Consorcio ARA, S. A. B. de C. V. (ARA) Earnings Call Transcript & Summary

Hello, and welcome to today's Second Quarter 2026 Results Conference Call and Webcast. My name is Leslie, and I will be your event specialist today. [Operator Instructions] Please note that today's conference call and webcast are being recorded. [Operator Instructions] To follow the conference online, please visit https/consorcioara.transmision.com.mx. The word transmission is with one 's' only [Operator Instructions]. It is now my pleasure to turn today's program over to Alicia Enriquez, Administrative and Financial Director.

Thank you, Leslie. Good morning, and a warm welcome to our conference call on the second quarter 2026 results of Consorcio. This call will be also transmitted via webcast, accompanied by a slide show for visual support. With me on the call to discuss the results are Luis Felipe Ahumada Russek, Vice Chairman of the Board; Miguel Lozano, Chief Executive Officer; and Felipe Loera, Chief Financial Officer. I want to alert everyone that certain statements and comments made during the course of this call must be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Consorcio believes that such statements are based on reasonable assumptions, but there are no assurances that current outcomes may not be substantially different from those discussed today. All forward-looking statements are based on information available to the company on the date of this call. The company is under no obligation to publicly update or revise any forward-looking statements as a result of new information that may become available in the future. As usual, at the end of our prepared remarks, there will be time for Q&A. We'll wait until then to open the queue for question, for the first half of 2026 compared to the first half of 2025. The financial and operating results of the first half of the year confirm our robust performance and mark a continuation of the positive trend seen over the past 6 quarters. In the first 6 months of 2026, total revenue, meaning the sum of housing revenues and revenues from other real estate projects came to MXN 4.59 billion, 17.1% advance compared to the same period of last year. Housing revenues totaled MXN 4.45 billion an increase of 17.9%. And corresponding to the sale of 3,140 homes. With an average price of MXN 1,418, 000, [14.10%] higher. Developing housing revenues during this period was driven primarily by the residential segment followed by middle income housing where sales totaled MXN 2.15 billion, 23.2% higher and residential home sales reached MXN 1.28 billion, a very solid double-digit growth of 64.7%. Meanwhile, sales [indiscernible] homes totaled MXN 1.02 billion, 18.5% lower. [indiscernible] completion of our development in the city of Tijuana. We already have another development operating in that city, which will be contributing revenues beginning in the third quarter of this year. Revenues from other real estate projects, mainly from the sale of land and from shopping center leases totaled MXN 142.3 million, a 3.1% decline due to lower sales of commercial land. Looking at the sales mix for the first half of the year, affordable entry level homes contributed 22.2% middle income homes 46.8% and residential 27.9%, while other real estate projects accounted for remaining 3.1%. In the first 6 months of this year, besides the growth in revenues, there were also notable increases in operating income and EBITDA. Operating income totaled MXN 420.7 million, 11% higher than in the first half of 2025 and EBITDA totaled MXN 624.4 million a growth of 15.2%. At the bottom line net income totaled MXN 363.8 million, up 3.5% year-over-year. This solid result has been complemented by a steady reduction in working capital turnover. In the last 12 months, this indicator declined by 154 [indiscernible] contributing to a positive free cash flow of MXN 378.9 million in the first half of the year, which comes to MXN 259.5 million after interest. Results for the second quarter of 2026 compared to the second quarter of 2025. In the second quarter of 2026, housing revenues came to MXN 2.24 billion, a 12.3% growth over the same quarter of last year. These revenues corresponds to 1,549 title homes, which comes out at an average price of MXN 1,446,000 a 17% increase over the average price reported for the second quarter of 2025. The revenue growth was mainly by the residential and middle income segment. First in the residential segment in the second quarter of 2026 came to MXN 675.8 million, rising 64.5% over the same period of 2025. While in the middle income segment, revenues totaled MXN 1.1 billion, 24.9% higher. Affordable entry-level sales reached MXN 461.2 million, declining 34.1%. Revenues from other real estate projects, mainly from the sale of land and shopping center leases totaled MXN 71.7 million and dropped 12.1% from the second quarter of 2025, primarily due to lower revenues from the sale of commercial land. Looking at the revenue mix in the second quarter of 2026, affordable entry level homes contributed 20%, middle income home 47.7% with the range of 29.2% of all the real estate projects 3.1%. In the second quarter of 2026, operating income came to MXN 190.3 million with margin of 8.2%. Net income was MXN 162.3 million with a margin of 7% and EBITDA was MXN 292.3 million with a margin of 12.6%. In the second quarter of 2026, we generated positive free cash flow totaling MXN 360.4 million. Financial position [indiscernible] 2026. The positive generation of free cash flow enabled us to close the first half with a balance of cash and cash equivalents totaling MXN 2.19 billion, 4.4% more than the balance at the close of last year. Accounts receivable ended the second quarter of the year at MXN 563.4 million, 20.6% lower than on December 31, 2025. Account receivable to number was [23.6] [indiscernible] amounted to MXN 19.78 billion, a 2.1% increase over the growth of the previous year. As of June 30, 2026, cost-bearing debt totaled MXN 2.52 billion and declined by 5.2% from the balance reported as of December 31, 2025, attributable primarily to the payment of straight unsecured loans. Short-term maturities, meaning debt coming due in the next 15 months, made up 65% of our cost bearing debt and long term debt 35%. As we have mentioned on other occasions, we are working on rolling over the [indiscernible], which expired at the end of November this year. As of June 30, 2026, 67.3% of our cost bearing debt was in the form of the ARA 21-2X and ARA 23X notes, 11.6% were simple secured loans for our shopping centers, 11.6% were simple unsecured bank loans without real estate collateral and the remaining 9.5% were lease liabilities. Net debt at the close of the second quarter was positive by MXN 326 million. The operating constraint of Consorcio ARA is also reflected in the growth of its EBITDA in the last 12 months to MXN 1.24 billion nearly 17% above its comparable year-earlier level. With this performance, we closed June 30, 2026 with a solid financial structure and very healthy leverage, reflected in a net debt to EBITDA ratio of just 0.6x and a cost bearing debt to EBITDA ratio of 2.03x. With this ratio on coverage of net interest, meaning interest expense less interest income, it could be 7.52x. Housing industry performance. According to Mexico's National Institute for Statistics and Geography, as of May 2026 in annual terms, industrial activity showed no change. The construction industry as a whole slowed 0.6%, while the building subsector, which includes housing and industrial base declined by 3.3%. According to data from the Unified Housing Registry Group, in the first half of the year, 272,685 homes were registered. A significant 198% increase over the same period of the previous year driven primarily by the registry of homes under the federal housing program and 66,130 homes were leased, 7% higher in the first half of 2025. Regarding mortgage lending between January and April 2026, which is the latest information available. Based on data from the Ministry of Agrarian Territorial and Urban Development [indiscernible] or granted 54,710 homes for the purchase of new home an increase by 8.3% compared to the same period last year. These loans represented an investment of MXN 44.3 billion, 16.5% higher. The average price of a new home loan between January and April 2026 was MXN 811,000 more, a 7.5% increase compare to the same period of the previous year. For its part, granted 4,278 loans for new homes in the first 4 months of the year, 5.4% more than in the same period of last year. The investment in this totaled MXN 5 billion, advancing 21.9%. The average size of a new home loan granted between January and April 2026 was MXN 1.17 billion, a 15.6% increase compared to the same period of the previous year. As for commercial bank home financing, in the first 4 months of 2026, 27,529 mortgages were granted for the acquisition of new and used homes, a 2.2% reduction compared to the same period of last year and the investment in this totaled MXN 69.8 billion, 2.8% higher. The average size of a loan granted between January and April 2026 was MXN 2.53 million, a 5.1% growth compared to the same period of the previous year. In the first half of 2026, 58.7% of our revenues came from homes financed by Infonavit, 11% from Fovissste and the remaining 30.3% from commercial banks and homes purchased without financing. Shopping centers. Our Shopping Center division also continued to strengthen its operating and financial performance in the first half of the year. Revenues in the second quarter of 2026 totaled MXN 103.7 million, a 7.1% growth over the same period of 2025, while net operating income came to MXN 93.5 million, 1.7% higher. Revenues in the first half of the year rose to MXN 277.4 million, up 7.8% over the first half of last year and net operating income totaled MXN 190.4 million, a 6.4% year-to-year increase. These results correspond to shopping centers that are 100% owned by ARA and are consolidated into our financial statements as well as 50% of Centro Las Américas and Paseo Ventura, according to our stake in those properties, which are entered under the equity method. Total gross leasable area in our shopping centers and in Uni and Mini shopping centers stands at nearly 312,000 square meters. The occupancy rate as of June 30, 2026, was 94.1%, a level which confirms the appeal and position of our assets within the market. Dividends. It is worth noting that Consorcio ARA is known for its capacity to generate cash flow, which has allowed to maintain a policy of dividend payment, which is commendable given the investment intensive nature of our industry. Yesterday, the dividend declared in the April General Ordinary Shareholders Meeting was paid out, totaling MXN 200 million, equivalent to 22.1% of 2025 net earnings. The per share dividend was around MXN 0.16472, a yield of 4.4% on the stock price at the close of 2025, which was MXN 3.74. This dividend was paid out from the net fiscal earnings account as of December 31, [ 2013 ], which means it was not subject to tax withholding. Renewal of market maker contract. On July 3, we renewed our market maker service contract, which we signed in June 2019 with BTG Pactual. This contract will help continue supporting the market liquidity of ARA shares. Annual and Sustainability Report 2025. We invite you to view our 2025 Annual and Sustainability Report, which is available on our corporate website. In addition to discussing ARA's financial performance, the report covers our corporate governance, sustainability, ethics and transparency, the quality of our products and services, the ARA Foundation and our commitment to the environment. It has been prepared as recommended by the Global Reporting Initiative 2021 standards under in accordance reporting option. It also incorporates indicators from the Sustainability Accounting Standards Board of the IFRS Foundation, specifically those relevant to the real estate and homebuilders industry. Conclusion, we currently have 46 active projects in the various markets where we operate. In this third quarter, we will begin construction on 2 projects in Mérida, marking ARA's entry into a new market and a significant step forward in our growth and geographic diversification strategy. Positive developments are expected to generate the first cycle transfer sometime in the first quarter of 2026. The consistent results over the past 6 quarters were increasing confidence that we will achieve the target set at the beginning of the year. In the second half of the year, we will continue to concentrate on the disciplined execution of our strategy and on meeting the goals set for 2026, while maintaining our focus on profitability, cash flow generation and value creation. Thank you, and we will now move on to the question and answer.

[Operator Instructions] The first question from the audio lines is from Mr. Carlos Alcaraz from Apalache Research.

I have 2 of them. The first one is what pace of home sales do you expect for the Tijuana project? And when do you estimate that the mix of affordable entry-level homes as a percentage of units will stabilize? And my second question is regarding the 2 new projects in Mérida. What is the initial investment amount in this place? And what are you currently seeing in Mérida that is prompting you to enter that market?

Okay. Well, thank you, Carlos. Yes, as we mentioned, we are -- we opened a new project in Tijuana is to serve the affordable entry-level segment. It's already in operations with title delivering having commenced in early July. It's a very -- it has been a very good market for us. And for this second half, we expect to title around 400 homes in this project. So it's going to be significant in this second half. And as we mentioned in the previous conference call, we expect mainly in this second half of the year, we expect to see a recovery in the affordable entry-level segment to be at the end of the year around 28% to 30% of our revenues. And your second question, well, we are very happy to enter -- it's our first entry to this market in Mérida. As you know, Mérida has a very good demand of housing. These projects are also for affordable entry-level segment. An important aspect is that it's our first project with a land contribution scheme or joint venture, whereby the land is provided by the landowner. This approach is very favorable from a working capital perspective. So the investment is not going to be significant because we are not buying the land. That's very positive for our cycle. The master plan is around 650 units. I mean it's smaller than the projects that we usually have for this segment. And that's what I can tell you about Mérida, Carlos.

Okay. This 650 units is about 2 projects, right?

Yes.

Our next question is from Mr. Anton Martin Cotter from GBM.

I'm sorry, I'm not sure if this was related to the prior question. But in the reports, you mentioned that during this quarter, you had some costs related to houses that you haven't titled yet. Is it possible if you could provide maybe a number or some figures related to what the impact of titling those house could be reflected for the next quarter's EBITDA?