Parque Arauco SA

SGO:PARAUCO

Earnings Call Transcript 2023-Q1

[Lauren Brown, executive]

Good morning, and thank you for taking the time to connect to Parque Arauco's First Quarter 2023 Results Earnings Call. I'm Lauren Brown, Head of Investor Relations, and I'm joined by Francisco Moyano, CFO; and Eduardo Perez, CEO of Parque Arauco.

I would like to mention a few things before we get started. [Operator Instructions] Please note that this call is being recorded, and the recording will be used for internal purposes. To start off today's conversation, I'm going to pass the call over to Francisco Moyano.

[Francisco Moyano, executive]

Thanks, Lauren, and hello, everybody. Well, the first quarter this year is a very good quarter for the company if our results are in line with inflation. Our sales are growing 5.6% against the first quarter of 2022 but our revenues are increasing 10.7%, again, in line with inflation that we are seeing in Peru, in Chile, Peru and Colombia.

Our EBITDA is also growing in line with inflation with an increase of 11%. The FFO is growing 2.2%, and the occupancy reached 95.5%, growing from the figure that we had last year. So all-in-all, it was a very good quarter. Our figures are normalized and the occupation and traffic in our malls is very strong.

We are also highlighting the issuance of a new bond in Parque Arauco for a total of $130 million. We were very pleased with this transaction. The demand was strong, and then that confirms our reputation with the market and the confidence that the market has in our company.

The 21 -- it was a 21-year bond with 10 years with no amortization. So it's a long-term bond with low rates in line with our current financial costs. It was issued at 3.15% in U.S., which is a low interest for our company and also strengthen our cost of capital for new projects.

Our leverage is stable, is within the range that we have as an optimum for the company between 5x to 5.5x in this quarter, closing at 5.3x. We feel very comfortable in this range because we have access to this long-term debt as it is this bond, this 21-year bond. We have long-term debt with high financial expenses, it covered about 3x. And also that drives then high returns to shareholders.

We are also highlighting that we published our 2022 annual report. We invite everybody to review this document that you can find in our web page. This is an integrated report, we have information of our financial results, our strategy with letters of our -- from our Chairman and CEO, information about our strategy in ESG and risk management. It's a very complete document that we invite you to review in our web page.

We also have news regarding ESG. We -- for the third consecutive year, we are part of the S&P Global Sustainability Yearbook. But also we inaugurated the largest public electric vehicle charging center in Latin America. That is -- those are some of our -- the many initiatives that we are following in our company that Lauren afterwards would discuss.

Finally, we keep investing in retail and residential real estate. We are continuing with our project in Parque Arauco Kennedy and we also announced 2 additional new multifamily assets for our portfolio. We tend to have 2 to 6 multifamily currently in the company.

With that, I would like to pass to Page 6 to talk about our sales.

Tenant sales are growing 5.6% and that if you -- if we make the breakdown by country, you can see that Chile is growing 1.8% year-over-year. Peru is growing 7.3% and Colombia, 24%. It's important to say that these 3 years does not consider any exchange rate differences. So we are using the same exchange rate for both periods to calculate this growth.

Then Chile is -- when we see Chile is flat against last year, but we have 2 different scenarios. In one part, we have department stores, home improvement stores and supermarkets that are decreasing in sales. This is a trend that we saw in the last quarter and is continuing this quarter. But at the same time, we have a very positive result in sales in the rest of the mall and the other categories are food and restaurants, apparel, health and beauty and with growth of double digit in sales. So that is why in Chile, we have this flat results.

Peru with a growth of 7.3% is also showing very good results in categories such as apparel and food and restaurant, which is also most -- more important than in Colombia, where the growth as a total is 24%.

With that, also the Same Area Sales, you can see that in Chile, is 0.6%, peru is 4.5% and Colombia 14% which is in the same line as the sales as a total. From these results, we can see that the diversification of our portfolio is very relevant for the business. We have diversification by country, but also by format. And along with the quality of our portfolio, we think that, that is an important strength of our company.

Then in revenues on the next page. Our revenues are growing 10.7% in the quarter. The breakdown by country is Chile is growing 15.7%, Peru is growing 6.5% and Colombia is decreasing 1.3%. Then again, it's important to highlight the exchange rate situation, because when we compare the first quarter of 2023 against the first quarter of 2022, the difference in exchange rate, it's flat for Peru, but it's very important for Colombia. If we calculate the revenues in local currency in Colombia, Colombia instead of decreasing 1.3% is increasing 18.7%. So then the difference in results between Chile and Colombia is only because -- is more because of the exchange rate than the actual results in local currencies.

In the Same Area Rent figures, you can see this situation, because you can see that Chile is growing 7.3%, Peru, 9% and Colombia 9.8%, which are mainly in line with inflation. I also want to highlight that the variable part of our rents reached 11%, in part of -- because of the decrease in some categories of the sales fees, but also because that this part is very strong. The minimum rent is given the stability to our business and our revenues, which is growing with inflation in all 3 countries.

Then passing to Page 9. The figures for the EBITDA, EBITDA as a whole is growing 11%, Chile growing 14.5%, Peru, 16.2% and Colombia decreasing 9.1%. In the Colombian figure is also the effect of the exchange rate situation that I explained before. So in local currency, Colombia instead of decreasing 9.1% is increasing 10.6%. So the business is also similar in all 3 countries regarding EBITDA, revenues and costs as well.

If we see the composition of our EBITDA, revenues then is growing 10.7%, cost of sales is growing 5.4%, which includes the salaries that are increasing -- in line with inflation, and then we have some savings in other lines that helps to have a less than inflation increase in the year. The administrative expenses are growing 18.6% and mainly because, again, the inflation, then that if we consider the all 3 countries, it's somewhere above 10% but then also is increasing the cost of insurance policies and policy factors.

The next page. In the non-operational results, I wanted to highlight the financial income that is growing 36%. We have high returns of our financial investments. The financial expense is growing 30%. In some part, this is -- when we break down this financial expense by country, we see that Chile is mainly flat. It's important to consider that in Chile, we have mainly, we have debt in the U.S., but so then the effect of the inflation is not in the financial expense, but it is in the income for indexed assets and liabilities. So then this increase of financial expense is driven more from the debt that we have in Peru and Colombia, that is increasing by inflation and then also because of the asset total of a higher amount of debt.

The other line that is important to consider then is the income for invested assets and liabilities, as I said, is the result of the exchange in the U.S. or inflation in Chile, which this year is lower than the previous year, is around half of it of what it was in 2022, the exchange inflation. The markets are expecting that this trend of decreasing inflation will continue in Chile. So with that, we are also expecting this line to continue this trend of a less important result than the previous year.

Considering everything, the net profit of the company was CLP 18.4 billion increasing 76% against the last -- the first quarter of 2022.

Now passing to Page 13. I just wanted to highlight the NOI of the company is growing 13.6% and the FFO 2.2% which is lower than inflation in some part because of this increase in financial expenses, but also the associated accounted FFO that is mainly the result of Marina” that were also impacted by inflation. I also wanted to give the information that we added some more details about the associated accounted FFO in the spreadsheet that we shared in our web page with information. With the breakdown of this FFO, Marina and Desarrollos Panamericana.

To end my presentation, I wanted to highlight in Page 15. The trade accounts receivable and other receivables in the lower part of the table, you can see that it's decreasing from CLP 40 billion to CLP 36 billion. We have seen a sound behavior of our accounts receivable. The bad debt provision is decreasing from CLP 12 billion to CLP 11.2 billion. As we have shared with the market, we are following a very conservative policy regarding the provision of bad debt expense, and we want to continue in that same line.

With that, I will pass again the call to Lauren and will continue with the presentation.

[Lauren Brown, executive]

Thank you, Francisco. Now I would like to highlight some of our asset level results. In Chile, Parque Arauco Kennedy and Arauco Maipu, revenues grew 20% compared to the first quarter of '22. In Antofagasta, Puerto Nuevo increased its occupancy by 13% resulting in an increase of sales by 85.7% driven by the incorporation of new stores, including the opening of the very first Ashley store in the Antofagasta region.

In Peru, Larcomar has increased its sales by 19% and revenues by 14% in the first quarter of '23 compared to the first quarter of the previous year. Revenues in Parque Lambramani have increased by 30.8% in the last year due to parking revenues and the arrival of stores, including Dollarcity and the better performance in the entertainment sector.

In Colombia, the occupancy of Parque Alegra has increased from 75.9% to now 79.5%. Alegra is now celebrating 1 year of being open and we are getting ready to open additional stores of major international brands at this mall.

The Premium Outlet Sopo's revenue grew by 32.6%, due to the arrival of brands, including Desigual and Hugo Boss. And I'll be speaking a little bit more about outlets at the end of this presentation.

Something important to note, is that Arboleda experienced a drop in revenues compared to the first quarter of the previous year when you look at our mall-by-mall page.

However, if we exclude some of the revenues that should have been accounted for in 2021, but were instead included in the first quarter of 2022, then we would actually see a more normalized base and we would not see this drop.

So for example, the revenues of our Arboleda grew 23% in Q1 '23 compared to Q1 2019. So I wanted to explain what that difference was.

It is very important to note that our revenues in most of our important assets, including Parque Arauco Kennedy, Maipu, Larcomar and La Colina in addition to others have been beating inflation.

Now I would like to continue to speak about development. As a result of our normalization of EBITDA and our leverage throughout this year and last, we've been able to return to higher levels of CapEx. We continue to invest a significant percentage of our total CapEx into the expansion of shopping centers, including the multiphase expansion of our iconic Parque Arauco Kennedy in Santiago and additional expansions that are taking place throughout malls in Chile.

As you can see in the graph, real estate -- retail real estate remains our focus and largest investment this year and will continue to be in the future. Also in this table, we have added a new column so that you can see the remaining CapEx for each project.

As Francisco mentioned, we were very excited that in collaboration with Enel X way, we launched Green Park, which is the largest charging center for electric vehicles in Latin America. This project includes 170 charging stations which are fully powered by renewable energy sources. And these stations are located on the -1 and -2 parking floors of Parque Arauco Kennedy located in the Rosario entrance area.

This initiative aims to promote the use of electromobility in the country. And it's a significant part of our Parque Arauco's regional sustainability strategy and our environmental pillar, which is very important to us. This alliance also was relevant with Kia Chile and with Inversiones Security, in addition to Uber, who will also be using the charging stations at night. You can read the full press release on our website to hear more details about this project.

Finally, this quarter, we did a case study about outlets. Many people have asked how are outlets doing and the knowledge about this asset class has not been very well known. So I would like to explain a little bit about this.

What has been making our outlet successful, our 3 main features. So one of them is that they're located near main cities. They have a wide variety of premium name brands and then their discounted rates attract a lot of visitors.

Additionally, they have higher percentages of apparel and footwear categories, which bodes good performance during the quarters and also less presence of department stores, well actually zero presence of department stores and fewer presence of services and other type of stores.

Additionally, the inventory factor has been positively affecting the outlets because the excess of inventory has been benefiting this format, which encourages the sales of discounted prices. In the graph, you can see that the EBITDA in outlets has been increasing over the years. I encourage you to look at this case study in our earnings report.

I would now like to move to our question-and-answer part of our call.

[Lauren Brown, executive]

[Operator Instructions] To start off today's discussion, I'm going to pass the call over to Eduardo. [Operator Instructions].

[Eduardo Marchant, executive]

Good morning, everybody. One of the questions we got by e-mail, is the evolution of our occupancy cost, considering that the revenues are increasing much more than sales. So I would like to explain further here and give you a little bit more color. It's important to mention that the occupancy cost is still below the levels we had before the start of the pandemic. More specifically, during the first quarter of '19, the occupancy cost was 11.3% in Chile, now is 11.1%, so 20 basis points below. In the case of Peru, it was 8.3% during the first quarter of '19, now is 8.2%, 10 basis points below. And in Colombia, it was 13.9% in the first quarter of '19, now is 11.8%, 210 basis points below. So it's important to mention that we are still below pre-pandemic levels and normalizing that ratio gradually.

[Lauren Brown, executive]

Does anyone else have any additional questions? You can submit them via typing or also raise your hand, and I will open the line for you to speak.

[Unknown Executive]

[Operator Instructions]

[Lauren Brown, executive]

Well, it seems like everyone is quiet on this Friday morning. So please feel free to reach out to me directly via phone or via e-mail if you have any additional questions about our first quarter earnings release and thank you very much for joining the call today. Again, you can find all of these resources on our website, including our earnings release, including our 2022 annual report addition to various press releases that I mentioned during the presentation. Everyone, have a great day and a good weekend, and thank you very much for joining us today.