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

Good day, everyone, and thank you for standing by. Welcome to Mallplaza First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Derek Tang. Please proceed.

Greetings, and welcome to Mallplaza 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 Sebastin Macchiavello and Matas Guerra. We're pleased to introduce the company's earnings results for the first quarter of 2024. First, we'll begin with a brief overview of the company's quarterly results. Second, we will highlight some strategic remarks regarding the quarter. And as usual, we'll end with a Q&A session. We started 2024 with solid financial results, continuing the positive trend percentage during last year with continued growth in revenues, EBITDA and FFO, an increase in efficiency measured by EBITDA margin compared to the first quarter of 2023 and high levels of occupancy in our urban centers, in addition to a good performance of our tenants. As demonstrated on Page 3, footfall to our 26 urban centers reached 72 million visitors during the quarter, a 3% increase compared to the first quarter of 2023. This growth was mainly anchored by the solid commercial proposal of our urban centers added to relevant openings during the second half of 2023 and first quarter of 2024, such as the opening of the first IKEA store in Colombia, in Mallplaza NQS and 6 new H&M stores at a regional level. In addition to various traffic-generating offerings such as the opening of two Civil Registry offices in Mallplaza Vespucio and Mallplaza Alameda, among others. Our tenant sales presented an increase of 3.9% compared to the first quarter of 2023, mainly explained by a 25% increase in sales in Colombia, in addition to a 3% increase in Chile. The good performance of the Specialty Retail, Gastronomy & Entertainment, was reinforced by a better performance of the Department Store segment with respect to previous periods. The occupancy cost for the quarter was 11.5%, in line with the first quarter of 2023. The occupancy rate reached 95.1% during the first quarter, an increase of 0.5 percentage points compared to the first quarter of 2023, boosted by the 196 new openings at a regional level during this period. This number of openings was anchored by the first phase of opening of Mallplaza Cali, our 5th urban center in Colombia that inaugurated 94 new openings during March. All-in-all, revenues during the quarter reached CLP 114.1 billion, increasing 14% year-over-year, mainly explained by adjustment of lease contracts, increase in lease full square meters, an increase of 0.5% in occupancy rate and higher parking revenues. Same-store rent for the quarter increased 3.7% year-over-year. Turning to Page 4. Cost of sales in the quarter reached CLP 16.4 billion, a 11.4% increase year-over-year, mainly due to higher expenses and contributions associated with the higher property taxes. In terms of administrative expenses, it increased 5.3% during the first quarter of 2024, reaching CLP 11.3 billion. This increase was mainly explained by higher bad debt provisions and legal expenses, which were offset by lower remuneration associated with the simplification of the organizational structure carried out during 2023. All-in-all, EBITDA increased 15.9% year-over-year during the first quarter of 2024 totaling CLP 86.9 billion with an EBITDA margin of 76.1%, an increase of 1.1 percentage points compared to the first quarter of 2023, in line with the efficiency plan that we have been pursuing during the last years. Net income reached CLP 54.1 billion during the first quarter, increasing 32% year-over-year, mainly explained by higher lease revenue due to growth in lease square meters, readjustment of lease contracts, higher parking revenues, lower readjustment units due to lower inflation during the period and lower financial costs due to lower debt, which was offset by higher taxes, expenses, and lower financial income due to lower cash position and lower rates. Lastly, the adjusted FFO reached CLP 70.7 billion during the quarter, increasing 15% year-over-year mainly due to better performance of the operation and less minority interest adjustment due to the purchase of the minority stake of the subsidiary, Nuevos Desarrollos, executed in the second quarter of 2023. The adjusted FFO margin reached 60% during the quarter. Now I turn the table to Fernando, who will share quarter strategic remarks regarding the business.

Thank you, Derek. The great result that Derek just mentioned is a consequence of the success of the execution of our business strategy that allows us today to have a diversified, improved, and customer-focused value proposition and with even centers capable of delivering multiple and publisher proposals to business, with new brands, services, and categories. 2024 started in a great shape in terms of openings of new proposals in our urban centers, reaching during this first quarter, 196 new stores at a regional level. From this number, 94 new stores came with the opening of Mallplaza Cali, our fifth urban center in Colombia and the 26th at the company level, which opened its doors in March 2024 was very success. This urban center had 67,000 square meters of GLA to the company's portfolio and began its operation with 91% of GLA leased and with an occupancy rate of 70% in the first days of operation, hosting a vast amount of solid brands, such as H&M, Decatlhon, the full index offering with Zara, Berskha, Stradivarius, and Pull&bear. In addition to different Entertainment and Gastronomic proposal and the open of IKEA with its first store in Cali. Growth continues to be an important pillar in the company's strategy, both organic growth with existing, our 10 -- Tier A malls and M&A. It is important to mention that specifically in our Tier A assets, organic growth will involve less CapEx since these are assets already in operation with construction potential, which offer lower risk, allowing for higher returns. In Chile, we have an ambitious plan involving the development of more than 125,000 square meters of GLA, considering growth plans in Mallplaza Vespucio, Mallplaza Trébol, Mallplaza Oeste, Mallplaza Norte, Mallplaza Antofagasta, Mallplaza La Serena, Mallplaza Iquique and Mallplaza Biobio. Mallplaza Vespucio will continue to be a product lease with the opening of the Lifestyle project during the end of 2024. This new proposal of mix in fashion and convenience offering aims to capture the large number of visitors that are generated by the two nearby Metro stations. In the case of Mallplaza Trébol, we will open a new and renewed entertainment proposal, with a new cinema complex, plus a gastronomy boulevard that includes 20 restaurants, generating a unique proposal for the region. In terms of M&A, our transaction event during April, we agreed with Falabella, on the acquisition by Plaza of Falabella Peru S.A.A., which controls 100% of the operation of Open Plaza Piura and 66.6% of Mallplaza in Peru. This transaction was valued at an enterprise value EBITDA was 9.9x and a cap rate of approximately 11% and will be executed through a takeover of 100% of the shares of Falabella Peru S.A.A. for an equity value of $589 million. This transaction will allow us to consolidate our current operation in Peru and add 11 assets of Open Plaza Piura, which means increasing our portfolio by approximately 619,000 square meters of GLA and consolidate 15 new urban centers. And not only are we adding new GLA and assets, but we will also consolidate the EBITDA. In fact, if we consider the EBITDA of Plaza S.A.'s in 2023, we will go from $367 million to $448 million by consolidating Peru, which represents an increase of more than 20%. We have already designed a growth plan for these assets, consisting in developing 100,000 square meters over the next 5 years as well as planned to improve and further develop the current commercial offering. The main assets involving this plans are Mallplaza Arequipa, Mallplaza Trujillo, Open Plaza Atocongo, Open Plaza Piura, and especially Open Plaza Angamos, aiming to turn this urban center into our second Tier A urban center in Peru in addition to Mallplaza Trujillo, and the first of this category in Lima. Open Plaza, we have both the experience and the know-how on how to transform smaller urban centers into leading assets through an organic growth and turnaround capacities. Mallplaza Arequipa is a perfect example of this. As you can see on Page 13, this urban center was acquired by Mallplaza in 2014, as a 12,000 square meters power center with Saga Falabella department store, a Tottus supermarket and a cinema complex. The transformation included the purchase of two adjacent land lots and the construction and development of an additional 30,000 square meters of GLA to host new retail, gastronomy, services and entertainment propositions, along with the parking expansion. All-in-all, this new urban center reached 42,000 square meters with a renewed tenant mix and experience that positioning as a main urban center in the district of Arequipa. In addition to all the potential synergies that this operation will create in terms of efficiency and scale, this transaction will allow Plaza to increase its geographic diversification in terms of EBITDA and GLA with the distribution of leasable square meters of 62% in Chile, 27% in Peru, and 11% in Colombia, and a participation in EBITDA by country of approximately 75% in Chile, 18% in Peru and 7% in Colombia. It is important to highlight that all this growth plan is possible by the solid financial position of the company, with a net financial debt-to-EBITDA ratio of 3.1x at the end of the first quarter of 2024, an average debt duration of 8 years and with a mostly long-term debt payment profile. Now I leave you to Derek for some final remarks.

Thank you, Fernando. Just to finish, I want to highlight some of our omnichannel and ESG initiatives and achievements. We're happy to announce that in a recent Omnichannel Index for 2023, conducted by Kawes Lab’, which is specialized in consumer, e-commerce and omnichannel evaluation, Mallplaza was ranked 1st place in Shopping Centers category in addition to ranking 2nd place among IPSA companies and 5th place among more than 265 (sic) [ 255 ] companies in different industries. Our 19 Click & Collect operations continue to deliver great results, reaching 180,000 packages delivered during the quarter. That's a 242% increase compared to the same period of 2023. In terms of parking at the end of the first quarter of 2024, more than 250,000 Banco Falabella customers use our digital parking solution with a frictionless payment solution with the goal of simplifying the lives of our visitors and improving their experience. Finally, in terms of ESG, as part of our ESG commitments, among which is recovering 60% of the waste generated by our urban centers by 2025, we rolled out our Plaza 0 initiative in Mallplaza Vespucio. Through this initiative that started in Mallplaza Egaña during 2023, we expect to avoid the generation of 14 tons of waste during its first year of implementation. With this, I conclude the general remarks of the quarter, and we are now ready for questions, and we'll start with a Q&A session. Thank you.

[Operator Instructions] And our first question comes from the line of Jorel Guilloty with Goldman Sachs.

I have two questions here. One, I wanted to understand a little bit more the occupancy cost dynamic that we saw for Chile. So what we saw was revenues per square meter grew about 10%, while sales per square meter grew about 1%, yet occupancy costs stayed level. It was flat year-on-year. So just trying to understand the dynamic there of what drove that. And then recently, we saw that you received shareholder approval in order to pursue the capital increase. There was both a total amount of capital and amount of shares. And I was just wondering if I were to divide one by the other, and I get a share price, is that the share price, which you intend to pursue for the offer? Or is that -- or did you just receive permission up to those levels, and that is that share prices will be determined as x point by the market? Those would be my questions.