Parque Arauco Reports First Quarter 2011 Results

Parque Arauco S.A. (Santiago Stock Exchange: Parauco; Bloomberg: PARAUCO:CI), one of Latin America’s leading shopping center developers and operators, based on gross leasable area (GLA), reported financial results for the first quarter ended March 31, 2011. The following financial and operating information, unless otherwise indicated, was prepared and presented in accordance with IFRS. Under IFRS, Parque Arauco consolidates 33.3% of the financial results of Marina Arauco and Mall Center Curicó and 100% of the results of all other properties. For a more detailed review of the results filed with the SVS (Chilean Securities and Exchange Commission), please visit the investor section of Parque Arauco’s website www.parauco.com/eng/.

"Parque Arauco posted strong results across all of its properties for the first quarter of 2011 with double digit growth in revenue, EBITDA and net income. The Company was able to substantially expand its footprint through the addition of new properties as well as through additional expansions at Chilean properties during 2010 which positively contributed to our overall performance. At the same time, we continued to reduce operating costs, a result of the highly successful initiatives implemented across the organization with the goals of improving efficiency and leveraging scale. Our resilient business model relies on excellent brand recognition, an appropriate mixture of fixed and variable income lease structures, and diversified presence in high growth economies of the Andean region,” commented Andrés Olivos, Parque Arauco’s Chief Executive Officer.

"With the opening of our new properties, GLA grew 13% to 585,000 m² at the end of the March, 2011 as compared to the first quarter of last year. I am pleased to announce that we will continue our strong growth trajectory throughout the rest of this year and beyond. With a current pipeline of investments of US$840 million slated to be deployed from 2011 through 2014 we expect to add an additional 435,000 m² of GLA to the Company.”

"Our growth strategy continues to be focused on expanding our reach in Chile, while also opening new properties in Peru and Colombia. We currently have five properties in the planning to development stages; one in Chile, two in Peru and two in Colombia. During the second half of this year, we will inaugurate our fifth property in Peru, Megaplaza Chimbote," continued Mr. Olivos.

First Quarter Results

Revenues for the first quarter of 2011 were Ch$19,708 million, a 21% revenue increase as compared to Q110, driven by a combination of growth in rental revenues from substantially all of the company’s existing properties as well as the inclusion of three new properties (Larcomar Fashion Center and Parque Lambrani in Peru, and Parque Arboleda in Colombia) in the first quarter 2011 results.

Gross profit for the quarter was Ch$16,245 million, an increase of 27% as compared to the same period of 2010. Increased rental revenues, the addition of three new malls and the success of the Company’s efforts to improve efficiency and lower costs of operations resulted in the improved gross profit and resulting improvement in gross margin to 82.4% from 78.6% as compared to the year ago first quarter. Cost of sales remained almost flat at Ch$3,462 million, despite the fact that the Company added properties over the period. Additionally, the Company achieved reductions in several of its key operating costs and saw the benefits of consolidating back office operations.

Sales, General and Administration expenses increased 25% to Ch$2,438 million, in line with the expansion of GLA and three additional properties as well as certain non-recurrent expenses associated with the opening of new properties, Parque Lambrani and Parque Arboleda as compared to Q110 at the Company. In the first quarter, the Company recorded EBITDA of Ch$14,364 million, 29% higher than the Ch$11,168 million recorded in Q110. EBITDA margin reached 72.9%, a 406 basis point increase over Q110. These results reflected the inclusion of new GLA and significant efficiency improvements.

Non-operating expenses of Ch$5,146 million was recorded in the first quarter of 2011 compared to non-operating expense of Ch$4,310 in Q110. Higher inflation in 2011 resulted in an expense of Ch$ 1,680 million, compared to an expense of Ch$ 707 million in the first quarter of 2011 (Q111 CPI 1.3% vs. -0.9% in Q110). As compared to 2010’s first quarter when the Company included insurance deductibles related to the earthquake, other expenses were lower in the first quarter of 2011. Finally, as the Company consolidates its non-Chilean operations in U.S. dollars, and when converted to Chilean pesos, the depreciation of the dollar during the period resulted in a foreign exchange expense loss of Ch$158 million versus a gain of Ch$52 million in 2010.

Net income was Ch$7,110 million, or Ch$11.60 per share, an increase of 32% as compared with net income of Ch$5,370 million, or Ch$8.83 per share, in Q110.

FFO ("Funds from Operations”), defined as net income plus depreciation and amortization minus a gain (loss) on indexed assets and liabilities, minus any gains (losses) on other non-cash items, increased year-over-year to Ch$9,348 million, as compared to Ch$6,443 million in the first quarter of 2010. Strong operating results with the additional of new properties contributed to this increase.

Cash and cash equivalents totaled Ch$68,288 million in the first quarter compared to Ch$85,296 million reported at the end of Q410 as the Company continued to disburse funds to develop new properties.

GLA grew 13% and totaled 585,000 m², as compared to 516,000 m² in Q110, and owned GLA grew 6% to 401,438 m², as compared to 380,297 m² in the equivalent period of the previous year. This can be attributed to the new properties and completion of renovations in several properties. Occupancy rates showed minimal variation as compared to the prior quarter.

First Quarter 2011 Highlights and Subsequent Events

New Pipeline of Developments - Parque Arauco announced an investment plan of US$840 million from 2011 through 2014 which is expected to add an additional 435,000 m². Properties announced to date to be developed during this period include:

Arauco Quilicura in Santiago, Chile: With an expected investment of approximately US$36 million, Arauco Quilicura, with total GLA of 29,000 m² is expected to contribute on an ongoing basis approximately US$4 million in EBITDA per year. The expected opening is planned for the end of 2012.

Parque El Golf in Lima, Peru: In an exclusive area of the country’s capital, this mall which will include offices and a hotel with planned GLA of 19,000 m² is expected to require a total investment of US$50 million and contribute an ongoing EBITDA of approximately US$9 million. The expected opening is planned for the second half of 2013.  

Megaplaza Chimbote in Chimbote, Peru: Already under construction Megaplaza Chimbote’s expected opening by the end of 2011. With GLA of 28,000 m² and a total investment of US$20 million, the mall is expected to contribute on an ongoing basis US$2.5 million in EBITDA per year.

Parque La Colina, Bogota, Colombia: This large development will include department stores, a Boulevard, cinema and an office or medical tower. Total GLA of 67,000 m² and an investment of approximately US$200 million are expected to contribute US$20 million in EBITDA per year. The expected opening is planned for 2015.

Bucaramanga in Bucaramanga, Colombia: Expected to be Parque Arauco’s second property to open in Colombia, this development with 28,000 m² and an expected investment of US$68 million is expected to contribute US$8 million in EBITDA on an ongoing basis. Expected opening is planned for the end of 2013.

Equity Issue - On April 7, 2011 the Company’s shareholders approved an equity issue of up to 100 million shares. The Company expects to initiate the offering at the end of the second quarter. Funds from the equity issue will be mainly utilized in funding a portion of the newly announced $840 million investment pipeline from 2011 – 2014.

Quarterly Operating and Financial Property Highlights

Chile

Parque Arauco Kennedy – PAK generated total income of Ch$7,374 million in the first quarter of 2011, a result that was 0.4% lower than the amount recorded in the same period of the previous year. The slight decline was primarily due to the exclusion of revenues from the Office Tower which was sold in 2010. This also lowered GLA to 108,000m², a 14% decrease from 2010. However, EBITDA rose by 7% to Ch$ 6,539 million, a result driven by a reduction of cost of sales primarily due to improved facility costs. During the first quarter, cost of sales was down 61%. PAK continued to benefit from a strong brand name and location and its sales totals were fairly balanced between anchor tenants and small stores, which led to a 14% increase of Tenant Sales, to Ch$77,474 million.

Mall Arauco Maipú – This shopping center GLA increased 2% to 66,000m² due to the completion of the new food court, and other substantial expansions of the property. During the first quarter of 2011, the property registered income of Ch$1,813 million, a 20% increase over Q110. Sales increases at the property resulted in an increase in the variable revenues of Arauco Maipú. The cost of sales benefited from lower facility costs, and was offset by the increase in energy consumption and real estate tax, due to more GLA.

Plaza El Roble – The property’s total revenues were Ch$910 million during the first quarter of 2011, a 50% increase as compared to the previous year. The comparable increase is largely a result of the shopping center only being opened for two months of Q110, due to damage from the earthquake that struck close to the city of Chillán, where the property is located. EBITDA rose by 94% to Ch$700 million. Cost of sales was down 58% to Ch$52 million due to a better recovery of common expenses.

Paseo Arauco Estación – This property, which features a large number of high-performing small stores, recorded income of Ch$3,002 million in the first quarter, an 8% increase over the prior year. The consistently improving performance at this mall contributed to solid revenue growth. The mall’s EBITDA increased by 9% to Ch$2,266 million on lower cost of sales and improved recovery of common expenses. There was an increase in SG&A of 27% to Ch$ 760 million which can be attributed to an increase in the uncollectables, and in the insurance premiums due to the earthquake in 2010.

Arauco San Antonio – This property’s GLA increased by 75% to 28,000 m² in the first quarter of 2011 with the addition of three anchor stores which helped the property to contribute income of Ch$953 million and an EBITDA of Ch$612 million, achieving an EBITDA margin of 64.2%. Cost of sales was down 47% to Ch$132 million due to a high recovery of common expenses and lower facility costs. SG&A for the first quarter was up 100% to Ch$ 209 million mainly due to an increase insurance premium due to the earthquake, third party expenses and uncollectables.

Mall Marina Arauco – Located in Viña del Mar, Chile, this property generated income of Ch$2,808 million for the first quarter, an increase of 11% over the prior year due an increase in variable rent on higher sales and higher parking revenues. The property’s EBITDA of Ch$2,730 million rose by 12% as compared to 2010 levels. The shopping center, which has a total GLA of 59,000 m², had a significant drop in Cost of Sales of 42% to Ch$23 million due to its exceptional efficiency and low expense policy.

Boulevard Marina Arauco – This innovative commercial center located in front of Mall Marina Arauco opened in 2011. The first quarter’s results reflected the commercial operations of a multi-mix of stores, restaurants, and offices. The property’s GLA totals 11,000 m². The property contributed income of Ch$316 million and an EBITDA of Ch$279 million during the quarter, with a very solid EBITDA margin of 88.2%.

Mall Center Curicó – This shopping center, situated south of Chile, contributed first quarter income of Ch$879 million, a 7% increase compared with the same quarter of the previous year, while EBITDA increased by 7% to Ch$850 million from Ch$795 million in Q110. Mall Center Curicó, collected more variable rent due to an increase in sales. The property’s GLA of 49,000 m² mainly consists of anchor stores, which contributed 79% of tenant sales during the quarter.

Peru

Mega Plaza Norte – This urban shopping center, located in Lima, Peru, contributed first quarter income of Sol$12,296 thousand, an increase of 7% over the prior year, and posted EBITDA of Sol$9,728 thousand, a 9% increase with EBITDA margin of 79.1%. These results were largely attributable to an increase in fixed rent and variable rent as sales increased. There was also an increase in Cost of Sales due to more security, cleaning, and maintenance with the addition of parking spaces. SG&A was Sol$1,107 thousand, down 27% from last year’s Sol$1,515 thousand as there was a decrease in the marketing expenses. Occupancy remained strong at the shopping center, exceeding 98.9%.

Mega Express Villa – This property, located in Chorrillos, Peru, contributed income of Sol$513 thousand in the first quarter, an increase of 30% year over year. The shopping center’s EBITDA also rose by 17% to Sol$436 thousand, compared with Sol$372 thousand in 2010. These figures can be attributed to an increase in rental revenues. Other revenues were down 59% due to a large sum of ‘key money’ obtained in 2010 due to initial operations and management. However, there was a significant increase in SG&A of 873% due to higher marketing and license expenses.

Larcomar Fashion Center – This property, located in Lima, contributed income of Sol$6,601 thousand in the first quarter. While Larcomar was only incorporated in the second half of 2011 the following is provided for comparative purposes. The center’s EBITDA rose by 22% to Sol$4,760 thousand, compared with Sol$3,897 thousand in 2010. Cost of Sales were down 38% to Sol$1,234 thousand versus Sol$1,987 thousand in 2010. Since Parque Arauco secured the contract and took control on July 1, 2010 there has been a significant restructuring and realignment of the administration. As a result, the EBITDA margin has increased to 72.1% from 59.3%.

Parque Lambrani – The fourth property to be operated by Parque Arauco in Peru contributed income of Sol$2,588 thousand during the first quarter of 2011. The EBITDA of Sol$709 thousand was impacted by non-recurring expenses such as Marketing and startup costs for the property. Currently at 95% occupancy, the property’s revenues is split 56% by anchor stores and a mix of small stores and food court sales. Total GLA is at 27,000 m², which underscores the Company’s commitment to the development and operation of retail properties in the Peruvian market.

Colombia

Parque Arboleda – This shopping center opened during the fourth quarter 2010 in Pereira, Colombia. During the first quarter, the property was able to secure an over 89% occupancy rate, highlighted by two anchor stores Falabella and Exito. Its unique rental structure is atypical among the primarily condominium type mall structures in Colombia. For the quarter, Parque Arboleda contributed income of Col$2,974 million and EBITDA of Col$ 1,626 million. While the EBITDA margin is 54.7%, this can be primarily attributed to startup expenses. The property has total GLA of 31,000 m².

Outlook

Parque Arauco will continue to extend its regional footprint and has developed a revised and expanded investment plan of approximately US$840 million to expand its operations in Chile (US$170 million), Colombia (US$410 million), and Peru (US$260 million) from 2011 to 2014. With five new properties already identified in these countries, Parque Arauco expects to finance its current and new developments through a combination of an equity issue, free cash flow and current liquidity project finance, and partnerships.

Commercial operations opened in the fourth quarter of 2010: Parque Arboleda, the first property to be operated by Parque Arauco in Colombia, and Parque Lambramani in Peru, both advance the Company’s regional expansion strategy, improving and diversifying its current portfolio of high quality assets in the three markets in which it operates. With the expected opening of the commercial center in Chimbote, Peru during the second half of 2011, the Company will bring the number of properties operated in that market to five and fortifies Parque Arauco’s tenant sales growth projections for the year 2011 of, 13% in Chile to US$1,816 million, in Peru of 33% to US$480 million and in Colombia of US$123 million. The resulting expected outlook for EBITDA growth at Parque Arauco is 17-20% growth for 2011 or US$130-133 million from US$111 million in 2010.

About Parque Arauco

Parque Arauco, based in Chile, is one of Latin America’s largest developers and operators, in terms of GLA, of retail real estate in Latin America. Over the last 30 years, Parque Arauco has developed, operated and managed shopping centers throughout Chile, where it currently operates 8 properties. In Peru, the Company has interests in four malls, and Parque Arauco has expanded into Colombia with the opening of its first shopping center, Parque Arboleda.

This release contains forward-looking statements relating to the prospects of the business, estimates for operating and financial results, and those related to growth prospects of Parque Arauco. These are merely projections and, as such, are based exclusively on the expectations of management concerning the future of the business and its continued access to capital to fund the Company’s business plan. Such forward-looking statements depend, substantially, on changes in market conditions, government regulations, competitive pressures, the performance of the economies in which we work and the industry, among other factors; therefore, they are subject to change without prior notice.