Vesta

Greetings, ladies and gentlemen, and welcome to the Vesta fourth quarter and full year 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 Bettinger, Investor Relations Officer. Please go ahead.

Good morning, everyone, and thank you for joining our fourth quarter results. With me today are Lorenzo Amelizuero, Chief Executive Officer, and Juan Sotir, Chief Financial Officer. The earnings released detailing our fourth quarter 2020 results crossed the wire yesterday afternoon, and it's available on the company's website. This conference call is also being broadcast live with the investor section of the company's website at Vesta.com. And the webcast replay of the call will be available at the same site approximately one hour after the end of today's call. Before we begin, I would like to caution listeners that during the course of this conference call, management will make projections or forward-looking statements regarding future events, including statements about our business, assets, strategies, demands, and markets, as well as trends that may continue. Management uses these measures to establish operational goals and review operational performance based on current assumptions and believes that these measures may assist investors in analyzing underlying trends in the company's business over time. These statements are subject to risk and uncertainties that could cause actual results to differ materially. We undertake no obligation to update them as a result of new information or future events. Please also note that all figures, including hearing, were prepared in accordance with IFRS and are stated in nominal U.S. dollars, unless other one knows this.

Let me now turn the call over to Lorenzo Herrera.

Thank you, Sandra. Welcome, everyone. FESTA closed an extraordinary 2022, delivering outstanding operational and financial performance while advancing our Level 3 strategies. CESTA's excellent fourth quarter and full-year results were driven by continued nearshoring tolerance and by the ally-shoring that more recently has gained traction. Ally-shoring or friend-shoring is a collaborative twist on the concept of nearshoring where we're leaning into trade and co-production relationships with the friends and allies we trust. This was boosted by the North American Three Amigos Leaders Summit in January when the region's leaders vouched for the market-tied economic and trade ties in North America. The U.S. and Mexico have grown to recognize that not only is allied shoring more cost-effective than on-shoring, it's the most powerful path to make critical supply chains more reliable and resilient and the best way to build our neutral economies. These trends drove extremely tight market conditions throughout the year, and fourth quarter was no exception. We're seeing historically low vacancy rates with increasing rental rates per square foot, particularly in best-asked core markets. Essentially, all construction is being absorbed at rates we have never seen before. In 2022, we deliver some all-time record performances exceeding the upper range of our revised revenue guidance to reach $178 million, a 10.7% increase year-over-year. Four-year 2022 NOI and EBITDA margins exceeded guidance, reaching 95% and 84.4% respectively. In terms of net asset value per share, we reached $2.86 per share, an increase of 10% year-over-year, and AFL focus share of 0.15 cents, an increase of 22%. Vesta also achieved record high 2022 leasing activity, closing more than 10 million square feet, just under four square feet from new leases with clients such as BSV Logistics, Amazon, Eaton, Home Depot, Foxconn, Safran, and Cummings, among other lease renewals for the year, reached 6.7 million square feet, another historical high for Vesta, with a seven-year average weight in lease life and a 7% positive spread. And Vesta's rental rates overall have been increasing well above inflation, successfully passed through to our clients. As a key, nearshoring markets, Monterey, Tijuana, and Ciudad Juarez are absorbing a significant part of the country's demand so far. This is pushing net absorption to record highs with average asking rents increasing dramatically, more than 39% year-on-year within this market alone, according to CBRE. We are particularly well-positioned in the Monterey market, having anticipated today's explosive demand when we acquired land for our new Vesta Park at Podaca, which is currently under development. This has enabled us to continue expanding within a location where we're already adding value. Our approach to this and similar markets is an excellent example of how Vesta is developing industrial parks of outstanding quality and standards and which effectively capture today's opportunities through urban infills, as Vesta develops vacant or underutilized land parcels within existing developed areas. Following Quarters N, in January 2023, we pre-leased two buildings with Polaris, the global industry leader in power sports recreational vehicles. The buildings are currently under construction at the Vesta Parque Apodaca on a long-term lease which comprises a total of $575 7,000 square feet. Polaris made a meaningful investment in Mexico, adding backshot capacity while also investing in vertical integration and capacity expansion in a new location. We're seeing demand expand beyond Guadalajara and Monterrey to less saturated markets as well. CBRE noted that dynamics in the Bajio region are improving and vacancy rates closed at just over 4%. the lowest since 2018. Throughout the year, roughly 50% of our new leasing activity has come from the Bajio markets. Turning to the key aspects of our strategy, throughout the year, Vesta has been developing its parts with optimal landmine logistics opportunities. It's important to note that logistics and land manufacturing are not electricity or water intensive industries. So ensuring a Vesta Park has the capacity to provide our clients with the necessary utilities and resources is not a problem that we haven't already solved. Vesta Parks are well-connected through roads and railroads, guaranteeing simplified logistics with the reduced transportation costs and risks that our logistic clients need. This is another instance where Vesta's considerable industrial real estate experience is an important advantage for us. Manufacturing companies demanding building criteria and restrictions create a unique opportunity for companies like Vesta that have extensive experience in industrial real estate. And our 25 years building premier properties represents an important differentiator to our clients. In the fourth quarter, we acquired 52 acres of land in the San Martin Obispo area of Mexico City. one million square feet and located adjacent to one of Mexico City's main roads, which also ensures optimal connectivity. This best-in-class location is ideal for last-minute distribution and logistics and another addition to Vesta's increasing footprint within Mexico City and metropolitan areas, as I have described, in line with the company's level three strategy and related growth plan. e-commerce expansion will fuel the need for more warehouse space, as will the growing economic population migration and the desire for safety stock onshore. During the fourth quarter, we also completed the acquisition of two buildings in Toluca, expanding our footprint in the state of Mexico sub-market, further penetrating the central region. Today, industrial real estate is leased as quickly cities available, and there is little sign of slowing, particularly in those markets where Vesta has a presence. And while we don't expect current trends to change for the foreseeable future, these will only be contained by the limits of Mexico's infrastructure to continue to support development on a massive scale. Today, we see the extraordinary leasing demand as manageable, and Vesta will maintain a disciplined approach of profitable and sustainable growth. Finally, regarding the ESG as a pillar of our Level 3 strategy, we achieved important milestones during 2022. BESTA was included within the S&P Bolsa Mexicana de Valores Total Mexico Index for the third consecutive year and within the S&P Yearbook for the first time. BESTA was also selected for inclusion within the 2023 Bloomberg Gender Equality Index. which is important recognition of the company's commitment to supporting gender equality. And Vesta is also on track to achieve our Related to the Sustainability Link Fund we issued at the beginning of 2022, having ended the year with five new LEED-certified buildings. With that, let me turn it over to Juan, and I'll return for some brief closing remarks. Thank you, Lorenzo, and good day, everyone. Let me briefly recap some key financial results. Starting with our full-year performance, 2022 was another year with a record result for Vesta, as Lauren has noted. We delivered outstanding financial results, which exceeded our upward annual guidance revision, while reaching several historical records in key metrics, such as leasing activity and renewals. We achieved $178 million in revenue, representing a 10.7% increase year-on-year and 270 basis points above the upper end of our revenue guidance between 7.5% to 8% for the full year 2022. NOI and EBITDA margin also exceeded our revised guidance by 100 basis points, reaching 95% and by 93 basis points reaching 84.4% respectively. Let me now turn to our fourth quarter results. Beginning with our top line, total revenues increased 14% to $47.4 million, mainly due to initial rental revenues coming from new leases and inflationary adjustments on rented property during the quarter. It was partially offset by a decrease in rental income related to property sold at the end of 2021. As a reminder, all of our lease contracts are indexed to inflation. Therefore, we continue to benefit from the favorable effect of higher than expected inflation on our top-line results. In terms of occupancy needs, of the fourth quarter revenue, 82.2% was denominated in U.S. dollars, decreasing from 83.6% recorded in last year's comparable period, mainly reflecting higher other income, which is recorded in Mexican pesos. Turning to our cost structure, total operating costs maintained relatively stable at 3.8 million in this quarter. Net operating income increased 14.5% to $44.6 million, driven by higher rental revenues, while the margin expanded 40 basis points to 94.1%, mainly due to higher income from increased portfolio occupancy. While administrative expenses were up 16.2%, this was mainly due to an increase in employee benefits and the non-cash expense in the company long-term compensation plan and during the fourth quarter. In turn, EBITDA reached $39.8 million in the fourth quarter of last year, a 15.9% increase compared to the price in the first year's quarter, and the margin increased 138 basis points to 83.9% as compared to 82.5% for the same quarter of last year. Moving down the P&L, total other income reached $36.4 million compared to $44.0 million in the fourth quarter of 2021. This decrease was mainly due to lower property valuation gains and lower margins from property sold in this quarter, partially offset by a positive balance in point exchange results. As a result, we closed the quarter with a pre-tax income of $74.2 million compared to $76.6 million in the fourth quarter of 2021, while the pre-tax FFO increased 18.6% to $27.5 million, and NAB per share increased 10.1% to $2.86 from $2.61 per share in the same quarter of 2021. Now turning to our CapEx and Portafolio composition, we invested 86.6 million during the quarter, mainly in the construction of new buildings in the Northern and Bajio regions. Land acquisition and the new Portafolios we acquired. At the end of the fourth quarter, the total value of the Portafolio was $2.74 billion. comprised of 202 high-quality industrial assets with a total G&A of 33.7 million square feet and with 82.2% of total income denominated in dollars. Year over year, our standardized portfolio grew 5.9%, 32.9 million square feet with occupancy of 94.4%. from 94.3% in the fourth quarter of last year. We ended the year 2022 with a land bank of 39.6 million square feet, down 2.9% partially due to the use of land in Tijuana, Monterey, Guadalajara, and Hilal, as we began construction of eight new buildings during the fourth quarter of last year. This was partially offset by new land acquisitions in Mexico City. Turning to our balance sheet, we closed the quarter with a total debt of $931 million, and our cash position stood at $139 million. Net debt to EBITDA was 5.3 times, and our loan-to-value ratio was 31.5%. As a reminder, in Q3, we closed a $200 million sustainability lean revolver line of credit to provide us with additional liquidity when necessary. Subsequent to quarter end, on January 13, we paid a cash dividend for the fourth quarter of 2022 equivalent to $0.40 per share in pesos per ordinary share.

Finally, I would like to discuss our outlook for the year end.

We are expecting to increase revenue between 13% to 14% year-on-year, while we expect to achieve 93% NOI margin and 82% EBITDA margin for the full year 2023. With that, we conclude our fourth quarter and full year 2022 review. Operator, could you please open the floor for questions?

Thank you. Ladies and gentlemen, at this time we will 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Gordon Lee from BTG. Please go ahead.

Hi, good morning. Thank you very much for the call, and thank you for taking my question. I actually have two of them, one for Loren, one for Juan. I was wondering if you could give us a little bit more color on the acquisition in Toluca because it obviously seems like this is a perfect environment for development, right, just given how tight the market is and how strong absorption is. So I was wondering if there was anything about those two buildings in particular that you saw strategic and whether this is a one-off or whether we should expect more acquisitions of stabilized properties going forward. And then the other question, the question for Juan, and this is a question that we ask every year when you give guidance, And throughout the course of the year, you end up beating that guidance. But the question is, given the big jump in revenues, why the more conservative expectations for NOI and EBITDA margins in the guidance? Is it just conservatism, or is there something there?

Thank you. Hola, Gordon, and thank you very much for being in the call.

The acquisition we did on the properties in Toluca was a great opportunity to close on two stabilized properties that are part of a supply chain for a major auto manufacturer, which is actually adapting production lines for electric vehicles. And we think that this is a key market for Vesta. we were able to acquire it with low replacement costs. And our approach towards this type of acquisition will continue to be opportunistic. As long as we can be able to buy good quality assets with good tenants, with good leases in a sector and markets that we like, we will continue to have this type of approach opportunistically. Actually, we are analyzing further acquisitions. As you might see, these are not large in size. but we think that given our exposure in the market and the region, we believe that there could be also more opportunities looking forward within these types of assets. Returns are attractive from a risk-adjusted return perspective, and I believe that we are still looking for land in Toluca to be developed, and as long as as we can be able to find good land at the right price, we think that this is a solid market that will continue to grow in the auto industry, electric vehicle industry, as well as logistics, e-commerce, among other sectors. Gordon, thank you for the question. Look, the guidance that I provided is prudent. Let me tell you why I err on the prudent side this year, and I again erred on that side last year. This year, I'm prudent because the financial conditions of the market are quite volatile. We do not quite know what the end of figure of inflation is in the U.S. Just this week and last week, there were significant revisions for the U.S. market, that is, on inflation expectations. and the possibility of continuing the Fed intervention. The Fed intervention and the response of the Bajico are pinning local Mexican interest rates way too high, and that has created an incredibly strong peso. I do not know how long the peso will continue to be strong, and please remember that Vesta is a very dollar-like company. Eighty-two percent of my revenues are dollar-denominated. But let's not forget that the opposite side of the coin, 18%, is peso-based. And as the peso is very strong, and all of my costs are related to pesos. All of my costs are related to pesos. Such a strong peso, sustained by locally high interest rates, begs the question, what is the exchange rate that I can use to forecast my... peso cost in dollar terms, and therefore my NOI and EBITDA. Particularly tricky. So that's the tagline. I'm basically being wooden, and I consider an exchange rate that reflects the strength of the growth and sales and its impact on the income statement, while just underlying that my basic costs are peso-based.

Perfect, that makes sense. Just, and I'm not sure whether this is something you want to disclose, but the peso assumption that you're considering in this guidance, is this more or less around what spot levels are today, or is it where it ended the year?

I'm being prudent that just above 19 pesos, and I mean 19, let's say that 19 even, but if the peso continues to be below 1860, 1855, whatever, that creates a risk event for me.

Super. Thank you very much. Thank you.

Our next question comes from the line of Jorel Guioti from Goldman Sachs. Please go ahead.

Good morning. Thank you for taking my questions. So first off, I had a question on vacancies. I imagine this has to do with timing, but just if you can help us think about the Tijuana vacancy, you did have a material amount of deliveries there and it's about 7%. But is this something that we should expect to narrow down rather quickly in one queue or is it that you have some space for spec leasing perhaps that we're not aware about for 1Q23. And the other part is, you know, the Bahia region continues to see improvements as you mentioned in your comments earlier. And I was wondering if you can, I know you don't provide guidance specifically for vacancy, but just wanted to get a sense of where, do you see the vacancy rates going for the Bajio, which are currently around 7% in the near term? Should we expect them to approach north and center levels as they are in your portfolio? So those are my two main questions.

Thank you, Gerald. And I think you touched on a very important point that is a main driver of of the current environment and real estate fundamentals, definitely we're seeing a historic low vacancy rates, not only investors' portfolio, but overall in the market. And actually, even though we care about our occupancy, we also care a lot about the type of quality tenants that we lease to and the rents we lease to. So we're trying to achieve both things, try to get the best tenants with the best leases, at the highest rate possible. And in that regard, sometimes, as you mentioned in Tijuana, we might experience a little bit longer period of time in order to close good transactions. And I think that with such a strong market, it's better to wait a couple of months with a vacant building rather than it's too quickly and probably not in the right conditions. Just to use the example of Tijuana, As you can see, we were able to lease the first building to Home Depot. Home Depot is logistic warehouse facility. The second one for Herbes. Both of them focus in the consumer market, which is expanding rapidly, e-commerce as well as food and beverage. They're resilient sectors. But we're currently dealing also the new buildings that we recently finished with other sectors, including electronic sector, medical devices, as well as other related to new shoring. So on that regard, I think that we're very excited that we are able to not only develop, not only being able to have available buildings, but where it's gonna be very profitable transactions that actually we might be even closing way above our underwriting assumptions that we did when we started the development process of the projects in Tijuana. And that particular example of Tijuana is repeating itself in different markets, such as Juarez, Monterrey, Guadalajara, where rents are increasing dramatically. And we're capturing all that value by leasing at very high rates, rental rates, historic high rental rates, with good leases and great tenants. We leased recently to Foxconn in Guadalajara, a larger facility focused in the electronic sector. And the Bajio region is performing also incredibly well. We actually started construction of a new building in Puerto Interior, in Guanajuato. Just because we're seeing that demand is picking up again, we were able to lease good buildings throughout the year in San Luis Potosí. So we're going to have a close eye to the market. We're going to see where opportunities arise. And we're going to have a well-disciplined approach towards development and try to capture good risk-adjusted return projects in all of these very dynamic markets.

Thank you. Thank you.

Our next question comes from the line of Javier Gayol from GBM. Please go ahead.

Hi, Lorenzo. Juan, good morning, and thank you for the call, and congratulations on the results and the record year for the company. I have the questions, if I may. We were positively surprised by the price paid for the land in Mexico City. So maybe you could give us a little bit more color. Is this land ready to develop, or is Vesta needing to put more money into it for it to be ready? That would be my first question. And my second question may be a bit more strategic, but you guys had very good timing regarding capital markets and your plan of expansion seems to be going at a very fast pace. So I think my question here is, do you guys think that maybe there's more potential for growth within the markets and given the dynamism that we're seeing and, you know, this record low vacancies, this increases in prices, Could you, I think, would you guys expect or maybe think of maybe increasing your potential development or are the company's capabilities set at the guidance that you guys provide?

Thank you, Javier. Thank you for the call, for being on the call and thank you for your question. The first question on Mexico City, we are very excited to be able to acquire a great piece of land in the Periferico Norte, in the crossroads to the La Venta Chamapa Highway in the San Martino Vista area. This is also a market known or a location known as Punto Norte. So this is a fantastic opportunity to acquire 20 hectares. of land exactly at the moment when we're seeing a rising market with demand accelerating and rents increasing. And that's why we were very happy to be able to close that land. You're right, I think that the price per square meter of land has been increasing in the market. However, rental rates are increasing and we're able to develop a large distribution logistics facility and still get great risk-adjusted returns in a market that is strategic for Vesta to penetrate and keep on growing with some of our existing e-commerce clients as well as other ones that are entering there. So from a risk-adjusted return perspective, we're incredibly happy with having this opportunity, and this is going to be a second trophy asset in the Mexico City market. One million square feet is not easy to find and not easy to develop, particularly in this submarket with urban infield characteristics. We will be developing soon. Hopefully, we can break ground first semester of 2022, which represents or will have as a result that the buildings will be available at some point next year and start generating income at some point in 2024. So yes, it shouldn't take very long. There's plenty of potential for growth for Vesta, not only in the Mexico City market, but also in other markets. We are seeing that the markets are the best of buildings are absorbing very rapidly. That's what we have seen in Guadalajara. That's what we're seeing in Tijuana. In Monterrey, now with the Polaris project, which not only were we able to miss all of the existing buildings we have under construction, but also there's an opportunity to keep growing with Polaris as they would like to expand their manufacturing facilities to produce ATVs for the North American market primarily. And this will represent an acceleration to our growth plan in those objective markets that we have already identified. So we're going to be very active throughout the year in development, very active in leasing, and also very focused in still getting the best clients investment-grade clients with long-term leases, U.S. dollar leases, and keep on our focus on profitability to increase net asset value for sure as well as ethical pressures.

Thank you, Lorenzo. Super clear. Thank you.

Thank you. Our next question comes from the line of Alejandra. Aubrey Grand from Morgan Stanley. Please go ahead.

Hi, good morning, Vesta team. Thank you for the call and for taking my question. It's actually two questions from my end. So the first one is on guidance, so I would like to ask the guidance question differently, if I may. So I was wondering if you could provide some of your specific assumptions used for your 2023 outlook, and then perhaps what are the main variables that you think could drive upside or downside to it? So you did mention FX, but But what about the macro and the micro variables? Is there any other that you think we need to take into consideration or maybe on the cost side that could drive upside to what you mentioned? And then my second question is on some of your comments on the release. So you're saying that there's a contribution to rental revenue from space that was previously vacant. and then some decrease from the expired rents that were not renewed. So just wondering if you could elaborate on these dynamics, but from a regional perspective, where are you seeing more demand and where do you think you are facing more resistance?

Thank you.

Thank you. Quite good questions. Let me just try to be brief on the explanations. First of all, on the revenue side, as we pass inflation in all of our leases, the inflation expectations that the company has, they're an important bearing on our sales growth. So those things have an effect on how much our sales will grow. As you pointed out, I think, when we need our substantial pipeline, there is a very important role as well. We have an important development pipeline. Most of it today are respect buildings. And therefore, when those buildings are going to be left, as the market rates, which are significantly above our in-place rent, also affect guidance on the revenue side. So on the revenue side, what we view at the beginning of the year is Inflation, leasing assumption of our development pipeline, which how quickly we're going to be leasing, and please take a look at my development pipeline, is quite substantial. It's the largest development pipeline that we have ever had. So that's an important assumption. On the total portfolio inflation, U.S. inflation is an important variable. And on the revenue side, exchange rates play a role. 18% of my revenue is peso denominated. So it has a bearing. Now, on the cost side, as I mentioned before, the vast majority of my expenses, both at the property level and at the administrative level, are peso-based. So where do we view the exchange rate has an important bearing on the guidance. We are quite optimistic on our leasing assumptions. And therefore, the revenue guidance of 13% to 14% is from 12% to 13%. Sorry. There wasn't my correction on this one here. 13% to 14% I believe is quite aggressive, and it basically responds to the items that I said before. And those more or less are comfortable to us. Exchange rate is more difficult, Alejandra, to forecast. And again, the peso on this administration's historical strength level caused me a pause for approval.

Understood, that was very clear.

And then on the dynamics of the different renewals and vacancies, can you provide some color in what you're seeing from the different regions?

We're increasing rates on all of our rollovers across all regions. And that, so we're very optimistic on that. We are making very strong assumptions about the leasing rate of the spec buildings we're developing in all of the regions across the board, from the Bajio to Tijuana. And that's, again, that's an important source of value to DESTA. not only to increase the rates on the rollovers that we do, but the fact that with a strong development pipeline, we are basically leasing at the top of the market in terms of leasing rates across all of Mexico.

Got it. Thank you so much for the call, and congratulations on the numbers.

Thank you. Our next question comes from the line of Renata Cabral from Citi. Please go ahead.

Hi, good morning. Thanks for taking my question. I had two here. It's, in fact, a follow-up regarding the acquisition you've made this quarter. The acquisition to development spread for this transaction was 180 BPS. And if you continue to find deals with this low spread, what can we expect for you to continue acquiring? Or would a large spread, let's say 250 basis points, make an acquisition become unattractive? And my second question is an hypothetical one. If hypothetically you wanted to become a FIBRA, what would be the cost and taxes involved? And if you can talk about the trade-offs of this decision. Thank you.

Sorry, Renata, we cannot hear you clearly. Can you repeat your question?

Sure. I will speak a bit louder.

Thanks again for the opportunity. It's a follow-up regarding the acquisition versus development. The spread for this acquisition that we have made was 108 basis points. If you continue to find deals with this low spread, should we expect for you to continue acquiring? The second question is a hypothetical one. Hypothetically, if you wanted to become a FIBRA, what would be the cost and taxes involved? And if you can talk about the trade-offs of this decision.

Thank you, Renata. Did you mention 180 basis points on top of what? Sorry.

if you continue to find these attractive deals, if you should expect to see other acquisitions on this front.

Great. Thank you, Renata.

I think that this is a good point. As you know, we regularly focus our capital allocation strategy towards development, where we can find attractive risk, attractive returns. However, every now and then, we also analyze acquisitions. Not every time are we able to find acquisitions at attractive returns. Some of them have been pricing recently in Mexico in the low 6% cap rates. Therefore, every now and then, we're able to find even smaller transactions like the one that we did in Toluca. And as long as they fit our market strategy, as long as they fit the quality of projects and the quality of tenants, and we are able to buy below replacement costs and have an opportunity to increase rents, we believe that there could be value creation for our shareholders, and therefore we will continue to analyze acquisition. Our main objective is to continue developing. We have an important pipeline of over a billion dollars, but every now and then, we think that opportunistically we should be analyzing and acquiring whenever we see an attractive return and in line with our growth and portfolio strategy. On the second question, basically, we don't see any value in converting to a Fibra structure for our shareholders. Basically, I think that the ability to retain earnings is a powerful motor for value creation. I believe that our point of view that Afibra is better suited for an acquisition strategy as opposed to our company development strategy. I don't see any potential incentive for that conversion.

That's super clear. Thank you.

Thank you.

Our next question comes from the line of Francisco Suarez from Scotiabank. Please go ahead.

Thanks so much. Good morning. Congrats on your superb execution. The questions that I have is a follow-up on Gordon's question related with acquisition on your buildings in Toluca. Can you walk us a little bit more on what has changed, if anything, on your risk underwriting standards related with, particularly with certain industries that are in transition? For instance, in this case, it was the auto industry. And you mentioned when you were answering Gordon's call, question, sorry, that these were heading towards EVs. So in other words, what are you considering now in your risk underwriting on certain value chains that are transitioning like the auto industry? And my second question, well, now that you have been deployed a lot of your excess cash after the last equity follow-up and considering that you are now closer to net debt to EBITDAs of roughly five times net debt to EBITDAs, would you Are you considering that it's the right time to go to the market again and do another equity follow-on to fund your growth? Thank you.

Gracias, Francisco. Yes. So one of the things we like about this transaction is that it has great tenants. Actually, some of the tenants are part of Vesta's already tenant booster with clients such as HBPO. Android, Jagna, Brose, all of these are global suppliers in the auto industry that are very, very successful. And the acquisition was done at almost 15% below replacement costs at a cap rate of approximately 8.5%. And that's why these tenants have manufactured front-end suspension systems tire and wheel assembly we think that can cater and adapt very well to the growing electric vehicle industry as well as the traditional combustion engine industry. And this is going to be a part of the supply chain of the new Jeep Compass, which is an electric vehicle expected to be produced in Toluca shortly, as you have probably been seeing in some of the news. So that's why we really like this acquisition very much in line to the to investor strategy and towards the sector. And even that it's small, we think that it's fully in line to our ability to grow in strong markets. Regarding your second question, Paco, I believe that we have a lot of financial flexibility, and we have a very strong balance sheet, and we will use our financial flexibility prudently to continue with our expansion. We have a leverage ratio which is substantially strong, 31%. So there's plenty of room. I have a revolver line available. And there have been several transactions in asset recycling done last year. So, I mean, there's opportunities to do that. So there's plenty of things that we can do.

And following up on that last question, Juan, if I may, you just secured a revolver with a spread of 1.65, isn't it? So that's a good spread to continue to do what you're doing.

Our spread is 160, and we have a five basis point oxide for ESG purposes. And therefore, our total positive impact, I expect that this year, starting in June, to be 155, because we're way ahead of our ESG objectives. And therefore, so we use that revolver, and from our banking relationships, I can tell you that there's very strong interest in lending to our sector, to all of the real estate successful developers. So there's Certainly a lot of opportunities to continue funding our aggressive growth.

Got you. So I'm talking about asset recycling. Any budget whatsoever for this year on potential asset recycling?

We are always looking at opportunities. We do not have a... We do not have a specific item to provide because it really depends on the timing and what we feel from the market. But today, we don't have any open concerns.

Okay, fantastic. Thanks so much. Congrats again.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1. Our next question comes from the line of Maria Abreu from T. Rowe Price. Please go ahead.

Hi. Thank you for the question. So I have two things that I want to follow up. I know you said you have some financial flexibility. You have some other sources of available liquidity, and you talk about asset recycling. Could you consider coming to the debt market, I mean, either local or international, to continue funding your growth? And can you maybe talk about funding needs for this year? And then a second question, on the near-assuring theme, I've been hearing mixed thoughts about this, and I know it's been very positive for you, but talking with other Mexican players, especially in the financial side, they seem to be a little bit more cautious with this topic. The reason that they provide is that the infrastructure, especially... energy infrastructure in Mexico is not enough to support all that growth, especially with all the limitations that you have in renewable energy. So just wondering, how are you thinking about these and maybe limitations to the strong, near-assuring, you know, driven growth that we're seeing right now? Thank you.

If you allow me, Maria, thank you very much for the questions. Let me first answer the debt question. We have a significant number of alternative sources for debt. The banking sector in Mexico is quite active and quite open to lend to my sector and to Vesta in particular. So we will certainly take advantage of that. We have been exploring the banking type of loans a five-year loan without real estate guarantees. It's just a clean loan to desktop. We have also been talking or receiving interest from banks, from investment banks, to place our paper on private equity, private debt for longer periods, and there's a substantial interest in doing those types of transactions. So those two pockets of liquidity are still there, and they are deep, and we can tap them at any point in time. It's a matter of timing, and that's why I mentioned that I will use my revolver, because I think that timing on this environment is of the essence. Now, regarding the local markets, local debt... In the banking sector, I just want to bring the attention to you that Bancomext, a premier government bank, is offering a nearshoring line to promote these activities within Mexico. So that's, again, a lot of interest in lending to companies such as ours or to people that are bringing nearshoring opportunities. The local market, the local financial market, Basically denominated in pesos. I do not foresee issue in any peso-related debt. Banks are keen in offering peso-related debt converted into dollars. I don't like those transactions for a couple of reasons, but I will not go into detail. So leveraging the compagnon for any problem, any issue, is just a matter of using the right markets at the right time. Regarding the other question about limits to the nearshoring because of infrastructure, let me just be very strong there that we haven't lost any transaction with any potential clients because of problems of electricity or water sourcing. Our client base is basically logistics, which you don't use a lot of those resources, or light manufacturing, which you do not use those resources in a heavy way. So the issue is connectivity. We have the balance sheets to provide that. And we have been able to source those resources as the company has needed them across all regions. So look, I think that so far, we haven't hit virus 9 in Vesta's case.

OK. So just to confirm, we should not expect you to be in the international market with a bond this year unless you do something big or a big acquisition.

For a global bond, I would hesitate to tell you that you can expect me because I think that the size of the issue and a $300 million bond global fund. I frankly don't see it this year. If the opportunity happens, maybe, but I hesitate to say that there's alternative ways to form a company that are more attractive given the space of demand.

Yeah. Okay. Thank you very much. That's very helpful. Thank you, Maria.

Thank you. Ladies and gentlemen, there are no further questions in the queue. I'd now like to turn the call back over to Mr. Berho for concluding remarks.

Thanks, operator.

When we are pleased with our outstanding 2022 results, we're also focused on moving toward our future. This year, our company celebrates its 25th anniversary, which underscores our experience in the market. supported by a skilled team with considerable business know-how. Today's market environment has accelerated our plans, enabling us to unlock shareholder value to continue successful execution of our Level 3 strategy. We're therefore bullish and confident about the year ahead and are leveraging our extensive experience and competitive advantages to deliver while we maintain Vesta's longstanding philosophy of remaining vigilant market dynamics and prudent but opportunistic in our investments. Thank you to the entire investor team for your hard work and many successes throughout the year and in the future ahead.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect your lines.