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

Good morning, everyone, and welcome to Mallplaza 4Q '24 Results Conference Call. Today with us are Fernando de Pena, CEO; Derek Tang, CFO; [ Rodrigo Celdran ], Finance Manager; and Matías Guerra, Investor Relations. This presentation and the 4Q '24 earnings release are available on our Investor Relations website and will also be available for download in the chat. [Operator Instructions] I'll now turn the call over to Derek Tang. Please go ahead, sir.

Greetings, and welcome to Mallplaza earnings conference call. Thank you for joining us this morning. I'm here today with Fernando de Pena, the only Latin American member of the Board of Trustees of the ICSC. Also with us is the Investor Relations team represented by [ Rodrigo Celdran ] and Matías Guerra. We are pleased to introduce the company's earnings results for the fourth quarter of 2024. First, we'll begin with a brief overview of the company's quarterly results. Second, we'll highlight some strategic remarks regarding the quarter. And as usual, we'll end with a Q&A session. 2024 was an important and transformative year for Mallplaza marked by significant progress in executing our growth-driven business strategy. A key highlight of this quarter was the successful acquisition of Falabella Perú, which owns 100% of Open Plaza Perú and 66.6% of Mallplaza Perú, which in addition to the 33.3% previously owned in Mallplaza Perú increases our stake to 100% and allows us to consolidate as of December 2024 a portfolio of 15 assets in Peru and become the second operator of shopping centers in that country in terms of GLA, in addition to reinforcing our presence as the leading platform for urban centers in the Andean region for 2.3 million square meters. To finance this expansion, we carried out a capital increase of $325 million, which increased the free float and liquidity of the stock, attracting a broader base of international investors. On the operational front, this quarter continued with the trends observed in the last quarters with growth in terms of visitors, tenant sales and occupancy of our urban centers. All of this contributed to the delivery of continued growth in revenues, EBITDA and FFO in addition to an increased efficiency. As seen on Page 3 of this presentation, footfall to urban centers reached 91 million visitors during the fourth quarter, an increase of 18.4% compared to the fourth quarter of 2023. While during 2024, we recorded 311 million visits, up 9% over the previous year. This increase is mainly explained by the opening of Mallplaza Cali during the first quarter of 2024, the acquisition of Open Plaza Peru during December in addition to the opening of the Lifestyle sector in Mallplaza Vespucio. In terms of tenant sales, we reached CLP 1.6 trillion during the quarter, an increase of 19.7% year-over-year with growth in the 3 countries in which we operate. This growth was mainly driven by the incremental sales of Open Plaza assets, which were added to our portfolio in December, the opening Mallplaza Cali in addition to a better performance of retail [ retail ] segment. Same-store sales posted have increased 7.9% during the fourth quarter, an increase of 10.9 percentage points compared to the fourth quarter of 2023. Demand for spaces in our urban center continue to be in great shape. [ Rate change ] during the fourth quarter of 204 new openings at a regional level and 677 openings during the full year, allowing us to reach an occupancy rate of 96.6% during the quarter, which is an 0.8 percentage point increase compared to 2023. In this sense, it is important to highlight the 96.9% occupancy reached by urban centers in Peru with an increase of 4.2 percentage points. This increase was mainly explained by higher occupancy in Mallplaza Comas, an urban center that continues to ramp up since its opening in 2020 and by the high levels showed by Open Plaza assets of 98.7%. In Chile, we reached a 96.6% occupancy explained by higher occupancy in Mallplaza Sur, Mallplaza Norte and Mallplaza Arica, among other malls. Turning to Page 4. Revenues during the quarter reached CLP 140.5 billion, increasing 31.8% year-over-year and a 17.8% growth for the full year. This strong performance was primarily driven by the consolidation of revenues in December from the recently acquired assets in Peru, higher lease revenues due to more [ lease feeders ] , higher sales and readjustment of rates indexation of these contracts to inflation in each country and by higher parking revenues. Excluding the consolidation of the Peruvian operation in December, revenue would have increased 21.2% year-over-year and same-store rent for the quarter increased 9.4%. Cost of sales during the fourth quarter reached CLP 15.6 billion, remaining flat year-over-year, mainly due to the recovery of real estate taxes, which were partially offset by higher expense associated with the inauguration of Mallplaza Cali in Colombia and higher parking expenses. In terms of administrative expenses, it increased 58.3% during the fourth quarter of 2024, reaching CLP 17.3 billion. This increase was mainly explained by the consolidation of expenses of Falabella Peru, higher expenses associated with the provision for bad debt and the inauguration of Mallplaza Cali. Regarding EBITDA, it increased 34.1% year-over-year during the fourth quarter of 2024, totaling CLP 108.3 billion, mainly due to the Falabella Peru consolidation, higher lease revenues due to a higher occupancy rate, higher sales through the adjustment of lease contracts and higher parking revenues. Excluding Falabella Peru asset validation, EBITDA would have increased 22.4%. In terms of EBITDA margin, we reached 77.1% during the quarter, a 1.3 percentage point increase compared to the fourth quarter of 2023. Turning now to Page 5. Net income reached CLP 100.8 billion during the fourth quarter, increasing 22.6% year-over-year mainly explained by higher revenue, higher income from exchange differences due to favorable effect in foreign currency assets, a higher financial income due to higher available cash for the acquisition and higher other income due to gains on revaluation of investment properties. This was partially offset by higher other expenses due to nonrecurring expenses in the acquisition of assets in Peru, higher administrative, higher financial costs due to the consolidation of that in Peru and higher interest in Mallplaza Chile and higher income tax expense. In terms of adjusted FFO, it reached CLP 81.6 billion trillion during the fourth quarter, increasing 33.6% year-over-year mainly explained by better performance of the operations and consolidation of the Peruvian operation during December and higher financial income due to higher available cash for the acquisition. Our capital structure and balance sheet remained solid finishing the fourth quarter with a net debt-to-EBITDA ratio of 3.8x. This ratio only considers 1 month of consolidated EBITDA from Peru, which was acquired in December. If we were to consider the EBITDA for the last 12 months, it would be closer to 3.1x, lower than the historical levels shown by the company. 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 financial stability of the company. Now I turn the table to Fernando, who will share some strategic remarks for the quarter.

Thank you, Derek. 2024 was a remarkable year for Mallplaza as we consolidate ourselves as a shopping center platform, being the gateway to the Andean region, both from brands and investors seeking exposure to this market as well for those who want to expand their presence. In the same sense, growth is a fundamental part of Mallplaza's DNA, and we are focused on expanding both through organic projects and through acquisition. In terms of M&A and as Derek mentioned, we have successfully completed during December the acquisition of Falabella Peru, S.A.A. As a result, we started consolidating 15 assets in the country, an increase of presence from 3 to 9 cities. From now own, our strategy in Peru seeks to improve the value proposition and market share of assets. Currently, 62% of the delay of the former Open Plaza Peru assets is dedicated to convenience. We seek to transform these assets towards an experience-oriented model, balancing the commercial mix and promoting categories such as fashion and entertainment. This represents a key opportunity to increase the value proposition of our assets to [indiscernible] Looking ahead to the coming years, we have an ambitious expansion plan in Peru consisting of brownfield projects that will add 100,000 square meters over the next 4 years. This growth will be focused on enhancing strategic assets such as Mallplaza Trujillo, our current Tier A urban center in the country; Mallplaza Comas; Mallplaza Angamos; Mallplaza Piura and Mallplaza Huancayo. We aim to transform some of these assets from convenience centers into experience-driven stage with the potential for center properties to reach Tier A standard within our portfolio. Chile in the same line would be potently impacted in an organic growth plan consisting of 125,000 square meters of GLA of [indiscernible] in the next 4 years. Our plan then will be mainly focused on our Tier A assets in order to continue boosting the leadership position in their respective part. This plan began to be delivered during the first quarter with the opening of new Lifestyle space in Mallplaza, transforming this urban center into the largest in Chile in terms of GLA with 190,000 square meters consolidating its leadership in the southeast area of Santiago. This new expansion of relevant brands such as H&M with 3,200 square meters, GAP with its first store in the southeast sector of Santiago as well as Casaideas, Levi's and Lippi, among others, reinforcing the mixed fashion segment of our urban center. Thanks to the consolidation of its value proposition, during December, Mallplaza Vespucio managed to increase the flow of visitors by 15% and sales by 14% year-to-year. During the first quarter of 2025, we expect to continue with the opening in the space, highlighting the largest Zara store in the Southern Cone with 4,300 square meters, adidas Originals, Aufbau and the incorporation of a second supermarket in this urban center with [ 5,700 square meter store ]. We hope to continue executing our strategy to provide a differentiated value proposition in our Tier A assets, developing brownfield projects in Mallplaza Trebol, Mallplaza Oeste, Mallplaza Norte, Mallplaza Antofagasta and Mallplaza La Serena. In addition, we continue to execute our department store conversion plan, highlighting here in the fourth quarter the opening of PUMA in Mallplaza Tobalada, completing the reconversion of the 2 stores previously occupied by Paris store. The performance of this urban center during the fourth quarter was in great share, showing a 16% increase in sales per square meter and 37% increase in revenue per square meter. Also, we continued with the full renovation of our commercial proposal in Mallplaza [indiscernible] in order to continue with the conversion strategy focused on improving the retail and service offer. In this sense, we continued with the comparison of the spaces that used to host the department stores Falabella, La Polar and Johnson. During the quarter, we highlight the opening of Marketches a 2,300 square meters new convenience proposal in the second floor of what was previously a Falabella store. Just to mention some metrics that reflect the success of this renovation. During the fourth quarter, we saw a year-over-year increase of 12 % in footfall, 11% increase in tenant sales and 10% increase in revenue. Just to finish, I want to mention the sustained interest of different brands to be in our shopping center. We conclude 2024 with 677 new openings, including the opening of 5 new H&M stores during the year, reaching 19 stores in our urban centers, in addition to several global brands that continue to choose our company to expand their business in the Andes region such as Inditex, IKEA, Decathlon, Waikiki, adidas, PUMA [indiscernible]. Now I will pass to Rodrigo 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 digital flow to our urban sector. Our differentiated offer is also closely linked to digitalization as an enabler of visitor experience. In terms of Click&Collect, we continue to consolidate strategic alliances with relevant operators in the region, such as Mercado Libre, Starken and Blue Express, adding this quarter Correos de Chile. In Colombia, we initiated an alliance with Mercado Libre and Coordinadora, an important logistics partner in this country. In terms of data, during this quarter, we reached over 10.7 million contactable clients, illustrating one of the benefits of being part of the Falabella ecosystem, which enables us to add value to our business. Lastly, in terms of parking, we continued to integrate our digital parking service, integrating this service with important apps such as Banco Falabella and Copec, adding during this quarter a new alliance with MACH. Thanks to this expansion, more than 750,000 customers per month enjoy 100% free flow parking in Mallplaza without friction or delays in addition to reach 27% of penetration of digital parking in Chile. Finally, in terms of ESG, we continue to strengthen our stakeholders' appreciation of our brand. For the sixth consecutive year, we were listed in the Chile and MILA indices of the Dow Jones Sustainability Index. In addition, Merco Empresas ranked us first in the real estate retail category and 30th overall as a company with the best corporate reputation. With this, we conclude the general remarks of the quarter, and we are now ready for questions and we will start the Q&A.

[Operator Instructions] Our first question comes from Jorel Guilloty from Goldman Sachs.

I actually have 2 questions on line items we saw on the income statement. So the first one was on other revenues. We saw that this went from an CLP 8 million -- or an CLP 8 billion run rate in the first 3 quarters in 2024 and it's now CLP 12 billion in 4Q 2024. So an increase significantly. I was wondering if this is driven by the Falabella Peru acquisition or if there's any other item that is in there that we should be thinking about? And then the second question is about administrative expenses. So those increased materially year-on-year, it was 60% higher. Looking at the notes, there's a couple of reasons are givens, but 2 of them stood out. And I was just wondering if I can get some color on those. One of the explanations was that it's associated with bad debt provisions due to a reversal of provisions made in 2023. And then it also says it's also, to a lesser extent, due to a higher impairment of the portfolio in 2024. So if you can provide detail on those 2 items, it would be helpful.

Thank you, Jorel. Thank you for your questions. And first, starting off when talking about the revenues, there are 2 main aspects here. First of them being the fact that we started consolidating the acquisition in December. So when you look at the fourth quarter figures for the month of December, that's already -- that already consolidates all the operation in Peru, be it what was Mallplaza Peru and Open Plaza. And aside from this, also when you look at the other countries, we also -- Chile and Colombia, we also observed incremental revenues. So for example, in Chile, our revenue grew at 13.1% in the fourth quarter. And for Colombia, there was a growth of 167%, that also has a lot to do with the fact of the opening of Cali and also the reversal of a penalty for the delayed opening of a store at NQS, which happened in the fourth quarter of 2023. Now with regard to your second question, in terms of the G&A most of that -- when you look at the variation year-on-year, it was a 58.3% growth, of which approximately half of it has to do with a provision for that bad debt. Now on this provision, I think it's also important to highlight that in the fourth quarter of last year, there was a reversal of a provision on a real estate project that contributed for this number to be positive in the fourth quarter of last year. If we were to look into the fourth quarter, the number and excluding Peru, which was not last year or was not, I mean, in the third quarter, we would have seen a decrease in -- 22% compared to what was the third quarter of 2024. Now of course, this has a lot to do with the health of our retailers in general. And for that metric, [ it means ] constant monitoring the occupancy cost and what we're able to do with that regard. I think that the positive news here is that we've been seeing incremental footfall in our malls, which drive incremental sales. So I mean in footfall, if you look at, for example, in Chile, we grew 8%. In Peru on a same basis, considering pro forma for both this year or fourth quarter of '24 and fourth quarter of '23 Mallplaza Peru and Open Plaza grew footfall by about 8.2%. And in Colombia, 15.6%, that's also helped by the opening of Cali. And of course, these levels of footfalls has helped sales increment and us being able to sustain a controlled occupancy cost.

So just following up the first question. On the other revenue, so the 50% increase quarter-on-quarter on that item. Was that due to a fine, was it? Or I wasn't quite sure what drove the increase sequentially.

Yes. That also has to do with parking, which has been ramping up in our assets as well and the fact that Peru, as I explained before.

Next question comes from Marcelo Motta from JPMorgan.

Two quick questions as well. The first one, since it has been just a month that you are recognizing the assets acquired from Falabella, if there is any clear point of synergy or low-hanging fruits that you have already noticed on the portfolio that we could expect to benefit results in '25? And the second question is more regarding the asset level. When we look at a monthly sales per square meter, we saw some weak figures in some malls like Mallplaza Tobalada, Mallplaza Sur. And in the case of Tobalada, even with declining sales, rent per square meter or the revenue per square meter have a significant increase. So I'm just wondering if there is something that is more painful or just to understand what should be the trend on those specific assets.

Thank you, Motta. And with regards to your first question in terms of Peru, I think it's relevant to mention that what is our plan, right, our ultimate plan in Peru, which is as we've announced previously to the market, we have a plan to expand our assets there in 100,000 square meters. And this plan in Peru also will enable us to increase the number of Tier A assets that we have in that market. We certainly have Trujillo and we have plans to convert Comas, Angamos and Piura and other Tier A assets in that market. And we also in the earnings release, you can see how the tenant mix is structured right now in Peru. And our goal and our focus is converting that mix, which today is highly dependent on convenience to increase the fashion and entertainment proposal as it is the case with the rest of our portfolio of Mallplaza. And we believe that with this change, we'll also be able to generate additional revenue for those malls. As shown in the earnings release, I mean, these are malls that do still have a lower occupancy cost than what we observed in the other 2 countries and we think that there's an opportunity there for us to continue to grow and to extract value from this acquisition. Now as to your second question, in terms of sales data, there's -- and I guess you mentioned 2 assets in Chile being, for example, Sur and Tobalada. In the case of Sur, it has more to do with specific entertainment and big box, which had presented there a bigger impact. And in the case of the Tobalada also a drop in sales in big box and mix use. So this is something that was more specific. I mean, these are assets that we've been working significantly on the reconversion and we expect these metrics to improve going forward. And I just also want to highlight here on the reconversions that we did and call your attention to what we disclosed in the earnings release, of what we did in Alameda, which was a significant reconversion, and there's a base study that we detailed in the earnings release as well of all the value that was generated from this reconversion. As you well know, this is part of our ongoing strategy. And with this specific case of Alameda, we were able to increase footfall for that mall 12% year-over-year, overall sales of 11% and revenue 10% for that mall year-over-year.

Our next question comes from Felipe Ballevona from Santander.

I would just like to have some color in property taxes.

Great. Felipe, you will thank you for your question. And I guess, in general, when speaking about the effective tax rate of the company, bear in mind that we now do consolidate Peru. So this brings, in effect, into the effective tax rate and the effect for Peru was the consolidation in December. And on top of this, there's also an effect in the fourth quarter of 2023, which was the recognition of a deferred tax asset in the result from tax losses line that you can see in Note 13 of the financial statement. So now that was an effect specific in particular to the fourth quarter of 2023. So these are the main issues on tax, and I'm not sure if there's any specific -- other question that you would have.

Yes. Actually, that was really good color. But how about property taxes?

Thank you. Property, sorry, I didn't get the property part of your question. So on property taxes in general, we've been working with advisers as well. And I mean, as we've mentioned in previous calls, there have been precedents by other companies in the sector as well. We have successfully been able to recover part of the charges that were made and we are following in the same manner. So we do expect to have some positive outcome in the coming quarters with regards to property taxes in general.

[Operator Instructions] Our next question comes from Guillermo Edwards from LarrainVial.

Regarding the temporary closure of Mallplaza Bellavista, is there any material risk involved? Could you give us some context on this situation?

Guillermo, thank you for your question. And as of right now, yes, we do have -- it was recently the closure of Mallplaza Bellavista and [ Panuco ], both of which are in Peru. And we're working closely with the authorities for the malls to be able to be to operate normally as soon as possible.

[Operator Instructions] Our next question comes from Joel Lederman from Itau BVA. Mr. Joel, seems that you have some issue with your audio. We'll ask you to reconnect to the conference and rejoin the queue . [Operator Instructions] This concludes the Q&A session. At this time, I would like to turn the floor back to Derek for any closing remarks. Sorry, we will reopen the Q&A. Our next question comes from Carolina Zelaya from Banchile.

Congrats for your results. Could you give us some color for January and February not only in terms of the consumer behavior, also if you can add some comments related with the tenant and what happened during the last quarter related to the bad provisions? If that trend continued during the last month?

Thank you for your question. We don't typically comment much on how the current quarter is progressing. But I think if you see how we ended the year, in terms of also -- I mean the year 2024 was a significant year in terms of contracts that we signed. We signed 677 contracts and that's typically a good read-through of sort of what's the retailers confidence as well on their appetite to sign in new contracts. Also on top of this, I mean if you look at the overall occupancy levels, we've been able to increase occupancy in Chile and also in Peru. And Colombia, even though overall the headline number decreased by 0.3%, that's a lot -- it has to do because of the base of comparison, right, because we added Cali. So I mean, in general, there's been a lot of demand and appetite for GLA. So this helps towards this environment of us being able to sign new contracts. And if you look at the overall footfall and sales trajectory, that came off strong, as mentioned earlier, in the fourth quarter. So in general, I mean, we sort of expect this behavior to continue, I mean, in terms of the operational figures that we noticed for the recent months.

This concludes the Q&A section. And at this time, I would like to turn the floor back to Derek for any closing remarks. Please, Mr. Derek, the floor is yours.

Thank you all very much for connecting to this fourth quarter earnings call for Mallplaza. As shown, I mean, in the quarter and just want to reinforce here, the focus that the company has in terms of growth. I mean, this was a quarter in which even when you exclude the acquisition that we did in Peru, net revenue grew 21.2%, EBITDA grew at 22.4%. So we, going forward, as part of our strategy, as we've mentioned earlier, we do have a focus to continue to expand our malls. So we have a expansion plan of 125,000 square meters in Chile, 100,000 square meters in Peru. As we've mentioned also and added in this earnings release, our land bank consists of about 627,000 square meters in both Chile and Peru, which allows us to continue to expand as an example of what we did recently with Mallplaza Vespucio, which now north of 190,000 square meters, became the largest mall in Chile with its Lifestyle. And from a balance sheet perspective, we ended the quarter at 3.8x. If you look at the last 12 months' figures for Peru and consider that, that's 3.1x. So that gives us ample room to continue to seek growth opportunities going forward, be it on the M&A side or be it for other brownfield opportunities. And I think also important to highlight here that Peru was an acquisition that we concluded in December. So we consolidated the month of December and not the full quarter. So now we're going to have a full year of Peru, which should help towards growth as well, and it's relevant to have an assessment of what will be the full year sort of effect into Peru. Having said all this, I would like to thank you all once again for connecting on the call. And any other questions that you might have, please feel free to reach out to our Investor Relations team. Thank you.

Thank you. This does conclude today's presentation. You may now disconnect, and have a wonderful day.