Vesta

Greetings, ladies and gentlemen, and welcome to the Vesta second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Fernanda Bettenger, Investor Relations Officer. Please go ahead.

Thank you, Paul. Good morning, everyone. I want to thank you for listening to our prepared remarks, second quarter 2022 earnings. Joining me today are Lorenzo Dominguez, Chief Executive Officer, and Juan Sotil, Chief Financial Officer. But before I hand our call over, let me first touch on a few items. On our website, you will find our press release that we posted yesterday after market closed. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause our future results to differ from our expectations. While management believes that these assumptions, expectations, and projections are reasonable in the view of the current available information, you are cautioned not to place undue resilience on these forward-looking statements. Note that all figures included herein were prepared in accordance with IFRS and are stated in nominal U.S. dollars, unless otherwise noted. And with that, I will turn the call over to Lorenzo Vero.

Thanks, Fernanda. And thank you all for joining us today.

As you saw in yesterday's second quarter results, Vesta achieved outstanding operating performance with exceptional leasing activity, record high portfolio occupancy, and strong financial results. This illustrates the continued operational focus of our teams to capture opportunities in today's extraordinary demand environment. This enabled us to deliver 43 million in revenues in second quarter 22. NOI reached nearly 41 million with a 94% margin. And second quarter EBITDA reached over $36 million with an 84% margin. A pandemic, a trade war, and rising wages in China and elsewhere have forced many manufacturers to look for other options, Mexico in particular. This is resonating in the demand we're seeing with best of new clients. We are experiencing unusually quick property absorption. The industrial sector's strong fundamentals continue to drive higher frequency rates and rental rates growth. We are seeing unprecedented leasing activity and renewals. Investors signed just under 3.5 million square feet of GLA in the second quarter, which represented 1 million square feet in new contracts and more than 2 million square feet in lease renewals.

This is the highest lease renewal rate in investors' history.

and a credit to our sales team's outstanding leasing success. All our new construction was leased before it was completed and delivered to the clients. We signed contracts with outstanding high-credit rating companies, such as Foxconn, AB InBev, and Amazon, just to mention a few, during the second quarter, all of them in different industries, such as electronics, semiconductors, food and beverage, e-commerce, and home appliances. Vestas contracts are also indexed to inflation, which had favorable effect on our results this quarter as Juan will review. Sustained demand, the uniquely favorable effect of higher than expected inflation on Vestas results, an outstandingly successful during the first quarter. half of the year, have led us to upwardly revise Vesta's full year 2022 guidance based on our strong pipelines and resilient portfolio in a climate where availability outweighs price for our clients. Last month, at our investor day, we increased Vesta's growth targets with an expected investment of up to $1.1 billion within our five key regions. enabling us to reach a total portfolio target of 50 million square feet. This reflects today's positive industrial real estate market conditions with an ongoing theme of demand exceeding supply, driven by regionalization, nearshoring, and e-commerce demand. We are also seeing robust appetite for industrial assets, push-up prices, and further compressed cap rates across markets. and product types with increased interest from prospects overall. The logistics space remains in high demand and with new demand in the north of Mexico and the Bajio as non-portfolio occupancy continues to increase. Many logistics operators have taken on incremental inventories to mitigate the disruptions that were common previously. While in other countries, there has been some sign of more moderate absorption, In Mexico, we still see large requirements coming from the e-commerce sector. The Fed tightening, which began in March, has been accompanied by increasing talk of a recession. And while it's certainly true that the U.S. economy faces several headwinds, none of these have been enough to stall U.S. recovery today, particularly the positive momentum in our industry. It's also important to note that Vesta has demonstrated our flexibility to adapt to any environment. A deep but short recession would have little to no effect on Vesta, and Vesta is well-positioned to manage our portfolios should we experience an extended global recession. We're protected in ways that many of our peers are not. However, Mexico's relatively lower input costs and highly productive labor force, combined with its proximity to the U.S., should support the long-term development of the Mexican industrial property market. As we have highlighted in prior calls, Vesta is uniquely well positioned to capture additional demand and growth with our strategic land holdings and local presence. We have the strongest development growth pipeline in the industry and a balance sheet that is optimally positioned to take advantage of the current environment.

With that, let me now turn it over to Juan. Good day to everyone. Thank you, Lorenzo, and good day to everyone.

Let me begin with a summary of our second quarter results. As Loren mentioned, we are very pleased with the strong financial results achieved in the quarter. Starting with our top line, total revenue increased 8.3% to $43 million in the second quarter of 2022. This was due to a $4.2 million increase from new revenue-generating contracts and $2.2 million increase related to inflationary adjustments on rented property during the quarter and was partially offset by $2.1 million decrease related to the property sold at the end of 2021. As a reminder, all of our LEED contracts are indexed to inflation. Therefore, we continue to benefit from the favorable effects of higher than expected inflation on our top line results. In terms of currency mix, 83.1% of VESPA second quarter revenue was denominated in US dollars, remaining relatively stable when compared to the same period of the last year. Turning our attention to our cost structure, total operating costs remain consistent at 2.6 million in the second quarter of 2022, as the increase in costs from occupied properties was offset by a decrease in costs from vacant properties. Net operating income increased 8.3% to $40.7 million year-on-year, driven by higher rental revenues, while the margin stood stable at 94.3%, mainly due to higher costs from occupied properties. While the administrative expenses were up 16.4%, this was mainly explained by an increase in employee benefits resulting from the creation of the pension fund retirement reserve, as well as an increase in the company long-term incentive plan. In turn, EBITDA reached $36.4 million in the second quarter of this year, an 8.7% increase compared to the prior year's quarter, while the margin contracted 21 basis points to 84.4%, as compared to 84.7% for the same quarter of last year. Moving down the P&L, Total other income reached $73.1 million compared to $78.6 million in the second quarter of 2021. This decrease was mainly due to a lower revaluation gain on investment properties. As a result, we closed the quarter with a free tax income of $67.5 million compared to $110.4 million in the second quarter of 2021. While the pre-tax FFO increased 41.9% to $24.5 million, and MAB per share increased 7.2% to $2.65 per share from $2.47 per share in the same quarter of last year. Now turning to our capex and portfolio composition, we invested $27.5 million during the quarter, mainly in the construction of new buildings in the northern and Bajio regions related to the strong demand that Lorenz has noticed. At the end of the second quarter, the total value of the portfolio was $2.44 billion, comprised of 193 high-quality industrial assets with a total GLA of 32.1 million square feet and with 83% of total income denominated in dollars. Year over year, our standardized portfolio increased 2% to 31.9 million square feet, with occupancy increasing 95.9% from 92.7% in the second quarter of last year. We ended the quarter with a land bank of 42.3 million square feet, down 4% sequentially, mainly due to the sale of 1.3 million square feet of land in Ciudad Juarez. Turning to our balance sheet, we closed the quarter with a total debt of $933 million, and our past position is $298 million. Net debt to EBITDA was 4.5 times, and our loan-to-value ratio was 33%. In addition, we paid a cash dividend for the second quarter of July 15, 2022, subsequent to the quarter end, equivalent to 0.43 pesos cents per ordinary shares. Finally, as a result of our outstanding leasing activity and the successful execution of our level 3 strategy, supported by a continued strong demand environment, we decided to raise our full year 2022 guidelines as Lauren commenced. We now expect to achieve a 7.5% to 8% year-on-year revenue growth from our prior guidance of 5.5% to 6%. We are also rating EBITDA margins to 83.5% from our previous indication of 82.5%, while NOI margin guidance remains unchanged at 94%. With that, we conclude our second quality review. Operator. Please open the floor for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Juan Ponce with Bradesco BBI. Please proceed with your question.

Hi, thank you for taking my questions and congrats on the results. The first one is on the Bahia region. If you could comment on the recovery there a little bit. We saw occupancy 200 bps higher Q over Q. Are you seeing demand from Mexico City spill over to the region? What sectors are the new tenants in?

Juan, thank you very much for being on today's call.

Definitely, the strong trend on demand is overall in Mexico, coming mostly in the north part of Mexico where we are seeing vacancies at 0% almost and strong demand, but that has also impacted now the Bajira region in several industries and several cities. We recently closed a couple transactions in the home appliance sector as well as electronics and automotive sector in San Luis Potosi, in Guanajuato, and in Querétaro. Additionally, this week, there's the International Fanboro Aerospace Conference, or I'm sorry, it's the International Fair. And some representatives of Vesta, together with some Mexican government authorities, are taking place in that event and are announcing also new investments coming in the aerospace sector. I believe that on top of all the other sectors that we have just mentioned, it's good to hear that other sectors that were kind of cooler in the last couple of years are reacting quicker and are analyzing future expansions for new investments in the region, which we believe has been competitive It has been competitive in many years, and now we believe that it will continue to be so. So hopefully in the next quarters, we're going to see more news in this region, in these sectors. As you know, we started a couple of buildings in Querétaro. Just because in Querétaro, we have really nothing available to lease off, and that's why we see that change in demand and change in pipeline as an opportunity, and therefore we want to anticipate to capture those opportunities.

Okay, thank you. And the second one, if I may, if you can comment a little bit on the rationale behind the higher VETA margin guidance. Is everybody still working from home? Where are the efficiencies coming from?

Regarding the EBITDA, sorry, Juan, thank you for the question. Regarding the EBITDA, well, we revised...

Why don't you review first the top line?

Yeah. I mean, the most important thing is our increase in revenue guidance. Revenue guidance, we're increasing revenue guidance because the continued effect of inflation on our revenues We're one of the few Mexican companies, not the only one, that disaggregate changes from same quarter last year to this quarter this year in various components. And as you can see, lately, over the last perhaps three or four quarters, and most notably on the first quarter of this year and this quarter, the increases in inflation are matching, if not a little bit over, the increases from leasing activity of empty spaces. So the effect of inflation is very convenient from our point of view. And given the fact that inflation keeps us surprising from the upside, well, we are revising guidance. I just want to make a parenthesis. Also, please note that our clients are paying on time. So the effects of inflation are not having a significant impact on our clients' ability to pay on time the invoices that we're submitting to them. So given that provision, given the fact, we increased our guidance on revenues. EBITDA, basically, our initiative expenses, basically, this year are going to be a little bit higher than previously due to the fact of the new pension fund provisions that we're making. And I think that over time, the growth in revenues are going to absorb those provisions, and we're going to get back to 84% EBITDA as is typically the case, no?

Okay, thank you very much.

Thank you. Our next question is from Nikolaas Lippmann with Morgan Stanley. Please proceed with your question.

Thank you very much. Thanks for the call and for taking my questions. Just two questions. Can you talk a bit about the replacement costs, sort of specifically to some of the key northern markets? And I know you released a lot of data around the investor day. But, you know, the marginal, you know, all range of marginal development costs for some of the markets like Monterey, Tijuana and Juarez. And also maybe just address some of the issues around bottlenecks like water, electricity and other things. And then on the, you know, congrats, you know, on the momentum. It looks really extraordinary. And I know it always takes a little while before it feeds through to all the numbers. Can you talk a bit about your leasing activity for the second half and into 2023, and how we should think about lease spreads for that period and for those assets? Thank you very much, and again, congrats.

Sure. Let me try to clarify some of the questions.

Thank you, Nikolai, for being on the call. Regarding replacement costs, I think it's important to note that we have all seen that construction costs have increased pretty much everywhere. And Mexico is not the exception. We have seen increasing costs, particularly in steel, cement, and also in land values. However, we believe that many of these costs, which could be up as high as, let's say, 40%, In most of the markets, we have seen an offset on the rental rate increase. And with that, we still believe that there's an attractive yield to keep on developing. Attractive yields in the double-digit range, and therefore, we think that it's a great moment to keep developing. As you know, we develop a lot of spec buildings to anticipate to the potential demand. And now, with zero percent vacancies in many of the markets, I really believe it's the way to go. Part of the positive results that we have had is that all of the buildings that we have built and delivered are leased. And you can see that in part of our supplemental package. So in that regard, our strategy towards development, we believe, has paid off well. Good yields in the right markets and with great companies, which the ones that I mentioned before. Amazon recently again in Guadalajara, now in Monterey and with previously in Toluca. We recently also signed a new lease with Foxconn in Guadalajara and other ones in other industries such as home appliances and food and beverage. So in the end, I think that pipeline is pretty good. And probably that takes me to one of your questions, which is, Leasing activity in the second quarter, we have a very strong pipeline. We are having a good momentum, and that's why we didn't see that this is going to slow down anytime soon. Additionally, considering leasing spreads, we're just seeing rents increasing. It's a result of little supply, good demand, fundamentals. and also, I think, a bit of replacement costs. So in the end, we're in a great position. We're going to continue developing, and we're going to continue investing to good spreads. Bottlenecks, Nikolai. I think that there's not necessarily major bottlenecks than the usual that we have always tried to figure out. This could be on the utility side, energy, water, As you know, we are a fire lab. We put a lot of investment, heavy investments in infrastructure, and that includes also energy. So on that regard, I think that it's more on the timing effect on when we start and when we can lease up the available buildings. But not necessarily we see that there are major bottlenecks for the moment. Thank you, Nicolás.

Thank you very much.

Thank you. Our next question is from Lucila Gomez with Compass Group. Please proceed with your question.

Hi. So my question is about energy.

So I would like to know if the current dispute between AMLO and the countries in the US is maybe a concern that may have a possible impact for you. since it could possibly cause the development of renewable energy in the country? Thank you.

Sure.

Well, we're well aware of the recent requirements from the US as well as Canada on the energy front and on the USMCA. let's say panel and I will call it arbitrage methodologies. We believe that like any other issue related with trade and related with third parties, we think that there can always be differences and there's always methods to take them to certain arbitrage. We think that this falls more on the political front rather than the supply front. We definitely believe in competitive markets. We would love to see more competitive markets in the energy front so that our clients can have more competitive rates. But for the moment, we believe that CFE, which is a local utility company, has been an important ally for industrial developers for many years. Since they have been, for many years, let's say the sole supplier of energy, and we think that they're going to be also an important player in the future years. They are probably not investing as much as we would like to. However, they're active, and they are trying to find out solutions in order to address the demand on energy that the country has had, and one of the examples is when we started industrial park or release of a building, there is a constant communication with CFE to see how much energy there's going to be, when the energy is going to be available. And additionally, Vesta puts heavy investments in energy inside of our parks just in order to have our clients be able to connect to the CFE network. We're taking a close eye on the evolution of the recent requirements from Vesta. on the USMCA. However, we believe that this is more on the political front and should not necessarily affect the operations of our clients.

Perfect. Thank you.

Perfect.

Thank you. Our next question is from Francisco Suarez with Scotiabank. Please proceed with your question.

Thank you. Good morning. Thanks for the call. Congrats on the results and on your 10-year anniversary solicited company. The question that I have relates a bit with the overall scarcity on water in the north. I just want to confirm that first that I think that you are not exposed to water-intensive industries, so that might not be a potential risk of disruption in any of your operations in in the north, if you can confirm that. And secondly, on the flip side of this, it seems that the bottleneck of having land with access to electricity, which is a major constraint for many, and perhaps to that, we can actually add the constraints on having the right properties with access to water and that may be proving some sort of a competitive advantage for you as well. In other words, how this lack of access to electricity that we're seeing in the market and the potential lack of access to water may result in even higher rentals going forward. Thank you so much.

Gracias, Francisco, and thank you very much for your participation and your question. Yes, I think that recently there has been a big debate on water issues, particularly on the north part of Mexico and more specifically in Nuevo León and Monterrey. First of all, I think that it's important to note that most of the light manufacturing tenants or even logistic tenants, they are not high consumers on water. And I think that creates a I think they're in a different position. They only use water mainly for services, and I think sanitary services. So there's no high demand in that regard. However, having said that, I think that Vesta, what we do well is, first of all, we have rights on wells in several projects. It's one of the things that we secure every time we buy land. And thirdly, when we develop industrial parks, in many cases, We invest also in water treatment plants, mostly also coming from the water coming from rainwater that falls inside of the park and that we can use it even for other purposes. So in that regard, I think that the sustainability approach from Vesta since many years ago has gone in the right direction. We have actually expressed part of our vision attributes on our parks to some of our local authorities. And I think that on that regard, we are a bit ahead than other developers or sectors. Having said that, I think that what is important is that I think that the main industries that are going to be facing challenges are the high consumers on water, like beers and So most of the clients that we have on the beverage business is logistics. So there's a lot of storage of beer and water and other sectors in many of the warehouses of Vesta, but it's mainly logistics.

Very clear. Thank you so much.

Thank you.

Thank you. Our next question is from Vanessa Quiroga with Credit Suisse. Please use your, please proceed with your question.

Hi. Hi for the VESA team and congrats on the 20th anniversary. And for taking my question, it's regarding VAHIO. What's your expectation for occupancy for the next 12 to 24 months? We saw the improvement this quarter. which is very welcome. So do you think this trend will continue on this same pace? Thank you.

Hola, Vanessa. Thank you very much for your question. We see very positive trends in most of the markets. And the way we see it is that, first of all, this will take me to renewals. We have been renewing a lot of leases. which is a strong signal that the companies are committed in the long term. And therefore, we're not experiencing any major expiring leases or companies that are vacating the buildings. That's pretty positive. And on top of that, we think that what we have seen in this quarter and probably last quarter is that definitely there's an upward trend in terms of new companies and new absorption in the vacuole. There's no particular number in terms of occupancy and where we're going to see it, but as I mentioned earlier, markets like Querétaro, we are pretty much fully leased, and that's why we started a couple new buildings, and we have some good potential tenants for those inventory buildings in the Vesta Parque Querétaro. We have not started anything yet in Guanajuato and San Luis Potosí and Aguascalientes. We are going to probably wait until probably, let's say, the rest of the year that we see really stronger signals on demand. And if we do so, we're going to be able to develop again. But for the moment, we feel comfortable with occupying the vacant space. And whenever necessary, we would start building again. But for the moment, I think that it's going to still take us the rest of the year. Thank you, Vanessa.

Thank you, Loren.

Thank you. Our next question is from Pablo Montsevalle with Barclays. Please proceed with your question.

Hi. Thanks for taking my questions and congratulations on your 10-year anniversary. I have a question on your development pipeline. It looks like most of the projects that you are right now building are about to be completed this year. How's that outlook for 2023? And because we have not seen, I mean, I'm not seeing any project ready to start operations next year, so I'm not sure if we're going to see this higher capex and then a little bit of a plateau, or how's the GLA evolution in the near term?

Thank you. Hola, Pablo. Thank you very much for your question.

Our development pipeline, I think only the one that we present on the reports, I think it's, we believe it's only a picture for the moment. But I think that what is more important is that we have larger projects as we announced recently in the investor day, as large as $1.1 billion in the industrial parks that we're currently developing. So I think that every quarter we're going to keep on starting new buildings as long as we keep on leasing and finalize other buildings. This development progress, I think it's important to just monitor how far we are. I think that what we are seeing today is we have currently, let's say under construction, we have some buildings that we started early this year that we're just about to finalize. And also, we are just about to finalize leasing up. We're going to see in some of these markets, we have really nothing available. And the only thing that we have available is what we have under construction. So it's great to know that we were able to acquire land. We were able to start construction. We're going to end up leasing some of these buildings. And then we're going to start new buildings and new projects. So I think... It's not necessarily that every quarter we're going to be having these same projects under construction, and we monitor very well where we stand in terms of the development progress of each of the Vesta parks in each of the markets. But for sure, we're going to see in the next 18 months a lot of construction going on, and whenever we lift up and we finalize a building, I'm pretty sure that our investment committee is understanding very well the market dynamics and for sure we're going to be developing more.

Perfect. And my last question is if you compare right now the list of time right now versus, I don't know, four or three years ago, have things like shortened significantly because of new shoring or it's a little bit of the same as in the past just to make to to to take a better assessment of the time is it a shorter one i'm sorry pablo i didn't get you the lease of process once you finish uh yes okay once you finish one uh building how long it takes now and how long it uh took you four years ago roughly i think i got it

So right now, lifting up is way quicker than before, absolutely. And I think that's a result of stronger demand in many of the markets. Companies have to make decisions quicker because of their own situation. And in many cases, it's just because they need to secure the buildings. So in many cases, they have to lift it up. Otherwise, and we have been in situations where we have two or three potential tenants for the same buildings. So that puts more pressure on the tenant, and that creates more of a landlord market. So definitely, we are in a way better shape. Or then let's say the market is in a much better condition by now. And just by looking at the vacancy rates on many of the markets, even in the Bajor region, which is a little slower than other markets, it's by 4%, 5% the vacancy, and in other markets by 0%. So definitely, we're seeing a very... very different environment right now, which leads to quicker list of stages.

Thank you very much. Pleasure, Scott.

Thank you. Our next question is from Anton Morton-Cotter with GBN. Please proceed with your question.

Hello, guys. Thank you for taking my question, and congrats on your great results and your 10-year anniversary. I have just two quick questions. One is related to developments. I mean, I've seen a strong deployment of investments, but I see that you pushed back for a little month some projects in Tijuana. Just wanted to understand the reason for this. Is it related to construction projects? to the construction side, or are there any permits getting stuck, or just to get a little bit more of color there?

Thank you. Thank you, Antonio. Yes, absolutely.

And Tijuana is a project that consists of six inventory buildings. We have currently four under construction. There were some minor delays in the first buildings. And minor delays, it's a couple months. And it's basically the reason for that is just because the first buildings regularly, you have to deal a lot with earthworks, with certain infrastructure. And that's why I think that we had some unexpected delays in the construction. However, what I can say on the positive front is that we are making a very good progress in terms of leasing. And I think that on that regard, even that we have a couple of months delays, which is very, it's pretty common. It's fine that we're going to be able to lease up part of a couple of those buildings very soon, just as a result of how strong the demand is and also as a result of our commercial team's effort to lease up the buildings. before they are, or let's say by the moment that they are finished, no?

Perfect. That's pretty clear. My second question is regarding the sale of land in Ciudad Juarez. I mean, it seems like you guys bought this land just the last quarter. I understand it was sold at a significant markup. Just wanted to understand this. I mean, was it acquired by a client, or what was the process of deciding to sell land that you chose to acquire?

Sure. This was a piece of land.

We are probably a larger plot of land, very close to the Zaragoza border crossing, very well located. We're going to be, hopefully, we're going to start soon some new buildings. And part of the transaction involved selling part of the land to a neighbor, just because of some synergies that we found with the provincial with another potential company. But that potential synergy involved selling part of the plot of land that we were acquiring to sell it to this company. And of course, we did it through a markup, and that helped some of the financials on the number. But in reality, we're going to focus on the rest of the land to develop for lease long term.

Perfect. That's pretty clear. Thank you.

Yeah. Thank you.

Thank you. Our next question is from Andre Najimi with Citigroup. Please proceed with your question. Sure.

Hi, Lauren.

I'm having difficulties hearing everybody. Okay. I think Andre Najimi is better. Thank you. Hi, Lauren.

Yeah, hopefully this is clear. Thanks for the call. So the question is on the Foxconn lease, you guys. You guys, it's closed. Is Foxconn, is this lease going to be related to EV manufacturing, so the electric vehicle manufacturing? We saw Foxconn starting up an EV factory in the USA. Of course, EVs are the future, right? All of the American automakers want to go fully electric at some point in time. So if you guys could tell if that lead in particular has to do with electric vehicles and how you see the electric vehicles ecosystem in Mexico in general. Thank you.

Thank you, Andre. And good question. We're very happy with posting the transaction with Foxconn. As you know, it's a major player in the in the, as you mentioned, electric vehicles, contract manufacturers, electronics, globally. This is actually a 100,000 square foot facility. It's a smaller facility. However, we see a large potential for them to keep growing with us. And definitely, it is related to new industries that are in the electronics sector. I don't know exactly if this one is only specific for EV. But I'm sure that Foxconn and many other companies are evaluating carefully how they can be competitive in Mexico. And when it comes to Mexico, it's in different regions, absolutely. And that's why I think that this was a great way to also approach the electronics sector in Guadalajara. As you know, it's one of the most important hubs in Mexico for electronics with Foxconn, with JVIL, with ABM. with many other companies, and I think that this creates a great diversification for our Guadalajara project, which started with an anchor tenant of Mercado Libre. We also lease up to Amazon, another facility in that project in Guadalajara. We lease to O'Reilly for logistics of auto parts, and now to Foxconn. So from that perspective, I think that's exactly what we want to do in many of the parks, that we have good diversity and outstanding high credit worthy tenants. And definitely I think that, so I think I kind of answered your question on the EV front. I think that Mexico is about different industries. Mexico is about diversification. And I think that electronic vehicles is definitely going to come to Mexico in different ways, and we have seen some recent news. And hopefully this can, we can at some point announce, let's say Mexico brings something larger, more than smaller suppliers just integrating their supply chains to the U.S., which is great.

However, I think it would be even greater to bring a larger facility to Mexico. Very clear. Thank you, Lauren. Thank you.

Thank you. Our next question is from Mariana Cruz with BTG. Please proceed with your question.

Yeah, good morning, all. Thanks for taking my questions and congratulations on the results. Can you please remind us of your distribution quality and tell us if we can expect changes in distribution in the coming week quarters? Thank you very much.

I need it louder. Sorry.

Sure, yes. I was asking about your decision policy, if you can remind us about your decision policy and how you will make decisions in the coming quarters.

I believe it's on the distribution of, I believe, dividends.

Yeah.

Can you answer that, please?

If your question is on distribution of dividends, look, dividends is an important subject.

Can somebody tell me?

There we go. Operator.

Yeah, I think they, okay. Sorry, Mariana. Okay, so about dividends. Look, dividends are an important part of the mix of returns that Vesta offers our investors. I think that the mix of strong capital gains and some dividend payouts is very important. However, the ability of Vesta to develop properties with double digit returns, as Loren mentioned, makes us a little bit conservative on dividend payments. Dividends are important, but our ability to invest in double digit returns is even more important. So we have to balance that. And we have increased dividends in the past. We have a $1.1 billion plan of investment for the future. So we will be mindful of dividends. But as long as our returns continue to be very high on the investment side, We would be a little bit conservative on dividend payments. We're paying the neighborhood of, what, $58 million per year. Our dividends are dollar-denominated, and we pay them in pesos because we pay them inside of Mexico. So they are dollar-denominated, and they will grow from year to year by some amount. That's what I can tell you, Mariana.

Perfect. Thank you very much.

Thank you. Thank you. Our next question is from Gorel Golaji with Goldman Sachs. Please proceed with your question.

Good morning, gentlemen. Thanks for taking my questions and congrats on the decade on the public markets. The first question is around onshore and you mentioned it as being a key driver.

to the leasing demand that you've seen so far, you know, over the past few quarters. Sorry, Joel, can you get closer or can you try to speak a little louder? Sorry for that. Can you hear me now? Can you hear better? Better, thank you. Hello? Yeah, so thanks. So I have two questions. The first question is around onshoring. You mentioned it as being a key driver for leasing over the past few quarters or so. And I was just wondering if there's a way to quantify that. I don't know if there's perhaps a ballpark figure, like maybe it's a 20, 30, 40% of your new leases that are being driven by this onshoring trend. Any color you can provide to quantify that would be helpful. And then the other question is around basically demand for land in the north because as we understand it, there's basically not much land left in Tijuana. And I was just wondering, at this point, are clients or yourself looking towards non-traditional border markets in order to build perhaps a Mexicali or something along those lines?

given the fact that there is such land scarcity in Tijuana. Thanks. Great. Thank you, Gerald, and thank you for participating today.

Definitely what we are seeing is we have never seen before. I mean, companies try to enter into certain markets, and you got it right. They don't find anything available, and they start looking into alternative markets. Which is fine. I think that companies should at least make quick decisions. The good thing about Mexico is that it's not about one market. Nevertheless, I think that Vesta has a very strong focus into certain markets. That's why we recently announced our five main regions where we're going to keep investing. So even if a client wants to expand in another region, if it's not inside of our five rings, as we call it, five Olympic rings, we'd rather pass on the opportunity just because we want to be very focused, very disciplined, and maintain leadership in the markets that we operate. So hopefully they look for other places, which has happened in the past. If they fall into some other objective markets on Vesta, we can help them out. What was the first question, sorry? Or the other question? Yes, I was just wondering if you can quantify the onshoring trend. You mentioned it being a key driver for leasing. And I just want to know if there's a percentage of leases that are coming from onshoring or something along those lines. Sure. You know what? I don't want to shoot from the hip on your question. So why don't you give me and Juan and Fernanda some homework, and we'll give you a little bit more detail. I think that now that we have been seeing more results and more closings on the new sharing trend, and it's easier to track what has happened in the, let's say, last six to 12 months, and I think that could give us some good insight. But I don't want to shoot from the hip right now.

Great. Thanks, Lauren. And again, congrats on the 10 years. Thank you.

Thank you. Our next question is from Armando Rodriguez with Signum Research. Please proceed with your question.

Thank you all for the questions. Thank you again for your study and these all the results.

So I have just one question related to your balance sheet. And considering these strong

really strong demand on your company and the industry. So are you seeing maybe some changes related to loan-to-value levels, for example, if you are going to need maybe more debt in order to catch up this strong demand in the midterm, for example?

That's my only question. Thank you very much.

Armando, good question. Thank you for being on the call. Look, it's certainly challenging to finance a $1.1 billion growth plan that we announced on the Vespa Day. That's certainly going to be challenging. However, We have a substantial cash reserve. We still have a substantial cash reserve. We started the year with $450 million. We're closing this quarter with close to $300 million. That's substantial still. Our leverage will continue to go down in the sense that as we convert dollars into properties and the properties get value, we're going to move the leverage closer to 32%, 31%. At some point in time, however, we will leverage the balance sheet. As you know, and I believe that we have the ability to do so, there's pockets of liquidity that will offer us attractive prices to leverage. And we will take advantage of those. And that's only one of the tools that we may do. As you know, in the past, we have sold property portfolios, which is another way to continue our build-up. We sell properties that are not necessarily the best properties of Vesta. They're just core properties of Vesta. And we do new buildings, which are top of the line. So that makes sense in its own. We sell our properties above net asset value, which is always nice and attractive for us. And so that's another mechanism to finance our growth. So I believe that it's very achievable to use our cash to leverage in the future and to sell properties in order to achieve $1.1 billion investment over the next four or five years.

Perfect, Juan. Thank you. Very helpful. Congratulations again. Thank you.

There are no further questions at this time. I'd like to turn the call back over to Mr. Berho for any concluding remarks. Please go ahead, sir.

Thank you. This year, we celebrated our 10th anniversary on the Mexican Bosque.

BESTA has demonstrated our success in anticipating trends and pivoting to capture important opportunities, also in climates of unprecedented crisis. We're progressing our stated objectives reflected in our strong first half results and upward revision of our 2022 guidance. We remain committed to disciplined growth and on executing our level three strategy forward.

Thank you all. Goodbye. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.