Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, and welcome to the 2022 Second Quarter Fibra Monterrey Conference Call.

With us this morning from Fibra Monterrey, we have Mr. Jorge Avalos, CEO; Jaime Martinez, CFO; Javier Llaca, COO; and Eduardo Elizondo, General Counsel. 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 recording 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 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, over to you.

[Jorge Avalos Carpinteyro, executive]

Thank you, Jenny, and thank you, everyone, for attending to our second quarter conference call.

As you may know, in early June, we began the process of our fourth follow-on offering up to MXN 3.4 billion in equity. Our main objective is to strengthen our real estate portfolio by seizing opportunities in an unprecedented industrial market cycle in Mexico, which we believe will continue over the coming years. The dynamism of this segment has been driven particularly by the higher demand from North American market, the reorganization of supply chain, also known as Nearshoring and the constant need for more distribution and logistic hubs that has led to a significant increase in demand of space to the extent that absorption is outpacing supply in certain markets.

We have also observed an upward trend in the demand for industrial and office space in the country's main markets particularly where Fibra Monterrey operates. We believe that this outlook will allow our occupancy to return to optimal levels in the medium term and help us capitalize on investment opportunities currently under negotiation, which exceed $500 million and will be addressed by Javier during his remarks.

Additionally we're very pleased with Fibra Monterrey's ESG efforts in recent quarters, which are detailed in our latest sustainability report that is available on our website, and I would like to recognize the support and effort from our Board and colleagues in this crucial milestone. We continue to carry out different initiatives aimed at fulfilling our commitments such as the LEED O+M certification for office buildings, obtaining the Green Lease Leader Silver recognition and implementation of our first phase of disturbed energy projects, among others.

It is relevant to underline the qualities that make Fibra Monterrey a very attractive investment instrument as it maintains an occupancy rate of 92%, has 78% of its revenues dollarized with rent adjustments in line with inflation and the lease revenue stream with an average maturity of 5.1 year based on current contracts. This translates into lower risk exposure and less volatility for our investors.

I would also like to conclude by noting our positive operational performance during the second quarter as it is in line with the guidance approved by our Technical Committee at the beginning of the year.

I will now turn the call to Javier who will comment on operations, pipeline and markets.

[Javier Llaca García, executive]

Thank you, Jorge, and good morning, everyone.

I'll start my visual representation on Page 3 with the composition and geographical distribution of our portfolio as of the end of June 2022. Unchanged from the previous quarter, it is comprised by 60 properties located in 9 markets with a total gross leasable area of close to 820,000 square meters. Current occupancy is at 91.7% 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. Our footprint spans into 9 markets located in 8 states, in the Northern Bajio and Central areas of the country.

Moving on to Page 4 of the material. We present a brief overview of our key performance indicators for the second quarter of 2022. In terms of percentage of revenues, these indicators continue to be consistent with previous quarters. 51.2% of revenue by Asset class came from our industrial properties, while office and retail accounted for 46.4% and 2.4%, respectively. Revenue by Location and Occupancy are in line with our projections for the year.

Our dollar-denominated leases represent almost 78% of gross revenue and lease maturity schedule and weighted average lease term is 5.1 years. With more than 46% of revenue start expiring in 2027. It is worth noting that although our revenue by asset class is 51% industrial, more than 70% of total revenue comes from companies that are industrial as their core activity regardless of occupying industrial or office space.

On Page 5 of the webcast materials, we present the same property performance analysis for the second quarter of 2022 compared to the same quarter of the previous year. For the 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.

We are happy to report that gross revenue increasing 8.6% or MXN 24.8 million with an increase of 6.5% or MXN 17 million in our net operating income and an NOI margin of 89%, 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 and midterm 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, Cienega 3 as well as the disposition of Casona Mochis and Cuprum, the aggregated portfolio generated a total net operating income of MXN 332.8 million compared to MXN 271.9 million in the second quarter of 2021, an increase of 22.4%. Our NOI margin for the aggregated portfolio was 100 basis points above our growth of 88% for the quarter.

Slide 6 of the presentation explains in detail the MXN 17 million increase on our same property net operating income comprised of the following: MXN 2.3 million decrease due to a negative effect between the second quarter of '21 and the second quarter of '22. MXN 14.9 million increase due to inflation escalations on lease agreements. MXN 8.2 million increase due to grace period amortizations with no impact on cash flow as they are regulatory valuation. MXN 4.1 million increase due to new leases and expansions in some of our properties. And MXN 7.9 million reduction due to increase in certain operating expenses and nonrecurring expenses, which we will explain in detail later during the presentation.

As you can see, once we included additional revenue from acquisitions, we reached MXN 332.8 million NOI in our aggregated portfolio.

As you will see on Page 7, during the second quarter of '22, we reached same properties NOI slightly below pre-pandemic levels for the first quarter of 2020 particularly due to a slight recovery of the peso exchange rate against the dollar. As we explained in our previous quarter conference, FX played an important role in our NOI levels once the pandemic kicked in the second quarter of 2020, achieving certain stability during 2021 and 2022.

Should FX have remained constant from the previous quarter, we would have achieved same property NOI like pre-pandemic levels. Let's keep in mind that carrying such a polarized cash flow, we are subject to FX volatility and our returns should be compared to dollar interest rates more than pesos. Some markets have increased, have experienced an evident increase in the demand for office space and we believe we're positioned to recover between 20% and 60% in the next 2 to 4 quarters, increasing our annual cash flow in between 2.5% and 7.5% or MXN 8.2 billion to MXN 24.9 million, translating almost straight right into a potential addition of $0.02 to $0.06 in our future annual cash flow distributions.

As usual, we would like to talk about the current conditions of the core office markets, which we present on Page 8 of the webcast material. 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 altogether showed positive net absorption during the last quarter of 2021 for the first time since the first quarter of 2020.

Mexico City had negative absorption for the first half of 2022. And Guadalajara-Monterrey continued to marginally increase their positive net absorption. New construction continues to drop in Mexico City and Monterrey while slightly increased during the second quarter of this year in Guadalajara.

In our opinion, all markets are now past the worst moment, although the way to recovery will be a long and winding road headed by Guadalajara and followed by Monterrey and Mexico City.

As I mentioned before, we continue to see signs of increasing the demand for office space, particularly in the Guadalajara-Monterrey markets.

Page 9 of the material presents a snapshot of current leasing activity in both our office and industrial portfolios. We have secured new leases that will eventually generate an additional MXN 22.6 million annual income with potential lease transactions in progress and initiated negotiations for more than MXN 54.7 million and MXN 37.6 million in potential annual income increase, respectively. All potential transactions identified in the market including transactions in closing in progress and initiated account potentially for additional annual income of close to MXN 110 million.

I want to refresh some information from the industrial markets in Mexico on Page 10 of the presentation. These figures come from the Mexico industrial report year-end 2021 of JLL. Total net absorption during 2021 was almost net absorptions for 2019 and 2020 altogether with a record high of almost 4 million square meters. Net absorption in Northern markets in 2021 was 2.5x that of 2020 and contributed with 50% of the national total. One of every 4 square meters were absorbed in the Monterrey metro area corridors.

Total inventory grew far less than absorption. Thus, activity drove vacancy rates down with less than 4.5% vacancy rates across all major markets in Mexico by the end of last year. However, leasing activity during 2022 has kept up at similar rate, and we are seeing a drop of the national average vacancy rate down to less than 3.5%. There are markets like Tijuana, Juarez and Reynosa with current vacancy rates lower than 0.5% and Monterrey dropped from 5.3% to 3.9% in the first half of 2022.

Total plus industrial inventory is close to 84 million square meters nationwide. Although being a sizable market, it compares to markets in the U.S. such as the Greater Chicago area, with more than 100 million square meters in size. The opportunities and growth potential for the Mexican market are unprecedented.

Most of the markets have experienced a persistent rent growth since 2018 with markets like Tijuana growing at a 9% compounded annual growth rate from 2016 to 2022 and at a double digit in the last 3 years. This increase in rents has been driven not only by demand, but also by inflation of some construction materials such as steel and concrete.

Rent growth represents an attractive potential upside for our upcoming acquisitions as potential positive lease spreads will be coming in major markets in the short and midterms. I will be happy to further address this matter during the Q&A section of the call.

The industrial market is being positively impacted with the global reconfiguration of supply chains phenomenon known as Nearshoring or reshoring, which we address on Page 11 of the presentation. China is still the manufacturer of the world, accounting for 28.7% of global manufacturing output in 2019. But after the pandemic, a trade war and rising wages in China, many manufacturers have been looking for other options. One increasingly strong option is Mexico.

China's economy has been developing quickly, living standards have risen and productivity has risen as well. But its wages and delivery times have risen faster than productivity. So even before the pandemic, there was pressure to start moving to Mexico, Northern Mexico in particular, where demand is now showing up in the real estate market. But it's not only relocating production from China and Asia, but from Europe and elsewhere as well.

According to CBRE's Nearshoring in Mexico report for the first quarter of 2022, Nearshoring generated -- I'm sorry, Nearshoring related share of net absorption of industrial space has grown from 15% in 2019 to more than 21% in 2021, with 735,000 square meters of the 4 million square meters of net absorption of all Class A space in Mexico. Only during the first quarter of this year, that share has increased to more than 40% or 370,000 square meters. More than half of all 2021.

A lot of this activity for the last 2 years has concentrated in the Northern Bajio and Central regions which happened to be consistent with our presence and target regions for growth. Should Mexico and its public policies be up to the task, particularly in terms of infrastructure, energy and rule of law, we could be at the verge of an unprecedented industrial growth cycle that could last for many years in the future.

Now we want to spend some time and talk about our most recent appraisal of our investment properties portfolio. which we present on Page 12 of the webcast material. As you know, since inception, we conduct quarterly appraisal of the properties through our third party asking as a price vendor being in this case, CBRE. Appraisals are calculated by means of discounted cash flow of all income-producing assets plus replacement cost on market comparable for vacant space, excluding cost of construction in progress, as it is the case this quarter of the Whirlpool facility.

By doing so, we assess our portfolio with a mark-to-market approach. Therefore, the book value from our balance sheet relates closely to a net asset value or NAV of the company. Compared to the previous quarter, the appraisal value of our portfolio increasing MXN 604 million, and such amount is comprised by the following: 363 million from enhanced market conditions because of the driving industrial market and improved office market forecast. 167 million from FX variation given the weight of our dollar-denominated leases, MXN 44 million from improvements and expansions in some of our properties. MXN 8 million (sic) MXN 18 million in capital investments for expansions in our Filio's portfolio, which will be amortized throughout the remaining of the least term. And finally, MXN 12 million from efficiencies in the standard property operations.

Finally, on this subject, I'm glad to inform that as of our second quarter 2022, we will make available in our website CBRE's executive summary report with a breakdown of all our property's land and construction values as well as a comprehensive description of valuation methodologies and criteria. We understand the importance of providing clear and detailed information on this matter, and we are committed to do so.

Let's move on to Page 13 of the presentation. As we said during our previous quarterly conference, we have never seen before the number and total amount of potential acquisitions at our current pipeline. Since late last year, we have engaged in negotiations for potential acquisitions for more than $2.2 billion in industrial properties alone. The boom for space demand scarcity of speculative buildings and institutional appetite for the asset class has 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 lays 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 valuation of some properties even more challenging, usually resulting in lower-than-expected pricing for the seller.

We are currently focused on potential transactions of more than $550 million, and we remain confident that we might come to terms on some of these potential investments at reasonable conditions and pricing. It is most likely that we will continue to be an active player focused in the industrial sector for many quarters to come.

We are also working on the recycling of some of our assets, particularly a 12-property industrial portfolio and one office building that could generate more than $90 million in additional firepower to be invested in new industrial acquisitions. We expect to execute these sales during the first half of 2023.

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. Jaime?

[Jaime Martínez Trigueros, executive]

Thank you, Javier, and good morning to everyone.

I would like to follow up on equity issuance by walking you through the main terms and conditions mentioned in Slide 14. The target amount is up to MXN 3 billion with an additional 15% Greenshoe that would increase the amount up to MXN 3.5 billion, as Jorge and Javier have already mentioned, the main objective of the issuance is to strengthen our portfolio by sizing the opportunities emerging in the industrial market through acquisitions.

Following to Slide 15, to give you a quick view on the main variations in our adjusted funds from operations, excluding the same property NOI valuations, which were already mentioned by Javier a few moments ago. As shown in the graph on the right side, Fibra Monterrey second quarter distributions increased around 15%, mainly driven by the acquisitions carried out last year, 2 of which were bought with debt. Other variations remain nonmaterial.

On the next slide, you will find the same analysis but compared to the previous quarter, this sequential comparison reflects a smaller increase in AFFO with main variations being lower tax payments in payroll as well as of a higher financial result due to a higher interest rate on cash investment and the adjustment of VAT recovery of the Cienega 2 acquisition.

Moving on to Slide 17. Our outstanding debt fundamentals remained the same since our last call. We kept our debt 100% unsecured at a fixed rate of nearly 4% and U.S. dollar denominated. As well, the average debt maturity stands at 5.2 years with no principal payments until late 2026.

Further on, our balance sheet remains strong with a loan-to-value well below 30%, a solid net debt to EBITDA and available credit lines that accounts for almost 20% of our assets.

As always, on Slide 18, there is a selected information to compare and contrast our main financial indicators of the last 12 months to facilitate your analysis.

I would like to end my speech by mentioning that considering current inflation environment and the potential effects on the FX market going forward, Fibra Monterrey remains as an appealing investment instrument due to its resilient underlying fundamentals, rent adjustments in line with inflation or predominantly dollarized lease revenue and our long-term lease agreements that allows investors to reduce exposure to such risks.

I would like to return the floor to Javier who will walk you through some environmental initiatives. Go ahead, Javier.

[Javier Llaca García, executive]

Thank you, Jaime. As part of our environmental initiatives, we recently announced the kickoff of our pilot project for on-site or distributed generation of solar energy to provide electricity for common areas in 4 of our office buildings in Guadalajara-Monterrey. This first phase of a broader on-site generation program, which is comprised by 14,00 solar panels will allow us to generate 1,000 megawatts hour per year, reducing about 426 tons of carbon dioxide equivalent annually and will generate savings of up to 98% of energy consumption in common areas. Also on-site generation for our own corporate headquarters would allow us to achieve a net zero operation of our office by the first quarter of 2023.

Finally, we also announced the LEED O+M certification process for 11 office buildings that represent 140,000 square meters of GLA. This project is well underway and should be concluded within the next 6 to 12 months. From these 11 properties, our goal is to achieve certification from the U.S. Green Building Council for one platinum level, 5 gold levels, 4 silver levels and one baseline level.

Now I will turn the call to Eduardo Elizondo, General Counsel, to present some highlights of our recent published ESG report. Go ahead, Eduardo.

[Eduardo Elizondo Santos, executive]

Thank you very much, Javier, and good day, everyone.

Going briefly through ESG matters. We have just recently published our 2021 sustainability report, making great progress. In this third annual report, Fibra Monterrey substantially increases the number of the GRI indicators covered in the previous report and are aligning this report with the [indiscernible] recommendations. This report that was approved by our ESG Committee highlights the efforts made by the company to comply with its ESG goals, contributing to its vision of adopting best practices to position Fibra Monterrey as a benchmark in sustainability matters within the real estate sector.

In terms of governance, within the FIBRA sector in Mexico, Fibra Monterrey achieved the highest score in the corporate governance criteria according to the results of the 2021 S&P CSA assessment. We are convinced that having a strong governance is fundamental to fostering our ESG strategy and performance.

Among other actions, we have increased the total number of members, the percentage of our independence and women's participation in the Technical Committee. As a result, we have also fortified and diversified the collective skills of this governance body.

In the social dimension, during 2021, we donated around MXN 2.4 million to 15 NGOs that focus their efforts on education, health, and environmental issues. Also, we reinforced our corporate salesmanship practices by institutionalizing our volunteering program. With these 2 initiatives, Fibra Monterrey directly helped more than 100,000 people in 10 states, while the number of indirect beneficiaries was about 5.5 million.

Moving to the next slide, in environmental matters, Fibra Monterrey became the first FIBRA in Mexico to obtain the Edge Advanced Certification for its corporate headquarters. The certification promoted by the International Finance Corporation was granted, in part, and among other reasons, because Fibra Monterrey achieved outstanding savings in energy, water and less energy demanding materials.

Additionally, as Jorge mentioned, Fibra Monterrey received the Green Lease Leader silver level recognition promoted by the U.S. Department of Energy for incorporating collaborative practices with tenants which practices are mainly focused on energy efficiency, savings in operating costs, air quality and sustainability of the properties through the adjustment of our lease contracts.

Finally, on Page 23, I would like to end my intervention by inviting you to go over our 2021 sustainability report available in our website, where you will find detailed information about our sustainable performance as well as about our goals for the coming years. In this regard, one of the main goals is to continue to increase our CSA Global score.

In 2021, we obtained 35 points above the sector average of 27%, representing a 30% increase for Fibra Monterrey compared to the previous year. For 2022, our goal is to accomplish a similar score increase in terms of percentage.

That will be all for this section, and now I return the microphone to the operator. Jenny?

[Operator]

[Operator Instructions] Your first question is coming from [ Philippe Barragan of BTG.]

[Unknown Analyst]

I have a couple of questions. My first question is on with all the hot noise around Nearshoring, is it possible that you guys enter either Tijuana or Aguascalientes? That's my first question.

And my other question, is if you guys are considering selling any of your properties in the next 12 months?

[Javier Llaca García, executive]

Hello, Philippe. Thank you for the questions. Regarding the first question, the answer is yes. We are looking at a big portion of the pipeline that we're currently negotiating. It's actually located in the Tijuana-Mexicali corridor. I believe this is a key market for us to have a footprint on and it's going to play a great and a big play into the Nearshoring for the upcoming years.

And regarding your second question, yes, as we previously presented our pipeline, we are considering the recycling and sale of 13 properties, a 12-property industrial portfolio and one office building. We expect to sell this for about $92 million, and we expect that -- those sales to happen in the first half of next year.

[Operator]

Your next question is coming from [ Edson Merguiya of Summer Cap ].

[Unknown Analyst]

I have a couple of them. Just a follow-up from my colleagues from BTG. Regarding on the pipeline, If I compare the road show presentation with the second quarter presentation, it seems that the pipeline of these are evaluating, it is increase by almost USD 5 million. So I was wondering if those properties are going to be part of our diligence or that is a specific target because industrial market, it's one of the highlights of the trends that you are seeking in the market? That will be my first question.

The other question is regarding an office spaces. Despite of the fact that it's in our bottom and there is some uptrend in general, what is your outlook for the following months because it seems if you compare it even in the first quarter, the occupancy rates in the office, something today, let's say, it stays flat or even lower to previous quarters. So I was [ thinking if you can ] give us a little bit more color on that.

[Javier Llaca García, executive]

Thank you, Edson. Regarding the first question, we had a kind of a hard time hearing. But I understand that your question asks about the growth and increase on the pipeline from the previous quarter to what we are presented today. You wouldn't believe the speed and the amount of opportunities that we are bumping in on a daily basis.

When we talked last quarter, we were looking at a $1.8 billion pipeline, we are now in excess of $2.2 billion. This is going to keep growing. When you have such an excess of liquidity in the market that we have right now and the need for capital from many, many developers, CKDs, few FIBRAs. So this is going to keep growing and growing as Nearshoring and industrial markets continue to grow.

So we are looking at a pipeline that allow us -- being on that side allow us to be very disciplined and very picky on what we are negotiating and that we want to buy. And we expect that we're going to be able to land probably between $200 million and $400 million. But it is important to note that we are also looking at a couple of potential transactions that are noncash transactions that could be liquidated with a stock of the company.

So the use of proceeds for the offering that we're working on is going to be probably between $150 million and $200 million on cash transactions, and we expect to execute those within 6 to 7 months after the offering. That's on the first question.

The second question that -- what we're looking at the office arena right now is an increase of demand, particularly in Monterrey and Guadalajara. We are bidding for new leased projects from companies that account for some 44,000 square meters, which is more than 1.0x our current vacancy. Obviously, I wish we could close every single one of those. It's not going to happen. But we expect to recover between 20% and 60% of our current vacancy within the next 2 to 4 quarters.

As Jorge mentioned before, at the beginning of the call, we are expecting to reach above 90% occupancy in terms of our revenue, relatively soon, and we are confident that the demand for office space is going to continue picking up in all 3 major markets. Unfortunately, Mexico City is going to be the lowest of all 3.

But fortunately, we have -- I'm sorry. Go ahead.

[Unknown Analyst]

Just a follow-up on office, regarding on the future plans or even lease of the spaces, particularly in the [ new properties ]. Are you looking for lease convert or change the office space with more dynamic or [indiscernible] demand has been steady and [indiscernible], let's say, some square meters because of company [indiscernible] space?

[Javier Llaca García, executive]

Okay. Again, we -- and I'm sorry for this, we're having kind of a hard time hearing well. I believe that your call is on converting or having more flexibility for the tenants to increase or decrease their space or -- I didn't quite get it.

[Unknown Analyst]

Yes, it's exactly right.

[Javier Llaca García, executive]

Okay. So yes, what we think is happening is that we're going to face mainly redensification of office space. This means that some companies, and it's happening right now, some companies are increasing their headcount without increasing their office space. They're increasing their office space and increasing headcount, increasing office space, keeping the same headcount with more space between people. And there are companies that are reducing their space that they have right now.

We are looking at a lot of activity on the back office, call center and data centers space. We believe that a lot of companies are willing and are considering moving part of their corporate office to a back office space, reducing the more expensive type of space, so to speak, and focusing on open space and flex space. What we have been doing a lot for the last few months is working together with tenants on doing the investment to have more adaptive space in the future.

So they can move and adapt their space as long as they occupy the space. I don't know if that's the answer that you were looking for.

[Unknown Analyst]

No, absolutely. Thank you so much for that color and congrats on the results.

[Operator]

[Operator Instructions]

[Unknown Attendee]

We have some questions in our webcast tool. And the first comes from [ Adaya Vobian ] . Now that there is a boom in vertical residential complex in Monterrey, are there any plans or possibilities of future expansion into [indiscernible] ?

[Javier Llaca García, executive]

Well, this is Javier, again. The answer is pretty simple, no. We are going to keep focusing on office and industrial. If we would happen to have an office building, which is not the case right now, that could be subject to reconverting into a different use other than office or industrial, then we would consider either selling that property to a developer or just repositioning the asset. We always said and we still believe bad office makes good residential. And for that matter, we don't have bad office buildings.

[Unknown Attendee]

Our second question comes from [ Quacumbi Guiyan from CHL Capital ]. Can you explain to me a reason for high square meter absorption in 2022 and the expectation of industrial [ production ] in Mexico in the years to come?

[Javier Llaca García, executive]

Well, yes, I mean, the main reasons for the boom and the thriving of the industrial market again is the need for speed and the recovery of the consumer centers and locations, especially in the North American market and need for the new product, the war trade between the U.S. and China and the need to reconfigure and to fix all the supply chains that are broken right now in Asia and Europe. The continued growth of logistics and distribution centers because of supply chain and also the e-commerce need. So we believe that this is going to continue.

Right now, the demand is bigger than the offer. Last year, net absorption was 4 million square meters and the remaining existing space as of December of last year was less than 3.6 million. That has continued. Right now vacancy rates nationwide are less than 3.5%. So there is a huge and imperative need for development of new space.

What we think is going to happen is that net absorption may slow down this year because of the [ scarcity ] of the existing project. There's going to be a lot of activity on new projects and build-to-suits. So we're going to see an aggregate net absorption between 2022 and 2023. My guess is that more of 4 million average per year.

There's this trend that is called spec-to-suit on which somebody develops or plans to develop a speculative building. And that building is designed based upon specific demand of specific users. I don't think that's going to happen a lot in the short term given the fact that there's no speculative projects available right now in the market, on core and premium markets. But this is going to be a trend that we think if all things considered that resolve, I believe that this is going to continue for a few years in the future.

So if there are no more questions, Jenny, we're going to...

[Operator]

We have more questions, I think.

We have our next question has come from Francisco Chavez of BBVA.

[Francisco Chávez Martínez, analyst]

My question is regarding the re-evaluation of your portfolio in this quarter. Can you let us know what is the average cap rate behind the valuation of offices and industrial? And also what is the blended cap rate of your portfolio right now?

[Javier Llaca García, executive]

Hi Paco, nice talking to you. Well, in a nutshell, the valuation of our current portfolio, the cap rate would be around 8.6%. I would say that the range goes from around 7% on industrial up to 9% on office, probably a little bit higher on office, 9.5% probably. But the average -- the weighted better said, the weighted in-place cap rate that we have right now in the portfolio would lie around 8.6% -- and this is at market price.

[Operator]

I think Francisco has dropped from the queue. I don't know if you're able to press star one again.

We appear to have lost -- one second. Let me see if I can get him in 2 seconds.

[Javier Llaca García, executive]

Thank you, Jenny.

[Operator]

Okay. Francisco, are you on the line?

[Francisco Chávez Martínez, analyst]

Yes.

[Javier Llaca García, executive]

I think we lost you, Francisco. I'm going to repeat the answer briefly, just in case. Our in-place cap rate right now is 8.6% weighted average of the whole portfolio. The range -- and this is at market value with NAV per share of 12.3 -- I'm sorry, with -- at a market of a company with an NAV of MXN 12.9 per share valuation would be around 8% of the whole portfolio.

The range goes all the way from 7% to 9.25% probably on industrial and office, respectively. But my guess is that current valuation at market is 8.6%. And at NAV, it would be around 8%.

[Operator]

Our next question is coming from Armando Rodriguez of Signum Research.

[Armando Rodriguez, analyst]

The office segment. Can you please comment more for, for example, the Guadalajara-Monterrey markets. I don't know if these comments particularly in Guadalajara are related for more demand under building, for example, La Perla and what's the inflection point you are foreseeing in the following quarters? That's my only question.

[Javier Llaca García, executive]

Thank you Armando. You got cut off on the first part of your question. Could you please repeat?

[Armando Rodriguez, analyst]

Yes, sure. In the office segment, you mentioned that particularly you are seeing maybe a stronger demand in Guadalajara-Monterrey, particularly compared to [indiscernible] Mexico. And I don't know if these comments are related to you are seeing, for example, in La Perla? That's my question.

[Javier Llaca García, executive]

Yes, of course. Yes. We are looking at positive net absorptions on 2 quarters in a row in Monterrey and Guadalajara for the first half of this year. As a matter of fact, in absolute terms, Guadalajara has absorbed more office space this year than Monterrey. We are looking at an increase of demand in Guadalajara for tech companies. And in Monterrey, there's a lot of activity on back office and call centers.

At La Perla, we have increased our leased space. As a matter of fact, we just concluded negotiations for an expansion of an existing tenant that is going to reset to co-term on the new lease and we're closing more than 2,000 square meters currently at La Perla. We have closed more than 4,000 square meters of office so far in the year.

We're really close to execute new leases in Monterrey for about another 2,000 square meters. So we're looking at pickup on demand. We're not seeing that in Mexico, unfortunately. Mexico had negative net absorption for the two first quarters of this year. It's going to come back definitely, but it's going to take longer than Guadalajara, Monterrey.

And we believe that this Nearshoring thing is going to be the start point of a strong cycle on the market for office, for retail, for housing and this is going to be a kind of a perfect cycle. But it is going to take some time to see that impact on markets other than industrial.

[Operator]

There appears to be no further questions in the queue. I would like to turn the conference now over to the management of the company.

[Unknown Attendee]

From our webcast -- the question comes from [ Javier Gadio ]. Congratulation to the team on the great quarter. I would wonder if you could provide more color on the competitive environment for the execution of [indiscernible] in the North of Mexico.

[Javier Llaca García, executive]

Sure. Javier, this is Javier again. Well, there's a lot of competition on capital markets when it comes to industrial. What is happening is that we're facing a lot of competition from both public and institutional international funds. And this has driven cap rates down. It's very difficult to compete with that low of cost of capital. So yes, we're facing fierce competition. We're not facing a lot of competition at premium markets from domestic investors.

But the key of success would lie on the ability to execute and the flexibility that we have as a buyer, and I'll try to explain myself. We are a very friendly buyer in terms of as we do not develop, we always look for strategic alliances that allow us to get pipeline of new products in the future. And that has proved to work really good.

We are focused on all key 13 markets in Mexico and markets like Tijuana, Juarez and Monterrey or the markets where we are having the toughest competition. But for us, the ability to buy and to acquire either a $20 million or a $200 million portfolio give us the edge against some institutional large investors.

I remind you that our last 2 transactions of last year were two single tenant triple net industrial properties in Monterrey are a very competitive caps, being one of the top premium markets. And honestly, we were second to none in terms of capacity to close. So I believe those are our main competitive advantages.

[Operator]

Okay. I'd like to hand back over to the management for the closing of the call.

[Jorge Avalos Carpinteyro, executive]

Thank you, Jenny, and thank you, everyone, for attending the second quarter results conference call, and hope to see you next quarter. Take care.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.