Logistic Properties of the Americas Ordinary Shares

Good morning. Welcome to LPA's second quarter 2024 earnings conference call. My name is Rob and I will be your operator for today's call. At this time all participants are in a listen-only mode and please note that this call is being recorded. There will be an opportunity for you to ask questions at the end of today's presentation. Now I would like to turn the call over to Ms. Juliana Dominguez, Investor Relations. Please go ahead.

Welcome to LPA's second quarter 2024 earnings conference call. My name is Juliana Dominguez with LPA's Investor Relations team. Joining me on today's call are Thomas Mastrono, Chairman of the Board, Esteban Salgarriaga, CEO, Paul Smith, CFO, and Annette Fernandez, Chief Operating Officer. Before we proceed with reviewing 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 prospect 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 supplementary materials that we may reference during the call as well. If you have not already done so, we encourage you to visit our website at .LPAmerica.com and download these materials. With that, I'll turn the call over to Thomas.

Thanks, Juliana. Welcome, everyone, and thank you for joining us. I'd like to say a few words before turning the call over to Esteban and Paul. To our LPA shareholders, you have invested in Latin America's premier cross-border, vertically integrated industrial real estate platform. Your confidence and foresight have enabled LPA to be well capitalized, allowing us to deepen our presence in existing markets and enter Mexico, the region's most interesting and fastest growing industrial sector, benefiting from strong nearshoring trends supported by Asia and Europe, as well as strong e-commerce tailwinds. These trends drive substantial demand for institutional quality properties for clients like those already serviced by LPA. Additionally, you've entrusted us to lead your investment via a strong and independent board, along with a management team possessing exceptional operational and regional expertise. As a result, we believe LPA is optimally positioned to execute a well-defined strategy to expand our differentiated and unique platform within Latin America's under-penetrated industrial real estate markets and achieve even higher levels of growth. I'd also like to remind you that a few weeks ago, we announced the addition of Francois Lavertue and Javier Martina to LPA's board as independent directors. Francois brings considerable expertise in scaling businesses and possesses a deep knowledge of AI solutions for supply chain management. Javier, a former member of LPA's predecessor entity, has an intimate understanding of our company and a strong track record of investing in and growing real estate companies in Latin America. Both bring extensive international and, more importantly, regional experience, further strengthening our board. To conclude, thank you very much for entrusting your capital to fund LPA's exciting new growth phase. We look forward to engaging with you in the future, and now we'll pass it over to Esteban.

Thank you, Thomas. Good day, everyone. It is a pleasure to welcome you to our inaugural earnings call as a public company, marking a significant milestone in our platform's ongoing evolution. We are pleased to inform you that in the second quarter of 2024, LPA's portfolio of operating assets demonstrated robust performance, driven by our strong fundamentals in favorable market trends and dynamics. Before we proceed with our review of second quarter results, I would like to provide some important context. The thing on the New York Stock Exchange was a means, not an end. As we have expressed before, it provides a liquid capital base and market access for us to continue expanding in our existing jurisdictions, and more importantly, to enter the Mexican market to capture growing demand for institutional quality, industrial real estate. Much like the other growth markets where we operate, Mexico presents us with an opportunity to serve global, regional, and prominent local companies as premier, Class A, realistic facilities are not offered at the same pace at which supply chains need to readjust to meet new economic and geopolitical realities. Similar to the other countries where we operate today, but at a larger scale, Mexico's industrial real estate benefits from strong e-commerce trends, led by growing internal demand, as well as from favorable shifts in nearshoring and reshoring. We aim to capitalize on these opportunities by extending LPA's vertically integrated real estate platform to Mexico, with a focus on the northern region and what we refer to as the USMCA trade corridor, where international and domestic companies produce goods destined for the US market, and where we can maintain our US dollar exposure. Our Mexico strategy centers on catering to the region's extensive manufacturing distribution ecosystem through LPA's premium facilities, of which new builds are environmentally certified through the IFC's edge designation. We have a strong pipeline of attractive opportunities in Mexico that are currently under careful analysis, which we are ready to act on with our available capital. Rest assured, we will apply the same demanding investment criteria to consistently guide our approach. Given that Mexico is a new market for LPA, but not for its executive team, we intend to walk before we run, focusing on partnerships with companies that operate stabilized assets, but lack internal development capabilities, and who recognize our exceptional operating performance in other markets. We intend to be rational and disciplined bidders for assets, as we are fully aware of the competitive dynamics in this market. As we think about asset acquisitions, we are thoughtful about how each asset will complement, fit within, and strengthen our existing property and tenant portfolio. Remember the Mexican assets underlying performance will be largely independent of those in Costa Rica, Colombia, and Peru, where we operate today. Expanding on that thought, we expect to gain access to tenants whose performance is very much delinked from our current tenants, effectively diversifying our overall portfolio risk as we expand our tenant roster. At the same time, operating in Mexico will give LPA more direct exposure to US consumption, as these are export-driven markets, whereas our existing asset base primarily serves logistics for domestic consumption. Lastly, Mexico offers the opportunity to keep dollar-based rents as is of preference. In summary, both organic and inorganic investments in Mexico will add significant value and complement LPA's overall asset portfolio, enabling us to grow and continue serving our existing multinational tenants, while enhancing our capital deployment in opportunities we believe will be highly creative to our enterprise. By way of example, we are currently assessing several operating asset acquisitions. Although we do not expect nor need to close in all of them, these would be additions to our portfolio where several sellers seek partnerships to accelerate their access to capital and develop adjacent land they own. They value a partner like LPA because of our established reputation, the quality of our tenants, sophisticated development capabilities, and our strong track record of successfully operating stabilized assets. Through our network, we identify properties that are appropriate for LPA and generally off-market. Additionally, we continue to see abundant opportunities in our current markets. With LPA's existing land band and an attractive pipeline of prospects to grow and strengthen our competitive advantage. As communicated, leading up to LPA's public listing, we also plan to increase our GLA in Costa Rica, Peru, and Colombia. For instance, our 750,000 square foot project in Costa Rica is in the later stages of development and has attracted considerable interest from potential tenants. This development is adjacent to one of our existing parks and is being co-developed with the owners of the land they're contributing. It's important to highlight that the project is being financed through capital raised locally by LPA for which we charge fees. These project level partnerships are a testament to how local investors value the quality of our product and development processes and recognize the strength and reputation of LPA, which has been further enhanced by our recent NYSE American listing. In several of these instances, LPA will own a fraction of a project's equity, keeping control provisions to manage development, financing, leasing, and -to-day operations. While the balance of the equity comes from local investors we've assembled, such as family offices and other institutions. Over time, we have been steadily building and institutionalizing this capability, creating locally sourced joint ventures while raising fee-paying capital for LPA, which improves our unit economics. Further, we plan to replicate this model in Colombia, as we have already done in Costa Rica and Peru. With that context, I'll pass the call to Paul to discuss in more detail our second quarter performance.

Thanks, Esteban,

and good day everyone.

As Esteban noted at the beginning of his remarks, the fundamentals of our business remain strong and in line with our expectations. Our operating assets continue to perform well during the second quarter, supported by favorable market trends and leasing dynamics. Second quarter rental income increased by 10% year over year, driven primarily by Costa Rica and Peru growth. Leasing dynamics remain positive, particularly with regard to renewals in these markets. We're being tactical and patient with our available space, aiming to market our GOA to market lease rates. For example, in Colombia, we consistently see leasing spreads between 15 and 25% higher. With this in mind, we are managing occupancy accordingly. This is why occupancy has increased slightly in Colombia. I will elaborate on this in a moment. Our revenue increase markedly compared to last year's quarter. This was due to expenses incurring taking LPA public in the US. This includes legal, compliance, reporting, and marketing expenses totaling 1.8 million. There was also a non-cash expense of 1.1 million related to implementing stock-based compensation. Upon calling public, merger accounting stipulations required us to register a one-time non-cash expense of 44.5 million in the first quarter. This expense is attributable to the costumer share valuation embedded in the process and is reflected in our six-month results. Since the transaction was booked in accordance with Accountable IFRS 2, the difference in the fair value of the shares deemed to have been issued by LPA and the fair value of two A's, Identified Net Assets, represents a share listing service received by LPA. And thus had to be recognized as an expense upon completion of the merger. Again, this was a non-cash expense. Moving further down the income statement, we reported a 10.8 million in other income, bolstering our cash position. This was mostly the non-recurring fee income related to the release of certain LPA shareholders from their lock-up agreements. Now, I'd like to provide a few highlights regarding our markets. In Costa Rica, -over-year revenue increased 9.3%, reflecting the completion of a park there that's now leased up. Also noteworthy was a .3% increase in expenses. Ruin by the incremental maintenance, property management, and other costs associated with bringing two new additional buildings online. We expect the earnings power of these buildings to increase in a few months as the initial rent abatements expire and these properties align with our revenue expectations. Moving to Peru. In Colombia, -over-year revenue grew 20.7%, mainly reflecting new leases coming online. As communicated previously, we signed a 10-year lease for 239,000 square feet in our new logistic park in Callao with a global consumer products company. In Colombia, -over-year revenue decreased 2.3%, primarily due to last year's tactical divestment of Building 500 to a bank in Colombia's subsidiary, as previously announced. Nevertheless, we successfully implemented inflation adjustments for .8% of our portfolio during the quarter. So far, we have captured approximately 20% of the potential rent growth to date, with the remaining adjustments expected to be made in subsequent periods. Lastly, in both Peru and Colombia, occupancy fell slightly, mainly due to being more selective as we market the limited space to new rental rates to those tenants who need our premium product the most. Before we move to the Q&A, we're announcing on this call that we have refined our Zadravena Logistics Parks in Costa Rica for $60 million. Despite the new loan's larger size, as well as its longer-term and 20-year amortization profile, it bears a lower interest rate. This highly favorable refi with a local bank is a function of the quality of our relationships, assets, operating capabilities, and tenant base. When this property was underwritten, it was projected to be leased up in 48 months. It actually took only 30 months, and the rents were also above forecast. Additionally, we were able to use a part of the funds for distribution to the project's equity holders. LPA has a roughly 24% stake in this property, although we control it. Previously, it was unthinkable in our industry and markets to use ZAD to pay a distribution to the shareholders of a development project. In effect, we have been changing the financing landscape in our markets and to our advantage. This speaks of how well we manage the LPA financially, as well as operationally. That concludes my review. Operator, please open the call for any questions.

At this time, we will open the floor for your questions. If you would like to ask a question over the phone, please press star 1 on your telephone keypad. As a reminder, you can also submit your questions online by using the Q&A function of the webcast platform. And we will pause for a moment to prepare for the question and answer session. Again, if you would like to ask a question over the phone, it's star 1 on your telephone keypad. And again, we will pause for one moment. And our first question comes from the line of Philippe Berrigan from BTG. Your line is open.

Hey guys, good morning. Thanks for the call and for taking my question. So it seems like you guys are very confident on the industrial estate market. It's obviously been very hot. Last week we saw ProLogist finally finalize the TerraSina transaction. So I'm just curious, you guys talked in the opening remarks, the new sharing opportunities, the e-commerce. So I'm just curious what sort of markets in Mexico you might be looking at if it's very holistic, or you guys might be looking something more towards the north or something more in Mexico City. That would be my question. Thank you.

Thank you, Philippe. We appreciate you joining us for the call today and for your question. In a nutshell, we're focused on what we call the USMCA corridor. That basically does encompass the north, the lines through which take us to Mexico City. And those I would say are the main markets we're looking at. So we're definitely looking at Monterrey, Juarez. We're interested in Caluiz Potosi and Mexico City and Puebla. So that's kind of the focus where we're mostly looking at right now. The recent transaction we agree is supportive of the industry. It reflects an interesting dynamic. And it's one that we think we can also benefit from. So that's the summary of where we're focused on right now in Mexico City. It's the first markets we address and approach.

Got it. Very clear. Thank you.

Ladies and gentlemen, with that we'll be concluding today's audio question and answer session. I would like to turn the floor back over to Juliana Dominguez, Investor Relations, for any webcast questions.

Thank you, operator. At this time, there are no further questions. Thank you. I would like to turn this call over to Esteban for a closing remark.

Thank you, Juliana. And thank you all again for joining us today. We're really excited about the many opportunities that we see ahead in both our current markets and Mexico. We strongly believe that we have the right strategy, platform, and team to effectively capitalize on these opportunities and drive substantial value for our shareholders. We look forward to updating you on our progress on future earnings calls as well as meeting some of you in person. Please reach out to Juliana from our LPA's Investor Relations office if you'd like to arrange a call or a meeting. Once again, thank you for your time and interest in our company. Have a good day, everyone.

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