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Edited Transcript of ALSC3.SA earnings conference call or presentation 30-Jul-19 4:00pm GMT

Q2 2019 Aliansce Shopping Centers SA Earnings Call

Rio De Janeiro Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Aliansce Shopping Centers SA earnings conference call or presentation Tuesday, July 30, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniella Guanabara

Aliansce Shopping Centers S.A. - IR Officer & Member of Executive Board

* Rafael Sales Guimarães

Aliansce Shopping Centers S.A. - CEO & Member of Executive Board (Leave of Absence)

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Aliansce's Second Quarter 2019 Earnings Conference Call. Today with us, we have Mr. Renato Botelho, CFO; Mr. Leandro Lopes, COO; Mrs. Daniella Guanabara, IRO; Mr. Mauro Junqueira, CIO; Mr. Fabricio Guimarães, Financial and Planning Director; and Mr. Rafael Sales, Executive at Aliansce and future CEO of Aliansce Sonae Shopping Centers.

We would like to inform you that this event is being recorded (Operator Instructions).

There will be a replay facility for this call for 1 week. We have simultaneous webcast that may be accessed through Aliansce's IR website at ir.aliansce.com.br. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call. We would like to inform you that questions can only be asked by telephone. So if you are connected through the webcast, you may email your questions directly to the IR team at ir@aliansce.com.br.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of the company's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results for the company and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the call over to Mr. Rafael Sales, who will start the presentation. Mr. Rafael, you may begin the conference.

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Rafael Sales Guimarães, Aliansce Shopping Centers S.A. - CEO & Member of Executive Board (Leave of Absence) [2]

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Good afternoon, everyone. Thank you very much for your interest in Aliansce. Please let's turn now to Slide 2, where I will give you some update on the company's performance this quarter.

Total sales grew by 7.6% this last quarter, keeping up with the growth trajectory observed over the past quarters despite an even tougher environment for business not only for retail, but also for different sectors in Brazil.

Regarding results, net revenue expanded by 10.9% year-on-year. This expansion was mostly due to strong hikes in rent, parking and service revenues. The acceleration in rent revenue growth is partially explained by the increase of inflation over rents. However, when we look at same-store rent figures, we see an increase of 2.1% in real terms this quarter. Another trend that remains very strong is our store leasing activity. We leased over 168 stores in the quarter of company's own malls portfolio. This maintained our occupancy rate above 97%.

About our cost dynamics, we were able to maintain overall mall costs at a stable level this year, [what are] good news, especially after an expressive drop-off last year. At the same time, the continued reduction in delinquency led to a reduction in provisions of 21% during this quarter. As the combination of these factors sustained an increase in NOI and EBITDA of almost 10% year-on-year despite the effect of the divestment from the Corporate Tower in Boulevard Belo Horizonte.

Regarding the company's liability management, our average cost of debt remained at 8.5% this quarter and we ended the period with over 51% of exposure to floating rates in our balance sheet. The leverage remains at the comfortable level of 3.1x net debt EBITDA.

As a consequence of this strong operational result and the lower cost of debt, our FFO increased by 19% in this quarter.

Additionally, we are glad to announce that on July 19, Aliansce and Sonae Sierra Brasil have met all the criteria for the conclusion of the merger between the 2 companies. Now the Board of Directors of each company will meet for the final approval of the transaction, which should happen on August 5.

Please, in the next slide, here we are commenting on Aliansce leasing activity. We highlight that 551 stores were leased in our own malls in the last 12 months. This equals to a growth of over 20% this quarter. It's always important to keep track the growth in sales per square meter of stores replaced -- of the replaced stores in the last 12 months was almost 44%, which leads us to conclude that we are leasing space to new tenants with healthier operational metrics.

In terms of occupancy, on Slide 5, we observe that our occupancy rate has remained at very high levels, which proves the dominance of our malls and the capacity of our commercial teams managing the tenant mix of our portfolio. Additionally, the occupancy cost remains at the low level of 10.6% of sales, allowing our tenants to have good profitability in their business.

Turning to Slide 6. Regarding sales results, we see that total sales in our malls reached BRL 1.5 billion in the quarter, which represented a growth of almost 8% year-on-year. Same-store sales reached 4.5%, while same area sales grew 5.2%, primarily due to the continued effect of the mix qualification.

Turning to Slide 7. Before concluding, I want to show you some details on the renovation of Shopping Grande Rio, which is being finalized this quarter. The mall opened for business in 1995 and is one of the most dominant assets in the metropolitan region of Rio de Janeiro. The project included an enlargement of the central corridor, which opened additional space for new kiosk operations and helped to improve the flow of customers in the mall. We also completely renovated the food court, creating a more comfortable area with natural lighting and also better flow of visitors.

Another improvement was the renovation of the facade, which gave the mall a more updated look. With these enhancements, we brought important complements in terms of services, entertainment and dining options with operations such as a campus of Anhanguera University, a citizen service center, a Smart Fit fitness center and an Outback restaurant. This is another good example of how our strategy of having dominant malls allows us to make investments that reinforce the quality of our services and our customers' overall experiences, at the same time providing sustainable profitability for our shareholders.

I will turn now to Daniella Guanabara, who will comment on the quarter results in more details. Thank you. I will be available to answer your questions later on.

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Daniella Guanabara, Aliansce Shopping Centers S.A. - IR Officer & Member of Executive Board [3]

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Thank you, Rafael. Good afternoon, everyone. We will quickly go through the financial and operational highlights and then open up for questions.

On Slide 8, we will comment on the company's revenues. Rent revenue has accelerated during the year, growing 8.2% in the second quarter. The hike was mainly driven by higher minimum rent, which grew 7.5% or almost BRL 6 million in the second quarter of '19. The Mall & Media line also expanded by 19.7% over the second quarter of '18, mostly due to rising contribution of media revenue, which grew BRL 1.6 million year-on-year.

Net revenue was up by 10.9% in the second quarter, reflecting the positive impact from parking and service revenues, each growing by 14.8% and 16.9%, respectively. Service revenue has been positively affected by the strong leasing activity, including the leasing of floors in the third-party greenfield mall under development in the state of Bahia.

On Slide 9, we see a relevant drop in net delinquency, which reached 0.6% in the second quarter. This indicator was positively impacted in the second quarter by the strong recovery of late payments from past quarters. In the last 12 months, net delinquency decreased by 95 bps, reaching 1.8%. Provision for doubtful accounts have also dropped this quarter by 21.3% or BRL 1 million. In the second quarter, provisions accounted for 2.5% of net revenue, the lowest level for the second quarter since 2015.

Turning now to Slide 10. We see the positive trend of our results, with EBITDA growing by 9.6% and AFFO by 19.1% in the second quarter year-on-year. EBITDA was positively affected by higher net revenue and lower provisions. AFFO was benefited from the BRL 4 million increase in financial revenue.

Turning now to Slide 11, which shows the breakdown of CapEx which ended the second quarter at BRL 70 million. In this quarter, Aliansce has also exercised its right of first refusal and increased its stake ownership in Santana Parque Shopping by 3.33%, keeping good governance in the asset. We have also recently concluded the acquisition of an additional 4.9% stake in Shopping Leblon in the amount of BRL 57.2 million.

Since this cash disbursement happened in July 2019, it has not yet appeared in our CapEx and Aliansce will increase its ownership to 30% of the mall starting in the third quarter of 2019. Based on the NOI expected for the next 12 months, the acquisitions cap rate is of 6.7% and real and unleveraged IRR pretax is of 9.9%.

We expect that total CapEx for maintenance, renovations and expansion will range from BRL 100 million to BRL 140 million for this year.

On Slide 12, we discuss the capital structure of the company. We ended the second quarter with 51.8% of exposure to the CDI floating rate, having reached another great balance among debt investors. With the prepayment and renegotiation of rates of the last quarters, our cost of debt has remained stable at 8.5% and the company's leverage is at a comfortable level of 3.1x net debt EBITDA.

Now I would like to open for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) This concludes the question-and-answer session. At this time, I would like to turn the floor back to Mr. Rafael Sales for his closing remarks.

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Rafael Sales Guimarães, Aliansce Shopping Centers S.A. - CEO & Member of Executive Board (Leave of Absence) [2]

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First of all, thank you, everyone, for answering our call and attending -- paying attention to our results. And just a few minutes ago, we made our Portuguese conference call and we had very interesting questions coming up, and we will have the questions and answers translated and available for you to check the that have an interest in seeing what the local investors had for us during the last call. Okay?

Thank you, and have a good day.

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Operator [3]

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Thank you. This concludes Aliansce's Second Quarter 2019 Earnings Conference Call.

You may disconnect your line at this time, and have a nice day.