CI Banco SA Institucion de Banca Multiple FF/00939

BMV:TERRA13

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. My name is Laura, and I will be your conference operator today. At this time, I would like to welcome everyone to Terrafina's First Quarter Earnings Conference Call. [Operator Instructions] After this presentation, there will be a question and answer session. [Operator Instructions] Thank you for your attention. I will now turn the call over to Francisco Martinez, Terrafina's Investor Relations Officer. Please go ahead.

[Francisco Martinez, executive]

Thank you, Laura, and good morning, everyone. Welcome to our First Quarter 2020 Conference Call. We're pleased to have with us today from Terrafina Mr. Alberto Chretin, Chief Executive Officer; and Mr. Carlos Gomez, Chief Financial Officer. Mr. Chretin will take us through the company's overview and operations, and Mr. Gomez will discuss the financials.

Before we begin, we would like to refer you to the forward-looking statements as per the note in the quarterly report. Any information expressed or implied during the call may include forward-looking statements, which could involve certain risks or uncertainties. Terms such as estimate, project, plan, believe, expect, anticipate, intend and similar expressions may identify such statements. Listeners are cautioned that forward-looking statements made during this call or at the company's management may change based on various important factors out of the company's control. These comments represent the company's judgment at the time of this call, and the company has no intention or obligation to update these forward-looking statements.

Thank you for your attention. And at this point, I will turn the call over to Mr. Alberto Chretin for his remarks.

[Alberto Castillo, executive]

Thank you, Paco. Good morning, everyone. In the first quarter of 2020, Terrafina delivered good results as the industrial real estate space continues to support the manufacturing activity in Mexico. However, as we all know, the COVID-19 outbreak has had an important negative impact on the economy since March. So we would like to share what we have seen in Terrafina's operations in season as well as our expectations going forward.

Before we go into this, let me reiterate that our top priority remains the health and safety of all of our stakeholders, including our workers, tenants and suppliers. We have implemented contingency plans that allow most of our workforce to continue to work from home. Considering the recently announced plans from the government to permit the resumption of economic activity for certain regions and industries, we believe our operations will gradually restart in the coming months. In the meantime, we will continue to work under the current scenario, which have had so far a modest impact on our operations and cash generation.

Let me now discuss our tenants operations, our liquidity position and our expectations for 2020. We have 298 tenants in our portfolio, 115 had requested some form of rent relief as of today and we had agreed and processed 50% of them. This relief basically consists of a 99% deferral in rent payments, mostly for the next 3 to 6 months and only 1% discount, which were analyzed rigorously, taking into account the tenants' operating and financial circumstances.

Additionally, it's worth noting that Terrafina has not granted any free rent concessions. We believe this reflects our quality tenant base, consisting mainly of multinational companies, which have both dollarized operations and a long track record of operating in Mexico. It is also important to remind you that as most of Terrafina's clients are in the manufacturing for export activities, the portfolio is much more geared to U.S. economic activity than to Mexico's. The U.S. economy is reopening fairly rapidly, supported by large twister stimulus. As shown by the recovery in U.S. financial markets, the consensus expectation is that the U.S. economy will bounce back as the year progresses. Hence, we believe that Terrafina's clients will be able and willing to pay existing dollarized rents, and when the time comes, renew leases. Furthermore, and we have analyzed and negotiated each tenant situation individually. Today, we have more visibility to estimate our rental revenues as our tenants operations stabilize.

Our net collections for April and May were 89% and 83%, respectively. This translates into approximately a 3% decrease in our annualized rental revenue. By now, 72% of our tenants have restarted operations. We expect to see a solid renewal activity during the second quarter, similar to what we saw in the first quarter of this year, with a mid- 80s percentage renewal rate.

Moving to our liquidity position. Our cash balance remains strong and was improved as we drew down an additional $150 million from our revolving credit facility. This will be used only if needed for contingencies. Considering the additional funds, our cash balance is approximately $210 million as of May 31 of this year. Moreover, Terrafina has in place an efficiency program with its suppliers to cut in or delay nonessential expenses. This initiative is expected to generate additional annual savings of $350,000. We have also closed all of our non-contraction development activity on standby, and we are only focused on projects that are at an advanced level of completion. We now forecast $25 million in development CapEx compared to the $50 million we originally expected during 2020. It is also worth noting that these projects are expansions and build-to-suits. We currently are not involved in any speculative development.

Finally, before we discuss our first quarter operating highlights, let me reiterate our guidance for 2020. And we expect a range of between USD 0.1150 and USD 0.1170 in distributions per certificate and a maintenance CapEx budget per square foot between USD 0.26 and USD 0.29.

Moving on to our operating highlights. In the first quarter, Terrafina leaves a total of 1.4 million square feet with 1.3 million square feet of renewals and 122,000 square feet of new contracts. Market dynamics continue to be positive in every region with high occupancy levels and stable rental rates. Our lease expirations for the remainder of the year represent 17% of our total GLA or 7 million square feet, considering the renewals we did in the first quarter.

As mentioned before, we are confident that our clients will continue to be committed to their operations, which will be reflected in a positive renewal rate for the coming quarters.

Finally, these results enable us to distribute a total of $22.5 million in dividends to our certificate holders or USD 0.0284 per certificate, which implies a 7.5 dividend deal. This distribution already considers the 85% payout ratio that is part of our 2020 guidance. We would like to note that we are not carrying our payout ratio as we feel comfortable with our liquidity position as well as our portfolio's outlook. Should the circumstances change, we will revisit this decision.

One more topic I would like to share before Carlos goes through the financial metrics, is the progress of our asset recycling strategy. As of today, the potential buyer we had identified for the asset sale continues to be interested in the transaction. However, the process has slowed down, which we believe is understandable, considering the current market conditions. Nevertheless, we are still working on this asset sale and we will hopefully be able to share some news in the second half of the year.

Thank you, and Carlos, please go ahead with the financial highlights for the quarter.

[Carlos Espinosa, executive]

Thank you, Alberto. And thanks to all the participants for joining us on today's conference call. Please note that all figures discussed in this call are in U.S. dollars. But Mexican peso figures can be found in the earnings report.

Additionally, NOI, EBITDA and FFO figures exclude noncash items, as well as nonrecurring and transaction-related expenses, the latter of which are all included in the AFFO.

During the quarter, net collections reached USD 48.7 million, an 8.3% increase compared to the first quarter of 2019. Terrafina's main metrics are now calculated on the recollection basis to align our results with a cash generation for each quarter. Therefore, our net collections metric is calculated based on rental revenues minus uncollected revenues for the quarter.

As for our rental revenue, it reached USD 50.3 million, which implies a 0.9% increase compared to the first quarter of 2019. In the first quarter, NOI was USD 47.1 million, a 7.3% year-on-year increase which implies a 94.2% NOI margin. Also, it is relevant to mention that started in the first quarter of 2020, property tax expenses will be evenly distributed through over the 4 quarters of the year. This is the main reason for the 740 basis point NOI margin increase compared to the first quarter of 2019.

EBITDA totaled USD 42.2 million, an 8% increase and an 84.4% margin.

Finally, AFFO reached a total of USD 26.5 million, an 18.5% year-on-year increase. Considering an 85% payout ratio, our distribution this quarter was USD 22.5 million or USD 0.0284 per certificate.

Moving on to our balance sheet. We closed the first quarter of 2020 with USD 50.6 million in cash. At the beginning of April, we drew down USD 150 million from our revolving credit facility, which adds more than USD 210 million in the bank, considering the rent collection from April and May.

Our loan-to-value ratio at the end of the quarter was 39.9% and our current level stands at 43%. Our commitment is to return to levels in the high 30s as soon as economic activity recovers and our reserve of cash balance is no longer necessary. As of today, the additional USD 150 million will be used only for contingency purposes and only if strictly needed. Also, our debt service coverage ratio stands at a sound level of 3.1x.

Finally, as of quarter end, our average cost of debt was 4.77%, and our average weighted maturity of debt was 7 years. We have no debt maturities in 2020 and the subsequent 2 years.

Thank you for your time and attention. I will now ask the operator to open the line for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Pablo Monsivais with Barclays.

[Pablo Monsivais, analyst]

Alberto, Carlos and Paco, I have a quick question. I have actually 2 questions. The first one is on the M&A activity. Alberto, you mentioned that you are delaying a bit this, and I think that makes sense. But is there the size and the price of this transaction has remained? Or do we have to expect any adjustment to this potential transaction? That's my first question. And my second question is that at the beginning of the year, you have roughly 20% of your portfolio expiring in 2020. Can you please -- and you have made good progress in the first quarter, but can you please give me -- give us some light on what are you expecting in terms of lease spreads? How are you seeing demand? Maybe we see some negative lease spreads or just following inflation, how are you seeing these trends?

[Alberto Castillo, executive]

Yes. Thank you for your questions, Pablo. Yes. In terms of the recycling capital transaction, yes, we are confident that this transaction is moving forward. At this time, the buyer requested additional time in order to make an assessment of the value in terms of the -- of the devaluation. We do have a few of the contracts in pesos. In that, as you remember, probably one of the objectives of the sale was to enhance the drivers of the portfolio. One of them was to -- you know we had the 96% of lease contracts in U.S. dollars. We are selling some of the properties that are in pesos, we had to evaluate that in terms of the price may be, a slight adjustment because of that effect. The second one is that because of all this situation, the buyer also has some had to have some adjustments in terms of their availability of cash for the transaction. So that's why -- that was the main reason for the delay, but the reversions continue moving forward, we made a lot of progress. And hopefully, we have a more definite news on this issue by the second half of this year. In terms of the aspirations, as you mentioned, we had good renewals during the first quarter of this year. We expect to have this trend throughout the year. And in terms of the spreads, we are renewing the leases at the same or even sometimes better rates because, as you know, our renewal time also is when we deploy some of our CapEx for some TIs of some of the buildings. So we are able to capture some additional rents. So to be precise in the answer, we don't expect any changes in terms of the spreads that we had in the last few quarters as we review the aspirations.

[Operator]

Our next question comes from the line of Gordon Lee with BTG.

[Gordon Lee, analyst]

I hope everybody and their families are doing well. I have got 2 quick questions. The first on the -- you mentioned that part of the expansion and margins seen during the quarter had to do with the change in accounting with the treatment of property tax. But I think also another contributing factor was a very significant year-on-year decline in maintenance expenses and in electricity. So I was wondering whether you could tell us if that was an accounting issue as well? Or if not, why the steep drop? And then the second question, specifically on the Bajio. Bajio flipped a little bit again sequentially in terms of occupancy. And obviously, that's a trend that we're seeing across the board, not only in your portfolio, but I was wondering, Alberto, if you could tell us how you feel about Bajio, particularly in the context of what's likely to be a -- another significant challenge for the auto sector in 2020 and possibly in 2021?

[Alberto Castillo, executive]

Sure. Thank you, Gordon. Yes, let me go to your second question first. Yes, the Bajio has been challenging, as you mentioned. Not only because of the large [indiscernible] of the auto industry, but also the fact that the size of the company that's operating the Bajio is smaller and therefore, sometimes, they are more sensitive to fluctuations. And so that's the reason why, as I have, we talk about some of the expirations that we did renew where 3 of those were in the Bajio region, and they were small spaces. There was one -- one [indiscernible] per about 20 ton square feet, another one about 19,000 square feet. And they were in a part also that [indiscernible], but the good news is that we do have some good initiative with the market officers or property managers to lead these facilities. But to mention, to be precise, Bajio continues to be challenging. The size of the companies that are not renewing the contracts is smaller in that -- so we expect that to improve as our market offices from that region tell us that they are very aggressive trying to renew these facilities. On the second question of the expenses, I will ask Carlos to give an answer on the first question.

[Carlos Espinosa, executive]

Right. Yes, Alberto. Yes. On regards of the operating expenses, one of the factors that you mentioned, which is electricity, is just -- well, this is a pass-through expense for us. So it's mainly -- it's what's the company, the electricity company is charging us. So the big decrease in the expense from the first quarter of 2019 to the first quarter of 2020, although it is very relevant, is just the result of the operations and the expense that the electricity company is charging us.

[Alberto Castillo, executive]

And let me just...

[Gordon Lee, analyst]

I just want to say, so the only one that was subject to an accounting change then, the only one was the predial, right? The property taxes.

[Carlos Espinosa, executive]

Yes, yes. As you can see, there's a relevant change, a 71.9% decrease in the property taxes from Q1 '19 to Q1 '20. That is the accounting effect that we will be evenly distributing this expense throughout the year. Besides that, it's only the result of the operations of the quarter.

[Operator]

Our next question comes from the line of Adrian Huerta with JPMorgan.

[Adrian Huerta, analyst]

Alberto, Carlos and Paco. The -- I have a question on -- sorry, Alberto. If you can just tell us on your experience of -- given that you don't manage the relationship with the tenants directly that is done by someone else and some of your peers, they do it directly. What are the advantages and disadvantages of having that structure in moments like this one, when you need to have a close contact with all of your tenants?

[Alberto Castillo, executive]

Adrian, that is a very good question. There are several advantages of doing it like this. In anything -- as you know, we do have 5 property menus throughout Mexico. And that allow us to have very local knowledge and very local experience from people. And these industrial restate developers who are appropriate in any use. Many times are the ones that promoted the attraction of that investment to that region. They know the tenants very well. They know the broker community. They know the economic developing organization and all that, so they are able to work with them. In addition to that, they have very close contact constantly and that allow us to have a very good relations with them. And let me give you an example. Now that we have -- we had to contact all of our tenants and request some kind of rent relief, we were able to contact them individually and very rapidly the consumer, we're deploying the resources of our five, very robust property manager sales force, very rapidly to the tenants, we were able to deal with them independently. So that's a very important advantage that we have in dealing with them. And as you mentioned, now, so you say that, we have to tell you also that the asset management people and the portfolio management people from Prudential also very much interact with the market officers of the property managers and approve and complement the activity and contact with the tenants in that -- and even there are some cases in this [indiscernible]. We have some in dramatic leases, large leases that we have to do -- to produce some particular attention to an important project, even in [indiscernible] myself, we do get involved with them. So I think that this is -- the answer to that is that we have a better chance to give more service to the tenant, we're the ones that are very close to them, people that know them very well. With the very good academic approach to real estate, that Prudential has. And that in that, at the end of the day, this is up with a very good service to our tenants. And that's why we have so much loyalty. We do have a lot of expansions. We are very successful with the renewal of the expirations. And we believe that, that is a very good advantage of having that. In addition to that, it proved to be even more cost effective. If you compare that to the cost of doing it in-house, we feel that we have -- it's more cost effective. And then we have the incentive for the different property managers to be effective of the negotiations. And we monitor and we also gauge to the service through services -- through surveys, the performance of the property managers. I hope I answered your question, Adrian.

[Adrian Huerta, analyst]

Yes. Very good, Alberto. And if I may add just a follow-up question on the properties that have expirations this year, at 17%. What percent of that you think might not be able to renew the lease? What percent of that could be at risk?

[Alberto Castillo, executive]

We feel that we -- we are already in contact with all of the tenants that are going -- whose tenants -- whose leases are going to expire this year. And we feel that our renewal rate is going to be in the mid-80s in terms of renewal rate. We -- and since we also have an opportunity to know in advance who is not going to renew, we also trigger some very intense activity in terms of trying to re-lease the facility to somebody else. So that's why we continue to monitor the performance of the renewal rate. But for example, on this last quarter that we had 26 expirations. We had -- sorry, 32 expirations, and we renewed 26 of them. The things that we didn't renew, we already had plans to lease 4 of the ones that are not going to renew. So we're consistently trying to monitor the performance of the renewals of the expiration but when we know that if they're not going to renew, we also are very aggressive in trying to renew those facilities.

[Adrian Huerta, analyst]

Understood, Alberto. And when you actually renew -- not renew, but you get a new tenant on that property. Are you able to start collecting rent right away after the last month of the previous tenant or it usually takes a couple of months of where you don't collect rent?

[Alberto Castillo, executive]

Well, we more the -- the performance of the portfolio, we do have some -- some vacancy allowance in order to review the expense. So to answer to the question, I wish we could do that immediately after that. Most of the times, it takes a month or a couple of months to do some TIs in order to prepare the facility for the next tenant. And that unfortunately, also because of now the volatility of the market, we may have to provide some free rent for a month or something we want to renew. So it's that immediate, it's not immediate that we do it. However, having said that, there are some cases in which we know ahead of time as the tenant, they vacate the facility, we're able to move the new tenant right away. But so it's a little bit of both.

[Operator]

Our next question comes from the line of Vanessa Quiroga with Crédit Suisse.

[Vanessa Quiroga, analyst]

My questions are with regards to the effect of the rent deferral, just to specify on the numbers that you provided. Can you tell us the requests that you received, how much do you think percent of annual revenues? And did you continue -- do you expect to continue to get requests for a rent relief in the coming weeks? And I guess the second question is regarding the renewal rate that we saw. It was relatively low compared to your history. Do you think that's related to the uncertainty that tenants are experiencing? Or do you think it's not related to any of that?

[Alberto Castillo, executive]

Thank you, Vanessa. Yes, in terms of the rent deferral. The referrals are only for a couple of months -- for a couple of months. I don't know if I answered the question correctly, but the deferrals that we are -- the deferral rate that we need to our tenant that requested rent relief had to do with the range of April, May and may go into June. So far, we had slowdown or almost -- we do not -- within the last couple of weeks, we have not had more requests for rent reliefs. So we feel that all of the ones that we're concerned about the cash flow and requested in the referrals. I think that we're already talking today, we're renegotiating with them. So we don't anticipate that we are going to need any more of them. Also provided that there is not another surge on the COVID-19, and that will probably change, but if things continue to be the way they are and the fact that the restart operations continue with the momentum that it has at this point. We don't expect to need any more of that. And the second question is just of the renewals. We think that it's normal. I think that the way we gauge the performance of the renewal of the expirations had to do with the number of companies that don't renew. We don't expect that to change. So far, the ones that did not renew, that has nothing to do with the COVID-19. As a matter of fact, it will be 6 that we did not renew, 3 of them we knew ahead of time, that that we're going to -- they were not going to renew, and we already have contract with them. And nobody has said anything about canceling or closing the operation because of the COVID-19.

[Vanessa Quiroga, analyst]

Alberto. Just a follow-up on the first one. The request that you received, I mean, the number of contracts that you -- that you mentioned or the number of requests that you received, how much do they represent of annual revenues?

[Carlos Espinosa, executive]

That number, Vanessa is between 2% and 3%. But it's only a deferral.

[Francisco Martinez, executive]

Sorry, Vanessa this is Paco. What the rate gap for the total 2020 annual rental income should be something close to the 7% to 8%. It will be for the overall 115 tenants that requested for the kind of rent relief. As we mentioned in the report, only 50% of that is actually what we consider. So at the end, for the month of April and May, what we discussed during the report is only a 3% impact on the annual revenue.

[Vanessa Quiroga, analyst]

So for June -- thank you very much for that. So for June, the incremental impact is not material?

[Francisco Martinez, executive]

No, it's not.

[Operator]

Our next question comes from the line of Jorel Guilloty with Morgan Stanley.

[Wilfredo Guilloty, analyst]

So I have 2 quick questions. The first one is around accounting. So for the deferred rents, I was wondering if you could provide some color on how you're thinking about the possibility of provisioning for these rents? I mean, are we seeing different operators around the region becoming more conservative around the possibility of deferment. So -- so I was wondering, is there any -- has there been any change in your mentality around provisioning? And the second one is -- and I apologize if you answered this earlier, but have you seen any change in mood or increasing demand from auto manufacturing tenants, given that there's an increasing view of increasing auto demand post COVID in the U.S.?

[Carlos Espinosa, executive]

Well, Jorel, I will answer the first question. This is Carlos Gomez. On regards of the accounting, we are just including this -- this new criteria in our P&L to be more aligned to the cash generation of the company. So therefore, from our accounting point of view, we are still complying completely with the IFRS criteria. So we should not expect any changes there. It's only in the determination of the AFFO where we will be making this change. I don't know if this answers the question of, do you need any more detail?

[Wilfredo Guilloty, analyst]

So I was more wondering about how it reflects on the balance sheet. And also if you're deferring rent, that means your account receivables are going up. And what we've seen in the region is, in some instances, you've seen heavier provisioning happening for these accounts receivable. So wondering if that's in any way changing because we've seen it become more aggressive in some places?

[Carlos Espinosa, executive]

Yes, well, the only effect that you will see in the balance sheet is an increase that for the amount that we discussed in the accounts receivable. This increase, you will see it in the financials of the second quarter of this year. And you will see the recovery of these collections throughout the second half of the year. Besides that, and that will be reflected in our P&L, as I just mentioned. Besides that, there are no changes in the accounting policy of the company.

[Alberto Castillo, executive]

And in reference to your second -- in reference your second question, yes, the bad news for the auto industry of course, was almost a complete shutdown of the OEMs of the assembly plant for the couple of months. But the effect also has been similar to what happened on the [indiscernible] of the tsunami in Japan. But a lot of companies decided to put in motion some reassuring initiatives in order to give more safety, more security to their production lines. So we do -- to answer your question, yes, we have had conversations with several companies in the -- with the automotive industry associations that there is going to be a trend from some of the Tier 1, Tier 2 and Tier 3 suppliers of the auto industry to rethink and reduce their overall, supply chain strategy. And that -- in that case, I think North America will be the target also to reduce [indiscernible] or try to relocate some of the facilities. And of course, Mexico will be the ideal environment to do that. So we do see that. We have been talking to a lot of automotive industries about this issue, about the issue of course of the rent reliefs but also the time, the opportunities also are mentioned with this issue that you mentioned.

[Wilfredo Guilloty, analyst]

So to understand -- to see if I understood it. So the increase -- the conversations about increasing demand are coming from a structural point of view rather than more cyclical and more on shoring, manufacturing or something along those lines? Am I reading it correctly?

[Alberto Castillo, executive]

Yes. I think that there's -- certainly, I don't want any of them, there is also some cyclical demand. Sometimes when there's an increase in production in some additional increases also in demand for space. But at this time, I think that some of the key ones or the automotive companies that we talked, let me just say this. The automotive industry in Mexico, especially the suppliers, is very successful. Companies are meeting their goals in terms of productivity, in terms of quality, industry innovation, initiatives in motion. The cost is certainly -- it's a very important issue. So they're successful. So -- and I think that -- and also, in addition to that, we presume that the U.S. and the certainty of the supply to the U.S. also adds to the benefits of this company. So I think that structurally, there will be some additional advantages to invest in Mexico. I would say that almost in all sectors, but especially the automotive.

[Operator]

Our next question comes from the line of Enrique Alcantara with Citi.

[Luis Enrique Alcantara Medina;Citi;Equity Research - Latin America, analyst]

Hello guys, and thank you for the call, and I hope you, everyone safe and sound. Did you see any downside to guidance if tenant operating remains at 72% for longer, specifically in distribution?

[Alberto Castillo, executive]

I'm sorry, can you repeat the question? Enrique, I'm sorry, I apologize.

[Luis Enrique Alcantara Medina;Citi;Equity Research - Latin America, analyst]

Yes. That if you see any downside guidance if tenant operating level remain at 72% for longer? And we're trying to see if there is any kind of change in distributions?

[Alberto Castillo, executive]

Okay. No, I think that based on the information that we have, based on the performance of our treasury department, we have property managers in areas of the portfolio management and asset management from Prudential, I think that we can extrapolate that the rest of the year is going to be consistent to what we have so far. So to answer your question, no, I think that the companies are going to continue to open through the next few weeks. And as I mentioned, about 72% of the companies are already operating. We think that, that number is going to increase rapidly. And that we don't see any change in the horizon to change the payout ratio. And of course, every time I say this, I think I have to say also that the values of the current conditions and the current momentum of the reopening of the economy.

[Operator]

Our next question comes from the line of Eduardo Alvizouri with GBM.

[Eduardo Alvizouri Alvarez, analyst]

Alberto, Carlos and Paco, just a quick follow-up to a previous question. How did you expect deferral agreement to affect net collection for the upcoming quarters? And this effect will be translated to a distribution. I mean, it will also affect distribution, right?

[Alberto Castillo, executive]

Yes. So as we mentioned, I think that the effect of this, reopening of the economy is already evident. And we see that -- and we want to believe also that the worst is behind us in terms of the issues with lack of income from some of our tenants. So based on all of these facts, that's why we feel that moving forward, the renewals are going to be at the level that we mentioned before. And that the projections that we have for collections are going to stay for the rest of the year.

[Operator]

Our next question comes from the line of Froylan Mendez with JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

Alberto, maybe on the other side of the previous question, do you see upside risk to your dividends per share guidance either on the absolute amount of AFFO or in the payout ratio? And why am I asking this, you're reducing the CapEx, which was actually the main reason of the payout cut, there is a strong positive impact on FX given your rent base. And I think that you might be able to repay your revolver in the short term, given the good pace of collections. Would love your thoughts on that.

[Alberto Castillo, executive]

Yes. I think we still have to be cautious. I think that we have enough information to have some cautious optimism about the performance of our collections. And therefore, also the operations of our tenants and that we do develop several scenarios on both, on the upside and the downside. However, at this point, we feel that we took a lot of measures to -- real conservative measures in order to maintain one of the most important attributes of our portfolio, which is the stability. And that's why we drew down from the global credit facility. That's why we had a very intense follow-up of the collections. We have by weekly, 2 minutes per week with treasury department, with our property managers try to monitor almost on a daily basis, how was the behavior of the collection, and that worked. We increased communication with our tenants, not only with the ones that asked for relief, but also we want to make sure that the payments were on time. But again, I wouldn't venture to say that there'll be some drastic changes on the performance. We did took all these conservative measures and I think that they worked to a certain degree. We will adjust and relief some of those expenses as needed. But at this point, we're going to stand by our projection for the rest of the year.

[Operator]

[Operator Instructions] Our next question comes from the line of Pablo Ordonez with Itaú.

[Pablo Ordóñez, analyst]

Congratulations on your results. I have 2 questions. Alberto, following the situation between the U.S. and China and now with the COVID, have you seen evidence of companies moving operations from China and Asia into Mexico? And is there anything material for the portfolio? And my second question is for Carlos. In your revenue breakdown for NOI, what explains the 74% year-over-year decline in other operating income. I recall that there was usually some seasonality related to tenant reimbursements in the first quarter. So can you just give us an update on this side, please?

[Alberto Castillo, executive]

Yes. On the first question, Pablo, in terms of some additional demand from China, I think that, well, I mentioned before about some of the companies that were using Chinese companies or various companies for their supply chain, they're thinking about is there, sorry, certainly there is an opportunity also for some Chinese companies or some other non-North American companies that want to participate in North American market to place their operations in automation, specifically China, specifically in Mexico, I'm sorry. So we do see an opportunity -- we have talked to several Chinese companies even before this COVID-19 and they were analyzing the possibility of having facilities in Mexico. There are some Chinese companies, as you know, that are operating successfully in Mexico. Right now, the relationship between China and the U.S. may affect also not only companies that are in directly from China, but also they may come from Mexico. So they have to be -- we have to be very careful also about how to implement some of these new relocation of facilities, bigger opportunities to take advantage of the issue between the trade war between the United States and China and that -- make sure that all of us, all of the players don't violate some of the rules of the relations between Chinese and U.S. moving forward.

[Carlos Espinosa, executive]

Okay. And in regards to the second question, Pablo. Can you repeat me -- specifically, you want to see -- to know why was the increase in the amount? Or which is the main issue?

[Pablo Ordóñez, analyst]

On the other operating income line Carlos, there is a 74% decline year-over-year?

[Carlos Espinosa, executive]

Yes. Well, in the other operating expenses, we changed the way we reflect in our financial statements, the property taxes before we used to include all the property taxes in the financials of the first quarter of the year. Since this quarter, we will be only -- we will be distributing evenly on the 4 quarters of the year this effect. So that's why you can find a 71.9% decrease from -- when you compare it...

[Pablo Ordóñez, analyst]

Carlos, are you there?

[Operator]

This is Laura, the operator, Carlos is still connected.

[Alberto Castillo, executive]

Carlos?

Laura, I think we can just move to our closing remarks, please. Thank you.

[Operator]

Okay. No problem. Ladies and gentlemen, we have reached the end of question-and-answer session. And I would like to turn the call over to Mr. Alberto Chretin for closing remarks.

[Alberto Castillo, executive]

Thank you, Laura. Well, thank you all for attending today. I would like to finish the call by saying that we are confident that our asset class will perform well despite the highly challenging economic situation we're facing. We will continue to work together with all of our stakeholders to make sure we are aligned and optimize our results for everyone. We look forward to speaking with you again soon, and have a great day, and thank you for your attention today.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.