Second Quarter 2014 Earnings Report

Transcription

1 Second Quarter 2014 Earnings Report Mexico City, July 28, 2014 Terrafina ( TERRA ) (BMV: TERRA13), a leading Mexican industrial real estate investment trust ( FIBRA ), externally advised by Prudential Real Estate Investors and dedicated to the acquisition, development, lease and management of industrial real estate properties in Mexico, today announced its second quarter 2014 earnings results. The figures in this report have been prepared in accordance with International Financial Reporting Standards ( IFRS ). Figures presented in this report are presented in millions of Mexican pesos and millions of U.S. dollars unless otherwise stated. Additionally, figures can vary due to rounding. Terrafina s financial results included in this report are unaudited; as a result, the figures used throughout this report could present adjustments in the future. Terrafina s 2Q14 reports financial results for the second quarter of 2014 that comprise the period of April 1, 2014 through June 30, It is important to consider that comparisons in this earnings report are made to first quarter 2014 numbers since second quarter 2013 results do not include the effects of the American Industries Kimco acquisition. Financial and Operational Highlights as of June 30, 2014 Operational Occupancy rate at June 30, 2014, was 91.1%, a 53 basis points increase compared to the first quarter of Annualized average leasing rate per square foot for 2Q14 was US$4.78, a US$ 0.04 increase compared to 1Q14. The renewal rate up to June 30, 2014 was 82.1%, a 26 basis points increase compared to 1Q14. A total of 27 contracts, equivalent to 1.3 million square feet (msf), were renewed in 2Q14; on average 90% of leasing contracts were signed at a 2% above in- place rent, which increase from US$4.42 to US$4.51. The weighted average remaining lease term increased from 3.59 years in 1Q14 to 3.67 years in 2Q14. In 2Q14, Terrafina reported a total of 30.9 msf of Gross Leasable Area (GLA) comprised of 217 properties and 232 tenants. Leasing activity for 2Q14 totaled 1.7 msf, of which 23.5% corresponds to new leasing contracts and 76.5% to lease renewals. Leasing activity was mainly concentrated in the markets of Ciudad Juarez, Ramos Arizpe, Tijuana, Cuautitlan Izcalli, Saltillo and Chihuahua. Contacts in Mexico City: Contacts in New York: Francisco Martinez/ Ángel Bernal Maria Barona Investor Relations Officer / Chief Financial Officer i-advize Corporate Communications, Inc. Tel: +52 (55) / +52 (55) Tel: +1 (212) francisco.martinez@terrafina.mx / angel.bernal@terrafina.mx mbarona@i-advize.com

2 Financial 2Q14 rental revenues reached US$32.6 million, an increase of 2.8% or US$0.9 million compared to 1Q14. It is important to mention that accrued revenues are not included as rental revenues as this is a non- cash item. NOI for 2Q14 was US$31.2 million; NOI Margin reached 88.4%, a 198 basis points increase compared to 1Q14. Moreover, considering expected NOI of US$125 million for 2014 and an average CBFI price for 2Q14 of US$2.04 (Ps ), the average implied cap rate reached 8.0%. EBITDA for 2Q14 reached US$27.6 million; EBITDA Margin was 78.2%, a 198 basis points increase compared to 1Q14. Adjusted Funds for Operations (AFFO) for 2Q14 reached US$16.9 million; AFFO margin was 47.6%, a 507 basis points increase compared to 1Q14. Distributions for 2Q14 totaled US$16.9 million. As a result of 2Q14 operations, Terrafina will pay distributions of Ps per CBFI (US$ per CBFI) in distributions corresponding to the period of April 1 to June 30, This represents an increase of 11.9% in distributions denominated in dollars compared to 1Q14. Annualized distributions per CBFI for 2Q14 is expected to reach US$0.1774; considering the average CBFI price for 2Q14 of US$2.04 (Ps ), Terrafina reached a dividend yield of 8.7%.

3 Financial Highlights Operating 2Q14 1Q14 Var. Number of Developed Properties Gross Leasable Area (GLA) (msf) New Developments 2 (msf) Land Reserves (msf) Occupancy Rate 91.1% 90.6% 53 bps Avg. Leasing Rent / Square Foot (dollars) Weighted Avg. Remaining Lease Term (years) Renewal Rate % 81.8% 26 bps Quarterly Financial 2Q14 1Q14 Var. 2Q14 1Q14 Var. (million pesos unless otherwise stated) fx (million dollars unless otherwise stated) Rental Revenues % % Other Operating Income % % Net Revenues % % Net Operating Income (NOI)* % % NOI Margin 88.4% 86.4% 198 bps 88.4% 86.4% 198 bps EBITDA 5* % % EBITDA Margin 78.2% 76.2% 198 bps 78.2% 76.2% 198 bps Funds from Operations (FFO)* % % FFO Margin 55.8% 50.1% 567 bps 55.8% 50.1% 567 bps Adjusted Funds from Operations (AFFO)* % % AFFO Margin 47.6% 42.5% 507 bps 47.6% 42.5% 507 bps Distributions % % Distributions per CBFI % % Balance Sheet Jun14 Mar14 Var. Jun14 Mar14 Var. (million pesos unless otherwise stated) fx _ (million dollars unless otherwise stated) Cash & Cash Equivalents % % Investment Properties 21, , % 1, , % Land Reserves % % Total Debt 11, , % % Net Debt 11, , % % Figures in dollars in the Income Statement were converted into pesos at the average exchange rate for the period; for the Balance Sheet the exchange rate for the close of the period was used. (1) Millions of square feet. (2) Includes expansions and Built- to- Suits (BTS). (3) Indicates the lease renewal rate of the leases. (4) Excluding accrued income as it is a non- cash item (5) Earnings before Interest, taxes, depreciation and amortization. (6) Certificados Bursátiles Fiduciarios Inmobiliarios - Real Estate Investment Certificates. (*) Revenues and expenses have been adjusted for the calculation of the above mentioned metrics. Please refer to the "2Q14 Financial Performance" and "Annexes" section available in this document. Source: PREI Latin America Portfolio Management Fund Accounting 3

4 Comment by Alberto Chretin, Chief Executive Officer and Chairman of the Board During the second quarter of 2014, Terrafina continued experiencing solid operating and financial results. The portafolio occupancy levels rose by 53 basis points compared to the first quarter of 2014, reaching 91.1%. This was primarily due to higher leasing activity observed in the northern region of Mexico, mainly in the cities of Ramos Arizpe, Ciudad Juarez, Tijuana, Saltillo and Chihuahua. In total, we concluded 1.7 million square feet in leasing contracts of which 24% corresponded to new contracts and 76% were renewals. Average annual leasing rates reached US$ 4.78 per square foot, US$ 0.04 higher than the rate for the first quarter. As of June 30, 2014, Terrafina experienced positive results in average rents by region; the Northern region rose by US$ 0.05 reaching US$ 4.64 per square foot, the Bajio region remained flat at an average rent of US$4.82 per square foot and finally, the Central region rose by US$0.06 to reach a total of US$5.16 average rent per square foot. The renewal rate for lease contracts was 82.1%, in line with our objective of renewing two- thirds of the rental contracts that are in the process of expiration. With regards to the main financial indicators for the second quarter, I would like to mention that rental revenues reached US$32.6 million, Net Operating Revenue reached US$31.2 million and the Operating Margin reached 88.4%, as well as a generation of US$16.9 million in Adjusted Operating Funds, which together represent an annualized distribution of US$0.18 per CBFI, for a 8.7% dividend yield considering the average CBFI price for the second quarter. Finally, I would like to mention that the Mexican Securities and Exchange Commission (CNBV) published modifications to the FIBRA regulations with the objective of providing to the financial community more information regarding leverage limits as well as to strengthen the corporate governance structures of the FIBRAs. As commented to the market in our recent press release, Terrafina expects to lower its leverage level to below 50% via the recovery of the VAT that was generated from the American Industries Kimco portfolio acquisition. Based on the results as of June 30, 2014, Terrafina reported a 50.6% leverage level, which will continue to improve to levels below 50% as Terrafina recovers the remaining VAT during the second half of Additionally, since its inception, Terrafina maintains top corporate governance standards and as a result, we are already compliant with the current changes released by the authorities. Sincerely, Alberto Chretin Terrafina s Chief Executive Officer and Chairman of the Board 4

5 Operational Highlights Highlights by Region (as of June 30, 2014) North Bajio Central Total # Buildings # Tenants GLA (msf) New Developments 1 (msf) Land Reserves (msf) Occupancy Rate 90.4% 92.0% 92.4% 91.1% Average Leasing Rent / Square Foot (dollars) Annualized Rental Base % 57.4% 21.4% 21.2% 100.0% Renewal Rate 100.0% 100.0% 55.7% 82.1% (1) Includes expansions and Built- to- Suit (BTS). Source: PREI Latin America - Portfolio Management BAJIO - San Luis Potosi - Jalisco - Aguascalientes - Guanajuato - Queretaro Terrafina s operations 2Q14. NORTH - Baja California - Sonora - Chihuahua - Coahuila - Nuevo Leon - Tamaulipas - Durango CENTRAL - Estado de Mexico - Distrito Federal - Puebla - Tabasco Composibon by Asset Type as of 2Q14 (as a % of total GLA) Leasing Activity Operating Portfolio (msf): 2Q14 1Q14 Var. 69.1% Distribukon 30.9% Manufacturing Renewals % New Leases % Properties Under Development % Total Square Feet of Leases Signed % Renewal Rate 82.1% 81.8% 26 bps Source: PREI Latin America - Portfolio Management 5

6 Operational Highlights (continued) Occupancy and Rents by Region Maturities and Renewals by Region (As of June 30, 2014) Occupancy Rate Consolidated 0 Consolidated Avg. Leasing Rent/ Square Foot (dollars) (As of June 30, 2014) Maturities (number of contracts) % of Total Maturities Renewals (number of contracts) % of Total Renewals North 90.4% 4.64 North % % Baja California 89.2% 4.47 Baja California 2 6.7% % Sonora 86.3% 4.18 Sonora 0 0.0% 0 0.0% Chihuahua 96.1% 4.84 Chihuahua % % Coahuila 97.7% 4.42 Coahuila 2 6.7% % Nuevo Leon 74.0% 4.54 Nuevo Leon 2 6.7% % Tamaulipas 62.3% 4.19 Tamaulipas 1 3.3% % Durango 85.2% 3.96 Durango 0 0.0% 0 0.0% Bajio 92.0% 4.82 Bajio % % San Luis Potosi 97.7% 4.73 San Luis Potosi 1 3.3% % Jalisco 93.0% 5.45 Jalisco 1 3.3% % Aguascalientes 100.0% 4.47 Aguascalientes 0 0.0% 0 0.0% Guanajuato 87.5% 4.94 Guanajuato 0 0.0% 0 0.0% Queretaro 84.4% 4.59 Queretaro 1 3.3% % Central 92.4% 5.16 Central % % Estado de Mexico 91.1% 5.16 Estado de Mexico % % Distrito Federal 100.0% Distrito Federal 0 0.0% 0 0.0% Puebla 100.0% 4.17 Puebla 0 0.0% 0 0.0% Tabasco 100.0% 5.20 Tabasco 0 0.0% 0 0.0% Total 91.1% 4.78 Total % % Source: PREI Latin America - Portfolio Management Source: PREI Latin America - Portfolio Management *Out of the matured leases in the quarter 6

7 2Q14 Operational Performance Composition by Geographical Diversification For 2Q14, Terrafina s properties (based on GLA per square foot) were mainly located in the northern region of Mexico, representing 59.6% of GLA; while the Bajio and Central regions represented 21.0% and 19.4%, respectively. 2Q14 as a % of GLA 2Q14 1Q14 as a % of GLA 1Q14 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 are not included. Source: PREI Latin America - Portfolio Management Composition by Asset Type At the end of the 2Q14, 30.9% of Terrafina s total portfolio consisted of distribution and logistics properties, and 69.1% were manufacturing properties, remaining at stable levels compared to 1Q14. Composibon by Asset Type as of 2Q14 (as a % of total GLA) 2Q14 1Q14 Var. Distribution 30.9% 31.4% - 46 bps 30.9% Manufacturing 69.1% 68.6% 46 bps Source: PREI Latin America - Portfolio Management 69.1% Distribukon Manufacturing 7

8 Composition by Sector As of June 30, 2014, tenant diversification by industrial sector was as follows: Diversificabon by Sector as of 2Q14 (as a % of leased GLA) Automokve Industrial properkes Consumer goods Logiskcs and Trade Aviakon Non- durable consumer goods 9.7% 6.9% 9.4% 17.4% 28.5% 28.1% Industrial Sector Diversification 2Q14 1Q14 Var. Automotive 28.1% 29.1% - 98 bps Industrial properties 28.5% 27.0% 142 bps Consumer goods 17.4% 16.9% 49 bps Logistics and Trade 9.7% 10.2% - 52 bps Aviation 9.4% 9.2% 21 bps Non- durable consumer goods 6.9% 7.5% - 63 bps Total 100.0% 100.0% Source: PREI Latin America - Portfolio Management Top Client Composition Terrafina s tenant leasing base is widely diversified across Mexico s main cities. In 2Q14, Terrafina s top client, top 10 clients and top 20 clients base, represented 4.4%, 22.2% and 33.3% of total revenues, respectively. Top Clients (As of June 30, 2014) Leased Square Feet (million) % Total GLA % Total Revenues Top Client % 4.4% Top 10 Clients % 22.2% Top 20 Clients % 33.3% Source: PREI Latin America - Portfolio Management 8

9 Occupancy 2Q14 occupancy rate was of 91.1%, an increase of 53 basis points compared to 1Q14. During the second quarter 2014, Terrafina s leasing activity reached 1.7 msf, of which 23.5% correspond to new leasing contracts and 76.5% for contract renewals. Leasing activity mainly took place in the Ciudad Juarez, Ramos Arizpe, Tijuana, Cuautitlan Izcalli, Saltillo and Chihuahua markets. Occupancy as of 2Q14 (as % of Total GLA) 8.9% 2Q14 1Q14 Var. Leased GLA Vacant GLA Leased GLA 91.1% 90.6% 53 bps Vacant GLA 8.9% 8.9% - 3 bps Signed Letters of Intent 0.0% 0.5% - 50 bps 91.1% Total 100.0% 100.0% Source: PREI Latin America - Portfolio Management Lease Maturities At the conclusion of 2Q14, Terrafina had 232 leasing contracts. These contracts have an average maturity of 3 to 5 years for logistics and distribution properties activities and 5 to 7 years for manufacturing activities. Annual average maturities for the next five years remain at average levels of 10% to 17% (as a percentage of annual base rents). The following table shows Terrafina s leasing maturity schedule for the coming years: Annual Base Rent (millions of dollars) % of Total Occupied Square Feet (millions) % of Total % % % % % % % % % % Thereafter % % Source: PREI Latin America - Portfolio Management 9

10 Capital Deployment New Developments and Non- Strategic Asset Sales New Developments Terrafina had no new developments activity in the second quarter of The following table shows new developments activity from January 1 to June 30, 2014: Capital Deployment - New Developments Square Feet (millions) January - June 2014 Total Total Expected Expected Investment Investment (millions of dollars) (millions of pesos) Cost per Square Feet (dollars) % Paying Rent by End of the Period North % Bajio % Central % Total % Proforma NOI 1 (million dollars) 0.6 Estimated Stabilized Yield % (1) Net Operating Income for the next twelve months (2) Proforma NOI divided by the total expected investment Source: PREI Latin America - Portfolio Management Capital Expenditures (CAPEX) Terrafina s CAPEX are classified as those recurring expenses that took place based on upcoming leasing maturities and properties improvements. The main goal of these expenses is the renewal of leasing contracts as well as the improvement of property conditions taking into account tenant requirements. Terrafina expects to apply CAPEX towards vacant properties as well as towards the development of new GLA by means of expansions and/or new developments. Additionally, it is important to consider that capital expenditures intended for expansions and new developments are not financed with Terrafina s operating cash flow and therefore do not pass through the income statement. Capital expenditures accounts are comprised as follows: 1) Tenant improvements resources as well as recurring maintenance CAPEX 2) Broker and administrator fees 3) CAPEX for new developments, which due to their nature, are generally capitalized 10

11 In 2Q14, Terrafina s total CAPEX investment was US$8.2 million. The breakdown is shown in the following table: 2Q14 (millions of pesos) 2Q14 (millions of dollars) Tenant Improvements & Recurring Capex Leasing Commissions Development CAPEX CAPEX Reserve Total CAPEX Maintenance expenses for vacant properties are included in the Tenant Improvements & Recurring Capex figures. (1) Capex for expansions/new developments. (2) Capex reserve for maintenance activities. Source: PREI Latin America - Portfolio Management Land Reserves Terrafina s land reserves as of June 30, 2014 were comprised of 13 land reserve properties, which accounted for 7.3 msf potential GLA for the development of future industrial assets. Terrafina s land reserves distribution was as follows: as of June 30, 2014 Square Feet (millions) Land at Cost (millions of pesos) Land at Cost (millions of dollars) Appraisal Value (millions of pesos) Appraisal Value (millions of dollars) North Bajio Central Total Land Portfolio 7.3 1, Source: PREI Latin America - Portfolio Management and Fund Accounting Non- Strategic Asset Sales During 3Q13, Terrafina initiated a capital recycling program through the sale of non- strategic properties. The implementation of this program is consistent with Terrafina s objective of specializing in key markets in order to increase revenues, improve profitability of the assets and maintain constant and sustainable growth for Terrafina and its shareholders. Terrafina expects that with this initiative, it can reach the sale of approximately US$150 to US$180 million of non- strategic assets. Currently, we are reviewing different sales opportunities that once achieved, will be announced to the market. 11

12 2Q14 Financial Performance Financial Results and Calculations Terrafina s 2Q14 financial results are presented in Mexican pesos and U.S. dollars. Figures on the income statement for each period were converted to dollars using the average exchange rate for 2Q14, for the balance sheet, the exchange rate used was that of June 30, It is important to consider that comparisons in this earnings report are made based on first quarter 2014 figures, since second quarter 2013 does not reveal the American Industries Kimco acquisition effects. Terrafina adheres to the best accounting practices for measuring the FIBRA s (REIT) performance results by providing relevant metrics to the financial community. Throughout the following financial performance section, additional calculations are available. It is important to note that these metrics must not be considered individually to evaluate Terrafina s results. It is recommended to use them in combination with other International Financial Reporting Standards metrics to measure Terrafina s performance. Terrafina presents in this earnings report additional metrics such as Net Operating Income (NOI), Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), and Adjusted Funds from Operations (AFFO). Each breakdown calculation is available in this document. In addition, Terrafina recommends reviewing the Appendixes as a reference of the integration of different items of Terrafina s financial statement. This information is available in the last section of this document. Past performance is not a guarantee or reliable indicator of future results. 12

13 Rental Revenues In 2Q14, rental revenues totaled US$32.6 million, a 2.8% or US$0.9 million increase compared to 1Q14. Rental revenues do not include accrued revenues, as these are a non- cash item. Other Operating Income In 2Q14, other operating income totaled US$3.3 million, a decrease of US$0.7 million or 17.5% compared to 1Q14. This figure was explained by lower property taxes reimbursements, since most of these were reported during 1Q14; as a result, other operating income stabilized during 2Q14 in line with our expectations for the full year. Other operating income mainly stems from leasing contract deposits refunds from Triple- Net Leases. Expenses reimbursable to Terrafina mainly include electricity, property taxes, insurance costs and maintenance activities. 2Q14 net revenues reached US$36.5 million, a decrease of US$0.9 million, or 2.4% compared to 1Q14. 2Q14 1Q14 Var. % 2Q14 1Q14 Var. % (millions of pesos) (millions of dollars) Rental Revenue % % Accrued Income % % Other Operating Revenues % % Reimbursable Expenses as Revenues % % Reimbursable Tenant Improvements % % Other non- cash income % % Net Revenue % % (1) Straight line rent adjustment; non- cash item. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: PREI Latin America - Fund Accounting For additional information regarding the revenue breakdown used to calculate additional metrics presented in this earnings report, please refer to Appendix 1 in the last section of this document. Real Estate Expenses In 2Q14, real estate expenses totaled US$6.3 million, a decrease of US$3.0 million or 32.3% compared to 1Q14. These results were due to lower repair and maintenance expenses, and a stabilization of property taxes expenses during the second quarter of 2014 that were incurred and paid in 1Q14 as mentioned in the earnings report for the previous quarter. It is important to differentiate between expenses directly related to the operation and maintenance of the industrial portfolio, as these are used to calculate NOI. The remainder of the accounts included in real estate expenses are considered non- recurring expenses, and are used to calculate EBITDA and AFFO. For additional information regarding the real estate expenses breakdown, please refer to Appendix 2 in the last section of this document. 13

14 Net Operating Income (NOI) During 2Q14, NOI reached US$31.2 million, an increase of 2.3%, or US$0.7 million compared with 1Q14. NOI margin increased 198 basis points, reaching 88.4% compared to 86.4% in 1Q14. The following table displays the calculation of NOI for 2Q14: 2Q14 1Q14 Var. % 2Q14 1Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) Rental Revenues % % Other Operating income % % Net Revenues for NOI Calculation % % 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 % % NOI Margin 88.4% 86.4% 198 bps 88.4% 86.4% 198 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 calculation. (3) The income generated by the operation of the property, independent of external factors such as financing and income taxes. NOI is the result of Net Revenues (includes rental income and triple net leases expenses reimbursements) minus Real Estate Operating Expenses (costs incurred during the operation and maintenance of the industrial portfolio). Source: PREI Latin America - Fund Accounting Fees and Administrative Expenses Fees and administrative expenses in 2Q14 totaled US$3.5 million, which decreased 5.4%, or US$0.2 million, compared to 1Q14. Fees and administrative expenses for 2Q14 were as follows: 57.1% were related to advisory fees paid to the external advisor % for professional and consulting services 28.6% for payroll, administrative fees and other expenses EBITDA In 2Q14, EBITDA totaled US$27.6 million, an increase of US$0.7 million, or 2.6%, compared to 1Q14. EBITDA margin for 2Q14 was 78.2%, a 198 basis point increase compared to the previous quarter. 1) PLA Administradora Industrial, S. de R.L. de C.V., is a Mexican affiliate of PREI Latin America, and Advisor as per the Advisory Contract. 14

15 The following shows the EBITDA calculation 2Q14: 2Q14 1Q14 Var. % 2Q14 1Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) Rental Revenues % % 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 % % EBITDA Margin 78.2% 76.2% 198 bps 78.2% 76.2% 198 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 Latin America - Fund Accounting For additional information regarding the commissions and administrative expenses breakdown used for the calculation of EBITDA and AFFO, please refer to Appendix 3 located in the last section of this document. Financing Costs In 2Q14, Terrafina registered net financing costs of US$7.9 million, which decreased US$2.1 million or 20.7% compared to the previous quarter. 2Q14 1Q14 Var. % 2Q14 1Q14 Var. % (millions of pesos) (millions of dollars) Interest Paid % % Borrowing Expenses % % Recurring % Non Recurring Interest Income % % Total % % Source: PREI Latin America - Fund Accounting 15

16 Funds from Operations (FFO) Adjusted Funds from Operations (AFFO) In the 2Q14, Terrafina s FFO increased 11.3%, or US$2.0 million compared to 1Q14, reaching US$19.7 million; FFO Margin of 55.8%, a 567 basis point increased quarter to quarter. Additionally, Terrafina reported an AFFO of US$16.9 million, an increase of US$1.8 million, or 11.9%, compared to 1Q14. AFFO margin was 47.6%, an increase of 507 basis points versus 1Q14. 2Q14 1Q14 Var. % 2Q14 1Q14 Var. % (millions of pesos unless otherwise stated) (millions of dollars unless otherwise stated) EBITDA % % Finance Cost % % Funds from Operations (FFO) % % FFO Margin 55.8% 50.1% 567 bps 55.8% 50.1% 567 bps Tenant Improvements % % Leasing Commissions % % CAPEX Reserve Other Non Recurring Expenses % % Adjusted Funds from Operations (AFFO) % % AFFO Margin 47.6% 42.5% 507 bps 47.6% 42.5% 507 bps (1) Net Operational Interest Expenses comprised by interest paid, recurring borrowing expenses and interest income. (2) CAPEX reserve for maintenance activities (3) Related expenses to acquisitions, legal and other. Source: PREI Latin America - Fund Accounting Net Profit (Loss) In 2Q14, Terrafina experienced a net profit of US$59.3 million. The following table presents the calculation of Net (Loss) Profit for 2Q14: 2Q14 1Q14 Var. % 2Q14 1Q14 Var. % (millions of pesos unless (millions of dollars unless otherwise stated) 0 otherwise stated) 0 Net Revenues % % 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 Foreign Exchange Gain (loss) Operating Profit % % Operating Margin 185.2% 24.8% 16,040 bps 185.2% 24.8% 16,040 bps Financial Income % % Financial Expenses % % Net Financial Cost % % Net Profit (Loss) Net Margin 163.4% - 1.8% % - 1.8% - Source: PREI Latin America - Fund Accounting 16

17 Distributions per CBFIs In accordance with 2Q14 results, Terrafina will distribute US$16.9 million, or US$ per CBFI, an increase of 11.9%, compared to the 1Q14 distribution. Terrafina s 2Q14 and 1Q14 distributions are presented in the following table: (millions of pesos unless otherwise stated) 2Q14 1Q14 Total Outstanding CBFIs 1 (million CBFIs) CBFI Price (quarterly average) Distributions Distributions Per CBFI FX Rate USD/MXN (closing period) Distributions (million dollars) Distributions Per CBFI (dollars) Annualized Distribution Yield 2 8.7% 8.4% (1) Total number of outstanding CBFIs: 381,014,635. (2) Distribution per CBFI divided by the average CBFI price of the quarter. The distribution yield calculation has been annualized for comparison purposes. Source: PREI Latin America - Fund Accounting Total Debt As of June 30, 2014, Terrafina s total debt reached for US$890.8 million. The average cost Terrafina s long- term debt, which is U.S. dollar- denominated, was 3.73%. Most of Terrafina s loans are set at variable interest rates and are hedged with interest rate caps and fixed- rate options. (as of June 30, 2014) Currency Millions of pesos Millions of dollars Interest Rate Terms Maturity Short Term Debt HSBC Pesos TIIE % Interest Only Sep Long Term Debt Citibank 1 Dollars 6, Libor % Interest Only Mar Banorte Dollars Libor % GEREM 2,3 Dollars 3, Libor % HSBC 3 Dollars Libor % Total Debt 11, Net Cash Net Debt 11, Interest + Principal Interest + Principal Interest + Principal (1) Syndicated loan facility with six banks. (2) Syndicated loan facility with four banks. (3) One- year interest only grace period. Source: PREI Latin America - Fund Accounting and Capital Markets May 2016 Extension Option Sep 2018 Sep 2020 Sep 2018 Sep

18 Moreover, Terrafina s leverage (LTV) and debt service coverage ratio (DSCR) metrics are included as requested by the Mexican Securities and Exchange Commission (CNBV) as part of the new regulations. The following tables show Terrafina s leverage and debts service coverage as of June 30, 2014 and based on projections for the next six quarters: Leverage (LTV) (millions of pesos) (millions of dollars) (as of June 30, 2014) Total Assets 22, ,761.3 Total Debt 11, Leverage (LTV) % (1) Defined by the Comisión Nacional Bancaria de Valores (CNBV) as Total Debt over Total Assets Source: PREI Latin America - Fund Accounting y Capital Markets Debt Service Coverage Ratio (DSCR) period (millions of pesos) (millions of dollars) Cash & Cash Equivalents June 30, Recoverable Taxes Σ next 6 quarters EBIT 1 after distributions Σ next 6 quarters Available Credit Line June 30, period (millions of pesos) (millions of dollars) 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 1.4x (1) Earnings Before Interest and Taxes (2) (Cash & Cash Equivalents + Recoverable Taxes + EBIT After Distributions + Available Credit Line) / (Interest Payments + Principal Payments + Recurring CAPEX + Development Expenses) Source: PREI Latin America - Fund Accounting and Capital Markets 18

19 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 Prudential Real Estate Investors Latin America. Terrafina owns 230 real estate properties, including 217 developed industrial facilities with a collective GLA of approximately 31 million square feet and 13 land reserve parcels, designed to preserve the organic growth capability of the portfolio. Terrafina s objective is to provide attractive risk- adjusted returns for the holders of its certificates through stable distributions and capital appreciations. Terrafina aims to achieve this objective through a successful performance of its industrial real estate and complementary properties, strategic acquisitions, access to a high level of institutional support, and to its management and corporate governance structure. For more information, please visit About Prudential Real Estate Investors PREI is a leader in the global real estate investment management business, offering a broad range of investment vehicles that invest in private and public market opportunities in the United States, Europe, the Middle East, Asia, Australia and Latin America. Headquartered in Madison, N.J., the company also has offices in Atlanta, Chicago, Miami, New York, San Francisco, Frankfurt, Lisbon, London, Luxembourg, Munich, Paris, Abu Dhabi, Mexico City, Hong Kong, Seoul, Singapore, Sydney and Tokyo and people on the ground in Rio de Janeiro. In addition, the company has representatives in Milan. PREI has gross assets under management of USD $55.8 billion (US$41.8 billion net assets), as of March 31, For more information, please visit About Prudential Financial, Inc. Prudential Financial, Inc. (NYSE:PRU), a financial services leader with more than $1.1 trillion of assets under management as of March 31, 2014, has operations in the United States, Asia, Europe, and Latin America. 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. 19

20 Conference Call (BMV: TERRA13) Cordially invites you to participate in its Second Quarter 2014 Results Tuesday, July 29, :00 a.m. Eastern Time 9:00 a.m. Central Time Presenting for Terrafina: Alberto Chretin, Chief Executive Officer Angel Bernal, Chief Financial Officer *** To access the call, please dial: from within the U.S from outside the U.S Conference ID Number: Audio Webcast Link: Conference Replay Will be provided for your call Dial or to listen Passcode:

21 Appendix Appendix 1 Revenues Terrafina s revenues are mainly classified as rental revenues and other operating reimbursable revenues. Additionally, there are accounting revenues that must be registered according with IFRS; however these are considered non- cash items and therefore are excluded in some calculations. Reimbursable tenant improvements are included in the tenant improvement expenses for the AFFO calculation. Revenues 2Q14 1Q14 2Q14 1Q14 (millions of pesos) (millions of dollars) NOI calculation Rental Revenue Non Cash Accrued Income Other Operating Revenues NOI calculation Reimbursable Expenses as Revenues AFFO calculation Reimbursable Tenant Improvements Non Cash Other non- cash income Net Revenue (1) Straight line rent adjustment. (2) Triple net leases expenses reimbursed to Terrafina from its tenants. Source: PREI Latin America - Fund Accounting 21

22 Appendix 2 Real Estate Expenses Real estate expenses are comprised of recurring figures related with the operation (used for the Net Operating Profit calculation) as well as non- recurring figures used for metric calculations such as Earnings Before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), Adjusted Funds from Operations (AFFO). Terrafina s 2Q14 and 1Q14 real estate expenses breakdown is available in the following table and indicates the figures used for the calculation of these metrics: Real Estate Expenses 2Q14 1Q14 2Q14 1Q14 (millions of pesos) (millions of dollars) Repair and Maintenance NOI calculation Recurring AFFO calculation Non Recurring Property Taxes NOI calculation Operating Non Cash Non Operating NOI calculation Property Management Fees NOI calculation Electricity AFFO calculation Brokers Fees Property Insurance NOI calculation Operating EBITDA calculation Administrative NOI calculation Security EBITDA calculation Advertising Other Expenses NOI calculation Operational Related EBITDA calculation Administrative Non Cash Bad Debt Expense Total Real Estate Expenses Source: PREI Latin America - Fund Accounting 22

23 Appendix 3 Fees and Administrative Expenses Fees and administrative expenses include figures used for metric calculations such as Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA), Funds from Operations (FFO), Adjusted Funds from Operations (AFFO). Terrafina s 2Q14 and 1Q14 fees and administrative expenses breakdown is available in the following table and indicates the figures used for the calculation of these metrics: Fees and Administrative Expenses 2Q14 1Q14 2Q14 1Q14 (millions of pesos) (millions of dollars) EBITDA calculation External Advisor Fees Legal Fees EBITDA calculation Recurring AFFO calculation Non Recurring Other Professional Fees EBITDA calculation Recurring AFFO calculation Non Recurring EBITDA calculation Administrative Fees EBITDA calculation Payroll EBITDA calculation Trustee Fees EBITDA calculation Other Expenses Total Fees and Admin. Expenses Source: PREI Latin America - Fund Accounting 23

24 Appendix 4 - Reconciliation Reconciliation of Net Profit (Loss) to FFO, EBITDA and NOI 2Q14 1Q14 2Q14 1Q14 (millions of pesos) (millions of dollars) Net Profit (Loss) Add (deduct) Cost of Financing Adjustment: Non Recurring Borrowing Expenses Add (deduct) Non- Cash Adjustment: Acquisition Related Expenses Foreign Exchange Adjustments Fair Value Adjustment on Borrowings Fair Value Adjustment on Derivative Financial Instruments Fair Value Adjustment on Investment Properties Sales of Real Estate Properties Adjustment Add (deduct) Expenses Adjustment: Non Recurring Repair and Maintenance Non Operating Property Taxes Brokers Fees Bad Debt Expense Non Recurring Legal Fees Non Recurring Other Professional Fees Add (deduct) Revenues Adjustment: Accrued Income Other Non- Cash Income Reimbursable Tenant Improvements FFO Add (deduct) Cost of Financing Adjustment: Interest Paid Recurring Borrowing Expenses Interest Income EBITDA Add (deduct) Expenses Adjustment: External Advisor Fees Recurring Legal Fees Recurring Other Professional Fees Administrative Fees Payroll Trustee Fees Other Expenses Advertising Administrative Property insurance Other Administrative Expenses NOI Add (deduct) Expenses Adjustment: Recurring Repair and Maintenance Operating Property Taxes Property Management Fees Electricity Operating Property Insurance Security Other Operational Expenses Add (deduct) Revenues Adjustment: Other Non- Cash Income Accrued Income Reimbursable Tenant Improvements Net Revenue

25 Reconciliation of Net Profit (Loss) to AFFO 2Q14 1Q14 2Q14 1Q14 (millions of pesos) (millions of dollars) Net Profit (Loss) Add (deduct) Cost of Financing Adjustment: Non Recurring Borrowing Expenses Add (deduct) Non- Cash Adjustment: Acquisition Related Expenses Foreign Exchange Adjustments Fair Value Adjustment on Borrowings Fair Value Adjustment on Derivative Financial Instruments Fair Value Adjustment on Investment Properties Sales of Real Estate Properties Adjustment Add (deduct) Expenses Adjustment: Non Operating Property Taxes Bad Debt Expense Add (deduct) Revenues Adjustment: Accrued Income Other Non- Cash Income Add (deduct) CAPEX Adjustment: CAPEX Reserve AFFO

26 Appendix 5 - Cap Rate Calculation Terrafina subtracts cash and land reserves book value for the cap rate calculation. In the following table, the cap rate calculation is shown assuming a CBFI quarterly average price of Ps pesos and a average exchange rate for 2Q14 of Ps Implied Cap Rate Quarterly Average Price (dollars)¹ 2.04 (x) CBFIs (million CBFIs) (=) Market Capitalization (+) Total Debt (- ) Cash 32.1 (=) Enterprise Value 1,634.8 (- ) Landbank 80.6 (=) Implied Operating Real Estate Value 1,554.1 Net Operating Income (NOI) 2014e Implied Cap Rate 8.0% Figures expressed in million dollars unless otherwise stated. (1) Quarterly average price of Ps and exchange rate of Ps

27 Financial Statements Income Statement 2Q14 1Q14 Var. (thousand pesos) Rental revenues $431,902 $441, % Other operating income 42,631 54, % Real estate operating expenses (80,528) (123,384) % Fees and other expenses (44,804) (47,881) - 6.4% Acquisition related expenses Realized gain from disposal of investment properties Net Income (Loss) from Fair Value Adjustment on Borrowings Net gain (loss) from fair value adjustment on investment properties Net (loss) gain unrealized from fair value on derivative financial instruments ,055 (84,459) - 315,873 (104,183) - (21,565) (13,070) - Foreign exchange (loss) gain (5,753) 46 - Operating profit 878, , % Finance income % Finance cost (103,875) (133,719) % Finance cost - net (103,133) (132,997) % Net Profit for the period 775,678 (9,139) - 27

28 Financial Statements Balance Sheet Jun Mar Var. (thousands of pesos) Assets Non- current assets Investment properties $21,423,880 $21,117, % (Cost:30/06/ Ps.21,012,776; 31/03/ Ps.21,023,650) Derivative financial instruments 5,454 27, % Current assets Other assets 43,466 26, % Recoverable taxes 863, , % Prepaid expenses 15,858 28, % Deferred charges and accrued income 70,798 63, % Accounts receivable 38,506 66, % (Net of allowance for doubtful accounts: 30/06/ Ps.36,362; 31/03/ Ps.71,015) Restricted cash 73,823 60, % Cash and cash equivalents 418, , % Total assets 22,954,005 22,919, % Net assets attributable to Investors Contributions, net 9,900,604 9,900, % Retained earnings 631,456 55, % Currency translation adjustment 478, , % Total net assets (Net Equity) 11,010,478 10,475, % Liabilities Non- current liabilities Borrowings 10,881,157 11,222, % (Cost: 30/06/ $11,183,104; 31/03/ $11,272,699) Tenant deposits 146, , % Current liabilities Trade and other payables 188, , % Borrowings 727, , % (Cost: 30/06/ Ps.724,454, 31/03/ Ps.734,790) Total liabilities (excluding net assets attributable to the Investors) 11,943,527 12,444, % Total net assets and liabilities 22,954,005 22,919, % 28

29 Financial Statements Statement of Changes in Equity Net contributions Currency translation adjustment Retained earnings Net assets attributable to Investors (thousands of pesos) Balance at January 1, 2014 (Audited) $9,900,604 $511,856 $246,413 $10,658,873 Distributions to Investors - - (381,496) (381,496) Comprehensive Income Net loss of the period , ,539 Other Comprehensive Income Currency Translation - (33,438) - (33,438) Total Comprehensive (loss) income - (33,438) 766, ,101 Net Assets attributable to investors for the period from April 1 to June 30, 2014 (Unaudited) $9,900,604 $478,418 $631,456 $11,010,478 Results from January 1 to June 30,

30 Financial Statements Cash Flow Statement Jun- 14 (thousands of pesos) Cash flows from operating activities (Loss) profit for the period $766,539 Adjustments: Net loss (gain) unrealized from fair value adjustment on investment properties (211,690) Net loss (gain) unrealized from fair value adjustment on derivative financial instruments 34,635 Net loss (gain) unrealized from fair value adjustment on borrowings (156,596) Realized gain from disposal of investment properties (703) Bad debt expense 19,284 Differed rents receivable (29,516) Decrease (increase) in restricted cash (16,888) Decrease (increase) in accounts receivable 21,287 Decrease (increase) in recoverable taxes 162,225 (Increase) in prepaid expenses (7,449) Decrease (increase) in other assets 33,814 Increase in tenant deposits (1,339) (Decrease) in accounts payable (221,311) Net cash (used in) generated from operating activities 392,292 Cash flows from investing activities Acquisition of investment properties (8,101) Improvements of investment properties (137,536) Dispositions of investment properties 11,011 Net cash (used in) generated from investing activities (134,626) Cash flows from financing activities Acquisition of derivative financial instruments (275) Proceeds from borrowings - Principal payments on borrowings (181,987) Distributions to investors (381,496) Proceeds from CBFI issued - Net cash (used in) generated from financing activities (563,758) Net (decrease) in cash and cash equivalents (306,092) Cash and cash equivalents at the beginning of the period 728,550 Exchange effects on cash and cash equivalents (3,961) Cash and cash equivalents at the end of the period $418,497 Results for the period January 01, 2014 to June 30,