U.S. Markets closed

Edited Transcript of FIBRAMQ12.MX earnings conference call or presentation 31-Jan-20 1:30pm GMT

Q4 2019 Macquarie Mexico Real Estate Management SA de CV Earnings Call

Feb 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Macquarie Mexico Real Estate Management SA de CV earnings conference call or presentation Friday, January 31, 2020 at 1:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Juan Alfredo Monroy

FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V.

* Simon Hanna

FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V.

================================================================================

Conference Call Participants

================================================================================

* Eduardo Alvizouri Alvarez

GBM Grupo Bursatil Mexicano S.A. de C.V. Casa de Bolsa - Analyst

* Francisco Suarez

Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities

* Gordon Lee

Banco BTG Pactual S.A., Research Division - Director of Latin America, Country Specialist & Strategist for Mexico

* Jorel Guilloty

Morgan Stanley, Research Division - Equity Analyst

* Vanessa Quiroga

Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil

* Nikki Sacks

ICR, LLC - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to FIBRA Macquarie's Fourth Quarter 2019 Earnings Call and Webcast. My name is Carmen, and I will be your operator for this call. (Operator Instructions)

I would now like to turn the conference over to Nikki Sacks. Please go ahead.

--------------------------------------------------------------------------------

Nikki Sacks, ICR, LLC - MD [2]

--------------------------------------------------------------------------------

Thank you, Carmen, and good morning, everyone. Thank you for joining FIBRA Macquarie's Fourth Quarter 2019 Earnings Conference Call and Webcast. Today's call will be led by Juan Monroy, our Chief Executive Officer. And to answer any questions you may have at the conclusion of today's prepared remarks, we also have Simon Hanna, our CFO; and Peter Gaul, MPA's Head of Real Estate Operations.

Before I turn the call over to Juan, I'd like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any securities.

Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of the presentation, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified. As usual, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I would encourage you to visit our website at www.fibramacquarie.com and download these materials. A link to the materials can be found under the Investors, Events & Presentations tab.

With that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Juan Monroy.

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [3]

--------------------------------------------------------------------------------

Thank you, Nikki. Good morning, and welcome to FIBRA Macquarie's Fourth Quarter and Full Year 2019 Earnings Conference Call. On our call today, we will review our operational and financial performance, provide our outlook for 2020 and discuss our ongoing progress to create long-term value for certificate holders.

In 2019, we achieved several milestones, which demonstrate the strength of our platform and the positive impact of our thoughtful approach to capital management. This includes a record increase in full year distribution per certificate, which is an impressive 11.3% higher on a year-over-year basis; record AFFO per certificate with a 5.9% increase year-over-year; record portfolio average occupancy of 95.3%, representing an annual increase of 200 basis points; and record annual NOI and AFFO margins, which expanded by 25 and 58 basis points, respectively, for the year.

With an unwavering focus of increasing per certificate returns for our investors during the year, we efficiently sourced capital through retained AFFO and noncore asset sales. At the same time, we deployed approximately $45 million across property expansions and developments, retail center remodeling, certificate repurchases for cancellation and debt repayment. We are very proud of what we have achieved and believe we have built strong foundations across the platform as we enter 2020.

We continue to prioritize superior service for our customers and execution of our strategic initiatives, supported by a strong balance sheet and stable macro backdrop. In the fourth quarter, we delivered AFFO per certificate of MXN 0.6460, up a healthy 8.2% compared to the prior comparable period. This performance was primarily driven by robust growth in our same-store portfolio which produced a 4.4% NOI increase compared to the prior comparable quarter as a result of increased property rental income and stable operating expenses. Having achieved both average and closing occupancy over 95% is a testament to the quality of our assets and the attractive supply/demand dynamics in the markets in which we operate.

In our industrial portfolio, NOI in the fourth quarter increased 5.5% on a year-over-year basis to MXN 719 million. In fact, the fourth quarter represented an all-time record level of industrial portfolio revenue generation, reinforcing the underlying strength of our properties and team. We ended the year with consolidated occupancy of 95.6%, up 122 basis points from the prior year, driven by strong leasing activity.

During the quarter, we renewed 1.9 million square feet, including a 10-year renewal for one of our largest tenants, a multinational food manufacturer. We also fully leased the recently completed development in Ciudad Juárez to a U.S.-based manufacturer of laser printers and imaging products. With ongoing healthy market fundamentals, we were also able to realize rental rate growth in our industrial portfolio, with rental rates up 2.9% for the full year.

In addition, it was particularly satisfying to achieve a fourth consecutive year of positive renewal spreads, while also recording 5 consecutive years of new leasing activity exceeding move-outs, representing sustained stable market conditions.

As we look to 2020, anticipated expirations account for a manageable 19% of our industrial GLA. In terms of our industrial development program, we are excited to have completed the project in Ciudad Juárez that I previously mentioned. We leased the property to a high-quality customer with an annualized NOI yield in excess of 11%.

With a favorable market outlook, we have begun construction on the second phase of our Ciudad Juárez development project, comprising a 217,000 square foot building, with an expected completion by the second half of 2020. We are committed to delivering best-in-class buildings, and each of these developments are being built, applying high standards of sustainable construction, including elite certification standards. With regards to our retail portfolio, a stable fourth quarter contributed to full year NOI of MXN 591.8 million, up 2.8% for the full year. We were able to achieve a small sequential increase in occupancy for the quarter, contributing to an annual growth of 4% in both average lease rates and in revenues.

Overall, the retail environment remains resilient, particularly for the segment that we focus on with properties that provide a range of best basic services and are located in high-density urban areas. New leasing highlights during the quarter comprised a range with new store openings across a diverse range of sectors and markets. This includes the move-in of Promoda, a leading outlet retailer opening a 1,500 square meter store at our fully occupied Multiplaza Ojo de Agua and La Casa de Toño, opening a restaurant with us in our fully occupied City Shops del Valle property.

Furthermore, we have been proactively repositioning and expanding select properties to ensure they remain competitive and vibrant. During the fourth quarter, we completed our remodeling work at Multiplaza Arboledas, and we expect a positive response from prospective and existing customers.

In 2019, we delivered our ongoing objectives of both strengthening our balance sheet and continuing our disciplined approach to capital management. At year-end, we had a well-positioned balance sheet with plenty of flexibility, taking into account a fully undrawn revolving credit facility of approximately $250 million. We closed the year with a regulatory LTV ratio of 34.8%, a 70 basis point reduction over the prior year and with regulatory debt service coverage ratio of 4.8x. It is also worth noting that FIBRA Macquarie has no debt maturities until 2023.

Our 2019 results also reflect our disciplined approach to capital deployment. For the year, we deployed or committed to deployed $35.6 million towards expansions, industrial development and retail center remodeling projects. We expect to see these projects deliver incremental NOI contributions in 2020. On a life-to-date basis, we have invested more than $80 million in expansions and developments returning an average NOI yield of approximately 12%. As we move through 2020, we will continue to execute on our disciplined industrial development program with the second phase of our Ciudad Juárez projects expected to complete later this year, alongside important work being undertaken to source and complete other expansions and development projects. Turning to our accretive buyback program. During the year, we repurchased 4.3 million certificates. This took our cumulative repurchases to 45.7 million certificates or 5.6% of total certificates outstanding.

Capital deployed since the launch of the buyback program in June 2017 now totals MXN 975 million, with an average purchase price of MXN 21.34 per certificate, representing a significant discount to intrinsic fair value, which currently exceeds MXN 33 per certificate.

We have capacity of approximately MXN 900 million in our current program, which remains available to be utilized on an opportunistic basis. Importantly, all repurchased certificates either have or will be canceled. We are taking these opportunities to introduce our guidance for 2020. For the year, we anticipate AFFO per certificate to be in the range of MXN 2.50 to MXN 2.62. For full year 2020, FIBRA Macquarie also expects to make cash distributions of MXN 1.90 per certificate to be paid in equal quarterly installments of MXN 0.475. The expected 2020 distribution represents an annual increase of 6.7% from the prior year while maintaining a prudent AFFO payout ratio of approximately 73%. This guidance is based upon the assumption of no acquisitions, divestments or certificate repurchases.

In addition, we are assuming an average exchange rate of MXN 19.15 per U.S. dollar. We expect operational performance to be broadly consistent with what we delivered in 2019. Taking into account a stronger peso, our 2020 guidance reflects solid underlying funds from operations or FFO being higher by approximately 5% in U.S. dollar terms when compared to 2019. As we look ahead, we expect the Mexican retail sector to maintain at its resilience particularly in the nondiscretionary segments that represent our core customer base for our retail portfolio.

Furthermore, we have a stable outlook on the manufacturing for export segment, an industry sector, which forms an important component of our industrial portfolio customer base. Whilst Mexican new vehicle production and U.S. sales have muted outlook, it is important to note that the Mexican auto parts industry is expecting increased activity in 2020, following a record 2019, which resulted in $99 billion of production value.

We expect that over the medium-term to longer term, the Mexican auto parts industry is positioned to grow by taking market share from European and Asian-based exporters with the anticipated new USMCA rules, encouraging increased regional production. We believe our consistent track record, combined with our customer-centric approach and commitment to operational excellence supports our confidence in being able to deliver another year of value creation for our investors.

Finally, despite the macroeconomic and geopolitical challenges that we experienced through 2019, I am proud of the overall performance that we delivered. These results are due to the hard work and commitment of our talented and diverse team based here in Mexico City and across our other core markets. I want to thank them for their contributions to date and for what I'm sure they're going to continue to deliver this year.

With that, I'll ask that our operator open the phone lines for your questions. Carmen?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

And our first question is from Gordon Lee with BTG.

--------------------------------------------------------------------------------

Gordon Lee, Banco BTG Pactual S.A., Research Division - Director of Latin America, Country Specialist & Strategist for Mexico [2]

--------------------------------------------------------------------------------

Two quick questions. The first on the retail portfolio and the other on the buyback. On the retail, there was a meaningful contraction in NOI margins, if you look at your fourth quarter margin versus last year or versus the third quarter. And I was wondering whether you could maybe give us a little color as to what drove that, whether there were one-offs and what type of profitability we should expect going forward. And then the second question, you mentioned both in your release and on the call that you still have MXN 900 million authorized for buybacks. As I understand that, that authorization is good through June. So I was wondering what the plans were, whether to use a significant portion of that in the first half or whether in the forthcoming CBFI holders' meeting, you ask for an extension of that for, I don't know, to the end of the year or 2021.

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [3]

--------------------------------------------------------------------------------

Yes, now with regards to retail, yes, the margins bit dropped. And as we have noted, we've been embarked in a project in a few properties, in 3 properties to refurbish them, ensuring that we maintain them as vibrant as possible, catering to new customer tastes and ensuring that we maintain increased foot traffic. Combined with that, we are investing in marketing to support the relaunching of some of those properties and innovation during the quarter. And really, the second half, we experienced increased cost of utilities. Going forward for 2020, we expect a stable environment. We believe that our properties are very well positioned, defensive retail-type properties, given their location and their tenant base, primarily Mexico City type properties, urban infill, comprised of majority of anchors that are serving sort of necessity -- or that we have necessity-based type tenants with supermarkets, and other services that we believe are e-commerce resilient. We believe that during the 2020 year, we will benefit from the remodeling investments that we did in 2019. So we expect to see an increased pipeline of leasing activity, which ultimately should convert also into a higher operating margins.

With regards to buyback, yes, you're correct, our current buyback program is approved through June, and we have capacity of MXN 900 million. Our plans are as always to present at the next shareholder meeting, the expansion of our buyback program. We believe it's important to always have an active buyback program. And we will, for the coming months, we'll continue to be opportunistic in buying back our certificates for cancellation, always with an eye on balancing capital deployment with other capital requirements like expansions and development Thank you, Gordon.

--------------------------------------------------------------------------------

Gordon Lee, Banco BTG Pactual S.A., Research Division - Director of Latin America, Country Specialist & Strategist for Mexico [4]

--------------------------------------------------------------------------------

Just a quick follow-up on the retail, if I may. When you said that for 2020, you expect a stable environment, I assume, you're referring particularly to margins. And I guess, my question, is that stable from the margin that we saw in the fourth quarter? Or stable from the type of margins that we were seeing prior to that?

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [5]

--------------------------------------------------------------------------------

Yes, I meant more stable retail environment overall, Gordon, with a slightly -- with a potential positive uptick in leasing activity, which towards the end of the year should convert into potentially higher margins towards the end of the year.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And our next question comes from Jorel Guilloty with Morgan Stanley.

--------------------------------------------------------------------------------

Jorel Guilloty, Morgan Stanley, Research Division - Equity Analyst [7]

--------------------------------------------------------------------------------

I have 2 questions. So first, on the guidance. As a midpoint, if I look at your guidance, you're expecting less than 1% AFFO per share growth in 2020. Despite the strong trends we are seeing for fundamentals in industrial, which may come across as a bit conservative. So could you comment on what sort of leasing spreads or rent growth for the industrial portfolio are embedded into that guidance? Also, I wanted to follow up on Gordon's question on the retail portfolio. Is the refurbishing and relaunching that was mentioned, the reason we saw a difference in rental rate performance between the wholly-owned portfolio and the JV portfolio?

--------------------------------------------------------------------------------

Simon Hanna, FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V. [8]

--------------------------------------------------------------------------------

Yes, thanks, Jorel. With regards to the guidance, FX is a big part of this. We have around -- a sensitivity for every peso movement in the FX, it's around (inaudible) per certificate at the AFFO level. So that's one factor to take into account, underlying fundamentals is why I mentioned, they are actually pretty strong. So at the NOI and AFFO level in natural currency, it's around the 4% to 5% increase actually. So 5% increase in U.S. dollar terms overall. And you can sort of translate again that to NOI and FFO, broadly speaking, in the industrial portfolio at that 4% to 5% range in dollars. And retail actually up around that sort of 4% to 5% mark as well in pesos. So in fact, underlying fundamentals are not too bad for the 2020 guidance, and you really need to take into account the FX as one of the key factors there to bring that -- put that down on a comparative basis. And one other item is the normalized debt financing costs, which we believe have also, it's a leading contributor in the AFFO results for the -- or I should say, in the framework for the reporting for 2019 that's carried forward to 2020.

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [9]

--------------------------------------------------------------------------------

Yes. With regards to retail rent difference between wholly owned and JV, I wouldn't say it's related to the remodeling. Obviously, in any remodeling project, we do temporarily suffer perhaps from weaker sales from some of our customers. But now, I think it's more in connection with overall tenant mix of a portfolio. Nothing really there to highlight with regards to the remodeling.

--------------------------------------------------------------------------------

Jorel Guilloty, Morgan Stanley, Research Division - Equity Analyst [10]

--------------------------------------------------------------------------------

And a follow-up, if I may, on Simon's point. What exactly do you mean by normalized debt finance?

--------------------------------------------------------------------------------

Simon Hanna, FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V. [11]

--------------------------------------------------------------------------------

Yes. So in the 2019 Q3 reporting, we actually launched revised methodology, which took into account transaction costs for refinancings and we brought that in as a normalized item in the FFO area. So that's for the -- for FY '19 represents an adjustment of around MXN 12 million to our FFO results. Moving that forward into 2020, the annualized impact of that will obviously be around double, around MXN 24 million. So that is actually having a bit of a drag on the comparative, if you like, between FY '19 and FY '20. But at the same time, we believe that's an important adjustment to be making because we think we're leading the market there in terms of having total refinancing costs from a transactional basis being included in the result. So that we're fully accounting and provisioning, if you like, for our long-term refinancing costs. So that's one item just to be aware of in addition to the FX movement, which does drag drown the overall result. But as I said, I think when you actually look at the underlying fundamentals, 4% to 5% increase at the NOI level and FFO level in natural currency for industrial and retail, I think, is the key point to be taken into account.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

And our next question comes from Alejandro Chavelas with Crédit Suisse.

--------------------------------------------------------------------------------

Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [13]

--------------------------------------------------------------------------------

This is Vanessa Quiroga from Crédit Suisse. My question is regarding the increase in payout ratio for your guidance. Do you think this is sustainable? Is this the baseline for future years as well? Or do you think that it could be reduced further in the future depending on your cash flow needs?

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [14]

--------------------------------------------------------------------------------

Vanessa, I'll say, I think it's -- we're getting to what we consider a good, sustainable payout ratio as we had noted in a few calls in prior quarters, our payout ratio has been in the high 60s. And we believe that getting our payout ratio to being closer or around the 75% mark is probably what will be sustainable vis-à-vis the requirements to distribute 95% of taxable income as we want to avoid the need to distribute one-off type distributions. We believe that's sort a -- in and around that 75% mark is adequate. We don't anticipate necessarily reductions in the payout ratio and feel comfortable that the 75% range is an adequate one.

--------------------------------------------------------------------------------

Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [15]

--------------------------------------------------------------------------------

Okay. Okay. Great. And for 2020, will you be looking to sell another piece of the portfolio in order to maybe be able to have some development inside the FIBRA?

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [16]

--------------------------------------------------------------------------------

We do anticipate further strengthening our development program as we continue, for example, with our construction in Ciudad Juárez after a very successful lease-up of recently constructed building in Juárez. We have begun construction already and anticipate delivering that later in the year. Also, we are fairly active in evaluating other development and expansion opportunity that we intend to execute this year. We don't necessarily need to sell assets to fund such developments. We do have, as you know, a very disciplined capital management approach. And in our capital sourcing, we have retained FFO, which could -- which will be used to fund part of these expansions and development pipeline. We also have a revolver capacity that we could potentially use. And in terms of the asset sales, specifically, we have not included asset sales in our budget for 2020. However, we could consider opportunistically divesting some one-off properties here and there. Important to note that we have completed what we consider are very successful asset recycling program where we have significantly enhanced the quality of the portfolio. So that's done and completed in a very successful manner. And going forward, we will always consider opportunistic sales where it makes sense and also with a focus on further enhancing operational performance and geographic portfolio composition.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

(Operator Instructions)

Our next question is from Eduardo Alvarez with GBM.

--------------------------------------------------------------------------------

Eduardo Alvizouri Alvarez, GBM Grupo Bursatil Mexicano S.A. de C.V. Casa de Bolsa - Analyst [18]

--------------------------------------------------------------------------------

My question is related to operations. We saw a 1% -- 1.4% increase in rental rates for industrial properties quarter-over-quarter. Could we assume this is a result of leasing spreads in renewals, given the strong leasing activity? Or what is your overview of the market, specifically in the northern part of the country?

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [19]

--------------------------------------------------------------------------------

Yes. No, our view of the market is a good one. We see the fundamentals of industrial market is very healthy currently, and importantly, with strong prospects for the medium and long term supported, of course, by the increased certain fee as per the USMCA. And we believe that the increased regional requirements after such agreement combined with the U.S.-China trade conflict, we will -- will position Mexico very well for attracting incremental investment into the country. In addition, we also see the logistics sector picking up driven by a number of factors, including the business-to-business and also business-to-consumer, which will be primarily e-commerce. Generally, the fundamentals of the industry, look, from our perspective, in tracking supply/demand and forward-looking variables of a number of industries, look very strong. And yes, in particular -- particularly, the north has been performing strongly. And the fact that the market on average has an occupancy of 94.5% in the markets where we operate is enabling not only us but really the market to continue to have positive rent spreads. Simon, you wanted to complement some of that?

--------------------------------------------------------------------------------

Simon Hanna, FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V. [20]

--------------------------------------------------------------------------------

Yes, I'll just say, Eduardo, the quarter-on-quarter, the increases can be a little bit choppy. I think a good viewpoint is looking at the last 12 months where the rental rate increase has been 2.9%. So that's probably more representative of where we've been performing over the year. And I think it's also pleasing to see that for the last 4 years, we've had a positive leasing renewal spreads over all those 4 years. So pretty good sustained fundamentals in the market. And hopefully, we can carry that through to 2020.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And we have a question from the line of Francisco Suarez with Scotiabank.

--------------------------------------------------------------------------------

Francisco Suarez, Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities [22]

--------------------------------------------------------------------------------

The questions I have on your retail portfolio, what kind of concessions you are granting to your tenants on those properties that have been renewed? And what kind of concessions we can expect for those deals that you -- will be complete your renewals for the second quarter? And secondly, is it fair to state that until then those completions in your retail portfolio completed by the second quarter, your overall liquidity would be much -- you have more leeway to actually engage in buybacks or perhaps in other sort of capital deployment?

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [23]

--------------------------------------------------------------------------------

Yes. With regards to concessions given to new retail customers, I'll say, yet nothing out of the ordinary, really, with the recent leasing that we've done in our portfolio overall. Nothing specific either in connection with the remodelings. Perhaps more property-specific, there's properties where we see opportunity to repositioning or maybe a softer leasing demand, we will be prepared to offer regional concessions. We haven't had the need to date to be overly aggressive on that front. I will say, it has been business as usual. But we're always preferred the -- through the bringing the customers that we want, to enhance tenant mix, to ultimately increase or enhance the customer experience and foot traffic as we believe that could create more long-term value. So if there is a need to offer a concession to attract the customer that we want, we will be prepared to do that. But to date, we haven't had the need to do that. With regards to capital allocation, I think Simon wanted to contribute?

--------------------------------------------------------------------------------

Simon Hanna, FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V. [24]

--------------------------------------------------------------------------------

Yes. Francisco, I think on capital allocation, yes, look, liquidity, absolutely not a problem at all. We have good cash at bank. And obviously, the undrawn revolver at $245 million gives us all the liquidity we need for the medium term. I think when we think about how we're going to deploy that over the coming months, definitely, at this share price level buyback remains one of the most accretive options. So I think implied NOI cap rate 10%, it makes all the sense in the world to be taking a piece of that and it's subject to trading windows, remaining open, we've got that authorized by that program available and ready to use. So I think that will be an area of opportunity for sure. And other than that, taking into account that we are getting very close to our target on leverage around that 35% mark, I think that does give us a little bit of flexibility to keep putting the capital to work in those development and expansion opportunities as they come through the door. So I think 2020 should be another good year of balanced deployment between those accretive options that we have at hand, whether it is the buyback or some of those exciting real estate investments that we've done in 2019. We'll hopefully do a few more in 2020.

--------------------------------------------------------------------------------

Francisco Suarez, Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities [25]

--------------------------------------------------------------------------------

Got it. And if I may, your overall above-standard tenant improvements have been very stable. Do you think that will be the case for the remaining of the year? And if you can actually elaborate on what drove exactly the extraordinary maintenance capital expenditures that you posted last year? And what kind -- and if that is actually a possibility of placing such extraordinary maintenance capital expenditures into 2020?

--------------------------------------------------------------------------------

Simon Hanna, FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V. [26]

--------------------------------------------------------------------------------

Sure. Yes, look, I wouldn't say that specifically extraordinary maintenance CapEx or ASTIs are going to be increasing in any way from -- in 2020 versus 2019. Perhaps just in maintenance CapEx more generally, one of the focus areas we have is on the cool roofing program where we're looking to basically turn over some of the steel roofs into TPO membrane. So we are putting some dollars to work in 2020, that will allow a more efficient roof, which has better insulation properties, highly reflected compared to the steel roof, and so that should generate lower running costs and is a key element of our sustainability program. So I think that will be a key feature to -- in 2020 is to have the execution of that working program, the cool roofing program completed for the 2020 phase. That will contribute to potentially a bit of an uptick in maintenance Capex, but it's certainly a very good initiative that we want to get to working in the first half of 2020.

--------------------------------------------------------------------------------

Francisco Suarez, Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities [27]

--------------------------------------------------------------------------------

Okay. So no major retrofittings on your buildings on the light side or anything like that in your industrial portfolio that you might experience in the year?

--------------------------------------------------------------------------------

Simon Hanna, FIBRA Macquarie México - CFO of Macquarie México Real Estate Management, S.A. de C.V. [28]

--------------------------------------------------------------------------------

Yes. Look, we're not really changing our approach in terms of a bottom-up analysis property-by-property basis to ensure that each of our properties is being adequately maintained. So I think we've been pretty rigorous in making sure that that's been the case really since inception, and 2020 should be, I'd say, a continuation of that. So I think we'll continue with our maintenance program, as usual, not expecting any particular uptick in TIs or renovations per se, particularly for the industrial portfolio. But are looking to put some additional dollars to work on the cool roofing program.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

And there are no further questions. I would like to turn the conference back to management for any closing remarks.

--------------------------------------------------------------------------------

Juan Alfredo Monroy, FIBRA Macquarie México - CEO & Director General of Macquarie México Real Estate Management, S.A. de C.V. [30]

--------------------------------------------------------------------------------

Thank you, Carmen, and thank you, everyone, for participating in today's call. We look forward to speaking with many of you over the coming days and weeks as well as updating you again soon on our first quarter 2020 results. Thank you, everyone.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

The conference is now concluded. Thank you for joining our presentation today. You may now disconnect.