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Good afternoon. My name is Hector, and I will be your conference operator today. At this time, I would like to welcome everyone to Fibra Uno's Second Quarter 2019 Earnings Conference Call. Fibra Uno issued its quarterly report on Thursday, July 25, 2019. If you did not receive a copy via e-mail, please do not hesitate to contact us in New York City at (646) 284-9435. 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, 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 and are stated in nominal Mexican pesos, unless otherwise noted.
Joining us today from Fibra Uno in Mexico City is Mr. Andre' El-Mann, Chief Executive Officer; Mr. Gonzalo Robina, Deputy CEO; Fernando Alvarez, Vice President of Finance; and Mr. Jorge Pigeon, Vice President of Capital Markets and Investor Relations. And now I will turn the call over to Mr. Andre' El-Mann. Sir, please begin.
Thank you, Hector. Good afternoon, everybody. Thank you for hearing our call. It is again with great pleasure that I present to you the second quarter results of our company, FUNO. As it is customary, I will ask Jorge Pigeon to review and to tell the financial figures for our quarterly report. This was a very active quarter for us in terms of refinancing activity for our debt and the continued construction of our rock-solid balance sheet. As many of you may recall, we recently placed USD 1 billion denominated bonds in the international capital markets. We managed to place them in 30-year maturity bonds, MXN 400 million of 10-year bonds and MXN 600 million of 30-year bonds. While we're not only maintaining our investment-grade rating from Moody's and Fitch, but also with a stable outlook. This is the reflection of the solid state of our company and the brand name that we have built in the debt market.
I want to share that 100% of the investors in these bonds are international investors. We did not have orders allocated to Mexican institutional investors. This, once again, demonstrated the confidence that the markets have in our company and in our solid business model. This also highlights FUNO's continued belief in the long-term success of Mexico. I also want to highlight, we have managed to reduce the overall weighted average cost of our debt in about 40 bps with agents of these bonds. Also, with this issuance and active balance sheet management, we have increased the average life of our debt from 8.9 to 13.1 years. Again, another remarkable feat for our company. Additionally, and following the close of the quarter, we signed a MXN 21.3 billion revolving credit facility with 11 banks. I am very proud to say that very few companies in our country have the ability to do both of the things that we have just accomplished in a matter of weeks, placing USD 1 billion at very long-term maturity bonds as well as securing a revolving sustainability link committed line of credit of this size. We have used about MXN 6.5 billion of the cash we received to repay short-term debt and expect to refinance in total about MXN 10 billion worth of short-term maturity debt. The remainder of the proceeds will be used to close pending and new acquisitions as well as general and corporate purposes, including the completion of our development pipeline. Once again, our results may sound trivial and you may have grown accustomed to solid occupancy and margins and growing revenue and cash flow. I want to take a pause to thank all of those who work at FUNO for their commitment to our company in achieving these strong results.
In terms of these figures, our revenues grew 12.4% in the last year. Our NOI grew 11.9% in the same period, and our funds from operation increased by 12.7%, considering these figures on a per CBFI basis. The figures are growth of 13.6% in NOI, 14.4% in FFO and 9.5% in AFFO and 8.1% in distribution per CBFI. Once again, our occupancy was within our target of 95%, and our margins of our rental revenues was about 88%. Our development continued to progress as planned, and our company continues on its steady track. Rest assured that we remain committed to exerting the maximum value for our shareholders while ensuring that our business remain sustainable over time. And now I would like to pass the mic to Jorge Pigeon. Jorge, please proceed.
Thank you very much, Andre', and thanks to everybody for joining our quarterly call. I will now go into the review of the second quarter financial figures. I would like to start by saying that, as Andre' mentioned, revenues continue to grow at our company. Total revenues increased by MXN 133 million to MXN 4.7 billion for the quarter. That's almost 3% above the first quarter of 2019. And for us, it's really remarkable to be able to grow our revenues 3% quarter-over-quarter, which obviously leads to that double-digit growth that Andre' mentioned on a yearly basis. This is mainly attributed to several factors. First, the effect of contract renewals are higher at higher rental rates, basically what we call the leasing spreads, or positive leasing spreads, additional rental revenues from property that recently have begun operations. This means that some of the properties that were in developed -- in development and have started to become operational are starting to receive revenues. We are not seeing obviously the full potential of these properties yet, but we are starting to see some of the cash flow being able to be generated by those properties. Leasing spread reached 666 basis points in the retail segment. That is 660 basis points above inflation, 800 basis points above inflation in the industrial segment and 450 basis points above inflation in the office sector. Through contracts denominated in dollars, the leasing spread rate was 450 basis points in office; 250 basis points in industrial; and we had a negative 170 basis points in the retail segment, which is basically derived from the peso depreciation during the quarter as well as negotiations with some specific tenants. So really nothing to be worried about. Rental price per square meter on constant properties was a very solid 460 basis points above the weighted average inflation, or 3.9% that we have. That's compared to the second quarter of '18. So we are very pleased with a very strong showing that we have in revenue generation.
In terms of occupancy, we closed the quarter with 95.2% occupancy. That's 20 basis points below the previous quarter. Again, this is in line with our target occupancy of approximately 95% for the company, overall. Retail recorded an occupancy rate of 94.4%. That's 10 basis points below the first quarter of '19, normal operating activity. Industrial segment, an occupancy of 97.3%, 30 basis points below that of the first quarter of '19. Again, normal operating of our properties. And the office segment, a stable occupancy of 89% compared to the first quarter of '19. We had a very strong showing in the in-service property category, which is, as you recall, are the properties that are not yet stabilized but have come out of development. And in this case, a strategy that we have, the company, of always having the best locations at affordable prices is clearly working, and we have a very strong growth of 1,117 basis points, or 11.17%, quarter-over-quarter. That is we grew from 53.4% to 65.1%. So we are very, very pleased with the performance of the new properties that are coming online in the company. Maintenance -- shifting to maintenance expenses, properties and taxes and insurance, we have an increase of MXN 64.6 million, or 14.3%, in expenses from the first quarter of '19, mainly arising from increases in utilities such as electricity, water and the like. Insurance expenses decreased by MXN 6 million, or 8.5%, compared to the previous quarter. Property taxes declined by MXN 5.7 million or 4.7%, mainly due to the tax savings associated with reviews that were resolved in favor of FUNO. This leads us to a net operating income during the quarter, which grew almost MXN 80 million or, again, 2.2% from the first quarter of '19 to reach MXN 3.75 billion. And as Andre' mentioned, NOI margin calculated of our property revenues was at a stable 88.6% and 79.1% compared to total revenues. Interest expense and interest income, we saw this line grow by MXN 106.4 million, or almost 9% compared to the first quarter of '19. This growth is mainly associated with the increase in the overall debt balance that we have in the company because we have continued to invest in the completion of our development pipeline, which as you recall, the previous quarter, we had more or less MXN 5.5 billion remaining in specific projects that are under development as well as other investments that the company carries in the inner properties. So this requires additional funding, and interest expense increased by MXN 106.4 million as well as the issuance of the dollars bonds at the variant of the quarter. We also saw obviously a decrease in interest revenue as we continue to invest the cash we have. And also, we saw a decline in capitalized interest associated with developments that were completed and as these developments are completed, we are no longer able to capitalize the interest associated with them. This led to funds from operation controlled by FUNO to decrease by MXN 12.2 million, or 0.6%, basically stable from the previous quarter to MXN 2.2 billion. Adjusted funds from operations declined by MXN 52.2 million, or 2.3%, totaling again, MXN 2.206 million, and this is basically because we didn't have any sale of property during this quarter. FFO and AFFO per CBFI, we did not repurchase any CBFIs during this quarter, so both stand at $0.5671 per CBFI. Moving to our balance sheet. Accounts receivable totaled MXN 1.7 billion, increasing by MXN 60 million. That's a 3% -- 3.6% increase from the previous quarter. This is mainly due to delays with certain -- associated with certain government entities, which is normal and is expected. As the new administration comes in, they take some time to review contracts and sign them. This is normal operating procedure that we would see every 6 years with any new administration coming in. So normal for us as well as some other minor cases that are under review. In terms of the investment properties, the value of the investment properties increased by MXN 5.35 billion, including investment in associates as a result of basically continued investment in the projects under development as well as asset revaluation. As you know, we revalue or mark-to-market the value of our real estate on a quarterly basis. We do an estimate, and once a year, we have a third-party appraisal of the full portfolio. In terms of debt, the total debt for the company reached MXN 99.6 billion compared to MXN 82.2 billion the previous quarter. This is basically the reflection of the issuance of the new 2030 and 2050 maturity bonds for MXN 1 billion. We also drew down MXN 4.1 billion of unsecured lines as well as MXN 4.2 billion of mortgage loans. We repaid unsecured loans for MXN 9.1 million and payment of mortgage loans for MXN 1.2 billion. So this is part of what Andre' was mentioning, the active management of our balance sheet that has led to extending the life of our debt from 8.9 to 13.1 years, which is something that we feel very comfortable with. We are almost at 0 maturities between now and 2022. And the net debt of the company, because we still are holding quite a bit of cash, is at MXN 80.76 billion. So the net debt actually decreased quarter-over-quarter. In terms of capital for the company, we had an increase of MXN 3.2 billion, or 2%, compared to the previous quarter, and this is associated with the net income generated from quarterly results, shareholder distribution, the issuance of the stock for the employee compensation plan as well as derivative effects. Additionally, I would like to highlight again the very strong leasing spreads that we continue to have at the company. If you look at them, all of the segments were very solid and very strong above inflation. Constant property performance also was very solid, very strong, significantly strong above inflation. And revolve -- and regarding the revolving line of credit, I would like to highlight the sustainability angle of this revolving line of credit. Basically, we committed to reduce the usage of electric energy on a per square meter basis, and in order to do so, we are investing in eco-friendly technology, for example, LED luminaries, capacitor banks as well as monitoring systems, automated monitoring systems to ensure that we are being efficient in the usage of energy. And therefore, we're going to end up saving some of the energy that we're consuming overall at the company. And lastly, I'd like to highlight that the refinancing and active management of our liabilities has led us to have, what André described, and I fully agree with that term, a rock-solid balance sheet. As we have mentioned, this is basically good business. We don't know when things are going to happen. We know that they do happen somewhere, some time. And we need to be prepared for them. That is the core DNA of Fibra UNO's business model, having excellent locations, having properties at those excellent locations with affordable rents and having a prudent financial management of the company. So we're standing in a very strong position, and with this I close my remarks, and I would like to open the floor to Q&A. Hector, can you please open for Q&A?
[Operator Instructions] Our first question comes from the line of Roberto Waissmann with Bradesco BBI.
In this quarter, we saw the industrial and the retail segment outperforming the office segment. And given the current slowdown you're seeing in microeconomic forecast such as GDP for Mexico, what would you think -- would do you expect to be the first segment to present the decelerating going forward? Or if you're comfortable we're going to see the strong spread results within spread and rentals per meter for the industry and the retail segment continuing going forward?
Thank you -- Thanks for your question. We're seeing obviously, very solid and very strong performance of the industrial segment right now. It's probably the one that I would categorize as the one that is the strongest in terms of supply and demand availability. Especially, we have to recall that we are primarily focused on the logistics segment of the industrial sector as a company, and that's where we see it strongest. Retail remains very solid for us, and probably the one that we have seen a little bit less strong in overall terms has been the office segment. But this is something that -- this is -- the tendency that we have seen recently. I think Andre' wants to make a comment. Go ahead, Andre'.
Thank you, Jorge. I was thinking about the other sectors. We are seeing -- we are leaving -- the retail sector has continued to be very strong, and these come from 2 different sources in my view. The first one is that the consumption in Mexico is still strong. It's still growing. But the second and most important is that everything is about supply and demand. And we, in Mexico, still are lacking many, many, many square meters of retail for the size of the population and the size of the consumption volume that we have in the country. So in times like these where many projects have been stopped, either for lack of permits or for the situation, the economic situation or the doubts on the new government, et cetera, et cetera. The equivalent places and the equivalent square meters are gaining value. We are not seeing a decrease. Maybe it will come in the future. We don't believe that is going to be the case. We -- opposite to that in our company, we believe that Mexico will turn the tortilla, we say, around, and we will go back to the growth path sooner than later. But having said that, we are not experiencing in our retail space any contraction, whatsoever.
Our next question comes from the line of Cecilia Jimenez with Santander Bank.
It's actually a follow-up of what Andre' just mentioned. Specifically, on the permits in Mexico City, have you seen any improvements in the agency window process to obtain the permit and to resume, either if it's, I don't know, over 200 projects that have been stopped. I know it's mostly on housing. But have you seen any improvements on that? And do you believe this could go much further? Or do you believe this could be resume actually soon? That's my question number one.
And my question number 2 is specifically on the office segment. Although, it has been cooler a little bit over the past, I don't know, 2 years, the lack of additional supply coming to the market, it's actually a demand and supply thing. So do you foresee an improvement in the portfolio of offices given that less supply, it's actually coming to the market and after seeing record absorptions at a market leveling in second quarter? Those are my 2 questions.
Thank you, Cecilia. Actually, in terms of permits, just to be completely clear, as of today, Fibra UNO does not have any problems with any of the developments that we have in hand, especially the Mitikah project that has been doing a lot of noise in the media. It's an open warning, and we haven't been shot down for a single day. We have been on working sessions with the authorities. I can tell you that in terms of permit, they will be a little bit relaxing the position in the next few months you'll be seeing it. We recently met with Claudia Shambaugh. The feeling that I got through that meeting is that she will be relaxing her position. They have gone through a deep analysis of each one of the projects, and that way, they will be releasing some of those, and therefore, it will be a few of them that will be hold so longer. By the end of this year, I will see that probably 90% of the projects that are shut down as of today will be up and running.
And for your second question in terms of the office sector market, what we have seen, and that's something that I expressed on the last call that we have 3 months ago is that since the projects has been on hold and it seems like a lot of the investors are holding their projects that weren't supposed to be coming into the market during 2020 and 2021, they have not even started that. So definitely, there will be a shortage of the offer that was planned, and that will be benefiting the prices of the rents per square meter.
Our next question comes from the line of Vanessa Quiroga with Crédit Suisse.
The first one is regarding the comment that you make on the press release about some delays in payments from government entities. Could you explain a little bit, is that a concern to you or you think that's something that will be normalized pretty soon? And the second question is regarding the -- if you could comment on any weakness that you see in specific geographies of your portfolio or specific type of property, anything that is not performing as you would like in your portfolio?
Thank you very much. This is Fernando. Well, yes, as you are pointing and we pointed that out in our report, we are seeing some increases in the pending payments, especially from some government tenants. This is something that is normal in every change of administration. It happened 6 years ago, and the history of the group is something that has been seen currently. So right now we are not concerned about that behavior. Of course, we're aware of what, I mean, what our economy is performing, so we are going to be very vigilant on that. So far, there is nothing that worries us for now, and we expect these trends to reverse and in the upcoming quarters to have some improvements in this line.
And regarding your second question, we, so far, are seeing regular behavior of performance in every geography we are at. Again, so far, no, that's what we're seeing right now. There's nothing that worries us on a change on economic dynamics on any part of the country. But also, we are going to be very vigilant to see if any part of the country or of our operations needs to pay close attention for, for any reason. But so far, we are not seeing any trends regarding that.
The next question comes from the line of Jorel Guilloty with Morgan Stanley.
I have 2 questions. The First one is how are you thinking of demand growth within your logistics portfolio? Are you seeing more demand -- more incremental demand from e-commerce tenants? Or is the demand largely being driven by traditional distribution tenants? And then my second question is about your dividend payout ratios. How are you thinking about that going forward? Do you have a specific target? Do you see them going higher, lower? Those are my questions.
You go ahead, Andre'. Andre', are you on the online? Can you hear me?
Yes.
Go ahead, Andre'.
Okay. By far, the growth comes from the regular logistics -- the traditional logistics, much more than the e-commerce. The e-commerce is still growing. But due to the way that it's still very incipient, the traditional logistics, and maybe, maybe some of the e-commerce is being transferred to the traditional logistics, and let me explain about what I'm saying. Mainly, Walmart or Coppel are doing their own logistics, and for us, it's a traditional logistics. We really don't know if the workout that we are leasing for Walmart or for Coppel or similar is dedicated to the last mile, or is dedicated to the stores. We cannot identify that. But having said that, in which we cannot identify exactly if it's last mile dedicated, we are seeing that is much more to the traditional logistics. And I would like to ask Jorge or Fernando to answer the second question, please.
Sure. So regarding the dividend payout, obviously, we are aware that this quarter, we distributed slightly above FFO, and if you recall, this is something that we have done in the past to smooth out the, let me call it, volatility that could be associated with fluctuations of a quarterly basis of cash flow generation and to maintain a more stable profile on the dividend payout. Having said that, we have the expectation that the company is going to accelerate its cash flow generation as the new development properties come on stream and as we continue to have positive leasing spreads and we continue to see the trends that we have seen so far in the business. So we would expect to have a closer to 100%, or even below 100%, of AFFO payout. The idea for the company long term is to be able to be within 95% and 100% of AFFO as a sustainable long-term payout. We are aware that paying more than what the company generates on a consistent basis is something that is not sustainable, and that is not the strategy of the company. The strategy just to be able to maintain a stable dividend, and we are okay paying a little bit above 95% in 1 quarter, a little bit below the next. If you'll recall, during 2019, for the full year -- 2018, sorry, for the full year, last year, the payout was 98% of AFFO. So that should give you more or less an idea what the strategy of the company is.
And just to add a little bit on what Jorge just said. At this point last year, our payout ratio was 103%, almost 104%, and we were able to close the full year at this 98% that Jorge is just pointing out. And at this point, our distribution will be once we distribute the second quarter distribution, only 101.92% above FFO.
Your next question comes from the line of Javier Gayol with GBM.
My first question would be regarding the -- with we've seen Fibra UNO very actively and very successfully participating in the capital markets. Just wanted to -- if you could give us a little bit of guidance as to what is the capital allocation of that is, if it's going to be mostly to refinance? Or where are you guys seeing in the market? And the second question is related to that. How are you guys looking at the market right now? Are you guys seeing a buyers market, a sellers market? Where do you stand on today's market?
Thanks, Javier, for the call. In terms of the funding that we raised, let me reiterate that we, once we've estimate, as Andre' mentioned, approximately MXN 10 billion to refinance, or let's call it, active liability management to lengthen the maturity profile of our debt. So far we've done about MXN 6.5 billion of this liability management, and we expect to end up doing about MXN 10 billion of liability management. And that leaves us with roughly, I'm going to call it, another MXN 10 billion, that are going to be used, part of them for acquisition purposes, as Andre' mentioned in his introductory remarks, as well as general corporate purposes, which is part of it complete development pipeline, which we still have some cash we needed to invest on development. And if we have some cash available left, we'll hold that cash in the balance sheet. So that's more or less the idea of the usage of the cash that we just raised. Now for the market trends, I'm going to ask Gonzalo to continue with that.
Thank you. Javier, in terms of the market, what we have been seeing is that there are new portfolios or new assets coming into the market that probably, 18 months ago or something like that, you couldn't imagine that they will be coming into the market. And so we are really alert into the opportunity that the market is presenting already, and we will take advantage of the, probably some of them. We are deeply analyzing several assets on portfolios at this stage. And probably by the end of the year, we will be disposing 100% of the remaining equity or cash that we have in the balance sheet.
Your next question comes from the line of Eduardo Alvizouri with GBM.
A follow-up question is regarding the press release earlier this week on the credit line. Could we get a little bit more color on the use of this cash? Do we expect for any bonds repayments or more development for acquisitions?
Well, thanks for the question. The purpose of this line is mainly to strengthen and give additional strength to our balance sheet that is already very strong and in a very prudent balance sheet. With this revolving committed and non-sustainable credit line, it's even more strong than it was. Now feeders are asked by regulation to distribute their cash production into dividends. There's always a stress on holding cash, on the stress on liquidity for feeders. That's why this line becomes very strategic for us. It's a line unique in its type, as Andre' described at the beginning of the call. It's a total of around MXN 21.3 billion. It's a dual-currency credit line. It's 100 -- $410 million, and the remaining of that is a peso amount. It's a line that is for 5 years term, and we have the ability also to extend it for 2 more years. And basically, it's a line that is very valued by the rating agencies. They give us a lot of, let's say, extra points for having that line because, again, the scenario where Fibra almost finds itself with problems to make it front on a payment is very low, but with this line, it's really, really almost 0. To give you an example, the amount of this line could cover our 2022 and 2023 maturities, 100%. So in case the markets are closed with this line, we are going to be able to make front to these maturities without jeopardizing or find the need to sell an asset or anything like that. So we are not planning to withdraw from this line in the short to medium term. It's not for -- right now, there's not a plan to use it for repaying a debt or towards development or anything like that. It's just a part of our financial prudent strategy. So yes, that's more or less what we are thinking.
The next question comes from the line of Andrea Lara with Signum Research.
I have 2 questions. First, can we expect to see some asset recycling in the short-term and for what segment? And also, could you tell us about the progress on the opening of the office tower as part of the Mitikah development?
Sure. In terms of asset recycling, it's part of the -- what we expect to become part of the normal activity of the company going forward. But for timing, let me ask and Gonzalo to give us more details.
Actually, on that recycling, obviously, we will be putting a lot of attention in terms of what the market is behaving. As we have the stated, we don't see major changes on it. But definite, we will be really cautious on those recycling. We have been growing and that for something. In terms of the hotels that we have been doing on our parking lots or parking pads, that's something that we see that will be coming. And you will be seeing probably some of the Santander branches that we have. Probably, we will start a couple of them with a recycling of those.
And regarding your other question, Andrea, we expect to have a Torre M of Mitikah operating during the third quarter of this year is our expectation.
Also, the Montes Urales 620 that we bought from Bancomer, it's going to be 100% leased by the end of the year. We'll be generating full income by 2020.
The next question comes from the line of Froylan Mendez with JPMorgan.
I have 2 questions. First, what is the level of incremental but organic NOI that you have in mind coming from lease-up properties and fees that have not necessarily being reflected in your income statement yet? That's my first question. And my second question, can you give us a little bit more color on the size of the acquisition pipeline that you see for the next 12 months? How much of this comes from related parties? And in what specific sectors are you seeing this?
Thanks. Just the organic growth of our NOI, what we are expecting is what you're seeing right now, for instance, in our report in Page 14, where you can see a chart where we compare constant properties from 1 year to the next. We expect these behaviors to be sustained probably with a risk to decelerate slightly if the economy is confirmed to be decelerating. But right now, we're not seeing anything like that. So we expect this same behavior to be sustained for the next upcoming quarters. On top of that, you should consider also the additional income coming from development, which is not organic.
And yes, regarding fees, this second quarter, you saw a hike on our fees. That's mainly the difference between what we regular charge to the Mitikah project is part of the development fees, that this quarter has this behavior. But I mean, we expect and you should expect the next quarter to go back to the normal levels of fees that you have been seeing.
And in terms of our proportion of specific organic growth, if we call it organic, the fact that we are investing in development -- and it's part of what's inside the company. And not organic what will become from acquisitions, I'll ask Gonzalo to view with the acquisition side of the equation. The organic growth, as you know, we have this development table in our quarterly report in which we outlined the expectation of more or less when we expect each of the projects to come online, how much we expect them to generate. And as we've discussed in the past, this is the original at-inception figures, unless we significantly have to modify CapEx, for example, because these are live projects. I mean, we have a tenant that requires additional investments in order to have this tenant at a specific property. And this means that we have to invest more and we can get a better rent. And we carry out that investment, and then we can modify the expected revenue flow.
But you have that outline there for both Mitikah, which is around 2023 and beyond. And the shorter end of that would be the Mariano Escobedo and all the other recent developments of [ Cuarzo], et cetera, that have been in the pipeline; Midtown Jalisco, which was just recently delivered; Guanajuato, which was just recently delivered. We expect those, as is mentioned in the quarter -- in the quarterly report. They come onstream. And then for industrial, we have 6 months before they start generating full capacity.
For retail, we have 18 months before they start generating full capacity. So for example, Guanajuato came online this quarter. So 6 quarters after this one, which would be 18 months, you should see full capacity for Guanajuato.
Office would be normally 24 months unless we state otherwise. For example, Torre Cuarzo came online, I think it was a couple of quarters ago or 3 quarters ago, that you should give 24 quarters before you see the full potential of Torre Cuarzo. In the case of Montes Urales, as Gonzalo mentioned, is something that is going to start generating cash flow -- full stabilized cash flow by the end of this year, which is ahead of time because that building was leased 100% to a single tenant. So we have a lot more visibility on the cash flow generation of that one.
Mariano Escobedo is another example of something that we should see imminently starting generating full cash flow potential. But unless we have specific situations like Montes Urales or Mariano Escobedo, normally, you should expect from the date of operation 6 months for industrial, 18 months for retail and 24 months for office. And Gonzalo?
In terms of the acquisitions, what we have on the pipeline, we have been working and active in all sectors, not -- as of today. And probably we are more involved in the industrial. We have been working with several portfolios, industrial portfolios. We have seen some office in Mexico. And probably by the end of the year, as I mentioned, we will be closing some of these transactions. And if it comes from related parties of -- or third parties, I'd consider. Obviously, this can change because depending on what we will be closing or not, whereas of today I can tell you that probably 1/4 will be coming from third parties and 3/4 will be coming -- actually the opposite, 1/4 from related parties and 3/4 from third parties.
And just a sense of the size of the pipeline would be like MXN 1 billion, something like that? Or how much are you thinking?
That's -- obviously, it may change, but that's about the size of the firepower that we may have. They probably will be a little bit above MXN 1 billion by the end of the year.
Our next question comes from Armando Rodriguez with Signum Research.
Congratulations on the result. Just a quick question about considering this debt issuance. What's the changes between your debt income, thinking about ratios, debt income, about your debt levels, particularly on your debt service, after these major changes on your refinancing? That's my question.
Yes. Well, this was the kind of the discussion and conversations that we have with the rating agencies before making these issuances. We feel very comfortable with the way these ratios are behaving right now. To give you an example, the ratio that was probably the most important one was incoming U.S. dollars compared to interest payments in U.S. dollars since this new debt is 100% denominated in U.S. dollars. Our coverage before the issuance was around 1.8x. After the issuance, it would go down to 1.2x, which is still above 1x. And it's 20% -- the incoming dollars is 20% higher than the interest payment. So I mean, we feel very comfortable with that kind of ratios and also the natural hedge that we have. And now -- right now, in our report, you can see our loan to value growing toward 37%. But if you normalize that and deduct the excess cash that we are showing right now because of the recent issuance, our loan to value, it's -- our normalized loan to value is around 33%, 34%, which is still very low. And our peso-denominated debt is still 55% of our total debt. Again, all of our ratios are in what we think is very prudent levels. Even after this issuance and the resources you have been hearing in this call, they are going to be put to work very soon gradually. And that one also strengthen these same ratios.
There are no further questions at this time. I'll turn the call back over to Mr. El-Mann for any closing remarks.
Thank you very much, Hector. Thank you, everybody, for listening to our call. I hope in the next quarter, we will be delivering as good a news as this time, and thank you for your interest in our company.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a great day.