• Total Revenue: $64 million, a 14.4% year-over-year increase.
• Adjusted NOI Margin: 94.2%, increased by 87 basis points.
• Adjusted EBITDA: $51.6 million, a 15% increase year-over-year.
• Adjusted EBITDA Margin: 84.5%, expanded by 322 basis points.
• FFO (Funds From Operations): $40.4 million, a 20.3% year-over-year increase.
• Pre-tax Income: $63 million, decreased from $131 million in 2023.
• Cash and Equivalents: $281.2 million.
• Total Debt: $845 million, decreased due to debt repayment.
• Net Debt to EBITDA: 2.9 times.
• Loan to Value: 21.6%.
• Leasing Activity: 1.3 million square feet, including 476,000 square feet from new leases.
• Dividend Paid: $16.2 million for the third quarter.
• 2024 Revenue Growth Guidance: Revised to exceed 17%.
• 2024 Adjusted NOI Margin Guidance: Revised to 94.5%.
• 2024 Adjusted EBITDA Margin Guidance: Revised to 83.5%.

• Warning! GuruFocus has detected 5 Warning Signs with VESTF.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Corporacion Inmobiliaria Vesta SAB de CV (VESTF) reported a 14.4% year-over-year increase in total income for the third quarter of 2024, reaching $63.7 million.
• The company achieved an adjusted NOI margin of 94.2% and an adjusted EBITA margin of 84.5% for the quarter, indicating strong profitability.
• Invest FFO increased by 20.3% year-over-year, ending at $40.4 million for the quarter.
• The company has upwardly revised its full-year 2024 revenue growth guidance to exceed 17%, reflecting confidence in continued strong performance.
• Corporacion Inmobiliaria Vesta SAB de CV (VESTF) made a strategic investment in nearly 36 hectares of land bank in Tijuana, Baja California, to support future growth and development.

Negative Points

• The company experienced a decrease in pretax income, which fell to $63 million from $131 million in the same quarter of 2023, primarily due to lower gains on revaluations of investment properties and higher exchange losses.
• Occupancy levels showed a minor decline, attributed to new projects coming online and taking longer than expected to lease.
• There were no new construction starts during the third quarter, which may indicate a slowdown in development activity.
• The company faces potential challenges from political volatility in Mexico and the US, which could impact client decision-making and leasing activity.
• Despite strong financial performance, the company is cautious about future development and leasing activity, indicating potential uncertainties in market demand.

Q & A Highlights

Q: We saw good occupancy but down quarter over quarter. How are your commercial discussions going with clients, and has recent political volatility affected these discussions? Also, what is your outlook for development in the Bajio region? A: Occupancy levels have been strong, with a minor tick in the total portfolio but an increase in the same store portfolio. We have a 98% occupancy rate and a 90% retention rate. Clients are more influenced by economic trends than political considerations, as they have long-term contracts. We expect continued demand and are confident in year-end leasing activity. Development will follow market demand, with strong activity in Bajio and northern Mexico, particularly in the automotive and logistics sectors.

Q: Can you discuss the construction and stabilization cycle for your projects and the pace of new project starts? A: We have a pipeline of approximately 3.5 million square feet under construction, with nearly half already leased. Preleasing activity remains strong, and our underwriting has not changed. We focus on selecting high-quality tenants and markets. While we did not start new buildings this quarter, we plan to start some next quarter and have a robust pipeline for next year.

Q: How do you view demand on a market-by-market basis, particularly in northern markets like Tijuana and Juarez, where there are reports of slowing demand? A: We analyze both short-term behaviors and long-term trends. Despite a minor uptick in vacancies in northern markets, we see strong long-term demand. Tijuana and Juarez have seen rent increases and demand from companies linked to the U.S. economy. We expect leasing activity to remain healthy and will continue focusing on dynamic markets.

Q: Could you provide more detail about the marketing of properties in Tijuana and the market dynamics there? A: Vesta is the market leader in Tijuana, with a strong local presence. We have two buildings available in our Megaregion park, which has energy and infrastructure advantages. We are confident in achieving expected returns above 10% due to increasing rents and strategic land acquisitions at attractive prices.

Q: Are you foreseeing changes in your loan-to-value levels or buyback program given current market conditions? A: We have a strong balance sheet and are engaging in new debt totaling about $500 million, which will increase leverage but remain manageable. We are committed to active capital allocation, including buybacks when market pricing does not reflect asset value. We bought back close to $15 million worth of stock this quarter and will continue to do so if conditions are favorable.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.