Earnings Call Transcript - VTMX Q1 2026

Operator, Operator

Greetings, ladies and gentlemen, and welcome to the Vesta First Quarter 2026 Earnings Conference Call. 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 the first quarter 2026 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 2026 results was released yesterday after market close and is available on the 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 differ 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, Chief Executive Officer

Thank you for joining us today and for your continued interest in Vesta. The first quarter marked a strong start to the year with solid leasing momentum and stable portfolio performance despite ongoing global tensions. Importantly, as our results demonstrate, we're seeing not only continued activity, but growing conviction from our tenants. This was reflected in new leasing and expansions with existing clients as well as with exciting new clients during the quarter. Our performance reinforces the strength of Vesta's platform and reaffirms our approach for 2026 and our Route 2030 strategy, which is centered on expanding a well-curated high-quality portfolio for disciplined development, leveraging our privileged land bank to capture demand. We believe value creation in our space is driven more by quality than size. While we are seeing increased competition for stabilized assets, Vesta's differentiation lies in our ability to develop and operate a selective portfolio aligned with global best practices and the evolving needs of our clients. Let me briefly highlight the key drivers of Vesta's results. As I noted, leasing activity remains strong with total first quarter leasing reaching approximately 1.6 million square feet, including 1 million square feet in new leases with best-in-class companies. Total portfolio occupancy reached 89.7%, while stabilized and same-store occupancy reached 93.4% and 95%, respectively, reflecting the strength and stability of our tenant relationships. During the quarter, we saw strength in the electronics and aerospace sectors and also in AI-related data center infrastructure, which is becoming an increasingly relevant demand driver that will benefit from long-term structural tailwinds. On the development side, our pipeline continues to convert into active construction with Vesta projects breaking ground across key markets. This is further evidence of both improving demand visibility and the strength of our land bank which is expected to support the stabilization and gradual recovery of occupancy. Along these lines, as leasing activity continues to gain momentum, we have selectively resumed development. We launched two new projects in Mexico City and one in Tijuana during the first quarter, which brings our total development pipeline to approximately 1.6 million square feet. Importantly, our approach remains disciplined and demand-driven, prioritizing tenant-backed projects in high-conviction markets. From a financial perspective, results remain solid. Total rental income increased to $76.7 million, while rental revenues reached $74 million, a 14.1% sequential increase, with sustained strength across our key profitability metrics, including NOI and EBITDA. Let me now turn to the broader market environment and how we are seeing it reflected across our portfolio. Recent data has focused on rising vacancy in certain regions, particularly in the North. However, what we are seeing is better characterized as a correction, not a structural slowdown or a decline in underlying demand. Markets such as Tijuana reflect more uneven dynamics but it's important to note that this is largely due to supply from less experienced developers. Vesta's high-quality, infrastructure-ready buildings continue to outperform, reinforcing our focus on portfolio quality. We're leveraging our strength in this market and launched a new project in Tijuana during the first quarter. New construction starts in key markets such as Monterrey have declined significantly year-over-year, reflecting a market that is adjusting quickly. In Mexico City, fundamentals remain strong. According to CBRE, Mexico City gross absorption reached approximately 6.7 million square feet during the quarter with pre-leasing accounting for most of the activity and more than half of new supply delivered already preleased. This dynamic reinforces both demand depth and forward visibility across this market. It has also led us to launch the two new projects in Mexico City, which I have described. In Guadalajara, we are seeing healthy demand, particularly from electronics and technology-related tenants, a key driver of activity in the market. During the quarter, we successfully pre-leased the two Vesta buildings under construction, underscoring the strength of underlying fundamentals and the sustained momentum we are seeing in the region. Let me now turn to how we are executing against this environment. Our strategy remains consistent. Vesta will grow through a high-quality, well-graded portfolio developed with discipline and aligned with long-term demand. As I have commented, our focus is on portfolio quality, not scale, ensuring that each asset meets the highest standards of infrastructure, energy and operational performance. This is particularly relevant in the current environment. Despite the competition for stabilized assets we are seeing, we believe there is greater opportunity in selective development where we can create value and differentiate through product quality and tenant alignment. Before I conclude, let me briefly touch on our capital position and outlook. As Juan will discuss, we continue to operate with a strong and flexible balance sheet, maintaining a disciplined approach to leverage and liquidity, which enables us to execute our strategy while navigating uncertainty. Capital allocation remains selective with a focus on high-quality projects supporting efficient growth. In closing, we are highly confident in our outlook. While near-term uncertainty persists, the underlying structural drivers underpinning our business are stronger than ever. Tenant activity continues to be robust. Foreign direct investment is maintaining strong momentum and manufacturing exports are at record levels. At the same time, higher-value industries such as electronics, aerospace, semiconductors and data infrastructure are accelerating demand for Vesta's premium properties. We also expect a more favorable interest rate environment together with greater clarity around USMCA to support activity in the quarters ahead. Let me now turn the call over to Juan to review our financial results in more detail.

Juan Felipe Sottil Achuttegui, Chief Financial Officer

Thank you, Lorenzo. Good day, everyone. Let me start with a brief overview of our first quarter results. On the top line, we delivered a solid start of the year, with total revenues increasing 14.4% to $76.7 million, primarily driven by rental income from new leases and inflationary adjustments across our portfolios. In terms of currency mix, 88.9% of first quarter 2026 rental revenues were U.S. dollar denominated compared to 89.7% in the same period last year. Turning to profitability, adjusted net operating income increased 13.4% to $70.47 million. Our adjusted NOI margin decreased 62 basis points year-on-year to 95.1%, reflecting higher operating property costs relative to rental revenues in the quarter. Adjusted EBITDA totaled $62.1 million, up 12.4% year-over-year, while margin contracted by 130 basis points to 83.9% primarily driven by higher operating and administrative expenses during the quarter. Vesta FFO, excluding current tax, was $43.1 million compared to $45.1 million in the first quarter 2025. The decrease was primarily due to higher interest expense in the first quarter of 2026 compared to the same period in 2025. We closed the quarter with pretax income of $97.9 million compared to $28.6 million in 2025. This increase was primarily due to higher gains in the revaluation of investment properties, higher interest income and higher other income. This was partially offset by higher interest expense, reflecting an increase in the debt balance during the period, along with increased foreign exchange losses and other expenses. Turning to our balance sheet, we ended the quarter with $206 million in cash and cash equivalents and total debt of $1.2 billion. Net-debt to EBITDA stood at 4.1x, and our loan-to-value ratio was 26%, down from 28.1% at the year's end, reflecting the prepayment of the remaining $118 million MetLife III facilities. As of the end of the first quarter, we have no secured debt with 100% of our debt denominated in U.S. dollars and 87.2% of our interest rate exposure on a fixed-rate basis. Finally, consistent with our balanced capital allocation strategy, on April 22, 2026, Vesta's shareholders approved a $74.8 million dividend for 2026 representing a 7.5% increase year-over-year. On May 6, we will pay a first quarter cash dividend. This concludes our first quarter 2026 review. Operator, could you please open the floor for questions?

Operator, Operator

Our first question will come from the line of Piero Trotta with Citibank.

Piero Trotta, Analyst (Citibank)

I have two questions. The first one is spec development in Tijuana. Given that you started, could you elaborate to us on the key conditions that supported the decision to move forward with this project in a market where vacancies remain high? More specifically, what metrics or market signals are you monitoring most closely when allocating capital in Tijuana? We see market vacancy in Tijuana around 16% and even in Vesta's portfolio around 13%. What are you looking at when you're starting a new project in the region? And the second one is about leasing spreads that remained positive at around 9%. I would like to understand how should we think about the sustainability of spreads from here as supply-demand dynamics continue to evolve across our markets.

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Thank you very much for your question and for being on the call. This is a good quarter to start the year, and I would like to highlight that, as mentioned before, Vesta will, little by little, start development in certain markets and projects. We did good land acquisitions last year, and that's why we start again with projects in Mexico City as well as Tijuana, along with those we started before in Guadalajara and Querétaro. The Tijuana project is actually a continuation of our existing project in the mega region. As you remember, we did a land acquisition on adjacent land to develop the second phase. We did the land improvements last year and today we're happy to be able to now start the first building of the second phase. It will take us pretty much the rest of the year to conclude the building to be developed. The reason for developing it is because we believe we have a good pipeline from either existing clients or potential clients that want to be established in a state-of-the-art industrial park in a good location where you can have good access to labor, good logistical access and, very importantly, good access to energy. That's what we already have in our park in Tijuana. I understand that there's other vacant space in the Tijuana market. However, we know that none of them are as well located as this one and that's a key advantage. There have been some new vacant buildings in other submarkets of Tijuana in many places that actually lack energy, lack logistical accessibility and also lack labor. That's why they will probably remain available for a longer period of time until they find the right client. There are many, I would say, inexperienced industrial real estate developers, so that's why we feel comfortable with the type of buildings that we develop. We think that eventually, this will turn into a successful project in a market that we know quite well. Secondly, on your question on spreads, I think that the spreads will continue to be in a 10% to 13% range. This quarter was slightly lower maybe because of the combination of computations from previous quarters. In the end, I think going forward, and as we have stated before, we think that over time we will continue to see double-digit growth in terms of spreads. We have had some interesting re-leasing spreads throughout the quarter on projects in the 20% to 50% range, which is quite attractive. In some cases we have seen new leases with rent increases of 30%, 40%, 50%, depending on the market. So this trend will continue. We see very strong rent levels in most of the markets and in some markets very strong rent growth. We are confident that this will continue to be the situation going forward and that it will remain a main driver of value for our existing portfolio and tenants.

Operator, Operator

Our next question will come from the line of Gordon Lee with BTG Pactual.

Gordon Lee, Analyst (BTG Pactual)

Just a quick question, it's more of a general sector question. As you mentioned, there is potential for pretty significant consolidation in the sector, which obviously is not something that you base your business plan on, but I was wondering generally how you feel about consolidation in the sector. Would you generally say that's good for competitive dynamics and could lead to more discipline on the ground? Specifically, do you think that might have a positive effect in terms of discipline around development?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Thank you, Gordon, for your question. It's quite interesting the market dynamics and what we have been seeing from a capital markets perspective. I believe that this is, in some ways, a broader strategy from some global players active in Mexico whose strength may be more on capital markets than on being on the local ground and having deep access to tenants as well as development capabilities and higher returns. That's a particular strategy for some of them. This is an industry that is very capital intensive, and there is a lot of capital chasing transactions, chasing portfolios, even sometimes regardless of the exact type of assets being acquired. In the end, I think it's more the appetite for industrial assets and being larger consolidators. I think we will continue to see that as long as there's strong capital chasing attractive assets. It's also relevant to consider that these transactions set pricing benchmarks. So even for some assets that I believe are below Vesta's quality standards, those prices send a good signal about the opportunity we see in our own assets. Remember that Vesta selectively defines the markets we invest in, we're very mindful of the quality of assets we develop, and we also strategically define the type of tenants. Over the long term, that makes our assets more valuable and these consolidations create an attractive baseline of reference so we can have comparables for our own valuations.

Gordon Lee, Analyst (BTG Pactual)

Do you think it has any implications, positive or negative, on competitive dynamics or development discipline for the sector as a whole? Or would your day-to-day be unchanged regardless of what happens?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Frankly, most of these consolidators do not have development capabilities. So I think it doesn't have a major effect for certain merchant developers. We will continue to have our own discipline in terms of development. I think it may keep some acquirers more distracted in their acquisition strategies, and I don't see them being very active in development.

Operator, Operator

Our next question will come from the line of David Soto with Scotiabank.

David Soto Soto, Analyst (Scotiabank)

Just a quick one related to the microgrid. It would be great if you could tell us in which regions you are currently developing this kind of facility and what the challenges are that you are facing to develop these facilities within your industrial parks?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Do you mind repeating the question, David? Thank you.

David Soto Soto, Analyst (Scotiabank)

Yes, of course. I was asking about your microgrids: are you developing these kinds of facilities now? If so, in which regions, and what are the main challenges you are facing?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

If I understand correctly, the question is on which markets we might be developing speculative buildings and microgrid-related infrastructure. Currently, we started a few projects in Mexico City from the land acquisitions we did last year. This is in the quality corridor, a very attractive market that has shown growth particularly coming from logistics as well as e-commerce, and we continue to see rental growth. That's why returns are quite attractive and developing speculative buildings in the area is appealing. We started a building in Tijuana and very soon we will start development in Guadalajara, as you could see in our report; we were able to lease the two projects that we have under construction and we're happy to continue to see growth and demand coming from the electronics sector particularly, but also logistics and e-commerce. Hopefully soon we'll start some spec buildings similar to what we have done in the past in the rest of Park Guadalajara. We acquired land recently in Monterrey, in La Palma, and in Juárez, and these markets are ones where eventually we will also start developing spec buildings or build-to-suit projects. We have had good progress in permitting and licensing and little by little, as we see strong momentum in leasing, we will start buildings. This is mainly driven by the pipeline we have been generating. We have definitely seen stronger demand from different sectors, particularly electronics, AI and data center infrastructure, e-commerce, logistics and medical devices, to name a few. Most markets show clients and potential new clients regaining confidence in expansions. Many of these clients have record production and are resuming investment in Mexico.

Operator, Operator

Our next question will come from the line of Anton Ernst Mortenkotter with GBM.

Ernst Mortenkotter, Analyst (GBM)

Congrats on the results. I have two quick questions. One, you already mentioned a little bit of the dynamics that made you start development. But was there any specific sign that the market gave you that made you decide to move now and reactivate stronger Vesta development? Two, with all of these newly announced developments, your cash balance is getting closer to the development needs. How are you thinking about funding capacity from here? Specifically, do you see any need or opportunity in the near term to tap either the debt or equity markets?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Thank you, Ernst. We have internal metrics that we monitor to identify where to start a project. For example, the projects in Guadalajara that we started construction at the end of last year were begun without a lease signed, but we identified demand from certain sectors and decided to anticipate client needs by starting construction. While under development we were then able to close with potential demand we saw. This quarter, that's exactly what happened: we pre-leased with two existing Vesta clients that continue to grow and require flexible, high-standard space. Those are the metrics we follow every time we start a building. Mexico City has good dynamics; we've had success with e-commerce clients and believe demand will continue. Tijuana is similar; even though there are a few buildings available now, they're in different submarkets with different dynamics, and starting a new building in the right location makes sense because of potential demand we're already identifying. This strategy has paid off in other markets. Compared to the start of last year, when uncertainty was very high and projects were mostly on hold, dynamism changed effectively at the end of last year and we've seen a strong start to this year with clients looking for high-quality buildings and reputable landlords.

Juan Felipe Sottil Achuttegui, Chief Financial Officer

As for the balance sheet, we have a very strong balance sheet and will remain flexible. We have $200 million in cash and low leverage. We will tap the market whenever appropriate; we can sell properties, issue debt or equity. We will always be flexible and evaluate the best market to access capital. Remember, this was mentioned in the 2030 plan; we have a long-term vision and will make decisions that balance alternatives and capital requirements. We're very flexible.

Operator, Operator

Our next question comes from the line of Adrian Huerta with JPMorgan.

Adrian Huerta, Analyst (JPMorgan)

I have two questions. One, are there any opportunities for asset recycling? Are you looking at potential asset sales? And two, how is yield on cost today given movements in construction and land cost relative to what you can charge on rents?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Thank you for the questions. On the second question, yield on cost continues to be very attractive in the 10% range, and in some cases even higher. One of the largest benefits has been our ability to acquire land at a lower cost basis; we were opportunistic last year and acquired land at attractive prices, and combined with competitive construction costs and attractive market rents we can achieve double-digit yields on cost. For example, we're doing deals in Mexico City at about 9.8% yield on cost, close to 10%, and in other markets at 10.5% to 11%, such as Querétaro and Tijuana. Our experience as a developer and management of the construction process gives us an edge to generate high returns. More importantly, it's the spread on the investment: if properties trade in the 7.5% to 8% range, and assets similar to Vesta could trade closer to 6% stabilized, developing at 10% and stabilizing near 6% is a large spread and exactly the value proposition we have for shareholders.

Juan Felipe Sottil Achuttegui, Chief Financial Officer

As far as capital recycling and asset sales, we will always be open to that. We've been successful selling parts of our portfolio above appraised values and will continue to look for those opportunities. We sell selectively to refine our portfolio, but we primarily develop to hold and invest long term. Opportunistically, we will sell when it makes sense.

Lorenzo Dominique Berho Carranza, Chief Executive Officer

To add, our discipline is important. We like to sell above net asset value—above appraised values—where we can capture a premium. In the past we've sold 10% to 20% above appraised value in private markets and then redeployed capital into development at attractive yields. That's the approach and a main differentiator for Vesta in terms of capital allocation discipline.

Operator, Operator

Our next question will come from the line of Rodolfo Ramos with Bradesco BBI.

Rodolfo Ramos, Analyst (Bradesco BBI)

I only have one follow-up on Gordon's question on consolidation. To get a sense of the impact you could see, if further consolidation takes place, particularly in the northern markets such as Tijuana and Juárez, do you think this would have any impact on your commercial efforts or on the lease spreads you're able to achieve? Perhaps, on the positive side, would a more consolidated market lead to better discipline?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Industrial real estate in Mexico is a very fragmented sector; there's no single dominant player in any of the markets. Many consolidations are in secondary and tertiary markets where we do not operate; they are quite small. So I don't think this will have a major impact on our marketing efforts or lease spreads in the primary markets where we operate. In many of the secondary and tertiary markets the dynamics are different and we are not as active there.

Operator, Operator

Our next question will come from the line of Carlos Peyrelongue with Bank of America.

Carlos Peyrelongue, Analyst (Bank of America)

Total occupancy remained stable at 90% in the quarter. Do you expect this level to be maintained this year or do you expect some increase? If you expect an increase, which markets do you think would drive that potential improvement in occupancy?

Juan Felipe Sottil Achuttegui, Chief Financial Officer

We generally don't provide forward-looking guidance on occupancy; it's not a guidance item. However, we are very optimistic about market dynamics, and as Lorenzo mentioned, we expect good absorption in the coming quarters.

Carlos Peyrelongue, Analyst (Bank of America)

And in terms of specific markets that could drive occupancy?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Specifically, we are seeing momentum in Monterrey—our Apodaca project is in marketing and gaining strong momentum—so we feel confident we'll see absorption in the next months and quarters that will positively impact occupancy. There's also opportunity for improvement in some Bajío markets like Querétaro, which have shown resilience. In some cases, we prefer to wait for the right tenant for our high-quality buildings rather than lease quickly at suboptimal terms. Our parks are in good locations with reliable energy infrastructure and access to labor, so we expect eventual positive absorption to support occupancy.

Operator, Operator

Our next question comes from Igor Machado of Goldman Sachs.

Igor Machado, Analyst (Goldman Sachs)

First, a follow-up on construction costs: given the ongoing conflict in the Middle East, are you seeing imported materials already increasing in price? Do you have any estimates to understand how this could impact your costs? Second, could you comment on the material activity in San Luis Potosí—what drove this and is it enough—and how are you seeing demand in that region overall?

Lorenzo Dominique Berho Carranza, Chief Executive Officer

Regarding San Luis Potosí: it's a smaller market for Vesta but we have a project next to the BMW plant. The market has a strong dependence on the auto industry. Last year was quite slow, but we are starting to see adjustments in production lines and expect better demand this year which should create more absorption. We have a good-quality project right next to BMW with good tenants, though it's a slower market and should not materially impact our overall strategy. On construction costs, we are monitoring implications from the Middle East conflict on construction input prices, but we have not seen materially larger adjustments that would negatively impact construction. It's important to monitor FX as we compute costs in dollars per square foot. Vesta has been able to absorb some fluctuations. Additionally, some projects already under construction are on guaranteed maximum price contracts, so if there are fluctuations during construction they do not impact our final cost because the price has been guaranteed.

Operator, Operator

And 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, Chief Executive Officer

Thank you. In closing, we continue to deliver on the important milestones of our Vesta 2030 strategy anchored in portfolio quality, disciplined execution and long-term value creation. Market dynamics are strong, particularly for high-quality, infrastructure-ready buildings, where demand continues to show resilience. This reinforces our confidence in the near-term outlook and our ability to capture incremental opportunities as activity continues to build. Against this backdrop, we remain committed to executing with discipline and expanding a well-curated platform to capture long-term demand. Along these lines, we look forward to sharing important updates on progress related to our Route 2030 strategy at our 2026 Vesta Day to be held in New York on November 11. As always, thank you for your continued support. Goodbye.

Operator, Operator

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