Grupo Gicsa S.A.B. de C.V. (GICSAB) Earnings Call Transcript & Summary

Good day everyone, and thank you for standing by. Welcome to GICSA's Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the call over to Rafael Borja, of InspIR Group. Sir, you may begin.

Thank you. Hello, everyone. I'm very pleased to welcome you to GICSA's Fourth Quarter and Full Year 2022 Earnings Conference Call. Joining us today from GICSA is Mr. Diodoro Batalla Palacios, Chief Financial Officer. He will discuss GICSA's fourth quarter and full year 2022 consolidated results per the press release issued by the company yesterday. If you wish to be included in future distributions or press releases, please contact us at InspIR Group in New York at (212) 710-9686 to be added immediately. A special note to any members of the media who are joining us today. We would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. If you're a member of the media and wish to direct any questions to the company, please contact the company directly after the call. Also, please note that during this call, comments made by management may include forward-looking statements, which are subject to various conditions and uncertainties based on a variety of factors. These forward-looking statements may differ materially from actual results Thus, we ask that you refer to disclaimer located in the earnings release prior to making any investment decision. It is now my pleasure to turn the call over to Mr. Diodoro Batalla, Chief Financial Officer of GICSA, who will lead today's presentation. Diodoro, please go ahead.

Thank you, Rafa, and hello, everyone. I welcome you to our fourth quarter and full year 2022 earnings call. I would like to begin today's review by providing an update on the most recent [ tactical ] messages implemented to the [ quarter ] to improve our balance sheet, among other aspects of our business strategy as well as discuss our operational and financial results for the fourth quarter 2022. After that, I will be happy to answer any questions you may have. During the quarter, we remain focused on preserving liquidity and reducing leverage while advancing in our growth plan on our business and financial strategies. As we announced last July, we sold the Explanada Aguascalientes property for approximately MXN 400 million. Today, we have received 2 out of 4 payments and as agreed with our bondholders, we used these proceeds to prepay MXN 198 million to GICSA 15, GICSA 17 and GICSA 19 local bonds. In addition, last December, we signed an agreement with Liverpool for the 50% participation in the Paseo Metepec shopping mall. As part of this agreement, Liverpool will contribute MXN 1.3 billion. Out of this amount, MXN 980 million will be allocated to finalize the construction of the shopping center and MXN 387 million to complete their 50% ownership stake. In December, we received MXN 687 million, out of which the MXN 387 million were used to prepay GICSA 15, GICSA 17 and GICSA 19 local bonds and the remaining MXN 300 million will be used for the construction. While the remaining MXN 680 million of Liverpool contribution will be received as we progress with the construction. We are expecting to finalize during the first quarter of 2024. It is important to note that once construction is complete and the shopping mall begins operation, GICSA will resume its efforts to sell its stake in this property as agreed with the bondholders. [ The proceeds ] will be used to prepay the local bonds GICSA 15, GICSA 17 and GICSA 19. Moving to our operational results. We closed the quarter with 950,000 square meters of GLA, comprised of 17 properties in operation, while GICSA's proportional GLA represents 85% of the total GLA. During the quarter, we welcomed 20 million visitors to our properties a year-over-year increase of 15%. While for the full 2022, the number of visitors increased 29% compared to 2021, which represents [ 90% ] of the pre-pandemic levels. In addition, during 2022, our tenant sales increased [ 18% ] compared to pre-pandemic levels. The occupancy rate at the end of the fourth quarter was 84% in our operational portfolio. During the quarter, we signed 54 new leases equivalent to nearly 50,000 square meters. And in the full year, we signed 279 new leases equivalent to 79,000 square meters. At the close of the fourth quarter, the commercialization of the properties under development and in stabilization, namely Explanada Culiacán, Masaryk 169 and Grand Outlet Riviera Maya, totaled 70,000 square meters, representing 60% of the GLA. Regarding the Cero5Cien residential projects, 62 units have been sold to date, out of which 21 units have been delivered to the client for their own interior customization. Once the construction of this project is complete, its remaining cash flow would be used to reduce our indebtness consistent with our financial strategy. Now let's cover the quarter financial highlights. Fourth quarter consolidated and proportional NOI were MXN 718 million and MXN 598 million, representing a year-over-year increase of 83% and 79%, respectively, mainly due to a MXN 377 million accounts receivable write-off that we performed at the close of 2021. While for the full year of '22 represented increases of 15% and 14%, respectively. Consolidated and proportional EBITDA were MXN 450 million and MXN 330 million, increasing to 204% and [ 221% ] compared to the same period last year. While for the full 2022 increases was 22% and 23%, respectively. Consolidated financial debt was MXN 28 million and our loan-to-value ratio was 38%. As a summary, 2022 was a year in which we continued focusing our efforts in mitigating the adverse effects of the pandemic. For that, we implemented a company-wide strategy that we call CORR, collect, operate, renew and rent, which consists in specific actions to impact those 4 indicators. Operational improvements includes a recovery in occupancy level and collections with an 18% increase in our operating cash flow. Also, during 2022, we made meaningful progress in our debt profile. We managed to restructure our 5 local bonds and our preferred equity instruments, Junior Notes. We prepaid MXN 742 million in bank loans, MXN 585 million to local bonds and MXN 1.3 billion in the Junior Notes, reducing our debt in a total of MXN 2.9 billion and extending our maturities for more than 5 years. To conclude my remarks, although we have [ accomplish ] a lot of under our improvement plan. We continue implementing various strategies to reposition our company for long-term success, and we remain committed to recover our historical occupancy and liquidity levels with our CORR strategies, selling our nonproducing assets and improving our financial structure. This concludes my presentation. Thank you again for your attention. And now let's open the call for questions.

[Operator Instructions] We'll take our first question from Simón Fuenzalida with Moneda Asset.

I was wondering if you can provide some outlook regarding the commercial, mixed-use and office properties for 2023?

Specifically in offices, as we all know, market is not smooth as in the retail portion of our business. So we -- in our strategy, we implemented a new commercial team for offices. And we are very, very optimistic in the commercialization. We might have a little bit of impact in the price. We may not be able to increase our prices to reflect the whole inflation, but we expect to rent almost all the occupancy, the vacancy that we have.

And regarding commercial and mixed use?

Excuse me?

Regarding commercial properties, how the occupancy rate will evolve during 2023?

During 2024?

2023, commercial properties.

2023, we have commercial properties, retail is 85% and offices is 83%. We have a vacancy in offices of around 35,000 square meters -- and for retail, 113,000 square meters of vacancy.

Perfect. And any region that you're putting some focus on?

Any what…

In which region are you going to put your efforts? [indiscernible].

We -- if we put numbers on that vacancy that we have, we have like MXN 700 million of yearly income that we can have if we manage to commercialize this back and so our focus is in all our properties. We don't have a specific focus in many of them. Some of them are more [ cuter ] than the others, but our efforts are equally focused in all of our properties.

Perfect. And my last question, what is the finance income, the increase [ that we saw ] around MXN 430 million? [indiscernible] the finance income in the P&L. If you go into the income statement there is a finance income of MXN 430 million for the 4Q. I don't know if you can comment on that?

Okay. This has to be with the difference that we have in the exchange rate for the credit -- the loans that we have in U.S. dollars. So we have a difference. So that give us an income because it's -- exchange rate is lower.

[Operator Instructions] We'll take our next question from Erica Roa with Mackenzie Investment.

I have a couple of questions about [ couple ] properties. And I would like to know what do you think in terms of [indiscernible]. The first one is Explanada Culiacán and the occupancy rate is 57%. And it was around 84% by the second quarter of 2020? And any specific reason that the GLA is at this level in any specific [indiscernible] to overcome this. The same question for the Masaryk property now is around 30% in terms of occupancy, and it was around 90% in '20. And can you comment on those properties and what is the [indiscernible] the trend that you are seeing there?

Well, Explanada Culiacán, as you know, we opened that in the middle of the pandemic at the end of 2020. So we have some difficulties and most of the tenants did not open. They weren't able to open their spaces. And we have done a lot of actions in that property. We finished some [indiscernible] that were pending to finish during this time, access to different parts of the city. We have signed a [indiscernible] in the property. So we expect this property to take its stabilization process that has been longer than the others because of the time that we opened. That is Explanada Culiacán. And Masaryk, I don't understand because Masaryk, we have 2 properties in Masaryk, I'm pretty sure you are maybe – Masaryk 169, what we have is…

Yes. 169 that one.

Yes. In 2020, we were only representing our commercial spaces which was the lower level because we didn't have the permit to commercialize the second and third level. [ It's a small ] property. And now that we have the permits, we are commercializing in the office space. So that is why the GLA grow -- grew in the time. And now it's open for commercialization. We signed in the first -- in the lower level [ with the restaurants ]. And second level, we have a [indiscernible] and we have another 2 levels to commercialize. But we have the [indiscernible].

Okay. And any -- I don't know, any visible tenants for the area that is not occupying, not right now?

Yes. I mean we have a lot of pipelines, but everything is coming. As you know, this [indiscernible] very -- there are a lot of clients that want to be there. But everything is in the [ kitchen ]. So we are talking with a lot of clients. As I said, we just implemented a new commercial department for their offices, and they are working very hard in cover that part.

And I would like to know what is the strategy in terms of liquidity and cash flow. I know this is a core of your strategy, [ that ] right now, but do you have any outlook that you can share with us at this moment?

Well, yes. I mean, we have mainly 2 lines of actions. The first one is to increase our operational cash flow by renting the [ space ]. And as I tell you, if we commercialize that, we will have MXN 700 million more of cash flow. And the [indiscernible] strategy that we are pursuing is to sell the nonstrategic -- the nonoperational properties and development properties that we start to develop and now we are not developing and we are selling them -- we already sold our Culiacán [indiscernible]. We sold [ Aguascalientes ]. And we signed the agreement with Liverpool to finalize Metepec and then sell our stake, we expect at a higher price. And so we will -- and also all the -- for the [ excess cost ] from our residential project, will we use all of that to reduce our debt, and that will give us more cash to operate.

Okay. And did you have any target in terms of occupancy rate for this year that you can share right now?

Yes, in our target is to get back to 95%, which is -- which was our previous -- that is the level that we historically have in our properties. So we are going over to that objective.

And I have just one more question if it's okay?

Yes, please.

In terms of the payment, average rent, and we see a small decrease compared to 2021. Are you expecting any, I don't know, maintain that average rent or increase given the inflation pressures at this point?

Yes. We -- I mean... We -- sometimes we forget that 1 year ago, we were struggling -- we were still strongly with the Omicron -- so our project [ is got to ] close 12 months ago. So our tenants are still recovering, and our main strategy is to -- of course, we want to increase by inflation or more, but we analyze client-by-client how the [ client ] is going. And in that evaluation, we take decision to increment or not increment the rent for the client, especially during renovations. And also, what is impacting the price is that offices, all the spaces that we are renewing and that we are raising in offices are -- most of them at a little bit of a lower price, maybe between 8% and 10% discount.

Okay.

In order to... Decline and [ field ] occupancy.

No, that's okay. We understand. I just wanted to ask, giving the current inflationary pressure.

[Operator Instructions] And we will take a follow-up from Simón Fuenzalida with Moneda Asset Management.

Can you comment a little bit regarding the fixed revenues per property? Because when I see the revenues -- the fixed revenues in the press release, quarter-over-quarter, there are some big increases or decreases. For example, in Forum Cuernavaca, the fixed revenues went up from [ MXN 1 million ] to MXN 14 million. I don't know if you can comment why the properties have these changes so dramatically, there are fixed revenues -- is this seasonality? Or because I -- in the third quarter, it went pretty down like MXN 14 million versus, for example, the second quarter. I know you can't comment briefly about this variation.

As I just said to Erica, we go client-by-client, location-by-location and the prices at this point are more driven by the results our clients [ have had ]. We are -- some of our clients has a higher cost of rent. Some of them had a lower cost of rent -- and so I mean, at this point, it's very difficult to explain a tendency because we go client-by-client and the results. As you can see, that is why you see diverse increases and movements in the price in every property. We are analyzing case-by-case. So that's what I can tell you at this point. And just to clarify the previous question that you made us in the financial income, one, because I see that in the P&L, there is another line for the exchange rate -- so that is -- that was because I don't know if you saw our press release but when we restructure the Junior Notes, we paid MXN 650 million and they discounted us MXN 1.1 billion. So that difference is a financial income.

We have no further questions at this time. I would like to turn the call over to Mr. Rafael for any closing remarks.

Thank you very much, and thank you, everyone, again, for joining us today for our results conference. As a reminder, we are always available to answer any and all of your questions. So please do not hesitate to contact us if you have any after today's call or at any moment. On behalf of everyone at GICSA, we wish you a great day.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.