Vesta Real Estate Corporation SAB de CV

NYSE:VTMX

Earnings Call Transcript 2022-Q2

[Operator]

Greetings, ladies and gentlemen, and welcome to the Vesta Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Fernanda Bettinger, Investor Relations Officer.

[Fernanda Bettinger, executive]

Thank you, Paul. Good morning, everyone. I want to thank you for listening to our prepared remarks, second quarter 2022 earnings. Joining me today are Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, Chief Financial Officer.

But before I hand our call over, let me first touch on a few items. On our website, you will find our press release that we posted yesterday after market close.

Please note that today's remarks includes forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation will be general factors that could cause our future results to differ from our expectations. While management believes that these assumptions, expectations and projections are reasonable in the view of the current available information, you are cautioned not to place undue [ resilience ] on these forward-looking statements.

Finally, note that all figures included herein were prepared in accordance with IFRS and are stated in nominal U.S. dollars unless otherwise noted.

And with that, I will turn the call over to Lorenzo Berho.

[Lorenzo Dominique Berho Carranza, executive]

Thanks, Fernanda, and thank you all for joining us today. As you saw in yesterday's second quarter results, Vesta achieved outstanding operating performance with exceptional leasing activity, record high portfolio occupancy and strong financial results. This illustrates the continued operational focus of our teams to capture opportunities in today's extraordinary demand environment.

This enabled us to deliver $43 million in revenues. And second quarter 2022 NOI reached nearly $41 million with a 94% margin. And second quarter EBITDA reached over $36 million with an 84% margin.

A pandemic, a trade war and rising wages in China and elsewhere have forced many manufacturers to look for other options, Mexico in particular. It is resonating in the demand we are seeing with Vesta's new clients. We are experiencing unusually quick property absorption. Industrial sector strong fundamentals continue to drive high occupancy rates and rental rate growth.

We are seeing unprecedented leasing activity and renewals, and Vesta signed just under 3.5 million square feet of GLA in the second quarter, which represented 1 million square feet in new contracts and more than 2 million square feet in lease renewals. This is the highest lease renewal rate in Vesta's history and a credit to our sales team's outstanding leasing success.

All our new construction was leased before it was completed and delivered to the clients. We signed contracts with outstanding high credit rating companies, such as Foxconn, AB InBev and Amazon, just to mention a few, during the second quarter. All of them in different industries, such as electronics, semiconductors, food and beverage, e-commerce and home appliances. Vesta's contracts are also indexed to inflation, which had favorable effect on our results this quarter, as Juan will review.

Sustained demand, the uniquely favorable effect of higher-than-expected inflation on Vesta's results and outstanding recent success during the first half of the year has led us to upwardly revised Vesta's full year 2022 guidance based on our strong pipelines and resilient portfolio in a climate where availability outweighs price for our clients.

Last month, at our Investor Day, we increased Vesta's growth targets with an expected investment of up to $1.1 billion within our 5 key regions, enabling us to reach a total portfolio target of 50 million square feet. This reflects today's positive industrial real estate market conditions with an ongoing theme of demand exceeding supply driven by regionalization, nearshoring and e-commerce demand.

We are also seeing robust appetite for industrial assets push up prices and further compress cap rates across markets and product types with increased interest from prospects overall. The logistics space remains in high demand, and with new demand in the North of Mexico in the Bajio as non-portfolio occupancy continues to increase.

Many logistics operators have taken on incremental inventories to mitigate the disruptions that were common previously. While in other countries, there has been some signs of more moderate absorption, in Mexico, we still see large requirements coming from the e-commerce sector.

The Fed tightening which began in March has been accompanied by increasing talk of a recession. And while it's certainly true that the U.S. economy faces several headwinds, none of these have been enough to stall U.S. recovery today, particularly the positive momentum in our industry. It's also important to note that Vesta has demonstrated our flexibility to adapt to any environment. A dip of short recession would have little to no effect from Vesta, and Vesta is well positioned to manage our portfolios should we experience an extended global recession. We're protected in ways that many of our peers are not.

However, Mexico's relatively lower input cost and highly productive labor force, combined with its proximity to the U.S., should support the long-term development of the Mexican industrial property market. As we have highlighted in prior calls, Vesta is uniquely well positioned to capture additional demand and growth with our strategic land holdings and local presence. We have the strongest development growth pipelines in the industry and a balance sheet that is optimally positioned to take advantage of the current environment.

With that, let me now turn it over to Juan.

[Juan Felipe Sottil Achuttegui, executive]

Good day to everyone. Thank you, Lorenzo, and good day to everyone. Let me begin with a summary of our second quarter results. As Lorenzo mentioned, we are very pleased with the strong financial results achieved in the quarter.

Starting with our top line. Total revenue increased 8.3% to $43 million in the second quarter of 2022. This was due to a $4.2 million increase from new revenue generating contract and $2.2 million increase related to inflationary adjustments on Vesta's property during the quarter. and was partially offset by $2.1 million decrease related to the property sold at the end of 2021.

As a reminder, all of our lease contracts are indexed to inflation, therefore, we continue to benefit from the favorable effects of higher-than-expected inflation on our top line results. In terms of currency, 83.1% of Vesta's second quarter revenue was denominated in U.S. dollars, remaining relatively stable when compared to the same period of the last year.

Turning our attention to our cost structure. Total operating costs remained consistent at $2.6 million in the second quarter of 2022 as the increase in cost from occupied properties was offset by a decrease in cost from vacant properties.

Net operating income increased 8.3% to $40.7 million year-on-year, driven by higher rental revenues, while the margin stood stable at 94.3%, mainly due to higher costs from occupied properties.

While administrative expenses were up 16.4%, this was mainly explained by an increase in employee benefits resulting from the creation of the pension fund retirement reserve as well as an increase in the company's long-term incentive plan.

In turn, EBITDA reached $36.4 million in the second quarter of this year, an 8.7% increase compared to the prior year's quarter, while the margin contracted 21 basis points to 84.4% as compared to 84.7% for the same quarter of last year.

Moving down the P&L. Total other income reached $33.1 million compared to $78.6 million in the second quarter of 2021. This decrease was mainly due to a lower revaluation gain on investment properties. As a result, we closed the quarter with pretax income of $67.5 million compared to $110.4 million in the second quarter of 2021. While the pretax FFO increased 41.9% to $24.5 million and NAV per share increased 7.2% to $2.65 per share from $2.47 per share in the same quarter of last year.

Now turning to our CapEx and portfolio composition. We invested $27.5 million during the quarter, mainly in the construction of new buildings in the Northern and Bajio regions related to the strong demand that Lorenzo has noted. At the end of the second quarter, the total value of the portfolio was $2.44 billion, comprised of 193 high-quality industrial assets with a total GLA of 32.1 million square feet and with 83% of total income denominated in dollars.

Year-over-year, our stabilized portfolio increased 2% to 31.9 million square feet, with occupancy increasing to 95.9% from 92.7% in the second quarter of last year. We ended the quarter with a land bank of 42.3 million square feet, down 4% sequentially, mainly due to the sale of 1.3 million square feet of land in Ciudad Juarez.

Turning to our balance sheet. We closed the quarter with a total debt of $933 million, and our cash position excludes at $298 million. Net debt to EBITDA was 4.5x and our loan-to-value ratio was 33%. In addition, we paid a cash dividend for the second quarter of July 15, 2022, subsequent to the quarter end equivalent to MXN 0.43 per ordinary shares.

Finally, as a result of our outstanding leasing activity and the successful execution of our Level 3 strategy, supported by a continued strong demand environment, we decided to raise our full year 2020 guidance, as Lorenzo commented. We now expect to achieve a 7.5% to 8% year-on-year revenue growth from our previous guideline of 5.5% to 6%. We are also raising EBITDA margin to 83.5% from our previous indication of 82.5%, while NOI margin guidance remains unchanged at 94%.

With that, we conclude our second quarter review. Operator, please open the floor for questions.

[Operator]

[Operator Instructions] Our first question is from Juan Ponce with Bradesco BBI.

[Juan Ponce, analyst]

Congrats on the results. The first one is on the Bajio region. If you could comment on the recovery there a little bit. We saw occupancy 200 bps higher Q-over-Q. Are you seeing demand from Mexico City flow over to the region? What sectors are the new tenants in?

[Lorenzo Dominique Berho Carranza, executive]

Juan, thank you very much for being on today's call. Definitely, the strong trend on demand is, overall in Mexico, coming mostly in the North part of Mexico, where we are seeing vacancies [ at 0% ] and strong demand. But that has also impacted now in the Bajio region in several industries and several cities.

We recently closed a couple of transactions in the home appliance sector as well as electronics and automotive sector, in San Luis Potosi, in Guanajuato and Querétaro. Additionally, this week, there's the International Panboro Aerospace Conference or -- I'm sorry, it's International Fair. And some representatives of Vesta today, with some Mexican government authorities, are taking place in that event and are announcing also new investments coming in [ Querétaro ] in the aerospace sector.

I believe that on top of all the other sectors that we have just mentioned, it's good to hear that other sectors that were kind of cooler in the last couple of years are reacting quicker and are analyzing future expansions or new investments in the region, which clearly, we have been competitive in the -- having compared in many years, and how we believe that will continue to be so. So hopefully, in the next quarters, we're going to see more news in this region, in these sectors.

As you know, we started a couple of buildings in Querétaro, just because in Querétaro, we have really nothing available to lease up. And that's why we see that change in demand and change in pipeline as an opportunity. And therefore, we want to anticipate to capture those opportunities.

[Juan Ponce, analyst]

Okay. And the second one, if I may, if you can comment a little bit on the rationale behind the higher EBITDA margin guidance. Is everybody still working from home? Where are the efficiencies coming from?

[Juan Felipe Sottil Achuttegui, executive]

Regarding the EBITDA -- sorry, Juan, thank you for the question. Regarding the EBITDA, well, we...

[Lorenzo Dominique Berho Carranza, executive]

Juan, why don't you review first the top line?

[Juan Felipe Sottil Achuttegui, executive]

Yes. I mean, the most important thing is our increase in revenue guidance. Revenue guidance, we're increasing revenue guidance because the continued effect of inflation on our revenues. We're one of the few Mexican companies, the only one, but these aggregate changes from same quarter last year to this quarter this year in various components. And as you can see lately, over the last perhaps 3 or 4 quarters, and most notably in the first quarter as of this year and in this quarter, the increases in inflation are matching, if not a bit over, the increases from leasing activity of empty spaces. So the effect of inflation is very convenient from our point of view. And given the fact that inflation keep on surprising us on the upside, well, we are revising guidance.

I just have to -- I just want to make a parentheses. Also, please note that our clients are paying on time. So the effect of inflation are not having a significant input -- impact on our clients' ability to pay on time the invoices that were submitted to them.

So given that revision, given the fact we increased our guidance on revenue, EBITDA basically, our administrative sales -- administrative expenses, basically this year, are going to be a little bit higher than previously due to the fact of the new pension provision that we're making. And I think that, over time, the growth in revenues are going to absorb those provisions and we're going to get back to 84% EBITDA as is typically the case.

[Operator]

Our next question is from Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

Just 2 questions. Can you talk a bit about the replacement cost, sort of specifically to some of the key northern markets? And I know you released a lot of data around the Investor Day. But the marginal -- or range of marginal development costs for some of the markets, like Monterrey, Tijuana and Juarez.

And also maybe just address some of the issues around bottlenecks, like water, electricity and other things.

And then on the -- congrats on the momentum, it looks really extraordinary. And I know it always takes a little while before it feeds through to all the numbers. Can you talk a bit about your leasing activity for the second half and into 2023? And how we should think about lease spreads for that period and for those assets? And again, congrats.

[Lorenzo Dominique Berho Carranza, executive]

Sure, let me try to clarify some of the questions. Thank you, Nikolaj, for being on the call.

Regarding replacement costs, I think it's important to note that we have all seen that construction costs have increased pretty much everywhere. And this is not -- Mexico is not the exemption. We have seen increasing costs, particularly in steel, cement and also in land values.

However, we believe that many of these costs, which could be up as high as let's say 40%, in most of the markets, we have seen an offset on the rental rate increase. And with that, we still believe that there's an attractive yield to keep on developing, attractive yields in the double-digit range. And therefore, we think that it's a great moment to keep developing. As you know, we develop a lot of spec buildings to anticipate to the potential demand. And now with 0% vacancies in many of the markets, I really believe it's the right way to go.

Part of the positive results that we have had is that all of the buildings that we have built and delivered are leased. And you can see that in part of our supplemental package. So in that regard, our strategy towards development, we believe, has stayed up well. Good yields in the right markets, and with great companies, which the ones that I mentioned before.

Amazon recently again in Guadalajara, now in Monterrey and previously in Toluca. We recently also signed a new lease with Foxconn in Guadalajara and other ones in other industries, such as home appliances and food and beverage.

So in the end, I think that ROI is pretty good, and probably that takes me to one of your questions, which is leasing activity in the second quarter. We have a very strong pipeline. We are having a good momentum, and that's why we didn't see that this is going to be -- it's going to slow down any time soon.

Additionally, considering leasing spreads, we're just seeing rents increasing from -- it's a result of little supply, good demand fundamentals and also I think a bit on replacement costs. So in the end, we're in a great position. We're going to continue developing and we're going to be -- we're going to continue investing to do the spreads.

Bottlenecks. Nikolaj, I think that there's not necessarily major bottlenecks than the usual that we have always tried to figure out. This could be on the utility side: Energy, water, infrastructure. As you know, we acquire land. We put a lot of investment, heavy investments in infrastructure, and that includes also energy. So on that regard, I think that it's more on the timing effect on when we start and when we can lease up the available buildings. But not necessarily, we see that it's a major -- there are major bottlenecks for the moment. Thank you, Nikolaj.

[Operator]

Our next question is from Lucila Gomez with Compass Group.

[Lucila Gomez Palomino, analyst]

So my question is about energy. So I would like to know if the current dispute between AMLO and the countries in the USTR is maybe a concern that may have a possible impact for you since it could possibly cut the development of renewable energy in the country.

[Lorenzo Dominique Berho Carranza, executive]

Sure. Well, we're well aware of the recent requirements from the U.S. as well as Canada on the energy front and on the USMCA, let's say, panel, and I would call it arbitrage methodologies. We believe that, like any other issue related with trade and related with third parties, we think that there can always be differences, and there's always methods to take them to certain arbitrage. We think that this falls more on the political front rather than the supply front. We definitely believe in competitive markets. We would love to see more competitive markets in the energy front so that our clients can have more competitive rates.

But for the moment, we believe that CFE, which is the local utility company, has been an important ally for industrial developers for many years. Since they have been, for many years, the, let's say, the sole supplier of energy. And we think that they are going to be also an important player in the future years. They are probably not investing as much as we would like to. However, they're active and they are trying to find out solutions in order to address the demand and energy that the country has had.

And one of the examples is when we started industrial park, while we lease up a building. There is a constant communication with CFE to see how much energy there's going to be, when the energy is going to be available. And additionally, Vesta puts heavy investments in energy inside of our parks, just in order to have our clients being able to connect to the CFE network.

We have -- we're taking a close eye on the evolution of the recent requirements from -- on the USMCA. However, we believe that this is more on the political front and should not necessarily affect the operations of our clients.

[Operator]

Our next question is from Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

Congrats on the results and on your 10-year anniversary as a listed company. The question that I have relates a bit with the overall scarcity of water in the north. I just want to confirm that, first, that I think that you are not exposed to water-intensive industries, so that might not be a potential risk or disruption in any of your operations in the north. If you can confirm that.

And secondly, on the flip side of this, it seems that the bottleneck of having land with access to electricity, which is a major constraint for many. And perhaps, to that, we can actually add the constraints on having the right properties with access to water, and that may be proving some sort of a competitive advantage for you as well.

In other words, how this lack of access to electricity that we are seeing in the market and the potential access to -- lack of access to water may result in even higher rentals going forward.

[Lorenzo Dominique Berho Carranza, executive]

Francisco, thank you very much for your participation and your question. Yes, I think that recently there has been a big debate on water issues, particularly on the north part of Mexico and more specifically in the region of Monterrey.

First of all, I think that it's important to note that most of the light manufacturing tenants, or even logistics tenants, they are not high consumers on water. And I think that creates a -- I think they're in a different position. They only use water mainly for services and I think sanitary services. And so that's not a high -- there's no high demand in that regard.

However, having said that, I think that Vesta, what we do well is, first of all, we have rights on wells in several projects. It's one of the things that we secure every time we buy land.

And thirdly, when we develop industrial parks, in many cases, we invest also in water treatment plants, mostly also coming from the water coming from the rain water that falls inside of the park, and that we can use it even for other purposes. So in that regard, I think that the sustainability approach from Vesta since many years ago has gone in the right direction. We have actually expressed part of the -- part of our attributes on our parks to some of our local authorities. And I think that on that regard, we are a bit ahead than other developers or sectors.

Having said that, I think that what is important is that I think that the main industries are going to be facing challenges are the high consumers of water, like beers and water and so on. But most of the clients that we have on the beverage business is logistics. So there's a lot of surge of beer and water and other sectors in many of the warehouses of Vesta, but it's mainly logistics.

[Operator]

Our next question is from Vanessa Quiroga with Credit Suisse.

[Vanessa Quiroga, analyst]

Congrats on the 10th anniversary. It's regarding Bajio. What's your expectation for occupancy for the next 12 to 24 months? We saw the improvement this quarter, which is very welcome. So do you think this trend will continue on the same pace?

[Lorenzo Dominique Berho Carranza, executive]

Vanessa, thank you very much for your question. We see very positive trends in most of the markets. And the way we see it is that, first of all, this will take me to renewals. We have been renewing a lot of leases, which is a strong signal that the companies are committed in the long term. And therefore, we're not experiencing any major expiring leases or companies that are vacating the buildings. That's pretty positive.

And on top of that, we think that what we have seen in this quarter and probably in last quarter is that, definitely, there's an upward trend in terms of new companies and new absorption in the Bajio.

I don't -- there is no particular number in terms of occupancy and where we're going to see it. But as I mentioned earlier, markets like Querétaro, we are pretty much fully leased, and that's why we started a couple of new buildings. And we have some good potential tenants for those inventory buildings in the Vesta park Querétaro.

We have not started anything yet in Guanajuato and San Luis Potosi and Aguascalientes. We are going to probably wait until, probably, let's say, the rest of the year, that we see really stronger signals on demand. And if we do so, we're going to be able to develop again. But for the moment, we feel comfortable with occupying the vacant space. And whenever necessary, we would start building again. But for the moment, I think that we can still take on the rest of the year. Thank you, Vanessa.

[Operator]

Our next question is from Pablo Monsivais with Barclays.

[Pablo Monsivais, analyst]

Congratulations on your 10-year anniversary. I have a question on your development pipeline. It looks like most of the projects that you are right now building or are about to be completed this year. How is that outlook for 2023?

And because we have not seen -- I mean, I've not seeing any project ready to start operations next year. So I'm not sure if we're going to see this higher CapEx and then a little of a plateau. Or how is the GLA evolution in the near term?

[Lorenzo Dominique Berho Carranza, executive]

Pablo, thank you very much for your question. Our development pipeline, I think, only the one that we present on the reports, I think it's -- we believe it's only a picture for the moment. But I think that what is more important is that we have larger projects, as we announced recently in the Investor Day, as large as $1.1 billion, in the industrial parks that we're currently developing.

So I think that every quarter or -- every quarter, we're going to keep on starting new buildings as long as we keep on leasing and finalize other buildings. This development progress, I think it's important to just monitor how far we are. I think that what we are seeing today is we have currently -- let's say, under construction, we have some buildings that we started early this year that we're just about to finalize, and that is we are just past leasing up. We're going to see in many -- in some of these markets, we have really nothing available. And the only thing that we have available is what we have under construction.

So it's great to know that we were able to acquire land, we were able to start construction. We're going to end up leasing some of these buildings, and then we're going to start new building and new projects. So I think it's not necessarily that, every quarter, we're going to be having these same projects under construction. And we monitor very well where we stand in terms of the development progress on each of the Vesta parks in each of the markets.

And -- but for sure, we're going to see, in the next 18 months, a lot of construction going on. And whenever we lease up and we finalize a building, I'm pretty sure that our investment committee is understanding very well the market dynamics. And for sure, we're going to be developing more.

[Pablo Monsivais, analyst]

Perfect. And my last question is, if you compare right now the lease-up time right now versus, I don't know, 4 or 3 years ago, has it like shortened significantly because of near-shoring? Or it's a little bit of the same as in the past? Just to make -- to take assessment over time.

[Lorenzo Dominique Berho Carranza, executive]

Is it a shore -- what? I'm sorry, Pablo, I didn't get your question.

[Pablo Monsivais, analyst]

In the lease-up process, once you finish...

[Lorenzo Dominique Berho Carranza, executive]

[ Process, ] yes. Okay.

[Pablo Monsivais, analyst]

Once you finish a building, how long it takes now? And how long it took you 4 years ago?

[Lorenzo Dominique Berho Carranza, executive]

I think I got it. I think -- so right now, leasing up is way quicker than before. Absolutely. And I think that's a result of stronger demand in many of the markets. Companies have to make decisions quicker because of their own situation. And in many cases, it's just because they need to secure the buildings.

So in many cases, they have to lease it up, otherwise, and we have been in situations where we have 2 or 3 potential tenants for the same building. So that puts more pressure on the tenant and that creates more of a landlord market. So definitely, we are in a way better shape. Or again, let's say the market is in a very -- in a much better condition right now.

And just by looking at the vacancy rates in many of the markets, even in the Bajio Region, which is a little slower than other markets, despite 4%, 5%, the vacancy; and in other markets, it's like 0%. So definitely, we're seeing a very different environment right now, which leads to quicker lease-up stages.

[Operator]

Our next question is from Anton Mortenkotter with GBM.

[Ernst Anton Mortenkotter, analyst]

Congrats on your great results and your 10-year anniversary. I have just 2 questions. One is related to developments. I mean, I've seen a strong deployment of investment, but I see that you push back, for a little month, some projects in Tijuana. Just wanted to understand the reason for this. Is it related to construction -- to the construction side? Or are there -- is it permits getting stopped? Or just to get a little bit more of color there.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Antonio. Absolutely. And Tijuana is a project that consists of 6 inventory buildings. We are currently -- we have currently 4 under construction. There were some minor delays in the first buildings, and minor delays, it's a couple of months. And it's basically -- the reason for that is just because the first buildings, regularly, you have to deal a lot with earthworks, with certain infrastructure. And that's why I think that we had some unexpected delays in the construction.

However, what I can say on the positive front is that we are having -- making a very good progress in terms of leasing. And I think that on that regard, even that we have a couple of months delay, which is very -- it's pretty common. It's fine. That we're going to be able to lease up out of a couple of those buildings very soon, just as a result of how strong the demand is, and also as a result of our commercial team's effort to lease up the buildings before they are -- or let's say, by the moment that they are finished.

[Ernst Anton Mortenkotter, analyst]

Perfect. That's clear. My second question is regarding the sale of land in Ciudad Juarez. I mean, it seems like you guys bought this land just the last quarter. I understand it was sold at a significant markup. Just wanted to understand this. I mean, was it acquired by a client? Or what was the process of just having to sell land that you just acquired?

[Lorenzo Dominique Berho Carranza, executive]

Sure. This was a piece of land. We acquired a larger plot of land very close to the Zaragoza border crossing, very well located. We're going to be -- hopefully, we're going to start seeing some new buildings.

And part of the transaction involved selling part of the land to a neighbor just because of some synergies that we found with the potential -- with another potential company. And -- but that potential synergy involves selling part of the plot of land that we were acquiring, to sell it to this company.

And of course, we did it to a markup, and that helps on the financials on the number. But in reality, we're going to focus on the rest of the land to develop for lease long term.

[Operator]

Our next question is from André Mazini with Citigroup.

[André Mazini, analyst]

Sure...

[Lorenzo Dominique Berho Carranza, executive]

Operator, I'm having difficulty hearing everybody. Okay. I think, André, I'm listening better. Thank you.

[André Mazini, analyst]

Lorenzo, hopefully, this is clear. The question is on the Foxconn lease you guys disclosed. This Foxconn, is this lease going to be related to EV manufacturing, so the electric vehicle manufacturing? We saw Foxconn starting up and is actually in the USA. Of course, EVs are the future, right? All of the American automakers want to go fully electric at some point in time. So if you could -- if you guys could tell if that lease in particular has to do with electric vehicles. And how you see the electric vehicle ecosystem in Mexico in general.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, André, and good question. We're very happy with closing the transaction with Foxconn. As you know, it's a major player in the -- as you mentioned, electric vehicles, contract manufacturers, electronics globally.

This is actually -- it's a 100,000 square foot facility. It's a smaller facility. However, we see a large potential with them to keep growing with us. And definitely, it is related to new industries that are in the electronics sector. I don't know exactly if this one is only specific for EV. But I'm sure that there are -- Foxconn and many other companies are evaluating carefully how they can be competitive in Mexico.

And when it comes to Mexico, it's in different regions, absolutely. And that's why I think that this was a great way to also approach the electronics sector in Guadalajara. As you know, it's one of the most important hubs in Mexico for electronics, with Foxconn, with Jabil, with ABM, with many other companies.

And I think that this creates a great diversification for our Guadalajara project, which started with an anchor tenant of Mercado Libre. We also leased up to Amazon, another facility in that project in Guadalajara. We lease to O'Reilly for logistics of auto parts, and now to Foxconn. So from that perspective, I think that's exactly what we want to do in many of the parks, that we have good diversity and outstanding high creditworthy tenants.

And definitely, I think that -- so I think I cannot answer your question on the EV front. I think that Mexico is about different industries. Mexico is about diversification. And I think that electronic vehicles is definitely going to come to Mexico in different ways, and we have seen some recent news.

And hopefully, this can -- we can, at some point announce -- let's say, Mexico brings something larger, more than smaller suppliers, just integrating their supply chains to the U.S., which is great. However, I think it will be even greater to bring a larger facility to Mexico.

[Operator]

Our next question is from Mariana Cruz with BTG.

[Mariana Cruz, analyst]

Congratulations on the results. Can you please remind us of your [ distribution policy? Should we expect changes in the distributions in the coming quarters? ]

[Juan Felipe Sottil Achuttegui, executive]

Mariana, can you repeat the question? We kind of lost you. At least louder. Sorry.

[Mariana Cruz, analyst]

Sure, yes. I was asking about your distribution policy, if you can remind us about your distribution policy. [ And how do you [indiscernible]

[Lorenzo Dominique Berho Carranza, executive]

[indiscernible] I believe it's on the distribution of, I believe, dividends.

[Juan Felipe Sottil Achuttegui, executive]

Yes.

[Lorenzo Dominique Berho Carranza, executive]

Can you answer that, please?

[Juan Felipe Sottil Achuttegui, executive]

If your question is on distribution of dividends, look, dividends [indiscernible]

Can somebody press mute?

[Lorenzo Dominique Berho Carranza, executive]

[ Reduce that noise. ]

[Juan Felipe Sottil Achuttegui, executive]

Yes. I think they -- okay. Sorry, Mariana. Okay. So about dividends. those dividends, that's an important part of the mix of returns that Vesta offers to our investors. I think that the mix of strong capital gains and some dividend payout is very important.

However, the ability of Vesta to develop properties with double-digit terms, as Lorenzo mentioned, makes us a little bit conservative on dividend payments. Dividends are important, but our ability to invest in double digits returns is even more important. So we have to balance that.

And we have increased dividends in the past. We have a $1.1 billion plan of investment for the future. So we will be mindful of dividends. But as long as our returns continue to be very high on the investment side, we will be a little bit conservative on dividend payments.

We were paying the neighborhood of, what, $58 million per year. Our dividends are dollar-denominated. And we pay them in pesos because we pay them inside of Mexico, but they are dollar-denominated. And they will grow from year-to-year by so much. That's what I can -- that's what I can say, Mariana.

[Operator]

Our next question is from Jorel Guilloty with Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

Congrats on the decade on the public markets. The first question is around onshoring. You mentioned as being a key driver to the leasing demand that you've seen so far over the past few quarters. In the...

[Lorenzo Dominique Berho Carranza, executive]

Sorry, Jorel. Can you get a little bit closer? Or can you try to speak a little louder? Sorry for that.

[Wilfredo Jorel Guilloty, analyst]

Can you hear me now? Is this better?

[Lorenzo Dominique Berho Carranza, executive]

That's better. Thank you.

[Wilfredo Jorel Guilloty, analyst]

Okay. So I have 2 questions. The first question is around onshoring. You mentioned it has been a key driver for leasing over the past few quarters or so. And I was just wondering if there's a way to quantify that. I don't know if there's perhaps a ballpark figure, like maybe into 20%, 30%, 40% of your new leases that are being driven by this onshoring trend? Any color you can provide to quantify that would be helpful.

And then the other question is around basically demand for land in the north. Because as we understand it, there's basically not much land left in Tijuana. And I was just wondering there -- at this point, are clients or yourself looking towards nontraditional border markets in order to build? Perhaps Mexicali or something along those lines? Given the fact that there's such land scarcity in Tijuana?

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you, Jorel, and thank you for participating today. Definitely, what we are seeing is we have never seen before. I mean, companies try to enter into certain markets. And you got it right, they don't find anything available and they start looking into alternative markets. And -- but let me -- so which is fine. I think that companies should at least make quick decisions. And the good thing about Mexico is that it's not about one market.

Nevertheless, I think that Vesta has a very strong focus into certain markets. And that's why we recently announced our 5 main regions where we're going to keep investing. So even if a client wants to expand in another region, that if it's not inside of our 5 rings, as we call it, 5 Olympic rings, we'd rather pass on the opportunities just because we want to be very focused, very disciplined and maintain leadership in the markets that we operate.

So hopefully, they look for other places, which has happened in the past. If they fall into it some other objective markets from Vesta, we can help them out.

What was the first question, sorry? Or the other question?

[Wilfredo Jorel Guilloty, analyst]

Yes. I was just wondering if you can quantify the onshoring trend you mentioned a key driver for leasing. And I just wanted to know if there's a percentage of leases that are coming from onshoring, or something along those lines.

[Lorenzo Dominique Berho Carranza, executive]

Sure. What I don't want to shoot from the hip on your question. So why don't you give me and Juan and Fernanda some homework, and we'll give you a little bit more detail.

I think that now that we have been seeing more results and more closings on the nearshoring trends and it's easier to track what has happened in the, let's say, last 6 to 12 months. And I think that should -- that could give us some good insight. But I don't want to shoot from the hip right now.

[Operator]

Our next question is from Armando Rodriguez with Signum Research.

[Armando Rodriguez, analyst]

Congratulations [ for finishing your sites ] and on these solid results. So I have to get a question related to your balance sheet and considering this strong, really strong demand on your company and the industry. So are you seeing maybe some changes related to loan-to-value level? For example, if you are going to maybe more debt in order to catch up this strong demand in the midterm, for example? That's my only question.

[Juan Felipe Sottil Achuttegui, executive]

Armando, good question. Look, it's certainly challenging to finance a $1.1 billion growth plan that we announced on the Vesta Day. That's certainly going to be challenging. However, we have a substantial cash reserve. We still have a substantial cash reserve. We started the year with $450 million. We are closing this quarter with close to $300 million. That's substantial, still. Our leverage will continue to go down in the sense that, as we convert dollars into properties and the properties get value, we're going to move the leverage closer to 32%, 31%.

At some point in time, however, we will leverage the balance sheet. As you know, we -- and I believe that we have the ability to do so. There is pockets on liquidity that will offer us attractive prices to leverage, and we will take advantage of those. And that's only one of the tools that we may do.

As you know, in the past, we have sold property portfolio, which is another way to continue our buildup. We sell properties that are not necessarily are the best properties of Vesta. They are just core properties of Vesta. And we do new buildings, which are top of the line. So that makes sense on its own. We sell our properties above net asset value, which is always nice and attractive for us. And so that's another mechanism to finance our growth.

So I believe that it is very achievable to use our cash to leverage in the future and to sell properties in order to achieve $1.1 billion investment over the next 4 or 5 years.

[Operator]

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Berho for any concluding remarks. Please go ahead, sir.

[Lorenzo Dominique Berho Carranza, executive]

Thank you. This year, we celebrated our 10th anniversary on the Mexican Bolsa. Vesta has demonstrated our success in anticipating trends and pivoting to capture important opportunities, also in climates of unprecedented crises. We're progressing our stated objectives reflected in our strong first half results and upward revision of our 2022 guidance. We remain committed to disciplined growth and on executing our Level 3 strategy forward. Thank you all. Goodbye.

[Operator]

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