Parauco Target Price: CLP 1,042 Recommendation: Buy Risk: Low February 13th, 2012 Sector: Retail Update Report Analyst: Andrea Puebla C. Consolidating its Expansion in the Region Recommendation and Investment Thesis Parque Arauco is a leading developer and operator of shopping centers in the Andean region with operations in Chile, Peru and Colombia. In Chile it was the forerunner of the industry, currently operates 8 shopping centers and achieved an EBITDA of more than CLP 43,900 million as YTD 3Q11. Among its objectives, the company is looking forward to becoming one of the largest shopping center developer in Latin America by 2015. We have upgraded our target price of Parauco for EOY2012 to CLP 1,042, which given the closing price at December 2011 of CLP 847.12 represents an expected upside of more than 23.03% in a 12 months horizon with a BUY recommendation. Our recommendation is based on a defensive business model, arising from its close to 85% fixed revenues, coming from a large multi-tenant base that provides stability to the flows of the company. It also has good growth potential thanks to its expansion plans in Chile, Peru and Colombia, countries that have good economic outlook for the coming years. This would increase the GLA and EBITDA of the company. The updated target price includes a USD 700 million CAPEX plan for the period 2011-2015 with allocations to Chile, Peru and Colombia. Inside this investment plan, Colombia has USD 344 million allocated to the construction of Parque La Colina and Bucaramanga; Peru has a USD 110 million allocated to Megaplaza Chimbote and Parque El Golf and finally Chile has allocated USD 36 million to the construction of Arauco Quilicura. Assumptions Among the key assumptions, we consider the incorporation of a chain of six Stripcenters for 1Q 2012 of Parque Arauco, accounting approximately USD 3.5 million annually in EBITDA. For this year 2012, consider the opening of two new shopping centers, Chimbote and Mega Express Villa El Salvador in Peru. Looking to the year 2013, we included in our assumptions the opening of two new shopping centers (Quilicura - Chile and Bucaramanga - Colombia) of sizes close to 30,000 m2. Finally, for the years 2014 and 2015, we expect the entry of two new operations, La Colina in Colombia and Parque El Golf in Lima with 67,000 m2 and 26,000 m2 respectively. 1
Investment Projects Country Mall City Investment Area Ebitda USDmn M2 GLA (1) USDmn Inauguration Ownership Peru Megaexpress Villa El Salvador 11 9,000 1 1 semester 2012 50% Stripcenters Varias Localidades 92 81,000 10 2012-2015 50% Megaplaza Chimbote Chimbote 26 28,000 2.5 1 semester 2012 33.5% Parque El Golf Lima 85 26,000 9 1 semester 2014 76.4% Chile Arauco Quilicura Santiago 36 29,000 4 1 semester 2013 100% Stripcenters Varias Localidades 20 12,000 3.5 1 semester 2012 51% Colombia La Colina Bogotá 244 67,000 27 1 semester 2015 55% Bucaramanga Bucaramanga 100 30,000 10 2 semester 2013 55% (1): GLA: Gross Leaseable Area Source: CorpResearch Parauco has a strategic land bank to ensure its future growth and recovery of assets. In Chile, the company has about 100,000 m2 in Quilicura, which already has begun construction of Mall Arauco Quilicura the wich will be opened during the first half of 2013. In Peru, the land is valued at about USD 30 million, with about 390,000 m2. In Colombia, the land add 117,000 m2, for construction of malls in Bucaramanga and Bogota. Lands Value USD mn M2 Chile 6 98,000 Arauco Premium Outlet 3 26,000 Arauco Quilicura 3 72,000 Peru 26 280,000 Parque El Golf 8 15,000 La Unión 9 179,000 Otros Perú 9 86,000 Colombia 53 117,000 Bucaramanga 12 13,000 Bogota 33 34,000 Barranquilla 8 70,000 Total 85 495,000 Source: CorpResearch, Parauco 2
Details of operations Chile Within the portfolio of Parque Arauco is Arauco Quilicura, whose construction is underway and is scheduled to open in 2013. The total investment for this project, owned 100% by Parque Arauco, amounts to USD 36 million and is expected to contribute USD 4 million annually in EBITDA when it reaches maturity in terms of sales and employment. With a smaller format of malls, Parque Arauco will compete in the segment Stripcenters, in partnership with AURUS, real estate division. This company will be controlled by Parque Arauco, who provide 51% of this new property and begin to consolidate the first quarter of 2012. AURUS provide six Stripcenters, which total 12,000 m2, and the company seeks to build five additional years through 2014. This investment will mean the company to increase its EBITDA by USD 3.5 million annually. Another investment that is underway is the expansion of Mall Arauco Maipú for 1Q 2013. The company will expand its capacity to gross rentable square feet by adding a new anchor store of 14,000 m2. Peru Parque Arauco announced as an essential event on August 4, 2011 a strategic alliance with Cencosud, where the latter will participate as their formats tenant neighborhood shopping centers and Parauco developed in the future and will run for 10 years, which Parque Arauco allows to have an additional anchor store. The company also began to acquire new land for the construction of shopping centers with a smaller format, with the intention of opening between 10 and 12 commercial spaces by 2015. One of the major projects that are on the verge of being opened is Megaplaza Chimbote, which will have 28,000 m2 gross leaseable and an investment of approximately USD 26 million. Parque Arauco's participation in this project is 33.5%, but with the power of his administration and consolidation of results. EBITDA expected for this project amounts to USD 2.5 million annually and will be operational during the first half 2012. By 2014, it expects to open the sixth mega project of the company in Peru, with a gross leasable area of 26,000 m2 and an investment of USD 85 million. This project, Parque El Golf, will be located in Lima and is expected to contribute USD 9 million annually. Colombia Colombia is today the most attractive country for Chilean retailers, and Parque Arauco not be absent from the commercial development of that country. Build at least two new shopping centers with an investment estimated to reach USD 410 million. The second mall Parque Arauco in Colombia will open by 2013 in the city of Bucaramanga. An investment of USD 100 million and contribute USD 10 million 3
in EBITDA. Moreover, with a view to 2015, the company aims to build one of the largest shopping centers has held, with 67,000 m2 gross leaseable and an investment of USD 244 million. The latter will be built in Bogota under the name of Parque La Colina and contribute USD 27 million to EBITDA Valuation Discounted Cash Flow The valuation was performed by DCF, which were discounted from the year 2013 in order to set a price target for the end of 2012. Flows were projected to 2020 and from that year and projected flows in perpetuity with a growth rate of 0.6% supported by the development potential in the countries involved, especially in Peru and Colombia, where penetration rates remain low malls. In 2010, Colombia had a 51% penetration of the formal market in relation to total sales of trade, while Peru was 15%, well below 70% of Chile. Target Price We set a target price of CLP 1,042 per share by the end of 2012. This means an increase of 23.03% over the closing price of December 2011, which was 847.12, therefore our recommendation is Buy. EV / EBITDA On average Parque Arauco has traded between 2002 and 2010 to an EV/EBITDA of 12.1 times. By 2012 we project a multiple of 13.9 times, which is higher than historical, but consistent with the projections of the company.therefore, the company is currently trading at a discount of 14.8%. P/ U Parque Arauco has traded on average during the period between 2002 and 2010 a multiple P/E of 24.1 times, eliminating outliers, the average is16.5 times. We project a multiple P/E for 2012 of 16.4 times, consistent with the historical average has shown the company. 4
Parauco Financial Statements Background Operational 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e GLA total 529,504 597,000 637,000 675,000 730,000 797,000 802,000 802,000 802,000 802,000 802,000 GLA proportional 378,021 406,388 421,888 442,288 491,152 528,002 533,002 533,002 533,002 533,002 533,002 GLA: Gross Leaseable Area Income Statements 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Revenues 73,155 77,774 82,556 84,712 100,913 121,972 124,378 125,595 126,438 127,808 127,808 Operating Results 50,528 58,671 62,872 64,858 79,288 98,067 100,147 101,162 101,839 102,988 102,988 Ebitda 52,062 61,103 65,787 68,027 84,107 105,046 107,328 108,420 109,134 110,374 110,374 R no operating.+imptos+int. Min. (4,592) (7,933) (20,687) (21,245) (24,518) (25,396) (23,513) (21,223) (18,975) (16,554) (14,705) Earning 48,466 45,230 36,210 37,940 48,061 63,723 67,208 70,236 72,984 76,421 78,270 Source: CorpResearch and Company Reports Asset discount rate (WACC) Chile Peru Colombia Risk free rate (BCU10) 2.90% Country risk 159 214 189 Risk premium 5.5% Tax Rate 20.0% 30.0% 35.0% Chile inflation 3.0% Debt / Assets 20.0% 30.0% 30.0% Nominal rate of debt 7.7% Equity Discount Rate 11.9% 12.5% 12.2% Beta 1.08 Wacc 10.8% 10.4% 10.1% Weights 47% 45% 9% Weighted average nominal WACC 10.5% WACC real 7.31% Source: CorpResearch FCD (CLP mn) Present value of cash flow 335,875 Discount rate 7.31% Present value perp 728,933 Perpetual growth 0.6% Value Shareholder 1,064,807 (+) Cash 22,122 (-) Net debt 354,546 (=) Equity 732,384 Number of Shares (mn) 702.7 Price CLP/share 1,042 Source: CorpResearch 5
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Appedix A Operating assumptions by mall (Chile and Colombia) Chile 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Kennedy, Santiago Ebitda CLPmn 28,241 27,983 27,984 27,984 27,984 27,984 27,984 27,984 27,984 27,984 27,984 Ebitda margin 86.8% 88.9% 88.9% 88.9% 88.9% 88.9% 88.9% 88.9% 88.9% 88.9% 88.9% M2 108,220 108,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000 Arauco Maipú, Santiago Ebitda CLPmn 4,738 5,688 6,059 5,816 5,932 6,051 6,172 6,295 6,421 6,550 6,550 Ebitda margin 70.1% 73.5% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 60,236 69,000 69,000 69,000 69,000 69,000 69,000 69,000 69,000 69,000 69,000 Plaza El Roble, Chillán Ebitda CLPmn 2,678 2,857 2,886 2,944 3,003 3,063 3,124 3,186 3,250 3,315 3,315 Ebitda margin 76.0% 76.1% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 24,664 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Paseo Estación, Santiago Ebitda CLPmn 8,689 8,781 8,377 8,289 8,454 8,623 8,796 8,972 9,151 9,334 9,334 Ebitda margin 75.7% 76.4% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 67,914 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 Marina Arauco, Viña del Mar Ebitda CLPmn 10,786 12,147 12,086 12,081 12,323 12,569 12,821 13,077 13,339 13,605 13,605 Ebitda margin 97.1% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% M2 58,285 72,000 72,000 72,000 72,000 72,000 72,000 72,000 72,000 72,000 72,000 Mall Center, Curicó Ebitda CLPmn 3,368 3,548 3,628 3,659 3,733 3,807 3,883 3,961 4,040 4,121 4,121 Ebitda margin 96.6% 93.6% 93.7% 93.7% 93.7% 93.7% 93.7% 93.7% 93.7% 93.7% 93.7% M2 48,864 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Arauco San Antonio Ebitda CLPmn 1,365 2,611 2,671 2,676 2,729 2,784 2,839 2,896 2,954 3,013 3,013 Ebitda margin 60.0% 74.5% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 26,713 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 * Stripcenters Ebitda CLPmn 4 4 4 4 4 4 4 4 4 Margen Ebitda 60.0% 65.0% 70.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 * Quilicura Ebitda CLPmn 4 4 4 4 4 4 4 Ebitda margin 60% 65% 70% 75% 75% 75% 75% M2 29,000 29,000 34,000 34,000 34,000 34,000 34,000 Colombia 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Parque Arboleda, Pereira Ebitda USDmn 7,511 7,436 7,808 8,198 9,223 10,329 10,846 11,388 11,957 11,957 Ebitda margin 74% 70% 70% 70% 75% 80% 80% 80% 80% 80% M2 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 34,000 * Bucaramanga Ebitda USDmn 9.0 9.5 10.0 10.0 10.0 10.0 10.0 10.0 Margen Ebitda 65.0% 70.0% 75.0% 80.0% 80.0% 80.0% 80.0% 80.0% M2 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 * La Colina, Bogotá Ebitda USDmn 24 26 27 27 27 27 Margen Ebitda 65% 70% 75% 80% 80% 80% M2 67,000 67,000 67,000 67,000 67,000 67,000 Source: CorpResearch and company reports, *Malls construction assumed by CorpResearch 7
Appedix B Operating assumptions by mall (Perú) Perú 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Mega Plaza norte, Lima Ebitda USDmn 36,676 41,699 41,787 45,110 46,012 46,932 47,871 48,829 49,805 50,801 50,801 Margen Ebitda 75.4% 78.7% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 75,515 83,000 83,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 M. Express Villa, Lima Ebitda USDmn 1,510 1,776 1,567 1,552 1,583 1,615 1,647 1,680 1,713 1,748 1,748 Margen Ebitda 66.3% 85.2% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Larcomar, Lima Ebitda USDmn 17,199 17,916 17,430 20,149 20,552 20,963 21,382 21,810 22,246 22,691 22,691 Margen Ebitda 62.3% 61.8% 60.0% 68.0% 68.0% 68.0% 68.0% 68.0% 68.0% 68.0% 68.0% M2 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 Parque Lambramani, Areq. Ebitda USDmn 1,637 1,908 2,913 2,971 3,030 3,091 3,153 3,216 3,280 3,280 Margen Ebitda 16.6% 20.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% M2 27,000 27,000 29,000 29,000 29,000 29,000 29,000 29,000 29,000 29,000 * M. Express Villa, El Salvador Ebitda USDmn 1.11 1.24 1.30 1.30 1.30 1.30 1.30 1.30 1.30 Margen Ebitda 60.0% 65.0% 70.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 * Chimbote Ebitda USDmn 2.00 2.30 2.50 2.50 2.50 2.50 2.50 2.50 2.50 Margen Ebitda 60.0% 65.0% 70.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% M2 28,000 28,000 28,000 28,000 28,000 28,000 28,000 28,000 28,000 * Stripcenters Ebitda USDmn 4.00 6.00 8.00 10.00 10.00 10.00 10.00 10.00 Margen Ebitda 65% 70% 75% 75% 75% 75% 75% 75% M2 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 * El Golf Ebitda USDmn 8.10 8.55 9.00 9.00 9.00 9.00 9.00 Margen Ebitda 60.0% 65.0% 70.0% 75.0% 75.0% 75.0% 75.0% M2 26,000 26,000 26,000 26,000 26,000 26,000 26,000 Source: CorpResearch and company reports, *Malls construction assumed by CorpResearch 8
Glossary Term Definition / Translation Calculation EBITDA Earnings Before Interests, Taxes, Depreciation and Amortization Operational Income plus Depreciation and Amortization EBITDAR Earnings Before Interests, Taxes, Depreciation, Amortization and Rents Operational Income plus Depreciation and Amortization plus rent of fixed assets. It is used the at transport industries to reverse the rent of airplanes or ships. EV Enterprise Value Market capitalization plus Net Financial Debt plus EV/EBITDA Valuation multiple. While greater it is, more expensive it is the stock Minority Interest EV divided by Ebitda FCF Free Cash Flow Operational Income plus Depreciation and Amortization minus tax minus capital expenditures plus (minus) working capital variation. Free-float Percentage of stocks that can be freely traded in the market Percentage of stock that does not belong to controller s shareholders. Margin Operational Ebitda Net Percentage of sales Operational Income / Revenue Ebitda / Revenue Net Income / Revenue P/E Price / Earnings Market Price divided by EPS P/B Price to Book value ratio Market price divided by the accounting value of the stock. Dividend Yield The return in terms of dividends of investing in equities Dividends distributed in a year divided by the market price. FCF yield Free Cash Flow Return. FCF / Market Price ROA Return on Assets Net Income / Total Assets ROE Return on Equity Net Income / Accounting capitalization EPS Earnings Per Share Net Income / Shares outstanding YtD Year to Date Percentage variation year to date x Times Stocks recommendations: these are established according to the stock yield relative to the IPSA.We recommend Hold, when we expect the share to have a yield in line with the IPSA; Buy, when the yield expected for the share is above to that expected for the IPSA; and Sell, when the yield expected for the share is below to that expected for the IPSA. We define a yield to be In line with the IPSA when it is within a range whose scope is equivalent to a third of the variation expected for the index, with a minimum of 5%. 9
CorpResearch Álvaro Donoso CorpResearch Director adonoso@corpgroup.cl Economic Research Sebastián Cerda Executive CorpResearch Director and Economic Studies Director scerda@corpgroup.cl Nicolas Birkner Senior Economic Analyst nicolas.birkner@corpgroup.cl Daniela Game Economic Analyst daniela.game@corpgroup.cl Natalie Charles Investments Analyst natalie.charles@corpgroup.cl Juan Ortiz Economic Analyst juan.ortiz@corpgroup.cl Equities Research Cristóbal Lyon Strategies Director cristobal.lyon@corpgroup.cl Carlos Ferruz Analyst - Energy carlos.ferruz@corpgroup.cl Andrea Puebla Analyst - Retail and Banks andrea.puebla@corpgroup.cl María José Ortiz Analyst - Natural Resources and Transport mariajose.ortiz@corpgroup.cl Rosario Norte 660 Floor 17, Las Condes, Santiago, Chile. Telephone: (562) 660 3600 www.corpbancainversiones.cl 10