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Good morning. My name is Matthew, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Terrafina's First Quarter Earnings Conference Call. [Operator Instructions] Thank you for your attention. I will now turn the call over to Francisco Martinez, Terrafina's Investor Relations Officer. Please go ahead.
Thank you, Matthew, and good morning, everyone. Welcome to our first quarter 2023 conference call. So we're pleased to have us today from Terrafina Mr. Alberto Chretin, Chief Executive Officer; and Mr. Carlos Gomez, Chief Financial Officer. Mr. Chretin will take us through the company's overview and operations, while Mr. Gomez will discuss our financials.
Before we begin, I would like to refer you to the note on forward-looking statements [ in the ] quarterly report and any information expressed or implied during the call may include forward-looking statements, which could involve certain risks or uncertainties. Terms such as estimate, project, plan, believe, expect, anticipate, intend and similar expressions may identify such statements. Listeners are cautioned that forward-looking statements made during this call or by the company's management may change based on various important factors out of the company's control. These comments represent the company's judgment at the time of this call, and the company has no intent or obligation to update these forward-looking statements.
Thank you again for your attention. And at this point, I will turn the call over to Mr. Alberto Chretin for his remarks. Alberto, please go ahead.
Thank you, Paco, and good morning, everyone, and thanks for joining us today. We had a good start to the year, delivering strong operating and financial results in the first quarter. The Mexican industrial real estate space continues to be favored by nearshoring moves to core markets in the northern region of the country. This is extraordinary news for Terrafina as we have a predominant exposure to these markets.
Because of it and despite the current macroeconomic scenario with high interest rates and a deceleration of the U.S. economy, we still have a positive outlook for industrial real estate. Keeping up with new demand has been a real challenge as supply has been aligned to grow expectations in core markets, most of the time with pre-lease contracts.
However, when spec buildings are added to the inventory in hot markets, most of the time properties are leased before finishing its construction. Vacancy remains at its lowest levels, and tenants are eager to secure their industrial space at rental rates which have increased at double digits. These all favors our organic growth.
The northern region continues to be the main driver for the new inventory demand. We will remain focused on analyzing new development opportunities as well as potential M&A targets now that we have successfully structured the sidecar that will give us access to additional firepower to increase our growth plans in core markets, mainly in Tijuana, Ciudad Juárez and Monterrey.
Our growth plans are also supported by stronger manufacturing activities. Sectors such as the automotive, where we have a key exposure as 34% of our GLA is dedicated to the auto sector, are going through important transformation as the transition to EVs represents more demand with stronger supply chains surrounding the assembly plants in Mexico.
We have already seen in recent investment announcements in Monterrey that this sector will be a natural move as higher demand comes from surrounding industrial markets such as Saltillo, Derramadero and Ramos Arizpe, given its good infrastructure connectivity and proximity to the border. These markets stand out for its automotive manufacturing exposure and their production lines evolving to EVs. As a result, we expect that newcomers on the automotive sector will start to consider more and more establishing their operations in these secondary markets.
Moreover, as part of the culmination of our 3-year growth plan, we recently announced the development of 2 Class A industrial properties that will add 336,000 square feet to our portfolio. This project comprises 2 inventory buildings with a combined 336,000 square feet of GLA located in the Apodaca market, which is virtually sold out.
Both facilities will be developed to cater to nearshoring tenants and further consolidate Terrafina's presence in one of the northern region's more relevant industrial markets. Since the project will be developed in Terrafina's proprietary and strategic land bank, yield on the incremental investment cash on cash is expected to be within the 13% to 14% range, assuming the average market rate.
Also, these buildings will also be certified LEED standards. And as a result, the company will continue to increase its presence in fast growing markets with attractive returns and in alignment with our ESG strategy to unlock value for investors. With these properties, we have reached our development target, and going forward, we will continue to take advantage of opportunities that arise from a strong and growing industrial real estate market in Mexico and support our ESG strategy.
Finally, let me mention that we are aware of the current challenges of a lack of new public infrastructure investments for better energy and water supply. Therefore, this is one of the main reasons we have focused on the acquisition of stabilized properties, and we'll concentrate our new development activities in markets where we are able to sort out these difficulties.
Moving on to our results for the quarter, let me start with the operating highlights. Consolidated occupancy levels reached 96.9% with a 92.4% renewal rate. This means only 1 contract out of the 19 that rolled over during the quarter was not renewed. Furthermore, by the start of April, this vacant space in Toluca has already been leased.
As for our leasing activity, we signed 1.4 square feet of renewals and 400,000 square feet of new contracts. The northern region had the most leasing activity, representing 65% of our contracts. Ciudad Juárez, Chihuahua and Derramadero led the way with an average occupancy rate of 99% and an average rental rate of $6.02 per square foot per year. Tenants in the auto component manufacturing represented most of the activity in the northern region, and we expect this trend to continue throughout the year.
On the BajĂo region, we continue to see a gradual recovery. This quarter, leasing activity represented 22% of our total activity, mainly concentrated in Irapuato, Guadalajara and QuerĂ©taro. Automotive and electronic tenants were the most active in this region with an average rental rate of $5.87 per square foot per year and a 89.6% average occupancy rate.
Finally, in the central region, Toluca and Cuautitlán Izcalli markets with high exposure to logistics and distribution reached a 97% average occupancy rate and a rental rate of $6.53 per square foot per year. Moreover, the average rental rate for all of the activity of the quarter was $6.37 per square foot per year, which implies a 17.7% leasing spread. Our net asset value per certificate increased 15% year-on-year, reflecting the positive demand supply dynamics in the industrial real estate space.
Before I pass the call to Carlos, our distribution for the quarter will be $19.3 million. This translates into a payment of USD 0.025 per certificate. And as we mentioned in the fourth quarter earnings call, our annual distributions per CBFI will be USD 0.10 for the entire year. It will be paid evenly each quarter for an amount of USD 0.025 per quarter.
Thank you all for your time, and Carlos, please go ahead with the financial highlights.
Thank you, Alberto, and thanks to all the participants for joining us on today's conference call. Please note that all figures discussed in this call are in U.S. dollars, but Mexican peso figures can be found in the earnings report. Additionally, NOI, EBITDA and FFO figures exclude noncash items as well as nonrecurring and transaction-related expenses, the latter of which are all included in the AFFO.
To start, our collections and rental revenues reached $51.3 million and $52.7 million, respectively, which implies a 4.8% and 9.4% year-on-year increase. NOI was $48.1 million, a 2.2% year increase with a 93.1% NOI margin. EBITDA totaled $42.4 million, a 0.8% increase and an 82% margin. Our FFO was $30.6 million, a 3.7% year-on-year decrease as a result of higher interest expenses and a 59.2% FFO margin. FFO per certificate was USD 0.0396 per certificate, a 2.6% decrease when compared to the first quarter of 2022. Finally, AFFO reached a total of $26.8 million, a 4.1% year-on-year decrease.
Moving on to our balance sheet. We closed the quarter with $27.5 million in cash. Our investment properties closed the year -- closed the quarter at $2.7 billion, and our total debt at the end of the quarter closed at $888.4 million with an average cost of debt of 5.08%, and our average weighted maturity of debt was 5 years. Finally, our LTV reached 32.5%, in line with our guideline of 35%.
Thank you for your time and attention. I will now ask the operator to open the line for questions.
[Operator Instructions] Your first question is coming from Alan Macias from Bank of America.
Just 2 questions. One, if you can provide an update on acquisitions and focusing on timeline if you can at this point in time. And the second question is on the level of land reserves. Should we expect Terra to continue to increase land reserves? Is that something you will do?
Thank you, Alan, for your question. Yes, the -- based on the strategy from the sidecar, we do have a robust pipeline of acquisition opportunities for the deployment of the proceeds from the sidecar. We very soon will be making announcements about the execution of these acquisitions. We expect them to be done within -- some of them will be done during the second quarter of this year very soon. So I think, Alan, thank you for your question, and please be -- we will be making announcements soon.
In terms of land reserves, we do not anticipate to buy more land reserves. As you know, for the 3-year growth plan, we did buy land in Tijuana, and with -- as a result of that, we were able to capture opportunities with very important companies in the e-commerce in the market of Tijuana. But at this time, we are using the land reserves that we have, some of them that are adjacent to the current facilities and the land reserves that we have in Ciudad Juárez and in Monterrey.
These -- and again, thank you for your question because this gives us an opportunity to capture the very good development yields that are much better than the coverage for acquisition. But based on the fact that we are developing within our own land, that's how we're able to capture this double-digit development yields. To be precise on your questions, we don't anticipate to purchase more land reserves in the near future.
Your next question is coming from Juan Ponce from Bradesco BBI.
Regarding the 15% of development in the sidecar, can you remind us if this could be increased given market conditions? You mentioned that available infrastructure is the main headwind, let's say. But would this be able to change if the -- if conditions on the ground also change?
And related to this, if you -- I don't know if you said this already. I'm sorry if you already did. But did you already secure the -- did you have to secure the necessary infrastructure for this new development in Apodaca? Or was it already there?
Thank you for your question, Juan. And certainly, the split between development and acquisition of 85% and 15%, it's precisely because of this that you just mentioned. Yes, there are some challenges in some of the most important markets when it comes to infrastructure, especially for electricity and water availability. So to answer your first question, yes, we have this 85%, 15% of development. We think that it's possible to change if the conditions warrant it. But at this point, we see very good acquisition opportunities also.
But also -- and also to answer your second question, all the infrastructure for this later development of the 336,000 square feet development we do in Apodaca, we do have all the infrastructure in place. That is what was a very important element of this development. We're already starting the construction selection of companies to start, but all of the permits and all of the infrastructure, including electricity, is secure for these developments.
Okay. But was it secured recently or it was secured way before?
We had that already. We -- this is a development that we are doing with our joint venture partner, and we already had the infrastructure because we have already developed several properties in this industrial park. So to be precise with your question, we have had the infrastructure in place for a couple of years on this development and that -- and of course, it's not going to be an issue for this 336,000 square feet that we just announced.
Your next question is coming from Pablo Monsivais from Barclays.
I have a quick one. What is the in-place rents that you have for your expirations for the remainder of this year and for 2024 relative to the market rents?
Well, the in-place rent that we have currently is unfortunately below the market. And that's why we are experiencing a substantial rent growth on the renewals of the expirations. So we expect to continue to have double-digit lease spread, positive lease spread on the renewals of the contracts that roll over during 2023 and probably going forward. I think that this is a reflection again of the increase in the overall market rent in the markets in which we operate.
Your next question is coming from Renata Cabral from Citibank.
It's a quick one from my side. Can you comment a little bit about the occupancy, especially marking the differences between the regions? We saw that the occupancy in the north region is super high compared, for instance, with BajĂo. What is the perspective, for instance, for the occupancy BajĂo versus north if north will continue kind of to compensate, or if you see any improvement in the short term for other regions as well?
Thank you very much, Renata. Yes. Indeed, the occupancy in the north and in the central continues to be at all high levels. And also, we see a gradual increase in the occupancy in the BajĂo. Especially with the latest announcements from the auto sector, we see -- we think that the occupancy of the BajĂo is going to continue to increase. We do have a couple of very good property many years in the BajĂo that are very active to capture the opportunities to lease the empty space that we have there and that -- so we -- to answer your question, we expect the BajĂo occupancy to increase -- continue to increase gradually and perhaps even to accelerate during 2023 due to the more active automotive sector activity in that region.
Your next question is coming from Felipe Barragan from BTG Pactual.
I have a couple of questions. One, just really quick, I was looking at your GLA, and I saw that there was like a small growth in Coahuila. I think it was like 10,000 and 120,000 [indiscernible]. I'm guessing it's some expansion. If you could give some color on what this was, that would be great.
And my other question is on the new developments and acquisitions. Once you guys acquire these properties, I'm curious on hearing your thoughts on how you might approach the contracts. Obviously, inflation is high and you guys have a greater exposure to capped contracts. What is your approach? Did you guys want to maintain a greater position to capped contracts? You're maybe shifting it more to U.S. CPI-linked contracts?
Yes. Well, very good. Well, just on GLA, our GLA in the new develop -- let me see if I understood your question. You're asking about the GLA for development.
No, no, the portfolio GLA already consolidated into the portfolio.
Well, the growth in the GLA of the portfolio is going to be focused on the most important markets of Tijuana, Ciudad Juárez and Monterrey as the 3-year growth plan. We have already under developed or developed over 2.2 million square feet of new development based on the expansions on the specs as well as the build to suits that we had based on the 3-year growth plan. This new GLA has an average rent of over -- about $6.80 per square foot per year. And that's why we comment about the fact that we're very much over with the 3-year growth plan.
And I guess it's important to note that this new GLA is being built at an average of about $66 per square foot, and the stabilized value of these properties is going to be close to $100. So the added GLA on our portfolio of this 2.2 million that I just mentioned is going to be a substantial enhancement to the value of our portfolio because of the number -- several things: one, the fact that I answered before, the fact that a lot of the developments that we're doing is on our own land, and that increases the development yield and as well as the increase in the overall value of the industrial real estate sector, especially in our portfolio. And so that's why this added GLA of the portfolio is going to make a significant enhancement to the value of the portfolio. And in terms -- and what was the second question, Felipe, please?
Yes. My second question was on how are you guys approaching the new leasing contracts through the acquisitions or developments that you guys will be making up. You guys have a great exposure to capped contracts, so I'm just curious on hearing your thoughts on if you'd like it to stay that way, capped, or perhaps making a shift to U.S. CPI, especially that now inflation is higher. Obviously, it won't stay like this forever, but would just like to hear your thoughts on that.
Yes, I'm sorry. Thank you. And I apologize, Felipe. But of course, all of the new contracts and all of the contracts that we are renewing based on the expirations, all of them, we are including the CPI increased cost on the contracts. In the past, when we had -- 6 or 7 years ago, when we had very low inflation in the U.S. and therefore, there were some contracts that -- in which, as you mentioned, we did have some caps on the yearly increases, but now because of the situation where we are now, all of our market officers as well as our property managers, they all have the instruction that new contracts are going to have process to have rent increase based on the U.S. inflation. And the renewals of the expirations also -- must have also clauses that include yearly increases tied to the U.S. inflation.
That concludes our Q&A session. I will now hand the conference back to Mr. Alberto Chretin, Chief Executive Officer, for closing remarks. Please go ahead.
Thank you, and thank you all for joining us today. We really appreciate your interest in Terrafina. We are convinced that we are in a very privileged position in a very privileged industry. Because of this, we are sure that securing further funding was the right step for Terrafina, and we intend to make sure we optimize its development.
I would like to finish the call by thanking everyone in Terrafina as well as PGIM Real Estate and our partners for your help and commitment, which continues to be a key element in the success of our company. And thank you all for your time today, and have a great day.
Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.