Second Quarter 2014 Earnings Report
Second Quarter 2014 Earnings Report Mexico City, July 28, 2014 – Terrafina (“TERRA”) (BMV: TERRA13), a leading Mexican industrial real estate investment trust (“FIBRA”), externally advised by Pramerica Real Estate Investors and dedicated to the acquisition, development, lease and management of industrial real estate properties in Mexico, today announced its second quarter 2014 earnings results.
The figures in this report have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Figures presented in this report are presented in millions of Mexican pesos and millions of U.S. dollars unless otherwise stated. Additionally, figures can vary due to rounding. Terrafina’s financial results included in this report are unaudited; as a result, the figures used throughout this report could present adjustments in the future. Terrafina’s 2Q14 reports financial results for the second quarter of 2014 that comprise the period of April 1, 2014 through June 30, 2014. It is important to consider that comparisons in this earnings report are made to first quarter 2014 numbers since second quarter 2013 results do not include the effects of the American Industries – Kimco acquisition.
Financial and Operational Highlights as of June 30, 2014
Operational
• Occupancy rate at June 30, 2014, was 91.1%, a 53 basis points increase compared to the first quarter of 2014.
• Annualized average leasing rate per square foot for 2Q14 was US$4.78, a US$ 0.04 increase compared to 1Q14. • The renewal rate up to June 30, 2014 was 82.1%, a 26 basis points increase compared to 1Q14. • A total of 27 contracts, equivalent to 1.3 million square feet (msf), were renewed in 2Q14; on average 90% of leasing contracts were signed at a 2% above in-‐place rent, which increase from US$4.42 to US$4.51. • The weighted average remaining lease term increased from 3.59 years in 1Q14 to 3.67 years in 2Q14. • In 2Q14, Terrafina reported a total of 30.9 msf of Gross Leasable Area (GLA) comprised of 217 properties and 232 tenants.
• Leasing activity for 2Q14 totaled 1.7 msf, of which 23.5% corresponds to new leasing contracts and 76.5% to lease renewals. Leasing activity was mainly concentrated in the markets of Ciudad Juarez, Ramos Arizpe, Tijuana, Cuautitlan Izcalli, Saltillo and Chihuahua.
Contacts in Mexico City: Francisco Martinez/ Ángel Bernal Investor Relations Officer / Chief Financial Officer Tel: +52 (55) 5279-8107 / +52 (55) 5279-8109 E-mail: [email protected] / [email protected]
Contacts in New York: Maria Barona i-advize Corporate Communications, Inc. Tel: +1 (212) 406-3691 E-mail: [email protected]
1
Financial
• 2Q14 rental revenues reached US$32.6 million, an increase of 2.8% or US$0.9 million compared to 1Q14. It is important to mention that accrued revenues are not included as rental revenues as this is a non-‐cash item. • NOI for 2Q14 was US$31.2 million; NOI Margin reached 88.4%, a 198 basis points increase compared to 1Q14. Moreover, considering expected NOI of US$125 million for 2014 and an average CBFI price for 2Q14 of US$2.04 (Ps. 26.48), the average implied cap rate reached 8.0%. • EBITDA for 2Q14 reached US$27.6 million; EBITDA Margin was 78.2%, a 198 basis points increase compared to 1Q14. • Adjusted Funds for Operations (AFFO) for 2Q14 reached US$16.9 million; AFFO margin was 47.6%, a 507 basis points increase compared to 1Q14. • Distributions for 2Q14 totaled US$16.9 million. As a result of 2Q14 operations, Terrafina will pay distributions of Ps. 0.5769 per CBFI (US$0.0444 per CBFI) in distributions corresponding to the period of April 1 to June 30, 2014. This represents an increase of 11.9% in distributions denominated in dollars compared to 1Q14. • Annualized distributions per CBFI for 2Q14 is expected to reach US$0.1774; considering the average CBFI price for 2Q14 of US$2.04 (Ps. 26.48), Terrafina reached a dividend yield of 8.7%.
2
Financial Highlights Operating Number of Developed Properties 1
Gross Leasable Area (GLA) (msf) 2 New Developments (msf) Land Reserves (msf) Occupancy Rate Avg. Leasing Rent / Square Foot (dollars) Weighted Avg. Remaining Lease Term (years) 3
Renewal Rate
2Q14 217 30.94
1Q14 217 30.89
Var. 0
0.00 7.32 91.1% 4.78
0.13 7.32 90.6% 4.74
0.05 -‐0.13 0.00 53 bps 0.04
3.67
3.59
82.1%
81.8%
2Q14
1Q14
0.08
26 bps
2Q14
1Q14
Var.
fx
12.9986
13.2344
(million dollars unless otherwise stated)
Quarterly Financial
Var.
(million pesos unless otherwise stated)
4 Rental Revenues Other Operating Income Net Revenues Net Operating Income (NOI)* NOI Margin 5*
EBITDA EBITDA Margin Funds from Operations (FFO)* FFO Margin Adjusted Funds from Operations (AFFO)* AFFO Margin Distributions 6 Distributions per CBFI
424.0 42.7 474.6 404.6 88.4%
419.9 54.2 496.1 404.3 86.4%
1.0% -‐21.2% -‐4.3% 0.1% 198 bps
32.6 3.3 36.5 31.2 88.4%
31.7 4.0 37.4 30.5 86.4%
2.8% -‐17.5% -‐2.4% 2.3% 198 bps
358.6 78.2% 255.4 55.8% 219.8 47.6% 219.8 0.5769
357.4 76.2% 234.3 50.1% 199.8 42.5% 199.8 0.5244
0.3% 198 bps 9.0% 567 bps 10.0% 507 bps 10.0% 10.0%
27.6 78.2% 19.7 55.8% 16.9 47.6% 16.9 0.0444
26.9 76.2% 17.7 50.1% 15.1 42.5% 15.1 0.0396
2.6% 198 bps 11.3% 567 bps 11.9% 507 bps 11.9% 11.9%
Jun14
Mar14
Balance Sheet
Jun14
Mar14
fx
13.0837
13.0765
(million pesos unless otherwise stated)
(million dollars unless otherwise stated)
Cash & Cash Equivalents Investment Properties Land Reserves Total Debt Net Debt
418.5 21,423.9 943.1 11,608.7 11,190.2
594.1 21,118.0 966.6 11,987.3 11,393.2
Var.
-‐29.6% 1.4% -‐2.4% -‐3.2% -‐1.8%
32.1 1,643.9 72.4 890.8 858.6
45.6 1,620.4 74.2 919.8 874.2
Var. _
-‐29.6% 1.4% -‐2.4% -‐3.2% -‐1.8%
Figures in dollars in the Income Statement were converted into pesos at the average exchange rate for the period; for the Balance Sheet the exchange rate for the close of the period was used. (1) Millions of square feet. (2) Includes expansions and Built-‐to-‐Suits (BTS). (3) Indicates the lease renewal rate of the leases. (4) Excluding accrued 3 income as it is a non-‐cash item (5) Earnings before Interest, taxes, depreciation and amortization. (6) Certificados Bursátiles Fiduciarios Inmobiliarios -‐ Real Estate Investment Certificates. (*) Revenues and expenses have been adjusted for the calculation of the above mentioned metrics. Please refer to the "2Q14 Financial Performance" and "Annexes" section available in this document. Source: Pramerica Latin America – Portfolio Management – Fund Accounting
Comment by Alberto Chretin, Chief Executive Officer and Chairman of the Board During the second quarter of 2014, Terrafina continued experiencing solid operating and financial results. The portafolio occupancy levels rose by 53 basis points compared to the first quarter of 2014, reaching 91.1%. This was primarily due to higher leasing activity observed in the northern region of Mexico, mainly in the cities of Ramos Arizpe, Ciudad Juarez, Tijuana, Saltillo and Chihuahua. In total, we concluded 1.7 million square feet in leasing contracts of which 24% corresponded to new contracts and 76% were renewals. Average annual leasing rates reached US$ 4.78 per square foot, US$ 0.04 higher than the rate for the first quarter. As of June 30, 2014, Terrafina experienced positive results in average rents by region; the Northern region rose by US$ 0.05 reaching US$ 4.64 per square foot, the Bajio region remained flat at an average rent of US$4.82 per square foot and finally, the Central region rose by US$0.06 to reach a total of US$5.16 average rent per square foot. The renewal rate for lease contracts was 82.1%, in line with our objective of renewing two-‐thirds of the rental contracts that are in the process of expiration. With regards to the main financial indicators for the second quarter, I would like to mention that rental revenues reached US$32.6 million, Net Operating Revenue reached US$31.2 million and the Operating Margin reached 88.4%, as well as a generation of US$16.9 million in Adjusted Operating Funds, which together represent an annualized distribution of US$0.18 per CBFI, for a 8.7% dividend yield considering the average CBFI price for the second quarter. Finally, I would like to mention that the Mexican Securities and Exchange Commission (CNBV) published modifications to the FIBRA regulations with the objective of providing to the financial community more information regarding leverage limits as well as to strengthen the corporate governance structures of the FIBRAs. As commented to the market in our recent press release, Terrafina expects to lower its leverage level to below 50% via the recovery of the VAT that was generated from the American Industries – Kimco portfolio acquisition. Based on the results as of June 30, 2014, Terrafina reported a 50.6% leverage level, which will continue to improve to levels below 50% as Terrafina recovers the remaining VAT during the second half of 2014. Additionally, since its inception, Terrafina maintains top corporate governance standards and as a result, we are already compliant with the current changes released by the authorities. Sincerely, Alberto Chretin
Terrafina’s Chief Executive Officer and Chairman of the Board
4
Operational Highlights Highlights by Region
North
Bajio
Central
Total
# Buildings
150
40
27
217
# Tenants
152
41
39
232
18.4
6.5
6.0
30.9
0.0
0.0
0.0
0.0
3.7
0.1
3.6
7.3
90.4%
92.0%
92.4%
91.1%
(as of June 30, 2014)
GLA (msf) New Developments
1
(msf)
Land Reserves (msf) Occupancy Rate Average Leasing Rent / Square Foot (dollars)
4.64
4.82
5.16
4.78
Annualized Rental Base %
57.4%
21.4%
21.2%
100.0%
Renewal Rate
100.0%
100.0%
55.7%
82.1%
(1) Includes expansions and Built-‐to-‐Suit (BTS). Source: Pramerica Latin America -‐ Portfolio Management
BAJIO San Luis Potosi Jalisco Aguascalientes Guanajuato Queretaro
-
NORTH -
-
Baja California Sonora Chihuahua Coahuila Nuevo Leon Tamaulipas Durango
CENTRAL Estado de Mexico Distrito Federal Puebla Tabasco
Terrafina’s operations 2Q14.
Composibon by Asset Type as of 2Q14
Leasing Activity
(as a % of total GLA)
2Q14
Operating Portfolio (msf):
30.9%
69.1%
Manufacturing
Var.
Renewals
1.3
1.0
32.8%
New Leases
0.4
0.4
0.1%
Properties Under Development
0.0
0.1
-‐13.1%
Total Square Feet of Leases Signed
1.7
1.5
18.1%
82.1%
81.8%
26 bps
Renewal Rate
Distribukon
1Q14
Source: Pramerica Latin America -‐ Portfolio Management
5
Operational Highlights (continued) Occupancy and Rents by Region
Consolidated
Maturities and Renewals by Region 0
Consolidated
Avg. Leasing Rent/ Square Foot (dollars)
(As of June 30, 2014)
90.4%
4.64
North
Baja California
89.2%
4.47
Sonora
86.3%
4.18
Chihuahua
96.1%
4.84
Coahuila
97.7%
Nuevo Leon Tamaulipas Durango
Occupancy Rate
Maturities % o f T otal
Renewals % o f Total (number of contracts) Renewals
(number of contracts)
Maturities
20
66.7%
20
100.0%
Baja California
2
6.7%
2
100.0%
Sonora
0
0.0%
0
0.0%
Chihuahua
13
43.3%
13
100.0%
4.42
Coahuila
2
6.7%
2
100.0%
74.0%
4.54
Nuevo Leon
2
6.7%
2
100.0%
62.3%
4.19
Tamaulipas
1
3.3%
1
100.0%
85.2%
3.96
Durango
0
0.0%
0
0.0%
92.0%
4.82
3
10.0%
3
100.0%
San Luis Potosi
97.7%
4.73
San Luis Potosi
1
3.3%
1
100.0%
Jalisco
93.0%
5.45
Jalisco
1
3.3%
1
100.0%
Aguascalientes
100.0%
4.47
Aguascalientes
0
0.0%
0
0.0%
Guanajuato
87.5%
4.94
Guanajuato
0
0.0%
0
0.0%
Queretaro
84.4%
4.59
Queretaro
1
3.3%
1
100.0%
92.4%
5.16
7
23.3%
4
57.1%
Estado de Mexico
91.1%
5.16
Estado de Mexico
7
23.3%
4
57.1%
Distrito Federal
100.0%
10.30
Distrito Federal
0
0.0%
0
0.0%
Puebla
100.0%
4.17
Puebla
0
0.0%
0
0.0%
Tabasco
100.0%
5.20
Tabasco
0
0.0%
0
0.0%
91.1%
4.78
30
100.0%
27
90.0%
(As of June 30, 2014)
North
Bajio
Central
Total
Source: Pramerica Latin America -‐ Portfolio Management
Bajio
Central
Total
Source: Pramerica Latin America -‐ Portfolio Management *Out of the matured leases in the quarter
6
2Q14 Operational Performance Composition by Geographical Diversification
For 2Q14, Terrafina’s properties (based on GLA per square foot) were mainly located in the northern region of Mexico, representing 59.6% of GLA; while the Bajio and Central regions represented 21.0% and 19.4%, respectively. as a % of GLA 2Q14
2Q14
North
1Q14
as a % of GLA 1Q14
18.45
59.6%
18.44
59.7%
Baja California
1.13
3.7%
1.13
3.7%
Sonora
0.28
0.9%
0.28
0.9%
Chihuahua
9.84
31.8%
9.84
31.9%
Coahuila
3.38
10.9%
3.38
11.0%
Nuevo Leon
1.58
5.1%
1.58
5.1%
Tamaulipas
1.76
5.7%
1.76
5.7%
Durango
0.46
1.5%
0.46
1.5%
6.49
21.0%
6.45
20.9%
San Luis Potosi
1.87
6.1%
1.87
6.1%
Jalisco
1.29
4.2%
1.29
4.2%
Aguascalientes
0.75
2.4%
0.75
2.4%
Guanajuato
0.54
1.7%
0.54
1.7%
Queretaro
2.04
6.6%
1.99
6.5%
6.00
19.4%
6.00
19.4%
Estado de Mexico
5.14
16.6%
5.14
16.6%
Distrito Federal
0.02
0.1%
0.02
0.1%
Puebla
0.18
0.6%
0.18
0.6%
Tabasco
0.65
2.1%
0.65
2.1%
30.94
100.0%
30.89
100.0%
Bajio
Central
Total
Total Gross Leasable Area / million square feet. Potential leasable area of land reserves are not included. Source: Pramerica Latin America -‐ Portfolio Management
Composition by Asset Type
At the end of the 2Q14, 30.9% of Terrafina’s total portfolio consisted of distribution and logistics properties, and 69.1% were manufacturing properties, remaining at stable levels compared to 1Q14. Composibon by Asset Type as of 2Q14 (as a % of total GLA)
30.9%
2Q14
1Q14
Var.
Distribution
30.9%
31.4%
-‐46 bps
Manufacturing
69.1%
68.6%
46 bps
Source: Pramerica Latin America -‐ Portfolio Management
69.1%
Distribukon
Manufacturing
7
Composition by Sector
As of June 30, 2014, tenant diversification by industrial sector was as follows: Diversificabon by Sector as of 2Q14 (as a % of leased GLA)
6.9% 9.4%
Automokve Industrial properkes
28.1%
9.7%
Consumer goods Logiskcs and Trade
17.4%
Aviakon
28.5%
Non-‐durable consumer goods
Industrial Sector Diversification
2Q14
1Q14
Automotive
28.1%
29.1%
-‐98 bps
Industrial properties
28.5%
27.0%
142 bps
Consumer goods
17.4%
16.9%
49 bps
Logistics and Trade
9.7%
10.2%
-‐52 bps
Aviation
9.4%
9.2%
21 bps
Non-‐durable consumer goods
6.9%
7.5%
-‐63 bps
100.0%
100.0%
Total
Var.
Source: Pramerica Latin America -‐ Portfolio Management
Top Client Composition
Terrafina’s tenant leasing base is widely diversified across Mexico’s main cities. In 2Q14, Terrafina’s top client, top 10 clients and top 20 clients base, represented 4.4%, 22.2% and 33.3% of total revenues, respectively. Top Clients
Leased Square Feet (million)
% Total GLA
% Total Revenues
Top Client
1.24
4.4%
4.4%
Top 10 Clients
5.95
21.1%
22.2%
Top 20 Clients
9.08
32.2%
33.3%
(As of June 30, 2014)
Source: Pramerica Latin America -‐ Portfolio Management
8
Occupancy
2Q14 occupancy rate was of 91.1%, an increase of 53 basis points compared to 1Q14. During the second quarter 2014, Terrafina’s leasing activity reached 1.7 msf, of which 23.5% correspond to new leasing contracts and 76.5% for contract renewals. Leasing activity mainly took place in the Ciudad Juarez, Ramos Arizpe, Tijuana, Cuautitlan Izcalli, Saltillo and Chihuahua markets. Occupancy as of 2T14 (as % of Total GLA)
8.9%
Leased GLA Vacant GLA
91.1%
Lease Maturities
2Q14
1Q14
Var.
Leased GLA
91.1%
90.6%
53 bps
Vacant GLA
8.9%
8.9%
-‐3 bps
Signed Letters of Intent
0.0%
0.5%
-‐50 bps
100.0%
100.0%
Total
Source: Pramerica Latin America -‐ Portfolio Management
At the conclusion of 2Q14, Terrafina had 232 leasing contracts. These contracts have an average maturity of 3 to 5 years for logistics and distribution properties activities and 5 to 7 years for manufacturing activities. Annual average maturities for the next five years remain at average levels of 10% to 17% (as a percentage of annual base rents). The following table shows Terrafina’s leasing maturity schedule for the coming years: 2014 2015 2016 2017 2018 Thereafter
Annual Base Rent % o f T otal (millions of dollars)
10.2 23.4 17.1 15.5 13.6 55.0
7.6% 17.3% 12.7% 11.5% 10.1% 40.8%
Occupied Square Feet (millions)
% of Total
2.28 4.82 3.46 3.25 2.91 11.47
8.1% 17.1% 12.3% 11.5% 10.3% 40.7%
Source: Pramerica Latin America -‐ Portfolio Management
9
Capital Deployment New Developments and Non-‐Strategic Asset Sales
New Developments
Terrafina had no new developments activity in the second quarter of 2014. The following table shows new developments activity from January 1 to June 30, 2014: January -‐ June 2014
Capital Deployment -‐ New Developments
Total % Paying Total Expected Cost per Square Feet Expected Rent Investment Square F eet b y End (millions) Investment (millions o f d ollars) (dollars) of the Period (millions of pesos)
North
0.00
0.00
0.00
0.00
0.0%
Bajio
0.13
64.40
4.90
37.81
0.0%
Central
0.00
0.00
0.00
0.00
0.0%
Total
0.13
64.40
4.90
37.81
0.0%
1
Proforma NOI (million dollars)
0.6
2
Estimated Stabilized Yield
(1) Net Operating Income for the next twelve months
(2) Proforma NOI divided by the total expected investment Source: Pramerica Latin America -‐ Portfolio Management
Capital Expenditures (CAPEX)
11.3%
Terrafina’s CAPEX are classified as those recurring expenses that took place based on upcoming leasing maturities and properties improvements. The main goal of these expenses is the renewal of leasing contracts as well as the improvement of property conditions taking into account tenant requirements. Terrafina expects to apply CAPEX towards vacant properties as well as towards the development of new GLA by means of expansions and/or new developments. Additionally, it is important to consider that capital expenditures intended for expansions and new developments are not financed with Terrafina’s operating cash flow and therefore do not pass through the income statement. Capital expenditures accounts are comprised as follows: 1) Tenant improvements resources as well as recurring maintenance CAPEX 2) Broker and administrator fees 3) CAPEX for new developments, which due to their nature, are generally capitalized
10
In 2Q14, Terrafina’s total CAPEX investment was US$8.2 million. The breakdown is shown in the following table:
2Q14
2Q14
(millions of (millions of pesos) dollars)
Tenant Improvements & Recurring Capex Leasing Commissions 1 Development CAPEX 2
CAPEX Reserve Total CAPEX
13.1 10.7 71.5
1.1 0.8 5.6
9.6
0.7
104.9
8.2
Maintenance expenses for vacant properties are included in the Tenant Improvements & Recurring Capex figures. (1) Capex for expansions/new developments. (2) Capex reserve for maintenance activities. Source: Pramerica Real Estate Investors Latin America -‐ Portfolio Management
Land Reserves
Terrafina’s land reserves as of June 30, 2014 were comprised of 13 land reserve properties, which accounted for 7.3 msf potential GLA for the development of future industrial assets. Terrafina’s land reserves distribution was as follows: Square Feet (millions) North Bajio Central Total Land Portfolio
Land at Land at Appraisal Appraisal Cost Cost Value Value (millions of pesos)
(millions of dollars)
(millions of pesos)
(millions of dollars)
3.7 0.1 3.5
455.2 9.2 586.6
34.9 0.7 45.0
487.4 9.3 446.4
37.4 0.7 34.3
7.3
1,051.0
80.6
943.1
72.4
Source: Pramerica Latin America -‐ Portfolio Management and Fund Accounting
Non-‐Strategic Asset Sales
During 3Q13, Terrafina initiated a capital recycling program through the sale of non-‐strategic properties. The implementation of this program is consistent with Terrafina’s objective of specializing in key markets in order to increase revenues, improve profitability of the assets and maintain constant and sustainable growth for Terrafina and its shareholders. Terrafina expects that with this initiative, it can reach the sale of approximately US$150 to US$180 million of non-‐ strategic assets. Currently, we are reviewing different sales opportunities that once achieved, will be announced to the market.
11
2Q14 Financial Performance
Financial Results and Calculations
Terrafina’s 2Q14 financial results are presented in Mexican pesos and U.S. dollars. Figures on the income statement for each period were converted to dollars using the average exchange rate for 2Q14, for the balance sheet, the exchange rate used was that of June 30, 2014. It is important to consider that comparisons in this earnings report are made based on first quarter 2014 figures, since second quarter 2013 does not reveal the American Industries – Kimco acquisition effects. Terrafina adheres to the best accounting practices for measuring the FIBRA’s (REIT) performance results by providing relevant metrics to the financial community. Throughout the following financial performance section, additional calculations are available. It is important to note that these metrics must not be considered individually to evaluate Terrafina’s results. It is recommended to use them in combination with other International Financial Reporting Standards metrics to measure Terrafina’s performance. Terrafina presents in this earnings report additional metrics such as Net Operating Income (NOI), Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), and Adjusted Funds from Operations (AFFO). Each breakdown calculation is available in this document. In addition, Terrafina recommends reviewing the Appendixes as a reference of the integration of different items of Terrafina’s financial statement. This information is available in the last section of this document.
Past performance is not a guarantee or reliable indicator of future results.
12
Rental Revenues
In 2Q14, rental revenues totaled US$32.6 million, a 2.8% or US$0.9 million increase compared to 1Q14. Rental revenues do not include accrued revenues, as these are a non-‐cash item.
Other Operating Income
In 2Q14, other operating income totaled US$3.3 million, a decrease of US$0.7 million or 17.5% compared to 1Q14. This figure was explained by lower property taxes reimbursements, since most of these were reported during 1Q14; as a result, other operating income stabilized during 2Q14 in line with our expectations for the full year. Other operating income mainly stems from leasing contract deposits refunds from Triple-‐Net Leases. Expenses reimbursable to Terrafina mainly include electricity, property taxes, insurance costs and maintenance activities. 2Q14 net revenues reached US$36.5 million, a decrease of US$0.9 million, or 2.4% compared to 1Q14.
2Q14
Rental Revenue
1Q14
Var. %
2Q14
(millions of pesos)
1Q14
Var. %
(millions of dollars)
424.0
419.9
1.0%
32.6
31.7
2.8%
7.9
22.0
-‐64.1%
0.6
1.7
-‐64.7%
42.7
54.2
-‐21.2%
3.3
4.0
-‐17.5%
Reimbursable Expenses as Revenues
34.3
48.2
-‐28.9%
2.7
3.6
-‐25.0%
Reimbursable Tenant Improvements
2.7
2.7
1.2%
0.2
0.2
0.0%
Other non-‐cash income
5.7
3.3
72.7%
0.4
0.2
100.0%
474.6
496.1
-‐4.3%
36.5
37.4
-‐2.4%
1
Accrued Income Other Operating Revenues 2
Net Revenue
(1) Straight line rent adjustment; non-‐cash item. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: Pramerica Latin America -‐ Fund Accounting
For additional information regarding the revenue breakdown used to calculate additional metrics presented in this earnings report, please refer to Appendix 1 in the last section of this document.
Real Estate Expenses
In 2Q14, real estate expenses totaled US$6.3 million, a decrease of US$3.0 million or 32.3% compared to 1Q14. These results were due to lower repair and maintenance expenses, and a stabilization of property taxes expenses during the second quarter of 2014 that were incurred and paid in 1Q14 as mentioned in the earnings report for the previous quarter. It is important to differentiate between expenses directly related to the operation and maintenance of the industrial portfolio, as these are used to calculate NOI.
The remainder of the accounts included in real estate expenses are considered non-‐recurring expenses, and are used to calculate EBITDA and AFFO.
For additional information regarding the real estate expenses breakdown, please refer to Appendix 2 in the last section of this document.
13
Net Operating Income (NOI)
During 2Q14, NOI reached US$31.2 million, an increase of 2.3%, or US$0.7 million compared with 1Q14. NOI margin increased 198 basis points, reaching 88.4% compared to 86.4% in 1Q14. The following table displays the calculation of NOI for 2Q14:
2Q14
1Q14
Var. %
2Q14
(millions of pesos unless otherwise stated)
1
Rental Revenues 2
Other Operating income Net Revenues for NOI Calculation
1Q14
Var. %
(millions of dollars unless otherwise stated)
424.0
419.9
1.0%
32.6
31.7
2.8%
34.3
48.2
-‐28.9%
2.7
3.6
-‐25.0%
458.3
468.1
-‐2.1%
35.3
35.3
0.0%
Repair and Maintenance
-‐9.1
-‐9.3
-‐2.2%
-‐0.7
-‐0.7
0.0%
Property Taxes
-‐6.9
-‐29.5
-‐76.6%
-‐0.5
-‐2.2
-‐77.3%
Property Management Fees
-‐13.1
-‐6.5
101.5%
-‐1.0
-‐0.5
100.0%
Electricity
-‐12.2
-‐9.0
35.6%
-‐0.9
-‐0.7
28.6%
Property Insurance
-‐5.4
-‐3.7
45.9%
-‐0.4
-‐0.3
33.3%
Security
-‐3.6
-‐3.0
20.0%
-‐0.3
-‐0.2
50.0%
Other Operational Expenses
-‐3.4
-‐2.8
21.4%
-‐0.3
-‐0.2
50.0%
-‐53.7
-‐63.8
-‐15.8%
-‐4.1
-‐4.8
-‐14.6%
Net Operating Income
404.6
404.3
0.07%
31.2
30.5
2.3%
NOI Margin
88.4%
86.4%
198 bps
88.4%
86.4%
198 bps
Real Estate Operating Expenses for NOI Calculation 3
(1)Excludes accrued income from straight-‐line rent adjustments, as it is a non-‐cash item. (2) Excludes tenant improvements reimbursements 'which are included in AFFO calculation. (3) The income generated by the operation of the property, independent of external factors such as financing and income taxes. NOI is the result of Net Revenues (includes rental income and triple net leases expenses reimbursements) minus Real Estate Operating Expenses (costs incurred during the operation and maintenance of the industrial portfolio). Source: Pramerica Latin America -‐ Fund Accounting
Fees and Administrative Expenses
Fees and administrative expenses in 2Q14 totaled US$3.5 million, which decreased 5.4%, or US$0.2 million, compared to 1Q14. Fees and administrative expenses for 2Q14 were as follows: • 57.1% were related to advisory fees paid to the external advisor1 • 14.3% for professional and consulting services • 28.6% for payroll, administrative fees and other expenses
EBITDA
In 2Q14, EBITDA totaled US$27.6 million, an increase of US$0.7 million, or 2.6%, compared to 1Q14. EBITDA margin for 2Q14 was 78.2%, a 198 basis point increase compared to the previous quarter.
1) PLA Administradora Industrial, S. de R.L. de C.V., is a Mexican affiliate of Pramerica Latin America, and Advisor as per the Advisory Contract.
14
The following shows the EBITDA calculation 2Q14: 1
Rental Revenues
2Q14
1Q14
Var. %
2Q14
(millions of pesos unless otherwise stated)
1Q14
Var. %
(millions of dollars unless otherwise stated)
424.0
419.9
1.0%
32.6
31.7
2.8%
Other Operating income
34.3
48.2
-‐28.9%
2.7
3.6
-‐25.0%
Real Estate Expenses for EBITDA Calculation
-‐57.0
-‐65.2
-‐12.6%
-‐4.4
-‐4.9
-‐10.2%
Real Estate Operating Expenses for NOI Calculation
-‐53.7
-‐63.8
-‐15.8%
-‐4.1
-‐4.8
-‐14.6%
Advertising
-‐0.5
-‐0.2
150.0%
0.0
0.0
-‐
Admin. Property Insurance Expenses
-‐0.8
-‐0.7
14.3%
-‐0.1
-‐0.1
-‐
Other Admin. Real Estate Expenses
-‐2.0
-‐0.5
300.0%
-‐0.2
0.0
-‐
Fees and Admin. Expenses
-‐42.7
-‐45.5
-‐6.2%
-‐3.3
-‐3.5
-‐5.7%
External Advisor Fees
-‐26.3
-‐26.2
0.4%
-‐2.0
-‐2.0
0.0%
Legal, Admin. and Other Professional Fees
-‐11.1
-‐13.0
-‐14.6%
-‐0.9
-‐0.9
0.0%
Trustee Fees
-‐1.6
-‐0.8
100.0%
-‐0.1
-‐0.1
0.0%
Payroll
-‐2.9
-‐4.7
-‐38.3%
-‐0.2
-‐0.4
-‐50.0%
Other Expenses
-‐0.8
-‐0.8
0.0%
-‐0.1
-‐0.1
-‐
EBITDA
3
358.6
357.4
-‐9.1%
27.6
26.9
2.6%
EBITDA Margin
78.2%
76.2%
198 bps
78.2%
76.2%
198 bps
2
(1) Excludes accrued income from straight line rent adjustments as it is a non-‐cash item. (2) Excludes tenant improvements reimbursements which is included in AFFO calculation. (3) Earnings before interest, taxes, depreciation and amortization. Source: Pramerica Latin America -‐ Fund Accounting
For additional information regarding the commissions and administrative expenses breakdown used for the calculation of EBITDA and AFFO, please refer to Appendix 3 located in the last section of this document.
Financing Costs
In 2Q14, Terrafina registered net financing costs of US$7.9 million, which decreased US$2.1 million or 20.7% compared to the previous quarter.
2Q14
Var. %
Interest Paid
1Q14
Var. %
(millions of dollars)
-‐103.4
-‐123.6
-‐16.3%
-‐8.0
-‐9.3
-‐14.0%
-‐0.5
-‐10.0
-‐95.0%
0.0
-‐0.7
-‐100.0%
Recurring
-‐0.5
-‐0.2
150.0%
0.0
0.0
-‐
Non Recurring
0.0
-‐9.8
-‐
0.0
-‐0.7
-‐
0.7
0.7
-‐3.0%
0.1
0.1
0.0%
-‐103.2
-‐132.9
-‐22.3%
-‐7.9
-‐10.0
-‐20.7%
Borrowing Expenses
Interest Income Total
Source: Pramerica Latin America -‐Fund Accounting
2Q14
(millions of pesos)
1Q14
15
Funds from Operations (FFO) Adjusted Funds from Operations (AFFO)
In the 2Q14, Terrafina’s FFO increased 11.3%, or US$2.0 million compared to 1Q14, reaching US$19.7 million; FFO Margin of 55.8%, a 567 basis point increased quarter to quarter. Additionally, Terrafina reported an AFFO of US$16.9 million, an increase of US$1.8 million, or 11.9%, compared to 1Q14. AFFO margin was 47.6%, an increase of 507 basis points versus 1Q14.
EBITDA 1
Finance Cost
2Q14
1Q14
Var. %
2Q14
(millions of pesos unless otherwise stated)
1Q14
Var. %
(millions of dollars unless otherwise stated)
358.6
357.4
0.3%
27.6
26.9
2.6%
-‐103.2
-‐123.1
-‐16.2%
-‐7.9
-‐9.2
-‐14.1%
Funds from Operations (FFO)
255.4
234.3
9.0%
19.7
17.7
11.3%
FFO Margin
55.8%
50.1%
567 bps
55.8%
50.1%
567 bps
Tenant Improvements
-‐13.1
-‐23.8
-‐45.0%
-‐1.1
-‐1.8
-‐38.9%
Leasing Commissions
-‐10.7
-‐8.3
28.9%
-‐0.8
-‐0.6
33.3%
-‐9.6
0.0
-‐
-‐0.7
0.0
-‐
-‐2.2
-‐2.4
-‐8.3%
-‐0.2
-‐0.2
0.0%
2
CAPEX Reserve 3
Other Non Recurring Expenses Adjusted Funds from Operations (AFFO)
219.8
199.8
10.0%
16.9
15.1
11.9%
AFFO Margin
47.6%
42.5%
507 bps
47.6%
42.5%
507 bps
(1) Net Operational Interest Expenses comprised by interest paid, recurring borrowing expenses and interest income. (2) CAPEX reserve for maintenance activities (3) Related expenses to acquisitions, legal and other. Source: Pramerica Latin America -‐ Fund Accounting
Net Profit (Loss)
In 2Q14, Terrafina experienced a net profit of US$59.3 million. The following table presents the calculation of Net (Loss) Profit for 2Q14:
2Q14
1Q14
Var. %
(millions of pesos unless otherwise stated)
2Q14
1Q14
Var. %
(millions of dollars unless otherwise stated)
0
0
Net Revenues
474.6
496.1
-‐4.3%
36.5
37.5
-‐2.7%
Real Estate Expenses
-‐80.6
-‐123.4
-‐34.7%
-‐6.3
-‐9.3
-‐32.3%
Fees and Other Expenses
-‐44.9
-‐47.9
-‐6.3%
-‐3.5
-‐3.7
-‐5.4%
0.0
0.7
-‐
0.0
0.1
-‐
Net Income (Loss) from Fair Value Adjustment on Investment Properties
315.9
-‐104.2
-‐
24.3
-‐7.9
-‐
Net Income (Loss) from Fair Value Adjustment on Derivative Financial Instruments
-‐21.6
-‐13.1
-‐
-‐1.7
-‐1.0
-‐
Net Income (Loss) from Fair Value Adjustment on Borrowings
241.1
-‐84.5
-‐
18.5
-‐6.4
-‐
-‐5.8
0.0
-‐
-‐0.4
0.0
-‐
Operating Profit
878.7
123.8
609.7%
67.6
9.3
627.1%
Operating Margin
185.2%
24.8%
16,040 bps
185.2%
24.8%
16,040 bps
0.7
0.7
0.0%
0.1
0.1
0.0%
Financial Expenses
-‐103.9
-‐133.6
-‐22.2%
-‐8.0
-‐10.0
-‐20.2%
Net Financial Cost
-‐103.2
-‐132.9
-‐22.3%
-‐7.9
-‐10.0
-‐20.3%
Net Profit (Loss)
775.5
-‐9.1
-‐
59.7
-‐0.7
-‐
163.4%
-‐1.8%
-‐
163.4%
-‐1.8%
-‐
Gain (Loss) from Sales of Real Estate Properties
Foreign Exchange Gain (loss)
Financial Income
Net Margin Source: Pramerica Latin America -‐ Fund Accounting
16
Distributions per CBFIs
In accordance with 2Q14 results, Terrafina will distribute US$16.9 million, or US$0.0444 per CBFI, an increase of 11.9%, compared to the 1Q14 distribution. Terrafina’s 2Q14 and 1Q14 distributions are presented in the following table: 2Q14
1Q14
Total Outstanding CBFIs (million CBFIs)
381.0
381.0
CBFI Price (quarterly average)
26.48
25.08
Distributions
219.8
199.8
Distributions Per CBFI
0.5769
0.5244
FX Rate USD/MXN (closing period)
12.9997
13.2344
16.9
15.1
0.0444
0.0396
8.7%
8.4%
(millions of pesos unless otherwise stated) 1
Distributions (million dollars) Distributions Per CBFI (dollars) 2
Annualized Distribution Yield
(1) Total number of outstanding CBFIs: 381,014,635. (2) Distribution per share divided by the average CBFI price of the quarter. The distribution yield calculation has been annualized for comparison purposes. Source: Pramerica Latin America -‐ Fund Accounting
Total Debt
As of June 30, 2014, Terrafina’s total debt reached for US$890.8 million. The average cost Terrafina’s long-‐term debt, which is U.S. dollar-‐denominated, was 3.73%. Most of Terrafina’s loans are set at variable interest rates and are hedged with interest rate caps and fixed-‐rate options. Millions of pesos
Currency (as of June 30, 2014)
Terms
577.0
44.3
TIIE + 2.60%
Interest Only
Sep 2014
-‐
Long Term Debt 1 Citibank
Dollars
6,329.2
485.7
Libor + 3.50%
Interest Only
Mar 2016
-‐
Dollars
494.6
38.0
Libor + 3.30%
Dollars
3,605.0
276.6
Libor + 3.50%
Dollars
602.8
46.3
Libor + 3.50%
11,608.7
890.8
418.5
32.1
11,190.2
858.6
GEREM 3
HSBC Total Debt Net Cash Net Debt
Interest + Principal Interest + Principal Interest + Principal
May 2016
-‐
Sep 2018
Sep 2020
Sep 2018
Sep 2020
Source: Pramerica Latin America -‐ Fund Accounting and Capital Markets
(1) Syndicated loan facility with six banks. (2) Syndicated loan facility with four banks. (3) One-‐year interest only grace period.
Extension Option
Maturity
Pesos
2,3
Interest Rate
Short Term Debt HSBC
Banorte
Millions of dollars
17
Moreover, Terrafina’s leverage (LTV) and debt service coverage ratio (DSCR) metrics are included as requested by the Mexican Securities and Exchange Commission (CNBV) as part of the new regulations. The following tables show Terrafina’s leverage and debts service coverage as of June 30, 2014 and based on projections for the next six quarters:
Leverage (LTV) (millions of pesos)
(millions of dollars)
Total Assets
22,954.0
1,761.3
Total Debt
11,608.7
890.8
50.6%
(as of June 30, 2014)
1
Leverage (LTV)
(1) Defined by the Comisión Nacional Bancaria de Valores (CNBV) as Total Debt over Total Assets Source: Pramerica Latin America -‐ Fund Accounting y Capital Markets
Debt Service Coverage Ratio (DSCR) period
(millions of pesos)
(millions of dollars)
June 30, 2014
418.5
32.1
Σ next 6 quarters
863.7
66.3
Σ next 6 quarters
1069.5
82.1
June 30, 2014
41.9
3.2
Cash & Cash Equivalents Recoverable Taxes 1
EBIT after distributions Available Credit Line
period
(millions of pesos)
(millions of dollars)
Interest Payments
Σ next 6 quarters
664.3
51.0
Principal Payments
Σ next 6 quarters
824.4
63.3
Recurring CAPEX
Σ next 6 quarters
203.3
15.6
Development Expenses
Σ next 6 quarters
78.2
6.0
Service Coverage Ratio (DSCR) Debt 2
1.4x
(1) Earnings Before Interest and Taxes (2) (Cash & Cash Equivalents + Recoverable Taxes + EBIT After Distributions + Available Credit Line) / (Interest Payments + Principal Payments + Recurring CAPEX + Development Expenses) Source: Pramerica Latin America -‐ Fund Accounting and Capital Markets
18
About Terrafina Terrafina (BMV:TERRA13) is a Mexican real estate investment trust formed primarily to acquire, develop, lease and manage industrial real estate properties in Mexico. Terrafina’s portfolio consists of attractive, strategically located warehouses and other light manufacturing properties throughout the central, Bajio and northern regions of Mexico. It is internally managed by highly qualified industry specialists, and externally advised by Pramerica Real Estate Investors Latin America. Terrafina owns 230 real estate properties, including 217 developed industrial facilities with a collective GLA of approximately 31 million square feet and 13 land reserve parcels, designed to preserve the organic growth capability of the portfolio. Terrafina’s objective is to provide attractive risk-‐adjusted returns for the holders of its certificates through stable distributions and capital appreciations. Terrafina aims to achieve this objective through a successful performance of its industrial real estate and complementary properties, strategic acquisitions, access to a high level of institutional support, and to its management and corporate governance structure. For more information, please visit www.terrafina.mx
About Pramerica Real Estate Investors Pramerica Real Estate Investors is a leader in the global real estate investment management business, offering a broad range of investment vehicles that invest in private and public market opportunities in the United States, Europe, the Middle East, Asia, Australia and Latin America. Headquartered in Madison, N.J., the company also has offices in Atlanta, Chicago, Miami, New York, San Francisco, Frankfurt, Lisbon, London, Luxembourg, Munich, Paris, Abu Dhabi, Mexico City, Beijing, Hong Kong, Seoul, Singapore, Sydney and Tokyo. In addition, the company has representatives in Milan and people on the ground in Rio de Janeiro. Pramerica Real Estate Investors has gross assets under management of USD $55.8 billion ($41.8 billion net assets), as of March 31, 2014. For more information, please visit www.pramericarei.com
About Pramerica Financial Pramerica Financial is a trade name used by Prudential Financial, Inc., a company incorporated and with its principal place of business in the United States, and its affiliates in select countries outside the United States. PFI (NYSE: PRU), a financial services leader with more than $1.1 trillion of assets under management as of March 31, 2014, has operations in the United States, Asia, Europe, and Latin America. PFI’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-‐related services, mutual funds and investment management. In the U.S., the company’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/. PFI of the United States is not affiliated in any manner with Prudential, plc, a company incorporated in the United Kingdom. Pramerica, the Pramerica logo and the rock symbol are service marks of Pramerica Financial and its related entities, registered in many jurisdictions worldwide.
Forward Looking Statements This document may include forward-‐looking statements that may imply risks and uncertainties. Terms such as "estimate", "project", "plan", "believe", "expect", "anticipate", "intend", and other similar expressions could be construed as previsions or estimates. Terrafina warns readers that declarations and estimates mentioned in this document, or realized by Terrafina’s management imply risks and uncertainties that could change in function of various factors that are out of Terrafina’s control. Future expectations reflect Terrafina’s judgment at the date of this document. Terrafina reserves the right or obligation to update the information contained in this document or derived from this document. Past or present performance is not an indicator to anticipate future performance.
19
Note to Investors Our CBFIs may not be offered or sold to any person in the United Kingdom, other than to persons whose ordinary activities involve them acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom. For further details about eligible offerees and transfer restrictions, see the section “Transfer Restrictions” referenced in the Offering Memorandum of Terrafina.
20
Conference Call
(BMV: TERRA13) Cordially invites you to participate in its Second Quarter 2014 Results Tuesday, July 29, 2014 10:00 a.m. Eastern Time 9:00 a.m. Central Time
Presenting for Terrafina: Alberto Chretin, Chief Executive Officer Angel Bernal, Chief Financial Officer
*** To access the call, please dial: from within the U.S. 1-‐800-‐311-‐9404 from outside the U.S. 1-‐334-‐323-‐7224 Conference ID Number: 34974 Audio Webcast Link: http://www.videonewswire.com/event.asp?id=99786 Conference Replay Will be provided for your call Dial 1-‐877-‐919-‐4059 or 1-‐334-‐323-‐0140 to listen Passcode: 12018483
21
Appendix
Appendix 1 – Revenues
Terrafina’s revenues are mainly classified as rental revenues and other operating reimbursable revenues. Additionally, there are accounting revenues that must be registered according with IFRS; however these are considered non-‐cash items and therefore are excluded in some calculations. Reimbursable tenant improvements are included in the tenant improvement expenses for the AFFO calculation.
Revenues
NOI calculation Non Cash NOI calculation AFFO calculation Non Cash
2Q14
1Q14
(millions of pesos)
Rental Revenue
2Q14
1Q14
(millions of dollars)
424.0
419.9
32.6
31.7
Accrued Income
7.9
22.0
0.6
1.7
Other Operating Revenues
42.7
54.2
3.3
4.0
Reimbursable Expenses as Revenues
34.3
48.2
2.7
3.6
Reimbursable Tenant Improvements
2.7
2.7
0.2
0.2
Other non-‐cash income
5.7
3.3
0.4
0.2
474.6
496.1
36.5
37.4
1
2
Net Revenue
(1) Straight line rent adjustment. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: Pramerica Latin America -‐ Fund Accounting
22
Real estate expenses are comprised of recurring figures related with the operation (used for the Net Operating Profit calculation) as well as non-‐recurring figures used for metric calculations such as Earnings Before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), Adjusted Funds from Operations (AFFO). Terrafina’s 2Q14 and 1Q14 real estate expenses breakdown is available in the following table and indicates the figures used for the calculation of these metrics: Real Estate Expenses
NOI calculation AFFO calculation NOI calculation Non Cash
Repair and Maintenance
2Q14
1Q14
(millions of pesos)
2Q14
1Q14
(millions of dollars)
-‐24.9
-‐35.8
-‐2.0
-‐2.7
Recurring
-‐9.1
-‐9.3
-‐0.7
-‐0.7
Non Recurring
-‐15.8
-‐26.5
-‐1.3
-‐2.0
Property Taxes
-‐6.7
-‐30.9
-‐0.5
-‐2.3
Operating
-‐6.9
-‐29.5
-‐0.5
-‐2.2
Non Operating
0.2
-‐1.4
0.0
-‐0.1
NOI calculation
Property Management Fees
-‐13.1
-‐6.5
-‐1.0
-‐0.5
NOI calculation
Electricity
-‐12.2
-‐9.0
-‐0.9
-‐0.7
-‐10.7
-‐8.3
-‐0.8
-‐0.6
-‐6.2
-‐4.4
-‐0.5
-‐0.4
Operating
-‐5.4
-‐3.7
-‐0.4
-‐0.3
Administrative
-‐0.8
-‐0.7
-‐0.1
-‐0.1
Security
-‐3.6
-‐3.0
-‐0.3
-‐0.2
Advertising
-‐0.5
-‐0.2
0.0
0.0
Other Expenses
-‐5.4
-‐3.3
-‐0.5
-‐0.2
Operational Related
-‐3.4
-‐2.8
-‐0.3
-‐0.2
Administrative
-‐2.0
-‐0.5
-‐0.2
0.0
2.7
-‐22.0
0.2
-‐1.7
-‐80.6
-‐123.4
-‐6.3
-‐9.3
AFFO calculation Brokers Fees NOI calculation EBITDA calculation NOI calculation EBITDA calculation NOI calculation EBITDA calculation Non Cash
Property Insurance
Bad Debt Expense Total Real Estate Expenses Source: Pramerica Latin America – Fund Accounting
23
Appendix 3 – Fees and Administrative Expenses
Fees and administrative expenses include figures used for metric calculations such as Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), Adjusted Funds from Operations (AFFO). Terrafina’s 2Q14 and 1Q14 fees and administrative expenses breakdown is available in the following table and indicates the figures used for the calculation of these metrics: Fees and Administrative Expenses
EBITDA calculation
EBITDA calculation AFFO calculation EBITDA calculation AFFO calculation EBITDA calculation EBITDA calculation EBITDA calculation EBITDA calculation
2Q14 1Q14 (millions of dollars)
External Advisor Fees
-‐26.3
-‐26.2
-‐2.0
-‐2.0
Legal Fees
-‐1.1
-‐2.3
-‐0.1
-‐0.1
Recurring
0.0
-‐0.6
0.0
0.0
Non Recurring
-‐1.1
-‐1.7
-‐0.1
-‐0.1
-‐3.6
-‐2.6
-‐0.3
-‐0.2
Recurring
-‐2.5
-‐1.9
-‐0.2
-‐0.1
Non Recurring
-‐1.1
-‐0.7
-‐0.1
-‐0.1
Administrative Fees
-‐8.6
-‐10.5
-‐0.7
-‐0.8
Payroll
-‐2.9
-‐4.7
-‐0.2
-‐0.4
Trustee Fees
-‐1.6
-‐0.8
-‐0.1
-‐0.1
Other Expenses
-‐0.8
-‐0.8
-‐0.1
-‐0.1
Total Fees and Admin. Expenses
-‐44.9
-‐47.9
-‐3.5
-‐3.7
Other Professional Fees
1Q14
(millions of pesos)
Source: Pramerica Latin America -‐ Fund Accounting
2Q14
24
Appendix 4 -‐ Reconciliation Reconciliation of Net Profit (Loss) to FFO, EBITDA and NOI Net Profit (Loss) Add (deduct) Cost of Financing Adjustment: Non Recurring Borrowing Expenses Add (deduct) Non-‐Cash Adjustment: Acquisition Related Expenses Foreign Exchange Adjustments Fair Value Adjustment on Borrowings Fair Value Adjustment on Derivative Financial Instruments Fair Value Adjustment on Investment Properties Sales of Real Estate Properties Adjustment Add (deduct) Expenses Adjustment: Non Recurring Repair and Maintenance Non Operating Property Taxes Brokers Fees Bad Debt Expense Non Recurring Legal Fees Non Recurring Other Professional Fees Add (deduct) Revenues Adjustment: Accrued Income Other Non-‐Cash Income Reimbursable Tenant Improvements FFO Add (deduct) Cost of Financing Adjustment: Interest Paid Recurring Borrowing Expenses Interest Income EBITDA Add (deduct) Expenses Adjustment: External Advisor Fees Recurring Legal Fees Recurring Other Professional Fees Administrative Fees Payroll Trustee Fees Other Expenses Advertising Administrative Property insurance Other Administrative Expenses NOI Add (deduct) Expenses Adjustment: Recurring Repair and Maintenance Operating Property Taxes Property Management Fees Electricity Operating Property Insurance Security Other Operational Expenses Add (deduct) Revenues Adjustment: Other Non-‐Cash Income Accrued Income Reimbursable Tenant Improvements Net Revenue
2Q14
1Q14 2Q14 1Q14 (millions of dollars)
(millions of pesos)
775.7 0.0 0.0 5.8 -‐241.1 21.6 -‐315.9 0.0 15.8 -‐0.2 10.7 -‐2.7 1.1 1.1 -‐7.9 -‐5.7 -‐2.7 255.4 103.4 0.5 -‐0.7 358.6 26.3 0.0 2.5 8.6 2.9 1.6 0.8 0.5 0.8 2.0 404.6 9.1 6.9 13.1 12.2 5.4 3.6 3.4
5.7 7.9 2.7 474.6
-‐9.1 9.8 0.0 0.1 84.3 13.1 104.2 -‐0.7 26.5 1.4 8.3 22.0 1.7 0.7 -‐22.0 -‐3.3 -‐2.7 234.3 123.6 0.2 -‐0.7 357.4 26.2 0.6 1.9 10.5 4.7 0.8 0.8 0.2 0.7 0.5 404.3 9.3 29.5 6.5 9.0 3.7 3.0 2.8 3.3 22.0 2.7 496.1
59.7 0.0 0.0 0.4 -‐18.5 1.7 -‐24.3 0.0 1.2 0.0 0.8 -‐0.2 0.1 0.1 -‐0.6 -‐0.4 -‐0.2 19.7 8.0 0.0 -‐0.1 27.6 2.0 0.0 0.2 0.7 0.2 0.1 0.1 0.0 0.1 0.2 31.2 0.7 0.5 1.0 0.9 0.4 0.3 0.3 0.4 0.6 0.2 36.5
-‐0.7 0.7 0.0 0.0 6.4 1.0 7.9 -‐0.1 2.0 0.1 0.6 1.7 0.1 0.1 -‐1.7 -‐0.2 -‐0.2 17.7 9.3 0.0 -‐0.1 26.9 2.0 0.0 0.1 0.8 0.4 0.1 0.1 0.0 0.1 0.0 30.5 0.7 2.2 0.5 0.7 0.3 0.2 0.2
0.2 1.7 0.2 37.4
25
Reconciliation of Net Profit (Loss) to AFFO Net Profit (Loss) Add (deduct) Cost of Financing Adjustment: Non Recurring Borrowing Expenses Add (deduct) Non-‐Cash Adjustment: Acquisition Related Expenses Foreign Exchange Adjustments Fair Value Adjustment on Borrowings Fair Value Adjustment on Derivative Financial Instruments Fair Value Adjustment on Investment Properties Sales of Real Estate Properties Adjustment Add (deduct) Expenses Adjustment: Non Operating Property Taxes Bad Debt Expense Add (deduct) Revenues Adjustment: Accrued Income Other Non-‐Cash Income Add (deduct) CAPEX Adjustment: CAPEX Reserve AFFO
2Q14 1Q14 2Q14 1Q14 (millions of pesos) (millions of dollars) 775.7 0.0 0.0 5.8 -‐241.1 21.6 -‐315.9 0.0 -‐0.2 -‐2.7 -‐7.9 -‐5.7 -‐9.6 219.8
-‐9.1 9.8 0.0 0.1 84.3 13.1 104.2 -‐0.7 1.4 22.0 -‐22.0 -‐3.3 0.0 199.8
59.7 0.0 0.0 0.4 -‐18.5 1.7 -‐24.3 0.0 0.0 -‐0.2 -‐0.6 -‐0.4 -‐0.7 16.9
-‐0.7 0.7 0.0 0.0 6.4 1.0 7.9 -‐0.1 0.1 1.7 -‐1.7 -‐0.2 0.0 15.1
26
Appendix 5 -‐ Cap Rate Calculation
Terrafina subtracts cash and land reserves book value for the cap rate calculation. In the following table, the cap rate calculation is shown assuming a CBFI quarterly average price of Ps. 26.48 pesos and a average exchange rate for 2Q14 of Ps. 12.9997. Implied Cap Rate
Quarterly Average Price (dollars)¹
2.04
(x) CBFIs (million shares)
381.0
(=) Market Capitalization
776.1
(+) Total Debt
890.8
(-‐) Cash
32.1
(=) Enterprise Value
1,634.8
(-‐) Landbank
80.6
(=) Implied Operating Real Estate Value
1,554.1
Net Operating Income (NOI) 2014e
125.0
Implied Cap Rate
8.0%
Figures expressed in million dollars unless otherwise stated. (1) Quarterly average price of Ps.26.48 and exchange rate of Ps.12.9997.
27
Financial Statements 2Q14
Income Statement (thousand pesos)
Rental revenues
Other operating income Real estate operating expenses
$431,902 $441,941
-‐2.3%
42,631
54,145
-‐21.3%
(80,528)
(123,384)
-‐34.7%
(44,804)
(47,881)
-‐6.4%
Acquisition related expenses
-‐
-‐
-‐
Realized gain from disposal of investment properties Net Income (Loss) from Fair Value Adjustment on Borrowings
-‐
703
-‐
241,055
(84,459)
-‐
Net gain (loss) from fair value adjustment on investment properties
315,873 (104,183)
-‐
Net (loss) gain unrealized from fair value on derivative financial instruments
(21,565)
(13,070)
-‐
Foreign exchange (loss) gain
(5,753)
46
-‐
Operating profit
878,811
123,858
609.5%
Finance income
742
722
2.8%
Finance cost
(103,875) (133,719)
-‐22.3%
Finance cost -‐ net
(103,133) (132,997)
-‐22.5%
Net Profit for the period
Var.
Fees and other expenses
1Q14
775,678
(9,139)
-‐
28
Financial Statements
Balance Sheet
Jun-‐30-‐14
$21,423,880
$21,117,969
(Cost:30/06/2014 -‐ Ps.21,012,776; 31/03/2014 -‐ Ps.21,023,650)
5,454
43,466 863,723 15,858 70,798 38,506
Restricted cash
27,208
Total assets Net assets attributable to Investors Contributions, net Retained earnings
Currency translation adjustment Total net assets (Net Equity) Liabilities Non-‐current liabilities Borrowings (Cost: 30/06/2014 -‐ $11,183,104; 31/03/2014 -‐ $11,272,699)
Tenant deposits Current liabilities Trade and other payables Borrowings (Cost: 30/06/2014 -‐ Ps.724,454, 31/03/2014 -‐ Ps.734,790)
26,561 935,307 28,580 63,106 66,106
73,823
Cash and cash equivalents
Var.
Assets Non-‐current assets Investment properties
(Net of allowance for doubtful accounts: 30/06/2014 -‐ Ps.36,362; 31/03/2014 -‐ Ps.71,015)
Mar-‐31-‐14
Derivative financial instruments Current assets Other assets Recoverable taxes Prepaid expenses Deferred charges and accrued income Accounts receivable
(thousands of pesos)
1.4% -‐80.0% 63.6% -‐7.7% -‐44.5% 12.2% -‐41.8%
60,436
22.2%
418,497
594,122
-‐29.6%
22,954,005
22,919,395
0.2%
9,900,604 631,456 478,418 11,010,478
10,881,157
146,647
188,226 727,497
9,900,604 0.0% 55,584 1036.0% 518,830
-‐7.8%
10,475,018
5.1%
11,222,829 159,626 334,425 727,497
-‐3.0% -‐8.1% -‐43.7% 0.0%
Total liabilities (excluding net assets attributable to the Investors)
11,943,527
12,444,377
-‐4.0%
Total net assets and liabilities
22,954,005
22,919,395
0.2%
29
Financial Statements
Statement of Changes in Equity
Net contributions
(thousands of pesos)
Balance at January 1, 2014 (Audited) Distributions to Investors Comprehensive Income Net loss of the period Other Comprehensive Income Currency Translation Total Comprehensive (loss) income
Net Assets attributable to investors for the period from April 1 to June 30, 2014 (Unaudited)
Currency translation adjustment
Net assets attributable to Investors
Retained earnings
$9,900,604 $511,856 $246,413 $10,658,873 -‐ -‐ (381,496) (381,496) -‐ -‐ -‐ $9,900,604
-‐ (33,438) (33,438) $478,418
766,539 -‐ 766,539 $631,456
766,539 (33,438) 733,101 $11,010,478
Results from January 1 to June 30, 2014.
30
Financial Statements Cash Flow Statement
Jun-‐14
(thousands of pesos)
Cash flows from operating activities (Loss) profit for the period
$766,539
Adjustments: Net loss (gain) unrealized from fair value adjustment on investment properties Net loss (gain) unrealized from fair value adjustment on derivative financial instruments
(211,690) 34,635
Net loss (gain) unrealized from fair value adjustment on borrowings
(156,596)
Realized gain from disposal of investment properties
(703)
Bad debt expense
19,284
Differed rents receivable
(29,516)
Decrease (increase) in restricted cash
(16,888)
Decrease (increase) in accounts receivable
21,287
Decrease (increase) in recoverable taxes
162,225
(Increase) in prepaid expenses
(7,449)
Decrease (increase) in other assets
33,814
Increase in tenant deposits
(1,339)
(Decrease) in accounts payable
(221,311) 392,292
Net cash (used in) generated from operating activities Cash flows from investing activities Acquisition of investment properties
Improvements of investment properties
(8,101)
Dispositions of investment properties
(137,536) 11,011
Net cash (used in) generated from investing activities
(134,626)
Cash flows from financing activities Acquisition of derivative financial instruments Proceeds from borrowings
(275) -‐
Principal payments on borrowings
(181,987)
Distributions to investors Proceeds from CBFI issued
(381,496) -‐
Net cash (used in) generated from financing activities
(563,758)
Net (decrease) in cash and cash equivalents
(306,092) 728,550
Cash and cash equivalents at the beginning of the period Exchange effects on cash and cash equivalents Cash and cash equivalents at the end of the period
(3,961) $418,497
Results for the period January 01, 2014 to June 30, 2014.
31
