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Edited Transcript of MULT3.SA earnings conference call or presentation 27-Apr-17 3:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Multiplan Empreendimentos Imobiliarios SA Earnings Call

Rio De Janeiro May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Multiplan Empreendimentos Imobiliarios SA earnings conference call or presentation Thursday, April 27, 2017 at 3:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Armando d'Almeida Neto

Multiplan Empreendimentos Imobiliários S.A. - VP Board of Executive Officers, Vice CEO and CFO & IR Officer

* Franco Carrion




Operator [1]


Good morning. Welcome, everyone, to Multiplan First Quarter 2017 Earnings Conference Call. Today with us, we have Mr. José Peres, CEO; Mr. Armando d'Almeida Neto, CFO and IRO; Mr. Hans Melchers, IR and Planning Director; and Mr. Franco Carrion, IR manager.

Today's live webcast and presentation may be accessed through Multiplan's website at ir.multiplan.com.br. We'd like to inform you that this event is recorded. (Operator Instructions)

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

Now I'll turn the conference over to Mr. Franco, who would read a message in the name of Mr. Peres. Mr. Franco, you may begin the conference.


Franco Carrion, [2]


Good morning. To start, I'd like to give you good news. Our tenant sales have consistently grown in 2017 with strong numbers. In January and February, we saw growth of approximately 4%, in March 12% and now, in April, confirming our sentiments, our sales review indicates a growth of 11%. In the first quarter, sales in our malls grew 6.1% led by BarraShopping, which grew 12% in the period; ParkShopping Barigüi at 12%; and ParkShoppingCampoGrande at 14%.

Our occupancy rate remained high at 97.4%, and we did not lose occupancy in the quarter. We will now begin expansion works at the VillageMall in areas that had already existed in the project blueprint, but were not yet implemented. With this, we'll have an increase of about 15 stores. And in the next year, yet another expansion that will allow to significantly expand the mall. We have put a lot of emphasis in the service segments, which is increasingly demanded in our shopping centers.

In November of this year, we'll be inaugurating an extension at Pátio Savassi. And in this year, we also have delivered our latest shopping center, our 20th mall, or the 20th mall that we have built, ParkShopping Canoas, integrated with the Getúlio Vargas Park, which was completely remodeled by Multiplan. The mall will have a leasable area of 48,000 square meters and, like all of our most recent inaugurations, will be a majestic project that will have great impact in the region, which comprises a population of about 1,300,000 inhabitants. The project will have an innovative architecture that will be heavily anchored in entertainment and leisure, and will also have a Zaffari Supermarket, the first one inside the mall that does not belong to this -- to its own group.

I would like to point out that the company successfully completed a private capital increase of BRL 600 million in March this year in which the stockholders fully subscribed and was considered by the market as a very successful operation. As a result, our net GAAP was reduced from 3.04 to 2.39x EBITDA at the end of March.

We have several projects to start, such as Jacarepaguá and other important expansions in our malls, which we'll try to start some of them this year.

I want to highlight that in RibeirãoShopping Medical Center, which comprises 6,200 square meters with 31 clinics and a day hospital, is under way. We will inaugurate it in June, having received a warm support from the local medical class. We are the world pioneers in these projects, which we will develop with great success and even greater satisfaction of our clients.

The first example that I can remember is BarraShopping Medical Center built around 23 years ago and now with 40 clinics, comprising an area of 11,000 square meters where about 300 doctors work. These are services that complement the activity at the mall in times when people more and more care about quality of life, leisure and their own health. Our philosophy will not change. We continue to believe in Brazil, especially at this moment in which we see the first signs of prosperity and economic recovery led by an excellent economic team and by a government that does not worry about its popularity, that is willing to implement the reforms necessary for the growth of its country and its political future.

At the end of its term, I hope this government will be recognized for the good it has done to the country. Brazil's population has always had a firm tutelage from the government, is associated with the destructive bureaucracy was identified in the last 13 years. With the change in economic policy, we are now on track to a fiscal adjustment, falling inflation, a steady decline in interest rates and necessary reforms such as social security and labor reforms.

Notwithstanding these confusional issues we are seeing through the (inaudible) operation, we'll continue to applaud and to support the current government for the courage and confrontation of Brazil's critical economic and political situation has allowed us now to see a light at the end of the tunnel.

We believe that the interest rate could be reduced effectively but not artificially to around 8% and our forecast is for inflation to fall even below 4%, historical figures, which brings us the strength to continue our strategy, whether focused on the construction and development of new projects or for eventual acquisitions, such as the ones we accomplished at the end of last year.

As always, I'd like to thank our shareholders, our employees, our tenants and all those who trust and work for the growth of our malls as well as our company.

Let me now pass the floor to Armando d'Almeida, who will continue with the detailing of the first quarter results. Thank you.


Armando d'Almeida Neto, Multiplan Empreendimentos Imobiliários S.A. - VP Board of Executive Officers, Vice CEO and CFO & IR Officer [3]


Thank you, Mr. Peres, thank you, Franco. Good morning, everyone. Just a few additional comments, so we can have time for questions.

In regards to shopping center operation. The 6.1% tenant sales increase in the quarter was a good start for the year. It was the highest increase in the past 8 quarters. Also important was the 5.6% same-area sales. The same-store sales growth of 3.2% was literally doubled than the first quarter 2016. Occupancy rate did not follow the seasonality effect and it's slightly higher than the fourth quarter 2016 at 9.74%. This was the first time in 10 years that the first quarter occupancy was above the previous fourth quarter.

Delinquency rate came down. The gross delinquency rate came from 4.5% last year to 3% now, while the net delinquency rate came from 3.6% to 2.7% in this first quarter of 2017.

The one-off service revenue last year and the real estate for sale contract cancellations explained gross revenue increase of just 0.1%. Rental revenue went up by 10.2%, helped by the recent minority interest acquisitions. Same-store rent increased, was of 8.7%. The same-store rent for the basement only was of 10%, showing a real growth when compared to the high 9.8% inflation adjustment effect.

Moving now to results, just a comment on NOI. That was NOI growth was of 9.5% as a consequence of the higher rental revenue and a 3.6% lower shopping center expenses.

EBITDA came down 5.8% to BRL 187.3 million, mainly due to the mark-to-market effects of the phantom stock option compensation. Note that both phantom stock option were (inaudible) in this quarter, so this is so far no cash effect. To compare fiscal -- sorry. Too, on the phantom stock option effect, on top of that, net income was also affected by the increase in the financial expenses and depreciation, both related to minority interest acquisition. Compared to the first quarter 2016, net income was 22.5% lower to BRL 54.3 million and FFO was down by 19.2% to BRL 92.7 million. Both results would have grown if excluded the noncash effect of the mark-to-market.

About the capital structure. Net debt to EBITDA was 2.39x coming from 3.04x resulting mainly from the conclusion of the prior capital increase and partially offset by a new debt related to stake acquisition in our -- in one of our malls in the South of the country, ParkShoppingBarigüi. We now have more exposure to the -- to CDI-related debt, allowing to effect the benefit on the expected interest rate reductions. We have about 64% -- 64.2%, to be exactly, in that the total gross debt related to CDI rate.

Lastly, on CapEx, we invested BRL 174.6 million in this first quarter, namely BRL 92.4 million on the minority acquisition and BRL 75.2 million in the development of a new -- of new areas. Along the year, we will deliver the medical expansion in RibeirãoShopping, an important increase to the services (inaudible) area in the mall. We will deliver also the full and middle expansion in Pátio Savassi with 2 new anchor stores and then a new shopping center in Canoas, south of the (inaudible) that, by the way, has 80% of the gross usable area already leased. All in, 86,500 square meters of GLA, not counting the expansion where will start shortly, then we will deliver it still in this year, like the VillageMall expansion mentioned by Mr. Peres that, in total, we will add 60,000 square meters assuming what we have announced with these new expansions that we will start shortly.

So there are new expansions, one of which is VillageMall, new projects that will be dedicated to start shortly and the future growth, so this a quarter that the inspiration of these areas creates a very good momentum for future expansions.

So I will stop here and transfer back to the operator to check any questions that you might have.


Questions and Answers


Operator [1]


(Operator Instructions) I'll turn now over to Mr. Armando d'Almeida Neto for final considerations.


Armando d'Almeida Neto, Multiplan Empreendimentos Imobiliários S.A. - VP Board of Executive Officers, Vice CEO and CFO & IR Officer [2]


So thank you. I -- just I think we had so many questions in the Portuguese call, I will share just a few of the questions, or at least the main themes to discuss. One was regarding the parking area and parking revenues. So the question's about the parking revenue that basically became unchanged or showed unchanged to last year, 1.4% lower. We were explained that we saw a lighter traffic in the mall during the month of January and February. We saw growth in March and will in April as well, not the first quarter, but just it's showing that we see a reverse of the trend. But also, it's important to highlight the 2 other aspects. The first one is regarding the primary areas of some of our malls that we increased in terms of (inaudible) in Rio de Janeiro. It is also the example of the mall -- one of our malls in São Paulo, MorumbiShopping in which the primary area that we produced (inaudible) to the mall, we increased a lot in the past years. The second point is also this -- just (inaudible) where people can just in terms of transports, so not using their own cars, just using cabs or public transportation to get to the malls have also been growing in Brazil, around the world and it's not different here. So then the question that came right up was if it's early to -- we have a lower parking space or actually smaller parking spaces and this is absolutely an opportunity for us. So we have more (inaudible) it's too early to say, but it's a part of the parking space could be easily transformed into a mall expansions that is already half built. So we kind of expected an expensive expansion opportunity if that confirms throughout the years, but it's too early to say. And then, certainly, there's going to be -- in cities like Rio de Janeiro after the Olympic Games have helped a lot in this regard. Second -- the other question that arises is talking about Rio de Janeiro. Some -- is actually the analyst asking about the performance of the malls in Rio de Janeiro have been so strong compared to the headlines on the state of Rio. And so first explanation was in regards to the very different financial aspect on the city of Rio de Janeiro where we are and the state of Rio de Janeiro. So our malls are concentrated in the city of Rio de Janeiro where it's been doing well financially speaking. Then we also mentioned about the investments we've been doing in terms of mix, also the change in the mix, new operations that were added to our mall in Rio de Janeiro, BarraShopping (inaudible) that certainly has helped them throughout the (inaudible) even in (inaudible) like this. And their performance, their goals were very -- were expressed in this first quarter. Lastly, many questions regarding future -- or new plans, so what else can be announced throughout the year. That is mentioned about the potential of 60,000 to 80,000 square meters of GLA in the short run. We now said we are working urgently in many, many projects, not just mall expansions, but also in greenfields, just working on the future growth of the company, that we see that we've been through these challenged days in Brazil with a very high occupancy rate. As I mentioned, occupancy rate was -- in this first quarter was higher than the fourth quarter (inaudible) in the last quarter last year, in the fourth quarter, so showing that the (inaudible) creative quality of properties like we have.

So I will stop here. We remain available in our IR department for any questions or any explanations that might be required. Thank you very much for your attention and for your time. Thank you.


Operator [3]


This concludes today's Multiplan First Quarter 2017 Earnings Conference Call. Thank you very much for your participation, and have a good day.