Concentradora Fibra Danhos SA de CV

BMV:DANHOS13

Earnings Call Analysis

Healthy Growth and Strategic Expansion

The company showcased robust financial performance in 2023, with double-digit increases in revenue, NOI, and EBITDA, reflecting strong retail and office space operations. NOI margins grew 110 basis points due to a 10% revenue boost while expenses were efficiently controlled, rising by only 25%. Occupancy rates climbed to 86.4%, marking a 128-basis-point improvement over the previous year. The firm retained a 65% AFFO payout ratio, utilizing surplus cash to finance development projects. Looking ahead, the focus remains on development-oriented growth with an eye on value-creating opportunities, signaling a strategic yet prudent approach to expansion.

Year-End Financial and Operating Highs

Fibra Danhos ended 2023 on a positive note with impressive double-digit growth in key performance metrics, namely revenues, NOI (Net Operating Income), and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), signaling robust portfolio performance and consumer activity. In retail, they witnessed increased traffic and higher occupancy, while office spaces experienced renewed interest. The NOI margin saw an improvement of 110 basis points, primarily due to a 10% hike in revenues with a controlled rise in expenses at 25%. The AFFO (Adjusted Funds From Operations) stood at MXN 1.1 billion, translating to MXN 0.70 per CBFI (Certificate for investment in Real Estate) with economic rights.

Growth Underpinned by Portfolio and Environmental Commitments

The company's portfolio occupancy climbed to 86.4%, marking an increase from the previous year. This was reflected by high tenant retention and successful leasing at properties such as Parque Tepeyac. The lease spread for retail properties was commendable at 6.7% for renewal agreements. Aligning with their ESG goals, Fibra Danhos secured a LEED certification for operation and maintenance for several premier properties and is progressing towards decarbonization initiatives like solar panel installations.

Solid Balance Sheet and Strategic Financial Stance

The company maintains a robust balance sheet with leverage at 11.2% and financial liabilities fully accounted in local currency with a fixed rate, underscoring their prudent financial management amidst market fluctuations. An average cost of debt at 8.9% reflects a cautious yet optimistic outlook, enabling the pursuit of new investment opportunities that align with their strategic criteria.

Consistent Payouts and Optimistic Occupancy Outlook

With a consistent distribution of MXN 0.45 per CBFI across four quarters, the firm radiates financial stability and a commitment to shareholders. The firm eyes growth through self-funding and strategic borrowing, hinting at a stable or increasing trend in distributions. Office space occupancy, currently at 77%, is expected to pick up, although specific targets were not disclosed, suggesting a generally positive outlook for this segment of the portfolio.

Expanding Horizons: Industrial Opportunities and High-End Hotels

Eyeing broader market opportunities, Fibra Danhos is venturing into industrial real estate with confidence, backed by the family's extensive experience in this sector. They also don't shy away from the hospitality industry, with a high-end hotel project in Yucatán Peninsula in the pipeline. While details are scant, excitement builds as an event to discuss this venture, in collaboration with FibraHotel, is on the horizon.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to the Fibra Danhos Fourth Quarter 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Rodrigo Martínez. Please go ahead.

[Rodrigo Martínez Chávez, executive]

Thank you, Jamie. Hello, everyone. I am Rodrigo Martínez and I run Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos' 2023 Fourth 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 and 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 Mexican 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 Elías 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]

Thank you. Good morning, and thanks for joining us to our conference call for the fourth quarter 2023. Operating and financial results for the fourth quarter were positive and completed a strong 2023 year, posting double-digit growth in revenues, NOI, and EBITDA. These results are explained by a sound performance of our portfolio, reflecting consumption dynamism with increased traffic flows and occupation rates on retail properties and a renovated interest for office spaces.

NOI margin improved by 110 basis points during the quarter, backed by a 10% growth in revenues while maintaining control on expenses that increased 25%. AFFO for the quarter reached MXN 1.1 billion that resulted on an AFFO per CBFI with economic rights of MXN 0.70. Distribution of MXN 0.45 represents a 65% payout ratio. Retained cash flow has been used to finance our development portfolio.

Our industrial project reported steady progress according to schedule and budget. And we continued working through our JV on our leisure project that will soon be ready to start the construction. Operating indicators remain strong on our portfolio. Total property occupation was 86.4% and was 128 basis points higher than a year earlier, as we have been able to maintain existing tenants with renovation rates of 98% and achieving lease progress on Parque Tepeyac, among others.

Lease spread for retail properties stood at 6.7% during the quarter on renewal agreements that totaled 17,000 square meters. In line with our ESG commitments and particularly related to our sustainability-linked bond, DANHOS 23L, we obtained a LEED certification for operation and maintenance on common areas of Toreo, Virreyes, and Reforma 222. Additionally, we kept working on our path towards decarbonization and have begun the installation of solar panels in 9 of our buildings.

Balance sheet remains strong. Leverage stood at 11.2%. Our financial liabilities are 100% peso-denominated fixed rate with an average cost of 8.9%. This prudent approach to current market conditions and our positive view for Mexico supports our strategic view and allow us to evaluate and pursue new opportunities that meet our investment criteria. With this, I finish my opening remarks and we can move on to the Q&A session.

[Operator]

[Operator Instructions] We'll go first to Alan Macias with Bank of America.

[Alan Macias, analyst]

Just 2 quick questions, one on guidance. If you can provide an adjusted payout ratio for the full year of this year, should it be around 80% or north of that or more 70%? And the second question is in the office space. Do you think you can reach 80% occupancy by the year-end?

[Jorge Esponda, executive]

How are you? I mean, in terms of our indicative payout ratio, we have talked about this. We actually told everyone that we were expecting, given 4 trimesters of MXN 0.45 per CBFI. With our second one, and this is the way we actually expect to grow with some of our money and some debt, so we'll more likely continue with this trend.

And in terms of the office spaces, I think right now, we're around 77%, and we've seen a lot of interest and inquiries on office spaces. We actually are working with some clients and we expect to be a good year in terms of the office spaces. I don't know which percentage but we believe this is going to be a better year than the past -- of course, in the past couple of years.

[Operator]

We'll go now to Alejandra Obregon with Morgan Stanley.

[Alejandra Obregon, analyst]

I guess I have 2, if I may. So the first 1 is on industrial projects. So we're seeing a lot of consolidating moves potential and a lot of growing CapEx in the space and investments and capital raises. So wondering if this could perhaps mean that you could venture more into industrial or even faster into the second phase, how are you thinking of these new vertical and of growth into the future? So that will be the first one.

[Salvador Daniel Kabbaz Zaga, executive]

As I told you, we're not going to change our trends. We expect to grow in both areas. We're actually working on a couple of projects that are mixed use also around Mexico City. And we're also looking at some more industrial opportunities. So we're not just going to take advantage of any good opportunity we see in the market, and we're doing well with our project in Cuautitlán and we're happy with the industrial focus on Fibra, but not forgetting about what we know and we're the best doing in Fibra's world.

[Alejandra Obregon, analyst]

Noted. That's very clear. And maybe like a follow-up on what you say and focusing on what you know. So putting that into the mix with industrial, knowing that you are very good operators on the malls and on the retail assets, do you think that venturing into industrial could perhaps make you a key player for last mile and becoming more like an integrated type of solution at some point in the near term? I guess you're the only 1 of the 2 verticals.

[Salvador Daniel Kabbaz Zaga, executive]

That's the area. We're trying to consolidate ourselves in that area and also in growing industrial. I think we know how to do industrial. We've done it as a family for many years, and now we're doing it only in Fibra.

[Operator]

We'll go now to Juan Ponce with Bradesco BBI.

[Juan Ponce, analyst]

They've been answered, but I have -- I guess I have a follow-up on the growth pipeline. Can you provide a little bit more detail on this high-end hotel in the Yucatán Peninsula? Like how many rooms are you planning to have? Maybe some type of information on investment? That would be very helpful.

[Salvador Daniel Kabbaz Zaga, executive]

You know what, we actually have a lot of information. We would like to provide it with also our partner, FibraHotel. We've talked about it, and probably, we will do soon an event talking about this project. What I can tell you is that we're working very well. We're advancing and we're very -- I mean, we're actually just almost having all the permitting needs to start construction. As soon as we have this, we will announce the complete project. Just give me some more time.

[Operator]

[Operator Instructions] We'll go now to Gordon Lee with BTG.

[Gordon Lee, analyst]

Just a quick question and again, a sort of a follow-up on this move into industrial and hotel. You mentioned that the family has a lot of experience developing industrial real estate. I was wondering if you could share with us, too, whether that's also the case in the hotel sector. And also if the family has any industrial or hotel properties that are stabilized that could eventually be transferred into Danhos, if that is a segment that you're looking to grow within the Danhos structure.

[Salvador Daniel Kabbaz Zaga, executive]

I mean, in the hotel area, we've done some hotels in the past many years ago, and that's why we actually took this adventure with FibraHotel, which is well recognized in this area. So that's why we have a partner. And in the industrial part, that might be a possibility. Remember, this development work made also with some partners. And for us to be able to achieve that, we need to convince the partners. But that could be a possibility in the future. I will say yes, I will say no. Not today.

[Gordon Lee, analyst]

Okay. And is there -- would you be willing to share the sort of potential scale or size in terms of GLA that could -- that you could be contemplating or no?

[Salvador Daniel Kabbaz Zaga, executive]

Right now, there's no possibility because that -- I need to talk with my partners. This is not -- these are not lonely investors in the family. We have a group with partners and I would like to talk to them first.

[Operator]

[Operator Instructions] At this time, there are no further questions. I'd like to turn the call back over to Rodrigo Martínez for any additional or closing comments. We do have another question who has signaled. We'll go now to Jorel Guilloty with Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I'm interested in the comments that were mentioned earlier about seeing interest around your office assets. And I was just wondering, when you look at the type of potential tenant that is looking for space, I mean, how much of that is perhaps influenced by new incomers to Mexico, perhaps influenced by nearshoring versus just existing tenants in Mexico City that are just trying to consolidate space?

And then my second question is around the industrial portfolio. So as I understand it, you are potentially looking to grow more with industrial. But would that be through third-party acquisitions? Would that be through acquiring land and developing properties? Just to get a sense of how this potential expansion into this space will happen.

[Salvador Daniel Kabbaz Zaga, executive]

I want to answer the industrial part and probably Elías will answer the office space. But the industrial part, I mean, we are mainly focusing on development. We are actually looking at our second project right now. We haven't announced it but we're working very hard on second project right now. The first project is we expect to finish it this year, so we're doing good.

And if we see any value growth acquisitions in the market, we will take advantage of that but not only to grow without creating value, that's our vision. And in terms of the office spaces, Elías, do you want to talk about it?

[Elias Daniel, executive]

Regarding the office drive, the drive we're seeing is not necessarily from nearshoring or new companies. I think it's a little bit of everything. And what we have seen is that there was a lot of processes for demand that was stalled during 2022, 2023, a lot of companies that did not take any decisions during those years. And now we're seeing a lot of those companies starting to take those decisions that were stalled for the last 2 years.

So we have seen an uptick in visits from clients in our spaces looking to consolidate in prime properties and prime office buildings. So hopefully, we'll try to capture part of that demand.

[Wilfredo Jorel Guilloty, analyst]

Got it. And as a follow-up, if I may. So '21 and '22 -- you're saying these are folks that essentially wanted to or were held up in '21 and '22 and now are looking more in '24. Can you tell us what perhaps changed? Is it perhaps that there's a view that work from home is decreasing and now they're looking to increase space? Or what changed in your view to make them want to look more now?

[Elias Daniel, executive]

Yes. I mean, I think that's exactly it. I mean, I think that coming out from the pandemic, there were a lot of issues on how work was going to become going forward. I think that there was an expectation in Mexico City or at least some people believed that work was going to be more hybrid than it actually has become. And what we're seeing is that companies are mainly in their office buildings now. So I think that those decisions, I mean, at least 3 or 4 days a week.

So those companies stalled their decision-making, trying to figure out what the future was going to look like. And I think that now that there's more clarity in general, just in general in their business and in their work, they're taking those decisions as well as just being confident in the way Mexico is and the economy and so on.

[Operator]

[Operator Instructions] And it appears that we have no additional questions at this time. I'd like to turn the call back over to Rodrigo Martínez for any additional or closing comments.

[Rodrigo Martínez Chávez, executive]

Thank you, Jamie. Well, thank you, everyone, for joining us today. Please do not hesitate to contact us if there's any further question and see you next conference call. Thank you very much.

[Operator]

Once again, ladies and gentlemen, that does conclude today's call. Thank you for your participation. You may disconnect at this time.