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

Good day, everyone, and thank you for standing by. Welcome to Mallplaza Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call to Derek Tang. Please go ahead.

Greetings, and welcome to Mallplaza earnings conference call. Thank you for joining us this morning. 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 [indiscernible], our Peruvian Division Manager and the Investor Relations team represented by [indiscernible] Matas Guerra. We're pleased to introduce the company's earnings results for the second 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 will end with a Q&A session. The second quarter of 2024 was marked by solid operational results, with increase in the number of visitors, tenant sales and occupancy of our 26 urban centers, which contributed to continued growth in revenues, EBITDA and FFO. As seen on Page 3 of the presentation, footfall to our urban centers reached 73 million visitors during the second quarter, an increase of 7% compared to the second quarter of 2023, posting an increase in the 3 countries in which we operate. This increase was mainly explained by our solid commercial proposal boosted by the opening of Mallplaza Cali in Colombia during the first quarter of this year, the opening of 2 IKEA stores, Mallplaza NQS and Mallplaza Cali, and H&M stores at a regional level. In terms of tenant sales, we reached CLP 1.3 trillion during the quarter, an increase of 8.8% year-over-year in line with the improved conditions for consumptions in the region. This growth was mainly driven by the good performance of retail, food and beverage, entertainment and convenience, which was offset by a lower growth in the Autoplaza format. Same-store sales posted an increase of 3.2% during the second quarter. Occupancy rate reached 95.5% during the second quarter, an increase of 1 percentage point compared to second quarter of 2023. In this sense, it is important to highlight the 94.2% occupancy reached in the urban centers in Peru, with an increase of 2.3 percentage points. This increase was mainly explained by a higher occupancy rate in Mallplaza Trujillo and especially in Mallplaza Comas, an urban center that continues to ramp up since its opening in 2020. Turning to Page 4. Revenues during the quarter reached CLP 120.4 billion, increasing 17% year-over-year, mainly explained by higher lease revenues due to a higher occupancy rate, readjustment of lease contracts and higher parking revenues. Same-store rent for the quarter increased 7.1% year-over-year. Cost of sales during the second quarter reached CLP 15.5 billion, a 15.9% increase year-over-year mainly due to the inauguration of Mallplaza Cali in Colombia, the currency exchange effect and higher security and parking management expenses. In terms of administrative expenses, it increased 20.6% during the second quarter of 2024, reaching CLP 13.7 billion. This increase was mainly explained by higher expense in personnel and the currency exchange effect in Colombia. All in all, EBITDA increased 16.3% year-over-year during the second quarter of 2024, totaling CLP 91.7 billion, reaching EBITDA margin of 76.1% in line with the efficiency shown by the company in the recent periods. Turning to Page 5. Net income reached CLP 121 billion during the second quarter, decreasing 27.6% year-over-year, mainly explained by a lower variation in the fair value of investment properties, which is explained by a lower compression in the discount rate in the second quarter of 2024 versus 2022 -- second quarter of 2022, and lower inflation compared to the second quarter of 2023. Higher tax expenses, higher loss in participation in associates using the equity method and lower financial income due to lower rates. This was offset by sale of assets held for sale and higher revenues due to additional square meters leased, readjustment of lease contracts and higher parking revenues. In terms of adjusted FFO, it reached CLP 71 billion during the second quarter, increasing 9.7% year-over-year, representing an adjusted FFO margin of 57.4% during the quarter. Lastly, I would like to highlight the progress we have made in terms of financing the acquisition that we're carrying out in Peru for the purchase of Falabella Peru. As we announced in previous quarters, this acquisition will be financed with a mix of debt, equity and the company's available cash. In terms of debt, Plaza issued bonds in the local market for 3 million UF in 2 series of 1.5 million UF each with a 4.5 and a 9-year term, respectively, with an oversubscription of 3.1x, which reflects the interest of the market in this issuance. In addition, as a subsequent event, during the month of August, we successfully completed a capital raise with the issuance of 230 million shares, highlighting the great interest on the Subasta de Libro de Ordenes, which had an oversubscription of 3.5x, in addition to being 40% allocated to our national investors. Now I turn the table to Fernando, who will share some strategic remarks from the quarter.

Thank you, Derek. Mallplaza continued to consolidate its leadership in [indiscernible] with a 2 million square media platform of 26 urban centers, with a dominant position in the respective market in strategic locations, serving markets with high growth potential of more than 100 million inhabitants. Our large-scale platform entered by our 10 Tier A assets, malls with a dominant position in big size markets with a high potential of growth combined with our experienced focused business model allow us to be the partners of choice of high-value global brands, resulting in a high diversified tenant mix, H&M and IKEA are only some examples of this. With the first one, with 17 stores in operation out of the 19 stores in the expected expansion plan. We expect to continue to offer this powerful platform of assets to new-to-market brands that have consolidated operations in developed markets and are interested in entering the undisputed market. We will continue to focus in the opening of new tenants, combined with good performance of existing tenants, in addition to the conversion of different spaces with new and innovative proposals. In this sense, during this quarter, we concluded the reconversion of Paris stores in Mallplaza Tobalaba, that was closed last year with the entrance of H&M, a Chinese convenience store with a diversified offer of products and a new gastronomic market with 7 different proposals, allowing this urban center to increase its annual lease revenue by 18% and its revenue per square meter by 9% in addition to reducing 500 square meters of vacancy. In terms of new openings, during the second quarter, we opened 68 new stores in Chile, highlighting the entrance of a new 2,300 square meters H&M store in Mallplaza Copiapó, new sports and urban retail proposals with the opening of The Line, Levi's and Skechers in Mallplaza Los Dominicos, Puma and Levi's in Mallplaza Egaña and Skechers in Mallplaza La Serena, and our opening of a new gym in Mallplaza Vespucio with the entrance of Smartfit. In Colombia, we highlighted the opening of Adidas, Sunglass Hut, New Era, and Blush Bar in Mallplaza Barranquilla; and Reebok and Blush Bar in Mallplaza NQS. This, in addition to the new opening of Mallplaza Cali, our newest greenfield project and our fifth urban center in Colombia, with the opening of our second IKEA store in Colombia with 15,000 square meters and a complete portfolio of Inditex brands with Zara, Bershka, Pull&Bear, Stradivarius. And American Eagle, Seven Seven, Tommy Hilfiger and Pandora, among others. We expect Mallplaza Cali to continue its ramp-up phase during third quarter. Growth continue to be an important pillar in the company's strategy, both organic with emphasis on our Tier A malls and inorganic via 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 offers low risk allowing higher returns. In Chile, we continue with our brownfield development plan, consisting of more than 125,000 square meters of GLA considering growth plan in Mallplaza Vespucio, Mallplaza Trébol, Mallplaza Oeste, Mallplaza Norte, Mallplaza Antofagasta, Mallplaza La Serena, Mallplaza Iquique and Mallplaza Biobío. In this slide, we continue with the development of the Lifestyle project in Mallplaza Vespucio, expected to open in the end of 2024. This new proposal of mixed fashion and convenience offering that is already 100% leased aims to capture the large number of visitors that will be generated by the 2 nearby Metro station. Consolidating its leadership position in [indiscernible], turning Vespucio, the biggest mall in Chile with 190,000 square meters of GLA. Now I leave you with Christian, who will share strategic remarks regarding our Peruvian operation.

Thank you, Fernando. The progress in the acquisition of Falabella Peru by Plaza continued taking shape, an operation that will not only allow us to consolidate our portfolio of 15 high-quality assets in Peru, but which will also allow us to become the second largest operator of shopping center in the country in terms of square meter of GLA. In addition of operating force, a position of the main platform of commercial estate in the Andean region. In the event that this construction materializes, we allowed Plaza to increase geographic diversification in terms of EBITDA and GLA, with a distribution of gross square meters of 62% in Chile, 27% in Peru and 11% in Colombia. And as the participation in EBITDA by country of approximately 75% in Chile, 18% in Peru and 7% in Colombia. Organic growth comes hand in hand with the operation, with a plan that considered adding 100,000 square meters of GLA in a period of 5 years, strengthening the commercial offer and corporation new proposal to current and future assets in the country. In terms of the timing of the acquisition and as next step, we hope to launch a tender offer in Peru for Falabella Perú in the coming months, expecting to consolidate the operation during the last quarter of this year. In this sense, as part of its master plan Mallplaza Trujillo, our Tier A mall in Peru, is providing the opening of a new retail core that will host various brands, including [indiscernible]. This expansion will not only amplify the commercial offer of this urban center, but will reinforce the position of Mallplaza Trujillo [indiscernible] urban center in the northern region. Now I will pass it to Derek for some final remarks.

Thank you, Christian. Just to conclude, I want to highlight some of our omnichannel initiatives that continue to take shape, improve our consumers' experience and attracting digital flow to urban centers. Our Click&Collect operations continue delivering important results, reaching 170% increase in terms of visitors year-over-year. In addition, we continue adding new brands as a service, reaching 24 new brands during 2024, among which are Tricot, BlueExpress and Mercado Libre, which have enabled our Click&Collect as pickup collection points for marketplace customers, drop off deliveries for sellers and return points looking to benefit not only our visitors, but also our business partners. Finally, we have implemented the parking functionality in alliance with Copec app. With this, more than 500,000 clients per month can enjoy the benefits of a free flow experience in the Mallplaza parking lots. With this, I conclude the general remarks for the quarter, and we are now ready for questions, and we'll start the Q&A session.

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

I have 2 questions. The first one is on Chile. So if I look at the year-on-year monthly sales per square meter for the Chile portfolio, you averaged 4.1%, it came in at 4.1%. But there's wide variability between the malls, some went from -- grew as much as 10%, and there were quite a few that were -- saw negative sales growth or were flattish. So I wanted to understand a bit more about these sales trends in particular because a competitor of yours had mentioned that they saw an impact of tourism impacting sales for the portfolio. And I was just also wondering if you've seen that within your portfolio as well? And then the second question is on Peru. We saw that sales per square meter and revenues per square meter were actually negative for the portfolio. And I was just wondering about that trend? And if you see a reversal of that trend in the near future?

I'll go with the first question and then I kind of lost you on the second question, I'll ask you to repeat the question on Peru afterwards. But starting off with the first one, just commenting a bit on the sales in Chile and the overall environment that we're seeing in our Chilean malls. I think it's worthwhile to highlight the pickup in terms of [indiscernible] flow that we've seen 4.7% growth in Chile, specifically, whereas tenant sales grew by 7%, a big increased trends of same-store sales. Now to your point, and then also occupancy reaching 95.7%, which was a 0.7% increase sort of year-over-year. Now to your point, when talking about the productivity. This also has to do with the fact that we've been changing significantly the mix, and there are some stores that are still on the opening phase during that, so that eventually brings by a temporary impact, but we do expect that these overall changes will contribute to the productivity of the malls, not only in Chile but what we've been doing in all the ventures. I think it's also worthwhile to highlight that from an occupancy -- overall occupancy standpoint, considering the 3 countries, we ended the quarter at 95.5%, which is the highest level in a couple of quarters. Specifically, in the second quarter, we signed 134 contracts at the regional level, which was an increase of 28% compared to the last year. As you may recall, in the prior years, we're signing about 600 contracts per year. In the first half, we're up to 331 contracts. So I think this is some level of improvement there. And I think also comes in line with the fact that we have a portfolio consistent of 10 Tier A assets with an interesting value proposition for retailers in general. Now to your second question, sorry, could you please repeat what was the question on Peru?

Yes, sure. So if I look at the portfolio sales per square meter, and revenue per square meter growth year-on-year. Local currency is down 7% for sales, down 4% for revenues. I wanted to get a better sense of the driver for those year-on-year declines. And if you expect -- if and when you expect a reversal of these trends in the near future?

Great. Thank you. So regarding Peru, I think also interesting here to highlight that you look between the 3 countries, it's the country that has increased the most, the occupancy rate, ended the quarter, 94.2%. That was a 230 bps increase year-over-year, even though still lower than that of the other countries. In terms of occupancy costs, at 8.4%, it's also the lowest between the 3 countries in which we operate. So we do expect there to be continued room to increase occupancy and also improve leasing conditions. Now there are some specific factors to Peru that we also highlighted in the earnings release, which is mainly in Mallplaza Buenavista, which has been going -- undergoing road detours for the construction of subway stations. This was also mentioned in the previous quarter. Now even though this brings by a temporary impact, negative impact, on the long term, we think that this will be positive to the extent that the mall will be better connected to the city, and this should generate a greater traffic to the mall.

[Operator Instructions] And it comes from Felipe Ballevona with Santander.

Great. I only have 1 question. During the quarter, revenue per square meter rose 11.5% year-over-year. Above same-store rent of about 7%. What would you say are the main reasons behind this unique revenue increase? Was it due to easy comps because of NQS GLA addition in the second quarter of last year? Or was it more driven by revenue growth such as parking revenue or rather maybe there were other reasons.

Thank you for your question. I think this comes also somewhat in line with the last answer for the previous question, which is, I mean, we've been putting a lot of effort into transforming our tenant mix and really seeking a high-quality tenant mix drive this additional revenue and productivity to our malls. Now when you compare between the countries, specifically, Chile, had a significant increase in terms of revenue per square meter with an increase of 10.5%. So this had a lot to do with this change in the tenant mix and also looking for other revenue lines that can contribute to the overall productivity of the mall.

Thank you. And as I see no further questions in the queue, I will conclude today's Q&A and conference for today. Thank you all who participated. You may now disconnect.