Fibra UNO (FUNO11) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to Fibra UNO Q4 2020 Results Conference call on the 26th of February 2021. [Operator Instructions] Our host today from Fibra UNO are Mr. Andre El-Mann, CEO; Mr. Gonzalo Robina, Deputy CEO; Mr. Fernando Álvarez, VP of Finance; Mr. Jorge Pigeon, VP, Capital Markets and IR. So without further ado, I would now like to pass the line to Mr. Andre El-Mann. Please go ahead, sir.

Thank you, Michael. Good morning, everybody. Dear all, I want to share with you the results for the third quarter of 2020 as well as the year ended December 31, 2020. Without a doubt, this has been the most challenging year in the history of FUNO. Nevertheless, I am very pleased with the results our company posted during this year. The resilience shown and how we managed to successfully navigate this very complex environment, I am very proud about it. The solid results of our company, evidence that our countercyclical business model works exactly as the experience of our team thought it would. This does not mean that we did not have to work extra hard to, first of all, ensure that the supply chain which we manage kept going amidst the sanitary crisis, it was priority one; but also that we listened to the needs of our tenants, analyzed them carefully and provided the appropriate amount of support for each of our tenants as we deemed necessary in order to ensure the continued success of our business and, in some sort of way, the continuance and success of our clients' businesses. Specifically looking at our results, I want to highlight the growth in FFO per share during the fourth quarter of 2020. Our FFO per share grew 61.3% versus the previous quarter, reaching MXN 0.47 per share or MXN 1.8 billion. This is the bottom line result of the combination of growth in our top line, significant improvement in collections, less overall amount of support granted to our tenants and tight control of our expenses, which led to an NOI growth of 20.7% versus the previous quarter and an NOI margin over rents of 87.4% additionally. The effect of interest expense, which was affected by several matters, included a less overall capitalized interest expense stemming from properties coming out of development and into operation and the additional cost of having drawn a 50% tranche of our revolving credit facility, which we did back in April in order to ensure fund sufficiency for our company at a point where we did not know the reach of the crisis of the pandemic and how it would impact our business. Nevertheless, as time went by, we gained more and more clarity, and our solid business model prevailed. Therefore, we decided to repay the revolving credit facility before year-end, all of which contributed to the solid results of our operating cash generation in the FFO line. However, more than focusing on the minutia of the financial and operating figures, which are included later in this report, I want to highlight the resiliency and the strength of our company from the perspective of a strategic view of the company. This is the first time since we became public, a public Fibra, that a crisis or cycle has hit our business. Our business model is designed for times like these. Simplified, it rests on 4 pillars, which are: one, the best locations of the best assets; two, leases at competitive rent level; three, diversification; and four, financial prudence. The combination of these variables in the way we have created and managed to set up FUNO enabled us to navigate profitably the worst crisis on record in the last 80 years in Mexico and, certainly, one of the most difficult crisis on a global scale. Let me stress this again. FUNO not only was able to navigate the crisis. We managed to do so while generating positive operating cash flows. We generated positive FFO in excess of MXN 1 billion during all 4 quarters of the year. We maintained our occupancy at the company level well above 90%, with healthy operating margins. I am very pleased with these results, but we are not satisfied as there is still a lot of work to be done given the storm is still present. And although the headwinds have lessened somewhat, there are still a lot of challenges lying ahead as we move into 2021. I want to highlight the value of the diversification of our portfolio, not only in segments, but also geographies and tenants. We are very pleased with the operation of our industrial portfolio. Today, industrial is the pretty girl on the neighborhood, which, as you know, is primarily logistics-oriented, located in the heart of the logistics corridor in the metro area of Mexico City. We have an industrial portfolio of around 6 million square meters of GLA, from which 80% approximately are dedicated to logistics, by far the largest in Mexico. We are pleased to see solid performance in leasing and operating activity. And we can say that we did not perceive major signs of stress in this segment of our business. In other segments, we continue to see moderate stress in our retail operation currently, given the red stop light at some of our key locations like Mexico City, State of Mexico, Jalisco, Monterrey and Queretaro, for example. However, we believe we can expect them to fully recover given the performance we saw during fall of 2020 when retailers were allowed to reopen for business. The performance in the fall and into December was highly encouraging. We, therefore, expect a sustained recovery of retail operation as 2021 moves along and the events of the electoral year expenditures and global liquidity injections spur a full recovery. Moving on to the office segment. We did not see signs of major stress during 2020. Of course, we acknowledge the challenge lying ahead, and we plan to face it upfront. Again, we believe that overall, when compared to the market, our portfolio should perform well. Our diversification again is paying off. On the Office Space segment, I would like to quote a renowned and prestigious banker who stated earlier this week, as one of the global news outlet posted, "Working from home is not the new normal, it's an aberration. For us, it's not ideal and it's not a new normal. It's an aberration that we are going to correct as quickly as possible." Well, disclosing my admiration for this gentlemen, his achievements and his career, I happen to agree with him. I have stated plenty of times during last year that I strongly believe everything, everything will come back and fall into its place sooner or later. Unfortunately, my lack of clarity expressing myself, especially in English, limited me to be as loud and clear as the comment we heard this week and also strengthens the theory that, eventually, the world will need more office space rather than less. People will continue to want more distance on their workplaces. Anyway, we remain positive on the overall prospects of our business amidst these still challenging times. We have built a solid and very resilient company through tried and tested strategies that have served us well during past crises and that have proven to be effective during this one. We have a company that not only managed to remain profitable and generating solid cash flows during the crisis but one that also was able to access the capital markets at competitive costs, demonstrating the trust of our investors -- our investors have in the resiliency of our business. We were also able to recycle assets at a 33% premium over our NAV. We invested the proceeds of all the sales in buying back our own CBFIs and repaying our debt in the proportion our assets are financed by each equity and debt. We also retained cash from our AFFO distributions, first, as a precautionary measure given the uncertainty we were facing. And now we have decided to limit the payout strictly to law requirements. The remainder of the cash flow generated by our operations and not distributed will be destined only to buy back our own shares or repaying our debt in order to maximize the accretion on a per share basis to our shareholders. During 2020, we generated MXN 6.2 billion in FFO. In addition, the asset sales profit contributed MXN 489 million to our AFFO for a total cash flow generated of MXN 6.749 billion versus distributions of MXN 4.67 billion. This left us with 2 -- in excess of MXN 2 billion in net cash on hand available for these purposes. Including operations carried out after the quarter closed, we have repurchased in excess of 125 million shares, around 3.5% of the company, and we paid MXN 1.5 billion in debt. As many of you know, real estate is an opportunistic business, and we always remain open to transactions that will add value to our company. Along these lines, I want to announce that after the fourth close -- fourth quarter close, we reached a deal to the sale of an office building of approximately 5,000 square meters located in the State of Mexico, which we bought back in 2014 at a cap rate of 8.75%, and we sold this property at a cap rate of 7.4% and at a 19% premium to NAV. The sale will be for MXN 172 million, and the IRR of the investment was around 17%. In addition, we also [ announced ] the opportunity to acquire a very attractive real estate play, a sale and leaseback operation with Grupo Gayosso. We bought 18 properties in total of MXN 2.1 billion, a portfolio which includes prime locations in Mexico City and, due to the nature of our tenant's business, a steady and growing cash flow, in addition to a very attractive yield of 12.3% net or 14% gross. We consider this acquisition a highly accretive real estate play. Regarding ESG, we became signatories of the Principles for Responsible Investment and have ensured that our investment processes are in alignment with such principles. Additionally, we were recognized by S&P as one of the top 15% companies with the best ESG practices worldwide. Talking about the ESG matter, on the brighter note, and our social role in the communities we have presence. We provided support to our local government, facilitating our hotels to host the medical doctors and staff that were required to move to different cities to fight the pandemic. This was much appreciated by the authorities and fulfilling and satisfactory to FUNO and Fundación FUNO. I would like to share with you how proud and satisfied we are with our latest projects. As you know, Mexico was hit hard by the pandemic after year-end and we had a profound scarcity of oxygen equipment for people infected by COVID. We started an initiative to give away 200-plus oxygen concentrators to our communities. For those who know me, you know that I am not a sentimental guy. We provided support to our communities, but please believe me -- I'm not a sentimental guy, but please believe me when I say it's eye-watering to listen towards the testimonies of gratitude, videos, notes, letters that we receive on this matter. And we put together a group of doctors to assess all the requisitions. And I can tell you that our timing was impeccable. And we saved lives. So again, please share with the FUNO team this pride and satisfaction. In sum, getting back to business. The storm is passing but not over yet. We remain positive on our model and are aware of the challenges that lie ahead. We are also working to continue to deliver solid results and expect 2021 to be a year in which we recover the ground lost during 2020. The best is yet to come for our company. I would like now to pass the mic to Jorge Pigeon to talk about the figures. Jorge, please.

Thank you very much, Andre, and thanks, everybody, for joining our call. As usual, I will go into the discussion of the MD&A and financial figures of the quarter. I'll start with our revenues, which increased MXN 671 million to almost MXN 5.2 billion or 14.5% above the third quarter 2020. This growth is mainly attributed to the combination of factors, including the amount of COVID-related reliefs and reserves that we recorded, which was MXN 178 million, which is a reduction of almost MXN 500 million compared to the third quarter of 2020, the effect of rent increases in active contracts as well as renewals at higher rental rates, we continue to see a decrease in variable rents and kiosk rents, and lower occupied gross leasable area at the company. In terms of occupancy, the total occupancy at our operating portfolio at the close of the fourth quarter of 2020 was 93.1%, only 20 basis points below that of the previous quarter. The industrial sector had an occupancy of 96.3%, 30 basis points above the third quarter of 2020. Retail, 90.9%, a drop of 70 basis points below that of the third quarter of 2020. And office recorded a 78.6% occupancy rate, 200 basis points below that of the third quarter of 2020. I would like to highlight that, on a net basis, excluding new square meters that we added to our portfolio in the office sector, we only reduced occupancy by 38,000 square meters when we compare the fourth quarter of 2020 to the fourth quarter of 2019. So a lot of what we are seeing is an addition of newly developed square meters rather than loss of occupancy in our portfolio when we compare that on a year-over-year basis. The other part of the remaining -- the other segments of our portfolio recorded 99.7% occupancy, which is stable compared to the third quarter of 2020. And the in-service property segment, which is the ones -- the properties where we have under development, I mean the ramp-up phase went from 73.4% to 84.3%, 10.9% increase due to the exit of Midtown Jalisco, which went into the operating portfolio, the office tower, Guanajuato, La Viga square meters on this category which are now on the operating portfolio as well as the advance in leasing activity in the properties that remain in the in-service segment. Moving to operating expenses, property tax and insurance. We saw a moderate increase of MXN 58.3 million or 12.2% compared to the third quarter of 2020. This effect is mainly due to the reopening of our shopping malls as well as seasonality of some expenses. Insurance remained stable, 0% growth, and property taxes decreased by MXN 4.8 million or 3.4%. This is mainly due to property sales. Net operating income increased during the fourth quarter of 2020 by MXN 702 million (sic) [ MXN 704.2 million ] or 20.7% compared to the third quarter of 2020 to reach MXN 4.1 million (sic) [ MXN 4.1 billion ]. NOI margin calculated over property revenues was 8.74% (sic) [ 87.4% ] and 79.2% over total revenue. So we are getting to a point where we're starting to see more normalized operating margins for our business. In the net interest expense and interest income line, we saw a net interest expense decrease of MXN 20.8 million or 1% compared to the third quarter of 2020. We saw a lot of movement in here. Basically, some of the changes included: the payment in full of the 50% drawdown of our committed credit line for MXN 204.6 million and MXN 6.73 billion in cash, which reduced interest expense; the increase in the amount of interest capitalization for the period, which closed at MXN 230.6 million. This has to do mainly with some acquisitions. And interest gained in cash investment related primarily to resource -- the cash resources we had from the operating cash we kept, bond issuance, the line of credit we had, which was basically kept in cash for the duration of the time we drew the line and this obviously generated interest income for the company. Bottom line, at the fund from operations level, we had FFO controlled by FUNO increased by almost MXN 700 million or 59.5% from the third quarter of 2020 to MXN 1.8 billion, as Andre mentioned earlier in his comments. Adjusted funds from operation or AFFO increased by MXN 772.1 million or 57.4% compared -- totaling MXN 2.1 billion mainly due to asset recycling activity, the closing of some transactions that have previously been announced. Moving to FFO and AFFO per CBFI. During the fourth quarter of 2020, Fibra UNO bought back 23.3 million CBFIs or 0.6% of the outstanding CBFIs of the company. Along with this, we issued 21.2 million CBFIs related to the employee compensation plan. As you know, this one is the one that's linked to performance, meaning growth in FFO per CBFI and dividend per CBFI, et cetera. So we closed the quarter with 3.872 billion CBFIs. The FFO and AFFO per average CBFI for the quarter was MXN 0.47 per share and MXN 0.54, respectively. I also want to highlight, as Andre mentioned, that as of today, we have repurchased over 125 million CBFIs or 3.5% of the company and also repaid almost MXN 1.5 billion in debt. Moving to our balance sheet. The accounts receivable in the fourth quarter of 2020 totaled MXN 1.6 million (sic) [ MXN 1.6 billion ], decreasing by almost MXN 700 million, or 28 -- almost 29% from the previous quarter. This was mainly due to a significant effort in the collection or recovery of delayed payments from some tenants as a consequence of the COVID-19 pandemic and a decrease in doubtful accounts reserve of MXN 28.3 million, reaching MXN 490 million. I'm sure there will be questions on the reversal of provisions and the accounting for this line. And I'll let the Q&A session, Fernando, to discuss more -- in more detail the accounting of the accounts receivable provisions and discounts. Moving to investment properties. The value of our investment properties, including, obviously, investments in associates, increased by MXN 3.1 billion or 1.1% from the third quarter of '20. This is a result of the asset revaluation including investment in affiliates. This, as you know, as of the fourth quarter is done by a third-party valuation and obviously reviewed by ourselves. The acquisition of Uptown Juriquilla, the closing of that acquisition, which was part of the Turbo portfolio; the delivery of approximately 100,000 square meters of the Tepozpark/La Teja development. This is where the Amazon warehouse is located; Sale of the industrial property in Ramos Arizpe, which was part of the announced transactions earlier last year; and the normal project -- progress of construction of projects that are under development. In terms of debt, net debt totaled MXN 117 billion compared to MXN 124 billion recorded in the previous quarter. The variation mainly is due to a combination of several factors. The full repayment of the 50% drawdown of our committed line of credit for the amount of MXN 204.6 million and MXN 6.73 billion in cash. I want to highlight that the total amount of this credit line remains available today and is still committed to Fibra UNO, meaning we could draw down on it again should we see that it is necessary. But as Andre mentioned, as we saw the year 2020 progress and business conditions starting to normalize, we decided to repay that credit line before the end of the year in 2020. But I want to stress the funds remain available to Fibra UNO, and it's a committed line that we have. We also saw a net increase in our bilateral lines of credit of MXN 2.5 billion as well as a new mortgage loan of MXN 640 million. We bought back MXN 50 million of the FUNO-18 bonds. And there is the effect of exchange rate appreciation, which went from MXN 22.35 to MXN 19.93 per U.S. dollar, which obviously generates an FX gain, if you will, and diminishes the amount of dollar impact in terms of denominated debt, and by denominated debt in pesos. Total equity increased by MXN 9.6 billion, almost 6% above, including the participation of controlling and noncontrolling interest compared to the previous quarter. This is mainly due to net income generated from quarterly results, the derivatives valuation, shareholder distribution and the employee compensation plan. Moving to operating results. I would like to highlight that on the leasing spreads segment in pesos, we saw positive leasing spread of 410 basis points in the industrial segment, positive 80 basis points in the retail segment and a negative 140 basis points in the office segment, all compared to the peso inflation rate. For contracts denominated in dollars, we saw a leasing spread versus the dollar inflation of positive 280 basis points in the retail segment, basically flat leasing activity in the industrial segment and 560 basis points negative in the office segment. For further detail, we can look at Page 21 in the report. In terms of constant properties performance, the rental price per square meter for constant properties decreased 170 basis points compared to the weighted average annual inflation of 2.77% of the fourth quarter of '19. This is mainly due to the loss of variable rent component in the constant property portfolio. If we were to exclude the effect of the loss of variable rent and only compare the base rent variation, we would have seen an increase in rent per square meter in the portfolio of 96 basis points, almost 1%, above the annual inflation of 2.77%. So again, we're very pleased with the performance of our portfolio. At the subsegment level, the total rent per square meter of the portfolio decreased from MXN 171 (sic) [ MXN 171.2 ] to MXN 166.7, mainly due to the reduction, as I was mentioning, of the variable rent component as well as the negative effect of exchange rate fluctuations, the increase in the proportion of industrial GLA in our portfolio, which as you know, we've included TITAN and Hercules, and now [indiscernible] Park as well as we're increasing the size of -- or the weight of the industrial portfolio, which has a lower average rent per square meter. The total NOI for the quarter decreased 1.6% compared to the previous quarter. These variations are mainly due for the industrial segment. Logistics NOI increased by 4.7%. Light Manufacturing NOI decreased by 7.1%, mainly due to the FX effects as well as the sale of some properties, in particular, in the Light Manufacturing segment. The Office segment NOI decreased by 3.9%, mainly due to exchange rate variations as well as occupancy loss and COVID-19-related support. In the retail segment, the stand-alone subsegment remained stable, Fashion Mall and Regional Center subsegment decreased by 5.5% and 1%, respectively, mainly due to the -- as I mentioned again, the decrease in variable rent as well as some of the COVID-19-related relief granted to our tenants. And the Others segment decreased 2.1%, mainly due to the effect of temporary reliefs to our tenants related to COVID-19. I would like to note that the subsegment NOI for property level NOI is lower compared to our corporate level NOI due to the fact that IFRS 9 provisioning is included at the corporate level and not at the property level NOI. For further detail, again, we can discuss this in the Q&A section of our call. And with this, I would finish the remarks on the financial and operating results of the company. And we can move on to the Q&A section, please.

[Operator Instructions] Our first question comes from Ms. Vanessa Quiroga from Crédit Suisse.

My -- the question that I have is regarding that portfolio that you acquired through the sale and leaseback transaction with Gayosso. Can you provide us with a detail of the date when you -- when this portfolio will start contributing to revenues and NOI? And also explain the difference between the gross return and the net return that you provided. And also, any upside potential from redevelopment of the property?

Thank you, Vanessa. This portfolio it's an 18 properties that we choose from a portfolio of 40 properties. We did cherrypicking in this case. And definitely, we chose the ones that have a real estate value behind them besides the cash flow that they have. And we signed a 10-year lease. A truly triple net lease for maintenance, insurance and property tax will be paid by the tenant. And the difference in between gross to net will be -- if this will be a regular lease, the [ GM on net ] will be 14. Since it's a triple net, it's -- the way we calculate it. But at the end, we will be getting MXN 268 million out of the total investment of MXN 2,192 million. And definitely -- as a sample, most of the -- that once that we are on the phone, we recognize where it's Gayosso Felix Cuevas, for example. That property, besides the cash flow, the annual cash flow that, that property will have, that is around MXN 36 million. If we just value the land for the potential that it has for housing development or a retail development, probably the piece of land will be worth 2x what we paid for it.

But answering your question, Vanessa, it's going to -- it's already contributing since February 1.

Excellent. And just a quick one about the cash discounts. How do you expect the first quarter to finish regarding cash discounts? We saw a good improvement in the fourth quarter. So just wondering if you expect further improvement in the first quarter of '21 or more stability given the restrictions?

Actually, we -- I think that we are waiting for the last round of negotiations with the tenants because, remember, they were closed from late December and practically all of January. They are starting to open now with a few restrictions. And we expect the traction will take place in the next coming months. So eventually, we will need to negotiate again with our retailers in order to provide them the last support that we are willing to give. And we expect that the traction of their business will start to show from this day on. So once they open, even though they have restriction, they will feel more relaxed about what the future has for them. So I think that we need to revisit that with the small retailers. And for the first quarter after that, I think everything will fall into its right place.

Our next question comes from Ms. [indiscernible] from [indiscernible].

I had a few questions. I was actually just typing them up. The first one is on property valuation for the full year. I saw that you provided for the, I think, Q4 compared to Q3. Just wondering, how much were your properties down and if you can give it by sector as well, that will be useful for 2020. And then do you have an average percentage of discounts provided in 2020? And I was going to ask about Q1 '21 as well. Then are you providing discounts to the office sector and the industrial sector as well as retail? And then if you could just comment as well on the occupancy that you expect for 2020 from what you think of -- what occupancy levels are you expecting for 2020. And finally, on funding -- sorry, for 2021. And then finally, on funding needs, do you think there's a need to tap the bond market in 2021?

Okay, first things first. I think that we have been disclosing the amount of discounts we granted to our tenants. At the beginning, the discounts were solely for our retailers. As time went by, the office space started to have hiccups, and they approached us and they needed some sort of relief in order to continue their business, and we gave them some sort of reliefs. We even gave some relief, very few, to our industrial sector. It all depends on the location of the tenant and the situation of them. I think that we need -- and I said this many times in the past year, we have been evaluating carefully, case by case. We have not set up a rule, a rule of thumb to say, okay, the retailers will get 3 months or 2 months or 15% or 20%. It doesn't work that way. We have a lot of retailers that didn't have any affectation on their business, the pharmacists, the bankers, the grocery stores. They didn't have affectation. Although, even the grocery stores, our largest tenant came to us for some sort of relief and we granted him a little bit of relief in their costs. You need to be close to your tenants in order to understand them and look ahead. If you look to the back always, you won't be able to be successful in this business. You need to look ahead. So if we find that our tenant is passing a rough time and we have the possibility, we support that we grant for him that won't affect in a major manner company. If we have the possibility to grant him this relief and change the course and make everything look brighter for the future, I think it's common sense that you need to give -- to grant your tenants some sort of release. So this is exactly how we manage ourselves. This is not a fair value. In the past, we faced different types of crisis, but all in all, at the end, everything comes to the same. I think that we did a great job having communication with our tenants. And I think that we reached good agreements with the majority of them. We still are struggling with some of them in our account receivables line. I'm sure that we will work something out with them. Today, we are expecting the last round of negotiation. Remember that we didn't expect the economy to shut down again in December '19. And it's starting -- right now, restarting. As we speak today, the city's government said that cinemas and museums will open with a 20% capacity. So there's still a short way to go, let's say, and we will continue to. But we have been disclosing all the amounts, and we will disclose as much as is needed in order to give clarity on this strategy that I just described here.

Regarding the -- your question about potentially accessing the bond markets and things like that. As you know, the company is always looking to do liability management exercises. In that regard, we are constantly looking at the market, not just this quarter or any quarter in particular. That's something that is part of our, say, normal operations for the company. So other than that, we don't have any specific plans. And obviously, I think we've mentioned this in the previous call, we obviously have a preference for peso financing for the company, given the capital structure that we have.

And another question was in terms of the occupancy that we expect for 2021. I think we have touched bottom in terms of occupancy. From now on, we will see that the occupancy will be growing. And just to give you a sense, as Andre mentioned or Jorge mentioned, that the net result of -- in the office market during 2020, it was a total loss diminution of 38,000 square meters. This is among 36 buildings -- 26 buildings. But out of those 26, 3 of them accounts for 70% of it. The rest it's an average of 500 square meters per building. So it's not a big hit, so we expect that from now on, we will be seeing our occupancy growing during 2021. And I think the last question -- or actually, it was your first question, but the last one, in terms of the valuation. At the end, the amount that you are seeing on our balance, it's a result of adding to the commercial value of the properties that left the development portion. The acquisitions that we did like Uptown Juriquilla led some of the impacts that in some of the properties, the valuation suffered loss. For example, we have in the industrial sector, mainly on the ones that are producing U.S. dollars, that, compared to last year, we did an adjustment to bring them down to the same price in terms of U.S. dollars, but it was grown in terms of pesos.

Just to add a little bit on that, every single one of our properties are valued by an external valuation. And also, if you look at the multiple that we have been achieving in our sales that this couple of quarters was an average of around 1.33x. That gives you a sense on the conservativeness of our valuation in our total portfolio.

Just add to -- another question to that, on a like-for-like basis, when you look at the properties that you have on a like-for-like basis, would you say the valuation of the properties were down 5%, in 2020, 10%? This is the kind of number that I'm looking for. And then just a follow-up on the office segment as well. With some of the other markets that we look at, people and tenants are having to continue paying. What exactly are you seeing -- what kind of exact activity are you seeing on the office segment? And then just a final question on when you talk about your business proposition, when you say that you have the lowest rent but the best location, why do you have this type of business model? I don't know if you can explain it, why do you have the best location but your rent is cheap? Why are you able to do that?

Okay. If you want, I will take a couple of the questions. Your last question first. It's very simple. We have seen over the last 40 years in Mexico that, contrary to conventional wisdom, if you have the best property, the best location and you are able, without sacrificing your margins -- because economies of scale enable us to do things like this, to lease this property at a cheaper rate than the mean of the market -- doesn't mean that you have to have a huge discount, but a lower rate than the mean of the market, then you are going to be the first one to fill up when you see the good part of the cycle. And when you are in the bad part of cycle, which we are right now, your properties are going to suffer less. To give you a very specific example, there was a report that CB Richard Ellis came out on the retail segment in the third quarter of 2020, in which we compared the occupancy of the overall sector of shopping malls of more than 10,000 square meters in Mexico, which are about 24.4 million square meters, have an average occupancy of 85%, and Fibra UNO's portfolio has an average occupancy at the third quarter of 91.6%. If we look at this data a year ago, a year before that, the market was at 91% or 92%, and Fibra UNO was around 93%. So we only lost 160 basis points in occupancy, whereas the market lost 500 or 600 or 700 basis points in occupancy. What happens is when you have this best location and you have, for example, 10 shopping stores and you need to close down 3, you're not going to close down the one that is in the best location because the best location has the best traffic and is the one that gives you the best possibility to sell. You shut down the ones that are not necessarily in the best locations. Now having the lowest rent also enables you to suffer significantly less than what the market needs to do. It doesn't mean that we don't need to give concessions or rent discounts. But what we have to do is less than what the market has to do in comparison. So this is what Andre was describing, one of the elements of what Andre was describing at the beginning of his comments as a counter-cyclical business model. Now going to your question regarding property valuations, we don't necessarily see a drop in value of 5% or 10% or anything across the board. What we do is a property-by-property valuation. There have been some properties in which we have seen an impairment in value and there's some have been -- a lot of properties in which we have seen an increase in value. The fact that you are seeing a crisis and, temporarily, you are not necessarily generating the same cash flow that you were generating a year ago doesn't mean that, that is going to remain forever. There is future cash flows to be expected. And we expect retail, for example, to remain and grow from where it was as we expect office to grow from where it was, as we expect industrial to grow from where it was. So from a cash flow point of view, we expect higher cash flows in the future. And it's part of what you factor in when you do a valuation of the properties. And secondly -- that's when we do a [ DCF ]. And secondly, and also is something that is very important to bear in mind, and it's different than what you see in other markets, is that the replacement cost of our assets is dollarized. We have to buy steel, which is a dollarized commodity, aluminum, escalators, elevators, glass, even concrete in Mexico, in a way, is dollarized. If you see the increments in price that we get from the cement producers, like Cemex, they don't increase your prices 3% a year. They increase their prices 30%, 20% or 40% a year. The only peso-denominated component of the replacement cost of a building is labor. Because even land is dollarized and, in addition, has a scarcity value element added to it. So if I only look at a replacement cost analysis of the properties that we own, we have seen over the last 2 or 3 years an increase of 30% or 40% at least that goes hand in hand with the devaluation of the currency. You have to remember that we come from having the peso a few years not too long ago at 13, then 15, then 18, then 19, then 25. And all of that -- and we are now -- we're back to somewhere around MXN 22. And all of that factors in through the replacement cost of the property, which increases the value of your real estate. So although it's maybe counter-intuitive, the fact that we are seeing a crisis does not necessarily mean that there is going to be impairment in the value of properties. And lastly, as Fernando mentioned, we are validating the fact that our properties are worth even more than what we say they were in our books because we are selling above net asset value.

Okay. And then in the Office segment, I mean what's the reason why your -- people -- if you could just explain the dynamics of the Office segment because it sounds to me like it's different from other markets in Europe, for example. If you can just explain what's going on in the office segment and what's the outlook for it. I'm not understanding why you think the outlook in Office segment is positive.

Okay. I can take that one, okay. We see that is positive for many different reasons. First one, our starting point, which is our rent level is still very low. Second, the average person in Mexico lives in a 600 feet -- square feet apartment, where he cannot possibly, in a sustainable manner, work from home because this small apartment hosts a family of 5, plus the aunt, plus the in-law and 2 dogs. So people cannot possibly, sustainably, work from home. The idiosyncrasy and the customary actions of the Mexican people is different than in Europe. So typically, they will not be able to work from home, secondly. I think that the companies will have their employees come to the office because it's not so efficient to work from home, at least in Mexico. And I think it will impact other countries as well. But what we are seeing today and what we are feeling is that the companies will need more space, not less space. So I think that the future for the office will eventually stabilize. People will go back to the offices. They cannot work from home in Mexico. They don't have the infrastructure, and they don't have the space. I think companies will mandate their people to come back to the office. And once it happens, that -- this will happen, as the pandemic slows down, you will need more office space and not less. Even though our starting point in prices is beneficial, but also our starting point in number of square meters per capita is beneficial also because Mexico overall is underserved. So I think that everything will fall into place. For that, it will take 5 or 6 quarters. And then we will talk about prices, then the prices will start to get traction. So this is our view. I think we've been, in different crisis similar to this one, where all the companies shut down their offices because it is the first savings that they can or expense cuts that they think it's in order. But then everything came -- come back to normal. This is what we think. I'm not afraid at all of Office space.

Michael, if we could please give a chance to other callers to ask their questions. [indiscernible], if you have additional questions, we'll be happy to answer your calls. We are available for calls afterwards.

Our next question comes from Mr. Francisco Chávez from BBVA.

Congrats on the results. I have only 2 questions. The first one is regarding the payout. In 2020, the payout ratio was 69. What can we expect for this year? And the second question is regarding Mitikah. Can you give us some color on this development? Any change in the commercialization of the condos, offices and shopping mall?

Yes. It was, as we just pointed out, this year, we decided -- our board decided to -- considering the valuation of the company, considering the crisis that we were suffering, we decided to preserve cash and cut the dividend payout. We ended up distributing 68.2% of our AFFO as a dividend, but also remember that Andre mentioned that the cash that we decided to preserve, we have been also deploying that to repurchase -- part of that to repurchase our own shares. So that's also kind of a dividend in shares, right? So what could happen in 2021? Still, we need to see what happens with the pandemic. We'll need to see how the economy develops. But if conditions improve, we could move a little bit towards, again, 100% of a -- of payout. But it's still early to say.

And it also will depend on the price of the shares. There's no reason to be paying double digits payout when the shares are up 23 [indiscernible]. And another way of looking at that...

And talking about Mitikah. We have the office space leased at 90% on the new building. The old building is leased at 100%. The retail space, we still have a waiting list on the space. We expect to be delivering by third quarter this year. So we estimate that we can open on [ semana santa ] March next year, 1 year time, but we see very positive figures on the retail. And as for the condos, as you know, we have been -- we are sold at 85%. We are starting the reception of the condos on the low-rise for April. And we intend to finish in a 12- to 15-month span. Everything is paid. So we will be signing the deeds and collecting the rest of the price in each case. We have sold 570 condos out of 660. So we feel very comfortable, very comfortable. And that the property itself is absolutely beautiful. So I think that it will gives us, for the company, a lot of good news in the future.

Our next question comes from Sheila McGrath from Evercore.