FIBRA Macquarie México Reports First Quarter 2018 Results

FIBRA Macquarie México (FIBRAMQ) (BMV: FIBRAMQ), owner of one of the largest portfolios of industrial and retail property in Mexico, announced its financial and operating results for the quarter ended March 31, 2018.

FIRST QUARTER 2018 HIGHLIGHTS

• Increase in AFFO per certificate of 3.2% YoY to Ps 0.6020, a record since inception
• Average industrial and retail rental rates increased 2.6% and 5.3% YoY respectively
• Increase in quarterly AFFO margin of 160 basis points YoY
• Authorization of a quarterly cash distribution of Ps 0.39 per certificate, a 4% increase over the prior quarter

MANAGEMENT COMMENTARY

“In the first quarter of 2018 we continued the momentum we established last year. With a continued focus on real estate operations and leasing, prudent capital allocation, and optimizing our portfolio, we made progress on each of our key strategic priorities,” said Juan Monroy, FIBRA Macquarie’s chief executive officer. “Although FX movements impacted our year-over-year NOI comparison, the strength of our platform and real estate team allowed us to produce a solid quarter of earnings growth and margin improvements. We also continue to accretively reinvest our retained AFFO in both certificate buybacks and expansions, and we maintain an attractive pipeline of additional potential expansions. We intend to pursue opportunistic asset recycling sales, as we seek to both enhance the composition of our portfolio and reinvest the proceeds into value creating opportunities. As the year progresses, we maintain confidence in our portfolio, strategy and outlook.”

FINANCIAL AND OPERATING RESULTS

Consolidated Portfolio

FIBRAMQ’s total results were as follows:

TOTAL PORTFOLIO				1Q18					1Q17					Variance
Net Operating Income (NOI)				Ps 824.7m					Ps 838.8m					-1.7	%
EBITDA				Ps 767.8m					Ps 778.8m					-1.4	%
Funds From Operations (FFO)				Ps 546.9m					Ps 549.9m					-0.5	%
FFO per certificate				Ps 0.6890					Ps 0.6778					1.7	%
Adjusted Funds From Operations (AFFO)				Ps 477.8m					Ps 473.2m					1.0	%
AFFO per certificate				Ps 0.6020					Ps 0.5832					3.2	%
NOI Margin				87.6	%				87.2	%				43 bps
AFFO Margin				50.8	%				49.2	%				158 bps
GLA (’000s sqm) EOP				3,428					3,433					-0.1	%
Occupancy EOP				92.2	%				92.7	%				-53 bps
Average Occupancy				92.2	%				92.7	%				-51 bps

FIBRAMQ’s same store portfolio results were as follows:

TOTAL PORTFOLIO - SAME STORE				1Q18					1Q17					Variance
Net Operating Income (NOI)				Ps 825.2m					Ps 825.3m					0.0	%
GLA (’000s sqm) EOP				3,414					3,377					1.1	%
Occupancy EOP				92.3	%				92.9	%				-52 bps
Industrial Retention (LTM)				84	%				66	%				1,859 bps
Weighted Avg Lease Term Remaining (years) EOP				3.55					3.76					-5.5	%

Industrial Portfolio

The following table summarizes the results for FIBRAMQ’s industrial portfolio:

INDUSTRIAL PORTFOLIO				1Q18						1Q17						Variance
Net Operating Income (NOI)				Ps 683.0m						Ps 705.0m						-3.1	%
NOI Margin					91.4	%					90.3	%				112 bps
GLA (’000s sqft) EOP					31,991						32,050					-0.2	%
GLA (’000s sqm) EOP					2,972						2,978					-0.2	%
Occupancy EOP					91.9	%					92.3	%				-46 bps
Average Occupancy					91.9	%					92.4	%				-54 bps
Average monthly rent per leased (US$/sqm) EOP				$	4.67					$	4.55					2.6	%
Customer retention LTM					85	%					66	%				1,910 bps
Weighted Avg Lease Term Remaining (years) EOP					3.2						3.2					1.4	%

For the three months ended March 31, 2018, FIBRAMQ’s industrial portfolio delivered net operating income (NOI) of Ps 683.0 million, compared to Ps 705.0 million in the prior comparable period. The year-over-year decline in NOI was primarily due to appreciation of the Peso relative to the US Dollar.

Rental rates improved compared to the same quarter last year, with a closing weighted average of US$4.67 per leased square meter per month, a 2.6% increase. This rate increase was driven primarily by contractual increases, along with positive renewal spreads. The industrial portfolio occupancy rate as of March 31, 2018 was 91.9%. The 50 basis points decrease in closing occupancy compared to the prior year was due to a moderate leasing quarter combined with some tenant specific move-outs.

FIBRAMQ signed 19 new and renewal leases in the first quarter of 2018, comprising 1.0 million square feet. Signed leases included six new leases totaling 289 thousand square feet and 13 renewal leases totaling 745 thousand square feet. New leases included two new expansions.

Notable new leases in the quarter include a manufacturer of materials samples in Tijuana and a contract manufacturer in Ciudad Juárez. Renewal activity was diversified across various geographies and customer types, including manufacturers of consumer packaging, water technology equipment and automotive parts.

For the twelve-month period ending March 31, 2018, FIBRAMQ achieved a retention rate of 85%, showing ongoing improvement from the prior year comparable period. For the remainder of 2018, FIBRAMQ is facing a slightly elevated lease expiration schedule and a tempered leasing environment given the lingering macroeconomic backdrop and upcoming Mexican elections.

Retail Portfolio

The following table summarizes the proportionally combined results of operations for FIBRAMQ’s retail portfolio:

RETAIL PORTFOLIO				1Q18					1Q17					Variance
Net Operating Income (NOI)				Ps 141.7m					Ps 133.8m					5.9	%
NOI Margin				73.1	%				73.9	%				-81 bps
GLA (’000s sqm) EOP				456					455					0.1	%
Occupancy EOP				94.5	%				95.2	%				-70 bps
Average Occupancy				94.6	%				95.0	%				-35 bps
Average monthly rent per leased (Ps/sqm) EOP				Ps 152.51					Ps 144.85					5.3	%
Customer retention LTM				67	%				65	%				182
Weighted Avg Lease Term Remaining (years) EOP				4.7					5.2					-9.5	%

FIBRAMQ’s retail portfolio delivered NOI of Ps 141.7 million, an increase of 5.9% from the prior year period. Year-over-year growth was driven by a 5.3% increase in average monthly rents and an increase in parking income. During the first quarter, FIBRAMQ signed 57 leases, representing 8.4 thousand square meters. This activity included 20 new leases and 37 renewals.

PORTFOLIO AND EXPANSION ACTIVITY

FIBRAMQ continues to effectively execute its strategy to deploy retained AFFO into accretive investments. A key element of this strategy is the targeted expansion of existing properties on a pre-leased basis along with selective development in core markets. During the first quarter of 2018, FIBRAMQ deployed or committed to deploy US$5.7 million.

During the first quarter, FIBRAMQ completed the following expansion projects:

• A 37 thousand square foot expansion for a food and beverage manufacturer in Guadalajara, which includes an option to for a second expansion of 27 thousand square foot
• A 14 thousand square foot expansion for a manufacturer of irrigation systems in Queretaro.

FIBRAMQ commenced a 59 thousand square foot expansion for a manufacturer of beauty, personal care and pharmaceutical goods in Reynosa.

ASSET RECYCLING PROGRAM

FIBRAMQ remains committed to owning a best-in-class portfolio by continuing to enhance its property composition through asset recycling opportunities, and continues to pursue both single asset and portfolio sales in its industrial portfolio.

BALANCE SHEET AND CAPITAL MARKETS ACTIVITY

As of March 31, 2018, FIBRAMQ had approximately Ps 16.1 billion of debt outstanding, Ps 4.1 billion available on its undrawn revolving credit facility and Ps 370.7 million of unrestricted cash on hand. FIBRAMQ’s CNBV regulatory debt to total asset ratio was 35.8%. The percentage of fixed-rate to variable-rate debt is 95% with a weighted-average debt tenor remaining of approximately 5.7 years. FIBRAMQ maintains sufficient liquidity and flexibility, and has no scheduled debt expirations for the remainder of 2018.

CAPITAL ALLOCATION

The following table provides an overview of how FIBRA Macquarie has funded and deployed its cash to execute on its previously stated initiatives to maximize value to its certificate holders. FIBRA Macquarie remains committed to utilizing retained AFFO and proceeds from non-core asset sales to deploy capital across property expansions and developments, certificates re-purchased for cancellation and repayment of revolving debt.

CAPITAL SOURCES AND ALLOCATIONS – FY2017/YTD2018				Ps equivalent				US$ equivalent
Capital sources
Retained AFFO – FY2017/1Q18				790.0m				41.8m
Asset Sales – FY2017/1Q18				525.1m				28.3m
Utilization of surplus cash				449.6m				23.2m
Capital sources - total				1,764.7m				93.3m
Capital allocations
Expansions & Developments – FY2017/1Q18				442.5m				23.4m
Certificates re-purchased for cancellation – FY2017/1Q18				412.2m				21.9m
Debt repayment – FY2017/1Q18				832.9m				44.0m
Other – FY2017/1Q18				77.2m				4.1m
Capital allocations - total				1,764.7m				93.3m

Note: Uses average FX for the corresponding period. “Other” includes income-generating Above-Standard Tenant Improvements of US$1.2m in 2017 and US$0.4m in 1Q 2018.

For additional information, please refer to page eight of the First Quarter 2018 Supplementary Information materials located at www.fibramacquarie.com/investors/bolsa-mexicana-de-valores-filings.

CERTIFICATE BUY-BACK AND CANCELLATION PROGRAM

During the first quarter of 2018, FIBRAMQ continued executing on its certificate buyback program as it believes it generates highly accretive returns as the certificates continue to trade at a discount to NAV.

CERTIFICATE REPURCHASES				Number				Amount
First Quarter 2018				7.7m				Ps 161.5m
Since program commencement				19.1m				Ps 412.2m
Remaining				21.4m

All repurchased certificates have been cancelled or will be cancelled in due course. FIBRAMQ is authorized to repurchase up to 5.0% of outstanding certificates. The timing, price per certificate and amount of future repurchases will depend upon prevailing market prices, trading windows, general economic and market conditions and other considerations, including investment alternatives.

Daily updates of FIBRAMQ’s buyback activity can be found at http://www.bmv.com.mx/en/issuers/corporativeinformation/FIBRAMQ-30024- ....

DISTRIBUTION

On April 26, 2018, FIBRAMQ declared a cash distribution for the quarter ended March 31, 2018 of Ps 0.39 per certificate. This distribution represents a 4.0% increase from the prior quarter dividend and will be considered a return of capital for Mexican tax purposes.

The distribution is expected to be paid on May 10, 2018 to holders of record on May 9, 2018. FIBRAMQ’s certificates will commence trading ex-distribution on May 8, 2018.

2018 GUIDANCE

FIBRA Macquarie is reiterating its guidance for 2018. FIBRAMQ estimates total AFFO of between Ps. 2.25 and Ps. 2.30 per certificate in 2018. In respect of the full year 2018, FIBRAMQ expects to make cash distributions of approximately Ps 1.56 per certificate, payable in quarterly distributions of Ps. 0.39 per certificate.

This guidance is based on the following assumptions:

• Based on the cash-generating capacity of its existing portfolio and an average exchange rate of Ps 18.5 per US dollar for the remainder of the year
• Assumes no new acquisitions
• Notwithstanding that FIBRAMQ has an active asset recycling program, assumes no divestments, provided that successful execution of opportunistic asset sales may result in a temporary decrease in AFFO until proceeds are re-deployed in other accretive opportunities
• Re-purchase for cancellation in 2018 of the remaining 21.4 million certificates available for buyback, resulting in an aggregate 5.0% of issued certificates being re-purchased and cancelled, to close 2018 with 770.8 million certificates outstanding
• The payment of cash distributions is subject to the approval of the board of directors of the Manager
• The continued stable performance of the properties in the portfolio, and market conditions.

Based upon the mid-point of our 2018 guidance and closing certificate price as of April 26, 2018 of Ps 18.89, the current implied AFFO yield is 12.0% and distribution yield is 8.3%.

WEBCAST AND CONFERENCE CALL

FIBRAMQ will host an earnings conference call and webcast presentation on Friday, April 27, 2018 at 7:30 a.m. CT / 8:30 a.m. ET. The conference call, which will also be audio webcast, can be accessed online at www.fibramacquarie.com or by dialing toll free [phone]. Callers from outside the United States may dial [phone]. Please ask for the FIBRA Macquarie First Quarter 2018 Earnings Call.

An audio replay will be available by dialing [phone] or [phone] for callers outside the United States. The passcode for the replay is 2288845. A webcast archive of the conference call and a copy of FIBRAMQ’s financial information for the first quarter 2018 will also be available on FIBRAMQ’s website, www.fibramacquarie.com.

ADDITIONAL INFORMATION

We are pleased to introduce NAREIT-defined “EBITDA for real estate” (EBITDAre) into our First Quarter 2018 Supplementary Information materials. We also adjust EBITDAre for non-recurring transaction expenses (such as asset acquisition-related expenses) to derive EBITDA, as we consider EBITDA, exclusive of non-recurring transaction expenses, to also be a relevant non-GAAP financial metric.

For detailed charts, tables and definitions, please refer to the First Quarter 2018 Supplementary Information materials located at www.fibramacquarie.com/investors/bolsa-mexicana-de-valores-filings.

About FIBRA Macquarie

FIBRA Macquarie México (FIBRA Macquarie) (BMV:FIBRAMQ) is a real estate investment trust (fideicomiso de inversión en bienes raíces), 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. FIBRA Macquarie’s portfolio consists of 271 industrial properties and 17 retail/office properties, located in 20 cities across 16 Mexican states as of March 31, 2018. Nine of the retail properties are held through a 50/50 joint venture with Grupo Frisa. FIBRA Macquarie 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. For additional information about FIBRA Macquarie, please visit www.fibramacquarie.com.

Macquarie Infrastructure and Real Assets is a business within the Macquarie Asset Management division of Macquarie Group and a global alternative asset manager focused on real estate, infrastructure, agriculture and energy assets. Macquarie Infrastructure and Real Assets has significant expertise over the entire investment lifecycle, with capabilities in investment sourcing, investment management, investment realization and investor relations. Established in 1996, Macquarie Infrastructure and Real Assets has approximately US$111 billion of total assets under management as of September 30, 2017.

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 61 office locations in 25 countries. Macquarie employs approximately 13,966 people and has assets under management of more than US$371 billion as of September 30, 2017.

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 and we undertake no obligation to update any 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 MARCH 31, 2018 (UNAUDITED) AND DECEMBER 31, 2017
CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
		Mar 31, 2018		Dec 31, 2017
		$’000		$’000
Current assets
Cash and cash equivalents		349,388		417,529
Trade and other receivables, net		87,998		74,539
Other assets		83,593		73,938
Investment properties held for sale		1,377,316		-
Total current assets		1,898,295		566,006
Non-current assets
Restricted cash		46,745		50,289
Other assets		193,966		196,673
Equity-accounted investees		1,147,240		1,137,652
Goodwill		882,758		882,758
Investment properties		38,088,882		41,722,712
Derivative financial instruments		140,497		111,573
Total non-current assets		40,500,088		44,101,657
Total assets		42,398,383		44,667,663
Current liabilities
Trade and other payables		608,455		630,784
Tenant deposits		39,237		39,295
Total current liabilities		647,692		670,079
Non-current liabilities
Tenant deposits		292,548		313,719
Interest-bearing liabilities		15,177,501		16,318,550
Deferred income tax		6,277		6,277
Total non-current liabilities		15,476,326		16,638,546
Total liabilities		16,124,018		17,308,625
Net assets		26,274,365		27,359,038
Equity
Contributed equity		17,957,509		18,118,973
Retained earnings		8,316,856		9,240,065
Total equity		26,274,365		27,359,038

CONDENSED UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
								Three months ended
								Mar 31, 2018				Mar 31, 2017
								$’000				$’000
Property related income								888,163				913,167
Property related expenses								(118,535		)		(129,302	)
Net property income								769,628				783,865
Management fees								(45,717		)		(48,129	)
Transaction related expenses								(1,869		)		(1,261	)
Professional, legal and other expenses								(11,151		)		(11,765	)
Total expenses								(58,737		)		(61,155	)
Finance costs								(215,566		)		(225,909	)
Financial income								2,927				2,877
Share of profits from equity-accounted investees								28,174				15,767
Foreign exchange gain								1,135,171				1,586,778
Net unrealized foreign exchange loss on foreign currency denominated investment property measured at fair value								(2,280,370		)		(3,086,820	)
Unrealized revaluation loss on investment property measured at fair value								(36,216		)		(301,455	)
Net unrealized gain/ (loss) on interest rate swaps								28,924				(2,382	)
Loss before taxes for the period								(626,065		)		(1,288,434	)
Current income tax								(58		)		(221	)
Loss for the period								(626,123		)		(1,288,655	)
Other comprehensive income
Other comprehensive income for the period								-				-
Total comprehensive loss for the period								(626,123		)		(1,288,655	)
Loss per CBFI*
Basic and diluted loss per CBFI (pesos)								(0.79		)		(1.59	)
*Real Estate Trust Certificates

CONDENSED UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
						Contributed				Retained
						equity				earnings				Total
						$’000				$’000				$’000
Total equity at January 1, 2017						18,369,994				8,666,697				27,036,691
Total comprehensive loss for the period						-				(1,288,655		)		(1,288,655	)
Total comprehensive loss for the period						-				(1,288,655		)		(1,288,655	)
Transactions with equity holders in their capacity as equity holders:
- Distributions to CBFIs holders						-				(356,999		)		(356,999	)
Total transactions with equity holders in their capacity as equity holders						-				(356,999		)		(356,999	)
Total equity at March 31, 2017						18,369,994				7,021,043				25,391,037
Total equity at January 1, 2018						18,118,973				9,240,065				27,359,038
Total comprehensive loss for the period						-				(626,123		)		(626,123	)
Total comprehensive loss for the period						-				(626,123		)		(626,123	)
Transactions with equity holders in their capacity as equity holders:
- Distributions to CBFIs holders						-				(297,086		)		(297,086	)
- Repurchase of CBFIs, including associated costs						(161,464		)		-				(161,464	)
Total transactions with equity holders in their capacity as equity holders						(161,464		)		(297,086		)		(458,550	)
Total equity at March 31, 2018						17,957,509				8,316,856				26,274,365

CONDENSED UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
CURRENCY AMOUNTS EXPRESSED IN THOUSANDS OF MEXICAN PESOS (UNLESS OTHERWISE STATED)
			Three months ended
			Mar 31, 2018			Mar 31, 2017
			$’000			$’000
			Inflows/(Outflows)			Inflows/(Outflows)
Operating activities:
Loss before taxes for the period			(626,065	)		(1,288,434	)
Adjustments for:
Net unrealized foreign exchange loss on foreign currency denominated investment property measured at fair value
			2,280,370			3,086,820
Unrealized revaluation loss on investment property measured at fair value			36,216			301,455
Straight line rental income adjustment			16			(5,966	)
Tenant improvements amortization			7,247			7,816
Leasing expense amortization			13,627			10,933
Financial income			(2,927	)		(2,877	)
Provision for bad debts			12,540			5,448
Foreign exchange gain			(1,158,942	)		(1,633,252	)
Finance costs recognized in loss for the period			215,566			225,909
Share of profits from equity-accounted investees			(28,174	)		(15,767	)
Net unrealized (gain)/ loss on interest rate swaps			(28,924	)		2,382
Movements in working capital:
(Increase)/decrease in receivables			(40,723	)		35,865
(Decrease)/increase in payables			(95,173	)		44,076
Net cash flows from operating activities			584,654			774,408
Investing activities:
Investment property acquired			(61,244	)		-
Maintenance capital expenditure and other capitalized costs			(19,702	)		(117,798	)
Distributions received from equity-accounted investees			18,586			23,422
Net cash flows used in investing activities			(62,360	)		(94,376	)
Financing activities:
Financial income			2,927			2,877
Repayment of interest-bearing liabilities			-			(404,227	)
Interest paid			(162,127	)		(171,328	)
Repurchase of CBFIs, including associated costs			(161,464	)		-
Distributions to CBFIs holders			(297,086	)		(356,999	)
Net cash flows from financing activities			(617,750	)		(929,677	)
Net decrease in cash and cash equivalents			(95,456	)		(249,645	)
Cash and cash equivalents at the beginning of the period			467,818			663,173
Foreign exchange loss on cash and cash equivalents			23,771			46,474
Cash and cash equivalents at the end of the period*			396,133			460,002
*Includes restricted cash balance of $46.7 million (2017: $46.1 million).

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