FibraHotel (FIHO12.MX) Q3 FY2025 Earnings Call Transcript & Summary

Good morning. My name is Antonio Cardenas, and I will be the conference operator today. At this time, I would like to welcome everyone to FibraHotel's 2025 Third Quarter Earnings Conference Call. FibraHotel issued its quarterly report on Wednesday. If you did not receive a copy via e-mail, you can find it at www.fibrahotel.com or e-mail me at [email protected]. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. Unless noted, all figures included herein were prepared in accordance with International Financial Reporting Standards and are stated in nominal Mexican pesos. Joining us from FibraHotel are Mr. Simón Galante, CEO; Mr. Eduardo López, General Manager; Mr. Edouard Boudrant, CFO; and Mr. Guillermo Bravo, CIO. With that, I will turn the call over to Simón Galante.

Thank you, Antonio, and good morning, everyone. I'm going to begin today's call by providing an overview of FibraHotel's third quarter 2025 results. And then I will turn the call over to Edouard Boudrant, our CFO, who will discuss the financial results in more detail before we open the call for questions. During the third quarter of 2025, market conditions for the hotel industry remained challenging with soft demand in general across Mexico. Lease environment affected occupancy levels, average daily rates and operating margins across our portfolio. FibraHotel results during the quarter were weak and below our expectations. RevPAR for the total portfolio increased 1.6% year-over-year, driven by a 3.2% growth in ADR, while occupancy decreased by 100 basis points. By segment, Full Service hotels had a 2.4% year-over-year RevPAR increase. Select Service hotels had a 2.2% year-over-year RevPAR increase, and Limited Service hotels had a 2.3% year-over-year RevPAR decrease. From a regional perspective, Guadalajara and Bajio outperformed with an increase in demand. The rest of the portfolio suffered a reduction in occupancy. Specifically, the Northern border had a revenue decrease of 6.4% and the South had a revenue decrease of 9.8%. Leisure hotel also had a negative quarter with a 5.1% revenue decrease. 100 basis points of the reduction were the impact of the peso appreciation. Several cities and regions continue to have an outside impact in the reduction in occupancy. For example, Culiacán had a demand decrease of almost 50%. Ciudad del Carmen had a demand decrease of 34% and Villahermosa had a demand decrease of 23%. Additionally, during the quarter, the numbers were partially impacted by investment underway in hotels, including the closing and repositioning of the Gamma Tijuana Hotel and the repositioning of the Real Inn Mexicali Hotel. Overall, due to the weaker demand condition, it has been difficult to optimize and raise average daily rates enough to obtain positive operating leverage and offset the increase in cost. Cancun was also impacted from a weaker demand condition. Less passengers arrival to the destination and seasonality as this is generally the weakest quarter of the year. Occupancy for the Fiesta Americana Condesa Cancun Hotel was 61.5%. There was also rate pressure as there were less U.S. tourists, which are generally the least rate-sensitive customers and also for the appreciation of the peso. Lease revenue for the quarter was MXN 28 million. At this point, forward bookings and the booking pace for the fourth quarter of 2025 look more encouraging. We are also working on improvements at the hotel and new product and experience offerings, which will be attractive for new customers going forward. Total revenues for the quarter were MXN 1,270 billion and EBITDA was around MXN 250 million. The EBITDA margin of 19.7% was impacted by negative operating leverage, increasing costs at the hotel level and lower rent from Fiesta Americana Condesa Cancun. While we expect to continue to see demand headwinds in Mexico for the next quarters, we intend to work diligently to improve the results. We are especially focused on margin compression seen during the past several quarters. We are working closely with our operating partners and new and additional strategies to implement efficiency and cost control initiatives to improve profitability in the coming periods. On the portfolio front, we are working on several investment projects, including the development of The Ritz-Carlton Cancun, Punta Nizuc Hotel. A few examples of these projects include we renovated the Fiesta Inn Monterrey Valle, the Fiesta Inn Monterrey La Fe hotels with a total investment of MXN 110 million. The hotels were fully operational by the middle of the third quarter, and they are well positioned to benefit from the additional demand in Monterrey expected from the World Cup in 2026. We are in process of full repositioning of the Gamma Tijuana Aeropuerto Hotel. In August, we closed the hotel to remodel the asset, which will open in early January as the Hilton Garden Inn Tijuana Aeropuerto Hotel. To date, we have invested around MXN 70 million. We took advantage of the excess land available in the Fiesta Inn Perinorte Hotel in Cuautitlán Izcalli to develop an industrial warehouse of around 7,200 square meters. The property will be finished in the fourth quarter of 2025 with an investment to date of MXN 112 million. We are starting the leasing process and the initial price indicators are above our underwriting expectations. We have also recently invested around MXN 25 million in the repositioning of the Real Inn Mexicali Hotel and the improvements to the site and food beverage offerings at Fiesta Americana Condesa Cancun Hotel. Finally, the development of The Ritz-Carlton Cancun, Punta Nizuc continues to move forward as planned. The construction is currently in the foundation works. To date, we have invested approximately MXN 497 million in the project. The market reception has been very positive and initial price indicators for the residences are above our initial expectations. Our balance sheet remains solid with a loan-to-value ratio of 25.3%. New debt was MXN 3,887 million. Of this debt, over MXN 800 million or almost 20% is related to the project mentioned above that are currently not productive and will contribute to our results in the future. Additionally, the interest expense of this project is not being capitalized and is impacted directly on the AFFO. We have a strong liquidity position, limited short-term amortization and access to additional financing. We have signed several new credit lines with attractive rates. I would like to highlight the progress of the ESG initiatives. We are currently notified that FibraHotel achieved a score of 88 points in the GRESB assessment score. FibraHotel also won awards across 3 categories: Global Sector Leader Listed - Hotel, Regional Sector Leader Listed Americas - Hotel, Regional Sector Leader - Americas Hotel. These recognitions reinforce our long-term commitment to sustainability and the responsible growth. For the third quarter of 2025, FibraHotel will pay a distribution of MXN 0.15 per CBPI, in line with our previously announced policy. Finally, I would like to briefly address the situation related to our trustee. On August 19, Banco Multiva announced an agreement to acquire CIBanco's fiduciary business through a demerger of such operation and with subsequent merger into Banco Multiva. As a result of this transaction, Banco Multiva became the successor trustee of FibraHotel's Trust. We are working with the same trustee team. And as today, no material impact has been identified on FibraHotel regulator operations. This result was the most efficient solution for FibraHotel. We are taking firm steps to enhance FibraHotel results, focusing on execution and long-term value creation. We will continue to invest in value enhancement projects that position FibraHotel for success over the business cycle. While short-term results will continue below our expectations, we firmly believe in the business model fundamentals, our new projects and the strategy over the long term. I am confident we have the right team and partners with the necessary drive and experience to execute our plan. With that, I will now pass the call over to Edouard Boudrant, the CFO of FibraHotel, to discuss the financial and operating results of the third quarter.

Thank you, Simón, and good morning, everyone. We closed the third quarter with 84 hotels opened. The occupancy rate of our managed hotels for the quarter was 60% compared to 61% for the third quarter of last year. Average daily rate was MXN 1,598, increasing 3.2% compared to the third quarter of last year. Quarterly RevPAR was MXN 958, representing a 2% increase compared to the third quarter of last year. The Fiesta Americana Condesa Cancun had an occupancy rate of 62% compared to 69% 1 year ago. The hotel had a net package ADR of MXN 5,375 and net package RevPAR was MXN 3,303, decreasing 12% compared to the third quarter of last year. In USD, as the rate is sold in dollar, ADR was in line from $291 to $388 and RevPAR decreased 11% from $200 to $177 compared to the third quarter of last year. Total revenues for the quarter were MXN 1,270 million compared to MXN 1,302 million for the third quarter of last year, decreasing 2%. The total rent collected by the hotel Fiesta Americana Condesa Cancun represented MXN 28 million. which is 2% of total revenues, decreasing 41% versus last year. During the third quarter of last year, the total rent collected was MXN 48 million and represented 3% of the total revenues. Our lodging contribution for the quarter was MXN 364 million compared to MXN 402 million for the third quarter of last year, a 9% decrease. The margin of lodging contribution for the managed hotels was 25.8% compared to a 27% margin for the third quarter of last year. Real estate expenses were MXN 26 million compared to MXN 25 million for the third quarter of last year. Corporate expenses were MXN 87 million compared to MXN 74 million during the third quarter of last year. For EBITDA for the quarter was MXN 250 million compared to MXN 303 million for the third quarter of last year. In terms of EBITDA margin, it decreased from 23% to 19.7%. We closed the quarter with a net debt of MXN 3.9 billion, increasing MXN 229 million versus the end of last year. Gross debt amounted to MXN 4.5 billion, and the LTV is very conservative at 25.3%. As of today, our debt structure is extremely healthy. Only 9% is maturing during the next 12 months. The average cost of debt is 8.8% USD-denominated debt represents 14% of FibraHotel total debt, 18% at the end of last year or $34 million. During the quarter, the debt position generated a financing cost of MXN 97 million. The net financial income was negative MXN 77 million, considering a MXN 16 million foreign exchange profit, noncash item, mainly related to the USD-denominated debt. We closed the quarter with MXN 621 million cash position compared with MXN 630 million at the end of last year. During the third quarter, we deployed MXN 259 million of investment, maintenance CapEx and repositioning CapEx, MXN 71 million for maintenance CapEx, MXN 64 million for the conversion of the Tijuana Hotel to Hilton Garden Inn brand, MXN 40 million in The Ritz-Carlton Cancun, Punta Nizuc Hotel, MXN 30 million in the building in Perinorte, MXN 27 million in the Fiesta Americana Condesa Cancun, and MXN 24 million in the remodeling of the hotels Fiesta Inn Monterrey Valle and Fiesta Inn Monterrey La Fe. For the quarter, our FFO and AFFO were positive MXN 161 million and MXN 90 million. Please note that in accordance with the distribution policy decided by our technical committee in April, we will pay for the third quarter of 2025 a distribution of MXN 0.15 per certificate. Total distribution per certificate for the year will be MXN 0.60, increasing 9% versus last year. At this point, I would like to open the floor for the Q&A session. Antonio, we are ready to take any questions.

Thank you, Edouard. [Operator Instructions] The first question comes from Felipe Barragan from JPMorgan.

So I have a couple of questions. One is on sort of the hotel industry dynamics, what you guys are seeing on the ground. I think we were tracking quite well during the first half of the year and sort of this quarter, it fell off a bit. So I just want to understand what's your perspective with the boots on the ground? What have you guys seen overall across the country? And on that, looking forward, we have the World Cup coming up next summer. Do you guys have started to see some demand picking up on that? And what can we expect coming for next year?

Felipe, if you want, let me start answering that question and let's separate it by parts in terms of leisure and business. Your point is correct. In the start of the year, we saw healthy dynamics overall. We had -- all year, we have seen a lot of economic volatility, a lot of headline news and a lot of things going on that really hadn't materialized in what we had seen in the demand. And what we saw this quarter and also starting last quarter is that overall demand has been weaker in the whole country. During the first half of the year, we had very positive results in several of the largest cities, for instance, Mexico, Guadalajara, Monterrey. And we still have a lot of our portfolio that had weaker results such as the Northern border as well as the oil region and also the Pacific of the country. As we advanced in the year, we also now see weakness in some of these destinations, and these have been helping our portfolio have better growth rates. What we expect going forward is, first of all, this quarter is abnormal because of the cyclicality of the third quarter. And so we are starting to see a little bit better numbers, at least seasonality, they should be better than the third quarter. And we have already some groups in our pipeline that we already see for several of the larger hotels that we have. So the numbers should get better. But overall, frankly, we're still very uncertain in where demand is going to be. We are not very optimistic in the fact that new investment. We haven't seen a lot of new investment on new plants or new factories as we had expected. And so we're still very uncertain in terms of how much demand can pick up more in a more generalized version. In Cancun, it's a very similar situation. We saw a very weak summer, and that is more where the Mexican traveler goes to Cancun more than the international traveler. Even though we also saw airlift drop in the destination for the first time in several years, we have seen weaker passenger arrivals this year. But again, for what we see in the books for the rest of the year, we have good groups and we have good forward bookings. So the numbers should improve for Cancun also in the fourth quarter and during the winter. And so what we are seeing in Cancun is we made several investments in the hotel, and we're waiting to see what happens more so next year than the fourth quarter. So it's a long answer, and I'll let Simón complement it. But overall, there's still a lot of uncertainty out there.

Thank you, Felipe. Some of you that are in the call have heard our report for more than 12, 13 years since we became public. I will always address the issue at hand and the third quarter of this year was a surprise even for us, how low September was. It was abnormal situation. We believe, as Guillermo said, that going forward, in the short term, it's going to continue to be complicated. And as a group, we need to say it and we need to understand that in order to take measures for getting the operational leverage dynamics back. The cost has been going up. So we will have to work on cost control and a lot of things that we're already working on for next year and the end of this year. But the dynamics of the -- of both markets, as Guillermo said, are soft at this point. I love and I am truly convinced of the strategy going forward on the medium and long term and what we're doing on renovating old hotels, changing the brand, putting money on assets as the Perinorte asset that we're going to turn around and we're going to -- it's going to -- now it's not producing anything all of that, almost MXN 800 million. So we are going into this with a very strong balance sheet, with a great relationship with the bank and all stakeholders. And we believe that FibraHotel will appear in the other side with a strengthened portfolio and with a diversification with The Ritz-Carlton, Nizuc that will be historical for the company. So we are worried with the results. And we are more than worried, we are active. We are, as a team, doing what we have done before in many, many times and the first 1 is COVID, and we were the first one to have work on this. I am not saying that this is going to be something like COVID by any means. But what I'm saying is that we're taking this seriously, and we will work around it. Over the long term and the business formula of FibraHotel remains intact in the middle and long term and the diversification will make us unique. So I hope this long answer by both of us answer your question, Felipe.

Yes, that was very helpful, guys. And if you guys have any comments on the World Cup, I don't know if there's anything you guys have seen so far, if there's anything you can add on that.

The World Cup, the only thing we know is that Mexico is going to win the World Cup that we're sure of.

Hopefully, hopefully.

Other than that -- no, listen, it's going to be a very short event for Mexico. We have 4 games in Mexico, 1 in Monterrey and 1 in Guadalajara. It's going to be very productive as organizers will be here weeks in advance. We are already getting very proactive in getting good rates for those weeks and getting smart about it. So we don't get filled up with lower rates. But it's going to be a very important event for the country, no question. But hotel-wise, it's going not to be a long-term fix. It's going to be very good, but it's going to be very short.

The second question comes from Francisco Chávez, BBVA.

I have 2 questions. The first one is regarding the cash distribution that was way above the AFFO per CBFI in this quarter. Do you expect to normalize this in the last quarter of the year? Or do you -- or will you revise downwards the cash distribution for the fourth quarter? And the other question that I have is regarding the ADR, we have seen some slowdown in ADRs. At the beginning of this year, it was increasing at high single digit. And now it all increased 3%. Have you seen a recovery during October?

Paco (sic) [ Francisco ], thank you for your question. So basically, regarding the first question on the distribution, the policy of FibraHotel is to announce at the beginning of the year an annual distribution. So that's a very good point. You're right that the coverage is -- the AFFO is lower than the distribution on this quarter. But if you see on the 9 first months, the coverage is well above, and we feel very, very confident that it will be still the case for the whole year. So basically, we do not anticipate that we will change the amount that we will distribute for the fourth quarter. The yearly distribution will be MXN 0.60 per certificate. And for next year, we will take a decision later on. Regarding the second -- your second question on the ADR, that's true that, as mentioned, Guillermo earlier, the beginning of the year was quite good in terms of demand with a good impact on the ADR growth. We saw 9.9% during the first quarter, 5.5% during the second quarter and only 3.2% during the third quarter. The third quarter has been impacted by a very low demand versus what we anticipated. And also it has a strong impact on the ADR. We feel also comfortable that it will increase a little bit for the fourth quarter of the year, which is traditionally the best quarter of the year. But it's true, this year, it's a tough year for the industry. Also for the whole Mexican economy, it's a tough condition, and we are very impacted. What we are doing for next year to preserve the business, to preserve the portfolio of FibraHotel. We are investing in some select assets in order to see -- to seize some opportunity. Monterrey through a moderation for the World Cup and because also Monterrey has a very good trend, and it makes a lot of sense to invest in this destination. In Tijuana and in Mexicali we had some Tier 2 local brands. It makes a lot of sense to have Tier 1 international brands that's what we are doing. We will have a brand-new Hilton Garden Inn in Tijuana. Until this year, it was old Gamma by Posadas in Tijuana. So basically, we are taking some decision in order to see what we can do at our level of asset manager in order to maximize the value of the portfolio and to seize some opportunities. Other things that we are doing. For example, in Cancun, Fiesta Americana Condesa Cancun, we feel that we have a very good asset. We have a very good loyalty from the customer basis. We want to renew a little bit the experience that we are giving to them with a new spa, with new restaurant, with new activity and in order to give them something new and to insist them to be loyal to the brand and the first feedback that we had are very positive. And also maybe I am talking a lot, but it's important -- we are looking how we can change some operating models of hotels. Last year, we made the conversion of 10 hotels from Fiesta Inn to Fiesta Inn Express. Fiesta Inn Express is a lighter operating model with, for example, no room service, limited food offering. We saw positive results. We saw some increasing in some margin of this hotel. We want to replicate that in more Fiesta Inn hotels. Also, we are seeing some good positive impact in all the inversion that we are doing in the energetic standpoint. We've put some sales panel -- solar panel in hotels, and we have seen in 3 to 4 hotels saving around 30% in terms of the electricity bills. We want to go further with that. It's one of the best use of cash that we have as of today. And also since August, we have -- we implemented a new connection with a new -- another electricity provider in 2 hotels in Aqua and Grand Fiesta Americana Monterrey and in San Miguel de Allende, and we will go further to 13 hotels in order to have, one, a lower rate or lower tariff versus CFE and also around 90% of the production of that electricity that we will consume coming from renewable energy. So basically, the reality is that the market is tough. But I think we are very comfortable that the FibraHotel team as an asset manager is taking the correct decision in order to minimize in what we can control, the negative impact of such tough conditions.

Paco (sic) [ Francisco ], just before we finish, I do want to just highlight Edouard's first point. The distribution policy is a very strong commitment by the technical committee, by FibraHotel and by everyone in the company. We firmly believe that it was the right policy, and it is the right policy for today and going forward. When we started it, we were at a distribution coverage of almost 2:1, and we expect that over time and as some of these investments and as Nizuc opens, we will go back to that. but we are firmly committed to paying distributions to paying these levels or increasing distributions. It's a long-term commitment by the company. And so I just want to be very clear that there is no question about our distributions or our ability to pay them. As Edouard mentioned, for the year, we have -- still have a high coverage ratio, but we expect it to improve going forward. So I just wanted to highlight that it's a strong commitment by the committee.

The next question comes from [ José Luis Bezies ] from [ Actinver ].

I have two from my side. The first one is, can you recall the FX impact that Simón mentioned in its opening remarks? And the second one would be, I think it was already answered, but if you could give a little bit more color about the cost control initiatives that you are working along with your operating partners in your hotel portfolio?

So basically, on the FX impact, we have some FX impact on the debt, around less than MXN 20 million gains on the debt that we have denominated in USD, but it's no impact on cash flow. Where we can have a strong impact is in the Fiesta Americana Condesa Cancun because the hotel is sold in USD, the rent that we collect is mainly collected in USD. What we saw this quarter is that the FX impact has not been so strong in Fiesta Americana Condesa Cancun. It's about -- for the quarter, we are talking about MXN 5 million of negative because the FX rate is roughly [ MXN 1 ] below the FX that we have in the budget. So as of today, for the quarter, it's not a huge impact. If we see in Fiesta Americana Cancun on the whole year, we're speaking about MXN 10 million.

Just on the FX point, I do want to highlight that it's not only the direct impact on our results, which Edouard mentioned, but I think overall, the appreciation of the peso is difficult from -- at least for our business in the Mexican economy. Mexico is more expensive than some alternatives that some travelers have to come here. And also many of the manufacturing export industries are also impacted by having higher costs in pesos. So there's a direct impact in our results, but there's also an indirect impact that we have. It's not something we control. We have a match in terms of what we have in dollars and in pesos, but it is a headwind that we face today, and we don't know how much we're going to face it in the future.

And regarding the cost control initiative, I think it's important to highlight that since the pandemic, we've worked a lot on the operating cost structure of the hotels. And I think we have a very, very lean structure as of today. And so basically, what -- in what we are working on is, for example, as I mentioned, to change some operating efficiencies, operating structure in some hotels to change from Fiesta Inn to Fiesta Inn Express, we can have some savings. We can also, for example, limited some food and beverage offerings and that in the past in some hotels brought to you some negative contribution to the portfolio. So it's one point. And the other point where there is a lot of opportunity, it's all the energetic issues. And as of today, after many, many years of reflection and implementation of that, we are seeing positive results. In some small hotels with the solar panels, we are reducing the bill by 30%. And in the biggest hotels with this new contract with [Foreign Language], it takes -- it took us 3 years to have the approval of the authorities because, as you know, all the administrative issue from the CFE, [indiscernible] and all that stuff have been very complicated, but we did it. We started with 2 hotels this summer. And by the end of the next quarter, we should have around 30% -- 13 hotels with savings of 10% on the bills. And also, we are working with the operator to see hotels place by place where we can be more effective. But at the end of the day, it's more an issue of demand than of cost.

There are no further questions. Thank you for participating in FibraHotel 2025 Third Quarter Results Conference Call. If you have any further questions, please do not hesitate to visit www.fibrahotel.com or contact us. This concludes today's call. Thank you, and have a good day.