Vesta Real Estate Corporation SAB de CV

NYSE:VTMX

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. My name is Matt, and I will be your conference operator today. At this time, I'd like to welcome everyone to Vesta's First Quarter 2019 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference is being recorded. I'd now like to turn the call over to your host, Ms. Christianne Ibañez, Vesta's Investor Relations Officer. Thank you, you may begin.

[Christianne Ibañez, executive]

Thank you, Matt, and thank you for joining our call to discuss Vesta's financial results for the first 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 closed. This release is also available via the 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 uncertainty as they 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 April 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 not turn the call over to Mr. Berho. Please go ahead.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Christianne, and thank you all of you for being part of this conference today. After a strong 2018, where Vesta outperformed the market, both through total shareholder returns, performance as well as operating results, we continue to maintain our momentum and are progressing well toward a strong 2019 as we execute the final stage of our Vesta Vision 20/20 strategic plan. The U.S. economy continues to support our growth. Mexico's non-oil exports to the U.S. increased nearly 5%. Total exports increased nearly 12% sequentially after slower growth in January with manufacturing among the sectors have led non-oil exports. Broadly speaking, our clients continue expanding, and this was reflected in our business with them during the first quarter in terms of new leasing activity, renewals as well as growth in long-term leases. Another important indicator is foreign direct investment in Mexico. New investment by U.S. businesses last year was close to the 5-year average as was total foreign direct investment, according to the most recent government statistics. These figures make clear that our country remains one of the world's leading production hubs for global companies. Although these economic and investment indicators are encouraging, we remain cautious, in part, because Mexico's new administration has yet to finalize its economic policies. With regard to the global economy, a number of risks also remain as the U.S. and China have still not reached a trade agreement and the health of Europe's economy remains tenuous. As always, we closely monitor economic trends within and outside Mexico and interest rates in particular. Also, we benefit from market intelligence that we glean through deep and extensive customer relationships, information that allows us to stay on top of changing conditions in each of our regional markets, which underpins Vesta's agility to adapt to a changing environment with anticipation. Although the economic and policy pictures remain unclear, Vesta will continue to find the opportunities to keep creating value for our shareholders. Even if the economies on which we rely were to moderate, our strategy and business model accounts for such a scenario and would still allow us to deliver solid operating performance and high levels of growth. A 16% increase in revenue, another increase in net effective rent and a nearly 24% increase in FFO this reporting period demonstrate yet again our ability to consistently grow quarter-over-quarter and year-over-year. In the last 3 years, Vesta's rent per square foot has grown at a compounded annual rate of 4%. And as a much larger company today, we are more resilient than ever to any market volatility. Another point I would like to emphasize here is that we have no major renewals due within the next 12 to 18 months, which reduces our exposure to vacant space, while reinforcing our ability to maintain high occupancy reach in our portfolio. Further, we remain disciplined in our approach to leasing and the build-out of Vesta's property portfolio, and we continue to operate in the right markets in Mexico in terms of current and future growth potential. In fact, our market continued to perform well. We successfully maintained a high occupancy level of 96.8% in our stabilized portfolio this quarter, while increasing total portfolio rent per square foot by a 4% CAGR in the last 3 years. Developers have remained disciplined in the market with combined -- and combined with solid demand and limited supply, it's a dynamic we expect will continue for the foreseeable future. To date, we still have a good balance of logistics and light manufacturing customers. Also, renewal levels and a still strong pipeline indicate that clients remain committed to our industrial properties. In the North region, Ciudad Juárez and Tijuana are outperforming with high levels of leasing activity, solid pricing conditions and a strong pipeline primarily due to an expansion of U.S. activity. We leased a property there that has yet not been completed, and which continues to reflect the strength of our chosen markets for development as well as our reputation and customer relationships. In the Bajio region, the occupancy remains at healthy levels. While there was not any significant activity in this region during this particular quarter, our pipeline is still very strong, and we anticipate signing leases with existing and new potential clients in the upcoming quarters. We signed just over 257,000 square feet of new leases with existing and new international clients, such as Harman, Freudenberg and DB Schenker. We also signed 1.4 million square feet of lease renewals, bringing stabilized occupancy to 96.8% at the end of the quarter despite a 9% increase in this portfolio's GLA. To date, we have renewed 65% of leases that will expire this year and the next, with releasing spreads positive above 2% compared to in-place rent. Returning to capital allocation. Vesta's record financial results in 2018 enabled us to pay a dividend of MXN 0.45 per share in the first quarter of 2019. This dividend payment represents a 13.7% increase over last year's quarterly payment. Last, but not least, as announced earlier this week, we enter into a definitive agreement with an institutional investor to sell a property portfolio of 1.6 million square feet for a total of $109 million and with a blended cap rate of 7.1%. The portfolio is comprised of 8 industrial properties, 60% of which are located in Querétaro and 40% in Toluca. The proceeds of the transaction will allow us to continue strengthening Vesta's balance sheet while providing additional financial flexibility. More specifically, it helps us to continue diversifying the allocation of capital by continuing to invest in property development, while maintaining a favorable stance towards share repurchases. The transaction marks the first time Vesta has divested property. Importantly, it demonstrates our abilities to successfully close a stabilized portfolio [ throughout ] its cycle through a sale and to do so without adversely affecting the composition of our portfolio. At a price that is 20% above our net asset value, the sale also clearly demonstrates our ability to now secure financing via the private market to fund our growth initiatives in an accretive way. Before I turn the call over to Juan to talk more about Vesta's first quarter performance, I would like to remind you that on June 4, we will host an Investor Day in New York City. During the event, we will discuss our strategy for Vesta's next phase of growth. We're excited about the opportunities we see next year and beyond and are keen to share our plans with you. In addition to other senior executives of Vesta, certain board directors will also be present. We hope you can join us that day. If for some reason, you have not received an invitation, please contact our Investor Relations department. Juan, now over to you. Thank you.

[Juan Felipe Sottil Achuttegui, executive]

Thank you, Lorenzo, and good day, everyone. Starting with Vestas income statement. Revenues increased 16% year-over-year, as Lorenzo noted, to $36.3 million. Much of this increase was the rental of new space that had been previously unoccupied. Nearly 85% of the first quarter revenues continue to be denominated in U.S. dollars. On the expense side, operating cost increased 40 -- increased to $1.6 million due to higher expenses of the new properties in our portfolio. Vesta's net operating income increased 15% to $35 million, while our operating margin decreased 68 basis points to 96.3% due to higher cost at the income-generating property. Administrative expenses increased 11% at the quarter, $4 million, primarily due to higher auditing, legal and consulting expenses, while property appraisal fees and increase in employee benefit. Moving further down the income statement, Vesta's EBITDA increased 16% to $31 million, while the corresponding margin was unchanged at 85.7%. This is a result from the increasing revenues, while the margin of our administrative expenses remained constant. Due to Vesta's higher debt balance this quarter, net interest expense rose 25% to $9.2 million. Early, Lorenzo touched upon our balance sheet. It remains strong with our long-term value 35%. And with any reduction in interest rate, we might take opportunity to restructure Vesta's debt to lower interest expense and expand our maturity. Also, in the quarter, we recorded a foreign exchange gain of $1.2 million and a $12 million gain on the value for investment properties, an increase of 65% compared to the gain we reported on the first quarter of 2018. Vesta before tax profit increased 12% to $34 million. Income tax has totaled $12 million compared to $5 million income tax gain last year's first quarter. There were higher current and deferred taxes in the first quarter of this year due to a higher operating tax and increasing foreign exchange tax that stemmed from the pesos appreciation during the period. Higher income tax and interest expense coupled with -- and a lower foreign exchange gain mostly accounted for a 42% year-over-year decline in our comprehensive income line. On a per share basis, Vesta's funds from operations increased 23.7%. The operated FFO tax, which excludes current taxes, increased 13% to $22 million. The current tax of $11.2 million consisted of $6.4 million in operating tax and $4.7 million was the exchange-related portion. CapEx expense during the quarter was $20 million, primarily investments in construction of new buildings in Ciudad Juárez, Tijuana and San Luis Potosi, a total of 950,000 square feet of inventory and buildings are currently being developed. Vesta's average debt balance reach -- was $700 million, 99% of which are long-term liability, 100% of our debt is denominated in U.S. dollars and based on fix exchange rate -- interest rate. As Lorenzo noted, the GLA of Vesta's stabilized portfolio increased 9%, while occupancy remained at 97%. Our same-store portfolio expanded 17% during the quarter with occupancy increasing 50 basis points to 98%. At the end of the quarter, Vesta's total GLA was 30.4 million square feet, while total vacancy stood at 9.2%. Land reserves total 37.8 million square feet, a 1% sequential increase. This concludes our prepared remarks. Matt, could you please open the call for questions. Thank you.

[Operator]

[Operator Instructions] Our first question is from Marimar Torreblanca from UBS.

[Marimar Torreblanca, analyst]

Congratulations on the quarter and on the asset sale. My question is related to the asset sale. If you could give us a bit more color on how the process was done? How many interested parties you saw? Was it difficult to find a buyer that was willing to pay for this kind of cap rate? Or do you think that there was enough demand at these levels of valuation? And also if you could walk us through your cap rate calculation? Because looking at the numbers that you published in the additional material after you announced the sale, it seems to me that your cap rate is a bit lower than that, but I'm not sure if you're assuming in these cap rates growth, if it is a forward cap rate or anything I'm missing.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Marimar, and thank you for being on the conference. Yes, as you know we are -- we announced on Monday the transaction. Still the transaction, as you know, is still pending from a couple regulatory items, [indiscernible] and other minor ones. We believe it will be finally closed in the next days. This is the first time we do a sale of a portfolio. Even that this was a smaller-size transaction with only 8 properties in only 2 markets of Vesta. In this case, we did an internal process with potential institutional investors. We touched base with several investors that are looking into good-quality buildings with good-quality leases, long-term leases, and they're able to identify institutional-class real estate. Out of the ones that we touched, we identified a potential investor that was very interested in doing the transaction with us, and that's how we entered into a transaction. We have to highlight that there is still, and we were surprised of how much interest there still is in Mexico from private markets on top of the publicly -- names that you -- all of you already know. And I believe that this really is an opening stage in the company where we are going to be able to still find good ways to keep on financing growth and -- probably now through the sale of stabilized portfolios. We think that cap rates globally have decreased as you -- as well as interest rates, but there is a high interest for industrial real estate globally, and we believe that Mexico is also being part of that even in a volatile environment through the capital markets with listed companies as well as with other political situations. We believe that there is very strong demand towards high-quality industrial real estate, and that global trend is being impacting also Mexico. So I'm not surprised on the cap rate. I think that this is a -- merely a consequence of being -- of good capital chasing for good properties. And on the second question. I think that our -- I think regarding on the cap rate. Well, as you know, cap rate is only one indication. We use -- the way we calculate it is using 12 more -- 12-month forward NOI divided by the value of the transaction, which I think is the way to go. Nevertheless, another way to see it would be from a net asset value perspective or a price per square foot. These particular buildings, the value of them -- the net asset value of them were close to $57 per square foot, and the transaction price was close to $69 per square foot. So that will be another way to see it that we are selling at a premium to our net asset value, which in the end is what we believe is very accretive for shareholders. So we will still be looking for these type of transactions, where we can recycle capital while finding accretiveness for our shareholders.

[Operator]

Our next question is from Eugenio Saldaña from GBM.

[Luis Saldana Flores, analyst]

Congratulations on your results. I have 3 questions. The first one. I will like to hear, I mean, from you where is the limit in terms of vacancy to stop developing spec buildings in certain region. I mean, what -- when do you decide to stop? Or what's your flipper? That's the first one. The second one is considering the 5% reduction in GLA due to the already mentioned transaction, are you considering updating your 2019 guidance? Or the previous guidance is correct. Or some sort of [ contrary ] this potential is positioned at the moment. And the third one is regarding the transaction you announced. Was there any broker involved in this transaction whatsoever?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Eugenio, for being in the conference, and thank you for your questions. I will answer the first and last question. The first question regarding the vacancy. I think that our -- we pretty much -- as you can see, our portfolio today is pretty much leased, all of the portfolio. The vacant space that we have is the buildings that we consider in our lease-up stage, which are -- most of them are brand-new buildings that we have developed recently in the last periods. So normally, it's not a matter of how much vacancy we have. We identify how much the pipeline is, how much risk have available. And if we think that in the next 6 months, which is the time that takes us to build, that we're going to be able to lease that particular space up, that's when we start the new building. So we're very cautious in each of the markets. And as you can see, today, we have some available space in some markets, and that's when we normally do not develop, we put a pause. But when we start leasing, we start again with construction of buildings. Remember that the development risk in industrial real estate is pretty low because we can manage the timing, and we can manage the pace at which we want to keep on developing. So it's honestly a very -- it's an easy way to track if -- depending on how we are in each of the markets.

Okay, and probably just regarding the third question on the broker. There were no third parties involved. As you know, we have had a long-term relationship with investment community. We touch based with international institutional investors, global investors. And that's, well, how we found the transaction.

[Juan Felipe Sottil Achuttegui, executive]

Eugenio, look, we -- I think that the transaction will close in the next 10 days or so. After that, and probably on the Investor Day, it would be a good way to give some additional answer. The Investor Day, if necessary, we will revise guidance. We typically, if necessary, revise guidance as we have done in the past, but it will be good to talk about that on Investor Day, if necessary.

[Operator]

Our next question is from Froylan Mendez from JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

First, how would we -- how should we see reflected the income from the administration contract from the portfolio that you sold? Specifically, how much NOI should we expect from this administration contract? And then what should we expect on the tax side going forward, especially after this asset sale?

[Juan Felipe Sottil Achuttegui, executive]

Froylan, thank you for being on the call. Look, the admin income would be reflected as other income. It would be around $200,000, upwards. It also, I mean, it has -- is contingent on the rollovers of the portfolio. We have a very high rollover rate. So it's all worth of $200,000. The other question would be that you asked me about taxes. The tax impact of this portfolio is around $6 million. It's a very efficient -- 6%. It's around -- it's a very efficient -- we have a very efficient tax base for the sales of the portfolio. And therefore, it's -- it was a very good sale from a tax point of view. I don't know if you -- if I answered both of the questions you posed.

[Fernando Froylan Mendez Solther, analyst]

Yes, Juan. But -- and going forward, and including the impacts from the asset sale, how should we think about the cash taxes going forward? Because they have been increasing in time. Just wanted to understand what the run rate of cash taxes should be for Vesta going forward.

[Juan Felipe Sottil Achuttegui, executive]

Look, they -- on taxes, going forward, we're highly contingent on FX development. So it's particularly difficult to forecast taxes because of the FX component of our income statement due to the fact that taxable income depends on the peso value of our dollar debt. On an operating level, we do have a substantial tax shelter due to depreciation of our properties on a tax level. So I think that between 15% and 20% of effective tax rate. I think it's a good way to look at Vesta in the future. But again, FX volatility will have a high impact.

[Operator]

Our next question is from Luis Garcia from Bradesco.

[Luís Garcia, analyst]

I have 2 questions. The first one is on the Bajio region. We have been seeing the region suffering a lot the huge drop in terms of year-over-year vacancy in the region. And when talking to the brokers, they are also concerned and they're mentioning some institutional investors developing the region. So the question is: What do you expect for the region going forward? And if we could see additional occupancy drops in the region, in terms of occupancy? And the second question is on grace periods. I mean, especially, given what is happening in the Bajio region, are you seeing clients asking for more grace periods in contracts being renewed? So what are you seeing in terms of grace periods, especially these states or -- the asset that are located in the Bajio region?

[Lorenzo Dominique Berho Carranza, executive]

Perfect, Luís. Thank you very much for your questions and for participating. We think that the Bajio region has been incredibly active the last 5 years. And that has led to having today a way more robust industrial base, which we believe that will benefit in the long run for the region, which is considered as today one of the most competitive regions in Mexico and, as being one of the most competitive regions in Mexico, is one of the most competitive regions even globally. So these are global clusters and global manufacturing and logistic hubs. We have seen -- and this question regarding the Bajio has been particularly in the last couple of years. And it's amazing how much activity we have had in the last couple years. Nevertheless, I think that we have to be cautious on how much development is being done in the area. We still see that developers have been disciplined in developing inventory building. Actually, the vacancy rates are still low in the area, 6% pretty much in Guanajuato, Querétaro, which are the largest ones as well as San Luis Potosi. So it's a very healthy number. Fourth quarter was a very strong in terms of absorption in Querétaro particularly. So I wouldn't only look at certain -- only a few quarters. I would analyze the whole cycle, probably longer, probably in a year round. So I think that Bajio has its own dynamic. I think that Bajio is -- has maintained very good rates for rental rates. And what surprised me a lot is how much the land values in the Bajio have increased. If you consider, Querétaro, for example, Querétaro's land prices in the last 5 years has almost threefolded. I have never seen this in any other market in Mexico. And I think that is also a signal of how much appetite in the long term there is still for this area where there is still good demand for industrial space and not only industrial space but well -- land well located, with a right infrastructure, with a right quality because these are high-quality tenants or high-quality clients demanding a good quality space, too. And probably just to -- so in the end, I think that looking forward, we are still optimistic on the region while, as always, very disciplined and cautious on the development.

[Luís Garcia, analyst]

Okay. And how about grace period?

[Juan Felipe Sottil Achuttegui, executive]

We're not giving any rental concessions on either on rollovers or in new leases. I mean, the markets are tight. So we're being very disciplined on -- it's at the market rate. So you enter the building, you begin trading.

[Lorenzo Dominique Berho Carranza, executive]

And remember, probably, one of the things I'd like to highlight here is that remember that Vesta is very disciplined in really having high creditworthy tenants. And sometimes, we prefer to even wait a little longer to have the right tenant and have the right long-term lease with high creditworthy tenants instead of just leasing out space. Remember that we like U.S. dollar-denominated leases. And in these markets, sometimes, you have to be a little patient and cautious in order to find the right quality -- the right-quality tenants. And in the end, I think that discipline has paid off very well in Vesta's strategy.

[Operator]

Our next question is from Cecilia Jimenez from Santander.

[Cecilia Jimenez, analyst]

Congrats on the results. My question is actually on the asset sale announced earlier this week. Just on that confirmation side. Although it's possible to see this type of transaction going forward, the main core or the main strategy of Vesta remains growing through development. Just wanted to hear your thoughts on that. And just confirm that growing for the future is this still there beyond the 2020 Plan? I know you have the Investor Day, but if you can give us a hint of what after 2020, that'll be great. On the growth side.

[Lorenzo Dominique Berho Carranza, executive]

Gracias, Cecilia, and thank you very much for your call -- for you -- and for your questions, sorry, and being on the call. So I think that our -- definitely, I think that this is a strong signal that Vesta has the ability to close the real estate cycle where we can still develop, lease at attractive returns, stabilized portfolios and sell at attractive price. And with that, we think we can create a lot of value for our shareholders. Looking forward, we would continue to focus on our capital allocation. Capital allocation -- and to optimize capital allocation. And in order to have the most out of our capital allocation, we still have to -- we still want to keep on developing at attractive returns. And when I say attractive returns, this is yields above 11%, which we have been doing in the last years. Also, finding acquisitions in an opportunistic way. Whenever we believe there is value to be created, we're going to keep on doing acquisitions, and if acquisitions are at too high prices, we're going to pass on them, as we have done in the past. We have passed on many operations, many acquisitions, which honestly, we're glad that we didn't have -- do. And thirdly, I think that our buyback program has been also pretty successful. And we will continue to do so. So looking forward, the -- I think we believe that the name of the game will still be capital allocation through development, through acquisitions and through buyback in -- repurchase shares in a buyback program. So hopefully, we can keep on creating value for our shareholders the same way looking forward.

[Operator]

Our next question is from Gordon Lee from BTG Pactual.

[Gordon Lee, analyst]

Two quick questions. The first, I have a question on the Juarez market. It's -- if you look at your numbers and you look at many of your peers' numbers, it almost looks like it's sold out, like Juarez is sold out. So it looks like -- and obviously, given the advantages it has versus other markets, it seems like it would be a good place to put capital to work. But Juarez has a tendency, I guess, because of the availability of land, to become oversupplied pretty quickly. I was wondering what your view is on Juarez. What you're thinking about in terms of what you're seeing on the supply side? And whether you think that you have that risk of oversupply at some point in Juarez again? And then the second question is related to the questions that you've had on the asset divestment and the reallocation of that capital. At this point, when you look at opportunities in the market, either for development, acquisition or stock buybacks, how do those stack up? How attractive does your stock look right now relative to what you could get on the M&A market, let's say?

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you very much, Gordon, for your question. This is Lorenzo. Definitely, I think that -- I'm very happy that we are currently discussing about Juarez on the positive side because Juarez currently is experiencing a lot of demand. Currently, vacancy rates are close to 3% or 4%, which is very, very healthy. After Juarez having had a very tough period, particularly after the U.S. recession, there was -- it was tough times for many of their businesses. And today, it's experiencing exactly the opposite. We believe that -- first of all, we know -- we like to understand markets very well. We have had a very good presence in Juarez in the last years, and that's why we have been able to gain an important -- very important part of the market share in the market -- in that area. Nevertheless, looking forward, we are -- we think that we are going to keep on developing particularly because many of -- as you remember, most of the growth for Vesta, over 50%, comes from existing clients. So the good thing about developing these type of properties which are very multi-tenant, and multi-tenant buildings are very flexible, is that we can accommodate our tenants according, in many cases, to their growth. So it's pretty -- whenever we develop, it's because we already feel that we could have a potential pipeline that can support and that can underwrite the decision of growing in this particular market. Nevertheless, I take your comment very well on how cautious and disciplined we have to keep on through development because there could be other peers that also are developing. So it's a matter of seeing how we can differentiate from our peers. In markets like Juarez, I think that it is important to see what the quality of the buildings are, which locations we're -- you are developing, the type of amenities, or let's say, additional infrastructure you can offer. In our case, we are trying to develop VestaParks, which you know that have a different type of quality and different type of things that offer in -- compared to single assets. So in that regard, I think we can differentiate well in Juarez, which is the thing that we have done also in other markets where we think that some of high-quality tenants are really looking for this type of buildings and assets.

[Juan Felipe Sottil Achuttegui, executive]

On the capital allocation, Gordon. Look, it seems to me that we're selling at 7.1% cap rate. And it's nice cap rate, and our stock is above 9. What we're going to do is we're going to be very aggressive on the repurchase. Seems to me that, that's the correct approach. We will continue to develop buildings, of course, and we will always be very cautious about acquisitions. And the objective of our capital allocation has always been increases in net asset value. And I believe that Vesta has been a stellar performance in our track record of increasing net asset values and retaining to the volume margin.

[Lorenzo Dominique Berho Carranza, executive]

And the stock is at least [ 20 ].

[Operator]

Our next question is from Vanessa Quiroga from Crédit Suisse.

[Vanessa Quiroga, analyst]

Congrats on the result. And just to continue on the review of the different markets, I would like to ask you also about Toluca. How you're seeing that market right now and going forward? And in general, I think it would be interesting to hear from you if, year-to-date, you have seen any change in the way your tenants and potential prospects make a decision regarding choosing properties and signing contracts. How you are seeing the request for proposals? And how much time is it taking for tenants and prospects to sign contracts?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Vanessa. This is Lorenzo, thank you for being on the call. Yes, Toluca has been one of our leading markets. We have a large part of our portfolio in this region. We know it very well. And I think that this particular market currently has experienced some good opportunities for growth. Nevertheless, I think that today the restriction that it has is that land availability is scarce. Is -- it is currently lacking the land that you would think that could be available has its difficulties since its -- many of it is owned by [indiscernible], or some of it is private land but does not have the right infrastructure or the right zoning. Nevertheless, that has been a challenge for Vesta today that -- to find the right land and also at the right price because in order to create value, we got to buy land at the right price. Otherwise, we would be only developing in our margin, which will -- it is not exactly what -- the way to create value. So currently, I think that we have a fully leased portfolio. Clients are doing well. We have recently been able to renew at attractive rents. We have been seeing that the rents have been increasing in the market. And remember that we -- in Toluca, one of the things that we have seen is that there is many developers who are asking peso rents, and we are very disciplined on holding to the dollar rents. So today, I think there is a big -- a large spread between what we are renting and what some of our peers are renting in pesos because many of them did rent 5 years ago when the peso was at 13. So there is still a big difference, a big gap between some of the existing in-place rents from some of our peers and what we have today. So hopefully, other developers can also be -- try to be more disciplined in trying to get rents closer to the market and, which, we believe that is the one that Vesta would have in its portfolio.

[Vanessa Quiroga, analyst]

Great, Loren. And regarding the requests for proposals and time to make -- to sign contracts in general for your portfolio?

[Lorenzo Dominique Berho Carranza, executive]

Okay. So yes, probably, in general, it would be better to anticipate we are very active in terms of requests for proposals and possible signing of leases. In terms of timing, I think that companies today are not necessarily taking that much longer. I think they have taken out the uncertainty risk regarding the USMCA or the previous NAFTA. They are taking out risk regarding political situation in Mexico. So I think that in that regard, they feel more comfortable in making long-term commitments. That's why we have seen transactions like the ones that we closed this quarter with a German company being Freudenberg; with an American -- actually a Korean-American company, being Harman, which a subsidiary of Samsung, making long-term commitments also in Querétaro; or DB Schenker, a logistic company, which has operations for Microsoft and Cisco Systems. In Juarez, they are still growing and they are making long-term commitments, and I think that's a signal that despite the uncertainties that there still are, they are committed long-term in Mexico. And we think that this is a little bit -- most of the feeling in global companies towards the country. So hopefully, this mood remains and more companies keep expanding in the country.

[Operator]

Our next question is from Alan Macias from Bank of America.

[Alan Macias, analyst]

Just one question regarding potential Chinese tenants. If you had seen a pickup in that area. Are you still seeing interest by Chinese companies coming into Mexico?

[Lorenzo Dominique Berho Carranza, executive]

Thank you. Definitely, I think that's an important trend that we are seeing recently. There are some Chinese companies entering the market, actually in pretty much all regions, from Puebla to State of Mexico to the Bajio as well as the north of Mexico. Nevertheless, I think that it's not only Chinese companies, but it's companies in China, that it could be global companies that are already looking back into Mexico as being an important manufacturing hub. So remember that many of the companies in China are European or American that have been -- established themselves 10, 15 years ago. And currently because of other global situations, they are thinking of expanding their operations outside of China, too. And this could be Southeast Asia, for example, Vietnam, or this could be places like North America. And clearly, in North America, the place that could make the most sense is Mexico. So we'll keep an eye more on Chinese companies because we believe that they will be entering -- they will be an important relevant player in the Mexican market. Probably, as an additional note, we have actually some Chinese tenants, but it's interesting how they acquire European companies that have been in sector industries for a while. And through these European countries, they establish themselves in Mexico. So at the beginning, you would think that these are German companies, for example, but in the end, it's Chinese capital because they have been able to do M&A of great engineering companies. And they are growing through their -- with their footprint. So this is another trend that I think will be similar looking forward.

[Alan Macias, analyst]

Just one more question. Have your tenants experienced any problems with labor unions that we saw in the market in the past in Mexico? Any issues there?

[Lorenzo Dominique Berho Carranza, executive]

Thank you. Definitely, that was an issue that we were monitoring very close since the beginning. Particularly, this was in beginning of the year, January. As of today, we have no clients today that are facing any issues. At some point, we heard from our tenant -- from some of our tenants and other industries and other companies that were having issues on this regard. Nevertheless, I think they got into agreements with the unions. And I think that, let's say, on the positive side, I think that, that sends another signal that companies are actually more willing to be open to negotiate rather than just saying, "I would leave the country." I think that they want to commit long term. They want to work better with the labor -- with our labor unions. And I think by entering -- by being able to negotiate, I think that sends a signal that they want to commit for a long run in Mexico.

[Operator]

Our next question is from Ramon Obeso from Scotiabank.

[Ramon Obeso, analyst]

It's got my attention that you're developing pipeline in the Bajio region, just 33% versus 60% in Q4. And we were thinking not in Mexico. Perhaps, things are cooling off in the Bajio region. Are you just being more cautious? And should we expect this trend going forward?

[Lorenzo Dominique Berho Carranza, executive]

Thank you very much for your question. So I think that the picture that we see on the development pipeline every quarter, I think it's a very, I would say, static picture of only one particular moment. Remember, that the real estate cycles are longer. If you consider when to buy land, when to put the infrastructure in place, when to start the building, when you lease it up, it's a long -- it takes a while. So I think that today, what you see on the picture is not necessarily a reflection on how it will be looking forward. I think that actually come back, this has always been changing and shifting. There's some times where you see more construction in one region and some -- and less construction in other regions. So I don't think that this is something that you would -- that we would have to consider as being holding the same looking forward. I think this is -- this follows more the dynamic on the midterm on each of the regions. In the end, out of the 3 regions, we feel comfortable with all 3. The north of Mexico is being very active. So we will keep on developing in the north as we started a building in Tijuana recently. And because we are almost fully leased in Tijuana. And I'm pretty sure that we will start more buildings in Juarez soon that are not reflected in today's pipeline. And the same with the Bajio. Probably we are -- we have -- we are in the lease-up stage of some of the buildings. As long as we lease them up, we will start construction of more. And the central region, actually, I think, that it's a similar situation. Probably, the main challenge we're having in the central region is to buy land at attractive prices. So as long as we can be able to find this -- to find land, we're going to be able to develop more. But in the end, I think it's -- we pretty much keep on with the same balance that we have been having in the past.

[Operator]

[Operator Instructions] As there are no further questions, I'd like to turn the floor back to Mr. Berho for any closing comments.

[Lorenzo Dominique Berho Carranza, executive]

[Audio Gap] for all of you for being in the conference, I would like just to, as I noted in the beginning of my remarks, we are executing our final stage of the Vesta Vision 20/20 Plan in a strong way. And we will -- we are excited to share the next phase of growth of the company in our Investor Day. With that in mind, we hope to see you all at the June 4 Investor Day in New York. And thank you, again, for everybody for joining today's call and for your ongoing support.

[Operator]

This concludes today's teleconference, you may disconnect your lines at this time. Thank you again for your participation.

[Juan Felipe Sottil Achuttegui, executive]

Thank you.