Syn Prop & Tech S A : 4Q23 Conference Call Transcription

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

Operator:

Good morning ladies and gentlemen. Welcome to the Syn video conference to discuss the results for the 4Q23.

This video conference is being recorded and the replay can be accessed on the Company's website, ri.syn.com.br. The presentation will be also available for download.

Please be advised that all the attendees will only be watching the videoconference during the presentation, and then we will start the Q&A session, when further instructions will be provided.

I would like to reinforce that the prospective declarations are based on beliefs of Syn's administration and current information for the material. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts, and journalists should be aware of events related to the macroeconomic environment, the industry and other factors that could cause results to differ materially from those expressed in their respective forward-looking statements.

Presenting this video conference, Mr. Hector Leitão, CFO and Investor Relations of the Company.

Now I would like to give the floor to Mr. Leitão who will start the presentation. Please Hector, you can proceed.

Hector Leitão:

Good morning, and thank you so much for being here. I will start my presentation for the 4Q achievements.

In October 2023, we sell the asset Suarez Trade, a corporate building in Salvador outside our core regional investment. The transaction was R$14 million and 2/3 representing our market share, and is equivalent to R$9 million of Syn's market share.

We were acknowledged one more time for top ranking open corps, and we achieved the third place for real estate Services. We are relevant in the real estate market, and this recognition is from all the players in the market.

And after, the subsequent events. In February, we announced the swap of assets, exchanging 37.7% of Tietê Plaza Shopping and 37.5% of the company that has 85% of Cerrado, 32% of Cerrado Mall market share. In exchange, we delivered 30% of JK Tower D and E, with funds quota to the other partner. And in exchange, we have financial additional benefit of R$57 million in cash, and we have a decrease of our gross debt in R$60 million. So this swap has a neutral effect, a little bit positive in net debt.

And after that, a few weeks later, we announced XP. We sold part of our portfolio, R$1.850 billion and the transactional portfolio, 51% of Grand Plaza shopping mall, 32% Cidade de São Paulo, 70% Shopping Metropolitano, 52.5% Tietê Plaza Shopping, and that's also our market share in Cerrado, 85% after the swap, and 23% Shopping D.

Next page, we are going to see the conclusion of these 2 transactions and our portfolio with these development, so basically, we have 10% of Grand Plaza, 60% Shopping Cidade São Paulo, 10% Metropolitano and Tietê, 0% in Cerrado, Shopping D 8.6% and 10% in JK Towers. And it's important to highlight this transaction are about to be fulfilled, precedent conclusions. We did not recognize them in the balance transaction. So there is no impact in the accrual proxy or dividend distributions up to the moment that we concluded this transaction.

1

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

So the focus is totally on execution, but we have precedent conditions and transactions likely impacting operational performance, our physical occupancy was superior to the last year, the 4Q, 90% occupancy compared to 92.7% last year. The division among malls 95.8% of physical occupancy, and later on, I will deep dive in more information about the malls.

Triple A buildings 81% of occupatncy and Class A offices, 86.5%. And what's new on this quarter, we believe the first for CLD warehouse in Dutra Highway, excellent location, we delivered the phase I with 51% of rental, and there is an interesting demand to occupy the rest. This portfolio in 87,000 square meters in our participation that we have just delivered.

This is the physical occupancy of malls. We closed the quarter 95.8% compared to 95.3% last year. So what happened in the year, more than increase of occupancy, it was qualification. And later on, we are going to see the impact on sales of the mall with its replace. And financial occupancy was basically flat compared to previous year.

Talking about sales, we grew 9.5% in the total year. and same-store sales of 6.4% a year. And then what is the complement of this growth of 9.5% or this replacements that we have been doing more qualification on the mix, better operators. So the result has better sales. And this replacement represented 3% of growth of total sales and kiosk an event with a lower market share shower, the robust growth in nontraditional revenue of the Company in temporary rentals on kiosk stand, renting and allocating our operations in the space of the mall and another line of revenues nationwide.

When you use the mall and then a billboard for important brands, the ones that are already in the mall or brands that are not in the retail, bricks and mortar, but we get closer to this brand, so we can extract more value from our assets.

And rental of same-stores, we concluded the year with 6%, and in the quarter, 2.9%. This drop in the quarter in October and November, there was a higher impact in the electronic appliances and entertainment. This was a cultural fact because in December, we see a SSS is growing.

And in general, we see a growth of sales superior to the 4Q and rent as well. So it was a cultural drop that we see it's not going to be recurrent. The trend is keeping the robust growth that we presented in 2023.

Financial performance now. The result was that better in 2023 in fact in the quarter. We closed at R$55 million NOI a growth of 17%. And in the year represented the R$200 million NOI, a growth of 11% compared to the previous year. This growth is meaningful because of the malls, representing 80% of our results.

So in this middle table, we see that we concluded this quarter with R$45.8 million NOI, growing 23%. And underneath, in the year, we grew 15.9%, reaching R$164 million NOI. So the growth is very robust this year on revenue. Although the IGP-M was negative, we can reduce the discount because of sales performance. So the rental base was constant this year because of this index, but little by little we removed the discounts that we are carrying since the pandemic, since the return to the operation.

And finally, offices, on the right-hand side of the graph, no volatility in the result this year. The quarter represented a drop of 5%, and in the year, a drop of 2%, closing the year in R$34 million NOI, 2023. And the impact was important in linearization of discount and grace period last year in Birmann 10, R$2 million. Excluding this effect, we have a growth underneath the inflation, 3%.

Talking about EBITDA, operational results, without surprises in costs and expenses, NOI growing. And naturally, we have an interesting impact in adjusted EBITDA. In the quarter, we grew 32.6%,

2

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

almost R$50 million in EBITDA. And in the year, R$173.8 million EBITDA, growing 11.6%. And this, we are going to show more ahead, there was a positive impact in leverage of the Company.

About adjusted financial result in the quarter, we closed with net expenses of R$19 million, aligned and better than last year. And in the year, we closed the year with a drop of 16.4% in net expenses, closing in R$95.6 million.

Basically, the most relevant effect is somewhat worse in amortizations that we have been doing since in the end of 2021, 2022, and there was also repayment. In 2023, we pick the fruits of these amortizations, without variation in our debt. And in lower scale, it is going to be more meaningful. The impact of the beginning of Central Bank interest rate and a positive impact in lower scale for this year. I believe we are going to see a drop of this financial expenses because of a Selic drop in 2024.

To conclude the results, adjusted net profit, R$12 million compared to R$3.4 million in the previous year, an expressive growth. And in the year we conclude with 11.5% on profit compare a loss of R$15.6 million last year. In these 2 effects, the effects of growing NOI at the mall, especially and the work of managing the liabilities, especially in 2022 with good results.

FFO excluding depreciation, we reached R$21.6 million in the quarter, a growth of 53%, and in the year, we concluded with R$48 million compared to R$20 million last year. The growth is 134%.

Moving to talk about leverage in debt performance. I would like to hit your attention. Total debt and adjusted EBITDA pro forma in the first table. We concluded the quarter IN 4.4x, compared by 5.25x in the previous quarter.

And here, we see the impact of growth, all the development growth leveraging the Company and this is a matter of when that is going to be ongoing. It does not matter the transaction, I believe the Company will be leveraging with the development.

And in the underneath table, financial covenants according to the contract, IFRS consolidated of SYN, not only pro forma. Also, we have 4.5x compared to 5.3x previous quarter. So we have interesting room for covenants, 7x the limit. and another covenant that is also important are the assets and net corporate. We have room, that is very interesting growth in the year of 3x, and the limit is 1.4x. So we are nice on the financial covenants.

And to conclude the session of the financial results, we show that the amortization timeline has not changed in the last quarter. There is no pressure on amortization that is important in the next 12 months, just R$5 million in 2024, and these amortizations for 2025 are concentrated in the 2H. We have more than 12 months effect to the amortization. That is relevant.

And on the right-hand side, our indebtedness is the same, almost 40% IPCA, the spread is 6.5% and 6% in CDI, and the spread is 1.5%. So we have a profile of debt that is comfortable, aligned with our cash generation.

I believe in the moment that we have to releverage to pay these amortizations, we are going to have a company that is levered lower and in a good timing, and we move with a cost that is very low of indebtedness, very competitive.

Now we can open up the floor for the Q&A session.

Gustavo Cambauva, BTG Pactual:

Good morning. I would like to ask 2 questions about the transaction that you announced. The first, if you can talk about the status and the procedure to conclude the transaction, preceding

3

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

conditions, if you can talk more about what you are overcoming and also expectations of a timeline to conclude the sale.

And my second question, if you have a definition of what is going to be done with the resources connected to this table that you showed about indebtedness. When the transaction is concluded, the Company will have a surplus of cash that is very big. My question is if you defined the volume that is going to be distributed as dividend or if it's going to be reinvested in the business in some specific assets, if you are going to observe M&A, to understand how this resource is going to be used when the transaction is concluded. Thank you so much.

Hector Leitão:

Thank you, Cambauva, for the questions. We are going to clarify many questions with your question. So, good reflections you bring. The first one, we had this negotiation in a very fast way. We have just signed the MOU. What's going on right now? We are starting a diligence that in the end of the day, even if it's a T6 business, is going to multiply by 6 diligences, respect for the right of preference of partners. This is the first point, XP understands the structure, where is the SPE, the partners, who they are in order to start. In parallel, running technical imaging, and I believe that in the following 2 or 3 weeks, we are going to see these going on, so people will know well the details of the development.

About the timeline, we expect by the middle of the year. So the diligence, signing contracts, and in the middle of the way, it all depends on the right of way approved by CADE. This is not exactly our authority deciding, but the sooner the better.

And about the resources allocation that we are going to receive by December next year, 815, first we will go on to focus on executing the transaction. There is a swap and there is preceding condition, so we can conclude in the same format that we agreed with the XP.

And then we have not decided yet. What is probable is to have a mix of both, payment of the debt, that the Company is with that leverage closer to the other players, and this healthier balance, it does not matter what we distribute on dividend, we are going to be comfortable to be back on business, where we can leverage to buy assets, to have a consortium with other investors in order to purchase something bigger. But we are going to have room in the balance in order to go for M&A.

And our idea is exactly to follow this strategy through for many years, to be more asset light. In fact, with an investment of 15%, 20% managing the asset with partners and investors that are strategic with us.

So that's our mindset here. Probably it's going to be a mix of both scenarios, and the percentage of this scenario, we are going to announce timely as we take the decision.

Gustavo Cambauva:

Perfect. It's clear. I have a follow-up question about investing in more things. As a concept, I would like to understand what is the class of the asset that you are observing because you have a big sale of offices, and it was concentrated in shopping mall. Now you are selling shopping mall, you balance more. I would like to understand what you are excited about doing shopping malls, office buildings or get back to warehouses. I would like to understand what is the class of asset that is in your higher interest right now.

Hector Leitão:

4

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

I believe that shopping malls and offices have the same importance in our business. Warehouses, not so much. Warehouses depend on the opportunity, investing together with SPX, JV. And I believe that we are going to see good opportunities for offices in the next 12 to 18 months.

And shopping malls are always strategic. The higher the class, the better. You have important gains of scale, whether in terms of cost, but mainly commercial, strategic. So these 2 classes of assets are of a greater importance. Warehouses depend on the opportunity, punctual business.

Reinaldo Francisco, investor (via webcast):

So proud of one more profitable quarter. Recently, there is a relevant fact about sales of quota at the malls. With these sales, is it possible to close the quarter with the recurring profit in the next results?

Hector Leitão:

Good morning. Thank you for your comments. These MOUs that we signed, the contract of swap and the MOU do not impact our results. Not yet. Until they are concluded, accounting, they do not have any impact in the revenue of this development, it's not going to the buyer and the swap is not with us, not yet. And if nothing had happened, we closed these operations.

And after this transaction, we see that the Company is having an interesting recovery of the results. So we see 2024 better than 2023 result-wise.

After the closing, we should see a company equally profitable, and we are going to be lighter on our debt. That is the biggest problem of our result, leverage. So we should not see some kind of worsening or decrease of our results, because here, we have good management on how we have on NOI and the financial results when we pay debt.

I would say that this pre and post scenario are good, and better than what we have seen so far.

Diego Alves Pinto, investor (via webcast):

Any expectation in sales, renting, swap or any other destination for ITM? What is the annual expense?

Hector Leitão:

Thank you for your question. ITM is an asset that is very specific, because it's old, it's big, 45,000 ABL, and we have 20,000 in the real estate fund. To understand the structure, different from the other developments, we do not have a control on this development. We have a majority in a fund, but there is condominium and other partners that hold 25%. The decisions are slower than what we are using to take when we control the development, the SPE or real estate fund.

The expectation over there on rental is low. We do not have demand on the size that we want to occupy. It's a trade-off. You can occupy a development of 45,000, you rent 2,000. It's not worth it because you have to reactivate the condominium, and that is expensive. And then you have a minimum critical balance, so you can start renting in ITM.

What we have been studying on ITM are changes of use. We are studying the class of assets that you imagined to extract the best value out of that development. We have been studying with advisory companies, we provoke the market to understand the demand. There is no expectation in the short term to solve the problem of ITM, but we have good alternatives that we have been studying.

5

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

The execution. It's a change of use. We need to start study permits, we need to have the demand, but the takeaway message is that it's not forgotten. We are going to focus on solving. Our biggest problem on vacancy is ITM, so we are aware and focus on solving its occupancy.

Leonardo Andrade (via webcast):

What is the accounting impact in the profit if the most of the transaction is fulfilled? I am asking in order to have an idea of how much we have free for dividends.

Hector Leitão:

Thank you for your question, Leonardo. In this transaction, first, we do not have price allocation per asset. The reasoning of the deal was global price and the profitability for the fund, considering the paid price. So we went from macro to micro.

We arranged the transaction, good for both. And then of course, we have an idea on how much the cost will be because we have the percentage of every development, and then the tax changes depending on price allocation, and this depends on the buyer.

We estimate an estimate number that 30% of the transaction with 30% of gross margin of this transaction before taxes, before any other accounting effect, if you consider the cost compared to what we are selling is a margin, 30% conservative 30%, 35%. The conservative number just for you to have an idea on the specific process in this transaction. And then the dividend to be distributed, it will depend on the moment when we conclude the transaction in a moment, what's going to be worth doing.

We have met already all the possibilities on what to do that we are conservatively focusing on the execution of the business first in the next month. And then in the right moment, observing the macro situation of the country and the opportunities in the future, we take these decisions and submit to the shareholders' approval.

Marcelo Luiz Santiago, investor (via webcast):

Good morning. In the strategy of the Company, is there a possibility of divesting the assets, or even migrating to a structure of real estate funds, seeking higher efficiency and recognition of value from the market.

Hector Leitão:

Good morning, Marcelo. Thank you so much for asking. About total divestment, the focus of the Company is to be asset light. This means that we still have assets. The Company is not planning any type of liquidation or total divestment. And that's why we always place as a condition on our deals, except some specific cases that we do not control, we do not manage, but there is an important point in the negotiation, we keep the management of the assets.

And this choice of total divestment has a low probability, it's remote. What we are excited is always observing opportunities, generating value to the shareholders. That's what we are going to do if we execute on the transaction, and then, clear space the balance, so we can be open to M&As in the future.

So plan A is to increase the return on invested capital. What we have been doing with this divestment, still holding part of the development with certain control, managing it, with voice in the governance of each development. And I believe the main point of this strategy is to continue using this structure.

6

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

Real estate fund. Today, with the enforced taxation, we do not know what comes in the tax reform, we do not know for sure, but within our structure, this migrations have a high cost, ITBI cost, and you have high cost capital gain as well.

So we always assess this possibility of migrating a company to a real estate fund, but the payback is normally low, because the operation of the fund is more expensive than SPE, but the gain of capital is going to be at this time very different, plus ITBI that you pay.

We do not see room, not now, generating value or with a good return to migrate this way. So probably, we are going to keep on working the same structure that we have currently.

Eduardo Sauma Filho, Conceito:

Good morning. First of all, congrats on the transaction, congrats on management. I am a shareholder for a long time, and I am so pleased as usual and proud to be with you. My question is the following. I think it's very good that during the transaction, you saved 60% of Cidade de São Paulo, it's an asset that is valued as gold. And you said that it was about to be expanded. Has this project been approved or not? That's a question that I have because I do believe in this asset.

On top of that, I would like to hear about Brasilio Machado. Have you solved it? Maybe you mentioned it and I got lost.

And my final question, a while ago you purchased 10% of CondoConta. I would like to hear about that. Thank you so much, and congrats.

Hector Leitão:

Thank you, Eduardo. Good question. I will start by the final one, CondoConta. We purchased 10% of CondoConta, it's a bank for condominium, and then what happened after the high interest rate, we pivot the strategy. The first point, we reduced the cash burn of the stat up radically focusing on the core of the Company, the banking services and revenue.

And then we experienced a period of stabilization on costs and started following the revenue. Our perspective for this year is a breakeven in CondoConta by the end of the year. And we see expressive growth in number of condominiums. We grew twice the number of condominium last year, and this year, we hope to triple that. So it's an investment that we are very excited, with the big size of the market, 500,000 condominiums in the country that are not well served. That is the part of CondoConta.

The second question is Brasílio Machado. We provided all the documents in the city administration. We are in the regulated term for the city administration. So everything is going well with Brasílio Machado.

And the first question was Cidade São Paulo Mall. The construction work is approved, pending for approval with the other participants of the condominium. If you remember, there is a mall and in the same land developed also corporate building. And then the expansion considers common area between the 2 condominiums. So we are going to determine the arrangement, covenants and all the aspects of management of this part, there is a common area between 2 entities, mall and office building.

So the construction work is okay. Everything is correct. We are doing the process already. And these aspects of negotiations with the other part, the office building is about to be concluded. So these expansion, we estimate to start to work this year, 2H, and the opening would be in the end of 2025.

7

Conference Call Transcript

4Q23 Results

Syn (CCPR3 BZ)

March 8, 2024

Eduardo Sauma Filho:

And what is the increase of area to be rented?

Hector Leitão:

The mall currently has 17,000 m². We increased 25%, 4,000 m² extra area. We are so excited about it. Based on your comment, the portfolio that we have after the transaction with XP, when it concludes, is a portfolio of 70% of the increase of productivity, NOI per m² improving 70%, because we are concentrating in Cidade Mall, concentrating the operation in São Paulo, 60% to 85%, if I am not wrong. So we have a portfolio with more value because of this better mix. So the snapshot is much better in this portfolio. That is the point of view that is positive, the transaction.

Operator:

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

Hector Leitão:

Thank you so much for your interest in our call. 2023 was a year that was very good to us. We had good results in our operation, the shopping malls with a robust growth, all the corporate buildings well managed. There were no triggers on growth in the buildings, but the evolution is very interesting, and 2024 is going to be a better year for the corporate buildings as well.

It does matter the transactions, our core here is to value the development, and this valuation comes from our management, team work on making this development more attractive for the shopping mall clients, the tenants of warehouses and corporate buildings. That is the differentiation of our company from the others, bringing a specific stamp to our portfolio. In addition to the brick, we offer, we provide services excellently.

I would like to congratulate Syn's team for the work you have been doing with competence. Thank you so much, and I wish you all a good day. Thank you so much.

Operator:

This Syn video conference is over. We would like to thank you so much for your attendance. Thank you all and good afternoon.

"This document is a transcript produced by MZ. MZ uses its best efforts to guarantee the quality (current, accurate and complete) of the transcript. However, it is not responsible for possible flaws, as outputs depend on the quality of the audio and on the clarity of speech of participants. Therefore, MZ is not responsible or liable, contingent or otherwise, for any injury or damages, arising in connection with th e use, access, security, maintenance, distribution or transmission of this transcript. This document is a simple transcript and does not reflect any investment opinion of MZ. The entire content of this document is sole and total responsibility of the Company hosting this event, which was transcribed by MZ. Please, refer to the Company's Investor Relations (and/or institutional) website for further specific and important terms and conditions related to the usage of this transcript"

8