Corporación Inmobiliaria Vesta, S.A.B. de C.V. (VESTA) Earnings Call Transcript & Summary

Greetings, ladies and gentlemen, and welcome to Vesta's Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. And as a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Vesta's Investor Relations Officer. Please go ahead.

Good morning, everyone, and welcome to our review of Vesta's Second Quarter 2026 Earnings Results. Presenting today are Lorenzo Dominique Berho, our Chief Executive Officer; and Juan Sottil, our Chief Financial Officer. The earnings release detailing our second quarter 2026 results was released yesterday after market closed and is available on Vesta's IR website, along with our supplemental package. It's important to note that on today's call, management remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, please review our public filings. Vesta assumes no obligation to update any forward-looking statements in the future. Additionally, please note that all figures were prepared in accordance with IFRS, which differ in certain significant respects from U.S. GAAP. All information should be read in conjunction with and is qualified in entirety by reference to our financial statements, including the notes thereto and is stated in U.S. dollars unless otherwise noted. I'll now turn the call over to Lorenzo Berho.

Thank you, Fernanda, and good morning to everyone. We're very pleased with our second quarter results. This was another strong quarter for Vesta, reflecting solid financial performance excellent leasing activity, improved occupancy and importantly, demonstrated progress in the execution of our [ Route 2030 ] strategy. Last quarter, we spoke about the selective activation of development across high conviction markets. In second quarter, our results demonstrate that execution is clearly underway. Vesta is converting demand into leases. Leases into occupancy and our land bank into disciplined development. The strength of our performance this quarter reflects the quality of Vesta's platform and the confidence that global tenants continue to place in Mexico and in our company. Despite the ongoing uncertainty in the global trade environment, most recently due to tensions in the Middle East, our clients continue to make long-term decisions around Mexico as a strategic manufacturing and logistics platform. The fundamentals supporting Mexico's industrial real estate sector remain firmly in place. North American supply chain integration, near shoring, growing U.S.-Mexico trade flows and increasing demand from higher-value industries. Regarding USMCA, without going into more detail that you're already likely aware, it's important to emphasize that the agreement remains in full force. In our view, even in a scenario where the agreement continues operating without a formal near-term extension, Mexico remains in a very strong position. Trade continues. The U.S. market continues to grow. Mexico remains one of the most competitive locations for companies seeking resilient North American supply chains and demand for premium industrial real estate is clearly evident. [ CRE ] has noted that broader trade volumes between the U.S. and Mexico continue to grow and according to U.S. sensor statistics. In May, Mexico was the United States largest goods trading partner and accounted for 17.4% of U.S. goods imports compared with 7.5% for China, a remarkable shift. Export driving demand for premium industrial leasing near the U.S. border and logistics demand in major population centers are enduring structural demand drivers despite trade policy uncertainty. Against this backdrop, Vesta delivered total second quarter leasing activity of approximately 2.4 million square feet, including approximately 900,000 square feet in new leases with new tenants. This resulted in more than 80% occupancy in Monterrey and 100% in both Mexico City and the Central Southeast region and 1.5 million square feet in renewals. Notably, these renewals had a weighted average lease term of approximately 7 years and a quarterly spread of nearly to 17%. This is a very strong indication of tenant commitment to our portfolio. Total portfolio occupancy reached 91.7% by quarter end, a 200 basis point improvement from 89.7% in the first quarter. Stabilized occupancy reached 93.7% and same-store occupancy remains strong at 95%. We're also seeing continued pricing power, renewals and re-leasing activity for the second quarter reached 1.5 million square feet with a trailing 12-month weighted average spread of 10.3%. During the quarter, renewals were particularly strong in Northern markets for Vesta, where we achieved significant mark-to-market increases reflecting tenant demand for well-located infrastructure-ready properties. This is important because it reinforces a key point we have made previously. Even in markets where vacancy has increased tenants continue to prioritize high-quality buildings, right, infrastructure, location, energy availability and an experienced partner that now can support their long-term operations. For Vesta, the opportunity is not defined by broad market averages. It is determined asset by asset based on location, infrastructure, energy availability, tenant fit and deep relationships. And this is where our portfolio is exceptionally well positioned. Across the portfolio, demand is increasingly coming from light manufacturing, electronics, AI-related infrastructure, logistics, aerospace, automotive and other high-value sectors. This is consistent with broader market trends. CBRE has noted that tenant demand in Mexico is shifting toward diverse manufacturing and logistics, while technology-related activity tied to semiconductors, AI and data centers continues to gain momentum. This trend is highly relevant for Vesta. Our clients are not only looking for industrial space, they are looking for locations that can support highly complex technology-enabled operations. as AI adoption accelerates and data center investment expands, demand is increasingly connected to the broader industrial ecosystem that supports these technologies from electronics and components to cooling systems, power infrastructure, logistics and specialized manufacturing. We're also living through a historic moment for advanced industries more broadly, including the growing visibility of the space economy and companies such as SpaceX, which underscores how rapidly aerospace, electronics, precision manufacturing, AI and supply chain requirements are converging. For Vesta, this reinforces the importance of developing assets with reliable energy, connectivity, operational flexibility, dedicated tenant service and the support of an experienced owner operator. These requirements are becoming more important in our clients' long-term decisions, and Vesta is very well positioned to meet them and the strategy is working. Portfolio quality, infrastructure, energy availability and tenant alignments are translating into results. Let me now turn to development and capital allocation. As of quarter end, Vesta had approximately 1.8 million square feet under construction, representing an estimated investment of approximately $162 million. This includes projects in Tijuana, Ciudad Juárez, Guadalajara, [ Queretaro ] and Mexico City. Our approach remains disciplined. We're activating development in markets where we have strong tenant interest strategic land and the infrastructure needed to support long-term demand. Importantly, our development is supported by a secured land bank of approximately 23 million square feet, giving us the flexibility to grow in phases and allocate capital efficiently. In the second half of the year, we expect to make significant infrastructure investments on land acquired last year, particularly in Monterrey, Guadalajara and Ciudad Juárez. These investments are an important step in preparing those platforms for future growth and allowing us to respond to a strong tenant pipeline. We also expect to begin new construction projects in Monterrey, Guadalajara and select Northern markets as demand continues to materialize. The follow-on equity offering completed earlier this year has further strengthened our balance sheet and position us to capture the growth opportunities we're now seeing. We raised capital not to chase size, but to support a visible development pipeline, invest in infrastructure and maintain financial flexibility. The decision to strengthen the balance sheet has proven to be the right one, particularly as demand is materializing across several of our core markets. This is one of the best key differentiators. We have the balance sheet, the customer relationships the local operating capabilities and the development expertise to execute. In a market where many participants are focused on acquisitions and mergers or portfolio consolidation Vesta is positioned to create value through development. From a financial perspective, our results were excellent. Total rental income increased to $78.5 million, while rental revenue reached $76 million, a 16.2% year-over-year increase. Adjusted NOI increased 15.6% to $71.5 million, with a margin of 94%. Adjusted EBITDA increased 15.7% to $63.6 million with a margin of 83.7%. Vesta FFO totaled $46.1 million, increasing 6.8% year-over-year. We're very pleased with this performance. The first half of the year positions us strongly with our current expectations. We have said consistently that value creation in our sector is driven by portfolio quality, disciplined development and customer alignment. This quarter provides clear evidence of that. Vesta is converting market demand into execution, and we are doing so with disciplined conviction and a long-term view. Most importantly, our performance continued to be driven by successful execution of our Vesta 2030 strategy. With that, let me turn the call over to Juan to review our financial results in more detail.

Thank you, Lorenzo, and good day, everyone. Let me start with a brief overview of our second quarter results. On the top line, we delivered another quarter of strong results, as Lorenzo mentioned, with total revenues increasing 16.7% to $78.5 million, while revenues, excluding energy, reached $76 million, a 16.2% increase year-over-year, primarily driven by rental income from new leases and inflationary adjustments across our portfolio. In terms of currency mix, 89.3% of second quarter 2026 rental revenues were U.S. dollar denominated compared to 89.4% in the same period last year. Turning to profitability. Adjusted net operating income increased 15.6% to $71.5 million. Our adjusted NOI margin decreased 51 basis points year-on-year to 94%, reflecting higher operating property costs relative to rental revenues in the quarter. Adjusted EBITDA totaled $63.6 million, up 15.7% year-over-year, while margin contracted by 41 basis points to 83.7%, primarily driven by higher costs and administrative expenses during the quarter. Vesta's FFO, excluding current tax, was up 6.8% to $46.1 million compared to $43.1 million in the second quarter 2025. This increase was primarily due to higher EBITDA and partially offset by the higher interest expense. We closed the quarter with pretax income of $98.8 million compared to $54.5 million in 2025. The increase was primarily due to higher gains in the revaluation of investment properties, higher interest income and higher other income. This was partially offset by higher interest expense, reflecting an increase in the debt balance during the period, along with lower foreign exchange gain and higher other expenses. Turning to our balance sheet. We ended the quarter with $404 million in cash and cash equivalents and total debt of $1.2 billion. Net debt to EBITDA stood at 3.1x, and our loan-to-value ratio was 24.3%. The increase in our cash position reflects gross proceeds of nearly $270 million from our recent equity follow-on offer. This capital raise represents our proactive approach to strengthening the balance sheet ahead of anticipated demand, and it gives us the capital to fund the land and infrastructure investments that underpin our growth strategy. Finally, and subsequent to quarter's end, on July 15, 2026, we paid a cash dividend for the second quarter, equivalent to $0.38 per ordinary shares. This concludes our second quarter 2026 review. Operator, could you please open the floor for questions?

[Operator Instructions]. Your first question comes from the line of [ Rodolfo Ramos ] of Bradesco BBI.

Congratulations on the results. Two questions, if I may. I mean we have seen this booming related products in terms of exports from Mexico to the U.S. And I wanted to get a little bit more granular feedback from your commercial talks with these clients in the data center infrastructure and electronics. I don't know if you can talk about which specific companies you have signed leases with and who do you think might be interested in those properties that you're currently developing in Guadalajara and Ciudad Juárez which probably cease interest from those [ Jalisco ] and [ Chihuahua ] are big exporters there in terms of market share? And second, if you can give us a little bit of your thinking on the auto sector and one, what it means for your growth and your current portfolio? I mean we've seen some headlines of companies shifting production back to the U.S. How -- we saw that you signed new leases in the automotive sector. So I wanted to see your take in specific to that sector.

Thank you very much, [ Rodolfo ], for being on today's call. Definitely, we are experiencing a great phenomenon related to and this is driving strong demand for data centers being built pretty much all over the world, but particularly in North America, this has attracted huge investments in terms of capital but also huge demand for manufactured goods that have to be supplied to data centers. And we have seen strong demand particularly in markets like Guadalajara and Ciudad Juárez for [ Electronics ] as well as [ Tijuana ] particularly in Guadalajara, we have seen players that are working with some of the largest hyperscalers to get all the servers and all the digital infrastructure ready so that the data centers can be built out. And we have seen that quickly ramping up. And that's going to continue for the foreseeable future as long as there's so much demand going -- I'm sorry, so much investment and capital going towards data centers. But also on the industrial manufacturing front, we are seeing clients or companies in, for example, the industrial sectors such as air conditioning units, fans, ventilators that are required to pull down all of these huge data centers together with our cabling equipment and electric equipment such as electric panels and that has created a lot of demand in markets such as Monterrey, which is a big industrial market as well as markets like Tijuana and Ciudad Juárez. We -- and not only we saw that in the last few quarters, but we continue to see a very robust pipeline coming from these particular sectors. I will now shift with -- and actually, some of these companies -- many of them were already established in Monterrey or Mexico, but there's also new companies that are opening up shop. Secondly, shifting to the auto sector. Yes, we continue to see demand we did a few of new leases in a few markets. And not only are we seeing new demand, but also we see that existing supply chain in the auto sector continues to adapt to the new requirements and to the new supply chain in North America. We continue to see that Mexico is the most competitive place to manufacture and integrate to final OEMs in Mexico and in the U.S. And as long as we see those companies continue to be favorable in Mexico, we believe that demand will continue. But of course, there's many adjustments that the companies have been doing but we also continue to see those -- some of those adjustments somehow benefiting Mexico too, and maybe metering the whole North American region as a whole.

Your next question comes from the line of André Mazini of Citi Group.

So 2 questions. First one, if you think the current status of the USMCA can be a dampener for tenant demand or the fact that the deal, as you said in the prepared remarks is still in place with annual renewals is business as usual for the companies. And digging into the markets, so is up to see remains the weakest market with occupancy at 65%. So thoughts on the softness between -- behind that market in particular. And of course, the properties that are coming in the market, which is only [indiscernible]. This is the first set of questions. The second one on leasing spreads, pretty strong, almost 17% in this quarter. This is higher than I think you guys were printing before. So if this is probably sustainable going forward or if there was some type of one-off in the quarter here for such high leasing spreads.

Thank you, André, for being on today's call and for your questions. Let me address first -- let me address the questions in order. Well, we definitely have seen that tenants and companies are trying to understand what the new rules of the game are going to be in terms of trade, in terms of USMCA. And for that reason, we believe that the few scenarios that are in place and maybe the one thing -- the one with annual revisions could be one that -- where companies will continue to invest in Mexico. However, nowadays, today, we have -- we still have no clarity on the new rules of the game. And I think that's what companies are expecting. And with that, companies will adjust maybe the most favorable outcome is that we might have some sort of result from the negotiations soon. It seems that there could be some tariffs. Tariffs could come because in different sectors, but I think that the companies and tenants, what they just want us to have a bit more clarity. Just looking at what has happened at the last -- just this year or end of last year, we have definitely seen that what we what we consider [indiscernible], we already -- we have been already there and companies are making decision, very different to start of last year. But in the last quarters, we continue to see demand, and we continue to see companies trying to set up shop in Mexico just because how competitive the landscape will be and how competitive Mexico is in relative terms to all of the other countries. Look at just the numbers in terms of exports from Mexico to the U.S. and how other countries and other regions, particularly Asia, have dropped in terms of exports to the U.S. and trade with the U.S. So for that reason, we even think that whatever outcome might be, Mexico will continue to be the best beneficiary of the new rules in terms of trade. Secondly, to your question on [indiscernible], it was a very -- it has been a very slow market. Nevertheless, I can tell -- we can tell you that we started to see a stronger pipeline in this particular quarter. So hopefully, for second semester, things start to shift towards stronger demand, we continue to see rents have actually maintained its actual levels. There have not been any reduction in terms of rates. So I think it was just a matter of being patient and waiting until the demand will come back for an important industrial market. But yes, it was a slow couple of years, but we definitely are seeing a recovery. So hopefully, we can get some better news quite soon. And then on your third question, André, on leasing spreads, I think that, yes, we -- our bet is that this growth in terms of leasing spreads will continue to be -- will be sustainable, will be sustainable, not only for this year, but maybe even for the next couple of years since, again, we think that demand will continue to go up supply for good quality buildings with infrastructure, with energy is still constrained. So as we have seen like just this quarter, there is still demand, and demand is looking for better assets, flight to quality and tenants are willing to pay rents -- even at the fair rents for fair market buildings.

Your next question comes from the line of [ Egor Machado ] of Goldman Sachs.

We have 2 questions here on our side. First one, we are trying to understand here what is your expectations for us from the [indiscernible]? In other words, how --

I'm sorry, can you -- I'm sorry, can you get a little closer to the microphone? I'm having a hard time hearing you.

Can you hear me? Can you hear me?

Yes, better. Thank you. Yes.

So the first question is on the lease up on Monterrey and [ Tijuana ]. How quick can you see that this for those markets? And what sort of tenants are you looking for space in these markets? And my second question is, if you can talk about what sort of tenants are targeting for your recent projects in the North, and this would help us.

Excellent. Thank you, [indiscernible]. That was very clear. And I'm happy to elaborate on your questions. We have seen major lease up in Monterrey, this particular quarter. As you might remember, we developed the last buildings for the [ Apodaca ] project. last year. And this year, we saw -- we signed 2 leases related with equipment for data centers and AI-related for 2 of the 3 buildings. And actually, the pipeline is quite strong. So we are very optimistic about -- about the second semester that we're going to be close to being able to fully lease those buildings. And that maybe take me to your second question, which is regarding recent projects. So we are very excited that soon we're going to kickoff with the construction for the new Vesta Park Monterrey, which is the one next to the airport is probably one as it's probably one of the best sites in whole Mexico in terms of being well positioned with good infrastructure in the right corridors where there is labor where the accessibility of energy. So hopefully, very soon, we will kick off we will start new buildings for this project. And actually, demand that we are seeing in submarkets like -- of [ Polat ] or Monterrey is well diversified between logistics. Actually, e-commerce continues to grow and continues to require more space of high-quality buildings. We're seeing clearly, again, industries related to data centers. As mentioned before, we continue to see strong demand on that and also third-party logistics as well as other industrials. So we're excited about this new start of projects and that we're going to be developing over this year and having available for next year. So we're starting to build up the pipeline for those particular projects. Related to your question in [ Tijuana ], it's interesting because some -- I would say that some market reports show that [indiscernible] has a higher vacancy. However, if you analyze in detail, a lot of this vacancy is related to regions, subregions of Tijuana that actually has low accessibility to labor pools, low accessibility to logistic corridors and energy. So that's why we will continue to focus in the right submarkets, such as [ Pacifico ], where we continue to see strong demand with companies continue to expand in sectors such as aerospace, electronics, logistics and medical devices. So those numbers have to be analyzed in detail, and that's what we continue to do because that's how we on the right our decisions when we start building. And actually, in many cases, we do start buildings with knowing that there is a client of Vesta that will require space at some point.

Your next question comes from the line of Francisco Chávez of BBVA.

Congrats on the results. Looking at your development pipeline, most of the welding sale inventory, what kind of lease-up should we assume considering the current market conditions?

Francisco, thank you very much for being on today's call. Well, normally, we start buildings when we identify some potential demand, and that demand could come in a range of between 0 to, let's say, 12 months of downtime. So we -- the numbers that we underwrite at is considering that there is some downtime for income to be generated. But we aim to make these deals become spec-to-suit buildings, which basically is being able to pre-lease the buildings while they are under construction. So yes, we were able to start some buildings this particular quarter. I think that the last quarters, we were very successful being able to lease up the buildings were pre-leased while we were under construction. But even in some cases, like Monterrey that I recently mentioned, sometimes it takes us a little bit longer to this, but we are able to lease to the right client, the right lease agreements and at the right rates, so that we continue to create value for our shareholders by being disciplined on our approach on how to lease up. And actually, if -- so maybe considering or elaborating a bit more on the question, I think that Vesta is -- has been very successful with this strategy. That's why we have been able to organically through development, be able to increase revenues year-over-year and even quarter-over-quarter as we have done this particular quarter. Having revenue increases of 15% is because at some point, we have the opportunity to start a building. We were able to lease and eventually generate income. So it all rolls up together with a lease-up and leasing spreads and having that particular proactiveness in our portfolio generates this major revenue increases year-over-year in a sustained manner.

Your next question comes from the line of David Soto of Scotiabank.

Just a quick one related to your follow-on proceeds. Could you please provide an update on the intended allocation for that received between non-acquisition and development activity?

Sure. Maybe, Fernanda, you can help me out with the table that we recently presented. So basically, David, thank you. First, thank you for being on the call and for your question. Yes, we were able to raise equity in May. In order to be able to support part of the growth plan that we have identified as part of our route 2030 strategy, which is a major investment plan where we will invest in attractive markets and markets that Vesta has not only identified but been able to acquire land and secure land so that we can continue to develop successful projects. So the investment that we identify is basically we raised approximately $300 million, and we identified $1.3 billion of investments where we are going to be investing -- I'm sorry, $1.7 billion. We're going to be investing in Monterrey. Give me 1 second, just quickly. Fernanda, I think that it's the other table I need. Not the one on Route 2030, but the one we recently presented, which is basically we will invest $1.3 billion in projects such as the first one being Monterrey with Vesta's [indiscernible] Monterrey project, which will require the majority of the investment. We will also invest in Guadalajara, [ Investor Park ], Guadalajara 1 and 2. We will invest in Mexico City in a few projects. We will invest in Tijuana, Ciudad Juárez and those will be the major projects that we're going to be investing, not only this year, where we're starting, but over the next years to finalize the Vesta route 2030 plan. So basically, out of the almost $300 million, the rest of the capital needed for the growth plan is going to come via debt and retain earnings that the company has been able to has been able to generate.

Perfect. Just a follow-up question. Do you expect this capital to be deployed in the next 12 to 18 months?