Corporacion Inmobiliaria Vesta SAB de CV

BMV:VESTA

Earnings Call Transcript 2019-Q2

[Operator]

Good morning. My name is Brenda, and I'll be your conference operator today. At this time, I would like to welcome everyone to Vesta's Second Quarter 2019 Earnings Conference Call. [Operator Instructions] And as a reminder, today's call is being recorded.

I would now like to turn the conference over to your host, Ms. Christianne Ibañez, Vesta's Investor Relations Officer. Please go ahead.

[Christianne Ibañez, executive]

Thank you for joining our call to discuss Vesta's financial results for the second quarter of 2019. With us today from Vesta are Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, Chief Financial Officer. Following their prepared remarks, there will be a question-and-answer session, during which time, we will answer your questions. Yesterday, we issued our earnings press release after market close. This release is also available via Investors section of Vesta's IR website.

Before turning the call over to management, I'd like to remind you that this conference call includes forward-looking statements based on currently available information. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Statements made on this conference call should be considered together with cautionary statements and other information contained within the company's earnings release dated July 25, 2019 and within the most recent regulatory filings for a discussion of those risks. All figures included herein were prepared in accordance with IFRS and are stated in nominal U.S. dollars unless otherwise noted.

I will now turn the call over to Mr. Berho. Please go ahead.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Christianne, and good morning, everybody. Thank you for joining us for our second quarter earnings call. We're excited to present solid second quarter results in addition to an intense quarter of several existing -- exciting activities. On June 4, we hosted our second Annual Investor Day, in part to thank the investment community for its continued trust and support over the last 5 years. At the event, we proudly announced the conclusion and success of our Vesta Vision 20/20 growth plan, which enabled us to double the size of our portfolio in 5 years while achieving profitable growth in terms of FFO and net asset value per share.

Our strong results during this period clearly demonstrated Vesta's ability to outperform the market and successfully execute on our long-term plan. We also unveiled the next phase of Vesta's growth plan, the Vesta Level 3 strategy, designed to maximize total shareholder return.

Over the next 5 years, Vesta's management team will focus on 2 key 2024 performance targets: $0.20 pretax FFO per share; and $3 net asset value per share, while maintaining flexibility in funding sources, a strong balance sheet and a state-of-the-art property portfolio.

During the quarter, we executed our first portfolio sale for $109 million. Selling portions of our portfolio is an integral part of becoming a fully integrated real estate company, a model that gives us greater flexibility to drive value for our fellow shareholders.

Through this transaction, we successfully closed [ a ] stabilized portfolio's real estate cycle and without adversely affecting the composition of our remaining portfolio. It was done with a cap rate of 7.1% and approximately 20% premium above net asset value, which reflects the interest of institutional investors in well-maintained quality real estate assets.

In addition to generating a return on capital via asset sales like this one, greater flexibility is achieved in terms of funding, and opening up the private market as an alternative source of financing. In the near term, we will further explore and assess asset sales as well as potential joint ventures. In other words, we're now in a better position to reduce funding costs and optimize our capital structure.

To this end, we also raised $85 million through a dual tranche private placement of investment-grade unsecured notes in June. We are also in the process of closing an unsecured syndicated loan for approximately $80 million and an unsecured revolving credit facility for up to $125 million. This refinancing has enabled us to prepay a $150 million loan that was due in 2021. As a result, we do not have any major debt due until 2024 and have extended Vesta's average debt maturity by 1 year to 7.2 years while maintaining a competitive cost of debt at an average interest rate of 4.8%.

In addition to reducing our financing costs, we're diversifying and opening new funding sources, making Vesta a more resilient company. Efficient and accretive capital allocation remains our main focus, which is why we chose to make additional share buybacks during the quarter. Given the greater than 30% discount to net asset value at which Vesta's shares trade, we saw share repurchases as the optimal way to employ capital, repurchasing 8.9 million shares during the second quarter.

The combination of positive actions have contributed to a 13% increase in Vesta's net asset value per share year-over-year, along with the strong execution and smart decisions that drove strong operating performance, healthy occupancy levels, accretive investments with high returns and active buyback programs and profitable divestments.

Our focus remains on driving net asset value per share and FFO per share growth. We continue to be confident in our outlook based on market dynamics and our leadership in key markets. To give an example, in June, BMW opened an assembly plant in San Luis Potosi, which produces the company's popular 3 Series sedans. Most of the plant's production will be shipped to the U.S. In fact, Mexico exported 13% more vehicles during the first half of 2019 versus last year, according to data from Mexico's leading auto industry trade group. That figure represented just over 16% of the U.S. auto market, and these exports are on pace to surpass last year's record level. And that total evidence suggests that the balance of supply and demand remains healthy in the select markets where we operate.

While the northern regions of Mexico continue demonstrating high levels of demand and attractive rents, we saw further increases in demand in the Bajio Region. Of the contract signed this quarter, 60% came from the Bajio Region, with new clients like Schlemmer, a German auto components manufacturer in Puebla and repeat business with market-leading companies such as 3M, Daimler and Daewoo, just to name a few.

Turning to our performance. We continue to maintain momentum during the second quarter and remained as disciplined with leasing as we are with portfolio development, focusing on high-quality clients and long-term leases. Total leasing activity during the quarter was just over 1 million square feet, with nearly 700,000 square feet of new leases and renewals and re-leases with other high-quality clients, accounting for approximately 350,000 square feet. While most of this leasing activity was concentrated in the north at the beginning of the year, it was more balanced during this second quarter.

The market conditions that I touched upon earlier continued to support occupancy levels and rents. Our stabilized occupancy declined slightly to 95.4%. Compared to last year's quarter, on average, rent per square foot increased nearly 5% to $0.42, which contributed to an 11% increase in rental income and reflects the further strengthening of our portfolio in terms of quality as well as our disciplined approach to leasing. An increase in occupied space also drove rental income, which was $36 million for the quarter.

At the same time, we maintained a 5.3-year weighted average lease maturity profile, which remains the highest in our sector. Overall, we're pleased with our performance this quarter and we strongly believe our Level 3 strategy is the right one to capitalize on Mexico's tremendous attractiveness as a global manufacturing and logistics hub.

I will now turn the call over to Juan, who will review our financial and operating results in more detail.

[Juan Felipe Sottil Achuttegui, executive]

Thank you, Lorenzo, and good day for everyone. As Lorenzo noted, we grew revenues 11% to $36 million, mostly due to $4.5 million in income from renting newer space that had been vacant in the second quarter of 2018. This increase was partially offset by a $1.2 million decrease related to leases that had been expired and were not renewed among other offsets.

During the quarter, Vesta's operating cost increased 30% to $1.8 million, reflecting higher expenses at our new properties. Those related to investment properties generating rental revenues increased 58% to $1.7 million primarily due to an increase in the number of these properties.

Second quarter net operating income rose 9.4% to $34 million, while the corresponding margin decreased 139 basis points to 95.3%, mostly due to the cost increases related to new properties. Administrative expenses increased 22% to $4.6 million, mainly due to higher employee benefits.

Vesta EBITDA rose 9% to $30 million, while our margin contracted 143 basis points to 84.2%. The margin decline was due to the sale of the property portfolio which resulted in lower revenues, while the margin of administrative expenses remained constant.

Due to the portfolio sales and higher gains on the reevaluation of investment properties, other income increased $27 million to $38 million in the second quarter. The gain on the sale was $16 million, which represents the $109 million in cash generated by the sale, less $93 million cost of the properties that comprise the portfolio. The gain of the reevaluation on the properties was $32 million primarily due to the use of lower discount and [ exit ] cap rates in the appraisal of our investment properties.

Due to a higher balance of debt, our net interest expense increased 35% to $11 million. Also noteworthy during the quarter was a small foreign exchange gain that we reported versus a loss of approximately $5 million in the second quarter of last year. This variance is explained in detail in our press release.

Other income primarily drove the 76% increase in profit before taxes, which was $67 million in the second quarter. Vesta's income tax increased -- I'm sorry, Vesta's income tax decreased 32% during the sale of the portfolio, which resulted in lower deferred taxes during the quarter. We incurred a $12 million increase in current tax due to a higher operating tax related to the taxes paid on the sale of the property portfolio that amounted to $6 million.

For the quarter, total comprehensive income was $51 million compared to $7.3 million last year in the same quarter. Our pretax FFO was $19.1 million, down from $19.4 million year-on-year. The decrease was due to a lower income that resulted from the portfolio sale as well as an increase in interest expense that reflects the amortization of the syndicated loan that was prepaid during the second quarter.

CapEx totaled of 11 -- $18 million in the quarter primarily from -- for the construction of new buildings in the [ North and ] Bajio Region. Total debt at the end of the second quarter was $698 million, of which 91% is long-term debt and slightly less than 50% is secured. All of our debt is denominated in dollars and there is a fixed interest rate.

In terms of leverage, we maintain our healthy credit metrics below 6x net debt-to-EBITDA and 40% loan-to-value thresholds. Leasing activity during the quarter drove our 2019 maturities down to 0.5% and our 2020 maturities to 6.6%. Vesta's stabilized portfolio grew nearly 2%, approximately 27 -- 27.5 million square feet, with the corresponding occupancy rate reaching 95.4%, as Lorenzo noted.

Our total GLA expanded roughly 3% to 29.3 million square feet. Totally, occupancy fell slightly to 91.2% with the addition of 2 inventory buildings. Finally, the 8.9 million shares that we repurchased during the quarter brought total buybacks to 48.2 million shares to date. The buybacks were executed at an average 30% discount to NAV thus far. 25.3 million of these shares have been canceled. The balance and any additional buyback will also be canceled. We also allocated capital for a quarterly dividend, which, thanks to the share repurchase, increased 15% per share at $0.43 per share.

Operator, that concludes our prepared remarks. Could you please open the call for a question? Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Vanessa Quiroga with Crédit Suisse.

[Vanessa Quiroga, analyst]

My question is regarding more on the demand, more details on the demand that you're seeing in Bajio and the rest of the country. On the one hand, you mentioned that you feel -- see good demand for industrial space in your markets. But on the other, you are not adding new projects in the second quarter in your pipeline. So I just want to understand better what you are seeing in terms of demand in the markets and your expectation for rents.

[Lorenzo Dominique Berho Carranza, executive]

[Foreign Language] Vanessa. Thanks. This is Lorenzo. Thank you very much for your question and participating on the call. Clearly, we're very close to the market dynamics, and we are seeing different dynamics in each of the markets. As I mentioned, the north part of Mexico has been very active, particularly Tijuana and Ciudad Juarez. Ciudad Juarez has been posting record net absorption numbers in the last 4 quarters. Nevertheless, we'd like to keep a very close eye to each of the markets. And while there's good dynamics, we also try to anticipate and develop [ spec ] buildings in order to anticipate the market demand.

Nevertheless, and -- but nevertheless, in the rest of the -- the rest of the markets has shown some minor slowdown compared to other years. But there's still some good demand from existing clients and existing companies that are requiring expansion space. It's probably the newer tenants that have no presence in Mexico yet that have slowed down the most. Nevertheless, even with the slowdown in demand, we still have a strong pipeline that we are trying to address, and I'm sure that we're going to be able to have some important leases in the next upcoming quarters. And -- but with that, we have also a very disciplined approach towards development. And the development, this is, yes, this is a quarter where we did not start anything. Nevertheless, we did start some things in the last quarter, and we will start some projects in the next -- third quarter in -- as long as we're able to lease-up the existing space that we have.

Remember that part of our strategy is always to have some inventory buildings in some of the markets. We believe that, currently, we have several markets that are in lease-up stage, are in marketing stage. And as long as we leave them up, we will start developing new buildings. So that's pretty much the dynamics. So let's see how the next quarters evolve. And with that, we can keep on making decisions in -- either to develop more inventory buildings or probably, only wait for build-to-suits. We can -- it's -- this is very easy, very dynamic and very easy to manage, to speed up development according to the portfolio occupancy and market dynamics.

[Vanessa Quiroga, analyst]

Okay. That's very careful. And regarding wins, do you have a view that they will continue increasing, I mean market rents? Or do you see them flattening?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Vanessa. Yes -- no -- definitely, there's still probably more demand than supply. There's pretty much limited supply in many markets. So we have seen some interesting rate -- rental rate increases in several markets, such as particularly Tijuana and Ciudad Juarez. Probably, the Bajio Region has had a slighter increase than the rest of the markets. But still, I think that demand for good space is always there, and there's not necessarily enough supply of good space. So I think that lease rates are going to be still increasing at a moderate pace.

[Operator]

Our next question is from the line of Javier Gayol with GBM.

[Javier Gayol Zabalgoitia, analyst]

I just want to understand better the, as you mentioned, the benefits for employees increased for the quarter. I just want to understand if this is something that we should expect to be at these same levels, or were these sort of a onetime thing that happened on this quarter.

[Juan Felipe Sottil Achuttegui, executive]

Javier, good morning. Thank you for the question. This is Juan Sottil. Last year, on the last quarter, if you recall, we had a pop-up in some benefits that were not accrued properly. So what we're doing is we're accruing them over the whole year so that we don't have any more pop-ups. And that's basically the increase.

The compensation level for the senior management as well for the employees is not significantly changed from last year. In fact, it has not changed for the last 2 years. But remember that the long-term incentive plan is share-based and contingent on the end-of-the-year valuation of the share. So what we do, we do an actual evaluation of the compensation given the performance of the shares vis-à-vis the level of 2 years ago. And this year, that [ actuarial ] estimate grew a little bit. So those 2 effects are the ones that you're seeing, nothing else important.

So yes, to summarize, there was no material change in compensation for the senior executives and/or the staff of the company.

[Javier Gayol Zabalgoitia, analyst]

So on a -- just to be clear, on a year-over-year basis, this would be roughly similar, just a similar number, to what we should expect?

[Juan Felipe Sottil Achuttegui, executive]

Yes, on a year-over-year basis, yes, but please consider that one important component, which is the shared compensation, because it depends on the year-end estimation of the share price, it's like an option-based estimation. So that does vary from year to year. But the plan doesn't change. The plan is the same as the last 2 years.

[Javier Gayol Zabalgoitia, analyst]

Yes, I'm referring to the -- excluding that compensation, like the one that [ does it ] directly for me is your main figure. That's the one that I'm referring to. Okay. That's it.

[Operator]

And our next question is from the line of Roberto Waissmann with Bradesco.

[Roberto Waissmann, analyst]

My question to you is some stuff on the portfolio sales in Querétaro and Toluca. If you can describe for me the portfolio, it's a brand-new deal, so I'd like to understand how you expect to continue to invest in specifically in this region, or no, if you're looking for the divestment in other regions. I think even if that's not huge, currently, your biggest vacancy or occupancy here, how do you expect this region's performance going forward?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Roberto, for the call. This is Lorenzo. We decided to -- we sold 1.6 million square feet, which were basically, in Querétaro, 1 million square feet and 600,000 in Toluca. And the decision of doing it in these markets was because, first of all, we saw that this was not going to change our remaining portfolio, and we wanted to -- these were buildings and we had built some of them before the IPO and some of them at a later stage.

So we sold -- out of Querétaro, we have roughly 7 million square feet, so we sold 1 million square feet, which is not changing materially our presence. And the same for Toluca, we only sold 600,000 out of 5 million square feet that we had in Toluca. And we decided to sell in these particular markets because we foresee some good opportunities to keep on developing and expanding and kind of repeat the same business model or the same business cycle as we have done with the assets that we sold.

We currently have, in Querétaro, we have a lease-up portfolio. We have currently a project under development, which is a Vesta Park Querétaro. And there, we are -- we have developed more than 500,000 square feet, which are currently in the lease-up stage. And in Toluca, we're currently looking for more land. As you know, Toluca has a land scarcity. And we're looking for land, and we are going to keep on developing in Toluca and similar to what we have done in the past.

So we see good demand for these markets. Querétaro has been showing interesting increases in terms of pipeline. It's a very well-diversified market between aerospace, automotive, logistics and other industries. And Toluca is also a very well-diversified market, very close to Mexico City, which, in the end, represents a good opportunity to keep on developing Class A buildings for companies requiring higher-standard properties at a very -- at proximity to Mexico City.

[Roberto Waissmann, analyst]

Okay. And just a follow -- just a follow-up question here. Looking through your current levels of cap rates running at over the 9% currently, is the 7, 7.1 cap rate, the blended cap rate you present, a cap rate you would target? Or would something closer to 8% make sense for selling your new assets -- all your assets?

[Lorenzo Dominique Berho Carranza, executive]

Great. Well, let me -- that's a very good question. Let me remind you that the way that we assess our net asset value is based on our -- the appraised value that we get from third parties. We currently have Jones Lang LaSalle and Integra Realty as part of our appraisers. And we -- our total portfolio is, roughly speaking, valued at an 8% cap rate. We sold at roughly a 7% cap rate, which is pretty much in line to what we have been seeing in other comparable transactions. And I think that also answers to -- or that's a result also of high demand from institutional-class investors who currently have very competitive cost of capital -- very competitive cost of debt and are targeting this type of assets. And we believe that this is a cap rate where it also makes sense for institutional investors to keep investing. So looking forward, we see that for this type of assets, we're going to be able to get attractive cap rates and attractive pricing.

In -- so I think that in that regard, there's going to be a good opportunity for Vesta to keep on capitalizing on our development skills, keep on growing the portfolio and at some point, still strategically keep on selling assets at attractive prices.

[Operator]

The next question is from the line of Eduardo Alvizouri with GBM.

[Eduardo Alvarez, analyst]

I would make a question on the development side. Do you have a new development target? So are you expecting this to change for the second [ half ] of 2019? And regarding that, which markets do you consider are the most valuable to develop? We are seeing the strong north, and your operating metrics show the higher occupancy. So what's our estimate for the future developments on this?

[Lorenzo Dominique Berho Carranza, executive]

Thank you. Yes, thank you, Eduardo, for your call. Definitely, we're pretty much seeing a good demand for good quality assets pretty much across all regions. As we noted, we recently leased a building in Puebla, where we have the Vesta Park Puebla, which is a very high-quality industrial park. Also we were very active in the Bajio Region. We recently had the opening ceremony for the Vesta Park San Luis Potosi, which is right across the street from the new BMW plant, which is showing some good dynamics as well. We had our opening ceremony in Vesta Park Ciudad Juarez, where we have been also very active in not only leasing, but pre-leasing some of the buildings we had on the construction, as you were able to see in our quarter -- second quarter results. So in -- and Tijuana, we still have projects currently under construction in Alamar, which is one of the most desirable submarkets in Tijuana.

So we're going to keep on being very keen on the different markets and see how the dynamics behave. But we still think that most of the markets where we have presence are going to be showing interesting demand looking forward, and we're going to keep on developing in these markets.

[Operator]

Our next question is from the line of Cecilia Jimenez with Santander.

[Cecilia Jimenez, analyst]

And congrats on the results. I have basically 2 questions. You already mentioned on pricing, but if you could develop a little bit more, basically, the stronger pricing that we are seeing. My question is does it come from a mix on the growth on that from a geographic point of view, or you are seeing, across the portfolio, increases in the different regions? I believe some are higher than others. But is it across the portfolio trend or just some -- a few specific geographies that are driving the average price much higher? That's one.

And the second question is regarding growth, M&A and divestment in terms of assets. Basically, you have already presented the 5-year plan, and the divestitures are in that horizon. So my question is are you also considering including potential M&A, you buying something on -- in the future, is that an option? Or if not, probably one of the first alternatives regarding growth? Those are my 2 questions.

[Lorenzo Dominique Berho Carranza, executive]

[Foreign Language] Cecilia, thank you very much for being in the conference. As to your first question regarding pricing, we still see that pretty much across all regions, there's opportunity to keep prices increasing for good quality assets. We think that a moderate increase throughout all regions is something easy to expect. So -- and that's pretty much what we have been seeing in the last cycle, where growth has been -- growth in market rents has been slightly above inflation in the last, I don't know, in probably 5 to 10 years. And we foresee the same happening in dollar terms, which is very important. And then we foresee the same happening in the upcoming -- in the near and mid-future.

So we think -- and we see that pretty much all over different regions and particularly because we still think that there has been a lot of discipline from developers to not overdevelop in many of the markets where we operate. And today, fundamentals are still very strong. Secondly, on your second question regarding asset sales and M&A. We believe that at 7% cap rate, we're more sellers than buyers. And I think that this is pretty much the cap rate where many of the transactions are going to be closing at in the upcoming future. We believe that we can create way more value by finding opportunities at a double-digit return on costs, 10%, 11% redevelopment return on costs. And I think that we have to remain disciplined at doing so.

Of course, whenever there's, opportunistically, there's an alternative different to that as we have done in the past, where we have been able to acquire in Tijuana a larger portfolio and sometimes, some more market transactions, single assets at above 10%, I think we're going to keep on doing so. That's why -- and -- but we have to be patient and we have to really find the markets and the opportunities that really match our strategy in terms of quality of portfolio, quality of assets, in terms of regions. So we don't see ourselves rushing out to find more M&A opportunities, and -- but we believe that there will be so there will be some in the near future. That's why having a strong balance sheet is going to be very important.

If we get a -- if we have strong balance sheet and as we have been doing lately and we have extended our maturities, our debt profile and our maturities and have low cost of debt, we're going to be able to capture more opportunities. But we got to be patient to find the right ones that really create value for our shareholders. And probably, I would take the opportunity to mention how important it is for us to make accretive investments because our main drive is to keep on growing our net asset value per share. This has been something difficult to achieve, but we have shown that we have been able to increase our net asset value per share over the years. And this is clearly what we believe is going to, in the end, drive up our stock price and in the end, will be driving up the value for our shareholders in the long run.

[Operator]

Our next question is from the line of Andrea Lara with Signum Research.

[Andrea Cid Antúnez, analyst]

I had 2 questions. First, could you give us more guidance on the Vesta Level 3 strategy? And I also would like to know why the pretax FFO margin decreased so much during the quarter and if we could expect an improvement in the following quarters in this [ matter ] .

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Andrea, for being on the call. Yes, we were very excited to be able to present the Level 3 strategy back in June in our Investor Day. Just to be brief on the successful Vesta Vision 20/20 Plan, we were able to increase our portfolio in terms of size. We were able to capture interesting opportunities through development and acquisitions over the last cycle.

Nevertheless, even 1 year before we define a new plan, which is the Level 3 strategy, which will focus mostly in having a world-class fully integrated real estate platform, as you know, currently, we're starting to recycle, cap it off through asset sales. We're managing now third-party properties, which, in this case, it's PSP who was the buyer of the portfolio, which we're going to keep on managing. So this is going to start to be an important source of revenue for the company.

Secondly, our objective is not going to be towards growing the company or the size of the portfolio per se, but [ it's ] growing in terms of net asset value and [ it's ] growing in terms of pretax FFO per share. And that's going to be the main driver of the company, to focus on profitability, to focus on this particular performance target. We think that for the next 5 years, until 2024, this is something achievable. So many of the actions that we're going to take are going to be focused towards this. We're going to keep on selling assets. We're going to be disposing $1 out of every $2 that we invest. So we think about the next 5 years where we think that we're going to be able to invest $600 million, we're going to be able to also divest accretively $300 million in the same period.

With that, we think that our -- we're going to be able to maximize total shareholder return, and that's why the Level 3 strategy is taking us to a new mature stage of the company, where we're going to take different actions to be able to maximize total shareholder return.

[Juan Felipe Sottil Achuttegui, executive]

If I can comment on your FFO question. If you look at it on a per share basis, our pretax FFO per share on the quarter was down slightly. I mean last year was -- same quarter last year was $0.0324 per share. This year, it is $0.0321 per share. Well, so we didn't have any growth. That's understandable given the fact that we dropped some sales due to the asset sales, some revenue, and our administrative cost kind of remained fixed as well as our liabilities, as our interest expense.

As we redeploy that money into new buildings, which is the intention, or accretively buy back shares, the number will regain its growth momentum. On -- and I think that the correct metric is pretax because that will make us comparable to the rest of the industry, both locally and globally.

Post-tax, well, there is a [ bite ] for the fact that we sold some properties and we will pay taxes on behalf of our shareholders. And that -- although the sales were quite tax-efficient, that explains the post-tax FFO drop. I don't know if that answers your question.

[Operator]

And our next question is from the line of Froylan Mendez with JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

I have 2 questions. Going forward, what should we expect regarding your capital allocation strategy? I mean could we expect to see a full allocation towards buybacks or even dividends if the large discount to NAV remains? That's my first question. And secondly, I guess the timing of the economic slowdown is actually positive towards the stage where the company is. What has changed in the development decision process under this new stage of the company? Do you feel comfortable having no greenfield projects at some point? Or do you still have a minimum size of GLA that you want to have under development at any given time?

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you, Froylan. Could you please clarify your first question?

[Fernando Froylan Mendez Solther, analyst]

Could we expect a full allocation of capital towards buybacks or even dividends if the large discount to NAV remains?

[Lorenzo Dominique Berho Carranza, executive]

Great. Great, Froylan. Well, regarding capital allocation, I think that we want to keep on the same way that we have done in the past. We want to keep on buying back shares, whatever we find attractive. As we did this quarter, we bought almost 9 million shares. And I'm pretty sure that we're going to keep on -- at these price levels, we're going to keep on buying more.

Remember that we have a $100 million buyback program, which we have executed, I think, almost 60% of it. So we can keep on buying almost $40 million more. And I'm pretty sure that we're going to keep on being active on that because of the price levels, where we see the company is attractive for shareholders.

Secondly, I think that in terms of dividend, we have a very good dividend policy. And I think that the level of dividends that we have today is also very attractive for investors. We don't want to be the one with the highest dividend. As we have noted in the past, we believe in total shareholder return, and total shareholder return is comprised of dividend and stock appreciation through -- and I believe the net asset value increase per share is driven mostly from capital -- from the capital appreciation. So therefore, we still want to keep on delivering dividends, but probably at an increase of roughly 5% per year, roughly speaking. There's no particular policy to that. We will revise that every year. Nevertheless, we think that, today, we already have a very, very good dividend for shareholders to have an attractive return.

And secondly, to your question regarding development, we think that it's the same strategy as we have kept in the past. As long as we see demand, we're going to keep on developing. We think that we have, currently, very well-located land reserves in Vesta Parks, which is -- which has been our main target to develop Vesta Parks in different regions. So as long as we see demand, we will keep on developing, and as long as we lease-up, we're going to start new projects. So we're going to be very cautious on how much we develop. Clearly, we don't want to overdevelop. And if there is an opportunity, we will try to anticipate to the market.

So we -- the good thing about industrial real estate development is that the pace of growth is very manageable. Currently, all of our portfolio, if you could see our same-store portfolio, which is pretty much the largest part of it, is at 98% occupancy. It's very high. Pretty much the only buildings that we have currently available are the ones that had been recently developed, which are in the natural lease-up stage. So as long as we see more leasing activity, we're going to keep on developing more buildings. So there has not been [ any in our strategy ].

[Fernando Froylan Mendez Solther, analyst]

And in that sense and if it comes to a situation where you see very good lease-up activity, but still, these sort of discounts to NAV, where will you choose to allocate capital, to development or to buy back shares?

[Lorenzo Dominique Berho Carranza, executive]

With -- it's not one or the other. We believe that both of them create value for shareholders. So that's why we don't have to go to one or the other. We can still do both. Remember that, currently, we have -- since we did an asset sale of over $100 million, we have good cash in hand so we can use our resources to any or the other as long as it creates value. And that's what we have been doing in the past.

[Operator]

Our next question is from the line of Alan Macias with Bank of America.

[Alan Macias, analyst]

Just one question regarding e-commerce. What is the demand you're seeing in that segment of the business? And if you can remind us, what is your exposure to that sector? And what is your strategy in order to take any opportunities you're seeing in that logistics segment?

[Lorenzo Dominique Berho Carranza, executive]

[Foreign Language] Alan, thank you very much for being on the call. This is Lorenzo. E-commerce is clearly the main driver of growth for industrial real estate assets globally, mostly in the developed world, particularly in Europe, it's U.K., Germany and other larger countries. The U.S. has had its own dynamic, particularly with Amazon, which takes almost 1 out of every -- probably 1 of every 2 spaces is taken by Amazon. We believe that Mexico is still lagging the developed countries, and we think that there has been some e-commerce opportunities. Nevertheless, we're still some years behind. And what we have been doing in Vesta is really trying to be close to many of these players and to try to identify what their own strategy might be.

Mexico currently own -- e-commerce represents, out of all retail sales, represent, roughly speaking, 3%, whereas in the U.S., represents 14%, which is a major change. So we have been close to some of these larger e-commerce players. I think they have, themselves, have not finalized their own strategy towards entering Mexico. But I'm pretty sure that as long as they require expansion to the whole -- across all different regions and as long as they require good quality space in good locations, I'm pretty sure that there could be opportunities for Vesta to keep on growing in the e-commerce sector.

Nevertheless, the analysis at Vesta has is that even if we grow at an important pace our portfolio in terms of e-commerce for the next 5 years, we think that it would still be something in the range of not more than 10% of total portfolio. But because in the end, we believe that other industries are also going to keep on growing, which is logistics, which is aerospace, which is medical devices and of course, automotive industry, which is -- which are largest in terms of size, in terms of economically. And there will be also good demand from these other industries.

[Operator]

[Operator Instructions] Our next question is from the line of Javier Gayol with GBM.

[Javier Gayol Zabalgoitia, analyst]

You mentioned that at certain cap rates, you will be more sellers than buyers. I was wondering if you can give us a little bit of color as to how do you see the buyers' market, which players are entering that market, and do you see enough potential on the buyers' market to continue to invest in the -- on the portfolio going forward.

[Juan Felipe Sottil Achuttegui, executive]

Javier, well, look, it is a market, and you know real estate, there's opportunistic -- there's windows of opportunity. Right now, with the window of opportunity of demand of industrial real estate, professional institutional investors globally are keen on having good quality assets with good names, with a long-term lease, and they are keen on penetrating Mexico. We happen to have assets of that kind. So we will be keen on tapping in them.

It is a window, it is an opportunity, and we will be taking advantage of that, as Lorenzo said, to fund our $600 million deployment over the next 5 years. Now I don't see Vesta at all buying any type of properties at cap rates hovering around 8%. That is not our strategy. Our strategy is to create value by developing properties at cap rates, returns on cost higher than 10%. So we will not be buying properties at cap rates of 8%, 7%. That's not our strategy. And we will be keen on being close to the private market, where these global entities see a lot of value in good quality names, good buildings and long-term leases. There's a lot of value for them because of the way they have managed their portfolios, and I think it's a good opportunity to tap.

[Operator]

There are no further questions. I would now like to turn the call back to Mr. Berho for concluding comments.

[Lorenzo Dominique Berho Carranza, executive]

Thank you very much, everybody, for being on today's call. Following the success of our Vesta Vision 20/20 Plan, we have set out a new growth plan under our new 5-year Level 3 strategic plan. We aim to become a best-in-class fully integrated real estate company through discipline and efficient capital allocation, smart asset recycling and portfolio optimization, all while continuing strengthening our balance sheet and expanding our sources of funding.

Importantly, we're self-advised, self-managed, avoiding conflicts of interest. The recent sale of a portfolio and their refinancing, both of which having had financial flexibility and balance sheet strength, clearly demonstrates our ability to execute in our Level 3 strategy and ultimately achieve our vision and ambitious 2024 growth targets.

Before ending the call, I would like to congratulate Juan and our Investor Relations team as Institutional Investor magazine ranked both as well as our ESG program first among mid-cap real estate companies in Latin America. We're honored to have the best management team in our sector. Together, we remain focused on raising the bar for Vesta's future endeavors.

Thank you again for joining us on today's call and for your ongoing support for our company.

[Operator]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.