FIBRA Prologis Q3 Distribution: Cash Flow Sustainability and Market Risks

FIBRA Prologis' latest distribution combines cash and property dividends. The Q3 2025 payout totaled US$199.7 million, with cash covering exactly 30% of the income tax liability for unit holders, handled automatically by custodians according to the company's announcement. Each cash component unit (CBFI) receives US$0.0375 in cash, supplemented by the issuance of 35.2 million additional CBFIs in kind. This structure impacts liquidity differently: the cash portion directly depletes liquid assets, while the in-kind portion preserves cash but dilutes unit value.

Operating performance supports these distributions. Funds From Operations (FFO) per unit reached US$0.0561 in Q3 2025, providing a coverage ratio of approximately 1.5x for the cash component (US$0.0375 per unit) as reported in earnings results. This suggests the current cash distribution is covered by operating cash flow, though it leaves limited cushion. The portfolio comprises 515 properties totaling 87 million square feet, demonstrating scale that generates this cash flow.

Liquidity provides a buffer against distribution shortfalls. The company maintains a US$1.1 billion liquidity reserve as of September 2025. This buffer offers flexibility for capital expenditures, which management has recently reduced under updated 2025 guidance. However, this reserve is a finite resource against ongoing distribution commitments. Should acquisition activity resume or operating cash flow falter, this liquidity could be drawn down to avoid distribution shortfalls.

The low industrial vacancy rates (97.9% average occupancy) indicate strong current income generation, supporting distributions in the near term. Nevertheless, the mandatory tax withholding on cash distributions adds administrative complexity and potential cash timing friction. While the current coverage and liquidity appear adequate for sustaining the declared distribution, the finite nature of the US$1.1 billion buffer means sustainability hinges on managed capex and sustained occupancy levels over the longer term.

Asset Performance and Core Market Resilience

FIBRA Prologis continues to demonstrate resilience in its core markets despite emerging headwinds at the border. Occupancy remains exceptionally strong, with a 97.9% average and 98.0% period-end occupancy rate across its 515-property portfolio, as detailed in earnings results, supported by robust demand in key urban centers. This strength is exemplified in Mexico City, where industrial vacancy hit a historic low of just 1.8% in Q3 2025, according to Cushman & Wakefield analysis, driving a 14.8% same-store cash NOI growth for the quarter. Rental rates in these core markets are also rising sharply, with Mexico City and Saltillo seeing over 10% annual gains.

However, this core market excellence masks significant stress in border regions. Tijuana and Ciudad Juárez face substantially higher vacancy rates of 8% and 6% respectively, as reported by Solili, significantly above the national average of 4.4%. This divergence stems from weak demand and elevated move-out activity specifically in these border locations, contrasting sharply with stable leasing elsewhere. While national inventory grew 5% year-over-year to 109 million square meters, construction activity has slowed considerably, down 30% from the prior year.

The company's strong liquidity position of Ps.19.9 billion (US$1.1 billion) provides a buffer against these regional imbalances. However, the widening differential between core market performance and border weakness highlights ongoing vulnerability. Investors should monitor whether the demand weakness in border cities persists or spreads, as the current 4.4% national vacancy rate may not fully reflect localized pressures impacting asset quality in those specific markets.

Prologis shows strong operational results but faces mounting pressure in Mexico's border markets, where weakness could strain distribution capacity. The company's $7.5 billion corporate liquidity buffer looks substantial until contrasted with FIBRA Prologis' $1.1 billion liquidity position according to investor relations data. This 7-to-1 ratio creates a clear hierarchy of support, suggesting FIBRA would be the first to feel liquidity constraints if border market distress spreads.

Border regions face particular stress, with Tijuana at 8% vacancy and Ciudad Juárez at 6% - significantly worse than Mexico's 4.4% national average as reported by Solili. This weakness stems from weak demand and high move-out activity, continuing a concerning trend. While central markets like Mexico City hold vacancies below 2%, the border premium Prologis relies on appears increasingly vulnerable to prolonged weakness.

Inventory growth and construction slowdown present a complex picture. Total industrial space grew 5% year-over-year to 109 million square meters, creating sustained downward pressure on rents. Compounding this, construction activity collapsed 30% year-over-year to 4.8 million square meters. While reduced supply should eventually ease oversupply, the current pipeline remains substantial enough to challenge near-term absorption capacity, particularly in weaker border markets.

For FIBRA Prologis, the liquidity differential with its parent raises funding visibility concerns. If border market weakness forces temporary rent concessions or further delays in leasing activity, the $1.1 billion buffer may face testing sooner than anticipated. Prologis' ability to maintain distributions through these border challenges will depend heavily on performance in stronger core markets absorbing new supply.

Forward-Looking Catalysts and Vulnerability Thresholds

Looking ahead, core demand drivers in Mexico City and Monterrey will continue to support occupancy and rent growth. The balance sheet shows a period-end occupancy of 98.0% in those markets, while average rental rates have risen more than 10% annually in Mexico City alone as reported in earnings results and according to market analysis.

Border markets are showing signs of stress. Tijuana's vacancy rate has hit 8%, and Ciudad Juárez's sits at 6% in Q3 2025. These levels sit near the threshold where credit concerns could intensify.

Coverage remains solid at a 1.5x FFO-to-distribution ratio from prior periods, while the balance sheet holds a $1.1 billion liquidity buffer.

Leverage sits at 22.6%, well below the 25% liquidity-ratio threshold that would trigger a position-reduction rule.

Overall, core markets provide a strong foundation for distributions, while border-area vacancy risks could become a catalyst if rates climb above 8%. The coverage buffer and liquidity cushion offer some downside protection, but investors should watch for a breach of the 25% liquidity-ratio line as a signal to cut exposure.