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Edited Transcript of IGTA3.SA earnings conference call or presentation 5-Aug-20 1:00pm GMT

Q2 2020 Iguatemi Empresa de Shopping Centers SA Earnings Call

Sao Paulo Sep 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Iguatemi Empresa de Shopping Centers SA earnings conference call or presentation Wednesday, August 5, 2020 at 1:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Carlos Jereissati

Iguatemi Empresa de Shopping Centers S.A. - CEO, New Business Officer, Member of the Board of Executive Officers & Director

* Cristina Anne Betts

Iguatemi Empresa de Shopping Centers S.A. - CFO, IR Officer & Member of Board of Executive Officers


Conference Call Participants


* Nicole Inui

BofA Merrill Lynch, Research Division - VP

* Nikolaj Lippmann

Morgan Stanley, Research Division - Equity Analyst




Operator [1]


Good morning, everyone, and thank you for waiting. Welcome to Iguatemi Empresa de Shopping Centers Second Quarter of 2020 Results Conference Call. With us here today, we have Mr. Carlos Jereissati, CEO; and Mrs. Cristina Betts, CFO and Investor Relations Officer. We would like to inform you that this event is being recorded. (Operator Instructions)

The event is also being broadcast live via webcast and may be accessed through Iguatemi's investor relations website at www.iguatemi.com.br/ir, where the slide presentation is also available for download. Participants may view the slides in any order they wish.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Iguatemi's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the future events, and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Iguatemi and could cause these results to differ materially from those expressed in such forward-looking statements.

We will now give the floor to Mr. Carlos Jereissati, who will begin today's presentation. Please, Mr. Carlos, you may proceed.


Carlos Jereissati, Iguatemi Empresa de Shopping Centers S.A. - CEO, New Business Officer, Member of the Board of Executive Officers & Director [2]


Good morning to everyone. It's again a pleasure to welcome you to our conference call regarding the results of the second quarter 2020. As I mentioned, it's not a secret that the crisis caused by the pandemic brought an unprecedented situation for everyone in Brazil and I think a big impact in the world as well and had a profound impact on retail and especially in our sector.

We went through many challenges, especially at the beginning of the quarter, when we had most of our assets at the operations suspended. During this period, we adopt several measures to support our tenants and maintain the company's financial health. We have exempted rentals in April and May, especially when the -- our malls were closed to the public and granted discounts in June when the malls started to open again, in addition to our applying severe reduction in costs and expenses on several fronts. As Cristina will mention, we did a lot of reduction in cost and expenses that were important for us to keep up with our results.

The reductions we made in the condominium, for example, was fundamental for them to remain healthy with low delinquency rates and no need for contribution from the asset owners. It was a very important decision that we take -- that we took as we have seen in several other companies in the sector -- in our sector that we had to do that and because we had the decision to do those very strong reductions we didn't have [previously].

Rent discounts in the month of June were done in the range of 30% to 50%. I think they were well received because we had low delinquency rate, around 15%. With the situation, I think was a great achievement, and that reaffirms the strength of our assets.

Now we already see a recovery scenario, especially with the reopening of our -- most of our malls. Today, we have 12 of our assets are already operating. More recently, we saw our assets in the São Paulo City reaching a sales level of 70%, where it used to be before 7 -- it's even 7-0, 70% before the pandemic started, reaching those levels with only 6 hours of operation, which is really amazing. We are very optimistic with the advance of the cities in the pandemic control phases, especially the City of São Paulo, which is very close to reach the green phase, which allow us to have more hours and more other type of operations, [fashion], cinema working as well.

We're also very optimistic about the evolution of our e-commerce. As you know, I mentioned before, we launched Iguatemi 365 on October last year, only 8 months of operation. And we just reached more than 280 brands and 14,000 products available for consumption. We have added around 5 new brands per week, which shows the amount of acceptance that our e-commerce has got from the tenants in Brazil.

And we have now -- we don't depend exclusively from our operations of our malls. We have more than 30% of the available brands that are not presenting our physical assets. That shows also the amount -- great acceptance that those, our e-commerce has seen from other -- from tenants in general, the best tenants in Brazil, and it's very complementary to our company's portfolio.

And because of that, that acceptance that we've been having since the start, we were able to expand before our -- we have a target to spend only next year. We anticipated that, and we're already selling by the end of this month, month of July, to 5 new capital: Brasília, Campo Grande, Curitiba, Goiânia and Porto Alegre. So that shows how much we believe in the growth of this business within the Iguatemi malls and how well they were received in São Paulo state and now going to the other state.

And because of the acceptance of the cities, as we mentioned, we've been working with them for 15 days now, we decided also to anticipate our expansion plans, and we add by September another 5 new capitals reaching the northeast of Brazil, which is very -- is a very great group of customers that comes to São Paulo to shop. We'll be able to offer a lot of our products in that area. And also, we are expanding in some other important cities in the countryside of the states that we are already in.

We know that scenario is still uncertain, and the crisis is not over, but it's getting better. And I think the worst has -- is behind us. But of course, Iguatemi is prepared for this resumption of retail throughout the year. We'll continue to adopt a very transparent posture, as we've been since the beginning of the crisis, in capital planning, which each step taken by the company in seeking a strong operational efficiency.

We continue our focus on helping tenants in whatever way possible as we did from the beginning of the crisis and also very concerned and working very hard with our operational team to guarantee the security of our customers and so they can feel safe in our environment and can shop with us as the phases progresses and the situation gets better in the major cities that we are in.

So now I'm just going to go through the presentation and highlight on Page 3 the operation status of our malls. So we have this new chart that shows the evolution of our assets. When -- the green shows when they were opened, the red when they were closed, especially in the months of April and May. In June, the yellow shows that they started to open again and continues to be open through August, but of course, with some restrictions of hours.

And even though we show that the sales are progressing quite well, we still have some malls in the south of Brazil that are in the red flag. But we just learned yesterday that the government of the State of Porto Alegre, where we have these 3 malls, have decided to flexibilize the operation -- to permit that some of our malls being open even in the red flag. So we will have more information in the next days. So we believe some of the operations will be opened in the next days, in the south of Brazil, certain state of Rio Grande do Sul.

In the Slide 4, we have the -- also another chart that shows by asset where they are in the zone phases, when they started to open, with which hours they are working, the capacity of people that we allow to give -- to reach the mall at the same time and what some of the restrictions we still have in that malls that, as I mentioned, they are progressing over time, and I believe a lot of new of those areas, like cinema and some of these things, will go back to normal during August.

Going through the agenda, we have the highlights of the results. So we had a deep drop in our sales, especially in the next -- in the early -- in the first 2 months in the quarter, in April and May, where we were closed. We have the total sales reaching BRL 603.6 million, a drop of 83% from last year. We had same-store with also a big decrease, 70.6%, same area decreasing 81.6%. When you take -- when you go to same-store rents, a drop of 79% and the same rents (sic) [same-area rents] dropping almost 80% compared to last year.

Cristina will go through some of the accounting measures that we had to take due to the necessity to follow the rules in Brazil. So we had the net revenues reaching BRL 160.9 million, 14.3% below the second quarter of last year. EBITDA reached BRL 114.9 million, a drop of 16.5%, and an EBITDA margin of around 72%. Net income was BRL 46.3 million, a drop of 23% of last year. FFO, a drop of 8.8%, reaching BRL 83.8 million. And the leverage of our debt ending with the quarter at 2.66x net debt over EBITDA, which is 0.19 above last quarter and 0.11 (sic) [0.11 above] compared to last year.

We had the approval in GMS (sic) [GSM] with a reduction of our dividend payment, which we cut by half. So we paid the minimum dividend, so which was reached BRL 73.7 million. We had the issuance also to reinforce our cash with BRL 300 million debentures with a CDI plus 3% and a 3-year term. And again, as we're mentioning, we are always looking to reinforce the quality of our women within the company. We are glad to announce that Iguatemi not only growing in Great Place To Work in general, but also we reached the best -- around the 20th best place to women to work in Brazil, Iguatemi reached as a company.

So the subsequent events was the expansion of Iguatemi 365 to 5 new capitals, as I mentioned, in July, last 2 weeks. We went to Porto Alegre, Curitiba, Brasília, Goiânia, Campo Grande. We also had the payment of the last installment of the acquisition of the 2 malls that we expanded our participation last year, which was Praia de Belas, Esplanada Shopping centers. And also we had an optimization of our organizational structure with a reduction of 13% of our staff in July.

In terms of projects that we have in progress, we have the Torre Galleria, which is being constructed. It's, as you can see by the pictures, that we are working in [some silos], starting to move up. The tower is scheduled to open December next year. We have 55% of that project, and we believe that will be the best tower in the City of Campinas. We have a working base [fund] on that.

And going now to the operation and financial results, I give the floor to Cristina, so she will detail a little bit more of the results of the second quarter. Thank you.


Cristina Anne Betts, Iguatemi Empresa de Shopping Centers S.A. - CFO, IR Officer & Member of Board of Executive Officers [3]


Hi. Good morning to everyone, and thank you for being in our call. So jumping right into our slide for main operational indicators, as Carlos has mentioned. Well, I think first, looking at our GLA, remembering that we sold 2 of our assets last year, but we also bought minority stakes at the end of the year, which as Carlos mentioned in his opening statements, we concluded the payments in this quarter.

So basically, the GLA movement and the shift are related to these purchase and sales, and we end the quarter with 16 malls. Also Carlos already mentioned the number of sales and indicated the same-store sales, same-area sales dropping 70% and 82%, respectively, and then same-store rent and same-area rent, more or less around 79% decrease.

Occupancy cost was clearly super affected by the sales. And even though we had a fair amount of discounts going on, but it still ended the quarter at 22.5%. We had an increase in occupancy rate, and this comes from, of course, all the work that we have been doing previously, and we had mentioned in previous quarters the work that we've been doing to shift the mix in our malls, which even though we're in quarantine, continues to go on. And so we ended the quarter at 93.6%.

And we had actually a very strange delinquency rate number, which is negative delinquency rate number. So basically, what happens is this is the delinquency rate measured on rent. Of course, the rent base for the second quarter was very, very low, given all the discounts that we conceded. But we did receive rents from previous periods. So actually, we received more than the rent base was for the quarter. And so we have an inverted number here of 26%, okay?

Looking into our P&L on the next page. So we start gross revenues at BRL 159 million, and then we have our normal typical taxes and discounts of BRL 80 million. And then we have the straight-line effect of the discounts that we conceded for COVID, okay, which is BRL 81 million, almost BRL 82 million, which takes us to net revenues of BRL 160.9 million.

So basically, what we have done and in accordance to the different accounting regulations is that we have linearized the discounts, which we conceded for the impacts of the pandemic, okay? So everything that is nonrelated to the pandemic, we will continue to account as previously before, which is to have the effect as soon as it's negotiated. So basically, in a way, more similar to cash.

But given the volume of discounting for the pandemic, then we were -- we needed to adhere to the accounting principles of linearization, at least for this given subset of discounts. And this is what we've done as of this quarter. This will be linearized over the life of the contracts, which is basically something like 30 months, okay? So we'll be seeing this line for the next 30 months. And on the next page, we're also going to talk about what are the effects, and this will also be another demonstration that we will have throughout the next 30 months, okay?

So below the net revenue line, we have costs and expenses coming in almost 30% below last year at BRL 39 million. We had other operational expenses actually at BRL 7 million negative, so -- where last year, we had a positive number, and this is basically the increase of our provision for bad debt. And then we closed the EBITDA at BRL 114 million, a number which is only 16% below last year, given that we had the straight-line effect and the linearization of the discounts, which was BRL 81 million, okay?

EBIT came in at BRL 77 million, a margin of 48% and financial expenses at BRL 19 million, a drop of 33%, given the decrease of the CDI. And income tax came in minus BRL 11 million, and we'll talk about income tax in a little bit in the next slide.

Net profit came in at BRL 46 million, a decrease is 23%. And FFO came in at BRL 83 million, a decrease of almost 9%.

So on the next page, we show the reconciliation of what would be the P&L with and without the straight-line effects that we accounted for in this quarter, okay? Both for the quarter and then obviously ongoing, we'll show for the accumulated period and here for the 6-month period.

So we have the straight-line effect, which was pretty clear in the last -- in our P&L, BRL 81 million. What you don't see is -- you see here, is of course that that already begins to be amortized in the 30-month period because that started at the end of March. So we have that effect of the amortization already, the BRL 6 million that has been amortized since the beginning of the quarantine.

And then, of course, we have the effects of this revenue on the income tax line, where we have the deferred income tax on the revenues that were accounted for as a straight-line effect because, of course, this is noncash. And so we are deferring this income tax so that we have then the charge in the future for the -- on a cash basis.

When we look on the next slide, the breakdown of gross revenues. We have a decrease in gross revenues of [25.3%] for the quarter when we look at the left-hand side of the slide. We have rentals coming in a little bit below at 2.8% negative. But of course -- and we'll talk about rent in a minute. But management fees, of course, had an important hit because this is based on the results, the rent results of the malls and also based on the net expenses of [CEM]. So as both had a reduction, then our base for the calculation of management fees came down, and we had a reduction of almost 50%. Parking was down almost 92%. Clearly, we had 2.5 months of mall closed. And then we have other, which is a very small number, down 56%.

When we look at the breakdown of the rent revenues in the next page, we see that minimum rent actually increased 10%, and this is contract-based. And this is obviously growth of discount. The discount is in another line. But when we see overage and temporary rent, these were severely hurt. And so for the quarter, overage was down 65%. And temporary rents, which are the kiosks and the media that is displayed in the mall, with the malls being closed and these being short-term contracts, they had also a very sharp drop of 75% almost.

When we look at costs, this is the cost that we have on, let's say, the rent condominium for -- which runs inside the malls. So in terms of personnel, we had a very small decrease, but we had an important decrease in third party contracts. So everything that could be either eliminated or postponed has been eliminated or postponed. And of course, clearly, the third-party is where we have more flexibility to do so.

The promotional fund, the same discounts that were awarded to our tenants during this period we matched in terms of what we also pay into the marketing fund, the promotional fund. So of course, here, we see a decrease in what we have [take] to the marketing fund of 80%.

And then parking is the expenses -- the cost to run the parking. So we had a decrease in the revenue, but not so much in expenses because they're less compressible. But we -- nonetheless, we had a decrease here of 20% and then other also 20%.

When we look at expenses on the next page, it was a decrease of 42% in the quarter. And the big difference here was that we decided to eliminate our provision for variable compensation based on 2020. As you know, we provide on a monthly basis an increase of provision throughout the year for our variable compensation, which is paid for in the following year. And given the results, we decided that at the moment, we would not have any provision for variable compensation for next year. So that is a big drop here in personnel.

Share-based compensation is basically the amortization of the plans that were already granted in the previous years, so there's nothing that we could do about this number. Third party, similar to what we had in the cost lines, we had everything that we could decrease, eliminate, postpone, we have done. And so that's a decrease of about 32% here in expenses.

And then finally, on the next 2 pages, talk about the debt profile. So we ended the quarter, Carlos mentioned, the new line with the debentures at BTG for CDI plus 3% bullet, 3-year term, increased our total debt to BRL 2.758 billion. And of course, it also increased our cash position to almost BRL 1.2 billion. So we ended the net debt position very similar to what we had in the last -- in the beginning of the year, which was -- or sorry, last quarter. The dates here are slightly wrong. But basically a 3.8% increase in our net debt position.

What hurts our net debt-over-EBITDA line is the EBITDA. Of course, we are incorporating in our 12-month rolling EBITDA number the second quarter, which even though only dropped 14%, it's still a drop. So of course, when we look at the net debt-over-EBITDA number, we come to 2.66 as opposed to the last quarter, which was 2.47.

Cost of debt looks like a massive number, 150% of CDI. But actually, it's a lower nominal number, we'll see on the next slide here, because the CDI, of course, had a massive drop, so as a percentage of CDI, this percentage increases. And our average term is fairly stable as well. I think the other important thing to point out in the slide that we have no major amortization of debt in this period, for this year and then only having amortization beginning next year.

And finally, on the last page, we have the profile of the debt. So as I said, we're pretty linked to CDI. When you look at the bottom part of the slide, you see our nominal cost of debt at 3.3%, slightly higher than the SELIC rate, which is 2.3%. So you see a slight opening of this curve. And that's basically because we have 15% that's not CDI linked. And of course, now with the massive drop of the SELIC rate, this makes a difference, where our average is 3.3%, still very, very low, right?

With this I conclude, I guess, our presentation, and I'll leave the floor open for any questions you may have. Thank you.


Questions and Answers


Operator [1]


(Operator Instructions) Our first question comes from Nikolaj Lippmann from Morgan Stanley.


Nikolaj Lippmann, Morgan Stanley, Research Division - Equity Analyst [2]


I have 2 questions. One related to sort of cash rent received over the course of the quarter. Would it be -- if we wanted to go down that road and we tried, would it be correct to look at the Page 27, the without straight-line rent, the net revenue and then simply adjust for the increase on a quarter-on-quarter in accounts receivables? So that's -- is that a sensible approach? Or would there be other things that we would need to take into account?

And then second question is on the sort of transaction versus interaction model. Obviously, the cost of converting any mall is probably never going to -- the opportunity cost is never going to be lower. So how are you thinking about that in this environment? Are you -- we saw that you're doing the Campinas expansion. But how are you thinking about conversion and pushing maybe even further towards an interaction model in the long run?

And then just finally, thanks for making the -- that helped, the earnings callouts. As you know, it's a very, very difficult quarter. Your earnings callouts, it was very high. It was easy to sort of navigate your numbers. So thank you very much for that and stay safe.


Cristina Anne Betts, Iguatemi Empresa de Shopping Centers S.A. - CFO, IR Officer & Member of Board of Executive Officers [3]


Nik, so I mean, the number on the revenue, you're right. I mean, it's a complex number this quarter. I mean, normally, we're so straightforward, but this one is a really difficult one.

Just to go back on what we did, okay, remember that we postponed the March rent, and then we exempted April, May. And we exempted the closed days of June, and we charged for the open days with a discount that varied, on average, between 30% to 50%, okay? But this, of course, was all conditioned to being [adequate] punctually on your payments, okay? So it doesn't turn out to be exactly, if you do the math, on the 100% discount of whatever, because -- it doesn't work out that way because, of course, we had tenants that were not punctual on their payment. And so there's part of that, okay?

But I think the approach that you mentioned in terms of looking at what we have in our P&L plus the increase in our accounts receivable is a good way to go about it. But just remember and bear in mind that we have, especially the March rents postponed, and then, of course, we have the renegotiated rents of April, May and June, which were not paid punctually, where the discounts were decreased over time, okay?

But these -- so on the P&L, you'll have all that accounted for, but not necessarily cash, okay? So cash would be basically in terms for rent, what we charged in June, okay? And that would be received in July. Okay?


Nikolaj Lippmann, Morgan Stanley, Research Division - Equity Analyst [4]


Got it. And how are you thinking about -- and I think that's pretty clammy. I know none of this is going to be crystal clear, but I think that that makes it clear. And in terms of what you -- how are you thinking about the transaction versus the interaction mall model? And are you trying -- are you thinking about maybe pushing even further towards one of these models during this lockdown and converting space?


Cristina Anne Betts, Iguatemi Empresa de Shopping Centers S.A. - CFO, IR Officer & Member of Board of Executive Officers [5]


Yes. I think you're talking about also the -- what you mean -- I mean, just to make sure I understand your question correctly, is that also, for example, the Galleria where we're doing the commercial tower, right, as opposed to an increase of retail space? Is that your question?


Nikolaj Lippmann, Morgan Stanley, Research Division - Equity Analyst [6]


Yes. Well, my question is also -- I mean, you will have tenants who are not paying you, and you might have an opportunity to convert some space or some folks who you might not want to have right in the place where they are and you have -- so you have an opportunity to maybe take out some apparel guy that you don't think should be there in the long run and who haven't paid you and maybe put in a restaurant and doing certain strategic things that could be more difficult. Is this the time to start doing those kind of things? Or how are you -- just because it's closed anyway and you don't have that much foot traffic anyway? Or how are you thinking about all of that stuff?


Cristina Anne Betts, Iguatemi Empresa de Shopping Centers S.A. - CFO, IR Officer & Member of Board of Executive Officers [7]


Yes. So Nik, I think here, we always do that, okay, regardless of what the period is. I mean we did it during the recession here in Brazil, and that's why we have an increase in our occupation number because we are ongoing with this change of the mix. And I think it's ongoing now, right? I don't think that there's anybody who's being effectively pushed out of the mall for delinquency at the moment because I don't -- I think we wouldn't be able to push that through courts at the moment at the right speed, okay? But the delinquency is still on record. And of course, as things move forward, if that continues to be the case, then we have the legal right to bring back that location back into our portfolio to be recommercialized, okay?

And I think, yes, we continue to do that. I think we have some specific cases already happening at this moment as we speak. And it's always been on our minds, right? I don't think -- it's less of a conversion of what we talk about. For example, as you said, apparel to restaurant. More maybe of a tenant who is at the end of his life cycle and we have better and stronger tenants to replace him with, okay? So it happens with apparel, but it happens in other categories, too, okay?

And I think the pandemic really has just accelerated what was already sort of happening anyway, okay? And we see these movements going through the different malls and the different categories, and tenants are having to move maybe a little bit faster than they had -- than they were before, okay, if they want to survive the pandemic, okay?

But we do have actually a lot of demand for incoming operations. We already have -- we said that we had contracted already for this year several new operations. None of them have canceled, okay? All of them are still on board to launch their new operations. We had a new restaurant opened 10 days ago here at Iguatemi São Paulo. It substituted an old restaurant. It wasn't that we substituted apparel for restaurant. No, it was a restaurant that was replaced by another restaurant, okay? And it packed, okay? And it's fantastic. I went there last night with my husband, and it's a great restaurant, great new restaurant.

So I think even in this scenario, I think there's still changes happening. And it's always thinking about putting in somebody who's stronger.


Operator [8]


Our next question comes from Nicole Inui from Bank of America.


Nicole Inui, BofA Merrill Lynch, Research Division - VP [9]


I wanted to go a little bit to the slide that you have showing the different malls, and which have been reopened, which are still closed. And I wonder if you can give us a little bit of color on kind of the sales performance that you're seeing across your different assets.

So some of these malls that have been opened for a longer period of time, for example, Iguatemi in Brasília. What kind of sales are you seeing compared to prepandemic levels? And has the sales curve been kind of consistently increasing during the time that it's been open? Or maybe you had a big jump right when it went open and then went down, just to understand how sales have been performing on the assets that have been open for a longer period of time?

And also on those assets where you've seen kind of this stop-and-go dynamic is -- when they reopen after the closures, are they coming back? Or are they being worse? And on your principal, your São Paulo assets, kind of what are you seeing there in terms of sales? Just to get an idea kind of the recovery path. I know it's still early, but you have June numbers, and I imagine, July, kind of what you're seeing there.

And then my second question on vacancy. I think that was definitely a positive point, that if you look at your level of vacancies, actually decreased year-over-year. But what are your expectations going forward? I know at the beginning of the year, there -- we expected a significant improvement in vacancy as you'd have new tenants coming in. So kind of on both sides, what are you seeing in terms of closures? I imagine there are some stores that were already pretty weak going into the crisis, and probably, this crisis accelerated some of those retail closures.

But also kind of on the new tenants that you've planned on -- or planning on coming into the shopping malls, how are those conversations going? Are they still planning to open the store, are they delaying the negotiations? Just so we can get an understanding of how we can see occupancy levels perform over the next 6 months or so.


Cristina Anne Betts, Iguatemi Empresa de Shopping Centers S.A. - CFO, IR Officer & Member of Board of Executive Officers [10]


So talking about sales and on the malls and the reopening of the malls, I think clearly, I mean, in the beginning, right at the beginning of June, when we started reopening our malls, especially in São Paulo and so on, we could see that, well, we had less hours. And of course, we had people beginning to leave, let's say, their nesting of their homes, okay?

So I think it was really important in the beginning that we released a video with all the safety protocols and health protocols that we had installed in our malls, which ranges from taking your temperature, measured at the entrance of the mall with an ongoing camera. So you could just walk straight and the camera will capture your temperature. So you don't have to stop. You just -- so you can walk through and have your feet sanitized as you walk in, the soles of your feet are sanitized on the carpet, up to having all the mall with stickers keeping the distancing and the sanitization of the escalators and the hand rails, which are automatic, inside the equipment and so on.

So there are several things I think that let our consumers feel safe about coming back to the mall, okay? And as they come once and twice, you can see that they feel safe, and they feel it's okay. And if you go -- and if you walk today at 6:00 in the afternoon in Iguatemi São Paulo, if it wasn't for the masks and the safety protocols, you would say it's an absolutely normal day, even maybe busier than you would expect at 6:00 in the afternoon, okay?

So I think in terms of traffic, we can see that it's really coming back. We have already numbers in July, that for the malls have been open for longer, ranging from maybe 20% to 30% less than last year. And remember that the malls are open between 6 to 8 hours only and not the full 12-hour span that we have. So that's really good, right? I mean I think we are on track to go back to what would be more normalized sales.

You're right also in terms of -- I mean, the opening and closing of malls is bouncing around. It's not great. It hurts -- I guess, less -- of course, it hurts sales. But it does, I think, more than -- more so than sales, it hurts the operations, right, I mean on the tenants and us. Because you bring everybody back to put them to work, and then you send everybody home because it's closed again. So that -- it's a massive movement of people and resources that have to keep up and down, up and down. And that's quite challenging. But we're ready to do whatever it takes, and we're happy that the malls are coming back to being open and more hours and so on. And as Carlos says, our perspective for the next few days and weeks is very positive, right?

So to your original question on sales, I think we see that we have positive traction on the sales, that the numbers are coming back. Conversion is very high, of course, because it will come, and they come to shop. I think people just -- Nicole, I think people are just tired of being at home, and this is a safe environment for people to come back to. I mean, definitely, we have everything, the best of the protocol that we can have, right? And so even the restaurants are very busy at night and so on, and it's coming back.

To your question on vacancy, I think also here, we were already on track to execute what we were doing. I mean, our initial expectation was we're going to finish, in terms of vacancy, a lot better than we were last year. And we had a lot of things in the pipeline to be inaugurated this year.

So the good news is that I think everybody that was on track to open this year is still on track to open at some time this year. I'm not exactly sure when, but a lot of people are opening. So we had a lot of restaurants, supermarkets, guys like Kalunga, which is something similar to, I don't know, I guess, Staples in the States, that does sort of paper and equipments and things like that. And these are big areas and important tenants to have.

But we also have different -- some different apparel guys coming in as well in the next few months and so on. So these are all on track to continue. And as I said, we have a new restaurant, which just opened 10 days ago in Iguatemi São Paulo, which is maybe not so expected in the middle of the quarantine.

So -- but you're right in that there's going to be movement. I think -- as I think I mentioned before, there's been -- I think the pandemic has accelerated, as you also mentioned, some of the movements and -- which will happen inevitably to some tenants. It's part of retail. I mean, some guys at the end of their life cycle.

But these already are -- it's not a surprise. I think they're already on our radar screen at some stage, and it's -- and we have demand for space. So I think for us, it just means that maybe we won't hit exactly the improvement that we thought this year, but maybe we'll be flattish about where we are for the rest of the year in terms of vacancy.


Operator [11]


(Operator Instructions) Thank you. Ladies and gentlemen, there are no further questions at this time. Mr. Carlos Jereissati, please proceed with your closing remarks.


Carlos Jereissati, Iguatemi Empresa de Shopping Centers S.A. - CEO, New Business Officer, Member of the Board of Executive Officers & Director [12]


So just say thank you to you all for attending the conference once again. And if you have any further questions, please do not hesitate to contact our IR team. Stay safe, and thank you.


Operator [13]


This concludes Iguatemi's conference call. You may disconnect your line at this time.