Greetings, ladies and gentlemen. Welcome to the Vesta First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow today's prepared remarks. And as a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Investor Relations Officer. Please go ahead.

Good morning everyone and welcome to our first quarter earnings call. Presenting today with me is, Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, our Chief Financial Officer. The earnings release detailing our first quarter 2024 results was released yesterday after market closed and is available on the company’s website, along with our supplemental materials. It’s important to note 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. Vesta 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 respects from U.S. GAAP. All information should be read in conjunction with, and is qualified in its entirety by reference to our financial statements, including the notes thereto, and are stated in U.S. dollars unless otherwise noted. I’ll now turn the call over to Lorenzo Berho.

Thanks Fernanda and thank you all for joining us today. 2024 is off to a great start. Our team maintained Vesta's strong track record of leasing activity during the quarter, capturing increasing rents on new and renewal leases, securing Class A tenants for Vesta's development, and building out a solid pipeline for the future ahead. Probably our most exciting news for the quarter was Vesta's successful pre-lease to one of Latin America's largest e-commerce companies of our Mexico City, Vesta Park Punta Norte for a substantial 890,000 square feet. This is another significant milestone for Vesta and an important proof-of-concept for our company. Vesta anticipated market trends in the early stages of Mexico's nearshoring wave. We turned our strategic focus towards gaining a first-mover advantage within Mexico's most strategically relevant infill locations, successfully leveraging time earned relationships and our outstanding balance sheet to acquire some of our country's most strategically relevant land. Today, Vesta has built privileged position within Mexico's most desirable locations. Latin America's leading online marketplace has a game chosen to partner with Vesta and the robust consumer demand we're seeing continues to drive e-commerce aggressive expansion, an important tailwind for Vesta in 2024 and beyond. Stabilized occupancy for the first quarter 2024 increased 40 basis points to 97.1% with a strong and geographically diverse client base, reflecting balanced sector exposure. First quarter leasing activity reached 2 million square feet, 1 million square feet from new leases, among them, the above leading Latin American e-commerce company and nearly 1 million square feet of renewals. Last 12 months, e-commerce renewals and re-leasing spreads reached 8%. As a related comment, according to Colliers, first quarter 2024 rental prices for Mexico's industrial space rose 22% year-on-year with an average cost of $6.89 per square meter driven by nearshoring strength. Our focus…

Thank you, Lorenzo, and good day, everyone. Let me begin with a summary of our first quarter results. Starting with our top line, we have a strong start of the year with total revenues, which grew 21% to reach $60.6 million, mainly due to rental revenue on from new leases and inflationary adjustments and rental property during the quarter. In terms of current mix, 87.8% of our first quarter revenue was denominated in U.S. dollars, up from 86.7% from the first quarter 2023. Turning to our profitability. Adjusted net operating income increased 20% to $57.4 million, while the margin decreased 35 basis points to 96%. This increase was primarily driven by higher rental revenue from our rental properties as Loren has described, including energy income. Adjusted EBITDA reached $50.6 million in the first quarter, a 20% increase reported to the prior year quarter, while the margin decreased slightly by 21 basis points to 24.7%, primarily due to higher cost and expenses. And initiative expenses during the quarter were impacted by the peso appreciation relative to the same period last year and the increase in auditing, legal and consulting expenses driven from our recent equity transactions. We closed the first quarter of 2024 with a pre-tax income of $150.6 million compared to $43.1 million in 2023, which benefited from higher gains on revaluation of investment properties and higher interest income. Vesta's FFO increased 32%, reaching $40.4 million, as Loren described. Turning to our capital structure and balance sheet, cash and equivalents stood at $445 million, and our total debt decreased slightly $914 million at the end of the quarter. Net debt to EBITDA was 2.4 times, and our loan-to-value was 24%. As a result of our successful 2023 capital rates, we're starting this year with a very solid financial position that enable us to remain focused on execution, while committed to our disciplined approach to sustainable and profitable growth. Finally, subsequent to quarter's end on April 16, we paid a cash dividend for the first quarter, equivalent MXN0.29 per ordinary shares. This concludes our first quarter 2024 review. Operator, please open the floor for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Pablo Ricalde of Santander. Please go ahead.

Hi, good morning Juan, Lorenzo. Congrats on the results. I have two questions. The first one is on the rental growth we saw in the quarter. I don't know if you can explain on a per region basis, how are you seeing rent growth? That's the first one. And the other one is on the peso denominated rents. I don't know if you have seen an increase of tenants asking for peso rents instead of USD?

Hola Pablo, thank you very much for your question and being on the call. Regarding your first questions, we have definitely seen rent increase in most of the markets pretty much throughout the quarter, what we have presented and is actually out of the supplemental package is the rent increase that we have had in general terms, trailing 12 months, and we saw an increase of 8% in which is based on renewals and releasing, which is a great spread way above inflation and reflects the importance on being able to mark-to-market rents coming from the spread between renewals as well as the spread between releasing. Pretty much the ranges and it varies market-by-market. What I can tell you is that there continues to be very strong markets where we have been able to have spreads of 20% to 40%, such markets are Tijuana, Ciudad Juarez, Toluca, for example, but also in markets like the Bajio, we have also seen rents increase between 10% to 20%. Some of the renewals are inflation. Remember that some of our renewals have to be at the in-place rent plus inflation. But the combination of renewals that already have an increase on inflation combined with releasings, new releasings, we get to a very attractive spread of approximately 8%. And regarding your second question, actually, we have seen -- interestingly, we've seen that there's a huge interest for companies to lease in U.S. dollars. And that was actually the example of some of the new leases that we recently did in logistics operations in Mexico City, and we think that the companies are agnostic on the currency, they want to lease a good quality space, and Vesta has great quality space in good locations and they rather have that particular location, which gives them a better functionality for their operations, make them more efficient, more profitable and therefore, are able to pay in the corresponding currency, which is dollar our case. So, thank you.

Thank you, Lorenzo. That was very good to hear.

Your next question comes from the line of Rodolfo Ramos from Bradesco BBI. Please go ahead.

Thank you. Good morning. Thanks for taking my question. My first one is I have to -- the first one is a follow-up on Pablo's question. In terms of the leasing spreads that you're seeing, we're seeing some of your peers reporting higher numbers. Given that when you look at your exploration profile in 2025, we're going to see a pickup in expirations. I mean how do you see the leasing spreads going forward in 2025 with these expirations. So that would be the first one. And second, we have seen more capital flowing to the sector, at least looking to enter, whether it's at the asset level or at the structural level. I mean, how does this greater appetite from investors, increased competition for land? And how does this impact your growth trajectory more long-term? Do you think that tenants will be able to absorb these costs and keep development yields stable at current levels? Thank you.

Thank you, Rodolfo, for your question. So, regarding the 2025 expirations, we will maintain the same approach to be able to renew leases as well as re-lease buildings at market rents, so that we can be able to patch up with some of the upside potential that some of these markets represent. So, we are very proactive in our asset management team to be close to our clients, to try to recover as much as possible. We have approximately -- between 2024 and 2025, we might have almost 7 million square feet expiring. So, for that reason, we see a great potential upside in terms of rent. It will vary market-by-market. It will vary according to the lease agreement that is in place or the situation of each of the expirations. But I'm sure that Vesta is doing -- the Vesta team is doing the right decisions and working in the right direction in order to capture value coming from rent increases, and that has been a very good portion of the overall revenue increase that we have seen just this quarter, increasing revenues above 20% is an excellent number, which is a combination of new leases, but also with our current and existing leases, which are increasing, which we have been able to increase rents and mark-to-market. Secondly, regarding your question on capital flow, absolutely, there has been a lot of activity in the market. And nevertheless, most of this activity is focused on acquisitions. Many of the players that have been raising capital do not have very well-developed development capabilities, and they are just in a, I would say, in early innings on development, and that's why their position is mostly going to be based on acquisitions. They have all expressed actually that. And doing acquisitions at cap rates in the 5.86% or even at 7%, including a lot of tenant improvements and a lot of amortized investments that have to be done during a certain period of time. That's exactly -- that's completely a different approach. So, we think that all of them have different investment venues and different strategies. And therefore, we think that for the sizable development transactions, the companies that have raised capital do not have those development capabilities, and that's exactly a sweet spot where Vesta has been able to acquire land, which we are currently in that process to start construction as we have recently done to lease up during construction or during the stabilized period -- lease-up period, and that's where we believe we can capture the most value, create spreads between 300 and 400 basis points on top of acquisition cap rates. And this particular trend towards being other companies and actually new players coming into the market. That's going to be pushing cap rates down, so -- particularly for stabilized assets, and that's going to be another important trigger that our assets will be better price looking forward.

Thank you, Lorenzo.

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

Good morning. I have two -- actually, a pretty straightforward question. So we were looking through the release, and we didn't see anything on guidance. So, is it fair to assume that it remains unchanged from what you published in 4Q? And then the second question is around Guanajuato. We saw that there was a decline in occupancy Q-on-Q is about 400 basis points, whereas the majority of the markets saw an increase in occupancy Q-on-Q. So, I just want to understand what the dynamic is there and what we should expect going forward? Thank you.

Thank you, Jorel, for your call. Regarding the Guanajuato question, we recently developed a building, an inventory building in Puerto Interior. We have been successful leasing of the rest of the space and probably that's why you see a small adjustment on the total portfolio because it's a brand-new building that we recently incorporated. But if you look at stabilized portfolio as well as same-store, we have kept that occupancy at 91%. And I would suggest that you follow the stabilized portfolio because that doesn't represent -- that doesn't have any major adjustments. The market is doing well. It's just probably the incorporation of a new spec building that is -- that we have recently developed, and we have been announcing that throughout the last quarters. And regarding your first question, yes, we will keep firing the guidance that we gave in the last call without any adjustments for the moment.

And a quick follow-up, just to understand because when I look at the GLA for Guanajuato, it remains unchanged for about three quarters. So, you're saying it became incorporated right now? Or I'm just trying to understand how that works?

Yes. So, if you look at the numbers in Guanajuato or let's -- if you look at the supplemental package, Page number 10, you will see the new buildings that are currently as part of the lease-up. We have one building in Guanajuato in Puerto Interior, 231,000 square feet. And if you look at the total portfolio, total portfolio, we currently have 4.6 million square feet. And last -- first quarter last year, it was 1.3 million square feet. So it does change by 230,000 square feet, which is basically that building.

All right. Thank you.

Your next question comes from the line of Alan Macias from Bank of America. Please go ahead.

Hi, good morning and thank you for the call. Just if you can remind us on your land bank, what is the potential GLA that it represents? And just another question on recent spreads. I guess the assumption is that there is upside risk 48% going forward? Thank you.

Potential risk on the 8% going forward.

Hola Alan, thank you for your question. So, I mean, regarding your second question on the Red spread, well, I think that more than risk, I think that we believe that there is greater opportunities to have major rent adjustments. First of all, we think that the current inflation environment, we have shown that Vesta is very well-positioned to hedge towards inflation very well because that's how the leases are structured. So, the majority of the leases that will expire will have full adjustment towards inflation, either in U.S. or Mexico, and I believe inflation currently is between the 3% or 4% ranges depending on the currency. But in the end, I think that we are very well-positioned. But getting to the -- so -- but the upside on rent is not only inflation, but it's our ability to be able to mark to market many of our leases at the expiration or are releasing. And we believe that since rents have been increasing in many of the markets, maybe even probably all of the markets, we see a great potential to renew. The market is incredibly hot right now. There's good demand and companies that are established in Mexico are performing quite well. So, we don't see this trend to change in the near-term. And regarding land bank, well, we currently have land bank that could help us to increase more than 10 million square feet our portfolio. However, we are in the process to acquire more land. We're looking into land in the north part of Mexico, Tijuana, Juarez, [Indiscernible] as well as Guadalajara, Mexico City to incorporate a potential larger pipeline opportunity. As we have done in the past. Thank you, Alan.

Thank you.

Your next question comes from the line of Gordon Lee of BTG. Please go ahead.

Hi, good morning. Thank you very much for the call. Just very quickly, and this is sort of more out of curiosity, but in the last two or three quarters, you've had two or three properties, not many, but two or three properties that have in the pipeline that have seen some delays for delivery. And so my question is, is there a common theme in some of those delays? Or is each of them sort of its own particular driver, maybe tenant modifications, et cetera? Or is it more to do maybe with permitting and infrastructure? And maybe that's a little bit more systemic. Thank you.

Thank you, Gordon, for your question. And yes, I think one of the good things is that we are incredibly active on construction. We currently have under construction over 4 million square feet, which is a great pipeline pretty much in many of -- in all of the regions where we operate. In many of these cases, at the same time that we're in the construction, we are in marketing phase. A good example is what we recently did in Mexico City. It's a very large building for e-commerce, very well located in Punta Norte. This building will be delivered end of the year, and we were able to lease this quarter to a great e-commerce company as mentioned. So, in the process, sometimes we need to do a couple of adjustments and sometimes that generates certain delays. That was actually the case of Queretaro, one of the projects which is leased to Eaton, we're working close by with them, and there has been some minor adjustments, which represent some adjustments also on the date. So, it is a bit common that this might happen. And then there was another adjustment that we had to do, and this was basically because it took us a little bit longer to start the building as forecasted, and it was merely based on the start that it -- later to start basically. And we will let you know every time there's a situation with any of the dates, but we feel very comfortable that it doesn't represent a major impact to our potential income or value proposition.

Perfect. That's very clear. Thank you very much.

Thank you.

Your next question comes from the line of Francisco Suarez of Scotiabank. Please go ahead.

Good morning. Congrats on the results. The two questions that I have. I've noticed that Foxconn is one of the most important tenants. Any plans to go beyond that? I mean with that perhaps offering a full park or consolidating other assets that Foxconn may have in Mexico in a single park as they usually want? And the second question that I have is that if there is any reason that explains why the buildings in Tijuana and Juarez haven't been leased at all? I mean these markets of Tijuana and Juarez have totally sold out, perhaps it is related with the fact that perhaps you -- the tenants are willing to have more energy-intensive buildings over there and you don't have the KPAs for those type of tenants. Anything missing that explains why these three buildings haven't been leased so far?

Great. Thank you, Francisco, for your questions. Let me start by the latter. Yes, we have some buildings that we have that have been recently being finished, and we are currently on the marketing stage. In both cases, Tijuana and Ciudad Juarez, these buildings are still on marketing, but bear in mind that, for example, in Ciudad Juarez, we have leased four buildings out of the five buildings that we developed throughout the last year pretty much. So, there's only one building, which is currently on marketing stage out of the five. The other four buildings are leased to DB Schenker to DRP to Sage Electronics, and another one is currently on a letter of intent. So, we feel very comfortable with our position to have projects available at a marketing stage, and we're waiting until the best tenant to take this building. Nothing to do with energy. Actually, the building -- I mean, the park is already running as a good example is the clients that we have already started operations. And the same situation for Tijuana, where we leased to Home Depot, we lease to Amphenol, Airbus, and other companies, and we're currently working with some great companies to take this space, and we sometimes are a bit more patient to take the best client rather to take immediately a client. This actually -- normally, we give 12 months for a lease-up -- our underwriting considers 12 months of lease-up stage. That's why we will be converting these to the third quarter of 2024 to stabilize, but hopefully before that, we might close a transaction. Regarding energy, it's interesting. But for example, in Tijuana, we did a major investment in energy. And probably Vesta is -- the Vesta Park Mega Region is a project with the most energy out of the whole region. So, it has nothing to do with it. Actually, we have more energy available just because the type of clients that we have leased require our light manufacturing, which require a smaller amount of energy. And that's why we feel actually very comfortable that we will have -- we have excess energy in Tijuana, which is a greater advantage and our marketing team in Tijuana knows and its positioning that very well to be able to capture a great company.

If you are more selective in other words, I mean you can you can be more selective at current -- how market conditions are at this moment. That's the reason why.

Exactly. And if you look at our numbers on the total portfolio, basically, this is the only property we have available in Ciudad Juarez and Tijuana, these are the only properties. So, it's part of the development process, and hopefully, we can have some closing soon, but we feel comfortable with the dates. So, there's no major delay to underwriting. And then -- and regarding Foxconn, absolutely, Foxconn is one of the best examples of nearshoring where they have been expanding rapidly in Mexico, particularly because since in Guadalajara, just because they already have presence before COVID. And since all of these disruptions have happened in terms of trade, supply chains, and adjustments, which have benefited nearshoring, frontshoring, and Foxconn has been a great example of growth. They have taken several buildings inside of our campus of the Vesta Park Guadalajara. And so basically, they have a good position in several buildings where they're going to be incredibly active with several electronics manufacturing components. Hopefully, we see -- I'm pretty sure that Foxconn will continue growing, and I'm pretty sure that other companies similar to Foxconn will have the same -- will have a similar process going forward.

Thank you. Congrats again.

Thank you.

Your next question comes from the line of Felipe Lenza from Citi. Please go ahead.

Good morning. Congrats on the results. My question is around 2024 guidance. First quarter P&L [Technical Difficulty] 2024 guidance by 200 bps. [Technical Difficulty] could we expect the same level of margin for the full year beating the guidance?

Your question was a little bit garbled. So, I understand that you're asking about our rental growth, which was outstanding. I agree with you, and you were asking about the question itself. Can you repeat it, please?

Yes. About the NOI EBITDA margins too, they were [Technical Difficulty] guidance in the first quarter, should we expect the same level of market for the full year?

Yes. I think that -- I mean, NOI for sure, we will continue to be expecting higher NOI throughout the year. In terms of EBITDA, we have a higher impact of the debt exchange rate in those. But I feel confident that we will be on guidance throughout the years.

Thank you.

Your next question comes from the line of Alejandra Obregon of Morgan Stanley. Please go ahead.

Hi, good morning Vesta team. Thank you for taking my question. I just have one on capital allocation. So, I'm thinking if you think of macro conditions, probably interest rates higher for longer, as you balance that with construction cost, your requirements for more land, you just dropped the [Indiscernible] properties into the development pipeline. So, you're probably looking at some acceleration there. So, when you put all those things together and your debt and equity program, when do you think you could potentially be tapping the market, either debt or equity again? And when you think of your capital allocation structure or your capital structure, where do you see equity and debt balancing for you and going forward, if that makes sense? Thank you.

Sure. It's an excellent question. Look, we have a dry powder for more than $430 million somewhere around there. I think that, that will -- we do expect to invest about north of $300 million this year, all-in-all. And so I think that we have about 18 months or 20 months of dry powder to invest, we will tap the market at some point. I think that there are both opportunities in debt. I do agree that it's higher for longer, but longer well longer -- we're leaving the longer. So, in times with inflation coming under control in the U.S., I think that rates are going to be more amicable. In regards of equity, we take equity decisions very carefully. So, we will -- and we are -- we have a good and strong balance sheet. So, we will see what's the best way to fund the company at some point in the latter part of next year. I don't see any bidding offering in either of the equity or debt.

Got it. And do you mind reminding us how much is your debt program? How much has it been approved?

Well, I think that $1.5 billion, somewhere around there on our shareholder meeting of last year. I think that we did it for $1.5 billion, give or take. We're checking. I will let you know in the conference.

Got you. Thank you very much and congratulations on the numbers.

Your next question comes from the line of Isabela Salazar of GBM. Please go ahead.

Hello. Thank you for taking my questions. I have two questions. The first one is, I was wondering if you could give a bit of color on the non-tenant reimbursement during the quarter. I'm just trying to understand what this means. And the second question is, I saw you sold some land in [Indiscernible]. And I was just wondering what the driver for the sale was? And also if you could share your sought on the dynamics in the region?

Sure. The tenant -- I mean, we invest on behalf of the tenants -- on tenant improvements. I mean there are some investments that tenant wants that we basically say that they are not part of our interest and tenants ask us to do the many way. So, we manage the construction process of those tenants. At some point in time, they reimbursed us. That was the case on a larger amount in this particular quarter. It was about $25 million, somewhere around there. And -- I'm sorry, $14 million. So, well, we got reimbursed. It was a major investment. It has to do with the properties that we sold some time ago for data REITs. That's why the number is so large. It's not common that amount of tenant improvement that we manage on behalf of our tenant. On the other question, which was -- can you remember your other question?

Regarding the land sale, well, basically, this was a nonstrategic asset outside of an industrial park that it was -- it's always better to clean some assets. It's very small, below $1 million. And it was a major premium. Nevertheless, it was a small transaction.

Perfect. Thank you very much.

Your next question comes from the line of David [Indiscernible] of Scotiabank. Please go ahead.

Hi, good morning. Thanks for taking my questions. Congrats on the results. I have a few questions. The first one is related to the recycling strategy. Should we expect investments in other regions? And my other questions are related to the development program. Is there any environment that could affect the delivery time line? And what should we expect of leases up in the next quarters?

What can we expect in the -- I'm sorry, leasing or what was the question?

Sorry, [Indiscernible] for next quarters?

Great question. Thank you, David, for your question. And so basically -- so we -- since we incorporated a Level 3 strategy, we decided to have an asset recycling program every now and then. And we have done that in the past. Nevertheless, right now, we are focusing on the capital deployment from the funds raised recently from the IPO in the New York Stock Exchange. And that's why we we're more active is an investment and development. And on that regard, we foresee a strong pipeline, as Juan mentioned, above $300 million of investment throughout this year. And that's where we're going to continue seeing a strong development activity where we -- actually, when we start the buildings, we don't see any major variables. As you remember, we have third-party contractors that take -- that take the responsibility on construction. We have different contractors, so we have managed very well the risk and development in that regard. The market is -- markets where we're investing species are very strong. Leasing activity is very good, as was seen recently with some buildings being leased before construction ends. And for that reason, we think that we will continue to see a strong activity. Markets are at record high occupancies and supply is incredibly limited still for good quality buildings, and that's why Vesta, we believe, has a good advantage to take that opportunity. Lease-up buildings, again, we have a strong marketing local team that is closed by existing clients that might grow and other new clients and the broker community, which is always helpful to bring new opportunities for our buildings.

Perfect. Thanks.

[Operator Instructions] And your next question comes from the line of Jeronimo Delgado from Santander. Please go ahead. Jeronimo Delgado from Santander, your line is now open.

[Indiscernible]

It's very -- Jeronimo, it's very hard to listen.

Apologies. Can you hear me now?

Yes, perfect.

Thanks. Congrats on the results, first of all, this is great for the company. Apologies if my question was already asked and I missed it, but I just wanted to ask given the current interest from multiple players in the market on [Indiscernible]. Is it something you are currently evaluating as well? Is it something you're interested? Would like to get some color? Thank you.

Thank you, Jeronimo. That's a good question. What I can say is that Vesta will continue focusing on its investment pipeline that we have presented. We believe that, that particular focus and discipline is giving us the ability to capture opportunities at above market returns with higher spreads. And for the moment, we have a greater strategy through development through higher rents and through being able to capture some leading position in many of these markets. It is -- it's a crowded transaction. I'm glad that there is a lot of interest that it's important for the sector. It's very important for the industry. For the moment, we think that we want to keep that discipline to our shareholders and keep the strategy that we have maintained, which is giving us a great edge for the opportunities that Mexico is representing at the moment.

Great. Thank you so much.

There are no further questions. I'd now like to turn the call back over to Mr. Berho for concluding remarks. Please go ahead, sir.

Thank you, operator. 2024 is definitely -- is off to a great start, and our portfolio results remain solid and the Vesta team continues to drive long-term value creation. We're very well-positioned to take advantage of new opportunities with a strong capital base. As a team, we are laser-focused on execution and our love for our long-term strategy. Thank you to the Vesta team. Thank you for our shareholders and see you on our next call. Thank you.

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