Fibra Prologis Reit Ctfs

Thank you for standing by and welcome to the Fibra Prologis third quarter earnings conference call. 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 star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I'd like to advise all participants that this call is being recorded. Thank you. I would now like to welcome Alexandra Villalante, head of IR, to begin the call. Alexandra, over to you.

Thank you, Mandeep, and good morning, everyone. Welcome to our third quarter 2023 earnings conference call. Before we begin our prepared remarks, I would like to remind everyone that all information presented in this conference call is proprietary and all rights are reserved. 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 statements. 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 401K statements in the future, whether it's 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 fibraprologist.com and download this material. Today, we will hear from Luis Gutierrez, our CEO, who will discuss our strategy and market conditions, and from Jorge Giró, our Senior Vice President of Finance, who will review results and guidance. Also joining us today is Hector Ibarzabal, our Managing Director, Federico Cantu, our Head of Operations, and Alejandro Chabelas, our Head of Evaluations and Research. With that, it is my pleasure to hand the call over to Luis.

Thank you, Ale, and good morning, everyone. The market continues to accelerate, and real estate KPIs are set to have another record in absorption, rental prices, and higher valuations. Our third quarter financial and operating results once again came above expectations. Let me give you some highlights. we had a record rent change on rollover of 46.5%. That is reflected in the same store cash NOI. As a result, we recorded the highest FFO and AFFO growth, setting the company in an upward earnings trajectory, offsetting the dilution created after the follow-on. The portfolio continues to be very resilient, and occupancy is closing above 98 percent. These levels have been for the last five quarters. On the external front, this week, we announced the acquisitions of 1.1 million square feet, and we are prepared to shortly acquire more properties from our sponsor and third parties. In addition, Prolois has launched the construction of solar panels in 20 buildings. This represents more than 15 percent of the goal, And it's a great step to meet our net zero goals. With that in mind, the actual environment is good news to our business regarding the logistic demand of space. And we expect it to remain well into next year and beyond. Growth in our sector continues to be at high levels. Net absorption in our six markets was about 31 million square feet year to date. And this is 18% growth versus 2022, mainly driven by a strong space of pre-lease deliveries in the manufacturing markets, coupled with new leasing from the logistics and e-commerce sector. Vacancy is 1.3% in line with previous quarter. We forecast vacancy to rise from 1% in 2022 to 1.5% by 2023. We do not foresee oversupply in any of our six markets in the near future. Market rental growth is expected to reach around 16 percent for the year. We're estimating double-digit rental growth for 2024. This is explained by the tightness in the market and also that replacement costs have risen more than 10 percent in the past six months due to the strong peso and rising land values, which pressure rents upwards. Let me expand on what we're seeing on the ground. This price represents 46% of total space under construction. This does not take into account pre-lease spaces, which we think is also substantial. Energy availability remains limited. We have recently seen this issue affect Monterey very clearly, in addition to the border markets where this problem has been prevalent for some time. The energy availability issue has led some competitors to develop or construct space without energy near the border. For instance, our estimates indicate that 40% of the vacant space in Juarez is under this situation. On the manufacturing side, Monterrey continues to be the darling of nearshoring, but we've also seen impressive activity in Juarez and Reynosa. The main sectors that stand out are 3PLs supporting the supply chains of manufacturing companies, electric vehicles, and auto sectors, as well as electronics related to the semiconductor industry. Furniture and air conditioning, where Mexico appears to be building a strong foundation for the long term. Recent outreach from manufacturers to our sponsors reflects an elevated appetite or built-to-suits with sufficient energy to meet their needs. The renovations are resulting in rising rents and higher terms. On the logistics side, consumption expectations continue to increase, with consensus now expecting 3.8% real growth for the year. We're seeing this estimate reflected by a very active leasing pipeline, especially with e-commerce tenants particularly returning to the market. Mexico City continues to show extremely attractive supply-demand dynamics, and vacancy is below 1%. Given the tightness of the market and interest in the footprint expansion, clients are being more aggressive in bidding for the limited available spaces. Regarding the value of portfolio, our externally appraised value increased almost 9% of the quarter, mostly explained by market rental growth. We think our valuations will remain on a positive trajectory given the strong fundamentals. In summary, Mexico is a leading performer across global logistic markets. Near-shoring and supply chain reconfigurations are long-term structural changes in which companies are making strategic decisions to relocate their operations, and we expect this demand to continue for the coming years. The most important value increase will come by the adjustment of our in-place rent to market and the growth that it generates in the cash flow. We will keep on pushing rents. Our mark to market for the total portfolio is at 36% and we're estimating a higher number for next year. On the capital front, we will continue to play offense. Our sponsor has a pipeline of projects for 2024 and it's also replenished its land bank, in addition to some third-party acquisitions. Our balance sheet is an important competitive advantage, and we will remain disciplined. Seaver Prologis continues to outperform. This is mainly given its focus strategy to be the leader in the six most active industrial markets