Vesta Real Estate Corporation SAB de CV (VTMX) 2015 Q4 法說會逐字稿

Good morning. My name is Manny and I will be your conference operator today. At this time, I would like to welcome everyone to Vesta's Fourth Quarter and Full Year 2015 Earnings Conference Call. Vesta issued its quarterly report on Wednesday, February 17, 2016. If you did not receive a copy via email, please do not hesitate to contact the Company at +52-55-59500070.

Before we begin the call today, I would like to remind you 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 IFRS and are stated in nominal US dollars unless otherwise noted.

Joining us today from Vesta in Mexico City is Lorenzo Berho, the Chief Executive Officer; Juan Sottil, the Chief Financial Officer and Iga Wolska, the Investor Relations Officer.

I will now turn the call over to Mr. Berho. Sir, please begin.

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

Throughout Vesta's operating history, we have established an unmatched track record of consistent growth and strong financial performance to become the leading industrial real estate developer in Mexico. In 2015, I am very proud to report that our 'Vesta Vision 20/20' strategic plan met its goals in the first year of operation.

Over the year, we achieved a record increase in gross leasable area of 19.4% to 20.1 million square feet. This reflects the expansion of our asset portfolio by more than 3.2 million square feet, consistent with our six year growth plan. Crucially, we leased over 3 million square feet of vacant space. Including the renewal of leases maturing in 2015 and 2016, total leasing activity reached 5.5 million square feet.

Same store occupancy grew to 95.9% against 93.8% in 2014, while total portfolio occupancy was broadly stable at 86.7%. This achievement affirms our overarching strategy to double the size of our company by 2020. Such solid growth, underpinned by our strong financial metrics, reflects the work of a focused team and demand for industrial real estate in markets where we operate.

In terms of funds from operation, I am also very pleased to report 23.6% growth during the year to $40.1 million or 51% of sales. EBITDA was $66 million, 84% of revenue, growing 14.9% in 2015 to beat guidance provided to the market. This robust performance continues to reflect our unique structure. As we have no management fees, any growth in revenue is efficiently translated into EBITDA and FFO.

Reflecting on 2015, the period can be characterized as Vesta's strongest yet in terms of operational performance since our initial public offering. We executed important strategic goals, increased our operational efficiency and prepared the Company for continued expansion.

Last year, we hired 19 new employees, mostly in asset management, allowing our regional managers to focus on growth opportunities while maintaining our client-centric approach. Similarly, we hired additional development staff to facilitate our expected growth. We have also improved our internal controls by implementing a new CRM and MIS system.

Our successful completion of a $230 million follow-on offering provides us with the strong equity base needed to achieve our growth ambitions, while strengthening our balance sheet to help renegotiate our 2016 debt maturity.

We continually strive to present the most relevant metrics and are committed to enhancing our reporting transparency in accordance with industry best practices. In this regard, we will begin to disclose metrics on a same store portfolio basis using the NAREIT standard, while continuing to report total portfolio metrics.

As the economic climate for industrial real estate continues to improve, Mexico presents an unparalleled opportunity in global markets. We offer the best access to manufacturing goods to the world's largest economy, a young and educated work force, and an exchange rate that has enhanced our competitive advantage.

At Vesta, we have the skill, resources and experience to adapt where necessary, while maintaining realistic targets. As always, our underlying philosophy is one of sustainable growth.

I will now hand the call over to our CFO, Juan Sottil, for a more detailed discussion of our fourth and [full year quarter] results.

Thank you, Lorenzo. Good morning, everyone and thank you for joining us today. As Lorenzo mentioned, last year was one of successful execution for Vesta. We continue to expand our portfolio of quality industrial buildings and distribution centers throughout key logistics, manufacturing and freight corridors in Mexico.

As demand fundamentals of our industry remain strong, Mexico's attraction as a manufacturing hub due to lower cost and proximity to the US is bringing clients from all industrial geographies to our region. Our reputation for providing state-of-the-art industrial facilities places Vesta in a unique position to take advantage of the dynamic turning point to the fourth quarter.

Our portfolio consisted of 125 quality properties and Vesta increased its total gross leasable area to more than 20 million square feet due to the completion of [five inventory] buildings and the acquisition of industrial properties. Our fourth quarter vacancy rate rose to 13.29% from 11.67%, reflecting the completion of new inventory buildings which have not yet been leased.

As mentioned, we have introduced new operating metrics to help facilitate an easier comparison with some of our US peers. Firstly, the stabilized portfolio occupancy is the metric most often reported by US REITs to illustrate portfolio occupancy. A property is generally considered stabilized once it has reached 80% occupancy or has been completed for more than one year, whichever occurs first. On a stabilized portfolio basis, Vesta vacancy rate decreased 5.76% in fourth quarter to 7.64% in the year ago period.

Vesta has also bettered the definition of same store occupancy. Investor often evaluate the performance using a same store analysis as the number of properties is consistent, eliminating the effects of changes in portfolio composition on performance measures. On same store portfolio, the vacancy rate was reduced by 213 basis points to 4.10% in the fourth quarter from 6.23% in the year ago period. We have provided a reconciliation of the results based on these updated definition in our financial statements.

During the period, we continued the construction work on 10 buildings with a total GLA of 1.9 million square feet and a total investment of $92.9 million. Vesta also signed eight new leases for inventory buildings in Toluca, Queretaro and Tijuana with multinational companies in various industries including plastics, electronics, logistics and the automotive sector.

In terms of our key financial results, revenue increased by more than 11% to $20.8 million in the fourth quarter. Our operating cost as a share of total rental income fell 398 basis points on a year-on-year basis as rental income on properties continue to rise faster than the increases in operating costs.

Net operating income grew 11% more to more than $20.12 million in the fourth quarter, driven by the Company ability to lease buildings and contain cost increases. NOI margin was relatively stable during the quarter, but expanded 70 basis points over the full year to 96.7%, reflecting our growing efficiencies of scale. For the year ended December 31, 2015, NOI was $75.98 million, compared with $66.57 million at the end of the 2014. Our operating leverage was also reflected in the administrative expenses for the quarter which fell as the share of rental income.

EBITDA rose 16.7% during the quarter to $18.8 million (sic - see press release, "$18.02 million"). EBITDA margin [was] 86.6% from 82.5% in the previous year fourth quarter. The rise in EBITDA margin was mainly due to the reduction of the provision under the stock option plan. The loss before income taxes was $8.61 million compared to a profit of $5.5 million in the same quarter last year. The decrease mainly reflects the exchange loss. The Company reported $3.54 million loss in the fourth quarter of 2015 compared with $3.95 million loss in the prior year's final quarter. Funds from operation, most importantly, rose 44.8% to $13.3 million.

Regarding our balance sheet, cash and cash equivalents were $230 million at the end of year. Operating activity generated cash flow of $68.7 million during the whole year. Investing activities were mainly related to payments for work in progress on the construction of new buildings in Bajio, Toluca, Tlaxcala, Ciudad Juarez and Baja California. Total investment for the quarter came through (technical difficulty) for the full year and for the full year represented $116.7 million.

As of December 31, 2015, the overall balance of debt reached $344.8 million of which 86.5% is related to short-term liabilities, while 13.5% represents long-term debt. At the end of the year, 100% of the debt was denominated in dollars. Vesta effectively is exploring a range of financial options to enable us to increase leverage, minimize our weighted average cost of capital and diversify our funding.

In the year ahead, we are committed to a healthy rate of expansion that reflects sustainable growth. We are currently forecasting between 13% and 14% growth in terms of rental revenue with a net operating margin above 95% and an EBITDA margin of 83%. Our guidance is based on broadly stable exchange rates, interest rates and inflation, supportive conditions in the Mexican industrial real estate and continued expansion of the US and Mexican economies.

Once again, Vesta performance has cemented our reputation as a leading industrial real estate company. With our strong track record of growth, we remain adaptable and committed to generating sustainable return for all of our shareholders.

Thank you. I would like to open the floor to any questions that you may have.

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Alan Macias, Bank of America.

Just, I guess, two questions, if I may. On your [2006] guidance, can you just provide a little more color on what your expectations of GLA growth are? You currently have close to 2 million square feet under development and will there be more and investment will be closer to $150 million or closer to $100 million during the year?

The second question is, you've added GLA in the Baja California and the Juarez markets, and could you just give us an update on your leasing expectations for these markets, giving the current macro environment?

Basically, the first question is related to expected GLA growth and I think that one of the things that we took a lot of time to try to explain to all our investors in calls and in all the roadshows and visits was about our Vesta Vision 20/20 plan. And this plan was worked on very deep, very seriously with a lot of analysis, and I think that as the year 2015 is over, I think that we are in a great position to check to the past and explore to the future.

And the only thing I can tell you is that I'm really happy that after all these effort we did and there was not -- remember, that the Vesta Vision plan was a full plan, fully strategy plan that incorporated not only expected GLA growth, but also in what markets, what industries, at what speed, what kind of organizational structure we needed, what kind of things were happening according to what we knew one year ago, and I'm really happy to tell you that in the first year, we achieved our goals, [that didn't all the goals], but in terms of GLA which is speaking to your question, we did 3.3 million square feet of GLA in 2015 and our expected growth has been 3 million square feet per year in all these -- on till the year 2020.

So I would say that, just think about Vesta as a company that from now to year 2020 will grow at 3 million square feet per year. So, you can just club that into your analysis for year 2016 to 3 million square feet and one of the things that probably you were able to see was that sometimes in the past, some regions were growing faster than others specifically and this change goes a little bit to your second question, this year 2015 was a very good year because all our regions had a very good growth. The regions in the center of Mexico pretty much related mostly for the auto industry, some of them of the aerospace industry and in the border, the two markets in which we operate, Tijuana very much linked to electronics and also to medical devices and the exposure has been pretty good.

And Juarez, in Juarez, we were able to do, to close the largest deal in almost the six year of recent installation after all the announcements of Electrolux, there have not been other announcements about this amount of investment and that includes, of course, our investment and BRP investment which was future. And we finished the building and that building is paying rent today. We also announced that PPI, which is another project build to suit in Juarez is also going to be very large and we just did a groundbreaking ceremony last week in Juarez.

So, this is the kind of deals that Vesta is getting and help us to get a very strong position in the region. So I would say I'm really happy and flying today to Tijuana. We're looking at deals, we're looking at opportunities, we like to have some inventory buildings in those regions for the companies that do not have time but I'm really happy that on top of the competitive advantage that Mexico has had in the past which have made investors to decide to bring manufacturing operations to export from Mexico, now we are having additional benefits, already are having the additional benefit of the exchange rate and I don't know if that is going to be permanent or temporary.

So I prefer to think of Mexico as the -- because of all the other competitive advantages that we have gotten in the past, but I cannot stop looking at the effect that these additional benefit of the currency is bringing towards those additions which are speeding the growth in those regions.

Thank you. Gordon Lee, BTG.

Two quick questions and I guess, these are mostly for Juan. The first is on the employee compensation, I guess, two questions related to that. One, the charge that we saw, the non-cash charge that we saw this quarter was low compared to what we have seen in recent quarters. Going forward, should we expect the quarterly charge to be similar to what we had seen in the past or is this more of the recurring level?

And related to that, during the course of the year, you've obviously made the expenses on the P&L for the shares to be issued, but I was wondering when we will actually see the shares related to that issued and what amount of shares can we expect to be issued based on 2015 compensation?

And then just a final question, is there any update on the refinancing of the GE liability, it would be helpful as well? Thank you.

Compensation, first of all -- first, let's go to the big headlines. In the 2015 compensation, as you recall, the key metric is total return to our shareholders, total revenue return to our shareholders. That is we will get a compensation package that is quite attractive if and only if our investors are making money on Vesta vis-a-vis their investments in other Mexican real estate companies.

Well, last year, that was not the case. Vesta did not over-perform. In fact, we underperformed the industry and as we set in our goals, we basically didn't make bonds. Our long-term bonds to Vesta top management, to 15 people, was zero. We didn't get any shares. Therefore, there will be no dilution based on that fact.

However, please take note of the following. According to IFRS policies, IFRS 2 in particular, we have to account for what would be the expense on a normalized year given the plan and in particular, the part of the IFRS 2 standard that we have to apply is related to share compensations based on market performance of the price of the shares. In that chapter, we need to basically tell the reader of our financial statements what would be the cost at the beginning of our financial year related to the compensation package.

I have to say that this compensation package is quite innovative and during 2015, we didn't quite do it in a quarter-by-quarter basis. Therefore, at the end of the year, when we had large inputs from our auditors, we realized that what we needed to do is basically estimate in January the expected level of compensation related to that plan. So, from now on, what you will see on a quarter-by-quarter basis, is the expected cost of the plan as if we would have made the standard compensation. So that is of course will mean that there will be no more swings in operating administrative cost on a quarter-by-quarter basis and that we will accrue the expected cost of the year.

Please take note that the expected cost of the year for the year has nothing to do with the actual performance of the Company as of year-end and if we make bonds, we will return the shares and we will be very clear to all of you how much dilution came from those shares. So, in 2016, what you can expect is on a quarter-by-quarter basis we will accrue the second portion of the 2015 bonds cost and the first portion of the 2016 bonds cost which basically has the same methodology.

We will start with MXN29 per share price because we are on the first two years and this is a three year expected -- three year total relative return basis. So, on the second year, we start with the same benchmark and we basically will measure the end of 2015 year-end price against MXN29 and we will calculate for all the years and we'll see -- and I'm confident that this year will be a better year for all of us. So, that takes care of your first question.

The refinancing, we are very, very active talking to our banks and our investment banks about how to refinance our debt. As we note in our financial statements, we have no doubt that Vesta will be successful in refinancing our debt. Basically, in my experience, in banking, I have never seen such choppy markets for January and February. We were ready to launch a bond and we are holding that on that offering because of the choppiness of the market, the great spreads in the bond market has widened to unreasonable levels. At the same time, we have quite deep and quite good banking relationships and we are accessing those to reform our refinancing.

At the end of the day, (inaudible) debt to total assets. We have the healthiest statistics in terms of credit metrics in the Mexican real estate industry. Are we concerned? Yes, of course, but we are concerned doing things that will allow us to refinance these at very competitive rates the sooner, the better. So, the (inaudible), we are working very hard and we are ready to launch our bond if the market allows and if the credit spreads comeback to reasonable levels. If not, we will go to the insurance or banking markets and do the same as fast as possible.

I just want to add to what Juan is saying, that, of course, speaking about the long-term compensation, Gordon, I think that -- we know that -- of course, we need to measure these by year, but we know that this is more a video than a picture. This is a plan that was setup in place to strengthen the alignment of interest with the best option that we found, with the best practice that we found and the vision of this is to match the interest of the shareholders with the interest of top management with the vision of going to year 2020 as well.

So, we are looking forward to, as Juan said, we broadly had a kind of a -- we'll not call it unfair, because that was the case -- but it was because I would say a little bad luck of what was the starting price at the end of last year both and then the follow on didn't help in terms of the pricing effect. Bottom line, we have probably the best operating year ever in the history of Vesta and that have to pay off in the future, and related with financing, as you might remember that we still have up to August this year. So, there are still reported months to come, things will have to balance and we have options, and I believe we are in a great position to make that happen when time comes.

Understood. Very clear. Thank you very much. If I could just have one quick follow-up on the accounting one of the compensation program, just to be clear. So, let's hope this doesn't happen, but let's take the pessimistic assumption and that by the end of the third year, the relative performance on the total return was not enough to justify a payout, at that period of time, all of the expenses that have been provisioned for or accrued throughout those three years would be reversed on, presumably?

No. Regretfully, look, unfortunately IFRS is quite adamant, but you have to give effect to the reader of the financial statement is that if the compensation is based on the market price performance of the shares, which is the case, then what you have to tell the reader is how much does -- I think, how the deal was struck between management and the Company. So, and that is the relevant fact. How much those management cost? And this number has nothing to do with the actual dilution in our case or in another company, it would be the actual cost of the compensation. The key metric is how the deal was struck. So let's think that over the next three years, for the 2015 plan, we will actually have in the neighborhood of $750,000 per year charge because of how the deal was struck. At the end of three years, we will add up those three numbers, $2.1 million and they will remain as cost, it will never be reversed and as you see on our capital account, there is a line just above in the capital accounts of the Company, that will reflect this charge, that would be the counterbalancing of the cost charges. That account will remain with $2.1 million for the history of Vesta.

Now, over the 2015 plan, you overlay the 2016 plan. In 2016, the price to this for Vesta would be 29 shares. Of course, the December 31 price, starting price is 25. All of the dealers will have their own starting and total -- you calculate the total relative return and a new deal has been struck. There will be an actuarial analysis of what is the likely outcome on January 1 of this year. A number will be produced and four charges will be charged over the next four years; the working year, 2016 and then the three best-in years from 2017 onwards and so on you move.

If at the end of 2016, the performance of the shares of Vesta outperform, then we will get the shares on a three-year basis and dilution will happen gradually over the three best-in periods, but the accounting charge will remain forever. The difference is that, if we get the shares, then the balancing account in the capital accounts will get reduced by the delivery of the shares to the top management.

Thank you. Vanessa Quiroga, Credit Suisse.

I have a question, a follow-up question on the strategy for the debt refinancing. What are the options that you're considering right now in terms of how much flexibility do you expect to have with regards to the assets guaranteeing those loans? Do you expect to have to link assets, properties to the loan or are you still preserving a loan structure that gives you more flexibility and what kind of cost or interest rates are you expecting to get at this point in time?

Excellent question, Vanessa. As you would imagine, the ideal situation for any real estate company is to have the flexibility of not pleading the assets to a loan structure. With that idea in mind, we prefer the Company in the basics since June last year to be able to issue a bond. The bond market at the time was there, it was big, the credit spread was low, we did all the letter works from rating agencies to documentation and we basically wanted to launch the bond in January. What we didn't expect, as I mentioned, was the choppiness of the market.

Now the counter balance of not pleading the assets to a loan transaction, the other side of the coin, is really the credit spread. At the end of the day, I tend to focus a lot on the credit spread. I basically compare the yield, the cost of funds on a bond transaction vis-a-vis the cost of funds on a pledge deal something like what we have had in the past and my concern is how wide that spread is.

To counter balance this point of view, my board likes flexibility, Lorenzo likes flexibility and really, an unpledged property looks a lot like an insurance policy. Whenever you need it, in the next 10 years, you have unpledged asset that can bail you out of problem, and that is worth something. In my mind, that something (technical difficulty) a lot of the basis forms, you've taken into account fees, the whole thing, typically last year, that spread was 50 basis points, 60 basis points, 70 basis points may be, that's reasonable. Even I would like to pay that.

When you see the conditions that my peers' bonds are trading in the secondary market, I cannot justify this spread. So we are ready, documentation agencies, everything is set off to start that market. However, I do have to worry about the spread. And at the same time that these negotiations were happening, as conditions were worsening in November, December, we talked to other financing alternatives, more traditional financing alternatives that do require the pledging of assets and that's what we did. We have viable alternatives today to refinance this debt. So, now we have a menu of alternatives and we will try to very cautiously and not looking and rolling over -- in my mind, the issue is not rolling over these debts. In my mind the issue is what shape of balance sheet best I would like to have during the 2020 growth phase of the Company.

It would be very easy for us to access our banking sources, pledge the assets and rollover these debts, but if we do that, we're basically deciding what type of debt we're going to issue in 2018 and that does concern. So, we're trying to get the best deal for the Company and keep as much flexibility as possible and that's where we are. We're not concerned that we will not be able to rollover. We're concerned about the shape of the balance sheet in 2018 and on wards and that is what makes us take two steps back, look at the overall picture, look at the menu and make the best choice.

Regarding the rates, that's appropriate. Today, in Mexico, we have a beautiful day. This is the first day that we can see very fine. In the last couple of weeks, this has been very foggy. Regretfully, the financial markets are still very foggy. So if I look at the bond market, the price doesn't look good. If I look at the credit market, the price looks very good and in my mind, holding for a bond shouldn't be much above [5.50] and in my mind, that's what I could wish, in the credit markets, the price is well below five and the world is well below five. Look at the price on last year financing with insurance companies --

I would like just to add to what Juan is saying that, as Juan is saying, we have a debt and equity committee which is very active and working hand-to-hand to management in order to find the best possible solution for this. Two good options that we have, two good options that we have is that, of course, I'm not saying that we want to close this in July, but the longer it takes, the less amount of double interest that we pay. So, that's a good point in a way. The other is remember that Vesta has the most modern portfolio of our peers, because every -- it has been developed and mostly recently.

So, by saying that even that we love flexibility and we are trying to build and increase flexibility, the cost of having secured debt, in our case, when we don't have the need to recycle properties as probably some of our peers, then, for us, we can also easily just take a secured debt if that's more convenient or if the bond market is not there or if the bond market is there, but it's higher than 100 basis points to what secured debt would be. So, I would say that we have the options. We would be working, we are concerned about what's happening in the market, but we do have options and as soon as we do something, we will, of course, let you know.

And the other question that I have is regarding the table that you provided in your press release about the developments that clearly under construction. Some developments, some of these buildings are expected to be completed in September this year, but they are already started. So I was wondering if you can explain the reason for estimating nine months or more than nine months for the construction of some of these buildings. Is this normal? Are you giving some cushion there in case of delays or is something changed since I think the guidance that you were providing not so long ago was six months construction time for building? Thanks.

Basically, Vanessa, you're referring to some buildings on the fixed pipeline on Queretaro. Vanessa, on our vision, we will and we have our commitment and we have the vision of building up 3 million square feet per year. That doesn't mean that we're going to build a hell of a lot of buildings just for the sake of it. We are very responsible and we plan to develop the buildings on a judicious basis.

We have reasons to believe that in the Queretaro market, there we have strong demand for our properties. And we're in the process of closing deals that will require us to have those buildings ready. We approved these buildings and that's [why we would have leased]. The September date for these particular buildings, what we call the (inaudible) have to do with the fact that we would like to establish the portfolio first, and then initiate the construction of these buildings second. However, we do have to have the initial dealer stages of these buildings up and ready for what we expect would be a fantastic deal. And that's why, as we started off that process, and we've started to deploy more amount of money in that particular building, we need to account for it and that's why we're telling you. However, we need to develop it slowly enough for the deal to happen.

Let me jump in a little bit in this question because that's more development. Development, Vanessa, as you remember, we have basically shared with you that construction takes six months. So doing by the math, you said, well, that wasn't much. But what doesn't tell you what happens before construction starts, we need to have investment committee approvals, we need to have the full designs, we need to have the engineering, we need to have the bidding process, we need to have the permits, and then we can start the building.

In this case, what we did was took all these buildings to our investment committee, so we got the approvals and in a couple of them, they said be very responsible and very disciplined, they said, for example, okay, as you do the approvals, do the bidding process, the land you will share, get the permits, get everything to go, but you will only start when I see that the other buildings that you have there is either partially or fully leased. So and maybe we have letters of intent but it is not the leasing time, so that's why we cannot do some announcement.

So we know that the process is linked to having discipline in the vacancy and the availability of new inventory buildings. But for the purpose of calculations, it is not that we are taking longer to deal, we're being the same with same efficiencies but having the discipline in occupancy that is responsible for these kind of business and these kind of risks.

Javier Gayol, GBM.

I have two questions. First one will be related on rental prices. We've seen a flattish performance throughout the year. I just wanted to get a sense from you guys what's been going on and how do you guys look at it going forward. And also, in your guidance for 2016, do you guys maintain rental prices or are you guys seeing any increase and also, if you could tell us on that matter as if this year with the FX exposure (inaudible), could you tell us if anything tenants have come forward and tried to renegotiate some of their contracts or whatever on that matter?

And my final question would be, in terms of the CapEx you guys provide on your press release, I understand that it's in pesos, but I just want to be clear on that because the investment hasn't changed. So I just want to know if I'm looking at this correctly, that would be very helpful.

Okay. Let me tackle the rents and FX exposure that the Company has. No, we have no request from costumers, no significant request from customers that would like to switch to a peso (technical difficulty). In fact, of all of our customers, only one wants to do it. And we were very clear that the deal will have, that we have will remain in dollars until its maturity which is 18 months from now. And they understand that and they are complying.

All of our leases that are in dollars are being paid in full, in time. Let me do the math. Roughly speaking, $80 million of revenue, rough number, 8% of dollar earnings, $64 million. On the cost side, around $30 million in debt service, interest and principal. The Company is actually [operationally around $30 million]. This number is bound to grow as we grow the GLA. This is a fantastic story and one that we surely would continue to underline. And if you look at my bad debt accounts, I have around $400,000 of bad debt accounts underlying all my clients pay in full, in time, in dollars. So, that's very good news.

So that's the FX. On the rental prices, rental prices remain very strong. We're not doing significant price concessions on rollovers of leases, on renewals of leases. You can look at that number on our MD&A and if you track that number historically, you will see that we're not making much concessions and that's very good. We see very solid rental prices in the markets we operate. Generally speaking, it doesn't worth our time to go market-by-market, but the general impression that I would like to give you is one of very solid prices throughout our portfolio.

In terms of CapEx, I'm not sure of what the sense of your question, but the plan of the Company is to continue to deploy around $135 million, $130 million per year. As the peso devaluation has happened, in fact, what we do have is a little bit of grading in the sense that rental prices remain strong in dollars with our target market with the type of clients that we are able to attract and the cost of our buildings are -- they remain mostly based in pesos on a significant portion of that. So, there is a slight pickup that we will have there. It is there for developers and Vesta being one of the prime developers, we do pickup that [slight tick] on the return and that's good news. I guess, that was the sense of your question.

Just to understand it, what I'm looking at it is the graph that you guys put out about the investments of the under-development projects. So, if I track that investment, for example, the S5 project, basically, the investment -- expected investment have not changed. So I'm just wondering, should I be changing it to peso denominated and then translating it to US dollars because, in that sense, I'm not giving -- if we didn't do that, [we are not] giving the Company that benefit that you just mentioned?

Well, there are two things that are going on. The cap rate, the development -- the cap rate on cost -- what we call the return on cost, those are going to be higher than what we thought, because at the same rental price in dollars with cost in pesos, you get a kick. Okay. So, it is what it is. Now the flip side of that is around my balance sheet, on my uses of fund, we do plan to invest $125 million per year but the pesos got smaller. So, we're deploying the same 3 million square feet but because the pesos got smaller, it's going to be tougher to get $125 million of deployment, isn't it? So, that's the flip side of the coin.

How do I look at it? The money is working at a faster pace. The key question is the return cost kick is going to be permanent? Well, [what are things] to find this level. So, I cannot tell you that this kick is going to be there forever. And yes, the deployment is going to be tougher on 130, 140, Alan's question, because of the pesos got smaller, but it is what it is.

I would like just to add and of course, this is -- there could be a lot of assumptions in this kind of question, Javier, but I want to tell you something. I would say that what is important is that to make sure that we are getting the kind of expected returns that we decided and that we have shared with our investor base. And that's why sometimes even reducing the rent price, we can get the same return on cost, because of lowering the cost because some of the devaluation impact whenever we have our dealing process.

And I think that assuming that we keep the same return on cost and that we were able to lower cost of construction in our bidding process in the deals that we'll develop this year. That means that the tenants will be more competitive and that makes a stronger case for Mexico manufacturing export base. So I would say that you should either -- either we get a higher return of cost than expected, if the market allows or we get the same return of cost and we give the benefit to the client and the client becomes more competitive, which is in the long run, very good for the country, for the industry and for Vesta.

Adrian Huerta, JP Morgan.

I just wanted to ask you, how you see the leasing activity overall for this year? Last year, you leased around little closer to 300,000 square meters. Are you expecting a similar number for this year? And if that is the case, in which regions you are respecting leasing activity to be stronger?

And then, you have explained already that you are more prudent on (inaudible) of new assets. When can we get announcements of new assets being built for, for 2017?

Okay. Related to leasing activity, the year's writing is very clear. Just think of Vesta as being able to lease, to do leasing activity for developing 3 million square feet and leasing activity for 3 million square feet. So that now talking about renewal and this comes to our organization and structure and remember that last year we separated the Asset Management formed the Regional Directors and I think that was a very strategic move for us, because that allows our Regional Directors to become Vice Presidents of new business regionally.

So they are just looking for new deals but while Asset Management have to do two jobs, doing maintenance or coordinating maintenance for the buildings and (inaudible). So, that has allowed not only to explore a venue as we did today, [in this year, in 2015, 91%] of the renewals of that year. But we went ahead to 2016. So we somehow have been ahead of the year, which has been very [tough] because that allowed us to get ahead also of the year by doing some 2017 renewals, especially in the second half of the year, that's what we expect. So think of, if we are able to just keep repeating what happened this year, I think that would wait to think about it.

And, Adrian, I want to mention that we really believe that transparency in reporting is keen. Please take a look at our package that, this is the first time we do this package with all this transparency and refer to page 11. We provided something that we call lease of the properties and we give you the percentage leased off in any given period. We intend to track -- we intend you to track our performance on leasing based on the (technical difficulty).

We appreciate that disclosure, Juan, that you guys are doing, It's really great and I hope the (technical difficulty) as well. And if I can just add again on the new GLA, so you have a capacity around 300,000 square meters of new leases last year. You currently have under construction around 170 million and you have around 100 million square meters that are not -- that are vacant at the moment. So, that gives you closer to 300 million. Does that mean, if you keep the same leasing activity that you had last year, that this year you will be adding half of the GLA that you added last year, which was around [300,000] square meters?

That hinges on the assumption that leasing activity would pick up. So, Adrian, let me tell you what we want to do. What we want to do is have a lot of build. Best addition in 2020 was we started very responsible, but that doesn't mean that we're going to plunge into the pool regardless of reality. Reality makes us responsible. If leasing activity of vacant space doesn't pick up, we will develop more slowly. I can claim excess cash in my balance sheet and I can have that higher conversation with you as we have had in the past or with any investors. And I will answer all your questions but what I cannot explain and what I cannot sit down in front of anyone is to tell you why we have, if that would be the case, a lot of empty buildings. That one is a tough one.

So, yes, Vesta, first and foremost, is a responsible company. The way we set up the disclosure is for you to track our responsible development. We said it up so that you know what is the development and you can ask the hard question, but we would like you to ask the hard question. We believe that we have not crossed into 20 million square feet by building (inaudible). We built a building because we know it can be leased relatively quickly. And because I don't want investors to have a shallow of a doubt that that's what you will do, we set off the reporting for you to keep track of our commitment to do just that.

Cecilia Jimenez, Santander.

Just two very quick questions. The first one is regarding -- a follow-up in guidance. For the 13% to 14% growth that you're expecting, when are you assuming the recent delivered properties are going to be leased? Is it going to be six months, nine months or what are you assuming?

And then the second question is regarding dollar-denominated rents, that used to be on the high '80s. Now we are in the low '80s. What should we expect going forward within the next, I don't know, two years to have that number around (multiple speakers) denominated rent should we see in the portfolio for the long run?

Your first question is, okay, the assumption that we do is that six months after completion date is when (inaudible) and we have not changed that assumption. And I think that we have explained today, we have very precise information of when we can expect that business to be completed and out of that, what assumption is we are taking, sometimes we can do that before and sometimes even faster, it takes a little longer, it's market by market and building by building. But of course, this is the same assumption that we have kept.

In the second question, it is not that we were close to 90, I would say that it was -- we were close to 75% in dollars in 2014 and the rest was pesos. But little by little, we have been phasing off a stronger base in terms of how much dollar denominated we have, and I would say that today we have like 82%, and I would say 82.5% to be precise and these are tough thing to get, but we feel very comfortable having [80% to 90%] peso-dollar proportions.

Okay, perfect. And just one follow-up, if I may, regarding the refinancing. You mentioned before that closer we get to the date, the less double interest you would pay which is correct, but also probably, you will have less move money over to negotiate with banks or other institutions. So when should we see or when should you feel comparable doing the refinancing actually taking place?

Look (technical difficulty). That's something that I don't particularly enjoy. So, yes, we won't wait until this is over. In my mind, we should refinance these sometime [late in April], that would be my gut feeling about.

I would say that if you go for vacation in Easter, [check your mail].

Okay, right. Thanks.

We wanted to have this done by January, if it was a bond deal. Of course, if unexpected happen, we are ready but on the other hand, we just went (technical difficulty) to have the full range of the window we have.

Thank you. We have no further questions at this time. I would like to turn the conference back over to Mr. Berho for any closing comments.

Okay. Thank you very much for participating in Vesta's Fourth Quarter and Full Year 2015 Conference Call. We look forward to speaking to you again when we release our first quarter 2016 results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Thank you and have a great day.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.