Fibra Shop Portafolios Inmobiliarios SAPI de CV

BMV:FSHOP13

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to FibraShop's First Quarter 2020 Results Conference Call. FibraShop issued its earnings report yesterday. If you did not receive a copy via e-mail, please do not hesitate to contact us by e-mail in Mexico city at [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 and company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Financial Reporting Standards, and are stated in nominal Mexican pesos, unless otherwise noted.

Joining me today from FibraShop in Mexico City is Salvador Cayón, Chief Executive Officer; Gabriel Ramirez, Chief Financial Officer; and Irvin Garcia, Controller and Investor Relations Officer. I now -- now I will turn the call over to Mr. Garcia. Sir, please begin.

[Irvin García Millán, executive]

Thank you, and good afternoon, everyone. Thank you for joining in today's conference call. During our call today, I will start by talking about the financial highlights of the 2020 first quarter results.

The total revenues by the end of March amounted MXN 366 million (sic) [ MXN 376 million ], almost 3.2% higher from the same quarter last year. NOI in the quarter increased 3.55% compared to the same quarter of the last year NOI of MXN 285 million. The NOI margin was 65.68% (sic) [ 75.68% ] now that NOI margin at the property level rose 85%. EBITDA was MXN 273 million increased 3.5% compared to the same quarter last year, and EBITDA margin was 72.53%.

The adjusted net income in the quarter that is without including all nonmonetary line was MXN 136 million, which is 8.2% increase over the same quarter last year. Adjusted net income for the quarter by certificate was 0.3062 centavos and increased 22.28% compared to the same quarter last year and which implies an annual return per certificate of 14.80%. It was one of the highest despite of the complexity and with the comparison with the best quarter of the history of Fibra Shop in the fourth quarter of 2019.

The average occupancy in the portfolio remained solid and closed at 95.76%, 11 consecutive quarters above the international standard of 95%. Since of the last year, all the people around the world have been suffering due to the pandemic of COVID-19, and it has forced us to face an unprecedented challenge. According to the specialists, Mexico will face a most significant impact during the second quarter of the year. Our contingency program were activated to all properties and protocols were applied immediately.

As part of FibraShop's commitment to the health, we have implemented a series of measures to ramp up cleaning, sanitation, and safe distancing at our properties protecting our people and clients. These measures comply strictly with the recommendations issued by the health authorities.

In a responsible finance commitment, our Technical Committee approved the implementation of a series of measures in order to protect the liquidity. Our adoption in non-essential expenses, a pause in investment projects, non-essential CapEx and strategic projects like the solar panel, were also suspended. It is important to remember that in 2019, FibraShop informed to the public that it has successfully concluded its debt financing plans, which include the close of a committed credit line of MXN 3 billion, a full offering for FSHOP15 ond holders to acquire bonds and issuance of 2 new bonds, the FSHOP19 and FSHOP19U. As a result, clearly, all of the company bank debt was replaced with public debt. The credit line was fully paid down and is available to cover the expiration of the FSHOP15 bond in the amount of MXN 2.75 billion.

FibraShop therefore has the expiration covered to the year 2023. In order to add financial flexibility and liquidity to FibraShop, the Technical Committee decided to modify the minimum dividend distribution payments. The previous policy consisted of an annual minimum payment of 80 cents per CBFI. The new policy consists of paying either 95% of the fiscal results, which is the minimum required by the Law and which may be paid by March 15 of the year following the fiscal year in question and 0, whichever is higher.

As a function of market evolution during the course of each quarter, the Technical Committee will determine how much will be paid by way of dividend distribution, always in compliance with the minimum amount established by Law. The Technical Committee of Fibra determined a distribution for the third quarter of 2020 and amounted of MXN 50 million and will be paid in CBFI of FibraShop.

In conclusion, the crisis will bring us new challenge, and we are facing it with responsibility and professionalism, aware of the problems that our stores will face and with full responsibility towards our investors. We are grateful for the support and trust of them, and we reiterate our commitment to continue working for the future of the Fibra. Together with our focus on transparency and good corporate governance. At this time, I would like to open the floor for questions. Operator, we are ready to take any questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Gordon Lee with BTG Pactual.

[Gordon Lee, analyst]

I hope that you and your families are all doing well. A couple of questions really both of them having to do with your covenants, both the covenants on the debt, but also your regulatory obligations, which is that given what we're likely to see in the second quarter and in the third quarter potentially, it would seem that on 1 or 2 of these measures, particularly in thinking of the debt service ratio for your bonds and the coverage service ratio for the regulatory restrictions, the risk that you end up being below the levels is not trivial, right? It's possible, maybe even likely. So I was wondering if you've had conversations with bondholders to get a waiver on these covenants.

And on the regulatory front, I was wondering what are the implications? What corrective measures do you have to put in place, how long do you have to comply. How will the regulator approach a situation like this?

[Gabriel Ramirez Fernandez, executive]

Gordon, thank you for attending the call, and thank you for the questions. For the second question, for the covenant of the CNBV regulation that we forecast with the payoffs or the obligation through 18 months instead of credit clients or the cash that you already have. When you are close to the end for obligation, that is the case of FibraShop in terms of FSHOP15, these measures by construction moves to close to 1. But after that, when I say involving the credit line, we don't have any obligations in the short term. And that indicator goes up.

But in the case of [indiscernible] that any Fibra breaks that covenant, the regulation phase that you have to present to the assembly of investors a product, but only present that you don't need a proof of the assembly. In the past, there is a couple of people that goes to the assembly to do that. There is not any implication for, for example, the status of the Fibra. That is basically in perfect that the law is having perfect regulation because they don't have to pay anything if they lose that covenant.

In terms of the covenants of the bonds and the other viability plans or issue of the bonds. In terms of the cover of interest as of today, we have a very good space to see comfortable. Obviously, it depends on the impact of the income of the near months and the long haul of the situation of the COVID-19. Maybe in the future, we are close to the bondholders and close to the banks to take -- in case of we need to take a compensation or maybe a waiver or fee in our forecast in our express scenario in our forecast.

Today, we don't have any implication in the covenant. We present in our board some press scenarios and this month, the collect of the rent is better than our base scenario that presented in our forecast.

[Gordon Lee, analyst]

Perfect. If I could just follow up on that, my follow-up question was actually if you could give us an update of what collections of rent through April have looked like relative to, say, a normal run rate? That would be helpful.

[Gabriel Ramirez Fernandez, executive]

Well, we divide the portfolio in 3 buckets. You have the potential tenants that supermarket, drug stores, restaurants that have the possibility to pick up and banks and a dollar service that [indiscernible] the pocket dynamics. We have in all of the shopping centers that FibraShop has essential payments. That is the reason that the 100% of the shopping centers of FibraShop today is open and operating. Obviously, there is some other tenants that by regulation have to close. For the essential, we don't do anything, they pay full rent and full maintenance payments.

The other part of the -- the second part of the portfolio is the big brands, for example, [indiscernible] H&M and the big group that we have, no single tenant in one shopping mall. We have a lot of payments for the brands in our shopping centers. And we have a very good conversation with them to help us. They need some help for liquidity. We have the possibility to give off some liquidity, and after according to our situation, try to recover with an effort to put some discounts or defer some payments for the tenant.

And in the third bucket, we call small tenants or tenants who follow or it's a part of a big group and we spend basically 2 programs. One we run this on discount for 2 months and the other, they need more discount that is not a discount that there is like credit like this program from the banks that we deferred part of the payment and then put that payment like extending the lease agreement maturity or increasing the renovation, the rent.

In this strategy, we are with a very, very good advantage. We expect that we call in for the rent around 70% of the normal income in spite of variable rent, in spite of parking lot and only talk about the collect of the rent for maintenance. That is basically our expectation that bank of today of that plan a little above our expectation.

[Gordon Lee, analyst]

Sorry, just to repeat that, you said 70%, 7-0.

[Gabriel Ramirez Fernandez, executive]

Yes. 7-0.

[Operator]

Our next question comes from the line of Eduardo Altamirano with HSBC.

[Eduardo Altamirano, analyst]

I hope everyone is also safe. I guess at least I've got 2. One is just a follow-up to Gordon's question, and this would be in light of any potential breaches that could happen with any coverage ratios. Given the fact that these are deferred, would the booking, I guess, it's an accounting issue, would the bookings still be the same let's say on an EBITDA or income statement basis to where the ratios actually are not necessarily impacted, but the cash contributions from them or actually the cash flows are weaker.

And the second question is how are contract renegotiations going? And what concessions are currently being requested and granted for any, let's say, upcoming or pending contract renegotiations that you have from your current end?

[Gabriel Ramirez Fernandez, executive]

Thank you, Eduardo, for the both questions. And the first question is about the -- like Gordon, on the covenant. But what is exactly the question, I don't have a good understanding of your question. It's about what happened if we have to broke or what...

[Eduardo Altamirano, analyst]

Well, so the issue is that since you do have a lot of rents are being deferred. Would this be an actual impact on the income statement the way you treat this to where it actually could let's say arrive at a potential breach of any sort of covenant? Or would that be...

[Gabriel Ramirez Fernandez, executive]

I got it. I got it. I got the question. I spoke on it the last question for Gordon. We expect and we are very close to that goal to collect 70% of the rent in cash that is received today. The other percentage in our worst case scenario, we don't receive any money. But in the deals with the tenants, part of that we recover or try to recover in the future. But in our worst case scenario put that is not income -- for any that 30%. In this scenario, we don't have any problem with the covenant and any problem to cover our -- obviously, our obligation in the short term.

We are working to be close to the tenants group to get the deals. And the tenants understand that FibraShop have a very, very good shopping centers. The 80% or 90% of our shopping centers are the best shopping center in the region, it is basically the biggest and strongest shopping center. They need that shopping center after the basically [indiscernible] because they need to recover normalizing stores. Maybe that tenant had to close or have promised to pay the rent, maybe use another shopping center, not the shopping center of FibraShop that is basically the reason that we have a very good deal with the tenants.

In terms of the other question of the renovation, on average, these agreements that we do every year, it's around 10%, 5% of that 10% we renew at the beginning of the year and in the other half at the middle of it, that we already renewed between December and January. And the other part is in renewal in May, June and July. The conversation of the tenant, we don't see of today a different trend of the renewal because they know that it has in the past a very rigorous rents in our malls that is on the [indiscernible] to our situation and maybe the lease spread reduced, but we don't see a problem to increase the back-end fee in that number. We don't see that in our base scenario.

[Operator]

[Operator Instructions] Our next question comes from the line of Armando Rodriguez with Signum Research.

[Armando Rodriguez, analyst]

Hoping everyone is fine in these circumstances. Just a question related to the dividend policy. And we should consider that those new delivery CBFIs will have economic rights in the short term? That's my only question.

[Gabriel Ramirez Fernandez, executive]

Thank you, Armando. The dividend policy we put in 2 ways. The first way, if you remember 1 [indiscernible] we changed the policy of distribution. In the past, we distributed 100% of the FFO basically the cash flow was after taxes and interest, the flow of the company and we implement a different -- all these distribution because we put some strategical projects like solar, some expansion, something like that. That policy put floor in the distribution. That floor obviously is the minimum of load and added for 95% of the system result. Or in the case of Fibrashop, we do remember in the last year this fiscal result is close -- it's negative and close to 0.

It is around 0, but in the negative side. And we put for the investor guidance or floor to 80 cents per CBFI per year. That is basically, but in the last year, we distribute 90 cents that is basically 22.5 cents per quarter. We -- because the -- in this situation, maybe we need some liquidity, and we don't see when we issued a new policy at the beginning of the pandemic, and we have a little visibility of the situation. Today, we have more visibility. We put out the floor because we need the flexibility in terms of the Board -- the vote of the Fibrashop, the vote of the concerned member decide what is the distribution, what is the distribution every quarter. And what part is about the floor and the visibility.

In this quarter, because of the weaker cash. We decide to distribute around the half of the money that we distribute in the past quarters. And we decided to distribute [indiscernible] (24:41) to keep cash. There is not that -- the implication of that is not that in the next quarter, we do the same. The idea is to see what is the [indiscernible] situation. And in terms of the situation, it comes to the normal situation -- close to normal situation, maybe with Board members decided to return to the past standard of distribution in terms of money and in terms of cash.

[Armando Rodriguez, analyst]

Perfect, and just to confirm, those new CBFIs will have economic rights in the short term.

[Gabriel Ramirez Fernandez, executive]

Yes. [indiscernible] already tapped both areas to pay cash inside the company.

[Operator]

We have no further questions at this time. Mr. Cayon, I would now like to turn the floor back over to you for closing comments.

[Salvador Cayón Ceballos, executive]

Yes. First, I hope that everyone in your family are okay and safe. And what I have to say is first is as part of FibraShop, you know that our commitment is first to look for the help for our clients, employees and the visitor to shopping centers. And we have implemented several measures to ramp up cleaning, sanitation and safe distance of properties, protecting the people who works and visited.

Today, like Gabriel says, we -- all the properties are open because -- in all of them, we have -- like the Government tell them -- or they call them the essentials commercial business that can open. We have almost 20% of the shop -- of the renters extension in all the -- total of the rented places. Then, that means that we have income coming for sure for that essential ones. But also, we have a lot of income coming from other stores, a lot of stores that they recognize that they had to pay, and we are managing with them some kind of arrangement of how much they can pay. They are paying the maintenance. There's 100% of maintenance, but in the rent, they are paying a lot of the rent they must pay us.

And you know and we told you we have implemented a series of measures. It was approved by the committee, the Technical Committee. And it goes to repair of investment projects and non-essential CapEx, paying dividends, but not using cash and thus protecting the company's liquidity, controlled expenses. We are also -- we are looking that because we have a solid company, and that means that we have a quality properties with excellent locations throughout Mexico. And the majority are the most important and strongest properties in the region. And we, therefore, have the best tenants than could be in that cities. And that means that they will do renewal with us instead and other shopping centers that the guarantee we have that they are -- these tenants will renew all the -- all agreement that 10% that we are going to finish in this year. We think we are going to renew like 9% of that one.

Also, we have to say that in addition to this, that we maintain the rating of the Fitch rating. They confirmed our rating, that's very important. That means that the companies they see as strongest. And I want to mention that we understand and we know that these times is taking us a lot of reflection and planning. And we are imagining what will be the change in the future for the business. We don't see too much changes. We see some other changes in Internet, but not too much, but we are seeing it. We also are looking how the people what will be the behavior after all this COVID-19. And we are sure that we have a team of individuals that has the capacity to address and performance in the face of challenges. And the challenges in the market in the present and in the future.

Our team has always had a strong social and human awareness and commitment, improving sustainability and protecting natural resources. Then I have to say that without a doubt, the month to come will bring significant challenge to FibraShop, but I would like to reiterate our commitment to facing those challenges with the normal responsibility. I am sure that we are making the right decision to move forward and have a bright future. That's what I will want to say to you.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.