Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Leasing activity reached 2.8 million square feet, with 1 million square feet in new leases, driven by strong demand in the e-commerce and consumer logistics sectors.
- Stabilized occupancy reached a record 97.5%, indicating high demand and effective portfolio management.
- Adjusted NOI and EBITDA margins were strong at 94.7% and 82.3%, respectively, reflecting efficient operations.
- Foreign direct investment into Mexico increased by 35% year-on-year, with significant investments in the manufacturing industry, benefiting Vesta's market.
- Vesta's construction pipeline is robust, with 4.7 million square feet under development, ensuring future growth and meeting market demand.
Negative Points
- Higher rental revenue was partially offset by increased insurance, property tax, and other property costs, leading to a slight decrease in NOI margin.
- Administrative expenses increased due to peso appreciation and higher auditing, legal, and consulting expenses, impacting profitability.
- Some construction projects experienced delays, affecting the timely delivery of buildings and potentially impacting revenue recognition.
- The cost per square meter of the development pipeline increased significantly, driven by higher land and construction costs, which could pressure margins.
- The company faces ongoing challenges in replenishing its land bank in key regions, which could limit future development opportunities.
Q & A Highlights
Q: Can you explain the increase in auditing expenses and whether this is a one-time occurrence?
A: The increase in auditing expenses is due to our obligations under PCAOB standards following our listing on the New York Stock Exchange. These expenses will continue at the same level going forward.
Q: What caused the delay in the [media] project?
A: The delay was due to minor construction issues, pushing the project completion to October. Additionally, we experienced some one-off maintenance and energy expenses this quarter.
Q: How quickly do you plan to replenish your land bank in the northern and central regions of Mexico?
A: We have a strong pipeline of land acquisitions and aim to replenish our reserves in the North and Central Mexico in the upcoming quarters. Our strategy focuses on urban infill locations with good infrastructure and labor access.
Q: Are you still able to achieve 10% development yields given the current land prices and market rents?
A: Yes, we can still achieve around 10% returns. Our current construction pipeline has an average yield on cost of 10.4%, driven by higher rents and limited supply of quality assets.
Q: Can you provide more details on the buildings under construction and the market dynamics in those areas?
A: We have projects in various markets, including strong demand in Juarez and Monterrey. In Monterrey, we have diversified tenants from consumer goods, e-commerce, and manufacturing sectors. The Bajio region also shows good demand, particularly in Aguascalientes and Mexico City, where rents are increasing rapidly.
Q: Has Tesla's announcement impacted client interest in Monterrey or the Bajio region?
A: Tesla's announcement has not significantly impacted our clients, as most are diversified across different industries. Monterrey remains a strong market with low vacancy rates and diverse industrial activities.
Q: What trends are you seeing in leasing spreads, and how quickly do you expect to lease up your development pipeline?
A: We see rents and spreads increasing, with returns now above 10%. We expect to lease up our spec buildings within 6-12 months after completion, driven by strong market demand and limited supply of quality assets.
Q: What is your view on the new administration's willingness to facilitate infrastructure development?
A: We have high hopes that the new administration will support industrial and manufacturing growth, particularly in energy and logistics infrastructure. We are in close contact with key officials to ensure continued support for the sector.
Q: How do you view the government's plan to support the construction of 100 industrial parks?
A: The plan is more about facilitating infrastructure and regulatory support rather than direct funding. We expect the government to work closely with private developers to overcome challenges and attract foreign investment.
Q: Have you seen any changes in customer demand for space following recent elections and financial volatility?
A: The election results were anticipated, so we haven't seen major changes in demand. Companies are more cautious about the upcoming US elections, but overall, North America remains an attractive region for investment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
