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Good day, everyone, and welcome to today's Fibra Danhos First Quarter 2018 Earnings Call. [Operator Instructions] Please note, this call is being recorded. It is now my pleasure to turn today's program over to Elías Mizrahi, Investor Relations Officer. Please go ahead.
Hi, good morning, everyone. Thank you for joining today's call. I am Elías Mizrahi, and I run Investor Relations for the company. At this time, I would like to welcome everyone to Fibra Danhos's 2018 First Quarter Results Conference Call. We issued our quarterly report yesterday. If you did not receive a copy, please do not hesitate to contact us, and they are also available on our website. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions and company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Financial Reporting Standards and are stated in nominal Mexican pesos, unless otherwise noted. Joining us today from Fibra Danhos is Mr. David Daniel, Chairman of Fibra Danhos; Mr. Salvador Daniel, CEO of Fibra Danhos; and Mr. Jorge Serrano, CFO of Fibra Danhos. I will now turn the call over to Mr. Jorge Serrano for opening remarks.
Good morning, everyone. Let me go through the main points of our first quarter 2018 report. Our total revenues reached MXN 1.1 billion, and our NOI for the quarter reached MXN 956 million, and it represents an increase of 19% and 23%, respectively, compared to the last quarter of last year. NOI, excluding key money, reached MXN 878 million, that represents $0.64 per CBFI with economic rights. And this figure compares to MXN 689 million during the same period of last year that represented $0.54 per CBFI with economic rights and represent growth of 27% and 18%, respectively. Key money during the quarter was -- reached MXN 83 million, a decline compared with MXN 89 million of last year. AFFO of MXN 822 million represented $0.60 per CBFI with economic rights, and this figure compares with MXN 753 million generated in the first quarter of 2017, which means growth of 9.2% in AFFO and 1.4% in AFFO for CBFIs with economic rights. Cash flow generation for this quarter was affected and is not comparable to the first quarter of last year, due to the renewal of the contract with Elektra in Parque Esmeralda and a change in the payment conditions. We obtained a positive lease spread in the renegotiation. However, until 2017, we collected annual lease revenue in a single exhibition during the first quarter, whereas as of this year the contract considers quarterly payments. Consequently, cash flow not received this quarter will be compensated in the following quarters. Our technical committee approved a distribution of MXN 0.58 per CBFI, an increase of 3.6% with respect to the distribution of the first quarter of last year. This represented a payout ratio of 96.9% of AFFO, and we reserved MXN 25 million for CapEx in the development pipeline. Flow of visitors of our retail portfolio reached 24 million during the first quarter, that represented an increase of 13%. Same-property occupancy posted a stable level of 98% and total property occupancy reached 89.7%. Lease spread overall for our portfolio during the quarter was 8.5%, and this is 3.5% higher than the inflation for the period. Regarding new projects. The opening of Liverpool in Parque Las Antennas was held on April 24. Lease progress in the project reached 70%, and most of our tenants are in the TI process, in face of the next grand opening on June 7. Parque Puebla celebrates the opening of Sears as well as the incorporation of new tenants that contribute to the consolidation of the shopping center. We reported a lease progress of 75%, while construction of Posada's business hotel and the aquarium reporting early-stage progress. We also started the development of Parque Tepeyac by carrying out demolition works and the retention of walls. We also formalized the return of 46 million CBFIs corresponding to Parque Vía Vallejo transactions that were issued but not used, and 6 million CBFIs remained pending to be received before proceeding to cancel the complete 52 million CBFIs. We also have H&R (sic) [ HR ] ratifying the highest rating on [ their ] national scale, AAA debt and maintain a stable outlook for Fibra Danhos. These are my general remarks, and we may proceed to question-and-answers.
[Operator Instructions] And we'll take our first question today from Marimar Torreblanca with UBS.
Two questions. The first one is, the NOI margin was quite high this quarter, can you tell us if this is sustainable or if we should expect a reversal (sic) [ reversion ] to more usual levels in the coming quarters? And then the second question is the absorption of Toreo Las Antenas and Puebla, was this in line with your expectations for the quarter or are you seeing a slowdown in either retail or office absorption given the macroeconomic and political environment this year in Mexico?
This is Elías. So regarding the NOI margins as you note, this is one of the highest NOI margins that we've posted. And I think that there's 2 components to it. The first component is basically the economies of scale and the stabilization of new properties which have been opened, which, as they've been maturing, we can achieve higher margins, especially because of savings in the maintenance, operation and advertising expenses. And I think the second and most important component is, under NOI, this was the first quarter that we recognized administration expenses. So if you look at our earnings tables, we used to report the advisory fee under NOI as well as certain expenses. However, all of our administration expenses from the corporate were into the NOI. Speaking to our auditors, this is not something that needed to be embedded in the properties, as it is not operating expense per se. So administration expenses were reclassified under NOI and this is also one of the reasons why you should see higher NOI margins going forward. However, EBITDA margins were also higher on a yearly basis and those are like-for-like in that sense. Now regarding your second question, the retail environment that we observed and the office environment that we observed has been along with our expectations. I mean, in terms of the office market, I think we've done a great job in Toreo Parque Central. We've leased close to 80,000 square meters and the guidance for this year was that we're going to be leasing close to 30,000 square meters additionally during the year. So I think we're in line with our expectations. The buildings have achieved a great amount of interest for them. And in terms of retail, Puebla and Las Antennas are ramping up as expected. I mean, at Las Antennas we're about to open and this is along with our expectation. So I think that the opening should be very positive for us.
Marimar, I'm Jorge. Just to complement Elías, from a macro point of view, we saw consumption levels strong during the first quarter, and this is based on formal job creation, credit availability and lower inflation rates that have already started to being observed. So that also helped to this view.
And so on the retail portion of Las Antennas and Puebla, where would you expect occupancy to end the year?
On both properties, we expect to have the properties above 90% by the end of the year.
We'll move next to Sheila McGrath with Evercore.
I was wondering if you could give us a little bit more detail on the newer project, the joint venture project, what the timing is, what exactly that Parque Tepeyac, just more detail on that project.
Sheila, this is Elías. So I mean, this project is a very well-located project in Mexico City. So remember that this was a project that was brought to us by a third party and we partnered in a joint venture structure. So we're going to have 50% of the investment and interest in the project. However, we will be in charge of the construction, operation and leasing of the project. The anchor store for the project has been signed since day 1, and we've received a lot of interest in the project. This is probably one of the most mature areas in Mexico City in terms of retail spending. Actually, one of the best Walmart stores is very nearby and this is a neighborhood where there's a lot of disposable income. You don't have a lot of people paying mortgages anymore. So disposable income is also one of the key things we look at, not just total income. Because at the end of the day, mortgages do take up close to 30% of the average family in Mexico City. So without that 30%, that becomes disposable income.
And is that all retail or will there be office or any other hotel or anything?
This is basically an all-retail project, with a big entertainment component that we're looking at as we speak.
Okay. And then 2 other quick questions. Just if you would give us a little bit of more detail on the real estate taxes and insurance being down in the quarter, and any insight on how much the key money outlook for the balance of the year would be, that would be helpful.
So regarding the property taxes, they were slightly down. One of the things we were able to do is when you pay upfront, you always get a discount on the tariff for the year. So this is one of the reasons why in the AFFO -- FFO to AFFO adjustment, you can see that there's a negative MXN 110 million. And additionally, we were able to get better rates with certain sustainable propositions that the government does to incentivize sustainable buildings. So this is one of the things that we did. Now regarding the key money, we expect to receive -- this quarter, we received MXN 81 million. We expect to receive from MXN 300 million to MXN 400 million for the remainder of the year.
We'll go next to Vanessa Quirogi (sic) [ Quiroga ] with Crédit Suisse. We'll move next to André Mazini with Bradesco.
So my question is basically on key money. So I mean, key money has been [ an important line ], about 10% of revenues. And my question is, if there's a trade-off between you guys asking for more key money when a mall opens, for instance Parque Puebla opened up with 58% occupancy. It's already at 75%, a nice increase there. But how do you guys see this tradeoff, of asking for more key money and opening up with a lower occupancy or asking for less key money and higher occupancy? Is there like an optimal level that you guys aim for when you're opening up a mall?
Andre, so basically, the way we see key money and because it's a market practice in Mexico, we look at the key money as a lump sum payment that helps us finance the project, and this is something that has been going on in Mexico for the past 30 years, and it's a big, big component of our portfolio. When a new tenant comes in, we can also look at the possibility to defer the key money payments and transfer that into a higher rent. So we've been doing both options. I think it's a balance, but we do not intend to stop charging key money just for the sake of filling up the space as quick as possible when we believe that our properties are properties that demand the quality for key money. And at the end of the day, we're just looking at that balance. And at the end of the day, tenants are paying it, so I think that's a big part of our business.
[Operator Instructions] We'll go next to Cecilia Jimenez with Santander.
My question is on construction cost. Have you seen a material pickup on construction cost now you're planning to develop Tepeyac project? And if so, what could be the impact on that on the returns you're expecting? Do you think it could be passed through to rent?
So I mean, it is a fact that construction costs have gone up close to 5% to 10%. However, when we do our pro forma analysis, we take this into consideration. And we believe that a higher construction cost demands a higher rent. So we do believe we're going to be able to transfer these costs into rents.
Yes, Cecilia, in our projections, we plan to have similar returns to all the development projects. As we have shown between 11 -- the low teens in general, cash and cash.
Okay. And if I may, just a follow-up. Is it the same proportion increase, the construction costs for retail and for offices? I mean, have they increased in the same way or is it more relevant for one or the other in terms of the portfolio?
I mean, it's roughly the same. It depends on the amount of material you use for each. But the components that have gone up is basically steel, cement, equipment, so more or less the same. But these are the 3 lines that have increased.
[Operator Instructions] And I'm showing we have no further questions at this time. I'll turn the call back to our presenters for any closing remarks today.
Thank you for participating in Fibra Danhos's 2018 First Quarter Conference Call. We look forward to speaking with you again when we release our first quarter -- our second quarter 2018 financial results. However, if you have any questions in the meantime, please do not hesitate to contact me, Jorge or Salvador with any questions. Thank you, have a great day.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.