Earnings Call Transcript - VTMX Q4 2025

Operator, Operator

Greetings, ladies and gentlemen. Welcome to the Vesta Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Investor Relations Officer.

Fernanda Bettinger, Investor Relations Officer

Good morning, everyone, and welcome to our review of the fourth quarter 2025 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 fourth quarter 2025 results was released yesterday after the market closed 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. Vesta assumes no obligation to update any forward-looking statements in the future. Additionally, note that all 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'll now turn the call over to Lorenzo Berho.

Lorenzo Dominique Berho Carranza, CEO

Good morning, everyone, and thank you for joining us. 2025 was a year of disciplined execution and strategic positioning for Vesta. We strengthened our platform, advanced Route 2030 on schedule, and made decisive decisions, which enabled Vesta to capture what we believe will be a powerful demand cycle beginning in 2026 and accelerating into 2027. Early in the year, uncertainty slowed decision-making, but we stayed focused on operational discipline. During the year, our conviction to opportunistically deepen Vesta's presence in Mexico's most dynamic markets, specifically Mexico City, Guadalajara, and Monterrey, has proven decisive. The strategic steps we implemented throughout 2025 have materially strengthened Vesta's portfolio and positioned us to outperform. Throughout this transition, our focus did not change. We remain disciplined in capital allocation, selective in development, and stay close to our clients while adapting with agility to capture unique opportunities as market conditions evolve. This defines Vesta, long-term strategic clarity with the operational flexibility required to perform across cycles. We're not building for one quarter; we're building for the long term. In 2025, we set our sights on the next cycle with improved visibility by the end of 2025. We're seeing momentum return, particularly in the second half when leasing activity accelerated. We saw roughly 1.4 million square feet in new leasing during the second half of the year compared to 0.5 million square feet during the first semester. This reinforces our view that the market has likely reached a turning point. Vesta also delivered solid financial results for the full year 2025, which Juan will touch upon in more detail. We exceeded guidance with rental revenues increasing 11.8% to reach $274 million, while adjusted full year 2025 NOI margin reached 94.8% and adjusted EBITDA margin reached 84.4%. Vesta FFO totaled $174.9 million in 2025, a 9.2% year-on-year increase. Let me share an overview of leasing and portfolio fundamentals in 2025. As I noted, leasing activity strengthened substantially in the second half of the year. Full year leasing activity reached 6.9 million square feet with a weighted average lease term of 7 years, which includes 1.9 million square feet in new leases and $5.0 million in lease renewals, representing the highest level of renewals recorded over the last 3 years. During 2025, renewals and re-leasing activity reached 5.4 million square feet with a trailing 12-month weighted average leasing spread of 10.8%. Importantly, manufacturing returned with conviction in 2025. Sixty-eight percent of Vesta's new leases were manufacturing-related, with electronics leading this activity. I have commented previously that Mexico has overtaken China as the largest exporter of electrical and electronic equipment to the United States, and we are seeing that reflected directly in our leasing pipeline. This represents a notable shift from prior years when e-commerce was the dominant driver. Today, we're benefiting from dual engines of demand: the resilient logistics and e-commerce space, combined with a powerful resurgence in advanced manufacturing. AI-driven infrastructure is becoming an important structural demand driver for Vesta. Data center expansions in the U.S. have translated into real manufacturing demand for related peripheral equipment. This includes producers of HVAC systems, racking, tabling, and microchip-related assembly. Guadalajara continues to benefit from these structural trends with sustained demand from global manufacturing tenants. Existing clients, including Foxconn, are actively expanding their footprint, reinforcing the market's strategic importance within our portfolio. From a development standpoint, we invested approximately $330 million in projects during the year on a cash flow basis. These investments are directly aligned with our Route 2030 strategy and our focus on high conviction markets where we see sustained absorption. Turning to our fourth quarter results, leasing activity reached 1.9 million square feet, including 770,000 square feet of new leases with both existing and new Vesta tenants across the electronics, aerospace, and automotive sectors, reflecting the improving market dynamics I discussed. Lease renewals totaled 1.2 million square feet with a weighted average lease term of approximately 5 years. Total portfolio occupancy stood at 89.7% at quarter-end, while stabilized and same-store occupancy reached 93.6% and 95%, respectively. We began construction on two new buildings during the quarter, one inventory building in Guadalajara and one build-to-suit in Queretaro. We ended the quarter with 800,000 square feet under construction with an estimated investment of approximately $60 million and an expected yield on cost of 9.9%. Let me walk you through leasing momentum and share insight on market dynamics across our regions. Occupancy moderated in certain submarkets due to normal tenant rotation and isolated shutdowns during the year. This is not a structural shift. It's part of the normal rotation of tenants in a dynamic market. Vacancy levels remain healthy, and we're already seeing strong backfill activity, including assets with multiple bidders. The Monterrey market continues to stand out with leasing momentum building in this high-demand market, and we expect a continued increase during 2026. Vesta Park Apodaca, which was completed in the third quarter of this year, is now in active marketing. Three state-of-the-art buildings are drawing strong interest, particularly from advanced manufacturing and logistics tenants. And as a related update, the Vesta Park Apodaca Building 8 was awarded first place in the GRI Global Awards 2025 Industrial & Logistics Project of the Year category. The award is considered one of the global real estate industry's highest distinctions, recognizing the most visionary projects and companies worldwide for excellence in design, sustainability, innovation, and contribution to the urban environment. Also in Monterrey, infrastructure is scheduled to begin in the first half of 2026 on the 330 acres we acquired in the high-demand Airport Highway corridor as announced in October. Ciudad Juarez reached what we described last quarter as an inflection point. Activity has strengthened, and interest from electronics and supply chain integration tenants is robust. This market experienced the cyclical adjustments throughout 2025 that I described, but the fundamentals remain intact. Tijuana has stabilized, and we are seeing constructive tenant dialogue, including notable leasing activity with global companies during the fourth quarter. It's important to mention we continue seeing rents increasing across our markets, supported by disciplined supply. Guadalajara remains a structural leader for Vesta, and we are seeing a growing number of high-tech electronics companies seeking large-scale projects. Many are leveraging the strong ecosystem that has developed in the region, including specialized talent, established supply chains, and existing industry clusters. This continued momentum reinforces Guadalajara's position as the leading technology and advanced manufacturing hub in Mexico, often referred to as the Silicon Valley of Mexico. Guadalajara also benefits from the manufacturing support of data centers and AI demand, which I have described. Mexico City continues to benefit from its scale, consumption base, and logistics importance. We're actively engaged in discussions with major players, particularly in the logistics sector. Our project in the Vesta Park Punta Norte is ramping up to become the largest cross-docking operation in Latin America for all e-commerce players in the region. Turning to capital allocation, in 2025, we secured strategic land positions at attractive terms during periods of market uncertainty. These acquisitions will support the next four years of Route 2030 execution. We are two years into our six-year Route 2030 plan and are ahead of schedule in terms of capital deployment. That said, Vesta's growth will continue to be prudent and measured. As always, our development pace in 2026 will be calibrated carefully to demand and absorption levels in each market. We're clearly optimistic, but we remain disciplined. Protecting long-term returns is not negotiable. Our balance sheet remains strong, liquidity is solid, and leverage metrics are trending as expected. In closing, 2025 marked a transition year. While the environment required patience early on, the broader macro backdrop is increasingly constructive as we look toward a renewed acceleration in demand. Mexico's fundamentals remain compelling. According to preliminary data from INEGI, exports grew 7.6% year-over-year to approximately $664.8 billion, marking a second consecutive year in which trade served as a key engine of economic growth. Meanwhile, imports also reached record levels, rising 4.4% to over $664 billion. These figures underscore the scale, depth, and resilience of Mexico's integration within North American supply chains. Despite uncertainty, this integration into North American trade flows supports sustained export momentum into the U.S., validating Mexico's role as a strategic manufacturing and logistics hub. Top-tier global companies continue to view Mexico as a critical platform for serving North American demand. Foreign direct investment and exports reached record levels in 2025, while cumulative foreign direct investment inflows through the third quarter were running 10.9% above full year 2024, reinforcing the structural drivers of growth that underpin Mexico in general and Vesta's market in particular. Setting our Route 2030 strategy in 2024 and executing with precision in 2025 has been fundamental to positioning Vesta for 2026 and beyond. We're beginning to see the benefits of those decisions translate into stronger fundamentals, and we are confident that this momentum will continue to drive growth, underpinned by structural tailwinds, reinforcing our confidence in the long-term opportunity ahead. Our optimism is grounded in discipline. Even in the context of high occupancy and solid demand, we remain rigorous in how we allocate capital and underwrite new developments. We are closely monitoring supply pipelines and vacancy trends in each of our core markets, ensuring that growth remains balanced and value accretive. With that, let me pass the conversation to Juan.

Juan Felipe Sottil Achuttegui, CFO

Thank you, Lorenzo. Good day, everyone. Vesta closed the year with very solid financial results, as Lorenzo noted. Our total rental income increased to $283.2 million, while rental revenues reached $273.6 million, an 11.8% year-on-year increase and exceeding the upper end of our full year revenue guidance of 10% to 11%. Adjusted NOI margin exceeded our revised guidance of 94.5%, reaching 94.8%, while adjusted EBITDA margin was in line with our guidance at 84.4%. Vesta's FFO ended 2025 at $174.9 million, a 9.2% increase compared to $160.1 million in 2024. Now let me walk you through our fourth quarter results. Starting with our top line, total revenues were up 17.2% year-over-year, reaching $76.4 million, primarily driven by rental income from new leases and inflationary adjustments across our rental portfolio. As for our current mix, 89.9% of our fourth quarter 2025 rental revenues were denominated in U.S. dollars, up from 88.7% in the fourth quarter 2024. Turning to profitability, adjusted net operating income increased 17.2% to $69.4 million. Our adjusted NOI margin remained strong at 94.6%, up 88 basis points from the prior year, reflecting higher revenue growth with stable cost. Adjusted EBITDA totaled $61.1 million, an 18.2% increase year-over-year with a margin expansion of 155 basis points to 83.3%, driven by a lower proportion of administrative expenses relative to revenue during the fourth quarter 2025. Vesta's FFO excluding current tax was $39.3 million compared to $41.1 million in the fourth quarter 2024. The decrease was primarily due to higher interest expense in the fourth quarter of 2025 compared to the same period of 2024. We closed the quarter with pretax income of $98.5 million compared to $81.2 million in 2024. This increase was primarily due to higher gains on the revaluation of investment properties, as well as a positive variance in exchange gains and higher interest income. This was partially offset by higher interest expense, reflecting the increase in debt balance during the period. Turning to our capital structure and balance sheet. We ended the year with $337 million in cash and cash equivalents and total debt of $1.28 billion. Net debt-to-EBITDA was 4.4x, and our loan-to-value ratio was 28.1%. Subsequent to quarter's end in February, we prepaid the remaining Metlife III facility of $118 million. This repayment leaves us with no secured debt, enhancing our financial flexibility and completing our transition to a fully unsecured capital structure. In terms of capital allocation, during 2025, we strengthened our land reserves, positioning us well to capture future development opportunities, as Lorenzo discussed. Looking ahead, we will maintain our disciplined investment approach, deploying capital selectively in markets where we see strong demand fundamentals. Our share repurchase program also remains a key pillar of our capital allocation strategy. We will continue to execute opportunistically as we have done successfully in the past, with the objective of maximizing long-term shareholder value. Moreover, consistent with our balanced capital allocation approach, on January 15, 2026, we paid a cash dividend for the fourth quarter of $0.38 per ordinary share. Finally, I would like to discuss the outlook for the year. We expect to increase rental revenues between 10% to 11% year-on-year, while we expect to achieve a 93.5% adjusted NOI margin and an 83% adjusted EBITDA margin for the full year 2026. This concludes our fourth quarter 2025 review. Operator, could you please open the floor for questions.

Operator, Operator

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

Juan Ponce, Analyst

It was interesting to see that 86% of 2025 leases were manufacturing related, which seems to be imperative. So in a scenario where the USMCA review does not reach an agreement in 2026 and transitions into annual reviews, how resilient is your current development pipeline under that environment? And specifically, how confident are you in leasing ongoing projects in Guadalajara and Queretaro if trade visibility becomes more limited?

Lorenzo Dominique Berho Carranza, CEO

Juan, thank you very much for being on today's call. Well, we have experienced uncertainty regarding trade for the last years. And that has been not only seen in industries like ours, but also other corporates, in other industries and even in other regions of the world facing similar challenges, whereas the global manufacturing footprint is adjusting and adapting. We believe that Mexico has invested for many years, maybe since NAFTA, to establish a more integrated supply chain in North America together with the U.S. and Canada. In the end, I think that will continue thriving on top of whatever negotiations might take place regarding revisions of the USMCA, in different scenarios. I think it's more about the strong supplier base that Mexico has for different manufacturing industries and how important and how well linked it is to the U.S. Guadalajara is an excellent example of how the electronics sector has evolved and been growing rapidly, and it's actually a good signal of how the global manufacturing footprint for electronics is moving. For that reason, we are very optimistic. That's why we started new buildings. We have a strong pipeline building up in Guadalajara, and we actually acquired more land for future projects. So we're confident in this long-term investment. Many of these global companies continue to have strong bets on Mexico. Very similar to Queretaro, where we have seen, in this case, the auto sector very active in renewals and also looking for new space. Aerospace sector, a similar case where many European companies have established long-term operations. We just expanded another operation with the Safran Group out of France, which is another important case and good signal of how committed global companies are to Mexico. On the lease-up stage, we're confident that there is a stronger pipeline. We have available space in Monterrey, for example, where we have developed the last buildings of the Apodaca project, and the pipeline is building up well across different industries, logistics, e-commerce, and manufacturing. I'm pretty sure that 2026 is going to be a very successful year, and leasing will continue the same trend that we have seen, particularly in the last half of 2025.

Operator, Operator

Next question comes from the line of Andre Mazini.

André Mazini, Analyst

Two questions. The first one on leasing in recently completed development projects. How much was executed in the quarter and in the year? And how much is baked into 2026? So another way of asking, what's the occupancy of the stuff to deliver in 2025 you expect in 2026? The second one is about the huge land bank acquisition in Monterrey. Almost no land there last quarter. Now it's the biggest single region, right, in which you guys have land. Is that land all paid in cash? Is it paid in cash and land swaps as well in which the landowners end up having a portion of the project? So how is the payment, the consideration there for this huge land bank acquisition that you had in Monterrey? And congrats for that acquisition.

Lorenzo Dominique Berho Carranza, CEO

Andre, thank you very much for being on the call. I will start with your second question. Yes, last quarter, we were able to buy after a long negotiation a strategic land parcel. This is in the Apodaca corridor right next to the airport. The initial phase is 330 acres. This matches perfectly with our long-term strategy in what we believe is the largest industrial market in Mexico where we will continue to grow. Most of the capital deployment towards 2030 will be Monterrey, and this will be a cornerstone project for the 2030 Route. The Apodaca corridor has been fantastic for companies in the e-commerce sector. It's a great logistic corridor, and also manufacturing continues to expand in the area. The area has good access to the main corridors towards the U.S., good access to the city, and it has a good infrastructure in terms of energy, which is very helpful. The only thing we can say about the transaction is that the payment was not done all at once. We got seller financing, which is helpful for a development project and the whole development process. Eventually, we also have conditions to extend the land for a second phase. So we're very excited, and we will be more than happy to welcome you soon when we kick off the construction of this new site. Regarding your first question on leasing, remember that our main focus is stabilized portfolio occupancy, which currently stands at 93.8%, which is a little bit lower than 95%. Definitely, the occupancy number is a little bit lower than before; we were coming from record high numbers. But what we feel confident about is that most of our buildings are actually brand new, and we have seen that demand interest coming from outstanding companies. So we're very happy that the buildings are there and that demand is coming along. Queretaro and Monterrey will be very successful projects, and we're confident that they will lease up well throughout 2026. It's important to remind you that our growth comes with existing clients so we're in close contact with them to be able to grow with them. We are committed to working with outstanding companies, maintaining a disciplined approach to leasing.

Operator, Operator

Question comes from the line of Jorel Guilloty of Goldman Sachs.

Wilfredo Jorel Guilloty, Analyst

I have two. So first one on your guidance. I just wanted to get a sense of what the occupancy expectations are embedded in this guidance. And also if it envisions any more development launches going forward? The second question, I'm sorry if you answered this earlier, I wanted to get a sense of the income tax expense for the quarter. It was around $36 million or so if I remember correctly. I wanted to understand what drove this and what we should expect tax-wise going forward?

Juan Felipe Sottil Achuttegui, CFO

Sure. Let me answer the second one briefly. It is related to the appreciation of the peso. As you know, that generates some significant profit from our debt, which is incurred in dollars, and that accounts for most of the income tax impact that we saw on the income statement. As the peso stabilizes, starting with a very low peso-dollar exchange rate closed at the end of the year, I think that will be eliminated in 2026. As for the first question?

Lorenzo Dominique Berho Carranza, CEO

Sure. We don't give any guidance on occupancy numbers, Jorel. However, if you see the trend on the occupancy over the last year, and having an understanding of the lease-up activity, we think that even if it is a lower number, we are confident that, that number will somehow pick up throughout the year. We think it's a healthy number and understand that we're a development company and we have a strong stabilized portfolio that generates important income. However, we have anticipated with good buildings on a spec basis that I'm confident we will continue leasing up throughout the year and that occupancy will improve. We have experienced cycles like this one, and we have outperformed by anticipating the demand on the development front. So we're confident that being proactive in asset management will help us. Lastly, we think that, even if last year had a slower leasing activity, we have seen rents actually increase in the year, albeit some markets more than others. However, all of them show positive trends. As long as we continue to see demand excelling throughout 2026 and rents continue to increase, we will benefit from that and have a positive impact on our net asset value with good tenants inside our buildings.

Wilfredo Jorel Guilloty, Analyst

A quick follow-up on the guidance, does it envision more launches, more developments going forward? Or is it just envisioning your company as it is today?

Lorenzo Dominique Berho Carranza, CEO

That's a good point, Jorel, regarding development. Again, without specific guidance, we don't provide CapEx or development numbers. However, what we can say is that we presented the 2030 Route in 2024, which we have been executing successfully. Twenty twenty-five was crucial to secure land in Monterrey, Mexico City, Guadalajara, and other markets. That land has to be developed. We think that as demand continues to be disciplined in certain markets and we can start leasing up, we will like to start construction soon. So 2025 and 2026 will be a year where we will start construction on the land that we have acquired and follow through our 2030 Route. We hope to begin building spec buildings and continue replicating our success in Vesta Park projects in Guadalajara, Apodaca, Tijuana, Ciudad Juarez, and Mexico City. We're optimistic about 2026 and 2027, as capital expenditures will continue to be important, along with development starts.

Operator, Operator

Your next question comes from the line of Enrique Cantu of GBM.

Enrique Cantu Garza, Analyst

Congrats on the results. I just have one question on your revenue growth guidance. What are the main drivers behind that outlook? Is it primarily additional GLA from developments, rent increases, or higher occupancy from leasing vacant space?

Juan Felipe Sottil Achuttegui, CFO

Look, we make our guidance cautiously. We are assuming based on the buildings we leased up until December, which will begin paying rent in the first months of 2026, in addition to the stabilization of the unoccupied buildings where we have a strong pipeline. I think there are significant tenants coming up starting in the first quarter. So taking that into account, we feel confident to provide the guidance we have now. I think that 2026 is a promising year. We have a strong pipeline and are well advanced in discussions with potential clients, and we are very optimistic.

Lorenzo Dominique Berho Carranza, CEO

I would add that we have also been able to renew leases and get market-rate rents in the existing portfolio, which we have been very successful at. The existing portfolio is not just based on market rate on renewals, but also year-over-year. Remember that our leases are indexed to inflation. So the combination of existing leases at each anniversary indexed to inflation, plus market rate on certain contracts, along with our ability to lease vacant buildings, alongside new development, all contribute to how we forecast revenue growth and thus our guidance.

Operator, Operator

Your next question comes from the line of Gordon Lee.

Gordon Lee, Analyst

I have a question regarding the operating side, Lorenzo. Looking at some of the northern markets, such as Tijuana, Ciudad Juarez, and Monterrey, I've been surprised by how stable rents have remained despite an increase in vacancy rates across the market. What do you think is causing this? Do you anticipate any risk of this trend changing for the worse in the coming quarters?

Lorenzo Dominique Berho Carranza, CEO

That's a good question. We believe that what we experienced last year was somewhat unexpected where we saw a slowdown at the beginning of the year. You might remember January, U.S. President taking office, liberation date, and the high uncertainty made many companies refrain from making decisions and leasing any space. Normally, in an environment where there is slower demand, you might see a reduction in rents. However, in this case, the market was stout, and there was no need to reduce rents. Therefore, what we think is that demand started to pick back up, and it was not really a supply and demand issue, but rather that there simply were no leases at the beginning. When demand returned, we think that the vacancy levels are not that high. That is why we continue to see that replacement costs for several buildings remain elevated and returns must be expected. Developers have been disciplined, and the vacancy levels across most markets are at healthy numbers, even if they are somewhat higher than before. If you look over a longer period, we are still in good standing. Moving forward, I think we will start to see greater demand. I don't see a significant risk regarding rents; in fact, I think that rents will hold steady or perhaps even increase. Companies are in Mexico for its competitive advantage, particularly in manufacturing. These cities are continuing to grow. Consumer habits are changing and moving towards e-commerce, leading to more demand. We're very optimistic about most markets, so we don't foresee any potential risks in rents.

Operator, Operator

Your next question comes from the line of Pablo Ricalde of Itau.

Pablo Ricalde Martinez, Analyst

I have a question regarding the development pipeline. So we finally see you coming back into the build-to-suit projects with the Safran building. So maybe going forward, how should we think about the development pipeline of mix between build-to-suit and spec-to-suit buildings?

Lorenzo Dominique Berho Carranza, CEO

Great. Thank you, Pablo. We will continue to see a well-balanced mix of build-to-suits and spec buildings. What is more important is that now that we believe we are hitting a pivotal moment, we will continue our strategy on spec buildings. It has paid off well to have spec buildings and then turn them into what we call spec-to-suit, as we can pre-lease the buildings and simultaneously make adjustments for the tenants. However, we currently have some buildings on the market and want to maintain discipline. As we continue to see demand and leasing rebound, I am confident that we will start some other spec buildings. For build-to-suits, we are always looking for them. We recently closed an expansion with Safran, which is a great example. I believe our close relationships with clients, real estate communities, and brokers will enable us to continue with both strategies. This year is important for focusing on development execution, especially to prepare the infrastructure and setup on the land we recently acquired so when demand and project opportunities arise, we can take advantage. This is what makes Vesta unique: we are institutional portfolio managers and asset managers of industrial assets, while also capturing growth opportunities. We are targeting developments that yield 10% or higher returns. The difference between that and acquisition cap rates in the 6% range presents a significant opportunity in the development front.

Operator, Operator

Our next question comes from Pablo Monsivais of Barclays.

Pablo Monsivais, Analyst

Just a question on Aguascalientes. There's been some news that Nissan is planning to sell the COMPAS plant in Aguascalientes. And since you have big operations there and a considerable land bank, what's your take on this? Could that divestment impact the dynamics in that region or perhaps not if the taker is a company that is growing? Just want to hear your thoughts on that news.

Lorenzo Dominique Berho Carranza, CEO

Thank you, Pablo, for being on the call and for your question. Yes, there is a lot of speculation about what might happen with that particular COMPAS plant. I think that whatever happens, it's bound to be positive for the sector because that plant is brand new or state-of-the-art. It was developed in conjunction between Mercedes-Benz and Nissan, integrating German technology and Japanese innovation, so it was a fantastic project that, for whatever reason, didn't work out. However, it has attracted plenty of interest from various players. Looking at Aguascalientes as a city where companies have found success, I believe that someone will benefit from that plant. We think that might bring new suppliers or a new company, and Vesta will continue to be present there. Aguascalientes is becoming a less relevant market for us, but we maintain long-term relationships with several suppliers in the auto industry, which could yield some good upside for a potential buyer of the plant.

Pablo Monsivais, Analyst

Okay. And if I can squeeze another question in, I want to understand your guidance for 2026 having a slightly lower margin versus 2025. What's the reason for that?

Juan Felipe Sottil Achuttegui, CFO

Pablo, this is Juan Sottil. As you know, the peso-dollar exchange rate is a bit punitive to the company since we generate most of our revenue in dollars while our expenses, especially for employees, are mostly in pesos. It's going to be a challenging year, but we will maintain a very strong discipline on cost control. We were successful at that last year and will continue focusing on how to manage operational costs based on our needs. So it is a challenging time in terms of operating costs, but we maintain discipline.

Operator, Operator

Next question comes from the line of Abraham Fuentes of Santander.

Abraham Fuentes Salinas, Analyst

Are you considering any asset recycling during 2026? And the second question is what can we expect in terms of dividends also for this year?

Juan Felipe Sottil Achuttegui, CFO

Asset recycling is something that we will continue to do. It is an opportunity we will pursue in our portfolio. We're always monitoring it. We believe we are in the best regions in Mexico with successful buildings, but we also think that recycling older buildings represents an opportunity to sell them, and there are other players interested in acquiring stabilized assets. We will keep an eye on this aspect as an integral part of our development and growth plan. Regarding dividends, it's part of our compensation to shareholders. We believe in total returns. That means striving to grow the company so the market recognizes that value through stock price appreciation, while dividends are an integral part of that total return. We will continue to pay dividends and grow them judiciously in the upcoming year, and you will see our dividend policy following our shareholder meeting in the next month or so.

Lorenzo Dominique Berho Carranza, CEO

If I may add, we strive for consistency in our approach to dividends and asset recycling, so this consistency will continue into the future.

Operator, Operator

Your next question comes from the line of David Soto of Scotiabank.

David Soto Soto, Analyst

Just two quick ones. The first is related to your vacant buildings. Could you provide more detail about the marketing efforts and the current status of ongoing negotiations for those buildings? Also, what kind of tenants are interested in those assets? The second question relates to your leasing spreads. During 2025, you reported double-digit leasing spreads. Can we assume that this could be maintained through 2026, and which regions might experience these double-digit leasing spreads?

Lorenzo Dominique Berho Carranza, CEO

Thank you, David, for your question. On the second inquiry, we believe that double-digit spreads will remain a trend, particularly because this presents an opportunity during the upcoming years as some leases start hitting maturity stages, which was the case last year. We are very active in this regard. For your first question about vacant buildings, we are confident that the pipeline is building up. We're pleased with the projects we have developed. As mentioned earlier, the Vesta Park Apodaca project specifically received an award for being GRI Global Award for Industrial & Logistics Project of the Year. Competing against other countries and developers globally, it's an essential recognition. We strive to develop the best projects, and this ultimately benefits us when significant companies decide to establish operations in our high-quality parks. The buildings we develop and their specifications concerning design, sustainability, and innovation make them very adaptable for e-commerce, logistics, and light manufacturing. This strategy around spec buildings will help us stay competitive as we are in markets where we can access labor and infrastructure well. For these reasons, we are confident that the vacant buildings we have today are great buildings that will be leased up eventually.

Operator, Operator

Question comes from the line of Felipe Barragan.

Unknown Analyst, Analyst

It's been a little over a year now that Claudia is in office. She announced an infrastructure program a few weeks ago. I want to get your sense of the progress made on permitting, electricity, etc. for developments compared to two years ago.

Lorenzo Dominique Berho Carranza, CEO

Thank you for your question. I think that there has been a lot of proactivity from the Claudia Sheinbaum administration towards our industry. She's the first President to include industrial parks as part of a long-term infrastructure plan, having considered 100 projects to develop, many of which are Vesta's projects. We have excellent access to some of their economic development councils and corresponding secretaries to support permitting and licensing to ensure our projects run smoothly. I think she has a good understanding of the opportunity Mexico has to develop quality industrial infrastructure alongside the private sector for better and higher-paid jobs, which is crucial for welfare and support for people. There is a strong alignment and good support, and having institutional companies like Vesta recognized positively for our contribution to the sector is beneficial.

Operator, Operator

Your next question comes from the line of GBM.

Unknown Analyst, Analyst

Congratulations on your results. I just have one question. How are you thinking about the pace of developments in 2026, given the current occupancy levels and broader market uncertainty?

Lorenzo Dominique Berho Carranza, CEO

Thank you for your question. Vesta will continue monitoring the markets to determine where we can start projects. A good example is Guadalajara, where we recently initiated two spec buildings at the end of the previous year. This was made possible as we leased up our existing buildings, observed strong demand, and wanted to anticipate this demand. We focus on getting feedback from the real estate and broker communities, as well as our existing clients. I believe the same example will guide us in the rest of the market. There are success stories in Juarez and Tijuana, where we've been able to lease up in the second half of last year, which will help us start new buildings. In Monterrey, we executed a large acquisition on the Apodaca site, next to the airport, for which we will begin infrastructure. When we observe leasing activity from our current projects, we will initiate new projects. Overall, we're entering a more active phase than in 2025, but we also want to remain cautious and disciplined, ensuring we meet demand without oversupplying the market. Development front cycles can be long, so last year's land acquisitions, coupled with this year's infrastructure focus and new buildings, place us in a great position for 2027 when those projects can generate income. Our primary focus remains on achieving our Route 2030 plan, and we are optimistic regarding our projected growth.

Operator, Operator

Your next question comes from the line of Federico.

Unknown Analyst, Analyst

Congrats on the results. Two questions arise here. For capital allocation, you utilized the buyback last year. I assume that you will cancel that this year and extend the maturity of the debt, etc. But when thinking about the long-term strategic 2030 plan, what do you observe in terms of acquisition possibilities and developments, especially on a regional basis?

Juan Felipe Sottil Achuttegui, CFO

The Mexican peso is surprisingly strong, and we made our forecast assuming an exchange rate of MXN 17.50, but this may prove to be too optimistic. Cost control will be a major theme in terms of the administration this year, and we will be vigilant in that regard. As for capital allocation, we have acquired approximately 90% of the land required for the plan, so I don't foresee major acquisitions this year. However, we will always look for opportunistic acquisitions. Mexico is an important market where we will look for significant land. We believe we have the bulk of the land needed. This will be a year focused on making the acquired land shovel-ready, aligning that with our strengthening demand pipeline. Capital allocation will prioritize infrastructure investment and pursuing opportunities to sell parts of our portfolio, ensuring Vesta continues running smoothly and maximizing results to enhance market recognition.

Unknown Analyst, Analyst

Congrats again for the results.

Juan Felipe Sottil Achuttegui, CFO

Thank you.

Operator, Operator

There are no further questions. I'd now like to turn the call back over to Mr. Berho for his concluding remarks. Please go ahead, sir.

Lorenzo Dominique Berho Carranza, CEO

Thank you, everyone, for joining us today. As we look ahead, we are confident in the opportunity and equally confident in our ability to execute with prudence across cycles. If the next strong economic phase accelerates into 2027, as we believe it will, Vesta is uniquely positioned to capture that growth responsibly and at scale as supply has moderated and pipeline conversations point to improving visibility over the next 12 to 24 months. Thank you all, and have a nice day.

Operator, Operator

Thank you for attending today's call. You may now disconnect. Goodbye.