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 2026 Earnings Call. I'm Lauren Brown, Head of Investor Relations, and I am joined by Eduardo Perez Marchant, CEO of Parque Arauco, and Francisco Moyano, the CFO. 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. 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 closed the second quarter of 2026 with outstanding operational and financial performance, reaffirming the resilience of our core business in all the 3 markets where we operate and demonstrating the strong execution across our strategic growth initiatives. First, I would like to highlight our financial results of the quarter. Regarding revenues, we closed the period reaching CLP 104 billion in revenues, a 17.9% increase compared to the second quarter of 2025. At the same time, the EBITDA expanded by an important 15.8%, reaching CLP 75 billion. One key element of the quarter is that our adjusted EBITDA margin reached 77.6%, our highest margin for a second quarter in Parque Arauco's history, reflecting that the effect of our efficiency programs are having the results expected in the company. By country, the EBITDA measured in Chilean pesos maintained positive momentum, increasing 8.2% in Chile, 21.9% in Peru, 28.1% in Colombia. These results were driven primarily by the revenue growth in local currencies with revenues in Chilean pesos growing 15.6% in Chile, 18.1% in Peru and a relevant 24.4% in Colombia. The operating strength is then translated into a 10.5% increase in FFO, reaching CLP 57 billion, while the net income attributable to controlling interest reached CLP 18 billion, decreasing 30.8% in the quarter. This decrease is mainly associated with the effect of the readjusting process of our liabilities denominated in U.S., effected -- affected by higher inflation in the period, as I will explain in detail in this presentation. Regarding our growth pillar, I am pleased to highlight that in June, we successfully completed our capital increase. We fully placed 100% of the market portion of this follow-on with a subscription of 75.8 million shares and raising CLP 274 billion, which is approximately $300 million. These funds significantly strengthen our balance sheet to fund our strategic pipeline as it allow us to reduce our net debt-to-EBITDA ratio to 4.5x, placing us below our 5x to 6x range target and providing us an important financial flexibility to continue in this growth path. In this line, we recently announced the agreement to acquire 100% of Mall Paseo Quilin in Santiago, Chile. With an enterprise value of $119 million, we will be adding 47,000 square meters of GLA to our portfolio. The asset is also built in a 100,000 square meters plot of land with significant long-term expansion potential, which makes this transaction even more attractive. With this announcement, our regional investment pipeline is reaching $1.1 billion with $500 million remaining to invest. Beyond financial results, we continue to reinforce our regional leadership in sustainability. Scoring 77 points out of 100, Parque Arauco was selected as one of the only 2 Latin American real estate companies in the prestigious Dow Jones Best-in-Class Chile and MILA 2026 Indices. With that, I would like to review some pages of our earnings report. First, regarding the tenant sales. The growth in the quarter is 12.6%. And as we see in this -- in the presentation, we have an increase in sales in Chile of 2.6%, in Peru of 27.7% in Chilean pesos, which is 26.1% in local currency. And in Colombia, 19.9% in Chilean pesos, which is 8.5% in local currency. In the quarter, we have an important effect, exchange rate from Colombian pesos to Chilean pesos, and this is why the growth in Colombia, coming from Colombia to Chile is very important this quarter. But even then if we review the same area sales, we can see that Chile is around flat with the same area sales decreasing 2.2%, while Peru is growing 8.9% and Colombia, 8.2%. Regarding Chile, the reason of this negative effect in comparison with Peru and Colombia is a diminishing effect that we are having from tourism coming from Argentina during this year in comparison with what we had in 2025. However, at the same time, you can review that in Arauco Maipu, for example, the growth in total sales is a positive 5%. And also Outlets, which received last year, a lot of Argentinians is growing this quarter 1.3%. So with that, in our analysis, we are seeing that the effect of Argentina is decreasing and will continue to decrease during this year probably, what will be offset by the coming of Brazilian tourism in this winter. Also, I would like to highlight the diversification that we have in Parque Arauco. While we are seeing Chile being more flat or more stable, we are seeing a very positive scenario in Peru and Colombia. We -- as you know, we have around 50% of our business outside Chile. So the diversification effect in our financial results is very important, and we can take advantage of this effect in the operation. Now back to revenues. Revenues are growing 17.9%. So -- and this 17.9% is also shown in all 3 countries, with Chile growing 15.6%, Peru, 18.1%, and Colombia, 24.4%. Colombia in local currencies, 11.3%. So Chile and Peru are growing faster than Colombian revenues. And you can see also very positive same area rent with Chile and Peru growing (sic) [ Chile growing ] 3.8% and Peru, 3%, while Colombia, 13%. This same area rent is in local currency. And also to mention the high occupancy that we're seeing very stable in all 3 countries, with Chile in 97%, Peru, 96%, and Colombia, 93%. This high occupancy in the whole portfolio is around 94%. Also, I would like to highlight regarding revenues that the participation of parking and other rents is growing this year. Parking is representing today almost 6%, while if you review the report of last year was representing 5%. So this growth from 5% to 6% in parking is also part of our strategy and very important in the growth of the results in Parque Arauco. Now passing to the EBITDA. Just to mention that the EBITDA is growing 15.8% and is also very positive all across the board in Chile, Peru and Colombia. Important growth coming from Peru of 21% and Colombia, 28%. Chile, very positive also with 8.2%, also mention again the diversification effect. And this is also the result of this high margin that I mentioned at the beginning of the call. The adjusted EBITDA margin is 77.6% this quarter. If you can see in the chart in the left part of the slide, you can see that the history of the EBITDA margin is only growing and reaching this 77%. Last year was 76%, and in the last 12 months of 2025, also 75%. So this is showing how all the cost efficiencies that is getting Parque Arauco with all the initiatives that we have been deploying in the last year are producing results in the financial of the company. Now passing to the consolidated results to review the nonoperational part. So we are having a very positive operational result with the EBITDA growing 15.8%. And then the net profit is decreasing 23% and for the equity holders is decreasing 30.8%. So as I mentioned, the first and most important effect this quarter is the effect that the inflation is having on our liabilities. As you know, the liabilities in Parque Arauco are denominated in UF mainly, and also the biggest part of liabilities is in Chile, denominated in UF. And we adjust then these liabilities in a quarterly basis, while the assets that are also related with the inflation are readjusted by the fair value adjustment that we made only at the end of the year. So we have the negative effect of the readjustment of the liabilities every quarter, while at the end of the year, we should have a more positive effect from the readjustment of the assets by the fair value that should offset all these effects. And the inflation in the period is represented in the financial statement by the change in the UF. Last year, the UF change, CLP 373, while this quarter, change, CLP 979. So we have 3x the effect of the change in UF in the liabilities then represented in the income or loss from indexed assets and liabilities and increasing this effect in comparison with last quarter by 103%. But as I mentioned, this should be offset at the end of this year with the adjustment of the fair value of our assets. At the same time, we are having a higher financial expense of 28.5%. This is, in fact, coming from the growth of the company. In the liabilities in this year, we also have a new debt coming from the acquisition of Minka. We also increased our liabilities with the investment in Arauco Chicureo. But at the same time, we took some debt during the second quarter that was only -- that was repaid with the capital increase. So it was a onetime effect in the second quarter of '26 that with higher liabilities that will not continue in our balance sheet. From the 28.5% that is growing the financial expense, from that 28%, 5% is in these liabilities that were taking only to wait for the capital increase and then was we paid. Then we are having higher interest cost in Colombia, where the treasury rate is still high in that country and higher this year than the last year. And that is also representing an important part of this growth in financial expense. Besides that, the income coming from affiliates is also decreasing 43%. And for that, I would like to pass to the next page, because the most important part of this income from affiliates is coming from Grupo Marina, the specific companies, Inmobiliaria Mall Vina del Mar. And as you can see in the chart, the revenues of Grupo Marina is growing 4.5%. This Grupo Marina owns 4 malls in Chile. And the proportional EBITDA is also growing 7.8% and then the profit is decreasing 46%. So being in Chile with liabilities denominated in UF is having the same effect that we have in Parque Arauco of a higher negative effect from the readjustment of the liabilities. And because of that, the proportional EBITDA is changing from a positive 7.8% to a negative 46.2%. In the following page, we have -- I would like to mention the FFO that is growing 10.5%. This 10.5% is below the EBITDA that is growing 15.8% because of the financial expenses that I already explained, but also some -- the current taxes that is also increasing. But in our calculation, the effective tax rate this quarter is higher than the average that the company should have in the future. It's 27% this quarter, while in the -- should be stabilized in around 24%. With that, the FFO is growing 10.5%. And I would like to highlight the chart that you can see below in the slide, where the CAGR of the FFO is an impressive 22% in the last 5 years. It's coming from 10.8% in the last 10 years, but the speed of growth of the FFO is -- grew from the pandemic and reaching this 22%. With that, I would like to pass the call to Lauren to more detail.

Thank you very much, Francisco. Let's now turn to the performance of our retail assets in Chile during the second quarter of 2026. Despite the flat growth in tenant sales, revenue in Chile grew over 15% compared to second quarter of 2025, while EBITDA increased over 8%. In Parque Arauco Kennedy, this iconic asset continues to evolve. The West building saw over 22% increase in revenue and over 11% in NOI as a result of the recent openings of the Cerro Colorado sector throughout the last quarters, including the new 2-level food court, which was recently inaugurated. As a result of increasing the GLA at this asset, we did experience a slight dip in the occupancy to 97.7% as some of the spaces are still in the leasing process. At Arauco Maipu, this asset shows a solid 5% increase in sales, as Francisco mentioned. You may also notice over a 1,000 square meter decrease in GLA. This is due to a strategic move as we are reconverting the former Coronel intermediate store into a mix of smaller store formats, which are currently under reconstruction. This, in turn, reduces the overall GLA but makes the space more profitable. At Arauco Quilicura, this was a standout performer with an over 16% increase in NOI. This success was driven by an increase of over 10% in sales and 12% increase in revenue, largely leveraged by the strategic arrival of the Lider Express to the retail mix, which has driven more traffic to the mall and increased tenant performance. At Arauco Chillan, while the revenues grew over 11%, tenant sales saw a 3% decline. This is specifically due to work taking place on one of the mall's entrances, which led to a relevant drop in car flow that we expect to normalize as the project progresses. Moving on to Peru. Our operation in Peru delivered positive results with revenues up 16% in local currency and EBITDA growing over 21%. At MegaPlaza Independencia, our main asset in Peru maintained strong with its commercial momentum growing over 7% increase in sales. We also activated 4,500 square meters of new GLA located predominantly in the new gastronomic area. While not yet fully occupied, we expect a progressive opening of these new spaces throughout the third quarter. And this gastronomic district has a capacity for 26 tenants, some of which have begun operation. And the official inauguration of this new district will be held in September. At MegaPlaza Ica, sales grew over 22%, driven by strong performance in the department stores, including Falabella and Ripley and also the home improvement store, Maestro. As part of the master plan reconversion, 3,000 square meters of GLA opened at Ica compared to the second quarter of the previous year, of which over 2,000 square meters are occupied, including the majority of the new Boulevard District. And during the second quarter of 2026, new restaurants, including Dunkin', Chili's and Platanitos opened. The official inauguration of the Boulevard District was held on May 4 and was well received. You may also notice that revenues and NOI were lower than last year at MegaPlaza Ica, but this is purely a base effect because in second quarter of 2025, there was a reported significant nonrecurring revenue, which affected the base. At Minka, like last quarter, Minka continues to perform above our expectations, becoming one of the most important assets in our Peruvian portfolio. And at Larcomar, this asset experienced growth with sales up over 18% and NOI over 70%. This performance was partly boosted by the base effect from a temporary closure that occurred in June of 2025. Moving over to Colombia. Colombia experienced consistent growth this quarter with sales over 8% above the second quarter of last year and revenues increasing over 11%. In Parque La Colina, performance remains solid with over 7% sales growth. At this asset, we added 1,500 square meters of GLA by creatively transforming parking -- by creatively transforming parking areas into commercial space for high-demand tenants like Action Black and Pepe Ganga. And at Parque Alegra, this asset continues to mature well with revenues over 23% and NOI over 53%. This growth was driven by higher common area income, energy distribution adjustments and the reversal of 2025 provisions. At Titan Plaza, sales in Colombia were further leveraged by the positive performance of this asset, where sales grew over 15% and NOI increased over 18%. Lastly, in Colombia, Parque Caracoli, sales grew over 7% and revenues and NOI were flat. This was impacted by the closure of Lili Pink and Yoi stores. This is a trend seen across the country due to an external regulatory issues of this tenant. Now moving on to development on Page 24. On this page, we highlight our historic investment pipeline, which has reached over USD 1.14 billion, divided between new shopping centers, expansions and multifamilies. In our new mall category, since our last conference call, we signed the MOU to acquire Mall Paseo Quilin in Santiago for approximately USD 119 million, adding 47,000 square meters of GLA with a long-term expansion potential, as Francisco mentioned. Additionally, Arauco Chicureo is well advanced with Homecenter and Lider expected to open in fourth quarter of 2026. In the expansion section, the Cerro Colorado Phase of Parque Arauco Kennedy is on track with the office tower scheduled for 2027. And in Peru, we are progressing with the gastronomic district of MegaPlaza Independencia to replace the current food court, as I mentioned previously. And in the multifamily category, we now have over 50,000 square meters in our multifamily pipeline. This past quarter, LiveSpace Ciudad del Rio in Medellin opened, and we recently announced the acquisition of the San Joaquin project in Santiago, which will add 271 units. Now let me jump over to our case study pages found on Page 36, where we are advancing with our digital ecosystem as part of our digital transformation. And this past quarter, we successfully launched the new Parque Arauco Kennedy app. And in just its first weeks, it recorded over 70,000 sessions and 23,000 installations. The app focuses on a ticketless digital parking experience and redesigning the interactive maps. This app, AraucoPlus, will eventually be expanded to other assets as well. In addition, we also launched over 40 new websites for our main portfolio assets and our new corporate website will be rolling out later this year. Marketing. Our marketing strategy has been focused on memorable experiences. And in Chile, the Bluey's Backyard campaign captured over 28,000 new data records for loyalty strategies. And in Colombia, the football campaign drew over 463,000 visitors in June alone with election days driving a record-breaking traffic of 76,000 visitors to Parque La Colina. And as Francisco mentioned, on our sustainability page, we are very proud to be one of the only 2 real estate companies in Latin America selected for the Dow Jones Best-in-Class Chile and the MILA 2026 Indices. Furthermore, Parque La Colina achieved LEED Platinum O&M (sic) [ O+M ] recertification, the first asset in our regional portfolio to reach this highest possible category.

And now we are going to pass over to the questions part of this call. [Operator Instructions] And to start off today's discussion, I'm going to pass the call over to our CEO of Parque Arauco, Eduardo Perez Marchant, and he will be answering our questions. And right now, the first question I see is from Jorel from Goldman Sachs. Jorel, can you hear me?

Yes.

Great. We can hear you as well.

Yes. So I have 2 questions here. So the first one, I wanted to talk about Chile same area sales. We saw that this first half was a bit challenging with negative same area sales growth. Part of that is driven by tough comps. Just want to get a sense though, what is your expectation for the second half of the year as that tough comp eases a bit? And then the second question I had was on Parque Arauco Kennedy East. If I look at the NOI margins there, they're around 70% compared to Parque Arauco Kennedy West, which is around 95%. So the pretty wide NOI margin gap. I want to understand how do you think about that? Is there a path to narrow it? How does it happen? I think if I remember correctly, you've spoken in the past about perhaps changing tenants, cost efficiencies. So I wanted to understand what is the dynamic there.

Jorel, Eduardo here. So regarding Chile same area sales, I would say that the main effect that explains the negative same area sales are Argentinians. And you can clearly see this when you divide the assets where we have Argentinians visiting the assets, such as Parque Arauco Kennedy and the Outlet and the rest of the portfolio. In the case of the first group, the sales decreased at a double digit, 11%, 12% levels. And the rest of the portfolio of assets that -- where we don't have Argentinians, the sales decreased approximately at a 2% level. So this is why I say it's very clear that the main impact that explains the negative same area sales are Argentinians. But that, of course, is not the only effect. The sales are also impacted by local consumption, but it's clearly a second explanation and much less important explanation that explains the negative same area sales. Going forward, we expect, as you mentioned, the base changes during the second half of last year, we didn't have many Argentinians, and because of that, I would expect a more positive scenario, flat sales or even slightly positive sales is what we expect. And regarding the second question, we have been working a lot in taking control of the asset of the former Open Plaza Kennedy or current East building of Parque Arauco. First of all, we are working at a project level in improving the infrastructure of the asset. This has not yet started, but we have been heavy working on this. Also, we are working in balancing properly the commercial mix of both assets. We -- here, again, we haven't done many changes, but we have clear plans for the future regarding this. Finally, we are working in further connecting both assets and improving the connectivity of both assets, and we expect next year to have news regarding this. Also in this process of taking control, we did a change of brands, all the branding related to the asset. We standardized the parking prices also. And of course, we did a deep analysis regarding OpEx and cost and how we would manage the assets from a security, maintenance and cleaning point of view. And we found several opportunities, both at the revenue level in operating the assets, for example, parking and also at the OpEx level. And this is why as a guideline, we have said that this 6.9% cap rate that we showed when we acquired the asset, we expect this will be more than 8% cap rate going forward as you are seeing this in the asset. I would say, Jorel, that the main difference in the NOI margin is explained by the fact that from an OpEx point of view, the middle managers of these contracts, such as security, maintenance and cleaning are still in the -- it's really one asset in our mind. But from a cost point of view, we are still in the West building. And so these same jefaturas or heads of maintenance, cleaning and security are the same heads that are now taking care of the Eastern building. This is why you see the difference. But really, we see the asset as one asset.

And now I will be unmuting [ Allen ] from Bank of America. Allen, can you hear me?

Just a question on your deployment of the equity follow-on proceeds. Congrats on the announced acquisition. Should we be thinking -- what should we be thinking of time frame for the deployment of these equity follow-on proceeds?

Thank you, Allen, for the question. So during the process of road show of this follow-on, we explained that after this follow-on, we expect to change the CapEx capacity of the company from approximately USD 200 million to USD 300 million. And we explained that approximately half of this CapEx for the next years, we expect to invest it in brownfield investments or the expansion of our main and more successful assets. We have communicated some of these expansions, but not all. And gradually, we will announce new investments for all new phases of some of the assets we are currently working in or new assets being expanded in the next years. This is approximately half. And then we are investing another 30% to 40% in new malls. That is for the last years, at least has been more towards the M&A side than the greenfield side. We expect in a central scenario to continue -- this to continue to be the case. So this 30% to 40% additional, again, invested more in M&A than greenfield and then a 10% to 20% invested in multifamily as we have been gradually investing in the last 4 years. So we will gradually announce new projects. To answer your question, Allen, during the [indiscernible], we announced -- we updated our expansion plan, and we announced project of approximately USD 300 million during this second quarter. This happened relatively a few months ago, and you should expect this to continue to happen in the next cycle.

And I guess the deployment could be much faster than expected if you are able to do more M&A, right? And do you see conditions for this to happen quickly or not?

So we have been very active in the past in the M&A market. We have closed 20 deals in the last few years, both considering acquisitions and also selling of minority stake in mature assets. However, we have business in relatively small and illiquid markets. So it's very difficult to give you a guideline related to that. But when you analyze long periods of time, you will clearly see that there is a consolidation trend in the market of less companies representing a higher market share each. And Parque Arauco has been the leading company taking advantage of that trend in the 3 countries where we have business. So in a central scenario, I would expect that to continue, but it's very difficult to give you a guideline related to the win because we have business in small and illiquid markets.