Greetings and welcome to the FIBRA Macquarie first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Nikki Sacks of Investor Relations. Thank you. You may begin.
Thank you, and good morning, everyone. Thank you for joining FIBRA Macquarie's first quarter 2023 earnings conference call and webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer. To answer any questions you may have at the conclusion of today's prepared remarks, we also have 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 information purposes and is not a solicitation of 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 as well. 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 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. On today's call, I will discuss our first quarter 2023 results, provide updates on our growth initiatives and robust capital position, and our outlook for the remainder of 2023.
I would like to start by extending my thanks to the entire FIBRA Macquarie team for their efforts, which resulted in a very strong quarter as a favorable backdrop continues to support our ongoing growth.
With a portfolio of high-quality industrial assets, primarily located in the high-demand northern markets of Mexico, we are benefiting from strong demand, low vacancy rates, and our highly experienced internal management platform with deep relationships, market-leading expertise, and an on-the-ground presence across the country.
We again realized several new record metrics for FIBRA Macquarie, including industrial occupancy of 98.2% and industrial revenues of $48.8 million, which contributed to a 14% year-over-year growth in AFFO per certificate in underlying U.S. dollar terms. We maintained our focus on disciplined capital management, deploying growth CapEx, which meets our target development returns, while also distributing capital to certificate holders.
We have made continuing progress on our industrial portfolio growth CapEx program with approximately $135 million of development commitments, representing 1.8 million sq ft of new GLA, which will contribute to additional per certificate growth in the forthcoming quarters.
In terms of distributions, we have reaffirmed our annual distribution per certificate guidance of MXN 2.10, which on current FX levels is equivalent to $0.12 per certificate, a 15% increase from last year in underlying dollar terms, and that is excluding the extraordinary distributions of MXN 0.88 per certificate paid last month.
We are currently seeing unprecedented demand dynamics in our key industrial markets, driving our ability to deliver robust performance. Our industrial portfolio, which is 91.2% dollarized on an annualized rental basis, achieved an annual increase in net operating income per certificate of 10% year-over-year, driven by a combination of 115 basis point increase in occupancy and a 7% increase in average portfolio rental rates. Our leasing strength is evident in both retention, which at 92.5% for the trailing 12 months, is at historically high levels.
We were also able to achieve a healthy 15% lease spread on the 271,000 sq ft of renewal activity closed during the quarter. A few leasing highlights include a U.S.-based metal machining manufacturer in Tijuana, a Japanese-based auto parts manufacturer in Querétaro, and a U.S.-based truck bed manufacturer in Saltillo.
Mexico continues to reinforce its position in the global supply chain, with notable highlights in the quarter being the confirmation of Tesla's plans for a new gigafactory in Monterrey and Mexico's national auto parts industry upgrading Mexico's annual auto parts production forecast to be more than $110 billion by next year. FIBRA Macquarie's portfolio is fully occupied in 10 markets, including Monterrey, Juarez, and Tijuana.
We have an established development platform with a proven track record where to date, we have delivered more than 2.1 million sq ft of industrial GLA, achieving a stabilized NOI yield of more than 11% with a total investment of $112 million. Given this track record of success, as well as the positive long-term structural demand drivers for industrial real estate, we remain committed to our development program.
We currently have approximately 1.8 million sq ft of new GLA under development, including six ground-up developments and two build-to-suit expansion projects. This represents an investment of approximately $134 million and will increase our industrial portfolio GLA by approximately 6%. We have two developments and two build-to-suit expansions. They are expected to be delivered in the first half of 2023.
This construction includes the second building in our multi-property Class C industrial park in Apodaca, Nuevo León, and our two-building project in Cuautitlán, a strategic sub-market in Mexico City, which are all expected to be delivered prior to June 30. We are in active discussions with a range of prospective customers and are seeing a great deal of interest, which we expect to convert to executed leasing activity.
Our development program is an important element of our accelerated long-term growth as we prudently and aggressively grow our portfolio. Many of these projects are part of multi-phase developments where we are constructing multi-property Class C industrial parks in strategic locations.
We also maintain a pipeline of opportunities with a focus on our core markets in order to continue to grow our portfolio, capture a greater share of the demand, and to ultimately grow our NAV per certificate.
Additionally, we have incorporated ESG at the core of our strategy, including putting sustainable building elements into all of our new developments, while also continuing to green-certify additional buildings in our existing portfolio. With a third of our portfolio now green building certified.
The execution of our green building certification program has also delivered real savings on our ESG-linked debt facilities. This quarter, we certified compliance with our green building KPI via a second-party opinion, and this reduced the interest margin on these relevant facilities by five basis points per annum.
Turning to our retail portfolio, we are pleased to see an ongoing recovery with robust leasing activity and a continued rebound in foot traffic, which was up 15% from the first quarter of 2022. Cash collections were also strong, and total revenues in the quarter were up 14% year-over-year, with 195 basis point expansion of NOI margin.
Occupancy increased both year-over-year and sequentially, ending the quarter at 91%. We executed 72 new and renewal leases in the quarter, with key transactions closed in the gym and cinema segments. We remain overall optimistic on the positive trajectory of our retail portfolio revenue and NOI generation, whilst actively working to address upcoming expirations and scheduled move-outs.
Our leverage metrics remain well-positioned, with real estate net LTV of 35% and a net debt to EBITDA multiple of approximately five times at quarter end. Taking into account committed undrawn lines and surplus cash, FIBRA Macquarie has available liquidity in excess of $400 million.
We are on track to refinance our scheduled 2023 maturities, and we anticipate an overall neutral impact to our weighted average cost of debt. Our balance sheet is strong, and we are executing on opportunities to deliver value to our investors.
Our in-place portfolio continues to deliver reliable earnings growth, and our industrial development pipeline is on track to accelerate our earnings in 2024 and beyond. Mexico has continued to emerge as a key beneficiary in evolving global and regional supply chains, and FIBRA Macquarie is ideally situated with the right footprint, a best-in-class property management team, and a proven development growth platform.
With regard to our outlook for the remainder of 2023, we remain confident, supported by strong momentum driven by the tailwinds of accelerating nearshoring activity and a highly occupied portfolio that is performing very well.
Our outlook for the underlying business remains positive and fundamentally unchanged. I want to take this opportunity to extend my thanks to all our stakeholders for your ongoing support. With that, I will ask that our operator open the phone lines for your questions.
Thank you. Ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, 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 to remove yourself from the queue. If you are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star one on your telephone keypad. Our first question comes from Carlos Peyrelongue with Bank of America. Please state your question.
Thank you. Good morning, Simon. Thank you for the call. Two questions, if I may. First, on your debt, can you tell us what percentage of the debt is due this year and next? The second question is related to your retail portfolio.
What do you see in terms of expectations for occupancy as the year progresses? Can you give us a sense of, I believe you're around 90% or so of occupancy. If that can improve, then in what type of improvement do you expect over the coming quarters? Thank you.
Yeah, thanks, Carlos. Great to connect. Maybe I'll take the second question first and hand over to Andrew for the debt point. On the retail, yeah, we're happy with the first quarter. Very happy in terms of the momentum we saw.
I think particularly, seeing the 17% increase year-over-year on the NOI, really top-line driven. It was great to see. Importantly there, Carlos, we did see the continued momentum on the two segments which were most affected during the pandemic, gyms and cinemas.
Doing our renewal leasing there. I think as we think about the rest of the year in outlook, we'd like to think that we're able to continue on that trajectory or where we are in Q1 with respect to NOI and keep those levels up. We are seeing some expirations and scheduled move-outs as well through the remainder of the year.
So we'll need to work through that. But I think all in all, given where we are with the lease contracts structure and the full indexation of CPI and the variable income pickup, we'd like to think that even working through those expirations, we'll be able to maintain momentum on the retail NOI.
I think we're in good position. As we said last quarter, net net probably upside risk overall when we think about medium-term outlook for occupancy NOI. So that's the summary on retail.
With regards to balance sheet and debt, I will hand over to Andrew. I think I will just quickly highlight that obviously we have the 215 maturing and as we said, that is in June and we are well-advanced on that. To give you more color, we will hand over to Andrew.
Thanks, Simon. That is all right. We do have 250 maturing at 30 June. Going beyond that through 2024, that number ticks up just slightly to 280 million, roughly, in total, during the period. We are well-advanced with respect to the refinancing of that 250 million.
Ultimately, the work has really been done throughout 2022 in shoring up and enhancing the balance sheet through about $660 million worth of financing transactions that were undertaken last year, which has also increased both committed and uncommitted liquidity levels, which take us to a combined available liquidity north of $400 million as of today.
Our expectation is that we will comfortably move through those refinancings without any concern. Our expectation is that, obviously, the tenor of the debt on a weighted average basis will be extended. We will maintain the average cost of pricing that we see today.
Okay, great. Thank you. Thank you, Andrew. Thank you, Simon.
Thank you.
Our next question comes from Rodolfo Ramos with Bradesco BBI. Please state your question.
Good afternoon. Thank you for taking my question. I have a couple. The first one is on the industrial side. I just wanted to get a sense of how sustainable you think these leasing spreads that we've been seeing across the industry are.
Mainly, this has been in part due to these bottlenecks, you know, that many of the markets have been facing, which in part explain the levels of absorption that we've seen in Monterrey. I just wanted to get your thoughts there also on these bottlenecks, whether it's energy or just space availability. That would be my first question. The second one would be a follow-up on Carlos' question on the retail portfolio.
Given this expectation that you have of the retail continuing recovering and bringing back some of the industries or tenants that were perhaps most affected during the pandemic, do you see any opportunities or appetite to perhaps monetize this and focus solely on the industrial and be able or let's say better able to capitalize on some of these growth opportunities on the development side or even acquisition side? Thank you.
Thanks, Rodolfo. Yeah, both good questions. I think dealing with the first one, I think the industrial leasing spreads, obviously we posted 15% for the quarter. That's actually the highest we've seen since, well, last five quarters at least. Last year, we were looking at around about 10%, on average, as the renewal spread.
We did see a pick-up in Q1. I think the reality is that the outlook for the rest of the year is we're optimistic. We're not necessarily expecting that we're going to get 15% every quarter. Obviously, we'll take it. But we do feel that the market is very tight. Most of our core markets are 100% occupancy and space is at a premium.
The bottlenecks that you referred to, I guess they, yeah, they do exist and certainly the customers who have our spaces at the moment are coming up for expiration. They don't really have much of an option if they are looking elsewhere. We do feel that the renewal spread should be definitely being maintained on that positive side of the equation.
I don't want to necessarily give a number, but I would say that we're happy with what we're seeing in Q1 and hopefully that we can continue that type of momentum. On the retail portfolio side, yeah.
Look, I'd say that it's definitely picked up from where we were 12 months ago. As I said earlier, not without its challenges for the rest of the year as we work through expirations and some scheduled move-outs. That's going to take some work.
But we hope that over the coming quarters, we can maintain that type of trajectory on NOI and occupancy, and that's really our focus for the time being. We're not really considering anything from a more strategic view on the retail portfolio. The focus is just on maximizing occupancy and NOI performance.
We're very mindful of the opportunity to put more CapEx into industrial. Would like to do that and potentially there is an opportunity down the track, but it's not really something that we're considering for the time being.
We're also mindful that there's a lack of data points, really, when it comes to retail M&A. It very much feels like, I'd say, a buyer's market than a seller's market, particularly where interest rates are at. Let's see how that market evolves down the track. But for the time being, our focus is on maximizing operational performance.
Yeah. Maybe just to complement that as well. I think, there's no immediate liquidity requirements either to be able to fund our growth CapEx program, which would necessitate any asset sales.
So we can comfortably maintain and continue to see the healthy operational performance, and recovery through the retail sector, which has been nicely complementing the industrial earnings over the last couple of quarters.
I think, from that perspective as well, the balance sheet and liquidity position that we're in today is very robust and can more than fund what we have in front of us. Perhaps also just touching again on the first point around the industrial. I think with respect to some of those bottlenecks that you were asking about, we do see that as perhaps another factor as well in maintaining that supply-demand equation.
Important to call out that from our perspective, we've actually been able to secure electricity and utility requirements for all of our active development projects, which leave us well positioned from a customer and a marketing perspective to be able to work through the lease-up and execution of that program efficiently.
But certainly, I do think that with respect to new supply coming to market, that those challenges will certainly impact at which the pace of that could arrive. And I think that will help maintain the supply and demand or the tight supply and demand dynamic that we're observing in those core markets.
Great. Thank you, Simon and Andrew.
Thank you. Our next question comes from Renata Cabral with Citigroup. Please state your question.
Hi, everyone. Thanks for taking my question. It is a quick one from my side. My question is regarding the retail portfolio. You have an exposure that has become non-core with 12% of the NOI. My question is, are you more likely to sell that? Do you have a JV partner in that retail operation? Is that partner likely candidate to buy it? What cap rate could we expect from that? Thank you.
No, thanks, Renata. Yeah. I think when it comes to our view on retail, actually, we really like what we own. We think the portfolio is high quality. We do not necessarily consider it non-core, per se. We think that it has got the potential to perform really well, over the coming years, given all the trends we see in front of us and the dynamics.
So actually, we do think there is upside risk or upside opportunity, I should say, when it comes to NOI contribution and continuing to deliver for the FIBRA. So in that respect, yeah, I think as we said earlier, we will continue to maximize the operational performance and we will evaluate the market around us, but we do not really have any, I guess, active plans or intent to sell, whether it is to our JV partners or to anyone else.
We are long-term holders for the time being as we maximize the opportunity in front of us.
Super clear, Simon. Thank you so much.
Thank you. Just a reminder, to ask a question, press star one on your telephone keypad. To remove yourself from the queue, press star two. Our next question comes from Felipe Barragan with BTG Pactual. Please state your question.
Hey, good morning, gentlemen. Thank you for the call and for taking my question. I have another question on the retail portfolio. You guys have made it clear in this call that you guys are focused on investing more in the industrial portfolio and have no intention on selling it as well. My question is more on other retail portfolios or firms in Mexico.
They've been starting to shift their strategy towards having lifestyle centers. I just wanted to hear your take on that, on potentially, maybe not in the short term, but maybe in the long term, creating this shift to more lifestyle centers and what's your take on that, if it's something relevant for you guys or not?
Thanks, Felipe. I actually think the centers that we own are a perfect fit for the retail environment in Mexico today. We're necessity-based anchors with a good tenant mix there, with that lifestyle element, if you like, between gyms, cinemas, restaurants.
So, what we own is not fashion malls per se, but they're much more in the necessity-based camp with a good mix of tenants that attract community to the shopping centers because of that experience or lifestyle element, whether it's on the entertainment, fitness, food scene. So that's a formula that's been working all throughout the years, and we think it's perfectly positioned to continue to perform well.
Great. Thank you.
Thank you. It appears there are no additional requests for questions at this time. I will hand the floor back to Simon Hanna for closing remarks.
Thank you, Diego. Thank you everyone for participating in today's call. 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 second quarter.
Thank you. That concludes today's conference. All parties may disconnect. Have a great day.