credendio from BTG Pactual.

I have 2 questions. First, about the portfolio. Granting the assignment, the company announced a large sale of BRL 356 million. Should we expect something similar in 2023? Or will it be slower? And that discount seems to be a bit smaller this time when compared to the last ones. And the second question is about Resia. I would like to understand how the speed compares to other projects. And about the dynamics of purchases, are you looking at the cap rate internationally? What's the pitch of investors to buy your assets? What are the prices like? That's it.

Okay, Elvis. I'll start asking -- answering about the sales of portfolio. Okay. Portfolio sales, we have a very robust dynamics in terms of granting credit. And we have a lot of control about what we grant and therefore, what we charge with a very robust collection rule, we have a very good control of our cash flow. And this has been a good source of liquidity for the company. We've been able to sell the portfolio on a recurring basis. And this discount rate has to do with the way we've been selling it. We have had lower default rates. And as the purchasers have noticed that the default rate of our portfolio have been lower, we're able to do these transactions with lower guarantee. That's why the delta has decreased between the funds that enter the cash and the portfolio that was assigned. Let's talk about Resia now. Resia has to be understood as 2 different operations. The first one is apartment rentals. This operation has a very good dynamics. The apartments that we put for sale in the beginning of the year are doing very well even at a speed that's higher than the historical figures. This -- in the states we operate, there is a strong migration in the state. Florida has received more than 1 million citizens of the U.S. coming from other states in the years of '21 and '22. The population has grown by 5%. In addition to growth in the population, it still had a lot of immigrants going to the U.S. So that causes the need for housing, especially in those 3 states to be a growing trend. And as the purchase -- purchasing an apartment has become more difficult, especially in the higher interest rate scenario, we see the rental scenario at a very high price. We mentioned in the release that there has been a 40% increase in rental prices in the last 2 years. But even so, the levels of rentals continue to be very high. And so we remain confident on Resia's thesis of renting the property. That seems that the product will have a good profitability when it comes the time to sell it. Of course, the capital market in the U.S. today is a bit more cautious and 1 year before, we used to sell the property before getting the permit and the cap rate we used to sell was close to 4%. And we had profitability close to 50%. It's spectacular. It's somewhat -- and not decent as a level of profit. And we even attained a 45% profit in some Resia sales. But today, with higher interest rates and the equity market is still dealing with that situation, we sold Oak Enclave with a cap rate of 5.7%, causing the gross margin not to be wonderful, but it was okay, a gross margin of 24%. We continue to have demand for the real estate developments that are stabilizing now and we are confident that we'll be able to sell them. Even in a stress scenario, we'll be able to sell 4 developments, even 5 during 2023. But looking forward, Elvis, imagining that the inflation in the U.S. will not increase much in the future, even in this scenario of some pressure on labor, we believe that the interest rates will stabilize towards the middle of the year. And the capital markets -- when that happens, the capital market in the U.S. will become more dynamic. So we believe they won't get any worse in terms of cap rate. We believe that cap rate has reached its peak. So as of the second half of the year, we'll have eventually a lower cap rate and also the cap rate dynamics is not uniform. Some real estate segments have suffered more, for example, shopping malls in the suburbs, corporate buildings, entire floors have a much higher cap rate. On the other rates -- on the other hand, cap rates for apartments for the workforce segment has had a very different dynamic. So that's our expectation. As the interest rates stabilize and the capital market becomes more stable, unless cared, cap rate will start to decrease. Of course, it won't go to 4% quickly. But as of the second half of the year or next year, it will certainly be better than what we had for the fourth quarter of 2022. We are very optimistic about the scenario. The rental dynamics is doing fine and the production of new properties is going down quickly. So the constraint of properties for rental will get worse next year. When the interest rates start to go down, we believe that the profitability of Resia could surprise everyone, starting 2024.

The next question comes from [ Ubu Grassi ] from Citibank.

I would like to hear from you about the program, Minha Casa Minha Vida, the new one, my house my life. If you could give us an update of how the development of this new part of the program is doing not only in terms of the direction it's taking, but also the deployment speed for new parameters of Level 1. And the second question, more specifically, I would like to hear from you what do you believe that the upside exposure of MRV in a scenario of allocation of federal funds not only to Level 1, that's where the subsidies will concentrate -- be concentrated. But if these funds reach the levels that are funded by FGTS, that's a 30% subsidy of the ticket price. Could that be complemented with federal funds? At the lower income brackets below 3,000, what would be the exposure of MRV if this scenario becomes true?

This is Fischer speaking, Ubu. How are you? Minha Casa Minha Vida, in general terms, the discussions are ongoing still. The current administration is taking a bit long and to a point who will actually be the person that will make decisions regarding that. But it does smell like this administration has plans to concentrate and give strength to this housing program, which is very good. We believe that we'll have federal funds to support subsidies, which is good. We understand that most of these funds will be allocated to Level 1 peer purely as it used to be in the past. In principle, MRV is not interested in taking part of this model. We've never done that. If the model changes, we can study that, but it seems that it will be the same design of the past. And if so, we will not take part in that. In addition to the Level 1 purely, there's a discussion about Level 1 extended model of low income brackets that fall within the portfolio of MRV that would be complemented with subsidies and that would have an increased affordability, which could benefit us a lot. Now we have 30% to 35% of our portfolio for this income level of Group 1 that would be benefited from this new policy. So we are optimistic about that. But in terms of timeline, we don't know when it will be decided. But my best guess would be for the end of this semester, beginning of the next half of the year, but we are participating in the discussions and keeping track of it. As for Level 2, there is a request for some additional benefit. It won't be the main focus of this new program. But if it happens, it would benefit us. Another important point that's being discussed is the ceiling adjustment or cap adjustment. I think Fanny asked about that. As you have a higher cap rate -- cap level, that protects the model that's followed not only by MRV, but all companies have raised prices because of inflation. So if the cap is adjusted, that's very good in addition to this tailwind of hiring extra incentives for the lower income brackets that would be important. So this is what we're trying to help to see if it's decided because if they do come to a decision, it will be very helpful.

Okay. That's very clear. If you could take this opportunity to also talk about the 2 initiatives that have been approved at the end of this last year, but that the rollout for 30 years, 35 years financing term and FGTS funds to be used. So these are things that had passed in Congress, but had not become available to customers at large. What do you think about that?

Well, these 2 processes are within Caixa. 35 years term for funding is still going on. It's still at low levels, but the bank has to mature in granting those fundings. As for using consigned credit for FGTS in the future, Caixa economy is expected to start operating that as of April next month, they have to adapt the software, the system to do that. But it would be an extra tailwind for us as of April. That's the status of these 2 situations. Thank you.

The next question comes from Jorel Guilloty from Goldman Sachs.

I have 2 questions. First about Resia. In the report, you have posted that Resia has a sales potential of $321 million, $36 million this first quarter and $35 million in the second half. So I'd like to understand, first, the criteria that you use to place the expectations for sales. And the second, I would like to understand what do you see as the triggers for these sales to take place? And the second question is about expected leveraging for the Brazil operation. Well, the year has ended. You have 57% of net debt over net equity and you expect 53%. So how do you see this leverage? Should we expect a decrease starting in the first quarter? Or will this decrease happen in the second half of the year. These are the 2 questions.

Jorel, this is Ricardo speaking. In terms of guidance of leverage, we were aware of the results of the fourth quarter. So the guidance of reaching this leverage at the end of '23 is part of what we have planned for the years. We believe that we'll have a bit more cash burn until the first half of the year and the second half of the year will generate cash. So net for the year will be either 0 or positive in terms of cash generation. So it will increase a bit of cash generation as compared to the first half. So going back to close the year better than we closed our 2022. As for Resia, the criteria is the following. We make -- Jorel, your mic is open. So talking about Resia, what's the criteria? We follow the construction schedule. After that, there is an estimated curve for rentals. And then Resia depends on the market scenario. So this -- if the market is on the buy-side, then we can start selling it before renting as we did last year. In the normal market, so to speak, we see that stabilized at 75% or 80%. So the triggers would be as we try to show you, the curve of occupancy of those developments, Biscayne and Pine Ridge. So 60% would be a point in which we can start selling.

This ends the Q&A session. For the final remarks, I would like to turn the floor over to the CEO, Eduardo Fischer. Mr. Fischer, you may continue.

Okay. Just to wrap up, given everything that we try to show at MRV Day and our release and our discussions, we start the year of 2023 much better than we started 2022. Rafael mentioned earlier that we made homework during last year, given the dynamics of our industry, there is a delay until that's shown in the income statement, but that will be shown throughout this year. And our efforts have not ceased. We continue those less, but we are very optimistic that what we've done, we planned for 2023 is being delivered according to plan. We start -- we see this year starting strong. In terms of launches, they are more robust than the fourth quarter at margins considerably more healthy and healthier. And another important point is the inflation that has damaged so much in the last 12, 18 months. Since the end of last year and beginning of this year, inflation is much better. So we are confident that what we are designing is being delivered according to plan. And another important point we mentioned in the MRV Day is the simplification strategy. Obviously we are operating in fewer towns. We have an operation that's more concentrated with a simpler portfolio that will bring us an important gain in profitability and that happens as these operations are discontinued. It's not something that happened so quickly. But we see that they brought us an impact in sales that was relatively low overall and we lost concentration and increased complexity. So that was not worth it. So this change will bring us gains in the medium and long terms. And that will bring us additional results on top of what we have discussed. So to close, thank you very much for attending the call, for your questions. We are on the right track and we are very confident that the design and plan made for 2023 starts this first quarter following the track -- on track. Thank you very much. We see you on the next call.

MRV's conference call has finished. Thank you all for attending and have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]