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

Good morning, and thank you for taking the time to connect to the Parque Arauco Second Quarter 2022 Earnings Call. I'm Lauren Brown, Head of Investor Relations. 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 use purposes. Additionally, this is the first call since we have had some internal restructuring, so I'm pleased to say that I am joined here today with Francisco Moyano, the new CFO of Parque Arauco, who was previously serving as the Corporate Finance Manager; and I'm also joined today with Eduardo Perez, the new CEO of Parque Arauco. Eduardo joined Parque Arauco in 2013 as the Corporate Finance Manager. And then in 2018, he was named the CEO of Parque Arauco Colombia, and then in 2019, the CEO of Parque Arauco International, which includes Peru and Colombia. Eduardo will be participating in the Q&A section following the call. To start off today's conversation, I'm going to pass the call over to Francisco.

Okay. Thank you, Lauren, and good morning, everybody. This quarter, we are having another positive quarter, a strong quarter, continuing with this momentum that we have been having since the third quarter of 2021. In this stage in our earnings reports, we can see the consolidated figures for Parque Arauco. We are having a 94.3% of occupation. And we are also adding new GLA for our company with the inclusion of Parque Alegra that has 47,000 square meters. Parque Alegra has had a very highly successful opening since the beginning of this year. Also, our sales are growing when we compare the sales figure against 2021 is 60% -- 60% of -- against the 2021 figure. And against 2019 figure, we are increasing the sales [indiscernible] 25%. The revenues is reaching CLP 56 billion, increasing 94% against 2021 and 15% against 2019. The EBITDA figure for this quarter is almost CLP 40 billion, increasing 127% against 2021 and 11% against 2019. The FFO of the company is also in more normal levels and is reaching CLP 32 billion, increasing 332% against 2021 and 17% against 2019. Now passing to Page 6. I want to give some other details about this quarter. In the first graph, we are seeing the comparison of the tenant sales, revenues and EBITDA against 2019. And we can see that since the third quarter of 2021, we have been having tenant sales, revenues and EBITDA above those levels and returning to normal operational -- a normal operational scenario. Then in the second graph, we are seeing the evolution of our financial debt. The red line is the net financial debt, which has been very stable during the whole period of the pandemic. And today, we are very glad that we are reaching a normal level of -- for the net debt-to-EBITDA ratio, which is in the second quarter of 2022 at 5.54x. This is, I think, the result of our conservative strategy with the leverage of the company. We feel comfortable between -- moving around this figure. So now that we are at 5.5x, we are, again, starting to continue with our growing strategy. And since how we have been announcing to the market, we have been starting to investment in multifamily, and we are continuing our expansion in Kennedy. This ratio is also -- it's important to note that this ratio is calculated with the EBITDA of the last 12 months. Today, in the second quarter, the EBITDA of the last 12 months is coming since the third quarter of 2021. So as of today, the window of the 12 months is more normal. We see some space to improve, but probably we will be moving around this figure from now on. In Page 7, we have the tenant sales in more detail. We can see that the figure is growing 60% and 25% against 2019 in Page 7. This result of tenant sales is a result of -- in the comparison, Chile in 2021 was mainly closed. In fact, in Chile, we have, in 2021, 41% of the GLA opened. In Peru, we had around 70%; and in Colombia, 80%. So with that, that explain in part the high level of increase in tenant sales. In fact, the sales when we see how we have been having the sales for each country, probably Colombia is the one that is showing the best figures for the company. Then in Page 9, you can see the revenues of the company, increasing this 94%, is 15% against 2019. And again, the stronger figures comes from Colombia because of the growth of the sales in that country, but also in revenues. In Page 10, we have the EBITDA, which is growing 127%. And the EBITDA margin, the EBITDA margin, I would like to highlight that the EBITDA margin of Colombia is affected by the opening of Alegra in this quarter. Without Alegra, the EBITDA margin for Colombia would be 71.2%, and then the consolidated figure would be 71.3%. So with that, we are having similar levels of EBITDA margin for other countries, around 71%. In Page 11, we have our nonoperational results. And here, first, I would like to highlight the -- in other gains, we are adding an update of our fair value of our assets. We maintain our assets by the fair value of our assets, following IFRS in our books. The IFRS requires us to maintain our assets at a current level of fair value. And since we have been seeing high inflations in Chile, Peru and Colombia, we thought that it was better to make an update of this fair value in our books, exceptionally in June, since we usually have this fair value update in December every year. But in this year, since we have been seeing this inflation growth in these countries, we thought that it was better to have an update in June and then in December probably, we will be expecting another update of the fair value. It's important also to say that we are following a very conservative model in our fair value valuation. The impact of this update in other gains is around CLP 52 billion. So in the quarter, mostly all of the value in this account is due to the fair value update. Then in the financial income, we have had higher rates in the market, and that is explaining the higher value of financial income in the quarter and in the last 12 months. The financial expenses have been quite stable. We are maintaining the level of the debt in the company. And because of that, we can see that the value is also quite stable in the financial expenses. The share profit and losses of associated accounted is mainly the operation of Marina, which also had an update of its own fair value, and that is why it is increasing to almost CLP 14 billion. The impact of the fair value in Marina is around CLP 13 billion. And then in the income or losses from indexes assets and liability is the adjustment of our debt in U.S., which is the Chilean currency linked to inflation -- by the change in inflation that we have been seeing in Chile mainly. The figure for this quarter is an impact of CLP 27 billion, which for the whole year amounts to CLP 42 billion. So those CLP 42 billion today are being compensated by the update of our fair value. Finally, I'd like to highlight the deferred taxes, which amounts to 11 -- almost CLP 12 billion in this quarter, but CLP 12.3 billion accounts for the deferred taxes that is coming for the update of the fair value. With all the net profit for the company is CLP 57 million for this quarter. Now passing to Page 12. I would like only to -- I would like to highlight that in the second quarter, we have been having a lot of new negotiations for the -- with the contracts of Alegra. We are showing that in the graph in black, it amounts to 2.9% of our GLA, those contracts. And in the quarter, we had 180 new contracts from where 140 contracts are related with Alegra. The contract with rent modifications at the minimum rent, we can see that in this second quarter, we are following the same trend that we have been having in the past with more contracts being modificated with upside, which accounts to 1.5% of our GLA in this quarter. Now I would like to pass to Page 15, only to highlight the FFO of the company, which is growing 17% from 2019 and growing 300% from 2021. This is a result of higher financial income. First, the EBITDA that is growing [indiscernible] and then the financial income that is also growing. And this quite a stable financial expense in the quarter when we compare with 2021. In Page 17, I'd like to highlight in our balance sheet. Only the trade accounts receivable and other receivables, which is decreasing from CLP 30 billion to CLP 23 billion, that has been the result of our important effort that we have been making in -- with the accounts receivable, managing our accounts receivable. And you can see that in the lower part of the table, we have a detail of this trade accounts. The bad debt provision has been stable in this period. We are following this strategy of maintaining a very conservative method for calculating our bad debt provision. But if you can see the gross value of our trade accounts is also decreasing from almost CLP 44 billion to CLP 36 billion. As of today, we are maintaining around 1 month of our invoice amount in accounts receivables. Finally, in Page 19, only to highlight our financial ratios. I already said the net financial debt-to-EBITDA, which is reaching 5.5x, but also to highlight -- I would like to highlight the EBITDA to financial expenses, which is increasing today to almost 3.6x. This is also quite important for us to maintain a high level of coverage of our financial expenses. The net financial debt to equity, the leverage of the company is at 0.6x. And that is the only ratio that we have related with our covenant limit, that is 1.5x, so we have plenty of office space in this rate. With that, I would like to pass the call to Lauren, who is going to highlight some other news [indiscernible].

Thank you, Francisco. I would like to start off by highlighting the results from Colombia. In April, we had the grand opening of Parque Alegra in Barranquilla, Colombia. And in this first quarter, we are reporting results from this new mall. You'll be able to see the effect of this opening in some Colombia-specific and consolidated indicators. We are reporting consolidated occupancy level at 94.3%. Without the incorporation of Alegra, we would have reported 95.3% occupancy rate for the quarter. In Colombia, the occupancy for the quarter was 90.4%. And without the incorporation of Alegra, this figure would have been 96.1%. Parque Alegra is 47,000 square meters, and this addition to the portfolio increased the GLA in Colombia by 30.1%. The tenant sales in Colombia were 71.2% higher than the sales of the second quarter of 2021, and Parque Alegra is starting to add sales to our consolidated figures. And in this quarter alone, those figures were CLP 13.3 billion. In addition, Colombia experienced a 52.2% increase in revenue and a 31.3% increase in NOI compared to the same period of the previous year. Next, I will highlight results from Peru. It is important to highlight Peru's occupancy is now at 94.9%, recovering well after the departure of [indiscernible] last year. We have managed to completely commercialize the space [indiscernible]. However, some space is still under renovation and in order to have new access areas. For example, on the second floor in [indiscernible] and the third floor in MegaPlaza Norte en Independencia, we are undergoing construction to provide direct access to these spaces. This, in turn, reduces the GLA. You'll be able to see this decrease in GLA space in Peru due to the fact that we've converted spaces previously occupied by [indiscernible] into some additional common areas. This quarter, we're also very happy to report that we opened a new 6,500 square meter [indiscernible] department store in MegaPlaza Norte en Independencia. In [indiscernible], we also opened [indiscernible]. And in Lambramani we'll be opening another Super-Asia store and a university space. And later in the year, we will be opening more areas in [indiscernible]. Tenant sales in Peru were 26.1% higher than those recorded in the same period of the previous year, and we celebrate 156.4% increase in tenant sales at Larcomar, predominantly a result of the new H&M store that was opened in the fourth quarter of 2021. Peru experienced a 38.2% increase in revenue and 55.3% increase in NOI compared to the same period of the previous year. And finally, I will highlight the results from Chile. In Chile, you will note an increase in GLA in Q2 '22 compared to the second quarter of 2021. The increase at Parque Arauco Kennedy is due to the new Sector Rosario and the increase in [indiscernible] due to opening of commercial space inside the tower. Tenant sales in Chile experienced an 84.4% increase compared to the same period of the previous year. This is predominantly due to the fact that in the second quarter of 2021, some malls were either closed or restricted due to the pandemic. Chile experienced an 122.6% increase in revenue and 127.1% increase in NOI compared to the same period of the previous year. And now I am excited to talk about development. As I mentioned, in April, we opened a new Parque Alegra, and this added 47,000 square meters to our portfolio. Parque Alegra is one of the largest malls in the Barranquilla area, and it provided access to a new [indiscernible] in the south of the city, in addition to other big brands, including [indiscernible] and a unique dining experience that we call [indiscernible], which is a gastronomic area that is quite unique for the malls there. This quarter, we also took the time to redefine the expansion of Parque Alegra Kennedy. This project is -- has been in process for the last few years, and now we are redefining the 2 areas. Previously, we defined it by Phase 1, Q3, and now we have renamed it based on the streets where the towers are going to be occupying. So we have 2 phases. One is the Cerro Colorado phase, and the other one is the Kennedy phase. The Cerro Colorado phase will be providing an additional GLA of 34,000 square meters, and the Kennedy phase is still under review. The opening date for the Cerro Colorado phase is 2026, and we are still reviewing the second phase, which is the Kennedy phase. So I would like to do a deeper dive into this newer portion, this next upcoming portion of this project, which is the Cerro Colorado phase. Currently, at the moment, we are in a demolition process where we are converting the old space of Falabella into below it 7 floors of additional parking, and then the next process will be converting this into a new retail area in addition to a brand-new main entrance. It's notable to say that this entrance will be facing the [indiscernible], where we are going to be opening a new metro where the city will be opening a new metro in the next coming years as well. The date for the opening are said to be around 2026, which is just in time for the launch of the new metro. And additionally, on top of the new retail sector, we will be building a tower as well that will be used for offices. So this is the Cerro Colorado section. And then -- and our -- sorry, our Kennedy section is still under review at the moment. And now I would like to jump to some exciting development, which is our new multifamily. Multifamily is a new format that we are incorporating here at Parque Arauco. Our first announcement was for [indiscernible], the multifamily in Bogota, Colombia. This is a total investment of $11 million and will have 132 units. The opening date is set for 2024, and we have 80% ownership of this property. We have also teamed up with IC, which is the construction company, and they are well known in the area for doing construction projects in the residential area and have done the only existing multifamily in Colombia. Recently, we announced our newest multifamily project in Medellin. And this -- Medellin is the second largest city in Colombia. And our project is going to be in the [indiscernible] section, which is a very up-and-coming area with restaurants and access to hospitals and very well-located area. So this area -- this building will be an investment of $23 million. We will have 310 apartments, an additional GLA of 16,000 square meters, and we have 95% ownership of this property. The opening date is set for 2024. And to learn more about multifamily, we did an extensive case study that you can read about on Page 36. And finally, I would like to highlight that this quarter, Parque Arauco was recognized as the most transparent company in the country rated by Chile Transparente, part of Transparency International. And this concludes the presentation portion of the call. We will now begin the question-and-answer section, and Eduardo Perez will be helping us with that.

[Operator Instructions] And to start off today's discussion, I will pass the call over to Eduardo. And let me see who is ready to ask a question. Great. I see a question from Jorel. Jorel, I'm going to unmute you. You are now unmute. This is Jorel from Goldman Sachs.

Congrats Eduardo. Congrats, Francisco, on the new roles. So I have 2 questions, one for Eduardo, one for Francisco. So the first one is around strategy. So you've been -- Eduardo, you've already been sitting on the CEO role for a bit now. And with these new announcements around Parque Arauco Kennedy's expansions, I was just curious to know about the strategy for the firm? Is it such that you are looking to diversify a bit more from retail and looking more towards office, looking more towards multifamily? If you can give us a sense of how much you would expect those mixed-use assets or these alternative asset classes to take part of as either your GLA or your future revenues, that would be helpful. And for Francisco, the question is more along the lines of occupancy costs. So we've noticed that sales have far exceeded rents for a while now so far this year. And your occupancy cost levels are at a point where you could -- it seems you can substantially raise rents going forward. They're all below the long-run averages. So I just wanted to get some color on how should we think about rents vis-à-vis sales? When should we expect a material acceleration of those rents, perhaps a return to longer-term trends in terms of occupancy costs across the region?

Thank you for your question. So regarding the strategy going forward, I would like to start by saying that we would definitely be very active in retail in the future. So we see opportunities in retail real estate going forward, both in terms of new assets and also in terms of further developing our existing portfolio. However, we expect that the growth of the market, the retail real estate market will be a low single-digits growth going forward. And because of that, we are opening a new avenue of growth for the company in other property uses that we expect will grow importantly in the next 10 years in [indiscernible] region and that we expect will bring to the shareholders of the company profitable growth at accretive conditions for the shareholders of the company. So going forward, I would expect a mixed growth in terms of how we allocate the future CapEx of the company. And that's why we updated [indiscernible] of Kennedy. You will see that, that is more than USD 100 million investments at very profitable conditions for the shareholders of the company. The first phase of that project will open during 2025, the second phase during 2026. And we also announced these 2 multifamily projects in Bogota. We are analyzing multifamily projects in the 3 countries. And Colombia is the country where we have found at the most profitable price. In Colombia, we have analyzed more than 40 projects in retail. And out of those 40 projects, we have presented to the Board of Directors, these 2 projects, both with cap rates or yields on cost or EBITDA over amount invested at an asset level of 2 digits. So a mixed growth, Jorel, [indiscernible].

Yes. Now passing to the occupancy cost. The renovation of our contracts has been a very important effort that we have been doing this year. We passed through the pandemic where we postponed some of the negotiations due to the conditions that we saw in the market. It was difficult to make negotiations with all what we have been experiencing in the pandemic. But today, in 2022 with more normal levels, we are making a lot of effort doing those renovations. And what we have been seeing this year is that those renovations have been in line with inflation. It has been a process, a lot of conversation with each of the tenants. And the negotiations have been, as I said, in line with inflation, and we are expecting in the future to continue in those lines. This industry, in some way, we need to remember that this is an industry of fixed rents more than variable rents. We are reaching a level of fixed rents above net 85%, returning to almost 90% of fixed rent that we had in the past. And that is what we are aiming in some way. We are looking forward to see very stable fixed rents and -- in the future, probably around inflation and probably in the next future, growing a little bit above inflation, but seeing this trend of a stable cash flow and growing in a positive pace, but a step-by-step in some way. So then with that in mind, the occupancy cost in some ways has been stable, but we have been seeing very important figures in sales. Those sales, we need to also to remember that came in part from supermarkets and home improvement stores that actually having very high level of sales, but then those type of tenants also introduced in rents are mostly fixed. So in that sense, those in some way, are sales that not related with variable rent and then not pass to the revenues of the company.

Next, I will take a question from Nik, then Emilio, Marko and Jonathan. I also do see that some written questions have come in. So Nik from Morgan Stanley, I am unmuting you now.

Congratulations, Eduardo, Francisco, in your new roles. I look forward to working with you both in this capacity. And I'm confident that Parque Arauco will benefit from your stewardship. Also just in place, just so congrats on the numbers. Now 3 questions, if I may. First, I appreciate the color on multifamily and the Kennedy enhancements and it gives a really good sense of where you're going. My question is, how are you thinking about potentially selling assets as well? Rates, interest rates are quite different from where they used to be, and some of the country narratives in some of the markets where you're operating have changed quite a bit. So where does that fit on could you potentially sell assets, either sell out completely, decrease your weight as you have done in the past? How are you thinking about that in your new roles? So that's question number one. Question number two, very much one for you, Mr. Perez, can you give us an update on the status of any sort of stock-related remuneration for senior management? And finally, Francisco, one for you. Given the higher rates, the higher level of FX volatility, the information about how bad things can get, as we've just come out of this pandemic, how are you thinking about the leverage limits at the consolidated level in terms of FX match and at the asset level? How -- what -- if you can sort of share some of your thoughts about where you will sleep well at night, where you'll stop losing some sleep, how you're thinking about having good rules for your liability management?

Nik, thank you very much for your question. We clearly understood the first and third question, but not the second. Can you please repeat it?

Second question is very simple. What is the thinking around some level of start options or higher level of alignment between senior management and the value of the equity in the market?

Okay. Okay. Thank you, Nik, for the question. So regarding the first question, Parque Arauco is a company that has been very active in managing the balance sheet. And basically, what we have done after 3 follow-ons in between 2012 and 2022, several years ago, this is 2017, so 5 years ago, we decided to open a new way of financing the company, which is selling minority stakes of mature assets at conditions that are clearly accretive for the shareholders of the company. And thinking and considering that the risk return related to selling these minority stakes of mature assets. And after that, reinvesting that money in growth will be definitely a risk return balance that is positive for the shareholders of the company. So in that strategy, we sold minority stakes of mature assets in Chile in a very important transaction in the local market. And clearly, accretive conditions for the shareholders, that transaction was done at a 5% implied cap rate. And after that, we did a second important transaction in the market by selling minority stakes of mature assets in Colombia, also a very large deal at an implied cap rate of 7%. So to your question, we have further space for incorporating partners in some of our mature assets in Chile and Peru. And we continue to monitor the market conditions. And if we see a window of opportunity of selling minority stakes of mature assets are clearly, and I highlight, very clearly accretive conditions for the shareholders, we may do that transaction again in Peru or Chile. So we will continue to be active, Nik, at managing our balance sheet. Regarding the second question, so this is a company that has a long tradition of long-term incentive plans for the management of the company. And with the start of the pandemic, that long-term incentive plan was frozen and was not renewed. So this is something that we will -- we're actively discussing with the Board, and we may have some news related to this in the coming months.

Nik. Yes, I'd now pass it to the leverage question. As I said in the presentation, we reached this point of 5.5x. As a company, we feel comfortable in that level. We think that the sweet spot for Parque Arauco is to have this level of leverage. We know that there are other companies in the industry, mainly in Brazil or other companies in Chile that have lower levels of leverage. But if we see Brazil probably, the access to higher debt with higher durations is very limited. Parque Arauco has access to the market, the capital markets in Chile, Peru, Colombia. We have very good relationship with all banks in these countries. And with that, we cannot have access to debt with longer terms and very competitive rates. So that -- to say that we feel comfortable between 5.5x and we think that in the future, we will be moving around this figure. Also something that is important to take -- to see is this coverage of the financial debt or financial cost. As I said, we are reaching 3.67x and with that, we are also feeling comfortable that our EBITDA is covering the financial cost in a very good way. In the cash flow side, we are currently having a cash for $300 million. The next maturities for the debt for this year and the next one is around $150 million. So we think that if we are not having a large investment project, we are probably not having to have the necessity to increase our debt or go to the market to look for new debt in the short term. So in the cash flow part of the business, we are also quite comfortable. And the last thing that I think that is important, in Chile and in the region, in fact, we have been seeing increases of rates in long-term rates that we can have access of around 200 basis points, if we compare the rates today against to 2019. And in all of our evaluation of new projects, we are considering those rates. So when Eduardo was saying that we clearly see a value for the shareholders in this new project is with the current conditions. And that I think is also important to highlight.

And building, Nik, on Francisco's answer, Parque Arauco is a company that has importantly reached a duration risk of our balance sheet in the last years. Eight years ago, we had a duration of our liabilities of less than 3 years. Currently, we have a duration of our liabilities of almost 6 years, which is more or less the same duration of our contracts on the asset side of the balance sheet. So that's very important also in terms of what level of leverage we feel comfortable with. And building also on Francisco's answer regarding rates, our average implicit interest rate is 3.6%, which is much lower than other interest rates of other companies in our sector in some other countries in the region. Because of that, we have an EBITDA to financial expenses of 3.6, which is a very comfortable level, and a level that has some -- a lot of room for increases in financial expenses without any problems for the company. So we are very active in running scenarios of stress for the company. And in those scenarios, we have rent. We feel very comfortable with the 5.5, and we have decided that we can take that level up to 6 and no more than 6x temporarily, targeting always 5.5 in the medium term. We believe that having a net debt to EBITDA of less than 5 is not optimum for the shareholders of the company.

I will now take questions from Emilio from Santander.

Yes. Can you hear me?

Yes.

I would like to know about the cash management. You have around $300 million for the second quarter of this year. And I would like to know what your strategy on that [indiscernible] higher level of payout ratio? Do you expect potential M&A on the level -- considering the higher level of cap rates? So what is your view on that? So this is my first question.

Yes, yes, the matter -- we have discussed is coming from the higher level of cash that we have during the pandemic. Since then, we have been decreasing the level of cash. We think that -- so we are maintaining those cash in very conservative financial investment. But since the inflation has been so high in Chile mainly, we are having very high return in the investment of those cash in the financial market. But still that is also cash that is today available for the maturities of the contract that I said for this year and the next one. And also for new projects that we are very, very decisively evaluating with the team. As I said, we are starting, I think we are really starting our strategy of growing, so our development teams are looking for a lot of projects and working hard in order to continue growing the company.

So regarding dividends, that's really a decision of the Board of the company. But in a central scenario, I would expect that we will gradually reach the dividend levels that we had in the past in few years from now. That's a guideline I feel comfortable in giving you. But again, that's a decision of the Board of the company.

The second question is related to the potential slowdown in consumption that we expect for the second half of this year. So do you take a potential risk on lower level of occupancy from the tenant considering the lower variable side of the tenant? Do you expect a higher level of vacancy in that front?

No, in a central scenario, Emilio, no. So we will increase the occupancy gradually of the spaces left by [indiscernible] in Peru. We will gradually also commercialize Parque Alegra. And we see that our portfolio in general is a portfolio of dominant assets in their respective geographical areas, meaning the higher sales per square meter compared to competitors and implying a very healthy occupancy costs and very healthy sales per square meter level. And in that sense, the portfolio is in a very healthy condition, so I would not expect an increase in vacancy levels.

Yes, of course, but we are expecting a really tougher 2 years ahead in terms of consumption. So maybe it could be a risk.

Yes. So the vacancy question, Emilio, is always related to also at what conditions you rent the spaces, right? And so when you have tenant sales in average at the levels of our portfolio, that tenant sales our tenant sales that imply tenants with attractive economics in each of our spaces in average. And in that sense, I'm considering normal occupancy rates around 10%. It's really important to monitor the evolution of tenant sales, and tenant sales are increasing slightly above inflation, if you analyze in detail this last quarter. And because of that, I would expect contracts to renew at similar conditions in the present and slightly positive conditions in the near future and maintaining the occupancy levels.

And in regard to contract considering the high level of inflation in Chile and considering that you are indexes to the inflation, do you see a potential discount on tenant to offset the higher prices at least during this year?

So we're not seeing discounts currently. So I would expect similar conditions in Chile and Peru and better conditions in Colombia, in average, slightly better conditions. And to answer your question, no, we are not seeing important discounts because of the very healthy occupancy rates.

Great. I'll now pass the question over to Marko, followed by Jonathan. So Marko from LarrainVial, you're unmuted.

I have 2 quick ones. Have all the discounts been lifted yet? Or is there any discount still on the restaurant side or in the cinema side? That's the first one. And the second one, can you please provide us further color on the traffic? Have the traffic regained the levels seen in 2019? And how have conversion rates evolved throughout the last 2 years? I'm trying to figure out if the decline in traffic has been compensated with some sort of increase in the conversion rate. And if so, I would like to understand if you see feasible this trend to remain in the long term?

Yes. Well, thank you, Marko, for the questions. Regarding the discounts, we are not having discounts today related with the pandemic or something related with that. A movie theater [indiscernible], but they're increasing the sales and rents, and we are not considering discounts related with the pandemic today. So in some ways, we -- as a company, we left behind the pandemic measures that we took during those years. And regarding the traffic question, in fact, we have been seeing a lower level of traffic than we had before the pandemic. But also, we have been seeing a different trend. Before the pandemic, we had very -- we had some peaks of the traffic at the end of the day and during the weekends. Today, it's more flat during the day. So we have troughed a higher level of traffic that is stable during the day. And with that, the conversion rate that you were mentioned, is also high. What I think about that is that probably the people that is coming to the mall [indiscernible] buy and so then even when maybe the traffic is slower, the people that is coming, is coming with the decision of purchase [indiscernible].

Marko, more color on that question. So the traffic is between 80% and 90% of what we had before the pandemic, depending on demand in the last month. And opening that into countries, that means lower traffic in Chile and Peru and higher traffic in Colombia than the levels we had before the start of the pandemic.

That's great. And since you provided some figures on the traffic in Chile and Peru, could you please provide us some color in the conversion rates? Just to know -- just to have some sort of proportion in our minds and to estimate this decline in the traffic that has been compensated with higher conversion rate?

Yes, yes. That's correct. In fact, the conversion rate has been increasing since the traffic has been dropping to 80% to 90%, the conversion rate then is increasing since we see at the end increases in sales. And that is a trend that started at the middle of the pandemic when we started to open our malls, and it has continued. As of today, we have been seeing the same -- that same trend. So we think that maybe it's something that we will continue to see in the future.

And finally, Jonathan from JPMorgan. Thank you very much for your patience. You are now unmuted.

Can you hear me well?

Yes. We can hear you.

Yes.

Great. So quick question on my side. Just looking at your P&L, I noticed that the lower -- much lower tax expenses this quarter when you remove the deferred taxes. So I was wondering why -- what led to this very low effective tax rate?

Yes. Regarding the deferred taxes, that is related with the adjustment of the fair value that we made this quarter. As I said, if you see the financial statements, the income statement. You can see that in other gains, we have a higher value of $52 billion -- sorry, CLP 52 billion. And that adjustment is related with the higher deferred taxes of CLP 12 billion. So if you took aside the effect of the fair value adjustment, the current taxes and the deferred taxes would be similar to those that you can see in the second quarter of 2021.

And then finally, there are a few written questions that came in. One of them is what is the reason for the asset revaluation of [indiscernible]? Will we see the revaluation in other quarters? And do you see any regulatory risk in Chile due to the new constitution?

Yes. Okay. Regarding the -- yes. In Parque Arauco, we usually had this fair value adjustment at the end of the year. But IFRS, the financial IFRS says that the fair value of the company should be adjusted every time that you see in the market important changes that affect the value of your assets. So since in Chile, Peru, Colombia, we have been seeing a higher level of inflation. We know that the value of our assets should be adjusted in the middle of the year. And this is something that we [indiscernible] exceptionally. And it might be repeated in the future if we see that the market indicators also change and then it's reasonable then to make a new adjustment. But that is the main reason, is because of the inflation and following IFRS in our books. And yes, regarding the...

Regarding the constitution, that's a difficult question to answer. I would say that we don't see a risk at a micro level in our sector. But of course, we see a risk at a macro level country-wise. The discussion of the constitution is affecting a lot of the macroeconomic variables, and those variables, of course, affect our business. If the constitution discussion effects FX and that affects inflation and that affects interest rates, at the end, the interest rates will affect our business. So not -- we do not see a specific risk related to our sector, but of course, we do see macro risk related to the country.

Thank you very much, everyone, for joining the call this morning. Thank you for your time, and a special thank you to Francisco and Eduardo for joining us today. If you have any additional questions, please don't hesitate to send me an e-mail or give me a call, and we look forward to hearing you on the next conference call when we present the third quarter results. Have a great day, everyone.