Vesta Real Estate (VTMX) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total income for Q3 2025 reached $72.4 million, a 13.7% year-over-year increase, while total income excluding energy was $69.9 million, reflecting a 14.5% increase [7][23] - Adjusted net operating income (NOI) increased 14.7% to $66.1 million, with an adjusted NOI margin of 94.4%, up 16 basis points from the prior year [24] - Adjusted EBITDA totaled $59.7 million, a 15% year-over-year increase, with a margin expansion of 34 basis points to 85.3% [24] - Funds from operations (FFO), excluding current tax, increased 16.5% year-over-year to $47.4 million [24] Business Line Data and Key Metrics Changes - Total leasing activity for Q3 2025 reached 1.7 million square feet, with 597,000 square feet in new leases and 1.1 million square feet in renewals, showing a trailing twelve-month average spread of 12.4% [7][8] - Portfolio occupancy reached 89.7%, while stabilized and same-store occupancy reached 94.3% and 94.8% respectively [8] Market Data and Key Metrics Changes - In Monterrey, strong interest from advanced manufacturing and logistics companies was noted, with the completion of new facilities in Apodaca Park [9][10] - Ciudad Juarez showed early signs of market recovery, with a 130 basis point contraction in overall vacancy and a 190 basis point decline in Class A vacancy [11] - Tijuana experienced slower recovery due to high vacancy rates from recent supply influx, but early signs of reactivation were observed [12][13] - Guadalajara maintained a healthy 2.8% vacancy rate, supported by foreign direct investment in advanced manufacturing sectors [15] Company Strategy and Development Direction - The company is focused on its Route 2030 strategy, aiming to build a diversified industrial platform across key corridors in Mexico [21] - A cautious approach to capital allocation is being maintained, with only one project under construction currently [20] - The company is prioritizing markets with visible tenant demand and is committed to asset recycling to reinvest in higher growth opportunities [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving demand signals across most markets, particularly in Mexico City and Guadalajara, where vacancy rates are low [5][29] - The company is confident in its ability to capture future demand cycles, especially in light of the upcoming USMCA review [30][56] - Management highlighted the importance of energy supply and collaboration with federal authorities to support industrial parks [17][18] Other Important Information - The company completed a €500 million senior unsecured notes offering to enhance liquidity and extend maturity profiles [25] - An acquisition of 330 acres of land in Monterrey was announced, strategically located near the Monterrey International Airport [10][26] Q&A Session Summary Question: Long-term development pipeline acceleration - Management noted positive demand signals across most markets and emphasized careful analysis before resuming new operations [29][30] Question: Demand from existing vs. new tenants - Demand is coming from both existing tenants and new companies, with interest from various industries including electronics and aerospace [33][34] Question: Leasing activity in October - Management confirmed leasing activity in Ciudad Juarez and the Bajio region, with expectations for continued absorption [39][40] Question: Sustainability of EBITDA margin improvement - Management indicated that the focus on maintaining a low cost base will support sustainable EBITDA margins in the future [47][49] Question: Indicators for new development launches - Decisions are based on internal data, occupancy trends, and direct communication with existing tenants [73][76] Question: Trends in lease spreads - Management acknowledged a slight decline in leasing spreads but remains optimistic about sustaining double-digit increases going forward [94][97] Question: Cap rate of recently sold building - The cap rate for the sold building was 6.2%, with a sale price reflecting a 10% premium to appraisal value [104]