Concentradora Fibra Danhos SA de CV

BMV:DANHOS13

Earnings Call Analysis

Fibra Danhos Reports Strong Growth and New Developments in Q3 2024

In Q3 2024, Fibra Danhos showcased significant growth, with total revenues reaching MXN 1.7 billion, a 7.7% increase year-on-year. The company's NOI rose 8.5% to MXN 1.3 billion, maintaining an impressive margin of 77.8%. Occupancy levels improved, with a comparable occupancy rate of 88%, while retail segments performed especially well, achieving 93.5%. Looking ahead, the company is confident about new developments in industrial logistics and hospitality, including a high-end hotel set to open in 2027. The AFFO amounted to MXN 1.03 billion, with a distribution of MXN 0.45 per CBFI and a payout ratio of 69%.

Strong Growth in Financial Performance

Fibra Danhos reported total revenues of MXN 1.7 billion for the third quarter of 2024, marking a significant 7.7% increase from the previous year. This boost can be attributed to higher fixed rents, overage, and parking revenues. Notably, the net operating income (NOI) reached MXN 1.3 billion, reflecting an 8.5% year-on-year growth with a solid margin of 77.8%. The company also reported an Adjusted Funds From Operations (AFFO) of MXN 1.03 billion, translating to MXN 0.65 per CBFI (Certificate of Real Estate Development), while distributing MXN 0.45 per CBFI, which equates to a payout ratio of 69%. These figures imply a healthy financial foundation and an effective capital allocation strategy, particularly in financing their development portfolio.

Occupancy Rates on the Rise

Fibra Danhos has seen an uplift in occupancy rates across various sectors. On a comparable basis, occupancy reached 88%, an improvement of nearly 200 basis points year-on-year, and up around 100 basis points from the prior quarter. Overall occupancy, including their industrial division, stood at 89.4%. The retail segment boasted a solid occupancy of 93.5%, while the office segment lagged behind at 75%. This trend suggests a recovery in demand, especially in retail facilities, indicating resilience in the company’s portfolio amidst fluctuating market conditions.

Strategic Developments on the Horizon

Fibra Danhos announced ongoing efforts in new industrial developments, particularly the Parque Cuautitlan project, which has been leased and is expected to contribute to NOI generation by year-end. Collaborative expansions include a joint venture to launch the Ritz-Carlton project in Cancun, set to open in 2027. These strategic moves signify the company's commitment to diversifying its assets and catering to the logistics demand that continues to rise in and around Mexico City, presenting potential for sustained revenue growth in the upcoming years.

Retained Cash Flow for Future Investments

The company’s approach to utilizing retained cash flow for financing its Capital Expenditures (CapEx) program exemplifies its prudent financial management strategy. This method helps maintain a robust balance sheet and reduces reliance on external financing, which can be pivotal in navigating economic uncertainties. The management has expressed confidence in continuing this strategy to support their developmental pipeline and future growth initiatives.

Positive Outlook for Retail and Office Sectors

Management conveyed optimism regarding the retail sector, expecting continued sales growth driven by increasing minimum wage and social programs enhancing overall consumption. Lease spreads on newly renewed agreements showed a promising figure of 4.6%, in line with or exceeding inflation rates. On the office side, while growth may not match the retail surge, an improving demand is observed, as more inquiries are translating into signed contracts. This positive note suggests a gradual recovery in the office space leasing market, hinting at a brighter outlook for the upcoming year.

Navigating Regulatory Uncertainties

Amidst the ongoing dialogues surrounding real estate regulations and antitrust investigations led by COFECE, management clarified that they have not been notified of any updates regarding these issues. Fibra Danhos reassures stakeholders by emphasizing their focus on new retail projects in Mexico, hinting at potential opportunities for asset recycling in the future. Keeping a watchful eye on regulatory developments will be essential for informed investment decisions as these dynamics could impact growth trajectories.

Conclusion: A Solid Investment Prospect

In summary, Fibra Danhos displays strong fundamentals with positive financial growth, increasing occupancy rates, and strategic developments that align with market demand. Their focus on retaining cash flow for investments and cautious navigation through regulatory environments positions them favorably for sustainable growth moving forward. Investors may find Fibra Danhos to be an attractive prospect for those seeking exposure to the Mexican real estate market, especially given the expected developments and current financial performance.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, everyone, and welcome to today's Fibra Danhos' Third Quarter 2024 Conference Call. [Operator Instructions]. Please note this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to introduce to turn the conference over to Mr. Rodrigo Martinez. Please go ahead, sir.

[Rodrigo Martínez Chávez, executive]

Thank you very much. Hello, everyone. I am Rodrigo Martinez, and I ran Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos' 2024 Third Quarter Conference Call. We issued our quarterly report yesterday and if you did not receive a copy, please do not hesitate in contacting 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 our 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 us from Fibra Danhos in Mexico City today is Mr. Salvador Daniel, CEO of Fibra Danhos; Mr. Jorge Serrano, CFO of Fibra Danhos and Mr. Elias Mizrahi. Now I will turn the call to Jorge Serrano for opening remarks and financial and operating indicators. Jorge, please go ahead.

[Jorge Esponda, executive]

Good morning, everyone. Thank you for joining us to our third quarter 24 conference call. Our third quarter report emphasizes our progress on new developments. Industrial Parque developments represent an important growth path for Danhos. So far, we have been working on parking Cuautitlan plan that has been leased and Phase 1 delivered [ Technical Difficulty ] revenues by the end of the year and gradually will increase substantially our NOI generation.

We have also been analyzing and working on new developments with good locations to keep attending logistics demand around Mexico City. The announcement of The Ritz-Carlton

Cancun, Punta Nizuc, together with Marriott and our partners, marks the launching of our joint venture for the high-end hospitality project. We are confident the future -- of the future success of this development set to open in 2027.

Financial results maintained positive trends, posting growth on a real-term basis and higher occupation levels. Total revenues of MXN 1.7 billion were 7.7% higher against last year and reflect increases in fixed rent, overage and parking revenues. Total expenses for the quarter reflect control on operating and maintenance expenses, posting a 3.7% increase. NOI reached MXN 1.3 billion during the quarter, an increase of 8.5% year-on-year with a 77.8% margin.

The AFFO reached MXN 1.03 billion that accounted for MXN 0.65 per CBFI. Distribution was determined at MXN 0.45 per CBFI, that represents a payout ratio of 69%. Retained cash flow has been used to finance our development portfolio. We believe this is the most effective funding source for our CapEx program and thus maintain a strong balance sheet.

Now regarding operating results, occupancy on a comparable basis reached 88%, in -- almost 200 basis points higher than last year and around 100 basis points higher than the previous quarter. Overall occupancy reached 89.4%, including our Industrial division. Retail occupancy reached 93.5%, while office occupancy stood at 75%.

Lease spreads, on 25,000 square meters, renewal agreement was 4.6% during the quarter, which is in line or above inflation. Flow of visitors maintain an overall positive trend with double-digit growth year-over-year with an important contribution of Tepeyac explained by its faster-than-expected ramp-up period.

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

[Operator]

[Operator Instructions] And our first question will come Jorel Guilloty with Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I wanted to focus on the retail and office portfolio. So 1 on the retail portfolio, we noticed that lease spreads were around the 7% range, which is like near the top you've seen for the last few quarters. So I was wondering on the strength for the portfolio. This is something that you believe that can continue for the near term?

And also, how are you thinking about -- you don't publish same-store sales, but if you can give some sort of idea like how sales are trending on a year-on-year basis? That will be helpful.

And for office, we did see a further improvement as well with some rents stability. But I just wanted to get some more color as to how you're seeing demand for your office portfolio.

[Jorge Esponda, executive]

I mean, we feel the retail industry is very strong. Actually, sales are still growing. Really the increase on the minimum wage salary and the social programs has been really making the internal consumption very strong. So we believe we're going to be able to keep the way we're doing it. Our flow of business has been growing constantly. And I think that the retail sector is still strong, and we believe it's going to stay that way at least for the next year.

In terms of the office spaces, I think we're doing better. We've seen better and -- lease consumption. I mean we've seen in probably the last 2, 3 semester people asking more about the offices, but they were not signing contracts. We're now seeing people starting to sign contracts. We expect this to grow probably the next year. I don't know at what pace. I don't think it's as strong as the retail sector. But I think we're looking at a better path in terms of office in the future.

[Operator]

Our next question will come from Juan Ponce with Bradesco BBI.

[Juan Ponce, analyst]

Regarding President Sheinbaum's housing plan, we have seen reports in the news that of David Daniel Kabbaz is collaborating in to some extent with the administration on this housing plan. So -- so I guess my question is twofold. One, first, how is this collaboration with this new administration working out? And second, what is you can talk about or comment about the intent or the scope of a potential venture into housing.

[Salvador Daniel Kabbaz Zaga, executive]

I mean there is no collaboration with the government in terms of housing. That's just speculation from the press. Nothing true about that.

[Operator]

[Operator Instructions]. And our next question will come from Felipe Barragan with BTG.

[Felipe Barragan, analyst]

One is on an update on the COFECE or the antitrust press release that you guys published a few months ago. There's been a lot of movement from COFECE with Gruma, Walmex and some other players. So I just wanted to hear if there's any update on that and if you guys think that will be material.

And my other question is on asset recycling. So there's been a lot of movement in the retail space, some transactions with [indiscernible] and then planning group as well. This is obviously a different segment, just wanted to be curious on if you guys are perhaps looking at semester recycling or if you guys have received any offers for some retail space?

[Salvador Daniel Kabbaz Zaga, executive]

On the COFECE probably -- we know nothing. We haven't had any notice, and we haven't seen any movement about that issue. And in terms of the retail, I mean there are some transactions being done in the market, not really the ones that we would like to be involved in. But we're looking exactly at a couple of new projects for retail in Mexico. So probably in the next couple of times, you will we will be able to announce something going on in that sector.

[Operator]

And we'll move next to Alan Macias with Bank of America.

[Alan Macias, analyst]

Just 2 questions. On the retail sector, the transactions you're you might undertake or the developments are in Mexico City. Is that correct? And also in the industrial markets, you're thinking of looking at other markets other than Mexico City and the types of logistics also.

[Salvador Daniel Kabbaz Zaga, executive]

No, the retail projects, there are a couple of them and 1 is in Mexico City. The other one is not in Mexico City. And there's nothing to do with logistics. That's only a good retail area, which we believe will be a good business for us.

[Alan Macias, analyst]

In the industrial sector.

[Salvador Daniel Kabbaz Zaga, executive]

I didn't understand the second part of the question. But of course, we're looking at a lot of new projects in the industrial area not only in the logistics area, but also in some other cities in the country. So we're actively looking for new projects. We have a good pipeline, which will probably help us increase our market share in that tariff.

[Operator]

[Operator Instructions]. And it appears we have no further questions at this time. Mr. Martinez, I'll turn the conference back to you for any additional or closing remarks.

[Salvador Daniel Kabbaz Zaga, executive]

Hi. How are you. This is Salvador again. I just want to make a good remark, which I think is important for our investors to know. We feel very proud of our achievements in the industry industrial area. We feel that our development arm we have has been proved again that we're able to do industrial projects and being delivered on quality, on time and on budget. And I feel that this would give us the opportunity to grow strongly in that area and expect us to be very actively in the next year or so in that area.

So I wanted to let you know that. And of course, we haven't lost our eye in the retail and in the office and in the hotel sector. So we want to be reactively in the next couple of years, and I wanted to let you know that.

[Rodrigo Martínez Chávez, executive]

So thank you very much, everyone, for joining us. Please do not hesitate to contact us.Salvador, 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 for your time.

[Operator]

This concludes today's conference call. Thank you for your participation. You may disconnect at any time.