Parque Arauco SA

SGO:PARAUCO

Earnings Call Analysis

Strong Growth and Strategic Expansions Drive Positive Results

Parque Arauco reported strong second-quarter 2024 results with sales growing 19.2%, revenues up 24.8%, and EBITDA increasing by 25.3%. Key contributors include iconic assets like Parque Arauco Kennedy and Larcomar, complemented by new expansions in Colombia such as Parque Fabricato and Titan Plaza. The company is executing on growth projects like the $60 million multifamily development at Parque Arauco Kennedy, which is pioneering in Chile. Despite challenges in Colombia, overall revenue growth is robust across Chile, Peru, and Colombia. The occupancy rate reached a record 96.1%, and the company maintains a solid financial standing with a cash position of $440 million.

Strong Financial Performance

In the second quarter of 2024, Parque Arauco exhibited impressive financial growth, with sales increasing by 19.2%, revenues jumping 24.8%, and EBITDA rising a remarkable 25.3%. This robust performance is primarily attributed to the company's iconic assets such as Parque Arauco Kennedy and Larcomar, alongside successful operations in various other centers across Chile, Peru, and Colombia.

Strategic Growth Initiatives

The quarter also highlighted several strategic investments, including a $60 million multifamily project at Parque Arauco Kennedy, which marks the first integrated living space within a shopping mall in Chile. Additionally, a $17 million master plan for MegaPlaza Inca aims to enhance customer experience and mixed-use offerings. These projects are part of a broader growth strategy that reflects the company's commitment to improving and expanding their operations.

Mixed Results by Region

While Chile and Peru experienced tailwinds from tourism and improved local demand, Colombia faced challenges. In Chile, sales grew 11.7% compared to the previous year, while Peru recorded a sales increase of 16.4%. Conversely, Colombia reported a concerning sales increase of only 0% after accounting for new assets, primarily due to tax reform negatively impacting consumer spending.

Occupancy Rates and Revenue Insights

Parque Arauco maintained a healthy occupancy rate of 96.1%, reflecting strong performance across the portfolio. Revenue growth in Chile was 9.9%, while Peru achieved 24.2% revenue growth (8% excluding exchange rates). Colombia saw a staggering 83.8% revenue increase, but this was significantly influenced by new assets. Overall, the growth trends point towards solid operational efficiencies and improved tenant performance.

Focus on Cost Management and Financial Health

The company's net debt-to-EBITDA remained stable at 5.2x, showcasing financial prudence amidst increased gross debt, which rose from €1.3 billion to €1.6 billion. Average financial costs were stable at approximately 3.3% in real terms. Positive trends in cost management were also identified, especially in administrative expenses, which rose by only 15% to 17% despite the overall growth in costs.

EBITDA Margin Outlook and Multi-Family Projects

The EBITDA margin for the quarter stood at 72%, reflecting improvements from changes in leasing contracts and effective cost management initiatives. The company also reiterated its plans to further develop its multi-family portfolio, targeting high single-digit yields in Chile and double-digit yields in Peru and Colombia, indicating a strategic focus on diversifying income sources.

Sustainability and Community Impact Goals

Parque Arauco continues to prioritize sustainability, implementing initiatives such as waste treatment technologies and charging stations for electric vehicles. These efforts not only contribute to corporate responsibility but also enhance the overall customer experience, aligning with the increasing consumer demand for environmentally responsible business practices.

Conclusion and Forward Guidance

In summary, Parque Arauco's strong financial results, ongoing investments in strategic projects, and focus on operational efficiency encapsulate a positive outlook for the future. The company is not only navigating through challenges but is also laying the groundwork for sustainable growth and enhanced market position in the retail sector.

Earnings Call Transcript 2024-Q2

[Lauren Brown, executive]

Good morning, and thank you for taking the time to connect to the Parque Arauco Second Quarter 2024 Earnings Call. I'm Lauren Brown, Head of Investor Relations, and I am joined by Francisco Moyano, CFO; and Eduardo Perez, CEO of Parque Arauco. [Operator Instructions] To start off today's conversation, I'm going to pass the call over to Francisco.

[Francisco Moyano, executive]

Thanks, Lauren, and good morning, everyone. We have a very positive quarter that is showing both the strength of our iconic assets and the positive effect of our growth strategy. Overall, we're having relevant increases in our operational indicators with sales growing 19.2%, 24.8% in revenues and an important 25.3% in EBITDA. This is a result that comes first from the force of the most relevant assets that are in our portfolio at Parque Arauco Kennedy and Larcomar, but also including other assets that also have great results as the premium outlets Arauco Maipu and Arauco [ Shiyan ] in Chile, MegaPlaza Chimbote, MegaPlaza Inca and MegaPlaza Huaral in Peru; and Parque Caracoli and Parque and Valera in Colombia. As a whole, we are seeing a general positive results and good traffic, strong commercialization of our assets and efficiencies in our portfolio.

And second, this quarter results include the benefit of our consistent growth strategy, adding new square meters to our portfolio in Colombia in last year with the incorporation of Parque Fabricato and Titan Plaza that reinforce our operating our operation in that country. In our growth pillar, -- to highlight some of the events that were announced during this quarter, including the new multifamily project for Parque Arauco Kennedy, which is going to be the first multifamily within a shopping center in Chile, and we consider $60 million in investments. Besides that, we announced the master plan for MegaPlaza Inca for $17 million that we significantly improved the customer experience and will enhance the mixed proposal of the model. This master plan is coming as a continuation of similar projects that we already executed in Larcomar, with important results that today are explicit in our figures and the most and an important renovation project that is currently under construction in MegaPlaza Independencia in Peru, the most important asset that we have in that country.

With these master plans, renovation and expansions that we have considered in several assets in all 3 countries, we have been able to maintain an updated proposal for the end customers, increase the strength of each of our assets and take full advantage of the great location that we have in our portfolio. Finally, we announced the agreement to acquire the minority interest that our partner had in Parque Lira, allowing us to get to 100% of the property of that asset.

Now to analyze in more detail the results. If we pass to Page 6. Regarding sales, as I said, sales increased in Chilean Pesos by 19.2%. In Chile, we have been seeing a very positive scenario with positive impact of tourism coming both from Argentina and Brazil, which we have been able to receive thanks to the strategic positions that we have, both in Parque Arauco Kennedy and Violet. In Peru, the increase -- in Chile increase was 11.7% if we compare this quarter against the same quarter last year, but in Peru, the increase in Chilean pesos was 16.4%. However, if you see this increase in -- excluding the exchange rates, the growth in sales in Peru is 1.2% which is correlated then with the same area sales of a negative 0.7% in Peru that we are seeing in the chart below.

However, this figure is impacted by the master plan that is currently under development in MegaPlaza Independencia, which as I said, is the most important asset that we have in that country. In our calculation, if we exclude this effect in Peru, the growth in sales would have been around 8%. In Colombia, we have a positive figure in Chilean pesos of increase in sales of 58.5%, which in excluding the exchange rate is 21.9%. These positive figures is impacted by the new assets of Titan Plaza and Parque Fabricato. And excluding those, the increase in sales is around 0, which is also correlated with the same area sales of a negative 3.8% in Colombia that we are seeing in this second quarter. In Colombia, we are having a more difficult scenario in sales, in fact, due to the impact of in consumption coming from the last tax reform for at a personal level that decreases the consumption capacity.

However, even when we are seeing sales around 0 in that country, our revenues that we are going to review afterwards are increasing in that country, and the occupancy cost then is increasing from 11.2% to 12.1%. We need to remember that in Colombia, the proportion of anchor stores is less than that what we have in Chile and Peru with only 18% of our mix in that country. So then we feel comfortable with the occupancy cost of around 12%, and we are seeing these assets having a good operation in Colombia even when we are seeing a more difficult scenario in sales.

In the next page, regarding revenues. The increase in this quarter in Chilean pesos is 24.8%. We see very strong results in all 3 countries. In Chilean pesos for Chile is 9.9% and as I mentioned, the results in Chile has been quite impressive. The portfolio as a whole has been very strong, and we are seeing very positive business spreads above inflation coming from the commercialization of the few vacancies that we have and the renovation of contracts in this country.

In Peru, in Chilean pesos, revenues are increasing 24.2%, which excluding the exchange rate is 8%, which is also a very positive figure and is correlated with the same [ Arren ] that is increasing 3.3%. In Colombia, we have an impressive figure of 83.8% of growth in revenues, which excluding the exchange rate, again, is 41%. And excluding the new assets is around 10% in order to understand how the rest of the portfolio is developing. The 10% again, talks with the 4.5% that we are seeing the same rent. Confirming the good results that we're having in all the portfolio around revenues and commercialization of our assets.

The occupancy as a whole is reached to 96.1%, which also is a record for the last time with increases in all 3 countries. Now passing to review the EBITDA -- in this quarter, we have a change in the presentation of the financial statements. Due to a change in the regulation coming from the CMS, we are presenting the bad debt provision apart from the administrative expenses. As you can see in the chart below the administrative expenses, we are presenting the an estimated income or loss due to the impairment of accounts receivables, which is, at the end, the bad debt provisions that before we were included in the administrative expenses. The bad debt provision then is having a result of a negative around MXN 5 million, MXN 500 million, which is compared with a release of butter provision in the same quarter in 2023.

As you can remember, at the end of 2023, we increased our bad debt provision in order to maintain our conservative approach in this matter. We were seeing some specific tenants in Chile, having some problems related with the account receivables. But the good news, even when we are again increasing a little bit our bad debt provision, the good news is that in the second quarter of 2024, we have been seeing Chile having a better result in that debt provision. But at the same time, we wanted to increase the bad debt provision in Peru and Colombia.

The cost of sales and the administrative expenses are increasing around 15% to 17%. In these figures, we have the same effect that we have in revenues, which are the exchange rate that is impacting the results coming from Peru and Colombia and also the cost and expenses coming from the new assets that we have in Colombia. Excluding those 2 effects, the growth would decrease to a low single digit, which is then correlated with the 72% of EBITDA margin that we have in this quarter and improving from the same quarter last year. The good news in cost and expenses are coming most importantly, from the insurance cost that is decreasing this year when you compare it with last year.

In the next page, regarding the nonoperational results we are seeing a stable financial income and increase in the financial expense. This is coming from the new debt that we have been issuing -- we have been issued in this year. First, in March, we issued a bond of USD 3 million in Chile. And also, we took new debt in Peru and Colombia in order to finance the new projects. However, the net debt-to-EBITDA is stable in 52x and we have today a very strong cash position of $440 million. The gross debt is increasing from last year from EUR 1.3 billion to EUR 1.6 billion. But that debt today is in cash. And then that is why the net debt-to-EBITDA is stable at 5.2x.

Also, I wanted to mention that the average financial cost for the company is stable when you compare the financial cost in 2024 against 2023, considering the cash position and today it's around 3.3% in real terms. Now I would like to pass to the FFO on Page 12, only to highlight that this increase in EBITDA of 23% is also translated to important increases in the FFO of 19.4% and the adjusted FFO of 18.4%. This is coming first from the strong results in the operational side and also from the same operational results that we are receiving from the associates FFO that is coming from our related companies at Grupo Marina. With that, I would like to pass the call to Loren to review the results more in detail.

[Lauren Brown, executive]

Thank you, Francisco. Jumping ahead to Slide 19, I would like to highlight our asset level milestones. In Chile, sales at Parque Arauco Kennedy grew by 16.5% as a result of positive sales this quarter in anchor stores, smaller stores and the gastronomy sectors. Higher sales can also be attributed to an increase in the foot traffic, which improved over 10% compared to the same quarter last year. The shopping center has benefited in recent months from both improved connectivity with the new Vespucio Oriente highway and the increased tourism in the country. Additionally, performance in foot traffic and sales is attributed to the winter vacation starting in June this year compared to starting in July of last year. Rents at Parque Arauco Kennedy have also been growing above inflation, resulting in an increase of revenue by 9% this quarter compared to the same period last year. AdalcoThian saw its second quarter 2024 revenues and sales grew by 12.4% and 6%, respectively. This is mainly explained by converting the space originally occupied by a supermarket into 20 smaller stores, including Adidas, Victoria's Secret, Andesgear and others.

Premium outlets continue to show outstanding performance. The revenues and sales grew by 23.4% and 25%, respectively. The format in general, showed an increase in sales driven by the improved performance of its stores, including Sparta, Nike, Adidas, Levi's and [ban]. A relevant factor that explain this new trend during the quarter was the greater flow of tourists who has visited the country and for whom the attribute premium brands with good discounts is particularly attractive.

In Peru, Larcomar is an asset that has no greater physical growth capacity in GLA, being located on a cliff. However, its sales grew by almost 20% and its revenues by 17% this quarter compared to the same quarter of the previous year. These increases are mainly explained by improvements made to the asset to enhance the customer experience and refocus the mall towards the local residents as the main customers who have high purchasing power without neglecting the tourists. The last few years, we began a series of changes in the commercial mix of the assets. H&M opened the new cinemas operated by Synopolis open, bringing the first IMAX theatre to the country as well as the first children's theater.

We opened the innovative Celia food hall that allowed us to expand the gastronomic offer, which has a high demand. In parallel, we moved some brands to anchor different parts of the mall, such as Pardos chicken, Fridays and Adidas, freeing up spaces for new brands. Thus, brands like Mango, Scalpers, Isidora, Lucatane and Ray-Ban joins the mall. Some important brands like Conta restaurant completely renovated their stores during this small renewal process, which has had highly favorable results. Some of these changes allowed us to improve connectivity between the 2 Central and Northern Plazas of the mall, increasing the flow towards the fashion zone.

Soon other brands such as Bimba Y Lola, Tooth and Freddo Ice Cream, among others, will open. In 2022, we did an important refresh to the Larcomar brand with a new logo, color pallet, improved signage, leisure spaces and seating, among other points that we identified as pain points in the customer journey map. The impact of rebranding and changing the mix occur over time and are generated gradually. As a result of these efforts, we also see that visitor traffic increased 12% in June compared to the same period last year. Now I would like to show a short video of Larcomar. I hope you enjoyed this video.

Now moving over to our Colombian assets. In Colombia, where most of our recent development announcements have been concentrated. We have our newest addition, Pardi Fabricato and Titan Plaza, which now represent approximately 1/5 of the net income and sales of the Colombian portfolio. Additionally, we have now reached 100% ownership of [ Parelegda ], which opened about 2 years ago and is continuing its maturation process. Parking Carigali and Arauco Outlet Sopo have also benefited from the entrance of strong new tenants, which has increased foot traffic and sales.

Now I will mention some additional highlights on our mall by mall page. In Chile, this quarter, Arauco Maipu experienced a growth of 7.5% in sales and 8.5% in revenue. Sales increased positively in anchor stores, intermediate stores and smaller stores and an increase in minimum rental income resulted in higher revenue. As a result of expansions and reconversions at the Arauco Kilicurda and Arauco Coronel mentioned in the Capex table, sales and revenues increased at both assets. At Kilicurda, the expansion of the shopping center included 7 new smaller stores and a Walmart supermarket. Sales increased by 8.5% due to positive performance at anchor stores and intermediate stores. Additionally, revenue increased 14.2% due to minimum rent increasing and additional revenues from parking.

In Colombia, Parque La colina sales show a decrease of 7% compared to the same quarter of the previous year. This is mainly due to sales decreasing in anchor stores and intermediate stores, particularly in clothing and footwear. As Francisco mentioned, the decrease of sales in Colombia can be attributed to a perfect storm of factors. At the end of last year, personal income taxes increased, especially for individuals in the middle to high-income brackets that surround the area of La colina.

Additionally, over the last 3 months, an increase in import taxes began to be passed on to consumers at stores such as the Inditex brands. Therefore, while personnel liquidity was decreasing, prices have been increasing, resulting in friction for consumer behavior. Another reason relates to the fact that 2023 was a particularly good year for Colombia, and therefore, 2023 is a high comparison base.

Let's move over to development. If you have passed by Parque Arauco Kennedy recently, you can see that the Cerro Colorado main entrance and retail sector is starting to take shape, and it is set to open in 2025. At the Annual Shareholders Meeting, as Francisco mentioned, we announced the Kennedy phase of the Parque Arauco Kennedy master plan, which aims to strengthen our value proposition of being an urban center where people can live, work and play all at the same location. This new multifamily residential tower is the first tower to be incorporated into a mall and will have 24 floors and 414 apartment units. This phase of the expansion is set to open in 2028.

Francisco also mentioned the expansion happening at MegaPlaza Independencia. It continues to be affected by this implementation of the master plan, with sales decreasing by 3.9% compared to second quarter of '23, but still increasing its revenues by 3.2%. Since April 2024, the area of the roof of the replay store has been closed for remodeling and conversion into a new food court and food hall. This part of the reconversion is set to open at the end of 2025 and will increase the gastronomic offer from 9 to more than 22 locations at MegaPlaza Independencia. Furthermore, Phase 1 announced the master plan has many sub-stages. The relocation of telecom companies to the new service district has already been completed, and they are now open and operating, generating a very good rent and we expect will also increase foot traffic in this sector. During this expansion process, there is indeed a temporary and negative impact on the assets since tenants have been removed in preparation for the start of construction.

This has resulted in an impact on lower GLA with the consequent impact on rent. However, it is worth mentioning that MegaPlaza Independencia, we have achieved efficiencies in maintenance, cleaning and security expenses in line with the lean and zero-based budgeting initiatives we have been working on for the last few years. And as I mentioned, with Larcomar, in the long run, we hope to see positive results of this master plan. In IGA, MegaPlaza IGA is the second largest regional shopping center in Peru with approximately 36,000 square meters of GLA and the third most important asset in terms of EBITDA. Thanks to the master plan under development, the shopping center showed a 22.6% increase in revenue. This master plan involves converting spaces previously designated for anchor stores to accommodate new tenants. The first phase opened in June 2023, allowing access to the space on the second floor that was occupied by Parque stores. In this space, Dollar City was added.

In August, we will continue to connect and expand the space in the mall second floor, providing better connectivity and top-notch finishes. Today, 3 financial entities are expected to move into the space. The relocation of these entities to the second floor will free up space for the implementation of restaurants in the main Plaza. Additionally, the Casa Idea store was moved to our remaining space less by parties, allowing us to open a corridor and improve circulation in the asset. The new H&M and Dollar City has been performing very well. There is a 7% increase in mall traffic from January to June 2024 compared to the previous year.

On Page 31, I would like to highlight our Capex cable. On the top right-hand side of the slide, you can see a pie chart showing the breakdown of the total Capex investment by type of project, expansion, new malls and multi-family. This includes projects recently incorporated and to be incorporated in the coming years. As you can see in the table, some of these projects were already incorporated in the third quarter of 2023, while others will be incorporated between now and 2028. By the time all of these projects are completed, we will have expanded our GLA by almost 190,000 square meters and our owned GLA by almost 160,000 square meters with a total investment of about USD 500 million. While

Page 31 highlights total Capex. On Page 32, we take a look at the remaining Capex. You can see the breakdown by type of projects of the remaining the pie chart on the left-hand side. I would like to reiterate that our Capex strategy is to invest approximately USD 200 million per year. Some years, we may invest less. Some years, we may invest more. It depends on the opportunities. However, this average amount of USD 200 million allows us to grow while maintaining our preferred level of leverage between 5x to 6x. And as you can see on the graph on the right-hand side, the allocated Capex remaining is less than $200 million per year. This means that there is space to announce new projects and Capex development in the upcoming years in order to maintain our goal of consistently investing in growth every year. On the marketing front, we announced the rebranding of our outlet Arauco Editipa, which, following its renewed value proposition has increased its EBITDA by 82% compared to second quarter of '23.

Through a series of studies, we identified a clear need in the Arequipa market for a mall focused on low prices and discounts. We decided to implement a gradual transformation of the asset. Changes included a new facade throughout the mall featuring a giant neural created by a renowned local artist, signaling a change in the asset and its purpose from the outside. These changes were accompanied by significant commercial efforts, bringing in new brands like per Asia, dollar city and supporting local brands and transitioning to the outlet format. We also introduced other real estate uses to the asset to increase traffic, such as including the entrepreneurship school of Universidad San Ignacio Day Loyola.

Once a significant outlet space was consolidated, we implemented a rebranding of the name of the asset from Parque Lambramani to outlet Arequipa, aligning with our outlet brand. As part of this change, an event was held with all our mall tenants to announce the rebranding on April 29. This launch was accompanied by a campaign targeting our final customers and the result has been an increase in sales since the rebranding. Client experience is a strategic pillar in core value at parked alcohol. We are focused on improving the experience for both our tenant clients and our end clients.

On Page 34, you can read about the launch of our new tenant portal in Chile, the launch of the ticketless parking at Park La Colina and our dedication to improving our Net Promoter Score as a way to measure client satisfaction throughout our portfolio. In alignment with our omnichannel strategy, we expanded our pickup and delivery service to all adcom. We also opened a dark store at Parque Fabricato, the second in Colombia and our fourth in total. Sustainability is another very important pillar at Park Gedalcom, and we are pleased to announce that we once again earned the outstanding partners award in Chile for the Green Building Council.

This year, we were recognized for a green part charging station and other electric charging stations at the outlet Buenaventura and MegaPlaza Independencia Mall and for our [ raucopickup ] and delivery services. In Peru, for the third consecutive year, we received the sustainable management company badge. And behind machines at Parque Kennedy, we implemented an innovative technology for organic waste treatment, allowing us to process more than 11 tons of organic waste per month. This also reduced our carbon footprint by approximately 7 tonnes of CO2 per month in alignment with our dedication to reduce our carbon footprint.

And to wrap up this call, I would like to thank everyone who voted for Parque Arauco, Investor Relations team and management team for the institutional investor where we were once again recognized this year. Thank you very much for your vote.

[Lauren Brown, executive]

Now I would like to turn it over to the question-and-answer segment where Eduardo will be answering your questions. [Operator Instructions] To start off today's discussion, I'm going to pass the call over to Eduardo.

I think 2 questions here. One is from Jorel of Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I wanted to focus on the performance in Chile. So one of the comments that was made in the release was that a key driver for the strong sales performance seen during the quarter was tourism. So I just wanted to get a sense of one involved were particularly impacted by this? And do you have a view on to how much longer this impact per last? Is this something that was just for the quarter? Or do you think that it's going to extend throughout the rest of the year? And then the second question is on how do you see consolidation within the sector? I've known that -- I see that Vicarage has seen some consolidation, acquiring some states in different malls in different countries. But could you comment a bit on the state of affairs. Is there more one sellers? Where are we in terms of potential cap rates? Just any color you can provide would be helpful.

[Eduardo Marchant, executive]

So regarding consumption in Chile and the impact of tourism in the figures, Bloomberg released a very interesting analysis on July 24. And in that analysis, where the source is the Chile's national tourism service, you will see that before the start of the pandemic, the most important part of the can is explained by Argentinians. And the Argentinians in the 3 months period of March, April and May, Again, before the start of the pandemic in the year '16, '17, '18, in Chile, in that 3-month period, we had approximately 200,000 Argentinians crossing borders. Then the pandemic started also the social unrest in Chile, and that figure dropped below 100,000. In 2024, again, we are seeing figures above 200,000. So the flow of tourism and specifically Argentinian tourists, is coming back to the levels we had before the start of the pandemic.

That compared with the last year -- the last year 2023 is an important increase, approximately the number of Argentinian tourist crossing borders to Chile increased by more than 100%. But again, they are coming back to the levels we had before the start of the pandemic. The impact of tourism, we see mainly in 2 assets in Chile, Parque Arauco Kennedy because Parque Arauco Kennedy is located in the heart of the main hotel district of the country, of the city of Santiago and also the outlet of Buenaventura because it's the largest outlet in the country and there, you see many tourists, especially Argentinians shopping. In these 2 assets, let me give you a broad perspective. At the portfolio level, in Chile, we believe that the increased sales is explained 90% by local increased demand and 10% by Argentinians and tourists in general. So the vast majority of the increased activity is the result of local activity.

In these 2 specific cases of Parque Arauco Kennedy and Buenaventura you will see that the number of Argentinian plates, for example, which is a data point that is interesting is approximately 10% of the cars entering the asset in Buenaventura. In past years, this figure is every year between -- in most of the year between 5% and 10%. So again, it's a figure that is higher than the year before, but that is similar to the levels we saw before the start of the pandemic. So also in these 2 specific assets, the majority of the increased sales is explained by local demand and not by tourists. So that's for the first question.

For the second question, if you analyze the sector in the last 2 decades, you will see Jorel clearly, clearly a consolidation of the industry. And Parque Arauco has taken advantage of that consolidation because M&A has been part of our strategy for a long time. The portfolio we currently have is the result in several times of M&A activity. There are several examples of iconic assets. For example, Kian, for example, Larcomar, for example, recently, Titan and Fabricato in Colombia. Going forward, we expect this trend to continue. We believe that the market is becoming more sophisticated regarding customer experience practices omnichannel practices, commercial practices, operational practices. And because of that, I see a separation of the market between more sophisticated players such as Parque Arauco and less sophisticated players that are, in some cases, lagging behind. Because of this, I -- yes, I would expect some consolidation going forward. And Parque Arauco, as we have done it in the past, we'll analyze those opportunities.

[Lauren Brown, executive]

Any other questions Jorel, or else... Now passing the question to Carolina Ratto of Itaú.

[Carolina Ratto Mallie, analyst]

Larry. So looking at the results in the case of Peru, you mentioned actually in the presentation a couple of expansions and things that you have done in certain assets like Kumar and Mika that basically explained the better performance. But I would like to understand if you see also a recovery from a macro prospect in the second half and you're looking at early signs in terms of consumption. And if you think that maybe the withdrawal of patient savings will benefit or basically have an impact in terms of consumption, at least from July onwards.

[Eduardo Marchant, executive]

So -- and let me start by saying that reconversions are an important part of the strategy of the company. We have done several conversions in the last years. Let me mention some of them. For example, in Colombia, we reconverted Caracoli and Arboleda, incorporating stores such as H&M, improving the gastronomy alternatives for end customers. In Peru, we did reconversions in assets such as La comas, already Laurent explained what we did there with changing the cinema, having differentiation regarding cinema experience, having mortgage program experiences, again, incorporating H&M into the commercial mix. Also, we changed Lambramani into our third outlet in that country.

In Chile, we have continuously reconverted Kennedy, and we recently recovered changing an anchor stores to minor stores with a very successful reconversion regarding economic figures with an IRR above 20%. So going forward, again, I would expect other reconversions to happen in the 3 countries. For example, in Chile, we are working in the reconversion of Quilicura that asset, we recently had the opening of the end subway station. This asset is located just in front of the Tilera square. And we are currently in Ventanilla. And let me say, Carolina, that Independencia is by far our most important asset in Peru. -- it represents 37% of our total sales in that country. And that asset is under a very important reconversion. We are basically changing the food court from the first floor to a second floor. We are expanding the food court which has very successful figures. And we are very importantly, improving the central square of the asset. This is an open air asset in -- it's a mixed asset really with an open proposal in the central part of the asset and some indoor alternatives also.

So this preconversion is, of course, affecting the performance of the asset, the central square of the asset is important, but we are convinced that we will see the fruits of this work we're doing relatively soon. If you see Carolina, the figures of the other assets that represent the other 63% of the sales, you will see very positive figures in the high single-digit area. So we've seen Peru better figures. It's very important that you double click the country level figures because independency represents, again, 37% of the total, but the rest of the portfolio is performing very well. And I would highlight between the rest, especially Larcomar and especially the outlets.

[Carolina Ratto Mallie, analyst]

Sorry, I follow on this. So you are thinking that the best performance and the better performance of the asset is mostly related to the work that you have done on improving the asset quality? Or is it something also related to a better macro scenario flow?

[Eduardo Marchant, executive]

I would say both. The most important -- so the assets that we have transformed, they are having all of them a 2-digit growth in sales. The rest of the assets, we have not transformed. -- they have, let's say, a mid-to high single-digit growth. So still a very positive level.

[Lauren Brown, executive]

Currently now passing the call over now to Marcelo Motta of JPMorgan.

[Marcelo Motta, analyst]

Two quick questions. The first is regarding the EBITDA margin outlook. If I'm not mistaken, over the past quarters, I think the expectation is that margins -- they would be a little bit lower, even though the absolute level of EBITDA would continue to grow just because of the way that the expenses were flowing to the P&L, the fact that the contracts were already including some of that. So I just wanted to understand why this quarter, I think EBITDA margin surprised on the upside and what could be the outlook here? And the second question is regarding the multi-family. Now that this segment is gaining traction and you continue to deliver projects, if you can share with us which are the main license, the channels, the opportunities, how happy you are with the execution so far on that front? And you keep saying it's going to be no more than 10% of the EBITDA, but just to understand how could be or how should be the ramp-up of this project.

[Eduardo Marchant, executive]

Marcelo, I understood the first question regarding EBITDA margin. But can you repeat the second one? The communications gated a little bit.

[Marcelo Motta, analyst]

Sorry for that. So on the multifamily front, what have you learned with the projects that you already delivered? How has been the experience in that segment?

[Eduardo Marchant, executive]

Okay. So regarding EBITDA margin, let me say that we're doing a lot of efforts regarding our 0 cost budget initiative. This is an initiative we're working in a 3-year period. And we are seeing important results in the accounts we are reviewing under that initiative. However, we are also in parallel doing a change in the type of contracts in Chile to a simpler contract that we call [ Contrail ] Figaro, that doesn't split what the tenant pay into rent, common expenses and promotional efforts. But as we have traditionally done it. But it includes just one figure or all-in figure, including all the former.

Because of this, remember the sector had the practice of not incorporating in our net revenues the income that comes from the -- what we collect to common expenses and what we collect to promotion efforts. That is a positive part of our cost of goods sold. It's not part of our revenues as is the case of the rest of the companies in our sector in the region. Because of that, the margins are because of this change of contract in that we are doing for some of the contracts in Chile, the net margins are flat, let's say. However, the gross margins of the company are increasing. Let me say this in another way, if we wouldn't have done the change of contracts in Chile, the margins would not be 72%. They would be closer to the 74%. However, because of the change of contracts, the margin is 72%. And it's mainly because of the efforts we have done at a 0 cost budget level. That's regarding margins. We will continue to do these very detailed analysis of the zero cost budget initiatives, and we expect to continue to capture the impact of reduced the cost and expenses in the company going forward.

Regarding multi-family, Marcelo. So in summary, we are currently operating 2 multifamily assets in Chile with an occupancy reaching approximately 90% levels. And we are developing other 4 projects building other 4 projects, basically, on Lima, 2 in Bogota and 1 in Min under construction. And we recently announced a seventh project. And for the first time, the first multifamily incorporated into one of our shopping centers, our main shopping center, Parque Arauco Kennedy. And for the first time, so we have an integrated value proposition to the end customer, where the end customer can -- or will be able to shop and work and live in the same place. This is the first project in the country in Chile that has that value proposition where you can shop, work and live in one place. And of course, we are learning in the process. I would say that so far, we are reaching the profitability levels we expected in the 2 assets we are operating. We are targeting basically high single digits in yield to costs in Chile and 2 digits in Peru and Colombia.

And we expect this initiative to increase the profitability of the portfolio because there are several other assets that can incorporate the multifamily in the property. And as you know, retail has a maximum number of floors. You cannot be built retail above, let's say, floor #5 in in the most vertical assets you can find in regions such as Asia, you will find shopping centers in 5 for maximum 6 floors. In Parque Arauco Kennedy, in the expansion we are building on the eastern part of the asset, we are building 7 floors, 2 below the ground level, including the direct connection to the future subway and 5 above ground level. So for the first time, we're incorporating 7 retail levels. But we don't think it's possible to do more than that. And we still have the permits to build above that. So when you analyze that and you incorporate the different alternatives, including office, hotels, multifamily, we believe that the property use that has the best interaction and the property use that we see happening in many assets is multifamily. So we believe that this step, we just did this quarter with the announcement of this first multifamily incorporated into our portfolio will continue to happen going forward.

[Lauren Brown, executive]

Now I am passing the call over to Felipe from Banco Santander.

[Felipe Ballevona, analyst]

We saw tenant sales growth acceleration this quarter. That said, the variable share of revenue remains steady at roughly 12% or actually 12% how you guys disclose it. So my question is, are tenants still below the point where you should receive a higher variable income? And could we see very dose share revenues go back to decent as it was to further pandemic? Or have the contracts changed to a higher fixed share.

[Eduardo Marchant, executive]

That's -- it's a very good question, I believe. So let me start by saying that -- the fixed part of the rent is key to our commercial strategy. During the pandemic, we had some pressure from tenants going into variable, and we strongly thought against that pressure because we believe that in this omni-channel world, it is very important that the square meter has a price. And it's very important that, that price had mainly 80% or 90%, a fixed part and only 10 to 20 in variables. So it's very important for us to keep that formula going forward. And it's very important to maintain our risk-return balance. So to your question, I would say that in the case of anchor stores, the minority of the Anchor stores pay variable. So as you say, as you mentioned, most of the contract, the majority of the contracts are below the level where they start paying variable. If that -- if sales continue to increase as they have been increasing in the last quarters, gradually, some of those contracts could start going into variable.

But it's a very slow and gradual process. On the other hand, most of the intermediate stores that are increasing in importance in our commercial mix, they pay -- they normally pay variable. So they have sales in the level where they start paying variable -- so going forward, I would say, as we have said in other conference calls, we do see a reduced importance of anchor stores that is gradual. And we see that gradually and slowly changing into termed and minor stores. Only for that analysis, I would expect gradually a slight increase in the variable part, but always maintaining the relevance of the fixed part.

[Lauren Brown, executive]

Thank you very much. Thank you, everyone, for joining the conference call today. We will see you again in -- at the end of October for our third quarter conference call. Have a great day. And again, always feel free to reach out via e-mail or phone call, if you have any follow-up questions -- have a good day. Thank you.