Corporación Inmobiliaria Vesta, S.A.B. de C.V. (VTMX) Q3 2025 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen. Welcome to the Vesta Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Vesta's Investor Relations Officer. Please go ahead.

Good morning, everyone, and welcome to our review of third quarter 2025 earnings results. Presenting today with me is Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, our Chief Financial Officer. The earnings release detailing our third quarter 2025 results was released yesterday after market closed and is available on Vesta's IR website, along with our supplemental package. It's important to note that 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 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.

Good morning, everyone, and thank you for joining us today. While we entered the year facing macro uncertainty and slower market activity, I'm pleased to note we're now seeing encouraging signs of improvement as clients start to make decisions. Leasing momentum is returning. Tenant demand is intensifying and the fundamentals behind Mexico's industrial real estate market remain intact. We are particularly encouraged by the uptick we're seeing in leasing absorption, a signal that companies are regaining confidence and moving forward with their long-term commitments. Third quarter was a solid quarter for Vesta. We delivered strong operational execution in a market which has begun to normalize from earlier year softness, as I have described. Vesta's rental revenues increased, supported in part by the rent-generating buildings we delivered last quarter and will continue to drive revenue growth through the end of the year. Our retention rate remains high and rents on rollovers continue to trend upward, demonstrating both the quality of our assets and the strength of our tenant relationships. Meanwhile, our stabilized portfolio continues to perform well. Total income for the third quarter reached $72.4 million, which is a 13.7% year-over-year increase. And total income, excluding energy, reached $69.9 million, a 14.5% increase. We delivered an adjusted NOI margin and adjusted EBITDA margin of 94.4% and 85.3%, respectively, for the third quarter 2025. Let me now walk you through leasing activity and market conditions across our core regions. Total leasing activity for third quarter 2025 reached 1.7 million square feet, 597,000 square feet in new leases with new and existing tenants and 1.1 million square feet represented renewals with an average age of 6 years and a trailing last 12 months weighted average spread of 12.4%. Vesta's third quarter 2025 total portfolio occupancy, therefore, reached 89.7%, while stabilized and same-store occupancy reached 94.3% and 94.8%, respectively. As expected, our overall portfolio occupancy dipped slightly during the third quarter, primarily due to the delivery of new buildings currently in the lease-up phase as a result of the robust development pipeline we executed throughout the year. We're confident that absorption will follow, and this positions us exceptionally well to capture the demand we anticipate later this year and into 2026, given improving demand indicators, which I'll touch upon today. Let me share some color on what we're seeing across our markets. In Monterrey, we completed construction of our Apodaca park with 3 new state-of-the-art facilities now in the marketing phase. We're seeing strong interest, particularly from advanced manufacturing and logistics companies. We will be highly selective in determining our future tenants given the quality of our parks and Monterrey's role as a key near-shoring destination. Apodaca stands out as Monterrey's most strategic submarket, offering direct access to major industrial corridors and proximity to the Monterrey International Airport. And after the quarter closed on October 2025, we announced that we have acquired 330 acres of land in Monterrey in the high-demand Monterrey-Apodaca Airport Highway corridor. The site benefits from strategic location next to the Monterrey International Airport and Nuevo León’s Research and Technology Innovation Park, offering exceptional connectivity and direct access to a highly skilled labor pool. The deal included attractive 24-month seller financing, providing flexible capital deployment. And importantly, with this acquisition, Vesta's land bank is nearly complete to deliver on the Vesta Route 2030. In Ciudad Juarez, we saw early signs of a market turnaround in the third quarter. According to CBRE, overall vacancy contracted by 130 basis points and Class A vacancy retreated by 190 basis points for this market. This was underpinned by 1.3 million square feet of net absorption during the quarter. Vesta secured a lease with a global electronics company of 500,000 square feet during the quarter, a transaction which boosted third quarter absorption and reinforced the vacancy decline in this market. Juarez continues to draw international manufacturers, especially in electronics and high-precision goods. We believe the third quarter marks an inflection point in Juarez's industrial recovery and Vesta is well positioned to capture the next cycle of demand. In Tijuana, we're seeing slower recovery with market dynamics still adjusting to a recent influx of supply in this market. High vacancy is a result of a wave of spec deliveries that enter the Tijuana market. That said, there are early signs of reactivation. CBRE highlights that 67% of leasing demand continues to come from manufacturing users, which reinforces Tijuana's ongoing strategic relevance in the broader nearshoring landscape. Vesta has been actively engaging with a strong pipeline of tenants in the region, which give us confidence that dynamics are improving. Tijuana is a constrained market with limited land availability and physical barriers that make long-term overbuilding less likely. These fundamentals, combined with recovering demand should gradually support rebalancing as the year progresses. And while Tijuana's pace of recovery is lower than in markets like Juarez or Monterrey, Vesta's competitive position remains strong. Our portfolio benefits from institutional grade quality, reliable infrastructure and access to key logistic corridors. As always, we will approach this market with discipline and a long-term view grounded in data and in a deep local understanding of our markets. We have seen sustained strength in Guadalajara and Mexico City. Both markets stand out not only for their debt in scale, but for the diverse tenant basis and consistently high retention, which is underpinning our overall portfolio. CBRE reports that the Guadalajara industrial market maintained a healthy 2.8% vacancy rate in the third quarter. Despite new deliveries, importantly, Guadalajara, is a key recipient of foreign direct investment, particularly in advanced manufacturing sectors like electronics, automotive and aerospace. In Mexico City, industrial fundamentals have remained remarkably strong as can be expected. CBRE reports record absorption year-to-date at the highest absorption in the last 5 years, driven by pre-leasing and long-term renewals. Vacancy remains low at just 2%, supported by steady demand from logistics and e-commerce tenants. More broadly, we're seeing that activity has stabilized in the automotive sector, and our tenants in the sector have continued to renew leases and deepen their long-term commitments. Mexico is deeply integrated into the supply chain that supports the North American automotive industry. We believe it's virtually impossible to decouple. In fact, we're seeing continued and growing integration across the region as manufacturers double down on resilient near proximity production strategies. At the same time, we're seeing a shift in momentum toward other high-value manufacturing segments with strength in electronics, scientific equipment and industrial machinery. Mexico has now overtaken China as the largest exporter of electrical and electronic equipment to the United States. Companies are investing ahead of current demand, which reinforces the importance of being ready when they're ready through land acquisitions, as I have described, but also energy supply. The Mexican Association of Industrial Parks recently announced that the federal government is advancing targeted initiatives to support industrial parks, particularly to meet the growing energy needs of new facilities and industries. We're confident in our ongoing collaboration with both federal authorities and energy regulators. As new energy legislation takes shape, we believe industrial parks, in particular, will stand to benefit. The proposed framework includes provisions for energy generation through public-private collaboration, which we see as a positive step toward enhancing reliability and long-term capacity for industrial users. This enables us to serve even energy-constrained regions without compromising on service or delivery. Juan will discuss our financial strategy and related capital deployment, but let me make just a few related comments. During the third quarter, we successfully completed a senior unsecured notes offering that enhances our liquidity position, extends our maturity profile and gives us the financial flexibility to fund future growth under attractive conditions. This also enables us to refinance upcoming maturities without disruption, supporting both stability and expansion. Vesta's capital allocation has remained conservative and focused. We currently have only one project under construction, a direct result of our cautious approach at the start of the year in response to low absorption. That discipline is now enabling us to move with confidence as we prepare for new development starts for the end of 2025 and beginning of 2026. We are prioritizing markets where tenant demand is most visible, and we'll continue to direct capital toward land and infrastructure readiness, ensuring our growth is tied to quality, timing and market visibility. Asset recycling is a key part of our capital allocation strategy, enabling us to monetize stabilized assets and reinvest in higher growth opportunities. During the third quarter, Vesta sold an 80,604 square feet building in Ciudad Juarez for $5.5 million, an approximately 10% premium to appraised value aligned with Vesta's strategy to opportunistically recycle assets. Considering our progress this quarter, we revised Vesta's full year 2025 guidance. Juan will discuss in more detail. In closing, our third quarter results underscore a clear and consistent message for Vesta. Resilience and solid fundamentals ensure Vesta is well positioned for what's ahead. This quarter also reaffirms our ability to execute on Route 2030, our long-term vision to build a scaled, diversified industrial platform serving the most important corridors in Mexico. With that, let me turn our conversation over to Juan to review Vesta's financial results in more detail. Juan?

Thank you, Lorenzo. Good day, everyone. Let me begin by highlighting our strong financial results for the third quarter. As a result, Vesta has revised our full 2025 guidance. We now expect our EBITDA margin to reach 84.5% by year's end, up from our prior guidance of 83.5%, underscoring our continuous focus on expense control and on delivering strong results. We expect to solidly achieve revenue growth between 10% and 11% for our full year with an adjusted NOI margin of around 94.5%. Now let me walk you through our third quarter results. Starting with our top line, total revenues were up 13.7% year-over-year, reaching $72.4 million, primarily driven by rental income from new leases and inflationary adjustments across our rented portfolio. As per our current mix, 89.4% of third quarter rental revenues were denominated in U.S. dollars, slightly up from 89.2% in the third quarter of 2024. On the profitability front, adjusted net operating income increased 14.7% to $66.1 million. Our adjusted NOI margin remains strong at 94.4%, up 16 basis points from the prior year, reflecting higher operating leverage as revenue growth outpaced costs. Adjusted EBITDA totaled $59.7 million, a 15% increase year-over-year with a margin expansion of 34 basis points to 85.3%, driven by a lower proportion of administrative expenses in relation to revenue during the third quarter 2025. Vesta's FFO, excluding current tax, increased 16.5% year-over-year to $47.4 million compared to $40.7 million in the third quarter 2024, while FFO increased 20.1% to $0.055. We closed the quarter with pretax income of $52.4 million compared to $62.7 million in 2024. The decrease was primarily due to lower gains on revaluation of investment properties as well as lower interest income, reflecting a reduced cash position during the period. Turning to our capital structure. On September 30, 2025, we successfully completed a $500 million senior unsecured notes at a 5.5% interest rate due in 2033, further strengthening our balance sheet, enhancing financial flexibility and advancing our goal for a fully unsecured capital structure. The notes received a BBB-/Positive rating from both Standard & Poor's Global Ratings and Fitch Ratings. The proceeds were used to prepay the existing debt and shortly after quarter's end, on October 9, we repaid in full our Metlife II credit facility and related incremental facility for $150 million and $26.6 million, respectively. As a result, we ended the quarter with $587 million in cash and cash equivalents and a total debt of $1.45 billion as of September 30, 2025. Our net debt-to-EBITDA ratio increased to 4x, and our loan-to-value ratio was 31%, which temporarily reflects the outstanding balance of the facilities that were repaid shortly after quarter's end. On capital allocation, Loren has noted that we sold an 80,000 square foot building at a 10% premium to appraisal value in Ciudad Juarez during the quarter, consistent with our strategy of opportunistically recycling of assets. At the same time, we continue to strengthen our land results, as Loren mentioned before, with the acquisition of 330 acres of land in Monterrey. Moreover, reflecting our balanced approach to capital allocation, on October 15, 2025, we paid a cash dividend for the third quarter of $0.38 per ordinary shares. This concludes our third quarter 2025 review. Operator, could you please open the floor for questions.

[Operator Instructions] Our first question comes from the line of Juan Ponce with Bradesco BBI.

It seems clear that demand signals are going in the right direction. When do you think -- when you think about your long-term development pipeline, are you comfortable accelerating Route 2030 projects in the first half of 2026? Or do you think it is prudent to move slower ahead of the USMCA review in June? I ask because although vacancies have declined a bit in some of the northern markets, Tijuana still remains elevated. So I just want to get your thoughts on how you're thinking about this growth.

Thank you, Juan, very much for your question. Definitely, we have seen positive demand signals pretty much across most of the markets. I would probably like to highlight that Mexico City and Guadalajara have remained very solid throughout the whole year with vacancy rates at record low levels and still strong demand, mainly coming from sectors such as logistics, e-commerce and electronics, but also other markets have also shown some positive signals. Now how does that translate into our long-term plan? Well, as you know, we analyze carefully market-by-market, and that's when we analyze internally at the investment committee, where do we want to resume and start new operations and new development. As you could see this quarter, even that we have had a slower year on construction starts, we were able to start -- we did resume in Guadalajara with one building. And over the rest of the year, 2025, we will continue to start in other markets where we have recently acquired land and when we think there's already strong demand so that we can continue developing. I wouldn't think -- I think that we should still focus on the mid- to long-term plan for the 2030 Route. And we will be analyzing carefully the progress on demand from next year. We will analyze carefully the trends on different sectors. We definitely think that in relative terms, Mexico is still very well positioned for many global companies. But as you stated, we'll have the USMCA review next year where other countries are getting tariffs. So we will analyze carefully. And with that, I think that we will resume whenever needed.

And just as a follow-up, these positive demand signals, are they coming from existing tenants or companies that already have operations in Mexico? Or are you seeing this already from new tenants?

That's a good question. I think it's both. I think it's existing tenants, but also new tenants. And we've seen more visits from companies from all over, from North America, from Asia, from Europe. And actually -- and interestingly, it's coming from -- also from different industries, not only the traditional industries such as auto industry, but also -- which is strong and integrating supply chains, but also coming particularly from industries like electronic sector, which is growing rapidly. It's also coming in the aerospace sector, for example, and of course, logistics, which continues to be quite strong.

Your next question comes from the line of Pablo Ricalde with Itaú

Congrats on the results. I have 2 questions, maybe one for [indiscernible] the first one is on the leasing activity that have been seen in October. I don't know if you can provide an update if you have leased some of the industrial parks that were vacant in September. That's my first question. And the other one is coming on the balance sheet. I don't know if you can provide what are you thinking in terms of net debt to EBITDA by year-end given all the lands which you are acquiring.

Pablo, thank you. Juan, why don't you -- okay, let me elaborate on the first question and then you give more detail on the net debt to EBITDA for the year-end. I didn't understand quite the question from -- we're getting a little bit of back noise, Pablo, but I think it was related to leasing. We were able to lease up a few buildings, one of them for our logistics operation for the electronic sector in Ciudad Juarez. Also, we were able to lease up in the Bajio region as well as Tijuana in food and beverage, logistics and auto industry. We think that this is -- we think that eventually, over the next quarters, we will continue to see this particular industry striving, and we're getting more absorption for -- in different -- actually in different regions. Again, we see the pipeline picking up pretty much across the board. And I think that Vesta has good quality buildings in the right locations, brand-new buildings. And I think that's key when it comes to clients looking for space. Remember that many of our buildings already have energy, which is another key advantage. And for that reason, even that there might be also some competition, we think that Vesta is very well positioned in the right locations, brand-new buildings and the right utilities and infrastructure required to establish operations in light manufacturing and logistics. So we are very positive on the next quarter, end of the year, and we hope to see a good recovery for 2026, too.

Okay. As for the balance sheet, let me say that what you see in our leverage today is just a result of the issuance of the bond and the interim period between the issuance and the payment of the liabilities. So leverage will come down as we pay down the -- as the Metlife liabilities are reflected on our balance sheet. And then net debt to EBITDA as well as leverage will come down to what our good objectives, not that the ratios that we show right now are particularly worrisome. I mean we are exactly where we need to be. We have a strong balance sheet, and we can continue to -- I mean, we have ample borrowing capacity. So...

For end of the year, Juan, are -- is it -- are we going to be a net debt to EBITDA close to, what, 25% loan-to-value and net debt to EBITDA below 4.6 maybe?

4% -- around 4x.

Your next question comes from the line of Francisco Chávez with BBVA. Francisco Chávez Martínez: Question is regarding the improvement in guidance for EBITDA margin. How sustainable is this new margin? And what can we expect once you resume the start-up of new projects?

Well, look, we have been -- this year -- as we have pointed out beforehand, this year have -- we have focused a lot in maintaining a low-cost base and of course, the growth in our revenues have helped us a lot maintaining quite an attractive EBITDA margin. As we continue to grow the company, EBITDA will continue to be strong. And I think that EBITDA will continue to be in the 83%, 85% level as we continue to grow.

And maybe related to the development question, I think that we have the appropriate -- remember that we are a vertically integrated company with -- where we have -- management is internalized. So we have the right headcount to run the operations for the existing portfolio as well as the development part of the portfolio. So since we are in -- developing in the same markets where we already have presence, we do not foresee any major increases in costs. Actually, the opposite. I think that going forward, we will become even more efficient and benefit from being an internally managed company and vertically integrated. And for that reason, we even think that operational margins will continue to be playing in our favor.

Your next question comes from the line of Adrian Huerta with JPMorgan.

Congrats on the results and also on the land acquisitions. Just going back to the first question on demand. What else can you share with us in terms of how quick the recovery could come, meaning tenants looking and willing to sign contracts. Is there a backlog or is there a backlog of companies that you've been talking to that they basically have said that once there's more clarity on the USMCA, they will be coming. Anything else that you can share with us on that to give us an understanding of how quick these companies could start signing new contracts?

Thank you for your question. And I think that -- I mean this has been a very -- this has been a transition year. And as you remember, early in the year, we see a major slowdown in terms of new absorption and many of the companies were pencils down, not only in Mexico, but also in the U.S., for example. There was a lot of uncertainty. And for that reason, we understand that companies were just not making any decisions. However, the year has evolved differently, and we are definitely seeing a major backlog on companies that want to establish operations in the North American region. And for that reason, we're in constant communication with potential clients. We're actually making -- we're traveling to other regions of the world. We've had people currently in the U.S., in Canada, in Europe, even in Asia, in China and in Taiwan, been participating in conferences and trying to understand what -- how companies are analyzing their manufacturing global footprint. However, all of the companies make decisions based on different drivers. Some of them are making them based on the technology -- the new technology revolution based on AI, and that's why we've seen electronic sector jumping so rapidly, even despite of uncertainty on tariffs. But there might be others, for example, auto industry that are just waiting to see what the final end game might be. However, I think, that companies want to be still in the most dynamic economic region in the world, and Mexico is playing a very important role in North America. We just -- we're seeing every quarter and every year just new numbers regarding exports to the U.S., our trade balances with the U.S., particularly some countries diminishing their positioning and trade participation with the U.S. So for that reason, we are confident that -- we think that we will continue to thrive as a main partner to the U.S. And for that reason, many of the industries that we already have had since NAFTA will continue to be well positioned.

Understood, Loren. And if I may add just another quick question. So we should expect some new construction to start over the next 2 quarters. And regarding the land acquisitions, we shouldn't expect much to happen in the next 2 to 4 quarters?

Sure. Well, we are -- as we have stated before, when we need to accelerate the development, we do, but when we need to slow down, we also do. So right now, I think that we're just being very cautious on where we start. We will continue to monitor demand in each of the markets. So yes, we'll have some starts for the end of the year. And next year, we'll analyze carefully. And the good thing is that we currently have been able to acquire land throughout the year that will position us very well for the mid- to long term. We were able to buy land throughout this year in the strategic markets, and I will repeat the land that we have recently acquired, which was in Guadalajara where we started the building next to our site. We bought a second site in Guadalajara, which will be helpful for the Route 2030 strategy. We also bought land in Ciudad Juarez, in Mexico City, in Monterrey, in San Nicolás which is -- has more attributes for last mile and e-commerce. And recently, the one in Apodaca, which is going to position us with probably the best piece of land in Monterrey. And I think that's going to be incredibly helpful for the Route 2030 strategy, and that will continue positioning Vesta as a leader developer in the market of Monterrey. So with the land that we have already acquired that we will start doing improve -- and also in Tijuana, sorry for that. We're doing the improvements. We're doing the earthworks, putting the utilities, energy and everything so that eventually we can resume and develop whenever we see demand getting stronger. So we already have, as of today, let's say, approximately 90% of the land required to fulfill the 2030 strategy.

Your next question comes from the line of Alejandra Obregon with Morgan Stanley.

Congratulations on the numbers. My question is on the energy front. You have now the land and you were talking about the utilities. I was just wondering if you can talk about how the electricity part is playing out. The new government announced 5 packages for industrial real estate, utilities, plants. So I was wondering if you think that will help your plans going forward? And then also your investment in associates line appears to be gaining traction. So just wondering if you can talk about this energy investment and how should we be thinking of it forward -- going forward?

Alejandra, thank you very much for your question. Definitely, being able to anticipate to the energy requirements for our clients has been key. And that's why we have followed very carefully the different alternatives that we can provide for our clients in the different regions. We think that the government is in the right track -- on the right track to keep on supporting investment or foreign investment in manufacturing, and they are -- and we have been working close by with them so that together with the association of industrial parks, so that industrial parks can have the right packages, the right incentives and the right amount of energy so that we can continue attracting investments. So we're very positive on the work that the government has done with providing these packages and the support. And I think Vesta is a key example on how things can be established in order for companies to -- in order to anticipate we start the feasibilities and the processes to engage on energy when -- as soon as we start to buy the land. So when we develop the parks and the buildings, at the same time, we are investing in the energy infrastructure so that when companies do the ramp-up of operations, there's already some energy in place. We know it takes time, but I think that we have had great results by getting some energy, and that's why our parks have already the energy, and we are very -- we're confident that, that's going to be a huge benefit now that demand will continue to pick up. Regarding -- and regarding your question on associates and energy, that's basically some renewable energy investments that we have recently done. We just closed one in Monterrey, and I think that's going to be also key to continue focusing on solar panels, renewable energies in all of the buildings that we have had in line with our 2030 Route to comply with a certain amount of renewable energies in our portfolio.

Your next question comes from the line of Jorel Guilloty with Goldman Sachs.

I have 2 quick ones. So I don't want to belabor the point on development, but just I wanted to get a sense of what are the more quantitative indicators that you look at when you make a decision to launch a development. So I mean is it the occupancy trends you see in your own portfolio? Is it the occupancy or net absorption trends you see in the market? Is it an increase in leads that you might get from external brokers or your own internal commercial team? So I just wanted to get a sense just like put numbers to this, like what exactly do you look at when you make a decision of going forward with a new project like what you announced with Guadalajara? And then the other question is around leasing spreads. So looking at the LTM leasing spreads, we saw that there was a slight decline. So it was 13.7% in 2Q '25. It was 12.4% in 3Q '25. So I just want to get a sense of what drove this? What -- is it lower rents in a certain market in order to drive occupancy. So I just wanted to get a sense of where these lower leasing spreads or leasing spread trends are coming from.

Thank you, Jorel, and thank you very much for being on the call. I think that Vesta has a very unique investment approach. First of all, we already have more than 43 million square feet of industrial buildings that we have developed in the last 25 years. And that, together with outstanding clients where, as mentioned before, we have -- we do not rely on external brokers for our property management, we do it internally. So we have firsthand information from our clients. We have firsthand information from the sector. And remember that also as part of our strategy to have a local leadership and regional marketing officers in each of the markets where we operate. So that's why we have, again, firsthand information of what's going on, what are the main drivers of demand. And that's why we rely on our own data and analysis when it comes to making a decision on how to invest and when to invest. Of course, sometimes we listen to third parties, but I think that it's more -- the secret sauce is pretty much inside of the Vesta offices as to when to start and where to start, and it has been quite successful. Guadalajara -- the example in Guadalajara, well, this is the third expansion we do to the Guadalajara Vesta Park. As a reminder, we have as clients, Amazon, we have Mercado Libre, we have O'Reilly, we have DSV Logistics, and we have Foxconn as our main clients inside of that park. So we have a close connection with them. And by being close to them, we understand where the trends are heading. And that's why we believe that starting new buildings when you're close to great companies that tend to grow, we think that it's -- that's kind of the bread and butter of Vesta, and I think we're going to be very successful, and we will continue to follow that trend in other projects in other regions where we have recently acquired land. And regarding your leasing spread question on the last 12 months, it's -- I think that it's not a material drop. I think that eventually going forward, it's more maybe on the -- they should be hovering. I think that the trend is actually upwards if you look at the last 4 quarters. And I think that as long as we continue to see the spreads being on an upward trend in the low teens, high double digit or double-digit numbers, I think that, that's going to be quite attractive and appealing. The important thing is to have this as a sustainable number going forward, which is exactly we think. Vesta's current portfolio is -- has a good opportunity to catch up in terms of leasing spreads, and that's what we can see even with a 12% spread on the trailing 12 months, which is way higher than inflation. And remember that most of our leases are -- is above inflation and most -- and all of our leases are linked to inflation, which adjust annually. And in many cases, we're able to catch up. That's why if you look at today's CPI numbers close to 3%, considering a 12.4%, that's material.

A quick follow-up, if I may. So just based on the development pipeline and how you get to the decision to launch, you mentioned conversations with existing tenants. Does that imply that future launches could be for these existing tenants for them to expand? Or is it more that you get color on the demand from them and that gives you the confidence to go forward with a new development?

Well, I can only tell you that more than 60% of our growth comes from existing tenants. So we like to grow with existing tenants, particularly because they are outstanding companies. So that's why we continue to develop close to them. And if there's an opportunity to grow with them, it's fine. But if we continue to find other great companies that need to open up operations in Mexico, we will continue to do so. And I think that for that reason, we focus a lot in trying to be close with good companies and keep and support their growth and become the real estate partner in Mexico. And I think that has played out well in the past, and we think that, that will continue playing out well in the future.

Your next question comes from the line of André Mazini with Citi. And since we have no response from Mr. Mazini, we are moving on to the next question from Francisco Suarez with Scotiabank. No response again, moving on to the next question. Next question is from Anton Mortenkotter with GBM.

Congrats on the results. We've been hearing that some private developers under pressure to deploy committed capital are starting to buy stabilized assets rather than take on new spec projects given the softer demand backdrop. Are you seeing that trend as well? And would you think that this environment actually plays to your advantage, I mean, being able to preserve liquidity and deploy when demand dynamics are more favorable?

Anton, thank you very much for your questions. Well, I think that one of the greatest benefits of this industry is that there's still plenty of liquidity in the market. And that plays very well to our favor, and we are seeing players in the private markets that are willing to take acquisitions of stabilized assets. We recently made an asset sale, for example. It's not very large, but I think it signals that there's appetite also for owners to get buildings and also from -- on the institutional front. However, I think that our focus will continue to be on the development front, particularly because at the cost that we are buying land, we are investing in infrastructure, and we invest on brand new buildings. We think that development yields that continue to be in the 10% ranges vis-a-vis building cap rates or acquisition cap rates in the 6% to 7%, there are still huge spread investment opportunities, and that's why we will continue to focus on -- in terms of capital allocation to the highest returns, the ones that create the most value. And I think liquidity, it generates value for all of us. We have seen that not only coming from private markets. We recently saw a transaction being an IPO of FIBRA in the industrial sector being launched at -- also at compelling cap rates. And we think that, that sets the -- it sets valuation standards, and it sets a tone into what we might be expecting going forward in terms of valuation, Vesta -- so -- for Vesta, that's why we think that there has a good opportunity to reprice, particularly given the major discount we are still trading to net asset value. So those are great references and that gives us also the opportunity in some cases that if we want to buyback stock, we have a buyback program in place. So when we have -- when we see that there's a major discount to net asset value, we will continue to be using it, as we have done in the past and create value for shareholders.

[Operator Instructions] The next question comes from the line of [indiscernible].

Congratulations on the results. I have a couple of questions. The first one is a follow-up on lease spreads. I mean we did see like a small decline quarter-on-quarter, but they're still really above 2024 levels where they were around like 7%, 8%. Do you think like going forward into the fourth quarter and next year, you will be able to sustain this double-digit increase? And the second question is on same-store portfolio occupancy. Could you give us like a little bit of color on why the occupancy in Tijuana dropped from like 97% in the second quarter to 85.6%?

Great. Thank you, [ Elena, ] for your question. Yes, and I will start maybe with the second one. The second one, we saw a slight drop in the same-store occupancy given the fact that we addition new buildings to the same store. And actually, these were buildings that are currently -- we're in the marketing stage. They're still vacant. These are 2 buildings in Tijuana mega region, which are large and one of them in -- I think, in Ciudad Juarez. But I think that's why we saw that major -- that slight drop. However, since these are new buildings and we are in marketing stage, we are confident that, that particular decrease might not affect or it's something that will -- eventually will be able to recover. And then on your -- on your first question, well, I think that we will continue to see a sustained growth in terms of leasing spreads in the double digits, probably. I think so, particularly because we've seen that market rents have held steady in most of the markets, which is very positive. And that's why renewals have come at a major increase in -- and leasing spread in most of the markets, and we've been able to capture value from that. And that will be -- that will continue to be the trend going forward to capture leasing spreads on top of inflation. And that we're very optimistic on that.

Your next question comes from the line of Alan Macias with Bank of America.

Just can you share the cap rate of the building you sold recently? And are you seeing more demand or more offers for -- to buy buildings? And the second question is, what are you seeing in the trend in real estate taxes and insurance costs? Any indication what the government will be looking for tax increases next year?

Thank you, Alan. Let me work first on your second question. So currently, we have secured our insurance costs for the next, I think, it's a couple of years or 18 months. So we have not seen any major adjustments for the moment. Eventually, when we get back to renegotiate that, we will eventually see. And we have not seen any major adjustments in real estate taxes. Now more importantly, even that we burden part of the cost, remember that we transfer part of that cost to our tenants. These are -- in most of the cases, we have triple net leases, and that's a cost that can be absorbed by tenants. And even with that, we believe that it's not a major cost still to their total production cost to many of our tenants. So the rent together with some of the operation costs, it's still very competitive vis-a-vis other regions. In some of the cases, rent and some of the real estate-related costs represent only 7% to 9% of total production costs or in terms of logistics, total operation cost. That's still a very competitive number. So even that we will continue to look into reducing costs. I think that all-in-all, that could well be absorbed by tenants, and they will continue to be competitive. Secondly, to your third question regarding I'm sorry, the cap rate. Sorry, yes. Well, first, yes, we will continue to do asset sales. And this is a good example of an asset, which was a vintage asset that we acquired, I think it was more than 15 years ago. This was not developed by Vesta. And I think -- and the cap rate to in-place rent was 6.2%. And it was a $68 per square foot as a sale and a premium to a price of almost 10% but again, I think this is a good example because we -- there are some vintage assets that eventually we would like to sell and crystallize value from asset sales, sell at a premium and focus on capital allocation and allocate that capital to higher return investments, new buildings, for example, in terms of development and through that close the cycle on investment.

The next question comes from the line of Francisco Suarez with Scotiabank.

Congrats on the great quarter. The question that I have is on Mexico City, it's -- why La Villa has taken so long to lease up? Is there any difference compared to what we saw on Punta Norte? And the second question that I have is related with the overall trend behind, for instance, concessions in the market, say, 3 months of rent or step-up considerations or any CapEx. Has anything changed when you renew leases or offer new leases to new clients to what has been the case in...

Thank you very much for being on the call. La Villa, it's an outstanding project. It's a smaller building compared to Punta Norte. Punta Norte is a major fulfillment center for e-commerce. And I think on that one, it was a very unique opportunity for a larger e-commerce player to -- and for us to have a long-term lease in U.S. dollars. And I think that that's why that one was very, very particular. La Villa, it's the last mile. It's smaller. We have been having some potential clients. However, as maybe we are -- we have waited to finalize and find the right tenant to it. Even that it takes -- it took -- it has taken maybe a bit longer even than expected. The positive to that is that we have seen rents grow in the region. So even some downtime in terms of rents, we are going to be able to capitalize through a better rent going forward with a better client. So we're positive that -- we're optimistic about being able to lease that building up. And I think that eventually, at some point coming into next year, we are -- I'm pretty sure that that's going to be well leased. Actually, we are -- we -- Mexico City has had very strong dynamics. And actually, we recently acquired land last quarter, second quarter. And hopefully, we can start construction again soon. And then regarding concessions, well, I think this one plays out differently market-by-market, tenant-by-tenant. Remember that we do have -- when we establish a lease, we establish a relationship with the tenant. So our focus continues to be long-term leases in U.S. dollars with investment-grade, high-grade companies that we believe can add value to the buildings. And that's why there's always things to negotiate. There could be some concessions sometimes for -- in terms of rent. But in other cases, we get things in exchange to that. So I think that on that, we will continue to be creative but trying to collect rent as soon as possible and keep on focusing on the total return of the asset, not necessarily an immediate income. One of the things that we have stated in the past, and I think plays out even more today is that we rather have a vacant building than a lousy client just because they will be paying out rent. And I think we will maintain that discipline even if it takes a bit longer.

Yes, I love that. So no changes in your underwriting policies. Good to hear.

Your next question comes from the line of André Mazini with Citigroup. André Mazini: Sorry for my connection issue. So my question is around your land strategy on a high-level basis, of course, now you have probably more than 90% of the land to reach the 2030 growth plan. So how do you think about maybe a trade-off, if there is one, a risk return trade-off. On the one hand, I think you don't want to have like a huge land bank because, of course, land does not generate cash flows, right, by definition. But on the other hand, if it's too little of a land bank, your growth plan would be jeopardized. So how do you think about that trade-off of having the exact -- the kind of the optimal land bank in order to not jeopardize cash flows, but not to jeopardize growth plans as well?

Thank you, André. And that's -- I think that's a key question to Vesta's overall strategy, and that's why for us, it's key to have a strategy going forward. And we are pretty much relying on how successful we have been in the past. Remember that when we established Level 3 strategy, we focus also on investing in certain regions and certain markets. We were able to invest over the Level 3 strategy, approximately $1.1 billion in development in Guadalajara, Monterrey, Mexico City, Tijuana, Juarez and some other markets in the Bajio. And it was very successful. And -- but the only way -- and we were able to achieve on that period returns in excess of 10% in U.S. dollars. And that -- you can see all of that in our Investor Day presentation, and I'm actually looking at Page 22, where we were able to make returns of 10% in Mexico City, 10.1% in Monterrey, 10.5% in Guadalajara vis-a-vis relevant transactions in those markets between 6% and 6.7%, which we believe that will continue to be a huge opportunity for -- in our investment strategy going forward, where we, again, anticipate on buying land, focus on the right markets and eventually we will be able to develop a -- we identified $1.7 billion investment for the Route 2030 strategy. And the markets where we will continue to focus is, the 3 main markets being Monterrey, Guadalajara, Mexico City, Juarez, Tijuana and Querétaro. So I think that there's really very few companies that have a strategy going forward that have the land -- the right amount of land. I agree with you, it's more an art than a science how much land we should use. But I think that today being well capitalized and being global in the market [Technical Difficulty] Monterrey, recent land acquisition, it's the right approach so that we can secure land, put infrastructure in place and be ready when demand might comeback. These are going to be very successful projects and [Technical Difficulty] so that you can see [Technical Difficulty] yourself. And again, I think that is unique in the type of [Technical Difficulty].

And it seems that we have no further questions for today. I would now like to turn the call back over to Mr. Berho for closing remarks.

Thank you, everyone, for joining us today. Vesta's focus has been on ensuring we're well positioned to capture resurging demand. We are entering the final quarter of 2025 with a strong balance sheet, high-value operating portfolio and the strategic priority to continue executing on our long-term Route 2030 growth plan ahead of what we expect to be a strong 2026. Thank you.

Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines. We thank you for your participation.