Good morning, and welcome to the 2024 first quarter Fibra Mty's conference call. With us this morning from Fibra Mty, we have Mr. Jorge Ávalos, CEO, Jaime Martínez, CFO, and Javier Llaca, COO, and Eduardo Elizondo, legal counsel. They will discuss the more important strategic, financial, and operating aspects of the quarter. It is important to note that the presentation related to this conference is available at www.fibramty.com, and recordings of all 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 an 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 risk and uncertainties.
Actual results may differ materially, 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. I would now turn the call over to Mr. Jorge Ávalos. Please proceed, sir.
Thank you, everyone, for attending our first quarter 2024 conference call. I am proud to share with you one of our best quarter achievements, as we were able to successfully complete our first international capital issuance of $467 million in March, which was oversubscribed by 2.1x . This marks the seventh occasion that Fibra Mty has tapped into the capital markets. We simultaneously included an international primary private offering in the U.S. to qualified investors and in other countries. One of our main objectives since our IPO, it was important to outline that international investors represented 56% of the issued amount, mainly compromising long-only investors. One of the benefits of international investor participation is a significant increase in the trading of our stock, which boosted our ranking in four places at the Mexican Stock Exchange Liquidity Index during March.
Despite the new CBFIs being outstanding for only 15 days. As of March 31st, we are ranked 49th out of 178, just four places shy of being considered a high liquidity stock. This improvement positions us to continue attracting new active and passive investors and fulfilling yet another strategic objective of providing greater liquidity for our investors. Following the capital issuance and as we committed to the previous quarter, on April 16th, 2024, Fibra Mty technical committee approved our 2024 guidance. The target AFFO per share, assuming the same average exchange rate as in 2023, is set between MXN 0.9390 and MXN 0.9553. This guidance translates to a yield of 7.8% at the high end based on 2023 closing price and above 9% considering yesterday's closing price.
This represents an attractive return even in the current interest rate environment that reflects the potential growth in AFFO for investors due to favorable industrial market conditions, our portfolio's solid fundamentals, including rent adjustments aligned with inflation and predominantly dollarized revenues, and the strength of our capital structure. In terms of growth capacity at the end of first quarter 2024, we have a firepower close to MXN 900 million in the industrial segment without exceeding our targeted debt level of 35%. With the potential acquisitions announced in February and March, as well as expansions under construction, we have committed close to 40% of our growth capacity at a capitalization rate of around 8%, primarily in light manufacturing properties in the northern markets with predominantly US dollar rents and long-term lease contracts.
In terms of organic growth, our portfolio continues to demonstrate its strength with occupancies in the industrial portfolio exceeding 99% and a recovery in the office portfolio occupancy from 73.1% to 75.1% compared to fourth quarter 2023. It is worth noting that in line with the behavior of rents in the industrial market, during this quarter, we achieved lease spreads of 20.7% above inflation in US dollars. We also continue with the execution of our pipeline of industrial property expansions with MXN 44.9 million under construction and more than MXN 48 million in negotiation, which we expect to partially or fully materialize during the second half of 2024. As mentioned in our last earnings release, we will continue a responsible effort to divest non-producing assets. Additionally, we are still seeing interest in various transactions involving the sales portfolio's land bank, having addressed different requests over the past few months.
These opportunities are still in the preliminary stages. For the benefit of the growth in AFFO, we are confident that they can begin to materialize gradually in the short term. As you can see in slide two, with respect to the public announcement that we made for our intention of acquiring Terrafina, I would like to point out our four strategic goals that support our interests. Become one of the most relevant companies in the industrial sector in Mexico in terms of size and profitability, with the best corporate governance within our peers. Two, create a natural synergy of sectors with the greatest economic activity in Mexico. Three, establish our position as the Mexican REIT with the largest footprint in the main industrial markets in northern Mexico and with the best operating margin in the entire sector.
Four, increase joint profitability through the synergies generated, as well as through the potential reclassification of risk by increasing the share liquidity on the stock market once the transaction is completed. Our core focus for this transaction is to unlock value for the shareholders of both companies by enhancing cash flow per share and valuation. We will be disclosing the conditions of the transaction within the next two weeks, as we are waiting for Terrafina's first quarter results. I will now turn the call to Javier, who will walk you through our portfolio performance. Javier?
Thank you, Jorge, and good morning, everyone. I will start my piece of the presentation on page four with the composition and geographical distribution of our portfolio as of the first quarter of 2024, which remains similar from the previous quarter. Our footprint extends into 15 real estate markets across 14 states in the northern, central, and interior areas, with a total GLA of roughly close to 18 million sq ft. Out of which, around 15.5 million sq ft are industrial, 2.2 million sq ft are in office buildings, and 8,000 sq ft belong to a small retail portfolio, in addition to our land bank. Overall occupancy, in terms of GLA, stands solid above 96%. We continue to consolidate a strong presence in the markets with the most exposure to nearshoring in FIBRAs and transactions, and we will continue expanding in such markets, particularly in the northern and interior areas.
On to page 5 of the material, we present a brief overview of our new key performance indicators as of the end of March and moving forward. In terms of percentage of rental revenues, these indicators remain like the previous quarter. 21.4% of rental revenue by asset class come from our industrial properties, while office and retail account for 27% and 1.6%, respectively. We expect revenue from the industrial segment to extend as the acquisitions pipeline start to be deployed. By location, rental revenue from our Mty-based portfolio represents 41.6%, followed by Guadalajara, Guanajuato, Tijuana, and Saltillo, which combined represent a third of total rental revenue. Occupancy rates as percentage of potential revenue at full Apaseo remains close to 93%. Our dollar-denominated leases represent almost 82% of rental revenue, which could further extend if the peso-exchange rate increases.
Finally, lease maturity schedule and weighted average lease terms is just shy of five years, with around 41% of revenue beginning to expire in 2029. As we mentioned during our previous earnings call, we believe that during 2026 and 2027, we will be able to capture positive lease spreads on a larger share of revenues, given industrial renewals and new leases. On page six of the webcast material, we present the same property performance analysis for the first quarter of 2024 compared to the same quarter of the previous year. For purposes of this analysis, we use all investment properties in our portfolio prior to Zeus, which represents a total GLA of 8.9 million sq ft. There is a marginal increase in the square footage of these properties as some expansions at our Querétaro and Apaseo properties have been either completed or close to be completed.
Compared to the first quarter of 2023, gross revenue contracted in 2.4% of MXN 8.8 million, with a decrease of 2.6% or MXN 8.3 million in our net operating income, mainly due to negative FX impact following the first quarter of the previous year. NOI margin contracted 10 basis points to 88.4%. The composition of NOI variance will be explained in detail in the following slides. I would like to mention that our NOI in dollar terms, regardless of FX, increased in approximately 7.2% between the first quarter of 2023 and the first quarter of 2024. Once we incorporated revenue from Zeus, the aggregated portfolio generated a total net operating income of MXN 551.4 million compared to MXN 330.6 million in the fourth quarter of 2023, an increase of around 67%. Our NOI margin for the aggregated portfolio was of 91.9% for the quarter.
Slide number seven of the presentation explains in detail the MXN 8.2 million reduction in our net operating income, comprised of the following. MXN 26.1 million decrease due to a negative FX effect between the first quarter of 2023 and the first quarter of this year. MXN 10.6 million decrease due to net vacancies from certain lease expirations. MXN 27.9 million increase due to inflation escalation on lease agreements and new leases. Roughly half a million pesos increase due to savings in certain operating expenses. As you can see, once we included additional revenue of about MXN 237.1 million from the Zeus portfolio, we reached the MXN 551.4 million NOI in our aggregated portfolio.
On page eight of the presentation, I would like to address the variance in the valuation of our investment properties portfolio, in which we have seen a negative impact of around MXN 1.3 million in FX change alone during the last 12 months prior to March of this year. Some CapEx expenses, as well as improvements in the operation and market conditions and current investment in expansions, compensated for some of the FX negative impact, bringing valuation from that to MXN 27.1 billion as of the end of the first quarter. It is important to point out that valuation on assets as of the end of the first quarter of 2023 already included the Zeus portfolio, as this transaction was carried out just three days before the end of such quarter.
Before addressing further details of our real estate operation and investment, I will hand the presentation over to Jaime to talk about the highlights of our most recent equity offering. Jaime?
Thank you, Javier. Thanks everyone for joining the call. I would like to begin my speech highlighting a significant milestone for Fibra Mty during this quarter. The company has successfully completed its first-ever domestic public offering alongside a simultaneous private primary global offering. The offering consisted of roughly 680 million shares valued at around $470 million, which included the base offer as well as the greenshoe. Following a six-day roadshow, during which we interacted with more than 60 investors, we generated a demand totaling 2.1 times the base offering size, equivalent to almost $900 million. Notably, 67% of this demand originated from international investors. This remarkable response underscores the strong interest and confidence in Fibra Mty, both domestically and internationally. This achievement reaffirms our status as a company with the highest number of equity issuance in Mexico over the past decade, with seven offerings, including the IPO.
Moving on the next slide, as previously mentioned, the equity issuance was an outstanding success. The slide before you provides a comprehensive breakdown of the demand and allocation by shareholder, investor type, and concentration. In terms of demand from shareholders, 75% originated from new investors. This statistic is a testament to our strong track record as we have outperformed our benchmarks, especially from a dividend yield perspective, and demonstrated best-in-class corporate governance for the last nine years. From an allocation perspective, 69% was assigned to new investors. This has significantly enriched our investor space, diversifying it and increasing the liquidity of our shares to an average trading volume of around MXN 25 million in the first quarter 2024, even though there were only around 10 trading days after the offer. Moving on the investor type, a significant portion of the demand, totaling 55%, came from hedge funds and retail.
However, in line with our commitment to honoring our long-standing investors and prioritizing other major investors with long-term objectives, the allocation was structured accordingly. 72% was distributed to our foreign and long-only investors, and the remaining to hedge funds and retail. Finally, from a geographical standpoint, international investors contributed 67% of the total demand, reflecting a robust global interest in our company's growth trajectory. With respect to the allocation, international investors received 56% of the shares, while domestic, the remaining 44%, maintaining a balanced commitment with both our local investors and internationals. Moving forward after our recent equity issuance, our outstanding debt fundamentals have significantly improved. As seen on slide 11, we reduced our loan-to-value ratio from 26.6% to 21.5% on a quarter-on-quarter basis and decreased our net debt to EBITDA ratio to 0.3x .
This provides us enough flexibility to capitalize opportunities going forward without having to tap the market and keep a prudent capital structure. In addition, we maintain our debt 100% unsecured and US dollar denominated, with an interest rate well below 5%. Furthermore, our average debt maturity stands at four years with no material maturity until late 2027. We are well prepared for future investments with available credit lines and cash that represent 15.2% and 20% of our assets respectively. With that said, I return the call to Javier, who can walk you through the pipeline and expansions.
Thank you, Jaime. Moving on to page 12, we will address some of the most relevant aspects and state of our pipeline as of the first quarter of 2024. Before walking you through the slide, I want to emphasize that the Terrafina transaction that Jorge mentioned, and that we will address further in the call, will not be an impediment for us to continue negotiating and acquire the identified properties, and that none of the resources from the recent equity offer or debt capacity will be used for such transaction. Having said that, we currently have around $1.1 billion worth of potential target industrial stabilized portfolios and properties across Mexico under binding agreements, evaluation, and/or negotiation. These potential acquisitions are layered as follows: $289.9 million on acquisitions already announced and under binding agreements for a total of 3 million sq ft of GLA.
These transactions are under final due diligence and will start being closed before the end of the second quarter of this year, as announced in our latest press releases on this matter. MXN 437.9 million on potential acquisitions being negotiated for a total of 4.2 million sq ft of GLA, being several of these opportunities of market use. Finally, MXN 368.9 million of identified portfolios currently under evaluation for a total of another 6.4 million sq ft of GLA. Altogether, the pipeline accounts for more than 90 different properties with a weighted average lease term of more than nine years, for a total of close to 14 million sq ft of GLA and with 94% of the rental revenue under dollar-denominated lease agreements.
We estimate that our total firepower after our latest issuance and before the final closing of these acquisitions to stand around $900 million, including both available cash and debt Apaseo to reach 35% LTV. As mentioned during our previous earnings calls, we have executed the first four agreements for certain expansions in our industrial portfolio, which are highlighted on page 13 of the presentation. The construction of these expansions continues to progress on schedule and will be fully delivered to the tenants between the second and fourth quarter of this year. One of them already commenced rent, and the remaining three will commence rent before year-end 2024. These expansions in certain properties in San Luis Potosí, Mty, Querétaro, and Aguascalientes, with a total GLA of more than half a million sq ft, will represent a total investment of about $44.9 million.
These expansions would generate additional annual NOI of $4.2 million. This is a yield on cost of 9.4%, net of investments in tenant improvements, which are amortized throughout the lease term. These expansions also will allow us to extend the lease term in another 10 years with an attractive blend and extend lease rates close to market and above current rates. The expansions that are still under construction will increase the size of portfolio in close to 3% in terms of GLA. It is also relevant to say that all required energy for these projects has already been secured. More expansions on our industrial buildings are well advanced in negotiations and are expected to be executed in the next few weeks. It will drive additional GLA of another 570,000 sq ft with an investment of around $45.1 million at a similar yield on cost that the four previously mentioned.
Finally, I would like to mention that in the leasing activity related to renewal of industrial space, where rent could be negotiated at market rate, a gross lease spread of 24.7% in US dollar denominated was achieved. After adjusting for inflation corresponding to each lease contract, as Jorge Ávalos mentioned before, the lease spread was 20.7% in US dollars. Finally, during our last earnings call, we presented the fetch of the office component of our portfolio, which we present on page 14 of the webcast. It is worth noting that the overall occupancy rate for this asset class improved in close to 200 basis points to 75.1% from 73.1% in the previous quarter. We have been working on putting together the best strategy for the potential disposition of the performing and not performing assets. We will be communicated promptly to the market as this strategy is finalized, approved, and implemented.
As for the non-productive assets, we are well advanced into the best and highest use of these properties to estimate the potential sale value and initiate the marketing process during the second half of this year. At the end of today's presentation, I will be more than happy to address any questions you might have regarding operations and acquisitions for our real estate portfolio. But for now, I will handle the presentation again to Jaime. Go ahead, Jaime.
Thank you. Talking about bottom line results, as shown on slide 15, the main positive variation year-on-year were in the first and second closing of the Zeus portfolio. Nevertheless, these benefits were partially offset by a higher interest expense needed to finance the Zeus acquisition, paired with a lower cash balance when compared to last year's. Last but not least, the impact of our highly dollar-denominated leases and peso-denominated expenses, given the strengthening of the peso, which has stayed as constrained on our AFFO when translated into Mexican pesos, as previously stated by Javier. I would like to expand on the financial result effect. Having fully paid for the Zeus portfolio, financial income partially transformed into rental revenue.
On an aggregate basis, this translates into a negative valuation, given the spread between the short-term interest rate received through cash investment in the first quarter 2023, above 11%, and the going-in cap rate of the acquisition of 8% in dollar terms. This was further affected by the land bank paid in October, which is not an income producing asset as of now. We are confident that even though this could affect cash flow in the short term, long-term return will more than compensate for potential transactions on the land. Lastly, the CapEx increase arose to meet the requirements in the same property portfolio, aligned with Fibra Mty's forecasted needs for this year.
As you can see on slide 16, I am thrilled to announce that despite increasing our shares outstanding almost 4%, and the headwinds in the additional return, given the spread contraction between borrowing cap rates and the cost of capital and the cash flow drag of now owning the land bank, we have set our guidance 1.6% above last year's cash distribution. Considering the above, we are committing to our investors to keep their cash flow per share growing, and with an attractive premium above our weighted average weekly rate benchmark. As detailed on the graph on the right, the cash flow distribution for 2023 amounted to approximately MXN 0.94 per share, calculated at an exchange rate range between MXN 17.5 and MXN 18 per US dollar.
Taking into consideration the estimated organic growth from rental increases as well as occupancy, the integration of announced expansions into our portfolio and the successful deployment of our buyer power, the target to distribution for 2024 stands above MXN 0.95 per share available and relative to the same exchange rate as in 2023. As mentioned, this translates into an increase of 1.6% above 2023's cash flow distribution. Having said that, even though AFFO per share may appear similar to last year's, it is crucial to emphasize that thanks to our recent equity offering and recently announced acquisitions, our cash flow resilience is at its highest since inception.
Moreover, in addition, with the balance sheet fundamentals previously highlighted, our increasing dollarized revenue share, coupled with the growth of our industrial footprint and diversification of our income across locations, tenants, and economic sectors, not only have we accomplished a greater quality in cash distribution, but also we have managed to reduce certain risks along the way. I would also like to highlight that at the closing price, this guidance will reflect in a dividend yield above 9%, which we believe is reflecting the fundamental value of Fibra Mty. Therefore, when possible, we will be using our buyback program in an orderly manner as we see it as an attractive capital allocation. As in previous quarters, on slide 16, there is selected information to compare the trends of our main financial indicators of the last 12 months to facilitate your analysis.
Before opening the floor for Q&A, I would like to mention that at this time, we have shared all the information we can address on the Terrafina transaction, so we will not be able to expand on the topic of the Q&A section. Operator, please go ahead with the questions from the audience.
Thank you. Ladies and gentlemen, to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from Gordon Lee with BTG. Please proceed.
Hi. Good morning. Thank you very much for the call and for the opportunity to ask questions. I have two questions. I know, Jaime, you basically said not to ask anything about the Terrafina transaction. Without getting into specifics or numbers, I was hoping you could maybe tell us a little bit about the framework that you've used to approach it. More specifically, when you say that this would be an accretive transaction for shareholders of Fibra Mty, how do you define accretion? What are the variables or the metrics that you look at for accretion? That's question number 1. The second question, just a quick one on the firepower. The MXN 900 million of firepower that you assume pro forma for the newly capitalized balance sheet at a 35% loan-to-value.
Does that assume any divestments either from the office portfolio or some industrial properties, or is that on a growth basis, and any divestments would add to that? Thank you.
Hello, this is Javier. Thank you for the question. I'm going to start with the second question, and then I'm going to transfer the call to Jaime. The firepower that we have, the roughly MXN 900 million, that does not include any proceeds from a potential sale or disposition of any of our current assets. That's only considering the picture as you see it right now. We might increase our firepower as we progress, and we start being successful on the divest of the office portfolio or any other property that we might recycle even on the industrial portfolio. I hope that answers the second question, and I'm going to transfer the call to Jaime for the first question.
Super. Thank you.
Hi, Gordon. For us, it's important to value the company or both companies, not just in the first layer, which is at the property level. What we are going to do is to measure the companies from the AFFO base, and our objective is to have an accretive result for both shareholders in terms of increase in the AFFO per share they already have. That's, again, in a very simple way, our approach.
Perfect. Basically, accretion is defined as if the company pro forma has a higher AFFO per share for investors or yield for investors, that's accretive. That's basically the way that you would approach it, if I had to simplify very crudely.
That's correct. That's exactly. You will have higher cash flow for your shares in each of the companies.
Super. Thank you very much.
Our next question comes from Andre Mazini with Citigroup. Please proceed.
Yes. Hi, everyone. Thanks so much for the call. My question is also around the deployment of capital. You guys are definitely more acquirers than builders, just acquirers, I would say. Which types of real estate owners would be sellers in the short term for this vast firepower to be deployed? Would it be the AFOREs with their CKDs that would be reaching their end of their holding periods, which would be the most probable sellers of portfolio for the deployment of capital, or I don't know, other FIBRAs or other types of investors? What are the main counterparties that you guys are talking to for the deployment of this capital on the acquisition side? Then the second question may be on Chinese tenant exposure. We've been seeing the China-U.S. relationship heating up leading up to the U.S. elections.
Trump saying that there's going to be the imposition of tariffs for Chinese OEMs based in Mexico. I know that they're not huge at the moment, but I think they could become important in the future. The marginal investment from the Chinese is probably important. Do you think the future will be very different, if the China policy from the U.S. becomes very restrictive towards them coming to Mexico? Are they important right now? How do you think it's going to be going forward vis-a-vis Chinese investment if Trump comes to power? Thank you.
Thank you for the question. This is Javier again. Regarding the first part of the question, who are we buying the properties from? The short answer would be mostly private developers in the northern and Bajío areas. There's a couple of potential transactions in the long-term pipeline that come from some CKDs. But what we have on the short term, the ones that we have announced already, that are under binding agreements, those come essentially from private developers looking for liquidity to continue developing new properties. That would be as for the first question. For the second question, on elections and potential tariffs, we are positive that the main conditions on the USMCA won't change a lot.
What have been said about during the campaign of some of the candidates in the U.S. about imposing tariffs to Chinese car manufacturers looking into exporting into the U.S. market, that wouldn't have an effect in our portfolio, as we don't have Chinese tenants nor in the existing portfolio or the upcoming pipeline that export to the U.S. Some of these Chinese companies that we have in our portfolio, which account for less than 5 in the total portfolio, they provide parts to even U.S. car manufacturers. We believe that if that was going to be the case on the tariffs, which we see unlikely, but if that happens, it won't affect the core of our portfolio. Now, if that's going to happen, and that could turn off the appetite for some of the Chinese investments in Mexico, I think that's early to say.
We continue to see a lot of activity from our Chinese companies in the market in general, not in our specific case. But I think that's early to say. We haven't seen a slowdown in the momentum of Chinese real estate transactions and we don't expect for that to change in the short term.
This is Jorge. In terms of your question, is the Terrafina transaction, we believe, is going to be accretive. I would just mention that our core focus for this Terra transaction is only to unlock value for our shareholders and Terra shareholders. As long as it is accretive for both, we will go along with the transaction. Either way, we'll just step down. Thank you.
Thank you. Our next question comes from Pablo Ricalde with Santander México. Please proceed.
Hello, Fibra Mty team. I do not know if you can hear me.
Yes.
I have two questions. The first one is, which percentage of your industrial rents are below market rent? That is the first one. How are you seeing a competitive landscape in terms of acquisitions? We have seen a lot of other REITs raising money. How are you seeing competition to buy those assets, like industrial assets in the northern part of Mexico?
Thank you, Pablo. This is Jorge. In terms of the below-market rents that we currently have, I can tell you that the region, our northern portfolio is, in general, below market rates, and our Bajío portfolio is just around market rents. However, I would have to say that we continue to see a rent growth in Bajío, starting to catch up with the northern markets. Roughly, I can tell you that in general, our portfolio is, if you take a combination of our northern market component and the rest, you will see that we are about 5% average below existing rental markets. In regards to the competition on other assets, we continue to see a lot of activity from private developers selling their assets. So far, we have not had too much competition. Of the roughly MXN 290 million that we are about to close, those were off-market deals.
Those were deals that we sourced ourselves. As I said before, some part of the MXN 470 million that we have on the second layers of the potential pipeline, I can tell you that some of them are as well off-market deals. I can tell you that we still feel confident about the competition. Are we going to have more competition in the future as the rest of the FIBRAs raise equity? That might be the case, but we believe that at least for now, on the firepower, on the proceeds that we got from the latest offering, we believe that we have enough pipeline to fulfill and deploy those proceeds and continue growing. Also, I would like to mention, Pablo, that let us keep in mind that the market in general continues to expand.
The rate of new construction in general in the market has picked up a lot in comparison to 2022 and before that year. We expect that net absorption moving forward is remain pretty stable at around 5 million sq m per year, and construction is going to be roughly about the same, probably 6 million sq m per year. We are going to continue to see an expansion on the market and therefore to have more opportunities, not only for us, but for the rest of private or institutional investors that are looking to invest in the industrial real estate market in Mexico.
Perfect. That was very clear. Thank you.
Thank you. Our next question comes from Isabela Salazar with GBM. Please proceed.
Hello, can you hear me?
Yes, we can.
Perfect. Thank you for taking my question. I was wondering if you could provide more detail on how the strategy to divest from underperforming properties as part of portfolio optimization strategy is progressing this quarter and this year in general.
Great, Isabela. Thank you for the question. This is Javier again. From the three layers or the three types of portfolio assets that we have on the portfolio, performing assets, performing and non-productive. We are working on three different strategies that are still in the works and soon to be announced. What I can tell you that, at least on the non-productive assets, we are well advancing the strategy, and that strategy consists on estimating the best and highest use of those properties for potential redevelopment, to calculate residual value of the properties based on those potential developments. Go to the developer's market to sell those properties, most likely to a developer, and to try to get as close as residual value. We estimate those assets to be in the neighborhood of $71 million - $72 million.
That strategy is going to be implemented during the second quarter of this year. As to the performing and not performing properties, as we said before, we have increased our occupancy overall in the portfolio up to 75.1%. We want to be very thorough and very orderly on how to approach this strategy. We're working with institutional brokers to put together a large-scale strategy. We're still working on that. We expect that to start happening during next year. We're going to take enough time to make the most value out of those properties. But again, once we have a strategy implemented, we will communicate it to the market promptly.
Perfect. Thank you very much. That was very clear.
Thank you. Our next question comes from Alan Macias with Bank of America. Please proceed.
Hi, good morning, and thank you for the call. Just a follow-up question on the office sector. Occupancy has reached 75%. What are your expectations for year end? Can we think of a level of 80% that you would be more aggressive, I guess, in your divestiture of the performing? The last question is, if you can remind us of the leasing spreads you obtained in the office sector. Thank you.
Of course. Thank you, Alan. This is Javier again. On the office segment, that 75% that we have achieved during the first quarter, we continue to see a slight increase on the demand of office space. Our Guadalajara portfolio is pretty much fully occupied. The vacancies that we have are mainly in the Mty and Mexico City markets. Let's remember that we have a very low exposure to the Mexico City market. We were aiming to achieve close to 80% occupancy in the next three to four quarters. As we increase that occupancy, we will be in a better shape to go to the market and try to sell that to an investment and investor marketplace. The third question in regards to the lease spread in office, I would say that there's almost no lease spread right now as the rents are starting to pick up very slowly.
The renewals and the new leases that we have achieved, we are pretty much flat to Mexican inflation. That is because the market is becoming more and more peso denominated outside of Guadalajara. In Guadalajara, we have a strong component in dollars. But in Guadalajara specifically, we have seen positive lease spreads even in dollars. But given the fact that we have no vacancy left in Guadalajara, you could expect a lease spread flat to inflation in the next transactions that we might have on the office component. Can you repeat the second question?
Alan, your line is live.
Alan, can you hear me?
Sorry, I was in unmute. The second question is 80% occupancy level for the office sector. Would that be a level that you would be comfortable in selling those performing assets?
Yeah. You have to see it from two standpoints. The overall portfolio and the assets that could be sold alone. Obviously, we are aiming to have a large-scale sale of the office component. We believe that we could achieve around 80% occupancy in the next quarters. I would feel very comfortable with that level of occupancy. Talking about a large scale, so that would be a package sale, if you will, of the office portfolio. Thanks. Thank you, very clear.
Thank you. Our next question comes from Francisco Chavez with BBVA. Please proceed.
Hi. Thanks for the call. My question is a follow-up on the potential divestment in the office segment. How are the negotiations going in terms of valuation, and how that valuation compares with your appraisal in your balance sheets? Can we expect a write-down or potential valuations will be above the NAV of those buildings? Thank you.
Hello, Paco. Javier again. I would say that it is early for me to answer that. We have a valuation that we do all the quarters of the assets in terms of book value. We are working on, let us say, on the market price or potential market price of all three layers of the office segment. I think it is still early to specifically answer your question. Obviously, we are looking to sell those assets above book value. That is our key objective. But it is too early to give you an expected sale of the price of the properties. Again, we are working with a group of advisory companies, doing the best and highest use for the non-productive assets.
We are working with two large institutional brokers, to give us a Broker Opinion of Value, which differs a little bit from a typical appraisal. It is more like a mark-to-market potential value of the properties.
Our valuations that you see in our balance sheet are revised quarter by quarter, and that valuation reflects the slowdown of the office market since the pandemic. If you look at historical valuations, our third-party evaluator or appraiser takes into account the condition and the environment of a specific market of the assets. We believe that the hit on the office market in general because of the pandemic effect is already reflected in our book value of the portfolio.
Okay. Thanks, Javier.
Thank you. Our next question comes from Edson Murguía with SummaCap . Please proceed.
Hi, good morning. Thank you for taking my questions. The first one is related to the leasing spread and industrial properties that you have. You mentioned that it is 20%. Could you give us a little more color about this? Because if you compare it to other peers, the biggest rate in Latin America, I am not quite following because even their leasing spread is not in the same level as yours. That would be my first question. The second question, you mentioned in the call that you are planning to do a buyback program. Could you give us a little more detail about this buyback program? On a price action level, right now, every single CBFI is trading at MXN 10.18, 19 cents. It is below the settlement price a couple of months ago of the offering. Could you give us a little more color about this?
Thank you.
Hi, Edson. This is Jaime. In terms of the buyback, as I mentioned, the price of the CBFIs are too low. We consider that this does not reflect the value that our shares should have. So we are preparing the buyback program. As you know, we are now going to do this report. We are in a quiet period, so we can't use it. We are very interested to do it. And what we are going to do is to buy in another way, as we did in the pandemic and another circumstances in which the price didn't reflect the real value of the company. So we think there's a lot of attractiveness for our shareholders in the buyback strategy. So we are going to be very close to the market to take advantage of this situation.
Just a quick follow-up on this. Do you have any specific strategy, like any specific amount of money that you want to put in the market? Or do you have a strategy how many CBFIs are you planning to buy back?
Well, as you know, it's better to do it looking each day market, because we want to understand why the sellers want to take away their CBFIs. We don't want to affect the price of the market. What we want is to take advantage of those distortions of the market. But it's difficult to say the amount or so, because it depends on how the market will behave. As you know
In each shareholder meeting, we ask for the approval of the 5% of the value of the company in buyback. We are going to do the same in this shareholder meeting that we are going to have later today. We'll see. It depends on how the market behaves, and we decide to maintain our strategy more in confidence. Yeah. And clearly.
This is Javier again. We are not sure that we understood your first question. Can you please repeat?
Yes. In the presentation, you mentioned that you have industrial lease spread, and I am quoting, "As stood at 20.7% above inflation.
Can you give us a little more detail? Because when you compare that number with one of the peers in the Mexican market, which is the biggest REIT in Latin America, I am not quite following how do you achieve that? Because even theirs, their numbers are not in the same level that your numbers, regarding on the leasing spread.
Yes.
In the industrial segment.
I got it now. Let me try to elaborate. Let me first start telling you that, talking about ourselves, the 20.7% we have calculated, let me try to elaborate a little bit more on how we calculate the lease rates. We calculate the lease rates on those contracts alone that have an expiration during that quarter from those, the ones that were either renewed or a substitution of the tenant, half of that new lease rate compared to the previous one, to the last one before renewal or expiration. In those terms, that lease rate on those specific contracts that were open to a negotiation, because let us keep in mind that a lot of contracts, for us and for a lot of owners, a lot of contracts have a clause on automatic renewals.
From the ones that have automatic renewals, those that were renewed, were renewed at the existing terms. That means flat to inflation. So those do not account for that lease rate. From the ones that were open for new terms, the growth increase was 24%, above 24%. If you discount the inflation on that term, that is how you get to a 20.7% lease rate. As to the second question on why our lease rate compares that way to the value that we are talking about, the answer that I could give you is that this is cyclical to the leases cycle. In other words, you can have a very few renewals on a quarter, then your lease rate could drop because you are not going to have that much of activity on renewing those contracts or getting new tenants for that property.
In this quarter report, we are doing for the first time, in more detail, on what is the percentage of the expirations by quarter for the whole portfolio. So it covers the anniversary of the lease looks like per quarter, it is broken down into what percentage of these, or those anniversaries are fixed to inflation, are capped to certain inflation, have fixed escalations, are flat leases, and what percentage of those leases quarter by quarter are subject to new conditions and renegotiations, and what percentage has an automatic renewal. So you could expect valuations throughout the year, depending on the anniversary of those leases. So that is probably a question that should be addressed to Paula. We can talk about our own maturity schedule.
Okay. No.
As we have been very verbal in the past, we privilege WALT over lease rates. We believe that betting too much on the lease rates would present some kind of speculation. We would rather have a longer visibility of the cash flow. We would rather have longer WALT, and that helps us not only to have a lot more confidence and visibility on the cash flow, but that helps us to build long-term relationships with our tenants. That is the reason that we are investing close to $100 million on expansions with our existing tenant base.
No, thank you so much. That is really helpful. Last, I know that you mentioned it, regarding Anterra, you cannot mention anything. I am wondering, because next week on Monday, it is the annual shareholder meeting of Anterra. Regarding on the timeline, can we expect some clarity in a couple weeks?
Mm-hmm. No, Edson. We do not expect much. What we can tell you is that we are expecting Anterra to deliver their first quarter results. Within the next two weeks, as I mentioned before, we will give our proposal to the market. That is going to have the factor of interchange between our stock and their stock. Also the explanation why we believe our transaction will be a very accretive one for Anterra stockholders and for our stockholders. That is all I can mention.
Okay. Thank you so much, and congrats on these fantastic results.
Thank you, Edson.
Thank you. At this time, I would like to turn the conference back over to management of the company.
Well, thank you, everyone, for this morning's conference call, and we'll talk to you next quarter. Have a great day. Bye-bye.
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.