SYN prop e tech S A : 1Q23 Conference Call Transcription

Conference Call Transcript 1Q23 Results SYN prop & tech S.A May 12, 2023

Operator:

Good morning, ladies and gentlemen. Welcome to Syn Video Conference to discuss the Results on the 1Q23.

This video conference is being recorded and you can watch it later at the Company's website, ri.syn.com.br. This presentation will be available for download.

We would like to inform that all the participants will be watching this videoconference during the presentation, and after that we will open up the floor for Q&A session, leaving you with further instructions.

Before resuming, I would like to reinforce that the statements here declare are the beliefs of the Administration of Syn and the current information for the Company, and these statements may involve risks and uncertainties considering that they regard future events so unforeseeable. Investors, analysts and journalists should consider that the events about the macroeconomic environment, the segment and other investments may influence the results here expressed in these statements.

Here, we have present in this video conference, Mr. Thiago Muramatsu, Director and President of Syn; and Mr. Hector Leitão, Financial Director and Investor Relations with the Company.

I would like to pass the floor to Mr. Muramatsu to start his presentation. Please, Thiago, the floor is yours.

Thiago Muramatsu:

First of all, I would like to welcome you all with a good morning. You see now our call of results. I would like to thank for your attendance.

This quarter was a quarter without relevant movements within the Company. On the other hand, in this quarter, especially here in the area of shopping malls, we have currently a great concentration of our revenue that started turbulent because the retail market was startling us in the first 20 days of January. Throughout the quarter, we saw these effects being worn out by the growth of sales at the mall and our activity of leasing, bringing results.

Directly to the point of these results, starting in operational performance on slide 5, talking about occupation. Occupancy of Syn had a small reduction compared to the 4Q22 because of basically seasonality at the most, and impact of corporate offices comparing the 1Q23 and 1Q22. I believe the seasonality effects are similar. We grew 2% in physical occupancy and more financial occupancy.

Ahead, we are going to deep dive in the segments. First, shopping malls. We place here a disclaimer about physical vacancy because of Grand Plaza. In Grand Plaza, we have a commercial building, 4,500 meters, inside is development, and throughout the last year, there was an interesting movement of renting in this building. So when we see occupancy, excluding the effect of this building, we are just talking about occupancy of retailing stores. In the 1Q, we grew 1.3%, reaching 95.6%, growing over the 95% mark in the last two quarters.

So we see these already as a healthy situation. We still have some challenges ahead of us. These two developments are going so well, and we have been investing a lot in events and entertainment.

And we can see the results here in all the malls, and we especially have interesting results in Shopping D mall and Cerrado shopping mall. Shopping D is area based in expansion for

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Conference Call Transcript 1Q23 Results SYN prop & tech S.A May 12, 2023

entertainment, bringing people to the mall. This is helping a lot in the trading of other areas. Shopping D mall, at the end of the year, there is Poupatempo. So all this operations on recurrency helped a lot in the occupancy of the mall.

And in Cerrado shopping mall, we experienced big demands bringing a positive flow that is not reflected in this quarter's numbers, but I am sure that it helps a lot the growing compared to last quarter. Financial occupancy, the increase was bigger. The increase was more than 2% when we compare the 1Q22 and the 1Q23.

Still about the malls, we had a growth of almost 15% of sales quarter-after-quarter, overcoming in 2x the inflation rate, growth near 7.5%. Vehicles flow, there was a growth that was shy, 4.5%.

And to highlight in this quarter, in Cidade de São Paulo shopping mall, in the last quarters, it was behind the other malls in our portfolio. In the 1Q23, there was an increase above the other malls in sales and flow, and we talked to investors because of the location of the mall, focusing on leisure, entertainment in the city, Paulista Avenue, which is a commercial center, there is a lot of people passing through because they work in the surroundings.

The companies are back to the offices, hybrid work. So it helps the return of the flow in Cidade de São Paulo shopping mall. But this year, as the companies are back to the offices and people are back to the offices, we experienced something near what we had in 2019, and this helped Cidade de São Paulo shopping mall a lot.

Retaining the growth at 12%, leaving the numbers that we compared in the pandemic period, we are comparing normal year, this growth is really interesting comparing to the accrual inflation, 7.5%, and the leasing at the stores growing in the same rate, 9% growing above the inflation rate.

Talking about corporate buildings, I believe there is a change in the criteria, but this is not in the analysis. First, we did not own the development. We participate through a fund, but we manage this development since 2022.

So we direct manage the leasing, the renting today, we participate as a person that has knowledge but not under our management directly. That's why we leave IT out, and another one that virtually is empty, although we have some leasing contracts ongoing. We are studying different alternatives for this development, not necessarily as a corporate office use. So it is excluded when we use this comparison that we have, operational offices.

Within the offices, we finalized the quarter with Triple A in physical occupancy above 80%, and financial occupancy near 90%. Class A offices, 86% in physical occupation, 88% in financial occupancy.

In Triple A, we have some natural transitions within JK Towers, we bought the penthouse in 2022. The leasing process is not over, but it's nothing important, nothing to concern about. When we see this low number on occupancy, that is the CEO's impact in Rio de Janeiro, in our participation. This is a small area, but the occupancy is lower than the rest of the Triple A portfolio. In Class A, we have basically an asset that impacts more the occupancy.

In Brasílio Machado, the good news is that we have lots of demand in the last months for this development. And I believe that next quarter, we are going to bring good news, positive news about corporate buildings occupancy.

Moving ahead, we are going to see financial aspects, and I pass the floor to Hector.

Hector Leitão:

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Conference Call Transcript 1Q23 Results SYN prop & tech S.A May 12, 2023

Good morning, everybody. Thank you so much for your attendance. I will start with the results of the development. It's important to explain that we adjusted the results in the last quarters, excluding the effect of linear discounts granted during the pandemic, and this adjustment is justified because last year, 2Q22, we stopped giving discounts in a linear way. So we need to exclude them in this analysis, so we can compare it to using the same elements.

Total NOI and PDD, considering loss provision, reversion of loss depending on the performance to recover default in the last quarter is positive. We are recovering a lot. There is a growth of 6.7%, reaching R$47.7 million of NOI, compared to R$44.7 million last year.

Breaking the business units, malls with a growth that was robust, 13.4%, closing the quarter with R$39.9 million, compared to R$35.2 million. As Thiago commented, the highlight is really the strong recovery of Cidade de São Paulo shopping mall, growing a lot in results and also sales, double-digit, above the average of 13% in sales. We observe a 30% increase. The results, not so much, but it's really robust though.

Offices, we presented a drop of 18% in this quarter compared to previous year, closing at R$7.8 million compared to R$9.5 million. And here, the justification is an impact of an accounting effect that we presented last quarter, R$1.9 million. That was the grace period linearization of Birmann

10. There was 50% vacancy up to 2021, and we rented the other half, extend the contract to the other half that was rented already. So we calculated this linearization. If we excluded this accounting effect, there was a growth of 22.7%. NOI in offices, almost 11% total NOI for the quarter.

Moving ahead for this slide of results, we presented adjusted EBITDA of R$39 million compared to R$44.5 million last year, representing a drop of 12%. And here, there is also this accounting effect of last year, a reversion of bonus in R$5.8 million that we had in the previous year, provisioning a payment that was bigger in 2021 to 2022, and in 2022, we paid a lower amount, justifying this reversion. Excluding this effect, we would have a growth of 6% in EBITDA, aligned with the growth of NOI, offices and shopping malls added.

In the financial results, we have an indicator that is positive, aligned with our strategy of payments, amortization, anticipated amortization that we did last year. There was a financial result of R$-30.7 million, compared to R$-35 million in the previous year. So with this gain, even though the CDI in average, quarter-after-quarter, is 30% above, there was a positive match here because we have a lower gross debt in our cash.

Following net revenue, here have the effects of EBITDA plus depreciation and taxes. We presented a net profit with a loss adjusted in R$9 million in the quarter compared to R$5 million last year. And FFO, excluding this grace period of net revenue, 0 compared to 3.8 positive in the previous year.

If we adjust the facts of Birmann 10, we present here a loss 30% lower compared to the previous year. So the assets present, especially the malls, a robust growth. We are controlling expenses under the inflation rate, and the financial result will show up with a lower debt. And up ahead, we expect to see a drop in interest rates, so we can see financial expenses already decreasing in the following quarters.

Moving to the next slide, about debt, we closed the quarter with R$327 million cash, generating R$13 million cash. This comes from the assets. Nonoperational activities, there was no surprise, nothing relevant. Gross debt, R$1.099 billion, closing the quarter with net debt in our participation of R$772 million, aligned with the previous quarter.

Financial covenants, that is the consolidated IFRS. We closed with net debt to EBITDA in 5.46x, underneath our limit of covenants of 7x. So we have a good period on covenants. Another

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Conference Call Transcript 1Q23 Results SYN prop & tech S.A May 12, 2023

covenant that is very important is the asset value that are not guaranteed to debts. On the corporate debt, it is 2.74x. There is a minimum of 1.4x. So we have an interesting margin in this covenant.

In the graph underneath, we can see what's going on. In the last 2 years, with the financial expenses, and of course, there is a peak in the 2Q22 because of Selic raise, the 1Q23 was higher than the 4Q22 because of seasonality of IPCA. IPCA for the year and the quarter was above 8%. So we are going to see the impact of IPCA in the next quarter; positive, because we expect that is slows down throughout the year, closing the year, in 12 months, near 6%. This is a seasonal effect that we are going to see adjusting these impacts in our financial expenses throughout the year, as we did in the 3Q22 and 4Q22.

And finally, the final slide of the financial session. We show that we have a schedule of amortization that is long. This year and the next year, there is no due in the contract, which is important. In 2025, R$223 million for amortization, aligned with our strategy of having a cash that is more restrict in this period of high interest rate that we do not see lots of opportunities for business. In the short-term, the calculation is not so easy. Because of the interest rate, there's no need to have an elevated cash. And at the same time, it's an expensive cash. We have lower debt to have better results, and even though, we are comfortable to move ahead with some opportunity of investment.

On the right-hand side, we see that since the last quarter, the debt has not changed, 35% in IPCA, and 65% in CDI. A spread that is good in our debt. The debt is cheap. In the average, the debt in CDI is 1.5% spread, and IPCA, 6.5%, this under the CDI.

So I finish my financial session. We can open up the floor now for Q&A session.

Operator:

The Q&A session is over. We would like to pass the floor to Mr. Thiago Muramatsu for his final considerations.

Thiago Muramatsu:

The takeaway of this call, it was a quarter that kept the pace on the malls, improving above the inflation rate. This first month of the 2Q, April was a good month to us. On the offices side, there are some areas to work on vacancy in some assets that started the 2Q with a good perspective. And I believe that this quarter, we are going to deliver the results with the malls and improving offices.

And I believe that is it. I wish you all a good day, and I reinforce that Hector, the IR team and I are available for you for future comments and questions.

Thank you so much have a great day.

Operator:

This video conference of Syn is closed. We thank you so much for your participation, and have you all a great day.

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Conference Call Transcript 1Q23 Results SYN prop & tech S.A May 12, 2023

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