FBBPF (FBBPF) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the FIBRA Prologis third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Montserrat Chávez, Head of Investor Relations. Montserrat, please go ahead. Montserrat Chávez: Thank you, Alexandra, and good morning, everyone. Welcome to our third quarter 2026 earnings conference call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects, or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to non-GAAP financial measures. The company does not assume any obligation to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we have prepared supplementary materials that may refer during this call. We invite you to visit our website at fibraprologis.com and download our earnings materials. On today's call, we will hear from Jorge Girault, our CEO, and Alexandra Violante, our CFO, who will discuss our strategy, market conditions, and will review results. Also joining us today is Federico Cantú, our head of operations. With that, it is my pleasure to hand the call over to Jorge.

Thank you, Montse. Good morning, and thank you for joining us. FIBRA Prologis delivered solid operating performance this quarter. Period end occupancy was 96.5%, around 360 basis points above the market. We believe this reflects the quality of our portfolio and the strength of our operating platform. Market conditions are improving. Customer demand is strengthening, net absorption is increasing, and construction starts are declining. Together, these trends point to a more balanced market. The construction pipeline declined 34%, more than we expected. This supports our outlook. If development remains disciplined, we believe markets will continue to move towards a healthier balance. Leasing activity in our markets reached approximately 9 million square feet. Including build-to-suit deliveries in Mexico City, net absorption was approximately 12 million square feet, more than twice the first half average. We expect net absorption to reach around 30 million square feet in 2026. That will be just below 2023 peak and about twice pre-pandemic levels. Companies serving the data center sector accounted for approximately 20% of our leasing activity year-to-date, totaling an estimated 6 million square feet. We will continue to monitor this growing source of demand. E-commerce and logistics also remain potential source of demand. Over the past two years, fulfillment networks have expanded more slowly than e-commerce sales, which we believe should create a new need for additional space. On this note, our global customer relationship gives us good visibility into customer real estate needs and helps us support their future growth. Market vacancy increased 10 basis points this quarter to 7.1%, less than we expected. We anticipated it will remain near these levels as available space is absorbed and pending move-outs are completed. Market rents declined 1.10% this quarter. Our portfolio still has approximately 25% mark-to-market potential, which we expect to capture as leases roll over. Conditions have changed since the peak years of nearshoring. We will stay flexible and close to our customers, drawing on our global platform, local knowledge and financial strength. We continue to see interest in high quality assets with strong long-term potential. We evaluate each opportunity based on its expected return relative to our cost of capital and its impact in our balance sheet. Recent capital market movements have reinforced the importance of maintaining that discipline. We remain focused on sound investments and on pursuing opportunities that reflect the continued interest in Mexico high quality assets. I want to thank our team on the ground for serving our customers and executing our strategy. Our portfolio balance sheet and Prologis' unique global platform position us to respond as market conditions evolve. We remain focused on creating long-term value for our investors. With that, I'll turn it to Alexandra Violante to review our financial results.

Thank you, Jorge, and good morning, everyone. FIBRA Prologis delivered healthy results. Our FFO was $97 million, up 8% compared with 2025 or $0.057 per certificate. AFFO was $76 million, down 2% year-over-year. Turning to our operational results. We leased nearly 3 million square feet during the quarter. This brings year-to-date leasing to 9 million square feet or 90% of 2026 expirations. Period-end occupancy was 96.5%, up 70 basis points from the second quarter, while average occupancy was 95% and retention 66%. Net effective rent change remains strong at 36%, consistent with expectations. Same-store cash NOI was approximately 2% and GAAP around 3%. Rental income increased from strong rent change on rollover and annual bumps, mainly offset by higher bad debt reserves. These reserves are mainly related to two customers facing financial difficulties. This is an isolated situation involving these tenants that face specific challenges and ultimately ceased their operations. We recently resolved nearly 40% of the exposure by releasing the space at rents approximately 50% higher than the previous one, and we are actively working through the remainder, building on our team's track record of successfully resolving similar situations. Moving on to our balance sheet. With the current interest rate environment, we maintain a sound capital structure with strong debt metrics. We have a loan to value of 24%, with 70% of our debt fixed and an average maturity of six years. Plus, our liquidity is north of $1 billion. This gives us significant flexibility as we evaluate opportunities in the market. We will remain prudent and disciplined in deciding where, when, and how to deploy capital while maintaining the strength of our balance sheet. Now, let me turn to our updated guidance. We are narrowing our forecast for period end occupancy to a range of 96.5%-97.5%. We are revising our same-store cash NOI growth to 7%-8%, primarily reflecting the impact of higher bad debt reserves. We are also adjusting the acquisition guidance to $100 million. Finally, we are narrowing our FFO per certificate to range between $0.24-$0.25. The rest of the guidance remains unchanged. In closing, I'd like to thank our teams for continuing to deliver solid results and adapting to changing conditions. Our results reflect the strength of our operating platform and disciplined financial management. We remain focused on operational excellence, maintaining a healthy balance sheet, and executing our long-term strategy. Thank you. I'll now turn it back to the operator for Q&A. Operator?

We will now begin the question and answer session. Please do limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rodolfo Ramos with Bradesco BBI. Your line is now open. Please go ahead.

Thank you, Jorge, Alex, Rico, Montse, for taking my question. Just a couple if I may. 2027 is not a particularly heavy on lease expirations, but as you look at those specific contracts, what kind of rent rollover do you think is achievable next year and whether you're wanting to see what kind of fixed dollar escalators, are you including them? That's a very quick one. Just a second part, on the development pipeline. You've been a bit more cautious than peers in the current environment, but when you look at Prologis' development pipeline, what are some of the key industries that have already leased to, in the case of pre-leases or what industries are you targeting with spec buildings? Can you remind us of the timeline? Thank you.

Thank you, Rodolfo. Let me take the second part. I let Fede take the first part of your question. Regarding the development pipeline that Prologis is undertaking, as you've seen at the beginning of the year, we acquired one building, a lease by e-commerce player in the state of Mexico. We have seen that all over the place, especially in the consumption markets. Prologis is the focus, as you can see in the pipeline that we have in the Mexico City area, in Juárez, et cetera. You will see eventually some of these acquisitions going forward. As I said in my opening remarks, e-commerce and logistics have been increasing, and we believe there's going to be additional request for space given the increase in sales. I think in those lines, you will see more developments or acquisitions in 2027 down the road. That will be my take today with what we see in the market. Fede? Federico Cantú: Thank you. Thank you, Rodolfo, for your question. This is Federico. As it relates to your first question, as you commented, next year we're on the latter side in terms of roll. We expect, as far as U.S. dollars escalators, around 3.5% on dollar-denominated leases and Mexican inflation, INPC indexation on peso-denominated leases.

Thank you. For rollover, as far as the level goes, is there anything you have in mind, compared to what we have seen so far perhaps this year? I know that it is a good proxy or benchmark. Federico Cantú: We have conversations with our customers, and our teams are tackling a roll in next year. We have already had some leases tied up that expire next year. We are optimistic. As you see, it is a mix of manufacturing logistics customers. No concerns in terms of the roll.

Thank you.

Rodolfo, just a quick comment on that. One of the things that you should take into consideration is that we are very close to our customers. Federico and his team are very close. As real leases come to roll, we anticipate ourselves. So we have very good visibility on that. That is why Federico can give you that same answer. Thank you.

Thank you.

Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Your line is now open. Please go ahead.

Good morning, everyone. Thank you for taking my question. I was wondering if you can provide a bit more detail on the type of clients that led to the bad debt expense that you mentioned earlier. What industry, what revision. Also if you can comment on your retention rates. They did improve sequentially, it was 66% this past quarter, but it is still below the historical average of 83%. I just want to understand if this retention rates that we are seeing recently around the 60%s, is this a one-off or is this a level that we could continue to expect for the near term? Thank you. Federico Cantú: Thank you, Jorel, for your question. As it relates to the industries, it is a couple customers in our border markets. One of them was hit with the tariff situation and the other is in the auto sector, related just to financial difficulties. As Alexandra mentioned in her opening remarks, our teams already resolved 40% of that exposure, and we are working through the rest. In terms of retention, again, we have had some consolidations in our portfolio as companies optimize their networks. We continue to stay close to our customers and have good expectations for the remainder of the year and into 2027.

Thank you.

Your next question comes from the line of Francisco Chavez with BBVA. Your line is now open. Please go ahead.

Hi. Thanks for the call. It's a follow-up regarding the bad debt that you recognized this quarter. Is the impact of these two tenants fully reflected in your financials, or can we expect further impact in the fourth Q? Thank you.

Hi, Paco. Thank you for your question. As you mentioned, there are two customers facing financial difficulties. These leases, I would like to mention that they represent around 1 million square feet. As Fede mentioned, and I mentioned in my remarks, we already resolved approximately 40% during this month. We are addressing the rest. Regarding your question, it's fully reflected there for these customers. Just to highlight, we have faced similar pressure back in 2020, and our operating response helped us work through it. So our teams will work hard to resolve it as any vacancy that we have in our portfolio.

Thank you.

Your next question comes from the line of Pablo Ricalde with Itaú. Your line is now open. Please go ahead.

Hi, good morning, Prologis team. My question is related to the data center leasing activities you mentioned in opening remarks. In which regions or cities you are seeing more or most of this demand coming from data centers?

Thank you, Pablo, for your question. Regarding data centers, I think we have all over the place. We have seen in particular in Juárez. We have seen some of that activity in Juárez. We have seen part of those clients also in Guadalajara. If you recall, Guadalajara is "the Silicon Valley of Mexico," as many of the IT companies are there. We have a data center there. IBM is there. There is some relation there. We saw something in Tijuana and Monterrey. Wires, for example, for optical wires, fiber optics. I think it's in many markets, but if you have to point to two or three of them, I would say Juárez, Japan and Guadalajara have been the main drivers from a demand perspective.

Yes, perfect. Thanks a lot, Jorge.

Your next question comes from the line of Alejandra Obregón with Morgan Stanley. Your line is now open. Please go ahead. Alejandra Obregón: Hi. Good morning, FIBRA Prologis, and thank you for the call. My question is on your balance sheet. If I look at it on a historical basis, you've been able to maintain a solid balance sheet with probably 20%-25%-ish loan to values. That leaves even more room or more balance sheet capacity, if I can call it like that. So my question is, what will ultimately determine how much capacity you're willing to use? Is it an absolute leverage ceiling? Is it the metrics that you need to maintain before the credit rating agencies? Is it a spread between your acquisition returns and your cost of capital? If you can help us better understand what's the amount of leverage that you will be willing or you would be willing to undertake. I'm not talking about probably the average loan to value that you want, but stress it out a little bit. If you were to stress your balance sheet a little bit more, where would you still feel comfortable? What's the dry powder that you still have there? Thank you.

Hi, Alejandra. Thank you for your question. As you know, our internal limit of loan to value target is 35%. As you mentioned, we are around 25%, so that gives us a firepower of around $1.3 billion to be active in the market if it is needed or have that flexibility for the opportunities we might face. Our intention is to maintain our BBB+ rating as long as the sovereign rating allows us. I think this gives you a good idea on how we manage our balance sheet. We could get to that 35%. We feel comfortable a little bit lower than that because that gives, like I mentioned, that flexibility. Alejandra Obregón: Excellent. Thank you very much.

Your next question comes from the line of André Mazini with Citigroup. Your line is now open. Please go ahead. The next question comes from the line of André Mazini with Citigroup. André, your line is now open. Please go ahead. We will move on to the next question. The next question comes from the line of David Soto with Scotiabank. David, your line is now open. Please go ahead.

Hi. Thanks for taking my question. Just a quick one. It is related to your acquisition guidance. Could you please share the rationale behind the revision? Is it related to a normalization that you are getting to the market, or is it more related that you are looking to have a more prudent approach?

Thank you very much, Jorge. The quick answer to your question is timing. Let me explain. Normally, when we guide on the acquisitions, we guide looking at Prologis' pipeline. We already did $100 million, give or take, in the year. But getting the utilities in has taken longer. In some cases, some permits have delayed our development. Some things that we don't control. Remember that to do an acquisition from Prologis, the property has to be leased and occupied. So some things have taken a little bit longer, and because of that, we decided to, at least for now, keep it at $100 million. So that's the reason why. Mainly timing.

Perfect. Thanks, Jorge.

Anytime.

Your next question comes from the line of Adrian Huerta with JPMorgan. Your line is now open. Please go ahead.

Thank you. Hi, Jorge. Any comments on dispositions for the rest of this year and also the plans for next year? Anything you can share with us on that?

Thank you, Adrian. On the dispositions side, as you probably know, we started the process. We went back to the drawing board at the beginning of the year, as I said. I have to say that it takes some time going through the dispositions. We have received some bids. Values are in line with our house view as of for now. I expect closing to be in 2027. Again, takes some time. In some cases, you have to go through antitrust and go through some regulatory process. We have to go through that, if you may. I think that in 2027 we will start giving larger volumes. You saw some dispositions this year, around $70 million also. But I think that the bigger volume you will see it in 2027.

Thank you.

Sure.

A reminder. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Also, a reminder to unmute yourself locally from your device. Thank you. Our next question comes from the line of Enrique Cantú with GBM. Your line is now open. Please go ahead. Enrique Cantú: Hi. Good morning. Thank you for taking my question. Could you walk us through the extraordinary non-recoverable expenses this quarter and whether any related costs will carry into the coming quarters?

Hi. Thank you, Enrique, for your question. We have mentioned during the call it was mainly due to the higher bad debt reserve. We did not anticipate this level of bad debt. We have resolved 40% of it, so you will still see something during the fourth quarter. But our teams are working to go through the rest of it, and have a positive impact in the first quarter. Enrique Cantú: Okay. Thank you very much.

Your next question comes from the line of Andres Aguirre with GBM. Your line is now open. Please go ahead.

Hi, good morning, team. Thanks for the call. Just a quick follow-up on leasing spreads. I was wondering if you could provide a bit more color on the difference you are seeing between the original Prologis portfolio and the Terra portfolio, in terms of leasing spreads. If you could provide a bit more color going forward, what should we expect? Thank you.

Hola, Andres. This is Jorge. Let me get a first stab at that, but let Fede talk about the two portfolios. Regarding leasing spread, what you see today is around 25% leasing spread, which is an average, weighted average. Leasing spreads obviously depend on the market. The market rents we don't control. They will depend on demand and supply. What you should know is that our DNA is to bring rents that roll over time to market. We will take that advantage, as you have seen over time. Regarding the Terra and the Prologis portfolio, I let Fede comment. Federico Cantú: Yes. Thank you, Jorge. Thank you, Andres, for your question. Again, as Jorge mentioned, our teams are very diligent in taking our leases up to market. When we acquired Terrafina over two years ago, there was probably a little bit more of a spread that we've been capturing and harvesting over the last couple of years. I would say overall, right now the combined portfolio is pretty healthy at around 25%. Of course, any given quarter, given the mix of leases, it may vary. Again, we're very confident in being able to capture that spread. Again, right now we see the entire portfolio as one, as it is. Again, we're seeing pretty healthy activity across all our markets. Just another follow-up on the previous question related to the backfill of one of our problematic customers. That lease that we replaced was a 50% spread over market. It's a good example of how our teams are capturing leases at market.

Andres, one thing that you should take into is this. This leasing spread that we harvest over time, it's just embedded growth that we have. You don't have to put any money into it. You don't have to have large investment into it. It's something that is in our DNA, again, and we keep on harvesting. It's a very important metric for us.

Very clear. Thank you.

Your next question comes from the line of Elisa Gómez with BTG Pactual. Your line is now open. Please go ahead. Elisa Gómez: Hi. Good morning. Thanks for taking my question. Could you walk us a bit more through the profile of the new leases that you signed this quarter? Are these companies new to Mexico, and which industry are they in? Did you expect, going forward, that we will see again new leases accounting a big share of the leasing activity like we saw this quarter? Thank you. Federico Cantú: Thank you, Elisa, for your question. This is Federico. We have, again, over 1 million square feet of new leasing this quarter across most of our markets, and across different groups of industries, manufacturing, logistics. We are again very encouraged to see our leasing activity. By the way, we had around 1 million square feet of move-outs. However, 56% were backfilled in the quarter, with companies, again, ranging from retail, data center, electronics, 3PLs. E-commerce certainly is one of the standouts. So we are seeing broad-based demand across our markets, across manufacturing and logistics. Again, we are encouraged by the pipeline in the second half of the year. As Jorge commented in his opening remarks, it was a significant jump in net absorption and that momentum continues into this quarter. Given the conversations that we have had, and again, we always stay close to our customers, we are very encouraged by the activity into next year as well. Elisa Gómez: Cool. Thank you.

A reminder, if you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. If you are muted locally, please remember to unmute your device. Thank you. Your next question comes from the line of Piero Trotta with Citi. Your line is now open. Please go ahead.

Hi, team. Thank you for the call. Just a question. I would like to understand your view on the CKD pipeline in the next 12 months. You have access to the Prologis sponsor, but do you see some opportunity in CKDs in the next 12 months? Do you see that it can be a source of acquisition pipeline for 2027? That is it. Thank you very much.

Thank you, Piero, for your question. Look, we hear everything that is out there in the market, and we analyze everything according to our cost of capital and balance sheet capabilities. Everything that is out there and is for sale, we look at. That is something that you should know.

Okay, thank you.

Our last question comes from the line of Alan Macias with Bank of America. Your line is now open. Please go ahead.

Hi, good morning, and thank you for the call. Just a quick question on expenses. We saw an increase in non-recoverable operating expenses, and just if you can give more detail on that would be useful. Thank you.

Hi, Alan. Thank you for your question. As we have mentioned through the call, it was mainly due to higher bad debt reserves. Like I mentioned, this amount, we didn't anticipate it, and we have resolved already 40% of it with a new rent of more than 50%. That's positive, and we're working on the rest. I would also like to highlight, like I already did, we have faced a similar pressure back in 2020, and our teams help us work through it. We do not have timing of when we will resolve the remaining, but you can be confident that our teams are pushing on it.

Just to follow up on corporate expenses, other corporate expenses also had an increase. What was that related to? Thank you.

Sure. There was an increase in professional fees that is related to expenses from past deals that didn't take place, and we recognized it this quarter and last quarter.

Thank you.

Those are one-off, Alan.

Yep, thank you. Understood.

Thank you.

There are no further questions at this time. I will now turn the call back to Jorge Girault for closing remarks.

Thank you, Alexandra. First of all, thank you, everybody, for joining us today and for your Q&A. As I said at the beginning of the call, we feel positive and encouraged by what we have seen.

Hi there. Please hold.

Oh.

Jorge, we did just lose you briefly. If you don't mind repeating yourself, thank you so much.

Well, thank you very much for joining the call and Q&A. We feel very positive about the end of the year. We have seen positive signs in the market and looking forward to close on a strong note on 2026 and see you soon. Thank you.

This concludes today's call. Thank you very much for attending. You may now disconnect.