Latam Logistic Properties Q2 2024 Earnings Report

Latam Logistic Properties EPS Results

• Actual EPS: $0.31
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Latam Logistic Properties Revenue Results

• Actual Revenue: $10.99 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Latam Logistic Properties Announcement Details

• Quarter: Q2 2024
• Date: 8/14/2024
• Time: N/A
• Conference Call Date: Thursday, August 15, 2024
• Conference Call Time: 9:00AM ET

Logistic Properties of the Americas develops, builds and operates logistic real estate properties. It operates through the following geographical segments: Colombia, Peru, and Costa Rica. The company is headquartered in Miami, FL.

Latam Logistic Properties Q2 2024 Earnings Call Transcript

Key Takeaways

• LPA announced strategic expansion into Mexico, targeting the USMCA trade corridor with environmentally certified Class A facilities and a disciplined pipeline underpinned by partnerships for stabilized assets.
• In Q2, rental income rose 10% year-over-year, driven by Costa Rica (+9.3% revenue with a leased partner project) and Peru (+20.7% thanks to a 239,000 sq ft, 10-year lease), while Colombia occupancy was managed to capture 15-25% higher market rents.
• SG&A expenses increased due to one-time U.S. listing costs of $1.8 million for legal, compliance and marketing, a $1.1 million non-cash stock compensation charge, and a $44.5 million non-cash IFRS 2 expense from the merger accounting of share dilution.
• LPA refinanced its La Albena Logistics Park in Costa Rica with a $60 million, 20-year loan at a lower rate, using part of the proceeds for a distribution to project equity holders and demonstrating strong lender relationships.
• The firm is scaling its joint venture development model—exemplified by a 750,000 sq ft Costa Rica project co-developed with local investors—and will replicate this approach in Colombia and Peru to improve unit economics and raise fee-paying capital.

[Operator]

Good morning. Welcome to LPA's Second Quarter 20 24 Earnings Conference Call. My name is Rob, and I will be your operator for today's call. At this time, all participants are in a listen only mode. And please note that this call is being recorded.

[Operator]

There will be an opportunity for you to ask questions at the end of today's presentation. Now I would like to turn the call over to Ms. Julianna Dominguez, Investor Relations. Please go ahead.

[Speaker 1]

Welcome to LPA Second Quarter 2024 Earnings Conference Call. My name is Brianna Lominguez with LPA's Investor Relations team. Joining me on today's call are Thomas McDonald, Chairman of the Board Esteban Salisburyaga, CEO Paul Smith, CFO and Annette Fernandez, Chief Operating Officer. Before we proceed with reviewing LPA's financial and operating results, 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.

[Speaker 1]

Our actual results, performance and prospect 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 the call as well. If you have not already done so, we encourage you to visit our website at ir. Ltamerica.com and download these materials.

[Speaker 1]

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

[Speaker 2]

Thanks, Juliana. Welcome, everyone, and thank you for joining us. I'd like to say a few words before turning the call over to Esteban and Paul. To our LPA shareholders, you have invested in Latin America's premier cross border vertically integrated industrial real estate platform. Your confidence and foresight have enabled LPA to be well capitalized allowing us to deepen our presence in existing markets and enter Mexico, the region's most interesting and fastest growing industrial sector, benefiting from strong near shoring trends supported by Asia and Europe as well as strong e commerce tailwinds.

[Speaker 2]

These trends drive substantial demand for institutional quality properties for clients like those already serviced by LPA. Additionally, you've entrusted us to lead your investment via a strong and independent board along with a management team possessing exceptional operational and regional expertise. As a result, we believe LPA is optimally positioned to execute a well defined strategy to expand our differentiated and unique platform within Latin America's underpenetrated industrial real estate markets and achieve even higher levels of growth. I'd also like to remind you that a few weeks ago, we announced the addition of Francois Lavertou and Javier Martina to LPA's Board as independent directors. Francoise brings considerable expertise in scaling businesses and possesses a deep knowledge of AI solutions for supply chain management.

[Speaker 2]

Javier, a former member of LPA's predecessor entity, has an intimate understanding of our company and a strong track record of investing in and growing real estate companies in Latin America. Both bring extensive international and more importantly regional experience, further strengthening our Board. To conclude, thank you very much for entrusting your capital to fund LPA's exciting new growth phase. We look forward to engaging with you in the future. And now I'll pass it over to Esteban.

[Speaker 3]

Thank you, Thomas. Good day, everyone. It is a pleasure to welcome you to our inaugural earnings call as a public company, marking a significant milestone in our platform's ongoing evolution. We are pleased to inform you that in the Q2 of 2024, LTA's portfolio of operating assets demonstrated robust performance, driven by our strong fundamentals and favorable market trends and dynamics. Before we proceed with our review of second quarter results, I would like to provide some important context.

[Speaker 3]

Listing on the New York Stock Exchange was a means, not an end. As we have expressed before, it provides a liquid capital base and market access for us to continue expanding in our existing jurisdictions and more importantly to enter the Mexican market to capture growing demand for institutional quality industrial real estate. Much like the other growth markets where we operate, Mexico presents a substantial opportunity to serve global, regional and prominent local companies as premier Class A real estate facilities are not offered at the same pace at which supply chains need to readjust to meet new economic and geopolitical realities. Similar to the other countries where we operate today, but at a larger scale, Mexico's industrial real estate benefits from strong e commerce trends led by growing internal demand as well as from favorable shifts in near shoring and reshoring. We aim to capitalize on these opportunities by extending LPA's vertically integrated real estate platform to Mexico with a focus on the northern region and what we refer to as the USMCA trade corridor, where international and domestic companies produce goods destined for the U.

[Speaker 3]

S. Market and where we can maintain our U. S. Dollar exposure. Our Mexico strategy centers on catering to the region's extensive manufacturing distribution ecosystem through LPA's premium facilities, of which new builds are environmentally certified through the IFC's EDGE designation.

[Speaker 3]

We have a strong pipeline of attractive opportunities in Mexico that are currently under careful analysis, which we are ready to act on with our available capital. Rest assured, we will apply the same demanding investment criteria that consistently guide our approach. Given that Mexico is a new market for LPA, but not for its executive team, we intend to walk before we run, focusing on partnerships with companies that operate stabilized assets, but lack internal development capabilities and who recognize our exceptional operating performance in other markets. We intend to be rational and disciplined bidders for assets as we are fully aware of the competitive dynamics in this market. As we think about asset acquisitions, we are thoughtful about how each asset will complement, fit within and strengthen our existing property and tenant portfolio.

[Speaker 3]

Remember the Mexican assets underlying performance will be largely independent of those in Costa Rica, Colombia and Peru where we operate today. Expanding on that thought, we expect to gain access to tenants whose performance is very much de linked from our current tenants, effectively diversifying our overall portfolio risk as we expand our tenant roster. At the same time, operating in Mexico will give LPA more direct exposure to U. S. Consumption as these are export driven markets, whereas our existing asset base primarily serves logistics or domestic consumption.

[Speaker 3]

Lastly, Mexico offers the opportunity to keep dollar based rents as is our preference. In summary, both organic and inorganic investments in Mexico will add significant value and complement LPA's overall asset portfolio, enabling us to grow and continue serving our existing multinational tenants while enhancing our capital deployment in opportunities we believe will be highly accretive to our enterprise. By way of example, we're currently assessing several operating asset acquisitions. Although we do not expect nor need to close on all of them, these would be additions to our portfolio where several sellers seek partnerships to accelerate their access to capital and develop adjacent land they own. They value a partner like LPA because of our established reputation, the quality of our tenants, sophisticated development capabilities and our strong track record of successfully operating stabilized assets.

[Speaker 3]

Through our network, we identified properties that are appropriate for LPA and generally off market. Additionally, we continue to see abundant opportunities in our current markets. With LPA's existing land brand and an attractive pipeline of prospects to grow and strengthen our competitive advantage. As communicated, leading up to LPA's public listing, we also plan to increase our GLA in Costa Rica, Peru and Colombia. For instance, our 750,000 square foot project in Costa Rica is in the later stages of development and has attracted considerable interest from potential tenants.

[Speaker 3]

This development is adjacent to one of our existing parks and is being co developed with the owners of the land they're contributing. It's important to highlight that the product is being financed through capital raised locally by LPA for which we charge fees. These product level partnerships are a testament to how local investors value the quality of our product and development processes and recognize the strength and reputation of LPA, which has been further enhanced by our recent NYSE American listing. In several of these instances, LPA will own a fraction of a project's equity, keeping control provisions to manage development, financing, leasing and day to day operations, while the balance of the equity comes from local investors we've assembled such as family offices and other institutions. Over time, we have been steadily building and institutionalizing this capability, creating locally sourced joint ventures while raising fee paying capital for LPA, which improves our unit economics.

[Speaker 3]

Further, we plan to replicate this model in Colombia as we have already done in Costa Rica and Peru. With that context, I'll pass the call to Paul to discuss in more detail our Q2 performance.

[Speaker 4]

Thanks, Esteban, and good day, everyone. As Esteban noted at the beginning of his remarks, the fundamentals of our business remain strong and in line with our expectations. Our operating assets continue to perform well during the Q2, supported by favorable macro trends and leasing dynamics. 2nd quarter rental income increased by 10% year over year, driven primarily by Costa Rica and Peru growth. Leasing dynamics remain positive, particularly with regard to renewals in these markets.

[Speaker 4]

We're being tactical and patient with our available space, aiming to mark our GLA to market lease rates. For example, in Colombia, we consistently see lease spreads between 15% 25% higher. With this in mind, we're managing occupancy accordingly. This is why occupancy has increased slightly in Colombia. I will elaborate on this in a moment.

[Speaker 4]

Our SG and A increased markedly compared to last year's quarter. This was due to expenses incurred taking LPA public in the U. S. This includes legal, compliance, reporting and marketing expenses totaling $1,800,000 There was a non cash expense of $1,100,000 related to implementing stock based compensation. Upon going public, merger accounting stipulations required us to register a one time non cash expense of $44,500,000 in the Q1.

[Speaker 4]

This expense is attributable to the customary share dilution embedded in the process and is reflected in our 6 month results. Since the transaction was booked in accordance with Accounting Rule IFRS 2, the difference in the fair value of the shares deemed to have been issued by LPA and the fair value of 2A's identified net assets represents a share listing service received by LTA. And thus had to be recognized as an expense upon completion of the merger. Again, this was a non cash expense. Moving further down the income statement, we reported a $10,800,000 in other income, bolstering our cash position.

[Speaker 4]

This was mostly the non recurring fee income related to the release of certain LPA shareholders from their local agreements. Now I'd like to provide a few highlights regarding our markets. In Costa Rica, year over year revenue increased 9.3%, reflecting the completion of a partner that's now leased up. Also noteworthy was a 61.3% increase in expenses, driven by the incremental maintenance, property management and other costs associated with bringing 2 new additional buildings online. We expect the earnings power of these buildings to increase in a few months as the initial rent abatements expire and these properties align with our revenue expectations.

[Speaker 4]

Moving to Peru, year over year revenue grew 20.7%, mainly reflecting new leases coming online. As communicated previously, we signed a 10 year lease for 239,000 square feet in our new logistic park in Callao with a global consumer products company. In Colombia, year over year rental revenue decreased 2.3%, primarily due to last year's tactical divestment of Building 500 to Bancolombia's city as previously announced. Nevertheless, we successfully implemented inflation adjustments for 44.8 percent of our portfolio during the quarter. So far, we have captured approximately 20% of the potential rent growth to date, with the remaining adjustments expected to be made in subsequent periods.

[Speaker 4]

Lastly, in both Peru and Colombia, occupancy fell slightly mainly due to being more selective as we market the limited space to new rental rates to those tenants who need our premium product most. Before we move to the Q and A, we're announcing on this call that we have refinanced La Albena Logistics Parks in Costa Rica for $60,000,000 Despite the new loans larger size as well as its longer term and 20 year amortization profile, it bears a lower interest rate. This highly favorable refi with a local bank is a function of the quality of our relationships, assets, operating capabilities and tenant base. When this property was underwritten, it was projected to be leased up in 48 months. It actually took only 30 months and the rents were also above forecast.

[Speaker 4]

Additionally, we were also used as part of the funds for distribution to the project's equity holders. LPA has a roughly 24% stake in this property, although we control it. Previously, it was unthinkable in our industry and markets to use debt to pay a distribution to the shareholders of a development project. In effect, we have been changing the financing landscape in our markets and to our advantage. This speaks of how well we manage the LPA financially as well as operation.

[Speaker 4]

That concludes my review. Operator, please open the call for any questions.

[Operator]

And our first question comes from the line of Philippe Barragan from BTG. Your line is open.

[Speaker 5]

Hey guys, good morning. Thanks for the call and for taking my question. So it seems like you guys are very confident on the industrial estate markets. Obviously, you've been very hot. Last week, we saw Prologis finally finalize the Terracina transaction.

[Speaker 5]

So I'm just curious, you guys talked in the opening remarks, the near term opportunities, the e commerce. So I'm just curious what sort of markets in Mexico you might be looking at if it's very holistic or you guys might be looking something more towards the north or something more in Mexico City? That would be my question. Thank you.

[Speaker 3]

Thank you, Felipe. We appreciate joining us for the call today and for your question. In a nutshell, we're focused on what we call the USMCA corridor that basically does encompass the north, the lines through which take us to Mexico City and those I would say are the main markets we're looking at. So we're definitely looking at Monterrey, Juarez. We're interested in and Mexico City and Puebla.

[Speaker 3]

So that's kind of the focus where we're mostly looking at right now. The recent transaction we agree is it's supportive of the industry. It reflects an interesting dynamic and it's one that we think we can also benefit from. So that's the summary of where we're focused on right now in Mexico is the 1st markets we address and approach.

[Speaker 5]

Got it. That's very clear. Thank you.

[Operator]

Ladies and gentlemen, with that, we'll be concluding today's audio question and answer session. I would like to turn the floor back over to Juliana Dominguez, Investor Relations for any webcast questions.

[Speaker 1]

Thank you, operator. At this time, there are no further questions. I would like to turn the call over to Esther for closing remarks.

[Speaker 3]

Thank you, Juliana. And thank you all again for joining us today. We're really excited about the many opportunities that we see ahead in both our current markets and Mexico. We strongly believe that we have the right strategy, platform and the team to effectively capitalize on these opportunities and drive substantial value for our shareholders. We look forward to updating you on our progress on future earnings calls as well as meeting some of you in person.

[Speaker 3]

Please reach out to Juliana from our LPA's Investor Relations office if you'd like to arrange a call or a meeting. Once again, thank you for your time and interest in our company. Have a good day everyone.