Iguatemi SA

BOVESPA:IGTI3

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone, and thank you for holding. Welcome to Iguatemi S.A. Second Quarter '24 Results Conference Call. With us here today, we have Ms. Cristina Betts, the CEO; and Mr. Guido Oliveira, the CFO and Investor Relations Officer. We would like to inform you that this event is being recorded. [Operator Instructions] This event is being broadcast live via webcast and may be accessed through Iguatemi's Investor Relations website at www.iguatemi.com.br/ir where the presentation is also available for download. Participants may view the slides at their own convenience. Before proceeding, please bear in mind that forward-looking statements are based on the beliefs and assumptions of Iguatemi's 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 overall economic conditions, industry conditions, and other operating factors could also affect the future results of Iguatemi and cause results that differ materially from those expressed in such forward-looking statements. We will now turn over the floor to Ms. Cristina Betts, who will begin the presentation today. You may proceed, ma'am.

[Cristina Betts, executive]

Well, good morning to all of you. It is a pleasure to host you once again at our conference call. We are presenting the results for the second quarter '24. This time, we're going to do things differently, have a shorter presentation to have more time for questions-and-answers. Once again, we had a quarter with an excellent performance, but we do have some highlights that I will share with you during the presentation. So let's go to Page 3 of the presentation. I begin therefore by speaking about our shopping malls in Rio Grande do Sul. In May with a great deal of grief, we witnessed the disaster that happened because of the flooding. We have 3 shopping malls, the Iguatemi Porto Alegre, Praia de Belas and a bit further up the Iguatemi Fashion Outlet in Novo Hamburgo. And I think that we were able to act very quickly, especially when it comes to our associates and the local community. What we would like to highlight is that we offered full support to our associates and third-parties in that region, always hoping to allow everybody with sufficient liquidity. We converted the food vouchers in cash in their account. We offered medication, especially, and we do have a center for emotional support that is specialized in trauma. Of course, the idea was to allow everybody to understand what they have to do, we offered donations, aid. In truth, we attempted to be very present to support everybody that is part of our ecosystem. And through our enterprise, we joined the process Juntos for Rio Grande do Sul. We contributed with donations, and we also worked with government agencies and NGOs. Additionally, we showed great solidarity to our tenants. We supported them by anticipating rents with discounts, and we worked in our shopping malls in a very flexible fashion. The people who work inside the stores found it very difficult to get to the stores. So in fact, we have to adapt to those conditions. And Novo Hamburgo Mall, as well as the Iguatemi Porto Alegre did not close for a single day. But Praia de Belas had to close. It is in front of the Guaiba River, there was flooding in the underground, in the parking, and it remained close for 20 days. Guido will later speak about the financial impact of all of this. But you will see and you must have read in our release that we truly focused financially at least with a concentration in May and in July, we had a reversion of sales and movement in the 3 shopping malls, something that was quite surprising. But we'll speak about it when we speak about financial highlights. Let's go on to Page 4, that was quite busy in terms of capital allocation. We have news. And of course, we share news as soon as it arrives. We sold our stake, our full stake in Iguatemi Sao Carlos and a partial stake in Iguatemi Alphaville. We sold 50% stake of the Iguatemi Sao Carlos. We have already received the approval, but we have to hand this over to the management, we're speaking here about a sale, which represents BRL 205 million with a cap rate of somewhat more than 8.3%. Ensuing this, we announced the purchase of Rio Sul along with the BB Assets Group assessed at BRL 1.1 billion. We bought 49.9% along with the BB Group and Iguatemi hold 16.6% of the investment. Our investment was BRL 350 million, with a cap rate of 7.7%. When we consider the management fees, the commercial commissions and much more, we reach a cap rate value of approximately 11%. And finally, as you know, Iguatemi Sao Paulo is a shopping mall with an incredible configuration divided into 60,000 shares. Every year, we buy shares. This year, we were able to purchase a greater block of shares. I'm referring to 0.8%, it's very rare to be able to purchase it for BRL 25 million, with a cap rate of 2%, an excellent cap rate for an incredible asset like Iguatemi Sao Paulo. In this quarter as well, we carried out an issue -- taking advantage of a market opportunity we issued CRI at a very accretive price of CDI plus 0.33% per annum. This helped us to extend the average term of the debt for 7 years, which is something we do frequently based on market opportunity and looking for fundraising to enhance our debt profile, enhancing not only the duration, but also maintaining our total date that, of course, is pegged to the selic. And this is what we have done throughout the years. I would also like to speak about our second quarter. We released the second sustainability report, which is much more complete than the first one. And I congratulate the Iguatemi team. It's not a simple task to collect all of that information. The main enhancement in the report is that we began to put down on paper our ambitious commitments in the 3 axis. The first axis is environmental management that is sustainable. Of course, we will operate our portfolio in an efficient way, minimizing the impact to the environment. This was already previously written out. We have also put our will to contribute to the reduction of greenhouse gases and to enhance the experience of our customers. We want to see happy and thriving people. We want to have an engaged and innovative community of people working with us and motivate the people in the communities where we work. And in terms of our New Code of Ethical Conduct, we want to have transparency and a corporate policy that is more adherent to the principles set forth. There is nothing novel between saying things and writing them down. We're now writing them down to ensure that all of these statements can be followed and to ensure that we have figures to follow this and allowing us to share this with the market, of course. Now to speak a bit about our sales. I think I will allow Guido to begin speaking about sales. Guido, therefore. Well, wait, I'll present the sales. Allow me to speak about sales. As I mentioned, we had a very strong sales quarter, and despite the impact in Rio Grande do Sul, our real growth in sales was 7%. And if we look at the second quarter exclusively without Rio Grande do Sul, we're speaking to an increase of almost 10% expressive sales, 6% is quite above IPCA. When we compare same area with same-store sales, we had a very good growth of 7%, accompanying the sales growth very similar to what we had in Rio Grande do Sul. Now this part of sales, I always speak about the resiliency of our portfolio. The fact that throughout all of these years, we have continuously worked towards improving the mix, closing the vacant area, reaching 95% occupancy that we will also remark on, all of this has contributed to sales significantly. This is work that is always ongoing. We have several novelties about to come in the second half of the year and the coming year. In our release, we have included all of the novelties. For example, one of the many examples. We inaugurated Loewe's flagship in April. This is one of the most desired brands worldwide. And we were surprised by the sales. And I think this is what we look for in each of the stores that we inaugurate, perhaps you observed in the release that we have already signed in our shopping malls, stores that for each endeavor will truly mark the difference. We're speaking about Zara Home in Higienopolis and others in Iguatemi relevant brands that make a difference in details as well as in flow. And of course, this should continue to improve during the coming months and years. Now I will truly give the floor over to Guido and then will return for questions-and-answers.

[Guido de Oliveira, executive]

Let's go to Slide #9 to speak about our operational performance. Our total TLA dropped because we were speaking of the retrofit operation in marketplace. We're separating some areas to begin the works on the first half of the year, we have isolated the first floor that will be demolished. And of course, we will continue on with this in the third quarter. Once again, the entire area is isolated to begin to demolish when we begin the retrofit of the marketplace in January of next year. Of course, this generated some impact in same-store rent and in minimum rates because of the lower occupancy last year, this was fully occupied. Our sales with an increase of 7% by removing the effect of Rio Grande do Sul, we reached a 10% increase same-store sales of 3%. When we look at the entire portfolio, this is very important. We are offered 60% of rent discounts in Praia de Belas and other discounts in Iguatemi Porto Alegre and in Novo Hamburgo. So it's 5% over IGPM. And of course, the profit here was 0. Other points that are worthwhile mentioning in terms of indicators, occupation with very strong sales as has already been shown. The sales of July were also very strong, 11% for the close sales of July. And well, the figure could perhaps be somewhat better, but approximately the 11% which shows, of course, that our cost of management is flat. It has had only a nominal growth, and we have a good take rate, but not at the same speed as the growth of sales. And this enables us to continue to apply positive spreads as we showed you this quarter. In the first quarter, it was 7%. And in the second quarter, the spread was 10% approximately. We're very comfortable in terms of our default rate. Our default rate in the second quarter is below what it was in the last 10 years. And the situation in July was not different. We closed at a record 2.2. The best indicator in the company since 2014, showing you how successful our tenant portfolio is. And shopping malls are resilient. They're growing. And this allows us the opportunity to reprice our rent. Let's go on to the economic financial indicators. Our net revenue despite IGPM 0, and of course, despite the discounts in Praia de Belas and in the other 2 malls, we have a net revenue of BRL 3.4 million. Additionally, our EBITDA margin reached 73% with a growth of 5%, and EBITDA growing 11.5% with a net margin of 33% for net income. We also show you that the impact of Rio Grande do Sul on our figures was BRL 5 million in EBITDA. As Cris mentioned, this was limited to the month of May. In June, we returned to a situation of normalcy in the 3 shopping malls, Praia de Belas suffered more in July, as it had the impact of the parking because of the flooding in the underground. The waters were drained out throughout May and June, and we finally released the parking. We have released 100% of the parking of Praia de Belas at the end of July, 1/3 in June, 2/3s in July, and we now have 100% of the underground of that mall fully operational. This, of course, generated an impact of BRL 5 million in EBITDA, the loss of flow of vehicles, parking and BRL 4.3 million. We go on to Slide #11. It's important to mention that our rent has grown 3.4%. And even with the IGPM 0, this is due to an increase in occupancy that has reached 95% and the positive spreads in the new rentals and renewals, the growth of parking, the flow of vehicles growing 2.3%, even taking into account Rio Grande do Sul, without Rio Grande do Sul the flow vehicles increased 5%. And in parking revenues increased 7%, even though Praia de Belas remained without any parking for at least a month. This shows you how important the second quarter was. Going on to Slide 12. The rents increasing 0.6%. We had an increasing 0.8% were it not for the impacts, it would have been greater. This due to the occupancy and the increase in the renewal spreads. And we had a growth of 3.3%. We had a growth of 18% in the quarter for rentals and temporary rents with a double-digit growth for some time. We speak about events, sponsorships, kiosks and disclosure, all of which together reached an increase of 15% beginning in July, the IGPM is once again positive. It went from 0 to a growth of almost 2% in July, and it closed 3.4%, a significant growth of IGPM going from 0 to growth in July and August. Let's go on to Slide 13. You can see the work we did in terms of efficiency without considering the retail market, our cost and expenses dropping 3.2% and in the quarter to 0. So in the graph below to the right, you see that our cost and expenses went from 25% on net revenue, reaching 22% at present. This is the efficient work the company has done throughout 2023, and we begin to see the effects in 2024. Although, of course, at the beginning of 2024, we had the impact because of the rescission or leading of some of our executives. Let's go on to Slide #14. You'll see the reduction of net debt from 1.84x to 1.80x, EBITDA BRL 980 million. We're getting very close to BRL 1 billion in EBITDA, which should be a landmark for the company. We will achieve this during the year and that issue of BRL 700 million of CDI plus 0.33%, this gives us cash coverage for the coming 4 years. And with the M&A, we do -- we have a disbursement of approximately BRL 100 million in terms of cash. Now to get to the guidance at the end of the presentation. We reaffirm our guidance as we disclosed at the end of May after the impact of Rio Grande do Sul in the week between 3 to 10th of May, we reaffirm our guidance a growth of net revenue of 6%. The margins are still below the flow of the guidance, but we will be above the guidance and at the top of the guidance in the EBITDA margin. We have the last quarter of the year that tends to be stronger in terms of margins, that seasonality, and we also have the sale of plots that we have not accounted for, and will be accounted for in the third and fourth quarter as we do recurringly. And our flow of the resale of points, somewhat below what we had estimated for the first half of the year. These are negotiations that have been passed on to the third quarter, but we will account for them in the third quarter very well. With this, we would like to open the floor for questions-and-answers.

[Operator]

[Operator Instructions] Our first question is from [ Juan Argento. ]

[Unknown Analyst]

There are 2 points I would like to touch upon. First, to understand the opportunities that you see in Rio Grande do Sul. It would be wonderful if you could convey to us, which are the possibilities you have been able to map out in terms of mix management teams to go back to our full operation. And within those opportunities, you could include some remarks. If you could give us more color, this would be very interesting. Secondly, about your default levels, which were the triggers for that significant reduction that you have shown us, and which is the volume of recoverable rentals that you expect to recover? And what it is that we should expect going forward for the rest of the year?

[Cristina Betts, executive]

Juan, thank you for the question, several questions. Let's speak about Rio Grande do Sul. Well, the first point and our return to Rio de Janeiro. Well, Rio de Janeiro is the second most important retail market in the country. It was important for us. We have always attempted to get back and Rio Sul perhaps is the best store that we have to be able to return to Rio de Janeiro. Now to think about commercial synergies for the tenants. It's very important to have a portfolio. Well, the city of Sao Paulo, 15% of the GDP of Sao Paulo State is here 33%, but tenants also have to have a foot in the rest of the country. We have a feasible situation in Rio de Janeiro, and this is important for our commercial strategy. I hear a lot of rumors. This is going to impact Iguatemi Sao Paulo. There's still a great deal of work in Rio de Janeiro. We're speaking about a mall that is truly powerful. It's among the highest, best shopping in terms of sales per square meter in the country. I believe that we have the ability to take things that are still not present in Rio de Janeiro to lead to an upgrade in the mix. We're not speaking about luxury brands. We're speaking about more democratic brands to complement what Rio de Janeiro already has. And this is our look upon the asset. How we manage the asset, how we manage the condominium, our agreements with suppliers. Now Rio Sul was part of a smaller portfolio. So we have a great deal to contribute towards maintaining the asset and the physical management of the asset in qualifying the experience within the shopping mall, taking in a marketing team all of the endeavors that we have done to bring life to the shopping mall, besides the day-to-day consumption will be very important to Rio Sul. We have a great deal contribute. Of course, this is not something that will happen overnight. We should look at the example of Patio Higienopolis, where we have been working for more than 10 years. We're doing work that will be very similar to what we will do in Rio Sul, experience a synergy of the portfolio qualification. So this is the test that we have to follow in Rio Sul. We're very enthusiastic. The entire company is quite enthusiastic. We're quite satisfied with this acquisition and setting for plans. Well, we will have to conclude the payment for this. It's too early to give you details, but there's a great deal that we can do along with Rio Sul. And I believe it will be a very relevant asset in our portfolio. I will allow Guido to speak about our default levels.

[Guido de Oliveira, executive]

Well, in default levels, we have a negative level of minus 1.4%. This shows the recovery of the rents from the previous quarter, where we had somewhat higher default rates because of seasonality. In January, we tend to charge for 2 rents. Now tenants had high sales in November, December and January, they end up not paying their tickets in the beginning of the year. Now we have default that comes from processes that are persistent due to the period of the COVID pandemic. They're not very many. We have applied a discount. We have been collecting for the full values and tenants have been paying for this. So we have accounts to receive. This has been reduced significantly. It was much higher in the years of 2022, 2023. And as you can observe in the release, there has been a significant reduction in July. We have a growth reduction, 2.2% of default, something that we have not seen since 2014. We have a portfolio of 30,000 tenants, 230 tenants that have been sued. They have been evacuated. And of course, we're working on collection, and our collection is much better than it was after the COVID pandemic. So what can we expect in the third quarter, 0 default levels. We have a 0 default level for the 6 months, and this is what we expect to continue in the second half. I left the part out of your question. When you speak about the management rates on a cap rate of 11%. We use what we had in the shopping mall. If we improve this, it will be a top up. We're considering what is already existing and what will be reverted to our portfolio. There are no estimates here at this point.

[Operator]

Our next question comes from Bruno Mendonca from Bradesco BBI.

[Bruno Mendonca, analyst]

You had a very active quarter when it comes to M&A. So congratulations for your execution, a great deal of things happening simultaneously. And this seems to be very satisfactory in terms of the purchase and sale results of assets. What draws attention is the efficiency of the acquisition of Rio Sul leveraged by revenues allowing your cap rate to be quite low. My first question, therefore, is if you have surveyed something additionally at the sales points, there are some restrictions of [ Carrera ] Higienopolis will go back to acquisitions if you have considered packaging that excess of control this year still? That's my first question. The second question is a follow-up on Rio Sul. I think Cris responded very well to your mix initiatives. Still, I'm very curious about your investment pipeline. If this is an asset that will require additional investment, if you have an estimate for this and how will this take place in terms of the governance over the asset? Have you decided to join without effective control? Please correct me if I am wrong. And what is going to happen with the families and the other partners of that asset to be able to face a pipeline of investments that eventually will have to take place?

[Cristina Betts, executive]

Well, thank you, Bruno. Let's go. As always, we're always looking at our portfolio, looking at the opportunities. And Sao Carlos was in the radar for everybody. We have been discussing this for some time. Alphaville was less discussed. And it was a disinvestment of 18% in Alphaville, but we still have 16%. We're proceeding firmly with that asset. And we are looking at our portfolio looking in terms of this. We're looking at the portfolio to see how we can make these switches. It does make sense at least in the short-term, we don't have the interest of disinvesting 100% in any of our assets. But it is something that we can consider, especially because of the other acquisitions and investments. This allows us to make. The answer is yes. But once we have something more concrete, we will speak about this. In terms of investments in Rio Sul, it's difficult nowadays to say what this means, what we have and what we have to do. Now which is our work, and this is something that we have agreed with, with Compra shop that our partners, the families. And BB, which is a partner in the fund. Typically, when we enter a new asset, we create a 5 year plan at least for everything that we believe should happen in all of the aspects, physically, commercially in terms of marketing. It's impossible to do everything simultaneously. Something have greater priorities other have lower priorities. It's important to agree upon the game we will play. We're very happy with Higienopolis. We use this as an example when we discussed this with Compra shop, not about what will happen tomorrow, but what will happen in the mid and long-term. Everybody is interested in having this become an ever stronger asset through time. What we have to do is, nothing different than what we did in Higienopolis. No madness. When we look back, we tried to do this in intervals according to the capacity of the assets, these are operational things, they don't refer to investments. We still can't tell you what we're going to do. We haven't gotten there yet. In Higienopolis, we had some quick wins that did not require any investment. And I believe we will have many of these in Rio Sul. Our vision is somewhat different from what people are used to, but we will bring about benefits. It's difficult to imagine that through time, we're not going to change the look and feel of the shopping mall. And once everything has been planned and is on paper. We will disclose this in our release, because it will be part of our CapEx. But this is not a thing that will hamper any other company investments, of course, last out.

[Bruno Mendonca, analyst]

Now the decisions on the asset and working jointly if you have to create an investment plan, will you act jointly with the families, do the families vote jointly?

[Cristina Betts, executive]

Well, I do think they both jointly. I don't deem this to be a problem. They're extremely passionate for their assets as we are passionate for our own assets. And now Rio Sul, everybody will want to do what is best for Rio Sul. I can't imagine ourselves having very contrary position. We began on a very good footing, and the outlook of working together is very positive. We do have a partner in almost all of our assets in JK and Galleria, in marketplace, we had partners. We're quite used to working with that dynamic, and we're very respectful of that relationship. We have need for information for cash flow of our partners. And all I see is that we're going to come out winning along with Compra Shopping. They have a great deal of experience in Rio de Janeiro. They have good knowledge in terms of the asset. I don't foresee any problems in terms of voting simply to complement this. We do have a very robust governance plan that we put in place in all of the shopping malls in Higienopolis. We have also had this plan that works very well. And this was shared with the partner Compra Shopping that accepted the governance, the quarterly, half year and yearly governance. And of course, they provide knowledge in terms of reports and systems. And of course, this is what we contribute to the assets we're leaving, Sao Carlos, we have a robust governance plan for this. We're in a period of transition. The process has already been approved at the CADE, the antitrust entity, and we will no longer be the owners of this asset as we're working with this very cautious handover. So that Sao Carlos will not have a disruption in terms of management. As of December, they will manage their own shopping mall.

[Operator]

Our next question comes from Jorel Guilloty from Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

And I have 2 questions here. First of all, we have seen very strong growth in the rental revenues for the 3 main shopping malls with a 10% growth year-on-year. Higienopolis 9%, Iguatemi 6%, and JK 10%. What has led to this strong growth? Was it a minimum rent overage or something temporary? And if this growth will persist in the short-term, the second quarter is about the EBITDA margin of the shopping mall year-to-date that figure is at 80%. But the guidance is between 82% and 85%. What needs to happen for you to attain your guidance in the second half of the year, a growth of revenues, reduction of costs?

[Cristina Betts, executive]

Well, thank you, Jorel. I will answer the first question. And well, the shopping malls that you mentioned JK, Higienopolis, and Iguatemi Sao Paulo, truly did have a relevant change of mix year-on-year. I think it's important to underscore that, and it will continue that the point we have planned. Well, we have plans for all of our assets, but these are more evident. They're more visible to everybody and the figures are stronger in absolute terms, and that's important, of course, the sales were very, very strong. When we speak about an x growth in Rio Sul of 10%, we have some stores selling incredible figures, some of them replicating the figures of Christmas in June, simply to give you an idea and stores that pay overage. So, although the minimum rent does not have the correction of [ IBM ], I think that we work with overage. In the second quarter, we did see an increase in flow. Parking was very strong. It's not an increase. And of course, we have the temporary rentals that were also quite strong. These are shopping malls that concentrate events and sponsorship. Let us not forget that we had collections in the second quarter, and it was absolute madness for collections this year. This addition of the pots and pans, we had an increase of adherence that was truly incredible. And because of this, we have a better conversion rate. And well, later, we'll share with you these anecdotes, but it has been an important conversion tool for us. These shopping malls are the 3 champions and when it comes to exchanging your points for collections. And this has an important impact on that figure on conversion, on rentals and overage, but also in terms of flow. People come to the malls to exchange points, and that's an important motivation. It's not a one-time thing for this quarter. We have many novelties. And Jorel, you mentioned these 3 shopping malls, but we have been working a great deal to have novelties in the hinterlands of Sao Paulo and Praia de Belas, in other shopping malls, having a qualified mix, that should lead to a similar impact. The absolute proportions, of course, are different, but we do have several novelties and these novelties have an impact on flow and sales. Now, to answer your second question on margins. We're quite comfortable and we're at the top of the guidance in EBITDA margin and the EBITDA margin shopping mall and EBITDA margin company as a whole. What I can highlight is that we had an impact of margin in the second quarter because of Rio Grande do Sul. This took away BRL 5 million from our EBITDA in terms of parking discounts. We did have to offer 50% discounts at Praia de Belas. We had an increase of the discounts that were at 3.5% on rent. We got to 7.5% discounts in May and went back to 3.5% in June. So, that impact was restricted to May. In July, the levels of discount were between 3% and 3.5% in the portfolio. If you apply this for the second half of the year, you will have an improvement in margin, much better than the one we operated with last year, reaching 4% to 4.5%. When we look at expenses, they're lower. The effect of the first quarter, we had some layoffs. We had the collective negotiation with compensation of salaries. Now, this will not be repeated in the third and fourth quarters. And along with this, we have the best period for the retail market, the best revenue, cost of products sold, the best ratio that we have in the first half of the year. And along with this, we have the resale of some points. We're announcing a significant resell of our point in the second quarter. It slipped into the third quarter in Iguatemi Sao Paulo. This is important. We also have the sale of some lots as we have always worked with the marketplace. We already have an option negotiated. This will be done in the third quarter and the sale of the first lots in Casa Figueira. This leads to other revenues and will redress the margin. So, we're quite comfortable in terms of reaching the top of our margins for the shopping mall and in terms of consolidated margins.

[Operator]

Our next question comes from Taina Costa from the UBS.

[Tainan Costa, analyst]

My question is a follow-up on the guidance, especially when it comes to the sale of lots. I think this topic has become stronger. We have other players also selling off some of their lots. If you could give us a better disclosure in terms of which are the lots, how they have been assessed, which is their potential. And ensuing this, which is the mindset of the company in sales of this time, which is the profile of this demand, and how are the negotiations for those sales?

[Cristina Betts, executive]

Thank you, Taina. And we have a land bank and the other companies that are doing this are lagging behind Iguatemi. We have been doing this since 2006 recurrently, exploring our land bank and strengthening an increase as part of our shopping malls. We have several shopping malls where we do this every quarter; Ribeirao Preto, Sorocaba, Praia de Belas, the Tower, Iguatemi Porto Alegre. And we do have that process of revision of our land bank. Part of our land bank, we end up devoting to rentals, which is the case of Galleria, where we created an office tower, Galleria Sky that we inaugurated in '22 and Porto Alegre Tower that was inaugurated in 2016; 2 towers in marketplace from 96% and 97%. And we work with local or regional developers. We had 2 towers sold in Ribeirao Preto to the Tegra Group, Brookfield. We also have Julio & Kalil, which are local buyers and other partners that end up buying these lands for the development of offices. And these offices follow the architectural plan of Iguatemi. We develop these plans. Developers will continue on with the development. They will perhaps change the base plan, but most of the time, they follow the architectural plan of Iguatemi so that all towers work in coherence with the shopping mall and follow the architectural plan. Now, this is what we do. We enhance the use of our land bank, and we monetize our land bank. So, this year, as I just mentioned, we will have a project in the marketplace. We do have a partner that has been set aside. We're approving this project at the City Hall. We have already legalized the [ setback ] and we'll offer the authorization at City Hall. All of this is part of the project. So we will be announcing this in the third quarter, and we have the entire land bank of Casa Figueira that is enormous. It's extensive land bank, the size of a neighborhood in Sao Paulo called Vila Olimpia. We have 60 lots, 40,000 people that will live in this development. So this is a sale of lots that will happen throughout several years. BRL 20 million, BRL 25 million per year, only from the Casa Figueira neighborhood that we will sell by potential sales value, PSV. Of course, we have other land banks we can explore in Sorocaba and Iguatemi Campinas room for 3 additional towers. We will be announcing a tower that we announced last year, which is the Campinas Tower. We begin the construction of that tower now with a developer that did the tower in Campinas. We will begin the work now in September, and this tower will be very similar to what we have in Galleria, and we have 2 additional towers to build in Iguatemi Porto Alegre. We still have room for developments in Rio Preto, Ribeirao Preto. So, all of this will lead to that accommodation of useful land bank in the country. We have to respect this. But we are going to proceed with our land bank, as we have shown you and we show you everything we have developed since 2006 going forward. And we also have the table of the construction potential. It doesn't mean we're going to develop everything simultaneously, but the potential does exist.

[Tainan Costa, analyst]

That was very clear. Have a good day.

[Operator]

Our next question comes from Andre Mazini from Citi.

[André Mazini, analyst]

Some follow-ups in Rio Sul about the partner and some of the families there. And we know there are other shopping malls in Brazil. They have a shopping mall in Curitiba and your work with [ Compra Shopping ], could it create synergies in the luxury shopping malls they have? There would be significant adherence, it's what you like to have. That's my first question. The second question is a follow-up, and Cris gave us more color. You have the ADM fees that you will have 5%, but to get to 11%, what else is included? Is there something about the tower that has 44 floors and the management rates, the brokerage? What is it that is part of this sum for you to reach that 11% cap rate?

[Cristina Betts, executive]

Helo, Mazini. First things first, we're very happy with Rio Sul, there is a great deal of work there, and we're going to work step by step, and then we will see what we will do later on. First of all, we have to show our value, ensure this operation is successful and the partnerships that we have reached with this asset, we have great expectations and we have to deliver them before we speak about other possibilities of doing things jointly. We had a very good beginning. Now we have to make everything happen. I'm going to allow Guido to speak about your admin fees.

[Guido de Oliveira, executive]

Well, this seems to generate many doubts, and I will try to be very clear. As shopping mall management, we not only manage the condominium and revenues, we work with rentals, temporary rentals, overage that has a margin of almost 90%. We negotiated admin fee of 2% a year. This was negotiated and aligned with the families. We also have the brokerage part. Now, what is the brokerage? All of the negotiations we do regarding temporary rentals, sponsorship events and the stores, of course. And this generates another admin fee for Iguatemi that is accounted for as brokerage fee to commercially explore the assets. Now, what is this fee for condominium? The condominium of our buildings, the tenants, when tenants pay their tickets, they're paying their pro rata expenses, and this includes their expenses of administration fee, the employees of the condominium, energy, water, gas, the utilities that are used. And this includes the admin fee, cleaning, security, maintenance of the entire shopping mall. And here, our admin fee is 5% on the total expenses per year. So, this is another 5% admin fee. Additionally, we have an admin fee on 70,000 meters of useful space. We already manage towers of complexes, Iguatemi Ribeirao. Both towers have been sold. This was a broke project, but we manage them. Now the tower in [ AP ] that was sold to [ XP Fund ] and other partners, we still manage that tower and this means an increase in revenues, if we add all of these on the parking operations, the shopping mall operations, the admin fee on rentals and the lease and the towers and the brokerage fees, all of these jointly allow us to have a cap rate going from 7.5% to 11% as an entry fee. And this is what is being charged at present when we become co-managers after the transaction in August. We're not charging any additional fees. We're speaking of the condominium at present and everything else at present.

[Operator]

Our next question comes from Alejandra Obregon from Morgan Stanley.

[Alejandra Obregon, analyst]

First, I'd like to double click on your lease spreads. I was hoping, if you can help us understand what is embedded into this number, meaning, is this calculation simply, let's say, a rent comparison off the last rent versus the new one or is it including everything, discounts, escalators, like the entire value of the contract? And as we -- let's say, look into the tenants, what's driving this 11%? Which tenants are behind this? Is it anchor, satellite? Perhaps any sector in particular behind this? Anything that can help us understand, let's say, which tenants are and could be more accepting of rent increases ahead. So that's the first question. And then on the capital allocation front, we know there's firepower Iguatemi and at the FII. So, I was hoping to hear if you still see opportunities for Iguatemi to say, go on offense and sort of buying assets and if there's any sort of deadline for these monies at the FII to be deployed?

[Cristina Betts, executive]

Hello, Alejandra. Thank you for your question. I will begin speaking about the lease spread and then speak about capital allocation. Guido will help me here. I would like to clarify that when we calculate the lease spread, we compare who was the previous tenant. We look at the contract of the previous tenant paired with the contract we are signing now. It could be lease spread for renewal or it could be a new contract that we call lease spread for new contracts where x tenant has made a change. What we do not take into account in this calculation is the overage. We consider discounts what is minimal, but not overage oftentimes -- we were discussing this at our Board meeting yesterday that we need to find a better metric to do this. When you work with a qualified mix, the leasing spread, well, we always look for a positive lease spread, but it doesn't capture the expectation of enhancement that we have. But in fact, we do compare what we already know. Otherwise, we go into that ground of wishful thinking, thinking which could be the sale. We have projections and perhaps we focus too much on numbers, on concrete numbers in that figure. We don't have a focus on the older category. We have signed all types of contracts, [ satellite mansions ] stores, restaurants, large operations, home and deco stores, beauty, jewelry. There is a bit of everything there. It's a good mix here, and the positive result of the leasing spreads refer to that very positive momentum in sales with a stronger demand. We have seen an acceleration in the signing of contracts. We have looked for that qualification and what we observe in terms of potential and the tenants also want that and tenants help us to drive those figures. It's not only when we post figures of 10% in same-store sales. This allows us in the next round to look for increases in rentals when we have an occupation of less than 11%, still they're accelerating faster than rentals. Well, rentals always have a delay vis-a-vis sales. So, the lease spreads are positive, and they tend to continue positive because of the positive mix in our portfolio.

[Guido de Oliveira, executive]

Now, simply to add to the lease spreads, nowadays in the company, Cris is not mentioning, but the main company KPI is the issue of spreads. We look at the opportunities we have within our occupancy rate. We have teams working on groups with positive lease spreads. Our new rentals have a table that is a goal that are corrected by IGPM and that rental base is revised every month, and that table of corrections is delivered to our brokers with a higher goal every time. We look at the rentals between 2020 and 2022 that are presently going under revision. It's been more than 3 years, and we're trying to eliminate the effects of the pandemic. We can now discuss the lease spreads of those stores that came in with lower rents because of the pandemic. All of these are fronts that will bring an impact throughout 2025, because this generates a future impact. But as Cris mentioned, this allows us to increase our rents. Alejandra, in terms of capital allocation. As you know, we have always been a highly disciplined company when it comes to capital allocation. We don't do anything that is mad, we don't pay exorbitant prices, and we never abandon our focus of action, and we take the time we need to do the right thing. So, there is no [ term ] for capital allocation in the company. We don't have a goal for capital allocation of allocating x BRLs with it in a certain period. We want to do business that is important for the portfolio. If this takes 6 months or 2 years, what is important for us is having the correct transaction. Now as part of the capital allocation, we look at the balance now in terms of deleveraging, we seek a portfolio efficiency as we did now, we sold out some assets. We can re qualify that investment in terms of something that is more aligned with our strategy. All of this is very important, and we allow for room, for space for when we have to make a decision, we have that space available. We don't want to do anything crazy in price and in moments, but in terms of our balance in Brazil, we have extremely high interest rates. It's something we have remarked on recurrently. We're always focused on the company indebtedness, exactly not to have any squeeze or pressure at any point in time. So, we're very attentive to the data of transactions that could be made. But we're also very focused on a healthy balance that we have always had and want to continue to have to open up this space. And the deleveraging has a great deal to do with our reinvestment of capital. We've already spoken about the expansion of Brasilia, the retrofit of the marketplace. So, we do have things in our portfolio that are ex-M&As, but will also consume capital.

[Operator]

Our next question comes from Fanny Oreng from Santander.

[Fanny Oreng Avino, analyst]

We have 2 questions. The first, referring to your level of provisions. We see that the health of tenants at Iguatemi is very good, and we have begun to see some companies in the sector to have a reversion of provisions because of the surplus of provisions that were made during the pandemic. So, which is your mindset in terms of this, in terms of your tenant portfolio? That's the first question. The second question is simpler. Do you have any expectation in terms of the work in Iguatemi Sao Paulo for expansion? I don't recall the timing you mentioned, if you could remind us, I would be very thankful.

[Guido de Oliveira, executive]

To speak about provisions, our PBD is part of our other operational revenues. It's part of EBITDA, not part of gross margin. And we have a policy of only reverting once we receive. We have been reverting some provisions we made because of legal agreements or the notice of inactive payments that we have sued. And obviously, this line item. Now, if we take into account our default level, gross default level, that is around 2%. If we see that the discount level is very low because of the robustness of our tenants, we're working with default, tenants and inactive tenants that are being removed from the shopping. Now you can see all of this in our results. We have shown this and the levels are very low. We're, of course, this is below what we had included as part of our budget for this year, and that was reflected in the guidance. We're working with provision levels that are below those that were budgeted.

[Cristina Betts, executive]

Well, Fanny, good day, and thank you for the questions. Now, Iguatemi Sao Paulo, now the main point of everything that will happen going forward, we will deliver at the end of the year. Everything will depend on delivering the theater. Now, when you enter Iguatemi Sao Paulo through the elevators in the front, when you go up to the 10th floor, we are renovating -- simply to give you an idea of the location we're going to create, an arena theater that we believe will be broadly used. We already use our spaces in JK and Higienopolis in a very intense fashion, and I believe that this theater will be submitted to significant use. We're planning our Investor Day there the coming year. And based on the theater, we will receive the approval to do the rest. It's important to deliver the theater in December. There are other operations. We will be changing our lounge. We will release space in the shopping, in the corridor, and we do have other operations in adjacent areas. Hat is fundamental, nevertheless, is the theater. We have already begun cleaning up the other rooftop because -- and it was a great deal on top of Iguatemi Sao Paulo that we're releasing for space. So, we have to work with warehouses, take away old machines. It's not a simple tech. When you look at this, we have a hoist, and -- on top of Iguatemi Sao Paulo that works silently during the evening, but it does pose difficulties. So, a long answer for what seems to be a simple question. It's not simple. We have begun and until the end of the year, you should see the theater that will be very exciting. It will be beautiful, as always, but it's a starting point for the rest of our renovations.

[Fanny Oreng Avino, analyst]

Thank you, Cris. So until the end of the coming year, the expansion will be concluded.

[Cristina Betts, executive]

I'm going to wait a bit to share with you the novelties. We have very important things that we will be delivering in 2024. We have truly exciting news and surprising news for Iguatemi Sao Paulo, but first of all, the theater has to be concluded.

[Fanny Oreng Avino, analyst]

That's fine. So I'll wait for the next time. Thank you. It makes life fun.

[Operator]

Our next question comes from [ Giovanni ] from J.P. Morgan.

[Unknown Analyst]

[ Giovanni Vescov ]. Very well. We have 2 main questions. You had an EBITDA margin very close to 0. When will this be more significant for the company? Now, the second part of the question refers to your strategic action of diversifying in other geographies. You mentioned this in January, your expansion to other geographies.

[Cristina Betts, executive]

When it comes to retail, our commitment with the retail is to maintain a breakeven position. I think this is of help to us, and Retail incorporated the Marketplace 365, we have made several changes through time on 365. And by the way, 365 has surprised us in terms of their sales. Although we shrunk it, it is 30% above the sales that were forecast for 2024. We should be closing 30% above the GMV, which is very important for us, maintaining the breakeven and maintaining that value. Now, it's difficult to say what it is we can -- we operate with brands that have very different margins, very diverse margins, and we operate those brands with specific terms. And it depends on us and the owner of the brand if we renew that brand or not. Some brands we have been operating for some time, like Polo. We also have new brands like Loewe. It will all depend on the mix. The main goal of this Retail unit is to foster novelties and to "speed up" the entry of brands that want to be in Brazil but don't have a ready-made structure for this entrance. So when we make that franchising agreement, when we create a partnership with these brands, we think that they will become independent, which is the case of several brands, like Balenciaga. They came in through the Retail. They are now responsible for their own operation. They will be inaugurating in Iguatemi Sao Paolo. And when we look at brands, we think this brand was successful in Brazil. They will continue. And when the brand is highly successful, they become independent. Other brands we operate, some brands are very large. They're not able to determine their structure in stores, and eventually we discontinue them, which was the case of [ Lanvin ] when we inaugurated at JK. It no longer made sense for JK to have [ Lanvin ], so we agreed upon their exit from Brazil. So everything depends, and we don't have that commitment of having a very positive EBITDA, but of course, we always want to be at a breakeven position and bring in that diversity. We do have a limit in terms of the number of brands we can operate. Our business is shopping malls, not working with the retail market. This has to be clear in our minds, but I think we're complying with our goal. If we look at Polo, Birkenstock, Loewe. Loewe is very successful. They're brands that are adding to our portfolio. Birkenstock has expanded to Patio Higienopolis. We're trying to see where it will go to in the coming years. We're quite enthusiastic with the possibilities, and to bring that differentiation in our portfolio. In the half of the year, we have an EBITDA close to BRL 200,000, BRL 300,000. We had an important sale during the half year. Now, we have Black Friday for the 365 and Christmas, and you will see, therefore, a growth in the EBITDA. It won't be that 0 margin. It will be a better margin of 15% to 20%, a growth in EBITDA. So the EBITDA will be positive with a 15% to 20% margin, considering the sales of the full year. This is a business that has been growing continuously in terms of sales. We made the commitment of doing away with cash burn, and we did that, and 365 is an important tool for our digital ecosystem, for our omnichannel, because it's a laboratory, and because we work with B2C for international and national brands that are not found in shopping malls. We build our contribution margin, and we allow our customers the possibility of consuming products that don't exist in Brazil, such as Longchamp, and other brands that we bring down, and we bring this to brick-and-mortar stores, which is what we did with Balenciaga and other brands that ended up coming to the mall, and that began with Iguatemi 365. I'm sorry, I forgot the second question.

[Unknown Analyst]

Regarding our strategy in geographies.

[Cristina Betts, executive]

More importantly than the geographical expansion, we need to understand where our customer is and where we want to be, if that is possible or not, and how long it will take us to execute this is a different matter. We're extremely satisfied with our return to Rio de Janeiro. It's an important market for us. Commercially, it is important. It's the only asset we will have in Rio de Janeiro. We're going to focus all of our efforts in Rio Sul. It's a significant commitment, but I think it's too early to speak about other geographies. We have a great deal in our plate at present to develop going forward and to put our house in order, but we're always focusing on the profile of the customer and where we can walk hand in hand with them. But for the time being, I think we're satisfied, and we have significant work to do in terms of Rio Sul going forward.

[Operator]

Ladies and gentlemen, as we have no further questions, we would like to end the question-and-answer session. I will return the floor to Ms. Cristina Betts for her closing remarks. You may proceed, ma'am.

[Cristina Betts, executive]

Well, thank you for your attendance to our conference call. We're very enthusiastic with the second half of the year. We began very well. We have begun the second half of the year on the right foot as well. As we mentioned during the call, we have several novelties for the second half of the year, important contracts that are being signed for 2025. A great deal is happening. And in terms of capital allocation, we have had significant deliveries. We have organic growth. So we're quite busy, but busy working strongly to make things happen, the growth of the company. Thank you very much. We are at your entire disposal should you have more questions. Otherwise, we will meet at the call for the coming quarter. We conclude the conference call for Iguatemi. Thank you all for your attendance. You can now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]