FIBRA Macquarie México ($FIBRAMQ12)

Good morning, and welcome to FIBRA Macquarie's First Quarter 2026 Earnings Call and Webcast. My name is Alicia, and I'll be your operator for this call. [Operator Instructions] I would now like to turn the conference over to Nikki Sacks. Please go ahead.

Thank you, and hello, everyone. Thank you for joining FIBRA Macquarie's First Quarter 2026 Earnings Conference Call and Webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer; and Andrew McDonald-Hughes, our CFO. Before I turn the call over to Simon, I would like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for informational purposes and is not a solicitation or an offer to buy or sell any securities. Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified. As usual, we have prepared supplementary materials that we may reference during the call. If you have not already done so, I would encourage you to visit our website at fibramacquarie.com and download these materials. A link to these materials can be found under the Investors Events and Presentations tab. And with that, it's my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Simon Hanna. Simon?

Thank you, Nikki, and good afternoon, everyone. Thank you for joining us for FIBRAMQ's First Quarter 2026 Earnings Call. Before we begin our earnings presentation and open the call to questions, I want to take a moment to address the ongoing offer by FIBRA Prologis to acquire up to 100% of FIBRAMQ's outstanding CBFIs, which commenced on April 7, as well as the potential offers by other third parties that have not yet been formally commenced. As noted in our earnings release, we have published the relevant market notices in connection with the FIBRA Prologis offer and we will continue to do so as required. For clarity and due to legal restrictions, we are unable to comment further or answer any questions on these offers. Overall, we delivered a strong and steady quarter with in-line results from both a financial and operating perspective. Portfolio performance remained resilient, and our operating platform continued to execute effectively against a subdued market backdrop. Our outlook on the Mexican real estate market remains cautiously optimistic. We continue to see some softness driven by an ongoing wait-and-see dynamic ahead of the expected USMCA renewal with market-wide industrial vacancy inching up by approximately 100 basis points during the quarter. At the same time, it is encouraging to see a continued decline in new construction starts, which is helping keeping the overall demand-supply balance in check. Importantly, market rental rates have held up relatively well, particularly in core logistics and border markets. We view the current environment as one defined by timing rather than a deterioration in fundamentals. Turning to our industrial portfolio. During the quarter, we executed new and renewal leases on approximately 1.6 million square feet of GLA, a 12-month high across a broad mix of customers and geographies. Leasing spreads were 13.8%, an overall strong outcome and in line with expectations. This supported an overall rental rate increase of 6.1% year-over-year, while industrial NOI reached $51.2 million, up 4.4% annually, highlighting steady cash flow growth and disciplined cost management. Quarter end industrial occupancy was 94.6%. Underlying customer demand remains stable and leasing activity continues as we look forward to working through a very manageable lease expiration profile of just 7.3% for the remainder of the year. A highlight during the quarter was a new lease in Tijuana, which includes an expansion component for a large first-time Asian entrant into Mexico assembling high-end consumer electronics. The expansion is expected to generate a double-digit cash-on-cash yield. We view this transaction as another encouraging signal on the increasing potential in Northern markets as we move towards gaining greater visibility around the longer-term trade and tariff policy. Our retail portfolio remains stable with sustained new and renewal leasing volume of 22,000 square meters. The modest decline in occupancy during the quarter was attributable to the departure of a single cinema tenant at lease expiry. Excluding this event, occupancy would otherwise have been broadly stable. Retail NOI increased 3.6% sequentially, and we also expect full year retail NOI to steadily increase from 2025 as we work through other low-impact scheduled move-outs during the balance of the year. Turning to growth CapEx. We remain committed to our strategy of allocating capital to our industrial development program, focusing on land acquisition opportunities while taking a disciplined approach on new building starts. During the quarter, we completed our largest land acquisition to date, acquiring a 124-hectare parcel in Tijuana's Boulevard 2000 corridor for $114 million. The site supports the future development of up to 3.4 million square feet of Class A industrial space. Importantly, the park will also include a dedicated 90-megawatt substation currently under construction, providing a significant competitive advantage in a power-constrained market. The transaction was structured with favorable payment terms over 3 years with approximately 35% paid at closing, preserving liquidity while securing a long-term strategic asset. While the land bank will not contribute to NOI in the near term, we believe it will generate some meaningful returns over time and aligns directly with our disciplined development strategy. In summary, while leasing velocity continues to be influenced by broader market uncertainty, our portfolio fundamentals remain solid. Cash returns from the top line through to AFFO are robust, and our asset quality and vertically integrated operating platform continue to differentiate us. Importantly, our long-term investment thesis remains intact. We remain committed to executing our strategy with discipline and delivering value for our certificate holders. With that backdrop, I'll turn it over to Andrew to walk through our financial results and guidance outlook.

Thank you, Simon, and hello, everyone. From a financial perspective, we delivered quarterly results in line with expectations across our key metrics, including record quarterly EBITDA of $55.1 million, up 6.7% and record quarterly FFO of $38.5 million, up 6.8%. AFFO per certificate was MXN 0.65, up on a sequential and annual basis in underlying U.S. dollar terms, driven by robust same-store consolidated NOI growth of 5%. NAV per certificate increased to MXN 49.7 representing a 1.2% quarter-over-quarter increase. Importantly, our NAV incorporates our high-quality land bank at cost, which comprises 8.4 million square feet of buildable GLA and does not reflect the embedded value creation potential given our expectations to develop at 9% to 11% NOI yield as we construct and stabilize these projects over the coming years. Our balance sheet remains strong. Liquidity is ample, our leverage is comfortable, and we retain substantial flexibility to navigate current market conditions while continuing to invest selectively. This strength allows us to remain patient and focused on opportunities that deliver attractive risk-adjusted returns rather than reacting to short-term market noise. Our balance sheet metrics remain prudent with a real estate net LTV of 33.6% and regulatory debt service coverage of 4.2x. Our debt is 99% fixed rate with a weighted average tenor of 3.5 years. Subsequent to quarter end, we completed the refinancing of a sustainability-linked revolving credit facility, upsizing it to $200 million and extending its maturity through April 2031. Notably, this refinancing was completed with the lowest credit spread achieved to date of 105 basis points. As of today, total available liquidity stands at $835 million. On the ESG front, we published our first-time S1 and S2 reports, representing a meaningful step forward in our disclosures. We also achieved another LEED Platinum certification with a record score of 91 points for an industrial development that had previously stabilized at a strong double-digit yield, reinforcing the alignment between sustainability initiatives and strong financial performance. We are updating full year 2026 AFFO guidance to be between MXN 2.54 and MXN 2.64 per certificate, primarily reflecting the additional funding expense associated with the Tijuana land acquisition announced during the quarter. AFFO guidance assumes the exclusion of transaction expenses related to the potential acquisition of FIBRA Macquarie certificates. These expenses include financial adviser fees of up to $9.25 million contingent upon the completion of the acquisition as well as additional legal, advisory and other transaction-related expenses. Our distribution guidance remains unchanged at MXN 2.45 per certificate, which represents an approximate 11% increase in annual distributions in U.S. dollar terms based on current FX levels, following a similar U.S. dollar increase last year. This ongoing momentum in distribution growth reflects the underlying strength and stability of our cash flows as well as our confidence in underlying AFFO growth drivers. Of note, FIBRA Macquarie also declared a first quarter cash distribution of MXN 0.6125 per certificate, which will be paid on or about June 18. While near-term market conditions remain subdued, our financial position is strong, embedded value across the portfolio remains significant, and we are well positioned to continue executing with discipline. Simon and I would also like to take this opportunity to acknowledge the tremendous contribution of our team across the FIBRA Macquarie platform, and we remain confident in our ability to deliver sustained growth and value for all stakeholders. With that, we're happy to take your questions.

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

Just a couple, if I may. First, I know you there is limited to how much you can discuss here. But just wondering whether your technical committee will be evaluating the most recent Monterrey tender regarding its fairness and what could be the timeline there? And second, it was a slight quarter-on-quarter occupancy decline, but can you comment whether it was something like an industry-specific or client, just to give us a sense of how the broader circumstances are weighing on that decision process for tenants?

Yes. Thanks, Rodolfo. Rodolfo, great to hear from you. That's right. We saw FIBRA Monterrey come out this morning with their offer. And so from a process management perspective, we'll also be managing that with -- after 10 business day deadline to -- for the technical committee or the independent members of the technical committee to provide that fairness opinion. So that will be the other next step on that -- on that front. Look, with regards to move-outs, yes, we saw some move-outs through the quarter. I'd say, in general, nothing particularly concerning there and also not really much in terms of a read-through in terms of market specific or geographic specific, sort of a mixed bunch in terms of -- in terms of reasons for move-out, but I'd say no trend to call out. Through all that, we picked up some good leasing spreads as well on the renewals. You would have sort of seen a good bounce back to 13.8% and the expiration profile for the remainder of the year at 7%, we feel very comfortable sort of working through that. So those move-outs, as always, backfilling will be the aim of the game. And we have actually had some success even in this environment in doing some backfilling. Actually, one of the new leases that we did in Tijuana this quarter was a move-out from the fourth quarter. And that I think last quarter as well in Guadalajara, we had a couple of hundred thousand square feet move-outs, and we actually backfilled that the same quarter. So I think it goes to show that good quality buildings with the right approach, you can actually backfill in good order and something that we'll be addressing as part of those move-outs. But as I say, nothing fundamentally too concerning. When you take a step back and actually look at the market overall, I'd say softening backdrop, mildly softening backdrop in terms of the market-wide vacancy picking up maybe 100 bps or so. But again, I'd say nothing that we're too concerned about, given it is a wait-and-see dynamic as we all wait to get through to USMCA renewal, which to be fair is looking more like back end of this year, but maybe it's looking into next year. But when we look about that softening backdrop, again, we feel good about it. Just remembering 94%, 95% as an occupancy market -- number for the market overall. That's fundamentally healthy and actually where Mexico industrial has historically been. So that's something we feel good about. We also are seeing a rather steep decline in new construction starts. So again, as I said earlier, that's helping to just moderate the demand-supply dynamic and importantly, asking rates are holding up. So you saw us working through with that 14% leasing spread, and we feel good about where rental rates are even with that softening backdrop. So yes, we feel good about the rest of the year, albeit we did see a little bit of a slip in occupancy this quarter.

Thank you. This concludes the question-and-answer session. I'd like to turn the conference back to management for any closing remarks.

Okay. That was quick. And look, thank you, Alicia, and thanks, everyone, for participating in today's call. Along with Andrew, I would like to thank all of our stakeholders for ongoing support, and we look forward again to speaking with you over the coming days and weeks as we go through this quarter. So thanks very much, everyone.

The conference has now concluded. Thank you for joining our presentation today. You may now disconnect.