Fibra Shop Portafolios Inmobiliarios SAPI de CV

BMV:FSHOP13

Earnings Call Transcript 2021-Q2

[Operator]

Good morning. My name is Stacy, and I will be your conference operator today. At this time, I would like to welcome everyone at Fibra Shop's Second Quarter 2021 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. I will now turn the call over to Mr. Garcia. Sir, you may begin.

[Irvin García Millán, executive]

Thank you. Hi, everyone. Good afternoon. My name is Irvin García. 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 in the 2021 second quarter results.

The challenge of COVID-19 continues. Nevertheless during the second quarter, a positive trend continue growing. Foot traffic to our properties has exceeded pre-COVID levels by 85%. Revenues were 15% year-over-year, and net income increased 50% year-over-year. Rent for commercial spaces has shown a notable improvement with a signature of contracts that have been posed for several months. The numbers of the first quarter were stable and trending towards recovery. Activity in the second quarter is picking up again despite intermittent restrictions in some cities, such as Hermosillo and Juarez. If the change in the pandemic traffic-light monitoring system does not result in heavier restrictions on capacity or operating hours, the recovery trend will continue.

During this quarter, the strict control of expenses continues. We have followed strictly to our budget and are constantly reviewing expenses. One year following the start of pandemic, we can say that the total expenses have stabilized, a large -- and a large part of the savings obtained will be permanent as operation of the properties continues to normalize. Over the next month -- over the next several quarters, there might be a slight increase, but we will not return to pre-COVID amounts. In May, we obtained a 49.5% stake in the Distrito La Perla project. The milestone will be reached once the committed contribution of MXN 27 million that have been made. We continue providing funds to conclude the last phase of construction and doing whatever is necessary to open this project in October of this year.

Related to our ESG program, we expanded with the following steps. On June, Fibra Shop published its first annual sustainability report with a heavy commitment to transparency. The report includes detailed information, location coordinates, consumption reports for energy, water and waste from each of our corporate properties. There is also a series of commitments and initiatives for the coming years, which will be in line with the highest accreditation in ESG matters.

On June 28, Fibra Shop published the framework. Furthermore, we obtain a second-party opinion from the company Sustainalytics. With this step, Fibra Shop is now able to issue Green Bonds. On July 19, we reported results of the Climate Change Risk Assessment on the TCFD methodology at 3 of its properties, Kukulcán Plaza located in Cancún, Plaza Puerta la Victoria located in Querétaro and Plaza Puerto Paraíso located in Los Cabos, Baja California Sur. The study performed in these 3 regions comprise the first analysis of the impacts and consequences that climate change might have in our operations. Based on the results of the 3 properties, we will begin to develop an environmental strategy that takes into account the risk and opportunities arisen from the climate change.

We will subsequently extend the assessment to other properties, and we will report the results every year in our sustainability report. In July, our technical committee unanimously approved changes to the governance structure and the creation of the ESG committee. This committee will be at the same level as the other committees. It will report directly to the technical committee and it will be responsible for creating, proposing and implementing the improvements necessary to adopt the best international practice. The members of the new governing body were approved and the managers of the working groups appointed, and they are already developing proposals throughout the organization.

Related with the financial information, revenues in the quarter were MXN 345 million. It was an increase of 15% over the same quarter last year. Adjusted net income in the quarter was MXN 116 million, which is a 49.66% increase over the same quarter of the last year. NOI in the quarter was MXN 258 million, and NOI margin was 75.61, while the NOI margin at the property level that is the operating margin of shopping center was 82.4%. NOI in the quarter increased 13% when compared to the same quarter of last year.

EBITDA in the quarter increased 13.4%, when compared to the same quarter of last year. EBITDA in the quarter was MXN 248 million, and EBITDA margin was MXN 72.8%. Adjusted net income for the quarter was MXN 0.2544, which converts to annual profitability for certificate of 14.97%. The portfolio weighted occupancy rate closed at 92.33%. The technical committee of the Trust determine the distribution of the -- for the first quarter -- for the second quarter 2021, the distribution will be MXN 0.1640 per share which is MXN 75 million payable fully in cash. We expect a complex second half of 2021, with challenges. However, we have made the necessary decisions for the business to remain solid, and we hope that with each successive quarter, the economy will continue to improve and activities will return to normal. We would like to thank our investors for the trust, and we reiterate our commitment to keeping the company on a stable path.

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 [ Edson Geriach with Semicap ].

[Unknown Analyst]

Congrats on the [ E ] as you reported on the Green Bond that you're planning to issue. Maybe we can have some afterwards conversation about that. But regarding the second quarter earnings results. My first question is about operating expenses. You mentioned that maybe, and that's our perspective, by the way, operating expenses will not be as used to pre-COVID levels. However, could you explain a little bit more why because maybe it's an efficiency that you realize from this COVID-19 period? And the second one, it's regarding the movie theaters specifically. You mentioned in the earnings release that the tenants that are on a fixed contract, but they have been paying with a variable rent. But could you give us a little bit color on if that's going to be for the following quarters? I know that it's not, let's say, a huge and COVID [indiscernible]. However, we want to understand how this industry is moving around from COVID.

[Gabriel Ramirez Fernandez, executive]

This is Gabriel Ramirez. Thank you for your questions. The first question about the operation cost. The reason that we don't recover or will not recover from the levels pre-COVID is because we do regenerate up the structure of cost, and we give some [indiscernible]. It's on savings in the structure. And that's the idea, we think that we don't recover the same level pre-COVID, that's basically the idea. There is no savings in the maintenance of the properties, is the savings in the operating in the daily basis cost with, for example, by the supplies in the corporation, not in the different places of the shopping centers. That is basically the idea. I don't know if I answered correct to your question.

[Unknown Analyst]

Excellent. No, it makes sense.

[Gabriel Ramirez Fernandez, executive]

Okay. And the second question about the color of the industry and the trends of the industry, we see a continued recovery of the traffic and the trend of the tenants go to new spaces. In this year, several tenants start new with these projects of growing, obviously, more selective than in the past or maybe less poised than in the past and take more time to decide what is the good place to open a new store or expansions running in the new cities.

If you see, for example, the traffic in our shopping centers and if you see, in general, the traffic in the shopping centers in the country are continuing growing. Obviously, there is different impact in different industry, for example, the entertainment such as cinemas or this kind of tenant that have some themes for young people. They still have some restrictions in terms of hours and in terms of, for example, in our case, in some weekends and so that quarter, the authority say that you close this part of tenants, for example, depends on the color of the lights that they see in these different areas [indiscernible] lights from green, orange, yellow and red, [indiscernible] any city that decide what is the kind of the restriction.

We don't see a total close. We don't see a change of the trends of the dynamic of the authorities to put more registration. If you see recently some cities change the color, but the hours of operation doesn't change, it is some strange about the message of the authorities. What we see they continue the growing of the traffics. We continue to see growing, for example, the earnings and the vehicles in the parking lots in the shopping centers, we see more people spending in the stores, and we see some recovery in the variable rents. We are optimistic, but obviously, the pandemic is there. Obviously, we don't have already the same levels in early, pre-COVID. But I think if you go to the end of the year and analyze the end of the year. We see that if you put this number and compare this number for pre-COVID, that means that 2019 as the year of pre-COVID, you maybe see the same level of earnings. That is our view.

[Unknown Analyst]

Okay. Great. A quick follow-up, maybe about this [ pipeline ] that you might have about issuing a Green Bond. So the question is, this new issuance from a Green Bond is related by your planning to reprofile you there because -- and correct me if I'm wrong, but F Shop 17 is due to June 2022, and it's almost MXN 1,500 million, if I run it correctly. So the question is, are you going to reprofile with that regarding on this new issuance? And if that is so, what is the time line from issuing this new bond?

[Gabriel Ramirez Fernandez, executive]

Obviously, to try to issue a green bond, we have -- did some work, first issue our framework and working about the framework of Green Bonds, comply to the climate bonds requirements. Obviously, that is part of our ESG strategy. It's only one part of -- important part of, one part of the whole ESG strategy that we published in our first report of sustainability of the last year. And second, we give the second-party opinion of sustainability that is the biggest second party opinion previously showing in the world and issued second party opinion around the world. We now were able to qualify to Green Bonds.

Now we are in the process with Comisión Nacional Bancaria y de Valores with CNBV to reissue our debt program. We have some debt programs that launched and [ few ] years ago, they expired. We need to renew these program to issue. We are in the process to do that. We maybe received the authorization of the new program in several weeks. The idea is to try to go to the market this year to issue a bond -- a Green Bond linked for -- to refinance our maturity of the next year that the FibraShop 17 that is basically maybe issue more than the outstanding balance of the that bond and prepay revolving lines for the banks. The idea is to link this bond to the [indiscernible] la Perla that is basically a property to apply some aspects of the framework. That is basically our plans of issuing bonds. Obviously, if the markets are there, obviously, the authorization is still of the CNBV.

[Unknown Analyst]

Okay. Great insight. And last, I thought it's going to be the last question. Could you give us an update about La Perla? I know that you mentioned in the earnings release and at the beginning of the call that you're going to do whatever it takes to open in October. However, what is the stage of the property? Are you going to be able to open, let's say, in October or maybe it's going to be at the end of the fourth quarter '21?

[Gabriel Ramirez Fernandez, executive]

The idea is to open in October of this year, in the second half of October to catch the renting in Mexico, not to the stores. We have the opportunity to open to [indiscernible] that is in November and obviously, to catch the Christmas sells. The idea is to open in second half of October. Liverpool will be opened in September. That is common to Liverpool open 1 more report is part of this strategy. And that is basically the plans. Obviously, not open all of the shopping center. We opened the street level at the first level. And part of the second level is basically the Mercado that is a new food court, which is the new style of food court that you see in other shoppers like more than Mercado La Roma in Mexico City, something that kind of concept. And in the first quarter of the next year, opened the[indiscernible] and more stores of the second floor.

[Operator]

[Operator Instructions] Next question comes from Francisco Chávez with BBVA.

[Francisco Chávez Martínez, analyst]

And congrats on the recovery trend. I have 2 questions. The first one is on the recovery in occupancy. I saw that the occupancy increased compared to the previous quarter. If you can give us an idea of which kind of tenants are leasing the space? And the second question is the potential issuance of Green Bonds. Any idea of the savings for the financial expenses.

[Gabriel Ramirez Fernandez, executive]

Thank you, Franco, for your question. In terms of the occupancy recovery, as we say the last call for results in the last quarter, we see that in our expectation, Fibra Shop are in the bottom [indiscernible]. That is the best number of occupancy and in the next months, we try to recover or increase these occupancies. We said that in this quarter.

Basically, we signed some stores more linked to fashion, more linked to cloud to recover these expansions. One of that is linked for the -- is one brand for the big anchor in Mexico. I can say that the number because -- the name because he is reported on issue these kind of things, but basically these stores to starting to sell -- to lease some spaces and is planned to set to lease more spaces in the Fibra. We see some, for example, in case of La Perla, we don't put this in occupancy position, it is in the developer, but we see some restaurants starting to increase its expansion plans. That is basically the kind of tenants that we see to -- in this quarter to increase the occupancy. And the second question is what -- what was your second question, sorry?

[Francisco Chávez Martínez, analyst]

Yes. The second question is on the potential issuance of Green Bonds, an idea of the potential savings interest expense?

[Gabriel Ramirez Fernandez, executive]

Okay. It's a very difficult question. My first answer is, I don't know. Why say I don't know because the idea is to issue of Fibra Shop Green Bond is not only for try to save some interest expenses. The idea is to show to the market that the compromise of the ESG of the Fibra Shop is more than 100%. It's 200%, the compromise of Fibra Shop. And to show to the market, we put some strategies and some projects to go[indiscernible] from the ESG. The [ bank ] say that in this moment, the market don't recognize big savings in the interest expenses, but they say that we see more demand for the investor, international investor, for example, Latin International in case if you issue in dollars or in U.S. or in case of Mexico, the authorities is some issuance company, they have more demand if you put some categories in with issue. We're not trying to go for savings. We try to go to show that it's -- the ESG program, it's a compromise of Fibra Shop and maybe we have more demand for the investor for the next issue. That is our opinion, obviously.

[Operator]

Our next question comes from Mariana Cruz with BTG.

[Unknown Analyst]

I have 2. The first one is what's your expectation for distributions by the end of the year? And the second one is, if you can comment on how are leasing spreads on renewals during the quarter, I mean, which was the leasing spread on rents you renewed during second Q?

[Gabriel Ramirez Fernandez, executive]

Mariana, thank you for your both questions. The first is obviously, in terms of the plans to issue a bond, if I understand, is it correct, Mariana?

[Unknown Analyst]

No, it's about your expectations on distributions by the end of the year. Yes, dividends.

[Gabriel Ramirez Fernandez, executive]

The idea is try to recover the level pre-COVID as soon as possible. As you remember, in the past, a policy of distribution we put a floor of MXN 0.80 per share or per certificate, but we traditionally pay MXN 0.90 annually per certificate. That is basically what you see in the quarter about MXN 0.24, MXN 0.25 per certificate. We are lower than that.

And the idea is to -- we see that recovered today, the technical committee in the last two retributions increased a little in terms of the last year, obviously, the last year, part of the distribution is not in cash, it's in shares or in certificate to keep cash in the company. We see the recovery but the -- we try to go slowly to confirm that the recovery is there. But the idea is to try to -- at the end of the next -- of this year or the beginning of the next year, try to recover the same levels pre-COVID in distribution. That is basically our plans, both the technical committee decides every quarter, what is the best strategy to the distribution.

And your second question is about the spreads in the renewals of the lease agreement?

[Unknown Analyst]

Yes, exactly. Yes.

[Gabriel Ramirez Fernandez, executive]

Obviously, last year, there is not lease spreads. Last year, it's a year to renegotiate some discounts, negotiate some discounts and some plans to give some -- give some plans to defer some payments for the tenants. This year, we do significant these plans. Obviously, we've paid some benefit for the tenants like [indiscernible] change the variable rent basically to all pay by rental, pay fix rent, some restaurants, some entertainment tenants.

The idea of this year is increase or try to increase the inflation of last year and part of the inflation of this year. That is basically the strategy for the following months and try to the next year when we try to stabilize the occupancy, increase the occupancy. And will try close to the occupancy, it depends on [ mall by mall ] but I think I explained in general, but if you are close to the occupancy pre-COVID, you are now in the space to put little spread. Maybe we see this spread at the second part of the next year. Thank you, Mariana, for your questions.

[Operator]

Thank you. I would like to turn the floor over to Irvin García for closing comments.

[Irvin García Millán, executive]

Thank you for all of you investors. Fibra Shop will continue working hard in terms of giving the best results of the company. As we mentioned, we are focused during the last months in our ESG program. We are working hard with a big project -- with the big projects that we developed, for example, Distrito La Perla. And our expectations for the close of the year are positive expectation, and we want to thank all of the investors for their support. And thank you for all of you for connecting for this call.

[Operator]

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