Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the 2021 Fourth 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 statements.

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

[Jorge Avalos Carpinteyro, executive]

Thank you, Kate, and hello, everyone, and thank you for attending to our fourth quarter 2021 conference call, especially during these turbulent days. Last year sets a breaking point in Fibra Mty's history as we had a remarkable year on multiple fronts, despite the prolonged economic slowdown we have experienced since the health contingency began. Starting with ESG matters, the findings of our 2021 corporate sustainability assessment conducted by S&P Global ratifies Fibra Mty as the corporate governance best-in-class Mexican Fibra. I'm also proud to announce that we had a 30% improvement over the previous year's rating, placing us above the global real estate sector average.

Furthermore, last December, we accomplished 2 relevant milestones. We obtained the EDGE Advanced certification granted by the Green Business Certification Inc. for our corporate headquarters, becoming the first Mexican FIBRA to obtain such certification. And in line with our corporate sustainability strategy, all members of our operations team obtained the LEED Green Associate certification granted by the U.S. Green Building Council. In this sense, we will continue to strive and meet our sustainability commitments in an objective and measurable manner.

Turning to our organic performance for the seventh consecutive year, Fibra Mty met its guidance with an organic cash distribution above the estimate announced to our investors. This reflects the resilience and flexibility of our business model during financial uncertainties and crisis events such as those we went through during the current pandemic. Our NOI was higher than expected. And as we were able to lease and renew 90% of last year's tenant maturities, and we were able to negotiate an early renewal of the lease contract from Whirlpool that accounts to 20% of our revenues with a new maturity in 2031.

For 2022, we're increasing our guidance 7% above our 2021 cash distributions, including both organic and inorganic growth. And we are aware of the significant challenges ahead, such as occupancy of our vacant spaces, the conversion of some of our buildings, that investment of nonstrategic properties as well as the strategic accretive acquisitions.

On the other hand, 2021 marked our third most active year in property acquisitions since our inception, in which we invested around $140 million. Among the acquisitions made, it was notable the inclusion of a new strategic relationship with DHL and Wizeline, both of which are growing steadily and have the potential to increase our pipeline from the organic growth in the near future. We also began our assessment restructuring strategy by completing that investment of 2 industrial properties whose proceeds were allocated to industrial properties with better fundamentals. The most relevant divestment was Cuprum as the value of the property land appreciated approximately 40% since we acquired it 7 years ago.

On the financial front, we arranged an unsecured syndicated loan for up to $150 million with a single payment of principal at maturity and a 5-year term. At year-end, we've withdrawn $50 million to acquire the buildings previously mentioned, securing an additional $100 million firepower for our upcoming transactions. All of our debt is in U.S. dollars, unsecured and with the first maturity until December 2026, a structure that allow us to seize market opportunities.

To conclude, I would like to highlight the qualities that make Fibra Mty a very attractive investment instrument, such as a 92% occupancy rate, a 77% rate of dollar rise rent revenues, predictable cash flows and an average lease maturity term of 5.4 years. These factors translated in a lower risk exposure and less volatility for our investors.

I will now turn the call over to Javier, who will walk you through our portfolio performance and our pipeline of acquisitions.

[Javier Llaca García, executive]

Thank you, Jorge, and good morning, everyone. I would like to start my piece of the presentation on Page 3 with the composition and geographical distribution of our portfolio as of the end of 2021. It is comprised by 60 properties located in 9 markets with a total gross leasable area of about 820,000 square meters. Occupancy just as Jorge said, reached 92.2% of total GLA. In terms of GLA, 208,000 square meters correspond to our office component, 592,000 square meters correspond to our industrial component and our small retail component comprises 19,000 square meters.

Moving on to Page 4 of the material. We present a brief overview of our key performance indicators for the last quarter of 2021. In terms of percentage of revenue, these indicators continue to be consistent with previous quarters. Revenue by asset class shifted slightly for industrial properties, which represents 50.7% of revenue, while office and retail contracted to 46.6% and 2.7%, respectively. Revenue by location and occupancy are in line with our projections for the year. Our dollar-denominated leases increased to more than 77% of gross revenue and lease maturity schedule and weighted average lease term increased to 5.4 years mainly due to the early extension of the Whirlpool facility in Monterrey, the full incorporation of La Perla with more than 5 years average of lease term and the acquisition of the Cienega 2 and Cienega 3 buildings, which are 15 and 10 years terms, respectively. We will present later during the call.

On Page 5 of the webcast material, we present the same property performance analysis for the last quarter of 2021 compared to the same quarter of the previous year. For purposes of this analysis, we used 57 out of the 60 investment properties currently in our portfolio. It also considers additional GLA from the 9,000 square meters expansion in one of our industrial properties in the Providencia portfolio. Gross revenue contracted in 8.6% of MXN 28.2 million with a reduction of 9.6% of MXN 28.6 million in our net operating income with an NOI margin of 89.9%, still above our target rate of 88%. The composition of that will -- this variance will explained in detail in the following slide.

During the last quarter, we continued to see an inflection point on the negative trend in our rent income with signs of short-term recovery as the office market begin to slowly recover from the pandemic slowdown in demand as we will address in more detail in a moment. Once we incorporated additional revenue from La Perla, Cienega 2 and Cienega 3, the aggregated portfolio generated a total operating income of MXN 314.4 million compared to MXN 300.1 million in the fourth quarter of 2020, an increase of 4.8%, which contrasts with a 6.7% reduction in the previous quarter. Our NOI margin for the aggregated portfolio was 160 basis points above our goal of 88% for the quarter.

Slide 6 of the presentation explains in detail the MXN 28.6 million reduction in our net operating income comprised of the following: MXN 5 million reduction due to an unfavorable FX effect between fourth quarter of 2020 and fourth quarter of 2021; MXN 20.7 million (sic) [ MXN 22.7 million ] reduction due to vacancy, particularly of our Axtel and Cuauhtemoc buildings; MXN 9.8 million reduction due to negative lease spread from some renewals, particularly in the office component of the portfolio; MXN 6.6 million increase due to inflation escalations on lease agreements; MXN 2.6 million increase from new leases; and MXN 300,000 reduction due to increase in certain operating expenses mainly related to an increase on utilities costs as tenants began to go back to the office.

Slide 7 of the presentation highlights one of our most recent acquisitions, the Cienega 2 building. On November 19, 2021, we successfully concluded the acquisition of a 30,194 square meters industrial facility in the municipality of Cienega de Flores within the Greater Monterrey metropolitan area. The building is a single-tenant property leads to a leading global supplier of movable partitions and glass walls founding from the largest conventional centers and entertainment arenas to schools, hotels, airports, retail storefronts and others. The purchase price for this property was $20.4 million plus closing costs and taxes, and it is expected to generate additional net operating income of $1.63 million during the first 12 months after its closing. This is an 8% in-place cap rate. The lease is 100% dollar-denominated with a triple net structure and 15-year lease term commencing on its acquisition date.

The last acquisition of 2021 is highlighted on Slide 8 of the presentation, the Cienega 3 building. This acquisition was completed and announced on December 8, 2021, and it is also located in the Cienega de Flores market. It was a sale and leaseback from DHL, under which DHL Real Estate Solutions developed and sold the property and DHL Supply Chain in Mexico becomes a tenant under a triple net dollar-denominated 10-year lease agreement. These run new 30,000 square meter logistics center was purchased for $22.4 million plus closing costs and taxes, and will generate additional net operating income for $1.54 million during the first 12 months after its closing. This translates into 6.9% in-place cap rate consistent to core premium transactions for this type of building, market and tenants.

I want to stress out just as we did in December of last year, then all 4 acquisitions in 2021 represented $139.6 million, with additional net operating income of $12.2 million, which translates into a weighted cap rate of 8.7% in core premium markets at Guadalajara and Monterrey. We are very pleased on restarting our acquisitions program with this quality of transactions and cap rates after 5 quarters of putting on hold our investment in lieu of the COVID-19 pandemic. As Jorge mentioned during his opening remarks, 2021 marked the year when we started our asset recycling program.

In this regard, and on Page 9 of the presentation, during December of last year, we successfully concluded the sale of the Cuprum facility, which was acquired from their sale and leaseback as part of the initial contribution portfolio of Fibra Mty back in 2014 for our IPO. The property was formerly leased to the aluminum manufacturer, and we decided to sell it after we relocated the company to a new build-to-suit facility in Santa Catarina to utilize the proceeds to acquire other industrial income-producing properties. The net proceeds from these sales are MXN 155 million, which represents an increase of the land value of approximately 40% compared to the original acquisition cost in 2014.

We would like to talk about the current conditions of the core office markets, which we present on Page 10 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 are and will continue to be at the bottom of the cycle. Although all markets showed positive net absorption for the first time since the first quarter of 2020, our original thesis on being Guadalajara the first and Mexico City the last markets to recover continue to be valued.

Although recent behavior of the market is still far from a recovery to pre-pandemic levels, it is encouraging that vacancy rates in Guadalajara have dropped almost 400 basis points in the second half of 2021, and Mexico City and Monterrey seems to have reached or are close to reach their peak. As we mentioned during our third quarter call, our portfolio has low exposure to the Mexico City market and therefore, good we start recovering in a higher pace than our peers with higher exposure to this market. Our current vacancy rates in our portfolio -- in our office portfolio has performed better than those of our peers and market in general.

Given the fact that the Mexican market, particularly the Mexico City market have historically followed the trend of the U.S. office market, it is interesting to note the recent article published by the Harvard Business Review after a survey of 445 U.S. firms, which suggests only costing office space of 1% to 2% on average, implying big reductions in density, not space.

I want to move in to some information from the industrial markets in Mexico starting on Page 11 of the presentation. By looking at the demand chart for all 13 primary markets across Mexico, it is interesting to see the decrease in demand for space from 2017 to 2019, mainly due to the threat of the Trump administration in the U.S. to walk out of Naphtha and some potential risks perceived by the market at the beginning of the [indiscernible] administration in Mexico. In the year 2020, Mexico got caught in the perfect storm that boosted the industrial real estate market.

In our opinion, 3 major events have created this perfect storm. First, there was the signing of the new trade agreement, the USMCA, or T-MEC in June of 2020, along with the increase in the consumer demand in the U.S., which catapulted manufacturing of consumer goods and components in Mexico. Second, the persistent trade war between the U.S. and China, which created the phenomenon known as near-shoring or reshoring. Many Chinese companies establishing manufacturing in Mexico for near-shoring into the U.S. and some U.S. companies returning to China-based manufacturing to North America, Mexico included.

And finally, the continuous increase of need for logistic and distribution space, driven by e-commerce and supply chain. We believe that this rising part of the cycle in most industrial markets in Mexico will extend for the upcoming years, if some of the domestic risk factors such as limitation for clean energy and energy scarcity are contained in the short term.

Following up on industrial activity and on Page 12 of the presentation. By the second quarter of 2021, the firm CBRE estimated the pipeline of potential industrial and logistic active clients for the following quarter in approximately 2 million square meters, more than 3x compared to the same quarter of 2020. The 3 most active sectors according to CBRE are the automotive, manufacturing and logistics and transportations, which account for more than 72% of the overall industrial related activity. This is consistent to the current composition of our portfolio, and we continue to pursue investment properties that mainly involve these sectors in primary markets as we will briefly discuss in the next page.

Moving on to Page 13 of the presentation. We have been working in the past few months on several potential transactions that involve mainly industrial portfolios. More specifically, we are under evaluation and negotiation of main potential acquisitions for a total estimated amount of more than $850 million, just above the face of our current total portfolio of investment properties. As you can see, these are a vast majority of industrial transactions, and we strongly believe will be our focus for the next few quarters. This pipeline accounts for a high percentage of all capital markets transactions during 2021. We expect to realize investments for a similar amount of those last year. As Jaime will explain in a moment, we currently have available around $100 million in secure line of credit and expect to deploy that amount promptly in 2022.

Finally, I want to talk about one of our milestones of our ESG strategies outlined in Page 14 of the presentation. As Jorge mentioned before, last month, we were pleased to inform that we achieved the EDGE Advanced certification for our corporate headquarters office in Monterrey. An innovation of the International Finance Corporation, a member of the World Bank Group, EDGE, which stands for Excellence in Design for Greater Efficiencies, provides market leaders with the opportunity to gain a competitive advantage by differentiating their products and adding value to the lives of their customers. IFC created EDGE to respond to the need for amicable and credible solution to probe the business case for building green and unlock financial investments.

Our corporate headquarters achieved energy savings, water savings and less embodied damaging materials for 40%, 56% and 73%, respectively, becoming the first Fibra in Mexico to reach the EDGE Advanced level. This is just the first step in achieving the EDGE Net Zero carbon certification, and we have already registered 12 office buildings to pursue the EDGE certification of building common areas. We are committed to all our ESG initiatives, including LEED accreditations for all the members of operations team as well as further LEED operations and maintenance certification of our office and even in loss of property.

We will be happy to address any specific questions regarding operations and acquisitions and market conditions during the Q&A section of the call. And with that, I will turn the call to our CFO, Jaime Martinez. Go ahead, Jaime.

[Jaime Martínez Trigueros, executive]

Thank you, Javier, and good morning to everyone. Fibra Mty concluded its seventh year anniversary since its IPO, with results that have proven once again our salient business model. Such consistency has been recognized by investors as Fibra Mty share price is one of the 2 Fibras in the market trading around NAV. Fibra Mty's dividend yield remains competitive at current prices despite the NOI decrease that has been affected by a softer economic dynamism due to the extended duration of the pandemic among other issues. As shown in Slide 15, Fibra Mty's fourth quarter adjusted fund from operations decreased above 2% compared with the same period in 2020, mainly explained by a $30 million reduction in NOI same building that Javier just mentioned, partially compensated by the MXN 25 million cash flow added by the acquisitions carried throughout the year.

In Slide 16, you will find the same analysis but compared to the third quarter. This sequential comparison reflects a near 10% increase in AFFO, explained by an additional MXN 12.8 million net operating income at the same property level, mainly because of foreign exchange variations and a MXN 7.2 million increase driven by acquisition.

Turning on to Slide 17. I am thrilled to announce that Fibra Mty accomplished for seventh consecutive year in a row its guidance. Last year's guidance, as an exception, excluded nonorganic growth as the uncertainty related to the pandemic suggested to leave aside any incentive to execute acquisitions. Nonetheless, once market provided positive signals of recovery, we executed 3 transactions in the second half of the year that bolstered the cash flow to our investors. As you can see on the left, organic funds from operations decreased below estimate. The outstanding efforts of Fibra Mty's team resulted in a higher-than-expected leasing activity, both in retaining tenants and attracting brand new leases.

As a result, whole year NOI had a reduction below the 7% expected at the high end of the 2021 guidance. Subsequently, AFFO per share stood at MXN 0.8465, above the MXN 0.83 organic target. Furthermore, and because of the acquisition made through 2021, Fibra Mty managed to raise the annual cash distribution up to MXN 0.8952 per share. It is worth mentioning that this inorganic growth will be fully reflected in this year's cash flow.

On the following slide, we present the debt profile. For starters, we successfully signed a $150 million unsecured syndicated loan that I mentioned in our last call with an availability period to withdraw from until the end of 2022. Consequently, we already used the first $50 million of such facility to execute the acquisitions previously mentioned by Javier. As of the year-end, we maintain our debt outstanding balance fully unsecured dollar-denominated and with the first maturity until December 2026. Our weighted average interest rate is below 4% and is mainly comprised by fixed interest rates. Floating rate share accounts for less than 20%.

It is worth mentioning that, as of today, we are in advanced negotiations with our banks to execute an orderly transition from LIBOR to software, which will allow us to hedge the rates soon without transition costs. I would like to conclude this section by mentioning that the remaining $100 million of the syndicated loan will be used as fire-power to execute acquisitions that improve Fibra Mty's AFFO per share.

I would like to move to -- I would like to move on to Slide 18, to work us through background and challenges of the 2022 guidance approved by our committee. In terms of operating performance, we are shy of 15% of our revenue expires in 2022. As in the past, we will focus on effort in having high retention rates without compressing the quality of tenants or lease contracts. [ For summer ], return to office activity may translate in an increase in operational expenses and utility expense rebounds to amounts not since before the funding.

From the real estate perspective and even so leasing activity in office space is recovering, as Javier mentioned earlier, absorption time is longer than historically observed. However, given inflationary pressures on construction materials, the expected interest rate hikes and the current vacant inventory levels, we expect the market fundamentals to recover going forward.

Going on to acquisitions, the compression in industrial cap rates will play a significant role in the additional cash flow provided by future transactions. Having said that, and holding constant the foreign exchange rate at MXN 20.25 per dollar, the 2022 guidance stands in the range of MXN 0.94 to MXN 0.96 per share, a 7.2% increase when compared to the total cash distribution of 2021 and offers a 7.8% dividend yield at 2021 closing price of MXN 12.27 per share.

I would like to thank our investors for the support and confidence during the pandemic. We ratify our commitment to maintain the discipline that has characterized Fibra Mty. That would be all. Kate, please proceed with Q&A.

[Operator]

[Operator Instructions] Our first question today is coming from Gordon Lee at BTG.

[Gordon Lee, analyst]

Just a couple of questions, mostly to do with leasing activity. And I guess I'm specifically thinking about the industrial space. It was interesting in the last slide that Jaime presented, you speak about leasing the 15% of the portfolio that's up as a challenge, right, in 2022. But I would imagine that in the industrial space, it's probably more of an opportunity, right? This might be one of those rare environments we're having more leases due in the short run could be a positive given the tightness of the market. So I was wondering whether you agree with that view? And then related to that, were there any material changes to the terms of the contract with the Whirlpool renewal? Or was it mostly just an extension of similar terms?

[Javier Llaca García, executive]

Thank you, Gordon. Nice to talking to you. This is Javier Llaca. Regarding your first question, you're absolutely right. We feel the same, and we think the same. And as a matter of fact, the small vacancy that we have in our industrial portfolio of about 4% of total GLA. Everything is right now currently under negotiations with good prospects to lease up the space. So I would say that we could have close to full occupancy in our industrial portfolio, hopefully, later this year. That's going to be the common tenure of the industrial market in Mexico. Nationwide vacancy rates are below 4%. There are markets like Tijuana that have almost 0 vacancy rate on the market. So we believe that is going to be the common to -- in all of the markets in the short to midterm.

[Jorge Avalos Carpinteyro, executive]

About the lease spread.

[Javier Llaca García, executive]

And these spreads in industrial are growing. We're looking at our rent growth in lease rates in most of the 13 primary markets, particularly due to that high demand and scarcity of good properties. So we are being able, on like the office portfolio to keep lease -- either positive lease spreads or lease spreads close to 0, but no negative lease spreads in renewals. And regarding the second question, for Whirlpool. But there were no material changes to the lease. It was an extension of 36 months on the lease term. What we did was to do a CapEx investment of about $7 million that are going to create or created already an additional rent to amortize for those CapEx investments. But mainly there are no material changes in the lease contract terms.

[Operator]

Our next question today is coming from Kazuo Okamoto at Apalache.

[Kazuo Okamoto, analyst]

I'd like to ask a couple of questions. In your report, you mentioned that you are analyzing the possible divestment of those properties that are considered not strategic. Could you give us some color about when we could see these operations carried out? And given the slight recovery in occupancy in the office segment, can we expect occupancy to reach the low 80s by the end of 2022?

[Javier Llaca García, executive]

Thank you for the question. This is Javier Llaca again. In regards to disposition or divestments of our properties, we are fully engaging to our recycling of assets program. We do consider -- are considering to sell some properties this year, nonstrategic properties or properties that have some kind of risk factors in its capacity to generate positive net cash flow. We cannot probably give more color than that. What we can tell you is that we have concluded an analysis to reposition or to redevelop the Cuauhtemoc building, the former Banco Famsa building.

We are going to implement the strategy that we're going to select this year in the next few months. And we are also analyzing the possibility of reconverting some of our assets for a different use. We're still early in the stage on that analysis. But the short answer is that we are going to continue with our divestments and repositioning of some of the assets.

[Jorge Avalos Carpinteyro, executive]

The second question.

[Javier Llaca García, executive]

And the second question was -- can you repeat the second question? I'm sorry.

[Kazuo Okamoto, analyst]

Yes, sure. Given the slight recovery in occupancy in the office segment, can we expect occupancy to reach the low 80s by the end of 2022?

[Javier Llaca García, executive]

That's our idea. Yes. We -- hopefully, we're going to go back to pre-pandemic occupancy in a couple of years, to be honest, but we might break 80% later this year. Something important to consider is that you have a circular reference here. If we were to dispose or to sell any of our office buildings, arithmetically, our vacancy is going to drop. So that's something to consider. And also, let's consider also that La Perla, which was acquired last June, has a vacancy in the building that it is accounting for vacancy in our portfolio, but we haven't paid for that space yet. So you have a small distortion on occupancy because of that building. That building is about 82% occupied, and that 18% of vacancy accounts into the whole vacancy of our portfolio, but we haven't paid for that empty space yet.

[Operator]

Our next question today is coming from Francisco Suarez at Scotiabank.

[Francisco Suarez, analyst]

The questions that I have is a follow-up on Gordon's question. But now on the office side, can you walk us a little bit on how different might be the overall conditions in the office markets in Monterrey and Guadalajara compared to what we see in Mexico City? And if you can actually give us a little bit of more color in terms of the overall concessions that you have to give to tenants, I mean in the sense of 3 months of rent, CapEx and the like, are those different from Mexico City? And what has been the recent experience on that front?

[Javier Llaca García, executive]

Of course, Francisco, nice talking to you. Well, yes, the office market conditions are totally different from in Mexico. We have seen a drop in lease rental rate and sometimes even of -- in excess of 25%. I would say that the average is between 15% and 20% in all 3 markets. We're also looking at a migration to peso-denominated leases instead of dollar. A few years ago or even a year ago, a tenant would consider having the lease agreement in dollars given the low inflation rates in the U.S. with inflation rates in the U.S. at 7.5%, even higher than Mexico's CPI. Tenants are looking in to move -- in to migrate their contracts from dollar to peso. We don't have those -- that many expirations or material expirations on office soon.

But I can tell you that the common denominator on the renewals of our leases is that we'd rather give some concessions as you said on free rent and additional CapEx on the building rather than lower the nominal rate of the building because of 2 things. Even though that giving 3 months' rent is going to have a short-term impact on cash flow, trying to maintain as high as possible, the nominal lease rate is going to preserve valuation of the property and is going to give us a higher or a better terminal value of the property. I have to say that our lease spread in the office arena has been 2 digits negative. It's been around 12% to 15% on the lease, but that caused a 3.3% reduction on NOI in the overall portfolio that we mentioned before.

So that's how the office market is behaving in terms of lease spreads. And I believe that covers a part of your second question on concessions. We are working with our tenants on helping them, investing on their space to change the layout of the office, to have a renewed interior workout. And that -- those investments are usually accompanied by a payment on amortizing those concessions or those investments. Most of the concessions when it comes to renewal are either not applying the less inflation escalation of the contract and 3 months of rent.

[Francisco Suarez, analyst]

Got you. And if I may, just can you elaborate a little bit on how different the concessions might be and overall conditions might be in Guadalajara and Monterrey compared to Mexico City because I guess that there are advantages of not having too much exposure to Mexico cities in it?

[Javier Llaca García, executive]

Other than a little bit larger room to maneuver, there are no material differences between the concessions in all 3 markets.

[Operator]

[Operator Instructions] Our next question today is coming from [ Edson Mojithia ] at [ Summer Cap ].

[Unknown Analyst]

Well, I have a couple of them. Probably the first one is, could you give us a little bit more color about what means negotiating with the banks from LIBOR to SOFR? Just trying to remember because last quarter, you mentioned that you were not concerned or worry about even the new USD 150 million you got as a credit line because it was covered by the bank. So that will be the first one.

The second one is a follow-up on the reconversion of the spaces. A couple of quarters ago, one of your peers mentioned that they will transform offices to residential buildings. I was wondering if it's something that you have or it's considered by the committee in order to, let's say, reconvert the asset.

[Cesar Rubalcava, executive]

Hudson, this is Cesar. Regarding the transition of LIBOR to SOFR, as we spoke on the last call, we had the fallback language included in our syndicated loan. And we have the 3 -- all the 3 options for the transition. And we're opting for the early opting auction, and that's why we're negotiating with the banks, also with the derivative tests of our counterparties just to have a smooth transition to so forth. Regarding the banks, they're talking about transitioning to the term SOFR, and we are already evaluating the cost of that hedging specific. We're already exchanging documents in order to do that and concluded in the first quarter of 2022. And if not the first half of the second quarter of 2022.

[Javier Llaca García, executive]

And regarding your second question on reconverting assets. I have to say that it feels intuitive to believe that you can reconvert an office building into residential. I personally believe that that office makes good residential. So not all buildings are good candidates for reconversion. There's a lot of investment and changes that you have to make on the building, particularly on the sanitary installation and the facade to provide natural ventilation. But having said that, yes, we are looking at all the possibilities and one of them being -- reconverting some assets, not necessarily for housing, but could be for a different use of what they have now. And we are evaluating 2 buildings in the portfolio for a potential reconversion or a change of use. As long as we move on this process, and we have more specific information to share, we will share it with you.

[Unknown Analyst]

Okay. And last, I'll follow up on the pipeline of possible acquisitions. I was wondering what is the rationale of the possibility of acquiring other office building even if it's bottoming the trend that you mentioned in the presentation. And regarding on this, what would be the time frame or the time line in order to consider the USD 855 million to acquire those properties? I know that you might not acquire all of them, but it seems that it's an interesting amount of money to consider on the pipeline.

[Javier Llaca García, executive]

Of course, let me start with the last question. We expect to fully deploy the $100 million that we have available in lines of credit throughout this year. We are aiming to do a similar amount of investments that we did last year. So we're looking at around $120 million, $150 million. And that would represent that we exhaust both lines of credit, and we will need to tap the market potentially. So we do expect to fully deploy our current fire-power during this year. And the first question.

[Jorge Avalos Carpinteyro, executive]

Next question in terms of office.

[Javier Llaca García, executive]

We are looking at some, not many, I have to say, but some good opportunities in the office market. Remember that we bought La Perla last year at 100 basis points above on cap rate versus what we had previously negotiated in 2020. We believe that we are going to have some interesting opportunities. We are going to be opportunistic in the office acquisitions. We're looking at a couple of transactions right now, one of them being a seller leaseback, which is a different game when it comes to investing on a stabilized asset. So we expect to find opportunities in the market, in all 3 markets. But right now, those opportunities haven't arrived yet.

[Operator]

Our next question today is a follow-up from Gordon Lee.

[Gordon Lee, analyst]

Just very quickly, just a follow-up on one of the comments that you made, Javier, and really the question is for Jaime. But if the trend continues with offices towards more peso leases than dollar leases, would you consider, Jaime, having a peso component to your debt structure? Or are you happy just having dollars as you have today?

[Jaime Martínez Trigueros, executive]

Thank you, Gordon. No, the problem with the peso debt is that it's not accretive. As the interest rate that you obtain in such debt is the same that you obtain from the building. So there is no -- I mean we are not working for the bank. We are working for other investors. So no, if we have a higher percentage of peso contracts, we'll reduce the leverage of the portfolio.

[Javier Llaca García, executive]

And to follow up on Jaime's comment, if we maintain our 75% dollar component driven mainly by the industrial, we wouldn't need to go either higher or lower on our leverage policies right now. So we have room to maneuver.

[Jaime Martínez Trigueros, executive]

Yes, because we have, let's say, 60% dollar-denominated lease contracts, then you have the double of the leverage that we normally have, which is 30% of the assets. So I mean, we have enough room to some changes in that matter.

[Operator]

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

[Jorge Avalos Carpinteyro, executive]

Well, thank you, Kate, and thank you, everyone, for attending the call. We'll talk to you soon. Thank you. Take care.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's events. You may disconnect at this time, and have a wonderful day. We thank you for your participation.