Corporacion Inmobiliaria (NYSE:VTMX) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Corporacion Inmobiliaria reported a strong third quarter with record leasing activity, increased portfolio occupancy to 93.9%, and a 10.8% year-over-year increase in rental revenue to $77.5 million.
The company raised its full-year 2026 guidance, expecting revenue growth of 11.5% to 12.5% and adjusted NOI and EBITDA margins of 94% and 84%, respectively, due to strong leasing activity and strategic land investments.
Vesta’s Route 2030 strategy is on track, with significant development efforts in key markets like Monterrey and Mexico City, supported by strong financial health and recent credit upgrades.
The company is capitalizing on emerging demand from AI-related industries and e-commerce, with notable clients like BMW and Mercado Libre expanding their presence in Vesta’s properties.
Management highlighted the importance of strategic land acquisitions and development plans to support future growth, along with maintaining financial discipline and a strong balance sheet.
Full Transcript
OPERATOR (Moderator)
A question and answer session will follow today’s prepared remarks and, as a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Vesta’s Investor Relations Officer. Please go ahead.
Fernanda Bettinger (Investor Relations Officer)
Good morning everyone and welcome to our review of Vesta’s third quarter 2026 earnings results. Presenting today with me are Lorenzo Dominique Verro, our Chief Executive Officer, and Juan Sotil, our Chief Financial Officer. The earnings release detailing our third quarter 2026 results was released yesterday after market close and is available on Vesta’s IR website along with our supplemental package. It’s important to note that on today’s call, management remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, please review our public filings. 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 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 is stated in U.S. dollars unless otherwise noted. I’ll now turn the call over to Lorenzo Dominique Verro.
Lorenzo Dominique Verro (Chief Executive Officer)
Thank you, Fernanda, and good morning to everyone joining us today. I’m 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 2030 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 deliver 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 Vesta’s strategy.
Let me begin with the 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’ve 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’re 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 U.S. trade data reinforces this point. According to U.S. Census Bureau figures, U.S. imports from Mexico reached approximately $60.6 billion in August, a record level, with Mexico accounting for approximately 18% of total U.S. goods imports. We’re 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 productive 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 2.5 times from 2024 to 2026, reflecting the country’s growing role in supplying the technology and digital infrastructure industries. At the same time, we are witnessing a significant transformation in the industries driving demand for 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’re 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, the 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, and 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, Vesta 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, DSV Logistics, and Mercado Libre continue to grow with Vesta. These relationships demonstrate the value of our customer-focused operating model, while 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’s 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 220 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 700,000 square feet of lease renewals with a weighted average lease term of approximately five years. Our trailing twelve-month weighted average leasing spread remains strong at 10%, demonstrating the continued value customers place on our properties. Vesta’s competitive advantage is a combination of deep local market knowledge, long-standing customer relationships, an 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 Vesta Park Apodaca properties. This progress has supported the next phase of growth at our new Vesta 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’re also encouraged by leasing activity involving established industrial companies, including BMW in San Luis Potosi.
This reflects the continued importance of Mexico 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 delivered 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’re encouraged not only by the amount of leasing achieved, but by the quality of our customers, the diversity of demand, and the improved visibility 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 five inventory buildings — three in Monterrey, one in Ciudad Juarez, and one in Guanajuato. Following these starts and the delivery of two fully occupied 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 secured 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 … apartment. We’re also investing in infrastructure and development in Ciudad 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 exceptional locations. We then develop the infrastructure necessary to support our customers’ operations and progressively build new capacity as demand materializes. Our approach remains disciplined. We’re not developing simply to grow the size of our portfolio. We’re focused on projects where the quality of the location, customer requirements, infrastructure, and expected returns support sustainable long-term value creation.
Following quarter end, we also acquired an additional land parcel in Mexico City comprising approximately 689,000 square feet. This investment further strengthens our development capacity in one 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 2025. 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’re extremely pleased with our performance and the progress we have made during the first nine 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 Sotil (Chief Financial Officer)
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% and 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 2026 rental revenues were denominated in US 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 123 basis points to 84.1%, primarily due to higher cost and administrative expenses. During the quarter, FFO excluding current tax was relatively flat at $47.1 million in the third quarter.
Pre-tax income was $104 million compared to $52.4 million in the third quarter 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 entered 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 & Poor’s Global Ratings and Fitch Ratings upgraded our long-term issuer credit rating to BBB with a stable outlook from BBB- 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 two private financings, retiring both well ahead of maturity. As a result, we have no significant maturity over the next years, which gives us greater flexibility and allows us to stay focused on growth. Finally, on October 15, we paid a cash dividend for the third quarter equivalent to $0.37 pesos per ordinary share.
This concludes our third quarter 2026 review. Operator, could you please open the floor for questions?
OPERATOR (Moderator)
We will now begin our question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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 Tonse with Bradesco BBI.
Juan, your line is open.
Juan Tonse (Analyst)
Hi, good morning, Dr. Kim, and thank you for taking my question. Congrats on the results. So you’ve 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.
Lorenzo Dominique Verro (Chief Executive Officer)
Can you repeat the—what do—
Juan Tonse (Analyst)
What do you mean with the demand—the AI-related industries? You mentioned that it’s an emerging source of demand for industrial space in Mexico. I’m just trying to get a sense of how big you think this opportunity could become in the next, you know, two, three years, let’s say.
Lorenzo Dominique Verro (Chief Executive Officer)
Gracias, Juan. Thank you very much for your question and for being on today’s call. Definitely, we have seen a tremendous increase in demand related with data center industries as well as AI-related. We have, in the previous years, 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, and we believe that this could be pretty big.
As you can see, the export numbers in terms of electronics from Mexico to the US have increased dramatically in the last couple years. Today’s exports in the electronics sector represent the majority of exports to the US, probably right now already exceeding the exports—I’m 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 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. 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 don’t have an estimate on GLA, but if you track closely the closings on Vesta, not only this quarter but in the previous years, this particular wave continues to increase. So we’re glad to see that Vesta is well positioned with industrial parks that have not only available space, but many of these buildings require energy, and we’re well positioned in terms of energy in many of these projects like Guadalajara and Ciudad 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.
Thank you.
Juan Tonse (Analyst)
Thank you.
OPERATOR (Moderator)
Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Rodolfo, your line is open.
Olaf (Analyst)
Thank you, Lorenzo, Juan, Fernanda and team. My question is a bit more long-term oriented. I mean now that the U.S.-Mexico trade negotiations are progressing but not yet closed, the e-commerce logistics arm of demand has been an important factor there. You know, many of the likes of Amazon and Mercado Libre having already built out these massive national and regional distribution centers, and perhaps now they’ll be more focused on developing that last-mile fulfillment center infrastructure 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 it is that we see that development pipeline of yours accelerating in that scenario, and also with, of course, with USMCA coming through.
Lorenzo Dominique Verro (Chief Executive Officer)
Thank you. Thank you very much, Olaf, for your question. As you well know, Corporacion Inmobiliaria has a strong bet towards e-commerce and logistics related to e-commerce. And Corporacion Inmobiliaria 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. Mercado Libre is currently Corporacion Inmobiliaria’s largest tenant and continues to grow. We recently closed an important transaction again with Mercado Libre in Monterrey. So we think that if you analyze carefully the countries with advanced adoption of e-commerce, e-commerce represents more than 30% of total retail sales, while Mexico, being still at early adoption, has definitely accelerated since the pandemic.
But we are still at 15 to 17 percent of total sales. If you look at the public numbers on companies such as Walmart and 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 you mentioned this. Well, we think that there could be a strong demand also for last-mile operations, for reverse logistics. So that’s why our strategy will continue to tap those markets. 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 e-commerce 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, but I think that all these players are understanding better the Mexican consumer habits, which are rapidly changing, too.
Olaf (Analyst)
Thank you.
OPERATOR (Moderator)
Our next question comes from the line of Coral Guillote with Goldman Sachs. Your line is open.
Coral Guillote (Analyst)
Good morning everyone. Thank you for taking my questions. My first one is around the development pipeline. So it grew materially, quarter on quarter, about 80%. One thing that we noted is the majority, if not all, it continues to be on spec. And one thing that I wanted to understand is 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 that will come the first quarter of next year, how those are shaping up.
And also the other thing that I had a question on was within 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’re looking to buy land as well? Thank you.
Lorenzo Dominique Verro (Chief Executive Officer)
Excellent, Coral, 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 Corporacion Inmobiliaria has made smart decisions by being able to identify the markets where we want to continue growing. These are markets with strong dynamism and markets that we believe will represent a higher demand. And that’s why Corporacion Inmobiliaria 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’re going to be able to develop approximately 700,000 square feet. This, 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 submarkets. We’re focusing strongly in urban infill locations with higher barriers of entry. And that’s why we have a sharpshooter strike in Mexico City.
And we have some great case studies and successful cases like the one in Punta Norte, the one in La Villa, where we were able to get record high rental rates in great locations, great buildings with outstanding investment, great tenants. That’s 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’ll give more detail at our Corporacion Inmobiliaria Day, but we’re very happy today to have a larger pipeline.
And the pipeline is actually a result of stronger leasing activity. Let me use one example: Monterrey. Starting in the year, we had three buildings that we developed on spec. We had on lease-up stage. And as of today, almost at the end of the year, we’re almost fully leased in Monterrey with tenants in different sectors. Which relates to your first question. We have tenants in the e-commerce industry, AI-related industries, as well as other logistics and manufacturing. This is a very well diversified base of tenants. If we look forward, we started three buildings in the new Corporacion Inmobiliaria Park, Monterrey, which is right next to the airport on the same Apodaca corridor, on the Apodaca road to the airport. So we started three buildings. Two of them are our, let’s call it bread-and-butter buildings, multi-tenant buildings that we can accommodate different types of tenants in the 200,000 to 300,000 square feet range.
And we also developed another larger format like the one we did in Apodaca, which was very successful, where it got actually several awards worldwide in terms of our development specifications. So the larger format will be an 800,000 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 cost. And for that reason we believe that Corporacion Inmobiliaria 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 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. We recently started a building in Puerto Interior, in Silao, in Bajío, Monterrey, Ciudad Juarez, Santa Ana 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.
Coral Guillote (Analyst)
No, that is very complete. One quick follow-up if I may. It’s about Monterrey Tres, and you mentioned it, it’s fairly large, it’s 811,000 square feet. So why is that one particularly so much larger than all the other projects you have?
Lorenzo Dominique Verro (Chief Executive Officer)
Well, this is actually very much in line with what we recently did in Apodaca last year and that we leased this year. This is a format that accommodates very well for e-commerce players as well as logistics, as well as light manufacturing. So that’s why, and this played 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 have subdivisions in the buildings, but 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 million square feet range, particularly from logistics, e-commerce, but also some in the light manufacturing sector. So with this, I think that this is a good example that Corporacion Inmobiliaria has identified a good opportunity. And not only the buildings are large, but what is important, the type of Corporacion Inmobiliaria parks that we are developing are unique.
There’s 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 tenant improvements and start a ramp-up stage quickly.
Coral Guillote (Analyst)
Great. Thank you so much, Lorenzo.
OPERATOR (Moderator)
Our next question comes from the line of Pablo Ricarde with Itaú. Pablo, your line is open.
Pablo Ricarde (Analyst)
Good morning, Corporacion Inmobiliaria. Congrats on the results. Maybe a follow-up on the leasing activity we saw in the quarter. I don’t know if you can provide more color on a per city basis. We have seen Tijuana quite weak and Mexico City standing out with better dynamics. But what are you seeing actually 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 Verro (Chief Executive Officer)
Gracias. Pablo, thank you very much for your questions and yes, we can give you some more clarity as to the markets. This particular quarter was outstanding because of several reasons. One of them, not only did we see some sort of turning point in terms of demand, but 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 Potosí, which was a slow market for some quarters or a few years, has recovered, particularly driven by auto industry with electric vehicles, with BMW being maybe the highlight of the transactions, but BMW-related suppliers.
Silao, another electronic company from Europe taking important space. Tijuana, with companies in different sectors, one of them related to food and beverage and the other one related to manufacturing. Monterrey, as mentioned, e-commerce as well as manufacturing. Puebla, auto industry. Querétaro, auto industry. Ciudad Juárez, 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, which on 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 of that.
Pablo Ricarde (Analyst)
Perfect. Thanks a lot.
OPERATOR (Moderator)
Our next question comes from the line of Alejandro Obregon with Morgan Stanley. Your line is open.
Alejandra
Hi, good morning, Vesta. Tim, thank you for taking my question. Loren, you mentioned during your remarks that Vesta is developing where the economics are making. So I was hoping if you can talk about how you measure that today and more importantly, 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.
Lorenzo Dominique Verro (Chief Executive Officer)
Muchas gracias. Thank you very much, Alejandra, for your question. Yes, I think that we analyze carefully whenever we want to tap in certain markets. As of today, there’s several macro indicators that we believe can show an important trend towards what could be happening in the case of, let’s use example of Guadalajara, which is the second largest city in Mexico in terms of population. But we have seen in the last years strong demand coming from the electronics sector. And that’s 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’s why we continue to invest in a market where we believe there will still be demand in different industries, particularly electronics and e-commerce. On top of that, we have currently 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 that 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 Juárez, with strong macro trends in the electronics sector. But if you look into detailed markets such as Monterrey, with several transactions related to the industries that we, that we like, those numbers continue to thrive.
That’s why it’s hard to look at economic growth just as a general figure in terms of GDP, because it includes too many different components. But when we look closer and we analyze deeper and we see on the previous data, we think that that is more constructive whenever it comes to. To making. To make decisions.
Alejandra
Gotcha. And if I may ask, have your yield on costs changed today vis-à-vis what probably you saw two, three years ago or four years ago?
Lorenzo Dominique Verro (Chief Executive Officer)
That’s a good question. Yields on costs remain at double digits. We estimate returns between 10 to 11% return on costs. 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 that 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’s not only about the return on cost, but as you remember and you recall, Vesta adjusts at each. The lease agreements have adjustments at every anniversary and we adjust them to inflation. So nowadays that we see that inflation might be a little sticky secure 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’s not only about the return on cost, the ingoing return on cost, but if you look at it from a, 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.
And maybe, if I may, if I may elaborate, continue to elaborate on your question. 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-à-vis with new buildings in the strong markets, vis-à-vis stabilized assets in the 6 to 7%.
I think that we are delivering strong spread to our investors understanding that the capital market is still very supportive for cap rates in these 6 to 7% return. So we’re glad to see that there’s liquidity on the market. There’s liquidity on the private side. And for that reason I think that these spreads are very appealing for our shareholders.
Alejandra
Understood? Muchas gracias.
OPERATOR (Moderator)
Our next question comes from the line of David Soto with Kosher Bank. 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 Barragán with JP Morgan. Felipe, your line is open.
Felipe Barragan (Analyst at JP Morgan)
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 want to 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 Sotil (Chief Financial Officer)
Look, we have paid close attention to the fixed 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 want to have any impact at all. So look, so far we have to analyze it, we have to see how it impacts our ability and we will keep you posted.
Felipe Barragan (Analyst at JP Morgan)
Got it, thank you.
OPERATOR (Moderator)
Our next question comes from the line of Andre Mavini with Citigroup. Andre, your line is open.
Andre Mavini (Analyst)
Yes. Hi Lorenzo, Juan and Fernanda. So two questions. The first one, with the 10-year Treasury, US 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 Mexico for stabilized assets? I would imagine that’s a factor for CapEx to go up. That’s question number one. And on number two, you spoke a lot about the leasing activity already. But if you could provide more details on the tenants’ lease terms and economics behind this latest contracts and also if there’s any tenant improvements requirements involved.
Thank you.
Lorenzo Dominique Verro (Chief Executive Officer)
Gracias, Andre. I think that yes, we have followed carefully the interest rate environment. Of course, like many of you, I think that cap rates 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’re experiencing too much volatility and we have not seen a major adjustment 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 don’t 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 track is cap rates on the private market. And I think that we have not seen major changes on the cap rate, even with an increase in interest rates, not recent, but even in the longer period of time, which maybe I think we believe that that’s a result of. Of having a high. There’s liquidity on the market and there’s expectation on rent growth.
And for that reason cap rates remain at certain levels. As mentioned before, 6, 7% we have even seen transactions of some of our peers at sub 6% which I view, which it’s still at. It’s still an overspread to the ten year treasury, but clearly closer. But I think even if interest rates increase and we believe that there could continue to be volatility, that’s 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’s 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 as a result major shareholder value. So I think that we are again on the right side of the equation, on the equation of the investment strategy, which is focusing on spread.
OPERATOR (Moderator)
Our next question comes from the line of Elisa Gomez with BTG Pactual. Elisa, your line is open.
Elisa Gomez (Analyst)
Hi, good morning. Thanks for taking my question. You mentioned that BMW related supplies company. Are you starting.
OPERATOR (Moderator)
Hello. Can you listen to us?
Elisa Gomez (Analyst)
Hi. Are you planning to see a recovery in the outer sector or is he just limited to a few specific names?
OPERATOR (Moderator)
My apologies for interrupting. Elisa, would you mind moving a little bit closer to your device? We’re having a very hard time hearing you. It’s quite muffled. Elisa, so you mentioned that a BMW related supplies company was among the acquired new tenants. Are you starting to see a recovery in the auto sector, limited to a few names? Elisa, would you mind asking your question one more time and just getting as close as you can to your device? We’re still having trouble hearing you.
Elisa Gomez (Analyst)
So you mentioned that a BMW related supplies company was among this quarter’s new tenants. Are you sure to see a recovery in the sector or is still limited to a few names? Specific names.
OPERATOR (Moderator)
Apologies for this interruption. We will now move on to our next question from Alan Macias at Bank of America. Alan, your line is open.
Alan Macias (Analyst)
Hi, good morning and thank you for the call. Just a 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 (Moderator)
My apologies for this interruption. We seem to be experiencing a technical delay. I will be briefly pausing the broadcast. Please stand by.
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