Macquarie Mexican REIT Announces Financial and Operating Results for the Third Quarter 2014

  • Funds From Operations increases 12.9% to Ps.295.9 million, or Ps.0.365 per certificate
  • Improvement in portfolio wide occupancy
  • Record quarter for leasing
  • Quarterly cash distribution of Ps.0.354 per certificate authorized

MEXICO CITY--()--Macquarie Mexican REIT (MMREIT) (BMV:FIBRAMQ) today announced its financial results for the third quarter and nine months ended September 30, 2014, including improved financial performance driven by prior period acquisitions and sequential improvement in occupancy.

“The performance of MMREIT in the third quarter reflects the successful acquisition of quality properties in late 2013 and early 2014, together with an outstanding effort on the part of our internal property administration team to deliver a record leasing result,” said Jaime Lara, chief executive officer of MMREIT. “We look forward to building on the successes of this quarter over the balance of the year and into 2015.”

Portfolio wide occupancy for the third quarter of 2014 increased by 40 basis points to 90.0% compared with the third quarter in 2013 and increased by 30 basis points compared with the second quarter in 2014. Management views this as an indication that demand in the markets in which the business operates is trending positively. Consistent with that view, MMREIT signed new and renewed leases for a record 189,700* m2 (2.0 million ft2) of industrial space and 5,300 m2 (56,500 ft2) of retail/office space during the quarter.

Consistent with the guidance previously provided, the board of directors of the Manager authorized a cash distribution of Ps.287.3 million or Ps.0.354 per certificate for the third quarter. This equates to Ps.0.475 per certificate before accounting for the issuance of additional certificates in MMREIT’s follow-on offering in September.

On September 18, 2014 a total of 206.6 million certificates were issued in a global follow-on offering, including the exercise of the over-allotment option, for gross proceeds of approximately Ps.4,855 million (US$367 million). Following completion of the offering, MMREIT has 811,363,500 certificates outstanding, compared with 604,750,917 prior to the offering.

Over the next 6 to 12 months, MMREIT intends to use the net proceeds of the follow-on offering to further pursue its growth strategy by capitalizing on the attractive pipeline of opportunities it is seeing in the market.

“We are encouraged by the strong pipeline of investment opportunities we are seeing across both the industrial and retail/office segments. We are in advanced discussions regarding a number of potential acquisitions and will seek to deploy our capital into additional high quality properties,” noted Lara.

Results for the Third Quarter and Nine Months Ended September 30, 2014

MMREIT reported a 43.1% increase in proportionately combined revenues to Ps.588.5 million for the quarter ended September 30, 2014 compared with Ps.411.3 million in the prior comparable period. Proportionately combined revenue for the nine months ended September 30, 2014 rose 37.3% to Ps.1,688.5 million from Ps.1,229.4 million in the prior comparable period. The increase in both the quarter and nine month period reflects primarily the expansion of MMREIT’s portfolio of high quality real estate assets over the past year.

Funds From Operations (FFO) increased 12.9% to Ps.295.9 million in the third quarter of 2014 compared with Ps.262.2 million in the prior comparable period. FFO increased 22.8% to Ps.849.7 million for the nine months ended September 30, 2014 compared with Ps.692.0 million for the nine months ended September 30, 2013. FFO increased primarily due to growth through acquisitions.

       
Figures in millions  

Quarter Ended
September 2014

 

Quarter Ended
September 2013*

  Variance   Variance
Total Revenues   Ps.588.5   Ps.411.3   Ps.177.2   43.1%
Net Operating Income (NOI)   Ps.504.0   Ps.382.5   Ps.121.5   31.8%
Funds from Operations (FFO)   Ps.295.9   Ps.262.2   Ps.33.7   12.9%
Profit for the Period   Ps.1,013.9   Ps.247.1   Ps.766.8   310.3%
* 3Q13 results have been conformed to reflect the current period presentation
 
Figures in millions  

Nine Months Ended
September 2014

 

Nine Months Ended
September 2013*

  Variance   Variance
Total revenues   Ps.1,690.4   Ps.1,229.4   Ps.461.0   37.5%
Net operating Income (NOI)   Ps.1,455.6   Ps.1,107.6   Ps.347.9   31.4%
Funds From Operations (FFO)   Ps.849.7   Ps.693.8   Ps.155.8   22.5%
Profit for the Period   Ps.1,461.1   Ps.1,051.8   Ps.409.3   38.9%

* 3Q13 results have been conformed to reflect the current period presentation

NOI includes rental income, plus expense recoveries and parking income, minus property operating expenses (including property administration fees). FFO is equal to NOI minus corporate general and administrative expenses, debt service and management fees.

MMREIT’s increase in profit for the period for the quarter and nine months ended September 30, 2014 is primarily due to the non-cash impact of mark-to-market fair value adjustments and foreign exchange movements as calculated in accordance with International Financial Reporting Standards.

AFFO Reporting

MMREIT has included Adjusted Funds From Operations (AFFO) as a component of its financial reporting since the second quarter of 2014.

MMREIT derives AFFO by adjusting FFO for normalized capital expenditure, tenant improvements and leasing commissions. AFFO may be calculated in a different manner by other market participants thereby limiting its use as a comparative measure. Use of AFFO in the analysis of the financial performance of MMREIT should be in addition to and not in lieu of other financial measures as required under International Financial Reporting Standards.

MMREIT reported AFFO for the quarter ended September 30, 2014 of Ps.260.4 million. Commencing in the first quarter 2015, MMREIT will use AFFO as the basis for determining distributions.

A reconciliation from net income to FFO and from FFO to AFFO is included in MMREIT’s Supplementary Financial Information materials.

Gross Leasable Area (GLA)

MMREIT’s proportionately combined revenue corresponds to a GLA of 3,100,000 m2 (33,400,000 ft2) as of September 30, 2014, which includes:

  • 2,700,000 m2 (28,600,000 ft2) of industrial properties
  • 251,000 m2 (2,700,000 ft2) of fully owned retail/office properties
  • 192,200 m2 (2,100,000 ft2) held through the 50/50 joint venture of retail/office properties with Grupo Frisa.

Industrial Segment Operating Results

As of September 30, 2014, MMREIT owned 259 industrial properties located in 21 cities across 15 Mexican states. Industrial segment operating highlights include:

   
Industrial Segment Metrics  

Quarter Ended
September 2014

 

Quarter Ended
September 2013

Gross leasable area (m2)   2.7 million   2.5 million
Occupancy Rate   89.3%   89.6%

Rolling 9 Month Average
Occupancy Rate

  89.3%   89.4%

Average Monthly Rent
per Leased m2

  US$4.48   US$4.53

Rolling 9 Month Average
Lease Rate per m2

  US$4.49   US$4.57
Tenant Retention Rate   79%   65%
Weighted Average Lease Term   3.2 years   3.1 years
 

Occupancy rates across the industrial segment increased sequentially as the leasing environment benefited from renewed activity, particularly in Mexico’s manufacturing sector. The 0.3% period-over-period decline was primarily attributable to an expected number of move outs and a slower than anticipated lease-up of large space properties.

“I am extremely pleased with the levels of leasing activity we saw in our industrial segment this quarter,” said Lara. “This quarter was the most active leasing quarter we’ve had since our launch. Our leasing teams have done a tremendous job getting in front of customers and prospective customers and working with them to find solutions tailored to their real estate needs. We are entering the fourth quarter well-positioned to capitalize on what is typically the busiest quarter of the year for leasing activity.”

Rental rates based on the rent roll as at the end of the third quarter decreased to an average of US$4.48 per square meter, per month, from US$4.53 per square meter, per month at the end of the third quarter of 2013. The approximately 1% decrease is the result of the acquisition of 15 industrial properties during the fourth quarter of last year which had a lower average rental rate than the original portfolio, and the renewal of certain contracts which had pre-global financial crisis (GFC) rental rates. The vast majority of MMREIT’s leases have been signed or renewed after the start of the GFC.

“Our leasing teams have been diligent in managing the roll off of our legacy leases and minimizing any negative spreads,” noted Lara.

Industrial Segment Leasing Activity

MMREIT reported signing 13 new industrial leases totaling 63,400 m2 (682,900 ft2) and 15 renewed leases totaling 126,200 m2 (1,350,000 ft2) for the third quarter 2014. Highlights for the quarter are:

  • 5 year agreement for 9,200 m2 (99,200 ft2) new lease in Ciudad Juárez
  • 6 year agreement for 10,900 m2 (117,000 ft2) new lease in Tijuana
  • 7 year agreement for 33,700 m2 (363,000 ft2) lease renewal in Mexicali
  • 7 year agreement for 12,600 m2 (136,000 ft2) lease renewal and expansion in Ciudad Juárez
  • 7.8 year agreement for 16,300 m2 (175,000 ft2) lease renewal in Tijuana
  • 1 year agreement for 5,200 m2 (55,500 ft2) new lease in Matamoros

Retail/Office Segment Operating Results

As of September 30, 2014, MMREIT owned 17 retail/office properties in six cities, including nine held through a 50/50 joint venture with Grupo Frisa. Approximately 90.4% of MMREIT’s retail/office GLA is located in the Mexico City Metropolitan Area, Monterrey, Guadalajara and Cancun markets.

   
Retail/Office Segment Metrics  

Quarter Ended
September 2014 3/

 

Quarter Ended
June 20141/

Gross leasable area (m2)2/   443,500   443,300
Occupancy Rate   94.0%   93.7%

Average Monthly Rent
per Leased m2

  3/ US$10.29

Ps.138.77

  4/US$10.64

Ps.138.32

Rolling 9 Month Average
Lease Rate per m2

  5/US$10.31

Ps.136.45

  4/US$10.23
Ps.134.03
Weighted Average Lease Term   5.9 years   6.0 years
 

1/ 4Q13 was the first quarter during which the MMREIT portfolio included retail/office properties therefore 12 month comparison not available.
2/ Includes 100% of the GLA of the nine retail/office properties held through the 50/50 joint venture with Grupo Frisa
3/ FX 13.4891Peso/USD
4/ FX 13.0000 Peso/USD
5/ FX 13.1515 Peso/USD
6/ FX 13.1046 Peso/USD
7/ Rolling 6 Month Average

Excluding currency exchange impacts, Peso denominated retail rental rates increased slightly during the quarter. Rental rates across the retail/office segment decreased from US$10.64 in the second quarter 2014 to US$10.29 in the third quarter 2014. The decrease in rental rates was driven by fluctuations in the Mexican Peso/US Dollar exchange rate during the quarter.

MMREIT has included and will report retail rental rates in Mexican Pesos in future periods. Management believes that reporting in Pesos will provide investors with a better view of the performance of MMREIT’s retail segment as retail rents are paid and accounted for in local currency.

“Our retail property administrators have done a great job driving interest in our properties and are seeking ways to increase income through advertising and other means,” stated Lara. “We saw the results of those efforts this quarter and hope to finalize a number of leases that are at advanced stages of negotiation. Additionally, as our customers head into the holiday season, our property administrators are focused on ensuring our properties have the right marketing strategies to help drive traffic into stores to deliver a strong end of year.”

Retail/Office Segment Leasing Activity

MMREIT reported signing 51 new and renewed retail/office leases 5,200 m² (56,500 ft2) during the quarter.

Distribution for Third Quarter 2014

On October 27, 2014, MMREIT declared a cash distribution of Ps.287.3 million or Ps.0.354 per certificate for the quarter ended September 30, 2014. This equates to Ps.0.475 per certificate before accounting for the issuance of 206.6 million additional certificates in the follow-on offering on September 18, 2014. MMREIT reaffirms its distribution guidance for the full year 2014 of Ps.1.15 billion.

Commencing in the first quarter of 2015, MMREIT will use AFFO as the basis for determining distributions. MMREIT believes that AFFO more closely aligns with the sustainable cash generation of MMREIT’s portfolio over the long term, after taking into consideration necessary and appropriate reinvestments in those properties and other items, which to date have been funded out of surplus cash.

The payment of a cash distribution is at all times subject to the approval of the board of directors of the Manager, the continued stable performance of the properties in the portfolio, and prevailing economic conditions.

Disclosures Relating to Leverage

In accordance with the FIBRA regulations:

  • MMREIT complies with the leverage limit of 50%, with leverage of 39.4% as of September 30, 2014
  • MMREIT complies with the minimum debt service coverage ratio (DSCR) of 1.0x, with a DSCR of 5.42x as of September 30, 2014

Please refer to the Supplementary Financial Information materials for details of how the above ratios are calculated together with detailed disclosures regarding MMREIT’s portfolio level debt facilities.

Webcast and Conference Call

Macquarie Mexican REIT will host an earnings conference call and webcast presentation on Tuesday, October 28, 2014 at 7:30 a.m. CT / 9:30 a.m. ET. The conference call, which will also be webcast, can be accessed online at www.macquarie.com/mmreit or by dialing toll free +1-877-304-8957. Call participants from outside the United States may dial +1-973-638-3235. Please ask for the Macquarie Mexican REIT Third Quarter 2014 Earnings Call.

An audio replay will be available two hours after the call’s completion through midnight on October 30, 2014, by dialing +1-855-859-2056 or +1-404-537-3406 for callers outside the United States. The pass code for the replay is 11054193. A webcast archive of the conference call and a copy of MMREIT’s financial information for the third quarter 2014 will also be available on MMREIT’s website, www.macquarie.com/mmreit.

About Macquarie Mexican REIT

Macquarie Mexican REIT (MMREIT) (BMV: FIBRAMQ) is a real estate investment trust (fideicomiso de inversíon en bienes raices), or FIBRA, listed on the Mexican Stock Exchange (Bolsa Mexicana de Valores) targeting industrial, retail and office real estate opportunities in Mexico, with a primary focus on stabilized income-producing properties. MMREIT’s portfolio consists of 259 industrial properties and 17 retail/office properties, located in 24 cities across 19 Mexican states (as of September 30, 2014). Nine of the retail/office properties are held through a 50/50 joint venture with Grupo Frisa. MMREIT is managed by Macquarie México Real Estate Management, S.A. de C.V. which operates within the Macquarie Infrastructure and Real Assets division of Macquarie Group.

MIRA is a business within the Macquarie Funds Group division of Macquarie Group and a global alternative asset manager focused on real estate, infrastructure, agriculture and energy assets. MIRA has significant expertise over the entire investment lifecycle, with capabilities in investment sourcing, investment management, investment realization and investor relationships. Established in 1996, MIRA has approximately US$105 billion of total assets under management as of June 30, 2014 with more than 400 employees managing 50 listed and unlisted funds worldwide.

About Macquarie Group

Macquarie Group (Macquarie) is a global provider of banking, financial, advisory, investment and funds management services. Macquarie’s main business focus is making returns by providing a diversified range of services to clients. Macquarie acts on behalf of institutional, corporate and retail clients and counterparties around the world. Founded in 1969, Macquarie operates in more than 70 office locations in 28 countries. Macquarie employs approximately 13,900 people and has assets under management of over US$396 billion (as of March 31, 2014).

* All figures are subject to rounding. Any arithmetic inconsistencies are due to rounding.

Cautionary Note Regarding Forward-Looking Statements: This release may contain forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ significantly from these forward-looking statements.

None of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.

THIS RELEASE IS NOT AN OFFER FOR SALE OF SECURITIES IN THE UNITED STATES, AND SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED.

THIS ANNOUNCEMENT IS NOT FOR RELEASE IN ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA

         

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT SEPTEMBER 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013

CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
   
Sep 30, 2014 Dec 31, 2013
      $’000 $’000
 
Current assets
Cash and cash equivalents 5,550,822 2,118,348
Restricted cash 16,232 119,730
Trade and other receivables 96,570 85,963
Value added tax receivable 199,129 663,452
Other assets 17,177 75,142
Total current assets 5,879,930 3,062,635
 
Non-current assets
Restricted cash 132,038 109,854
Other assets 30,929 14,145
Equity accounted investees 710,892 -
Goodwill 931,605 931,605
Investment properties 25,168,078 23,514,719
Total non-current assets     26,973,542 24,570,323
Total assets     32,853,472 27,632,958
 
Current liabilities
Trade and other payables 223,741 198,936
Interest-bearing liabilities - 650,310
Other liabilities 108,758 182,981
Tenant deposits 13,759 16,102
Total current liabilities 346,258 1,048,329
 
Non-current liabilities
Tenant deposits 223,205 231,782
Interest-bearing liabilities 12,956,832 12,336,803
Total non-current liabilities     13,180,037 12,568,585
Total liabilities     13,526,295 13,616,914
         
Net assets     19,327,177 14,016,044
 
Equity
Contributed equity 19,216,323 14,507,535
Retained earnings/(accumulated losses) 110,854 (491,491)
Total equity     19,327,177 14,016,044
 
                 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED)

CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
     
3 months ended 9 months ended
Sep 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
    $’000   $’000   $’000   $’000
 
Property related income 543,760 411,288 1,600,717 1,229,429
Property expenses   (75,876)   (36,074)   (225,337)   (131,346)
Net property income   467,884   375,214   1,375,380   1,098,083
 
Management fees (36,437) (40,228) (107,109) (115,461)
Transaction related expenses (2,884) (49,518) (31,894) (72,929)
Professional, legal and other fees and expenses   (4,371)   (16,543)   (38,168)   (34,804)
Total expenses   (43,692)   (106,289)   (177,171)   (223,194)
 
Finance costs (163,898) (127,116) (509,485) (397,989)
Interest income 4,263 55,467 41,014 84,434
Other income 53,980 66,009 53,980 110,312
Share of profits from equity accounted investees 11,755 - 24,721 -
Foreign exchange loss (363,411) (79,492) (326,541) (56,490)

Net unrealized foreign exchange gain on foreign currency
denominated investment property measured at fair value

638,399 175,409 570,608 548,689
Unrealised gain/(loss) on investment property measured at fair value   408,586   (112,088)   408,586   (112,088)
Profit for the period   1,013,866   247,114   1,461,092   1,051,757
 
Other comprehensive income
Other comprehensive income for the period   -   -   -   -
Total comprehensive income for the period   1,013,866   247,114   1,461,092   1,051,757
 
Earnings per CBFI*
Basic earnings per CBFI (pesos) 1.60 0.44 2.38 1.87
Diluted earnings per CBFI (pesos)   1.60   0.41   2.38   1.74
* Real Estate Trust Certificates (Certificados Bursátiles Fiduciarios Inmobiliarios)
 
 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED)

CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
     
Contributed Equity

Retained earnings/
(accumulated losses)

Total
    $’000   $’000   $’000
Total equity at January 1, 2013 12,121,923 (725,099) 11,396,824
Issued CBFIs, net of issue costs 1,349,411 - 1,349,411
Distributions to CBFI holders - (550,151) (550,151)
Total comprehensive income for the period   -   1,051,757   1,051,757
Total equity at September 30, 2013   13,471,334   (223,493)   13,247,841
 
Total equity at January 1, 2014 14,507,535 (491,491) 14,016,044
Issued CBFIs, net of issue costs 4,708,788 - 4,708,788
Distributions to CBFI holders - (858,747) (858,747)
Total comprehensive income for the period       1,461,092   1,461,092
Total equity at September 30, 2014   19,216,323   110,854   19,327,177
 
 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED)

CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
   
9 months ended
Sep 30, 2014 Sep 30, 2013
$’000 $’000
   

Inflows /(Outflows)

 

Inflows /(Outflows)

Operating activities:
Profit for the period 1,461,092 1,051,757
Adjustments for:

Net unrealized foreign exchange gain on foreign currency denominated
investment property measured at fair value

(570,608) (548,689)
 
Unrealised (gain)/loss on investment property measured at fair value (408,586) 112,088
Straight line rental income adjustment (14,826) (7,510)
Leasing commissions amortization 13,327 3,751
Net foreign exchange gain 326,541 56,490
Finance costs recognized in profit for the period 509,485 397,989
Other income (53,980) (110,312)
Share of profits from equity accounted investees (24,721) -
Movements in working capital:
Decrease in receivables 494,897 2,462,963
(Decrease)/increase in payables (29,478) 88,429
Net cash flows from operating activities 1,703,143 3,506,956
Investing activities:
Investment property and capital expenditure (635,904) (107,239)
Investment in equity accounted investees (691,684) -
Distributions received from equity accounted investees 5,513 -
Net cash flows used in investing activities (1,322,075) (107,239)
Financing activities:
Proceeds from interest-bearing liabilities, net of facility fees 255,851 -
Payment of interest-bearing liabilities (663,443) (893,942)
Interest paid (458,880) (316,956)
Proceeds from issue of CBFIs, net of capital raising costs 4,708,788 1,349,411
Distributions to CBFI holders (858,747) (550,151)
Net cash flows from/(used) in financing activities 2,983,569 (411,638)
Net increase in cash and cash equivalents 3,364,637 2,988,079
Cash, cash equivalents at the beginning of the period 2,347,932 1,400,762
Effect of exchange rate changes on cash and cash equivalents   (13,477)   17,829
Cash, cash equivalents at the end of the period*   5,699,092   4,406,670
*Included in the cash and cash equivalent balance at the end of the period is restricted cash of $148.3 million (2013: $229.6 million).

Contacts

Investor Relations:
Macquarie Mexican REIT
Jaime del Rio, +52 (55) 9178 7740
Head of Investor Relations
jdelrio@macquarie.com
or
International press queries:
Macquarie Group
Paula Chirhart, +1 212 231 1239
Corporate Communications
paula.chirhart@macquarie.com
or
Press queries in Mexico:
CarralSierra PR & Strategic Communications
Jose Manuel Sierra, +52 (55) 5286 0793
Cel: +52 1 (55) 5105 5907
jmsierra@carralsierra.com.mx
or
Diego Arrazola, +52 (55) 5286 0793
Cel: +52 1 (55) 39772778
darrazola@carralsierra.com.mx

Contacts

Investor Relations:
Macquarie Mexican REIT
Jaime del Rio, +52 (55) 9178 7740
Head of Investor Relations
jdelrio@macquarie.com
or
International press queries:
Macquarie Group
Paula Chirhart, +1 212 231 1239
Corporate Communications
paula.chirhart@macquarie.com
or
Press queries in Mexico:
CarralSierra PR & Strategic Communications
Jose Manuel Sierra, +52 (55) 5286 0793
Cel: +52 1 (55) 5105 5907
jmsierra@carralsierra.com.mx
or
Diego Arrazola, +52 (55) 5286 0793
Cel: +52 1 (55) 39772778
darrazola@carralsierra.com.mx