Parque Arauco S.A. (PARAUCO.SN) Earnings Call Transcript & Summary

Good morning, and thank you for taking the time to connect to the Parque Arauco Fourth Quarter 2025 Earnings Call. I'm Lauren Brown, Head of Investor Relations, and I am joined by Eduardo Perez, CEO of Parque Arauco and Francisco Moyano, CFO of Parque Arauco. I would like to mention a few things before we get started. [Operator Instructions] Please note that this call is being recorded, and the recording will be used for internal purposes. And to start off today's conversation, I'm going to pass the call over to our CFO, Francisco Moyano.

Thank you, Lauren, and good morning, everyone. Parque Arauco had an extraordinary 2025, marked by significant achievements across all 4 of our strategic pillars. These highlights are detailed in the opening pages of our quarterly report that we are seeing here in the first page. And I would like to review some of them with you today. In the growth pillar, 2025 was a landmark year with over $400 million in investments. We acquired Open Plaza Kennedy for $193 million, and this asset perfectly complements Parque Arauco Kennedy and improved our best asset in Chile. A mixed use that today has almost 200,000 square meters of GLA. Additionally, we acquired Minka in Peru for $113 million at an attractive cap rate, adding substantial value to our Peruvian portfolio. Beyond acquisitions, we continue to expand our top-tier assets. At Parque Arauco Kennedy, we have opened new retail spaces and will soon debut a renovated gastronomic hall. We are also enhancing the customer experience at MegaPlaza Independencia and MegaPlaza Ica. Finally, it was a productive year for multifamilies with well-located assets successfully beginning operations in Peru and Colombia. With that, we have a terrific year in 2025. We -- during the year, we have announced several projects, and we are seeing 2026 with great optimism in order to continue in this trend. In the profitability pillar, our financial performance was exceptionally strong, boosted by inorganic growth with high margins and very positive scenarios, both in sales and revenue, we saw a 19.5% increase in EBITDA and a 43% growth in net income. These results were driven by record high occupancy levels of 95.7% and a stable EBITDA margin of 74.5% that we can see in the chart below in this page. Furthermore, we successfully issued bonds in Chile and Peru totaling $150 million. The favorable rates and terms of these issuances reflect our strong access to financial markets and the deep confidence that investors have in our company. In our client experience pillar, we are leveraging intelligent applications to better understand customer needs and provide a friction-free experience, including ticketless parking. For our tenants, we are expanding our omnichannel ecosystem through alliances with Mercado Libre, Starken and Blue Express, optimizing dark stores and logistics services. In sustainability, we are proud to have issued the first green bond by a South American mall company. We maintained our positive ratings in MSCI and Dow Jones Sustainability Indices and remain part of the S&P Sustainability Yearbook. Notably, we installed the largest rooftop solar plant for a South American shopping center at Alegra, which generates 197 megawatts hour per month, covering 26% of our common area energy consumption. Those are some of the milestones that we have during the year. I would invite you to review those in detail. And also to comment that yesterday, we have another announced the Board of Directors has proposed a $330 million capital increase to boost future growth. This proposal will be presented at a shareholder meeting set on February 24, where it will be presented and the final decision will be taken. With that, I would like to pass to the tenant sales page to review some of the figures that we have for this quarter and the whole 2025. In sales, we have a very positive year, as I mentioned before, but also in this quarter. In this quarter, we are seeing same-store sales growing in all 3 countries with a 2.9% increase in Chile, 5.6% increase in Peru and 9.1% increase in Colombia. Sales in Peru in the third quarter were negative in same-store same area sales. So this positive figure of 5.6% is presenting an increase and a positive scenario for sales for the short term and the 2026 perspective. The growth for the whole year was 16.4% in sales in a consolidated figure -- and for -- if you break down that figure by country, you can see that this growth is also positive in Chile with 15.9% growth in Peru, 18.1% growth and Colombia, 15.1% growth. So this is to mention that in the broader view, we had a strong year in all 3 countries, and all of them are presenting this double-digit growth. In revenues, the increase in the whole year is 21.2%. Same area rents are growing beyond sales at 10.3% in Chile, 5.9% in Peru and 14.1% in Colombia. The growth for the year by country is 23% for Chile, 26% for Peru and 9% for Colombia. So it's also quite positive in all 3 countries and it's a result of the commercial efforts that we have done in the 3 countries in order to improve rents of our spaces. We can pass to the EBITDA now. The EBITDA is growing 19.5% -- this is a high growth that is boosted by the inorganic growth. As I mentioned before, we have new assets, but at the same time, we have very positive EBITDA in the organic growth for the current assets. This 19.5% is also -- we can see positive figures in Chile of 21%; Peru, 25%; and Colombia, 9% with an EBITDA margin that I would like to highlight. If you see the EBITDA margin for 2025 in comparison with 2024, we can see that it's quite stable at 74.5% with a drop that we had in the fourth quarter of 2025 of 71.6%. We have in the quarter some one-offs that we are not seeing to repeat in the future. The most important one was the strategic reorganization that we had at the end of 2025 that is improving our organization, but it has some costs that were accounted during the quarter. We are not expecting them to continue with a margin around 71%, but what we are seeing in 2026, something above the 74% that we are closing for 2025. Now passing to the FFO. The positive figures that we saw in revenues and EBITDA are also translated to the FFO, where for the whole year, the FFO is growing 16.3% and the adjusted FFO is 31.2% above the figure of 2024. This growth also is -- you can see it in the chart in the evolution of the price to FFO ratio, where it is growing from 7.9% to 12 7% -- 12.7x that you can see in the chart in this page. With that, I would like to pass the call to Lauren to continue with the presentation.

Thank you very much, Francisco. Now I would like to turn to the performance of our retail assets in fourth quarter of 2025. You can see various slides starting on Page 18 and 19, where we mentioned some highlights and also all the way through Page 22. So let's turn now to Chile. Parque Arauco Kennedy west, the original building of the asset showed solid growth in revenues, growing by over 19% and EBITDA by over 28%, reflecting the price optimization strategy and the high productivity of the asset. During Q4 '25, we continue to open GLA in the new Cerro Colorado sector currently, 9,600 square meters are operating, including the new Nespresso and Dior flagship stores, Velez, Lindt Chocolate and the LEGO store in Ashley Home, which have seen noteworthy sales since opening, amongst many other stores. The new GLA of the Cerro Colorado sector drove the increase in revenues alongside the higher minimum rent of the Connecting Rosario sector. Rents increased at the stores in this sector now that the construction is almost finished, allowing for complete connectivity to the rest of the mall. The steady flow of tourists is -- continues to be a factor in sales at Kennedy, although the dynamicism of local shopping remains a determining factor. In turn, the opening of new spaces and changes in the commercial mix have had a positive effect. Arauco outlets have also performed very well, performing strongly and generating an increase of over 11% in tenant sales and 19% in revenue, while EBITDA has grown by over 9%. During this quarter, outlet Buenaventura saw improved sales due to the addition of new stores. The clothing and footwear segment grew by over 9%, translating into higher variable income. The performance of the outlets during the fourth quarter of '25 is particularly noteworthy because we already had the tourism effect in the fourth quarter of '24, resulting in a high comparison base. At Arauco Quilicura, we also experienced strong performance during the fourth quarter of '25, with sales increasing by over 19%, revenues by over 11% and EBITDA by over 6%. This growth can be partially attributed to the consolidation of the shopping centers expansion, which included the addition of a Lider Express supermarket, which performed above the expected budget. Additionally, we recently began charging for parking at this asset, which has also helped drive the increase of revenue. This quarter, Arauco Quilicura showed a solid increase in visits, over 30% higher than the same quarter of the previous year, reaching over 700,000 people in fourth quarter '25. And in Chile, overall, there was an increase of over 12% in the number of visitors to our assets in the fourth quarter of '25. Moving on to Peru. In Peru, various master plan expansions are underway at our key assets, MegaPlaza Independencia and MegaPlaza Ica. The master plan at MegaPlaza Ica involves the temporary closure of the financial sector, reflecting a significant drop in revenue for the quarter by 3%. Despite interventions at this asset, sales increased by over 11% compared to the same quarter of last year. On the other hand, MegaPlaza Independencia, despite being in a phase of conversion, recorded a 2.8% increase in sales and a 7.2% increase in revenue. Additionally, an 8.4% increase in NOI. Moving on to Colombia. Overall, Colombia had a strong quarter. The increase in tenant sales this quarter is explained by department stores with Falabella and also clothing stores showing positive increases generally across all assets. Higher revenue is mainly explained by an increase in minimum rent due to the arrival of new tenants, tenant changes and good sales. Titan Plaza. Titan Plaza in Bogotá stands out in the quarter as the asset with the highest sales growth, an over 23% increase compared to the same quarter last year. This is largely explained by a significant increase in occupancy, reaching 100% in Q4 '25. Among the new tenants, we highlight the addition of Skechers and Velez. Sales at Titan Plaza increased by over 18% in the restaurant category, 9% in minor stores and over 100% in intermediary stores. During the quarter, Titan Plaza generated over a 9% increase in net revenues due to the increase in minimum rents compared to the same quarter of the previous year. The asset's NOI also increased by 10% compared to Q4 '24. Arauco Outlet Sopo generated over 22% EBITDA growth, driven by an 8% increase in net revenues and 36% lower net costs and expenses, particularly in maintenance. This EBITDA growth is also explained by the start of the parking business in December of 2025. Sales at the outlet grew by 8% compared to the same quarter of the previous year. The increase in sales is explained by footwear, which increased by 24% and apparel by 5%. In clothing, Carolina Herrera experienced over 21% growth, while Levi's grew by over 25%. And in footwear, the new tenant called Sale Factory stood out. Moving on to development on Page 25. I would like to highlight our CapEx table where you can see that we are following through with the development of the projects that we announced to the market. The CapEx table includes the recent acquisition of Parque Arauco East Building, Minka Shopping Center and the recently announced Premium Outlet in Buin. On the top right-hand side of the slide, you can see a pie chart showing the breakdown of our total CapEx investment by type of project that we have already incorporated. Some -- I'm sorry, some of these have already been incorporated in 2024 and '25, while others will be incorporated between now and 2028. By the time all of these projects are completed, we will have invested over USD 730 million. While Page 25 total CapEx, on Page 26, we take a look at the remaining CapEx. You can see the breakdown by type of project of the remaining USD 138 million in the pie chart on the left-hand side of the slide. And on the right-hand side of the slide, you can see the investment distribution by project. Our investment pipeline totaling over USD 730 million is a historic figure for the company, representing almost 1/4 of the total value of investment properties as of the end of fourth quarter '25. Additionally, the excellent performance of the portfolio has allowed us to close the net financial debt-to-EBITDA leverage indicator at a rate of 5.3x despite recent acquisitions. This balance sheet strength gives us room to continue executing our growth pillar, announcing new projects for the upcoming years and strengthening our project pipeline. On Page 28, -- you can see information about one of our most important development milestones, which is the advancement of the Parque Arauco Kennedy master plan expansion. Once completed, the 7 floors of retail of the Cerro Colorado phase will add over 11,000 square meters of retail space and over 23,000 square meters of office space. This phase will be completed entirely in the first half of 2027. On Page 29, you can see the next part of the expansion plan, which includes the inauguration of the new 414 apartment unit building, the multifamily building, the first one to be incorporated into an existing asset. And this will complete the Kennedy phase of the expansion in 2028. To review more details of this master plan, I invite you to look at our case study on Page 35. As you can see, since 2007, this iconic asset has nearly doubled its GLA and quadrupled its net revenue. The Parque Arauco Kennedy expansion project has gone through multiple stages, consolidating itself as the most relevant asset in our portfolio with investments totaling over USD 450 million for the 2025 to 2028 period, including the purchase of Open Plaza Kennedy, which is now attached to the real estate complex. The growth of the GLA, revenue and relevance is set to continue as the master plan evolves Parque Arauco Kennedy towards a comprehensive mixed-use model, transforming our flagship asset into a destination that captures value through the synergy between retail offices and multifamily. And if you have not been to Parque Arauco Kennedy recently, I recommend that you come and explore the new Cerro Colorado phase. This phase included the demolition of the old Falabella store, construction of parking lot and will incorporate over 11,000 square meters of retail space, over 9,000 of which is already opened and operating. Additionally, an attractive new main entrance that faces Parque Arauco -- Parque Araucano will open shortly. The retail area will have 7 floors. The first 3 floors and the underground floor that connect to the metro will be dedicated to retail space, including over 70 new stores. The floors are also strategically segmented into categories with men's and sports on one floor, women's and clothing concentrated on another floor, home and children and then services also concentrated on different floors. The fourth and fifth floor will consist of a new food court with views of the park and the sixth floor will be dedicated to a restaurant district. The food court and restaurants will comprise of over 1,600 square meters of floor space, achieving a 55% increase in seating capacity compared to the current food court. It will include high standard design and decor with a large terrace overlooking Araucano Park. This food court section is expected to open in the first half of 2026. And the first tenants have begun operating in the Cerro Colorado phase, including various brands that have been launched to Chile for the very first time, including the store [ Dior, Faces and Seiko ] who have chose Parque Arauco as their inaugural store in Chile. Additionally, Desigual and Nespresso have chose Parque Arauco as the location of their new flagship store, joining Falabella, who chose Parque Arauco for their flagship store a few years prior. As we typically have in our fourth quarter, we had very -- we had many successful Christmas installations throughout all of our assets in Chile, Peru and Colombia. And you can review the more details about this on Slide 39. And I would like to highlight that these efforts were great at bringing in new customers to the mall and also increasing our customer base and the list of consumers on our mailing list. And as Francisco mentioned, we are very proud to have inaugurated over 3 self-generation energy projects in Colombia and then also another one in Peru, which you can read about on our sustainability page on Page 40. Now I would like to move over to the question-and-answer segment of the call.[Operator Instructions] To start off today's call question section, I would like to pass the discussion over to our CEO, Parque Arauco, Eduardo Perez. And I already see people in line for questions, so I will unmute you in the order of which you have raised your hand. Starting with Gustavo of BTG. Hello. Can you hear me? You're unmuted.

I have one here on my side, and it's on the context of the capital increase, right? I was wondering if you could please share how are you thinking about organic versus inorganic growth opportunities across countries, right? So in other words, if you could explore a little bit more on where are you seeing the best opportunities for expansion? And also, how are you seeing the M&A markets in each country, right, thinking especially in terms of valuation levels and also the asset availability and the opportunities to portfolio complementarity in each of the countries. This would be my question.

Let me start by mentioning that with this follow-on. Basically, we increased the investment capacity of the company from investing approximately USD 200 million a year to investing approximately USD 300 million a year. And we believe we can invest this amount of money in a profitable way. Basically, it's a continuation of what we have been doing in the last years, which is half of the investments will be in the expansion of our main iconic assets, so brownfield projects, organic growth. And regarding the other half, a part of the other half will be incorporating new assets, high-quality assets both in greenfields and M&A, being very selective in both and a part of the other half is multifamily projects. So it's basically continuing to do what we have been doing in the last years. Regarding the M&A question, we do see opportunities of M&A going forward. If you analyze the market in the last 2 decades, there's a clear consolidation trend, and we expect this consolidation trend to continue. Basically, there's a very important difference between the large players and the smaller players regarding the capacity of managing the properties in the capacity of financing in a very competitive way. And this is also a business with clear economies of scale. This is why when you analyze long periods of time, you will see our EBITDA growing much more than our revenues and our tenant sales. So all these trends end up in small players selling assets. However, we have business in small markets. So it's very difficult to predict when this will happen. And I would add to that, that we see probably more opportunities in M&A in Chile and Peru than in Colombia because, as you know, more than half of the market in Colombia are multi-owner properties that are very challenging to acquire. And the non-multi-owner properties are companies that have developed their portfolios in the last 15 years. So probably not willing to sell those assets. Those are the colors I can give, Gustavo. But the main message is this is a continuation of what we have been doing in the last years with these 3 pillars of half of the investment in expanding our main assets and regarding the other half, a combination of new retail assets and multifamily.

Thank you, Eduardo.

Gustavo, finally, let me mention that we will update our investment plan during the first half of this year. We are working on an update. Just to give you a little bit of color there, there are several assets that have been expanded assets of which we have been working in these master plans for the growth of these assets for several years now. And we will announce those projects during the first half of this year.

Now moving on to the next question from Morgan Stanley. Alejandra, you are now unmuted. Can you hear me?

I can hear you. It's actually a 3-part question, if I may. So the first part is perhaps a follow-up. So you mentioned perhaps growth and you've been vocal about growth in the Andean region. So just wondering if the opportunities perhaps are less I would say, scarcer perhaps at some point in time, would that take your strategy perhaps outside of the Andean region, if that makes sense at some point? So that's the first question. The second one is on your spreads. If you can provide an update on your spreads, especially because we're heading into about a renegotiation of 30% of your portfolio. So if you can talk about how that's going, if you feel comfortable with those conversations as we head into 2026 and '25 -- sorry, '27. And then the last question is, I was very curious to hear all your remarks on the energy front and seeing energy contribute more to non-property revenue this time. So just wondering if you can double-click on how you're thinking of this particular line, if you think there's more scalability here, we're going to see more of that. Those are my questions.

Alejandra, thank you for your question. So regarding the first one, we see as a possibility to enter a fourth country. However, we see also opportunities in the countries where we have business currently. So we will analyze all of the alternatives that we have and take a good decision for the shareholders of the company. Of course, entering a fourth country is a deal of -- with a higher risk. So in order to make sense to compensate that risk, we need also higher returns. And we see opportunities in the markets where we have business. So it's not obvious that it makes sense to enter a fourth country. The company, however, is well prepared for that. For the first time in the last year 2025, we reached an efficient scale in Peru and Colombia, meaning that the overhead expense is 1 digit above NOI. So I think that the company is ready for taking that step. But again, I don't think that's obvious because we see opportunities in the countries where we have business. So time will say, okay? Regarding the lease spread, for several years now, the evolution of the tenant sales have been very strong with growth some points above inflation. And because of that, we have been able to renegotiate our contract also some points above inflation. So the contracts that are already signed have a lease spread of inflation plus 2 plus, okay? So it's above inflation plus 2. That means that with contracts already signed, the revenues -- the same area revenues of the companies will increase this -- at least this couple of points above inflation because the contracts have step-up clauses that involves this natural growth in the revenues of the companies, okay? So I would expect a positive scenario on this 2026. Finally, regarding energy, let me answer Alejandra, this by going up one level and talking about the non-rental revenues. The non-rental revenues have been increasing much more than the rental revenues. That has been increasing, again, some points above inflation. But in the non-rental revenues world, parking has been an interesting business. We are starting to charge for parking in some assets where we were not charging before. Also, the number of cars in the market where we have business have been increasing because of that, the queue of the equation also have been increasing. So we see more visits by car and because of that more parking revenues. And finally, we have started to do some business more related to rental revenues, but in parking space in those assets where it makes sense. For example, in the surroundings of the vertical transport escalators, you start to see much more retail space than before, not only parking. So parking is one. Another is energy, as you point out. We see a positive trend here, both because of margin, but also because of how we are managing the energy expense in our common areas. We are doing a lot of projects related to being more efficient to measuring better our energy expense in the common areas and managing that expense accordingly. We are also developing a lot of energy projects of solar panels in the roof of our main assets. We did 7 of those projects during the year. And because of that, also the energy expense will decrease because those projects typically source approximately 20% of the energy expense of the asset. So I would expect an improved energy margin. Finally, there are other non-rental revenues. I would like to highlight there the retail media business. We have been also working a lot for several years now in retail media. We are increasing the number of screens, digital screens outside the main assets in the entrance of -- to the parking lot in large common areas and also in the main common areas in the halls of the main shopping centers. And we are also starting to improve how we manage those screens because we see that in more developed markets, the percentage of the advertisement, specifically targeted to increasing the sales in the assets is much larger than what we have in the Andean region. In the Andean region, typically, you see a general advertisement in those screens, let's say, a Coca-Cola advertisement. In the more developed markets, more sophisticated markets, even half of the content can be specifically aimed to increasing the sales of the shopping center. So we're also working in the content. Altogether, we expect that the non-rental revenues will grow, again, much more than the rental revenues that are still growing above -- a couple of points above inflation.

Now moving on to Jorel of Goldman Sachs.

I have 2. One is on the capital raise and one is on same area sales. So first off, Eduardo mentioned earlier that some of the capital will be -- the intention is to use it for M&A. And I just wanted to understand a little bit more about this potential M&A. Just perhaps if you can give an indication about the tenor of the conversations. Just I wanted to get an understanding of how quickly capital can be deployed into M&A? Is it such that the conversations have developed enough that this should happen soon? And also, what are the cap rates we should be thinking about for any potential M&A? And then the second question is around same area sales, particularly for Chile. So we saw the number came in around 3% in 4Q '25, and they came in at 12% in 4Q '24. So it's a material deceleration. So I want to understand if this deceleration was driven by tough comps? Or is this a sign of what we should expect for same area sales going forward going into 2026?

Thank you, Jorel, for your question. So regarding the capital raise, so we expect we can deliver a profitable CapEx investment above USD 200 million and in some years, reaching the EUR 300 million. As a reference, this last 2025, we were able to invest more than USD 400 million in a very profitable way. But of course, the M&A was relevant in that equation because of both the acquisition of Open Plaza Kennedy in Chile and Minka in Peru. But the base of our growth pipeline is not dependent on M&A. Let me mention that very clearly. The base of our growth is brownfield projects, expansion of our main assets. So the growth strategy of the company does not depend on the possibility of closing an M&A. If the M&A comes, it's very welcome. We are very active in the market. We are the company in our sector that has been more active in the last decade, very clearly. We have conversations with a lot of potential sellers in each of the markets where we have business. But again, these are small markets. And therefore, it's not easy to project a clear answer to your question. So the growth -- it's not based on the M&A, but M&A should represent, let's say, 1/4 of the CapEx capacity of the company. Some years will be more important, some years will be less important. But we plan to continue to be active in the market. Regarding pricing, it varies a lot. But let me mention the last deals that the company has been doing. So basically, in Peru, we acquired Minka at a 10% cap rate. I think it's a very good acquisition also because of the optionality of the asset. And I think that the market in Peru is, let's say, between an 8% cap rate and a 10% cap rate. If you go to Chile, I think -- well, we acquired Open Plaza Kennedy at a 7% cap rate. And we expect to take that figure above 8% in this year 2026, okay? I would say that the price in Chile is between -- depending on the quality of the asset, 6.5% to 8.5%, okay? And regarding Colombia, we acquired the assets 2 years ago at a 9% cap rate. And now that cap rate is close to the 10%, okay? I would say that in Colombia, 8% to 10% is a good range in terms of cap rates. Regarding same area sales, I would expect a negative impact because of lower Argentinians coming to shop in Chile, but a positive trend because of domestic demand. The unemployment in Chile is below 8% -- the salaries are growing according to the information provided by the pension fund system, inflation plus 3%. It's a very strong salary growth. And I would say that in the country, there's a current environment with higher confidence levels, both in consumption and investment. And in the margin, I would expect also because of expectations, a healthy internal consumption that should compensate for that decreased sales of Argentinian tourists and creates, in our expectation, and a scenario of inflation plus something in the sales of our tenants.

Now going to Marcelo Motta from JPMorgan.

Yes. Can you guys hear me?

Yes.