Administradora de Activos Fibra Inn SC

BMV:FINN13

Earnings Call Transcript 2018-Q2

[Operator]

Good morning. My name is Keith, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fibra Inn Conference Call. [Operator Instructions] I will now turn the call over to Ms. Lizette Chang, Investor Relations Officer, for opening remarks. Please go ahead.

[Lizette García, executive]

Hello, and welcome to Fibra Inn's Second Quarter 2018 Results Conference Call. Before we begin, I want to mention that the earnings report that was just issued yesterday and the PowerPoint presentation are both 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 may be made during this conference call. These statements are based on management's current view and estimate of future economic circumstances, industry conditions, company performance and financial results.

On Slide 2, we have the topics that will be discussed in this call, starting with an overview of the changes in Corporate Governance, followed by an explanation of the capital subscription, which concluded yesterday, as well as the hotel announcements and the distribution for this quarter. We will finalize with an operational and financial review.

Taking us through these topics will be our presenters: Mr. Óscar Calvillo, Chief Executive Officer; and Mr. Miguel Aliaga, our Chief Financial Officer.

I have to say thank you at this point, and I will turn the call over to Mr. Óscar for his opening remarks.

[Óscar Calvillo Amaya, executive]

Thank you, Lizette. And good morning to everyone, and thank you all for joining us today. Please turn to Slide 4.

Corporate Governance. I will start with a brief discussion of Corporate Governance. As you know, Fibra Inn has implemented several measures [indiscernible] the confidence our Corporate Governance, and in 2017, Fibra Inn has been internally managing Fibra. With the second quarter results, we can now really appreciate [indiscernible] expense savings. General and administrative expenses for the quarter represent 0.8% of the value of the assets. However, prior to the implementation, it represent 1.1% of it.

In the last Extraordinary Shareholders' Meeting held in June 14, there were substantial changes approved. These were originated to finalize alignment of interest. The composition of the Technical Committee was notified so that now we have a majority of independent members. Nonindependent members now represent [almost 2 seats]. We also formalized the duties of the Chief Executive Officer as a member of the Technical Committee and reserve the right of holder, who represent over 10% of the [indiscernible], with a potential to appoint one member of the board to represent them.

Preferential and exclusive rights [for the founder] were removed in terms of acquiring and development properties. As a consequence and to help with the verification of the representatives from [indiscernible] we received on [June 22], the Technical Committee is now comprised of 8 members, with a majority of independent members as shown in Slide #5.

We believe that these changes set precedent for the Fibra [indiscernible], one that establishes higher standards in terms of aligning of interests for all parties involved. Therefore, we are excited by the [indiscernible] in making these changes and taking up these initiatives, and we are assured that [indiscernible] to follow these steps.

Now moving on to the capital subscription on Slide 7. In the shareholders' meeting that took place on May 11, shareholders authorized capital issuance on the shelf for up to 900 million certificates and not exceeding MXN 10 million. Afterwards, in order to protect our current investors from the option, with less dilution effect, Fibra Inn decided to go for a capital subscription process exclusively for current certificate holders. It took place in 2 rounds and just ended yesterday.

Fibra Inn holders that held a position as of July 11 had the right to participate exclusively at a price of MXN 11.1 -- MXN 11.10 per certificate, which implies a discount of 9.87%. Fibra Inn subscriber total of 94,236,874 certificates [indiscernible] of MXN 1,046 million. We consider the transaction a total success. The company's market capital in the 20% to reach a total of MXN 6.3 billion, considering a price of MXN 12.06 per certificate as of July 23 [indiscernible] activities.

Please turn to 8, to Slide #8. As we mentioned during switch [indiscernible] process, we have a clear vision as to how the -- if proceeds will [indiscernible], keeping in mind that we already have total immediate cash available of MXN 1,838.9 million. MXN 1,064 million will be used to finance Fibra Inn's remaining capital contribution for the price announced on the Hotel Factory model. This is MXN 299 million for the JW Marriott Arboleda, MXN 177 million for the Westin Punto Valle, MXN 3 million for the Marriott Aeropuerto and MXN 585 million for investment in the Secrets Silversands Riviera Cancun, where all the price [indiscernible] is subject to a vote of our Technical Committee. [indiscernible] that has already been announced as part of Hotel Factory. [indiscernible] in this table on Slide 8 the [debt] and capital structure at the price level, where it shows the Hotel Factory settings in terms of our hotel investment and the share that will correspond [indiscernible], including the plan in the recently announced nonbinding agreement of the Secrets Silversands located in the Riviera Maya, apart from renovation of the acquisition if it's approved.

And in this quarter, we conclude our framework of the Hotel Factory agreements where we clearly and comprehensively started the guidance of this model. Thus, any individual [indiscernible] that are signed there will be -- will all follow this general framework. MXN 353 million to remodel 7 hotels in the current portfolio, MXN 101 million to conclude the conversion on the expansion of Holiday Inn Juarez Hotel, which will formally open its door next August 14, following the remodeling and the addition of 44 and its planned conversion, MXN 200 million for the remaining of our revolving loan from Banco Actinver and finally, MXN 100 million will be for the certificates repurchased [indiscernible], also MXN 21 million for the rights for the subscription transaction.

On this slide, I wanted to point out the way we're looking at our cash and debt position and how we are planning to allocate the funds to finance our investments in the future. Basically, we are talking about levels of MXN 1,300 million, which will -- within the parameters we have set for the company [indiscernible] 32.3 [indiscernible], which should total a 33% [indiscernible] by our Technical Committee as well as MXN 1 billion coming from the capital subscription and the cash for MXN 492.9 million. [indiscernible] leaving us with a remaining balance of MXN 275 million that we have on hand to fund for a future project that comes up.

I want to mention that on behalf of the entire team here at Fibra Inn, we thank the investment community for its confidence in us, which is reflecting the subscription. Fibra Inn [indiscernible] on the commitment of [delivering] efficiently on this resource and showing results.

Regarding the sale of Microtel Inn & Suites by Wyndham Culiacan Hotel on Slide 10. On July 19, we announced the binding agreement of MXN 85 million to sell the Microtel Inn & Suites by Wyndham Culiacan Hotel. The hotel will be -- actually is part of the company's capital-recycle strategy, where we think the sale price is close to the evaluation figure for the asset. It's important to mention that Fibra Inn's criteria [indiscernible] to be conservative and be very close to the valuations that were carried out by Deloitte. The closing of this sale is evidence of the significant [indiscernible] subject to market value.

A year ago, Fibra Inn started to explore the real estate market to sell profit and has found that among the potential [indiscernible] available for [indiscernible] for local investors who require more extensive marketing effort and time compared to a sales proceeds -- process of a bigger transaction in an international market.

Regardless, at this time, Fibra Inn has a portfolio of 10 to 12 months [indiscernible] hotels accounting for about 10.6% of total assets that could be sold. However, the sale of these assets will be very gradual and will include the sale of [indiscernible] primarily in the limited service [indiscernible] as we make way towards the [indiscernible]. [indiscernible] of fee-for-sale [indiscernible] low cost for acquisition [indiscernible] limited growth, given [indiscernible] market, a lower local economic cycle time, or we believe, [indiscernible].

Please turn to Slide 11. So a good current portfolio. [indiscernible] remain unchanged in the first quarter of '18. When we compare to the same quarter of the previous year, we have 171 fewer rooms, mainly due to the cancellation of [indiscernible] at the Holiday Inn in [indiscernible]. The other change was also factored by [indiscernible], the Westin Monterrey, now in development.

The general situation on Slide 15. Taking into account all of the aforementioned events at the close of the second quarter of '18, total distribution reached MXN 110 million, showing no variation when compared to the same quarter of last year. For comparison purposes, consider only the certificates outstanding as of June 30. The distribution per certificate would have been MXN 0.2560. Overall, the dividend yield would have been 8.5%, to 8.4%, representing the first quarter of 2018 and the 8.2% in the comparable second period of -- for 2017.

We are aware that the common dividend will show the dilution effect as a result of increase of non-certificate use of the capital subscription. However, in the near future, we can expect a distribution increase due to 3 main reasons. Firstly, the generation of [indiscernible] corporation of the hotel announced as part of the Hotel Factory. It is important to mentioned that with regards to the Hotel Factory, there's a [indiscernible] that are already in operation or [shortly] will start operations, which is an attractive option in terms of [indiscernible] variance that will be reflected in the entire hotel distribution in 2019 and on. Second will be the [indiscernible] from the Hotel Factory to provide a onetime structure fee which we provide at the time [indiscernible] investors [indiscernible] will be less [indiscernible]. The development fee will be mounting as the work [indiscernible] is completed. And finally, [indiscernible].

Thank you for your attention, and at this point, I will turn the call over to Miguel Aliaga, our CFO, who will review the company's operations and financials for the quarter.

[Miguel Aliaga Gargollo, executive]

Thank you, Óscar, and good morning to everyone. Please turn to Slide 15. My comments will be brief and will focus on just highlighting the main points. Occupancy was stronger than last year, reaching 65.6% versus 64% into the second quarter 2017. Revenue per available room is also important to mention as it reached 4.1%. However, it reflects effects of the lean summer vacations and the effect of the World Cup in Russia, since some business are postponed after the games, particularly with regards to the domestic clients.

Let's turn to Page 16 with the financial highlights of the quarter. Lodging revenues performed well, rising 4.8% to MXN 494.9 million for second quarter 2018 versus second quarter 2017 and a 24.6% increase in rental revenues to reach MXN 26.8 million. As a total, the company experienced an increase for the quarter of 5.7% to reach MXN 521.7 million.

In terms of the breakdown by type of hotel, the proportions were consistent with the majority of revenues, stemming from the select service segment at 51.8% in this quarter versus 47.2% in second quarter 2017.

Let's turn to a review of the income statement on Slide 17. As we discussed, total revenue for the Fibra Inn rose by 5.7% to MXN 521.7 million. Beginning in first quarter 2018, the company had reporting hotel NOI, which pertains to operation of the properties and NOI coming from our businesses. As such, this line item will also include revenues and costs from the strategic hotel pipeline. This quarter, total NOI was MXN 180.2 million, which represents a 34.5% margin, 180 basis points lower than the 36.3% of the second quarter 2017.

Adjusted EBITDA, as a result, was MXN 159.8 million, meaning a 30.6% margin. FFO was MXN 101.2 million, a 19.4% of margin when compared to the 23.5% in second quarter 2017.

Turning now on Slide 18 for the balance sheet discussion. As of June 30, 2018, Fibra Inn had cash and cash equivalents of MXN 492.9 million. Fibra Inn registered a total of MXN 199.1 million in bond loans related to our revolving credit line with Actinver and MXN 2,957,000,000 in long-term debt securities. Our total equity is valued at MXN 8.3 billion.

If you follow me on Slide 19, we can take a look at the overall current financial situation of the Fibra. These long-term financial obligations regarding FINN18 and FINN15 debt balance was 66% at a fixed rate of 9.93% and 33% of the variable rate covered with the weighted fixed rate swaps for 8.43%. As such, the weighted net cost of debt was 9.45%.

During this quarter, we used the MXN 200 million revolving bank credit line with Actinver. The company still has not [indiscernible], the one with Bancomer for MXN 300 million, which can reach up to MXN 450 million at a TIIE plus 150 basis points.

As a conclusion, on June 30, 2018, Fibra Inn has a ratio of loan-to-value that is 27.3% and a debt service that is 2.4x.

That is all for me. Thank you for your attention. And at this time, we are ready for your question. Operator?

[Operator]

[Operator Instructions] We can take our first question from Rodrigo Lavin with UBS.

[Rodrigo Lavin, analyst]

This is Rodrigo on behalf of Marimar. My questions are regarding the pipeline showed into a roadshow presentation. Since the Fibra raised 50% of the initial target of their rights issuance, what other changes can we see in the execution of the pipeline? And the second question is that if you are going to execute it with debt, what would be the cost of debt we should consider?

[Óscar Calvillo Amaya, executive]

Yes, thank you for your questions. Basically, we have a shell program ready and we are authorized by our shareholders' meeting up to MXN 250 million of issuance of new equity, we just used, MXN 1,046 million, so we have a remaining there. Then we can go very fast with the market, for if we need more equity in the future. While we're planning this, we will have the negotiated deals with -- for new -- for other investments, and then once we have the option, then we'll go and see if we can raise the equity for that option. If [indiscernible] approved and we can raise that equity, then we go ahead with that. If not, we don't want to. I think this changes the way we're going to do business because we're actually going to start raising a little amount of equity. We expect very clearly what the use of proceeds of those follow-on equities will be done. And so we will continue working on our pipeline and show to our investors what we intend to do with that money, and if they agree with that, then we'll go and proceed with the closing of that. I think that's the way we're going to handle it from now on. We don't expect to increase any much our leverage with what we already have in the -- in hand and then the credit line that we have currently. And I don't know if, Miguel, you can talk about what are the terms of those lines in terms of cost.

[Miguel Aliaga Gargollo, executive]

Yes, we are expecting specifically on the dollar-denominated debt at about LIBOR plus around 3 and 3 basis points -- 300 basis points, sorry. And the terms will be between 10 to 15 years, and again, that this is in general. We are, of course, working on the details, but that should be a good line item.

[Operator]

[Operator Instructions] We can go next to Pablo Duarte with Actinver.

[Pablo Enrique Duarte de León, analyst]

So just to get it clear, the -- your pipeline now with the conclusion of the rights offering is leaving aside the project of -- at Los Cabos?

[Óscar Calvillo Amaya, executive]

No, we're not leaving that aside. We're currently working on that, and there's lots to accomplish in that respect. We've had another project in the pipeline, but as I mentioned before, we can go very fast in the market while we are ready for that. We're planning to have the options to close those deals, and then we'll go [indiscernible] for additional equity. If investor [indiscernible] planning to do with the money, so they will provide it. If not, [indiscernible] option only because we cannot have a binding agreement if we don't have the resources.

[Operator]

[Operator Instructions] It appears we have no further questions at this time. I'll return the floor to you, speakers, for any closing remarks.

[Óscar Calvillo Amaya, executive]

We appreciate your confidence and your continued interest in our company. We look forward to speaking with you again soon. Have a good day.

[Operator]

Thank you. And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.