Logistic Properties of the Americas (LPA) Q3 2025 Earnings Report, Transcript and Summary

Good morning, and welcome to LPA's Third Quarter 2025 Earnings Conference Call. My name is Jeannie, and I will be the operator for today's call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions] Now I would like to turn the call over to Camilo Ulloa, Investor Relations. Please go ahead, sir.

Welcome to LPA's Third Quarter 2025 Earnings Conference Call. My name is Camilo Ulloa with LPA's Investor Relations team. Joining me on today's call are Esteban Saldarriaga, our Chief Executive Officer; and Paul Smith, Chief Financial Officer. Before we proceed with a review of LPA's financial and operating results, please note that the information presented during this call is intended for informational purposes only and does not constitute an offer to buy or sell any securities. Forward-looking statements made during this call are subject to a number of risks and uncertainties, which are discussed in LPA's filings with the SEC. Our actual results, performance and prospective opportunities may differ materially from those expressed or implied in these statements. We undertake no obligation to update or revise any forward-looking statements after this call. We have prepared supplemental materials that we may reference during the call. We encourage you to visit our website, ir.lpamericas.com to download these materials. Please also note that all comparisons that we will discuss during today's call are year-over-year unless we note otherwise. Esteban will begin today's quarterly review. Esteban, please go ahead.

Thank you, Camilo, and good morning, everyone. Thank you for joining our results call. Our international logistics platform continued to perform very well in the third quarter, delivering mid-teen revenue growth, driven primarily by Peru and Colombia, where domestic consumption remains healthy and leasing conditions highly favorable. Although not observable in our 3Q figures, just last week, we leased the remaining available space in our operating portfolio in Bogota to a now cross-border customer, one that is renting space in Costa Rica. This is another clear indication of sustained demand and customer preference for our high-quality logistics facilities and the benefit of our regional model. Also, we expect the leasing of our Bogota facility to take us to full lease status by the end of 2025. It's important to highlight that Mexico contributed to the 14.3% revenue increase in the third quarter, supported by our recent acquisition of 2 logistics facilities in Puebla, which are anchored by DHL under a 5-year dollar-denominated lease. This marks the first of many investments we expect to make in Mexico, both organic and inorganic as we systematically and thoughtfully expand into this large and attractive market. That expansion enables us to grow alongside our existing multinational customers while positioning us to win new ones that operate across multiple jurisdictions where we have a presence. As a reminder, we plan to grow in Mexico through strategic purpose-driven partnerships, such as our collaboration with Alas and the recent acquisition of the Puebla facilities. By combining our partners' deep local market insights with LPA's operational and institutional expertise, we can acquire mission-critical logistics assets in ideal locations and couple this with our development capabilities when supported by market conditions. In some cases, partners may also contribute land, similar to one of our latest developments in Costa Rica, a 750,000 square foot facility that represents a high-value project, the financing of which we arranged with local equity investors, thus enhancing LPA's rate of return while enabling us to continue serving customers that are growing in this market. We remain mindful of uncertainty stemming from evolving tariff policies in Mexico. However, recent data is encouraging. Vacancy levels in key northern markets such as Juarez have begun to abate. Closing rents remain resilient across most submarkets, especially in Mexico City, and net absorption continues to recover. Importantly, our investment strategy in Mexico is initially focused on submarkets driven by domestic consumption, the same resilient demand profile that underpins our success in LPA's foundational markets. We continue to find attractive opportunities where demand for premium logistics facilities remain strong and which we are continually assessing. Turning to the other markets in our asset portfolio. We are advancing several high-quality developments. Construction at Parque Logistico Callao in Lima, Peru is moving ahead efficiently with Building 300 already delivered on November 3 to one of the world's largest food and beverage companies. To our knowledge, this is the first LEED Gold logistics building in Peru and attests to the demanding specifications that only a company like LPA can credibly deliver on time and on budget. Without a doubt, this is a significant milestone in elevating the quality and sustainability of logistics infrastructure in the region where LPA is a leading operator in this compelling market segment. We're also progressing with construction of Building 200 on that same complex and where 75% of the GLA in both buildings is pre-leased under dollar-denominated contracts that will contribute to rental growth in 2026. Returning to our third quarter results. Revenue for the quarter reached close to $13 million, driven by higher leasing rates as we mark our portfolio to market by the addition of newly delivered facilities and also by robust occupancy. We ended the quarter with 98% of our GLA under contract, a testament to the strength of our markets and enduring customer relationships. Third quarter NOI was also gratifying, increasing 8.7% to $10.4 million compared to third quarter 2024. For the first 9 months of 2025, revenue and NOI grew 11.2% and 6.2%, reaching $36.4 million and $29.4 million, respectively. With leasing renewals for the next 12 months now completed across our operating portfolio, we have a solid operational foundation and strong visibility heading into 2026. We, therefore, continue to envision sustained double-digit revenue growth. On the cost side, we are pleased to highlight that SG&A decreased 5% year-over-year. We expect expenses to remain relatively stable, creating meaningful operating leverage as we further expand our property portfolio, roll over leases to market rates and thus bolster revenue generation. Before turning the call over to Paul, I think it is important to address the recent performance of LPA share price. Since the expiration of the 18-month lockup period on September 27, as explained in our filings and related to legacy shareholders from our business combination last year, our stock has faced notable pressure. While volatility can be expected around the lockup event, our focus remains firmly on execution. Moreover, our fundamentals, continued strengthening quarter-over-quarter and our strategy is delivering clear results. We're also actively enhancing our communication with the market to help ensure that investors see the depth of our operational progress, our growing profitability and the long-term value embedded in LPA's expanding international platform. Most importantly, we remain confident in the trajectory of our business. Even as we navigate industry and market headwinds that arise such as the slower-than-expected easing of interest rates and noisy political headlines, we are steadfast in advancing our strategic plans, and we are doing this from an advantageous position. And when monetary policy, especially in the U.S., eventually turns into an economic tailwind, we expect the underlying performance and strength of our company to be even more visible to the market. With that, I'll turn it over to Paul to discuss our third quarter financial results in more detail.

Thank you, Esteban, and good morning, everyone. Colombia and Peru drove the double-digit increase in our consolidated revenue, which was $12.9 million in the third quarter and in line with our forecast. Their rental revenue increased 17.6% and 16.9%, respectively, while Costa Rica decreased 1.5%. Mexico is now a reporting segment and contributed roughly $222,000 in rental revenue in the quarter. Revenue from Mexico is expected to grow significantly over time as we expand in this key market. The increase in our regional platforms revenue was mainly due to the stabilization of one building in Peru and another in Costa Rica during the year. Increases in rental rates this year, primarily in Colombia, also contributed to our revenue growth. The stabilization in Peru was Building 100 in Parque Logistico Callao back in February of this year. The related revenue growth was also enhanced by higher occupancy rates in our Lima Sur Parque. Stabilization in Costa Rica was Building 400 in Parque Logistico San Jose-Verbena in July of last year. The revenue increase of this was more than offset by a decrease in other revenue, adjustments to rent leveling assets and pursue vacancies during this quarter. The rental rate growth in Colombia was mainly due to lease rollovers that included U.S. CPI-linked escalations this year and to occupancy of previously vacant space. Consistent with our growth strategy, LPA's operating GLA increased 8.4% year-over-year to 5.6 million square feet with lease GLA increasing 4.2%. Our development GLA consisting of 2 buildings in Peru increased 187% to 478,229 square feet bringing total GLA to almost 6 million square feet, which was 14% higher than last year. This expansion sets the stage for significant NOI growth in 2026, irrespective of any properties that we might acquire. Average rent per square foot of our leased GLA was $8.14, representing an increase of 2.8%. Operating expenses were also in line with our projections, increasing 10.5%, mainly due to expected increases in credit loss provisions, higher utility and maintenance costs, increased property management fees as well as higher real estate taxes. Cash NOI increased 13.5% to $10.5 million in the quarter and increased 9% on a 9-month basis to $29.3 million. Esteban already covered SG&A, so I'll move to property valuation, which is determined by an independent appraiser. We reported a valuation gain of $7.1 million compared to a gain of $8.2 million in the third quarter of 2024. The 12.5% decrease in gain was mainly due to the stabilization of the mark-to-market rent appreciation that we saw in Colombia in the third quarter of last year, a valuation gain in our [indiscernible] and La Verbena parks in Costa Rica and the impact on valuation of our construction investment in our Callao Parque in Peru. Our financing costs were 15% lower than last year, primarily due to lower interest rates in Costa Rica and Colombia and the capitalization of interest related to the development of buildings in Parque Logistico Callao in Peru. Additionally, at the end of the quarter, LPA maintained a healthy debt profile with net debt to investment properties improving 70 basis points from the end of last year to 41%. That concludes our prepared remarks. Operator, please open the call for any questions.

[Operator Instructions] Your first question comes from the line of [ Geronimo Cuevas ] with JPMorgan.

Congrats on the results. My question is regarding like the future strategy in Mexico. Are we looking to look into more JVs like the one with -- that was done with Alas or maybe looking into buying some of the Terrafina assets? Any color on that would be great.

Thank you for joining the call. Regarding your question, we are constantly looking at growing through partnerships like the one we did with Alas. We think it's a way of really playing to our strength. So we are welcoming of that sort of strategy. We're also, I would say, prioritizing acquisitions right now. So we are constantly monitoring the market to see if there can be a portfolio that can come to market and that we can directly evaluate and acquire. So we -- I would say we are focusing right now on those 2 segments, and that's the way we're looking at the market right now.

Your next question comes from the line of Amir Asgari with Saba Talent.

My main question is on the new [indiscernible] investment, the deal that LPA has made with them, which, in my opinion, I just don't see the advantages. Can you please elaborate on that?

Thank you, Amir, for that question and for joining our call. Look, this is a very customary arrangement. It's essentially preserving optionality for our firm. It's not yet effective. So it has not taken any effect. Because of the government shutdown, the SEC has not been able to review that filing and declare its effectiveness. What we're thinking about here is introducing something similar to an ATM or an equity line of credit just to preserve flexibility. It is discretionary at the company's choice when to apply it. The idea is to, again, put in place a set of tools in our toolbox to address potential acquisition opportunities and just have an additional funding mechanism. And that's the crux of it. So I don't know, Paul, if you want to address anything else or cover anything towards that new Circle arrangement.

No, I think you covered well all the basis here, Esteban, but we welcome any more questions from any other participant.

Ladies and gentlemen, with that, we will be concluding today's audio question-and-answer session. We will take the webcast questions now. The first question comes from the line of [ Felipe Montessinos of Vulcan Capital ]. Do you expect to expand into the Chilean logistics market?

Thank you Felipe. Chile is a very interesting market. It's certainly one where many of our multinational and global tenants have a presence in. And from that regard, we're constantly monitoring it. We have great relationships in Chile, and it is adjacent to our operations. Having said that, we are prioritizing our entrance into Mexico. So even though we want to monitor it, we want to keep an opportunistic eye on it in Chile, we think right now, the best course of action as we expand into Mexico and prioritize Mexico is to keep along that path. I think there's also another question regarding PE multiples. Paul, do you want to cover that one, please?

Absolutely. Thank you, Esteban. Yes, there was a question regarding PE multiple on the earnings per share. We didn't necessarily understand the question, but I would highlight that Note 14 on our financial statements has all the detail to determine the earnings per share. And yes, more than happy to respond to any further questions on our IR investor e-mail as well.

At this time, there are no further webcast questions. I would now like to turn the call over to Esteban for closing remarks.

Thank you, operator. A few takeaways before we end today's call. Our regional platform continued delivering strong revenue and NOI growth in the quarter. We also maintained a 98% occupancy rate while completing all lease renewals for the next 12 months. During the quarter, we closed our inaugural investment in Mexico, consistent with our growth strategy and business model, namely operating and the region's only cross-border provider of premium logistics solutions to global and regional companies. Through our expanding network of relationships in Mexico and our foundational markets, we continue identifying attractive investment opportunities, generally upmarket ones to selectively acquire and build institutional quality logistics assets in strategic locations with high barriers to entry. And essentially, we are regarding any existing assets that we might acquire as those that would bring tenants that meet our strict standards, among other demanding investment criteria that guide our decisions, our capital decisions. Similarly, no development projects will be spec built at this time. We are leveraging the strength of the LPA brand, and we always have a keen eye on capital efficiency and risk management. We will invest alongside select partners who bring complementary strengths such as local market know-how, strategic located land and a network of additive relationships. To conclude, we continue benefiting from the limited supply of premium, well-located facilities in LPA's markets, foundational markets, while also having established a beachhead in Mexico to further increase our growth optionality and the value of our diverse property portfolio. We look forward to updating you on our progress during our next earnings call. Have a good day, everyone.

This concludes today's conference call. You may now disconnect.