Vesta

Thank you for standing by. Welcome to the VESTA first quarter 2022 results conference call. At this time, all participants are on a listen-only mode. Following today's prepared remarks, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to your host for today's call, Ms. Maria Fernanda Bettinger, Vesta's Investor Relations Officer. Please go ahead.

Thank you, Rob, and everyone for joining today's call. I would like to advise listeners that comments made on today's call may reflect forward-looking statements that are related to Vesta's future activity and results and other financial projections. While management believes that its assumptions, expectations, and projections are reasonable in the view of the current available information, We are cautioned not to place any reliance on these forward-looking statements. The company's actual results may differ materially from those disclosed during this call. Vesta undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. Investors are urged to carefully review various disclosures made by Vesta, including the risk and other information disclosure in the company's filing with the Mexican Stock Exchange. We issued our earnings press release after market closed yesterday. It's also available within the investor section of Vesta's website. Joining us today are Lorenzo Dominique Vero, Chief Executive Officer, and Juan Cepil, Chief Financial Officer. Finally, note that all figures include hearing were prepared in accordance with IFRS and are stated in nominal U.S. dollars unless otherwise noted. With that, I will now turn the call over to Lorenzo Vero.

Thank you, Fernanda, and thank you all for being on today's call. I'll begin with a brief review on our first quarter results and we'll address the current market environment. Juan will follow me with more details and we'll then open it up for your questions. Turning to the market and current activity, which is driving our strong performance, Mexico has always been one of the world's industrial real estate leaders and benefits from, among other things, a skilled workforce, and close proximity to the U.S. These important differentiators, combined with rising geopolitical tensions, related tariffs, supply chain disruptions and shortages, have forced manufacturers and suppliers to shorten their supply chains and bring manufacturing and safety stock closer to home. Major brands and retailers across the U.S. and Europe are also focused on reshoring and nearshoring their supply chains amid the ongoing global supply chain crisis, geopolitical uncertainty. This has accelerated the pressing need for supply chains to become more regional versus the world's prior global dynamic. We therefore believe these are important signs that globalization as we know it may be coming to its end. DESTA has the largest development growth pipeline among institutional developers in Mexico today. We're the only publicly traded company in position to take advantage of this current development environment, as we are well capitalized and well positioned in premier land locations and experienced in-house development teams. During the first quarter, our construction pipeline reached 2.7 million square feet. totaling 12 buildings in markets such as Tijuana, Monterrey, Juarez, Guadalajara, and Querétaro, with an average return on cost of 9.9%. Despite recent increases in construction costs, we believe Vesta's development yields are substantially higher than current market cap rates, resulting in substantial value creation for our shareholders. Some of these new buildings are part of our new Vesta Park Mega Region in Tijuana, which we announced on Monday, which together with the recent finalized and delivered building in Alamar will be an investment of $100 million and 1.5 million square feet positioned in Vesta as the leader in the hottest industrial market at the moment with 0% vacancy, incredible demand for class A industrial and logistics space, and high barriers of entry. It's important to note that all buildings within our current development pipeline will be LEED certified as part of Vesta's ESG strategy. We also increased our presence within target markets, acquiring land in Monterrey and Ciudad Juarez. In Ciudad Juarez, Vesta acquired land to develop 1.3 million square feet for its new Vesta Parque Juarez Oriente. on prime real estate located in close proximity to the commercial border crossing between Ciudad Juarez and El Paso. While in Monterrey, we acquired additional land for the Vesta Park Monterrey Apodaca in an urban infill location, securing growth potential in a robust metro market. These investments ensure Vesta will be extremely well positioned to capture increasing sector opportunities in the years ahead. Amid record demand, rent growth, and investment activity, industrial real estate will remain strong throughout 2022 on the heels of record transactions volume and rent growth amid extremely tight supply and high demand. E-commerce expansion will fuel the need for more warehouse space, as will the growing economy population migration and the desire for safety stock onshore. Today, Industrial real estate is about as quickly as it is available, and there is little signs of slowing, particularly in those markets where Vesta has a presence. Vacancy rates continue to drop during the first quarter to as low as 0% vacancy in Juarez and Tijuana. E-commerce and third-party logistics tenants led the demand. Vesta's continued ramp-up in overall leasing activity which for the first quarter reached more than 2 million square feet with 1.3 million square feet in renewals and more than 821,000 square feet in new contracts, with companies in the dynamic expanding industries we're targeting. Directly aligned with our level three strategy, notably a new lease with Amazon, which we believe is the start of a long and expanding relationship with a great company. Today's tight market environment enables Vesta to improve our lease contract renewal terms during the first quarter. This will resonate in future quarter results. Rents are rising due to demand. This also enables Vesta to successfully transfer the impact on increased inflation as part of the lease agreements. During the first quarter, we generated a 9.4% year-on-year return. Revenue increased largely driven by new revenue-generating contracts during the first quarter and the adjustment of inflation in our current contracts. Importantly, best-to-spare share net asset value increased just under 8.5% to 2.62% for this quarter, which is further validation of our Level 3 strategy's success in driving shareholder value. Looking to the year ahead, we believe our client's top concern will be rising transportation costs and supply chain delays. The cost to ship goods via ocean freight and domestic freight have increased considerably. While the increases may ease as 2022 unfolds, transportation costs will likely remain elevated for the foreseeable future. Manufacturers are still not at full capacity amid pandemic-related shutdowns, and it will likely take them until 2023 to fully recover. Further, robust investor appetite for industrial assets will continue to drive up prices and values and further compress cap rates across markets and product types in 2022. Vesta is therefore uniquely positioned to capture this exciting market dynamic.