Earnings Call Transcript - VTMX Q1 2025

Operator, Operator

Greetings, ladies and gentlemen. Welcome to the Vesta First Quarter 2025 Earnings Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow today’s prepared remarks and as a reminder this call is being recorded. It is now my pleasure to introduce your host Fernanda Bettinger, Vesta’s Investor Relations Officer. Please go ahead.

Fernanda Bettinger, Investor Relations Officer

Good morning, everyone, and welcome to our review of Vesta’s first quarter earnings results. Presenting today with me is Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, our Chief Financial Officer. The earnings release detailing our first quarter 2025 results was released yesterday after market closure and is available on Vesta’s IR website, along with our supplemental package. It’s important to note that on today’s call, management’s remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, please review our public filings. Vesta assumes no obligation to update any forward-looking statements in the future. Additionally, note that all figures included herein were prepared in accordance with IFRS, which differs in certain significant respects from U.S. tax. All information should be read in conjunction with and is qualified in its entirety by reference to our financial statements including the notes thereto and are stated in U.S. dollars unless otherwise noted. I will now turn the call over to Lorenzo Berho.

Lorenzo Dominique Berho, CEO

Thank you, Fernanda. Good morning everyone and thank you for joining Vesta’s first quarter 2025 earnings call. Before we begin our review of Vesta’s results for the first quarter, I’d like to take a moment to reflect on the broader operating environment. As can be expected, uncertainty prevails. This volatility and ambiguity continue to shape and, in most instances, halt decision-making across industries and markets, particularly around long-term commitments during the quarter. Leasing activity has slowed in Mexico as it has in the U.S. and Europe. However, while market-wide absorption has essentially paused and new leasing decisions are being delayed, Vesta’s tenants are staying while we also gained new tenants in the first quarter of the year. Most of our clients have not altered their long-term plans despite trade-related headlines. Recent conversations we have had show that a substantial majority have not adjusted their investment outlook because of tariffs or regulatory risks. Vesta remains focused and disciplined. Our company has a demonstrated history of successfully weathering headwinds and the steps we have taken underscore our resilience not just in navigating through volatility, but adapting, reacting, and executing with clarity in uncertain times to emerge stronger. Vesta’s competitive advantages in the Mexican industrial real estate sector are rooted in a combination of strategic positioning, operational excellence, and long-term vision. Let me briefly reiterate these advantages, which are particularly relevant in today’s operating environment. First, the exceptional quality of our assets across strategic markets is a compelling differentiator with powerful client stickiness. Vesta has cultivated a diverse blue-chip tenant base with long-term dollar-based lease structures. This drives tenant retention with visibility into future cash flows. We are Mexico’s go-to partner for global firms entering or expanding in Mexico, and our company operates with prudent leverage, ample liquidity, and a track record of disciplined capital allocation. Finally, we have demonstrated our ability to be agile when needed and to be grounded in making decisions in both reaction and anticipation. We therefore view the current environment as one of opportunity. Companies like ours are uniquely positioned to take advantage of change by being close to our markets and close to our clients, which will drive renewals and leasing opportunities whenever the dust settles in reaction to new realities and in anticipation of demand. That combination of quality, agility, and discipline has served us well. Vesta delivers solid operational performance in the first quarter despite the macro backdrop. During the first quarter of 2025, Vesta focused on maturing leases and renewals, which has enabled us to mark-to-market rents and generate 11.5% trailing 12-month weighted average spread for the quarter, the highest since 2022. Some of these renewals have seen rental uplifts of over 20% and same-store NOI has increased by 4.3% year-over-year reflecting the strength of our tenant relationships and the quality of our portfolio. Total leasing activity for the first quarter reached $1.4 million, comprising 139,000 square feet of new contracts with three new tenants and 1.2 million square feet in lease renewals during the quarter, levels which we have sustained over the last two years. Our team is focused on expense discipline and cost control also in property management, which supported growth in both NOI and EBITDA, which reached 95.7% and 85.2%, respectively, during the quarter. Meanwhile, we are capitalizing on the current environment to leverage our strong balance sheet to pave the way for future growth. As you read in last night’s results press release, we made targeted and highly strategic new land acquisitions in Mexico City and Monterrey. Urban infill markets aligned with the Route 2030 strategy and particularly relevant for e-commerce and last-mile logistics, which remain among the most resilient sectors in our portfolio. We’re also making high conviction decisions to put our capital to work the best way possible to drive value for Vesta shareholders. At our March Annual Shareholders Meeting, Vesta shareholders approved a $150 million share buyback program. During the first quarter, we executed a major share buyback of 15.5 million shares or $36 million, taking advantage of the significant disconnect we’re seeing between our share price and the intrinsic value of our existing operating portfolio, which today is at 95% stabilized occupancy, with rents indexed to inflation, and the sustained growth, recurring income, and long-term maturity profile of Vesta’s portfolio. These share repurchases were made at an attractive entry point from a replacement cost, yield multiple, and net asset value perspective. I’d like to underscore that the shares we’re acquiring will be canceled, enabling us to opportunistically repurchase our shares at a considerable discount, returning value to our shareholders at a substantial discount to net asset value. As I noted, we have maintained one of the strongest balance sheets in the industry. Our loan to value ratio is 20.6% during the first quarter, one of the lowest ratios of the company following a $50 million debt repayment. That gives us the flexibility to invest when the time is right without sacrificing liquidity or financial stability. In short, we’re doing what resilient companies do: protecting downside, remaining patient, and putting capital to work where it drives the most long-term value. In closing, it’s a uniquely challenging and unpredictable environment. But Vesta has a long history of demonstrating our resilience; we adapt, we react, and we lead. During uncertain times we will remain focused on what’s in our control: disciplined capital allocation, tenant engagement, and strategic land banking building for the long-term. With that, let me turn our conversation over to Juan to discuss our financial results.

Juan Sottil, CFO

Thank you, Lorenzo. Good day everyone. Let me begin by summarizing our first quarter results starting with our top line. We have a solid start to the year with total revenues up 10.7% reaching $60.6 million, mainly due to rental revenues coming from new leases and inflationary adjustments on rental properties during the quarter. In terms of the current mix, 89.7% of our first quarter revenues was denominated in U.S. dollars, an increase from 87.8% from the first quarter of 2024. Regarding our profitability, adjusted net operating income increased 8.5% to $62.1 million, while the margin contracted 10 basis points to 95.7%. This was mainly due to higher costs during the quarter related to rental income-generating properties, including real estate taxes, insurance costs, maintenance, and other property-related expenses. Adjusted EBITDA reached $55 million in the first quarter, a 9.3% increase compared to the prior year’s quarter, and the margin increased 50 basis points to 85.2% primarily due to lower expenses relative to total income during the first quarter of 2025. Moreover, we maintain a strong focus on cost discipline to help sustain profitable growth. We closed the quarter with a pre-tax income of $28.6 million compared to $150.6 million in 2024. This decrease was mainly due to lower gains on revaluation of investment properties as well as reduced interest income due to a lower average cash position during the period. Vesta FFO excluding current tax increased to $45 million this quarter from $40.4 million in the first quarter of 2024, an 11.4% increase year-over-year. Moving to our capital structure and balance sheet, cash and cash equivalents stood at $49 million and our total debt decreased to $801 million as of the end of March 2025. Subsequent to quarter end in April 2025, we drew down $100 million from the $345 million syndicated loan secured in December 2024, further strengthening our financial position. With our net debt to EBITDA at 3.2 times and a historically low loan to value of 20.6% at the closing of the first quarter, we maintain significant financial flexibility to capitalize on future opportunities as market conditions improve. Given the dynamic environment, as Lorenzo described, we are taking decisive action to deploy capital in the best way possible to ensure the most significant shareholder return. Reiterating that Vesta’s shareholders approved a $150 million share buyback program. During the quarter, Vesta’s share repurchase program reached $36.4 million equivalent to 15.5 million shares. We remain committed to disciplined capital allocation, opportunistically buying back shares and investing selectively in land acquisitions that support our future growth, as Lorenzo has noted. Finally, and subsequent to the quarter’s end on April 15, 2025, we paid a cash dividend for the first quarter equivalent to $0.41 per ordinary share. This concludes our first quarter 2025 review. Operator, could you please open the floor for questions?

Operator, Operator

Absolutely. Ladies and gentlemen, we will now begin the Q&A session. Thank you. Your first question comes from the line of Pablo Ricalde with Itaú. Please go ahead.

Pablo Ricalde, Analyst

Hi, good morning, Vesta team. Thanks for taking my question. I have a question on the leasing activity we saw on the quarter as most of it was related to renewals. I don’t know what you’re seeing like April and May in terms of leasing activity. Should we expect once again most of the leasing activity to be renewals or are you seeing finally new tenants coming into your parks?

Lorenzo Dominique Berho, CEO

Hello, Pablo, thank you. Thank you very much for being on the call. Yes, we are seeing an uptick and an increase in activity coming from an increased pipeline and we believe and we expect that leasing activity for new leases and new tenants might pick up in the upcoming quarters. Having said that, it is important to mention that definitely the first quarter was a quarter of high uncertainty which made companies put their projects on pause or maybe just delay part of their decision-making. And for that reason, most of the projects that we have in the pipeline and we see in the market will materialize at a later stage. Having said that, I think that not only the value that we create is through leasing activity of new spaces, which we think will pick up, but also from the renewal activity that we see. And actually, we were very active with renewals and releasing of existing spaces with existing tenants and we were positively surprised with the long-term commitments that the companies are still making. Also on our ability to mark-to-market many of these rents and therefore have an increase in weighted average lease expirations as well as leasing spreads and rent spreads. So, all in all, we think it’s positive and sets up a positive trend for the upcoming quarters. Thank you, Pablo.

Pablo Ricalde, Analyst

Thanks. And one follow-up on that, can you remind us on your expiration curve for 2025?

Lorenzo Dominique Berho, CEO

Expirations for 2025 is in the low single digits. Let me try to be a little bit more specific. Give me one second. So we have 4.7% of total GLA will be expiring in 2025 still, so less than 5%.

Pablo Ricalde, Analyst

Thanks very much.

Lorenzo Dominique Berho, CEO

And maybe just to follow-up, and out of the total portfolio for 2026, which in many cases we try to anticipate those renewals and companies want to make commitments in advance. Those stand currently at approximately 10% which is also a very comfortable number. Maybe also to your question to follow-up too, I think that it’s important to mention that retention rate remains quite high above 80% which means that there is a high interest of companies not only to stay with us but also to have a continuation and even in some cases expand operations.

Pablo Ricalde, Analyst

Perfect.

Lorenzo Dominique Berho, CEO

Pleasure.

Operator, Operator

Your next question comes from the line of Rodolfo Ramos with Bradesco. Please go ahead.

Rodolfo Ramos, Analyst

Thank you Vesta team, for taking my question. I have a couple if I may. Can you give us a little bit more detail on this tenant engagement that you’re having and when do you expect to see occupancy stabilizing? Should we be looking at when the USMCA review is completed? I don’t know if how those tenant engagement discussions are going. And secondly, we now have the secondary legislation in terms of energy; there are some provisions that make it easier for solar panel installations and certain self-supply schemes. I was wondering if your development team across Mexico has brought up new ideas as a result of these new rules and regulations. Thank you.

Lorenzo Dominique Berho, CEO

Thank you, Rodolfo. And thank you for being on the call and for the questions. Well, first regarding tenant discussions, we have had very tight engagement with existing tenants. We have a broad base of high-quality tenants as well as potential tenants. As for the first ones, what we have perceived is that they have a high conviction on Mexico. The majority for many companies finds it very complicated to even analyze relocating their manufacturing facilities to other parts of the world. So, it’s basically companies analyzing the different scenarios and adapting to those scenarios so that they can continue to manufacture, produce, and integrate supply chains from Mexico. Other countries are facing challenges too. So sometimes we look in detail only into Mexico. But if we look in relative terms at what’s going on in other parts of the world, some of those countries that have had a manufacturing footprint too are facing even more challenges. So, with that in mind, I think that the ability of companies to be established in Mexico for many years is giving them an advantage. Hopefully, now that we start getting a bit more clarity on what the new rules in terms of trade and tariffs will be, companies will quickly start making decisions. As an example, we recently, right after some of the tariffs, I would say tariff releases and the tariff impacts were gone immediately, and we started seeing our pipeline increase of companies interested in analyzing further expansions and further space. Nevertheless, all of these companies are considering the uncertainties that we are still experiencing coming from the tariffs. I think that in the upcoming quarters, as the noise starts to dissipate, we’ll start to see more transactions. Regarding energy, we defined as part of our Route 2030 strategy, a plan where we can establish more energy coming from solar panels and sustainable energy. We are adapting to the new regulations and new laws which are beneficial for us. I think that soon throughout the year we will start to see more projects with solar panels and eventually have the objectives of Route 2030 being met. Thank you.

Rodolfo Ramos, Analyst

Thank you, Lorenzo.

Operator, Operator

Your next question comes from the line of Alejandra Obregon with Morgan Stanley. Please go ahead.

Alejandra Obregon, Analyst

Hi, good morning, Vesta team. Thank you for taking my question. I was sort of trying to get your pulse of things on the ground through your lens, if that’s possible. I am interested more in your existing portfolio as opposed to the new conversations and the new listings. So, if you can perhaps elaborate on how those conversations are going and more in particular, if you’re seeing any ecosystem or group within your tenants that is perhaps holding back more on the decision making, that could perhaps be thinking that they might be more affected on the tariff front directly or indirectly, and perhaps any other ecosystem that feels more comfortable, so to speak. Anything on the color of how tenants are behaving and your conversation with customers, that would be great. Thank you.

Lorenzo Dominique Berho, CEO

Great. Thank you, Alejandra, for your question. Yes, I think it’s very important to have that communication with tenants, and we’ve been having that to understand not only specifics of tenants but also to try to identify the trends in certain industries, in certain regions, and what might be the implications with new tariffs. Overall, we are very positive about what our type of clients are experiencing. First of all, in terms of the auto industry, it is very much integrated with the U.S. and we believe that all of them have identified their impacts either through exporting right now as most favored nation and including those tariffs as well as the ones that rely on USMCA tariff rules. Regardless of the scenario and the plan they’re using, we believe they have great long-term plans and they will be able to resolve all the tariffs issues depending on the type of production they have. So the auto industry, we believe is in good shape, particularly with the type of tenants we got. Remember that these are tenants that are either Tier 1 companies, many of them well established also in the U.S. or Tier 2 companies that have global footprints and great relationships, many of them being European or American companies, which have broader relationships with the OEM. So, in that regard, I think Mexico is in a favorable position, and the auto industry will continue to be competitive. Other industries are also quite strong. For example, the medical device industry, which also has a very good relationship with U.S. companies and U.S. demand, as well as other industries, of course, regarding logistics and e-commerce remember that Mercado Libre is now one of our main and most important tenants. For the structure of their business, we think that and we see that they will continue to grow as well as other e-commerce players. So all in all, we are very positive with the conversations we’ve been having. Everyone is trying to figure things out and solve issues. But remember that Vesta is very cautious on the type of clients we have. We revise carefully their origin. We revise carefully their track records. For that reason, that resilience will prevail not only in our portfolio with long-term leases, U.S. dollar leases, but also in the businesses of our own clients, which we think will prevail.

Alejandra Obregon, Analyst

Got you. That was very clear. And perhaps just an additional follow-up. Especially around the Bajio, have you seen any sort of new ecosystem building around the area? Perhaps any different sort of tenant, especially around Guadalajara? Anything that you think was not there before? And of course there are a lot of moving parts and uncertainties still. But anything that you think might be building perhaps towards a more value-add around IT, hardware, or another ecosystem around the Bajio?

Lorenzo Dominique Berho, CEO

Sure. So what we have seen is an increased demand from companies in the electronics sector and technology-based companies, most of them in Guadalajara. I think that particular ecosystem will continue to grow. Actually, that might happen not only in the Bajio but also particularly in markets like Ciudad Juarez, which has also had a strong track record of companies in the electronics sector. I think that will continue to grow, and that growth might actually be sharp. Many of these companies are clearly identifying themselves as global companies that are analyzing their alternatives and considering getting back to Mexico. Even though the first quarter was slow overall due to companies taking longer to make decisions, there are many companies analyzing in detail and considering expansions or new arrivals. So we will continue to see a big shift in certain regions and among certain industries, and I think that in the upcoming quarters, even for the rest of the year, there will be some positive signs. The Bajio will continue to be a good market for logistics, e-commerce, as well as the auto industry. Some existing clients are still making long-term commitments and considering Mexico as their main manufacturing platform for North America and to integrate their supply chains to the OEMs in North America.

Alejandra Obregon, Analyst

Thank you, Lorenzo. That was very clear.

Operator, Operator

Your next question comes from the line of Adrian Huerta with JPMorgan. Please go ahead.

Adrian Huerta, Analyst

Thank you. Hi everyone, thank you for taking my question. I have just two questions, Lorenzo. First, on everything that you have just said in terms of new clients, interest, etc. What would you say is the likelihood then of the greenfields that you have, let’s say in Monterrey, where you have two properties, they’re going to finish in April and another one in August? What is the likelihood of those properties to be leased this year already? That’s my first question. And the second question is we’ve seen a lot of activity on your land bank. Should we expect more still for the rest of the year?

Lorenzo Dominique Berho, CEO

Gracias, Adrian, and thank you for your questions. Well, from even from the last quarter and end of last year, we identified that clearly 2025 was going to be a slow year because of the uncertainty that we have perceived, and we have incorporated the scenario that the year will continue to be slow. We might get some positive news; however, our scenario suggested that the market would continue to be on the more conservative side, and I think that should be the approach. Nevertheless, the projects that we have under development are very high-quality buildings. I can even say that these will be the best buildings in Monterrey because of their sustainability attributes and quality standards. I’d be glad to have a tour whenever they’re done to see for yourself and compare. I think that these buildings will eventually be a very important part of many companies' decision-making in Monterrey. Monterrey is the largest industrial market in Mexico, and will continue to thrive. What may have happened in the first quarter, which was slow, doesn’t mean that it will be the same going forward. We feel comfortable that those buildings will be leased well with good companies, long-term leases, maintaining the quality and standard of lease agreements that Vesta has had in the past. We are considering some downturns for the development of spec buildings, but even with that, we think that these are very attractive returns on costs. We’re still developing at returns of above 10%, compared to stabilized assets that are still trading at between 6% and 7%. We believe that the spread is significant and definitely worth considering some downtime. But we will continue to have projects under development, and we anticipate that they will be able to lease up well. As for the new land acquisitions, we are very happy to have identified high-quality land parcels in Mexico City, Monterrey, Guadalajara, and Juarez. These locations will be key for the company’s growth, aligning with our Route 2030 strategy. Urban infill locations are highly sought after, particularly from e-commerce and logistic companies. Additionally, since these are urban infill with good proximity to labor pools, they could also become strong manufacturing and advanced manufacturing facilities. Overall, we believe that our strategy will pay off. We have high returns on the development front, and we are making good-quality land acquisitions, which I think will continue to add value to our portfolio. As mentioned by one of the previous questions, we must look at our existing Vesta portfolio, which is outstanding; it encompasses state-of-the-art facilities. Vesta has a remarkable portfolio of 43 million square feet with quality companies, and there is potential to generate further value through mark-to-market rent increases and occupancy growth. Ultimately, we will discuss growth further, as it will also be an important trigger for value creation for Vesta’s shareholders.

Adrian Huerta, Analyst

Understood, Lorenzo. Thank you.

Operator, Operator

Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Please go ahead.

Jorel Guilloty, Analyst

Good morning, everyone. Thank you for taking my question. I have two questions. The first one I wanted to get a sense of, you say you’re having plenty of conversations with potential tenants for your development pipeline. But I wanted to get a sense of whether you have a target of the type of tenant that you are seeking. For example, now you have a significant tenant. Are you leaning more towards becoming more logistics-focused? Are you looking to reduce exposure to autos? Are you looking to increase exposure to a certain type of industry? I just want to understand how much of this is push and pull—how much is your target versus what’s incoming? And then the second question is around inventory under construction in the North. I wanted to get a sense from you how you are seeing the growth of development pipelines in cities like Juarez, Tijuana, and Monterrey. Are you seeing these pipelines at an industry level decline, maintain, or increase? Any color you can provide on the industry level would be helpful. Thank you.

Lorenzo Dominique Berho, CEO

Great. Gracias. Thank you, Jorel for your question. To your first question, Vesta has done a great job diversifying its portfolio across industries so that we do not rely too heavily on one particular industry. I think right now the auto industry for Vesta is only about one quarter of the total portfolio, which is a very healthy number. We believe the portfolio going forward should continue to maintain this exposure in the auto industry, which will continue to thrive. I think that logistics and e-commerce is probably close to 50%, a little bit lower than 50%, but it will probably be around 50% or maybe higher going forward. So we have room to do more logistics and e-commerce, and then the rest is diversified across industries such as aerospace, medical devices, and electronics. We feel very comfortable with the diversification of Vesta. We are targeting industries in the regions where we are developing buildings, and we do our analysis to ascertain which are the thriving industries in each area. Therefore, our selection process for clients will continue to be consistent and has not changed because we have a well-diversified portfolio without material exposure to one single industry. What is crucial is that we maintain high-quality buildings with high credit rating tenants, long-term leases in U.S. dollars, and corporate guarantees, which will enable the company to be resilient in both favorable and challenging times. That’s what we have accomplished in the past, and that particular discipline will carry through for new leases and new clients in Vesta’s portfolio. Regarding pipelines, we’ve observed a slowdown in most markets, although not necessarily in Mexico City and markets like Guadalajara. Yes, there has been a slightly more observable slowdown in the north, which is understandable given the circumstances. On the positive side, we see that rents continue to increase or stabilize at high levels. Vacancies are moderate; in some cases, they have slightly increased, but in some markets, they have declined. Thus, we believe that as of today, the markets remain in a balanced state, even acknowledging that there could be a slower year of demand due to uncertainties, but certainly not putting too much pressure on the markets. This gives us a positve outlook but we will continue to carefully monitor the evolution of market fundamentals and real estate dynamics.

Operator, Operator

Your next question comes from the line of Gordon Lee with BTG. Please go ahead.

Gordon Lee, Analyst

Hi, good morning. Thank you very much for the call. Just one quick question, Lorenzo, on the land bank. I was wondering, you bought meaningful pieces of land in Monterrey and in Mexico City this year, more recently, obviously, during the period of uncertainty that you’ve described affecting your tenants. I was wondering whether that uncertainty is playing in your favor when you’re looking at land, whether that’s prompting sellers to become a little more motivated to sell, whether you’re seeing a bit of an adjustment in expectations of price, or whether it hasn’t filtered to that level yet. That would be question one on the land bank. The second would be given the short-term adjustment to your expectations, what’s the level of land bank that you would be comfortable finishing the year with? Thank you.

Lorenzo Dominique Berho, CEO

Great. Thank you for your question, Gordon. Yes, we have been quite careful with land acquisitions. We have been able to close some transactions, but we have also passed on some transactions as some landowners continue to ask for very high prices. However, there have been opportunities to close deals. I believe Vesta has done well in maintaining its credibility when it comes to dealing with uncertainties and closing transactions with landowners, which gives us a positive advantage to close the right land at the right price, and in doing so, we can continue to add value to our shareholders. That said, I think Vesta is currently in a very good position because our land bank is manageable, with low value and investment in land being minimal compared to total assets of the company. We believe that throughout the year, we will continue with land acquisitions, and while I can’t provide an exact number, I can assure you it will remain manageable compared to the company’s total assets. Vesta is prudent and disciplined about not overshooting in land acquisitions while still taking advantage of good transactions in a climate where competitors may be focused elsewhere. I believe these are good moments for companies with long-term plans to capitalize on opportunities, and I think Vesta is one of those companies, maintaining leadership in its regions.

Gordon Lee, Analyst

Perfect. Thank you very much.

Operator, Operator

Your next question comes from the line of Andres Aguirre with GBM. Please go ahead.

Andres Aguirre, Analyst

Hi, Lorenzo, thanks for the call and congrats on the results. Regarding land acquisition made during the quarter, do you plan to win many developments of these properties in the near-term, or maybe spend as part of your land usage for future projects? Thank you.

Lorenzo Dominique Berho, CEO

Excellent. Thank you very much for being on the call, Andres, and thank you for your question. That’s very important what you just asked, as Vesta’s approach is to first identify the markets where we want to be that align with our strategy. If we identify the land at the right price and in the right location, particularly urban infill, the acquisition will add value to our portfolio. We analyze every transaction and new building in detail in our investment committee. We thoroughly assess the current situation and analyze demand patterns, as well as how supply and competition might impact us. We are currently cautious and conservative; there’s no rush to go out and build. However, there’s always an opportunity to do significant internal planning and groundwork for projects. We can progress well and whenever we see demand picking up—either through build-to-suits or leasing up some of the spec buildings—we can begin new spec buildings. This has been the strategy for Vesta in the past, and it will continue to be implemented. We aim to operate with a balanced strategy of accelerating growth when needed while applying brakes when necessary. The investment committee pays close attention to market signals; when we observe certain market indicators improving, we might then start new projects.

Adrian Huerta, Analyst

Very clear. Thank you.

Operator, Operator

Your next question comes from the line of Francisco Suárez with Scotiabank. Please go ahead.

Francisco Suárez, Analyst

Thank you for the call. Precisely, on this question that Andres made about hitting the brakes or pushing the accelerator pedal. Do you think it is actually fair to state that in the future the overall mix of your development pipeline will be far more towards having Build to Suit rather than spec properties as it currently is? And the second question and actually a follow-up on one of Alexandra’s questions. It relates to this new ecosystem in Guadalajara. You have already been able to capture a lot of market share from Foxconn, and it has some pending deals with Nvidia in Mexico, making big moves in Mexico. Can you provide an update on what you see on the ground regarding Foxconn? Is it actually adding more exposure, or is it also one of the companies that is holding off on fully executing plans?

Lorenzo Dominique Berho, CEO

Gracias. Thank you for being on the call, Francisco, and for your questions. While I cannot speak specifically about our clients' plans, I can say that the electronics sector is increasing, and you’ve seen public announcements made by some companies. I believe that will continue. That’s an interesting sector where Vesta will continue to stay close and analyze opportunities for both Build to Suit as well as lease spec buildings that could turn into spec to suit. Our track record has shown good results in managing both strategies effectively. For now, we believe that engaging in Build to Suit projects is wise, particularly when we have quality land and the right improvements. When markets permit, we could also transition back to spec buildings. We will evaluate market conditions closely. While there were no new starts in the quarter, that doesn’t negate our ability to begin new spec buildings in markets with strong demand.

Francisco Suárez, Analyst

Got you. It seems that overall market dynamics in Guadalajara and Mexico are different and it allows you to be much more defensive with the spec properties, isn’t it?

Lorenzo Dominique Berho, CEO

Spec buildings have been key to our strategy. We have benefited from anticipating the market and maintaining high-quality flexible buildings for logistics, e-commerce, and light manufacturing with very high returns. This strategy has often paid off. Currently, we are navigating uncertain times, but when that uncertainty dissipates, we will evaluate when to resume spec development. You are correct; markets such as Mexico City have limited availability, rents are rising, and there's strong demand for e-commerce and logistics. Having spec buildings in Mexico City will continue to make sense. The recent spec building we developed in Punta Norte was a spec that turned into a Spec to Suit, which was pre-leased—a good example of our strategy. Thank you, Francisco.

Operator, Operator

Your next question comes from the line of Alan Macias with Bank of America. Please go ahead.

Alan Macias, Analyst

Hi. Good morning and thank you for the call. Just a quick question on share buybacks. Should we expect Vesta to continue to aggressively buy back shares at these levels during the next quarters? Thank you.

Juan Sottil, CFO

Alan, thank you for the call. We will be watching the markets, and whenever there’s an opportunity, we will buy aggressively on the stock. I cannot comment if these levels are the ones that we will operate on. But I will keep an eye, and if there’s an opportunity, the objective is to execute $150 million throughout the year when the opportunity arises. So we’ll be careful with the stock price.

Alan Macias, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Bernardo Malpica with Santander. Please go ahead.

Bernardo Malpica, Analyst

Hi, Loren. Hi, Juan. Thanks for taking my question. Just a quick one. You’ve mentioned this in general terms. I wanted to see if you could give us a bit more color in terms of dynamics or any metrics in terms of what you’ve been seeing in market rents that you see in Monterrey and Tijuana specifically and what your outlook is for this year in those two markets? Thank you so much.

Lorenzo Dominique Berho, CEO

Can you repeat the question a little bit again, please?

Juan Sottil, CFO

Closer to the mic.

Lorenzo Dominique Berho, CEO

Yes, closer to the mic. It took me some time to hear you.

Bernardo Malpica, Analyst

Yes, of course. I just wanted to know if you have more detail in terms of the market dynamics regarding occupancy and market rents in both Monterrey and Tijuana specifically?

Lorenzo Dominique Berho, CEO

Sure. Yes, I think that so vacancy rates in Monterrey stood in the first quarter close to 7%, which is in line with historic levels, slightly higher than last year, but still very healthy numbers. I believe Tijuana is around 8%. The first quarter was slow for both markets, and I believe this is due to the uncertainties affecting not only specific markets but overall the industrial market in Mexico, which has aligned with the trends observed in the U.S. and even Europe. This cloud of uncertainty driven by trade and tariffs affects the entire industrial sector globally. However, I must reiterate that vacancy rates in Mexico remain healthy, which is positive. Rent adjustments also continue to be favorable or stable at high levels. We have not seen material rent adjustments, which is good news.

Bernardo Malpica, Analyst

Perfect. Good to hear. Thanks so much, Lorenzo.

Lorenzo Dominique Berho, CEO

Gracias.

Operator, Operator

Your next question comes from the line of Armando Rodriguez with Signum Research. Go ahead.

Armando Rodriguez, Analyst

Hello, everyone. Thank you for the call and congratulations on the results. Just a follow-up on the previous questions. You recently drew down around $100 million of your credit line. So just wanted to know if this is related about – to the bank reserves that you are mentioning, or some opportunistic acquisitions, or it’s just maybe for your financial needs?

Lorenzo Dominique Berho, CEO

Working capital loss?

Juan Sottil, CFO

Look, yes.

Armando Rodriguez, Analyst

Yes.

Juan Sottil, CFO

Thank you. Thank you for the call. Thank you for the question. We established the line, as we mentioned last quarter, with an 18-month drawdown. We will draw down when cash needs arise for the company. The cash needs could be for planned acquisitions or various operational purposes. We will continue to draw from that line while I prefer to keep our balance sheet leverage low. So, we’ll draw down as needed. It depends on where CapEx is oriented—if it’s for share buybacks, land acquisition, or general working capital needs of the company.

Armando Rodriguez, Analyst

Okay. Perfect, Juan. Thank you very much.

Operator, Operator

As there are no further questions, I would now like to turn the call back over to Mr. Berho for his concluding remarks. Please go ahead.

Lorenzo Dominique Berho, CEO

Thank you, operator, and thank you. Thank you everyone for being on today’s call. We are very optimistic about the relationship between the U.S. and Mexico and we suspect that the second half of the year is likely to see a more active decision-making among tenants. Vesta will be ready with high-quality buildings in key corridors, a premium client base, a strong balance sheet, and the operational capability to respond quickly. I’d like to thank our employees, clients, partners, and our investors for your continuous confidence. We remain committed to transparency, disciplined execution, and building a stronger Vesta. Thank you.

Operator, Operator

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