Administradora de Activos Fibra Inn SC

BMV:FINN13

Earnings Call Transcript 2018-Q3

[Operator]

Good morning. My name is Leo, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fibra Inn conference call. [Operator Instructions]

Thank you. I will now turn the call over to Ms. Lizette Chang, Investor Relations Officer, for opening remarks.

[Lizette García, executive]

Hello, and welcome to the Fibra Inn Third Quarter 2018 Results Conference Call.

Before we begin, I want to mention that the earnings report that was issued yesterday and the PowerPoint presentation are both available -- are available in the Investor Relations section of our website. Please follow the information in these documents for a clearer understanding of our results.

Also note that forward-looking statements may be made during this conference call. These statements are based on management's current view of -- and estimates of future economic circumstances, industry conditions, company performance and financial results.

Let's turn to Slide 2 for a brief review of the topics that we will be discussing in today's call. Starting with distribution for this quarter, followed by the calculation of the review as well as the hotel announcements, and we will finalize with the operational and the financial review.

Taking us through these topics, we will have our presenters, Óscar Calvillo, our Chief Executive Officer; Mr. Miguel Aliaga, our Chief Financial Officer. And I appreciate your attention.

At this point, I will turn the call over to Mr. Óscar for his remarks.

[Óscar Calvillo Amaya, executive]

Thank you, Lizette, and good morning to everyone. Good morning, and thank you all for joining us today.

For the third quarter of '18, Fibra Inn had total distribution of MXN 94.1 million, a decrease of 14.5% compared to same quarter last year. Basically, the decrease was due to 2 factors: Fibra Inn is not paid in excess of adjusted FFO during this quarter, and the MXN 0.180 per certificate distribution include the dilution effect after the capital subscription in July, reflecting the MXN 18.9 increase on CBFIs outstanding when compared to 3 quarter of '17. It's important to note that considering only the certificates outstanding as of June 30, the distribution per certificate would have been MXN 0.2189 or 429 million certificates before the subscription. This is for comparisons purposes.

The trailing 12-month dividend yield is 8.6%. However, in terms of the relatively lower dividend this quarter, we expect distribution to increase in the near future due to 2 main reasons. These are, firstly, because of the product in the Hotel Factory have a higher stabilized NOI cap rate than the Fibra's implied one. And second, because starting the last quarter of this year, we will have a generation advantage from fees from -- of the Hotel Factory as we are closing deals shortly. Cancellation of certificates. Fibra Inn has begun the process with Mexican Securities and Exchange Commission to cancel 5.44 million certificates. According to the rules, companies must cancel those securities that have remained in the per purchased fund (sic) [ repurchase fund ] for up to a year. In this case, the shares that are being canceled are comprised during the period of September 2017 to April 2018 and were authorized to be canceled on June 27 of this year by Fibra Inn's Technical Committee. These number of securities are equivalent to approximately MXN 64.3 million.

The company has a remaining balance that is available for an additional repurchase of shares for MXN 177 million. The maximum -- this maximum amount authorized by the committee was for the repurchase of 5% of total outstanding certificates. Once the process is completed, we will be able to proceed with updating the securities records within the month.

Acquisition of land bank in Playa del Carmen. As per press release on October 11, Fibra Inn announced the repurchase of a land property in Playa del Carmen via a land bank modality co-investment with a New York-based fund. This was for a total of USD 17 million, including transaction closing fees as well as related municipality construction permits and license, which Fibra Inn initiated upon the signing of a purchase option. Fibra Inn participated with 29.4% of the total investment.

The land bank modality refers to the participation of partners for the purchase of the land. This allows Fibra Inn to invest in strategic areas with the flexibility of sharing the investment as a minorities holder and thus building a pipeline for the Hotel Factory. Once applied into the Hotel Factory, the investment will be conducted with another partner for the development of the hotel.

We are excited about the acquisition of this property. The land property has a prime and unique location that represents a great opportunity for Fibra Inn. Only steps from the beach and over 5,000 square meters in size. At this time, it is the only beachfront property of this kind that is available. And since it is commercial mixed-use property and compatible with lodging activity, it is highly desirable for developers.

Construction is expected to begin in the next 12 months. We are envisioning a range of 250 to 270 rooms with an average daily rate that could surpass USD 300. The hotel will be a lifestyle hotel under the brand of a widely recognized international hotel chain in North America. In terms of profitability, we expect over 14% of stabilized NOI cap rate in the 4 years of operation, based on a total estimated investment of between $275,000 and $225,000 (sic) [ $275,000 and $325,000 ] per room, a stabilized occupancy over 65% and an average daily rate surpassing USD 300.

Again, as per our former announcement, we provided an update on the Hotel Factory projects. Fibra Inn formalized the purchase of the footprint for the JW Marriott Monterrey Valle last week and began hotel construction. As we mentioned, the hotel will be located above 4 parking levels and as well as 2 levels of commercial stores. This project is expected to open by mid-2020. The Westin Monterrey Valle is on track, and this turnkey project is expected to be delivered by the developer during the second quarter of 2019.

With regard to the Marriott Airport Hotel, the company is in the final process -- phases of the construction project so as to obtain final authorization of the initial -- architectural plans from the brand in order to comply with the specification of the hotel. Construction will begin January 2019, and operations are expected to begin in mid-2020.

Lastly and with regard to the Secrets Silversands Rivera Cancun Hotel, Fibra Inn remains interested in acquiring this property. The purchase option has been extended to allow the seller to resolve pending legal issues. On Microtel Inn -- moving onto the sale of Microtel Inn & Suites by Wyndham Culiacan Hotel on Slide 11. The Microtel Inn & Suites by Wyndham Culiacan Hotel was sold on August 27 at a price of MXN 85 million as part of the company's capital recycling strategy. Fibra Inn's criteria when carrying out the sale was to be very conservative and stay very close to the regulations that were carried out by Deloitte. The closing of this sale reflects the significant discount that sits on Fibra Inn's certificate market value.

To date, Fibra Inn remains in the process of selling a certain amount of nonstrategic properties. And we have follow-up and weekly meetings with a real estate broker to evaluate the status of promotion performed with the potential objective buyers for our properties. As we mentioned in the past, this require more extensive marketing efforts and more time compared to the sales process for the larger transactions in international markets as we are dealing with family outfits and local investors. The assets that we are targeting for sale are the ones in market with low barriers of entry, where there are challenging economic and other circumstances or we believe these properties may be at their peak. Our goal is to keep high-quality properties in deep markets.

Please turn to Page -- to Slide 12. The current portfolio has remained relatively unchanged since 3 -- the third quarter of '17. When we compare it to the same quarter of the previous year, we have 38 added rooms mainly due to the reopening of the Holiday Inn Ciudad Juarez this last August. The Hotel Factory family has 3 hotel projects plus the Playa del Carmen land bank that we reviewed earlier.

Thank you for your attention. At this point, I will turn the call over to Miguel Aliaga, our CFO, who will review the company's operating and financials for this quarter.

[Miguel Aliaga Gargollo, executive]

Thank you, Óscar, and good morning to everyone. This quarter, we achieved a 7.9% increase in revenue per available room, which was due to an occupancy increase of 2.4 percentage points to reach 64.2%, which mainly reflected the reinclusion of the results of the Holiday Inn Mexico Coyoacan hotel, which temporarily closed last year due to the Mexico City earthquake, as well as a 3.9% increase in the average daily rate due to the efforts of the hotel operators to reinforce the average daily rate such as improving hotel visibility on Internet site.

Let's turn to Page 15 with the financial highlights of the quarter. Lodging revenues reached (sic) [ increased ] 7% to MXN 493.8 million for third quarter 2018 versus third quarter 2017 and a 7.7% increase in rental revenues to reach MXN 26.5 million. Total included, the company experienced a 7% increase for the quarter to reach MXN 520.3 million.

In terms of the breakdown by type of hotel, the proportions were consistent with the majority of revenues stemming from the select service segment at 50.4% in this quarter versus 47.8% in third quarter 2017.

Let's turn to a review of the income statement on Slide 16. As we discussed, total revenue for the Fibra rose by 7% to MXN 520.3 million. Beginning in the first quarter of this year, we began reporting hotel NOI, which pertains to the operation of the properties and NOI from our businesses. As such, this line item will also include revenues and costs from the strategic hotel pipeline. During this third quarter 2018, a positive balance of MXN 4.0 million was included due to the capitalization of some expenses, including salaries for the Hotel Factory team, legal costs and the project's architectural plans. These expenses will be assigned to each property trust for each of the developments.

For the quarter under discussion, total NOI was MXN 184.3 million, which represented a 35.4% margin and 100 basis points higher than the 34.4% of the third quarter 2017. Adjusted EBITDA as a result was MXN 158 million, representing a 30.4% margin and 50 basis points higher than third quarter 2017. And finally, FFO was MXN 109.7 million, a 21.1% margin when compared to the 21.4% in third quarter 2017.

Turning now to Slide 17 for the balance sheet discussion. As of September 30, 2018, Fibra Inn had cash and cash equivalents of MXN 910.8 million, which reflects the resources obtained following the capital subscription. Additionally, there were MXN 25.5 million of tax recoverable from the purchase of the footprint of the JW Marriott Monterrey Valle.

Fibra Inn this quarter paid down MXN 199.1 million in short-term bank loans related to the revolving credit line with Actinver, so as to be left with MXN 2.9 billion in long-term debt securities. Total equity is valued at MXN 9.2 billion.

If you follow me in Slide 18, we can take a look at the overall current financial situation of Fibra. These long-term financial obligations regarding FINN18 and FINN15 debt balance was 66.7% at a fixed rate of 9.93% and 33.3% at a variable rate, covered with the weighted fixed-rate swaps for 7.19%.

We have 2 bank credit lines available, MXN 199.1 million revolving with Actinver and another one with Bancomer for MXN 300 million, which can reach up to MXN 450 million at TIIE plus 100 basis points -- 150 basis points.

At the conclusion of September 30, 2018, Fibra Inn has a ratio of loan to value that is 24.3% and a debt service of 3.4x.

That is all for me. Thank you for your attention. At this time, we are ready for your questions. Operator?

[Operator]

[Operator Instructions] And it appears that we have no questions. At this time, I'd be happy to return the call to Óscar Calvillo.

[Óscar Calvillo Amaya, executive]

Okay. We appreciate your confidence and your continued interest in our company. We look forward to speaking with you soon again. Have a good day.

[Operator]

Thank you. This does conclude today's conference call with Fibra Inn conference. You may now disconnect your lines, and everyone, have a great day.

[Óscar Calvillo Amaya, executive]

Thank you.