Ladies and gentlemen, thank you for standing by. I would like to welcome you to Fibra UNO's second quarter 2025 results conference call on the 25th of July, 2025. At this time, all participant lines are in listen-only mode. The format of the call today will be a presentation by the management team, followed by a question and answer session. Without further ado, I would like to pass the line to the CEO of Fibra UNO, Mr. André El-Mann. Please go ahead, sir.
Thank you, Luis. Thank you, everybody, for your attention to this call and your interest in our company. I would like to talk about the results of the quarter, of course. But before we do that, we want to have the opportunity to talk about the successful IPO of Fibra NEXT that took place a couple of days ago. The short-term goal of this new company is for us to consolidate the industrial assets. With this, we will be witnessing the creation of a giant, the largest pure industrial real estate in Mexico, and the potential of becoming amongst the largest of the world in the midterm, with a clear goal of achieving closer to 250 million square feet in the midterm. Partnering with the recently created and launched Fibra NEXT will bring us the opportunity to continue to grow in the industrial space sector.
This potential alliance will be the creation not only of the largest, but of the best company in pure industrial assets. Furthermore, Jorge Pigeon will take you through the numbers of this particular quarter in Fibra UNO. We posted growth of around double digits area all across the board. We want to preserve the ability to astonishment. We do not want to lose that. We really astonish ourselves with the endurance and resilience of the company. With the new steps that have been taken, which I described earlier on with the launch and IPO of Fibra NEXT, we expect to continue the good work in our company and enter this potential new era for the company with growth and improvement of all of our metrics. In the ESG front, Jorge will walk you around the achievements of the quarter.
I just want to stress out that we achieve and receive qualification. We obtain a certification on two companies in which one of them is the first ever awarded in the whole world. Jorge will tell you about this in detail, and I am just proud and pleased to give word to you of these achievements of the company. Before I pass the mic to Jorge, I would like to thank really to all of our collaborators. All of my colleagues have been working overtime in order to get things done. Many of them had a direct impact on the placement of the IPO of Fibra NEXT, and I am very pleased to see everything finished. We get to the finish line, and this will bring very good news to our company in the near future and in the midterm.
I just want to thank again all of them for their commitment, and we look ahead for a very bright future for our company and our sister company, Fibra NEXT, once we make the potential joint venture of our industrial assets with them. I will see a very bright future for our company, and I expect you to accompany us in this adventure again. Thank you very much, and I would like to pass the mic to Jorge Pigeon to talk about the numbers in detail. Jorge, please.
Thank you very much, André, and thanks everybody for joining our quarterly call. As usual, I'll start with the quarterly MD&A, starting with the P&L. On the revenue line, we saw a MXN 99.5 million decrease quarter-over-quarter to be at MXN 7.5 billion. This is mainly a seasonable issue resulting of a combination of different factors. Primarily a decrease in variable revenue related to seasonal factors, and then 40 basis points decline in occupied gross leasable area. I'll go a little bit into the detail of what happened with occupancy. Nothing specific that marks a change in trends or anything like that. More of a series of one-off things that I'll describe briefly. Also, we had the impact of the peso-dollar exchange rate appreciation, and obviously that has a negative effect, let's say, on the peso side of our rents denominated in U.S. dollars.
On the positive side, we have inflation indexation of our active contracts and obviously the rent increases from lease renewals. Net effect of that was a decrease of 1.3% quarter-over-quarter, and an increase, as André mentioned, of double digits, around 10%, year-over-year. In terms of occupancy, the operating portfolio stands at 95%, which is the sweet spot, let's say, of where we want to see the portfolio of the company operating. 95% is sort of the ideal occupancy number across the different sectors. This is a 40- basis point decline compared to the previous quarter. In the industrial portfolio, we recorded 97.4%, 80 basis points below the first quarter of 2025. Not related to any specific trend as I mentioned, just a group of smaller tenants that left some of the properties that we expect, obviously, to rebound quickly.
The retail portfolio recorded 93.7%, 10 basis points below the previous quarter. The office portfolio, we recorded 82.2% occupancy, 20 basis points below the previous quarter. Others stood at 99.3%, which is stable versus the first quarter. The in-service portfolio recorded an 80% occupancy, which is 10% above the previous quarter. Obviously, this portfolio is not yet included in the operating portfolio, so the net effect, all things included, could possibly have been an increase in the occupancy. So we're pleased with our performance of the overall portfolio. In terms of operating expenses, property taxes, and insurance, we saw a decrease of MXN 15.3 million quarter-over-quarter. Mainly due to the ongoing effects to maintain a stable operating expense environment, partially offset by above inflation increases in the cost of some of services and supplies.
Property taxes also increased 3.8% or 1.8% compared to the first quarter of 2025, mainly due to updates at the properties that transition from development to operational. Insurance expenses also increased MXN 314 million or 13.3% versus the first quarter of 2025, m ainly due to the biennial renewal of our insurance policy. As we've discussed before, we've seen a spike in the cost of insurance for a while now. We're happy with the number, but it's definitely been a tough negotiation to get that expense line under control and at that level. At the end of the day, this resulted in a net operating income decrease of MXN 71.2 million or -1.3% quarter-over-quarter. NOI margin calculated over rental revenues was 82.2% and 74.3% against total revenues.
In terms of interest expense and interest income, we saw an interest expense decrease of MXN 42 million or 1.4% compared to the first quarter of 2025. Mainly due to the reduction of the interest rate in pesos and the effects of variable rate debt. The appreciation of the exchange rate, which went from MXN 20.31 to MXN 18.89, and the effect on interest payments during the quarter. It was offset by a decrease in interest expense capitalization, which we continue to see as we transition to a more stabilized portfolio, and the impact of pricing of our derivative financial instruments. FFO, funds from operation, as a result of the above, controlled by FUNO, decreased by MXN 40 million or -1.7% compared to the first quarter of 2025, reaching MXN 2,344,000,000. Adjusted FFO is the same number, a decrease of MXN 40 million. So a total of MXN [2 ,344,000,000].
FFO and AFFO per CBFI during the second quarter of 2025 stood stable as we did not issue or repurchase CBFIs during the quarter. The CBFI count is 3.805 billion CBFIs. The average FFO and AFFO per CBFI was MXN 0.61, MXN 0.62 per CBFI, a decrease of 1.6% compared to the previous quarter. The quarterly distribution amounted to MXN 2,169,000,000 or MXN 0.57 per CBFI, which corresponds 100% to fiscal results and represents a quarterly FFO payout of 92.5%. Moving to the balance sheet. Accounts receivable total, MXN 2.4 billion, a decrease of almost MXN 50 million or 2% compared to the previous quarter. Investment properties, which is the value of investment properties, including financial assets, investments in associates, et cetera, increased by MXN 823 million or 0.2% compared to the first quarter of 2025. Resulting primarily in CapEx invested in our operating portfolio.
Although we are not actively developing large -scale portfolios or properties like we have in the past, we continue to invest in improvements in our property. So CapEx invested in the portfolio played a role here. An investment property fair value adjustment, as you know, normally during the course of the year, we do an internal adjustment. On year-end, once we have closer to the end of the year, we bring in the third- party appraisers to appraise the whole portfolio. In terms of debt, total debt stood at MXN 147.4 billion compared to MXN 151.7 billion the previous quarter.
Variation was mainly due to the prepayment of our senior unsecured local bonds, the FUNO 15 and FUNO 21-2X, for MXN 7.48 billion and MXN 5.2 billion respectively, and the issuance of our senior unsecured local bonds, the FUNO 25-L and FUNO 25-2L, for MXN 3.7 billion and MXN 9 billion respectively. A net increase of MXN 710 million in bilateral lines of credit, and the effect of exchange rate appreciation as the peso moved from MXN 20.31 to MXN 18.89 per U.S. dollar. The total equity increased by MXN 4,361,000,000 or 2.3%, including participation of controlling and non-controlling interests compared to the previous quarter. This is primarily due to the net income generated from quarterly results, derivatives valuation, shareholders' distribution resulting from the first quarter results, and the employee compensation plan.
In terms of operating results, we are pleased to announce that we saw renewal contracts in peso terms with a leasing spread of 1,840 basis points or 18.4% in the industrial segment. We continue to see very solid performance and demand for the industrial segment. We also continue to see very solid performance in the retail segment with 700 basis points, 530 basis points in the others segment. We also managed to see a slight increase in the office segment of 210 basis points. For dollar-denominated lease renewals, we saw 12.3% for the industrial segments. We're very pleased to see that 12.3% increase in dollar terms. Almost 9%, 890 basis points in the retail segment. We saw a slight decrease of 230 basis points in the office segment.
In line with what we have been guiding the market, basically high mid-double-digit growth in the industrial sector, between 7% and 10% growth in the retail segment, and stable leasing spreads for the office segment. Completely in line with the guidance and the expectations that we've had for the performance of the portfolio. In terms of custom properties, the retail price per square meter in constant properties increased by 5.2%, slightly above inflation. Annual weighted average inflation was 4%. Therefore, we had 120 basis points on top of inflation, which we feel is a very solid and very positive result for the company. At the sub-segment level, the portfolio's total annual rent per square foot went from $12.8 per square foot to $12.5, or 2.1% compared to the previous quarter.
This is mainly due to the peso appreciation and the effect it has on U.S.-denominated rents, which was partially offset obviously by rent increases in the current contracts and the leasing spreads and rent renewals I just mentioned above. Total NOI at property level for the quarter remains stable compared to the previous quarters, and the variables on the sub-segment basis were from the industrial segment logistics, we saw a decrease of 2.6%, light manufacturing decreased by 6.2%, business park increased by 8.1%. The decrease in light manufacturing sub-segment is mainly due to the exchange rate appreciation and its effect on U.S. dollar-denominated rents, as well as an early exit penalty that occurred during the first quarter of 2021 and was not present, obviously, during the second quarter of 2025. The office segment NOI increased by 8.2%, mainly due to rent updates on contracts that we have.
In the retail segment, fashion mall sub-segment decreased by 8.7%. Regional sub-segment was almost flat, basically. Standalone sub-segment increased by 8%, and we saw a decrease in both fashion mall sub-segments, which was due to variable rent income and seasonality. The other segments NOI decreased by 1.9%, also attributable to hotel variable income and seasonality. With this, I conclude the comments of the MD&A of the quarterly results. Luis, I would ask you if you can poll for questions, then we can open the floor for Q&A. Luis?
Hello, can you hear me?
Yeah. Now we can.
Okay, perfect. Sorry about that. Thank you very much. We will now be moving to the Q&A part of this call. If you would like to ask a question, please press star two on your phone and wait to be prompted. If you dialed in by the web, you can type your question in the box provided or request to ask a voice question. We will wait a few moments for the questions to come in. Okay. Our first question is from Pablo Monsivais from Barclays. Your line is now open. Please go ahead.
Hi. Good morning, everyone. I guess this question is more for André. André, in your remarks, you mentioned that your short-term goal remains to establish a JV with Fibra NEXT. I was wondering if you can provide a little bit more color on the timing, on the size, and the next steps for these two to materialize. Should we expect to conclude all these transactions by the summer, or it's more towards year-end? Also on the internalization process, what's next? What's the next step to see this materializing? Thank you.
Okay. First question first. I didn't quite get the second one, so I'll ask you to repeat it further on. I don't know the exact timing. What I do know is it's going to be a matter of very short time. Remember that we were supposed to do everything together back in November of 2023. Due to the structure of the approval that we got from the tax authorities, we decided to do step by step. The second step is contingent to get the approval of the CNBV, of course, and making the assembly, et cetera. It will take you a few days, a few weeks, a few months. It's going to be very short-term, but I wouldn't want to guess an exact time, more precise time than that. If you can tell me the second question, please, Pablo.
Sure, absolutely. The second question is about the internalization process. What are the next steps for this to happen?
Okay. We're working on having everything protocolized. I think that this should take place, of course, this year. I would think that everything is going to start fresh on January 1st.
Perfect. Thank you.
Thank you.
Thank you very much. Our next question is from Francisco Chávez from BBVA. Your line is now open. Please go ahead.
Hi. Thanks for the call. First of all, congrats on the IPO Fibra NEXT, and also on the solid results. My question is regarding your balance sheet and the credit rating. Can you share with us what are your main drivers to lower leverage, and also manage? And also if you can share with us how your conversations with credit rating agencies are going. Thank you.
Sure. Jorge, please.
Sure. In terms of the expectations, obviously, with the consolidation that we expect to have, and obviously this is not going to happen immediately. We need to take that second step that André was mentioning, that we see as let's say, imminent. It should occur in the very short term. The joint venture with FUNO and the completion of all the transaction you saw back in November of 2023. We should see that imminently happening. With that, we should see a lowering of the LTV and net debt EBITDA metrics at FUNO below the thresholds that both rating agencies require for a stable minimum BBB-, Baa3 credit rating. That's sort of the expectation that we have at a minimum to be on a stable investment grade credit rating once we complete this transaction, which should be imminently.
In terms of conversations with both rating agencies, obviously they have access to, let's say, non-public information of our business plans and everything ahead of those things. They're very well aware of what the plans are and where we're headed. I think we've delivered on 100% of every single thing we told them we wanted to do, from the refinancing of the 26 to the refinancing of the short-term bonds to the IPO of Fibra NEXT, et cetera. Everything is happening exactly as we planned and on the timing that we planned with the rating agencies. So our expectation would be to have the ratings stabilized, let's say, at a minimum on a BBB-, Baa3 scale. And obviously we have the goal of improving even those credit metrics.
Just with the capitalization that we get with the additional equity that's coming in with the JV that FUNO is going to have with NEXT. That in and of itself is going to put the rating metrics, let's say, solidly within those levels. Obviously, we haven't discussed a specific rating with any of the two rating agencies. That's a matter of the rating agency's decision. But from our point of view, we see that the numbers fall within the categories of what should be a BBB-, Baa3 rating. And that's where we should expect to land shortly.
Great. Also, just a follow-up. Can we expect asset divestment to speed up the deleveraging process?
We do have some asset divestments that we have offers on the table. There's a couple of things that we have been working on. Obviously that can accelerate a little bit the process. I would tell you that given the rate of speed at which our NOI is growing and the capitalization that we have, we don't necessarily have to divest assets to get to the credit rating. Of course, we can do that, and if we do receive a good offer at a good price, definitely we're willing to sell some assets. I think André mentioned in the past jokingly that he's only married to his wife, not any of the assets. So if you bid the right price, definitely we're willing sellers. We do have a couple of things in the pipeline that we're working on that are a very attractive valuation for us.
Probably you could see us execute some M&A shortly.
Thank you.
Thank you very much. Our next question is from Jorel Guilloty from Goldman Sachs. Your line is now open. Please go ahead.
Thank you for taking my questions. I have two. The first one is around the impact of FX appreciation so far this year. We were in a totally different scenario at the beginning of the year. I am just wondering how this impacts how you are thinking about the FFO payout going forward. That is the first question. The second question is, I know you do not publish same-store sales figures, but just wanted to get a sense of how your retail portfolio is doing. You are printing leasing spreads in the high single digits. I just wanted to take it a step above and just trying to get a sense of how the underlying tenant is doing. Are we seeing, on average, high single-digit growth for them, mid-single digit? Just to get a sense of the state of the consumer within your portfolio. Thank you.
Gonzalo, would you like to tackle that?
Yes. Actually, talking about the impact of the FX and the tariffs and everything on our retail, what we have been seeing on our shopping malls is more consumption. As you know, we receive the variable rents report every month from each one of our major tenants. What we have been seeing on those is just a growth on their sales. Net growth compared to last year, same store sales, it is better. The traffic that we measure on each one of our shopping malls, that increased. If we do the comparison since 2019 up to date, obviously it went down, deeply went down during the COVID 2021. As of today, if you compare 2019 to 2024 to 2025, figures are getting much better in real terms than what it were in 2019.
Great. On the potential dividend payout, I am just wondering what the effect of having a more appreciated peso can have on your potential payouts for dividends going forward.
The FX—
On an FX basis—
Go ahead, Jorge.
Well, I think obviously, we have to look at the combination of the net FX fiscal result. At the end of the day, what we expect it to be, that's a combination of how the FX behaves and how inflation behaves. We do have and are continuing to monitor this on a daily basis. Obviously, stronger FX means FX gain, that's part of the fiscal result. So we have to monitor that to see where we are. So far, we feel comfortable with the payout that we've had. But it's something that's ongoing, and we monitor on a quarterly basis, to make a decision about the payout requirement that we have.
As you know, in the past, we had a couple of years in the pandemic where we had a combination of high inflation and an appreciating FX that resulted in a fiscal result that was larger than our FFO. We are not in that situation today. But we are monitoring that closely to define what the payout should be.
Thank you.
Thank you very much. Our next question is from Jorge Vargas Cuadra from GBM. Your line is now open. Please go ahead.
Hello. Thank you for the call and congratulations on the results. This quarter showed strong leasing spreads, particularly in the industrial segment. Can you share what's driving these strong spreads? Is it market dynamics, specific geographies, or is it something else? Thank you.
Thank you for the question. Actually, it's the market dynamics already, but it's market dynamics particular to our portfolio. Remember that we are in the logistics and distribution sub-segment, much more inclined to logistics than manufacturing. The logistics will take place especially in the metropolitan areas of the biggest cities of the country. We are very much concentrated in the metropolitan area of Mexico City. You have been seeing in Mexico City, the rents. First, the occupancy is almost getting to 98%, and the rents are coming up very strong because there's lack of space in this particular area. So it's related only to our portfolio. We've been saying day in and day out that we have the best portfolio, and I think these results are only the reflection of what we have been saying. We have the best location in town by a mile.
It's only showing that in the results. That's why we have been able to have this very strong occupancy and strong growth on the rents.
Thank you.
Thank you very much. Our next question is from Pablo Ricalde from Itaú. Your line is now open. Please go ahead.
Hi, and good afternoon, team. I don't know if you can share more details on what drove the occupancy decline across segments, especially on the office segment. If I'm not mistaken, on the first quarter, there was an issue with WeWork. I don't know if this quarter you saw something similar. Just trying to understand the dynamics in each of the sectors. That's it. Thanks.
Thank you, Pablo. Actually, obviously you're seeing a small decrease on the occupancy, but we are talking about 2 basis points. But mainly it's just, I think it was like a 1,500 sq m lease that expired in Torre Diamante in Insurgentes. I think that's natural. Nothing to be worried about. It's not a tendency on the market. It's just a matter that one tenant with 1,500 m left this quarter. That space will be taken by someone else in the next probably three to six months. We are seeing a lot of new activity going on empty spaces that we have on Torre Mayor, for example. Each floor, it's around 1,800 sq m. So this quarter we will be reporting an additional two floors. So that will be the opposite. Probably we will be growing another 4 basis points on top of what we are as of today.
I'm not worried at all on the office market at this stage.
Perfect. Thanks a lot.
Thank you. Our next question is from Octavio from Signum Research. Your line is now open. Please go ahead.
Thank you. This is Octavio Arias from Signum Research. To report a strong leasing spread in both in pesos and dollars, how much of that lease is driven by market demand versus low- market legacy contracts catching up?
Jorge, do you know the number?
[Non-English content] Actually, it's a combination of both.
Yeah.
In the industrial segment, contracts that are on average are around $6 and change, about $6.25 or more or less. We are about 31% below the market. That is obviously one of those things that's happening, that we have contracts that are below the market. The other one is market dynamics because the demand is there. Given that we have a very strong demand, as André was mentioning particularly, we are in the logistics market in the Metro City area, which is the largest portion of our portfolio. About 56% of the portfolio we have is in the, I'm going to call it the Metro Mexico City area. There is super strong leasing spreads. As a matter of fact, in this market, we are even at a deeper discount, more like 40+%. On average, the overall portfolio is 31% below the market.
It's the market dynamics combined with the fact that we traditionally want to have below market rents. The markets have moved so quickly in the last, let's say, 18, 24 months, that our spread to the market is now significantly larger than what our strategy is. 31% significantly higher than what we want. That has been driving leasing spreads to be very solid, in particular, in the industrial sector. That's why you see the double-digit spreads of 12%-18%, which is more or less where we have been guiding the market for the industrial sector. We see, as Gonzalo mentioned, very solid, robust consumption and good sales of our tenants, and that is what's driving the around 8%-9% leasing spreads that we have in the retail segment. It's a combination of where our rents are and obviously market dynamics.
Perfect. About the industrial segment, do you see potential for rental rates or performance versus market venture metrics for the next few quarters?
Sorry, how do you mean?
Yeah. Before you say this rate of performance, like there is a spread in the industrial market.
Well, so long as the market remains where it is right now, if the market were not to move, we have a 31% gap to catch up.
We have to roll over about 50% of the portfolio in the next three years. So we have at least three years of the expectation of having the ability to have very solid leasing spreads, in the [audio distortion] sector in particular. So in a nutshell, yeah, we do see a very solid future, in particular in the industrial segment, given the gap that we have with the market.
Perfect. Thank you.
If the market continues to move, obviously that is going to create a bigger gap.
Okay, perfect. Thank you, and congrats for the results.
Thank you.
Thank you very much. Our next question is from Yejide Onabule from Barings. Are you seeing a slowdown in tenant activity? Why is occupancy down in all segments? When are improvements expected? The second question is regarding the timing of the second phase of the IPO, where FUNO will contribute assets to the JV.
Regarding the first question, Yejide, it is nothing special. It just happened to coincide this quarter that we have some exits. But, for example, the previous quarter, we could have pointed out that WeWork was going out in the office sector, and we knew this, and we were expecting this specifically. There is nothing particular this quarter to point out directionally that we have seen or are seeing a change in the trend, let us say, of where we should see things. So it is just a quarterly coincidence, let us say. In terms of the second phase or the combination joint venture that we expect to do with Fibra NEXT, we expect to do this imminently as soon as we can practically do it. There are some corporate acts that we have to go through, but you should expect an announcement shortly on that next step.
It is something that definitely will conclude before the year-end. I would likely say that it is something that we would love to be able to do within the third quarter of this year. You should expect to hear news soon.
Thank you. Our next question is from Edson Rogelio Moria from Suma Cap. Regarding CapEx, what was the total CapEx invested during the quarter? The second question, would you give us more color about the reduction in occupancy in the business park sub-segments?
Sure. In terms of CapEx, on a quarterly basis, we budgeted about MXN 2 billion, so MXN 500 million per quarter. I think this quarter we were slightly shy of that number, closer to MXN 360 million or MXN 370 million. The budget for the year is to be at MXN 500 million on a quarterly basis. MXN 2 billion is what we have more or less budgeted on the operating portfolio. Regarding the business park, we saw one tenant leave one of the business parks. I cannot remember the name of the tenant, someone in Monterrey. It is just one tenant that left, I think it is about 15,000 sq m.
Thank you. We would like to thank everyone for the participation today. I will now be handing it back to the Fibra UNO team for the closing remarks.
Thank you very much, Luis. Thank you, everybody, for your interest in this call. We will hear from you, and you will hear from us again for the results of the third Q 2025. Thank you very much.
This concludes the call. Have a nice day.