Fibra Shop Portafolios Inmobiliarios SAPI de CV

BMV:FSHOP13

Earnings Call Transcript 2020-Q2

[Operator]

Good morning. My name is Shamali, and I will be your conference operator today. At this time, I would like to welcome everyone to Fibra Shop's Second Quarter 2020 Results Conference Call. Fibra Shop 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 us today from Fibra Shop in Mexico City is Salvador Cayón, Chief Executive Officer; Gabriel Ramirez, Chief Financial Officer; and Irvin García, Controller and Investor Relations Officer.

And now, I will turn the call over to Mr. García. Sir, please begin.

[Irvin García Millán, executive]

Thank you. Hi, everyone. Good afternoon. My name is Irvin García and I'm the Controller and part of the Investor Relations team. Thank you for joining us on today's conference call. During our call today, I will start by talking about the financial highlights of the 2020 second quarter results. In March, Fibra Shop decided to implement several missions focusing on protecting the health of our employees, tenants and clients as well as other measures focused on preservative financial health and liquidity.

Pandemic-related protocols were activated to all properties, managed by Fibra Shop, and the company immediately began to work with internal emergency programs, upping cleaning measures, monitoring and the safety for our personnel and property. In March, we initiated a remote work program for a part of our personnel and all the vulnerable staff staying home. The teams that perform their functions directly at the properties maintained their high levels of service for client, providers and tenants, applying strict safety and cleaning measures. All properties managed by Fibra Shop have sufficient cleaning materials and protective equipment to perform their functions.

The 18 properties managed by Fibra Shop have remained open in the past several months as they all continue business cataloged by the health authorities as essential, and they remain in operation throughout the entire quarantine period. The technical committee approved preventive some financial measures, including the following: cuts of around MXN 60 million were made to the budget of expenses for the remainder of the year. Investments in a strategic project for 2020 was suspended and nonessential CapEx for an amount for approximately MXN 96 million.

As the impact for the crisis decrease, some of these projects will be reactivated. The Technical Committee also approved opening a contingent committed line of credit that allows the company to have access to liquidity in the event it is required in the short term. On July 23, Fibra Shop informed to the public that it had contract a committed revolving line of credit with National Financiera for MXN 300 million and a maturity of 3 years. The use of this credit is for working capital and the rate TIIE plus 200 basis points.

On April 6, Fibra Shop informed the modification for the quarterly dividend payment policy to the stakeholders. In order to add financial flexibility and liquidity, the Technical Committee decided to modify the minimum dividend distribution payment. The distribution of the first quarter of 2020 was paid [indiscernible]. Fibra Shop has been having very direct conversations with its tenants and implemented support programs for the month of April, May and June, assessing the status for each tenant. Some temporary discounts were granted in rent payments or rent deferral payment plans for those same months so they can distribute it across the following months.

In the terms of number of the contracts, 17% of our tenant was cataloged as essential business, and we didn't offer them any discounts because they remain open during their all quarantine. In terms of GLA, these tenants represent 41%. With 74% of the tenants, we applied some type of support, and we continue in negotiation with around 8%. The effect of COVID-19 on our financial statements in the second quarter are explained below. The total revenues in the quarter was MXN 297 million, a 21.8% less compared with the same quarter last year. Parking lots and variable rents recorded significant drop due to decrease in visitors to the properties.

In a quarter of normal operation, parking would have been 7% of total sales and variable rent would have been approximately 6%. Base rent decreased around 17% due to the effect of the credit notes for the support program implemented for the tenants who kept their business closed during the quarter. On average, the discount percentage oscillated between 25% to 35% of rents during the quarter. These programs allows to maintain an active flow of collections during those months. Please note that discounts were not granted to maintenance fees. As we mentioned previously, budget cuts were made to the budget in monthly expenses at all properties without compromising the quality and maintenance of our properties.

These cuts and revisions to the budget result in a decrease of MXN 25 million in expenses which is 23.7% lower than expenses last quarter. Most of the expense cuts are permanent and will remain in place for the rest of the year. The NOI was MXN 228 million and NOI margin was 76.82% and the NOI margin at the property level that is the operating margin of shopping centers rose 86%. EBITDA was MXN 219 million and EBITDA margin in the quarter was 73.76%.

FFO in the quarter increased to MXN 80.95 million. Adjusted net income for the quarter, that is, not including revaluation of other nonmonetary lines, rose MXN 77.7 million. Adjusted net income in the quarter by certificate was MXN 0.1719 which would represent a dividend yield of around 11.27%. The average occupancy rate in the portfolio remained solid and closed at 95%. The Technical Committee of the trust decided distribution for this quarter, protecting the company liquidity today as long as this situation lasts.

The distribution will be MXN 0.1327 per share, which is equal to MXN 60 million. These dividends will be paid MXN 30 million in cash and MXN 30 million in CBFI. In conclusion, this crisis brings new challenges and we are working with responsibility, aware of the problems that our stores will face and with full responsibility with our investors. We are grateful for the support and trust for them and we reiterate our commitment to continue working for the future of Fibra Shop 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 question.

[Operator]

[Operator Instructions] Our first question is from Francisco Chávez from BBVA.

[Francisco Chávez Martínez, analyst]

Thanks for the call. My question is regarding the relief programs for the tenants. It seems like the average discount that U.K. was around 25%, 35%, which was significantly lower than some of your competitors granted during the second quarter. Do you see these discounts as sustainable? Or do you see the need to increase the discounts in the coming months in your shopping malls? Thank you.

[Gabriel Ramirez Fernandez, executive]

Thank you for the questions. I didn't see the discount of our partners up-to-date. I don't have time to see the press releases. But I think one of the reasons that the discount is less than maybe we and you anticipate or average in the market is because the majority of the shopping centers of the Fibra shop is the best shopping center of the city or in this region. And in the past, the capital received that no payments of the tenants is very low in fee result sales and performance in our shopping centers was and I think that is one part of the explanation. In terms of the discount, first of all, it's only for the second quarter. We see very increasing in affluences and with our 2 shopping centers, all of the shopping centers in the portfolio will be opened the 100% of the tenants.

We are still closed with the tenants and maybe we put another discount or the same discount or maintain the discount only for a specific tenant in a specific cases, both the idea is to see month by month in terms of the evolution of the pandemic and the evolution of the open -- the percentage of the open in the shopping centers -- open of the tenants -- in terms of the tenants.

[Francisco Chávez Martínez, analyst]

Okay. And just a follow-up on that. Do you expect occupancy in your shopping malls to remain stable in the second half of the year? Or do you expect some move-outs and a decline in occupancy. And also if you can share with us your expectations for average rents. What do you expect for a contract renegotiations in terms of rent?

[Gabriel Ramirez Fernandez, executive]

In terms of occupancy, we see in this quarter, a small reduction in terms of occupancy. There is 80% of the tenants that is around 4% of the GLA that still continue to negotiate with the tenants, we expect a reduction of the occupancy, maybe 2 or 3 points, no more than that, but it's early to see in this moment what is the impact of [indiscernible] mall. It depends, obviously, of the continued increased affluency, continued increase of the visitors and vehicles in our shopping centers. And maybe no more than 2 or 3 points we expect.

In terms of the negotiation of the rents, I think maybe it will be difficult to put lease as spreads. The idea is to renegotiate with increased inflation. But obviously, it's case by case, the lease agreement that we renegotiate this year, because it expires this year with only increased inflation rate.

[Operator]

And our next question is from Brad John from [ Sagil ].

[Unknown Analyst]

Could you give us a sense -- and I know it's still early days, but you do your revaluation of the malls in the fourth quarter. What do you think we could see in terms of a revaluation and the impact on loan to value and those sorts of metrics. I'm assuming just given the occupancy levels and rentals that we should see a reduction. I'm just not sure by how much and whether you have any thoughts on that.

[Gabriel Ramirez Fernandez, executive]

Thank you for the question, Brad. We are close with the evaluators with CBRI, that is our independent evaluator. He says that it's early to revisit evaluation. It depends on the decrease of the NOI that did you see this quarter is around 20%, is permanent or is it [indiscernible]. We're still close with the evaluators to try to get the good level of the shopping centers, the price of the -- valuation of the shopping centers. We send with the valuator the new NOI and our forecast. And maybe in the next quarters, we revisit the amount. We don't expect significant reductions in the value of the shopping center because I think, the impact that we expected at the beginning of the pandemic is less than we see in the quarter. And if you -- I have some numbers of July that the collect of the rent increased. the affluential of the people increased and some of the tenants we don't need more discounts. But we expect with the opinion of the independent evaluator and we don't see a significant changes in loan to values and something of this kind of metrics.

[Operator]

And our next question is from Edson [indiscernible] from ECS Capital.

[Unknown Analyst]

I was wondering if you can give us more color about the FFO AMEFIBRA methodology. And I was wondering is this new methodology is going [indiscernible] or will be a reconsolation from the past quarter because they were so deferred from the past methodology or the traditional methodology. That will be my first question. And my second question is regarding to planning. And you have more information or detail information from every single tenant that remain hoping because it seems to us that even though you have good and solid results, what we are feeling is for the long run, how many patents will remain open or student business from the next quarters?

[Gabriel Ramirez Fernandez, executive]

In terms of the FFO AMEFIBRAI, it's an effort of the all of the Fibras in the Mexican Association to standardize on some metrics, financial metrics that gives a better comparison between the figures. Obviously, there is different figures, different sectors, but we try to standardize some methodologies. This is the first step of that effort. We can -- we calculate for you and for all of the investors FFO for the last quarter, maybe we can issue a press release with that time series. We don't have a problem of that. It's very interesting that is higher that the [indiscernible] or income that we see that is viable for distribution in terms of Fibra Shop in-house methodology that is that some other things that the other competitors put the discussion. In the past, we think, is not a part of the cash flow distribution, but it's a standardized methodology and we adopt that methodology in terms of compare and effort to a better comparison with another Fibra store or competitors.

In terms of the -- your second question about the tenants that we will open in the next month, we expect the shopping center that we will -- the possibility to open the 100% of the tenant continue in the next quarters. we don't see another close of that kind of payments.

The 2 shopping centers that is in the process to open. We will expect the news what we already have is the possibility to open in 1 or 2 weeks, the possibility to open up the tenants. And the next step as the tenants have to comply some requirements with the sanitary and work authorities to open his business inside in the shopping center. We have helped all of the tenants in this process because Fibra Shop is still open all of the pandemic and comply with all of the sanitary and work requirements from the authorities.

Our expectation is made in August, we had the 100% of the tenants opening in all of the shopping centers and the operation and the number of vehicles increased. In July, we put only the numbers taking the last Friday, but we see that is increasing day by day, and we expect to continue increasing in the next months.

[Operator]

[Operator Instructions] Our next question is from Gordon Lee from BTG.

[Gordon Lee, analyst]

Thank you very much for the call. Two quick questions. The first on the discounts. Of those that you already agreed upon, 74% of tenants that you've already agreed upon, how many of those discounts are expected to go to last or to be given again in the third quarter? And are any of those scheduled already for the fourth quarter? And then the second question is the 41% of GLA that's represented by the tenants that you have that provide essential services. What does that represent in terms of rents?

[Gabriel Ramirez Fernandez, executive]

Thank you Gordon for the questions. In terms of the discounts, we expect that we don't put the same amount of discount in the second, the third and the fourth quarter. It's only case-by-case. It depends on the shopping center, it depends of the still opened. Today, we have to -- don't have the possibility to open the 100% of tenants, maybe we put another discount of this kind of tenant in these 2 shopping centers. In the other percentage, it depends on the particular situation of the city and the particular situation of the affluency. For example, we have 3 shopping centers that today the affluence is very close to 90% of the average per affluency. In that shopping center, we obviously operating in normal -- in the new normally, but in normal in terms of affluency and the possibility to collect [indiscernible] tenants and collect rent.

We are very close with the tenant case-by-case. We don't have a global political that we implemented in the 2 quarters. We expect that the credit notes in the third and the fourth quarter, reduced its amount in terms of what we give in the second quarter. And in terms of the second question, the 41% of the GLA that is essential. In terms of income, is around 20% of the total income, excluding parking lots and other incomes.

[Gordon Lee, analyst]

And did you book -- that's very clear. Did you book in the quarter any overages for some of these essential clients that were doing very well, like food retailers, presumably food retailers will have to pay some overage at some point in this year. Did you record it or collect it this year. This quarter rather? Or is that something that we'll have to wait for the end of the year?

[Gabriel Ramirez Fernandez, executive]

We don't understand the question. Sorry, Gordon. We lose the...

[Gordon Lee, analyst]

The question is whether -- for instance, if you think of your supermarket clients, who have obviously been doing very well, is there a variable portion that you've already recorded in the quarter for those extraordinarily high revenues that you saw in the second quarter? Or is that something that you collect annually?

[Gabriel Ramirez Fernandez, executive]

Well, all of the Walmart, for example, in our portfolio, only pay a fixed rent. We don't have variable rent in this Walmart that is basically 3 or 4 Walmarts in the portfolio. The only supermarket that we see increased significant hit sales in terms of the average of last quarter is basically [indiscernible] the part that he don't sell to Soriana. Soriana is in the same level than in the last quarters and in particular, one of the [indiscernible] that is in city center Esmeralda, that increases affluency and increase the people goes to the supermarket. Maybe part of the increase of the variable rent of this particular supermarket maybe decreased a little bit in the next quarters. But we see more affluency in that shopping center in particular, maybe the consolidation part of the new traffic maybe has come from for another supermarkets around the shopping centers. But I don't know in this moment.

And the variable rent is -- for this tenant is paid by month, month by month.

[Operator]

And our next question is from Fernando Rodrigues from [indiscernible] and Research.

[Unknown Analyst]

Well, Gabriel, I have a question regarding the LTV levels at this point at 40.6%. What changes are you seeing particularly on maybe some effects from the property value in the short term? That's my only question.

[Gabriel Ramirez Fernandez, executive]

Thank you Fernando. As you've seen in the numbers that we disclosed, the loan-to-value is basically in the same levels. We don't need to take more liabilities. We -- the new freight line for National Financiera is what American people say, it should happen. It's only for -- we need some more liquidity because the pandemic extend or the situation come back to war situation, but we don't expect that. It's only for -- we have more resources if we need it. In terms of other liabilities, you see, for example, the renegotiation with Abelia reduced the payment of these years, and we don't expect an increase of the liabilities in this year or in the next years.

And in terms of the loan to value measure, obviously, it depends on the new operation of the new value of the properties. We've already seen another question or 3 questions ago, before your question. We are very close with an independent valuation. I think it's early to give any opinion about this reduction in the income is permanent [indiscernible]. Our numbers of July give us a good expectation that we have better rather better third quarter and better fourth quarter than we already see in the second quarter. But we don't expect a big variation in the value of the properties and obviously, in the value of the metric of loan-to-value. And we don't see our competitors to discount, but we are very close of this loan to values. And today, Fibra Shop is less loan to value if we compare with another competitors.

The good news is we have a good space if we have movements in the value of the properties.

[Operator]

And our next question is from Alejandro Chavelas from Credit Suisse.

[Alejandro Chavelas, analyst]

It is related to the 8% of tenants which are still in negotiations, just to clarify, are these tenants currently paying? And the second question would be with regards to the provisions of possible credit losses. Have you changed your policy with regard to accounts receivable? Or what are you doing in that regard? And what was the impact from accounts receivable in your balance sheet and your income statement.

[Gabriel Ramirez Fernandez, executive]

Thank you Alejandro. The 8% of payment that is around 4% of the delay includes, for example, the Kioskcos, not only tenants or with [indiscernible] space, maybe Kioscos and, for example, cars you have in the common areas of the shopping centers. They don't pay his rent in this quarter. And we don't give a discount, but we put negative provision of that income in order to not increase artificially. I don't know if it's the exactly what it in terms of [indiscernible] in the income. The idea is to reflect the policy [indiscernible] reflect that income that we already received or receive it still. If you see, for example, the [indiscernible] increase a lot, it's only because the people that defer some payments with a finding agreement or we give a discount at the end of June, and we will pay in July.

[Alejandro Chavelas, analyst]

So just to see if I got it correctly. So this 8% is kiosk which are not paying right now. And it is difficult to foresee that they will pay. I'm sorry, could you please repeat the explanation I didn't get it correctly.

[Gabriel Ramirez Fernandez, executive]

This 80% didn't pay, but this -- the income comes for this 80%, we don't put in the income of the quarter. We didn't put in the income of the quarter.

[Alejandro Chavelas, analyst]

And I assume these tenants are leaving the space because they were unable to pay.

[Gabriel Ramirez Fernandez, executive]

Maybe yes, maybe no. We'll continue to negotiate with that. But maybe part of that is that we say in another question that in terms of the occupancy, is around 4% of the total year. That is the reason that we expect maybe part of that tenants will -- maybe will be out in the short term or in some cases, maybe we give [indiscernible] and still in the shopping center. It's early to answer that, but maybe the universe of candidates to go out of the shopping center.

[Operator]

And we have reached the end of the question-and-answer session. And I will now turn the call over to management for any closing remarks.

[Gabriel Ramirez Fernandez, executive]

Well, thank you for attending this call for the second quarter results of Fibra Shop. I think it's obviously, in this [indiscernible] situation, the income and the NOI had an impact for an average quarter of Fibra Shop. But I think the reduction is less that our and all of the people expecting in our numbers. And I think this response for the quality of the properties, the quality of the tenants and the work of the operational team that is very close for the tenants and anticipate the progress with the tenants and give help for the tenants to continue the former relation with the tenants and Fibra Shop. And we think we take some tools and work in order to preserve the liquidity and strong balance sheet of the Fibra Shop.

And I think at the end of this second quarter, we had a better position in terms of a strong balance sheet with a credit line of [indiscernible] and the cash with already in hand to navigate in this new situation. And we are very optimistic that this is the -- what I think the worst quarter in the year and the next quarter will be -- we expect better numbers and obviously, better distribution and metrics that we will disclose in the next quarters. Thank you very much for your interest and your questions. See you soon and be careful.

[Operator]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.