Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, and welcome to the Second Quarter 2020 Fibra Monterrey's Conference Call. With us this morning from Fibra Monterrey, we have Mr. Jorge Avalos, CEO; Javier Llaca, COO; and Jaime MartÃnez, CFO. They will discuss on the more important strategic financial and operating aspects of the quarter.

It is important to note that the presentation referred to this conference is available at www.fibramty.com, and recordings of the call will be available on the website of the company in the next 2 hours.

Let me remind you that information discussed in today's call may include forward-looking statements on the company's future financial performance and prospects which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions not to rely unduly on these forward-looking statements. Fibra Monterrey undertakes no obligation to publicly update or revise any forward-looking statement.

I would now like to turn the call over to Mr. Jorge Avalos. Please go ahead, sir.

[Jorge Avalos Carpinteyro, executive]

Thank you, Dan, and good morning to everyone. The COVID-19 pandemic has changed dramatically the way most of the companies conduct their businesses. The economic disruption brought on by the fall of the oil prices, the U.S.-China trade war, and the temporary closing of nonessential business have resulted in unemployment rates not seen since the 1930's Great Recession and have unfavorably impacted businesses of all sizes throughout the global economy.

Even though we have worked remotely for the past 120 days, we have focused on the continuity of our business and the well-being of our families and our tenants. I'm very proud on how we have positioned Fibra Monterrey, not only by overcoming this economic shock, but to likely drive out of it.

There are several factors that have helped us perform during this economic rotation: one, Fibra Monterrey has minimal lease expirations for the remaining of this year, equal to 9.8% of our total revenue, most of which are currently under negotiations with positive perspective; two, Fibra Monterrey's net leverage ratio continues to be one of the lowest in the industry, currently below 16%; three, we have refinanced MXN 35 million of an unsecured loan adding flexibility to our balance sheet and extended our debt maturity schedule; four, we have prioritized liquidity and solvency without reducing AFFO payout ratio or holding off distributions; five, we have worked along with our tenants and rent relief equivalent of only a 3% deferral of our total annualized rent; six, we have a well diversified portfolio, both geographically and maintenance industry. Our acquisition program will remain dormant until we see attractive opportunities that are properly priced, given today's short-term economic risks. Our property managers have implemented numerous protocols to protect the health and safety of our staff and clients in order to keep our buildings open, even though only 10% of our total population in our office buildings in Mexico, Monterrey and Guadalajara are attending on a daily basis.

Even though we had an outstanding quarter, we are very aware of the negative consequences that these health crises will create in our economy. Now we're convinced that having a solid and flexible balance sheet will let us navigate through these tough moments and will eventually seek opportunities that meet today's challenges and adequate returns.

We are strongly convinced that the road to recovery will still be paved with uncertainty. But we are also sure we will come out of it, reinforce as a better company.

I would like to turn the call to Javier, who will walk you through our portfolio performance. Javier, please go by.

[Javier Llaca García, executive]

Thank you, Jorge, and good morning, everyone. I hope you all are safe and sound back at home. I will start with the same-property performance analysis of the portfolio for the current quarter that we present on Page 3 of the webcast material.

The portion of the portfolio for same-property purposes is comprised by 53 out of the 58 properties that we own by the end of the second quarter of 2020. Occupancy dropped 90 basis points mainly due to exploration and partial vacancy on one of our industrial properties in San Luis PotosÃ, which continues under negotiation for a new lease and one-off is exploration in Mexico City.

In terms of gross revenues, this grew from MXN 293 million to more than MXN 337 million, a growth of 15.2%, driven mainly by the accrue devaluation that the Mexican peso experienced, particularly during April and May. Operating expenses remain almost unchanged by the combination of additional expenses on certain materials and personal protection equipment and some savings from electrical power caused by a lesser attendance of users or to some of our office buildings.

As Jorge just mentioned, we're currently experiencing ratios of close to 10%. This resulted in an increase on our net operating income of approximately MXN 44.4 million or 16.9% growth, which is a substantially larger number that are weighted peso-dollar inflation rate plus valuation in the exchange rate during the last 12 months.

It is important to point out that the same-property NOI margin reached a record high figure of 91.3%, an increase of 130 basis points from 90% in the second quarter of 2019. Let's remember that our goal on NOI margin is up 88%. Once we incorporated additional acquisitions and constructions, which are all triple net leases, we were able to increase our net operating income in more than 23% year-to-year and our NOI margin increased 170 basis points from 90.1% to 91.8%. Again, we believe that these margin levels are at typical and are consequent on the recent and current volatility in the financial market.

On Page 4 of the presentation, you have the key performance indicators of the portfolio as well as the exploration profile of our lease contracts, all as percentages of our income. The combination of asset classes of portfolios practically we happen to have between our office and industrial property. And for the first time, our income from industrial properties surpassed our office components.

Our currency composition remains at close to 75% of dollar-denominated leases in length with our capital structure that Jaime will address later during the call. The weighted average remaining term continues in the number for the 5 years with more than 55% of our total income schedule to start expiring not before 2024.

We believe that it's important to explain the progress on renewal of leases that have been scheduled to expire during this year. Page 5 of the presentation explains in more detail this progress.

As you might remember, at the beginning of the year, we were facing scheduled expansion of 14.1% of our total gross revenues. As of the end of June, we have renewed 4% and the current -- and are currently in process of renewing another 7.6%. This would represent at least 11.6% of the original 14.1% or an equivalent retention rate of 82.3%, in line with the 80% to 85% estimate in early 2020.

As I have mentioned before, some of the vacant or soon to be vacant space of our portfolio is already in negotiation with potential new tenants. In order to fully understand the behavior of the rent flow of our portfolio, on Page 6, we present a comparison chart of the levels of collection of rent before and during the sanitary contingency due to COVID-19 pandemic.

As you can see, levels of collections after March contracted marginally, given the effect of certain delays in effective rent payments while execution of binding deferment payments, use of secured deposit of [ proto financing ] and administrative hurdle on certain changes on guarantee trust in light of debt prepayment that Jaime will address later in more detail.

Excluding these delays that will most likely catch up during the next few weeks, the rate of collections overall has kept very similar speed than observed during the first quarter. It is important to note that rent of the months of April, March and June are being collected during July. But nevertheless, we are considering the results of this past quarter certain research that Jaime will also talk about, and we could address in more detail during the Q&A portion of the call.

Moving on to the last page of the operations space and in connection with my previous explanation on collection rates, we present on Page 7 of the webcast material, the highlights of our tenant relief program implemented during the last 3 months.

As you can see, we received relief requests from tenants that represent 26.6% of our total annualized gross rent income. As we explained during our last conference call, we implemented a release program based on deferment of the rent payment for certain payments, including self-financing by means of the waste use of security deposits for a total of MXN 23.3 million. In addition to that, we financed close to MXN 3.3 million for the remaining of the year and deferred MXN 15.3 million to be reimbursed by the tenants during 2021, including financing costs.

The bottom line for our relief program totaled MXN 41.8 million or 3.2% of the total annualized gross net income. I want to emphasize that more than half of the program has already been secured with the use of security deposits, and we feel positive about the recovery of the remaining for the program during 2021.

As Jorge mentioned during his introduction, although we have our acquisitions program dormant, we are exploring investment opportunities that have appeared in the market and will continue to arrive. We will be very selective and cautious when it comes to reactivate the decision. I will be more than happy to address in more detail any of the operations and acquisitions aspects during Q&A.

With that, I'm going to ask our CFO, Dr. Jaime MartÃnez, to talk about the key financial aspects of Fibra Monterrey. Go ahead, Jaime.

[Jaime Martínez Trigueros, executive]

Thank you, Javier, and good morning to everyone. I hope that you and your families are healthy and safe. At the light of COVID-19 pandemic, the recovery of global and domestic economies as of today remains uncertain. Therefore, an assessment of overall effects of the situation on Fibra Monterrey's future financial performance will depend on its evolution over the upcoming months.

Given the challenges to come, it is important for Fibra Monterrey to maintain flexibility in its financial position, a solid balance sheet, will provide support to comply with the financial commitment as well as dry powder for potential acquisitions.

In terms of cash, as on Slide 8, which is an important resource of flexibility, Fibra Monterrey holds 18% of its assets invested in money market, one of the highest levels in the company's history. Additionally, we have MXN 1 billion plus $16 million undrawn revolving credit lines, providing nearly 9% additional liquidity as a percentage of assets is needed. At the end of the second quarter, net loan-to-value stays around 15%, one of the lowest levels in the industry.

Talking about debt, as shown on Slide 9, there is no significant debt maturities in the near future, except for the scheduled amortization of certain loans in the amount of $8.3 million during 2020. The $3.6 million outstanding balance of the Fibra Monterrey life loan was paid in advance on April 23 to optimize warranties use.

As mentioned in previous quarter, the $35 million unsecured loan subscribed with HSBC, was financed through drawdown of the HSBC syndicated loan for the same amount on June 8. This transaction allowed us to extend the maturity from March 2022 to December 2024.

Moving to the solid -- to the Slide 10, I'm sorry. Since the first quarter, financial markets increased its volatility because of the COVID-19 pandemic. Such movements took Mexican peso exchange rate versus U.S. dollar out of the range that previously supported Fibra Monterrey's guidance, according with our corporate governance structure that required to revisit our estimates for the year.

The revised guidance includes 2 out of 3 effects that modify Fibra Monterrey's AFFO during the pandemic. The first, as owning in Slide 10, is related with exchange rate and represents an additional cash flow of around MXN 76 million or MXN 0.12 per per CBFI. The second effect reflects the reduction after the acquisitions were put on hold as well as lower leverage associated with them and the lower interest rate at which our cash is invested, given the central bank reduction through the year.

The second effect account for a reduction in AFFO of around MXN 105 million or MXN 0.15 per CBFI. The net effect of both conditions results in a reduction of MXN 0.03 per CBFI in our year-end guidance and the new exchange rate.

The third effect is related with occupancy, expenses and other items related with the operation of Fibra Monterrey, that effect was not included in the guidance revision because it is expected, of course, to reduce as much as possible this effect.

Finally, I would like to talk about the distribution, which accounts of around MXN 0.27 per CBFI during the quarter or at yesterday's price, a yield of 11% annualized. The dividend yield of our updated guidance is substantially higher when compared with current fixed income yield and inflation rate.

That will be all. Dan, please proceed with the questions.

[Operator]

[Operator Instructions] We'll take our first question in queue.

[Gordon Lee, analyst]

Hello, can you hear me?

[Jorge Avalos Carpinteyro, executive]

Yes. We can.

[Gordon Lee, analyst]

It's Gordon Lee from BTG. Two quick questions. The first is, in the previous conference call, Javier, you had mentioned that you thought that because of the uncertainty that it was likely that you might see higher renewal rates from higher retention rates from clients than you would have otherwise seen in the office segment. And I was wondering whether you still think that's the case?

And the second comment I wanted -- the second question I had is I realize that the M&A strategy is on hold, but you mentioned that you're looking at opportunities. And I was wondering whether as you're looking at those opportunities, you have concluded that you're happy with the structure of assets and exposures that you have, basically, 50-50 office and industrial? Or whether as a result of the pandemic, you're considering other segments as well or maybe a rebalancing of your existing exposures?

[Javier Llaca García, executive]

Gordon. Good to hear from you. Thank you for the question. Regarding the first question, yes, what we're looking at the office arena is up in light of the uncertainty ahead, especially in the short and midterm. What we're looking at is that the tenants are not making any long-term decisions regarding relocating their office space to another building and spending the required capital expenses to relocate.

So what they're doing is that they're looking for short-term renewal terms in order to have time and buy time to make a better decision once the pandemic effect starts winding up. So we're looking at that as our portfolio can tell you that it's happening to us. We had an exploration that didn't renew in one of our office buildings in Mexico City, that was scheduled, and it's a company that was already ahead of relocating and expanding their office operation. But the short answer is yes. We're looking at a higher retention rate, at least for short term renewal terms in the immediate future.

Regarding our investment and acquisition strategy, we are not considering expanding into different asset classes. We're happy with the office and industrial portion of portfolio. I would tell you that we're looking at opportunities in both arenas that, hopefully, we will not be able to discuss openly later. But we are being very selective and cautious about those new acquisitions evaluations. We are figuring out how the evaluations are going to look like in the future, but the short answer is we're going to keep to -- we're going to stay on office and industrial in a similar proportion that we have right now.

[Gordon Lee, analyst]

Perfect. That's very clear. If I could just have one follow-up on the first question on the retention of office clients and the short-term leases. When you do enter a negotiation with a client that's looking for a solution like that, do you reflect the greater risk that you're effectively taking through higher asking rental rates or are you renewing them for the short run at the same rental rate?

[Javier Llaca García, executive]

The vast majority of the cases, when a tenant has an expiration schedule, in most cases, they have the right to extend. And the right to extend is under the same conditions that they have on the contract. So what we're doing is that unlike long-term renewal when you can do some kind of concession for a longer-term, if we get a short-term renewal, I could tell you that in most of the cases, if not all of the cases, that contract is extended under the same conditions for a short term.

In other words, we have -- on those short-term renewals, most likely you're going to have a positive lease spread only because of the escalation of lease rate based upon CPI or [Foreign Language] accordingly.

[Operator]

We'll take our next question in queue.

[Carlos Alcaraz Pineda, analyst]

Can you hear me?

[Jorge Avalos Carpinteyro, executive]

Yes. We can.

[Carlos Alcaraz Pineda, analyst]

I've got 2 questions. The first one is, when are you planning to have ready the coupon asset? And the second one is if you could share with us how are the negotiations going along with clients with expiring contracts in 2020 and the next year?

[Javier Llaca García, executive]

Can you tell who you are, please?

[Carlos Alcaraz Pineda, analyst]

Sorry, I don't hear you.

[Javier Llaca García, executive]

Can you tell us your name, please?

[Carlos Alcaraz Pineda, analyst]

Carlos from Apalache Análisis.

[Javier Llaca García, executive]

Thank you, Carlo. Regarding the coupon property, we're making progress on the public sector in terms of permits and licenses. We are changing the use of the property from industrial to commercial and services in order to have at least in the short term, a big parking facility for our office buildings. And we got a delay because of municipality processes. We already got those, and we're about to start demolition of the building in order to clean up the property and we positioned that as a temporary parking space before the end of the year.

We are working with a couple of developers in the local marketplace to start figuring out what's the best and highest use of the property and eventually start working on a project, along with a developer, let's remember that we do not develop. We were considering before the pandemic on the option to sell the property. We believe that selling of the property right now is not a good timing to do so. So We continue to reposition that at least for use of our existing tenant base and keep getting positive cash flow from the property.

Can you repeat the second question, please?

[Carlos Alcaraz Pineda, analyst]

Yes. If you could share with us how are the new stations going along with clients with expiring contracts in this 2020 and the next year?

[Javier Llaca García, executive]

Yes, sure. On Slide 5 -- on Page 5 of the materials, we present the progress. We have about 82.3% retention rate for leases expiring this year. We still feel positive about some of the remaining. But at least, we're going to have 82.3% retention rate, in line with our 80% to 85% estimates in earlier this year.

In regards to 2021, we already secured 30% of expirations. We are kind of a hope -- on a hope for the renewal and negotiations for next year because tenants are more focused on other things, and they believe they still have time to sourcing out. So I can tell you that we keep making progress, both at a slower weight for expiration scheduled for next year.

[Operator]

We'll take our next question in queue.

[Armando Rodriguez, analyst]

So my question here is about your balance sheet. Considering your cash and cash equivalents this quarter MXN 3.5 billion, how are you seeing the capital deployment during this year and next year and particularly the entry and exit cap rate, particularly, in the exit strategy? That's my only question

[Jorge Avalos Carpinteyro, executive]

I didn't get your name. Can you please tell us who is it?

[Armando Rodriguez, analyst]

I'm Armando Rodriguez from Signum Research.

[Jorge Avalos Carpinteyro, executive]

Thank you, Armando. Didn't recognize you. This is Jorge. Yes, we have, as you mentioned, end of liquidity right now. We are evaluating different options. As Javier mentioned, we're looking at a different portfolio -- office portfolio. Remember that we always look at stabilized portfolio. We haven't yet evaluated a building that is at the right price, given the current conditions. We're also looking at different industrial portfolios. We like that.

As Gordon was mentioning, we don't want to enter into a different segment, but we see that the continuity and the industrial cash flows are more predictable than the office buildings right now. We believe we will do some deployment probably within the next 12 months.

In terms of caps, I would love to give you an insight of where we are seeing the valuations, but we're just holding back and determining what are the right prices for that. So we're just keep on seeing, evaluating and probably giving you some insight for the next call.

In terms of pricing, would you like to mention something, Javier?

[Javier Llaca García, executive]

No, I think this is the right thing that what focuses just right. We're seeing -- it's hard to tell early to say about the behavior of cap rate. Given the fact that although interest rates continue to lower, we believe that the risk time and the risk -- counter risk is a little bit of the spread. So we don't know just where caps are going to end. There are no transactions lately other than related parties, which is not really a good thermometer. But we're going to start seeing those probably within the next couple of quarters to have a better understanding on where cap rates are falling into.

[Jaime Martínez Trigueros, executive]

And I would like add, Armando, if you're just about cap, because the cash flow projections are more volatile than before. So maybe you can stay in the same cap, higher or lower, but the key issue is the cash flow. And as you know, there's a lot of uncertainty. So we are more focused on the cash flow prediction than the cap because it is what is going to change our results.

[Operator]

We'll take our next question in queue.

[Unknown Analyst]

[indiscernible] [ Murguia from eCF ] Capital. I have 2 questions regarding on the earnings release. My first question is, if you can give us more color about the risk assessment that we have done or you will be doing for the next couple of months regarding to the metrics or the components that you are considering in this risk assessment? And my second question is regarding to Banco Famsa and then you can give me your thoughts about the situation because it seems that it's not going to be easy from the developer point of view. And what would be the impact that you will consider for the couple of months or maybe years?

[Javier Llaca García, executive]

Thank you very much. Let me start with the second question regarding Banco Famsa. It's well known by the public that Banco Famsa is right now under -- started the liquidation process of the bank is not going to be a short or easy process to do. We have already get in contact with the designated liquidator for banking the half of the part. And what we're doing is that we are getting to an agreement with the liquidator. We already made a reserve on the results of the second quarter, anticipating ourselves to a differential between the existing current lease rate that we have for the property and reduce at least that it is being negotiated with very positive outlook, I must say, with the liquidator.

We are also starting -- started to discuss and to review with different developers and investors in the local place -- in the local marketplace, a potential repositioning of the property is a very well located asset with high reposition capacity. It was one of the key drivers when we did the underwriting of the property besides the underwriting, I mean, the underlying company.

So I can tell you that we already considered an impact on the lease. We are inserting that. We believe that we are being very conservative on that we serve. And I personally believe that we're going to have enough time with a liquidation process to make a proper analysis and to put together a program to reposition the property, given the fact that the property has a lot more potential that is current because of an office building out. So that property -- when we bought that property, that property is located just a few meters from one of the main central mobile transfer centers in the city and has a 10x potential of what is already built there.

So we're looking at residual value -- a very attractive residual value, but we're going to do it very carefully with a lot of time and by the side of a well-experienced developer. And we're going to contribute that property eventually to a new development, but we're making a lot of process with the new administration of the bank.

Can you repeat, please, the first question. We're not sure that we've got it right.

[Unknown Analyst]

Yes. Because the first question is about that you mentioned in the earnings release that you have performed, you have done a risk assessment, but it's not clear which it means? If you are considering the pandemic impact on the tenants? Or you are considering the impact of a whole company? Or is specific in some sectors that are not performing and will not perform well for the couple of next months?

[Javier Llaca García, executive]

Yes. Perfect.

[Unknown Analyst]

If you are to maybe clarify what is the consideration in this risk assessment?

[Javier Llaca García, executive]

Yes, perfect. Thank you for repeating that. Yes, we started -- since the beginning of a pandemic and the lockdown, we started to do a scroll down of the whole portfolio and every single one of our tenants, and we're doing a risk and credit assessment on -- at a property level and at a tenant level. We're very deep into that analysis. We presented some of the preliminary results to our Board last week. We're going to be finishing these full analysis in the next couple of weeks, and these analysis consider not only short but long-term impact on the portfolio. I can tell you that we're looking at a very resilient portfolio right now, 80-something percent of our tenants are multinational, most of the public companies that have a very strong and healthy balance sheet. We are working with them side by side, and we're doing a deep analysis of the forecast portfolio of our tenants, small and big.

So yes, we are making a lot of progress on that. We're going to be able to share final results with our Board shortly. And when the time is right, rather sooner than later, we're going to share that with our investors and the analysts.

[Operator]

We'll take our next question in queue.

[Francisco Chávez Martínez, analyst]

This is Francisco Chávez from BBVA. My first is regarding the office segment. You can share with us what are the modifications on the layout of the office space that you are doing or the payments are asking you for? And the second question is on the digital transformation that you mentioned in press release. If you can give us any color on this, and what will be implied for the CapEx in the coming quarters?

[Javier Llaca García, executive]

Of course, Paco, good to hear from you. Regarding your first question in the office space, I can tell you that we're starting from our own house. What we're doing is that we were locating Fibra Monterrey's office space within one of our buildings, of course. We're moving to a larger space. But what we're doing is that we are working along with designers and furniture manufacturers and services and equipment providers. And what we're doing is that we're adapting our own space. I don't like to turn the new normality or the new reality. We are designing our space for the new return-to-the-office space.

But we're doing it with 2 ideas in mind. One is, of course, the health and well-being of our own staff and team. But also, we're doing this as a live lab. What we're looking and what we're hearing from our tenants is that they are redesigning and rethinking their spaces, and we want them to look at our own as an idea. We're providing hospital level quality on air conditioning. We are doing a certification on wealth for the new space. We're providing physical distancing and so forth and so on. And we want our tenants to look at on the real world.

And we're working already with a couple of them on doing the investment, the capital of investments required to do that redesign of the layout or sell and amortize it throughout the rent. And that's one of the first and added value that the tenants have with an institutional tenant of ourselves.

We still see a lot of different trends and ideas from the tenants in the near future on the office. I think it's still early to say. I can tell you that the growth of the ideas and the trend rely on reidentifying the office space, providing more space to the same people or the same space for less people. And work from home is going to be a good complement, but it's not going to be binary. There is going to be an impression on unemployment rate that's going to create probably some vacancy -- some additional vacancy and reduction of space on some office user. But at least what we're looking inside our portfolio is our companies that at least are going to keep most of their people and that is going to translate in more space or same pace with a new layout and complement from work from home.

And on the second question, I'm going to turn it to Jorge to talk about digital transformation.

[Jorge Avalos Carpinteyro, executive]

Thank you, Paco. Thank you, Javier. Yes, another digital transformation, Paco. What we want to do, the medullar thing about going to a transformation is big data. We've seen that not only in Mexico, but worldwide there's a tendency that the real estate industry was probably very low in terms of data analysis and the knowledge of the users, not the companies that work for the real estate company, but the users within, particularly, in office space.

So in that sense, Internet of Things and different apps have been used in the prospect industry in order to create a better experience nowadays, not only in terms of good experience, but also in terms of security, sanitization and information that you can gather from who are your users and what they're doing. So in that sense, we've been creating for the past 6 months. We've been working with different suppliers. We're creating with them an application called, Concierge, where not only the users can transact in terms of food, access to the building, different types of services that will provide us information about gender, age, traffic, especially traffic nowadays that you don't want to have high-density spaces within your building. So yes, we're working on that. It's something that is going to take time because there's not enough or there's not too many companies that have that technology. So we're creating that technology with different suppliers.

[Javier Llaca García, executive]

And it is important to point out, Paco, that this was a process before pandemic. I mean, we started this process last year, late last year. What the pandemic is doing is to speed up things, but it was part of our key strategies for 2020 on the profit.

[Jorge Avalos Carpinteyro, executive]

So it's included in the CapEx already in our budget.

[Operator]

We'll take our next question in queue. [indiscernible]

[Unknown Analyst]

Regarding your FO that increased year-over-year, however, the AFFO purchase, you see that how it increased up around 7.5%. If I'm not mistaken, this is with a new cash flow region until last year seeing [ CBFIs. ] My question is, you said you don't have any immediate stance for an acquisition. So what are your plans for this new capital delays delayed last year?

[Jaime Martínez Trigueros, executive]

We're not sure if we've got your question right. You're asking something regarding our AFFO growth?

[Unknown Analyst]

Yes, the AFFO certificate.

[Jaime Martínez Trigueros, executive]

Yes, which are going to be the drivers of the AFFO, is that right?

[Unknown Analyst]

Yes. Like comparing year-over-year, you had a decrease of 7.5% on AFFO per certificate. And this is, if I'm not mistaken, the reason for this is that we raised capital last year, you have more certificate in circulation. So basically what are your plans for this -- what are your plans for this new capital if you don't have any acquisition plans in the near term?

[Jaime Martínez Trigueros, executive]

Right. Let me start with the acquisition. We do want to have acquisitions. We think that there's a lot -- there's going to be a lot of opportunities. Actually, we are seeing some of them, Javier and Jorge mentioned. So we are -- what we wanted just to be sure that we acquire at the right price. So it's most -- I would say it's a matter of time. You can be sure that we are going to be there. This is one of the drivers.

The second driver. Well, as Javier mentioned, we have some properties that are in transition to a higher -- to a better higher users. So those are also supposed to trigger some additional cash flow for AFFO. And the third one is the level that you can see in our balance sheet, we have a significant reduction in net leverage or net loan to value. So that's another reduction in terms of productivity of the resources. As an example, let's put a round number, we are around 4.5% the cost of our debt. Even though it is in dollars, as we have delevered with the dollar income, let's put to 4.5%. And at the beginning of the year, we are investing those resources even in money market at around 7.5%, 8%. At this time, we are investing in such resources, let's put it 4.7%, 5%. So I mean, we are going to have additional income for the leverage that at this time, it's not -- we don't have a positive going anymore. So we have several drivers.

I don't know, Javier, if you want to mention something around that?

[Javier Llaca García, executive]

Yes, sure. As Jaime mentioned, we have at least 3 properties in our portfolio that are subject to repositioning. And when we say repositioning, we don't mean disposition. We mean either disposition or redevelopment of the property, just to be clear. And we believe that those 3 properties are -- had a better and higher yields than they have right now, as Jaime mentioned. And again, this is not exclusive to the pandemic situation. Those properties were bought from the beginning, keeping the positioning -- repositioning capacity in mind. And we believe that we have enough room there to cover for the differential on the low interest rate that Jaime mentioned.

So we just waiting to see -- to have a clearer view of the market, but we're already starting to work on feasibility and idea for the project on those properties.

[Jorge Avalos Carpinteyro, executive]

If you could turn on to Page 10, it would be a more example with Jaime. What Jaime is saying on that page, the impact that we have on not doing acquisitions and the impact that Jaime also mentioned about the interest rate that it came from [ 8% to 4.7% ] in the treasury, it has an impact of MXN 0.15.

If we would start doing transactions and acquisitions...

[Javier Llaca García, executive]

Let me answer that. With the proper leverage, we have enough accretiveness in order to the guidance that you're seeing there at [ 1.05 to -- 1.03 to 1.07. ] That accretiveness is going to be there, but we talk to our stockholders. We talk to our Board members, and we decided that it was prudent to stop acquisitions until we found out what this crisis was all about and how the repricing of things would turn out. So it is a conservative position, but it gives us liquidity. It gives us flexibility. And the best news about it is that when we have more clarity, it's going to be very accretive for our stockholders. And even though it is going to be more accretive than what it is today, the results and the guidance that we're giving to our stockholders is -- we believe it is just a phenomenon.

[Operator]

We'll take our next question in queue.

[Martín Lara, analyst]

This is MartÃn Lara from Miranda Global Research. Congratulations for the very strong results. I only have one question. What cities or regions do you prefer to acquire new properties? Do you think it will be concentrated in the Monterrey, Guadalajara, Mexico City clientele or you will expand into other places?

[Javier Llaca García, executive]

MartÃn, we're going to keep our investment guidelines in terms of geographical coverage. We want to focus -- let me put it in 2 parts. On industrial, we want to focus on the northern regions and in a lesser but still a proportion in the [indiscernible] West regions. But mainly, I would say, mainly in the northern market, in light of the new tenant that was put in place, most of our -- if not the vast majority of our tenants or companies related to the trade agreement with U.S. and Canada.

In terms of office space, we're going to continue focusing on the 3 major markets that are Mexico City, Guadalajara and Monterrey. We do not discard the idea of emerging market, but for back office buildings, not corporate offices. The Bajio area might be -- might present some opportunities. We have nothing definitely yet, but we're going to focus on Mexico City, Guadalajara, Monterrey office and especially northern market for industrial.

[Operator]

[Operator Instructions] With no questions in queue. I would like to turn the call over to management of the company.

[Jorge Avalos Carpinteyro, executive]

Well, thank you, everyone, for this -- attending this conference call, and we hope to see you and talk to you next time for the next quarter. Thank you. Have a great day. Thank you, Dan.