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Good day, everyone, and welcome to today's Fibra Danhos Third Quarter 2019 Earnings Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn today's conference over to Elias Mizrahi, Investor Relations. Please go ahead.
Hi, good morning, everyone. At this time, I would like to welcome everyone to Fibra Danhos' 2019 Third 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 be aware that they are also available on our website and on the Mexican Stock Exchange website. Before we begin the call today, I would like to remind you that forward-looking segments 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 IFRS standards and are stated in nominal Mexican pesos unless otherwise noted. Joining us today at Fibra Danhos in Mexico City is 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 and key financial and operating details.
Good morning. Third quarter report posted strong and stable financial results pretty much in line with the last consecutive quarter, maintaining a strong balance sheet. Total revenues for the quarter totaled MXN 1.45 billion, an increase of 11.8%. SG&A expenses increased only 3.1%, which reflected management's control and efficiencies across the board. Energy expenses, for instance, declined 12% as a consequence of collecting savings from our power supply contract plus tariff reductions that totaled close to 17%. NOI reached MXN 1.2 billion, up 14%. NOI margin stood at 81.3%, 150 basis points higher than that of 3 quarter of 2018. NOI excluding key money reached MXN 1.1 billion that represents $0.75 per CBFI with economic rights, increases of 14.5% and 11.6%, respectively, against last year. AFFO reached MXN 1 billion or $0.70 per CBFI with economic rights, 7.6% higher than last year. AFFO per CBFI with economic rights was also flat compared with previous quarter, however, it was affected by the releasing of economic rights to MXN 9.3 million CBFIs in the period, a 54% lower contribution of key money and a nonrecurring charge of MXN 25 million on interest expenses. Distribution for the quarter will be MXN 0.62 per CBFI, an increase of 1.6% with respect to last year. Payout ratio was 88.1% of AFFO, while MXN 118 million were reserved on our cash balance for debt payments. On the operating front, occupancy rates remained steady. Renewal rate above 99%, while fixed rents per square meter reached MXN 390, flat on a real-time basis. Same-store sales from tenants remained flat against last year and declined versus last consecutive quarter as consumption figures reflect the slowdown in the Mexican economy. Same-store rent was 3.4% higher, or excluding Duraznos and Reforma, this figure was 4.6% higher. Lease spreads for the quarter increased 13% on a sample of 10,800 square meters. We had a couple of contracts in Lindavista that expired after 12 years, and consequently were adjusted significantly higher than inflation. Excluding Lindavista lease spreads should be around 8%, as shown in previous reports. Number of visitors remained steady at 31 million, in line with the second quarter and 12% higher than last year. Account receivables remained healthy with cost to loan ratios of 0.7%. On the lease progress front, Antenas continues to stabilize and reached 88% considering executed agreements and above 96% including LOIs. Puebla remained steady at 78% occupation levels, but with the coming opening of the Aquarium by year-end should help to boost traffic. We continue to receive LOIs for Toreo offices and have several tenants working on TIIEs that will translate in high revenues in the coming months. Lastly, on the development front, construction work progress continued for Parque Tepeyac, in line with our budget program, having completed 40% of the foundation and almost 5% of civil works. Let me now open the session for question and answers. Thank you.
[Operator Instructions] And we will go ahead and take our first question today from Sheila McGrath with Evercore.
It looks like you have a number of letters of intent on Towers B&C at Toreo, and I was wondering if those leases are close to being executed? And just what kind of tenants are leasing up the space?
Sheila, this is Salvador. Yes, we've been working on those letters of intent. And we believe the tenants are soon to have a decision on those. We are negotiating and we hope we're able to at least close some of them. The market doesn't help us at all, but I think the quality of property is attracting a lot of possible tenants on it.
Okay, great. And then on the -- on Antenas and Puebla, I just wondered if you could comment on leasing activity at those properties? How the entertainment component at Las Antenas is performing? And just what's the status of the entertainment component at the Aquarium at Puebla?
I think that they're making the difference. If you can see, Las Antenas is almost leased up completely with letters of intent and Las Antenas is doing great. In 1 year or 1 year and 3 months since its opening, so I think we're very excited with Las Antenas' progress. And Puebla, it's also doing increasingly great in terms of -- compared to the past year, and we expect the Aquarium to be operating by December this year. So I think that we will make a change on the Puebla shopping mall and it's already causing some inquiring about the Aquarium all over the state. So I hope and we feel that this will make Puebla even stronger.
Okay. And last question on the debt that you're planning to pay down later in December, I was wondering if you could give us the amount of that timing that you think that you'll pay it down? And what's the current coupon, just so we can help -- it will help us model that transaction?
Yes, I will ask Jorge to answer that.
Sheila, well, this is short term. Well, bond expires on December '23. We are planning to pay it down and the coupon is TIIE plus 65 basis points. So I mean with TIIE around 8%, we're paying 8.65% on that debt and it represents close to MXN 90 million per year.
Our next question comes from Pablo Monsivais with Barclays.
Congrats on your results. I have a quick question. For next year, can you please share with us how are in-placed rents for the portion of your portfolio that is expiring?
Can you repeat the question please? We didn't catch it.
Yes. For the portion of the portfolio that should be renewed next year, how are in-placed rents in those properties?
What do you mean with in place? I mean we know how many are going to expire and I think we pretend to renew all of them, but what's your question specifically?
Like, for example, if you have x property that is -- that you have on rent already at, I don't know, $10, but right now the market rent is $12, can we expect that increase of 20% or like the mark-to-market of that portfolio that is expiring?
Yes, of course, we've always tried to lease up our rents, bringing them into the market. Now as you can see, our leasing spread this immensely is important because of that. So yes, we're working and we will work on every contract that expires, lease it up to the market. And as far as we know, every at least 95% of the contracts that expire, they want to renew the contract.
We'll now go to Victor Tapia with Bradesco.
My first question is regarding consumption. We have been seeing some Mexican retailers also publishing, same-store sales also is slowing down, the same would happen for you guys on [ foreign asset ] sales. What do you guys believe that should be -- that should happen going forward regarding the gap that you are managing to pose between same-store rent and same-store sales? Do you believe there could be any pressure? Or you believe that this is the punctual slowdown in sales and it should resume going forward? And my second point is regarding debt. I don't know if someone already asked this, but you have a big portion of your debt, I think, like, for fixed rate. It doesn't make sense right now with interest rates expected to continue falling to move this rate to floating ones.
I'm going to ask Jorge to answer the -- in terms of the -- both the credit lines and the funds, and then I will answer the consumption part after that. Jorge, please?
Well, Victor, I mean we will keep MXN 5.5 billion in debt structured with an average term of 7 years, an average rate of 8%. We think this conforms the capital structure of Fibra Danhos and its previous levels, given the term and that is parallel with the CapEx program that was in place at the time. So we feel comfortable with those levels of debt given the 10 already cashed.
And in terms of consumption, of course, we've seen the market pressure. I think that the great thing about our portfolio is that we've been able to perform as we did with the pressure in the market facilities. That's -- I think that's the big difference between the Fibra Danhos and other portfolios. This product is really -- are resilient to these types of crisis or mini-crisis, and I believe that even though we've seen in this past month a little bit of better execution in terms of consumption. In case this even is lower a little bit more, we believe our portfolio will be able to perform the same way as it did in the past. We've -- this is not our first crisis in which the portfolio has been resilient to all of these slowdowns in the economy.
[Operator Instructions] Our next question comes from Froylan Mendez with JPMorgan.
A little bit on your next steps of growth, I mean, beyond the focus of the company maintaining low leverage, but do you think you have reached already like the full capacity, or the markets in which you are interested, at some point, to have an exposure to have reached full capacity and then we should not see incremental developments on your side in the next, let's say, 5, 10 years. And if that is the case, would you be willing to make portfolio acquisitions, if the price is right or maybe buybacks? Just want to understand what are the next steps of growth for Danhos.
I think there's a lot of capacity still in the market. We just need to find the timing and the best portfolio available, or the best asset, or the best land available to be developed. We're not close to any type of growth. We believe we're going to find some opportunities in the future, we expect that. We expect the market to suffer a little bit, and that might give us the opportunity to get some acquisitions or to get a good price land for it to be developed. So we are just on the look of doing business and doing good business. We're in no rush. We would like to understand perfectly where the market is going, what is happening before taking any decision, but that's the way we've always grown in the future -- in the past and we expect to do the same thing in the future. So we're not close to any type of growth depending on the opportunity we can find in the future.
And if I could hear your thoughts and capacity in your own properties, what is the size that you could be expanding at some point and if that would be like a first stage of these better trends that we are seeing in the -- and if this would be a faster way to kick on growth without necessarily looking at incremental GLA in places where you don't really have expertise or something? And given also the lower interest-rate environment, would you now feel more comfortable levering up more the balance sheet versus what we have seen in the past?
Look, we basically know this whole market -- this whole real estate market and the way we're going to grow depends a lot on the opportunities we find. We might find some opportunities even inside our portfolio. We feel our portfolio by being in Mexico City is much more resilient to these types of prices and to these -- finding these opportunities than being outside of Mexico City. So of course, we've kept a big chunk of debt capacity specifically thinking about the lower interest rates and the capacity we have. It makes no sense to ask for money, if we don't know what we're going to use it for. But we have the capacity and we have credit lines available to take advantage of opportunities we would find in the market and decisions we can take very fast. So I think we are ready to just find and cherry-pick the best opportunities we can find in the market and take advantage of it.
Our next question comes from Andrea Lara with Signum Research.
I have 2 questions. First, what are the expected occupancy rates by the end of the year for Parque Las Antenas, Parque Puebla and Toreo? And second, what are the expected openings for Phases 1 and 2 of Parque Tepeyac?
Parque Tepeyac, we expect to finish in 2021, second quarter of -- second semester of 2021, we basically started construction a couple of months ago, and that's been under construction and we expect to be open more or less the same rate we have at Las Antenas, which is open at least at 80%, 85% occupancy rate. We've seen a lot of tenant interest for that market. We basically have already the -- we have a contract with a cinema, which is a big anchor and we have a big tenant store, which is Liverpool, in sales. So that will help us basically full up the property. And for Parque Las Antenas, we have letter of intent up to almost 96%. So we expect those letters of intent becoming a reality in basically this trimester and probably some of them next trimester, and that will be full up basically at 95%, 96%, 97%. And in Parque Puebla, we want to see the reaction of the Aquarium, which we're going to open by the end of this trimester in December. So we might have an idea -- a better idea of what's going to happen in terms of the maturity of the mall probably in the first semester next year. And we will find the way the Aquarium, which is a big aquarium, will impact the Parque Puebla.
Okay. So it's 85% for Toreo and 96% for Las Antenas?
For Toreo, we have -- the shopping mall is basically full. The office space is, as you know, we have tenants. We are around 78% today in the office and we expect that to grow significantly in the next 6 months and I was telling 85% at the opening in Parque Tepeyac, which is going to be in 2 years, at least 85%.
[Operator Instructions] We'll now go to Francisco Chvez with BBVA.
I have 2 questions. The first one is regarding the key money. Now with the construction advance in Parque Tepeyac, which amount of key money can we expect for next year? And the second question is, can you give us any color on the performance of the hotel in Parque Puebla?
The -- we don't have any numbers yet, what is the amount of key money we might expect. We can give you a better insight in the next trimester. But as construction advances, we're starting to list. We actually haven't started, but we're starting right now as it is the leasing process of the Parque Tepeyac project. So you will start -- probably start seeing some key money coming in, in the next months and in the next year probably. So that will happen. The hotel in Parque Puebla it basically opened 3, 4 months ago. It's been, I think, it's been getting better, better and better and it's basically doing very well. It's as well actually -- in some kind change the market for the shopping mall, I believe, because we've seen more business people going around the shopping mall right now, so I think it's a great asset to put on it. And we will have better numbers on that, I believe, in the next 3, 4 months when Posadas basically tell us what is the -- grown on it and how we started and how well it's doing because we still have not the complete numbers, it's basically been 3 months of operating. We don't have a good sense -- we have a sense that it's doing good, but we don't have the exact numbers on it.
[Operator Instructions] We'll now go to Jorel Guilloty with Morgan Stanley.
I was wondering if you could comment on the expected rental dynamics for your office properties going forward. We have seen the Mexico City asking rent have kept on declining and so client vacancy is increasing, and expected to keep on edging upwards. So I just wanted to see within that context, what do you think about your different properties in terms of future performance? And I wanted to pick up on the growth question that was asked earlier. So I wanted to gauge your interest not so much on either greenfields or expansions for retail office, but I just wanted to understand if you'd be interested in pursuing other asset classes such as industrial, maybe going more into hotels, doing some medical office. So wanted to gauge your appetite around maybe these different possibilities.
Yes. In terms of the first question, Jorel, the office -- I think our portfolio will perform exactly the same way that it's been performing. It's resilient to crisis. We don't see our properties getting empty in terms of the office. I think we have a great building. Our tenants are very happy with us and actually we expect, especially, on the Toreo side to even not decreasing, even increasing in terms of occupancy. And for our growth, we're open to every option we find attractive in the market. We're not close to anything even in those services if it is prime properties industrial, we might ask our investors if they are willing to even open up to that. But we're watching every aspect of it, even rental housing, which we have adopted in that part because of the new legislations that we don't know how exactly is going to be executed, but we have lands for that and if we find an opportunity or if we find the -- I mean the proper legislation for it, we're going to take advantage of it. So we believe that's a good market, but we just need to be sure we're going to be able to perform on that.
[Operator Instructions] And it does appear that we have no further questions at this time. This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Thank you very much, bye-bye.