FOURTH QUARTER AND FULL YEAR 2015 EARNINGS REPORT

Transcription

1 FOURTH QUARTER AND FULL YEAR 2015 EARNINGS REPORT Mexico City, February 17, 2016 Terrafina ( TERRA ) (BMV: TERRA13), a leading Mexican industrial real estate investment trust ( FIBRA ), externally advised by Prudential Real Estate Investors and dedicated to the acquisition, development, leasing and management of industrial real estate properties in Mexico, today announced its fourth quarter 2015 (4Q15) and full year 2015 (FY2015) 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 may vary due to rounding. Terrafina s financial statements that are included in this report are internal and have not yet been audited by the external auditors, nor have they been approved at the Ordinary Shareholders Meeting. As a result, the mentioned figures in this financial report are preliminary figures and could be adjusted in the future. Once the audited 2015 financial statements are available and have been approved by the Annual Ordinary Shareholders Meeting, these will be made available to the market as per applicable law. 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. Financial and Operating Highlights as of December 31, 2015 Operating As of December 31, 2015, the occupancy rate was 93.2%, a 197 basis point increase compared to the fourth quarter of 2014 (4Q14). Additionally, considering signed letters of intent (LOI), occupancy for 4Q15 was 93.9%. Annualized average leasing rate per square foot at the year-end was US$4.88, a US$0.06 increase compared to 4Q14. Terrafina reported a total of 29.9 million square feet (msf) of Gross Leasable Area (GLA) comprised of 209 properties and 218 tenants at the end of leasing activity totaled 7.7 msf, of which 14.3% corresponded to new leases, 58.4% to lease renewals and 27.3% to early renewals. Leasing activity was mainly concentrated in the Ciudad Juarez, Cuautitlan Izcalli, Chihuahua, Ramos Arizpe, San Luis Potosi, Guadalajara, Tijuana and Monterrey markets. Total developments for 2015 included 883,000 square feet of GLA, which are expected to contribute US$3.3 million to Net Operating Income (NOI) for the 2016 period. The expected return rate for the developments is 11.2%*. *Expected return is not guaranteed. Final results may vary. Contacts in Mexico City: Contacts in New York: Francisco Martinez/ Angel Bernal Maria Barona / Juan Carlos Gomez Stolk Investor Relations Officer / Chief Financial Officer i-advize Corporate Communications, Inc. Tel: +52 (55) / +52 (55) Tel: +1 (212) / (646) francisco.martinez@terrafina.mx / angel.bernal@terrafina.mx mbarona@i-advize.com / / jgomezstolk@i-advize.com 1

2 Financial FY2015 rental revenues reached US$128.3 million, of which US$31.5 million were generated during 4Q15; a 4.9% or US$1.6 million decrease compared to 4Q14. It is important to mention that 4Q15 financial metrics in dollars (revenues, NOI and EBITDA) decreased as a result of the asset sale that took place during 1Q15. However, margins increased as a result of the efficiencies generated from the asset sale. FY2015 NOI was US$123.6 million, of which US$30.8 million were generated during 4Q15; a 4.0% or US$1.3 million decrease compared to 4Q14. The NOI margin for FY2015 reached 89.9% and 91.1% in 4Q15, a 95 basis point increase compared to 4Q14. FY2015 EBITDA reached US$109.7 million, of which US$27.0 million were generated in 4Q15, a decrease of 2.5% or US$0.7 million compared to 4Q14. The EBITDA margin for 2015 was 79.8% and 79.9% for 4Q15, a 203 basis point increase compared to 4Q14. FY2015 adjusted funds for operations (AFFO) reached US$73.5 million, a US$4.2 million increase compared to The AFFO margin for 2015 was 53.1% and 48.4% in 4Q15, a 166 basis point decrease compared to 4Q14. FY2015 distributions totaled US$73.5 million. As a result of 4Q15 operations, Terrafina will pay Ps per CBFI (US$ per CBFI) for distributions corresponding to the October 1 to December 31, 2015 period. Distributions per CBFI corresponding for 2015 totaled US$0.1210; considering the average share price for 2015 of US$1.94 (Ps.30.72), Terrafina s dividend yield for the year was 6.2%. 2

3 Financial Highlights Operating Mar15 Jun15 Sep15 Dec15 Dec14 Number of Developed Properties Gross Leasable Area (GLA) (msf) New Developments 2 (msf) Land Reserves (msf) Occupancy Rate % 93.1% 93.5% 93.2% 91.2% Avg. Leasing Rent / Square Foot (dollars) Weighted Average Remaining Lease Term (years) Renewal Rate % 86.2% 90.7% 93.7% 89.7% Accumulated Financial Mar15 Jun15 Sep15 Dec15 Dec14 Mar15 Jun15 Sep15 Dec15 Dec14 (millions of pesos unless otherwise stated) fx (millions of dollars unless otherwise stated) Rental Revenues , , , Other Operating Income Net Revenues , , , , Net Operating Income (NOI)* , , , NOI Margin 86.1% 88.5% 89.5% 89.9% 89.0% 86.1% 88.5% 89.5% 89.9% 89.0% EBITDA 6* , , , EBITDA Margin 76.8% 79.2% 79.7% 79.8% 78.4% 76.8% 79.2% 79.7% 79.8% 78.4% Funds from Operations (FFO)* , , , FFO Margin 57.9% 61.4% 62.2% 61.1% 56.2% 57.9% 61.4% 62.2% 61.1% 56.2% Adjusted Funds from Operations (AFFO)* , AFFO Margin 53.3% 55.8% 54.6% 53.1% 48.5% 53.3% 55.8% 54.6% 53.1% 48.5% Distributions , Distributions per CBFI Quarterly Financial 1Q15 2Q15 3Q15 4Q15 4Q14 1Q15 2Q15 3Q15 4Q15 4Q14 (millions of pesos unless otherwise stated) fx (millions of dollars unless otherwise stated) Rental Revenues Other Operating Income Net Revenues Net Operating Income (NOI)* NOI Margin 86.1% 91.2% 91.5% 91.1% 90.1% 86.1% 91.2% 91.5% 91.1% 90.1% EBITDA* EBITDA Margin 76.8% 81.8% 80.8% 79.9% 77.8% 76.8% 81.8% 80.8% 79.9% 77.8% Funds from Operations (FFO)* FFO Margin 57.9% 65.2% 64.0% 57.7% 60.7% 57.9% 65.2% 64.0% 57.7% 60.7% Adjusted Funds from Operations (AFFO)* AFFO Margin 53.3% 58.6% 52.0% 48.4% 51.9% 53.3% 58.6% 52.0% 48.4% 51.9% Distributions Distributions per CBFI Figures in dollars in the Income Statement were converted into pesos using 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) Occupancy at the end of the period. (4) Indicates the lease renewal rate of the leases, includes early renewals. (5) Excluding accrued income as it is a non-cash item (6) Earnings before interest, taxes, depreciation and amortization. (7) Certificados Bursátiles Fiduciarios Inmobiliarios - Real Estate Investment Certificates. Figures in dollars in the Balance Sheet were converted using the closing exchange rate of the period distributions per CBFI included a pre-dilution and post-dilution effect as a result of the follow-on completed in September 2014, therefore it is not comparable to 2015 distributions per CBFI, which have a post-dilution effect. (*) Revenues and expenses have been adjusted for the calculation of the above mentioned metrics. Please refer to the 4Q15 Financial Performance" and "Annexes" section available in this document. Source: PREI Portfolio Management Fund Accounting 3

4 Financial Highlights (continued) Balance Sheet Mar15 Jun15 Sep15 Dec15 Dec14 Mar15 Jun15 Sep15 Dec15 Dec14 fx (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) Cash & Cash Equivalents 5, , , , , Investment Properties 23, , , , , , , , , ,651.0 Land Reserves Total Debt 10, , , , , Net Debt 4, , , , , Figures in dollars in the Balance Sheet were converted using the closing exchange rate of the period. Source: PREI - Portfolio Management and Fund Accounting 4

5 Comment by Alberto Chretin, Chief Executive Officer and Chairman of the Board Dear Investors, For the 2015 period, Terrafina experienced positive results bolstered by the Company s solid operating and financial metrics. This was due to the execution of a continuous growth strategy, which has allowed us to add high-quality industrial assets to the portfolio. Additionally, throughout 2015, we saw limited economic growth in Mexico, as was also the case throughout other emerging and developed countries. Despite this challenging environment, Terrafina generated consistent results, This is evidence that we are a defensive company with 97% of our leasing contracts --- as well as a majority of our tenants revenue sources - denominated in U.S. dollars, all of which which safeguards our overall solvency and profitability. During the year, manufacturing for export activity delivered a positive performance, particularly with regard to the automotive, electronics, industrial and aerospace sectors. Going forward, we expect to see continued dynamism, with more companies establishing operations in Mexico, in order to take advantage of its proximity to the U.S., a skilled labor force and a competitive cost structure. Logistics and distribution activities also strengthened as a result of a growing manufacturing sector, which is the predominant sector in which many of our tenants focus their operations. We are also pleased that, as part of our 2015 objectives, Terrafina completed its asset recycling strategy, divesting US$101 million dollars of industrial assets, thereby improving the average age of the portfolio, increasing occupancy rental rates, as well as incurring savings in maintenance and financial expenses and external advisor fees, all while preserving our AFFO levels after the sale. Also as part of our financial strategy, Terrafina replaced a US$500 secured revolving facility with a new US$375 million unsecured revolving credit at a more competitive debt cost that is better aligned with our goal of converting secured to unsecured credit facilities. Consequently, Terrafina issued a seven-year international bond for US$425 million with a 5.25% coupon. This issuance was granted investment grade by both Moody s Investor Services and Fitch Ratings. Net proceeds from the offering were primarily used towards the repayment of debt improving substantially the average debt maturity while having a more flexible capital structure. Finally, and as a result of the progress made in the 2015 acquisition strategy, Terrafina concluded a US$59.4 million transaction for 10 industrial properties at a 8.3% stabilized cap rate for the next 12 months. This acquisition adds 1.1 million square feet of GLA, with properties located in the north and Bajio regions, and are expected to contribute US$4.6 to US$4.7 million per year to the AFFO. Complementing our growth strategy, during 2015 Terrafina also developed 883,000 square feet, of which 50.4% is located in the North region, 20.4% in Bajio and 29.2% in the Central region. These new developments are expected to contribute US$3.3 million to NOI for the 2016 period. Moreover, Terrafina continues to work on potential acquisitions, with advanced negotiations currently in place. We expect to announce the fulfillment of this phase of our growth strategy during the first half of 2016, using the total amount of resources obtained from the follow on that took place in September With regards to our main operating metrics, occupancy levels reached 93.2%, a 197 basis point increase compared to Additionally, occupancy in the North was 95.1% with notable leasing activity in the Ciudad Juarez, Chihuahua, Torreon, Tijuana and Monterrey markets. In the Bajio region, occupancy reached 87.1%, while in the Central region, occupancy was 95.4%, particularly in terms of logistics and distribution activity in Cuautitlan Izcalli. 5

6 Concerning leasing activity for 2015, 7.7 million square feet were leased, of which 14.3% corresponded to new leases, 58.4% to lease renewals and 27.3% to early renewals. Renewal rate is 93.7% while the average renewal rate for 2015 was 92.0%. The average rental rate at the end of the quarter was US$4.88 per square foot. Average rental rates by region were stable in the North and Bajio regions by US$4.77 and US$4.89 by square foot, respectively, while the Central region with an average rental rate of US$5.13 per square foot. Among the most important financial metrics for the year were the following: US$128.3 million in rental revenues, which translates into an NOI of US$123.6 million with an 89.9% margin, an EBITDA of US$109.7 million with a 79.8% margin and US$73.5 million in adjusted funds from operations. Moreover, the distribution per CBFI for 2015 was Ps ), or US$0.1210, which translates into a 6.2% dividend yield considering the average CBFI price for In closing, we expect a positive 2016 with growth opportunities for acquisitions and new developments. As always, we remain focused and disciplined in order to add high-quality assets to our portfolio. In addition to this, I would like to reconfirm our objective of procuring growth with accretive assets while continuing to prioritize the Company s profitability into the future. On behalf of Terrafina, we thank you for your trust and continuous support. Sincerely, Alberto Chretin Chief Executive Officer and Chairman of the Board 6

7 Operating Highlights Highlights by Region (as of December 31, 2015) North Bajio Central Total # Buildings # Tenants GLA (msf) New Developments 1 (msf) Land Reserves (msf) Occupancy Rate 95.1% 87.1% 95.4% 93.2% Average Leasing Rent / Square Foot (dollars) Annualized Rental Base % 54.7% 23.2% 22.0% 100.0% (1) Includes expansions and Built-to-Suit (BTS). Source: PREI - Portfolio Management BAJIO - San Luis Potosí - Jalisco - Aguascalientes - Guanajuato - Querétaro Terrafina s operations 4Q15. NORTH - Baja California - Sonora - Chihuahua - Coahuila - Nuevo León - Tamaulipas - Durango CENTRAL - Estado de México - Distrito Federal - Puebla - Tabasco Composifon by Asset Type as of 4Q15 (as a % of total GLA) Leasing Activity Var. 69.8% Distribunon 30.2% Manufacturing Operating Portfolio (msf): Renewals Early Renewals New Leases Total Square Feet of Leases Signed Source: PREI - Portfolio Management 7

8 Operating Highlights (continued) Occupancy and Rents by Region Maturities and Renewals by Region (As of December 31, 2015) Occupancy Rate 0 Consolidated Avg. Leasing Rent/ Square Foot (dollars) (As of December 31, 2015) Maturities (number of contracts) % of Total Maturities Renewals (number of contracts) % of Total Renewals North 95.1% 4.77 Norte % % Baja California 92.9% 4.69 Baja California 2 7.1% % Sonora 86.3% 4.18 Sonora 0 0.0% 0 0.0% Chihuahua 97.1% 4.93 Chihuahua % % Coahuila 95.2% 4.42 Coahuila 1 3.6% % Nuevo Leon 83.0% 5.19 Nuevo Leon % % Tamaulipas 88.6% 4.50 Tamaulipas 0 0.0% 0 0.0% Durango 100.0% 3.86 Durango 0 0.0% 0 0.0% Bajio 87.1% 4.89 Bajio % % San Luis Potosi 89.2% 4.70 San Luis Potosi 1 3.6% % Jalisco 100.0% 5.39 Jalisco 0 0.0% 0 0.0% Aguascalientes 100.0% 4.53 Aguascalientes 0 0.0% 0 0.0% Guanajuato 89.2% 5.06 Guanajuato 0 0.0% 0 0.0% Queretaro 70.4% 4.87 Querétaro 2 7.1% % Central 95.4% 5.13 Centro 1 3.6% % Estado de Mexico 94.6% 5.30 Estado de Mexico 1 3.6% % Distrito Federal 100.0% Distrito Federal 0 0.0% 0 0.0% Puebla 100.0% 3.33 Puebla 0 0.0% 0 0.0% Tabasco 100.0% 4.17 Tabasco 0 0.0% 0 0.0% Total 93.2% 4.88 Total % % Source: PREI - Portfolio Management Source: PREI - Portfolio Management *Over the number of expired leases during the quarter 8

9 2015 Operational Performance Composition by Geographical Diversification The geographical diversification of Terrafina s properties at the end of 2015 (based on GLA per square foot) was mainly located in the northern region of Mexico, representing 54.8% of GLA, while for the Bajio and Central regions, it represented 24.7% and 20.5%, respectively. Geographic Diversification by Region and State as a % of 4Q15 Total GLA 4Q15 4Q14 as a % of Total GLA 4Q14 North % % Baja California % % Sonora % % Chihuahua % % Coahuila % % Nuevo Leon % % Tamaulipas % % Durango % % Bajio % % San Luis Potosi % % Jalisco % % Aguascalientes % % Guanajuato % % Queretaro % % Central % % Estado de Mexico % % Distrito Federal % % Puebla % % Tabasco % % Total % % Total Gross Leasable Area / million square feet. Potential leasable area of land reserves is not included. Source: PREI - Portfolio Management Composition by Asset Type At the end of 2015, 30.2% of Terrafina s total portfolio consisted of distribution and logistics properties and 69.8% were manufacturing properties. Composifon by Asset Type as of 4Q15 (as a % of total GLA) 30.2% Composition by Asset Type 4Q15 4Q14 Var. Distribution 30.2% 30.4% -17 bps Manufacturing 69.8% 69.6% 17 bps Source: PREI - Portfolio Management 69.8% Distribunon Manufacturing 9

10 Composition by Sector As of December 31, 2015, tenant diversification by industrial sector was as follows: Diversificafon by Sector as of 4Q15 (as a % of leased GLA) Automonve Industrial propernes Consumer goods Logisncs and Trade Avianon Non-durable consumer goods Electronics 9.5% 9.9% 5.6% 6.4% 18.3% 30.2% 20.1% Diversification by Industrial Sector 4Q15 4Q14 Var. Automotive 30.2% 28.2% 205 bps Industrial Goods 20.1% 18.0% 208 bps Consumer Goods 18.3% 16.4% 199 bps Logistics and Trade 9.9% 11.9% -198 bps Aerospace 9.5% 9.5% -2 bps Non-durable Consumer Goods 6.4% 7.6% -117 bps Electronics 5.6% 8.5% -294 bps Total 100.0% 100.0% Source: PREI - Portfolio Management Top Clients Composition Terrafina s tenant leasing base is widely diversified across Mexico s main cities. At the end of 2015, Terrafina s top client, top 10 clients and top 20 clients, represented 4.4%, 22.6% and 35.4% of total revenues, respectively. Top Clients (as of December 31, 2015) Leased Square Feet (millions) % Total GLA % Total Revenues Top Client % 4.4% Top 10 Clients % 22.6% Top 20 Clients % 35.4% Source: PREI - Portfolio Management 10

11 Occupancy FY2015 occupancy rate was 93.2%, a 197 basis point increase compared to 4Q14. Additionally, including signed LOIs for the quarter, occupancy rate was 93.9%. It is important to mention that occupancy rate metrics presented in this report only show the quarterly closing rate. During the fourth quarter, Terrafina s leasing activity reached 2.5 msf, of which 15.0% corresponded to new leasing contracts (including expansions), 49.9% for contract renewals and 35.1% for early renewals. Leasing activity mainly took place in the Ciudad Juarez, Cuautitlan Izcalli, Chihuahua, Queretaro, San Luis Potosi, Torreon, Tijuana and Monterrey markets. In addition to this leasing activity, Terrafina signed LOIs for an additional 244,000 square feet. Occupancy as of 4Q15 (as % of Total GLA) 6.1% 0.7% 4Q15 4Q14 Var. Leased GLA Vacant GLA Signed Leoers of Intent Leased GLA 93.2% 91.2% 197 bps Vacant GLA 6.1% 8.0% -189 bps Signed Letters of Intent 0.7% 0.8% -8 bps 93.2% Total 100.0% 100.0% Source: PREI - Portfolio Management Lease Maturities Terrafina had 218 leasing contracts at the end of The leasing characteristics of these contracts have an average maturity of three to five years for logistics and distribution properties activities and five to seven years for manufacturing properties. Annual average maturities (as a percentage of annual base rents) remain at levels of 12% to 20% for the next five years. The following table shows Terrafina s leasing maturity schedule for the coming years: Annual Base Rent (millions of dollars) % of Total Occupied Sq. Ft (millions) % of Total % % % % % % % % % % Thereafter % % Source: PREI Portfolio Management 11

12 Capital Deployment Acquisitions During the fourth quarter of 2015, Terrafina acquired 10 industrial properties for US$59.4 million at a 8.3% stabilized cap rate for the next 12 months. This transaction was part of the acquisition previously announced in July These properties are located in the San Luis Potosi, Irapuato and Monterrey cities and contribute 1.1 million square feet of GLA to the portfolio. The acquired portfolio is 96.3% occupied and all leases are U.S. dollar-denominated under a triplenet lease (NNN) structure. Moreover, the portfolio is expected to contribute US$4.6 to US$4.7 million per year to the AFFO. New Developments As of December 31, 2015, new developments will contribute US$3.3 million to 2016 NOI, with a 11.2% estimated development yield, considering the total expected investment for US$29.9 million. January - December 2015 Square Feet (millions) Total Expected Investment (millions of pesos) Total Expected Investment 3 (millions of dollars) Cost per Square Feet (dollars) % Paying Rent by End of the Period North % Bajio % Central % Total % Proforma NOI 1 (millions of dollars) 3.3 Estimated Stabilized Yield % ((1) Net Operating Income for the next twelve months. (2) Proforma NOI divided by the total expected investment. Proforma figures are not a guarantee of future results (3) Before fees and taxes. Source: PREI - Portfolio Management Projects Under Development 4Q15 4Q14 Developed Properties 98.6% 99.1% Properties Under Development 1.4% 0.9% Total 100.0% 100.0% Source: PREI - Portfolio Management Capital Expenditures (CAPEX) Terrafina s CAPEX is classified as those recurring expenses that took place based on upcoming leasing maturities and property 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. 12

13 Additionally, it is important to consider that CAPEX 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. In 2015, Terrafina s total CAPEX investment was US$35.4 million. CAPEX breakdown is shown in the following table: 4Q15 4Q (millions of pesos) (millions of dollars) (millions of pesos) (millions of dollars) Tenant Improvements & Recurring CAPEX Leasing Commissions Development CAPEX Total Capital Expenditures Maintenance expenses for vacant properties are included in the Tenant Improvements & Recurring CAPEX figures. (1) CAPEX for expansions/new developments. Source: PREI - Portfolio Management Asset Sale During 1Q15, Terrafina concluded a US$101 million asset sale of land reserves (0.9 msf) and industrial space (2.8 msf) located in Northeastern Mexico. As a result, the main portfolio s operating metrics improved by increasing the occupancy rate and lowering the average portfolio age. On the other hand, there was a neutral impact to the AFFO as it generated savings in maintenance, financial and external advisor fee expenses. January - December 2015 Square Feet (millions) Total Proceeds (millions of pesos) Total Proceeds (millions of dollars) Property Dispositions , Land Dispositions Total Dispositions , Source: PREI - Portfolio Management Land Reserves Terrafina s land reserve as of December 31, 2015 was comprised of 11 land reserve properties, which accounted for 6.4 msf of potential GLA for the development of future industrial assets. Terrafina s 2015 land reserves distribution was as follows: Square Feet (millions) Land at Cost (millions of pesos) As of December 31, 2015 Land at Cost (millions of dollars) Appraisal Value (millions of pesos) Market Value (millions of dollars) North Bajio Central Total Land 6.4 1, Portfolio Source: PREI - Portfolio Management and Fund Accounting 13

14 2015 Financial Performance Financial Results and Calculations Terrafina s 2015 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 The December 31, 2015 exchange rate was applied to the balance sheet. Terrafina has in place 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 the Company 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 Appendices 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. 14

15 Rental Revenues During 2015, Terrafina registered rental revenues of US$128.3 million. In 4Q15, Terrafina registered US$31.5 million in rental revenues, a 4.9% or US$1.6 million decrease compared to 4Q14. It is important to mention that 4Q15 financial metrics in dollars (revenues, NOI and EBITDA) decreased as a result of the asset sale that took place during 1Q15. However, margins increased as a result of the efficiencies generated from the asset sale. Rental revenues do not include accrued revenues, as these are a non-cash item. Other Operating Income For 2015, other operating income totaled US$10.7 million. During 4Q15, other operating income totaled US$2.6 million, a 22.6% or US$0.8 million decrease compared to 4Q14. Other operating income mainly stems from leasing contract deposits and refunds from triple-net leases. Expenses reimbursable to Terrafina mainly included electricity, property taxes, insurance costs and maintenance activities. Net revenues reached US$138.9 million in 2015 and US$34.4 million in 4Q15, a decrease of US$2.6 million, or 6.9% compared to the 4Q14 figure Var. % 4Q15 4Q14 Var. % Var. % 4Q15 4Q14 Var. % (millions of pesos) (millions of dollars) Rental Revenue 2, , % % % % Accrued Income % % Other Operating Revenues % % % % Reimbursable Expenses as Revenues % % % % Reimbursable Tenant Improvements % % % % Other non-cash income % % Net Revenue 2, , % % % % (1) Straight line rent adjustment; non-cash item. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: PREI - 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 2015, real estate expenses totaled US$30.2 million. These expenses mainly corresponded to repair and maintenance, electricity, fees, property taxes and insurance. In 4Q15, real estate expenses totaled US$6.2 million, a decrease of US$5.6 million, or 47.5% compared to 4Q14. It is important to differentiate between expenses directly related to the operation and those for the maintenance of the industrial portfolio, as these are the ones used in the NOI calculation. The remainder of the accounts included in real estate expenses are considered non-recurring expenses and are used to calculate EBITDA and AFFO. 15

16 For additional information regarding the real estate expenses breakdown, please refer to Appendix 2 in the last section of this document. Net Operating Income (NOI) In 2015 Net Operating Income (NOI) totaled US$123.6 million, with an NOI margin of 89.9%. During 4Q15, NOI totaled US$30.8 million, a 4.0% or US$1.3 million decrease compared with 4Q14. NOI margin increased 95 basis points reaching 91.1% compared to 90.1% in 4Q14. The following table displays the calculation of NOI for the full year 2015 and 4Q15: Var. % 4Q15 4Q14 Var. % Var. % 4Q15 4Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) Rental Revenues 1 2, , % % % % Other Operating income % % % % Net Revenues for NOI Calculation 2, , % % % % Repair and Maintenance % % % % Property Taxes % % % % Property Management Fees % % % % Electricity % % % % Property Insurance % % % % Security % % % % Other Operational Expenses % % % % Real Estate Operating Expenses for NOI Calculation % % % % Net Operating Income 3 1, , % % % % NOI Margin 89.9% 89.0% 89 bps 91.1% 90.1% 95 bps 89.9% 89.0% 89 bps 91.1% 90.1% 95 bps (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 ' (3) The income calculation 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: PREI - Fund Accounting Fees and Administrative Expenses (G&A) G&A in 2015 totaled US$27.8 million and US$5.8 million in 4Q15, a 19.1%, or US$0.9 million increase compared to 4Q14. The following table shows total G&A: Var.% 4Q15 4Q14 Var.% Var.% 4Q15 4Q14 Var.% (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) External Advisor Fees % % % % Professional and Consulting Services % % % % Payroll, Admin. Fees and Other Expenses % % % % Total G&A % % % % (1) General and Administrative Expenses (2) PLA Administradora Industrial, S. de R.L. de C.V., is a Mexican affiliate of PREI, and Advisor as per the Advisory Contract. Source: PREI - Fund Accounting 16

17 Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) In 2015, EBITDA reached US$109.7 million and the EBITDA margin was 79.8%. For 4Q15, EBITDA totaled US$27.0 million, a decrease of US$0.7 million, or 2.5%, compared to 4Q14. EBITDA margin for 4Q15 was 79.9%, a 203 basis point increase compared to the previous year. The following shows the EBITDA calculation for 2015 and 4Q15: Var. % 4Q15 4Q14 Var. % Var. % 4Q15 4Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) Rental Revenues 1 2, , % % % % Other Operating income % % % % Real Estate Expenses for EBITDA Calculation % % % % Real Estate Operating Expenses for NOI Calculation % % % % Advertising % % Admin. Property Insurance Expenses % % % Other Admin. Real Estate Expenses % Fees and Admin. Expenses % % % % External Advisor Fees % % % % Legal, Admin. and Other Professional Fees % % % % Trustee Fees % % % % Payroll % % % % Other Expenses % % % % EBITDA 3 1, , % % % % EBITDA Margin 79.8% 78.4% 141 bps 79.9% 77.8% 203 bps 79.8% 78.4% 141 bps 79.9% 77.8% 203 bps (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: PREI - Fund Accounting For additional information regarding the commissions and administrative expenses breakdown used for the calculation of EBITDA and AFFO, please refer to Appendix 4 located in the last section of this document. Financing Costs During 2015, Terrafina registered net financing costs of US$35.7 million. In 4Q15, financing costs totaled US$12.8 million, an increase of 110.4% or US$6.7 million compared to 4Q14. This was the result of the bond issuance that took place in November Var. % 4Q15 4Q14 Var. % Var. % 4Q15 4Q14 Var. % Interest Paid % (millions of pesos) (millions of dollars) % % % Borrowing Expenses % % % % Recurring % % % % Non Recurring % % Interest Income % % % % Total % % % % Source: PREI - Fund Accounting 17

18 Funds from Operations (FFO) / Adjusted Funds from Operations (AFFO) For the full year 2015, Terrafina s FFO reached US$84.0 million and a 61.1% FFO margin. Terrafina s AFFO reached US$73.5 million, with a 53.1% AFFO margin. In 4Q15, Terrafina s FFO decreased by US$2.1 million, or 9.6% compared to 4Q14, reaching US$19.5 million. FFO Margin was 57.7%, a 298 basis point decrease compared to 4Q14. Additionally, Terrafina reported an AFFO of US$16.5 million, a decrease of US$1.4 million, or 8.0% compared to 4Q14. AFFO margin was 48.4%, a decrease of 166 basis points versus 4Q Var. % 4Q15 4Q14 Var. % Var. % 4Q15 4Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) EBITDA 1, , % % % % Finance Cost % % % % Funds from Operations (FFO) 1, , % % % % FFO Margin 61.1% 56.2% 489 bps 57.7% 60.7% -298 bps 61.1% 56.2% 489 bps 57.7% 60.7% -298 bps Tenant Improvements % % % % Leasing Commissions % % % % Other Non Recurring Expenses % % % % Adjusted Funds from Operations (AFFO) 1, % % % % AFFO Margin 53.1% 48.5% 455 bps 48.4% 50.0% -166 bps 53.1% 48.5% 455 bps 48.4% 50.0% -166 bps (1) Net Operational Interest Expenses comprised by interest paid, recurring borrowing expenses and other interest income. (3) Related expenses to acquisitions, legal and other expenses. Source: PREI - Fund Accounting Comprehensive Income Comprehensive Income for FY2015 reached US$237.0 million and in the 4Q15 it reached US$43.4 million, compared to the US$101.9 million in 4Q14. The following table presents the calculation of Comprehensive Income for 2015 and 4Q15: Var. % 4Q15 4Q14 Var. % Var. % 4Q15 4Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) Net Revenues 2, , % % % % Real Estate Expenses % % % % Fees and Other Expenses % % % % Gain (Loss) from Sales of Real Estate Properties % Net Income (Loss) from Fair Value Adjustment on Investment Properties Net Income (Loss) from Fair Value Adjustment on Derivative Financial Instruments Net Income (Loss) from Fair Value Adjustment on Borrowings Net Income (Loss) from Fair Value Adjustment on Bank Investments % % % % % % % % Foreign Exchange Gain (loss) % % % % Operating Profit 1, % % Financial Income % % % Financial Expenses % % % % Net Financial Cost % % % % Net Profit (Loss) % % Items Reclassified after Net Profit (Loss) - Currency Translation Adjustments 3, , % , % % % Comprehensive Income 3, , % , % % % Source: PREI - Fund Accounting 18

19 Distributions per CBFIs In 2015, Terrafina distributed US$73.5 million, or US$ per CBFI. For 4Q15, US$16.5 million were distributed, or US$ per CBFI. Furthermore, it is important to mention that the tax result for the period registered a fiscal loss; therefore, and for fiscal purposes, distributions per CBFI should be considered as a capital reimbursement for tax purposes. Terrafina s 2015 distributions are presented in the following table: (millions of pesos unless otherwise stated) 1Q15 2Q15 3Q15 4Q Var. Total Outstanding CBFIs 1 (millions of CBFIs) % CBFI Price % Distributions , % Distributions Per CBFI % FX Rate USD/MXN (average closing period) % Distributions (million dollars) % Distributions Per CBFI (dollars) % Annualized Distribution Yield 3 6.2% 6.5% 6.0% 6.1% 6.2% 6.9% -72 bps (1) In 3Q14, Terrafina increased its number of CBFIs from 381,014,635 to 602,487,069. Number of CBFIs at the end of each period (2) Average closing price for the period. (3) Annualized distribution per share divided by the average CBFI price of the quarter. Quarterly distribution yield calculation has been annualized. Source: PREI - Fund Accounting Total Debt As of December 31, 2015, Terrafina s total debt reached US$709.9 million. The average cost of Terrafina s longterm debt, which is U.S. dollar-denominated, was 4.32%. In 3Q15, Terrafina replaced its US$500 million secured revolving credit with a new US$375 million unsecured revolving credit facility. With this transaction, Terrafina broadens and diversifies its funding sources, structuring a syndicated loan with seven international banks. In 4Q15, Terrafina completed a seven-year unsecured international bond issuance for US$425 million at a 5.25% coupon. Use of proceeds were mainly used to repay the Citibank revolving credit facility and the HSBC credit. Terrafina also assumed US$22.4 million of additional debt that was attached to the portfolio acquisition announced in November (as of December 31, 2015) Currency Millions of pesos Millions of dollars Interest Rate Terms Maturity Extension Option Long Term Debt Citibank 1 Dollars Libor % Interest Only Aug 2018 Aug 2019 GEREM 2,3 Dollars 4, Libor % MetLife 4 Dollars % Senior Notes Dollars 7, % Total Debt 12, Net Cash 4, Net Debt 7, Interest + Principal Interest + Principal Interest + Principal Sep 2018 Sep 2020 Nov Nov (1)Unsecured syndicated loan facility with seven banks. (2)Secured syndicated loan facility with four banks. (3) One-year interest only grace period. 4) Debt assumed from portfolio acquisition closed in November Source: PREI - Fund Accounting and Capital Markets 19

20 Interest Rate Breakdown (as of December 31, 2015) 61.5% 38.5% Variable Rate Fixed Rate The following tables show Terrafina s leverage and debt service coverage as of December 31, 2015 and based on projections for the next six quarters: Leverage (LTV) (as of December 31, 2015) (millions of pesos) (millions of dollars) Total Assets 33, ,965.5 Total Debt 12, Loan-to-Value (LTV) % (1) Total Debt divided by Total Assets as defined by the National Securities and Banking Commission (CNBV) Source: PREI - Fund Accounting and Capital Markets Debt Service Coverage Ratio (DSCR) period (millions of pesos) (millions of dollars) Cash & Cash Equivalents December 31, , Recoverable Taxes Σ next 6 quarters EBIT 1 after distributions Σ next 6 quarters 1, Available Credit Line December 31, , period (millones de pesos) (millones de dólares) Interest Payments Σ next 6 quarters Principal Payments Σ next 6 quarters Recurring CAPEX Σ next 6 quarters Development Expenses Σ next 6 quarters Debt Service Coverage Ratio (DSCR) 2 7.1x (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: PREI - Fund Accounting and Capital Markets 20

21 Moreover, Terrafina discloses its debt covenants related to the US$425 bond issuance, which is in full compliance as of December 31, 2015 in the following table: (as of December 31, 2015) Terrafina Bond Covenants Loan-to-Value (LTV) % 60% Debt Service Coverage Ratio (DSCR) 2 2.2x 1.5x Secured Debt to Gross Assets Limitation 15.0% 40% Unencumbered Assets to Unsecured Debt Limitation 451% 150% (1) Total Debt divided by Total Assets (2) (Net Income/Loss + Interest on Debt + Unrealized Gain/Loss of fair value changes) / (all interest and principal payments on Debt) Source: PREI - Capital Markets 21

22 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 PREI. Terrafina owns 220 real estate properties, including 209 developed industrial facilities with a collective GLA of approximately 29.9 million square feet and 11 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 About Prudential Real Estate Investors Prudential Real Estate Investors is the global real estate investment business of Prudential Financial, Inc. (NYSE: PRU). Investing in real estate on behalf of institutional clients since 1970, PREI today has more than 650 employees located in 19 cities around the world, and gross assets under management of $63.7 billion ($47.1 billion net) as of December 31, PREI offers to its global client base a broad range of real estate investment vehicles across the risk-return spectrum and geographies, including core, core plus, value-add, opportunistic, debt, securities, and specialized investment strategies. For more information, visit About Prudential Financial, Inc. Prudential Financial, Inc. (NYSE:PRU), a financial services leader with more than $1 trillion of assets under management as of December 31, 2015, has operations in the United States, Asia, Europe, and Latin America. Prudential 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., Prudential s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit 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. 22