InRetail Perú Corp. (INRETC1) Earnings Call Transcript & Summary

Good morning, and welcome to InRetail Perú's Second Quarter 2020 Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, please begin.

Thank you, Nicki, and hello, everyone. Welcome to InRetail Perú's Second Quarter 2020 Earnings Conference Call. Before we begin, I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Joining us today from InRetail Perú are Mr. Juan Carlos Vallejo, Chief Executive Officer; and Mr. Gonzalo Rosell, Chief Financial Officer. They will be discussing the quarterly report distributed yesterday. If you have not yet received a copy of earnings report, please visit www.inretail.pe on the Investors section where there is also a webcast presentation to accompany the discussion during this call. If you need any assistance, please contact the Investor Relations team of InRetail Perú. Please be advised that forward-looking statements may be made during this conference call. And they do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note of forward-looking statements, please refer to the quarterly report, which was issued yesterday. At this point, I would like to turn the call over to Mr. Juan Carlos Vallejo, Chief Executive Officer of InRetail Perú for his opening remarks. Mr. Vallejo, please go ahead.

Thank you, Rafael. Good morning, everyone. I'm Juan Carlos Vallejo. Thank you for joining InRetail's second quarter earnings call. Today, we will review the main highlights of InRetail's second quarter results, beginning with a brief update on the latest government measures that affect our operation in the context of this challenging pandemic. I will start with a brief introduction, and then Gonzalo will walk you through our earning presentation. As you all know, the government of Peru declared a national state of emergency on March 16 to contain the spread of the virus. Until May 10, only commercial establishment related to essential goods and services were allowed to operate. As of May 11, the economy started being reopened in 4 consecutive phases by economic activities. From May 11, began the reactivation of e-commerce, restaurant deliveries, textile and confections. On June 22, shopping malls were allowed to reopen nonessential retail with 50% visitor capacity, except in restricted regions will remain in mandatory quarantine. As mentioned in our previous quarterly earning call, since the beginning of the quarantine, we have worked very hard to prioritize the health and safety of our employees, clients and business partners and have complied with all the recommendation imposed by the Peruvian government. Going forward, we will continue to adapt to constantly changing operation conditions. [ As said earlier ] by our second quarter results, our Shopping Malls segment was highly hit by the strict general lockdown in place during most of the quarter, where only 20% of our GLA was allowed to operate until June 22. With that, InRetail reported a mid-single-digit top line growth, a single-digit reduction in EBITDA and a double-digit reduction in net income. In that context, we've emphasized preserving liquidity, implement cost-savings initiative and resisted nonessential investment in our 3 segments. With regards to our omnichannel strategy, we continue putting extraordinary effort and resources to expand our processing capacity and improved service level and customer journeys, maintaining our leadership position in the digital channel that is finally taking off in Peru. Standing where we are today, we consider that the worst of the impact of the pandemic to our business segment is behind us. And expect a progressive improvement in our Pharma and Shopping Malls segment during the second half of the year, which lead us to being optimistic that InRetail will come out stronger for this pandemic, consolidating its leadership position and omnichannel strategy in our 3 segments. This translates into an expectation of experiencing a high single-digit growth in revenues and a low single-digit growth in EBITDA for full year 2020 on a consolidated basis, despite the dramatic impact of the pandemic, in particular in our shopping mall segment. With that, let me pass the word to Gonzalo, and as always, we look forward to answering your questions by the end of this call.

Thank you, Juan Carlos. Good morning, everyone. Thanks for joining us on this call. Before starting, I would like to briefly remind you that the numbers we will be discussing today are presented under IFRS 16 and are fully comparable to numbers reported in our financial statements from 2019. Now please turn to Page 4 in the presentation to start with a quick update on the COVID-19 scenario and the different government measures that have been implemented since last quarter. Since the beginning of May, government started reopening the economy, activating Phase 1 of the government reactivation plan, which included the authorization of e-commerce activities for nonessential retail. On June 22, shopping malls were allowed to reopen nonessential retail with 50% digital capacity, except in restricted regions, which remain in mandatory quarantine. The government also relaxed some of the control measures that have been implemented at the beginning of the quarantine, which included a gradual reduction in mandatory curfew hours since May, with most stores now operating regular opening hours, except in restricted regions. Mandatory curfew on Sundays was lifted during the month of July, except in restricted regions, but once we established on August 12 in all regions. The use of private vehicles within the district of residence was allowed at the end of May and all restrictions on vehicle use were released at the beginning of July, except in restricted regions. According to the reactivation plan, approximately 90% of the economic activity has been allowed to operate by the end of July with the end of Phase 3. However, according to an industry survey, the real economic activity is currently operating at approximately 76% pre-COVID-19 levels. As Juan Carlos mentioned, InRetail, we continue to work very hard to continue satisfying the consumption needs of our clients adapting constantly and rapidly to the changing environment and prioritizing the health and safety of our employees, clients and business partners, complying with strict protocols and safety measures in our stores and operations. Our business models have proven to be strong and adaptive within this context. And we remain being the leading multi-format retailer in Peru with strong brands and leadership positions in our 3 segments. Now please turn to Page 6 to review our consolidated financial results of the second quarter of 2020 for InRetail Perú. In the second quarter of the year, InRetail reported a mid-single growth in revenues despite the almost complete closure of our Shopping Malls during most of Q2 due to the national state of emergence. Revenues reached PEN 3.4 billion, a 6.7% increase versus the second quarter of last year, and gross margin fell to 27.8% in the quarter, impacted by the Shopping Malls segment. In terms of adjusted EBITDA, we recorded a high single-digit decline of 9.5% in comparison to the same period of last year, recording PEN 374 million, explained by a significant reduction in our Shopping Malls segment, despite the strong double-digit growth in our Food Retail segment. This translated into an adjusted EBITDA margin of 11.1% in the quarter, below 13.1% reported in the second quarter of last year. Finally, our net income fell to PEN 12 million in the quarter, significantly impacted by the negative performance of our Shopping Malls segment and an FX loss related to the dollar denominated [Audio Gap] For reference, the Peruvian sol depreciated approximately 3% in the second quarter of the year from PEN 3.442 per dollar at the end of the first quarter of 2020 to PEN 3.541 per dollar at the end of the second quarter. Please turn to Page 7 to review our financial and operational snapshot of our consolidated figures. In terms of contribution, considering the last 12 months as of June 2020, our Food Retail segment accounted for 46% of InRetail's consolidated revenues and 32% of consolidated adjusted EBITDA with an adjusted EBITDA margin of 9.5%. Our Pharma segment accounted for 51% of consolidated revenues and 54% of consolidated adjusted EBITDA with an adjusted EBITDA margin of 14.4%. Finally, our Shopping Malls segment accounted for 3% of consolidated revenues and 14% of consolidated adjusted EBITDA with a net rental income margin of 77.1%. We will now continue with our results by segment. Please turn to Page 9 to start with the highlights for our Food Retails segment. Our Food Retail revenues recorded a solid double-digit growth of 22.5% in comparison to the second quarter of last year. This growth is explained by a record same-store sales growth of 19.5% in the quarter, positively impacted by a strong increase in both food and nonfood categories and across all formats. In particular, nonfood category showed an acceleration this quarter in comparison to the first quarter of this year, positively impacted by the lifting of restrictions to the sale of some categories in the context of the national state of emergency. Additionally, revenues were positively impacted by the ramp-up of approximately 17,000 square meters of sales area reopened in the last 12 months. This quarter we opened 3 Mass stores and closed 5. The closing of these stores forms part of our plan to close 20 of the smaller size, less efficient Mass stores this year. We initially planned to close 40 mass stores this year, but approximately 20 of them have started to perform well since the beginning of the pandemic, for which we have decided to give them a second chance. Our gross margin reached 26.1% this quarter, a reduction of 67 basis points versus Q2 '19, mainly due to the higher penetration of new formats and e-commerce in the segment. In terms of adjusted EBITDA, Food Retail's adjusted EBITDA grew a solid 38.2% in the quarter, reaching an adjusted EBITDA margin of 9.7% compared to 8.6% in the same period of last year, mainly due to a better fixed cost dilution and cost-saving initiatives aiming to offset incremental expenses related to COVID-19 and despite the increasing weight of new formats and e-commerce sales. Overall, we continue strengthening our multi-format strategy in the Food Retail segment. As I commented in our previous earnings call, the COVID-19 context has strengthened the positioning of our high discount and cash-and-carry formats, Mass and Economax. In the second quarter, Mass has continued to perform well due to its conveniently located stores, adequate product assortment for basic daily consumer basket and low prices. Economax has also continued to respond well in this context serving the professional clients but also being close to the end consumer looking to stock up at favorable prices. Both of these formats are positively contributing to EBITDA. In terms of sales performance in the second quarter of 2020, our flagship format, Plaza Vea, represented 80% of sales, our high-end supermarket format Vivanda represented 5% of sales, our high-discount format, Mass, represented already 11% of sales, and our more recently launched cash-and-carry format, Economax, represented 5% of sales. In terms of e-commerce sales, we have continued experiencing an important boost in demand for food and nonfood categories. Our sales through the e-commerce channel have increased 5.5x versus pre-pandemic levels. At the end of May, we completed the implementation of our second dark store for our e-commerce, increasing our operating capacity and improving response time and service levels in our digital channel. Additionally, as part of our omnichannel strategy, our Food Retail chain has 70 click-and-collect stores for nonfood sales and 34 click-and-collect stores for food categories considering both Lima and Provinces. Going forward, considering the positive trends we have been experiencing in our supermarket segment, we expect to maintain good trends in the third quarter although not necessarily as strong as in the second, and hopefully, good trends in the fourth quarter as well, expecting to end full year 2020 with a double-digit growth in revenues and adjusted EBITDA, better than the high single-digit growth in revenues and adjusted EBITDA we gave as guidance last quarter. Now please turn to Page 10 to review the highlights of our Pharma segment. Our pharmacies unit registered a slow top line growth of 0.9% in the second quarter of 2020, explained by a flat same-store sales of 0.2% which continued to be negatively impacted by the reduced foot traffic in the sight of national state of emergency, which affected both pharma and nonpharma categories. As I commented in our previous earnings call, foot traffic was significantly impacted by the mandatory curfews and stay-at-home policies, which negatively impacted sales. However, since the beginning of June and throughout July and August, with the relaxation of the stricter lockdown measures and most of our stores operating regular hours, foot traffic has begun to recover resulting in a progressive increase in traffic, and therefore, in sales. Despite a slow top line growth, we were able to maintain a stable gross margin of 34.7% in the second quarter, in line with the second quarter of last year. And recorded an adjusted EBITDA margin of 15.9% compared to 15.3% in the second quarter of last year, offsetting the incremental expenses related to COVID-19 through cost-saving initiatives that we executed since the beginning of the quarantine. Finally, in terms of e-commerce in our Pharmacies unit, we also continued experiencing a strong demand with sales increasing threefold versus per-pandemic levels. During the second quarter, we expanded our dedicated e-commerce distribution center, strongly increasing daily order processing capacity and have also implemented 2 new mini distribution centers and increased the number of Pharma available for click-and-collect -- Pharmacies available for click-and-collect, closing the quarter with approximately 100 click-and-collect points of sales. Now -- moving now to our MDM unit. This quarter, we reported a revenue decline of 11.2% due to the high comparison basis of Q2 '19 when we still distributed discontinued business volumes and due to the slowdown in the institutional and specialist channels due to the national state of emergency. Gross margin was 12.6% in the second quarter, in line with the first quarter of this year, mainly due to a change in client mix in the distribution unit in the context of COVID-19. Finally, in our MDM unit, adjusted EBITDA margin reached 3.7% in the quarter, also in line with Q1 of this year, mainly due to the gross margin effect in the context of COVID-19. All in all, at a consolidated level, our Pharma segment revenues registered a slight reduction of 0.6% in comparison to the second quarter of last year. And adjusted EBITDA declined 2.8%, reaching a consolidated adjusted EBITDA margin of 12.9%. Going forward, having seen a pickup in traffic in July -- in June, July and so far in August with the relaxation of the stricter lockdown measures, we believe the worst is behind us and expect a slight progressive recovery in the second half, closing the year with a slight positive growth in revenues and adjusted EBITDA. For the MDM unit, we also expect to see a slight recovery in both top line and EBITDA in the second half compared to what we just reported in this second quarter, expecting a gradual recovery of sales to institutional specialist channels that were negatively impacted by the strict lockdown measures. Now please turn to Page 11 to review the highlights for our Shopping Malls segment. Our shopping malls were closed from March 16 until June 22 due to a national state of emergency, operating only supermarkets, pharmacies and bank branches which represent approximately 20% of our GLA. During this period, the shopping malls did not charge rent to the tenants that were not really allowed to operate during that period. Since June 22, nonessential retail stores started gradually reopening within our malls as soon as authorized by government. For this reason, during the second quarter of this year, in which our malls remained almost completely closed for the entire period, revenues declined 63.2% and net rental margin fell to 35.6%. In terms of mark-to-market, we registered a loss of PEN 36.4 million this quarter compared to a gain of PEN 3.8 million in the same period of 2019. These mark-to-market losses associated with the closure of our malls, which affected the projected cash flows for the year. Going forward, we expect as well a progressive recovery in our Shopping Malls results versus the second quarter. Considering that most of our nonessential tenants were allowed to operate in our malls since June 22, we believe that the worst is behind us and maintain our guidance for a year of a drop in revenues of around 25% to 35% versus 2019 and a drop in adjusted EBITDA of around 40% to 50% for the year, hopefully leaning closer to the low end of the range. Having said that, I wanted to highlight that our Shopping Malls segment is a consolidated market leader in Peru with the financial strength to overcome this unprecedented situation. As of June 30, 2020, our Shopping Malls segment had PEN 54 million in cash and equivalents and an investment of about PEN 165 million in InRetail shares. Additionally, we have recently secured a medium-term loan of PEN 110 million, which will be disbursed by the end of August. Furthermore, as a reminder, our Shopping Malls segment has no relevant maturities of financial obligations due in 2020, and we have postponed all nonessential investments and have significantly reduced operating and SG&A expenses with respect to our initial yearly budgets. Now please turn to Page 12 to comment on the reopening of our Shopping Malls. As I previously commented on June 22, Shopping Malls were allowed to reopen nonessential retail according to government measures and under the following restrictions. 18 out of 21 of our shopping malls were allowed to reopen nonessential retail. 3 of our shopping malls located in the cities of Arequipa, Chimbote and Huánuco were not allowed to reopen nonessential retail since they are still in mandatory quarantine. These shopping malls are only allowed to operate supermarkets, pharmacies and bank branches. Visitors are limited to 50% of mall capacity. Since July 20, restaurants were allowed to reopen on-site dining with a maximum of 40% of seating capacity. Gyms, entertainment centers and education centers, which represent approximately 13% of our G&A are still not allowed to reopen. As of August 12, and supposedly until the end of August, shopping malls will not be allowed to open on Sundays due to a new general Sunday curfew imposed by government. As of June 30, approximately 59% of our GLA have reopened. And today, approximately 74% of our GLA has already reopened. In terms of occupancy, we expect to maintain it above 90% throughout the year. Now please turn to Page 13. As I commented in our previous earnings call, our shopping malls were fully prepared for reopening. Several protocols were already in place for the operation of supermarkets, pharmacies and bank branches within our malls. We have implemented additional protocols for reopening of food courts, click-and-collect service and on-site dining. In our 4 food court areas, we have separated the tables with 1.5 meter to 2 meter distances, limiting the number of people per table, marking spaces for waiting lines and prohibiting foodtrays. Additionally, we have implemented strict protocols for the delivery and last-mile service, controlling the entry of visitors with temperature control, cleaning of shoes and hands at entry. Finally, as part of our protocols, we maintain a live electronic update of a number of visitors to our shopping malls. Now please turn to Page 14 to briefly give you an update on the digital initiatives we are pursuing in our Shopping Malls segment. As I briefly commented in our previous earnings call, we are working on different initiatives in the Shopping Malls segment to adapt to new customer needs and improve our service offering with an omnichannel strategy. First by developing a marketplace for our tenants, which is currently in soft opening and will be formally launched in September. We already have a relevant number of confirmed tenants and more than 100,000 expected SKUs in the first phase. Second, we have been piloting our click-and-collect modules in 6 of our malls, both in Lima and Provinces, giving customers the option to buy online and pick up in our modules. The click-and-collect service will also play an important role within our marketplace savings. Third, we have been piloting an Auto GO drive-thru service in our Real Plaza Salaverry mall with more than 50 parking plans today. We'll continue to make improvements in this service and planning on rolling it out to other malls in the near future. Finally, we have closed an alliance with Glovo for deliveries, placing our Real Plaza logo on the app's homepage. This gives customers the option to quickly purchase from restaurants, food courts, supermarkets and retail stores, and we currently have it in place in 11 of our malls, both in Lima and Provinces. Now please turn to Page 15. This slide sums up our food retail sales area, number of pharmacies and shopping malls as well as our same-store sales by quarter. In the Food Retail segment, there were no relevant openings this quarter. We opened 3 Mass stores towards the end of the quarter and closed 5 in the quarter, ending the quarter with 392,000 square meters of sales area. Additionally, by the end of the second quarter, we closed the 17 market convenience stores that we inherited from the acquisition of Quicorp. In the Pharmacies unit, we closed 1 store during the quarter, totaling 2,094 pharmacies. In the Shopping Malls segment, there were no additions this quarter, ending the quarter with 807,000 square meters of GLA. Please turn to Page 17 to review our consolidated net income results. InRetail registered a gain of PEN 12 million in the second quarter of 2020 compared to a gain of PEN 112 million in the same period of 2019 mainly explained by a reduction in EBITDA due to the negative performance of the Shopping Malls segment, a mark-to-market loss of PEN 36 million compared to a gain of PEN 7 million in the comparable quarter of last year. A net exchange rate loss of PEN 32 million of which PEN 28 million related to the FX loss on dollar-denominated lease liabilities as per IFRS 16 compared to a gain of PEN 13 million in the comparable quarter of last year. Excluding exchange rate impacts and mark-to-market from the valuation of investment properties, net income for the second quarter would have reached PEN 60 million. Now please turn to Page 18 to discuss our CapEx and cash flow generation. During the second quarter of 2020, we invested PEN 56 million in CapEx for our 3 business segments, a significant reduction versus the comparable quarter of last year and to our historic average, which reflects the discretionary nature of our investments and our ability to quickly react to adverse scenarios. Our main CapEx investments for the quarter come from maintenance expenses from our 3 segments and from store implementations in the Food Retail segment, which resumed towards the end of the second quarter. For full year 2020, we maintained our 20% to 30% reduction in CapEx that I commented in the previous earnings call. This considers a 20% to 30% reduction versus the previous year, excluding our extraordinary investment in Puruchuco. If we compare to 2019 including Puruchuco, the reduction will be approximately 50% in CapEx investment this year. The reduction is mainly explained by the temporary suspension of projects in the shopping mall segment and due to delays in execution projects in our Food Retail segment as well in the context of COVID-19. In terms of store openings for Food Retail, we expect to accelerate our Mass store openings during the second half of the year, opening approximately 70 additional stores in the second half of the year and closing full year with approximately 60 net new Mass stores. Additionally, we expect to open 1 Plaza Vea store in December if the implementation works advance as planned. In terms of store opens for Pharmacies, we also expect to accelerate store openings during the second half of the year, opening approximately 100 new pharmacies in the second half of the year and closing full year with approximately 90 to 100 net new pharmacies. Finally, for Shopping Malls, we continue with the temporary suspension of projects, investing only the minimum necessary CapEx. In terms of cash balance, we ended the quarter with PEN 542 million of cash, which considers the annual dividend we distributed in May related to fiscal year 2019. Please turn to Page 19 to discuss our consolidated financial debt. As of June 2020, retail had a consolidated net debt of PEN 4,919 million with a net debt to adjusted EBITDA ratio of 2.6x, slightly above 2.5x as of March 2020. We continue to maintain a stable 2% exposure to U.S. dollar-denominated financial debt, lower than the approximately 20% exposure we had in previous years. Please turn to Page 20 to review our debt by segment. Supermercados Peruanos, our food retail segment, reduced its net debt to PEN 1,124 million in the second quarter of the year, reducing its net debt-to-EBITDA ratio to 1.9x, mainly due to its double-digit growth in EBITDA. On the other hand, InRetail Pharma ended the second quarter with a net debt of PEN 1,879 million with a net debt-to-EBITDA ratio of 1.8x, slightly above the 1.6x net debt-to-EBITDA ratio of the previous quarter, mainly explained by a dividend distribution to fund InRetail Perú's dividend in May. Finally, InRetail Shopping Malls, had a slight increase in net debt from PEN 1,810 million to PEN 1,852 million in the second quarter. Its net debt-to-EBITDA ratio increased to 6.7x, above 5.3x at the end of the first quarter of this year, mainly explained by the almost complete closure of our shopping malls in Q2, which impacted EBITDA. This covers our presentation. And now we will be glad to answer any questions you may have.

[Operator Instructions] And your first question comes from the line of Nicolas Larrain with JPMorgan.

I wanted to get your sense on the drug retail, recent performance. Do you believe this -- the tough times have been mainly because of the lower foot traffic? Or do you sense as well like the consumer may be not in the best shape for improving trends in this format? And also more on a general question to get your opinion on how are you seeing the COVID environment evolving in Peru? I know you mentioned in the presentation that lockdowns were reinstated on Sunday. So how are you seeing the whole situation over there?

Nicolas, sorry. I couldn't get your first question well. You wanted to understand better the retail performance, in particular, in Pharma, is that right?

Yes, yes, exactly. Pretty much trying to understand if the tough times for the drug stores were mainly -- I mean only because of the lower foot traffic?

Yes.

Or you think that the recovery maybe could be a bit more slow during the second half?

Okay. Great. Yes. In terms of the Pharma business, our pharmacies in particular, but it's a similar thing for MDM, we believe that the worst is behind us. Pharmacies were dramatically impacted by the reduction in foot traffic. As we mentioned in our previous earnings call, when foot traffic came down by about 10% to 15%, negatively impacting consumer categories and other categories that are more benefited by improved sales. So what we have seen already in terms of trends and traffic recovery, once government started relaxing mobility restrictions and that translating into a better end of May, June, what we have seen already in July and so far in August. We feel very confident that the worst is behind us and that we will be able to sustain positive trend in same-store sales, top line and an EBITDA recovery as well. And probably, also, we will benefit by being a more organized play with a more efficient supply chain, something similar to what happened in Food Retail, probably somehow happening as well in the independent channel of pharmacies as well. So to your point, having seen June, July and so far August, really the worst is behind that in Pharmacies. In MDM, we have also seen a recovery in June and in July. And therefore, also in that business unit, we feel comfortable that Q2 should be another worst quarter in this year. And in terms of competitive environment, I believe that in all our segments, we will be able to continue consolidating our leadership positions. We have rational players where we have more formal players, competitors. And in general terms, what we are seeing is a sustainable recovery trend in the modern retail channel in general.

Perfect. And just lastly, if I may, on your general perception or opinion on how the COVID situation has been evolving in Peru. You mentioned in the presentation that lockdown was lifted on Sunday then reinstated again? How are you seeing the whole situation or evolution over there?

Yes. Yes. As you know, virtually Peru has been hardly hit in terms of the health situation first and then the economy second. And for now, I mean, we believe that government understands pretty well that they cannot put their eye and effort only in the health system, but also in the economy. They recently announced restrictions to mobility on Sundays. We don't anticipate that to generate a relevant negative impact in our different segments. Throughout the pandemic demand had distributed more evenly throughout the week. And actually, recently, even in the Shopping Malls industry, Mondays, we're experiencing a better performance than in Sundays. So in general terms, we don't expect a relevant negative impact due to the last announced curfews on Sunday. We also expect that to be a temporary measure, probably lasting only a few weeks. There's been a lot of pushback as well from other industries like not food industry restaurants that definitely -- no need to be reopen on Sundays to try to go through this crisis, economic crisis and pandemic. So on the one hand, we expect that to be temporary. Probably government will continue implementing localized quarantines in areas where contagions end up increasing dramatically. We hope that those quarantines are not going to be generalized. The economy of Peru probably doesn't support and couldn't afford to -- go to general lockdowns anymore, and we feel that government understands that. So anyhow, we are prepared to dealing with time land of openings and closures. We have a very diversified footprint in all our segments, all over Peru. So we do expect even with localized lockdowns going forward, not to continue experiencing the recovery that I just commented on. And we do expect the second quarter to be a worst quarter for InRetail in the 3 segments. Despite the risks of going through focalized quarantines during the rest of the year and even early next year.

Our next question comes from the line of Chelsea Colón with Aegon.

I just had a question related to the occupancy figure that I believe you mentioned. Can you clarify, did you say the expectation is that occupancy at the shopping malls should remain around 90%, 9-0, throughout the year? And related to that, you mentioned that, of course, while tenants were forced to remain closed, you were not charging them rent. But as the reopening began, how have the collections been? Have you started charging rent immediately? Or did you give them some sort of additional grace period from the time in which they reopen? Have customers been delaying payments to you? Just any color you could provide in that sense would be helpful.

Yes. Thanks for your question, Chelsea. Yes, I mentioned that we expect to keep occupancy levels above 90% throughout the year. With regard to the relationship and negotiations we are going through with all our tenants, as we discussed also in our previous quarterly earnings call, we have gone through a very intense process of one-on-one negotiations with all our tenants. And at the beginning, it was a more difficult dialogue, given that in the industry, we didn't have clarity on when shopping malls would have been allowed to operate. Once government allowed the industry to operate on June 22, most of the conversations accelerated in agreements and they are being finalized. Today, we have a lot of visibility of where our tenants are and what the health of our tenants is, and we have already done in close negotiations with close to 85% to 90% of our tenants in terms of net amount of tenants, that also represents around 90% of the total GLA of our Shopping Malls platform and close negotiations already represent around 85% of our rental income. So we have gone through a long way in that dialogue, which has been a one-on-one dialogue, as I mentioned. In the process, we had to take a very flexible standpoint in order to get to a reasonable benefit balance, as I mentioned in the past as well, between protecting occupancy and as well protecting our cash flow and P&L. And for that, we ended up taking decisions like not charging rent during the month of mandatory quarantines to the tenants that we're not allowed to operate. And going forward, not necessarily going back to normal pre-COVID fixed trend. We have granted discounts to particular tenants, understanding what's the profile of the tenants, what type of industry the tenant operating and understanding what the real occupancy cost is represented by the rental charging and the common maintenance expenses we charge them. So depending on the industry, the profile of the tenant and so on, we have gone through one-on-one negotiations in order for the tenants to go through the crisis and survive. And that's why we feel comfortable about the visibility we have given in terms of negative impact of pandemic in our EBITDA for a year as well as in terms of the occupancy guidance we are giving. We have the advantage of being a diversified player in Peru as well. We have 21 malls all over the country that gives us more muscle, leverage to negotiate with tenants and get to agreements. There is also advantage of our platform as well in terms of the average size of our shopping malls. As we have mentioned in the past, our typical mall is a medium sized mall of 35,000 square meters of GLA with a relevant mix of -- and for tenants, it tend to be more mature, more solvent tenants, and therefore, we feel very comfortable to keep occupancy levels at pretty high percentages of the ones I mentioned. We don't have that much dependence on small tenants that might have a higher risk of eventually going out of business. So that's why we feel comfortable that the worst in our Shopping Malls segment is behind as well. If we face eventually additional localized quarantines and lockdowns, with the diversification of our footprint, with the health of our tenants in the heavier weight of bigger, more solvent and diversified tenants, we are going to go through this crisis and come out strong as well.

So just one follow-up on that. In terms of the revenues that you recognized in this quarter, is -- were those recognized on a cash basis at this point? Like do those actually relate to directly to the collections that you've made? Or is that just the billings that you have done in the quarter?

It is the one that we have kept as -- rent that we expect to collect, net of all the discounts that we have already granted to the tenants we are not allowed to operate during the quarter.

And we will move next with Alonso Aramburú with BTG.

A follow up on, in my case, in the case of malls, can you give us some color -- I mean I know there's a capacity restriction up to 50%, but can you give us some color as to the traffic you've been getting in the shopping centers? Are you up to that level of capacity in now that the economy has reopened? And also, just a specific question in malls, do you have any of Paris department stores in any of your shopping centers, given that Cencosud, Plaza Vea, they would close the stores in Peru? And a second question related to Food Retail. Can you give us a sense of how was the growth by format during the quarter? It looks like Mass had a fairly good quarter going up to 11% of total sales.

Thank you, Alonso. With regard to the question of malls and capacity restrictions, we have 2 limitations in terms of the malls operation. One is a maximum client capacity in our malls of 50% and for the on-site dining of 40%, where restaurants that are allowed to operate in our malls since July. We are very far from reaching those capacity limits. And as I mentioned, given that demand has spread more evenly throughout the week, we have no issue related to those capacity limits. In terms of traffic, generally traffic is affected. Still clients are going to malls and in general points of sales more efficient journeys. So they are going less frequently, but conversion rates have dramatically increased and average ticket as well. Average ticket has increased 80% on average over the last couple of months. So, in general terms, I would say that restrictions in terms of capacity are not unusual, and we will continue experiencing progressive increases in traffic as more tenants end up opening their stores to general public. And that's, I would say, the message, and the higher conversion rate, high average ticket per journey to the malls. In terms of Paris, we don't have Paris as tenant in our malls. So we were not going to be negatively impacted. And probably, some of our tenants might be positively impacted by them coming out of market and that would indirectly have a slightly positive impact in the variable rent that we charge some of those tenants, if they end up getting benefited by space that Paris is leaving. And in terms of Food Retail performance, I would say that throughout the second quarter, all format ended up performing really well. And Mass, I mentioned in our previous earnings call that had been performing very strongly. They have kept their trends and speed, but Plaza Vea has performed really as well in the second quarter since the restrictions and limitations to using private vehicles was -- were released, i.e., it was at the end of May. So since then, not only the new format and e-commerce started performing really well, but even Plaza Vea has been performing well, but with the restrictions of not having the possibility to selling such big tickets because people had to go buy food. Plaza Vea taking off as well since the end of May, June, July. And now I would say that it's reasonable to assume that all formats are performing really well. All categories with a couple of particular exceptions like, I don't know, food sales. With food prepare at our delis and sold to directly the public, those are little bit affected by the context. But other than that, most categories in all formats are performing really well. And what we have seen so far in July and August is pretty good trend as well.

Great. Great. And if I may ask one more question. I noticed you mentioned the termination of the JV with Tarjeta Oh!. Can you just comment on that on what drove that decision?

Yes. And in particular, with regard to that one, the magnitude of the impact of pandemic in the financial health of Peruvian economy, Alonso, and the consequent expected increase in nonperforming loans and provisions in financial institutions, in general, I would say, let us to assume a more conservative stance with regard to risk exposure. And on an [indiscernible] by retail within the JV was very limited. We prefer to avoid exposure to a risk we don't manage ourselves, we'll be putting an end to the JV. And as I mentioned already a few minutes ago, Tarjeta will continue offering the usual discounts, promotions and credit to our retail clients to the same extent keeping our value proposition to our clients intact. And in terms of eventual expected financial impact of having probably putting an end to the JV, we don't expect any material impact on having putting an end to JV going forward. If you remember, we only had 9 million solid gain in the second half of 2019 in terms of other operating income related to the joint venture. So we don't expect any negative impact for having putt an end to this relationship.

[Operator Instructions] We will move next with Marco Contreras with KALLPA Securities.

I only have one question, which is a follow-up on your last comment on food retail. Can you give us more color on what the dynamics was between food and nonfood products? I just wanted to understand how much of the growth in food retail was related to the lifting in the restriction to sell nonfood products?

Thanks for your question, Marco. Since the lifting of the restrictions to selling some categories like nonfood and electronics, we have seen a significant increase in sales of nonfood. And -- but having said that, food is performing really well as well. So I would say that the good performance of our Food Retail segment comes again in all formats. Mass maintains pretty good trends. And as you know, Mass practically sells nonfood. So that's an evidence of how well food categories are performing as well. And in Plaza Vea, yes, Plaza Vea is seeing some pretty good trends in food categories as well. But nonfood definitely has taken off and accelerated since the restrictions to sell nonfood were limited. And the interesting thing is that it's not been only a short period of good trends. One might think has to do with not having been able to sell those categories during the almost 100 days of lockdowns. But the positive trends have remained during July and so far August. So in general terms, we're seeing really healthy behavior in food and nonfood categories as well.

And there appears to be no further questions at this time. I would like to turn the floor back over to Mr. Vallejo for any closing remarks.

Thank you. As a final remark, I just wanted to highlight that InRetail is strong, adaptable and diversified market leader in Peru in 3 segments with a solid financial stability, which is allowing us to overcome and adapt to this unprecedented pandemic and come out stronger to continue developing more InRetail in Peru through an omnichannel strategy, looking to certify the daily consumption needs of our clients any place and time in a simple way and with the best prices. If you have any follow-up questions, please do not hesitate to contact any of us. Thank you very much for joining this call.

This concludes today's conference call. You may now disconnect.