Good day, and thank you for standing by. Welcome to Mallplaza Fourth Quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will hear a message advising your hand is raised. To withdraw your question, please press star 11 again. Please note that today's conference is being recorded. I would now like to pass the call over to the CFO, Derek Tang.
Greetings and welcome to Mallplaza earnings conference call. Thank you for joining us this morning. I'm here today with Fernando de Peña, our CEO and the only Latin American member of the board of trustees of the ICSC. Also with us is the investor relations team, represented by Sebastián Macabello and Matías Guerra. We're pleased to introduce the company's earnings results for the fourth quarter of 2023. First, we'll begin with a brief overview of the company's quarterly results. Second, we'll highlight some strategic remarks regarding the quarter. As usual, we'll end with a Q&A session. We ended 2023 with solid financial results anchored by sustainable growth in our revenues, EBITDA and FFO, an increase in efficiency measured by EBITDA margin and high levels of occupancy.
As you can see in page three, footfall to our 25 urban centers continued to grow, reaching 74 million visitors during the fourth quarter, a 2% increase compared to the fourth quarter of 2022. This growth was boosted mainly by the Mallplaza Colombia and Garou, in which both presented a mid-single-digit growth year over year, explained by our solid commercial proposal in our urban centers, in addition to relevant openings during the second half of 2023, such as the opening of the first IKEA store in Colombia and Mallplaza MQS, six H&M stores at the regional level, among others. In terms of annual footfall growth, our urban centers received 285 million visitors during 2023, an increase of 6% compared to 2022.
Our tenant sales presented an increase of 0.5% compared to the fourth quarter of 2022, continuing to show resilience against a slower consumption environment compared, for example, with retail sales of the metropolitan region of Chile that decreased 6% during the quarter. The good performance of the specialty retail, gastronomy, and entertainment segments was offset by the lower performance of department stores and home improvement. In terms of occupancy costs, we ended the fourth quarter with 10.1%, reaching its lowest level of 2023 and stimulated the pre-pandemic levels. Demand for leasing space from tenants in our urban centers continued with a solid pace and interest, as we totaled approximately 600 new openings at the regional level during 2023, allowing us to reach the highest occupancy rate of the company in the last four years with 95.8%.
All in all, revenues reached CLP 106.6 billion during the fourth quarter, increasing 9% year over year, mainly due to readjustment of lease contracts, increase in leased full square meters, and an increase of 0.9% in occupancy rate with a same-store rent of 8%. In annual terms, revenue reached CLP 491.9 billion, a 13% increase compared to 2022. Moving on to page four, cost of sales increased 45% year over year in the fourth quarter, reaching CLP 15.5 billion, mainly due to higher expenses and contributions associated with higher property taxes in 2023. In annual terms, cost of sales increased 25%, mainly because of higher expenses and contributions associated with the higher property taxes and higher spending on security, parking, operation, and energy. Administrative expenses decreased 35% during the fourth quarter of 2023, reaching CLP 11 billion.
This decrease was mainly explained by lower bad debt provisions and lower spending and remunerations in line with the organizational structure simplification that the company carried out during the first half of the year. All in all, EBITDA increased 15% year- over- year during the fourth quarter of 2023, totaling CLP 80.7 billion, with an EBITDA margin of 75.8%, an increase of 3.7% points compared to the fourth quarter of 2022, in line with the efficiency plan that we have been pursuing during the last years. In annual terms, we reached an EBITDA of CLP 322.2 billion, ending 2023 with a 76.7% EBITDA margin.
Net income reached CLP 82.3 billion during the fourth quarter, increasing 413% year over year, mainly explained by higher other income due to the revaluation effect of investment properties, higher revenue, lower tax expenses, lower loss due to readjustment units due to the variation in the U.S., lower financial costs, and lower administrative expenses, which were offset by lower share of the income of associates due to the valuation effects and investment properties, and lower financial income due to lower cash surplus and lower rates. Lastly, the adjusted FFO reached CLP 63.2 billion during the quarter, increasing 12% year- over- year, mainly due to a better performance of the operation, less minority interest adjustment due to the purchase of the minority stake of the subsidiary Nuevos Des Arroyos executed in the second quarter of 2023, and higher FFO from unconsolidated entities.
The adjusted FFO margin reached 58% during the quarter. Now, I turn the table to Fernando, who will share quarter strategic remarks regarding the business.
Thank you, Derek. 2023 was a year for consolidation of our company, being able to deliver winning proposals, generating multiple reasons of visit to our urban centers. We aim to have the best portfolio of the region, and we are in the right path to achieve so. There isn't another company in the region that owns 20 asset that are leaders in their respective markets, and 10 which are tier A urban centers, dominant assets with high productivity, feeding high-density markets, and with a high purchase power potential. We will continue to reinforce these kinds of assets through renovation expansions, as they have a high potential to incorporate new formats and categories answered by the land banks available of this purpose.
As Derek mentioned, demand for spaces in our assets continued relevant during 2023, opening almost 600 new different proposals on our urban centers, where our strategic alliances with solid brands continue to take shape, in addition to new-to-market brands that continue to choose Mallplaza as their platform to enter the Andes region. Our alliance with H&M continues to develop, this time with three new openings in Chile during the first quarter in Mallplaza Tobalaba, Begaña, and Arica, reaching 14 H&M stores operated at the regional level, in line with our goal of 19 stores in the three countries where we operate. Also, in Mallplaza La Serena, we opened a new 2,000 sq m Decathlon store, the first one in the north of Chile, reinforcing the commercial proposal of this tier A urban center with a diversified offer of different sports products.
In Peru, we inaugurated a new 700 sq m Dollar City in Mallplaza Arequipa, a fourth store in Peru, boosting the convenience proposal in this urban center. This consolidation of new openings with strategic partners is complemented by the new brands that have chosen Mallplaza as their platform to enter the Andes region. One example of this is the NBA store that we opened in Mallplaza Espacio, official store of the most important basketball league in the world, a 400 sq m space that combines the sales of official merchandise along with a unique experience area. The development of retail proposals will continue to be protagonist, in line with the strategy of the company to be able to deliver multiple reasons to visit our urban centers.
During this quarter, we continue to develop our game as proposal in Mallplaza Table, with the opening of a 300 sq m Movistar game club, a rollout of our opening in Mallplaza Espucio and Mallplaza Oeste, which have had great success bringing a new type of visitors to our urban centers. In terms of F&B, we are happy to announce the opening of La Factoria, an innovative gastronomic hallway that delivers a unique experience, giving the visitors the possibility to acquire different kinds of fresh food products, in addition to host new restaurants such as By Maria, which is the first location in a shopping center, Havana, El Japonés, and La Piazza.
In addition, we inaugurated Las Terrazas del Puerto in Mallplaza Antofagasta, a new space with a unique location for eight different new-to-market restaurants, boosting the offer of this tier A mall that is leading its market. In terms of growth, our different initiatives continue to take shape, both in terms of greenfield, brownfield, and M&A. We are pleased to announce that we are in the final stage of the construction of Mallplaza Cali, our fifth urban center in Colombia, that will mix a combination of entertainment, gastronomy, with the rollout of El Mercado and more than 150 solid brands that include the second IKEA in the country, Decathlon, H&M, and the fully indexed brands offered with Zara, Bershka, Stradivarius, and Pull & Bear, among others. At this date, 91% of the spaces of this urban center are already leased.
In terms of brownfield, our lifestyle project in Mallplaza Espucio, one of our flagship urban centers, continues to take shape. Expected to open in the first quarter of 2024, this 22,000 sq m new space will host a solid fast fashion mix with flagship format, improving the race track of the urban center, convenience services, and a 12,000 sq m park. In addition, we continue to develop the expansion of Mallplaza Iquique, a 2,000 sq m space that will host the 15 H&M stores in all urban centers, in addition to a service boulevard and a new home improvement proposal. Mallplaza MQS, our last M&A, continued to consolidate its complete transformation since it was acquired in 2020, delivering solid results.
Just to mention some examples, sales per square meter and revenue per square meter had increased by 57% and 43% respectively compared to September 2021, last third month, in addition to more than double the amount of visitors per month, exceeding 1 million visitors monthly. We are always actively searching for new M&A opportunities in the market, and this is only possible through the solid balance sheet of the company, ending the year with a net financial debt to EBITDA of 3.4 and with long-term financial debt payment profile with a duration of over eight years. Now, I leave you with Derek for some final remarks.
Thank you, Fernando. Just to finish, I want to highlight how our omnichannel initiatives continue to deliver great results, aiming to boost our tenants and sellers' sales in addition to generating footfall to our urban centers. Our Click and Collect, Dart stores, and cross-stocking operations handled more than 2.4 million packages during 2023, which represent more than $87 million in seller sales, doubling the 2022 number. In addition, our Click and Collect added new functionalities such as drop-off and products return points. In terms of ESG, we are committed to becoming a net zero company on scope one and two by 2035. These efforts led to, for example, during 2023, a decrease of 17% in kilowatts per hour per GLA versus 2019 in energy intensity, in addition to managing to reduce water intensity by 17% cubic meters per GLA versus 2019.
We're now ready for questions, and we'll start the Q&A session. Thank you.
Thank you, Derek. As a reminder to our audience, to press star 11 is to get in the queue, and to press star 11 again is to remove yourself. Please wait for your name to be announced. One moment for our first question. It comes from the line of Alejandra Obregón with Morgan Stanley.
Hi, good morning. Derek, Fernando, thank you for taking my question. I guess I would like to follow up, first of all, on the fines for store opening delays in Colombia, if you can help us understand the nature of these fines and whether these are recoverable and perhaps whether this has corrected into the first quarter. That would be the first question. The second question is on your omnichannel strategy. I'm curious. It's clearly gaining some traction. I was wondering if you could help us kind of size the potential and whether you're planning to roll this out to new regions and to new stores. If you can help us size the potential growth for this strategy, that would be very helpful. Thank you very much.
Alejandra, thank you so much for participating in our call and for your question and for your questions. With regards to the first one, in terms of the fine for store opening delay, as mentioned in the earnings release, this is more of a one-off. These were fines that were attributed to delays in openings and that were virtually within this quarter. We should not expect this going forward. Also to mention and to highlight, as well noted in the earnings, if you look at NQS, I mean, it is a mall that we did several and significant reconversions since we acquired this mall with new store openings over the past couple of quarters. This project has acted well. I mean, when we see it in terms of sales performance, there has been a significant pickup there. We are very optimistic with the outlook for this mall.
Now, with regards to your second question, which is on our omnichannel strategy, as we highlighted in the earnings release as well, I mean, there have been several initiatives here. I think our idea is to, at the end of the day, generate a solution for our retailers, not only our current retailers, but also outside retailers, and also enable the ability for the mall to become more relevant within the location that they're present and also to generate more traffic to the mall and outside traffic. Within our, in terms of Click and Collect, as highlighted in the earnings release, I mean, there are several brands across the region. We had a brand by the end of the fourth quarter. We've been making a significant pickup in terms of the number of packages that are being operated and handled by Click and Collect.
Also, other initiatives like cross-stocking and Dart stores. Our focus here is how we can help generate traffic, but also quite conscious as to the profitability of these initiatives as well, leveraging up on different partners.
Hi, Alejandra. I'm Fernando. I would like to add that in our omnichannel strategy, what we are boosting is online sales that are going to the mall, to the Click and Collect. We end this year with 550,000 packages, not only for the stores in the mall, but any store and anywhere. We are boosting very that. We will have a percentage of that online flow.
Alejandra?
I'm still here, but I think I lost the team.
Oh, one moment, please. Stand by.
Alejandra, you're back. We can hear you now. Thank you.
Continuing.
When you lost our answer, Alejandra?
I guess you stopped where you were talking about the number of packages?
550,000 packages in the 20C. We are even in terms of cost. We also add a new facility that is returns. That is very important for our clients and also for the retailers.
Gotcha. That was very clear. If there's space for one more question on my end regarding tenant health, I guess if you could help us understand, I mean, from your conversations and your recent negotiation with your clients, especially on the anchor department stores, how do you think of performance for 2024? If you can help us understand if it's perhaps a soft landing, a hard landing, or are we ready to think of a turnaround, especially in Peru and Chile? That would be very helpful.
Great. No, thank you, Alejandra. I think in terms of sales outlook, one of the things that we highlight every quarter is the performance in Chile that our malls have been posting compared to the overall metropolitan region in Santiago. With our efforts, in spite of the fact that sales did decrease for Chile 1.5% year on year, I mean, that's compared with a fall of 5% for the metropolitan region overall. I mean, we've been consistently demonstrating this spread. I think it's interesting here to highlight when you think about how tenants and their growth were only out new store expansions, we had a significant year in terms of store signings. There are about 600 additions of new contracts that were signed throughout the year. This helped for us to increase our occupancy, and this happened in all three countries.
We increased our occupancy to 95.8%, one of the highest occupancies that we have posted over the past couple of years. This we expect to continue. This opening appetite as well. We are very conscious that the sales performance going forward, I think Colombia here was a big highlight with regards to sales, with all the changes that we have been doing within NQS. Also in Peru, I think it is important to highlight that one of the malls, which is Trujillo, this mall was closed at the end of half of December or last week of December. There is a drop by an impact on sales figure overall. Looking forward, we continue to expect this trend in terms of occupancy, in terms of appetite for retailers to continue.
Gotcha. That was very clear. Thanks again for the call and for taking my question.
Thank you. One moment for our next question, please. It comes from the line of Jorel Guilloty with Goldman Sachs. Please proceed.
Good morning, everyone. Thank you for taking my questions. I have two. One is I'm not sure how much color you can provide, but if there's any color you could provide on your current analysis of the Falabella Peru portfolio for acquisition, as I understand it, I think the deadline might be coming up in order to come to a decision. Any color that you can provide on that process or how you think about it or drivers for it would be helpful. I just want to pick up again on the dynamics, particularly for Chile. I mean, same store rent for 2023 increased 9%. Same store sales, though, were negative 3%. Occupancy costs increased to 11.4%. That's 110 basis points higher.
I mean, what I was trying to figure out here is supposing that we have another year of weak same-store sales growth in Chile, low single digits. How does this affect your pricing power, considering that your occupancy cost has risen materially? Could we see same levels of same-store rent growth, or could we see that reducing? Just overall, how are you thinking about the possibility of pricing power going forward, considering the same-store sales dynamics in Chile? Those are my questions. Thank you.
Great, Jorel. Thank you for participating, and thank you for your questions as well. First, with regards to the MOU that was signed in Peru, as you well know, we can't comment on specific deals or transactions or potential transactions. What we can comment, however, is with regards to our growth strategy. I mean, we do, as we've mentioned in the past, foresee opportunities to expand and to continue to grow our portfolio, especially in markets such as Peru and Colombia. This fits in well within this strategy, but we can't comment into a specific transaction. Now, to your second question with regards to specifically that Chile and sort of this spread or difference between same-store rent and same-store sales and how it affects in terms of occupancy costs and say that the pricing power that we see going forward, I think a couple there.
I think on one side, when you look at this spread between same-store sales and same-store rent, I mean, we report aggregated figures. That includes all our stores within each country. The analysis would be looking into each different store to see what their occupancy costs and what is their ability or their ability to raise- up costs with that regard. I mean, this metric can be skewed depending on the weight each type of tenant has on sales and on rent. When you look at it this way, we can say you combine and add to this the occupancy rate trend and dynamic that we've been seeing or sort of for retailers to announce expansion plans to continue to open stores. I mean, we've picked up increased occupancy rate in 1% in Chile, ending the year at 96.4%. This trend continues to go up.
This also creates a scarcity effect in the mall in the sense that there's less GLA available for rent. That contributes towards our ability to be able to increase rent. Now, we're constantly looking into ways we can be more efficient in how we operate our malls as well in terms of the occupancy costs to open up room to continue to push up or see increases in rent.
Thank you.
Thank you. One moment for our next question, please. Comes from the line of Felipe Valenova with Santander. Felipe, please unmute your line.
Hi, everyone. Is that good?
Yes, I can hear you now. Thanks.
Thank you. Hi, everyone. Thank you for taking my question. Actually, I have a couple of questions on the operation side, and I have another couple of questions regarding the MOU. On the operational side, I'm sorry for kind of repeating the same question in a different wording, but we have seen rent per square meter increasing over inflation in the past few years. Is there any room for this trend to keep repeating itself, in particular in Chile? Also, could you give us a little more color on the impaired receivables provision? I'm sorry, maybe you mentioned this in the past quarter, but I wanted to have it fresh on my mind. What should we expect for this line in the next couple of quarters? I can ask you the questions regarding the MOU after these, if that's okay with you.
Hi, Felipe. Thank you for calling in our call. Thank you for the questions as well. First, with regards to on the operational front, in terms of the rent per square meter and sort of this spread compared to sales, it goes a little bit in line with the recent answer to Jorel's question as to its importance with sales and revenue per tenant as to analyze what's the potential occupancy cost there and the room that we have to continue to grow and push up rent. Also, I mean, it's part of our focus here, as mentioned before, being efficient in the way we operate our mall in terms of condominium and as well as how we handle the marketing funds as well. That way to open up room for us to be able to consistently pursue incremental rent.
I think it's also, at the end of the day, a supply and demand factor, right? Given the supply that we currently have and given that demand has been picking up, I mean, this kind of would be helpful for our ability to set prices. With regards to provision, which was your second question, we don't provide an outlook as to provision and what we expect specifically for this line. We are, of course, conscious and focusing on ways in which we can be close to tenants as well or eliminate this well in terms of the provision line. I guess you had a third question, which was related to you.
Yeah. Thank you, Derek. Regarding the MOU, when can you get this closing information? When is the deadline for the MOU? The other question is, is the financing decision part of the MOU? Is it tied up to the purchase of the assets, or is it a separate decision? Do Falabella's board members get a vote regarding the financing of the operation? I guess it's all tied in if it's the same decision or a different decision to purchasing the assets.
Yeah. With regards to the MOU, I mean, we do not comment on specific M&A transactions. What I can comment about the MOU is that when we signed it and we announced it to the market, there was a 120-day period. I mean, we will keep the market up to date with regards to these advances as to this potential transaction. Now, with regards to the financing, I mean, this is, at the end of the day, an internal decision. I mean, we also do not provide any guidance as to how we will finance this transaction.
Yeah, yeah. I understand, but my question is, is the financing decision part of the purchasing? Is it tied up to the purchase of the assets, or is it a separate decision? Because what I'm aware is that the Falabella's board members cannot vote on your side, on the MOU+ side, regarding the acquisition of the assets. My question is, is it like the financing decision a separate one so they would be able to vote then, or is it all like the financing of the operations is tied into how you're purchasing the assets?
Yeah. Like I mentioned before, we can't comment specific details as to the transaction or details pertaining to the transaction. Whenever possible, announce or communicate to the market advances as to the MOU and the entire process of this potential transaction.
Understood. Thank you.
Thank you. As a reminder, to ask a question, simply press star 11 to get in the queue. One moment for our next question. It is from Marko Kraljevic. Please go ahead. You need to mute your computer feed.
Understood. Thank you.
Thank you. As a reminder, to ask a question, simply press star 11 to get in the queue. One moment for our next question. It is from Marco Kraljevic. Please go ahead. You need to mute your computer feed.
Marko?
Hi. Sorry. Hi. Can you hear me? I'm having some problems with my phone line, so.
You need to turn off your computer feed. Thanks.
Okay. I already did. Because I'm having some problems in the phone line, it's not working.
You sound loud and clear.
Okay. That's great. My question, I believe most of the questions I was thinking were already asked. My question is really quick. I'd like to understand what's your strategy to transfer the tax expenses increase to the tenants? Because if you would take a close look, not a close look, a rapid look to the disclosure of your costs, it seems that the impairments were the one offsetting most of the tax increases. What will happen when you have no impairments to when they turn negative again and they normalize? How will you offset the tax increase?
I'll keep up with your question. With regards to the property taxes, as well noted in our earnings release in prior quarters as well, this has been an effect not only for Mallplaza, but I guess for the industry in general. Our focus here has been looking ways into which we can be more efficient and transfer these property taxes as well to the condominium. This will continue to be our focus following quarters.
Do you have any additional questions, Marko? All right. If I'm not showing any further questions in the queue, I will turn it back to management for final comments.
Thank you all for participating in this fourth quarter 2023 earnings call for Mallplaza. As always, all the team here at the IR team is available for any questions you have, and always available to take meetings as well with all of you in the future. Thank you once again. Have a good day.
Thank you. With that, we conclude our conference today. Thank you for participating. Everyone, have a great day.