Fibra Shop (FSHOP13) Earnings Call Transcript & Summary

Good morning. My name is Patricio Villasenor, ESG analyst at Fibra Shop. I would like to welcome everyone to Fibra Shop's 2025 Third Quarter Results Conference Call. Please note that this call will be recorded for documentation purposes. By remaining on the call, you consent to the recording. Since the last 2 quarters, our conference calls have been conducted via Zoom, allowing us to present the results on the screen. Fibra Shop issued its earnings report yesterday. If you did not receive a copy via e-mail, please do not hesitate to contact us at [email protected]. I would like to remind you that forward-looking statements made during this conference call do not account for future economic circumstances, industry conditions, company performance or financial results. These statements are subject to several risks and uncertainties. All figures presented have been prepared in accordance with International Financial Reporting Standards and are stated in nominal Mexican pesos, unless otherwise noted. Joining us today from Fibra Shop in Mexico City are Gabriel Ramirez, Chief Financial Officer; Irvin García, Controller; Mary Carmen Hernandez, ESG and Investor Relations; and myself. Now I will turn the call over to Mary Carmen. Please begin.

Thank you, Patricio. Good morning, everyone. Before I begin, I would like to highlight Salvador's message for this conference. This quarter, FibraShop reinforced its position as one of the most solid and diversified retail REITs in Mexico. Our strategy remains on core in 4 pillars: economic analysis, sustainability, financial discipline and value creation for investors. During the quarter, we released our 2024 annual sustainability report, reaffirming our commitment to energy efficiency and responsible management. For the first time, this report includes a macroeconomic and regional analysis, offering investors a broader view of the conditions shaping our portfolio's performance, particularly nearshoring trends, strong domestic consumption and form of employment in Fibra Shop's operating regions. Financially, we closed the quarter with revenues of MXN 656 million, reflecting the resilience of our tenants and the efficiency of our asset management. And based on this solid performance, the technical committee approved dividend of MXN 0.1727 per certificate. Now let's move on to relevant events. In line to our ongoing commitment to transparency and strong governance, several relevant events took place this year related to the trust structure. On July 1, CIBanco was removed as trustee. And 2 days later, Banco Actinver was appointed as our new trustee. The formal signing occurred on July 21 and the modification was filed with the National Securities Registry on October 13. This ensures that Banco Actinver is now fully recognized by regulators, guaranteeing legal operational continuity for Fibra Shop's trust. In simple terms, these changes reinforce institutional confidence and align our governance framework with the best practices in the Mexican capital markets. Let's move on to our financial -- to our refinancing strategy, one of the most relevant milestones of the year. We announced and executed a comprehensive refinancing plan aimed to strengthening our debt structure, extending maturities and enhancing flexibility. The plan included a MXN 700 million bond issuance with a 5-year term and MXN 6.6 billion syndicated loan. Considering the new debt structure, the leverage level remains below 40%, placing it at even stronger levels than those observed in 2019, pre-pandemic. As a result, 3 key objectives were achieved: extend the maturity profile, eliminate the concentration of maturities on specific dates, improve financial conditions in terms of rates, guarantees and flexibility. In this context, Banco Scotiabank proposed increasing the revolving credit line from MXN 220 million to MXN 280 million for an additional 3-year term, reaffirming its confidence in FibraShop's financial strength and performance. Meanwhile, Banco Mifel granted a simple loan for MXN 100 million with a 10-year term, aimed at supporting operations and strengthening the trust's liquidity, thereby consolidating its long-term relationship with the institution. As for our next steps, we are considering the reopening of the FSHOP 25 U bond for an approximate amount of MXN 1.2 billion with the purpose of repaying the revolving credit line, strengthening FibraShop's financial structure and reinforcing investor confidence in the portfolio strength and performance. Overall, these measures reinforce our balance sheet and our ability to seize new opportunities without compromising financial discipline. Now turning to our economic analysis, which we incorporate this quarter for the first time. We analyze the 11 states where FibraShop operates to better understand regional dynamics, consumption trends and growth potential. Starting with a general analysis for 2025, Mexico's economy is expected to grow around 1%, supported by nearshoring stronger domestic demand and resilient labor markets, especially in the northern and Bajío regions. Inflation stood at 3.76% in September within Banxico’'s target and is projected to coverage 3.5% in 2026. The unemployment rate remains below 3% and gross fixed investment continues to show strength, growing 1.6% month-over-month in July with double-digit annual expectations. Altogether, this macroeconomic environment supports FibraShop's operational growth and stable cash flows. Now regarding to the regional study, let's look more closely at how these trends translate regionally. We categorize our portfolio into 5 regions. In the northern border region, states like Chihuahua, Sonora and Tamaulipas show a high industrial activity, a strong labor formality and solid demand in retail and logistics. Our properties like Las Misiones, [ Cd. Juárez ] and Galerías Mall Sonora directly benefit from this momentum. The Central Bajío region, including Querétaro, Guanajuato, and Jalisco continues to outperform the national average, driven by automotive clusters and advanced services. 7 of our 19 properties are in this region, including Plaza La Victoria and Sentura Zamora. These assets capture formal employment growth and middle to high income consumption. In the Central Highlands region, Puerta Texcoco, City Center Atizapán, and Plaza Atrios benefit from Mexico City's spillover demand and high population density. And in the Southeast, particularly Galerías Tapachula and Chiapas, we are seeing increase in commercial activity linked to cross-border trade with Guatemala, which boosts both formal and retail and tourism consumption. This geographic diversification is one of the FibraShop's greatest strengths, allowing stable performance even when regional conditions vary. Finally, regarding to the outlook for 2026, based on the City Mexico Economic expectations survey, projections for 2026 indicate an inflation rate of 3.75% GDP growth of 1.4% and an interest rate of 6.5%. This scenario points the greater macroeconomic stability and lower financial costs, strengthening FibraShop expansion prospects. Another major highlight this quarter was the publication of our 2024 annual sustainability report. In environmental performance, 45% of our total energy use now comes from clean sources with solar panels operating in 15 properties. We also updated our sustainable finance framework, adopting a hybrid structure that combines green, social and sustainability-linked criteria. S&P Global reviewed our goals and rated them as ambitious, particularly in energy efficiency and sustainable construction. On the social side, we invested MXN 18 million in programs that benefited more than 388,000 people while achieving 88% progress in directly hiring formally subcontracted personnel, improving wages, benefits and labor compliance. Finally, we conducted our first transition risk assessment, complementing the physical risk analysis begun last year. These efforts demonstrate that sustainability is not separate from profitability. A [indiscernible] to how FibraShop creates long-term value. Now let's take a closer look at our key financial indicators for the third quarter of 2025. Total revenues reached MXN 656 million, up almost 5% compared to the same quarter last year. This growth reflects stronger tenant sales performance, a stable occupancy across our portfolio and the successful integration of our new properties. EBITDA increased 1.6%, reaching MXN 478 million, supported by disciplined expense control and sustained operating efficiency across shopping centers. Our AMEFIBRA FFO, which represents the cash flow available for distribution rose 6.8% to MXN 170 million, showing consistent generation of recurring income. On the profitability side, NOI grew 1.65%, closing at MXN 496 million with stable margins above 75%, confirming the portfolio's operational strength. Lastly, our loan-to-value ratio improved to 39.2%. Altogether, the results confirm that FibraShop continues to grow steadily while preserving efficiency, stability and prudent financial management. With this solid performance as a foundation, let's now move on to how it translates into tangible value for our investors, specifically through our quarterly dividend distribution. Building on our strong operating results, we continue to regard our investors with consistent distributions. During the session of October 20, Technical Committee approved a dividend of MXN 110 million, equivalent to MXN 0.1727 per certificate payable later than November 10. This represents a 4.8% increase over the previous quarter's dividend and marks the fourth consecutive quarterly increase since 2024, reflecting both operational and resilience and disciplined capital management. As you can see from this report, at the end of this quarter, we continue to make progress towards achieving of our year-end goals. At this time, I would like to open the floor for any questions.

Please raise your hand. Yes, Armando.

Can you hear me?

Yes, we can hear you.

Congratulation on the results. So my question is considering the economic outlook that you mentioned, particularly from Citi. What should we expect on 2026 on the lease spread, particularly on the rental revenue considering this inflation rate outlook that you mentioned? And second question, what should we expect about the FFO margin considering also the interest rate that the outlook shows about 6.5% in the next year? That's my only 2 questions.

Thank you, Armando, for both questions. In terms of lease spreads, in average, the goal of FibraShop is to increase the the rents above the inflation around 1 to 2 points in average per year during the life of the contract. This is not changing the strategy for the next year. We recognize that the inflation rate goes down. And obviously, we have more space to increase basically the lease spread because in the past, we increased the rents with the highest interest inflation rate and the tenants paid it for the increments in the rents. But we try to consolidate the occupation rate in 96% across the board, the portfolio, including the new properties, including La Perla. And after that, maybe we try to increase the leases spread more than this 1% or 2%. Is it clear the answer, Armando?

Yes. Perfect. Very clear, okay. Thank you.

In terms of the FFO margin, the idea is to increase -- because we have increased the EBITDA in terms of the inflation, in terms of the occupancy, in terms of the new projects, for example, in Nuevo Laredo, the EBITDA in the next year is going up. Obviously, we have more spaces because -- in terms of FFO because interest rates goes down. The idea is basically goes or try to stabilize more close to 35% to 40% of margin FFO with both combination of 2 effects, the increase of EBITDA and the stabilization in the new level of the interest rate of the cost of our debt.

[indiscernible] please.

The first one is related to the renewal contracts that you have in Las Misiones. If you can give us a little bit of an update because 25%, if I understood correctly, in the report, is due to 2025. So I was wondering if you can give us a little bit more of color of what is the stage of the renewals contract on the tenant side? And my second question, it's -- probably you cannot give us guidance. But if I remember correctly, in the first quarter of this year, Gabriel, you mentioned that one of the goals or the long-term goals is to increase the NOI of La Perla. So looking ahead, because if I remember correctly, it was a target at least from -- and correct me if I'm wrong, from the first part of the 2026, what can we expect on this increased NOI in La Perla?

For both questions, too. In terms of Las Misiones, we have a lot of contracts that expire the end of this year and the next year. That is basically the cycle of when I buy the property and [ unbound ] the property with original maturity of the contracts. We are very advanced in the renegation. We don't have -- we don't see any problems to renew the lease contracts. And we see more appetite in the property for biggest brands. And there is asking some brands for more square meters to lease. And we don't have any -- we don't see any problem in the renewal of the Las Misiones property. Is it clear?

Yes. Thank you.

And the other is the NOI of La Perla. That is basically the question. The idea of NOI of La Perla is continuing to increase. We have some 3 biggest spaces in the property today there is a viable, basically at the back of the property in the second and 3 level. And in the front of the property, we have 2 biggest spaces that we are very close to rent and that the idea is to increase the NOI of La Perla. If you see the NOI of La Perla mall stabilized for MXN 460 million per year is more the stabilization of La Perla in terms of NOI.

Just a clarification. You mentioned MXN 450 million or MXN 60 million?

MXN 460.

[indiscernible]

My question is regarding the cash distribution. We have seen a recovery in the last few quarters. What can we expect for the coming quarters and particularly this year, considering that you will start the development of the new project in [indiscernible] .

If you see the last distribution that is 70 -- approach 70.3% for certificate. If you analyze that, it's very close to MXN 0.07 year, if you analyze this looking forward. The idea is to increase that if you have the total next year more close to MXN 0.80 to MXN 0.85 per certificate. And we said in past quarter results or comment of resort, if you put the last quarter of the next year and analyze is more close to MXN 1 per certificate. That is basically the goal to increase quarterly by quarterly to go to that levels.

Any more questions? Nobody? Okay. That concludes our Q&A session. Thank you all for your time and for joining us today. If you have any further questions, feel free to reach out, and have a great day. Thank you very much.

Thank you for the call. Gracias, Gabriel, Mary Carmen, Irvin.