Macquarie Mexico Real Estate Management SA de CV

OTC:DBMBF

Earnings Call Analysis

FIBRA Macquarie Posts Strong 4Q Growth and FY24 Outlook

FIBRA Macquarie reported a 5.4% year-over-year increase in AFFO per certificate to MXN 0.6363 for the fourth quarter, backed by a robust balance sheet and liquidity over USD 350 million. An extraordinary distribution of MXN 2.27 per certificate is set for March 15. FY 2024 guidance projects AFFO growth of 6% to 8%, with distribution estimates of MXN 2.10 per certificate and a payout ratio of 82%, translating to a USD-equivalent growth of scheduled distributions by 8%. Despite currency appreciation and investment-induced financing costs, solid NOI growth expected from industrial and retail portfolios should enhance AFFO.

Financial Scorecard and Future Guidance

For the fourth quarter, the company reported an adjusted funds from operations (AFFO) per certificate of MXN 0.6363 or $0.0362, a rise of 5.4% from the previous year. They remain on a strong footing with a net leverage-to-value (LTV) of 31% and a net debt-to-EBITDA multiple of 4.9x, holding liquidity above USD 350 million. An extraordinary distribution is planned, composed of approximately 70% certificates and 30% cash, ensuring a solid balance sheet and liquidity for growth. The company has initiated guidance for 2024, projecting a 6-8% increase in AFFO to MXN 2.55 to MXN 2.6 per certificate, translating to USD 116 to 120 million, with an anticipated stock issuance raising certificates by 4.8%.

Revenue and Growth Prospects

The company's growth outlook is supported by solid net operating income (NOI) across its portfolios, with expectations of low double-digit rent increases on renewals. An 8% dollar increase in AFFO and distribution lines is noted, maintaining a healthy payout ratio of 82%. The growth capital expenditure program is bolstered by a pipeline of 5 million square feet in industrial gross leasable area (GLA) for further development and capacity expansion.

Real Estate Market Dynamics and Geographic Expansion

Riding on nearshoring trends, demand spans both manufacturing warehouses and logistics, with robust requirements emerging from the northern parts of Mexico, like Monterrey and Tijuana, and also surfacing in central regions such as Guadalajara. Retail is expected to benefit from macroeconomic growth, including job creation in Mexico. The health of the Mexican consumer is underpinned by record remittances and wage growth, supporting retail sales and the surge in e-commerce logistics.

Investment Strategy and Project Outlook

The company is assessing land banks for acquisition, aiming for a calculated expansion. Yields for new development projects are anticipated to be between 9% to 11%—seen as realistic yet bearing upside potential amid increasing land and construction costs. Efficient underwriting and a careful approach to energy and infrastructure needs for new investments are highlighted, balancing upfront costs against long-term rental rate growth. Meanwhile, tenant improvements and leasing commissions are likely to hold along historical lines as a percentage of NOI.

Leverage and Cost of Debt

The company's cost of debt has remained stable, with a slight increase to a current level of 5.6% to 5.7%. It has successfully navigated approximately $1 billion worth of refinancing and new financing activity in the last 18 months without any upcoming expiries or liability management issues in the short term. This financial maneuvering is to safeguard against market volatility considering the rising cost of debt in the market, recently printing north of 7%.

Conclusion and Forward Look

In summarizing the call, the company emphasized their successful execution and provided a positive outlook for the next quarter. The management team expressed their intent to continue engaging with stakeholders over the coming days and weeks and anticipate sharing further updates at the end of the next quarter.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to FIBRA Macquarie's Fourth Quarter 2023 Earnings Call and Webcast. My name is Diego, and I will be your operator for this call. [Operator Instructions]. I'd now like to turn the conference to Nikki Sacks.

[Nikki Sacks]

Thank you for joining FIBRA Macquarie's Fourth Quarter 2023 Earnings Conference Call and Webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer; and Andrew McDonald-Hughes, our CFO.

Before I turn the call over to Simon, I'd like to remind everyone that this presentation is proprietary and all rights are reserved. Presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell 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 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 have prepared supplementary materials that we may reference during the call as well. If you've not already done so, I'd encourage you to visit our website at fibramacquarie.com and download these materials. A link to 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, Simon Hanna. Simon?

[Simon Hanna, executive]

Thank you, Nikki. Good morning, everyone, and thank you for joining us. On today's call, I will discuss our fourth quarter and full year 2023 results as well as our growth initiatives. Andrew will also provide an update on our balance sheet, robust capital position and introduce our guidance for 2024.

Our fourth quarter and full year results are a product of the continued successful execution of our strategic initiatives, focused on value creation as we delivered solid growth in our industrial portfolio, saw a sustained recovery in our retail shopping centers and advanced on our development program.

In our operating portfolio, we continue to realize real annual rental rate growth, combined with strong occupancy driving higher NOI, while our development program shows solid progress and will contribute enhanced growth over time. All of this is underpinned by our long-standing track record of disciplined capital management.

In 2023, we delivered a strong set of results in underlying U.S. dollar terms with full year NOI up 12%, supporting annual USD scheduled distribution growth up 19% on a per-certificate basis. These results were a reflection of the strength of our platform with a well-located, high-quality portfolio that is strategically positioned to benefit from nearshoring tailwinds.

Furthermore, one of the key distinguishing features of our development program is our measured approach of prioritizing prudent capital allocation balanced with achieving attractive yields in order to grow total returns on a per-certificate basis.

We currently have 6 active industrial projects, 3 of which we delivered during the fourth quarter, with 1 being leased prior to completion and a further 2 buildings under construction. These projects represent a total investment of approximately USD 126 million, and we are targeting a yield on cost of between 9% and 11%, which will provide a meaningful contribution to NOI upon stabilization.

One of the many 2023 highlights included the execution of a lease with a leading e-commerce retailer in Mexico City for the first of our 2 building complex, which should fully contribute to earnings in 2024. During 4Q, we also delivered the second building in this park, which is now being marketed for lease with strong interest from a diverse range of customers. Continuing with the theme of our successful track record of development execution. In Monterrey, we executed the lease and are completing tenant improvements for a 210,000 square foot facility with occupancy and NOI contribution expected to commence later this year.

With the strong market dynamics, we are also progressing on the construction of a 200,000 square foot property in our Apodaca Park that is on track for delivery in the first half of 2024.

In addition, during the fourth quarter, we completed construction on a 267,000 square foot property in Juárez and a 144,000 square foot project in Reynosa and are currently marketing both of these buildings for lease.

Turning to Tijuana. We are progressing with the development of our first building in this project with an expected delivery in mid-2024. Importantly, Several of these projects are part of a phased multi-building complexes in high-demand markets and represents attractive embedded growth. And I'm excited to see these projects contribute to operational and financial performance in the coming years.

Turning to our operational results. We delivered another strong print across our portfolio with positive metrics in occupancy, lease spreads and retention, all contributing to solid NOI growth. In our same-store industrial portfolio for the fourth quarter, consolidated NOI was up 4% year-over-year in underlying U.S. dollar terms and 8.6% for the full year. We increased both our GLA and our occupancy as we delivered new buildings and executed leases, which set a strong foundation to our earnings outlook in 2024.

Occupancy grew by 26 basis points sequentially and 47 basis points year-over-year to 98.1%. And total leasing volume was approximately 1.5 million square feet as we achieved solid retention and welcome new customers to our properties. Our re-leasing spreads on commercially negotiated renewals were a strong 18.6% in the fourth quarter. Highlights of our new leasing activity include an electronic equipment manufacturer in Mexicali and an auto parts logistics operator in Saltillo. 2023 was an active year in terms of leasing, signing 6.4 million square feet of new and renewal leases.

As a demonstration of the broad-based strength of our portfolio and the industrial real estate market in general, this is the first time in FIBRAMQ's history that we achieved closing occupancy of more than 90% of across all 16 of our industrial markets. Of these markets, we were fully occupied in several core geographies, including Juárez and Tijuana, to name just a couple and believe we should have the opportunity to continue to realize rental rate gains with approximately 15.2% of our lease book up for renewal in 2024.

In our retail portfolio, we delivered improving metrics throughout the year, including occupancy gains, stronger retention and extension to average lease term and higher rental rates. Collectively, this contributed to a 37% year-over-year growth in retail LOI.

With an ongoing recovery the performance of our necessity-based shopping centers is continuing to enhance returns across our consolidated portfolio. Occupancy improved both sequentially and year-over-year, ending the fourth quarter at 92%. Over the last 12 months, weighted average lease term remaining increased by 15%, alongside an increase in average rents of 5%, reflecting improved leasing conditions.

During the quarter, we signed 74 new and renewal leases, totaling 19,000 square meters across a diverse range of tenants, including restaurants, dark kitchens, banks and merchandise stores. With strong leasing activity, the retail portfolio benefited from a high retention rate of almost 90% over the last 12 months. As we enter 2024, we remain encouraged by the backdrop in Mexico, which continues to provide a very favorable environment, especially given our portfolio positioning.

Nearshoring is driving ongoing demand, and we are seeing continued activity. We believe Mexico will continue to be an attractive destination for companies seeking to reduce supply chain complexities whilst maintaining competitiveness. With particular interest coming from auto part suppliers, electronics and machine manufacturers, we are also seeing an encouraging picture for foreign investment in the country, and the market dynamics should continue to be favorable with low vacancy rates in our key markets, including Juárez, Monterrey, Tijuana and Mexico City.

While demand remains strong, we also recognize that supply side constraints, including energy infrastructure challenges could impact company's capital decisions to make new investments in Mexico. As we look ahead, we will maintain the same balanced and disciplined approach to growth that we have consistently demonstrated, being prudent in both our sources and uses of capital.

We intend to commence new buildings in our existing projects thoughtfully, and we will pursue selective land acquisitions to maintain a growth pipeline with a high number of quality opportunities under exclusivity that are currently being evaluated.

In 2023, FIBRAMQ delivered a total shareholder return of 45% in U.S. dollar terms, which is supported by a governance structure that we believe provides strong oversight as well as alignment with invested interest and value creation incentives. Our management and performance fee is unique in the industry as it is linked to share price performance and total certificate holder returns, providing alignment between manager incentives and our investors.

In conclusion, I'm deeply proud of the efforts of our team in delivering on our strategic initiatives, which is reflected in our strong 2023 results. As we look to 2024, we remain optimistic regarding our outlook and are encouraged by the market backdrop. With our best-in-class platform, we believe we are well-positioned to continue to build on our sustained and disciplined track record.

With that, I would now ask Andrew to discuss our financial results, balance sheet and liquidity position and guidance for 2024.

[Andrew McDonald-Hughes, executive]

Thank you, Simon. For the fourth quarter, we delivered AFFO per certificate of MXN 0.6363 or $0.0362 in USD terms, which represents a 5.4% increase on a dollar basis from the prior year. Our balance sheet remains well positioned with prudent leverage metrics and strong liquidity to support our growth strategy. As of December 31, our real estate net LTV was 31% and our net debt-to-EBITDA multiple was 4.9x.

Taking into account committed undrawn credit lines and surplus cash, FIBRA Macquarie has available liquidity in excess of USD 350 million. These balance sheet metrics are supported by a record high NAV per certificate of MXN 44.6 which in part reflects the contribution of gains recognized upon stabilization of our development properties as well as a healthy uplift in our portfolio valuation year-over-year.

At December 31, 2023, FIBRA Macquarie's independent valuations reflect an NOI cap rate of 8% for our industrial portfolio and 10% for the retail portfolio. For the fourth quarter, we declared a scheduled distribution of MXN 0.5250 per certificate in line with guidance, taking full year 2023 ordinary distributions to a total of MXN 2.1 per certificate also in line with our full year guidance.

As we have previously discussed, full year taxable results for FIBRA are subject to minimum distribution guidelines, which include FX gains and inflationary impacts on foreign currency-denominated debt. For FY '23, our fiscal results subject to distribution exceeded our regular paid and declared distributions. Therefore, in addition to our scheduled distribution guidance, we will also be paying an extraordinary distribution of approximately MXN 2.27 per certificate, expected to be paid prior to March 15.

The extraordinary distribution is expected to be paid in a combination of approximately 70% certificates and 30% in cash, allowing us to maintain a strong balance sheet with ample liquidity to fund our growth CapEx program.

As it's usual for this part of our reporting cycle, we are initiating our 2024 guidance. The full year 2024 AFFO guidance equates to a range of MXN 2.55 to MXN 2.6 per weighted average certificate or $116 million to $120 million in USD terms, representing an annual increase of between 6% and 8%. And -- our per certificate guidance range takes into account the anticipated stock issuance, which is expected to be completed as part of a March extraordinary distribution. We are currently estimating an increase in certificates on issue of 4.8% that will be distributed to holders on record in March.

Importantly, our FY '24 AFFO guidance and per certificate metrics take this issuance into account. Our scheduled cash distribution guidance is also subject to a similar dynamic. The FY '24 cash distribution guidance equates to approximately USD 97 million, representing an annual increase for scheduled distributions of 8% in underlying USD terms and a prudent 82% AFFO payout ratio.

After taking into account the expected March certificate issuance we are initiating FY '24 per certificate guidance for cash distributions of MXN 2.10 per certificate, which is expected to be paid in equal quarterly installments of MXN 0.5250 per certificate.

Our outlook anticipates solid NOI growth in both our industrial and retail portfolios, which will be partially offset by a combination of the continued impact of peso appreciation relative to the U.S. dollar as well as the financing cost of near-term investments in FIBRA Macquarie's industrial growth CapEx program, which we expect to meaningfully contribute to additional revenue and AFFO over time.

We believe Mexico is well positioned to capture growth opportunities arising from global and regional trends and we expect FIBRA Macquarie to be a key beneficiary as we continue to invest in a disciplined manner and create value for our certificate holders.

Along with Simon, I want to thank all of or stakeholders for your ongoing support and with that, I will ask the operator to open the phone lines for your questions.

[Operator]

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

[Alan Macias, analyst]

Just a quick question on rent increases on renewals. Your expectations for increase this year should we be thinking around 15% to 20% increase on renewals? Or is there a potential for higher increases?

[Simon Hanna, executive]

Alan, thanks for the question. Yes, look, I do think that we have a good outlook with regards to rental rate spreads this year. I think probably looking at sort of low double digits is fair. We'd love to get the 15% to 20% you mentioned. We actually got that in 4Q. We got 18.6% on our on our renewals. So that was actually right at the top of where we were over the last 8 quarters or so, FY '23 averaging around, I think it was 14%.

So really solid in terms of consistent double-digit renewal spreads. We have 20% of the book rolling in FY '24. And I think it is fair to expect to see something similar in that low double-digit range. And so where we are today -- 20% rolling in FY '24. And I do think that our momentum is there for sure on renewals spread. Just given what we're seeing with demand supply fundamentals still being very tight across the board.

[Operator]

Our next question comes from Rodolfo Ramos with Bradesco BBI.

[Rodolfo Ramos, analyst]

So I just have a couple here on my side. Just wanted to understand this extraordinary dividend, there is to comply with the higher fiscal income understand the share portion. Is this -- are these going to be shares that you have in treasury or -- I just want to understand if this is possible for regulation and what the dynamics and the mechanics behind that?

And secondly, you spoke about your fee structure being very much aligned with investors interest. We have seen a lot of about -- some [indiscernible] going internal and some planning to go on to the market, internal structures. If something that you might considering or any changes whatsoever on the fee side?

[Simon Hanna, executive]

Thanks, Rodolfo. I'll let Andrew take the first question there.

[Andrew McDonald-Hughes, executive]

Yes, sure. Happy to. And so on the extraordinary distribution, we -- so I think in simple terms, committed by regulation, yes. In December of last year, we went to certificate holders to amend our trust agreement. We had an overwhelming support with more than 97% of shareholders voting in favor of the amendment to allow for this distribution, really recognizing, I think, the disciplined capital track record to date and importantly, recognizing the ability to better utilize those funds to fund growth initiatives and create value for investors.

And so it was something very positively received in those interactions we had with investors. As of today, we've got 94 million shares remaining in treasury, and so more than enough to cover what's required. Perhaps you're referring to a comment within the press release that references some pending regulatory approvals. Those simply are administrative approvals and sign-offs from with respect to the CNBV. And we're not expecting any delay or issues and they're simply procedural matters.

So very much on track for that, and we think it's going to be a positive result with respect to being able to maintain our capital position and healthy balance sheet.

[Simon Hanna, executive]

Thanks Andrew. And just picking up the second question there, Rodolfo. Yes, look, I think in short -- we're reaffirming our business model, no intent to change. I think when it comes to this debate about internal, external, really what's core and central to it is the good governance and getting the alignment right between the management and minority.

We think we have that very strong alignment, whether it's on the fee structure, which is 100% shareholder return, we're unique in the market with having a base feeling to share price performance, no one else do these. So if no one else does that, and that's a really good alignment, skin in the game is there with a 5% stake. It's actually worth close to USD 100 million, so very material in terms of that skin in the game from a manager or sponsor point of view.

And third, there's no conflicting mandates. FIBRA Macquarie has priority investment rights for all its investment mandate full stock. So that's very clear as well. So -- we think that we've got those building blocks right from a governance and alignment point of view. And you see that being translated ultimately into performance and our outlook. I think the capital management track record -- we think, is good as it speaks for itself. 45% U.S. dollar total return for FY '23 that's more than respectable, I would say. We're getting to a record NAV per certificate and share price is tracking that with a bit of liquidity pickup as well. So that's -- that's good to see.

So I think our capital management track record, I think, reflects how we've built the business model, if you like. And then when you think about our growth outlook and what we're seeing ahead with that same business model, we see that it's positive. We're seeing approximately an 8% U.S. dollar increase and whether that's in our AFFO line or our distribution line that's on an 82% payout ratio, which gives us a little bit of a retained at for those as well.

But importantly, from a balance sheet point of view, LTV of 31%, that positions us very well for growth. So we have a great growth CapEx pipeline, 5 million square feet of industrial GLA that where the -- are stabilizing or can still get started on and capacity to do more. So look, I think we're definitely monitoring what's going out there from a market dynamic point of view. But we also do think that we're very well positioned with the current business model to take advantage of those growth opportunities that's in front of us.

[Operator]

Our next question comes from Alejandra Obregon with Morgan Stanley.

[Alejandra Obregon, analyst]

I wanted to ask on your pipeline. Given that you have delivered NOI yields that are well above 11%. I'm wondering if your range of 9% to 11% NOI yields for your new projects and the pipeline could be, let's say, a touch conservative. I'm just curious if there's some upside to these numbers in your view?

[Simon Hanna, executive]

Yes. Thanks very much, Alejandra. Look, I think 9% to 11% is realistic. I guess that's actually where we were pre-COVID as a target range and coming out now to 2024, we're seeing all the factors going up, whether it's land price or construction costs, but importantly, rental rates. So in the overall mix when we put that through the algorithm, we're still seeing a 9% to 11%. And yes, we've been very happy that we've actually struck above that in the last couple of development, 11.8%, 11.9% area. That's fantastic. We're not necessarily saying that we're going to get that all the time.

So when we think about particularly land prices going up in some of those core markets and we are targeting core industrial markets, we do think 9% to 11% should be the realistic outcome over the long term.

[Alejandra Obregon, analyst]

Got you. And maybe a follow-up here. Is there any region in particular where land costs are increasingly more expensive and perhaps even more than pre-COVID?

[Simon Hanna, executive]

Yes. Look, I think it's the usual suspects. I think Mexico City and Tijuana, which are the most constrained markets from a geographical point of view in the high-demand markets there. They're probably the 2 markets, which we've seen the highest increase in land costs. To be fair, land prices have gone up across the board. But where you have a bit more availability markets like Monterrey and Juárez, they haven't gone up anywhere -- anywhere like Tijuana or Mexico City, for example.

[Operator]

Our next question comes from Andre Mazini with Citi.

[André Mazini, analyst]

Simon and Andrew, congrats on the results. The question is on nearshoring demand. So is nearshoring demand taking up like manufacturing warehouses only. Or do you guys also see it going to logistics as well, lifting also the logistic [ boats ], not just light manufacturing both -- And in terms of geography, -- is it happening? I mean in terms of nearshoring in particular, just in the Northern markets? Or has it started to trickle down to the like middle part of the country, [ Baja ] or central regions, so on and so forth?

[Simon Hanna, executive]

Yes. Thanks, Andre. Look, I think the good thing about nearshoring, it's very broad-based from both a geographical and sector point of view. So fair to say that when we -- I guess we have the highest exposure in the northern part of Mexico. So those core nearshore markets, if you want to call it that, places like Monterrey, Juárez, Tijuana -- we're certainly seeing important demand there. Obviously, a lot of that is on the manufacturing side. But to be fair, with the manufacturing, you get a lot of B2B logistics requirements as well.

So and you could throw packaging into that as well. So we're seeing, I think, between logistics and packaging, a lot of support -- sort of logistics type infrastructure required to meet that manufacturing that's definitely coming into the northern part of the country. We are seeing it towards the south as well. We are seeing places like Guadalajara, for example, on the electronics, et cetera, that's definitely moving in the right direction.

But I would say that logistics is definitely coming along, particularly B2B in a similar vein to what we're seeing with the demand on the manufacturing side. From a geographical point of view, as I say, our focus is on the north, that's where we are seeing it, but probably fair to say that it is the strongest in the north, but still seeing some benefit in the center of the country.

With regards to then sort of expanding into other segments, I do think that it's a fair period to stay low, industrial is the tip of the spear, we should be seeing it benefiting across the broader real estate segment. You could throw off into that. But I would also like to flag that retail also should have to be important trickle-down effect as well as we think about the improving environment from a macroeconomic point of view, jobs, et cetera, in Mexico.

[André Mazini, analyst]

I think that's complementing that, Simon. The fact that the retail consumer in Mexico is extremely well positioned. We've seen record levels of remittances healthy growth in wages remain well capitalized. And so not just kind of the support for the ongoing retail sales sector, but also e-commerce logistics is a beneficiary of that growth as well. And we're seeing that in those core industrial -- or should I say consumer markets around Mexico, places like Mexico City, Guadalajara and Monterrey, also an important factor in the demand drivers in those markets.

[Operator]

And our next question comes from Gordon Lee with BTG.

[Gordon Lee, analyst]

Just a couple of quick questions thinking a little bit about the pipeline. I think it's interesting that given how tight the markets are that not a greater share of the projects that you're delivering are pre-leased. And I'm wondering whether that's -- whether that's on purpose, whether you're holding back inventory because you want to give it the benefit of the passage of time on leasing terms? Or are you seeing a little bit of difficulties in some locations, leasing up those properties?

And then the second question, just wondering sort of capital allocation on that portion of the AFFO that you retain, should we expect more to be geared towards land bank this year, just given that you're progressing on the pipeline pretty steadily.

[Simon Hanna, executive]

Thanks, Gordon. So picking up those questions. Look, we like doing our construction on a spec basis. What we want to do is design our buildings not necessarily on a -- with a -- if you like, a build-to-suit or pre-lease basis just because that could sort of introduce some functional obsolescence potentially.

So in general, having our prototype, which by the way, is top of the class from a lead or view as the regular shape box, et cetera, et cetera. That gives us the best chance for a high-performing asset over the long term. And so we're very comfortable in Mexico is generally a spec market where we do that.

So comfortable sort of starting off on that basis. And look, I think we've seen a couple of the developments in the last couple of years where we've actually done leasing through construction. We tend to see a bit more demand to pick up once the tenants can actually see the building actually come to be a reality.

So hopefully, that's the case -- a couple of ones that we're currently doing. But in any -- we're actually very happy we've just delivered a few of these properties, and we're well within our underwriting budget, if you like, where typically 6 to 12 months is what we aim for as a lease-up.

So well inside of that, given that we've just delivered those buildings and I think when we think about prospects and all those deliveries, we like the backdrop. I think leasing prospects are -- look favorable, I would say. So I wouldn't be expecting lease-ups to come through during the course of this year in accordance with our underwriting assumptions.

So hopefully, that answers that first question. On the second one, absolutely, when it comes to our growth CapEx allocation, definitely, we have a lot there going towards the CapEx on the ongoing constructions. But we are envisaging also looking to add to our land bank. We've spoken about the 5 core markets that we're -- we'd like to be increasing our exposure in Mexico City, Guadalajara Tijuana, Monterrey and Juárez.

We have a number of exclusive opportunities with regards to well-positioned land banks in some of those markets that we're currently assessing. So I think hopefully getting to the point and to some of those negotiations. But certainly, I'd like to see a few land bank acquisitions come in through the course of this year.

[Operator]

Our next question comes from Juan Macedo with GBM.

[Juan Pablo Macedo Carrillo, analyst]

We saw slowing dynamics in the retail sector related to the recovery -- we were wondering if you could tell us your view on the spec this trend to see soon or maybe the macro environment could boost the results and continue to a longer time.

[Simon Hanna, executive]

Thanks, Juan. And look, I think Andrew touched on some of the favorable points we're seeing in the backdrop. Look, retail has been a fantastic story over the last 12 months or so. When we think about -- where we are from a rent rate point of view or all the way down to NOI, indeed having an 18%, 19% pickup in NOI for retail, that's been great to see. And so definitely coming back in a nice gradual way.

And actually, when we think about the 4Q '23 print for NOI, we're at 92%. Fair to say, pre-COVID if you take the 4Q '19, I guess, is the last normal quarter. On a same-store basis, when you just look at nominal NOI, we're actually up about 21% 4Q '23 versus 4Q '19. Now if you adjust that for inflation, we're sort of breakeven, which is not a bad result, given -- so we've seen the gradual recovery out of COVID.

So actually, a bit of a quite achievable in retail, but that NOI story is actually coming on quite nicely, but we also just need to keep in mind we're only 92% pre-COVID, we're a couple of points above that.

So that's why we do believe that there's upside opportunity when we think about FY '24 and beyond just because we know the well-positioned nature of the portfolio, necessity-based bankers with locations in the key consumption markets of Mexico, it's very well positioned.

And then from a macro backdrop, as Andrew said, whether it's record employment, you've got strong remittances. We're seeing wages go up. Obviously, the minimum wage increase will flow through to consumption and that longer term trickle down from nearshoring. They are all positive factors, we think, in terms of same-store sale increase [indiscernible] reporting that as well.

So we like retail as a, if you like, on an outlook basis for NOI. It's not necessarily going to be linear every quarter, just as we go through different leases, et cetera. But over the medium term, we think there's upside opportunity for retail to keep performing.

[Juan Pablo Macedo Carrillo, analyst]

Right. That's very clear. And just to -- just a quick follow-up, what is the strategic view considering this dynamics in the retail sector?

[Andrew McDonald-Hughes, executive]

Sorry, Juan, would you mind repeating the question?

[Juan Pablo Macedo Carrillo, analyst]

Yes. Yes, sorry. What is your strategic view for the retail sector considering this trend? Or are you comfortable with your current operations? Yes.

[Simon Hanna, executive]

Yes, I got you. Okay. So I think the question there was on the strategic view of retail. As I say, I think we really like what we own. We think that it's a high-quality portfolio that will continue to perform whether short, medium or long term. I think that's our starting perspective.

So our focus for the time being, therefore, we -- as I said, to continue to focus on maximizing inherent potential of the portfolio from an occupancy and NOI perspective. So that's our focus for this year. And I think we'll obviously monitor what that means from a strategic point of view as we continue to get closer to maximizing the inherent potential of the portfolio.

[Operator]

Our next question comes from Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

Congrats for the super execution made on the past few years on capital allocation that it's great. I guess that my question is a follow-up from Alejandra in the sense that it does seem to be quite conservative your overall views of the yields that you may get out of property development based on what you have delivered. But in addition to the land constrained markets that you explained very well on Mexico and Tijuana, can you elaborate a little bit further if you think that there's the risk in addition to overall replacement cost to the investments that you may need to do on either infrastructuring, energy, water, whatever. Any specific things that allows you to maintain this conservative guidance from property development yields?

And the second question, if I may, the overall increases in PIs that we have seen, do you think that, of course, the -- please correct me if I'm wrong, but I think that those correlate perfectly well with the overall expectations of rent growth going forward. But just to fine-tune my models. Do you think that the levels of TIs that we've seen in this quarter, those should be maintained on a forward basis -- on square foot basis.

[Simon Hanna, executive]

Thanks Paco. Very clear. On the first one on, I guess, the target yields 9% to 11%. I think we would say it's realistic rather than conservative. When we what others are doing around us as well. I think sort of in that 10% area, is about right. So 9% to 11%, I would say, is realistic rather than conservative. I know that we've had a couple of prints high levels. And I say we'll take that every day of the week. But we don't necessarily think that's sustainable over the long term.

So let's consider that it's realistic rather than conservative from our point of view. When you think about building on the cost side and certainly addressing some of the energy infrastructure challenges, certainly, it's only getting harder with regards to underwriting and making sure that we have a clear path there for new land investments.

So it's definitely something that's always been front of mind is getting that underwriting right, having a clear path in terms of cost and time line for all the infrastructure, not just energy but water, other park infrastructure, et cetera. So what's key there is what we've always been doing is having a very diligent approach to our underwriting assumptions when it comes to the type of energy infrastructure that we would typically be used to investing in whether it's to do with substations, whether it's to do with the grid reinforcement, on poles or wires, et cetera, et cetera.

So I think it's a case-by-case basis as you look at each land parcel and the specific infrastructure needs for that molecule area. Some are easier than others and it's about just getting that diligence right as we've done in the past and today so far.

[Andrew McDonald-Hughes, executive]

Perhaps, Simon, if I could complement, I think one other element there that we haven't spoken about so much is that the broader backdrop in these markets in terms of rental grade remains extremely constructive. And so we've still seen very, very strong levels of rental rate growth, particularly if not more so, in those land-constrained markets.

And so as Simon mentioned, getting the underwriting right, perhaps there are some elements of cost increases that will flow through as a result of that. But I think the risk to that return profile is really limited because we see the continued momentum attractiveness and strong backlog of demand that will drive that rental rate growth over time to continue to deliver sustained development yields.

[Simon Hanna, executive]

Great. And the second question, Paco, on TIs. Look, I think you shouldn't be expecting any great deviation from run rate when we think about FY '23 result. The way that we look about it, it's really sort of maintenance CapEx, TIs and leasing commissions as our normalized guidance below FFO. We did see a couple of percentage points increase over the year, as you would expect. But when you -- the key ratio that we look at, you mentioned on a per square foot basis, we're at around $0.95 per annum for GLA for industrial portfolio there. But when you can translate that to a percentage of NOI, we think that's the right metric to be looking at. We're around 15% of NOI. And that's actually comparable to international benchmarking, for example, if you look at U.S. industrial percentage of NOI for rigs there, it's in that 15% area.

So we think that, that should be where we'll be aiming for and tracking over the coming year. Obviously, we're seeing a little bit of cost increase as well when you think about some of the supply chain pressures, et cetera, inflation that's fed through in the last year or 2. We've also just done a hell of a lot of leasing, whether it's new or renewal leasing. So that normalized sale and TI has also picked up. But getting to 98% occupancy and sort of focusing a lot more on renewals rather than new leases. I think we're looking at, say, steady -- steady type of deployment across those line items as a percentage of NOI.

[Operator]

[Operator Instructions] our next question comes from Isabela Salazar with GBM.

[Isabela Salazar Leipen, analyst]

We understand that excluding the land for your current pipeline, you have enough land, 13 million square feet of GLA. Does this land already have the necessary infrastructure in place for development? And would you expect to make use of all this land in the visible future? Or are you strategically choosing when and where to develop?

[Simon Hanna, executive]

Thanks, Isabela. Yes, so look, the 5 million square feet of land bank that we have on a GLA basis, 2 mean square feet, if you like, has even just been delivered or is under completion construction. So that's all accounted for, including from an infrastructure requirements perspective. The remaining 3 million square feet, as you would expect, particularly for some of these large park developments. We have, I guess, the underwriting and budget assumptions to build that out over time, particularly in accordance with construction of those parks. So I think from a -- I guess, an execution point of view, we have a very good visibility in terms of what's required and the investment requirements over time to build that out in line with our underwriting assumptions.

[Operator]

Our next question comes from Francisco Chávez with BBVA.

[Francisco Chávez Martínez, analyst]

Simon, Andrew, my question is regarding your debt structure and particularly your cost of debt. Do you have any liability management plan in order to reduce your cost of debt, seems to me that your cost of debt is higher than that of your peers. So any plan to reduce it?

[Andrew McDonald-Hughes, executive]

Thanks, Paco. I appreciate the question. I think we've had a very stable cost of debt throughout the cycle and since inception of around 5% to 5.5%. It has stepped up a little bit over time. However, we're very comfortable with the 5.6% to 5.7% level we're in at the moment. In fact, we've been able to hold that pricing steady with doing roughly $1 billion worth of refinancing and new financing activity over the last 18 months, which has also positioned us to not have any expiries or liability management coming through either this year or next year to particularly protect us from any volatility in the market.

We've seen recent print, I guess, as recently as yesterday, north of 7%. So I think we've really gotten ahead of the market to be able to manage it efficiently and be able to maintain higher levels of liquidity of more than USD 350 million to be able to fund the development program.

So I think definitely, we're always looking to make sure the balance sheet is well-positioned with the current leverage level we have as well, probably more than $300 million to $400 million of capability to deploy without going over sort of the mid-30% to 37% -- sorry, 35% to 37% type LTV ratio, which really positions us with healthy firepower, a very attractive cost of debt and a strong business model and capital structure to execute on our plan.

[Operator]

There are no further questions at this time. I would like to turn the floor back over to Simon Hanna for closing comments.

[Simon Hanna, executive]

Thanks, Diego, and thanks, everyone, for participating in today's call. We do look forward to speaking with many of you over the coming days and weeks as well as updating you again very soon at the end of the first quarter. So thanks, everyone.

[Operator]

Thank you. That concludes today's conference. All parties may disconnect. Have a good day.