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Edited Transcript of ALSC3.SA earnings conference call or presentation 14-Nov-19 3:00pm GMT

Q3 2019 Aliansce Shopping Centers SA Earnings Call

Rio De Janeiro Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Aliansce Shopping Centers SA earnings conference call or presentation Thursday, November 14, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniella Guanabara

Aliansce Sonae Shopping Centers SA - IR Officer & Member of Executive Board

* Rafael Sales Guimarães

Aliansce Sonae Shopping Centers SA - CEO & Member of Executive Board

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Aliansce Sonae Third Quarter 2019 Earnings Conference Call.

Today with us, we have Mr. Rafael Sales, CEO; Mr. Leandro Lopes, COO; Mr. Carlos Correa, CFO; and Ms. Daniella Guanabara, Strategy and IR Officer.

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 Sonae's IR website at ir.alianscesonae.com.br (sic) [ri.alianscesonae.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 should e-mail your questions directly to the IR team at ri.alianscesonae.com.br (sic) [ri@alianscesonae.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 of the company and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference 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 Sonae Shopping Centers SA - CEO & Member of Executive Board [2]

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Good morning, everyone. I'd like to thank you for your interest in Aliansce Sonae. We are pleased to present today the first combined results of the 2 entities that formed Aliansce Sonae.

In the past 3 months, since our merger took place, we have already deeply progressed in our integration process and managed to successfully integrate many of our company departments. We were able to confirm the synergies, which have been estimated following the merger, now with even more conviction and a more granular analysis. We have reached the amount of BRL 73 million per year, which will be captured in -- over the next 2 years, starting 2020.

In addition, in the third quarter, we have announced important transactions, both investments and divestments. We acquired an additional ownership in our malls, Shopping Taboão and Shopping Grande Rio, which are very relevant malls in our portfolio with strong operational figures.

Also, we have announced the total divestment for Shopping West Plaza, Santa Úrsula and Boulevard Shopping Brasília. These transactions are completely aligned with our strategy of concentrating the stakes in dominant centers located in high-density markets, both in terms of population and income. We will get in more details on these transactions later in this presentation.

Regarding the report of today, I'd like to highlight that the combination of businesses, which formed Aliansce Sonae has already been showing good results, especially due to the already concluded integration of the company's leasing department.

Today, our leasing team represents the strongest sales force in the Brazilian shopping center industry.

In terms of total sales, we grew 8.4% in this quarter, while same-store sales and same-area sales grew 3.1% and 3.7%, respectively. We have ended this quarter with a high occupancy rate of 96.1%, and this metric already went up to 96.4% by the end of October, confirming that one of the merger's most important synergies is the ability to offer better business opportunities to our tenants.

In terms of financial results, our revenues was up by 11% compared to last year, boosted basically by rent revenues and parking results. This quarter, same-store rents registered their growth of 8.3%, which corresponds to a real gain of 2.4%. The growth in net revenues and parking results combined with the drop in provisions led to growth in NOI of 14% and an EBITDA of nearly 12%.

Regarding our balance sheet, the cost of debt dropped to 7.9% in this past quarter. And today, we have nearly 50% of our exposure to floating rates. During the months of October and November, we have prepaid finances in total amounts of $59 million and renegotiated lower rates for financings in the total amount of BRL 350 million. This liability restructuring should lower our average cost of debt to 7.5% per year, starting this past quarter. This should generate an estimated annual savings of BRL 15 million.

Lastly, as a result of improvements in operational metrics, financial performance and the reduction of financial expenses, our FFO increased by over 29%.

Moving now to Slide 4. We can see that we still have a strong demand from tenants willing to increase their footprint in our portfolio.

Now at Aliansce Sonae, this impact is even more robust since we are perceived as the tenants' main business partners within the mall industry in Brazil.

During the third quarter, we have signed 204 contracts with a total of 20,000 square meter of GLA. This is almost a size of a new mall. These figures, however, are all based in our own portfolio. If we also take in consideration the malls that we manage, we have signed 281 contracts during this last quarter.

Over the last 12 months, we explored in our own portfolio. The sales performance of the new stores are 42% higher than the former ones. This figure confirms our strategy of focusing on finding tenants with a more great product offer to address our consumers' need -- demands and qualifying the mix of our centers.

In the next slide, we can see that the share of leisure and service segment, combined with food and beverage, here included fast food and casual dine segments already represents 32% of our rent revenue, a similar figure to that of the apparel segment, showing that we have a well-balanced portfolio in terms of the -- to exposure to the different segments of the retail industry in Brazil.

The leasing team efforts has contributed to the drop in vacancy in the combined portfolio. Our occupancy rate increased to 96.1% by the end of third quarter, an improvement of 0.8 percentage points versus what we saw in the third quarter of last year.

Our commercial team remains focused on increasing our portfolio occupancy rate and in improving our tenant mix. By the end of last month, in October, the occupancy rate was already 96.4%. In addition, the tenants' occupancy cost is stable, now at a low level of 10.3% of sales.

Moving now to the Slide 6. Here, we highlight that total sales in our portfolio reached $2.5 billion in the third quarter, which represents an increase of 8.4% as we had commented before. Same-store sales posted growth of 3.1%.

As we have been commenting for a while now, we believe the same-store sales does not properly reflect the quality of the sales in our portfolio maintained commercial activity, which has replaced a great number of tenants over the last 2 years has significantly changed our store base.

Having said that, we feel more comfortable in measuring the sales and the quality of the results of our tenants by the total sales in our centers. The fact is that our portfolio is rather healthy, posting a growth of 80.4% in total sales growth.

Well, I will leave you now with Daniella Guanabara, who will comment in some more detail about the results of this quarter. Thank you. I will be available to answer your questions later on.

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Daniella Guanabara, Aliansce Sonae Shopping Centers SA - IR Officer & Member of Executive Board [3]

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

In the next Slide #7, we have the company's financial highlights.

Rent revenue remains on an acceleration trend, growing 11.2% in the third quarter of 2019. This result derives mainly from the expansion of minimum rent, which increased by 10.5% or $13.3 million in the quarter. Overage rent also had a positive performance as well as the Mail & Media lines. The media segment continues to present accelerated growth, and we believe there is a line of business, which should benefit from Aliansce Sonae's larger scale and geographic capillarity. Net revenue, which increased 10.7% in the quarter was positively impacted by the 11.9% growth in parking results.

On Slide 8, we see a relevant drop in net delinquency, which reached 0.9% in the third quarter of '19. This reduction was mostly explained by the strong recovery of late payments from past quarters. In the last 12 months, net delinquency decreased by over 100 bps, reaching 1.5%. Provisions for Doubtful Accounts have also dropped this quarter by 8.9%. In the third quarter of '19, provisions accounted for 2.2% of net revenue.

Turning now to Slide 9, we see the positive trend of our results with EBITDA growing by 11.8% and AFFO up by 29.4% in the third quarter year-on-year. EBITDA was particularly affected by higher rent revenues and parking results. AFFO was mainly benefited from the decrease in financial expenses.

Turning now to Slide 10, we show the breakdown of CapEx, which ended the third quarter with total investment of BRL 33.6 million, not considering the 4.9% stake acquisition of Shopping Leblon in the amount of $57.2 million. The most relevant part of the maintenance and renovation CapEx was directed towards the renovation of the food courts at Shopping Belém and Shopping Metrópole

At Slide #11, we present the main information about the company's capital structure. After the merger, Aliansce Sonae's debt rating was upgraded to AAA by Fitch Ratings, reinforcing the company's solid capital structure.

The average cost of debt in the third quarter was up 7.9%, a reduction of almost 1 percentage points compared to the same period of last year. That was mostly a result from the company's efforts in restructuring its financing and the decrease in the Selic floating rate.

In October, we prepaid 2 debts. The first one in the amount of BRL 41.6 million at a cost of TR plus 9.1% a year. And the second one in the amount of BRL 17.5 million at a cost of TR plus 9.3% a year.

Additionally, in November, we renegotiated the rate of 2 debts in the total amount of BRL 260 million, decreasing their combined cost from TR plus 10.3% a year to TR plus 6.8% a year.

Lastly, in November, we also renegotiated [BRL 19 million] in inflation-linked debt, reducing its average cost from IPCA plus 7.5% a year to IPCA plus 4% a year.

The company ended the quarter at a leverage of 2.9x net debt-to-EBITDA and with a 49.2% exposure to the CDI floating rate.

At Slide #13, as we mentioned at the beginning of the presentation, we show the acquisition of additional interest in Shopping Taboão, 14%; in Shopping Grande Rio, 25%; and in Shopping da Bahia's C&A Store, 32.9%. On the other hand, we also announced that the total divestments from Shopping West Plaza, Shopping Santa Úrsula and Boulevard Shopping Brasília. Both transactions are in line with the company's strategy to concentrate interest in malls that are dominant within their segment area. We keep searching for opportunities to increase the safety in assets of our portfolio and to buy stakes in third-party dominant malls.

At our last slide, we'll talk about our innovation initiatives and present our partnership with iFood. Our malls will receive iFood hubs, which are order pickup points that provides a more tactful journey for deliverymen and optimized purchasing made at the food courts without disturbing the malls' functioning. The first centers to receive these structures will be Parque D. Pedro Shopping in Campinas, São Paulo, and Shopping Leblon in Rio de Janeiro. The partnership is in line with the company's omni-channel strategy and should provide more convenience to our consumers and potentially boost our malls' restaurant sales.

I would now like to open the floor to questions and answers. 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 Sonae Shopping Centers SA - CEO & Member of Executive Board [2]

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Hello, everyone. Thank you, again, for attending our Aliansce Sonae conference call. We have some questions in the previous call that we hold -- which has held half an hour ago in Portuguese. And maybe you should check the translation of the questions that were made in our Investor Relations website. And thank you for your interest again, and hopefully, we're going to catch up soon. Thank you. Bye-bye.

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Operator [3]

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Thank you. This concludes Aliansce Sonae's Third Quarter 2019 Earnings Conference Call. You may disconnect your line at this time. Have a nice day.