Earnings Call Transcript - VTMX Q2 2025

Fernanda Bettinger Davo, Investor Relations Officer

Good morning, everyone, and welcome to our review of Vesta's second quarter earnings results. Presenting here with me is Lorenzo Dominique Berho, Chief Executive Officer; Juan Sottil, our Chief Financial Officer. The earnings release detailing our second quarter 2025 results was released yesterday after market close and is available on Vesta's IR website along with our supplemental package. It's important to note that on today's call, management 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. This assumes no obligation to update any forward-looking statements in the future. Additionally, note that all the figures were prepared in accordance with IFRS, which differs in certain significant respects from U.S. GAAP. 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 Carranza, CEO

Good morning and thank you for joining today's call. Speaking to you now at the midpoint of 2025, the macro volatility and related uncertainty that I have described in prior quarters has continued, defined by shifting trade dynamics, tariff vagueness, and muted investment decisions made by global corporations. The landscape we're navigating has been one of caution with softened new leasing momentum and tentative client decisions. Despite these pressures, Vesta's operating results again delivered resilient performance for the second quarter, grounded in disciplined execution that's tied to our long-term growth strategy. The current environment enables us to focus on extracting value from our core operations, noting that Vesta's portfolio ended the quarter at 95.5% stabilized occupancy with rents indexed to inflation and the sustained growth, recurring income, and long-term maturity profile of Vesta's high-quality portfolio. Let me walk you through some highlights for the second quarter. New leasing activity continues at a slower pace for our overall industry. Nevertheless, we ended the quarter with 1.8 million square feet of total leasing activity, including 411,000 square feet in new contracts with both existing and new tenants for Vesta. While this number is below Vesta's average as tenants remain in a wait-and-see mode, particularly those in export-linked markets, it reflects a sequential increase from first-quarter new leasing activity. Renewals and re-leasing activity was among the highest we have experienced in the first half of the year, which confirms the resilience of this portfolio despite current economic dynamics. In the second quarter 2025, we closed 1.4 million square feet with an average lease term of approximately 5 years. Our strong retention rates of 84% are a testament to Vesta's close tenant relationships and our team's proactive management. Importantly, we successfully continued to increase rents with some mark-to-market rent adjustments in the range of 20% to 30% as we bring legacy rents in line with current market levels. Our tracking 12-month spread for the second quarter reached 13.7%, another very important increase in our mark-to-market portfolio strategy. This uplift reflects not only the quality of our portfolio but also underscores the long-standing relationships we have built with our tenants who continue to choose Vesta as a long-term partner. To provide some additional color, during the second quarter, we completed Vesta Park Apodaca, buildings 6 and 7, which will enter the lease-up period, while Apodaca 8 remains under construction. We expect these premium buildings, both located in Monterrey, to be well positioned in this highly desirable location. Vesta's dual exposure to domestic consumption and global manufacturing is also a source of strength. We are focusing on completing existing projects and strategically expanding our land bank in line with Route 2030. Specifically, we acquired 128.4 acres in Guadalajara with a buildable area of 2.3 million square feet, strengthening our position in one of Mexico's key corridors. We also finalized the 20.2-acre acquisition in Monterrey, which we announced last quarter, adding another 450,000 square feet of buildable capacity in this critical northern market. Our approach, therefore, remains clear. We're focused on our long-term vision, managing our assets with discipline, and executing a strategy led by tenant retention, strategic positioning, and intrinsic value of our existing operating portfolio, which today is at 95.5% stabilized occupancy with rents indexed to inflation. For Vesta, this year's emphasis is reinforcing the strength of our foundation so we can scale confidently when the environment normalizes. That includes accelerating energy infrastructure planning, streamlining permitting, and ensuring our parks are positioned to meet the evolving tenant demand. Being ahead of the curve operationally is how we differentiate, especially in slower cycles. These principles have guided us through past cycles. And they continue to anchor our strategy as we position the company for future growth. Along these lines, as Juan will discuss shortly, we maintained discipline related to costs, achieving efficiencies in both operating and administrative expenses, which supported our margin performance and helped preserve capital strength. Our financial position remains solid with strong liquidity and conservative leverage. That gives us the optionality to move when the time is right. To reiterate, despite the volatility, we view the current slowdown in leasing as a temporary deceleration, not a structural change. Companies are exercising caution, not canceling plans. Importantly, our portfolio and operational model represents an important competitive advantage. Tenant diversification, strong market presence, and the flexibility we have based on our C corp structure. Critically, being a C Corp enables us to be uniquely agile, both when returning money to shareholders and reinvesting into the business without the rigidity of external distribution mandates. This flexibility has become a key advantage in an environment where patient strategic capital matters most. Recent deliveries of income-producing properties, pre-leased buildings, are expected to contribute to revenues in the second half of 2025, also with continued operating efficiencies, which would support full-year margins. Vesta, therefore, expects to achieve its stated 2025 guidance and remains focused on the company's Route 2030 long-term strategy while navigating the current uncertainty. In closing, 2025 is proving to be a transitional year for the sector marked by caution and extended decision cycles. But Vesta remains focused, grounded, and forward-looking. We have navigated through multiple cycles. And what has always set Vesta apart is our ability to stay disciplined, remain close to our tenants, and make smart long-term decisions even in the face of short-term uncertainty. Trade policy stabilization and continued manufacturing resilience all point to a more constructive environment for the years ahead and future negotiations will maintain Mexico in a solid position. Mexico is increasingly well positioned to benefit from industrial realignment, and Vesta intends to lead in that process. Let me turn our conversation over to Juan to review Vesta's financial results in more detail.

Juan Felipe Sottil Achutegui, CFO

Thank you, Lorenzo. Good day, everyone. Let me walk you through our second quarter results, starting with our top line. Total revenues were up 6.8% year-over-year, reaching $67 million, primarily driven by rental income from new leases and inflationary adjustments across our rental portfolio. In terms of the current mix, 89.4% of our second quarter rental revenues were denominated in U.S. dollars, an increase from 88% in the second quarter of 2024. On the profitability front, adjusted net operating income increased 7.2% to $61.8 million. Our adjusted NOI margin remained strong at 94.5%, down just 7 basis points from the prior year, reflecting a slight increase in costs related to rental income-generating properties, including real estate taxes, insurance, and other property-related expenses. Adjusted EBITDA came in at $55 million, a 9% increase year-over-year, emerging expansion of 137 basis points to 84.1%. This was largely due to tighter control over administrative expenses, underscoring our continuing focus on cost discipline. We closed the quarter with a pretax income of $54.5 million compared to $131.8 million in 2024. This decrease was mainly due to lower gains on the valuation of investment properties as well as reduced interest income due to a lower average cash position during the period. Vesta's FFO, excluding current tax, increased to $43.1 million this quarter from $38.2 million in the second quarter 2024, a 12.9% increase year-over-year. Turning to our capital structure, we ended the quarter with $65.2 million in cash and cash equivalents. Total debt increased to $900 million as of June 30, 2025, primarily reflecting the $100 million drawdown in April from the $345 million syndicated loan secured in December 2024. Our net debt to EBITDA stood at 4x and our loan-to-value ratio was 22.4%, maintaining a healthy leverage position. On capital allocation, as Lorenzo mentioned, we prioritize deploying capital towards completing ongoing development and acquiring land in our core market. During the quarter, we acquired 128.4 acres of land in Guadalajara, and we finalized the acquisition of 20.2 acres in Monterrey. These investments reflect our long-term vision, enhancing our strategic footprint and preparing us to meet future demand, as Lorenzo has mentioned. Finally, and also subsequent to the quarter's end, on July 15, 2025, we paid a cash dividend for the second quarter, equivalent to $0.38 per ordinary share. This concludes our second quarter 2025 review.

Operator, Operator

Your first question comes from the line of Juan Ponce with Bradesco BBI.

Juan Enrique Ponce Luiña, Analyst

If you can give us a sense of how you're seeing the development pipeline progress ahead of the USMCA review which we believe could unlock some pent-up demand in the issuing markets. And if you can tie your comment with what we're seeing per CBRE regarding rising vacancy in these northern markets but stable rent levels.

Lorenzo Dominique Berho Carranza, CEO

Thank you very much for your questions. Yes, we have seen that even that there has been an uptick in vacancy in some markets such as Tijuana, Ciudad Juarez, and Monterrey, we are positively surprised at how well rents have maintained. In some cases, rents have increased in the high single digits in some of these markets, which means that there is still pent-up demand that we believe that as long as we start seeing more clarity on those negotiations, we will continue to have a better momentum on the lease-up stage. On that regard, I think that Vesta has carefully selected the markets where we want to develop and anticipate for that pent-up demand, which will eventually get back and look for the best locations, the best assets. And we believe that the Vesta parks are incredibly well located. We have the infrastructure. We have energy, which is very important as a key advantage. And that's when we think that markets such as Tijuana, Ciudad Juarez, and even Monterrey will be a huge support of the leasing activity for Vesta. We currently have approximately 2 million square feet at a lease-up stage in different regions, and we see a pipeline building up. We currently have been cautious on new starts on development. And as we have always said, we like to accelerate when needed, push the brakes when needed, and drive carefully under short-term uncertainties, and we'll benefit in the longer term. Thank you.

Operator, Operator

Your next question comes from the line of Pablo Monsivais with Barclays.

Pablo Monsivais Mendoza, Analyst

If I'm doing my numbers correctly, perhaps by the third quarter of this year, you will have a little bit more than 1 million square feet to lease in Monterrey. However, this market has had the weakest net absorption since early 2024 compared to all main markets in Mexico. How confident are you that you can lease up these properties quickly? And how do you see Monterrey's competitive environment going forward?

Lorenzo Dominique Berho Carranza, CEO

First of all, regarding revenues, one of the interesting things about this year is that we have delivered several buildings in this quarter and last quarters that will start generating an important part of income in the second half of the year. We're talking about 1.8 million square feet approximately in places like Mexico City, Monterrey, Aguascalientes, and that's going to be a lot of income coming or starting to be generated in the second half. That's going to be very important for the year-over-year revenues for the company. And to your point on Monterrey, Monterrey has actually had one of the strongest net absorptions throughout 2025. According to CBRE numbers, they had more than 4 million square feet in the first half. This is definitely lower than previous years. But if we continue to see some positive net absorption in these markets and right now, when we are finishing new buildings, we think that we eventually are going to have some good companies taking up Vesta space, which, again, we think are the best parks in the region in the best locations, and we will benefit from having the best assets. Remember that in Monterrey, Vesta has zero vacancy, but the only ones that we have available are the ones that we have recently developed and have recently delivered or soon to be delivered. So we are very confident that Monterrey, being the largest market, with Vesta having the best presence, will be good assets to be marketed and leased up soon.

Operator, Operator

Your next question comes from the line of Piero Trotta with Citibank.

Piero Trotta, Analyst

I would like to know about the yield on cost on projects under construction. This yield on cost expanded 20 bps quarter-over-quarter to 10.8%. Can we expect this yield on cost to get higher going forward? And how do you see the construction cost scenario in Mexico? Hear from you would be great, thank you.

Lorenzo Dominique Berho Carranza, CEO

I'm sorry, I didn't understand the question. Which type of costs are you mentioning?

Piero Trotta, Analyst

The yield on cost on projects under construction, the development. The yield on cost of the second quarter was 10.8%, and I would like to know if it could get higher going forward and just an update on what you think about the construction costs in Mexico.

Lorenzo Dominique Berho Carranza, CEO

Okay, sorry, now I get it clear. It's the yield on cost. So frankly, we have very attractive yield on costs, which are above 10%. And that's a very important spread to stabilize assets. So even if sometimes depending on the project or the region, it could vary a little bit, but it's still in the double digits. And actually, in many of these markets, our objective is to get dollar leases. I think that what has been very remarkable is that recent transactions, and what I mean recent is as recent as this week, we have seen cap rates are still at very low levels with recent pricing of a new FIBRA pricing in the 7.5% range, FIBRA that generates mostly pesos. So if you think about it, being able to yield above 10% when stabilized assets in U.S. dollars are sub-7%, we believe that spread investment is still going to be key for developers like us and strategic for Vesta. So we think that those yields on costs will remain high and that will eventually benefit our development strategy vis-a-vis the acquisition strategy in lower cap rates. Secondly, we think that construction costs have somewhat remained at the same levels. There have been some minor adjustments on cement and steel. And what is also important is the FX. But still, with our estimated yield on cost, we believe there is a lot of value to be generated from the development approach. So we will be careful and cautious on when to develop and where because now more than the cost, what is important is that lease-up periods are still in place so that we can meet those returns. And if possible, in markets where we've seen rents increasing, of course, try to take that benefit and be able to increase returns as much as possible.

Operator, Operator

Your next question comes from the line of Pablo Ricalde with Itaú.

Pablo Ricalde Martinez, Analyst

I have a question on your balance sheet regarding land acquisitions. I believe you will continue doing land acquisitions in the second half. How should we think of leverage by year-end, thinking of a lower EBITDA in 2025?

Lorenzo Dominique Berho Carranza, CEO

I'm sorry, can you repeat your question on EBITDA?

Pablo Ricalde Martinez, Analyst

Yes, assuming that maybe EBITDA will reach the bottom end of your guidance, and you will continue doing land acquisitions. How should we think of leverage as the debt-to-EBITDA target by year-end?

Lorenzo Dominique Berho Carranza, CEO

Okay. So net debt to EBITDA, thank you. Thank you, Pablo. So we have done very important land acquisitions in the past. More recently, the land acquisition in Guadalajara and the one that we did in Monterrey. So we have, in the last, let's say, 12 months, been able to buy land in Mexico City, Ciudad Juarez, Monterrey, and Guadalajara. This is going to be very helpful for our 2030 strategy. We might still do a few more acquisitions in the second half. However, we think that we are lining up very well for the development that we will start having eventually from 2026 onwards for our Route 2030. Our net debt to EBITDA, I don't have the exact number, but we are currently at very, very healthy levels in terms of leverage, loan-to-value, and net debt to EBITDA, and we are very careful that even with the high capacity of leverage that the company has, we will be very mindful of the net debt-to-EBITDA ratios as well as loan-to-values so that they are not compromised. But I think that we are in a very attractive range. Maybe Juan or Fernanda, you have the exact numbers with you, but I don't think there will be a major increase.

Juan Felipe Sottil Achutegui, CFO

We have a very strong balance sheet. Currently, we have a net debt-to-EBITDA of 4x and a leverage ratio of 22.4%. We can easily sustain the land acquisition strategy that Lorenzo mentioned. I'm not particularly worried as we have ample credit lines available, allowing us to support the strategy outlined by Lorenzo at this time.

Operator, Operator

Your next question comes from the line of Antonio Hernandez with Actinver.

Antonio Hernandez Veleija, Analyst

Just a quick one regarding what you mentioned in the press release that you're seeing an increase in leasing activity pipeline and expecting an acceleration towards year-end. If you could provide more color on which markets you are seeing this? And how does this compare to your previous expectations?

Lorenzo Dominique Berho Carranza, CEO

Thank you. Well, first of all, I think that we all know that the start of the year was very slow when President Trump took office, and uncertainty was at its highest, together with volatility. Somewhat that has been lower in the recent months, particularly maybe right after Liberation Day. And as long as we continue to see more agreements in terms of tariffs between different countries in the U.S., we think that this will trigger more companies to eventually look back into their plans for investment in manufacturing facilities in the right places, and that's where Mexico might benefit. We have seen a spike in the number of visits to industrial parks in different regions: Tijuana, Monterrey, particularly Bajío, and also the request for proposals. So that's how we measure how much more pipeline or how much more activity we see. And that's how eventually, decisions are made based on an analysis, and this is a process, and this is a very important sign that companies are now looking back into their plans. Some of them were, let's say, paused or frozen out. But now we are seeing a material number of visits, and we hope that this will be helpful to be materialized in the next quarters – I'm sorry, in the next half of the year. But we are very close with the broker community as well as government authorities, our own tenants and trying to keep a very tight communication and to understand what their challenges are, what the opportunities. And with the information that we have been gathering from having that local presence, we feel confident that the second half of the year will have more activity in terms of leasing and things will somehow level up.

Operator, Operator

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

Wilfredo Jorel Guilloty, Analyst

I have two quick questions. One is on your leasing spreads. So we saw that there was a meaningful acceleration on a trailing 12-month basis; I believe it was above 13%, and it's at least the highest we've seen since you started publishing those numbers. I was wondering if you can comment on what are your expectations for leasing spreads going forward? And then the second question is around your development pipeline. And I apologize if you answered this earlier, but it remained unchanged, so no new starts were added. And so I want to understand a little bit about your framework and how you think about development starts. So is the view here that development starts should remain muted until you see a meaningful increase in the lease-up of your existing property? In other words, I just want to understand what would be a trigger to start launching starts again? Those are my questions.

Lorenzo Dominique Berho Carranza, CEO

Thank you for your questions. It's important to emphasize the resilience of Vesta's portfolio over these quarters. A strong indicator of this is the acceleration in renewal rates, as we have been adjusting many rents that are expiring or renewing ahead of time. We've seen rent increases of 20% to 30% in certain markets, and this trend is expected to continue in the coming quarters and years, unlocking significant value from our existing portfolio. We're also optimistic about our high retention rate, which is a positive sign not just for Vesta, but for the entire sector, as companies are committing to long-term leases and increasing rents. This situation is expected to persist. We are disciplined and proactive in negotiating with our current tenants. Regarding development, we will definitely initiate projects in markets where we are fully leased, such as Guadalajara, where we recently acquired land due to our strong pipeline and a robust market. The delay in starting new developments previously was due to the lack of land, but now we have that. We anticipate strong momentum in sectors like electronics, e-commerce, and logistics, which are critical for us. However, in other markets where we've recently developed properties, we will proceed cautiously, ensuring we lease our existing buildings before commencing new projects. This discipline has been part of our strategy in the past and will remain so. We aim to anticipate demand from existing clients, as most of our growth comes from them along with new companies entering the market.

Operator, Operator

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

Francisco Suarez, Analyst

I have a couple of questions regarding your land bank. Can you clarify whether the recent land purchases in Monterrey and Guadalajara are shovel-ready and if you have all the necessary permits? You mentioned that you are more likely to start construction soon in markets like Guadalajara, which I understand from your previous answer. Additionally, could you explain why energy-related revenues declined both sequentially and year-over-year?

Lorenzo Dominique Berho Carranza, CEO

Thank you, Francisco, for your question. Regarding your second question on energy, keep in mind that this operates as a pass-through mechanism tied to our tenants' usage. The income we generate generally aligns with the costs, so any fluctuations don’t significantly impact us since they are typically offset by equivalent amounts in costs. Concerning land acquisitions, we are very deliberate and selective about the types of land we purchase. We often acquire land that already has established use and some permits. However, there is always work and improvements needed, which can vary in scale. The recent land acquisitions align with our past practices where we complete the entire entitlement process and permitting before starting construction. While this process can take time, it is necessary for urbanization, earthworks, and infrastructure development. The land we have acquired is ready for imminent development, and we are pleased with these acquisitions and the opportunities they present. One acquisition is adjacent to the Guadalajara project, and the other will be a new project. The Monterrey site involves urban infill where we will eventually need to demolish an older building to construct a new one. This is part of the development process, and we are excited about the opportunities to acquire land at a better cost and create more value through these developments. These sites are particularly desirable.

Operator, Operator

Your next question comes from the line of Abraham Fuentes with Santander.

Abraham Fuentes Salinas, Analyst

I wonder if you could give us more color about the dynamics that you are seeing in Tijuana and Juarez in terms of absorption, vacancy, and rents, and how these trends could affect the performance of your portfolio going forward?

Lorenzo Dominique Berho Carranza, CEO

Tijuana has seen significant rent growth in recent cycles, prompting more development. There may be substantial construction activity in the upcoming quarters, but rents remain high. We believe the pipeline will start to pick up soon. Recently, we leased a few buildings in Tijuana to some of our existing tenants, indicating active adjustments among companies to their supply chains and production. The global tariff changes have also influenced production adjustments. We are observing this activity in markets like Tijuana. Ciudad Juarez has shown stable to positive rent growth, along with some positive net absorption. While there are buildings available, the most advantageous ones are those equipped with energy and utilities ready for companies to commence operations, which gives Vesta a significant edge. The second half of the year will be crucial to see how these active users finalize their decisions. We believe Vesta is well-positioned with quality assets in prime locations, allowing us to secure contracts with reputable companies as we have done previously.

Operator, Operator

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

Gordon Lee, Analyst

Just a couple of quick questions on thinking about your renewals over the next 18 months. I know that you mentioned in the release that roughly 5% of your leases will come due in the second half of the year. But I was wondering if you could remind us of what that number is for 2026. And what do you estimate the current gap in your stabilized portfolio to be between in-place rents and market rents?

Lorenzo Dominique Berho Carranza, CEO

Thank you, Gordon, for your questions. We currently have about 3% of total GLA expiring this year. We have high expectations due to a strong retention rate and believe we will be able to renew many of these leases. The 20% to 30% rent increases we witnessed for renewals this quarter are likely to persist in the second half. Moving into 2026, we expect to have less than 4 million square feet to renew. We are confident in our ability to bridge the gap between market rents and in-place rents, which will create substantial value. While I can't specify the exact figure for 2026, we anticipate that the upward trend in leasing and re-leasing activity will continue as rents remain high and some older buildings expire in the coming years. This will significantly help unlock value within the existing portfolio.

Gordon Lee, Analyst

And just to clarify, the 4 million square feet roughly that you mentioned for next year, is that GLA rolling over from your existing portfolio exclusively? Or are you also including the lease-up of new properties in that 4 million?

Lorenzo Dominique Berho Carranza, CEO

No, these are all properties that have a lease in place that is expiring next year. It doesn't contemplate the current vacant buildings. The vacant buildings are in the lease-up stage. That's different.

Operator, Operator

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

Alejandra Obregon Martinez, Analyst

Mine is perhaps a little bit on your priorities when it comes to regional footprint. I mean, as you put together all the new land that you have acquired with what you have in stock, which markets do you think have more room for new starts, of course, when the time is right? Like you mentioned Guadalajara, but what are sort of your priorities as you put together all the external and internal factors, like which markets have more room, which ones are up on your list? I mean, as you can think of growth in the future.

Lorenzo Dominique Berho Carranza, CEO

Thank you, Alejandra. First, our priority at Vesta is to fill our vacant spaces, as this will have an immediate impact on our revenue. We have a clear marketing strategy that will enable us to lease to reputable companies at competitive rates in markets like Monterrey, Ciudad Juarez, Querétaro, and Tijuana, where we have significant recent development activity. Currently, we are particularly focused on Mexico City and Guadalajara, where we have recently acquired land. When conditions improve, we will revisit other strategic markets for Vesta. For now, our main focus for the upcoming quarters is on leasing activity, and we will address development later on.

Operator, Operator

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

Armando Rodriguez, Analyst

Congratulations on the operational numbers. I have a quick question regarding your net income. Can you provide insight into how much of the adjustment in net income was influenced by the exchange rate? That's my question.

Lorenzo Dominique Berho Carranza, CEO

Juan, can you elaborate on that, please?

Juan Felipe Sottil Achutegui, CFO

Just to clarify, on my net income, what is the effect of the exchange rate?

Armando Rodriguez, Analyst

Yes. When we look at the net income for 2024, there was a notable change, especially regarding earnings per share. We experienced a significant adjustment in earnings per share, and I'm uncertain if this can be primarily attributed to the exchange rate or perhaps other financial factors.

Juan Felipe Sottil Achutegui, CFO

Well, let's go from the top. Remember that most of my properties are dollar-denominated properties, and we have actually increased that percentage in this particular quarter. Going down the income statement, most of our costs are peso-related. And as the peso has appreciated, we have some pressure on margins, I guess. However, on the bottom line that you're referring to, most of the impact comes from the financial numbers, in particular, the loss that we had on revaluation of properties, which is a non-cash item. However, on my bottom line, it does have an impact, which is why we emphasize pretax FFO. So that's why the company has also emphasized that instead of looking at earnings per share, we should focus on pretax FFO because that doesn't suffer the impacts of the revaluation, which are volatile in nature.

Operator, Operator

Your next question comes from the line of GBM.

Unidentified Analyst, Analyst

First of all, congratulations on your results. On my behalf, we have two questions. The first one would be with the nearly 120,000 square meters of inventory projects scheduled to deliver in August, could you provide more color on the expected leasing activity or financial impact in the second half of the year? And in another subject, with the operating cost up 5.3% compared to last year, mainly from taxes and insurance, do you see pressure in the second half of the year or some relief ahead?

Lorenzo Dominique Berho Carranza, CEO

Maybe to the first question, and then Juan, you can elaborate on the second one. We have the pipeline that we have under construction, which is basically projects in Querétaro and Monterrey that will be delivered in the next half of the year. We expect leasing activity to be between 3 months to 12 months, and that's kind of how we do the underwriting. We think that these will be high-quality assets, and once the buildings are delivered, they will be very attractive to be leased up and the marketing strategy is supported by bringing visits, taking clients, potential clients, and we feel comfortable with that underwriting assumption.

Juan Felipe Sottil Achutegui, CFO

On the cost side, I think that as Lorenzo has emphasized, we're focusing on cost control. I think that we have been particularly successful this quarter and in fact, this first semester, controlling costs. On the quarter itself, increases in cost around 4.8%. Well, look, I think that we will maintain the discipline. We will meet our guidance in EBITDA and property costs as well. We have been quite conscious of them, and we have been containing them as much as possible. So I feel very comfortable with the cost structure of the company. We will continue to focus on savings, and we will be – in the second half of the year, I expect to have the same discipline.

Operator, Operator

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

Alan Macias, Analyst

Just if you can remind us of your exposure to manufacturing and to logistics and to e-commerce. And five years down the line, are you planning to have this breakdown change?

Lorenzo Dominique Berho Carranza, CEO

Thank you for your questions. We have developed a long-term strategy to balance our light manufacturing and logistics operations. Currently, we are approximately 55% manufacturing and 45% logistics, with e-commerce being a growing part of logistics. We feel confident that we will maintain this half-and-half split as both sectors are expected to thrive. The facilities we develop are designed to be flexible enough to support logistics, e-commerce, and light manufacturing, which is crucial to our portfolio strategy. It is also important to highlight not just the sectors but the caliber of companies we partner with. We maintain long-term leases with reputable companies and are selective in choosing global tenants with strong corporate guarantees and high credit ratings, which is vital. Additionally, we focus heavily on having a high proportion of dollar-denominated leases, which we believe is essential for Vesta. We expect the dollar to retain more value than the peso in the long term, and financing costs in dollars are more competitive, allowing us to achieve attractive spreads. This disciplined approach is crucial, and we will continue to maintain a well-balanced portfolio.

Operator, Operator

Your next question comes from the line of Octavio Arias with Signum.

Unidentified Analyst, Analyst

This is from Signum Research. I have two questions. The first one is, as the market evolves, are you considering more vertical integrations to better serve tenants and capture more value? And have you seen any new or specific demand from tenants lately in the sector?

Lorenzo Dominique Berho Carranza, CEO

Can you elaborate more on vertical integration?

Unidentified Analyst, Analyst

Yes, yes, like in-house projects or energy solutions for tenants?

Lorenzo Dominique Berho Carranza, CEO

Sure. Well, I think that Vesta – one of the key differentiators that we have to other vehicles is that we are vertically integrated. We have the development platform in-house. We do not have external parties doing development or doing other things. However – and that is something that we have highlighted over the years that we have a particular vertical integration in the structure. I think that the only other items that we might – that we are considering are some services like renewable energies or solar panels and those sorts of things, which are very important. But we also already have several of those features in our projects. In the end, what we want to do is to serve better our tenants and make sure that we are enablers for them in all the real estate aspects needed, energy being one of them, some of the property management that we do for them. And I think that, that's why in this particular situation, it's key to have a closer relationship with tenants and try to have the best service as possible as needed. So we will continue to evaluate alternatives that help us provide that service.

Unidentified Analyst, Analyst

My second question is with the current stabilized occupancy; is there any interest in asset recycling or divesting mature properties to fund growth in your view?

Lorenzo Dominique Berho Carranza, CEO

Yes, that's a good point. We might have some asset recycling. It's part of the long-term strategy. We'll do it every now and then. And at the moment, I think that the key priority is to lease up the lease-up properties, the vacant space, or the project that we have recently developed. But every now and then, we will continue to do some asset dispositions, too.

Operator, Operator

And it seems that we have no further questions for today. I would now like to turn the call over to Mr. Berho for his concluding remarks. Please go ahead, sir.

Lorenzo Dominique Berho Carranza, CEO

Thank you, and thank you, everyone, for joining us today. As we have noted, Vesta's strategy is focused on protecting value, strengthening our base, and preparing for what comes next. Our platform is healthy, our assets are well positioned, and our team is aligned around execution. We continue to move forward with our 2030 strategy, supported by a flexible capital structure, a resilient portfolio, and a clear view of long-term value. Thank you all.

Operator, Operator

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