THIRD QUARTER 2019 EARNINGS REPORT - Amazon S3

[Pages:31]THIRD QUARTER 2019 EARNINGS REPORT

Mexico City, October 24, 2019 ? Terrafina? ("TERRA" or "the Company") (BMV: TERRA13), a leading Mexican industrial real estate investment trust ("FIBRA"), externally advised by PGIM Real Estate and dedicated to the acquisition, development, leasing and management of industrial real estate properties in Mexico, announced today its third quarter 2019 (3Q19) 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 results included in this report are unaudited. As a result, the mentioned figures in this financial report are preliminary figures and could be adjusted in the future.

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 of future performance.

Operating and Financial Highlights as of September 30, 2019

Operating

? As of September 30, 2019, the occupancy rate was 96.3%, a 110 basis point increase compared to the third quarter of 2018 (3Q18).

? Annualized average leasing rate per square foot was US$5.18 in 3Q19, a 1.0% or US$0.05 increase compared to 3Q18.

? Terrafina reported a total of 41.8 million square feet (msf) of Gross Leasable Area (GLA) comprised of 289 properties and 294 tenants.

? 3Q19 leasing activity totaled 1.5 msf, of which 37.6% corresponded to new leases, 37.8% to lease renewals and 24.6% to early renewals. Leasing activity was concentrated in the Chihuahua, Ramos Arizpe, Monterrey, Guadalajara, Ciudad Juarez, Arteaga, Cuautitlan Izcalli, Silao, San Luis Potosi, Irapuato, Tijuana and Toluca markets.

Contacts: Francisco Martinez Investor Relations Officer Tel: +52 (55) 5279-8107 E-mail: francisco.martinez@terrafina.mx

Ana Maria Ybarra Miranda IR Tel: +52 (55) 3660-4037 E-mail: ana.ybarra@miranda-

Financial ? 3Q19 rental revenues reached US$48.7 million, a 1.3% or US$0.6 million increase compared to 3Q18. ? 3Q19 Net Operating Income (NOI) was US$49.2 million, a 2.3% or US$1.1 million increase compared to 3Q18. NOI

margin reached 94.3%, a 28 basis point increase compared to 3Q18. ? 3Q19 EBITDA reached US$44.2 million, an increase of 2.1% or US$0.9 million compared to 3Q18. The EBITDA margin

for 3Q19 was 84.8%, a 11 basis point increase compared to 3Q18. ? 3Q19 adjusted funds for operations (AFFO) reached US$28.3 million, a decrease of 2.7% or US$0.8 million compared

to 3Q18. The AFFO margin for 3Q19 was 53.9%, a 271 basis point decrease compared to 3Q18. ? 3Q19 distributions totaled US$28.3 million. As a result, Terrafina will distribute Ps.0.6969 per CBFI (US$0.0359 per

CBFI) for distributions corresponding to the period from July 1 to September 30, 2019. ? 3Q19 dividend yield for the quarter was 9.5% considering the average share price for the quarter of US$1.51

(Ps.29.34).

2

Operating and Financial Highlights

Operating Number of Developed Properties Gross Leasable Area (GLA) (msf)1 Land Reserves (msf) Occupancy Rate2 Avg. Leasing Rent / Square Foot (dollars) Weighted Average Remaining Lease Term (years) Renewal Rate3

Quarterly Financial

Rental Revenues Other Operating Income Net Revenues Net Operating Income (NOI)* NOI Margin EBITDA* EBITDA Margin Funds from Operations (FFO)* FFO Margin Adjusted Funds from Operations (AFFO)* AFFO Margin Distributions Distributions per CBFI

Sep19 289 41.8 5.66 96.3% 5.18 3.48 94.6%

Sep18 287 41.0 6.06 95.2% 5.13 3.42 95.8%

Var. 2 0.8

-0.40 110 bps

0.05 0.06 -117 bps

3Q19

3Q18

Var.

3Q19

3Q18

Var.

fx 19.4256

18.9859

(millions of pesos unless otherwise stated)

(millions of dollars unless otherwise stated)

945.8 71.0 1,022.0 955.6 94.3% 858.8 84.8% 614.6 60.7% 551.0 53.9% 551.0 0.6969

912.0 55.8 973.5 913.3 94.0% 822.1 84.6% 592.4 61.0% 553.1 56.6% 553.1 0.6993

3.7% 27.4% 5.0% 4.6% 28 bps 4.5% 11 bps 3.7% -34 bps -0.4% -271 bps -0.4% -0.3%

48.7 3.7 52.6 49.2 94.3% 44.2 84.8% 31.6 60.7% 28.3 53.9% 28.3 0.0359

48.0 2.9 51.3 48.1 94.0% 43.3 84.6% 31.2 61.0% 29.1 56.6% 29.1 0.0368

1.3% 25.1% 2.6% 2.3% 28 bps 2.1% 11 bps 1.4% -34 bps -2.7% -271 bps -2.7% -2.7%

Balance Sheet

Cash & Cash Equivalents Investment Properties Land Reserves Total Debt Net Debt

Sep19 Jun19

Var.

Sep19

Jun19

Var.

fx 19.6363

19.1685

(millions of pesos unless otherwise stated)

(millions of dollars unless otherwise stated)

1,274.2 47,598.2

986.0 20,472.3 19,198.1

1,126.8 44,728.3

958.8 19,428.1 18,301.3

13.1% 6.4% 2.8% 5.4% 4.9%

64.9 2,424.0

50.2 1,042.6 977.7

58.8 2,333.4

50.0 1,013.5 954.8

10.4% 3.9% 0.4% 2.9% 2.4%

Figures in dollars in the Income Statement were converted into pesos using the average exchange rate for the period. (1) Millions of square feet. (2) Occupancy at the end

of the period. (3) Indicates the lease renewal rate of the leases of the period, includes early renewals. (4) Excluding accrued income as it is a non-cash item. (5) Earnings

before interest, taxes, depreciation and amortization. (6) Certificados Burs?tiles Fiduciarios Inmobiliarios - Real Estate Investment Certificates. (*) Revenues and expenses

have been adjusted for the calculation of the above mentioned metrics. Figures in dollars in the Balance Sheet were converted using the closing exchange rate of the

period. Please refer to the "3Q19 Financial Performance" and "Appendices" section available in this document.

Source: PGIM Real Estate ? Asset Management and Fund Accounting

3

Comment by Alberto Chretin, Chief Executive Officer and Chairman of the Board

The operational and financial results for the third quarter of 2019 once again demonstrated the strength of our tenants' operations. The importance of manufacturing for export activity continues to be a crucial component for growth in the real estate industrial sector. Leasing activity of 1.5 million square feet was a highlight for the quarter. In the last nine months, Terrafina closed more than 5.3 million square feet in leasing contracts or 12.7% of its Gross Leasable Area. Most of the leasing activity occured in the Northern region with one million square feet (Chihuahua, Ramos Arizpe, Monterrey, Ciudad Juarez, Arteaga y Tijuana), followed by the Bajio region with 376,000 square feet (Guadalajara, Silao, San Luis Potosi and IIrapuato) and the Central region with 130,000 square feet (Cuautitlan and Toluca). These leasing activities were divided as follows: renewals accounted for 37.8% , 24.6% of early renewals and 37.6% of new contracts with a weighted average maturity of 5.4 years. Terrafina's occupancy level for the third quarter of 2019 reached 96.3%, an 80 basis points increase compared to second quarter 2019, as well as a 110 basis points increase compared to same quarter last year. Moreover portfolio occupancy by region increased compared to last quarter, with the main improvement being in the Northern region by a 67 basis points increase, reaching 98.5%. The leading submarket improvements were in: Tijuana, Arteaga, Ramos Arizpe and Monterrey. In the Bajio region, occupancy increased 108 basis points to 88.9%, showing improvements in the San Luis Potosi and Silao submarkets. Finally, occupancy for the Central region increased 43 basis points quarter on quarter to reach 98.0% and most of the activity occurred in the Toluca submarket. Average annual leasing rent for the third quarter of 2019 was US$5.18 per square foot, the same as last quarter and a US$0.05 increase compared to the third quarter of 2018. Average rents remained stable by region, with US$5.11 per square foot in the Northern region, US$5.27 in the Bajio region and US$5.36 in the Central region. Terrafina's main financial indicators for the third quarter of 2019 show rental revenues at US$48.7 million, Net Operating Income at US$49.2 million with an NOI Margin of 94.3%, and US$28.3 million in Adjusted Funds from Operations. Lastly, dividend yield for the quarter reached 9.5%, considering the average CBFI price for the third quarter of 2019. Thank you for your interest in Terrafina. Sincerely,

Alberto Chretin Chief Executive Officer and Chairman of the Board

4

Operating Highlights

Highlights by Region

(as of September 30, 2019)

# Buildings # Tenants GLA (msf) Land Reserves (msf) Occupancy Rate Average Leasing Rent / Square Foot (dollars) Annualized Rental Base %

Source: PGIM Real Estate - Asset Management

North 203 199 26.0 2.7 98.5% 5.11 62.9%

Bajio 56 54 9.5 0.2

88.9% 5.27 21.4%

Central Total

30

289

41

294

6.2

41.8

2.7

5.7

98.0% 96.3%

5.36 5.18

15.7% 100.0%

NORTH -

Baja California Sonora Chihuahua Coahuila Nuevo Leon Tamaulipas Durango

BAJIO -

San Luis Potosi Jalisco Aguascalientes Guanajuato Queretaro

Terrafina's 3Q19 Operations

CENTRAL - State of Mexico - Mexico City - Puebla - Tabasco

Composition by Asset Type as of 3Q19

(as a % of total GLA)

27.4%

72.6% Distribution Manufacturing

Leasing Activity

Operating Portfolio (msf): Renewals Early Renewals New Leases

3Q19 3Q18

Var.

0.6

1.1

-0.5

0.4

1.4

-1.1

0.6

0.2

0.4

Total Square Feet of Leases Signed

1.5

2.7

-1.2

Source: PGIM Real Estate - Asset Management

5

Operating Highlights (continued)

Occupancy and Rents by Region

Occupancy

(As of September 30, 2019)

Rate

North

98.5%

Baja California

90.3%

Tijuana

90.3%

Sonora

88.5%

Hermosillo

88.5%

Chihuahua

99.2%

Camargo

100.0%

Casas Grandes

100.0%

Chihuahua

99.5%

Ciudad Juarez

99.0%

Delicias

100.0%

Gomez Farias

100.0%

Coahuila

98.0%

Arteaga

100.0%

Ciudad Acu?a

100.0%

Monclova

100.0%

Ramos Arizpe

98.5%

Saltillo

91.0%

Derramadero

100.0%

San Pedro de las Colinas 89.3%

Torreon

100.0%

Nuevo Leon

99.9%

Apodaca

100.0%

Monterrey

99.9%

Tamaulipas

100.0%

Reynosa

100.0%

Durango

100.0%

Durango

100.0%

Gomez Palacio

100.0%

Bajio

88.9%

San Luis Potosi

83.9%

San Luis Potosi

83.9%

Jalisco

89.1%

Guadalajara

89.1%

Aguascalientes

100.0%

Aguascalientes

100.0%

Guanajuato

96.0%

Celaya

100.0%

Irapuato

93.9%

Silao

96.5%

Queretaro

85.8%

Queretaro

85.8%

Central

98.0%

State of Mexico

97.7%

Cuautitlan Izcalli

100.0%

Toluca

100.0%

Mexico City

100.0%

Azcapotzalco

100.0%

Puebla

100.0%

Puebla

100.0%

Tabasco

100.0%

Villahermosa

100.0%

Total

96.3%

Source: PGIM Real Estate - Asset Management

Avg. Leasing Rent/ Square Foot (dollars)

5.11 4.59 4.59 4.86 4.86 5.10 3.00 4.28 5.49 4.78 6.08 3.34 5.26 4.44 6.35 5.54 5.15 5.50 6.91 2.10 4.30 5.05 5.82 4.78 4.94 4.94 4.87 5.03 3.18

5.27

4.95 4.95 6.97 6.97 4.57 4.57 4.94 5.39 5.44 4.68 5.03 5.03

5.36

5.54 5.61 5.36 9.38 9.38 3.28 3.28 4.29 4.29

5.18

Maturities and Renewals by Region

0

Consolidated

(As of September 30, 2019)

North

Maturities

(number of contracts)

9

% of Total Maturities

52.9%

Renewals

(number of contracts)

7

% of Total Renewals 77.8%

Baja California

0

Tijuana

0

Sonora

0

Hermosillo

0

Chihuahua

6

Camargo

0

Casas Grandes

0

Chihuahua

3

Ciudad Juarez

3

Delicias

0

Gomez Farias

0

Coahuila

3

Arteaga

0

Ciudad Acu?a

0

Monclova

0

Ramos Arizpe

2

Saltillo

1

Derramadero

0

San Pedro de las Colinas

0

Torreon

0

Nuevo Leon

0

Apodaca

0

Monterrey

0

Tamaulipas

0

Reynosa

0

Durango

0

Durango

0

Gomez Palacio

0

0.0% 0.0% 0.0% 0.0% 35.3% 0.0% 0.0% 17.6% 17.6% 0.0% 0.0% 17.6% 0.0% 0.0% 0.0% 11.8% 5.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

6

100.0%

0

0.0%

0

0.0%

3

100.0%

3

100.0%

0

0.0%

0

0.0%

1

33.3%

0

0.0%

0

0.0%

0

0.0%

1

50.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Bajio

7

41.2%

7

100.0%

San Luis Potosi San Luis Potosi

Jalisco Guadalajara

Aguascalientes Aguascalientes

Guanajuato Celaya Irapuato Silao

Queretaro Queretaro

1

5.9%

1

100.0%

1

5.9%

1

100.0%

4

23.5%

4

100.0%

4

23.5%

4

100.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

2

11.8%

2

100.0%

0

0.0%

0

0.0%

2

11.8%

2

100.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Central

1

5.9%

1

100.0%

State of Mexico Cuautitlan Izcalli Toluca Mexico City Azcapotzalco

Puebla Puebla

Tabasco Villahermosa

1

5.9%

1

100.0%

1

5.9%

1

100.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Total

17

Source: PGIM Real Estate - Asset Management

*Out of the matured leases in the quarter

100.0%

15

88.2%

6

3Q19 Operational Performance

Composition by Geographical Diversification

3Q19 geographic diversification of properties (based on GLA per square foot) was as follows: the Northern region of Mexico

represented 62.3% of GLA, while the Bajio and Central regions represented 22.8% and 14.9% of GLA, respectively.

Geographic Distribution by Region and State

3Q19

as a % of Total GLA 3Q19

3Q18

as a % of Total GLA 3Q18

North

26.04

62.3%

25.66

62.5%

Baja California Tijuana

Sonora Hermosillo

Chihuahua Chihuahua Ciudad Juarez Delicias Gomez Farias Camargo Casas Grandes

Coahuila Arteaga Ciudad Acu?a Monclova Ramos Arizpe Saltillo Derramadero San Pedro de las Colinas Torreon

Nuevo Leon Apodaca Monterrey

Tamaulipas Reynosa

Durango Durango Gomez Palacio

0.91 0.91 0.33 0.33 14.54 5.83 8.00 0.52 0.08 0.02 0.09 6.96 0.12 0.24 0.35 4.55 0.62 0.54 0.15 0.39 2.06 0.52 1.54 0.47 0.47 0.78 0.71 0.07

2.2% 2.2% 0.8% 0.8% 34.8% 14.0% 19.1% 1.2% 0.2% 0.1% 0.2% 16.7% 0.3% 0.6% 0.8% 10.9% 1.5% 1.3% 0.4% 0.9% 4.9% 1.2% 3.7% 1.1% 1.1% 1.9% 1.7% 0.2%

0.91 0.91 0.33 0.33 14.40 5.83 7.87 0.52 0.08 0.02 0.09 6.84 0.24 0.24 0.35 4.54 0.62 0.54 0.15 0.39 1.94 0.50 1.44 0.47 0.47 0.78 0.71 0.07

2.2% 2.2% 0.8% 0.8% 35.1% 14.2% 19.2% 1.3% 0.2% 0.1% 0.2% 16.7% 0.6% 0.6% 0.8% 11.1% 1.5% 1.3% 0.4% 1.0% 4.7% 1.2% 3.5% 1.1% 1.1% 1.9% 1.7% 0.2%

Bajio

9.52

22.8%

9.13

22.2%

San Luis Potosi San Luis Potosi

Jalisco Guadalajara

Aguascalientes Aguascalientes

Guanajuato Celaya Irapuato Silao

Queretaro Queretaro

3.33

8.0%

3.32

8.1%

3.33

8.0%

3.32

8.1%

1.66

4.0%

1.66

4.0%

1.66

4.0%

1.66

4.0%

0.99

2.4%

0.75

1.8%

0.99

2.4%

0.75

1.8%

1.57

3.7%

1.42

3.5%

0.12

0.3%

0.12

0.3%

0.44

1.1%

0.44

1.1%

1.01

2.4%

0.87

2.1%

1.98

4.7%

1.98

4.8%

1.98

4.7%

1.98

4.8%

Central

6.25

14.9%

6.25

15.2%

State of Mexico Cuautitlan Izcalli Toluca Huehuetoca

Mexico City Azcapotzalco

Puebla Puebla

Tabasco Villahermosa

5.39

12.9%

5.40

13.1%

4.26

10.2%

4.26

10.4%

0.90

2.2%

0.91

2.2%

0.23

0.5%

0.23

0.6%

0.02

0.1%

0.02

0.1%

0.02

0.1%

0.02

0.1%

0.18

0.4%

0.18

0.4%

0.18

0.4%

0.18

0.4%

0.65

1.6%

0.65

1.6%

0.65

1.6%

0.65

1.6%

Total

41.81

100.0%

41.05

Total Gross Leasable Area / million square feet. Potential leasable area of land reserves are not included. Source: PGIM Real Estate - Asset Management

100.0%

7

Composition by Asset Type At the end of 3Q19, 72.6% of Terrafina's portfolio consisted of properties dedicated to manufacturing activities while 27.4% was dedicated to distribution and logistics activities.

Composition by Asset Type as of 3Q19

(as a % of total GLA)

27.3%

72.6% Distribution Manufacturing

Composition by Asset Type

3Q19

Distribution

27.4%

Manufacturing

72.6%

Source: PGIM Real Estate - Asset Management

3Q18 26.7% 73.3%

Var. 78 bps -78 bps

Composition by Sector As of September 30, 2019, tenant diversification by industrial sector was as follows:

Industrial Sector Diversification

3Q19

Automotive

35.0%

Industrial properties

19.2%

Consumer goods

14.5%

Logistics and Trade

10.3%

Aviation

9.4%

3Q18 34.8% 19.9% 14.2% 9.5% 9.8%

Non-durable consumer goods

3.6% 3.7%

Electronics

Total

Source: PGIM Real Estate - Asset Management

8.1% 8.0% 100.0% 100.0%

Var. 19 bps -67 bps 26 bps 75 bps -41 bps -17 bps

6 bps

Composition of Top Clients Terrafina has a widely diversified tenant base that leases industrial properties throughout several of Mexico's main cities. For 3Q19, Terrafina's top client, top 10 clients and top 20 clients represented 3.2%, 18.1% and 29.0% of total revenues, respectively.

Top Clients

(As of September 30, 2019)

Top Client

Leased Square Feet (millions)

1.24

% Total GLA 3.1%

Top 10 Clients

7.40

18.4%

Top 20 Clients

11.70

Source: PGIM Real Estate - Asset Management

29.1%

% Total Revenues

3.2%

18.1%

29.0%

8

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