Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, and welcome to the 2021 Second 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, and recordings of the call will be available on the website of the company in the next 2 hours. If you are 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 materially differ, 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 statement.

I will now turn the call over to Mr. Jorge Avalos.

[Jorge Avalos Carpinteyro, executive]

Good morning, everyone, and thank you for attending to our second quarter results conference call. Over the past quarters, I have shared with you that one of our crucial commitments with our shareholders has been maintaining our solid business model that has proven to be resilient. Today, I am proud to present the most outstanding developments related to our financial achievements, our properties performance, our growth strategy and, finally, the commitments and measures we are undertaking in terms of sustainability through the release of our second annual ESG report that is available at our website.

Regarding our activity in the capital markets on July 13, we successfully raised $115 million in long-term debt bond offering at a 3.73% fixed rate, reducing our average interest rate by over 20 basis points from 4.34% in second quarter '20 to 4.13% this quarter. This transaction marks the end of a thorough process that started in 2020 with the objective of strengthening and bringing greater financial flexibility to our balance. And today, Fibra Mty's outstanding debt matures in October 2027, being dollar-denominated at a fixed rate and, for the first time since our IPO, completely unsecured.

In addition, we maintain a level of indebtedness below 25%, which provides us with the capacity to raise up an additional $150 million of buying power without exceeding our leverage threshold of 35% LTV.

Regarding our portfolio performance, we're on track to achieve a retention ratio of 83% on leases with maturities below 1 year as of second quarter 2020. It is important to emphasize that we have a retention rate above 80% in the office segment, and renewals have been a range at reasonably similar rent levels, which shows the resiliency of our portfolio and the strength of our tenants. In addition, in recent weeks, there has been a slight rebound in the net absorption at our 3 primary office markets that Javier will address later on.

As mentioned during the last quarter, we have restated our growth strategy. In this regard, at the beginning of June, we announced 3 transactions, highlighting the acquisition of a class A office building known as La Perla in the city of Guadalajara. La Perla is an acquisition that had been put on hold since March 2020 when we wanted to preserve our liquidity levels. During this period, we had the opportunity to monitor the evolution of its contracts and even observe the leasing activity of additional space. This allowed us to review the performance and attractiveness of the property and improve the terms of the transaction based on current market conditions, resulting in a capitalization rate increase of almost 100 basis points as we closed the transaction with a 9.3% cap rate.

Later on, we carried out our first asset recycling transaction through out the sale of an industrial property known as Casona in Los Mochis for MXN 70 million. The proceeds from this the divestment will be used to carry out an expansion of our Providencia industrial portfolio in Coahuila. Beyond improving our lease maturity profile and growing the contribution of dollarized contracts in total revenue, these transactions are part of Fibra Mty's portfolio restructuring strategy and investment focus on Mexico's primary markets, especially in the Northern, Central and Western Mexico.

Our next goal in terms of growth is to use our $150 million buying power available in cash and from our secured lines of credit by acquiring industrial properties. This will be carried out under our investment guidelines that include primary markets, high-quality construction standards, financially strong tenants and long-term leases.

As we continue to meet our objectives, we expect to organically reach the upper end of our 2021 guidance equivalent to MXN 0.83 per CBFI. In addition, the successful acquisition of La Perla property will allow us to distribute an additional AFFO of MXN 0.05 per CBFI in 2021.

I would like to conclude my remarks by informing that we have decided to disclose at our annual ESG report the commitments we will be making in environmental, social and governance matters. In fact, starting in the second quarter of this year, we're creating a special capital provision referred as sustainable, which will be used for the diagnosis and investment that will eventually require to reduce our CO2 footprint and move towards the use of clean energies. In the second phase, we will pursue the same goal, for a sustainable goal in water consumption and waste management.

I would now ask Jaime to walk you through our financial performance. Jaime, please go on.

[Jaime Martínez Trigueros, executive]

Thank you, Jorge, and good morning to everyone. I am very pleased to address to you again and share this period's financial performance and key indicators. I would like to start with the reopening of our long-term debt certificates carried out on July 13.

As shown in Slide 2, we successfully issued $115 million at a 3.73% yield with maturity in late 2027. This is our second issuance in foreign currency in the local debt market. The issuance was oversubscribed 1.4x, which is an interesting demand given the niche market size for this type of instruments. The proceeds were used to replace the outstanding balance of the 2018 syndicated loan. As a result of this transaction, our entire outstanding debt is dollar-denominated, at a fixed rate, unsecured, has a single bullet payment in October 2027 and is free of the potential risk derived from the LIBOR-SOFR transition.

I would like to congratulate and express gratitude to our entire team for their hard work as well to our bankers and debt holders for their confidence, carrying out this issuance, which reflects our company's operational and financial resilience going forward.

This transaction is the tipping point of our rigorous process we started last year with an objective of strengthening and bringing greater financial ability to our balance sheet.

If you continue to Slide 4, there is a year-on-year comparison between the second quarter of 2020 and our current balance sheet to demonstrate through key indicators the improvements that result from their strategy. For starters, the average interest rate had a significant reduction considering the behavior of our previous financial costs through the years with our current average interest rate of 4.13%. Second, the average debt maturity almost doubled by stretching from 3.5 years to 6.3 years. Third, the first time since our IPO, our outstanding debt is 100% unsecured. And finally, we reduced our net debt to EBITDA from 3.3 to 2.8x.

Given our prudent loan-to-value, we have enough room for an additional $150 million. Such resources can be used to pursue acquisitions with attractive incremental and sustainable returns for investors. I will elaborate on this topic further on.

Now I would like to ask Javier Llaca, our COO, to walk you through our real estate portfolio performance and its perspectives. Please go on, Javier.

[Javier Llaca García, executive]

Thank you. I will start my piece of the presentation with Page 5 of the webcast material, where we present the same-property performance analysis for the second quarter of 2021 compared to the same quarter of the previous year.

For purposes of this analysis, we used 58 out of the 59 investment properties currently in our portfolio, given the fact that we recently sold one of our industrial properties and another one is currently marked and under negotiation for its disposition as I will later explain in more detail.

Gross revenue contracted 19.5% or MXN 69.6 million with a reduction of 20.4% or MXN 66.8 million in our net operating income, with an NOI margin of 90.8%. The composition of this variance will be explained in detail in the following page.

Once we incorporated additional revenue from La Perla in early June, the aggregated portfolio generated a total net operating income of MXN 271.9 million compared to MXN 329.3 million in the second quarter of 2020, a reduction of 17.4% with an NOI margin of 90.7%.

Moving on to Page 6 of the presentation. The reduction of MXN 66.8 million in our net operating income comprised of the following: MXN 35 million, this is 52.4% of variance due to an unfavorable FX effect between second quarter of 2020 and the second quarter of 2021; MXN 12.1 million, this is 18.1% of variance due to an early termination of the Axtel's agreement; MXN 8.2 million, 12.3% of variance from grace periods accrued on an accelerated basis during the second quarter; MXN 8.1 million, 12.1% of variance due to certain scheduled vacancies in the industrial and office portfolios; MXN 5.9 million, this is 8.8% of variance from the reduction in lease rate at the Banco Famsa building; MXN 300,000, this is 0.4% of variance due to minor lease adjustments; and finally, an increase of MXN 2.8 million, this is minus 4.2% of variance from savings in operating expenses.

It is important to point out that the lease agreement with Axtel originally scheduled to expire in October of 2021 was early terminated during the first quarter of 2021. This decrease had no impact on the second quarter or its AFFO as the penalty collected in the first quarter was distributed on a streamlined basis from January to June of 2021.

Page 7 of the presentation highlights our most recent activity in terms of leasing and organic growth for the last quarter.

As we will further discuss later in the call, we have seen a slight recovery on demand for office space, particularly in Monterrey and Guadalajara, and the industrial market continues to thrive in most of the core markets.

During June, we concluded negotiations on an early termination of a portion of an office space in Monterrey, driven by effects of the pandemic. I'm glad to inform that we didn't not only achieve a positive negotiation in terms of renewing part of the lease and agreed with the tenant for the payment of a reasonable penalty, but also we have concluded negotiations and are in the closing of a new lease for this vacant space with a single tenant that will occupy the space for a 6-year lease term, allowing us to fully recover the potential impact on this early termination.

We are working with one of our most relevant tenants in Monterrey for a capital investment on tenant improvement that will not only generate additional net operating income but, will extend the term of the lease for approximately 4 more years, stretching expiration until 2033.

One of the industrial buildings that didn't renew in 2020 is currently under negotiations for expansion of one of our existing tenants in Saltillo with a very good chance of securing the whole building with a new lease for 5 years term.

Also during the last week, we executed an extension of more than 6,600 square meters GLA office lease in Guadalajara that accounts for 3.4% of total gross revenue of our portfolio. We are currently under negotiations for more than 33,000 square meters of GLA across our industrial and office portfolio, most of which we believe could be closed during the second half of 2021.

Finally, including these transactions and some others, we have a pipeline of new leases and extensions that represent a total of additional annual net operating income of more than MXN 83 million, equivalent to MXN 21 million per quarter, a similar amount of the hit that we have experienced in our net operating income by effect of the pandemic.

Moving on and during the first half of 2021, as Jorge just mentioned, we rebooted our dispositions and acquisitions program.

On Page 8 of the presentation, we highlight the first 2 lease positions for the second quarter. First, we concluded in June the sale of an industrial property located in Los Mochis, Sinaloa. That is currently fully occupied by a single tenant under a triple net, peso-denominated lease. This transaction generated net proceeds for a MXN 70 million, which will be invested in a 9,000 square meter expansion for an existing building of our portfolio in Saltillo, Coahuila, currently in process of closing.

This transaction is part of our enhancement initiative or portfolio, so we can focus on class A properties located in core markets in Mexico. The sale price was consistent to the value of the last appraisal conducted by our external appraiser.

Also, we recently executed a promisory purchase agreement for the sale of the old Cuprum property located in the Santa Catarina corridor in Monterrey. This property was part of the initial contribution portfolio of Fibra Mty by the timing of our IPO in 2014, and the tenant was relocated to a brand-new build-to-suit building also in the Santa Catarina corridor.

Given that this 38,800 square meters of piece of land is not generating any income, and that it's best and has its use in place change of zoning and development activity, we decided to sell the property to an industrial developer, so we can use proceeds of these sales for the acquisition of accretive new properties. The agreed purchase price of MXN 158.8 million is also consistent to external appraisal and book value.

On Page 9 of the presentation, we address the most relevant aspect of 2 acquisitions that we have announced during the first quarter. First, as Jorge just mentioned, we concluded the acquisition of the office component at La Perla district in Zapopan, Jalisco. This is a class A office building complex with 43,600 square meters of GLA, designed by Skidmore, Owings & Merrill 3 years ago. The building is currently 82% occupied, and the transaction was executed under a progressing structure. This is that we acquired 100% of the property with the initial payment for the lease portion of the -- and the rest of the price will be paid as the vacant space easily stops and rent payment begins, allowing us to optimize the use of resources. Total purchase price is approximately MXN 1.8 billion with a total potential of MXN 169.3 million of annual net operating income. Current leases are single net with 88% dollar-denominated and 5 year weighted average lease term.

Then we have the acquisition, as Jorge mentioned, of a 9,000 square meter GLA expansion of an existing industrial facility in Saltillo, Coahuila, currently in process. This expansion adds to another 9,000 square meters existing facility and the new 18,000 square meters building will be leased for a new 5-year term under a triple-net dollar-denominated lease. Total investment is MXN 109.4 million and will generate additional annual NOI of MXN 9.9 million. Part of needed resources for this acquisition will come from the disposition of the Casona Mochis property that we just discussed in the prior section of the presentation.

Moving on to Page 10 of the presentation. We would like to talk about office markets for a moment. Since the last quarter of last year, we have been monitoring the behavior of all 3 core office markets in Mexico, and our take continues to be the same since January. All markets are either at bottom or near bottom at this cycle, with slight upward trends [ more or less ] of less negative, less absorption in Mexico City and Monterrey and steady flat in Guadalajara. Our thesis on being Guadalajara the first and Mexico City the last markets to recover continues to be valid.

We are already experiencing a slight increase of demand for office space in Guadalajara and Monterrey, and continue to believe that recovery could begin by late 2021 for Guadalajara, by mid-next year for Monterrey and by early to mid-2023 for Mexico City.

Finally, I'm talking about markets. On Page 11 of the webcast, we present an extract of the most recent report by CBRE on Mexico recovery indicators. Please keep in mind that this report is based upon information on 13 key industrial markets and 5 office and retail markets.

Regarding market transactions, despite volatility, CBRE believes that the office market experienced a slight upward trend in the last 2 months, while the industrial sector went downward. We believe that the latter is in part due to unavailability of existing inventory and users mainly seeking build-to-suit projects. CBRE believes that general recovery might start in the second half of 2021, which is somehow consistent to our take of market conditions.

I will be more than happy to address any specific questions you might have by the end of the presentation. And with that, I will hand the presentation back to Jaime Martinez to talk about key financial results for the second quarter.

[Jaime Martínez Trigueros, executive]

Thank you, Javier. In this section of the webcast, I would like to go over the main variations in our AFFO both in a yearly and monthly basis, as well as the upside potential given current market conditions.

As you can see in the graph on Slide 12, the main year-on-year AFFO variation accounting for almost MXN 42 million came from same-property cash flow from which 83% is explained by a stronger peso when compared to the same period last year. This has a negative effect because of our highly dollar-denominated revenue portfolio. And the remaining 17% is described by certain scheduled vacancies and space reductions, all of which was illustrated earlier by Javier.

Further on, a decrease in our financial result of roughly MXN 13.5 million was driven by the reduction of almost 170 basis points in the average interest rate of investable securities because of the expansionary monetary policy of Mexico's Central Bank. This was almost offset by the positive effect of a near 100% recovery of accounts receivables, avoiding the use of special provisions during the second quarter of 2021.

When running the same analysis on a quarterly basis, as shown in the Slide 13, there is a slight improvement in the AFFO, mainly driven by the positive effects of accounts receivable, which led us avoid the use of special provisions compared with last quarter.

Even the results that I just presented, I have a failure to mention that we are on the right track to organically achieve the upper range of our 2021 guidance. Following to the annualized potential growth in AFFO per share, given nonorganic drivers presented in Slide 14, the acquisition of La Perla building may add around MXN 0.09 to our AFFO per share on a 12-month basis, meaning that we can expect [ 4.5 ] additional AFFO per share during 2021.

In terms of new acquisitions and the follow-up made earlier comments, our current balance sheet has the capacity to add approximately USD 150 million, which could increase the AFFO per share in MXN 0.60 and MXN 0.10 per year, depending on the behavior of the interest rates going further and the cash-on-cash generated by the new properties.

In this -- it is worth mentioning that additional to the cash held in hand, we already have access to $135 million available in credit lines, assuring enough resources, availability to continue our disciplined growth strategy.

Finally, as shown every quarter, there is a summary of key financial indicators on Slide 15 that comprehend the last 4 quarters to facilitate your analysis.

That would be all from a financial perspective. I now return the floor back to Javier, who will provide you with an update on our ESG strategy. Go on, Javier.

[Javier Llaca García, executive]

Thank you, Jaime. To conclude today's presentation, we would like to talk briefly about our ESG strategy, in particular short-term goals that Jorge mentioned during his opening statement. First, we are pleased to inform that on July 12, we completed our 2021 Corporate Sustainability Assessment or CSA. And that same day, we published our second annual ESG report, outlining very specific short-, medium- and long-term objectives that will keep us in the right direction in terms of ESG. We invite you to download and review this report available on our web page.

As Jorge mentioned earlier, we have decided to create a special capital provision or sustainable or green investment for the second half of 2021. This first investment will be used for the diagnosis, strategy design and implementation of 2 specific initiatives. First, we will start reducing our carbon footprint by implementing the use of renewable energy for all common areas and central equipment of our office buildings in Mexico City, Guadalajara and Monterrey. This project is already underway, and we expect to start its implementation before the end of the year.

The second project consists of the certification of our own office space on their EDGE standards. This certification sponsored by the International Finance Corporation of the World Bank will allow us to provide all employees at Fibra Mty and even some of our tenants with our safe, healthy and sustainable office space and to pursue further sustainable financing.

With that, we conclude our presentation of the second quarter 2021 results.

Hector, please proceed with the questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Gordon Lee with BTG Pactual.

[Gordon Lee, analyst]

A few questions, actually 3 questions, if I could. The first, I was wondering, Javier, if you could give us an update on the, particularly in the office space, these negotiations that are ongoing to bring in new tenants or for lease renewals, what the rental rates on renewal are looking like relative to what you had before? And whether you're seeing tenants taking advantage of this environment to maybe convert leases from dollars to pesos. And also, while on the subject of rents, maybe also talk about what you're seeing on the industrial side. A couple of your competitors have made very bullish comments on the outlook for rents in industrial in their second quarter conference call. So I was wondering if you're seeing the same dynamic. That was the first question.

The second question is, I was wondering whether you could let us know or tell us -- remind us when the last appraisals were and how confident you are of the marks on your books of the office portfolio?

And finally, and this is for Jaime. In the $150 million firepower for acquisitions, what's the assumption of loan-to-value that you're using to make that calculation?

[Javier Llaca García, executive]

Okay. Hello, Gordon, nice hearing from you. Regarding the first question on the office new leases, we are seeing a negative lease spread of about 5% regarding to the previous year. I would say that most of the new leases are being executed in peso-denominated leases. A couple of them in Guadalajara are being negotiated in dollars, but I would say that the majority of the new leases in Monterrey and Mexico City are being signed in pesos with that negative lease spread that I told you about.

For renewals, in the office portfolio, the latest renewal that we did was on the current lease rates, and it was dollar-denominated lease. So renewals are behaving, I would say, normal, pretty much like a pre-pandemic condition.

In regards to the industrial market, I will need to agree. I think that lease weights in industrial, 4 core markets, class A buildings remain pretty strong. All of them are dollar-denominated. They're keeping really steady between $4 and $5 to $6, depending on the market, I would say.

Vacancy rates are pretty low. And as I mentioned during my presentation, we believe that the downward trend on the last month on the industrial market, it's pretty much due to the lack of available inventory in markets. So I think we're going to continue to see an industrial market thriving for the next probably couple of years.

Your second question regarding valuation. We have this practice that we like a lot, that we update our valuations and our appraisals once every quarter. So our last review, we perform a full-blown appraisal once a year and a review from our third-party or external appraiser, in this case CBRE, once every quarter. So the last report that we have on valuation is dated on June of this year. So it's pretty recent, and I can tell you that our portfolio on a same-property basis in comparison to the previous quarter, remains pretty steady on value.

I will turn to Jaime for the third question.

[Jaime Martínez Trigueros, executive]

Well, it will depend on the appraisals exactly, which has some volatility in recent months, but it would be around 38%.

[Gordon Lee, analyst]

Perfect. If I could just ask 1 follow-up, which I guess combines both of you. Given that you're seeing this on new leases, this sort of, I guess you're going to see a shift a little bit in your office portfolio away from dollars towards pesos. How comfortable are you with your balance sheet at 100% dollar debt given that -- or do you think this shift is temporary and you think the offices will continue to remain primarily dollarized going forward?

[Jaime Martínez Trigueros, executive]

So if you take that 50% of the portfolio, it's directly-dollar denominated by the industrial side, and let's put just $10 or something like that remaining dollar, you will have the 50% that we will be around 30% loan-to-value. So we are comfortable. And if there is a case in which we have a higher composition of debt, of our rents in pesos, we'll reduce the loan-to-value. I mean, we were comfortable, but if it will be the case, we will reduce the loan-to-value in order to be very conservative in our balance sheet.

[Javier Llaca García, executive]

And just to conclude and totally agree with Jaime, Gordon, that's on the flow of rents. If you take a look at our valuation because of the difference of cap rates between the 2 asset classes, I would say that our value of portfolio is about closer to 60% for industrial and 40% for office, but that gives Jaime even a larger coverage of the industrial portfolio for debt purposes. In other words, if we were not to leverage any of our office buildings, we would be okay on our LTV.

[Operator]

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

[Armando Rodriguez, analyst]

Congratulations on the results, particularly on your solid balance sheet. So my question here is about your asset recycling program, particularly on your recent disposals on the industrial segment. So my question here is, you are considering some office buildings also to relate it on your asset recycling program in the short term? That's my only question.

[Javier Llaca García, executive]

The answer is yes. We're looking at some other assets that we currently have in the portfolio, and that includes both office and industrial properties. And as soon as we start with that further disposition program, we will let you know in detail.

[Operator]

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

[Francisco Suarez, analyst]

The questions that I have is on Guadalajara. I have been there recently for several reasons. I have noticed a lot of a major improvement in overall mobility in the city. It seems that the overall level and interest from the business community and other drivers of demand are going back to where they were. They were, seems to me, very strong. And you recently acquired La Perla. So can you give us a little bit of color on what you see on the ground if this mobility already will be reflected in the overall occupancy in office space in Guadalajara?

And the second question that I have is that, considering the your views and your overall interactions with your tenants in the office space, how likely the tenants might be adapting their space to more of a hybrid conditions in the future? And if that is or not an opportunity for you to offer any sort of TIs that might be amortized in part of the rents?

[Javier Llaca García, executive]

Francisco, this is Javier. Nice talking to you. Regarding the first question about Guadalajara, yes, we see the beginning of our recovery. There's a difference between Guadalajara when you compare it to Monterrey and even more with Mexico City. There's a lot of tech companies in Guadalajara. Tech companies have been thriving a lot because they have been probably the most resilient sector to the pandemic, given the DNA of the companies. I can tell you that we have probably half of our tenant base in Guadalajara come from the tech sector. We have almost no availability in our office buildings in Guadalajara, other than the vacant space from La Perla. And we mentioned a recent renewal in my presentation for 6,600 square meters that was a tech company, a multinational tech company.

We see Guadalajara starting to recover. It's going to be a slow recovery though. I don't want to sound like Guadalajara is going to become pre-pandemic in a moment now. That is far from that. But it was the only market during the first quarter that had a positive net absorption. Let's remember, it's also the smallest of the 3 markets, even though it's growing at a 2-digit pace.

If you see the vacancy rate chart on our presentation, you're going to see a slowdown on the increase of the vacancy rate in Guadalajara. So we feel optimistic about Guadalajara. Yes, the activity is becoming more and more kind of back to normal every day also in the retail sector. So we are following really close the Guadalajara market.

And the second question, yes. The trend that we are looking at our own tenant base is toward a hybrid form of operation. Part of the reason that we are doing this EDGE certification in our own office also, besides providing our employees and everybody a healthy and secure space, is to prove to our tenants that they can do the same in their space and that we can provide that investment to be amortized throughout the lease term. We are starting to -- we already started working with a couple of tenants on doing something like that, not in concrete yet. But yes, we see a trend on moving towards a hybrid operation, but we believe that the office space is going to prevail.

In most cases, there are going to be companies that are going to reduce their office space. But so far, it's been a small part of our portfolio, a marginal portfolio.

And the TIs for those adjustments, we, as I said, we can invest on those, amortize it throughout the lease term. That provides the tenant with some kind of a financing for these TIs and that gives us the possibility of a longer WALT for the tenant and to retain that tenant easier.

Something that is in the report that I didn't mention in my presentation that I would like to address is that we are close to achieve 83% of retention rate for our tenants. And that's exactly because, in a very important way, because of the availability, not only of capital for those investments, but the satisfaction level of our clients. So we plan to continue to do the same.

[Operator]

Your next question comes from the line of [ Edson Magia ] with [ Sumac ] Capital.

[Unknown Analyst]

I have 2 of them. The first one is regarding office spaces. I know that you already mentioned that your expectation is at some point, offices are going to be back in the future, even the outlook from CBRE said so. So do you have a specific strategy that you are pursuing with new tenants? I don't know, maybe being more aggressive about rents or discounts or digital marketing or something that maybe it's given the opportunity to new tenants to be at your spaces?

And the second one is regarding your growth strategy. Maybe it's too early to mention, but have you identified properties that you can maybe acquire in the future?

[Javier Llaca García, executive]

Okay. Thank you for the question. Regarding the first question, what we're doing with our tenants. We're doing a bunch of things that are helping us to not only to retain but to help our tenants to grow in our own space. I would say that one of them is that we are providing our tenants with flex space. A flex space is a space that is going to allow you to adapt pretty quick to the changes of the market. We don't know, and a lot of companies don't know how much of their operation is going to be remote and how much is going to be physical moving forward and how it's going to change throughout time. So we want to provide the tenants with a flex space so they can adapt pretty quick to that change.

We're working on a digital transformation of our office buildings in terms of providing not only the tenants, but I want to say the people that live in the building with a digital tool that can have access to things like parking, to things like delivery to their space. A lot of things that are focused towards more the person that leavings the building than the company that pays the rent. So we take care of a lot of the people that come to our office buildings.

And the second question...

[Jorge Avalos Carpinteyro, executive]

Just to add up, [ Edson ], in terms of prospect, what Javier was mentioning, we just signed an agreement with the company in New York. It's called [ Rise ]. It's a prospect company that manages throughout the [ mobile ]. You can do many things, either check information about shelf issues or can also get food from the food court, you get different services. And the IoT is going to be essential for our business and the way we transform into a digital way and how to take care not only of our tenants, but especially our users, the users that leave throughout the year in our buildings so that they feel secure and that they also have a more flexible and dynamic way to live throughout the year.

[Javier Llaca García, executive]

And regarding the second question on the growth plan and moving forward, we are fully engaged into analyzing different options for acquisitions. We have rebooted our acquisitions program. And I can tell you that we like a lot the composition or portfolio being to be practical, half-and-half industrial and office. We're looking at both asset classes in core markets. We have a large pipeline. We are hoping that $150 million firepower that Jaime mentioned before to be deployed relatively quick. But we have a large pipeline to continue to growth and hopefully to search for a potential equity issuance.

[Jorge Avalos Carpinteyro, executive]

To add off, I mean, the focus on acquisitions is going to be industrial. I mean we want to, as Jaime mentioned before, we want to keep up the proportion that we between industrial and office because that really strengthens our balance sheet in terms of our loans that we have. And the -- practically 100% of the manufacturing facilities that you see in Mexico are dollar-denominated contracts at long-term leases.

So the complex thing about buying industrial right now in Mexico is the compression that people are looking for, for quality portfolios, quality tenants and quality prime locations. But -- and that's exactly what Gordon was mentioning in other calls with other industrial REITs or Fibra, most of them are doing development because, I mean it's, the game is different in terms of cap development versus cap acquisition. So yes, that's kind of our strategy for the acquisitions for this year.

[Unknown Analyst]

Okay. Great. A quick follow-up. You mentioned that you're going to have a capital provision for ESG. So I was wondering if you can give us more color about how much it's going to be and this capital provision is going to prevail in the balance sheet for the following quarters or, for a specific reason, about the this ESG certification process that you are trying to achieve?

[Javier Llaca García, executive]

Sure. Let me first explain that. One thing is that the green investment that is aimed towards what it takes to design the strategy and to make the diagnosis of the project. And another thing is the capital investment that is needed to implement that. So having said that, this first green investment for the second half of the year is going to be of MXN 6 million, and that includes the cost, the soft cost, I would call it, of consultants. We are not specialists in energy and certification. So we are doing this hand-by-hand with experts in the field. And we -- for these first 2 projects, we are using a Houston-based company called Acclaim Energy that is going to guide us through the renewable energy implementation of our common areas and central equipment of our office buildings. And also, we're using a Guadalajara-based company called Eosis. That is going to guide us through the EDGE certification and the implementation of the net zero operation of our own office space. So that's the first initiative.

Once we have a clear view of what the cost on capital expenses or capital investment for these 2 projects, then we're going to decide if that's funded by a mix of debt financing, green financing flow from our own operations, CapEx reserves and so forth. And we're going to have probably a number of following green investments, as Jorge mentioned earlier, to address and to do the strategy for water, for waste disposal and so forth. So we're taking little steps, but we're taking very firm steps towards our ESG strategy.

[Jaime Martínez Trigueros, executive]

And the main part of these MXN 6 million are already reserved, as you can see in the webcast presentation as well as in the press release.

[Operator]

[Operator Instructions] Your next question comes from the line of Francisco Chavez with BBVA.

[Francisco Chávez Martínez, analyst]

Just a quick question regarding the potential acquisitions and the deployment of this $150 million firepower. When can we expect these acquisitions to take place? And also, are you exploring the idea of acquisitions in the logistics?

Second, which markets are the most attractive for you?

[Javier Llaca García, executive]

This is Javier. Obviously, the answer would be as soon as possible. We believe that we can have at least an agreement to deploy this firepower between now and the end of the year. Most likely, most of it would probably be deployed in early 2022. We don't disregard the idea of having a large chunk of it, especially on those single tenant properties on industrial that could be closed relatively quicker. But to -- a short answer would be, we expect to have agreements for most of it before the end of the year and probably most of the deployment in early next year.

And your second question, pardon -- oh, the regions.

Well, let me talk a little bit about logistics. We don't dislike logistics. We like also like manufacturing and distribution from the user because it gives us a little bit more retention power or retention capacity of those tenants. We're going to keep focusing on all 13 major industrial markets, mainly Northern Mexico, the whole northern region, Central and Bajío, West and Central Mexico. That's going to continue to be our main target on logistics, not only logistics, but the whole industrial area.

[Operator]

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

[Jorge Avalos Carpinteyro, executive]

Thank you, everyone, for assisting to this conference call, and hope to see you guys soon. Take care and take care of your family. Bye-bye.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.