Fibra Shop Portafolios Inmobiliarios SAPI de CV

BMV:FSHOP13

Earnings Call Transcript 2021-Q4

[Operator]

Good morning. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to FibraShop's Fourth Quarter 2021 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 us today from FibraShop in Mexico City is Salvador Cayon, Chief Executive Officer; Gabriel Ramirez, Chief Financial Officer; and Irvin Garcia, Controller and Investor Relations Officer. And now I will 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 4th Quarter Results.

The Fourth Quarter is the best quarter in the retail sector. Nevertheless, since 2019, we have not had the traffic at the shopping malls. During November and December, the number of people and vehicles exceeded 100% of prepandemic levels. The increase in the traffic represents an important opportunity for the tenants to recovering sales and for us, an increase in variable rent, parking revenues and collecting.

The close of the year came with good indicators but one swallow doesn't make a summer. We are still working hard in order to continue improving the commercialization of rental spaces, maintain good operational level and be cautious of taking responsible financial decisions.

Let's go to talk about the advances of the ESG project. Under the guidance of ESG Committee, new policies and international practice have been adopted. The ESG committee presented to the technical committee different matters for approval or ratification, approval of environmental, responsible purchasing, social and community ties policies, the ratification of the code of ethics which to date has been signed by 96% of the employees. This process will end in the coming days.

A report was presented on the impact of FibraShop on the sustainable development goals of the United Nations. A report was presented on the process of results from the climate change studies performed to all to all the properties based on TCFD methodology. A report was presented on the solar panel project which will be announced in the coming weeks and will involve installing those systems in 89% of the portfolio.

In November 2021, the results of the S&P CSA 2021 assessment was received. This first participation was an opportunity to understand all areas including in the evaluation to understand the process, how factors are measured and which ESG areas are most relevant of FibraShop. Based on results, we are able to identify more precisely what our strengths are and which specific areas of opportunity on which we need to focus.

In the environmental sector, the result exceeds 35% of the industry average, largely due to the projects we have decided to implement such as the solar panels, water treatment plants and construction work focusing on the environmental and use of the sustainable materials.

In the social area, also exceeds the industry average by 14% to a great extent because of the philanthropic activities we perform in the communities we operate and commitment and support of human rights and the work we have been doing to reinforce the organization in areas that generate social well-being among our employees.

We continue to adopt best corporate governance practices, driven by our recently created ESG committee. In 2021 evaluation, we achieved a high mark in the assessment of the structure of our committees, the maturity and experience of the Board members, implementation and distribution of conduct, implementation of anticompetitive practices, the compliance system and corruption.

Related with the new project, FibraShop continued providing funds to conclude the last phase of construction of La Perla and doing whatever is necessary to open the project. FibraShop is going to have 93% of participation when the mall fully opens. Related with the financial information, the main financial indicators continue in the recovery trend. Revenues in the quarter were MXN 387 million, increased 3% over the same quarter of last year and 8% of the Third Quarter of 2021. Adjusted net income in the quarter was MXN 139 million, which is an increase of 16% over the same quarter of the previous year and 14% increase of the last quarter.

NOI in the quarter was MXN 300 million and NOI margin was 77.6%. The NOI margin at the property level, that is the operating margin of shopping center was 81%. NOI in the quarter increased 5.6% when compared to the same quarter of last year and 9.8% over the Third Quarter of 2021.

EBITDA in the quarter increased 5% when compared to the same quarter of last year and 9.6% over the Third Quarter of this year. EBITDA in the quarter was MXN 289 million and EBITDA margin was 74.6%. AMEFIBRA’s FFO for the quarter was MXN 141 million, which is an increase of 15% over the last -- of the same quarter of last year and 12% with respect to the last quarter.

The portfolio weight occupancy rate closed at 92.41%. FibraShop is analyzing refinancing alternatives to improve its capital structure and to extend its debt profile. Specifically, it is evaluating payoff alternatives for the FSHOP17 bond, whose current amount is MXN 1.4 billion, expiring on July of this year. On February 18, 2022, La Comisión Nacional Bancaria y de Valores approved the program to place CBFI debt instruments for up to MXN 10 billion. Under this program, FibraShop plans to lease new issuances in the market for which it has obtained a second-party opinion for the company, Sustainalytics. An advance certification for the Climate Bond Standard Board, and the new issuance can be labeled as green and will be identified by green ticker symbols.

FibraShop is negotiating with several financial institutions to obtain lines of credit. In the next few days, it will announce the close of these negotiations as well as the terms and conditions with a specific aim of covering short-term maturities. The financing will also include sustainable characteristics in its structure.

FibraShop hires international independent experts to evaluation of all of the properties. In 2021, CBRE was higher for that purpose. The uptick in activity at our properties, recovery in rent, variable rents and foot traffic to the malls as well as expectations for recovery have resulted in the end of the year valuation seen significant improvement. More than 50% of the properties are already recording values that are greater or equal to those recorded in 2019, and others report relevant recovery.

If the authorities do not impose any major changes in restrictions, we believe that we will soon exceed reported prepandemic values. After all of this, the Technical Committee of the trust, data and distribution for the Fourth Quarter 2022. The distribution this quarter will be MXN 0.057 per share, which is MXN 50 million payable fully in cash. We would like to thank for your trust and assure you that we will continue to seek our strategy that create long-term value and benefits for all the investors.

At this time, I would like to open the floor for questions. Operator, we are ready to take any questions.

[Operator]

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions]

Your first question for today is coming from [indiscernible].

[Unknown Analyst]

I have a couple of them. [indiscernible] mentioning about [indiscernible] distribution. Just to try to understand, so it's going to be MXN 50 million. Is that right or not? Because it is mentioned in page 20 of the earnings release [indiscernible]. I'm not quoting. I'm just [indiscernible] distribution or something related to that. So can you give us a bit more color about this?

And second question is regarding on the capital [indiscernible] structure that you are trying to [indiscernible] this year. Just trying to understand better, you're going to have an issue of new bond, which is going to be green. And then you are in the process right now to [indiscernible] with the bank's line of credit. However, this line of credit are going to be different that you're really having on the balance sheet? Thank you.

[Unknown Executive]

Thank you, [indiscernible], for both questions. For the distribution, all of the distribution is tax free because it's not coming from fiscal profit. There is no retention for any investor, is that in Mexico called refundable capital. Today, we don't have -- because of the depreciation of the assets and another things that we deduct from the fiscal profit, we don't have fiscal profit in this quarter. That is basically the question. Am I right, [indiscernible].

[Unknown Analyst]

Yes, all right [indiscernible].

[Unknown Executive]

For the second question about the refinance of the liabilities that mature this year, we now have the approval for the Mexican Banking and Securities Commission, for the program of issuances. That is the first step to approve the [indiscernible] bonds to the market. We are in the process last year with the authority, take place more time than we expected to receive that approval. The idea is try to issue a new bond in this semester with green asterisk, like that. Green [ debt ] that Irvin already said in the introduction of the call. And at the same time, we are very close to close align with a syndicate of banks to have the credit line to prepay the FibraShop 17 debt maturities here.

We have 2 ways to refinance this liability. And obviously, we take the better opportunity in terms of maturity, long-term cost of the refinance that debt. The idea to the credit line for the banks is obviously with sustainability CapEx. Obviously, that applies to that is basically green debt. That is basically the 2 ways that we are very close to close and maybe we are announcing in several weeks.

[Unknown Analyst]

So just to follow up on this. The issue of new bond is going to be like the tranches? Or are you expecting to issue the whole [indiscernible]?

[Unknown Executive]

It depends on the appetite of the bondholders of the market. We announced 2, 4 months last year, one in Mexican peso that is basically short-term and variable interest rate. And the other tranche that we announced is fixed rate, but real rate that is called annuities, and it's maybe 7 years maturity.

In the couple of weeks, we are touch for the investor basically -- local investors to what is the appetite of the format. And the advantage is we already have the program to the issue, and we only have to -- it depends on the appetite of the investors. We will go to the CNBV to lease the particular formats of these tranche of the bonds.

[Unknown Analyst]

Okay. Last, regarding tenants. It caught my attention when you disclosed [indiscernible]. This quarter, you have MXN [indiscernible] million, but it had increase of 12 -- around 12% if you compare it [indiscernible]. However, I was trying to understand what will happen with the [indiscernible] tenants in order to have this increase?

And the other question is on tenants [indiscernible] cinemas. You mentioned that, let's say, contract [indiscernible] changed a little bit in order to, let's say, [indiscernible] to perform well. But I was wondering how long is going to be this measured and if you're planning to maintain this contract?

[Unknown Executive]

Sorry, [indiscernible], the line is not really clear. We lost the questions.

[Unknown Executive]

The first question was really confused.

[Unknown Executive]

See, we're really confused.

[Unknown Executive]

But the second, we hear about cinemas and some about the -- it wasn't clear, sorry.

[Unknown Analyst]

Yes. Let me just rephrase it. Probably, it's going to be better. On the earnings release, you have a table and you disclosed the type of [indiscernible], et cetera. So with this process, you show us the revenue by each one. [indiscernible] this quarter, the revenue was [indiscernible]. It's an increase of 17% if we compare this number to the Fourth Quarter [ '20 ]. So I was wondering if you can give us more color about the rationale of this increase? It's something related of renewable contracts, something related to the type of tenants that you have because it's related to variable rents or it's something related with some specific [indiscernible]. That's the follow-up on tenants.

A follow-up on tenants, specifically about cinema. You mentioned that you change or is it a little bit of change about the contract? Why did you have a fixed contract revenue with them? You have more like a viable contract related to revenue with [indiscernible]. So I was wondering if you can give us more color about how long [indiscernible] specifically or you're going to change the contracts for the long term?

[Unknown Executive]

Okay. We starting to answer with the sample of the cinemas because maybe clear all of the things that you already commented. During the pandemic, obviously, one of the tenants have more impact in his operations is the cinema because the authorities ordered to close. And they don't have the opportunity to open the cinemas and there is no movies to offer for the clients. In this process, we negotiated with the Cinepolis and Cinemex, both of the cinemas brands. It changed the structure of the rent.

The structure of the rent in the past is you have some fixed rent that is in pesos. It's a fixed amount. It depends on the square meters of the local, the space that the tenants had in the shopping center and have a variable rent depends of the sales and some bonus for the people to go to the cinemas and pay at it. During the pandemic, we negotiated that we about a fixed rent -- sorry, the payment that depends on the revenues and the traffic and put the 100% of the pay in terms of variable and temporarily increase the percentage of variable rents.

We are in the process to recover the last structure of the rent -- recover that fixed rent and recover the same level of variable rents in terms of the percent that we charge to the sales and the bonus of affluencies for the cinema. In these numbers, to avoid the distortion about this change of the structure of the rent. We collect the whole rent of the cinema and put the proportion equivalent of the past fixed rent in base rent and only put the excess of that amount in variable rents to compare -- to give us a better comparison with the variable rent before the pandemic. Because if we put all of the income of the cinemas in variable rents, we have a distortion and maybe you or the investors think that the variable rent increased above -- more than the people goes to the cinemas.

That is the reason that you have some changes in the structure of the rents. And if you -- and we think that it's better to compare with the numbers before the pandemic. And in the section in the press release of the results that you see, at the beginning of the pandemic we put like recovering the indicators pre-COVID levels. We not only compare, for example, with what happened in the same quarter 1 year ago, 2 years ago or last quarter, we put what is the theoretical numbers if we don't have a pandemic.

For example, we put the same occupancy rate that we have before the pandemic. We increased that income with inflation we observed without the negotiation of the tenants if we have discount or no discount. And what is basically the income if you expect, if we return before the pandemic in what is -- [indiscernible] if you avoid the effect of the pandemic in the numbers [indiscernible]. I think it's a good indicator that what is the potential of income if we recover the occupancy rate, if we avoid the discounts and we recover the traffic in the shopping centers. I don't know because the line is not clear, if I don't answer all of your question.

[Operator]

Your next question for today is coming from Gordon Lee.

[Gordon Lee, analyst]

2 quick questions. The first on margins. Obviously, your ability to defend margins throughout the pandemic has been impressive, right? And that reflects the very strict control you've had on costs. Should we assume that margins will more or less stabilize at these levels? Is there a normalization in 2022 to maybe a lower level? Or do you think you can extract more savings? So I guess the question is, should margins be flat up or down from where they were in 2021?

And then the second question is on distributions. Your payout for the Fourth Quarter was pretty low, lower than we expected it to be. Why was that? And what should we expect as a payout ratio for 2022?

[Unknown Executive]

Thank you, Gordon, for the questions and for you are here in the conference. In terms of the margin, during the pandemic, we announced some political [indiscernible] to saving some cost -- some of the costs are temporarily because -- the reduction temporarily because partially closed the shopping centers and other of the savings are permanent that is efficiency in the cost structure of the FibraShop.

We think that the level of costs are stabilized around this level, same properties. Obviously, when we put the [indiscernible] in the portfolio, obviously, increase in terms of amount of the cost but not in terms of the percentage of margins. But we're stabilizing the same portfolio, the cost at this level. And we expect that if we increase or continue to increase the revenues, we expect a little improved in the margins. And basically, as you said, the short answer is we expect that the margins increased a little bit than in the past.

And in terms of the distribution, the technical committee decided to reduce for this quarter distribution in terms of the last quarter during the pandemic, we distributed. And the idea is to invest to La Perla to end of the [indiscernible], the cost of La Perla that is will open during March to April and May, the full open of La Perla. The idea is to reinvest that money in that asset to give better return in the future. And the idea is, after that, after open La Perla and finish the investment of the money to invest in La Perla, that is very close -- the money to invest is very close to end. And after that, we recover gradually the distribution prepandemic. That is basically the idea. We expect in this year, at the end of this year, we are very close to the levels prepandemic in terms of distribution.

[Gordon Lee, analyst]

Perfect. That's very clear. So just to sort of clarify the final point. So I guess, for the first half of next year, for the first 2 quarters, we should expect payout ratios similar to the Fourth Quarter, as you finish La Perla. And then in the second half, they should rebound to more normal levels. Is that right?

[Unknown Executive]

Yes, that's the idea, Gordon.

[Operator]

[Operator Instructions]

There are no more questions in queue. I would now like to turn the floor back over to the FibraShop team for any closing comments.

[Unknown Executive]

Thank you for all of the investors to attend this call. Thank you for stay here. And we're only close to final remarks to tell you that we are continuing the process to recover. We work hard to recover the levels prepandemic. We are very, very close for the levels prepandemic in terms of revenue, in terms of profits. Obviously, the pandemic is there. We don't have a clear -- what is the final end of the pandemic but the portfolio response very, very significant for resilience for these effects of the pandemics and economic effects in Mexico and in the world.

And we will continue with the important points of the company, recovery levels, work in the properties, continue with the ESG program for show to the investors that we are a very hard committed to -- very hard working to improve the numbers and the responsibility in terms of ESG for FibraShop. Thank you so much for attending this call, and take care and see you soon.

[Operator]

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