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 Pérez Marchant, CEO of Parque Arauco. I would like to mention a few things before we get started. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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.
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. These are results 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 premium, as the premium outlets, Arauco Maipú and Arauco Chillán in Chile, MegaPlaza Chimbote, MegaPlaza Ica, and MegaPlaza Huaral in Peru, and Parque Caracolí and Parque Arboleda in Colombia.
As a whole, we are seeing a general positive result and good traffic, a strong commercialization of our assets, and efficiencies in our portfolio. Second, this quarter results include the benefit of our consistent growth strategy, adding new square meters to our portfolio in Colombia last year with incorporation of Parque Fabricato and Titán Plaza that reinforce our operating, our operation in that country. In our growth pillar, we 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 will consider $60 million in investment. Besides that, we announced the master plan for MegaPlaza Ica for $17 million that will significantly improve the customer experience and will enhance the mixed proposal of the mall.
This master plan is coming as a continuation of similar projects that we already executed in Larcomar with important results that today are exclusive in our figures 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 three 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 locations that we have in our portfolio. Finally, we announced the agreement to acquire the minority interest that our partner had in Parque Reira, 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 six. 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 The Outlets. In Chile, the increase was 11.7%, if we compare this quarter against the same quarter last year. While 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-store sales of -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 excluding the exchange rate is 21.9%. This positive figure is impacted by the new assets of Plaza and Parque Fabricato. Excluding those, the increase in sales is around zero, which is also correlated with the same-store sales of -3.8% in Colombia that we are seeing in this second quarter. In Colombia, we are having a more difficult scenario in sales, in part due to the impact on 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 zero 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 an 18% of our mix in that country. We feel comfortable with the occupancy cost of around 12%, and we are seeing this asset 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 three countries. In Chilean pesos, for Chile is 9.9%. 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 leasing 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%, excluding the exchange rate is 8%, which is also a very positive figures, and it's correlated with the same store rent that is increasing 3%.
In Colombia, we have an impressive figure of 83.8% of growth in revenues, which excluding the exchange rate again, is 41%. 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 in the same store 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 has reached 96.1%, which also is a record for the last time, with increases in all three 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 re-regulation coming from the CMF, 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 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 including in the administrative expenses. The bad debt provision then is having a result of a negative around 500 million pesos, which is compared with a release of bad debt 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 accounts receivable. The good news, even when we are again increasing a little bit our bad debt provision, the good news is that is, in the second quarter of 2024, we have been seeing Chile having a better result in bad debt provision. 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%-17%. In these figures, we have the same effects 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 two effects, the growth would decrease to a low single digit, which is then correlated with the 72% EBITDA margin that we have in this quarter and improving from the same quarter last year. The good news in costs 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 non-operational results. We are seeing a stable financial income and an increase in the financial expense. This is coming from the new debt that we have been issuing in this year.
First, in March, we issue a bond of $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 5.2x . We have today a very strong cash position of $440 million. The gross debt is increasing from last year from $1.3 billion to $1.6 billion. That debt today is in part in cash, and then that is why the net debt to EBITDA is stable in 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.
Today is 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, as Grupo Marina. With that, I would like to pass the call to Lauren to review the results more in detail.
Thank you, Francisco. Jumping ahead to slide 19, I would like to highlight our asset level milestone. 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. Arauco Chillán saw its second quarter 2024 revenues and sales grow 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. Their 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 Vans.
A relevant factor that explained this new trend during the quarter was the greater flow of tourists who have 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 asset.
H&M opened, the new cinemas operated by Cinépolis opened, bringing the first IMAX theater to the country as well as the first children's theater. We opened the innovative Salazar 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, IsaDora, L'Occitane, and Ray-Ban joined the mall. Some important brands like Tanta Restaurant completely renovated their stores during this mall renewal process, which has had highly favorable results. Some of these changes allowed us to improve connectivity between the two central and northern plazas of the mall, increasing the flow towards the fashion zone. Soon, other brands such as Bimba y Lola, Tous, and Freddo Ice Cream, among others, will open.
In 2022, we did an important refresh to the Larcomar brand with a new logo, color palette, 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 additions, Parque Fabricato and Titán Plaza, which now represent approximately one-fifth of the net income and sales of the Colombian portfolio.
We have now reached 100% ownership of Parque Alegra, which opened about two y ears ago and is continuing its maturation process. Parque Caracolí and Arauco Outlet Sopó have also benefited from the entrance of strong new tenants, which have increased foot traffic and sales. Now I will mention some additional highlights on our mall-by-mall page. In Chile, this quarter, Arauco Maipú 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 Arauco Quilicura and Arauco Coronel mentioned in the CapEx table, sales and revenues increased at both assets. At Quilicura, the expansion of the shopping center included seven 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 three months, an increase in import taxes began to be passed on to consumers at stores such as the Inditex brands.
Therefore, while personal 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 2023, but still increasing its revenues by 3.2%. Since April 2024, the area of the roof of the Ripley 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 nine to more than 22 locations at MegaPlaza Independencia. Furthermore, phase I 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 asset 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 rents. 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. As I mentioned with Larcomar, in the long run, we hope to see positive results of this master plan.
In Ica, MegaPlaza Ica is the second-largest regional shopping center in Peru with approximately 36,000 sq m 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 revenues. 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 party stores. In this space, Dollar City was added. In August, we will continue to connect and expand this space on the mall's second floor, providing better connectivity and top-notch finishes. Today, three 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 Casaideas store was moved to a remaining space left by parties, allowing us to open a corridor and improve circulation in the asset. The new H&M and Dollar City have 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 table. 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 multifamily. 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 sq m and our owned GLA by almost 160,000 sq m with a total investment of about $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 CapEx in the pie chart on the left-hand side. I would like to reiterate that our CapEx strategy is to invest approximately $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 $200 million allows us to grow while maintaining our preferred level of leverage between 5x-6x.
As you can see on the graph on the right-hand side, the allocated CapEx remaining is less than CLP 200 million per year. This means that there is space to announce new projects and CapEx developments 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 Arequipa, which following its renewed value proposition, has increased its EBITDA by 82% compared to second quarter of 2023. 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 mural 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 HyperAsia, Dollar City, and supporting local brands in 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 de 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 29th. 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 and core value at Parque Arauco.
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 Parque 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 omni-channel strategy, we expanded our pickup and delivery service to Mall Arauco Maipú. 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 Parque Arauco, and we are pleased to announce that we once again earned the Outstanding Partners Award in Chile for the Chile Green Building Council.
This year, we were recognized for our Green Park charging station and other electric charging stations at the Arauco Premium Outlet Buenaventura and Megaplaza Independencia malls, and for our Arauco pickup and delivery services. In Peru, for the third consecutive year, we received the Sustainable Management Company badge. Behind the scenes at Parque Arauco 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 seven tons of CO2 per month, in alignment with our dedication to reduce our carbon footprint. 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.
Now, I would like to turn it over to the question and answer segment, where Eduardo will be answering our questions. If you are joining our call using the link, you can ask a question by clicking the button, Ask Voice Question, or by submitting a written question. If you are joining by phone, you can ask a question by pressing star q. When you are invited to speak, I will unmute you so you can ask your question. To start off today's discussion, I am going to pass the call over to Eduardo. All right, I see two questions here. One is from Jorel of Goldman Sachs. Hi, Jorel. I am going to unmute you. Can you hear me? You are unmuted.
Yes, I can hear you. Thank you. Thanks for taking my question. I wanted to focus on the performance in Chile. 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. I just wanted to get a sense of, you know, one, which malls were particularly impacted by this. Do you have a view onto how much longer this impact will 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? Then the second question is on how do you see consolidation within the sector? I've known that.
I see that, like, Parque Arauco has seen some consolidation, you know, acquiring some stakes in different malls in different countries. Could you comment a bit on the state of affairs? Is there more willing sellers? Where are we now in terms of potential cap rates? Just any color you can provide will be helpful. Thank you.
Good morning, Jorel. Eduardo here. Thank you very much for your questions and for attending the call. Regarding consumption in Chile and the impact of tourism in the figures, Bloomberg released a very interesting analysis on July 24th. In that analysis, where the source is Chile's National Tourism Service, you will see that before the start of the pandemic, the most important part of the tourism is explained by Argentinians. The Argentinians, in the three-month period of March, April and May, again, before the start of the pandemic in the years 2016, 2017, 2018, in Chile, in that three-month period, we had approximately 200,000 Argentinians crossing borders.
The pandemic started, also the social unrest in Chile, and that figure dropped below 100K. In 2024, again, we're seeing figures above 200K. 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, 2023, is an important increase. Approximately, the number of Argentinian tourists crossing borders to Chile increased by more than 100%. Again, they are coming back to the levels we had before the start of the pandemic. The impact of tourism, we see it mainly in two 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 Arauco Premium Outlet Buenaventura, because it's the largest outlet in the country. And there you see many tourists, especially Argentinians, shopping. In these two assets. Let me give you a broad perspective. At a 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. The vast majority of the increased activity is the result of local activity.
In these two 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 5% and 10% in most of the years. 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. Also in these two specific assets, the majority of the increased sales is explained by local demand and not by tourists. That's for the first question.
For the second question, if you analyze the sector in the last two decades, you will see, Jorel, clearly a consolidation of the industry. 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, Chillán. For example, Larcomar. For example, recently, Titan and Fabricato in Colombia. We believe that the market is becoming more sophisticated regarding customer experience practices, omni-channel practices, commercial practices, operational practices.
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, yes, I would expect some consolidation going forward. Parque Arauco, as we have done it in the past, we'll analyze those opportunities.
Any other questions, Jorel?
No, I'm good. Thank you.
Thank you very much. Now, passing the question to Carolina Ratto of Itaú. Carolina, you are now unmuted. Can you hear us?
Yes. Thank you, Lauren. Can you hear me?
Yes.
Yes.
Yeah. Sure. 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 Larcomar, that basically explain the better performance. I would like to understand if you see also a recovery from a macro perspective in the second half, and you are looking at early signs in terms of consumption. And if you think that maybe the withdrawal of pension savings will benefit or basically have an impact in terms of the consumption, you know, at least from July onwards.
Hello, Carolina. Thank you for the question. Let me start by saying that reconversions are an important part of the strategy of the company. We have done several reconversions in the last years. Let me mention some of them. For example, in Colombia, we reconverted Caracolí and Arboleda, incorporating stores such as H&M, improving the gastronomy alternatives for end customers. In Peru, we did reconversions in assets such as Larcomar. Lauren already explained what we did there with changing the cinema, having a differentiation regarding cinema experience, having more gastronomy 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 reconverted Chillán, changing anchor stores to minor stores with a very successful reconversion regarding economic figures with an IRR above 20%. Going forward again, I would expect other reconversions to happen in the three countries. For example, in Chile, we are working in the reconversion of Quilicura. In that asset, we recently had the opening of the new subway station. This asset is located just in front of the Quilicura square. We are currently reconverting Independencia. 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. 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. We are very importantly improving the central square of the asset. This is an open air asset. It's a mixed asset really with an open air proposal in the central part of the asset and some indoor alternatives also. This reconversion is of course affecting the performance of the asset. The central square of the asset is important, but we're 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 digits area. We see in Peru better figures. It's very important that you double-click the country level figures because Independencia represents, again, 37% of the total, but the rest of the portfolio is performing very well. I would highlight between the rest, especially Larcomar and especially the outlets.
Sorry, a follow-up on this. You're thinking that the best performance or 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 as well?
I would say both. The most important, the assets that we have transformed are having all of them a two-digit growth in sales. The rest of the assets we have not transformed have, let's say, a mid- to high single-digit growth. Still a very positive level.
Okay. Thank you very much.
Okay.
Thank you, Carolina. Passing the call over now to Marcelo Motta of JPMorgan. Hi, Marcelo.
Hi, Lauren.
Yes.
Hi, Lauren.
We can hear you, yes.
Oh.
Good morning.
Glad to hear that. Two quick questions. The first is regarding the EBITDA margin outlook. If I'm not mistaken, you know, over the past quarters, I think the expectation is that margins, you know, they would be a little bit lower even though the absolute level of EBITDA would continue to grow just because of the way that, you know, the expenses were flowing through, you know, through the P&L. The fact that the contracts were already including some of that. I just wanted to understand, you know, why this quarter, I think, you know, EBITDA margin surprise on the upside and what could be the outlook here. The second question is regarding the multifamily.
You know, now that this segment, you know, is gaining traction and you continue to deliver projects, if you can share with us, which are, you know, the main lessons, the challenge, the opportunities, you know, how happy you are with the execution so far on that front. You know, you keep saying it's gonna be, you know, no more than 10% of the data, but just to understand, you know, how could be or how should be the ramp-up of this project. Thank you.
Marcelo, I understood clearly the first question regarding EBITDA margin, but can you repeat the second one? The communication cut it a little bit.
Sorry for that. On the multifamily front.
Uh-huh.
What have you learned with the projects that you already deliver? How have been the experience in that segment?
Regarding EBITDA margin, let me say that we're doing a lot of efforts regarding our zero-based budgeting initiative. This is an initiative we're working in a three-year period. 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 contrato simplificado that doesn't split what the tenant pay into rent, common expenses and promotional efforts as we have traditionally done it. 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 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, 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 the zero-based budget level. That's regarding margins. We will continue to do this very detailed analysis of the zero-based budget initiative. And we expect to continue to capture impact of reduced cost and expenses in the company going forward. Regarding multifamily, Marcelo, in summary, we are currently operating two multifamily assets in Chile with an occupancy reaching approximately 90% levels. And we are developing other four projects, building other four projects.
Basically, one in Lima, two in Bogotá and one in Medellín, under construction. 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 Quilicura. 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. Of course, we are learning in the process. I would say that so far, we are reaching the profitability levels we expected in the two assets we are operating.
We are targeting basically high single digits in yield to costs in Chile and two digits in Peru and Colombia. 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. As you know, retail has maximum number of floors. You cannot build retail above, let's say, floor number five. In the most vertical assets you can find in regions such as Asia, you will find shopping centers in five or maximum six floors. In Parque Arauco Kennedy, in the expansion we are building on the eastern part of the asset, we are building seven floors, two below the ground level, including the direct connection to the future subway, and five above ground level.
For the first time, we're incorporating seven retail levels. We don't think it's possible to do more than that, and we still have the permits to build above that. 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. 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.
No. Perfect. Super clear. Thank you very much, Eduardo.
Okay, Marcelo.
Thank you, Marcelo. Now, I am passing the call over to Felipe from Banco Santander. Felipe, can you hear me?
Hi, everyone. Yes, I can hear you guys. Can you hear me?
Yes, we can hear you.
Great. Thank you for the call. Very, very good color on all the questions. We saw tenant sales growth accelerate this quarter. That said, the variable share of rent revenue remains steady at roughly 12% or actually 12% how you guys disclose it. My question is, are tenants still below the point where you should receive a higher variable income? And could we see variable share rent revenues go back to 14% as it was before the pandemic, or have the contracts changed to a higher fixed share?
Hello, Felipe. Thank you for the question. It's a very good question, I believe. 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 fought against that pressure because we believe that in this omni-channel world, it is very important that the sq m has a price. It's very important that that price had mainly 80% or 90% a fixed part, and only 10%-20% in variable. It's very important for us to keep that formula going forward, and it's very important to maintain our risk-return balance.
To your question, I would say that in the case of anchor stores, the minority of the anchor stores pay variable. As you say, as you mentioned, the majority of the contracts are below the level where they start paying variable. If sales continue to increase as they have been increasing in the last quarters, gradually, some of those contracts could start going into variable. 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 normally pay variable. They have sales at the level where they start paying variable.
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. We see that gradually and slowly changing into intermediate 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.
That's really good color. Thank you, Eduardo. Thanks for the call.
Okay, Felipe.
Thank you very much. Thank you everyone for joining the conference call today. We will see you again at the end of October for our third quarter conference call. Have a great day, and again, always feel free to reach out via email or phone call if you have any follow-up questions. Have a good day. Thank you.