Fibra Mty SAPI de CV

BMV:FMTY14

Earnings Call Analysis

Fibra Mty Grows Portfolio and Occupancy

Fibra Mty integrated 46 Zeus portfolio properties and a 9.5 million square feet land bank into its now 106 income-producing properties portfolio, achieving an NOI margin of 90.8% for the quarter, surpassing the 88% target. Occupancy stands above 96%, with industrial renewals and new leases expected to positively impact in 2026 and 2027. However, Q4 gross revenue contracted by 4.6%, and NOI by 5.2% mainly due to negative foreign exchange impacts, with NOI margin contracting to 86.1%. They eye surpassing 80% occupancy in office segment by year-end. Remaining competitive, the firm plans to access capital for acquisitions without frequent market tapping and projects a continued focus on industrial real estate, hinting towards becoming a full industrial REIT.

Fibra Mty Delivers on Strategic Milestones

Fibra Mty, a pioneering real estate investment trust in Mexico, has consistently achieved its strategic milestones, boasting nine successful years of meeting earnings guidance and delivering strong cash distributions to investors. In 2023, the acquisition of the sales portfolio expanded Fibra Mty's industrial assets, propelling its market capitalization to over $1.3 billion. With solid corporate governance, a disciplined balance sheet, and a pending equity issuance to potentially draw international investment, Fibra Mty aims to unlock its fourth strategic milestone: increased liquidity.

Portfolio Performance and Expansion Potential

The company's portfolio remained solid at the end of 2023, comprising 106 income-producing properties without any change from the previous quarter. The industrial segment drives unprecedented activity due to the reallocation of supply chain-affected companies and regionalization trends. The exceptional net absorption has spiked rent per square meter by 22% in key Mexican markets. Capitalizing on this momentum, Fibra Mty forecasts significant expansion, negotiating around $100 million in tenant expansions for industrial properties, and eying $1 billion worth of stabilized industrial portfolios for acquisition.

Navigating Industry Dynamics

Despite a negative FX impact, the integration of the Zeus portfolio magnified net operating income by 69%, striking a remarkable 90.8% NOI margin for the quarter. Fibra Mty continues to refine its competitive edge through meticulous due diligence and relies on asset stability rather than speculative development, particularly avoiding risks associated with energy and infrastructure that typically affect new constructions. Executives discussed possibly transforming into a full industrial REIT, emphasizing the need for careful value transition for shareholders in the office component.

Strategic Real Estate Transactions

Fibra Mty rests on the strategic location of its portfolio, focusing on northern Mexico and the Bajio region, areas experiencing a rise in rental rates and demand from tenants. Nearshoring is identified as a key growth driver, with up to 60% of the industrial portfolio connected to this trend. The company's approach of being a preferred exit strategy for product developers, along with a strong pipeline, positions it well to capitalize on the continued industrial expansion.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the 2023 Fourth Quarter Fibra Mty conference call. With us this morning from Fibra Mty, we have Mr. Jorge Avalos, CEO; Jaime Martinez, CFO; and Javier Llaca, COO; and Eduardo Elizondo, Legal 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 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 those 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. Hello, everyone, and thank you for attending our last 2023 quarter reports. In inception, we defined 4 core strategic milestones so we could become an outlier company in the public real estate market in Mexico: first, structure the best-in-class corporate governance company in Mexico; second, consistently execute our business plan and deliver our promised profitability; third, manage with discipline a strong and flexible balance sheet; and four, reduce our cost of capital by adding up scale to our asset size and increased liquidity in our daily trading volume.

We have successfully and consistently delivered the first 3 strategic milestones for the past 9 years. As made public, we are currently in the process of obtaining the authorization for a potential equity issuance and for the first time, seeking international institutional investors. I am confident that if we are successful in this transaction, we will achieve our fourth milestone of liquidity. During 2023, we executed the acquisition of the sales portfolio, enhancing Fibra Mty's potential in multiple aspects. This acquisition not only increased our presence in the industrial asset class, but also propelled our market capitalization to over $1.3 billion by the end of 2023. I'm also pleased to announce that for the ninth consecutive year, Fibra Mty met its earnings guidance, delivering cash distribution in the higher range of our commitment to investors.

Today, our portfolio is not only more robust compared to the end of 2022, but we are also in a privileged position to continue capital filing all market opportunities. We are witnessing unprecedented activity in the industrial segment in Mexico, primarily driven by the reallocation of companies affected by supply chain disruptions to the United States and also by a growing trend towards regionalization. This activity is fueled by new companies starting operations in Mexico and by existing tenants seeking expansion.

The accessibility to still labor, numerous free trade agreements, favorable rental arbitrage compared to the U.S., and Mexico being a strategic location led to a net absorption of nearly 5 million square meters in 2023. This has resulted in a 22% increase in rent per square meter across the 13 primary Mexican markets, as reported by CBRE in the fourth quarter of '23. Historically, we have showcased our capability to efficiently execute a credit transactions through various means, including competitive dealings with institutional entities, sale and leaseback transactions with multinational companies, acquisitions from local developers, build-to-suit developments, and expansions of existing buildings. The year 2024 will be no different. As of this earnings release, we have identified and are assessing stabilized industrial portfolios exceeding $1 billion, predominantly comprising dollarized rents and located mainly in the Northern and Bajio regions of the country.

In addition, we are in the process of negotiating approximately $100 million in expansions for our system tenants in industrial properties. It is important to note that as these are stabilized acquisitions and expansions of already developed properties, we anticipate no conflicts with access to energy or infrastructure. As I mentioned before, we are in the process of obtaining the authorization for a potential equity issuance, given the sensibility of the estimated distribution for 2024, which depends on the number of additional certificates that might be issued. The earnings guidance for the year will be announced in the first quarter of 2024 earnings release upon the completion of this process.

Finally, in aligning with the ESG objectives, for the third consecutive year, Fibra Mty, among the Mexican FIBRAs, participate and being evaluated in the corporate sustainability assessment, the CSA, by the S&P Global. We obtained the highest rating in the corporate governance criteria, and also for the first time, received the highest ranking in the entire economic and governance criteria. Moreover, the 2023 addition of the Global Real Estate Sustainability Benchmark, GRESB, awarded Fibra Mty the green star level, placing us in the top quartile compared to our peers, acknowledging our global leadership in integrating sustainability criteria throughout the entire real estate investment cycle. These results are proof that the strategy proposed by our management is appropriate, convenient and effective for the sustainability and the development of the company with a solid ESG convention and fundamentals. Once again, I thank our equity and debt investors for placing their trust in Fibra Mty and for allowing us to maintain our commitment to redefine the real estate profitability in Mexico.

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

[Javier Llaca García, executive]

Thank you, Jorge, and good morning, everyone. I will start my piece of the presentation on Page 3 with the composition and geographical distribution of our portfolio as of the year-end 2023, which remained unchanged from the previous quarter. After a full integration of all 46 properties of the Zeus portfolio as well as the 9.5 million square feet land bank in Puebla, Fibra Mty now owns and manages 106 income-producing properties. Our footprint covers 15 real estate markets across 14 states in the Northern, Central and Bajio areas, with a total GLA of roughly close to 18 million square feet, out of which around 15.5 million square feet are industrial, 2.2 million square feet are in office buildings and 216,000 square feet belong to our small retail portfolio, in addition to our land bank.

Overall occupancy in terms of GLA stands solid above 96%. We continue to consolidate a strong presence in the markets with the most exposure to nearshoring in real estate transactions and will continue expanding in such markets, particularly in the Northern and Bajio areas. On Page 4 of the material, we present a brief overview of our new key performance indicators as of the end of December and moving forward. In terms of percentage of revenues, these indicators remain like the previous quarter. 71.9% of revenue by asset class come from our industrial properties, while office and retail account for 26.5% and 1.6%, respectively.

By location, revenue from our Monterrey-based portfolio represents 41% of total income, followed by Guadalajara, Guanajuato, Saltillo, Tijuana, which combined represented close to 34% of revenue. Occupancy rates as percentage of potential revenue at full capacity remains close to 93%. Our dollar-denominated leases represent almost 83% of gross revenue, which could further expand if the peso exchange increases. And finally, lease maturity schedule and weighted average lease term is just shy of 5 years, with around 41% of revenue will begin expiring in 2029. As we mentioned during our previous earnings calls and should market conditions remain, we believe that during '26 and '27, positively spread on industrial renewals and new leases could happen in the market.

On Page 5 of the webcast material represent the same property performance analysis for the fourth quarter of '23 compared to the same quarter of the previous year. For purposes of this analysis, we use all 60 investment properties in our portfolio prior to sales, which represent a total GLA of 8.9 million square feet. There's a marginal increase in the square footage of these properties and some expansions at our Filios, Fagor and Catacha properties, having either completed or closed to be completed.

Compared to the fourth quarter of 2022, gross revenue contracted with 4.6% of MXN 17.5 million, with a decrease of 5.2% or MXN 17.1 million in our net operating income, mainly due to negative FX impact following the first -- the fourth quarter of the previous year.

NOI margin contracted 50 basis points to 86.1%. The composition of NOI variance will be explained in detail in the following slide. Once we incorporated additional revenue from sales, the aggregated portfolio generated a total net operating income of MXN 551.9 million compared to MXN 326.6 million in the fourth quarter of '22. This is an increase of 69%. Our NOI margin for the aggregated portfolio was of 90.8% for the quarter, well above our target of 88%. The fact that the NOI margin of the Zeus portfolio is almost 97% helps us to continue to accomplish substantial economies of scale in the operation of the portfolio. Slide 6 of the presentation explains in detail the MXN 17 million reduction in our net operating income, comprised by the following: MXN 30.9 million decrease due to a negative FX impact between the fourth quarter of '22 and the fourth quarter of '23; MXN 22.9 million decrease due to vacancies from certain lease expirations; MXN 36.3 million increase due to inflation escalation on lease agreements and new leases; and MXN 0.5 million increase due to savings in certain operating expenses. As you can see, once we included additional revenue of about $242.3 million on the Zeus portfolio, we reached the MXN 551.9 million NOI in our aggregated portfolio. On Page 7 of the presentation, I would like to address the variance in the valuation of our investment properties portfolio, in which we have seen a negative impact of about MXN 2.5 billion in efforts change alone during the last 12 months prior to December '23. Some CapEx expenses, as well as improvements in the operation and market conditions, current investment in expansion and integration of the Zeus portfolio, boosted our valuation from MXN 17.6 billion to MXN 27.3 billion at the end of the last quarter. As mentioned during our last earnings call, as Jorge mentioned, we have executed the first 4 agreements for certain expansions in our industrial portfolio, which are highlighted on Page 8 of the presentation. The construction of these expansions has already started. These expansions in certain properties in San Luis Potosi, Monterrey, Queretaro and Aguascalientes, with a total GLA of more than 0.5 million square feet, will represent a total investment of about $44 million. Should these expansions be successfully completed, they could generate additional NOI of $4.2 million. This is achieved on cost of 9.6% net of investments, internal improvements, which are amortized throughout the lease term. If executed, these expansions also would allow us to extend the lease term for another 10 years with an attractive blend-and-extend lease rate close to market and above current rates. If executed, these expansions will increase the size of our industrial portfolio close to 4% in terms of GLA. It is also relevant to say that all required energy for this project has been already secured, as Jorge mentioned.

More expansions on our industrial buildings are well advanced in negotiations and are expected to be executed in the next few weeks. It would drive additional GLA of another 556,000 square feet with an investment of around $54 million at a similar cap rate that the 4 previously mentioned.

Finally, I would like to mention that positively spreads observed during this last quarter was 34% for renewal, new leases and expansion. It is important to point out that there was one outlier in Tijuana from the Zeus portfolio which drove most of this positive spread.

Moving on to Page 9. Jorge also mentioned some of our underwriting activity during the quarter. We have currently under evaluation and or negotiation a little more than $1.1 billion worth of potential target stabilized portfolio and properties across Mexico. These potential acquisitions are layered as follows: $287.3 million on potential acquisitions already under nonbinding agreement for a total of 3 million square feet of GLA; $460.5 million on potential acquisitions being negotiated for a total of 4.5 million square feet of GLA; and finally, $368.9 million of identified portfolios available for sale currently being evaluated for a total of another 6.4 million square feet of GLA.

Altogether, this pipeline accounts for 95 different properties with a weighted average lease term of more than 9 years, a total of close to 14 million square feet of GLA and 94% of the revenue on the dollar-denominated lease agreements. Subject to successful negotiations before the end of the year, we may reach an agreement with respect to a substantial portion of this pipeline.

Finally, I would like to address the conditions of the office segment of our portfolio and share with you our strategy on this regard. To better understand the current situation of the office segment, we have divided the portfolio into 3 categories, and we will share it with you. First, overperforming, those top quality buildings with high occupancy levels reasonable weighted average lease terms and predominant dollar-denominated lease agreements. This group of properties accounted for 11.6% of total assets, and we believe will -- could continue to perform and contribute to cash flow of the company. Most of these buildings are in the Guadalajara market and currently occupied by tech companies along with the office component of the [indiscernible] campus in Monterrey. Second, performing. Those buildings that have been resilient to market conditions, maintaining reasonable occupancy with short-term weighted average lease term and a mix of peso and dollar-denominated leases. This group of properties account for 9.7% of total assets and is where we're focusing our marketing efforts to increase occupancy and therefore, cash flow for the company. And third, nonproductive. These buildings with occupancy levels below market average, even fully vacant buildings. This group accounts for 4.1% of total assets and are currently being evaluated for its redevelopment potential for a subsequent sale or contribution for new development along with a third-party developer. You can rest assured that we are committed to make the most out of our office segment, and we will keep you apprised on this matter in the next earnings calls.

At the end of today's presentation, I'll be more than happy to address any questions you might have regarding operations and acquisitions [ buyout ] for our real estate portfolio. But for now, I will hand the presentation to Jaime Martinez. Go ahead, Jaime.

[Jaime Martínez Trigueros, executive]

Thank you, Javier, and thanks, everyone, for joining the call. I would like to start my speech with a quick overview of our balance sheet. As you can see on Slide 11, our outstanding debt fundamentals remain internally the same since our last call. On December 15, we signed an amendment to reduce our indicated credit facility surcharging 20 basis points. This is the second reduction we have had since we reached an investment-grade rating. Also, during this quarter, we increased the outstanding amount of the Scotiabank line of credit to continue investing in the industrial expansions on the development. As mentioned in the last earnings call, we aim to replace the outstanding balance of this credit facility with long-term debt following the beginning of the rental revenue for its expansion.

Moving on, we capped our debt 100% unsecured with an interest rate well below 5% and U.S. dollar denominated. Average debt maturity stands at 4.3 years with no material maturity until late 2027. Furthermore, balance sheet remains strong with our loan to value around 27%. This results in various financial flexibility to size market opportunities of more than $220 million, including expansions. The same flexibility remains true when looking to our net debt-to-EBITDA, which stands around 3x. Moving on, we have more than enough gunpowder in available credit lines that accounts for 20% of our assets. Regarding our bottom line results, as shown on Slide 12. The main effect in year-on-year variation remained due to forex. As Javier already mentioned, considering our highly dollar-denominated leases and peso-denominated expenses, having a stronger peso has kept as a constraint in our AFFO when translated into Mexican pesos.

It is worth mentioning that isolating this FX variation, our annualized AFFO per share would have stood at MXN 1.02. I will emphasize that matter -- this matter later in the call. Additionally, having fully paid for the Zeus portfolio, financial income partially transform into rental revenue. On an aggregate basis, this translates into a negative variation given the spread between the short-term interest rates received through cash investments in the fourth quarter '22, about 11%, and the going-in cap rate of the acquisition above 8%, which last quarter affected by the land reserve on [indiscernible], which is not an income-producing asset as of now. We are confident that even though this could affect cash flow in the short term, long-term return will more than compensate given potential transactions in the land. In the next slide, you will find the same analysis as compared to the previous quarter. The main variation was a lower financial income cost by the payment of the land reserve, which I already explained, which was partially offset by a slightly stronger dollar as well as rental increases and stronger occupancy.

As in previous quarter, on Slide 14, there is selected information to compare and contrast our main financial indicators of the last 12 months to facilitate your analysis. Finally, on Slide 15, I will emphasize the FX relevance for our local investors. As you can see on our graph on the left, this quarter, AFFO per share stood at $0.90 on an annualized basis at the FX rate of around 17 -- 17.5 pesos per dollar. Sliding on your right, you will see different FX scenarios ranging from MXN 18 all the way to MXN 21 for your analysis. Our focus as management remains the same, to keep improving our risk-adjusted cash flow per share performance on a regular basis. Having said that, I would like to end my speech by mentioning that as it has been made public, we have an equity offering in progress, though we will only address the questions you may have regarding our results. For more related to the offering, please refer to the prospective supplement or [indiscernible] are they now and currently under review with the Comisión Nacional Bancaria y de Valores, which documents are subject to change.

Operator, please continue to the Q&A.

[Operator]

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

[Gordon Lee, analyst]

Congratulations on the results. Two questions. The first is on the land in Nuevo Leon and in Puebla that is not adjacent to existing properties and for which you're exploring different options. If you were to decide to develop that as a greenfield, how large would these investments be? And would you undertake the development yourself? Or would you bring in a JV partner to do that? And then the second question, just on the acquisition pipeline, if you could remind us roughly the cap rates that you're looking at.

[Javier Llaca García, executive]

Gordon, this is Javier. Nice talking to you. Regarding your first question, most of our land bank, as you well mentioned, is in Puebla. The rest of the land bank is distributed along the portfolio on small lots adjacent to buildings with a potential expansion or expansion rights on the lease agreement. So we're going to keep those for those potential expansions. Regarding Puebla, we are aggressively marketing the property for sale, mainly. Our first choice is to sell the land. We're moving into that front. But if the land was not to be sold or not to be sold completely, we would expect to develop about half of the square footage, about 40% of the square footage of the land for a [indiscernible] leasable area of new buildings. We are attending some RFPs from some companies that are looking for build-to-suit projects in the area. It's hard to say a number on the investment. But we could expect if we were to develop the whole land, you could expect somewhere around $40 million to $50 million. But if we were to develop that, we are going to partner or to contribute the land to a third-party developer to avoid as possible the development risk on equity. So that would be to the land in Puebla. Let's keep in mind that this was part of the Zeus portfolio. We think that commercial prices for a land like that in Puebla are higher than what we paid for. So we expect to capture some value there. In regards to the pipeline, it's kind of early to talk about specifics. But I can tell you that the first layer of the pipeline that we have for the short term, you could expect a cap rate of slightly above 8%, around 8.1%, I would say, on the first tranche of the pipeline that we have.

[Operator]

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

[Francisco Suarez, analyst]

Congrats on execution, gents, up. The question that I have is on your office portfolio, and thank you for that slide. That was very clarified and very helpful. The question that I have is that you have indicated that basically, you will be increasing your overall occupancy rates by 100 basis points based on what you may expect to commercialize over the next -- this quarter. So can you give us a little bit of more guidance on what -- sorry, the question is, can you give us a little bit of more guidance towards what would be the overall occupancy level that you may expect for the year end of 2024? And if this 100 basis points of improvement in occupancy are actually in those assets that you labeled as performing. And the second question that I have, if I may, is that what are your expectations on mark-to-market this year on your roughly 8% in this portfolio that is coming due this year?

[Javier Llaca García, executive]

Paco, this is Javier. Regarding your first question, yes, we expect occupancy levels in the office segment to improve, particularly on the performing assets. We are well advanced in negotiations to lease up one of the vacant buildings that we have. We expect the overall occupancy of the office portfolio standing right now at around 72%, 73%. We expect to be able to surpass the 80% mark by the end of the year. As we make progress on potential disposition of some of the asset, occupancy levels, on a relatively basis, would increase even more because your base was reduced. But the short answer would be that we expect to surpass the 80% mark on occupancy by the end of this year. And the second question for Jaime. Can you repeat the question for Jaime, Francisco?

[Francisco Suarez, analyst]

Yes, of course. Yes. on the leases expiring in your industrial portfolio, what sort of mark-to-market do you expect this year? I mean in other words, what would be the overall lease spreads that you expect on your industrial portfolio that is expiring this year?

[Jaime Martínez Trigueros, executive]

Okay. I'm sorry. Well, unlike the 34% positive lease spread that we had on the last quarter, let me give you some context. What you capture for lease spreads when you have the end of the lease cycle, and at the end of the lease cycles, 2 things could happen. You can either renew the lease agreement, the existing lease agreement, or the tenant would terminate it and then you have to lease out the property to a new tenant. When the first case happened, then you have 2 options. In some cases, you have an automatic renewal option for the tenant on which you are obligated to renew the -- to extend the lease agreement under the existing and current terms of the contract. That accounts for about 35% of the expirations that we have this year. The other 65% are open to either renew under a new negotiation with existing tenant or to lease it out. So given that we have about 8% expirations this year, I would say that probably we could expect an overall -- if this happens, an overall positive lease spread of around 10% on the conservative side.

[Operator]

Our next question comes from the line of Juan [ Mocero ] with [ GM ].

[Unknown Analyst]

Congrats with the results. My question is also regarding the office segment. We saw strong rents in operative offices, although corporate rents didn't show the same results. Considering your strategy and the way you're categorizing office buildings, would you consider that maybe the unproductive segment is more sided towards the corporate side or the operative side? Or is there a mix there?

[Javier Llaca García, executive]

Thank you for the question. Yes, let me go through the 3 categories. On the overperforming, we have seen a great performance overall of the market in Guadalajara. I can tell you that we fully leased up the [indiscernible] last year. And I can tell you that rents were, first of all, dollar-denominated. And we saw our rental growth even compared to prepandemic levels, even in dollar terms. So we're seeing a strong -- a very strong market in Guadalajara, very dynamic absorption, net absorption and vacancy rates are off the charts in Guadalajara. So we -- and we have -- we are almost fully occupied in Guadalajara. So we believe that, that's going to continue to be the trend. But with a small upside, given the fact that we almost have no vacant space in Guadalajara. We're seeing a very slow recovery in terms of net absorption in Monterrey and Mexico. Unfortunately, unlike Guadalajara, rental rates are still below prepandemic. So we expect to recover some of our upside, particularly in the Monterrey market. And Mexico City, we have a very small exposure to the Mexico City office. We have only one building, in [indiscernible] corridor, and we are actively marketing that property. But it's hard to give you a forecast on Mexico City.

[Operator]

Our next question comes from the line of Edson Murguia with Summa.

[Edson Murguia, analyst]

The first one is a follow-up on office segment. I mean those nonproductive assets that you show us in the presentation, are you considering a recycling process for the future or are you differently because you already mentioned about this actively marketing strategy about the [ current government ], but it's not quite -- I mean don't get me wrong, but it's not quite, [ it's important that it ] is happening or the tenants are willing to be in those offices in spite of the outperforming, nonperforming assets that you have. That will be the first one. And the second one is regarding on the company as a whole because it seems like you are more likely to become an industrial weight rather than a mix of different type of assets. So could you give us a little bit more color about what will be the strategy or the pursuing to become an only industrial company? Or what will the strategy behind it?

[Javier Llaca García, executive]

Nice talking to you. Thank you for the question. Regarding the nonproductive assets, we have been conducting analysis from the best and highest use for those property, most likely for reconversion of the properties. We are not a developer company. Our plan A would be to -- if you ask me, our plan A would be to dispose of those assets, but keeping the best and highest residual value for new development of the property. Most of those properties, if not all of the properties, have a great potential for redevelopment for a different use. And our plan A would be to sell those at a nice residual value, and plan B would be to contribute the property as equity for -- to partner with a developer at risk to contribute the development equity and eventually to try to make the most out of those. We are not planning to develop any of those ourselves. Regarding your second question, the short answer is yes. As we continue to move forward, we believe that we might become a full industrial REIT. But we want to be very careful and very responsible on the value that we give our shareholders on the office component. So it's going to be adjusted, but it's going to take as long as we need to make the most out of our office component.

[Edson Murguia, analyst]

And last, if I may. One of the comments in the press release, I think it's interesting to know more details about the energy and infrastructure because you mentioned in the press release that it's -- well, you are not considering any natural risk or what I understood it. It's not a risk, but what do we sense from other type of companies? One of the questions that we always receive, especially for international companies is what about energy, what about infrastructure and what about water. So could you give us a little more detail about this?

[Javier Llaca García, executive]

Yes, sure. As you all know, we are not a developer REIT. We are going to continue not being a developer REIT. We believe that the risk and the challenges of energy and water are more on the development side than the stabilized asset side. We are going to continue our model. What we have found out is that the spread that you have on the return between acquiring stabilized assets and developing a new speculative building, there's a gap, there's a spread, but we don't believe that the risk is worth that spread. So we're going to continue our model. We're going to continue to be disciplined. We're going to continue to stick to our investment guidelines and that's going to be pretty much what you are going to see from Fibra Mty in the future.

[Edson Murguia, analyst]

Congrats for the results.

[Operator]

[Operator Instructions] Our next question comes from the line of Anton Mortenkotter with GBM.

[Ernst Mortenkotter, analyst]

Congrats on your results. Sorry if someone already asked it, I got dropped for a moment. But I mean we've seen most players looking for ways to access capital, raising money, potential IPOs, consolidation and so on. Which would you say is your competitive edge when acquiring and growing your asset base compared to your peers?

[Javier Llaca García, executive]

Anton, thank you for your question. Yes, I mean something that has helped [indiscernible] during the past is our ability to execute. What we have proven to the market and recent transactions like the Zeus portfolio acquisition, it's a very good example of that, is that I don't think that no one has the ability to close with the level of due diligence and the thoroughness of due diligence that we do. We have proven to the market that when we put an offer, either on an off-market deal or a competitive process, we've put our money where our mouth is. And that has been our trademark ever since inception. Something that is also our trademark is that we do not tap the markets until we have until we are very confident to make a quick deployment and execution of the resources. As you've heard throughout the presentation, we have a very strong pipeline. We are very well advanced in negotiating on some of them. And we truly believe that we can make a compelling story to raise the equity that Jorge mentioned on the opening remarks, and that's going to continue to be our trademark.

[Operator]

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

[Francisco Chávez Martínez, analyst]

Congrats on the strong numbers and also for improving the disclosure on the office segment. My question is regarding the underperforming assets, you can give us more color on where are those assets located? What is the average age? And also, what is the cap rate that you used to book those assets in your balance sheet? Is there a risk to see a lower valuation in coming months?

[Javier Llaca García, executive]

Of course, Paco, nice talking to you, and thank you for the question. Yes, the underperforming assets, I would say most of them are office buildings in Monterrey that used to be most of them back office buildings. Cap rates is hard to answer to you right now. They are on the press release of each of the acquisitions. We can get back to you with that number. But I can tell you that they were 2-digit cap rates. As I said before, we are very, very observant of the IRR that those buildings would have with a potential sale. We are working with third-party advisers and consultants on trying to get the best and highest use for those properties under our development scenario to sell those properties as close as possible to residual value for that best and highest use. And every time that we are close to a sale, we're going to disclose the financial performance of those properties. When you talk about nonproductive assets, I mean, IRRs trend to infinite when you sell a property that is not producing any income. And also, it's going to save money for us on the expenses because we need to maintain those properties. And we're going to roll over that income to income-producing assets from industrial. So we -- it's hard for I'll give you a straight concrete answer right now. We're working on that, but we're going to make sure that, that money is to work on industrial properties and we don't make a write-off on those properties.

[Unknown Executive]

We have one question from Pablo Ricalde from Santander.

Can you share how are you seeing lease dynamics per region in Mexico? Where do you see the most recent [ ramportation ]?

[Javier Llaca García, executive]

Thank you for the question. Definitely, we're looking at northern Mexico and the Bajio area. When you look at the growth of the markets and the growth on rental rates, according to companies like CBRE, I mean this continues to be the most dynamic regions in Mexico. There is a very hard competition for tenants in those areas, and that makes the private developers to continue seeking for equity to continue developing. And most of these developers have no access to institutional equity. And that's where we come into play. We have become the preferred exit strategy for these product developers. There's a continuous rental growth, although the spread between asking rates and closing rates have increased a little bit. But I can tell you, cities like -- markets like Monterrey has more than 1 million square meters being developing right now. Tijuana is close to 1 million. We see kind of a delay on rental growth in Bajio but that are going to start kicking up. So the short answer would be we're going to continue to be focusing on the northern market and the Bajio markets, including Guadalajara and Aguascalientes.

[Unknown Executive]

Our next question comes from [ Emiliano Gonzalez ] from [ Infocel ]. How much do you expect nearshoring to boost your results in 2024? Are you optimistic about this trend despite some companies are delaying their investment plans?

[Javier Llaca García, executive]

Thank you for the question from [ Infocel ]. To try to give you a number of how much it's going to boost our growth is difficult. It is going to be the key driver, that's for sure. Right now, I would say that including the potential pipeline that we have, we continue to grow our exposure to nearshoring, I would say that. And no less than 60% of our industrial portfolio has something to do directly or indirectly with nearshoring.

We strongly believe that, that's going to continue to be the trend. When we talk about the cycle or the length of this cycle on the market because of nearshoring, we strongly believe that is going to be more than 5 years, probably longer than that. But we're very optimistic about nearshoring. There's a lot of challenges that I'm personally sure that are going to be fulfilled from Mexico, both from the public and private sectors. But yes, we are betting a lot on nearshoring, but it's not a sole driver. Let's remember that we -- some of the characteristics of our portfolio is that we are very focused on light manufacturing for export. And that's a mix of nearshoring and non-nearshoring activity, but definitely, we're optimistic about the future of nearshoring.

[Operator]

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

[Jorge Avalos Carpinteyro, executive]

Thank you, everyone, for attending this call, and we'll talk to you in the next conference call. Have a great week. Bye-bye.

[Operator]

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.