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Edited Transcript of FIBRAPL14.MX earnings conference call or presentation 30-Apr-19 2:00pm GMT

Q1 2019 Prologis Property Mexico SA de CV Earnings Call

May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Prologis Property Mexico SA de CV earnings conference call or presentation Tuesday, April 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jorge Roberto Girault Facha

FIBRA Prologis - CFO & Senior VP

* Kosta Karmaniolas

FIBRA Prologis - VP of Finance & IR

* Luis Enrique Gutiérrez Guajardo

FIBRA Prologis - Chairman & CEO

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Conference Call Participants

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* Adrian E. Huerta

JP Morgan Chase & Co, Research Division - Senior Analyst

* Alan Macias

BofA Merrill Lynch, Research Division - Analyst

* Daniel McGoey

Citigroup Inc, Research Division - MD and Head of Research of Brazil

* Fernando Froylan Mendez Solther

JP Morgan Chase & Co, Research Division - Analyst

* Roberto Waissmann

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Sheila Kathleen McGrath

Evercore ISI Institutional Equities, Research Division - Senior MD

* Vanessa Quiroga

Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil

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Presentation

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Operator [1]

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Good morning, and welcome to the FIBRA Prologis quarterly earnings conference call. My name is Kyle, and I will be facilitating the audio portion of today's interactive broadcast. (Operator Instructions) At this time, I would like to turn the show over to Kosta Karmaniolas, Head of Investor Relation. You may now begin.

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Kosta Karmaniolas, FIBRA Prologis - VP of Finance & IR [2]

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Thank you, Kyle, and good morning, everyone. Thank you for joining us for our first quarter 2019 earnings conference call. Today, we will hear from Luis Gutiérrez, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our Senior Vice President of Finance, who will review results and guidance. Also joining us today is Hector Ibarzábal, our Managing Director.

Before we begin our prepared remarks, I would like to remind everyone that all the information presented in this conference call is proprietary and all rights are reserved. The information has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any securities.

Forward-looking statements during this call are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements.

These forward-looking statements are current as of the date of this call. We take no obligation to publicly update or revise any forward-looking statements after the completion of this call, whether as a result of new information, future events or otherwise except as required by law.

Additionally, during this call, we may refer to certain nonaccounting financial measures. As is our practice, we had prepared supplementary materials that we may reference during the call as well. If you have not already done so, I would encourage you to visit our website at fibraprologis.com and download this material. With that, it is my pleasure to hand the call over to Luis.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [3]

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Thank you, Kosta, and good morning, everyone.

We started 2019 on a strong note, delivering operating and financial results above our expectations despite the uneven political environment. Occupancy reached a record 97.5%, our highest since IPO, which beat the market by 200 basis points. We're also over 96% occupied in 4 of our 6 markets, which is a clear indication that demand has not slowed for quality logistics real estate.

Our internal growth drivers continue to deliver, which in turn, have resulted in healthy cash flow generation. The result of our efforts was AFFO growth of 5% in the first quarter relative to the comparable period. Additionally, we sold 8 properties as part of our efforts to recycle capital and keep our portfolio in the best shape possible.

Investor demand was strong, and pricing was in line with appraised values, demonstrating FIBRA Prologis NAV is and highlighting the significant discount to the stock price. These assets were 85% related to manufacturing and in submarkets where we are no longer expanding.

The Mexican logistic real estate operating environment remains healthy but is responding to the unsustainable vacancy levels. Importantly, demand for logistic real estate remained solid and well balanced. With low vacancy and land difficult to source, our customers continued to sign longer-term leases. In Mexico City, consumption-oriented demand is driven by durable structural drivers, such as rising affluence, undersupply of modern stock and increasingly e-commerce.

The border markets continue to benefit from the strong demand of goods from U.S. consumers. In the first quarter, the border markets accounted for approximately half of the market net absorption led by improving conditions in Ciudad Juarez and Tijuana. Lack of modern available products along with market rent growth has advanced development activity, a healthy response to the operating environment and pent-up demand.

Development starts exceeded demand by approximately 1 million square feet in the quarter, which was lower than we expected. This going balance was primarily driven by Monterrey. Market vacancy in our 6 markets remained low at 4.5% for modern facilities. This is a flat year-over-year of 30 basis points from year-end. Given our view of supply, we expect market vacancy to remain below 5% for the remainder of the year.

Let's spend a few minutes discussing our markets and customer sentiment. Let me begin by highlighting a few notable events in our consumption markets. In Mexico City, where we are almost fully occupied, we signed a lease in our Cedros Park in record time, 10 days from site visit to lease execution. We have also had significant activity regarding second half of the year expirations with tenants proactively reaching out to us to start the renewal process.

In Monterrey, we signed a lease with a major biotech company who established a new operation from a previous overseas location. Additionally, we're doing a build-to-suit expansion for one of our existing tenants, a global third-party logistics provider.

Turning to our border markets. We continue to see elevated interest from manufacturing companies that are exploring nearshoring the facilities to Mexico. This could be an incremental tailwind for demand as the supply change shift closer to the consumer.

Tijuana and Juarez remain very dynamic, both with an active deal pipeline. We're working hard to ensure we'll be fully occupied in Tijuana, while in Juarez, we're close to renewing our largest expiring lease for the year.

Reynosa has been quietly building momentum with many existing customers inquiring about expansion space. Our largest customer there recently took additional space, bringing their footprint to over 400,000 square foot.

Mexico logistic real estate is among the few value opportunities available globally. Since 2013, the price per square foot in the U.S. and Europe have increased by more than 50%, while in Mexico, they have grown by 20%. Over that same time, cap rates in Mexico have compressed by approximately 30 basis points, whereas in most major logistic markets around the world, have compressed by more than 100 basis points. Geopolitical uncertainty has kept Mexican valuations from rising despite recording modest growth. Even as logistics, real estate has outperformed the broader economy.

Our 2019 plan favors flexibility and liquidity over acquisitions. While we are encouraged by the recent stabilization of the financial markets, we would like to see further evidence before labeling this a sustainable trend, particularly as Mexican GDP has slowed and USMCA have not been approved by their respective country's legislative branches.

In summary, FIBRA Prologis is very well positioned to outperform. Our investment strategy favors consumption and light manufacturing, the 2 most important structure drivers in the Mexican economy. We are a customer-centric organization, and our multinational customer base spans industries. We go beyond being just a landlord for our customers but rather partnering with them to solve their supply chain needs.

Our 4.6 million square foot pipeline of Class A assets from our sponsor, who continues to invest in Mexico. These assets are well located primarily e-commerce-related properties, and I believe no one has the access to anything remotely close to the quality or size.

With that, let me turn the call over to Jorge.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO & Senior VP [4]

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Thank you, Luis. Good morning, and thank you for joining our first quarter 2019 earnings call.

Starting with operations. Quarter end occupancy reached 95.5%, an increase of 10 basis points from the fourth quarter and 150 basis points from the same period last year. All tech markets improved year-over-year with Reynosa and Guadalajara boasting the largest gains. In fact in activity, this quarter, we commenced 1.6 million square feet with Guadalajara and Monterrey accounting for 2/3 of total volume. Our average lease term was 54 months.

Net effective rent change from rollover for the quarter increased by 5.9% in dollar terms, led by Monterrey and Reynosa. Additionally, it is important to point out that FIBRA Prologis (inaudible) rent remain more than 6% below the market, providing also the embedded organic growth for the next few years.

Moving to same-store cash NOI for the quarter. We reached a positive 3.5% due to higher expense recoveries and rent, partially offset by bad debt expense and higher free rent as a function of longer lease terms.

Now let me turn to our financial performance. FFO for the quarter came in at $28.8 million, a decrease of 2% when compared to the same period last year. This decline was mainly driven by net-related change to (inaudible) extinguishment of debt as we refinanced $255 million and was offset by higher net operating income. Atypical for the quarter was up almost 5% if compared to the same period last year mainly due to lower cap rates and expense.

Now let me talk to our balance sheet. Our balance sheet remains one of the strongest in the sector. We ended the quarter with a loan-to-value of approximately 32%, weighted average debt cost of 4.3%, weighted average maturity of 4.6 years and $340 million of liquidity. During the quarter, we refinanced $290 million, extending our 2020 debt maturity to 2024. This decreased our expiration terms, increased our expiration terms and liquidity positioning our balance sheet to take opportunity give the market a loss.

In terms of the position activity and as we've mentioned, we sold 8 properties for net proceeds of $62 million, in line with upright values and highlighting the disconnect in real estate private market values on public stock price. As we said at the beginning of the year, we have done the required work positioning the portfolio and balance sheet to be in the best shape for all parts of the market cycle.

Before closing, let me highlight the current ESG initiative. We are committed to ESG and are implementing a program to improve the efficiency of lighting in our building. We want to stay ahead and let technology ensure that our buildings remain safely (inaudible). Parts of the electricity savings our customer will generate will be back to us, while steadying the overall costs, making it a win-win scenario.

Turning to guidance. We are not making any changes at this time. However, as we have also said, we will evaluate the opportunities as they come available and evaluate the best use of our liquidity. To wrap up, we had an excellent quarter and start of the year. While we are mindful of local and global political volatility, we feel great about our business and confident about our future performance.

With that, I will turn it over for the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Sheila McGrath from Evercore ISI.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

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I would like to ask about the portfolio sale. After the completion of that portfolio sale of older properties, maybe you could give us some statistics on how the residual property portfolio looks in terms of average age and mix of properties? And do you believe this portfolio sale gives you dry powder to acquire assets from your sponsor?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [3]

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Thank you very much for your question, Sheila. I will ask the first part of the question, and I will turn it over to Jorge for the second part of the question. The disposition process was a very positive experience for us. At the beginning, as we have never done this in the [figure] before, this was in attractive waters for us. It was a good experience to see all the interest that exists to do these type of transactions. We received many NDAs, in the range of 13 NDAs, and we ended with 3 very strong proposals, ended up selecting that, that represented a low-execution lease for us, and we're pretty happy with the outcome. The most important thing that we have about this experience is that it really ties the value that we get from these properties to the value in which we have been constantly giving to our assets. This is in evidence of the reallocation between private and public values. We still have around 2 million square feet of properties similar to the ones that we sold. This will be twice what we have already sold. We do see the market being strong to take over these opportunities for the next couple of years. So what is the [feedback] of the market and what we will be trying to coordinate, Sheila, is to have a tax-efficient situation on the sale of the portfolio. This tax-efficient situation is linked mainly to the FX that we were representing. The CapEx will be -- remain as it is today. We might be seeing some activities either by the end of this year or early next year. About the quality of the portfolio that we will be selling, it's very similar to what we sold, these -- there are good properties that are steeped in cash flow, but they are not in the markets in which we are currently willing to be further investing or the design of the properties is not consistent with the line of design that we want in the index. They are good building, so we are positive that we will be having similar attraction to ones that we have in reverse process. To what to do with this money, I will turn the word to Jorge.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO & Senior VP [4]

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This is Jorge. Regarding the use of proceeds, we use the net proceeds of the sale to pay down our line of credit. So basically, we resetted the line of credit with -- while our liquidity increase, and we don't have much cash, as you know, in hand, so we can use those proceeds as I said this market allows to take some opportunities. But the use of proceeds was 100% used to pay down the line of credit.

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Operator [5]

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Your next question comes from the line of Dan McGoey from Citigroup.

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Daniel McGoey, Citigroup Inc, Research Division - MD and Head of Research of Brazil [6]

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Congratulations on the results. My question is a bit more at the sponsor level. You put a fair amount of spot into market over the course the last couple years with Grande, which is now fully leased. I'm wondering if you talk a little bit about whether you're reloading in terms of the land reserves there. Looks like you have 1.5 million square feet so quite a bit smaller than what you've had in prior years, and if you could talk a little bit about what are you seeing land cost inflation?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [7]

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Thank you, Dan. Yes. So certainly, one of our strongest market has been Mexico City. The overall trends of consumption and mainly this a structure driver change in consumption, which is e-commerce has been very alive, and we believe we're still in the early stages. E-commerce sales last year had a very important increase, and certainly, a lot of the clients are beginning to shift their product -- I mean, their systems to allow more e-commerce sales, and this has been an important driver of demand. Certainly, Grande, which is most of the pipeline of the sponsor to FIBRA. It has been very active, and it's fully leased. This park is around 4 million square feet. And that we treated, as you mentioned, the land bank reserve in Mexico. We are working or the sponsor is working on replenishing this land bank in Mexico City, and currently, there are 3 options of land replenishment as we believe in the fundamentals of Mexico City are very strong, we believe, given the scarcity of land around 2% will generate more rental growth in this market, and of course, the (inaudible) in this market that we want to grow.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO & Senior VP [8]

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As an additional comment, Dan, we have land available to do immediate development. They sponsored us. We are permanently monitoring expansion needs of our customer base and the bookings that are outside the market. So the message that I want to transmit is that Prologis, either through the FIBRA or through the sponsor, will not interrupt the supplier space to the Mexico City market. That's something that we understand is important, and we have been working with that for the last couple of years.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [9]

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Surely, there's has been some land inflation, Dan, the last part of the question. Land in Mexico has went up a little bit, I would say maybe like 10% in the last couple of years.

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Operator [10]

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Your next question comes from the line of Roberto Waissmann from Bradesco.

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Roberto Waissmann, Banco Bradesco BBI S.A., Research Division - Research Analyst [11]

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I have 2 questions here. My first question is unlike the peers, you are the only one delivering all the areas, including Bajío, which seems to be the most challenging region according to real results, right? So I'd like to know which other regions we could expect outperformance? And which other regions that could be taking a bigger challenge and possibly presenting underperformance (inaudible)? And my second question is regarding the 2019 guidance vis-à-vis the 1Q results. When we analyze the results for the quarter, we were all in line or even better, especially FFO per share, cash same-store NOI and G&A expenses. Maybe too early for us to expect something closer to the top of the range of the guidance or even beating the guidance.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [12]

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Thank you very much, Roberto. Let me start with the first question. And you mentioned Bajío. Bajío is to market, but we decided more than 10 years ago not to participate. Asian market in which we like activity that it has been presenting, we like the fundamentals of the automotive sector being the main driver of that region. But as we consider that, that region has ample availability of land, so there's no barriers for entrance. That market is not feeding with the strategy that we have, which is participating markets which have the worst of maintenance so we have the ability to increase rent and to increase the value of the index. That has been our strategy, and that strategy does not change. However, we permanently monitor Bajío as it is a good education for us to understand what's going on and that's (inaudible) for customers maybe have operations there. I think that the automotive sector in space in that situation, which the future presents some challenges and that situation may somehow be affecting that market. The second part of your question is about the regions that will be outperforming. We see plenty of activity in the -- on -- I do like to mention all this to the market that I have because I'm positive that all of them are having a pretty good performance. But try to make a selection of the Mexico City as a -- the main market that we have. We mentioned all the characteristics and the strengths that the market has. I think that we have the best position in the market to take advantage of the opportunities. Among all this time, we have been able to give very strong relations with the main customers which are providing this growth. As you can imagine, we have very many conversations with them. We are acting not as landlord payment, but we are acting as business partners, and we are trying to identify what they need next and what can be produced with anticipating the requirements. So Mexico City is pretty strong and will keep on being pretty strong. And the #2 market that I did select at this time is Tijuana. Tijuana is a market which we have been enjoying 100% occupancy. I'd say that it's a market which is very challenging to supply in the space. Our sponsor is in good position now to develop, and we have seen a lot of activity, and important demand big desert projects (inaudible) that are going to be happening in that market, and that's not an exclusivity of Prologis, but whoever is acting in that market is going to be presenting crucial points. I will pass the word to Jorge to try to answer the 2019 guidance for this.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO & Senior VP [13]

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I guess I never looked over your questions. Starting with the straight answer is our guidance for the end of the year -- the result of our -- the company for the rest of the year is going to indulge in the range of our guidance and now going more specific about the same-store cash NOI and our G&A to give you some background on that. Our -- if you look at our historic same-store cash NOI, you will see at the end of last year, for example, it was negative. It was 2.1% negative. And this year, this quarter was 3.5% positive, mainly was due to recovery expenses. At the end of the year, there some utilities expenses that are covered by (inaudible) to reconcile until the first quarter, and we have an increasing electricity, for example, in (inaudible) and because of those situations, those expenses are not covered in that quarter. There's always a time lapse, if you may. So you see a negative and then you see a high positive. The same thing happened the first quarter of last year. We had a 6.6% increase. And so for the same reasons, recovery during the quarter of last of the previous year then. So that's [part why] to raising our guidance. Regarding G&A, I think you're comparing with the first quarter of last year. We had some extraordinary expenses with a trustee, and trust expenses, we did have change of proceeds, and there were some expense that needed to be covered during the last 3 years. So that's why this time we (inaudible) in the total G&A vis-à-vis last year. So all this tells you about our guidance at the end of the year going to be in the same range that we -- in the range of we guide.

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Operator [14]

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Your next question comes from the line of Vanessa Quiroga from Credit Suisse.

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Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [15]

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Congrats on the results. My first question is regarding -- Luis, you commented on the press release that you've seen a slowdown in development at industry level in the beginning of the year, so I'm curious what you are seeing exactly in the different markets, why you think there was a slight slowdown in the development in the beginning of the year? And secondly, if you have any update regarding the permitting issue or construction situation in Mexico City market?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [16]

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Let me start with the second part, Vanessa. I think that one of the municipalities where there is land availability more than (inaudible) markets is currently the [Poza] plan. The Poza plan has been establishing policy in which they are trying to get the right balance between keeping the Poza plan of Puebla, Mexico, (inaudible) town. At the same time, they are willing to open the opportunity to keep on doing logistic warehousing. I would say that current decrease in quality is [very] 70% or 75% of the future development. And there has been good work through the authorities and developers who came up to try to start this whole infrastructure, which is required, to be able to operate under adequate basis these new logistic supplies, which is going to be happening there. I think that the good news is that the agreement on what to do, the cost of what is going to be done and the will of all the developers to participate on these is already in place. This means that there's an agreement. The paperwork about all the (inaudible) and the trusts that need to be established to get here might eventually take probably a couple of months more, but I think that eventually before the end of the year, this situation is going to be sold, and development will be starting there, which is something that the market is really demanding. The first part of your question about the slowdown in development. I think it was a little bit natural. Beginning of the year, it's always a bit slow on this regard, both in this 2019. Besides the beginning of the year, we have initial of the AMLO administration. I think that there was uncertainty what was going to be happening. I think that as AMLO has made progress as an official that he's going to be respectful to the private sector in this regard, particularly on the development of infrastructure. I think that the optimist of the sentiment of the developers has been catching up. And we don't see to-date a concern of people that are investing. What we see is that there is challenges, as when that I mentioned was the plan to try to have a bigger development activity. But so far, things are trending to normal. We think that the interest is there. Developers have money. Investors are committed. And the sector will keep earning.

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Operator [17]

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Your next question comes from the line of Alan Macias from Bank of America.

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Alan Macias, BofA Merrill Lynch, Research Division - Analyst [18]

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My question has been answered. Thank you.

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Operator [19]

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Your next question comes from the line of Adrian Huerta from JPMorgan.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [20]

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Luis and Jorge, my question has to do with potential acquisitions. If market conditions remain the same in Mexico and as well as the economy, what are the chances that, at some point in the year you could do some acquisitions and bring up your leverage a little bit? I mean -- and what would be the maximum level of leverage that you would like to have in a good economic environment?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [21]

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Adrian, this is Luis. So the year began on a very positive note. Demand for our product was strong. And you can see this clearly in the operating metrics. Financial markets have also recovered. In fact, we have seen a pretty good runner certificate from the beginning of the year. Having said that, we believe it is time to remain prudent. We have a new administration. It's just been in bar a little more than 100 days, and the new economic forecast show a slowing Mexico GDP. On the other side, international front, we still have pending a border aspect like the ratification of the USMCA, and we also have the beginning of the campaign of the U.S. election coming for next year. So at this time, we have optionality for these acquisitions, and we have 3 levers. So 1 is debt, equity and capital recycling, and we can lever 1 of these 3 or a combination of the 3. So on the debt side, we would like to continue with our prudent policy, maintaining strong balance sheet, not to overlever and not to go over 35%. Today, as Jorge mentioned, we're at 32%. We have sufficient debt capacity to make this acquisition should we decide to increase [not] the value to take advantage of any opportunity. On the equity side, we could issue equity in the future. Sure, our certificate begins trading at closer levels to NAV. We believe that, at current levels, it would be dilutive to the current shareholders, and this is something that we would not do. And then the last lever is capital recycling. So we have always the option to sell additional assets, noncore assets, and we just did. Initially, these asset sales would need to be tax efficient, and FX, as Hector mentioned, is a lever that is important one to monitor where it is. So we feel good about our position, and we'll see how the environment behaves, and we should make a decision just monitoring these aspects.

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Operator [22]

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Your next question comes from the line of Froylan Mendez from JPMorgan.

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Fernando Froylan Mendez Solther, JP Morgan Chase & Co, Research Division - Analyst [23]

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In terms of the expansion projects that you mentioned you have, how much in terms of size of investment and GLA do you currently have on expansion project? And also, how much of these projects have been done directly by the team in the past? And should we see this strength changing in the short term?

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO & Senior VP [24]

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Even -- thank you for your question, Froylan. Of a price that we have or the (inaudible) have directly on the development, we have around 1 million square feet, and this is basically in Monterrey, so that's twice. The developed projects that eventually could be contributed from the sponsor to the FIBRA -- from the sponsor to the FIBRA further than the corporate governance that we have for those purposes, the main asset is Park Grande that mainly comprises 4 million square feet. That's a building that we have and sure that's guidance rather than the '17. Regarding potential development starts that the sponsor has, we think that it will be completed by the beginning of next year, developments in Monterrey, in Tijuana and an expansion that Parkland is going to be having. So I think that this is an ample pipeline. As we mentioned, the B2B disruption that we have, which EBITDA have (inaudible) back from the sponsor. It's really strength that FIBRA has. This is a developed market, and the ability to have the exclusivity is something that FIBRA will be mutually taking advantage of. Talking about the fee ramp, as you know, we have defined the business model of the FIBRA basically to whole stabilizing assets. But there's a couple of assets in Monterrey that, that will require an expansion on adopted lands already owned by the FIBRA. So on turning or the remaining of the year, we will be announcing about the investment in these expansions. One of them is already committed with an important global logistic customer. The other one will be developed on an [expect] basis taking advantage of the momentum that we have in that particular submarket in Monterrey.

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Operator [25]

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Your next question comes in the line of [Andrea Lara] from Signals Research.

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Unidentified Analyst, [26]

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I have 2 questions. The first one is with respect to the gap between the market plans and yours. I want to know the truth is, does it seem more feasible that you can reduce the debt? Which one? Would it even be possible? And my second question is there has been a slight downward trend in the U.S. dollar-denominated revenue. I just wanted to know if you expect the trend to continue in the future?

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO & Senior VP [27]

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Let me -- I got some problems listening to your question, but I guess it was regarding the (inaudible) rents compared to market. The cash that we have currently, and as you know, we do permanently an analysis of how the market rents are, how the EPS rent of our portfolio are as well. On the overall, we have a lack of 6.4%. This is on the overall portfolio. We have some cases, for example, mentioned in the market in which we have a wider spread with Tijuana. And Tijuana, the expectation is that our exchange rates are in the neighborhood of 11% below market conditions, so this provide some opportunity for us to lower rents on that market. Mexico City, our estimation is at a rent kind of range of 8% below market, and that we have mentioned that important market. In Monterrey as well, we are facing an open lag of 7%. So I mentioned the markets in which we are lagging more from in-place to market, and this is why we are optimistic to keep on presenting the most important rent growth of the sector.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [28]

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Andrea, related to your second question, and I am not sure we heard correctly, but you were asking about the trend between pesos and dollars of our overall revenue. So today, you look at the numbers, the dollar is between 68% and 69% in dollar, and it's a little bit down from 70% from the last quarter. So I would say that the ask for our clients to go to dollars has diminished as we have seen some instability on the FX. This is something we are closely watching because, certainly, our debt is in dollar terms, and we would not go over 35% of peso revenues. And just to say that the only market in which we have seen higher change from dollars to pesos is Mexico City. Having said that, any client that would like to go to pesos would have a 5% -- 3% to 5% additional rent in pesos, which that covers the difference in the cost of financing between pesos and dollars. And some clients are accepting and some clients are just signed to continue dollar trends. So in corollary, I think we are maintaining those levels that we have.

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Operator [29]

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(Operator Instructions) There are no questions at this time. I will now turn the call back over back to Luis Gutiérrez for closing.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [30]

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Thank you all. FIBRA Prologis had an excellent start to 2019. The Mexican logistic real estate market remains healthy, and we remain optimistic about our internal growth capabilities. Our 2019 plan favors flexibility and liquidity over acquisitions, and we are confident we will outperform again our portfolio customer relationships and proven track record. I want to thank you for joining us on today's call, and if you're planning to visit Mexico soon, please let us know. We would very much like to show you our properties. So thank you to all.

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Operator [31]

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This concludes today's conference call. You may now disconnect.