Greetings, and welcome to the FIBRA Macquarie second quarter 2024 earnings call and webcast. My name is Melissa, and I will be your operator for this call. At this time, all parties 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 the star followed by zero, and an operator will be happy to assist you. I will now turn the conference over to Nikki Sacks. Please go ahead.
Thank you, and hello, everyone. Thank you for joining FIBRA Macquarie second 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. Our 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 as well. 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 these 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. Good morning, everyone, and thank you for joining us. We are pleased to be reporting another strong quarter, where we delivered record revenue, NOI, and NAV, while also advancing our industrial developments and further enhancing our balance sheet position. With respect to our operational results, we achieved another strong quarter of NOI growth, up 6% year-over-year in underlying U.S. dollar terms, driven by a continued favorable supply-demand environment. With our performance year to date and our positive outlook, we are maintaining our full year guidance for AFFO and distribution per certificate, a 7% increase from the prior year at the midpoint, assuming current CBFIs outstanding. As we have discussed, a key element of FIBRA MQ's value proposition is our industrial development program.
We've been diligently and successfully executing on our investment strategy and have been realizing our target NOI yield on cost of between 9% and 11%. During the quarter, we delivered a third building in our Apodaca industrial park. This 200,000 sq ft building adds to the two completed facilities in our Class A project. In addition, construction is progressing well on our 400,000 sq ft project in Tijuana, with an anticipated delivery by year-end. We currently have approximately 1.5 million square feet of GLA in stabilization across Monterrey, Juarez, Mexico City, and Reynosa. I'm pleased to share that just this week, we executed the lease for a 225,000 sq ft building in our Mexico City development project, where we hold an 82% equity interest. This represents a tremendous result, with the project achieving an above target, double-digit development yield.
As a reminder, our neighboring 510,000 sq ft project was delivered and leased up last year, also at a healthy double-digit NOI development yield and has been independently appraised at a 6.5% cap rate. This should be a good indicator that we're on track to deliver a considerable total return through AFFO generation, NAV uplift, and some associated development and property management fees earned by FIBRA Macquarie, which altogether reflects the differentiated value creation that we are capable of delivering for FIBRA MQ investors. Turning to our industrial portfolio, performance remains robust, with growing average rental rates and strong retention. For the second quarter, NOI was $48 million, a 5.9% increase compared to the prior year. We saw continued momentum in renewal lease spreads, achieving a positive 13.0% on industrial renewals. Total leasing activity comprised 2 million square feet of GLA, including 136,000 sq ft of new leases.
Renewal leases comprised 21 contracts, driving a solid retention rate of 86% over the last 12 months. In our retail portfolio, our operating metrics are all generally trending in the right direction, with higher NOI, positive leasing spreads, and strong cash collections. Occupancy increased to 92.1%, the highest level seen since the first half of 2020. We feel constructive about our retail leasing pipeline and the outlook for our properties, which provide a range of mainly essential services in high-density urban areas. Our disciplined capital management and focus on value creation is central to our strategy, and we enhanced our capital position with our recent refinancing, which Andrew will shortly discuss. Our mission is unchanged, to be the premier owner of real estate in Mexico and to capitalize on favorable tailwinds to create meaningful value.
We remain confident in the FIBRA Macquarie platform with our well-located, highly occupied portfolio that delivers reliable earnings, as well as our robust development pipeline and strong balance sheet. With that, I will hand over to Andrew.
Thank you, Simon. For the second quarter, we delivered AFFO per certificate of MXN 0.6028. Our higher same-store income and NOI from our new developments was offset by higher interest expense, as well as the CBFI issuance associated with our required extraordinary distribution last quarter.
We are also reporting a record NAV per certificate of MXN 47.8, which represents a 13% sequential increase. Taking this increase into account, our certificates are trading at a meaningful discount, and we believe represent tremendous value as we continue to execute on our operating and development strategy. Our balance sheet remains well-positioned with prudent leverage metrics and strong liquidity to support our growth strategy. During the quarter, we are pleased to have completed an unsecured sustainability linked credit facility with the IFC for $150 million maturing in seven years. Proceeds are being used to finance FIBRA Macquarie's green building development program, with the facility incorporating a green building certification target, which, upon achievement, will result in enhanced additional credit savings of 15 basis points.
This loan marks IFC's first debt commitment to a Mexican FIBRA, and we are excited to deepen our relationship with the World Bank Group and appreciate the strong support and continued confidence of our lending partners. As of June 30, our real estate net LTV was 33.3%, and our net debt to EBITDA multiple was 5.2 x. Our weighted average cost of debt is 5.6% following the closing of the IFC refinancing, and moreover, we have no scheduled maturities until 2026. We have available liquidity of $440 million, which positions us well to efficiently fund our developments, thoughtfully commence new buildings in our existing projects, and selectively pursue land acquisitions to execute on our growth pipeline.
We continue to expect a full-year 2024 AFFO range of MXN 2.55 -MXN 2.6 per weighted average certificate and full-year distributions of MXN 2.10 per certificate, based on the assumptions published in our second quarter earnings release. Our outlook anticipates solid NOI growth in both our industrial and retail portfolios, which will be partially offset by the continued impact of financing costs of near-term investments in FIBRA Macquarie's industrial growth CapEx program, which we expect to meaningfully contribute to additional revenue and AFFO growth over time. We believe Mexico is well positioned to capture growth opportunities arising from global and regional trends, as nearshoring continues to drive demand for real estate in Mexico. With FIBRA Macquarie's portfolio positioning and our track record of disciplined capital management, we expect to be a key beneficiary. Simon, back to you.
Thanks, Andrew. Finally, as many of you are aware, earlier this month, we received approval from our investors for the acquisition of Terrafina and launched a tender and exchange offer for up to 100% of outstanding CBFIs, subject to the terms and conditions set forth in the tender offer prospectus. Earlier this week, we increased the exchange ratio in our offer to 1.185 x. Importantly, this increase is being facilitated by a conditional reduction in the fees paid to the manager. We maintain confidence in the long-term value that will be created by bringing Terrafina into the FIBRA MQ platform, and as such, have positioned FIBRA Macquarie with what we believe to be the superior offer in the market. FIBRA MQ's offer uniquely integrates a competitive tender price with earnings accretion, superior fee package, attractive upside, and long-term value creation and growth potential for all stakeholders.
The combined vehicle would benefit from FIBRA MQ's scalable, vertically integrated property administration and development platform. Our tender offer remains open until August 12th. As a reminder, we are unable to take any questions relating to the Terrafina tender process. With that, I will ask the operator to open the phone lines for your questions.
Thank you. At this time, we will 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 keys. Our first question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question.
Thank you, Simon and Andrew, for taking my question. Congrats on the results. My question is more of a strategic one. You have been focused and done great on strengthening your operations, growing your portfolio and pipeline in the key nearshoring markets, very attractive economics. More from a strategic perspective, what is next for FIBRA Macquarie? We are likely reaching the end of this Terrafina process. Not wanting you to comment anything on link to that process specifically, but not sure if this means there could be some more avenues for consolidation later down the road, perhaps taking advantage of your retail portfolio one way or the other. Just wanted to get your sense more from a strategic vantage point. Thank you.
Yeah. No, thanks, Rodolfo. Great question. I think we remain very well-placed with regards to our outlook, whichever way we go with the process. I think where we are today, we have a great balance sheet to support the growth through the industrial development program. We've seen the recent print of the Mexico City development, 12% yield on costs. That's going to stabilize, we hope, into a 6% area. So watch for repeats on that for the rest of our development in stabilization. That's great value creation. So I think that complements very well the well-positioned same store portfolio, where we continue to see positive re-leasing spreads, very good performance. So I think a continuation of what we have today should drive value creation. Amongst all that, as you say, there may be other opportunities that we consider, as always, from time to time. Around the sector.
That remains an opportunity. I also think it's very valid, the point you say on retail, the asset recycling opportunity there as we continue to see the retail portfolio do very well over the last couple of years. That continues to create value and I think the concept of converting that one day down the track into industrial development, that makes sense. But that's not something that we're looking at right now. The focus for retail remains to maximize operational performance, and that will put us in a good position down the track.
Thanks, Simon.
Thank you. Our next question comes from the line of Felipe Barragán with BTG Pactual. Please proceed with your question.
Hey, Simon, Andrew. Good morning. Thanks for the opportunity. My question, mine is a question that's probably been asked in all the conference calls, but with the new administration, I would just like to hear your thoughts on what you guys are expecting in terms of how the new administration can support industrial real estate. There's been lots of thoughts talked out there by different peers and whatnot. I would just like to hear if there's any changes in those expectations. Thank you.
Thanks, Felipe. Look, I do think it's a constructive outlook. Probably it feels like we're better set, in terms of the path ahead than what we've seen over the last five or six years in general. The current or the incoming administration, you could say, is talking the talk, whether that's on green energy infrastructure, nearshoring, supporting new industrial parks, relocation of companies into Mexico, maintaining USMCA, I could go on. Basically all the key pillars which support a good investment environment, we see are being consolidated with regards to the incoming administration. As I say, that sort of is good talking the talk, but we want to see them walk the walk over the next 12 months as well. That's going to be important to see.
I think importantly, we're not seeing anything or hearing anything from our tenants, which also would indicate that there's any fundamental change in the long-term structural drivers that have supported the nearshoring boom. We think that's set fair regardless of what's going on, either the south of the border or north of the border with regards to the political cycle. I think that's very important as well. I would say, definitely we feel comfortable and encouraged by the discussion of the incoming administration, and we really just need to see that convert into action.
Got it. That was very clear. Thank you, Simon.
Thank you. Our next question comes from the line of André Mazini with Citigroup. Please proceed with your question.
Yes. Hi, Simon and Andrew. Thanks for the call. A quick one. Talking about the yield on costs on the new project. The projects delivered so far had a yield on cost of 11.5%. The projects going forward have a yield on cost, which is slightly below that, 11.1%. Also, if you go back a year, the expectations for the projects going forward was also an 11.5%. The difference is pretty small and 11%, of course, is a very good number. Very nice profitability. But what would you guys say caused the slight decrease, from the realized yield on cost to the expected yield on cost going forward? Is it construction costs which are pressuring?
If you could talk a little bit about that and the labor costs or materials or, just the expectation of rents were not as high as you had on the 11.5% that you actually delivered. Thanks.
Yeah. No, thanks. Look, I think broadly speaking, what we're tracking at is certainly a healthy number overall in the 9%-11% on an actual basis. The most recent delivery at a 12%, a little bit better than that. The dynamic that we're seeing are really coming out of COVID, and where we are today, is that we have seen a fundamental change in all the parameters going into the yield on cost equation. So, definitely we've seen an increase in land prices, particularly in those core industrial markets where it's a little bit tighter. Tijuana, Mexico City, to call out. Construction prices have definitely gone up importantly, but are starting to plateau out. I'd say over the last six months, we have seen that plateau out a bit. So definitely the overall cost component has gone up compared to where we were pre-COVID.
Importantly, the rents have gone up in tandem. So we've actually been able to maintain, we think, an overall 9%-11% outcome and actually pushing closer to 11% on the track record. We still think that's very achievable as a general reference point for yield on cost going forward in our focus area for development, which is in the core markets of Mexico. So we still think about 9%-11% as being where we need to be. Some will be a little bit higher, like what we just printed. Some might come down a bit lower as well into the lower end of the range. But overall, we should be tracking at importantly, a very healthy rate that gives you a stabilization profit and then creates a great total return to investors.
Very clear, Simon. Maybe a follow-up if I can. So 9%-11%, that's pretty healthy and compensates you guys for the development risk, right? If you guys were to sell a property recently delivered, stabilized with a good tenant, how many basis points below your 9%-11% with the growing cap rate for a stabilized property be? Call it like a 7%, so 200, 300 basis points delta, right? Given that the entity buying will not incur the risk of development. So this even cost to a stabilized cap rate, exit cap rate, if you will, what would that be? Thanks.
Yeah, happy to take that one, André. I think, where we're seeing stabilized cap rates are in the order of, and depending on market, mid-six to mid-seven type territory, depending on the particular geography. To give you an example, this quarter, you would've seen in the announcement the lease-up of a property in Mexico City. It was the second of our two properties in that two-building project to a global e-commerce supplier on a five-year U.S. dollar lease. That delivered a 12% development yield on NOI. We saw the first building in that project revalued into 6.5%. So very healthy value creation opportunity that we expect to see movement in a similar direction with respect to the stabilization and valuation uplift, once independently validated on that property. But I think certainly in core markets such as Mexico City, 6.5% type levels are very comfortable.
We're seeing actually some potential transactions that push a little lower than that. We're also seeing comfortable levels in the 7%-7.5% around all of the major markets around Mexico. I'd say perhaps a little bit stronger in places like Tijuana, and even Monterrey to some extent. So, I think that there's a very healthy spread. Traditionally, that's been around in the order of 200- 300 basis points over development. But certainly, we've seen that expand over time as development yields have been able to benefit from rising rental rates, whilst we've seen, I think the broader nearshoring tailwinds prove attractive to international and local investors, which has caused a little cap rate compression, to date, which has meant that particular spread has widened in recent months. Certainly very comfortable with that 6.5%-7.5% territory.
Yeah. Look, just to complement as well, I do think it's worth reflecting on what we achieved in the Mexico City development, this week with the 12%, and how we describe it as a differentiated value creation strategy. In this particular case, we do have a fantastic JV partner who contributed to the land. That's the 18% minority holder. We're able to leverage the capability and power of our vertically integrated property management and development platform in this case. Although the dollars aren't all that big, it's really sort of the mindset and reinforcing the fact that our focus is on maximizing total returns for FIBRA Macquarie investors.
In this case, we were able to basically use our vertical platform to deliver this project with not just great returns from a yield perspective, but also have a development fee and ongoing property management fees using our internal platform for the benefit of FIBRA Macquarie investors. So that's the mindset and the focus that we have as to we're using any angle that we can and opportunities as they come along to maximize total returns for FIBRA Macquarie investors.
Great, guys. Thank you so much.
Thank you. Ladies and gentlemen, as a reminder, if you would like to join the question queue, please press star one on your telephone keypad. Our next question comes from the line of Isabela Salazar with GBM. Please proceed with your question.
Hello, thank you for taking my question. It is a quick question regarding the property delivery you have scheduled for the second half of this year. I was wondering if you could give us more detail of whether it is going to be delivered in the third quarter or if it is planned more towards the end of the year. Thank you.
Thanks for your question, Isabela. Our anticipated delivery for that is during the fourth quarter of this year. We are expecting it sort of by year end, subject to progress as we work through the completion of that 400,000 sq ft project. Very exciting project for us to a landmark location in Tijuana, which has seen sort of really exciting levels of rental grade growth and activity in recent years. We are certainly very optimistic and excited to be able to bring additional product in another one of our core markets.
Thank you very much.
Thank you. There are no other questions at this time. I will turn the floor back to Mr. Hanna for any final comments.
Thank you, Melissa. Thanks everyone for participating in today's call. Along with Andrew, I would like to thank all of our stakeholders for your ongoing support, 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 third quarter. Thank you, everyone.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.