Syn Prop E Tech Sa S/Gdr

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome all to Tim's audio conference to discuss results relative to Q2 2021. And this being the first earnings announcement for the company under its new corporate name. The audio and respective slides are being broadcast over the internet at the company's RI site, ri.sim.com.br. We're going to inform you that all participants will be connected in listen-only mode during the company's remarks. After that, we'll start a Q&A session when further instructions will be provided. Should you need assistance during the call, please request the help of an operator by pressing Start Zero. Before moving on, we'd like to say that forward-looking statements contained in this conference concern future events and are submitted to Res. 770, which may lead such forward-looking statements not to materialize or be particularly different from those expected. Those forward-looking statements refer to the opinion made on the date they are made and are not obliged to update them in light of new information. Here with us today, we have Mr. Tiago Muramatsu, CEO, TFO, and IRO, and Mr. Hector Leital, Financial Superintendent. Please, Mr. Muramatsu, you may carry on. Well, first of all, good afternoon, everyone, and thank you very much for making time for us today. I know you're all very busy, but thank you. This is the first Earnings Call for 10th, our new corporate name, and have adopted a slightly different model of making the announcements using the video this time. So, kicking off, going straight to slide number five, we'll be talking about our new brand. We've been talking about it with investors, our IR team has been in close contact with the market. We talk about this new brand, and more than just the name, signature prop in tech. What does that entail after all? All that emerged from a desire that we had from the management, from the shareholders, to be able to position the company, a company which already is a benchmark in real estate, commercial real estate, especially here in Sao Paulo, the main buildings in Paria Lima area. I have the most complete portfolio on for you, Lima. Take all that and link it with technology because that's something we see as very promising in terms of growth and what sets us apart unlike other companies who do have real assets. So the name SYN comes from synergy. So the idea is to create that synergy across people, business, and technology. much more than simply take our business to the digital realm between vast and new business models and related parties for the real estate market. Moving on to the next slide, slide number six, a bit about happening in the second quarter. Number one, we have our 13 debentures issue one. to the tune of $300 million in two series. The first one matured in three years with a CDI plus $175, and a second series of $200 million fourth and fifth year amortization, CDI plus $2.04. It was concluded in April 2021. This is something we've been doing for some time now. in trying to maintain the level, not only the leverage level of the company, but also the amortization ladder. All of that in line with our revenue stream. So the amortization line would be as flat as possible. And we've been doing that, extending that and making new wishes with that objective in mind. Also important accomplishment in the quarter It'll appear on our next slide of our leasing operations, especially listing the AAA properties we close the quarter with 100% of lease on Faria Lima and JK455. A little over 3,000 square meters in the quarter and JK, 1,000 square meters. Moving on to slide number seven now. We continue in terms of new operations. The Frielima Financial Center, we had leases, so the net result was an increase of over 4,000 square meters of leased area, and at the JK Tower, another 1,000 square meters. Right now, they are 100% leased at this water. So we have a very positive outlook for the AAA portfolio on Paria Lima. For AAA, you can follow, we are almost at full capacity, full occupancy, and we have some more things to come, our A in 2022. So we do believe that this was a very timely moment to do that. Another important subsequent event, and it's quite relevant and has to do with our new brand, and with the new positioning we're trying to take on moving forward. The appointment of three new independent members to the board from the previous board. I'd like now to take the opportunity to thank our board members who have resigned to make room for this new board member. They spent many years at the company, so a big thank you for your support throughout those years. and they were kind enough to provide space for three new members. So in addition to Ellie and Leo, they remain on the board. Claudia also remains in the board, an independent board member, who is very, very experienced in real estate. And so we have a founder, the CEO of BR Properties, who's been around since the foundation, In 2016, he was supposed to be the chairman of the board of DR Mall. Jose Carlos Magalhães. A very experienced individual, very knowledgeable in terms of capital allocation. Flavio Pripas, one of the founders and the head of Kubo, Itaú Bank's He started up Innovation Center for some time, and now he is one of the partners at Redpoint, a venture capital firm very much involved with startups and tech companies who are emerging. And lastly, Christian Huber, one of the co-founders and CEO for New Businesses. a new business executive and used to be the CFO for Loft, a native prop tech company, one of the most valuable in Brazil. So we are sure that this new team gathered at the board will contribute to our business in a very significant manner. And of course, we also have very important names to provide us support in terms of guidance towards the tech journey. a little bit about the COVID impact on the next slide, slide number nine. The second wave, in fact, caused a big impact on the business. There are two main facts that stand out that help us contribute to this recovery. The first one is the fact that our portfolio is very much concentrated in Sao Paulo. We have four shopping malls in Sao Paulo in the metropolitan area of the city. Out of the six that we manage, four are in Sao Paulo. And those four have a very good share in terms of sales and leasing when you compare that to malls outside of Sao Paulo. And secondly, and that was eventually a factor that sort of hindered The recovery was the Cidade de São Paulo Shopping Mall. And since February 2020, ranked as one of the three largest lease values in Latin America, it still has a very high level of lease and value. But the recovery was hindered because it relies on the office population that works on police additive. And they're just now going back to in-person work and also relies on tourism on the weekend, which is also only now beginning to resume on the weekend. Now, as the vaccination rollout advances, we do believe this will be mitigated, and we see a very positive result in San Jose for Sao Paulo as a whole. When we look at the results from late June and early July, we see promising results in terms of recovery. or sales. And now moving on to slide number 11, we decided to include a popular publication about ESG, a recurring topic in our discussion. And then we do not advertise what we do most of the time in terms of ESG, but we are already working on our sustainability report. This is a brief summary of some of the initiatives we have around ESD, environment, social, and governance. On the environmental front, we have the lead certification in most buildings that we manage. Some of the buildings which are around here are to be included. We have a chart to show the representativeness of the properties where we have. So close to 90% of the cash that we generate in terms of office lease come from properties that have lease certification and also malls that have lease certification. We also adopt the use of energy from the free market, both for malls and properties. We use incentivized energy. We do have waste management, sewage treatment in most of our properties and malls. We do have malls in our portfolio that are autonomous for water use. So that's something we've been doing since 2003, when we started developing the first buildings here on Faria Lima. As for the social front, We have the SIN Institute, the CCP Institute, as it used to be called. Now it is the SIN Institute, a heritage from Mr. Ali. We also have the Cirella Institute. They have a pillar, a social part, a part of the company's profit is allocated to the institute. Today, they work around four main pillars, employability, entrepreneurship, Volunteering and relationships. And all those four pillars put around developments that we have in shopping malls mainly. So we have, that's part of what they said in our release. We have initiatives around training for a first job. I personally take part in some mentorship programs for first jobs for young professionals, volunteer programs. We have a collaborative store for people who leave the community. We do have a booth for refugees here in the city of San Paulo. So we try to be very active, both in terms of employability and in terms of entrepreneurship. And the environment in the surrounding areas of our malls. So that sort of permeates across all pillars. That's something we do with a lot of passion and been doing for a long time. In the diversity, we do have a diversity committee. We have been fostering diversity action. And we want to encourage The participation of everyone, everyone is welcome. So we do have diversity across the company and we have people from all walks of life getting engaged in the committee's activities. This has been going on for a year and a half now. Recently, we have a partnership with Zumbido Palmares College with their presence at the university or the Afro-Brazilian community. We had an activity going on during Black Awareness Day last year, and we do have dedicated outlets in some malls dedicated to the Afro culture. And on the COVID front, we made ourselves available to local governments to provide areas for vaccination. So some of our malls have been used at vaccination hubs. We have already seen 100,000 people being vaccinated in our malls. We do have a health committee, too. And we have several other projects in place, which are part of the SIM Institute, to try and help mitigate the impact of the COVID crisis. In terms of governance, we are a company that is listed in the November guidance. Most of our policies are announced publicly to all investors. We are very, very strict in that respect. We've had for at least seven years a hotline for reports in terms of data protection. We were one of the first companies to embrace that new law for data protection. And this restructuring of the board, we now have two-thirds of the board are composed of independent members. So that's also part of governance, of governance efforts on our part. Now moving on to the operating performance for the quarter on slide number 15. We have occupancy snapshot. We have improved occupancy in terms of financial occupancy in the second quarter. It improved from the first quarter, slightly, but it did. And this imbalance that we saw has to do with the reduction of idle spaces in AAA properties to the detriment of an increasing vacancy in Class A properties. And that, of course, reflects

into the physical occupation as well.

Now, specifically about shopping malls on slide 16, we saw a very significant growth in 10-star sales in the Q2 and compared to the same period of last year. But a more fair comparison would be to compare those numbers with 2019. And then we had a drop, as you can see. 20%, and I talked about the fact that sales were impacted in our portfolio because of the reasons I've mentioned. But the good news is that when we look at the results, and it's an uptrending number for June, we already see that same-score sales dropped from minus 30, and today we are at a level of 10-something. minus 80% of drop in same store sales when compared with June 2019. And that's good news, provided we still have some restrictions. And now we hope to see a strong recovery going forward. And in terms of commercialization, we see that we see retailers seeking to expand. We see that happening in our malls. So for the coming quarters, we'll have positive news to share in terms of malls. Now, a bit about our financial performance. I'll give it over to Hector. Hector, over to you. Thank you, Tiago. Thank you. Thanks, everyone, for being here in our earnings call today. I think results acknowledge what Tiago has mentioned about the operational performance. When we compare leasing revenues You compare quarters on quarters last year. This year, we see a growth of 21.5%, quite concentrated on shopping malls. The office is quite flat, quite resilient in the second quarter, and the shopping malls saw a great gain as restrictions were lifted, lockdowns were lifted, and that, of course, brings about revenue concerning businesses parking lots, which also saw a significant drop in the first quarter, which impacted net revenues in a positive way, too. Also, there was an inertia around discounts, and that has been accumulating a large balance of discounts from March last year, and that sort of mitigates the growth that we would see in net revenues combined with the gross revenues. better parking lot revenue and better service revenue, so we grow net revenues by 21%. Moving on to slide 19, it's talking about the NOI. It is also in line with gross net and gross revenue, with a growth of 13.6%, very much impacted by the shopping mall's performance, or good performance, but we see a drop in margin of 5%. quite concentrated on an increase in the cost of vacancies for Class A properties. So we have increased revenues for malls in a relevant manner. We have increased in the second quarter, the office revenue, but we do have a vacancy cost, which is concentrated. And we've been talking about it for the past quarter. And we have a small portion of retail which is leased now. So the NOI grew by something close to 14% in the quarter because of that. Now, moving on to adjusted EBITDA on top of the NOI, we'll add operating expenses, SG&A and others. We have a growth, which is even more robust, boosted by the SG&A efficiency and also by the services rather in these streams, which is outside of the NOI. So we have a very significant growth of 41%, reaching the level of 74 million in the quarter. Then moving on to slide number 20, net profit follows along EBITDA, adding financial expenses, their financial results, rather. Then we have a result of 150%, also quite significant, the difference there drops, the absolute difference both for the net income and the adjusted FFO because of financial expenses. We've been following an increase in CDI, which has a direct impact on our debt. And I'll talk about it in a moment, about the increase in the cost of our debt because of IPCA variation, inflation variation. So we do have a growth of 25.1% in FFOs. close to 40 million at the end of the quarter. When we look at the pro forma, we see a drop of 8% coming from two main drivers. Number one being we saw a drop in NOI for shopping malls, which was quite concentrated in Sao Paulo, where we have a relevant share of the market. But at the same time, we've seen quick fast recovery starting in this quarter, and also because of debt. We have about 80% of our debt is corporate debt, so there is a higher impact on pro forma than on IFRS. That's why you have this 8% drop. Moving on to the next slide, slide 21, we're talking about our debt. As Tiago mentioned, he issued our third series of the ventures. So he asked for cash. We add basically 300 million, which were raised with the debentures, and there was no cash burn event in the quarter. So we maintain net debt at a stable level with a slightly higher EBITDA. So we see a marginal improvement also along that indicator, net debt EBITDA for the last 12 months. Close to the quarter at 0.4 points. It's quite comfortable. These are our main components, which is seven times. The limit would be seven times. So we are quite comfortable at 4.46 times. Then looking at the history line of our financial expenses, we see that the company managed to explore an important drop of CDI from 2019 when they were close to 6.5 or 7. of SELIC rates, and then close to 2% in the second quarter of last year, in the middle of the chart. Then, as we all know, by scale-up and inflation this year, the IPCA went up about 8% in the first half of the year, the last 12 months, July. So that also led to an increase in the SELIC rate. And so those are the two main impacts on our debt. an increase in the CDI plus, and also 20% of a debt, which is IPCA peg, suffering an important monetary pressure on that side. So a good portion of the gain we've had until the EBITDA. We had the headline in terms of financial expenses that I made. And then moving on to the next slide. feel about indebtedness. We see the amortization schedule for our debt. A debt profile that we have is quite flat, quite well spread out throughout the years, in line with our cash flow, in line with our operational cash flow. So, in terms of our 13th debenture issue, it was something we did to reinforce our cash. We deny at a more volatility scenario next year when we'll have presidential elections. So this way, we'll be quite comfortable until the end of last year. This will prevent us from going to market for more cash, especially in a moment where there's so much uncertainty. In terms of indexation, I've said that our debt is quite concentrated on CDI, about 80% of it, and then have a cost of corporate debt. That's where we are more concentrated. a cost close to 6.5, and an average close to 7. So the takeaway is that we are quite comfortable in what concerns liquidity, and also in terms of needing to raise more funds next year. So this is it on my end, and I give it, turn it over to the operator for the Q&A session.