Good morning, and welcome to the 2023 Second Quarter Fibra Monterrey Conference Call. With us this morning from Fibra Monterrey, we have Mr. Jorge Ávalos, CEO, Jaime Martínez , CFO, and Javier Llaca, COO. 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 the call will be available on the website of the company in the next two hours. If you are connecting using our webcast tool, you will 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 risk and uncertainties.
Actual results may materially differ, and the company advises not to rely on these forward-looking statements. Fibra Monterrey undertakes no obligation to publicly update or revise any forward-looking statement. I would now like to turn the call over to your host, Mr. Jorge Ávalos. Thank you. You may begin.
Thank you, Robert, and hello everyone, and thank you for attending our second quarter conference call. I would like to highlight three milestones achieved throughout this quarter. First, a sharp integration of the Zeus Portfolio. Second, an all-time high EBITDA margin despite the peso appreciation. And third, our strong balance sheet fundamentals. In just three months after acquiring the Zeus Portfolio, we have successfully integrated all 43 acquired properties into our portfolio's operating processes. We have fully stabilized the billing and completed the integration of the renovation processes and expansion projects of the acquired portfolio. As a result, we achieved our highest NOI and EBITDA margin historically of 91.3% and 85%, respectively. This confirms our business strategy and the efficiency and capability of our entire team in handling a large-scale acquisition.
One of the main challenges we faced during the Zeus transaction was financing the acquisition while maintaining a solid capital structure. At the end of this quarter, our LTV was 25.7% and we prepaid MXN 183 million of revolving credit lines using the proceeds from the second half of the rights offering and the VAT refund, which we received under three months after completing the transaction. As a result, our balance sheet fundamentals remain strong with our debt unsecured at fixed rate and with an average maturity of almost five years. Additionally, in June, we arranged a $150 million credit facility to replace the amount drawn on our syndicated loan 2021, extending the maturity and reducing the financial cost on that amount by more than 60 basis points.
Consequently, as of June 30, our weighted average interest rate stands at 4.8%, and our first debt maturity was moved to October 2027. This demonstrates the economic benefit of being rated as an investment-grade issuer, and we expect to replicate these benefits in future financing transactions. In terms of operations and organic growth, we are witnessing continued leasing activity in the office segment. During the quarter, we successfully leased more than 4,500 sq m in Guadalajara, where we achieved an occupancy rate over 95% at the end of the quarter. Our primary challenge lies in the Monterrey market, especially with properties that were originally leased by a single tenant. However, the completion of the ongoing negotiations could bring occupancy in the office segment close to 80% before year-end. On the industrial side, our portfolio performance remains strong with occupancies close to 99%.
We have received requests for expansions totaling over MXN 50 million from our tenants within their current locations, of which we have already signed MXN 34.5 million. These expansions, in addition to increasing the gross leasable area of the properties with an attractive capitalization rate, allow us to increase the lease term and negotiate an early rent increase on the entire property, resulting in a more attractive and defensive cash flow for investors. As a result, I am glad to inform that we are on track to reach the high end of our 2023 guidance. Regarding inorganic growth, we currently have more than MXN 379 million of projects under evaluation for potential acquisitions. We maintain our focus on transactions in the industrial sector. We are being very selective in our negotiations to prioritize truly accretive acquisitions for our investors.
In this regard, we maintain a firepower of approximately MXN 250 million with our remaining debt capacity until reaching the 35% LTV watermark. In that sense, we believe that we will conclude negotiations for these transactions during this year and initiate an international equity roadshow at the beginning of 2024. I would like to conclude by announcing that during second quarter 2023, Fibra Monterrey completed the GRESB assessment questionnaire for the first time. This investor-driven assessment supports the global ESG reporting and benchmarking framework for public real estate companies. We will receive the results of this assessment, as well as the comparative analysis against our peers in October, according to the GRESB calendar. I will now turn the call to Javier, who will walk you through our portfolio analysis.
Thank you, Jorge, and good morning, everyone. I will start my piece of the presentation on page three with the composition and geographical distribution of our portfolio as of the end of the second quarter of this year. As Jorge mentioned, we have integrated 43 out of the 46 properties of the Zeus Portfolio, with a full reshape of our aggregated portfolio. Our footprint covers 15 real estate markets across 13 states in the northern, central, and Bajío areas, with a total GLA of roughly 1.6 million sq m. Out of which around 1.4 million sq m are industrial, 200,000 sq m are in office buildings, and 20,000 sq m belong to our small retail portfolio. During the quarter, we doubled the size of the portfolio in terms of GLA of income-producing properties. Overall occupancy in terms of GLA stands strong above 95%.
We continue building a strong presence in the markets with the most activity in nearshoring transactions and will continue to expand in such markets. We will address that in more detail further in this presentation, how the integration of the Zeus Portfolio has been during this last quarter. On to page four of the material, we present a brief overview of our new key performance indicators as of the end of last quarter. In terms of percentage of revenues, this indicator reflects the deep positive disruption from the Zeus transaction. 72.3% of revenues by asset class will come from our industrial properties, while office and retail account for 27.1% and 1.6% respectively. By location, revenue from our Monterrey-based portfolio represents 42% of total income, followed by Guadalajara, Guanajuato, Saltillo, and Tijuana, which combined represent 33.1% of revenue. Occupancy rate as percentage of potential revenue at full capacity stands in 92%.
Our dollar-denominated leases represent almost 33% of gross revenue, which could further expand if the peso exchange rates increases. Finally, lease maturity schedule and weighted average lease term is about five years. Around 40% of revenue will begin expiring in 2028. Looking at our lease maturity schedule, we believe that during 2026 and 2027, we will be able to capture positive lease spreads on industrial revenue. Industrial renewals, sorry, and new leases. On page five of the webcast material, we present the same property performance analysis for the second quarter compared to the same quarter of the previous year. For purposes of this analysis, we use all 60 investment properties and portfolio prior to Zeus, which represent a total GLA of 818,000 sq m .
Compared to the second quarter of 2022, gross revenue contracted in 4.8% or MXN 17.8 million, with a decrease of 6.5% or MXN 21.6 million in our net operating income, mainly due to negative effects impact following the second quarter of last year, and vacancy in one of our office buildings earlier this year. NOI margin dropped 160 basis points to 87.4% due to certain reserves on accounts payable delays in one of our industrial properties in the San Luis market. Expense provision on a piece of land that we subleased to one of our tenants and some leftover non-recurrent expenses in the Zeus Portfolio. The composition of NOI variance will be explained in detail in the following slide.
Once we incorporated additional revenue from Zeus after a full quarter of operation, the aggregated portfolio generated a total net income of MXN 541.6 million compared to the MXN 332.8 million in the second quarter of 2022. This is an increase of 62.8%. Our NOI margin for the aggregated portfolio was of 91.3% for the quarter, well above our target of 88%. The fact that the NOI margin of the Zeus Portfolio is more than 97%, we have accomplished substantial economies of scale in the operation of the portfolio. Jaime will address later during the call this and other aspects of this improvement in our income statement. Slide six of the presentation explains in detail the MXN 21.6 million reduction in our net operating income comprised of the following.
MXN 27.8 million decrease due to a negative effect between the second quarter of 2022 and the second quarter of 2023. MXN 5.9 million decrease due to vacancy from certain lease expirations. MXN 3.7 million decrease due to increases in other operating expenses, and MXN 15.8 million increase due to inflation escalations on lease agreements and new leases. As you can see, once we included additional revenue of about MXN 230.5 million from the Zeus acquisition, we reached MXN 541.6 million per NOI in our aggregated portfolio. During the quarter, we have executed three agreements for certain expansions in our industrial portfolio, which are highlighted on page seven of the presentation. The construction of these expansions has already started.
This expansion in certain properties in San Luis Potosí, Monterrey, and Querétaro, with a total GLA of more than 4,000 sq m, with an investment of around MXN 34.5 million. We expect these three expansions to generate additional NOI for MXN 3.4 million. This is an ongoing cap rate of close to 10%. These expansions will also allow us to extend the lease term in another 10 years with an attractive blend-and-extend lease rate close to market or above current rates. These expansions will increase the size of our industrial portfolio in around 3% in terms of GLA. Two more expansions on buildings from the Zeus Portfolio in Aguascalientes are well advanced in negotiations and are expected to be executed in the next few weeks. It will drive additional GLA of more than 16,000 sq m, and investment of around MXN 15.7 million at a similar cap rate than the three previously mentioned.
Finally, I would like to point out that the lease spread observed this last quarter stood above 6% above inflation for renewals, new leases, and expansions. It is important to note that the way that we estimate lease spread is net of inflation, which escalation is usually incorporated as part of the rent increase provision in most of our lease agreements. We will talk more about this at the end of the presentation. Regarding potential future acquisition, as Jorge mentioned during his opening remarks, we are currently evaluating and negotiating close to MXN 380 million worth of industrial properties in the northern and Bajío areas, with another MXN 250 million of investment opportunities recently identified. We strongly believe that our current firepower could be committed or fully committed before the end of the year, including expansions and acquisitions.
Moving on to page eight of the presentation, we are happy to inform that the integration of the first 43 properties of the Zeus portfolio was fully completed by mid-June. Our operating and accounting teams have done a phenomenal job in terms of administrative work with our tenants and property managers to secure 100% invoicing and more than 90% of rent collections. We are already in the process of early renewing certain leases, and the land bank in Puebla is being already marketed with a very positive perspective for the sale of at least a significant percentage of it, along with the possibility of development as the demand of the automotive industry in the region is picking up momentum due to a recent announcement from Audi for a new electric Q5 production line.
By the end of today's presentation, I will address growth potential and strategy. Now I will hand the presentation over to Jaime. Go ahead, Jaime.
Thank you, Javier. Thanks, everyone, for joining the call. I would like to start my speech with yet another milestone in our financial performance. As you can see on slide nine, after the Zeus acquisition, and despite the effects of a stronger peso in our revenues, we reached a new all-time high in our EBITDA margin, standing at 85% as of the end of the second quarter of 2023. This was both an effect of a larger revenue share in industrial assets, which has increased steadily since our IPO, and both operational and administrative efficiencies along the way. Thanks to our internally managed and advised structure, we have constantly reduced our corporate costs, both calculated over investment properties and total assets. Since our first fully operational year back in 2015, we have reduced this indicator by more than 70 basis points.
This reduction translates into higher returns for our investors, a promise we have made since Fibra Monterrey's inception, and one we intend to keep going forward. There are still some aspects that could tilt our margin upward. To name some, one, continuing to buy industrial assets. Two, organic growth, either by increasing our occupancy throughout the portfolio or capturing lease spreads and expansions. Three, a stronger U.S. dollar given our high dollarized revenue with mainly peso-denominated expenses. This could be partially offset by a larger headcount depending on the company's growth. Continuing to the next slide, as mentioned on the last call, in the beginning of April, we were recognized as an investment-grade issuer, mostly given our performance track record and our increased diversification. I am proud to announce that since then, we have already started to capture savings in our weighted average cost of capital.
In mid-June, we signed and withdrawn a bilateral loan with BBVA for a total amount of $150 million. The purpose of the funds was to prepay and replace the previous amount of the syndicated loan 2021. Therefore, this new credit line had no effect on the loan-to-value. This transaction, in addition to extending the maturity profile an additional year from 2027 to 2028. We reduced the financial cost of this $150 million in more than 60 basis points without compromising the quality of the loan conditions. We are committed to replicating these benefits in future financing transactions.
I would like to mention that since this loan has the same notional amount, amortization profile, and both the same payment and rate fixing schedules as the past loan, the fixed rate swap of 3% that was originally assigned to the syndicated loan 2021 was transferred to hedge this new bilateral loan, allowing us to keep benefiting from a lower interest rate and having predictable cash flows. As shown on slide 11, we are once again standing on a strong, prudent balance sheet with plenty of flexibility, even after practically doubling our size in assets on the last quarter.
As promised during the second quarter, we prepaid MXN 183 million worth of revolving credit lines with the proceeds from the second half of the rights offering that we received on the first days of April, and with the VAT reimbursement of the Zeus acquisition received on late June, which, if I may add, was just three months after the transaction. The result, as of the end of the quarter, our weighted average interest rate was reduced from 5.3% to 4.8%, and the loan-to-value ratio stood at 25.7%. This gives us an approximate MXN 250 million of firepower for acquisitions and expansion until reaching the 35% loan-to-value watermark and without tapping the markets. It is worth noting that we already have $150 million available in the syndicated loan we signed earlier in the year, and more than enough gunpowder in available revolving credit lines.
Further on, our net debt to EBITDA is well below 3x , largely driven by the prepayment I already mentioned, but also benefiting from the cash held in hand intended to pay the 7% remaining balance of the Zeus acquisition. Continuing, we still have our debt 100% unsecured and U.S. dollar denominated. Also, the average debt maturity stands at 4.9 years with no principal payment until late 2027. I would like to emphasize that even though the interest rate at the end of the quarter stood at 4.8%, given that our bank loans have a credit spread grid depending on the quarterly liabilities to assets ratio, as of the next interest period starting in mid-August, we will be accruing a 4.6 weighted average interest rate, a 20 basis point reduction.
Starting to talk about bottom-line results as shown on slide 12, this quarter, we had three main constraints that kept our AFFO per share below its full potential. First, we had a temporary high-interest rate given the revolvers we used to finance the Zeus acquisition until we received the rights offering resources and the VAT reimbursement I mentioned a few moments ago. As we have already prepaid these revolvers, we will have a large reduction in interest expenses in the upcoming quarter. Second, the cash we held in hand, mainly from the follow-on we carried out last year, but also from the first payment of the rights offering, was previously invested in short-term notes that yielded low double-digit returns, a larger return when compared to acquisition cash on cash of the Zeus portfolio.
Main differences between the returns are currency of the investment, yield duration, and its cash flow growth potential given inflation and current market conditions. Third, the main constraint of all, a stronger peso. Given our high dollarized revenues and mainly peso-denominated expenses, the peso appreciation against the U.S. dollar lowered our income and deepened the difference between cash investments and the portfolio cap rate. Nonetheless, strategic transactions such as the Zeus acquisition will have higher and longer-lasting benefits with a more resilient outlook. Going to slide 12, as you can see on your right, annualized second quarter 2023 AFFO per share stood at MXN 0.89. If we consider the reduction in interest expense from prepaying the revolvers, AFFO would have increased to MXN 0.96 per share.
We still have some cash that is reserved for the 7% remaining balance of the Zeus acquisition, which is mainly the land bank of the portfolio. If bought, we could expect a reduction of MXN 0.01 because of the loss of financial income and other impacts. Hence, a stabilized AFFO would reach MXN 0.95 per share at an exchange rate below MXN 18 per dollar. To illustrate the potential AFFO per share if the dollar strengthens, there are different FX scenarios further on the right. Even with exchange rate effect, a dividend between MXN 0.89 and MXN 0.95 represents at a price of MXN 12 per share, a yield between 7% and 8%, which is well above the 5% yield of long-term Udibonos.
Now that we've run through these aspects on slide 13, you'll see a quick overview on the main year-on-year variations of our adjusted funds from operations, excluding the same property NOI variations, which were already mentioned by Javier earlier on the call. As shown on the graph on the right side, Fibra Monterrey's second quarter AFFO increased around 65%, largely driven by the acquisition of Zeus, which was partially offset by lower cash investment balance and higher interest expenses paid to finance the acquisition and larger administrative expenses due to inflation and non-recurring expenses related to the acquisition. On the next slide, you will find the same analysis, but compared to the previous quarter. This sequential comparison reflects a smaller increase, but with the main variations remaining in the same direction as the ones I just mentioned.
A higher cash flow given the Zeus acquisition offset by lower cash investment balance and higher interest expense. I would like to end my speech by mentioning that given our firepower capacity, organic potential in the office space and industrial expansions, our strong lease fundamentals, such as highly dollarized revenue stream and inflation adjustments, and considering current market activity, the potential reduction in our cost of capital given our market cap size and investment-grade status, AFFO per share has more upside potential that will be materializing going forward. Having said that, I'd like to return the call to Javier to talk about our growth potential and competitive advantages in terms of nearshoring.
Thank you, Jaime. We would like to close the presentation with page 15 of the material and share with you our take on speculative development compared to acquisition of stabilized assets, build-to-suit, and expansions. On one hand, speculative development for us represents certain risks and challenges, such as permits, land scarcity, and limited access to energy and water. Also, construction and commercial risks become relevant, and the opportunity cost during construction and marketing need to be computed in this equation. We consider that on an unlevered basis, the spread on IRR between development and stabilized asset acquisitions lay around 200 to 300 basis points, which could even reduce considering potential positive lease spreads by the end of the lease cycle on stabilized assets.
Having said that, should we find an evident opportunity in land for development with premium location in a driving market with a clear upside, we would pursue such opportunity. Also, we will continue to evaluate within our existing portfolio the possibility of dispositions and/or redevelopment based on market debt and best and highest use of any of these properties. Finally, on our existing portfolio, we have privileged vault before speculation on lease spreads. Although I said before, we could expect to continue capturing positive lease spreads on our existing industrial component. That concludes our earnings presentation for the second quarter of 2023, and we will be more than happy to answer any questions from the audience. Back to you, Robert.
Thank you. Ladies and gentlemen, to ask a question, an audio question, please press star one on your telephone keypad. If you are connected using our webcast tool, please write your questions in the chat section of the platform. One moment, please, while we poll for questions. Our first question comes from Renata Cabral with Citigroup. Please proceed with your question.
Hello, everyone. Thanks for taking my question. We saw this week in The Wall Street Journal that increased financial costs are driving more companies to consider sale leaseback in the U.S. as an alternative to raising capital. My question for you is, I'd like to hear your view. Is this movement also happening in Mexico, or if you see it happening in the near future. Thank you.
Of course, Renata. Thank you for the question. We have characterized ourselves for being very keen on sale leasebacks. As you know, we did one of the largest transactions of that kind recently with Whirlpool. We are seeing that. We have had at least two or three talks during this year with different industrial groups in order to evaluate the possibility of a sale leaseback. We believe that this is going to continue. This trend is going to continue. The main challenge for a sale leaseback lays on the fiscal situation because of the fiscal gain on the sale of the property. These properties are usually properties that have been dedicated to industrial purposes for a long time. Therefore, the fiscal cost of the property is low in comparison to potential acquisition. It is more attractive. Equity might be cheaper than debt right now.
It is a possibility that we are going to continue to see this, especially from industrial groups that need to grow and expand their production to be able to cover the demand of the manufacturers and the consumer in general. But yeah, the short answer is, you could expect more sale leasebacks. However, these are challenging. Fortunately, we have the experience and we have the track record, and I think that we are, if not the best, one of the best options for a sale leaseback transaction in Mexico.
Super clear. Thank you so much.
Thank you.
Our next question is from Francisco Chavez with BBVA. Please proceed with your question.
Hi. Thanks for the call, and congrats on the successful integration of the Zeus Portfolio. I have two questions. The first one is on the EBITDA margin. We saw a record-high level this quarter. What can we expect in terms of margin? What will be the new medium or long-term goal for the FIBRA? The second question is regarding the firepower and the potential acquisitions. What will be the mix between industrial and office assets? Thank you.
Thank you, Franco, and good to hear from you. As we have mentioned before, those margins are going to increase as the scale of Fibra Monterrey is growing to reducing the spread between the NOI margin and the EBITDA margin. At this time, we find, I would say, stable this 85%, which has two main reasons. The first one is the increase in the NOI margin, as you can see, because of the Zeus acquisition, which changed the mix between office and industrial properties. Industrial properties, as you know, have a higher NOI margin. The second part is regarding the pure economies of scale. G&A does not increase in the same proportion as you can see in the growth of the NOI.
We think that we are going to maintain this 85%, even though we have, I would say, some potential drivers of even a higher NOI margin, which is if the dollar takes the levels that we saw maybe last year, and some catch-up in some of the properties that may occupy vacant space, and some of the acquisitions that Javier mentioned that potentially will be ready by the end of the year, or maybe at the beginning of the next year. On the other side, the downside might be certain increases in the G&A as we need to operate the Zeus Portfolio. We think that those expenses would be marginal, but they may affect the other side. We think that we are going to maintain this 85%.
Sustainable.
It's sustainable, yes, Jorge mentioned.
Regarding your second question, Franco, hello. I can tell you that the deployment of our existing firepower is going to be dedicated 100% on industrial transactions. We are not looking at any other transaction other than industrial right now, so you could expect 100% deployment on industrial.
Great. Thank you.
Our next question is from Anton Mortenkotter with GBM. Please proceed with your question.
Hi, guys. Thank you for taking my question, and congratulations on your results. My question is a bit of a follow-up on Francisco's question. I would just like to get some color on what are the maximum scale levels you are seeing with your current structure. Assuming you were able to deploy the MXN 250 million firepower, will your admin expenses remain virtually the same, or what kind of margins could we expect?
Well, that's a good question. Thank you, Anton. Nice to hear from you. First, in terms of NOI margin, I think the NOI margin might be in the same levels. Of course, it will depend, as I mentioned, on the mix of industrial and office buildings. There are no economies of scale there. So we can imagine that we are going to maintain such levels as we maintain the same mix between office and industrial. On the other hand, in the G&A side, we might increase a little bit the expenses, but not proportionally as we do not need another Jaime, another Javier, another Jorge, and other expenses, of course. So we think that we can maintain basically the same level with the firepower that Javier is ready to execute, as we mentioned.
Maybe we are going to have a little increase, maybe 2% or 3% in the following quarter, as we are hiring people to do the work that we need to achieve because of the Zeus transaction. It is not automatic to hire people. So that might take a little bit to a higher level the expenses, but as I mentioned, maybe 2% or 3%, not more than that. We think it is going to be kind of stable. I do not know, Javier, if you want to.
Yes. I would only add that the 91.3% that we have on the NOI margin, we believe that it has more upside than downside. As we continue to improve our occupancy in our office component, we are close to 99% occupancy on industrial, as Jorge said before. But we believe that we might have an upside. Our target rate has always been 88%. We believe that we are going to stay way above that, and it is sustainable, from what we are seeing right now. So there is more an upside than a downside chance.
That's pretty useful. Thank you. Another one, if I may. Regarding the expansions you mentioned, how are you looking into those contracts? What is the trade-off? Do you prepare to increase rents or extend lease terms on these? It would be great to understand your rationale on these processes.
Well, yeah, of course. On expansions, what is happening is that the cost in general of the new building next to the old one, so to speak, the cost is higher. Land prices have increased. So we're looking roughly at a 10% cap on these additions to the buildings. When you look at the blend-and-extend result of the previous building, along with the new one, we're looking at a substantial increase, I would say, on the lease rate. It's hard to talk about lease spreads when you do a blend-and-extend because it involves an old part and a new part. What I can tell you that if we were to look at it the way it's traditionally looked at, we're seeing increases of anywhere between 20% and 40% on the blend-and-extend result.
This is well-taken by the tenants because first of all, it's a strategic location for them to expand where they are right now. Cost of rent remains to be relatively a small component in the P&L of these users. The fact of the matter that they have in us a financial partner that is willing to invest not only on the building itself, but certain tenant improvements, and those tenant improvements are financed throughout the lease term. So it becomes really a win to win. You're looking at an increase of, again, 20% to 25% at least on lease spreads, considering the blend-and-extend. What we like the most, probably one of the things that we like the most about these sort of projects on expansions and blend-and-extends is that reaffirms our commitment to long-term relationships.
It is great to do an expansion for a tenant, and then this tenant comes back to ask for your help on a different location. Even we have had the cases that a tenant is so happy with us that they try to explore similar sale leasebacks of other properties they have outside of the portfolio, or even to discuss the possibility of a new build-to-suit on a separate location. So, we believe that this is a great way to grow organically the portfolio and to strengthen the long-term relationships.
That is really useful. Thank you, and congratulations again.
Thank you.
Our next question is from Francisco Suarez with Scotiabank. Please proceed with your question.
Hello, gents. Thank you for the call, and congrats for weathering all the major challenges and the execution risks related with acquisition of Zeus. That is remarkable. Two questions, if I may. What are the differences between in-place and market rents in your industrial portfolio? Secondly, now that you have increased so much the share of U.S. dollar -denominated leases, any plans to report same-store figures in U.S. dollars going forward?
Okay. Regarding the first question, your question, if I got it correctly, is that you're asking what's the spread between our ongoing rates versus market?
Yes. In your industrial portfolio, yes.
Okay. We are barely below market in the Northeastern and Jalisco areas. We're above market in Bajío, but Bajío has a lag on the rent growth. We're starting to look an increase on the rent growth, particularly in Querétaro and San Luis Potosí. As the automotive industry gets stronger every day in Mexico, we believe that is going to happen. It's going to catch up. I wouldn't be surprised if by mid next year our ongoing lease rates are even below market. That gives us a very good room to maneuver when it comes to renewals and new leases. I can tell you that the expansion that we're doing in Querétaro, both the one in Querétaro and the one in San Luis Potosí, the new rate for the new expansion stays well about 25% above ongoing rate.
You could expect a rent growth, but it has to catch up. In Mexico, we're starting to see this spillover effect between primary and secondary markets. As the key premium markets like Tijuana, Juárez, Guadalajara, Monterrey, Reynosa are close to 0% vacancy. That's driving growth in other markets like Mexicali, obviously Saltillo, and the Bajío is not exception. Bajío is always looked at as kind of a secondary region. It's not to us. We believe that is going to be one of the areas, along with Monterrey, most benefited from the automotive growth. You could expect a reduction on the gap between our ongoing rates and market rates. Can you repeat the second question, please?
Yes, of course. Thank you.
Welcome.
Hello? Can you hear me?
Yes.
Oh, sorry about that. It is about if in the future, because of the fact that you have increased so much the share of U.S. dollar -denominated leases in your entire portfolio, are you planning to report same-store figures in U.S. dollars going forward? Because I think that it is a little bit misleading to report those figures in pesos because of the strength of the Mexican peso in the short term. But at the end of the day, more because at the end of the day, it is related with the fact that you have increased so much the share of U.S. dollar -denominated leases in your portfolio.
Well, that's a great idea, as a matter of fact, Franco, because if we would do that, you would kind of isolate the FX impact on the portfolio even though we do report in pesos. But that's a great idea, and yes, we're going to consider that and put it on the table. Thank you.
Got you. No, thank you. Take care, guys, and congrats again.
You, too.
As a final reminder, press star one at this time for any questions. We have one question in our webcast tool from Gordon Lee from BTG. It seems that Bajío has recently seen good traction in terms of occupancy and rents. Are you becoming more constructive on the region? In that context, do you think that there is a better value add from M&A standpoint, given the significant gap in cap rates that exists between the major Bajío and other markets?
Thank you. Yeah. This is becoming kind of a follow-up on what we just said about Bajío, and it is a great question from Gordon. Thank you, Gordon. We love Bajío. We believe that Bajío is going to continue to have that traction that Gordon refers to. As a matter of fact, on the pipeline that we are looking at and negotiating, there is a substantial portion of it in the Bajío area. We have had a great experience with our existing portfolio in Guanajuato, Querétaro, and San Luis Potosí. It is fully occupied, continues to grow. I think the Bajío region is kind of on their mind by some of the investors. We share Gordon's view on Bajío.
BMW?
Well, yeah. Jorge is talking about the recent announcement from BMW in San Luis Potosí. BMW is expanding their facility. They are going to invest more than $800 million. It is already generating a lot of momentum for some of the providers and the first-tier vendors for BMW. We believe this is going to continue. Hopefully, public safety and security is going to improve. Bajío, we share Gordon's view. It is gaining traction, it is going to continue to have traction. There are a lot of developers in that area, private developers that need to monetize and capitalize some of their assets, and that is the field that we play the best. Totally agree with Gordon, and the answer is we are going to continue to be very active in Bajío, and we believe that lease rates are going to pick up.
Okay. With no further questions in the queue, I would like to turn the conference over to the management of the company.
Okay. Thank you, Robert, and thank you, everyone, for attending this second quarter Fibra Monterrey results. See you next time. Bye-bye.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.