Corporación Inmobiliaria Vesta Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 21, 2023

There are 11 speakers on the call.

Operator

Good afternoon, everyone, and thank you for joining today's 2nd quarter results call. We'd like to apologize for the inconvenience caused by our conference call providers' technical difficulties, and we very much appreciate your flexibility to rejoin Vesta's results call today. At this time, all participants are in listen only mode. A question and answer session will follow today's prepared remarks. And as a reminder, this call is being recorded.

Operator

With me today are Lorenzo Dominic Perdon, Chief Executive Officer on Juan Sotil, Chief Financial Officer. The earnings release detail our Q2 2023 results was released yesterday afternoon, and it's available on the company's website along with our supplemental materials. On today's call, management remarks and answers to your questions may contain forward looking statements. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, Please review our public filings.

Operator

BEST assumes no obligation to update any forward looking statements in the future. Additionally, note that all figures included herein were prepared in accordance with IFRS, which differs in certain significant risks from U. S. GAAP. All information should be read in conjunction with and is qualified and is entirely by reference to our financial statements, including the note thereto and are started in our U.

Operator

S. In U. S. Dollars unless otherwise noted. I will now turn the call over to Lorenzo Verano.

Speaker 1

Thank you, Fernando. Good morning, everyone, and thank you for joining us. It was an exciting and eventful quarter for Vesta. We announced our initial public offering in late June when Vesta raised the Moose funds by a Mexican company in nearly 11 years, bringing the total to $446,000,000 with the overall augment. Our shares began trading on the New York Stock Exchange at market open on June 30 under the VTMX sticker.

Speaker 1

Vestas IPO enables us to continue funding our growth pipeline, capturing the important opportunities you've heard me describe in the past. During the Q2, we continued to see strong fundamentals. Mexico's industrial production beat expectations in May, led by the construction sector, as the near shoring trend continues to boost demand for infrastructure. Industrial output rose 1% from April compared to the 0% forecasted by economies surveyed by Bloomberg. New shoring is therefore one of the most important structural changes for Mexico's economy in decades and today Vesta is optimally positioned and funded to capture these opportunities.

Speaker 1

Turning to Vesta's 2nd quarter results, We delivered a nearly 21% year on year increase in revenues, driven by $6,600,000 in new revenue generating contracts and a $2,000,000 inflationary benefit. 2nd quarter leasing activity Reached 1,600,000 square feet, including new contracts with outstanding companies such as Iton, Amphenol, Sumitomo and Iron Mountain among others and 769 Square Feet in lease renewals. An excellent example of today's near shoring trends is Vesta's long term client Amphenol Corporation, a Connecticut based major producer and fiber optic connectors and one of the strongest rated and most stable clients within Vesta's portfolio. Amphenolv is a portion of Vesta's New Vesta Park Mega Region in Tijuana, for which we recently held an inauguration ceremony. During the Q2, we also saw continued positive signs within the Bahia market, particularly from the light during Automotive and Logistics Industries.

Speaker 1

CBRE noted 2,600,000 square feet in net absorption during the 1st 6 months ended June 31, 2023, a 50% year on year increase. Gross absorption reached nearly 3,000,000 square feet in the first half of this year, also a 50% year on year increase. Vacancy also continued to decrease, ending the 2nd quarter at 3.9, the lowest level since 2018. This is an early sign of what we believe will be an ongoing trend and commercial activity is expected to increase during 2023 as companies in the region have announced expansions and new investments. The development plans Vesta has in place for our Bahia land reserves We'll capture this trend to further close the gap between Bahia and Vesta's other regions.

Speaker 1

Vesta currently has 3,200,000 square feet in total inventory and build to suit projects under construction. During the quarter, we began New construction on only one build to suit building for Iton Corporation at the year focusing on laying a strong foundation to accelerate Vesta's newbuilds in the second half with upcoming new projects in Juarez, Monterrey and Mexico City among others. We're working with development teams to target Larger projects within our 5 strategically defined regions, focusing on manufacturing and e commerce opportunities. We expect to begin construction of around 3,000,000 square feet in the second half of twenty twenty three. Before I turn our conversation over to Juan, I wanted to touch upon some important updates in the first half of the year related to our ESG goals.

Speaker 1

During the 1st 6 months of 2023, we completed our VESTA environmental diagnosis, which was then used to calculate the baseline of our energy, water and waste consumption at Vesta's offices and our industrial parks. These results will enable Vesta to standardize our operating processes, implement a comprehensive waste management plan and to implement water and energy efficiency measures at our parks, offices and throughout our operations. We were also extremely delighted to have been included within the 2023 Bloomberg Gender Equality Index announced last February. The Gender Equality Index helps bring transparency to gender related practices and policies at publicly listed companies and its further validation of Vesta's culture of inclusion, our related corporate policies and our investments in women in the workplace, our supply chain and the communities in which Vesta operates. We encourage you to take a look at our 2022 annual report within our website's Investor and ESG sections to learn more about our related progress towards becoming leaders in ESG.

Speaker 1

With that, let me pass our conversation to Juan, and I'll return for some brief closing remarks.

Speaker 2

Thank you, Lourenco, and good day, everyone. Let me begin with a summary of our 2nd quarter results. Starting with our top line, total revenues increased 21% to EUR 52,000,000 mainly due to rental revenue coming from new leases and inflationary adjustments on rental property during the quarter. As a reminder, most vessel 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 2

In terms of the currency mix, 86% of the Q1 revenue was denominated in U. S. Dollars, a slight decrease from the 86.7% recorded in the last year comparable period. Turning to our cost structure. Total operating costs reached DKK4.4 million in this quarter from DKK2.6 million in the quarter of 2022.

Speaker 2

This was mainly due to higher other property related expenses, including legal expenses as well as security and public services related to expenses at our best apart. Adjusted net operating income increased 19.4% to 48,500,000, driven by higher rental revenue, while the margin contracted 86 basis points to 94%, mainly due to higher cost from rented properties. Administrative expenses were up 12.2%, reflecting The year on year peso appreciation, which in turn impact Vesta employee benefits, legal, auditing fees as well as higher non expenses due to an increase in the company's long term compensation plan. In turn, adjusted EBITDA reached EUR 43,000,000 in the Q2 of the year, a 17.5% increase compared to the prior year's quarter, and the margin decreased to 107 basis points to 82.5% as compared to 84.5% from the same quarter last year. Moving down the PML, other income reached EUR67 1,000,000 compared to EUR73 1,000,000 in the Q2 of 2022.

Speaker 2

This increase was mainly due to higher property revaluation gains and higher foreign exchange gains. As a result, We closed the quarter with a pretax income of BRL108 1,000,000 compared to BRL67 1,000,000 in the Q2 of 2022, While Vesta FFO increased 27 percent to EUR 31,000,000. Now turning to our CapEx and Portfolio composition, we invested EUR 35,000,000 in the quarter, mainly in the construction of new buildings in the Northern and Bahia region. As of June 2023, the total value of our portfolio was $2,900,000,000 comprised of 204 high quality industrial assets with a total GLA of 34,600,000 Square Foot and with 86% of total income denominated in U. S.

Speaker 2

Dollars. Year over year, our Stabilized portfolio grew 5.8 percent to 33,700,000 square feet with an occupancy of 96.9 from 94,500,000 in the Q2 of last year. Our land bank stood at 37 600,000 square foot as of June 2023, reflecting a 1.1% decrease from March 2023. Turning to our balance sheet, we closed the quarter with a total debt of $929,000,000 Net debt to EBITDA was 5.4 times and our loan to value ratio was 30%. Cash and equivalents stood at EUR 51,000,000, which, when combined with our undrawn EUR 200,000,000 committed credit line, Provide us with a total liquidity position of €251,000,000 at the end of the second quarter.

Speaker 2

As Lorem previously mentioned, Subsequent to the quarter end, on July 5, we closed our initial public offering in the U. S. And raised a total of EUR 4 EUR46 1,000,000 that will enable us to accelerate our growth plan while access to a broader investor base. Finally, on July 17, we paid a cash dividend for the Q2, equivalent to COP 0.30 in pesos for ordinary shares. This concludes our Q2 2023 review.

Speaker 2

Fernanda, would you please open the floor for questions?

Operator

Yes. Thank you. We will now move to question and answer session. Icon at any time. Our first question comes from Rodolfo Ramos from Bradesco.

Operator

Give me a sec.

Speaker 2

Yes, we thank

Speaker 3

you for taking my question. Good afternoon, Juan, Loren and Fernanda. A couple of questions on my side. The first one is a follow-up on your comments, Lauren, on the Bahia region and the supply dynamics that you're seeing. I mean, the Northern, there's certainly no question about it.

Speaker 3

But just if you can comment on the dynamics that you're seeing there in the Bahia region. And in particular, if you can talk about Aguascalientes, where you have 1 third of your land reserves and whether you see any potential there to increase your development pipeline. If I'm not mistaken, you didn't include any you haven't included any projects there. So

Speaker 2

[SPEAKER RAMON ALVAREZ PEDROSA:] Just wanted to see

Speaker 3

what the plan is there and if not, if land sales are an option, that will be my first question.

Speaker 4

[SPEAKER JOSE RAFAEL FERNANDEZ:] Great.

Speaker 1

Thank you. Thank you, Rodolfo, for your question. And definitely, what we have seen recently [SPEAKER JOSE RAFAEL FERNANDEZ:] It's a very important uptick in terms of demand in the Bahia region in general terms. We saw that with several transactions in Queretaro, in Aguascalientes and also in San Visto, Tocil, where we were able to close with Iton in Queretaro, Larger facility on a build to suit project. We leased also to Sumitomo in Aguascalientes, another supplier in the auto industry.

Speaker 1

And we have also closed a couple of transactions in San Visto To See to get us to basically being fully leased in San Visto To See. [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] In Queretaro, we see a strong demand, a strong pipeline building up. [SPEAKER JOSE MARIA ALVAREZ PALLETE:] And in Aguascalientes, it's pretty much a similar situation. Nevertheless, Aguascalientes, it's a more automotive related market. Now what is interesting to see is also that rents are starting to increase, which is good news.

Speaker 1

That means that there's real estate fundamentals are strong. The vacancy rates have dropped and supply is still not enough for the demand that it seems that we are going to be still seeing. So We're excited about the Bahia pretty much following similar trends to the north just a little bit later. And of course, We might consider some land sales in some markets like Aguascalientes. Nevertheless, we want to And be patient also because we think that there could be a good wave of opportunities coming in in the rest pretty much in the Fort Belvieu region.

Speaker 3

Thank you. And my second question was on the normalized level Of administrative expenses that you're expecting. I mean, now I know if the U. S. Listing will have any recurring expenses or just To help us think of that $6 plus 1,000,000 that you reported this quarter, how should we think about that on a More normalized ongoing level going forward.

Speaker 2

Well, Rodolfo, First of all, on our expense level this quarter in administration expenses, I think that a significant portion of The increase was due for the exchange rate. Please bear in mind that as you can imagine, The IPO expenses of the New York Stock Exchange were capitalized as it's normally done. However, looking forward, being in the U. S. Will in the U.

Speaker 2

S. Stock market will require some incremental expenses, mainly in auditing charges and things like that. But the benefits that we get for being in that market far benefit the company a lot more than the expense side

Operator

Thank you, Rodolfo. Our next question comes from Javier Gallo from GBM Boag, Javier.

Speaker 5

Hi. Can you hear me now?

Speaker 1

Yes.

Speaker 6

Yes, perfect.

Speaker 5

Great. Congratulations on the results. But that's fine, Fred. And thanks for taking my question. I was wondering regarding CapEx.

Speaker 5

I think you mentioned it at the beginning, Bill, and so that You're going to do strong investments for the remaining of the year, mainly, You mentioned Mexico City, Juarez and some other regions. Just to understand, do you believe that By the end of the year, you would be able to reach that EUR 350,000,000 CapEx deployment program that I think that was The guidance, so that was the expectation. And if so, how many projects are you guys expecting to bring to the table over the next couple of months.

Speaker 1

[SPEAKER JOSE RAFAEL FERNANDEZ:] Great. Thank you, Javier, for being on the call and thank you for your questions. Just to give a bit of more [SPEAKER JOSE RAFAEL FERNANDEZ:] A better picture what we are working on. Last end of last year, Q4 2022, we were able to start construction of approximately 2,000,000 square feet, which currently are under execution. And actually, it was a major quarter for construction starts, and therefore, we saw somehow a slower first and second for this year.

Speaker 1

However, we see a very strong dynamism in most of the markets, and that's why we are laying the ground To start construction for approximately 3,000,000 square feet throughout the next quarters. That's going to be that's a very good number And that reflects clearly the greater demand that we're seeing in most of the markets. That together with a couple of land acquisitions as well as some infrastructure that we need to put in place for many of the parks to anticipate for potential demand. That will take us close to the approximately to the $300,000,000 mark that we mentioned. However, I mean, I'm not giving any just Exact numbers, but this is just to give you an idea on how active we're going to be.

Speaker 1

And definitely, we see that that actually is [SPEAKER JOSE RAFAEL FERNANDEZ:] Probably Q3 is going to be a very good quarter for a lot of CapEx and new construction starts.

Speaker 5

Great. Thank you, Lourdes, and thank you for the time.

Operator

Thank you, Javier. Our next question comes from Andre Massini from Citi. Andre, please go ahead.

Speaker 7

Sure. Hi, Lauren, Juan, Fernanda. First off, congrats on the U. S. IPO.

Speaker 7

It was Quite an achievement. So two quick ones. First, on the recycling of waste and water that Lauren mentioned in the beginning. Do you see that also becoming a bigger concern for tenants with the whole ESG preoccupations and focus that we've seen over the past years, of course. And are they demanding like specific metrics such as LEED certification For some others, like the top tenants, maybe the international guys that you might have and some competing player, a little bit less structure, wouldn't have.

Speaker 7

Another way of putting it, would that be a competitive advantage, tangible competitive advantage visavisomeotherplayers? And the second one, also a follow-up on the Barrio. Of course, like common knowledge would I think that there's ample land in the Barrio, so competition would be easy to go there as well because there's ample land. On the other hand, we've seen permits being harder, also the securing of water and energy also being a challenge. So How is that force shaping out?

Speaker 7

Is it still new supply easy to be had in the Bahia? Or because of the permitting water energy situation, it's harder the margin for new supply to come along in E Bahia. Thank you.

Speaker 1

[SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Andrea, for being on the call and for your question. I will start with the second one on the Bahio. Definitely What the Bajio is about several markets. And what we believe is One of our main advantages is that we have good land with great infrastructure, which means great utilities in terms of water, in terms of telecommunications and also in terms of energy. So even that there is more land available, [SPEAKER JOSE RAFAEL FERNANDEZ:] There's really not a lot of land with improved infrastructure.

Speaker 1

Actually, land with good Infrastructure for industrial is increasing dramatically in terms of pricing. So Even if there's a competition that would like to enter the market, it's really not easy to have improved land. Land is available, but not improved land with infrastructure. So that's why we have a main advantage. And now that we see a stronger a bigger wave [SPEAKER JOSE RAFAEL FERNANDEZ:] Coming now in the Bahia region, we think that we have a greater advantage to in the region.

Speaker 1

So it's not going to be easy for new competitors just to enter the market. [SPEAKER JOSE RAFAEL FERNANDEZ:] And regarding the water waste management and other ESG initiatives that we have, well, We believe that Vesta has very well designed its sustainability guidelines for construction. [SPEAKER JOSE RAFAEL FERNANDEZ:] And that's why we are we share them also with our clients. We have a very strong focus towards getting all of our new projects being certified, LEED certified, most of them, and actually with a Higher degree of certification, let's say, yes, higher, let's say, higher qualifications. And we believe this is a great Differentiator to most of the market.

Speaker 1

There's several developers that actually have been shifting from retail, office and even housing to industrial and probably a lack of experience is putting them more to develop, Let's say basic type of buildings, Andvester has way higher standards, including certifications and LEED standards and that's going to be very helpful for the type of companies and clients that have very high objectives in terms of their meeting their global net zero objectives, meeting a higher standard system in terms of sustainability.

Speaker 4

[SPEAKER JOSE RAFAEL FERNANDEZ:]

Speaker 1

And that's why it's not surprising to see the type of clients we're closing transactions with. These are great companies, investment grade companies that have a great business practices and that's why matching a Vesta Park, a Vesta building, best in class to those types of clients makes us Makes our buildings have a competitive advantage to the rest of the market. Thank you, Lauren.

Speaker 4

[SPEAKER UNIDENTIFIED

Operator

COMPANY REPRESENTATIVE:] Thank you. Our next question comes from Yorel from Goldman Sachs. Yorel, please go ahead.

Speaker 8

Thank you all for taking my questions. So my first question is, I was wondering if you can walk us through the thought process on leasing dynamics for your development pipeline. Excluding Built to suits. If I look at your development pipeline as of 2Q 'twenty three, I see that some projects are 100% leased And other projects are not leased at all. So I was just wondering how do you For the projects that you're currently developing and which you will add to your pipeline in the future, are you more targeting Pre leasing them before they're done during the construction process or are you looking more towards delivering them and then Starting to do lease up.

Speaker 8

And then the second question sort of tied to the same thing. You added a Bill to suit in Queretaro and this quarter. And it's interesting because the yield on cost on that one It is actually one of the highest unit costs on the on your pipelines about 10.6%. So is this a unique situation? Or are you expecting build to suits to perhaps have higher yields versus inventory, which I would think typically isn't the case.

Speaker 8

Thank you.

Speaker 1

[SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Jorel, for your question. Well, sure, Let me walk you on our thought process on leasing. We're developing a lot of spec buildings. That's correct. We believe that there's Our strategy towards spec has been has created given great results.

Speaker 1

And we definitely market our buildings from even before starting construction. Sometimes we're able to pre lease those buildings and sometimes we hit the market with buildings available and gives us also an opportunity to lease them up in a, let's say, short period of time. So both ways are attractive because in the end, when you have such a strong market, what one of the and the demand is incredibly strong, [SPEAKER JOSE RAFAEL FERNANDEZ:] One of the main things that we are doing is being very disciplined in having great companies. [SPEAKER JOSE RAFAEL FERNANDEZ:] I bet when I say great companies, it's investment grade. It's going to be long term leases in U.

Speaker 1

S. Dollars. Adjusted our lease agreements are all of them are being adjusted to inflation annually. [SPEAKER JOSE RAFAEL FERNANDEZ:] And the idea of steel target and some of them are done on the construction phase through pre leasing, but some of them come later on. But the market is so strong and our product type is real has the highest standards that we believe that those buildings will be leased up in a short period of time.

Speaker 1

So we are very confident on that strategy [SPEAKER JOSE RAFAEL FERNANDEZ:] And returns are pretty attractive. You mentioned the yield on cost for Queretaro's build to suit project. Well, it's a good risk adjusted return, 10.5% yield on cost for a long term lease with a good company. And one of the key characteristics about Our approach in Queretaro is that since we acquired the land at a competitive cost, plus We included greater infrastructure at competitive cost. We have a good cost basis for our land.

Speaker 1

So the land acquisition Strategy for Vesta is key because this is where you can really be able to develop at higher returns, but we need to anticipate to to find the land, acquire land, put the infrastructure in place and then be able to market that so that when opportunities like this build to suit can come, We can benefit from that. Returns are going to be different market by market, transaction by transaction, But the idea is to have good spread investments in either spec, build to suit projects and even some opportunistic acquisitions. Thank you, Jarek.

Speaker 8

Thank you. One follow-up, if I may. So should we expect then the bulk of your As you develop it and you finish it, that it's going to be mostly unoccupied and then you lease it up Post delivery?

Speaker 1

Not everything is post delivery. I would say that now with Such strong demand, we might see a good portion being pre leased, a good portion being 30%, 50% probably. But what we're definitely going to continue to do is to inspect buildings and actually try to turn them in what we call spec to suit at some point. So we're going to be still continue to have a balance of both.

Speaker 8

Thank you.

Speaker 4

Thank you.

Operator

Thank you, Jarel. Our next question comes from Carlos Perlon from Bank of America. Go ahead, Carlos.

Speaker 3

[SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Sorry about that. My question has already been answered. Thank you.

Speaker 1

[SPEAKER MARCO TRONCHETTI PROVERA:] Thank

Operator

you, Carlos. Our next question comes from Paco Suarez from Scotiabank. Paco, you're on. He's already on. Paco, can you hear us?

Operator

Okay. So next is Anton from GBM. Anton, you're on.

Speaker 6

Hi, guys. Can you hear me there?

Speaker 9

Yes. Yes. It's perfect.

Speaker 6

Yes, perfect. Thank you for taking my question and congrats On your results, minus a little bit of a follow-up on Javier's question and the CapEx deployment, just to see if I got it right. You're expecting for next quarter around 3,000,000 square feet of development start. This is besides what you already have In your current development pipeline, right?

Speaker 1

Yes, that's correct.

Speaker 6

And on that current development pipeline, So you have like $30,000,000 that you were expecting to deploy during July. So how is that deployment going? Will it be finished during this quarter? Or if you could provide some detail on that.

Speaker 1

Sure. I think that it's hard to give detail on each month, Anton. But probably because in the end, what we like to see the overall picture. So for us, it's Important to concentrate for the construction starts for this following semester, 2nd semester of 2023. However, these are larger cycles.

Speaker 1

Actually, what we're working today already in projects that will be even started in Q1 2024 because our CapEx projections are not only for the year, but also for the upcoming years. So in a broader case, in a broader way. We expect to have a good 3,000,000 square feet of construction starts for the end of this year, But we will continue to have a sizable amount for 2024. So sometimes it falls in one particular month, sometimes [SPEAKER CARLOS

Speaker 4

ALBERTO PEREZ DE SOLAY:]

Speaker 1

That changes, but the general picture does not should not change materially.

Speaker 6

Perfect. That's pretty clear.

Speaker 2

Thank you. [SPEAKER CARLOS ALBERTO PEREZ

Speaker 1

DE SOLAY:] Gracias.

Operator

Thank you, Anton. So we're going to go ahead and try again with Paco from Scotiabank. Paco, can you hear us?

Speaker 10

Yes. Hello. Can you hear me now?

Speaker 9

Yes, perfect.

Speaker 10

Sorry, apologies for this. It was my mess on my end. Apologies. So the question that I had, I was a little bit concerned to see the low lease In your new developments that are about to be delivered in the Q3 in the northern part of Mexico, where Neu Shorin is actually the strongest. So can you give us a little bit of color on what are your expectations are on the lease up period on these And I remember a lot of something that you said once to me, Loren, in the sense that You always prefer to have an empty building rather than a low quality Tenant, so I want to understand why if overall conditions are so strong, your overall leasing Reported at the end of the second quarter was kind of relatively low in the northern part of Mexico.

Speaker 10

And if I may add to a related question, a strong competitor from you actually Confirmed that it had a lot of issues in starting new projects. They basically said about energy related problems and entitlement as well. I just want to get a sense of what your views are, generally speaking, on All your land reserves, not only in the Bahia region as you expected that you already explained that. Thank you.

Speaker 1

Great. Thank you, Paco. Well, I think that definitely Demand is strong in the north part of Mexico, particularly we have projects in Monterrey, Tijuana [SPEAKER JOSE RAFAEL FERNANDEZ:] Monterey, Tejuana and Ciudad Juarez. However, we are on construction phase for many of them, [SPEAKER JEAN

Speaker 4

FRANCOIS VAN BOXMEER:] As you can see in part of

Speaker 1

our pipeline, and we are on marketing stage on actually all of them. Sometimes they get close in At our earlier stage, sometimes a bit later. But I think that only 1 quarter does not Really give an overall picture. I think it's probably a combination of quarters. And if you recall what we did earlier this year By being able to close with important transactions in Ciudad Juarez with Divishenker with a project that actually

Speaker 8

[SPEAKER CARLOS GOMES DA SILVA:] It

Speaker 1

just started construction this year or let's say end of last year. The same in Tijuana with Amphenol, TCL, Erebus, Home Depot and the same for Monterrey with Polaris. So for the rest, we're in the marketing stage, and I'm pretty sure that If it doesn't fall this quarter, it will probably fall in the upcoming quarters. However, it doesn't have any material impact on rent collection. So that's why I reiterate our disciplined approach to have good companies with good leases.

Speaker 1

And hopefully, we can be able to lease up at a good moment and start generating income soon. So that should not have a Major impact. And again, what is important right now in our development pipeline is that we continue to execute well, finalize the projects and hopefully being able to listen up soon. And regarding energy, yes, energy has been an issue. It has been an issue for a while in different markets, and we are addressing those issues with particularly When it comes to light manufacturing when it comes to logistics, it's not a main thing.

Speaker 1

But when it comes to light manufacturing, that's when we We have to anticipate to our clients, and that's how we have been dealing in Tijuana, for example, and Monterrey. However, with high consumers of energy, it is definitely very challenging. Heavy industries are going to still see that very challenging. So that's why for us it's important that whenever we acquire land, we also start The bureaucratic process of to getting energy as soon as possible so that when tenants start their operation, There's already some energy in place so that they can start for whatever manufacturing process they may have.

Speaker 10

Got you. So in other words, you are not experiencing that sort of issues like what has been disclosed by your competitor?

Speaker 1

[SPEAKER JOSE RAFAEL FERNANDEZ:] Sure. I don't know what they disclosed. There's definitely issues we are facing, but we are finding solutions to that. [SPEAKER JOSE RAFAEL FERNANDEZ:] So in the end, I think that there's energy in the country. It's just challenging to get enough energy for certain regions.

Speaker 1

And in our case, that's why anticipating has been key for our projects.

Speaker 10

Got you. And just to be clear, so no changes whatsoever in your underwriting Policies, I mean, you're still alive to this idea of having the right tenants, the right leases, I mean, that they're and compensated by the rents.

Speaker 1

Yes, absolutely.

Speaker 10

Fantastic. Thank you so much.

Speaker 4

No

Speaker 10

problem. Thank you so much.

Operator

Thank you, Paco. Our next question comes from Francisco Chavez from BBVA. Francisco, we cannot hear you. Okay. Perhaps we will go to the next question from Felipe Barragan from BTG.

Operator

Felipe, you're on.

Speaker 9

Beautiful. Thank you, guys. Good morning. You for taking my question. I have a pretty quick one.

Speaker 9

So this quarter, you guys delayed the Apollodaca II project. I'm guessing it's just a one off. If you could just explain what happened if it's something that could happen again? And that's it. Thank you very much.

Speaker 1

Paula, Felipe, thank you very much for your call. Yes, that's we delayed the project was delayed particularly because it is a project that is already leased. [SPEAKER JOSE MARIA ALVAREZ DE SOTO:] It's at least to Polares. And actually, this is a negotiation that has was there for a while. And there were certain improvements that they wanted to do to the building.

Speaker 1

[SPEAKER JOSE MARIA ALVAREZ PALLETE:] And they asked us to kind of hold on for a period of time so that they could, let's say, phase out together with us while we were under construction so that they could put get their operation in place and get their improvements, their tenant improvements in place at the same time. However, that is even that is offset By the long term lease agreement we did with Polaris, it's a combination with that manufacturing facility as the other Logistics facility, which is building number 1 that is already being delivered. And it's actually also because of other potential Projects that we are analyzing with Polaris as well.

Speaker 9

Great. I appreciate all the color. Thank you, guys.

Speaker 1

Thank you.

Operator

[SPEAKER FRANCOIS XAVIER BOUVIGNIES:]

Speaker 4

Thank you, Felipe.

Operator

We will try one more time. Francisco Chavez, can you hear us?

Speaker 7

Hi. Can you hear me?

Speaker 9

Yes. Perfect.

Speaker 10

Great. Thanks for the call and congrats on the strong results. I have two questions. The first one is regarding your land bank, Which remained flat quarter on quarter. Do you plan to make some acquisitions soon?

Speaker 10

And when can we expect some news regarding the land reserve that you acquired near Mexico City? And the second question is regarding the FX and the impact on your EBITDA margins. Do you plan to do some hedging activities in order to cover a share of your expenses denominated in Mexican pesos. Thank

Speaker 1

you. Thank you, Francisco. So Juan, would you like to answer the The question related to FX and I will answer the rest please.

Speaker 2

Sure. Look, Paco, I think this is an important question and thank you for asking it. The company is significantly large in long dollars and our expenses are in pesos. I believe that this is the right profile for for a company where more than 70% of my investors are dollar based. Right now, the peso has appreciated And therefore, we have some impact on our income statement.

Speaker 2

By the way, I think the impact is more significantly on the cost. On the cost of maintenance of properties rather than the administrative cost, but nevertheless, I don't I do not hedge those Spences, I think that I have the right profile for my investor base. And I think that most of you will And at this moment in time, the strong pesos are hurting the margins of most industrial companies in Mexico. I don't see why I should spend some actual cash in just playing an exchange game that over the long term will be beneficial for Vesta and most of my shareholders.

Speaker 4

[SPEAKER ARI DE SA CAVALCANTE NETO:] Perfect, Juan.

Speaker 1

Thank you. And regarding our land reserves, we are We did we have acquired land in the last months, in the last quarters, and we will start construction soon In Mexico City and other markets, which will immediately by starting construction, that will reduce our land bank because this will be construction in progress. And if there are certain markets where we are already evaluating land acquisitions and but in markets where we have plenty of land For the next couple of years, we are now going to be acquiring more land. So we want to have a very disciplined approach on land acquisitions. It's land that we might be using whenever we buy new.

Speaker 1

But if we already have land, we want to take the most advantage

Speaker 4

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We need it.

Speaker 1

Even sell some land if there's an opportunity in some cases as we

Speaker 4

have done in the past. Thank you. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]

Speaker 10

Thank you.

Operator

Thank you, everyone. This concludes our question and answer session. And now I'd like to turn the call back over to Lorenzo Verdo for closing remarks. Please go ahead, Lorenzo.

Speaker 1

Frances, Fernanda. I'd like to share my sincerest gratitude to our dedicated employees and to our valued stakeholders who have been an important part of our success on this journey. We look forward to this exciting chapter and we'll continue to leverage Vesta's privileged position, time earned experience and demonstrated track record with our determination, both vision and our optimism about this moment for Vesta and our country. Thank you, everyone, and goodbye. [SPEAKER

Speaker 4

MARCO TRONCHETTI PROVERA:]

Operator

Thank you once again, everyone, for your patience and flexibility today. We again apologize on behalf of our conference call provider. You may disconnect your lines at this time.

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Earnings Conference Call
Corporación Inmobiliaria Vesta Q2 2023
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