We will now give the floor to Mr. Carlos Jereissati, who will begin today s presentation. Please, Mr. Carlos, proceed.

Transcription

1 Operator: Good morning everyone and thank you for waiting. Welcome to Iguatemi Empresa de Shopping Centers 4Q17 results conference call. With us here today we have Mr. Carlos Jereissati, CEO; and Ms. Cristina Betts - CFO and Investor Relations Officer. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the Company s presentation. After Iguatemi s remarks are completed, there will be a question and answer session for participants. At that time further instructions will be given. Should any participant need assistance during this call, please press *0 to reach the operator. The event is also being broadcast live via webcast and may be accessed through Iguatemi s Investor Relations website at and MZiQ platform, where the slide presentation is also available for download. Participants may view the slides in any order they wish. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Iguatemi 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. Investors and analysts should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Iguatemi and could cause these results to differ materially from those expressed in such forward-looking statements. We will now give the floor to Mr. Carlos Jereissati, who will begin today s presentation. Please, Mr. Carlos, proceed. Carlos Jereissati: Good morning, everyone. Thank you once again for participating in our conference call on the 4Q17 and the year. We, as usual, start on page three. There we have total sales reaching R$ 13.3 billion in the year a 4% growth over 2016 and R$ 4 billion in the 4Q a 3.1% increase against the 4Q16. Same-store sales grew 3.5%. Same-area sales grew 4.9% in In the quarter, samestore sales were up by 2.4% and same-area sales up 3.1%. Same-store rent increased by 1

2 5.8% and same-area rent increased by 5.9% in In the quarter, same-store rent was up by 4.4% and same-area rent was up by 4.1%. We had net revenues reaching R$ 692 million in 2017 a 3.96% increase and in line with the guidance for the year. We are going to talk about other results of the guidance that we had and this was one of the achievements of the year net revenues for the year. Also, for the 4Q we had R$ 185 million 1.1% above the 4Q16. EBITDA reached R$ 540 million and R$ 150 million in the quarter a 3.7% and 5.4% increase against the previous year. The EBITDA margin reached 78.1%. Again, this was the guidance we had given and we were above the guidance for the year. Our EBITDA margin was 78.1%, which is a very important growth for the Company and an all-time high for the quarter at 81%. Net income came to R$ 218 million R$ 64.2 million in the quarter, a very important increase, due to the macro-economy and the reduction of interest rates in Brazil. We had a very important growth in this line we grew 33.3% and 29% respectively. Revenues grew to R$ 325 million in 2017, again, a very important growth in the year 19.3% over 2016 and in the quarter R$ 19.9 million 19% over last year. We had other important events in the end of the year, especially in the quarter. We had the prepayment of INSS, reducing the Company s average costs to 103.2% of the CDI. This was one of the goals for the year: to reduce our cost of debt and to reduce the net-debt-to-ebitda ratio. We were able to reduce our leverage in the year to 2.96x net debt to EBITDA and our goal was to be under 3x. We got the Fitch ratings to AAA. Iguatemi shares ADTV increased 143% in It was another very important growth with a better participation. We had a very important growth in our liquidity resulting in the addition to the Bovespa Index on January 1. We had one acquisition of stake in a very important mall in São Paulo Shopping Patio Higienopolis. We acquired 0.31% in February this year, for R$ 4.6 million. We also continue to improve our digital performance, so we launched a new website for our malls and outlets combined. The same ceiling for all the malls and we added a lot of new features that are important for us to contact for our customers for the future. We have on the 6 th page our own GLA. We have 455,000 m². We will be reaching 480,000 m² by 2019, basically due to the two new projects that we have. We are building our second outlet. It is a premium outlet under our new brand called I Fashion Outlet. It will be 2

3 in Santa Catarina and we have a new one to be built in Nova Lima which is a metropolitan area around Belo Horizonte in On page seven we have the opening dates. One scheduled for the end of this year and the other one is scheduled for next year. On page eight, we show the construction of the I Fashion outlet in Santa Catarina, which is under construction. You can see the structure of the mall already in place. The prospect has been done for this new one, the second one. The first one, as you all know, is in the metropolitan area of Porto Alegre, in the city of Novo Hamburgo, which is going quite well, and we are doing the second one, improving and increasing our participation in the premium outlet segment in the Brazilian industry. Then we go to the results, and I will give the floor to Cristina for her to go on with our presentation. Cristina Betts: Thank you, everybody, for participating in our call. Going to page 10, we have the Basic Indicators that Carlos has already mentioned in the opening. It includes GLA, sales, samestore sales and rent. I am going to focus on occupancy costs, which remain below the 2016 numbers. We closed the year at 11.2%, 0.2 bps below what we had before, then we have, for the year, a 12.1% occupancy cost, which is very stable compared to The good news is that we are finally increasing our occupancy rate. We reached, at the end of the year, 94.2%. We have been saying in the previous quarter that we were are working on changing or upgrading the mix of certain malls. It is not just about occupying space. It is about occupying space with the right tenants. This has finally come to correction now and we will probably see this number increase throughout the year. Maybe not yet at the point where we were before. This recession period that hit the country is declining, but it is certainly better than what we had in A record number, again: the net delinquency rate. We ended the year with 0.2% delinquency a very low number for the year, below what we had in 2016 a very healthy number of 1.8% in terms of net delinquency. When we look at our P&L on page 11, gross revenues were R$ 218 million an increase for the quarter of 2.5%. R$ 805 million for the year, an increase of 4.7%. 3

4 Net revenues, as Carlos has already mentioned, increased in the quarter by 1.1% and for the year reached R$ 692 million, an increase of 2.6%, basically below the gross revenues, due the discount that we have had throughout the period in increased structure and gross earnings. Costs and expenses increasing for the quarter at 11.4% and for the year 5%. R$ 175 million for the year and we will pick up on that furthermore on the presentation. Other operational revenues had a phenomenal increase for the quarter, basically due to the key money on the contract that we received at the end of the year, and which helped us close the year at R$ 22 million at Other Operational Revenues, an increase of 17% over EBITDA came to R$ 150 million for the quarter, a record margin of 81% and, for the year, an incredible number of 78.1% in margin, R$ 540 million. In terms of margin, it is even above the guidance that we had given out at the beginning of last year. Below the EBITDA, I think it is important to point out that the net financial expenses for the quarter were 17% below that of 4Q16, totaling R$ 42 million, basically due to the deleveraging of the Company plus, of course, the reduction in the interest rates. For the year, it was R$ 171 million a decrease of 18%. Net profit was R$ 64 million and, for the year, it was R$ 18 million, an increase of 33%. In the quarter FFO, the same kind of movement it reached R$ 19 million for the quarter and R$ 325 million, a margin of 47% for the year. Moving on to page 12, the breakdown of gross revenues and rental revenues a fairly stable delivery in terms of how the different controllers make up the gross revenues. Rental revenues are about 2/3 of our gross revenues, at 86% and 6% for the year. A management fees was almost 10%; parking increasing for the year at about 4% and other revenues decreasing 8%, basically due to the amortization of the key money on the inauguration of JK, which ended in June 2017 on our 5 th anniversary. We compare the four-year amortization of key money in 2016, vis-à-vis a half-year of amortization of key money in Below we have the breakdown of the renting revenues. Again, very stable composition of the different components of the rental revenues. We have 86% in the minimum range, which gives us a lot of flexibility on our cash flows and together with the quarter s delinquency rate, we have a 7% increase on the minimum rate, which, of course, impacts on overage. 4

5 We have seen rents increasing over sales, actually turning into something that is stable and predictable at the current percentage rent. And temporary rents coming in for the year at an increase of 4.4%. Moving on to costs and expenses, we had an increase in costs and expenses together of 5% for the year and 11.4% for the quarter. Costs are basically flat for the year and there was a decrease in the quarter. We had an increase in expenses and I will go into detail on that in a minute. Expenses actually increased 16%. When we look at the breakdown of expenses for the year, we have an increase of admin expenses of almost 20%. We have a new long-term expenses plan coming into place in We have the amortization of our previous stock option terms in 2016, nothing in terms of the accounting costs in 2017 and then no pre-operational expenses coming in, in The difference, when we look at the next page, page 14 on admin expenses, was basically due to the provision for our short-term incentives plan. In 2016 we failed to meet 100% of our target. We came a little bit short in terms of bonus provisions for our short-term bonus full in 2016 and, contrary to 2017, we achieved above what we had expected in several of our assets, so we increased our provisions for the bonus full. The decrease in 2016 plus the increase in 2017 this opposite movement and everything happening in the 4Q led to this different in terms of the increase in expenses. On page 15 we have a snapshot of the balance sheet and the debt profile. We ended the year with 1.6% net debt, 4.6% below the previous quarter, with the cash flow generation amortizing the debt of the Company. EBITDA came in at 540 million and so when together, so the net-debt-to-ebitda ration is 2.96%, below what we had previously guided. We said that we would probably have at around 3% or slightly below, and we delivered that too. Cost of debt came in at 103.2%, below that of the last quarter, also because of our last mortgage receivable issues. We call it CRI here in Brazil. And CAPEX rate at 90% of the CDI, which also helped us maintain our average debt term at around 4.8 years. We have a seven-year term for what is missing. And we have a debt amortization timetable underneath, which shows the very well spread out amortization schedule. No concentration of amortization, giving assurance in the years to come about how we manage our cash. 5

6 In terms of the debt profile, on the next page page 16, it is now basically all in the CDI. All debentures and CRI, which are this single-mortgage securitization that we do, are linked basically to the CDI either a percentage of CDI plus or minus. In this case we have a CDI minus 4% too, which was unheard of before we get that. As Carlos has mentioned, we prepaid the BNDES, so we only have now the remaining of the Crédito Imobiliário, which is a CDI-based debt and then other two other payments. Moving on to our last page of the presentation, a wrap-up of the 2017 guidance. We delivered our guidance for 2017 the same as every other year I have been in this Company. Net revenues growth was 3.6%, right in the middle of what we had given in terms of range. The EBITDA margin, as we said, was above the EBITDA that we had originally guided and CAPEX was also in the middle of the range, between R$ 80 MM and R$ 130 MM and we spent R$ 98 million. About the 2018 guidance, the net revenue growth is 2-7%, the increase in the EBITDA margin between 75% and 79%, already capturing the effects of scale, growth and the efficiency processes that we need to go through. CAPEX, of course, for this year is higher than last year R$ million. Remembering that we have the bulk of our CAPEX for the new outlet happening in 2018 and also reminding that 2017 was probably an all-time low in terms of CAPEX in the last decade. We are gradually picking up in terms of investments and we are moving to a more stable picture, a more sustainable and better economic scenario going forward. That is the end of our presentation and we are open for any questions you may have. Thank you. Dan McGoey, Citi Bank: Good morning, Carlos and Cris again. Thanks for taking my question. I am going to ask you he same question and let us see if I can formulate it better in English than I did in Portuguese. On the margin guidance, you basically have a range between 75% and 79%, whose high end is a bit above what you finished at in

7 I am wondering if you can talk me through a little bit as to why set it lower and below last year. I know there is a couple of extraordinary factors there, like the resale of retail spaces and some pre-opening expenses, but I am wondering why the range you set is so much spaced below what you closed in 2017 and what would be the potential or most likely areas to beat that guidance range? Thanks. Cristina Betts: Hi, Dan. I think you are underestimating your skills in Portuguese. But anyway, on the margin you are right. We ended the year at 78% and we posted the low end of the guidance at 75%. Also, in terms of the key money that we received this year, we didn t that amount of key money, I mean, it really was a record year for resale of space in terms of space that was already done, especially because we did a lot of stuff in malls like Iguatemi and JK, which cash a high amount of key money within the mix. I do not think we can do that again this year, because, of course, these key locations have been occupied. I am not saying that we are not going to have any key money, but certainly not the same amount. This is item number one, which is already slightly lower. I think in terms of net revenue growth, which can t contribute to maintaining or increasing margins, there are certain spaces that come at the lower end of the guidance, especially in the cost and expense side. We became very diligent and very tight on cost and expenses over the last year. We have actually reduced nominally the expense and cost side in several years. I think three or four years running we were increasing nominally even each one of the lines. I think that this is something can t do anymore. All that is happening and going forward we certainly need to tighten in terms of efficiency and the problems that we have, but there are some things that we just need to go back to doing. I will give you some examples: training programs. We do IR. They have to go back into our calendar s front page. We have a lot of projects in terms of low caps we are willing to do things and IT projects. Every time we have new in IT we have to invest and then on the next year becomes the operating expense of that IT platform, so that comes into play. A lot of these improvements generate efficiency on one side, but they generate costs on the other side. I think we have been fairly productive in our margins, but 75% margin maybe something we have to offset the cost of these improvements. 7

8 Dan McGoey: Perfect, very clear. Thank you. If I can ask one follow-up question as well: You noticed the improvements in the occupancy in the 4Q and I on what end should you double on that expect to double on that in And I am wondering if that is a function or how are the levels of concessions that you are needing to provide tenants to achieve that? Or is that coming more naturally with the recovery of the economy? Cristina Betts: I think one of the things we did in terms of occupancy, and this is what we have been saying for a few quarters now is that we have taken our time and putting it into our new tenants that we have in each one of the spaces, because we think it is about quality and not just about filling the gap. The way we look at it is that we are actually putting stronger tenants in the spaces that we are occupying. In terms of total rent and what we expect to gain from the new tenants, it is actually above what we have gained. I do not mean to say that in terms of breakdown in terms of minimum rent and overage and so on it is exactly the same, but in terms of total rent, for sure we expect to receive more productive than what we were doing before. Dan McGoey: Got it. Thank you very much. Cristina Betts: Thanks. Operator: Thank you, ladies and gentlemen. There are no further questions at this time. Mr. Carlos Jereissati, please proceed with your closing remarks. 8

9 Carlos Jereissati: Thank you once again for participating in our 4Q Iguatemi conference and if you have any further questions, please let our Investor Relations team know and we will do our best to answer. Thank you very much once again. Bye, bye. Operator: This concludes Iguatemi s conference call. You may disconnect your lines at this time. 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 the 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. 9