Mexico City Logistics Will Expand Amid Tariff And Oversupply Risks

Key Takeaways

• Strong demand from e-commerce and nearshoring, combined with record rental spreads, is driving sustainable rent growth and higher earnings potential.
  
• Operational efficiencies and strategic acquisitions are boosting cash flow, while government policies and infrastructure improvements further support long-term demand and portfolio value.
  
• Trade tensions, rising market vacancies, oversupply, asset sales, and currency volatility threaten occupancy, rental growth, cash flows, and dividend stability.

Catalysts

FIBRA Prologis (BMV: FIBRAPL 14) is a leading real estate investment trust and manager of Class-A industrial properties in Mexico.

• E-commerce players and domestic consumption are driving robust demand for urban logistics properties in Mexico City and Guadalajara, leading to strong rent growth and low vacancies-supporting revenue and rent roll-ups, especially as consumption-led market exposure is a differentiator.
  
• Nearshoring and the structural shift in North American supply chains have created pent-up demand for Mexican industrial space: once trade and tariff uncertainty is resolved, delayed projects in the manufacturing sector are likely to reactivate rapidly, producing a step-up in leasing activity, occupancy, and medium-term revenue growth.
  
• Rental spreads on lease renewals hit record highs (net effective rent change of 68%), with significant embedded mark-to-market potential (current mark-to-market at 44%), indicating sustainable rent growth and higher forward earnings even before new demand materializes.
  
• The fully integrated Terrafina acquisition and operational efficiencies are yielding higher FFO per share and ongoing cost reductions, supporting cash flow expansion and net margin improvement that could be underappreciated by the market.
  
• Supportive government policy and improved infrastructure/supply chain resilience initiatives under the new administration, especially prioritizing industrial park development, are likely to enhance long-term demand and structural occupancy, benefiting overall earnings power and portfolio revaluation.

FIBRA Prologis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FIBRA Prologis's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 160.2% today to 47.5% in 3 years time.
• Analysts expect earnings to reach MX$6.9 billion (and earnings per share of MX$5.39) by about July 2028, down from MX$21.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.4x on those 2028 earnings, up from 5.1x today. This future PE is greater than the current PE for the MX Industrial REITs industry at 6.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.08%, as per the Simply Wall St company report.

FIBRA Prologis Future Earnings Per Share Growth

Risks

• Persistent trade uncertainty and the announced 30% tariff on Mexican imports not compliant with USMCA have already led export-oriented manufacturing customers, especially near the border, to put new expansion plans on hold; if this persists or escalates, it could depress leasing activity, occupancy rates, and rental growth in border markets, negatively impacting revenue and earnings.
  
• Record-high new industrial supply (15 million square feet this quarter) has increased overall market vacancy above the 10-year average and, coupled with flat rent growth in several markets and double-digit rent declines in some border regions, could put sustained downward pressure on rental spreads, asset values, and net margins.
  
• Extended caution or delays in global trade agreement resolutions and muted manufacturing demand could drive oversupply and prolonged elevated vacancies, especially in Monterrey and border markets, potentially eroding FIBRA Prologis' leading occupancy and compressing recurring revenues.
  
• The planned sale of up to 50% of Terra GLA introduces uncertainty around future earnings streams, and depending on cap rates and reinvestment execution, may dilute FFO and reduce forward dividend coverage or net operating income.
  
• Ongoing FX volatility, particularly between the USD-referenced rents and MXN-referenced expenses, as well as upcoming debt refinancing in a higher-rate environment, poses a risk to reported revenues and earnings; margin compression and increased cost of capital could further limit cash flow growth and distributions.

Valuation

• The analysts have a consensus price target of MX$77.444 for FIBRA Prologis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$86.0, and the most bearish reporting a price target of just MX$64.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$14.6 billion, earnings will come to MX$6.9 billion, and it would be trading on a PE ratio of 34.4x, assuming you use a discount rate of 16.1%.
  
• Given the current share price of MX$68.23, the analyst price target of MX$77.44 is 11.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.