Prologis Property Mexico SA de CV

OTC:FBBPF

Earnings Call Analysis

FIBRA Prologis Reports Strong Integration and Future Growth Plans

FIBRA Prologis achieved an FFO of $63.4 million, down 11.5% due to acquisition costs and increased certificates. AFFO rose 13% to $52 million as it capitalized on robust leasing, achieving a 56.2% rent change on rollovers. Occupancy remained high at 98%. Looking ahead, the company expects same-store cash NOI growth between 8.5% and 9.5%, and a full-year FFO per certificate of $0.19 to $0.195. With ongoing integration of Terrafina and a solid balance sheet, FIBRA is well-positioned to enhance operational efficiency and drive portfolio growth over the next year.

Strong Acquisition Marks New Chapter

FIBRA Prologis has taken a significant step in expanding its portfolio by acquiring a 77% stake in Terrafina, a major player in the Mexican real estate market. This acquisition is poised to unlock considerable value, allowing FIBRA Prologis to integrate and elevate Terrafina's properties to its operational standards. The successful closure of the acquisition on August 6 marks a transformative moment for the company, as it aims to improve the operational performance of these newly acquired assets. The integration process is reportedly on track and is expected to provide substantial benefits moving forward.

Quarterly Financial Highlights

In the latest quarter, FIBRA Prologis reported Funds From Operations (FFO) of $63.4 million, reflecting a decline of 11.5% per certificate from the previous year. This decline is largely driven by a decrease in interest income linked to the cash utilized for the Terrafina acquisition and one-time expenses associated with the transaction. Conversely, Adjusted Funds From Operations (AFFO) reached $52 million, a 13% increase, buoyed by favorable rent changes and the benefits derived from the initial stages of the Terrafina acquisition.

Operational Metrics Remain Strong

FIBRA Prologis demonstrated robust operational metrics during the quarter, achieving a net effective rent change of 56.2%, continuing a strong trend from the past 12 months. The average occupancy for FIBRA Prologis' properties remained high at approximately 98%, indicating strong demand for their real estate offerings. The company’s ability to maintain these metrics is attributed to effective market strategies, even as the integrated Terrafina portfolio stabilizes.

Market Conditions and Strategic Outlook

The occupancy rates across the markets are varied, with FIBRA Prologis experiencing a slight overall vacancy increase of 30 basis points to 3%. Significant demand remains in major cities, with Mexico City showing exceptionally low vacancy levels at 2.2%. FIBRA Prologis anticipates future challenges due to economic volatility, including the potential impact of U.S. elections and local legislative changes, but remains optimistic about the resilience of its portfolio and the strong fundamentals in key markets.

Guidance for Future Growth

Looking ahead, FIBRA Prologis has set ambitious guidance with expectations of same-store cash Net Operating Income (NOI) growth between 8.5% and 9.5%. The company also projects general and administrative expenses (G&A) to range from $50 million to $55 million, inclusive of Terrafina's portion. With a planned capital deployment of between $250 million and $350 million, the company is well-positioned to continue expanding its footprint in the market. Furthermore, the management has adjusted its market rent growth expectations for 2024 to mid-single digits, considered healthy for the business.

Robust Balance Sheet and Financial Flexibility

FIBRA Prologis' balance sheet remains notably strong. The company has a total capacity estimated at $1.5 billion with a loan-to-value ratio of 35%. This strong financial standing, reinforced by a credit rating equivalent of BBB+, provides FIBRA Prologis with substantial flexibility for ongoing and future acquisitions, ensuring sustainable growth in a competitive market.

Efficiencies and Fee Structure Adjustments

In a strategic move, FIBRA Prologis has announced reductions in its administration fees, a positive step towards enhancing operational leverage for investors. This adjusted fee structure will start in 2025 and aims to create a more efficient cost base compared to its peers, allowing shareholders to benefit from the financial alignment with Prologis' extensive market expertise.

Outlook for Asset Recycling Strategy

The company's strategic plan includes an aggressive asset recycling initiative, anticipating the divestment of non-core properties starting early next year. Management remains optimistic about achieving favorable dispositions, leveraging high interest from potential investors and the expected healthy market conditions for asset sales. This proactive approach indicates a well-structured pathway to focus on key growth areas while managing the overall portfolio effectively.

Conclusion: Steady Navigation through Changes

FIBRA Prologis is positioned to navigate through the current economic landscape effectively, with sound management strategies, a solid balance sheet, and a strong commitment to enhancing tenant relationships and operational standards. As it continues to integrate Terrafina and implement its growth strategies, FIBRA Prologis is not only focusing on short-term results but is also preparing for a future of sustained growth and value creation for its stakeholders.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the FIBRA Prologis Third Quarter Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Alexandra Violante, Head of Investor Relations. You may begin.

[Alexandra Violante, executive]

Thank you, Desiree, and good morning, everyone. Welcome to our Third Quarter 2024 Earnings Conference Call. 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 only for information purposes and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements during this call speak only as of the date of this call. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements.

Additionally, during this call, we may refer to certain non-accounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we had 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.

Today, we will hear from Hector Ibarzábal, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantú, our Head of Operations.

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

[Hector Ibarzabal, executive]

Thank you, Ale, and good morning, everyone. Today, I would like to start by talking about the most important transaction that FIBRA Prologis has made to date. In early August, we successfully closed the initial tender offer for FIBRA Terrafina's outstanding certificates, resulting in our acquisition of 77% ownership. Since then, we have taken control of Terrafina's governance and have been working to take the buildings to our operational standards. The integration of the company is on track and moving as expected.

We will continue with the strategy that FIBRA Prologis has followed, which has proven to be successful and we expect to unlock important value creation from Terrafina's assets as providing service and solutions for customers. Early next year, we will enter into an accretive process of asset recycling. We will sell nonstrategic assets in order to continue investing and enhancing our market participation within our 6 markets.

Moving into another topic, I'd like to provide some highlights of the quarter. Occupancy in our portfolio remains at great levels, above 98%. The Terrafina portfolio is 95% occupied. We continue to have an impressive rent change on rollover of 56%. Additionally, since our last call, we acquired properties in Mexico City and Tijuana adding 2 million square feet evidence that our teams are advancing goals even as we integrate Terrafina.

Describing market conditions, I will start by addressing the broader macro environment. Volatility increased in the quarter as the judiciary reform in Mexico was approved and U.S. elections are at peak intensity. These factors slow down decision-making from clients, particularly in the manufacturing markets. On the other hand, domestic consumption continues on a favorable trend with year-to-date retail volumes up 2.4%, and retail sales for the quarter up 3.2%. In alignment with this, we have seen robust leasing activity from logistics, e-commerce and retail players which are clearly showing an interest in increasing and improving the quality of the footprint.

Net absorption in our 6 markets was 7 million square feet, in line with the average of the last 4 quarters. Leasing activity was robust at 9.5 million square feet, benefited by preleasing activity in Monterrey taking the year-to-date figure to almost 34 million square feet. Still, as we mentioned, we have observed a decline in urgency from tenants to get space causing vacancy rates to marginally increase in some markets.

Overall, vacancy increased 30 basis points versus last quarter, reaching 3%. Despite of lesser speed on decision-making, market rents increased 1%, a number slightly below our expectations. We are adjusting our market rent growth expectations for 2024 to mid-single digits is still a very healthy rate for our business. Let me provide some additional color per market as we are seeing different trends at local level.

In Mexico City, vacancy remains exceptionally low at 2.2% with moderate absorption of 1.3 million square feet due to the lack of adequate space. We continue to see a strong underlying interest from clients, particularly in the CTT corridor where vacancy is less than 1%. Mexico City now represents almost half of FIBRA Prologis assets value with 90% of such exposure in this main CTT corridor. Monterrey is showing mixed trends. New leasing activity of 4.2 million square feet was in the high end of the range of recent years, mostly from manufacturing and e-commerce. However, vacancy increased 80 basis points to 2.7% because of limited and speculative leasing. We are taking a more cautious approach on this market, considering elevated construction activity from noninstitutional landlords.

In Guadalajara, a strong demand pushed vacancy down to 1.3% with minimal new supply and rising pre-leasing activity. This tech hub is attracted more tenant interest and we are optimistic about its continued growth. Regarding Tijuana, vacancy declined 50 basis points to 2.5%, benefited by healthy absorption and a slow progress on completions. The few buildings that were delivered have been quickly absorbed, is a positive read-through of our portfolio. Regarding Juarez vacancy, reached 7.6%, impacted by elevated completions. We believe vacancy should stabilize gradually as the construction pipeline has declined to less than half from peak. Similarly, Reynosa vacancy increased 70 basis points to 5%. We think these markets have been particularly impacted by slow decision-making and should start posting healthier figures once that there is more clarity in the macro environment.

A brief comment on the non-Prologis market such as [ El Vario ] and Saltillo. We have seen a decline in vacancies well below the historical average as some demand from our key markets has flown to these markets aiming from energy availability. These solid trends should support our asset recycling strategy going forward. In closing, we remain confident in our portfolio's resilience and our ability to navigate these fluctuations. We are seeing strong fundamentals in key markets that represent 80% of our portfolio. In addition, our best-in-class balance sheet leaves us well positioned for growth in any environment, as Jorge will discuss. Finally, as you all know, we remain committed to our shareholders and always placing the interest first.

With that, I will pass the word to Jorge.

[Jorge Girault, executive]

Thank you, Hector, and good morning to everyone. As Hector mentioned, last August 6, we closed on the 77% acquisition of Terrafina. In this line and before beginning with our financial results, I would like to mention the following. Since we effectively acquired Terrafina on August 6, from an accounting perspective, the first 5 days of August are not reflected in our numbers. Because of some financial metrics require full quarter comparison, we are presenting EBITDA as if we had Terrafina for the full quarter.

With this, let me start with the results of the quarter. FFO was $63.4 million or $0.044 per certificate an 11.5% decline in a certificate basis as compared to last year. This is driven by the following factors: decrease in interest income due to the use of the cash in the recent acquisitions, a 35% increase in number of CBFI versus last year, and onetime expenses related to the Terrafina transaction. AFFO reached $52 million for the quarter, a 13% increase on a nominal basis, mainly driven by the rent change on rollover, annual bonds and the share of the Terrafina transaction.

Moving to our operating metrics, which include only FIBRA Prologis portfolio. Leasing activity for the quarter was 1 million square feet with a period-end average occupancy around 98%, in line with expectations. Net effective rent change on rollover was 56.2% for the quarter and 52.5% for the last 12 months, in line with expectations. In terms of sales or cash and GAAP NOI for the quarter, we had an increase of 4.4% and 3%, respectively, mainly due to the rent change in annual bumps, which was offset by peso movement during the quarter.

Moving to FIBRA Prologis' balance sheet. It remains strong. We have used available cash to close on our first tender for Terrafina. And for the acquisition we announced for approximately $255 million in the last months. Our balance sheet is a unique feature in the space with a total capacity of around $1.5 million to get to 35% loan-to-value. Rating agencies have ratified Fibra Prologis' credit rating, which is a sign of the strength of the balance sheet and equivalent of BBB+. On the ESG front, we were awarded sector leader by GRESB. Additionally, we have achieved 3 new green certifications equivalent to additional 3% of the portfolio, reaching 88%.

Let me update you on what we see for the remainder of the year related to guidance. Following our strong leasing record rent change and effect on peso valuation, we expect same-store cash NOI growth to range between 8.5% and 9.5%. G&A to range between $50 million and $55 million, including Terrafina portion. On the capital deployment front, we expect to acquire between $250 million and $350 million. Putting all this together, we are setting our full year FFO for certificate range between USD 0.19 and USD 0.195. The rest of the guidance remains unchanged, which you can find in Page 9 of our supplemental financial information.

Let me update you on Terrafina second tender offer. Our second tender offer is at 0.58 exchange ratio, in line with what we offered when we launched the first tender earlier this year, and is set to expire on November 1, unless extended as required by law. Before I finish, I want to say that we are very pleased to announce a second reduction on our administration fees in the last 12 months. As we grow, our sponsor focus has been to improve operational leverage with investors in line with local market trends. This new fee structure, which will come effective starting 2025, is unique. Having Prologis, the largest global industrial real estate owner and operator as manager of FIBRA Prologis is an important benefit for investors as it aligns interest with its 35% ownership and brings to the table irreplaceable benefits from an operational perspective.

Also from a total G&A cost point of view, this change further improves our expense efficiencies relative to peers, including internally managed structures, giving holders the opportunity to co-invest with Prologis in a top-quality portfolio with top-class management and government. In summary, our strategy is straightforward. Continue to deliver value to our stakeholders as clear industry leaders. I want to finish by thanking our people on the ground, in our offices around Mexico and in Prologis around the world for doing a great job on integrating Terrafina and to FIBRA Prologis systems and making it part of our operating excellence.

With that, let me turn the call to the operator for Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Pablo Monsivais with Barclays.

[Pablo Monsivais, analyst]

I have 2 questions. The first one is in terms of the acquisition with Terrafina. What has been your overall experience in managing this portfolio? What is the conversation that you have with tenants because you are very focused on rent increases and perhaps some tenants were not that used to that approach. Is there any read-through of what you are expecting on that front? That's my first question.

My second question is on the fee structure. I would like to have a little bit more color on why you are putting this structure? And if you thought about any different structure and why you're choosing for these?

[Hector Ibarzabal, executive]

Thank you for your question, Pablo. Let me try to answer how are we finding Terrafina, which conceptually is what you are asking. And I will let Jorge respond the part of the fees. What we are trying to establish in Terrafina is take the properties as soon as possible to our operational standards. What I can say in this couple of months that we have had access to more information to customers and to some of the properties is that we are seeing more opportunities than what we were anticipating. What you should expect is a process.

We're commencing to have a close relation with customers. We're starting to understand what are the needs that they have, we are finding in some occasions, some lack in maintenance of the buildings that we were expecting and in the overall, the relationship that is being built with the customers is going to take some time, but it's starting with solid grounds since day #1. Once that we do all this process, we will be able to take the assets to the operational standards that we are used to the relation with our customers as a very trustful relation.

And then as a consequence of having done all this work, we will be able to take all the leases up to market. Jorge was establishing that in our markets, we see a 50% increased opportunity of the in-place rent to market conditions. So on the overall, I think that opportunities are there, we are feeling every day more in control of the operations and looking forward to a bright 2025 on this regard.

[Jorge Girault, executive]

Pablo, this is Jorge. Thank you for your question. Regarding the fees. Let me start by saying that if you remember when we launched the last tender for -- the first tender for Terrafina, we announced publicly that Prologis and Fibra Prologis were revising the fees to improve operational leverage. So that's part of the question. We see Fibra Prologis as a co-investment vehicle with an exclusive arrangement with a best-in-class sponsor like I said in my opening remarks. This is an extraordinary value in being aligned with Prologis. It brings not only extraordinary expertise in Mexico, but also benefits from a global scale, customer relationship, capital market expertise and culture of innovation.

When you put this into context and you relate this to our potential internalization, for example, what we have found out or agreed to it that the cost would be prohibited, perhaps impossible to replicate Prologis platform into FIBRA. So we think this new fee arrangement position us quite well relative to peers once all costs are considered. So I encourage you to put the whole G&A cost of our peers and ours and compare us on a fair asset-based -- assets under managing basis. And you will see that we are in the -- not the lowest maybe, but in the low part of the range.

[Operator]

Our next question comes from the line of Gordon Lee with BTG.

[Gordon Lee, analyst]

Just a quick question on capital allocation. Looking more into 2025, and I know you haven't provided guidance. So I'm not sort of thinking about specific numbers, but just in terms of the process. Should we expect you at least when it comes to maybe looking at third-party deals on the buy side to take this sort of your foot off the accelerator as you execute on the sale portfolio of the Terra assets that you're going to dispose? Or will these 2 things sort of happen on parallel tracks and be managed separately?

[Hector Ibarzabal, executive]

Thank you for your question, Gordon. We have been working since day #1 on the disposition and execution plan for the disposition strategy. I feel very confident because it's amazing the number of calls that I have received from potential investors willing to understand what our process are and even some off-market proposals of investors that are willing to anticipate any potential disposition. I feel very confident that by early next year, we will be out of the market.

And I can see a couple of those sets of investors potentially participating in the process. This disposition strategy is not necessarily site or link to the investment strategy that we have. On an ideal world would be the day that I sell is the day that I'm buying, but we have a very strong balance that can help us to take care of the opportunities even if the dispositions had not happened.

This process, I think, is going to take around 18 months. Hopefully, we can execute it with higher speed. But so far, the price that we paid for the properties, the investment that we are making on them, the improvement on KPIs on the different assets and the interest from investors make me be very positive about the potential outcome of this recycling process.

[Operator]

Next question comes from the line of Francisco Chávez with BBVA.

[Francisco Chávez Martínez, analyst]

I have 2 questions regarding EBITDA margin. The first question is, I understand that EBITDA this quarter is distorted by full quarter adjustments and some expenses relating to the acquisition of Terrafina. What will be adjusted EBITDA margin that reflects the profitability of the FIBRA? And the second question is, what is your medium and long-term goal for EBITDA margin?

[Jorge Girault, executive]

Gracias, Francisco for you're question. You're right. This quarter is a little bit funky in the sense that we have the Terrafina transaction. We didn't like it for the whole year for the whole quarter, there is 5 days that are not considered from an accounting perspective, et cetera. It's a little bit of a dirty quarter from that perspective. So we had to put a full quarter and you'd see a high margin in the 80% range. I think that normalized level, at least in the short term, it's going to be between -- in the 70% in the high half of the second half of the 70%, between 75% and 80% is going to be around that number. I think that going forward, I'm looking to numbers around 77% and 80% closing the gap. That's where I see EBITDA numbers going forward.

[Operator]

Next question comes from the line of André Mazini with Citi Group.

[André Mazini, analyst]

So the first question is on what we will be doing with the proceeds after the divestment that will start in 2025, right, or a portion of the Terra assets, should we expect dividends or redeployments of money back into the real estate market, which will be maybe the bigger portion of dividends? Or flow back of money back into the estate markets?

And the second one, if I heard correctly, you did say that you noticed that some Terrafina assets need more investments if you could talk a little bit about what those investments will be the net improvement or general maintenance CapEx. And if you would be investing probably on the assets you want to keep on a long-term basis, right? If that makes sense? Or are you hatching that also the assets that are up for divestments?

[Hector Ibarzabal, executive]

Thank you, André, for your question. I will answer the second question, and I will let Jorge answer the first one. The standard that we have on CapEx on the properties is 14% related to net operating income. We anticipated because we were following closely how much the previous administration of Terrafina was investing in the properties. And because of the difference between our standard and Terrafina former standard, is that in an underwriting and in our business pitch, we always have a CapEx number in order to take care of a potential lack of maintenance. 80% of this maintenance is going to be related to the assets that we are holding. But we need to place the interest of customers first.

So even in this 2 assets, if we see that there's urgency to take care of some CapEx situations, we will do it because we cannot set a building where the customer is not in peace or is not having a right relation with the customers. So no surprises, the money was expected, was part of what we were anticipating and it's a lot of work. We have increased probably 25% the personnel that Prologis has in the ground in order to take care of all these type of situations.

[Jorge Girault, executive]

André, this is Jorge. Regarding your question on the investment and use of proceeds. The main use of proceeds for the sales or dispositions of assets that we will do in Terrafina, we go to 2 parts. One is to reinvest as Hector said, into new real estate in our markets and two to pay down short-term debt that we have under Terrafina and restructure a little bit the balance sheet. But those are the main 2 uses of proceeds.

[Operator]

Next question comes from the line of Jorel Guilloty Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

So the first one is just a broader more macro question. So if I understood correctly, you mentioned earlier that you expect headwinds for Northern markets to persist. But I was just wondering how long do you expect these headwinds to persist? And what could be a catalyst to drive a positive inflection in performance going forward?

And then the second question is a little bit more mathematically. If I look at your same-store NOI guidance compared second Q to 3Q, it did go down 50 basis points, if I read it correctly, 1 down 50 basis points at the midpoint as you tighten the range. And I was kind of wondering what drove that. Is that the inclusion of the Terrafina portfolio that drove this or something else?

[Hector Ibarzabal, executive]

Thank you, Jorel, for your question. This is the first time that we, Terrafina. But this is not the first time that we are facing U.S. elections. Every 4 years, we experienced this situation and what we have seen many, many times is that a lot of the stuff, a lot of the political talking that regards to Mexico to disruption of the treaties to closing borders, et cetera, the most of it doesn't happen. And after the election is completed, they need to find the right way to have the right trading with Mexico.

I mean, Mexico depends a lot on the U.S., but the U.S. depends a lot on Mexico on the manufacturing front. Mexico is the big factory of the state. The headwinds that we see are short term, players that are already in Mexico and that had experience in the past these political elections. They understand it and they keep on moving according to their plans. The new companies that are willing for first time to be in Mexico are the ones that get a little bit scared about all these political talking. And what we have seen in the past is that once the dust settles, the election is defined, now they feel with the courage to present their expansion plans in Mexico. It's natural that if you are willing to come for first time to Mexico and you're in the middle of all these political talking, you could probably defer your proposal to your investment committee until you have more certainty that should be happening within the first and second quarter of next year.

[Jorge Girault, executive]

Jorel, this is Jorge here. Regarding the same-store casting question. The 2 main drivers here are your average occupancy, if you compare -- and this is without Terrafina, our same-store doesn't with Terrafina. There is a drop of around 100 basis points on the average occupancy, if you compare it to last year. And also, the FX has a big component in the same store. I mean even previous quarter was at MXN 16, almost MXN 17 that year was the same case. This year, we were in average closer to MXN 19 and those are the 2 main factors.

[Operator]

[Operator Instructions] And our next question comes from the line of Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

The question is the same that I made on the last quarter. Can you gave us an idea on how the utilization rates on your buildings are just like TLD disclose this information for the U.S. assets?

[Federico Cantú, executive]

Hola, paco. This is Federico. Thank you for your question. So we have very close communication with all our customers and we've seen very good activity this year. We don't have the actual survey that Prologis in the U.S. has. We expect to implement that soon. But in conversations with our customers, we see that space utilization is, I would say, in line to a little bit above what the U.S. is seeing. I would point to very marginal subleasing across our 6 markets and practically nonexistent in Mexico City.

So with all that put together, we feel very good about space utilization, which, again, is driven by the 2 main factors we've talked about, manufacturing near-shoring into the U.S. and logistics company supporting that engine as well as domestic consumption and e-commerce, mainly in Central Mexico and Mexico City which, again, are seeing good activity across all our buildings.

[Operator]

Our next question comes from the line of Anton Mortenkotter with GBM.

[Ernst Mortenkotter, analyst]

Congrats on the results. I have just 2 quick questions. The first one, I mean, I was wondering how should we think about the dispositions regarding the assets from Terrafina, you're looking to recycle. I mean is it balance to think about the investment property appraisal as a base scenario? Or maybe shall we stress sales through comparable cap rates? Or what should we be expecting from that?

[Hector Ibarzabal, executive]

Thank you, Anton, for your question. As you can imagine, we have a very close follow-up to everything which is happening in the capital markets. Investment sales during 2024, I would say, were extremely low. There is an expectation to have higher activity next year. We do see a lot of investors that have been funded either by public and private monies. It would be optimistic to say that cap rates are going to be compressed. But I have a lot of elements to think because of this ratio between supply and demand, that cap rates at least are going to be flat.

What is the benchmark that we have, the benchmark that Prologis always uses is related to market. And we believe that the operations that we have of the properties now from Terrafina and from Fibra Prologis because I need to highlight that the company doing the appraisals for both companies is the same. So there is a trustful relation. So we have a good watermark with the appraisals that we have from third party of the assets. We have our own appraisal but bottom line market is our objective because of this ratio between more docs than gone, I'm expecting hopefully to have a positive outcome on the disposition starting in the first quarter of next year.

[Ernst Mortenkotter, analyst]

That is very clear. And if I may, related to the fees, the reduction of the fees that you mentioned today, I mean, you're adjusting the ranges to which you collect a certain amount of fees. But just to clarify, I understand that in Terra shareholder meeting, you're also proposing to change the advisory contract. And on that, you only call it 50 basis points, right. So just wanted to understand if Prologis portfolio is going to be separated from what the advisory fee is in Terra's portfolio also and also from these ranges?

[Jorge Girault, executive]

Thank you, Anton for the question. This is Jorge. You have to -- right now, you have to divide it into 2 separate companies. FIBRA Prologis will collect its fee and Prologis will collect the asset management fee, as we announced today on only FIBRA Prologis assets. So if you look at the balance sheet right now -- on a consolidated basis, we have about $8.7 billion, out of which around $5.5 million are in FIBRA Prologis. So on that number, you have to apply the fee structure that we announced today.

Terrafina is paying to that we announced this publicly that we got an agreement with PGIM. And we also call for Terrafina call for a holders' meeting for next November 11, was called yesterday to just put this into writing whereby Terrafina in Spain, PGIM, the currency, which is 50 basis points on AUM. Once the PGIM terminates the agreement, which will be at the end of the year, Prologis will take the asset management of Terrafina.

And the fee will be the same, the 60 basis points until it's integrated into FIBRA Prologis. So we're keeping the same fee as it stay to PGIM. So you have to -- for now, you have to do it -- see it as 2 companies. Obviously, we will consolidate in the fourth quarter as we did in this third quarter, but you have to differentiate these 2 numbers.

[Hector Ibarzabal, executive]

Probably, an additional clarification on this regard. The 50 basis points is lower than the 60 basis points. But Terrafina had some payroll expenses and some other expenses that are not going to be happening going forward. As a reminder, everything that Fibra Prologis is related to this advisory fee, and there's no additional expenses. And this is why particularly Jorge always suggests to make a full G&A analysis and not to remain just comparison the numbers of the fees that could be a little bit misleading.

[Operator]

Next question comes from the line of Alan Macias with Bank of America. [Operator Instructions] There are no further questions at this time. Mr. Hector Ibarzábal, I turn the call back over to you.

[Hector Ibarzabal, executive]

Thank you very much. I want to thank all of you for your available time dedicated to this call. I'm really excited about the opportunity that we have or leading the efforts under great market momentum of the largest FIBRA in Mexico. Please do not hesitate to contact Alexandra for any additional information that you may require. Muchas Gracias.

[Operator]

Gentlemen, this concludes today's conference call. You may now disconnect.