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.²

2. All figures in Mexican pesos (MXN).

Revenues
In 2023, total revenue was MXN6.19 billion, a 12.3% increase compared to 2022. The growth is attributed primarily to three factors: i) a pickup in economic activity, reflected in higher footfall in our properties, which meant higher overage and parking revenues; ii) an across-the-board increase in occupancy rates in our shopping centers; and iii) the stabilization of Parque Tepeyac in our operating portfolio.

Base rent accounted for about 65.1% of the total operating income of Fibra Danhos, while overage accounted for 6.2%, tenant admission payments 3.9%, parking fees 8.3%, and revenues from maintenance, operation, advertising and others 16.5%.

Income from base rent totaled MXN4.03 billion in 2023, a year-to-year growth of 9.6%. The increase is mainly attributed to the process of stabilization of Parque Tepeyac, since at the end of 2023, the contracts signed and in the process of being signed represented close to 90% of the GLA. We also have letters of intent for an area equivalent to 5.2%. On October 13, the Entertainment and Cultural Center was successfully opened at this mall, which significantly strengthens the entertainment offering and the additional flow of visitors to the mall.

Revenue from overage totaled MXN383 million in 2023, a year-over-year increase of 37.4%, primarily the result of the acceleration of economic activity. Tenant admission payments, or key money, (for accounting purposes) totaled MXN241 million in 2023, a year-to-year reduction of 5.8% compared to 2022.

Revenues from parking facilities totaled MXN513 million in 2023, a year-over-year increase of 26.0%. This is the result of higher vehicle flow to our properties. Revenues from maintenance, operation, advertising and others reached MXN1.02 billion in 2023, which is 14.4% higher than in 2022. The change was the result of an increase in footfall in our properties compared to 2022, and the stabilization of Parque Tepeyac in our portfolio.

Expenses
Total operating expense for Fibra Danhos in 2023 was MXN2.24 billion, a 14.1% increase compared to 2022. Operating, maintenance, advertising and other expenses accounted for approximately 47.1% of total operating expenses, advisory fees 30.1%, the representation service fee 5.4%, administrative expense 6.7%, property tax 8.4% and insurance 2.3%.

Operating, maintenance, advertising and other expenses totaled MXN1.05 billion in 2023, increasing 20.6% over 2022. The rise on this line is attributed primarily to the increase in the minimum wage, which had a direct impact on the salaries of workers involved in maintenance and security services.

Advisory and representation service fees: totaled MXN675.1 million and MXN121.9 million, respectively, increases of 3.3% and 9.3%, compared to 2022. The main reason for the rise in advisory fees was a broad-based increase in the valuation of our properties, as established in the planning advisory agreement.

Representation service fees, on the other hand, grew mainly because of an increase in revenues billed and collected, stemming from the recovery of general economic activity, as these serve as the basis for calculating these fees.

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 MXN121.9 million in 2023.

Property tax and insurance expenses came to MXN188.8 million and MXN51.6 million in 2023. Property tax was higher in 2023 due to the inclusion of Parque Tepeyac in our tax base, and insurance expenses rose with the increase of approximately 15.0% in our premiums.

Other income/expenses
Interest income, interest expense, and foreign-exchange gain (net): Interest income on financial products totaled MXN57.6 million in fiscal year 2023, generated primarily on the investment of its cash balance in fixed-income securities. In the same period, interest expense (in accounting terms) totaled MXN630.5 million, while the foreign-exchange loss was MXN25.2 million, due primarily to the appreciation of the Mexican peso against the US dollar and its impact on the company’s collections in dollars.

Income taxes owed by the subsidiary are the responsibility of the Administrator, which is the entity that declares and pays taxes. In fiscal year 2023, the subsidiary’s income taxes amounted to MXN4.3 million.

Adjustments to the reasonable value of investment properties as of December 31, 2023 totaled MXN118.6 million, 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 (NOI) in 2023 was MXN4.77 billion, a year-over-year increase of 10.4% compared to 2022. The net operating margin, excluding tenant admission payments, was 76.2%, down from 77.3% in 2022.

EBITDA in 2023 was MXN3.95 billion, 11.2% higher than in 2022. The EBITDA margin was 63.8%, slightly lower than the 64.4% reported in 2022.

Net income, FFO and AFFO in 2023 totaled MXN3.46 billion, MXN3.27 billion and MXN3.96 billion, increases of 7.5%, 3.4% and 3.8%, respectively, compared to those of 2022.

Cash Distributions
Because of the solid generation of cash flow from our operating portfolio in 2023, Fibra Danhos reported an AFFO of MXN3.96 billion, which is an AFFO per CBFI with economic rights of MXN2.55. In support of our growth plan, and with the firm intention of maintaining a healthy mix of debt and cash flow for funding our projects, the Technical Committee decided on a policy of fixed quarterly distributions of MXN0.45 per CBFI starting in the third quarter of 2023 and through the second quarter of 2024, in keeping with the corresponding legislation. This will give our investors a clear picture of the dividend flows scheduled for this period. The Committee’s decision meant a distribution for 2023 of MXN2.10 per CBFI, which will allow us to execute our development plan, maintain a conservative capital structure and diversify our project portfolio according to our eligibility criteria.

Long-term debt
We have developed a Sustainability-Linked Financing Framework, which allows us to issue debt bonds or access loans labeled as Sustainability-Linked (SLB and SLL). As an integral part of our ESG strategy, we seek to align our sources of financing with our principles, generating a positive environmental and/or social impact. Standard and Poor’s
issued an independent third-party opinion indicating the alignment of the framework with the Principles for Sustainability-Linked Finance published by ICMA.

In the third quarter of 2023, we issued our first thematic bond, a Sustainability-Linked Bond (SLB), for a total amount of MXN2.5 billion at a fixed annual rate of 10.67% and a term of 7 years. The proceeds of this issuance were used for liability refinancing and general corporate purposes. Conscious of the driving force for change that sustainable finance represents, and in line with our ESG strategy, our SLB is linked to the percentage of the portfolio certified LEED Gold or Platinum in Operation and Maintenance.

DANHOS 16: MXN3,000,000,000.00 (three billion 00/100) at 10 years, at a fixed nominal coupon rate of 7.80% (Mbono 2026 + 185 bp).

DANHOS 17: MXN2,500,000,000.00 (two billion five hundred million 00/100) at 10 years, at a fixed nominal coupon rate of 8.54% (Mbono 2027 + 169 bp).

DANHOS 23L: MXN2,500,000,000.00 (two billion five hundred million 00/100) at 7 years, at a fixed nominal rate of 10.67% (Interpolated MBono 2029-2031 +145 bp).

In addition, we have a revolving credit line guaranteed by BBVA Mexico for up to MXN3 billion, the balance of which at the end of the fourth quarter was zero.

Our long-term financing policy is to acquire only peso-denominated and fixed-rate credit, which gives us more visibility and predictability for our financial operations. Likewise, the average remaining term of our debt, 4.1 years, signals prudent financial management with a long-term perspective. At year-end, our weighted average funding cost was 8.93%, considerably lower than the current funding rate. We also maintained leverage at a healthy level of 11.1%, maintaining a solid financial position.

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