Vesta (VTMX) Q3 2026 Earnings Call Transcript

DATE

Friday, Oct. 23, 2026

CALL PARTICIPANTS

• Investor Relations Officer - Maria Fernanda Bettinger Davo
• Chief Executive Officer - Lorenzo Dominique Berho Carranza
• Chief Financial Officer - Juan Felipe Sottil Achutegui

TAKEAWAYS

• Rental Revenue Excluding Energy -- $77.5 million, a 10.8% increase year over year driven by record leasing contributions and inflationary adjustments.
• Adjusted Net Operating Income -- $72.9 million, representing a 94.1% margin compared with 94.4% in the third quarter of 2025.
• Adjusted EBITDA -- $65.2 million, a 9.2% increase year over year with a margin of 84.1%, reflecting a 123 basis point decrease due to higher operating and administrative costs.
• Vesta FFO Excluding Current Tax -- $47.1 million, a decrease of 0.7% from $47.4 million in the prior-year period due to higher interest expenses.
• Total Portfolio Occupancy -- 93.9%, representing a sequential increase of 22 basis points driven by commercial execution in strategic corridors.
• Same-Store Occupancy -- 95.5%, while stabilized occupancy reached 93.9% at the end of the quarter.
• New Leasing Activity -- 1.6 million square feet, out of a total 2.3 million square feet signed, representing a record high for the company.
• Leasing Spread -- 10.0% on a trailing 12-month basis, with lease renewals for the quarter totaling 700,000 square feet.
• Development Pipeline -- 3.3 million square feet under construction, representing an estimated investment of $282.5 million with an expected yield on cost of 10.2%.
• Construction Starts -- 1.9 million square feet initiated across five inventory buildings in Monterrey, Juarez, and Guanajuato during the quarter.
• Guidance: Revenue Growth -- 11.5% to 12.5% for the full year 2026, increased from the previous target range of 10% to 11%.
• Guidance: Margins -- 94% for adjusted NOI and 84% for adjusted EBITDA, raised from prior targets of 93.5% and 83.0%, respectively.
• Debt Maturity Profile -- $105 million in prepayments retired debt ahead of maturity, resulting in no significant debt maturities over the next few years.
• Leverage Ratios -- 3.3 times net debt to EBITDA and 22.3% loan to value ratio at the end of the quarter.
• Land Reserves -- 47.9 million square feet at quarter end, supported by the recent acquisition of a land parcel in Mexico City with 689,000 square feet of buildable area.
• Profit Before Income Taxes -- $104 million, an increase from $52.4 million in the prior-year period primarily driven by property revaluation gains.
• Total Asset Value -- $4.5 billion for the investment property portfolio, representing an 8.5% increase from $4.1 billion at the end of 2025.

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RISKS

• Berho stated, "uncertainty surrounding trade negotiations and the USMCA review continues to influence the timing of some investment decisions," affecting the pace of market activity.
• Berho stated, "we see that inflation might be a little stickier than expected," noting potential implications for long-term return perspectives despite current hedges.
• Sottil noted that while development yields are steady, interest rate "volatility... could impact the cost of debt in our sector."

SUMMARY

Corporación Inmobiliaria Vesta, S.A.B. de C.V. (NYSE:VTMX) reported record new leasing activity and increased its full-year 2026 financial guidance. Management reported an initial turning point in the Mexican industrial real estate market, citing demand from electronics, AI-related industries, and e-commerce. The company expanded its development pipeline to 3.3 million square feet while maintaining a 10.2% expected yield on cost. Financial results included the prepayment of $105 million in debt and credit rating upgrades to BBB by S&P and Fitch.

• Berho indicated that the AI opportunity extends beyond data centers to include the production of "electronics, servers, electrical equipment, cooling systems, components, and other products required to develop and operate digital infrastructure."
• Mexico accounted for approximately 18% of total U.S. goods imports in Aug., with imports reaching a record level of $60.6 billion.
• Mexican electronics exports increased approximately 2.5-fold from 2024 to 2026, surpassing automotive exports as a primary driver of industrial demand.
• The company is focusing on Monterrey with the development of Vesta Park Monterrey, which includes an 811,000 square foot speculative building designed for logistics and light manufacturing.
• Sottil noted that the 10% to 11% return on cost for new developments provides a significant spread over stabilized asset cap rates, which currently range from 6% to 7% in the private market.
• Management is targeting urban infill locations in Mexico City with higher barriers to entry to capture demand for last mile operations and reverse logistics.

INDUSTRY GLOSSARY

• AI-related industries: Companies involved in the production and distribution of digital infrastructure hardware, such as servers, cooling systems, and electrical components.
• Route 2030: Vesta's long-term strategic plan focused on expanding its portfolio through land acquisition and infrastructure development through the year 2030.
• Bajio: A region in North-Central Mexico that serves as a major industrial hub for automotive and aerospace manufacturing.
• USMCA: The United States-Mexico-Canada Agreement, a trade deal governing economic relations and tariffs across North America.
• FFO: Funds from operations, a standard performance measure for real estate companies that excludes certain non-cash items like property revaluations.
• Build-to-suit: A commercial property specifically designed and constructed to meet the exact specifications of a single tenant.
• Spec building: A speculative property constructed without a pre-signed tenant in anticipation of future market demand.
• GLA: Gross leasable area, the total floor space of a property that can be rented to tenants.
• NOI: Net operating income, representing revenue from a property minus necessary operating expenses.

Full Conference Call Transcript

Operator: 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.

Maria Fernanda Bettinger Davo: Good morning, everyone. And welcome to our review of Vestas' third quarter 26 earnings results. Presenting today with me are Lorenzo Dominique Vero, our chief executive officer and Juan Sotil, our Chief Financial Officer. The earnings release detailing our third quarter 26 results was released yesterday after market close and is available on Vestas IR website along with our supplemental package. it is important to note that on today's calls, management remarks and answers to your questions, may contain forward looking statements. Forward looking statements address matters that are subject to risk 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, please note that all figures were prepared in accordance with IFRS which differ in certain significant respects from US 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 is stated in US dollars unless otherwise noted. I will now turn the call over to Lorenzo Vero.

Lorenzo Dominique Berho Carranza: Thank you, Fernanda. And good morning to everyone joining us today. I am extremely pleased with Vesta's results for the third quarter. This was an outstanding quarter for our company. Reflecting record new leasing activity a substantial improvement in portfolio occupancy strong financial performance, and important progress in the execution of our Route 30 strategy. Importantly, our performance gives us the confidence to raise our full year 2026 guidance. Last quarter, I spoke about execution being clearly underway. I described how Vesta was converting demand into leases. Leases into occupancy, and our land bank into disciplined development opportunities. This quarter, we delivered on that commitment.

Our results demonstrate that the opportunities we have been discussing throughout the year are translating into signed contracts. Higher occupancy, new construction, and growing rental income. And we are accomplishing this while maintaining the financial discipline that has always been central to the best strategy. Let me begin with a broader environment. The third quarter brought encouraging signs that industrial investment decisions in Mexico are gaining momentum. Following a period of caution and adjustment, we are seeing renewed investment in machinery and equipment accelerating demand tied to electronics and AI related industries. And companies moving forward with expansion plans despite continued uncertainty surrounding global trade. What is particularly encouraging is that this renewed activity is translating into tangible commitments.

And Vesta is directly benefiting from these trends. As I have noted previously, Mexico is particularly well positioned in this environment. Its deep integration with North America, established manufacturing base, and competitive advantages provide a solid foundation for continued investment. While uncertainty surrounding trade negotiations and the USMCA review continues to influence the timing of some investment decisions, We are encouraged by the progress in discussions and importantly, by what our customers are doing. Companies are continuing to invest, expand, and make long term commitments in Mexico. Recent US trade data reinforces this point.

According to US Census Bureau figures, US imports from Mexico reach approximately $60.6 billion in August, a record level with Mexico accounting for approximately 18% of total U. S. Goods imports. We are also encouraged by signs of recovery in investment in machinery and equipment following a period of slower activity. This is an important indicator because investment in product capacity can translate into future demand for manufacturing and logistic facilities. Together with the expansion of electronics related trade, and the continued regionalization of supply chains, these trends reinforce our confidence in Mexico's industrial competitiveness. Mexican electronics exports have increased approximately 2.5x from 2024 to 2026. Reflecting the country's growing role in the technology and digital infrastructure industries.

At the same time, we are witnessing a significant transformation in the industries driving demand industrial space. Investment associated with artificial intelligence and digital infrastructure is creating new requirements across the manufacturing supply chain. As we have discussed on previous calls, the opportunity extends well beyond the data centers themselves. It includes the production and distribution of electronics, servers, electrical equipment, cooling systems, components, and other products required to develop and operate digital infrastructure. We are seeing how these requirements are translating into opportunities for industrial real estate in Mexico. Alongside continued activity from automotive logistics, e-commerce, food and beverage and other established sectors. For Vesta, significance is clear.

As manufacturing and supply chains become more sophisticated, customers increasingly require high quality buildings with reliable energy strong infrastructure, access to labor, connectivity to critical logistics corridors. These are precisely the characteristics we prioritize in our portfolio and development strategy. And our third quarter leasing results provide compelling evidence that this approach is working. During the quarter, Vestas signed approximately 2.3 million square feet of leases including a record 1.6 million square feet of new leases. This was an exceptional level of new leasing activity involving customers across electronics, e commerce, logistics automotive and consumer goods. What is particularly encouraging is the diversity of these transactions.

We are seeing demand across different industries and regions, from multinational companies expanding established operations to other businesses investing in their growth in Mexico. We are particularly pleased to see established clients such as BMW, BSV Logistics, MercadoLibre continued to grow with Vesta. These relationships demonstrate the value of our cost-focused operating model. But the diversity of activity across industries and geographies, reinforces the resilience of our portfolio. This is an important part of our strategy. Building long term relationships with high quality companies while continuously broadening our customer base. Most importantly, these are not simply prospects or expressions of interest.

These are customers making decisions, signing long term leases, and committing to Vesta properties. it is why we have remained confident in our market positioning. Even as broader industrial market conditions have been mixed, our leasing performance translated into a significant improvement in occupancy. Total portfolio occupancy reached 93.9% at quarter end. An increase of 22 basis points from the second quarter. Stabilized occupancy reached 93.9%. While same store occupancy increased to 95.5%. This is an important milestone, reflecting the strength of our commercial execution and our ability to lease high quality space in strategically selected locations. We also completed approximately 700 thousand square feet of lease renewals. With a weighted average lease term of approximately 5 years.

Our trailing 12-month weighted average leasing spread remains strong at 10%. Demonstrating the continued value consumers place on our properties. Besta's competitive advantage is a combination of deep local market knowledge long standing customer relationships, and exceptional commercial team, and the ability to deliver high quality properties in the locations where our customers want to operate. In industrial real estate, it is not enough to be present in an attractive city. Success depends on owning and developing properties in the specific corridors where customers want to operate. And our long standing focus on these locations is paying off. Let me highlight a few examples from the quarter.

In Monterrey, we made substantial progress leasing our existing Park And Podaca properties This progress has supported the next phase of growth at our new Besta Park Monterrey. Our success in leasing existing properties has provided a strong foundation for advancing the infrastructure and construction required to serve future customers in this strategic market. In the Bajio, we are also encouraged by leasing activity involving established industrial companies including BMW in San Luis Potosi. This reflects the continued importance of the Bajio within the North American automotive supply chain. While reinforcing the value of our long standing relationships with multinational customers.

Diversifying our customer base across industries is an important element of our approach, to managing risk and creating a resilient portfolio. In Guadalajara, we deliver a building ahead of schedule, during the third quarter. Together, with a building delivered in Queretaro, both properties were fully occupied upon completion. These deliveries demonstrate our ability to coordinate development and commercial execution while meeting our customers' operational needs. Across Vesta, we are encouraged not only by the amount of leasing achieved, but by the quality of our customers. The diversity of demand and the improved visibility that these contracts provide. And this is what distinguishes our performance from broader market averages. Industrial markets do not necessarily recover at the same pace.

And conditions can differ significantly between submarkets as I have noted in the past. Let me now turn to development and capital allocation. Strong leasing performance, together with our strategic land investments, has enabled us to significantly accelerate development. During the third quarter, we initiated approximately 1.9 million square feet of new construction across 5 inventory buildings, 3 in Monterrey, 1 in Juarez and 1 in Guanajuato. Following these starts and the delivery of 2 fully buildings, our development pipeline reached approximately 3.3 million square feet under construction. Representing an estimated investment of $282.5 million and an expected yield on cost of 10.2%. This represents an important milestone in the execution of Route 2030.

We are translating the strategic land positions we secure into infrastructure new buildings and opportunities for future rental income. Our most significant development priority is Monterrey, where the successful leasing of our existing Apodaca property has enabled us to advance development at our new Vesta Park Monterrey. We are also investing in infrastructure and development in Juarez. Guadalajara, Mexico City, and other selected markets where we see attractive long term opportunities. This is a natural progression of our strategy, First, we identify and secure exceptional locations. We then develop the infrastructure necessary to support our customers operations and progressively build new capacity as demand materializes. And our approach remains disciplined.

We are not developing simply to grow the size of our portfolio. We are focused on projects where the quality of the location, customer requirements, infrastructure and expected returns supports sustainable long term value creation. Following quarter end, we also acquired an additional land parcel in Mexico City, comprising approximately 689 thousand square feet. This investment further strengthens our development capacity in 1 of Mexico's most important logistics markets and advances our Route 2030 land requirements. Equally important, our growth strategy is supported by a strong and increasingly flexible financial position. As Juan will discuss.

Together with our successful equity offering earlier this year, these actions have strengthened our ability to fund development, infrastructure and future growth opportunities while maintaining a prudent balance sheet. We believe this combination of development capabilities and financial discipline is especially important in the current market. From a financial perspective, the third quarter was also very strong. With rental revenue increasing 10.8% year over year to $77.5 million. Adjusted NOI increased 10.4% year over year to $72.9 million with a 94% margin. Adjusted EBITDA increased 9.2% year over year to $65.2 million and an 84.1% margin. Vesta FFO for the quarter excluding current income tax, totaled $47.1 million a 0.7% decrease compared with the third quarter of 25.

These results reflect the contribution from newly leased properties. Continued revenue growth and our focus on operational efficiency. Importantly, this performance has enabled us to raise our financial guidance for 2026 Juan will share these details shortly. We are extremely pleased with our performance and the progress we have made during the first 9 months of the year. At the same time, we recognize that the pace of investment decisions and leasing activity can vary from quarter to quarter. Our confidence is grounded in what we have achieved, the quality of our portfolio and the long term opportunities ahead. As we enter the final months of 2026 and prepare for 2027, we remain focused on sustaining strong operating performance.

Advancing developments that create value and maintaining the financial flexibility to respond to attractive opportunities. We have built a company with the assets, customer relationships expertise and financial strength to succeed across different market conditions. This quarter demonstrates the effectiveness of the strategy. I would like to recognize our entire Vesta team for their exceptional work and thank our clients for continuing to place their trust in us. With that, let me turn the call over to Juan to discuss our financial results in greater detail.

Juan Felipe Sottil Achutegui: Thank you, Lorenzo, and good day, everyone. We delivered another strong quarter. Continuing the momentum we built since the start of the year. Given this consistent performance, we are raising our full year 2026 guidance as Lorenzo noted. We now expect revenue growth of 11.5% to 12.5%. Up from our prior guidance of 10% to 11%. Reflecting higher than expected rental income from properties added this year. We also now expect adjusted NOI and adjusted EBITDA margins to reach 94% and 84%, respectively. By year end. Up from our prior guidance of 93.5%, 83%. Underscoring our continuing focus on expense control and on delivering strong results. Now let me walk you through our third quarter results.

Starting with our top line, total revenues increased 9.9% to $79.6 million while revenues excluding energy reached $77.5 million, a 10.8% increase year over year. This growth was primarily driven by rental income from new leases, and inflationary adjustments across our portfolio. In terms of currency mix, 89.4% of our third quarter 26 rental revenues were denominated in U. S. Dollars. Unchanged from the same period last year. Moving to profitability, adjusted NOI increased 10.4% to $72.9 million Our adjusted NOI margin decreased 33 basis points year over year to 94.1%. Reflecting higher operating property costs relative to rental revenues in the quarter. Adjusted EBITDA totaled $65.2 million, up 9.2% year over year.

While the margin contracted a 123 basis points to 84.1%. Primarily due to higher costs and administrative expenses during the quarter. FFO excluding current tax was relatively flat. at $47.1 million in the third quarter. Pretax income was $104 million, compared to 52.4 million in the third quarter of 2025. The increase was primarily due to higher gains on the revaluation of investment properties, higher interest income, and higher other income. Partially offset by higher interest expense, higher other expenses, and a foreign exchange loss. Turning to our balance sheet and capital allocation, we ended the quarter with $240 million in cash and cash equivalents. And total debt of $1.1 billion.

Net debt to EBITDA stood at 3.3 times, and our loan to value ratio was 22.3%. During the quarter, both Standard and Poor's global ratings and Fitch ratings upgraded our long term issuer credit rating to triple b, with a stable outlook. From triple b minus with a positive outlook. These upgrades validate the quality of our portfolio and the strength of our balance sheet. And they should support a more efficient cost of capital going forward. Also, aligned with ensuring balance sheet strength, we took decisive steps this quarter to further strengthen our capital structure. We announced a prepayment of $105 million under 2 private financings. Retiring both well ahead of maturity.

As a result, we have no significant maturity over the next few years, Which gives us greater flexibility and allow us to stay focused on growth. Finally, on October 15, we paid a cash dividend for the third quarter equivalent to 37 cents in pesos per ordinary share. This concludes our third quarter 2026 review. Operator, could you please open the floor for questions?

Operator: We will now begin our question and answer session. Limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Juan Tonsay with Bradesco BBI. Juan, your line is open.

Juan Tonsay: Hi. Good morning, mister Tim, and thank you for taking my question. Congrats on the results. So you have highlighted the AI related industries as an emerging source of, demand for industrial space in Mexico. How large do you think this opportunity could become over the next few years in terms of GLA? Thank you. Juan, can you repeat what you mean with the demand? The AI related industries? You mentioned that it is a. An emerging source of demand for industrial space in Mexico. I am just trying to get a sense of, like, how big do you think this opportunity could become in the next, you know, 2 to 3 years, let's say.

Operator: Gracias Juan, thank you very much for your question and for being on today's call.

Lorenzo Dominique Berho Carranza: Definitely, we have seen a tremendous increase in demand related to data centers as well as AI related We have in the previous years, we have been very close to the electronics sector. As you may know, some of our clients include Foxconn and others that are currently contractors for data centers, producing servers and data center related equipment, but also we have seen equipment in the cooling system, HVAC, air conditioning, ventilation, electric switches. This is-- We believe that this could be pretty big. As you can see, the export numbers in terms of electronics from Mexico to the US. They have increased dramatically in the last couple of years.

Today's export represent in the electronic sector represent the majority of exports to the US, probably right now already exceeding the exports to the. In the in the I am sorry, in the automotive industry, So we think that as long as this continues to accelerate, we will continue to see demand, and we believe that we will have strong demand coming in markets such as Guadalajara, where we are well positioned, Ciudad Juarez, where we have also seen also this particular trend. And if you look at the exports of Jalisco as well as Chihuahua, particularly coming from Ciudad Juarez, it is very much linked to these companies.

And all, but also in other markets such as Tijuana, Monterrey, and maybe some later on in the Bajio region, particularly for electric switches and panels. We do not have an estimate on GLA. But if you track closely on the closings on Vesta not only this quarter but in the previous years, this particular wave continues to increase. So we are glad to see that Vesta is well positioned with the industrial parks that not only have available space, but many of these buildings require energy and we are well positioned in terms of energy in many of these projects like Guadalajara and Juarez.

So we think that this particular trend will continue as long as we see these billions and trillions of dollars being invested in AI data centers and hyperscalers among the industry.

Juan Felipe Sottil Achutegui: Thank you.

Operator: Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Rodolfo, your line is open.

Rodolfo Ramos: Thank you, Lorenzo and Juan, Fernanda and team. My question is a bit more long term oriented. I mean, now that the US and Mexico trade negotiations are progressing but not yet closed, the e-commerce and logistics arm of demand has been an important factor there, you know, many of the likes of Amazon, like Mercado Libre, already built out this massive national regional distribution centers, and perhaps now they will be more focused on developing that last mile fulfillment center infrastructure as well.

That requires fewer square feet So just wanted to get your sense more long term thinking about that aspect of demand How you see it evolving, and how reasonable do you think is that we see that development pipeline of yours accelerating in that scenario and also with, of course, with USMCA coming through? Thank you.

Operator: Thank you very much, Rodolfo, for your question.

Lorenzo Dominique Berho Carranza: As you well know, Vesta has a strong bet towards e commerce and logistics related to e commerce. And Vesta has made a strong bet particularly in these metro areas like Guadalajara, Monterrey, Mexico City, And we believe that the demand in this particular sector will continue to increase. We have seen major growth from these companies. MercadoLibre is currently Vestas largest tenant and continue to grow. We recently closed an important transaction again with MercadoLibre in Monterrey So we think that if you analyze carefully the countries with advanced of e commerce, they e commerce represents more than 30% of total of total retail sales.

While Mexico being still an early adoption, has definitely accelerated since the pandemic, we are still at 15% to 17% of total sales. And if you look at public numbers on companies such as Walmart, Liverpool, they are way below what they could be doing in other markets. So we continue to see strong demand in the long term. And then you mentioned this well, we think that there could be a strong demand also for last mile operations, for reversion--reverse logistics. So that is why our strategy will continue to tap those. We recently did a land acquisition in Mexico City, again, trying to be closer to the demand driven by these large e commerce companies.

So we are excited about the trends in our sector. Related to e-commerce too. Actually, I think that some of these ecommerce players will continue to expand not only in the large metro areas, but also in other markets that have a large population and are well positioned and logistically, they all need to supply quicker. Competition is tough. I think that all these players are understanding better the Mexican consumer habits, which are rapidly changing too. Thank you.

Operator: Our next question comes from the line of Cordell Giotto with Goldman Sachs. Your line is open.

Analyst: Good morning, everyone. Thank you for taking my questions. My first 1 is around the development pipeline. So it grew materially quarter-on-quarter about 80%. 1 thing that we noted is the majority, if not all of it continues to be on spec. And 1 thing that I wanted to understand is how. Do you have any preliminary conversations around potential tenants for these assets, or do you have some tenants in mind that could be coming into these assets?

Just to understand how the potential lease up for these assets, some of which will come in the second, you know, the first quarter of next year, how those are shaping up And also, the other thing that, I had a question on was on your land bank. So, wanted to understand how you think about the composition of the land bank right now. Looking at it, you already used up all your Mexico City land. So I was just wondering, are you looking to expand Are you looking for more land in Mexico City? Or are there any other areas that you are looking to buy land as well? Thank you.

Lorenzo Dominique Berho Carranza: Excellent. Cordell, thank you very much for being on the call and for making these questions. I will start with your second question regarding land bank and competition. And Mexico City, specifically, we believe that Vesta has made smart decisions by being able to identify the markets where we want to continue growing in markets with a strong dynamism and markets we believe will represent a higher demand. And that is why Vesta has acquired land in the last quarters. In the last cycle in Monterrey. In Juarez, in Tijuana, Guadalajara, and Mexico City. And particularly Mexico City, we recently did an acquisition where we are going to be able to develop approximately 700 thousand square feet.

These together with a project that we have under development also in the Mexico City CTT corridor. But we continue to look into Mexico City so that we can have different alternatives in the different Mexico City in the Mexican. In the different submarkets. We are focusing strongly in urban infill locations with higher barriers of entry. And that is why we have a sharpshooter strategy in Mexico City and we have we have some great case studies and successful cases. like the 1 in Punta Norte, the 1 in La Villa, we were able to get record high rental rates.

In great locations great buildings with outstanding investment grade tenants. that is why we will continue to buy land in Mexico City. For the other sites, we believe that we have pretty much the land that we require in order to execute our long term plan, the Route 2030 strategy. We will give more detail at our Vesta Day but we are very happy to today have a larger pipeline And the pipeline, it is actually a result of stronger leasing activity. And let me use 1 example, Monterrey. In Monterrey, starting in the year, we had 3 buildings that we developed on spec. We had them in the lease-up stage.

And as of today, almost at the end of the year, we have we are almost fully leased in Monterrey. with tenants in different sectors which relate to your first question. We have tenants in the e-commerce industry, AI related industries, as well as other logistics and manufacturing. So it is a very well-diversified base of tenants And if we look forward, we started 3 buildings in the new Vesta Park Monterrey, which is right next to the airport on the same Vesta Apodaca corridor on the Apodaca Road to the to the airport.

So we started 3 buildings 2 of them are kind of our, let's call it, bread-and-butter buildings, multi tenant buildings, that we can accommodate different type of tenants in the 200 to 300 thousand square feet range. And we also develop another larger format like the 1 we did in Apodaca, which was very successful where I got actually several awards worldwide in terms of our development specifications. So the larger format will be an 800 thousand square foot spec building. So even though we start them on spec, our strategy is to eventually, while we develop to lease up and hopefully get some of the potential tenants signing leases before we finalize the buildings.

But we feel very comfortable with the strategy Returns are attractive. Rents in those markets are holding well. So we can still make returns in the double digit range, 10% return on costs. And for that reason, we believe that Vesta has the right strategy to start building some spec while we have already some pipeline and we have already that contact with potential clients. Remember, many of our clients are the ones that we believe will continue to expand And by starting the spec, we anticipate to potential demand of clients who want to be in the best assets in the right locations, in the best submarkets in many of these regions.

We have currently a pipeline of projects in Mexico City, Guadalajara, recently started a building in Puerto Interior in Silao in Bahio. Monterrey, Suarez, Antiguana. Markets where we have a strong leadership and a strong presence and contact with the market. Thank you. With that, I think I covered both of your questions. That is very complete. 1 quick follow-up, if I may. it is about Monterrey III and you mentioned it. it is fairly large. it is 811 thousand square feet. So why is that 1 practically so much larger than all the other projects you have? This is actually very much in line to what we recently did in Apodaca last year and that we leased this year.

This is a format that accommodates e-commerce players very well as well as logistics as well as light manufacturing. So that is why. And this paid out very well In Apodaca. We have done this also in Mexico City and we have done it in Guadalajara. I think these are very flexible buildings. We can make. We can have subdivisions in the buildings, we can also accommodate whenever there comes a large transaction and we already have the building. Remember that there have been several transactions in the, let's call it, almost 1 million dollar. Million square feet range. Particularly from logistics, e-commerce, and but also some in the light manufacturing sector.

So with this, I think that this is a good example that Vesta has identified a good opportunity. And not only the buildings are large, but what is important, the type of Vesta parks that we are developing are unique. there is no other parks that have the energy in place the accessibility to logistic corridors, accessibility to labor, which is important for light manufacturing, and at the same time, have a large format building where companies can rapidly access, and they can do their own their own tenant improvements and start the ramp-up stage quickly. Great.

Analyst: Thank you so much, Lorenzo.

Operator: Our next question comes from the line of Pablo Ricaldi with Itau. Pablo, your line is open.

Pablo Ricalde Martinez: Yes. Hi. Good morning, Vesta. Congrats on the results Maybe a follow-up on the leasing activity we saw in the quarter. I do not know if you can provide more color on a per-city basis. We have seen Tijuana quite weak. I am wondering about with their dynamics. But what are you seeing on the ground maybe as we approach the year end? And if you see a recovery in Tijuana, and when do you expect it?

Lorenzo Dominique Berho Carranza: Pablo, thank you very much for your questions. And yes, we can give you some more clarity as to the market. This particular quarter was outstanding because of several reasons. 1 of them, not only did we see some sort of turning point in terms of demand, also we were able to see demand coming in different regions. And I would like to highlight the regions where we closed leases in this particular quarter. San Luis Potosi, which was a slow market for some quarters or a few years, has recovered particularly driven by auto industry with electric vehicles, with BMW, with BMW being maybe the highlight of the transactions, but BMW-related suppliers. Silao, another electronic company, taking.

From Europe, taking important space. Tijuana, with companies in different sectors, 1 of them related to food and beverage and the other 1 related to manufacturing. Monterrey, as mentioned, e commerce, as well as manufacturing. In Puebla, the auto industry, and in Ciudad Juarez Logistics, And Electronics. I think this is a great representation of different Markets That are little by little thriving, coming back, and Probably represent the strength of many Of These Markets. For That Reason, I Think That Going Forward, We Still Think That There Could Be Demand Coming From Different Sectors As You May Recall even though we have seen Electronics Growing Rapidly.

Mexico is well positioned among different sectors in different regions, and all of them, we believe, have shown resilience in this particular couple of years, in which the geopolitical side have been challenging. So Mexico still represents an opportunity for many of these companies to continue to be competitive and this particular quarter was an example to that.

Pablo Ricalde Martinez: Perfect. Thanks, Lorenzo. Good work, I guess.

Operator: Our next question comes from the line of Alejandra Obregon with Morgan Stanley. Your line is open.

Alejandra Obregon: Hi, good morning, Vesta team. Thank you for taking my question. Lauren, you mentioned during your remarks that Vesta is developing where the economics are making sense. So I was hoping if you can talk about how you measure that today and more importantly, where. Whether there are markets where returns are starting to look more or less attractive than others, and how does that determine perhaps the pecking order of the development pipeline that you have announced? Thank you.

Operator: Thank you very much, Alejandra, for your question.

Lorenzo Dominique Berho Carranza: Yes, I think that we analyze carefully whenever we want to tap in each of certain markets. As of today, there is there is several there is several macro indicators that we believe can show an important trend towards what that. What could be happening In the case of. Let's use the example of Guadalajara which is the second largest city in Mexico in terms of population, but we have seen in the last few years strong demand coming from the electronic sector and that is why it is no surprise to see the major increase in exports coming from the state of Jalisco related to manufacturing and more specifically on electronics.

So everything somehow kind of relates, and that is why we continue to invest in a market where we believe there will still be demand in different industries, electronics and e commerce. On top of that, we have had we have currently a 100% occupied portfolio. And for that reason, we think that those are strong indicators that the market holds out well. That companies require high quality buildings, and have the right infrastructure, including energy and other utilities. And I think that for that reason, we continue to invest in these markets.

Another important example could be Ciudad Juarez, with strong macro trends in the electronics sector But if you look into retail markets such as Monterrey with several transactions related to the industries that we like. Those numbers continue to thrive. that is why it is hard to look at economic growth just as a general figure in terms of GDP because it includes too many different components.

Analyst: But when we look closer and we analyze deeper and we see on the previous data, we think that is more constructive whenever it comes to making decisions.

Alejandra Obregon: Gotcha. And, if I may, have your yield on cost changed today vis a vis what probably you saw 2, 3 years ago or 4 years ago?

Lorenzo Dominique Berho Carranza: that is a good question. Yields on cost remain at double digits. We estimate returns between 10% to 11% return on cost. I would say that maybe since the pandemic we saw a major change in terms of construction cost, but we have also seen major increase in rents and that makes the returns hold. Lately, we have seen even though rates have remained steady. In certain markets and actually we have seen rents increase in some markets. So these are pretty healthy numbers and these are very supportive to be able to get attractive high returns.

In addition to that, if I may, it is not only about the return on cost, but as you remember and you recall, Vesta adjusts--at the end. The lease agreements have adjustments at every anniversary, and we adjust them to inflation. So nowadays, the we see that inflation might be a little stickier than expected. We believe that Vesta is incredibly well hedged towards inflation because of the nature of our lease agreements.

So I think that it is not only about the return on cost, the ingoing return on cost, but if you look at it from a long-term return perspective, I think that we are on the right side of the equation to make sustainable attractive risk adjusted returns.

Operator: And maybe if I may elaborate to elaborate on your question.

Juan Felipe Sottil Achutegui: I would probably like to talk about the cap rates that we continue to see in the market there continues to be strong demand for stabilized assets, and we see some of our peers still doing acquisitions in the, let's say, 6% range in terms of cap rates, 6 to 7% cap rates So if you look at our 10% to 11% return on costs, vis a vis with new buildings in the strong markets, vis a vis stabilized assets in the 6% to 7% range. I think that we are delivering strong spread to our to our investors, understanding that capital markets is still very supportive for cap rates in the 6 to 7% return.

So We are glad to see that there is liquidity on the market. there is liquidity on the private side. And for that reason, I think that this these spreads are very appealing for our shareholders.

Operator: Understood. Our next question comes from the line of David Soto with Scotiabank. David, your line is open. Just a reminder that if you are muted locally, please unmute your device. David, are you there? We will move on to our next question, which is from the line of Felipe with JPMorgan. Felipe, your line is open.

Analyst: Hey, good morning, guys. Thanks for the call for taking my question. So I have a question on the fiscal package that came out earlier this year, and there is some reductions in the in the deductions for sort of the fiscal result that you give every year. So I just wanna understand if you guys are forecasting that for next year. What sort of headwind can we expect from the increased, perhaps taxes for next year? Thank you.

Juan Felipe Sottil Achutegui: Luca, we have paid close attention to the fixed cost package. That was presented to the local congress. It has not been approved. I see implications in the monthly payments, which are temporary advances over our annual tax bill. However, I think that on the annual tax bill, it is unclear to me if we wanna have any impact at all. So look, so far, we have to analyze it. We have to see how it impacts our ability with and we will we will keep you posted.

Analyst: Got it. Thank you, Juan.

Operator: Our next question comes from the line of André Mavigny with Citigroup. André? Your line is open.

Andre: Yes. Hi, Lodin, Hua, Fernanda. So 2 questions. The first 1, with the 10 year treasury U. S. 10 year treasury, you know, hovering the highest levels in decades. Does that change the cap rate dynamics in the private real estate market in for stabilized assets? Would imagine that is a factor for cap rates to go up. that is question number 1. And on number 2, you spoke a lot about the leasing activity already, but if you could provide more details on the tenants. Lease terms, and economics behind, these latest contracts, and also if there is any tenant, improvements, requirements involved. Thank you.

Lorenzo Dominique Berho Carranza: Gracias, André. I think that yes, we have followed carefully the interest rate environment, of course, like many of you. I think that cap rates not. Do not necessarily move immediately. To any changes in interest rates. I think that over long term, it does have an impact. But I think that today, we are experiencing too much volatility, and we have not seen a major adjustment on the. On cap rates. I think that the dynamic is still a little bit lagging on that particular change. So that when interest rate increase, not necessarily cap rates increase, And maybe when interest rates even drop, we do not see that drop immediately also. So it kind of goes both ways.

On the short term. So let's see how that particular long term rate holds, and then let's analyze carefully on the cap rates. What we do what we do track is cap rates on the private market. And I think that we have we have not seen major changes on the cap rate even with an increase in interest rates, recent, but even in the longer period of time, which maybe I think we believe that is a result of having a high there is liquidity on the market and there is expectation on rent growth.

And for that reason, cap rates remain at certain levels as mentioned before, 67% We have even seen transactions of some of our peers at sub-6 percent. Which I view. Which is a it is still a still an overspread to the 10 year treasury, but clearly closer. But I think even if interest rates increase, and we believe that there could continue to be volatility. that is why our focus will continue to be on the development yields which are very steady, sustainable at a 10% to 11% return on cost there is definitely a lot of spread for our investors.

So even with some movements in interest rates, that could impact the cost of debt in our sector, There continues to be great spread, and that is definitely represented. That has a result major shareholder value. So I think that we are again on the on the right side of the on the equation of the investment strategy which is focusing on spread.

Operator: Our next question comes from the line of Elisa Gomez with BCG Patra. Elisa, your line is open.

Alisa Gomez: Hi. This is Courtney. Thanks for taking my question. You mentioned that BMW's related supplies company So it is among the 4 zero 2 panel. Are you starting Hello?

Lorenzo Dominique Berho Carranza: Can you listen to us? Yeah.

Alisa Gomez: I. And this 1 could be recovering in outer sector. Or if you just need it to a few to like it is like My apologies for interrupting.

Operator: Elisa, would you mind moving a little bit closer to your device? We are having a very hard time hearing you. it is quite muffled.

Alisa Gomez: Yeah. So you mentioned that BMW really did supply company was among the acquired new tenants. Are you certain to see a recovery in the auto sector? Or Same here. Yeah. And they needed to a few names.

Operator: Elisa, would you mind asking your question 1 more time and just getting as close as you can to your device? We are still having trouble hearing you.

Alisa Gomez: So you mentioned that a BMW related supplies company was among this quarter's new tenants. Are you trying to see a recovery in the sector or if still limited to a few names? Specific names?

Operator: I Apologies for this interruption. We will now move on to our next question from Alan Macías at Bank of America. Alan, your line is open.

Alan Macías: Hi. Good morning, and thank you for the call. Just to quick question on how are you seeing the M&A activity in Mexico? Is activity picking up in your view? Just if you can give us a color. On this. Thank you.

Operator: My apologies for this interruption. We seem to be experiencing a technical delay. I will be briefly pausing the broadcast. Please stand by. Thank you for your patience. The call has resumed. Alan, if you are still online, we can now take your question. Alan. Please go ahead and Stay on the line. The live event will resume shortly. We will move on to our next question. And if any other questions are still remaining, please feel free to rejoin the queue. Our next question comes from the line of David Soto with Scotiabank. David, your line is open.

David Soto: Hi. Thanks for taking my question. it is a follow-up on your development pipeline. Could you please share the rationale for maintaining a development pipeline that is mostly exposed to inventory buildings? And do you see market conditions improving in the way that you need to rely more on those to succeed in the regions that are not, but that having good dynamics compared to Mexico City, Guadalajara. And what should we expect about the mix between build-to-suit and spec projects over the next 12 to 24 months?

Lorenzo Dominique Berho Carranza: Excellent. Gracias, David, for. Thank you very much for your question. Yes, as you recall, Vesta has a strategy to develop, spec building as well as build to suit projects. But more importantly, what we like is to develop industrial parks that can accommodate both So we acquire land in strategic locations, we have the infrastructure, and the organization and the utilities to have the pads ready so that whenever we find an opportunity and we see the market dynamics, we anticipate and we develop. Either on spec or build to suits. And that is why we believe that it was a good moment to get back develop high quality buildings.

I think that we have the right locations land we acquired recently, and developing today, which will provide us a finalized buildings at some point next year. We think that over next year, we will continue to have strong demand that might be late to start their own project. And that is why we believe that Vesta can anticipate to the demand of these companies that normally need to make decisions very rapidly. that is why we think and this strategy at high returns 10% to 11% return on cost has always paid off. Additionally, I think that you mentioned Mexico City and Guadalajara being very strong markets at the moment.

We actually think that even in other markets, which, yes, have been and remains softer, there is always pockets of clients and opportunities that we can tap and we have seen them from existing clients as well as new clients that require high quality buildings, that has already infrastructure, energy particularly, in the right locations. And that is why we believe that the play towards certain submarkets urban infill, good locations, pays off even in markets that might be somewhat softer than others. Our build to suit strategy will continue to be there. We think that we have the development capabilities to address those needs. We have done a lot of build-to-suits and spec-to-suits.

So, definitely, over the next 12, to 24 months, maybe 1 third to half of the projects will continue to be in the build to suit area inside of our parks. Which, again, we can accommodate spec and build to suit. Thank you, David.

David Soto: Thanks. Congrats.

Operator: Have reached the end of our question and answer session. I will now pass the call back to Mr. Berho for closing remarks. Please go ahead.

Lorenzo Dominique Berho Carranza: Thank you, and thank you all for being on today's call. Looking ahead, we remain confident in Mexico's strategic position within North American supply chain, and Vesta's unique ability to capture attractive opportunities. While broad market recovery may vary across regions, we will continue leveraging our strengths to capture opportunities, investing with discipline and advancing Route 2030 to create sustainable, long term value for our shareholders. We look forward to sharing more about our strategy and development opportunities at Vesta Day in New York on November 11th. Thank you all for joining us today and for your continued interest in Vesta. Have a great day.

Operator: We have reached the end of our call. Thank you for joining us. You may now disconnect.

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