Concentradora Fibra Danhos SA de CV

BMV:DANHOS13

Earnings Call Analysis

Fibra Danhos Shows Strong Quarterly Growth

In the recent quarter, Fibra Danhos exhibited robust financial performance with total revenues growing by 15% year-over-year to MXN 1.5 billion. The company's net operating income (NOI) saw a 12% increase to MXN 1.1 billion, translating to a 77.2% margin, while EBITDA rose by 13.2%. Occupancy rates climbed modestly by 50 basis points to 86.1%. Their leverage remains modest at 11.2%. The firm successfully issued a sustainable-linked bond (SLB), oversubscribed by 2.75 times, signifying strong investor confidence. Proceeds were allocated to refinance debt and finance new projects, such as the expansion into industrial real estate with a MXN 3 billion investment, to be funded through retained cash flow and potential debt leveraging existing assets.

Positive Performance with Solid Growth

The company achieved a noteworthy milestone with their annual revenues reaching MXN 1.5 billion, marking a robust 15% increase over the previous year. This was supported by a strong performance across fixed rents, overage, and parking revenues. The Net Operating Income (NOI) witnessed a healthy 12% year-over-year surge, amounting to MXN 1.1 billion, while sustaining a solid margin of 77.2%. Although the Adjusted Funds from Operations (AFFO) of MXN 972 million remained flat compared with the previous year, it represented MXN 62 per CBFI. The overall occupancy of the company's portfolio also improved modestly by 50 basis points to reach 86.1%, driven by tenant additions across multiple properties, with special mentions of the Tepeyac entertainment and cultural center's contribution to increased visitor traffic.

Strategic Industrial and Hospitality Ventures

The company has embarked on an exciting journey into the industrial segment, targeting a high-quality industrial development with LEED certification and anticipated low teens return. They've acquired a significant land reserve of 350,000 square meters slated for industrial use, with the plan to initially develop 200,000 square meters of leasable space in the first phase. The industrial arm's growth mirrors the company's ambition to expand as opportunities arise. The ambitious hotel project in collaboration with Fibra Hotel reflects a strategic move into another real estate category. Although details remain under wraps, the operation is expected to align with high-end market positioning and feature a residential component, revealing the company's adaptability and a forward-thinking approach to diversifying their portfolio.

Financial Strategy and Commitment to Investment

With a clear distribution policy in place, the company has earmarked MXN 0.45 per share for the next four quarters, reserving around MXN 1.2 billion on their balance sheet for upcoming investments. The industrial project is budgeted at approximately MXN 3 billion over two phases, with financing planned through a combination of retained cash flows and additional manageable debt. The management's prudent financial planning showcases their commitment to funding growth initiatives while maintaining fiscal responsibility.

Outlook and Future Growth

While the industrial and hotel ventures represent new segments for the company, management intends to continue its focus on mixed-use projects in Mexico's prime markets. They remain open to evaluating the best opportunities that create value for their investors. Regarding office spaces, there's strong market interest despite a slight dip in occupancy this quarter. The company confidently anticipates these segments to reflect positive movements in the coming months, underscoring the management's optimism about future performance.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, everyone, and welcome to the Fibra Danhos Third Quarter 2023 Conference Call. [Operator Instructions] Please note today's call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Mr. Rodrigo Martinez. Please go ahead, sir.

[Rodrigo Martínez Chavez, executive]

Thank you, David. Hello, everyone. I'm Rodrigo Martinez, and I run Investor Relations for the company. At this time, I would like to welcome everyone to Fibra Danhos 2023 Third Quarter Conference Call. We issued our quarterly reports yesterday. If you did not receive a copy, please do not hesitate to 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 with IFRS standards and are stated in nominal pesos unless otherwise noted. Joining today from Fibra Danhos in Mexico City is Mr. Salvador Daniel, CEO of Fibra Danhos; Mr. Jorge Serrano, CFO of Fibra Danhos; and Elias Mizrahi, who also runs Investor Relations for the company.

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

[Jorge Esponda, executive]

Thank you. Good morning, everyone. Thanks for joining us to our third quarter 2023 conference call. I am pleased to share with our recent 10th anniversary as a public company. It has been a long ride full of challenges, but summarized in a great success story with the best-in-class mixed-uses portfolio, delivering growth and profitability. We will maintain our development strategy focused on our proven track record, experience and core competence towards mixed-use projects.

However, seeking new growth opportunities, but always maintaining a selective and high-quality approach, we have entered into 2 new real estate sectors that meet our investment criteria. The first one is related to industrial real estate in a very important logistics and distribution corridor on the metropolitan area of Mexico City. Second, a 50-50 joint venture agreement with Fibra Hotel for the development of a luxury resort hotel in an exclusive location in the Yucatan Peninsula.

Today,the JV has acquired the land and development rights for the project. To meet our development CapEx requirements, our technical committee determined a MXN 0.45 per CBFI distribution for the coming 4 quarters, as long as we comply with a fixed quarterly distribution policy. This payout policy will allow us to retain cash flow for new project developments while maintaining a sound capital structure.

Balance sheet remained strong. Leverage stood at 11.2%. We had a very successful issuance of our first SLB bond with a 7-year tenor, AAA rating and fixed rate of 10.7%. High demand from institutional investors, including several [indiscernible] Infonavit, insurance companies and other financial institutions resulted in a book building that was oversubscribed by 2.75x and allowed us to tighten spreads to 145 basis points from IPTs of 165 basis points.

Proceeds of MXN 2.5 billion were used to refinance debt and capital expenditure related to new projects. Total revenues of MXN 1.5 billion were 15% higher against last year. Fixed rent, overage and parking revenues posted strong growth during the quarter. NOI of MXN 1.1 billion during the quarter is up 12% year-over-year with 77.2% margin. EBITDA increased 13.2%, AFFO of MXN 902 million (sic) [ MXN 972 million ] was flat against last year and accounted for MXN 62 per CBFI. Our portfolio overall occupancy increased 50 basis points to 86.1% driven by tenant additions at Tepeyac, Delta, Duraznos, Reforma 222 and Vallejo. Parque Tepeyac recently opened its entertainment and cultural center with great success, increasing its traffic flow of visitors and contributed to its ramp-up process.

With this, I finish my opening remarks, let's now move on to the Q&A session. Thank you.

[Operator]

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

[Juan Ponce, analyst]

Congrats on the results and the new venture into the industrial segment. On this industrial development project, I would like to know if you can comment a little bit on the type of product that you plan on offering, the certifications that may come with it, yield on cost for this industrial portfolio. And what are your plans in terms of exposure to the different real estate segments? So in other words, what is the target exposure, let's say that you want to have for this industrial and lodging ventures?

[Salvador Daniel Kabbaz Zaga, executive]

I mean this industrial -- this new industrial development, it basically has the same rules and criteria as the rest of the Danhos development area. So we're trying to achieve -- or we're going to achieve a very high profile industry [ specs ] with LEED certification. And we're trying to do a little bit like cherry-pick in the same way we did and we are doing on the rest of our portfolio, exactly the same idea. So we're doing a high-end industrial development, and we expect to grow in these 2 new areas, depending on the opportunities we find in the market. The return we're expecting from this development is in the low teens. And we're happy to explore these new -- these 2 new opportunities on the market.

[Juan Ponce, analyst]

Do you see any type of synergies between the distribution centers and your shopping malls in the metropolitan areas, particularly when it comes to this last mile or last touch type facilities you can offer to tenants like Amazon, for example?

[Salvador Daniel Kabbaz Zaga, executive]

There is really not a lot of synergy between them. Remember, we've been achieving this last mile within our shopping malls. But there's a lot of clients that have been asking about us -- that we have in our shopping malls asking for this new logistics industrial opportunity.

[Operator]

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

[Wilfredo Jorel Guilloty, analyst]

I just want to follow-up on the industrial question. So when -- you mentioned that you consolidated an important land reserve. Is that -- does that mean that you acquired it as of this quarter or you will acquire it? And also, when you think about the potential for growth. So right now, you're talking about it could be 200,000 square meters, but how much more or how large do you think that this industrial revenue can be, either could be absolute numbers, percentage of total EBITDA at Danhos, like, any color you can provide as to how much more you think this can grow would be helpful.

[Salvador Daniel Kabbaz Zaga, executive]

No. When we mentioned that we consolidated, we already bought 350,000 square meters of land. This is our first project and that has the opportunity to get about 200,000 square meters of leasable area. So we're starting with the first phase of that with 100,000 square meters. And we're looking at all those opportunities in the same area, and we're growing depending on the way we're doing. So we expect the industrial arm to grow the same way it's -- the rest of the other areas we have, we expect them to grow also.

[Wilfredo Jorel Guilloty, analyst]

And a follow-up, if I may. And would the focus be in the Mexico City area? Or are you looking into other regions as well?

[Salvador Daniel Kabbaz Zaga, executive]

Our focus is in the primary industry markets all over Mexico.

[Operator]

[Operator Instructions] We'll take our next question from Andres Lomeli with LCA Capital.

[Andres Lomeli, analyst]

Congratulations on the results. It's again a follow-up regarding the industrial portfolio. You mentioned that it would be financed with a little bit of debt and some cash flow. Maybe if you could provide some guidance or clarity on maybe the development cost that you're estimating for this and the hotel project? And if you would require how much more level of debt, it would be very helpful.

[Elias Daniel, executive]

Andres, this is Elias. So with the distribution policy that we announced, the MXN 0.45 for the next 4 quarters, we expect to reserve on our balance sheet for the investments that we announced around MXN 1.2 billion. The industrial project in all of these phases -- so in these 2 phases will be around MXN 3 billion. So with a combination of the retained cash flows. The land that's included, just to make a clarification, and we've paid for that. So if you take into account the cash flow that we're retaining plus some additional debt that we could use with our existing land credits and so on. That's the way we're going to finance the project.

[Andres Lomeli, analyst]

Perfect. And regarding the hotel project, I would just like to know what was the motivation to venture into this real estate category, which is quite different from how Danhos operates right now and how you plan on managing that operation going forward?

[Elias Daniel, executive]

I mean we've been doing hotels. We actually have some hotels in the -- in our portfolio, which are part of the mixed-use project. And we venture into this opportunity with Fibra Hotel which, I believe, has the same values and the same view we have in terms of the [ weight ] of growth and we basically feel the same way. And so I think this is going to be an important new project for both of the Fibra. And basically, in the next months we'll be letting you know a little bit more about that. But we already signed the brand operator. I cannot let you know which one it is. But it's going to be a high-end development and it also has some residential component, which we are going to let you know in the future.

[Operator]

We will take our next question from [indiscernible] with Fundamental Capital.

[Unknown Analyst]

My question has been answered.

[Operator]

[Operator Instructions] And there are no -- I do apologize, we do have another question from Felipe Barragan with BTG.

[Felipe Barragan, analyst]

My question is on -- digging a little bit deep into Jorel's question on the segment mix. Ideally, down the line, is there a certain mix that you would like to see in terms of retail ops in industrial? Or is it just as opportunities arise, you'll be playing around the mix?

And my other question is on the office occupancy. We saw a slight decrease this quarter. And it seems like you guys have been trickling around 30 -- 72%, 74% range. Any updates on that segment would be appreciated.

[Salvador Daniel Kabbaz Zaga, executive]

I mean our main focus is still doing mixed-use projects in Mexico City. And in the next month -- we're working very hard and trying to achieve a couple of them. In the next month, we will let you know if this is possible. And we opened these 2 new segments opportunities, which we believe they will be strong in the future also. So our view is find the best opportunity for the Fibra to grow and to grow [ creating ] value. And that's our view.

In terms of office spaces, really the report doesn't show the amount of the interest we have in the office segment. We really believe the office segment is moving along very strong. I know it doesn't show in the numbers yet, but we've seen a lot of interest in them -- in office spaces in the last couple of months. And I'm sure we're going to start looking at this trend in the future, and they're going to be able to really see them in the numbers of the Fibra. But the office segment, it's at least the inquiries of it, it's been very strong in the last 2 months.

[Operator]

And we'll take our next question from Francisco Chavez with BBVA.

[Francisco Chávez Martínez, analyst]

I have 2 questions. The first one is on the hotel project. How will you consolidate the results? Do you plan to consolidate only -- or to recognize only the 50% you have. And in the industrial project, who will be in charge of the project management and the leasing of the industrial building?

[Salvador Daniel Kabbaz Zaga, executive]

I'm going to let Elias let you know about the consolidation part. The industrial development is going to be done inside. We have people that have a lot of knowledge in terms of the industrial experience. In terms of also the construction and the development, we have a lot of strength in that and we see no problem of doing it. We're open to the market actually for -- in terms of commercialization it's going to be managed by us. And the consolidation part, Elias, you can please let them know about that.

[Elias Daniel, executive]

So regarding consolidation, this is something that we've discussed with our auditors. And because it is a 50-50 joint venture, and there is no control from either of the Fibras, each Fibra will recognize its 50% share without any consolidation.

[Francisco Chávez Martínez, analyst]

Okay. Very clear. And just a follow-up on the industrial side. Can you share with us what is your experience in the past in this kind of industrial projects, will be very useful?

[Salvador Daniel Kabbaz Zaga, executive]

I mean we've done industrial projects outside the Fibra for many years ago. Remember that the industrial -- it was not part of the Fibra's criteria. So it doesn't feel them. We changed that [ 3 months ] ago, and that's why we're able now to do them inside the Fibra learning the things we've done outside the Fibra and basically giving Fibra the possibility and the growth in this segment. So there's a lot of them out there that have been developed by us and by other partners in this segment.

[Operator]

[Operator Instructions] There are no further questions on the line at this time. I will turn the program to our speakers for closing remarks.

[Rodrigo Martínez Chavez, executive]

Thank you, everyone, for joining us. Please do hesitate to contact us, Salvador, Elias, Jorge or myself for any further questions. We are always available and we'll see you in the next conference call. Thank you very much, everyone.

[Operator]

This does conclude today's conference. Thank you for your participation, and you may now disconnect.