Corporación Inmobiliaria Vesta Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 21, 2023

There are 13 speakers on the call.

Operator

Greetings, ladies and gentlemen, and welcome to Vesta First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. As a reminder, This call is being recorded. It is now my pleasure to introduce your host, Maria Fernanda Bettinger, Investor Relations Officer.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining our Q1 results call. With me today are Lorenzo Dominic Perro, Chief Executive Officer and Juan Sotil, Chief Financial Officer. The earnings release detailing our Q1 2023 results Cross the Wire yesterday afternoon and is available on the company's website along with our supplemental materials. Before we begin the call today, I'll remind you that today's presentation contains forward looking statements. Forward looking statements are predictions, projections or other statements about future events.

Speaker 1

These statements involve risks, uncertainties that may cause actual results and tends to differ materially from those projected. For a full discussion of the risks and other factors that may impact these forward looking statements, please refer to our Q1 results, press release and our MVB filings. Please also note that all figures included herein were prepared in accordance with IFRS and are stated in nominal U. S. Dollars unless otherwise noted.

Speaker 1

Let me now turn the call over to Lorenzo Verro.

Speaker 2

Thank you, Fernanda. Good morning, everyone, and welcome to our Q1 earnings call. Let me begin By thanking our team for delivering an excellent start to the year, we had a strong Q1 achieving almost 20% year over year increase In revenue driven by high occupancy and rent increases. During the quarter, We signed 1,200,000 square feet of new contracts with companies such as Polaris, Divishekhar and TLC MoCA among others. We also saw almost 1,000,000 square feet in lease renewals.

Speaker 2

We continue to see Vesta's buildings being occupied even before delivery, which was the case with 3 buildings this quarter, 2 in Monterrey and 1 in Suarez. We had 3,800,000 square feet in projects under construction during the quarter, in line with last quarter's pipeline. While there were no new construction starts during the Q1, we're letting a strong foundation for new buildings Over rest of the year, working with development teams to target larger projects within our 5 strategically defined regions with a particular focus on manufacturing and e commerce opportunities. You will recall we acquired 52 acres of land in the San Martinobispo Punta Norte area of Mexico City during the Q4 2023 Adjacent to one of Mexico's main roads with optimal connectivity, this best in class location is ideal for last mile distribution and Logistics and another addition to Vesta's increasing footprint within Mexico City and metropolitan areas with trophy assets. We expect to begin construction on this land in the near future.

Speaker 2

As you have heard me comment in the past, we believe Mexico near shoring is essentially still in its early stages. During the Q1 2023, we continued to see American, European and Asian businesses Move their manufacturing operations to Mexico. Near shoring represents a viable and enduring long term solution to the challenges many companies face when operating in other markets. Economic and political factors have taken the bloom of the rose for manufacturing in China in particular. At the same time, the growth of Mexico and U.

Speaker 2

S. Trade has reduced costs, improved quality and made the concept of nearshoring in Mexico a truly viable, if not sometimes superior alternative. For U. S. Manufacturers compelled to make the move, we have seen clear indications that Mexico is ready to meet the moment.

Speaker 2

This includes its manufacturing, which today is better able to handle increasing logistics demand, also with a strengthened focus on research and development. Clearly, it is difficult for U. S. Manufacturers To walk away from the billions of U. S.

Speaker 2

Investments they have made in other markets, but the exodus to Mexico's friendlier shores started as a trickle but has become a steady stream. We believe this is a lifetime opportunity for Industrial Real Estate in general and for Vesta in particular. Our state of the art industrial parks and facilities have secured Our reputations as Mexico's premier industrial real estate developer. 2023 marks Vesta's 25th anniversary. We have spent 25 years building and expanding a solid foundation, establishing deep relationships with the world's premier global companies and a presence in Mexico's most strategically relevant markets, all while assembling one of the most experienced operating teams in our industry, attracting each region's very best talent.

Speaker 2

Andvester's 25 years of experience building a premier properties is an important differentiator for our clients. While Vesta has been challenging operating environments over the last 25 years, We are now witnessing the kind of explosive growth which have long anticipated Today, Vesta is in the privileged position to have achieved Both the size and the strategic vision to capture this moment with the demonstrated ability to size opportunities in a disruptive environment. We can and will continue to be opportunistic, driven by our experience and entrepreneurial spirit. With that, let me turn it over to Juan, and I will return for some brief closing remarks. Thank you.

Speaker 3

Thank you, Lorenzo, and good day, everyone. Let me begin with a summary of our Q1 results. Starting with our top line, as Loren mentioned, had a strong start of the year with total revenues of 20% to $50,200,000 mainly due to rental revenue coming from new leases and inflationary adjustments on rental property during the quarter. As a reminder, Most Vesta leases are indexed to inflation. Therefore, we continue to benefit from the favorable effect of higher than expected inflation on our top line results.

Speaker 3

In terms of the currency mix, $86,700,000 of the first quarter revenue was denominated in dollars, decreasing from $87,100,000 recorded in last year's comparable period. Turning to our cost structure. Total operating costs reached $3,200,000 in this quarter from $2,200,000 in the Q1 of 2022. This was mainly due to higher real estate taxes, maintenance and other property related expenses, as well as the increase in the number of leased properties in our portfolio. Net operating income increased 18.1% to $47,700,000 driven by higher rental revenues, while the margin contracted 120 basis points to 95%, mainly due to higher costs from rented properties.

Speaker 3

Administrative expenses were up 28.2%, reflecting again this quarter higher non cash expenses due to an increase in the company's long term compensation plan. In turn, EBITDA reached CAD42 1,000,000 in the Q1 of the year, an 18.6% increase compared to the prior year's quarter and the margin decreased 60 basis points to 83.7% as compared to the 84.3% from the same quarter last year. Moving down the P and L, Total other income reached €4,300,000 compared to €27,400,000 in the Q1 2022. This decrease was mainly due to lower property valuation gains and higher interest expense, partially offset by a positive variance in foreign exchange results. As a result, we closed the quarter with a pretax income of $43,100,000 compared with CAD60.8 million in the Q1 of 2022, while the pretax FFO increased $21,600,000 to $30,400,000 and NAV per share increased 10.1% to $2.87 from $2.61 per share in the same quarter of 2022.

Speaker 3

Now turning to our CapEx and portfolio composition. We invested $54,200,000 in the quarter, Mainly in the construction of new buildings in the Northern and Bahia regions as of March 2023, the total value of the portfolio was $2,790,000,000 comprised of 202 high quality industrial assets with a total G and A of 33,700,000 square foot and with 86 0.7% of total income denominated in dollars. Year over year, our stabilized portfolio grew 5.6% €33,100,000 in square feet with an occupancy of 96.7 from 94.3% in the Q1 of last year. Our land bank stood at 38,000,000 square feet as of March 2023 and remained unchanged from December 2022. Turning to our balance sheet.

Speaker 3

We closed the quarter with a total debt of $930,000,000 Net debt to EBITDA was 5.3 times and our loan to value ratio was 32%. Cash and equivalents stood at CAD98 1,000,000 That together with our $200,000,000 committed credit line provide us with total liquidity position of nearly $300,000,000 at the end of the Q1. Subsequent to quarter end, on April 17, we paid a cash dividend for the Q1 of 2023 equivalent to COP 0.39 per share in pesos per ordinary share. With that, this concludes our Q1 2023 review. Operator, could you please open the floor for questions?

Operator

Yes, thank you. We will now move to the question and answer So our first question comes from Carlos Perilong from Bank of America. Your line is open. Please go ahead.

Speaker 4

Thank you. Thank you, gentlemen, for the Congratulations on the strong results. Two questions, if I may. First one, if you could give us an idea of what was the positive lease spread that you got During the quarter for those contracts that expired that were renovated during the quarter? And secondly, if you could give us some idea of occupancies In your key markets, just to get a sense of how they're being evolving on a quarter over quarter basis, if you have that number?

Speaker 4

Thank you.

Speaker 3

Carlos, thank you for the question. On the lease spreads, We didn't have that many maturities during the quarter, and we had a lease up spread of between 5% 15 Percent over and above inflation. Depending on the markets, as you would expect, northern markets are more positive That's Central Markets.

Speaker 4

Thank you, Juan.

Speaker 5

Thank you, Juan.

Speaker 4

And any further occupancy?

Speaker 3

We continue to extend the maturity profile of the portfolio even on the rollover. So That's very positive for us. And the second question was on occupancy of?

Speaker 4

Your key markets.

Speaker 3

Oh my God. Let me get back to you. I don't have it on top of my head. But by the end of the conference call, I will just

Speaker 4

Thank you.

Speaker 5

Thank you.

Operator

Thank you. Our next question comes from Rodolfo Ramos at Bradesco. Please go ahead.

Speaker 6

Thank you and good morning everyone. A couple of questions as well on my side. Just Looking at the 20% of VLA that expires this and next year, can you tell us how much of that you expect to reset to market rate and how much of that has Extension still left and I don't know if you can quantify the magnitude of adjustment you expect there.

Speaker 3

So can you just briefly repeat the question? I got lost in a train of thought. Sorry about that. That was my mistake.

Speaker 6

No, no worries, Juan. Just that when we look at the GLA that expires this and next year, just want to get a sense of how much of those contracts that expire Do you expect to reset to market rates? In other words, how much of or the other way around, how much of that how many of how much of those that GLA that is Firing has extensions that tenants can still extend at current rates with inflation.

Speaker 3

Sure. Look, it is a very common feature in the leases that we have. And I would venture to say that the leases that the market as a whole has That most of these have 2 extensions of 3 or 5 years. That's very common. How the way that we manage this is we typically get close to the clients and that's one of our most important differentiating factors.

Speaker 3

The fact that we are The company has its own asset managers and we are very close to the clients. And what we do is that in spite of the Short term extensions that the contracts have, we invest in the properties because most clients will have requirements of Property improvements and what have you. And we trade off the investments of our CapEx into the properties In order to upgrade the time frame of the extension, so instead of a 3 or 5 year extension, we typically do 7 years, 5 years, if it's a 3, whatever. And then we calculate the rent so that we get over the in place rent. That seems to be a winning proposition.

Speaker 3

We have a better building, which is a priority for our company. And the client gets to have the Yes, that they require at a minimal expense to them. For example, sometimes they require larger, I don't know, larger luncheon room or what have you doors, certain improvements, and we trade off those two things. So that's the way we manage rollovers.

Speaker 6

Okay. Thank you, Juan. And just the second one, when we look at your land reserve, Roughly about 10% is in the Monterrey market, and you're currently already developing something in the Apodaca Submarket. So my question is, is there anything in that specific market holding you back to develop The rest of your land reserve sooner than perhaps you indicated in your pipeline. And if you have any presence in the Santa Catarina or Escorro Verde submarkets, which are or Which is where Tesla or close to where Tesla and suppliers will be setting up operations.

Speaker 6

I just want to get a sense whether You have any bottlenecks there that might be holding you back? And how does your line reserve look in that submarket? Thank

Speaker 3

you. Basically

Speaker 2

Sure. Great question. As you are Well aware, we have penetrated the Monterrey market with 2 very successful projects, the first one being in Guadalupe, where we were able to lease up To Copel, to OXXO and Amazon among others and our second project in Acodaca. In Acodaca, our first anchor project was The first two buildings to Polaris, which is one of the greatest news we have for this quarter. And part of the land that we still have in Apodaca, part of it, we're considering an expansion also.

Speaker 2

There could be a potential expansion for the anchor tenant. However, we are also expanding and developing 2 new inventory buildings in Monterrey. And hopefully throughout the year, we're going to be able to lease them up even before Finalizing construction. As the year continues, we are paving the ground So that we can start construction of the additional land as soon as we can be able to keep on leasing up. So we feel very comfortable that While this period of marketing, we're going to be able to put the infrastructure in place, the The organization for the land and I'm pretty sure that this is that this privileged location will benefit from the A strong market.

Speaker 2

Now clearly, Apodaca is the most traditional industrial market in Monterrey, which is in the opposite side To Santa Catarina, where Tesla is going, however, we feel very comfortable by having land in the opposite side to Tesla, Because Tesla also represents a challenge when it comes to labor. And if you develop a building that is not That is next to Tesla, the clients might have a challenge for labor and we think that the Apodaca and Guadalupe region where we're at It's a privilege in terms of having accessibility to labor, accessibility for logistics and even for suppliers of Tesla, It has even a great connectivity in the most desired industrial market, but we are excited about the Tesla announcement and I'm pretty sure that it will benefit Santa Catarina, Monterrey and even the rest of Mexico for its supplier base.

Speaker 6

Thank you.

Operator

Okay. Thank you. Our next question comes from Vanessa Quiroga at Credit Suisse. Please go ahead.

Speaker 7

Yes. And thank you and congrats on the results. My question is About your growth plans, where would you like to concentrate your development growth Going forward and how you expect to get the funding For the growth, I mean, after the shareholders meeting, just any update on those plans Would be great. And also any update on the environment in Bahia and on timing for to become a more attractive region for the near sharing trend in So that Vesta is able to use more rapidly its land bank in the region? Thank you.

Speaker 2

Thank you, Vanessa, and

Speaker 3

good thank

Speaker 2

you for your question. We are executing very successfully the development pipeline for the $1,100,000,000 we presented last year in our Vesta Day. That actually fortunately is coming quicker Than expected. Which markets are we do we see with a major demand? Well, it's clearly the 5 Strategic markets that we defined as the 5 Olympic rings, but we're currently very active in Tijuana with the mega region project.

Speaker 2

We're very active with the Newland acquisition we did in Juarez, very close to the Zaragoza bridge crossing. And we've actually leased To Bibi Schenker, a great logistic company from Germany, focusing the integration of supply chains For the electronics business and that was the first project that we were leasing and we're going to be very active in Juarez too. We have planned to develop steel for the next upcoming years. Again, Monterrey that I recently mentioned, Mexico City with 2 projects that are going to be A really iconic project for Vesta in the Mexico City area. And Bahia is coming actually It's coming it's getting back on track and we might see a greater commercial and leasing activity, particularly in the Queretaro market and So we are seeing that there is a strong demand in these major markets.

Speaker 2

I even Just to mention, Guadalajara is another market that we're very strong at and we have been able to lease at under great conditions. And ideally, if this continues to move as fast as it is happening, we're going to be able to invest About $250,000,000 per year. And the idea after we got the shareholder approval to raise equity, Ideally, if when markets permit at some point, we might have an equity issuance and that's something that we have talked already with existing shareholders. We see a strong pipeline even on top of our existing pipeline that is little by little building up with a strong demand in most of these markets. And therefore, we see that we might have an opportunity to raise capital and put money to work even that we have a strong balance sheet.

Speaker 2

We believe that this is a great path going forward to particularly take advantage of the great opportunities in the market and The strong operational presence that Vesta has in many of these dynamic markets.

Speaker 7

Thank you very much for the answer, Biren.

Operator

Thank you very much. So our next question comes from Jorel Guilloty at Goldman Sachs. Please go ahead.

Speaker 5

Thank you for taking my question. I actually have 2. One is, You made it clear that on your Investor Day and you just repeated that you're focused on the $1,100,000,000 development pipeline. But I was also wondering as you look at your valuation and you look at If M and A is something that could be of interest or something that you might think about, just any color you can provide on that Possible consolidation strategy would be helpful. And then my other question is around Bahia Dynamics.

Speaker 5

We actually saw I believe it's Juan, Iguato that saw a decline in occupancy quarter to quarter. So I was just wondering if you can talk a little bit about What drove that? And as I look at the Bahia in general, I mean, you do have that delta between the north and the central regions of Mexico. It's 8% vacancy in Bahia, 2% vacancy in the North and about the same in Central Mexico. How do you see that developing in your existing portfolio in terms of perhaps closing that delta Beginning of Bahia and the rest of Mexico.

Speaker 5

Like what's the timeframe? How do you think it happened and so on? Thank you.

Speaker 2

Thank you. Thank you, Gerald, and good question. And I will start by the light one. First off, I think that as long as we continue growing and expanding according to our strategy in the 5 main regions, This will clearly balance out well our diversification among markets. So clearly, we're not only a developer in the Brazil, but here is an important market.

Speaker 2

But we are also a leader in markets like Tijuana, we are the largest landlord in Tijuana, and we have over 6,000,000 square feet, and we are currently developing, and we're seeing new opportunities coming in that market. The same for Juarez and Monterrey, where we have, as mentioned, we have been able to not only close with great tenants, but we are paving The growth for the upcoming years in these two markets are going to be very dynamic and the rest for Mexico City and Guadalajara. So having said that, if we continue growing and we eventually get to 50,000,000 square feet, this will balance out well and close that particular delta You mentioned between the different markets and we'll have so we're going to be seeing very, very soon a very well balanced portfolio on Vesta Being a leader in the most dynamic markets and continue to take advantage of the markets that will foster growth and Debatio, We believe that we'll continue to show growth, show resilience with great companies and have say and will show also Long term sustainability opportunities in the strong industrial markets. Regarding M and A, as you remember last quarter, we were able to acquire in the state of Mexico a couple of assets Related to the supply chain of electric vehicles business for Stellantis, Chrysler, ex Chrysler, the Stellantis Jeep.

Speaker 2

And our approach is we'll continue to be opportunistic. We have such a great pipeline of development with great quality assets in the best markets at very attractive returns, Development yields of 10%. So we will continue to do acquisitions whenever there is an opportunity to buy at discounts to Replacement costs at attractive yields and particularly at yields that we believe that are accretive For our net asset value per share focus, there has been some activity In the lower 6% range on acquisitions, we think that on that range, it's really hard To increase value on a net asset value per share basis and also there has been also other type of consolidations, but Particularly in markets where we do not necessarily would like to focus or the quality of assets do not match Our strategy, so we're going to be very careful on the acquisitions. Thankfully, we have a strong development pipeline That actually is not only accelerating, but might even at some point increase.

Speaker 5

Loreng, a follow-up, if I may. You mentioned 6% is for M and A. Do you think there could be pressure for that to go even lower?

Speaker 2

Yes. There's a lot of appetite To enter the Mexican industrial market. And I mentioned 6, but I heard that it has been even below 6.

Speaker 8

Great. Wonderful.

Speaker 2

Thank you. But it's just a reference. Just a reference, there's a lot of appetite. This is an industry that represents great risk adjusted returns, and I'm pretty sure that our cap rates will continue to be very well bid. This is a fantastic Asset class with long term opportunities and if you compare with other asset classes, Which are currently being punished and are actually in many cases driven by pesos.

Speaker 2

Interest rates in pesos are at 12%, 13%, 14% when it comes to a loan. That's why if you consider and if you compare with Dollar leases, long term leases break companies in a hot market like the industrial sector globally. It doesn't surprise me to see these low cap rates. And that actually Makes us actually focus on the development because developing a 10% and having yields at 6% for good quality assets, That's the most attractive and appealing value proposition that we can find.

Speaker 5

Very clear, Oren. Thank you.

Operator

Thank you. Our next question comes from Mr. Remozini at Citi. Please go ahead.

Speaker 8

Sure. Hi, Lauren, Juan, Fernando. Thanks for the call. So two quick questions. The first one, A little bit of a follow-up on stuff people have asked.

Speaker 8

Why do you think new shoring is happening the most in Monterrey and Saltiva, right? So 60% of new shoring is happening over there, Monterrey and Saltillo, at least regarding the numbers we have. So you think it's just a matter of proximity to the U. S. Of course, it's the biggest city among the 3 metropolises of Mexico, which is closest to the U.

Speaker 8

S. It's just a matter Maybe or something else, maybe public policy, infrastructure, so on and so forth. So another way of asking, what Monterrey has that Maybe the Bahia still doesn't have to capture the 60% share of near shoring, which is definitely a lot. And the second one will be on the likely dual listing, right, that you guys are considering doing. So talk a little bit about the cost benefit analysis of doing a dual listing.

Speaker 8

On the one hand, you could increase cost, compliance costs with another stock Change and maybe split liquidity, right, among 2 stock exchanges. But on the other hand, you can probably tap a new investor base, right, being in another exchange. So how do you guys think about the trade offs there? Thank you.

Speaker 2

Thank you, Andre, and thank you for your question. Well, First of all, I think that when it comes to near shoring, clearly, many of these companies are Fully related to the U. S. And that's why we normally this starts at the border or the north part of Mexico, Monterrey being The North part of Mexico. Monterrey is the largest market, industrial market in Mexico and that's why I believe that it has Attracted the attention of near shoring opportunities initially in the north in this area first.

Speaker 2

We think that This will have an impact in the rest of the country, Bahia, Central Mexico actually too. And I think that it's very it's we're going to see that impacting the whole country. Again, I think that Monterrey is also doing a great job attracting investment, and it's a great city. So therefore, I think that Today, it's very appealing to consider projects in Monterrey. However, we think that This wave of near shoring, we think it's just starting.

Speaker 2

And we're going to see a lot more of foreign direct investment Coming into electric vehicle business industry, electronic industry, even aerospace industry, the decoupling from China is even Considering industries that are were gone long time ago like textile industry somehow in the garment industry. So it's going to be interesting how this impacts the rest of the country. On your second question, well, we will consider and analyze different alternative markets. There is some alternatives also to for do all these things. So for the moment, we're just analyzing and we will for sure Make the decision where it would make the most sense for the company.

Speaker 8

Very clear. Thank you, Lauren.

Speaker 2

Thank

Operator

you. Our next question comes from Francisco Suarez at Scotiabank, please go ahead.

Speaker 9

Hello. Good morning, Fernanda, Lauren, Juan. This is a great opportunity to talk to you. Thanks for this call. The question that I have is mostly On your pipeline, I mean, you have roughly 3,600,000 square feet of new GLA on spec Property will be delivered over the next few quarters.

Speaker 9

Can you give us a sense of how much of that is released? How much what are your expectations on that? Thank you.

Speaker 2

Great, Francisco. Thank you very much for your question. As you can see that you're completely right in our supplemental package, we out of the almost 4,000,000 square feet that we are Currently presenting under construction, it's almost 40% has been already pre leased, which is a great number. However, the pipeline for us is not only what we have under construction, but what we're paving the road for. And we see a very strong pipeline coming in the upcoming years, A combination of inventory buildings as well as potential build to suits.

Speaker 2

Another An important way to see our not only our construction pipeline, but just look at the number of the projects that we are That we are currently in our lease up stage or stabilized properties. Our stabilized Properties that are not same stores, which are the projects that we pretty much developed throughout last year or end of 2021, 100% have been leased, which means that the market is incredibly strong. And even if we inventory buildings, even If it's either through construction phase or later, we are able to lease them up very, very quickly, The same for our lease of properties and that's why our strategy for inventory buildings is Still paying off. On top of that, with a high occupancy in our existing portfolio, Let's say somewhere north of 96%, we think that it's the right time to continue developing inventory buildings for spec buildings. That's why we will continue to focus on the $250,000,000 approximately of Investment pays per year, balancing throughout inventory buildings and build to suit, but we think that the opportunity of developing and capture 10% return on cost is very, very appealing and that's why we're making strong moves to As soon as possible, demand is there, good companies want to grow and we are taking advantage of that particular opportunity.

Speaker 2

So we're going to continue to see A lot of construction throughout this period.

Speaker 9

That was agreed. Thank you so much.

Speaker 10

Congrats again.

Speaker 2

Thank you.

Operator

Thank you. And our next Question comes from Anton Mortenkott from GBM. Please go ahead.

Speaker 11

Hi, guys. Congrats on your results and thanks I have just two quick ones. One is, could you provide a breakdown on the €54,000,000 CapEx you did during the quarter? And the second one is, I mean, we know that the infrastructure and mobile services in some regions of the country having kind of Have you seen any shift or efforts from governmental agencies to improve this? Thank you.

Speaker 2

Sorry, it was hard to listen to the question. Can you repeat that again?

Speaker 11

Sure. Just if you could provide a breakdown on the $54,000,000 CapEx you did during the quarter? And also if you have heard anything from Governmental efforts or something to improve the restrictions and the lack of capacity and energy infrastructure and overall services in some regions of the country?

Speaker 3

On the CapEx, look, the CapEx is basically executing the pipeline, the Development pipeline that we have disclosed on the supplemental package and it also encompasses some advanced Payments on the various buildings that and projects that we are executing. So that's basically, but we're closely following what you are seeing on the supplemental package On the pipeline, just taking note that from when we start a new building, we do give And advanced payment, so that the supplier can the contractor can take a position on the Key raw materials, think about the steel and concrete, and that's why we typically do at 30% or 35% even Advanced payments, so that they can secure the supply of those key elements and They can comply with a very tight pricing that they provide to us. So basically that's what you might see on the CapEx. But I think that the headline that we all should think about is that we expect this year to be another year of $250,000,000 CapEx, And we see that to be executed without any issue. On the second question, which is Energy and Infrastructure.

Speaker 3

Well, look, we work a lot With governmental agencies and local governments to secure the supply of Those things well in advance. So when we plan for a park, we're already talking to the CFE to see how can we guarantee the supply of electricity. That implies significant investments and we have the balance sheet to do that. And that is why when we Havapark, it becomes a reference park in the regions that we operate because we plan well ahead in advance for To get the necessary energy and other infrastructure, public infrastructure that we will need. That's basically what a good developer does.

Operator

So our next question comes from Felipe Barragan from BTG Pactual. Please go ahead.

Speaker 10

Good morning, guys. Thanks for the call and congrats on the results. I have a couple of questions. My first one is On USD income, so you guys had a nice jump this quarter and we saw a strong peso. So I'm just Curious on your thoughts on how you guys are navigating the current environment where the Mexican cost is getting stronger and then how you guys are seeing The exposure of the currency for the firm.

Speaker 10

And my second question is on in the press release, you guys noted that You guys looked at the development and commercial teams to capture both manufacturing and e commerce opportunities. I'm just curious, is there anything notable that you'd like to share From the time digging this quarter, digging more into these opportunities, is there anything unique that you guys would like to share with us? Thank you.

Speaker 3

So regarding the currency position of the company, as you know, we have always liked that Vesta is a long dollar has a Very strong long dollar position. We believe that we're building I mean, we just had a 25 year anniversary. We'll build Investa. We continue to build For the next 25 years, and I think that over the long term, having long term leases and dollar denominated leases, ARPA will provide the best value for our shareholders. In the press, it's strengthening.

Speaker 3

Well, that's great. That puts some pressure on us. But over the long term, Long term dollar leases with an average maturity of 5 years does provide the quality of earnings that I All of our shareholders value the most. We will continue to manage the cost Implications of that are by trying to have initiatives of cost savings so that my income statement stays Profitable. We have a very profitable EBITDA, and we are keen on keeping that EBITDA as high as possible.

Speaker 3

So look, we think that we will continue to have this policy. We will not sell dollars forward To take advantage of the to get an advantage and have some kind of financial income for That's something that my shareholders can do on their own if they think so. But we like the type of exposure that we provide our shareholders. And so We'll just keep managing that. In relation to e commerce and the type of clients that we're seeing, I have to underline that the clients that we're closing leases with is quite diverse.

Speaker 3

We're no longer seeing Auto only clients. We're seeing a well diversified client base, e commerce, Industrial logistics, logistics for exports, healthcare, electronics significantly. So it's quite widespread and that's what you would expect on the initial phases of an expansion. And that's why we believe that the Expansion that we're feeling is not a short term phenomena. It's rather a meeting and it will take years To reach the peak and to end the cycle.

Speaker 3

So we're quite optimistic in that regard.

Speaker 10

Great. Thank you, guys.

Operator

Thank you. Our next question comes from Maria Labreu from T. Rowe Price. Please go ahead.

Speaker 12

Hi, thank you for taking my question. I would like to have more color On how you go about securing the energy in the areas where you're growing. I have engaged in calls with people also close to the government and the messaging is It's pretty negative in terms of the availability of infrastructure In certain regions, especially transmission, and how limiting that could be for the The Assuring team and all the demand that may come to Mexico. So I will appreciate more color on your thoughts there. How companies will continue to come to Mexico if you have those limitations and also Probably also the lack of access to cheap energy, which is the other I think area of concern is if Mexico is really not supporting renewables, for example.

Speaker 12

Can you please Comment on that. And then the second question is regarding debt appetite. I know You're waiting to raise equity, that's the plan. What about debt issuance in the international market? Thank you very

Speaker 3

much. Sure. Let me take the bottom and then the first. The bottom one is, Maria, We have a strong balance sheet. Right now, I mean, we have enough capacity in the balance sheet to execute this year's plan and thereafter.

Speaker 3

So we have a strong revolver, which is unused and committed revolver. And with the it's a $100,000,000 revolver with our cash on hand. We have no issue for the $250,000,000 CapEx that we're planning. Regarding the debt issuance in the future, we will refinance the debt maturities that we have When they are due, which is way in the future. So that's about it.

Speaker 3

We will come to the market That's needed. I think that's why we keep managing the company to have flexibility and to be a rated company, BBB Minus rating company by the 3 agencies. And we managed the company to keep that rating. So we will access that market as needed. Regarding

Speaker 2

and probably the energy, I can just comment that purity has been a challenge and it's the challenge that we have always been seeing in the last years, particularly current administration. However, I will only use a couple of examples that Probably identify or let's say reflect what's happening in our industry. The first one is Tesla in Monterrey. Tesla is bringing a huge investment, multibillion dollar investment that will Definitely require huge amounts of energy, not only energy, renewable energy. I don't know exactly the details because they have not been But I'm pretty sure that Elon Musk and his team has been able to secure some energy for their project.

Speaker 2

So that is a good example That at some point the government has to be somehow open to supply and have the transmission For projects like Teslas and other projects that I'm sure that will require major amounts of energy. However, in our The projects that we're developing, every time we start a project, we secure some energy so that our clients can have. And a good example is Tijuana. Tijuana is a project with that will have 6 buildings. We have already leased 3 of them And the most recent one being leased to TCL, which is a Chinese company in the electronics sector, It's the 2nd building we leased to them.

Speaker 2

They do TVs and screens, television screens that are quite attractive in the U. S. Market. And they require energy, and we were able to secure the energy for our industrial Park, we have put a large investment in the transmission internally of the park and the Supply, so that we can have the energy for light manufacturing, for logistics And enough to capture these types of tenants, which actually are the bread and butter of Vesta. Any other Major user of energy could probably be a challenge, but for the moment, the type of clients that Vesta has, We have been able to secure some of that.

Speaker 2

It's challenging, yes. But I think that our ability to develop for 25 years Gives us the advantage is being close to the government agencies that require this, Also to anticipate for potential demand, and I think that laying off That part of the investment from the beginning on is giving Vesta actually an advantage to other developers.

Speaker 12

Yes. Thank you very much. This is reassuring, the fact that you are able What's the life of Disney Assuring team if things can't keep up like this, just Future demand being met by the supply of energy and how that's built up in Mexico. So in my mind something that I'm keeping in mind. Thank you very much for your answers.

Speaker 2

No, definitely and we will continue the conversation, Mario. Thank you.

Operator

Perfect. Thank you very much and thank you for your questions. I'd now like to turn the call back over to Mr. Beddahol for his concluding remarks. Please go ahead, sir.

Speaker 2

Thank you, operator. It's an exciting time for Vesta. We are focused on executing on our Level 3 strategy also with an eye towards the future ahead. 25 years have enabled unparalleled industry experience, Deep client relationships and a privileged position within our markets. Vesta's nimble adaptability and entrepreneurial spirit We'll ensure we continue capturing today's exciting opportunities and delivering strong shareholder value.

Speaker 2

Thank you to the entire Vesta team for your hard work

Operator

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Corporación Inmobiliaria Vesta Q1 2023
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