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 notes attached to this Annual Report.
Revenues
Total operating income: In 2021, Total operating income was $4.77 billion pesos, a 2.7% increase compared to 2020. The growth is attributed primarily to the recovery seen starting in third quarter of 2020 as buildings began to reopen, although the trend was interrupted by the second wave of contagion, which necessitated a renewed suspension of non-essential activities toward the end of 2020, lasting through the first quarter of 2021 when various retail branches were gradually allowed to reopen. In the second half of 2021, economic activity gained strength as the pandemic weakened and the vaccination program moved forward.
Base rent accounted for about 65.7% of the total operating income of Fibra Danhos, while Overage accounted for around 5.9%, income from Tenant Admission Payments, or key money, contributed 6.1%, parking fees approximately 6.0%, and revenues from maintenance, operation, advertising and others accounted for approximately 16.2%.
Discounts offered to tenants in fiscal year 2021 totaled approximately $338 million pesos, and deferral agreements totaled another $16 million pesos, which will be repaid in 2022 through June 2023; these deferrals remained under continuous review as the result of ongoing dialogue with tenants.
Base rent: Fibra Danhos reports revenues from base rent totaling $3.13 billion pesos in 2021, a decline of 1.1% from 2020. This reduction was due mainly to discounts offered to our tenants to support them during the time pandemic-related restrictions kept our shopping centers partially closed, affecting economic activity. Nevertheless, tenant support and financing programs helped maximize our occupancy levels and improved long-term relations with tenants.
Overage: Income from overage totaled $281 million pesos in 2021, a year-over-year increase of 283.5%. The growth was chiefly due the economic reactivation, evident in a 19.1% increase in footfall in our shopping centers, which obviously had a positive impact on tenant sales.
Tenant admission payments (key money): Key money (for accounting purposes) totaled $292.7 million pesos in 2021, a year-to-year reduction of 23.1% compared to 2020. Key money (in cash flow terms) totaled $109.4 million, up from $76.2 million in 2020.
This was attributed to the renewal of rental agreements and the admission of new tenants, mainly in shopping centers. Key money should stable as economic activity returns to normal and new spaces are occupied, particularly in our new Parque Tepeyac project.
Parking: Revenues from parking facilities totaled $287.4 million pesos in 2021, a year-over-year increase of 39.7%. This is the result of higher vehicle flow, particularly in shopping centers because of the economic reactivation, and, to a lesser extent a return to work in offices, which we began seeing toward the end of the year, a trend that has gained strength so far in 2022.
Maintenance, operation, advertising and others: Revenues from maintenance, operation, advertising and others reached $772.6 million pesos in 2021, which is 5.0% lower than in 2020. The change was the result of the expiration of certain rental agreements or early termination of others due to the pandemic. The largest impact was seen in the office portfolio, which saw a reduction in occupancy levels from about 85% before the pandemic to around 72%.
Expenses
Total operating expense: Total operating expense for Fibra Danhos in 2021 was $928.6 million pesos, a 2.1% increase compared to 2020, primarily due to the reopening of buildings, with significantly higher visitor traffic and a reactivation of services. Despite this recovery, we are keeping strict control over operating expenses to generate efficiencies, and these have been reflected in our operating margin.
Operating, maintenance, advertising and other expenses accounted for approximately 38.1% of total operating expenses, advisory fees 37.9%, representation service fee 5.4%, administrative expense 7.5%, property tax 8.9% and insurance 2.3%.
Operating, maintenance, advertising and other expenses: these totaled $647.1 million pesos in 2021, increasing 8.1% over 2020. This was due mainly to a reactivation of services with our main suppliers and service providers as building operations returned to normal.
Advisory fees and representation service expense:
Advisory and representation service fees totaled $643.9 million and $90.9 million pesos, respectively, increases of 1.0% and 8.9%, respectively, compared to 2020.
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 grew 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 $128 million pesos in 2021.
Property tax and insurance expense: Fibra Danhos reports $150.6 million pesos in property tax and $39.9 million in insurance payments in 2021. The change in property tax was due to inflation-related tax hikes by the authorities.
The reduction in insurance expense is attributed primarily to exchange-rate fluctuations which affected policies in us dollars, and the usual annual increase in some of these.
Other income (expenses)
Subsidiary income tax: Subsidiary income tax is paid by the administrator, which is a legal entity that declares and pays taxes. In fiscal year 2021, subsidiary income taxes totaled $3.0 million pesos.
Adjustments to the reasonable value of investment properties (net): adjustments to the reasonable value of investment properties as of December 31, 2021 totaled $58.7 million pesos, 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 2021, Fibra Danhos reports net operating income (NOI) of $3.84 billion pesos, a year-over-year increase of 2.8% compared to 2020. The organic increase (in same property terms) was 10.5% for the year. The net operating margin, excluding tenant admission payments, was 79.2% for 2021, slightly lower than the 78.7% reported in 2020.
EBITDA: Fibra Danhos generated $3.07 billion pesos in EBITDA in 2021, 3.3% higher than in 2020. The EBITDA margin was 64.3%, up from 63.9% in 2020.
Net income, FFO and AFFO: Net income, FFO and AFFO in 2021 totaled $2.81 billion, $2.75 billion and $3.24 billion pesos, which represent changes of 6.1%, 4.6% and 8.2%, respectively, compared to those of 2020.
| Mexican pesos | Dec. 31, 2021 | Dec. 31, 2020 | Var % |
|---|---|---|---|
| Net income | 2,804,001,154 | 2,644,003,685 | 6.1% |
| Net foreign-exchange gain | 17,300,124 | (19,672,853) | -187.9% |
| Adjustment to reasonable value of properties – Net | 58,669,921 | 36,033,690 | 62.8% |
| Estimate for uncollectable accounts | (19,542,018) | - | NA |
| FFO | 2,747,573,127 | 2,627,642,848 | 4.6% |
| Tenant Admission payments - Net | (183,300,679) | (304,369,801) | -39.8% |
| Upfront rents - Net | 63,511,318 | 55,016,020 | 15.4% |
| Straight-line rent - Net | 13,395,820 | 24,410,990 | -45.1% |
| Unaccrued property tax and insurance | 514,176 | (483,135) | -206.4% |
| Advisory and Representation Fees -Net | 597,308,947 | 590,089,814 | 1.2% |
| AFFO | 3,239,002,708 | 2,992,306,736 | 8.2% |
Cash Distributions
Thanks to a solid generation of cash flow from our operating portfolio in 2021, Fibra Danhos reported an AFFO of $3.24 billion pesos, which is an AFFO per CBFI with economic rights of $2.20 pesos. On this basis, our Technical Committee decided on a distribution to CBFI holders corresponding to the 2021 results, of $2.0011 pesos per CBFI, which is 100.1% more than the $1.0 pesos per CBFI paid out against the 2020 results. Fibra Danhos maintained the equivalent of $0.2009 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 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 230,000,000.00 (two hundred thirty million Mexican pesos 00/100 pesos) at a variable rate of 1.35 bp over the TIIE 28.
| Debt | Institution/Issue | Currency | Type | Rate | Issue | Exp. date | Remaining term (yrs) | Outstanding balance |
|---|---|---|---|---|---|---|---|---|
| Securities Certificates (Current) | Local (DANHOS 16) | MXN | Fixed | 7.80% | 11-jul-16 | 29-jun-26 | 4.51 | 3,000,000,000 |
| Securities Certificates (Current) | Local (DANHOS 17) | MXN | Fixed | 8.54% | 10-jul.-17 | 28-jun-27 | 5.51 | 2,500,000,000 |
| Bank Credit LIne | BBVA BANCOMER | MXN | Floating | TIIE +1.35% | 08-Aug.-21 | 20-Dec-22 | 0.97 | 230,000,000 |
| Average | 8.09% | Average | 4.80 | 5,730,000,000 |
Out of our total financing, 96% is at fixed rates and 4% floating. All of our debt is denominated in Mexican pesos, the weighted average remaining term of the debt is 4.8 years and the average cost of our debt as of December 31, 2021 was 8.09%.
The following table shows the status of Fibra Danhos’ compliance with its financial debt covenants:
| Compliance with covenants as of 4Q21 | Fibra Danhos | Limit | Status |
|---|---|---|---|
| Loan to value (total debt/total assets) | 8.4% | 50% | OK |
| Secured debt | 0% | 40% | OK |
| Debt service coverage (AFFO) | 8.5x | 1.5 x min | OK |
| Total unencumbered assets | 1169% | 150% | OK |
Performance of properties in our current operating portfolio
We have met 100% of the development commitments we made during our IPO and we have added new properties to our portfolio, dramatically reducing development risk. To date, only 3.8% of our portfolio is under development, and 96.2% is in operation. In 2021 we continued work on development of Parque Tepeyac, in the northwest of Mexico City’s metropolitan Area. At the close of the year construction was 70% complete and we have made progress in the sell-in, evidence of the interest that exists in the market for this new project. Its opening is scheduled for the fourth quarter of 2022, and it will have an attractive retail and service offering along with an innovative entertainment concept.
To date, excluding Parque Tepeyac, we have multiplied the GLA of our Initial Operating Portfolio by 3.3 times and added more than 500,000 square meters of premier quality to our portfolio since October 2013.
As of December 31, 2021, 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 93.9%, and a total property occupancy rate of 85.6%.
Visitor traffic: Our retail portfolio recorded an annual footfall of 72.1 million visitors in 2021, a 19.1 increase over 2020. Same-property occupancy was stable at 93.9%, while total property occupancy was 85.6%, changes of -71.5 and -86.0 basis points, respectively, compared to 2020.
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 8.7% in 2021. 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 97.3% in 2021, slightly higher than the 96.8% recorded in 2020.
Delinquency rate: Past-due accounts (rent paid more than 60 days late, as a percentage of base rent income annualized for the respective period) was 4.02% in 2021, down from 4.76% in 2020. Rent write-offs (accounts more than 180 days past due in proportion to base rent income annualized for the respective period) amounted to 1.25% of the total in 2021, a 132 bp increase from 2020.
We have met 100% of the development commitments we made during our IPO and we have added new properties to our portfolio, dramatically reducing development risk.
