Greetings, ladies and gentlemen, and welcome to the Vesta fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Investor Relations Officer. Please go ahead.
Good morning, everyone, and thank you for joining our fourth quarter results. With me today are Lorenzo Dominique Berho, Chief Executive Officer, and Juan Sottil, Chief Financial Officer. The earnings release detailing our fourth quarter 2022 results crossed the wires yesterday afternoon and is available on the company's website. This conference call is also being broadcast live within the investor section of the company's website at vesta.com.mx, and the webcast replay of the call will be available at the same site approximately one hour after the end of today's call. Before we begin, I would like to caution listeners that during the course of this conference call, management will make projections or forward-looking statements regarding future events, including statements about our business, assets, strategies, demands, and markets, as well as trends that may continue.
Management uses these measures to establish operational goals and review operational performance based on current operating trends and believes that these measures may assist investors in analyzing underlying trends in the company's business over time. These statements are subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation to update them as a result of new information or future events. Please also note that our fourth quarter and year-to-date earnings were prepared in accordance with IFRS and are stated in nominal U.S. dollars unless otherwise noted. Let me now turn the call over to Lorenzo Berho.
Thank you, Fernanda. Welcome, everyone. Vesta closed an extraordinary 2022, delivering outstanding operational and financial performance while advancing our Level three strategy. Vesta's excellent fourth quarter and full year results were driven by continued nearshoring trends and by the ally-shoring that more recently has gained traction. Ally-shoring or friendshoring is a collaborative take on the concept of nearshoring, where we're leaning into trade and co-production relationships with the friends and allies we trust. This was boosted by the North American Three Amigos Summit in January, when the region's leaders vowed to tighten economic and trade ties in North America. The U.S. and Mexico have grown to recognize that not only is ally-shoring more cost-effective than onshoring, it's the most powerful path to make critical supply chains more reliable and resilient, and the best way to build our mutual economies.
These trends drove extremely tight market conditions throughout the year. Fourth quarter was no exception. We've seen historically low vacancy rates with increasing rental rates per square foot, particularly in Vesta's core markets. Essentially, all construction is being absorbed at rates we have never seen before. In 2022, we delivered some all-time record performances, exceeding the upper range of our revised revenue guidance to reach $178 million, a 10.7% increase year-over-year. Full year 2022 NOI and EBITDA margins exceeded guidance, reaching 95% and 84.4% respectively. In terms of net asset value per share, we reached $2.96 per share, an increase of 10% year-over-year, and AFFO per share of $0.0015, an increase of 22%.
Vesta also achieved record high 2022 leasing activity, closing more than 10 million sq ft just on the fourth quarter from new leases with clients such as CSB Logistics, Amazon, Eaton, Home Depot, Foxconn, Safran, and Cummins, among others. Lease renewals for the year reached 6.7 million sq ft, another historical high for Vesta, with a seven-year average weighted lease life and a 7% positive spread. Vesta's rental rates overall have been increasing well above inflation, successfully passed through to our clients. As the key nearshoring markets, Monterrey, Tijuana, and Ciudad Juárez, are absorbing a significant part of the country's demand so far. This is pushing net absorption to record highs, with average asking rents increasing dramatically. More than 29% year-on-year within this market alone, according to CBRE.
We are particularly well-positioned in the Monterrey market, having anticipated today's explosive demand when we acquired land for our new Vesta Park Apodaca, which is currently under development. This has enabled us to continue expanding within a location where we're already adding value. Our approach to this and similar markets is an excellent example of how Vesta is developing industrial parks of outstanding quality and standards and which effectively capture today's opportunities through urban infills. Following quarter's end, in January 2023, we pre-leased two buildings with Polaris, the global industry leader in power sports recreational vehicles. The buildings are currently under construction at the Vesta Park Apodaca on a long-term lease which comprises a total of 577,000 sq ft.
Polaris made a meaningful investment in Mexico, adding back shop capacity while also investing in vertical integration and capacity expansion in a new location. We're seeing demand expand beyond Guadalajara and Monterrey to less saturated markets as well. Previously noted that dynamics in the Bajio region are improving and vacancy rates close at just over 4%, the lowest since 2018. Throughout the year, roughly 50% of our re-leasing activity has come from the Bajio markets. Turning to the key aspects of our strategy, throughout the year, Vesta has been developing its parks with optimal landmine logistics opportunities. It's important to note that logistics and light manufacturing are not electricity or water-intensive industries. Ensuring the Vesta parks have the capacity to provide our clients with the necessary utilities and resources is not a problem that we haven't already solved.
Vesta parks are well connected to roads and railroads, guaranteeing simplified logistics with the reduced transportation costs and risks that our logistic clients need. This is another instance where Vesta's considerable industrial real estate experience is an important advantage for us. Manufacturing companies demanding building criteria and restrictions create a unique opportunity for companies like Vesta that have extensive experience with industrial real estate. Our 25 years building premier properties represents an important differentiator to our clients. In the fourth quarter, we acquired 52 acres of land in the San Martín Obispo area of Mexico City, 1 million sq ft and located adjacent to one of Mexico City's main roads, which also ensures optimal connectivity. This Vesta park location is ideal for last mile distribution and logistics, and another addition to Vesta's increasing footprint within Mexico City and metropolitan areas, as I have described.
In line with the company's Level Three strategy and related growth plan. E-commerce expansion will fuel the need for more warehouse space, as will the growing economic population migration and the desire for safety stock onshore. During the fourth quarter, we also completed the acquisition for two buildings in Toluca, expanding our footprint in the State of Mexico's sub-market, further penetrating the central region. Today, industrial real estate is leased as quickly as it is available, and there is little sign of slowing, particularly in those markets where Vesta has a presence. While we don't expect current trends to change for the foreseeable future, it will only be contained by the limits of Mexico's infrastructure to continue to support development on a massive scale. Today, we see the extraordinary leasing demand as manageable. Vesta will maintain a disciplined approach of profitable and sustainable growth.
Finally, regarding the ESG as a pillar of our Level 3 strategy, we achieved important milestones during 2022. Vesta was included within the S&P/BMV Total Mexico Index for the third consecutive year and within the S&P DRIP for the first time. Vesta was also selected for inclusion within the 2023 Bloomberg Gender-Equality Index, which is important recognition of the company's commitment to supporting gender equality. Vesta is on track to achieve our related to the sustainability-linked bonds we issued at the beginning of 2022, having ended the year with five new LEED certified buildings. With that, let me turn it over to Juan, we'll talk to some brief closing remarks.
Thank you, Lorenzo, good day, everyone. Let me briefly recap some key financial results.
Starting with our full year performance in 2022 was another year with a record result for Vesta, as Loren zo has noted. We delivered outstanding financial results, which exceeded our upward annual guidance revision while reaching several historical records in key metrics, such as leasing activity and renewals. We achieved $178 million in revenue, representing a 10.7% increase year-over-year and 270 basis points above the upper end of our revenue guidance between 7.5% and 8% for the full year 2022. NOI and EBITDA margins also exceeded our revised guidance by 100 basis points, reaching 95% and by 93 basis points, reaching 84.4% respectively.
Let me now turn to our fourth quarter results. Beginning with our top line, total revenues increased 14% to $7.4 million, mainly due to initial rental revenue coming from new leases and inflationary adjustments on rented property during the quarter. It was partially offset by a decrease in rental income related to property sold at the end of 2021. As a reminder, all of our lease contracts are indexed to inflation. Therefore, we continue to benefit from the favorable effect of higher than expected inflation on our top-line results. In terms of occupancy mix of the fourth quarter revenue, 82.2% was denominated in U.S. dollars, decreasing from 83.6% recorded in last year's comparable period, mainly reflecting higher other income, which is recorded in Mexican pesos.
Turning to our cost structure, total operating costs maintained relatively stable at $3.8 million in this quarter. Net operating income increased 13.5% to $44.6 million, driven by higher rental revenue, while the margin expanded 40 basis points to 94.1%, mainly due to higher income from increased portfolio occupancy. While administrative expenses were up 16.2%, it was mainly due to an increase in employee benefits and the non-cash expense in the company's long-term compensation plan ending in the fourth quarter. In turn, EBITDA reached $39.8 million in the fourth quarter of last year, a 15.9% increase compared to the prior full year's quarter. The margin increased 138 basis points to 83.9% as compared to 82.5% for the same quarter of last year.
Moving down the P&L, total other income reached $36.4 million compared to $24.0 million in the fourth quarter of 2021. This decrease was mainly due to lower property revaluation gains and lower margins from property sold in this quarter, partially offset by a positive variance in bond exchange results. We closed the quarter with a pre-tax income of $74.2 million compared to $76.6 million in the fourth quarter of 2021. The pre-tax FFO increased 18.6% to $27.5 million, and NAV per share increased 10.1% to $2.86 from $2.61 per share in the same quarter of 2021. Turning to our CapEx and portfolio composition.
We invested $86.6 million in the quarter, mainly in the construction of new buildings in the Norte and Bajio regions, land acquisition, and the new portfolio we acquired. At the end of the fourth quarter, the total value of the portfolio was $6.34 billion, comprised of 202 high-quality industrial assets with a total GMA of 33.7 million sq ft and with 82.2% of total income denominated in dollars. Year-over-year, our stabilized portfolio grew 5.9%, 32.9 million sq ft, with occupancy at 94.4% from 94.3% in the fourth quarter of last year. We ended the year 2022 with a land bank of 39.6 million sq ft, down 2.9%, especially due to the use of land in Tijuana, Monterrey, Guadalajara, and Silao.
As we began construction of eight new buildings during the fourth quarter of last year. It was partially offset by new land acquisitions in Mexico City. Turning to our balance sheet, we closed the quarter with a total debt of $931 million, and our cash position stood at $139 million. Net debt to EBITDA was 5.3x , and our loan-to-value ratio was 31.5%. As a reminder, in Q3, we closed a $200 million sustainability-linked revolving credit facility to provide us with additional liquidity when necessary. Subsequent to quarter end, on January 13, we paid a cash dividend for the fourth quarter of 2022, equivalent to MXN 0.6 per share in pesos per ordinary share. Finally, I would like to discuss our outlook for the year end.
We are expecting to increase revenue between 13%-14% year-over-year, while we expect to achieve 93% NOI margin and 80% EBITDA margin for the full year 2023. With that, we conclude our fourth quarter and full year 2022 review. Operator, could you please open the floor for questions?
Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Gordon Lee from BTG. Please go ahead.
Hi. Good morning. Thank you very much for the call, and thanks for taking my question. I actually have two of them, one for Lorenzo, one for Juan. Lorenzo, I was wondering if you could give us a little bit more color on the acquisition in Toluca, because it obviously seems like this is a perfect environment for development, right? Just given how tight the market is and how strong absorption is. I was wondering if there was anything about those two buildings in particular that you saw strategic and whether this is a one-off or whether we should expect more acquisitions of stabilized properties going forward. The other question, the question for Juan, this is a question that we ask every year when you give guidance, throughout the course of the year you end up beating that guidance.
The question is, given the big jump in revenues, why the more conservative expectations for NOI and EBITDA margins in the guidance? Is it just conservatism or is there something there? Thank you.
Hola, Gordon, and thank you very much for being in the call. The acquisition we did on the property in Toluca was a great opportunity to close on two stabilized properties that are part of the supply chain for a major auto manufacturer, which is actually adapting production lines for electric vehicles. We think that this is a key market for Vesta. We were able to acquire these low replacement costs, and our approach towards this type of acquisition will continue to be opportunistic. As long as we can be able to buy good quality assets with good tenants, with good leases in a sector and market that we like, we will continue to have this type of approach of opportunistically.
Actually, we are analyzing further acquisitions. As you might see, these are not large in size, but we think that, given our exposure in the market and the region, we believe that there could be also more opportunities looking forward within this type of assets. Returns are attractive from a risk-adjusted return perspective. We are still looking for land in Toluca to be developed. As long as we can be able to find good land at the right price, we think that this is a solid market that will continue to grow in the auto industry, electric vehicle industry, as well as logistics, e-commerce, among other sectors. Gordon, thank you for the question.
Look, the guidance that I provided is prudent. Let me tell you why I err on the prudent side on this year. I, again, errored on that side last year. This year I'm prudent because the financial conditions of the market are quite volatile. We do not quite know what the end of figure of inflation is in the U.S. Just this week and last week, there were significant revisions for the U.S. market, that is, on inflation expectations, on the possibility of continuing the Fed intervention. The Fed intervention and the response of the Banxico have been in local Mexican interest rates rising high, and that has created a very strong peso. I do not know how long the peso will continue to be strong.
Please remember that Vesta is a very, very dollarized company. 82% of my revenues are $ denominated. Let's not forget that the opposite side of the coin, 18% is MXN-based. As the peso is very strong and all of my costs are related to MXN. A certain strong peso sustained by locally tightened rates begs the question, what is the exchange rate that I can use to forecast my MXN cost in $ terms, and therefore my NOI and EBITDA. It's particularly tricky. That's the tagline.
I'm basically being prudent and I continue an exchange rate that reflects the strength of the peso and its impact on the income statement, while just underlining that my basic costs are peso-based.
Perfect. That makes sense. I'm not sure whether this is something you want to disclose, but the peso assumption that you're considering in this guidance, is this more or less around the spot levels like today, or is it where it ended the year?
I'm being prudent at just above MXN 19, but I mean MXN 19 even. If the peso continues to be below MXN 18.60, MXN 18.65, whatever, that creates a risk event for me.
Super. Thank you very much.
Thank you. Our next question comes from the line of Jorel Guilloty from Goldman Sachs. Please go ahead.
Good morning. Thank you for taking my questions. First off, I had a question on vacancy. I imagine this has to do with timing. Just, if you can help us think about the Tijuana vacancy. You did have a material amount of deliveries there, and it's about 7%. Is this something that we should expect to narrow down rather quickly in 1Q? Or is it that you have some space for spec leasing perhaps, that we're not aware of, for 1Q 2023? The other part is, you know, you the Bajio region continues to see improvements, as you mentioned in your comments earlier.
I was wondering if you can, I know you don't provide guidance specifically for vacancy. Just wanted to get a sense of where do you see the vacancy rates going for the Bajio, which are currently around 7% in, you know, the near term. Should we expect them to approach, you know, north and center levels as they are in your portfolio? Those are my two main questions.
Thank you, Jerrel. I think you're touching a very important point that is a main driver of the current environment and logistic fundamentals. Definitely, we're seeing a historic low vacancy rates, not only in Vesta's portfolio, but overall in the market. Actually, even though we care about our occupancy, we also care a lot about the type of the quality of tenants that we lease to and the rents we lease to. We're trying to achieve both things. Try to get the best tenants with the best leases at the highest rate possible. In that regard, sometimes, as you mentioned in Tijuana, we might experience a little bit longer period of time in order to close good transactions.
I think that with such a strong market, it's better to wait a couple of months with a vacant building rather than lease too quickly and probably not in the right conditions. Just to use the example of Tijuana, as you could see, we were able to lease the first building to Home Depot. Home Depot is logistic warehouse facility. The second one for Herdez. Both of them focus in the consumer market, which is expanding rapidly in commerce as well as food and beverage. Very resilient sectors. We're currently building also a new build that we recently finished with other sectors, including electronic sector, medical devices, as well as others related to new showroom.
On that regard, I think that we're very excited that we are able to not only develop, to not only being able to have available buildings, but where it's gonna be very profitable transactions. Actually, we might be even closing way above our underwriting assumptions that we did when we started the development process of the projects in Tijuana. That particular example of Tijuana is repeating itself in different markets such as Juárez, Monterrey, Guadalajara, where rental increasing dramatically. We're capturing all that value by leasing at very high rates, rental rates, historically high rental rates with good leases and great tenants. We leased recently to Foxconn in Guadalajara, a larger facility focused in the electronic sector. The Bajío region is performing also incredibly well.
We actually started construction of a new building in Puerto Interior in Guanajuato, just because we are seeing that demand is picking up again. We were able to lease good buildings in early year in San Luis Potosí. We're gonna have a close eye to the market. We're gonna see where opportunities arise. We're gonna have a well-disciplined approach towards development and try to capture good risk-adjusted return projects in all of these very dynamic markets.
Thank you.
Thank you. Our next question comes from the line of Javier Garol from GBM. Please go ahead.
Hi, Lorenzo, Juan, Fer. Good morning and thank you for the call, and congratulations on the results and the record year for the company. I have two questions, if I may. First, we were positively surprised by the price paid for the land banks in Mexico City. Maybe you could give us a little bit more color as is this land ready to develop, or is BECA meaning to put more money into it for it to be ready? That'll be my first question. My second question may be a bit more strategic. You guys had a very good timing when regarding capital markets. Your plan of expansion seems to be going at a very fast pace.
I think my question here is, do you guys think that maybe there is more potential for growth within the markets and given the dynamism that we're seeing, and, you know, those record low vacancies, this increase in prices, could you, Martin, would you guys expect or maybe think of increasing your potential development or they are the company's capabilities set at the guidance of the last two ways?
Yeah. Javier, thank you for the call, for being on the call, and thank you for your question. Regarding the first question on Mexico City, we are very excited to be able to acquire a great piece of land in the Periférico Norte in the crossroads to the Chamapa highway in the San Antonio area. This is also a market known or a location known as Punto Norte. This is a fantastic opportunity to acquire 20 hectares of land exactly at the moment when we're seeing a rising market with demand accelerating and rents increasing. That's why we're very happy to be able to purchase that land.
You realize, I think, that the price on the square meter of land, it has increased in the market. However, rental rates are increasing, and we are able to develop a large distribution logistics facility and still get great risk-adjusted returns in a market that is very strategic for Vesta to penetrate and keep on growing with some of our existing e-commerce clients, as well as other ones that are entering the market. From a risk-adjusted return perspective, we're incredibly happy with having this opportunity. This is gonna be a second trophy asset in the Mexico City market. 1 million sq ft is not easy to find and not easy to develop, particularly in this sub-market with urban infill characteristics.
We will be developing soon. Hopefully, we can break ground first semester of 2022, which we could say, so we have on as a result that the buildings will be available at some point next year and start generating income at some point in 2024. Yes, it shouldn't take very long. There's plenty of potential for growth for Vesta, not only in the Mexican City market but also in other markets. We are seeing that the Vesta buildings are absorbing very rapidly. That's what we have seen in Guadalajara. That's what we are seeing in Tijuana.
In Monterrey now with the Polaris project, which, not only were we able to lease all of the existing buildings we have under construction, but also there's an opportunity to keep growing with Polaris as they would like to expand their manufacturing facilities to produce ATVs for the North American market primarily. This will represent an acceleration to our growth plan in those objective markets that we have already identified. We're gonna be very active throughout the year in development, very active in leasing, and also very focused in still getting biggest clients, investment-grade clients with long-term leases, US dollar leases, and keep on our focus on profitability to increase net asset value per share as well as FFO per share.
Thank you, Lorenzo. Super clear. Thank you.
Thank you. Our next question comes from the line of Alejandra Obregon from Morgan Stanley. Please go ahead.
Hi. Good morning, Vesta team. Thank you for the call and for taking my question. It's actually two questions from my end. The first one is on guidance. I would like to ask the guidance question differently, if I may. I was wondering if you could provide some of your specific assumptions used for your 2023 outlook. Perhaps what are the main variables that you think could drive upside or downside to it? You did mention FX, but what about the macro and the micro variables? Is there any other that you think we need to take into consideration or maybe on the cost side that could drive upside to what you mentioned? My second question is on some of your comments on the re-lease.
You're saying that there's a contribution to rental revenue from space that was previously vacant and then some decrease from the expirations that were not renewed. Just wondering if you could elaborate on these dynamics, but from a regional perspective, where are you seeing more demand, and where do you think you are facing more resistance? Thank you.
Thank you. Quite good questions. Let me just try to be brief on the explanations. First of all, on the revenue side, as we saw inflation in one of our leases, the inflation expectations that the company has bear an important bearing on our sales growth. Those things have an effect on how much our sales will grow. As you pointed out, I think, when we lease our substantial pipeline, there is a very important role as well. We have an important development pipeline.
Most of it today are under building. Therefore when those buildings are gonna be leased at the market rates, which are significantly above our input rents, also affect guidance on the revenue side. On the revenue side, what we view at the beginning of the year is inflation, leasing assumption of our development pipeline, which how quickly we're gonna be leasing. If you take a look at my development pipeline, it's quite substantial. It's the largest development pipeline that we have ever had. That's an important assumption. On the total portfolio, inflation, U.S. inflation is an important variable, on the revenue side, exchange rates play a role.
18% of my revenue is peso-denominated. It has a bearing. Now on the cost side, as I mentioned before, the vast majority of my expenses, both at the property level and at the administrative level, are peso-based. Where we view the exchange rate has an important bearing on the guidance. We are quite optimistic on our leasing assumptions, and therefore, the revenue guidance of 13%-14%. From cost is 13% sorry. What is my correction number here? It's 14%. I believe it's quite aggressive, and it basically responds to the items that I said before, and those more or less are also covered to us.
Exchange rate is more difficult, Alejandra, as you pointed. Again, the peso at on this administration's historical strength levels are tough to a force for prudence.
Understood. That was very clear. On the dynamics of the different renewals and vacancies, can you provide some color on what you're seeing from the different regions?
We're increasing rates on all of our rollovers across all regions. We're very optimistic on that. We are making very strong assumption about the leasing rates of the spec buildings we're developing in all of the regions across the board. From the get-go, 51. That's again, that's an important source of value to Vesta. Not only to increase the rates on the rollovers that we do, but the fact that with a strong development pipeline, we are basically leasing at the top of the market in terms of leasing rates across all of Mexico.
Got it. Thank you so much for the color and congratulations on the numbers.
Thank you. Our next question comes from the line of Renata Cabral from Citi. Please go ahead.
Hi. Hi. Good morning. Thanks for taking my question. I have two here. It's in fact a follow-up regarding the acquisition you made this quarter. The acquisition to development spread for this transaction was 180 BPS. If you continue to find deals with this low spread, would can we expect for you to continue acquiring or would a larger spread, let's say 260 basis points, make an acquisition become unattractive? My second question is an hypothetical one. If hypothetically you wanted to become a FIBRA, what would be the cost and taxes involved? If you can talk about the trade-off of these decisions. Thank you.
Sorry, Renata, we cannot hear you clearly. Can you repeat your question?
Sure. I will speak a bit louder. Thanks again for the opportunity. It's a follow-up regarding the acquisition versus development. The spread for this acquisition that you've made was 108 basis points. If you continue to find deals with this low spread, should we expect for you to continue acquiring? The second question is a hypothetical one. If you hypothetically, if you wanted to become a FIBRA, what would be the cost and taxes involved? If you can talk about the trade-off of this decision.
Thank you, Renata. I Did you mention 180 basis points on top of what? Sorry.
If you continue to find these attractive deals, if you should expect to see other acquisitions on this front.
Great. Thank you, Renata. I think that this is a good one. We, as you know, we regularly focus our capital allocation strategy towards development, where we can find attractive risk, attractive returns. Every now and then, we also analyze acquisitions. Not every time are we able to find acquisitions at attractive returns. Some of them have been pricing recently in Mexico in the low 6% cap rate. Every now and then, we're able to find even smaller transactions like the one that we did in Toluca.
As long as they fit our market strategy, as long as they fit our the quality of projects and the quality of tenants, and we are able to buy below replacement costs and have an opportunity to increase rents, we believe that there could be value creation for our shareholders, and therefore we will continue to analyze acquisition. Our main objective is to continue developing. We have an important pipeline of over $1 billion. Every now and then, we think that opportunistically, we should be analyzing and acquiring whenever we see an attractive return and in line with our goals and portfolio strategy. On the second question.
On the second question, basically, we don't see any value in converting to a FIBRA structure for our shareholders. Basically, I think that the ability to retain earnings is a powerful motive for value creation. I believe that our point of view is that a FIBRA is better suited for an acquisition strategy, as opposed to our company, a development strategy. I don't see any potential incentive for that conversion.
That's super clear. Thank you.
Thank you. Our next question comes from the line of Francisco Suarez from Scotiabank. Please go ahead.
Thanks so much. Good morning. Co-congrats on your superb execution. The questions that I have is a follow-up on Gordon's question related with acquisition on your buildings in Toluca. Can you walk us a little bit more on what has changed, if anything, on your risk underwriting standards related with particularly with certain industries that are in transition? For instance, in this case, it was the auto industry. You mentioned when you were answering Gordon's call, question, sorry, that these were heading towards EVs. In other words, what are you considering now in your risk underwriting on certain value chains that are transitioning and like the auto industry?
My second question, now that you have been deployed a lot of your excess cash after the last equity for so long, and considering that you are now closer to net debt to EBITDA of roughly 5 times net debt to EBITDA, are you considering that is the right time to go to the market again and do another equity follow-on to fund your growth? Thank you.
Gracias, Francisco. Yes. One of the things we like about this transaction is that it has great tenants. Actually, some of the tenants are part of Vesta's already tenant roster with clients such as HBPO, Android, Magna, Brose. All of these are global suppliers in the auto industry that are very, very successful. The acquisition was done at almost 15% below replacement costs at a cap rate of approximately 8.5%. That's why these tenants that manufacture front-end suspension systems, tires, and wheel assembly, we think that can cater and adapt very well to the growing electric vehicle industry as well as the traditional combustion engine industry.
This is going to be a part of the supply chain of the new Jeep Compass, which is an electric vehicle expected to be produced in Toluca shortly, as you have probably been seeing in some of the news. That's why we really like this acquisition, very much in line to the Vesta strategy and towards the sector. Even though it is small, we think that it's fully in line to our ability to grow in strong markets. Regarding your second question, Paco, I believe that we have a lot of financial flexibility. We have a very strong balance sheet. We will use our financial flexibility brilliantly to continue with our expansion. We have a leverage ratio which is substantially strong, 41%.
There is plenty of room. I have a revolver line available, and there have been several transactions in asset recycling done last year. I mean, there's opportunities to do that. There's plenty of things that we can do.
Yeah. Following up on that last question, Juan, if I may. You secured a revolver with a spread of 1.65, isn't it? That's a good spread to continue to do what you're doing.
Our spread is 160, and we have a five basis point upside for ESG purchases. Therefore our total cost. In fact, I expect that this year starting in June to be 155, because we're way ahead of our ESG objectives. Therefore, to reduce that revolver from our banking relationships, I can tell you that there's very strong interest in lending to our sector.
Yeah.
Real estate, successful developers. There's certainly a lot of opportunity to continue funding our aggressive growth.
Got you. And talking about asset recycling. Any budget whatsoever for this year on potential asset recycling?
We are always looking at opportunities. We do not have a specific guidance to provide because it really depends on the timing and what we see from the market. Today we don't have any open transactions.
Okay, fantastic. Thanks so much. Congrats again.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one. Our next question comes from the line of Maria Amparo from T. Rowe Price. Please go ahead.
Hi. Thank you for the question. I have two things that I wanna follow up. I know you said you have some financial flexibility. You have some other sources of available liquidity, and you talk about asset recycling. Could you consider coming to the debt market, I mean, either local or international, to continue funding your growth? Can you maybe talk about a funding needs for this year? A second question on the nearshoring theme, I've been hearing mixed thoughts about this, and I know it's been very positive for you. Talking with other Mexican players, especially in the financial side, they seem to be a little bit more cautious with this topic.
The reason that they provide is that the infrastructure, especially energy infrastructure in Mexico, is not enough to support all that growth, especially with all the limitations that you have, in renewable energy. Just wondering how are you thinking about these and maybe limitations, to the strong nearshoring, you know, driven growth that we're seeing right now. Thank you.
If you allow me, Maria. Thank you very much for the questions. Let me first answer the debt question. We have a significant number of alternative sources for debt. The banking sector in Mexico is quite active and quite open to lend to my sector and to Vesta in particular. We will certainly take advantage of that. We have been exploring all the banking type of loans, typically a five-year loan without a real estate guarantee to Vesta. A clean loan to Vesta. We have also been talking or receiving interest from banks, investment banks to place our paper on private equity, private debt for longer periods.
There's a substantial interest in doing those types of transactions. Those two pockets of liquidity are still there, and they are deep, and we can tap them at any point in time. It's a matter of timing. That's why I mentioned that I will give my revolver, because I think that timing on this environment is of the essence. Now, regarding the local market, local debt in the banking sector, I just want to bring attention to you that Bancomext, the near government bank, is offering a nearshoring line to promote these activities within Mexico.
That, again, a lot of interest in lending to companies such as ours or to people that are bringing nearshoring opportunities. The local market, the local financial market basically denominated in pesos. I do not foresee issuing any peso related debt. Banks are keen in offering peso related debt converted into dollars and those type of transactions. For a couple of reasons that I will not go into detail. Leveraging the company doesn't foresee any problem, any issue. It's just a matter of using the right market at the right time.
Regarding the other question around limits to the near term because of infrastructure, let me be very clear there that we have not any transaction with any potential client because of problems of electricity or water sourcing. Our client base is basically logistics, which you know needs a lot of those resources or light manufacturing, which do not impact the business in any way. The issue is connectivity. We have the balance sheets to provide that, and we have been able to source those resources as the companies that we need them across all regions. No, I think that so far we haven't hit that line in best of case.
Just to confirm, we should not expect you to be in the international market with a bond this year, unless you do something big or a big acquisition.
For a global.
Hmm.
For a global bond, I would hesitate to tell you that you can expect me because I think that size of the issue and a $300 million global bond, I frankly won't see it this year. If the opportunity happens, maybe. I hesitate to say yes. I think there's alternative ways to fund the company that are more attractive given the state of the markets.
Yeah. Okay. Thank you very much. That's very helpful.
Thank you, María.
Thank you. Ladies and gentlemen, there are no further questions in the queue. I'd now like to turn the call back over to Mr. Berho for concluding remarks.
Thanks, operator. While we are pleased with our outstanding 2022 results, we're also focused on moving toward our future. This year, our company celebrates its 25th anniversary, which underscores our experience in the market, supported by a skilled team with considerable business know-how. Today's market environment has accelerated our plans, enabling us to unlock shareholder value through continued successful execution of our Level three strategy. We're therefore bullish and confident about the year ahead. Are leveraging our extensive experience and competitive advantages while we maintain Vesta's longstanding philosophy of remaining vigilant to market dynamics and prudent, but opportunistic in our investments. Thank you to the entire Vesta's team for your hard work and many successes throughout the year and in the future ahead.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect your lines.