Concentradora Fibra Hotelera Mexicana SA de CV

BMV:FIHO12

Earnings Call Transcript 2021-Q4

[Operator]

Good morning. My name is Paul, and I will be the conference operator today. At this time, I would like to welcome everyone to FibraHotel's 2021 Fourth Quarter and Year-end Earnings 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].

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 will turn the call over to Mr. Simón Galante. Sir, please begin.

[Simón Zaga, executive]

Thank you very much, and good morning, everyone. I'm going to begin today's call by providing an overview of the fourth quarter of 2021 and year-end results, the current situation and will then turn the call to Edouard Boudrant, our CFO, who will discuss our financial results in more detail. And we will open the call for questions and answers.

The results of the fourth quarter of 2021 demonstrates the solid recovery trend of the hotel sector and the benefits of our portfolio diversification. For the quarter, our total portfolio had an occupancy of 55.9%, which is 7.4 percentage points above third quarter of the year.

October had an occupancy of 55.2% and November had an occupancy of 58.8%, which were both the best months for the portfolio since the beginning of the pandemic. During the quarter, RevPAR increased 23% versus the previous quarter, thanks to a 6.7% increase in rate and the improvement in occupancy. We are encouraged by the rate environment as we have not generally seen a price war in the sector. Overall, total revenues increased 23% versus the previous quarter and were 83% higher than the fourth quarter of 2020, but remain 12% below fourth quarter of 2019.

We continue to see good numbers from leisure-oriented hotels. The RevPAR of the Fiesta Americana Condesa Cancun hotel in the fourth quarter of 2021 was 37% higher than the fourth quarter of 2019, mainly due to a higher rate, which led to NOI being more than 50% higher for the same period. We did not see the full benefit from the NOI this quarter as we are still receiving the minimum rent for the full year results. The Live Aqua San Miguel de Allende hotel for the same period had 50% higher RevPAR and almost double the NOI.

We also continue to see positive trends in certain regions, such as border and manufacturing-oriented hotels. For the northwestern region, RevPAR in the fourth quarter of 2021 was 1.8% above the fourth quarter of 2019.

Mexico City continues to have the slowest recovery with RevPAR almost 30% below 2019. In the fourth quarter, we started seeing a faster recovery, with RevPAR growth of 35% and occupancy reaching 46.9%. We are also encouraged by the reactivation of certain contracts and citywide events, such as the Formula 1 race.

In 2022, year-to-date, we have seen some impact from the Omicron variant. January is cyclically a weak month for business travel, and the effects have been a lot less than what we saw in the past in terms of mobility and restrictions. However, there have been some corporates that pushed back their return to the office, which we know -- now expect for the second half of the year.

Operationally, we continue to see the benefit of the efficiencies we implemented during the pandemic, achieving an EBITDA of MXN 249 million with a 25% margin; AFFO of MXN 90 million even with the CapEx reserve that represented over MXN 57 million. For the full year 2021 and even with the impact of COVID, we achieved revenues of more than MXN 3 billion and an EBITDA of MXN 638 million and an AFFO of MXN 87 million.

Regarding our balance sheet, by the end of the year, we have an LTV below 30% and MXN 486 million in cash. We are also comfortable with our debt schedule, which includes less than MXN 100 million in amortizations during 2022.

Before I finish, I would like to highlight our progress on ESG. For the second consecutive year, we participated in the Corporate Sustainability Assessment or CSA survey. The yearly results were recently published, and FibraHotel earned a score of 46 points compared to 21 points the previous year. We had increase of 140% in the environmental section and an increase of 138% in the social section and an increase of 8% in the economic and corporate governance section.

We will continue to improve on ESG topics, including survey results. All our ESG information is available on our website, and we are looking forward to issue our second integrated report in the next few months. I would like to thank our partners and team for their effort and hard work to achieve these results and close 2021 on a positive note.

With that, I will now pass the call over to Edouard Boudrant, our CFO, to discuss the financial and operating results of the second quarter.

[Edouard Boudrant, executive]

Thank you, Simón, and good morning, everyone. During the fourth quarter of 2021, thanks to a strong operating performance of hotels, our financial results improved significantly versus the third quarter. We closed the first quarter with 84 hotels opened. The occupancy rate of the quarter was 56% for our managed hotels versus 49% for the third quarter. On a monthly basis, occupancy rate was 55% in October, 59% in November and 54% in December.

Average daily rate was MXN 1,245 representing, respectively, a 7% increase versus the third quarter of 2021 and a 16% increase versus the fourth quarter of 2020. Quarterly RevPAR was MXN 696, representing, respectively, a 23% increase versus the third quarter of 2021, and a 79% increase versus the fourth quarter of 2020.

The Fiesta Americana Condesa Cancun Hotel had a net package ADR of MXN 5,773. Occupancy was 75% and net package RevPAR was MXN 4,352 representing, respectively, a 23% increase versus the third quarter of 2021 and a 112% increase versus the fourth quarter of 2020.

Total revenues for the quarter were MXN 998 million versus MXN 811 million for the third quarter, increasing 23%. Our lodging contribution for the quarter was MXN 331 million versus MXN 236 million for the third quarter of the year, increasing 40%.

We continued with a market position of being highly cost control at hotels levels. The margin of lodging contribution for the managed hotels was 30% versus 24% for the third quarter. Our EBITDA for the quarter was MXN 249 million versus MXN 164 million for the third quarter, increasing 53%. Real estate expenses were MXN 21 million versus MXN 15 million during the third quarter. The increase is mainly due to one-charge real estate expenses. Corporate expenses were MXN 60 million versus MXN 58 million during the third quarter. Increase is mainly due to expenses related to employees for MXN 2.5 million provision for labor liabilities and profit sharing.

We closed the quarter with net debt of MXN 4.5 billion, decreasing MXN 124 million versus the last quarter. Gross debt amounted to MXN 5 billion. We finished the quarter with a conservative LTV ratio of 29%. During the quarter, the debt position generated a financing cost of MXN 97 million. The net financial income was negative MXN 98 million.

As of today, and thanks to the credit amendment we've made, the debt structure is extremely healthy, only MXN 96 million of amortization for 2022, representing 2% of the debt. Average cost of debt is 7.1%, and we only have 5% of our debt in U.S. dollar, $11 million. We closed the quarter with a MXN 486 million cash position compared with MXN 460 million at the end of 2020. During the year, we amortized MXN 190 million. During the fourth quarter, we deployed MXN 70 million of maintenance and repositioning CapEx.

In the fourth quarter, and in line with our Audit Committee and our auditors' recommendation, we did a review of the different values of real estate properties in our portfolio. The net impact to the change in asset value was a positive MXN 196 million.

I would like to highlight that the changes are small as a percentage of total asset value. This is partly due to historical conservative stance regarding the value of the asset on our balance sheet as we carry the value of managed hotels at historical depreciated cost. An example, accumulated depreciation, as an example, accumulative depreciation for the properties are MXN 3 billion or 19% of their historical cost.

The changes included: We accelerated the depreciation of the 2 hotels closed to reflect the appraisal value of the land. Impact was a negative MXN 48 million. This was done in order to have a conservative asset value of these properties. An impairment charge of MXN 25 million for 4 hotels and an increase in the fair value of Fiesta Americana Condesa Cancun, registered as investment property by almost MXN 270 million. This increase in fair value is based on the hotel's improved perspective.

For the quarter, both FFO and AFFO were positive MXN 147 million and MXN 90 million. Please note that for the fourth 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, we're ready to take any questions.

[Operator]

[Operator Instructions] Our first question comes from Sheila McGrath with Evercore ISI.

[Sheila McGrath, analyst]

I wanted to see if you could provide more color on the Fiesta Condesa Cancun hotel. How is that tracking into January versus pre-pandemic or versus last year? And can you remind us the minimum rent to expect in 2022? I think you said it was MXN 50 million in the fourth quarter.

[Edouard Boudrant, executive]

That's correct, Sheila. So basically, what we see in January for the -- regarding the occupancy of the hotel as -- we are slightly below the occupancy that we had in January 2019 or 2020. Basically, we've seen some cancellation regarding the Omicron variant of the COVID. But what we see is that we see was a positive booking for the month of February and March. So basically, maybe what we loss in the first week of the year, we are very, very confident that we would be able to regain again at the end of the quarter.

And what we can tell you regarding the rate of the hotel, the rate is very, very strong. For example, in December, we end -- we closed with a rent -- with a rate of about USD 300. It's 20% above what we had in 2019. So basically, what we see in this hotel, the rate is very, very interesting. The increase is very, very steady as all the region. And in terms of occupancy, we feel very comfortable that in the forthcoming months, we will reach again the occupancy that we have on a pre-pandemic level.

After that, regarding the rent, basically, we have a fixed minimum rent of, roughly with the inflation that we have, USD 10 million. It's important to highlight that last year, we made an amendment to the credit in order to give a facility to Posadas to delay 15% of the rent.

So basically, maybe this is an answer forthcoming question, why the rent of Fiesta Americana Condesa Cancun is not so high in the fourth quarter. We were talking about MXN 50 million. It's because we only charge 85% of the rent. And between this year and next year, we will recuperate the 15% that's owed to us. It represents USD 1.5 million, MXN 30 million.

So basically, what you will see this year in terms of rent from Condesa Cancun, it will be much higher than we had last year on a quarterly basis. Prospects for Condesa Cancun is very, very nice. And that's why when we made the fair value of the hotels, we saw an increase in the value of about MXN 270 million even on a conservative policy.

[Sheila McGrath, analyst]

Okay. That's very helpful. And the second question, now that the portfolio is in the midst of a recovery, I just wonder if that will drive your plans of some dispositions in 2022? Or do you think to maximize value, you'll have to wait until the assets recover more?

[Eduardo García, executive]

Yes. Sheila, thanks for your question. Regarding the strategy we have of reconfiguring the portfolio, it continues to have the same path we saw. We want to have an ambition of participating more in resort properties. And we also want to dispose some assets to get additional capital.

As we have said in the past, we are -- we will continue to wait for the right time to do that in order to get the right price for the assets that we have. Currently, we received a couple of informal letters, which we will follow up on.

So it's going to be a continued strategy for the company going forward. It's a core strategy to invest and to disinvest these assets. So we will continue looking to find opportunities where we can divest assets that are not as strategic, and we can reinvestment in the plans that we have going forward. So that's something that will probably still take us some time, but that's something that we started probably a couple of -- a little bit before the pandemic, and it's something that we expect to continue seeing and talking about in the future.

[Operator]

Our next question comes from [ Edison Velasco ] with Suma Capital.

[Unknown Analyst]

I have 2 of them. The first one is regarding on the closed hotels that you have, specifically Ciudad Obregón and León, I was trying to remember if you would've mentioned, but just -- could you give us a little bit more color about the time frame of those properties? Are you going to maintain those properties closed for the following quarters or maybe this 2022?

And the second one, could you give us a little bit more details about this alliance that you did? It's something that you're going to do with other NGOs, or it's something that you are going to participate in for developing low-income housing. Or what is the play regarding on this?

[Guillermo Escobosa, executive]

So let me answer your question. Thank you. Basically, I'll start by the second part, which we're really excited about. It's not -- I think you are referring to our mention of an alliance with Construyamos (sic) [ Construyendo ], where we develop a house as a team. And it's one of our initiatives.

As you know, we have different initiatives, and one of them is giving back to the communities that are near the hotel. And so we did have this event, which we posted. Is something that we expect to continue going forward. It's not a strategic alliance with them in the sense that we expect to participate with different organizations in the future and different types of activities. But it's something that is also becoming an important part of the company's structure and that we will continue to do and inform going forward. So that's regarding to the second question.

And regarding to the closed hotels, we don't have a specific time line of when we are going to reopen them. As you know, we have other hotels in these cities where the hotels are located. So we have the Fiesta Inn Obregón in Ciudad Obregón, where we have our closed hotel. And we have the Fiesta Inn León hotel where the Gamma León hotel is closed.

And so what we're looking to do for these assets is either to sell them or to wait for the market to come back with enough position that we can open them and start continuing to earn money. At the time, the best decision is to maintain them closed, but we continue analyzing them every -- basically every week or every month, we continue to look at the trends in those markets. And the hotels are ready to be opened any time. But in the present, we don't have any plans to reopen in the short term, but we will have news on that when we have more color.

[Unknown Analyst]

Congrats on the results.

[Guillermo Escobosa, executive]

Thank you, [ Edison ].

[Operator]

Our next question comes from Paulina Moreira with Compass Group.

[Paulina Moreira Obregón, analyst]

Congrats on the results. I have 2 questions. First is about the occupation. I mean December was a lower month in terms of occupation, and I think the main driver was Omicron. But how does it affect your occupation? I mean which was the occupation for the last 2 weeks of December and also the first 2 weeks of January? That I think either the ones that were affected also for -- because of Omicron.

And the other one, in terms of margins, can you give us some color? I know that you have efficiencies during the pandemic that make you improve your margins to 25%, which is around pre-pandemic levels. But for this year, you expect margins above 25%, 26%, reflecting these efficiencies.

[Guillermo Escobosa, executive]

Thank you, Paulina. Let me answer the first question. The impact from Omicron and the trends in occupancy have been difficult to read. On the positive side is we have seen a lot less restrictions, and we have seen a lot less impact on the day-to-day from the variant. And so some of the impact we saw, for example, in the Cancun hotel, which is what I mentioned is -- and you remember, there were a ton of canceled flights in the U.S. during an important period of time. That was not because of specific restrictions, but because of airline crews that didn't have enough people to fly.

So we did see some cancelations, and we also did see some group events that were transferred. In general, the policy is those events were not canceled, but they were postponed from either December or January or February, and they were passed on to September or October of 2022.

So we really have not seen so much of an impact. The important part that Simón mentioned is that generally, the weakest month cyclically for the business hotels. So there's generally the la cuesta de enero, and many people make plans in the first weeks of January. And then they start traveling a little bit in February. But really for the first quarter, March is the stronger month.

And so what we see is that we did see a little bit of an impact in some places. We also saw some corporates not returning to offices, as we have expected them, pushing it back for a few months. The impact was definitely not what we saw with Delta or with other variants. So we will see a little bit of a dip. But as we continue to get these news in these varients, the resiliency for everyone and for our portfolio has been stronger. It's an impact of a couple of days or maybe 1 week or 2, but it's not such a meaningful impact in what we have seen to date.

[Edouard Boudrant, executive]

And regarding the question on the margin. So basically, what we have done in the -- in 2020, we've done a lot of work in optimizing the cost structure of the hotels. We made a lot of reengineering with the operator in order to have a lighter cost structure and more efficient. And I think you can see in the driving of the operating margin over the past quarters. Basically, we closed the last quarter with 25% EBITDA margin, while in 2019, we had a 26% EBITDA margin. So I think in terms of, of course, control the job had been done.

For 2022, obviously, we will control a lot the cost structure of the hotel. It will be the key. It will be a rate issue for next year. But basically, what we plan is by the end of 2022 to reach the margin that we had in 2019, taking into account that the occupancy will not be the occupancy of 2019. We plan to reach the occupancy of 2019 by 2023 with also a strong increase in the margin.

So basically, margin, we feel very comfortable that it will increase. The cost control is that and we will not -- we will see a review on a monthly basis, very, very hard with the operators. And the -- which is very important for us is to ensure that we will increase the rate. But we are very comfortable to keep the trend that we had in the past quarter in order to improve the operating margin of the portfolio and in order to improve the cash flow of the company. As of today, we are still in recovery. So the prospects are quite interesting for FibraHotel in the forthcoming months.

[Operator]

Thank you. There are no further questions at this time. Thank you for participating in FibraHotel's 2021 Fourth Quarter and Year-end 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.