Plaza S.A. (MALLPLAZA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Mall Plaza First Quarter 2023 Earnings Conference Call. [Operator Instructions] And be advised that today's conference is being recorded. In today's program, we will have Derek Tan, Economist from Michigan University and who concluded the program for leadership development at Harvard University. Derek assume as MallPlaza's CFO during April 2023. With more than 15 years of professional experience in real estate, Derek developed his career in Corporate Finance, Investor Relations, M&A and Capital Markets. Prior to joining MallPlaza, Derek serve as Investing Manager of Real Estate at JPJ and as a corporate finance procurement, M&A and Investor Relations Director at BR Mall. With that, it is my pleasure to welcome and to hand the over to Mr. Derek Tang. The floor is yours.

Greetings, and welcome to Mall Plaza Earnings Conference Call. Thank you for joining us this morning. I'm here today with Fernando de Pena Iver, our CEO; and the only Latin American member of the Board of Trustees of the ICSC. Also with us is the Investor Relations team represented by [indiscernible] We are pleased to introduce the company's earnings results for the first quarter of 2023. First, we will initiate the call with a brief overview of the company's results. Second, we will highlight strategic remarks regarding the quarter. And as usual, at the end, we will open up for a Q&A session. We started the year with solid operational results, anchored by the performance of our premium portfolio of 25 urban centers, an elevated visitor footfall and resilient tenant sales despite a lesser dynamism and consumption, which led to higher levels of EBITDA and FFO. And Operational indicators demonstrated a good performance in line with the renewed and attractive commercial proposal proposition, which is boosted by the continued interest from business partners to be part of our commercial offer. This refresh proposal is validated with a record 2022 in terms of openings with more than 600 new stores, including solid retail brands and an innovative entertainment and [ F&B ] offering, we're enforcing our value proposal to our consumer. All of the mentioned above, in addition to our omnichannel initiatives, which generates additional footfall to our urban centers, allowed us to reach visitors for a fall of $69 million during the first quarter, with growing 11% compared to the first quarter of 2022 with growth in 3 countries. In terms of the occupancy rate, we ended the first quarter with 95%, in line with historical levels of the company. Sales of our tenants during the quarter grew 2% regionally, reaching CLP 1 billion and maintaining a healthy occupancy cost of close to historical levels. This demonstrates the resilience of our portfolio compared, for example, to the broader market in Chile, which showed a decrease in general retail sales of 16%, while MallPlaza's country sales remained flat. Quarterly revenues increased by 11% year-over-year for the quarter, boosted by reforce and refreshed commercial proposal, an increment of leased meters, which increased our occupancy levels from 93% to 95%, renewal of lease contracts with a positive lease spread and higher inflation regionally. All in all, revenues reached CLP 99.9 billion during the quarter, with same-store rent showing nominal growth of 15% for the quarter and 30% for the last 12 months. Costs increased by 12% year-over-year, mainly because of higher expenses and contributions associated with the 2022 revaluation, cost of energy and U.S. variation. Administrative expenses decreased by 1% year-over-year due to lower bad debt provisions but offset by higher remunerations explained mainly by one-off severance payments in line with an optimization plan aiming for a simpler and more flexible structure, which will help us to continue to achieve more efficiencies in the upcoming quarters. EBITDA increased by 10% compared to the first quarter of 2022, mainly due to positive renewal spreads, higher income for better occupancy levels and higher inflation. The EBITDA margin was 75%, close to our historical levels as a result of efficiencies achieved through innovation and incorporation of new technologies, processes and infrastructure. Net income increased 48% year-over-year for the quarter, and our adjusted FFO increased 16% compared to the first quarter of 2022 with an FFO margin for the quarter of 62%, in line with normal levels of operation. Now I am pleased to turn the table to Fernando, who will share important strategic remarks.

Thank you, Derek. As MallPlaza, we continue to roll out our strategy of transforming and consolidation of our urban centers into true city centers, reinforcing our commercial offering for consumers with better retail partners and strongly pushing to include innovative entertainment and [indiscernible] proposals. -- with the goal of promoting on centers as spaces or preferred destination, socialization and amusement. The good operational and financial results that Derek mentioned are just a consequence of the successful consolidation of this strategy. In that line, it is important to mention the consolidation of our assets into a high-quality portfolio in the region as reflected by our top 10 leader urban centers, which are TIER A assets and represent approximately 64% of the company's EBITDA. This asset generates a higher return on investment and present a strong competitive position, a high flow of basic growth and high productivity of leasable area. Example of our TIER A assets are Mallplaza in Chile and Mallplaza and QS in Colombia, which have had significant transformation in their commercial offering with solid results. The first one, one of our flagship Vespucio centers with 167,000 square meters of GLA has gone through a complete renewal, adding their retail brands, innovative and unique entertainment proposals, high-value restaurant and mixed-use areas, which has allowed the Vespucio to reach the highest foodhall and being able to double its sales in entertainment and gastronomy. We will continue the transformation of this center during this year with more than 120 new F&B proposals, including the opening of El Mercado, the opening of the renovated and integrated Autoplaza, and we will begin the construction of the first multifamily residential project. In the case of NQS we have developed a complete transformation since it was acquired in 2020, becoming a leading shopping center in Bogota. This transformation has resulted, for example, in Foodhall increasing 3x in less than 2 years, exceeding 1 million per month. Sales of our tenants have also increased with a significant results, such as the improved gastronomy proposal with an 81% sales growth during 2022. -- doubling the sales of the main brands in this category. In addition, improvements in the sports segment where same-store sales in 2022 were up 28% compared to 2021, supported by a new brand of this segment. All of these allow NQS to triple its tenant average sales per square meter during this last quarter. New proposals will continue during 2023 with the opening of the first IT in Colombia, the expansion of the Homecenter store sector in addition to arrival of high-value offerings such as H&M and Arturo Calle. These are just a few examples of our ambitious growth and developing strategy for 2023, which is anchored by reinforcing with a great piece of opening and the addition of strong partnerships with the high-value brands. In that line, we continued the trend of 2022, seeing increasing interest from different brands to be part of our solid commercial offer. If during 2022, we had a record year in terms of new opening with 600 new stores. This year, we have the ambitious plan of opening an additional 600 new stores. We started this first quarter in good shape, more than doubling the total number of stores opened during the same period in 2022. In second place, we continue to work together with our business partners to adjust the size of some department stores. At the end of the first quarter, we have already reduced nearly 8,000 square meters of this category in the last 3 years, which represent 20% of the total square meters that department store represent. These spaces that were occupied mainly by La Polar and Johnson in Chile, Paris in Peru and La 14 in Colombia, where we converted and these 2 attractive and important brands such as H&M, IKEA store retailers such as CasaIdeas and Tricot, in addition to new convenience daily traffic and entertainment proposals. Now I turn back to Derek for his final remarks.

Thank you, Fernando. I would like to share some key highlights of the e Nuevos Desarrollos transaction. During the first quarter, Mall Plaza acquired 22.5% of e Nuevos Desarrollos, increasing the ownership to an 100% stake in the company. This transaction goes in line with the company's strategy to lead assets in their respective markets that present growth potential. The acquired portfolio represents an attractive opportunity as it consists of assets that are still maturing. This provides us with the ability to strengthen the commercial offering of each urban center in the future and improve average rents. The transaction, which represented approximately 6% of the company's [ Shale ] was concluded in a timely manner given the overall context of higher rates in the market. In terms of returns, Nuevos Desarrollos currently possesses a combined land bank of approximately $100 million -- taking this into account and the full NOI of Nuevos Desarrollos assets, the transaction's cap rate was 7.9%. This concludes our presentation, and we're now ready for questions, and we'll start the Q&A session.

[Operator Instructions] One moment for our first question, Marcelo Garaldi Motta with JPMorgan.

Welcome number. So basically 2 quick questions. I mean the first one is just the company could provide more details about multifamily project and tyomaken alternation during the presentation that the will be [indiscernible] . So just wondering what type of details can you share with us? And the second question is regarding the outlook for the rest of the year. I mean we also have been seeing that [indiscernible] y in Chile has been performed outperforming the overall retail in Chile, but just wondering when you look at the evolution throughout the year if you do expect this trend to continue. Thank you very much.