Syn Prop & Tech S.A. (SYNE3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the SYN video conference to discuss the results for the fourth quarter of 2024. This video conference is being recorded, and the replay can be accessed on the company's website, ri.syn.com.br. The presentation will be also available for download. [Operator Instructions] For those who are watching the video conference in English, I would like to emphasize that the forward-looking statements are based on beliefs and assumptions of SYN management and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should be aware of events related to the macroeconomic environment, the industry and other factors that could cause results to differ materially from those expressed in their respective forward-looking statements. Present in this video conference are Mr. Thiago Muramatsu, CEO of SYN; and Mr. Hector Leitao, CFO and IRO of the company. Now I would like to give the floor to Mr. Thiago Muramatsu, who will start the presentation. Please Thiago, you can proceed.

Good morning, everybody. Thank you so much for watching our call of results the year of 2024. I will start with the main achievements of the quarter that we kept the last quarter December, we had a capital reduction, BRL 560 million that was simultaneous with the first installment of XP, the first was installments paid on December 18, also closing the sales of Brasilio Machado, a building that was high vacancy, we were negotiating on BRL 32.5 million and is going to be paid. In the first slide, we see 6 installments in alternate months. The two first were paid and the total was BRL 9.5 million in January, the second installment, BRL 4 million in March. This week also, we communicate to the market and 4 more installments to receive by the end of the year. Three of BRL 4.7 million and one BRL 4.1 million. and then we talked about the final phase of CLD lease. In addition to the first phase, we finalized 100% of assignment. We have the second and fourth phase. And the second phase will be delivered next month and the fourth phase that is the second half of the same NAV delivered 12, 18 months. And the third phase that is a smaller NAV about some approval, and we are going to start soon. A topic that we have been talking with the investors in general since 2021, 2020, when the pandemic started, and we had just started the capital that year. We had several initiatives to generate value for investors at SYN so we distribute dividends, repurchased shares 2021 offices portfolio last year here part of our portfolio in shopping malls. So with the value of the sales in addition to capital reduction, we had a dividend distribution in August 2024 BRL 440 million. In the year, the total of BRL 1 billion of capital that we delivered to the shareholders focusing on the shareholder capital return, the dividend yield 140% and ROE almost 40% and if we consider the last 48 months, that is ROE 20% a year for the companies in general is really appealing and the property companies. I believe this return is above the average. Let's advance and talk about operational performance. We see that in the physical and financial occupation, we are close to stability. There is a small difference in physical occupancy of 1%, and there was a change in the portfolio composition that brought some adjustment. But this beginning of the year is better than what we expected, so we expect that is 1% of difference will be recovered soon. And this 1% difference is due to vacancy of big areas, and this is reflected on financial occupancy. We improved, although the physical occupancy was a bit lower alike to what we conclude in 2023. So there was an improvement, almost 0.4%. Sales, we grew in the quarter, 7% in total sales, great part of the growth of sales was through same-store sale and some replacement that we had increasing sales. So when we combine same-store sales and replacements and the sales value of the same area, the growth was 5.2% in the sales observing fourth quarter only. Observing the year along the growth is a little bit under 4% same-store sale considering the stores replaced by other brands, but better than the previous occupants, we increased almost 4% same-store sales. Same-store rents on the quarter observing in the year 2024, the performance was above the expected 4.2% and in the year, we finalized 3.2% of growth of same-store rents. Observing corporate buildings, we have a point of view here considering Brasilio Machado sales. When we closed the year, it was not concluded, but it was finalized. So we have some basements that is about time and is something that we are going to keep in our portfolio. Observing this aspect, then considering the total sales of Brasilio Machado, we finished the quarter with 93.5% (sic) [ 93.4% ] of physical occupancy and 92.8% financial occupancy and Class A, we are 100% leased. What we have vacancy AAAs is concentrated on [indiscernible] Rio de Janiero, and the occupancy is below than what we have in the assets of Sao Paulo. And here, I commented before in the opening considerations. warehouses that we have in Sao Paulo in the border of Guarulhos, this warehouse up to the end of the year, had 83.4% leased. Part of this second and third phase leased, not reflecting this contract when we signed in January, so when we see in March up to January of '25, these two first phases plus the fourth phase leased already. The third phase is here, but it's 1, 2 and 4. I'll pass the floor to Hector, he's going to talk about financial performance.

Good morning, everybody. Thank you so much for your attendance in this call. Just a point of view on what happened with our developments in 2024. In the portfolio in general observed the same properties not the parts that we sold of the development for XP in the beginning of the year. The growth is 7.4% NOI in total of the same properties close to BRL 92 million. Observing shopping malls, the growth was bigger, 8%, BRL 65.9 million. And this year, we did not have a positive IGPM rates. So this was performance of sales, improvement of mix and also default aspects, there was no positive event on inflation. It's going to be better in 2025 in this aspect. Offices, 5.8% growth closer to inflation rate. It's a good growth, closing the year with BRl 26 million NOI compared to BRL 24 million in the previous year. Observing the consolidated numbers of the company, we closed the year with EBITDA BRL 713 million levered by the sales, expressive growth, 386%, removing the sales observing just the performance of the development compared to last year, no adjust. We have a natural drop of 30%. Basically, the installment that was sold and the drop was not so bigger because we grew 7% of NOI in the portfolio compared to the same base. Net profit, BRL 546 million, a small loss last year of BRL 10 million and adjusting it with the profit of sales, the expressive growth is 400% closing the year of '24 with BRL 7.8 million adjusted profit levered, of course, by the financial result. As we are going to see ahead, we closed the quarter with positive cash considering the installments of the deal with XP. FFO, keeping the same reasoning, the growth is 68%, closing BRL 80 million not with considering the effects that is not depreciation, cash and interest levered by the financial results. Indebtedness of the company, we changed a lot the profile. We finished the year with gross debt of BRL 850 million compared to BRL 1 billion last year. And throughout the year, we had some amortizations, anticipating some amortizations because of a higher cash that we had in the company already are amortizing not to have a negative coping charge here. Cash balance, BRL 386 million in the closing considering receivables of the transaction that the December snapshot was BRL 579 million, BRl 580 million, we closed with the availability of BRL 966 million, representing a net cash of BRL 107 million. So I believe the biggest transformation in our balance is leaving a debt of 4.4x to net cash, and we are in a position that is really comfortable to lease capital nice and easy observing the opportunities of the market. And our schedule of amortization is comfortable because of the net debt, but up 2027, we have a schedule that is flat, BRL 130 million, BRL 150 million every year, and the amortization that is higher, especially in the test debenture 2028, BRL 430 million, and our debt profile, similar to the last quarter, half and half. spread of CDI and PCA -- IPCA. CDI in average is 1.3%, the IPCA, 6.5%, observing what we have long curve of IPCA price also observing a spot point of view IPCA and CDI running, we have the debt under CDI currently, so that management is under control considering these aspects. And I believe we can open up the floor for questions.

[Operator Instructions] The first question is from [indiscernible].

Congratulations on your results. I have a question. Can you update the annual cost of ITM. And about the situation of extending Cidade Sao Paulo Shopping Mall considering the extensions that SYN is doing, what is the ABL projected with the installments that we are going to receive Brasilio Machado and XP malls. Are we going to anticipate that payment?

So answering your questions here. The first, annual cost of ITM. Apparently, we have the cost of BRL 6 million a year. But what is this cost is not about the expenses of the empty asset, but little by little, we are increasing our market share. And we consider it's positive because we are increasing in a low price, and we are studying different alternatives for the asset. And I believe that from the point that we are having a good use of this asset, I believe that we are going to compensate a little bit of this cost because of the increase of this asset. The extension of Cidade shopping mall, the discussions are ongoing internally and in the society, how to go ahead and do that. So we do not have anything new about this topic. Considering what we have, we do not have currently anything expansion are going, considering that we have ahead of time. On possibilities of new areas considering all the malls, we are talking about increasing potentially the ABL of these assets around 5,000, 6,000 square meters in our market share, considering the assets in general, we are talking about 60,000 square meters of new areas. And the final question about if we are going to anticipate that payment, it all depends on the moment in time, but we are considering and studying what to do with this capital, partially will be used to pay debt. And also, we have accrual of profit that could be possible to additional distribute dividends. So we are waiting to see the best use of this capital when it's in cash.

Next question is Elvis Credendio, BTG.

Talking about the announcements of the company leverage observing what you have net debt and receivements you have a cash position as you commented and you can distribute dividends. I'd like to understand how far this yield would be? How do you see this leverage -- maximum leverage that you would like to run after this dividends payment? That's my question.

Thank you, Elvis. I believe that today, our situation is not optimal on capital structure in general. And I mentioned this before, it all depends on what we have prognosis of new investments ahead and where this interest curve is heading for when we have this capital to take this decision. But I believe that ideally we should try as a target running under 2x. We are running in the last years, almost 4.5 and 5. We will be comfortable running year 2x. I believe if I would place something like idea, we would be something around that number.

Our next question is [indiscernible].

I have some questions. The first Cidade Sao Paulo Shopping Mall this extension, it's something very important for the company. If you can do, I know it's not easy. I understand there is a possibility of the expansion up to 25% of the ABL. This is my first question. I'd like to know more about it. And it's very nice when you acquire more market share in the ITM, what is the market share of the company currently over there? And the third question, I'd like to understand if you observe new possibilities of investments. I'd like to understand if there is a specific area in your mind, logistics, office, residential, SBX, if you have this association and that's it.

Okay. Let's see. There are too many questions, but they are okay. Cidade Sao Paulo Shopping Mall, we have a potential of expanding up to 25% of the area. This is a small shopping mall, 25% in percentage is a lot, but we are talking about 4,000 almost 5,000 square meters. Great part of this 4,000, 5,000 square meters in the second -- first and second underground basement level as we see potential for lease would be a big store, a big store with more meters. Small stores, we see that would be very challenging to generate the attractiveness we believe it's necessary. The leasing average of the mall it would be under the average of mall because of the size and the characteristic of stores that we mentioned to place there. Considering that the negotiations are ongoing. We hope that the next call, we are going to bring something new about it and eventually, in the moment that we have a firm position. We understand that is value to communicate, we are going to communicate for sure. And about ITM, currently we have more than half of the assets. 51%, 52% is our market share of this asset. It was near 40%. Now we increased more than 10% of our participation. And your final question. That's a good question. And we are open to consider the office, shopping malls, warehouse, residential development not so much. We do not have data association GAV with SPX investment, but we are investing in that development as well, residential development we are going to consider if it's the case. The difficulty we face and we try to do things that are a credit to investors to find something to make ends meet at the interest level that we have currently, majority considering the location, the focus on our efforts is in Sao Paulo, something, of course, warehouses outside Sao Paulo, in regions up to 15 kilometers away from Sao Paulo. Residential development, the focus would be Sao Paulo as well. But for the moment, I'm telling you that nothing is a hot spot because of the level of return that we have internally considering our capital cost currently. But I hope that throughout the year, the scenario would improve. I believe I'm optimistic than I was in the beginning of the year. I'm optimistic now. And what we imagine, our cash position could bring new investments, the banks would support some level of debt if it's the case. But we want to do something that is a good opportunity. We do not want to spend the money just by spending the money investing -- for investing. It must make sense in our capital structure and the level of return we want to deliver to the shareholders.

I am sure that you are going to find a nice business.

Yes, we are looking for it.

And the final question, the company that you purchased [ Condominium ] it's very interesting. How is that development?

We are investing that we have 10% of market share in 1 year, 1.5 years, tech companies have a profile that I will burn cash flow to increase my top line and grow in scale. And in our group of investors, we have 3 VCs investing jointly. I believe we are the only corporate investor that are people there as they have their core business, investing in tech companies. We are helping them to guide the strategy. And in the last year, the focus was big in breakeven, and we are sure that the business itself is viable. Now in the end of the year, beginning of the year, we are part of evolution on revenue and the companies in the breakeven now. Now we are going to see if the growth is as expected, but this investment in the future might bring good fruits, but still the moment is ramping the business up.

The Q&A session is closed. We would like to pass the floor to Mr. Thiago Muramatsu for the company's final considerations.

First of all, I'd like to thank you so much for your time and dedication to attend in this conference. As I talked to Eduardo I believe we are more excited as time goes by, although all the macroeconomic instabilities that we have in Brazil and at a global level, we see opportunities of having businesses growing and also investment. Operationally speaking, we started the year stronger than what we had imagined to start. And this year, we are so excited in the operational aspect and also business. And let's see what we have ahead in the next month, this year, and I am sure that we are going to keep you all communicated and up to date. One more time, I'd like thank you so much. All the team, RI for the work. Thank you so much. Have a good day.

This video conference is closed. We thank you so much for your attendance. Have you all a good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]