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Edited Transcript of FIBRAPL14.MX earnings conference call or presentation 23-Jan-20 3:00pm GMT

Q4 2019 Prologis Property Mexico SA de CV Earnings Call

Jan 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Prologis Property Mexico SA de CV earnings conference call or presentation Thursday, January 23, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hector Ruben Ibarzábal Guerrero

FIBRA Prologis - COO & MD

* Jorge Roberto Girault Facha

FIBRA Prologis - CFO

* 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

* Armando Rodriguez

Signum Research - Stock Market Analysis Manager

* Eduardo Altamirano

HSBC, Research Division - Analyst, LatAm Cement and Construction, Real Estate

* Eduardo Alvizouri Alvarez

GBM Grupo Bursatil Mexicano S.A. de C.V. Casa de Bolsa - Analyst

* Francisco Chávez Martínez

BBVA Research SA - Research Analyst

* Francisco Suarez

Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities

* Gordon Lee

Banco BTG Pactual S.A., Research Division - Director of Latin America, Country Specialist & Strategist for Mexico

* Nikolaj Lippmann

Morgan Stanley, Research Division - Equity 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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And ladies and gentlemen, good morning, and welcome to the FIBRA Prologis quarterly earnings conference call. My name is Joan, and I will be here facilitating the audio portion of today's interactive broadcast. (Operator Instructions)

At this time, I would like to turn the show over to Mr. Kosta Karmaniolas, Head of Investor Relations. Please go ahead.

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

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Thank you, Joan, and good morning, everyone. Thank you for joining us for our fourth 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 the 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. 2019 was another terrific year for FIBRA Prologis despite the weakening Mexican economy. We exceeded our internal growth objectives and completed our capital deployment goals. Let me start by discussing the highlights for the year. Leasing volume was 7 million square feet, with 81% coming from renewals. Property reached a new record, ending the year at $97.6. Importantly, this was 22nd straight quarter with portfolio occupancy above 95%. Re-leasing spreads were 11% for the year, while average term for new leases commenced and was 59 months. Our occupancy gains and releasing spreads resulted in cash same-store NOI growth of 3.1 for the year.

We were active on the capital deployment front, selling 10 properties during the year at NAV, which further streamlined our portfolio towards submarkets with greater growth potential. We also completed 1 acquisition in the premier infill submarket of Santa Maria in Mexico City, which is the first investment in our Last Touch strategy. Our performance demonstrates the importance of well-located modern facilities such as those in our portfolio. Our supply chains moved closer to consumers and facility amenities such as trailer parking and truck courts and efficient energy use matter, we're expecting multinational businesses to be even more selective, which plays to FIBRA Prologis strength.

Consumption and manufacturing exports drove demand in 2019. While logistics demand advanced by almost 5% in the year, overall economic growth was flat, a trend we expect to continue in 2020. Net absorption in the fourth quarter reached the highest level in 6 quarters. For the full year, logistics demand came in above our expectations at 16.6 million square feet or 1 million square feet more than the prior year.

Supply proved to be constrained in 2019, a reversal from the start of the year. Full year completions were just under 15 million square feet in Mexico City, land in scarcity and a lengthening environment process has limited completions. In our border markets, limited access to electricity is a rising theme, which has lowered new supply. Higher supply in Monterrey is nothing new and we continue to watch for any deviations.

Putting it all together, vacancy ended at 3.5%, down 70 basis points year-over-year. For 2020, we expect a balanced market with supply and demand of approximately 15 million square feet, and we expect market vacancy to remain below 4%. Let me spend a few moments on what we're seeing on the ground. E-commerce, which changed consumer behavior around the world has become a significant driver of logistics demand as adoption by Mexican consumers growth. Given the number of SKU Gary packaging and reverse logistics, all happening in the same building. E-commerce companies need 3x the logistics space as traditional brick-and-mortar retailers.

While Mexico City has benefited from this trend, we see Guadalajara and Monterrey as the next major beneficiaries. Preliminary expectations were year-over-year e-commerce sales growth is projected to be 28%. Manufacturing continues to be an important segment of the Mexican economy. Particularly as the broader economy has weakened. Labor issues have subsided and activities increasing in Tijuana and Juárez. Supply chain reconfiguration away from Asia continues to drive demand and the passage of the U.S. MCA could provide an additional uplift. In all, 1 of our markets, space utilization remains high and customers are actively pursuing expansions. Market rents are either stable or growing in 5 or 6 markets.

Before concluding, let me recall the 2020 outlook. We are cautiously optimistic as we start the year. While U.S. MCA has overcome regulatory hurdles and is expected to be low in all 3 countries shortly to retentions between the U.S. and China remain. Additionally, domestic policies and their impact on the economy remain untold. Logistics real estate continues to be favored asset class among investors.

We continue to see an abundance of capital from wide-ranging sources as well as more demand than available product. In operations, our focus remains on pushing rent and maximizing lease turn. We have excellent embedded earnings potential, particularly as 2020 has the largest expirations in our portfolio at 1 lowest in-place rents. On the deployment front, we continue to analyze various options to fund acquisitions, including debt financing, selling assets for tapping into the capital markets. We see opportunities, which are included in our guidance, to acquire assets that align with our view of our investment strategy. With respect to balance sheet management, we have worked hard to increase flexibility and liquidity while maintaining low leverage.

We view this as a major competitive advantage. The flexibility we have allows us to be opportunistic, something we will look to do more in 2020. In summary, we remain committed to creating value for certificate holders. Our portfolio is resilient and built to outperform in any environment.

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

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

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Thank you, Luis. Good morning, and thank you for joining us. As Luis mentioned, we had a terrific 2019. We ended the year meeting or exceeding our guidance. With that, let me start with operations. Leasing activity was 2.7 million square feet this quarter. Quarter end occupancy increased 20 basis points year-over-year to 97.6% and 80 basis points from the third quarter.

Net effective rent change from rollover for the quarter was positive 13.9%. Additionally, it is important to point out that FIBRA Prologis in-place rents remain approximately 5% below market, providing us with embedded future growth. Cash same-store NOI increased 2.5%, driven by annual rent bumps, releasing spreads and exploration and lower bad debt expenses.

Now let me turn to our financial performance. FFO for the quarter came in at $24 million, which represents a 2% decline if compared with the fourth quarter of last year. The decrease in FFO is due to a $4.1 million nonrecurring write-down related to non-reimbursed taxes.

We are working to recover approximately half of this amount related to withholding tax derived from interest payments. Having said this, on an annual basis, FFO, excluding the incentive fee, came in at $107 million, basically flat if compared to 2018. As absence of this write down, FFO would have increased 14% compared to the fourth quarter of 2018. AFFO was $40 million for the quarter, a decrease of 16%, when compared to the same period last year due to the write-down I just mentioned.

On an annual basis, AFFO came at $83 million, basically flat, if compared to 2018. Moving to our balance sheet. Our balance sheet remains one of the strongest in the sector. Within the quarter with a loan-to-value of 32.2%, weighted average debt cost of 4.5%, weighted average maturity of 3.8 years and $335 million of liquidity. We have positioned the portfolio and balance sheet to be in excellent shape and be ready for all parts of the market cycle.

Now let me introduce our guidance for 2020. Prior to year-end, we executed a peso good option for 2020 at MXN 19.5 per U.S. dollar. Effectively limiting the downside risk if the peso weakens, while allowing us to participate in the upside if the peso strengthens. Our 2020 guidance uses a MXN 19.5 exchange rate and excludes the impact of any potential incentive fee. Due to the scarcity of available modern well-located products, we expect our portfolio year-end occupancy to range between 96% and 97%. We forecast cash same-store NOI growth to range between 1.5% and 2.5% for the year. Annual CapEx as a percentage of NOI to range between 14% and 15%. G&A to range between $20 million and $21 million.

We are restarting our acquisition program. We expect to acquire between $60 million and $80 million. Putting all this together, we're setting our full year FFO per certificate range between USD 17 and USD 17.75. We are maintaining our distribution at USD 12.40 per certificate, which represents approximately 6% dividend yield in dollar terms at current value.

To wrap up, we had a terrific 2019. Our portfolio is well positioned to outperform the market, and we will continue analyzing opportunities to efficiently deploy capital. We feel great about our business and confident about our future performance.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Unidentified Company Representative, [2]

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Operator, we are ready to begin the Q&A.

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Operator [3]

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(Operator Instructions)

Your first question comes from the line of...

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Unidentified Company Representative, [4]

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We don't hear you operator?

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Operator [5]

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Your first 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 [6]

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Can you hear me?

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Unidentified Company Representative, [7]

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Operator, are you there?

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [8]

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Jorge, can you hear me?

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Operator [9]

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Presenters, can you hear me?

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

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I can hear you operator, but I don't think the company can.

(technical difficulty)

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Operator [11]

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Your first 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 [12]

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Can you hear me, Jorge?

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

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Yes, we can hear you, sorry for that delay. I don't know what happened with the phones.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [14]

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No worries. My question has to do with explorations and same-store NOI growth. You had a very good progress on leasing activity in the fourth quarter. You brought down the exploration for this year to 16%. How much more and how much -- how active are you at the moment? And how much can we expect during the first half for you to reduce that 16%? And that considering how strong the leasing spread has been except for the 3Q, but the other 3 quarters of last year being a little bit more than 10%. Why are you expecting a same-store NOI growth of 1.5% to 2.5%, which is lower than what you had last year?

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [15]

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This is Hector. Thank you very much for your question. This year, we have the largest FIBRA customer expiring its contract with a large technology company based in Guadalajara. We have already sold these renewals on very stable conditions on our side on a long-term basis. So I'm very optimistic about the way they will over settlement and renew during 2020.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO [16]

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Answering the second part of your question, regarding the 1.5% to 2.5% on same-store cash NOI. Basically, there are 2 reasons why we're guiding to this number. One in terms of average occupancy. The portfolio is basically flat, if compared to last year, which is a high occupancy, by the way, above 96%. And the other thing is that if you see the new leases, the new lease term -- terms have been increasing. And because of that, free rent as a function of longer leases also have increased not because we have given more concessions to our clients, the more the terms, the more in proportion free rent we get. So those 2 factors are embedded in the same-store cash NOI growth, and that's why it was between 1.5% and 2.5%.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [17]

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Perfect. Clear. And just Hector, on that large customer that had its contract expiring this year. Was that part of what was already renewed in the -- during the fourth quarter that reduced the expirations from 25%, 24% to 16%?

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [18]

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That's correct. We did that transaction before year-end for 2019.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [19]

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Okay. So there was a good leasing spread on that contract as well, given that it was probably most of the -- how much of the leasing activity was this customer of the leasing activity in 4Q?

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [20]

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It's 1.3 million square feet. As you know, the leasing activity that we present has to do with the period where that contract expires. This means that the so far of the 2019 numbers, but it will be part of the 2020 numbers.

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Operator [21]

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

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Gordon Lee, Banco BTG Pactual S.A., Research Division - Director of Latin America, Country Specialist & Strategist for Mexico [22]

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Two quick questions, and both of these have to do with the related to the Capex, the acquisition guidance that you provided for 2020. The first is whether or not this is -- the deployment of the $60 million to $80 million is something sort of visible, tangible assets that have been identified. Maybe part for logistics pipeline? And perhaps maybe you could give us a timing on that? Or is this a little bit more speculative looking in the market, seeing what's available from third parties?

And then the second question related to that is whether we should expect in this number more of the last touch type of acquisitions that we saw that you announced earlier this year.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO [23]

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Yes. So we are restating our positions for 2020 as we see a healthy environment. And the $60 million to $80 million are mainly 2 properties, 1 in Juárez and 1 in Monterrey, which already stabilized, and they should happen before the first half of the year. In addition to those, we are considering additional investments in the Last Touch strategy. And you can expect this to happen throughout the year, probably we'll do some at the -- in the first half and some in the second half.

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Operator [24]

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

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Roberto Waissmann, Banco Bradesco BBI S.A., Research Division - Research Analyst [25]

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My question is regarding occupancy. Even though, I think the occupancy -- the consolidated occupancy was positive news for the year. We saw Tijuana, Reynosa and Monterrey with declining occupancy, while this was more than offset by Guadalajara, Mexico City, right? In the quarter-over-quarter comparison, okay?

Could you tell us just specifically about these 3 regions Tijuana, Reynosa and Monterrey. What were the reason behind the decline in occupancy?

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [26]

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Roberto, this is Hector. Thank you for your question. What -- the occupancy behavior that I did describe, which is accurate, does not reflect necessarily the strength of what we are seeing happening in -- on the field -- in the different fronts. What I can tell you is that activity in the quarter is probably as strong as I have seen it all my career. The U.S. economy is in pretty shape. The activity in the quarter has been enhanced by new company from Asia looking for Mexican platforms. So they could have a very good export to the U.S. and so many places. And we do see a high-efficiency of the company exporting mainly to the U.S., which keeps on being our strong partner. These U.S. MCA confusion that Luis mentioned in his opening remarks, we do see that enhancement of these activity.

So we are very positive and bullish about the activities as well when I have in the market. Even Reynosa that has been shy for a while on our new investments, we anticipate that on 2020, new investments besides these explorations might be happening in that market. In each 1 of the 3 markets, we're well positioned with lands to take care of this opportunity -- of these opportunities provide a sponsor is very active and vigilant of these opportunities.

Guadalajara, as you mentioned, it's a market in which we own 30% of the market. We are leaders. We have been there for over a decade. It's a market that we like a lot for the -- we need to be prudent. The facility in Guadalajara was 1.9 million square feet. So the facility in Guadalajara is not as high as you have in some other markets like Tijuana, for example, we experienced a 3 million square feet of data approach.

In Guadalajara, we have been mentioning in previous calls. So there is some new players that do not have experience in the market and that's not willing to start-up operations.

Third business for everyone was -- if we don't -- the assets that we have and the position that we have in the market, help us to take advantage of the large opportunity. We aren't investing in Guadalajara, it's a market that we see the branch to be flat because again, these additional supply. The market is performing both the supply and liquidity. So on the overall, I think all of the markets for rental are in good shape. We're not particularly concerned about any of them. The numbers from 2019, which were below what we were expecting higher tier residents to be [difficult].

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Operator [27]

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Your next question comes from the line of Vanessa Quiroga with Crédit 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 [28]

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My question is regarding Prologis around Mexico level. Could you be able to provide color on where Prologis is investing the most among the markets where it's -- where it operates?

And also regarding the acquisitions that you're guiding for 2020. If you expect to fund them with an added debt?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [29]

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Yes. Thank you, Vanessa. And certainly, Prologis keeps on investing to offer this properties once stabilized to the FIBRA, we believe this is competitive advantage. As we were saying in our opening remarks, the market that we like the most, and where we are or where the sponsor is increasing its growth in certainly Mexico City. As it plays very well to the e-commerce strategy. Monterrey, which is kind of a mix between logistics and consumption. It's a mixed market. Tijuana and Juárez will be the places in which Prologis is -- the sponsor is currently expanding its portfolio. As for the acquisitions for 2020, we have guided, as I answered to Gordon, these 2 properties. So there is still the pipeline. Again the assets in Mexico City, we have not chosen to dive in that. We will be ready to acquire those assets if conditions allow it. We have 3 levers.

One is additional debt as we have the liquidity to risk around $35 million and we approve on that. We could also sell some assets and should the stock price rise at the right levels, we would also consider tapping to the right markets. We always are looking for the best conditions to increase the shareholders' return.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO [30]

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But Vanessa, this is Jorge, regarding the guidance that we gave to your question, yes, we have the capacity in the debt to do the 80% and be in line with our loan-to-value limit.

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Operator [31]

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

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Alan Macias, BofA Merrill Lynch, Research Division - Analyst [32]

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Just one question. If you -- how do you feel about the legal framework towards FIBRA's? Do you believe that it will remain the same?

Or is there any proposal out there by the Congress or by the AMLO administration that might worry you?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [33]

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And certainly, I am the President of the FIBRA and certainly, are very much in touch with these topics. We don't see a change in the FIBRA legal framework change. There was something that affected the private FIBRAs but that is not-- it has to do with some tax issues. But certainly, the public FIBRAs are a favored vehicle, and we don't see any changes proposed with the new administration.

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Operator [34]

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Your next question comes from the line of Nikolaj Lippmann with Morgan Stanley.

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Nikolaj Lippmann, Morgan Stanley, Research Division - Equity Analyst [35]

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Two questions, if I may, and I apologize if you addressed it in the beginning of the call. I just joined a few minutes later. First, about 1/3 of your business is in the Mexico Metro area. Can you remind us of how much of that is up for exploration roll over the next 2 years? That's number one. So in the year '21 to 2021? And the second on the dividend. The guidance, could it be a little low? Your business is in a good place. Rates are coming down. Would you mind sort of talking a little bit about your thinking in terms of making -- into making that guidance? And if there's any sort of upside risk to the guidance?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [36]

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Thank you very much for your question, Nikolaj, and let me refer to the second question first on the guidance on the distribution. Certainly, we're guiding FFO growth 4% or 5% this -- in our guidance. We see a healthy market. Having said that, we want to be cautious there is -- this year has been a flat growth. So we need to see how the economy performs.

There's always some local politics that also play into this, which could bring some volatility, and we have a U.S. electoral process during 2020. So having said that, I think we are conservative in our guidance should conditions improve as we go into the year, we would guide of the distribution, and that would be something we would consider.

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [37]

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Regarding your first question Nikolaj about Mexico City positions. For 2020, we have 1.7 million square feet that are expiring and in the first half of 2021, we have 1 million square feet. We feel very positive not only about renewing. Last quarter, we have a 13% rent growth. And this number, we expect it at least to be in those levels. The ability to supply space in Mexico City is becoming every day more difficult. Land is very scarce. And all the entitlements -- all the entitlements process, I can say that it's more complicated than it has been used to. So do we need to play in advance and development planning about the future investments that you're doing, okay?

It might take you 3 to 5 years. We have a real backlog up and ready to develop an EBITDA per year for new players that wants to jump to the market. We do see that the Mexican City market as one of the biggest strengths that FIBRA has. We are well positioned. We have a very strong relation with all of the major players, GPLs and e-commerce companies, and we are positive about the short and medium future. The fact of having explorations in Mexico City, we got closed for the (inaudible). We have the ability to increase strengths. That's good for us. And in the negotiations, we do see customers demanding for higher terms because they are learning bid free process, and they want to expand as much the conditions that they are in a position to negotiate today.

So Mexico City is a great market, and we are glad that we are so well positioned there.

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Operator [38]

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Your next question comes from the line of Eduardo Alvarez with GBM.

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Eduardo Alvizouri Alvarez, GBM Grupo Bursatil Mexicano S.A. de C.V. Casa de Bolsa - Analyst [39]

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You mentioned in the report and previously on the call, the arrival of new Asian operators in some regional markets. What do you think is the extent of this potential upside and in what metrics could it be reflected more in higher rental price? Or do you think there is a risk of exceeding in oversupply in these regions?

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO [40]

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That's a very interesting question, Eduardo. I think that the right answer to your question is that there's a lot to learn on our side. And let me to refer -- let me refer to our recent experience with a key facility in Monterrey that just opened 4 to 5 years ago. There has been a lot of companies coming from Korea, establishing in the area. We have seen a lot of Korean people moving towards the right and there was a lot of high expectation that this was going to be triggering a lot of business for the industry.

And the way they have been working with the 3 sites. They have their suppliers being input a lot of the stuff of what they have. And it's not that big that they have generated a lot of activity. What we're seeing, particularly in Guana, is a new Chinese company that for the first time, they are going out of China, a lot of them, they want to own the facility. They buy 3 years some additional activity regarding suppliers, but definitely the way they do business is different than the way we are used to do. So we are optimistic about this new activity because it will bring additional opportunities to our sector. So we need to be vigilant, and we need to learn about this new profile of customers jumping into here.

Good news for sector, more land demand and prices of land and rent should be going up because of this, but I wouldn't like to say that this is 100% actionable opportunity until we are able to understand the nature and the behavior of this new company.

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Operator [41]

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Your next question comes from the line of Francisco Suarez with Scotiabank.

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Francisco Suarez, Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities [42]

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It's interesting because it seems that you are having a nice exposure to those regions that are very resilient in overall demand. There's a huge interesting gap on in-place rents to market rents. And still, it seems that you prefer to be very conservative and not increase your dividends despite the fact that you have a very low loan-to-value. And you are still reluctant to rise some of the stabilized assets that existing here in Grande, despite the fact that you actually have the credit lines to do so. So I'm curious.

I mean if this -- some sort of a guidance that it's a little bit skewed to the upside rather than to the downside? Or it's going -- is this going to be really the base case for the rest of the year? I mean not just limiting your overall acquisitions to the $60 million to $80 million mark, despite the fact that you have this loan-to-value this low and keeping flattish your overall distributions for this year?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [43]

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Thank you, Paco. This is Luis. Really as you say, 2019 was a good year and to tell you the truth, this was a year that we expected a lower growth. You could see GDP at 0%. So this is kind of a surprise. In fact, we're also happy that our stock price return for 2019 was 47%, and this has good performance. And I guess, our discount to NAV has been narrowed.

For 2020, as you mentioned, we are seeing a sentimental cautiousness in our clients. Although, having said that, we're expecting markets to remain resilient and help. So as we build our 2020 guidance, we see risks. We have a local political risk as the administration starts its new policies. We are not sure the economy is going to grow. And then we have a U.S. electoral year. If you remember 4 years ago, the peso went to 22 peso. So I think it is time to set a very solid guidance that we believe is going to be achievable.

But I think there's an upside case to these numbers. Should we see the market improving. We see the financial markets returning and opening, and we see an increase in the share price, then we would act with these 3 levers that I just mentioned, and revise our guidance throughout the year.

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Operator [44]

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(Operator Instructions)

Your next question comes from the line of Eduardo Altamirano with HSBC.

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Eduardo Altamirano, HSBC, Research Division - Analyst, LatAm Cement and Construction, Real Estate [45]

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I just wanted to understand, whether you see that the follow-ons, if you're still setting the bar that you would fight, if the opportunity arises at NAV? Or you'd be more flexible within this sort of metric? As well as the next question that I have is what cap rates are you seeing in the private market, in particular, is there any sort of information you have for those transactions that have transpired within the logistics space?

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [46]

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So let me touch first on the cap rates. So as I was mentioning, logistics seems to be a favored asset class. And as such, there's a lot of liquidity. So the late last year, a huge transaction happening. And we believe this has brought cap rates a little bit down to maybe 10 to 20 basis points below. Having said that, there is a disconnect between private and public cap rates. Public companies, the FIBRAs are trading at a discount to NAV. Regarding your question on the follow on. So our main task is creating value for our shareholders is that -- is always our top priority. And this is to grow. So issuing equity is something that we'll consider as 1 of the levers that we have in the 3 levers, and should conditions get there, then we would act on it. We certainly believe that the core discount to NAV is not a right price to issue equity.

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Operator [47]

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Your next question comes from the line of Armando Rodriguez with Signum Research.

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Armando Rodriguez, Signum Research - Stock Market Analysis Manager [48]

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Just a question related to -- if you are considering some asset dispositions throughout the year. So in that case, what should we expect on a tax perspective and current FX levels? That's my own question.

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [49]

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Thank you for your question, Armando. So we have expressed in previous occasion of the second asset is 1 of the facility that we are always analyzing. We have a good understanding of disposition of -- in our case, and I think that in most of the FIBRA in different situations has a very important backing that is related as well to the FX conditions. The asset class in the more desirable asset class as of today's real estate. We keep on seeing new investors that we did not have in the past that they want to increase their holdings that they have in Mexico.

Having said this, we will analyze the opportunities coming from all service proposals that will receive frequently and if the prices are such that we'll be helping us to offset tax conditions, we should consider during a disposition. There's a good moment to sell previous transactions that happened this year make sellers to be happy about the results that they're achieving, and if we have an opportunity we will take care of it.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [50]

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Just to circle down on the tax file that Armando in Mexico FIBRAs do not have, like in the U.S., the possibility of recycle the tax profit. You have to be distributed to holders. So we're working through FIBRA with authorities taking longer than we expected. We try to have some kind of alleviation on this either recycle of capital or -- of tax profit or some more kind of break, if you may. But we still have to as a FIBRA -- 95% of the profits derived from any sale has to be attributed to holders.

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Operator [51]

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Your next question comes from the line of Sheila McGrath with Evercore.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [52]

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I was wondering if you could discuss in a little more detail, the acquisition in Mexico City, an 8% stabilized yield seems particularly attractive in the metropolitan area? And how do rents and cost to build for this Last Touch project compare to your largest -- larger logistics products?

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Hector Ruben Ibarzábal Guerrero, FIBRA Prologis - COO & MD [53]

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Thank you very much for your questions, Sheila. These last venture acquisitions that we are very happy about it. It's not because of the size that we've had, as we mentioned, it's not a big investment. Last venture opportunity will be within this range, probably a little bit bigger than these. We're very happy about the conditions that we were able to achieve these. They are providing below replacement cost aspiring to have a very good rent. It is a better market, but we're expecting to have rents above MXN 300 per square meter per month.

And the CapEx that we see in this type of transaction you see that to the 1 large facility. Again, we see that this is not an interpretation. It is about strategy. We have the competitive advantage, the relationship that we have with the customers. So we talk with them all the time, and we know exactly the kind of products that they require. So we have the ability to fulfill their expectations. It's not just us getting a facility on a new field location, and it's very successful. There are several other aspects that customers are required and that we are aware of and that we are trying to consolidate as doing these opportunities. We basically, we made something in the mark. We will keep on being active in this regard with higher returns than the 1 that we have in other facilities. And in the mid and long term, we will see these opportunities as to a strength of relation with large customers. And initially, this type of projects, which have a better and higher yields. So I'm glad that finally, we were able to open the ground with these type of investments, and we are looking for more to keep on announcing more of these within this year.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [54]

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So one last just comment. E-commerce sales in Mexico are around 4%. This compares to around 14% in the U.S. So as Mexico grows and it's important growingly on the e-commerce side, customers need to improve their service levels and look for infield distribution real estate. So this is a good time to build a portfolio of Last Touch facilities. And I think this will be something that we're very excited.

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Operator [55]

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Your last question comes from the line of Francisco Chávez with BBVA.

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Francisco Chávez Martínez, BBVA Research SA - Research Analyst [56]

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My question is related with the cash distributions. Can you can you tell us what is the expected breakdown between the capital reimbursement and fiscal result?

And what will be the relevant FX level in this sensitivity analysis?

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO [57]

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Thank you for the question Francisco, this is Jorge. 100% of the distributions during 2019, including the one that we announced today in the morning are derived from tax results. No capital redemption in these distributions. If I understood correctly your question, what's the FX that was used for this distribution? The average FX for the year was 1926. So you can use that as part of the average AFFO distribution. I think that was your question.

Thank you.

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Operator [58]

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We have a follow-up question from Sheila McGrath with Evercore.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [59]

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Yes, Louis, in your release, you mentioned the logistics market being the beneficiary of the reconfiguration of the global supply chain. I was wondering if you could drill down a little bit more specifically on how Mexico or FIBRA Prologis may be benefiting from these trends.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [60]

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Thank you, Sheila. So -- so certainly, we see a divergence between Asia and China and the U.S. and as we see the trends, we basically see that the stuff that's going to be manufactured for the North American market will be good metrics in North America. So the U.S. and Mexico, now with the U.S. MCA will benefit. As Hector mentioned, this is something that will not happen in the next quarter, but we will see a trend of people or companies looking at being cheaper and more efficient. And I think Mexico is a good proponent there. In addition, the U.S. economy is strong. We see a strong economy in 2020, and the consumer sales in the U.S. have been pretty strong. So I think Mexico plays well for that. And again, the other side of logistics, which is the internal logistics is e-commerce and the supply chain reconfiguration. So that the other leg that FIBRA Prologis has. So on the internal, I guess, we see a middle class, but certainly, we see a high absorption or high rate of adoption of e-commerce. E-commerce sales, as I mentioned in my remarks, we're 28% growth. We see our clients beginning to expand outside of Mexico City. So this is something that we like, and I think we're very well positioned to take advantage of the manufacturing our logistics.

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Jorge Roberto Girault Facha, FIBRA Prologis - CFO [61]

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We have a co-relationship, Sheila with the most of the customers that are already playing in the e-commerce in Mexico. We have a focus. We are launching our customers' sensitivity problem, and I can tell you that we are thrilled about all the different projects and plants that they have to grow. I think that all of them, in quarter 1, are really committed and not really focused on expanding the successful operations that they have in Mexico City.

I think that in the short term, we will be able to see important e-commerce operations on some of the original markets. And of course, escalation and the battle of positions is that Prologis has will be a big opportunity for FIBRA.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [62]

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Yes, one last comment. Labor continues to be a pinpoint to the U.S. I think Mexico will take advantage of this situation.

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Operator [63]

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I will now hand the call back to Luis Gutiérrez for any closing remarks.

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Luis Enrique Gutiérrez Guajardo, FIBRA Prologis - Chairman & CEO [64]

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Well, thank you very much. FIBRA Prologis had an excellent 2019, and we're excited about 2020 prospects. The Mexico logistics real estate market remains healthy, and we remain optimistic about our internal growth capacities.

Our 2019 plan includes acquisitions that feed our investment strategy and enhance our portfolio. We are confident that we will outperform given our portfolio of customer relations and proven track record. Finally, I would like to congratulate our sponsor Prologis for being named the top listed company in the 2020 Global 100 Most Sustainable Corporations. Thank you for joining us on today's call. And if you plan to visit Mexico soon, please let us know. We would like very much to show you our properties.

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Operator [65]

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Thank you for joining FIBRA Prologis quarterly earnings call. You may now disconnect.