Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Fibra UNO's fourth quarter 2024 results conference call on the 27th of February 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'd like to pass the line to the CEO of Fibra UNO, Mr. André El-Mann. Please go ahead, sir.
Thank you very much, Luis. Good morning, everybody. Thank you for being on our call. We are very happy to deliver these results. We just posted yesterday our results for fourth quarter 2024 and the full year of 2024, and we are very excited about the results and very happy with the performance of the company. I think you had the time to review the results. We are very excited about what we delivered yesterday. Also, this is a moment of complete happiness and excitement to all of us here at the management of Fibra UNO, because we finally got, in these recent weeks, the federal confirmation criterion to move forward with the Fibra NEXT, which has been announced for many, many months. We finally got the approval from the Tax Authorities in Mexico, which makes us very, very happy to deliver this information to you today.
Despite all the delays on the plans of carving out the industrial assets, we were focused also on deliver results on all across the board on our properties. Before I pass the mic to Jorge, to John, I am very happy to tell you that in the retail segment, we grew the occupancy for 190 basis points in the year. We had 500 points of leasing spreads in our contracts, and our revenue grew over 10% during the year-on-year basis. We are very happy on the retail side again, and we see a lot of opportunity in the coming months for the retail side, also, in our portfolio.
I think that the design of the company, again, and I've said this in previous calls, the design of our company is paying us in the bad times that we endure last four or five years, and is paying us in good times, which we are today harvesting everything we seeded years ago. I am also very pleased to share with you the performance of the office segment. The office segment has been an issue that has worried a lot of investors, and we've never been worried about this. We know that we have a very good product, that Mexico is still underserved in that particular segment. We knew, and I said this again before, many, many times, that the occupancy will have a time to recover.
We are today above pre-pandemic level, so we are very happy about that, and the pricing is going to recover in the next coming months. I think that preview to the recovery on the prices, and we are seeing just how the pricing is starting to show a little bit of recovery. Last year, we grew 7.1% the rents, which means a good 200 or 300 basis points on the leasing spreads, which makes us very happy. It is the first time since before the pandemic, so we are very happy to announce that, and also very happy to announce that we reached almost 84% of occupancy level, which is way above we had pre-pandemic. We are seeing the recovery, we are feeling it, and the portfolio is performing extremely well. Regarding the industrial segment, of course, everybody is very happy about the industrial segment.
I am very, very happy and very excited to tell you that all of our predictions became reality. Our predictions in terms of we are in the right segment of the sector, our predictions in terms that the occupancy in the metropolitan area of the primary cities of the country is different than the border. We are inclined to be in the metropolitan area of the primary cities much more than the border. We have talked about this earlier, we said this in previous calls, and I am very happy to now show that it has been turning to us in favor of the portfolio and the design of the company. We are very happy to say that we are standing at 98% occupancy level with a 15.1% growth year-over-year on the rent, and 12.3% in the growth in the revenues.
We are capturing what we have been lagging on terms of the rents, and we think that this trend will continue in the coming quarters. We are very happy about that. Before Jorge goes in depth on the numbers, I just want to tell you that we finalized the refinance of the 2026 bonds. The next amortization in dollars that we have is in 2030. That brings us a very favorable environment in our financial front. Also, Jorge will tell you about the LEED certified square meters that we have in Mexico. Ana Karen, our Director of Sustainability, has been making a rockstar job, and we are very happy to announce to you the leadership that we have achieved in the market in Mexico, in all of the industries, not only the real estate. We are very happy. I expect Jorge to give you.
This is a time of happiness and celebration for us, and we look forward to the future with very high expectations. The only reason that we are standing here is the design of the company that has proven to be resilient. Also the hard work of all the people working in Fibra UNO. I only have gratitude for all of them. Again, I will tell you, the best is yet to come. Please, Jorge, you may.
Thank you very much, André. Thank you everybody for joining our quarterly results call on the end-of-year 2024 results. I will dig now into the MD&A, starting with the revenue line. Total revenues increased by MXN 368 million, or a 5.1% quarter-over-quarter increase to reach MXN 7.5 billion. This is mainly attributable to a combination of factors, an increase in a portfolio's occupied gross leasable area of 30 basis points on a consolidated basis. Rent increasing, resulting from the pass-through of inflation in the active contracts. As you know, 100% of our contracts are indexed to inflation, whether it is in dollars or in pesos. Also, rent increases on lease renewals, what we famously call the leasing spreads that André was mentioning in all the different sectors.
We also had the peso/dollar exchange rate depreciation and its effect on the U.S. dollar-denominated rents when translated to pesos h as obviously a positive effect. We also had the reversal of some of the reserves that we had created, to provide support to tenants from the Otis hurricane. We ended up not needing those reserves, so we reversed them. That also helped us. Part of the financial prudence of the company in the past, it has always been part of the design of how we operate. We are happy to see that we did not require those reserves. Now focusing on the occupancy. On a consolidated basis, we are 95.6%. That is 30 basis points higher than the previous quarter. As you know, the objective of the company is to be around 95% occupancy. So we are right there where we would like to have our portfolio.
Obviously, the industrial portfolio remains extremely solid with 98.2% occupancy, 20 basis points below the previous quarter. This is just normal part of the operating business. The business remains, as André mentioned, extremely solid, and we are very pleased with the performance of our portfolio, especially in light of what we have seen in some of the other markets, particularly the border markets, which have been more affected than where we are. We continue to see an extremely solid supply-demand dynamics and positive trends for rental markets in our core markets. The retail portfolio, as André mentioned, also reached a 93.7% occupancy, 100 basis points above the third quarter of 2024, and to almost 200 basis points year-over-year. So we continue to make gains in the occupancy of the retail sector as well as increases in leasing spreads, increases in contract renewals. So we see a very favorable trend for the retail sector.
As we have mentioned before in previous quarters, I think we have always said that the retail sector was going to surprise people because it was coming in very strong. We are starting to see exactly that the retail sector indeed is very solid. We are very happy to share with you the performance of the office portfolio with a 83.7% occupancy. That is 20 basis points above the previous quarter. We continue to see the possibility to continue to gain occupancy in this sector. We are obviously extremely happy to see that we are starting to see some pricing tension, some pricing gains in our portfolio. Having said that, we remain comfortable with the idea of not expecting rents to increase significantly, or let us say, not expecting rents to increase in the market overall still for a few more months to come.
But we are starting to see some indications of initial pricing tension in the office sector. So we are very pleased with that performance. And lastly, the other portfolio remains very stable, 99.2% occupancy, stable versus that of the previous quarter. In terms of operating expenses, property taxes, and insurance, we did get an increase of MXN 127.2 million, or almost 15%, compared to the third quarter of 2024. This is, more than anything, a seasonal effect. We tend to have an increase in the expenses during the fourth quarter of every year. As we have mentioned before, there has been significant above-inflation pass-through in a lot of the operating expense lines that we have. Specifically regarding taxes, we continue to see taxes increase at a high pace. Property taxes, I mean, in particular. We saw an increase of MXN 10.4 million, or 5% quarter-over-quarter.
Insurance expenses remained stable compared to the previous quarter. But we do also expect to see increases in the expense line that relates to insurance once we end up renewing the policies sometime down the road. The effect of all of the above on our net operating income meant an increase of MXN 164.6 million, or 3%, compared to the previous quarter, to reach almost MXN 5.6 billion. NOI margin calculated over rental revenues was 81.5%, but 74.1% compared to total revenues. Moving to interest expense and interest income. This line increased by MXN 138.8 million, or 5%, compared to the previous quarter. This was mainly due to the exchange rate appreciation from MXN 19.62 to MXN 20.26 per US dollar. Obviously, the effect that this has on the interest expense line in the quarter. We also obviously see a similar increase in revenues on the revenue side.
Also important to note that we had a reduction in capitalization of interest for MXN 283 million. There is also included in this line the impact of the different derivative financial instruments that we have. This results in funds from operations or FFO for the quarter. That includes a decrease in the non-controlling FFO derived from the Helios acquisition. So FFO controlled by FUNO increased by MXN 230.8 million, or 10.1%. So you are starting to see the accretion resulting from the acquisition of the Helios CKD in that growth. So the FFO for the quarter reached a little over MXN 2.5 billion. Adjusted FFO obviously increased by MXN 230.8 million, 10.1% compared to the third quarter of 2024. On a per CBFI basis, we did do some acquisition of CBFIs.
If you recall the previous quarter, we sold an industrial property, and we used part of the proceeds of that sale to buy back some of our CBFIs post-quarter. This is not something that happened during the quarter, but post-quarter is something that you did see, and that ended up affecting the distribution CBFIs outstanding. So FFO and AFFO per CBFI for the quarter were MXN 65.80 per share, or a 10% increase compared to the previous quarter. As I was mentioning, talking about the quarterly distribution for the fourth quarter, we distributed MXN 2.1 billion, or MXN 0.5513 per CBFI. Of this, MXN 1.87 billion was capital reimbursement, and MXN 229 million or MXN 0.06 per CBFI corresponds to the fiscal result. This is an AFFO payout of 83.7%.
In terms of accounts receivable, for the quarter, we totaled MXN 2.66 billion , a decrease of MXN 43 million, or 1.6% below the previous quarter, part of the normal operating of the company. In terms of investment properties, the value of our investment properties, including financial assets, which as we call the memorial portfolio, as well as investments in associates, increased by MXN 3.1 billion or 0.9% compared to the third quarter of 2024. Basically, the result of the fair value adjustment to our properties, financial assets, and investment in associates. Normal processing construction. We still have a couple of projects ongoing in which we are investing CapEx as well as some of our operating procedures. CapEx invested in our operating portfolio. Moving on to the debt. As of the fourth quarter of 2024, the debt stood at MXN 149.2 billion compared to MXN 145.8 billion recorded the previous quarter.
The variation is primarily due to the exchange rate appreciation of the peso, which went from MXN 19.63 or MXN 19.62 the previous quarter to MXN 20.2683 per dollar at the end of this quarter, as well as a small increase in our bilateral line of credit for MXN 600 million . The effect of all of the above in the total equity, we had a decrease of MXN 4.8 billion , or minus 2.5%, including the participation of controlling and non-controlling interests. This is a combination of the net income generated in the quarterly results, the derivatives valuation, the bonuses distribution, as well as the ECP or employee compensation plan. Moving to the operating results. We are extremely pleased with the operation of the portfolio overall.
We believe that the diversified strategy has definitely paid off in the past, continues to pay off today, and we are happy to share that we had 16.7% or 1,670 basis points in the industrial segment, 830 basis points in the retail segment and almost 3% or 290 basis points in the office segment. In the dollar-denominated lease renewals, we were 14.4% above in dollar terms in the industrial segment, 5% or 530 basis points in the office segment. So very pleased with the performance of the office portfolio, as André was mentioning, and 470 basis points in the retail segment as well. So we are very pleased with the leasing spread performance that we are seeing in our portfolio. In terms of the constant property performance, rental price per square meter in constant properties increased by almost 10%, compared to the weighted annual average inflation of 4%.
As you can see, we are delivering on that, almost close to double-digit growth that we are expecting. Again, very pleased with the very solid performance of the portfolio. On a sub-segment level, the portfolio's total annual rent per square foot increased from $11.1 to $11.5 or 3.4% compared to the previous quarter, mainly due increases in current contracts and some renewals, as well as the FX depreciation effect on the dollar rents. The NOI at property level for the quarter increased 5.7%, almost 6%, compared to the previous quarter. Variations mainly due to the following. If you look in the industrial segment, logistics NOI increased by 5.6%, light manufacturing NOI increased by 4%, business parks increased by almost 5%, 4.8%, mainly due to rent increases as well as FX depreciation.
The office segment NOI increased by 5.8%, mainly driven by occupants gains, as well as what I mentioned before, some of the rent increases that we did manage to pass through. In the retail segment, the fashion mall sub-segment increased by 3%. Regional segments, relatively flat with almost 1% or 0.7%. The standalone sub-segment decreased by 3.8% compared to the previous quarter. The latter mainly due to maintenance expenses associated to the standalone segments. The other segment NOI increased by 31.1%, which is mainly due to the seasonality of the hotels' variable income. With this, I conclude the MD&A. Luis, if we can please poll for questions.
Yes, of course. Thank you. We'll now be moving to the question-and-answer section. If you'd like to ask a question, please press star two on your phone and wait to be prompted. If you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll just wait a moment or two for some questions to come in. Okay, so our first question comes from Rodolfo Ramos, from Bradesco. Please go ahead, sir. Your line is now open.
Perfect. Thank you. Good afternoon, and congratulations, André, Jorge, and team for the results. I'm going to apologize first in advance for the blunt question, but it's been almost a couple of years since we started to talk about the internalization process. Just wondering if you can tell us what has been holding up this process, if it's the definition of the asset themselves, valuations themselves. Anything you can share with us that would give us a little bit of better visibility that it will be indeed concluded in the first half as you previously guided. Then I have a second question, if I may, on the listing of the assets.
You mean a second question on the carve out of NEXT?
Yes.
Okay. If you want to start with the second question, then I will let André talk about the internalization in a second.
Okay. The second question was, you received this tax authorization. Of course, the timing now with all the uncertainty around Mexico seems a little bit more challenging. Just wanted to see how you are thinking about that in terms of timeline, and if there has been any shift in considerations from the Jupiter portfolio in terms of changes in the properties that perhaps have been already developed or any material change that you would envision for NEXT vis-à-vis what we saw during the first part of the process.
Thank you. Yeah. It is a very good question, and understandably so. It has been a lot of work. Definitely the persistence paid off, finally being able to get the confirmation criteria that will allow us to carry out the carve out. Conceptually, I think we would like to continue to do the same things that we have already discussed with the market a while back. Clearly, and we are obviously not at liberty to discuss specific changes, but there have been changes in the portfolio. As we were discussing, the occupancy of 98% in the FUNO portfolio and the fact that we have continued to see leasing spreads like the ones we are showing here, 14% and 15%, indicate that we have an extremely solid market in the markets in which we operate. There is demand for new development in those markets.
The sponsor of Fibra UNO has carried out some of those developments outside of Fibra UNO. Let us say, there is additional growth and very good news to come on that. But nothing that we can discuss the specifics of other than to say that if we showed you something, what we have is even better.
Thank you.
As for internalization, we said that we will have it executed by the end of the second half, before the end of the second half, and I think the first half, I mean, of the year, and we're there. There's a lot of implications, tax implications, valuation implications, different implications that we have been resolving one by one. We will be ready for the timeframe that we set last year. So I am very confident that we will get that done in this first half of the year.
Great news, André. Thank you.
Thank you.
And Jorge.
Thank you.
Okay. Thank you. Our next question comes from Carlos Peyrelongue from Bank of America. Your line is now open. Please go ahead.
Thank you. Thank you, André and Jorge for the call, and congratulations on the results. My question has mostly been answered, related to the previous one. Just to clarify if I understand correctly, the internalization is likely to happen potentially before the IPO of NEXT, correct? It does not have to be simultaneous, it can be before a potential IPO of NEXT.
Yes. Actually, Carlos, thank you very much, Carlos. It has been disconnected. It was connected at the beginning, but we disconnected that a year ago. We hope that we can do it simultaneously, but if the window of the market does not open, it will happen before that.
Understood. Thank you. Thank you, André.
Okay. Thank you. Our next question comes from Jorel Guilloty from Goldman Sachs. Your line is now open. Please go ahead.
Thank you for taking my questions. I have two, mostly focused on the balance sheet. One thing, we saw a sequential improvement in leverage levels. We saw net debt- to- EBITDA is still a little bit high, 7x net debt- to- EBITDA. And the debt service coverage ratio, about 1.6x. You have discussed before about your intention to delever on the company. I just wanted to get a sense of what we could expect in terms of deleveraging, going forward, if there is any target that you are looking for towards year-end 2025. Also, on your asset recycling pipeline, there is about MXN 4 billion that you noted on your earnings release. I just wanted to get a sense of where you are in the process. You do give some target dates as to when you expect to have this done.
But just if we can get some more color on these divestment, and if there's the possibility of seeing even more going forward. Thank you.
I'll ask Gonzalo to deal with the M&A pipeline and that portion of the question, Jorel. Now, specifically about the deleveraging. I'd like to take a step back to remind everybody of how the business works, because this is a business that is indexed to inflation. If we were just to sit down and start collecting rents and renew the contracts, et cetera, as we have the NOI of the company growing at the speed at which it's growing, ends up deleveraging the company on its own. So that is something that sort of takes care of itself, if you give it enough time. The way I look at it or the way I feel about it, I think that the pandemic robbed us about two years.
If I fast-forward about two years from where we are now, that's more or less where the leverage, the real leverage of the company should be, which is definitely below 7x , closer to 6x and change, and below 40% LTV, is where the company would be naturally on its own without doing any major activities, let's say. Now, one important thing, obviously, which is something that can change significantly the face of the business, as we have been running it the last 11+ years, or we're getting close to 14 years now, actually, that we listed the company.
Next month.
Yeah, next month is going to be 14 years since we IPO-ed Fibra UNO.
This carve out of the industrial assets, what is going to result is that we are going to end up capitalizing Fibra UNO to the tune of $2 billion, $2.5 billion, or somewhere around that number. There is still a lot of moving pieces to fine-tune to come out with the exact number. That will put us in a leverage range that is going to be closer to the 35-ish that we have been historically. If you manage the LTV at around that 35-ish, 37%, 33%, we have been running for a few years, then the net debt EBITDA also is going to drop. It is going to be probably around 5.5x or below 5.5x net debt-to- EBITDA. That would be sort of the objective, let us say, the long-term goal of what we would like to see the company operate.
Taking other measures to delever the company quickly is something that we can do if we need to or we want to, or we find a very attractive opportunity. The business delevers on its own, and when we execute Fibra NEXT, we are going to have an immediate deleveraging. In a nutshell, that is how we are thinking about it.
With regards to the pipeline for the potential sales, we are talking about around 100,000 sq m. Half of them will be retail and half of them will be on the others sector, around 50% from each one of the sectors. We have programmed that three of them will be on the 3Q of 2025. One of them can be on 2Q of 2025. We used to have one here that was office building, if you recall, and that one end up being, we are negotiating the lease. We couldn't close the sale, but at the end, we are negotiating the lease of that building. So that is what we have on the pipeline of potential sales. As always, we are open to not solicit offers. We have rejected some of them, but we are always open to them.
Probably there will be some changes during the next couple of months.
Thank you.
Thank you. Our next question comes from Ernst Mortenkotter from GBM. Please go ahead, sir. Your lines are open.
Hi, guys. Thank you for taking my question. It is just a quick one. We are seeing from not only you, also some of your peers, some pressure in the occupancy rates in some of the northern markets, specifically maybe places like Nuevo Leon and Tamaulipas, and you also witnessed a slight decrease there. I was just wondering what kind of dynamics are you seeing there, and what are your overall expectations for those markets in the short term? Thank you.
I think we've talked about this in the past, about the relevance of the different segments of the market. We foresaw when everybody was very eager and very excited about the border, we always said that for us, it's much more important to be in primary cities because it preserves the real estate value of your property. We're not going only for the dividend. We are not going only for the rent and the dividend that it may produce. In the border, in secondary cities, tertiary cities, secondary roads, because you don't need more than that to place a factory of whatever product you want. You don't need more than that in terms of real estate, in terms of location. But we do need much more than that in terms of real estate.
We prefer much more to have our properties or our industrial warehouses sitting on primary cities, on primary roads, which is what we have. Because we prefer to preserve the real estate value. Of course, we want the return, we want the rent. We are growing our rents, we are growing our returns and our dividend produced by the rent. But also we have a lot of appreciation on our real estate. At the end, we will still have the real estate, and it's much more profitable for all of us to have real estate that grows on its own, despite the rent. Of course, we are looking at the rent and our results, it's a very clear sample of what we are looking into. But we also privilege to be in primary cities, in primary roads.
At the end, the market has put everything in its right place. Our right place is that we were right on our assessment and we were right on our design of the company. We have the properties in which the rent is growing more, in which the properties themselves appreciate much more through time. We will continue to privilege that, even though we know that we need to pay more for our land, because all of our properties are sitting in land that is much more valuable than the rest of the products. You know that we have 20% or 25% of our portfolio in manufacturing hubs.
But we prefer, and we privilege much more logistics and distribution.
Having said that, as you can see on the NOI sub-segment level, both logistics and light manufacturing continue to perform solidly and we have a very stable portfolio. We have not been developing new space in the borders or things like that. So we are very comfortable with the position that we have.
Perfect. Thank you.
Okay. Thank you. Our next question comes from Jorge Vargas Cuadra from GBM. Your line is now open. Please go ahead.
Hi. Thank you for taking my question. Just one quick one from my side. The office segment experience has 200 basis points year-on-year increase in occupancy. Do you anticipate this recovery to persist throughout 2025? Additionally, at what occupancy level would you feel comfortable initiating rent increases? Thank you.
I think that will be the pace. Obviously, we will be happier if that will be increasing in a faster way. But the truth is that we are seeing that will be probably the pace to see it. We are almost at the level of 85% occupancy, where you will start being able to start increasing the rent levels. As I told you, we have a couple of lease negotiations for new spaces that will take us immediately into the 85% occupancy. So probably that will happen in the next quarter. We will be on the possibility of increasing rents at a better pace. It is not just a matter of our occupancy, it is a matter also of the market behavior.
Thank you.
Okay. Thank you. Just a reminder, if you would like to ask a question, please press star two on your phone and wait to be prompted. If you are dialed in by the web, you can type your question in the box provided or request to ask a voice question. We will just wait a moment or two for some questions to come in. So, our next question is from Gordon Lee of BTG Pactual. Please go ahead, sir. Your line is now open.
Hi. Good morning. Thank you very much. Or good afternoon. Thank you very much for the call. A couple questions. The first, property taxes have been increasing, let us say, significantly for some time. I was wondering whether that is attributable to a particular sector or particular region, if it is more widespread, and if we should expect that sort of continued growth in property taxes going forward. Then just the second question, which is more of a modeling question, but if you look at your fourth quarter and your 2024 payout ratios, they were close to 85%. Is that a fair number to assume going forward? Should we assume that the balance will be used to reduce debt at the margin or net debt? Thank you.
Thank you, Gordon. Very interesting question. Actually, we are trying to assess which will be the right percentage that we will make as a payout of the dividend. Remember that in the previous years, we had the balance of the accountability. Accountability?
The fiscal result.
The fiscal result upside down. We were standing in the obligation of distributing more than we produce. That, I think, it was one time the deviation of the curve. I do not see that happening again. We should be able to withhold some of the money, and we will make that money, maybe 15% sounds right. I do not really know. We will play it by ear. That amount of money will serve to put it on the best use for the company. Maybe that will be to pay some debt in advance or to repurchase some of our stock. We will have that flexibility in the coming years, and we will play it by ear. Every year in and year out, we will be deciding on the amount of the percentage of the dividend payout. First, property taxes.
On the property taxes, do you expect them to rise across the board or is it just specific?
Yeah, the property taxes have been rising all across the board. But we expect them to stabilize in the next coming years. We are reaching levels that we have never seen before in Mexico. Because there has been some gossip in the press about the property tax that should rise dramatically. I do not see that because it has been growing a lot, much more than inflation for many years. So it will be there in inflation plus 300 or inflation plus 400, but consistently. So I do not see a dramatic change in that.
Perfect. Thank you very much.
Gracias, Gordon.
Okay. Thank you. We would like to thank everyone who has sent their questions today. I will now be handing the line back to the Fibra UNO team for the closing remarks.
Well, that is it for this call. Thank you very much, everybody. Thank you for having your attention and for your interest in Fibra UNO. We expect to see you in the first quarter of 2025 call, in which we expect also to deliver good results to you. Thank you very much.
This concludes the call. Thank you and have a nice day.