Hello, and welcome to today's Q1 2024 Results Conference Call and Webcast. My name is Leslie, and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's conference call and webcast are being recorded. During the presentation, we will have a question-and-answer session. To follow the conference online, please visit https://consorcioara.transmision.com.mx. The word "transmision" is with one S only. If you would like to view the presentation in a full-screen view, please click the full-screen button in the upper left-hand corner of your screen. Press the same button to return to your original view. It is now my pleasure to turn today's program over to Alicia Enriquez, Co-Chief Executive Administrative and Finance Officer. Please go ahead.
Thank you, Leslie. Good morning and a warm welcome to our conference call on the first quarter 2024 results of Consorcio ARA SAB. This call will be also transmitted via webcast accompanied by a slideshow for visual support. With me on the call to discuss the results are Luis Felipe Ahumada Russek, Vice Chairman of the Board, and Miguel Lozano, Co-Chief Executive Operating Officer. Germán Ahumada Russek, Chief Executive Officer and Chairman of the Board, will not be joining us in the call at this time. I want to alert everyone that certain statements and comments made during the course of this call must be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Consorcio ARA believes that such statements are based on reasonable assumptions, but there are no assurances that current outcomes will not be substantially different from those discussed today.
All forward-looking statements are based on information available to the company on the date of this call. The company is under no obligation to publicly update or revise any forward-looking statements as a result of new information that may become available in the future. As usual, at the end of our prepared remarks, there will be time for Q&A. We'll wait until then to open the line. Results for the first quarter of 2024 compared to the first quarter of 2023. In the first quarter of 2024, our revenues came to MXN 1.59 billion, MXN 1.53 of which came from the sale of 1,352 homes at an average price of MXN 1,132,600.
As we mentioned yesterday in our report by the CEO, we wanted to make note that in the first quarter, we titled homes under the Build with Infonavit or Line 3 Loan Scheme, totaling MXN 270.4 million, mainly in the affordable level check. The income from homes titled under this scheme is not entered on our income statement until the time the home is delivered to the buyer. Once the home is titled, the developer has a maximum of six months to build and deliver it. You may recall that this type of loan allows Infonavit beneficiaries to build their homes through a developer in an authorized housing complex, comprehensive mode. One of the benefits is that it requires a qualifying score of just 884, sorry, for the borrower, lower than what they need for a traditional loan.
During the construction period, the developer receives installments as the work progresses under the supervision of a managing financial entity. Although the housing revenues reported in the income statement for the first quarter of this year show a decrease of 3.9%, if we count the MXN 270.4 million in homes titled under Line 3, which will be booked as revenues in the next six months, there was a solid growth of 10.8%. Elsewhere, as we announced in our report for the fourth quarter of 2023, in the aftermath of the devastating Hurricane Otis, our revenues in the city of Acapulco declined significantly. To put this in context, in the first quarter of 2023, revenues from Acapulco accounted for 16.3% of our housing revenues, while in the same period of this year, this share dropped to 8.4%.
Although we are still at only half of pre-Huracán revenue levels for the city, we see this as encouraging, as it is better than we had estimated, taking into account the magnitude of the disaster. Breaking down our revenues by segment, affordable entry-level homes brought in MXN 596.1 million in sales and grew by a solid 32.3%, mainly due to the sale of homes in a development that was affected by a delay in obtaining permits in the fourth quarter of 2023. In the middle income segment, revenues total MXN 631.5 million, a 5.2% year-over-year growth. Residential segment revenues total MXN 303.6 million, down by 44.1%, largely due to lower revenues in the city of Acapulco, as well as to vertical developments currently under construction, which will not be entered as revenues until the second half of the year.
Revenues from other real estate projects in the first quarter of this year came to MXN 62.3 million, a growth of 3.2% compared to the first quarter of 2023, supported by higher revenues from our shopping center division. In the revenue mix for the first quarter of 2024, affordable entry-level homes accounted for 37.5%, middle income homes 39.6%, and residential homes 19%, while the remaining 3.9% came from other real estate projects. In the first three months of the year, operating income was MXN 162.5 million, with a margin of 10.2% stable compared to the same period of last year. EBITDA was MXN 235.3 million, and the margin was 14.8%, 90 basis points higher than in the first quarter of 2023, mainly due to higher interest expense entered under cost.
Net income came to MXN 143.6 million, and the margin fell by 70 basis points to 9%, mainly because of a drop in interest income. Between January and March, free cash flow to the firm was negative by MXN 137.3 million. Although excluding land purchases, it would have been practically unchanged. The land bank we acquired will allow us to continue operations in Tijuana, Baja California, a city with very good short-term and long-term prospects for housing demand. Financial position as of March 2024. Cash and cash equivalents total MXN 2.06 billion as of March 31st, 2024, 10.5% lower than at the close of 2023, mainly due to the purchase of land that I just mentioned, as well as investment in housing development inventories.
Accounts receivable entered the first quarter of the year at MXN 773.8 million, 7.2% higher than on December 31st, 2023, largely due to a slower pace of collection over the Easter week holidays. Accounts receivable turnover was 1.4 more. Total inventories as of March 31st, 2024, amounted to MXN 17.2 billion, 2.7% higher than at the end of the previous year. Cost-bearing debt came to MXN 2.42 billion as of the close of March, 2% lower than at the end of 2023. Short-term maturities, meaning debt coming due in the next 15 months, made up 10.5% of cost-bearing debt, and long-term debt 89.5%. As of March 31st, 2024, 69.8% of our cost-bearing debt was in the form of the ARA 21-2X and ARA 23X notes. 16.1% were simple secure loans for our shopping centers. 7.2% were simple unsecured bank loans without real estate collateral.
The remaining 6.9% were lease liabilities. Net debt at the close of the first quarter of this year was positive by MXN 357.7 million. Leverage ratios remain at optimal levels. Cost bearing debt to EBITDA was 2.44x. The net debt to EBITDA ratio was just 0.36x, while the net interest coverage ratio was 3.07x. And if we base this ratio on coverage of net interest, meaning interest expense less interest income, it could be at 16.12x. On March 12th, Fitch Ratings reiterated Consorcio ARA's long-term national-scale rating of AA+ with a stable outlook, as well as AA- rating on the ARA 21-2X notes.
According to that agency, Ara's ratings recognize its strategy of maintaining a strong land bank in addition to its focus on maintaining a solid financial profile with high cash balances and temporary investments, and revenues diversified across various market segments. This was coupled with an expectation that leverage will remain in line with the rating and the company's ability to generate positive free cash flow. This report can be viewed at www.consorciora.com.mx. Housing industry performance. According to Mexico's National Institute for Statistics and Geography, INEGI, in the first two months of 2024, industrial activity in general grew by 1.5% compared to the previous year. Construction industry growth was 12.1%, and in 2023, it was driven mainly by civil engineering works. The building subsector, which includes housing and industrial-based, grew by 5.1%.
According to data from the Unified Housing Registry, in the first quarter of the year, 44,292 homes were registered, a 4.2% increase from the same period of last year, and 28,999 homes were produced, a slight growth of 1.1%. Regarding lending so far this year, information has not just been published on the website of the Ministry of Agrarian, Territorial and Urban Development, or SEDATU. However, the housing institutes have published some information individually. Infonavit reports that in the first two months of the year, it had placed 23,972 loans for new homes, an increase of 34% over the first two months of 2023. FOVISSSTE reports 3,579 loans for new homes in the first quarter of this year, an 11.6% increase compared to the same quarter of 2023. Infonavit continues to design new credit options to extend home buying options to a greater number of beneficiaries.
In late May, it is expected to activate its Let's Join Our Credits with Line 3 scheme, which we have mentioned in early reports. This is a system by which two people can co-own a home, either with a family member such as parents, children, or siblings, or with a co-resident friend or partner without having to prove marital status. In 2023, 11% of our revenues came from the Let's Join Our Credits scheme. In the first quarter of 2024, 58.7% of our revenues came from homes financed by Infonavit, 12.9% from FOVISSSTE, and the remaining 28.4% from commercial banks and homes purchased without financing shopping centers. In the first quarter of 2024, revenues totaled MXN 117.8 million, a solid 18.3% growth compared to the same period of the previous year, while net operating income was MXN 84.2 million, 21.9% higher.
These results correspond to shopping centers that are 100% owned by ARA and are consolidated into our financial statements: Centro San Miguel, Plaza Centella, Centro San Buenaventura, and Plaza Carey, Uni and Mini as well, as 50% of Centro Las Américas and Paseo Ventura, according to our stake in those properties, which are entered under the equity method. Total Gross Leasable Area in our six shopping centers and Uni and Mini shopping centers is 205,484 square meters. The occupancy rate as of March 31st, 2024, was 94.7%, a very competitive level. Cancellation of shares. Yesterday, Consorcio ARA shareholders met for a General Extraordinary and Ordinary Annual Meeting, in which they approved the cancellation of 13,475,534 shares, which had acquired using the stock repurchase bond and representing 1.1% of our total capital stock. After that cancellation, our capital stock consisted of 1,222,625,553 shares. Conclusions.
In Mexico, housing demand continues to enjoy solid fundamentals. As we noted earlier, both housing production and mortgage loan origination have a good start to the year. As we all know, inflation has slowed over the last year, and last March, Banxico cut its benchmark interest rate to 11%. Ara has a substantial high-quality land bank, as well as a diversified product portfolio, which places us on solid footing to continue participating actively in our industry. We also have experienced, robust finances, and a strong team of employees. For the remainder of the year, we will continue to focus closely on meeting our goals for revenue growth and generation of free cash flow for the firm. Thank you, and we will now move on to the question and answer. Please. We will now start the Q&A session.
We would like to take any questions you might have for us today. If you would like to ask a question over the audio line, please enter star eight on your telephone keypad. In case your question has been answered, you may cancel it by pressing star eight again. If you have been listening to the webcast and would like to ask a question, you may type your question using the chat area located on the right-hand side of your screen and click Submit. We will begin by answering questions from the audio lines, followed by those we receive from the webcast. The first question from the audio lines is from Mr. Gordon Lee from BTG Pactual. Please go ahead.
Great. Thank you very much. Thanks very much for the question or for the opportunity to ask a question.
It's two or three questions really related to the Línea 3 from Infonavit. And I was wondering, Alicia, if you could tell us a couple of things. One, is it similar profitability to the sort of normal Infonavit project? Second, does the customer select a prototype of Ara, or are these more custom-made? And that's why I asked the question on profitability. And the third question is the collection. Is that Infonavit risk that you're taking? In other words, you're collecting from Infonavit, or are you taking client risk when you're waiting for that collection? Thank you.
Hi, Gordon. Well, it works exactly as a bridge loan. Our client goes to our housing development and chooses a prototype. They don't have the chance to change anything about the house. He or the home buyer just chooses a prototype, and in six we title the house.
This is an important thing because we are building the house knowing that the sale is already there. So we title the house, and in six months, well, we have to up to six months. We can deliver earlier, but the maximum months or period is six months. We delivered the house, and it's when we recognize as revenues in as a revenues in our income statement. And the resources come directly from Infonavit. There's a managing financial entity that verifies as the work in progress is being executed. And it's exactly like a bridge loan. It's very positive, Gordon. We are very, very excited about this new scheme because it has a lot of benefits. As we mentioned, workers can buy faster a house because it requires a lower score, so they can buy faster a house.
And now, with this new scheme, the Let's Join Our Credits with Line 3, we are very excited because, as we mentioned, 11% of our revenues in 2023 came from this scheme. And for example, in the first quarter, it represented more than 15%. So we are very positive, very excited, and it has a lot of benefits to the home buyer and also to the housing developer because, as you know, in the traditional loan, we collect the price or the value of the house until we title well, after we title the house. So it's like a kind of bridge loan, Gordon.
Perfect. But if I could just follow up with just two clarifications. So the first is, but at the end of the day, your collection risk is your credit risk, let's say, is Infonavit, right, not the person buying. And the second question that's perfect.
Then the second question just is, from when you title the home to when you deliver and record the revenue, where we see any sort of where it's reflected on your financials is just work in process inventory. Is that right?
Exactly right. That's correct. It's in our work in progress. That's why it's also growing in the last quarter. But it will be something revolving. In fact, we started a little slow with Line 3, but in this quarter, we expect more revenues from this type of loan. But I think, well, or we estimate that for the second half of the year, it will be something revolving. For example, for this second quarter, we expect minimum to deliver houses for an amount of MXN 150 million, more than that we deliver in the first quarter that we just it was just MXN 30 million.
Perfect. Great.
Thank you very much.
In the time, it will be something revolving.
Understood. Perfect. That's super clear. Thank you.
Same thanks to you, Gordon. Very happy to hear you.
Thank you very much for your question. Our next question is from Mr. Antón Montecordero from GBM. Please go ahead.
Hi. Can you hear me there?
Sure. Hi, Anton.
Hi, Alicia. Thank you for taking my question. And it's a little bit related to the Line 3 program also. I was wondering if you expect to continue seeing the same level of sales of this program as the one seen during this quarter of around MXN 277 million. And if yes, will this mean that once the deliveries of the properties catch up, you will be having that as additional income on your top line for a sustained period of time?
Yes.
Well, last year, Antón, this scheme or Line 3 represented like 3% of our revenues. As I mentioned, we are very excited. We are very positive about this scheme. I already mentioned all the benefits that it has for the home buyers and for the home builders. And for this year, we expect at least this new scheme will represent around 10% of our revenues. And what happened is that at first, there was just a couple of projects registered because you have to register your housing development. And our salesforce is now more used to this new scheme, so they are asking us to register more and more housing projects. So it's growing.
For this year, yes, I think, for example, just imagine, when we start this second quarter, we already have, for sure, let me, to be precise, MXN 350 million for this new scheme because in the first half, it was MXN 277 million, but we have MXN 103 million more from the previous year. So that's for sure that in the six months, we already have this level of revenues. Unfortunately, we can't report it until we deliver the house, but well, financially and operationally, it's an excellent program, I could say. And something important, it's also that it's or mainly for affordable entry-level segment. As you know, without subsidy, it was a little delayed, so this new scheme helped to that segment.
Perfect, Alicia. Thank you.
Thank you, Anton.
Thank you very much for your question. Our next question is from Mr. Carlos Alcaraz from Apalache Research.
Please go ahead.
Good morning, Alicia. Thank you for taking my questions.
Hi, Carlos.
Hi, Alicia. Considering the current inflation environment, will you prioritize the sale of units over price increases, or what will you privilege considering the current market environment? And finally, second question, what is the status of your projects in Quintana Roo?
Okay. Well, well, in fact, our projects in Quintana Roo had an excellent first quarter. As you know, it's a great state for Consorcio ARA, and they did very well. In our report, we talk about a project in Tijuana, but also one project that we have to serve the affordable entry-level segment in Cancún did it really, really well. So our projects are doing very, very well. As you know, in 2022, 2023 mainly, we faced some challenges because the workforce was difficult to find and to maintain, but now it's more stable.
As you mentioned, inflation—well, and also we mentioned in the call, inflation has been decelerating, so that allows the demand to serve that allows us to serve the demand that we have. As you know, the housing deficit is growing, and without inflation already with inflation contained and also with a stabilization of the interest rate, I think the housing production is going to increase in this year.
Okay. Understood. One more question.
The prices—sorry, Carlos. Sorry. And the prices, well, you know, our average price and the prices for each of our segments, it depends on the kind of projects that we have because it's difficult to lower prices. Remember that we have two years of really high inflation rates, so it's difficult to lower the prices. On the contrary, but well, I see stable prices.
Okay. Okay. Just another follow-up question.
Have there been any labor shortages due to the conclusion of federal government projects? This kind of question for Quintana Roo.
Sorry, Carlos. Could you repeat it?
Yeah. Sure. You have there been any labor shortage through the conclusion of federal government project, Riviera Maya?
Yes. Yes. Yes. Yes. Yes. But no. Now it's stable. We don't have that problem.
Okay. Understood. Perfect. So thank you very much, Alicia, and congratulations.
Thank you, Carlos.
Thank you very much for your question. Our next question is from Mr. Adair Casco from Signum Research. Please go ahead.
Hello, Alicia. Thank you very much for receiving my questions and congratulations. I believe that we are actually very excited about this new line where you are developing. I have, well, some not concerns, more about questions on how will you report this information.
For example, I believe that this first quarter results that you reported to us, the amount that is not reflected on your statements, I believe, is the amount that you have been requested by clients to build, I believe. So you are counting this request as something that you are actually going to report maybe next quarter or maybe on the 3rd. So will we have a clarification on when were these projects were requested or started to build? And will this be reflected on your affordable entry-level volumes, or will we see a different category for this specific one?
Okay. So if I understood correctly, you would like to have more information about the projects that have this new scheme?
More likely. So just to clarify, so we can adjust our models to foresee how it is going on. Yeah.
Yes. But just your models as well.
In fact, we are expecting to grow in one-digit height, I think, for this year. But as I mentioned, it will be something revolving because we started to register some projects. So little by little, now we have more projects registered to this new scheme. And in this second half, also, there will be probably a negative effect, I could say, in our report, but it will be something revolving in the second half of the year. And in the time, you won't realize well, obviously, we are going to release this information, but in time, it won't be a significant effect because it will be something revolving. I mean, the homes that are titled or the amount of these houses, it would be the same amount of the houses that we will deliver. So it will be something revolving.
Great. It's very clear.
One more question, exactly for the same but turning more in about demand. Has it permitted you to maybe reallocate where you are developing projects because you are not the owners of the land? In this case, it's the client. How have you seen demand? Has it been from places where you were not constructing before, or is it coming from areas where you were already located? Well, as you know, we operate in 15 states. In the north part of Mexico, housing demand is doing very, very well. We know nearshoring is helping a lot. And in the center part of Mexico, I would say that housing demand is stable.
Well, an important place for us, as we mentioned in the call, is Acapulco, and is recovering. And in the south also, as I mentioned, they have an excellent first quarter.
I could tell you that housing demand is strong. We would like to look for more participation in the north part of Mexico. We are open, not just to buy land. We are open to participate in a joint venture or other scheme that let us enter to new markets. It's something that we are going to explore in the short term, I could say.
Okay. Thank you very much. Those were all my questions. Again, congratulations on the results.
Thank you very much.
Thank you very much for your questions. We have finished with the conference call questions and will now continue with the webcast questions. If you have been listening to the webcast and would like to ask a question, you may type your question in the chat located on the right-hand side of your screen and click Submit.
Thank you, Leslie.
Well, now we have some questions in the webcast. The first question is from Fernando from BofA Capital. Can you provide clarity on what percentage of the company's land bank is within the limits to receive credit financing from government institutions like Infonavit? Well, all our land is suitable for a house, so I would say that it depends on the demand. It depends on our clients. You don't receive permits directly from Infonavit. The second question from Fernando is, is the company planning to open new developments this year? Probably in Puebla, we can open a new project and another project for residential segment in Morelos, but it will depend on, well, this second one on our free cash flow generation. The first one, we are just near to start this project, well, in the second half of the year.
The question number three is, what is the company position on share repurchases this year? Well, we expect to oh, we have a budget of MXN 50 million. It can go to MXN 100 million, and we will follow the strategy to cancel this share every year. As we mentioned, we canceled 1.1% of our capital stock yesterday. The following question is, what is the company's position on share sorry. Where do you register? This question is from Pedro Antonio Milán. Where do you register income from commercial centers? Well, it's in the other real estate projects and represents around 3% of our total revenues. Well, as we mentioned, it just corresponds to the four shopping centers that are consolidated into our financial statements because, as we mentioned, we have two very successfully mainly one, Centro Las Américas, that did success.
But this is registered by the equity method in our income statement. The following question, can you provide clarity on the excess real estate that the company has, particularly the property in the Riviera Maya and Baja California? Well, we are exploring different options. One is to get a partner to develop these projects or do it by ourselves or even sell them. We are exploring some options that we have. The following question, can you—it's the same. And that's it. That's it. Well, thank you very much for your interest in Consorcio ARA, S.A.B. de C.V. Have a great day. Thank you, Leslie. And thank you, everyone. Leslie, can we finish the call, please?
Yes. We have a few more questions from the audio line.
Okay. Go ahead, please.
They have disconnected from the call.
Okay. Thank you very much.
This concludes the question and answer session for today. Consorcio ARA would like to thank you for participating in today's conference call and webcast. You may now disconnect.