ANALYSIS OF
RESULTS

This section of management’s discussion and analysis of the results of our operations should be read together with the financial statements and the accompanying note attached to this Annual Report.

Revenues
Total Operating Income: In 2019, Total Operating Income was $ 5.79 billion pesos, a 12.4% increase over 2018. This increase was due primarily to the consolidation and maturation of some of our properties, including the retail, office and hotel components of Toreo Parque Central, and the operation and economic occupancy of 100% of Torre Virreyes, Via Vallejo and Parque Puebla, as well as the incorporation of Parque Las Antenas into our Current Operating Portfolio. Base rent accounted for about 64.3% of the total operating income of Fibra Danhos, while Overage accounted for around 4.6%, income from Tenant Admission Payments, or key money, contributed 7.1%, parking fees approximately 8.2%, and revenues from maintenance, operation, advertising and others accounted for approximately 15.8%.

Base Rent: Fibra Danhos reports revenues from Base Rent totaling $ 3.73 billion pesos in 2019, an increase of 11.4% over 2018, This increase was due primarily to the consolidation and maturation of some of our properties, including the retail, office and hotel components of Toreo Parque Central, and the operation and economic occupancy of 100% of Torre Virreyes, Via Vallejo and Parque Puebla, as well as the incorporation of Parque Las Antenas into our Current Operating Portfolio.

Overage: Income from Overage totaled $ 264.3 million pesos in 2019, a year-over-year growth of 15.4%. This increase was driven primarily by a conversion of Overage to Base Rent by some of our tenants at Parque Delta and Parque Tezontle.

Organic growth (same-property terms) in Base Rent and Overage was 4.4% compared to 2018.

Tenant admission payments: Key money (for accounting purposes) totaled $ 413.5 million pesos in 2019, an annual growth of 13% compared to 2018. Key money (in cash flow terms) totaled $170.2 million, down from $305.1 million in 2018. The trend of rising Net Operating Income (NOI) combined with lower cash flow from key money was evident throughout the year, and signaled a more stable and predictable generation of cash flow from our Operating Portfolio, due to the reduced number of projects under development and the increase in stabilized projects now in operation.

Parking: Revenues from parking facilities totaled $ 473.2 million pesos in 2019, a year-over-year advance of 12.3%, attributed to the annual increase in parking rates in some of our retail components and a higher flow of vehicles in some of our properties, like Parque Puebla, as well as the incorporation of Parque Las Antenas into our Current Operating Portfolio.

Maintenance, Operation, Advertising and Others: Revenues from Maintenance, operation, Advertising and Others reached $ 915.1 million pesos in 2019, which is 15.8% higher than in 2018. The increase was the result of maintenance, operation and advertising rates resulting from the consolidation and maturation of some of our properties, including Toreo Parque Central, Via Vallejo and Parque Puebla, as well as the incorporation of Parque Las Antenas into our Current Operating Portfolio.

Expenses
Total Operating Expense: Total Operating Expense for Fibra Danhos in 2019 totaled $ 1.09 billion pesos, a 9.2% increase over 2018, primarily due to the recognition of operating expenses from projects incorporated to the Operating Portfolio as well from projects in the process of maturation in 2019. Operating, maintenance, advertising and other expenses accounted for approximately 44.1% of total operating expenses, Consulting Fees 34.29%, Representation Service Fees 5.88%, Administrative Expense 6.55%, property tax 7.23% and insurance 1.94%.

Operating, Maintenance, Advertising and Other Expenses: Operating, Maintenance, Advertising and Other Expenses totaled $ 814.7 million pesos in 2019, rising 10.1% over 2018. The increase was primarily the result of the recognition of operating expenses from projects incorporated to the Operating Portfolio as well from projects in the process of maturation in 2019, including Parque Puebla and Parque Las Antenas.

Advisory Fees and Representation Service expense: Advisory and Representation Service Fees totaled expenses of $ 633.6 million and $ 108.7 million pesos, respectively, increases of 4.0% and 8.4% over 2018.

The main reason for the rise in Advisory Fees was an increase in Investment Properties, which serve as the basis for calculating these fees.

Representation Service Fees rose mainly because of an increase in revenues billed and collected, which serve as the basis for calculating these fees.

Administrative Expenses: For Fibra Danhos, Administrative Expenses consist primarily of fees paid to our accounting, legal and tax consultants, as well as independent appraisers, a total of $ 121 million pesos in 2019.

Property tax and insurance expense: Fibra Danhos reports $ 133.7 million pesos in property tax and $ 35.9 million in insurance payments in 2019. The increase property tax was due to adjustment to works at our properties and the annual increase.

The increase in insurance expense is attributed primarily to fire insurance policies for some of our properties.

Other Income (Expenses)
Interest income, interest expense, and foreign-exchange gain (net): Interest income for Fibra Danhos totaled $ 71 million pesos in fiscal year 2019, resulting primarily from the investment of its cash balance in fixed-income securities. In the same period, interest expense (in accounting terms) totaled $ 448.1 million pesos, and foreign-exchange gain was positive by $ 22.4 million, due primarily to the appreciation of the U.S. dollar against the Mexican pesos and its impact on Fibra’s collections in dollars.

Subsidiary income tax: Subsidiary income tax is paid by the Administrator, which is a legal entity that declares and pays taxes. In fiscal year 2019, subsidiary income taxes totaled $ 5.59 million pesos.

Adjustments to the Reasonable Value of Investment Properties (net): Adjustments to the reasonable value of Investment Properties as of December 31, 2019 and 2018, totaled $ 563 million and $ 727.7 million pesos, respectively, the result of market value appraisals by independent experts who conducted annual assessments of our Investment Properties, with quarterly adjustments.

NOI, EBITDA, Net Income, FFO and AFFO
Net Operating Income: For fiscal year 2019, Fibra Danhos reports Net Operating Income (NOI) of $ 4.70 billion pesos, a year-over-year growth of 13.2% compared to 2018. Organic growth (growth in same property terms) was 5.1% for the year. The net operating margin, excluding Tenant Admission Payments, was 79.7% for 2019, slightly higher than the 79.1% reported in 2018.

EBITDA: Fibra Danhos earned $ 3.95 billion pesos in EBITDA in 2019, 15.2% higher than in 2018. The EBITDA margin was 68.1%, up from 66.5% in 2018.

Net income, FFO and AFFO: Net income, FFO and AFFO in 2019 totaled $ 4.10 billion, $ 3.5 billion and $ 3.90 billion pesos, improvements of 5.5%, 12.3%, and 5.1%, respectively, compared to those of 2018.

Cash Distributions
Cash distributions: Thanks to a solid generation of cash flow from our Operating Portfolio in 2019, Fibra Danhos reported an AFFO of $ 3.90 billion pesos, which is an AFFO per CBFI with economic rights of $ 2.76 pesos. On this basis, our Technical Committee decided on a distribution to CBFI holders corresponding to the 2019 results, of $ 2.47 per CBFI, which is 2.8% more than the $ 2.9 pesos per CBFI paid out against the 2018 results in 2019; Fibra Danhos maintained the equivalent of $ 0.29 pesos per CBFI in cash for various corporate purposes.

Financing
DANHOS 16: 3,000,000,000.00 (three billion Mexican pesos 00/100) at 10 years, at a fixed nominal coupon rate of 7.80% (Mbono 2026 + 185 bp).

DANHOS 16-2: 1,000,000,000.00 (one billion Mexican pesos 00/100) at a floating rate of 65 bp over the TIIE 28. This issue was fully paid off at expiration on December 23, 2019.

DANHOS 17: 2,500,000,000.00 (two billion five hundred million Mexican pesos 00/100) at 10 years, at a fixed nominal coupon rate of 8.54% (Mbono 2027 + 169 bp).

BBVA Bancomer: A line of credit totaling 150,000,000.00 (One hundred fifty million Mexican pesos 00/100 pesos) at a variable rate of 1.35 bp over the TIIE 28, at 3 years.

*Excluding the 16-2 Issue, which has been fully paid off.

Out of our total financing, 97% is at fixed rates and 3% floating. All of our debt is denominated in Mexican pesos, the weighted average remaining term of the debt is 6.87 years and the average cost of our debt as of December 31, 2009 was 8.16%.

The following table shows the status of Fibra Danhos’ compliance with its financial debt covenants:

Performance of our properties in our current operating portfolio
We have met 100% of the development commitments we made during our IPO. We continue to work on development of Parque Tepeyac, which is slated for opening in 2021. We have multiplied the GLA of our Initial Operating Portfolio by 3.3 times and added more than 615,143 square meters of premier quality to our portfolio since October 2013.

As of December 31, 2019, the Current Operating Portfolio of Fibra Danhos consisted of fourteen properties, with a combined GLA of 891,703 square meters, a same-property occupancy rate of 98.2%, and a total property occupancy rate of 92.2%. Parque Tepeyac remains under development with tentative opening planned for 2021.

Visitor Traffic: Our retail portfolio recorded an annual footfall of 126 million visitors in 2019, a 14.3% increase over 2018. Same-property occupancy was stable at 98.2%, while total property occupancy was 92.2%, changes of -0.1% and 1.8%, respectively, compared to 2018.

Occupancy Cost: The Occupancy Cost of our most significant institutional retail tenants in terms of GLA and Base Rents (the costs associated with occupancy of a locale, which include Base Rent, Overage, maintenance fees for common areas and advertising, expressed as a percentage of the sales of those tenants) was 8.9% in 2019, up slightly from the 8.76% calculated for 2018. In the same period, the Renewal Rate (gross leasable area of locales that renewed their lease contracts in a given period, as a percentage of the gross leasable area of the entire portfolio) was slightly higher, 99.6% in 2019 compared to 98.1% in 2018.

Delinquency Rate: Past-due accounts (rent paid more than 60 days late, as a percentage of base rent income annualized for the respective period) in the properties of our Initial Operating Portfolio was 0.32% in 2019, up from 0.26% in 2018. Rent Write-offs (accounts more than 180 days past due in proportion to base rent income annualized for the respective period) amounted to 0.68% of the total in 2019, a 5 bp increase over 2018.