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

Good day, and thank you for standing by. Welcome to the Mallplaza webinar. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the CFO, Derek Tang. Please go ahead.

Greetings, and thank you for joining us this morning in this webinar in which we will discuss and provide some more details about the acquisition of Mallplaza Peru and Open Plaza, Peru. I'm here today with Fernando de Pena, our CEO; and the only Latin American member of the Board of Trustees of the ICSC. Also with us is Amando Dusad, our Portfolio Management Manager; and the Investor Relations team represented by Sebastián Macchiavello and Matthias [indiscernible]. First, we'll begin with an overview of the assets involved in the transaction. Second, we will present the merits and rationale for the deal. Third, we will discuss a brief summary of the transaction itself, including the valuation and funding considerations. And lastly, we will present what are the next steps involved in the transaction. Now I turn the table to Fernando.

Thanks Derek. As you know, at the end of 2023, Plaza- Falabella signed an [errand] of understanding, that consisted in the acquisition by transfer of 63.7% of Mallplaza Peru and 100% of Open Plaza Peru. Involving 15 Peruvian assets in this transaction as announced yesterday to the market the transaction was approved and signed by both companies. This transaction will allow Plaza to consolidate the operation of Mallplaza Peru, which consists of 15 assets with an available land for growth. Before that we currently operate Mallplaza Trujillo, Bellavista, Arequipa and Comas, and the 11 Open Plaza Peru assets. The transaction will be executed with a tender offer for up to 100% of Falabella Peru, SAA for the amount of approximately $589 million in equity value. Among the main benefits for Plaza with this deal, we can mention the synergies of the combination of 2 real estate data forms into one. Efficiencies in terms of scale and appreciation of high-quality assets with low execution risk and significant potential growth. This will allow us to improve our geographic diversification and resource position as a real estate reference in Latin America and the others region. Turning to Page 4. We can see with more detail the assets involved in these transactions. As you can see, specifically in the 11 assets of Open Plaza Peru, there are 4 more in the city of Lima and 7 in different departments in Center and North in Peru. The 11 assets of an average GLA of 30,000 square meters in addition to larger stores such as Falabella, Sodimac and Tottus. This, in addition to the [indiscernible] Plaza Peru assets more that we currently operate, including [ Mallplaza ], 1 of our 10 PRA malls. There are a few possibilities in the region to execute an M&A on this magnitude in real estate, even more with the portfolio of assets that we already widely known as Mallplaza Peru. As you can see in Slide 7, this acquisition will allow Plaza to turn into the biggest commercial real estate operator in South America in terms of GLA, consolidating our presence with a leadership position in the region. This is a key element for both commercial and partners and investors. Our Plaza continues to be a reference for brands looking for expanded business to enter in the Andes region in addition to being a reference in LatAm for investors looking for exposure in the real estate market. Through the transaction, Plaza will consolidate its presence in the Peruvian market. As you can see in the graph of Page 8, with the acquisition, Plaza will have a portfolio with 619000 square meters of GLA in Peru, positioning itself as the second largest shopping center company in the country and consolidating its leadership in the Andes region. Besides the increase in consolidated square meters Plaza will began to incorporate the EBITDA of the Peruvian operation into CRL which would result in a much more diversified operation in terms of geographic presence. As you can see in the graph on Page 9, the execution of this operation will result in increase of more than 20% in terms of EBITDA compared to 2023 going from $367 million to $448 million. This change will also lead to a significant reduction in the company's EBITDA exposure to Chilean market, decreasing from 92% to 75% while Peru will experience a notable increase going from 0 to 18%. This diversification will also have an impact in terms of consolidated GLA with Peru going from 0% to 37%. In addition, it will lead to a decrease in the GLA exposure to Chile from 88% to 64%, reaching almost 2.3 million consolidated square meters, an increase of 37%. This enhances Mallplaza ability to be a relevant [buy group] for international investors with an [indiscernible] for the Andes region real estate offering and diversifying portfolio in key countries in the region. Turning to Page 10. It is important to highlight the significant opportunity for Plaza with the acquisition of a portfolio of assets with excellent location and high growth potential and expansion plans in development. We have made extensive analysis on the asset-by-asset basis involving the transaction, we have defined significant growth opportunities. As presented in the graph through various projects in the different margin board, we have identified opportunities for improvement in the mix and increase in GLA by approximately 100,000 square meters in the next 5 years in Mallplaza Peru. These increases include projects in business malls such as Arequipa, Trujillo, Angamos, Atocongo and Piura. In terms of potential synergies to Plaza, the Mallplaza platform in Peru will increase its value and become a benchmark in shopping centers in the country, increasing the number of visits. In addition to becoming the gateway for the main international brands to the Andes region. This is in addition to all the operational synergies that this transaction will create. Turning to Page 12. In terms of the valuation, it is important to mention that this transaction will carry out within the framework of the [indiscernible] as part of our related parties operation. The extensive due diligence was carried out for more than 4 months and include tax, financial, legal, commercial, property and technical due diligence among others. A fairly related market transaction, this transaction was carried out at the fair market price. Negotiation between Plaza and Falabella were made in conjunction with independent advice with JPMorgan acting as an exclusive final adviser to Plaza in the transaction and [indiscernible] advise for [indiscernible]. Being a related market transaction, both Plaza and Falabella replaced a Fairness Opinion that was prepared by international financial advisers. JP morgan delivered a Fairness Opinion to the Board of Plaza, via Bank in Peru to the Board of Falabella. As a result of the operation, the resulted enterprise value resulted in $147 million which translated into the implied EBITDA of 9.9x, considering the estimated EBITDA for 2024. Plaza will launch a tender offer to purchase 100% of Falabella Peru SARR based on the valuation of the assets and equity values approximately $589 million of defined for the tender offer. For Plaza, the question of some assets in operation already operated by Mallplaza and third market base. This is a good transaction. As we already know very well but we are buying in addition to understand its future potential. With respect to Open Plaza in Peru, there are assets in which we see transformation potential. Which will allow us to execute a growth plan in Peru with lower risk as we will start from a base of assets that are known to us and that offer growth potential. The company has an important growth plan in Peru, but is expected to increase the current GLA by around 100,000 square meters by 2027. Considering this capital needs, we expect to finance this operation with a combination of cash, incremental debt and a capital price of up to $300 million. With regards to the capital price, it is our understanding that the minority shareholders are committed to the transaction, and the intention is to participate with the [indiscernible] sharing. However, they will be willing to reduce the participation in order to accommodate the demand to improve the equity of the shares. In addition to this, Falabella has no intention of participating in the capital increase, except relevant changes in the market conditions. Mallplaza, maintaining a robust credit profile is a key element, and that is why we are looking to funding this transaction in a way that enable us to maintain our efficient capital structure. In terms of the effect, we are hosting an extraordinary shareholders meeting in April 26 to approve the capital increase, expected to execute the capital increase during the second half of the year, and execute the intended offer in the second semester of 2024. With this, we conclude this presentation, and we can now start the Q&A session.

[Operator Instructions]. It comes from the line of Felipe [indiscernible].

Can you listen to me?

Yes.

You mentioned in the release that you plan to finance the transaction with debt, cash and equity. Could you give us a break on how much debt and cash you tend to use? I'm asking because by the end of last year, you had around $200 million in cash. So it seems like you would have to raise at least now $200 million in debt and about $300 million if you want to also refinance your debt service for this year. I don't know if this makes sense to you guys or if I am missing anything? And what's your time like rate function infection?

Felipe, thank you for your question for [indiscernible]. With regards to your question as ways in which we seek to finance. In addition to what was mentioned on equity raise of up to $300 million. We're looking at other ways to finance this transaction, and we expect to inform this to the market within the coming weeks whenever this is concluded.

[Operator Instructions] It comes from the line of Jorel Guilloty with Goldman Sachs.

I have two. One is on debt. So I was just wondering how is the debt split between Open Plaza Peru and Mallplaza Peru. So how much debt do both of these entities have? And the other question is, so -- the idea here is that Falabella will not participate in the capital increase. But you do make an exception, which is relevant changes in market conditions. I just want to understand a little bit better what that means, what exactly is meant by market conditions? Those are my questions.

Thank you, Jorel. Thank you for participating for your questions. Starting with your second question with regards to both Falabella and minority investors also impatient with regards to the follow-on action. We -- from our current understanding is that the Falabella does not intend to participate in the equity raise. And that's [indiscernible] in terms of the minority investors as well, they are willing to participate. However, I think there's a common objective among all the ages. That is the importance to improve the free flow to the company and improve liquidity and all the benefits that this should [indiscernible] and with regards to your first question, we don't disclose the actual split between both companies in terms of the debt, but I think overall, when we look, it's a manageable debt, and I think that is considered, but then the price, the enterprise value that was disclosed in the transaction.

One moment for our next question, please. Carolina Rato with Itau.

So in the presentation, you mentioned that their expansion plans for new assets is in [indiscernible] plaza and actually, you mentioned that you plan to increase 100,000 square meters in 5 years. Maybe if you could give us an overview of more detail expansion in terms of the declining. And if this transaction came as a package for you, you're taking all the Open Plaza assets. But there are some assets that maybe you will be willing to divest after the transaction.

Carolina, thank you for participating for your questions as well. With regards to the expansion plan, the [indiscernible] support that. I think it's important relative to mention that within this transaction, we see significant opportunities here. So one, in terms of the synergy that this merger entailed after all, we're merging 2 platforms into one, and we [indiscernible] significant synergy that will be extracted from this. The other one, which is the efficiency in terms of scale. Because we're moving from having 4 assets in Peru having small team in Peru. So this provides us with significant efficiency and leverage as well when [indiscernible] into a negotiating contracts, potential increase in revenue as well due to improvements in the tenant mix that we'd like to roll this out going forward. And then, I guess, to your question, the growth plan that is more long term or within the next 5 years, we expect to increase and add 100,000 square feet [indiscernible], primarily in the [indiscernible] Arequipa, Trujillo, Angamos, Atocongo and Piura. So at the end of the day, we have upside that can trend in the short, in the medium and also in the long term within this transaction. And with regards to the assets that were potentially divest, I think first, this product will -- the early assets will begin to operate the assets we already have. Well envisioned, what are the expansion plans in the [indiscernible] for these assets. And then we'll see potential decisions as to whether or not to divest the assets.

One moment for our next question, please. And it comes from the line of Marcelo Motta with JPMorgan.

It's regarding the synergies. You mentioned the efficiency, the improvement in mix. I mean, is there any number regarding maybe the -- how much margin can improve on Open Plaza or what is the level of synergy that you expect with a post transaction?

Motta, thank you for your question. We don't provide guidance as the amount of efficiency that is expected. However, it is important to highlight that in this transaction, we see it as maybe EBITDA for 2024 of 9.9x. This entails the cap rate also on 2024 estimate of around 11% and from this, I mean, we expect there to be future upside that we that was [indiscernible] we can extract in terms of future value due to the synergy of merging both platforms, the efficiency insurance is at scale as well and will -- and also, I think this is relevant to mention that aside from the client that was mentioned this comes in with land and construction potential and also the ability for us to secure a Tier A asset in EMA, which I think is very strategic in line with our strategy of having a portfolio consisted of PRA assets.

I see no further questions in the queue. I will pass it back to Derek Tang for final comments.

Well, thank you all for participating in this call. And as all [indiscernible] Fernando and all the Investor Relations team are fully available for any follow-up questions that you might have. Thank you very much, and have a good day.

And with that, ladies and gentlemen, we conclude our conference for today. Thank you for participating, and you may now disconnect.