ARA.MXARA.MXMEX
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Operator: Hello, and welcome to today's Fourth Quarter 2025 Results Conference Call and Webcast. My name is Leslie, and I will be your event specialist today. Please note that today's conference call and webcast are being recorded. To follow the conference online, please visit https://consorcioara.transmision.com.mx. The word transmission is with 1 s only. If you would like to view the presentation in a full screen view, please click the full scree button in the upper left-hand corner of your screen. Press the same button to return to your original view. It is now my pleasure to turn today's program over to Alicia Enriquez, Administrative and Financial Director. Please go ahead.
Alicia Enriquez Pimentel: Thank you, Leslie. Good morning, and a warm welcome to our conference call on the fourth quarter 2025 results of Consorcio ARA. This call will be also transmitted via webcast, accompanied by a slide show for visual support. With me on the call to discuss the results are Luis Ahumada Russek, Vice Chairman of the Board; Miguel Lozano, Chief Executive Officer; and Felipe de Loera, Chief Financial Officer. I want to alert everyone that certain statements and comments made during the course of this call may be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Consorcio ARA believes that such statements are based on reasonable assumptions, but there are no assurances that current outcomes will not be substantially different from those discussed today. All forward-looking statements are based on information available to the company on the date of this call. The company is under no obligation to publicly update or revise any forward-looking statements as a result of new information that may become available in the future. As usual, at the end of our prepared remarks, there will be time for Q&A. We'll wait until then to open the queue for questions. Results for the fourth quarter of 2025 compared to the fourth quarter of 2024, the solid financial and operating results we achieved in the fourth quarter of 2025 reflect the positive momentum of the 3 preceding quarters and a year in which results were the best of the past half decade. Total revenues, which are the sum of housing revenues, plus revenues from other real estate projects came to MXN 2.33 billion in the fourth quarter of 2025 with an outstanding double-digit growth of 30.5% over the same period of the preceding year. Housing revenues reached MXN 2.23 billion, 31.4% higher than in the fourth quarter of 2024. This came from the sale of 1,782 homes, a 25.8% increase at an average price of MXN 1.249.9 million, 4.4% above the average in the same period of the previous year. Housing revenue growth was driven by the middle income and residential segments. Middle income homes totaled MXN 1.08 billion at 67.8% advance, and residential sales reached MXN 548.1 million, an outstanding 45.8% expansion. Sales of affordable entry-level homes in the quarter stand 11.3% to MXN 600.9 million due primarily to the completion of our development in Tijuana. As I mentioned in our previous conference call, this year, we will already begin entering revenues from a new development in that city. Looking at the revenues from homes delivered under the deal with Infonavit Loan or Line 3 program, between October and December 2025, the total came to MXN 41 million. The vast majority of these homes were in the affordable entry-level segment. Revenues from all real estate projects, mainly from the sale of land and shopping center leases, totaled MXN 99.9 million, mainly due to higher revenues from land sales. For the mix of revenues in the fourth quarter of 2025, sales of affordable entry-level homes accounted for 25.9%, middle income homes, 46.3%, and residential homes, 23.5%, while the remaining 4.3% came from other real estate projects. Operating income in the fourth quarter of 2025 came to MXN 220 million, rising 23.1% over the same quarter of 2024. EBITDA was MXN 307.2 million, 25.8% higher and net income was MXN 354.9 million, a 93.3% growth largely due to a credit from deferred income tax. Our operating margin in the fourth quarter of 2025 was 9.5% and the EBITDA margin was 13.2%, both of them 50 basis points lower than the same period of last year due to higher overhead costs. The net margin for the quarter was 15.2%, an expansion of 490 basis points attributable basically to the favorable effect of deferred tax. In the last quarter of 2025, we generated positive free cash flow to the firm, totaling MXN 58.6 million, from 4Q 2025 compared to 2024. As I mentioned at the start of the call, 2025 marks our best performance of the past 5 years. Total revenues, which are the sum of housing revenues, plus revenues from all the real estate projects came to MXN 8.25 billion in 2025, a 16% growth compared to 2024. Another highlight of the 2025 result was 113 days reduction in our working capital cycle, which supported positive generation of free cash flow for the firm, totaling MXN 400.9 million, 35% more than in 2024 and MXN 98.2 million after interest payment. Housing revenues in 2025 totaled MXN 7.86 billion, a growth of 15.4% over 2024. These revenues came from the sale of 6,214 homes of an average price of MXN 1.26 million, a 6.7% increase of an average price of 2024. Breaking down our revenues for 2025 by housing segment, the affordable entry-level segment generated MXN 2.29 billion, 6.6% lower, mainly because of the completion of development in the city of Tijuana and the second stage of our development in Mexico state. As I said earlier, this year, we will already be reporting revenues from a new development in the city of Tijuana. Since last year's fourth quarter, we are also booking revenues from the third stage of the development in Mexico state. Middle-income homes totaled MXN 3.66 billion, a 29.7% increase, and residential income came to MXN 1.91 billion, a year-over-year growth of 24.1%. Revenues from all real estate projects in 2025 amounted to MXN 395.4 million mainly due to higher revenues from the sale of land and from shopping center leases. For the mix of revenues in 2025, the affordable entry-level segment accounted for 27.7%, the middle-income segment, 44.4%, the residential segment, 23.1%, and all the real estate projects, the remaining 4.8% Operating income in 2025, total MXN 796.0 million, 7.2% higher than in 2024, EBITDA was MXN 1.16 billion, rising 11% and net income came to MXN 906.2 million, up 31.9% due to the reduction in deferred income tax. Our operating income in 2025 was 11.6%, down 80 basis points from last year and EBITDA margin came in at 14% and 60 basis point decline. These reductions were the result of higher general expenses. Despite this, the net margin was 11%, an expansion of 130 basis points due to the reduction in deferred income tax. Financial position as of December 31, 2025. The balance of cash and cash equivalence close 2025 at MXN 2.10 billion, 10.2% lower than the close of the previous year. As of December 31, 2025, the balance of account receivable stood at MXN 709.7 million, rose 27.5% of receivable on December 31, 2024. The account receivable turnover was 31 days. Total inventory as of December 31, 2025 amounted to MXN 19.37 million, 7% higher than the close of the previous year. At the close of the fourth quarter of 2025, cost-bearing debt changed to MXN 2.66 million, remaining basically stable compared to the close of 2024. Short-term maturities, meaning debt coming due in the next 15 months, made 61.8% of cost-bearing debt, and long-term debt 38.2%. I should mention that we will be refinancing the ARA 23X note for MXN 1.2 billion, which comes due on November 25, of this year. At the end of 2025, 63.8% of our cost-bearing debt was in the form of the ARA 23X and ARA 21-2X notes. 14.1% were simple unsecured bank loans without real estate collateral, 11.9% were simple secured loans for our shopping centers and the remaining 10.2% were lease liabilities. Net debt at the close of last year was positive by MXN 557.5 million. ARA positive result were accompanied by healthy leverage indicators. As of December 31, 2025, cost-bearing debt-to-EBITDA was 2.3x. The net debt-to-EBITDA ratio was just 0.48x and the interest coverage ratio was 3.65x, and if we base this ratio on coverage of net interest, meaning, interest expense less interest income, it could be 7.85x. On October 13, HR Ratings issued a favorable opinion on the ARA 21-2X and ARA 23X sustainable issues in recognition of the sustainable solution we offer as the proceeds were used to finance various developments. This development incorporate homes built with ecotechnologies for water and energy efficiency and promote sustainable uranization. The opinion also recognizes the congress of our sustainability strategy, its clarity and alignment with the reference frame. The full report can be viewed on our corporate website Housing industry performance. According to Mexico's National Institute for Statistics and Geography, or INEGI, industrial activity in general grew by 1.5% in 2025 compared to the previous year. Construction industry expansion was 6.8% and the building subsector, which includes housing and industrial base increased by 9.6%. Information from the Unified Housing Registry, RUV indicates that in 2025, 310,518 homes were registered, a significant 73.9% increase compared to 2024, and 138,631 homes were produced, 8.2% higher than in 2024. Based on data from the Ministry of Agrerian, Territorial and Urban Development, or SEDATU, between January and November of 2024, Infonavit granted 161,546 homes for the acquisitions of new homes and 8.4% increase over the same period of the previous year. These loans require an investment of MXN 123.2 billion, 19.3% [higher]. The average size to the home loan in the first 11 months of 2025 was MXN 763,000 a year-over-year growth of 10.1%. Fovissste granted 12,239 homes for new homes, between January and November of 2025, a 13.1% decline from the same period of 2024, and the investment in these total, MXN 13.7 billion, 6.2% higher. The average size of our loan granted in the first 11 months of 2025 was MXN 1.11 million, a 22.3% advance over the same period of the year before. [indiscernible] from financing between January and October 2025, 76,600 mortgages was granted for the acquisition of new and existing homes, a 5.8% reduction, compared to the same period of last year, and investment in these totaled MXN 187.8 billion, 1.2% lower. The average size of our loan granted in the first 10 months of 2025 was MXN 2.45 million, a 4.8% growth over the same period of the previous year. In 2025, 63.3% of our revenues came from homes financed by Infonavit, 11% from Fovissste, and the remaining 25.7% from commercial banks and homes purchased without financing. Shopping Centers. In line with the Housing division results, the Shopping Center division also posted double-digit growth in its numbers. In the fourth quarter of 2025, revenues totaled MXN 146.9 million, 15.8% higher over the same period of last year, while net operating income was MXN 104.5 million, a 23.4% growth. In 2025, revenues total MXN 546.6 million, a 10.9% increase over 2024, while net operating income was MXN 379.9 million, an expansion of 10.8%. This is also response to shopping center that are 100% owned by ARA and are consolidate into a financial statements as well as 50% of Central America's Paseo Ventura, according to our stake in those properties, which are entered under the equity method. Total gross leasable area in our shopping centers and Mini shopping centers is 204,003 square meters and [indiscernible] December 31, 2025 was 94.8%, a very competitive level. Dividend. Consorcio ARA has a policy of [indiscernible] out dividend equivalent to up to 50% of its net income, to the following conditions: one, a sufficient balance in the net tax income account, and two, positive free cash flow generation. Yesterday, the Board of Directors proposed a dividend payment of MXN 300 million for this year equivalent to 22.1% of net income in 2025. This will be a dividend yield of 4.4% based on the share price as of December 31, 2025, which was MXN 3.74. Shareholders will be involved on this proposed dividend in the next General Ordinary Annual Meeting of Consorcio ARA to be held in April. Not also that the dividend will be paid out of the net fiscal earnings account as of December 31, 2014, which means is not subject to income tax. Conclusion. For the current year, Infonavit [indiscernible] a total of MXN 262.2 billion in loans for new and existing homes, while Fovissste expect to distribute MXN 33.6 billion. We don't have a formal estimate for the commercial banks, but we believe they will keep up a robust pace of mortgage place. Encouraged by this [draft book] of mortgage lending in 2026, the expected stability of the macroeconomic climate and [least] demand for housing, our expectations for this year are positive, and we will be looking to replicate the revenue growth reported for 2025. Thank you, and we will now move on the question-and-answers.
Operator: [Operator Instructions]. The first question from the audio line is from Mr. Alejandro Gallostra from BBVA.
Alejandro Gallostra: First of all, my first question is regarding volumes. Can you please explain what has been driving the significant increase in sales volumes from the middle income and residential segments together with a relatively small increase in the average sales price? This is my first question.
Alicia Enriquez Pimentel: I really apologize, Alejandro, but I don't know if it's the line, but it's very hard to understand the question.
Alejandro Gallostra: My first question is regarding volumes. I'd like to know what has been the driver behind the significant increase in volumes from the middle income and residential segments together with a significantly lower increase in the average sales price this quarter.
Alicia Enriquez Pimentel: Yes, exactly. Well, Alejandro, as I mentioned, the middle income and residential segment had a very good performance in the fourth quarter and also in the whole year. It has to be with new projects, also there was an increase, for example, in the middle-income segment, an increase in the average price. In residential, it is little bit different because we have another mix of project, for example, in the back we have a [indiscernible] the average price of around MXN 60 million to MXN 80 million in the fourth quarter of 2025, we didn't recognize any revenues from this project, but we have other projects with a lower average price, so that's why the average price was different, Alejandro.
Alejandro Gallostra: Basically, you think that this is explained by new projects with different price points rather than perhaps applying some discounts to sales this quarter? Because I'm also surprised to see that the revenue mix is better, but profitability has not increased though. I was just wondering if you applied some discounts this quarter.
Alicia Enriquez Pimentel: In some projects, yes, we have some discounts, but in general terms, we were able to transfer the increases in the cost to the price. There are some projects that, yes, we have some discounts in the sales price, but on general, we increased the prices in our projects. We could do it.
Alejandro Gallostra: My second question is regarding your accounts payable. I was just wondering how you managed to increase the account payable days from your suppliers for 2 consecutive quarters. I was wondering if this is sustainable or not.
Alicia Enriquez Pimentel: Yes, it is sustainable. Our target is to have 90 days. I think we mentioned in the previous conference call that we have a factoring program in place for our suppliers. In the past, it used to apply to certain types of work, but in 2025 -- are putting in place across all areas, all our suppliers. In the past, it was just our construction suppliers, but now all our suppliers, [indiscernible] the supplier of our area -- administration area or commercial area or whatever area, all the suppliers are in this factoring program. As I mentioned, our target is to maintain 90 days, Alejandro, so it's sustainable.
Alejandro Gallostra: Another question, if I may, is regarding your long-term strategy. Can you just repeat what are your medium and long-term goals for the company? Also mentioned your goals, since your balance sheet is still very strong, but leverage has been increasing recently, if you could also comment about your working capital requirements since this has been improving. If this is a reflection of a change in strategy or not?
Alicia Enriquez Pimentel: Talking about working capital cycle, obviously, our objective is to reduce as we mentioned last year, we reduced by 113 days. For this year also, we are expecting to have the same kind of reduction. Obviously, we are going to do it through increasing our revenues. It's our main strategy to grow in our revenues and monetize our inventories, is the main strategy, Alejandro. Definitely for the short and long-term, we are going to be focused on that to reduce the working capital cycle. I don't know, if you ask something else, Alejandro?
Alejandro Gallostra: I was just wondering about the overall long-term strategy and also you have any goals when it comes to your balance sheet leverage, since even though you have a very strong balance sheet, but it's been increasing recently.
Alicia Enriquez Pimentel: As you know, we are going to follow that strategy to manage in a prudent way or -- yes, I could say, prudently, our debt. We can grow, but also in a sustainable way with our debt. The metrics that you saw at the end of 2025, we are planning to maintain those metrics in terms of net debt-to-EBITDA.
Alejandro Gallostra: I was just wondering, if you could give us additional information about your long-term goals when it comes to either profitability from operations, achieving a higher profitability from operations or a higher return on capital, if there is anything that you could share with us regarding those lines?
Alicia Enriquez Pimentel: You ask about our goals, if I understood, Alejandro. I really, I don't know really if the line. I offer to have one-on-one because I can't understand the question. Is it possible, Alejandro to have on-on-one? I really apologize. I don't know if it's my line.
Operator: Our next question is from Mr. Andres Aguirre from GBM.
Andres Aguirre: Congrats on the results. I have a quick question regarding costs. We observed a sharp increase in SG&A expenses during the period, mainly attributed to promotional advertising. Should we consider the expense as a one-off? Or should we expect similar levels going forward?
Alicia Enriquez Pimentel: Andres, for this year, we are expecting to have growth in revenue similar to the last year. We think that we can improve our operating margin mainly in the part of wages because we have the structure to produce that level of revenues. We can have more revenues, we can decrease overhead cost as a percentage of revenues. We think it's not going to be very significant, we are not going to see a dramatic change, but at least we are not going to increase that percentage of general expenses that we saw last year.
Andres Aguirre: The second question, if I may, regarding a potential distribution. I'm not sure if you can comment on this at this stage, but do you expect any distribution to be announced? If so, could you provide some color on the potential amount?
Alicia Enriquez Pimentel: Do you mean dividends, Andres?
Andres Aguirre: Yes, Alicia.
Alicia Enriquez Pimentel: Yesterday, our Board of Directors proposed a dividend payment of MXN 200 million, the same amount that -- than the 2024, 3Q -- this means a yield of 4.4%.
Operator: We have finished with the conference call questions, and we'll now continue with the webcast questions.
Alicia Enriquez Pimentel: Okay. Thank you. Let me brief the webcast questions. The first one is from [indiscernible]. We continue to see middle-income residential gain in share relative to lower income unit. Could you please share your expectation for the 2026? Yes. As I mentioned, we are going to open a new project for affordable entry-level segment. For this year, we expect that this segment represents around 30% of our revenues. We are going to have an increase in the [indiscernible]. Also, middle-income represent around 40%, 42% and rest the residential segment, 27%. The next question from [Machara] from Mindset Capital. What is the difference between [homes] registered and [homes] produced? Why is the gap so much higher from [indiscernible]? This is explained by the registry program of the governor. This program is called Wellbeing Housing Program or Government Affordable Housing Program. Since August 2025, we saw significant increase in the number of housing registration. This explained by these program. As per regional government is [indiscernible] is 1.8 million housing, so in this year and in the following years, we are going to see an increase in this number. We expect also in the coming years, we are going to see increase in the housing production. The following question also from [Machara]. What will be the dividend declared this year? I already mentioned, MXN 300 million, a yield of 4.4%. I think there are no more questions. Thank you very much for your interest in Consorcio ARA and have a great day. Thank you.
Operator: That was the last question. This concludes the question-and-answer session for today. Consorcio ARA would like to thank you for participating in today's conference call and webcast. You may now disconnect.