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spk09: My name is David, and I will be your conference operator today. At this time, I'd like to welcome everyone to the FIBRA Prologis first quarter earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, simply press star 1 once again. Thank you, Alexandra Violante, head of IR. You may begin your conference.
spk13: Thank you, David, and good morning, everyone. Welcome to our first quarter 2022 earnings conference call. Before we begin our prepared remarks, I would like to remind everyone that all the information presented in this conference call is proprietary and all rights are reserved. The information has been prepared only for information purposes and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements during this call speak only as of the date of this call. Our actual results, performance, prospects, or opportunities may differ materially from those expressed in or implied by the forward-looking statement. Additionally, during this call, we may refer to certain non-accounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events, or otherwise, except as required by law. As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at vibraprologist.com and download these materials. Today, we will hear from Luis Gutierrez, our CEO, who will discuss our strategy and market conditions, and from Jorge Giro, our Senior Vice President of Finance, who will review results and guidance. Also joining us today is Hector Ibarzabal, our managing director. With that, it is my pleasure to hand the call over to Luis.
spk05: Thank you, Ale, and good morning, everyone. There is a positive momentum that has been carried out from last year. In spite of the recent geopolitical events, the logistic real estate sector keeps expanding at a rapid pace. This is reflected in our strong operational and financial results above expectations, which gives us confidence in our outlook for the year. Given the current market dynamics we're seeing, we are adjusting up our guidance and Jorge will provide more color. Let me give you some highlights. FFO and AFFO posted one of the highest growths since IPO in June of 2014. Occupancy closed at historic highs near 98%, reflecting favorable market conditions and the quality of our portfolio. Rental growth on rollover accelerated this quarter to 11%, which is reflected in the company's same-store NOI. Valuations have increased 6% quarter over quarter and 19% year over year, given the dynamics we're seeing we think that these values are still lagging. We have already sold 50% of the rollover for the year. On the external front, we acquired 670,000 square feet for around $17 million. These properties came from third-party acquisitions and from our sponsors' pipeline. Additionally, on the ESG front, on the environmental side, we achieved 50% of green certifications in our portfolio one year in advance. Our commitment on leadership to sustainability shows in our actions. Fundamental drivers such as e-commerce and structural shifts derived from supply chain disruptions that continue to foster nearshoring and foreign investment in manufacturing will keep on driving the demand in our markets. Demand was 8 million square feet in our six markets, outpacing supply by more than 2.5 million square feet, resulting in vacancy declining to a new record, and this is low of 1.1%. Barriers to supply, such as land scarcity and increased development costs, unbalanced the market. Our markets registered 6 million square feet of new supply In the case of Monterey, Tijuana, and Juarez, this imbalance underpinned a higher occupancy, facilitating rents to rise. With this low vacancy, market rents are expected to grow. This first quarter, we saw a rental increase of 5.3%. The industrial real estate sector has proven resilient against inflation and economic downturns. In an extreme case of volatility or uncertainty, it is reasonable to expect that our tenants increase their inventory, hence their demand for space. Let me spend a few moments on what we're seeing on the ground. On the manufacturing side, current events are making companies review the supply chain and bring manufacturing closer to the end consumer, initiating a nearshoring process. In addition, as a result of the pandemic and economic response, there is a labor shortage. in the United States, and Mexico is well positioned to take advantage of these two trends. Manufacturing is now two-thirds of overall industrial demand. It is broad-based among electronics, auto, medical, household products, distribution, among others. We continue to see several requests from clients requiring built-in suits in the border market and moderate. making evident the lack of available space and the need for future space for our clients. On the logistics front, e-commerce remains to be a key driver of demand near big urban areas. Despite the rising mobility since the last part of 2021, consumers changed their behavior permanently during the pandemic, favoring omnichannel retailing. Due to this, it is expected for these customers to have an increase in their SKUs of marketplaces and additional demand for high-quality space. Current deals are bigger in size than in the past. We see more activity outside of the toll booths, given there is a lack of space in Mexico City and rents are growing. This quarter, we renewed some leases with significant increases in their rent. which indicates that the clients are more open to the new market conditions. We have a strategic balance portfolio and customer base, which allows us to take advantage of tailwinds in both the manufacturing and logistics sectors. Logistics real estate continues to be the favorite asset class among investors, and Fever Prologis is well positioned to outperform. In summary, Manufacturing exports and e-commerce will continue to grow, and these trends will persist during 2022. On the internal growth side, market rents continue to increment. Our mark-to-market increased to 16%. This will be a resilient source for this year and future earnings as leases roll to market. On the external front, we will continue to be active. Our capital deployment plan to invest up to $250 million is on track. In addition, our sponsor has a development pipeline of around 6 million square feet for the next 12 months. These assets are well located and no other competitor has access to anything remotely close to the quality or size. On the vanishing, it remains strong. Our team has done an excellent job obtaining a low cost of fixed debt while extending maturities and also maintaining flexibility to keep growing in a rising interest rate environment. This will be a major competitive advantage as we go into the future. Finally, we remain committed to our shareholders and we put their interests first. With that, let me turn the call over to Jorge. Thank you.
spk04: Thank you, Luis. Good morning, and thank you for joining us. As we said, we started the year stronger than we expected. Market range, in particular, were higher than we anticipated at the beginning of the year. To this extent, we're raising our guidance for 2022, starting with our financial results. FFO for the quarter was $40 million, or $4.7 per certificate, which was a 10% increase in sequential data and 9% compared to the first quarter last year. This is due to the additional revenue derived from 2021 acquisitions and the positive range change in renewables during the quarter, which were higher than we expected. A FFO was $33 million for the quarter, an increase of around 14% when compared to last year. Moving to operating metrics. Living activity was 1.7 million per feet, with a period end occupancy of 97.6%, and 90 basis points increases compared to the same period last year. Our average occupancy for the quarter was 97.7%. We're including this metric starting this quarter and going forward in our supplemental financial information. To give you some context, Average occupancy has been above 96% since the third quarter of 2018, reflecting our operational strength and high-quality client service. Net effective rent change and rollover increased more than 11%, and for the last 12 months, it had a positive change of above 10%. For the quarter, cash semi-store NOI was a positive 3.7%, and GAAP was 3.2%. This increase is driven by annual bumps and rate change and rollover supported by stable ethics. Moving to our balance sheet. We have built a strong and resilient balance sheet, regardless of economic cycles. To this extent, and thanks to the refinancing done in the past two years, we have relatively low cost of debt of 3.7%, with 80% of our debt fixed, average term of 7.9 years, and a loan-to-value just above 29%. Some important facts. We have reached $1.1 billion of debt with $3.7 billion of assets. Our nearest debt maturity is until 2026. We have enough liquidity to reach our 2022 acquisition guidance without breaking our loan-to-value internal metrics, and we have used $215 million out of $400 million on our line of credit. Now, let me update you with our improved 2022 guidance as a result of what we have seen. Due to higher market rent and stable ethics during the quarter, we're improving our same-store cash NOI for the year to be between 3.5% and 5.5%, a 125 basis points increase to the midpoint from our previous guidance. We are reducing our range of our total GMA to be between $30 and $33 million for the year, excluding any potential promote, which represents a $1 million reduction to the previous midpoint. In terms of FFO per certificate, we are raising the range by half a cent to be between 18 and 19 US dollars per CBFI. Before I finish, Let me summarize some of the ESG accomplishments. We maintain a strong focus on Fibra Prologis values, including our long-standing commitment to excellence in ESG, such as the importance of ethical behavior in line with good governance, taking care of the environment, our employees, our stakeholders, and the communities where we belong. That said, let me update you with some of our ESG goals. We expect to reach 100% of our buildings with our green certification by 2025, today at 50%. We expect to achieve 100% of our portfolio with LED lighting by 2025, today at 62%. Give training to more than 700 participants through our community workforce initiative by 2023. With this, let me conclude by saying that We started the year ahead of our expectations, adding to a good market environment a strong and professional integrated management team, making cheaper for logic and attractive investments from a risk and growth perspective. With that, let me turn it to the operator for Q&A. Thank you.
spk09: Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Okay, we'll take our first question from Gordon Lee with BTG. Your line is open.
spk01: Hi, good morning. Thank you very much for the call. Two quick questions. The first one is I was wondering if if you could sort of comment on whether what we're seeing at the border with Texas, and given the political implications of that in an election year in the U.S., is something that worries you, or do you think this is really more seen as just noise from your customers? And then the second question is for Jorge. Given the increase in the FFO guidance, Jorge, I was wondering why you didn't also increase the guidance for distributions. which obviously implies a greater retention, which given your balance sheet would seem like it really wouldn't be all that necessary. So I was just wondering why you didn't raise the guidance on distributions as well. Thank you.
spk15: Good morning, everyone, and thank you very much, Gordon, for your question. It's interesting what is happening in the border. I was visiting Tijuana a couple of weeks ago, You know, border is complicated. In Texas, we all know about what happened to trucks. You see people from migrants, even from Ukraine and Russia, trying to find a place in the U.S. So the complexity that the border has is very wide. And what we have always observed, and this has not changed, is that there's much more influence to what happens in the U.S. compared to what is happening in Mexico for those border cities. What we have experienced from our customers with this truck situation that was in place for two or three weeks is that the customers were in deep pain. They were experiencing delays, over-costs. They were presenting disruptions in the supply chain. And even though we try to support them, on the bottom line, this represents good news for our business. They need to increase their inventories. So what will happen in the border, but I think that the growth to our business are extremely bigger than the potential interest.
spk05: And, Angor, now take the question on the dividend. So certainly we had a strong cash flow generation, and of course this is reflected in the same-store NOI and FFO and AFFO growth. We're reaping the benefits of higher rent change from some of the acquisitions we made last year. As a result, as you know, we increased the distribution in January 12%, and currently our yield is around 4.5% in U.S. dollar terms, which we believe is attractive. Our payout ratio will be around mid-80s for the year, and we would like to keep this cash flow flexibility for growth because we have a certain macro environment which could very easily change on us on a rapidly pace. So that's the way we're thinking. As a final comment, we review every quarter our dividend policy. And, you know, if we see market conditions remaining, we will probably make some adjustments.
spk09: That's very clear. Thank you so much. And next we'll go to Sheila McGrath with Evercore. Your line is open.
spk11: Yes, good morning. I was wondering if you could comment in more detail on the types of tenants driving demand and also comment on the cap rate trends in the market in a higher fashion. interest rate environment.
spk15: Good morning. I think we are seeing this quarter a stronger demand coming from manufacturing. I can probably estimate that about 30% of our demand is coming from Disney or showing frames. The demand of the space in the border is probably as big as we have never seen it. And I think that the issue is coming more on the supply side. The type of customers that we are seeing are 3PL, furniture, auto, electronics, and pharmaceutical. We're starting to see as well a little bit of increase of e-commerce activity in the border. assimilate this due to the lack of labor hand on the U.S.
spk05: And thanks, Sheila, for your questions on the cap rate. So logistic values have been going up globally, and Mexico is not the exception. As mentioned, values increased this quarter 6% and 17% on a year-to-year basis. So cap rates are, you know, for a portfolio are around 6.5%, and the lowest cap rates we've seen are in the low sixes in Mexico City and Tijuana. And then as you go to the other markets, Monterey maybe at 6.5%, and then the others maybe 25 to 50 basis points spread. So what do we see going forward is with the increase in rents, we see that rents are going to be the main source of value growth for 2022. So last year, rents grew 17%. This quarter, 5.3%. And we expect that values will go up. But now, not because of a cap rate compression, but mainly because of increased market rents.
spk10: Thank you.
spk09: And next we'll go to Darrell Gaiotti with Goldman Sachs. Your line is open.
spk16: Good morning, everyone. Thank you for taking my questions. I have two. First, I wanted to ask about lease spreads. So we have seen that lease spreads historically within your portfolio have reached as much as 15%. That said, if we look at in the U.S., we've seen that lease spreads can be double or even more. What I was wondering, though, was with such high demand for industrial assets and limited availability of high-quality real estate, if we could potentially see even higher lease spreads versus history in your portfolio. And then the second question is around your acquisition guidance. So you have $250 million for the year. You've deployed around $70 million so far. And I was wondering if you can comment on potential pricing for this pipeline, if it has at all changed for potential third-party assets. Those are my questions. Thank you.
spk15: This is Hector. Thank you very much for your question. I would like to answer the leases press one. You know, what we are permanently doing, and we try to do this at least once a quarter, is to update the values of leases and the values of cap rates and the values of for assets. This is a continuous exercise that we have done all the time internally. What we're finding recently is that the dynamics on these figures is such that it's a certain problem for us to be updating them, I don't know, at least on a monthly basis. Every time we see a transaction, it represents a new comp, and this is driving numbers with a dynamic that we have not seen in the past. We are presenting a lease express mark-to-market today, 16%. As we were preparing for the call, one of the internal questions that we have is that this number was higher as market trends are increasing very rapidly. The comparison that you make with the U.S. is right. In the U.S., this figure could have a 2 or 3x multiple. I think that the market there behaves in a more perfect manner. It's a bigger market, and it has more probabilities to be updated very rapidly. Mexico is moving into that direction. Bottom line, I do see these market trends going up. I see the customers taking faster decisions. They want to ensure the space more rapidly to have certainty on it. And I think that you will like what you will be seeing going forward regarding business spreads.
spk05: And you're on the acquisition pipeline. We feel very comfortable about our guidance of $250 million. As different from the past, this time it will be a mix of properties that will come from the Prolois pipeline and third party acquisitions. Talking about values, I just answered a little bit of what we believe are the cap rates for the different markets. And I think our acquisitions will be in line with the cap rates I mentioned.
spk08: Thank you very much. Thank you. And next we'll go to Vanessa Quiroga with Credit Suisse.
spk12: Hi, thank you for taking my question and congrats on the results. The first question is on your expected rent increases for your different markets for the full year 2022. And the other question is about your view on development in general in the main industrial regions. Because at the current occupancy rates, I imagine that some tenants that are looking for space are not finding it. And I wonder if development could accelerate or what is stopping it from accelerating further. And yeah, I guess the other question is, would Prologis start developing last mile properties as well in the future in Mexico? Thanks.
spk15: Thank you for your questions, Vanessa. This is Hector. Let me start with the second question because I think that gives visibility to try to answer the first one. I think that the issue of business, and I have repeated what you said about earnings volume, is related to the development side. Land is becoming very scarce. Land has increased prices in some cases by 2x. Entitlement that in the past was very easy to face. Now it can take one, two years to get everything that you need to have in hand. So I think that all of the players, we are full speed considering what we can do on trying to supply additional space. But you know, it is what it is. It takes time. This pregnancy takes more months than what everyone would be expecting. And there are a few things that you can do rather than what we are doing with our sponsors that is anticipating and trying to start with these processes two or three years in advance. And this is why our sponsor, Land Bank, is increasingly important. Having said this, you know, the expected rate increases that we've seen in the markets, are going to be for sure higher than what we were able to observe last year. I see three markets particularly pressured upwards. One of them is Mexico City, the second one is Tijuana, and the third one is Juarez, which is a market that traditionally has not experienced important rainfalls. What are going to be these numbers? I think that these three markets, you should expect at least two digits. I could say 15. uh in in uh in uh particularly new new transaction events are going to be uh driving these numbers up uh finally regarding the last coach or the last mile uh projects that you mentioned we are actively uh chasing them uh our business model is not related to develop from scratch as our perspective is that it's very difficult to make the numbers pencil out on that regard. But, you know, we have a strong pipeline of facilities that have potential to be upgraded and to be launched to the market without this entitlement situation at a more convenient price to our users.
spk10: Thank you very much, Hector.
spk09: Next we'll go to Nick Lipman with Morgan Stanley.
spk17: Your line's open. Thank you very much. Congrats on the numbers and thanks for taking my question. I only have one question. It's similar to the one I asked after the fourth quarter result and it's about calibration. Your net effective rent is high. Your real NOI is about 3%. But when I then go into the supplementary material and I look at Mexico City, I can see that rent per square foot is up only 0.8%. NY is 2%, 3% nominal. And then I look at the drivers. The pesos kind of flattish, maybe down a little bit less than a percent. Your contracts are in pesos and should be linked to Mexican inflation. They're running high single-digit. U.S. dollar is above the reported number. You're buying large-tox products for the higher rent. how do I calibrate the performance of Mexico City with the overall numbers? And also, is something going on in Mexico City? Are you starting to give discounts? Or is it kind of a pause and then it will continue to the upward trends that we've seen in the past? Thank you very much.
spk15: Nicolás, thank you very much for your question. Didn't I start by saying that by no means Mexico City is the acceleration I think that, on the contrary, Mexico City is, if not the strongest, is one of the strongest markets that we have in our portfolio. It is a peso market, and the vast majority of our rents are established in pesos. If you review the supplemental, you will see that we only have four transactions. One of them represented a 21% increase. We had another one with almost 18, 15, 19.5%. So the increases that are happening in Mexico City are there. We see that these numbers, as I mentioned in the previous questions, might be getting higher as vacancies start getting lower and the ability to supply space is very limited. I think that, you know, the company is growing. Mexico City represents almost 40% of our portfolio, and the impact that these increases have long-term takes some time to be reflected in the numbers, but they will get there.
spk04: Just to add to Hector's comment, the Mexico City renewals were in total 500,000 square feet. That's one-third of what we released during the quarter, but it's only 3% of the 17 million square feet that Mexico City represents. So when you see the average square feet, rent per square feet, that impact of 500,000 square feet is very small versus the whole portfolio.
spk08: Got it. Okay. Thank you.
spk09: Next, we'll go to Rodolfo Ramos with Bradesco. Please go ahead.
spk06: Thank you. Good morning, and thanks for taking my question, and congratulations on the result. My first question is on your views on the energy sector. The dust seems to have settled down now with the Supreme Court decision and the constitutional reform out of the picture for now. So how do you expect this to impact your current tenants, and what kind of conversations, if you can share that with us, are you having with future tenants as they're assessing this potentially higher energy cost? So that would be my first question. And my second question would be a follow-up on a similar discussion that we have for Mexico City. If you can comment on Guadalajara, if you're expecting that market to catch up to the more manufacturing-driven markets. Thank you.
spk05: Thank you, Rodolfo, for that. Of course, the energy reform is on everybody's mind. A lot of noise this recent weekend after this important vote. So important to mention, our customers are connected to the CFE network, and they buy electricity from them. And we're not expecting any changes in the short term that it will impact their current operations. So I think currently the portfolio on that regard is operating well. So this issue about the energy reform is about the future of electricity needs, and especially the one that relates to clean energy. So what I can mention is that we have mapped our future needs in every one of our six markets. and we know how much electricity we will be needing to comply with our growth prospects. For that, we have already implemented a plan of investments that is in substations and initiating all the approvals to be ready when the demand will be there. So we're anticipating. And I guess we're also beginning our solar plan this year, which of course complies with the court regulation. But this is something that is evolving, and we're just getting prepared for that.
spk15: On your question regarding the Guadalajara market, Guadalajara is a market that we like a lot. We have a leadership position. A RESPONSOR RECENTLY ACQUIRED AN IMPORTANT PIECE OF LAND, WHICH IS GOING TO BE PROLOIS PARK VICTORIA. AND IT'S A MARKET THAT WILL KEEP ON GROWING RELATED TO ELECTRONICS, E-COMMERCE. THERE'S IMPORTANT INPUT FROM THE ARTICLE INDUSTRY. AND WE SEE AS WELL AN IMPORTANT market regarding data centers, research and development, and some engineering. We do expect that market to keep on being active. Guadalajara has surpassed the expectations that we had on 2020 and 2021. It has gone beyond what we were expecting, and we are ready to keep on growing our portfolio there. Rents, Guadalajara will not be the exemption. They will keep on they will keep on growing. As you can see, our estimation is that in the last year, our rents in Guadalajara have gone above 20%, and this is a very important figure compared on a relative basis to some other markets in El Bajio, for example.
spk08: Thank you. Thank you.
spk09: Next, we'll go to Pablo Montsevis with Barclays. Your line is open.
spk08: Hi, good morning. Can you hear me? Yes, we can.
spk18: Thanks for taking my question. On rents as well, you have been posting very strong net effective rent growth. Basically, my question is, we know that the macro trends are favorable and also domestic trends are in the right direction. But how do you think this rent growth is sustainable, thinking about the two to three years outlook?
spk15: Thank you. Pablo, I think that this is a pretty good question. There's some people that might think that all these rent increase and these increasing values could be considered as a problem that is happening to the sector. And I have a complete opposition to this situation. I think that Mexico was lagging in this type of infrastructure. Mexico is being appointed with the situation that is happening in Ukraine as a manufacturing hub. I think that the conditions that we have, China is being locked down. Another reconfiguration of the supply chain. I think that Mexico has a very strong position and no one else, regardless of the political situations that we are facing, is in better shape to serve this. E-commerce is still in early stages. I think that e-commerce has potential to be duplicated to what we have today at least. And the third important factor is that, you know, replacement values are going up importantly. This is not a bubble because, you know, to supply, to develop a new facility is taking at least 30% or 35% more than what it was a couple of years ago. And those numbers are not going down. Inflation is driving construction costs. There is shortages of supplies where we have a specific strategy to face them. So I don't see these values really going down. And I cannot see in the horizon an important change on the slope of how things are growing. I think that eventually they will have a more moderate pace, but in the short term, the next two or three years, I keep on seeing a very similar dynamic to the one that we're facing today.
spk00: All right.
spk09: Thank you. Next, we're going to go to Francisco Suarez with Scotiabank. Your line is now open.
spk14: Thank you. Good morning. Congrats. And apologies if the question was addressed before because I had issues connecting. But the question that I have is that, you know, it relates with your new ambition to have 100% of your GLS certified. And by the way, congrats on reaching your target already ahead of time. On this regard, you have been very vocal on how these buildings are considerably less energy, carbon, and water intensive. Do you think that these savings will play a role in maintaining rents above the average for your buildings? Thank you.
spk04: Thank you, Paco, for the question. I'm not necessarily sure if there is evidence to tell you that a green building will be able to have a higher rent. The evidence that I can give you is that our clients, our tenants, as they move to more ESG-oriented tenants, and they require that their buildings have some kind of green certification. So from that extent, the buildings are sexier, if you may, against one that does not have that kind of certification. Not necessarily on the rent. It can be. But what we are seeing is that tenants or clients require the state because of their own ESG parameters. And obviously, we've commented on, you know, the energy reform, and we're trying to do this solar initiative and all that. And that also will add up to, you know, the stickiness or the attractiveness of these buildings. But I cannot tell you with evidence that a green building has a higher rent or could have a higher rent, but that makes sense, your question, and I think it's more on the, what we have seen is more on the stickiness on those buildings.
spk05: Paco, let me just comment where we're going directionally. Of course, ESG is front and center, and we want to be taking the leadership. So we are beginning to measure the impact that comes from our clients and tenants. So we are beginning to measure energy consumption, water consumption, et cetera, coming from our tenants. And I think the biggest impact will be in making joint programs to reduce those impacts with our clients and putting that to work with them. I think it will be our objective and their objective And I think once we have those programs in place, that will create just a very, very important stickiness to the portfolio. So more coming on this. This is something that we're working on, and you will hear more on that.
spk14: I think that is very clear. Thank you very much. So in other words, it seems that it allows you to engage better with your tenants, improve or enhance your already high retention rates. And for sure, that has... play a role at least on the occupancy rates, isn't it?
spk05: It's creating a partnership, Paco. So how can we both reduce the impact on the environment? And of course, this will have long-term implications on business relationships, not only in the places we do business, but where our clients grow. So I think this will be very important.
spk14: Thank you so much. Take care.
spk08: Okay, next we're going to go to Andre Nazini with Citigroup. Your line's open. Go ahead, Andre, your line's open. Mr. Nazini? You may be on mute. Go ahead.
spk09: Okay, we're going to go ahead and move to the next question here, no response. We're going to go to Adrian Herta with JP Morgan. Your line's open.
spk03: Thank you. Hi, everyone. Quick question just on the FFO. The acquisitions that happened during the first quarter, did they have any contribution to revenues in the quarter? And the second question on the guidance as well is if we analyze the 1Q FFO, it's almost 19 cents versus a guidance of 18 to 19 cents. So just wondering on why the low end of the guidance.
spk08: Thank you, Andrés.
spk04: Thank you, Adrián, for your question. Your question was on AFFO or SFO? I couldn't... AFFO. AFFO? AFFO. AFFO. On the acquisition side, yes, we obviously, as I said in my opening remarks, the acquisitions had an impact on the SFO, on the growth. We... acquired if you remember at the end of last year on December 15th a portfolio called TJ1 and most of it in Tijuana and all that new revenue you made came coming down to FFO just adjusted by some GNA and interest expenses derived from the line of credit so yes the answer to the first question is yes the acquisitions everyone every single one of the positions had an impact in SFO. Then on your other question, our SFO range increased 50 cents for the year, between 18 and 19 cents, U.S. dollar cents. The main reason for the adjustment that you see, and you are well on saying, well, you made 4.7 cents of SFO for the year in the quarter, for the year, I mean, it seems that is going to be, you know, closer to the high end. The difference, the main difference is just ethics, since ethics is not hedged for ethical purposes. And we obviously have an assumption of ethics, 21 pesos, but if that changes, obviously that changes the ethical. But that's the margin that we leave for any movement to your question.
spk03: Understood, Jorge. Thank you.
spk09: Next, we're going to go to Alan Macias with Bank of America. Your line is now open.
spk07: Hi. Thank you for the call. Just if you can comment on your expectations on EBITDA margin for the year. Do you expect to have a contraction, another contraction against 2021? What are you seeing in the level of taxes and insurance? Will this level be similar to the first quarter? And also another corporate expenses, it's $1 million. It has been this quarter and last quarter. Should we expect a similar level to the last two quarters? And are these expenses related to the acquisitions you are making? And I guess, should we expect an expansion in EBITDA margin until 2023? Or are you seeing the increase in rents being pushed through to the margins too? Thank you.
spk04: It was hard for me to understand the first question, but let me take a crack at it. The first question was regarding our operating expenses at the real estate level regarding insurance and some taxes like real estate. Those are passed through to our clients. In the first quarter, you always see a higher expense because that's when we pay the real estate tax insurance for the whole year, and then we get that back. You see it in the balance sheet as a receivable. Well, all you would see an increase there in the first quarter, but all those expenses are passed to our clients, or most of them, because we have about 80% of our leases are triple met. Then going down to corporate expenses, And they basically you have. We only have two corporate expenses. One is the fee to per logis based on AUM. This one grows as we acquire buildings or valuations grow because it's based on valuation. So because we did the acquisitions and there was an increase in valuations, you have proportionately increase in that fee. And on the third part and the other one is the third party expenses. are being almost the same as other years. So there's no significant move there on that side. But yes, you will see corporate expense go up as we acquire buildings in particular. And your third question was about EBITDA margin. EBITDA margin will stay around where it is today. Alan, it has moved two, three basis funds up and down. in the recent quarter for some other events, but it won't expand much or not significantly. You can see in terms of a margin perspective to see the EBITDA margin at the current level where you see it today. If you look at it historically, the average is what we have today, a little below maybe, but in line. You won't see an expansion there.
spk08: Did I answer your question?
spk07: Yeah, thank you. Thank you. Just curious on the taxes and insurance line. I guess in 2021, it was pretty stable through the fourth quarter. The same as in 2020, no? Just, I guess, a reflection, I guess, of the higher acquisitions you made in the fourth quarter and the first quarter, I guess. That would explain the higher higher level during the first quarter of this year. Yeah, of course.
spk04: As you grow the portfolio, you have more real estate taxes and more insurance to pay on a nominal basis. On proportion, almost the same versus the AUM or the annualized revenues of the portfolio.
spk07: Okay, great. Just in absolute terms, I guess last year, quarterly, it was around $1 million. dollars, no? And I guess you spread it out through the year, no? But just wondering why it's so much higher this quarter. Thank you.
spk04: I mean, it has to do with acquisitions we did. There is some delays or timing issues from recuperation of taxes and payment of taxes. As I said, not all of our leases are triple net. So it depends on the new acquisitions that we did. But if you see it on a relative basis against the revenues or the stabilized revenues or the AUM, it's basically the same. It grows as it grows. Taxes in Mexico and real estate have grown in different municipalities. But we pass it through to our clients, the part that we can pass through.
spk07: Thanks, thanks.
spk04: Thank you, Alan.
spk07: Any increase in insurance costs?
spk04: No, not significantly.
spk08: Thank you.
spk09: As a reminder, everyone, to ask a question, press star 1 on your telephone keypad. Next, we're going to go to Andre Nazinia with Citigroup. Your line is now open.
spk08: Andre, your line is now open. You may be on mute, sir. Andre, your line is now open.
spk09: Okay, we're going to go to Francisco Chavez with BBVA.
spk02: Hi. Thanks for the call and also congrats on the results and the advances on the ESG front. My question is regarding your ambitious target of having 100% of your buildings certified by 2025. Is there a significant impact on CAPEX related to this certification plan. And also, you can give us an idea of how much capex do you have to invest in order to certify a particular building? Thank you.
spk04: Thank you, Paco, for your question. Regarding your first part Our CAPEX is going to be anywhere between 13% and 14%. I mean, whatever we put on the buildings to make them a green certificate is already included in our CAPEX forecast. So for modeling purposes, you won't see a change. In terms of how much it costs, well, it depends. If we do BOMA, which has to do with grant certification on the operations. And once we buy a building, it's easier to do because LEED certified goes from the ground up. The cost of that is maybe for buildings $70,000, $20,000. It's not significant. What is significant is the amount of work us and our tenants have to do to get the certification. On the LEED side, that's more expensive. Maybe $50,000 depends on the certification level. But it depends on the, or $100,000, it depends. It goes from ground up. As you build the building, you certify it to be LEED certified. So answering your question is not significant versus the... that we guide, and it's already included in our guidance for each year.
spk08: It's a matter of time. Thank you, Paco.
spk09: All right, next we're going to go to Adolfo Margain with Signome Research. Your line is now open.
spk10: Hi, everyone, and congrats on the results. My question is regarding your acquisition pipeline. I know that you already mentioned your expected cap rate. I think it was around 6 percent. But could you give us more color on the initial occupancy on these properties you have?
spk08: Thank you.
spk05: Thank you, Adolfo, for your question. So I guess the properties that come from the Prolois pipeline, they are normally stabilized. So our experience is that they are 100% occupied. And most of the portfolios that we buy also have a very high occupancy. And we believe that the pipeline that we have will be in those conditions. So the pipeline will be there. some value added acquisitions in which we buy empty buildings is more on the last touch properties, but that would be at the minor part of the acquisition pipeline. So you can expect that, you know, 95% of the pipeline will be, if not fully leased, 95% leased.
spk10: Okay, thank you. So these empty buildings will have already the clients so they can start using them when you buy them.
spk05: And the last touch properties, these value add acquisitions, we do some remodels. So we remodel the property and that takes some time. We go to the permitting process and then once the property is ready, we put it out to the market. And they normally leave between, you know, once they're ready, maybe, you know, in a period of You know, from zero to 12 months, that's what we program. But I get the experience that they normally leave before six months.
spk08: But that's only on the last touch Mexico City province.
spk10: That was very clear. Thank you. Thank you, Adolfo. Thank you.
spk09: This concludes today's question and answer session. I'll now turn the call back over to Luis Gutierrez, CEO, for any additional or closing remarks.
spk05: Well, I want to thank everybody for their time and, of course, now that, you know, everything is open, please feel free to reach out and maybe, you know, we invite you to have a property tour just to refresh, you know, maybe a couple of years of being locked down. And we feel very good about our business. We feel very good where we are positioned. And I also have seen unprecedented conditions in our logistic real estate sector and where Fever Prologis is. So thank you very much and looking forward to see you soon.
spk09: This concludes today's conference call. You may now disconnect.
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