Prologis Property Mexico SA de CV

OTC:FBBPF

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the FIBRA Prologis First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Montserrat Chavez, Investor Relations for FIBRA Prologis. Please go ahead.

[Montserrat Chavez, executive]

Thank you, Rica, and good morning, everyone. Thank you for joining us for our first quarter 2021 earnings conference call. Today, we will hear from Enrique Gutierrez, our CEO, who will discuss our strategy and market condition; and from Jorge Girault, our Senior Vice President of Finance, who will review results. Also joining us today is Hector Ibarzabal, our Managing Director.

Before we begin our prepared remarks, I would like to remind everyone that all the information presented in this conference call is proprietary and all rights are reserved. The information has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any securities.

Forward-looking statements during this call are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are current as of the date of this call. We take no obligation to publicly update, revise any forward-looking statements after the completion of this call, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, during this call, we may refer to certain nonaccounting financial measures. As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material.

With that, it is my pleasure to hand the call over to Luis.

[Luis Gutierrez, executive]

Thank you, Monte, and good morning, everyone. The positive momentum from fourth quarter has carried into 2021, as evidenced by a strong operating and financial results. We feel an even greater level of confidence in our outlook. Let me discuss the highlights for the quarter.

We had a healthy increase in cash flow in the quarter, given the strong leasing activity and the revenues from last year's acquisitions. This is evidenced by the cash same-store NOI and the quarterly growth in FFO and AFFO. Our operating metrics were solid, and our period-end occupancy was one of the highest of any first quarter since IPO in June of 2014. We expect to maintain this level of occupancy given the low leasing role for the remainder of the year.

We collected 99% of the first quarter rent and have had no bad debt issued. The resilience of the portfolio during times of crisis is a testament of the credit risk management, solid client list and the geographic and sector diversification of our portfolio.

We disposed of 3 non-strategic buildings in Guadalajara and reinvested the proceeds back to 3 properties in Toluca and 1 Last Touch facility in Mexico City. These properties add state-of-the-art facilities to our portfolio. We have recast our line of credit, providing the liquidity and flexibility to grow with an accretive cost of debt. Our balance sheet at the current leverage is one of the best positioned in the sector.

Logistics real estate continues to outperform the broader economy globally, and Mexico is not the exception. We expect 2021 to be one of the best years for the industry, given the structural changes underway, including faster fulfillment times and the building of higher inventory levels. As a result, demand remains robust. For the quarter, net absorption in our 6 markets totaled 6.7 million square feet with a market vacancy of 3.4%, which is near historic low.

For example, the border market ended with a 2% vacancy as a result of the strong activity in the manufacturing sector. Pipeline is solid across all of our 6 markets. We're expecting demand and supply to move in tandem and keep a balance for the rest of the year. We anticipate this will result in higher market rental rates.

Let me spend a few moments on what we're seeing on the ground. On the logistics side, e-commerce continues to be a significant driver of demand. We continue to see aggressive expansion plans, which are broad based. Industry leaders expanding their footprint in middle cities and consumer companies beginning to plan new facilities in order to compete. We are well positioned to capture the additional demand of new projects under construction.

By the way of example, we entered into a long-term lease in our Santa Maria infill project in Mexico City. This shows that this is a good time to build a last-mile portfolio. Consequently, as I just mentioned, we recently announced a new investment in this new sector.

On the manufacturing side, the success of the vaccine program is opening up the economy of the United States faster and this is driving additional demand for products from Mexico. In light of the ongoing trade tensions between the U.S. and China, some companies have taken the decision of opening a secondary operation as a backlog in case they are forced to shut down. Mexico has been a positive beneficiary of this additional demand. Evidence of that is the signing from FIBRA Prologis of 2 letters of intent for expansions of close to 0.5 million square feet with [indiscernible] from our Monterrey market. These developments will be stabilized mid-next year.

In addition, markets with sufficient land supply normally have enough spec product under development and no build-to-suits. However, given the high level of demand, there is an unusual pipeline of build-to-suits for manufacturing clients in Tijuana, Reynosa, Juarez and Monterrey. Our sponsor with its land bank is well positioned to win additional business. These properties will be offered in exclusivity to FIBRA.

Before concluding, let me summarize our views for the rest of 2021. Logistics real estate continues to be a favored asset class. Investors are strategically reassessing their property type focus. In operations, we will continue to concentrate on pushing rent and term.

On the deployment front, we expect to be active and opportunistic. We will continue to acquire the Prologis development pipeline as well as explore opportunities from third parties to the extent they align with our disciplined investment strategy. Our balance sheet provides us with major competitive advantage. The flexibility and investment capacity allows us to take advantage of opportunities as they arise.

I'm very proud of our team. There is strong culture of customer service, ESG and excellence, which drive seamless execution in challenging times. We believe, at current pricing, FIBRA Prologis is a compelling opportunity.

It provides an attractive order return in dollar terms and opportunity for capital appreciation. We remain committed to creating value for certificate holders. Our portfolio is resilient and built to outperform in any environment.

With that, let me turn the call over to Jorge.

[Jorge Girault, executive]

Thank you, Luis. Good morning. Thank you for joining us, and I hope everybody staying healthy. Let me begin with financial results for the quarter. We started the year with strong operational results. FFO for the quarter was $36.7 million or $0.043 per certificate, which was an increase on a sequential basis. If compared to the first quarter of 2020, FFO decreased 9.6% for certificate as expected. This is due to the additional revenue derived from FX hedges for $3.2 million in the previous quarter. Excluding these nonoperational income, FFO would have been flat on a per certificate basis. AFFO was $28.8 million for the quarter, an increase of about 24% on a nominal basis when compared to last year.

Moving to operating mix. Leasing activity was almost 860,000 square feet, with a peer end occupancy of 96.7%, which is basically flat as compared to the same period last year. Net effective rent change on rollover increased 4% and for the last 12 months, even had a positive rent change of 13.2%. For the quarter, cash same-store NOI was positive 5.2%, and GAAP same-store NOI was a negative 0.4%. This is the effect of rent concessions given in 2020, which will impact GAAP same-store NOI as lease-free rent is amortized over time.

Moving to our balance sheet and capital markets activity. We have a strong and flexible balance sheet. We keep on working on improving it. On this front, let me outline what we are doing. Last week, we recasted our new sustainable line of credit, which was 1.5x oversubscribed, increasing its capacity to $400 million, obtaining a 26 basis point reduction on spreads and longer tenor.

We are working in other refinancing activities that should close in the coming months. Our goal is to get the best possible financing costs and terms. We are looking to have a balance sheet with a longer debt exploration schedule, moving from floating to fixed interest rates, therefore, increasing slightly our weighted average cost of debt as well as improving our percentage of total financing identified as green or sustainable.

Moving to ESG. We're seeing some clear goals such as: reach 100% of LED lighting of the portfolio by 2025, currently at 50%; increase our building green certification to 50% by 2022 from 1/3 today; start our solar energy initiative in 2021, which will depend on local regulation. The goal is to bring important economic and environmental benefits to our portfolio and clients. 2021 will be the first year when we release our ESG report as will be required by local regulations.

With this, let me conclude by saying that our resilience strategy, improved tenant mix and stronger balance sheet makes FIBRA Prologis an attractive investment from a risk and growth perspective.

With that, I will turn to the operator for Q&A.

[Operator]

[Operator Instructions] Your first question is from the line of Sheila McGrath from Evercore.

[Sheila McGrath, analyst]

You noted that net absorption was very strong in your 6 markets, 6.7 million square feet. Where was the strongest absorption, which market? And what's your outlook for 2021 in terms of strongest absorption and rental growth? And if you could elaborate on what industry segments have been the primary drivers of this net absorption?

[Hector Ibarzabal, executive]

This is Hector. Thank you, Sheila. For your answer. Effectively, as you mentioned, net absorption is stronger than what we were anticipating. I think that the logistics and the manufacturing sector are driving this net absorption. The most important one is coming from Mexico City, where we have $2.1 million of net absorption. And the second market that we have with higher absorption is Monterrey, with almost $1.1 million of net absorption. In both cases, the main driver has to do with logistics and e-commerce. We anticipate that these trends will continue going forward. So we're expecting a very positive 2021.

[Operator]

And your next question, from the line from Alan Macias from Bank of America.

[Alan Macias, analyst]

Just a question on acquisitions, if you can provide an update on the time line of the acquisitions. And if you believe you will be doing acquisitions at the top end of your guidance? And talking about last-mile properties, will response to be developing these properties? Or would you be acquiring?

[Luis Gutierrez, executive]

Thank you, Alan. So 2021 is time to play offense. We have prepared the balance sheet and the company for growth. Our loan-to-value is 29%. And as Jorge mentioned, we have just recasted our line of credit, so we're ready for that. So we have acquired the first quarter, $29 million, one property in the first quarter and one recently, which was the last-mile property. There is 1.6 million square feet, around $130 million, and we will be acting on these acquisitions.

The ones coming from Tijuana, Monterrey and Juarez, this would probably happen between the second quarter and the third quarter. But let me tell you, we see such a good environment that the sponsor is putting to work, and we are estimating about 3 million more square feet of additional properties before year-end. This will be around an investment of $200 million. Of course, these properties need to be constructed and stabilized and then offered to the FIBRA sometime in 2022.

So we believe this is a great source of competitive advantage. On third party sales, we will continue to explore that market, as we have just said. Last-mile properties, it's a good time to build those properties and those users that, given the crisis, could give attractive conditions. And these properties are not going to be developed by the sponsor. Most of them will be value-added transactions in which we buy older properties, and they are bought by the FIBRA directly. So we believe we will add more properties as the year goes by.

[Operator]

Next question, from the line of Vanessa Quiroga with -- from Credit Suisse.

[Vanessa Quiroga, analyst]

Let me start with the questions. The first one is regarding net effective rents. Would you expect to -- net effective rent for that total portfolio to accelerate in the coming quarters to levels of growth similar to what we saw in the fourth quarter of '20? And the other question is about ESG, regarding your comments, which are very interesting about the certifications that you expect to obtain. Is this driven by demand from tenants? Or are you being proactive in certifying your buildings? And do you expect that to reflect on higher rents as well?

[Luis Gutierrez, executive]

Thank you, Vanessa, for your question. Let me start with a net effective rent issue. We have been reporting within the years how valuable for us is the ability that we have for pushing rents up. On peak, we used to have 16% or 17% of spread between net effective rents and market rents. A lot of these values has been captured. So now we are closing -- we are closer -- our net effective rents are closer to market trends. So you shouldn't expect a spectacular rent change in number as we have done -- as we have been doing in the past years.

However, I've got to say that regarding the net absorption that was mentioned in the previous question, regarding the way market is behaving, we should be expecting an important increase in market trends. So the picture that we have as of today is around 2% or 3% below market trends that we're expecting in the logistics and -- actually markets, market trends to go up probably between 8% to 10%.

So we will keep on showing to the market our ability to push rents up. Our strategy of focusing in the land constrained markets, it has been working. And our sponsor is doing a disciplined job on trying to replace the backlog, so we could be -- keep on participating of this type of markets. I will pass the word to Jorge to refer to ESG.

[Jorge Girault, executive]

Let me answer the ESG question. The -- let me just say, first, that we're being proactive. As I have said in the past, ESG is part of our DNA, something that we are pushing everywhere from green buildings to better governance to everything, especially also on social approach. So we're being proactive. We -- the new developments that are being done by Prologis are being recertified. And the ones that we already have, we have increased our BOMA for example, footprint, if you mean, which is more related to the operations and not necessarily to the building -- the construction of the building, which is more on the mid side.

Regarding your question on rents and clients, let me say that rents are [ set ] by the market, supply and demand. And it's not necessarily because they're leased, they're more expensive. But data and in products like these causes 2 things: one, more stickiness from our clients as they have to comply with ESG parameters themselves. So you can think of a multinational company who needs to comply with ESG parameters being in at least a certified building or a BOMA building will help on that certification or on that parameter by themselves. So it's stickiness and complying with our clients' needs, but in a way the world is affirming to. Hope that answers your question.

[Operator]

Next question the line of Nikolaj Lippmann from Morgan Stanley.

[Nikolaj Lippmann, analyst]

Congrats on the numbers. I also have a question a bit on the lease rent, one for you, Hector. See if I get it right, is it 4% for roll over contracts and 13% for new contracts where you have the new trends, you have 1 guy going out and a new line coming in, it seems that the 4% would be getting a good deal. You're sold out as much as 1 can be sold out in this kind of market, I guess.

So I guess my question here is, have you -- do you often have a -- the ability of existing clients that they can just renew on similar terms so the repricing becomes kind of difficult? That's basically the question. But maybe the repricing, to a mark-to-market level, would -- could take a little more time because most clients have an option to just renew on similar kind of terms.

[Luis Gutierrez, executive]

Very good question, Nicolas. And as you know, the way of creating value for our certificate holders is related to create value within the properties. As we have mentioned in the past, value in the properties does not increase just by magic. But you need to make the properties more productive so this additional productivity with the same investment is really what turns the value up.

Having said this, this is where our strategy comes from. We have the ability to push rents because the ratio between supply and demand market is favorable to our investments. This is why we only have decided to be in 6 out of the 20, 25 markets that exist in industrial real estate in Mexico. What we usually do, and we know our customers, and our customers are one of the best assets that we have. We have a customer that we know that we will need to increase the rent importantly, we work with the customers so we educate the customer -- for the customer to understand where market is.

Today, for example, Tijuana has a very important opportunity to keep increasing rents. So our conversation constant with our customers, letting them understand how market is and what is happening in the market really makes this process on an easy manner to us. We will keep on taking rents up to market. This is one of the strengths that we have. We think that in the market, no one has the ability as we do to keep on doing this. And this is one of the best recipes to keep on increasing value for our certificate orders.

[Jorge Girault, executive]

Nikolaj, let me just clarify something. In our legal contracts, companies do not have the right to extend their lease at the current rent. At expiration, the rents are reviewed to market. So that's a feature that we have. So that's why we have the ability to adjust to market every time there is a renewal.

[Operator]

And your next question is from the line of Gordon Lee from BTG.

[Gordon Lee, analyst]

Two quick questions. The first on Monterrey, in particular, you mentioned that it's the -- 1 of the markets where you're seeing the strongest absorption, yet on your particular occupancy, there was actually a little bit of a slippage from the fourth quarter to the first quarter. So I was wondering if you could maybe tell us a little bit of what happened there? I assume it's tenant specific, but some color would be helpful.

And then the other question, Luis, you mentioned that you leased the Santa Maria property, the Last Touch property that you acquired in early 2020 in Mexico City. I was wondering if you could maybe give us a little color on the terms of that lease, thinking about cap rates, et cetera? And whether you think the one that was acquired in Vallejo this week, you see sort of similar economics around that?

[Luis Gutierrez, executive]

Thank you, Gordon. Good to hear from you. Effectively, I see Monterrey as a spectacular market for 2021. There is plenty of activity coming from both drivers, from e-commerce, from light manufacturing. As we mentioned, we have a 93% occupancy, which is not as strong for this quarter, although we do expect to finalize the year in Monterrey between 96% to 97%. So what we're experiencing is frictional occupancy. We are participating in important expansions that our customers are requesting. So this will be adding value to the portfolio. And I do see 2021 as probably a record year, reaching absorption for Monterrey.

[Jorge Girault, executive]

So Last Touch, Gordon, and thank you for your question. We have been feeling more confident in our strategy there. And so we acquired this property last year, Santa Maria, and we refurbished it because it was an old -- it was owned by [ Lala ] and Lala sold it. So we made a complete refurbishment, and it was leased to a company that is going to put a showroom and is going to use it for distribution of products.

So it was a U.S. dollar-denominated 10-year deal. The rent was between $7 and $8 per square meter, which was an upside to what was our original underwriting. And the Vallejo property is -- which was just recently acquired, that was also both empty, and we feel confident about the pipeline of that. So I believe the Last Touch sector will eventually strengthen.

If you look at the phasing of e-commerce, companies will build their big fulfillment centers, Phase I. Phase 2 will be adding properties in middle cities and Phase 3 will be improving service. Once they decide to go in that Phase 3, then there's going to be more demand for Last Touch facilities. So this is a great time to build a portfolio of this type. And given that there is some risk in terms of leasing vacancy, cap rates are between 7% and 8%.

[Operator]

And your next question is from the line of Andre Mazini from Citigroup.

[André Mazini, analyst]

My question is on the last topic as well, so on the last such facilities, and on competition, right? Because when we talk to FIBRA peers, it seems to us that more FIBRA peers are wanting to get into the e-commerce game, so [indiscernible] and all that. But regarding Last Touch, not a lot of other players seem to be doing that, at least in my perception. I think the perception with a lot of the professional players is that the Last Touch facilities, as they are by definition, small in terms of square meter, right, as the size of an area, there will be a smaller capacity -- a smaller capital location capacity in those properties. So it wouldn't be worthwhile for institutional players.

So is this reasoning correct? I know you guys are in the space and doing some nice [ moves ] in there. So is there less competition for the Last Touch? Is it a little bit of an under -- or overlooked sector, if you will, given that the last mile, given that the properties seem to be smaller and it's lower ticket, right, than the regular last mile facility that [ there are ] transactions?

[Jorge Girault, executive]

Thank you, Andre. Thank you for your question. I think you mentioned an important concept because Last Touch facilities could be a relatively easy fund in the market. If you don't have a clear understanding of what is Last Touch facility or properties on sale or infill locations, there's plenty of availability of that type of property. Designing a Last Touch strategy, you need to know your customer. You need to know exactly what they are looking for. You need to know the right areas that eventually would be successful in this regard. And you need to keep a very close look at the price and the cost of this investment.

We do see Last Touch facilities with 2 strategic components. Number one is that these facilities will importantly increase its value. The potential upside of Last Touch facilities is they are well designed, well thought out and well located. They have a very important upside, an upside, which is even bigger than the regular big warehouses that we are used to.

As you mentioned, they are not important on the dollar amount perspective, but they could have a very important strategic component. Because as Luis mentioned, when service becomes the #1 priority for the online players, having this type of activity will help you to tie the big businesses with this company. It will become like a membership, a membership cloud for them to have access to these facilities. Having the entire business with us.

A final advantage that we have at Prologis with these type of facilities, we have a strong relation with our customers. So I could say that these investments are probably made -- I mean, 100% are risk and 100% are core, but we have a lot of feedback from our customers before taking these type of decisions. So it's a kind of a build-to-suit location, built-to-suit type of facility, which is going to be, in the future, a positive advantage that we will have as gaining additional business with important players in commerce.

[Operator]

And your next question, from the line of David Soto from Principal.

[David Eduardo Soto, analyst]

Two quick questions. Just a follow-up on the questions regarding M&A activity. Could you remind us which are the regions on the industry you will be focusing on the next transaction? And the second question is, could you provide some color about the -- how is now the breakdown of the U.S. and the peso rents denominated in Mexico City and the Guadalajara market?

[Luis Gutierrez, executive]

Thank you for your question. Mexico City and Guadalajara are markets that are requesting more pesos. This is natural as somehow we were expecting this evolution as the customers that we have in the markets, even they are multinational companies, they generate pesos. So in a lot of cases, CFOs, they privilege the fact of not having a mismatch between their expenses and their revenues.

In Mexico City, we already have close to 65% of our rents, which are peso denominated. And in Guadalajara, we have 35% of rents, which are peso denominated. We do not see in any of these 2 markets an important increase in the peso component. We have as well customers that privilege the simplicity of having a dollar lease because it's easy to report. And believe it or not, in a lot of cases, it provides savings to the company to have dollar leases as they end up paying less money mortgage on a 5-year lease contract.

[Jorge Girault, executive]

So David, thank you for your question. And I don't know if I heard it right, but let me take a peek of what I think was the question. So where those acquisitions are going to be based on, so I think the Prologis pipeline is from Mexico City, Monterrey, Juarez and Tijuana. And then the pipeline of new products that the sponsor will put into play, I think it's broad-based. I think the strongest markets we see is Juarez, Tijuana, and Mexico City.

[Operator]

And your next question comes from the line of Adrian Huerta from JPMorgan.

[Adrian Huerta, analyst]

Quick question on just the mix of peso-denominated rents within logistics. That will be my first question. And then the second one is, can we expect any further liability management for the rest of the year?

[Luis Gutierrez, executive]

Thank you, Adrian, for your question. We feel very positive about the way we have balanced our portfolio between manufacturing and logistic investment dollars. We currently have 60% of our customers who are devoted logistics and 40.3% of our customers which are devoted manufacturing. If you were to ask me the question, which sector is going to be stronger in 2021, I will have a lot of difficulties to provide a good answer. I'm seeing a very strong year, and I'm seeing both manufacturing and logistics be -- to be very, very strong and to have structural grounds to have this strength.

The second part of your question was...

[Jorge Girault, executive]

Liability management, which is mine. Thanks, Adrian, for your question. Regarding the liability management, let me break that into 2. One, as we did last year in -- from 2019 to 2020, where we bought some options for FX hedges, which resulted in a positive income during the year, given the devaluation that we had at the beginning of the year in particular, we did the same for this year. At the end of 2020, we've got options to cover every quarter about 21.5 FX.

So we are covered. We have some options. So we already paid for it, like an insurance. We only use it in case the peso goes beyond 21.5. So that's already embedded in our numbers. So that's as far as we do it as we have in terms of label management besides what we're doing on the refinancing part that we're trying to get longer term, better terms on our debt.

[Operator]

Your next question comes from the line of Sheila McGrath from Evercore.

[Sheila McGrath, analyst]

Yes. Luis, you mentioned in Monterrey some expansion opportunities. I just wanted to clarify if those will be developed on the FIBRA's balance sheet, how much capital investment would it take? And what type of yield would you expect on the incremental capital? I would expect it should be higher since you already own the land.

[Luis Gutierrez, executive]

Yes. Thank you very much, Sheila, for your question. And this is probably a very interesting experience that we just recently had because we had some clients really fighting for that space, and that was kind of a good thing given, I guess, the state of the market. But -- so this is land that is owned by the FIBRA. When we did a build-to-suit, this client was requesting that we hold a piece of land which is adjacent to the property. And when we -- when Prologis sold this property to the FIBRA, it came with the additional land.

So those are 2 expansions, which are the similar cases. And there is about 0.5 million square feet. I think the dollar amount will be around $30 million. And yes, I think the yield will be higher than what will be market yield, but I guess something between 7% and 7.5%.

[Operator]

And your next question comes from the line of Francisco Suarez from Scotiabank.

[Francisco Suarez, analyst]

A quick question. It was good to see that you were doing quite better compared to the Mexico City market and judging on the price of vacancies that we sold in the first quarter compared to the quarter earlier. Putting all your efforts on renegotiating all your leases made last year, can you discuss a little bit about the flight to quality characteristics of your specific portfolio that is helping you to be really much better compared to the rest of the Mexico City industrial market? And if you can add to that -- add to your response the chances of further compression on cap rates for these type of assets.

[Luis Gutierrez, executive]

Thank you, Paco, for your question. When you mentioned flight to quality, I think that we have a position in the market that really recognizes the specifications that we provide on our product. Our properties are always the ones that represent the lowest coverage among the market. And this really represents a competitive advantage for users. Our users are multinational companies, are sophisticated users, and they are trying to have -- to optimize their operational costs. They are not trying to minimize the cost of rent.

We are -- in most of the cases, the face rents are more expensive than the market, but our facilities provide the ability to our customers to have a lower operational cost. We will keep on with this strategy. Markets like Mexico City, where land is becoming scarce and expensive, always provide the temptation of trying to have a higher coverage. But we will keep on with the discipline that we have shown in the past. This is the way to keep and retain the profile of customers that we have.

[Jorge Girault, executive]

As of cap rates and valuations, Paco, this is a very interesting question. As I mentioned, logistic real estate is the preferred sector, and this has drawn a lot of interest from investors into this property type. And I think cap rates have compressed around the world.

In Mexico, we are estimating that cap rates may compress around 40 to 50 basis points. And if you ask me about what our cap rate is in some of our markets, I would say, probably Mexico City is 6.4%, 6.5%. And then maybe you can add some spread to Tijuana and Monterrey maybe between 25 and 50 basis points and maybe some of the other markets like Juarez and Reynosa in maybe 75 basis points. But we have been seeing cap rates in Los Angeles at 3%. If you compare that to Mexico City at 6.4%, there is a very healthy spread. So I think this is why Mexican real estate keeps being very attractive at this point.

[Operator]

And your next question comes from the line of Pablo Monsivais from Barclays.

[Pablo Monsivais, analyst]

I have 2 quick questions. Luis, if I understood correctly, you are already working on your last-mile portfolio. But can you please share some light on the size of an eventual last-mile portfolio, say, 3, 4 years from now? How do you envision that? If that is going to be another subsector from your GLA or will be on the metropolitan areas classification. That will be my first question.

And the second question is -- and you kind of already answered this, but you gave a guidance of a 3% vacancy, which is better from the 3.4% vacancy in your Class A market. Now how do you see rent? Do you have any idea if rents are going to go up by 10%, 15% or some sort of the other side of the equation in terms of trend?

[Luis Gutierrez, executive]

Let me start with the second part of your question. I think that rents in some markets are going to be going up. I see rents in Mexico City going up from 8% to 10%. Rents in Tijuana, they will go beyond 10%. We are reaching the lowest vacancy that we have seen in the market, and we are very positive in this regard.

If you review -- Prologis' sponsor has its earnings report just this Monday, and we're reporting above 25% rent growth. So our rents in the U.S. are increasing importantly. Online business and logistics in the U.S. and the diversification of the supply chain are bringing additional business to the company. And the rebound of the economy of the U.S., which is tied to the Mexican economy, I think that is recovering better and higher than what everyone was expecting.

So there's a lot of positive signs. And I don't get tired of saying that this is a very privileged sector, understanding the political and economical environment [ in Mexico ].

[Jorge Girault, executive]

Pablo, thanks for being on the call. And I guess on your question on the last mile, so let me say that e-comm is about 8%, 8.5% of total sales. And as this percentage increases, then the last mile increases. How is this going to evolve? It's a question that it's very difficult to answer. Certainly, if you see Mexico at 8% and the U.S. maybe have between 17% to 20%, so there's a huge room for e-commerce to advance. So I think as the penetration of e-commerce reaches a higher level, we will see a higher speed on the Last Touch.

So very difficult to assess how much -- or how large the portfolio will be. But let me tell you, we have mapped the areas where we believe there is a good space for that. And as we make investments, we have to lease them, and we will have a very sound strategy so that every step of the way we take is with a very strong footing. So we are optimistic. I think it's going to be a great sector, but certainly, something we need to watch.

[Operator]

[Operator Instructions] Your next question comes from the line of Francisco Chavez with BBVA.

[Francisco Chávez Martínez, analyst]

The question is regarding the balance sheet and your financial structure. When you mentioned that the...

[Operator]

We lost Mr. Chavez' line. And your next question comes from the line of Francisco Suarez from Scotiabank.

[Francisco Suarez, analyst]

Perhaps it is Francisco Suarez for Scotiabank. But in any case, you mentioned that you were receiving request for rent release in the first quarter. Can you share a little bit of color of what type of industry of where those pressures are coming from? Is that coming out in Mexico City? It's kind of [ awkward ] because you mentioned that everybody basically paid their rents during the first quarter. You collected 90-something percent of your rents. Nevertheless, you start receiving this request. Can you give a little bit of color on how they will like play out during the year?

[Luis Gutierrez, executive]

Thank you for your question, Paco. No rent release at the time at all on the first quarter. We have done a very good job on the field, and I'm very proud about my team because collections have been even on better levels than before the pandemic. I think that this emphasized the importance of really making a good selection of the right customers in the other side of the lease agreement.

If I make an additional comment, we see that the other sector is recovering. That was probably one of the sectors that was more hurt during the pandemic. And we see logistics and some fields of manufacturing in very good shape. The couple of issues that we have in our portfolio were last year, and they were related more to activity that our customers were not evolving rapidly and they lost their business. But not in a specific industry or not in a specific pain in our portfolio directly to speak about.

[Operator]

Thank you. And there are no other questions at this time. I would like to turn the call over to Luis Gutierrez for final remarks.

[Luis Gutierrez, executive]

Well, thank you very much to everyone for participating in our first quarter call. I think the year begins with a very good note. We're very optimistic about the market environment, and we're very optimistic about our strategy and our -- and penetrating. So we look forward to probably having some personal meetings. We see light at the end of the tunnel. And hopefully, before the year-end, we can have a cocktail and maybe have an in-person meeting. We look forward to doing that. Thank you very much.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.