Good morning, and welcome to FIBRA Macquarie's second quarter 2025 earnings call and webcast. My name is Diego, and I will be your operator for this call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If at any time you require operator assistance, please press star followed by zero, and an operator will be happy to assist you. I would now like to turn the conference over to Nikki Sacks. Please go ahead.
Thank you, and hello, everyone. Thank you for joining FIBRA Macquarie's second quarter 2025 earnings conference call and webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer, and Andrew McDonald-Hughes, our CFO. Before I turn the call over to Simon, I would like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for informational purposes and is not a solicitation or an offer to buy or sell any securities. Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Actual results, performance, prospects, or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation.
We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts unless otherwise specified. As usual, we have prepared supplementary materials that we may reference during the call. If you have not already done so, I would encourage you to visit our website at www.fibramacquarie.com and download these materials. A link to the materials can be found under the Investors, Events and p resentations tab. And with that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Simon. Simon, you may begin.
Thank you, Nikki, and thank you for joining us for FIBRA Macquarie's second quarter 2025 earnings call. The second quarter was another productive period for the team and for our business as we continue to focus on a high-quality capital allocation strategy that, combined with a focused effort on same-store performance, drove impressive financial and operating results. This success reflects the quality of our real estate portfolio, the high impact made by our vertically integrated platform, and our strategic positioning in key markets. We are excited to report that the June quarter delivered record per certificate results in underlying U.S. dollar terms across a number of key metrics, including consolidated revenues, NOI, AFFO, and NAV. All this contributes to a high-quality distribution with an attractive dollarized cash yield of 8%, supported by a prudent mid-80 % payout ratio. Let me dive into some highlights for the quarter.
First, our industrial portfolio continues to deliver reliable results, with leased GLA holding steady over the prior quarter and year. In 2Q, we executed 1.3 million square feet of leasing activity and grew rental rates by 6.8% to an industry-leading level of $6.45/sq m . What is especially encouraging is the stickiness that we are seeing from our existing customers. Of note, we achieved remarkable renewal spreads of 28% on commercially negotiated leases. Last quarter, we spoke about the opportunity to add momentum to our results by selectively pursuing accelerated lease renewals on favorable terms. This quarter, we were able to achieve exactly this with the renewal of a sizable 420,000-sq-ft lease to a Tier 1 auto supplier in Hermosillo, realizing a double-digit lease spread.
Further south in Guadalajara, we also completed renewals of 500,000 sq ft, with the highlight being the long-term renewal for a 170,000-sq-ft space for a domestic-focused tenant, where we were not only able to increase the rent by a substantial double-digit spread, but we were also able to convert the underlying lease currency from Mexican pesos to U.S. dollars. These are just two highlights that represent the value that FIBRA Macquarie can best deliver through the execution capabilities of our full-service in-house platform. Our proactive approach to lease management has helped us maintain an impressive retention rate of around 90% for the quarter. As we enter into the second half of the year, we have less than 5% of scheduled expirations, providing a stable outlook for leased GLA.
Industrial occupancy at quarter end was 94.8%, up 10 basis points sequentially. As I mentioned earlier, our leased GLA performance has been particularly robust and has driven record NOI results. Much of our available GLA is accounted for by the delivery of new generation lead buildings that we are confident will deliver fantastic incremental income as the market for new leasing comes back. We, of course, continue to see macro and investment uncertainty very much connected to tariffs and contributing to slower decision-making, primarily impacting new leasing. We remain confident in our assets and positioning and believe the long-term positive tailwinds that we have experienced in recent years will return, strengthening new customer interest once there is more macro clarity, especially with regards to the USMCA renegotiation, which now seems likely to drag into the first half of 2026.
On the growth CapEx front, we are particularly excited about our expanded development program in Tijuana, which aligns perfectly with our growth strategy focused on key markets. We have partnered with Grupo Frisa, with whom we have enjoyed a strong and successful partnership for more than a decade, to develop an industrial park that will feature up to four Class A buildings, totaling 750,000 sq ft of GLA. What makes this development special is its location in a prime Tijuana submarket, strategically positioned close to labor and important transport connections. Furthermore, our internal platform, MPA, which has a strong existing local presence in Tijuana, comprising specialist property management, leasing, and engineering professionals, will be responsible for the property management of the assets upon completion, with FIBRA Macquarie earning market-based property management fees from the JV for this service.
In Guadalajara, we continue with pre-development planning and infrastructure works in anticipation of commencing construction for the first of two buildings that will comprise 460,000 sq ft of GLA. I want to take this opportunity to emphasize our commitment to disciplined capital allocation, which has always been a key pillar for FIBRA Macquarie, and more important than ever in the current environment. We will continue to selectively pursue growth in core markets, and these investments demonstrate the execution of that strategy to expand our portfolio in a manner that drives long-term sustainable growth. The developments we pursue continue to target an NOI yield on cost of between 9% and 11%, while also incorporating the highest sustainability standards, which also generate operational efficiencies for our customers.
In our retail portfolio, we continue to see steady improvements, and we deliver 4.5% NOI growth in the quarter, with occupancy reaching a post-pandemic high of 93.4%, up more than 130 basis points year-over-year, with average monthly rental rates also increasing by 5.2%. These steady improvements in occupancy and sustained rental rate growth contributed to a record quarter of rental revenue. Moreover, we have continued to expand our tenant base, particularly in the entertainment and leisure segments, and even our last mile logistics conversion, which has enhanced the diversity and quality of our rental. These results demonstrate the resiliency and quality of our retail portfolio, which is mainly located in high-density urban areas and provide shoppers with a range of essential goods and services.
As I mentioned earlier, the macro environment presents a complex picture, b ut ongoing negotiations in tariff policies and broader economic uncertainties have introduced additional complexity to the investment landscape. However, Mexico's strategic position in North American supply chains remains robust. While we remain mindful of this backdrop, we are successfully navigating the current market conditions while staying focused on our long-term growth strategy. Before I turn the call over to Andrew, I would also like to take the opportunity to congratulate the Fibra NEXT team on their IPO. It is a great transaction for the sector, and it is fantastic to see IPO activity come back into the Mexican Stock Exchange, which bodes well for the future. Andrew, over to you.
Thank you, Simon. I am pleased to report we delivered another quarter of sustained financial performance. For the second quarter, we delivered record AFFO of $30 million, representing an 8.6% increase year-over-year. This result takes into account certain one-off expenses related to the establishment of our new industrial joint venture, as well as costs associated with our trustee substitution that was carried out in recent weeks. Speaking of which, I want to express my thanks to the FIBRA Macquarie team, who acted swiftly and diligently, taking immediate action and appointing HSBC as our new trustee, as they provide a combination of local expertise, global reach, and strong regulatory compliance, supported by a deep global relationship with our sponsor. We have received overwhelming support from certificate holders, lenders, and stakeholders, and we have now formally executed trustee substitution documentation.
Turning to our balance sheet, FIBRA Macquarie remains well-positioned with prudent leverage metrics and robust liquidity. As of June 30, our real estate net LTV was below 33%, and we maintain ample liquidity of $420 million. During 2Q 2025, FIBRA Macquarie made a debt repayment of $50 million and anticipates, subject to stable market conditions, to steadily repay its drawn revolving credit facilities through the remainder of the year. I would like to take this opportunity to discuss yesterday's update regarding our guidance for the full year. We are reaffirming our outlook for 2025. We continue to expect AFFO in the range of $115 million-$119 million. We are also maintaining our guidance for cash distributions of MXN 2.45 per certificate for FY 2025 to be paid in equal quarterly installments.
Given the recent appreciation of the peso, we are updating our assumption with respect to FX for the remainder of the year to MXN 18.5 per U.S. dollar from a prior assumption of MXN 20.5. This does not impact our USD AFFO guidance range, as noted above. However, we are revising our peso per certificate AFFO guidance range to MXN 2.8-MXN 2.85, reflecting the impact of the updated FX assumption. This guidance assumes stable market conditions and no material deterioration in the geopolitical landscape or trading relationships. The implied FY 2025 AFFO payout ratio of approximately 87% based on the guidance midpoint and represents one of the most well-covered distributions in the sector. In closing, while we remain mindful of broader market uncertainties, our strong operational performance, robust balance sheet, and strategic positioning continue to drive sustainable growth and value creation for our certificate holders.
As always, Simon and I would like to take this opportunity to thank the team for their tireless efforts and our investors and stakeholders for your continued support. With that, I will ask the operator to open the phone lines for your questions.
Thank you. At this time, we will conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two 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. Our first question comes from Pablo Monsivais with Barclays. Please state your question.
Hi, thanks for taking my question. Just wanted to get some color on the potential lease spreads going forward. What is the current gap between your in-place rents and market rents for your industrial portfolio? Thank you very much.
Thanks, Pablo. Simon here. Yeah, it is a good question, g iven we saw a very pleasing result for the second quarter, record spreads of 28%. At the start of the year, I guess we said we would be disappointed if we did not get to double digit at a minimum for the full year. So, it is fair to say at the halfway point, and with just 5% remaining of scheduled expirations for the year, we are well on track to meet that. Yeah, I guess with regards to what is left in the year, it is relatively small on a sort of an overall basis, being less than 5%. But again, I think we would be disappointed if we did not get to solid double digits with what is left. So, we like what is left.
We think it is very manageable and hopefully we can continue the good performance that we have seen on that so far.
If I may, Simon, i f you were to give some color for 2026 lease spreads, do you think it is going to be similar to this year?
Yeah. It's obviously a while to go before we get there, and we'll be giving our overall guidance update for next year, as you know, in a couple of quarters. But I think we still see good momentum heading into 2026. There's still a bit of that pre-COVID book, if you want to call it that, or pre-near initial book, if you want to call it that, to roll over into 2026. So, I think there's still good renewals to be had in 2026. Overall, I think we still see momentum there, certainly second half of the year and for a good chunk of the renewals in 2026. But it's still a little bit early to make a definitive call on that.
Thank you very much.
Your next question comes from Antonio Hernández with Actinver. Please state your question.
Hi. Good afternoon. Thanks for taking my question. Just a quick one regarding retail activity. What trends are you seeing right now? How is relatively resilient to all the tariffs announced that, of course, affect the overall outlook of the industrial portfolio? Thanks.
Thanks, Antonio. Retail, we had a really good quarter. As you know, it's about 15% of our overall NOI, so it's a nice little contributor for the overall performance. I think when we think about retail heading into the second half of the year, in general, we probably see more tailwinds than headwinds from a portfolio performance perspective. I think it's generally still a little bit of a fickle or fragile retail market backdrop. You see that in some of the retail industry statistics. But overall, we're pleased with the progress of our own portfolio. It's definitely in line with the budget that we established for the retail portfolio at the start of the year.
Again, I think when we think about second half performance, we'll be a bit disappointed if it wasn't at least as strong as first half when we think about some of those key operating metrics, occupancy, rental rate, particularly NOI contribution. I think you should be expecting a resilient performance heading into the second half of the year. Manageable expirations again. Look, I think also just given that we think about ourselves fundamentally as a U.S. dollar business model, I think the recent peso appreciation has also been a little bit of a bonus in that sense as well. So, we're quite happy with the way that retail's contributing into an overall free cash flow perspective given current effects.
Thank you.
Okay, perfect. Thanks for the call.
Thanks.
Your next question comes from Igor Machado with Goldman Sachs. Please state your question.
Hi, team. Hey, team. Thanks for taking my question. It might be early, but I was wondering if you could please comment on commercialization for the Grupo Frisa JV in Tijuana. Are you having any early conversations with potential investors or what type of tenants do you envision, manufacturing, logistics? Any color would help. Thank you.
Yeah. No, thanks, Igor. Yeah, we're obviously very excited about that project that we completed in the second quarter. For the time being, we're still in the preparatory works, so getting all the earthworks and basic infrastructure ready to go vertical. I was visiting the site earlier in the quarter and it's coming along very well. We really like the location. It's effectively a walk- to- work type labor market. There's a lot of residential around it. So, it's actually going to suit both manufacturing and logistics quite well, given that and the proximity it has to highway connections. So, I would say, it's definitely got flexible end user optionality there for whether it's manufacturing or logistics, could suit both. Yeah, look, I think it's something where Tijuana, it's probably something we feel good about in general, actually.
When you think about the nearshoring markets, there's definitely a lot of softness out there. Even in Tijuana, we saw a little bit of vacancy increase. But the dynamic heading into the second half of the year, we are seeing a fair bit of activity on a relative basis in Tijuana compared to some of the other nearshoring markets. I think, probably, feel a little bit more confident around going vertical there earlier than other markets. But it's something that we have to just assess as we head into the second half of the year. As I say, I think the optionality we have for that park, it's abundant given that it's got great labor with both manufacturing and logistics in play.
Okay. Thank you.
Your next question comes from Piero Trotta with Citibank. Please state your question.
Hi, team. Thank you for the presentation. My question is regarding your CapEx program. I would like to know if you see any risk on the yield on cost levels between 9% and 11% going forward. What are your main concerns for this rentability? Just this one. Thank you.
No, thanks for the question, Piero. It is very relevant just given what we are seeing in the broader market. I think, generally speaking, we remain confident in those levels and continue to maintain that assumption and forecast for our development program. I would say we have seen sort of a step-up in underlying land prices over the last 12- 18 months, also combined with some step-ups in infrastructure costs, and being able to ensure that we can deliver utilities to those sites, which is an important part of the commercialization aspect of those projects.
However, we're confident in the underlying market rental rates that we're seeing for those projects, and confident that we can still maintain that 9%-11% range, with potentially sort of the lower end of the range being in more active markets like Tijuana and Mexico City, where land prices tend to be more expensive, and our other core markets trending sort of to the midpoint of that range.
Perfect. Thank you. Thank you very much.
Your next question comes from Enrique Cantú with GBM. Please state your question.
Hi, Andrew. Hi, Simon. Thank you for the call and for taking my question. First of all, I want to make sure if you can hear me well.
Yes, Enrique. Loud and clear.
Perfect. Your current net real estate leverage is at 32.8% with a debt maturity profile averaging three years. Are there any refinancing activities or strategies planned to extend maturities or further optimize your debt structure?
Thanks, Enrique. I appreciate the question. Andrew here. We are actively looking at our refinancing program as we move through the remainder of this year, given the maturity profile we have through FY 2026 and FY 2027 in particular and actively planning the extension and I would say sort of expansion of our balance sheet positioning. Very comfortably maintaining our guidance with respect to leverage of between an LTV of between 30% and 35%. So, very comfortably sort of holding the range, if you like, that we had provided to the market, b ut are certainly working through sort of that refinancing program to extend maturities. And we are seeing very positive, I would say, indications from the debt markets more generally with strength across the commercial banks and public markets as well.
So, we are confident that we will be able to deliver a solid result with respect to the extension of those maturities.
Perfect. Very clear. Thank you.
Thank you. Your next question comes from Felipe Barragán with JP Morgan. Please state your question.
Hey, good morning, Simon, Andrew. Thanks for the call and for taking my question. Mine is on your cash balance. You have around $200 million and your development program is for $ 50 million-$ 100 million, and you have about $ 44 million allocated for the Tijuana project. I am just curious on what the rest of the cash will be, or if, I mean, I guess a portion of it will be for more developments. Just curious on if maybe some of that cash might be used for the Prologis Terrafina legacy assets that might be sold. Sorry, that will be sold. We had a peer say yesterday that you guys, sorry, that those assets, that there is like the assets were finally listed last week. Any color on that would be appreciated. Thank you.
No, happy to. Felipe, just for your benefit, you may recall that in the first quarter of this year, we did do a precautionary drawdown of $225 million against our credit facilities and revolving credit lines. Really, just to proportionally guard against any particular market dislocation that we saw, that could potentially arise from the tariff discussions and broader macro uncertainty. During this quarter, we have actually repaid $50 million of that drawdown, as we have seen those debt markets stabilize and I think the outlook remains fairly robust. We are progressively considering the repayment of those revolving or drawn revolving credit lines through the remainder of the year, subject to continued stable market conditions.
But absolutely right that certainly a portion of that will be earmarked for the development program, and with, I would say, a good pipeline of opportunities to deploy through the remainder of the year. But I would say hitting the top end of that pipeline over that guidance will depend on some acquisitions or closing of additional new land parcels or opportunistic transactions in the second half of the year. To your point on the FIBRA Prologis or Terrafina portfolios that are in the market, I think as the market is well aware, we did participate in the Terrafina bidding process last year. We do see some interesting assets across their portfolio.
We are certainly looking and analyzing those but will remain very disciplined with respect to our capital allocation and looking at what the quality, location, and strategic fit with our portfolio would look like on a combined basis for any of those portfolio transactions. So, something that we are monitoring and taking a close look at but certainly will remain disciplined from a CapEx deployment perspective.
Got it. Thank you very much, Andrew.
Thank you. Just a reminder to the audience, to ask a question, press star one. To remove yourself from the queue, press star two. Your next question comes from Abraham Fuentes with Banco Santander. Please state your question.
Hello, good morning. My question is, FIBRA Macquarie is trading with a significant discount versus your net asset value. Would you be willing to do some buybacks?
Yeah. Thanks, Abraham, and thanks for joining the call. Yeah, it is something where, obviously, from a buyback point of view, we appreciate, I guess, the financial value aspect, and something that we have an active program available. We have that renewed through the year with holders. So, we have that MXN 1 billion through to June of next year as normal. So, yeah, certainly we appreciate the financial and the creative element to it. There is a trade-off there as well that we also just balance as always. So, whether it is to do with reduced trading and liquidity that comes with buyback, increasing leverage as well, where capital is precious and we have obviously a lot of great growth CapEx opportunities on the real estate side. So, we will continue to make that analysis. Fair to say we have been active in the past.
We have done about 6.1% of our market cap, we have done as buyback in the past. It is something that we are open to, as I say, conscious of the potential accretion, but it is a balancing act with the other capital allocation priorities and something that we will monitor the second half of the year.
Okay. Thank you.
Thank you. Your next question comes from Alan Macias with Bank of America. Please state your question.
Hi, good morning, and thank you for the call. Just a question on licensing and permits. Have you seen any change there in terms of timing?
Yeah. No, thanks, Alan. Not greatly. I think it continues to be something where, generally speaking, we see that, in particular northern markets are a little bit more, let's say, attuned to industrial development and the sort of licensing that goes around that. When you get to places like the state of Mexico City, it becomes a little bit more variable. So, it's something that we're mindful of. But overall, we haven't seen any major change through the year in that dynamic. But look on that topic of just market trends, I guess maybe just give some random commentary there as well. I think we are seeing that for the time being. It's those smaller buildings, maybe less than 100,000 sq ft, plug-and-play type buildings. We're seeing that there's a little bit more activity across the country for those types of spaces .
That's what we're seeing in the lease up in the second quarter. But I think the pipeline for us on the leasing side also suggests that for the second half of the year. I think Tijuana looks quite good at the moment on a relative basis compared to some of those other nearshoring markets. I think we've seen a little bit of more pickup with Asian electronics customers. And I think Mexico City, Guadalajara continues to remain pretty strong. On the challenge side, it probably boils down to a couple of categories. One is those sorts of larger Class As buildings, the type of buildings we've delivered. They're subject to tenants making those larger CapEx decisions, and that's just a little bit more difficult in the current macro backdrop to pull the trigger on that. So, that's something that we're assessing.
I think that'll come back with more visibility on USMCA renegotiation. I would say that that's a general softness that we're seeing on the nearshoring markets, particularly Monterrey, Juárez, Reynosa, I think continue to run pretty soft. But again, we think that as visibility on USMCA picks up, we think that the pent-up demand there should lead to some good demand-side fundamentals returning to the market. So, that's what we're looking out for leading into the second half of the year.
Thank you.
Thanks, Alan.
Thank you. There are no further questions at this time. I will hand the floor back to management for closing remarks.
Thanks very much, Diego, and thanks everyone for participating in today's call. We do look forward to speaking with many of you over the coming days and weeks, as well as updating you again soon at the end of the third quarter. Have a great day.
Thank you. That concludes today's call. All parties may disconnect. Have a good day.