Macquarie Mexico Real Estate Management SA de CV

OTC:DBMBF

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, and welcome to FIBRA Macquarie First Quarter 2019 Earnings Call and Webcast. My name is Ashley, and I will be your operator for this call. [Operator Instructions]

I would now like to turn the conference over to Nikki Sacks. Please go ahead.

[Nikki Sacks, executive]

Thank you, Ashley, and good morning, everyone. Thank you for joining FIBRA Macquarie's First Quarter 2019 Earnings Conference Call and Webcast. Today's call will be led by Juan Monroy, our Chief Executive Officer. And to answer any questions you may have at the conclusion of today's prepared remarks, we also have Simon Hanna, our CFO; and Peter Gaul, MPA's Head of Real Estate Operations.

Before I turn the call over to Juan, I'd like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any securities.

Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified.

As usual, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I would encourage you to visit our website at www.fibramacquarie.com and download these materials. A link to the materials can be found under the Investor Relations Events and Presentations tab.

And with that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Juan Monroy. Juan?

[Juan Monroy, executive]

Thank you, Nikki. Good morning, and welcome to FIBRA Macquarie's First Quarter 2019 Earnings Conference Call. On our call today, we will review our operational and financial performance and discuss our ongoing progress for creating long-term value.

During the first quarter, we maintained our disciplined and thoughtful capital management strategy as we continue to sustainably source and efficiently invest our capital for attractive returns, including by [ impending ] and enhancing the quality of our portfolio, executing on target expansions and selected developments and debt repayment.

Our team of experienced professionals, located in our key markets, have deep local industry knowledge and relationships. This is one of our key strengths and, as demonstrated by our strong operating and financial track record, allow us to deliver superior customer service to our tenants, maintaining close understanding of each of our properties and also provides an advantage in terms of costs and scalability.

On the whole, fundamentals in our markets are healthy as demand for industrial real estate continues to be robust, while new supply remains modest. Increased confidence surrounding U.S. and Mexico trade relations is apparent in our discussions with our customers and [ big ] with participants in the broader Mexican industrial market.

Additionally, resilient Mexican auto production and record exports continue to support a healthy market dynamic. The Mexican retail sector remains stable, aided by softening inflation, steady employment and higher real wages. Moreover, record U.S. remittances and the introduction of government social welfare programs supported a healthy environment for Mexican retail sales. The ongoing positive outlook in general and for the portfolio, in particular, is reflected by a strong 9% year-over-year increase in our cash distribution.

As we continued the strong momentum from last year, we delivered first quarter AFFO per certificate growth of 4.5%, equal to MXN 0.6289 per certificate, representing a record result. This performance was driven by robust growth in our same-store portfolio, which produced a 4.4% NOI increase in the quarter when compared to the prior comparable period.

Our industrial portfolio recorded another quarter of positive performance with increases in both occupancy and rental rates. Same-store NOI in our industrial portfolio increased by 3.6%, while core industrial NOI was roughly in line year-over-year at MXN 677 million, a remarkable result given the sale of 35 nonstrategic industrial asset sales -- sold in mid-2018.

The industrial portfolio occupancy rate as of March 31 was 94.8%, up a significant 297 basis points from 12 months ago and picking up 30 basis points for the quarter. The increase in year-over-year occupancy was driven primarily by strong leasing activity and also benefited from the sale of nonstrategic assets which have below-average occupancy.

In addition to strong occupancy, in the first quarter of 2019, we recorded positive rental rate renewal spreads. This builds on the positive renewal spreads delivered over the past 3 consecutive fiscal years. First quarter 2019 rental rates were up 3.3% on an annual basis to a weighted average of $4.82 per leased square meter per month. The percentage of U.S. dollar-denominated leases increased by 8 basis points versus the prior corresponding period to 92.1%, a consistent ratio since the inception of FIBRA in 2012.

During the first quarter, we signed a total of 15 new and renewal leases, representing 809,000 square feet. Of note, 4 of the 5 properties that were vacated during the quarter were quickly leased up in the same period. This was an impressive performance by our team in efficiently capturing available market opportunities in such a short amount of time.

We are seeing industrial market demand from a wide range of tenants with notable new leases in the quarter, including manufacturers of telecommunications equipment and medical devices in Ciudad Juárez; a logistics provider for electronic equipment in Monterrey; and an auto parts manufacturer in Querétaro. Our leasing team has also taken advantage of strong underlying market conditions to pursue early renewals. So we are well positioned in terms of rollovers with only 14.4% of our leases expiring in the remainder of this year, a profile that we feel is very manageable.

In terms of our retail portfolio, we delivered NOI of MXN 152.8 million, a 7.9% increase from the prior year period. Year-over-year growth was driven by a 4% increase in average monthly rent, along with MXN 9.4 million of early termination fees. The recently vacated spaces are in prime retail locations, which we expect to lease up in an efficient manner to permanent lease.

During the quarter, we signed 62 retail leases, representing approximately 20,000 square meters. This comprised 16 new and 46 renewal leases with the highlight being the early renewal of a 7,750 square meter space leased to NH Hotels at our city shops at our Guadalajara retail center. In March, we commenced construction of an exciting 1,400 square meter expansion project for Cinépolis in our Multiplaza del Valle shopping center located in Guadalajara. Completion is forecast for July with Cinépolis expected to be operational in November 2019.

As part of the expansion project, we also delivered 700 square meters of additional GLA for new tenants. As previously discussed, in January, we began construction of an industrial development project in Ciudad Juárez, a core industrial market with strong market dynamics. Ultimately, we anticipate completing 2 buildings and the target -- and target the first 200,000 square foot LEED-certified class A building to be delivered during the third quarter of 2019 with an approximate investment of $9 million.

With respect to our certificate repurchase for cancellation program, we have repurchased a total of 5.1% of our outstanding certificates to date. The current program, which expires June 24, 2019, has a remaining budget of approximately MXN 850 million. At our recent annual holders meeting, we obtained approval for an additional 12-month program commencing June 26, 2019, for an amount of MXN 1 billion. All certificates repurchased have been or will be canceled.

Turning to our balance sheet where we recently announced $500 million refinancing, we have further enhanced our financial position. Subsequent to quarter end, we closed on a $425 million unsecured credit facility and expect to close on a new $75 million secured term loan facility by June. The refinancing activity is debt neutral. It significantly expands the weighted average maturity of our remaining debt tenor and further diversifies our lender base while maintaining our existing cost of debt.

Our next scheduled maturity is not until 2023, reflecting the risk profile of our capital structure. As of March 31, 2019, our CNBV regulatory debt to total asset ratio was 35.1% with a debt service coverage ratio of 5x. As we look to the remainder of the year, we are encouraged by constructive market fundamentals, notwithstanding ongoing macroeconomic and political risk factors in both Mexico and abroad.

At FIBRA Macquarie, we remain committed to executing on our strategy of delivering sustainable total returns on a per-certificate basis. We believe the disciplined actions we continue to take, combined with a high-quality portfolio and an experienced team, provides a strong platform to deliver value for our investors. As always, I'd like to recognize the commitment and valued contribution from all of the members of the FIBRA Macquarie team.

And with that, I will ask that our operator open the phone lines for your questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Gordon Lee with BTG.

[Gordon Lee, analyst]

Two quick questions. The first, on sort of the operating side -- on the supply side, I was wondering if you could sort of share with us what your view is of the supply situation in different markets. It's been some time now since we really had to worry too much about that. And if you look at the occupancies on the industrial side, I mean you have been reporting records quarter after quarter, and the same is true of your peers. And so I was wondering if you think in certain markets, we're at a stage where that's now attracting new capital.

And then the second question that I had was on the share buyback. The new program that you approved to be implemented at the end of April, that MXN 1 billion, that replaces whatever isn't use of the existing program, it's not added to it, right? So as at the end of June, I think it is -- you have MXN 1 billion with which to purchase shares. Is that correct?

[Juan Monroy, executive]

Gordon, yes, thanks for your questions. On the first one, on the supply side, yes, you're correct. They -- very positive trend in terms of occupancy. And to be fair, not only for FIBRA Macquarie, but generally for the rest of the market as well and also a trend that we have observed for the most part in most markets, at least in our [ 4 ] core markets. So we're very pleased with that, obviously. The underlying drivers of the demand -- of that occupancy is a very strong demand, fairly diversified demand. And when we saw the demand drivers, it comes again from a number of different industries, and we believe there are very long legs to that demand that we believe will continue for the medium to long term.

In terms of the supply, I guess I'll say that in general, it is very balanced. We continue to see a very disciplined sector. As you know, the industrial sector is known for being one of the most disciplined sectors in terms of supply-demand balance as most of the market participants tend to be institutional in nature and fairly disciplined. Also important to note that it's very rare to see debt available for speculative development. So when a developer needs to finance with equity, obviously people think twice about taking unnecessary risk.

Having said that, yes, we've seen some additional supply in markets like Monterrey, Ciudad Juárez, Guadalajara, for example, but really nothing that is a concern given that we're seeing even stronger demand. So the supply-demand equation in most markets is pretty balanced, and we think that the occupancy levels will be sustained generally for the rest of the year.

With regards to your second question. Yes, essentially, the MXN 1 billion buyback approval that we obtained at our recent shareholder meeting will replace what we have, so that is not incremental. We will have MXN 1 billion post June 25 that will go through the next 12 months after that date.

[Operator]

And our next question comes from the line of Dan McGoey with Citigroup.

[Daniel McGoey, analyst]

Congratulations on the results. Question first on the early renewals. I think you said in your remarks that you've been pushing for early renewals, and you still have a fair amount of renewals coming up for the remainder of this year and for next year. I'm wondering if you could talk a little bit about your priorities in those early renewals. Are you extending these terms or longer lease terms or shorter lease terms? And do you see opportunity to maybe enhance the leasing spreads? And if you could talk a little bit about the outlook for leasing spreads going forward, that would be helpful.

[Juan Monroy, executive]

Sure. Dan, thanks for the question. Yes, I wouldn't say that certainly our -- that we are aggressively pushing early renewals. We are very focused on maximizing value in our portfolio, and that's not necessarily always pushing an early renewal. We're very practical in how we manage each renewal in a case-by-case basis. What I will say is that I do see a fairly strong leasing environment in those markets. The demand is very strong. I've been spending some time with some of our customers, and they seem to be very bullish in terms of their own contracts and demand that they have and are seeing prospects for additional demand for industrial real estate for the balance of the year.

In terms of what are the sort of key focus in terms of early renewals. So always, obviously, try and maximize term and rents and that's sort of a fine balance that we need to manage. We always focus in trying to secure the longer lease possible, obviously, without sacrificing rental rates. So it's a balance that we analyze and negotiate with each of our tenants and obviously with a focus on renewing an occupancy. We try not to lose a deal because of rent, but we also don't want to leave any dollars on the table. So again the focus being on a -- from a very balanced approach in increasing term and maximizing rent, Dan.

[Operator]

And our next question comes from the line of Eugenio Saldaña with GBM.

[Luis Saldana Flores, analyst]

Congrats on your results. I have 2 questions. The first one is on a neutral FX scenario, when do you expect to start to distributing a tax result as opposed to the current capital return you are distributing? Are you a B2B? That's the first one.

The second one is you are expecting to divest another 2 properties, that's correct? So I mean do you have any sort of sense on the scale for doing this? And we also have seen recent activity in terms of transaction on the industrial side. Have you received -- or are you exploring further divestments or something like that?

[Simon Hanna, executive]

Eugenio, it's Simon here. With regards to the first question, on an FX-neutral basis, we actually forecast to end the year with a taxable result of around MXN 1 billion. That's in contrast to the start of the year where we had an opening tax loss of MXN 1 billion. So on track to move from a MXN 1 billion tax loss tradition to a MXN 1 billion taxable income result for the year on a neutral FX basis. So given our scheduled annual distribution is up around MXN 1.3 billion, that would mean that where FX is today, around 75% of the distributions would be designated as income and the 25% is capital.

So on that basis, we're effectively, as early as the Q1 distribution, we're on track to just start paying out of our income rather than capital. Obviously there can be a blend here as we go through the year -- the course of the year. It's highly dependent on where closing FX is. That's the key sensitivity as to where the taxable result will finish for the year.

So I think the key numbers to be aware of, which were flagged in the supplementary information, is that if peso was to depreciate further, if we get to 20.3 -- approximately 20.3 or any higher, then that would mean that our taxable result would be 0. And therefore, we have a potential to pay our distributions as capital. Going the other way, if peso was to appreciate through to the end of December 31 and close at around 18.55, 18.60, something like that, then that's basically going to result in our distributions being 100% income. So where FX is today will say that's basically equating to around 75% of our distributions being designated as income. Hope that helps.

With regards to the other questions, I'll just hand over to Juan.

[Juan Monroy, executive]

Yes. Simon, [Foreign Language]. Yes, as you noted, we still have 2 properties to close on those who were part of the sale that was contracted last summer, mid-2018. And we're working through a couple of registries that needed to be fixed and expect to close on those during the second quarter of this year.

In regards to further divestments, I'll say that the series of transactions that we've completed, culminating with the sale that we did last year, largely complete our asset recycling program. And we've truly have enhanced the quality of our portfolio, trended up, have sold approximately 7% for GLA -- for industrial GLA, which I think was a great accomplishment. And we will always be monitoring for opportunities to further increase the quality of the portfolio. However, we are not actively, at the moment, marketing any properties. That will be opportunistic. And every now and then, we'll look to sell properties where we'd see an opportunity in terms of creating value via pricing and our asset quality.

[Operator]

And our next question comes from the line of Marimar Torreblanca with UBS.

[Marimar Torreblanca, analyst]

On the supply-demand dynamics of the sector are pretty positive, and it's been for a while. And you have -- yes?

[Juan Monroy, executive]

Marimar, we didn't hear for a moment. If you can start with your question, please?

[Marimar Torreblanca, analyst]

Yes. So what I was saying is that given that the supply-demand dynamic of the sector is pretty positive, and it has been like that for a while, and that your portfolio is pretty stabilized and you have this couple of properties that you're going to sell, like, the story is pretty steady. Are there any other strategic initiatives you may be working on for the remainder of the year that we should be aware of or that you're probably continuing launching at some point?

[Juan Monroy, executive]

Yes. I think that's a very good question. We've been, over the last few quarters and years really, we have -- our people have a very clear strategic plan, and we've acted on it and have been delivering I think that very strong operating and financial results. We have also acted on key strategic considerations, to name a few, that's the recycling program; on the balance sheet front, we've been very, very proactive. So for us, for 2019, a key goal was to further enhance our balance sheet. So we have largely completed that.

Also for this year, a good -- an important objective of ours was to address the customer turnover. We've done a good chunk of that already when we signed a few months ago the renewal for a Whirlpool property, the largest property in the portfolio, a 1 million square feet industrial facility in Monterrey. And also are acting upon on other programs, like further enhancing corporate governance, as we have done in the past. We're looking at a few other potential actions. And also very active on, in addition to that, in general, ESG considerations, namely we are very proactive in terms of sustainability matters, started with a solar program maybe in Alaska. Maybe I will ask Simon to add commentary on that in a moment.

And then, in general, we are always scanning for opportunities to eliminate or minimum reduce the gap between share price and book value. And obviously those initiatives could take many different forms. So that's something that we are continuously thinking about so we can ultimately deliver a sustainable total -- attractive total return to our investor.

[Simon Hanna, executive]

Yes. Thanks, Juan. Just picking up on the sustainability. I guess one initiative that we've made good progress on this year is with regards to solar energy on rooftops. And I'm pleased to say that we've already installed on one of our retail centers, solar, which is being done in a very efficient way, no CapEx required by ourselves, landlord working with a third party. We're able to obviously provide green energy. The savings there to be had for our tenants. And importantly we as the owner can also pick up some of that upside. So that's a clever strategy which obviously helps convert some of that portfolio to green energy. I'm looking to do that on other rooftops in the retail portfolio. And I'm looking at the broader opportunities where obviously on industrial where we have an even greater GLA, as you can appreciate. So that's been great.

And obviously on the certification side, we are announcing for our first -- for our project in Juarez, a new development. That's not just a class A building. That's going to be LEED certified, which we're very happy about. So that should obviously provide attractive marketing prospects as well with regards to that and looking for other possible certification opportunities across the broader existing portfolio, not just on new development. So look out for that.

[Operator]

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

[Fernando Froylan Mendez Solther, analyst]

First, could you share with us the average age of the portfolio after the recent asset sales? That's the first question. The second question is, what other synergies are you obtaining given the asset sale beyond the lower leverage of the company? Anything on the SG&A or on the CapEx side on a per square meter basis? That's my second question. And thirdly, part of the investments you have been doing are focused on the retail side. Do you think you could get an attractive offer for this portfolio, either from your partner or a third party? And do you think it would actually add value to the company having that pure industrial portfolio and some -- maybe some additional firepower to grow in that sector?

[Juan Monroy, executive]

Froylan, [Foreign Language]. Good questions. On -- I'll start with the second question. And yes, the retail portfolio, it's -- I'll say it's a very high-quality defensive portfolio, defensive in nature given that it's concentrated from early in the top 1 market in the country with a high barriers to entry and really with more retailer demand and also because it's very, very well anchored. It is a portfolio that we've created substantial value. However, we still -- we're in the process, at least this year, of implementing a number of strategies at a handful of properties where we believe will create incremental value, so probably not the right time to be concerned to sell. Obviously we have a number of wholly owned properties and then a subset of portfolio, we have a partner. So we have not necessarily considered the sale of the portfolio, especially given that we still have some upside potential.

Over the long term, at some point, when the right time in terms of value creation and the size of the business, we will be open potentially for a strategy that will provide for a specialized vehicle and use those proceeds to further enhance value of the retail portfolio. In terms of the [ AAA ] portfolio, it is approximately 15 years post the asset sale. And in terms of benefits, there is -- also the #1 is that we have enhanced the quality of the portfolio, which means a reduced risk profile in a potential downturn. Obviously we'll be much better placed to maintain our occupancy. And I see Simon wants to add a few comments. Yes, Simon?

[Simon Hanna, executive]

Yes. Really, just on the, I guess, the synergies and any cost savings. I guess just looking where we are today, very happy with the consolidation on the AFFO margin that we get up above 51% for Q1. Our margins, which was really our focus, they continue to remain very healthy. And in particular, industrial, yes, remaining very consistent, up above 91%.

I think when we look at the opportunities to gain either further savings, even further savings, a couple of areas to note. Firstly, obviously with our internalized property administration platform, that obviously provides a great deal of scalability. So it's a very efficient structure that we have today. And obviously as we continue to grow the portfolio over time, even through expansion of developments, we're obviously going to be adding to the top line without a proportion of increase with regards to the administration costs at the property level. So we would expect to see some margin expansion there over time just with that dynamic.

I would also note that obviously, with the gradual delevering that we've seen over the last couple of years, and we're talking about sort of a meaningful over 200 basis points just for the last 12 months. We had also seen for Q1 that our interest expense is actually the lowest it's been for quite some time. You'd have to go back to 2017 to see such a low, call it, result. So obviously with having 100% of our debt being fixed rate, that also provides a very good sort of visibility on the cost of funding going forward. But obviously we're starting the year with a low number compared to relative items -- or relative period, I should say.

So I'd say that overall, happy with the margins and the cost base to date. But I think it's good reason to think that we're set for a pretty solid year when it comes to expense management and then hopefully have some margin expansion through the build-out of the top line, including through expansion development.

[Operator]

[Operator Instructions] And our next question comes from the line of Jorel Guilloty with Morgan Stanley.

[Wilfredo Guilloty, analyst]

I have 2 questions. First, I was wondering if you can comment on demand for logistics-focused industrial, particularly e-commerce-focused, and are you looking to increase exposure to this sector? And my second question is on the retail segment. And you've seen the [ initiatives from ] power center tenant increase their e-commerce footprint and treat their existing GLA -- at least part of their existing GLA as distribution centers, if you will. So I wanted to know, is this something you've seen in your portfolio? And would you consider converting any of these retail centers into last-mile distribution centers?

[Juan Monroy, executive]

Sure, Jorel. Yes, on the first question -- and let me know if I don't answer it fully. I'm not sure I captured the entire question. With regards to our view on some sort of e-commerce in connection with logistics -- yes, we see that as an emerging trend in Mexico. Retail e-commerce sales is part of total retail sales. It's still below 3%. However, we do see potential accelerated growth of e-commerce and believe that for the next few years, we'll see accelerated demand on the logistics space related to e-commerce driven.

In fact, this week, we just signed a lease with an e-commerce-related company. So we see that as flipping a very small part of total industrial market in Mexico, but certainly one with an accelerated growth for the long term. Also, we are well placed to capture that growth over the coming years. We'll be primarily concentrated in the markets of Mexico City, Monterrey and Guadalajara, and we're excited to be an active participant in that subsector.

With regards to your question on retail. I think the question was if we can convert some of our retail properties to last-mile delivery centers. I guess the answer will be we're always open to ensuring that we do lease our properties in accordance to the highest and best use. I'll say that based on current market dynamics and the characteristics of our properties, the highest and best use at the moment definitely remain as retail properties. They're performing very strong and continue to see upward trends.

However, I'll say that we -- in certain properties, there might be an opportunity to complement the offering perhaps in a part of a parking or a special part of a property to provide for last-mile logistics. Luckily, our properties are fairly urban, are primarily located in the top markets in the country. So if there's an opportunity in any portfolios running, they'll be in our portfolio. So we'll monitor for that opportunity. Was there a question on expansions? I think...

[Simon Hanna, executive]

Well, yes. I was just saying, Jorel, like for example, in Guadalajara where we had some excess land there, obviously looking for next best use. So in that case, whilst that could have possibly been a last mile, we actually saw a very good opportunity with [ Snuffles ]. And in that case, we're taking advantage of that. So we're still seeing very good demand from quality tenants.

And as Juan mentioned earlier on the call, in that particular case, the land that we have there is actually going to be put to work with a cinema. And then obviously it's not only going to bring direct income from that particular tenant, but it will build the foot traffic for the rest of the shopping center. So yes, I think it's really on a case-by-case basis as we see the opportunities come through in terms of how we take advantage of that.

[Wilfredo Guilloty, analyst]

And on the -- part of my question was also if you've seen some of your tenants already pushing towards treating their own space as a distribution center because we've been seeing that problem on some grocery anchors in Mexico, whether they intend on increasing their e-commerce footprint and treating their own stores as a mass kind of distribution center, if you will. So I was curious to know if you're seeing that on your retail portfolio as well.

[Juan Monroy, executive]

Yes. No, not at all. We haven't seen that in any of our properties with any of our tenants. What we've seen more generally is some supermarket operators providing within their same environment the ability for customers to pick up the product that they have bought online, but really just using the same physical structure and the same environment, just adding a service for customers to go and pick up what they have bought online, but not -- we haven't seen at all any of our tenants convert their space to distribution.

[Operator]

And our next question comes from the line of Alan Macias with Bank of America.

[Alan Macias, analyst]

Just one question, Juan, if you can give us an update on the retail side. Any new tenants that you are seeing that are coming into Mexico? Or are you basically working with the same tenants? Just if you can provide some color on the dynamics of the tenants and new tenants into Mexico.

[Juan Monroy, executive]

Yes. So Alan, [Foreign Language]. Yes, we're seeing, in general, a fairly robust [indiscernible] from retailers, particularly in our markets, in particular, in our properties that are like ours that tend to be fairly urban in high-density areas. We see good expansion programs for existing tenants or existing market participants.

And in terms of new entrants, we have seen a few additional market participants in the home improvement category, for example, a couple of companies, one coming from South America and the other one coming from Europe. They are -- one already have opened a couple of stores in Mexico, and the other one is very actively looking at opening stores. Also we've seen small-format retail-type concepts coming from Asia. And we continue to see a fairly robust demand from the usual suspects with whom we've worked in the past, Alan.

[Operator]

And our next question comes from the line of Ramon Obeso with Scotiabank.

[Ramon Obeso, analyst]

A follow-up question on solar panels and sustainable projects. What percentage of your energy consumption do you expect to obtain from renewable sources in the short to medium term? And have you estimated what are the potential cost savings once these projects are implemented?

[Simon Hanna, executive]

Yes. Thanks, Ramon. I think no specific target we have with respect to the coverage that we want to gain in the short term. Obviously we're looking more at the center that makes sense to roll out and how that could then work best with the tenants. But I think for something, for example, like the first shopping center that we've done, that type of installment could actually cover close to 100% of our common area cost, which would be the cost for us as the landlord as opposed to the tenant.

In terms of the actual savings that are up for grabs with this sort of structure, you could be looking at savings compared to, say, the retail spot rate, somewhere close to sort of 10%, 15%. So that's a meaningful saving, obviously, for us as the landlord, but particularly for our tenants who are actually also on the retail side. Obviously energy users and the larger opportunity being on industrial, particularly with manufacturing type tenants where cost of electricity is very important.

So there are meaningful segments to be had, particularly given when you look at what's happened over the last year, 2 years with the electricity prices in Mexico obviously has been a big increase for a number of reasons. So anywhere where we can get either -- or number one, as savings compared to the run rate historically. And secondly and perhaps even more importantly, some level of visibility on the cost of the electricity going forward, having some sort of ceiling, even that would obviously help tenants as well. So we're looking at all those opportunity areas. But any way you'd look at that, the savings would be meaningful compared to current spot prices.

[Operator]

And there are no further questions. I'd like to turn the conference back to Juan Monroy for any closing remarks.

[Juan Monroy, executive]

Thank you, Ashley. Thank you, everyone, for participating in today's call. We look forward to speaking with many of you over the coming days and weeks as well as updating you again soon on our second quarter 2019 results. Thank you.

[Operator]

The conference has now concluded. Thank you for joining our presentation today. You may now disconnect.