Prologis Property Mexico SA de CV

OTC:FBBPF

Earnings Call Transcript 2019-Q2

[Operator]

Good morning. My name is Laurie, and I will be your conference operator today. At this time, I would like to welcome everyone to the FIBRA Prologis Second Quarter 2019 Earnings Call. And I will be facilitating the audio portion for today's interactive broadcast. [Operator Instructions]

At this time, I would like to turn the show over to Kosta Karmaniolas, Investor Relations. You may begin.

[Kosta Karmaniolas, executive]

Thank you, Laurie, and good morning, everyone. Thank you for joining us for our second quarter 2019 earnings conference call. Today, we will hear from Luis Gutiérrez, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our Senior Vice President of Finance, who will review results and guidance. Also joining us today is Hector Ibarzábal, 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 or 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 non-accounting financial measures. As is our practice, we have prepared supplementary materials that we may reference during this call as well. If you have not done -- already done so, I would encourage you to visit our website at fibraprologis.com and download this material.

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

[Luis Gutierrez, executive]

Thank you, Kosta, and good morning, everyone. We continue to build momentum in 2019, delivering solid operating and financial results in the second quarter. Our internal growth capabilities are robust and the key driver of our success. We continue to push for higher rents and longer-term lease expiration. And this quarter, we set a record for rent change on rollover. Occupancy remains healthy, coming down slightly from last quarter's record level and with 4 of our 6 markets over 96%. The results of our efforts was FFO and AFFO year-over-year growth of 3% and 7%, respectively. This is clear evidence of the power of our portfolio and investment strategy to focus on both consumption and light manufacturing.

On the capital front, we sold 2 properties this quarter, bringing total dispositions year-to-date to $72 million. Importantly, investors' demand was strong and pricing was in line with our trade values, validating FIBRA Prologis NAV and highlighting the significant discount to the stock price. The Mexican economy exhibited a slower growth, while the logistic real estate operating environment was stable. The strong demand came from manufacturing and slower growth from consumption-oriented markets. Our realized market rent growth moderated to approximately 1.5% across our 6 markets, with Mexico City and Tijuana at approximately 2.5%.

Turning to our consumption markets. Consumption indicators were mixed, albeit, still growing with ANTAD reporting same-store sales growth on an inflation-adjusted basis of approximately 1% in June. According to INEGI, Mexico's e-commerce sales have been growing faster than expected, which led eMarketer to recently revise their 2019 projections higher. They now expect Mexico's e-commerce sales to exceed $20 billion, putting the country ahead of Argentina and just behind Brazil at $24 billion. Based on the current growth trajectory, eMarketer believes Mexico will surpass Brazil in terms of e-commerce sales by 2022.

Net absorption was 8 million square feet on a trailing 4-quarter basis. This is down 40% compared to the same period ending second quarter 2018. While demand in Mexico City is constrained to available supply, Guadalajara has been slow to absorb the available pipeline. Monterrey saw an increase in both. However, supply currently exceeds demand.

Looking at our manufacturing-oriented markets. Manufacturing exports grew 8% in May on a year-over-year basis in U.S. dollar terms. The sector is benefiting from the robust demand from U.S. consumers as well as the strong labor market.

Net absorption on a trailing 4-quarter basis was 7 million square feet, almost double versus the same time period ending second quarter 2018. The increase was led by Tijuana and Ciudad Juarez. Importantly, supply is holding flat, and as a result, market vacancy was below 2%.

Let me briefly discuss what we're seeing on the ground with our customers. Despite a slowing economy, our portfolio has been resilient. With limited available product in high barrier to entry markets, our customers continued to sign longer-term leases to secure space. We have continued to push for higher rents and longer term.

In Mexico City, we are seeing increased activity from 3PLs, retailers and pharmaceutical companies. Tenants continued to proactively reach out to us to start the renewal process early. Both new and existing customers in Tijuana are actively looking for space on a mid- and long-term basis and are also quick to start the renewal process.

Juarez remained very dynamic with an active deal pipeline and good customer sentiment. In both markets, our existing customer are focused on expansion, and we are seeing growth from 3PLs and electronic manufacturers. Importantly, we continue to see interest from Asian companies. In Monterrey, there was a robust activity during the quarter, with several companies expanding their operations. We have also -- see a healthy pipeline of deals, which should translate to a strong year. However, supply bears watching. Bottom line. Our expectation is that the logistic real estate will continue to outperform the broader economy, albeit, not at a previous pace.

In summary, we remain committed to generating positive results and creating value for certificate holders. Our investment strategy favors consumption and light manufacturing, the 2 most important structure drivers in the Mexican economy. Due to the quality and location of our buildings, we have a big head start in e-commerce, which is emerging as a significant driver of logistics demand. Our portfolio is well positioned to outperform in a changing environment. We have embedded growth in our portfolio from the gap between in-place and market rents. We remain prudent with capital, keeping a watchful eye on the macroeconomic and logistic real estate operating environment. And pricing for quality logistic product remains attractive, along with an abundance of capital, could result in meaningful appreciation.

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

[Jorge Girault, executive]

Thank you, Luis. Good morning, and thank you for joining us. Starting with operations. Leasing activity was 2 million square feet for this quarter with Mexico City and Monterrey accounting for almost 80% of the total volume. Importantly, our average lease term was 69 months. Quarter end occupancy declined 90 basis points from the record first quarter to 96.6%. If compared to our second quarter last year, occupancy was 70 basis points higher, led by Monterrey and Tijuana.

Net effective rent change on rollover for the quarter reached a record 16% in dollar terms led by Mexico City, Monterrey and Juarez. All of our 6 markets had a double-digit re-leasing spread this quarter. Additionally, it is important to point out that FIBRA Prologis' in-place rents remain around 6% below market, providing us with embedded organic growth.

Same-store cash NOI for the quarter was positive 3.9%. The increase was due to higher rent change, annual bonds and elevated occupancy, partially offset by lower expense recovery.

Now let me turn to our financial performance. FFO for the quarter came in at $28 million, excluding the incentive fee, an increase of 3% when compared to the same period last year. This increase was driven by a lower realized loss on exchange-rate instruments. AFFO for the quarter was up over 7% if compared to same period last year mainly due to higher FFO and lower straight-line rents.

Moving to our balance sheet. Our balance sheet remains one of the strongest in the sector. We ended the quarter with a loan-to-value of approximately 32%, weighted-average debt cost of 4.3%, weighted average maturity of 4.3 years and $344 million for liquidity. We have positioned the portfolio and balance sheet to be in excellent shape and be ready for all parts of the market cycle.

In terms of interest rate risk management, we recently entered into a 2-year swap agreement for $240 million beginning on August 6. Due to the shape of the forward curve, we can swap out of floating rates at a lower cost, effectively fixing interest rate at 4% or 5%. This replaces an interest rate swap on $250 million that is due to expire this month.

As part of our ESG initiatives, and as we mentioned last quarter, we're implementing a program to improve the efficiency of lighting in our buildings. The goal is to reduce our carbon footprint, help our customers save energy and collect additional revenue. As this program gains traction, our investments in our property will increase in the form of CapEx spent.

Turning to guidance. Given our first result and market conditions, we have adjusted the following 4 lines of our guidance. We are increasing and narrowing our range for full year FFO per certificate, excluding incentive fee. The new rent is between $0.16 and $0.165, increasing the midpoint by $0.0025. Two, we are introducing full year FFO range per certificate, including incentive fee, between $0.1425 and $0.15. Number three, following the strongest performance related to the rent change on rollover and the higher-than-expected average occupancy, we're modifying our cash same-store NOI range between 3% and 4%, increasing our midpoint by 150 basis points. And four, we're increasing our CapEx as a percentage of NOI by 100 basis points due to lighting efficiency program mentioned above.

To wrap up, we had an excellent quarter and first half of the year. We feel great about our business and confident about our future performance. With that, I will turn the -- to the operator for Q&A.

[Operator]

[Operator Instructions] We have a question from the line of Sheila McGrath from Evercore.

[Sheila McGrath, analyst]

You are at the top of the range on your disposition guidance. I was wondering if you could provide your thoughts on the acquisition outlook and how many dollar -- volume does the sponsor have that are stabilized for the FIBRA to potentially purchase?

[Hector Ibarzabal, executive]

Sheila, this is Hector. Thank you very much for your question. Indeed as you mentioned, we have been successful on our disposition program. The market is pretty active, and it has a lot of momentum upon investing in these type of assets, and eventually in recent transactions, we have seen international investors that were not investing in Mexico jumping to the market. I think that this is good news for everyone.

Regarding the side of acquisition, as you know, the most important acquisition that we have is Park Grande. Last building of Park Grande built by the sponsor is in the final phase of being constructed. So it's going to be finalized by the first quarter of following year to 2020. And at that point of time, we will evaluate what is the status of FIBRA Prologis and to see if the market conditions are in place in order to offer as it is established, Park Grande to FIBRA Prologis.

Besides that, we have around $35 million of additional assets in Monterrey and Ciudad Juarez. And they're going to be following the same process that we have seen in the past. I think that the fact that Prologis as a sponsor keeps on being very active and taking care of all the business opportunities that happens signifies a very important asset for FIBRA Prologis that has an exclusive right over those assets. So even though, it could be seen that FIBRA is a little bit shy on acquisitions because of current conditions of prudency, I want to be very clear that Prologis keeps on active and keeps on doing warehousing. So when the FIBRA is in the right moment to take over these buildings, the FIBRA will have that ability.

[Operator]

Your next question comes from the line of Roberto Waissmann from Bradesco.

[Roberto Waissmann, analyst]

My question is on the occupancy rate. We can see that most of the -- all the figures actually in the year-over-year comparison, they were up, with an exception for Mexico City. Mexico City was down on both year-over-year and quarter-over-quarter figures. And the quarter-over-quarter, it's about 300 bps down. We would like to understand what is that? If you could talk a little bit more of what happened here in Mexico City and what we could expect for the city going forward?

[Hector Ibarzabal, executive]

Roberto, this is Hector. Thank you very much for your question. If there is a market that I feel bullish about is Mexico City. All these changes that you mentioned are part of the frictional rollover that we have. In Mexico City, we have a very strong rent change, and that's a clear figure that represents how the market is standing. Mexico City has been presented recently some additional barriers regarding construction license, particularly in the municipality of Tepotzotlán, which is where the most of the land availability it is. I think that this -- in this process of license and permits, Prologis, our sponsor, is being pretty active and has a competitive advantage, and we foresee that very soon, Prologis will keep on -- start developing again in Mexico City. Consumption, as Luis mentioned in his opening remarks, is presenting good figures still. E-commerce is gaining market penetration compared to the traditional brick-and-mortar and this is fabulous news for our business. So I do not see in the short or medium term, any issue regarding activity in Mexico City.

[Operator]

Our next question comes from the line of Alan Macias from Merrill Lynch.

[Alan Macias, analyst]

Just on the solid demand for acquisitions of industrial space in Mexico, have you seen higher demand for manufacturing space or for logistics?

[Hector Ibarzabal, executive]

Thank you for your question, Alan. I think, and I feel very positive. Once again, one of the differentiators that FIBRA Prologis has, it's our strategies that, I think, it's pretty well thought and it represents the possibility of increasing value to our assets, which is an important component of our returns. As you mentioned, the border is very strong. We have Ciudad Juarez and Tijuana practically at 100% occupancy. The U.S. economy is in very solid shape. We are having this call from Denver and have had the opportunity to share some information with our partners, our colleagues here in the U.S., and they do not see any slowdown shortly coming from the U.S. So as soon as the manufacturing activity keeps on link to the U.S. economy, I feel very positive that the activity in other markets will continue very strong.

In the consumption markets, nobody is positioned as we are to take advantage of this wave of e-commerce. Basically, all of the important players of e-commerce already are our customers or are in the process of becoming our customers. So we have the ability to talk with them all the time. And I can tell you that our sponsor keeps on anticipating to the future strategies that these e-commerce players have. The fact that we have that strong relationship, not only in Mexico but worldwide, provides us with unique information so we can anticipate where demand is coming. And we -- this way, we can keep on increasing the warehousing of assets for FIBRA Prologis. So the strategy is solid. I think that we are very well positioned, numbers are strong. And we are monitoring the geopolitical conditions as they could have an impact on the midterm, but so far, the picture that we're showing today is very, very solid.

[Operator]

And we have a question from the line of Vanessa Quiroga from Crédit Suisse.

[Vanessa Quiroga, analyst]

Congrats on the results. I would like to ask you to repeat the numbers that you provided for absorption in supply separating between the consumer markets and the global markets, please?

[Hector Ibarzabal, executive]

Thank you, Vanessa, for your question. On the second quarter, there was a net absorption regarding our figures of 4 million square feet. Let me try to present market by market. In Tijuana, there was a 1.2 million absorption. And I'm referring to net absorption. So this is the difference between gross absorption and the space that are left vacant. The following market with the important activity was Monterrey with 1 million square feet, which is exactly the same figure that Juarez market is presenting. Juarez is pretty strong and pretty dynamic. And it's probably the market, in which we're seeing the potential build-to-suits coming in the pipeline. Mexico City has 700,000 square feet of net absorption and this number might look shy. But as I mentioned in the previous question, Mexico City is presenting additional barriers to launch new space. But Mexico City, the pipeline is strong and the demand from our customers is in pretty good shape.

Reynosa and Guadalajara presented very low activity. No net absorption in Reynosa. As of today, is a market that has not presented new space for a while due to the local conditions, particularly security that the market represents. And Guadalajara, even though there is a lot of supply from new players, only had 100,000 square feet of net absorption. So the total figure is 4 million square feet of net absorption. Year-to-date, we have 7.2 million and this number, as Luis mentioned in his opening remarks, is lower than the -- we saw in 2017 and 2018. Just as a reminder, net absorption in 2017 was 17 million square feet. And last year, net absorption for the full year was 15.7 million square feet. So the markets keep on moving, and I think that in each one of the markets, we have the right strategy and we have the product to serve demand.

[Vanessa Quiroga, analyst]

Okay. Sir, so based on these numbers, and how can you explain the increase in net effective rents? Is it because the markets where there is still higher net absorption than last year, those are the markets driving the net effective rents higher? Or how can we reconcile these 2 dynamics?

[Hector Ibarzabal, executive]

Well, the net effective rent of -- I mean it's a combination. Rent growth is what we have felt that it's pretty strong. Mexico City, to give you an idea, on this quarter, we have a 17.5% of rent growth. And rent growth is the delta between the new contracts executed for on a specific space compared to the previous space. So it is a very high figure. Juarez, we have a 15.8% of our rent growth in the leasing activity that we have there within this quarter. And Reynosa, for example, has a 10.4% of rent growth in that market. So the overall and the average rent growth that we had was a 16% that Luis mentioned in his opening remarks. The rent growth could follow some unexpected patterns because it has to do this delta calculation as well with the status that the previous contract was coming. So if the contract had some vintage because the previous contract was executed within the specific part of the cycle that could be bringing as a consequence a higher rent growth than what we have. So what we tried to follow as well is the market rents and how the market rents are growing. We feel positive about the market rent growth on 2019. Somehow, we are modifying with a little bit of prudency market rents for 2020.

[Operator]

Our next question comes from the line of Eduardo Alvizouri from GBM.

[Eduardo Alvarez, analyst]

I would like to get a little bit more color on the Juarez asset disposition? And specifically on what is the rationale after this 2 building disposition? It seems we have seen strong northern region and we consider it a hub market and I think you do as well. So I don't know, I would like to know, like, the strategies long-term of this asset disposition, and if we expect more of these transactions in the future?

[Hector Ibarzabal, executive]

Eduardo, thank you very much for your question. And I understand perfectly that it may sound a little bit inconsistent that we're seeing Juarez like omni market and we are selling a couple of assets. As a reminder, our dispose strategy is linked to the medium- and long-term strategy of the FIBRA. Today, there is an important market of people willing to jump into the -- this industry. So we have been calling this a recycling asset activity. Basically, we are selling those assets that are good assets, but do not fit our long-term strategy anymore.

For example, the 2 dispositions that we had in Juarez this quarter were buildings that were sold to users. So we didn't follow any price that went out to the market. The user, in a lot of cases, could be the best buyer for any specific asset. The user had invested in that asset. The asset were assets that were pretty old. So basically, what we are trying to do in the FIBRA is to now replace those assets that have a larger or a longer vintage, so we could buy new and more modern assets, which would be located within our parks. We had a total of 3 million square feet that we were willing to dispose in the FIBRA. We have already sold 1 million square feet, talking rough figures about this. And we still have 2 million square feet to dispose. And we need to handcraft the process because we're chasing to find and to get the most efficient tax structure for the FIBRA when we sell these properties. If we were to sell them immediately or we were willing to sell them as we speak, we could do it. But they are good assets, and we are waiting for the right moment to do it, chasing this efficiency in our tax structure.

[Operator]

Your next question comes from the line of Francisco Suarez from Scotiabank.

[Francisco Suarez, analyst]

Congrats on the results, gents. The questions that I have are 2. One, is it possible to keep the base of increasing the lease life of -- upon renewal? We have seen amazing how you have done that up to 6 years and more than 6 years actually in a couple of quarters ago. So the point here is, is this actually sustainable? And if you can -- because I don't see too much concessions, I still see a huge rise in net effective rent -- change in the rent. And of course, we see a little bit of turnaround costs here and there, but it seems to be not material. And the second question is related with Jorge's statements on cutting the footprint, carbon footprint. Do you have a specific target on cutting Scope 1 and 2 emissions?

[Hector Ibarzabal, executive]

Francisco, thank you very much for your questions. The answer to your first question is, yes. As you know, we do have close follow up on what is the status of our in-place rents compared to market. Today, our information is that we are 5.5%, so our in-place rents had ability to increase according to the current market picture of 5.5%. And we have some important markets. Let me mention, in Mexico City, we're 7.4% below market. And Tijuana that we have an important figure, we have 11.1% are in place compared to market. Monterrey is 4.4% below. So just to mention the 3 most important gaps that we have. On the overall, 5.5% gives a clear understanding that on the rollover, we will be able to keep on increasing rents. We have mentioned several times, and we were recently with Scotiabank on a non-deal roadshow and this concept that -- this ability that FIBRA Prologis has to increase rents is one of our important competitive advantages and this is linked to the strategy that we have. We see this as a very good potential of value creation. Our assets really increased its price because we're increasing rents. And we don't need to use the rent in order to retain our customer because of the strategy, our products and our markets of interest.

Regarding the second question, taking advantage of our leadership position, and I know that this is going to be followed by some of our competitors, we designed this program in which somehow there's immediate savings because of the upgrade on lighting to the different buildings. This apply basically to the older buildings that we have, and we have a program in which we make all the investment. We share the savings with the user, so this becomes a no-brainer solution for our customers. And we end up having a return by means of this investment, which is higher than the return that our buildings provide. This program was designed in the U.S., was launched in the U.S. several months before it was launched in Mexico. But Mexico is catching up very rapidly and we are very pleased with the response that we have received on the field from our customers. This is the reason why we are presenting an increase on our CapEx, but it is now that we're investing in above-standard TIs. This increase comes -- because of this reason, and I cannot think on a better way to invest FIBRA Prologis' money. We are having an excellent return at the same time that we are upgrading and we're increasing the sustainability of our buildings.

[Operator]

Your next question comes from the line of Eugenio Saldaña from GBM.

[Luis Saldana Flores, analyst]

I have 3. Considering the increase in appetite from institutional investors aiming not just to acquire properties but also to develop. Do you think this could put pressure on FIBRA for acquisition or even for development in terms of cap rates and in more competitive environment?

Second, I have -- the spread between development coverage and even acquisition coverage in the industrial side has been wider than in other sector that perhaps financed their activities in local currency? Where do you see this spread in industrial for the long run?

And the third one is regarding your transaction in Juarez. If you were, I mean on the development side, to rebuild those assets, I mean how much do you think it will cost you in terms of U.S. dollars per square feet? I mean considering the price of the transaction, if you were to rebuild those assets?

[Hector Ibarzabal, executive]

Thank you very much, Eugenio, for your question. Let me start with the last one. We do our replacement cost analysis every quarter so we understand exactly how much does it costs to build and to replace assets in each one of the markets in which we participate. The current replacement cost that we have for Juarez is $57.50. So that's what we would be investing to place a new building in any of the backlog land that Prologis, our sponsor, has.

Regarding institutional investors jumping into the market, the main motivation that they have, and I have spoken almost to a vast majority of them, is that they do see a very attractive spread between the values that the assets have in Mexico and the international value that these assets have in the U.S. and in Canada. The Canadian investors had been pretty active, and this is the #1 motivation. They feel that they will do an extremely good investment because of the price per square foot that they are buying compared to what they are finding in some other markets. What it is in fact is that still very important liquidity in the markets and the recent transactions that had been announced and current transactions that are in progress, I think, that are showing that there are still value creation for these type of assets. I'm not -- and I'm not referring only to the Prologis ones, industrial real estate assets are gaining value and this relative comparison gets stronger. If you analyze some other type of asset classes such as office and shopping centers where they're not going necessarily on the same direction. So the new transactions are showing that prices are higher than what we were anticipating. There is always a lack of valuation so people that has invested in this asset class, they will be having important returns from asset appreciation.

And your last question regarding spreads on development. The typical development return that you have is on the neighborhood of 15%. This returns or the yields that you have in each one of the markets are linked to the cap rate that each one of these markets represent. What I could say that from 250 to 300 basis points of spread, depending on the risk that the market is portending, could be a fair parameter to make any calculation on this.

[Operator]

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

[Sheila McGrath, analyst]

Yes. I have 2 questions. I was wondering if you could comment on anything you're hearing on the USMCA? If you think that this will be heard in Congress before the summer recess, I think it would be a positive catalyst for the FIBRA. Just anything you're hearing from your experts on that? And then on e-commerce sales, you mentioned that they could exceed Brazil in the next few years in Mexico. Anything you could highlight in terms of what you're seeing on the demand side from e-commerce users in Mexico?

[Luis Gutierrez, executive]

Sheila, thank you very much. So let me touch on the manufacturing. As I mentioned in my remarks, the manufacturing markets have been very resilient, and in fact, they have outperformed our expectations, especially Tijuana, Juarez and Monterrey on the manufacturing side may seem to have a pretty good year. So it seems producing in Mexico is productive. And we have seen not only companies expanding their operations, but certainly new entrants as well.

So the USMCA, it's been ratified by Mexico and still pending Canada and the U.S. Our expectation is that it will get signed. The political conditions in the U.S. may be a little difficult to expect that this is going to be approved in the near future. So we believe this may come after the U.S. election, and -- but anyway, the current NAFTA is a good framework and we believe if we maintain the rules with current NAFTA, we're going to be fine. But of course we need to be vigilant to see what noise comes out from the U.S. electoral process. So positive on that side, and our clients are also cautiously positive as well.

On the e-commerce sales, I would just like to comment that we've seen our clients with good activity and surpassing their budgets. And some of our clients are thinking about doubling their space. Some of them, including -- adding mezzanines and stuff like that in order to fulfill their needs. So e-commerce seems to be something that has been positive, and we're bullish about this structural change in our markets.

[Operator]

We have a question from the line of Francisco Chávez from BBVA.

[Francisco Chávez Martínez, analyst]

My question is regarding this increase in CapEx to improve the lighting of your buildings. You can give us more color on the amount of this investment? When do you expect to be fully in place? And what kind of returns are you expecting? And if you can help us to quantify the improvement or expected improvement in your margins?

[Hector Ibarzabal, executive]

Francisco, thank you very much for your question. As I mentioned -- this is program that requires coordination with the customers because it does represent a little disturbance on their operations. So this is the reason why the program is going to take several years, I would expect probably 2 to 4 years, to upgrade all of the facilities that we have. I think that in order to provide transparence, we will be careful of saying how much of our CapEx is dedicated to this. And this is something that I offer we can start doing starting from the following quarter. So if you could understand what's the size of this and that -- the way we'd like to be, and we'd like to be very transparent. It's not that we're investing in above-standard TIs, but it is that we're investing in this program.

The returns that we have is higher than what we have in each one of the buildings. I wouldn't be surprised, if in some cases, we reach a 2-digit return. And the return is variable because it depends on the power costs that you have in each one of the markets and the amount of consumption that each one of the customers have. The more they spend on energy, the higher the savings are. And of course, we're starting by the low-hanging fruit, and we're starting with the easy projects to start the program and have success stories day #1. The amount that we will be investing during 2018 is going to be between USD 2 million and USD 3 million on 2019. That's the figure that we have for this year. You shouldn't expect more. There's not 100% accuracy in this figure, because as I mentioned at the beginning of the answer, it's a little bit out of our control because we depend a lot on our customer allowing us to enter into the building to do the upgrade.

[Operator]

[Operator Instructions] Your next question comes from the line of Froylan Mendez from JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

Congrats on the results. My question is regarding buybacks. At what level of stock price would you be willing to make repurchases? I mean you seem to have space in your balance sheet to increase leverage and you could definitely fund sponsor acquisitions with further asset sales next year in my view.

[Luis Gutierrez, executive]

Thank you, Froylan, for your question. And certainly, we are always exploring different options and the best use of our capital and certainly, share buybacks is part of the menu. In fact, previously, we have already approved a program to -- for $50 million. This has been approved by the Technical Committee of the FIBRA. So at this point, we believe, and at this level, we believe it's not a good option because of it will limit the float and liquidity of the stock. And at this point, we believe that is not the best use of our capital. And also, we would do it by leveraging and it would also reduce the size of it. So I believe that in order for us to consider this, the stock discount would be much higher. So maybe if we reach a 30% or 40% discount to NAV, that's when we would probably consider it. At this certificate price level, I don't think it really makes sense.

[Operator]

Your next question comes from the line of Pablo Duarte from Actinver.

[Pablo Enrique Duarte de León, analyst]

Considering the average full year FFO per share guidance of $0.1625, excluding the incentive fee, I just wanted to understand better whether you expect such a moderation in the second half of the year from $0.088 in the first half to $0.074 in the second?

[Jorge Girault, executive]

[Foreign Language]. Pablo, this is Jorge. As you saw, we increased our guidance in terms of same-store cash NOI given the strong performance in the first half. In the second half, there's a couple of things that we have to take into consideration, Pablo. One is FX. We don't know where our FX is going to be. So we are conservative on that approach. And the second one is that, as I mentioned, we are entering into a swap for part of the debt that we have $240 million. I'm mentioning this because the swap that we have already there expires, as I said, at the end of the year -- of this month, and because of that, the cost of debt increases a little bit given that we -- this swap come from 2015. So there is a little bit of an increase in the interest rate. So that's why we are keeping these levels right now. Those 2 reasons are the ones that are keeping us more conservative, if you may, on an FFO per share basis for the second half of the year.

[Operator]

There are no questions at this time. I will pass to Mr. Gutiérrez for any closing remarks.

[Luis Gutierrez, executive]

Thank you, everyone, for joining today's call. We did have a great first half. The performance of our portfolio remains resilient. And we look forward to building on that momentum in the second half. Have a great summer, and I hope to see you soon. If you happen to be in Mexico City, please let us know, so we can give you a tour of our properties in the city. Thank you very much.

[Operator]

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