Iguatemi SA

BOVESPA:IGTI3

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, and thank you for standing by. Welcome to Iguatemi S.A.'s Second Quarter 2023 Results Conference Call. With us today, we have Ms. Cristina Betts, the company's CEO; and Mr. Guido de Oliveira, CFO and Investor Relations Officer. We would like to inform you that this event is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through Iguatemi's Investor Relations website at www.iguatemi.com.br/ri. The slide deck presentation is also available for download. Participants may view the slides at their own convenience. Before proceeding, we would like to mention that forward-looking statements made during the call are based on the beliefs and assumptions of Iguatemi management and on information currently available to the company. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions, and other operating factors could also impact the future results of Iguatemi and lead to results that differ materially from those expressed in the forward-looking statements. We will now give the floor to Ms. Cristina Betts, who will begin the presentation. Ms. Betts, you may proceed.

[Cristina Betts, executive]

Well, good morning to all of you. It is a pleasure to receive you once again at our conference call. We're presenting the results for the second quarter ‘23. First of all, we continue to have an excellent performance, and the figures are a testimony to this. The first figures that I would like to share with you is our sales record this quarter. We obtained excellent results in Valentine's Day and Mother's Day coming to R$ 4.6 billion in the second quarter '23, up by 8% versus the second quarter '22. I would also like to highlight that 8 of our 16 shopping malls have accelerated growth 10% above the results of 2022. After speaking of sales, of course, the sequence is to speak about lease. That has also grown above and beyond inflation. Now this shows the qualification of our mix and Iguatemi's trade strength. And this is something that we have been converting during the calls. After the situation of the pandemic, reaching 0.7% below what was recorded in the first quarter 2023. We have also been able to renew all of our contracts very positively. In the second quarter, we obtained a spread of 5.1%. Of course, with the compression of lease and stores, and we have reached 10.5% and 9.0%, respectively, in our stores. Our occupancy continues to be stable at 11.3%, very much aligned with what we had in 2022 or 0.3% below our historical levels. We had a strong readjustment of lease. If you follow up quarter-on-quarter, including this quarter. And because of the sales increase, we have been able to maintain a stable occupancy. And thanks to our efforts in terms of maintenance of condominiums and others. Net default once again has been very good, 12.1% in the second quarter, favored by the recovery of the base we had in the first quarter and also payment of all of the necessary bills during the quarter, which means that we have returned to the collection levels that we had, and they are even better before the pandemic in 2019. We're receiving our pins on the first day, as we used to do way back in 2019. Now to speak about the occupancy rate, it continues to be stable at 92.4%, in line with the other quarters. And with a positive trend for the second half of this year, we have been speaking about this, and we do continue with our guidance for this year. More specifically, in the second quarter ‘23, we had a record of contracts signed 151 contracts, 70 alone in June. So this shows the recovery of our commercial part. And of course, this will have its retrogression. To speak about our operations, especially in the digital area, Iguatemi One, we had the second edition of Iguatemi collections, which has surprised us even more in this edition of collections, we had a Nike set and a cutlery set that was extremely successful, very desirable, and we had 40,000 new participants and an increase of 30% and the invoice set vis-a-vis the first edition. So this is the recognition of this program. And the third division will begin now at the end of August. Iguatemi 365, we continue to maintain our focus, as we have mentioned formally. We're looking at the profitability of the business. We had improvements in our margin. And of course, thinking about the operation breakeven. In the second quarter, we worked with qualification and selection of brands, maintaining the brands that offer us higher profitability, and doing away with brands where we have worse profitability. As we mentioned, we had migration to the tax, and we're looking at all of our SG&A items, too, to enhance further. When it comes to the events, I think we have spoken at link about this, especially after the pandemic. Our focus now is events. And we have a very uncertain and circuit strategy that creates this symbiosis with the shopping mall operations. This is very clear. We had several events in the second quarter. The addition of Cine Vista, JK Shopping model an interactive event to celebrate the 60th birthday of Monica from Mauricio de Sousa unheard of experience after 30 years, a celebration of Jurassic Park who doesn't recall the first Jurassic Park. And for the seventh consecutive year, we had the world Blue Day, working with the association on autism. We had an exhibition of films, a party, and Oppenheimer. And this is an incredible project that will have a reflection in the third quarter, the Barbie house experience and other shopping malls will also participate in this. This is in a partnership with Mattel. We have sold more than 60,000 tickets only in the shopping mall. You speak about our commercial structures and our surroundings. We have 2 corporate enterprises that deserve to be underscored. We had the inauguration of Sky Galleria, close to the shopping mall in [indiscernible]. It is 100% leased and 60% occupied, generating a significant flow in the shopping mall. We also have Iguatemi and Portalegre, one of the more desirable areas in the city. And as you will recall, and as we show you in our [indiscernible]. In Portalegre, we do have subsequent chapters in terms of our real estate. We have also shown a very interesting case, Ribeirão. Besides the shopping mall, we have 2 commercial towers that are highly sought after by our partners. And the idea is to use this competitive edge in Ribeirão Preto. In the area of influence, we had an increase of 130% in the average lease compared to what we had in 2007, with real growth of 64%. And this shows you the strength, the magnetism that the region like it has when we bring all of this under our control. I will dwell a bit on Casa Figueira. We do have very nice pictures in our release, and we are concluding in August Prototype Street. It is precisely a prototype of the aesthetics and the finishing with the structure of the neighborhood, and we will begin the construction of Casa Figueira. It will be a meeting point for the new neighborhood that we're developing in [indiscernible]. To speak about SG&A, we had some important things happening. Perhaps the most important part is our sustainability report on Monday. We were very satisfied to the publishing. It represents our sound commitment towards transparency, information about our actions, what we have implemented with our pillars, and also a retrospective view of what has happened in the last years and decades at what they need. And we think about the consumption of energy, water, the responsible management of residues, fostering actions to enhance our associates and the communities. We want to use this report so that it will become a channel of communication with the market and use it as a parameter not only to enhance what we can do ever better but also so that it can serve as inspiration for our partners and stakeholders throughout time. Well, we're quite confident in the coming periods. We have a great deal of work when it comes to occupation. We're going to speak about our efforts devoted to SG&A. We do want to become ever more profitable as a company. And we're going to show you the effects of leveraging of the company, curatorship, of events, mix, our projects in the coming quarters and years. We have a very promising situation with good results. I would now like to turn to the presentation and refer to the highlights of the second quarter. I'm going to go through this quite quickly so that we will have time at the end. On Page 3, we refer to total sales of R$ 4.6 billion, up by 8%, and the estimated sales for July that once again are very strong compared to July '22, with a growth of 11.3%. And in the last days of July, of course, we have not accounted for this. We spoke about the boom we had in the cinemas and in our malls. Same-store sales grew by 6.5%, scenario sales 8%, vis-a-vis the second quarter ‘22 same-store rents with a growth of 10.5%, same area rent with 9% increase. Now the vehicle flow that is very important and refers to the sales in July, 7.4% above the same period in 2022. We have spoken pretty about vehicle flow because of the alternative versions over bicycles, scale, everything that can bring people to the shopping mall is included in this vehicle flow. But in July, we had a significant increase in gross revenue, reaching R$ 353 million, up by 15.4% vis-a-vis the second quarter '22. Net revenue reaching R$ 302.7 million, 19.3% increase over the second quarter '22, excluding the straight-lining effect. Net revenue reached R$ 308 million, up by 16.4% vis-a-vis ‘22, consolidated EBITDA reaching R$ 209 million, up by 18.6%, with an adjusted EBITDA margin of 67.9%. Adjusted net income reaching R$ 85.5 million, an 86.6% increase over the second quarter '22, and adjusted net margin of 37.8%. Adjusted FFO reaching R$ 128.9 million, up by 52.3%. In terms of our leverage that I have already mentioned, also quite positive. We had a drop vis-a-vis the first quarter, which is healthy. We ended at 2.36x net debt adjusted EBITDA. At the assembly, we approved the payout of dividends in 4 installments. The first will be R$ 110 million and will be paid in July. We also spoke about a lease at Sky Galleria, a record of occupancy in such a short time. But also go through the highway. This is a beautiful, very visible power, especially in the evening. In May of 2023, we settled the life debenture issue in the amount of R$ 300 million. The company is most expensive debt because of what was done in the pandemic. So we will observe an improvement vis-a-vis the debt cost going forward. The second collection campaign, which I have already mentioned that ended after Brazilian Valentine's Day. We did have important insights regarding our customers because of collections, and we identified some important customers that are not normally very visible to us. Something that is very important for us is the efforts institute. We were recognized the company in the retail sector for diversity and inclusion ranking. We had a record high in these spaces. As I mentioned, 151 contracts were signed only in the quarter subsequent events, the buyback program that we announced along with the release of up to R$ 136 million, 2.9% of the shares that is circulating the team Barbie Dreamhouse Experience at JK Mall, which is something exclusive that we carried out in a nutshell. And what is also very important, we have made investments in Etiqueta. We have just opened a kiosk in Iguatemi São Paulo to deliver products to sellers and also for the exhibition of products that might be of interest. And it has already shown some interesting results, increasing the sellers because of the visibility and quality of what is being sold. I invite all of you to come visit this kiosk that truly is very interesting. To speak about the sustainability report. This is our first report. It is the beginning of our journey to convert on this topic broadly. It is a commitment to maintain this year after year, and we're going to focus our efforts on this during the year. In this specific report, we highlight our efforts to reduce energy and water consumption, the implementation of sustainable technologies, and of course, responsible waste management. We also emphasize what we want in terms of our role when it comes to the company's sustainability. All of those partnerships that we have to enhance the environment and social work. In our report, we have carefully followed the SASB guidelines word for word showing that we were going to fully comply with these guidelines, and this should enable us to involve our report with new certifications. But in this case, we're 100% compliant. And of course, we have our real estate property development on Page 8. We show you the development of the prototype street for Casa Figueira. We began the work in June, if I'm not mistaken, at the end of May, and the intention is from the shopping malls to show the last expansion, it's at the junction where we have the shopping mall, and we will be able to visit this beginning in September. Casa Figueira should be ready at the beginning of the second quarter in 2024. It is a meeting point, the epicenter of our follow-up in the neighborhood. And it's important, of course, to give people greater visibility of what we're going to build in the coming years. Now with this, I would like to give the floor to Guido to speak about the operational and financial highlights.

[Guido de Oliveira, executive]

Good morning, everybody. We're going to speak about the main operational indicators. We're on Slide #10. First of all, our GLA evaluation. We bought a share of 36% at Iguatemi JK, increasing our variation by 3% total GLA of the shopping mall will not change. We were already shareholders in JK. Now we have a variation of 2.5% in total GLA because of the coming into operation of the Galleria Tower after a few months of inauguration. Now as you can see, this represents R$ 13 million of our gross revenue, and JK represents 5% of the growth of our net revenue. Another figure that I would like to highlight that has already been mentioned is the total sales with a growth of 8% in the second quarter and the sale of 11.3% increase in July, considering we have not even accounted for the last week. Now in the second quarter, we had services and events with variations in the food of 9% and 11%, and at the end of June and July, a significant growth in services with an increase in the food mall of 22% in July. Fashion, growing 11%. Services growing 18%, and food growing 16%. So we had already seen this in the past, retailers learning how to learn with the winter season, and we had a very successful winter season. And of course, we had a great deal of work on flow and activation of the main events to bring in people to our shopping mall. And well, there's a special mention of the Barbie Dreamhouse. One week before the inauguration, we had sold 21,000 tickets. And until September, we have sold another 60,000 tickets, and we had to extend the schedules. We have expanded the schedule from 11 in the morning to 10:00 at night, and all of the slots have been filled in. Now the sale has been a highlight. We speak of growth with a real gain of 7% based on IGPM during the period. And of course, this merits underscoring. [Audio Gap] Can you hear us?

[Cristina Betts, executive]

Yes, you may continue if you wish, please.

[Guido de Oliveira, executive]

Once again, can you all hear us? Yes, we had a problem with our line. We do apologize, but we were speaking about the growth of lease. We have an accrued growth since 2019 that goes beyond 60%, and we were able to have a growth of 10.5% and same-store rent and 9% in same-area rent and we have our guidance, and we have had a record of contracts in the second quarter. And in the month of July, we signed 40 contracts just yesterday. This, of course, is a vacation month, and we have been able to attain a record of contracts in our portfolio for the month of July. This shows you the commercial activation. We now go on to Slide #11 that will be broken down further ahead. We have a growth of 19% in net revenue. Our EBITDA growing 17%, and we ended with a net income of R$ 77 million. We go on to Slide #12. Where we have our P&L without the straight-line effect, infracommerce effect, and share SWAP results. This is our proxy cash effect. We have a growth of revenue of 16.4%, reaching R$ 308 million, and EBITDA margin of R$ 208 million. Our growth of FFO with a growth, and we have reached 42% margin growth in FFO. Net income coming close to 30% with R$ 85,000 of net income. We go on to Slide #13 to speak about the financial results that concentrate on retail and what they mean. You see the improvement in the results we were working towards the breakeven of Iguatemi 365 R$ 13 million negative to R$ 7 million. This is thanks to the work in the retail segment. We had an effect that we were aware of. We removed this from our portfolio in June first because of Balenciaga, and we had a gain in revenue of R$ 10 million because of the sale of the stock of R$ 11 million. Now because of the work we did in SG&A in retail and Iguatemi 365, we had an improvement of EBITDA of 40%. When we look at the 6 months, we are at R$ 15 million negative, and this should continue until the end of the year. We had already been speaking about this since last year, and we will have a significant improvement vis-a-vis the year '22. We go to the financials for the malls. What is important here is to show you our margin preserved at 78%, our EBITDA margin in the second quarter as well as in the first 6 months. Net revenue with an increase. Now when you take away the effect of JK, which is 5 points, we have a growth of 15% in net revenue. EBITDA growing 14.6% to R$ 216,000. And I will speak about our cost and expenses going ahead. If we look at our results, we have a growth for 6 months of 16% in gross revenue for the malls. And this, of course, includes rentals management fees, parking, and others, and 14.6% for the second quarter. Now as you can see, the variation in rentals was 15.2%, and the occupancy curve has been maintained, and this shows the work we have carried out to have a positive lease spread on our leases and in the stores that are under renewal. We also have a growth of 16% in parking with the growth of flow vis-a-vis 2022. This is because we have increased the tariffs throughout the year, and we had a growth in vehicle flow in July. And the growth vis-a-vis the second quarter '22 was 5%. And as a whole, it has been 8%, and it shows us that the third quarter will also provide us with very strong results. We go on to the rental revenue for malls, a very significant growth in minimum rent. Excellent work that we carried out with kiosks and media, both inside and outside of the mall. And of course, the part of events that is of supreme importance. Our events or property, and they have become a part of the calendar of the city. For example, the June party and the events we have at JK very successful events that is events that are fully sponsored. And these are remunerating our events over more we had said about Barbie. So this, of course, will take off during the year, and it will continue to grow during the second half of the year. Let's look at costs and expenses. It is worthwhile mentioning that we do have significant variations, especially in terms of personnel. The cost of personnel, we have reinforced our commercial team. But during this quarter, we revised our processes, looking at the efficiency of the company. And this work ended at the end of the second quarter, and the results of this work will appear in the third and fourth quarter, not only in personnel but third-party services as well. And in terms of cost and expenses, the third and fourth quarters will be better when compared to 2022. Costs and expenses grew approximately 8%, but when we look at the percentage of net revenue, they drop. And in the second quarter of '23 compared to the second quarter of '22, there is a reduction of 10.8% as a percentage of our net revenue. We go on to Slide #18. As we were mentioning at the end of last year, we acquired a part of JK Shopping Mall. And we obtained very low-cost credit, and this operation was done through a SWAP. We're at 99.5% of CDI with a longer term than we normally have. So on December 31, we were at 34% CDI. And presently, we're almost at 100% of CDI of our cost of debt. So we have enhanced our debt profile as well as enhancing the term, and we have a leverage of 2.36%. Our FFO in the second quarter, the market projection is to have a drop in interest rates. We should have an improvement in our financial results, especially in the second half of the year, and we will have an improvement in the financial revenues.

We're in Slide #19. You'll see that we're at 100% of our CDI, very close to that, with 87% of our debt dropping, and the drop of the SELIC, of course, will aid and beds in our financial structure. And finally -- we would like to reaffirm our annual guidance. We're quite above the net revenue growth above the retail with a growth of 19.7%. When we look at EBITDA margin, we are at 78.2%, and total EBITDA margin at 68.6%. Now the EBITDA margin for malls and the total will be closer to the ceiling and to the floor. Because in the first half, we were somewhat below what we expected, especially when we look at this in comparison with 2022. We have revenues that will be accounted for in the second half of the year. They will be above what we had in the first half of the year, enhancing our revenues. And throughout the quarters, we will be announcing the sale of fractions and properties as Chris announced at the beginning, and we also have an efficiency project ongoing that will enhance all of these figures in the second half of the year, enabling us to comply with the guidance and all of the items are on this table. With this, I would like to end my presentation and open the floor for questions and answers.

[Operator]

[Operator Instructions] Our first question is from Carlos Peyrelongue from Bank of America.

[Carlos Peyrelongue, analyst]

Congratulations for your results. I would like to begin with 2 things. First, yourselves in July that show an acceleration. Had to expect this trend in the second quarter, having a marginal increase in the second half of the year? And was there any specific category or asset that drew your attention and that led to this increase in sales? And my second question refers to your commercial strategy. Your figures are below the average at the same time that you have a very attractive spread. So how are you thinking of your strategy? Are you comfortable in terms of occupancy?

[Cristina Betts, executive]

Let's speak a bit about July. We have seen the sales while Mother's Day was very good. June was even better. And July, of course, was the best of all. All of this was aided and embedded by that group of events that, of course, are very important. The good news is that all of this is across the board. We don't have one shopping mall leading this. They're all performing very well in all categories as well, which is very important. At the beginning of the pandemic, we would see international brands with a better performance compared to domestic brands. This is no longer the case. As Guido mentioned, we had a very strong performance in fashion, which, of course, is what is more significant when we're speaking about total GLA. But there are segments that are important. Jewelry continues to do very well, as well as entertainment. Because of this new lot of movies, people are going back to the habit of watching movies, and we have had an increase in movies through the years. We spoke about the films and the different groups of films. When the films are good, the business will tend to be good as well. This weekend, I took my daughter to the Barbie Dreamhouse, and everybody was wearing pink men, women, children. And you can see exactly who's going to watch Barbie and who's going to watch Oppenheimer, normally dressed in black. This is part of the entertainment, and we're resuming all of this after what we went through in 2020, 2021. And of course, this has a repercussion on sales. In commercial turnover, we have always spoken about this. This will impact our stronger portfolios. And when we speak about total sales, we're not speaking about square meters. We're speaking about total sales. 92% of occupancy rate means we have the best sales increase in the sector. This shows our strength. Obviously, when you have good sales, the tenants will remain, and we are able to increase the lease and renew the leases. Everything is positive. Well, the curable [indiscernible] in the industry is to have good sales, and sales are gaining force. The results are doing well. And everybody is speaking about this. We also have more people looking us out. And I had remarks about this in other quarters. We're resuming with an interest in new brands and innovative brands. We're holding conversations with several of the brands because there is a lot of red take to bring in new tenants and to bring in new brands. But we're going to see new brands coming into the malls. And this also holds true when we speak about the chain. We take new brands to the shopping malls in the hinterlands. And this reinforces the quality of the mix and increases occupation per square meter. Now all of this is very positive. And we're beginning to feel not as it was before the pandemic but before the recession, and we're quite confident that we will be able to maintain this in the coming quarters simply to add something to the part of the sales. Among all of these segments, only 2 segments were below 10% of growth. All the others grew. Home Decor and the diversity of products for home. When we look at the malls in the second quarter, they're also above 10%. In July, in our portfolio, all the segments sold above 10%. So as Chris mentioned, sales have been distributed in all of these different segments with an emphasis on sessions that grew 13.2%, driving the sales. We had a growth that was double.

[Operator]

Our next question is from [indiscernible] from XP Investments.

[Unknown Analyst]

We have 2 questions. First, we spoke about 2 tenants about the tax flow to understand how it was doing. And well, this is very important in the decision to close a contract with you. And if you have any visibility in the size of the launch that you are about to carry out.

[Cristina Betts, executive]

To speak about the tax reform. We have not had any conversation with the tenants about this. I think a great deal still has to happen. We have the complementary laws, the allocates. So far, we have not had a discussion on the new tax reform. Now the work that we have done with [indiscernible] and all of the team that is at the Congress, including the operator from the government and the operator from the Congress, we were able to maintain all of the real estate activity without any changes, we are now holding discussions with the Senate and the association to discuss the Alacare for this complementary law. But so far, there has been no discussion on the tax reform or not carrying out an operation because of what could happen with this reform. As I mentioned before, everybody is trying to take advantage of this growth wave, more resilient companies do want to become part of the mall, and that is why we have this record in the signing of contracts. Regarding the international facilitates the conversation with them. People understand how things operate abroad. And we are going to be announcing 2 new contracts that will come in during the year. And of course, this is a great help. Understanding our tax scheme is not a simple tax. To speak a bit about Casa Figueira, as I mentioned, we're going to begin work this year with the prototype for Casa Figueira, which will be a meeting point for the neighborhood and begin the infrastructure work at the end of this year and beginning of 2024. We have 4 years for the infrastructure works. We probably will not take this long. We have distributed the work through time. When it comes to the selling of the towers, this will begin in the coming year. We will begin with the prototype. And with a certain shot of Casa Figueira already constructed. And we will begin our relationship with possible partners in the construction of these towers. Therefore, at the beginning of 2024, we're going to define how to market all this and how the rollout will take place. But without a doubt, during the -- well, we will be doing this in the coming 5 to 7 years. There's a large number of towers. We cannot do this hastily. It would be in excess of capacity to offer. Therefore, we're also thinking about the physical rollout of this business. We want to sell those that are closer to the shopping mall initially to those who are aware of the photography. There is a drop. And of course, you will have to go down some spares and the towers will be on the street. They're practically on the screen. They will, of course, be the first that will be sold off.

[Operator]

Our next question is [indiscernible] from UBS.

[Unknown Analyst]

I would like to bring 2 topics with you, first, about the guidance. In this first half of the year in terms of revenue, you showed us your guidance. When we look at what is happening, you have strong discounts, the sales are very healthy, better than we had imagined or expected. The commercial part occupancy should improve. Occupancy is still quite low. So is there a possibility of reviewing that guidance when it comes to revenue review upwards? And when it comes to cost if you could give us more details, more color regarding this efficiency plan that will enhance your EBITDA margin? Once again, if we could hear more details about this efficiency plan. And secondly, the cost of occupancy is 11%. We have an IP scenario where the cost of rent is 0, and the sales performance is fully surprising. So it is the schedule for the maturity of contracts or contracts that will undergo revision in the coming 12 months so that we can figure out which will be the impact and what will happen with the indicator. If you could please explain this further.

[Cristina Betts, executive]

Now to speak about the guidance, I would like to reinforce what I said. We're quite calm when it comes to the growth of our net revenue. We are at 19%. Now when we look at the second half of the year in malls, we should be in accordance with the guidance. I don't think they require a revision. Now we have the effect of the IGPM on lease. It was already 13%. This should drop as of the second half of the year. Beginning this year, the IGPM should become negative, and there is a monthly contractual correction where we have to look backward 12 months. The IGPM decreases because there will be a reduction of the impact upon the renewal of the contract. We're at 92.7% occupancy rate. We know that all of the contracts that we have been signing will be in effect at the end of the third quarter, beginning of the fourth quarter. So we will have an improvement in the rent because of the new leases, a very strong improvement in the fourth quarter, which, of course, will also be held with the cost. These are costs that are inherent to the process. If we look at the small segment, we don't have a great deal of revisions. We're at 9.7%. But we're going to enhance the results of Iguatemi 365. We have sold off a brand and this will enable us to bring down different brands. This was the case of Balenciaga, which was a brand that had a significant weight on our portfolio. So we saw a top in the retail segment because of the improvement in the results of Iguatemi 365. There hasn't been a growth intake rate. It is the same as it was last year, and we quite hold with the guidance that we have offered for the retail part and the malls. Now when it comes to cost and EBITDA margin, we have 2 ongoing processes. You spoke about efficiency. What we did was to analyze all of the company parts, all of the processes. Because of the pandemic, we had an excess of work in some areas. We had to have an increase in production. For example, in the legal area, commercial, marketing, HR, because of all the work we had during the pandemic, I remind you that in 2020 and June, we carried out a layoff of 10% in the company due to the effects of the pandemic when we resumed once again, we had to hire more personnel, and we had a growth in costs. What we did was to bring down the cost of our payroll in 2019 based on IPCA. The cost of our payroll today is the same as 2019. We have not had real growth, therefore. And if you address cost and expenses through the quarters, you see that there will be negative results, thanks to the work that we did when compared to 2022. And we're not selling any fractions and that would be booked in other revenues. We cannot speak about this because we're hiring, but we will have an announcement in the third and fourth quarters. We have reassessed our performance in the hinterlands because of the success of shopping Valeria, there is a waiting line for high-quality companies in the region. And of course, we will have work to do there. And in the first semester, we were below in terms of sales of point. And we do have announcements that will represent a relevant change in the second half of the year with an impact on EBITDA margin for the shopping mall. So speaking about the cost of occupancy even with a growth of revenues about sales, we maintain a better occupancy than in the first half of 2022. So besides having positive work, we have been working a great deal on the condominium costs. We're maintaining them with real negative growth. If you look at these costs, you will observe that they are negative. 2017 and 2022, we carried out work in the company for 5 years. We were at a cost of practically 0. And this year, we are working on this again to keep the costs below inflation so that we can have a positive spread in the coming quarters. We have been working with the commercial area, we adjusted based on IGPM, and so we have quite a bit of room to work with this positive spread that will impact our revenues. The revenues with an increase of 16% vis-a-vis 2019.

[Unknown Analyst]

Can you give us a breakdown of the contracts that were about to expire or be revised in the coming 12 months until December, 16% of the contract and after that, about 30%, 33% going forward? Thank you. Thank you very much. [Audio Gap]. [Foreign Language] [Technical Difficulty] And obviously, we do depend on the market, but we're looking at that. That was very clear.

[Operator]

Our next question is from André Mazini from Citi Bank.

[André Mazini, analyst]

If you speak about the change of leadership and Iguatemi 365 with [indiscernible] in the trade-off, you're always thinking about growth, selection, sustainability. I believe that changes are due to the new focus on profitability. And if you could also -- well, 365 is looking at several international brands. Now when it comes to the international brands, do you have management of these brands in retail as well?

[Cristina Betts, executive]

In truth, yes, when we began 365, we imagined that it would be something completely independent. We thought about it as a separate shopping. And I think that in reality, it continues to be, so now the reality of the operation, we needed to get that before we could proceed. Now if we look at this new focal brands that are more sociable, so we have put our foot on the brake in terms of growth. And what happened is that it became too big for the new operations. We got a 365 subjects. It was very good for us. But the size of the Iguatemi 365. Well, all the module is not sufficient for us, and even some roots are not only for us in terms of cost per [indiscernible]. So we reached an agreement, and we had a very soft transition between ourselves and my. We think we need to be friends. And initial [indiscernible] second question, we should focus mainly on the brands that we are operating in our retail, and some partner brands that we have within Iredale do not have brick-and-mortar stores. Of course, we're going to work with brands, I'll call it [indiscernible] market as brand that has that focus on higher profitability so that we can shrink the business a bit, focus once again on profitability, eliminate the company's cash burn and what is more important is to have time to think about the connection of 365, everything else we're doing in the company. It has to work with Iguatemi daily. With Iguatemi 1, it has to have a broader focus in terms of benefiting the brick-and-mortar part. And it will give us time to work with this union of all the moving parts, which presently is not very clear for the consumer. We do have an idea of the road map, and this will give us time to return to a more gradual growth, all thinking about maintaining the profitability of the business.

[Operator]

Our next question is from Pedro Hajnal from Crédit Suisse.

[Pedro Hajnal, analyst]

And Chris and Guido, thank you for the presentation and for taking my questions. First of all, I would like to know if you can give us some color in terms of what is happening commercially nowadays. Well, lease is something that will increase. How much GLA are you negotiating? And which will be the distribution of the signature contract in the coming 2 contracts if we should focus on one specifically or if it would be something [indiscernible]? The second question refers to your potential in Sao Paulo. We have seen record sales, we see other players in the sector. If there into working with a green field in 2025, which would be a company's mind in terms of that? And you're thinking of the cost of construction, 20,000, 25,000 square meters, which is what we have discussed in the past.

[Cristina Betts, executive]

Well, let's talk about the occupation rate, what the disposition will be. We have the contract, and typically when we sign a concept. We have 2 periods in duration. One at the fourth quarter with the last rise in Christmas. And in the first half of the year where we have a longer ease rate on go a March Virtusa [indiscernible] as Mother's Day is the one to any storms and not during July almost coolants when we're filing of this stall. It's not definitely [indiscernible]. Now we do have the window, and we see lead and inaugurated [indiscernible], we will see an important change in location going from the third quarter of the fourth quarter, and further ahead when we go from the first quarter to the second quarter is in the period we tend to have some reinauguration because you have the whole product selection at a stronger real period. Perhaps we won't fully see what happens in [indiscernible] investor quarter because we will be underpinning that change but in the fourth quarter, you will see many of this coming into effect and in duration operating already in December. Now we don't have an advertised greenfield yet. We see the project and installed a more frequently with the risk start. We still have approval of new projects. You will recall that we [indiscernible]. This discussion over on the good test. Despite that, we still not a significant asset as were think of the M&A and expansion possibility that we have mentioned, more than we have of the greenfield and extension, of course, makes much more sense for us as for and we're having an increase in sales, but do remember for a shopping mall like other we're taking up 300, 400 tenants that will have to get on the new projects. And in the past, we would make quite a bit of CapEx [indiscernible] money. I think that we have more profitability of making capital increase through towers and M&A comparability. Allow me to compliment something on the commercial part where we said that we signed 151 contracts and in July, an additional 40 contracts. We got to 190 contracts signed in the first half of the year. Now we inaugurated in the second half, almost all will be inaugurating 10 contracts coming with at only in 2024. It serves represents an improvement of 4,000 to 5,000 lease meters for the second half of the year. Just to give you some color, distributed among all of the shopping malls involved with greater vacancy, we have a better ratio for reaching 79% topping close to 100% outlets like [indiscernible] we have 100% of our secure check. We also stopped the mature buildings and [indiscernible] shopping mall. And in fact, we do not believe for the inauguration [indiscernible] at an area we have to compromise this occupation representing almost 200 stores.

[Operator]

Our next question comes [indiscernible].

[Unknown Analyst]

We also have 2 questions. We talk about it spread 12% in the last quarter. I believe the spread is 10%. I would like to know to give us more color -- how you add that leasing spread them forward? Will we have an acceleration, or will we remain at that level of pay? And I would like to go back to the EBITDA margin topic earlier on. You said that this should expand. But we are the main drivers for the EBITDA margin expansion is a leasing spread, it is an increase in occupation costs, retail. Could you give us an idea of if this would represent 30% of leasing to have an idea of the growth?

[Cristina Betts, executive]

We're speaking a bit about leasing spreads. We have been highly disciplined in terms of this occupation. It's very easy to occupy space. We have a demand, a lot of demand. The question is if we have a sales demand at the vice higher. So the thing is to have precision and [indiscernible], one thing to close the occupancy rate faster impactment of the lease, we're seeking for that area. We want to have all the goods together. We do want to grow vacancies with the right person, whether right, finally. We do want to have tenants that will add any thanks to our mix of adiponectin that shopping mall [indiscernible] but do not have the right price or we also say now in part of the mix. And although this will have an immediate impact on our P&L in the long term. In the medium and long term, the impact will be positive when you bring [indiscernible] panels with a negative lease read through finance. This will either way be your positive base. We wish to have close to 3% of the [indiscernible] area, and if you contain tenants who will ask for lower income over time, we will come out losing. It's very important for a positive-looking spread. This shows the quality, not only of who are closing the ripened but so that we're closing with the right price and through time, they will rent the policy it brings in. So the answer and this view is this [indiscernible] will come to one as part of our DNA for the part of the challenge. It's part of the way in which we operate. We're not going to come anything. You can be absolutely sure that now how posits will be will also depend on the economy and other intense, but we're always going to think about 0 upwards, never anything negative. To answer the second question, we have already spoken about spread, yes, the leasing spread is one of the levers to maintain the growth of our net revenue and the improvement of EBITDA margin. We have been improving the discount quarter after quarter. [indiscernible] in the cost, and we have 0 signify level in July of 3.9%. This is a default rate that you better than in the year, this was a system when it's compared to 2014 to ‘13 report recession. So the bad debt closing growth was the same. And this has all of the changes that we have made in terms of our tenants in the year had a feel as that consent to have positive leasing press quarter after quarter, [indiscernible] the occupancies made. Another thing that we have already mentioned [indiscernible] is improvement in term efficiency compared to 2023 and compared with the first half of ‘23. We spoke about cost loads. We have worked with efficiency improvement that until July 3, there was no restriction in the first half of the year. It will only be in August and it will be comp and comp expenses in the third and fourth quarter. And we have been joined in retail and [indiscernible]. Now in the first half of the year, we will follow, but we had estimated returns of [indiscernible]. We have a project that will be accounted for in the third quarter that will increase EBITDA value that will help us with our revenue lower than [indiscernible] lower than what we had best and made this will not requirement in revenue. It's not better than 2022, where we have that we probably have events that we use 2020, '21. [indiscernible] We oversee [indiscernible] of IGPM. We have recovered not undertake better than the estimate segment [indiscernible] to improve on [indiscernible] we have called an [indiscernible]. We have taken to contact through crosscheck and we grow this comes to our third quarter. Qualities will be improved by the [indiscernible] merging of the more content margins [indiscernible]. And we hoping we have growth in net revenue, where we also lead the feeling. Thank you very much.

[Operator]

My next question Marcelo Motta from JPMorgan.

[Marcelo Motta, analyst]

I want to talk about [indiscernible] a recent very market and is at your growth? Or you're thinking of improving them in very low-cost street you guidance or tail direction for us a next sense with last year. [indiscernible].

[Cristina Betts, executive]

When it comes to the [indiscernible], but they are always around the same topic. [indiscernible] We have also reduced competition. The real more we not in the question by on an opera perhaps we have more appetite to ensure we can circle to be able to renew M&A. [indiscernible] I don't see a -- in these perhaps come from to our strategy might help us more response to second question remain payout will start during the payout, [indiscernible] during the transaction, we can aim that income and is because of the interest comes we no longer have a dividend. Next year, we will increase [indiscernible] also with -- we have a [indiscernible] we're going to 2020 represents again to pay out dividends for our shareholders.

[Operator]

[indiscernible], for her closing remarks. You may proceed.

[Cristina Betts, executive]

Well, thank you for participating [indiscernible] -- [indiscernible]. Otherwise, we will see you in the next quarter.

[Operator]

Thank you, everyone. [indiscernible] Thank you for your attendance. You may disconnect now.