Fideicomiso Irrevocable F/2061 FHipo (FHIPO14) Earnings Call Transcript & Summary

Good morning. My name is Sophia, and I will be your conference operator. [Operator Instructions] This is FHipo's First Quarter 2025 Conference Call. There will be a question-and-answer session after the speakers' opening remarks and instructions will be given at that time. FHipo released its earnings report on Tuesday, April 29 after market close. If you did not receive the report, please contact FHipo's IR department directly and they will e-mail it to you. Please note that this call is for investors and analysts only. Questions from the media will not be taken on nor should the call be reported. Any forward-looking statements made during this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz, Daniel. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today. I'm pleased to walk you through our first quarter results and give you an update on how FHipo's positioning itself for the next stage of growth. For FHipo, 2025 is a year of transition into new opportunity, the resilience and adaptability we have optimized our balance sheet. We are now focused on capturing investment opportunities that will maximize profitability for our investors. As you know, in over a decade of operations, FHipo has built a solid resilient investment platform focused on delivering attractive, consistent returns. As of the first Q of 2025, we have distributed over MXN 6.9 billion to our investors, showing our long-term commitment to value creation. Since our IPO in 2014, we have originated more than 100,000 mortgage loans, totaling over MXN 44 billion. And throughout this time, we have kept a disciplined investment approach, identifying opportunities that create long-term value. Our consistent performance has earned the trust of key financial institutions. And as an example of this, in the first Q, we renewed our revolving credit facility with Banorte for up to MXN 2 billion. If we move on to Slide 5, we show our distribution track record, which remains strong for the first Q of 2025, our annualized yield per CBFI stands at 10.6% with an estimated quarterly distribution, subject to the current distribution policy of $0.352 for CBFI and as mentioned to date, we have distributed over MXN 6.9 billion, underscoring our commitment on delivering attractive returns to our investors. If we move on to Slide 6. People has maintained a solid capitalization profile. Over the last 4 years, we have reduced our debt-to-capital ratio by approximately 40%, while consistently keeping financial margin near 50%. In the first Q of 2024 -- 2025, sorry, we reached 52.1% and 51.5% on an LTM basis. This shows our ability to manage tough environments and be ready for future opportunities. On Slide 7, we show how we continue to strengthen our origination in higher-yield assets. Mortgages originated through digital mortgage platforms now account for 17.2% of our total portfolio, up from 5.6% in the fourth quarter of 2022. The outstanding balance of loans from digital mortgage platforms has grown at a 50.7% CAGR since 4Q of 2022. The asset yield on these loans was 14.2% at the end of the first Q of 2025, up from 10.9% back in 2018 and 14% in 2024. Our portfolio remains healthy with an average loan-to-value of 78.2% at origination and an estimated 29.9% at current market value. If we move on to Slide 8. As of the first quarter of 2025, our nonperforming loan ratio considering accumulated balances of the total portfolio at origination represented only 3.9% of such accumulating origination. This indicator reflects the historically solid performance of the portfolio. And then on Slide 9, finally, moving into that one, people remain committed to substantially -- to sustainability and ESG best practices. Our focus goes beyond financial returns, and we aim to create long-term positive impacts. FHipo has helped finance over 100,000 loans with about 54% of our borrowers coming from low-income households. Loans to women represent 30% of our total portfolio and 35% of our digital mortgage platforms portfolio. Internally, women make up to 39% of our total workforce and these figures reflect our commitment to fostering an inclusive and equitable environment, both for our clients and within our organization. On governance, our nomination audit and practices committees are 100% independent, and over 50% of our technical committee members are independent as well. On the environment, 10% of Infonavit borrowers in our portfolio are eligible to receive additional grade through the green mortgage program, promoting eco-friendly home. We have also implemented internal policies to cut paper, plastic and water consumption. These efforts underscore our ongoing commitment to strong ESG practices, driving environmentally sustainable initiatives, some governance and social impact into every aspect of our operations. Having said that, now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy.

Thank you, Daniel, and again, good morning to everyone. I will continue the presentation by going through our diversified sources of funding on Slide 11. Over the past 6 years, people has proactively reduced its leverage, achieving a 0.9x decrease in its debt-to-equity ratio when considering both on and off balance sheet financing, going from 2.3x in the first quarter of 2019 to 1.4x as of the first quarter of 2025. This strategic deleveraging has strengthened our financial flexibility supported by a well-diversified planning structure that combines securitizations, bonds and warehousing facilities, allowing us to efficiently manage liquidity and maintain an efficient capital base. If you turn to Slide 12, you will also see how more than 90% of the financings that we have, they have a legal maturity greater than 20 years, which reflects the stability of our financings, and of them with optimal financial costs. With this, I will now turn the call over to our CEO, Jesús Gómez, who will talk us through the portfolio breakdown before I discuss our financials.

Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. I would like to continue to Slide 14 to discuss the breakdown of our mortgage portfolio for the first quarter of 2025. As of March 31, 2025, FHipo's consolidated portfolio comprised 60,666 loans with an outstanding balance of MXN 20.2 billion. The portfolio continues to demonstrate healthy credit quality with an average loan-to-value origination of 78.2% and payment-to-income ratio of 24.4%. At the end of the quarter, 91.5% of the portfolio is performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, Fovissste and our Digital Mortgage Platform portfolio, which continues to show strong growth, now representing 17.2% of the total consolidated portfolio compared to only 11.9% for the previous year. The breakdown of our portfolio is as follows: Infonavit Más Crédito, MXN 9.6 billion. The Digital Mortgage Platforms portfolio, MXN 3.5 billion; Infonavit Total Pesos MXN 2.7 billion; Infonavit Total VSM MXN 2.3 billion; and Fovissste MXN 2.3 billion. Moving on to Slide 15. We show how FHipo's portfolio remains geographically diversified across all 32 Mexican states. The State of Mexico, Nuevo León, Jalisco, Guanajuato and Coahuila make up the largest portion, together accounting for approximately 41% of the total portfolio balance. In terms of our partnerships and origination programs, here's the breakdown of the portfolio. Infonavit Más Crédito program accounts for the largest share of the portfolio represented a bit less than half of it at 47.3%. The Infonavit Total Pesos program represented 13.2% of the total portfolio. The Infonavit Total VSM reached 11.2%. Fovissste portfolio accounted for 11.1% of the total portfolio. And finally, the Digital Mortgage Platforms portfolio accounted for 70.2%. Additionally, as the Mexican government continues to prioritize housing development and address the country's housing demand, we believe there will be greater need for Mortgage Financing Solutions. FHipo is well positioned to participate in this growth while maintaining a strong focus on profitability. I will now return the call back to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the quarter.

Thank you, Jesús. Continuing on Slide 17. And here, we will discuss our NPL and reserve coverage levels. As of the first quarter of 2025, our nonperforming loan ratio stood at 8.5%. We continue to maintain a solid allowance for loan losses with an expected loss coverage of 1.43x and an NPL coverage at 0.69x. If we go to Slide 19, this year, we will go through our financial results for the quarter. The total interest income for the first quarter of 2025 was MXN 310.5 million showing a slight decrease compared to the first quarter of 2024. This reduction mainly reflects the natural amortization of the mortgage portfolio consistent with our current transition phase, which was partially offset by higher returns from cash investments. Interest expenses totaled MXN 148.7 million, representing a 10.6% decrease compared to the first quarter of 2024, mainly due to a lower interest rate environment. Our financial margin stood at $161.8 million compared to the $160.5 million in the first quarter of 2024, mainly maintaining stable profitability levels. The financial margin for this quarter represented 52.1% of the total interest income, demonstrating our ability to preserve those stable profitable levels. The allowance for loan losses for the first quarter was of $23.4 million, reflecting the portfolio's credit performance during the quarter. The valuation of receivable benefits from securitization transactions, contributed MXN 58.8 million this quarter, representing a lower figure compared to the first quarter of 2024, mainly related to the natural amortization of these portfolios back in the equity receivables and to the effect of the 0% rate indexation on VSM mortgages from Infonavit, which impacted the fair value of the equity receivables. Operating expenses totaled MXN 101.5 million. And as a result, the net income for the quarter stood at MXN 96.2 million, resulting in a net margin of 31%. As mentioned before, the estimated distribution for the first quarter of 2025, subject to the current distribution policy is of $0.352 per CBFI. We remain focused on maintaining operational efficiencies and financial stability, ensuring the creation of long-term value to our investors. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A session.

Thank you, Ignacio. To conclude, in 2025, we will stay focused on generating sustainable growth and enhancing profitability based on our sound financial position and disciplined active management. Our focus on higher yielding assets, the resilience of our consolidated portfolio and the ongoing optimization of our capital structure puts us in a strong position to selectively pursue new investment opportunities in the short and medium term. We will also continue strengthening our ESG initiatives, always aiming to create a positive impact for both our stakeholders and the environment. We're grateful for the trust and support of our investors and remain fully committed to executing our strategy with discipline and clear focus on long-term value creation and profitability. I would now like to hand the call back to our -- the operator to start the Q&A session.

[Operator Instructions] Our first question comes from Martin Lara.

This is Martin Lara from Miranda Global Research. I have the following questions. Do you think that the valuation of receivable benefits will continue to be positive this year if there is no regulatory change and help me see the leverage ratio in the next few quarters.

Martin, thank you for your questions. Yes, on the first one, in regards of the valuation of receivables and securitizations, we expect to keep performing and being positive, and we do not see any risk of, let's say, changes in our operations within the servicing companies, including Infonavit. And in regards of the leverage on the portfolio, we expect to take advantage of the ability that we have to lever up the balance sheet. It will depend a lot on the use of proceeds that we determine based on the optionality that we have today to execute on different strategic transactions, particularly on the acquisition of different, either portfolios and originators.

Okay. And you have a cash position of more than MXN 2.2 billion. Can we expect any extraordinary distribution or what are the plans with respect to this position.

That position on cash, it's basically ring-fencing part of our liabilities. Part of the cash is also in cash reserves that we need to keep based on the contractual agreements that we have on the securitizations, warehousing facilities and bank facilities as well. So depending again on how the company performs on the investments, that cash will be used this year and potentially next one. So we do not expect any outstanding or extraordinary distributions.

Okay. And I have another 2 questions. Could you please explain the increase in investment income and also the 92% reduction in other income in the quarter?

On the investment income, Martin, I'm looking at the financial statements in Spanish, but I assume you're talking about the [indiscernible], that is basically the return that we are getting because as you mentioned, we have our biggest position on cash that is being invested in different type of securities.

Okay. And the other income.

Could you give us more detail in which line you're looking on at financial statements?

It's on the -- let me look. Other income, it's on Page 5 of the press release before total revenues, it says other income, 92% reduction, the press release in English.

Yes, you're basically talking about changing from the MXN 10 million of other income that we got last year to reducing to MXN 800,000 for this one, right?

Yes, that's correct.

Yes, last year, we have an extraordinary income on the negotiation that we have with one of our originators in which we collect an additional profitability while putting back or selling some portfolio as well as negotiating some of the fees we were supposed to getting paid as part of the origination fees that we charge on every single mortgage that we purchased or originate. So basically, that was an effect last year. This year, as we started 2025 period, we haven't done those type of negotiations or we've been got that extraordinary effect. So that's the reason why it changed that much. But I think that based on the total size of our portfolio, it's not a relevant figure.

We would like to take this moment to thank you for joining FHipo's First Quarter 2025 Results Conference Call. We have not received any further questions at this point. So that concludes your question-and-answer session. I would now like to hand the call back over to Daniel Braatz for some closing remarks.

Thank you, everyone, for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in our company and look forward to speaking with you soon.

That concludes today's call. You may now disconnect.