Vesta Real Estate Corporation SAB de CV (VTMX) 2015 Q3 法說會逐字稿

Good morning. My name is [Matt] and I'll be your conference operator today. At this time, I'd like to welcome everyone to Vesta's third quarter 2015 earnings conference call. Vesta issued its quarterly report on Thursday, October 22, 2015. If you do not receive a copy via email, please do not hesitate to contact the company at +52-55-5950-0070.

Before we begin the call today, I would like to remind that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, Company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with the IFRS and stated in nominal US dollars otherwise noted.

Joining us today from Vesta in Mexico City is Lorenzo Dominique Berho Carranza, the Chief Operator Officer. Also Juan Sottil, the CFO and Iga Wolska, the Investor Relations Officer. Now I'd like to turn the call over to Mr. Berho. Sir, please begin.

Thank you very much, Matt, and good morning everyone. Thank you for your interest in Vesta and for participating in today's conference call.

Our Vesta Vision 20/20 strategic plan has seen us execute two important initiatives this year; our second follow-on offering in January and the approval of our debt program for the next five years in September. This plan is the roadmap for our growth and we look forward to its continued success.

In the third quarter, Vesta achieved one of its strongest periods of operational performance since the Company's initial public offering in mid-2012. We leased just over 0.5m square feet during the period, demonstrating continued strong demand for quality industrial facilities in Mexico.

This drove our vacancy rate down to 11.67% from 14.86% and our same store vacancy rate down to 7.13% from 10.22% previously, while our portfolio grew 2.92% to 18.73m square feet due to the on-time delivery of two build to suit projects. One was in Tlaxcala for Lear Corporation and the other in Ciudad Juarez for BRP.

Importantly, we were able to price new leases at or above market rates and comfortably exceed our internal hurdle returns, thereby maintaining an industry-leading cap rate.

I am also pleased to report that we have now renewed a record 91% of leases expiring in 2015, and 15.8% of those set to expire in 2016. These leases were renewed at or above prevailing market rates, illustrating the strength of our client relationships and solid demand.

We grew our strategic land reserves by 57 hectares this quarter with the acquisition of land reserves in Puebla, Tijuana and Aguascalientes to develop new industrial parks.

We also signed a new contract to develop a 120,674 square foot building, built to suit project for an existing client Oxxo in Veracruz, underlining our ability to repeat business with our existing client base.

Vesta recorded solid financial results for the period, with a 14.8% rise in total rental income to $20m for the quarter. A 16.2% rise in the third quarter gross margin was driven by a 9.2% fall in operating costs.

EBITDA rose 10.9% to $16m, while net operating income grew 16.4% to $19.3m.

Funds from operations increased 56% year over year to $10.86m in the third quarter.

Looking ahead, we are committed to laying the foundation for continued growth as part of the Vesta Vision 20/20 growth plan. Just yesterday, we celebrated the opening of our new corporate headquarters in Mexico City with a facility that encourages collaboration and innovation.

This office also aims to meet the WELL Certification established by the International WELL Building Institute, a building standard focused on enhancing employee health and wellbeing through the built environment. As part of our effort to achieve certification by the first quarter of 2016, Vesta has implemented technologies that positively impact employee health, including air filtration, low and no-volatile organic compounds materials, water purification, circadian lighting, automated shading, ergonomic furniture and activity incentive programs.

We have also strengthened our organizational structure with the expansion of middle management. In addition, our new asset management area is dedicated to improving client satisfaction and ensuring continued high renewal rates.

Our achievements are being recognized. I am proud to announce that during the quarter, Vesta won the 2015 National Logistics Award, in recognition of our Park to Suit concept, the supplier park of Nissan in Aguascalientes. This award recognizes innovation in logistics throughout Mexico.

We are grateful for the high regard in which you hold Vesta, reflected in your votes in the Institutional Investors Latin America Executive Team Rankings and Euromoney's Best Managed Companies in Latin America 2015.

Thanks to our strong pipeline and the drive of our team, we expect to continue to execute our Vesta Vision 20/20 strategic plan in 2016. Backed by the implementation of structural reforms in Mexico, we will take advantage of growth opportunities and fulfill our expansion goals

I will now hand the call over to our CFO Juan Sottil for a more detailed discussion of our third quarter results.

Thank you Lorenzo. Good morning everyone, and thank you for joining us today. For the third quarter, we continue a trend of solid portfolio expansion, grow our strategic land reserves and achieved double-digit growth in key financial metrics.

Our total gross leasable area expanded by more than 532,000 square feet in the quarter to reach 18.7m square feet overall. This reflects ongoing demand of our facilities and is consistent with our intention to double the size of the company by the year 2020.

During the quarter, Vesta signed new leases for inventory buildings in Toluca, Queretaro and Aguascalientes, consisting of approximately 520,000 square feet. In the Bajio region we signed leases totaling close to 390,000 square feet with Daewoo, AP Plasman and Sanyo.

In the north region we signed leases totaling almost 100,000 square feet with OPA and Excel Logistics, while in Central Mexico we renewed our lease with BMW for seven years, increasing the area.

The leases were signed for terms of 3 to 10 years at or above market rate. When looking ahead, we continue to -- looking ahead we continue to see a strong demand for new leases, which will be reflected in our fourth quarter results.

We renewed leases on more than 1.3m square feet of our property portfolio in the third quarter. As Lorenzo mentioned, these represent 91% of leases expiring in 2015. We also renewed all 16 leases set to expire in 2016. This high renewal rate, combined with the signing of new leases, saw a fall in our vacancy rate to 11.67% from 14.86%.

Our same store vacancy also dropped to 7.13% from 10.22% in the second quarter. For the three months to September, we made progress on the construction of eight buildings with a total GLA of more than 1.7m square feet.

Turning to our financial results, we recorded solid growth in revenues, net operating income, EBITDA and funds from operations.

Revenue grew 14.8% to $20m, reflecting the larger size of our portfolio.

Given that more than three-quarters of our rental contracts are in US dollars, most of our revenues are protected from the peso relative decline. However, most of our costs are in pesos, which benefits our margin.

On the cost front, our ongoing discipline resulted in a 9.5% fall in total operating costs. Administrative expenses for the quarter rose about 54%. This increase reflects the expansion of our portfolio and a change in the reporting of our stock option policy to minimize volatility on our results from one quarter to the next.

Net operating income rose 16.4% to $19.3m, while NOI margin increased 130 basis points to 96.8%. This reflects Vesta's ability to lease new buildings during the quarter while keeping operating costs under control.

EBITDA rose 10.9% to $16m, while EBITDA margin fell 2.8 basis points to 80.2% from prior -- from the prior quarter corresponding quarter. The fall in EBITDA margin was mainly due to an adjustment in the provision for the stock option plan. As a reminder, the Board of Directors set robust hurdles for executive management based on total shareholder returns.

The company recorded a loss before income taxes of $1.35m compared to a gain of $11.87m in the same quarter last year. This mainly reflects an exchange loss.

Third quarter funds from operations rose 56% year on year to $10.9m. Based on the year to date results, we expect full 2015 revenues to be in line with the low end of our guidance range. Our expectations for full year operating income margin and EBITDA margin remain unchanged.

Regarding our balance sheet, Vesta cash and cash equivalent amounts to $240m at the end of the third quarter. Operating activities generated cash flow to $36.50m during the period.

The overall balance of debt as of September 30, was $346.7m. All of our debt remains denominated in US dollars.

A program to refinance the Company's debt maturing in 2016 and issue additional debt to finance our debt of Vision 20/20 was approved at the General Ordinary Shareholders' Meeting for an amount of $675m. In addition to the funds needed to refinance our 2016 maturity of debt, this financing program comprises of two $350m for issuance of new debt.

Once again, these solid results are evidence of our success in our business model. The, Vesta Vision 20/20 plan remains our roadmap for growth while Mexico appeals as a global manufacturing base. Vesta is exposed to the stronger domestic markets and we continue to offer industrial facilities of the highest quality to companies across every sector.

Our strong financial position means that we will continue to benefit from the demand of industrial property while our tailoring of our offerings of clients' needs. We are faced with many growth opportunities as we approach the year end, and we are happy as we look to 2016.

I would now like to open the floor for questions. Operator, could you begin taking questions from the audience?

(Operator Instructions). Ariel Bozza, Itau BBA.

Good morning all. Thank you for the call. I have two questions. The first is regarding the G&A. It showed a small increase and some relatively small growth on a quarter over quarter basis. What I'd like to understand here is how big can the Company grow with the current G&A that's already in place? So, basically, without you hiring any more -- anyone else, how big in G&A terms do you think that the Company can grow? That would be the first question.

My second question is where do you expect, considering your current pipeline, the breakdown of dollars to peso rents to converge to? Because it's currently around $80 to MXN20 in dollars to peso. Do you have any specific goal regarding this breakdown, or is it something which is more of an open metric and that's something that you are monitoring closely? I would just like to get your opinion on both subjects. Thank you.

Ariel, thank you for the questions. Look, I think that -- well the Vesta Vision 20/20 let me remind you, really involves doubling the size of the Company. That really implies that we need to have a solid operational base to be able to service our clients, service the buildings and be in control in the administrative process.

For that reason, we began a hiring program starting early this year. We set up an asset management team. We improved our operational staff. We hired people on the ground in each of the regions to be able to go and meet the clients and meet client demand. By now I think that most of the staffing needs of the Company are fulfilled. I don't think that we really need to have any more stepping growth in people and therefore, in operational expenses.

However, please be reminded that a significant portion of our SG&A comes from the bonds. And really your question really goes to the heart of the matter. Previously, we used to mark to market, so to speak, the bonds program on the first quarter and on the second quarter. That's why you saw the change in SG&A from quarter to quarter this year on those two quarters.

Our Board, which guides us in most of the important decisions of the Company, said to us, look, it doesn't make sense. Why don't you accrue for the bonds on a straight-line basis assuming that management is going to achieve the respective returns, and in the fourth quarter, reality will set in, you will know what the total return of Vesta vis-a-vis your peers, and then you will adjust the actual SG&A as per reality.

So, we are provisioning this quarter -- we are provisioning the bonds on a straight-line basis. Given then on the previous quarter the bonds mark to market was basically nil, it was very small given the stock market return of the Company, this affected this quarter.

So I see it as a blip. I think that this quarter -- I think that SG&A should be a lot less volatile in the future, and you shouldn't expect it to grow significantly. I still think that over this year we will meet the 82% EBITDA margin as we forecasted. Next year, as the base of the rents grow significantly and we are seeing very strong demand, we will again resume a more generous EBITDA margin because our costs will remain fixed for a number of years.

And regarding your second question, Ariel, this is Lorenzo, I think today we are having a strong leasing momentum and I think we will still see that in the upcoming future. Actually, let me tell you that today we already have binding Letter of Intents from potential tenants that will turn into signed leases shortly, or in the next quarter. And this will give us also a good impact in terms of occupancy looking forward.

But what is important on top of occupancy is the type of leases we are signing. You mention about 80% having US dollars and 20% pesos. I think that we are going to see the same ratio looking forward. We are still being very disciplined in the type of tenants we are taking into -- inside of our buildings. We are very disciplined in terms of the length of the leases. These are -- most of them are long-term leases. And, of course, we focus on still having class A tenants in our buildings.

Today actually we have a guest who is Steve Williams who is one of our founders, Board member and he is also part of our Investment Committee. Our Investment Committee is still very active. We are nevertheless, I think, we have had some impacts in terms of FX. We are still very disciplined in trying to get dollar denominated leases for most of those companies that are also related to the export's industry, and we would like to keep so in the upcoming future, Ariel.

Thank you. It was very clear.

Ivan Enriquez, HSBC.

Hello, Lorenzo, Juan. Congratulations on the results and thank you for the call. Just wanted to ask you, you are saying that you are acquiring land reserves in Puebla to build six buildings. I just wanted to know if these are built to suit, or a speculative building, and most importantly, which industry will be represented here? I want to know if it's mostly, because of the location, tenants in the auto industry. That would be the first question.

And the second would be in terms of the average leasing rent year over year. How much it increased and where are the regions you saw the higher increase in? Thank you.

Thank you, Ivan. Yes, we did three acquisitions in this quarter. It was land in Veracruz which was dedicated for the long-term lease also for the build to suit. We acquired land in Tijuana very close to the Otay border, which is fantastically well located where we will be able to develop over 700,000 square feet and we also acquired in Puebla good land reserves.

And the strategy for Puebla is similar to our strategy in the Bajio region which is pretty much to attract automotive and logistic clients. As you well, know the Bajio region and Puebla are increasing its productivity in terms of auto-makers in the production of cars, and we see strong demand particularly from suppliers of all of the OEMs.

So, we think that this is a park that will take us some years to develop. We are very happy to have land to be offering industrial build to suit and to offer also inventory buildings. And, so we are very confident that this is going to be a very successful project, particularly since Puebla has very little supply in terms of industrial space ad there is very strong demand from, again from Tier 1 and Tier 2 auto-makers.

In terms of rents, I believe that the market fundamentals are still very strong. There is some very important demand and the very good demand and supply is still scarce. So I believe that rents will probably either keep the same prices where they are at, probably even slightly higher as long as demand is keeping -- is still being strong. And the renewals that we have done recently are a good example that we are able to renew at higher rents than what we were having before.

So we are very confident with our development strategy. We are very confident with the leases we are still signing. And looking forward, I think that absorption in those markets is going to be -- in the markets where we are at where we have a leading position is still going to be very strong.

Okay. That's great, Lorenzo. And very quickly, if I may, can you elaborate a little bit more on the adjustment in the provisions for executive compensation that hurt the EBITDA margin? Just I understood it was a quarterly basis and now it's going to be paid annually. And can you just please elaborate a little bit more on that? Thank you.

Look, yes, Ivan. Let me remind you how the bonds program works. At the end of the day what Vesta wants to do is we want to compensate management based on the return that the stock gives to the shareholders. So what we do is we calculate total return for Vesta as well as total return for each and every of the -- our peers in the Mexican market.

We rank the peers from top to bottom. If you are -- if Vesta is in the middle, we will get the expected returns. If Vesta is in the bottom, we can get zero compensation, zero long-term compensation. If Vesta is the top performer, we can get 50% more than the standard return. So the volatility of Vesta compensation reflects the volatility of our stock price vis-a-vis the stock price of our peers.

On the last quarter, the compensation mark to market for the executive team was pretty close to nil. Therefore, last quarter, our SG&A was thinner, was smaller. This volatility on results will only confuse you and the rest of the market so what we wanted to do was to normalize the SG&A during the year. Obviously, on the fourth quarter we will know what is the actual price that Vesta closes at and what is the actual stock price that our peers close at. We calculate total return and then we actually affect the SG&A as per the actual expense of compensation.

So, since last quarter, the provision was zero for long-term bonds. This quarter the provision is standard for bonds and that's what affected the EBITDA on this particular quarter.

Once we do this we have to wait until the end of the year to see the actual stock performance of Vesta and the rest of the field to see what is going to be the actual compensation of your friends in management in Vesta and we will reflect that longer in the final year-end financial results. Okay?

Okay. That's great. Yes, perfect. Thank you Juan.

You're welcome.

Vanessa Quiroga, Credit Suisse.

Thank you. Thank you Vesta team. Thanks for the call and congrats on the results. My question first is regarding that -- I have a question specific about that table where you disclose the vacancy, same store and for the portfolio. We saw that the square feet that you show as the inventory actually didn't change. So I'm wondering what this refers to given that on the press release you do mention that several of the inventory buildings have been already occupied. So I'm wondering what -- is that related to that table that shows score [feed] inventory or they are something different?

Okay, what we tried to do in that table Vanessa, good morning and thank you for being here and for your question. What we tried to do in one table, in that that table, is to reflect the status of our portfolio. So at December 31, we take a picture of the portfolio and whatever GLA has been delivered as of December 31 we call that same store. Whichever buildings have increased during the year we call that growth portfolio. And that's how we can keep track of what was the same stores last year. And when we refer to same store occupancy, we compare the occupancy of a given quarter on that particular portfolio to the total square foot as of December 31.

Now, during the year, we deliver buildings, and those buildings that are being delivered, what happens is that as soon as the buildings are delivered to us to my -- from the construction company, we put them at inventory buildings and our GLAs expand which is why our total portfolio grew to 18.73m square feet. Now -- and what we do is we report to you the buildings that are vacant of the delta portfolio, of the growth portfolio.

The inventory number that you referred to didn't change because the deliveries of buildings that happened on the third quarter were built to suit. So area increased, the GLA of the Company increased, but the empty space of the spec buildings, so to speak, did not increase because they were built to suit. So this is kind of a double -- like a home run because GLA increases, rental revenue increases, but no vacancy increases which is why -- that's the reason why our total vacancy, our total vacancy dropped from 14.8% whatever it was last quarter to 11.66%, 11.67% this quarter.

Please take note that the same store vacancy decreased for other reasons. It decreases but -- because on the portfolio that was active as of December 31, we actually lease out empty space to new clients. Let me give you an example. Daewoo. If you recall, on the second quarter we said that Daewoo left the space because they hire a new 3PL and they left a big building, a rather large building in Cuautla. Well, this quarter Daewoo came back because they said that the 3PL they had problems in absorbing all of the capacity and they hire back, they lease back basically a third of that building and we've closed that lease for three years. So that drops the vacancy rate of our same store portfolio. So that's kind of the way the numbers go.

Let me remind you that we are very aggressive in recognizing growth. Every time a construction company delivers to our estate immediately it is both of by GLA. The policy in the regions between the US and I guess of my peers in Mexico is to not report that increase in GLA until 12 months have passed. We believe that being aggressive in reporting gives us transparency and keeps us on our toes because if there is an empty space we are going to be focused trying to lease it as quickly as possible.

Okay, Juan. Thanks. So just to be clear, if you have a build to suit new building and it's occupied, it goes to the same store account?

No, no, no. If I have a built to suit building growth, it goes to the total GLA and it goes in to same stores. If I lease out the -- any building that was same store that was in existence as of December 31, that building will -- that GLA, the GLA that exists on December 31, will remain constant at same stores throughout the 12 months.

Okay. Okay. Okay. Understood. And another question just on the general market trends. Have you seen in October that positive trends in terms of occupancy and leasing activity continue?

Vanessa, let me just underline this. On the first half of this year we were incredibly active in looking for new leases. We were receiving a lot of requests for proposals. What we were lacking was the willingness of clients to close the deal. What we have seen in August and September is a very aggressive stance of our clients wanting to close on the available space as quickly as possible. We have a lot of RSPs, but what has changed is the willingness of clients to close on the space. And that I can say is a substantial difference on the last two months from what happened during the first half of this year.

As Loren said, we have signed, we have already signed binding LOIs. Those are not being reported as they are different from signed leases. But we will convert those binding LOIs into contracts because the only thing that is lacking is just the final signature on contracts that my clients have received a couple of weeks ago. So we really see a very strong end of the year for Vesta.

Excellent. Thank you. Thanks, Juan.

Gordon Lee, BTG.

Hi guys. Thanks for the call. It's Alvaro here. Just two quick questions. One, I just wanted to confirm that despite the higher admin expenses this quarter you're confirming your 82% EBITDA margin guidance for the rest of this year understanding that the first quarter we saw relatively nil admin expenses released from the bonus part.

And my second question is on the NOI margin. I'm trying to get an idea of how much of this NOI margin expansion is due to FX. I was wondering if you can give just more color on that. Thank you.

Okay, let's first tackle the second question because it's easier. SG&A will -- okay, this is what happens. Most of our expenses, most of our expenses, 80% or 90%, are peso-related. Why? Because salaries of our employees are peso-related. So SG&A is really a peso account, okay.

Revenues are 80% dollar-denominated and growing because we tend to sign off notwithstanding more leases based on dollars than leases based on pesos. So you can expect the percentage of dollar leases to continue to increase as the business expands. If that happens, EBITDA will naturally tend to grow. That would be my natural feeling about what you can expect of EBITDA over the next years.

Revenues in dollars, cost base in pesos. If the peso keeps depreciating, Vesta is in an extraordinary position. Vesta, operationally, generates more than $20m per year on a cash flow basis. So that is a great asset. So you can expect if the peso continues to depreciate, EBITDA margin to continue to grow okay. So that's just [addressing] the additional [cash].

Second, a very pointed question. We will meet EBITDA margin for the year, yes I think we will. The provision will be if we really outperform the market, if we really get total returns for Vesta stock a hell of a lot better than my peers, the first thing that will happen is all of the investors will win a lot because Vesta as a stock outperform our peers, therefore you will pay me a higher bond. You are going to have the Vesta team incredibly happy and EBITDA could suffer a little bit. But let me underline the reason which is if EBITDA suffers a little bit, it's because the investors make a killing, and that's why you pay us more.

Now, if we meet, if I value the bonds at a standard, as expected, Vesta will meet the guidance of 82%. We will be there, which is fantastic, Alvaro, because the evaluation has been 20% this year and leasing income has not dropped that much. Because our leases are in dollars, the impact of the 20% in pesos are -- is making my meeting of guidance in the lower end, but I'm still meeting guidance. Okay?

Yes. That makes perfect sense. Thanks very much for the clearance.

(Inaudible) [Hernandez], JPMorgan.

Hi. Thank you very much for the question and congrats on the results. My question has to do with the delay we had from past quarter. Have you changed your strategy on focusing on increasing occupancy rates while still seeking further GLA expansion, or are you seeing the markets being more normalized and you've been able to achieve greater GLA without risking occupancy?

And also, my second question would be if you're seeing any pushback from tenants trying to get any kind of discount or something, given the peso depreciation.

Okay. Two great questions as usual from JPMorgan. First of all, pushback from clients, no we really haven't received any pushback from clients. Let me contrast what happened in 2010 to what is happening today. In 2010 there was a sharp devaluation of the peso. There was significant, significant pushback from clients. Why, because clients weren't selling. They themselves their own businesses were suffering and of course when you're suffering in a business you want to tighten every knot and Vesta was one of the biggest knots, so we received a lot of clients. The peso went from MXN10 to MXN13, Vesta please help me. And we did, we have a close relationship with clients.

This time around Mexico is really an exporting platform. My clients are sitting on that platform. They are making a lot of business. It is not that they are forgoing cost improvements. It is that we sign a contract in dollars and we see no reason whatsoever to give rental relief when the absorption in the markets that we operate are very strong. So first of all, we haven't received any calls. And of the few calls that we receive we basically say hey there is absolutely no reason to give you any respite. If you want to vacate the building we will fill it up with a different client very quickly.

Please take note that on the same stores we increased the occupancy of same stores at the same price of the maturing contracts or better. That is very significant. And that again reflects what's happening in this second half of the year that really underlines our optimism.

Now on the delay of -- on the growth part of this, so let's take the big picture. Vesta will develop 3m square feet of new buildings every year. That is the goal. That is the essence of Vesta 20/20. We will do that. Now, at the same time, my Investment Committee, and I cannot lie because one of the key members of the Investment Committee is on my right, are very strict. And if we have high vacancy, lower occupancy for whatever reason, they will push the brake immediately.

One of the ways we push the brake is we are building a park in Toluca and we have to do infrastructure and we have to do two new buildings. We, as of the first half of this year, we were not seeing the signing of contracts at the same speeds that we were seeing the signing of contracts in other regions. So what the Investment Committee said is look be smart, finalize infrastructure, get the park ready and play it by the ear. And this is what we did with the F4 and F5. We are playing it by the ear. Those projects are not being curtailed, or anything. They will happen on the first quarter of next year and it will be business as usual.

But the big picture is we will develop 3m square feet per year. On vacancy, on total vacancy of the company not same stores, total vacancy of the Company we used to hit 11%. We will begin to aggressively build inventory buildings in the regions where we see most of the activity happening. Okay?

Great. Thanks very much.

Cecilia Jimenez, Santander Bank.

Thanks. Hi. Good morning to everyone. My question is regarding debt and there is financing portion of the debt with GE. When do you expect additional debt to refinance that one? I'm not sure if it's going to be this year or next year. That's the first question.

Okay, Cecilia, thank you for the question and I'm happy to hear from you. Okay, my debt is now owned by Blackstone matures from September, on August 16 next year which is why most of the debt is now on the short-term maturity. Well, we are actively seeking alternatives to refinance the debt. The first alternative is Blackstone themselves. We have called them. It is an alternative. It is not the best alternative by far, but it is an alternative. And we (multiple speakers).

Sorry. What's the rate that they are offering? Can you disclose that?

High enough for it not to be an attractive alternative.

Okay.

But, in any case, but it is an alternative you see. But then what we are doing is we are seeking alternatives. We are seeking other people. The main reason we establish a close relationship with Met Life and the reason we have close relationships with other Met Life people in Mexico is because we did that deal with Met Life to open the avenue for that renegotiation. And we have close relationships with people like Met Life in Mexico and it is an alternative.

However, as most large relative companies, the grail is we would like to issue a market-based debt, a bond, unencumbered of a long-term maturity and we have and we are preparing the Company to do just that. We think that we are going to be hitting the market sometime in the first quarter of next year. We think we have enough cash reserves and we will secure further from banks in terms of overdraft lines or whatever, guaranteed lines, so that we can meet any contingency on the debt maturity.

My expectations are aggressive on rates. I think that we can get rates of around 5%, 5.25%, 5.3% on normal markets. I don't know if right is a normal market, but I think that when the water reaches its level, which -- and we're in the new year and things get a little bit more less volatile, let's put it that way, I think that we can achieve that type of rescheduling of debt.

Okay. Perfect. Very clear. That's the first one, and then the second one it's regarding development. Today you have 1.7m square feet under development. That's roughly 10%, a little below 10% of total portfolio. Should we see that level increasing? And according to the 20/20 Vision what's the proportion between inventory and build to suit buildings we should see by then by 20/20?

Yes that's a good question, Cecilia. And let me tell you I think that the strategy of Vesta has always been to have a balance between build to suit projects, because I think that that's where we have a key -- we have a strong advantage compared to our peers. But definitely our inventory building strategy, as you can see, has been also a great opportunity in order to achieve very good returns and also to attract companies that do not have a lot of time to do a build to suit and in the end, have a good tenant inside of a very flexible building where we can accommodate them and then keep on growing with them.

I believe that Vesta can keep on developing roughly 3m square feet per year. Currently we have 1.7m square feet under construction with the inventory building of also another project that we started at the first semester of the year. So probably closer to the end of the year we will start construction of other projects that we'll be announcing soon, including build to suits and including also inventory buildings. So probably a balance still of 50% between build to suits and inventory. It's a balance that we believe we can keep on managing in the upcoming future.

And I would like to add, Cecilia, that therefore, that's why for us what's key to acquire land reserves in certain markets. And in addition to that, we are still acquiring land reserves in certain markets because we believe that this has given us also a great advantage in order to keep our leading position in certain markets. And this is a way also to keep our competitors away by having good land reserves, good buildings at the time and, therefore, we can be able to keep on offering good industrial space in certain dynamic markets.

Great. Thanks for that. Just one follow-up there. Are you planning to expand your footprint nationwide or to other markets where you are currently not present?

Currently we are -- we have a very defined strategy that we have worked with together with our Investment Committee members and we want to keep on being a leader in the Bajio region and Central region. Of course, Tijuana has been an important market for us in the border and also Ciudad Juarez and we are very comfortable in the markets where we are today.

But, anyways, as long as we see other dynamic markets we are always open to explore new operations. But keep one thing in mind, we want to really focus in good markets and dynamic markets where we can have a leading position. We don't want to grow nationwide just because.

We expanded recently to Veracruz, for example, and the reason of going to Veracruz was, first of all, because we believe Oxxo is a fantastic tenant. We want to keep on growing together with our tenant base. They needed a space in Veracruz, and Veracruz is a market where we feel comfortable to have a 15-year lease with a good client.

So we can keep on growing with the clients like Oxxo, client-driven growth. But in reality we really want to focus in the markets where we can -- where we believe we can have a better momentum. And currently, to be honest, I think we are lucky we are in the markets that are the most dynamic markets of Mexico. So there is no necessity to go into other markets, let's say, the northeast parts of Mexico. We don't see dynamics -- we don't see a very dynamic market there.

Very clear. Thanks.

Thank you.

Pablo Monsivais, Barclays.

Hi. Hi, guys. Good morning. Thanks for the call. I have two questions if I may. The first one is what is your same store NOI growth quarter on quarter and year over year?

And my second question is are you confident to finish on time the SMA1, El Florido 2 and J10 projects given that you are expecting to finish those projects by year end? But as of 3Q 2015 you have less than 16% progress on these projects. Thanks.

Okay, Pablo thank you for the call. On the NOI question, as you know, we don't disclose NOI at same stores and NOI growth portfolio. Perhaps we should. But we -- I don't have the statistics for you just like that. I take a note of it and let me consider if we want to disclose that level of detail. Conceptually I have no problem.

I have a little bit more problem disclosing figures on a region by region basis basically because none of my competitors do it and it really reflects -- I don't want to signal so closely which markets are better than others. But NOI same stores and NOI growth portfolio it's a good question. Let me consider that and maybe we should improve our reporting that way.

On the other part I let Loren answer.

Yes Pablo, regarding the development progress we are definitely -- we are going to keep development on time. We have done a great progress. We are very close to finishing this, the construction of these projects.

But on top of that, let me tell you that we are currently already marketing those spaces. And this is important for us because you know it takes a while to sign leases. So we want to -- we are working hard not only to hit -- to develop the projects on time, but only to hopefully be able to be closer to closing some tenants also in the -- by the time that we finish the building so that we can start collecting rent as soon as possible. So going straight to your -- answering straight, yes we believe we are going to hit the time, the development on time.

And the - sorry (multiple speakers).

And these will be added to the GLA also for the end of the year. So if you consider the projects that we have for December of this year, you can see that we are going to be close to 20m square feet for the end of the year.

And Pablo, this is where our policy of transparency bites, isn't it, because at the end of the year we are going to have a rather important growth in our inventory building portfolio, in our growth portfolio Lorenzo was talking about. And we are running as fast as we can to sign those leases because I want to report no vacancies. But this is the price of transparency.

And let me tell you I'm happy that you know because you will be forcing me to run as fast as I can so that we sign the leases as quickly as we can so that I drop vacancy as quickly as possible. So I think transparency works great. Just be careful when you compare me to the rest of my peers because they don't do it this way.

Okay. Thanks.

Francisco Suarez, Scotia Bank.

Hi. Thank you. Good morning. Congrats on the results. I'm sorry for two follow-up questions on your pipeline. It's interesting because you have 1.7m of square feet in your pipeline in absolute terms. That is the lowest level that we have seen over the past five quarters or so, also on the relative basis on GLA. So, can you confirm for us if there is a certain region on which you may be concerned that absorption rates may be changing and that may or may not have driven already your decision to scale back a bit your overall intention to supply more spec properties to those markets? Because if I remember correctly, you mentioned that you're required to develop 3m square feet. So I guess that with 1.7m you'll still be close to reaching your overall objectives.

And the second question, perhaps it is a related question, has to do with how -- or to what extent you will be drawing your debt in the years going forward. For sure you are financing the 2016 maturities, that's for sure. But do you think that we should be expecting an aggressive leverage of your balance sheet or not? Thank you.

Francisco, thank you for the questions. The second one is easy. I will not issue debt up until my cash balances go pretty close to $100m. Somewhere $150m, $180m then I will begin to worry about issuing new debt. So, you can expect that the debt to -- the debt to total asset of debts are to remain basically where it is all in all over the next couple of years. Bear in mind, however, that I cannot prepay the Blackstone debt.

So if I issue a bond in March, suddenly I'm going to have a ton of debt, but I'm going to have a ton of cash. I would try to repay it, but it depends really if Blackstone wants to receive the money or not. Now - so that's the story on debt, pretty straightforward.

The other one is a little bit of a cursed if I do and cursed if I don't and let me tell you why. Last -- if you look at the same chart as of the fourth quarter, as of the first quarter of the year, if you look at that chart I have 3m square feet under development. And that is the Vesta 20/20 plan. And then suddenly, when the buildings got delivered to me everybody said Vesta, you know what, vacancy stopped what's happening what's wrong.

So to summarize, when management sees occupancy high we are very aggressive to develop inventory buildings. We always develop build to suits if the credit rating of the company is good. On a build to suit it's simple. If the client is a good client we will develop it, and we usually -- we are very aggressive on bidding and we are -- we usually win. So build to suit is we keep them as they come.

A spec building, inventory building, it really depends on the status of my portfolio. Third quarter last year all of the metrics total vacancies, same store vacancies were very low. Guess what, we started 3m square feet of new buildings because my Investment Committee was open to hear of opportunities from management and management is aggressive.

Suddenly in the second quarter, buildings came on line. We are very transparent. We report the new space as available, and suddenly Vesta vacancies 15% and everybody begins to worry. We said don't you worry we know what we are doing vacancy will come down. And it does. It did in this quarter. Active, very active signing of leases, very different first half/second half of this year.

Now, of course, as we develop buildings my -- what we didn't do this year is to increase the pipeline of growth. We are careful developers. That's why my Investment Committee has -- they say put the brake when they see fit. And well, on the first half, it was not -- the markets were not very -- they were not as strong as they are now. So they put a little bit of a brake.

And well, as soon as we signed the leases, as I told you, we have a couple of large space committed LOI, binding LOI from clients. As soon as we get those contracts let me tell you, we will go back to my Investment Committee and we will continue to aggressively develop, because my concern, the concern of Vesta, is not the 3m square feet of 2015. We have accomplished those. It's the 3m feet of 2016 and that is our focus right now. Sign the leases so that we can continue to grow next year.

Great answer. Thank you. Very clear. Congrats again.

Javier Gayol, GBM Capital.

Hi, and thank you for the call Lorenzo, Juan. Just I have two quick questions. The first one would be regarding land bank and the acquisitions that you guys are planning going forward. Just to get a sense at what point in time in your land bank would you guys be ready to cover the 20/20 plan? And is that expected, or what timeframe are you expecting on those land acquisitions?

And my second quick question will be when looking at your fiscal P&L, given the depreciation of the peso and of the investments, where do you guys foresee that cash excess begin to increase rapidly or effectively affecting the cash generation of the Company? And that would be all thank you.

Let me answer the second one, because it's -- we have talked on and off about this profit. My managerial accounting standard forces me to report my accounting in dollars because 80% of my revenues are in dollars. So in all of my subsidiaries but one, my accounting for managerial purposes is dollar-based. Great. It is actually very clear, very simple to understand.

However, from the point of view of Mexican taxes, the tax rules, the tax reporting rules, are peso-paid. On a peso-paid basis, the Company this year has generated a substantial amount of losses. How substantial? Well $300m worth of debt with a 20% depreciation of the peso is $50m worth of tax losses from a mark to market of the debt, roughly speaking.

Well, I believe that if the dollar, if the peso/dollar were to remain unchanged, unchanged, it would take us two or three years to beat those $50m or more, $60m losses. So, on that cash basis, I don't expect Vesta to pay a significant number of taxes for the foreseeable future, three years at least. So my -- and that's that no?

Yes, that's very helpful. Thank you, Juan.

And Javier, Lorenzo here. And regarding your first question on land bank, currently we have land bank to develop roughly 8m square feet which accounts for about over $70m in terms of value in terms of --. And if you -- $70m related to our whole portfolio we still have -- we believe we still have some room to increase it. We actually -- what we don't want to -- we don't want to exceed $100m in terms of land bank value.

So we are going to be doing some acquisitions still for land bank. We have done some very good acquisitions in the last year and this year. And probably next year we are still going to do some important land acquisitions. And with that, I believe that we are going to be able to cover a good portion of our -- a very good portion of our 20/20 growth plan.

I think that what we don't want to do is we don't want to either acquire too much land, but nevertheless it is important for us to secure the land in those markets where we still want to keep on growing in the upcoming future. So we are very cautious, and I think that 2016 is going to be a very important year in order to secure the land that we need for the 20/20 plan.

Thank you, Lorenzo. Thank you. That's very clear and congratulations on the results.

Thank you very much, Javier.

There appears there's no further questions at this time. Management, would you like to make any closing remarks?

Well I think that with this we have -- we are very glad to finish this quarter and to finish the call. Thank you all for participating in Vesta's third quarter conference. We'll look forward to speaking with you again when we release our fourth quarter and full year 2015 results. If you have any questions in the meantime please do not hesitate to contact our investor relations department Iga Wolska. Thank you, and have a great day.

Thank you.

This concludes today's conference. Thank you for your participation and you may disconnect your lines at this time.