Good morning, and Welcome to FIBRA Macquarie's fourth quarter 2024 earnings call and webcast. My name is Paul, and I will be your operator for the 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 zero on your telephone keypad and an operator will be happy to assist you. I would now like to turn the call over to Nikki Sacks. Please go ahead.
Thank you and hello, everyone. Thank you for joining FIBRA Macquarie's fourth quarter 2024 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 US dollars, which are US dollar equivalents, 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 fibramacquarie.com and download these materials. A link to the materials can be found under the Investors Events and Presentations tab. With that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Simon Hanna. Simon?
Thank you, Nikki, and hello, everyone. Thank you for joining us for FIBRA Macquarie's fourth quarter and full year 2024 earnings call. I am proud to share that FIBRA MQ delivered another quarter of solid results, contributing to a year of sustained earnings growth as we achieved record AFFO generation of $114 million. Before diving into our results, I would like to emphasize that 2024 was a year that demonstrated the strength and resiliency of our business model. Our strategy has yielded solid results, with our focus being on four key priority execution areas: optimizing net operating income across our portfolio; disciplined growth through industrial development; maintaining a well-positioned balance sheet and proven approach to capital management; and building a strong and positive organizational culture where our market-leading team believe in our continued success, integrating sustainability, safety, and operational excellence as central pillars of our business.
Our strong leasing performance in 2023, with industrial re-leasing spreads of 14.1%, provided solid earnings momentum into 2024, where we achieved a healthy 13.4% re-leasing spread, meeting our goal of double-digit increases. This strength in leasing helped drive a 5.8% increase in average rents and a 6.5% rise in Same-Store NOI, reinforcing the quality of our portfolio. We are cautiously optimistic that this momentum will continue into 2025, where, based on existing market conditions, we expect to see sustained performance in AFFO and are introducing a full-year distribution guidance that implies a 4% increase in US dollar terms on a stable payout ratio. We have also made progress in our industrial development program. We successfully secured tenants for two new development properties and have two additional buildings that have been delivered or are nearing completion.
The addition of land parcels in Guadalajara and Monterrey through the year provides us with ample capability to add to GLA over time. In our retail portfolio, the location and necessity-based format of our properties have proven to be a winning formula. We have continued to deliver occupancy gains, closing the year at 93.3%, which has resulted in above-inflation NOI growth in this segment. These results drove sustained earnings momentum, with revenue up 7% year-over-year in underlying dollar terms, contributing to an increase in consolidated NOI of 6.3% in dollars. With regards to our stabilized industrial portfolio, performance remains sound. For the fourth quarter, NOI was $48.2 million, a 4.3% increase over the prior corresponding quarter. Total leasing activity comprised 800,000 sq ft of GLA, including 156,000 sq ft of new leases and more than 630,000 sq ft of renewals.
This quarterly leasing activity contributed to an overall vibrant environment for the full year, where we executed 62 new and renewal leases comprising 5.3 million sq ft of GLA. Looking ahead to 2025, I want to emphasize a particularly important aspect of our portfolio. Our lease expiration schedule is notably lower than our historical average, with just 11% of the industrial portfolio scheduled to expire this year. This positions us favorably in the currently cautious environment, providing enhanced stability and predictability in our income stream. In our retail portfolio, we have delivered solid results with continued positive momentum. Occupancy increased sequentially throughout the year, and our weighted average rental rates were up 5.5%. This resulted in a fourth quarter NOI increase of 4.3% over the prior corresponding period.
The retail portfolio benefited from the strong retention of 83.4% over the last 12 months, and quarterly cash collections increased 12.8% annually, which we consider a positive reflection on the improved performance that has been building over the year, and one that we expect to be largely sustained through 2025. Looking ahead, we remain committed to advancing our development program while maintaining a prudent approach in response to evolving market conditions. Park infrastructure and earthworks are progressing across multiple sites, ensuring a steady flow of opportunities in the years to come. While near-term challenges persist, especially with regards to the threat of tariffs, we are taking increased caution on construction starts in the immediate term. However, we remain confident in the long-term fundamentals of the industrial sector and our ability to create value through strategic execution. On this topic, I want to share our perspective on the broader market environment.
Despite the current geopolitical uncertainties, we maintain a strong conviction in Mexico's role as a crucial player in global supply chains, remaining a competitive place to do business, and ultimately consolidating its trading relationship and alliance with its North American partners. We remain encouraged by the Mexican government's policy initiatives and focus on maintaining mutually beneficial trading relationships. As an example, the recently announced nearshoring decree is expected to stimulate Mexico's export economy. Additionally, Plan México is also expected to enhance Mexico's position within North American supply chains, reducing reliance on foreign imports and creating new opportunities to grow industrial production domestically. The government's commitment to infrastructure development, including highways and bridges, will further support efficiency and connectivity.
Moreover, the national energy strategy focused on expanding generation capacity, improving grid transmission and distribution, whilst recognizing the importance of renewable energy, will provide much-needed critical support for the expansion of the industrial sector. With targeted programs to attract investment in strategic sectors, Mexico is well-positioned for growth over the long term, and we believe that FIBRA MQ is well-positioned to capitalize and benefit from these opportunities. We, of course, cannot ignore the current market backdrop and uncertainty, and so at the same time, we are assessing contingencies depending on how the current landscape evolves. Importantly, there are several elements of our business and portfolio that demonstrates our resiliency.
We have a high-quality, diversified portfolio with a weighted average lease term remaining of five years across our largest industrial tenants, who represent 25% of our ABR and a WALT of more than three years in our broader industrial portfolio. Our resilient portfolio, combined with our prudent balance sheet management, gives us both the stability to weather market fluctuations and the flexibility to pursue value-creating opportunities as they arise. Before handing over to Andrew, I want to thank our team for their valued contributions and all of our stakeholders for your continued support of FIBRA Macquarie. Andrew?
Thank you, Simon. For the fourth quarter, we delivered an AFFO result of MXN 583.2 million, up 20% from the prior year, driven by a 17% increase in NOI. Contributing to this growth was higher same-store income and NOI from our new developments, partly offset by higher interest expense. We are also reporting a record NAV of MXN 54 per certificate, which is up 22% year over year. Our balance sheet remains well-positioned with adequate leverage metrics and strong liquidity to support our strategy. As of December 31, our real estate net LTV was 32.6%, and our net debt to EBITDA multiple was 5.1 times. We have no scheduled maturities until September 2026, and our weighted average cost of debt is 5.6%, of which 99% is fixed rate.
We have available liquidity of approximately $435 million, which positions us well to fund our developments in process and selectively pursue investment opportunities and, of course, maintain stability should macro conditions deteriorate. As is customary for this time of year, we are also introducing our outlook for 2025. We maintain a cautious outlook on operational performance and expect to deliver sustained returns through AFFO grants and cash distributions. Note that our guidance assumes that there is no material deterioration of the geopolitical landscape or trading relationships. Revenue and NOI growth, driven by contractual increases and continued healthy low double-digit lease spreads, are expected to be partly offset by the financing costs of near-term investments in FIBRA Macquarie's industrial growth CapEx program, which are expected to contribute to additional revenue and AFFO growth in future periods.
With regards to AFFO, we are guiding to a range of MXN 2.95 -MXN 3.05 per certificate. This equates to an equivalent USD range of $115 million - $119 million, representing an increase of between 1% and 5%. We are also initiating guidance for cash distributions in FY 2025 of MXN 2.45 per certificate, expected to be paid in quarterly installments, representing a meaningful step-up of 17% in peso terms. This cash distribution guidance equates to approximately up to approximately $95 million, which represents an annual increase of 4.2% in USD. The guidance implies an expected FY 2025 AFFO payout ratio of approximately 82%, reflecting a comfortable distribution coverage. As Simon discussed, while the current macro and political uncertainty persists, we remain confident in the longer-term positioning of México, as well as FIBRA Macquarie's attractive and well-located portfolio, supported by the strength of our balance sheet and liquidity position.
Our FY 2024 results and FY 2025 guidance reflect our continued track record of delivering reliable earnings, disciplined capital allocation, and attractive total returns. This, combined with our strong operational performance, strategic development execution, and prudent financial management, have positioned us to navigate market fluctuations while creating long-term value. I would like to take this opportunity to recognize the commitment and efforts of the entire FIBRA Macquarie team and thank our stakeholders for your ongoing support. With that, I will ask the operator to open the phone lines to your questions.
Thank you. We will now be conducting a 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 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 key. One moment please. We are having some technical difficulties. Please stand by. One moment please while we poll for questions.
Do you want me to open which out there?
Thank you. Our first question is from Alejandra Obregón with Morgan Stanley. Please proceed with your question.
Hi there. We are just having some technical difficulties here where we are not getting any audio feed on our line. Just hold for one moment, please. Looking for
Thank you. Our next question is from Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Thank you. Thanks for your service. We will go back to Alejandra question, but thank you. It is clear that I have two questions related to it.
Our next question is from Alan Macias with Bank of America. Please proceed with your question.
Hi. Regarding [audio distortion] retail reach, what are your expectations?
Please stand by while we address some technical issues. Alan, if you would not mind please repeating your question. Our next question is from Jorel Guilloty with Goldman Sachs. Please proceed with your question.
Good morning. I have two quick questions. One is around the markets where you are seeing maturity for 2025. You mentioned that it is a low amount of markets that are rolling over. It is coming at 10% spread, but just wanted to get a sense of where exactly is it? Is it more focused on Tijuana, Monterrey, what have you? The second question is around if the material deceleration that we have seen in border markets, due to uncertainty around nearshoring or USMCA, what have you. I wanted to get a sense, is there a risk that we could see this spreading into other markets, or do you see this as limited to border markets as we have been seeing so far? Thank you.
The scheduled expirations in our markets. Monterrey, we have a bit of exploration, Tijuana, Paredes, et cetera. I am just being asked to start again. I will do that, and thanks for bearing with us as we go through these technical issues. Jorel, just picking up the question again regarding where we are seeing scheduled expirations for the year. As I was saying, we are really seeing it across our entire rent roll, so fairly mixed bag. Nothing concentrated, a little bit in Monterrey, Tijuana, where we have our inventory, basically. Nothing really which is particularly concentrated in one market. When we think about it, how we are seeing expirations roll over, et cetera, again, I would say, we are not really seeing any particular pressure or roll-off and move out trend in any particular market. It is a fairly good rollover outlook.
I would say, putting that all together, it is a fairly stable outlook when we think about occupancy going forward into FY 2025. The second question was around, I guess potential ripple effects, et cetera, through other markets and the northern markets. Look, I think as you know, Jorel, we have a very integrated supply chain. To the extent that we are thinking about anything which is systemic or impacting the export economy, obviously, the border markets have the highest exposure.
But realistically, when you think about the overall export economy, it does also filter down quite meaningfully, whether it is Bajío or Guadalajara, Querétaro, et cetera. I would say you should be seeing any type of a trend if you are thinking about a sort of a bear case with tariffs, et cetera. That should really have a ripple effect through the entire industrial market because of the integrated supply chains. But certainly amplified in the North is a fair assumption.
All right. Thank you very much.
If anyone was in the queue and did not have their question asked previously, please rejoin the queue. Our next question is from Felipe Barri with BTG Pactual. Please proceed with your question.
Hey, good morning, Simon and Andrew. Thanks for the call. Stating my question, mine is on part of the guidance that you guys gave on having the revenue and NOI growth offset by the financing cost. Is the financing cost just assuming your current debt, or are we potentially seeing an increase in the debt? If yes, what sort of LTV levels are you guys looking at? Thank you.
Thanks for the question. It's Andrew here. So absolutely. The guidance does actually assume the MXN 50 million-MXN 100 million range of incremental growth CapEx expenditure that we are looking to deploy throughout the year. The guidance range takes into account a range of scenarios ultimately whereby deployment may be impacted by the broader economic and macro outlook. But certainly as a base case at the lower end is completing all of those projects that we have in process and delivering those now.
You will see LTV not stepping up meaningfully, but you will see some drawn debt as we work through those projects. Ultimately, we have got a healthy pipeline there of new opportunities. Should we see some more stability or opportunistic projects appear. There is also the fact that the balance sheet is well-positioned from a liquidity standpoint to be able to opportunistically execute on those types of opportunities as well with around MXN 400 million in available liquidity.
Okay, great. Just a follow-up real quick. What is sort of like your internal limit for LTV?
Yeah. I think our guidance has consistently been that we will be in the order of 30%-35% in terms of LTV, where we have indicated in the past a willingness to step up slightly above that sort of 35% with conscious that we will see a revaluation uplift on the stabilization of those development properties as they come into the stabilized portfolio. That will naturally have a correcting effect. But in terms of what we are talking about deployment here, and given the fact that we are around 32% today in terms of our real estate LTV, we are expecting to stay well within that range.
Great. Thank you, Andrew.
Thank you. Our next question is from Andres Aguirre with GBM. Please proceed with your question.
Hello, guys. Thanks for the call and congrats on the results. I have one quick question. Could you provide some detail on the property you are developing on Tijuana? We saw that delivery was first planned for this quarter, but now it is expected for the first half of the year. Can you share some more on the timeline and what is behind the change, please? Thank you.
Thanks, Andres. Simon here. Look, I think that development's moved along very nicely. It's a closed box now with four walls and a roof and utilities, and we're actively marketing it. There's a little bit of a technical definition in terms of when we formally say it's delivered, but for all intents and purposes, it's done. We are making some finishing touches. That will be formally closed out in this first half. But as I say, we're basically marketing that. The characteristics of the property we think will serve the market well. We think ultimately that the lease-up that we're expecting on this will be in line with the original underwriting anyway, just given what we're seeing as a market backdrop where we are seeing some good interest there. And importantly, that's the building that we're doing with the high standards of LEED.
And some of the high-quality names that are looking at the property, they actually need LEED. So we are seeing that trend in the marketplaces like Tijuana, where building high-quality product like we're doing with Tijuana 31, it's going to be a differentiator and put us in that bracket where the best type of tenants who need LEED, we're giving that product to them. As I say, I think we're basically in a position where we can still meet our underwriting timeline when it comes to the lease-up of that property. Obviously, if tariffs come about, that could change. But as we're seeing at the moment, it's a pretty good backdrop.
Great. Thank you very much.
As a reminder, if you were previously in the queue and you didn't have your question asked, please rejoin the queue now by pressing star one. Our next question is from Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Thank you for taking my question, FIBRA Macquarie team. I have here just one question remaining, and it is about your future development and CapEx. Is there any particular market that you are looking at that could push you to either the lower side or the higher end of your CapEx guidance? I am not sure if the weakness in Ciudad Juárez could do that. If you can comment also on any risks that you see there, given the great potential that you have there to develop more GLA, based on your reserves and your plan. Thank you.
Yeah. No, thanks, Rodolfo. Look, I think where we are seeing the opportunity, we just spoke about Tijuana 31. If that has a shorter term lease-up, then the ability in that park that we have there to get on deploying or constructing a new building, that opens up the window in Tijuana. We are seeing generally some good opportunities in Tijuana generally, from a pipeline but also a lease-up perspective. That is probably one of the better favored markets. Guadalajara, obviously, we like as well. Low vacancy. And obviously with the land parcel that we acquired last year, where we are moving forward the early works there to be able to go vertical on that in the second half of the year.
I think that is also got the ability to keep moving forward. And again, we are seeing some nice pipeline opportunities as well when we think about land sites in Guadalajara. In Monterrey, I would say it is always a vibrant market. Again, we have some land sites there. We have some lease-up to do. But we also have some good opportunities as well to think about going vertical on the land sites we are seeing there. So those are, I guess, the more favored markets when we think about where we have land bank and opportunities to move forward.
Yeah. I think fair to say, and to complement Simon, in terms of the land bank that we have in places like Juárez and Reynosa, we will wait to see lease-up on the existing stock, and continue to monitor those markets before considering to put new product into those particular projects.
Perfect. Thanks, Simon and Andrew.
Thank you. Our next question is from Jorge Vargas with GBM. Please proceed with your question.
Hi. Good morning. Thank you for taking my questions, and congratulations on the results. Just two quick questions from my side, please. Rental escalations remain strong, particularly in the industrial segment with that 22% re-leasing spread. Do you see this level of pricing power continuing in 2025, or do you anticipate some normalization in these negotiations? My second question is, the NOI margin contracted slightly due to higher property-related expenses. Should we expect similar cost pressures in 2025, and what specific costs contributed to the margin contraction? Thank you very much.
Jorge, I will take up the first part of those questions. When it comes to our re-leasing spreads, yeah, absolutely, we were very happy to finish on a high at 22%, a record high. Last 12 months at 13%. When I reflect on that performance, I think it was around this time last year when we were sort of thinking or we were getting asked, what do you think we will do in FY 2024? We said we would be disappointed if we did not get to double digits. I think in the end, we are probably a little bit higher than expectations getting to 13%. Here we are again, thinking about the year ahead.
Slightly different market backdrop, I guess. But with the visibility that we have and under the current market conditions, again, we think we would be happy getting to that 10% area. Let us see how we go. I think the pretty strong visibility on how we think those renewals will work out. I would like to think there is a good chance of getting to that 10%. Always those things could change, as you say, with what is going on. But we feel pretty comfortable at the moment that we will be able to get that.
So again, I think we will look to maintain that momentum. And importantly, to the 13% last year, in particular the 22% we saw in the fourth quarter, most of that impact will actually start feeding into the FY 2025 results when you think about contribution to income. So really good momentum heading into FY 2025, where we really have the opportunity to continue in terms of that same-store performance.
We are particularly proud of the fact that we are able to hit a 7% increase in industrial same-store performance in dollar terms for FY 2024. Retail at 5.3% in pesos. So, those are really strong numbers to be proud of, and I would like to think that, again, our same-store performance, particularly with the low rollover, it is going to be a good year going forward with the momentum that we have got from the back end of this year.
Jorge, picking up on the second part of your question regarding the NOI margin. In the fourth quarter, we did have some seasonality in expenses that come through, and so, typically, we do see a bit of an uptick in things like repairs and maintenance in that final quarter of the year. On the retail side as well, we had some one-off expenses, particularly related to some historical utility, water and electricity type related expenses that came through there during the fourth quarter as well. And so, I would say indicatively, referring to where we were on a full year basis for FY 2024, you will see a marginal increase of a few basis points, we would think as we expect to go into FY 2025, but largely stable after taking into account or removing, backing out those one-off expenses.
Okay. That was very clear. Thank you very much.
Bye.
Thank you. Our next question is from Pablo Monsivais with Barclays. Please proceed with your question.
Hi. Thanks for taking my question and apologies if you already answered this question, but I was not able to hear properly. Just wondering about Monterrey. We have seen that, I don't know, like two years ago, demand was very strong. Then, of course, real estate players started to develop a lot of properties there. Now I have seen that net absorption has decreased a little bit of what we saw two years ago. What are you seeing right now in terms of the supply-demand balance in Monterrey? Thank you.
Yeah, it is a good question, Pablo. I think Monterrey is a big market. Over 100 million sq ft of GLA, so it is a very deep market and there is always a lot of activity going on and there is a fair amount of land out there for construction to keep coming in. I would say the year that we are seeing and the way we have seen Monterrey finish, it is fair to say it has probably softened a little bit, but again, nothing that concerns us. We are sort of in that 4% or 5% vacancy area, which is a normal level. It is a nice healthy, demand supply balance that we have for Monterrey. Indeed, you would probably say that is for the broader market.
I think it is also just a little bit of a coming back to normal type feeling where we had really strong markets, 100% sort of unprecedented type demand supply dynamics for one or two years there. But particularly in the second half of 2024, we were seeing those markets and Monterrey is a classic example where, yeah, we are sort of coming back to that 4% or 5% vacancy. So not particularly worrying from our point of view and what we see ahead of us.
Again, we think that Monterrey is going to have a fairly solid performance for FY 2025 as far as our own portfolio is concerned. Some places like Apodaca, I think are going to go from strength to strength. Other markets are a little bit more patchy, but overall, I think it is fair to say it will be a fairly steady year next year with the supply coming on. But with good healthy demand dynamics and that 5% vacancy is probably going to be around there all year next year.
If I may add a follow-up on my question. Perhaps what we saw of increasing demand in Monterrey in particular, has been more to manufacturing for exports. But we have seen also logistics and consumer-driven tenants to expand significantly in Mexico. How would you describe the dynamics of, I don't know, like two years ago being, "Okay, let's build this or have these tenants for light manufacturing." And right now, I think that consumption has performed pretty well. Should you pivot to focus more on that consumer-driven tenant, or will light manufacturing still be the growth driver going forward?
Yeah, look, I think we still see the light manufacturing as being a really good growth driver. When you just think about the lease ups that we did in 4Q in Monterrey. We had an electronics manufacturer come in there and we are still seeing, particularly where you have buildings with power, light manufacturing demand is definitely out there. We have seen some interesting activity around the consumer side. But again, I don't think we have fundamentally shifted our strategy or where we are seeing the leasing demand come up.
Yeah, I think that is right. And I think from where we stand today, Monterrey is a market where logistics does play a larger role in the overall customer base as a function of the large population that is there to serve. And so I think what is important is that the product that we are developing and building as well is highly flexible. And so buildings are 36 ft clear, efficient buildings with a great deal of flexibility in terms of number of docks, access, truck circulation, et cetera. And so we think we are well-positioned with this type of flexible product to be able to capture both markets there and be able to ultimately outperform, I think some of the stock that is out there in the market that is perhaps of a less institutional quality.
Okay, perfect. Thank you very much.
Thank you. There are no further questions at this time. I would like to hand the floor back over to Simon Hanna for any closing comments.
Thanks very much, Paul. Thanks everyone for participating in today's call. Despite the technical difficulties, we appreciate the patience and we 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 first quarter. Thanks very much. Bye.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.