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Good morning, and welcome to FIBRA Macquarie's First Quarter 2020 Earnings Call and Webcast. My name is Gigi, 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.
Thank you, and good morning, everyone. Thank you for joining FIBRA Macquarie's First Quarter 2020 Earnings 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.
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 website can be found under the Investors 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?
Thank you, Nikki. Good morning, and thank you for joining us today. It goes without saying that this is an unprecedented time for all of us. And on behalf of the entire FIBRA Macquarie team, I want to convey our best wishes for everyone's good health and wellbeing.
On today's call, I will discuss our first quarter 2020 results and the impact of COVID-19 on our business and the related measures we have taken as part of our ongoing response to the crisis. While we are experiencing impacts from the pandemic and related stay-at-home restrictions, our performance is demonstrating the resiliency of our platform and our portfolio. Uncertainty remains around the length and ultimate impact of the pandemic on FIBRA Macquarie and the global economy. However, reflective of the resiliency of our business model and capital management strategy, our Board has authorized the payment of our scheduled first quarter distribution, and we're also taking this opportunity to reaffirm our full year distribution guidance.
Even as we began to see some impact of the COVID-19 pandemic from middle of March, we've delivered another quarter of robust performance. Our AFFO per certificate increased 19% compared to the prior year first quarter to MXN 0.7483. The high AFFO result this quarter was primarily driven by a 12.5% increase in revenue compared to the prior comparable quarter driven in large part by a sizable lease termination recognized in our retail portfolio, which I will discuss shortly, along with higher year-over-year occupancy and rental rate growth. Normalizing for the early termination fee recognized in the first quarter, AFFO per certificate increased 2.1% year-over-year.
In our industrial portfolio, NOI in the first quarter increased 7.5% on a year-over-year basis to MXN 727 million, a record quarterly result. Higher occupancy and rental rates contributed to revenue growth of 5.8%, which along with lower property level expenses contributed to an NOI margin of 92.7%, up 146 basis points from the prior year. We ended the quarter with occupancy of 95.7%, up 86 basis points versus the prior comparable quarter. Leasing activity was healthy as we executed 22 new and renewal leases. With solid level of renewals completed in the quarter, we have 12.6% of annualized base rents scheduled to expire over the remainder of 2020. It's been a great start to the year from our leasing team to successfully work through approximately 1/3 of our 2020 expirations in the first quarter. And at this juncture, we consider the remaining profile of 2020 expirations to be manageable. In addition, I'm also pleased to confirm that U.S. dollar-denominated leases are proving to be extremely resilient, with 92.9% of total industrial leases being denominated in U.S. dollars, reflecting our customers-based genuine U.S. dollar business model.
In our retail portfolio, we delivered NOI growth of 46.9%, which largely reflects the recognition of the early termination income I noted earlier, where we collected approximately MXN 107 million in cash, representing 1.1x the annual scheduled rent income for that particular lease. This one-off income item understandably created some earnings volatility on the upside in our first quarter results. However, normalizing for the early termination income booked in the respective periods, our portfolio's underlying first quarter results were steady, with retail NOI mainly flat year-over-year, and up 2.4% sequentially. Upon termination of this lease, the newly vacated 17,000 square meter facility has been removed from GLA, while we evaluate a variety of options for its optimal use. To give some color on the real estate opportunity, the property has a significant land area of 27,400 square meters, and is positioned in a densely populated prime urban location in Mexico City with flexible use and zoning rights. And we look forward to providing an update in due course for the decision on the optimal path forward to maximize value for our investors, which amongst other things might include a possible repositioning of the site for the industrial logistics sector.
In terms of capital deployment during the quarter, we made progress on 2 projects, both of which are nearing completion and which we intend to finish given their advanced stages of construction. This include a 217,000 square foot industrial building in Ciudad Juárez and a 38,000 square foot build-to-suit industrial expansion in Hermosillo. We do not have any other additional material capital project commitments.
Over the past few years, we have progressively built a resilient business with a disciplined capital management strategy and a strong, well-positioned balance sheet with plenty of flexibility. As of March 31, we had total liquidity reserves of approximately USD 264 million, comprised of $210 million cash at bank and undrawn revolver facility equivalent to $54 million. The revolver brought down on March 24 of $180 million provides, out of an abundance of caution, extra cash for these uncertain times, and we intend to repay when market conditions normalize.
We closed the quarter with a regulatory LTV ratio of 41.6%, and the debt service coverage ratio was 4.4x. The healthy debt service coverage ratio reflects a combination of our strong liquidity and the long tenor of our debt, with the next scheduled loan maturity not until 2023.
Now I'd like to discuss FIBRA Macquarie's positioning and measures we have taken in light of the COVID-19 pandemic. First and foremost, we have been focused on protecting the health and safety of our team members, customers and other stakeholders. Finally, we have been working with our tenants to support their needs, particularly customers who have been deemed nonessential, to help ensure their ability to meet the lease obligations. Throughout this crisis, we have sought opportunities to provide community assistance where we could. We partnered with the State of Mexico to provide free of charge safe spaces with available utilities to support members of the community directly impacted by domestic violence, which very sadly has been of rising occurrence during these times.
We recognize the challenges that the current economic environment is creating for some of our customers. Our approach has been to work with our customers and allow selective rent relief. In our industrial portfolio, many of our customers continue operating as essential businesses or as suppliers to essential businesses. However, operators in the automotive industry, which represent 39% of our industrial tenants by ABR, were ordered to close their facilities by government mandate. As many now will be aware, the auto sector has been formally permitted to resume operations following designation as essential businesses, which will provide much welcome relief to this important segment of Mexico's economy.
As certain customers have been closed or operating at reduced capacity we have received rent relief requests, which we evaluate on a case-by-case basis. Today, we have received requests from 36% of our industrial customers by industrial portfolio annualized base rent, and have agreed to deferrals for 24% of industrial customers. These short-term deferrals are contractually scheduled to be collected predominantly in the second half of 2020. Total deferred rents represent approximately 2.1% of our industrial portfolio annualized base rents. Importantly, rent discounts have not been granted to any of our industrial customers. April rent collections, excluding rent deferrals agreed, totaled 90% of contractual amount due. Taking into account contracted rent deferrals, April rent collections totaled 98%. We are closely monitoring May collections, and it's satisfying to see that these are pacing in line with April.
In our retail portfolio, all shopping centers are supermarket-anchored and have remained open. And as of today, approximately 58% of our customers in terms of annualized base rent are considered nonessential or have closed their operations. The Mexican government required nonessential businesses' activities to be suspended beginning April 3. And within our customer base, this mandate impacted many customers including cinemas, entertainment, gyms and department stores.
As a first time disclosure and as part of our efforts to constantly enhance transparency through our public reporting, our first quarter reporting provides details on our tenant composition by retail subsector, categorized by essential and nonessential status.
To support our customers and help ensure the safety of staff and visitors, we continue with our enhanced cleaning protocols, including such measures as providing hand sanitizer and additional cleaning [ shifts ]. We anticipate that as government-mandated closures are lifted we will see a measured approach to start reopening, as tenants implement their own safety protocols and as shoppers likely return with some initial caution.
To help our most affected customers and in order to facilitate a timely reopening, we have granted temporary rent deferrals and limited discounts on a case-by-case basis. So far, we have reached agreements for rent relief with 22% of our nonessential tenants, or 12% of our total retail portfolio, with other agreements remaining under negotiation.
In the case of retail, where deferred rents are being agreed, we expect many deferred collections to cross over into 2021. April rent collections, excluding rent deferrals agreed, total 59% of contractual amounts due. This time, the government regulations are currently scheduled to allow nonessential businesses to reopen beginning from June. But that timing is, of course, subject to change as we all closely monitor the COVID-19 status across our local communities, in the entire country and world.
What we don't have to -- while we don't want to downplay the global impact the virus has caused, we do believe there might be some constructive outcomes to emerge from this crisis for FIBRA Macquarie. It is evident that many companies are evaluating their supply chains with an enhanced focus on inventory resilience, safety stock planning and geographic diversification, particularly on nearshoring. We believe that with Mexico's favorable position in the global supply chain, particularly taking into account the tailwinds expected to come over time from the now fully approved USMCA, we could be a beneficiary of these outcomes over the medium to long term.
With that backdrop, we are pleased to be maintaining our distribution guidance for 2020. For the full year, FIBRA Macquarie expects to make cash distributions of approximately MXN 1.90 per certificate to be paid in equal quarterly payments of MXN 0.475. We're also maintaining the upper end of our AFFO guidance and are making an adjustment to the bottom end to reflect the additional uncertainty caused by COVID-19. We now expect our full year AFFO per certificate to be between MXN 2.52 and MXN 2.62 compared to the prior range of MXN 2.57 and MXN 2.62. Our ability to maintain our outlook is in part supported by the recent depreciation of the Mexican peso, as we now use a higher average FX rate of 22.7 for the remainder of the reporting year compared to our previous assumption of MXN 19.15.
Our guidance is predicated on several factors, as outlined in our earnings release, including no further deterioration in broader economic and market conditions, the government suspension of nonessential activities being relaxed from June 2020 and the timely collection of in-place scheduled rents, including the deferred rents [ aside this cost ]. While we continue to face challenges as a result of pandemic, we are confident that based on our strong balance sheet and liquidity reserves along with the financial stress test analysis we have undertaken, FIBRA Macquarie is well placed to steer through such challenging periods.
Finally, I want to offer my sincere thanks to the entire FIBRA Macquarie team who are working so hard to help us navigate through this crisis. I am proud of their efforts and dedication through this challenging time.
With that, I'll ask Gigi to open the lines for your questions.
[Operator Instructions] Our first question comes from the line of Gordon Lee from BTG.
Three quick questions. The first one, on the balance sheet, I noticed that the investment properties rose by about 20% on a sequential basis when looked at in pesos. I was wondering whether this was just simply the new mark for the FX on the industrial properties. The second question is on the discussions that you've been having with your industrial clients for the rent deferrals. Of that 36% number that you mentioned, I was wondering how much you would say that is concentrated in the auto sector. And the final question was, I saw that you purchased an additional 4 million CBFIs during the quarter. And you mentioned in the release that you still have about MXN 800 million left in the reserve, but reminded us that expires at the end of June. I was wondering what the plans are for renewing that or extending that.
Gordon, thank you for your questions. With regards to the rent deferral question on industrial at 36%, yes, I guess, it's fair to say that the request, similarly to the composition of our portfolio, we've seen a good percentage coming from auto-related tenants. So I think that's a fair assumption there, given the fact that they are -- some of them have shut operations or partial operations. I guess the good news is that it has been announced now that by government mandate that the auto industry is considered essential. So we are relieved to see that they'll be able to reopen in the coming days, to support the entire supply chain, including Mexico and U.S.
With regards to our buyback program, yes, you're correct. You note that we did do some buyback early in the quarter, and we have an active buyback -- or an approved buyback program, which, as always, the intent is to be solicit approval from the shareholders at the next meeting, so we can always have a live program. So it will be a continuation of our program. We think it's a prudent strategy, always having an approved buyback program, and we will act on buyback program based on what we're seeing in terms of market conditions.
With regards to your balance sheet questions, Simon, you care to answer?
Yes. Gordon, you're right, it's basically FX is the key driver for that -- the last independent valuation was done at December 31. So as is typical for our first quarter, we got our management roll forward, basically maintaining those key assumptions. Just for reference, the way that works out roughly is we're marking that based on those last external valuations at around 8.6% cap rate. And as you'd appreciate, that's obviously significant -- significantly different to the market cap-based NOI cap rate, which is somewhere north of 12%. So obviously, as we go through the course of this year, we'll continue to update those valuation assessments.
Our next question comes from the line of Eduardo Alvarez from GBM.
I have a question regarding the FX volatility. What do you expect the effects of the peso depreciation are going to be in the medium to long term? I mean will tenants will be seeking to renegotiate contracts, looking to be peso denominated?
Yes. I think that I always like to point out that our industrial leases, as you know, we have about 93% being U.S. dollar denominated. That percentage has been pretty consistent since our IPO that we did in 2012. At about the same percentage back then the FX was below MXN 13. Today, it's been around MXN 24, and we've maintained a similar percentage of U.S. dollar-denominated leases. Obviously, more recently over the past couple of months, we've seen a pretty pronounced depreciation of the peso. And as I mentioned before, we are happy to see the resiliency of that U.S. dollar-denominated leases. Really, the reason is that our customers have a truly underlying business that is U.S. dollar denominated. So we've been, over the past couple of months, engaged in a pretty fluid conversation with our customers with a pretty active customer count calling campaign. And I can tell you that FX discussions has not been really part of that dialogue. So the expectation is that the U.S. dollar lease structure will be maintained over the long term.
Our next question comes from the line of Vanessa Quiroga from Crédit Suisse.
The first one that I have is regarding guidance. Does your guidance for AFFO and dividends assume that those tenants in retail for which the negotiations are ongoing, you will arrive to similar agreements as the first 22% of nonessential clients for which negotiations have already concluded? And the second question is regarding the tenant that left. Exactly, I'm not sure if I understood correctly, it's an office space, correct? And why have you decided to take it out of GLA? And what's the different opportunities that you see for this space? And also how -- if you can tell us exactly the date when they left within the quarter?
Yes, with regards to your first question, if our guidance on AFFO and dividend include assumptions on further agreements on nonessentials of our retail customers, the answer is yes. We have taken into account or fully documented rent relief discussions as well. We have provided for further rent relief for nonessential customers. At the moment, we are negotiating on a case-by-case basis with each of our customers with the goal of truly understanding whether going through what the challenges they have and trying to come up with a solution that is a win-win for everyone involved. So the answer on that first question is yes.
With regards to your second question, the space that was vacated. It was a combination of document storage and back office. And this is a property where we have GLA of 17,000 square meters in a land parcel of 24,000 -- approximately 24,000 square meters. And we've taken that out of GLA as it is clearly a case where we'll be either repositioning or developing or there are many different things that we can do with the property. It has a pretty extensive -- also has [ relo ] zoning rights. It is very well located, adjacent to main highways of Mexico City or of an infill type property that could be used for many different uses, including logistics. So yes, that's that on your second question.
Yes. Just to follow up on that, Vanessa, it's Simon here. I think to the extent that it wouldn't be taken out of GLA, the impact on a consolidated basis would have been 40 basis points. Just so we're clear on that. And regarding the date of exit, the formally concluded date was around 5th of January for that date of exit. So you're effectively seeing all that early termination income for the quarter.
Our next question comes from the line of Nikolaj Lippmann from Morgan Stanley.
Basically, two quick questions, if I may. First on accounting, as we come into the second quarter, you're giving some discounts and rent deferrals. How are you going to book that? If you give a deferral, are you going to book the full revenue and then put what is deferred into cash receivables? Are you just going to book the cash rent? If you can give a little bit of color on how you're thinking about that? And then second, it's interesting to hear that you're thinking of some level of conversion with that space. Is that something that you're looking at maybe [ dockage installs ], et cetera, on a wider basis as well? Or is it very much on a sort of one-on-one or 2 buildings that you're considering there?
Yes. Nik, it's Simon here, and thanks for joining. Just in response to the first question, I guess there's 2 aspects of that. Obviously, we've got a discount, that's a pretty straightforward accounting approach, whereby we're basically just resetting what will be the new scheduled -- scheduled monthly or quarterly rent and booking on that basis. So just an outright reduction or a reduction in gross rent. With regards to deferrals, the way that we're looking at this at the moment, we're still keeping the full month of contractual income as earned. So the total gross revenue will be the same based on that contractually agreed process. And then it becomes an assessment, I guess, on collection probability. And to the extent that the tenant we consider to be, I guess, an active payer based on their current month rents, and so on, I think it will basically just follow our standard provisioning assessment. And to the extent, therefore, that we have any doubts on collectibility, that will then come through as a provision for doubtful debts. So you'll see the gross revenue being booked as normal for deferred rents. And then transparently, we'll be showing the -- any provisioning around those deferred rents through that normal provision for doubtful debt [ plan ]. Hopefully, that answers that question, Nik, and I'll just hand it over to Juan for the second part of that.
Yes, thanks, Simon. On your second question, it's an interesting one, isn't it? I do see it as a very exciting opportunity to convert this space into something else. There is a lot of hidden value there. We're excited about the prospects. It really could include many different uses, but 1 fairly attractive use could be logistics. We're just going through the motion of really understanding dynamics of the cost and rent implications to make the number works of a urban infill type logistic development in Mexico City. So very exciting to go through that. And I see it as an opportunity and very glad to see that we've collected 1.1x the annual base rent on that lease. We are always scanning our portfolio to ensure that we maximize the use of our properties. So this is not necessarily just a one-off evaluation. It's -- I'll say that we are constantly evaluating our portfolio to ensure that we maximize the properties and that we are using them as best as we can. We have, however, not identified any meaningful development or redevelopment opportunities with the retail portfolio at the moment. But maybe in the medium term, there could be a few things there to consider.
Our next question comes from the line of Francisco Chávez from BBVA.
I have two questions. The first one is regarding the rent relief for the commercial segment, if you can give us an idea of how much of the relief is in the form of discounts and how much is it going to be on deferral. And the second question is regarding CapEx. Do you plan to modify the CapEx program or would you be considering some build-to-suits in the rest of the year?
Yes, on the rent relief for retail, we've been -- it's pretty tricky and very time intensive as it is a very granular approach to really understanding what our customers are going through. I'll say that the key issue that we're focusing on addressing at the moment that we see that our customers have in front of them is a liquidity issue. A good number of them have been shut now for a few weeks and their issue that we're trying to help them address is liquidity. So the majority of our discussions that we have had as of now are focused precisely on that, and that has been in the form of rent deferral programs, as we think that goes to the heart of the issue that they are experiencing. Obviously, every customer has a slightly different situation. And we take into consideration the customer part, the financials, the property, et cetera, et cetera. So it's a very granular approach to this engagement. In certain cases we have considered certain rent discounts, but we are being very careful with that as we think it's also important for our customers to understand our position; [ our ] business is to collect that rental income, and there is a contract in place where we do expect them to pay the rent. But obviously, we recognize that this is -- these are unprecedented times, looking to working with them in finding the optimal solution. And at the moment, I'll say that the majority of those -- our discussions have been more on the rent deferral point as opposed to rent discount.
On the CapEx front, yes, we have been obviously extremely proactive in managing our liquidity position. As you can see, we drew on our revolver at the end of March, $180 million, that was just one of the actions that we especially took very early into the crisis. And very quickly following that, we've established a pretty robust cash management plan, which not only included CapEx but also OpEx. Some of that is already reflected in our NOI margin already. And obviously, with CapEx, we'll be extremely prudent for the balance of the year. We are planning to continue construction on the buildings that I just mentioned in Juárez and a build-to-suit project in Hermosillo as we have a contractual obligations in Hermosillo for the build-to-suit. And it makes sense given the contractual structure of that project in Juárez, the project was 85-plus percent completed. And we're seeing fairly good level of demand. So we think that is much better to complete the building than to stop construction. But yes, you mention for the balance of the year, we'll be very prudent in terms of CapEx management as well as OpEx.
Our next question comes from the line of Enrique Alcantara from Citi.
I have two little questions. And the first one is related to the renewal and what do you think will be for the next quarters? And also the leasing spreads, if you think we could stay positive or negative for the next quarters also? And what -- and also you told us that the 2020 expirations are manageable. Could you give us more detail on this?
Yes. Enrique, thank you for your questions. Yes. On the renewals, we had about 19% overall during 2020. We worked through 1/3 of that already during the first quarter, and we did it successfully with a pretty good retention rate, which is consistent with historical average. So we're happy to see that completed during the first quarter. For the balance of the year, we still have to work through about 12%, which is very manageable based on historical performance and assessment of each of those leases and knowledge that we have based on conversations with or existing customers. No particular geographic or industry concentration on that expiration profile. And we expect to have a similar retention rate to what we had during the first quarter. In terms of lease spreads, I guess, yet to be seen. I think that we should have probably neutral to slightly positive, consistent with what we've seen during the first quarter and the discussions that we are having at the moment, where we haven't seen any changes really on rent levels. So the expectation is that for the balance of the year, at least the spread will be neutral to slightly positive. There was a...
2020 expirations.
Yes, we addressed everything?
Yes.
I don't know if I missed the part of your question. Okay. If not, thank you very much.
Our next question comes from the line of Adrian Huerta from JPMorgan.
Two questions. One is, if you, at the end, you think to be offering some type of relief to all the nonessential retail, even -- that they are closed. It seems like other landlords are doing something like that, I mean to all nonessential GLA. And then the second question is on this office space that was vacant. If you can just repeat what you said on the GLA and the size of the land? And what about -- what could be the price of the land for this asset? And why not selling the assets, collect cash and reduce your exposure to retail and offices?
With regards to your second question on the recently vacated property, it was a property with 17,000 square feet of GLA and 27,400 square meters of land. This was a property that was used primarily for document storage and back office space. And yes, you're correct. We are not eliminating any opportunities. We are looking at repositioning development opportunities. And also, it could include a straight out sale of the property. Difficult to assess what the land value is, and we're going through that at the moment. But certainly a fairly valuable piece of land in a prime area in Mexico City. So yes, the sale of land, it is also a potential consideration as well.
With regards to your first question -- I'm sorry, I missed it. Would you mind repeating it, Adrian?
Sure, Juan. I mean you mentioned that you have offered some type of relief to 22% of the nonessential GLA for retail. Should we assume that all of them will be granted some type of relief, given that they were not open for at least a month?
I guess what I can tell you is, certainly, we're engaged in a discussion with all of them. I think that it's a case-by-case situation. Some customers have been operating, some others haven't. Obviously, the majority of the nonessentials have been closed now for a few weeks. So I do think it's fair to assume that that percentage will increase. I don't know if it will get to 58%. But certainly, we are assuming that the number will increase close to those levels.
Simon here. Just to clarify, the GLA from that vacated property was 17,000 square meters.
Did I say square feet?
Yes.
Yes. Sorry, square meters.
Our next question comes from the line of [ Anton Morton Power ] from GBM.
On the expense side -- on the expenses side, we saw a reduction in property expenses, do you think, or how do you see -- if you could give us some color of these kind of expenses for the future? Do you plan on trying to tighten or control more all of these expenses?
Yes. It's Simon here. Thanks for the question. Yes, it was a relatively low quarter for R&M in our industrial portfolio. We -- the annualized -- and including the maintenance CapEx and TIs, we're looking at $0.42 per square foot per annum on the maintenance CapEx and TIs and around $0.09 per square foot per annum on the repairs and maintenance. So I'd say that's been a little bit lower than average. I'd say going forward, we could well have some flex there to manage the R&M program for the remainder of the year. The way that we're currently looking at it, I guess, is assuming that we maintain our required repairs and maintenance and maintenance CapEx profile to ensure that the properties are in good order and in the best possible condition. We probably see that the outlook for the full year is maybe just a touch higher than what we saw in Q1. So I would expect that we -- given that Q1 was particularly low, we probably expect a little bit higher for the remainder of the year. But as you suggested, there may be some flex there, if need be, but the way that we're approaching this is to ensure that our properties are properly maintained. Both in terms of the shorter-term R&M as well as that longer-term maintenance CapEx, and that's the way that we've built the forecast.
Our next question comes from the line of Vanessa Quiroga from Crédit Suisse.
Actually, it's a follow-up on the question that was just made regarding the repairs and maintenance expenses for the first quarter, which were low. In 2019, can you remind us if there were any specific repairs and maintenance expenses that actually inflated that 2019 line? I remember that there were some remodeling works on shopping malls. I don't know if that affected the 2019 number, just to understand how much of an outlier 2019 could have been?
Yes. Sure. Vanessa, it's Simon here. Just to clarify, the remodeling works, they're exclusively in connection with the retail portfolio, and they're not included in the AFFO. We transparently show those expenditures in our reporting below AFFO. So that's not a factor in this particular case. Looking at the last 12 months average, Vanessa, we typically go around MXN 19 million per quarter for R&M in the industrial portfolio. So obviously, we're seeing around MXN 14 million this quarter. It is a little bit lower than average. But if I had to sort of, I guess, look at what the run rate is for the entire year, we would expect it to be somewhere close to that MXN 20 million mark. So as I say, expect some sort of normalization. We do have, from time to time, a little bit of volatility in the quarterly repairs and maintenance, just depending a little bit on seasonality and scheduled roof replacement works and so -- roof maintenance works and so on. So there is a little bit of volatility there, but these things tend to average themselves out over the full year. So as I say, probably expect to have some normalization as we go through the remaining quarters.
We have reached the end of our time. I would like to turn the call back over to Juan Monroy for closing remarks.
Thank you, Gigi, and 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 2020 results. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.