OREANDA-NEWS. Fitch Ratings has assigned the following ratings to CIBANCO, S.A. Institucion de Banca Multiple, Trust F/00939 (Fibra Terrafina):

--Long Term Issuer Default Rating (IDR) 'BBB-';
--Local currency IDR 'BBB-';
--Proposed senior unsecured notes 'BBB-(EXP)'.

The Rating Outlook is Stable.

The total amount of the proposed unsecured notes issuance is expected to be in the USD400 million to USD500 million range. Proceeds from the proposed issuance will be used primarily to refinance existing debt.

The ratings factor in Fibra Terrafina's portfolio profile, market position, and growth strategy, and its liquidity and net leverage metrics on a pro forma basis, post the proposed debt issuance. The ratings also reflect the business fundamentals driving Mexico's industrial real estate segment.

The Stable Outlook reflects the expectation that the company will execute its growth strategy while stabilizing its net leverage at around 5.5x and reaching interest coverage around 3.25x toward 2016, while keeping a significant unencumbered pool of assets of approximately USD1.5 billion. Also incorporated in the Stable Outlook is the company's commitment to maintaining solid levels of unused committed credit lines as an additional source of liquidity.

KEY RATING DRIVERS

Market Position and Business Fundamentals Incorporated:

The ratings consider Fibra Terrafina's good market position as one of the largest owners of industrial real estate in Mexico with a portfolio, as of June 30, 2015, of 196 developed industrial facilities with a collective gross leasable area (GLA) of approximately 28 million square feet (2.6 million square meters). The ratings factor in a positive view of the Mexican industrial real estate sector over the medium term, which is based on the strong linkage between the U.S. economy and industrial activity in Mexico, with a geographic location that is a natural industrial hub to the U.S. Approximately 80% of Mexico's total non-oil exports are oriented to the U.S. Demand for high-quality logistics and warehousing leasable space in Mexico is expected to remain stable.

Growth Strategy Driven by Acquisitions:

The company's business strategy is to increase its total portfolio primarily through acquisitions and, to a lesser extent with some organic growth through real estate developments (RE developments). Total net resources oriented toward acquisitions and capital expenditures (capex) are expected to be around USD500 million during 2015-2016, increasing the company's total GLA approximately 25%. This strategy incorporates the view that the Mexican real estate market offers opportunities for market consolidation, as it is highly fragmented, with 70% of the industrial real estate in the hands of local developers, and the remaining 30% owned by major players, most of them public companies. Fibra Terrafina maintains an estimated 6% share of Mexico's total industrial market as measured by GLA.

Stable Operational Metrics, Low FX Risk Exposure:

The company's portfolio supports an adequate profile in terms of occupancy, lease expiration schedule and diversification. As of June 30, 2015, the portfolio was approximately 93.1% occupied. The ratings consider the expectation the company's occupancy rate will be around 93.5% by the end of 2016, as portfolios being acquired (during 2015 - 2016) are stabilized. Terrafina's weighted average remaining lease term is 3.6 years, with approximately 23% of the company's annualized base rent expiring during the 2015 - 2016 period. The company's lease expiration schedule is viewed as adequate as it reflects standard practices in Mexican real estate of having lease terms that are around five years on average. In addition, one positive is the fact that 96% of the company's total lease base is U.S. dollar-denominated, minimizing the company's foreign exchange risk exposure. The company's leases generally contain contractual annual rental rate increases linked to an inflation index. Fitch expects Terrafina to maintain high renewal rate levels; the company's historical level has been around 84%.

Adequate Diversification:

Fibra Terrafina's portfolio consists of 196 developed industrial properties. The company's diversification by property is viewed as adequate with the top 20 properties by GLA representing approximately 22% of the company's GLA as of June 30, 2015. In terms of annualized base rent, the top 20 properties represent approximately 25% of the total. Fibra Terrafina's portfolio is geographically diversified across 17 states, while regionally the portfolio is distributed primarily in the central (21% of the total GLA), Bajio (23%) and northern (56%) regions of Mexico. As of June 30, 2015, 30% of the portfolio was used for distribution and logistics activities and 70% was used for manufacturing activities. In terms of tenant diversification, the company's top 20 clients represent approximately 31% and 32% of its total GLA and total annual base rent, respectively. No individual tenant represents more than 5% of Terrafina's total GLA. The company's geographic diversification and tenant concentration is not expected to materially change in the medium term.

Internally Managed, Externally Advised:

The ratings incorporate Fibra Terrafina's fee structure. The company is internally managed by industry specialists and externally advised by PLA Administradora Industrial, S. de R.L. de C.V., an affiliate of Prudential Real Estate Investors (PREI) Latin America. Pursuant to the terms of the advisory agreement, the advisor (PREI) is entitled to an advisory fee and performance fee. The advisory fee is an annual fee payable on a quarterly basis and equal to 0.5% of the company's gross asset cost, as adjusted for inflation, plus the applicable value-added tax. The advisor is also entitled to a performance fee payable in Certificados Bursatiles Fiduciarios Inmobiliarios and calculated based on cumulative returns to holders through distributions and growth in market capitalization over a 9% growth per-year hurdle rate. Since the trust is internally managed, no actual management fee exists, but the cost is estimated in between 1.5% and 3% of Terrafina's gross rental income.

EBITDA Margin Expected at 79%:

The company reached EBITDA levels and EBITDA margin of USD120 million (MXN1.6 billion) and 79.8%, respectively, during LTM June 30, 2015. The ratings incorporate the expectation that the company's EBITDA margin will remain around 79% over the medium term, which considers the company's growth strategy of acquiring properties during 2015 - 2016. The new portfolios to be acquired could represent around 20% to 25% of the company's current GLA (28 million square feet [sf] as of June 30, 2015) and could have lower operational metrics that would take three or four quarters to stabilize. In addition, the company is also considering investing in RE developments during 2015 - 2016; incremental GLA from developments could reach approximately 2.2 million sf during 2015 - 2017. These developments could take up to six to eight quarters to be fully operational. The company's annualized average leasing rate per sf was USD4.89 during the second quarter of 2015 (2Q15); this level represents an increase of 11 U.S. cents when compared with last year's same quarter.

Net Leverage Post Acquisitions at 5.5x:

The company's gross and net leverage ratios were 6.4x and 3.4x at June 30, 2015. These ratios reflect LTM EBITDA, total debt, and cash levels of USD112 million (MXN1.6 billion), USD657 million (MXN10.2 billion), and USD311 million (MXN4.8 billion), respectively. In September 2014, the company completed an equity issuance raising USD460 million; and during 1Q15 it sold a property portfolio for approximately USD105 million. The company's net leverage is expected to increase and stabilize at around 5.5x toward 2017, considering Terrafina's acquisitions and RE developments for a total of approximately USD500 million during 2015 - 2016, increase in the company's total debt to levels around USD950 million toward 2017; and annual dividend payments at levels of USD70 million to USD95 million during 2015 - 2017. The company's dividend pay-out ratio is estimated to be in the 95% - 100% range of its adjusted funds from operations (AFFO).

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Fibra Terrafina's ratings include:

--EBITDA margin for 2015 - 2016 around 79%;
--Occupancy levels around 93.5% by the end of 2016 ;
--Total net leverage around 5.5x by Dec. 31, 2016;
-- Secured debt /total debt ratio consistently below 20%;
--AFFO dividend payout ratio in the 95% to 100% range;
--Interest coverage (EBITDA/gross interest expenses) consistently around 3.25x during 2015 - 2016;
--Total liquidity, measured as total unrestricted cash plus unused committed credit lines, consistently above USD200 million during 2015 - 2017;
--Unencumbered assets-to-net unsecured debt coverage consistently above 2.25x.

RATING SENSITIVITIES

The following factors may have a negative impact on Terrafina's ratings:

-- Net leverage consistently at 6.5x for several consecutive quarters;
-- Significant deterioration in EBITDA margin and occupancy below expected levels;
--Increase in the secured debt / total debt ratio above expected levels;
--Fitch's expectation of a sustained liquidity shortfall;
--Unencumbered assets-to-net unsecured debt coverage consistently below 2x.

The following factors may have a positive impact on Terrafina's ratings:

-- Net leverage consistently at or below 4.5x for several consecutive quarters;
--Significant improvement in EBITDA margin and occupancy above expected levels;
--Material liquidity improvement on a sustained basis above expected levels;
--100% of the total debt being unsecured, no secured debt;
--Unencumbered assets-to-net unsecured debt coverage consistently above 3x.

LIQUIDITY

The company's liquidity post issuance is viewed as solid considering its manageable debt schedule post issuance with no material principal payment maturities during the next three years ended June 2018, its level of interest coverage ratio - measured as total EBITDA-to-gross interests and expected to remain stable at around 3.25x. The expected level of unencumbered assets post issuance is estimated at USD1.6 billion providing additional financial flexibility. The ratings incorporate the company's financial strategy to maintain minimum cash position of USD50 million and a material level of its unused committed revolving facility. Combined the company's liquidity measured as total unrestricted cash position plus unused committed credit lines is expected to remain consistently above USD200 million during 2015 - 2017.

The company's financial strategy is to shift toward an asset base primarily unencumbered through the issuance of the proposed unsecured notes to replace a portion of its current secured debt. As of June 30, 2015, the company's total debt was 100% secured for a total amount of USD680 million (MXN10.3 billion), while the company's portfolio value is USD1.5 billion (MXN23.4 billion) with 94% of the total portfolio being encumbered assets. On a pro forma basis, the company's debt structure is expected to switch to a 30% secured debt and 70% unsecured debt post the proposed unsecured bond issuance, resulting in a pro forma unencumbered assets-to-unsecured debt coverage of around 2.2x. The company's LTV is anticipated to trend to levels around 35%.

FULL LIST OF RATING ACTIONS

Fitch Ratings has assigned the following ratings to CI Banco, S.A. Institucion de Banca Multiple, Trust F/00939 (Fibra Terrafina)):

--Long Term IDR 'BBB-';
--Local currency IDR 'BBB-';
--Proposed senior unsecured notes 'BBB-' (EXP)'.

The Rating Outlook is Stable.