Fibra Shop Portafolios Inmobiliarios SAPI de CV

BMV:FSHOP13

Earnings Call Transcript 2022-Q2

[Operator]

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Fibra Shop's Second Quarter 2022 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, 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 the International Financial Reporting Standards and are stated in nominal Mexican pesos, unless otherwise noted. Joining us today from Fibra Shop in Mexico City is Gabriel Ramirez, Chief Financial Officer and Irvin Garcia, Controller and Investor Relations Officer.

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

[Irvin García Millán, executive]

Thank you. Hi, everyone. Good afternoon. My name is Irvin Garcia. I'm 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 2022 second quarter results.

In April 2022, we inaugurated La Perla, a new commercial living concept that we call a Life Center. This concept integrates spaces that provide a location for visitors to spend more time and return often treating our properties as part of their daily life, enjoying the educational activities or culture exports and building relationships. It is a special place to be with particular opportunities for social development in the communities where they are located. All this in line with our ESG strategy.

During these first months of operation, it has an excellent start to operation. Stores continue to open, and marketing is moving ahead with 73% of lease agreement signed and 9% in the process of being signed and 11% being negotiated.

In November, we hope to have 80% of the shopping center opened and 90% by the second quarter of 2023. During the quarter, La Perla total revenues were MXN 56 million. And by the end of the fourth quarter, we expect that the revenues cover the entire operating and financial cost of the project contributing significantly to the current portfolio.

As we announced in the past, we continue to move forward with the due diligence to sell a portfolio of nonstrategic assets. These assets are ones that do not have the characteristics we would like to see for the new Life Center strategy and commercial goals that we will be implementing going forward. Either due of their location or the markets we would like to develop this concept. The negotiations to sell a portfolio value at approximately MXN 1 billion is very far along and is expected to close in the next few months. The funds obtained with -- will be used to pay the following strategies: 75% will be allocated to pay debt. 50% will be used to invest in certain properties that have been selected to replicate The Life Center strategy. 10% will be used to reactivate the buyback program, purchase shares and then cancel them. The goal of these activities is to strengthen the balance sheet, improve financial levels, renew the portfolio and increase the benefit to the CBFI. These measures are part of the company's strategy and long-term ambition to add value to the certificate holders.

Now let's continue with the financial information. The financial results are notable with double-digit annual growth and with numbers higher than those reported in the same period of 2019, prior the pandemic. Revenues in the quarter were MXN 380 million, which was an 11% annual rate. Adjusted net income in the quarter was MXN 103 million. Adjusted net income for the quarter per CBFI was MXN 0.2259 which compares to annual profitability per certificate of 14.94%. NOI in the quarter was MXN 294 million, and NOI margin was 77%. NOI in the quarter increased 13.97% over the same quarter of last year. The NOI margin at the property level, that is the operating margin of shopping center was 86%. The EBITDA in the quarter was MXN 283 million, increased 13.86% over the same quarter of last year. The EBITDA margin was 74.5%.

The portfolio weighted occupancy rate closed above 93%. On July 19, Fibra Shop paid in full the principal of MXN 1.4 billion of the FSHOP17 bond. The funds are from the new line of credit signed in for up MXN 1 billion -- MXN 1.8 billion. Sustainability conditions were established in the financial and in this financing by incorporating key performance indicators will be validated by a sustainability agent, the lending institutions participating in this line are [BBVA México] as a lead bank, Bancomext, Banco Monex and Bancoppel.

With the incorporation of the 3 -- these 3 new lending institutions, the company's funding alternatives are now more diversified in addition to public issuance in the market in which many investors participate, we currently have 9 different types of lending institutions from several countries. With this payment, Fibra Shop reiterates its commitment to its investors who have trusted the company through this financial process. Fibra Shop will continue working to improve its debt profile over the coming months.

Fibra Shop is known for the responsible use of these resources. Therefore, if we continue to focus to obtain the best value and future for the company and its investors.

The technical committee agreed to postpone payment of this quarter distribution until an extraordinary session to be held in August or September.

This decision was made from a position of healthy and prudent financial planning with the following considerations: expiration this November of the bilateral loan to Banco Sabadell of MXN 150 million. We are in the process of refinancing, but is likely to -- that we will have to pay in full prior to extend the term. This also tied to the sale of nonstrategic assets and the time at which this sale occurs. The current economic environment which has included a tightening of monetary policy in Mexico, higher interest rates, continued high levels of inflation and supply chain challenges that impact the opening of certain tenants.

We have made the necessary decision for the model to remain solid, and we hope that with each successive quarter, the economy will continue to improve.

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]

Ladies and gentlemen, floor is now open for questions. [Operator Instructions]. Your first question on the phone line is coming from Armando Rodriguez of Signum Research.

[Armando Rodriguez, analyst]

And I had a question just related to the asset recycling program. As you mentioned in your press release that it's one of the prior decisions that you made before to stop the distribution in this quarter. If you can give us a little bit more color on that as a receptive program.

[Gabriel Ramirez Fernandez, executive]

Thank you, Armando, for the questions. As Irvin said, in the solution of the call and we disclosed in the earnings release. We are in the process to sell a couple of assets that is supportable of 2 assets, sell individually, not the same buyer of that. We have now an offer for the sellers in the table. We are in the process of -- in the final process of due diligence for the buyer in the process to buy these assets. There is 2 different buyers. And we expect to finish one of them maybe this month of next -- or in a couple or more 3 or 4 weeks and the other asset, we expect to close around October or November of this year.

And -- but that is the reason that we have to announce the numbers of the asset because it's not close now, but it's in the process to close. That is the reason we don't disclose more information about that. But that is basically the timetable of those transactions.

And Irvin said, we use this resource basically to reduce debt, to strong the balance position of the company, that the consequence of that is we reduce the loan-to-value and other indicators of liabilities in the balance and reduce obviously the cost of the debt in this scenario to the central banks rose the interest rate in the world and Mexico, too. The decision to the dividend, it's not to stop the distribution that we announced in the last quarter is to postpone the decision for these reasons. We have some expiration of debt in times of bilateral financing of Sabadell, then the idea is to extend the maturity of that debt [ both ] we need to clean up before that. And it's basically the timing of the certain moments of the liquidity and take more conservative about that.

But we -- if the plan both for, as we always speak, is very likely that in August or September, the technical committee announced amount of distribution.

[Operator]

The next question is come from [indiscernible].

[Unknown Analyst]

I have a couple of them. The first one is related to the credit line with the banks. I was wondering if you can give us a little bit more information about the KPIs. What type of KPIs? Because you mentioned in the earnings release, it's -- those principles are linked to sustainability principles of the loan market associations, if I said it correctly? So that will be first one.

The second one, if you guiding on refinancing, Sabadell, it's a little bit confusing. If you are planning to pay full the amount of MXN 150 million and it's one of the reasons that your stopped distribution this specific quarter, why refinancing? Why not just pay that full amount in and go ahead with other strategies that you have on the debt capital markets that you are planning? That will be my first 2 and then I will do a follow-up.

[Gabriel Ramirez Fernandez, executive]

Thank you, [indiscernible] for the both questions. We start with the KPIs of the recently credit line that we closed. The idea is related is -- related to these KPIs with our announce in the last quarter of the implementing of solar panels, panels in basically all of the properties, the reduction in the consumption of energy when we stabilize, ending of invest -- finish to invest and install all of the solar panels and if you just take 1 year more, we fully implementing these solar panels. The reduction is approximately 50% of the consumption of our energy in the whole portfolio. And the KPIs with this plan is some goals annually -- goes to that goal of 50% that we disclosed in the -- not in this quarter, in the earnings of the last quarter. And in a couple of weeks or maybe 3 or 4 weeks, we see in our annual ESG release or disclose our strategic and annual report of ESG. In some ways, we announced this second issue of that ESG from Fibra Shop.

But it's basically KPIs direct to further reductions of energy and obviously, the implication of that in -- I don't know, if anything affecting [indiscernible] about these reductions. And -- are you clearing that question? Or maybe you need more information?

[Unknown Analyst]

No, I think it's pretty clear, perhaps when you release the annual ESG report I can join the dots with this information.

[Gabriel Ramirez Fernandez, executive]

Yes. And we disclosed in the next quarters in the earning results some more about the goals and compliance about that goal.

For the second question, in terms of Sabadell, it depends on when we close the sale of the portfolio. We close the sale of the portfolio, if we expect that is basically in this year. The idea is to full pay that credit to -- pipeline with Sabadell. We, for example, for maybe notary process or the [indiscernible] closed in some parts of the year. The close of the transaction go more than November, that is the date that this line is par.

The idea is basically to expand that credit line and after that full paid of that. That is the reason because we take care about the cash. It depends on the timing of that sales. If the plan is goal that we expect. We maybe -- it's likely this is a high probability that the technical committee give an amount of distribution in that new session, external session of the Technical Committee in August, September and we pay the credit line of Sabadell because the strategy that we disclosed is to reduce part of the -- of our debt with the sale of nonstrategic assets. That is -- is that clear? Yes or no, or do you have more?

[Unknown Analyst]

Yes. Maybe a follow up regarding debt service structure that you have because in the earnings release, you mentioned that they were obviously surprised of this credit line facility from the banks and you are seeking to raise that amount in the sense of MXN 650 million. So I was wondering if you can give us a little bit more color about this increase and how impact in that service structure that Fibra Shop would have?

[Gabriel Ramirez Fernandez, executive]

Your question about this is of the [ MXN 1 billion ] of the new credit line that increased a little bit the amount of the debt? Is that the question?

[Unknown Analyst]

Yes. Because you mentioned that you were obviously surprised and then you are seeking to increase the...

[Gabriel Ramirez Fernandez, executive]

Yes, the idea is if we take more liquidity that we have in the table because there is oversubscribed about [ MXN 6,000 million ] basically. The idea is if we increase this credit line in the short term, we use this resource to repay a part of the another syndicated debt that we have of MXN 3 million that is a revolver credit. The idea is as if you take more liquidity of these banks that we signed -- recently signed, the idea is to use this resource to prepay other debt in the portfolio. The idea is to have the same level of debt after those transactions. It's basically liability management. No, it's not that we rise resource for another reason.

[Unknown Analyst]

Okay. Makes sense. And last question, regarding on the reconverting our assets, how much would cause you to reconvert some properties? And what will be the time line to reconvert these properties?

[Gabriel Ramirez Fernandez, executive]

The time from the conversion is between 1 or 2 years to end of this transformation for the [indiscernible] our lifestyle properties [indiscernible] that is not only a shopping center. The more than shopping center is like a park to spend the day that is to make sports something like that, that we introduced this new concept in La Perla. And the idea is basically.

[Irvin García Millán, executive]

We are in the process to analyze some other properties of our portfolio. And now we are working in 3 of them trying to discover what is the best property to invest and to convert. And the amount we consider is around MXN 100 million and MXN 150 million, and it's a process of around 2 years, as Gabriel mentioned.

[Gabriel Ramirez Fernandez, executive]

Next question is from Felipe. Sorry, [indiscernible] about the confusion.

[Operator]

The next question is coming from Felipe Barragan of BTG Pactual.

[Felipe Barragan, analyst]

I have a few questions, and one is actually a follow-up from what [ Edson ] was saying. How much on average does this lifestyle adaptation take per mall? Is there like a specific plan that you guys have moving forward? For example, are all the malls going to be reconverted at the same time? Or is it going to be sequential one by one. Could you give us a little bit more color on that, please?

[Gabriel Ramirez Fernandez, executive]

Thank you, Felipe. It depends on the size of the mall, I mean depends of the actual infrastructure that we have in the mall. There is some malls that we have part of the qualities that the La Perla has and other mall need more intervention, if you -- the word [indiscernible] used but maybe we invest around MXN 30 million in each property, not all of the properties have the space to put all of the activities that we have in La Perla because La Perla is a big property, it's an open property where have a good conditions to open activities. For example, we have a park of [indiscernible] and we have some activities with the childs and some -- in park we have a place to concerts and some basically activities of that. And another, for example, in Misiones for example, that the weather is very hard in the winter and in the summer, that is a big mall with big spaces. There we will put more intervention and that and invest more in the property, maybe we don't have to put, for example, more trees in side, but with other aspects of the strategy that we transformed the property with the [Foreign Language] we called in Spanish.

[Felipe Barragan, analyst]

Okay. And so are you guys going to start right away like next quarter? Is it just like 1 mall? Or is it going to be one by one?

[Gabriel Ramirez Fernandez, executive]

It maybe started with 2 properties basically the last quarter of this year because part of the resource come from for the seller of the portfolio that [ users ]. So part of this amount, 50% of that amount goes to that investment.

[Felipe Barragan, analyst]

Perfect. And another question on that is from your experience from having this lifestyle mall at a La Perla, how much additional foot traffic is generated by having this sort of lifestyle environment?

[Gabriel Ramirez Fernandez, executive]

Well, La Perla is open 3 months ago. If you, for example, see the traffic in the parking lots. In the third month, we see 2,000 cars. In June, we see 25% above that. The traffic is increasing in the shopping centers, a lot of people go there. But it's an open space. We have some entrants where we don't have some doors or some old, but basically, there is a lot of people to go to the shopping center to spend the day and we don't have the 100% of the space is open, no that is basically the idea between this semester and part of the beginning of the next year but the response of the people is very hard. It's very impressive that the people go to La Perla. And for example, group [indiscernible] H&M and the boutiques of Liverpool, starting to pay [ variable ] rent in 3 months to open. That is very impressive that the traffic and the response of the people this part of properties.

And for example, there is some spaces, for example, there is a kiosk to sell flowers that we don't charge rent for that people is to put these spaces for some associations to integrate a community to give some earnings for marginal for some people of the metropolitan city of Guadalajara and don't have enough resource to pay rent to sell his product is part of the ESG project.

For example, we have some association with 1 sports sellers brand that have to -- we have a basketball area in the properties. And with that brand, we use the community to paint in these spaces to win with a local artist to put more ad but put the people of the community to participate in properties.

There is basically these kind of activities that increase -- the new business of these properties is not -- in the past, if you say a shopping center, what is or retail or basically property for rent. In the past, you said what is the business, the business is rent spaces. Now the business is attract people. Because if you attract people, the people spend a lot of time in the properties, use the property as part of his life and obviously spend in cafeteria, in a store, use the cinemas, go with his pet, go with his partner, take an ice cream, goes to a concert. The idea is like convert this space with a par with services, with art, with culture and the ideas attract a lot of people for the properties and is basically increase the profitability of the properties because this strategy goes more people for that.

That's basically the idea of [Foreign Language]

[Felipe Barragan, analyst]

Perfect. Well, congrats on that. And then if I may, I just have two more questions. One is a really quick one. So with the sale of these properties that you will be doing by the end of this year, will you guys continue managing them? Or will you leave it completed to the acquirer? And my last question would be even with the MXN 1 billion inflow from the sale of assets, there's still a relevant spread to pay off the debt for 2023. What are your plans for this debt? Will you be refinancing it as well?

[Gabriel Ramirez Fernandez, executive]

Well, the idea of the authorization of the technical committee of what is the asset that is not the strategy. The amount is around MXN 1.5 billion to MXN 2 billion. Basically, if we sell all of that, we -- when these 2 transactions, we sell the half of the amount, not the number of assets, the amount of we planning to sell. If we continue because there is demand to that all of the other property with a good price, obviously. And we sale of that. The idea is the same strategy. Part of the money used to buy back program, part of the money to reduce liabilities in the portfolio.

[Operator]

Your next question is coming from Javier Martinez of HSBC.

[Unknown Analyst]

Just want to ask actually about the next syndicated loan that matures next year, MXN 3,000 billion. I know you have plans actually to refinance or prepay this year that liability?

[Gabriel Ramirez Fernandez, executive]

Thank you for the question, Javier. As this credit line or syndicate loan for MXN 3 billion expire next year, not this year because we have an extension that is option for the company, and we use that extension already and basically, this credit line expire the next -- on June of next year. The idea is to refinance to extend the term of that credit line. But part of the strategy that we mentioned in the question, I don't know of [ Edson ] or Felipe. We have oversupply -- more demand for the MXN 1 billion liability. We are in the process to increase or catch more of that liquidity and use that resource, extra resources to prepay part of this MXN 3 billion credit line that is indicated that participate [indiscernible] in the bulk credit, but the other banks are different banks that in the MXN 1 billion that in the MXN 3 billion. Then the idea is to prepay part, with that liquidity prepaid part of that liability and launch the refinance of that new amount, obviously, less than MXN 3 billion to -- and starting this launch in this year to -- the goal is to close that refinance this year before the maturity of that credit line.

And if we refinance that new credit line, we prepaid existing credit line as well a new line for another term, basically, I know 3, 4 or 5 years. That is basically the strategy, yes.

[Unknown Analyst]

Okay. Perfect. Just part with our liquidity and then the other one with launch refinancing, correct?

[Gabriel Ramirez Fernandez, executive]

Yes. It's part to take the liquidity that we have in the table for the MXN 1 billion existing or new credit line. The idea is to extend the amount of that, use this extra liquidity to partially pay the MXN 3 billion credit line. And after that, launch the refinancing of that credit line with the same or new participants or new bank participants with a new amount that is basically the reduction, MXN 3 billion less the extra liquidity in the MXN 1 billion credit line.

[Operator]

Your next question is coming from Francisco Chavez of BBVA.

[Francisco Chávez Martínez, analyst]

My question is regarding the asset sales which you are working. Can we expect these sales to be above the appraisal or above book value?

[Gabriel Ramirez Fernandez, executive]

We are in the process to close that, we are around [indiscernible] It depends on the shopping center and it depends of the location and what is the -- if we balance the amount of the sale, but we balance, for example, the profitability or actual profitability of the assets if you compare to prepay debt. The strategy is to see the whole picture. For example, if you have, for example, if you expect to, the interest rates continue to rise. I don't know the TA maybe goes to, I don't know, 95% below the spread that we have in average in our -- all of the liabilities -- the idea is to compare in the short term because the inflation stayed there and maybe the time that the interest rates stay high, is more than we expect or the people expect in the past.

I compared this use of the resource if you prepay the debt and obviously have a benefit for the -- for the company and the equity holders between what is the individual profitability of these assets with the [indiscernible] for example, the NOI, the analyzed NOI, divide for the price, we sell these assets, and we put what is the profitability in terms of like an interest, not like a percentage of that and compound that is part of the ideas that the technical committee putting on the table.

The other, obviously, is the like price of the property in terms of his actual, for example, percentage of occupancy, is potential to grow, there is some aspects. But these 2 properties are around the operations, basically. There is -- we concern in the strategy and other properties that maybe we expect a very price significant above the appraisal because it depends exactly the shopping center that we already sell. But it's basically the -- all strategy in terms of is the price to sell, what is the, for example, the money that we need to invest to transform, if we like to transform the [Foreign Language] shopping center, maybe the competition around the shopping center, maybe the distance or take time to supervise that shopping center maybe is not in a good location. It's a very [indiscernible] aspect that the technical committee take about that.

But in all of the transactions, obviously, we have the appraisal, the annual appraisal, but in all of the transactions, we have an independent opinion of the value that is another company that is not the same that gives us the appraisal to have an independent opinion, that with that independent opinion, the committe -- the technical committee put in the table that decides this is a good or bad price to sell that property.

[Operator]

There appears to be no further questions on the phone lines. Gentlemen, do you have any questions on the webcast at all? Irvin or Gabriel, can you see any questions?

[Gabriel Ramirez Fernandez, executive]

No, we don't see. If there is no more questions about the investors, maybe start with the closing remarks. We are very happy about the recovery of the portfolio. We already have numbers pre-pandemic, the pandemic is there, but in the numbers in Fibra Shop, the pandemic is out of the portfolio, the performance, the earnings, the margins are better than numbers pre-pandemic that -- but we don't have the same, for example, occupancy. If we go to the same length of occupancy, the portfolio have spaces to improve because basically, the costs are there because all of the properties are fully operated. And we increased that 2 to 3 points more than occupancy, we increased it basically goes to the FFO, directly to the FFO because we already have the cost. We are very happy about that.

We are very surprised, very surprised, but it's not a [indiscernible] surprise, because there is work behind that, both the performance of La Perla. There is a shopping center that we are on the construction during the pandemic. There is a property with the other ownership decide to not invest more, and we use more money from Fibra Shop to invest up, but the results, 3 more -- 3 months after the opening is very, very, very nice because it's very, very close to a [indiscernible] point after his own debt.

And that is the reason that we expect in the next year like the contribution to -- directly to the FFO for La Perla, we expect that La Perla in terms of the EBITDA, when -- basically maybe between the next year or 2024, that whole year, maybe the EBITDA of -- or we expect that the EBITDA of Fibra Shop increase -- that EBITDA in that we already have. If you analyzed this quarter, maybe increased 35% that we already have. There is very -- improvement of the profitability of the company. And if you see that the strategy to reduce the liabilities and the buyback program, we expect to increase significant the return in terms of the distribution per CBFI, and we expect a good reaction in the investors about the -- because today, in our opinion, the price of the CBFI is very, very cheap and don't represent the embedded value that we are having in the company and the embedded value that we increased in 12 to 24 months as the La Perla [indiscernible].

With these comments, we finish the call. Thank you for the questions. Thank you for attend and we see you soon in next quarters or you want to directly contact us, we are open for all of you. And still take care about the COVID virus. Thank you very much.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.