Macquarie Mexico Real Estate Management SA de CV

OTC:DBMBF

Earnings Call Transcript 2019-Q2

[Operator]

Good morning and welcome to FIBRA Macquarie's Second Quarter 2019 Earnings Call and Webcast. My name is Carmen, and I will be your operator for this call. [Operator Instructions]

I would now like to turn the conference over to Nikki Sacks. Please go ahead.

[Nikki Sacks, executive]

Thank you, Carmen, and good morning, everyone. Thank you for joining FIBRA Macquarie's Second Quarter 2019 Earnings Conference Call and Webcast. Today's call will be led by Juan Monroy, our Chief Executive Officer. And to answer any questions you may have at the conclusion of today's prepared remarks, we also have Simon Hanna, our CFO; and Peter Gaul, MPA's Head of Real Estate Operations. Before I turn the call over to Juan, I'd like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any securities.

Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities could differ materially from those expressed or -- expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified. As usual, we've prepared supplementary materials that we may reference during the call as well. If you have not already done so, I would encourage you to visit our website at www.fibramacquarie.com and download these materials. A link of the materials can be found under the Investors, Events and Presentations tab.

With that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Juan Monroy.

[Juan Monroy, executive]

Thank you, Nikki. Good morning, and welcome to FIBRA Macquarie's Second Quarter 2019 Earnings Conference Call. On our call today, we will review our operational and financial performance and discuss our ongoing progress in creating long-term value. We are very pleased to be reporting another quarter of record AFFO per certificate results. Our record performance adds to our consistent operating track record and reflects our unwavering focus on maintaining a best-in-class real estate platform. I'm excited to announce today that this performance, along with a stable outlook for the second half of the year, allows to raise our guidance in both our per certificate AFFO and distribution guidance for the full year. We have consistently executed on a strategy which is focused on the sourcing and deployment of capital in an accretive manner on a per certificate basis, along with strengthening the quality of our real estate and balance sheet. We believe that the successful execution of this strategy is reflected in the strong and sustainable operating and financial results that we reported to the market yesterday. This has been achieved among a firmly balanced macro backdrop, with Mexico continuing to navigate political and economic concerns, providing a stability to the country as a whole. Despite this, our industrial and retail tenants are generally doing well, in particular, with expert focused manufacturers continuing to remain competitive by virtue of being based in Mexico, and the strong U.S. economy.

To highlight one relevant data point, Mexican auto experts in the first 6 months of 2019 were up 3.1% year-over-year to a record 1.75 million units. In the retail sector, our tenants are also generally performing well, supported by steady employment, real wages growth and contained inflation. It is worth noting that our strategic exposure to a tenant base, representing 2 of the best-performing sectors across the Mexican economy, along with limited new supply, has contributed to our ongoing positive results.

I'd like to take this opportunity to highlight some key accomplishments. We have achieved record data flow per certificate results for the second consecutive quarter. We have done this, in part, by achieving record portfolio occupancy levels for the fourth consecutive quarter, driven by our investor portfolio, which reached 96.8% occupancy at quarter-end; completion of over $500 million accelerated refinancing program, which derisked our balance sheet and added flexibility; extended maturities; and further diversified our lender base. We have now deployed around $33 million of capital since 2017 in accretive expansions and developments, which have added value to our portfolio and increased our GLA by 606,000 square feet.

Finally, the repurchase for cancellation of 41.4 million certificates, or 5.1% of our certificates, has crystallized accretive returns, which we now enjoy on a permanent basis.

Collectively, all these activities have contributed to our strong performance today, which give us solid footing to increase our full year AFFO per certificate guidance by [ 3% ] to now flow in the range of MXN 2.50 to MXN 2.55 compared to our prior quarter guidance of MXN 2.45 to MXN 2.50. In addition, we are also increasing our full year cash distribution guidance by 3.5% from MXN 1.70 per certificate to MXN 1.76 per certificate, which represent an increase of 10% over 2018. Even with this meaningful increase, we are maintaining a very secure AFFO payout ratio.

Now turning to the second quarter results. We delivered second quarter AFFO per certificate growth of 5.1% equal to MXN 0.6348 per certificate, representing another record result. This performance was driven by robust growth in our same-store portfolio during the quarter, which produced a 5.2% NOI increase compared to the prior comparable quarter. Our industrial portfolio recorded another quarter of positive performance, with increases in both occupancy and rental rates. This combination led to total industrial NOI increasing 1.3% year-over-year to MXN 695 million, a particularly impressive achievement, given the loss of NOI from the 35 industrial properties that we sold in July of last year. The industrial portfolio occupancy rate as of June 30 was 96.8%, up a meaningful 426 basis points from 12 months ago and up 200 basis points, sequentially. The increase in occupancy was driven by another robust quarter of leasing activity. This was reflected first by a continuing strong retention rate of 88% over the trailing 12 months. Second, by new leasing activity with 8 tenants totaling 605,000 square feet, our most active quarter since 2016. And third, by recording our lowest moveouts in a quarter, [ dropped 3 tenants ] representing slightly more than 100,000 square feet, all of which was released during the quarter.

As I previously noted, in addition to strong occupancy, we recorded positive rental spreads, with second quarter 2019 rental rates up 3.1% on an annual basis. It is pleasant to see positive spreads on leasing renewals being sustained for the fourth consecutive quarter, reflecting ongoing healthy market fundamentals and tenants less inclined to vacate space while they enjoy a period of robust export manufacturing activity. We continue to see demand from a wide range of industrial segments with notable new leases, including a logistics provider in Monterrey and Matamoros, and auto parts manufacturers and suppliers in San Luis Potosi, Saltillo and Puebla. Profit for [ 17 ] industrial markets now have occupancy of at least 99%. At the halfway mark of the year, we're well positioned to comfortably manage what will still be a busy second half of the year, with approximately [ 2.1 million ] square feet of scheduled industrial portfolio expirations.

In terms of our retail portfolio, we delivered NOI of MXN 150.6 million for the quarter, a 1.6% increase from the prior comparable period. Highlights for the quarter included a strong 5.3% increase in average monthly rents, driven by scheduled contractual increases, reflecting underlying escalation in Mexican [ TPI ], with ongoing positive leasing renewal spreads and new leases being struck at above portfolio average rates. Our occupancy did slightly decline year-over-year to 93.6%. It improved 10 basis points sequentially, as we enjoyed 6,600 (sic) [ 606,000 ] square meters of new leasing activity, our highest quarter since 2015.

In addition, we successfully managed through a record quarter of lease renewals totaling 23,600 square meters. During the quarter, we signed 74 retail leases, representing approximately 30,000 square meters. This comprised 30 new and 44 renewal leases. Of note, during the second quarter, an anchor grocery tenant vacated FIBRA Macquarie's Grand Polanco property in Mexico City. The tenant paid in full its termination obligations, which accelerated income recognition that otherwise would have been earned in later quarters, and we efficiently re-let the same space during the quarter to a gym operator under a long-term lease. Of note, 3 anchored tenants were contracted during the quarter, taking into account the renewals 2 family entertainment tenants, totaling 14,400 square meters at our Coacalco and Tecamac power centers.

Finally, at City Shops Valle Dorado, we completed the 100% lease-up of a small office expansion, where we converted nonincome producing common area to office GLA. The project is a great example of FIBRA Macquarie's proactive asset management, with 2,200 square meters of 100% owned, fully restocked office space, generating additional NOI and good traffic to this Mexico City shopping center.

In addition, in June, we completed the sale of the final 2 assets that were under contract and part of a portfolio sale we announced last year. The proceeds will be used to partially finance the completion of 209,000 of square foot in standard industrial development project into Ciudad Juárez, where occupancy is at a record high of 99%. In other project means, we have 2 expansion projects underway, both of which we anticipate completing in the second half of this year. We sought a 47,000 square foot industrial expansion in Reynosa and a 2,100 square meter retail center expansion with a new high-quality anchor tenant, Cinépolis at Multiplaza del Valle in Guadalajara.

Additionally, the remodeling work at 3 of our retail centers in Mexico City is progressing well. We're making improvements to the properties that are expected to be completed prior to year-end, and we expect this will enhance the customer experience to attract and retain high-quality tenants. For the first half of this year, we have efficiently sourced $33 million of capital from a fixed -- from a mix of retained AFFO, asset sales and surplus cash, with deployment allocated mainly to CapEx initiatives of $10 million and debt repayment of $18 million.

Speaking of our balance sheet, as previously announced, during the quarter, we closed on $425 million 5-year unsecured credit facility as well as a new $75 million 15-year secured term loan facility, which further enhance our debt maturity profile. At this time, our next debt maturity will not be until 2023, and our overall weighted average debt tenure is among the longest in the sector, at approximately 6.6 years. We have strong liquidity with an undrawn revolver of $145 million, while our net debt-to-EBITDA ratio continues to edge closer to our target of 4.5x, closing the quarter at a comfortable 4.7x. As of June 30, our regulatory debt ratios were stable, both on a quarter-over-quarter and year-over-year basis, with our regulatory debt to total asset ratio of 35.1% and our regulatory debt service coverage ratio at 5x.

As we look to the balance of the year, we remain optimistic. As reflected in our increased guidance, we are focused on leasing, servicing our customers and executing on our capital strategy as we face a mixed macro backdrop. While stock uncertainty remains in terms of the trade and political environment, there are also a number of encouraging elements. In particular, we're seeing favorable dynamics in the car sector as production for exports is doing well. Consumer spending in Mexico is positive with increases in relevant areas, such as supermarkets and movie theaters.

Additionally, Mexico is seeing some incremental interest from manufacturers looking for alternatives to their Chinese operations. This is a dynamic we are seeking and are indeed well placed to leverage. Before I wrap up, I'd also like to note that FIBRA Macquarie has recently published its inaugural sustainability report, reflecting on our ESG strategy and achievements accomplished over the past year. We are very proud of this report, which can be found on FIBRA Macquarie's website. We hope you find it a valuable addition to our ongoing reporting frameworks.

In conclusion, we are pleased and encouraged by our sustained strong performance. We're seeing the positive results of consistent execution by our local real estate team, along with the benefits of the investments and capital allocation decisions we have made over the past couple of years. I would like to thank the entire FIBRA Macquarie team for their unwavering hard work and commitment to having a best-in-class platform and to everyone listening for your ongoing support.

And with that, I will ask that our operator open the phone lines for your questions.

[Operator]

And we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Alan Macias with Bank of America.

[Alan Macias, analyst]

Just 2 questions for me. First, on your retail sector, do you keep tabs on traffic and tenant sales in your shopping malls? And if you can share that trend through the -- for this year? And the second question is on e-commerce. In your industrial portfolio, do you see any opportunities in the logistics side related to e-commerce?

[Juan Monroy, executive]

Sure. [Foreign Language] Yes, in terms of our retail properties, yes, we do track on a monthly basis, both through traffic and cars, as it relates to parking and also sales for selected tenants. Not every tenant will report sales into us, but typically, we will have sales from supermarkets and peers and some restaurants. I can tell you that generally we've seen a very good trend. Obviously, there are differences on a property-by-property basis. But some examples will be along supermarkets at our properties have posted year-over-year increases in sales at -- of about 9%. Movie theaters are doing great this year. Obviously, some seasonality there in connection with their own particular business. Restaurants are performing strongly as well. And just in general, we're seeing increases in both foot traffic and car park income, in connection with our ongoing marketing activities. So in general, I'll say that we continue to see a fairly strong Mexican consumer that is ultimately reflected in the performance of our tenants.

With regards to the e-commerce/logistics opportunity of our industrial portfolio, we are now -- we now absolutely see an attractive long-term trend where we see e-commerce being a driver of industrial real estate demand in Mexico for sure. As you all know, industrial real estate in Mexico is primarily light manufacturing, but we do see, similarly to the U.S., a substantial growth in logistics, and a good chunk of that we expect to be driven by e-commerce. So we are bullish on that for the long term. I guess in the short-to-medium term, maybe an adjusted expectation on growth, given a reduced growth expectation for the overall Mexican economy, as that will be an important driver for logistics related to the domestic consumption. So maybe a slight adjustment on growth, still positive, of course, and definitely bullish over the long-term. And at FIBRA Macquarie, we'll always be well placed to capture on that long-term trend.

[Operator]

Our next question comes from Dan McGoey with Citigroup.

[Daniel McGoey, analyst]

Congratulations on the results. Question on strategies to grow AFFO per share. You've executed on some, I guess, important proactive strategies to grow AFFO per share in the past, like portfolio recycling as well as capital retention and investment in the expansions. The recycling that I think you mentioned in your press release, you're now pretty much complete with that. Wondering, what are the top opportunities as you see it for growing AFFO per share above a sort of baseline market growth rate as we look ahead?

And then the second question is just on the development, the 200,000 square foot in Ciudad Juárez that will be completed in the second half, if you could talk a little bit about your expectations on timing of lease up?

[Juan Monroy, executive]

Yes. Thanks for that question. I think one, obviously, as you say, we are very happy with seeing that the results of our commitment to a very clear strategy that we've been executing on with a particular focus on very prudent capital management, both on the sourcing and the uses. As you well noted, a fairly simple, but powerful value creation strategy as we -- what we've done is clean up the portfolio by selling noncore assets and use those proceeds to fund our expansions and development pipeline, do some buyback and repay some debt. So when you look at our portfolio as a whole and our risk profile has increased importantly with a higher quality real estate, and they certainly are a much improved risk return profile.

In terms of going forward, the -- in terms of increasing AFFO per certificate, well, it will continue to be similar to the past. We will be focused on a few things. Obviously, from an organic growth perspective on being very committed to a best-in-class real estate platform and servicing our customers with our goal of increasing tenant retention, rental rate occupancy, ultimately increasing NOI. And then also in funding our expansions and development pipeline, expansions, what we do there is just being very close to our customers and respond quickly to the real estate needs in Mexico, and we'll continue to do that. As you know, we'll do those expansions all day long and look to continue with our development program, which we anticipate in the medium term, having a program where we develop about 1 million to 1.5 million square feet of industrial GLA of our Class A product in our core markets. A good chunk of that will be funded by our retained AFFO, that as previously stated, that's a great way to increase long-term value as that's the most efficient source of capital that we have, and we are reinvesting at attractive yields somewhere between 10% and 12%, where historical track record being at 11.9%, approximately. So yes, that's the plan then.

[Daniel McGoey, analyst]

And so the lease-up on the 200,000 square foot project?

[Juan Monroy, executive]

Yes. Sorry. Sorry. Yes. On that, construction is progressing well. We anticipate construction completion during this third quarter, and we have some good prospects. There's a good platform for leasing that building. The market is performing strongly, ourselves are at 99%, and we continue to see a number of prospective customers [ through ] the market, so we expect a prompt lease period probably early in the new year.

[Operator]

Our next question comes from Eduardo Alvizouri with GBM.

[Eduardo Alvarez, analyst]

Congrats on the results, first of all. And I have 2 questions. One is about development and expansions. Given the strong performance in northern markets, do you expect new developments in like capital allocations on your developments besides the Ciudad Juárez development? And my second question is as 2019 has shown a neutral effect, under this scenario, when does management expense -- expect to start distributing tax results as opposed to current capital returns?

[Juan Monroy, executive]

Yes. Well, thanks for your questions. With regards to your first question in terms of the markets that we're focused on for development, yes, certainly Juárez is a core market that we'll expect to continue developing there. In addition to Juárez, the core markets that we are looking to continuing expansion on an accelerated basis, obviously, being probably prudent in terms of evaluating carefully the market dynamics. Those will be the markets of Tijuana, Monterrey, Guadalajara, Mexico City and very selectively, [ Ajillo ] -- some of the [ Ajillo ] markets as well. With regards to your second question, Simon, you want to touch on that?

[Simon Hanna, executive]

Yes. Just with regards to where we are on that, on Slide 36 of our supplementary information, it gives us an update. We're -- our retained losses at 30 June at MXN 286 million. So that's come down, I think, from the end of Q1 with our MXN 359 million. We've, in fact -- our forecasting based on the current FX rate to being a taxable result position by the end of the year. So with that, we are already planning for making the right allocation between capital and income, and in fact, our first quarter distribution that was paid recently, that was actually allocated 50% capital, 50% income. And it's fair to say that FX levels stay where they are as of today through to 31 December, then roughly, that should result in a taxable allocation of 50/50 again between income and capital. The key sensitivity here is obviously the closing FX rate as of 31 December, so that's going to obviously drive the final taxable result. Important to note that we have enhanced flexibility with regards to managing the optional allocation between capital income. You may recall that we have shifted our distribution timing so that we have now 3 distributions in respect to this year being paid between January and March of 2020. What that does is obviously just more capability to optimize, as I say, the allocation of the taxable component as close as possible to the final results. So as it stands, and as I say, we should be on track for a roughly 50/50 allocation of these FX levels, but we do give some additional sensitivity analysis on that Slide 36 in the supplementary information.

[Operator]

Our next question comes from Jorel Guilloty with Morgan Stanley.

[Jorel Guilloty, analyst]

I have 2 questions. And apologies in advance, if you answered them before, I got cut off. So first off, you raised your guidance for the dividend, but at the same time, you still have significant capacity to keep on raising your payout ratio, so I wanted to better understand what your criteria was when you consider raises such as the last one and if we should expect a higher payout ratio maybe next year.

My second question is I wanted to better understand your opportunity set for e-commerce focused logistics. So is it mostly through M&A? Is it through development? Is it through remodeling assets? Those are my questions.

[Juan Monroy, executive]

Thanks for your question. Yes, our distribution increase of this quarter, which we are very proud of, the criteria behind that was essentially outperformance. We've increased our AFFO importantly, and our expectation for the full year is for an increased AFFO result. So as a result of that better-than-expected performance is that we are being consistent and increasing our distribution accordingly by 14% when you compare it to the same quarter of last year. In total, we expect about a 10% increase compared to 2019 to 2018. Whilst we are still maintaining a pretty comfortable coverage ratio on our distribution, I think the highest in the industry.

And our plan with regards to distribution, as you know, to maintain for the future, a competitive distribution level, increase it gradually based on performance and inflation expectations. We do have a low AFFO payout ratio, which does provide flexibility to invest in a growth market, like Mexico, and accretive opportunities that create long-term value, so which will balance the current short-term distribution. We are focused on creating long-term value. So certainly, opportunity to continue increasing our distribution, not only for 2020, but for future years as well, Jorel.

In terms of your e-commerce logistics question in regards to where the opportunity might come from. I think that's from M&A. As opposed to the U.S., Mexico is just still a fairly small market on a relative basis to the broader industrial real estate market. E-commerce is still about 2 point sales, about 2.5% of total. We do anticipate an accelerated growth there that will translate into strong demand, but this will be, from our perspective, mostly addressed via development as opposed to acquisition or M&A or repositioning. I think it will be development of new high-quality product in core markets of Mexico City, Monterrey and Guadalajara, which are the key markets for that type of customer.

[Jorel Guilloty, analyst]

If I may, a follow-up to my first question.

[Juan Monroy, executive]

Sure. Yes.

[Jorel Guilloty, analyst]

As I understand it, then the key driver for dividends going forward would be more on AFFO growth rather than AFFO payout?

[Juan Monroy, executive]

It's -- I'll say, it's certainly the underlying driver is set for growth. But given that we have a fairly comfortable AFFO payout ratio, it does provide us well with flexibility to change that payout ratio. So I think, it could be a combination of both. Obviously, with a long-term strong focus on AFFO movements. But given where we are today, in the medium term, it could come from both AFFO and AFFO payout ratio.

[Operator]

Our next question comes from Pablo Ordóñez with Itaú BBA.

[Pablo Ordóñez, analyst]

Congratulations on the results on the positive guidance provision. I have 2 questions. First, can you give us an update on the share buyback program? And what should we expect ahead? And second, now that you finished your pending asset sales, are you exploring certain asset recycling opportunities as we continue to see this connection in valuations between the private and the global real estate market? Those are my questions.

[Simon Hanna, executive]

With regards to your first question on buyback, well, we're very happy that we've obviously extended that program through to June 2020. We have MXN 1 billion of capacity remaining on the program. We've obviously been quite active up through to the end of last year where we've repurchased 5.1% of our certificates for cancellations. I think this year, obviously, we've been allocating capital in the first half of the year towards a combination of CapEx investments as well as some debt repayment. It obviously just leaves us with some capacity in the second half of the year to also consider buyback. And so obviously, at these levels, we're still in very deep discounts for that, where we see fair value in somewhere closer to MXN 32, MXN 33, AFFO yield, based on our guidance, north of 11%. Obviously, highly accretive. So it is something where -- it is a natural area of opportunity for us to focus on it in the second half of the year. And I think, we should -- and to be, I guess, maximizing opportunities where we can, whether that be across CapEx opportunities, which were done in the first half of the year or buybacks. So yes, we definitely remain on just doing that. And we will obviously allocate, of course, buyback as and when we can.

[Juan Monroy, executive]

Yes. And with regards to your asset recycling program question. We are very proud in what we've accomplished. We identified the opportunity fairly early on, and we acted on it, we've conducted portfolio importantly by selling our noncore assets. To date, we've sold 44 properties for $117 million at a 2.2% above book value, so certainly proven pricing very clearly, especially when we sold that noncore asset there. And then very powerful from a value creation perspective in terms of the deployment of that capital. So we were early to add opportunity. We've largely completed our asset recycling program already, especially this quarter when we also sold 2 properties during the quarter for $7 million, which marked the completion now for our asset recycling program.

We will, however, continue to evaluate opportunities. So I'll say, we've already completed, what I call, sort of a one-off cleaning up of the portfolio. So that's done, but we'll continue to scan our portfolio in the market and be opportunistic on selling some assets here and there. We do have some -- for example, one property in a market that is a food property actually in a noncore market for us, so we might consider opportunities like that. But it will be smaller and spread over time. So again, in some, we've -- part of what we've completed already, much improved real estate quality, that has been largely done, and we'll be opportunistic in the future.

[Operator]

And our next question comes from Vanessa Quiroga with Crédit Suisse.

[Vanessa Quiroga, analyst]

Congrats for the results. My question is regarding how you are seeing your current portfolio. If we were to see a more pronounced deceleration in industrial and consumer growth in the U.S. or globally, how do you think that portfolio FIBRA Macquarie would be paid in terms of rents and occupancy? And would you see a turnaround in rents going down or lower occupancy?

[Juan Monroy, executive]

Yes, I mean, it's always tough to predict the future, right? But based on what we're seeing today, Vanessa, I'll say that the medium- to long-term prospects, when you really dig deep in terms of understanding the key drivers of fundamentals for business, both for industrial sector and retail, it looks fairly strong short, medium and long term with -- in industrial space. When you're starting there, you quickly find that the trends in terms of the expected demand are pretty robust, from auto industry, medical equipment, electronics, logistics, the emerging trend of Chinese manufacturers coming to Mexico, et cetera, et cetera. It looks pretty strong despite, I'll say, potential slowdown in the growth of the U.S. economy. When you, as a manufacturer or as a executive managing closed supply chains, and you scan the world for opportunities in the world to set up shop, in that context, Mexico remains certainly a top location for companies to invest in. So we are, based on fundamental analysis, we are bullish in terms of the expected industrial demand, both for the short term, medium term and long term. Obviously, we will prefer to see less of volatility in terms of trade, political and economic noise that we're seeing out there in the market. But really, our sector, in particular, is pretty strong as well as in the retail sector. Simon, you wanted to add a few comments, I mean, you want to...

[Simon Hanna, executive]

Yes. Thanks, and I'll just rephrase the rest [ around it ]. In one aspect, you could argue that we are already seeing a downturn, certainly in the U.S. half sales market where first half sales are down somewhere close to 2.4% for the -- compared to the first half of 2018. Yet, despite that declining, sales environment in the U.S., with sales in Mexican Auto export actually increased to record levels up over 3% for that same first 6 months period. So I think that does the point -- does point to the competitive fundamentals of the Mexican manufacturing sector. And that when we have the tough market out of the U.S., obviously, manufacturers are looking to manage a price margin or profit margins as best as they can. And Mexico, obviously, provides the best opportunity to do that. So I think, there can be a certain opportunity for Mexico even with a smaller pie. Grabbing a bigger piece of that smaller pie is the opportunity, and we're actually seeing that be the reality for the first half of this year.

[Operator]

[Operator Instructions] And our next question comes from Andrea Lara with Signum Research.

[Andrea Cid Antúnez, analyst]

I just wanted to know what are your expected lease spreads for the retail on the industrial portfolio in the short term.

[Juan Monroy, executive]

Yes. I think that we're very happy with what we've been able to deliver in terms of the last number of quarters, seeing a positive lease spread for both Industrial and Retail. Going forward, I guess, we do expect to continue seeing some of that really with our internal FIBRA Macquarie models, we're never too bullish in terms of rental growth. And what we typically model is inflation increases. However, I will say that for the remaining of this year, we continue to expect seeing positive lease spreads on renewals.

[Operator]

And I'm not showing any further questions in the queue. I would like to turn the conference back to management for any closing remarks.

[Juan Monroy, executive]

Thanks, Carmen, and thank you, everyone, for participating in today's call. We look forward to speaking with many of you over the coming days and weeks as well as updating you again on our third quarter 2019 results. Thank you.

[Operator]

And the conference is now concluded. Thank you for joining our presentation today. You may now disconnect.