U.S. Markets closed

Edited Transcript of FUNO11.MX earnings conference call or presentation 30-Apr-19 5:00pm GMT

Q1 2019 Fibra Uno Administracion SA de CV Earnings Call

Mexico, D.F. May 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Fibra Uno Administracion SA de CV earnings conference call or presentation Tuesday, April 30, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* André El-Mann Arazi

Fibra UNO - CEO & Director

* Fernando Álvarez Toca

Fibra UNO - VP of Finance

* Gonzalo Pedro Robina Ibarra

Fibra UNO - Deputy CEO

* Jorge Humberto Pigeon Solórzano

Fibra UNO - VP, Markets & IR

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

Conference Call Participants

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

* Adrian E. Huerta

JP Morgan Chase & Co, Research Division - Senior Analyst

* Luiz Mauricio Garcia

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Marimar Torreblanca

UBS Investment Bank, Research Division - Director & Product Mngr for LatAm

* Nikolaj Lippmann

Morgan Stanley, Research Division - Equity Analyst

* Pablo Enrique Duarte de León

Actinver Casa de Bolsa, S.A. de C.V., Research Division - Real Estate Analyst

* Vanessa Quiroga

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

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

Presentation

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

Operator [1]

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

Good afternoon. My name is Devin, and I will be your conference operator today. At this time, I would like to welcome everyone to Fibra Uno's First Quarter 2019 Earnings Conference Call. Fibra Uno issued a quarterly report on Monday, April 29, 2019. If you did not received a copy via e-mail, please do not hesitate to contact us in New York City at (646) 284-9435.

Before we begin today's call, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with IFRS and are stated in nominal Mexican pesos, unless otherwise noted. Joining us today from Fibra Uno in Mexico City is Mr. André El-Mann, Chief Executive Officer; Mr. Gonzalo Robina, Deputy CEO; Fernando Alvarez, Vice President of Finance; and Mr. Jorge Pigeon, Vice President of Capital Markets and Investor Relations.

I would now like to turn the call over to Mr. André El-Mann. Sir, please begin.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [2]

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

Thank you, Devin, and good afternoon, ladies and gentleman. As usual, I will make some brief remarks regarding our results for the second quarter of 2019, before passing the call to Jorge Pigeon, our VP of Investor Relations, who will go on in further detail over the financial and operating metrics of the company.

First, let me start by saying once more that we are very excited with the solid results of our company. Once more, we maintain occupancy around 95% -- our 95% target and managed to reach NOI margin over rental revenues of 88.8%. And increase our NOI margin of our total revenues to 79.7%.

These may have become boring, simple metrics, but to me are extremely important figures that highlight the continuous health and strength of our company as they represent the DNA of our company and their efficiency of our support management team.

Along these lines, I also want to highlight the very solid growth of our revenue, coming at 11.5% year-over-year. Our NOI, which grew at 11.8% during the same period and our FFO, which grew 11.4% when compared to the first quarter of 2018.

I further want to highlight the very solid leasing spreads activity in our conference as well as our constant property performance. Leasing spreads came in at 330 bps, above peso inflation, and 100 bps above U.S. inflation, both very solid figures and indicative to the continued strong trends in our business.

On the constant property performance, we manage a very solid 510 bps above inflation, reaffirming the health and strength of our business.

Changing topic. I'm aware that we are showing an increasing FFO/CBFI. And that is that this is very important metrics for also the company and for the market as well. However, I want to say that I'm not concerned with this decrease, because the effect stems from accounting matters and not from our operation. This effectively means that cash flow is coming in strong for our company. I will let Jorge to explain in further details the effects of accounting for capitalized interest and why this resulted in a reduction of the FFO/CBFI.

The bottom line is that we normalize the effect of capitalized interest, as Jorge will discuss shortly. Our FFO/CBFI grew 8.7% versus a year ago and 2.9% versus the immediately preceding quarter. I'm very pleased with the increased performance because we managed to grow this figure, including 2 real operating adverse effects.

First, the results from the variable rent income, which is our normal seasonal adjustment in our business. And second, because we are no longer capitalizing interests for total [requests], which given accounting requirements [assisted] from development to operations, despite not being yet stabilized.

In the end, this resulting growth of our distribution by almost 1% quarter-over-quarter, with a payout ratio of 100% on our AFFO. This means that our business is solid, steady and generating increasing cash flows. These are numbers that in fact exceed any projection. Amazing numbers that we assure everybody that our company is here for the long run. And our base portfolio is the best in the country and, dare I say, one of the best in the world.

But these numbers are the result of one thing and one thing only: The hard work and expertise of our management team, and the proximity and efficacy in which we manage our relations with our tenants. This is without doubt our most precious asset. I also want to highlight that we have added a new section into our supplement, describing NAV calculations. NAV/CBFI increases cap rate at which our property is evaluated.

On this front, I want to stress to you that it is important to consider 3 items: First, our rent by strategy are more attractive than the market; second, some of our buildings are in stabilization phase; and third, our portfolio is comprised of properties with irreplaceable locations, which means that cap rates and property values are tighter or more rudely correlated depending on how you want to look at things.

The capitalized loan rate at which our portfolio is valued, meaning the last quarter multiplied by 4, implies a 7% cap rate without any adjustment for stabilization for -- of property or strategic below market values. If we were to run these adjustments, our run rate cap rate will be closer to mid- to high 7% figures.

As we have said many times, we believe our property valuations are not only appropriate, but even conservative. This is only one of the reasons among other factors we've been able to sell assets at an average of 30% above NAV.

This may seem like a quiet quarter without much fanfare. But rest assured, these are indeed outstanding numbers. Due to the size of the company, the current volatility of the markets worldwide and the specific country environment, we remain focused on the many tasks at hand that enable us to deliver solid results for now 33 consecutive quarters. We maintain a focus of maximizing the value for properties, which in the end total strong and growing cash flow generation.

We continue to work toward the delivery of our development projects and fully expect them to contribute solid cash flow to our business in the near future. We remain convinced that Mexico is a great place to invest, and in particular in real estate. The dynamic of our business are -- and combination of factors that are present today gives us full confidence that the best is yet to come.

Thanks for entrusting us with your capital. We will continue to work tirelessly to ensure we maximize the long-term sustainable value creation for our shareholders. This is the model in which our business is built upon.

Now I would like to pass the mic to Jorge Pigeon. Jorge, can you please go over the discussion of the supplement data.

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [3]

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

Thank you very much, André, and thank you everybody for joining our quarterly call. As André mentioned, we are very excited with the results that we are showing this quarters and more specifically, with the underlying trends that we are seeing in the company and in the business. Indeed, very solid and very exciting results for us. Our goal now into the MD&A comparison of the operating results.

Starting with revenues, our revenues increased by MXN 88.4 million, reaching a little over MXN 4.6 billion, an increase of 2% when compared with the fourth quarter of 2018 and an increase of double-digit 11.5% compared with the quarter a year ago.

This, we managed to do this by the decline in variable rental income due to the seasonal factors at the end of the year, as André mentioned. So the increasing revenue stems mainly from the incremental fiduciary rights derived from the acquisition of 21% of Torre Mayor. If you recall, we acquired the strategic asset 21% of Torre Mayor, which we did not own as well as the effect of contract renewals above inflation, which Andre mentioned, basically, the leasing spreads. And this very solid, very strong constant property performance.

Speaking of the leasing spreads, we were 330 basis points above the weighted average annual inflation of 4.6% in peso terms and 100 basis points above the weighted average inflation in dollars of 2.3%. So both very, very solid figures for our leasing spreads. Again, indicative of the very strong trends that continue to support and underline our business.

In terms of the rental price per square meter for constant properties, we were 510 basis points above weighted inflation of 4.3% compared to the quarter of -- the first quarter of 2018.

Let me repeat that figures: 510 basis points against an inflation of 4%. So it means that we more than doubled the inflation. For a company of our size to have constant property performance of this level means that the business is really doing very well, and it's very strong and very solid performance. And that's why we are very excited with the underlying trends of how the business is performing.

In terms of occupancy, total occupancy for the first quarter of '19 was 95.4%. If you recall, we've always said that our target is to be around 95%. So this quarter, we are 95.4%, 10 basis points above the previous quarter. Occupancy rate in our industrial portfolio shows a very, very strong dynamic. Retail segment recorded an occupancy rate of 94.5%, 30 basis points below that of the previous quarter.

This is a normal change and shift that happens because of the active management of our shopping malls. Remember that we do not just sit down and collect rents, but we actually actively manage the content of the shopping malls. We are constantly looking to see what the consumer want to see in our shopping malls in terms of stores, in terms of entertainment and in terms of different factors. And therefore this is the normal variance we see. And the industrial segment recorded an increase of 40 basis points and the occupancy rate hit a 97.6%. We are almost a 100% full in our industrial, mainly logistics portfolio, which I want to highlight that it's a significantly large portfolio. It's over 4.4 million square meters of gross visible area occupied at 97.6%. So we are very happy with the performance of the industrial portfolio.

The office segment, we saw a drop of 30 basis points from the fourth quarter of '18 to hit an occupancy rate of 89%. This is again normal movement of the business. And I want to highlight that in this figure, we are not considering the recently signed lease for what was the in-service property of Montes Urales 620, which we just signed at 16,000 square meters. So once we include that figure, this number is obviously going to go up. So we are very comfortable, we're very happy and very pleased with the performance of our portfolio.

In terms of actual -- we're talking about the in-service properties, we saw an increase from 48.5% of 53.4% in occupancy, meaning that there is continued demand for the new space that we are putting out in the market. Specifically, because it's high quality space with excellent locations and we're very happy with the performance of our in-service properties.

Now going to the expense line, maintenance expenses, property taxes and insurance. Maintenance expenses increased by MXN 1.6 million or 0.3% from the previous quarter, mainly a result of inflation in basic services. Insurance expenses remained stable at MXN 70.8 million compared to the prior quarter, and this stands for the stabilization of properties in the portfolio, which allows for the standardization of the quarterly insurance premium payment. If you recall, during last year, we acquired basically the Mexico retail properties portfolio, the second part of what we call the Apollo or Apollo II portfolio, and obviously, we had an increase in the issuance expenses associated with the acquisition of those properties.

But now we are on the standard run rate so we didn't see an increase in that figure. Property taxes declined MXN 6.6 million or 5.1% due to savings associated basically with [front] payment from our part.

Bottom line, this results in the net operating income increase of MXN 90.1 million or 2.5%. If I were to look at the same figure on a year-on-year basis, the growth in net operating income is 11.8%, we are almost approaching 12% growth in net operating income. So we are very happy with this very solid figure. We are reaching 3 -- almost MXN 3.7 billion, MXN 3,667,000,000. And NOI margin calculated over property revenues was almost 88 -- almost 89%, 88.8%. And if we look at NOI margin over total revenues, we reached 79.7%.

Looking at interest expense and interest income. I'm going to take a little bit of time -- a little more time in this line to explain the effects of the capitalization of interest and what happened in this line.

Net interest expense income grew MXN 204 million or 21% compared to the fourth quarter of 2018. And this is due to several factors: first, we have a 24.8%, almost 25%, decline in the amount of capitalized interest associated with developments compared to the fourth quarter of '18. This has 2 effects included in it. The first effect is that, if you recall, during last year, we adopted IAS 23 Accounting Standard, which require us to include all other costs associated with development including financial expenses with -- in the calculation of the cost of the profit.

So that requires us to capitalize the interest associated with development. And we did not start doing this since day 1 in the first quarter of last year, we started late in the year. So we had to capitalize more interest during quarters 2, 3 and 4 than otherwise would have been if we had done it since the beginning of the year. Another way of putting it is that fourth quarter of '18 had a higher amount of capitalized interest than it should have, if we had a normalized capitalization rate.

That is one of the effects. The second effect that also resulted in an increase in interest expense from the capitalization point of view is that, as André mentioned, from an accounting point of view, Torre Cuarzo is no longer considered a development asset. From an accounting point of view, basically, the policy that accountants have is that a year after we receive the first rent from a building, it moves from development to operational regardless of whether it's stabilized, not stabilized, et cetera.

If you recall, we also have in-service category for occupancy, which we have separated in 3 businesses because obviously we know that not all 3 of the businesses behave in the same way. Stabilizing an office building may take you 2 or 3 years, whereas stabilizing an industrial warehouse may take you 12 months or less. Accountants look at it differently and everything goes in the year. So product-wise it's out of development and into operations, which means that the interest expense associated with the product-wise development is no longer included in our capitalized interest portion. So this is the second element that affected the capitalization of interest.

We have included a small table, which you can see there, in which we do a calculation of what would have been the comparison of FFO and AFFO if you were to use the normalized capitalization of the fourth quarter of 2018, and we would've shown a growth in FFO of almost 3% and a growth of 2.4% in AFFO. If we look at this on a year-over-year basis, FFO growth would have been almost 9% and AFFO per CBFI growth would have been 9.5%, almost 10%. So close to double-digit growth in AFFO, even considering capitalized interest, but just with the normalization effect of the capitalization of interest.

The other items that affect this interest income and interest expense is the decrease in interest income revenue, basically, because we use cash and therefore we had less interest income. And then we had an increase in the total balance of our debt, which I'll explain a little bit further below.

In terms of funds from operation, as a result of the all of above, FFO for the controlling portion of FUNO decreased by MXN 134.7 million or 5.7% versus the fourth quarter of 2018 to MXN 2.2 billion. Normalizing the interest capitalization recorded, FUNO would've shown the growth of 3.4% in this figure and 11.4% if I were to look at it on a year-over-year basis. So again, as André mentioned, we're very excited with the very solid, very strong results the company is showing and the underlying trends that are driving this.

In terms of gain on the sale of investment properties during the quarter, we completed the sale of a land -- a plot of land in the city of Querétaro, which represented an income of MXN 200 million. The sale price was basically 25% above book value. Basically, would lift part of the acquisition of the last portion of total portfolio, a portion of it 40% of Antea we acquired in this quarter. And during acquisition, we managed to flip a portion of land in that portfolio and made a gain of MXN 200 million.

Adjusted FFO declined by MXN 143.8 million or 6%, totaling MXN 2.25 billion. Normalizing the effect of interest capitalization recorded in the fourth quarter of '18, AFFO would've grown 2.4% and 12.1% on a year-over-year basis. So again, very, very solid, very strong results. We're very happy with them.

AFFO and FFO for CBFI, during the first quarter of 2019, we did not repurchase any CBFIs, resulting in FFO and FFO per CBFI of 0.5703 and 0.5806 respectively.

Moving through the balance sheet. Accounts receivable in the first quarter of '19 total almost MXN 1.7 billion, which is an increase of MXN 360 million above those recorded in the fourth quarter of '18. Typically, during the first quarter of the year, there is some seasonality in our business, and accounts receivable tend to increase due to the budgetary conditions of both public sector and private companies.

In addition to this, this part in particular, we have the administrative transition of the Morado Portfolio, which at the end of the day, resulted in something similar to an acquisition problem -- process, which generates a delay in payment, which we expect to normalize in the coming quarters. So this is a temporary situation and something that we completely expected and are absolutely not concerned about.

In terms of investment property, the value of properties increased by MXN 5.7 billion from the fourth quarter of 2018, including the investment in associates, as a result of following: Investment at existing projects under development, as you know we continue to invest in La Isla Cancun, in La Viga, doing (inaudible) for Mariano Escobedo, et cetera, all the development projects that we expect to see. The acquisition of 40% of Antea, and the land next to it denominated (inaudible), which in turn we sold for profit, which amounted to MXN 2.2 billion, and also the effect of asset revaluation, including investment in associates. And as André mentioned, we included a new page in our supplement, which we hope will help you better understand the calculation of net asset value on a per CBFI basis, what goes into it and what the run rate capitalization of our portfolio is today.

Now looking to our net total debt for the first quarter of '19, total MXN 82.2 billion compared to MXN 79.8 million, recorded the previous quarter, and the increase mainly stem from the use of MXN 3 billion of short-term revolving lines of credit. Basically to complete the acquisition of Antea and the continuous investment in our development pipeline.

Finally, trustor's capital had an increase of a little over MXN 2 billion, 1.3%, including participation of controlling and noncontrolling interest in the first quarter of '19 compared to the previous quarter, and this results from the net effect of the quarterly results as well as the shareholders' distribution related to the fourth quarter results of '18.

And with this, I have finished the MD&A section. Devin, I would ask you now if you could please open the floor to Q&A.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) Our first question comes from the line of Nikolaj Lippmann with Morgan Stanley.

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

Nikolaj Lippmann, Morgan Stanley, Research Division - Equity Analyst [2]

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

Congratulations on the trends in this quarter. Just one and half question, I guess. We're seeing a lot of growth in delivery and ridesharing apps in Lat Am. Could you help me understand to what degree you have seen -- I know it's very early stage -- any sort of impact on foot traffic and any impact that you feel that you're seeing on parking revenues? So that's one. And then following up on that also, if you can give us a sense of how you're looking at potential conversion of parking space into things like [cloud] kitchens, the dark stores and those kind of things? Thank you very much, and again, congrats on the numbers.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [3]

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

The Internet selling in Mexico is still insipient, even though it's growing a lot. The base is very small compared to the whole market. So it's still growing at a very high rate. But as the rate is so small, it does not represent a threat yet to the conventional retail.

We've seen the details of our payment grow and they are continue to grow. So we don't really know and we cannot separate if it's only the market conditions or if they should have grown more and because of the Internet, they are growing less than that. What we see and the numbers that we have from our payments from a percentage of variable rent of the sales, we have seen the same growth -- continue to grow in this first quarter that should be for political reasons and the political environment of Mexico difficult.

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [4]

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

Nik, this is a little bit of a personal experience. I have set up a small business -- one of those small businesses that you are alluding to that is probably going to get hurt by delivery apps, and I can tell you that the performance of the business before we introduced delivery apps and after the introduction of delivery apps has not changed. Foot traffic at the stores we have has continued to grow normally and the addition of, I believe, it was corner shop that we included in our business has just included like an additional distribution channel, but it has not cannibalized the existing foot traffic at the store. So this is obviously one small example. But we are not seeing the effect of reduction in foot traffic. The foot traffic continues to be the same and e-commerce is just a complement to the existing business land.

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

Nikolaj Lippmann, Morgan Stanley, Research Division - Equity Analyst [5]

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

Right. In terms of -- so I think we have about 20 million downloads so far, excluding some of the ridesharing apps in Mexico. We have about a little more than 1 million additional and it's growing at an accelerating pace per month. If that just continued to fast-forward 1, 2 years, it -- we're really looking at some very significant data. Have you looked at all at things like conversion of the space? Or is it just way too earlier at this stage, do you think?

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

André El-Mann Arazi, Fibra UNO - CEO & Director [6]

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

We think we are still too early. I mean we are seeing on our hand the conventional retail and it's still very strong, coming on very strong. I know that many in the future will present us the opportunity of more digital strategy. But for now, the conventional retail is overcoming.

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

Operator [7]

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

Our next question comes from the line of Marimar Torreblanca with UBS.

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

Marimar Torreblanca, UBS Investment Bank, Research Division - Director & Product Mngr for LatAm [8]

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

Two questions. The first one is if you could give us some guidance on what you expect for the interest expense line for the rest of the year? I understand the accounting things that you mentioned and why you capitalized less interest this quarter. I was wondering if that will happen again in any of the following quarters. Are there any other properties that will no longer be considered development? Or anything we should be on the lookout for? And then the second question is you have no buyback activity during the quarter, as you mentioned in your remarks. Should we expect this to resume next quarter, given that you already had your first asset sale?

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [9]

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

Marimar, I'll take the second question first and then I'll ask Fernando to address the interest expense calculation. Absolutely, yes, we expect to continue to be active in the buyback of our shares. As you know, we are opportunistic and expect to continue to be opportunistic in this matter. But in short, yes, we can expect to continue to be active in the secondary market on an opportunistic basis.

Now I'll ask Fer to go over the interest expense.

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

Fernando Álvarez Toca, Fibra UNO - VP of Finance [10]

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

Thank you, Jorge. Yes. Well, for this year, what we should expect in the interest expense line is obviously a more -- a not so volatile speed of capitalizing interest since we are going to use the same criteria throughout the year. So this should behave less -- in a less volatile way. For instance, this quarter, we are capitalizing 24% of our total interest. So that's more or less the rate that we should see across the year, up to the moment that development properties become operating.

We are expecting some space to become operative throughout the year, most -- more weighted toward the second semester. But also there's a possibility of us initiating new development. That's always a possibility. That then will allow us to increase the capitalization.

But if nothing, let's say, if nothing atypical happens, we should see the volume of our capitalized interest going gradually down, and you should consider that in our -- in the expectations.

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [11]

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

Specifically, Marimar, just to add to what Fer just mentioned, we expect to deliver Mariano Escobedo, which is 12,000 square meters. The building complete with Phase I is 18,000 square meters.

We are capitalizing interest currently associated with the development of Mariano Escobedo. That building is leased 100%. So when the building becomes operational, it's going to be 100% leased. So I think that in that case, in particular, we're going to see the building move from greenfield to operations. We are going to stop capitalizing interest, but in that case, in particular, we're also going to receive cash immediately and that building is going to be stabilized.

That is the only major change that I foresee in the development property this year. The rest of the properties that we are going to deliver should follow the normal pattern of being delivered from greenfield to in-service. And then once we start collecting rents, then the accounting will come. But I don't see any other property moving in that regard this year.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [12]

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

And also, Marimar, in the interest rates that everybody is thinking that they will go down in the next few months, we really cannot rely on that assumption for our strategy.

Even though we have seen right now the portion of variable interest that we have, we could fix that. And just the decision of fixing that could lower the interest rate. For example, if we have a variable rate and we want to fix it for 5 years, it will drive down the interest in the order of 70 basis points.

We could do that. But as long as we don't know really what will happen with interest rates, we are very cautious about making any decision. So this will affect also the interest expense in the Mexico promos.

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

Operator [13]

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

Our next question comes from the line of Adrian Huerta with JPMorgan.

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

Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [14]

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

Two questions. One on Antea, if you can just give us a few details on occupancy? And your plans to acquire an additional stake in the future? And what do you plan to do on the land that you acquired next to the Antea mall? And the other question is do you have any comments on the press release on potential for their asset recycling? If you can just comment on what plans do you have for that for the rest of the year?

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

Gonzalo Pedro Robina Ibarra, Fibra UNO - Deputy CEO [15]

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

Yes. Adrian, in terms of the Antea construction, as you may be aware, we have just acquired 40% of the shopping mall, and there is a still a 20% additional asset that probably we will be acquiring in the next 3 to 6 months. We are depending on some of the legal procedures from the seller in terms of getting the sales right or first refusal right to the co-owners of this. Remember that we have as the co-owners here with Sordo Madaleno and [Grupo Wall plus Ayero]. And probably this will be happening in the next 6 months.

In terms of occupancy, the shopping mall that's up to date is around 94%. There is mainly just one single shop that is empty, a quite large space that we are seeking a couple of potential payments that we expect to have them in line by the end of the year. And this is on the third floor of the shopping mall. And in terms of the land, what we acquire is around 120,000 square meters of land, as we announced, we have already sold 20,000 out of those. What we would be probably keeping for a little bit longer will be around 40,000 out of this 100, that will be the natural expansion of the Antea shopping mall, and the rest will be sold. And the [2] as we announced we [sold] 20,000 square meters right away with a 25% profit. The truth is this that there's a lot of demand on this land. So probably in the next 12 months, we will be getting rid of a total of 60,000 and keeping just 40,000 for the future expansion of Antea.

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [16]

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

And in terms of the asset recycling policy, Marimar (sic) [Adrian], as we mentioned, we are completely opportunistic. I want to stress that we have said many times before that our policy is to be opportunistic. We're not putting a for sale sign on any of our properties. But if you come knocking, and we have people knocking, as Gonzalo just mentioned on this plot of land and many other properties. If people come and make an offer that is reasonable to us, we are definitely not married to our properties. And we're very willing sellers at the right price. But we're not putting a for sale sign on the properties.

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

Gonzalo Pedro Robina Ibarra, Fibra UNO - Deputy CEO [17]

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

And then as Jorge mentioned...

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [18]

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

I'm talking with Marimar, sorry.

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

Gonzalo Pedro Robina Ibarra, Fibra UNO - Deputy CEO [19]

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

We have been receiving request from a potential buyer. And so for today, I can tell you that we've been working with 3 potential sales. So probably by the end of this semester, you will be hearing about some of the sales and by the end of the year that will be additional sales and this is the -- people that will be -- that have been knocking the door and we will be hearing more, if there is more.

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

Operator [20]

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

Our next question comes from the line of Luiz Garcia with Bradesco.

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

Luiz Mauricio Garcia, Banco Bradesco BBI S.A., Research Division - Research Analyst [21]

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

Two questions. The first question is on the departments bottlenecks you're seeing negatively affecting new development, mainly in Mexico City. So what is your expectation on this topic? Do you see this -- I'm not asking you specifically about funding, I'm asking about the markets. So do you see this negatively affecting the supply? Or do you see this as something more short term that should not necessarily affect the supply of the market that going forward? So just to understand because this may change the scenario that some of the brokerage firms are expecting in terms of increased vacancy for the market in Mexico. So to better understand your view on this.

And the second question is related to the industrial and logistics segment development. Of course, you do have a huge product in this year being developed, the business park. But my question is, given that this is the segment that it's also quite strong, do you expect to speed up some other developments like you have been in Mexico City, some assets that are fixing to the logistics and et cetera. So what is your view on industrial development going forward?

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

André El-Mann Arazi, Fibra UNO - CEO & Director [22]

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

First question, we are seeing that the new government has been acting very radical in terms of new permit. If this continue, which we do not believe will, for sure it will push us and it will disrupt the market because of the new problem coming to the market. We don't think that it will last us too much time. We believe that it's temporary, and things will come again to regular business as usual.

For the industrial side, the problem that we are facing with industrial side. Remember that we see the industrial properties with a real estate view. In fact, I think this is the differentiator we have with the rest of the competitors. We see only the real estate view for our industrial properties. Our industrial properties in more than 75% of the cases are in the zone of Mexico City. All of them are within the Mexico City, Greater Mexico City, let's say. And we see and we buy the product that it's on the main roads only.

The challenge that we are facing now is the lack of land. The scarcity of land that matches our standards is what inhibits us to continue to grow aggressively. But we still have today ongoing 1 million square meters plot of land, and we are building. We just received the last piece of permit, and we are building currently as much as 400,000 square meters in our La Teja project, that we will be delivering later this year the first warehouse. So we are very active in that. But if we do not find land that is on the right price and matches our very strict and very high standard in terms of the real estate wise, we won't be buying as aggressively as we would like. I don't know if I answered the question correctly?

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

Gonzalo Pedro Robina Ibarra, Fibra UNO - Deputy CEO [23]

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

Just to expand a little bit what André has stated. Just to give you a figure -- official figure is that there are 90 projects -- 9-0 projects that have been stopped in the Mexico City area and this is definitely will be moving the market dynamic from all the analysts in terms of the recruitments in CBRE is in calling out some of those guys.

So obviously, the delivery of new product will be delayed and actually beside the post-market project [Torado] that on hold, I can tell you that there are a lot of new projects that were supposed to be coming into the market that are on hold from their developer's side. So that -- there will be the delay down there that will be on the benefit of whomever we have existing province.

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

Luiz Mauricio Garcia, Banco Bradesco BBI S.A., Research Division - Research Analyst [24]

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

So do you expect this to last for longer as a consequence, as you said?

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [25]

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

Well, it's difficult to say exactly how long it's going to last. But as André mentioned, it shouldn't, we don't expect it to last long -- to normalize.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [26]

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

It will normalize. We think that it will normalize later. This city cannot afford to be powerless. It is my personal view. So I think that it will normalize sooner than later.

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [27]

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

The people are going to demand the growth themselves, I think.

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

Operator [28]

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

Our next question comes from the line of Vanessa Quiroga 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 [29]

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

My question is regarding -- just a first is one on Antea. Do you -- can you provide the average rent in the property or annualized NOI currently or expected maybe month forward, whatever number that you could provide on Antea? And the second question is regarding FRIMAX. We saw that in your development table, there was a change in the expected delivery date. So I'm wondering if you could provide color on what changed in the project. And also, I guess the third one, I had, I had in my file that FRIMAX originally was being funded with shares issuance.

So I just want to confirm that this continues to be the case that this development is being somehow funded with your issuance? Or do you see it's being funded with cash? What can we expect about share issuance attached to projects in the coming quarters?

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

André El-Mann Arazi, Fibra UNO - CEO & Director [30]

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

Second question first. FRIMAX is one project at La Teja that I was talking about. We have just received the last piece of permit. We will resume the construction. We have already leased the first, I think, it's 40,000 square meters.

We are doing tranches of 50,000. We have with the seller an agreement of paying either with shares or with cash. So we really don't know what the payment form will be. But the payment is not made the first day or the last day. It's during the construction. So we will be paying that in that point, and we really don't know if it will be with shares or cash.

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

Fernando Álvarez Toca, Fibra UNO - VP of Finance [31]

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

And the first question on the Antea. We are -- the model that we have on the Antea, we see a MXN 400 million NOI looking forward next 12 months; take into consideration that we are buying 40% of that. This is obviously excluding [lever pull of the euros or] are those part of the transaction.

So just the retail side beside those, it's the one that will be producing MXN 400 million, and out of that 40% is ours.

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

Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [32]

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

Great. So going back to FRIMAX. The new date that you provided, is that the date when you expect 100% to be completely leased? And we are going to see partial start of operations, let's say, of that property? Can you clarify?

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

André El-Mann Arazi, Fibra UNO - CEO & Director [33]

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

Yes. Of course, we will start seeing the first tranche this very year. The finish of the first tranche is this year. The next should be in the first, second, third quarter of next year.

So we expect to finalize construction in maybe 18 months' time and then the 6 or 12 months that we need to stabilize. And we will not be paying shares at the current price, just to clarify also.

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

Operator [34]

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

Our next question comes from the line of Pablo Duarte with Actinver.

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

Pablo Enrique Duarte de León, Actinver Casa de Bolsa, S.A. de C.V., Research Division - Real Estate Analyst [35]

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

Congratulations on the strong results. Has Jorge already recognized the full contribution from Midtown Jalisco this quarter? Or if it is a still accounted for some risk periods? And also what can you tell us about the performance of this asset so far?

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [36]

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

Pablo, I will take the second question first, and then I'll ask André to complement on Midtown. No, we have not seen barely any income from Midtown Jalisco. The property just opened. The hotel is fully operational. We have about 70% roughly of the space leased both in the office and shopping mall area. But obviously, most of this is still in the grace period. Probably, we are at 40% of the doors open in the shopping mall. People are still doing their TIs and whatnot. So really, we are not seeing any significant portion of the cash flow contribution of Midtown at this stage.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [37]

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

Out of the 100% that this property will bring to the company, we expect that this year we will enjoy 35% to 40%. Next year, we'll be up to 80% to 90%. And the full potential of the property will come in 2021.

But I don't know if I can say that we are thinking about and you will all be receiving the invitation for the first ever Mexican Investor Day -- Formal Investor Day in Midtown Jalisco. We -- really, really, really we would like to show off our property to everybody. So be aware of the invitation that will come shortly.

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

Jorge Humberto Pigeon Solórzano, Fibra UNO - VP, Markets & IR [38]

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

;

Yes, we are about to release to save-the-date for our Mexican Investor Day, as André mentioned. It won't be Investor Day in New York where we do the full guidance and full analysis of the company. We will more focus on other specific matters that we want to address and the idea for you guys to be able to visit the property. Because it is a very important for us as a company to give you, our investors, a view of what we have used the capital that you have entrusted us with, what it looks like once you put bricks and mortar to it.

And the best way to do it is if you actually look at the property. André constantly said that he falls in love with his properties, and it hit me when I visited Midtown Jalisco for the first time because I've seen the renders, and I looked at the pictures and whatnot. And when you actually go to the property and sit down on it and look at what it is, it's really an impressive property. I think, and I'm not exaggerating, I think Midtown Jalisco is probably one of the best properties that Uno has in its whole portfolio. And that's why we will be inviting you guys. So save-the-day will come out soon for a day trip to Guadalajara, where we're going to have a management meeting discuss some matters that we want to present, and obviously, be able to show you guys the property, which is really one of our crown jewels.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [39]

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

And basically is a way of Gonzalo and Jorge to show off a bit.

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

Operator [40]

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

There are no further questions at this time.

And I would like to turn the call back over to Mr. El-Mann for closing remarks.

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

André El-Mann Arazi, Fibra UNO - CEO & Director [41]

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

Thank you very much. Thank you for your attention and your interest in our company and we hope to bear more good news in the next quarter. Thank you, everybody.

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

Operator [42]

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

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a great day.