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

Good day, everyone, and welcome to Mallplaza Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now I will pass the call over 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 the Investor Relations team represented by [indiscernible] [ Jaime Martinez Izquierda ]. We are pleased to introduce the company's earnings results for the third 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 third quarter of 2024 was marked by exceptional results, which was demonstrated by an increase in the number of visitors, tenant sales and occupancy of our 26 urban centers, allowing us to reach the highest occupancy rate of the company in the last 5 years. All of this contributed to the delivery of continued growth in revenues, EBITDA and FFO compared to third quarter of '23, in addition to an increase in the EBITDA margin compared to the first half of this year. As seen in Page 3 of the presentation, footfall through urban centers reached 74 million visitors during third quarter, an increase of 5.6% compared to the third quarter of 2023, boasting an increase in the 3 countries in which we operate, especially in Colombia, with a growth of 17.7% year-over-year. In terms of tenant sales, we reached CLP 1.2 billion during the quarter, an increase of 10.7% year-over-year, with growth in the 3 countries in which we operate, in line with the improved conditions for consumption in the region. This growth was mainly driven by the good performance of retail, convenience, retailtainment and Autoplaza. And in this slide, same-store sales posted an increase of 3.9% during the third quarter, which is an increase of 6.8 percentage points compared to third quarter of '23, in addition to a 9.9% occupancy cost for the quarter in line with the structural levels of the company, which demonstrates a good health and performance of our business partners. Demand for spaces in our urban centers continued in great shape, reaching during the third quarter 132 new openings at a regional level and 463 openings during 2024, allowing us to reach an occupancy rate of 96.4% during the quarter, a 1.1 percentage point increase compared to 2023 and the highest level in 5 years. In this sense, it is important to highlight the 94.7% occupancy rate reached in the urban centers in Peru was an increase of 2.5 percentage points and in Chile, reaching a 96.8% occupancy rate. This increase in Peru was mainly explained by a higher occupancy rate in Mallplaza Arequipa, especially in Mallplaza Comas, an urban center that continues to ramp up since its opening in 2020, and in Chile, our occupancy in Mallplaza Alameda, Los Dominicos and Tobalada among others. Turning to Page 4. Revenues during the quarter reached CLP 119.5 billion, increasing 8.3% year-over-year, mainly explained by higher lease revenues due to a higher occupancy rate, higher sales, readjustment of lease contracts and higher parking revenues. It is worth mentioning that these results include the nonrecurring effects due to the provision of a fine for the delay in store opening in Colombia during the third quarter of '23. Without this factor, revenue growth would be in the range of 14% compared to the previous year. Same-store rent for the quarter increased 5.6% year-over-year. Cost of sales during the third quarter, we reached CLP 13.2 billion, a 3.7% decrease year-over-year, mainly due to the recovery of real estate taxes partially offset by higher expenses associated with the inauguration of Mallplaza Cali in Colombia and higher marketing expenses. In terms of administrative expenses, it increased 37.5% during the third quarter of 2024, reaching CLP 13 billion. This increase was mainly explained by higher expense personnel higher expense associated with the provision for bad debt, legal expenses, the inauguration of Mallplaza Cali and higher marketing expenses. All in all, EBITDA increased 7% year-over-year during the third quarter of 2024, totaling CLP 93.8 billion with an increase of 7% year-over-year, mainly due to higher lease revenues due to a higher occupancy rate, higher sales readjustment of lease contracts and higher parking revenues. Without the nonrecurring accountable effect in the third quarter of 2023, which was mentioned before, growth would be closer to 14% year-over-year. In terms of EBITDA margin, we reached a 78.5% margin during this quarter, a 2.4 percentage point increase compared to the first part of the year, in line with the efficiency efforts carried out at the company to reach structural levels closer to 80%, which were the pre-pandemic levels. Turning to Page 5. Net income reached CLP 60 billion during the third quarter, increasing 1.2% year-over-year, mainly explained by higher lease revenues due to leased meters, higher sales, rate readjustment and indexation of lease contracts to the inflation of each country added to higher parking revenues, higher financial income due to higher available cash of bond issuance during April and capital increase, which was completed in August and also due to lower income tax expenses due to lower effective tax rate and the lower base. This was offset by higher expense in readjustment units due to the variation of the UF rate of 0.9% in the third quarter of 2024 versus 0.3% in the third quarter of 2023; higher administrative expenses due to higher employee benefits; provision for bad debt; higher legal expenses; and higher expense and exchange differences due to higher cash available in foreign currency with an unfavorable effect in the exchange variation at the end of the third quarter of 2024. In terms of adjusted FFO, it reached 80 [indiscernible] during the quarter, increasing 14.5% year-over-year. This is mainly explained by a better performance of the operation and higher adjustment units during the third quarter of '24 because of higher variation of the UF rate during the period. In terms of margin, we reached an adjusted FFO margin of 65.1% during the quarter, an increase of 3.5 percentage points year-over-year. Lastly, and as a subsequent event, I would like to highlight that during October, Desarrollos Perú SpA, subsidiary of Plaza, launched a tender offer to acquire Falabella Perú S.A.A., owner of 100% of Open Plaza Perú and 66.6% of Mallplaza Perú. This operation will allow us to consolidate a portfolio of 15 assets in Peru of high quality and become the second [ largest ] operator of shopping centers in that country in terms of GLA, in addition to reinforcing our presence as the main platform for urban centers in the Andean region. After concluding the legal period of the tender offer in Peru at a company, Falabella Perú S.A.A, we will be able to consolidate the Peruvian operation. Our capital structure and balance sheet remains solid, finishing the third quarter with a net financial debt-to-EBITDA ratio of 2.2x and seeking to end 2024 with a structural level of leverage close to 3.5x after consolidating the purchase of Falabella Perú S.A.A. This financial position leaves us in a favorable condition to continue with our growth agenda and take advantage of the best opportunities that the market offers us without compromising the stability of the company. Now I turn the table to Fernando who will share some strategic remarks for the quarter.

Thank you, Derek. The solid operation and financial results mentioned are just a consequence of the success for this strategy and the value of a varied and customer focus purpose with a payment portfolio of 26 urban centers that offer multiple visiting purposes and a variety of brands, services and categories. Our strategy will continue to drive our growth in the Andes region, a market with more than 100 million inhabitants. In this sense, growth is a fundamental part of Mallplaza's DNA and we are focused on expanding both through organic projects and through acquisitions, with the aim to consolidate our position or the main asset platform in the Andes region. In terms of M&A, as Derek mentioned, we are on the final stage of our acquisition of Falabella Perú S.A.A. owner of 100% of the Open Plaza Perú and 66.6% of Mallplaza Perú. This transaction will consolidate us as the second-largest shopping center operator in Peru in terms of GLA square meters, reaching 619,000 square meters and expanding our presence in 9 cities. With this operation, Mallplaza will reach 2.3 million square meters of GLA in the Andes region. This operation comes in hand with an organic growth plan of 100,000 square meters in the next 5 years. We are launching projects, expanding our commercial, social and entertainment proposition. This plan will focus on our Tier A urban center, Mallplaza Trujillo, and on assets with the potential to become Tier A in the future, such as Mallplaza Comas, Open Plaza [ Garnos ] and Open Plaza Piura. This transformation will be a repeated story for the company as during 2014, we successfully transformed Mallplaza Arequipa. This asset, acquired as an Open Plaza power center with 12,000 square meters of GLA, became, after a deep renovation and expansion, an urban center of 42,000 square meters with a commercial and experiential offer and positioned it as a leader in Arequipa. Chile in the same line will be positively impacted by an organic growth plan consisting of 125,000 square meters of GLA of brownfield projects in the next 5 years, a plan that will be mainly focused on our Tier A assets in order to continue boosting the leadership position in the respected markets. The first stage of the organic growth plan is taking place during the last part of this year. As we are expecting during the next few weeks, the opening of Lifestyle area in Mallplaza Vespucio, our flagship [indiscernible]. This [ 31,000 ] square meter project will transform Mallplaza Vespucio into the largest urban center in terms of GLA, consolidating its leadership position in the respective markets. The area, which has 100% of its spaces already leased, will include flagship formats such as the largest Zara store in the Southern Cone with 4,300 square meters, H&M, Aufbau, distributor of Apple products with the format of the largest store in Chile, GAP, DBS and Lippi, among other brands. In terms of convenience, we will have a Santa Isabel supermarket, the second in this urban center, a Casaideas store and a service area that will take advantage of the high flow generated by 2 nearby metro stations. Our large-scale platform altered by our 10 Tier A assets malls with a nominal position in big-sized market with a high potential of growth combined with our experience focused business model allows us to be the partners of choice of high-value global brands, resulting in a highly diversified tenant mix. In the same sense, during the third quarter, we continued to concentrate our strategic alliance with H&M, with 2 new openings in, reaching a total of 18 stores of this [ start ] in our urban centers at a regional level. In Peru, we opened the Yoyoso in Mallplaza Buenavista with a highly diversified offer of household products. In addition, we opened American Eagle store in Mallplaza Trujillo and Mallplaza Arequipa as well as Bath & Body Works and Caffarena stores in Mallplaza Trujillo. Lastly, in Colombia, we highlight the opening of Fun Jungle in Mallplaza NQS, a 5,500 square meter inflatable park, the largest of this type in the world, boosting the entertainment proposal of this urban center. Now I will pass to Derek for some final remarks.

Thank you, Fernando. Just to conclude, I want to highlight some of our omnichannel initiatives in order to improve our consumers' experience and attract the digital flow to our urban centers. In terms of our Click&Collect operations, during the third quarter, we established new alliances with relevant last-mile players, including Mercado Libre in Chile and Coordinadora in Colombia. In addition to expand pickup points of Blue Express, Chile. Also, we added new brands such as Tricot, Prune, Gotta and Audiomusica, reaching more than 90 active brands in total that enjoy this service. In addition, we continue to enhance the digital parking payment functionality, with more than 650,000 customers per month enjoying the benefits of a free flow experience in Mallplaza parking, reaching a penetration of 25% of users in Chile who are using this solution. Finally, in terms of ESG, Mallplaza obtained the first place in the Shopping Centers category in the ranking of Most Innovative Companies in Chile 2024. This ranking, carried out annually, is focused on evaluation of policies, innovation processes as well as the impact generated by the initiatives promoted by these companies. Lastly, we have announced that for the second consecutive year, Mallplaza obtained a AA rating in MSCI's ESG rating, a valuation that measures a company's management of financially relevant ESG risks and opportunities. With this, we conclude general remarks for the quarter, and we're now ready for questions and will start the Q&A session. Thank you.

[Operator Instructions] One moment for our first question. That comes from the line of Jorel Guilloty with Goldman Sachs.

So I have to two. The first one is we noticed that the same-store rent is still at healthy levels. I mean we saw 5.6% year-on-year for the overall company. But it did mark a downshift from what we saw in 2Q, which was about 7%. And then if I look at on a country basis, Peru was also somewhat similar, where we same-store rent at 2%, but it was 5.5% in 2Q '24. So just wanted to get a sense of what is -- if it's -- what the downshift to same-store store rent might be? Is it temporary? Could it continue? And what could it be due to? And also, I'm sorry if you mentioned this earlier, but I just wanted to get a sense of the process, if you could provide some color on the process of acquiring and any future thoughts on the integration of Falabella's Perú mall portfolio?

Thank you, Jorel. Thank you for your question. First, starting off with same-store rents in terms of sort of the more recent trend that we've been observing. Again also, to your point, it has also to do due to inflation, lower levels of inflation that we've been experiencing. However, going forward, and specifically on the case of Peru that you all mentioned, Peru is a country where we have currently the lowest occupancy costs among the 3 countries. Actually, it decreased by 60 basis points in this quarter to 9%. And also, it's the country where we have the lowest occupancy rate, but that increased the most by 2.5 percentage points. So I'd say that, as we highlighted in the earnings release, we are now at the highest occupancy rate level in the last 5 years at 96.4% at a regional level. And also, with occupancy costs also on a regional level decreasing 0.2 percentage points to 9.9%. So the combination of these 2 factors contribute towards our ability to be able to continue to drive rent and be able to increase our same-store rent going forward. I mean this has been a relevant year in terms of new leases in our malls, and we expect this to continue going forward. Now with regards to your second question as for the process and the acquisition in Peru, as mentioned, our understanding is that the Board of the local regulators have met yesterday and with a favorable view towards the process and we're most likely to resume shortly with the process of the OPA and expect to have this all concluded by the end of this year. And as so, I mean, we are in the process of really assessing and evaluating what are the opportunities towards this acquisition, what are the advantages and improvements that can be made to the assets and also the future expansion plan. As you well know, in Mallplaza, we're very much focused in our future expansion plan and adding more GLA to our portfolio. So in this sense, we have in Peru, a total expansion plan of 100,000 square meters of GLA in up to 5 years and in Chile, 125,000 square meters in up to 5 years. So this goes well in line, and we are in the process of working towards delivering these expansions.

[Operator Instructions] Our next question is from Javier Toledo with Itaú Asset Management. Javier? All right. Please, requeue, if you are -- can you hear us now?

Yes, can you hear me?

Yes, I can hear you. Thank you. Please continue with your question.

Congrats on the results. I have two actually. The first one is can you just give us some more color on the one-off in Colombia during first quarter of 2023? And also, regarding leverage, because this quarter, we are seeing a very low leverage given the high amount of taxes you have retained at bank. After the transaction we should see leverage continue to what we were seeing like before, like leverage in the first half of this year?

Yes. Thank you for your question. Starting off first with Colombia. As we noted in the earnings release, in the third quarter of 2023, so last year, there was effect of a fine to a tenant in Colombia, which contributed towards the results of the third quarter and that was a one-off effect. Therefore, if we were to exclude this effect in the base comparison, we would see our overall revenue in Colombia increasing by 49% and the overall EBITDA for Colombia increasing 67%. Now this is in local currency and it's a significant increase year-over-year. We do, as you well know, detail in our earnings release on a sort of mall by mall, sort of what have been the improvements and the variations in the malls there. So for example, in Mallplaza Buenavista, there was an increase of 16.5%, in Mallplaza Manizales 16.4%; and in Mallplaza Cartagena, 6.6%. Also in Colombia, we recently opened Mallplaza Cali, which, of course, is adding to the GLA and to the overall revenue and EBITDA for that margin. And our plan mentioning Colombia is also to continue to see growth opportunities in that market. It's a strategic market for Mallplaza. So we'll be seeking be it expansion or future M&A opportunities in Colombia. Now with regards to your second question in terms of leverage, our leverage right now is at about 2.2x. This has to do with the fact that we also did the equity raise recently. Now this is prior to the acquisition of the assets in Peru of Falabella Perú. With this acquisition, we expect leverage to get back to around 3.5x net-debt-to-EBITDA, in line with the levels that historically the Mallplaza has operated.

[Operator Instructions] And this concludes our Q&A session for today. I will turn it back to Derek for closing comments.

Well, everyone, thank you for connecting in this earnings call for Mallplaza. And as usual, we are available for any follow-up questions that you might have or if there's ever any interest of visiting our assets as well. Thank you, and have a great day.

And thank you all for participating in today's program. You may now disconnect.