Fibra UNO (FUNO11) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Fibra UNO's Q4 2021 Results Call on the 25th of February 2022. [Operator Instructions] So without further ado, I would now like to pass the line to Mr. Andre El-Mann, the CEO of Fibra UNO. Please go ahead, sir. The line is yours.

Thank you, Michael. Thank you, everybody, for your attention to this call of the fourth quarter of 2021. We are very excited about the results posted this very week in which we surpassed all of our records. We have record high in NOI and NOI per share, record high in FFO and FFO per share and record high in income per share and income overall. We are sailing through the cycle. We knew that this could happen. We've been very vocal about it. And we said that this business is very cyclic, and we know how to sale through the cycle. We are very happy to say that all of our intentions and all of our previews of what could happen were correct. And I think that the decisions we've made in the past, today have paid off. I think that we are now seeing the light at the end of the tunnel. We are sailing through the end -- we are seeing near the end of the pandemic. We expect that this year will be out of it completely. And we are seeing that the new properties are chipping in our income line and these are the properties that are helping us achieve the record that we -- that I told you earlier. Our stream of cash looks very strong for this year. We still have work to do on the occupancy I think that we will enhance the occupancy this year, and this will obviously be reflected in the results of this revenue. On the side, we would like to say that we are doing all the efforts, and we are doing our homework in order to maintain the increases in the rent in order to recover the growth in the run rate that we were expecting a few years ago. We saw this paused by the pandemic, but we expect to return to the growth path in this very year. As you know, the inflation is a very interesting topic nowadays. The cost of the construction have had in our case, minimum impact in our development. This is due to our conservatism. We decided to signed contracts for all of our constructions on a close price and these have gave us certainty in the amount of the cost of our constructions. So we are receiving the last batch of the development that we are doing. We are still working on Tepozpark. We are still working on bio-oriented, and we are still working on Valle Oriente and we are still working on Satelite to mention a few. And all of them have a close price. So I think that we are very ready to continue with our development without any impact in the increase of the cost of construction that we are all aware about. All of our leases are linked to inflation. So we expect to continue the -- with the lease spreads that we have enjoyed in the past, in the next coming years. We are very sure that we will reach and we will have all the inflation, and we will have positive lease spread in all our sectors. We still are very confident in the diversification -- we know that the results that we delivered are in part for that diversification. Before I pass the mic to Jorge to go into the numbers, I just like you to know that none of these would have been possible without the hard work and the effort of all of our teams. So I would like to recognize that all of our team gave their heart out for the company, and the results are there for that effort from which I am very grateful for all of them. I would like now to pass the mic to Jorge to go into the numbers. Thank you very much.

Thank you very much, Andre. Thanks, everybody, for joining our quarterly call. I will now go as usual through the quarterly MD&A. I'll start with the revenues. Our total revenues after COVID-related support increased by MXN 422 million to reach a record of MXN 5.8 billion, that's almost 8% above third quarter of 2021. The growth is mainly attributed to increase in variable rents. As you know, the fourth quarter usually is a quarter in which we receive a little bit more variable rent than in other quarters, increasing the occupied GLA of the overall portfolio of 20 basis points. The rent increases of active contracts where were reflect a higher or a pickup of in inflation that we are seeing, cancellation of reserves of MXN 21 million, offset with credit notes, which in the end resulted in the net reduction of revenues of MXN 60 million and the exchange rate depreciation in the effect of U.S. dollar rents. In terms of occupancy, I'd like to highlight that we reclassified 6 office buildings as business parks. This is basically offices that are constructor built in industrial park areas and have a cost of construction that is more similar to an industrial warehouse rather than a traditional high-rise office building in a corporate corridor. So this reflects more accurately the mix of our portfolio. Total operating portfolio occupancy at the close of the fourth quarter '21 was 92.2%, an increase of 20 basis points. The industrial portfolio was 95.7%, 30 basis points below third quarter of '21, mainly due to the inclusion of the business parks subsegment that we just mentioned. The retail portfolio was 89.4%, a 20 basis points below the third quarter of '21. The office portfolio was 75.4%, 100 basis points above. This is mainly due to the aforementioned reclassification of the business parks as well as improvements in occupancy in some of the office buildings. The others portfolio recorded 99% occupancy, 10 basis points above third quarter of [ 29 ]. In-service property went from 86 to 100, which is almost 14% increase, basically because of the exit of Torre MA me, which is now in the operational portfolio and no longer considered an in-service property. Operating expenses, property tax and insurance, we saw an increase of MXN 220 million, almost 47-- a little over 47% increase compared to the third quarter of '21, which is mainly due to 3 factors: seasonality of expenses, which tends to be higher towards the end of the year. The recognition of expenses that were deferred in negotiation with some of the suppliers during the pandemic. And obviously, we have an increase in revenues, and there is an associated increase in expenses, if you look at our margins, it remains more or less stable where it was in the prior quarter. Property taxes remained stable at MXN 150 million, insurance expenses increased marginally 0.8%, so basically stable. All of this led to, again, a record net operating income of MXN 4.6 billion, an increase of MXN 248 million, almost MXN 250 million quarter-over-quarter. The NOI margin calculated over rental revenues was 87.3%, as I mentioned, stable within our historic levels of the average of where we have been operating and over total revenue of 79.1%. Moving to interest expense and interest income. We had an interest and decrease of MXN 51 million, minus 2.8%. And due to interest expense capitalization and the exchange rate depreciation from MXN 20.49 to MXN 20.58. This all led to an FFO record again increased by MXN 317 million, 14.3% compared to the previous quarter to reach a record of MXN 2.5 billion. Adjusted FFO increased slightly higher given that we sold property, basically the hospital that we developed at Galerias Valle Oriente was sold at a 30% premium to net asset value, and you can see the increase in the FFO related to the sale of this hospital. If we look at FFO and AFFO on a per CBFI metrics, again, we saw record of MXN 0.6681 for the FFO MXN 0.6935 for the AFFO, which implies increases of 14% and 18% when compared to last quarter. I'd like to highlight that post quarter close, we repurchased an additional 20 million shares. And today, we have 3,779 billion shares outstanding. In terms of accounts receivable, another highlight of the quarter is a decrease of MXN 370 million, almost MXN 369.7 million almost down 14% compared to the previous quarter. This is without considering reserves related to the COVID-19 provisions for doubtful accounts. So a net decrease -- significant net decrease in accounts receivable. In terms of investment properties, we saw a very moderate variation quarter-over-quarter of 1.5%, normal progress in construction of projects under development, CapEx invested in our stabilized portfolio and fair value adjustments for MXN 1 billion in the properties. In terms of net debt, we finished the quarter with MXN 121.6 billion (sic) MXN 129.6 million , this variation, the increase is mainly due to increase in bilateral lines of credit of MXN 4.3 billion, plus MXN 500 million related to Mitikah. We prepaid our bond for MXN 8.1 million issued 2 new sustainable -- sustainability-linked bonds for the MXN 2.9 billion and MXN 5.2 billion respectively, for a total of MXN 8.1 billion and obviously, the exchange rate variation of MXN 20.49 to MXN 20.58 per dollar. All of this resulted in an equity increase of MXN 2.1 billion, 1.3% compared to the previous quarter. This is a result obviously, as I mentioned, net income generated in quarterly results. Derivatives evaluation, shareholder distribution related to the third quarter results and the provisions for the executive compensation plan. Moving to the operating results. Looking at the leasing spreads, without considering the effects of inflation, we saw an increase of 560 basis points in retail, 550 basis points in industrial and a decrease of only 100 basis points in the office segment. As you know, we had increasing and high inflation especially towards year-end. So when we compare this leasing spreads to inflation, we had -- we're flat in the retail segment, a 10 basis points negative in industrial and 6.6% negative in office. For dollar-denominated leases, we saw rent increases in dollars of 5.2% in the office segment, 1.9% in the Industrial segment and 0.6% in the retail segment. Considering the leasing spreads, with inflation, we only saw 80 basis points in the office segment, minus 250 -- sorry, minus 80 in the retail segment, minus 250 in office and minus 380 in retail. It's important to mention that there is a lag of approximately 1 year between the time when we record the installation we're seeing today of close to 7% or 7.5%. And you see that fully reflected on 100% of our contracts. But we would expect to see that inflation reflected 100% of the [indiscernible] contracts as the year goes by. In terms of constant properties, rental price per square meter increased almost 5% compared to the annual weighted average escalation of 5.6%. Looking at subsegments. The portfolio's total annual rent per square feet moved from $9.4 per square feet per year to $9.6 or 2.2% increase mainly due to a reduction of COVID related release, the increase in both current contracts and some renewals as well as recovery in variable rent component. Total NOI at property level for the quarter increased 15.4% compared to the previous quarter's, variations mainly due to the following industrial segment, logistics increased 8.1% light manufacturing increased 14.3%. In the office segment, the NOI decreased 10%, mainly due to the reclassification of business parks the execution of the GLA of this business parks. In the retail segment, the stand-alone segment increased 2.7%. Fashion Mall and regional segments increased 10.9% and 18.6%, respectively. And in the other segment, we saw an increase of 60%, mainly due to the seasonality of variable rents related to hotels in the quarter. With this, I finish the discussion of the financial and operational results. And Michael, if we can please open the floor for Q&A.

[Operator Instructions] Our first question comes from Mr. Nikolaj Lippmann from Morgan Stanley. Once again, Mr. Nikolaj Lippmann, your line is open. Please go ahead. He will come back shortly. In this case, we will take the next line for Ms. Sheila Mcgrath from Evercore.

The AFFO sequential gain was significant, and we understand the gain from the hospital. I was just wondering if you could help us understand which newer developments were the bigger contributors of the pickup in results in fourth quarter.

I think we have plenty that are contributing now that were not contributing earlier. You can name /La Teja, which is Tepozpark, also Mitikah is also contributing -- starting to contribute to our final line. And actually, the profit from the sale of the hospital was not that much. We've posted in the past, larger amounts of profit for sales of the buildings. For us, the important thing is the rent. And the rent is coming strong right now. We have recovered the occupancy almost fully in the retail. Of course, we all know that the industrial sector is hot, but we are also trying to maintain the occupancy. And now we have seen signs of increasing the occupancy on the office space. That is the main driver for the FFO and also the NOI to become so strong.

Okay. And just one more question. On the hospital sale, was that always anticipated as a plan? Or was that just opportunistic? And if you could give us any detail on the cap rate on that transaction, that would be helpful.

Well, there's no cap rate because it was not leased before we sold this. When we agree with the hospital operators, if you recall in the last call, in the third quarter, we talk about the conversion of almost 1 million square feet of office space to hospitals. In order to achieve that, we went with 3 different operators in my opinion, the best operators of the country in that segment. And 1 of them took 2 hospitals and 2 clinics, but he wanted to buy it. So we agree with him to sell 1 of them, 1 of the hospitals to his company and the rest then [indiscernible]. So I don't know if I heard something, but I'll continue. And that's the reason why we sold the [ Monterrey ] hospital to this company.

Our next question comes from Ms. Vanessa Quiroga from Credit Suisse.

Congrats on the results. I have a follow-up question on the hospital sales. Is it possible to have the name of the operator that acquired? And then if you have more of these on the -- on your pipeline on your sales pipeline? Or can you give us some details on what is there in the sales pipeline? And then also curious on which tenants led to the improvement in occupancy in Torre Mayor? And in general, what you are seeing in terms of occupancy demand in your shopping centers and the office buildings?

Okay. First things first. Right now, I will not disclose the name of the buyer, but I'll make sure that my team get back to you with that. After that, the Torre Mayor...

And Torre Mayor, actually, right now, we have on the market, a large potential tenant that will be taking 10,000 square meters at Torre Mayor and that same tenant probably will be taking around 20,000 square meters of back office, and we are trying to put him into Centrum Park. Obviously, he is open on the market. So we are not the only bidders but we are doing our best to kick in our buildings. And for him, it's really important to be in the reformer corridor. So it looks like it will be end on Torre Mayor or Satelite, we don't have space in Torre Diana, but will be also an option for him.

Okay. Okay. No, that's very interesting and good to hear. I think also in the fourth quarter, there was an important improvement in general in occupancy for office. I was wondering, I saw that 1 contributor has been Torre Mayor, but maybe -- it was only Torre Mayor I mean what led to the improvement in office in 4Q? And besides this tenant that wants to be under form, what else you are seeing in terms of demand for office?

Before turning to the market trends, if Gonzalo has further comments, just 1 comment, Vanessa, the reclassification of the business parks into the Industrial segment. For example, Centrum Park used to be in the office and now is in the industrial sector to name 1 Queretaro Park 1 and 2 to name other industrial park building type offices. Those were taken out of the office segment and included in the Industrial segment. since in particular, Centrum Park has a higher vacancy than the average, that looks like an increase in the occupancy in the office sector, but the increase was really -- margin was more due to the fact that we changed those buildings to the industrial segment. And I don't know if you want to have additional comments on what you're seeing in terms of demand in the market for new space.

Vanessa, what I would say in terms of the trends of the office market, I would say that we already touched bottom and from now on, we will just be seeing higher occupancy on our buildings. Obviously, I mentioned the largest 1 that it's on the market. And obviously, everyone is wanting, but I think that due to the quality of our buildings and the track record that we have had with this tenant and some other assets it looks like we will be keeping him. What we are seeing already a trend of getting requests for proposals from different sizes of tenants. This is mainly due to people that have already expired their leases in some other buildings. They are testing the market and finding out if they are going to be able to move to a better building for the same price or taking advantage of the move of the market as of today. But we are seeing much more activity, I would say, 3 or 4x more activity than what we saw in the third quarter of 2021.

Also having account the size of the portfolio, it's very difficult to pinpoint a particular name or particular tenant that will move the needle. I think that at Gonzalo says, we are seeing a lot of activity on across the board. And we expect for this year to improve on our occupancy.

That's great. Just one thing, can you tell us the sector of these potential payments?

They are pharmaceutical, financial, industrial, services, services all across the board.

The next question comes from Mr. Johan Macedo from UBM.

My question is regarding the uptick in retail assets in the quarter. Was it mostly due to variable rents coming in, in the quarter? Should we consider it a normalized level or could you give us some color on that end?

Well, it's not normalized given that we're still picking up inflation. So we expect the inflation -- sorry, occupancy -- so we would expect to see, obviously, continued increases as we have higher occupancy. In terms of variable rent, yes, it is seasonal, and it is the highest in the fourth quarter of the year. So it's not a normal quarter in that regard.

We almost doubled the variable rents from 3Q to 4Q, Obviously, that won't be the threat. Obviously, the fourth quarter is always the 1 that has the highest income. But take on the consideration that we are exiting the pandemia and obviously, will be floating. But at the end, we see a formal recovery on the sales of almost all our tenants. The food traffic on all our shopping malls are at a higher level than it was back in 2019. So definitely the trend of sales will be towards just growing.

It's not only the variable rent that is driving the income higher. It's also the seasonal renting there's a lot of spaces that are leased only for the holiday season. So we are seeing now demand for those -- resolve that demand for those spaces and that also drove the income higher.

Next question comes from Mr. Andre Mazini from Citigroup.

So my question, first 1 is on inflation. So you mentioned that it takes somewhat of a 1-year lag for the higher inflation to reach fully into the contracts. Just wanted to check if my understanding is correct. That would be sold because roughly 112 of contracts have reconversions -- readjustments every month. So it would take exactly 1 year for the higher inflation to reach the contracts? And would this have a bias for instance, are leasing spreads to be a little bit lower and inflation is going up and then higher when it's going down, given this lag. And the second question would be on reconversions in general. Of course, you guys we converted a lot of offices into hospitals in the recent past. What would be reconversion of the future because, of course, the highest and best use of real estate keeps changing, COVID has changed a lot of things. There's the Rojo portfolio, which will probably need some reconversions at some point. So if you can touch more broad strokes, higher level on reconversions going forward.

Well, last thing first. We are reconverting as we speak also office space to residential. So we have the 2 lines of business there. One is reconverting offices to hospitals, which we did. And we are working -- I think we already started with the first one to reconvert around 500,000 square feet of office to residential. This will happen. This is happening in our company. Now about the inflation. If you take contract that expired last October. The inflation for that particular contract, the revision for that particular contract is not the 7.4% that the inflation was like last year that was posted by our Central Bank. The inflation at that point in time was around 5% or 6%. The whole inflation is December -- January to December. So the contracts that have a revision in January or February this year are the ones that are impacted in 7 or plus percent. Taking aside the lease spread that we talked about. The lease spread applies only to the new contracts. The contracts that are began to outstanding, and they still have time to expiration, they are revised every year. Those revisions are only inflation linked. We have a few maybe inflation plus 1 or inflation plus 2, but it's a minimal amount. It doesn't account for 10% of the contracts or the retail contracts. So having said that, we will receive the full impact of the inflation in the run rate as the year goes by.

So you're right in saying that we're roughly 112 is what we revised every month, and it takes -- that's why it takes a year to reflect fully change in inflation. And obviously, when you compare that to the movements in inflation, whether it's up or down, you also have positive numbers when it's like a wave. It's behind you. And then if it starts going down, it's going to look better. So you're right, that's how it's going to play.

We will now be -- we'll try once again, Nikolaj Lippmann from Morgan Stanley.

Sorry about that. I've had to disconnect and then try to get out of the line. But first of all, and congratulations on the numbers. I think my question might be overlapping with some of the questions, and I apologize. But I really that drastic move from the third to the fourth quarter in industrial rents. I think I understand why it happens, right? You sold out in those markets, but it's a very powerful increase. So I apologize again if you have already answered the question, but any color you can give on -- I heard something about year-end adjustments, which seems very intuitive, but it would also seem very intuitive that this is just a new base of industrial brands. And I would love to hear your view in terms of your rent generally somewhat below those peers in your key markets. And with this increase, clearly, a process of conversions could be emerging to what degree you think that we should start thinking about converting towards some of the rents that we see your peers having in key industrial markets. And again, congratulations on the numbers.

Thank you, Nik. Actually, our peers have a different composition on the industrial sector that we are in. Remember that we have 70% or 75% of our industrial space is devoted to logistics and distribution. The logistics distribution percent has a different treatment than the like manufacturing. The rest of our peers are more inclined to the manufacturing done to the logistics and distribution. The logistics and distribution due to the close [indiscernible]

Closeness to the city centers.

Close to the main cities and the main logistics hubs versus have a higher price on the land and that is impacting the rent on that particular segment of the industrial world. So for us, I find it hard to compare our portfolio with the rest of the players because we are privileging the logistics and distribution because we see through the scope of the pure real estate, anything that we get into. In the case of the industrial, if you see through the length of the pure real estate, you will find it more appealing to go into the logistics and distribution than to go into the manufacturing. As you know, we have acquired a lot of portfolios that have a manufacturing component, and we are happy with those 2, but we are happier much happier with the logistics and distribution part of our segment.

Got it. If I was to try to compare on a like-for-like basis, for example, in distribution, you would still have a full handle on a per square meter basis for your logistics business in Mexico City, they [ ask brand ] is now coming above 6 peer for a lot is going in that direction, too. So one would think that there's a pretty big -- you're operating, you have roughly the 25% market share in Mexico City, one would think that this is just a phenomenal position to be in to start a convergence process towards the high 5s or the 6. Do you think that that's a fair assumption?

I think that -- I think is a little bit different, and let me explain why. Remember that we privilege also leased in Mexican pesos and in dollars. Their lease in pesos due to the inflation and Nik the lease spread whenever those contracts expire are taking a lot of traction because somehow the market -- the peso market try to -- catch up with the dollar. Remember that we have from 2015 until now, we have almost 50% or 60% devaluation on our [indiscernible]. That devaluation will catch up in the rent. So you will see in the peso lease that you will have a very large lease spread in order to catch up with the dollar. At the end, it will be very similar, the peso and the dollar lease. So this is what is happening in the metropolitan area, which is almost only pesos almost.

So in a sense, there is convergence for what the reason that Andre was mentioning. And obviously, as you know from a business model point of view, we want to have competitive rents compared to the average of the market, but we are seeing obviously a convergence trend in the rent because we have mostly peso contracts.

The next question comes from Mr. Rodolfo Ramos from Bradesco BBI.

I have a little bit of a follow-up on Andre's comments, initial remarks about rental prices and you looking to recover those ground, he was talking about prepandemic levels, and considering that you target to be below market rental prices so that you have a more defensive occupancy level, I mean, how much more room do you think you have particularly in retail and office to increase rent prices and still be at a competitive market level. How do you see this rental price trend evolving let's say, this and perhaps next year? That will be my first question.

Very interesting question. Thank you -- thank you, Rodolfo. I think that we need to look at Mexico in 2 different ways. One is in absolute terms, and the other 1 is in relative terms. Now first one, in absolute terms, we need to compare ourselves with our own properties, pre-COVID. Pre-COVID, I think we are almost there. We are above that in the industrial sector. In the retail, we are practically in the same level and in office space, we are slightly below pre-COVID. This is comparing ourselves amongst ourselves with what is happening with the properties in order to maintain the occupancy and maintain the income generated by the process. If we compare ourselves with the rest of the peers, I think we are still very cheap. Of course, our company, and I would like to make a statement that our company have a policy to be in the lower end of the range in both absolute and relative terms. Now I'm talking about relative terms because we are very cheap comparing -- if we compare our rent with Brazil or Argentina or Colombia, we have not been able to catch up with those rents. I think in the future, we will be catching up because all the cost of construction, all the cost of making brand-new properties makes it impossible to lead to the current level of rents. So I think that, that will push the run rate in Mexico, but it will take a few years to do that. For now, I think if you compare the occupancy cost of Mexico, which is 7% to 8% compared with Brazil, which is 11% or 12% or the U.S., which is $17 per month dollar - per square meter -- per month, 7% to 8% of the occupancy cost in the retail in Mexico compared to the Brazilian, which is 11% to 12% or the U.S., which is 17% to 18%, the occupancy cost, I think we have an opportunity there. Eventually, it will need to catch up the cost. Now the cost will make a very firm bottom in order to emerge to catch up with the rent. But it will take some time. For now, we need to compare in absolute terms. In absolute terms, I think we are almost there. And I think we only will be hearing good news from our market.

And a follow-up, if I may. We saw a very strong price reaction after you announced that you would be paying 100% of your FFO for the fourth quarter. And I understand that, that is just to meet the regulatory requirement. But I mean going forward, when you're thinking about use of cash, what percentage of FFO per house we should be targeting if we assume current price level, which is what you alluded to in your -- in your release yesterday.

Thank you, Rodolfo. We -- First quarter we decided to cut the dividend almost in half in order to make the actual dividend payment equal to 95% of our this taxable income, which was -- which is our obligation by law. In the past, in the last 10 years, we have been distributing all of our FFO. We started with moved by the accident of the pandemic because we didn't know what we were facing at that point in time to reduce the dividend in order to be able to face our commitments and our liabilities. I think that we say through all the difficulties and we didn't have a lot of trouble in that. And we didn't need that money to make business as usual. As you know, we made a reserve for discounts and relief that we gave to our tenants, and that was more than enough we were very accurate in calculating what the damage will be. And I think that we held a very large percentage of our tenants and exactly because of the relief we gave them, and we made it possible for them and feasible for their business to continue to be our tenants for the many, many years ago. Now in 2021, we decided to continue with that policy, and it has proven to be very efficient for us. What happened in the last quarter was that the inflation -- there is a noncash line on our accountability again accounting or accounting move those to have to bind us to distribute the 100% of that particular quarter. The good news is that we produce that money. We produce the money in the -- all year on I mean we broke our own record and we produced MXN 2.38 per share in a share that is MXN 0.20 average in the year. So I think that the company behaved very well. And having the policy for last year that we would distribute only the 95% of the fiscal taxable income that we are abide by law is this leaves us with -- this has left us with amount of cash that we decided to use in 2 things and 2 things only: repurchase of stock and repayment of debt. This is what moved us to what is the capital allocation? What is the best capital allocation for the company? I think for now, this is capital that we have produced within the company, and we have not distributed actually as a dividend, we are using it to repurchase stock and repay that and it has proven to be very efficient for the company. So for this year, we have not yet reached a decision on what our policy should be. But I'm sure that in the next quarter, the next call, you will know and we will communicate what is the decision that we make in order to make a policy for the dividend payment for this year.

And at the end, the reports of the stocks and debt repayment, somehow it's a distribution to the shareholders. So that's some other way to do the distribution, but we are doing it on the best way we consider it on the benefit of our shareholders.

Let me put it to you this way. We view the cash the company generated as the value added or the value created by the company that belongs to the shareholders. Now since we have the share trading at MXN 0.20, it's very appealing for us to invest in our own stock, which is at a current FFO yield of around 13% double-digit yield for FFO. So we bought so far 173 -- a little over 173 million shares. If you remember, we were close to 4 billion shares outstanding. We are at 3779 billion round shares outstanding. So at this stage, it's very appealing for us to return the investment to our shareholders in the form of a which is much more accretive than just distributing the cash. All in all, we've bought back 6.2% of the company from the point where we started. So that's in a nutshell of the plan. And obviously, we'll make a formal decision for the year 2022, as Andre mentioned in the first quarter call.

[Operator Instructions] Our next question comes from Paulina Moreira from Compass Group.

Thank you for the call and congrats on the results. My question is related to the reclassification. That's why your occupancy in office has increased -- but do you have any reclassification planned for this year in order to increase other occupancy rates?

No, it's not -- it was not in order to increase the occupancy of the office sector. It had nothing to do with that. It's just to make sure that buildings belong where they have to be. If you look at the average rent of a business park, it's probably around 12, 13, 14, somewhere around there dollars per square meter, which is half of what you rent an office building, Class A office building in a business corridor in Mexico. So those belong -- and the cost of construction of those buildings is more similar to cost of warehouse rather than a high rise of 50 floors in Reforma. So the reclassification just was to include those where they should belong in terms of the performance of those buildings, but nothing to do with occupancy. We want to be very transparent in that. It was not to boost the occupancy of the office sector. We know that -- and we've said it many times before, we know the sector that today, it's struggling. It's cyclic business. I think you heard Andre say this from day 1 many, many times. And we right now continue with the cycle in the office sector and things will get better. And eventually, you'll have a cycle in the industrial segment of today's hub. 15 years ago, industrial wasn't hot. So it's just to have things where they should be long.

Our next question comes from Sylvia Bigio from Itau Asset Management. So just once again, Sylvia Bigio from Itau Asset Management. We'll come back to this later. The next question comes from Alberto Valerio from UBS.

Thank you, Andre and Jorge congrats for the strong results. One of my questions was already answered, but I would like to go a little bit further on the guidance that you provide on [indiscernible] day. How can you see this NOI growth that I think we are far away from the 2024? And I think nobody in consent has that number. But how should we see that NOI growing? Should we see some more linear or should we see something more strong in 2023 after the development be done?

I think that it's a linear trend in what we projected for the first couple of years, then we'd have a little bit of a pause, and then it accelerates again once we go from '24 and '25 with the entrance of the second phase of Mitikah which is going to be the large project of what we have right now. This is with the current, let's say, base of assets that we have in the company and under development. The biggest contributors you're going to see an acceleration of the first phase of Mitikah between now and, let's say, 2023, then we see a pause. And then towards 2025, we see again another acceleration. So it's linear than flattish and then linear again.

Perfect. And just on my side, if I can. About the dividends, just a clarification. So this first quarter of 2022, we will pay something close to 95% of FFO, but from now on, we don't know if this amount will remain for the rest of the year or would it back to the 2021 levels. Can you affirm if that back to the 2021 level, the difference between what we have in this first quarter of 2022 for the what we had in the previous quarter we'll be applying in share repurchase status?

This is Fernando. Regarding the -- what you should expect on the dividend for 2022, what happened in 2021 is that the first half of the year, inflation was obviously lower than it is today. And there was expectations that the inflation was going to be transitory that the increases were going to be transitory and that we were going to see a downturn -- a rapid downturn on inflation. So the first 3 quarters of the year we estimated a fiscal result for the full year with a lower inflation than the inflation that it actually ended up being. So that's why we needed to increase the dividend for the fourth quarter to reach the inflation for the full year. In 2022, since the inflation is already high and the expectations of it being transitory is probably not there anymore. The behavior of the calculation of the fiscal result every quarter should be more stable. So most likely, you are not going to see those -- that volatility on the dividend coming from fiscal results. And regarding repurchase of stocks, I think Andre and Jorge were very clear that all the cash that has been retained have 2 purposes. One is repaying debt, and the other 1 is repurchasing stock, and we are going to continue to do that until further notice.

Our next question comes from Alan Macias from Bank of America.

And thank you for the call. Just a quick follow-up on the reconversion of office to residential. Is Funo planning to lease residential units or are you selling them?

Actually, we are agnostic. We are very opportunistic. And if the lease price is right, we will get into the leasing but it has proven to be more efficient to sell the apartment like we did in Mitikah.

Next question comes from Mr. Nicolas Fabiancic from Jefferies.

Congratulations on the results, which I think is clear to highlight the recovery of the business, diversification and scale. Just wanted to ask 1 follow-up question from the 2 press releases that you issued in December about the Telra Realty case, where obviously, there's been a lot of reports out there. There's a website with court documents -- so just want to be very clear, what is the impact for Fibra UNO in terms of bank accounts having ever been frozen by the Mexican lease disclosure issues with the Mexican Stock Exchange or any pending charges we should look out for from the prosecutor's office? Any clarity that you could give us to put this issue to bed would be very helpful.

I think that we have been very, very clear in our press releases as a company. There is absolutely no relationship whatsoever between Fibra UNO and Telra Realty. It's a private lawsuit between private citizens, and there's absolutely no relationship whatsoever and the claims that have been posted on those waves have no basis in fact, and we have nothing further to comment.

Perfect. Just a quick follow-up on your bonds because we haven't seen FUNO in the international market since the small reopenings of the 30s and 50s in 2020, which followed the potential Reg S only deal that ended up not proceeding. After that, we saw some open market repurchases of the bonds. So it would be helpful to just talk a little bit about your liability management strategy and how you're seeing opportunities in the international bond market?

As Andre mentioned, we have retained some cash, and we would love to be able to buy our bonds. However, we found 2 things that are a little bit problematic. One is finding amounts and size that we can repurchase, especially in the peso bonds more than in the dollar bonds. And then the dollar bonds we have the issue that they're trading significantly above par, which is obviously good news from a creditworthiness standpoint of the company. But when we're buying back our own bonds, I'd rather wait to the maturity of the bond and pay par then pay 10% more today. So we have tried to direct more of the repurchases towards the peso market, try to be opportunistic in the dollar market when we saw some windows. You can expect us to continue to be active in liability management exercises as the year goes along. And we are well aware that the dollar market is very deep and long in terms of tenure, which is something that we usually like longer than the peso market, usually you can do minimum 10-year bonds in the dollar market, which is something that we're constantly looking at. So as far as issuing a new dollar bond, as of today, we don't have needs to invest in, but we're always open to potential liability management exercises. And Fernando wants to add some follow-ups. So please, go ahead.

Yes. Thank you, Jorge. Okay. Also in the peso market, you're probably aware that the second semester, we did a very successful transaction, where we went out to the market to pick up MXN 8.1 billion to prepay the issuance, the peso issuance of MXN 8.1 billion. We were very happy to see higher than 2.5x demand for that amount. We have another outstanding peso bond that we can prepay right now without cost. So we potentially could go out to the market after the success that we just saw to see if we can prepay that bond and kick that maturity for 3 or 4 years ahead. But we're still -- we are not in a hurry to do anything like that.

Our final question today comes from [ Mr. Edison Maria ] from Suma Capital.

I have a follow-up on residential trying to understand the dynamic. You mentioned Andre that there are 500,000 square meters that are reconverting to residential. I was wondering if you are expecting to do more for 2022 or because the office space market is bottoming up and we are expecting the news for the following year. It's only base 500,000 square meters. And regarding on this, are we expecting if it's the case, that these residential properties be part of the portfolio and not selling the assets or the appointments. Are you reclassified them into others in for the future notice?

No. We will reclassify it as we go on the reconversion, and we are reconverting building that used to be offices that are enclosed in a residential zone. For example, in the Rojo portfolio, which is the branches that we bought from Santander, there was this office building that was inside golf course. So it's suitable to reconvert to residential. So we are trying to make our best judgment in order to decide which of the properties is suitable to reconvert.

Okay. And last, about the business point, are we expecting to do more on this type of asset reclassifying or reconverting from offices to business park? Or it's going to be only those profits that you recommend in the fourth quarter?

It's not a reconversion. Those properties were business parks from the start. The building was a business park. We just -- since the use was office use, we had it classified in the office sector. But given that the rent and the cost of the building is more akin to what we see in the industrial portfolio, we shifted those to the industrial segment. That's it, but we didn't reconvert any buildings. Those buildings have been since day 1. Centrum Park, for example, since day 1 has been a business park. It's in Tlalnepantla, in Mexico City, if you're familiar with where Mexico City is, you know that, that is not a traditional business corridor. That is what used to be the old Berol pencil factory, and we converted that into an office building. So it's in an industrial zone. But as of now, we're not expecting any more No, we don't see any much changes in the portfolio.

We have one more question from Mariana Cruz from BTG Pactual.

Yes. I wanted to ask if you are expecting to cancel the shares you repurchased in 2021 or a profit or it's undecided so far.

Yes. The short answer is yes, Mariana. We canceled the shares that we buy back, usually it takes about a year for us to cancel the shares. But yes, we're canceling them. One thing that's important to note, however, regardless of whether we cancel them within a year. As of the date of repurchase, they're no longer eligible for dividends even if they haven't been count, even if they haven't been canceled. Given this our corporate, right? So the cancellation process is just something that legally takes a little bit longer.

We have no further questions at this point. I will pass the line back to Mr. El-Mann for the concluding remarks. Please go ahead.

Thank you, Michael. Thank you very much, everybody. I hope you stay safe. You have a good weekend, and thank you for your attention on the call. We see you in the next call of the first quarter this year. Thank you very much.

Thank you very much. This concludes today's call. We'll now be closing all the lines. Thank you, and have a nice weekend.