Concentradora Fibra Danhos SA de CV
BMV:DANHOS13

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Concentradora Fibra Danhos SA de CV
BMV:DANHOS13
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Price: 20.41 MXN 0.29% Market Closed
Market Cap: 30.9B MXN
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Earnings Call Analysis

Q2-2024 Analysis
Concentradora Fibra Danhos SA de CV

Revenue Increase and Strong NOI for Fibra Danhos

Fibra Danhos reported a stable Q2 2024 with a 6.4% revenue increase to MXN 1.6 billion, driven by higher fixed rent, overage, and parking revenues. Expenses rose 4.1%, reflecting operational efficiency. The net operating income (NOI) increased by 7.1% to MXN 1.2 billion, attaining a 77.3% margin. Adjusted funds from operations (AFFO) were MXN 1.07 billion, equating to MXN 0.68 per CBFI, and distributions will remain at MXN 0.45 per CBFI for 2024. Occupancy improved, with retail at 92.3% and office at 74.2%. The Cuautitlán industrial project is fully pre-leased and expected to generate revenue by year-end.

Positive Revenue Growth Reflects Operational Strength

Fibra Danhos reported total revenues of MXN 1.6 billion for the second quarter of 2024, marking a 6.4% increase from the same period last year. This growth was driven by rising revenues in fixed rent, overage, and parking, showcasing the company's robust operational stability. The effective management of expenses, particularly a 4.1% increase restricted to maintenance and operational areas, resulted in a notable Net Operating Income (NOI) increase of 7.1% year-on-year, reaching MXN 1.2 billion, resulting in a strong margin of 77.3%.

Strong Financial Metrics and Payout Strategy

The Adjusted Funds from Operations (AFFO) amounted to MXN 1.07 billion, translating to MXN 0.68 per Certificado Bursátil Fiduciario Inmobiliario (CBFI) with economic rights. Importantly, distributions remained steady at MXN 0.45 for the remainder of 2024 due to tax regulations, with a payout ratio of 66%. This illustrates a cautious yet firm approach to returns, complemented by a strategy of retaining cash flows to finance growth in development projects.

Occupancy Levels on the Rise

With an overall occupancy rate of 87.1%, Fibra Danhos has seen a notable increase in both retail (92.3%) and office (74.2%) sectors, up by 100 and 170 basis points respectively from last year. This upward trend in occupancy aligns with newly renegotiated leases, where a lease spread of 5.7% was achieved on 24,000 square meters, coming in above inflation. Such metrics emphasize the company's effective position in capturing demand in a recovering economy.

Pipeline Developments and Future Growth Plans

The completion of the industrial project in Cuautitlán is anticipated by the second quarter of 2025, fully leased to a renowned tenant with 100,000 square meters. Fibra Danhos intends to pursue a conservative growth strategy, continuing to develop a sustainable project pipeline while completing and leasing current portfolio projects. Plans for future expansions are under consideration, with a commitment to a steady growth rate to enhance long-term value.

Stabilization of Parque Tepeyac Ahead of Schedule

The Parque Tepeyac development is showing much faster-than-expected stabilization, potentially reaching full utilization by mid-2025, a notable acceleration compared to the typical four to five-year stabilization timeline for similar projects. This comes as the aquarium feature is attracting significant visitor numbers, enhancing overall foot traffic and revenue potential.

Stable Rent with Positive Consumer Dynamics

Management indicated that rent growth has been in line with the steady increase in tenants' sales, with projections suggesting rental increases in the high single to low double-digit range. This growth correlates with continuous improvements in consumption driven by social programs and salary increases in Mexico, which have bolstered consumer spending and, consequently, retail operator revenues.

Market Sentiment and Development Focus

While there is a noted increase in merger and acquisition activity in the market, Fibra Danhos remains committed to leveraging development to generate higher returns than current market cap rates. The sentiment toward the company places emphasis on organic growth through new developments, with a stabilized yield on costs in the shopping mall sector projected between 12% to 13%. This approach aims to enhance investor value over the long term.

Strategic Management of Costs Amid Wage Increases

With minimum wage growth pressures, Fibra Danhos has acknowledged the challenges this presents to operating expenses. However, they are managing these increases effectively through technological enhancements and improved supplier relationships, allowing for greater cost control. This balance of investing in productivity while maintaining expenses is vital as the company navigates wage pressures.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

from 0
Operator

Good day, everyone, and welcome to today's Fibra Danhos' Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded, and I will be standing by should you need any assistance. And it is now my pleasure to turn the program over to Rodrigo MartĂ­nez.

R
Rodrigo Martínez Chávez
executive

Thank you very much. Hello, everyone. I am Rodrigo MartĂ­nez, and I run Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos' 2024 Second Quarter Conference Call. We issued our quarterly report yesterday and if you did not receive a copy, please do not hesitate and contact us. Please be aware that they are also available on our website and in Mexico Stock Exchange website.

Before we begin the call today, I would like to remind you that forward-looking statements made during today's call do not account for future economic circumstances, industry conditions and company performance or financial results.

These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance to IFRS standards and are stated in nominal Mexican pesos unless otherwise noted.

Joining today from Fibra Danhos in Mexico City is Mr. Elias Mizrahi, and Mr. Jorge Serrano, CFO of Fibra Danhos.

Now I will turn the call to Jorge Serrano for opening remarks and financial and operating indicators. Jorge, please go ahead.

J
Jorge Esponda
executive

Thank you, Rodrigo, good morning, everyone. And thanks for joining us to our second quarter 2024 conference call. Financial results for the quarter reflect stability on our operating portfolio with positive trends on occupation levels and lease spreads. Total revenues of MXN 1.6 billion were 6.4% higher against last year and reflect increases in fixed rent, overage and parking revenues. Total expenses for the quarter increased 4.1% on the back of strict control on operating and maintenance expenses. And consequently, our NOI reached MXN 1.2 billion during the quarter, an increase of almost 7.1% year-on-year and posting 77.3% margin.

AFFO reached MXN 1.07 billion that accounted for MXN 0.68 per CBFI with economic rights. Distribution remain at MXN 0.45 and will remain at this level for the rest of 2024 in accordance to tax regulation. Payout ratio for the quarter stood at 66%. Retained cash flow has been used to finance our development portfolio.

Now regarding our operating results, overall occupancy reached 87.1% and with retail occupancy reaching 92.3% and office occupancy at 74.2%, 100 basis points and 170 basis points higher relative to last year. lease spread on 24,000 square meters, renewal agreements was 5.7% during the quarter, once again above inflation.

And with this, I finish my opening remarks, and we can move on to the Q&A session.

Operator

[Operator Instructions] And we'll take our first question from Juan Ponce with Bradesco BBI.

J
Juan Ponce
analyst

Congrats on the results. With the industrial project in Cuautitlán expected to be completed in the second quarter of next year, how should we think about your industrial pipeline going forward? Are you thinking of expanding and near the same park? Are you looking at other markets -- is this more of like a temporary thing and then maybe accelerate after the, U.S. election looking at what the different policies are? I mean you have the USMCA revision in 2026.

So just trying to get a sense here on the growth trajectory of Fibra Danhos in Industrial. And I have a follow-up.

E
Elias Daniel
executive

Thank you, Juan. This is Elias Mizrahi, so a couple of things to mention here. First, regarding our projects and skipping to the second part of your question, the markets that we're focusing on now and especially the Mexico City market, as you know, is mostly a logistics-based market. So not a lot or I would say, less relationship with the upcoming U.S. election and with the manufacturing and export market. So I think that's more internal consumption, which shouldn't be affected by that. And we're very proud and we're very happy with the progress we've made with Cuautitlán.

As you know, Phase 1 is fully leased to a world-class tenant, so 100,000 square meters pre-leased -- and that will continue -- that will start generating revenue for Fibra Danhos by the end of this year.

And our intention is to keep on growing. The intention is to keep on developing with a steady and conservative pace. We don't want to be -- I think with the same philosophy that we've done all of our projects in the past.

So the idea is to finish this project, lease it fully, go on to the next one and have a stable and sustainable development pipeline for industrial -- and yes, and actually, we've been looking at what are going to be those next projects.

So once we finish a Cuautitlán those are ready, we will obviously announce that to market.

J
Juan Ponce
analyst

Okay. Very clear. And my second question is related to expenses. And this particularly on salaries, we've seen the minimum wage increase significantly in the current administration. We're obviously going to see more increases in the next one. Have you started to see this pressure your property expense at the shopping malls? Do you see any mitigation efforts there that you could tap? I would like to hear your thoughts on that?

E
Elias Daniel
executive

No, I mean this is a great question. And for sure, this is something that has been very relevant, and we've actually discussed this in previous calls, but the minimum wage has had close to 20% increases almost every year for the last 5 years. So the -- there's some personnel which in the shopping malls, which I wouldn't say they have minimum wage, but they're linked to minimum wage.

So there has been -- an increase in costs, which we've tried to offset by having more machinery or more equipment in some cases, in some cases, which is not sustainable, we need to take out some people as well. But this is obviously something that we need to cope with and to work with.

J
Jorge Esponda
executive

And let me add to Elias, this is Jorge. I mean some of our main suppliers are related to -- cleaning services to security services that are also linked to the minimum wage. And we have been able to control those expenses because, I mean, as we get bigger, we have more bargaining power, and we have built a very good relationship for the last years with the supplier. So we have been able to control these expenses.

Operator

We'll take our next question from Jorel Guilloty with Goldman Sachs.

W
Wilfredo Jorel Guilloty
analyst

I wanted to focus on the retail portfolio. So we're doing our math correctly, it seems that you've been growing rent per square meter at or near double digits for a while. And so I just wanted to get a sense of I know you don't publish it, but if there's -- if you can give us some color on what same-store sales are looking like? Because I wanted to get a sense if these -- these rent growth is going on par with sales growth? Or are you seeing increases in occupancy cost. And so if you can give us a sense of where sales trends are going? I mean are we talking about high single digits, low double digits?

And also, where are occupancy costs right now? And where are they headed? So those are my questions.

J
Jorge Esponda
executive

I think the main explanation is based on solid consumption in Mexico. It has been steady growth in those figures. You can notice in the affluence of our shopping centers, it's been improving. And that allows us, of course, to increase rents in line with how our tenants increase the revenues. So this is reflected also on our lease spreads. And we expect that this situation will continue -- social programs in Mexico have helped. People have money. We just talked about salary increases. And this all contributes on higher consumption in Mexico. And of course, it is reflected in our shopping centers.

W
Wilfredo Jorel Guilloty
analyst

So just to follow up, the way to think about it is occupancy cost is about the same. You're just essentially seeing growth in your rents in line with sales growth. So it could be high single digits, low double digits. Is that the right way to think about it?

E
Elias Daniel
executive

Yes, definitely. I think that's the way to think about it.

W
Wilfredo Jorel Guilloty
analyst

Okay. And one more question, if I may. So one other thing that we've been noticing is that your overage has also been increasing. So is the idea here to allow that overage to continue increasing? Or would you essentially see that overage becoming fixed rent on a go-forward basis?

E
Elias Daniel
executive

I think the structure of the leases will remain the same, and that's the idea to have always a fixed rent component with an overage linked to the tenant success. But in this case, what has been a great contributor to the overage has been Parque Tepeyac that is now an important contributor in the earnings. And specifically, there's some spaces in Parque Tepeyac for instance, the entertainment center, the aquarium, which have contributed with a lot of overage.

So I think the increase that you're seeing year-over-year is mainly explained by Parque Tepeyac.

Operator

And we'll take our next question from Alejandra Obregon with Morgan Stanley.

A
Alejandra Obregon
analyst

This one is about the mall space as well, and it's more related to sentiment. I guess we have been seeing more increased activity in the M&A space for malls lately in Mexico. I mean we have seen big portfolios being on block and changing hands. So just curious if you're seeing any material change of trend here -- anything that could be pointing to consolidating trends across the country? Anything different that you might be seeing in the space more interest perhaps.

E
Elias Daniel
executive

I mean, I think in general, the sentiment and the VNA of Danhos, as you know, is as a developer. So we've obviously done some M&A in the past in the case of Vallejo. But I think through development, we've been able to create more value for our investors and to achieve higher returns than the current cap rates we're seeing for M&A and specifically in the industrial sector, for instance, we've seen M&A activity at 7%, 7.5%. And we feel that we can develop in the low teens.

So I think in general, we have -- or the sentiment for the company is to continue growing through development mostly. And again, always open to opportunities, but we are seeing interesting opportunities in the market.

A
Alejandra Obregon
analyst

Got you. And if I can follow up on that, what would you say is your yield on cost today for developing in the mall space? Is that something that you have like ballpark?

E
Elias Daniel
executive

In the shopping mall space?

A
Alejandra Obregon
analyst

Correct.

E
Elias Daniel
executive

I mean the shopping mall space, it's around 12% to 13%, I would say, stabilized NOI. And then remember that the thing about malls, which is very interesting is that malls are very dynamic. So even though that you have the fixed rent and the overage one once malls are stabilized, you have parking revenues, you have advertising revenues, you have key money, you have you have expansions that you can do. So they're very current, and they're very dynamic. But I would say the stabilized development yields are around 12%, 13%.

Operator

We'll take our next question from Felipe Barragan with BTIG.

F
Felipe Barragan
analyst

Mine is a quick follow-up on sort of the capital allocation going forward. So in the previous conference call, it was noted that apparently there are industrial properties outside of the trust that family owns. And it was -- you know that the former CEO had noted that -- sorry, the CEO had noted in that call that there could be potentially acquisitions from those developments outside of Danhos. I was just wondering if there's any follow-up on if that could be potentially acquired within data.

E
Elias Daniel
executive

How are you -- so I think that -- and following up on that conversation, I think that, that question was mainly stemmed from what experience Danhos has in the industrial sector. And again, as a family, the family had some minority interest in certain -- in a lot of developments. So this was familiar to the company or to the family on the expertise on developing industrial.

But really, the main focus, as has always been, is to develop through the Fibra and have all of our assets in the Fibra. So basically, I would say that, yes. So everything has been done in -- everything that will be done is going to be done inside the Fibra. And those minority interests will not probably not go into the Fibra.

Operator

[Operator Instructions] We'll take a question from Francisco Chávez Martínez.

F
Francisco Chávez Martínez
analyst

Question is regarding Parque Tepeyac. When do you expect the Parque need to be stabilaized. And the second question is on the office segment, we saw an increase in a couple of our buildings, particularly in Toreo. What kind of tenants are you are you having new space from, thank you.

E
Elias Daniel
executive

So regarding Parque Tepeyac, I think there's 2 important things to mention. First, I think that stabilization has been quicker than affected, especially with the aquarium, the amount of people we're getting is unbelievable. So Tepeyac has have a very fast stability process. And I think it would be -- we expect it to be fully stabilized probably by the second quarter of next year, between first and second quarter of next year.

So usually, the stabilization process for, shopping mall is between 4, 5 years. So the debt will probably be quicker than that. So that's good news. And regarding Toreo, the companies that have leased space at Toreo, are in a wide spectrum. And Toreo has 120,000 square meters of offices, and we have clients in the banking space, consumer space, we have the telecom companies. So I would say it's a very broad base of companies. Toreo has a big floor plates. So the companies that are looking to accommodate in Toreo are mostly companies that have a lot of personnel in some cases that have -- that personnel uses public transportation and that if you're a company that wants to have 3,000 or 4,000 square meters together, it's much more efficient to have 1 floor in Toreo or 2 floors in Toreo, then have 5 or 6 floors in any other building with 700 square meter floor plates.

So companies that we're getting and that are looking at Toreo are usually large companies that want their personnel to have a good lifestyle. A comfortable lifestyle and just an efficient office if you need a large space.

Operator

And it appears we have no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

R
Rodrigo Martínez Chávez
executive

Thank you very much, everyone, for joining us today. Please do not hesitate to contact Elias, Jorge or myself for any further questions. We are always available, and we'll see you on the next conference call. Thank you very much.

Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.

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