Concentradora Fibra Hotelera Mexicana SA de CV
BMV:FIHO12
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Concentradora Fibra Hotelera Mexicana SA de CV
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Good morning. My name is Shamali, and I will be your conference operator today. At this time, I would like to welcome everyone to FibraHotel's 2021 Third 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 gbravo@fibrahotel.com.
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. Simon Galante, CEO; Mr. Eduardo Lopez, General Manager; and Mr. Edouard Boudrant, CFO; and Mr. Guillermo Bravo, CIO.
With that, I will turn the call over to Mr. Simon Galante. Sir, please begin.
Thank you, operator, and good morning, everyone. I'm going to begin today's call by providing an overview of the third quarter 2021 results. The current situation, and then I will turn the call over to Edouard Boudrant, our CFO, who will discuss our financial results in more detail. And finally, we will open the call for questions and answers.
The results of the third quarter of 2021 continue to demonstrate the resilience of our portfolio. The progress in recovering from the impact of COVID-19 pandemic and the benefits of our portfolio diversification. For the quarter, our total portfolio has an occupancy rate of 48.5%. The quarter was a mix of good results in July, which was the best month in the start of the pandemic with a 54.1% occupancy.
Together with the weaker results in August and September with occupancies of 44.7% and 46.9%, respectively. Overall, revenues increased 9% against the second quarter of 2021, but remain 24% below the pre-pandemic level as compared to the same quarter in 2019. The weaker months in the quarter were mainly due to the increase in infections from the delta variant of COVID-19.
As you know, contagions in Mexico reached the highest level on record in August. On a positive note, thanks to the progress on vaccination and other measures, the way we have lower debt and was shorter. Another positive note is the recovery speed as we saw a strong recovery in the second half of September and the first half of October.
Occupancy in the first half of October was similar to the same period in July and total revenues were 7% higher. This is also coupled with less mobility restrictions such as the Mexico City metropolitan area, which moved to green stop light last week for the first time since the pandemic started.
In terms of segment recovery, we continue to see similar trends as in the past few quarters. Manufacturing leisure travel has recovered faster than business travel from food services and large groups. We have recently seen a relatively weaker activity in the vaccine region, especially in business tied to the automotive sector as the semiconductor shortened have limited production and business trips.
Mexico City demand also continues to be weak. There was a slight recovery during the quarter, but the occupancy of the Mexico City hotel was 37%, and it was more impacted by the new wave of infections. In order for this region to recover more offices need to be open for business, we have recently seen more movement in the main corporate regions, which was also supported by the return to school. However, a more normalized return to offices for corporate now seems to be at the earliest in the first quarter of 2022, as several large companies push back their opening date.
We are also somewhat encouraged by the return of large events such as the Formula 1 sports events and concerts. Overall, we continue to see great discipline in the business hotels, which could be encouraging when demand returns, especially as we continue to see important increases in construction costs in high barriers to entry for new hotels.
Our exposure to leisure hotels continue to be a positive driver with rapid recovery in the segment. Our hotels have managed to surpass pre-pandemic profitability levels. Comparing the third quarter of 2021 with the third quarter of 2019, NOI increased 24% at the Fiesta Americana Condesa Cancun Hotel and 59% at the Live Aqua San Miguel de Allende hotel. We have solid numbers on the books for the winter season, at attractive rates in the airlift and traffic numbers to these destinations continue to be positive drivers of potential upside. Strategically, this is a segment where we would like to expand our presence, mainly in all-inclusive beach resorts that target U.S. and Canadian travelers.
We have a good opportunity to capture the upside in this segment and are currently looking at different alternatives to achieve this. We also continue to evaluate asset sales and hotel repositioning, and we'll expand on this point in the future as we continue our progress. On the operating front, we continue to focus on cost control and the operating leverage. EBITDA for the quarter was MXN 164 million, which was 14% above the second quarter of 2021 with a 20.2% margin.
On this point, we are seeing some inflation cost pressures from different sources, from supply chain related to labor and utility costs. Finally, for the second consecutive quarter, we achieved a positive AFFO of MXN 24 million, which was more than double the number of the second quarter. Finally, we have a solid balance sheet position with capital amortization of only MXN 102 million in the next 15 months. As of September 30, we have an LTV of 30% and MXN 367 million in cash. During the quarter, we have more precise MXN 102 million in debt, which, together with the MXN 70 million repaid on Sabadell revolver on Q2 is almost MXN 175 million in debt reduction.
Even with the satisfactory recovery progress to date, we remain optimistic but of course, because of the current situation and understand there is still a lot of work to be done to return our entire portfolio to pre-pandemic levels. We will continue managing the company over the cycle, and in a conservative manner to maintain its strong position. I would like to thank our team members and partners for their dedication and effort to achieve the results.
Before I pass the call to Edouard, I would like to invite you to participate in the 2021 and Fibra base, which will take place in the Live Aqua San Miguel de Allende Hotel on November 4. To register, please reach out to Guillermo.
Thank you. With that, I will now pass the call over to Edouard Boudrant, our CFO, to discuss the financial and operating results of the first quarter.
Thank you, Simon, and good morning, everyone. During the third quarter of 2021, despite the slowdown in the activity recovery mainly due to the increase in infection from the Delta variant of COVID-19 in Mexico in August and September. Our financial results continued to improve versus the second quarter. We closed the third quarter with 84 hotel opened. The occupancy rate of the quarter was 49% for managed hotels versus 48% for the second quarter.
On a monthly basis, occupancy rate was 54% in July, 45% in August and 47% in September. Average deli rate was MXN 1,167, representing, respectively, a 12% and the 7% increase versus the first and the second quarter. Quarterly RevPAR was MXN 566 representing, respectively, a 49% and an 8% increase versus the first and the second quarter. The Fiesta Americana Condesa Cancun Hotel had a net package at the year of MXN 5,297. Occupancy was 67% and net package RevPAR was MXN 3,546 representing, respectively, a 41% and a 6% increase versus the first quarter and the second quarter.
Total revenue for the quarter was MXN 811 million versus MXN 743 million for the second quarter, increasing 9%. [indiscernible] contribution for the quarter was MXN 236 million versus MXN 220 million for the second quarter of the year, increasing 8%. We continued with our position of being highly cost controlled at hotel level. The margin of lodging contribution for the managed hotels was 24% versus 23% for the second quarter.
Our EBITDA for the quarter was MXN 164 million versus MXN 144 million for the second quarter, increasing 14%. Real estate expenses were MXN 15 million versus MXN 18 million during the second quarter. Corporate expenses were MXN 58 million with no change versus the second quarter. We closed the quarter with a net debt of MXN 4.6 billion, increasing MXN 10 million versus the last quarter. Gross debt amounted to MXN 5 billion. We finished the quarter with a conservative LTV of 30%. During the quarter, the debt position generated a financing cost of MXN 96 million. The net financial income was negative MXN 102 million.
As of today, and thanks to the credit amendment we've made in the past, order structure is still extremely healthy. Only MXN 6 million of amortization for 2021 and MXN 96 million for 2022. Only 2% is maturing during the next 15 months. Average cost of debt is 7.54%, and we only have 5% of our debt in U.S. dollar, USD 11 million. We closed the quarter with MXN 367 million cash position. Almost a sale at the first quarter, taking into account we amortize MXN 102 million after MXN 76 million during the second quarter.
Please note also that in September, we paid interest of the bond of MXN 111 million. During the third quarter, we deployed MXN 46 million of maintenance and repositioning CapEx. For the quarter, FFO and AFFO were positive MXN 70 million and MXN 24 million. And please note that for the third quarter of 2021, we will not pay a distribution.
At this point, I would like to open the floor for the Q&A session. Operator you can take any questions.
Operator, can you open the line?
[Operator Instructions]
Our first question is from Sheila McGrath with Evercore.
I have 2 questions. I was wondering, Simon, if you could give us your thoughts on the selective asset sales that you mentioned. Would you be selling business hotels and reducing debt with proceeds or would you be allocating capital into more resort type hotels?
Just give us your insight on the bigger picture strategy there? And my second question is how are the trends in October so far compared to your most recent third quarter results?
Sheila, thank you for your question and for your participation in the call. Let me answer the first question. First of all, as you know, we have been talking about selling hotels for a couple of quarters. Strategically, we also mentioned that we want to continue to diversify our portfolio into resorts an on-inclusive and leisure property.
Right now, it is still a buyer's market in terms of business hotels. So we're working through the different EBITDA spreads that we're seeing in the market. We want to sell the hotels, but we need to do it at the right price. And so we are advancing on that front.
In terms of the second part of your question, which is the capital allocation. As you know, one of the goals we have is to continue to reduce debt. But at the same time, we also see an important opportunity in the resort sector, and we also want to continue paying out the dividend. So as we continue to generate more AFFO, we will make that decision. We -- I do specifically want to highlight the resort opportunity.
We have seen a lot of interest in the sector. And I think we are very well prepared to take advantage of that opportunity. You probably saw a large acquisition by Hyatt of AM Resorts, which is specifically in this all-inclusive sector. They started in Mexico and the Caribbean and they have expanded their business to other places in the world. But we do see this on inclusive sector having had a very good recovery from the pandemic.
And I think that the model and in the minds of many investors, brands and operating companies, the model has proven very resilient, and it's something that the customer wants. So we see an interesting opportunity in that front where we would like to continue to improve our positioning.
We just need to find the right way to do that while also doing the first 2 objectives that we have. And also, we will also take into account the buying back shares as part of that strategy. So we basically have those 4 options, and we will look at them as we continue to receive more AFFO from the operations.
And Sheila, regarding your second question about the end of October. I think maybe which is important is to analyze what have been the trend during the third quarter. We had an extremely good July for of the internal expectations that we had.
And basically, after that, we had 6 to 7 weeks quite complicated due to the Delta variant, since the first week of August to the second week of September. After that, we saw that at the end of September, the activity started to rebound and we saw a positive trend since the 18 or 19 of September and as of today, for the first week of October.
We are seeing some level of occupancy that we didn't have in the past. We have seen some day with more than 60% occupancy rates. So this is a quite positive trend in terms of occupancy as of today for the whole portfolio.
And also talking with the operator, we anticipate that, as usual, October and November will be the best months in terms of activity for the business hotels. And we have good expectation to release a strong October on a strong November for -- in terms of operating hotels.
Also, as mentioned by Simon, there was a lot of events that maybe we didn't see in the past due to the restriction in terms of flight -- direct flight in Mexico City. A big event that we will have will be the Grand Prix of the Formula 1. It will be a good test.
And I think we will have a very good result and Fiesta American Condesa. And also maybe I can highlight a very positive trend that we saw since the beginning of the year. In January, the ADR of the portfolio was MXN 1,000. in September, we closed at MXN 1,180. So basically, over the 9 first months, the ADR increased 18%.
In January, we were like 15% below 2019. In September, we were only 5% to 4% below 2019. So what is very positive is to see that globally in Mexico, the rate, we didn't see a war in terms of ADR as maybe we saw in 2'08 or 2'09, the first crisis that we see in Mexico. So I think this is quite positive for November and October. The rate is here under recovery in terms of occupancy also we saw in the whole portfolio.
Our next question is from Adrian Huerta with JPMorgan.
Just can you just share with us how do you see the evolution of ADRs in the coming quarters, especially to offset the increased cost that we have seen or that you mentioned that you saw during the third quarter.
And with what type of improvement on ADR and with what level of occupancy we can get to the same EBITDA margins that you had back in 2019?
Adrian, thank you very much for your question. Basically, what we saw is that the increase in terms of ADR, the trend that we saw over the past few months, we will see it in October and November. Maybe in December, it will be a little bit lower because, as you know, business traveling in December, it's a slowdown versus October and November. So I think we will be -- we will see an increase, slight increase.
To be honest, it's complicated on a very short-term basis to increase the rates out in the same extent that we are seeing the inflation as of today in Mexico, which is between 5% and 6%. So it's more a work that we are doing on -- for the budget that we are working on with the operator for next year. And yes, it will be an interesting challenge for us to manage what will be the increase in cost and what will be the increase in rates.
The beauty of the hotel business model is that on a daily basis, we can update the rate, we can increase the rate on a daily basis. But we have to take into account the supply, the demand and the market trend.
In terms of your second question to see what level of occupancy we see to reach the EBITDA margin that we had in 2019, we were roughly about 55% EBITDA margin. I think with all the efforts that we've done in the past in order to reduce the operating cost of the hotel, we are 61% to 62% occupancy rate, we should be able to reach this level of margin.
And basically, if we see some internal projections that we have, we should be able to reach that in the somewhere in the year of 2022.
And finally, Adrian, just to complement on the first point of Edouard, I would like to highlight the differences in the regions and segmentation. We are super focused on increasing rates wherever we can.
We have determined the number of hotels where demand is high and where we can optimize rates. For instance, the northern corridor in the factory in corridor such as Tijuana, has had a lot of demand and hotels are running at the same levels as pre-pandemic in terms of occupancy. And in those places where we are focusing on the ability to really be able to raise rates of inflammation and to pull the rest of the portfolio.
Mexico cities, generally where you have some of the highest rates in the country. And as you know, this is where demand continues to be the weakest. So for us to really push on rate, we need that to come back.
Also in leisure, as we have mentioned before, we have seen the highest rates probably ever, starting from our hotels all the way to ultra-luxury hotels. And I think that is positive in the way that the traveler is thinking more in terms of a good hotel, a good experience and a good brand. And not really being as cost conscious as in some cases in the past.
So we believe we have an opportunity also coupled with the rising cost of construction, which will be an important barrier for new hotels. We just need demand to come back to be as aggressive as we can on rates.
Our next question is from [indiscernible] with [indiscernible].
I have 2 of them. The first one is related to specifically the [indiscernible]. I was wondering if you can give us a little more color about the number of reservations that you're expecting due to the Formula 1 Grand Prix that is going to be held in a couple of weeks.
And the second one is maybe a follow-up on the Sheila comments or questions about the properties that you're planning to, let's say, sell or maybe repositioning in the portfolio.
Do you have a specific target or maybe something that it's going to be decided in 2022? Or it's depending on the market conditions?
Okay. Thank you. I will answer the first question because I am a big fan of Formula 1. And basically, we expect to see Mexico City at 100% occupancy rate. And for example, if you saw the hotel where Fiesta Americana Condesa, which is the newest and the closest to the race track in the south, near the airport.
Currently, the ADR, it's roughly about USD 70. And with the Grand Prix, we feel comfortable during this week, we will have an EBITDA between USD 250 and USD 300. So basically, and as of today, if you try in Expedia to book an order for 2 weeks in Mexico City, it's almost impossible. If you want to book an Airbnb, it's almost impossible. So -- and hopefully, [indiscernible] will win the race that we will have a lot of food and beverage, as we said in Fiesta American Condesa hotel.
And it will be a good -- a very good test for Mexico because basically, it's the first big event. And as you know, in the previous accumulated affluents were more than 300,000 person so it would be very interesting. And for us, it would be key because this is the first time that we will host this event in Fiesta Americana Condesa.
And just to complement on that first point, that's one. Just to remind everyone that we do have a minimum guarantee at a hotel. So that means we granted for the year. So we expect this to be more of a driver for next year than something that is just during that period as we continue to get more revenue at that hotel.
Regarding your second question, we are really open to moving a large part of our portfolio. We have identified around 23 hotels that we think make sense. This is a mix between hotels that are -- that we see less buyers to entry or less positive trends in the future for the CTO region.
With hotels that have been doing good or that could require some additional CapEx in the future. So we basically went through our portfolio, and we found where there could be opportunities. We don't think we will sell that number of hotels. We think that is the one that we could be more active in looking at.
But basically, if we get an offer for a large portfolio or if we get an offer for a specific hotel, we will always be willing to entertain it. We think it is very important to do that as another additional method to get more cash to deploy in other places like debt reduction, CBFI buybacks and our additional opportunities in leisure properties.
So we don't have a specific target because, again, the market right now is a buyer's market, and there are a lot of properties in the market. As you have heard, there are some other of our competitors that are also looking to do this. So we will be moving forward with that in a smart way.
The next question is from Sheila McGrath with Evercore.
Yes. During the pandemic, you focused on cost-cutting measures to adapt to the market conditions. As the portfolio recovers, I was wondering if you think that you might achieve better operating margins because of these cost-cutting initiatives? Or said differently, do you think some of these cost-cutting measures will -- you'll be able to stick with them to help margins in the future?
Thank you for your question. So basically, yes, it's true we made a lot of adjustment in terms of cost structure. And basically, it was a lot of adjustment in terms of fixed costs.
Obviously, with the recovery in terms of occupancy, we will have to increase a little bit the cost. But the target that we have with the operator is not to come back to the same cost structure that we had in the past.
So what we can see, what we would anticipate that if revenue will increase. Obviously, variable costs will increase. Fixed cost will maybe increase but in a lesser extent. So basically, at the end of the day, we feel very comfortable to tell you that we have a very more productive FibraHotel as of today that we had 18 or 24 months ago.
And what we are looking for, it's margin expansion. And we -- what we are looking with a very strong and well-developed exercise, it's in terms of cost, more than in terms of revenues, because revenues -- we don't drive the revenues, cost, we can drive the cost.
So basically, this is the message I want to give you. But yes, we feel comfortable that at the end of the day, past-COVID crisis, we will have better margin to pre-COVID crisis.
Okay. Perfect. And one more question. In the press release under where you calculate the debt service coverage ratio at 1.9x, it lists available resources for the next 4 quarters. And under there, it says estimated operating result after distribution payments and it's MXN 898 million. Just wondering, what -- so that's kind of a projection over the next 4 quarters. Maybe if you could give us some insight on what kind of occupancy recovery is behind that estimate?
So basically, we anticipated a slight recovery. We feel that we will end the year with 46% occupancy rate, it will increase quarter-by-quarter. We do not see a dramatic increase, but we will have -- and we are working on to have the last quarter of this year with an occupancy rate above 50%, above 52%, 53%.
And we feel comfortable that for next year and the first discussion that we have with the operator is that it will be above this number. So basically, it will improve. It will not dramatically improve because there is still a -- still issue.
But this is the main assumption that we are taking into account to come to this number of roughly MXN 900 million a day level from operating income over the next quarter.
[Operator Instructions]
Our next question is from Gabriel Himelfarb with Scotiabank.
Just a quick question. On business travel, have you seen a different trend between business travel related to industrial manufacturing cluster, business travel related to corporate office. Is there any trend that, for example, business travel related to industrial manufacturing has been recovering maybe faster than corporate?
Gabriel, thank you for your question. And you are right. We have the occupancy as if it was on, but we do segment it by different regions and by different travelers. Leading the recovery for certain has been leisure hotels. These are hotels who are above pre-pandemic levels.
The second hotels that have been doing very well are the manufacturing regions hotel. So basically, the northern region in Mexico. We've also seen a pretty good recovery in the Western part of Mexico, all of the agriculture and export activity to the U.S. as well as some recovery in the oil region, which have been hit for many years in the past. And the weakest part of the recovery we have seen is in the central part of Mexico. On one side, it's the [indiscernible] region where there has been less automotive activity and a lot of supply growth in the past few years in that sector that has to do a lot with the semiconductor issue that plants are starting -- are not producing at the same level as they were in the past that should normalize somewhat in the near future or whenever that supply issue normalizes.
And the Mexico City and the larger cities, we have seen a lot of improvement but still coming off of a low base. So all of the large corporates and many of the banks, for instance, have not returned to their offices. And until they return, there is a little reason to do a business trip. So we have certainly seen the weakest sector to be the international business trips and even the local business trips from the large corporates.
We do expect that to somewhat normalize. We're not sure if it's going to be the same as in the past. We think it's going to be somewhat different, but we do expect that to continue improving quarter-by-quarter and especially as offices return and open up their businesses. But overall, I think I would really like to highlight, again, the resiliency and the diversification of our portfolio.
That is one of the things that we are most proud of. And as one sector recovers faster, the cycle will turn again and some other sector will recover faster. So we want to keep that in mind because the trends change from time to time.
Our next question is from Francisco Chavez with BBVA.
I have 2 questions. The first one is a follow-up on the previous one. Have you seen any signs of recovery in the events and conventions groups specifically for the -- for early 2022? And the second question is on the cost -- input cost inflation that you have seen, can you give us an idea on the increase that you are seeing? And also what are the benefits of the -- of your ESG efforts in the last 2 years in order to offset this increase in costs, specifically in electricity.
Let me answer the first and third part of your question, and I'll let Edouard answer the rest. On the first part of your question, we are seeing event activity pick back up. I think that is really, really important and really encouraging. Not only in Mexico, but probably, we have seen a lot more willingness to travel.
For instance, in Mexico City a couple of weeks ago, there was a [indiscernible] conference, which we attended as a conference for suppliers of different types of hospitality properties and restaurants and hotels. And we -- that was in the Central Banamex conference center, which that is a big driver for one of our hotels in Toreo.
So there's still not the number of conferences that they were in the past. But some of the conferences that have been regular are starting to pick back up, and a lot of these conferences need to happen. If you need to sell a product, you need to go there, and you saw that in this conference.
So there is also somewhat a pent-up demand. The same thing applies to this question. I don't think all events are going to be similar. I think there are going to be some events that have a virtual component and a physical component. But I think, for sure, events are starting to come back and that's going to be positive. Another important source of events is going to be corporate offsite and social events.
Corporate off sites are still somewhat slow, but social events are also of off pre-pandemic. So everything from weddings to family outings and things that we have seen a very strong increase in those types of events at our hotels.
And finally, on the third part of your question before I pass it on to Edouard. I think that's something that ESG has been something that the company has been very focused on for a quite a period of time now.
And as you mentioned, we signed a credit agreement with BBVA last quarter that had an implicit compromise to reduce electricity usage of their hotel. I think that the financial benefit from that transaction was lower, nearer and valuable as what the efforts we are making to reduce electricity are going to be in the future.
We are looking at a lot of different alternatives for reducing carbon emissions and for reducing energy use. This has been an important component for us as asset managers for every time we look at the hotel, we look at the utility cost, we look at the electricity per room, gas per room, water per room, and we look at all the expenses and the usage. And we've been optimizing that for a few years.
So things like lead conversion happened several years back, water reduction mechanism happened several years back. And now we're looking at things more sophisticated that require a little bit more invested sort of like changing the HVAC systems and improving a lot of the way that we -- where we get our electricity, such as solar panels and battery usage at the hotels.
So we have very, very interesting plans on that front. And we think that all of that will lead not only to economic benefit, but also to carbon emission reduction, and that's something that we have an important focus all the way up to the technical committee and the ESG committee that we have.
And Francisco, regarding your question about the cost. So yes, we saw some inflation. And so basically, what has been the strategy for FibraHotel in order to minimize the negative impact is that we are -- we are maintaining a high cost control at hotel level. And for example, if we see on a monthly basis, we are -- we have a level of operating expense that is lower than the operating expense that we budgeted at the end of last year for the full 2021 year.
At the time end of the revenue, it may be a little bit lower due to the rate. But at the end of the day, we succeed until July to post a better margin than anticipated. So basically, we feel comfortable that we are successful in cost control. And maybe the inflation would be key and it will be complicated to fight against inflation.
So basically, what we have to do is to see what kind of operating cost that we can cut without put in danger the standards of the ground that we will manage. There's positive thing that I highlighted a few minutes before that the rate is recovering. We had a 1,000 rates in a year in January.
As of today, we are almost at MXN 1,200. So that helps. And obviously, the cost do not increase in the same extent that the ADR costs so that helps. And the challenge will be maybe for next year in order to understand well where we will have some impact of the inflation if we can offset by cost control, by cost cutting or by a further increase in rates.
And after that, in terms of energetics, which is one of the main calls that we have with the staffing, what we saw during the past months and past quarter, electricity cost is evolving in the same manner that we saw in 2019, in 2020. We didn't saw a big increase that maybe we saw, for example, in September, October of 2018 when the prices increased dramatically.
And where we saw strong increase, it's in the gas, but we do not use a lot of gas in the hotel. It's more electricity. So as of today, energetic cost has not been a big problem for us in terms of cost. But obviously, we will see with strong details what will happen in the next -- in the forthcoming weeks with the proper referred by the government.
And there are no further questions at this time. Thank you for participating in FibraHotel's 2021 Third 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.