Concentradora Fibra Hotelera Mexicana SA de CV

BMV:FIHO12

Earnings Call Analysis

Earnings Call Transcript 2023-Q2

[Operator]

Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to FibraHotel's 2023 Second Quarter Earnings Conference Call. FibraHotel issued its quarterly report on Wednesday. If you did not receive a copy via e-mail, you can find it at www.fibrahotel.com or e-mail [e-mail]. We would also like to invite you to AMEFIBRA's 2023 FIBRA Day in New York on September 7, 2023. For more details, please, e-mail.

Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. Unless noted, all figures included herein were prepared in accordance with International Financial Reporting Standards and are stated in nominal Mexican pesos.

Joining us from FibraHotel are Mr. Simón Galante, CEO; Mr. Eduardo López, General Manager; Mr. Edouard Boudrant, CFO; and Mr. Guillermo Bravo, CIO.

With that, I would like to turn the call over to Mr. Simón Galante. Please sir, please begin.

[Simón Galante Zaga, executive]

Thank you, and good morning, everyone. I'm going to begin today's call by providing an overview of the second quarter of 2023 results, and will then turn the call over to Edouard Boudrant, our CFO, who will discuss our financial results in more detail. And then we will open the call for questions and answers.

The second quarter of 2023 was another solid quarter for FibraHotel with growth normalizing based on stronger comparable figures from the same quarter last year, especially in tourism destinations. Our managed hotels portfolio had a RevPAR growth of 10.9% year-over-year due to an ADR growth of 10.3% and an increase in occupancy of 40 basis points. During the quarter, the strongest growth came from Mexico City hotels as business and group demand continued to improve, which led to a year-on-year RevPAR growth of 22%. Additionally, hotels in the border region continued to post solid results with a year-on-year RevPAR growth of 12%. An increase in manufacturing investment, both from existing companies, expanding capacity as well as new companies looking to come into the market, continue to drive the [ near shoring spaces ] and hotel demand in the region. We expect both of these regions as well as the select and limited service hotels to continue to outperform in the near term.

On the other hand, during the quarter, leisure and full-service hotel demand was a bit weaker than expected. Pent-up travel demand continues to normalize as more employees return to work in person and have less flexibility for longer stays at leisure destinations. There is also a more pronounced seasonality as other destinations like Europe are available to travelers in the summer. We have seen this impact in the Live Aqua San Miguel de Allende Hotel as demand in the city has decreased 14% this year. We are working to partially offset this number by gaining market penetration and focusing on adding group revenue, especially midweek.

The Fiesta Americana Condesa Cancun Hotel continues to perform well based on its budget in dollars. During the quarter, we received lease revenue of MXN 89 million from the hotel, which includes the impact from the exchange rate appreciation as its revenues are in dollars and its expenses are in pesos. If the dollar stays at this level, we expect similar rent figures in the second half of the year. We have also seen a similar impact in other hotels that have dollar-denominated revenues. Having the dollar-denominated revenues has been a strategic focus for the company. And we are comfortable with our exposure since we also have a debt of USD 33 million.

Finally, on the revenue front, we saw strong growth in food and beverage revenues of 15%, thanks to our F&B strategy as well as the return of group in catering business. Overall, during the quarter revenues of MXN 1.322 million of EBITDA and MXN 373 million are the highest for the second quarter in AFFO. FFO for the quarter was MXN 279 million and AFFO was MXN 207 million. Even with these solid results, we continue to be alert to the current macroeconomic situation and demand environment difficult to predict, coupled with certain cost pressures. We are seeing shorter booking times, higher seasonality in certain destinations and the normalization of tourism and business travel.

We also continue to face additional costs, especially on the labor front. We have a solid balance sheet position with LTV of less -- of 24.6% and the net debt of LTV EBITDA ratio of 2.6x. In June, the rating agencies increased FibraHotel ratings from A+ to AA- Mexico at Fitch and from AA to AA+ at HR ratings, both with a stable outlook. These strong financial positions allow us to have flexibility moving forward.

On the portfolio front, we are investing in certain hotels, including Real Inn Mexicali and Fiesta Inn Oaxaca hotels. We are also investing in certain restaurant franchises like the recent opening of the Costa Nieto restaurant in the Fiesta Inn Ecatepec Hotel and the expected opening of a Sonora Grill restaurant in San Miguel de Allende hotel in the second half of the year. During the quarter, we signed a lease agreement for the Ciudad Obregón Hotel. FibraHotel will receive a fixed rent, which will not materially impact results, and the hotel will reopen under the in-house brand in September of 2023 after certain refurbishments.

We are advancing on inorganic growth opportunity with partners in a couple of projects for development of luxury leisure hotels in beach destinations. We expect to provide additional detail as we formalize these deals in the second half of the year. We made strong progress on our ESG priorities during the quarter. We added Jimena Fernández Cortina as a new independent member of our Technical Committee. She is the third women and fifth independent member in our Board.

We received LEED Gold certification at FibraHotel's corporate offices. We published our 2022 integrated annual report, which is available on our website, and we encourage everyone to read it. We participated in the GRESB questionnaire, published our emission inventory report and published a second-party opinion for the compliance of the green credit issued in June of 2021.

Based on the distribution policy announced earlier this year, FibraHotel will pay a distribution of MXN 0.125 per CBFI. During the quarter, myself and certain members of the control group and management acquired almost 6 million CBFIs in the market. These transactions demonstrate our views on the company and its potential. We will continue to look for opportunities to acquire CBFIs at an attractive price.

I would like to end my remarks by thanking our partners and team for their effort, hard work and commitment to FibraHotel. With that, I will now pass the call over to Edouard Boudrant, the CFO of FibraHotel to discuss the financial and operating results of the second quarter. Thank you.

[Edouard Boudrant, executive]

Thank you, Simón, and good morning, everyone. During the second quarter of 2023, we continued with a strong operating performance of FibraHotel. However, the appreciation of the peso against the U.S. dollar had a negative impact on the financial performance of the Fiesta Americana Condesa Cancun Hotel. The occupancy rate of managed hotels for the quarter was 62.9% compared to 62.5% for the second quarter of 2022. We closed the second quarter with 83 hotels appended. Average daily rate for was MXN 1,437, increasing 10% versus the second quarter of 2022. Hotel RevPAR of MXN 904, representing an 11% increase versus the second quarter of 2022. The Fiesta Americana Condesa Cancun Hotel had a net package ADR of MXN 5,816. Occupancy was 85% and net package RevPAR was MXN 4,925, representing a 3% decrease versus the second quarter of 2022.

In U.S. dollar at the rate disclosed in U.S. dollars as year increased by 6% from the $303 to $323, and RevPAR increased by 11% from $246 to $273 versus the second quarter of 2022. Total revenue for the quarter was MXN 1,323 million versus MXN 1,200 million for the second quarter of 2022, a 10% increase. [ The rent ] collected by the hotel Fiesta Americana Condesa Cancun represented MXN 89 million, which is 7% of our total revenues. During the second quarter of last year, the rent collected was MXN 101 million and represents 8% of the total revenue. The lodging contribution for the quarter was MXN 476 million versus MXN 440 million for the second quarter of 2022.

The margin of lodging contribution for the managed hotel was 30.2%, slightly improving versus the 29.8% margin for the second quarter of 2022. Real estate expenses were MXN 22 million, in line versus the second quarter of 2020. Corporate expenses were MXN 81 million versus MXN 73 million during the second quarter of 2020. The EBITDA for the quarter was MXN 373 million versus MXN 345 million on the second quarter of 2022.

In terms of EBITDA margin, it slightly decreased from 28.8% to 28.2%. Excluding the rent collected by the Fiesta Americana Condesa Cancun, the margin increased by 76 basis points. We closed the quarter with net debt of MXN 3.8 billion decreasing almost MXN 200 million versus the end of last year. Gross debt amounted to MXN 4.3 billion, and the LTV ratio is very conservative up 25%. During the quarter, the debt position generated a financing cost of MXN 109 million. The net financial income was negative MXN 72 million. As of today, our debt structure is extremely healthy. Only 8% is maturing during the next 12 months. Average cost of debt is 9.78%.

We closed the quarter with MXN 495 million cash position compared with MXN 501 million at the end of last year. During the second quarter, we deployed MXN 166 million of investment net on CapEx on positioning CapEx. MXN 48 million for maintenance CapEx and MXN 2 million on improvement in the hotel Live Aqua San Miguel de Allende, MXN 9 million from the improvement in the hotel Fiesta Americana Condesa Cancun, MXN 8 million from improvement in the hotel Real Inn Mexicali, MXN 12 million on improvement in order hotels of the portfolio and MXN 72 million for the creation of the trust for the execution of the new projects.

Please note that at the end of June, the rating agency of Credit FibraHotel's credit rating. Fitch Ratings have made their rating from A+ to AA- with stable Mexico perspective. And HR Ratings have worded the rating from AA to AA+ with a stable perspective. For the quarter, our FFO on our AFFO was positive MXN 279 million and MXN 207 million. Please note that in accordance with the distribution policy authorized by the Technical Committee increase, we will pay for the second quarter of 2023, a distribution of MXN 0.125 per CBFI.

At this point, I would like to open the floor for the Q&A session. Paul, we're ready to take any questions.

[Operator]

[Operator Instructions] Our first question is from [ Edson Velasco ] with Suma Cap.

[Unknown Analyst]

I have 3 of them. The first one is related to the [ relevant band ] that you already published in your website, regarding on the capital expenditure. I know that you mentioned that it's going to be for the next 4 quarters. But I was wondering if you could give us a little bit more color of how you're going to deploy those MXN 360 million for the next quarter. Trying to figure out on the financial model how it's going to look like. That will be my first one. And the second one, it's related to the -- what is the name of the hotel that you have in San Miguel -- I forgot. Sorry about that. But Simón mentioned about the -- it was not bad performing so well, let's put it this way.

So I was wondering if you can give us a little bit more color about the reasons you have something related with [ safetiness ] in that region or it's related to something seasonality? On the third, and it's going to be my last one is related to what about your distribution? I know you already mentioned and we already talked about a couple of quarters ago, but just trying to figure out as something related. Because it's interesting that in June, not only -- I'm not going to be mentioning names, but it's published. Some members from the FIBRA bought shares and we appreciate it because of the price of the stock. But just trying to figure out what is the sense of distribution or looking ahead? What will be the next step, something related to that?

[Guillermo Escobosa, executive]

Thanks for your questions. Let me -- if I understood, let me try to answer the last 2 parts, and then we can get to the first question because I'm not sure I understood completely. Regarding the distribution, we are following the policy that the Technical Committee determined during this year. And we're going to be paying MXN 0.125 per CBFI every quarter during 2023 or the fiscal -- 95% of the fiscal result is higher, we will probably add to a distribution in the fourth quarter, but we don't believe that will be an issue in this year. The policy is a fixed payment, so you should see that payment the same amount every quarter. And then we will be assessed for a higher number next year. Regarding the -- your second question, I believe, was related to the Live Aqua San Miguel de Allende, and that, as Simón mentioned, we have been seeing lower demand in the city overall.

That is partly due to seasonality and partly due to the fact that many of the high-end clients held that PPP luxury hotels have had other alternatives this year. And so we have just in general weakness in the city. But this is partially normal. Hotel San Miguel generally has higher demand in the second half of the year. It's also a destination that is very tied to weddings and to [ goods ]. And generally, the best months for that are not the summer months where people are traveling, but generally, the year October, November, September months as well as some months in the first part of the year.

So we continue to solidify our position in San Miguel. As Simón also mentioned, we're opening a Sonora Grill restaurant to continue to make the hotel more attractive and for the hotel to be the place to be if you want to go to San Miguel. And we do believe that the hotel will recover, and it's still providing us with a solid asset and good returns. And I'm not sure about the first part of your question. I don't know if you can repeat it, please.

[Unknown Analyst]

Yes, absolutely. The first question was related to the capital expenditure that you mentioned in your [ relevant band ] because it stated that -- I'm going to quote it, obligation for the next quarter, that services, okay, with that estimated capital expenditures, MXN 360 million. So I was wondering if you can give us a little bit more color about what will be the deploy of those MXN 360 million because trying to put under my financial model and how it's going to impact the cash flow, honestly?

[Guillermo Escobosa, executive]

Yes. So we don't have the exact details because those are forward-looking numbers, but I can tell you -- I can give you some color. The first part is maintenance CapEx. Maintenance CapEx should remain relatively stable for the rest of the year. So you should see very similar numbers which are in the 73 -- between MXN 70 million and MXN 80 million, you should see for the final 2 quarters of the year in maintenance CapEx. And then for the investment part of the CapEx, we have already done a lot of the -- or invested a lot of -- in the projects which we're doing in Mexicali and Oaxaca. We are still going to have some CapEx invested in San Miguel de Allende for this Sonora Grill restaurant. And we're also investing in a project that is still not [ revealed yet ]. So we still can't announce it, but it's a project which should get more color in the second half of the year. And the cash flows for that are -- we estimate between MXN 100 million and MXN 200 million, which will come out of the CapEx for that project, that's a very strong estimation. But that's basically the extent to what CapEx should look like in the following quarters. And in general, it should be -- for the business part, it should be very in line with that.

[Unknown Analyst]

And just a follow-up on this. But depending on the project because it's not going to be the same in San Miguel or Oaxaca or even the advances that you have on the projects that you have. It's not going to be any specific amount, right? It's depending on the stage and is depending on the service providers, I mean, depending on many other things that we cannot control. But just trying to figure out, but it's going to be in that sense, I mean, right?

[Guillermo Escobosa, executive]

I'm sorry, I didn't fully understand the question, but the -- in general, CapEx, we look at it in 2 ways. The maintenance CapEx is to maintain the hotel to the standards that the hotel has and so that's the first part of the number. And then we look out to lease these places where we can invest in hotels that have their own return on investment [indiscernible].

And so for instance, in Mexicali, you see an opportunity to refurbish the hotel and increase the rates because the Northern Border and Mexicali have been performing very well. [ And depending ] Oaxaca, in Oaxaca we also see an opportunity to continue to gain market penetration with CapEx. And so that's why -- that's the difference between the 2, and that's why we chose those 2 hotels for CapEx.

[Unknown Analyst]

No, I got it. Maybe I'm going to follow up internally just to prune a bit of time. But because it's stated in a relevant event, and then you published this on the website. Just a remark on that specific, but I follow up internally.

[Operator]

[Operator Instructions] There are no further questions at this time. Thank you for participating in FibraHotel's 2023 Second Quarter Results Conference Call. If you have any further questions, please do not hesitate to visit www.fibrahotel.com or contact FibraHotel's Investor Relations department. This concludes today's call. Thank you, and have a good day.