Administradora de Activos Fibra Inn SC

BMV:FINN13

Earnings Call Transcript 2018-Q1

[Operator]

[Audio Gap]

[Operator Instructions]

I'll now turn the call over to Ms. Lizette Chang, Investor Relations Officer for opening remarks. Please go ahead.

[Lizette García, executive]

So welcome to the Fibra Inn First Quarter 2018 Results Conference Call.

Before we begin, I want to mention that the earnings report was issued yesterday along with the income planning PowerPoint presentation. Both are available in the Investor Relations section of our website. Please follow the information in these documents for a clearer understanding of our results. Also note that forward-looking statements made during this conference call. These statements are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results.

If we turn to Slide 2, telling you topics we will be discussing on this call. Starting with the review of the [indiscernible] distribution [indiscernible] and review [indiscernible] specific guidance and then I will look at investments. We will also discuss some additional topics based on our current strategy and finalize with an operational and financial review. Taking us through these topics will be our presenters Mr. Óscar Calvillo Amaya, Chief Executive Officer, and Mr. Miguel Aliaga Gargollo, our Chief Financial Officer.

At this point, I will turn the call over to Mr. Oscar, for his opening remarks.

[Óscar Calvillo Amaya, executive]

Thank you Lizette, and good morning, everyone. Thank you all for joining us today, and welcome to our call.

Let's turn to Page 4 so that we can review our distribution and dividend yield information. For first quarter of 2018, the total distribution reached MXN 109.1 million, a slight decline of 0.9 that was in line with our stated quarterly distribution last year. [indiscernible] caused distribution per certificate of MXN 0.25. Overall the dividend yield fell slightly to 8.4% compared to 9% in the fourth quarter of 2017, and 9.2% in the comparable first period of 2017. The company is taking [ a committee ] to consider the possibility of an additional increase [indiscernible] that is once we make some of the strategic joint venture [ happen official ] or in demand for the sale of some of the company's assets. However, at this point [indiscernible] phase until some of the transactions are clear.

Now we can turn to Slide 6 for a review on investment we executed during -- for this quarter. The total main investments for hotel development through strategic joint venture [indiscernible] for approximate MXN 2.2 billion. For the first quarter specifically the total investment of the company was as follows. In terms of [indiscernible] hotel this property has been in the remodeling process since September 2017 for its conversion to the Holiday Inn brand, was a 51 room addition, which we expect will be completed in the third part of this year. The investment of our [indiscernible] [ MXN 50 million ]. [Indiscernible ] we invested nearly [ MXN 50 million ] in [indiscernible] first quarter which corresponds to the payment of guaranteed deposit as a part of the [indiscernible] process with the seller. They also invested in other parts of the portfolio, mainly at the Hampton Inn by Hilton in Chihuahua for the remodel of the 190 rooms as well as the 83 room [indiscernible] at the Marriot [ puerta ].

[indiscernible] J.W. Marriot and the airport Marriot in Monterrey, we also made investment in terms of the time of the [ rooms ] just as part of the [indiscernible] process from the brands. And finally [ MXN 30 million ] will be okayed toward [ rail ] maintenance throughout [indiscernible] of the portfolio. Just an update on the peak joint venture pipeline. We are currently reviewing various locations at very specific beach and high-end tourist and business areas in order to balance the portfolio to benefit from strong and dynamic markets. Business relations as we compare [indiscernible] and Los Cabos [indiscernible] in the central part of the Mexico. We are also [indiscernible] plans that will be the best [indiscernible] estimations. We consider that the project would be worth about MXN 8 million, including the 3 that we already announced in the [hotel] factory. [indiscernible] will be participated from maximum [ 50% ] of investment and in some cases for even less than 30%. Additionally, in some of this price we already the [have decided] that our hotel chain will not only operate but also put up some of the capital for the development.

Moving on to after the cycle, 10 hotels in the portfolio are currently under review with possible buyers, as we stated all of these properties have potential to be sold as their positions have no barriers. The intention is to test the market for price ranges and therefore be able to [indiscernible] offers and ample time to review them and to meet them for the [indiscernible] with the various corporate governance bodies of the company. In this matter we're in the better position to [indiscernible] asset sale. These properties include main limited service hotels and one of our hotels that could be [indiscernible] in the medium. The cash obtained from these asset sales will be channeled toward new price and the part of you will be allocated toward increasing the distribution or repurchase of certificates as I just mentioned. We are contemplating a brand conversion for hotels that is under our franchise due to expire next year. We're just trying to find the right [ brand ] to find the best choice for this hotel given the location and the [indiscernible] known to maximize profitability and potential. Right now [indiscernible] considering the conversion of a [indiscernible] hotel to a Holiday Inn brand.

Please turn to page [indiscernible] -- Slide 7. To review the current portfolio, basically this has remained unchanged in fourth quarter of 2017, and then versus the same quarter of the previous year we have [ 102 ] fewer rooms mainly and 2 cancellation [indiscernible] adding those at Holiday Inn making certain [indiscernible] Sheridan. The other change was [indiscernible] was a cheap hotel, [indiscernible] one more hotel, one in Monterrey, which is under development.

At this point, I will turn the call over to Miguel Aliaga, our CFO, for review the company's operations and financials for the quarter.

[Miguel Aliaga Gargollo, executive]

Thank you, Oscar, and good morning to everyone. My comments will brief, and I will focus on just highlighting the main points. As we mentioned in the quarter reports, the extra holidays took place this year in the first quarter compared to taking place in the second quarter during 2017. This will, of course, impact the revenues of the holiday week means less business travelers in the first quarter in 2018 for 1 week. We were [indiscernible] the lower revenue with leisure travelers, however, as you know our hotels are aimed mainly at business travelers. If you look at Slide 9, we can see that we have attempted to reflect same-store sales with and without [indiscernible] effect want to point out that while room revenues for the first quarter 2018 was for MXN 469.2 million the 4% increase bears to the same quarter as the previous year. If we look at the room revenue without [indiscernible] this number will have grown 6% to about MXN 478 million. Occupancy, however, was better than last year, reaching 63.7% versus 60.4% in first quarter 2017 and reaching 64.9% without reflecting the Easter holidays.

Revenue per available rooms also important to mention, as we reached 3.9%, however, without the interest of Easter we able to reached 6%.

Let's turn to Page 10 with the financial highlights of the quarter. Lodging revenues performed well, rising 4.5% for first quarter 2018 versus first quarter 2017 to MXN 478 million. Despite the 1% declining rental revenues, the company experienced a total revenue increase for the quarter of 4.3% to reach MXN 500.9 million. In terms of the breakdown by types of hotel, the proportions were consistent with the majority of revenues coming from the select service segment at 51.9% in this quarter versus 47.7% in first quarter 2017.

Let's start the review of income statement on Slide 11. As we discussed, total revenues for the Fibra Inn rose by 4.3% to MXN 500.9 million. Beginning in first quarter of 2018, the company will report Hotel NOI, which pertains to operation of the properties and NOI from our businesses. As such, this line item will also include revenues and costs from the strategic hotel pipeline. This quarter, Hotel NOI was at MXN 180.2 million. This represents a 36% margin, 30 basis points lower than the 36.3% of the first quarter 2017. The adjusted EBITDA in the results was MXN 154.5 million meaning a 30.9% margin. FFO was MXN 117.7 million at 23.5% of margin when compared to the 23.3% in first quarter 2017.

Turning on to Page 12 for the balance sheet discussion. As of March 31, 2018, Fibra Inn had cash and cash equivalent of MXN 446.8 million, we also have an outstanding record of BAT amount of MXN 12.4 million, which is in process currently. 93.7% is represented with long-term liabilities, [indiscernible] local debts. Our total equity is worth MXN 8.4 billion.

If you follow me on Page 13 we can take a look that the overall [indiscernible] financial position of Fibra Inn. On February 15, 2018, Fibra Inn announced that in order to improve financial profile it carried out a FINN 18 debt issuance of MXN 2 million at the fixed rate as well as a partial repurchase of FINN 15 [indiscernible] via debt tender offer. As such, long-term financial obligations were [ MXN 2,9545 million ], which correspond to the final balance of the debt at the end of the first quarter. Therefore, the gross debt balance was 66.7% at a fixed rate of 9.93% and 33.3% at a variable rate covering with [indiscernible] fixed rate swaps for 8.43%. As such, the weighted net cost of debt was 9.43%. At the end February, the company canceled the conventional various interest rates swaps that were used and have covered part of a FINN 15 debt issuance are represented on income [indiscernible] with positive monthly flows until March 2019 and some higher amounts on to September 2018 at these current rate levels.

On the left side of the presentation, Slide 15 for the final slide, cash availability and leverage. Here I just want to point out the way we're looking at our cash and debt position and how we are looking to allocate the funds to finance our investments towards the future. Basically we are talking about available leverage levels of MXN 1.25 million which are [indiscernible] with assets for the company as well as the default on the cash flow from Windham and MXN 446 million respectively. These are going towards our various projects, mainly we have base 1 level, which is MXN 609 million to be allocated to the J.W. Marriott in Monterrey, [indiscernible] the hotel pipeline model. In the second year [ H2 ] we will allocate towards of Westin Punto Valley Monterrey Hotel. And then [ MXN 218 million ] towards the Marriott at the Monterrey Airport Hotel. And finally, remaining MXN 476 million they're going to the [indiscernible] portfolio for improvements, renovations, remodelings et cetera. These leaves us with the remaining balance of MXN 76 million that we have on hand to follow any future project that comes up.

That is all from me, thank you for your attention. At this time, we are ready for your questions. Operator?

[Operator]

[Operator Instructions] We'll take our first question from Marimar Torreblanca from UBS.

[Marimar Torreblanca, analyst]

I have just one question on your dividend policy. Last year the wording of your press releases was very clear as to expecting the same dividend per share per quarter. And I don't think I got the same message from this last press release. So can you clarify what's your intention for dividend per share? Should we expect a stable per quarter level or are you expect to just adjust it as the quarter comes depending on the results?

[Miguel Aliaga Gargollo, executive]

This is Miguel Aliaga, and thank you for your question. Yes, the thing is, is that we are still analyzing the situation and that's why you have seen MXN 0.25 now a little gap from [indiscernible]. As you know we are still working on selling some of the non-strategic assets, and of course, the income from the hotel factory pipeline we will start to generate revenues, fees pretty soon -- hopefully in this quarter, but for sure in this year. And that should have a positive impact and that's part of the deal not to try that most to have us in stabilize the dividend policies and that's why we are still doing the math, but as soon as we -- assured that we can continue keeping that, we will announce it officially.

[Operator]

[Operator Instructions] We'll go next to Alejandro Lavin with Citigroup.

[Alejandro Lavin, analyst]

Just a follow-up question on [indiscernible]. So dividend growth -- dividend per share growth is based on as you said mostly on asset sales of non-core assets, revenues from the factory fees, right? So my first question would be, why haven't we seen any revenues from factory fees? And also why haven't you been able -- or why haven't you found any buyers for your assets, because you have been trying to sell assets for the last over a year, right? So why haven't we seen them so far? And the second would be when should we expect to see these extra revenue drivers kicking in?

[Óscar Calvillo Amaya, executive]

Thank you, Alejandro. Yes. You are totally right. We have been selling some of the assets and for the -- to be honest we have an external advisor that, of course has expertise on that -- on selling or buying and selling assets. We are pretty close to announce one of these sales. We are really negotiating small differences to the buyers, also hopefully we will see pretty soon that official or some that we'll finally hear some positive news for the company because that's also will reflect some of the evaluations we have been doing since January 1, 2018 also. It's more than one year. [indiscernible] part of the portfolio some of these assets now require a lot of work to do in order to have -- but we want to have them. We want have a good sale price and that's part of the idea. On the other side, on the hotel factory, it seems we have been working for maybe almost 2 years on the first project of JW Marriott. Things are going well, but as you may know there is a lot of agreements that we need to sign with our partners. And also we are going to pretty soon to announce the official decision of the first [indiscernible] global agreement for this type of joint ventures. So as soon as we sign them, it is when we are going to start to see some of this is coming across to the [indiscernible] which part of the benefit of being internalize and [indiscernible] have a positive impact on this different way of doing things, which is internalizing the [indiscernible]. So that's the answer to your question.

[Alejandro Lavin, analyst]

Very helpful. If I may follow up with one more question. So you are still on phase 2 incorporate or acquire the Westin this year, right?

[Óscar Calvillo Amaya, executive]

Yes, exactly. We are working on that and, of course, we have close contact with the sellers, the project if you come to Monterrey, you will see the size of project. The size of the project is pretty good, and of course, the hotel together with the [indiscernible] would be of course a very important reference for Monterrey in the following -- in the coming years.

[Operator]

[Operator Instructions] And it appears we have no further questions. I would like to return the floor to Mr. Oscar Calvillo for closing remarks.

[Óscar Calvillo Amaya, executive]

Thank you for your participation today and your continued interest in Fibra Inn. We look forward to speaking again on this forum as we disclose the full year results. In the meantime, we will be trying to obtain our goals and [ various ] shareholder value. Have a good day.

[Operator]

Thank you. And this will conclude today's program. Thank you for your participation. You may now disconnect.