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Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Fibra UNO 2Q 2022 Results Conference Call on the 27th of July 2022. [Operator Instructions]
The format of the call today will be a presentation by the management team, followed by a question-and-answer session. So without further ado, I would now like to pass the line to Mr. El-Mann, the CEO of Fibra UNO. Please go ahead, sir, line is yours.
Thank you, Michael. Thank you, everybody, for being here for our call of second quarter of 2022, and I am very glad and very excited to present and share with you the extraordinary results of our company.
And to get into the depth of the numbers, I will pass the mic further on to Jorge Pigeon to talk about the numbers. But before I would like to leave you with just a thought. I think at some point, the market just take us for granted. We have make everyone thinking it's easy to achieve the results we post. I mean, we post double-digit growth all across the board. And we hear reports saying that we are just off the estimate, just above the estimate. And I would like to tell you that to achieve the estimates, it really, really take a very strong effort from the team. I mean I know it's a job.
I think we lost technically.
We need 30 seconds to put Andre again on the line.
I think we lost Andre, hold on 1 second, please.
I'm sorry. I'm sorry about the connection. I'll start again. It is my pleasure to present to you the extraordinary results of the company on the second quarters of 2022.
And before I pass the mic to Jorge Pigeon to give an address of the numbers, I would just like to leave you with a thought. I think at some point, the market is taken for granted. We have made everyone think it's easy to achieve the results. We post double digits all across the board. It seems like that's the way we hear the reports saying just off our estimates or just above our estimate. But believe me, it takes a lot of effort to get even near those estimates, both from the analysts and for our own because we know and we believe we stated at the beginning of the year that we will get double-digit growth this very year.
I mean I know it is our job, and we are doing it impeccably but we want to state that to get 46 quarters in a row, breaking records in the most important lines of our balance sheet, it's no easy task. The amount of pressure that we leave quarter in and quarter out is huge. But make no mistake. I'm not complaining. The point to understand that this kind of pressure is not a burden, is not of course quite the contrary, it's a privilege, even only to the success of ones. And we embrace it and carry the opportunity that we have to be the best in class.
But all in all, we are aware and we do not take things lightly. We will continue to show commitment and relentless dedication to continue to reach our goals and make clear the resilience and the strength of our company coming from the very design of it. I mean the diversification that we have, it comes from the experience that we have had in the last decades. There's no other player out there that has outlived decades of this very market and especially in our country. So I am very glad for the numbers that we posted and very happy to present to you the second quarter 2022 numbers, in which we confirm our estimates for all year long, contrary to the majority of the company that are revising due to the world and economic circumstances of the world their own estimates. We confirm our estimate to the double-digit growth for the year.
So having no more to say, I will pass the mic to Jorge. Jorge, please continue.
Andre, thank you very much. Thank you, everybody, for joining our call. As usual, I will go through the MD&A discussion. I would like to highlight that for the quarterly MD&A, we have normalized the first quarter 2022 numbers to take out an once-off income from the cancellation of a rental contract in the office segment. So all of the figures that I will discuss are normalized to take -- to exclude MXN 167.2 million of income recorded during the first quarter.
Going into the revenues, total revenues increased almost MXN 120 million to reach MXN 5.8 billion, which is 2.1% above the normalized first quarter 2022 number. If I look at this 2.1%, this means that this is an annualized 8.4% growth which is above the current inflation of most recent data that [ Inaki ] shared with us of 8.2% or 8.1%. So we are, as Andre mentioned, on track. And this, obviously -- this quarter, obviously, does not include yet the income of development properties that will be hitting our top line, like, for example, the strong and large deliveries that we have in Tepozpark this quarter, the entrance of Mitikah towards the end of this year, delivery of some space at Galerias Valle Oriente and others.
So the growth in this quarter was mainly to -- attributed to the combination of the effect of rent increases in active contracts. As you know, there is always a lag of about a year for all of our contracts to reflect the inflation that we have been seeing. We are seeing some of that starting to hit our contracts. Exchange rate appreciation of the -- and its effect in dollar rents as well as some of the additions of some new square meters to our top line.
In terms of occupancy, we are in line with our expectations. We have a very solid industrial segment. We have a very strong and in recovery retail segment. Office remains a challenge as we had expected and we have stated in previous quarters that we expect office to remain a challenging sector for at least a couple of years. So the performance is no surprise there.
Overall, we closed the second quarter of 2022 with 93.2% occupancy, which is 60 basis points above the previous quarter. The industrial portfolio was at 97.5%, 100 basis points above the first quarter of 2022, mainly due to the inclusion of occupied GLA at Tepozpark/La Teja development, which is occupied, but not necessarily generating fully its capacity in terms of cash generations as well as the effect of the sale of 2 properties from the TITAN portfolio, the Los Saucitos II and Los Saucitos III properties.
The retail portfolio was at 89.4%. It was a drop of 10 basis points below the first quarter 2022. We see this as just a normal reorganization of some tenants, but we clearly see in our Commercialization Committee, that we are clearly on a recovery track in the retail segment. Office portfolio was 74.9%, 10 basis points below the first quarter of '22. Again, nothing specific to note in that occupancy variation.
Others portfolio recorded 99.1% occupancy rates remaining stable. Again, nothing specific to note in that portfolio. In the in-service properties, we went from 93.1% to 32%, which is 60% below first quarter '22. And this is mainly due to the inclusion of recently delivered Tepozpark/La Teja space, which still is unoccupied which accounts for 65% of GLA of this category. However, as you know, the supply-demand dynamics, in particular, for logistics in the metropolitan area of Mexico City remains very strong. So we have no doubt that we are going to fill up that space very quickly. So we feel that's a positive news since we continue to have, let's say, some upside in the occupancy and therefore, expected cash flow for the future in the industrial segment with this new state-of-the-art facility at Tepozpark. So we remain bullish on our solid result expectations for this year.
In terms of operating expenses, property tax and insurance, we are making every effort to rein in operating expenses inflation. Because, as you know, in a high inflationary environment like the one we are living, it's a good thing to be in a position that we are, which is with contracts that are indexed to inflation. There are some caps in our contracts where it's a very, very, very small percentage of some of the dollar contracts in the TITAN portfolio, less than 1% of the income of the company is what we have detected that has some caps. The rest of it has inflation. So it's a good thing to be on that side. However, we do have to make a strong effort to make sure that we contain expenses and I think we are doing a good job of that.
We saw operating expenses increase by 28.7%. It's a 4.8% growth versus the first quarter. This is due more than anything to the seasonality of some expenses as well as increases above inflation of some items in particular, maintenance and spare parts.
Property taxes increased 1.3% or 0.7% for the quarter, which is mainly due to the new addition of land that was under development is now in operations. Insurance expenses remained stable at MXN 89 million compared to last quarter. This leads us to a net operating income increase of MXN 97.9 million, 2.2% compared to the normalized figure of the first quarter of '22 to reach MXN 4.55 billion with a rental -- with an NOI margin of rental revenues of 87.2% and total revenues of 78.4%. So again, this 2.2% reflects almost an annualized figure of 8.8% growth for our NOI quarter-over-quarter, excluding the contribution of newly developed properties, we expect to come in and hit our top line in coming quarters. So again, we're very positive with these results.
In terms of net interest income and expense, we saw a net increase of MXN 34.9 million, only 1.9% compared to the first quarter of 2022, which is mainly due to the addition of MXN 3.7 billion in debt, which was mostly directed towards the completion of development at the various properties that we have under development, the completion of Tepozpark/La Teja, Galerias Valle Oriente, Tapachula and Portal Norte, in particular, are the highlights of what we are investing in. So we're very pleased to see only an increase of this amount.
Obviously, we are facing an increase in the base rate of our variable rent of -- variable debt, sorry. And that is compensated in regard just marginally increase in capitalized interest of MXN 14.4 million.
And also, we have been, as we mentioned, repurchasing some of our bonds. We repurchased MXN 147 million of the FUNO-18 bonds as well as we have been doing open market purchases of our U.S. dollar bonds the 2050 6.39% bonds. We've purchased a par value amount of $31.9 million as of the close of the quarter. If we look at that number today, we're probably closer to $38 million or $39 million and we're continuing with the repurchase of open market purchases of our bonds. And obviously, we expect to cancel those bonds from that amount, and we'll make that announcement of that when that happens.
As a result of the above, funds from operation increased MXN 124 million or 5.6%. This, again, if I annualize this figure, then I'm talking about growth in excess of 11% year -- on annualized growth for our AFFO and our FFO reached MXN 2.3 billion. Adjusted funds from operations had an increase of 11.5%. This is mainly due to the sale of the Los Saucitos II and III industrial properties that we described and we can talk about this in a second.
On a per CBFI basis, during the second quarter, we issued 28.5 million CBFIs from the employee compensation plan. During the same period, we repurchased 6.16% -- 6.16 million CBFIs to close the quarter with 3.8 billion. We expect to have 3.799 billion CBFIs by the distribution date. So we'll basically repurchase at least all of the CBFIs that we issued with the ECP, by the time of the distribution. This leads to FFO and AFFO per average CBFI of MXN 61.88 and MXN 65.37 which implies increases of 5.6% and 1.5% compared to the normalized first quarter of 2022.
Moving to the balance sheet. I would like to say that we see a notable normalization of our operations. As you recall, we ended the COVID reserve, I mentioned that a couple of quarters ago, and we continue to see a recovery in collections. Accounts receivable totaled MXN 2.7 billion, which is a drop of MXN 24.5 million, almost minus 1% quarter-over-quarter, mainly due to improvement in collections. So we're pleased to see that we are seeing, as I mentioned, the normalization of our operation in this regard.
In terms of investment properties, we saw an increase of almost MXN 5 billion, 1.7% compared to the first quarter of '22 which is a result of mainly normal progress of construction projects under development, which is almost MXN 4 billion, including our investment in America, CapEx invested in our operating stabilized portfolio as well as fair value adjustments to the portfolio.
In terms of debt, we reached MXN 138.8 billion compared to MXN 135.91 billion recorded in the previous quarter. The variation is mainly due a net increase in bilateral credit lines of MXN 4.5 billion which has mainly been directed towards development and cost structure as well as what we mentioned, the prepayment of MXN 147 million of FUNO-18 bonds and $31.9 million face par value of the 2050 notes. And again, important to mention that we expect to cancel those notes from the operating.
The total equity increased MXN 814 million or 0.5 percentage point, including controlling and noncontrolling interest. This is the combination of net income generated in the quarter results, derivatives valuation, the shareholder distribution and the employee compensation plan.
Moving to operating results. In terms of leasing spreads, nominal leasing spreads were 610 basis points in retail. So we're glad to see that it's a positive number, a strong number and it's a number that is growing. 930 basis points for industrial and 170 basis points in the office segment, which we see as a positive given the challenges we are seeing in that segment. Real leasing spreads were minus 80 basis points in the retail segment plus 230 in industrial and minus 520 for the office segment. This is in pesos.
For dollar-denominated leases, nominal increases were 560 -- a very solid 560 in retail, 460 in industrial and a negative almost 3% in the office segment. Real leasing spreads compared to inflation were minus 140 in retail, minus 250 for the industrial segment and almost minus 10% in the office segment.
In terms of constant property performance, we saw an increase, a nominal increase of 6.5% compared to the weighted average inflation of 7.1%. So we saw a 0.6% reduction in real terms. This is mainly due to the fact that some dollar contracts in the industrial segment, specifically the light manufacturing I was mentioning, subsegments have limits to inflation as well as the normal lag to inflation that we have made a comment. At the subsegment level, we are pleased to see that the total annual rent per square foot increased from $9.5 to $9.7 or 2.1%, mainly due to increase in both current contracts as well as renewals.
Total NOI at the property level for the quarter increased 0.8% compared to the previous quarters. The variation is mainly due to the following: In the Industrial segment, the Logistics segment increased 6.4%. Light Manufacturing NOI increased 5.6%. Business Park increased 7.4%, mainly due to renewal as well as inflation increases. Office segment decreased 13.9%, mainly due to the extraordinary revenues that were not recorded in the second quarter and we did have in the first quarter of '22. In the retail segment, the stand-alone subsegment increased 1.9%.
Fashion mall increased a very solid 8.9% and Regional center decreased 1.5% latter mainly due to a reduction in variable rents in the first quarter of '22. This is normal. Seasonally, the first quarter is a higher revenue quarter in terms of variable rent. In the other segments, NOI grew 4.1%, mainly due to increase in variable rent from the hotel operations.
And with this, I conclude my remarks on the financial results and operating metrics, and we can open the floor to Q&A, please.
[Operator Instructions] Our first question comes from Mr. Pablo Monsivais from Barclays.
I was wondering if you can share with us your thoughts on the office space. How do you see traffic and the footfall improving? And when do you think we will see an inflection point? I mean, not only you but other competitors also are having some rough time there. Do you think that the sector will improve next year or it would say 2 years? Or what's your take?
Pablo, yes, the office space, as you mentioned, there are people that consider that this will take almost 3 years to be recovered. Our thoughts on this is that probably will be by the end of next year that we will be back in place. We are already seeing some requests for proposals on the market. That obviously is showing the -- getting back to the people to their workspace.
And I would say that besides what we are seeing in terms of inflation and everything then, obviously, it's impacting on every sector. But in the office sector, I would say that probably by the end of the next year, we will be seeing rents coming back and occupancy ramping up. I think we have very touch bottom. And from now on, you will be seeing increases on prices on nonoccupancy.
Next question comes from Alejandro Chavelas from Credit Suisse.
I noticed you added to the pipeline, a MXN 3.6 billion sales in the Industrial segment. So I wanted to get more color on that. If you -- how advanced are you on these talks? What kind of properties are you selling? What kind of premium -- what type of premium to NAV are you expecting?
And my second question, if I may, is regarding the opinion on the Telra case that you mentioned that you will be publishing. Do you have a time line for the publication of this opinion -- of this independent opinion?
Let me take the pipeline properties. It's -- what we have on the table right now, we have a letter of intent from a nonrequested offer from, I would say, a really respectful industrial group on the northern part of the country. And these assets are mainly located on the Tamaulipas state. I would say probably will be taking 65%, 70% of the portfolio with some Juarez assets, and I think it's Saltillo. This is transaction of around MXN 3.6 billion or USD 180 million, and we will be selling this probably with a premium to NAV of 20%.
And in terms of the Telra case, I don't know, Alex chico, you want to address it, please?
Yes. I spoke with Alejandro, we're obviously working on getting the information and interviews and other due diligence that Jones Day is working on, expect to have information soon. Don't know if it's going to be at least another 2 or 3 weeks minimum, but I wouldn't expect anything sooner than that. There's some people that are on vacation and we need to talk to -- they need to talk to some of these guys. So expect -- I wouldn't expect anything, let's say, sooner than the next 3 or 4 weeks.
Perfect. And perhaps if I can do a quick follow-up. You mentioned an occupancy in retail didn't improve this quarter. You mentioned some adjustments by the tenants. Perhaps if you can comment on these adjustments by the tenants, what does that mean? What do you expect about retail occupancy going forward?
Yes more than adjustments of what I was describing is that we have some people coming in, some people coming out, reshuffling of tenants. There's reconfiguration to the content of the shopping mall. We saw, for example, Sports City leave some of our shopping malls. And then we saw Energy Fitness, the Alex Rodriguez Chain take some of that space. So you're seeing that kind of movement in the shopping mall.
What we are seeing is 2 things. In general, the discussions in our commercial committee are how to deal with the growth needs of our tenants, number one. For example, a good example, a good barometer of that is what we're seeing in Tapachula. It's a property that, as you recall, during the pandemic, we stopped the development because we were uncertain as to what was going to happen there. And it's been an incredible success for Soriana and City Club, which have already opened the stores there. And they're asking us, obviously, to rush as fast as we can to complete the development of Tapachula. So what we're seeing is more of a reconfiguration of tenants, people moving in and out, and that made the shift. It's not a trend. It's more related to that.
Our next question comes from Mr. Epson [indiscernible] from Suma Capital.
I have 2 of them. The first one is if you can give us a little more color about the recycling assets that you did in second quarter? I'm just trying to understand the warehouses that you mentioned in the earnings release is related to those portfolios, Saucitos II and III or it's different apart? That will be my first one. The second one, regarding on the office space. I know Gonzalo already mentioned. But on the occupancy ahead, what type of strategy are you going to perform or you're looking to increase the occupancy rate in the office space building?
Let me take the most little mic. In terms of the recycling, if you mean about the sale that we have just concluded on Chihuahua. These were 2 old industrial buildings for around 36,000 square meters of GLA that we bought empty from TITAN 2 -- TITAN 1 portfolio. And they were never leased. So we keep them empty since 2019 that we closed the portfolio. And these were sold for 1.5x the book value that we have them on our books. And the buyer was a final user that will be taking advantage of it. And this also includes a really small portion of land of 7,000 square meters that this will be the multiple on this one, which is not relevant, it's 8x the book value.
And in terms of recycling assets, that obviously is taking time is the office buildings that we are converting into hospitals. Some of the parks that we have for different uses that we are converting into hospitals or some of the -- for example, the big boxes that we used to have leased to Best Buy that right now, are leased to a different use like universities. That's what we have been doing on the recycling of the assets.
And in terms of the offices, obviously, we have been all to the tenants' needs. Obviously, the use of the space has changed even with existing tenants. And obviously, the new tenants, probably the TIs that they are requiring are a little bit more different. I won't say that they are more expensive, but different than what they had requested on the past. And obviously, we have been flexible with that and trying to understand the new trend in terms of the offices.
Our next question comes from Mr. Nikolaj Lippmann from Morgan Stanley.
Congrats on the numbers. Actually, it's just one question. As it pertains to industrial, clearly strong momentum. When we think about nearshoring, I think the debate is not if it is happening, but the degree to which it's happening at this stage. So when you look at your portfolio, how should we think about it? Is this mainly a same-store event, you will be raising prices in the existing properties? Or are you thinking of growing this as part of the portfolio as well? And if so what would be the methods for doing so? And again, congrats on the numbers.
As you see, we have been acquiring all industrial space last couple of years. But first, we need to take advantage of the opportunities. If the opportunities come from different sectors, we will capture them. For now, we have been growing our interest in the industrial portfolio because we have knowledge, and we know that industrial is very hot in the world and not just Mexico. Mexico has its own conditions. That, for us, we think that we'll continue to improve the industrial sector, and we are very well prepared to continue to grow in that sector. But if the opportunities are there, if the opportunities are expensive, we will not take them. I mean it's not growing the participation of the industrial portfolio at whatever the cost, it's not our way to do things. We need to have to continue to capture the opportunities, and we will achieve that.
Our next question comes from Mr. André Mazini from Citi.
Two quick ones. So the first one, if you could talk about which type of tenants are going to be leasing the Tepozpark industrial property that we just delivered and it's indeed fully leased? What's just happened there? And the second one is on the JV. I think the first project of the JV was 80% FUNO, 20% AXA Seguros. So if you could talk a little bit about the size, the type of assets the JV could do? And if it, indeed, we should expect more to come maybe in the 80-20 split or a different split, whatever thoughts you guys have there?
Andre, actually, the tenants that we are seeing on the Tepozpark development is mainly logistics. We are seeing the Walmart guys, the Amazon guys going in. The last one that we signed was Walmart, but those are the type of big tenants that we are seeing then -- there. As you may be already aware, we have Altura as one of the largest ones on the park, but all of them no matter who's the tenant, all of them are devoted to their logistics.
In terms of the JV with AXA, obviously, the one that we have on Satélite is the first one that we are expecting to have signed with them among different ones. But the truth is that we are both anxious to grow our relation but we have to be careful on the price-through that we will be getting in. And as soon as we find something that makes sense to both of us, we will take advantage of that. And if the formulize the same 80-20 will be a hit, but we are still open to have different percentages in [ bonds down there ]. Obviously, in all cases, Fibra UNO will keep the control of the projects.
Our next caller comes from Mr. Anton Mortenkotter from KBM ((sic)) [ GBM ].
I just have one question related to the leasing spreads that we've been seeing in the renewals or negotiations with your clients. I understand that we are seeing some negative leasing spread because of inflation. But I would like to give a bit of color on this is because the contracts are shifting? Are you looking more into contracts that are not capped and will move with inflation, so maybe this could pick up prices in the future or something like that?
It obviously varies, Anton, in terms of the negotiations that we have on every quarter. But what we're looking for, and I think Andre has mentioned this in previous quarters, we have been having real rental growth in industrial for the last several years, not just this year. It's a market that has a very tight supply-demand dynamics. And obviously, that leads to, let's say, favorable pricing power for the landlords. Having said that, it's not going to be easy to continue to increase rents at a double-digit pace, especially with high inflation in the industrial segments. So that would be one comment.
What we expect to see in the Retail segment is we're targeting to try to reach, let's say, somewhere around 10% growth in rents, which would mean a 2% to 3% growth above inflation over the next couple of years. Given especially that we also need to remember this, that now it's our term to collect. We have been supporting tenants for the last 2 years. We devoted at MXN 1.8 billion in terms of support to our tenants. So I think now it's time for us to collect on 2 fronts, on the pass-through inflationary contracts as well as in the form of some leasing spreads that are, let's say, slightly positive to inflation in the retail segment.
The one that obviously remains a more challenged segment is Office. But as Gonzalo mentioned, we feel that we have seen the bottom of the market. We expect -- and I think Andre has mentioned this in previous quarters as well, we expect to see office sort of recover inflation -- recover occupancy sort of the first and prices will take a couple of years to recover, which means that probably we will have, if you measure that against inflation, we'll have negative leasing spreads or 0 to negative leasing spreads in the office sector in the coming months. I hope this helps answer your question.
Our next question comes from Paulina Moreira from Compass Group.
Congrats on the results. My question is actually a follow-up on what you just said about the occupancy and prices of office segment. You -- just to clarify, you are not going to decrease prices in order to increase occupancy, right? It will be first occupancy and prices like flat or what...
Yes. Thanks for your question, Paulina. Yes, we expect to see recovery of occupancy without having to sacrifice price. And you have to take into consideration that Fibra UNO model is to have competitive rents. So we already are starting below the market average. The average rents for Fibra UNO is $20, and the market is at $22.5 or $23 almost, the most recent report we have seen. So we are at $3 below the market average. So we don't think that we necessarily have to drop our prices to privilege occupancy because the other part of our strategy is to have the best assets in a best locations. So that combination, we think, is always a winning combination, having the ability to do that.
So in short, the answer is no, we don't expect to have to drop our prices to privilege occupancy because we already are at the low end of the market. I think the market has that pressure that you're describing, not Fibra UNO.
Okay. And another quick question. Talking about margins, I understood what you said about the increase in costs that were like some seasonality effect. But that means we should expect better margins for the next quarters?
I think we should try to have the company, we're targeting to have the company at an average 80% NOI margin, which is historically what we have seen for FIBRA UNO in the long run. Obviously, we'll see this vary quarter-to-quarter due to seasonality in some cases. And obviously, right now, we're working very hard, as Andre mentioned, we make it look easy in terms of posting results quarter-by-quarter. But we work very hard to make sure that -- for example, right now, we are reining in expenses. If we don't keep a tight leash on expenses, it's very easy for expenses to run very high. So we are working very hard on that. And the target is to have a margin of around 80% of NOI for this year, it would be the guidance that we can give you on that.
Our next question comes from Jorel Guilloty from Goldman Sachs.
I have 2, mostly focused on the regional center part of your portfolio. So when you look at your current occupancy is about 90%. And I know you mentioned earlier that you expected retail to grow occupancy over the near and medium term. But zeroing in on regional centers, I just wanted to get a sense of what do you view the occupancy growth path for those centers are going forward? Perhaps where would you expect it to be by year-end '22, '23? And also who would be the incremental tenant in those centers?
And then my second question is connected. So when you look at your logistics portfolio, I mean, you basically sold out, you have about 2% vacancy. And I was wondering, have you been approached or have you thought about doing some creative solutions for distribution perhaps within those regional centers, thinking about that vacant space being used for distribution somehow?
Obviously, we're always open to creative ideas. And if it makes sense to have distribution, especially last mile distribution out of our existing shopping malls, is something that we look into. If we think about that, we already have or are starting to see some of that in shopping malls in the form of, for example, Amazon Lockers and those types of last mile delivery options in our shopping malls. So yes, we are obviously open to that idea if it presents itself.
What we are seeing is that after the pandemic, we saw, let's say, some retail operators did not survive the pandemic. And the ones that have survived, have survived stronger. So we are seeing the ones that survive the pandemic and some new ones that were created during the pandemic are the ones that are taking that new space. We are seeing an increase in a lot of restaurants and entertainment type of concepts more than the traditional retail. I don't know, Gonzalo or Andre, if you want to add anything?
No, actually, definitely, the new tenants that -- on the new tenants that we are seeing as Jorge mentioned, there are new concepts of entertainment and food and beverage that has increased substantially. Right now on our regional centers, we are almost 35% on those concepts, when probably 5 years ago or 6 years ago, it was half of it. So we have doubled that space.
Our next question comes from Mr. Gabriel from Scotiabank.
Just a quick question. Have you been receiving or seeing that tenants moving in the office market have asked you to kind of retrofit the office like making more coworking and less private offices or changing the way the office works, another working stream in the ARPU?
Yes, definitely, we have seen that trend, Gabriel. People is asking for more open spaces, more space among each one of the working stations. And I would say that it's a flex space, meaning that the employees, they don't have a fixed space to work. So they just have working stations where they can plug in. So they don't have a fixed space for them. That's some of the trends that you have seen in some of the companies.
The next question comes from Mr. Francisco Suarez also from Scotiabank.
Congrats on the trends and the strong strength in Industrial and Retail, gents. The question that I have is a follow-up on office space. Can you indicate us or shed some color on the overall subletting activity that your tenants might be having at the moment and the overall utilization of the office space that you have?
And the second question relates with the overall lease expirations that you have this year in office space. If I'm not mistaken, in your annual report, you show roughly about something like 17% of expirations in terms of the annual base rent for this year. How much of that has been already negotiated? How much of that has already been leased? And if you can also shed some color on those rents that were already -- those leases that were expire, but today the tenants kept paying their rent?
Thank you, Paco. In terms of the subletting, as you know, all of our leases states that no one can sublease the space without our [ polisation ]. So we have a perfect view of what's going on in the market. And I will tell you that in almost all of the cases that this has been a subject among our tenants and ourselves. We end up taking the lease directly to the new, let's say, the new sub-lessor, and we take away the intermediate of the original tenant.
And the truth is that we haven't seen big movements on that regard. It's not a trend that the market is seeing. It's not on our case. And in terms of the prices that we are seeing for the renewals, as we have already stated, and Jorge was really clear, we are not sacrificing prices towards the occupancy. I think that we already have really competitive prices that can be supported without sacrificing the occupancy.
So we don't see in the next -- as I'm expressing it, I don't see that we will be dropping prices. I don't even see also that probably in the next 12 to 18 months, we will be seeing increases on the prices. We will be seeing increases on the occupancy without sacrificing the prices.
And on the lease expirations that you have for the year, Again, I think that at the end of last year, you had roughly expirations for roughly 17% of your annual rent in office space. How much of that has already renegotiated and how much you see coming forward? And if that is a downside risk or not?
Yes. Paco, I don't see -- I don't have exactly top of my mind how much has been renew. I know that we have been acting on that. It hasn't been easy, the renegotiation on those leases. But I would say that at this stage, probably 35% to 40%, 40-plus percent has already been negotiated, and we are in the process of signing those leases. And we still have 55% for the rest of the year.
Our next question comes from Mariana Cruz from BTG Pactual.
I have 2. The first one is, could you please give us more color on what are your plans to finance 2022 and 2023 debt expiration? And the second one is, I know you don't disclose guidance on distributions, but I was wondering if you can comment on the payout ratio you're expecting to pay in 2022?
Sure. Thanks for your question, Mariana. In terms of the refinancing world, this is normal course of business for Fibra UNO. We're always looking at liability management activity as part of the normal activity of the finance area. And obviously, we know and are clearly aware that we have those 2 maturities upcoming. And we are looking at what are the most cost-efficient alternatives and most effective alternatives for the company to refinance that debt. That on the one hand.
And in terms of the payout ratio, it's a little bit of a more complicated or challenging environment, the one that we have been facing in the last few quarters, given that we have 2 variables that are moving not necessarily in the traditional way, which is inflation and the FX depreciation of the currency. To the extent that the peso depreciates, that creates an FX loss and reduces the fiscal result to the extent that we continue to have persistently high inflation that is going to increase the fiscal result. That is why we changed the payout.
If you remember, last year, we were paying out around 60% of FFO. Today, we have increased that payout to about 80% of FFO. We expect to remain around that number, about 80% of FFO. And if you recall the last 2 distributions we've had for this year have been 100% out of fiscal result. And this is basically because we are seeing the effect of the persistent high inflation. And as I mentioned, this is a calculation that you have to make at the end of the year once you know the fiscal results. And that creates a difficult -- and additional, let's say, difficulty in the prediction of that fiscal result towards the year-end.
But we feel comfortable that with an 80% payout ratio and 100% fiscal result distribution, we are covered. If there needs to be an adjustment, we're likely we'll make that adjustment with the final distribution in the fourth quarter. I don't know, Fernando, if you want to add something?
Yes. Thank you, Jorge. I just want to add for the first question that on top of what Jorge explained, that we are always looking at the market to see the right moment and the right conditions to issue and refinance our maturities. You should remember that we have the revolving committed credit facilities linked to sustainability, which allows us to not rush to any opportunity and to be patient and find the right moment to make an issuance. I just wanted to point out.
The size of that line is equivalent of MXN 21 billion is fully committed by 11 financial institutions, and that gives us a very, very strong position to make refinancing decisions.
Our next question comes from Mr. Rodolfo Ramos from Bradesco BBI.
Just, first of all, congratulations on the steps to improve on the corporate governance front. I just wanted to get your thoughts on the time line of 3 key events that we've highlighted in the past. And the first one is on the -- and you mentioned in the report, increase independent representation of exports. So do you have a time line there?
The second one is a follow-up on the Jones Day question and just wanted to -- you might be limited to what you can say. But just I in the impression that we would have gotten this report earlier based on your comments about a month ago. And lastly, thirdly on -- and then I also mentioned the possibility of E-Group announcing share repurchases to take advantage of the depressed valuation as a vote of confidence for the company, so I just wanted to see if that to any action or any or what to expect there?
Well, in terms of the commitments for corporate governance is something that we expect to do as soon as practicable. Let's say, ideally, we have been looking for some time for a female technical committee member. We continue to do that search, and we want to make sure that we bring someone that is at the level of experience, expertise, added value, et cetera, that we have from an existing independent Board members. So we know that it has taken a little bit of time, but we are working on it, and we expect to have that as soon as possible and also with the combination of the Board.
In terms of the report, ideally, if you ask me, we would have liked to have had that out a few weeks ago, but it takes time to do these things, especially if you want to do them right. And especially if you need to interview a lot of people to get their response and the due diligence as to what -- who did what, when and so on and so forth and a lot of people are on vacation. So unfortunately, that happened in the middle of this. So it's going to take at least another 2 or 3 weeks as we mentioned before. So just bear with us, we'll have that out to you as soon as possible.
And at the end, Jorge, let me add, Jones Day is the one that is pulling on the timing on it. it's not on our side to decide the speed of doing it. They are definite given now the guideline and the procedures that they want. So that's why it's taken longer than what we also expected.
And I don't know if you can comment also on the potential E-Group acquisition?
As a matter of fact, the group has already started buying shares in the open market. I don't have an amount, but I know that they have started buying shares in the market.
Thank you. It looks like this is our time limit for today's call. The Investor Relations team will get in touch with the remaining questions. I'll now pass the line to the FUNO team for the concluding remarks.
Thank you very much, everybody. Thank you for joining today's result calls. To those of you who still have pending questions, you can reach out to either Sophia or myself. We are always available to answer your calls. You can give us a call. You can send us an e-mail. And thank you very much for being at today's call.
Thank you very much. This concludes today's call. We'll now be closing all the lines. Goodbye.