Logistic Properties of the Americas (LPA) Earnings Call Transcript

Good morning, and welcome to LPA's Third Quarter 2026 Earnings Conference Call. My name is Jen, and I will be the operator for today's call. [Operator Instructions] And 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.

Welcome to LPA's third quarter 2026 earnings conference call. My name is Camilo Ulloa with LPA's Investor Relations team. Joining me on today's call are Esteban Gaviria, our Chief Executive Officer; and Paul Smith, Chief Financial Officer. Before we proceed with our review of LPA's financial and operating results, please note that 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 supplemental materials that we may reference during the call. We encourage you to visit our website, ir.lpamericas.com to download these materials. Please also note that all comparisons that we will discuss during today's call are year-over-year, unless we note otherwise. Esteban will begin our review. Esteban, please go ahead.

Good morning, everyone. Thank you for joining our earnings call. The third quarter marked a turning point for LPA. We posted another quarter of strong financial and operating results. And at the same time, we executed one of the most consequential steps in our company's history, a comprehensive monetization program that is turning a substantial part of our balance sheet into cash, validating the value of our platform and securing funding for our expansion in Mexico. During the quarter, we closed the sale of our Lima Sur Park in Peru and agreed to sell Bodegas La Aurora in Costa Rica. Shortly after quarter end, we announced the sale of our Calle 80 Park in Colombia to Bancolombia. Together, these 3 transactions totaled just over $300 million, roughly 42% of our gross property value at a weighted average premium of nearly 10% to 12% to appraised value, depending on how FX is accounted for. In brief, we are monetizing mature assets in Peru, Costa Rica and Colombia and will redeploy the proceeds primarily into Mexico. And yet, LPA shares trade well below both book value and the cash we hold per share. I will come back to this dislocation later in my remarks because closing it is a central focus of ours. Operationally, we delivered yet another outstanding quarter, and our financial results underscored the sound fundamentals and sustained earnings power of our regional logistics platform. Meanwhile, we continue working towards geographically rebalancing our property portfolio with the aim of accelerating its expansion and driving higher risk-adjusted returns while emphasizing a capital-light model. It was our fourth consecutive quarter of 100% occupancy. We also maintained robust top line momentum with revenue growing just over 19.3% to $15.4 million. Peru and Colombia led the way again, their revenues increased 45.1% and 45.7%, respectively. This growth continued to be driven by resilient leasing activity and new tenants. Colombia's reported revenue also benefited from the rising peso, as Paul will explain. Higher rental rates on renewals and re-leasing during the quarter reflect the structurally low supply of Class A logistics facilities in Peru and Colombia, coupled with still strong tenant demand. Stronger market rents also supported our Costa Rican parks, where revenue grew 4.2%, reflecting the full stabilization of our facilities there. That rent growth compounds on top of long-term low-cost financing. The cost of debt in our Costa Rican portfolio is roughly 5.25% on a 21-year remaining tenor, a rate that compares favorably with U.S. treasuries of similar maturity. Also, contributing to our top line growth was a full quarter of revenue from our facilities in Puebla, Mexico. These same market dynamics also drove our net operating income higher. It increased 21.1% to $12.6 million, while same-property NOI grew 11.9% to almost $10 million. Our pricing power is evident in the rent per square foot that we command. It averaged $9 in the quarter, up 10.6% versus last year. Even as we expand LPA's multi-market footprint, the growth in our G&A expenses remained well below revenue growth, helping drive our operating leverage. This quarter, G&A grew at a faster pace than in previous quarters, driven by one-time professional fees related to the closing of the $145 million sale of our Lima Sur Logistics Park in Peru. Let me now walk you through our asset monetization program, what it reveals about the value of LPA and how we are putting the proceeds to work. As we've said on previous calls, we have a new value lever, selling select optimized assets and reinvesting the proceeds in new logistics facilities that we acquire or develop. In effect, these sales are a self-funding growth engine that broadens our options and reduces our exposure to any single market. We executed a program of this scale across 3 countries in a matter of months. While the pace of the sales may seem fast, it reflects groundwork laid well before execution, namely satisfied high-quality tenants, high-performing assets, a house in order and a strong network of relationships. That preparation enabled us to move decisively when we approach potential buyers despite a volatile interest rate and macroeconomic backdrop. The $152 million all-cash sale of our Calle 80 Park to Bancolombia, Colombia's largest bank, is our largest asset sale to date. I'd highlight 3 points. First, because the Colombian peso has appreciated markedly in recent months, the exchange rate when we signed the sale agreement was roughly in line with the average rate at which we developed the park. So FX leakage was mitigated. Second, with the sharp rise in Colombia's interest rates this year, the park's floating rate mortgage has risen to approximately 700 basis points above the cap rate at which we sold and could have stayed there for some time. Accordingly, repaying the equivalent of $55 million in debt at closing will meaningfully lower our interest expense, which made the sales timing especially advantageous. Third, we retained pad-ready locations within the park, suitable for over 1 million square feet of additional GLA, and will also earn a facilities management fee equal to 1.5% of rental revenues, both of which allow us to keep participating in Colombia's growth. Taken together, the 3 asset sales were priced at a blended in-place cap rate of approximately 7.7%. This is a key takeaway. The independently appraised values on our balance sheet have now been validated in cash by 3 different buyers in 3 different markets. That is no accident. It speaks to the quality of the assets we develop, their strategic locations in supply-constrained markets, the excellence with which we operate them and our largely multinational blue-chip tenant base. This brings me to the dislocation in our share price. LPA's book value per share is roughly $8.86 as of September 30, 2026, a value now supported by real transactions and cash in our balance sheet. Yet our shares trade at less than 1/3 of book value. They also trade below our cash per share of approximately $3.84, excluding restricted cash. And the net proceeds from the 3 sales alone after repaying related debt and taxes amount to approximately $4.30 per share. Simply put, our share price is far from reflecting the value we have just demonstrated, and we believe that gap is completely disconnected from LPA's fundamentals. So let me be clear about how we are allocating the new capital because one framework drives every decision we make. We are turning a portion of LPA's net asset value into cash and putting that cash to work in Mexico at returns above our cost of capital. We believe this is a matter of scale, and the devaluation discount should close through continued execution, a larger free float and relentless focus, which matters a great deal in our business. With the closing of the Lima Sur sale, we retired approximately $60 million of asset level debt. And once Calle 80 closes, we will also have retired the equivalent of $55 million in Colombian peso debt. Of the approximately $137 million in net equity proceeds, the majority will go to Mexico, where we have sourced a deep and promising investment pipeline. While Mexico will receive most of this capital, we still see highly attractive opportunities in our foundational markets. That includes the $85 million that LPA and the consortium of 3 institutional investors will deploy over the next 3 years to develop a new 1.1 million square foot logistics park that will be located on the Panamericana Sur highway in Peru. This Class A park will offer direct highway access and connectivity to Lima's primary logistics and distribution routes, which are used by multinational companies, third-party logistics providers, retailers and e-commerce operators, among others. Our co-investment with local equity partners to build this park is structured on a capital-light basis, an approach we seek to replicate. In the case of the Panamericana Sur Park, LPA's investment gives us an 11% equity stake, including the capitalization of development fees, and we will have full control of the assets. This structure lets us leverage the equity of our domestic capital sources needed to each geography to make such investments. We take that privilege seriously. It reflects the strength of LPA's operating platform, our reputation in the market and our role in leading the park's development, stabilization and management of its ongoing operations, for which we will earn annual fees. It is important to note that given the scarcity of Class A logistics spaces in this part of Lima and persistently high demand for it, we expect to pre-lease each of the 4 buildings that will eventually make up the park, effectively derisking its construction. In practice, we often know the tenants rent levels and expected returns of the leases before construction of a facility begins. Moreover, the facilities that we will add to our regional portfolio entail little additional overhead, a dynamic that further expands our margins. This is also true for the property management fees that we will receive an income stream that will increasingly contribute to our top line. To summarize the Panamericana Sur project, we are reinvesting some of the funds through our capital-light model after crystallizing profits in Peru by selling our Lima Sur property. And we are investing alongside recognized institutional investors who see significant value in owning a part of LPA's expanding platform of strategically located Class A assets. I'd like to emphasize that our partner-centric investment model is also capital efficient. We are selling mature assets at lower cap rates than we expect to earn on the facilities we acquire or develop. Lima Sur, for example, sold at a cap rate just above 7%, while we intend to invest in new assets yielding 8% to 9% and under more accretive financing, keeping U.S. dollar exposure and arguably retaining a similar asset and tenant profile. That spread is the additional value we're capturing for our shareholders by selectively taking profits on optimized assets within our portfolio. It is also the most efficient source of equity available to us rather than issuing shares at a discount or overleveraging our balance sheet. We are often asked whether given today's share price, we should return capital through buybacks or a special dividend. It is a fair question, and the Board reviews capital allocation regularly. Buybacks were compelling on paper, but they are a onetime benefit and would shrink LPA's free float, which could reduce trading liquidity and potentially widen the valuation discount rather than close it. That is why our method is to thoughtfully reinvest these proceeds in value-enhancing growth, primarily in Mexico, and that is why we are not contemplating a buyback or dividend at this time. That said, the company reserves the right to revisit this position at any time as conditions evolve. By contrast, deploying capital in Mexico at a yield on cost of 8% to 9%, financed with prudent leverage that sits 150 to 200 basis points below that yield builds recurring NOI and scale, helping LPA establish itself as a steady value compounder. That, in our view, is a sustainable path to narrowing the gap. Mexico will be integral to our cross-border network of logistics facilities as it's a major market for many of our current and future clients. As a reminder, our business model and competitive advantage center on offering a seamless multi-market logistics solution to global and regional companies operating and expanding within our markets. LPA is the only public company that provides a solution in the 4 countries where we operate. Our regional platform offers these companies the uniform building standards they need to operate efficiently, the same high level of service and a single point of contact across Mexico, Costa Rica, Colombia and Peru, enabling any company to scale its operations with reduced friction. Rebalancing LPA towards Mexico is at the heart of our investment and expansion plans, as we've discussed previously. And our Mexico expansion program is now better funded than ever. The country offers us a long growth runway and high returns. There too, we will leverage our extensive network of relationships to co-invest with other institutional investors. Our current focus remains on Mexico's supply-constrained submarket along the Highway 57 corridor, where we will quickly establish a foothold with the new Central Park 57 property, or CP57, as we like to call it. It will offer over 2.1 million square feet of GLA and represent a roughly $200 million investment. The park is located in Pepe del Rio, along a key USMCA and Mexico City logistics corridor. Highway 57 is a vital trade route that carries approximately 40% of Mexico's cargo to the U.S. border. Central Park 57 also provides efficient connectivity to the Greater Mexico City area as well as 3 economically important states, which together account for 35% of Mexico's consumers. All this makes CP57 a central hub for Mexico's largest logistics supply market. Our new dedicated team for the park has been lining up request for proposals. We will announce the closing of leases as they are executed. Beyond the strong interest we are seeing in the park, we are encouraged by the low vacancy rates in the area and rents that are increasing at a faster rate than those in Mexico City. Our investment in CP57 spares us the exposure of developing this park on our own from buying land to managing construction at this point in the cycle. Systematically acquiring stabilized facilities within this large and modern park is both financially efficient and a catalyst to scale our presence in Mexico. In addition to the stabilized facilities that we will gradually purchase within CP57, we intend to acquire and develop other properties along the Highway 57 corridor. With the use of forward purchases, pre-leasing and partnerships, we plan to manage risk while we expand in Mexico to capitalize on growth in e-commerce, domestic consumption and nearshoring. Due to the ongoing shift in global and regional supply chains, we also see emerging opportunities in Mexico's electronics sector, especially in AI-related infrastructure and equipment. Data centers are also rapidly becoming a new source of demand for our asset class as the supply chains that feed them are expected to shift meaningfully toward the Western Hemisphere. With that, I'll turn the call over to Paul, who will review our third quarter results in more detail.

Thank you, Esteban, and good morning, everyone. I'll begin with providing a little more detail about the strong growth momentum that LPA's platform maintained in Peru and Colombia in the third quarter. In Peru, the 45.1% growth in revenue mainly reflected incremental rent from Pepsico, which occupied the new building in our Callao Park in the fourth quarter of last year. Alicorp, another recent tenant in the park is also among the many blue-chip companies that make up LPA's tenant base. In Colombia, the 45.7% revenue increase was primarily driven by Pricesmart, which used space in Calle 80 that had been unoccupied in the third quarter of last year. Since third quarter 2025, occupancy within LPA's entire platform increased 2.1 percentage points to 100%. Contractual inflation adjustments also contributed to growth in Colombia. It's important to note that Colombia's revenue benefited again this quarter from the appreciation of the peso, which increased dollar translated revenue by 20%. Excluding the benefit of a stronger peso, Colombia's revenue would have increased 16.2%. Leasing at higher rental rates at our Costa Rica facilities produced a 4.2% increase in third quarter revenue in that market. As Esteban pointed out, that growth was comparatively slower than in Peru and Colombia due to the 100% stabilization of those facilities in 2025 and 2026. Rounding out revenue, our Mexican facilities, which we acquired in August of last year, contributed rental revenue the entire third quarter of this year. Turning to our operating expenses. They increased 54.6%. Much of that was due to commencing operations at new buildings in our Callao Park, which brings additional administrative and operating expenses among other costs. Other factors were the appreciating peso in Colombia, which increased its reported cost in dollar terms and higher taxes at our La Verbena Park due to the local municipalities' reassessment of its value as we previously communicated. I'd like to reiterate what Esteban said earlier, the growth in our platform's revenue was proportionately higher than the growth in its operating expenses, a dynamic that boosted our operating leverage and NOI in the third quarter. Net operating income increased just over 21% to $12.6 million. The higher occupancy, coupled with positive mark-to-market leasing spreads across our markets accounted for the bulk of that growth. Excluding the Colombian peso appreciation, our NOI would have increased 14.2% to $11.9 million. Our third quarter cash NOI was $12.6 million, up 20.6% year-over-year. Higher operating leverage was also reflected in our general and administrative expenses. At $4.7 million, they were 30.3% of revenue versus nearly 35% in last year's quarter. We expect to dilute G&A even further by the end of the year as our largely pre-leased development portfolio of 401,000 square feet begins coming online. Additionally, as we scale our multi-market platform with new logistics facilities in Peru and Mexico next year and continue capturing higher market rates across it, you can expect additional G&A dilution in 2027 and beyond. Moving to our platform's operating GLA. It grew 2.2% to 5.7 million square feet, complemented by a 10.6% increase in average rent per square foot. Our lease GLA increased 4.1% to 6.1 million square feet. We reported $10.2 million increase in investment property valuation gain, which reflects a fair assessment of our building 500 land leased in Callao Park, higher valuation gains at Costa Rica La Verbena and Coyol 1 and 2 parks, resulting from a reduction in capitalization rates as well as a remeasurement of the land bank at our Calle 80 Park. Lastly, a few words about our financing costs, which increased roughly 104% to $10.1 million. That increase primarily reflects prepayment penalties on bank debt that had funded our Lima Sur Park, the sale of which closed in the third quarter. To be clear, these were onetime costs. Before we open the call for questions, a quick reminder that most of LPA's debt is at the property level and that we service it through contracted and mostly dollar-based revenues generated by a diverse base of blue-chip clients. That concludes our review of the third quarter results. Operator, please open the call for questions.

[Operator Instructions] Your first question comes from the line of Eric Goldstein with Water Tower Research.

Congrats on another terrific quarter. I was just wondering, if you can maybe go into a little bit more detail in terms of how should we think about the Mexico build-out and the cadence of investments and the cadence of acquisitions going forward just in terms of timing, if there's any color that you can provide on that?

Eric, thank you for joining the call. It's Esteban here. Look, regarding the deployment pace into Mexico, I think it's a very interesting time. I think we will see 2027 as a transformational year for that deployment. So we want to be patiently disciplined in our underwriting, being more selective, especially as we have had changes in interest rate and macro dynamics, but this is an interesting setup for us as we look into opportunities. So I would say that, we would target the entire of 2027 to redeploy that capital into the market. It's hard to pinpoint exactly which quarters things are going to close. But I can tell you that we have a very broad opportunity set and very promising entry yields and unit economics, I would say, with keeping true to our colors in terms of tenant quality, asset location, underlying industry, et cetera. So that's how we're shaping those decisions around capital deployment.

Okay. And just for Paul, just a couple of questions. You mentioned, I guess, the onetime prepayment penalties in your financing costs. Do you have any more color just what exactly -- what was the amount?

Absolutely. Thank you, Eric for that. The -- so one of the lines that we prepaid had a prepayment condition that basically imposed a cost of about $1.3 million on the prepayment as a whole. So that's basically what happened.

Okay. So, of the -- I mean, there was a pretty significant increase, I guess, quarter-to-quarter, but the prepayment was only $1.3 million of the increase?

Correct. And as I said, most of the increase was for that. And bear in mind that when we do -- when we liquidate a loan, there's also other costs that go into it, such as costs that were capitalized initially. So those get recognized in financing costs as well, and that will be there. But the prepayment penalty per se was only $1.3 million.

Okay. And then just a question on the balance sheet. I know Lima Sur closed right at the end of the quarter. So on the balance sheet, you have -- there's a financial liability equal to the cash that you took in. Does that -- is that going to go away in the fourth quarter? Or will that still show up on the balance sheet going forward?