Good morning, my name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the FIBRA Prologis' second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Alexandra Violante, Head of Investor Relations. Please go ahead.
Thank you, Dennis, and good morning, everyone. Welcome to our second quarter 2023 earnings conference call. Before we begin our prepared remarks, I would like to remind everyone that all the information presented in this conference call is proprietary, and all rights are reserved. The information has been prepared only for information purposes and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements during this call speak only as of the date of this call. Our results, performance, prospects, or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain non-accounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events, or otherwise, except as required by law.
As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. Today, we will hear from Luis Gutiérrez, our CEO, who will discuss our strategy and market conditions, and from Jorge Girault, our Senior Vice President of Finance, who will review results and guidance. Also joining us today is Héctor Ibarzábal, our Managing Director, and Alejandro Chavelas, our Head of Valuations and Research. With that, let me pass the call over to Luis.
Thank you, Ale, and good morning, everyone. Our results continue to demonstrate one of the strongest quarters, exceeding our expectations. We remain confident of an outstanding second half of the year. Let me give some highlights. FFO and AFFO recorded the largest increase since our IPO. Occupancy continues to be at 98%. This is due to a strong market conditions and our focused strategy. Same-store cash NOI was positive 9.4%. One of the main drivers was our almost 31 rental growth on rollover, generating a strong cash flow. In May, we successfully completed our follow-on transaction. There was significant interest, mainly from new international investors, most of them wanting to play the nearshoring trend. We raised close to $400 million to fund new acquisitions. With this issuance, we have improved our liquidity, increased and diversified our shareholder base.
Related to the offering in June, we announced the acquisition of three properties from our sponsor for $75 million. We will continue to move forward with the remaining of the Prologis pipeline that we presented during the roadshow, as well as third-party acquisitions. Industrial real estate fundamentals remain solid. Demand continues to surpass supply, and we expect a very positive 2023, mainly due to nearshoring. As we have mentioned in the past, this is a trend that will persist for the upcoming years since it is a structural change in supply chains, as companies are making strategic decisions to relocate their manufacturing operations for the long term to Mexico. Demand in the second quarter persists to be at high levels.
Net absorption in our six markets reached 17.5 million sq ft, flat versus the strong first half of 2022, mainly driven by continued strength in demand from the northern markets. On the back of this, our forecast of balanced supply demand and similar levels of net absorption compared to last year remains unchanged. Vacancy in our markets is close to record low levels of 1.2%, particularly they benefited from lack of sufficient supply in Mexico City, which brought market vacancy down to a record low. Rents continue to rise with an accumulated increase of about 10% year to date in our markets. Given the very tight supply-demand environment, rent levels remain those justified by replacement costs. We expect rental growth for the year to be around mid-teens, reflecting better than expected dynamics. Let me expand on what we're seeing on the ground.
Build-to-suit projects represent more than 50% of total space under construction. This does not take into account pre-lease space, which we think is also substantial. Availability of land with energy infrastructure remains very limited. We believe a large portion of space under construction is not ready to provide energy to customers. Even in this tight environment, we're not seeing clients reduce their interest in the nearshoring operations or securing space. On the manufacturing side, Monterrey continues to show very strong fundamentals as continued deliveries have been easily absorbed by the market…. The main sectors that stand out are 3PLs oriented to providing logistics and light assembly services to manufacturing companies, representing an outsized share of our new leasing, given our industry-leading building and site specifications, which are particularly important for logistic operations.
Electronics, as we saw a couple of closings from world-leading manufacturers, which are expanding their footprint in the country, mostly from Asia. Regarding our activity, we have recently been able to close several renewals with top quality tenants at 10%-15% higher rents compared to our expectations at the beginning of the year, which will support our rental growth for the rest of 2023. We also highlight a recent new leasing quarters with one of the most world-leading electronics manufacturers. On the logistics side, consumption expectations have improved materially in the year, with consensus now expecting 2.4% real growth, well above prior expectations. This much improved environment should lead more aggressive decision-making, creating demand for space by the retail and logistics industry. Mexico City continues to show extremely attractive supply-demand dynamics, with vacancy declining for the tenth consecutive quarter.
Leasing activity is led by consumer-oriented 3PLs, which continue to require space to service brick-and-mortar companies looking to provide digital offerings. Lack of land is driving potential clients to look for space in either Toluca or other regions of the Mexico City Metro. Our sponsor is also pursuing development opportunities in Toluca, which we see as a natural extension of the Mexico City market, with excellent connectivity to the main metro via two toll roads. Clients have been receptive to this alternative. On valuations, our values increased 5.3% in the quarter, which was fully explained by rental growth. While cap rates remain flat, Mexico values are outperforming compared to other parts of the world. We're very confident about our values for the remainder of the year. We expect cap rates to keep in line with current values while we continue to see market rents growing.
In summary, logistics real estate continues to be a favorite asset class among investors, and FIBRA Prologis is well positioned to outperform. Rents continue to grow, and our lease mark-to-market has increased from 24%-30%. This will be a major driver of FFO per share going forward. On the capital side, we're active. Our sponsor has on the development pipeline 4.6 million sq ft, which most of it we expect to be acquired this year. We're also in some third-party acquisition processes that are aligned to our business strategy, and we hope to provide more color in the upcoming months. Our balance sheet is one of our major competitive advantage and provides us flexibility to play offense. Finally, we remain committed to creating value for certificate holders. With that, let me pass the call over to Jorge.
Thank you, Luis. Good morning, and thank you for joining us. We keep on seeing excellent results for our portfolio. Operating metrics are strong, and our balance sheet management has proven to be a competitive advantage. Turning to our results for the quarter, FFO and AFFO reached $49 million and $42 million, respectively, 24% and 41% versus last year and above our expectations. This was driven by higher rents on rollover, occupancy levels, and last year's acquisitions. Moving to our operating metrics. Leasing activity was 1.4 million sq ft, with our period end and average occupancy around 98%, in line with previous quarters. Net effective rent change on rollover increased almost 31%, and for the last 12 months, it has been above 30%. As Luis mentioned, our portfolio lease mark-to-market is 30%.
What this means is that we could generate $0.07 of AFFO or FFO per certificate of incremental earnings as leases roll over time, which is equivalent to almost 40% increase to the midpoint of our guidance. In terms of same-store cash and GAAP NOI, we have a positive increase of 9.4% and 7.8%. I would like to go through our accomplishments regarding capital markets and balance sheet during the quarter. Last May, we did a successful follow-on, which allow us to bring new investors and increase our liquidity. We raised close to $400 million at MXN 59 per CBFI, above our NAV, and since then, we have been trading above this benchmark.
We recasted our green line of credit for $500 million, including our accordion feature, adding five years and reducing the cost of borrowing by 50 basis points, as well as our own uses. Standard & Poor's gave Fibra Prologis a triple B plus rating, one notch above Mexico Sovereign and at least two notches above our closest peer, which represents a clear testament of our risk and balance sheet management. To give you some perspective, let me go quickly through some of our financial metrics. Our average debt maturity is 7 years, and we do not have any debt termination until 2026. 100% of our debt is fixed at weighted average cost of 4%. More than 80% of our debt is unsecured.
Loan-to-value is below 11%, and our fixed coverage ratio is 6.1, and debt to adjusted EBITDA is 1.9. Turning to guidance. Given the strength of our net growth, rent growth, occupancy levels, and FX, we have updated our same-store cash NOI growth to be between 8.2% and 11.2%. We are keeping the rest of our guidance unchanged, which you can see on page 8 of our supplemental financial information. Now, let me move to ESG. During the quarter, we certified 10% additional area, reaching 65% of the total portfolio. This result puts us closer to the 2025 goal of 100%, based on 2021 total area. Also, early this week, we published our ESG annual report, in line with previous years.
I would like to finish by thanking our investors for delivering their trust in our teams and business model, supporting us in our last capital raise, and also to our teams on the ground, who have made an excellent job. With that, I'll turn the call back to Luis.
Thank you, Jorge. Before passing the call for Q&A, I would like to talk about the press release we issued this morning relating to the leadership changes. These changes are part of the ongoing succession for a sponsor, Prologis. As of January 1, 2024, I will be moving to a new role as senior advisor to Prologis, and Héctor Ibarzábal will replace me. He is currently the COO and will become the new Chief Executive Officer, CEO. I will also remain as chair of the FIBRA Technical Committee. I could not be more excited to see Héctor take this new role. He has been my partner for the last 30 years in which we have worked together. He's someone that you already know, as we launched the FIBRA together in 2014. He brings deep experience that will benefit our customers, investor, employees, and communities.
This is a great moment for the FIBRA, and I am confident Héctor will take it to a new level. I could not think of a better person to hand over this position. Finally, I am deeply grateful with investors and analysts for your time and interest over the year. With that, let me open it up for Q&A.
At this time, I would like to remind everyone, in order to ask a question, simply press star then the number one on your telephone keypad. Please limit yourselves to one question, and you may reenter the queue if you have any additional questions. We'll pause for just a moment to compile the Q&A roster. And your first question's from the line of Juan Ponce with Bradesco BBI. Please go ahead.
Hey, good morning, everybody. Thanks for taking the question. So given the current environment, do you see potential upside risk to your acquisition guidance for this year? And if you can comment on the factors that may impact the timeline to complete all acquisitions, please. Thanks.
Thank you, Juan. We remain with our top of the guidance, $450 million. This will mainly come from the Prologis pipeline and third-party acquisitions. On the Prologis pipeline, we have 4.6 million sq ft, and we will acquire 3.5 million sq ft, which will be roughly $350 million, and most of them will be completed in the second half of the year. The properties will be located in the north, in Monterrey, Juárez, Tijuana, and Reynosa. All of them are leased to manufacturing clients and with great agreed returns with an IRR of 9.5%. In relation to the third-party sales, we have several processes ongoing. These third-party sales sometimes are more unpredictable than the Prologis pipeline.
We are participating, and, we feel comfortable these are going in the right direction.
Thank you.
Your next question is from the line of Pablo Monsivais with Barclays. Please go ahead.
Hi, team. Thanks for taking my question. I have a quick question on land cost. To what extent are rising cost of land is pushing out competitors to develop more properties? And do you think that a higher rent can offset a higher cost? What's the lag there for new developments? That's the first one.
Thank you. Thank you, Pablo. This is Héctor, and I want to thank Luis for his kind words. Land is very scarce. Our strategy is focused to be in markets where there's-
... high barriers to entry. The combination of having land with energy and with entitlement certainly is making land prices with these conditions to go up. We are seeing a very important increase, I would say a kind of hockey stick increase, on new rents related to new projects, either they are spec or build-to-suit. Probably these rents could be 15% higher than operating regular rents. So land is up, construction costs are going up, and new rents are going up as well.
Your next question is from the line of Gordon Lee with BTG. Please go ahead.
Hi, good morning. Thank you very much for the call. First of all, I'd like to congratulate both Luis and Héctor for the... Well, for Luis, for his tenure as CEO and for his new role at Prologis, and Héctor, obviously for the appointment. Congratulations. I just have one really quick question on the operating side, which is, leasing activity has been pretty strong for the past several quarters, but I noticed that your retention rate has slipped for the past three or four quarters sequentially, not hugely, but materially. So I was wondering whether there's anything to be gleaned from that, or if this is just, you know, the starting point was a very high retention rate and we're looking at more normalized levels. Thank you.
Thank you, Gordon. I think, retention is not necessarily an evidence of how our business is going. We are probably the best in the markets, pushing rents up. Part of this, loss of customers is related, to push, these rents up. But the most of the customers that we lost in this period are because we have not been able to provide expansion of spaces for them. Occupancy is in good shape, rent growth is in good shape, so I wouldn't be that concerned about retention.
Your next question is from the line of Luis Yance with Santander Asset Management. Please go ahead.
Hi, guys. Thanks for taking my question. And also congratulations, Héctor, on the announcement, and thanks a lot, Luis, for all those years. Just a quick follow-up on the pipeline that your parent company has. I mean, you mentioned that, you know, a big chunk of, from the development pipeline, you'll be acquiring it this year. But can you talk a little bit about, you know, the possibility of potentially accelerating from your parent company standpoint, the development pipeline, you know, adding more into that and what given, you know, given the strong demand, what would be the constraints?
Is it energy a big factor, or is that something that we could start seeing in the next few quarters as, you know, as you buy some of that development pipeline that gets leased? Is it fair to assume that given the opportunities you might be seeing, there might be a possibility that you accelerate the that you're planning to accelerate development there? So that'll be my question. Thanks.
Thank you, Tocayo. Good to see you're in Santander now. So this is a very good question. You know, in fact, I see that you know, having our sponsor, Prologis, developing its balance sheet and then, you know, having this exclusive access to it is a huge development, a huge competitive advantage. You know, we have 4.6 million sq ft of property that we will acquire between 2023 and 2024, and it's around $460 million. And what I can say is that you know, development conditions have gotten much more tougher. So to begin, development has to do with a lot of infrastructure challenges that have to do with energy.
But in addition, you know, you also have entitlement challenges, a little bit as a result of the pandemic and, you know, municipalities have closed, and it just has been taking a little longer than before. But having said that, I think business conditions are in good shape to continue development. You know, as we said in our remarks, rents are growing, vacancies are record low, and, most importantly, our sponsor has the capital to put to work. So I think we will see a more active second half of the year. I think you can expect maybe 2-3 million sq ft of properties that will be put to work in the second half, and then maybe for 2024, you know, our pipeline, I think, is gonna be between 3-4 million sq ft.
So this is a pretty healthy. In addition, the sponsor is also in good progress to replenish our land bank, especially in those markets that have very tight conditions. So we have been in the market for many years, and I think we're in a special position to take advantage of this, you know, special opportunity that Mexico has.
Your next question is from the line of Vanessa Quiroga with Credit Suisse. Please go ahead.
Thank you for taking my question, and congrats also to Luis and Héctor for this transition of leadership. So my question is regarding a comment that Luis you made on your letter.
... on the results about some markets slowing down. I was wondering if you can specify what markets you are referring to, and if this poses any risk to the trends that we're seeing for nearshoring in Mexico? Thanks.
Thank you, Vanessa. I you know, we have been reviewing, you know, our forecasts of demand, and we are very bullish for the year. You know, this is mainly driven by structural changes. Now, companies need to relocate their manufacturing facilities, and these are long-term decisions, which somehow, you know, are going over the short-term volatility that the slow environment is putting, you know? We also see this trend lasting, and it has to do with labor shortages in the U.S., the U.S.-China dispute, and, you know, sectors that are changing, like electric vehicles and EVs and electronics. And in that sense, you know, I see Mexico well positioned.
To be very specific on your question, I see our six markets with a strong demand for the year. Very similar to what was in 2022, but this is double pre-pandemic demand.
Your next question is from the line of Francisco Chávez with BBVA. Please go ahead.
Hi, thanks for taking my question, and also congratulations for Luis and Héctor for this new changes in the leadership roles. My question is, regarding the items between FFO and AFFO, the CapEx to NOI ratio has been below the guided range. Can we expect CapEx to catch up in the second half of this year? And also, you can give us an idea of the AFFO payout that we can expect for this year. Thank you.
Thank you, Francisco, for your question. This is Jorge. Yeah, let me start with the second one. Our AFFO rate is gonna be around 90% on our guided distribution. That's where we are gonna be. Regarding the items between FFO and AFFO, we will end the year with 13%-14% of NOI as guided. It depends on the time of the year, et cetera. As you said, probably some of the CapEx will accelerate in the second half of the year to get into the 13%-14% level. The way that you might see it is that if you look at the last 12 months or the last 4 quarters, our FFO and AFFO margin has been 60% and 50%, respectively.
So, I mean, you, you can see—you, you will see those margins going forward. This quarter, obviously, is higher than that, given exactly what you said. But I think, at the end of the year, on a normalized basis, on an annual basis, you will see those levels, as I, as I mentioned, and as I guided. Thank you, Francisco.
Your next question is from the line of Jorel Guilloty with Goldman Sachs. Please go ahead.
Good morning, everyone. So first off, I wanna say congrats to Héctor, and thanks, Luis, for the partnership and the transparency. I wanted to dig a bit more into the net effective rent change number that you published this quarter. So last quarter, this figure was 39%, which is a record, and this quarter it came down to 31%. It's still strong, but it is a step down. So I just wanted to see if you can comment on this dynamic, because when we start digging through, for example, we see that in 1Q 2023, 50% leasing activity was in Mexico City. That's on a near 40% net effective rent change. 2Q 2023, 40% of the leasing activity was in Guadalajara, at 26% net effective rent change.
So I was wondering, is this 30% for this figure specifically, is it more of a normalization? Is it more market specific? Could we see an acceleration? That's my question. Thank you very much.
Thank you very much, Jorel, for your question. If you analyze the spread in place rent to market that we had previous quarter was 23.7%. This quarter, we are above 30%, in just one quarter. With these rent changes that you are mentioning, we have some cases in which we were able to raise almost 70%/ 69.8%, the rent in some specific markets. So what is happening and what is prevailing is the lack of supply of new space, and this will keep on bringing rents up. As analyzing potential opportunities, we see that rents are spiking importantly. Tijuana and Mexico City, for example, in the last year, they have increased potentially 20% or 25%.
The lack of supply of new space is enhancing this condition. I would be expecting going forward similar ranges of rent growth. If they're gonna move, they're gonna move upwards because of the current conditions. Demand is still very strong and supply is limited. This is one of the best mechanisms that Prologis has to create value to our shareholders. We probably are leaders in the market on pushing rents up. We will keep on doing it, learning from the market or creating market as market leaders that we are.
Jorel, this is Jorge. Just to pile up on what Hector said, remember that net effective rent change is a function of obviously the volume leased in that quarter, where those leases are, meaning which market is. It's not the same Tijuana, Mexico, and then Guadalajara, for example, and also the conditions of the previous rent. So, we might be a little bit below last quarter rent change, but this is a function of what you are leasing, where it is, and what the conditions were. The main point is rents are going up, and we keep on pushing.
Your next question is from the line of Nikolaj Lippmann with Morgan Stanley. Please go ahead.
Thank you very much. Congrats on the numbers and also, Héctor, on the new role. Luis, thanks for this partnership. Just a, you know, you've guided-- you changed guidance twice already this year, right? Rents are vertical. It's happening very quickly. Can you give us a sense of where you think we'll see some level of stabilization in some of the key markets, in terms of sort of y- rates per, pricing per feet, per square meter, and also how this plays into your thinking around M&A from external sources? The whole market is repricing. It's... A lot of people have issues building.
It seems like, you know, obviously, we would have wanted—everybody would have loved to buy stuff two years ago, but it still seems like a market where external M&A could be favored. So I was wondering what you can say about that. Thanks a lot. Again, congrats.
Regarding your question on rents and that we keep guidance where it is, I mean, we look every quarter how our results are. As I said in my preliminary remarks, some of our AFFO and AFFO and some other metrics are higher than expected. Regarding that, we keep on changing. We will keep on revising our guidance. If it makes sense, we will go upward, as we did this time with the same-store cash NOI. Also, FX has a role in all these changes. Where do we see rents and if we see them stabilization going forward? It's hard to say. I think that this year, in the whole year, we expect, like we said, mid-teens in terms of increase on rents, market rents, I mean.
Probably next year, we're gonna see a more stable number, maybe a lower number. Who knows? We don't have a crystal ball in front of us, but we think that the dynamic is gonna be positive. So, but hard to say where they're going to be stable at this moment, Nick.
The two most expensive markets, Nick, which are Mexico City and Tijuana, we are presenting new proposals in Mexico City above $9 per sq ft per year, and in Tijuana, above $10 per sq ft per year. Let's remind that the lease cost for customers is not the most important cost that they have. It could be a very high cost if they don't have the right space to take care of their business. So it's not that we are taking advantage of our customers, it's just where the market is. And if these conditions of lack of energy and complexity on entitlement prevail, rents will just keep on increasing. The way rents have increased compared to the way transportation costs and energy have increased is minimum.
So we're in this, we're in this environment, and we don't see fundamentals changing in the short term. So we should be expecting, as Jorge mentioned, 10%-15%, at least, increase in market rents.
I guess on the last part of your question, Nick, so I think we are in a mood to play offense. We have a fantastic balance sheet with a very low loan-to-value, and we have a great team on the ground to you know grow the portfolio. Additionally, the share price is also trading at a premium, and this just you know makes conditions you know much better to play offense. So I think we just need to be patient. You know, opportunities will come, you know, so you know, there could be some additional portfolios, and whatever moves in the market, we will be able to see it and have a shot at it.
Your next question's from the line of Francisco Suárez with Scotiabank. Please go ahead.
Good morning. Thanks for the call. Congrats on the results, and congrats on the new roles, and a big thank you, Luis, for all these years. Thank you very much. My question is a follow-up to Jan's question. It's the second quarter where I see PLD with zero starts in Mexico. And I just want to clarify, so the reason why PLD has not started new developments and why it is actually cutting their guidance on deliveries in Mexico, is basically because of the lack of the, you know, the permitting or energy? Can you clarify that for me? So it, the, so to make sure that that is not related by PLD having second thoughts on what the drivers of demand might be in Mexico. Thank you.
Thank you, Paco, for your question, and thank you also for your kind note. It has been a pleasure to work together. So yeah, I fully support what you're saying. So, business conditions are in very good shape. As I said, rents are growing, vacancies are low, the sponsor has capital, and there is no restriction from corporate in terms of deploying capital in Mexico. In fact, I would say that Mexico is probably all of the markets all over the world, the one that is outperforming, and maybe you see values, values went up in Mexico, where probably in other areas of the world, you know, values are either flat or going down.
This is because, you know, we have this manufacturing driver that is very different than, you know, it is not existent in other geographies. It's the part of the cycle that we need to take advantage of. In that sense, you know, the lack of starts in the first half has to do just with timing considerations on the specific projects that relate to just, you know, getting the land with full infrastructure, and sometimes energy, sometimes entitlement. As I said, you can expect 2-3 million sq ft of starts for the second half of the year, and 3-4 million sq ft in 2024, plus replenishment of the land bank.
Your next question's from the line of André Mazini with Citigroup. Please go ahead.
First of all, I wanna second other people in congratulating Héctor for the CEO promotion in 2024, and to Luis for the amazing work he has done in that chair. So congrats, guys. So the question is about the disposition strategy, in which you are selling in non-core assets, non-core markets, sorry, I should say. If you could talk a little bit about what makes a market non-core. Is it the city size, or some other metric? Two of the divestments happened in Nuevo Laredo and Matamoros, which are border towns with the U.S., and normally we associate border towns with nearshoring, which is, of course, super hot. So being a border town is not enough to make it a core market, apparently, right?
And of course, the investments and acquisitions have been in bigger cities, Ciudad Juárez, Tijuana, et cetera. So, if you can, talk about what is a non-core market vis-à-vis a core market in the northern part of the country? Thank you.
Thank you. Thank you, André, for your question. I think one of the factors of success of FIBRA Prologis is that we have a very clear strategy, and that we have had the discipline to stick to it. We have selected only six markets. You can have industrial real estate activity in Mexico, probably in 15-20 different markets. The main condition that we look to target one of our markets as core, as a target market, is that there are substantial barriers of entry. The best way to create value for our stockholders is through pushing rents up. The only way you have to push rents up is if there is limited supply.
So the assets that we sold were non-core, because they were part of previous acquisitions that we made in the past, and they were not fitting in the markets, in the six markets that we all know we participate. Besides the barriers of entry, that in most of the cases is land, today an important barrier of entry is on top, energy and entitlement, as Luis has mentioned, but we also care about the size of the market. I mean, these assets need to have a little similarity to securities, so you need to have liquidity, and if you are chasing for liquidity in one market, you need to have a specific volume of activity. We do not expect to open so far any new market in Mexico.
Part of our strategy is to go deeper in the markets in which we participate. Having higher penetration allow us to see all the opportunities, and that's again, an advantage that we have.
Your next question is from the line of Anton Mortenkotter with GBM. Please go ahead.
Thank you.
Hello, guys. Thank you for taking my question, and congrats on the results. My question is related to the development pipeline from Prologis. I'm not sure if I'm seeing it right, but it looks like not all the properties that Prologis has been developing in Mexico have been acquired by you. If you could provide some color on the reasoning on this. Is it because those properties are still being stabilized, or maybe you're passing on those for other reasons? If you could provide some color there, would be great. Thank you.
Yes. Thank you for your question, Anton. As you know, we have in the pipeline 4.6 million sq ft currently.
... Just as a clarification, all of the Prologis pipeline has been acquired by Prologis in the past. There is no, you know, Prologis has not sold any pipeline property to anyone else but FIBRA. So, so I guess, if you look at the stabilization progress, today, it's 72.2%, and mainly the properties in Monterrey, Juárez, Tijuana, and almost Reynosa are, you know, at about 100%. Reynosa is at 75%. We need to wait for that to be at 90%. So we expect all of these properties to be stabilized before the year end. And as I said, those will be acquired by FIBRA, you know, following the T echnical C ommittee process and everything before year end.
There is 1.2 million sq ft, that is 14.4% leased, and we're expecting to acquire that in 2024, as these properties are in construction. And as soon as we finish those, you know, those will be acquired by the FIBRA in 2024.
Our next question is from the line of Alan Macías with Bank of America Corporation. Please go ahead.
Thank you for the call and congrats on the new roles. Just a quick question on adjusted FFO payout ratio. Giving the strong peso, is there a risk that at the end of the year, the payout ratio will be higher? Do you see that happening or we should expect the same level as last year, for instance? Thank you.
Thank you for your question, Alan. This is a little bit of a technical question, and let me divide it into two. First, according to our guidance, the FF-AFFO rate is gonna be, as I said, around 90%. That said, you are correct. The level of the peso today will make FIBRA Prologis and anyone who has a foreign currency debt will generate some gain, some fiscal gain or tax gain, which FIBRA will have to distribute 95% of that. What we have done and what we have at FIBRA Prologis is that, last January thirtieth, we got approval from holders to distribute above the guided distribution that we have.
If there is an additional taxable gain coming from FX and inflation, that piece that is above our guided distribution, we, as management, have the option to distribute that in cash, in certificate, or in both. So, to be clear on your question, most probably, the cash that we will distribute is gonna be around 90% of AFFO. If we have to distribute above that and above our guidance, we could be distributing certificates on that piece.
Once again, everyone, if you would like to ask a question, simply press star, then the number one on your telephone keypad. At this time, I would like to turn the call over to the company's Chief Executive Officer, Luis Gutiérrez, for closing remarks.
Well, I want to thank everyone that are participating in this call for all your kind comments. It has been a pleasure to work over the years. You know, my professional career has been enlightened and got much better with the interactions we have with you every day. So, so thank you very much for that. I also want to say that I'm very confident Héctor, you know, will be continued to outperform the FIBRA. The FIBRA is in great shape, and I think, Héctor will just take it, as I said, you know, to a whole new level. And, we're very well prepared to do that.
I will be here, you know, I'm responsible until January first, and then I will be chairing the Technical C ommittee, so I will not be going away. You guys will probably see me for a little while. Thank you very much, and I hope we can interact before now and year-end. Certainly, you guys are welcome to come and visit, you know, Monterrey has been really a key market that has a lot of growth, so I encourage any one of you to come and visit us there. With that, thank you very much, and see you on the next call.
This does conclude the FIBRA Prologis second quarter earnings conference call. Thank you for your participation. You may now disconnect.