Corporacion Inmobiliaria Vesta SAB de CV

BMV:VESTA

Earnings Call Transcript 2020-Q3

[Operator]

Good morning. My name is Doug, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Vesta's Third Quarter 2020 Earnings Conference Call.

[Operator Instructions]

And as a reminder, today's call is being recorded. I would now like to turn the call over to your host, Ms. Maria Fernanda Bettinger, Vesta's Investor Relations Officer. Please go ahead.

[Fernanda Bettinger, executive]

Thank you, Paul, and thank you, everyone, for joining our call to discuss Vesta's third quarter 2020 financial and operating results. With us today from Vesta are Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, Chief Financial Officer. Following the prepared remarks, there will be a Q&A session, during which we will answer your questions. Yesterday, we issued our earnings press release after market close. This release is also available via the Investors section of Vesta's website. Before turning the call over to management, I would 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. These are included with our report we file with the Mexican Stock Exchange.

In particular, significant uncertainty remains about the duration and content impact of the COVID-19 pandemic. This means that the results could change at any time, and the impact of COVID-19 on the company's business results and outlook is a best estimate based on information available as of today's date. Statements made on this conference call should be considered together with cautionary statements and other information contained within the Vesta earnings press release dated July 23, 2020, and with the most recent regulatory filings for 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.

[Lorenzo Dominique Berho Carranza, executive]

Thanks, Fernanda. Good day, everybody, and thank you for joining our results call. The global economic environment remains tenuous, as I'm sure everyone on this call is well aware. In setting our Level 3 strategy early last year, we had anticipated that Vesta's economic and political environment would become more complex and challenging although not to this extent. Nonetheless, we understood at the time that we needed to adopt a more defensive posture, building in higher levels of resiliency at our company. As part of our strategy, we reinforced our balance sheet and increased financial flexibility. Also during the early stages of the health crisis, we paused the development of spec buildings with an emphasis on leasing up our existing property portfolio and, of course, lease renewals. Today, our focus still remains more on profitability than growth as well as maintaining the integrity of our operations by carefully protecting the health and well-being of our employees and proactively managing risk.

Vigilance is still paramount at every level of our company. These prudent measures, combined with Vesta's solid long-standing base of mostly global blue-chip tenants, mean we remain well-positioned to better weather the current crisis. It also means continue to be strategically positioned to capitalize on the long-term trend of global companies consolidating their operations by either shifting them to or expanding within countries like Mexico.

Our country continues to offer sustainable competitive advantages, such as its proximity to the United States, lower operating expenses and abundance of the skilled labor and engineering talent at low cost. In the meantime, our strong position is also enabling us to capture near-term opportunities such as the ongoing shift in consumers' buying habits towards more online purchases. This shift is expected to create more opportunities in markets where we own land that offers last-mile advantages such as in Guadalajara, but also in Monterrey, a new geographic market for us, where we recently signed another anchor tenant in the e-commerce sector.

The signing follows that of Mercado Libre earlier in the year and demonstrates our ability to diversify in terms of geography and the sectors we serve. Our positive long-term outlook is tempered though uncertainty remains. With deferring predicted outcomes, it is clear the world has a long way to go to full recovery from the effects of the COVID-19 global pandemic.

Despite Mexico's own complex political environment, our sector of its economy remains solid, with 95% of Vesta's clients now operating at pre-crisis levels, albeit unevenly across industries. The strength of Vesta's tenant base is reflected in our solid third quarter financial results, which are tracking well to our revised full year guidance. During our previous earnings call, we discussed granting rent deferrals for selected clients between August and year-end. I'm pleased to report that all of them have been fulfilling their obligations.

Total collections of COVID-related deferrals during the quarter were 100%. In fact, at the end of the quarter, we have collected nearly 70% of total amount of deferrals. That said, uncertainty prevails, including the expected pace of the world's economic recovery, which could be hampered further by the growing momentum of the pandemic's second wave as can be seen in Europe currently. Another unknown is policy responses implemented by governments, which have varied country-by-country and even within each one. Consequently, tenants are -- prospective clients have remained cautious and are deferring leasing decisions, resulting in only moderate growth in new contracts during the third quarter. Nevertheless, our leasing pipeline is solid while the supply of buildings across our markets remains limited with low vacancies, helping maintain a healthy pricing environment.

During the quarter, our leasing activity was 774,000 square feet. Of which, 105,000 square feet was new contracts with logistics and repeated e-commerce companies, 214,000 thousand square feet in growth from new projects and 455,000 square feet of lease renewals. Maturity levels declined to just under 1% for this year and 6.5% for next year 2021. The quarter's moderate leasing activity led to occupancy of 90.5% in our total portfolio, down sequentially from 92.3%. Also impacting our occupancy was the expiration of 3 leases in the Central and Bajio Region that were not renewed as well as 2 buildings from one client in Tijuana that were recovered through a bankruptcy.

For both these buildings in Tijuana, the losses have already been accounted for in our provisions for doubtful receivables. And we are reasonably confident that the buildings will be re-leased given the quality and location as well as Tijuana's healthy market dynamics, with record low vacancy rates. Although we suspended spec building at the second quarter, we still maintain an active development pipeline, a mix of pre-lease buildings, build-to-suit facilities and tenant expansions. This includes 2 new projects during the quarter, one being a pre-leased 280,000 square foot spec building for a new e-commerce client in Monterrey and a 44,000 square foot expansion for an existing client. That increased our development portfolio to 1.9 million square feet, nearly 72% of which is leased and with an expected weighted average return on cost of 10.6%.

It's important to note that this has been the strongest development pipeline with a very high number of pre-lease we have seen since the third quarter 2018, which underpins our ability to adapt according to market conditions. That leads us to NAV per share, which increased 4% versus last year. Regarding our third quarter financial results, revenues increased 5% to $37.5 million. Our NOI and EBITDA margins are also tracking guidance at 94.7% and 85.6%, respectively.

The margins reflect a disciplined approach to administrative expenses and the strict cost controls that we have implemented in the spring. Compared to last year's quarter, pretax FFO per share increased 6%, in line with the goals of our Level 3 strategy. Before turning the call over to Juan, I would like to highlight that we recently signed an agreement with a data center company that will purchase 206,000 square feet of land in Queretaro. A $4.5 million sale is subject to government sales licenses, but this is largely a formality. Asset recycling is a major component of our Level 3 strategy, although the focus is on our portfolio of facilities. The low yield environment that still prevails across the world's capital markets continues to support cap rates in Mexico's industrial real estate sector.

As such, institutional investors are still engaging us from time to time, and we'll look to sell whenever the right opportunity arises, but only then. As regards to capital allocation, although our share repurchase program remains on hold in favor of cash preservation, we intend to continue providing a dividend based on our current performance outlook as was seen also in this particular quarter. That concludes my prepared remarks for now. Over to you, Juan.

[Juan Felipe Sottil Achuttegui, executive]

Thanks, Lorenzo, and good day, everyone. I will begin with some detail on our top line growth during the quarter. As Lorenzo mentioned, revenues increased 4.6% to $37.5 million in the third quarter. Most of this growth results from rentals of space that had been vacant in the previous year's quarter, while these results were partially offset by a decrease related to expired leases agreements that were not renewed. In his remarks, Lorenzo has emphasized the strength of Vesta client base. The resiliency of our business is also due to our mostly dollar-based revenue stream from export-related companies, which rose to just over 86% of total revenue from 85% in the third quarter 2019. Operating costs increased 36% during the quarter due to higher cost at our occupied and rental properties, although mostly the former.

Costs related to investment properties generating rental revenues increased 17%, mainly due to our allowances for doubtful accounts, which was $3.3 million at the end of the quarter and up from $2.9 million at the end of June. Nonetheless, it is important to notice that this cost decreased 22% from last quarter as a result from a decrease in the doubtful account provision as tenants will bill the delayed payments as well as the favorable outcome of the legal claim against the tenant in Tijuana. Nevertheless, because of the economic climate remains tenuous, we are still carefully monitoring our receivables and maintain a robust collection process. Higher year-over-year operating costs primarily accounted for 58 basis points decline in our operating income margin to 94.7%, and this was 180 basis points higher from the second quarter 2020 and which is helping us track our revised annual guidance of 92%.

In absolute terms, net operating income increased 4% to $35.5 million. During the quarter, we continued reducing administrative expenses, which rose slightly on a sequential basis due to the peso appreciations but decreased about 10% versus the last year quarter. That helped us to increase EBITDA by 6.2% to just over $32 million, while the corresponding margin expanded 126 basis points year-over-year to 85.6%, and is helping us track guidance on these measures as well.

Moving to other income. Interest expense in the third quarter increased little over 9%, which reflects a higher debt balance than last year, although it is one with better terms overall. For the quarter, we reported a net FX gain of $7.7 million compared to a loss of $1.5 million last year. This shift explain yesterday's earnings release. The quarter gain on revaluation of our investment property was $4.3 million compared to a gain of nearly $40 million in the last year's quarter. The smaller gain in this quarter was due to the higher vacancy level, the discount rates applied, exchange rate and, of course, a weaker economy versus last year. The smaller gain, although with other -- the other factors I just covered, mostly account for the $1.8 million in other income.

Our third quarter pretax income was $32.7 million. About 1% below the 2019 quarter, our pretax FFO was nearly 5% higher at just over $22 million. As Lorenzo noted, we have an active development pipeline made up of re-leased buildings, build-to-suit projects and tenant expansions.

Although our third quarter CapEx was less than half last year's level at approximately $15 million, we continue to take a cautious approach. Further, we expect to finish the year with a solid cash position. At the end of the quarter, our debt balance was approximately $840 million, nearly all of which has a long-term tender. 100% of our debt is dollar denominated, and 85% bears fixed interest rates. Lastly, on debt, we finished the quarter with a loan-to-value ratio of 37.9% while the net debt-to-EBITDA was 5.8x.

Moving to the asset side of our balance sheet. The total value of our investment property portfolio was $2.06 billion, up 3.5% from year-end 2019. The GLA of our total portfolio was 30.2 million square feet with no additions during this quarter. Occupancy declined 180 basis points to 90.5% due to the net negative absorption as Lorenzo explained earlier. Our stabilized portfolio at the end of the quarter was 29.6 million square feet while occupancy was just shy of 92%, which compares to 93.9% in the second quarter 2020. And finally, our land bank decreased 1.2% quarter-over-quarter, 41.3 million square feet.

That concludes our review of Vesta's third quarter performance. We'll be happy to take your questions now. Operator, please open the call.

[Operator]

[Operator Instructions] Our first question comes from the line of Adrian Huerta from JPMorgan.

[Adrian Huerta, analyst]

My question has to do with -- I don't know what you said, Juan, on the guidance. The NOI margins seem to be, in the first 9 months of the year, approaching close to 94%. I think you have a guidance of around 92%. So just wondering what are you expecting for the fourth quarter? And why you're not revising the guidance upwards? And also with that regards, operating expenses, which have been coming down on a sequential basis for the last 2 quarters. I assume that there are some expenses that are going to be back. But can you tell us just a little bit what has happened on the expense side? And if there has been any cuts that are permanent or not?

[Juan Felipe Sottil Achuttegui, executive]

So for the question, I have to say. Look, NOI was a [ little bit stressed ] on the beginning basically because of our careful approach to accounts receivable. As I have mentioned in the past, we value a strong balance sheet above all. And as we forecast, we have been pricing to market, so to speak, our receivables since the last quarter of last year. That continued in the first quarter and had some more to do on the second quarter. I believe that we are comfortable with the levels of accounts receivable reserves that we have right now. In fact, at this quarter, we have recovered some of our marked down receivables because of our efforts to talk to our clients. And that's a good sign under the current circumstances. So I believe that NOI will behave as on a more -- of this manner for the rest of the year and indeed, over the next quarter. As I always mentioned, COVID has been with us for 6 months, and we believe it's going to be with us for a little bit more. So we will want to be watchful. We're going to be watchful of any development. Collections are doing good, as we -- as I mentioned, on a write-up. And so we feel comfortable with what we have been doing right now.

As for the administrative costs, we have been incredibly strict over the last 6 months. We have adjusted our budget several times, and we will be very watchful to administrative cost uptick. And I believe that the gains we have made on spaces are largely going to be repeatable next year. We still need the companies growing. Look at our growth rate over the past couple of years. We may need to hire a couple of more people, which is the largest part of my administrative expenses. We have stopped all hiring, as we said on the last conference call, but we are watchful of the stresses that we are making on our operational levels. And we keep a tight look at those and we'll react accordingly.

[Adrian Huerta, analyst]

So we should not see the NOI margins behaving differently in the fourth quarter versus what we have seen in the first 9 months, right?

[Juan Felipe Sottil Achuttegui, executive]

It's going to be in line. We're not going to be taking more accounts receivable reserves. So I think that they're going to be in line with this quarter. If they may tweak a little bit, it was because we stopped doing reserves on the middle of the quarter. So there is a couple of uplift on the last quarter of this year.

[Operator]

Our next question comes from the line of Vanessa Quiroga with Crédit Suisse.

[Vanessa Quiroga, analyst]

My first question is regarding Tijuana and the assets that you were able to repossess. Where are they located exactly? And are you already getting interest from potential tenants? And I guess, I would ask you if you would be willing to sell any of your assets in Tijuana, given how strong the appetite is? And the second question is regarding the data center, the land that you said -- that you sold to the data center. If you consider this to be a onetime event or would you be looking to do more of these transactions in your part?

[Lorenzo Dominique Berho Carranza, executive]

Regarding your first question on the properties in Tijuana, we were able to repossess the 2 buildings from a toy manufacturer which going bankrupt during the year. I'd say these 2 properties are located in the Pacifico Industrial Park, industrial submarket, which currently has an incredibly high occupancy level. And since we recently repossessed, we already have an important line of potential prospects to lease up the properties. It is important for us to, first of all, to -- as we do every time we recover a building, an empty building, we put it in shape. We have it ready, and then we lease it up. So we feel very confident that we're going to be -- we're going to be able to lease it up, particularly in a very strong market. As you know, Tijuana has been seeing an important increase in rents because of the lack of supply and the high demand. And I think that because of that, we're going to be able to capitalize with a potentially good tenant, a good lease and a good leasing rate. One of the buildings was recent -- was built in the last, I think, 3 years ago, so it's almost brand new. And the other one, it's a second-generation building, but we believe that the type of the building is going to be very well taken by the market. And hopefully, we can have some good news soon.

As to your question regarding sales. As you know, we have a strategy to keep on selling real estate assets in the -- which is part of the Level 3 strategy. We are currently analyzing what are the best options to sell assets. And definitely, if there is an opportunity to sell and its timing permits, we will analyze if Tijuana could be also a potential area of recycling capital. We're open to that. And we have currently over 5 million square feet in Tijuana.

And regarding your second question on the data center in Queretaro, we sold this piece of land and we believe that we're going to be able to keep on selling more land, particularly for projects where we normally would sell only land if it's not a developer. And in this case, it's a data center, it's not part of our business model to do a build-to-suit projects for data centers, which have a high complexity and high specialization. I mean, they're normally tend to be, in some cases, 10x larger investment per square foot. So therefore, we believe that we can be capitalizing value through asset through land sales. It will not be a one-off transaction. We think that we can be repeating this business. But of course, it will have to be limited so that we still have enough land for future developments for projects that we want to accomplish, which match our portfolio investment thesis, projects, build-to-suit projects or spec buildings. And I think that therefore, we will be limited at some point into how much land we might sell. But definitely, we're going to see more of this. We see a very high demand of data centers coming into Mexico. This was already -- the trend was already before the pandemic. But clearly, with the pandemic, there's just so much need for technology infrastructure in the country. And definitely, data centers are the ones that are playing a very important role in that regard.

[Vanessa Quiroga, analyst]

If I can follow-up there, it's very interesting. So if you sell more land, you think it will likely be in Queretaro or are you considering your whole portfolio? And also, can you give us a range of the cash-on-cash return or any idea of value over appraisal that you are willing to do this kind of asset recycling? And I guess some -- a question linked to that is if you always will sell developed land? Or are you willing to sell raw land?

[Lorenzo Dominique Berho Carranza, executive]

Sure, Vanessa, I will. I think it's important to give detail on that. Remember that in Queretaro, we developed the Vesta Park Queretaro, which has -- which is comprised of 100 hectares. We sold 5 hectares, which is 5% of the total project, which is a low number. Therefore, we feel comfortable if we can be able to sell approximately 20% of that particular portfolio, will be -- we will still be in a good position to keep developing. And regarding -- so Queretaro, we think we have some land to develop, and we think that margins for land sales could be in the, let's say, 50% to 100% margin on cost. So in the end, I think that this is very profitable. Nevertheless, of course, the land that we have is -- its main focus is to be developed so that we can keep expanding our portfolio and keep on getting attractive returns through development. Are we able to sell land in other places? I think that we will have to see project by project. But definitely, in markets where we have a bit more land than expected and does not jeopardize our development projects, I think we might be open to sell land at a margin.

[Operator]

Our next question comes from the line of Carlos Peyrelongue with Bank of America.

[Carlos Peyrelongue, analyst]

Two questions, if I may. First one related to demand for new developments. If you could give us an idea of how demand is, is it picking up? Is it stable? And also more importantly, if you could give us a sense or some color as to where is the region or country that you're seeing the demand coming from and what industry? That would be the first. And the second, if you could also comment on the lease spreads that you're achieving on contracts that are being renewed in the third quarter and this year, that will also be helpful.

[Lorenzo Dominique Berho Carranza, executive]

Carlos, thank you for being on the call. Regarding your last question on lease renewals, the data that we have for this year for renewals is that we have been able to lease at a spread of 2.5% from the in-place rent to renewal rates. This is a good number. It's way above inflation. And remember that this is in U.S. dollars. We have been able to renew 1.8 million square feet throughout the year. So we see this as a positive trend that the market is absorbing at higher rates and pretty much across the country. Secondly, regarding on your first question on new development, it's interesting how the pipeline on the second quarter when the pandemic hit was completely put on hold. And little by little, the pipeline has been increasing from second quarter to third quarter, and we believe that, that particular pipeline will keep on increasing, particularly for end of the year and a lot for 2021. The only thing that we have also been seeing is that many -- given that there's a large pipeline that has -- that is partly following the trend from near-shoring opportunities as well as the USMCA being signed, we have seen that some of the projects or some of the companies have delayed their decisions to close transactions up to end of the year or even 2021.

In our opinion, it's regarding -- it's part of the pandemic uncertainty and the volatility that we are still seeing on the market. So I think that we have to be patient. We think that 2021 could be a very strong year, particularly if it considers that many of the companies that want to come to Mexico and if you think about near-shoring trend, it doesn't -- they don't make decisions overnight. It's -- they make an analysis, they make a study. It's a little bit longer process. We have seen that in the past. And therefore, we think that a process of 6 months to 1 year is something that might be very normal.

Regarding regions, clearly, we see that, as I mentioned, Tijuana is currently one of the strongest markets, particularly in even new sectors that have been arriving to Tijuana and medical device industries as well as electronics and also even e-commerce. And this is a similar situation to Ciudad Juarez, which have lower vacancy rates. As to the Bajio region, it is interesting that the automotive center has recovered at a very fast pace.

We believe that it's related to the backlog of production that was generated from this top of the -- when the pandemic started. And we have seen also a pickup in demand of car purchases in the US. However, there has been some adjustments in the automotive industry in terms of platforms, more focused toward SUVs and less towards sedan. So that will bring another opportunity since there will be probably more suppliers that we'll have to supply for these particular new platforms.

Currently, the automotive industry and the plants are at over 80% occupancy levels or utilization levels, which is a very good number considering that they had to really stop at the beginning of the pandemic. So that's driving also good demand in the Bajio. And as I mentioned, I think that e-commerce is clearly going to be an important player, not only in strong markets such as Mexico City, Guadalajara and Monterrey. But also, we might be seeing more e-commerce projects in other regions in Mexico. We recently closed a deal in Tijuana for an e-commerce company, and we're pretty sure that there will be more leases in markets, for example, in the Bajio region or for markets like Puebla, where there is also high demand and high demand for e-commerce projects.

[Operator]

Our next question comes from the line of Pablo Ordóñez with Itaú.

[Pablo Ordóñez, analyst]

Congratulations on the results. My question is on the e-commerce front. Lorenzo, can you comment on the economics of [ new collection ] in Monterrey and Guadalajara? Are they pesos, dollars? What is it's maturity and expected return on this type of projects? And also, how active do you see the pipeline of these type of channels in the coming quarters?

[Lorenzo Dominique Berho Carranza, executive]

Sure. Absolutely. I think that we have a very disciplined approach towards getting attractive and accretive returns on our development projects. We are still seeing returns in the 10.5% to even above 11% return on cost. That's something that we believe we might still see in the upcoming future. As you have seen in our development pipeline, we are -- we currently have a very high pipeline and 1.8 million square feet under development. And interestingly, it's 70% of it is leased.

If you compare that number to last year, third quarter of 2019, we had half of the development pipeline and we had less than 10% of leased buildings. But we had a more aggressive strategy towards spec buildings. And currently, our strategy is strongly based on pre-lease buildings, and the sign of that is reflected in our pipeline. So it's interesting. And a little -- it is a mix -- it is still a mix of dollar and peso leases.

As you know, we're very careful trying to maintain a high level of dollar leases, 85% of our portfolio is dollars. However, we have a bit of room to take from time to time with great companies. Some peso leases too are going to be balanced out. But currently, our return on cost for the development pipeline is at 10.6%. We believe it's a great return on cost, particularly considering that there is a very low risk as to the leasing period and the absorption period. So we feel very comfortable, and we hope to maintain this is good returns in the -- for upcoming development projects.

And probably lastly is how careful we are at really getting great companies in our portfolio. We have learned from the past. We learned from some other deals. And I think that's making us being even more disciplined and not only lease because we need to lease. It's we want to make lease agreements long-term with great companies.

[Pablo Ordóñez, analyst]

Very clear. And if I may do a follow-up question. Do you think that this e-commerce opportunity is mainly focused on these metropolitan areas? Or should we also expect to see type of deals in secondary cities like [ Oaxaca de Juarez ], Queretaro, Guanajuato, for instance?

[Lorenzo Dominique Berho Carranza, executive]

Absolutely. I think that's the next trend that we are -- that we're going to be seeing every time more that our e-commerce players do not want to be only in Mexico City. They want to expand. They want -- and they want to expand rapidly into other regions and other markets. Therefore, we have -- and I'm glad that we define as part of our Level 3 strategy last year, to have e-commerce as part of our portfolio. And I'm really happy that we have been increasing our portfolio, and we have extended our relationships with many of these e-commerce companies. And I'm glad that Vesta is currently being considered as one of -- as a very important player in the e-commerce sector for industrial space. Remember that we currently have the largest e-commerce project under development in Mexico. And that's -- the other e-commerce players know that, and that's why they want to know where else we can be helping in their growth strategy throughout the country. And I'm glad that we're going to be able to do so.

[Operator]

Our next question comes from the line of André Mazini with Citigroup.

[André Mazini, analyst]

It is on the contracts that were not renewed, right? You mentioned 3 contracts not renewed. So wanted to understand which types of tenants did not renew, any pattern there? Or if they were either shrinking their operations or they moved to different locations, so any color you could give on that front? And also, on the other hand, on the development pipeline, so 70% pre-lease, which is pretty good, definitely. Also if you give -- a similar question, some color on the types of tenants there are pre-leasing. So the bulk of the development pipeline is BTS, right? So which types of tenants, is it driven by e-commerce, as you said? Or is it near-shoring that's driving the demand for the development pipeline?

[Lorenzo Dominique Berho Carranza, executive]

Basically, regarding your second question on the development pipeline, as it is most -- in most of the cases, based on the -- I'm sorry. Do you hear me well? Okay?

[André Mazini, analyst]

Yes.

[Lorenzo Dominique Berho Carranza, executive]

So most of the cases, it's e-commerce -- e-commerce operations in 3 of the cases. Well, actually, in 2 other cases. One of them is the second phase of Mercado Libre in Guadalajara and the other one is now in Monterrey. The other one is a project for Pepsi in Puebla, so this is consumer goods. And the other ones are related to the [ op ] industry, recreational vehicles. And the other one is related also to a [ consumer ] goods expansion. So we are seeing a broad base of different industries. And I think looking forward, we are still going to be seeing a diversified industry -- industries in the -- in our growth pipeline.

And regarding the projects that did not -- have been used, it's interesting that first of all, these 3 contracts didn't go onto treaty until expirations. They did pay on time until the last day. In one of the cases, they reduced their footprint, and they are still a tenant of ours, and we extended their lease. And this is one building that we currently operate in Toluca, which is a very strong market, and we feel comfortable that it will be leased. And the other 2 projects, one of them is related to logistics, it was a short-term -- a shorter-term period. And the last one was on a [ plan ]. It was a bit of [ copper ] operation. So it's -- we think that our companies are just being cautious in what they want to achieve.

This is, in our opinion, this is a regular business cycle. We have to be open to whenever we receive buildings. Let's have pay as soon as possible so that we can be able to lease them up. And I am hopeful, I really think that we're going to be able to lease them up in attractive -- even at attractive, in some cases, higher rents than they were previously in place.

[Operator]

Our next question comes from the line of [ Anton Morgan Cotter ] with GBM.

[Unknown Analyst]

My question is related to the cash balance. Do you -- do you plan to prepay all your debt anytime soon? Or are you keeping it just like as [ powered ] maybe to acquire speculative buildings or something related to that, if you could provide some color on that aspect?

[Juan Felipe Sottil Achuttegui, executive]

Look, our cash balance, we feel comfortable with our cash balance. As you know, we increased our debt, pooling the emergency lines to be ready to confront any situation given the pandemic. We are not going to prepay those lines. I need to have more data points, so companies continue to pay on time. That has been the case for the last -- since the pandemic began. We will be cautious. I will keep the cash in-house. And I don't feel the need to prepay those lines. The lines mature in a couple of years, so they are relatively low-cost lines. Incrementally, they don't add much to my expenses. So I think a cautious approach will be on order for the next -- at least for the next quarter. We'll take it from there.

[Unknown Analyst]

Okay. And with respect to acquisitions or something like that, is -- in the speculative sector, do you see you as doing something like that anytime soon or also continue with the pipeline you have already?

[Juan Felipe Sottil Achuttegui, executive]

Look, as Lorenzo mentioned, I think that I would -- we would like to underline the capacity of Vesta to shift the strategy as the environment changes. Right now, the environment call us to be aggressive on pre-lease buildings, on build-to-suits, and we're going to continue to be cautious on spec development. I think that's prudent. You never go wrong to be prudent on a market like this one, and we will continue to be so. So that's what you can expect. Lorenzo also -- Loren underlined the strength of the return on cost that we're getting on businesses and that's very good. So I think that Vesta is a flexible company. We have a flexible strategy, and we will continue to adapt the environment.

[Operator]

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

[Francisco Suarez, analyst]

A very quick question related with the returns that you may expect from e-commerce buildings. Do those -- any difference in the returns that you may get out of those investments? And secondly, on that regard, how competitive your locations are in the cities of Monterrey and Guadalajara to precisely attract more business on e-commerce? And what type of buildings do you think you may be attracting? Are we talking about fulfillment centers for the typical scale of those markets? Or are we talking about last mile or complementary buildings? Thank you so much, and congrats on the results.

[Lorenzo Dominique Berho Carranza, executive]

Definitely, I think that -- you might remember when we did the acquisition of the 2 plots of land in Guadalajara and Monterrey, this was part of our Level 3 strategy, which was to enter certain markets where we believe we could have an advantage, particularly because of the quality of the project that we might develop. And this was the case in both projects. We acquired land to cater the logistics sector, the e-commerce sector. And very rapidly in less than a year, we have been able to lease up -- even before development starts, we were able to lease up 4 e-commerce projects. E-commerce projects, in this case, are being adopted to really, I would say, generic logistics facilities, very much in line to the typical spec building we would -- we could develop. They normally require a good space for truck yards, for maneuvering areas, for higher buildings. So that was already a standard in Vesta. So basically, we have not really changed that much our strategy towards generic logistic facilities. E-commerce, now having said that, we believe that the returns that we still have to focus are in line to what we have been doing in the past. For both Guadalajara and Monterrey, returns are in the 10.5% to 11%. And I think that, that's something that we want to keep the same discipline. We're learning from the sector.

We're learning the different type of buildings that you just mentioned: last mile, sortation centers, fulfillment centers. And we need to understand which one will cater to which. And in this case, it's Guadalajara, it is a fulfillment center. It is, as I mentioned, it is the largest project for e-commerce being developed in Mexico for the moment. It's very impressive, and it even has an expansion area. So these are definitely long-term investments, and these are going to be strategic buildings for our clients in the e-commerce sector.

[Francisco Suarez, analyst]

Interesting. So thank you for that wonderful answer. So that means that there's not much of TIs involved in these projects, isn't it? So that is perhaps one of the factors that explain why returns are so similar with other typical persons you engage with?

[Lorenzo Dominique Berho Carranza, executive]

The -- you are correct. We regularly -- I think in both cases, in both cases, it's mostly the -- generic part of the building, with -- I wouldn't say no TIs, but let's say little tenant improvements, the basic tenant improvements. Very importantly, this building, the clients per se are doing huge investments inside of the facilities because they are going to put a lot of automation inside of their buildings, a lot of technology, and therefore, I think it's a combination of what we develop as a shell building and what they are investing in not only in TIs but also in part of their operations. But yes, if you look at the numbers per square foot, they're pretty much in line to a generic logistics facility.

[Francisco Suarez, analyst]

Thanks so much, and congrats again. Take care.

[Lorenzo Dominique Berho Carranza, executive]

And I'll be glad next year at some point if the sanitary restrictions permit to invite you to the projects in Guadalajara and Monterrey. And they're really fascinating projects and I'm sure that this is going to be part of a great portfolio that we are developing of industrial parks in different markets.

[Operator]

[Operator Instructions] Our next question comes from the line of Froylan Mendez with JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

So Lorenzo, where are you willing to do the big bets on land acquisitions? And what does this imply in terms of annual investments? And secondly, is there a big difference in the returns that you are able to extract given where land prices are today versus what you were used to in the past?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Froylan, for being on the call. We -- so land acquisitions are clearly part of the strategy of the company. Nevertheless, I think that land acquisitions, you have to do them on time so that you can really capture on the opportunities. I think that currently, the opportunities that we are discussing, it's because we were able to identify where we wanted to buy land. We were able to negotiate pipeline and put the infrastructure in place so that we can be able to be awarded on these projects, which, as you might know, there is high competition for this type of buildings. So I think that for us, being able to buy the land back in time is giving us a great competitive advantage.

As of today, we are -- we feel comfortable with the amount of rent that we currently hold in our portfolio. We currently have approximately 100 and -- let's say, $120 million -- sorry, $130 million of land we can keep expanding in markets. We have enough land to keep on developing in markets such as Queretaro. We still have land for Guadalajara. We still have land for even for Tijuana where hopefully, we might start another building soon because how hot the market is. So I think that we were able to buy in our brand in many of these markets.

There's some other areas such as Toluca, where we have not been able to buy land. And in some cases, it's because land prices are not there where we think that we can achieve attractive returns. It's important to be in certain markets, but we believe that it's very important to be disciplined on the returns we might be looking at. We think that being able to develop a double-digit return on cost is highly profitable and highly accretive for our shareholders. And as long as we find markets where we can be doing so, we're going to be able to keep on developing.

We want to be very cautious in certain last-mile operations where land prices are way too high, returns are low. And even in some cases, the leases are in pesos. So it means that not all of the projects might, given that they might sound interesting, not add value for our shareholder base. And we are very prudent on where we invest our money, and that's why we're very careful and very selective on how we identify projects that can be accretive for the company.

[Operator]

There are no further questions in the queue. I'd like to hand the call back to Mr. Berho for closing remarks.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, operator. Our ability to continue executing our Level 3 strategy and remain a sector benchmark rests with Vesta's many employees across Mexico. I'm proud of my colleagues' continued perseverance as well as their commitment to Vesta, our clients and each other during this period of great change and uncertainty. That spirit was clearly evident to me during the Vesta Challenge earlier in the month. And also our annual cycling race was conducted virtually this year. We raised over $65,000 for social investment projects in partnership with 11 other companies that participated in the event. That spirit, this perseverance and commitment also gives me confidence in our ability as a company to lead from a position of strength and to act with agility and discipline for the benefit of Vesta's clients, our fellow shareholders and other stakeholders. We remain vigilant to potential risks but also to opportunities, keeping our eyes on the future and our 2024 goals. Thank you again for participating in our call today. Until our next one, please stay safe.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.