Fibra Shop Portafolios Inmobiliarios SAPI de CV

BMV:FSHOP13

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon. 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 Fourth 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 the 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 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. 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. I will start by talking about La Perla. The new concept developed by Fibra Shop called the Urban and Life Center experience. In last February, Fibra shop announced that the International Finance Corporation, IFC, has granted EDGE certification to La Perla.

EDGE certification is an initiative of the IFC, which is a member of the World Bank Group, EDGE Fibra system for certifying sustainable construction that focuses on efficient buildings. With its 362,000 square meters of construction, La Perla has become the largest shopping mall in Latin America to obtain that certification. La Perla represents 25% of the total built area of the entire portfolio. The project was [indiscernible] by Fibra Shop with the objective of complying with a strict sustainably standards. After audit was performed and the project compliance evaluated, La Perla received the certification of energy savings of [ 20% ], water savings 68% and 21% efficiency in the materials used during the construction process.

La Perla is today the image of the Urban and Life Center experience developed by Fibra Shop and provides the basis of the strategy to refurbish all its properties. The Urban and Life Center experience are the spaces focused on living in harmony with environment. They provide a place where visitors can spend more time, return frequently and places they can integrate into their daily lives. As previously announced, Fibra Shop plans to transform the majority of its properties into this concept following the successful startup of La Perla. As we mentioned in the past, La Perla started operations in April 2022. Until September 30, 2022, Fibra Shop recognized its stake in La Perla project as an investment in associates according to IFRS 10.

By obtaining a 93% stake in the business, reaching the majority of votes in the governance bodies and influencing the project-related decision-making, all conditions that shows Fibra Shop's control in the project were fully met. Therefore, as of October 1, 2022, La Perla's financial information is presented with the rest of the portfolio as a single economic unit.

Until September, the results of the period were recognized in results as a stake in a company. Only the fourth quarter of revenues, expenses and financial costs were added to the rest of the portfolio. Fibra Shop have allocated a significant amount of financial resources, both income and new loans to open La Perla even so when we will continue investing in consolidating the project and the concept. After 9 months in operation, La Perla positively contributes to the portfolio covering all the operation and financial expenses.

Taking the recommendation of our focus group of analysts to Fibra and as we do every year, in December, all the properties were appraised and international recognized independent experts were hired to perform the appraisal. The valuation determined an increase in the value of the properties for almost MXN 1.6 billion, reflecting the quality of the assets and the recovery of the properties. The rating agencies HR and Fitch evaluated the company at the end of the year and issued their ratings. HR Ratings rates its outlook from negative to stable and confirm the AA- ratings. Fitch Ratings ratified its A+ rating with a stable outlook.

Now talking about our ESG project. Fibra Shop concluded the participation in the Corporate Sustainability Assessment 2022 or the CSA, a Standard & Poor's initiative to which more than 10,000 global companies are invited. Fibra Shop was invited for the second consecutive year and we hope we have -- we hope to have good results from our participation. Fibra Shop's web page was [indiscernible] incorporating a new ESG section with detailed disclosure of all aspects of environmental, social and corporate governance strategy.

In the coming months, we will continue improving the ESG implementation strategy throughout the entire organization. Now let's continue with the financial information. The financial results of this quarter reflect the stability and solidity of the portfolio. Operating indicators, revenues, NOI and EBITDA are now historic high for the company for the second consecutive quarter. Total revenues in the quarter were MXN 513 million, increasing by 32% year-over-year and 23% quarter-on-quarter. NOI in the quarter was MXN 398 million with a margin of 77%. NOI in the quarter increased 33% on an annual basis. And the NOI margin at the property level, that is the operating margin of shopping centers was 86%.

EBITDA in the quarter was MXN 386 million, increasing by 34% year-on-year. The EBITDA margin was 75%. Consolidated operating income rose MXN 382 million, growing 34% annually and 24% over the prior quarter. Adjusted net income for the quarter was MXN [ 105.6 million ]. This is MXN 0.2341 cents per share, including a dividend yield of 15%. AMEFIBRA FFO in the quarter was MXN 107 million. The portfolio weight occupancy rate closed at 93.6%, including La Perla -- and including La Perla, it was 92.44%.

In December, Fibra Shop signed a refinancing that includes sustainable KPIs for up to MXN 2.45 billion. And during the first few months of 2023, we expect to conclude another financing for up to MXN 2.4 billion, which also will have sustainable KPIs. And if we include the bank loan of MXN 2 billion used to develop La Perla, which recently obtained the EDGE certification, this would be MXN 6.9 billion of debt, which would represent 57% of our total debt that have sustainability-linked criteria.

Fibra Shop is still a negotiation to refinance the other bank loans coming due in 2023. The company is seeking to extend the maturity with Nacional Financiera and Scotiabank. The maturity of the FSHOP19 bond will be liquidated using the cash flow generated by the operation. According to the end year projection at the close of 2022, we will be no fiscal result to distribute, mainly to the dilution of fiscal depreciation, the annual adjustment of inflation and the effect of interest deduction.

During the session held on [ February 23, 2022 ], the Technical Committee deliberated on the economic outlook of 2023, the expectation of a tightening of monetary policy in Mexico with high interest rates, the persistence of high inflation levels and the possibility of a slowdown economy and prevent possible drops in cash flow. On the other hand, it has also considered the recovery of the portfolio, the accelerated performance of La Perla project and the advances in debt refinancing as well as the current status of the sale of nonstrategic assets.

Based on proceeding, Fibra Shop's Technical Committee decided to maintain a prudent position and healthy financing for the benefit of all investors. Therefore, it determined not to pay dividend distribution corresponding for the fourth quarter of 2022. The profit generated in the quarter will be reinvested in the business. In this financial report, we published a guidance to the market related to Fibra Shop's distribution for the coming years.

The guidance explains that the pandemic related fee impact and a life of the need to provide sufficient fund to conclude and subsequently consolidate La Perla, Fibra Shop has modified its distribution policy. Fibra Shop have previously issued guidance to the market that consisted of distribution every year, a minimum of MXN 0.8 per certificate. However, the most recent distribution prior to pandemic were MXN 0.90. Subsequently, Fibra Shop modified that policy eliminating the minimum of MXN 0.8 per year per certificate for a time, again, make cash distribution less than MXN 0.8 annually per certificate and finally, to suspend them.

The new guidance was prepared to show the market a tentative route for reestablishing cash distribution. A gradual return to the pre-pandemic level of distribution, given the incorporation and future stabilization of La Perla and the dynamics of the portfolio as a whole. The new level could be reached in a horizon of 3 years. It should be noted that Fibra Shop's Technical Committee may, at any time, modify this guidance and indeed many also modify their assumptions and considerations used to prepare that guidance.

The tentative guidance on distribution considering the next year 2023, '24 and '25 as follows. In 2023, a minimum of MXN 0.3 and a maximum of MXN 0.5 annually per certificate as the current certificate price imply a dividend yield maximum of 8.6%. In 2024, a minimum of MXN 0.5 and a maximum of MXN 0.8 per certificate, implying a dividend yield of a maximum 13.8%. And in 2025, a minimum of MXN 0.8 and a maximum of MXN 1.1 annually per certificate implying a dividend yield maximum of 19%. We have made the necessary decisions for the business to remain solid, and we hope that will each successive quarter the economy will continue to improve.

We would like to thank to our investors for [indiscernible], and we reiterate our commitment to keeping the company on a stable track. At this time, I would like to open the floor for questions. Operator, we are ready to take any questions.

[Operator]

[Operator Instructions] Your first question is coming from Francisco Chavez of BBVA.

[Francisco Chávez Martínez, analyst]

I have 2 questions. The first one is regarding the guidance for cash distribution. Can you give us an idea on what is the payout ratio that you are assuming? And the second question is on the appraisal, we saw a recovery overall. There are some [indiscernible]. Can you give us an idea on what is -- what is happening with this profit? Do you expect a recovery?

[Salvador Cayón Ceballos, executive]

Thank you, Francisco, for the both questions. First, for the guidance. Before answer the direct question, it's important to clarify that the idea of the Committee Technical, the board or the Fibra Shop is to show a path -- a tentative path to the recovery. Obviously, depends of the macroeconomic, depends of some variables, that is not in control of inside of [indiscernible] for example, the policy -- the monetary, inflations. Another, I don't know, aspect that we don't see in the near future. But the idea is that we give that guidance at a tentative path because the portfolio recovery have a very good performance.

We have some issues to have -- to increase in the near future. For example, the occupancy to recover the levels before the pandemic. But it's basically a guide to show to investors that the distribution will be recovered in the near future and we increase significantly in the near future. In terms of payoff, we don't disclose what is the guidance of our profit or final profit of the Fibra. But in 2023, it's basically more closed at between 50% to 70% type of payoff of FFO basically and in the next year it is more close to 60% of FFO.

In terms of the second question, if I understand the question because the line is having some noise, you're asking about, in general cases, the operations of the portfolio increases value, recovery values pre-pandemic or in some cases have more value than the pre-pandemic. And in some cases, for example, [indiscernible] have the same performance. Is that the question, Francisco?

[Francisco Chávez Martínez, analyst]

[indiscernible] recovery in this property?

[Salvador Cayón Ceballos, executive]

Okay. We don't have a good line for your question. But if I understand good, basically, the dynamic of the recovery is different because they have different formats of shopping centers. In the case of shopping center that is more a stability to transform [indiscernible] that is the new concept that the Fibra improved in La Perla that you have some more spaces or some more kind of tenants or you have more space to create this life experience of this center [indiscernible] experience. Obviously, the people goes more for that properties and it's more the possibility to increase its income, its NOI and obviously, its valuation.

In terms of the small format than in the past we call [indiscernible], as you never know, we sell one in [indiscernible]. In each of these centers are small, have more competition around [indiscernible] a small story in front of him if you put a small [indiscernible] you have some cannibalization of the tenants, there are less strong shopping centers than the other, that is a big one, that is [indiscernible]. And basically the good reduction or the reduction in the value of that shopping centers come from the opinion of the independent evaluator, if you have higher interest rates on the present value of the future cash flows of that shopping center reduced and the shopping centers don't have the future increases that the [indiscernible] biggest shopping centers.

And that is the reason that the net present -- the new net present value with the actual interest rate produced the reduction of the valuation. Basically the reason that the independent guide tells us about the -- what is the reason about the reduction of this particular shopping centers.

[Operator]

Your next question is coming from Fernando Herrera of Compass Group.

[Unknown Analyst]

First of all, congratulations on the results. I have 2 questions. The first one related to the MXN 260 million you announced on investment for the year. I want to understand if it is CapEx or OpEx. And if that's the only outflow we should see at the cash flow from investing, of course, excluding the interest payment, right? Also understand if its already compromised? And my second question is related to leverage. I want to know what's your target in terms of net debt to EBITDA by the end of 2023 and 2024?

[Salvador Cayón Ceballos, executive]

Thank you, Fernando. The first question is about the 2 segments [indiscernible] that we disclosed that is basically CapEx. We invest in a tenant that [indiscernible] already inaugurated in Google campus and we are approximately to open 4 more offices but we have to put this office in the [indiscernible] because we have a lot of people goes daily basis to give his passport and spend about 3 hours in this process to receive his passport and have [indiscernible] for the property will increase the potential people go there, spend more money in the shopping center and obviously increase the revenues of the parking lot.

In the other [indiscernible] basically deferred CapEx that we put in [indiscernible] that we announced in the pandemic, but we will do some investment in CapEx, for example, the parking that the parliament I don't know how to say in English, but the parliament in [indiscernible] and another shopping center that we need to invest in basically that some machines to have more efficiency to pay the parking lots and you have the possibility to pay bill in cellular form there is some invested in that, that we put in this year.

The second question is, if I understand, it's about the loan-to-value of the leverage and our view about which times EBITDA will lose in the near to 2. Is that the question, Fernando?

[Unknown Analyst]

Yes, exactly that.

[Salvador Cayón Ceballos, executive]

Yes. In our order, we have some restriction for the CNBV to disclose financial models. In some cases, we disclose guidance. In the case of Fibra Shop, we already did a guidance of this low guidance about the distribution. We are in the process of internal discussion. We increased our guidance on another aspect to give basically idea to the analysts and investor what is the full performance of the Fibra. But in our internal model that we used to agency ratings -- we use to the banks for the loans. We expect that in the horizon of 2 years, we will do significantly the leverage in terms of EBITDA times net debt.

And the idea of the core of Fibra Shop goes to this [ parameter ] at the AA area in both of our ratings and that implies a reduction about that indicator, more close to between 6x and 7x.

[Operator]

Your next question is coming from Felipe Barragan of BTG.

[Felipe Barragan, analyst]

Congrats on the consolidation of La Perla. I have a few questions. My first one is on the lifestyle center. I find the concept really interesting. It seems like it's helping a lot the whole retail segment. Could you give a little bit more color on what sort of demographics or characteristics you're looking for when looking at a property and saying we can develop this or we can convert it into a lifestyle center. That is my first question. And my second question is, last week, we were in the call for [indiscernible].

And they noted how there is a structural change in foot traffic for the retail portfolio. Have you guys noted these changes as well? I think this past December, you guys were pretty much in line with 2021 figures for December as well. So any color on that would be appreciated. Thank you.

[Salvador Cayón Ceballos, executive]

About your second question, we are losing and confused for the second -- for the first question. But we are -- I think I understand the second question. You asked about the recovery of the traffic in our portfolio because you say in group or -- sorry, I missed the...

[Felipe Barragan, analyst]

Yes. So last week, many groups had their conference call and maybe discussing how the foot traffic had changed comparing to pre-pandemic levels. They had noted some structural changes. So my question here is you guys is to rush up -- you guys noticed any structural changes as well? That would be my second question. And the first question, is on the lifestyle center concept. What sort of demographics, what sort of people are you guys targeting to sort of identify which properties could be ideal for conversions or for perhaps the development of a lifestyle center in Mexico?

[Salvador Cayón Ceballos, executive]

I got it. I got both questions. We started with the second one about the traffic. If you see the report we disclosed, I don't know what is the page, but we disclosed in the report a graph, a figure about the traffic. We are now in the same level pre-pandemic and about fourth quarter, if you compare fourth quarter of fourth quarter pre-pandemic, we see that people recover to go to the portfolio, recover to go to the properties in the portfolio, majority -- more in the stronger portfolio that we answered the question of the other analyst that Francisco have asked the difference in revaluation.

Obviously, the property that have a more possibility to become a central EBITDA, a new concept that is your first question. There is more people to come back to the properties. We don't see different people or different characteristics of the people before pandemic concretely. We see basically the same goal of the people that we closed before. In the case of LatAm, like the case of the new concept, we see different -- a lot kind of people with different economic level with families, nonfamilies, with pets, with no pets, we -- because the concept is like the more close that we -- you are, goes to a center of the fee, for example, there was a time if you are in [indiscernible] in Mexico City, you are in [indiscernible] and Barcelona, or you are in [indiscernible] you are working in a street and spend the rates.

And the idea of this new concept is to try to attract more different people, more times in the week and spend more time in the property. In the [indiscernible] some people goes to because they have to need to wait [indiscernible], there is a lot of banks like a park, in the past the idea of the -- whole idea of the shopping center, you don't put the places to use it because you want to stay in the store and spend. The idea now is to spend more time in the properties and the idea is if you spend more time with the properties, you have more time to spend money in the property and this is basically a new concept.

We are very happy about the recent results of La Perla. If you see the figures of La Perla, in less than a year, it's now in [indiscernible] point. They pay his spends and pay his debt including the service of the debt in less than 1 year. It's not common in this industry. The average of breaking point in this industry is basically more close to 2 years and the stabilization in this big shopping that is more close to 4 years. We see the breaking point in less than one year and if you see the guidance of the -- idea of the guidance is to show the stabilization of La Perla is more close to 2 to 3 years, more accelerator with more speed than the average because this concept has this power to attract more people.

I think we mix both questions in the same answer. I don't know if I answered correctly or even you have...

[Gabriel Ramirez Fernandez, executive]

And let me add some data. In a normal shopping center, the people spend around 1 hour, 1 hour for the new concept of La Perla, the people spend more than 3 hours, 3 or 4 hours and probably in a normal shopping center, they go one time in 50 days -- 15 days and in this new concept, the people go back 3 times a week. And that's the difference of the concept between the normal shopping center and this new concept that we develop.

And in the case of La Perla, we have that average of spend time, without cinemas because the cinemas basically open in the middle of December with the movie of Avatar. When you have the cinemas obviously the time spending in the property increase because basically, in the cinema, you spend around 2 hours or 2.5 hours. In 3 hours or 3.5 hours in average that the people spend in La Perla is without cinema and with a property that have a commercialization of 80%, but open doors that is another metric that is the tenant that we are now open or in the process to open. We are around 65%. Imagine when we -- you have a property with 90%, 95% of open doors that we estimate that it will be see 95, open close in the second half of the next year is basically the idea and maybe the people spend more and more than time in the properties.

And obviously, you see, for example, the variable rents in the figure that we disclosed, we show the variable rents with La Perla and without La Perla. Without La Perla, we have more variable rent than pre-pandemic. But if you have either numbers, you have the difference between that, you see that the variable rates of La Perla is higher than the average of the portfolio. And the reason is because these new concepts attract on one hand, more people to the properties, and we have the possibility to charge in the [indiscernible] population of the tenants, more tenant that you have the possibility to charge variable rents.

[Felipe Barragan, analyst]

Perfect. That was a really good response. I think on that very last note, I have a quick follow-up. Looking exactly at what you were talking about the variable rents, I see the base rents excluding La Perla drop, did rents decrease. How should I be reading that decrease quarter-over-quarter for base rents?

[Salvador Cayón Ceballos, executive]

Obviously, we will -- would I disclose the variable rent? It's -- when you have a [indiscernible] variable rent, we discussed in this amount of variables, the base rent of this tenant is because [indiscernible] fixed rent of this tenant. We put over -- the overhead of this rent. In some cases, if you see the change of base rent quarter-to-quarter, it is basically in some of the tenants [indiscernible] the company. During the pandemic, we changed the -- in some kinds of tenants, we changed the mix of fixed rent and variable rent [indiscernible].

Another example is the restaurant and we don't have now any discount for process [indiscernible] or for the consequence of COVID. But we are starting the old mix of variable and a fixed rent for all of tenants and in some cases of tenant, in the past, they paid the deferred of the rent that we give the possibility to the tenant to pay some part of the rent in the next months. And you have some, how do you say, in English, some noise about the stabilization of base rent, and that is the reason you see some changes in the level of base rent in quarter-by-quarter.

[Operator]

[ Javier ], your line is live.

[Unknown Analyst]

Just a quick catch-up regarding the syndicated loan that as you mentioned, matures in June 2023 first half of the year. So what is your plan regarding this? Is there a planning to -- I see the press release you mentioned that the [indiscernible] syndicated loan but what I understand is that in the last quarter of 2022, you expect to prepaid partially to the syndicated loan. I just want to -- could you give us more color about this? Do you plan to be looking [indiscernible] of this syndicated loan?

[Salvador Cayón Ceballos, executive]

Thank you, Javier, about the question. It is basically around the maturity of the debt and the process of refinance. As you see in the report, we disclosed the amount that we started this year, basically a syndicated loan and to basically [indiscernible] loans. We launched the 3 refinancing this February. We're expecting to close the refinancing and obviously pay the old loans and have new loans that we see in the new projection of the maturity of the debt. We are in the process to refinance and we estimate to finish this process between March and April, both [indiscernible] basically maturity.

In the case of both with the markets, we already have the cash to pay. We start at the middle of the year, and we will pay with cash and we will have more basically amortization this year. Obviously, you see some -- amortization is because one part of the loan of La Perla have amount from amortization that you are paying [indiscernible] basically in the schedule of amortization of that loan. And for the maturity of the next year, we are working about in this year and maybe the first half of the next year, we are trying to issue a bond in the market to refinance the maturities or basically 2025 because this is when you have more maturity, the close of 2024, basically, we try to refinance with a bond basically with 2025 or pay with cash. We have enough cash to [indiscernible] that maturity.

[Unknown Analyst]

Okay. Good. You're planning to [indiscernible] syndicated loan for this year. So before the May 2023, correct?

[Salvador Cayón Ceballos, executive]

Yes.

[Unknown Analyst]

Excellent.

[Operator]

Thank you very much. We don't appear to have any further questions. I will now hand back over to Irvin for any closing comments.

[Irvin García Millán, executive]

Well, thank you for attending the conference, and thank you for all of the questions. I finish with basically 2 ideas, the portfolio recovery. The effects of the pandemic was in the past. We have record income every time and although we have challenges about the financial environment, about the hike of the interest rate, the impact, obviously, the profits of the company, but we have the possibility to refinance our maturities. We have already refinanced a bigger part of the maturity.

We continue with this planning and [indiscernible] put it in these new launch sustainability CapEx according with our ESG strategy and ESG goals what we disclosed recently in our ESG 2022 report and we continue to work to stabilize La Perla and transform basically in the middle term -- in the near term, 4 to 5 property in the [indiscernible] concept that in [indiscernible] lifestyle and urban [indiscernible] experience, I don't know what is exactly a [indiscernible] that new concept -- is very, very new concept.

We see some people to try to implement some strategies like us. So we are really happy about that because we show that the strategy is in the right way. And in the other time to give some colors to the investors that the tentative trend to recover [indiscernible] distribution, I think, is the 2 more important topics. In this, we try to show in this quarter, see you soon and have a nice day.

[Operator]

Thank you, everybody. 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.