Vesta Real Estate Corporation SAB de CV

NYSE:VTMX

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, everyone, and thank you for joining today's second quarter results call. We'd like to apologize for the inconvenience caused by our conference call provider's technical difficulties, and we very much appreciate your flexibility to rejoin Vesta's results call today.

[Operator Instructions] And as a reminder, this call is being recorded. With me today are Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, Chief Financial Officer. The earnings release detailing our second quarter 2023 results was released yesterday afternoon and it's available on the company's website along with our supplemental materials.

On today's call, management remarks [Audio Gap] and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, please review our public filings. Vesta assumes no obligation to update any forward-looking statements in the future.

Additionally, note that all figures included herein were prepared in accordance with IFRS, which differs in certain significant respects from U.S. GAAP. All information should be read in conjunction with and is qualified in its entirety by reference to our financial statements, including the notes thereto and are started in our U.S. -- in U.S. dollars unless otherwise noted. I will now turn the call over to Lorenzo Berho.

[Lorenzo Dominique Berho Carranza, executive]

[Foreign Language] Fernanda. Good morning, everyone, and thank you for joining us. It was an exciting and eventful quarter for Vesta. We announced our initial public offering in late June when Vesta raised the most funds by a Mexican company in nearly 11 years, bringing the total to $446 million with the overallotment. Our shares began trading on the New York Stock Exchange at market opened on June 30 under the VTMX ticker. Vesta's IPO enables us to continue funding our growth pipeline, capturing the important opportunities you've heard me described in the past.

During the second quarter, we continue to see strong fundamentals. Mexico's industrial production beat expectations in May, led by the construction sector as the new sharing trend continues to boost demand for infrastructure. Industrial output rose 1% from April compared to the 0% forecasted by economies surveyed by Bloomberg. Nearshoring is therefore one of the most important structural changes for Mexico's economy in decades, and today, Vesta is optimally positioned and funded to capture these opportunities.

Turning to Vesta's second quarter results. We delivered a nearly 21% year-on-year increase in revenues, driven by $6.6 million in new revenue-generating contracts and a $2 million inflationary benefit. Second quarter leasing activity reached 1.6 million square feet, including new contracts with outstanding companies such as Eaton, Amphenol, Sumitomo and Iron Mountain, among others, and [ 769 ] square feet in lease renewals.

An excellent example of today's nearshoring trends is Vesta's long-term client Amphenol Corporation, a Connecticut-based major producer of electronic and fiber optic connectors and one of the strongest rated and most stable clients with investors' portfolio.

Amphenol leased a portion of Vesta's new Vesta Park Mega Región in Tijuana, for which we recently held an inauguration ceremony. During the second quarter, we also saw continued positive signs within the Bajio market, particularly from the light manufacturing, automotive and logistics industries. CBRE noted 2.6 million square feet in net absorption during the first 6 months ended June 31, 2023, a 50% year-on-year increase.

Gross absorption reached nearly 3 million square feet in the first half of this year, also a 50% year-on-year increase. Vacancy also continued to decrease, ending the second quarter at 3.9%, the lowest level since 2018. This is an early sign of what we believe will be an ongoing trend, and commercial activity is expected to increase during 2023 as companies in the region have announced expansions and new investments.

The development plans Vesta has in place for our Bajio land reserves, we'll capture this trend to further close the gap between Bajio and Vesta's other regions. Vesta currently has 3.2 million square feet in total inventory and build-to-suit projects under construction. During the quarter, we began new construction on only one build-to-suit building for Eaton Corporation at the Vesta Park Queretaro.

We have started the year focusing and laying a strong foundation to accelerate Vesta's new builds in the second half with upcoming new projects in Juárez, Monterrey and Mexico City, among others. We're working with development teams to target larger projects within our 5 strategically defined regions, focusing on manufacturing and e-commerce opportunities.

We expect to begin construction of around 3 million square feet in the second half of 2023. Before I turn our conversation over to Juan, I wanted to touch upon some important updates in the first half of the year related to our ESG goals. During the first 6 months of 2023, we completed our Vesta environmental diagnosis, which was then used to calculate the baseline of our energy, water and waste consumption at Vesta's offices and our industrial parks. These results will enable Vesta to standardize our operating processes, implement a comprehensive waste management plan and to implement water and energy efficiency measures at our parks, offices and throughout our operations.

We were also extremely delighted to have been included within the 2023 Bloomberg Gender Equality Index announced last February. The gender equality index helps bring transparency to gender-related practices and policies at publicly listed companies and is further validation of Vesta's culture of inclusion, our related corporate policies and our investments in women in the workplace, our supply chain and the communities in which Vesta operates.

We encourage you to take a look at our 2022 annual report within our website's Investor and ESG sections to learn more about our related progress towards becoming leaders in ESG. With that, let me pass our conversation to Juan, and I'll return for some brief closing remarks.

[Juan Felipe Sottil Achuttegui, executive]

Thank you, Lorenzo, and good day, everyone. Let me begin with a summary of our second quarter results. Starting with our top line, total revenues increased 21% to $52 million, mainly due to rental revenue coming from new leases and inflationary adjustments on rental property during the quarter. As a reminder, most Vesta leases are indexed to inflation. Therefore, we continue to benefit from the favorable effect of higher-than-expected inflation on our top line results.

In terms of the currency mix, 86% of the first quarter revenue was denominated in U.S. dollars, a slight decrease from the 86.7% recorded in the last year comparable period. Turning to our cost structure, total operating costs reached $4.4 million in this quarter from $2.6 million in the quarter of 2022. This was mainly due to higher other property-related expenses, including legal expenses as well as security and public services related to expenses at our Vesta Park.

Adjusted net operating income increased 19.4% to $48.5 million, driven by higher rental revenue, while the margin contracted 86 basis points to 94%, mainly due to higher costs from rented properties. Administrative expenses were up 12.2%, reflecting the year-on-year peso appreciation, which in turn impact Vesta employee benefits, legal, auditing fees as well as higher noncash expenses due to an increase in the company's long-term compensation plan.

In turn, adjusted EBITDA reached $43 million in the second quarter of the year, a 17.5% increase compared to the prior year's quarter and the margin decreased 207 basis points to 82.5% as compared to 84.5% from the same quarter last year. Moving down the P&L., other income reached $67 million compared to $33 million in the second quarter of 2022. This increase was mainly due to higher property revaluation gains and higher foreign exchange gains.

As a result, we closed the quarter with a pretax income of $108 million compared to $67 million in the second quarter of 2022, while Vesta FFO increased 27% to $31 million. Now turning to our CapEx and portfolio composition. We invested $35 million in the quarter, mainly in the construction of new buildings in the Northern and Bajio region.

As of June 2023, the total value of our portfolio was $2.9 billion, comprised of 204 high-quality industrial assets with a total G&A of 34.6 million square feet and with 86% of total income denominated in U.S. dollars. Year-over-year, our stabilized portfolio grew 5.8% to 33.7 million square feet with an occupancy of 96.9% from 94.5% in the second quarter of last year. Our land bank stood at 37.6 million square feet as of June 2023, reflecting a 1.1% decrease from March 2023.

Turning to our balance sheet. We closed the quarter with a total debt of $929 million. Net debt-to-EBITDA was 5.4x, and our loan-to-value ratio was 30%. Cash and equivalents stood at $51 million, which when combined with our undrawn $200 million committed credit line provided us with a total liquidity position of $251 million at the end of the second quarter. As Lorenzo previously mentioned, subsequent to the quarter end on July 5, we closed our initial public offering in the U.S. and raised a total of $446 million that will enable us to accelerate our growth plan while access to a broader investor base.

Finally, on July 17, we paid a cash dividend for the second quarter, equivalent to MXN 0.30, for ordinary shares. This concludes our second quarter 2023 review. Fernanda, would you please open the floor for questions?

[Fernanda Bettinger, executive]

Yes. Thank you. We will now move to question-and-answer session. [Operator Instructions] Our first question comes from Rodolfo Ramos from Bradesco.

[Rodolfo Ramos, analyst]

Can you hear me?

[Fernanda Bettinger, executive]

Yes.

[Lorenzo Dominique Berho Carranza, executive]

Yes, we can hear you, Rodolfo.

[Rodolfo Ramos, analyst]

A couple of questions on my side. The first one is a follow-up on your comments, Loren, on the Bajio region and on the supply dynamics that you're seeing. I mean, the Northern, there's certainly no question about it. But just if you can comment on the dynamics that you see in the Bajio region? And in particular, if you can talk about Aguascalientes, where you have 1/3 of your land reserves and whether you see any potential there to increase your development pipeline?

If I'm not mistaken, you didn't include any -- you haven't included any projects there. So just wanted to see what the plan is there? And if not, if land sales are an option? That would be my first question.

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you, Rodolfo, for your question. And definitely, what we have seen recently is a very important uptick in terms of demand in the Bajio region in general terms. We saw that with several transactions in Queretaro, in Aguascalientes and also in San Luis Potosí, where we were able to close with Eaton in Queretaro, a larger facility and a build-to-suit project.

We leased also to Sumitomo in Aguascalientes, another supplier in the auto industry. And we have also closed a couple of transactions in San Luis Potosí to get us to basically being fully leased in San Luis Potosí. In Queretaro, we will -- we see a strong demand and strong pipeline building up.

And in Aguascalientes, it's pretty much a similar situation. Nevertheless, Aguascalientes, it's a more automotive-related market. Now what is interesting to see is also that rents are starting to increase, which is good news. That means that [ there's ] real estate fundamentals are strong. The vacancy rates have dropped and supply is still not enough for the demand that it seems that we are going to be still seeing.

So we're excited about the Bajio pretty much following similar trends to the North just a little bit later. And of course, we might consider some land sales in some markets like Aguascalientes. Nevertheless, we want to be patient also because we think that there could be a good wave of opportunities coming in the rest -- in pretty much in the whole Bajio region.

[Rodolfo Ramos, analyst]

And my second question was on the normalized level of administrative expenses that you're expecting. I mean, now -- I know -- if the U.S. listing will have any recurring expenses or just to help us think of that $6-plus million that you reported this quarter, how should we think about that on a more normalized ongoing level going forward?

[Juan Felipe Sottil Achuttegui, executive]

Well, Rodolfo, first of all, on our expense level this quarter in administration expenses, I think that a significant portion of the increase was due for the exchange rate. Please bear in mind that, as you can imagine, the IPO expenses of the New York Stock Exchange were capitalized as it is normally done. However, looking forward, being in the U.S. will -- in the U.S. stock market will require some incremental expenses, mainly in auditing charges and things like that. But the benefits that we get for being in that market far benefit the company a lot more than the expense side would be.

[Fernanda Bettinger, executive]

Thank you, Rodolfo. Our next question comes from Javier Gayol from [indiscernible]

[Unknown Analyst]

Can you hear me loud?

[Fernanda Bettinger, executive]

Yes.

[Lorenzo Dominique Berho Carranza, executive]

Yes. Perfect.

[Unknown Analyst]

Right. Congratulations on the results. I was wondering regarding CapEx. I think you mentioned at the beginning, Lorenzo, that you're going to do strong investments for the remaining of the year, mainly, I think you mentioned Mexico City, [ Queretaro ] and some other region.

Just to understand if you believe that by the end of the year, you would be able to reach that $350 million CapEx deployment program that I think that was the guidance -- that was the expectation. And if so, how many projects are you guys expecting to bring to the table over the next couple of months?

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you, Javier, for being on the call, and thank you for your questions. Just to give a bit more -- a better picture what we are working on. Last -- end of last year, fourth quarter 2022, we were able to start construction of approximately 2 million square feet, which currently are under execution. And actually, it was a major quarter for construction starts and therefore, we saw somehow a slower first and second for this year.

However, we see a very strong dynamism in most of the markets, and that's why we are laying the ground to start construction for approximately 3 million square feet throughout the next quarters. That's going to be -- that's a very good number, and that reflects clearly the greater demand that we're seeing in most of the markets.

That, together with a couple of land acquisitions as well as some infrastructure that we need to put in place for many of the Parks to anticipate for potential demand, that will take us close to the -- approximately to the $300 million mark that we mentioned. However, I mean, I'm not giving any just exact numbers, but this is just to give you an idea of how active we're going to be. And definitely, we see that, that actually is probably the third quarter is going to be a very good quarter for a lot of CapEx and new construction starts.

[Fernanda Bettinger, executive]

Thank you, Javier. Our next question comes from André Mazini from Citi.

[André Mazini, analyst]

First off, congrats on the U.S. IPO. It was quite an achievement. So two quick ones. First, on the recycling of waste and water that Loren mentioned in the beginning. Do you see that also becoming a bigger concern for tenants with the whole ESG preoccupations and focus that we've seen over the past years, of course? And are they demanding like specific metrics such as LEED certification or some others, like the top tenants, maybe the international guys, that you might have and some competing player, a little bit less structure wouldn't have another way of putting it, would that be a competitive advantage -- a tangible competitive advantage vis-a-vis some other players?

And the second one, also a follow-up on the Bajio. Of course, like a common knowledge would think that there is ample land in the Bajio. So competition would be easy to go there as well because there's ample land. On the other hand, we will see permits being harder, also the securing of water and energy also being a challenge. So how is that force is shaping out? Is it still new supply easy to be had in Bajio or because of the permitting water, energy situation, it's harder the margin for new supply to come along in Bajio?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, André, for being on the call and for your question. I will start with the second one on the Bajio. Definitely, the Bajio is -- it's about several markets. And what we believe is one of our main advantages is that we have good land with great infrastructure, which means great utilities in terms of water, in terms of telecommunications and also in terms of energy. So even that there's more land available, there's really not a lot of land with improved infrastructure.

Actually, land with good infrastructure for industrial is increasing dramatically in terms of pricing. So even if there's a competition that would like to enter the market, it's really not easy to have improved land. Land is available but not improved land with infrastructure. So that's why we have a main advantage. And now that we see a stronger -- a bigger wave coming now in the Bajio region, we think that we have a greater advantage to -- in the region. So it's not going to be easy for new competitors just to enter the market.

And regarding the water, waste management and other ESG initiatives that we have, well, we believe that Vesta has very well designed its sustainability guidelines for construction, and that's why we are -- we share them also with our clients. We have a very strong focus towards getting all of our new projects being certified, LEED certified most of them. And actually with a higher degree of certification, let's say, higher qualifications.

And we believe this is a great differentiator to most of the market. There are several developers that actually have been shifting from retail, office and even housing to industrial. And probably the lack of experience is putting them more to develop, let's say, basic type of buildings, and Vesta has way higher standards, including certifications and LEED standards. And that's going to be very helpful for the type of companies and clients that have very high objectives in terms of their -- meeting their global net zero objectives, meeting a higher standard system in terms of sustainability.

And that's why it's not surprising to see the type of clients we're closing transactions with. These are great companies, investment-grade companies that have great business practices. And that's why matching a Vesta park, a Vesta building best-in-class to those types of clients makes us -- makes our buildings to have a competitive advantage to the rest of the market.

[Fernanda Bettinger, executive]

Thank you. Our next question comes from Jorel from Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

So my first question is, I was wondering if you can walk us through the thought process on the leasing dynamics for your development pipeline, excluding build-to-suits. If I look at your development pipeline, as of 2Q '23, I see that some projects are 100% leased and other projects are not leased at all. So I was just wondering how do you afford the projects that you're currently developing and which you will add to your pipeline in the future, are you more targeting pre-leasing them before they're done during the construction process? Or are you looking more towards delivering them and then starting to do lease up?

And then the second question sort of tied to the same thing. You added a build-to-suit in Queretaro this quarter. And it's interesting because the yield on cost on that one is actually one of the highest yield on cost on the -- on your pipeline, it's about 10.6%. So is this a unique situation? Or are you expecting build-to-suits to perhaps have higher yields versus inventory, which I would think typically is in the case?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Jorel, for your question. Well, sure, let me walk you on our thought process on leasing. We're developing a lot of spec buildings, that's correct. We believe that there's a -- our strategy towards spec has been -- has created -- given great results. And we'll definitely market our buildings from -- even before starting construction, sometimes we're able to pre-lease those buildings. And sometimes, we hit the market with buildings available and gives us also an opportunity to lease them up in a, let's say, a short period of time.

So both ways are attractive because in the end, when you have such a strong market, one of the -- and demand is equally strong, one of the main things that we are doing is being very disciplined in having great companies. When I say great companies, it's investment grade. It's going to be long-term leases in U.S. dollars. Adjusted -- our lease agreements are -- all of them are being adjusted to inflation annually.

And the idea of still target -- and some of them are done on the construction phase for re-leasing, but some of them come later on. But the market is so strong and our product type is real -- has the highest standards that we believe that those buildings will be leased up in a short period of time. So we are very confident on that strategy and returns are pretty attractive.

You mentioned the yield on cost for Queretaro's build-to-suit project. Well, it's a good risk-adjusted return, 10.5% yield on cost for a long-term lease with a good company. And one of the key characteristics about our approach in Queretaro is that since we acquired the land at a competitive cost, plus we included greater infrastructure at competitive costs, we have a good cost basis for our land.

So the land acquisition strategy for Vesta is key because this is where you can really be able to develop at higher returns, but we need to anticipate to find the land, acquire land, put the infrastructure in place and then be able to market that so that when opportunities like this build-to-suit can come, we can benefit from that. Returns are going to be different market by market, transaction by transaction, but the idea is to have a good spread investments in either spec, build-to-suit projects and even some opportunistic acquisitions. Thank you, Jorel.

[Wilfredo Jorel Guilloty, analyst]

One follow-up, if I may. So should we expect then the bulk of your portfolio as you develop it and you finish it that it's going to be mostly unoccupied and then you lease it up post-delivery?

[Lorenzo Dominique Berho Carranza, executive]

Not everything is post-delivery. I would say that now with such strong demand, we might see a good portion being pre-leased, a good portion being 30%, 50% probably. But what we're definitely going to continue to do is doing spec buildings and actually try to turn them in what we call spec to suit at some point. So we're going to still continue to have a balance of both.

[Operator]

Thank you, Jorel. Our next question comes from Carlos Peyrelongue from Bank of America.

[Carlos Peyrelongue, analyst]

Sorry, can you hear me now?

[Lorenzo Dominique Berho Carranza, executive]

Yes, yes.

[Fernanda Bettinger, executive]

Yes.

[Carlos Peyrelongue, analyst]

My question has already been answered.

[Fernanda Bettinger, executive]

Our next question comes from Paco Suarez from Scotiabank [Foreign Language]. He's already on. Paco, can you hear us? [Technical Difficulty]. Okay. So next is Anton from GBM.

[Unknown Analyst]

Guys, can you hear me there?

[Lorenzo Dominique Berho Carranza, executive]

Yes.

[Fernanda Bettinger, executive]

It's perfect.

[Unknown Analyst]

Yes, perfect. Congrats on your results. Mine is a little bit of a follow-up on Javier's question and the CapEx deployment. Just to see if I got it right, you're expecting for next quarter around 3 million square feet of development starts, this is besides what you already have in your current development pipeline, right?

[Lorenzo Dominique Berho Carranza, executive]

Yes, that's correct.

[Unknown Analyst]

And on that current development pipeline, so you have like $30 million that you were expecting to deploy during July. So how is that deployment going? Will it be finished during this quarter? Or if you could provide some detail on that?

[Lorenzo Dominique Berho Carranza, executive]

Sure. I think it's hard to give detail on each month, Anton. But probably because in the end, what -- we like to see the overall picture. So for us, it's important to concentrate for the construction starts for this following semester -- second semester 2023. However, these are larger cycles. Actually, what we're working today already in projects that will be even started in first quarter 2024 because our CapEx projections are not only for the year but also for the upcoming years.

So in a broader case -- in a broader way, we expect to have a good 3 million square feet of construction starts for the end of this year, but we will continue to have a sizable amount for 2024. So sometimes it falls in one particular month. Sometimes that changes, but the general picture does not -- should not change materially.

[Fernanda Bettinger, executive]

Thank you. So we're going to go ahead and try again with Paco from Scotiabank. Paco, can you hear us?

[Francisco Suarez, analyst]

Yes. Hello, can you hear me now?

[Fernanda Bettinger, executive]

Yes, perfect.

[Francisco Suarez, analyst]

Sorry, apologies for my mess on my end. Apologies. So the question that I had, I was a little bit concerned to see the low lease in your new developments about to be delivered in the third quarter in the northern part of Mexico where nearshoring is actually the strongest. So can you give us a little bit of color on what your expectations are on the lease-up period on the spec properties going forward?

And I remember a lot of -- something that you said once to me, Loren, in the sense that you always prefer to have an empty building rather than a low-quality tenants. So I want to understand why if overall conditions are so strong, your overall leasing reported at the end of the second quarter was kind of relatively low in the northern part of Mexico?

And if I may add to a related question, a strong competitor from you actually confirmed that it had a lot of issues in starting new projects. They basically said about energy-related problems and entitlement as well. I just want to get a sense of what your views are generally speaking on all your land reserves, not only in the Bajio region as you expected that you already explained that?

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you, Paco. Well, I think that definitely, demand is strong in the north part of Mexico. Particularly, we have projects in Monterrey, Tijuana, and Ciudad Juárez. However, we are on the construction phase for many of them as you can see in part of our pipeline. And we are on marketing stage on actually all of them. Sometimes they get close in an earlier stage, sometimes a bit later. But I think that only one quarter does not really give an overall picture. I think it's probably a combination of quarters.

And if you recall, what we did earlier this year by being able to close with important transactions in Ciudad Juárez with DB Schenker when a project that actually it's just started construction this year or, let's say, end of last year. The same in Tijuana with Amphenol, TCL, AeroBase, Home Depot and the same for Monterrey with Polaris. So for the rest, we're in the marketing stage. And I'm pretty sure that if it doesn't fall this quarter, it will probably fall in the upcoming quarters.

However, it doesn't have any material impact on rent collection. So that's why I reiterate our disciplined approach to have good companies with good leases. And hopefully, we can be able to lease up at a good moment and start generating income soon. So that should not have a major impact. And again, what is important right now in our development pipeline is that we continue to execute well, finalize the projects and hopefully being able to lease them up soon.

And regarding energy, yes, energy has been an issue for a while in different markets, and we are addressing those issues with particularly when it comes to light manufacturing -- when it comes to logistics, it's not a main thing. But when it comes to light manufacturing, that's when we have to anticipate for -- to our clients, and that's how we have been dealing in Tijuana, for example, and Monterrey.

However, with high consumers of energy, it is definitely very challenging. Heavy industries are going to still see that very challenging. So that's why for us, it's important that whenever we acquire land, we also start the bureaucratic process of to getting energy as soon as possible so that when tenants start their operation, there is already some energy in place so that they can start for whatever manufacturing process they may have.

[Francisco Suarez, analyst]

Got you. So in other words, you are not experiencing that sort of issues like what has been disclosed by your competitor?

[Lorenzo Dominique Berho Carranza, executive]

Sure. I don't know what they disclosed. There's definitely issues we are facing, but we are finding solutions to that. If -- so in the end, I think that -- there's energy in the country. It's just challenging to get enough energy for certain regions. And in our case, that's why anticipating has been key for our projects.

[Francisco Suarez, analyst]

Got you. And just to be clear, so no changes whatsoever in your underwriting policies. I mean, you still abide to this idea of having the right tenants, the right leases, I mean, they're -- and compensated by the rents?

[Lorenzo Dominique Berho Carranza, executive]

Yes, absolutely.

[Fernanda Bettinger, executive]

Thank you, Paco. Our next question comes from Francisco Chávez from BBVA. Francisco, can you hear us? [Technical Difficulty] Okay. Perhaps we will go to the next question from Felipe Barragan from BTG.

[Felipe Barragan, analyst]

I have a pretty quick one. So this quarter, you guys delayed the Apodaca 2 project. I'm guessing it's just a one off. If you could just explain what happened if it's something that could happen again in that?

[Lorenzo Dominique Berho Carranza, executive]

Felipe, thank you very much for your call. Yes, that's -- we delayed -- the project was delayed, particularly because it is a project that is already leased. It's leased to Polaris. And actually, this is a negotiation that has -- was there for a while. And there were certain improvements that they wanted to do to the building and they asked us to kind of hold on for a period of time so that they could, let's say, phase out together with us while we were under construction so that they could get their operation in place and get their improvements -- their tenant improvements in place at the same time.

However, that is even -- that is offset by the long-term lease agreement we did with Polaris. It's a combination with that manufacturing facility as the other logistics facility, which is Building #1 that it's already been delivered. And it's actually also because of other potential projects that we are analyzing with Polaris as well.

[Fernanda Bettinger, executive]

Thank you, Felipe. We will try one more time. Francisco Chávez, can you hear us?

[Francisco Chávez Martínez, analyst]

Can you hear me?

[Fernanda Bettinger, executive]

Yes, perfect.

[Lorenzo Dominique Berho Carranza, executive]

Yes.

[Francisco Chávez Martínez, analyst]

Great. And congrats on the strong results. I have two questions. The first one is regarding your land bank, which remained flat quarter-on-quarter. Do you plan to make some acquisitions soon? And when can we expect some news regarding the land reserve that you acquired near Mexico City?

And the second question is regarding the FX and the impact on your EBITDA margins. Do you plan to do some hedging activities in order to cover a share of your expenses denominated in Mexican pesos?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Francisco. So Juan, would you like to answer the question related to FX, and I'll answer the rest, please?

[Juan Felipe Sottil Achuttegui, executive]

Sure. Look, Francisco, I think it's an important question, and thank you for asking it. The company is significantly [indiscernible] dollars. And our expenses are in pesos. I believe that this is the right profile for a company for more than 70% of my investors are dollar-based. Right now, the peso has appreciated and therefore, we have some impact on our income statement. By the way, I think the impact is more significantly on the cost of maintenance of properties rather than the administrative cost.

But nevertheless, I don't -- I do not hedge those expenses. I think that I have the right profile for my investor base. And I think that most of you will understand that at this moment in time, the strong pesos are hurting the margins of most industrial companies in Mexico now. I don't see why I should spend some actual cash in just playing an exchange game that over the long term will be beneficial for Vesta and most of my shareholders.

[Lorenzo Dominique Berho Carranza, executive]

Perfect, Juan, thank you. And regarding our land reserves, we are -- we did -- we have acquired land in the last months -- in the last quarters. And we will start construction soon in Mexico City and other markets, which will immediately -- by starting construction that will reduce our land bank because this will be construction in progress. And there are certain markets where we are already evaluating land acquisitions.

And -- but the markets where we have plenty of land for the next couple of years, we are not going to be acquiring more land. So we want to have a very, very disciplined approach on land acquisitions. It's a land that we might be using whenever we -- if we buy new. But if we already have land, we want to take the most advantage of it when need it. Even sell some land if there is an opportunity in some cases as we have done in the past. Thank you.

[Fernanda Bettinger, executive]

Thank you, everyone. This concludes our question-and-answer session. I would now like to turn the call back over to Lorenzo Berho for closing remarks. Please go ahead, Lorenzo.

[Lorenzo Dominique Berho Carranza, executive]

[Foreign Language] Fernanda. I'd like to share my sincere gratitude to our dedicated employees and to our valued stakeholders who have been an important part of our success on this journey. We look forward to this exciting chapter, and we'll continue to leverage Vesta's privileged position, time-earn experience and demonstrated track record with our determination, both vision and our optimism about this moment for Vesta and our country. Thank you, everyone, and goodbye.

[Fernanda Bettinger, executive]

Thank you, once again, everyone, for your patience and flexibility today. We again apologize on behalf of our conference call provider. You may disconnect your lines at this time.