Ladies and gentlemen, thank you for standing by, and welcome to Parque Arauco's second quarter earnings conference call. Before I pass the line to Lauren, we would also like to apologize sincerely for the events of last Friday, which led to the call being postponed. Thank you all for your patience. I now would like to pass the line to Lauren to begin the presentation. Please go ahead.
Good morning, everyone, and thank you for taking the time to connect to the Parque Arauco second quarter 2023 earnings call. I'm Lauren Brown, Head of Investor Relations, and I'm joined by Francisco Moyano, CFO, and Eduardo Pérez, 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 call, I'm gonna pass the call over to Francisco.
Thanks, Lauren, and good morning to everyone. To start the conference today, please pass to slide four. Okay, regarding this quarter results, we are seeing the continuation of the positive trend that we have been seeing from the return from the pandemic. For another quarter, our revenues and EBITDA are growing at all locations, confirming the stability and resilience of the cash flow of Parque Arauco, which is an important characteristic of our business model. Thus, the revenues are growing 12.1%, and EBITDA is growing 9.3%, even with the headwinds of the exchange rates from Peru and Colombia used for the consolidation of our figures, which are -3.8% of the Peruvian sol and -16.7% of the Colombian peso.
In addition, the occupancy is showing its highest value for the last 10 years of 95.8%, with excellent levels across Chile, Peru and Colombia. Regarding our projects, we are excited to announce the development of a new lifestyle mall in the La Molina area in Lima, Peru, and new H&M stores for Parque Arboleda, Parque Caracolí and Parque Alegra, strengthening our mix in these successful malls in Colombia. Now, regarding our sustainability pillar, we were very pleased to have announced a few days ago our decarbonization strategy, which included proposed targets calculated under the Science-Based Targets initiative for the next years of operation. We wanted to follow the science in this matter, following the most prestigious organization in decarbonization initiatives as SBTi is today, and setting responsible goals for the future that will include developing several projects within Parque Arauco. Now passing to page six.
I would like to start talking about the tenant sales, that in the total figure is decreasing 2%. Even when the figure is negative as a total, there are two comments to make regarding this figure. First, the exchange rate, as I said, in the consolidation, is negatively affecting the amount. By country, we can see that the -3.5% in Peru is actually composed 4% positive in local currency. The -6.2% in Colombia is actually 11.1% positive in local currency. Also, we are seeing an important divergence between anchor stores and the rest of the mall. The breakdown of the decrease in 2% is really a negative double digit value for anchor stores and a positive single digit for the rest of the stores.
It's also important to say and remember that around 80% of our revenue comes from intermediate and smaller stores. For each store, we are seeing very positive figures, with the highlight of restaurants, health and beauty stores and entertainment, especially movie theaters that are returning to figures comparable with the pre-pandemic times. This divergence of sales is also applied to the occupancy cost and the same area sales. In the occupancy cost, we are seeing very stable figures if we compare with 2019, increasing to 11.7% in Chile, 7.8% in Peru and 11.2% in Colombia. However, if we see, for instance, Colombia in 2019, was 12.5%.
Showing an amount that is below today than it was in pre-pandemic times. The same area sales is negative in Chile, Peru and positive in Colombia. As I said, it's the divergence that we are seeing for anchor stores and the rest of the mall is also affecting these total figures. In the next page, regarding revenue. To start our review of revenue, it's not that different that we changed our accounting policy regarding the netting process of our utilities cost, including in our financial statement a regular classification between revenues and costs in 2022. That did not change any results or the EBITDA, but it makes values more comparable for revenues and cost of sales. You can find more information in section 3.19 of our financial statements on this reclassification.
With that, our revenue is increasing just 1%. It's also affected by the same factor of exchange rate. Chile is growing at 19.8%, a very positive figure for Chile. Peru is growing 3.7%, but in local currency, it's actually growing 7.6%, sorry. 7.6% in local currency. It's very positive out of all inflation. Colombia is growing 5.5% in the consolidated figures. But in local currency, it's growing 9.9%. Perfect figures for Colombia. They are very positive figures for Chile and Peru. Also, as I said at the beginning of the call, we achieved the highest value of the last 10 years in our occupancy of 95.8%.
That value is coming with the stabilization process that we are experiencing in Parque Alegra, which reached 80.6%. Without Parque Alegra, in fact, the consolidated figure is 96.5%. In the same vein, I would like to highlight the figures for Peru, which is growing 15.6%. It's positive for Chile at 2.8% and positive for Colombia at 8.2%. The highest value in Peru is related with the good performance that we are seeing in that country in this year, returning to pre-pandemic levels in all of the operation. Also, I would like to highlight that we have a fixed rent of 89% and variable rent of 11%.
This is also very important to understand the stability of our cash flows and revenues in our company. Now we can pass to page nine. Our EBITDA is growing 9.3%. The inflation in this first month is below that figure. It's around 8.5% in our consolidated figure. The EBITDA is growing above inflation. If we go, we already reviewed the revenues that are growing 12.1%. Our cost of sales is growing 24.2%. Most of the increase in this cost of sales comes from an increase in real estate taxes, mainly coming from Chile. However, we will be seeing an important decrease of this cost in the rest of the year since we have to account an important full year cost of one of our malls in June, following an accounting policy.
We are expecting this 24% actually to decline in the following quarters. In administrative expenses, we had an increase of 5.2% below inflation because of some savings that we are having in our administrative expenses. This also includes a decrease for a partial review of our bad debt provisions of CLP 470 million. On the next page, we have the consolidated results for Parque Arauco, and we can see that the net profit is decreasing 66%, reaching CLP 19 billion. However, in this decrease, we have to take into consideration that in the second quarter of 2022, we had an adjustment of our fair value.
That was an extraordinary adjustment because of the increase that we had in inflation in all three countries in last year. Taking apart the effect of the adjustment of the fair value that is affecting the other gains and losses. The share profit of associates accounted with the adjustment of fair value that Grupo Marina made in June last year. Deferred taxes that was affected by the same adjustment. We would have had a net profit of CLP 4.5 billion. With that, we will have had an increase in net profit of around CLP 16 billion. We are pleased to see that the income from index assets and liabilities is actually decreasing from CLP 27 billion to CLP 12 billion, reaching a more normalized value for these accounts.
The financial expense is growing this year to CLP 14 billion, which is related with first the inflation of the period, but also because of the new interest cost that comes with the new bond that we issued March this year of $3 million. However, this increase in financial expense is compensated by the financial income that is also growing 23.6%. Now we can pass to page 13. Regarding the FFO, please consider that late on Thursday last week, we uploaded a new version of this page of the report since we realized that the value included of the associate accounted FFO for the second quarter of 2022 was incorrectly informed. Just since Thursday, there is a new version with the correct figures that we are following this presentation.
Please download the new report if you happen to have the first version. The FFO in this quarter is actually growing 1.7% affected by the financial expense that as I explained is growing 19.8% and compensated by the financial income. However, if we see the last twelve months, the FFO is actually growing 12%. It's showing, as you can see in the chart below, it's having a good margin of 62%, which in comparison with the past years, it's also growing. With that, I would like to pass to page 15. Only to highlight the trade account receivables and the other receivables and bad provision that you can see in the lower part of the table.
We have not seen any increase of losses coming from bad debt. However, we are still conservative in the management of this provision and maintaining an important amount in our books. With that, I would like to pass back the call to Lauren to present some of our projects.
Thank you, Francisco. Now I'm gonna go to our asset level results. Starting on page 20, you can see all of our asset level results here. I wanted to highlight that, as what Francisco was saying, we experienced positive revenues, especially at Parque Arauco Kennedy. In addition, our outlet revenues grew substantially as well. In Peru and also across the board, food and entertainment have returned to pre-pandemic levels. In some assets in Peru, the cinemas are helping to drive revenue. In Colombia, the occupancy of Parque Caracolí reached nearly 100%, and Parque Alegra is now over 80% occupancy after a year of being open. Passing now to the next page. Here you can find an overview of our occupancy levels, again highlighting that this is the highest occupancy we've had in the past 10 years. Jumping ahead to page 22 now.
I would like to highlight the last line for the totals. If you look at the Chile total under revenue, you can see that our revenue increased 17.1%, while our NOI increased 12%. In Peru, the revenue total increased 7.6%, while the NOI increased 7.4%. In Colombia, the revenues increased 23.9% and the NOI 24.9%. These figures are in local currency. I did want to point out that in Chile, you will note there is a negative NOI in Arauco Chillán, and that is a result of the reconversion project that we are doing there, which I will highlight in a future page. I'm going to jump ahead now to development. On page 26, you can find a table that highlights our various development projects.
As a result of normalization of EBITDA and our leverage level, we continue to return to higher levels of CapEx investment. We are investing significant percentage of our total CapEx in regional shopping centers, including the expansion of the iconic Parque Arauco Kennedy in Santiago, various expansions and reconversions throughout Chile and Colombia, and a new lifestyle shopping center in Lima, Peru. As you can see in the graph on the right, despite various multifamily announcements, retail real estate remains our focus and largest investment this year and will continue to be in the future. On the following page, you can see a description of our newest project announced, Parque La Molina. This is going to be the second lifestyle shopping center in Lima, Peru, after Larcomar.
The open architectural design has many green spaces and includes 16,000 square meters of retail space, which will incorporate a wide variety of gastronomic and entertainment options in addition to small, mid, and department stores. The design of La Molina takes into account sustainability, measuring the carbon footprint during construction, and incorporates energy efficiency measures and recycling points. On page 28, you can see a closer look at some of our expansions and reconversion projects at our malls throughout Chile and Colombia. In Chile, at Arauco Chillán, we are reconverting a unit that was previously a supermarket into 22 smaller stores, which we expect will increase the profitability of the GLA. This year, we continue investing in the expansion of Parque Arauco Kennedy as well. In Colombia, at Parque Alegra, Parque Arboleda, and Parque Caracolí, we are welcoming H&M.
The store in Parque Alegra recently opened and had a successful launch. Now, to accommodate the opening of H&M in the other malls I mentioned, we are in the process of reconverting spaces and, in some cases, moving stores. In Parque Arboleda, we just opened the newly renovated Zara, Bershka, and other Inditex stores, which were relocated in this process. We believe that these reconversions will attract more clients and increase the profitability of these malls. As Francisco mentioned, we are happy to announce our decarbonization agenda. On page 30, you can find this agenda and the goals that we have submitted for Science-Based Targets approval. As Francisco also mentioned, Science-Based Targets is one of the most rigorous standards that we can adhere to.
We are one of only 20 companies in all of Chile and the first real estate company to be working with Science-Based Targets. I invite you to take a look at the information we are presenting on this slide and additionally in our 2022 integrated report that you can find on the website. On page 33 and 34, we highlight the efforts we are making to improve the experience for our customers and our tenants. We have created archetypes for our end customers and tenants so that we can further analyze ways we can improve their experience. On the tenant side, we have also added Arauco Pop-up modules in Peru, and we have improved the process for tenant entry into our shopping centers. In addition to the E for environment and ESG, we've also been dedicated to projects that focus on the S for social.
We have supported over 800 entrepreneurs between fairs in Peru and Chile, and we've also established a program with Naturalizar to create community gardens near our assets in Quilicura and El Bosque. In Peru, we have partnered with Sinfonía por el Perú to promote youth musical culture through choral and instrument-making programs. Recitals were held at Megaplaza Independencia and were open to the public and attended by local mayors in addition to the Parque Arauco team. I invite you to watch the video about the Sinfonía por el Perú on the investor relations YouTube channel, and you can also access by clicking the link on the earnings presentation report. Now I'm gonna turn it over to our question and answer section. 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 two. When you are invited to speak, I will unmute you so you can ask your question. Now to start up today's discussion, I'm going to pass over the call to Eduardo. Hi, Jorel. I'm gonna start with you. You typed me a long email, but perhaps you want to verbally. Hi, Jorel. You're now unmuted.
Hi, guys. Can you hear me?
Yeah.
Thanks very much for the call. I have two questions. The first one is related to the confirmation.
Yeah. No, sorry. You have a lot of background noise.
Yeah.
Would you like to repeat the question one more time?
Sorry. I'm back. Like I said before, I just want to understand better the Marina outcome as a whole effect of discounting because running as a whole, that fell 28% during the quarter.
Mm-hmm.
The second question I have is related to Parque Alegra. I just want to understand better the NOI margin that we should expect going forward since you already reached to 80% of occupancy and you only have 26% NOI margin. I want to understand better the evolution of that as it goes.
Great. Thank you. I'll just repeat that so everyone can hear it. The first question corresponds to the controlling FFO, and the lower amount of FFO associated with Mall Marina. The second question has to do with Parque Alegra and how the occupancy is over 80% and the NOI margin is 26%, and what will be the evolution of the NOI margin of this asset.
Good morning, Jorel. Eduardo Pérez Marchant. It's good to hear your voice. Regarding the first question, as you know, in Parque Arauco, we do the fair value calculation of our properties during the last quarter of every year. We did a fair value calculation of our properties at June of last year, because of extraordinary inflation, two-digit inflation conditions. Also, Mall Marina, which is this 50% owned by Parque Arauco and 50% owned by Ripley, portfolio of properties, mainly in the city of Villa Alemana, and also in the cities of Concepción and Curicó. They also did a fair value calculation of the properties, and therefore the base is also affected in the case of Mall Marina.
However, it's important to mention that the fair value calculation is not a part of the FFO calculation. That's the first part of the question. The second question regarding Parque Alegra, we started to build Parque Alegra, Jorel Guilloty, before the start of the pandemic. When the pandemic started, we froze all the investments with only two exceptions, the expansion of Parque Arauco Kennedy and the construction of Parque Alegra. Basically, in those two cases, we believed that the benefit of continuing the project was larger than the cost of continuing the project. Even though the levels of uncertainty were very important. Because of that, we had to negotiate the contract with our tenant in the middle of the pandemic. Because of that, those were challenging negotiations.
In most of the cases, the revenues that we negotiated with the tenants are scaling up in the next years. Basically most of the cases, the contract starts with a lower revenue per square meter basis. Those contracts increase year after year. You will see higher margins going forward. I would expect similar levels to the other projects in Colombia in the meantime.
Jorel, do you have any follow-up question to that?
No.
I'll go ahead and pass the.
Thank you.
Great. Thank you. Thank you very much. All right. I will now unmute Jorel Guilloty from Goldman Sachs. Give me one second, and then following his question, we'll unmute Marcelo Motta from JP Morgan. Jorel, you are now unmuted. How are you today?
Thank you. Good morning, Lauren. Good morning, Eduardo, everyone. I have two questions. One is, we discussed the occupancy cost dynamic previously. The increase in occupancy cost is not much of a surprise. I was just wondering, as you look into the second half of the year, how are you thinking about this dynamic going forward, maybe next six months, next 12 months, particularly for Chile? Do you think that we've hit the limit, or do you think it can continue rising due to the, you know, the lower sales and higher rent dynamic? I wanted to piggyback on the margin question. I'm sorry if this was answered.
I didn't quite make it out. When I look at NOI margins for Chile at the asset level, they declined about 420 basis points. I mean, as I understand it, some of that is due to like operating costs rising materially with inflation. Should we just expect that 93.5% NOI margin at an asset level we're seeing with Chile is basically we've bottomed out and we should expect that to either stabilize or go upward? Those are my two questions. Thank you.
Hello, Jorel. Good morning. As Francisco explained, there's an important difference between the performance of anchor stores and the rest of the shopping centers. The tenant base of anchor stores are decreasing at two digits. The sales of the rest of the shopping center are increasing at a single digit rate. It's important to understand the differences because most of the contracts that are expiring in the following years and that will be renegotiated are contracts that are non-anchor contracts. When you analyze the total occupancy cost levels, let me give you here also a little bit more color related to how they split between anchors and non-anchors.
The total occupancy cost during the second quarter of 2019, including both anchors and non-anchors, during the second quarter of 2019 was 10.5%. The total occupancy cost this second quarter in the average of the three countries, and again, including both anchor and non-anchor, was 10.4%, so 10 basis points below. However, when you double check the occupancy cost between anchors and non-anchors, you will see that the occupancy cost of non-anchors during the second quarter of 2019 before the start of the pandemic was 14.1%. This occupancy cost of non-anchors during the second quarter of 2023 was 13.3%, so 80 basis points below. When you see the figures of anchors during the second quarter of 2019 was 4.9, and during the second quarter of 2023 it's 5.5.
I think it's important to understand that because the tenant sales of non-anchor stores are increasing, and because the occupancy cost of non-anchors is 80 basis points below the start of the pandemic, I still think there's room for growing above inflation. That will affect margin positively. Regarding the second part of the questions, regarding costs. We're seeing an increased cost in two, basically in territorial taxes. As Francisco explained, a part of that increase is non-recurrent. Second, insurance. We are working in several initiatives, including a zero-based budget for next year and including re-negotiating contracts, all three countries together for the first time in the history of the company.
Other initiatives that I would expect will compensate that increase in territorial taxes and insurance costs. In summary, I would expect similar costs going forward, but higher revenues because of the better conditions that the non-anchor contracts will be negotiated. I would expect similar to a little bit better margin going forward.
Thank you. A follow-up, if I may. What is the breakdown between anchors and non-anchors? I'm not sure if that's something you've previously disclosed in terms of revenue. 'Cause you mentioned that non-anchors have seen occupancy costs decline, anchors have seen occupancy costs increase. How does that split, either by, you know, revenues and/or however you wanna think about it?
Yeah. It's an 80%-20% basically. Revenues in anchors are 20%, and non-anchors are 80%.
Great. Thank you.
All right. I will now pass the mic over to Marcelo Motta from JP Morgan. Hi, Marcelo, how are you today? You are now unmuted.
Hi, everyone. Thank you for taking the question. Fine. Hope you guys are fine as well. I mean, it's more a follow-up on this question of anchors and satellites, right? You comment about, you know, the double-digit tenant sales being down on the anchor segment while on the others, you know, they are single-digit up. Just wondering what is the trend that you expect, I mean, and what are the plans that either, you know, the anchors or the company is doing in order to revert this trend? Also, when we look at, let's say, La Molina, you still have a big Falabella there.
Just wondering if despite the sales being down double digits on anchors, you are seeing some of those anchors outperforming or, you know, in terms of foot traffic, they continue to be very relevant and it's just like the average ticket's down, but people are still going there and still attracting flow to your mall. Just to understand how we should think about that. Thank you.
Hello, Marcelo. Good morning. Let me start by the last part of the question, the performance of anchor stores and Falabella we're incorporating in La Molina. It's a small Falabella. It's not a large Falabella. It's actually a format that Falabella is testing out. It's approximately a 2,000 square meters Falabella, which is a little bit more than 10% of the total GLA of the property. Therefore is by far a lower percentage of anchors than the average of our portfolio. The average of our portfolio in terms of surface is more or less 40+% in anchors. In this case, we would have approximately 20% in anchors.
Going forward, the reason why the anchor stores are decreasing. This is, we believe, it's very correlated with the fact that especially department stores and home improvement stores, they sell a lot of durable goods. A large percentage of these durable goods are sold by them. And the same anchor brands have been restricting the credit. This has been affecting the sales of these durable goods. This is not the only explanation, but we believe it's a relevant part of the explanation why the same sales are decreasing. Going forward, we do think that the relevance of anchor stores in our total GLA will be lower in the medium term. We believe that this will be a gradual and slow process.
When you see weaker department store sales, it's very important to understand the quality of the portfolio because, of course, department stores will close or will decrease the relevance in terms of GLA of the less successful stores. When you see the EBITDA per square meter of the portfolio of Falabella in 2022, we have the highest EBITDA per square meter compared to any competitor in Chile, in Peru, and in Colombia. That shows that the portfolio of Falabella in objective KPIs is a high quality portfolio. Because of that, it's less probable that we will face relevant closing of anchor store space. That said, we do expect that we will face some closure of anchor store space, and we believe then that in average, that will be a good news for the company.
Because we will be able, in average, to re-convert the spaces at better conditions.
That's very clear. Thank you very much, Eduardo Pérez Marchant.
Thank you, Marcelo Motta
Would anyone else like to ask a question today? Thank you everyone for joining our call for the second quarter 2023 earnings results. Again, thank you for your patience and for connecting today, after our technical issues on Friday. We will be seeing each other once again for the third quarter results in October. Have a great day. Thank you very much.
Thank you. Bye-bye.