Release Date: February 20, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fibra Mty S.A.P.I. DE C.V. (FMTYF, Financial) exceeded the high range of its yearly guidance for the 10th consecutive year, generating an AFFO of approximately 1 peso per share, equating to an above 8% return.
- The company strengthened its industrial portfolio through strategic acquisitions, including the Aotech portfolio in Queretaro and properties from the Batac Portfolio in Oleon, with expected cap rates exceeding 8%.
- Efforts to enhance liquidity have been successful, with average daily trading volume increasing to just shy of $1.5 million compared to half a million dollars in the fourth quarter of 2023.
- Fibra Mty S.A.P.I. DE C.V. (FMTYF) successfully refinanced its entire bank debt, achieving a lower financial cost and extended maturity profile, maintaining a gross loan to value below 26%.
- The company has a strong pipeline for potential acquisitions, with $540 million in the northern and Baquio areas, and 80% of the current pipeline are off-market deals originated by the company.
Negative Points
- There is a noted softening in occupancy rates in northern Mexico, particularly in border regions, which could impact future demand.
- Fibra Mty S.A.P.I. DE C.V. (FMTYF) is approximately $300 million short of its $700 million investment target by March 2025, indicating potential challenges in meeting this goal.
- The company faces potential increases in vacancy rates due to a slowdown in demand and continued new construction, which could affect market equilibrium.
- There is uncertainty related to potential US tariffs on Mexican exports, which could impact the industrial real estate market in Mexico.
- The divestment of the office portfolio, including flagship properties, may take between 4 to 8 quarters, indicating a prolonged timeline for becoming a pure industrial vehicle.
Q & A Highlights
Q: We've noted a softening in occupancy rates in northern Mexico, particularly in border regions. Could you provide color on the dynamics in these markets? Also, Fibra Monterrey is approximately $300 million short of its $700 million investment target by March 2025. What specific assets or markets are being prioritized to close this gap?
A: Yes, we have observed a slowdown in demand and continued new construction in key markets like Monterrey, Tijuana, and Mexico City. We expect a low year in terms of net absorption due to uncertainties, but our portfolio remains defensive due to long leases. Vacancy rates are still healthy, under 4% overall. We have a pipeline of close to $540 million, with $73.4 million in the second tranche of the portfolio expected to close soon. We are disciplined in evaluating opportunities and confident in reaching our $700 million target.
Q: Have you seen any softening in cap rates for M&A considering uncertainties related to potential tariffs and slightly higher vacancy rates? Are there specific areas in Mexico where opportunities have become more attractive?
A: We are focusing on northern and Central Markets, with potential opportunities in Mexico City. We see opportunities in Guadalajara, Monterrey, and Bajio. Cap rates are expected to remain between 7% and 8% for key markets. Most satellite portfolios we evaluate are nearly 100% occupied, but we also look for portfolios with 85%-90% occupancy for potential upside.
Q: You mentioned being at the equilibrium point of the cycle for vacancies. Does this imply you do not expect vacancies to rise further? Also, with 20% of leases maturing next year, what are your renewal conversations like?
A: We expect vacancy rates to increase slightly this year due to a slowdown in demand and continued construction, but they should remain under 10%. For lease maturities, we have been proactive, starting conversations 12-18 months in advance. We haven't seen pushback from tenants, and many are positive about expansion plans. We expect to capture added value in 2026.
Q: Regarding the office portfolio, are you considering selling the entire portfolio, including flagship properties like La Perla and Ol Parque?
A: Yes, we intend to sell the entire office portfolio, including flagship properties. We started with underperforming assets but are now mandated to sell the whole portfolio. We aim to become a pure industrial vehicle, but it will take time to ensure responsible sales at attractive prices.
Q: What is the timeline for divesting the office portfolio, and what guidelines will you follow to protect or create shareholder value?
A: The timeline for divesting the office portfolio is estimated to be between 4 and 8 quarters. Our guidelines focus on safeguarding proper valuation and pricing, with book value as a reference for sales. We aim to become a 100% industrial vehicle while ensuring responsible and attractive sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
