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AMEX:LPA

Earnings Call Transcript

[Operator]

Good morning, and welcome to LPA's Third Quarter 2024 Earnings Conference Call. My name is Shelby, and I will be the operator for today's call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions]

Now I would like to turn the call over to Mr. Camilo Ulloa, Investor Relations. Please go ahead, sir.

[Camilo Ulloa, executive]

Welcome to LPA's Third Quarter 2034 Earnings Conference Call. My name is Camilo Ulloa with LPA's Investor Relations team. Joining me on today's call are: Esteban Saldarriaga, our Chief Executive Officer; Paul Smith, our Chief Financial Officer; and Annette Fernandez, our Chief Operating Officer.

Before we proceed with a review of LPA's financial and operating results for the third quarter of 2024, please note that the information presented during this call is intended for informational purposes only and does not constitute an offer to buy or sell any securities. Forward-looking statements made during this call are subject to a number of risks and uncertainties, which are discussed in LPA's filings with the SEC. Our actual results, performance and prospective opportunities may differ materially from those expressed or implied in these statements. We undertake no obligation to update or revise any forward-looking statements after this call.

We have prepared supplementary materials that we may reference during this call. We encourage you to visit our website, ir.lpamericas.com to download these materials.

With that, I'll turn the call over to Esteban.

[Esteban Gaviria, executive]

Thanks, Camilo, and good morning, everyone. Thank you for joining our earnings call. During the third quarter, our diversified, vertically integrated real estate platform continued to perform well. Revenue and NOI both grew just over 10% while our leased occupancy increased 390 basis points to 98.5%. It is important to note that when leasing available space, we maintained our patient and disciplined approach and have successfully capitalized on acute supply-demand imbalances that resulted in leasing spreads that had increased by 25% to 40% in Colombia compared to the prior year.

In addition to capturing the sizable mark-to-market spreads, we waited for select tenants such as Porsche and DSV, one of the world's largest global transport and logistics companies. Both of which meet our exacting criteria, not only as reliable counterparties but also as potential partners for regional market growth. We're also delivering on our long-term value-creating strategy and are delighted to have entered into a binding agreement this month to form a strategic partnership with Inmobiliaria y Constructora Alas, also known as Falcon, a prominent real estate developer in Mexico, which marks our entry into the Mexican market.

This transaction is expected to close in 2025 and will grant LPA a controlling interest in two strategically located assets in Puebla, Mexico, an important automotive manufacturing hub that plays an integral role in Mexico's nearshoring industry. Additionally, DHL is an anchor tenant at the new properties, which underscores their strategic location. This particular investment also helps to further diversify the sectors we serve because it gives us more exposure to light manufacturing.

Our joint venture with Falcon will give LPA an initial strategic foothold in Mexico, enabling us to tap into a growing internal demand for institutional-quality facilities led by strong nearshoring trends and e-commerce tailwinds. Furthermore, Mexico's export-driven economy will provide LPA direct exposure to today's robust U.S. consumption while diversifying our portfolio risk with new tenants de-linked to our current tenants in Colombia, Peru and Costa Rica.

As we noted in our recent press release, our strategic partnership with Falcon will grant us immediate access to their extensive experience in Mexico's industrial and logistics market gained through more than 65 years of operation, firmly established relationships with Mexico's key landowners and a solid local network of clients and developers. Our new partner will provide us boots on the ground with substantial expertise, deeply rooted local relationships and an intimate understanding of the local market's nuances and regulations.

Simply put, the partnership with Falcon will be our springboard to grow in Mexico and serve as LPA's local office. This opportunity with Falcon arose through LPA's existing network in Mexico, leveraging our senior management's deep business relationships and through decades of experience in this market. Additionally, LPA's U.S. public listing raised our profile while strengthening our reputation through the increased transparency and elevated governance standards required from a public company. Lastly, LPA's strong balance sheet and ample financial flexibility remain a meaningful competitive advantage for our company, which also allows us to remain a partner of choice within the region.

I'll now hand over the call to Paul to discuss our third quarter financial results in more detail.

[James Smith Marquez, executive]

Thanks, Esteban. Good morning, everyone. I'd like to spend a little time highlighting a few things about our third quarter results. Before I proceed, I'd like to point out that our acquisition of the two facilities in Mexico, which we expect to close in early next year, subject to customary closing conditions, will be accretive and fully consolidated in LPA's balance sheet.

Starting with our top line growth in the quarter. This would have been slightly higher, except for the prior tactical divestment of an income-producing facility in Colombia in the fourth quarter of last year. Also related to Colombia, Esteban has noted the mark-to-market leases signed during the quarter. And the average rate increase for these facilities was significantly higher at 28%. We also successfully captured market rate increases embedded in the properties that we leased in Peru during the quarter.

Across our portfolio, average rent per square foot increased nearly 5% year-over-year, which was also due to the automatic rent escalators in our contracts with existing tenants. LPA's solid revenue growth in the quarter, coupled with our operational efficiencies, drove a 10% NOI increase to $9.6 million.

Turning briefly to expenses. Our G&A was significantly higher compared to the third quarter of 2023, which was due to the additional auditing and reporting requirements we have as a public company now. During the quarter, we received fee income again for releasing certain shareholders from their lockup agreements. This income totaled approximately $500,000, which are funds we intend to allocate towards expanding our platform in the region, along with the $10.8 million that we received in the second quarter. It's important to note that we do not expect to receive additional income of that nature.

With that, let's open the call for questions.

[Operator]

[Operator Instructions] And I'm showing we have no audio questions at this time. Ladies and gentlemen, with that, we will be concluding today's audio question-and-answer session. We will now take the webcast questions. [Operator Instructions] And at this time, there are no questions. I would like to turn the call over to Esteban for closing remarks.

[Esteban Gaviria, executive]

Thank you, operator. In summary, we continue delivering solid financial and operational results. As we embarked on an exciting new phase of growth and value creation, we will endeavor to replicate our success in the much larger and fast-growing Mexican market. We are confident that we will be successful, given our strong record of accretively expanding our asset portfolio over the years and providing world-class real estate solutions to leading multinational corporations and regional and local market leaders.

Our strategic partnership with Falcon and our initial asset purchases in Mexico are just beginning. We continue searching for other opportunities to invest capital in Mexico, where we are assessing a number of other targets, including an asset that could significantly increase our presence in the country as well as our overall GLA.

As always, we will invest with discipline, and we are very excited about the substantial growth and value that we can generate by extending LTA's unique regional real estate platform to Mexico. We look forward to updating you on this front as we advance on our investment strategy. Thank you again for joining us. We wish you all a good day.

[Operator]

That concludes today's teleconference. Thank you for your participation. You may now disconnect. Goodbye.