Fibra Danhos (DANHOS13) Earnings Call Transcript & Summary

Good day, everyone, and welcome to today's Fibra Danhos' First Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Rodrigo Martinez, Investor Relations Officer. Please go ahead, sir.

Thank you very much, Paul. Hello, everyone. I am Rodrigo Martínez, and I run Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos' 2025 First Quarter Conference Call. We issued our quarterly report yesterday. If you did not receive a copy, please do not hesitate in contact us. Please be aware that they are also available on our website and in Mexico Stock Exchange website. Before we begin the call today, I would like to remind you that forward-looking statements made during today's call do not account for future economic circumstances, industry conditions and company performance or financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance to IFRS standards and are stated in nominal Mexican pesos unless otherwise noted. Joining today from Fibra Danhos' in Mexico City is Mr. Salvador Daniel, CEO of Fibra Danhos; and Mr. Jorge Serrano, CFO of Fibra Danhos. Now I will turn on the call to Jorge Serrano for opening remarks and financial and operating indicators. Jorge, please go ahead.

Thank you, Rodrigo. Good morning, everyone. Thanks for joining us today. I will share some initial remarks on a solid quarter for [indiscernible] with a 14% growth explained by improved occupancy levels, indexation of lease agreements and a full quarterly contribution from Cuautitlán I Industrial Park. Overage and parking revenues increased by almost 9% based on strong sales from our tenants and high affluence on our properties. Consequently, total revenue during the quarter increased 12% year-over-year, while operating expenses posted increases of 7% and resulting on a double-digit growth on net operating income and EBITDA. Together with margin improvements, AFFO per CBFI with economic rights, accounted for MXN 0.67. Distribution was determined at MXN 0.45, resulting on a payout ratio of 67%. Occupancy level on our portfolio increased 300 basis points year-over-year, reaching almost 90% while maintaining positive renewal rates with existing tenants. As of today, we have managed to renew an important percentage of GLA that was to expire this year. Actually, early this second quarter, we extended 34,000 square meters for an additional 10 years in one of our properties, and we are about to sign 18,000 square meters more in the coming days. On our CapEx pipeline, progress has been achieved at Cuautitlán II and Palomas industrial projects that will be delivered in the coming months and thus generating income this year. We have also announced a third industrial project through a JV with a nonrelated partner in a great location within the logistic corridor close to Mexico City. We are working on the planning phase of our retail development at Oaxaca, which has generated interest and enthusiasm among our commercial partners and working as well on our Nizuc project, which is ready for construction. Balance sheet remains strong with only 12.2% leverage. Fitch ratified a AAA rating for Fibra Danhos and our debt bond issuances. And also, we recently refinanced some of our credit line facilities, achieving improved terms and tenor extension. Thanks, and we may now turn to the Q&A session.

[Operator Instructions] And our first question comes from Juan Ponce of Bradesco BBI.

Regarding the industrial markets you are focused on, how do you view the availability of land suitable for building, specifically land with the necessary infrastructure such as energy? Are there any investments that you may need to do? And in the same line, could you also remind us of the yield on cost for your industrial development projects?

As you know, we're basically doing this portfolio inside Mexico's area, and it's around logistics to achieve and to contribute to the Mexican market basically. Land is difficult to consolidate and that's why we're happy with what we've been able to achieve. The land we already have has all the services. They have electricity and water, everything available. And the yield on cost is around low teens. So I think the market is there, and we've seen a lot of interest for clients for this type of project.

Our next question comes from Jorel Guilloty of Goldman Sachs.

So I wanted to first ask about Industrial. I wanted to get a sense of your appetite to further expand into the sector, given that Mexico industrial real estate -- Mexico City industrial real estate experienced a moment of high demand. So is it your view that you go beyond, I believe, the 150,000 square meters that you're developing now and you can expand materially further? And if so, what time frame could we potentially see that occurring? And then the second question, just wanted to get a sense of how you're currently seeing the consumer on a go-forward basis? I mean there are concerns that there can -- or will be a slowdown in Mexican macro going forward. And I just wanted to get a sense of how you view the consumer going to your malls. I mean it is differentiated you are focused on Mexico City and malls. But wanted to get a sense of if you expect robust sales going forward? Do you expect a bit of a pullback? How do you see it?

I mean in terms of the industrial project, we basically just finished Cuautitlán I, which are around 210,000 square meters. We announced last trimester Palomas, which has a potential of 250,000 square meters. And we just announced the project, which is around 400,000 square meters, all around the same area in terms of logistics and attended Mexican market. And we feel that's a good way and a resilient way to go against the new possible tariffs and implications that we will have in the market. So we feel Mexican market is going to be strong either way. That will answer also you the part of the consumer price. But we've seen over the last many, many years, it's every time that there's a slowdown on the economy, people -- they basically stop spending outside Mexico City, but they still spend inside Mexico City. So we expect the economics of our shopping malls to at least stay or even grow. So we're on the positive side, and we feel we have a resilient and very strong projects, very well known, and that they will be able to achieve the way they've been doing.

Our next question comes from Gordon Lee of BTG Pactual.

I actually have 3 questions actually on the industrial side. And the first one is a follow-up to the answer you gave earlier on the yield on cost in the low teens. I was wondering, is that something that we should think about as a dollarized yield on cost or a peso yield on cost? In other words, are you renting in dollars or pesos? Obviously, I know there's -- historically, logistics tends to be more peso linked, but just given the scarcity of your properties, some tenants are having to take dollar contracts. So I was wondering what you -- how you think your properties will be rented in the long run? And then the other 2 questions I had is, the first one is -- and they're related. Do you intend to keep the industrial portfolio within Danhos over the long run? Or do you expect to eventually create a separate vehicle to house industrial? And then the final question is if you do intend to keep it within Danhos, how large do you think it could become as a share of the total?

In the logistics, as you know, some of them are pesos and some of them are dollars. We want to do both, depending on the price we were able to get. There's basically not an issue for us. We feel we can get both, and we will try to negotiate the best deal in terms of either pesos or dollars. And in terms of what we're expected to do in the future, we basically feel we'll still have a long way to go. We haven't decided what we want to do. Right now, we're not talking about deducting the industrial assets from Danhos. And I think we don't even have the size to even think about that today. And on what size we are going to go into the industrial park? It depends on the market. As you know, in Danhos, we basically are worried about having good deals, giving growth and value to the Fibra. And we feel the market is still there, we might grow bigger. If we feel the market is going other way, we will move on to other ways. That's the way we've been doing it for over 50 years being private and public, and that's the way I think we should do it.

Our next question comes from Alejandra Obregon of Morgan Stanley.

I have another one for the industrial portfolio. I would like to understand the nature of the JV that you just announced. And I know that you might not be able to provide any names, but how will it work? Are you partnering with a developer? Is it a tenant? Is it a fund? And when you think about the joint venture, will you share the economics for the CapEx, for the operation, for -- how will it work? And how should we think of it? And I mean going forward in the future, if you're still planning to grow in this space, is it joint ventures the way you're thinking about it? Or is it just going solo in the future? And if you can provide some color on the timing as well, that would be very helpful.

We do this partnership with basically a family fund -- big family fund, in which we basically have full control of the development and all the decisions. And in the -- we expect this to be -- to start being developed by the third trimester this year. We basically finishing all the licensing and all the permitting to do so. So that's basically on that. We're not able to provide still the name. Probably in the future, we'll do it. But today, we're still not able to do so. And we feel very comfortable with them. If we're planning to go with them or without them and on the deal we get. This deal, I think, has very favorable conditions for the Fibra. And if we're able to achieve the same conditions in other deals, we might do it with them or not. That's the only thing I'm able to tell you today.

Got you. And perhaps a follow-up, is it a 50-50 joint venture? And is this family fund a related party? Can you provide some color there?

It's not a related party. And it's a 50-50 joint venture, yes.

Our next question comes from Adrian Huerta of JPMorgan.

Just if you can give us an update on the -- on your office portfolio. You mentioned a couple of leasing activity, 34,000 in the second quarter and another 18,000. Is that in the office? And if you can just tell us a little bit more on the expirations that you have for the office portfolio and on the vacant GLA that you have, if you see any hopes of that to be leased at some point this year or not?

We've been able to negotiate the -- our core clients portfolio, basically 2 big clients we have. Those deals are basically done, one signed and one to be signed in the next week. And that's basically keeping our clients with us. Those 2 deals are around 50,000 square meters. And in terms of having new clients, we have a lot of them. We have a lot of inquiries for the office spaces. I think we're going to be able to do some deals. As you might know, there's someone holding up a little bit a couple of months just waiting to see what next in the U.S. Mexican trade deals or whatever. But I feel we -- the market is moving in a good way, and we expect to do good signs this year.

Those 50,000 is for offices, right?

Those 50,000 and yes, they're offices.

And any color on the terms versus the previous contracts that they had? Are they are with higher rent in U.S. dollar or basically flat? Anything else that you can share with us?

They're probably the same, just to renew.

[Operator Instructions] And our next question comes from Mauricio Buitrago of AM Advisors.

My question has been already answered, but maybe I can ask you about the office lease spreads. Maybe you can provide some information regarding that, please.

We have been posting very positive lease spreads, especially on a retail portfolio. As you know, given the locations and characteristics of our shopping malls, there's very interesting demand. So lease spread was 10% on our retail properties and 7% overall. This including the office spaces. So yes, I mean, we've been facing very positive demand and being able to increase rents when contracts expire above inflation. So we expect that to continue. And you can see that has been the trend in the last couple of quarters.

Our next question comes from Gordon Lee of BTG Pactual.

Just a quick follow-up on the industrial JV in Estado de México. I was just wondering -- just to confirm, will you be managing the development and managing the property once it's completed? And will you collect fees from the joint venture partner for the development and the property management? Or will you pay fees? What's the structure in terms of who manages and who pays what to whom?

We manage it and we control it. And there's some fee into that for us.

For them to you. Okay. All right. Perfect.

Yes.

And it appears that we have no further questions at this time, this does conclude today's Fibra Danhos' First Quarter 2025 Conference Call. Thank you for your participation. You may disconnect at any time.