Of the WTR Insights Conference featuring Logistic Properties of the Americas. I'm Eric Goldstein, Managing Director of Mobility and Industrial Technology for Water Tower Research, and I will be your host today. We are pleased to be joined by Esteban Saldarriaga, Chief Executive Officer of Logistic Properties of the Americas, and Paul Smith, who is the company's Chief Financial Officer. Esteban and Paul, welcome, and thank you for being here.
Thank you for having us, Eric. It's a pleasure for LPA to join you today.
Before we begin, please note that Logistic Properties of the Americas' safe harbor statements can be found on the Investor tab on their website. Investors are encouraged to enter questions in the chat. We'll aim to answer these questions during today's conversation or in the management series report that will follow. Investors interested in scheduling a meeting with the company can indicate that interest within the conference portal. For investors not familiar with the company, Logistic Properties of the Americas is a leading developer, owner, and manager of institutional-quality industrial and logistics real estate in high-growth and high barrier to entry markets in Latin America. The company's customers are multinational and regional e-commerce retailers, third-party logistic operators, business-to-business distributors, and retail distribution companies, among others. With those housekeeping items covered, let's jump right into it, guys. The company has had some really great operating momentum.
You have continued to deliver strong results with the portfolio fully occupied and rental rates and same-property NOI continuing to grow. What is driving that strength, and what does it tell you about the underlying supply and demand environment for institutional quality logistics real estate across your markets?
Sure, Eric. Going straight to the heart of your question, we think three things are compounding at once, and that together make for very fertile ground. The first one is supply is relatively muted. We see few new buildings coming online. The second one is demand, and it is broad based, and it sits in the essentials categories. Our tenants are consumer, e-commerce, logistics themes that keep growing. Third, I would say more recently, we are now seeing early green shoots in the industries that feed AI. That is a reality, and it is becoming an additional source of demand for the asset class. Meanwhile, supply chains are being redrawn, and there is a genuine race between East and West with regard to tax, so institutional quality space is genuinely scarce. You can see it in our numbers. We are 100% occupied for the third quarter running.
Rents per square foot are up 10%. Same property NOI is up almost 16%. The story is quite simple. These are undersupplied markets with real pricing power, and we are in the right side of that equation.
Okay, that is great. Thank you. You mentioned pricing power, so I guess we will jump into that a little bit more. Your average rent per square foot increased 10% YoY in the second quarter, which is a pretty impressive number, while release spreads have remained healthy. As you look across the portfolio, where are you seeing the greatest pricing power, and how much additional opportunity remains to be captured to capture higher rents as leases renew?
Great. We see it as the most prevalent where real estate supply is tightest and our in-place rents are still below market. Mexico is in the early innings for us, so right now in our current portfolio, I would highlight that Peru is the clearest case. Revenue grew there more than 50%. Again, few buildings coming in line with institutional standards, and that is why we now have PepsiCo, for example, as a customer. It is a tenant there. I would say also that Colombia is close behind, up almost 30%. Those are the markets where we have the most room to move. Paul, I will transition over to you.
Yeah. There's still a lot of room left for growth, Eric. Our leases normally step up every year on their own. What happens is when they roll, we typically release at today's market, which is typically higher, and it's basically resulting from all the factors that Esteban already mentioned. Leases start at 7- 10 years, and the portfolio now averages about 4.5 years of unexpired term. A good slice reprices every single year. That 10% is not a one-time bump. It's a steady multi-year tailwind.
Okay, great. Thank you. You guys recently announced a divestiture. The pending $145 million sale of Parque Logístico Lima Sur seems like a very important milestone for the company and demonstrates the ability to develop, stabilize, and then potentially monetize a high-quality logistic asset. What does that transaction say about the value embedded in the broader portfolio and your ability to fully cycle development, your development capabilities to fully cycle your assets?
The recent sale of the Peruvian asset, Eric, really epitomizes the whole platform model and the capabilities that we have in one take. We sourced the land, we built the park, we leased it, we stabilized it, we funded and financed it. Now we have agreed to sell it to Peru's leading REIT for $145 million, as you rightfully point out. That is a third party putting an institutional price on the work that we did across the full life cycle of the asset, at slightly above a 7% cap rate. In a market that had no institutional offering at all, that really is highly relevant. We really want to stay on as the operator, we want to make the handover easier for the buyer. We want to keep earning fees, and we want to stay in front of our tenants or our customers.
To date, this would be our largest exit so far, and we think it provides concrete evidence that the value we carry on our books is tangible.
Yeah. Paul, I guess, can you remind us maybe just how your accounting works, how you are marking your assets to market pretty much every quarter, and then the gain that you saw roughly on this asset sale?
Absolutely. We do report under IFRS, and under IFRS rules, the International Standard of Accounting. We get to recognize the market value of our assets on a quarter-by-quarter basis. It is important to remind, Eric, that the valuation is not a number that we came up with. This is derived from a report from a third-party independent valuation firm that provides that service for us. What Esteban was alluding to is the 22% gain that we have over our book value of this property was basically recognized with this transaction. So that shows you that the revaluation to market that we have on our books is done conservatively. But it is reflecting the increased value that appraises every quarter, from the factors that Esteban already alluded to regarding the growth of our rents and the growth in our NOI.
Okay, great. Thank you. That transaction introduces an additional value lever through your capital recycling, as you guys have been talking about now. How could selectively monetizing mature assets and redeploying that capital into higher growth opportunities enhance returns and accelerate the company's growth over time?
Thank you. That is a wonderful question, and that is one of our leverages for growth, especially as we are now leaning on equity. The idea is basically spread, Eric. Essentially what we are doing here is we are selling a stabilized asset below the yield that we can reinvest at, and we redeploy into development that yields meaningfully more. The gap is a value for shareholders, and we can keep on doing it as we then mature the new development or the new acquisitions, stabilize them, and then use the excess spread to redeploy into newer opportunities. Lima Sur is a first turn. About $85 million will be headed into Mexico over the next, I would say, 12- 18 months.
We keep operating, as Esteban already mentioned, what we sold, and the REIT partnership with Fibra Prime is something that we can definitely repeat in our other developments.
This is not just a one-off sale. It is basically a self-funding growth engine.
That's terrific. Thank you. Now that you've mentioned Mexico, I guess maybe let's turn our attention over there. You guys have identified Mexico as the company's primary capital development opportunity going forward. I guess in your opinion, what makes Mexico particularly attractive today? And which markets, tenant categories, or demand drivers are creating, would you say, the most compelling opportunities for the company? What gives you confidence that you can be as successful or possibly even more so in Mexico than you have been for many years in the other countries where you're currently operating?
Yes. Mexico is the biggest logistics market in the region and the most tied to North American supply chains, and we're barely in it yet. It is almost all runway. The demand profile is quite strong also. Nearshoring. Mexico is also a large domestic consumer. It has e-commerce that is growing fast but still trails developed markets. Our angle is to benefit from that, but with a slight difference. Most players have crowded, for example, towards the northern border or focused only on the biggest metros. With a certain degree of overlap but still differentiated, LPA, we are aiming to build along the 57D corridor. That is the USMCA highway. That's where our target customers cluster and in sub-markets that are less competitive and where patience as a permanent capital player like us really pays off.
We're not beholden to, let's say, a dividend payout, so we can focus on steady compounding within our entity. The same institutional tenants want space along those corridors. In summary, I would say it's the right market, it's the right entry location, it's the right time for us. To the second part of your question, which is thoughtful, is why we can succeed here like we did in our other markets. I would say it's because we're not really starting cold. We're taking a playbook that already works, the same standards, the same platform, often the same tenants, the same customers, but into a bigger market, U.S. dollar-denominated market in many cases, and we're entering thoughtfully and with discipline. We want to focus on pre-lease and forward deals, so we build the same quality book, but trimming down the risk. We think timing matters, too.
We have the foundation to pursue that growth. We have our house in order, and we have, as I mentioned, full occupancy. Right now, we have zero automotive exposure, for example, which means we can have appetite where others might not right now.
Okay, that's great. Thank you. Within Mexico, Central Park 57 is a project that you've identified with potentially significant expansion opportunity. Can you explain the forward purchase structure that you announced and why that approach can be attractive for the company compared with acquiring fully stabilized properties through a more traditional style transaction?
That's a great question, Eric. Thank you. Central Park 57, I would say it's complementary to other opportunities we're currently looking at. This one in particular had, I would say, an advantage for the structure that we selected using the forward purchase, and I'll explain what it is in one second, but it's not necessarily comparing apples to apples against buying a stabilized asset that's already operating. It is more, I would say, an efficient way to enter Mexico, one that de-risks our opportunity, and let me explain to you how it works. As I said, we use a vehicle to enter Mexico efficiently. Buying stabilized buildings from Central Park 57 was, again, the fastest, lowest risk way in, and we will keep doing that. The forward purchase lets us basically buy the same place with a little bit more of return.
We committed early to buy the whole park, but once it's built and stabilized. That's how we basically avoided having a land carry and having the development risk on our end, Eric. That's basically what we optimized in this transaction. The advantage is better basis than we will pay in the open market because we are taking some measured exposure to the delivery phase. Let's also remind that Central Park 57 is basically very strategically located. It's right outside of Mexico City on 57D highway, that Esteban Saldarriaga already mentioned. That's the main corridor that goes to the U.S. It's right outside of Mexico City, which it works as a really nice hub for the largest logistic supply market, demand market, I'm sorry, in the country. We get to shape the building for institutional tenants.
We put our capital at the end, when it is de-risked, not through construction, as I already mentioned. It's also, I would say, a capital-efficient way to add brand-new, top-quality product at an attractive price while we get to control every single one of the stages, from ensuring that we select the right tenant to making sure that we're delivering the right product. We will always keep the market updated as this development progresses.
Okay, great. Thank you. It's a great answer. As proceeds from mature assets become available for reinvestment, how are you thinking about the return thresholds for these new opportunities in Mexico? What characteristics make an acquisition or development opportunity especially attractive to the company?
That's a great question. Thank you, Eric. As we mentioned before, or as I mentioned before, this is a critical component of our growth strategy because we need to ensure that we have those spreads. We need to remain very disciplined. Recycling will only work if we reinvest well above where we sold. The first test, again, is spread. A new deal has to stabilize at a yield that is clearly above our exit cap, and with rooms to pay for our execution. Beyond that, there are three things that we're keeping a close eye on. First of all, and repeating what Esteban mentioned initially, we need a supply-constrained location with real demand. That's been our secret sauce, Eric, since we were created.
The second component will be a way to de-risk before we're all in, and that can be done through pre-leasing, like what we do, for example, in Callao, a forward, like the one I explained for Central Park 57, or basically joining forces with a local partner. Exactly what we did in Puebla, for example. By the way, Puebla has the three components embedded our first entry into Mexico. The last component will be the fit with our platform. We want to make sure that we can add value while we operate it. So those are the three things that we are considering and when we evaluate whether an opportunity will be special or not for us. Just to remind the market, we want to maintain very stringent discipline. We would much rather pass than stretch our standards.
The Mexico pipeline is deep enough that we can be very selective in what we choose, and we will do so as we want to maintain that initial spread as wide as we can.
Okay. Makes perfect sense. You mentioned pre-leasing, so I guess let's take maybe a deeper look at that. So approximately 92% of the current development pipeline is already pre-leased. What does that level of pre-leasing tell you about demand from your customers? How does it change the risk and return profile for the company's development strategy?
Well, the first thing, Eric, that it tells you is that the demand is real, right? You're basically leasing something that still doesn't exist. We're getting tenants committed to the opportunity even before we build. That's basically telling you our first rule in terms of making sure that we find the supply-constrained locations that the customers need and demand. Once you have that, it changes everything when you think about risk. Leasing is obviously the biggest variable we have in development, and we take it off the table even before we're spending the money or investing that money to development. We know the tenant, we know the rent, and we know the return before we break the ground. So we still earn a development yield, but with a risk profile of an already leased building.
That, for us, is the combination that we want to keep looking for as we continue doing the opportunities.
Okay. Makes sense. Let's maybe just take a step back and let's look at nearshoring and supply chain rationalization. Nearshoring and supply chain regionalization remain important long-term themes for Latin America logistic real estate. What are you hearing directly from some of your multinational and regional tenants about their expansion plans, particularly in Mexico and other markets where the company operates? On the surface, the current trade policy would seem to make Mexico maybe more of a risky bet than it might have been before. Why are you still bullish on that market? What gives you confidence in the investments that you are going to make in Mexico?
Those are fair points. Look, the conversations have moved from theory to planning. No doubt, some decisions are being held off or paused, of course, but ultimately the trend is clear. Multinationals are regionalizing. It is what they do. They want production and inventory closer to the customer and having more than one source. They are adding capacity over time. We saw that right after 2020. Companies stopped optimizing purely for inventory turnover and carrying costs and started to think about redundancy, especially as transit times and geopolitics made Asia-based solutions harder to rely on. We went from just in time to just in case. To the extent that the U.S. is still fighting inflation, Mexico's proximity, its cost structure, its skilled workforce, and its affinity, frankly, to U.S. manufacturing setup all help.
Those factors are very hard to replicate anywhere else, Eric, and that is what makes Mexico such an interesting bet for those of us who think we can navigate its complexities and actually build a moat while doing so. Lastly, I would add that we also get a ballast effect from our other foundational markets in our LPA portfolio, where the driver is domestic rather than export-led. Consumption, e-commerce, as I have mentioned, keep gaining share, and that goes in hand with financial inclusion technology, smartphone access. It all needs broadly defined infrastructure, and LPA is part of that solution. We have those two tailwinds at once, and that is deliberate. To your second part of the question, is Mexico noisier today? Is it riskier? I would say the headlines really scratch the surface. Uncertainty on trade is everywhere right now.
It is a global story, and no market is really and truly insulated from it. We are across four countries. Mexico is still small for us, even though it will take a much, much larger share. The demand is domestic in many components of our portfolio, which really no tariff touches. Trade friction may be a more permanent reality now, but measured against the alternative, which is the real question, Mexico still comes out on top in our view, and that is because of proximity, cost, labor, already an integrated supply chain with the U.S., and that is what we read from current policy. In summary, we underwrite carefully, but the trend is our friend. There is a real economic benefit of not having to replumb these manufacturing arteries, if you will.
And with the AI and electronics race running out of that heat, there's not going to be time for that. The infrastructure that produces the hardware, the logistics, and warehousing around it should create the conditions for having a big winner in that dynamic.
Okay. Thank you. Makes perfect sense. Let's just take a look at the overall portfolio. You currently operate roughly 6.2 million square feet of buildings across four countries. As you look several years ahead, how large could the platform reasonably become? How do you see the mix between development, acquisitions, and strategic capital partnerships evolving? And as you scale the platform, when do you expect the operating leverage to really kick in and drive even higher levels of growth in net operating income?
You're right. We're operating about 6 million square feet today. I would frame the opportunity as a very relevant multiple of that. It could potentially be three, four, even more times over the next few years because our markets are under-penetrated, and we have several avenues to grow. Regarding your question towards Mex, I think acquisitions are likely to come in faster and afford a lower entry risk. That is going to be a more relevant part of the initial rollout into Mexico, especially at this point also in the cycle where we do not see speculative buildings as ideal. Forward purchases will come next. We'll just sit above them. It enhances the return for taking a more measured delivery risk. And they let us add brand new product that it's already leased and spread our capital commitments over time.
Lastly, I would say build to suits and development can be the final overlay, and that's how we grow our portfolio. But initially, I would say that the majority is going to be acquisition and forward purchases as we roll into Mexico. We really want to be judged on discipline, as we mentioned earlier, accretive growth, and we have the pieces to get a lot bigger. Paul, anything else you might want to add?
On that discipline, Esteban, so yeah, it is already showing in our numbers. This quarter, our G&A actually fell, while revenue grew more than 25%. Once we have that platform in place, each new building adds almost no overhead. NOI grows faster than cost, and we will see this as Mexico scales. The gap will widen and the flow straight to the bottom line.
Okay, great. Thank you. Let us just talk about the competitiveness of your platform. Institutional quality logistics real estate remains relatively under-penetrated in several of the markets where you guys participate. What advantage does your vertically integrated platform, from land sourcing and development through leasing and property management, give the company as you compete for new growth opportunities?
Eric, we participate in the full real estate life cycle in markets where very few can. We source opportunities, and we build or release to an institutional standard, and then we operate. That does three things. Our shareholders can participate in the development margin instead of paying it away via fees. We also get proprietary access because we run the buildings, we keep the customers, the tenants longer and see their next requirements in terms of GLA of space first. It matters who owns the platform. We are highly institutional, but we are not a fund and we are not a REIT, so we do not have an expiration date to manage. We have no dividend that we have to constantly feed. We can be genuinely patient with our capital and seek out the value added and accretive opportunities.
Being regional matters just as much because for shareholders, it also affords a capital allocation advantage. Four countries means we are not exposed to the fluctuations of any single market cycle, and we can essentially step on the gas where we see that demand is pulling us or step off or push the brakes when it is not, geography by geography. We do all of it under a U.S. listing and the U.S. reporting standards, which is a real credential, Eric, in these markets. In under-penetrated markets, being the local institutional operator, cross-border operator with permanent capital is a real moat.
Okay. You guys are unique, in that your portfolio is spread across four countries in Latin America, unlike some of your competitors. Why is a regional offering attractive to prospective tenants who might be comparing your company with providers of logistics space that only operate in a single country?
It is increasingly what tenants ask for. Many of them are building regional supply chains. It is not a disconnected one-country footprint, right? We can give them the same building, the same standard, the same team, the same service, and one point of contact across all markets, Mexico, Costa Rica, Colombia and Peru. A single country developer simply cannot match that. It is less friction for our customers. It is one relationship instead of a new landlord in every market or sub-market. Because we run all of it to one listed standard, multinationals treat us as a partner of choice when they expand, and that is a way we want them to think about us. It means we grow as they grow, and we try to get in front of them to see where their next move is going to be.
Where good space is really lacking, being one of the regional operators, if not the only one, it is an advantage that we expect to compound over time.
Okay, great. That is a great answer. Final question here, and this has been a great discussion this afternoon. As investors look out over the next 12-18 months, what should they expect to see from the company in terms of Mexico, potentially more capital recycling, development, deliveries, and continued growth across your existing portfolio?
So a few things to watch, frankly, and they're all intended to be trackable. On the operating side, our pre-leasing pipeline delivers straight into occupied NOI. The base, what we already have, keeps doing what it's doing. We want to keep very high levels of occupancy, double-digit rent growth. On the capital side, I'll turn it over to Paul to give us a couple of thoughts there.
I would add two items. One is the closing of Parque Logístico Lima Sur, and the proceeds coming in. This one is on its closing stages, after we received the regulatory approval last week, as we announced on Friday.
Yeah.
Then obviously the redeployment of those resources into Mexico. Central Park 57 is already on the table. I would definitely watch and track the capital going out the door and the commitments that will follow it.
Just to close it out and putting it all together, what we want to continue creating is the same durable and resilient portfolio, a funded Mexico plan, plus prove that we can recycle, reallocate capital and reinvest it well. We would rather, again, underpromise and essentially let the milestones speak. So we're 100% execution focused right now.
Okay, that's great. Esteban and Paul, thank you very much for joining us today. We appreciate you participating in the WTR Insights Conference. Thank you to all the investors who participated as well. Please look for additional content on Logistic Properties of the Americas at www.watertowerresearch.com. For those with further questions or for investors wishing to meet with management after this event, please reflect that interest through the conference portal. Our next conference session will begin shortly, and we invite you to stay with us. Thanks a lot, guys.
Thank you very much, Eric.