MONTERREY, Mexico, Oct. 26, 2017 (GLOBE NEWSWIRE) -- Deutsche Bank Mexico, S.A., Institución de Banca Múltiple, Trust Division F/1616 or Fibra Inn (BMV:FINN13) (“Fibra Inn” or “the Company”), the Mexican real estate investment trust internally managed and specialized in the hotel industry serving the business traveler with global brands, today announced its non-audited second quarter results for the period ended September 30, 2017 (“3Q17”). These results were prepared in accordance with International Financial Reporting Standards (“IFRS”) and are stated in nominal Mexican pesos (Ps.).
3Q17 Financial Highlights:
- Fibra Inn concluded the quarter with 42 hotels in operation plus one property under a rebranding process. This represents a total of 6,959 rooms, 145 of which are undergoing brand conversions and 66 will be an addition of rooms. Fibra Inn has an investment in 3 properties under the Strategic Hotel Acquisition Pipeline that will add 633 rooms.
- Total Revenue: reached Ps. 486.3 million, of which 94.9% were from room revenues and 5.1% were from other rental revenues, for a total increase of 3.2% compared to 3Q16.
- NOI1: Ps. 167.3 million, a 2.6% decrease compared with the Ps. 171.8 million reported in 3Q16; NOI margin was 34.4%.
- Adjusted EBITDA2: reached Ps. 143.5 million, a 2.8% decrease compared to the Ps. 147.7 million in 3Q16.
- Net Income: Ps. 12.4 million; representing a 2.6% net margin.
- FFO3: Ps. 102.3 million, or 21.0% FFO margin.
- Distributions to Holders4: Ps. 110.0 million for the 438,830,959 CBFIs outstanding. Distribution per CBFI was Ps. 0.2507, representing an 8.3% annualized dividend yield for the quarter.
Same-Store Sales for the 43 comparable hotels:
- Room revenue: Ps. 458.7 million; an increase of 2.8% vs 3Q16.
- Occupancy: 62.0%, a decrease of 0.5 percentage points (pp) and an Average Daily Rate (“ADR”) of Ps. 1,188.4, with 3.6% growth.
- Revenue per Available Room (“RevPAR”): was Ps. 737.4, a 2.8% increase.
Total Revenues for the 43 hotels in operation:
- Room revenues: Ps. 461.7 million; an increase of 2.9% compared to 3Q16.
- Occupancy: 61.9%; a decrease of 0.7 pp versus 3Q16.
- Average Daily Rate: Ps. 1,188.1; an increase of 3.6%.
- Revenue per Available Room (RevPAR): Ps. 735.9, a 2.6% increase vs. 3Q16.
Oscar Calvillo, Chief Executive Officer of Fibra Inn, stated: “The results for this period reflect the effects of very specific items, among these: more competitive rates, the adjustment in room rates to better reflect pricing listed on the internet sites of the major hotel brands, the impact of meteorological conditions and marketing efforts to attract guests during this period of the year. However, the Company is quite pleased with the development of strategies aimed at aligning with, which position Fibra Inn more deeply within its fundamentals and that set the course for the short and long term goals of the company on the most important items. Among these were the agreement to acquire the Westin, which allows us to expand our range within the business hotel segment, the internalization of advisory services, which positions us as the top Fibra in terms of corporate governance and whose effects continue to be palpable, our distribution policies, which permit us to focus on strategic efforts and at the same time is aligned with profitability measures in the real estate sector. The nature of Fibra Inn must be directed, on one hand towards capital recycling with value generation and this will be a reality as a result of the selective sale of assets that we are working on and that we expect will successfully conclude before the end of the year; as well as the hotel developments under a co-investment structure denominated the Strategic Acquisition Pipeline.”
1 NOI is the calculation of the Fibra’s revenue (rent and other revenue) minus operating expenses for administration, maintenance, lodging, utilities, fees, royalties, marketing and promotion, as well as property tax and insurance.
2 Adjusted EBITDA excludes acquisition and organization expenses.
3 FFO is calculated as the Adjusted EBITDA plus interest gain less interest expense and foreign exchange fluctuations.
4 Calculated using 438,830,959 CBFIs outstanding on September 29, 2017. Yield is based on a Ps. 12.11 per CBFI as of September 29, 2017.
Third Quarter 2017 Results
The sales mix at the close of 3Q17 was comprised of 43 hotels under operation: 11 limited service, 17 select service, 14 full service and 1 extended-stay hotels.
Fibra Inn’s total revenues during 3Q17 were Ps. 486.3 million, an increase of 3.2% compared to 3Q16. Revenues were comprised as follows:
- Ps. 461.7 million, or 94.9%, were from room revenues from the 43 properties in the portfolio, equivalent to 2.9% growth compared to 3Q16: (i) This increase was almost wholly comprised of 2.8% from same-store sales room revenues due to marketing efforts, both in the stabilization process at some of the hotels that are in this stage, as well as the substitution of business travelers with leisure travelers, as a result of the seasonality of the summer vacation season at this time of the year. Organic growth for the quarter was basically limited by the following factors: (i) the adjustment in hotel rates in adjustment to the internet sites of the international hotel chains, (ii) the impact on rental rates due to the appreciation of the peso versus the dollar which reached a 4.9% average during the quarter versus the same quarter last year, and (iii) the cancellation of reservations and a lower number of guests due to the extreme meteorological events, such as Hurricanes Harvey and Irma, as well as the earthquake in central Mexico.
- Ps. 24.6 million, or 5.1%, in rental revenues from spaces for services other than lodging, such as conference and meeting rooms, coffee breaks, banquet rooms and restaurants, as well as the rental of certain commercial spaces.
During 3Q17, total operating expenses were Ps. 319.0 million, or 65.6% of total revenues, an increase of 2.1 basis points (“bps”), compared with 63.5% during 3Q16. This was the net effect of the following:
- A 1.8 pp increase in lodging expenses, representing 26.5% of total revenues, pertaining to a higher usage of external sales channels to generate greater demand by investing in certain commercial strategies, such as greater usage of travel agencies, both traditional and online access, in order to target leisure travelers, in order to offset the seasonality of the summer vacation period, which results in lower volume of business travelers; as well increasing the number of guests that are members of the global brand loyalty programs.
- A 50 basis point increase in energy costs, representing 6.5% of total revenue, due to an average 40% increase in energy costs.
- A 30 basis point decrease in royalties, representing 6.2% of total revenues, since 10 franchise contracts were renovated with international brands.
- A 30 basis point decrease in administrative costs, representing 16.1% of total revenues, due to lower sales, as these costs are related to the fees for the hotel operators.
- A 20 basis point decrease in advertising and promotion, representing 5.2% of total revenues, as there were lower executive sales incentives paid this quarter due to lower revenues.
As a result of the above, Net Operating Income (NOI) for 3Q17 reached Ps. 167.3 million, which represented a 2.6% decrease, compared to Ps. 171.8 million for 3Q16. The NOI margin was 34.4%, which represented a decrease of 2.1 pp compared to 36.5% reached in 3Q16.
Administrative and acquisition expenses related to the operation of the Fibra were Ps. 29.2 million for 3Q17, representing a 13.7% decline compared to Ps. 33.8 million reported in 3Q16. As a percentage of total revenues, these expenses were equivalent to 6.0%, representing a decrease of 1.2 pp versus those reported in the same quarter of last year. This variation was the result of the following:
- A 3.7 pp decline in the advisory fee due to the elimination of the advisory fee, as a result of the Company’s internalization process at the beginning of 2017; until 2016 this amount was 0.75% over the gross value of the real estate assets adjusted to inflation.
- A decrease of 1.0 pp in acquisition and organizational expenses, representing 1.1% of total revenues since no acquisitions took place during the period and there were consulting fees related to the restructuring of the administrative shared service center.
- A 30 basis point decline in other expenses.
- The aforementioned was partially offset by a 3.2 pp increase in administrative corporate expenses, which represented 4.9% of total revenues, due to higher payroll expenses previously belonging to the Advisor and that currently belongs to the Fibra’s subsidiary.
IFRS 3 Business Combinations
In reference to IFRS 3 Business Combinations, hotel acquisitions are considered business acquisitions, as these reflect the acquisition of a running operation. Therefore, acquisition-related expenses are reported in the profit and loss statement as they are incurred, including notary expenses, legal and appraisal expenses as well as other expenses. This is applicable for hotel acquisitions after 2014.
Adjusted EBITDA of Ps. 143.5 million excludes the previously-mentioned acquisition and corporate-related expenses and decreased 2.8% compared to Ps. 147.7 million in 3Q16. Adjusted EBITDA margin was 29.5%, which represented a decrease of 1.9 pp compared to the 31.4% margin reported in 3Q16.
The period included:
- Review of the estimate for the deterioration of financial assets in the amount of Ps. 9.6 million.
- An accounting depreciation for Ps. 64.1 million. The calculation for the depreciation of fixed asset – properties, furniture and equipment – is calculated based on the straight line method based on the estimated useful like of the net assets’ residual value, and
- A payment provisioned for Asesor de Activos Prisma, in the amount of Ps. 10.7 million, due to the early termination of the advisory contract for the internalization of services, which is in line with the Fibra’s savings and which must be paid in 2020 upon compliance with the conditions stipulated as per the internalization.
Operating Income (EBIT) was Ps. 53.7 million, an operating margin of 11.0%, which represented a decrease of 30.6%, or Ps. 23.6 million, compared to the Ps. 77.3 million, 16.4% margin in 3Q16.
Fibra Inn obtained higher interest income totaling Ps. 12.7 million, or Ps. 9.5 million higher compared to the Ps. 3.2 million reported in 3Q16. This increase corresponded to higher cash and equivalents in 3Q17, as well as improved profitability for investments realized, as a result of the application of improved investment strategies.
Interest expense reached of Ps. 52.9 million in 3Q17, compared to Ps. 33.4 million during 3Q16. This was due to the higher amount of bank debt added to the previously-issued debt amount, that went from Ps. 1,852.0 million to Ps. 2,875.4 million in October 2016, which was when the debt re-initiation took place for Ps. 1.0 billion, as well as to the 280 bp increase in the TIIE interest rate, which was partially offset by the interest rate swaps.
There was an exchange rate loss of Ps. 1.1 million. The net financial result was an expense of Ps. 41.3 million in 3Q17, Ps. 10.1 million higher than the expense of Ps. 31.2 million in 3Q16; which is favorable considering the higher debt amount and the significant interest rate increase.
Net Income for 3Q17 was Ps. 12.4 million, a 2.6% margin, representing a decline of Ps. 33.7 million or 73.1% compared to the Ps. 46.1 million in 3Q16.
3Q17 FFO was Ps. 102.3 million, equivalent to a 21.0% margin and representing a 12.3% decrease, compared to the Ps. 116.6 million and 24.7% FFO margin reported in 3Q16.
Distribution to Holders
On October 25, 2017, Fibra Inn’s Technical Committee approved a cash distribution for the CBFI holders of Ps. 110.0 million related to 3Q17. This distribution was equivalent to Ps. 0.2507 per CBFI, based on 438,830,959 CBFIs outstanding, as return of capital based in the operations and results of Fibra Inn for the period between July 1 and September 30, 2017. This distribution will be paid by November 30, 2017.
The repurchase program reached a total balance of 1,188,583 CBFIs at September 30, 2017. After the close of the quarter, 149,500 additional CBFIs were purchased; as such, the total amount of repurchased CBFIs at the time of this report was 1,338,083 CBFIs.
Calculation of the Distribution to CBFI Holders
In accordance with the tax laws applicable to Fibra Inn, the fiduciary is obligated to distribute at least 95% of its taxable income generated in the prior period to CBFI holders by the Trust’s assets at least once per year and by March 15 of the consequent period.
This past April 26, 2017, Fibra Inn’s Technical Committee approved the distribution policy, to be applied during 2017, consisting of:
- An objective distribution base of Ps. 0.25 per CBFI for each quarter of 2017; plus
- An additional distribution based on the fulfillment of the strategic goals related with the Strategic Hotel Acquisition Pipeline (revenues corresponding to development fees), or derived from a hotel sale that represents a gain with respect to the original investment.
The objective of this policy is to generate stability in distribution payments, in accordance with the nature of the real estate business, similar to the rents obtained in a portfolio of real estate properties.
In line with the tax code applicable to Fibra Inn, when the fiduciary grants holders of CBFIs that are worth more that the tax amount of the period generated by the trustors’ equity, the difference is considered a capital return and will lower the proven value of the purchase of the certificates held by the holders that receive this difference. The capital reimbursement does not generate a tax withholding for Fibra Inn’s investors.
Taxable Income Calculation
Taxable Income is calculated from a tax base and may differ from the accounting base calculation. Therefore, it is important to consider the following:
- Fiscal depreciation applies to approximately 82% of the total value of the hotels at a 5% annual rate, updated to reflect inflation in the portion corresponding to constructions (74%), while the remaining fixed assets (8%) depreciate fiscally in accordance with the rates applicable. The remaining 18% is the value of the land, which does not depreciate.
- IPO expenses are tax deductible in straight line depreciation for 7 years updated to reflect inflation.
- Monetary assets – mainly cash and cash equivalents – generate a tax deduction due to inflation effects over the average balance of those assets.
Therefore, use the following formula to calculate the Taxable Income:
(+) Accountable depreciation, not deductible
(-) Taxable depreciation
(-) IPO expenses amortized to 7 years
(-) Annual adjustment from deductible inflation
= Taxable Income
Use of the CAPEX Reserve
The capital expenditure reserve for hotel maintenance is provisioned as per the investment requirements in each line item for each period, plus a reasonable reserve for future requirements. As of September 30, 2017, this reserve reached Ps. 29.8 million compared to Ps. 19.9 million at June 30, 2017. The total amount for capital expense reached Ps. 4.7 million during 3Q17 of which Ps. 1.8 million were included as expenses in the profit and loss statement.
As of September 30, 2017 Fibra Inn held Ps. 602.8 million in cash and cash equivalents. As of September 2017 the outstanding recoverable VAT amount was Ps. 91.7 million, which is in process to be recovered with the Tax Administration Authority.
Accounts receivable registered Ps. 141.4 million from regular business operations. Other accounts receivable were Ps. 2.8 million and anticipated payments were Ps. 30.6 million, which mainly pertain to operating expenses of the amortized hotels during the period, as well as property taxes, insurance, fiduciary fees, independent board members and administrative payments. Accounts payable reached Ps. 95.6 million,
There were no short-term bank loans registered for the quarter under discussion, since on December 22, 2016, the Company signed the bank loan cancellation, pledge agreement, mandate of deposit and the reversal of the Trust Guarantee. As a result, to date 15 hotels were granted release from the guarantee granted for Fibra’s portfolio and only one remain in this process.
The Company registered long-terms bank loans of Ps. 2,843.3 million, which correspond to the amount of the bank debt, net of amortizable costs.
At September 30, 2017, the outstanding balance of the FINN15 issuance was Ps. 2,875.4 million, maturing on September 24, 2021 at a nominal rate of TIIE 28 days plus 110 bps (equivalent to 117 bps effective rate including the re-initiation of debt). This balance considers the re-initiation of the Ps. 1 billion debt that was placed in October 2016 at TIIE 28 days plus 130 bps, via a discounted nominal rate.
At the close of the third quarter of 2017, the gross debt balance was 8.06%:
- 66% covered with fixed rate swaps at a weighted average rate of 7.81%, and
- 34% is at a variable rate of 8.54%.
As a result, the net debt cost is 8.31%, considering issuance costs of 0.24%.
As of September 30, 2017, the Company has the option to take on additional debt (considering the current balance of cash and cash equivalents) for Ps. 1,125 million without surpassing the 33% loan-to-value threshold set forth by the Company’s Technical Committee.
Fibra Inn has a total loan-to-value of 29.9% as of September 30, 2017. This leverage level is in full compliance with the dispositions of the Mexican Banking and Securities Commission (“CNBV”) to regulate the maximum leverage levels for the Fibras of up to 50%. As of September 30, 2017, the debt service coverage was 2.4x; the ratio established to be greater than 1.0x. Both of these figures are calculated in accordance with the methodology in Appendix AA of the Circular Única de Emisoras applicable to CBFIs.
Following is a breakdown of the items used in the calculation of the financial ratios:
Recent Events after 3Q17
- Opening of the AC Hotel by Marriott Guadalajara Expo
The Company announced the opening and operation of the recently-remodeled hotel, with 180 full service rooms and is operated by the Hotel Operator company related to Fibra Inn.
- Property Inspection and Review due to the Earthquakes
The Company announced inspections and minor repairs to 5 properties as a result of the damages caused by the earthquake. The Holiday Inn Coyoacan hotel, located in Mexico City, was reviewed and was found not to have suffered structural damages; however it required some remodeling in various areas of the hotel which partially interrupted operations.
- Agreement to Acquire the Westin Monterrey hotel for Ps. 753 million
The Company announced the signing of an agreement for the acquisition of this hotel upon conclusion of construction process as well as once certain conditions are met pertaining to the Marriott brand standards, on order to obtain approval, as well as approval by COFECE. Fibra Inn will participate with a 20% investment in the property, which will add 175 rooms under the Strategic Hotel Acquisition Pipeline model.
Information Regarding the Tenant
In order to facilitate the quarter-over-quarter comparisons, additional operational tenant information, as well as statistical indicators, is presented.
Rental revenues for the non-lodging spaces reached Ps. 24.6 million in 3Q17, which was 8.4% higher than the amount for 3Q16. This was due to the higher rental charge adjusted to inflation.
Rental revenue for food, beverage and other services were Ps. 88.1 million.
Hotel Operating Indicators
The parameter of same-store sales includes the following:
- Hotels that are the property of Trust F/1616 and its operations, excluding hotels that are under negotiation as a result of a binding agreement as the phase prior to acquisition; those will be included at the moment of titling.
- As a result, the Same-Store Sales Indicator for 3Q17 includes 43 hotels of the current portfolio as if they had been part of the Fibra for the full periods, both for 3Q17 and 3Q16.
- The Company maintains the policy of excluding hotels that have been in Fibra Inn’s portfolio for less than half of the quarter under discussion.
In this report, no hotels were excluded. However, it is important to mention that the Casa Grande Ciudad Juarez hotel remains closed since September due to its expansion and conversion to the Holiday Inn brand, and the Holiday Inn Mexico Coyoacan experienced a temporary interruption of operations due to the earthquake that took place on September 19; to date, operations have reinitiated.
About the Company
Fibra Inn is a Mexican trust formed primarily to acquire, develop and rent a broad range of hotel properties for lodging in Mexico aimed at the business traveler. The Company has signed franchise, license and brand usage agreements with international hotel brands for the operation of global brands as well as the operation of national brands. Additionally, the Company has development agreements. These hotels enjoy some of the industry’s top loyalty programs. Fibra Inn trades its Real Estate Certificates (Certificados Bursátiles Fiduciarios Inmobiliarios or “CBFIs”) on the Mexican Stock Exchange under the ticker symbol “FINN13”; its ADRs trade on the OTC market in the U.S. under the ticker symbol “DFBRY”.
In Monterrey, Mexico:
Lizette Chang, IRO
Tel: 52 1 (81)1778-5926
In New York:
i-advize Corporate Communications, Inc.
Tel: (212) 406-3691