Fibra Prologis Reit Ctfs

Thank you for standing by. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to the FIBRA Prologis First Quarter 2025 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Alexandra Violante, head of IR. Please go ahead.

Thank you, Ben, and good morning, everyone. Welcome to our first quarter 2025 earnings conference call. Before we begin our prepared remarks, please note that all the information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this goal are based on information available as of today. Our actual results, performance, prospects, or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this goal, 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 had prepared supplementary materials that we may refer during the call as well. If you have not already done so, I will encourage you to visit our website at seraprologist.com and download this material. On today's call, we will hear from Hector Ibarzabal, our CEO, who will discuss our strategy and market conditions. And from Jorge Giró, our CFO, who will review results and guidance. Also joining us today is Federico Cantu, our head of operations. With that, it is my pleasure to hand the call over to Hector.

Thank you, Ale, and good morning, everyone. I would like to start today's call talking about the current macro environment that we are seeing. Trade uncertainty is at levels we have rarely experienced in the past. Tariffs ranging between 10 and 49% were established by the U.S. on most countries globally, while China received tariffs prohibited to trade. Mexico and Canada stand out as the only major exporters to the U.S. that retained zero tariffs under the existing USMCA agreement. This shifting trade landscape could affect our business in two important ways. First, the tariffs may impact U.S. economy, and as Mexico depends in great measure on U.S. consumption for its exports, this could affect demand for products manufactured here. In response, customers could slow down investments. On the other hand, Mexico is well positioned among exporting countries with important competitive advantages. which could spur a new wave of nearshoring investments. Fibra Prologis runs its business in a disciplined and resilient way, and this is exactly the kind of moments we are built for. The company delivered solid financial and operational results and a record rate change on rollover. Jorge will talk more about our specific performance. I'd like to describe what we are seeing from customers on the ground, mainly before and after the tariff announcements. Prior to April 2nd, we had seen very cautious customers on the manufacturing segment, not taking decisions in advance of the tariff news. After April 2nd, we have observed increased activity from certain customers across industries such as electronics, medical, and appliances, which are seeking space in the border markets. Regarding the auto sector, supply chains will have developed over decades, will face complexity in the event of any reconfiguration, and will require important time to do so. Our existing customers in this sector have continued to renew. And the trend that we have observed, not only in this sector, but others as well, as it could have been expected, has been for some companies requesting shorter lease term, aiming for flexibility on their uncertainty on long-term demand. On the consumption segment, we have not identified a change in customer tone before and after April 2nd. Even though consumption in real terms was practically flat in the quarter, consumption markets are experiencing the lowest vacancy, and e-commerce continues to grow in the double digits, putting Mexico among the top countries in e-commerce growth in the world. As a result, customers continue to renew as well as look for expansion opportunities. Let me now shift to real estate activity across our markets. New leasing activity reached 7.4 million square feet below the 2024 average of 10.6 million square feet, mainly driven by a sharp slowdown in demand in the border markets. Due to the low net absorption and stable supply, vacancy in our markets increased 50 basis points to 4.1%. which compares to the 7.3% long-term average. So we're still at very healthy levels. During the current environment, market rate growth has leveled out. Weakness in certain manufacturing markets has been offset by the strength of the consumption markets. We would like to highlight that Mexico City and Guadalajara that represent more than 50% of our operating portfolio by value experienced declines in vacancy in the first quarter. It is also important to mention that our Mexico portfolio remains the prologist region with the lowest vacancy worldwide. In closing, we are built to navigate on any environment, and when the dust settles with our strong balance sheet, One of the best in our sector, we will be uniquely positioned and ready for any opportunities that may arise. We have a leading franchise in the sector, and as always, we will continue to listen and work closely with our customers in providing them the best service we can. Finally, as you all know, we remain committed to creating long-term value for our shareholders. With that, I will pass the call over to Jorge.

Thank you, Hector. and good morning, everyone. We're proud to share a strong first quarter marked by the successful integration of Terrapina, a transformational step that has importantly expanded our corporate portfolio by 40%, solidifying our leadership in Mexico's industrial real estate sector. Results speak for themselves. FFO reached nearly 98% or 6 cents per CBFI, A 25% increase per certificate compared to same period last year. ASFO totaled $88 million, up almost 78%, driven by the acquisition of teraphim. On the operational side, we lived 3 million square feet during the quarter, in line with expectations. Occupancy, both period end and average, remained above 98%, outperforming our forecast. Tenant retention came in just under 94 percent, exceeding internal projections. Net effective rent change hit a record 65 percent, underscoring our team's ability to effectively mark-to-market our rents. Same-store cash NOI rose by 2 percent, while GAAP NOI increased 4.6 percent, reflecting healthy rent growth and annual escalations, partially offset by threshold evaluation. Now to our balance sheet. Our financial position remains strong. Fibra Prologis continues to stand out as the only pure-in-play industrial Fibra with a triple B plus rating, a clear reflection of our disciplined capital management and sound fundamentals. As shared previously, we've launched a refinancing strategy to replace short-term debt with long-term financing. This will enhance our liquidity and flexibility, improve our maturity profile, and lower our cost of debt on a relative basis. Looking ahead, after stress testing our financial model, we are reaffirming our 2025 guidance. While the macro landscape remains fluid, we maintain a constructive outlook and have strong confidence in our team's ability to deliver. We're also being proactive in managing lead rollovers. Although 13% of our net effective rent rolls in the remaining of the year, we're already in active negotiations in pre-leasing discussions. In closing, I want to sincerely thank our on-the-ground teams for their exceptional execution this quarter. We remain laser focused on our long-term strategy and fully prepared to adapt as needed. Fibra Prologis was built to thrive in times like this, with a high-quality portfolio, a solid financial foundation, and a team that delivers with discipline and agility. Thank you. I will turn it now for Q&A.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We ask you to limit your questions to one. If you have a follow-up question, please press star one again to return to the Q&A queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rodolfo Ramos from Bradesco BBI. Please go ahead.

Thank you. Good morning, Hector, Jorge, Alex. Thanks for taking my question and congratulations on the very strong results. On the record rent rollovers that you discussed, Hector, can you help us reconcile this level of rental adjustments with the current environment where companies are still assimilating all these news flow on the tariff front? I mean, I'm not surprised to see this in the logistics market. We've seen it in the past, but it's interesting to see it even in the nearshoring northern markets. So thank you.

Thank you, Rodolfo. And as we have mentioned in the past, I think that Prologis is very well positioned to operate and to get this type of range changes, keeping a good relation with our customers. We are a customer-oriented company. The way we provide service to our customer, the relation that we have with our customers, we try to solve any specific situation that they might have. This is a unique tool that we have. Whenever we have our negotiation, we already, in most of the cases, have a very close relation with our customers. This is a very important tool to reach these type of figures. It is important to mention, though, that some of these high numbers come from vintage contracts that had several years old, and this is why you are seeing a 65% rollover. It shouldn't be understood that the market is growing this way, but our contracts are the ones that are catching up according to market conditions. We always have the best product and the best service on the field, and this allows us always to take rents to market. We don't go above market, but we take rents to market.

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

Hi, good morning to the epidemiologist team. Thank you for taking my questions. The first one is on the cost side. You delivered an impressive print. So I was just hoping to hear, I mean, what sort of these, I mean, sort of the savings and efficiencies are expected to be recurring in nature versus perhaps a one time. So that's the first one. And then Jorge, you mentioned a stress test. I was hoping if you can walk us through perhaps the key assumptions and variables, what are the opportunities and challenges that you see? What are the variables where you see perhaps a wider risk-reward with everything that we're seeing on the macro level? Thank you.

I will start with the second question, and I will ask you to – we have a hard time to listen to the first question. But let me try to explain what we're seeing in the ground. After April 2nd, what we have seen, as I commented in my opening remarks, is a recognition of some of the projects that were placed in hold. I'm referring only to the manufacturing sector. In the manufacturing sector, when all the tariff rhetoric started happening every day in the media, all the projects got stopped. And after Declaration Day in April 2nd, There is some projects that recommend updating values and understanding new conditions. I think that this is positive news because Mexico keeps on having a very important competitive advantage. So we do see customers somehow reconfigurating plans. And in this reconfiguration, Mexico is placing always an important role there. So uncertainty is not a good ally to keep on growing the business, but I'm pretty optimistic about the potential outcome because of our competitive advantage regarding location and our good relation with the U.S. Could you repeat the first question, Ale?

Yes, of course. My question was on the cost side. I was hoping to perhaps Jorge Mancilla- Here, how much of what we saw in this quarter in terms of improvements could be recurring how much of that is one time in nature, I mean just if you can help us to think of the cost structure as we move further into the latter part of the year, thank you.

Jorge Mancilla- Let me, let me just thank you for your question this quarter here, and let me try to simplify the answer for your modeling purposes. Most of the costs that were related to one-time expense because of Terratina integration and acquisitions were in the fourth quarter, as were mentioned, you know, back in February. What you should see on a long-term view for the company, and I'll talk about margins here, is you should see NOI margins anywhere between mid and high 80s. and EBITDA margins around the 77%, 75%, somewhere in that range. That should give you a stable view of long-term for the company.

Your next question comes from the line of Francisco Chavez from BBVA. Please go ahead.

Hi. Thanks for the call and also congrats on the strong numbers. My question is regarding the divestment plans of the Rapina non-strategy market. What kind of delays can we expect for these divestments and any colors you can provide on the progress of these divestments?

Thank you. Thank you for your question, Francisco. We're pleased to keep on seeing, despite of this uncertainty, pretty good interest from investors in this asset class. I think that people is having a similar sentiment that we all have, that once that uncertainty settles, the business will keep on being very favorable. Because of this, we're expecting to launch the first portfolio for the best year before the end of this quarter, we have not seen an impact on cap rates because we're still in a market condition where there is more investors than product outside in the market. So we do not anticipate any movement in cap rates. And reviewing the underlying price that we pay for terapina assets, And the expected price that we have with preliminary conversations with brokers and investors, I feel very positive that we will be able to provide positive news on this regard. In other words, and in short, we have no concerns about not reaching the prices or not being successful in our divestiture program.

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

Please go ahead. Hey, good morning. Thanks for the call and congrats for standing in the quarter. Can you help us a little bit on understanding what of this crazy mess behind tariffs might cause to accelerate further the consolidation that we see in 3PLs? Is it fair to state that Mexico City is a far better market to be resilient upon that consolidation trend behind 3PLs, but perhaps northern markets are not? Anything you can share with us on the ground would be very, very appreciated.

Thank you. Thank you, Francisco. You know, we saw an important consolidation of one of our most important and active customers, which is DSB, buying an important competitor. These consolidations, according to our experience, they do provide some adjustments in the real estate strategy. But in most of the cases, these consolidations bring us an ultimate consequence, the fact that they are expanding their business. In a lot of cases, they are buying customers and the strong company has the ability to create additional business with the new customers that they are acquiring. That's what we have seen in the past. We have not seen so far any reaccommodation or any request because of these consolidations that are happening. It is hard to provide new large spaces in the big consumption markets because There's no product of such availability, and this might be transferred in a potential bill to suit opportunity going forward. But too early to see a real trend in this regard, Paco.

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

Hi, good morning. Thank you very much for the call, and thank you very much, Hector, for the detail you provided in your remarks on the way that different clients from different segments are reacting. And I wanted just to drill down a little bit on that, and particularly the comments you made on clients that are related to the automotive sector. When you say that they're looking for greater flexibility on lease terms, is that upon renewal, or are existing tenants seeking to modify existing contracts? And if it's the second, are you seeing requests for either concessions on rents, either discounts or deferrals? Thank you.

Thank you, Gordon. You know, some people might think that the current situation could start bringing some renegotiations or some customer concerns as it happened in COVID. The contundent answer in our case to this is no. We are not experiencing not a single contract renegotiation, not a single hesitation in payment. Our customers keep on business as usual, and what we are observing is a slightly marginal decrease on the occupancy of their premises, but this could be probably normal regarding the part of the year that we're facing today. When I once mentioned flexibility, I could say it's probably a natural phenomenon because market trends were increasing importantly, and in the last couple of years, we were seeing customers requesting for longer terms, five to seven years, you know, trying to keep the rent that they were negotiating in place for a long period of time. Nowadays, we're seeing a change in these trends because customers that in the past were probably requesting five years, now they are requesting three years. But to be blunt and clear, this is more the wrong rate and this is the way the business has been conducted historically. This uncertainty in the consumption side brings uncertainty on the demand forecast So we see as a very normal path, the situation that the different markets are experiencing on the manufacturing side. On the consumption side, it's a little bit different because the space in Mexico City keeps on being very scarce. So, you know, on new contracts, we can see longer terms, five or potentially more. Thank you.

Your next question comes from the line of Jorrell Gugliotti from Goldman Sachs. Please go ahead.

Good morning, everyone. Thank you for taking my question. I have two. One is a more technical question. So if I look at your cash fee spreads in 4Q24, it was 33%. Sorry, in 1Q25, it was 33%. Before Q24, it was 44%. And I was just trying to get a sense of the difference in those cash lease spreads. I mean, I did notice that you had much more leasing activity in Q125 versus Q124. So I don't know if this is a mixed issue. I don't know if this is due to currency. So I just wanted to get a sense of the difference in cash lease spreads quarter to quarter and what is the expectation for cash lease spreads going forward. And then the second question is around construction pipelines, particularly in the north. I mean, one of the key issues that we've been seeing in border markets is the delivery of industrial warehouses and the lack of demand, obviously spiking vacancy rates. So I wanted to get a sense, are you seeing pipelines stable? Are you seeing them declining construction starts? Are you seeing them on the downward trend? Any color you can provide would be helpful. Thank you.

Thank you, Joel. I will answer your second question, and we'll let Federico answer the first question. Indeed, we are seeing a slowdown in development in the border markets. This is the case in Reynosa, Ciudad Juarez, and Tijuana. Monterey, which is a hybrid market, is probably keeping the same pace that we have seen for the previous quarters. But I think this is very positive news because I see it as an evidence that the market intelligence is growing and that even the new competitors are understanding what they need to do. So this is good news, I think. And eventually, we see a slight improvement in the dynamic of Ciudad Juarez, which is the market that was experiencing largest vacancy. And we need to keep on to keep on observing the trends, because for sure this market is one of the most exposed to the final movements that customers will be doing because of this new rearrangement in tariffs that we're seeing.

Hola, Yodel. This is Federico. As it relates to the lease spreads, and again, it's depending on the vintage of the leases that roll every quarter, it's what we What we observe, you know, our teams are always in good communication with our customers, very attuned to what market rents are, and very attuned as well to any concessions that are out there in the market. And, you know, we strive to be at market. And so, again, it varies. You know, we don't guide to leasing spread. So you can look at our lease mark-to-market, which is 45%. across the portfolio. That could give you some view into what the current situation is as it relates to our leases. But again, our teams leverage the relationships we have with our customers. And again, we do expect going forward good performance there.

Just one clarification. The 45% is on net effective rent. It's not cash, as you asked. It's a difference there. But It's 25% on a net effective basis.

Again, if you would like to ask a question, press star 1 on your telephone keypad. Your last question comes from the lines of Andre Mazzini from Citigroup. Please go ahead.

Hello, Hector and Jorge. Thanks for the call. two questions as well. So the first one is around the tenant phase. Would you say that the auto tenants, they are more maybe jittery or concerned because as of right now, the information at least that we have is that there are going to be auto tariffs set to start on May 3, right? And all the other USMCA compliant tenants will not have tariffs. So are the auto more concerned? Would you say, and then the second one, if I heard Hector correctly, the tariff situation is not impacting price discovery and the fair cap rate that buyers and sellers would agree upon. But even considering that, would you say is it easier to sell a logistics property at the moment than a light manufacturing one as logistics is less impacted by any tariff discussion? Thank you.

Andre, can you repeat your second question, please?

We had trouble listening.

Yeah, yeah, sure. If it's easier to sell logistics properties in the current environment than a light manufacturing one, given that tariffs don't impact logistics all that much or way less than light manufacturing.

Okay. Let me try to answer this one. The answer is no. I think that what we have seen in this preliminary marketing phase for this position program is, you know, it's good to see investors with clear strategies. Some of them are having a regional approach. Some others are having a manufacturing approach. Some of them like the aerospace industry. industry. So I have had a pleasant surprise on understanding how the potential buyers today, they know much better what they are looking for than what they did in the past. And of course, when you have a big logistic facility brand new, that could represent an additional interest from investors. But if your question is that it's easier to sell a logistic than a than a manufacturing facility, the answer is no in the current disposition program that we have.

Hello, Andres. This is Federico. As it relates to your first question, I had a hard time listening, but I believe you were asking about automotive and what the outlook is there. So 14% of our portfolio is auto-related, and I'd like to highlight the 20% of our leasing activity in the quarter. was with auto-related companies. It's actually our largest transaction in Juarez is in this sector. So, of course, there's been a lot of noise and uncertainty around this sector, and there seems to be news coming out almost daily. Let's remember that companies have to plan for the long term and respond to market demand. So we've been in touch with our auto customers and feel good about the outlook. Again, we still have to see what comes out of the USMCA renegotiation and all that, but we feel we're constructive in our view.

Again, if you would like to ask a question, press star 1 on your telephone keypad. I will now turn the call back over to Hector Ibarzabal, the CEO of Fibra Prologis, for closing remarks.

Thank you for your attention to our Fibra Prologis 2025 first quarter call. We appreciate your interest in our project, and as you all know, we're always available to provide any additional information or to eventually arrange a visit to any of our markets. Muchas gracias.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.