Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, and welcome to the 2023 First Quarter Fibra Mty's Conference Call. With us this morning from Fibra Mty, 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. A recording of the call will be available on the website of the company in the next 2 hours. If you're connected using our webcast tool, you have the option to download the presentation in order to move the slides at your own pace.

Let me remind you that the information discussed in today's call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company advises not to rely on these forward-looking statements. Fibra Mty 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, everyone, for attending to our first quarter 2023 conference call. As previously announced on our last call, we successfully completed one of the most important milestones in Fibra Mty's history, the acquisition of the Zeus portfolio.

It is worth noting that another 90 days, we were able to tap the market 2x and obtain $545 million, secure a $300 million long-term syndicated loan and underwrite a $662 million transaction comprised of 46 industrial buildings located in the United States. We couldn't have achieved this if it wasn't for the great effort, dedication and willingness of our management team, the seller's management team, our banks and the support of our stockholders.

Putting to perspective, the transformation that resulted from the transaction, we were able to: one, increase our NOI close to 80%. 2, surpass 100 investment properties. 3, exceed 1 million square meters in GLA. 4, diversify our income by sector, tenant and geographic location. 5, recent investment grade status by a global credit agency. 6, rates equity arise in line with our NAV becoming the most active equity issuer among the stock issuers in Fibra in Mexico. 7, successfully complete the second largest industrial real estate acquisition in the Mexican market in the recent years.

With the completion of this transaction, we delivered on the promises we made to our investors in our September 2022 follow on. However, there is a continuous commitment to improve our cash flow generation in a sustainable manner. On the other hand, for organic growth, we ratified our objective of maintaining solid lease indicators, such a long maturity profile, high occupancy rates, primary dollarized and inflation-linked revenues as well as high-quality multinational tenant base.

In this regard, alongside our efforts to make vacant space deliver the expansion required by our current tenants and realize both operating and administrative efficiencies, we continue to assess market opportunities primarily in the industrial sector.

As mentioned in the fourth quarter of 2022, in this earnings release, we are announcing our 2023 cash distribution guidance, which Jaime will address during his remarks.

It is worth mentioning that as a result of our orderly growth strategy, increase in dollarized revenues, the greater participation in the industrial sector and the diversification resulting from this acquisition, investors will benefit from a more predictable and quality-based cash distribution since Fibra Mty's inception.

Additionally, the new asset scale, rated market cap and better credit rating opened the opportunity to reduce our company's comprehensive funding cost, which could translate into greater value for our investors.

Lastly, following our sustainability strategy in the most recent corporate sustainability assessment by S&P Global, Fibra Mty held the rating in the corporate governance category among Mexican peers as well as being the Mexican issuer with the highest rating in biodiversity category. We also received the gold level green lease video recognition from the Institute for Market Transformation and the U.S. Department of Energy's Better Building Alliance.

With this, we stand out as the only landlord in the Mexican market to have a gold level recognition program distinguishes landlords and tenants that modernize their leases, promoting collaborative actions, focus on energy efficiency, savings in operation costs, air quality and sustainability for real time. Moreover, aware of our duty to act in the long-term interest of our holders, Fibra Mty is now a signatory of the United Nations Principles for Responsible Investment, publicly committing to the adoption of these principles in order to strengthen the performance of our portfolio and incorporating environmental, social and corporate governance issues in our investment analysis and decision-making process.

I will now turn the call to Javier, who will walk you through our portfolio performance. Javier?

[Javier Llaca García, executive]

Thank you, Jorge, and good morning, everyone. Given that we assume that there are many questions regarding this transaction, I will keep my section brief to allow more time for the Q&A section of the call.

All formalities of the presentation on Page 3 with the composition of geographical distribution portfolio as of the end of the first quarter of this year. As Jorge mentioned during his opening remarks, in March 29, we successfully concluded the acquisition of the Zeus portfolio, and we have integrated 43 out of the 46 of the total portfolio with a transformational impact on our geographical presence in the Mexican market.

Our footprint now spans into 15, we expect markets across 13 states in northern, central and Bajio areas with a total GLA of roughly 1.6 million square meters, out of which almost 1.4 million square meters are industrial, 200,000 square meters are in office buildings and 20,000 square meters belong to our small retail portfolio. We have total the size of the portfolio in terms of geographical presence in properties.

Overall occupancy in terms of GLA stands strong in around 95%. We expect the Zeus portfolio to generate around $53.3 million of additional net operating income during the following 12 months after its full integration. As Jorge mentioned, this is an increase of close to 80% in operating cash flow. It is worth noting that we will address -- and we will address that in more detail further in the presentation, that the Zeus acquisition was only possible, thanks to the commitment, willingness and professionalism on all parties involved, particularly all of the different areas of Fibra Mty, showing once more our unparalleled capacity of execution.

On Page 4, the geographies and performance overview of our new key performance indicator as of the end of March and moving forward. In terms of percentage of revenue, this indicator reflected big positive disruption from the milestone transaction. 72.1% of revenue by asset class will come now from our industrial properties, while office and retail will account for 26.3% and 1.6%, respectively.

By location, revenue from our Monterrey portfolio will dilute down to 42%, followed by Guadalajara, Guanajuato, Saltillo and Tijuana that now will account for 33.1% of revenue altogether. Occupancy rate at a percentage of potential revenue on full capacity stands now about 91%. Our dollar denominated leases will now represent more than 83% of gross revenue, which could further expand with the peso exchange rate increases. And finally, lease maturity schedule and weighted average lease term is about 5 years, with more than 40% of revenue will be then expired in 2028.

On Page 5 of the webcast material, we present the same property performance analysis for the first quarter of 2023 compared to the same quarter of the previous year. Let's keep in mind that given the fact of cutting close the Zeus transaction on March 29, it only impacted on the last 2 days of the quarter. Therefore, the first quarter results reflect pretty much the performance of the pre-Zeus portfolio.

For purposes of this analysis, we used all 6 investment properties in our portfolio prior year, which represents a total GLA of 818,000 square meters. Compared to the first quarter of 2022, gross revenue contracted 2.9% or MXN 10.9 million with a decrease of 5.1% or MXN 17.3 million in our net operating income, mainly due to negative FX impact following the first quarter of last year and recent vacancy in one of our office buildings. The latter should revert during the second quarter of this year as we are closing the new lease of such vacant space.

NOI margin grew 200 basis points to 88.5% due to certain reserves on accounts payable delays in one of our industrial properties in the same region of the market currently in process of being reverted and some leftover economic [ one-time ] expenses in the portfolio. However, NOI margin is back above our early 88% margin, and we'll improve above that in the second quarter. The composition of NOI balance will be explained in detail in the following slide.

One way to incorporate additional marginal revenue from Zeus, the aggregated portfolio generated a total net operating income of MXN 330.6 million compared to MXN 339.8 million in the first quarter of 2022, a decrease of 2.7%. Our NOI margin for the aggregated portfolio was of 88.7% for the quarter, again, above our target of 88%.

I would like to make a pause and point out that our guidance for this year consider 3 additional sources to increase our short-term distributions for late 2023 and early 2024. On one hand, our potential organic growth from additional occupancy in our office component, which continues to recover rapidly in Guadalajara, Monterrey. Between 4% and 6% to our AFFO per share as the new leases start to land later this year and generate additional [ right trim offs ] after lease commencement.

On the other hand, additional acquisitions to be executed with our current portfolio [indiscernible] and rollover of proceeds from potential sale of assets, such as some of the land reserve could also generate additional 5% to 6% to the bottom line cash flow.

And finally, we are currently developing some expansions for existing tenants in our industrial component with estimated investments of around $50 million that will generate additional rents at cap rates above 9%. We expect these other additional rents to commence during the second half of 2024. Altogether, each upside could represent as much MXN 0.12 per share once developed.

Slide 6 of the presentation explains in detail the MXN 9.3 million reduction in our net operating income comprised of the following: MXN 23.8 million decreased due to a negative FX effect between the first quarter of 2022 and the first quarter of 2023. MXN 8.1 million decreased due to vacancy from certain lease expirations. MXN 5.9 million decreased due to increases in other operating expenses and MXN 20.5 million increased due to inflation escalation on lease agreements and new leases.

As you can see, once we include additional revenue over MXN 8 million from the Zeus acquisition, we will reach the MXN 330.5 million NOI in our aggregated portfolio. We will address some statistics on the sales transaction and a breakup of our growth strategy later during the presentation. But for now, I will turn the presentation to Jaime to discuss the most relevant aspects of our business for the first quarter. Go ahead, Jaime.

[Jaime Martínez Trigueros, executive]

Thank you, Javier, and good morning to everyone. I would like to start by going over the usual topics of the earnings call.

If you look to Slide 7, you'll see a quick review of the main year-on-year valuation of our adjusted funds from operations, excluding the same property NOI variation, which were already mentioned by Javier a few moments ago. As shown on the graph on the right side, Fibra Mty's third quarter adjusted funds from operations increased around 45%, largely driven by a higher financial result given an abnormal cash investment balance due to the equity follow-on carried out in September. This balance was fully used for the acquisition of the Zeus portfolio, which I'll address once Javier walks you through the transaction later on the call.

Additional to the financial results, first quarter AFFO benefited from the 3 days of this acquisition. The increase was partially offset mainly due to the unfavorable FX effect in revenues and higher administrative expenses, largely due to inflation. Other variations remains nonmaterial and not referenced.

On the next slide, you'll find the same analysis as compared to the previous quarter. This sequential comparison reflects a smaller increase but with the main variations remaining in the same direction, and the one I just mentioned, a higher financial results, 3 days of Zeus acquisition and offset by lower same-property NOI due to FX valuation.

At previous quarter, on Slide 9, there is selected information to compare our main financial indicators of the last 12 months to facilitate your analysis. While we talk about regular business, I'd like to ask Javier to talk about the Zeus acquisitions and its effect on our operational KPIs.

[Javier Llaca García, executive]

Thank you, Jaime. Coming back to the transformational Zeus transaction, and to give you some context, we present on Page 10 of the presentation some indicators comparing the previous quarter before and after the completion of this acquisition.

First, we have a shift on our revenue by asset class from 50.4% to 72.1% in the industrial component of the portfolio, becoming a predominant industrial operation. Then we are becoming even more dollarized in revenue, increasing from 77% dollar denominated leases up to more than 83% after the acquisition.

Occupancy in terms of potential revenue is increasing from 87.3% up to 91.3% overnight with a strong long-term visibility in our cash flow. This maturity and expiration schedule stretches up to 2037, increasing our overall WALT more than 5 years, up from 4.5 years as reported in the previous quarter.

In terms of industrial sectors, our portfolio is well positioned in the Automobiles & Components section, which continues to consolidate as the key driver and [indiscernible] Mexican manufacturing exports currently accounting for more than 38% of external balance in our country.

Lastly but not less importantly, we have reduced our gross revenue from our top tenants from 45.1% down to 33.3% by the end of the first quarter, therefore reducing our exposure to potential risk factors in our ability to generate cash flow from our revenue stream.

Jaime will now address in more detail the sources and uses for the successful execution of the Zeus transaction. Jaime?

[Jaime Martínez Trigueros, executive]

Thank you, Javier. In terms of the Zeus acquisition when compared to our previous enterprise value have several challenges from the financial front and was relevant to keep our capital structure with the same strengths that distinguish Fibra Mty, and following what the Zeus acquisition in a right manner considering interest rate environment and equity market conditions.

As you can see on Slide 9, we were able to accomplish these main 2 challenges, thanks to the confidence invested in us by our investors and bankers for which we are deeply thankful.

The first payment, which comprised 93% of the full agreement to Zeus was done on March 29, and were based with the following breakdown. Almost 50% of the amount was paid with proceeds of equity issuance comprising both Zeus and the first half of this year's price offering. Broadly, 26% was based from the holding credit facilities, which were just given that the payment took place just a week before receiving the proceeds of the second half of our rights offering. And the remaining 24% was based from unsecured term loans with maturities in late 2027 and 2030.

Once the proceeds of the rights offering landed in our banking account, we are ready to prepay almost 15% out of the 26% of the revolver. The last revolver will be paid in full with the value-added tax reimbursement, which given our track record could expect to occur in the third quarter.

The remaining balance of the Zeus transaction will be paid out with the proceeds of the second half of the rights offering. It is worth noting that with all [indiscernible] an FX forward to ensure and a target exchange rate and reduced market volatility for these payments. Once the exchange rate is on the table, recent peso appreciation [indiscernible] regarding our results.

On the short term, we can expect to have lower cash flow in pesos. Nonetheless, this appreciation allowed us to buy a larger amount of U.S. dollars with the proceeds of our current equity issuance with translating to larger cash flows, and the dollar returned to previous levels -- if the dollar returns to previous levels, having a more lasting effect to our investors.

To summarize, the funding of this acquisition demonstrates once again the benefit of keeping a prudent balance sheet, enough credit lines available and a professional team committed to deliver results efficiently.

Considering our corporate governance, we needed our investor approval for raising additional equity to issue a new credit facility and to carry out the acquisition. First, from considering these approvals in full swing, we appreciate constant support of our investors throughout the process. Moving on and given the outstanding results of our rights offering, our balance sheet will be stronger than ever. As seen on Slide 12, debt indicators as of quarter end, which are displayed on your left, still considered the revolving credit lines, Javier mentioned were prepared a few moments ago.

Loan-to-value, net debt-to-EBITDA, average debt maturity and our weighted average interest rate indicators are higher than usual. Therefore, we included our debt indicators reflecting the prepayment and once we concluded the second and final payment of the Zeus acquisition and the re-enforcement is fulfilled.

As seen on your right, pro forma debt indicators are in line with the scenarios we talked about in our last call. Our loan-to-value will stand near 26% and net debt-to-EBITDA in just above 3x, which give us enough flexibility to seize opportunities going forward without tapping the markets. Another highlight is our weighted average interest rate, which will stand at 4.8%. This is just 60 basis points above our previous interest rates. It is worth mentioning that as of today, all our term credit loans have been hedged, and therefore, this 4.8% will stay fixed going forward.

Moving on to the debt maturity profile, and we will have our first expiration on the May 27 with the outstanding balance, which is combining loans, private placements or debt markets, whichever offers the return at the time. In addition, given our debt indicator facility, we have USD 150 million and is available with a maturity in 2030 for future acquisitions, which could expand even further the average debt maturity and balance our debt expiration.

Following to the next slide. As a result of our rights offering, we reached a milestone that was set in our IPO, becoming a $1 billion market cap company. During the last 7 months, Fibra Mty's market cap, [ $12 million ] by adding more than USD 545 million in equity, and we become the most frequent issuer in Mexico in the last decade.

This demonstrates that the company focus on accountability and alignment of interest can and will earn the trust of the investor market, which translates in growth capacity. We have a clear view on what's next from a financing perspective.

With our new site, proven track record and regional banking position, Fibra Mty as an investment-grade issuer and current market momentum, there is an opportunity to lower our cost of capital to further increase the risk adjustment returns of our investors. Let me emphasize by adding that our commitment remains the same, focusing on cash flow growth and predictability.

I would like to continue this webcast by detailing the yearly guidance set by our Board. As you can see on Slide 14, 2023 guidance, is at 390 basis points above the 2022 organic cash distribution was adjusted to reflect foreign exchange rate conditions despite increasing our outstanding share in almost 50% earnings rate, higher debt interest rate in our additional debt, a lower cash balance that translates in a lower financial income, the financial cost due to the VAT reimbursement and greater corporate costs such as appraisals, technical study and reinforcement of certain business teams needed to operate a larger portfolio.

[indiscernible] cash flow per share growth and with an attractive premium above our weighted average risk free credit lines. The aforementioned will be accomplished with organic growth and certain economies of scale as revenues are increasing in a larger amount than our expenses. A detail of the graph on the right, 2022 cash flow distribution stood at MXN 0.99 per share at an exchange rate of MXN 20 or $0.17 per U.S. dollar.

When adjusted to reflect foreign exchange rate position, the same cash flow would be stood probably above MXN 0.90 accounting for estimated organic growth and the effect of the acquisitions and its funding the target distribution for 2023 is about MXN 0.95 per share considering an exchange rate of MXN 18.25 per dollar, an almost 400 basis point increase.

For comparative purposes, if exchange rates would be the same as 2022 guidance, would be translated into MXN 1.03. And that transparency as one of the key cash flow trend remains in the financial cost of the acquisition [indiscernible].

The second and third quarter should have a decline when comparing them to the third quarter, which will be more than compensated in the fourth quarter once the reimbursement and this payment is completed.

Having said that, even though AFFO per share may look similar to last year, let me highlight that given the benefits of our recent transactions, cash flow [indiscernible] since inception. In addition, the balance sheet momentum I mentioned earlier and quoting earlier on our increase in dollarized revenues share while growing our industrial footprint and further diversifying our income by location, tenant and economic sector. Not only we have a greater quality in cash distribution, but also we've managed to reduce certain risks along the way.

I would like to end my speech by mentioning that even our capacity, organic potential in the office space and industrial expansion and we saw this momentum, this dollarized revenue stream and inflation adjustments considering a good experience in our balance sheet, FFO per share has more upside potential that will be materializing throughout the upcoming month and going forward.

To conclude, I would like to return the floor to Javier for him to mention the adjustment to our growth strategy. Thanks, Javier. Go ahead.

[Javier Llaca García, executive]

Thank you, Jaime. Let's take these final moments before the Q&A to note that with the Zeus portfolio transaction, we have already achieved 76% of the amount for our original 2022-2026 growth strategy [indiscernible] going forward. Therefore, we have announced our decision to increase our target by MXN 15 billion of additional acquisitions of investment properties by the end of 2026. This will bring the value of our portfolio at that point to more than MXN 42 billion or $2.3 billion at the current exchange rate. We will continue the discipline and investment guidelines that have branded Fibra Mty for the last 8 years.

That concludes our earnings presentation for the first quarter of 2023, and we will be more than happy to answer any questions from the audience. Rob, back to you.

[Operator]

[Operator Instructions] We have our first question coming from the line of Gordon Lee with BTG.

[Gordon Lee, analyst]

2 questions. The first -- I guess 3, I'll take advantage of the call last week. The first is with the new scale, you mentioned, obviously, the opportunities to improve funding costs, but I was wondering whether you think there may be also opportunities to improve operating costs given your scale in terms of sort of property management costs or insurance costs, things of that nature. If you only see the improvements on the funding side or if you see it on the operating side as well?

The second question, just to clarify, Javier, on your comments in terms of the 3 potential incremental drivers of distributions. When you say that, that could add an additional [ MXN 0.12 ] per CBFI, would that be on top of the higher end of the guidance range for distributions for 2023?

And then the final question is on this 2026 target that you just mentioned in terms of adding another MXN 15 billion in properties. I know it's difficult to know what the next 6 months holds, let alone the next 3 months. But do you have a sense of how that would be distributed by asset class?

[Jaime Martínez Trigueros, executive]

Gordon, nice talking to you and thank you for the questions. Let me start with the second question, if you like. These 3 additional sources of increasing our cash flow organically and inorganically, those MXN 0.12 could be add to the higher end of our guidance, that would mean around [ MXN 1.12 to MXN 1.15 ]. I want to emphasize that, that will be at full capacity. We believe that these new leases from our vacant space or office are already moving along. Some of them we expect to close in the next few quarters. As you know, special stream will start a few months later.

The deployment of the existing portfolio and I think that will also address your last question. It's around $240 million for the proceeds of recycling some of our assets, including and starting with the land reserve. We believe that those would be allocated in its totality on industrial transactions. We haven't seen attractive opportunities in the office arena. We don't discard the possibility of this happen as of today. I would say that those -- that $0.25 billion will be mainly invested in industrial properties of the same profile and characteristics and specifications of our current portfolio.

And going back to your first question on the funding. I think our funding profile would remain pretty much stable under the same conditions that we have secured so far. And the second part of your first question was scaling operations. Yes, and the opportunity of operating economies of scale. The answer is, yes the higher the size of the portfolio, the lower the scale opportunity that we have on operating expenses. We have some margin to maneuver on the corporate outside of expense. But the short-term answer is, yes, we expect to have some additional economies of scale given the size of the new portfolio. And particularly, the fact of the matter that Zeus portfolio is now a triple-net based operation. As you know, our NOI margins will increase. We would have set our NOI margins in the next few months if not higher to be around 90% given the size of the Zeus transaction. So yes, due to restriction on economies of scale.

[Gordon Lee, analyst]

The MXN 15 billion.

[Jaime Martínez Trigueros, executive]

Yes, the MXN 15 billion growth strategy that we have adjusted, that will represent roughly about $0.25 billion per year, including the remaining of 2023. We believe that there will be a lot of opportunities in industrial markets and this market needs to be capitalized and we -- and then talking about all the -- Fibra Mty, should become the main source of investment in this arena. We expect some new players to arrive from private funds, particularly in the U.S. and Canada. This would add additional capitalization to the market. And that's going to kick start this virtual cycle that we have always talked about.

As you know, there are some [ leases ] that are going to expire, expire in the next few years. But the demand on the industrial market, we estimate that right now, the demand stands in around close to 50 million square meters, and that represents a lot of new development that needs to be done, and that development is going to be funded by sources from the acquisition and sale of [indiscernible].

We continue to see a strong pipeline right now. We are being very selective on what we are aiming for right now. There's a lot of build-to-suit activities in the country, particularly in the Northern area and [ Aguascalientes ], and we expect to be able to deploy around $0.25 billion in acquisitions per year average for the next 4.5 years.

[Operator]

Our next question is from the line of Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

Congrats for the several milestones you have achieved. This is remarkable. A follow-up on Gordon's question a few months ago. If I understood correctly, so you are open for acquisitions on the office space considering what you see up to 2026, isn't it? So along these lines, and if you can help me to understand on the specific guideline that you shared with us in your presentation on how the organic growth linked to office space might play out? I mean because first, when I saw that in your slide, which is very helpful for sure. I don't know to what extent you are reflecting in full these ideas that it seems that in Monterrey and particularly in Guadalajara, the office market is actually farther compared to what we see in Mexico City?

And my last question would be on your land reserves. Any idea now that you own the portfolio, if any of this land may be put on sale? Or I mean, any thoughts to use that as another way to issue equity in another way?

[Javier Llaca García, executive]

Paco, nice talking to you. Thank you for your questions. Let me start with the organic capacity of growth that we see, particularly in our office component. Let me try to break it down for you. As of today, we have an occupancy of about 71% in our office component. It's is going to go back to close to 73% in the next -- hopefully, in the second quarter as we are securing material leases. Our vacancy rate or occupancy rate on the portfolio component right now stands at 98.5%. It's going to be 99% by the end of the second quarter.

So there's -- if nothing goes to no upside right now on our existing industrial portfolio. So our upside organically stands completely -- almost completely on our office component. We are moving pretty fast thankfully on lease demand in our Monterrey portfolio. And that doesn't mean that the Monterrey market is more active than the Guadalajara market. But what happens is that we are close to 100% of occupancy in Guadalajara office component. We have no vacant space right now in our portfolio in Guadalajara.

So the upside stands in pretty much in the Monterrey component. Mexico City, we're not seeing any movement right now. But because of the activity that we have in Monterrey, I believe that we could achieve north of 80% occupancy levels in our office component overall. And that would represent those [ $0.04 to $0.06 ] -- or 4% to 6% organic growth that we thought we start capturing right away. It's going to reflect in cash flow later on because of the structure of the leases. But I would say that almost the totality of our upside organic that we have right now in our portfolio stands on the offerings component.

We are seeing in Guadalajara, for instance, positive lease spreads. In Monterrey, there are still some negative lease spreads. But right now, we do have a vacant property [indiscernible], but we believe that the lease rates are going to remain stable in the office arena.

And going to your last question on the land reserve, the short answer is yes. We're already entertaining the possibility of selling some of the fields land reserve. The proceeds of that land reserve would roll over and look to new acquisitions of stabilized assets. We are very positive and very optimistic about the possibility of selling an important part of the land reserve in the next few quarters, and that money is going to roll over into another acquisition.

We are open also, Paco, to the possibility of contributing part of the land reserve for new development that is -- that wouldn't be developed by us, of course. It will be contributed to a partner that will be a developer, that will contribute for -- with the development itself and development capital. We would contribute the capital in terms of -- in the form of land. And that would also give some additional hires between organic and inorganic growth because technically, it will be an acquisition on top of the land. But that way, we could put the land to work on generating additional cash flow.

So we're already working on that. We're moving forward, and we are making progress on this potential recycling of assets on the land reserve. And I hope those answers -- I covered your 3 questions.

[Francisco Suarez, analyst]

They do. That's very interesting and we have to see that the possibility that you guys have. Congrats again.

[Operator]

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

[Edson Murguia, analyst]

The first one is related a follow-up on the land reserve. So if I understood correctly, you're expecting to sell that land. But in the press release, you mentioned that probably it's possible that you are developing some land reserve from the acquisition. So just trying to understand, are you selling or you are developing? That will be the first question.

The second question is regarding on this repositioning assets because you mentioned in the press release that you are considering. And it's related to the [ Zeus ] acquisition looking ahead. So you're planning to do some repositioning in order to fund those MXN 250 million that you are expecting to expand on acquisition per year for the following 3 or 4 regarding on the expansion plan? And lastly, could you give us -- yes?

[Jorge Avalos Carpinteyro, executive]

Yes, go ahead.

[Edson Murguia, analyst]

And lastly, could you give us a little bit more color about the range, the MXN 103 million credit facility over to facility path. Just trying to match with my model, so how will be the impact on the cost of credit facility?

[Javier Llaca García, executive]

Thank you, Edson. Thank you for your question. Regarding the first question on the land reserve, there are mainly 3 different aspects of the land reserve that we are acquiring with the Zeus portfolio. There is a portion that relates to, let's call it, smaller pieces of land that are adjacent to a satellite building that were above given the fact that those existing and satellite buildings had rights or an option on their lease contracts to expand into additional GLA. So we're going to keep those in order to be able to honor those contractual obligations up to a certain point.

I can tell you that we are already in talks to one of the Zeus tenants to start very soon an expansion for them. So those, again, kind of smaller pieces of land are going to be big kept for additional development.

On the bulk of the land, which is located in the [ Querla ] market, we believe that we would sell at least between 30% and 50% of that land could be to a user, could be to a developer. Right now we're talking to a few of those. But if that failed, but if this position goes through the remaining of the land, we're going to decide at that point, if we want to keep it for further development or if we continue to sell the land.

I would say that in absolute terms from the close to [ 90 hectares ] that we have land reserve, I would say that we will sell at least half of that. 20% of the land is going to be kept for sure for expansions. And the remaining 30% is yet to be decided what we're going to do with that land.

Then your second question -- to your question on the firepower, the $220 million is our current firepower with the remaining committed lines of credit that has nothing to do with the rollover of any potential recycling disposition. Those $220 million are currently being pursued with additional pipeline and current pipeline that we are evaluating and negotiating. So the proceeds of the dispositions would be on top of those $220 million.

And I'm going to ask Cesar Rubalcava from Investor Relations Group to answer your last question.

[Cesar Rubalcava, executive]

All right, thank you. Thank you, Edson, for your question. Regarding the interest rate of our revolvers, the MXN 103 million that we prepaid on the first half of April, there was MXN 60 million from the [ BBBA ] revolving credit line that so far was 195 basis points. We had a MXN 20 billion revolving credit line from [indiscernible] LIBOR plus 335 basis points and USD 23 million with SOFR plus 200 basis points. All of these 3 credit lines were already prepaid. So the weighted average interest rate has already declined from the picture of the end of first quarter of '23. And the remaining revolver has SOFR plus 225 as of the first quarter. This remains in a variable rate because we intend to prepay with that reimbursement. So just to give you some color regarding the weighted average interest rate of the first quarter and going forward, we closed with 5.68%. And as of today, we have roughly 5.22%. And once we repay the remaining revolver, we will be standing at 4.8%. So that's going to -- that's the way we're going to be looking the interest rate going forward.

Just to give heads up, this does not include possible disposition from other credit line because we don't know how interest rate will kind of play out going forward.

[Operator]

Our next question is from the line of Francisco Chavez with BBVA.

[Francisco Chávez Martínez, analyst]

I have 2 questions. The first one is regarding the office segment. We saw a setback in occupancy this quarter. If you can give us more color on this regard? And the second question is on the NOI margin. When can we expect to recover the 90% mark?

[Javier Llaca García, executive]

Paco, nice talking to you. Thank you for your question. This is Javier. Yes, we have a drop -- we saw a drop in occupancy in our office component in the first quarter because we had an expiration of a tenant in Monterrey that is consolidating in the model for buildings. And that space was vacated during the first quarter. And we already executed a letter of intent to lease up that space to a new tenant and the contract is in the works. So what happened is that rollover of the space was cut off between quarters.

I was mentioning, and I believe it was one before that our occupancy in office stands right now on 70.8%, and it's going to increase to close to 73% in the second quarter of this year because of that, particularly. So it is going to stand flat if you consider the 2 quarters altogether. So that's regarding your first question.

The second question regarding the level of NOI margins. We are right now at 88.7%. There are 2 issues that I would like to point out. The first one is that according to NIIF -- we have accounts collectible delay in one of our buildings in San Luis Potosi that has to go as an operating expenses for terms of reporting. So that's an important issue on having kind of high operating expenses in terms of for NOI calculation, that's going to recover as this tenant keeps up and catches up with the payment of that particular tenant.

So we expect that once we fully include the Zeus portfolio in the second quarter of this year, it's going to increase substantially our NOI margins because it's $53 million annually on net operating income. And those are triple net, the margin for those 46 buildings is well above 95%. So you could expect that we should get back, if not to 90%, but close to around 90% as soon as of the second quarter of this year.

[Francisco Chávez Martínez, analyst]

Javier, just a follow-up on the office segment. Again, can you give us an idea on the lease spreads that you are seeing in this contract, in this specific contract?

[Javier Llaca García, executive]

Yes. Well, that's an interesting answer. In Guadalajara, I can tell you that the last vacant space of La Perla, that is being restored as we speak, has a positive risk spread of around 10%. I mean, that's amazing. Our underwriting was below that. So that's already a result what is happening in Guadalajara is that we have 120% demand for office space in our portfolio.

We have a pipeline of tenants that want new space that we don't have available. So the demand is driving prices high on lease rates in Guadalajara. And I have to say Guadalajara at least in our portfolio, La Perla particularly, all the leases have been signed in dollars, dollar denominated leases. So that's something interesting to point out.

Lease rates on the Monterrey market are pretty much flat. We've seen a slight increase in some of our buildings, but it's very marginal. Most of the leases that are being negotiated in our Monterrey component is peso denominated like Guadalajara. And this particular lease that we're working on that we just mentioned, lease spread is going to be marginally positive, probably around 3%, 5%. And you could say that is flat inflation. So there is no -- sorry, there are no market drivers for positively -- in this price in the office market right now in Monterrey, and we expect to behave pretty much aligned with inflation.

[Unknown Executive]

We have one question from Andre Mazini from the equity research team at Citi. How do you see the MXN 10 billion from Tesla and MXN 2 billion from Bosch affecting your portfolio?

[Javier Llaca García, executive]

Great. That's a great question. And I'm so happy that, that brings out the Bosch investment because Tesla having the Bosch lately, of course, is the most, I would say, mediatic or glamorous transaction, not only for Monterrey, but probably for the whole industrial market in Mexico. Bosch is currently building an even larger building than Tesla in Salinas Victoria in Northern Monterrey. And I have to say that we have some presence in the Santa Catarina market. Actually, the Monterrey portion of the Zeus portfolio that we just acquired is in that area. And I mentioned Santa Catarina because that's going to be the main influence area for the Tesla operation. So we want to see a very positive impact on the activity for us in that area.

We don't have any vacant space in our Santa Catarina portfolio. We do have access to some land. So it could be an interesting opportunity for us in terms of build-to-suits for providers or for some Tesla-related operation in that [indiscernible] Monterrey.

Even further, I can say that we are also seeing a potential positive impact of the Tesla operation, not only on industrial. You could expect some services companies, some providers of Tesla that could be looking even for a back office space in that area. And we do have some vacancy in that part of the city for office space demand.

The Saltillo market is going to be also very benefit from the Tesla operation because of the proximity to Monterrey and being kind of the twin city for Monterrey in terms of the overall development. I could say that we could face some positive demand for new industrial space in Saltillo. We do have some presence in Saltillo, not only the outskirt of Saltillo, towards Monterrey, but we are looking at some opportunities in that area. So it's going to be very interesting.

And regarding the Bosch operation, the new Bosch facility being built in Interpuerto. Interpuerto is a multimodal complex between Cienega de Flores and Salina, Victoria, that's going to drive some demand. We have -- as you might know, we have some buildings in the Cienega de Flores corridor. All of them are fully leased. We could expect some -- the rise of some opportunities for build-to-suit and even speculative development that we could partner eventually with a developer specialized on that in the Cienega de Flores corridor.

Cienega de Flores corridor is pretty interesting because it's becoming a very attractive alternative to the Apodaca market. And if you consider that Cienega is on the way to Santa Catarina through the northern north Monterrey, that could represent a very interesting [indiscernible] between Apodaca, Cienega de Flores and Santa Catarina. So operation like those highlighted on Tesla and Bosch as well and some other nearshoring operations in Salinas Victoria, particularly from a Chinese company such as Hisense, that is developing a large facility in Salinas Victoria. That's going to detonate them and trigger a very interesting activity from suppliers for these companies on those parts of the seal.

[Operator]

[Operator Instructions] We do have a question coming from the line of Edson Murguia with SummaCap.

[Edson Murguia, analyst]

Just a follow-up. Regarding on the $80 million of that value-added tax, when are you expecting to have this $80 million?

[Jaime Martínez Trigueros, executive]

Yes. Edson, given our track record, we could expect to get the reimbursement in the late third quarter of this year.

[Edson Murguia, analyst]

And those profits are going to be part of the prepayment of that, that you expect in Zeus portfolio in the quarter, right?

[Jaime Martínez Trigueros, executive]

Yes. Immediately, when we received the reimbursement, we're going to repay the revolving credit line of the new syndicated loan that we just signed on March of this year.

[Operator]

With no questions in the queue, I'd like to turn the conference over to the management of the company.

[Jorge Avalos Carpinteyro, executive]

Thank you, everyone, for attending the call, and we'll see you next quarter. Bye-bye. Thank you so much.

[Operator]

Thank you, everyone, who joined us today. This will conclude today's call. You may disconnect your lines at this time. Thank you for your participation.