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![Page 1: THIRD QUARTER 2017 EARNINGS REPORT - Amazon S3 · THIRD QUARTER 2017 EARNINGS REPORT Mexico City, October 26, 2017 – Terrafina® (“TERRA” or “the Company”) (BMV: TERRA13),](https://reader034.vdocuments.us/reader034/viewer/2022042404/5f19ed41e097502bb97b3825/html5/thumbnails/1.jpg)
Contacts in Mexico City: Contacts in New York: Francisco Martinez Maria Barona / Rafael Borja Investor Relations Officer i-advize Corporate Communications, Inc. Tel: +52 (55) 5279-8107 Tel: +1 (212) 406-3691 / (212) 406-3691 E-mail: [email protected] E-mail: [email protected] / [email protected]
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THIRDQUARTER2017EARNINGSREPORT
MexicoCity,October26,2017–Terrafina®(“TERRA”or“theCompany”)(BMV:TERRA13),aleadingMexicanindustrialrealestateinvestmenttrust(“FIBRA”),externallyadvisedbyPGIMRealEstateanddedicatedtotheacquisition,development,leasingandmanagementofindustrialrealestatepropertiesinMexico,todayannounceditsthirdquarter2017(3Q17)earningsresults.ThefiguresinthisreporthavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”).Figurespresentedinthisreportare presented inmillions ofMexican pesos andmillions of U.S. dollars, unless otherwise stated. Additionally, figuresmay vary due to rounding.Terrafina’sfinancialresultsincludedinthisreportareunaudited.Asaresult,thementionedfiguresinthisfinancialreportarepreliminaryfiguresandcouldbeadjustedinthefuture.Thisdocumentmayincludeforward-lookingstatementsthatmayimplyrisksanduncertainties.Termssuchas"estimate","project","plan","believe","expect", "anticipate", "intend", and other similar expressions could be construed as previsions or estimates. Terrafina warns readers thatdeclarationsandestimatesmentioned in thisdocument,or realizedbyTerrafina’smanagement implyrisksanduncertainties thatcouldchange infunctionofvariousfactorsthatareoutofTerrafina’scontrol.FutureexpectationsreflectTerrafina’sjudgmentatthedateofthisdocument.Terrafinareservestherightorobligationtoupdatetheinformationcontainedinthisdocumentorderivedfromthisdocument.Pastorpresentperformanceisnotanindicatortoanticipatefutureperformance.
OperatingandFinancialHighlightsasofSeptember30,2017
Operating
• AsofSeptember30,2017,theoccupancyratewas95.1%,a233basispointincreasecomparedtothethirdquarterof2016(3Q16).Additionally,consideringsignedlettersofintent(LOI),occupancyfor3Q17was95.4%.
• Annualizedaverageleasingratepersquarefootat3Q17wasUS$5.00,aUS$0.10increasecomparedto3Q16.
• Terrafinareportedatotalof37.8millionsquarefeet(msf)ofGrossLeasableArea(GLA)comprisedof268propertiesand287tenantsin3Q17.
• 3Q17leasingactivitytotaled1.7msf,ofwhich31.9%correspondedtonewleases,39.2%toleaserenewalsand28.9%
to early renewals. Leasing activitywasmainly concentrated in theChihuahua, Ciudad Juarez, San Luis Potosi, Tijuana,Monterrey,Toluca,Reynosa,Queretaro,Irapuato,CuautitlanIzcalliandRamosArizpemarkets.
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Financial• 3Q17rentalrevenuesreachedUS$41.2million,a25.3%orUS$8.3millionincreasecomparedto3Q16.
• 3Q17NOIwasUS$41.4million,a22.1%orUS$7.5millionincreasecomparedto3Q16.
• TheNOImarginfor3Q17reached93.3%,a104basispointdeclinecomparedto3Q16.• 3Q17EBITDAreachedUS$37.2million,anincreaseof21.8%orUS$6.7millioncomparedto3Q16.
• TheEBITDAmarginfor3Q17was83.7%,a108basispointdecreasecomparedto3Q16.• 3Q17 adjusted funds for operations (AFFO) reached US$23.0 million, an increase of 24.4% or US$4.5 million
comparedto3Q16.
• TheAFFOmarginfor3Q17was51.4%,a158basispointdeclinecomparedto3Q16.
• 3Q17distributionstotaledUS$23.0million.Asaresult,TerrafinawilldistributePs.0.5188perCBFI(US$0.0291perCBFI)fordistributionscorrespondingtotheJuly1toSeptember30,2017period.
• Theannualizeddistributionfor3Q17wasUS$0.1164;consideringtheaveragesharepriceforthequarterofUS$1.76
(Ps.31.29);Terrafina’sdividendyieldforthequarterwas6.6%.
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FiguresindollarsintheIncomeStatementwereconvertedintopesosusingtheaverageexchangeratefortheperiod;fortheBalanceSheettheexchangerateforthecloseoftheperiodwasused.(1)Millionsofsquarefeet.(2)IncludesexpansionsandBuilt-to-Suits(BTS).(3)Occupancyattheendoftheperiod.(4)Indicatestheleaserenewalrateof the leases, includesearly renewals. (5)Excludingaccrued incomeas it isanon-cash item. (6)Earningsbefore interest, taxes,depreciationandamortization. (7)Certificados Bursátiles Fiduciarios Inmobiliarios - Real Estate Investment Certificates. (*) Revenues and expenses have been adjusted for the calculation of the abovementionedmetrics.FiguresindollarsintheBalanceSheetwereconvertedusingtheclosingexchangerateoftheperiod.Pleaserefertothe“3Q17FinancialPerformance"and"Appendices"sectionavailableinthisdocument.Source:PGIMRealEstate–AssetManagementandFundAccounting
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OperatingandFinancialHighlights
Operating Sep17 Sep16 Var.
NumberofDevelopedProperties 268 209 59
GrossLeasableArea(GLA)(msf)1 37.8 30.1 7.7
NewDevelopments2(msf) 0.09 0.43 -0.34
LandReserves(msf) 6.17 6.40 -0.23
OccupancyRate3 95.1% 92.8% 233bps Avg.LeasingRent/SquareFoot(dollars) 5.00 4.89 0.10 WeightedAverageRemainingLeaseTerm(years) 3.57 3.49 0.07
RenewalRate4 89.3% 85.5% 373bps
QuarterlyFinancial 3Q17 3Q16 Var. 3Q17 3Q16 Var.
fx 17.8255 18.7204
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
RentalRevenues5 734.3 615.5 19.3% 41.2 32.9 25.3%OtherOperatingIncome 67.0 40.5 65.6% 3.8 2.2 72.1%NetRevenues 810.3 663.5 22.1% 45.5 35.5 28.2%NetOperatingIncome(NOI)* 737.7 634.8 16.2% 41.4 33.9 22.1%NOIMargin 93.3% 94.3% -104bps 93.3% 94.3% -104bpsEBITDA6* 662.3 570.7 16.0% 37.2 30.5 21.8%EBITDAMargin 83.7% 84.8% -108bps 83.7% 84.8% -108bpsFundsfromOperations(FFO)* 456.8 403.8 13.1% 25.6 21.6 18.8%FFOMargin 57.8% 60.0% -225bps 57.8% 60.0% -225bpsAdjustedFundsfromOperations(AFFO)* 410.4 346.4 18.5% 23.0 18.5 24.4%AFFOMargin 51.4% 52.9% -158bps 51.4% 52.9% -158bpsDistributions 410.4 346.4 18.5% 23.0 18.5 24.4%DistributionsperCBFI7 0.5188 0.5703 -9.0% 0.0291 0.0305 -4.5%
BalanceSheet Sep17 Jun17 Var.
Sep17 Jun17 Var.
fx 18.1979 17.8973
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
Cash&CashEquivalents 6,658.7 884.0 653.2% 365.9 49.4 640.8%InvestmentProperties 39,048.5 37,393.9 4.4% 2,145.8 2,089.4 2.7%LandReserves 962.9 934.8 3.0% 52.9 52.2 1.3%TotalDebt 19,267.1 18,526.0 4.0% 1,058.8 1,035.1 2.3%NetDebt 12,608.4 17,642.0 -28.5% 692.8 985.7 -29.7%
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CommentbyAlbertoChretin,ChiefExecutiveOfficerandChairmanoftheBoardInthethirdquarterof2017,TerrafinasuccessfullyclosedtheacquisitionofeightClassAindustrialpropertieslocatedinthe Northern region for US$59 million – excluding taxes and transaction costs. With this transaction, the Companypurchased1.1millionsquarefeetofpropertiesleasedbymultinationalcompanies,with100%occupancyratesandtheentirety of the leasing contracts denominated in U.S. dollars. Moreover, we continued to improve the portfolio’scharacteristics,withtheadditionofpropertieswithanaverageageoffouryearsandanaverageleasetermof8.1years.Wearepleasedtohaveclosedthisfirstphaseofacquisitions,withinthetimeframeagreeduponwiththemarket,usingthefollow-onresourcesfromtheissuanceconcludedinJuly2017.Additionally,wesignedabindingagreementtoacquire20ClassA industrialpropertiesforUS$220million–excludingtaxes and transaction costs. The closing of this transaction is subject to the approval of the Mexican Anti-TrustCommission (Comisión Federal de Competencia Económica or COFECE). This transaction will be financed with theremainingproceedsofthefollow-onofferingandisexpectedtobeincludedinthefirstquarter2018results.Regardingourmainoperationalmetricsforthethirdquarterof2017,Terrafinaclosedatotalof1.7millionsquarefeetinleasingactivitythroughoutthemainmarketsofChihuahua,CiudadJuarez,SanLuisPotosi,Tijuana,Monterrey,Toluca,Reynosa,Queretaro, Irapuato,Cuautitlan Izcalli andRamosArizpe.31.9%of thesewerenew leasing contracts, 39.2%wereleaserenewalsand28.9%wereearlyrenewals.Theaverageannualleasingrentforthethirdquarterof2017wasUS$5.00persquarefoot,aUS$0.10increasecomparedtothethirdquarterof2016andaUS$0.01increasecomparedtothesecondquarterof2017.Byregion,averagerentsremained stable, atUS$4.88per square foot in theNorthern region,US$5.13per square foot in theBajio regionandUS$5.23averagerentpersquarefootintheCentralregion.Occupancy rate levels for the third quarter reached 95.1% and 95.4% including signed letters of intent. By region,occupancyremainedwithinexpectations,reaching96.6%intheNorthernregion,92.2%intheBajioregionand94.1%intheCentralregion.Finally,withrespecttothemainfinancialindicatorsforthethirdquarter,rentalrevenuesreachedUS$41.2million,NetOperating Revenue reached US$41.4million with a 93.3% OperatingMargin, as well as US$23.0million in AdjustedFunds from Operations. Distributions per CBFI were Ps. 0.5188, or US$0.0291, which represented an annualizeddistributionofPs.2.08orUS$0.1165perCBFI,aswellasa6.6%dividendyield,consideringtheaverageCBFIpriceforthethirdquarterof2017.ThankyouforyourinterestinTerrafina.Sincerely,AlbertoChretin
ChiefExecutiveOfficerandChairmanoftheBoard
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OperatingHighlights
HighlightsbyRegion
(asofSeptember30,2017) North Bajio Central Total
#Buildings 182 56 30 268
#Tenants 188 58 41 287
GLA(msf) 22.4 9.2 6.3 37.8
LandReserves(msf) 2.7 0.2 3.3 6.2
OccupancyRate 96.6% 92.2% 94.1% 95.1%
AverageLeasingRent/SquareFoot(dollars) 4.88 5.13 5.23 5.00
AnnualizedRentalBase% 58.8% 24.1% 17.1% 100.0%Source:PGIMRealEstate-AssetManagement
OperatingHighlights
(continued)
OccupancyandRentsbyRegion MaturitiesandRenewalsbyRegion
0
Consolidated
(AsofSeptember30,2017)
OccupancyRate
Avg.LeasingRent/SquareFoot(dollars) (AsofSeptember30,2017)
Maturities(numberofcontracts)
%ofTotalMaturities
Renewals(numberofcontracts)
%ofTotal
RenewalsNorth 96.6% 4.88 North 12 70.6% 10 83.3%BajaCalifornia 100.0% 4.29 BajaCalifornia 2 11.8% 2 100.0%Tijuana 100.0% 4.29 Tijuana 2 11.8% 2 100.0%
Sonora 88.5% 4.53 Sonora 0 0.0% 0 0.0%Hermosillo 88.5% 4.53 Hermosillo 0 0.0% 0 0.0%
Chihuahua 97.5% 4.99 Chihuahua 8 47.1% 7 87.5%Chihuahua 96.9% 5.42 Chihuahua 4 23.5% 3 75.0%CiudadJuarez 98.0% 4.64 CiudadJuarez 4 23.5% 4 100.0%Delicias 100.0% 5.93 Delicias 0 0.0% 0 0.0%GomezFarias 100.0% 3.34 GomezFarias 0 0.0% 0 0.0%CasasGrandes 100.0% 4.15 CasasGrandes 0 0.0% 0 0.0%
Coahuila 92.3% 4.62 Coahuila 1 5.9% 0 0.0%CiudadAcuña 100.0% 6.11 CiudadAcuña 0 0.0% 0 0.0%Monclova 100.0% 5.37 Monclova 0 0.0% 0 0.0%RamosArizpe 89.1% 4.32 RamosArizpe 1 5.9% 0 0.0%Saltillo 91.0% 5.39 Saltillo 0 0.0% 0 0.0%
LeasingActivity 3Q17 3Q16 Var.
OperatingPortfolio(msf): Renewals 0.7 0.8 -0.1
EarlyRenewals 0.5 0.3 0.2
NewLeases 0.5 0.2 0.3
TotalSquareFeetofLeasesSigned 1.7 1.3 0.4Source:PGIMRealEstate-AssetManagement
NORTH - BajaCalifornia- Sonora- Chihuahua- Coahuila- NuevoLeon- Tamaulipas- Durango
BAJIO - SanLuisPotosi- Jalisco- Aguascalientes- Guanajuato- Queretaro
CENTRAL - EstadodeMexico- MexicoCity- Puebla- Tabasco
Terrafina’s3Q17Operations
27.3%
72.7%
ComposiconbyAssetTypeasof3Q17(asa%oftotalGLA)
Distribulon Manufacturing
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SanPedrodelasColinas 89.3% 2.10 SanPedrodelasColinas 0 0.0% 0 0.0%Torreon 100.0% 4.21 Torreon 0 0.0% 0 0.0%
NuevoLeon 96.2% 5.00 NuevoLeon 1 5.9% 1 100.0%Apodaca 100.0% 5.45 Apodaca 0 0.0% 0 0.0%Monterrey 94.9% 4.83 Monterrey 1 5.9% 1 100.0%
Tamaulipas 100.0% 4.54 Tamaulipas 0 0.0% 0 0.0%Reynosa 100.0% 4.54 Reynosa 0 0.0% 0 0.0%
Durango 100.0% 4.71 Durango 0 0.0% 0 0.0%Durango 100.0% 4.86 Durango 0 0.0% 0 0.0%GomezPalacio 100.0% 3.09 GomezPalacio 0 0.0% 0 0.0%
Bajio 92.2% 5.13 Bajio 2 11.8% 2 100.0%SanLuisPotosi 91.8% 4.85 SanLuisPotosi 1 5.9% 1 100.0%SanLuisPotosi 91.8% 4.85 SanLuisPotosi 1 5.9% 1 100.0%
Jalisco 100.0% 6.44 Jalisco 0 0.0% 0 0.0%Guadalajara 100.0% 6.44 Guadalajara 0 0.0% 0 0.0%
Aguascalientes 100.0% 4.61 Aguascalientes 0 0.0% 0 0.0%Aguascalientes 100.0% 4.61 Aguascalientes 0 0.0% 0 0.0%
Guanajuato 88.9% 4.92 Guanajuato 1 5.9% 1 100.0%Celaya 100.0% 5.18 Celaya 0 0.0% 0 0.0%Irapuato 93.9% 5.36 Irapuato 1 5.9% 1 100.0%Silao 84.9% 4.63 Silao 0 0.0% 0 0.0%
Queretaro 85.8% 4.75 Queretaro 0 0.0% 0 0.0%Queretaro 85.8% 4.75 Queretaro 0 0.0% 0 0.0%
Central 94.1% 5.23 Central 3 17.6% 2 66.7%EstadodeMexico 93.1% 5.43 EstadodeMexico 3 17.6% 2 66.7%CuautitlanIzcalli 100.0% 5.41 CuautitlanIzcalli 0 0.0% 0 0.0%Toluca 84.4% 5.56 Toluca 3 17.6% 2 66.7%CiudaddeMexico 100.0% 8.97 CiudaddeMexico 0 0.0% 0 0.0%Azcapotzalco 100.0% 8.97 Azcapotzalco 0 0.0% 0 0.0%
Puebla 100.0% 3.27 Puebla 0 0.0% 0 0.0%Puebla 100.0% 3.27 Puebla 0 0.0% 0 0.0%
Tabasco 100.0% 4.10 Tabasco 0 0.0% 0 0.0%Villahermosa 100.0% 4.10 Villahermosa 0 0.0% 0 0.0%
Total 95.1% 5.00 Total 17 100.0% 14 82.4%Source:PGIMRealEstate-AssetManagement
Source:PGIMRealEstate-AssetManagement
*Overthenumberofmaturedleasesinthequarter
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3Q17OperationalPerformanceCompositionbyGeographicalDiversificationThe geographical diversification of Terrafina’s properties at 3Q17 (based onGLA per square foot)was as follows: theNorthernregionofMexicorepresented59.2%ofGLA,whiletheBajioandCentralregionsrepresented24.2%and16.5%ofGLA,respectively.
GeographicDistributionbyRegionandState
3Q17
asa%ofTotalGLA3Q17
3Q16 asa%ofTotalGLA3Q16
North 22.42 59.2% 16.36 54.5%BajaCalifornia 0.90 2.4% 1.13 3.8%Tijuana 0.90 2.4% 1.13 3.8%
Sonora 0.33 0.9% 0.28 0.9%Hermosillo 0.33 0.9% 0.28 0.9%
Chihuahua 14.27 37.7% 9.55 31.8%Chihuahua 5.83 15.4% 4.07 13.6%CiudadJuarez 7.74 20.4% 5.00 16.6%Delicias 0.52 1.4% 0.29 1.0%GomezFarias 0.08 0.2% 0.08 0.3%Camargo 0.02 0.1% 0.02 0.1%CasasGrandes 0.09 0.2% 0.09 0.3%
Coahuila 3.74 9.9% 3.43 11.4%CiudadAcuña 0.24 0.6% 0.24 0.8%Monclova 0.34 0.9% 0.34 1.1%RamosArizpe 2.00 5.3% 1.94 6.5%Saltillo 0.62 1.6% 0.62 2.1%SanPedrodelasColinas 0.15 0.4% 0.15 0.5%Torreon 0.39 1.0% 0.13 0.4%
NuevoLeon 1.94 5.1% 1.16 3.9%Apodaca 0.50 1.3% 0.32 1.1%Monterrey 1.44 3.8% 0.84 2.8%
Tamaulipas 0.47 1.2% 0.34 1.1%Reynosa 0.47 1.2% 0.34 1.1%
Durango 0.78 2.0% 0.46 1.5%Durango 0.71 1.9% 0.40 1.3%GomezPalacio 0.07 0.2% 0.07 0.2%
Bajio 9.17 24.2% 7.55 25.1%SanLuisPotosi 3.37 8.9% 2.75 9.1%SanLuisPotosi 3.37 8.9% 2.75 9.1%
Jalisco 1.66 4.4% 1.29 4.3%Guadalajara 1.66 4.4% 1.29 4.3%
Aguascalientes 0.75 2.0% 0.75 2.5%Aguascalientes 0.75 2.0% 0.75 2.5%
Guanajuato 1.42 3.7% 0.78 2.6%Celaya 0.12 0.3% 0.12 0.4%Irapuato 0.44 1.2% 0.24 0.8%Silao 0.86 2.3% 0.42 1.4%
Queretaro 1.98 5.2% 1.98 6.6%Queretaro 1.98 5.2% 1.98 6.6%
Central 6.25 16.5% 6.12 20.4%EstadodeMexico 5.40 14.3% 5.26 17.5%CuautitlanIzcalli 4.26 11.3% 4.12 13.7%Toluca 0.91 2.4% 0.23 0.8%
CiudaddeMexico 0.02 0.1% 0.91 3.0%Azcapotzalco 0.02 0.1% 0.02 0.1%
Puebla 0.18 0.5% 0.02 0.1%Puebla 0.18 0.5% 0.18 0.6%
Tabasco 0.65 1.7% 0.18 0.6%Villahermosa 0.65 1.7% 0.65 2.2%
Total 37.85 100.0% 30.03 100.0%TotalGrossLeasableArea/millionsquarefeet.Potentialleasableareaoflandreservesarenotincluded.
Source:PGIMRealEstate-AssetManagement
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CompositionbyAssetTypeAt the end of 3Q17, 72.7%of Terrafina’s portfolio consisted of properties dedicated tomanufacturing activitieswhile27.3%werededicatedtodistributionandlogisticsactivities.
CompositionbySectorAsofSeptember30,2017,tenantdiversificationbyindustrialsectorwasasfollows:
IndustrialSectorDiversification 3Q17 3Q16 Var.
Automotive 31.6% 30.5% 113bps
Industrialproperties 20.1% 19.3% 79bps
Consumergoods 15.7% 18.6% -297bps
LogisticsandTrade 9.5% 9.9% -40bps
Aviation 10.6% 9.6% 99bps
Non-durableconsumergoods 4.3% 5.7% -145bps
Electronics 8.3% 6.4% 192bps
Total 100.0% 100.0%
Source:PGIMRealEstate-AssetManagement
27.3%
72.7%
ComposiconbyAssetTypeasof3Q17(asa%oftotalGLA)
Distribulon Manufacturing
CompositionbyAssetType
3Q17 3Q16 Var.
Distribution 27.3% 29.9% -379bps
Manufacturing 72.7% 70.1% 379bpsSource:PGIMRealEstate-AssetManagement
31.6%
20.1%15.7%
9.5%
10.6%
4.3%8.3%
DiversificaconbySectorasof3Q17(asa%ofleasedGLA)
AutomolveIndustrialproperlesConsumergoodsLogislcsandTradeAvialonNon-durableconsumergoodsElectronics
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CompositionofTopClientsTerrafinahasawidelydiversifiedtenantbasethatleaseindustrialpropertiesthroughoutseveralofMexico’smaincities.For3Q17,Terrafina’stopclient,top10clientsandtop20clients,represented3.5%,18.5%and29.9%oftotalrevenues,respectively.
TopClients
(AsofSeptember30,2017)
LeasedSquareFeet(millions)
%TotalGLA %TotalRevenues
TopClient 1.24 3.4% 3.5%
Top10Clients 6.75 18.7% 18.5%
Top20Clients 10.83 30.1% 29.9%Source:PGIMRealEstate-AssetManagement
Occupancy3Q17occupancyratewas95.1%,a233basispointincreasecomparedto3Q16.IncludingsignedLOIsforthequarter,theoccupancy ratewas 95.4%. It is important to note that occupancy rate indicators presented in this report reflect thequarterlyclosingrate.For3Q17,Terrafina’s leasingactivityreached1.7msf,ofwhich31.9%correspondedtonewleasingcontracts(includingexpansions),39.2%forcontractrenewalsand28.9%forearlyrenewals.
LeasingactivitymainlytookplaceintheChihuahua,CiudadJuarez,SanLuisPotosi,Tijuana,Monterrey,Toluca,Reynosa,Queretaro,Irapuato,CuautitlanIzcalliandRamosArizpemarkets.Inadditiontothisleasingactivity,Terrafinasignedanadditional96,000squarefeetinLOIs.
LeaseMaturitiesTerrafinahad287tenantsunderleasingcontractsattheendof3Q17.Theleasingcharacteristicsofthesecontractshavean average maturity of three to five years for logistics and distribution properties and of five to seven years formanufacturingproperties.Annualaveragematurities(asapercentageofannualbaserents)remainatlevelsofbetween3%to22%forthenextfiveyears.
95.1%
4.6%0.3%
Occupancyasof3Q17(as%ofTotalGLA)
LeasedGLAVacantGLASignedLemersofIntent
3Q17 3Q16 Var.
LeasedGLA 95.1% 92.8% 233bps
VacantGLA 4.6% 5.2% -61bps
SignedLettersofIntent 0.3% 1.9% -169bps
Total 100.0% 100.0%
Source:PGIMRealEstate-AssetManagement
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ThefollowingtablebreaksdownTerrafina’sleasingmaturityschedulefortheupcomingyears:
Annual
BaseRent(millionsofdollars)
%ofTotalOccupiedSq.Ft(millions) %ofTotal
2017 5.0 2.8% 1.07 3.0%2018 26.6 14.8% 5.48 15.2%2019 31.3 17.4% 6.36 17.7%2020 39.4 21.9% 7.78 21.6%2021 25.8 14.3% 5.13 14.2%Thereafter 51.8 28.8% 10.19 28.3%Source:PGIMRealEstate–AssetManagement
CapitalDeploymentAcquisitionsDuring the third quarter of 2017, Terrafina concluded the first tranche of its acquisition strategy using the resourcesobtained from the issuance in July 2017. Terrafina acquired eight Class A industrial properties for US$59.0 million –excludingtransactionandVATexpenses,atan8.8%stabilizedcaprateforthenext12months.ThesepropertiesarelocatedintheNorthernregionandadd1.1millionsquarefeetofGLAtotheportfolio.Theacquiredportfoliois100%occupiedandallleasesareU.S.dollar-denominatedunderatriple-netlease(NNN)structure.Moreover,the average age for these properties is four years.With this acquisition, the annualized AFFO is expected to increasebetween4%and6%.
CapitalExpenditures(CAPEX)Terrafina’sCAPEXisclassifiedasrecurringexpensesthattookplacebasedonupcomingleasingmaturitiesandpropertyimprovements. The main goal of these expenses is the renewal of leasing contracts as well as the improvement ofpropertyconditionstakingintoaccounttenantrequirements.TerrafinaexpectstoapplyCAPEXtowardsvacantpropertiesaswellastowardsthedevelopmentofnewGLAbymeansofexpansionsand/ornewdevelopments.
Additionally,itisimportanttoconsiderthatCAPEXintendedforexpansionsandnewdevelopmentsarenotfinancedwithTerrafina’soperatingcashflowandthereforedonotpassthroughtheincomestatement.
Capitalexpendituresaccountsarecomprisedasfollows:1) TenantpropertyimprovementresourcesaswellasrecurringmaintenanceCAPEX.2) Brokerandadministratorfees.3) CAPEXfornewdevelopments,whichduetotheirnature,aregenerallycapitalized.In3Q17,Terrafina’sinvestmentsintenantimprovementsandrecurringCAPEXwasUS$1.0million.TotalCAPEXfor3Q17isbrokendowninthefollowingtable:
CapitalExpenditures 3Q17 3Q17
(millionsofpesos)
(millionsofdollars)
TenantImprovements&RecurringCapex 18.2 1.0LeasingCommissions 20.7 1.2DevelopmentCapex1 39.2 2.2
TotalCapitalExpenditures 78.1 4.4
MaintenanceexpensesforvacantpropertiesareincludedintheTenantImprovements&RecurringCAPEXfigures.(1)CAPEXforexpansions/newdevelopments.
Source:PGIMRealEstate-AssetManagement
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LandReservesTerrafina’slandreserveasofSeptember30,2017wascomprisedof12landreserveproperties,equivalentto6.2msfofpotentialGLAforthedevelopmentoffutureindustrialproperties.AsofSeptember30,2017,Terrafina’slandreservesweredistributedasfollows:
AsofSeptember30,2017
SquareFeet
(millions)
LandatCost
(millionsofpesos)
LandatCost
(millionsofdollars)
AppraisalValue
(millionsofpesos)
MarketValue
(millionsofdollars)
North 2.7 723.7 39.8 558.7 30.7Bajio 0.2 13.0 0.7 13.5 0.7Central 3.3 675.9 37.1 390.7 21.5
TotalLandPortfolio 6.2 1,412.6 77.6 962.9 52.9Source:PGIMRealEstate-AssetManagementandFundAccounting
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3Q17FinancialPerformanceFinancialResultsandCalculationsTerrafina’s financial resultsarepresented inMexicanpesosandU.S.dollars.Figuresonthe incomestatement foreachperiodwereconvertedtodollarsusingtheaverageexchangerate for3Q17,while for thebalancesheet, theexchangerateatthecloseofSeptember30,2017wasapplied.Terrafina has in place best accounting practices for measuring the FIBRA’s (REIT) performance results by providingrelevant metrics to the financial community. Throughout the following financial performance section, additionalcalculations are available. It is important to note that these metrics must not be considered individually to evaluateTerrafina’sresults.ItisrecommendedtousethemincombinationwithotherInternationalFinancialReportingStandardsmetricstomeasuretheCompany’sperformance.Terrafina presents in this earnings report additional metrics such as Net Operating Income (NOI), Earnings BeforeInterests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), and Adjusted Funds fromOperations(AFFO).Eachbreakdowncalculationisavailableinthisdocument.
Inaddition,TerrafinarecommendsreviewingtheAppendicesasareferenceoftheintegrationofdifferentitemsof
Terrafina’sfinancialstatement.Thisinformationisavailableinthelastsectionofthisdocument.
Pastperformanceisnotaguaranteeorreliableindicatoroffutureresults.
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SameStoreThefollowingtableshowsTerrafina’s3Q17same-storeandconsolidatedinformation:
(asofSeptember30,2017)
Same-Store13Q17
Consolidated2
3Q17
NumberofProperties 207 268 OccupancyRate 94.6% 95.1%
GrossLeasableArea(GLA)(msf) 30.1 37.8
Avg.LeasingRent/SquareFoot(dollars) 4.95 5.00
Same-Store
3Q17Consolidated
3Q17Same-Store
3Q17Consolidated
3Q17 (millionsofdollars) (millionsofpesos)
RentalRevenues 33.2 41.2 591.8 734.3
NetOperatingIncome 33.6 41.4 598.9 737.7
NOIMargin 93.5% 93.3% 93.5% 93.3%
EBITDA 30.1 37.2 536.5 662.3
EBITDAMargin 83.8% 83.7% 83.8% 83.7%
FFO 21.3 25.6 379.7 456.8
FFOMargin 59.2% 57.8% 59.2% 57.8%
AdjustedFundsfromOperations 18.9 23.0 336.9 410.4
AFFOMargin 51.7% 51.4% 51.7% 51.4%
(1)Samepropertiesinformationevaluatesperformanceoftheindustrialproperties,excludingacquisitionscompletedinJanuary2017.
(2)IncludesacquisitionscompletedinJanuary2017andSeptember2017.Source:PGIMRealEstate-AssetManagementandFundAccounting
RentalRevenuesIn3Q17,TerrafinareportedrentalrevenuesofUS$41.2million,a25.3%orUS$8.3millionincreasecomparedto3Q16.Rentalrevenuesdonotincludeaccruedrevenuesastheseareanon-cashitem.OtherOperatingIncomeIn3Q17,otheroperatingincometotaledUS$3.8million,a72.1%orUS$1.6milliondecreasecomparedto3Q16.Other operating incomemainly stem from tenant refunds from triple-net leases. Expenses reimbursable to Terrafinamainlyincludedelectricity,propertytaxes,insurancecostsandmaintenance.
NetrevenuesreachedUS$45.5millionin3Q17,anincreaseofUS$10.0million,or28.2%comparedto3Q16.
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Revenues
3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesos) (millionsofdollars)
RentalRevenue 734.3 615.5 19.3% 41.2 32.9 25.3%
AccruedIncome1 8.9 7.5 19.1% 0.5 0.4 26.4%
OtherOperatingRevenues 67.0 40.5 65.6% 3.8 2.2 72.1%
ReimbursableExpensesasRevenues2 54.2 34.2 58.7% 3.0 1.8 64.5%
ReimbursableTenantImprovements 10.8 4.7 130.5% 0.6 0.3 142.2%
Othernon-cashincome 2.0 1.6 - 0.1 0.1 -
NetRevenue 810.3 663.5 22.1% 45.5 35.5 28.2%(1)Straightlinerentadjustment;non-cashitem.(2)TriplenetleasesexpensesreimbursedtoTerrafinafromitstenants.Source:PGIMRealEstate-FundAccounting
Foradditionalinformationregardingtherevenuebreakdownusedtocalculateadditionalmetricspresentedinthisearningsreport,pleaserefertoAppendix1inthelastsectionofthisdocument.
RealEstateExpensesIn 3Q17, real estateexpenses totaledUS$6.4million, an increaseof 3.7%orUS$0.2million compared to3Q16. Theseexpensesmainlycorrespondedtorepairandmaintenance,propertytaxesandinsurance.It is important todifferentiatebetweenexpenses that aredirectly related to theoperationand those that are for themaintenanceoftheindustrialportfolio;thelatterareusedintheNOIcalculation.
Theremainderoftheaccountsincludedinrealestateexpensesareconsiderednon-recurringexpensesandareusedtocalculateEBITDAandAFFO.
Foradditionalinformationregardingtherealestateexpensesbreakdown,pleaserefertoAppendix2inthelastsectionofthisdocument.
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NetOperatingIncome(NOI)In3Q17,NOItotaledUS$41.4million,a22.1%orUS$7.5millionincreasecomparedwith3Q16.NOImargindeclinedby104basispointsreaching93.3%comparedto94.3%in3Q16.ThefollowingtabledisplaystheNOIcalculationfor3Q17:
NetOperatingIncome 3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
RentalRevenues1 734.3 615.5 19.3% 41.2 32.9 25.3%
OtherOperatingincome2 56.8 57.8 -1.8% 3.2 3.1 3.2%
NetRevenuesforNOICalculation 791.1 673.4 17.5% 44.4 36.0 23.4%
RepairandMaintenance -8.8 -6.6 33.2% -0.5 -0.4 40.0%
PropertyTaxes -0.1 -0.6 -87.6% 0.0 0.0 -86.8%
PropertyManagementFees -16.3 -13.5 20.2% -0.9 -0.7 26.4%
Electricity -15.9 -7.1 125.3% -0.9 -0.4 139.2%
PropertyInsurance -2.6 -3.1 -14.0% -0.1 -0.2 -9.9%
Security -3.2 -3.3 -0.6% -0.2 -0.2 4.6%
OtherOperationalExpenses -6.4 -4.4 43.9% -0.4 -0.2 52.3%
RealEstateOperatingExpensesforNOICalculation -53.4 -38.6 38.4% -3.0 -2.1 45.8%
NetOperatingIncome3 737.7 634.8 16.2% 41.4 33.9 22.1%
NOIMargin 93.3% 94.3% -104bps 93.3% 94.3% -104bps(1)Excludesaccruedincomefromstraightlinerentadjustmentsasitisanon-cashitem.(2)ExcludestenantimprovementsreimbursementswhichareincludedintheAFFOcalculation.(3)Theincomecalculationgeneratedbytheoperationoftheproperty,independentofexternalfactorssuchasfinancingandincometaxes.NOIistheresultofNetRevenues,includingrentalincomeandtriplenetleases’expensesreimbursementsminusRealEstateOperatingExpenses(costsincurredduringtheoperationandmaintenanceoftheindustrialportfolio).Source:PGIMRealEstate-FundAccounting
FeesandAdministrativeExpenses(G&A)G&Ain3Q17totaledUS$7.1million,a74.2%,orUS$3.0millionincreasecomparedto3Q16.
ThefollowingtablebreaksdowntotalG&A:G&A
3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
ExternalAdvisorFees1 -47.9 -40.0 19.7% -2.7 -2.1 28.6%
ProfessionalandConsultingServices -11.3 -8.1 38.5% -0.6 -0.5 35.1%
Payroll,Admin.FeesandOtherExpenses -67.7 -28.6 136.9% -3.8 -1.5 148.7%
TotalG&A2 -126.8 -76.7 65.3% -7.1 -4.1 74.2%(1)PLAAdministradoraIndustrial,S.deR.L.deC.V.,isaMexicanaffiliateofPGIM,andAdvisoraspertheAdvisoryContract.(2GeneralandAdministrativeExpenses.
Source:PGIMRealEstate-FundAccounting
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EarningsBeforeInterest,Taxes,DepreciationandAmortization(EBITDA)In3Q17,EBITDAtotaledUS$37.2million,anincreaseofUS$6.7million,or21.8%,comparedto3Q16.EBITDAmarginfor3Q17was83.7%,a108basispointdecreasecomparedto3Q16.ThefollowingshowstheEBITDAcalculationfor3Q17:
EBITDA 3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
RentalRevenues1 734.3 615.5 19.3% 41.2 32.9 25.3%
OtherOperatingincome2 56.8 57.8 -1.8% 3.2 3.1 3.2%
RealEstateExpensesforEBITDACalculation -57.6 -41.4 39.2% -3.2 -2.2 46.5%
RealEstateOperatingExpensesforNOICalculation -53.4 -38.6 38.4% -3.0 -2.1 45.8%
Advertising 0.0 -0.1 -69.2% 0.0 0.0 -
Admin.PropertyInsuranceExpenses -0.7 -0.9 -26.2% 0.0 0.0 -
OtherAdmin.RealEstateExpenses -3.5 -1.8 - -0.2 -0.1 115.0%
FeesandAdmin.Expenses -71.1 -61.2 16.2% -4.0 -3.3 22.6%
ExternalAdvisorFees -47.9 -40.0 19.7% -2.7 -2.1 28.6%
Legal,Admin.andOtherProfessionalFees -10.9 -12.7 -14.3% -0.6 -0.7 -14.1%
TrusteeFees -4.0 -1.5 172.7% -0.2 -0.1 187.7%
Payroll -6.1 -5.7 6.2% -0.3 -0.3 11.8%
OtherExpenses -2.3 -1.3 73.3% -0.1 -0.1 82.2%
EBITDA3 662.3 570.7 -37.9% 37.2 30.5 21.8%
EBITDAMargin 83.7% 84.8% -108bps 83.7% 84.8% -108bps(1)Excludesaccruedincomefromstraightlinerentadjustmentsasitisanon-cashitem.(2)ExcludestenantimprovementsreimbursementswhichisincludedinAFFOcalculation.(3)Earningsbeforeinterest,taxes,depreciationandamortization.
Source:PGIMRealEstate-FundAccounting
ForadditionalinformationregardingthecommissionsandadministrativeexpensesbreakdownusedforthecalculationofEBITDAandAFFO,pleaserefertoAppendix3locatedinthelastsectionofthisdocument.
FinancingExpenses
In3Q17,financingexpensestotaledUS$11.8million,anincreaseof23.8%orUS$2.3millioncomparedto3Q16.
FinancialExpenses 3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
InterestPaid -208.5 -168.5 23.7% -11.7 -9.0 30.0%
BorrowingExpenses -5.8 -12.1 -51.8% -0.3 -0.6 -48.4%
Recurring -0.7 -0.2 200.0% 0.0 0.0 215.4%
NonRecurring -5.2 -11.9 -56.6% -0.3 -0.6 -53.5%
InterestIncome 3.6 1.6 122.6% 0.2 0.1 133.6%
Total -210.7 -178.9 17.7% -11.8 -9.5 23.8%Source:PGIMRealEstate-FundAccounting
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FundsfromOperations(FFO)/AdjustedFundsfromOperations(AFFO)In3Q17,FFOincreasedbyUS$4.1million,or18.8%comparedto3Q16,reachingUS$25.6million.FFOMarginwas57.8%,a225basispointdecreasecomparedto3Q16.Additionally,TerrafinareportedAFFOofUS$23.0million,an increaseofUS$4.5million,or24.4%comparedto3Q16.AFFOmarginwas51.4%,andecreaseof158basispointsversus3Q16.
FundsfromOperations(FFO) 3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
EBITDA 662.3 570.7 16.0% 37.2 30.5 21.8%FinanceCost1 -205.5 -167.1 23.0% -11.5 -8.9 29.2%FundsfromOperations(FFO) 456.8 403.8 13.1% 25.6 21.6 18.8%FFOMargin 57.8% 60.0% -225bps 57.8% 60.0% -225bpsTenantImprovements -18.2 -32.1 -43.5% -1.0 -1.7 -40.5%LeasingCommissions -20.8 -20.4 1.8% -1.2 -1.1 6.1%OtherNonRecurringExpenses2 -7.5 -4.8 57.1% -0.4 -0.3 65.0%AdjustedFundsfromOperations(AFFO) 410.4 346.4 18.5% 23.0 18.5 24.4%AFFOMargin 51.4% 52.9% -158bps 51.4% 52.9% -158bps(1)NetOperationalInterestExpensescomprisedbyinterestpaid,recurringborrowingexpensesandotherinterestincome.(2)Relatedexpensestoacquisitions,dispositions,legalandotherexpenses
Source:PGIMRealEstate-FundAccounting
ComprehensiveIncomeComprehensiveIncomefor3Q17reachedUS$44.3million,comparedtotheUS$39.0millionin3Q16.
ThefollowingtablepresentsthecalculationofComprehensiveIncomefor3Q17:
ComprehensiveIncome 3Q17 3Q16 Var.% 3Q17 3Q16 Var.%
(millionsofpesosunlessotherwisestated) (millionsofdollarsunlessotherwisestated)
NetRevenues 810.3 663.5 22.1% 45.5 35.5 28.2%
RealEstateExpenses -114.6 -116.5 -1.6% -6.4 -6.2 3.7%
FeesandOtherExpenses -126.8 -76.7 65.3% -7.1 -4.1 74.2%
Gain(Loss)fromSalesofRealEstateProperties -5.8 0.0 - -0.3 0.0 -
NetIncome(Loss)fromFairValueAdjustmentonInvestmentProperties
103.1 -175.9 - 5.8 -9.2 -
NetIncome(Loss)fromFairValueAdjustmentonDerivativeFinancialInstruments 4.7 0.0 - 0.3 0.0 -
NetIncome(Loss)fromFairValueAdjustmentonBorrowings -134.8 -106.6 26.5% -7.6 -5.6 35.8%
NetIncome(Loss)fromFairValueAdjustmentonLoansReceivable 0.0 -1.7 - 0.0 -0.1 -
ForeignExchangeGain(loss) -71.9 -14.1 411.0% -4.0 -0.7 501.6%
OperatingProfit 464.2 172.1 169.7% 26.0 9.6 171.1%
FinancialIncome 3.6 1.6 122.6% 0.2 0.1 -
FinancialExpenses -214.3 -180.6 18.7% -12.0 -9.6 24.8%
NetFinancialCost -210.7 -178.9 17.7% -11.8 -9.5 23.8%
ShareofProfitfromEquityAccountedInvestments -3.7 23.7 - -0.2 1.2 -
NetProfit(Loss) 249.8 16.8 1387.4% 14.0 1.3 957.8%ItemsReclassifiedafterNetProfit(Loss)-CurrencyTranslationAdjustments 540.9 705.1 -23.3% 30.3 37.7 -19.4%
ComprehensiveIncome 790.7 721.9 9.5% 44.3 39.0 13.7%Source:PGIMRealEstate-FundAccounting
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DistributionsperCBFIsIn3Q17,TerrafinadistributedUS$23.0million,orUS$0.0291perCBFI.
Distributions (millionsofpesosunlessotherwisestated) 3Q16 3Q16 4Q16 1Q17 3Q173 Var.%
(3Q17vs3Q16)
TotalOutstandingCBFIs1(millionsofCBFIs) 607.4 607.4 607.5 791.0 791.0 30.2%
CBFIPrice2 30.84 29.48 28.74 32.35 31.29 1.5%
Distributions 346.4 400.4 450.5 452.4 410.4 18.5%
DistributionsPerCBFI 0.5703 0.6593 0.7417 0.5720 0.5188 -9.0%
FXRateUSD/MXN(averageclosingperiod) 18.72 19.81 20.39 18.57 17.83 -4.8%
Distributions(milliondollars) 18.5 20.4 22.1 24.3 23.0 24.4%
DistributionsPerCBFI(dollars) 0.0305 0.0335 0.0364 0.0308 0.0291 -4.5%
AnnualizedDistributionYield4 7.4% 8.9% 10.3% 7.1% 6.6% -76bps(1)In2Q16,167,094CBFIswereaddedaspartofTerrafina´scompensationplan.NumberofCBFIsattheendofeachperiod(2)Averageclosingpricefortheperiod.(3)In3Q17,Terrafinaconcludedanequityfollow-onfor183,546,039CBFIs(4)AnnualizeddistributionpersharedividedbytheaverageCBFIpriceofthequarter.Source:PGIMRealEstate-FundAccounting
DebtAsofSeptember30,2017,Terrafina’stotaldebtreachedUS$1,058.8million.TheaveragecostofTerrafina’slong-termdebtwas4.49%.AllofTerrafina’sdebtisdenominatedinU.S.dollars.
OutstandingDebt
(asofSeptember30,2017)
Currency millionsofpesos
millionsofdollars
InterestRate Terms Maturity Extension
Option Derivatives
LongTermDebt
Citibank1 Dollars 5,368.4 295.0 Libor+2.65% InterestOnly Aug2019 - US$120Mswap2/US$100Mcap3
Metlife Dollars 2,729.7 150.0 4.75% InterestOnly Jan2027 - -
BBVA/JPMorgan Dollars 2,729.7 150.0 Libor+2.25%Interest+Principal Sep2021 - US$100Mswap4
SeniorNotes Dollars 8,147.1 447.7 5.25% InterestOnly Nov2022 - -
NewYorkLife Dollars 292.2 16.1 5.19% InterestOnly Feb2020 - -
TotalDebt 19,267.1 1,058.8
NetCash 6,658.7 365.9
NetDebt 12,608.4 692.8 (1)Unsecuredsyndicatedloanfacilitywithsevenbanks.(2)Swapfixedrate:1.286%.(3)Capstrikeprice:1.75%(4)Swapfixedrate:1.768%.
Source:PGIMRealEstate-FundAccountingandTransactions
42.0%
58.0%
InterestRateBreakdown(asofSeptember30,2017)
VariableRate FixedRate
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The following tables show leverageanddebt service coverageasof September30,2017aswell asTerrafina’sprojectionsforthefollowingsixquarters:
Loan-to-Value(LTV)
(asofSeptember30,2017)(millionsofpesos)
(millionsofdollars)
TotalAssets 46,753.7 2,569.2
TotalDebt 19,267.1 1,058.8
Loan-to-Value(LTV)1 41.2%(1)TotalDebtdividedbyTotalAssetsasdefinedbytheNationalSecuritiesandBankingCommission(CNBV)
Source:PGIMRealEstate-FundAccountingandCapitalMarkets
DebtServiceCoverageRatio(DSCR)
period (millionsofpesos) (millionsofdollars)
Cash&CashEquivalents September30,2017 6,658.7 365.9
RecoverableTaxes Σnext6quarters 279.7 15.4
EBIT1afterdistributions Σnext6quarters 1,656.6 91.0
AvailableCreditLine September30,2017 1,455.8 80.0
period (millionsofpesos) (millionsofdollars)
InterestPayments Σnext6quarters 1,339.2 73.6
PrincipalPayments Σnext6quarters 15.7 0.9
RecurringCAPEX Σnext6quarters 196.3 10.8
DevelopmentExpenses Σnext6quarters 218.4 12.0
DebtServiceCoverageRatio(DSCR)2 5.7x
(1)EarningsBeforeInterestandTaxes(2)(Cash&CashEquivalents+RecoverableTaxes+EBITAfterDistributions+AvailableCreditLine)/(InterestPayments+PrincipalPayments+RecurringCAPEX+DevelopmentExpenses)Source:PGIMRealEstate-FundAccountingandCapitalMarkets
Moreover,asofSeptember30,2017,TerrafinawasinfullcompliancewithitsdebtcovenantsrelatedtotheUS$425millionbondissuance,asfollows:
UnsecuredBondCovenants (asofSeptember30,2017) Terrafina BondCovenants
Loan-to-Value(LTV)1 41.2% ≤60%
DebtServiceCoverageRatio(DSCR)2 2.8x ≥1.5x
SecuredDebttoGrossAssetsLimitation 6.5% ≤40%UnencumberedAssetstoUnsecuredDebtLimitation 251% ≥150%
(1)TotalDebtdividedbyTotalAssets.(2)(NetIncome/Loss+InterestonDebt+UnrealizedGain/Lossoffairvaluechanges)/(allinterestandprincipalpaymentsonDebt)
Source:PGIMRealEstate-Transactions
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AnalystCoverageThefollowingisalistofbanksandinstitutionsthatregularlypublishresearchreportsonTerrafina:-Barclays -Interacciones-BBVABancomer -Invex-BofAML -ItaúBBA-BTGPactual -JPMorgan-BX+ -Monex-CitiBanamex -MorganStanley-CreditSuisse -NAUSecurities-GBM -Scotiabank-HSBC Vector-Invex -Santander
-UBS
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AboutTerrafinaTerrafina (BMV:TERRA13) is a Mexican real estate investment trust formed primarily to acquire, develop, lease andmanage industrial real estate properties in Mexico. Terrafina’s portfolio consists of attractive, strategically locatedwarehousesandotherlightmanufacturingpropertiesthroughouttheCentral,BajioandNorthernregionsofMexico.Itisinternallymanagedbyhighly-qualifiedindustryspecialistsandexternallyadvisedbyPGIMRealEstate.Terrafina owns 280 real estate properties, including 268 developed industrial facilities with a collective GLA ofapproximately37.8millionsquarefeetand12landreserveparcels,designedtopreservetheorganicgrowthcapabilityoftheportfolio.Terrafina’s objective is to provide attractive risk-adjusted returns for the holders of its certificates through stabledistributionsandcapitalappreciations.Terrafinaaimstoachievethisobjective throughasuccessfulperformanceof itsindustrialrealestateandcomplementaryproperties,strategicacquisitions,accesstoahighlevelofinstitutionalsupport,andtoitsmanagementandcorporategovernancestructure.Formoreinformation,pleasevisitwww.terrafina.mxPGIMRealEstatePGIMReal Estate is the real estate investment business of PGIM Inc., the global investmentmanagement business ofPrudentialFinancial, Inc. (NYSE:PRU). Redefining therealestate investing landscapesince1970,PGIMRealEstatehasprofessionals in 18 cities in theAmericas, EuropeandAsiaPacificwithdeep local knowledgeandexpertise, andgrossassetsundermanagementofUS$67.3billion(US$49.0billionnet)asofJune30,2017.PGIMRealEstate’stenuredteamofferstoitsglobalclientbaseabroadrangeofrealestateequity,debtandsecuritiesinvestmentstrategiesthatspantherisk/returnspectrum.Formoreinformation,visitwww.pgimrealestate.comAboutPrudentialFinancial,Inc.Prudential Financial, Inc. (NYSE:PRU), a financial services leader with more than US$1.1 trillion of assets undermanagement as of June 30, 2017, has operations in the United States, Asia, Europe, and Latin America. Prudential’sdiverseandtalentedemployeesarecommittedtohelpingindividualandinstitutionalcustomersgrowandprotecttheirwealththroughavarietyofproductsandservices,includinglifeinsurance,annuities,retirement-relatedservices,mutualfundsandinvestmentmanagement.IntheU.S.,Prudential’siconicRocksymbolhasstoodforstrength,stability,expertiseandinnovationformorethanacentury.Formoreinformation,pleasevisitwww.news.prudential.comForwardLookingStatementsThisdocumentmayincludeforward-lookingstatementsthatmayimplyrisksanduncertainties.Termssuchas"estimate","project", "plan", "believe", "expect", "anticipate", "intend", and other similar expressions could be construed asprevisionsorestimates.Terrafinawarnsreadersthatdeclarationsandestimatesmentionedinthisdocument,orrealizedbyTerrafina’smanagementimplyrisksanduncertaintiesthatcouldchangeinfunctionofvariousfactorsthatareoutofTerrafina’scontrol.FutureexpectationsreflectTerrafina’sjudgmentatthedateofthisdocument.Terrafinareservestherightorobligationtoupdatetheinformationcontainedinthisdocumentorderivedfromthisdocument.Pastorpresentperformanceisnotanindicatortoanticipatefutureperformance.
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ConferenceCall
(BMV:TERRA13)Cordiallyinvitesyoutoparticipateinits
SecondQuarter2017Results
Friday,October27,201711:00a.m.EasternTime10:00a.m.CentralTime
***
Toaccessthecall,pleasedial:fromwithintheU.S.1-800-311-9404fromoutsidetheU.S.1-334-323-7224
ConferenceIDNumber:34974
AudioWebcastLink:https://www.webcaster4.com/Webcast/Page/1111/22723
ConferenceReplayU.S.1-877-919-4059
International(outsidetheUS)1-334-323-0140Passcode:96488567
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AppendixAppendix1–RevenuesTerrafina’srevenuesaremainlyclassifiedasrentalrevenuesandotheroperatingreimbursablerevenues.Additionally,thereareaccountingrevenuesthatmustberegisteredaccordingwithIFRS;however,theseareconsideredasnon-cashitemsandthereforeareexcludedinsomecalculations.ReimbursabletenantimprovementsareincludedinthetenantimprovementexpensesfortheAFFOcalculation.
Revenues
3Q17 3Q16 3Q17 3Q16
(millionsofpesos) (millionsofdollars)
NOIcalculation RentalRevenue 734.3 615.5 41.2 32.9
NonCash AccruedIncome1 8.9 7.5 0.5 0.4
OtherOperatingRevenues 67.0 40.5 3.8 2.2
NOIcalculation ReimbursableExpensesasRevenues2 54.2 34.2 3.0 1.8
AFFOcalculation ReimbursableTenantImprovements 10.8 4.7 0.6 0.3
NonCash Othernon-cashincome 2.0 1.6 0.1 0.1
NetRevenue 810.3 663.5 45.5 35.5
NOIcalculation ShareofProfitfromEquityAccountedInvestments2 2.6 23.7 0.1 1.2
(1)Straightlinerentadjustment.(2)TriplenetleasesexpensesreimbursedtoTerrafinafromitstenants.(2)Profitfromjoint-venturedevelopments.
Source:PGIMRealEstate-FundAccounting
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Appendix2–RealEstateExpensesReal estate expenses are comprised of recurring figures relatedwith the operation (used for theNetOperating Profitcalculation) as well as non-recurring figures used for metric calculations such as Earnings Before Interests, Taxes,DepreciationandAmortization(EBITDA),FundsfromOperations(FFO),AdjustedFundsfromOperations(AFFO).Thefollowingtablepresentstherealestateexpenses’breakdown,whichareusedforthecalculationofseveralmetrics.
RealEstateExpenses
3Q17 3Q16 3Q17 3Q16
(millionsofpesos) (millionsofdollars)
RepairandMaintenance -37.8 -43.5 -2.1 -2.3
NOIcalculation Recurring -8.8 -6.6 -0.5 -0.4
AFFOcalculation NonRecurring -29.0 -36.8 -1.6 -2.0
PropertyTaxes -5.5 -0.6 -0.3 0.0
NOIcalculation Operating -0.1 -0.6 0.0 0.0
NonCash NonOperating -5.5 -0.1 -0.3 0.0
NOIcalculation PropertyManagementFees -16.3 -13.5 -0.9 -0.7
NOIcalculation Electricity -15.9 -7.1 -0.9 -0.4
AFFOcalculation BrokersFees -20.7 -20.4 -1.2 -1.1
PropertyInsurance -3.3 -4.0 -0.2 -0.2
NOIcalculation Operating -2.6 -3.1 -0.1 -0.2EBITDA
calculation Administrative -0.7 -0.9 0.0 0.0
NOIcalculation Security -3.2 -3.3 -0.2 -0.2EBITDA
calculationAdvertising 0.0 -0.1 0.0 0.0
OtherExpenses -9.9 -10.4 -0.6 -0.6
NOIcalculation OperationalRelated -6.4 -4.4 -0.4 -0.2
NonCash NonOperationalRelated 0.0 -4.3 0.0 -0.2EBITDA
calculationAdministrative -3.5 -1.8 -0.2 -0.1
NonCash BadDebtExpense -1.8 -13.6 -0.1 -0.7
TotalRealEstateExpenses -114.6 -116.5 -6.4 -6.2
Source:PGIMRealEstate-FundAccounting
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Appendix3–FeesandAdministrativeExpensesFeesandadministrativeexpenses include figuresused formetric calculations suchasEarningsbefore Interests, Taxes,DepreciationandAmortization(EBITDA),FundsfromOperations(FFO),AdjustedFundsfromOperations(AFFO).Terrafina’sfeesandadministrativeexpensesbreakdownisavailableinthefollowingtableandindicatesthefiguresusedforthecalculationofthesemetrics:
FeesandAdministrativeExpenses
3Q17 3Q16 3Q17 3Q16
(millionsofpesos) (millionsofdollars)
EBITDAcalculation ExternalAdvisorFees -47.9 -40.0 -2.7 -2.1
LegalFees -6.2 -3.4 -0.3 -0.2
EBITDAcalculation Recurring -0.3 -0.7 0.0 0.0
AFFOcalculation NonRecurring -5.9 -2.7 -0.3 -0.1
OtherProfessionalFees -5.1 -4.7 -0.3 -0.3
EBITDAcalculation Recurring -3.5 -2.7 -0.2 -0.2
AFFOcalculation NonRecurring -1.6 -2.1 -0.1 -0.1
AdministrativeFees -55.3 -20.1 -3.1 -1.1
EBITDAcalculation Recurring -7.2 -9.4 -0.4 -0.5
NonOperationalrelated NonRecurring1 -48.2 -10.7 -2.7 -0.6
EBITDAcalculation Payroll -6.1 -5.7 -0.3 -0.3
EBITDAcalculation TrusteeFees -4.0 -1.5 -0.2 -0.1
EBITDAcalculation OtherExpenses -2.3 -1.3 -0.1 -0.1
TotalFeesandAdmin.Expenses
-126.8 -76.7 -7.1 -4.1
(1)Nonoperationalrelatedadministrativefees.
Source:PGIMRealEstate-FundAccounting
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Appendix4–ReconciliationReconciliationofNetProfit(Loss)toFFO,EBITDAandNOI
3Q17 3Q16 3Q17 3Q17 (millionsofpesos) (millionsofdollars)
ComprehensiveIncome(Loss) 790.7 721.9 44.3 39.0Add(deduct)CurrencyTranslationAdjustment: CurrencyTranslationAdjustment -540.9 -705.1 -30.3 -37.7
Add(deduct)CostofFinancingAdjustment: NonRecurringBorrowingExpenses 5.2 11.9 0.3 0.6
Add(deduct)Non-CashAdjustment: ForeignExchangeAdjustments 71.9 14.1 4.0 0.8FairValueAdjustmentonBorrowings 134.8 106.6 7.6 5.7FairValueAdjustmentonDerivativeFinancialInstruments -4.7 0.0 -0.3 0.0FairValueAdjustmentonInvestmentProperties -96.9 175.9 -5.4 9.4FairValueAdjustmentonLoansReceivable Gain(Loss)fromSalesofRealEstateProperties 5.8 0.0 0.3 0.0
Add(deduct)ExpensesAdjustment: NonRecurringRepairandMaintenance 29.0 36.8 1.6 2.0NonOperatingPropertyTaxes 5.5 0.1 0.3 0.0BrokersFees 20.7 20.4 1.2 1.1BadDebtExpense 1.8 13.6 0.1 0.7OtherNonOperationalRelatedExpenses 0.0 4.3 0.0 0.2NonRecurringLegalFees 5.9 2.7 0.3 0.1NonRecurringOtherProfessionalFees 1.6 2.1 0.1 0.1
Add(deduct)RevenuesAdjustment: AccruedIncome -8.9 -7.5 -0.5 -0.4OtherNon-CashIncome -2.0 -1.6 -0.1 -0.1ReimbursableTenantImprovements -10.8 -4.7 -0.6 -0.3
Add(deduct)NonOperationalAdministrativeFees NonOperationalAdministrativeFees 48.2 10.7 2.7 0.6
FFO 456.8 403.7 25.6 21.6Add(deduct)CostofFinancingAdjustment: InterestPaid 208.5 168.5 11.7 9.0RecurringBorrowingExpenses 0.7 0.2 0.0 0.0InterestIncome -3.6 -1.6 -0.2 -0.1
EBITDA 662.3 570.7 37.2 30.5Add(deduct)ExpensesAdjustment: ExternalAdvisorFees 47.9 40.0 2.7 2.1RecurringLegalFees 0.3 0.7 0.0 0.0RecurringOtherProfessionalFees 3.5 2.7 0.2 0.1AdministrativeFees 7.2 9.4 0.4 0.5Payroll 6.1 5.7 0.3 0.3TrusteeFees 3.5 1.5 0.2 0.1OtherExpenses 4.0 1.3 0.2 0.1Advertising 0.0 0.1 0.0 0.0AdministrativePropertyinsurance 0.7 0.9 0.0 0.0OtherAdministrativeExpenses 2.3 1.8 0.1 0.1
NOI 737.7 634.8 41.4 33.9Add(deduct)ExpensesAdjustment: RecurringRepairandMaintenance 8.8 6.6 0.5 0.4OperatingPropertyTaxes 0.1 0.6 0.0 0.0PropertyManagementFees 16.3 13.5 0.9 0.7Electricity 15.9 7.1 0.9 0.4OperatingPropertyInsurance 2.6 3.1 0.1 0.2Security 3.2 3.3 0.2 0.2OtherOperationalExpenses 6.4 4.4 0.4 0.2
Add(deduct)RevenuesAdjustment: OtherNon-CashIncome 2.0 1.6 0.1 0.1AccruedIncome 8.9 7.5 0.5 0.4ReimbursableTenantImprovements 10.8 4.7 0.6 0.3ShareofProfitfromEquityAccountedInvestments -2.6 -23.7 -0.2 -1.3
NetRevenue 810.3 663.5 45.4 35.5
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ReconciliationofNetProfit(Loss)toAFFO 3Q17 3Q16 3Q17 3Q17
(millionsofpesos) (millionsofdollars)
ComprehensiveIncome(Loss) 790.7 721.9 44.3 39.0Add(deduct)CostofFinancingAdjustment: NonRecurringBorrowingExpenses -540.9 -705.1 -30.3 -37.7
Add(deduct)CostofFinancingAdjustment: NonRecurringBorrowingExpenses 5.2 11.9 0.3 0.6
Add(deduct)Non-CashAdjustment: ForeignExchangeAdjustments 71.9 14.1 4.0 0.8FairValueAdjustmentonBorrowings 134.8 106.6 7.6 5.7FairValueAdjustmentonDerivativeFinancialInstruments -4.7 0.0 -0.3 0.0FairValueAdjustmentonLoansReceivable 0.0 1.7 0.0 -0.1FairValueAdjustmentonInvestmentProperties -96.9 175.9 -5.4 9.4
Gain(Loss)fromSalesofRealEstateProperties 5.8 0.0 0.3 0.0Add(deduct)ExpensesAdjustment: NonOperatingPropertyTaxes 5.5 0.1 0.3 0.0BadDebtExpense 1.8 13.6 0.1 0.7OtherExpensesNonOperationalRelated 0.0 4.3 0.0 0.2
Add(deduct)RevenuesAdjustment: AccruedIncome -8.9 -7.5 -0.5 -0.4OtherNon-CashIncome -2.0 -1.6 -0.1 -0.1
Add(deduct)NonOperationalAdministrativeFees NonAdministrativeFees 48.2 10.7 2.7 0.6
AFFO 410.4 346.4 23.0 18.5
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Appendix5-CapRateCalculationTerrafinasubtractscashandlandreservesbookvalueforthecapratecalculation.ImpliedcaprateandunderNAV(NetAssetValue)calculationareshowninthefollowingtables:
ImpliedCapRate
QuarterlyAveragePrice(dollars)¹ 1.76
(x)CBFIs(millionsofshares) 791.0
(=)MarketCapitalization 1,388.5
(+)TotalDebt 1,058.8
(-)Cash 365.9
(=)EnterpriseValue 2,081.4
(-)Landbank 52.9
(=)ImpliedOperatingRealEstateValue 2,028.5
NetOperatingIncome(NOI)2017e 160.8
ImpliedCapRate 7.9%
Figuresexpressedinmillionsofdollarsunlessotherwisestated.
(1)3Q17averagesharepriceofPs.31.29;andexchangerateofPs.17.8255
CapRateCalculationwithNAV
(+)InvestmentProperties(excludinglandbank) 2,068.2
(+)Land 52.9
(+)Cash 365.9
(-)TotalDebtandLiabilities 1,099.3
(=)NAV1 1,387.6
(/)CBFIs(millionshares) 791.0
(=)NAVperCBFI(dollars) 1.8
CBFIPrice(NAVcalculation) 1.8
(x)CBFIs(millionshares) 791.0
(=)MarketCap 1,387.6
(+)TotalDebtandLiabilities 1,099.3
(-)Cash 365.9
(=)EnterpriseValue 2,121.1
(-)Landbank 52.9
(=)ImpliedOperatingRealEstateValue 2,068.2
NetOperatingIncome(NOI)2017e 160.8
ImpliedCapRate 7.8%
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FinancialStatements
IncomeStatement
3Q17 3Q16
(thousandsofpesos)
Rentalrevenues
$743,212 $623,047
Otheroperatingincome
67,047 40,482
Realestateoperatingexpenses
(114,595) (116,509)
Feesandotherexpenses
(126,803) (76,696)
Realizedgainfromdisposalofinvestmentproperties
(5,752) -
Netgain(loss)fromfairvalueadjustmentoninvestmentproperties
103,056 (175,879)
Netgain(loss)fromfairvalueadjustmentonborrowings
(134,788) (106,554)
Netgain(loss)fromfairvalueadjustmentonloansreceivable
- (1,713)
Net(loss)gainunrealizedfromfairvalueonderivativefinancialinstruments
4,685 (28)
Foreignexchange(loss)gain
(71,880) (14,068)
Operatingprofit 464,182 172,082
Financeincome
3,611 1,622
Financecost
(214,294) (180,572)
Financecost-net (210,683) (178,950)
Shareofprofitfromequityaccountedinvestments
(3,660) 23,653
NetProfitfortheperiod 249,839 16,785
Items that may be subsequently reclassified to profit or loss-currencytranslationdifferences 540,918 705,109
TotalComprehensiveincomefortheperiod 790,757 721,894
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FinancialStatements
BalanceSheet Sep-30-17 Jun-30-17(thousandsofpesos)
Assets Non-currentassets
Investmentproperties $39,048,450 $37,393,865(Cost:30/09/2017-Ps.38,231,624;30/06/2017-Ps.36,718,602)
Investmentsaccountedusingequitymethod 379,146 258,429Loanreceivable 35,670 35,360(Cost:30/09/2017-Ps.35,360;30/06/2017-Ps.35,360)
Financialderivativeinstruments 9,192 4,334Currentassets Otherassets 59,258 28,337Loanreceivable 1,131 1,097(Cost:30/06/2017-Ps.1,097;31/03/2017-Ps.1,232)
Recoverabletaxes 279,736 1,290,268Prepaidexpenses 3,584 4,956Acquisitionprepayment 614 -Deferredchargesandaccruedincome 167,781 156,037Accountsreceivable 76,634 77,400(Netofallowancefordoubtfulaccounts:30/09/2017-Ps.28,055;30/06/2017-Ps.27,775)
Restrictedcash 33,766 28,063
Cashandcashequivalents 6,658,691 884,045
Totalassets 46,753,653 40,162,191
NetassetsattributabletoInvestors Contributions,net 19,844,088 14,785,745Retainedearnings - -126,214Currencytranslationadjustment 6,904,057 6,363,139
Totalnetassets(NetEquity) 26,748,145 21,022,670
Liabilities Non-currentliabilities
Borrowings 19,256,799 18,526,032
(Cost:30/09/2017-$18,843,797;30/06/2017-$18,255,246)
Tenantdeposits 242,213 197,970Accountspayable 3,971 3,798Currentliabilities
Tradeandotherpayables 449,837 343,437Borrowings 10,269 -
(Cost:30/09/2017-Ps.10,269,30/06/2017-Ps.0)
Tenantdeposits 42,419 68,284
Totalliabilities(excludingnetassetsattributabletotheInvestors) 20,005,508 19,139,521
Totalnetassetsandliabilities 46,753,653 40,162,191
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FinancialStatements
CashFlowStatement Sep-17
(thousandsofpesos)
Cashflowsfromoperatingactivities(Loss)profitfortheperiod $640,191
Adjustments:Netloss(gain)unrealizedfromfairvalueadjustmentoninvestmentproperties 9,746
Netloss(gain)unrealizedfromfairvalueadjustmentonborrowings 647,456Netloss(gain)unrealizedfromfairvalueadjustmentonderivativefinancialinstruments (9,090)Realizedgainfromdisposalofinvestmentproperties 2,476
Baddebtexpense 30,185
Interestexpense 632,608
Interestincomeonbankaccounts (5,267)
Shareofprofitfromequityaccountedinvestments (11,659)
Decrease(increase)deferredrentsreceivable 5,580
Decrease(increase)inrestrictedcash 55,371
Decrease(increase)inaccountsreceivable (63,402)
Decrease(increase)inrecoverabletaxes (129,954)
Decrease(increase)inprepaidexpenses 8,801
Decrease(increase)inotherassets 51,999
Decrease(increase)intenantdeposits 44,945
(Decrease)inaccountspayable 153,249
Netcash(usedin)generatedfromoperatingactivities 2,063,235
CashflowsfrominvestingactivitiesAcquisitionssofinvestmentproperties (9,822,667)
Improvementsofinvestmentproperties (180,477)
Proceedsfromdispositionsofinvestmentproperties 133,751
Acquisitionprepayment 9,195
Interestincomeonbankaccounts 5,267
Investmentsinjointventure (141,401)
Loansreceivablepayment 829
Netcash(usedin)generatedfrominvestingactivities (9,995,503)
CashflowsfromfinancingactivitiesProceedsfromborrowings 9,728,294
Principalpaymentsonborrowings (2,895,373)
Interestexpense (632,608)
Distributionstoinvestors (1,303,294)
CBFIsequityissuance 5,390,049
Netcash(usedin)generatedfromfinancingactivities 10,287,068
Net(decrease)incashandcashequivalents 2,354,800
Cashandcashequivalentsatthebeginningoftheperiod 4,297,096
Exchangeeffectsoncashandcashequivalents 6,795
Cashandcashequivalentsattheendoftheperiod $6,658,691
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FinancialStatements AttributabletoInvestors
StatementofChangesinEquity Netcontributions
Currencytranslationadjustment
Retainedearnings Netassets
(thousandsofpesos) BalanceatJanuary1,2017 $14,782,859 $9,663,287 $334,283 $24,780,429CapitalContribution,NetofIssuingCosts 5,390,049 - - 5,390,049DistributionstoInvestors (328,820) - (974,474) (1,303,294)ComprehensiveIncome Netlossoftheperiod - - 640,191 640,191OtherComprehensiveIncome CurrencyTranslation - (2,759,230) - (2,759,230)TotalComprehensive(loss)income - (2,759,230) 640,191 (2,119,039)
NetAssetsasofSeptember30,2017 $19,844,088 $6,904,057 $- $26,748,145