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Brookfield’s new car rental business expected to gross R$3.3bn

New company operates under brand Unidas, bought with divestiture package

10/04/2022

Claudio Zattar — Foto: Carol Carquejeiro/Valor

Claudio Zattar — Foto: Carol Carquejeiro/Valor

Under the Unidas brand, Brookfield’s new car rental business is expected to gross over R$3.3 billion this year, in addition to an EBITDA of over R$1.2 billion, said Cláudio Zattar, the chief executive of Unidas.

The new company was created by the merger of Ouro Verde – which was controlled by the fund – and some assets of the company formerly known as Unidas. Mr. Zattar, who was Ouro Verde’s CEO, took over the new business, which started to operate in an integrated way on Monday.

“Our shareholders are excited about the acquisition and there are good expectations of what this combined business will generate,” said Mr. Zattar. The financial perspectives for the year are basically the minimum of what Ouro Verde and Unidas’s slice that was bought last year posted – a scenario expected to repeat itself this year, since the synergies of the two companies together only start to happen in fact now.

The new Unidas arose from a pragmatic need: the demand from antitrust regulator CADE for a competitor in the sector to then approve Localiza’s plan to incorporate Unidas – the two were Brazil’s first and second-largest car rental companies. Localiza’s move was approved by CADE in the middle of this year. For the divestiture, Brookfield paid around R$3.5 billion

Before, Ouro Verde had a business focused on the B2B operation and planned to approach individual customers through the expansion of its car subscription branch. With the acquisition, the new company took a large step forward and now has good representation in the market. In total, there are 90,000 assets (trucks, cars, machinery, and equipment), of which 77,000 are light vehicles. Localiza, the leader, has about 440,000 cars (after incorporating the former Unidas) and Movida has 190,000 cars.

The divestiture package purchased by Brookfield took nearly 49,000 cars and 182 car rental stores (Unidas had closed the second quarter with 245, considering its own network and franchises). Ouro Verde, focused on B2B, had no stores and focused on representatives across the country.

The sale of used car stores was not within the obligations pointed out by CADE, but the regulator gave Localiza freedom to negotiate the conditions with the company interested in the asset. This way, the group got 22 second-hand vehicle stores, said Mr. Zattar. Until then, neither Ouro Verde nor Localiza had disclosed details about the divestiture package – the only thing known for sure was the volume of the fleet, which had been previously rumored in the market.

The Unidas brand and sub-brands – such as Unidas Frotas and Unidas Livre – were also acquired. The Unidas brand was recognized as one of the 50 most valuable in Brazil according to the Brand Finance Brazil ranking.

“It’s hard to get into a rent a car business from scratch. The barriers are big, the scales are big. You would have to undergo a period of maturity. And now we are among the three largest in the country and with high potential that the market is providing us,” said Mr. Zattar, who before taking over Ouro Verde was Localiza’s head of logistics and car purchases.

Companies also saw the need to have cash on hand and decided to have fewer assets – thus looking at fleet management and outsourcing options.

“The rent-a-car market is a segment that continues to grow. And it doesn’t grow more for lack of cars,” he said, in reference to the semiconductor crisis. Even with the difficulties of buying a car, the scenario is expected to be much better than last year.

“We get availability from automakers. We are already treated as a major rental company,” he said. Even so, the executive said he does not expect a total normalization of vehicle production next year, with problems still in place in the delivery of semiconductors and chips – equipment required not only by the automotive industry.

One change in the market today is that rental companies have been forced to operate with older vehicles. In 2019, the average age of Localiza’s operating fleet in the rent-a-car segment was 7 months. In the second quarter of this year, the age was 17.4 months – the scenario was similar at Unidas. According to Mr. Zattar, the fleet purchased is in line with the average portfolio of the two rental companies.

Mr. Zattar pondered that the older fleet has its pros and cons. On the one hand, the company tends to have higher maintenance costs. On the other, the high price of cars helps companies to sell the vehicle well, and this has been a positive reinforcement in the earning reports. In addition, the strong demand has kept the average daily rates at record levels.

One movement adopted by Localiza and Movida has been internationalization. Recently, Movida bought a small business in Europe, its first step in the region. Mr. Zattar said that the new Unidas, on the contrary, has a strategy designed to be a rental company focused on Brazil. “Our strategy is here. We will continue doing the best for the Brazilian consumer,” he said.

The new Unidas will continue to disclose its results to the market and plans to maintain fundraising through debt issuance. Mr. Zattar was asked if there is a scenario to have shares traded on the stock exchange and if Brookfield would be interested in seeking partners, but he defended that, for now, there are no talks along these lines. “It is still very early … In the future, a larger capital structure aimed at accelerating the need for capital expenditure and growth [would make sense] … But it is a strategy of the controlling shareholder. We haven’t discussed [the topic],” he said.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brookfield eyes energy transition opportunities in Brazil

Country is entitled to access part of the company’s $15bn fund

09/22/2022

André Flores — Foto: Silvia Zamboni/Valor

André Flores — Foto: Silvia Zamboni/Valor

Brookfield is willing to invest in projects related to energy transition and low carbon economy. Within that plan, Brazil is one of the main countries in the world with chances to receive multimillion investments in the coming years.

Brookfield’s Global Transition Fund (BGTF) recently raised $15 billion — the largest amount of private capital ever raised to support the transition to a low-carbon economy — and executives are looking to do business in Brazil.

The asset management company has always displaced the investments in power generation. Now, by demand of the investors themselves, it directs the attention also to sectors that can also contribute to the mitigation of emissions.

In an interview to Valor, Brookfield’s head of Renewable Energy and Transition, André Flores, says that the investments are conditioned to an additionality character focused on business transformation, renewable energy and sustainable solutions.

“The funds we invested in before were infrastructure funds more broadly, but investors were looking for funds exclusively dedicated to energy transition. The initial demand for this fund was higher than we expected. Our fundraising goal was $7billion and we ended up with $15 billion,” Mr. Flores says.

The money is not earmarked for any country and is released as local managers find opportunities with good rates of return. Almost half of the amount has already been allocated in large economies such as the U.S., Canada and the UK.

The executive sees no chances of Brazil being left out of this or other funds specific to the energy transition but gives signs that a way to accelerate this would be more regulation and legal security for new technologies.

Brookfield is still looking for opportunities here, but the lack of a legal framework for some segments that are beginning to emerge, such as the carbon market, batteries, and offshore wind power, for example, still hinder more aggressive investments.

“Do I see a carbon capture market in Brazil today? No. But we see some markets out there already developed. The storage market still depends on regulation and clear incentives. Obviously, they can launch a capacity market auction, but there isn’t a remuneration system outside the auction that justifies the investment”, he says.

The executive adds that the demand is also on the part of consumers with increasingly bolder portfolio decarbonization goals with long-term contracts and costs that make clean energy viable.

“In Brazil there is not a specific rule, and nothing is mandatory, such as a carbon tax for companies. So, we note that this is a voluntary movement through consumer pressure and adoption of targets.”

Mr. Flores believes that as soon as this fund is fully invested, the company will present an even larger one, as has been the case with infrastructure funds, which have already launched five. “We bet that Brazil will be the great receiver of these resources in the future.”

Of the R$159 billion in assets under management in Brazil, R$27 billion are concentrated in renewable energies, mainly in hydroelectric and wind power plants under operation by Elera Renováveis. Last year, in buying and selling assets, the amount was R$10 billion in acquisitions and R$5.5 billion in capital recycling activities.

The solar source had a strong debut in the radar of the Brooksfield, and there are already 11 parks under construction, the most important of which the Janaúba plant, the largest solar enterprise under construction, totaling 1.2 GWp of installed capacity and investments totaling R$2.3 billion — in addition to the private equity fund that bought Aldo Solar, the largest distributor of solar equipment.

It seems that the distributed generation segment should be one of the next in line to receive resources, given the growing demand for capital to make the projects viable.

“Our idea is to be builders, owners, and operators of distributed power parks. In this gold rush there are gigawatts of projects with access applications or already underway. I see our entry much more in this,” he expects.

The bottlenecks in the electrical sector are also candidates to receive an important slice of the resources. Brookfield owns Quantum and recently sold 2,420 kilometers of mature transmission lines in the Northeast and Minas Gerais for $834 million to Argo Energia, but has almost twice as much under construction, besides being present in all the auctions of the segment.

The increase in capex in Brookfield’s business, on the other hand, squeezed investors’ margins a bit, mainly due to the rise in commodities and inputs. However, the market reaction fostered a balance, and the prices of long-term contracts followed the movement.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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BR Properties sells assets to Brookfield to get back in the black

Martin Andres Jaco — Foto: Claudio Belli/Valor

Martin Andres Jaco — Foto: Claudio Belli/Valor

BR Properties agreed to sell 12 business buildings and two plots of land to Brookfield. The deal signed Wednesday is expected to generate a net result of R$5.5 billion, the company’s chief financial officer André Bergstein said.

The amount will be set aside for prepayment of debts –BR Properties’s net debt amounts to R$2.1 billion – but the company has not decided whether it will be fully paid.

The sale makes sense because the company’s portfolio is mature and able to generate a capital gain, considering that high interest rates increase the company’s debt, BR Properties CEO Martin Jaco said. “The financial cost erodes our result, but the financing was prepared to be prepaid. For that, we needed cash,” he told Valor. “We are going to eliminate this financial cost.” BR Properties expects to make cash flow positive with the proceeds of the deal.

The company is also studying which portion of the proceeds will be distributed as dividends to shareholders. The remainder is likely to be invested in the company’s logistics warehouse projects and part will remain in cash.

The company is rebuilding its portfolio in the industrial and logistics segment after having sold all such assets four years ago.

BR Properties has no plans to rebuild the size of its portfolio in the short term, the CEO said in a conference call about the deal. “The market is not easy, so we will maintain this volume for some time,” he said.

Following the approval of the sale, the next step will be to discuss new investments or a plan to take the company private.

The sale includes six business buildings in São Paulo (the entire portfolio of the segment in the city), one in Alphaville (an affluent district on the outskirts of São Paulo), one tower in Brasília and four towers in Rio de Janeiro, totaling a gross leasable area (GLA) of 385,400 square meters. The two plots of land are located in São Paulo, with a GLA of 9,300 square meters.

The deal covers more than half of BR Properties’s portfolio. Now, the industrial segment, which includes logistics warehouses and land for them, accounts for the largest area in the portfolio. The company remains in the business segment only in Rio de Janeiro, with properties like Passeio Corporate, a project with 82,800 square meters of GLA, and with a smaller project in Minas Gerais.

According to Mr. Jaco, the company is getting rid of 100% of vacant offices with the sale, which means a reduction in costs.

The company said Thursday that it will receive 70% of the value on the closing date of the acquisition of each property, and that the remaining 30% will be paid by Brookfield 12 months after the deal is closed, in amounts corrected by inflation and the interbank deposit rate (CDI).

The next steps are the approval by an extraordinary general meeting, since it involves more than 50% of the value of the company’s assets, and waiting for the approval of antitrust body CADE, which could take 45 to 70 days, Mr. Bergstein said.

Source: Valor International

https://valorinternational.globo.com

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Brookfield to invest $40m in Ouro Verde in 2022

Brookfield injects US$105mn into Brazil's Ouro Verde following acquisition | Global Fleet

Ouro Verde — one of Brazil’s largest vehicle fleet outsourcing — announced Monday that Canadian investment fund Brookfield, which owns 100% of the company since 2019, will contribute $60 million to the business this year. The new contribution is 50% higher than last year’s $40 million. The first part of the investment ($35 million) will immediately go into the cash flow, while the remainder was left for the second quarter.

According to the company’s CEO, Cláudio Zattar, the injection will help in the expansion of the fleet, especially in the segment of vehicle subscription. Today, the business serves small and medium-sized companies, but the goal is to open it to individuals by January.

“The new investment demonstrates the confidence of the shareholder. It gives us a more solid base to continue investing”, the executive told Valor.

Ouro Verde, the fourth largest rental company in number of fleets, had last year a net operating revenue of R$917.2 million, up 12.4%. Net income totaled R$35.4 million, compared with a negative result of R$5.6 million in 2020. The company ended the year with 35,447 vehicles and equipment available (only light vehicles were 26,372), a growth of 51% compared to 2020.

The challenge today is to buy vehicles on the market. Mr. Zattar said that on the heavy-duty side the negotiations with automakers have been more favorable. “We have managed to close a delivery schedule,” he said. The car industry has had problems to produce, especially because of the shortage of electrical components.

Even so, the group has managed to expand its subscription business. The segment’s total fleet had about 5,000 vehicles registered in February. “Our ambition is to double this number by the end of the year,” he said.

The group’s goal is to complete a technological upgrade by the middle of this year and with that prepare the subscription model to be scaled also for individuals by January.

The car subscription segment has been pointed out by the car rental companies as the apple of the eye in the sector. Among the leaders (Localiza, Movida and Unidas), all have already launched services to attract this public. None of them, however, give details. Executives from Movida at one point said that the segment may surpass even car rental in the future.

The Brazilian Association of Car Rental Companies (Abla) estimates that the segment accounted for between 8% and 9% of the total fleet of car rental companies in the country last year, of 1.136 million.

Mr. Zattar said that the group also intends to expand Ouro Verde Smart to the heavy vehicle segment, offering the service to small and medium-sized companies. Simultaneously, the group has been studying an alternative to offer some kind of subscription to individual truck drivers.

The plan is to develop a program in partnership with transportation companies in which their independent truck drivers will be classified – not only by how long is the relationship, but also by efficiency. The guarantee, in this way, will be a risk to be shared between Ouro Verde and the transport company.

The market has considered Ouro Verde one of the main candidates to evaluate the assets to be divested by Localiza to get the approval of the antitrust watchdog Cade to buy Unidas.

Mr. Zattar also said that Ouro Verde does not have the capital for an asset of this level. “At the moment, only Brookfield could have this capacity. And they are discreet, they don’t comment on speculations,” he said.

Sources pointed out that the divestment in vehicles alone is likely to be between 45,000 and 50,000 units, besides branches and sites in airports. The total value of the package has been estimated behind the scenes at about R$4 billion, but there are still several question marks, since the decision to close the deal, approved in mid-December, has not yet been published.

Source: Valor International

https://valorinternational.globo.com

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