Good morning and welcome to the 2025 third quarter Fibra Mty's conference call. All information presented in this conference 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. It is important to note that the presentation related to this conference is available at www.fibramty.com, and recordings of the call will be available on the website of the company in the next two hours. If you are connected using our webcast tool, you have the option to download the presentation in order to move the slides at your own pace. Let me remind you that the information discussed in today's call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties.
Additionally, during this call, we may refer to certain non-accounting financial measures. Actual results may materially differ, and the company advises not to rely on these forward-looking statements. Fibra Mty undertakes no obligation to publicly update or revise any forward-looking statement. With us this morning from Fibra Mty, we have Jaime Martínez, CFO, Javier Llaca, COO and CIO, Eduardo Elizondo, legal counsel, and César Rubalcava Investor Relations. They will discuss on the more important strategic, financial, and operating aspects of the quarter. I will now turn the call over to Mr. Jaime Martínez.
Thank you, Chimalli. Good morning, everyone, and thank you for joining our third quarter 2025 conference call. I'd like to begin with a brief reflection of the current landscape of Mexico's industrial real estate sector. The renewal of the USMCA, which has recently begun and is expected to conclude by mid-2026, represents a significant opportunity for the country. While this process may lead to certain adjustments, we remain confident in Mexico's strong competitive position, globally supported by an abundant and cost-efficient skilled workforce, a young demographic profile, attractive industrial lease rates, and a privileged geographic location. These fundamentals continue to position Mexico favorably, even amid more restrictive trade conditions. Overall, we are optimistic about what lies ahead for Mexico, the industrial market, and Fibra Mty. We believe this sentiment is already reflected in the capital market.
Year-t o- date, our stock has risen nearly 30%, supported by solid trading volumes. At current levels, we continue to trade at an attractive valuation of approximately 13 times AFFO, supported by strong fundamentals and ample capacity to capitalize on future opportunities. Before handing the call to Javier, who will walk you through the recent M&A activity and the portfolio performance, I'd like to mention that recently, Fibra Mty was awarded 74 points in the 2025 real estate assessment by the Global Real Estate Sustainability Benchmark, also known as GRESB, the leading ESG standard for the global real estate sector.
This represents a 19% year-over-year increase and exceeds the peer group average of 70 points. Additionally, following the conclusion of the 2025 S&P Global Corporate Sustainability Assessment evaluation, Fibra Mty continues to strengthen its position. We experienced a 15% increase over the prior year, and we are now in the 94th percentile of our global peer group. Javier, please go ahead.
Thank you, Jaime, and good morning, everybody. Before we turn our attention to market conditions, property performance, and quarter end KPIs, I would like to highlight the recent acquisition and disposition activities outlined on page three of the presentation. on July 15th, we successfully finalized the purchase of the two remaining buildings from the Batach portfolio located in Monterrey. This investment amounted to $73.4 million, which adds to the $119 million previously invested in late 2024 for other assets within the same portfolio. Also on July 15th, we acquired 198,000 sq ft land parcel in Monterrey to facilitate the expansion of our Garibaldi 1 property. Notably, 60% of the new building has already been released to our neighbor tenant. The total estimated investment for this expansion is $20.2 million, and it is projected to generate an annual net operating income of approximately $1.7 million.
On the following day, as part of our non-strategic divestment program, we completed the sale of the Fortaleza building in Mexico City for MXN 3 60 million . Finally, as the quarter end, we announced an agreement subject to customary closing conditions to sell an office property in Nuevo León for up to MXN 395 million. In addition to our completed and pending transactions, we have received purchase offers totaling nearly MXN 2 billion for certain assets, mostly in the office.
Negotiations for offers amounting to MXN 1.3 billion are well advanced, reflecting strong interest from buyers and positive momentum in our divestment efforts. It is worth mentioning that this MXN 1.3 billion already include the agreements to sell that we have announced recently. Turning to market conditions and as a recent Bradesco report highlights, despite global geopolitical challenges, Mexico's manufacturing sector continues to demonstrate strong competitiveness.
Approximately 76% of the cost structure in a typical Mexican auto parts plant is attributed to raw materials and labor. The average direct labor cost for Mexican workers is roughly a third of the fully burdened hourly rate in the U.S., underscoring labor as one of the sector's most compelling advantages. As of March, Mexican manufacturing exports to the U.S. have surpassed those from China, and now nearly match the combined exports from the rest of Asia, excluding China. Since the implementation of tariffs, Mexico exports to the U.S. have grown by over 2%, reinforcing the country's position as a competitive manufacturing platform, even under stricter tariff conditions. The framework of U.S. trade policy continues to take shape, and despite ongoing delays, it is increasingly clear that Mexico, along with Canada, has been favored by the current administration.
As of July, both countries rank amongst those facing the lowest effective tariff rates. Page four of the material contains a side-by-side comparison of key indicators from CBRE for the 13 primary markets in Mexico and our portfolio as of the end of the third quarter. Total market inventory rose by 11 million square feet, 1.5% from the previous quarter, while vacancy rates increased only by 20 basis points to 5%. Our previous forecast for vacancy rates by the end of 2025 were around 8%, and it is possible that this number will reduce close to 6%. Year-to-date net absorption reached more than 26.5 million square feet, with over six million added in the third quarter. Despite ongoing market uncertainty and relatively low demand compared to 2023 and 2024, vacancy remains low.
We still believe that total absorption for 2025 may be around 60% of 2024 levels, but with positive signs for an increase of the demand in the short term. Tijuana stands out as vacancy rate is now above 14%, representing an increase of more than 380 basis points from the previous quarter. The new supply grew by almost 2 million square feet, while net absorption for the third quarter was negative for the first time in many years, rose by 4,000 sq ft. Overall supply continues to outpace demand, and a potential recovery seems to take some time. As we mentioned in the last call, although this condition is a cause for concern, it also may offer promising investment opportunities in stabilized properties, even the enduring strength of Tijuana's long-term fundamentals.
The Mexico City area stands out for its significant quarter-over-quarter increase in asking lease rates over 12%, driven primarily by a scarcity of available space. The market vacancy rate remains exceptionally low at just 2%, compared to the 5% average across 13 primary markets. Ciudad Juárez improved overall vacancy rate from 10.7%- 8.8% quarter-to-quarter, the first quarterly decline since the first quarter of 2023. The last Class A vacancy rate decline was also in the first quarter of 2023 when the rate fell from 0.1%- 0%. Seven of the quarter's new 10 new leases were according previously unoccupied speculative space. Our portfolio performs the market in occupancy, and we think growth potential when comparing our in place rates with asking rates.
Notably for those markets where vacancy has been increasing, we stand with long duration in the leases, offering strong short-term defensiveness, particularly during uncertainty periods like this one. Page five highlights the two-year trends in Mexico. Primary markets, including space under construction, measured in years of net absorption. Across all markets, the ratio stands at approximately two years of net absorption. However, when excluding Tijuana, due to unusually low cumulative net absorption, and Reynosa, due to negative cumulative net absorption, the indicator improves to 1.7 years. Guadalajara, Juárez, and Monterrey, led in net absorption performance, posting improvements of 150%, 95%, and 85% respectively, compared to the previous quarter. Overall, these asking lease rates rose by nearly 3% versus the second quarter, primarily driven by an exceptional double-digit increase in Mexico City. Excluding Mexico City, lease rates for the remaining markets actually declined by 60 basis points quarter-over-quarter.
We could cover this during the Q&A section of the call. Moving along with the presentation. Our acquisition pipeline currently exceeds half a billion dollars and includes 29 industrial properties totaling close to 6 million square feet of gross leasable area. These opportunities are at different stages of analysis and negotiations and are in key markets such as Monterrey, Juárez, Chihuahua, and Bajío. We are currently in advanced negotiations for approximately $120 million in transactions, which we anticipate could be finalized before year-end. Given NDA agreements, the color that I can provide on these transactions remains limited. We will continue to keep investors and analysts updated on the progress of our acquisitions pipeline. Beyond the opportunities already presented, we are consistently identifying new investment prospects.
Should the acquisitions currently under advanced negotiations reach closing, we anticipate being approximately $50 million short of investment targets established during our latest equity issuance. However, our robust balance sheets and significant financial flexibility position us well to achieve this goal, all while remaining comfortably below our 30% loan-to-value threshold. In the event that we chose to extend leverage up to 35%, we will unlock additional investment capacity of $180 million. This strategic option provides us with further room to pursue attractive opportunities in the market. Furthermore, if we successfully complete the asset disposals currently in progress, including the recently announced transactions involving office buildings in Monterrey, an additional $128 million could be added to our available resources. Taken together, these initiatives would result in a total firepower of approximately $365 million.
This amount could be reached without tapping the equity markets and without factoring in further divestments of non-strategic assets currently underway. Our expansions initiatives continue to demonstrate significant progress and value creation for the portfolio. To date, the total investment in expansions projects surpass $140 million, reflecting our commitment to target growth and strategic asset enhancement. These expansions are expected to generate a yield on cost of almost 10%, underscoring the strong potential for incremental returns. Of the total expansion capital, more than $88 million has already been secured through signed agreements. These projects are either currently under construction or have already been delivered, making key milestones in our ongoing development pipeline. The remaining balance represents projects that are presently under negotiations, further expanding our future growth prospects as these discussions advance towards finalization.
This balanced approach to expansion, combining completed, active, and pipeline projects, reinforces our disciplined strategy and positions us to continue delivering value through efficient capital deployment and operational excellence. On a same-property basis, net operating income demonstrated resilience, remaining stable with a year-over-year increase of 3%. This performance was achieved despite net vacancies exerting a negative impact of MXN 30 million. The portfolio was able to offset this adverse effect through inflation leaks and adjustment, securing new leases, and generating additional revenue from expansion activities. Further strengthening overall financial results, the addition of revenues from acquisitions, net of divestment, resulted in a significant increase in total NOI. Specifically, total NOI rose from MXN 650 million- MXN 770 million on a year-over-year basis, reflecting a robust growth of almost 20%. Our net operating income margin reached 91.8%, a notable achievement considering the presence of non-industrial properties within our portfolio.
This strong margin underscores the efficiency of our operations and the resilience of our asset base. Looking ahead, we anticipate further expansion of our NOI margins as we continue to strike a strategic transition towards a fully industrial portfolio. By gradually divesting non-industrial assets and focusing on industrial properties, we expect to enhance operational performance and unlock additional value for our stakeholders. The company will maintain a disciplined approach to real estate operations, including acquisitions and dispositions. Market conditions may present additional opportunities, and our business model allows for the flexibility to respond to these changes while providing cash flow predictability due to long-term growth. I could elaborate in more detail on both markets and our portfolio conditions later during the Q&A section of the call.
In assessing the valuation of our investment properties for the third quarter of 2024, there was a negative impact amounting close to MXN 3.8 billion, primarily attributable to the appreciation of exchange rate. This adverse effect, however, was offset by the positive contributions from recent acquisitions and divestments, which collectively increased the valuation by MXN 3.9 billion . As a result, the net effect of these factors helped stabilize and support the overall portfolio value during the period. The total value at the close of the quarter was MXN 36.9 billion, reflecting a year-over-year decrease of MXN 1 .2 billion . This reduction was primarily attributed to the reclassification of MXN 1.7 billion R elated to certain assets available for future sale. It is worth noting that the current implied cap rate for the industrial portfolio stands at 7.8%, while ROIC continues to expand the combined portfolio to 8%.
The valuation from our independent appraiser could be subject to adjustments as interest rates environment continues to unfold. Our portfolio continues to demonstrate strong performance across several key metrics. Notably, we have increased the industrial share of our revenues, which now accounts for nearly 80%, aligning our assets with market demand and enhancing operational resilience. We maintain significant exposure to top-tier markets, particularly in the northern region and the Bajío area.
This focus has resulted in a highly defensive portfolio with approximately 85% of our revenue denominated in US dollars, providing stability against currency inflations and strengthening our financial position. Another highlight is our weighted average lease term, which remains one of the longest in the industry at nearly five years. The extended lease duration delivers predictably cash flow and ensures stability for the portfolio. With that, I'm going to hand over to Jaime for the next section of the call. Go ahead, Jaime.
Thank you, Javier. I would like to start by recalling the atypically high yield from cash investments during the first quarter of 2024. This allowed us to retain and allocate roughly MXN 63 million to our share buyback program, given that the market price at that time did not fully reflect Fibra Mty's intrinsic value and cash generating capacity. For that reason, we believe financial performance is better assessed by focusing on the distribution made in each period. That said, we saw a modest increase in normalized cash flow generation this quarter, mainly driven by the solid performance of our same property portfolio and the contribution from recent acquisitions already mentioned by Javier. As shown on the graph to the left, we achieved sequential expansion in both NOI and the EBITDA margin this quarter, despite the Mexican peso strengthening against the US dollar.
Since a large portion of our operating and administrative expenses are peso denominated, a stronger dollar could further expand these margins going forward. In addition, when comparing distributions to normalized last year's atypical finance income and using average effect rates, we recorded sequential growth across all key financial metrics and delivered a 4% year-on-year increase in distributions. Our capital structure remains solid. We closed the quarter with a net loan-to-value ratio of 20% and a net debt to EBITDA multiple of 2.7x . We maintain significant financial flexibility with undrawn credit lines equivalent to nearly 20% of total assets. This provides ample capacity to pursue new investment opportunities, up to $250 million if we were to position our loan-to-value at 30%, or up to $450 million should we reach our internal ceiling of 35%. We have already begun exploring refinancing alternatives for our next material maturity.
While it is still two years away, we want to be fully prepared. Given our prudent balance sheets, global investment-grade rating, and the recent downward trend in interest rates, we are confident we can secure highly competitive financing terms. Moving to the next slide, I am pleased to highlight that our market valuation continues to be supported by both local and international investors. Our price saw a positive adjustment early this year and has remained resilient, showing a defensive performance amid broader market volatility. This reinforces investor appetite for vehicles offering stable, inflation-linked dollar-based cash flows with long-term visibility. Additionally, our average daily trading volume has increased meaningfully compared to its historical levels, particularly following last year's follow-on offering and our inclusion in the Footsie index.
This momentum reflects the strong execution of our strategy, our commitment to transparent market communication, and our ongoing effort to expand our investor base through multiple channels. While portfolio value across the market typically slows during the summer, as seen in the third quarter, we have already observed a rebound. In fact, just yesterday, over $9 million were traded. This trend could potentially support further index inclusions going forward. Before going to Q&A, I would like to provide a brief update on the commitments we made during our last follow-on offering. With the recent acquisitions and the advanced negotiations in progress for expansions and new transactions already discussed by Javier, we are very close to reach our $700 million investment target in industrial assets. Importantly, these investments have been made at an attractive yield of around 8%.
Which offer a compelling risk-adjusted return given the quality, location, and fundamentals of the assets and their tenants. On the divestment side, we have only one property remaining in our underperforming office portfolio, which remains our primary focus for sale. As you've seen, we've already begun divesting other office properties from the performing portfolio. Lastly, I just mentioned our commitment to increased liquidity has already delivered tangible results as reflected in our trading performance. Finally, as in previous quarters, slide 20 includes FX sensitivity analysis for both our NAV and AFFO multiples to support your valuation review. Chimalli, please begin with the Q&A.
Thank you. Ladies and gentlemen, to ask a question, please press star one. If you are connected using our webcast tool, please write your questions in the chat section of the platform. Our first question comes from the line of Piero Trotta with Citi. Please proceed with your question.
Hi, team. Thank you very much for the call. I would like to ask two questions. The first one is about the improvements that you mentioned in the third quarter. If you could give us more color on that, if tenants are becoming more confident for new spaces, something in those terms probably would be very helpful. The other one is about the Garibaldi project that is under construction. The build-to-cost of this project is a bit lower than the rest of the recent deliveries that you mentioned in the presentation. Could you talk a little bit about it? What is the main reason for that? If there is something specific to the project or something about the construction cost? That's it from my side. Thank you very much.
Thank you for your question. This is Javier. We've seen an improvement in the market during the third quarter. To be honest, we were expecting vacancy rates to achieve at least 6% by this time. It only reached 5%. It was a contrasting quarter in terms of markets like Monterrey, Guadalajara, Saltillo, Querétaro, doing extremely well in terms of net absorption, and a couple of markets doing extremely poor, like Tijuana, Reynosa, and Juárez, even though it improved versus the previous quarter. You have markets like Reynosa, that cumulative net absorption for the first three quarters has been negative in total. So we see some signs of recovery. The fact of the matter is that prices dropped 0.6%, if you exclude Mexico City or 2.8% if you include Mexico City with an atypical growth on lease rates.
It makes us believe that we are reaching close to an equilibrium moment in the market, which is a positive thing. We believe that historically speaking, fourth quarters are not that high in activity. We are going to see what happens with this quarter. We believe that we have seen some promising signs in the market for next year. If USMCA goes through, which we believe is going to happen in the first half of next year, I think we are going to have an extremely good year in 2026. In regards to your second question on the build-to-cost for the Garibaldi expansion that we announced, the reason of this deal being relatively low is because they had secured the expansion with the previous developer and the seller of the property at certain conditions.
We had to acquire the neighboring piece of land for this expansion, and the cost of the land was relatively high. We did not have the possibility of enhancing the investment by acquiring a cheaper piece of land, and that is the reason that the yield on cost is still good. I mean, 8.6% for a Class A tenant that was locked up on the expansion. It combined with the rest of expansions, and we still have a really good return on the investment all combined. I do not know, Piero, if that fulfills your question.
Yeah. That is it. Thank you very much.
You are welcome.
Thank you. Our next question comes from the line of Gordon Lee with BTG Pactual. Please proceed with your question.
Hi. Thanks very much for the call. Couple of questions, Javier. The first was, if you look at the vacancy, the 5% vacancy, but thinking particularly, let's say, of Tijuana and Juárez, how much would you say of that empty space is actually occupiable in the sense of having utilities, electricity, or proper accesses? The second question is, on the chart that you showed, I saw that the inventory under construction is about 4% of the existing stock. How does that number compare historically? Thank you.
Hello, Gordon. Thank you very much for the questions. They are actually very interesting questions to answer. In regards to the space that is occupiable or suitable for occupancy, and the size of the building, what we have seen in the last, I would say, 12- 18 months, is that a lot of the new development has been done on not necessarily the appropriate sites of the buildings. If you take a survey of existing available buildings, for instance, in Monterrey, the number of buildings that you find below 200,000 sq ft is really high. So it is not only a matter of having good buildings with utilities and everything, but having the right size for the demand of the market. To me, taking the example of Monterrey again, to me, the sweet spot for a building in Monterrey is around 300,000 sq ft.
When the tenants go out to the market and find out that they have plenty of options below 200,000 sq ft, that makes the market more difficult to absorb. Also, access to energy. We have found out that many buildings in markets like Juárez didn't have access to energy. That is improving a little bit slowly, I would say. Finally, unfortunately, you find some buildings that are not necessarily the quality that the tenants are looking for. A lot of newcomers in the market, developers that never developed industrial before, ventured on developing industrial, and those buildings do not necessarily have the quality and the specs that most of the tenants are looking for. In regards to your second question, in terms of percentage of the offer versus inventory, it is atypically high.
I would say that in previous years, particularly 2023 and 2024, that number was probably 60% of what we are looking right now in relative terms to the inventory. But again, I think that there is an atypical amount of offer of buildings that are not suitable for occupancy. I believe that this number has remained stable. In most of mature markets, construction of speculative space slowed down a lot during the second and third quarters of this year, and it is helping. I hope that answered your questions, Gordon.
Thanks, Javier. If I were to force you to pick a number of that 5% vacancy, how much do you think is unsuitable?
Wow, I hope nobody is listening to this, but I would say that 70% is suitable.
Okay.
30% might be unsuitable.
Perfect. Super clear. Thank you.
Thank you.
Thank you. Our next question comes from the line of Igor Machado with Goldman Sachs. Please proceed with your question.
Hello, team. Good morning. Thanks for taking my question.
I have a question here on the investment. You mentioned that you have $500 million in acquisition opportunities, of which $120 million can be executed by year-end. Could you please give us more color on what makes an asset ready for the execution, and how do you intend to fund these assets? And if you could please also share what cap rates are you looking at, it would be helpful. Thank you.
Of course, Igor. Thank you for your question. Obviously, we cannot talk a lot about the specifics of the pipeline. What I can tell you is that on the $ 120 million that we are close to close, so to speak, we believe we're going to close on those before the end of the year. They are located in Northeast and Bajío, and the combined cap rate of all that $120 million is very close to 8%, 7.9%, 7.8%, around that. That's on our sweet spot in terms of our cap rate versus our cost of capital.
The $500 million on the pipeline includes those $120 million. But as I mentioned before, opportunities continue to arise by the hour. This week, we have identified at least three more options, three more investment opportunities that are too early to include on our pipeline. We feel very confident that the opportunities continue to arise, and we are originating and creating a lot of off-market opportunities for us. Before I end, on the $120 million that we are closing this year, it's going to be a mix between cash and debt. I would say it's going to be around $70 million cash and $50 million debt.
Perfect. Just a quick follow-up here. You mentioned that you received offers for MXN 2.4 billion in potential divestments. If you execute it, does this mean you will likely be out of office? So out of the office portfolio, and this value also includes the industrial portfolio?
Yes, this is César. The MXN 2.4 billion does not include the whole office portfolio, just for a fraction of that, and does include some industrial properties that we are currently evaluating on divesting.
Yeah. If we close on those MXN 2.4 billion, we are going to have another around $200 million, let us say MXN 4 billion or close to MXN 4 billion. Mostly it is going to be on the outperforming portion of the office portfolio. We are not in a hurry to sell those as they are still providing positive cash flow to us. But we believe it is going to close probably between now and the end of next year. Then we will be 100% industrial.
Okay, perfect. Thank you so much.
Thank you.
Thank you. Our next question comes from the line of Jorge Vargas with GBM. Please proceed with your question.
Hi. Good morning. Thank you for the call. Just one question from my side. You mentioned an initial acquisition pipeline exceeding $500 million. Are you considering a portion of Terrafina's portfolio that Fibra Prologis has been promoting?
No.
No, we don't.
Okay.
That's a short answer, as you can see. The long answer is that we have been looking into the Terrafina legacy portfolio as a whole. We haven't seen anything so far that fits our investment guidelines and our own portfolio. We're going to continue to take a look at it because they haven't released the whole thing yet. They only released one portion of the legacy portfolio. We're going to wait and see.
Great. Very clear. Thank you.
Thank you.
Thank you. Our next question comes from the line of Edson Murguía with SummerCap. Please proceed with your question.
Hi. Good morning, and thank you for taking my questions. The first one to follow up from Goldman, just to clarify about the MXN 2.4 billion expecting on divestments. Those industrial assets specifically is because you received unsolicited offer or it is because part of the business that you. A couple of years ago, you recycled some assets. That is my first question. My second question is looking at this, because if I compare the pipeline of acquisition, it is not the same from one year if I compare it to quarter 2024 between the quarter 2025. My question is, it means that the dynamic is slowing down on the acquisition pipeline or it is because you are focusing on those assets that are more profitable perhaps?
Thank you. On your first question, the industrial assets that we are currently selling are two buildings. On both buildings, it was an unsolicited offer. One of the buildings is being sold to the tenant under the option to purchase that they have in the contract, and the other one is a local investor. We're putting together an industrial package, an industrial portfolio that is going to be sold, I would say it's going to be put out for sale during the first half of the year, and it's going to include some non-strategic buildings that we have, either because of the age of the buildings or the location of the buildings. Both are going to be a targeted process that is going to be in the first half of the year. The ones that we're selling right now are unsolicited offers.
In regards to the dynamics of the pipeline, this is very dynamic as you mentioned. We add and take out properties or portfolios from the pipeline continuously. I wouldn't say it's atypically low. I would say we're being a lot more picky in terms of the quality that we're looking into. We don't want to fill our Excel sheets with all types of buildings that we could buy. The reason of the size of the pipeline right now, I would say that the main reason is the quality that we're looking for, but there's plenty of opportunities around that. We have been facing a lower hit ratio on offers that we have done or we have presented this year. That's due to the disciplined approach on pricing and on quality of the products.
Okay. Thank you so much, [inaudible] and c ongrats on the great results and the vision you have on the growth.
Thank you, sir.
Thank you. Our next question comes from the line of Felipe Barragán with JPMorgan. Please proceed with your question.
Hey, good morning, guys. Thanks for the call and for taking my question. Mine is a little bit of development on the market dynamics. Obviously, did see some markets such as Juárez, Monterrey have a big decrease. But we saw other markets like Saltillo and Tijuana with the rise. I just want to pick your brains a bit. We had MRP announce a big project last week in Tijuana post 3Q. There seems to be some sort of movement with the private developers. I just want to pick your brains on what sort of movement you're seeing from the private developers. If you're still seeing a lot of spec development occurring across the country despite this sort of wait-and-see mode from tenants. Thank you.
Sure, Felipe. Thank you for your question. I believe I did mention something in the matter during my piece of the call. My take on Tijuana is that the long-term fundamentals for Tijuana are great, continue to be great. A lot of Asian companies are the key driver for the market, and Asian companies right now, if somebody is holding back, is the Asian company. I believe the market is going to resurge after USMCA is signed and delivered. On MRP, I would say that most of the vacancy of Tijuana is concentrated on the East Corridor and the Boulevard 2000. There are still some corridors that have higher demand, like Otay Mesa and the west of the market. There is a lot of scarcity on the offer in those markets.
If you have the land position in those markets, it is probably a good time to start developing right now. Let us keep in mind that most of the offer or the vacancy that you see in Tijuana are buildings that were built during 2024. If I was to break ground in Tijuana right now to deliver or to have the supply ready by late 2026, early 2027, it is not necessarily a bad idea. But again, your intel has to be second to none in terms of the quality of the market intel.
Got it. Thank you. Just a quick follow-up. Are you seeing some of the private development also trickling into other markets on Monterrey and Juárez maybe, or is this just something particular to Tijuana?
I would say that most of the markets are business as usual in terms of players and the developers. We've seen newcomers in Monterrey, which it takes a lot of guts to come to compete to the local developers and the usual players and national developers, let's call them. I would say a lot of speculative development in Monterrey was made on the highway to the airport, on the toll road. You see a lot of buildings from well-known developers. Again, as I mentioned, there's a lot of small buildings available in Monterrey. That's probably the main reason of the increase in the vacancy rate. However, vacancy rate remains at a very healthy level. So I think this equilibrium moment that I mentioned before, it's a good thing for the market in general.
It sounds very clear, Javier. Thank you.
Thank you, Felipe.
Thank you. Our next question comes from the line of Enrique Cantú with GBM. Please proceed with your question.
Hi, everyone. Thank you for your time and for the call. You have done several office divestments this year regarding agreements for Prometeo and Torres Moradas. Could you share when do you expect these transactions to close, and how do you plan to invest the proceeds? Additionally, when do you expect the portfolio to be fully industrial?
Thanks, Enrique. Of course. The Torres Moradas are expected to close before the end of the year. The remaining transactions that we already have signed are going to take a little bit longer as we need to go through COFECE. I would say they should be closed during the first quarter of next year. When do we expect to be 100% industrial? It's going to happen when it has to happen, and we do a good sale of the office portfolio. We're not in a hurry. If I would need to guess, I would say that probably before the end of 2027, we're going to become 100% industrial.
In the process between now and the end of 2027, what you're going to see is a dramatic increase on the share of the industrial portfolio as we move forward on the sale of the rest of the office buildings, but as well as we continue the non-organic growth and M&A continues to grow. I believe that before the end of next year, we're going to be between 85% and 90% industrial, aiming for 100% before the end of 2027.
Perfect. Very clear. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Anton Mortonkotter with GBM. Please proceed with your question.
Hi, guys. Thank you for the call and congrats on the results. Just a quick one. I am trying to think a little bit ahead on evolving tenant needs. How are you guys positioning to serve a possible different next generation of industrial clients? Maybe those looking for EVs, semiconductor, automation players and all of that, where the facilities may not be as traditional warehouses as what the industrial current market is. Are these even trends you will consider tackling? Thank you.
Hello, Anton. Thank you very much for the question. It is a very interesting question. How are we preparing? We are preparing by means of added value services. For instance, we are doing additional investments on our buildings in terms of solar panels, racks, some maintenance, and so forth. I would say that the market is moving towards more to a single net structure, more than triple net, because the tenants want to focus 100% of their core activity and forget about the facility, and for the landlord to take care of the facility. Which I believe is a good thing. Even though the NOI margins are lower on those leases, it gives you a lot more grip and a lot more control on the maintenance and the CapEx of the building. By doing that, you do not have to decommission a building after the tenant leaves.
In terms of those specialized facilities, we have seen some activities from the semiconductors industry, particularly in Monterrey, and I can tell you that they like going into a core and shell building. The specialization on those buildings is usually CapEx from the tenant. They want to control the investment on clean rooms and epoxy floors and things like those. Sometimes, if not most of the time, the landlord is not involved on that CapEx. I do not think that is going to change a lot in the future.
But what we are seeing right now is that the logistics sector that usually was a very commodity building, use and discard type of facility, the logistics company are investing a lot more CapEx now in terms of automatization, sensors, cameras, racks, and so forth. That is the reason that we have ventured into the logistics sectors, because it gives you a lot more stickiness. The more CapEx the tenant does, the more sticky the property becomes. I would say that is probably the two trends that we are looking in the market right now.
That is very interesting. Thank you.
Thank you, Anton.
Thank you. Our next question comes from the line of David Soto with Scotiabank. Please proceed with your question.
Hi, good morning. Thanks for taking my question. I have just two quick ones. You mentioned that you are currently evaluating strategies to extend your debt maturities. Could you please provide more details on your liability management program? The second question would be, what are your plans on changing the mix between your logistics and manufacturing? Thanks.
Sure. Thank you very much, David, for joining the call and your question. We have been in discussions with several financial institutions, and we are encouraged by the strong demand for our credit profile. As negotiations are still underway, we cannot disclose specific terms in this stage. However, if we are successful, we expect to structure or to be consistent with our most recent credit facility, meaning a fully unsecured bullet with a tenor of no less than five years, therefore pushing the maturity all the way to 2031. We remain hopeful for additional spread compression, which given the behavior of current interest rate swaps, we could allow us to keep the interest rate below 5% overall on our balance sheet. On your second question, I will let Javier answer you as well.
Yes, David. Hi. In regards to the mix between logistics and manufacturing, right now we are standing at about 80/20, 80% manufacturing, 20% logistics. We would like to see our portfolio more towards 60/40, 70/30, somewhere around there. There is an interesting thing in this matter. There is a thin line or a gray area between logistics and manufacturing, because we have a lot of facilities that are logistics, but from the manufacturer.
For instance, the Whirlpool campus that we have in Monterrey, we have from the five industrial buildings that we have there, two are manufacturing centers and three are distribution centers. There is a gray line. We do not account for those the logistics portfolio, we account those more on the manufacturing classification of our portfolio. If you go to the basic definition of logistics versus manufacturing, we would like to be 60/40, 70/30 on manufacturing and logistics are respective.
Perfect. If I may, what you are saying is that you are looking to make a more complete service to your tenants now. You are looking to provide also logistics to the manufacturing tenants, right?
Not. We're not going to provide logistics services to our tenants. We are going to provide the space for the logistics of our manufacturing tenants.
Okay. Perfect. Thanks.
As a matter of fact, if I may, the Garibaldi 1 expansion that we recently announced is a distribution center for the neighboring building. That is the manufacturing center for that same tenant. That's a good example.
Okay. It should be a one-stop solution for the new tenants.
Exactly. One-stop shop.
Okay. Perfect.
Thank you.
Thank you. As a reminder, you may press star one at this time for any questions. With no questions in queue, I'd like to turn the conference over to the management of the company.
Well, thank you very much for joining our third quarter 2025 conference. We'll see you next quarter. Goodbye.
Thank you. This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.