Macquarie Mexico Real Estate Management SA de CV

OTC:DBMBF

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, and welcome to FIBRA Macquarie's Third Quarter 2019 Earnings Call and Webcast. My name is Gigi, and I'll 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]

Thank you, Gigi, and good morning, everyone. Thank you for joining FIBRA Macquarie's Third 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 would 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. Actual results, performance, prospects or opportunities could differ materially from those 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 call, we may reference certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified. As usual, we have 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 to the materials can be found under the Investors, Events and Presentations tab.

And with that, it is my pleasure to hand the call over to FIBRA Macquarie's Chief Executive officers, Juan Monroy. Juan?

[Juan Monroy, executive]

Thank you, Nikki. Good morning, and welcome to FIBRA Macquarie's Third Quarter 2019 Earnings Conference Call. On our call today, we will review our financial and operational performance and discuss our continued success in creating long-term value for our certificate holders. The strong momentum created in the first half of the year continued in the third quarter, resulting in robust financial and operating results. I am excited to announce that on the basis of those results, we are again increasing our cash distributions as well as revising higher for our full year guidance for AFFO per certificate.

During the third quarter, FIBRA Macquarie generated record quarterly free cash flow. The record reflects FIBRA Macquarie's high-quality portfolio, our ongoing prudent capital management strategy, excellent customer service and improving leasing capability. It's worth noting a few key accomplishments achieved during the quarter, including: one, a year-over-year increase in consolidated closing occupancy to 95.6%, with a record quarterly average occupancy of 95.7%; two, a record high AFFO margin driven by a combination of top line growth and expense savings; three, continued execution of our accretive certificate repurchase for cancellation program; and four, following advances made in our comprehensive sustainability strategy, the attainment of 2 green stars as part of the latest GRESB or Global Real Estate Sustainability Benchmark assessment results.

Although, I believe the market is beginning to reward the consistent across-the-board performance of our portfolio and team, we continue to see upside in our story, given that our certificates trade at a sizable discount to our underlying net asset value. In the third quarter, we delivered AFFO per certificate growth of 6.1%, up to MXN 0.6661 per certificate. This performance was driven by robust growth in our same-store portfolio during the quarter, which produced a 6.2% NOI increase compared to the prior comparable quarter on a combination of revenue gains and tight cost controls. Our per certificate results were further improved by our buyback activity and some U.S. dollar's appreciation.

Our industrial portfolio generated another quarter of positive performance, with year-over-year increases in occupancy and rental rates as well as NOI margin expansion. Third quarter average occupancy was a record high with 96.1%, benefiting from the strong triple net lease up achieved in the first half of the year. Increasing average occupancy also means that certain property level expenses such as property tax, insurance and security, are generally transferred to or recovered from tenants, reducing our own underlying OpEx. These factors, along with lower bad debt expense, led to industrial portfolio NOI increasing 3.8% year-over-year to MXN 721.2 million and a healthy NOI margin of 92.3%, up 59 basis points. Our industrial portfolio occupancy rate was 95.9% at quarter end, up 141 basis points year-over-year, although, down slightly from the end of the second quarter. We maintained a solid retention rate of 85.9% on a trailing 12-month basis with the renewal of 14 leases covering almost 1 million square feet of GLA.

After recording strong lease up in the first half of the year, our new leasing velocity in the third quarter was subdued, although broadly in line with our expectations. Overall, we continue to operate in a stable market environment, demonstrated by new supply coming into our industrial markets, covering just 4.4 months of trailing new leasing demand. A ratio that is very much in line with historical trends.

In terms of tenant activity, we believe we are well positioned, given our geographic footprint that is focused on key manufacturing and distribution markets. With demand being bolstered by an increased sense of confidence in the ultimate ratification of T-MEC and by ongoing uncertainty in U.S-China tariff policy that has improved the relative attractiveness for Mexico as a competitive long-term destination to business.

Furthermore, we continue to benefit from the stability of having a high percentage of our tenant mix subject to U.S. dollar-denominated rents. At quarter end, 82% to 92% of our industrial rents remain U.S. dollar-denominated in line with our historical average.

Tenant activity continues to reflect its favorable positioning, with renewals and new leasing across industries, including several consumer goods manufacturers, a metal products manufacturer and an electronic distributor. These results also reflect our ongoing focus on customer service. In fact, this past quarter, we received the results of customer satisfaction survey conducted by a third party on our behalf. We are pleased that these results support our view that our platform delivers superior customer satisfaction. We are also pleased that overall customer satisfaction has improved relative to 2 years ago when we last conducted a survey. Even more important, the survey has helped us to identify areas of opportunity for additional improvement.

In terms of our retail portfolio, we delivered a quarterly NOI of MXN 148.7 million, up 3% on the prior comparable period. Highlights for the quarter included a strong 4.8% annual increase in average monthly rents driven by contractual increases tied to Mexican CPI together with positive new and renewal leasing spreads. Occupancy over the last 12 months improved slightly by 7 basis points and was up 9 basis points sequentially.

We also delivered strong NOI margin expansion, up 133 basis points to 75.1%, as we saw a similar dynamic through our industrial portfolio of increasing top line revenues and lower expenses against the prior comparable period.

There were plenty of leasing highlights during the quarter, including the lease up of a 1,500 square meter space at our popular Multiplaza Ojo de Agua property by Promoda, a leading Mexican retailer, bringing the property to a closing occupancy of 100%. In addition, in our Mexico City Magnocentro shopping center, we welcomed Sonora Grill with the opening of its 800 square meter restaurant in July. This opening is being followed with other restaurant and bank branch openings in the fourth quarter.

Turning to our capital deployment. We continue to make progress on a number of expansion and development projects. We delivered one of these projects, an industrial facility expansion in Reynosa, during the quarter and anticipate other projects to be progressively completed in the coming quarters. In addition, our 200,000 square foot LEED-certified building is nearing completion in Ciudad Juárez, a particularly attractive industrial market. These development represent the first phase of a 2 building project. As we near completion of the first building, we're actively marketing the space and are encouraged by the current level of interest.

In our retail portfolio, we have progressed with selective remodeling and expansion projects to optimize space utilization and attractiveness to tenants and shoppers. During the quarter, we added additional retail expansion projects with high-quality tenants. For example, at our Multiplaza Cancun and Coacalco shopping centers, 2 separate leases were signed for build-to-suit pads for a leading fast food restaurant operator and a Renault sport car dealership, and a service center totaling 1,600 square meters. Following construction and feed outs, rental income contribution from these projects are expected to commence in the first half of 2020. For the year, we expect to have invested or committed approximately MXN 33.7 million in expansions, developments and remodelings.

As I noted earlier, during the third quarter, we were active with our certificate buyback program. We repurchased 4.3 million certificates, deploying just over $5 million. On a life-to-date basis, we have repurchased 45.7 million certificates, totaling 5.6% of our issued certificates. The repurchases have been made at an attractive weighted-average price of MXN 21.34. Importantly, with all of our repurchase certificates being canceled, our per certificate returns have been permanently enhanced. Our certificate holders' approved buyback program has approximately MXN 900 million of remaining availability through to June 2020. We continue to maintain a high conviction in our capital management strategy that balances sourcing capital through retained AFFO of approximately $30 million per year and selective recycling of noncore assets.

Deployment of capital is also balanced between an accretive spectrum of opportunities, including property expansions and development that together are delivering an average yield of between 10% and 12%. With this approach, we believe we are maintaining a secure well-covered distribution.

Our balance sheet is strong, and we have ample liquidity. We have more than MXN 5.1 billion of availability between our undrawn revolving credit facility and cash on hand. We also have locked the certainty on cost of debt with all of our drawn debt being fixed, and a net debt-to-EBITDA ratio of 4.6x, close to our target of 4.5x. As we look ahead to the rest of 2019 and into next year, we remain cautiously optimistic. We recognize that macroeconomic, geopolitical and local security uncertainties continue to persist. However, industrial market fundamentals remain solid as Mexico continues to benefit from resilient exports.

In the retail sector, our tenants are also performing well overall in light of the stable consumer environment. We continue to benefit from the diversified contributions of our industrial and retail portfolio mix through the brighter sectors across the otherwise sluggish Mexican economy. With lingering uncertainty, the new supply has remained in check. And as a real estate owner, we are benefiting with stable occupancy and rental rate growth opportunities.

Considering FIBRA Macquarie's favorable position and sustained free cash flow generation, we are increasing our earnings and distribution outlook for the full year. We are raising our full year AFFO per certificate guidance to 2.57 per certificate, up from our prior guidance of MXN 2.50 to MXN 2.55.

Strong cash flow generation coupled with a prudent AFFO payout ratio means that we are comfortably able to step up the quarterly distribution by $0.01 to MXN 0.455 per certificate. This represents the third consecutive quarterly increase and is now a meaningful annual increase of 11.3% from our full year 2018 distribution level. Based on this guidance, FIBRA Macquarie expects its full year 2019 AFFO payout ratio to be approximately 69%.

Sound fundamentals are providing a stable outlook for FIBRA Macquarie's performance during the fourth quarter of 2019 and early 2020. This, along with FIBRA Macquarie's prudent AFFO payout ratio, is expected to sustain positive momentum in cash distributions to investors over the medium term.

It's also worth noting that as part of our efforts to continuously improve our reporting practices, commencing from the third quarter, FIBRA Macquarie adjusted its AFFO methodology in what we consider to be a conservative and prudent manner by including normalized financing cost, which are incurred from time to time from loan facility establishment and refinancings. This methodology update follows a comprehensive review of global REIT best practices measures. And we believe the inclusion of financing cost incurred in the ordinary course of business, which at current annual levels total approximately $0.03 per certificate, provides investors with a more complete view of sustainable AFFO generation. More information on this methodology update can be found in our third quarter supplementary information materials.

Finally, as always, I want to thank our entire team for their ongoing commitment and desire to always deliver best-in-class results for our customers, our certificate holders and all of our stakeholders.

And with that, I'll ask Gigi to open the phone lines for your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Alan Macias from Bank of America.

[Alan Macias, analyst]

Just if you can give us your thoughts for next year adjusted payout ratio? If it will be remaining at the same levels as of this year or you might be changing that? And the reasons behind that if that is the case?

[Juan Monroy, executive]

Sure. Alan, thanks for the question. Yes, we are currently at an average payout ratio of 69%. This obviously, part of our philosophy to create long-term value for our investors as we've demonstrated now over the last 2 to 3 years with a very strong capital management strategy in deploying that capital in accretive investments from debt repayment, buyback and funding our expansions and development pipeline. At an average of 11.9%, we're certain that, that has been a strategy that has created a substantial value for our certificate holders. Going forward, obviously, we have ample capacity to continue to increase our distribution, both as a result of organic AFFO growth, which we have done over the past few quarters, but also to gradually increase our AFFO payout a little bit. So over the medium term, we do envision, perhaps, getting to an AFFO payout ratio in the low 70s that we believe is a good sustainable and conservative AFFO payout ratio, Alan.

[Operator]

Our next question comes from the line of Adrian Huerta from JPMorgan.

[Adrian Huerta, analyst]

Juan, 2 questions. One on asset recycling. What are your views on that and possibilities to divest your commercial portfolio at some point and become only an industrial real estate FIBRA?

And the second one is the CapEx opportunities that you see for next year. I believe you said that you're planning to invest around MXN 33 million for this year. If you have already identified the opportunity for next year and the amount that you are planning to spend next year.

[Juan Monroy, executive]

[Foreign Language] Adrian. See, with respect to your question on the retail portfolio, listen, our perspective is that, that has been a portfolio where we create substantial value, say, defensive portfolio. We owned 17 properties primarily located in Mexico City, Metropolitan area, the #1 market in the country. This year has been an important one for the retail portfolio in the form of number of expansions, a couple of refurbishments on a couple of properties to ensure that the properties remain vibrant in the current landscape to ensure that we continue to attract customers. And we believe next year will be a better one for the retail portfolio. So it certainly has contributed to the overall results of the FIBRA. And our strategy has articulated from day one, when we did the IPO, is that: a, diversify FIBRA in industrial retail and office. We have been primarily focused, obviously, in industrial and retail. And we continue to see value in having a platform that provides scale as this is a business where scale is very important from a number of different reasons in terms of OpEx, efficiency, access to capital, diversity, et cetera.

So we continue to see value in that. However, we are also mindful that a pure-player strategy at some point could be -- could makes sense. So we are not necessarily close to the idea of considering alternatives in terms of how to best maximize value for our investors by thinking about alternatives with our retail portfolio. So not necessarily something that is on the cards for the very short term, but something that we will -- that we are and will continue to evaluate more for the medium term.

With regards to gross capital. Yes, this year, we expect to invest or be committed to invest approximately $33 million at fairly attractive yields, investing in high-quality real estate in core markets. For next year, we already have pretty good visibility, and I think starting to assume that we'll be closed to those levels as well.

[Operator]

Our next question is from the line of Jorel Guilloty from Morgan Stanley.

[Jorel Guilloty, analyst]

I have 2 questions. The first one is, we have seen controlled supply for a while for the industrial real estate space. This has led to a -- it has helped the favorable demand-supply balance for landlords such as yourself. That said, how long do you think this healthy supply-demand balance is going to last? Particularly, rates are falling, industrial REITs are attractive and this could all lead to a development pickup. So I just wanted to get some color from you guys on that front.

And then, I'm sorry, if you've mentioned this earlier. But I was curious to know if you can provide some color on what drove the 100 basis points sequential drop on occupancy for the industrial portfolio. And if you see this as a blip?

[Juan Monroy, executive]

Yes. Thanks for the question. Yes, in terms of the demand/supply question, obviously, we see as it as an extremely healthy driven by the both sides of the equation, right? It's not only a strength -- or disciplined supply but also a very healthy demand. I'll say that typically -- and when you go back even a few years, what you'll certainly see a fairly disciplined industrial supply. Typically, that I think is a result of most of the industrial developers tend to be of institutional in nature, very disciplined players, number one.

Number two, very difficult to finance a building with a new debt, if it's a particular building you need to do it with your own equity, so that brings up additional discipline into the market. And yes, the current market environment, it's creating a good level of uncertainty. So that is certainly helping at the moment. I think that the market could easily absorb incremental supply. So we do expect that to occur, although, we're not necessarily seeing it. And I think it will be healthy for the market as we are at almost full occupancy. And on the other side of the equation. The demand remains fairly robust. There are few considerations out there from political risk to trade-related risk. But overall, when we started the fundamentals of the sectors that drive industrial real estate in Mexico, we are convinced that the long-term fundamentals look as good as ever. In fact, I believe there might be a second wave of manufacturing investment coming into Mexico as a result of sort of a global reconfiguration of supply chains in connection with the U.S.-China relationship, in addition to the USMCA, potentially as it comes in line with the new regulations that will require more enriching content, as you know, growing from 62.5% to 75%. And I believe a lot of that will be captured by Mexico.

In addition to the logistics sector that with a growing middle class and a young population will continue demand a lot of logistics space. So that equation looks, as of today, pretty healthy and our prospects and starting the fundamentals look probably even better for the medium and long term.

With regards to the occupancy, yes, we are not reading too much in the quarter-over-quarter movement. It's natural for the portfolio to move up and down a bit, very difficult to get to any conclusions based on just the 1 quarter. Retention remains very healthy, and we continue to see a solid pipeline of leasing opportunities in a number of key markets. We do see weaknesses in a couple of markets in the country. That's not different from what we've experienced over the last 12 months or so. So yes, we're not reading too much into that quarter-over-quarter movement.

[Jorel Guilloty, analyst]

So a quick follow-up, if I may. So is it your belief than that this healthy supply-demand balance is going to continue for the near and medium term, say, call it, the next 18 months?

[Juan Monroy, executive]

Yes.

[Operator]

Our next question comes from André Mazini from Citi.

[André Mazini, analyst]

Juan, my question is a little bit of a follow-up on the previous one. So do you think that manufacturers already understood that the focus of the trade war will be between the U.S. and China, not so much U.S. and Mexico going forward? And if you think that when the USMCA agreement actually gets signed by all the Senates, both Canada and the U.S., there's going to be more demand for Mexican industrial space? Or do you think that's "arraying the price." People who already are pricing in that is going to be signed and when it is actually signed, there's not going to be a whole lot of difference in terms of demand for warehouse space.

[Juan Monroy, executive]

Yes. That's a question of, I don't know, I think probably as the USMCA gets ratified or finally executed, I do think that, that will bring additional comfort level and certainly more certainty to the market. I have to say, however, most of our customers are assuming that, that's on in their renewing, our largest box in the portfolio will review that at the end of the last year for 10 years. We are about to renew our second largest box also for very long term. So I'll say, definitely, for the customers that are in country already, the vast majority assume that, that trade relationship between Canada, U.S. and Mexico is going to continue for the long term. However, I'll think that probably some customers that are on the margin, looking into Mexico, evaluating Mexico, I will think that, that will bring an additional level of certainty. So I do see it as a positive on the customer side for sure and also potentially on the public market side as well. In addition to that, I do think that with the USMCA coming online, there'll be incremental pressure for customers to comply with the 75% in routine content requirement. So I do think that we'll see more focus on complying with that, which will need moving supply change into the region. I'd see, Simon, here want to add. Simon, you would like to...

[Simon Hanna, executive]

Yes. Thanks, Juan. I just want to follow up on that and say, that's exactly right. That is we -- I think the market space we're operating on the assumption that it's a matter of when not if with regards to NAFTA being converted into T-MEC. And so that transition if you like to start from now in terms of the supplies on the ground at Mexico today are really a setting to say how we're going to get from 62.5% to 75% and are making the necessary changes. That's not an immediate change. Even after it gets approved, that's still a 3 to 5-year phasing period. So that will bring, we think, incremental demand over time, but people on the ground operating today, they can't afford to stand still. They really are looking at how we get to those compliance levels sooner rather than later. So I think the change starts now even if the ratification has a little bit to go.

[Juan Monroy, executive]

Yes. And with regards with the U.S.-China trade considerations, I think that, that will be for sure of benefit to Mexico for the long term. I think that, regardless of what happens with the tariff issues, et cetera even if it's resulted favorably and hopefully it does, I think that Mexico will benefit from this recent ordeal as global supply chain managers have identified a substantial risk of their very long China and they see what that tend to do to their supply chain in terms of cost and also efficiencies, right, as the customer continues to move towards immediate delivery product personalization, et cetera, where proximity is important. So I think that given those few considerations, global supply chain managers are reevaluating their global footprint in terms of where they want their production base. I assume some of that production might go to South East Asia, maybe countries like Vietnam, et cetera. But I do believe that a good chunk of that will come to Mexico as well over the coming years. So we are encouraged by that as well.

[Operator]

[Operator Instructions] And our next question comes from Francisco Suarez from Scotiabank.

[Francisco Suarez, analyst]

The question I have relates with your industrial portfolio in the sense of the lease -- sorry, on the expirations that you have for next year. Any color you can provide on how you are in place rents are compared to market rents? And what trends had to be? is it going to be flattish, is it going to be positive rental spread? Do you think that is something that could be achieved for next year?

Also in your new building in Ciudad Juárez, do you think -- it seems that the market is really tight. Any chance to pre-lease that building? Any color on when that could actually be absorbed?

And lastly, if you can walk us to a bit of what were the drivers behind the overall improvement in GRESB? And if that actually refers to your industrial portfolio exclusively?

[Juan Monroy, executive]

Great. Paco, thanks for your question. I'll address the first couple and then Simon will talk about the GRESB one. Yes, with regard to rollover in rents, nothing necessarily to highlight there. I'll say, steady for us rollover. We have this fourth quarter a significant expiration of 800,000 square feet, one of our largest buildings in the portfolio. But we've been in discussions with customer now for a long time. So we feel encouraged about those discussions and believe that will get to an agreement soon on that one on a long-term lease.

Next year, really not much to highlight. The rollover is fairly consistent with the historical average, and we see in place rents similar to where we think the market is at the moment. So nothing either in terms of potential significant upside or downside, fairly steady in terms of rollover in rents for the next quarter, next year, Paco.

In terms of Juárez development and market conditions, yes, you're absolutely right, remains a very tight market with very high occupancy level. The latest numbers that I've looked with the occupancy was in the high 90s, above 97%, so very, very tight market with significant pipeline.

So we're almost done with our building and we are fairly advance in terms of negotiations for the lease up of that building. So we do hope to pre-lease, as you said. We hope to pre-lease that about to be completed building in short order. And then we'll be prepared to commence the second phase of that development fairly quickly as well as we see a lot of value that could be created there. With regards to our GRESB assessment, Simon do you want to comment on that?

[Simon Hanna, executive]

Yes. Thanks, Juan. And I'm very happy with this year in terms of the year-on-year performance of very good growth and achieving the 2 star ratings after just being in the second year of participation. Growth for us is a great tool, not only to say it from a benchmarking perspective only relative to our peers, but also more importantly, identify opportunity areas, which we convert into a real action plan. And so Paco, to answer your question in terms of how we've really got to that 2 green star rating, it was really coming out of last year and the work done up to there, where we're able to identify opportunity areas over the last 12 months or so. And just to give you some color on that, in terms of some of the areas that we've acted on. For example, energy is a big focus in the real estate sector, as you can appreciate, and measures such as replacing inefficient lighting with LED lighting, where we've been quite active working in there, particularly, retail is in a pretty good position already and industrial we've really managed a great program there over the last couple of years. Added to that, maximizing the use of daylight, through effective sky lighting program and replacing aging skylight has been also important over the last 12 months or so. Added to that is looking at insulation measures and cool roofing is a very effective way that we can achieve better insulation and operational efficiency. So we also have quite an extensive roof replacement program, which we've been doing over the last year or 2, and which we have plans to continue over the coming years. It's a very long-term investment plan, as you can appreciate. And that essentially involves replacing aged steel roofs with more energy-efficient reflective TPO roofing, which is a much more energy-efficient membrane. So we look forward to be continuing that program in Q4 and through to next year.

In addition, on the green energy front, this is becoming a bigger and bigger opportunity here in Mexico. And as we've discussed in prior quarters, we've already made a start in a couple of properties, where we have connected solar panel on a rooftops into a couple of our shopping centers in the Mexico City area that will generate, not only operational efficiencies for us as landlord but also as a tenant who can access the green energy at a discounted rate through the CP spot rate. So that's a model that we're looking to expand, not only across more retail centers, but hopefully across the industrial portfolio as well.

But that's obviously, a snapshot of the environmental aspect, but then we also have some important social and corporate governance initiatives, and, I guess, just to name 1, the increasing proportion of independent members has been a highlight for us to be top of the sector in terms of percentage of independents.

[Operator]

Our next question comes from Eduardo Alvarez from GBM.

[Eduardo Alvarez, analyst]

My question is regarding the CapEx. Do you think you could give us some color on possible future expansions on developments? I mean, on the regions over the type of buildings you may develop in the future?

[Juan Monroy, executive]

Sure. Eduardo Alvarez [Foreign Language] Yes. We just signed a couple of expansion projects in Cancún for a build-to-suite pad for fast food operators also in Mexico City as well in our power center Coacalco. So fairly consolidated property, just adding TLA at currently attractive yields, that's always good with a -- obviously always would've close eye on proper tenant mix. We're also completing the expansion in our Guadalajara property by adding a Cinépolis, for example. That's also great addition because not only it's a good investment, but also provides -- helps consolidate the property by increasing the potential for foot profit, hence, making it more attractive for customers that could help us increase rents and lease up space a bit better.

On industrial side, we will remain committed to investing more in our core markets that include Tijuana, Juárez, Monterrey, Guadalajara, Mexico City, opportunistically Queretaro and evaluating the Toluca market as well. So we are actively pursuing investment opportunities in those markets. So for next year, I'd say, very likely that we will deploy in Juárez -- we do have there pretty clear visibility even the lease up pipeline that we have in a recent -- or about to be completed building. And we'll be looking to invest in the other markets that I mentioned. Important to mention that our strategy is very clear in terms of building very high-quality product, top of the best. Want to make sure that our buildings are sort of the best buildings available in the market. I think that our customers and brokers are starting to appreciate that. And our view is that we want to make sure that these investments are very attractive for the long term -- sustainable long-term investments in providing very high-quality product to our customer that is also environmentally friendly and good -- with very high-quality specifications to address the operational needs for our customers. So yes, that's little bit of a plan, Eduardo.

And in terms of CapEx amount, we intend to -- we retain about $30 million a year, and we think that can be easily deployed in a number of accretive opportunities across the portfolio.

[Operator]

Our next question is from Nikolaj Lippmann from Morgan Stanley.

[Nikolaj Lippmann, analyst]

Simply a follow-up on Juan's comment on China. I think understand and agree with sort of longer-term dynamics that could change Mexico and then the trade between the United States and Mexico. Now my question is, at this very early stage, can we add numbers or evidence or even anecdotes to support the argument? Or is it more of sort of potential change in the strategic outlook that has a higher profitability of materializing? Do we have evidence on the ground today that -- of increased demand from the U.S.-China trade tensions?

[Juan Monroy, executive]

Yes. Good question. I think it's still early. We do see some on the ground evidence, but very hard to conclude as the data points are obviously still very limited, given that it's early days. Sell side growth, we do have high conviction on high probability of that occurring. And then with some real data points that we have observed as well out there on the field, we've signed actually a couple of leases with Chinese companies sort of last couple of months. And we have inbound inquiry from existing customers that have been sourcing product out of China, asking about our existing customer base to see who can supply that Mexico a couple of direct inquiries directly to me. So I think that's a clear indication there.

We have been in discussions with various representatives involved in the China Mexico Chamber of Commerce, and they have noted that their membership has doubled over the past year, obviously, from a very low base. But more importantly, that they expect a substantial increase in that membership, i.e., companies in China coming to Mexico, a few numbers have been thrown out there. One executive mentioned potentially 150 companies coming to Mexico over the next 5 years. We've seen a number of Chinese investors and customers during the market as well. Obviously, it will be a process and the approach to dealing with them might be a little bit different. It takes time for them to get to know the market, the different cities and how the overall market behaves. So we are, at FIBRA Macquarie, being fairly proactive in dealing with that theme to ensure that we can adequately support that potential growth for companies operating in China, not only Chinese companies but international companies overall that are in that region to consider expansion into Mexico. Simon, do you want to add something on that?

[Simon Hanna, executive]

Yes. I'll just say, I think that's very much aligned with at least the data points that we're starting to see build up, which we generally see at the macro level. And just one step that comes to mind is that the exports from China to the U.S. have decreased something like $25 billion in the first half of the year or at least for first 5 months of the year. And in that same period on a year-over-year basis, the exports from Mexico to U.S. have actually increased around $10 billion. So I think that shift is happening. And as we convert that to on-the-ground examples, I think we're starting to see that and the expectation is we should be seeing more and more real opportunities realize this type of trend.

[Operator]

There are no further questions. I'd like to turn the conference back to management for any closing remarks.

[Juan Monroy, executive]

Thank you, Gigi, 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 soon on our third quarter 2019 results. Thank you very much.

[Operator]

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