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Edited Transcript of PARAUCO.SN earnings conference call or presentation 31-Jan-20 2:00pm GMT

Q4 2019 Parque Arauco SA Earnings Call

Santiago Feb 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Parque Arauco SA earnings conference call or presentation Friday, January 31, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Claudio Humberto Chamorro Carrizo

Parque Arauco S.A. - Corporate Manager of Administration & Finance

* Francisco Moyano

Parque Arauco S.A. - Corporate Finance Manager

* Tori Creighton

Parque Arauco S.A. - Head of IR

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Conference Call Participants

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* Daer Labarta

Goldman Sachs Group Inc., Research Division - VP

* Emilio Acevedo Caro

Santander Investment Securities Inc., Research Division - Equity Research Analyst

* Jorel Guilloty

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good morning. Welcome to Parque Arauco Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to Tori Creighton, Head of Investor Relations. Please go ahead.

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Tori Creighton, Parque Arauco S.A. - Head of IR [2]

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Good morning, everyone, and thank you for taking the time to connect to our fourth quarter earnings call. Presenting on our call today will be Claudio Chamorro, CFO; and Francisco Moyano, Corporate Finance Manager.

To start off today's discussion, I'm going to pass the call over to Claudio.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [3]

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Thank you, Tori, and good morning, everyone. This quarter, we saw our consolidated figures affected by the context of the events over the last few months in Chile. That being said, as a result of our portfolio growth throughout the first 9 months, especially in our operations in Peru and Colombia, that represent about 50% of our operation in terms of GLA, which have had a positive overall performance in 2019 in revenues and EBITDA.

Parque Arauco's revenues increased by 5.6% during the quarter, driven by 6% growth in Peru and 10% in Colombia, both in local currency, compensating for a 2% decline in Chile. During 2019, increase in revenue was 8.4%. Meanwhile, EBITDA improved 2.2% during the fourth quarter, mainly from the organic growth of the operation. On the other side, the incorporation of new assets like Puerto Nuevo Antofagasta and the significant unfavorable -- favorable foreign exchange difference and the impact of the IFRS 16 offset the discounts made to tenants in Chile. And in the full year, EBITDA increased by 9%.

In terms of our operating efficiencies, the EBITDA margin in the fourth quarter was 72%, a decrease from 75.4%. However, during 2019, our EBITDA margin improved slightly from 72.6% to 73.2%.

Tenant sales during the fourth quarter of 2019 increased 0.8% as a result of 16.5% sales growth in Colombia and 1.4% increase in Peru, which compensate the 3.5% sales decline in Chile. Consolidated occupancy level increased to 95.4% in the fourth quarter of 2019 from 94.7% due to improvement in Peru and Colombia. And it is worth mentioning here that the figure does not include Arauco Quilicura, which have been closed with the exception of 1 anchor store since mid-November due to a fire incident. We have already reached a preagreement with the insurance company regarding progress in this case for loss of income as well as damage to property, which have been accounted for.

The net profit attributable to shareholders amounted to almost CLP 49 billion, a decrease of 15.3% when compared to the fourth quarter of 2018. In the full year, there is also a decrease of 20%. But this is impacted by the extraordinary sales of land in Peru during the first quarter of 2018 that is sold in a higher net income that year.

As part of an active management of our portfolio, this year, we executed several transactions, buying and selling minority stakes in assets in Chile and Peru. This is best exemplified by the acquisition of 50% of MegaPlaza assets in Peru from the Weise Group and the sales of 49% in 5 regional shopping malls and Arauco Express strip centers in Chile. As a result of this transaction, the company-owned GLA increased 9.5% in comparison to 2018, reaching over 1 million square meters.

Other highlights from 2019 was the acquisition of 52% of Parque Alegra, our new 50,000 square meter greenfield development in Barranquilla, Colombia. And as a result of Parque Arauco's proven financial flexibility, Feller Rate and ICR risk ratings agencies upgraded our risk rating to AA from AA-, allowing us to continue to have a competitive advantage in low-cost financing.

Finally, in addition to our inclusion in the Dow Jones Sustainability Index and the FTSE4Good indices this year, we, yesterday, received an official announcement for the first time that Parque Arauco was included in the S&P Global Sustainability Yearbook, which recognized the top 15% of companies per industry in terms of ESG performance.

This concludes the overview portion of our presentation. So I will pass the call over to Francisco, who will review our result in more detail.

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Francisco Moyano, Parque Arauco S.A. - Corporate Finance Manager [4]

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Thank you, Claudio. To review our figures this quarter, I would like to pass to Page 5, where we have the key performance indicator.

In these indicators, I would like to highlight, first, the EBITDA margin. The EBITDA margin, as Claudio said, this quarter is decreasing against the year before. This EBITDA margin is impacted by the decrease in the Chile operation mainly. But then I would like to highlight also that if you compare the EBITDA margin year-over-year, we are still increasing our EBITDA margin from 72.6% to 73.2%. This improvement, in part, is related with the improvements in Peru. In Peru, we have been having an increase in revenues and very stable cost, and that has improved our margins in that country, and that compensates the effects that we are having in Chile.

At the same time, I would like to highlight the controlling adjusted FFO, which is in the middle of the table. And you can see that, in the quarter, is increasing 11.8%, and in the year, is increasing 19.6%. This is a result of our portfolio management and asset allocation. In this year, we add 50% of the MegaPlaza assets. And at the same time, we sold some minority stakes in Chile. And as a result of that, we changed the base of our controlled assets. And we are having this positive result in this year.

Turning now to the next page. Regarding our tenant sales, the sales in this quarter is increasing around 0.8% and in the year is increasing 3.7%. If we analyze the same-store sales and same-store rent in Chile, we can see that in Chile, well, we are having this same-store sales decreasing 6.1% this quarter, which is related with the lower consumption levels that we have been seeing in the whole country and related with the social unrest. At the same time, we are having a decrease in our same-store rent of 3.4%. This same-store rent also includes the discounts that we made to our tenants in the same -- related with the same social unrest in this quarter.

Regarding Peru, we have same-store sales around 0, is 0.1%, and same-store rent of 5.3%. We think that in Peru, we have been seeing sales moving around inflation, and we still think that this country will move our own inflation in same-store sales and same-store rent. But at the same time, we are seeing the effects of the portfolio management that we have been doing in the country with acquisition of the 50% of MegaPlaza. We already made the restructuring of the team, and we have been improving our occupancy levels and some revenues and trying to find efficiencies in our costs. And with that, the 5.3% of same-store rent is related also with the improvements in the operation of that country.

Regarding Colombia, we have a very positive quarter with same-store sales of 12.4%, which is pushed forward because of the good performance that we are having in La Colina with sales increasing 17% and revenues increasing 7%. The same-store rent is 10.2%, and it's also showing good results in the rest of the portfolio in the country with the outlets also improving in sales and revenue. So in Colombia, we're having a very positive year, and along with Peru, is compensating in part the scenario in Chile.

Moving forward to the next page. We have the occupancy cost. You will find that in Chile, the occupancy cost is stable, is 10.5%. Comparing with last year, which was 10.4%, we can realize that the decrease in sales is compensated also with the discounts that we made to our tenants. And with that, we are not increasing the occupancy cost of the operation in this country.

In Peru, we are seeing some increase in the occupancy cost. It's also related with the improvements in revenue that we are pushing in the operation in the country. And in Colombia, it is stable around 10%.

And moving now to Page 8. Our revenues is increasing in the quarter, 5.6%, and in the year, 8.4%. As Claudio mentioned before, we have a [measured] currency appreciation in this quarter with the Peruvian sol increasing 11% against the Chilean peso and the Colombian peso increasing 3.2%. We consolidate our financial statement in Chilean peso. So this is a very important factor in this quarter, although if we analyze the increase in revenues in local currency, we can see that Chile is decreasing 2%, while Peru is increasing 6.3% and Colombia growing 10%. So we have a scenario with very positive revenues in Peru and Colombia and Chile decreasing also related with the social unrest, as I mentioned. Year-over-year, all 3 countries are increasing in revenues with Chile and Peru around 5% and Colombia around 10%.

In this page, we can see also that we are maintaining our revenue diversification. And you can see how in Peru and Colombia, it's almost 50% of our operation.

Now moving to Page 9. Regarding the EBITDA, we have positive and negative effects this quarter. The positive effect that I would like to highlight is that the base of the company that is generating the EBITDA is increasing. At the end of the year 2018, we had Arauco El Bosque. And this year, we have that operation the whole year. And with that, we are increasing our base with the new projects in El Bosque and increasing year-over-year 9.3% of our EBITDA, although at the same time, we have the negative effect of the discount that is decreasing the EBITDA in this quarter and also more pressure on the margins in Chile. However, these discounts and pressure in margins is compensated with the currency appreciation and with the effect of IFRS 16, which increased our EBITDA around CLP 700 million.

In the EBITDA margin chart, you can see that Peru is improving. As I mentioned, that improvement is related with the increase in sales and also with the costs that are stable. Colombia, we consider that as a normal operation and being stable. And we can see Chile decreasing from 76% to 71%, although at the same time, in Chile, we analyze the whole year, the margins are stable.

In Page 10, we have the nonoperational results. Regarding that, we can see that the financial income is decreased in this quarter. We have -- our financial investment portfolio is concentrated in fixed rents. And this quarter, in Chile mainly, we saw the increasing rate that decreases then the value of our investment. And with that, we are having less financial income in this quarter.

When comparing the financial expense, you can see that the financial expense is decreased in this quarter although is increasing then in the year. This decrease -- this lower financial expense in this quarter is explained by the bond prepayment that we made in the fourth quarter of 2018. And that is why it's decreasing the financial expense this quarter. But our base of debt is stable, and year-over-year, is increasing the financial expenses.

The share of profit of associates accounted is decreasing and is related with the operation that we have with Marina. That will be explained in the next page.

The income for indexed assets and liabilities is around CLP 7.4 billion, and it's increasing when you compare that figure with the last year. That is related with the higher amount of debt that we have in U.S. this year and also a little bit higher also FX in the U.S. in this year when you compare that with the previous year.

The current taxes and deferred taxes is in the same level year-over-year when you compare that against the profit before income tax. And the movements are in normal operation.

Now passing to the next page. On Page 11, we have the result of the investment that we have in companies that we don't control. First of all, Marina Arauco, which is in Inmobiliaria Mall Viña del Mar, you can see in the chart that EBITDA is increasing 37.1% this quarter and year-over-year is increasing 26.2%. This EBITDA is increasing, first, due to the expansion of the Mall Marina in Viña, which grew 13,000 square meter, and it was opened in the last quarter of 2018. And at the same time, we had a new asset in the group, the asset that is in Concepción. But although it was hit by the social unrest and it had to be closed for some period of time, it also adds some EBITDA to this year. However, even when we are growing in the EBITDA, we can see that the proportion of profit is decreasing, which is related with the increase in debt that we have in that company. That was the debt that we took to finance the acquisition of the asset in Concepción.

The other company that we have in this equity method is Desarrollos Panamericana, as a reminder, that is the land bank that we have from the MegaPlaza group of assets.

In Page 12, we have the whole consolidated income statement. In this quarter, the net profit is decreasing 8%. In part, it is decreasing because the operational result is also decreasing 1.8% but also because of the share of profit of associates accounted, which as I explained is related with Marina. The other important effect is the effect -- is in the income for indexed assets and liability, which is related with the debt that we have in U.S. When you analyze the whole year, the net profit is also decreasing 15.2%, which is a result of the higher income that we have in 2018 from the sale of the piece of land that we had in Parque El Golf in Lima.

The other gains, also, I would like to highlight that the other gains by function this year is considering the fair value of assets. In the quarter, you can see that the value is CLP 48 billion and is compared with CLP 50 billion -- almost CLP 51 billion in year 2018. In this concept, we accounted for the fair value of assets and also the adjustment in the right of use that is coming from IFRS 16. With the fair value on the right of use, we are also adding the effects that we have in goodwill and the -- in the assets, we are grouping the 3 concepts under investment properties.

The other losses by function has the cost of projects that are not in the assets of the company. It also has the organizational restructure costs that we face in Peru because of the merge of the 50% -- the acquisition of the 50% of the MegaPlaza assets.

Now analyzing the EBITDA. The EBITDA is increasing this quarter 2.2%, and in the year, it's increasing 9.3% as a result of the margin that I already explained in the presentation and also -- although I would like to highlight that the effect that IFRS 16 has in the calculation in 2018 is adding around CLP 700 million in this year.

In Page 13, we have the NOI and FFO reconciliation. In this page, I would like to highlight that the FFO is decreasing this quarter at 7%. This is a result of the net profit that is decreasing 8% but also because of the associate accounted FFO that is decreasing 74% as a result of the lower income that Marina is having because of the higher level of debt. When calculating the FFO in an adjustment method from the EBITDA, we can see that the adjusted FFO is increasing 0.6%, coming from EBITDA increasing 2.2% although compensated in some part because of the financial income that is lower in this quarter.

Now passing to Page 17, where we have our main financial indicators. Our gross financial debt. Financial debt is increasing this year. This increase in debt is related with, first, our active portfolio management. We made some sales and some acquisitions, and with that, we also had to make several restructuring processes in our debt. But the increase in debt in general is related then with the acquisition of the 50% value of the MegaPlaza assets and also the project that we have in Alegra in Colombia, which is starting now its construction process, and we are taking some debt to finance that.

The net financial debt to EBITDA is growing from 5.19x to 5.31x. We are still seeing this indicator moving around 5x. It might increase a little bit above that level because of the projects that we are having in the company related with the investments that we are making in Parque Arauco Kennedy and also Alegra in Colombia. The net finance of debt to equity is stable in 0.68x and very far from our covenant limit, which is 1.5x.

With that, I would like to pass the call to Tori, who is going to tell us about the results by asset levels.

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Tori Creighton, Parque Arauco S.A. - Head of IR [5]

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Thank you, Francisco. Moving on to Page 19, where we show an overview part of our portfolio. Here, I'd like to note that in the Chilean part of our portfolio, we really don't see very many changes. Though it is important to note, as Claudio mentioned before, that Quilicura, due to the fire incident, we're not showing the percent of occupancy in this quarter as the mall is currently closed. As a result of incorporation of Puerto Nuevo Antofagasta in addition to some Arauco Express strip centers and changes in Grupo Marina's portfolio, which includes the acquisition of the Mall del Centro in Concepción, in the past 12 months, we see our own GLA increased 9.5% to well over 1 million square meters, 1,026,540 square meters to be exact. Other than that, we don't really have any changes in the portfolio at this time.

Moving on to where we look at our property-level results, the mall-by-mall results per country. Here again, concentrating on a country basis, in Chile, we see results that were largely affected by the social crisis. We see results of diminished sales of 3.5%. This is related to the days that the malls are closed and the decline in general consumption. And in terms of revenues, most malls also have the impact of proportionally less revenue for the closed days or discounts that were made to tenants, which is why we see revenues decline about 2%.

In the case of Quilicura here, we do see that sales -- we do register the sales being a 68% decrease. Again, this is because the mall was functional through the first half of October and then part of November, and so we registered all of those sales. But we see a significant decrease, obviously, year-on-year due to the reduction in operating hours on a whole during this quarter. However, revenues and EBITDA has maintained more or less stable. And that is, as Claudio mentioned, again, due to the fact that we have reached a prearrangement with the insurance companies. And so we are receiving some of what is the revenues due to the normal operation of the mall in addition to what is loss of income from the insurance company.

Here, if you do look to the NOI margin for Quilicura, it's 105.8%. And again, this goes back to the fact that this is a very irregular quarter in which we have different revenues coming from the standard operation with the mix of revenues coming from the insurance company and some costs that have been reduced because of the mall closure.

Another mall that I do want to highlight is Parque Angamos, which, compared to the rest of the portfolio, is quite striking in the fact that we have variations of double digits, of 73% growth in sales, 53% -- 57% in revenues and over 100% in NOI. And this is due to the fact that Parque Angamos has increased significantly in terms of its occupancy levels from 65% to 82% in this quarter, in line with this maturation process.

So then continuing to Peru, where we see occupancy levels in the country improving from 94% to 95.6%. Again, similarly, we see an increase in sales and revenues in this relatively stable business environment. In the case of Larcomar, we see that as one of the examples of improvements in occupancy levels, that reaches 85.3% from 80.7%. And we see tenant sales increased 3.1%. Revenue is increasing 5.4%, in line with this increase in occupancy.

We also have significant variations in MegaPlaza Express Huaral and MegaPlaza Villa El Salvador II that are, again, in line with the increase in occupancy levels as these malls are not more than 2 years old. They are still very much in their process of maturing.

And finally, moving on to Colombia, which has been and continues to be one of the strong drivers of growth for our operations. Parque La Colina, again, double-digit growth in terms of tenant sales of 17%, had solid growth of 6.8% in revenues and 4.2% in NOI. Across the board, in Colombia, we see positive improvements in all of our malls. In part, there was a very great Christmas season for sales in that country and in our malls in particular.

And to wrap up, in our outlet in Sopó, which is an outlet that we have on the outskirts of Bogotá and is one of the country's first, shows market improvement this quarter, in line with improvements in occupancy, which increased from 51.4% to 64.7%.

Moving on to Page 24, where we have our pipeline, our development pipeline. Small changes this quarter in which we incorporated square meters from the expansion of the outlets that we have, our premium outlets, Buenaventura, on the outskirts of Santiago. This quarter, we incorporated 2,500 square meters of that expansion. And there is 1,000 square meters that we will still incorporate, but in the first quarter of 2020. And so that remains there under expansion. And the other change that we have this quarter is the separation of the Puerto Nuevo project to make it a bit more clear in terms of the 2 towers and the commercial space of those towers that we've already incorporated in our portfolio in the third quarter, which amount to 6,500 square meters, and the remainder, which is the Balmaceda tower and the hotel tower, which should be incorporated into our portfolio in the first half of 2020, about half of those 3,000 square meters, and the other half in 2021 for the hotel tower part.

Moving on to Page 28, where we highlight some of the different updates that we have in our operation across the 3 countries this quarter. I'd like to take a moment to highlight the launch -- the relaunch that we did of our restaurant concept in Parque Caracoli. From the past few years, we've made several significant changes to Parque Caracoli, amongst them the incorporation of office tower and hotel tower. And this year, we will end 2019 with the highest occupancy level that we've had since the mall's inauguration in 2013. Just recently, one of the different efforts that we've made and changes that we've made in Parque Caracoli was the reopening of Social, which is our newly renovated restaurant space, with a spectacular view of the city and has 9 restaurants and a bar that allows visitors to enjoy this day and night.

And one of the foundations that I'd also like to highlight is the Fundación Luz, which is in Chile. And since 2016, at Parque Arauco, we've been supporting the Luz Foundation, which educates people with visual disabilities through training programs and free schooling. Of this, this includes the musical formation program where students learn more about music through participation in chorus and orchestra. And that is how the Sonidos de Luz Orchestra, comprised of students and aluminae of the school, came to be a part of the regularly scheduled programming at our malls in the past 2 years. And so we'll have them perform regularly on the weekends and weekdays here at Parque Arauco Kennedy and the open area of the boulevard that we have and the Arauco Maipú.

I would like to wrap up this portion of the presentation by reviewing our case studies that this quarter we decided to do on the different initiatives that we've implemented in Chile this quarter. Within the context of Parque Arauco, since 2016, has formally defined a sustainability strategy that places the relationships that we have with our various stakeholders as a key element within our business development. So given that in the context of these past 3 months here in Chile, the focus of the company has really been on strengthening our relationship with these stakeholders and focused on the safety of our employees, tenants, providers, neighbors and of those clients. So in this case study, we've taken a moment to sort of highlight the different initiatives that we've had and the relationships that we've had with our different stakeholders.

So with our tenants, as we mentioned before, we do have discounted rent that as a result of the social crisis, we did have to close our malls -- all of our malls in Chile for a period of time, ranging from 2 to 10 days, and for several weeks after reopening the malls, operated with reduced hours due to the lack of access to transportation. This obviously had an impact on our tenant's ability to operate, and therefore, we proportionally discounted their rents for the time that the stores and the malls were closed.

We do see today that our malls have returned to sort of more standard schedules and a more typical visitor traffic flow patterns. But it wasn't until December that we had all of our malls in Chile with their standard operational hours because post the closure of the mall, we also offered them operating hour flexibility, again, focused on the safety and access to public transportation that we had in this unusual circumstance in Chile that we allowed all of our tenants flexible hours that were not restricted to the hours stipulated in their contract.

One of the other examples of initiatives that we implemented was the relocation of tenants. So again, we have -- this quarter, Arauco Quilicura has been closed about more than half of the quarter. And we offered support to small businesses in Arauco Quilicura that were affected and offered to relocate their modules or stands in the malls to other malls that include our premium outlet, Buenaventura, Arauco Maipú and Arauco El Bosque, which allowed these smaller businesses to continue operating, and therefore, mitigating some of the negative effects of the crisis on their businesses.

And then finally, to highlight on the next page, where we mentioned our relationship with the community, providers and small businesses, we did anticipate payments to providers that amounted to more than CLP 2.2 billion to lessen the strain that those providers had on their operation of businesses. And this quarter, we -- throughout -- just to back up a bit, since we have had a sustainability strategy implemented as a part of our operation -- an integral part of our operation, the outreach with the community and the access that we have tried to give to smaller businesses to our malls has been one of those initiatives that we've had since the start of our sustainability operation.

However, above all, in this quarter, where we know that there was extra pressure being faced by those smaller businesses, we increased the amount of initiatives that we had with them. For example, these local fairs, where we set up different booths throughout points of our malls, giving new stands to very small businesses. And so in this quarter alone, we held 20 fairs in our assets in Chile, which helped 387 small businesses.

So that is all for the portion of our presentation portion of our call today. And I'd like to turn the presentation over now to open up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Tito Labarta from Goldman Sachs.

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Daer Labarta, Goldman Sachs Group Inc., Research Division - VP [2]

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I guess my question, just in terms of giving us an update on the unrest in Chile. And also, are you still giving discounts related to that? Or do you think that there will be further impacts in 2020? Just trying to get a sense how you think that can evolve from here and just any other impacts that you're expecting from that going forward.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [3]

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Okay. Tito, thank you for your questions. What we are seeing right now, I think there is -- the operation, I think, is pretty much on track. It's difficult to say what's going to happen going forward on the year. We have been making some adjustments in the way that we operate the assets in Chile. We are also making some changes in the way that we manage security and all related to that. So this is what we are seeing right now. We are not seeing more discounts for tenants in the future. But again, right now, it's very difficult to predict what is going to happen during the year. But what we are seeing right now is pretty much this.

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Daer Labarta, Goldman Sachs Group Inc., Research Division - VP [4]

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That's helpful, Claudio. And just in terms of any changes that you're seeing in terms of either occupancy or how are kind of sales doing maybe so far this year, just any color you can give on that would be helpful.

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Tori Creighton, Parque Arauco S.A. - Head of IR [5]

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Tito, this is Tori. I'm also just going to jump in. So to go off, what you're saying in terms of occupancy, we still haven't felt any pressure in terms of tenants leaving at the moment. Really again, the relationships that we have with our tenants are long-term relationships, generally speaking. So we are working with them in terms of seeing how we can have this be a mutually beneficial situation, or at least less of a negative impact on both sides. So, so far, I would say really not very much pressure in terms of occupancy levels decreasing.

And again, as Claudio mentioned, we wouldn't anticipate high levels of discounts in the future yet, but it's very hard to tell what we can expect from 2020. But those discounts that had been given were very short-term discounts. So we're not enacting long-term changes to rental structures that would change that in the long term. Everything is being taken more on a month-by-month basis at the moment. But we have returned to standard operating hours in terms of all of our malls here in Chile, and I would say traffic patterns are within a range that is relatively stable.

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Operator [6]

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Our next question is from Emilio Acevedo from Santander.

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [7]

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Three questions. The first one is why an OI margin contracts at a huge level that we see in Kennedy. Just asking if it's only a quarter effect or it's something that I will expect that is something related to the parks that were closed, if I can have more color on that mall in particular. The second question is about the market in Peru. I've seen same-store sales performing timidly during the last years. So if I have -- if I can have more color there also. And the last part is related to know a little bit about the contracts. How many -- which part of the old contracts could be changed this year, percentage or revenue stake of old contract that you have?

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [8]

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Thank you, Emilio. Regarding the NOI margin construction that you mentioned is, I think, mostly, and what you see in Kennedy and also in the other shopping centers in Chile, is expenses related to security mostly and also some, I mean, some extra works that we have to run during October and November, mainly. So this is pretty much what is affecting the results in the operation in Chile, in the case of Kennedy, in the rest of the operation of Kennedy. And also, that is impacting the EBITDA margin on a consolidated basis in the company. And the second question?

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Tori Creighton, Parque Arauco S.A. - Head of IR [9]

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The second question that you mentioned were the sort of weaker same-store sales in Peru, right? Could you just repeat?

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [10]

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Yes.

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Tori Creighton, Parque Arauco S.A. - Head of IR [11]

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Were you just asking for more color or...

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [12]

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Sorry?

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Tori Creighton, Parque Arauco S.A. - Head of IR [13]

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Emilio, so your question for -- your second question was regarding same-store sales in Peru, correct?

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [14]

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Yes, exactly. It's been like a timid performance during the last year, like not growing that much. Do you see this like a trend or something that will change to the upside?

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Francisco Moyano, Parque Arauco S.A. - Corporate Finance Manager [15]

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Yes, Emilio. Regarding the same-store sales in Peru, what we are seeing this quarter is something that is -- something in particular is happening this quarter. We are seeing this country quite stable. The consumption level, the report from the economies in Peru, the consumption levels are around inflation 2% to 3%. So we see Peru as a stable country, although at the same time, we have been also -- as I mentioned before, we have been also working on increasing our occupancy levels and pushing revenues up. We make the restructuring in the country when we acquired the 50% in MegaPlaza. And that is having some effects in the result of our company there. So we think that the sales in Peru will be stable around inflation and probably having more positive effects in rents.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [16]

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Okay. And the third question about what -- the numbers of the contract that are due on the year, I don't have that information here with us. However, we have been working, I mean, in our budget process and so on. And again, although it's very difficult to know what would be the economic situation in Chile during 2020, although that is very uncertain right now, we don't see some situation where -- I don't know, a very different situation in renovation that have been having in the last years.

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [17]

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Okay. Just a follow-up question related to Kennedy. You explained this higher cost related to security. Do you see this higher cost related to security as a one-off element or something that will continue during this year and the next 2 or 3 years, something structural or something that is just for 1 quarter?

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [18]

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I think it's -- in some way, there is a change that is going to last for a while at least. We have been also changing some way that manage these shopping centers. Until last year, in some cases, we have one center manager per 2 shopping centers, which is something that changed this year. Now we have one center management in each shopping center. So obviously, that is increasing the expenses that we are going to [vary] during the year. And the same happens with security.

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Operator [19]

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Our next question is from Jorel Guilloty from Morgan Stanley.

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Jorel Guilloty, Morgan Stanley, Research Division - Equity Analyst [20]

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So I have 2 questions. So the first one is prior to the events of the fourth quarter, same-store sales were already tracking negative in Chile. Now interestingly, if I look at your occupancy cost, it's essentially flat year-on-year for 4Q. So could you comment on the health of your tenants in Chile considering the current dynamic? And what is the capacity for them to absorb further rent increases? And then my second question is on the performance of some of your top assets in Chile, specifically Kennedy and Estación. We saw a material decline in performance for those assets vis-à-vis almost every other. So how are those 2 assets specifically tracking this year? Are you seeing a material return in terms of foot traffic? Is it -- just general color on what you're seeing for those 2.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [21]

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Okay. Jorel, thank you for those questions. I think it's -- right now, it's very difficult to try to make conclusions out of the numbers of the fourth quarter and particularly in Chile. And pretty much the same-store rent numbers and the same-store sales are obviously affected by the events of October, November and December. For now, I think it's a situation that is being pretty much on the financial statement.

However, it's difficult to try to forecast what is going to happen in the first quarter of this year and so on in 2020. There is a lot of noise in the numbers. There is a lot of -- there is discounts. There is new contracts. So it's -- usually when you see some same-store sales, same-store rent figures in the other -- in the regular quarter, it's very good information to predict what's going to happen and what's going to happen in the future. Right now, I think these numbers are very noisy in the way that there are discount, there are change in contracts, there is -- I would say -- I would like to say that most of this is a short-term impact, but I don't really know.

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Tori Creighton, Parque Arauco S.A. - Head of IR [22]

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And as far as occupancy costs remaining stable in Chile, we see that just because the same-store rents or rents in general were compensated in several cases with discounts to some of our tenants to help alleviate the lack of sales. So we see occupancy cost remaining stable. Again, at that point -- or at this point, we're not seeing significant pressure because we're trying to work with our tenants to reduce the significant pressure that they might be facing. And then regarding your second question, that was for sort of how -- assets of Arauco Estación and Parque Arauco Kennedy, is that correct? Those 2 assets in particular?

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Jorel Guilloty, Morgan Stanley, Research Division - Equity Analyst [23]

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Yes.

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Tori Creighton, Parque Arauco S.A. - Head of IR [24]

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Again, as Claudio has mentioned, I'd say that this quarter in particular is harder to see overall trends in the year, given the fact that we had such irregular operations in the quarter. But Parque Arauco Kennedy, for example, over the past -- over the course of the year, we have seen improvements in sales numbers, traffic flow sort of restabilizing. In the fourth quarter, there was obviously a lot of irregularity with the closed days and reduction of hours.

That being said, now we have returned. January overall was a relatively -- was a relative -- it was less impacted than we had seen. It has improved since December. So we are seeing sort of an increasing and improving tenancy from October to now across the board, and again, in Kennedy, which was more largely impacted this quarter in terms of tenant sales.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [25]

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And I think pretty much is the same for Arauco Estación.

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Tori Creighton, Parque Arauco S.A. - Head of IR [26]

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Again, the realities of those 2 malls are very different, and so they have different challenges, I would say. Both of those presented different challenges for the same situation in the fourth quarter, but in different ways, given the fact that they are both in very different neighborhoods.

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Operator [27]

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(Operator Instructions) Our next question is from [Jonathan Kutra] from JPMorgan.

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Unidentified Analyst, [28]

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A quick one on my side. Do you see higher insurance premiums going forward? And if so, when are these contracts with the insurance companies due?

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [29]

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Okay. Yes, these contracts are due on May. We usually have a policy to make a contract for the entire company, Chile, Peru and Colombia together. So this is -- I think, yes, this is due on May. We have been pretty close to the insurance company right now, and we have been talking on the renovations and we are seeing some increasing in the...

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Francisco Moyano, Parque Arauco S.A. - Corporate Finance Manager [30]

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Premiums. In the premium.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [31]

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In the premium in the insurance, in the property and also in the political risk, which is something that is an issue right now in the market. And we have been talking with other companies, which have been, for different reason, renovating or making their insurance now. And what we have been seeing in the market is an increase in the price of the insurance.

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Francisco Moyano, Parque Arauco S.A. - Corporate Finance Manager [32]

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Although, if I can add also to that, one positive change that Parque Arauco has is diversification that, in this case, it's quite important because we are negotiating the insurance for all 3 countries. So we can compensate a little bit the risk, the higher risk in Chile with the stability that we are seeing in Peru and Colombia regarding insurance.

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Claudio Humberto Chamorro Carrizo, Parque Arauco S.A. - Corporate Manager of Administration & Finance [33]

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Yes. The bottom line for Chile, the insurance is going to be higher. That's for sure, yes.

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Operator [34]

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This concludes our question-and-answer session. I would now like to turn the conference back to Tori Creighton for closing remarks.

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Tori Creighton, Parque Arauco S.A. - Head of IR [35]

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We'd just like, on behalf of all Parque Arauco, to thank you for tuning in today and wish you all a good rest of the day.

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Operator [36]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.