Fibra Mty, S.A.P.I. de C.V. (FMTY14) Earnings Call Transcript & Summary

Good morning, and welcome to the 2025 Third Quarter Fibra Monterrey's Conference Call. All information presented in this conference is proprietary and all rights are reserved. The information has been prepared only for information purposes and is not a solicitation of an offer to buy or sell any securities. It is important to note that the presentation related to this conference is available at www.fibramty.com, and recordings of the call will be available on the website of the company in the next 2 hours. If you are connected using our webcast tool, you have the option to download the presentation in order to move the slides at your own pace. Let me remind you that the information discussed in today's call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Additionally, during this call, we may refer to certain nonaccounting financial measures. Actual results may materially differ, and the company advises not to rely on these forward-looking statements. Fibra Monterrey undertakes no obligation to publicly update or revise any forward-looking statements. With us this morning from Fibra Monterrey, we have Jaime Martinez, CFO; Javier Llaca, COO and CIO; Eduardo Elizondo, Legal Counsel; and Cesar Rubalcava, Investor Relations. They will discuss on the more important strategic financial and operating aspects of the quarter. I will now turn the call over to Mr. Jaime Martinez.

Thank you, [ Chimalli. ] Good morning, everyone, and thank you for joining our third quarter 2025 conference call. I'd like to begin with a brief reflection of the current landscape of Mexico's industrial real estate sector. The review of the USMCA, which has recently begun and is expected to conclude by mid-2026, represents a significant opportunity for the country. While this process may lead to certain adjustments, we remain confident in Mexico's strong competitive position globally supported by an abundant and cost-efficient skilled workforce, a young demographic profile, attractive industrial lease rates and a privileged geographic location. These fundamentals continue to position Mexico favorably even amid more restrictive trade conditions. Overall, we are optimistic about what lies ahead for Mexico, the industrial market and Fibra Monterrey. We believe this sentiment is already reflected in the capital markets. Year-to-date, our stock has risen nearly 30%, supported by solid trading volumes. At current levels, we continue to trade at an attractive valuation of approximately 13x AFFO, supported by strong fundamentals and ample capacity to capitalize on future opportunities. Before handing the call to Javier, who will walk you through the recent M&A activity and the portfolio performance, I'd like to mention that recently, Fibra Monterrey has awarded with 74 points in the 2025 Real Estate Assessment by the Global Real Estate Sustainability Benchmark, also known as GRESB, the leading ESG standard for the global real estate sector. This represents a 19% year-over-year increase and exceeds the peer group average of 70 points. Additionally, following the conclusion of the 2025 S&P Global CSA Evaluation, Fibra Monterrey continues to strengthen its position. We experienced a 15% increase over the prior year, and we are now in the 94th percentile of our global peer group. Javier, please go ahead.

Thank you, Jaime, and good morning, everybody. Before we turn our attention to market conditions, property performance and quarter end KPIs, I would like to highlight our recent acquisition and disposition activities outlined on Page 3 of the presentation. On July 15, we successfully finalized the purchase of the 2 remaining buildings from the Batach portfolio located in Monterrey. This investment amounted to $73.4 million, which adds to the $119 million previously invested in late 2024 for other assets within the same portfolio. Also on July 15, we acquired 198,000 square foot land parcel in Monterrey to facilitate the expansion of our Garibaldi 1 property. Notably, 60% of the new building has already been pre-leased to our neighbor tenant. The total estimated investment for this expansion is $20.2 million, and it is projected to generate an annual net operating income of approximately $1.7 million. On the following day, as part of our nonstrategic divestment program, we completed the sale of the Fortaleza building in Mexico City for MXN 360 million. And finally, after quarter end, we announced an agreement subject to customary closing conditions to sell an office property in Nuevo Leon for up to MXN 395 million. In addition to our completed and pending transactions, we have received purchase offers totaling nearly MXN 2 billion for certain assets, mostly in the office. Negotiations for offers amounting to MXN 1.3 billion are well advanced, reflecting strong interest from buyers and positive momentum in our divestment efforts. It is worth mentioning that this MXN 1.3 billion already include the agreements to sell that we have announced recently. Turning to market conditions and as a recent Bradesco report highlights, despite global geopolitical challenges, Mexico's manufacturing sector continues to demonstrate strong competitiveness. Approximately 76% of the cost structure in a typical Mexican auto parts plant is attributed to raw materials and labor. The average direct labor cost for Mexican workers is roughly 1/3 of the fully burdened hourly rate in the U.S., underscoring labor as one of the sector's most compelling advantages. As of March, Mexican manufacturing exports to the U.S. have surpassed those from China and now nearly match the combined exports from the rest of Asia, excluding China. Since the implementation of tariffs, Mexico exports to the U.S. have grown by over 2% reinforcing the country's position as a competitive manufacturing platform even under stricter tariff conditions. The framework of U.S. trade policy continues to take shape and despite ongoing debate, it is increasingly clear that Mexico, along with Canada, has been favored by the current administration. As of July, both countries rank amongst those facing the lowest effective tariff rates. Page 4 of the material contains a side-by-side comparison of key indicators from CBRE for the 13 primary markets in Mexico and our portfolio as of the end of the third quarter. Total market inventory rose by 11 million square feet, 1.5% from the previous quarter, while vacancy rates increased only by 20 basis points to 5%. Our previous forecast for vacancy rates by the end of 2025 were around 8%, and it is possible that this number will reduce to close to 6%. Year-to-date net absorption reached more than 26.5 million square feet with over 6 million added in the third quarter. Despite ongoing market uncertainty and relatively low demand compared to '23 and '24, vacancy remains low. We still believe that total absorption for 2025 may be around 60% of 2024 level, but with positive signs for an increase of the demand in the short term. Tijuana stands out as vacancy rate is now above 14%, representing an increase of more than 380 basis points from the previous quarter. The new supply grew by almost 2 million square feet, while net absorption for the third quarter was negative for the first time in many years, rose by 4,000 square feet. Overall supply continues to outpace demand, and a potential recovery seems to take some time. As we mentioned in the last call, although this condition is a cause for concern, it may also offer -- it also may offer promising investment opportunities in [ stabilized ] properties given the enduring strength of Tijuana's long-term fundamentals. The Mexico City area stands out for its significant quarter-over-quarter increase in asking lease rates over 12%, driven primarily by a scarcity of available space. The market's vacancy rate remains exceptionally low at just 2% compared to the 5% average across the 13 primary markets. Ciudad Juarez improved overall vacancy rate from 10.7% to 8.8% quarter-to-quarter, the first quarterly decline since the first quarter of 2023. The last Class A vacancy rate decline was also in the first quarter of '23 when the rate fell from 0.1% to 0%. 7 of the quarter's new -- 10 new leases occurred in previously unoccupied speculative space. Our portfolio outperforms the market in occupancy and with rent growth potential when comparing our in-place rate with asking rates. Notably, for those markets where vacancy has been increasing, we stand with long duration in the leases, offering strong short-term defensiveness, particularly during uncertainty periods like this one. Page 5 highlights the year trends in Mexico, primary markets, including space under construction measured in years of net absorption. Across all markets, the ratio stands at approximately 2 years of net absorption. However, when excluding Tijuana, due to unusually low cumulative net absorption and Reynosa due to negative cumulative net absorption, the indicator improves to 1.7 years. Guadalajara, Juarez and Monterrey led in net absorption performance, posting improvements of 150%, 95% and 85%, respectively, compared to the previous quarter. Overall, lease -- asking lease rates rose by nearly 3% versus the second quarter, primarily driven by an exceptional double-digit increase in Mexico City. Excluding Mexico City, lease rates for the remaining markets actually declined by 60 basis points quarter-over-quarter. We could have further discussion [ on this ] during the Q&A section of the call. Moving along with the presentation. Our acquisition pipeline currently exceeds $0.5 billion and includes 29 industrial properties totaling close to 6 million square feet of gross leasable area. These opportunities are at different stages of analysis and negotiations and are in key markets such as Monterrey, Juarez, Chihuahua and Bajio. We are currently in advanced negotiations for approximately $120 million in transactions, which we anticipate could be finalized before year-end. But given NDA agreements, the color that I can provide on these transactions remains limited. We will continue to keep the investors and analysts update on the progress of our acquisitions pipeline. Beyond the opportunities already presented, we are consistently identifying new investment prospects. Should the acquisitions currently under advanced negotiations reach closing, we anticipate being approximately $50 million short of the investment targets established during our latest equity issuance. However, our robust balance sheet and significant financial flexibility position us well to achieve this goal, all while remaining comfortably below our 30% loan-to-value threshold. In the event that we chose to extend leverage up to 35% cap, we will unlock additional investment capacity of $180 million. This strategic option provide us with further room to pursue attractive opportunities in the market. Furthermore, if we successfully complete the asset disposals currently in progress, including the recently announced transactions involving office buildings in Monterrey, an additional $128 million could be added to available resources. Taken together, these initiatives would result in a total firepower of approximately $365 million. This amount could be reached without tapping the equity markets and without factoring in further divestments of nonstrategic assets currently underway. Our expansion initiatives continue to demonstrate significant progress and value creation for the portfolio. To date, the total investment in expansion project amounts surpassed $140 million, reflecting our commitment to target growth and strategic asset enhancement. These expansions are expected to generate a yield on cost of almost 10%, underscoring the strong potential for incremental returns. Of the total expansion capital, more than $88 million has already been secured through signed agreements. These projects are either currently under construction or have already been delivered, making key milestones in our ongoing development pipeline. The remaining balance represents projects that are presently under negotiations, further expanding our future growth prospects as these discussions advance towards finalization. This balanced approach to expansion, combining completed, active and pipeline projects reinforces our disciplined strategy and position us to continue delivering value through efficient capital deployment and operational excellence. On a same-property basis, net operating income demonstrated resilience, remaining stable with a year-over-year increase of 3%. This performance was achieved despite net vacancies exerting a negative impact of MXN 30 million. The portfolio has -- was able to offset this adverse effect through inflation-linked adjustments, securing new leases and generating additional revenue from expansion activities. Further strengthening overall financial results, the addition of revenues from acquisitions, net of divestment resulted in a significant increase in total NOI. Specifically, total NOI rose from MXN 650 million to MXN 770 million on a year-over-year basis, reflecting a robust growth of almost 20%. Our net operating income margin reached 91.8%, a notable achievement considering the presence of nonindustrial properties within our portfolio. This strong margin underscores the efficiency of our operations and the resilience of our asset base. Looking ahead, we anticipate further expansion of our NOI margins as we continue to strike a strategic transition towards a fully industrial portfolio. By gradually divesting nonindustrial assets and focusing on industrial properties, we expect to enhance operational performance and unlock additional value for our stakeholders. The company will maintain a disciplined approach to real estate operations, including acquisitions and dispositions. Market conditions may present additional opportunities and our business model allows for the flexibility to respond to these changes while providing cash flow predictability due to long-term goals. I could elaborate more -- in more detail on both markets and our portfolio conditions later during the Q&A section of the call. In assessing the valuation of our investment properties for the third quarter of 2024, there was a negative impact amounting close to MXN 3.8 billion, primarily attributable to the appreciation of exchange rate. This adverse effect, however, was offset by the positive contributions from recent acquisitions and divestments, we collectively increased the valuation by MXN 2.9 billion. As a result, the net effect of these factors helped stabilize and support the overall portfolio value during the period. The total value at the close of the quarter was MXN 36.9 billion, reflecting a year-over-year decrease of MXN 1.2 billion. This reduction was primarily attributed to the reclassification of MXN 1.7 billion related to certain assets available for future sale. It is worth noting that the current implied cap rate for the industrial portfolio stands at 7.8%, while office continues to expand the combined portfolio to 8%. The valuation from our independent appraiser could be subject to adjustments as interest rate environment continues to unfold. Our portfolio continues to demonstrate strong performance across several key metrics. Notably, we have increased the industrial share of our revenues, which now accounts for nearly 80%, aligning our assets with market demand and enhancing operational resilience. We maintain significant exposure to top-tier markets, particularly in the Northern region and the Bajio area. This focus has resulted in a highly defensive portfolio with approximately 85% of our revenue denominated in U.S. dollars, providing stability against currency inflation and strengthening our financial position. Another highlight is our weighted average lease term, which remains one of the longest in the industry at nearly 5 years. The extended lease duration delivers predictable cash flow and ensures stability for the portfolio. With that, I'm going to hand over to Jaime for the next section of the call. Go ahead, Jaime.

Thank you, Javier. I'd like to start by recalling the typically high yield from cash investments during the third quarter of 2024. This led us to retain and allocate roughly MXN 63 million to our CBFI buyback program given that the market price at that time did not fully reflect Fibra Monterrey's intrinsic value and cash-generating capacity. For that reason, we believe financial performance is better assessed by focusing on the distribution made in each period. That said, we saw a modest increase in normalized cash flow generation this quarter, mainly driven by the solid performance of our same-property portfolio and the contribution from recent acquisitions already mentioned by Javier. As shown on the graph to the left, we achieved sequential expansion in both NOI and EBITDA margin this quarter despite the Mexican peso strengthening against the U.S. dollar since a large portion of our operating and administrative expenses are peso-denominated, a stronger dollar could further expand these margins going forward. In addition, when comparing distributions to normalized last year's statistical finance income and using average FX rates, we recorded sequential growth across all key financial metrics and delivered a 4% year-on-year increase in distributions. Our capital structure remains solid. We closed the quarter with a net loan-to-value ratio of 20% and a net debt-to-EBITDA multiple of 2.7x. We maintained significant financial flexibility with undrawn credit lines equivalent to nearly 20% of total assets. This provides ample capacity to pursue new investment opportunities up to USD 250 million if we were to position our loan-to-value at 30% or up to $450 million should we reach our internal ceiling of 35%. We've already begun exploring refinancing alternatives for our next material maturity. While it's still 2 years away, we want to be fully prepared. Given our prudent balance sheet, global investment-grade rating and the recent downward trend in interest rates, we are confident we can secure highly competitive financing terms. Moving to the next slide, I'm pleased to highlight that our market valuation continues to be supported by both local and international investors. Our price saw a positive adjustment early this year and has remained resilient, showing a defensive performance amid broader market volatility. This reinforces investor appetite for vehicles offering stable inflation-linked dollar-based cash flows with long-term visibility. Additionally, our average daily trading volume has increased meaningfully compared to historical levels, particularly following last year's follow-on offering and our inclusion in the FTSE index. This momentum reflects the strong execution of our strategy, our commitment to transparent market communication and our ongoing efforts to expand our investor base through multiple channels. Although trading value across the market typically slows during the summer, as seen in the third quarter, we've already observed a rebound. In fact, just yesterday, over USD 9 million were traded. This trend could potentially support further index inclusions going forward. Before going to Q&A, I'd like to provide a brief update on the commitments we made during our last follow-on offering. With the recent acquisitions and the advanced negotiations in progress for expansions and new transactions already disclosed by Javier, we are very close to reach our USD 700 million investment target in industrial assets. Importantly, these investments have been made at an attractive yield of around 8%, which offers a compelling risk-adjusted return given the quality, location and fundamentals of the assets and their tenants. On the divestment side, we have only one property remaining in our underperforming office portfolio, which remains our primary focus for sale. As you've seen, we've already begun divesting other office properties from the performing portfolio. Lastly, I just mentioned our commitment to increase liquidity has already delivered tangible results as reflected in our trading performance. Finally, as in previous quarters, Slide 20 includes FX sensitivity analysis for both our NAV and AFFO multiples to support your valuation review. [ Chimalli, ] Please begin with the Q&A.

[Operator Instructions] Our first question comes from the line of Piero Trotta with Citi.

I would like to ask 2 questions. The first one is about the improvement that you mentioned in the third quarter. If you could give us more color on that, if tenants are becoming more content for new spaces, something in this -- some color about this would be very helpful. And the other one is about the Garibaldi project that is under construction. Building cost of this project is a bit lower than the rest of the recent deliveries that you mentioned in the presentation. Could you talk a little bit about it? What is the main reason for that? Is there is something specific to the project or something about the construction cost? That's it from my side.

Thank you for your question. This is Javier. Yes, we've seen an improvement in the market during the third quarter. To be honest, we were expecting vacancy rates to exceed at least 6% by this time. It only reached 5%. It was a contrasting quarter in terms of markets like Monterrey, Guadalajara, Saltillo and Queretaro doing extremely well in terms of net absorption. And a couple of markets doing extremely poor like Tijuana, Reynosa and Juarez even though it improved versus the previous quarter. But you have markets like Reynosa, that cumulative net absorption for the first 3 quarters has been negative in total. So we see some signs of recovery. The fact of the matter that prices dropped 0.6% if you exclude Mexico City or 2.8% if you include Mexico City with an typically growth on lease rates. It makes us believe that we are reaching close to equilibrium moment in the market, which is a positive thing. We believe that fourth quarter -- historically speaking, fourth quarters are not that high in activity. We're going to see what happens with this quarter. But we believe that we have seen some promising signs in the market for next year. If USMCA goes through, which we believe is going to happen in the first half of next year, I think we're going to have an extremely good year in 2026. In regards to your second question on the yield on cost for the Garibaldi expansion that we announced, the reason of this yield being relatively low is because they have secured the expansion with the previous developer and the seller of the property at certain conditions. And we have to acquire the neighboring piece of land for this expansion and the cost of the land was relatively high. So we didn't have the possibility of enhancing the investment by acquiring a cheaper piece of land. And that's the reason that the yield on cost is still good. I mean, 8.6% for a Class A tenant that was locked up on the expansion. It's combined with the rest of the expansions, and we still have a really good return on the investment all combined. I don't know, Piero, if that fulfills your question.

Yes, that's it, that's it.

Our next question comes from the line of Gordon Lee with BTG Pactual.

A couple of questions, Javier. The first was, if you look at the vacancy, the 5% vacancy, but thinking particularly, let's say, of Tijuana and Juarez, how much would you say of that empty space is actually occupiable in the sense of having utilities electricity or proper accesses? And then the second question is, when you look -- on the chart that you showed, I saw that the inventory under construction is about 4% of the existing stock. How would you -- how does that number compare historically?

Gordon, thank you very much for the questions. They're actually very, very interesting questions to answer. In regards to the space that is occupiable or usable for occupancy, suitable for occupancy and the size of the building, what we have seen in the last, I would say, 12 to 18 months is that a lot of the new development has been done on not necessarily the appropriate size of the buildings. If you take a survey of existing available buildings, for instance, in Monterrey, the number of buildings that you find below 200,000 square feet is really high. So it's not only a matter of having good buildings with the utilities and everything, but having the right size for the demand of the market. To me -- taking the example of Monterrey again, to me, the sweet spot for a building in Monterrey is around 300,000 square feet. When the tenants go out to the market and find out that they have plenty of options below 200,000 square feet, that makes the market more difficult to absorb. And also access to energy, we have find out that many buildings in markets like Juarez didn't have access to energy. That is improving a little bit slowly, I would say. And finally, and unfortunately, you find some buildings that are not necessarily the quality that the tenants are looking for. A lot of newcomers in the market, developers that never developed industrial before, ventured on developing industrial and those buildings do not necessarily have the quality and the specs that most of the tenants are looking for. In regards to your second question, in terms of percentage of the offer versus inventory, it's typically high. I would say that in previous years, particularly '23 and '24, that number was probably 60% of what we're looking right now in relative terms to the inventory. But again, I think that there is a typical amount of offer of buildings that are not suitable for occupancy. I believe that this number has remained stable. In most of mature markets, construction of speculative space slowed down a lot during the second and third quarters of this year, and it's helping. So I hope that answers your questions, Gordon.

If I were to force you to pick a number of that 5% vacancy, how much do you think is unsuitable?

Wow, I hope nobody is listening to this, but I would say that 70% is suitable and 30% might be unsuitable.

Our next question comes from the line of Igor Machado with Goldman Sachs.

I have a question here on the investment. So you mentioned that you have $500 million in acquisition opportunities, of which $120 million can be executed by year-end. So could you please give us more color on what makes an asset ready for the execution? And how do you intend to fund these assets? And if you could please also share what cap rates are you looking at, it would be helpful?

Of course, Igor, thank you for your question. Obviously, we cannot talk a lot about the specifics of the pipeline. What I can tell you is that on the $120 million that we are close to close, so to speak, we believe we're going to close on those before the end of the year. They are located in Northeast and Bajio and the combined cap rate of all that $120 million is very close to 8%, 7.9%, 7.8% around that. That's on our sweet spot in terms of our cap rate versus our cost of capital. And the $500 million on the pipeline includes those $120 million. But as I mentioned before, opportunities continue to arise by the hour. This week, we have been -- we have identified at least 3 more options, 3 more investment opportunities that are too early to include on our pipeline. But we feel very confident that opportunities continue to arise, and we are originating and creating a lot of off-market opportunities for us. And before I end, on the $120 million that we are closing this year, it's going to be a mix between cash and debt. I would say it's going to be around $70 million cash and $50 million debt.

Perfect. And just a quick follow-up here. You mentioned that you received offers for like MXN 2.4 billion in potential divestments. And if you execute it, does this mean you will likely be out of office, so out of the office portfolio? And this value also includes the industrial portfolio?

Yes, Igor. This is Cesar. So the MXN 2.4 billion does not include the whole office portfolio, just for a fraction of that and does include some industrial properties that we're currently evaluating on divesting.

Yes. If we close on those MXN 2.4 billion, we're going to have another around $200 million, let's say, MXN 4 billion or close to MXN 4 billion. And mostly it's going to be on the outperforming portion of the office portfolio. We're not in a hurry to sell those as they are still providing cash flow -- positive cash flow to us. But we believe it's going to close probably between now and the end of next year. And then we would be 100% in motion.

Our next question comes from the line of Jorge Vargas with GBM.

Just one question from my side. You mentioned an industrial acquisition pipeline exceeding $500 million. Are you considering a portion of Terra's portfolio that FIBRA Prologis has been promoting?

No.

No, we don't.

That's the short answer, as you can see. The long answer is that we have been looking into the Terrafina legacy portfolio as a whole. We haven't seen anything so far that fits our investment guidelines and our own portfolio. But we're going to continue to take a look at it because they haven't released the whole thing yet. They only released one portion of the legacy portfolio. So we're going to wait and see.

Our next question comes from the line of Edson Murguia with SummaCap.

The first one is to follow up from [ Goldman. ] Just to clarify about this MXN 2.4 billion expecting on divestment. Those industrial assets specifically is because you received unsolicited offer or it's because part of the business that you -- I mean, a couple of years ago, you recycling some assets? That's my first question. And my second question is looking ahead because if I compare the pipeline of acquisition, it's not the same from 1 year, if I compare third quarter '24 between third quarter '25. So my question is, it means that the dynamic is slowing down on the acquisition pipeline or it's because you're focusing on those assets that are more profitable perhaps?

Thank you. On your first question, the industrial assets that we are currently selling are 2 buildings. On both buildings, it was an unsolicited offer. One of the buildings is being sold to the tenant on the option to purchase that they have in the contract and the other one is a local investor. We're putting together an industrial package, an industrial portfolio that is going to be sold. I would say it's going to be put out for sale during the first half of the year, and it's going to include some nonstrategic buildings that we have either because of the age of the buildings or the location of the buildings. And those are going to be a targeted process that is going to be in the first half of the year. But the ones that we're selling right now are unsolicited offers. In regards to the dynamics of the pipeline, this is very dynamic, as you mentioned. We add and take out properties or portfolios from the pipeline continuously. I wouldn't say it's typically low. I would say we're being a lot more picky in terms of the quality that we're looking into. We don't want to fill our excel sheets with all type of buildings that we could buy. So the reason of the size of the pipeline right now, I would say that the main reason is the quality that we're looking for, but there's plenty on -- plenty of opportunities around that. And we have been facing a lower hit ratio on offers that we have done or we have presented this year, but that's due to the disciplined approach on pricing and on quality of the properties.

Congrats on the great results and the pace that you have on the growth.

Our next question comes from the line of Felipe Barragan with JPMorgan.

So mine is a little bit of development on sort of the market dynamics. So obviously, we did see some markets such as Juarez and Monterrey have a vacancy rate decrease, but we saw other markets like Saltillo and Tijuana with the rise. So I just want to pick your brains a bit. We had MRP announce a big project last week in Tijuana post 3Q. And there seems to be some sort of movement with the private developers. So I just want to pick your brains on what sort of movement you're seeing from the private developers, if we're still seeing a lot of spec developments occurring across the country despite the sort of wait-and-see mode from tenants?

Sure, Felipe. Thank you for your question. I would say, I believe I did mention something in the matter during my piece of the call. But my take on Tijuana is that the long-term fundamentals for Tijuana are great, continue to be great. A lot of Asian companies are the main -- the key driver for the market. And Asian companies right now, if somebody is holding back is the Asian companies. So I believe the market is going to resurge after USMCA is signed and delivered. On MRP, I would say that most of the vacancy of Tijuana is concentrated on the East corridor and the 2000 Boulevard. There are still some corridors that have higher demand like Otay Mesa and the West of the market. And there's a lot of scarcity on the offer in those markets. So if you have the land position in those markets, it's probably a good time to start developing right now. Let's keep in mind that most of the offer that -- or the vacancy that you see in Tijuana are buildings that were built during 2024. If I was to break ground in Tijuana right now to deliver on to have the supply ready by late '26, early '27, it's not necessarily a bad idea. But again, your intel has to be second to none in terms of the quality of the market intel.

Got it. And just a quick follow-up. Are you seeing some of this private development also trickling into other markets, I don't know, Monterrey and Juarez maybe? Or is this just something particular to Tijuana?

I would say that most of the markets are business as usual in terms of players and the developers. We've seen newcomers in Monterrey, which is -- it takes a lot of guts to come to compete to the local developers and the usual players and national developers, let's call them. But I would say a lot of speculative development in Monterrey was made on the highway to the airport on the toll road. You see a lot of buildings from well-known developers. But again, as I mentioned, there's a lot of buildings, small buildings available in Monterrey. That's probably the main reason of the increase in the vacancy rate. However, vacancy rate remains at a very healthy level. So I think this equilibrium moment that I mentioned before, it's a good thing for the market in general.

Our next question comes from the line of Enrique Cant with GBM.

You have done several of the divestments this year regarding agreements for [indiscernible] Las Torres Moradas. Could you share when do you expect these transactions to close? And how do you plan to reinvest the proceeds? And additionally, when do you expect the portfolio to be fully industrial?

Thanks, Enrique. Of course, the Torres Moradas are expected to close before the end of the year. The remaining transactions that we already have signed are going to take a little bit longer as we need to go through COFECE. I would say they should be closed during the first quarter of next year. And when do we expect to be 100% industrial? It's going to happen when it has to happen, and we do a good sale of the office portfolio. We're not in a hurry. If I would need to guess, I would say that probably before the end of '27, we're going to become 100% industrial. In the process between now and the end of 2027, what you're going to see is a dramatic increase on the share of the industrial portfolio as we move forward on the sale of the rest of the office building, but as well as we continue the nonorganic growth and M&A continues to grow. I believe that before the end of next year, we're going to be between 85% and 90% industrial, aiming to 100% before the end of '27.

Our next question comes from the line of Anton Mortenkotter with GBM.

Congrats on the results. Just a quick one. I'm trying to think a little bit ahead on evolving tenant needs. How are you guys positioning to serve a possible different next generation of industrial clients? I mean maybe those looking for EV, semiconductor automation players and all of that, where the facilities may not be as traditional warehouses as what the current market is. I mean -- and are these even trends you will consider tackling?

Anton, thank you very much for the question. It's a very interesting question. How are we preparing? We're preparing by means of added value services. For instance, we're doing additional investments on our buildings in terms of solar panels, racks, some maintenance and so forth. I would say that the market is moving towards more to a single net structure, more than triple net because the tenants want to focus 100% of their core activity and forget about the facility and for the landlord to take care of the facility, which I believe is a good thing. Even though the NOI margins are lower on those leases, it gives you a lot more grip and a lot more control on the maintenance and the CapEx of the building. And by doing that, you don't have to decommission a building after the tenant leaves. In terms of 2 specialized facilities like -- we're seeing some activity on the semiconductors industry, particularly in Monterrey. And I can tell you that they like going into a core and shell building. The specialization on those buildings is usually CapEx from the tenant. They want to control the investment on screen rooms and epoxy floors and things like those. And sometimes, if not most of the time, the landlord is not involved on that CapEx. I don't think that's going to change a lot in the future. But what we're seeing right now is that the logistics sector that usually was a very commodity building, use and discard type of facility. The logistics company are investing a lot more CapEx now in terms of automatization, sensors, cameras, racks and so forth. And that's the reason that we have ventured into the logistics sectors because it gives you a lot more stickiness. The more CapEx the tenant does, the more sticky the property becomes. So I would say that's probably the 2 trends that we're looking in the market right now.

Our next question comes from the line of David Soto with Scotiabank.

I have just 2 quick ones. You mentioned that you are currently evaluating strategies to extend your debt maturities. So could you please provide more details on your liability management program? And the second question would be, what are your plans on changing the mix between your logistics and manufacturing?

Sure. So thank you very much, David, for joining the call and your question. So we've been in discussions with several financial institutions, and we are encouraged by the strong demand for our credit profile. As negotiations are still under the way, we cannot disclose specific terms in this stage. However, if we're successful, we expect to structure the -- or to be consistent with our most recent credit facility, meaning a fully unsecured bullet with a tenure of no less than 5 years, therefore, pushing the maturity all the way to 2031. And we remain hopeful for additional spread compression, which given the behavior of the current interest rate swaps, we could allow us to keep the interest rate below 5% overall on our balance sheet. And on your second question, I will let Javier answer your -- so...

Yes, David. In regards to the mix between logistics and manufacturing, right now, we are standing at about 80-20, 80% manufacturing, 20% logistics. We would like to see our portfolio more towards 60-40, 70-30, somewhere around there. But there's an interesting thing in this matter. There's a thin line or a gray area between logistics and manufacturing because we have a lot of facilities that are logistics bought from the manufacturer. So for instance, the Whirlpool campus that we have in Monterrey, we have -- from the 5 industrial buildings that we have there, 2 are manufacturing centers and 3 are distribution centers. So there's a gray line. We don't account for those as part of the logistics portfolio. We account those more on the manufacturing classification of our portfolio. But if you go to the basic definition of logistics versus manufacturing, we would like to be 60-40, 70-30 on manufacturing and logistics, respectively.

Perfect. And if I may, so what you are saying is that you're looking to make a more complete service to your tenants. You are looking to provide also logistics to your manufacturing tenants, right?

Not. I mean, we're not going to provide logistics services to our tenants. We are going to provide the space for the logistics of our manufacturing tenants. As a matter of fact, if I may, the Garibaldi 1 expansion that we recently announced is a distribution center for the neighboring building that is the manufacturing center for that same tenant. That's a good expansion.

Okay. So it should be a one-stop solution for the neighboring tenants?

Exactly. Exactly. One-stop shopping.

[Operator Instructions] And with no questions in queue, I'd like to turn the conference over to the management of the company.

Well, thank you very much for joining our third quarter 2025 conference. We'll see you next quarter. Goodbye.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.