Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, and welcome to the 2022 First Quarter Fibra Monterrey's Conference Call. With us this morning from Fibra Monterrey, we have Mr. Jorge Avalos, CEO; Jaime Martinez, CFO; and Javier Llaca, COO. They will discuss on the more important strategic financial and operating aspects of the quarter. It is important to note that the presentation related to this conference is available at www.fibramty.com, and recordings of the call will be available on the website of the company in the next 2 hours. If you are connecting using our webcast tool, you have the option to download the presentation in order to move the slides at your own pace. Let me remind you that the information discussed in today's call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Actual results may materially differ and the company advises not to rely on these forward-looking statements. Fibra Monterrey undertakes no obligation to publicly update or revise any forward-looking statements. I will now turn the call over to Mr. Jorge Avalos.

[Jorge Avalos Carpinteyro, executive]

Thank you, Holly, and thank you, everyone, for attending to our first quarter 2022 conference call. We are thrilled to witness the return to the office space, as well as the activity in schools, retail, hotels and public events. This will definitely improve the absorption rate in the office segment, although in an adaptive concept of the office space with different densifications, better air quality and monitoring systems, the use of prop tech for better interaction and experience with customers and visitors and sustainable certifications. We certainly have been working in these issues for the past 2 years, adapting our buildings and firmly believe we have an attractive offer to retain our current customers and attract new ones in our vacant space. The industrial segment remains as the best-performing real estate asset in class in Mexico for the past 2 years. We think this tendency will prevail within the next years. As I have commented in previous calls, the M&A activity in this sector has been increasing dramatically during the past 12 months. In that sense, we are analyzing the biggest pipeline we've seen since inception, comprised of almost $1 billion in value in 12 transactions. We will definitely focus on this asset class for our remaining $100 million firepower. Although we will be very strict in terms of the right valuation, the quality of the tenant, the building, the leasing contract and within the core markets, we have defined in our business plan. After fully deploying our firepower, we believe we can tap the markets as our share price is trading approximately 5% below our NAV. Validating that our investors select companies that offer predictable cash flows are transparent and have proven steadiness throughout these volatile markets. In terms of our operation metrics, I'm proud to mention that our same-store NOI for this first quarter 2022 is at similar levels as first quarter 2020 before the pandemic began. This reflects our resilient and defensive business model and are very committed on preserving the quality of our predictable cash flows. On a commercial standpoint, we've seen an increase of demand on office space and negotiations are about to materialize within the coming months. This will offset the decrease of our lease spreads due to the excess of available space and the current economic downturn. During March, we announced the successful transition from LIBOR to SOFR on our $100 million syndicated loan. This will eliminate the potential risk of a termination of the LIBOR and help us hedge our first disposition of $50 million, so that all our outstanding debt is at a 4.23% fixed rate, all unsecured and having our first maturity in 2026. To conclude my remarks in terms of ESG, I'm enthusiastic to share with you that we have initiated the process of the LEED O+M certification in 11 of our buildings that represent 140,000 square meters of our GLA, and we believe it will be completed within the next 6 months to 18 months. This certification is granted by the US Green Building Council and is gained by those buildings and demonstrate that their operation contains the best sustainable practice in terms of energy performance and environmental impact. In terms of our community, we initiated an education program, granting 12 scholarships to our most needed suppliers, employees so they could earn a senior high degree. I will now ask Javier to walk you through our portfolio performance and market data. Javier, please go on.

[Javier Llaca García, executive]

Thank you, Jorge, and good morning, everyone. I'll start my piece of the presentation on Page 3 with the composition and geographical distribution of our portfolio as of the end of the last quarter. Unchanged from the previous quarter, it is comprised by 60 properties located in 9 markets, with a total gross leasable of about 820,000 square meters. Occupancy reached 92.2% of total GLA. In terms of GLA, 208,000 square meters correspond to our office component, 592,000 square meters correspond to our industrial component and our small retail component comprises 19,000 square meters. Moving on to Page 4 of the material. We present a brief overview of our key performance indicators for the first quarter of 2022. In terms of percentage of revenues, these indicators continue to be consistent with previous quarters. After a full quarter following our most recent industrial acquisitions, more than 51% of revenue by asset class came from our industrial properties, while office and retail accounted for 46.5% and 2.4%, respectively. Revenue by location and occupancy are in line with our projections for the year. Our dollar-denominated leases represent more than 77% of gross revenue and lease maturity schedule and weighted average lease term is 5.2 years, with more than 45% of revenue start expiring in 2027. On Page 5 of the webcast material, we present the same property performance analysis for the first quarter of 2022, compared to the same quarter of the previous year. For purposes of this analysis, we used 57 out of the 60 investment properties currently in our portfolio. It also considers additional GLA from the 9,000 square meters expansion in one of our industrial properties in the Providencia portfolio. Gross revenue contracted in 4.3% or MXN 14.1 million, with a reduction of 4.8% or MXN 14.3 million in our net operating income with an NOI margin of 90.6%, still above our target rate of 88%. The composition of this variance will be explained in detail in the following slide. We continue to see an inflection point on the negative trend in our rent income with signs of short-term recovery as the office markets begin to slowly recover from the pandemic slowdown in demand, as we will address in more detail in a moment. Once we incorporated additional revenue from La Perla, Cienega 2 and Cienega 3, the aggregated portfolio generated a total net operating income of MXN 339.8 million compared to MXN 300.8 million in the first quarter of 2020, an increase of -- I'm sorry, first quarter of 2021, an increase of 13%. Our NOI margin for the aggregated portfolio was 250 basis points above our goal of 88% for the quarter. Slide 6 of the presentation explains in detail the MXN 14.3 million contraction on our same property net operating income, comprised of the following: MXN 3.7 million increase due to a favorable FX effect between first quarter of '21 and first quarter of '22. MXN 4.7 million reduction due to net negative lease spread on some renewals. MXN 13.7 million increase due to inflation escalation on lease agreements. MXN 39.4 million reduction due to vacancies, particularly in the Axtel and Cuauhtemoc buildings. MXN 12.6 million increase from new leases and expansions and MXN 200,000 reduction due to increase in certain operating expenses. Finally, as you can see, once we included additional revenue of MXN 54.8 million from acquisitions, we reached the MXN 339.8 million NOI in our aggregated portfolio. As Jorge mentioned during his opening remarks and as you can see on Page 7, during the first quarter of '22, we reached same properties NOI slightly above pre-pandemic levels in the first quarter of 2020. FX played an important role in our NOI levels once the pandemic kicked in the second quarter of 2020, achieving certain stability during '21 and '22. It is worth noting that NOI from our aggregated portfolio reached a record high of MXN 339.8 million during the first quarter of this year, followed by the second quarter of 2020. I'd like to point out that FX was 13% higher in the second quarter of 2020, and there was no dilution between them and now as our last follow-on happened on October of 2019. As I mentioned before, we continue to see sense of slight recovery in the demand of office space, particularly in the Guadalajara and Monterrey markets. Page 8 of the material presents a snapshot of current leasing activity in both our office and industrial portfolio. In the office front, we are currently closing transactions that represent additional annual income of more than MXN 26 million with potential lease transactions in progress and initiated transactions for more than MXN 45 million and MXN 66 million in potential annual income increase, respectively. All potential transactions identified in the market, including transactions in closing, progress and initiated, account potentially for additional annual income of more than MXN 148 million. I would like to emphasize that one of our top priorities is and will continue to be increasing organic occupancy of vacant space in our existing portfolio. Since the inception of Fibra Monterrey and once a year, we conduct a customer satisfaction survey amongst our tenants, which key findings are presented on Page 9. This year, the survey was answered by 81.7% of tenants, which represent 57.7% of our total revenue. Except for our property managers [ weighting ] for industrial properties, all key rates were above our minimum expected of 85%. Curiously enough, most of our industrial leases are triple net and the minimal interaction of the tenant with the property manager. It is interesting to note that 35% of tenants that answered the survey have ongoing tenant improvement work in their space, and 96% to 98% of them have intention to eventually renew their leases. To us, tenant satisfaction and the wording of the people in our properties is instrumental for the success and performance of the portfolio. I want to move into some information from the industrial markets in Mexico on Page 10 of the presentation. This is information from JLL as of year-end 2021. Total net absorption during 2021 almost equaled net absorptions for '19 and '20 altogether, with a record high of almost 4 million square meters. Net absorption in Northern markets in 2021 was 2.5x that of 2020. Total inventory grew far less than absorption. Thus, activity dropped vacancy rates down, with less than 4.5% vacancy rates across all major markets in Mexico by the end of last year. Finally, during the last 3 years, we have experienced rent growth in most regions at a national level. This growth has been driven in part by strong demand, although there has been also an increase in construction materials. As Jorge said before, we see in industrial properties, the most resilient and dynamic asset class and as we will discuss later in the presentation, we are focusing our acquisition efforts mainly in this sector. We would like to talk about the current conditions of the core office markets, which we present on Page 11 of the webcast material. This information comes from the first quarter report of CBRE. As most of you know and since the last quarter of 2020, we have been monitoring the behavior of all 3 core office markets in Mexico, and our take continues to be consistent to what we outlooked back in January of last year. All markets continue to be at the bottom of the cycle. Although all markets showed positive net absorption during the last quarter of 2021, for the first time since the first quarter of 2020, Mexico City had negative net absorption in the first quarter of 2022 and Guadalajara, Monterrey reduced their positive net absorption in comparison to the previous quarters. We believe this might be a seasonal condition more than a structural one, but we continue to be very watchful about market conditions. New construction continued to drop in all 3 markets as only projects that were underway before the pandemic or at the early stages are still in process. Let's move to Page 12 of the presentation. As Jorge said before, we have never seen before the number and total amount of potential transactions in our pipeline, particularly in the industrial sector. Since late last year, we have engaged in negotiations for potential acquisitions for more than $1 billion in industrial properties alone. The boom for space demand, scarcity of speculative buildings and institutional appetite for the asset class have created an [ evident ] need from private developers to sell their income-producing assets to capitalize for new development, particularly build-to-suit projects. Obviously, the main challenge lies on pricing for these portfolios, some of which are either located in non-premium markets, average quality or a mix of both. More than often, issues like above-standard improvements and specialized specs, make valuations of some properties even more challenging, usually resulting in lower-than-expected pricing for the seller. We remain confident that we may come to terms on some of these potential transactions at reasonable conditions and pricing. On top of this pipeline, we have identified additional opportunities in the past few days, which may account for close to a similar potential value. We are to begin conversations with sellers of this additional pipeline shortly. It is most likely that we will continue to be an active player focused in the industrial sector for many quarters to come. Finally, on Page 13, we recently announced the kickoff to certify more than 140,000 square meters of our office portfolio under the LEED Operations and Maintenance category, which is granted by the US Green Building Council. As non-developer Fibra, this certification becomes the best solution to adopt best practices in favor of sustainability, focusing on energy performance and low environmental impact. We expect to successfully conclude and obtain final certification within the next 6 months to 18 months and will require an estimated investment of MXN 5.2 million. Also, after Congress refused on last Sunday to pass the energy reform, we have reactivated our pilot program for onsite or distributed generation at 4 of our office buildings in Guadalajara, Monterrey, which will allow us to further reduce our carbon footprint and provide common areas with renewable energy, while creating additional savings in our operating expenses. These initiatives add to our recent EDGE advanced certification, all part of our broader ESG commitments, which are available in detail on our website. We will be happy to address any specific questions regarding operations, acquisitions and market conditions during the Q&A section of the call. And with that, I will turn the call to our CFO, Jaime Martinez. Go ahead, Jaime.

[Jaime Martínez Trigueros, executive]

Thank you, Javier, and good morning to everyone. I would like to start my speech with the main variations in our adjusted funds from operations. Excluding the same-property NOI variations, which were already mentioned by Javier a few moments ago, as shown in the graph on the right side of the Slide 14, Fibra Monterrey's first quarter distributions increased just shy of 20%, mainly driven by the acquisitions carried out last year, 2 of which were bought with that. This explained increase in our financial costs when compared to last year's first quarter. On the next slide, you will find the same analysis when compared to the fourth quarter. This sequential comparison reflects a smaller increase in AFFO, mainly explained by the first full quarter of the Cienega 2 and 3 acquisitions, which were carried out at the end of 2021 and the increase in same properties NOI. It was partially offset by the inflation adjustment in corporate costs as well as higher technology expenses and the lack of the market provision reversal that was created on the first quarter '21 [ towards ] the expected drop in organic cash flow due to the extended duration of the pandemic and was then reversed between last year's third and fourth quarters due to the renewal and substitution of significant leases. Further on, I'm proud to announce that in the second half of the quarter, we became the first Mexican REIT in transition of former LIBOR credit agreement into SOFR. It was possible, thanks to the professionalism of our team and banks involved. Just as a quick timeline, at the end of 2021, we signed an unsecured syndicated loan for an amount of up to $150 million, which we probably used to acquire 2 industrial buildings built before the year-end. This credit agreement included the fallback language approved by the authorities for an orderly adoption of the new reference rate. We formally kicked off the transition on February. In less than a month, we had adopted the SOFR framework in all our ISDA contracts agreed on terms with the syndicate of banks and formalized the transition of our credit line. On March 15, we formally started our first interest period using the SOFR rates. It is worth mentioning that even -- so even though, we eliminated the risk related to the LIBOR cessation, there was no financial cost increase because of the transition. Just the days after we materialized the transition, we continue to hedge the SOFR rate for our 50 million outstanding balance. Once hedged, we'll reduce the risk against interest -- rising interest rates and potential effects of the global inflationary environment worldwide. This transaction was already paid off, as we have positive mark-to-market above MXN 11 million as of quarter end. We'll keep monitoring the derivatives market as we still have $100 million undrawn. As Jorge mentioned earlier, this amount will allow us to move forward with our acquisition program, while maintaining a prudent and balanced capital structure. As you can see in slide on Slide 17, our entire outstanding debt is unsecured at fixed rate of nearly 4% and US dollar denominated. As well, the average debt maturity stands at 5.4 years with no principal payment until late 2026. Further on, our balance sheet remains strong with a loan-to-value below 30%, a solid net debt-to-EBITDA and available credit lines that account for almost 20% of our assets. Following on, I'd like to walk you through our trading value and implied cap rate. It is embedded in Fibra Monterrey's DNA to keep our focus in adding value to our shareholders. This value should be reflected in both our cash distribution and the market value of our assets. On Slide 18, starting on the table on your left, you'll see a cookie-cutter formula for our current book value. Right on the bottom, you'll see a book value cap rate at 8.1%. We believe that this demonstrates that the value provided by our [ appraiser ] truly reflects the market value. Moving on to the table in the middle. We -- if we contract the average trading price during the quarter against the book value, we traded at a discount below 5% in the same period. Just for the purpose of running both implied cap rate analysis, if we use the enterprise value formula on your right side, the implied cap rate at trading price stands at 8.7%. Both indicators attest to Fibra Monterrey's resilience as perceived by its investors and its alignment with reasonable market returns. On Slide 19, you'll see the past performance of our book value against our trading price. I'm glad to announce that as our trading volume increases, the spread between prices continues to compress. We'll keep implementing strategies to bring value to our investors following our now proven business model. As we continue to the next slide, here is a snapshot of the market. Since we don't have updated information of our peers, the information used is as of fourth quarter '21. On the X axis, you will see the loan-to-value indicator. The Fibra products on the right are those that have a larger loan-to-value and hence, greater risk. On the vertical axis, you'll see the price discount versus book value. A deeper discount decreases the probability of a given company from tapping the market. The size of the bubble represents the dividend yield of the fourth quarter 2021. The larger the bubble, the greater the dividend yield. Fibra Monterrey has one of the largest dividend yields even when trading almost at book value and with a below market loan-to-value. These 3 main indicators in addition to our robust pipeline and organic growth firepower that Javier mentioned puts us in a privileged position to continue our disciplined growth strategy. I would like to end my speech by mentioning that considering consensus inflation, expectations and the potential effects on the FX market, Fibra Monterrey remains as an appealing investment instrument due to its resilient underlying fundamentals, rent adjustments in line with inflation, our predominantly dollarized lease revenue and our long-term lease agreement that allows investors to reduce exposure to such risk. That would be all. Holly, please proceed with Q&A.

[Operator]

[Operator Instructions] Your first question for today is coming from Valentin Mendoza.

[Valentín Mendoza Balderas, analyst]

This is Valentin Mendoza with Actinver. I have a couple of questions if I may. The first has to do with -- I just wanted to get a sense on the extension request that you mentioned in the price release. First of all, is your interest maybe materializing those? Second, if is it's possible for you to do that? I mean, we have the land mix of the properties. And then as a follow-up, I was wondering if you could share your thoughts. I mean what could be…

[Jorge Avalos Carpinteyro, executive]

Valentin, sorry to interrupt. It's not very clear, your question. Can you be more precise on your first question? You have a very bad quality on the line. We cannot understand the question.

[Valentín Mendoza Balderas, analyst]

Can you hear me again?

[Jorge Avalos Carpinteyro, executive]

A little bit better.

[Valentín Mendoza Balderas, analyst]

A little bit better. Sorry, apologies for the bad connection. I would say, I do want to get a sense on the potential that you mentioned regarding the extension requests, the SOFR expansions requests that you have received from some of your clients. First of all, can you walk us through if they are material or would be material and then you would be able to materialize those extensions? And then as a follow-up would be -- as you want to [ hear yourself ], what could be most likely be the final destination for the advent of [indiscernible] on government properties. [ If it would be either, say, in the assets ] or the conversions for that purpose?

[Javier Llaca García, executive]

Okay. Valentin, this is Javier. I believe we got most of the questions. Your first question regarding potential expansions, like the one that we just did for one of our clients in Providencia, are limited given that we don't have a lot of excess land. We try to optimize the acquisitions that we do with no excess land. That extension or expansion that we did for that particular client in Saltillo was done through a third-party developer that owned the land, and we bought the building once the building was finished. So it was an adjacent length to our property, which was not owned by us, and we acquired once the building was done. We are doing another expansion in San Luis Potosi in a pretty similar fashion. We have an adjacent land that is owned by the tenant. So the tenant is going to sell the land to us and we're going to do the build-to-suit for them on a recently acquired land. So, we're trying to keep our excess land or reserve land as minimum as possible, given the fact that we are not a developer of Fibra. That will be part one of your question. Part 2 of your question regarding recycling of assets or potential recycling of assets, particularly the attempt to Axtel and Cuauhtemoc buildings, I think you did refer to those. I can tell you that we are working on 2 fronts. One front is to evaluate the best and highest use for all these properties to evaluate the convenience on that on either redevelop the properties or sell the properties to a developer. But we're also working on leasing up the properties for their current use. And I can tell you that as part of our leasing activity, we have potential tenants for all 3 buildings. So, we're -- at this point in time, we're not sure if we're going to go one way or the other. What I can tell you is that we're working on 2 fronts, on both fronts, and we're going to end up either selling or developing or leasing of the properties according to the best projection that we can have on the cash flow for the properties.

[Operator]

Your next question is coming from Gordon Lee with BTG.

[Gordon Lee, analyst]

A couple of questions. The first, Javier, it has to do with the impact and your sort of ability to defend rents in the office segment as you increase certifications and you sort of improve the efficiency and the ESG metrics. It seems to me from speaking to colleagues of yours on the industrial side that at this point, that doesn't really have much of an impact, which I guess makes sense given how tight the market is and how people are just scrambling to find space. But I wonder whether in the office space where you have more vacancy and so, therefore, potential tenants can be more selective and picky. Whether you feel that, that higher sort of quality via the certifications for your properties is something that would allow you to defend rents going forward? And then the second question thinking about the pipeline, the M&A pipeline, together with the comments that you've made of where the certificates are trading in the proximity to NAV. And you mentioned specifically that you would consider at some point tapping the markets. Are you also looking at potential transactions where you would pay with CBFIs, which, I guess is another way of raising equity without having to tap the markets because I suppose that that's one additional advantage that you have, an additional payment currency that you have that your peers don't, given where you're trading relative to NAV?

[Javier Llaca García, executive]

On your first question, I would agree with our peers in terms of the short-term impact of LEED certification or things of the kind on industrial, given the fact that on one hand -- given the scarcity of speculative buildings, there's a lot of build-to-suit projects going on. And those build-to-suits are going to have their own sustainable requirements from the tenant. So one thing comes with the other, I guess that would be my answer. Doing investments on certification for industrial existing properties, sometimes is questionable. I agree with my peers on that, although we are exploring things like making renewable energy available to those locations on industrial properties. But yes, it's a limited impact when it comes to industrial for existing or speculative buildings. Build-to-suits are going to be more and more, let's say, LEED compliant every time. In office, we believe that making or operating our existing spaces to LEED standards, such standards of certifications of the kind are not only desirable but instrumental for those places to lease up. And I do believe that it's going to have 2 positive impacts in the future by doing so. One is going to be us being able to defend the rents, as you mentioned. When you compare to the competition, I strongly believe that having those available spaces with sustainable certifications are going to be more appealing to the tenants. And obviously, it's going to help us on leasing up the vacant space. But something that you have to consider is that when you have a vacant space and you have a potential tenant, you don't want to invest in the property prior to have a formal potential tenant to make sure that the investments that you are going to make in the property are going to be in line with what the tenant is looking for. That, along with other things that Jorge mentioned before, we need to provide flex space in terms of layout flexibility. All prop-tech and IoT-related investments like clear air conditioning, better ventilation and things of the sort that we already made in the [ live ] in our own office. So, I think it's going to have an important impact, and that's the reason that we're willing to invest CapEx on sustainable aspects for an office building. And in regards to your second question on the pipeline and the ability or possibility of using our own stock as currency, I couldn't agree more with you. I won't disclose a lot, but I can tell you that what we have, I would say, an important amount of our pipeline right now under negotiation being negotiated to be paid with stock. And it is a tremendous advantage for us having the levels of discount that we're trading at right now. We're probably the only or one of the 2 only Fibras in Mexico that could do something of the time right now. So yes, we're trying to leverage that, and we have a couple of transactions that involve an important amount of CBFIs.

[Operator]

Your next question is coming from Francisco Chavez.

[Francisco Chávez Martínez, analyst]

Regarding the progress you are reporting on leasing office space in coming months, what rent level can we expect for these potential new leasing contracts? And can we expect rent levels similar to the ones you had before? Or what kind of decrease can we expect?

[Javier Llaca García, executive]

We would be very nice if we told you that we expect rental rates to become similar to pre-pandemic levels in the office arena. We have seen an impact, a negative impact on the market that goes from 10% to 20%, depending on the market and the submarket. There is a negative lease spread in the market by itself. And we believe that this is going to be the trend for the next at least 2 years or 3 years. What we're doing is trying to have as high as possible nominal lease rates and have concessions in terms of grace periods or additional investments on the property and things like those in order to try to defend the lease rates as much as possible. But we do expect and you can expect that. I don't think they're going to decrease a lot more than they already have. But the decrease that we already seen in the last 18 months is going to be here for a long time. And if I would need to guess, Paco, I think that these rentals might come close to pre-pandemic levels, probably, depending on the market between 36% to even probably 60 months, 3 years to 5 years. That would be my best guess right now, I think.

[Operator]

Your next question for today is coming from [ Edson Murguia with Soma Capital ].

[Unknown Analyst]

I have a couple of them. First of all, congrats on the transition on LIBOR to SOFR. You are the first real estate to do it. So congrats on that. I was curious to understand the hedging strategy. Could you give us a little bit more color why [ you give only 15 million ] rather than the 150 million [indiscernible]. I know it's part of the [ rundown ] that you have over the years. But I was trying to understand [ our cost ] and the hedging strategy going forward. That's the first one. The second one, I was trying to understand what is related to [ implementing ] strategies [ regarding the taxation that the CBFI has ] [indiscernible]. But maybe could you give us a little bit more details about the implementing strategies about what that exactly means?

[Javier Llaca García, executive]

I'm sorry. So can you repeat your second question, please?

[Unknown Analyst]

Yes. On the last remarks, you mentioned that implementing strategy about the price and related to price [ acumen ] of CBFI. So, I was trying to understand this because you have a discount level on the price of the CBFI [ given ] how the market conditions are. So could you just give a little bit more details about what exactly incremental strategy means?

[Jorge Avalos Carpinteyro, executive]

Okay. This is Jorge. I will answer your first question regarding the hedging of the SOFR. We only hedge the outstanding balance that we had, that was the 50 million regarding the syndicated credit loan because that was the visibility that we had. So, we started the hedge on April 18, and it will end until December '25, that is one year prior to the expiry of the line. And this is because we have the -- we have the internal goal to have it refinanced one year prior to the end of the line, right? So that's the strategy we followed. And regarding the 100 million that we already have in firepower, we will be monitoring the markets and we will try to do the hedge once we have visibility on the drawdown of the credit line. So if we have an acquisition, let me get in October and we will draw that line. In October, we will be starting that hedge right at the same time.

[Javier Llaca García, executive]

And the other question related with [ pay with services ] any transaction and the discount. As you can see, the discount is quite low, especially if you compare with another Fibra, it's around 4%. And as you know, there's a lot of volatility in what NAV is. I mean at this time, it might be around, I don't know, 12.9, 12.85 and we are trading right now at 12.60. So, we are very close around that. Maybe we can pay at 12.8 or something like that or a discount in the price of the property that we acquire can offset such a discount. So, I think we have a room to maneuver. And that's the point that we want to make clear.

[Unknown Analyst]

Okay. Just a follow-up on the acquisition pipeline that you have. I know probably you are undergoing negotiations. But what is the timeline of closing? Because you have 12 properties in the pipeline, probably most of them are on the [ equilibrium ] process. But -- and you are expecting to close how many deals for the following quarters?

[Jorge Avalos Carpinteyro, executive]

I wouldn't put an exact date. I would say that it is -- for the first time, we have so much supply and different opportunities to buy quality assets that we want to be very picky in terms of what we buy, that it's accretive, that it's strategical for the Fibra. And so we don't want to rush. And secondly, the question that you asked Jaime about the [ severity ], the difficulty of doing a transaction with a severity as a payment is that you have to evaluate 2 transactions. The price that you pay for the assets and the value that you put on your severity. So as Jaime was mentioning, if you put a prime cap to a very, let's say, a qualified asset, then you're going to value your Fibra with the same cap. So that's going to be somewhere very near to our NAV value. So, I wouldn't say that it's going to take long, but we're working with too many opportunities.

[Unknown Executive]

We have one question from [ Victor ] [indiscernible] via webcast. Last quarter, you mentioned there was a migration from U.S. [ information ] lease contracts to peso in the office space. Is there an update in this trend?

[Javier Llaca García, executive]

Okay. This is Javier. There is a trend to migrate from dollars to pesos. US inflation is not helping a lot on that right now. So a lot of companies are on a standstill on that front. It is amazing to see that US inflation has been, at some point, even higher than Mexican one. So companies are still thinking of that in terms of existing contracts. In terms of new contracts, I would say that 90% -- 80% to 90% of the new leases that we're looking in the market for office space are being negotiated in pesos.

[Unknown Executive]

We have our next question from Hector Maya from Scotiabank. My question is the following. Does your strategy to focus in industrial space has to do with not being able to find assets in the office space at cap rates you have guided us?

[Javier Llaca García, executive]

Well, the short answer is yes. That's part of the issue. We haven't been able to find -- we're looking at a couple, but we haven't been able to find a good opportunity in the office sector. And on the other side, industrial has never been so active. So short answer is yes.

[Operator]

[Operator Instructions] There are no further questions in queue at this time.

[Jorge Avalos Carpinteyro, executive]

Well, thank you, Holly, and thank you, everyone, for attending this call. We'll speak to you soon. Thank you.

[Operator]

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.