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.
Total Operating Income: In 2020, Total Operating Income was $4.64 billion pesos, a 19.9% decrease from 2019. The decline is attributed primarily to the effects of the COVID-19 pandemic, which caused the partial closure of our shopping centers upon instructions of the local and federal authorities, as part of the national safe-distancing lockdown program. Base rent accounted for about 68.3% of the total operating income of Fibra Danhos, while Overage accounted for around 1.6%, income from Tenant Admission Payments, or key money, contributed 8.2%, parking fees approximately 4.4%, and revenues from maintenance, operation, advertising and others accounted for approximately 17.5%.
Discounts offered to tenants in fiscal year 2020 totaled approximately $761 million pesos, and deferral agreements totaled another $73 million pesos, most of which established payments dates in the second half of 2020 and the first half of 2021; these deferrals remained under continuous review as of the date of these financial statements.
Base Rent: Fibra Danhos reports revenues from Base Rent totaling $3.16 billion pesos in 2020, a decline of 15.0% over 2019. This reduction was due mainly to discounts offered to our tenants to support them during the time pandemic-related orders kept our shopping centers partially closed.
Overage: Income from Overage totaled $73.28 billion pesos in 2020, a year-over-year decline of 72.3%. The decrease was chiefly due to a reduction in our tenants’ sales due to sanitary measures that restricted shopper traffic to 30% of capacity to limit contagion, and restricted opening hours for 11:00 a.m. to 5:00 p.m. for non-essential activities.
The organic decline (in same-property terms) in Base Rent and Overage was 20.7% compared to 2019.
Tenant admission payments: Key money (for accounting purposes) totaled $380.5 million pesos in 2020, a year-to-year reduction of 8% compared to 2019. Key money (in cash flow terms) totaled $76.2 million, down from $170.2 million in 2019. The trend was due to the reduced number of projects under development and the increase in stabilized projects now in operation.
Parking: Revenues from parking facilities totaled $205.7 million pesos in 2020, a year-over-year decrease of 56.5%, attributed to the impact of mobility restrictions, particularly the closure of non-essential business in the first half of the year because of “Red Light” lockdowns and the restriction of shopper traffic to 30% under “Orange Light” regulations, due to the COVID-19 pandemic.
Maintenance, Operation, Advertising and Others: Revenues from Maintenance, Operation, Advertising and Others reached $913.7 million pesos in 2020, which is 11.1% lower than in 2019. The change was the result of the elimination of advertising charges due to the reduction in commercial activity and temporary closure of our shopping centers beginning in 1Q20.
Total Operating Expense: Total Operating Expense for Fibra Danhos in 2020 totaled $909.1 million pesos, a 16.8% decline compared to 2019, primarily due to the reduction in expenses because of temporary closure of our shopping centers, discount agreements with suppliers and a reduction in service consumption. Operating, maintenance, advertising and other expenses accounted for approximately 35.7% of total operating expenses, Advisory Fees 38.1%, Representation Service Fee 5.0%, Administrative Expense 7.6%, property tax 11.1% and insurance 2.4%.
Operating, Maintenance, Advertising and Other Expenses: Operating, Maintenance, Advertising and Other Expenses totaled $598.6 million pesos in 2020, declining 26.5% from 2019. The drop was the result of savings on services and discounts negotiated with suppliers due to the temporary closure of shopping malls.
Advisory Fees and Representation Service Expense: The Advisory and Representation Service Fees totaled expenses of $637.8 million and $83.5 million pesos, respectively, an increase of 0.7% and a reduction of 23.2%, respectively, compared to 2019.
The main reason for the rise in Advisory Fees was a marginal increase in Investment Properties, which serve as the basis for calculating these fees, as established in the planning advisory agreement.
Representation Service Fees declined mainly because of an reduction 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 $128 million pesos in 2020.
Property tax and insurance expense: Fibra Danhos reports $186.6 million pesos in property tax and $40.4 million in insurance payments in 2020. The increase in property tax was due to adjustment to works at our properties and the annual increase.
The increase in insurance expense is attributed primarily to exchange-rate fluctuations which affected policies in US dollars, and the usual annual increase.
Interest income, interest expense, and foreign-exchange gain (net): Interest income for Fibra Danhos totaled $20 million pesos in fiscal year 2020, resulting primarily from the investment of its cash balance in fixed-income securities. In the same period, interest expense (in accounting terms) totaled $345.9 million pesos, and foreign-exchange gain was positive by $31.2 million pesos, 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 2020, subsidiary income taxes totaled $2.06 million pesos.
Adjustments to the Reasonable Value of Investment Properties (net): Adjustments to the reasonable value of Investment Properties as of December 31, 2020 and 2019, totaled $36.0 million and $563.0 million pesos, respectively, the result of market value appraisals by independent experts who conducted annual assessments of our Investment Properties, with quarterly adjustments. The COVID-19 pandemic created an atypical situation in the real-estate market which prevented reappraisal of property values. Because of this, the reasonable value of investment properties as of December 31, 2020 showed a marginal growth compared to that of December 31, 2019, which was due mainly to investment in the Parque Tepeyac development.
Net Operating Income: For fiscal year 2020, Fibra Danhos reports Net Operating Income (NOI) of $3.73 billion pesos, a year-over-year reduction of 20.6% compared to 2019. The organic decline (in same property terms) was 24.8% for the year. The net operating margin, excluding Tenant Admission Payments, was 78.7% for 2020, slightly lower than the 79.7% reported in 2019.
EBITDA: Fibra Danhos earned $2.97 billion pesos in EBITDA in 2020, 24.8% lower than in 2019. The EBITDA margin was 63.9%, down from 68.1% in 2019.
Net income, FFO and AFFO: Net income, FFO and AFFO in 2020 totaled $2.64 billion, $2.63 billion and $2.99 billion pesos, which represent changes of -35.6%, -26.2% and -23.3%, respectively, compared to those of 2019.
| Mexican pesos | 2020 | 2019 |
|---|---|---|
| Net income | 2,644,003,685 | 4,104,766,090 |
| Net foreign-exchange gain | -19,672,853 | -19,863,641 |
| Adjustment to reasonable value of properties – Net | 36,033,690 | 563,065,748 |
| FFO | $2,627,642,848 | $3,561,563,983 |
| Capital expenditure | — | — |
| Tenant Admission payments - Net | ( 304,369,801) | (243,344,475) |
| Upfront rents - Net | 55,016,020 | (6,705,348) |
| Straight-line rent - Net | 24,410,990 | (4,836,983) |
| Unaccrued property tax and insurance | 483,135 | (5,163,475) |
| Advisory and Representation Fees -Net | 590,089,814 | 599,050,722 |
| AFFO | $2,992,306,736 | $3,900,564,424 |
Thanks to a solid generation of cash flow from our Operating Portfolio in 2020, Fibra Danhos reported an AFFO of $2.99 billion pesos, which is an AFFO per CBFI with economic rights of $2.07 pesos. On this basis, our Technical Committee decided on a distribution to CBFI holders corresponding to the 2020 results, of $1.00 per CBFI, which is 59.5% less than the $2.47 pesos per CBFI paid out against the 2019 results. Fibra Danhos maintained the equivalent of $107 pesos per CBFI in cash for various corporate purposes.
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 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 130,000,000.00 (One hundred thirty million Mexican pesos 00/100 pesos) at a variable rate of 1.35 bp over the TIIE 28, at 2 years.
| Debt | Institution/Issue | Currency | Type | Rate | Issue | Exp. date | Remaining term (yrs) | Outstanding balance |
|---|---|---|---|---|---|---|---|---|
| Securities Certificates | Local (DANHOS 16) | MXN | Fixed | 7.80% | 11-jul-16 | 29-jun-26 | 5.51 | 3,000,000,000 |
| (Current) Securities Certificates | Local (DANHOS 17) | MXN | Fixed | 8.54% | 10-jul.-17 | 28-jun-27 | 6.51 | 2,500,000,000 |
| (Current) Bank | BBVA BANCOMER | MXN | Floating | TIIE +1.35% | 17-nov-20 | 20-dec-22 | 1.98 | 130,000,000 |
| Average | 8.08% | Average | 5.87 | 5,630,000,000 |
* Excluding the 16-2 Issue, which has been fully paid off.
Out of our total financing, 98% is at fixed rates and 2% floating. All of our debt is denominated in Mexican pesos, the weighted average remaining term of the debt is 5.87 years and the average cost of our debt as of December 31, 2020 was 8.08%.
The following table shows the status of Fibra Danhos’ compliance with its financial debt covenants:
| Compliance with covenants as of 4Q19 | Fibra Danhos | Limit | Status |
|---|---|---|---|
| Loan to value (total debt/total assets) | 8.4% | 50% | OK |
| Secured debt | 00% | 40% | OK |
| Debt service coverage (AFFO) | 7.23x | 1.5 x min | OK |
| Total unencumbered assets | 1176% | 150% | OK |
We have met 100% of the development commitments we made during our IPO. We continue to work on development of Parque Tepeyac, which is scheduled for opening in 2022. We have multiplied the GLA of our Initial Operating Portfolio by 3.4 times and added more than 656,320 square meters of premier quality to our portfolio since October 2013.
As of December 31, 2020, the Current Operating Portfolio of Fibra Danhos consisted of fourteen properties, with a combined GLA of 891,741 square meters, a same-property occupancy rate of 94.6%, and a total property occupancy rate of 86.5%. Parque Tepeyac remains under development with tentative opening planned for 2022.
Visitor Traffic: Our retail portfolio recorded an annual footfall of 60.5 million visitors in 2020, a 51.2% decrease over 2019. Same-property occupancy was stable at 94.6%, while total property occupancy was 86.5%, changes of -360.8 and -567.9 basis points, respectively, compared to 2019.
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 not calculated for this fiscal year due to the closure of shopping centers during the pandemic, which meant tenants had no sales starting in March 2020. 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 lower, 96.8% in 2020 compared to 99.6% in 2019.
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 2.57% in 2020, up from 0.32% in 2019. Rent Write-offs (accounts more than 180 days past due in proportion to base rent income annualized for the respective period) amounted to 4.76% of the total in 2020, a 408 bp increase over 2019 due to the negative effect of the COVID-19 pandemic on our tenants’ income.
