Mexico`s Lodging Moment

Transcription

Mexico’s Lodging Moment
Equity Research / Real Estate
Reinitiation Of Coverage
Hoteles City Express (HCITY)
FIBRA Inn (FINN)
February 16, 2015
By Pablo Duarte
Real Estate
pduarte@actinver.com.mx
This page intentionally left blank
Equity Research
MEXICAN LODGING SECTOR
Lodging Sector
February 16, 2015
Mexico’s Lodging Moment
Reinitiation Of Coverage HCITY And FINN
Change in Recommendation
Change in T.P.
Change in Estimates
Quarterly Review

Other
■ We are reinitiating coverage on FIBRA Inn (FINN) and Hoteles City Express (HCITY),
two well positioned lodging players with aggressive long-term growth strategies.
■ We like HCITY on: i) its unique, profitable and scalable fully-integrated hotel
business model, ii) its solid growth track record, reputation and position, iii) its
highly recognized brands, iv) its experienced mgmt., and v) its large diversification.
■ FINN is now better positioned to capture a stronger growth from the consolidation
of the local lodging industry, through: i) its diversified portfolio, ii) sound operating
capabilities, iii) tangible pipeline, and iv) enhanced organizational structure.
■ In this report we present a deep insight into the local lodging industry, including
among other topics: i) general overview on the sector, ii) analysis on historical
investments from listed hotel companies and FIBRAs, iii) long-term growth drivers
of demand for lodging services, iv) growth plans of global hotel companies in the
country, and v) Mexico’s 15 main lodging markets and submarkets.
Attractive Lodging Industry Fundamentals. Mexico’s evolution over the last 30 years
towards a more mature (service-oriented) economy, along with its achievement of a certain
level of economic and political stability, is indicative that the country has reached an
inflection point for its lodging industry, the point at which a market evidences a boost in travel
and lodging. Mexico is poised to experience the faster, internally-driven economic growth
experienced by the U.S. in the 1960s, when it reached maturity with an economy driven by
tertiary activities (advanced personal and professional services, as well as experience-based
businesses).
The Mexican hotel industry, comprised by 510,296 rooms is characterized by being highly
fragmented and by having low penetration levels. Independent (mom & pop) hotels represent
69% of the system-wide room supply, or ~80% leaving aside from the equation the markets
of Monterrey and Mexico City, where the presence of chained hotels is stronger. The
expected consolidation of the industry in the coming years represents attractive long-term
growth opportunities for well positioned local lodging institutional players.
FINN
Buy
Local Ticker
Price Target 2015 (MX$)
Last Price (MX$)
Expected Return
Dividend Yield 2015
Total Return
FINN.13
19.5
16.3
19.6%
5.8%
25.4%
Market Cap (MX$ MM):
Firm Value (MX$ MM):
7,123
7,747
LTM Price Range (MX$):
Free Float:
Avg. Daily Trade (MX$ MM):
(13.30 - 17.96)
83%
9.7
HCITY
Buy
Local Ticker
Price Target 2015 (MX$)
Last Price (MX$)
Expected Return
Dividend Yield 2015
Total Return
Free Float:
HCITY.*
26.9
23.7
13.5%
0.0%
13.5%
9,120
10,002
(20.02 - 27.20)
57%
10.1
Based on an analysis of infrastructure investments, expected population growth, and the
application of a 4.7% CAGR to quality lodging supply for the period 2014-2022 (slightly
above projected GDP growth), Jones Lang LaSalle estimates 155,256 net new quality hotel
rooms in the country, from its current 350,744 rooms. Chained hotels are expected to
present the highest growth rate, at 8.1%, particularly in regional markets (driven by the
energy reform and the auto sector). The share of independent quality hotels will decrease
from 55% to 42%.
Outlook For 2015-2016 Remains Intact. Amidst lower oil prices and FX volatility, lodging
companies have ratified their 2015-2016 expansion plans, including FINN and HCITY,
supported by the solid momentum of the manufacturing sector and the positive longer term
prospects from the energy reform in the country. Regarding the latter, hotel investments with
exposure to this sector are not expected to be delayed due to their long-term view. Expected
investments from the first round (first auction projects) of the energy reform in 2015 will not
stop. However, we do believe that current oil prices will derive in a delay in other oil
production projects (CapEx reduction) due to the tighter short-term cash flow generation
from global oil companies. FINN’s growth plan considers an 88% growth in total hotels in
operation, reaching 64 by year-end 2016. HCITY will open 42 new construction hotels by
2016 according to its guidance, representing a 44% increase against the 96 hotels
comprised in its portfolio.
Actinver’s Equity Research
Pablo E. Duarte de León
Real Estate
+52 (55) 1103 6600 x4334
Actinver
Guillermo Gonzalez Camarena 1200
Santa Fe, Mexico City, 01210
Contents
4
Table of Contents
7
The Lodging Industry ……..………………………………….
8-9
Cyclicity, A Look At Its Inherent Risk And Opportunity
Pablo Duarte
The Low Part Of The Cycle …...…………………………………..
8
Recovery, With A More Promissory Outlook …...……………..
8-9
An Introduction …………….…………….………...…..…………..
10-18
Current Lodging Supply ………………...………….……………..
10-11
Hotel Segments And Types ………………………..……………..
11-12
Mexico’s Leading Hotel Chains …………………..….……….....
13-14
Top Industry Players: HCITY, FIHO, FINN And GHSF………..
15-16
Historical Investments Of Listed Hotel Companies …...……..
17-18
Mexico’s Hotel Industry, At Its Inflection Point …….……..
19-44
Macro Outlook For 2015 ……..………………………….…..…….
19-20
Lodging Industry: Mexico’s Moment Has Arrived …...……….
21-44
The U.S. 1960s’ And U.K. 1980s’ Lodging Evolution
Experience ……………………………………………………….....
21-22
Demographic Trend To Boost Demand For Hotel Services …...
23
Growing Middle-Income Class In Mexico …………………..…...
23-24
New Incentives For Home Ownership …………………………...
24
Mexico, A Magnet Of Foreign Direct Investment …………..…...
25-27

Competitive Labor Costs, Looking South To Mexico …...….
25-26

Mexico Has Become A Clear Manufacturing Winner …...….
27
A Stronger Investment In Infrastructure Is Coming ………..…...
27-38

Main Infrastructure Projects In Mexico …………...………….
28-32

Improving The Mexican Rail Industry ….…………………….
32

The Energy Reform Will Bring Additional Investments In
The Long Term ………………...……………………………….
33

The Mexican Auto Industry, Another Key Driver Of Growth
34-36

The Strategic Aerospace Industry ……...…………………….
37-38
5
The Bottom Line: Mexico’s Lodging Industry Growth Potential
39-44

Growth Plans Of Global Hotel Companies In Mexico …..….
40

Location Of Investments / Market Opportunities …...……….
40-42

PAX Traffic Performance, Evinces The Greater Growth
Prospect Markets ……………...……………………………….
43
Appreciation Potential In Local ADRs ….…………………….
44
Mexico’s Main Lodging Markets And Submarkets …...…
45-69
Nuevo Leon (North Region) .....…………………………………..
46-47
Mexico City (Central Region) ……...……………………………..
48
Jalisco (Bajio Region) ………....…………………………………..
49
San Luis Potosi (North Region) ..………………………………..
50-51
Guanajuato (Bajio Region) …...…………………………………..
52-53
State Of Mexico (Central Region) ………………………………..
54-55
Queretaro (Bajio Region) …......…………………………………..
56
Tamaulipas (North Region) ......…………………………………..
57-58
Veracruz (Southeast Region) …...………………………………..
59-60
Campeche (Southeast Region) …………………………………..
61
Baja California Norte (B.C.) (North Region) .…………………..
62
Chihuahua (North Region) …...…………………………………..
63-64
Coahuila (North Region) ……...…………………………………..
65-66
Sonora (North Region) ………...…………………………………..
67-68
Puebla (Central Region) ……....…………………………………..
69
FINN: Booking At Attractive Low Fares Report ………….
70-107

HCITY: Hotel Engineering Report …………………………. 108-140
Corporate Directory ……………………………….………….
141
Disclaimer ………………………………...……………...…….
142
6
The Lodging Industry
Similar to other property-type sectors, lodging / hotel properties and the REITs or
FIBRAs that invest in this property type are heavily dependent on the overall strength
of the country’s economy and economic growth. However, the hotel sector is more
cyclical because it is not secured by long-term leasing contracts and is thus exposed
to short-term changes in national, regional and international business and leisure
travel. As we will cover in this report, exposure to travel disruptions, such as the one
originated by the swine flu outbreak in 2009 in Mexico (occupancy reached levels of
10% in the north and 30% in the central region), also increases hotels’ revenue
volatility.
Factors Affecting Econom ic Value For Different Property Types
Asse t Type
G DP G rowth
Job
Cre a tion
Retail
Office
Industrial
Multi- Family
Hote ls
1
1
1
1
1
3
2
5
2
2
Re ta il S a le s
G rowth
P opula tion
G rowth
Ne w S pa c e
S upply vs.
De ma nd
2
5
2
5
5
4
4
3
2
4
4
3
4
4
3
N o t e : 1 = m o s t im po rt a nt , 5 = le a s t im po rt a nt
S o urc e : C F A Ins t it ut e .
Given the more cyclical nature of the hotel business, a deeper analysis on the
sector’s fundamentals (including: trends in occupancies, average daily rates (ADRs),
RevPARs, air passenger (PAX) traffic growth, regional performance, etc.) and the
overall economic performance, becomes crucial for investors in determining their
investment decision (entering in the right part of the cycle).
Said that, for a better understanding and flow of this report, we are first presenting: i)
a quick look on the cyclicity of the hospitality real estate (RE) sector, ii) the particular
characteristics of the Mexican lodging industry; iii) a brief explanation of the different
hotel segments and types; and iv) an introduction of the sector’s listed hotel
companies (/FIBRAs), with an analysis of their historical acquisitions. The latter
becomes the introduction for the next section of the report (‘Mexico’s Hotel Industry,
At Its Inflection Point’), as we will show there an analysis on the industry’s long-term
growth expectations from national and regional standpoints.
The ‘Mexico’s Hotel Industry, At Its Inflection Point’ section begins with the general
outlook for the Mexican economy (GDP growth, interest rates, inflation and FX).
Then, it goes deeper into the fundamentals of the lodging sector, covering the main
drivers of hotel rooms’ demand (FDI, infrastructure investment, demographics,
middle class growth, job creation, among others), its growth opportunities and longterm expectations. Here we include a section on the Mexican hotel Real Estate (RE)
market which covers Mexico’s main business corridors (Energy, Petrochemical and
Exports / Industrial, Manufacture, Logistics and Exports NAFTA / Maquila Exports
and Logistics / Mining / Agriculture Exports NAFTA) and their relevance for the
investment strategies of hotel companies.
Finally, we present the characteristics and outlook of the main lodging markets in
which our covered companies (/FIBRAs) are exposed to, or have investment projects
in (Campeche, Chihuahua, Coahila, D.F., State of Mexico, Guanajuato, Jalisco,
Nuevo Leon, Puebla, Queretaro, Quintana Roo, Sinaloa, Tamaulipas, Veracruz).
7
Cyclicity, A Look At Its Inherent Risk And Opportunity
Before turning the page to the fundamentals of the hotel industry, would will to delve
a little more about the greater cyclicality it has unlike other Real Estate sectors
(industrial, office, retail and multi-family). The lodging RE industry is more dependent
on the country’s economy, thus, an economic slowdown has a direct and immediate
impact on average daily rates and occupancy levels, while other RE industries are
more defensive on their long-term leasing contracts.
The Low Part Of The Cycle
This should not be overlooked by investors, as the hotel business cycle becomes the
most important factor in taking the investment decision in the sector, in our view. In
relation to the risk that represents the sector’s exposure to the economic cycle, lets
recall the most recent crisis of 2009.
During that year, the Mexican lodging industry experienced one of the most difficult
times in its history, facing the global financial crisis and the H1N1-flu outbreak in the
country. At their lowest point, occupancy levels dropped to an average of 30% in the
central region and of 10% in the north region, with the economy falling 6.0% and air
passenger traffic -13.8%. Note that break-even points fall between an occupancy
range of 30% and 35% in the sector. It took until 2013 to reach pre-crisis levels of
ADRs in real terms.
Recovery, With A More Promissory Outlook
Investor confidence in the lodging sector is supported by four consecutive years of
improving hotel performance. Since 2010, Mexico has registered upward movements
in the performance of occupancy, ADR and RevPAR, following the aforementioned
recession and the H1N1 virus.
Hotel Performance In Mexico
64.4%
$140
$120
$20
$122
$122
$105
$ 66
$104
30%
20%
$ 56
46.3%
50%
$ 52
$60
$40
50%
60%
40%
$104
54.5%
57%
$80
$ 51
54.8%
55%
55%
$100
57.2%
54.6%
ADR (USD)
Occupancy Rate
60%
49%
46%
50%
53%
10%
$0
45%
2005
2006
2007
2008
2009
Mexico
Source: Ministry of Tourism, PwC, Actinver.
2010
2011
2012
United States
2013
2014
Occupancy Rate
62.2%
$97
62.8%
$ 45
65%
$ 70
Hotel Occupancy Rates In Mexico And The U.S.
0%
2009
2010
ADR
2011
2012
RevPAR
2013
2014
Occupancy
Source: Smith Travel Research, JLL, Actinver.
Regarding total consumer spending, Mexico’s lodging sector has experienced
consistent growth in spending on hotel services since its lowest point in 2009,
increasing by a CAGR of 6% from 2010 to 2013. According to Oxford Economics,
consumer spending at hotels in Mexico is expected to grow at an 8% annual rate,
well above growth rates of mature economies.
8
A much stronger recovery has been observed in hotel investments in Mexico. From a
low USD100 million level of transactions in 2009, capital flow has increased in the
sector, reaching USD600 million in 2013. The introduction of FIBRAs and entities like
CKDs have also motivated such an expansion, on the back of the liquidity they have
introduced into the market. These vehicles represented 25% of the total hotel
transactions in 2012 and 50% in 2013. Partnerships between hotel chains and
FIBRAs will boost growth during the next years. According to JLL, deal flow will rise
15% in 2014, to ~USD715 million in hotel operations, reaching a record-high level.
Consumer Spending On Hotel Services In Mexico
Hotel Volume Transaction In Mexico
25%
$ 800
10%
$ 15,000
5%
0%
$ 10,000
-5%
6,000
$ 700
15%
Investments (USD MM)
$ 20,000
YoY Change
Consumer Spending (USD MM)
20%
5,000
$ 600
4,000
$ 500
$ 400
3,000
$ 300
2,000
-10%
$ 5,000
-15%
$0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumer Spending
Source: Oxford Economics, JLL, Actinver.
YoY Change
Rooms Sold
$ 25,000
$ 200
-20%
$ 100
-25%
$0
1,000
0
2007
2008
2009
Investments
2010
2011
2012
2013
2014
Number Of Rooms Sold
Source: JLL, Actinver.
Disappointing growth rates in the local economy during 2013 and 2014 did not slow
down growth of the hospitality sector, for which we anticipate stronger growth
prospects in the next years, supported by its attractive fundamentals, as well as by
an expected improvement in the overall economy, of 3.0% in 2015 and with growth
rates above 3.5% in the next years.
Along the section ‘Mexico’s Hotel Industry, At Its Inflection Point’ of this report, we
show precisely why we believe that this is Mexico’s lodging moment (the basis of our
investment thesis), the right part of the cycle to be long in the sector.
It is important to highlight that for the business lodging segments attended by FIBRA
Inn (FINN) and Hoteles City Express (HCITY), peaks in demand concentrate within
weekdays (Monday through Thursday), resulting in significant vacancy during the
weekends.
9
An Introduction
The Mexican hotel industry, comprised by 510,296 rooms (350,744 quality lodging
rooms [3-5 stars], or 68.7%), is characterized by being highly fragmented and by
having low penetration levels. Independent (mom & pop) hotels represent 69.0% of
the system-wide room supply, or ~80% leaving aside from the equation the markets
of Monterrey and Mexico City, where the presence of chained hotels is stronger.
The evolution towards a more sophisticated market, which has already commenced
in the country, will close the gap against the U.S. industry, a mature one with a
69.0% representation of chain-affiliated hotels.
Lodging industry penetration is often measured
by its hotel supply ratio (HSR). It is calculated by
dividing the total estimated number of relevant
(quality) hotel rooms in a country by each 1,000
inhabitants .
As we will go through at detail in the “Mexico’s Hotel Industry, At Its Inflection Point”
section of this report, this sound growth potential for institutional players is coming
along a significant room supply demanded. Our expectation (based on industry
experts like JLL, HVS, HCITY) is that Mexico’s current low penetration level of 2.9
(hotel supply ratio, or HSR) will improve to 3.9 by 2022, through the addition of
155,256 net new quality hotel rooms. This estimation would still compare below that
of the U.K. of 8.6 and the U.S. of 15.5, which have the most sophisticated lodging
industries in the world.
Current Lodging Supply
Historically, the local lodging industry has had
international presence, motivated by the tourism
industry (8.5% of GDP). More recently, growth in
commercial and industrial activities has led to an
increase in business-class travel demand, which
has not being catched-up by lodging supply.
As of December 2014, the market was comprised by 350,744 quality lodging rooms
(according to Sectur), from which 158,113 (45%) were affiliated to global or regional
hotel chains and the rest were independent quality hotels (192,631 rooms; 54.9%).
According to a study by HVS, Mexico’s main markets (40 selected cities) have a total
inventory of 1,496 hotels and 210,141 rooms (59.9% of the total quality lodging room
supply), considering leisure and business-class quality hotels. The low-quality supply
(half star to 2 stars) is represented by 2,270 hotels with 159,522 rooms (31.3% of the
total supply).
The urban business-class inventory (the most relevant for our companies under
coverage) consists of 1,154 hotels and 126,927 rooms (60.4% of the total urban
quality lodging supply), from which 44,511 rooms are affiliated to international
brands, 28,285 rooms are affiliated to national brands, and 54,131 hotel rooms are
independent.
Mexico’s Total Lodging Supply
Mexico’s Urban Quality Lodging Supply (40 Selected Cities)
Mexico’s Lodging Supply
Number of Rooms
510,296
5,750
68.7%
31.3%
Low-Quality Lodging Supply
Urban Quality Lodging Supply
Number of Hotels
1,496
210,141
60.4%
39.6%
Quality Lodging Supply
Leisure
Main Markets MTY, MEX, GDL
Business-Class
30.6%
2,270
159,552
3,480
350,744
45.1%
54.9%
Independent
2,460
825
Chain Affiliation
192,631
Source: JLL, HVS, Sectur, Actinver.
1,020
158,113
107,162
341
83,214
1,154
126,927
57.4%
42.6%
Independent
690
Chain Affiliation
54,131
464
72,796
Source: JLL, HVS, Sectur, Actinver.
10
The following exhibit shows the segmentation of Mexico’s 40 urban markets, the
most representative according to HVS. It includes chains and independent hotels.
Toluca 30.0%
Playa del Carmen
Mexicalli 21.5%
42.0%
40.0%
León
Monterrey 36.0%
42.0%
Saltillo
Nuevo Laredo 33.0%
48.0%
42.0%
Mexico City
48.0%
Torreon
San Luis Potosí
50.0%
49.5%
50.0%
Cancun
50.0%
Chihuahua
Aguascalientes
Ciudad Juarez
57.5%
52.0%
Coatzacoalcos
Tuxtla Gutierrez
57.5%
Villahermosa
International
Los Cabos
60.0%
59.0%
Riviera Maya
63.5%
60.0%
Queretaro
63.5%
Tijuana
Independent
Hermosillo
66.5%
63.5%
Cuiliacán
66.5%
Reynosa
Ciudad del Carmen
68.0%
67.0%
Tampico/Altamira
Puebla
Guadalajara
71.5%
68.5%
Lazaro Cardenas
73.5%
73.0%
Poza Rica
73.5%
Veracruz
Merida
75.0%
74.0%
Puerto Vallarta
Morelia
78.0%
Acapulco
Durango
80.0%
79.0%
Mazatlan
90.0%
86.0%
Tepic
Cuernavaca
91.5%
Oaxaca
Mexican Hotel Segmentation (Independent, Local-Chained, International-Chained) By State
Regional/National
Source: FIHO, Actinver.
Hotel Segments And Types
We find also relevant for the purpose of this report to briefly go through the different
hotel segments in the Mexican market (limited-service, select-service and fullservice), given the particular growth prospects each of them has.
Categorization Of The Hotel Industry
By Chain Scale
Luxury
By Asset Class
Full-Service
The hotel industry can be categorized using 2 different methods, both industry-wide
accepted. The first categorizations is known as ‘Chain Scales’, based on the current
system-wide average daily room rates of the major chains in a country and consists
of 6 categories: Luxury, Upper-upscale, Upscale, Midscale (with food and beverage
services), Midscale (without F&B), and Economy.
Upper-Upscale
Upscale
Select-Service
Midscale (with F&B)
Midscale (without F&B)
Limited-Service
Economy
Source: US Hotels Appraisals, Actinver.
The limited-service segment offers the largest LT
growth potential in the country. To the extent of
their possibilities, listed hotel companies are
taking advantage of this, expanding their
operations in new markets within the segment.
Hoteles City currently has 5 hotels in Puebla, with
room to open more.
The second system, the most commonly used by industry players given its simplicity
and the one we will be focusing on, divides the industry by asset classes. The asset
class method is comprised by 3 categories: limited-service, select-service, and fullservice. These categories can be further subdivided by chain-scales (midscale
limited-service, economy limited-service, and so on).
In the limited-service segment, HCE is the leading hotel chain with 72 hotels of two of
its brands which are amongst the top 7 brands in the category. One hotels follows
with 36 hotels and Mision hotels with 33. FIHO has exposure in this segment mainly
through One-brand hotels, which represent 21% of its total rooms in operation.
FIBRA Inn has been recently expanding its exposure to this segment through the
Wyndham Garden (5 hotels), Fairfield Inn & Suites (2 under development) and
Microtel Inn & Suites (4 hotels) brands. As we will mention later, Wyndham has still a
short experience in the country, today it has 8 hotels in operations, however, among
the LatAm region, Mexico has become its top priority for expanding its operations.
The franchise agreement FINN has with Wyndham to operate its global brands in the
country opens another large long-term (LT) growth channel to the trust.
We believe that this limited-service segment offers the greatest long-term growth
opportunities in the local lodging market given the business segment it attends (the
largest and fastest growing) as well as its short ‘action range’. Its compact market
covers a radius of just 1 kilometer, giving it a stronger growth potential. For instance,
Hoteles City Express has 2 hotels (HCE Plus and HCE) in the Paseo de la Reforma
Corridor with a 4 blocks (0.5 km) distance between them, both with occupancy levels
above 65%. The company estimates potential for 35 hotels in the Mexico City
market. It currently has 10 hotels in this market.
11
Number Of Hotels By Brand And Segment In Mexico
Select-Service
Limited-Service
72
Full-Service
64
52
36
52
51
33
13
12
11
11
16
21
12
10
17
16
10
9
7
7
Source: Companies' information, HCITY, Actinver.
The select-service segment also offers an interesting growth potential given the low
penetration of chain hotels in the country, as well as the positive prospects of
business lodging demand in the local global and regional markets with exposure to
high-growth sectors, such as the automotive, energy, aerospace, medical and
electronics. FIHO has exposure to this segment through Posadas brand Fiesta Inn,
and more recently through Marriott. Since its IPO, FINN has had a greater exposure
to IHG’s brands Holiday Inn, Holiday Inn Express, as well as Hampton Inn by Hilton,
and has been more recently exploring the Aloft (by Starwood) and Courtyard (by
Marriott) global brands.
Hotel Segments
Limited-Service
Select-Service
Full-Service
Characteristics. These hotels lack foodservice
facilities and the amenities offered to guests are
typically simple, but might vary within the brands.
Characteristics. Select-Service is a hybrid
segment between limited and full-service hotels,
which offer the fundamentals of limited-service
properties but larger rooms and additional
amenities. Some of these increased amenities are
certain restaurant and banquet facilities but on a
less elaborate scale than one would find at fullservice hotels.
Characteristics. This segment characterizes by a
complete food and beverage services. On-site
restaurants, lounges, and group meeting spaces
with banquet facilities are the cornerstones of the
full-service offering. Selective amenities such as
spas, banquet rooms, doormen, valet parking,
extended room service, concierge services, and
high-end restaurants and boutiques characterize
many full-service properties.
 Economy limited-service hotels offer no-frills
rooms at modest prices.
 Midscale limited-service hotels offer increased
services and amenities which might include a
business center, small meeting rooms a fitness
room, a guest laundry facility, a market pantry,
an indoor and/or outdoor pool and whirlpool.
Many limited-service brands are also designed to
cater to extended-stay travelers. These “homeaway-from-home” hotels offer rooms with kitchen
facilities and a small dining table, and may offer
discounted weekly and monthly rates.
Size. Limited-service hotels are usually small with
no more than 150 rooms.
Average Rates. Room rates are typically on the
lower end of the scale because demand for
limited-service properties generally comes from
price-sensitive business and leisure traveler
looking for specific locations. The majority of
limited-service brands target an ADR range of
MX$700 to MX$1,200; however, the higher quality
of certain brands’ product offering and finish-out
can command a premium. It’s worth noting that
limited-service hotels have the lowest operating
costs of the three segments because they don't
offer catering services or multiple restaurants.
Size. Average number of rooms in select-service
properties can vary, but typically these properties
won’t be larger than 180 rooms, nevertheless the
“express” formats are smaller, in a range from 90
to 110 rooms.
Average Rates. The ADR are generally within a
range of $1,000 - $1,800. Select-service hotels
keep operating costs down by offering services
and amenities in moderation. Such properties
usually do not feature multiple restaurants, and
their restaurants are likely to offer a limited menu.
The multiple services and amenities offered by
full-service hotels come at a higher operational
cost, but they also help capture more selective
demand. Groups requiring meeting space are a
significant source of business for these properties,
as well as top management business travelers
willing to pay higher room rates. Leisure and
vacation travelers, especially at the upscale and
luxury levels, are also a significant market for
many full-service hotels. In all cases, full-service
hotel guests seek the extra amenities and service
levels found only at these properties.
Size. Full-service hotels are usually larger than
other categories, especially leisure full-service
hotels; while a full-service hotel that targets
business travelers has in average 230 rooms, a
leisure full service hotel can reach up to 450
rooms.
Average Rates. This segment room rates are
typically on the higher end of the scale, with
average daily rates of MX$1,500 and above.
Source: US Hotel Appraisals, Actinver.
12
Mexico’s Leading Hotel Chains
Leading Hotel Chains In Mexico
Other
14.2%
9.0%
6.0%
5.0%
21.9%
4.9%
4.1%
3.9%
3.0%
2.9%
25.1%
Urban lodging industry in Mexico is comprised by 30 hotel chains (e.g. Camino Real,
Fiesta Americana, Quinta Real, Fiesta Inn, One Hotels, Real Inn) and more than 60
local and international brands (e.g. Marriott, Hilton, Holiday Inn, Ibis, Courtyard). The
largest hotel chain in the country is InterContinental Hotels Group (IHG) with 25% of
the urban quality lodging market followed by 2 Mexican chains, Grupo Posadas
(23%) and Hoteles City Express (14%).
Besides their contribution for the development of the local lodging industry, most of
these hotel chains also become quite relevant on: i) the access they provide to the
FIBRAs for the use of their recognized brands (obviously at a cost) through
agreements, and ii) the potential pipeline of additional investments they could
generate to the FIBRAs. Recently, HCITY executed a LOI with FIBRA Inn for it to
develop 10 City Express hotels in several locations within the country over the next
two years.
Here’s a brief description of the top 4 hotel chains:
■
InterContinental Hotels (IHG) is a British multinational hotel company with over
670,000 rooms and 4,602 hotels across over 100 countries (85% operating
under franchise agreements). In Mexico, IHG is the largest hotel chain, with 133
franchised hotels operating under 6 different brands in select and full service
segments (Holiday Inn, Holiday Inn Express, Crowne Plaza, Intercontinental,
Staybridge Suites and Hotel Indigo) and more than 22,000 rooms, which
represent 14% of the country’s quality lodging supply market share. Additionally,
the group plans to invest ~US$677 MM in the development of 28 hotels by 2017,
some of which may be developed with Fibra Inn.
■
Grupo Posadas is a Mexican hotel company with over 20,000 rooms and 128
hotels in 45 cities of Mexico as well as in Texas, U.S. (the only destination
outside Mexico). Posadas owns leases, operates and manages hotels, resorts
and villas in its 7 different brands that cover Limited, Select and Full service
segments (Live Aqua; Fiesta Americana; Fiesta Americana Grand; Fiesta Inn;
Gamma; One; and The Explorean). Grupo Posadas is the second largest hotel
chain in the country; its total hotel rooms represent 12.8% of the total quality
market share of the country.
■
Hoteles City Express is a limited-service hotel chain operating as an integrated
hospitality business platform developing, acquiring, managing and franchising
hotels in the economy and budget segments, primarily in Mexico and expanding
into selected markets in Latin America including Costa Rica, Colombia and Chile.
HCITY currently operates 96 properties under 4 brands (City Express, City Jr.,
City Suites and City Express Plus) with a total of 10,907 rooms, of which 94
hotels are located in Mexico, representing 6.4% of Mexico’s quality lodging
supply market share. In relation to growth plans, HCITY expects to have 118
hotels by year-end 2015.
■
Grupo Real Turismo (GRT), was acquired by Grupo Empresarial Angeles in
2000, it owns and operates the Brands Camino Real (30 hotels), Quinta Real (9
hotels) and Real Inn (6 hotels). The latter, was created during 2012 as a
business hotel chain.
In the following page we present the 13 most important hotel chains with operations
in the country, as well as their brands’ portfolio and the relation they have with the
FIBRAs and other listed hotel companies (Hoteles City Express and Grupo Hotelero
Santa Fe).
13
Hotel Chain
Brands In Mexico
Brand Relation With FIBRAs /
Listed Hotel Companies
InterContinental Hotels
Grupo Posadas
Hoteles City Express
Grupo Real Turismo
Hoteles Mision
None
Starwood H&R
Wyndham Hotel Group
Hilton
Marriott
AM Resorts
None
Choice Hotels
None
Accor
None
NH Hotels
None
Source: Companies information, Actinver.
14
Top Industry Players: HCITY, FIHO, FINN And GHSF
There are 4 hotel companies listed in the Mexican stock market: Hoteles City
Express (HCITY), Grupo Hotelero Santa Fe (HOTEL), Grupo Posadas (POSADAS)
and Real Turismo (REALTUR), the last two with minimum liquidity; and 2 FIBRAs:
FINN and FIHO. As an introduction, we present here a brief description on the top 4,
as well as a detailed comparable table including their main operating metrics. As the
operations of each of them differ due to their hotel brand exposure, geographical
footprint, and hotel segmentation, they are not 100% comparable on this information.
For this reason we are including EBITDA margins as well. The table in the following
page is intended basically to provide a more clear picture of the sector.
Top Listed Lodging Players
FIBRAs
S.A.B.
■
FIBRA Inn (FINN) is an Equity REIT / FIBRA created to build, acquire, develop
and lease hotel properties throughout Mexico under 3 different segments: full,
limited and select service. It currently has 34 hotels (3 under development) with
5,716 rooms, which represent 1.6% of the quality lodging supply share of the
country. FINN’s properties are located in 14 states of Mexico. The company has
franchise agreements with IHG, Wyndham, Hilton, Starwood and Marriott to
operate their global recognized hotel brands (Holiday Inn, Holiday Inn Express,
Holiday Inn Express & Suites, Wyndham Garden, Microtel Inn & Suites, Hampton
Inn, Aloft, Marriott, Courtyard, Fairfield Inn & Suites). The company also operates
the Crowne Plaza and Casa Grande hotel brands and recently signed a LOI with
HCITY to develop 10 properties under any of its 4 brands.
■
FIBRA Hotel (FIHO) is a an Equity REIT / FIBRA created to develop, acquire
and own urban business class limited-service, selected-service, full-service and
extended-stay hotels in Mexico. Currently Fibra Hotel’s portfolio consists of 7,684
rooms and 57 hotels in operation, which represents 2.1% of the quality lodging
supply share of the country. Besides, FIHO has 14 hotels with 2,031 rooms in
different stages of development. The FIBRA’s hotels in operation are associated
with 6 local brands: Fiesta Inn, Fiesta Americana, Gamma, One Hotels, Camino
Real and Real Inn, the first 4 owned by Posadas and the last two by Grupo Real
Turismo, both quality local chains; and 1 international: Fairfield Inn & Suites.
Recent announced investments contemplate new brands to be added to FIHO’s
portfolio, such as: Live Aqua (Posadas), Courtyard (Marriott), AC Hotels
(Marriott), Aloft (Starwood), and Sheraton (Starwood).
■
Grupo Hotelero Santa Fe (GHSF) is a company (S.A.B.) created to manage,
acquire and develop hotels in Mexico. Currently GHSF operates 10 hotels and
3,296 rooms which represent 2.1% of the quality lodging supply share of the
country. GHSF’s portfolio is comprised by 1,880 (57%) beach hotel rooms and
1416 (43%) urban cities hotel rooms operating under 4 owned sub-brand
(Krystal) and 3 international brands (Hilton, Hilton Garden Inn y Hampton Inn).
15
FINN
FIHO
HCITY
GHSF
13-Mar-13
FIBRA
$ 478
30-Nov-12
FIBRA
$ 680
14-Jun-13
S.A.B.
$ 612
12-Sep-14
S.A.B.
$ 142
34
31
31
0
0
0
70
55
51
0
0
4
114
92
56
20
4
12
14
11
7
4
0
0
Rooms In Operation
Avg. Rooms /Hotel
Hotel Segments
Full Service / All Inclusive
Select Service
Limited Service
4,914
159
3
24%
46%
30%
7,684
140
3
10%
56%
35%
10,401
113
1
0%
0%
100%
3,508
319
2
96%
4%
0%
Hotel Types (In Operation)
Business-Class
Leisure / Resort
1
100%
0%
2
99%
1%
1
100%
0%
2
66%
34%
Hotel Brands (In Operation)
National Brands (As % Of Total Rooms)
11
3.9%
7
98.3%
4
100.0%
6
75.5%
96.1%
1.7%
0.0%
24.5%
IPO Date
Type Of Entity
Market Capitalization (USD MM)
Operating Highlights:
Total Hotels (Operation + Development)
Total Hotels In Operation
Owned (Co-Owned) Hotels
Managed 3rd Party Hotels
Franchised Hotels
Leased Hotels
National Brands
International Brands (As % Of Total Rooms)
International Brands
Hotels Under Development
Developments As % Of Total Portfolio
Rooms Under Development
Performs Hotel Operation?
Hotel Operators
None
3
12%
645
13
20%
1,897
22
19%
2,487
3
11%
443
YES
6
NO
4
YES
1
YES
1
+1Co sta Rica
+1Co lo mbia
Geographical Footprint In Mexico
North Region
Bajio Region
Central Region
Southeast Region
Key Performance Indicators (KPIs):
Occupancy (LTM)
Average Daily Rate (ADR) (LTM) - MX$
Avg. LTM YoY Change
RevPAR (LTM) - MX$
Avg. LTM YoY Change
48%
29%
20%
4%
43%
23%
27%
7%
36%
17%
20%
24%
8%
32%
33%
27%
60.3%
$ 1,002
5.4%
$ 603
3.8%
63.9%
$ 899
4.5%
$ 574
2.8%
58.0%
$ 727
0.8%
$ 422
5.8%
65.4%
$ 1,122
10.2%
$ 734
18.2%
$ 12,879
23.5%
$ 11,494
33.9%
$ 17,023
29.7%
EBITDA Per Room (LTM) - MX$
$ 17,854
EBITDA Margin (%)
30.6%
Information as of YE2014. Key performance indicators as of 3Q2014.
16
Historical Investments Of Listed Hotel Companies
Considering all historical announced investments from Hoteles City Express, FIBRA
Inn and FIBRA Hotel (since their respective IPOs: 2012-2013 period), we can note
that they have been more concentrated in the markets of Mexico City (Central),
Nuevo Leon (North), Guanajuato (Bajio), Puebla (Central) and Campeche
(Southeast), with more than 5 hotels in each of them. In the following exhibit we show
graphically the concentration of these investments by state.
The investment strategies from these market
participants will focus on markets with exposure
to those sectors with the most attractive growth
prospects: automotive, aerospace, energy, gas,
oil, among others.
Concentration Of Announced Investments From Listed Companies Since IPOs
Higher Concentration
+5
4
Lower Concentration
3
2
Number of Hotels
Source: Companies’ information, Actinver.
Through their expansion processes, FINN and FIHO have been able to diversify their
brands’ and markets’ exposure. In November 2012, FIHO only had 2 operators and 3
hotel brands: One, Fiesta Inn and Camino Real. Today, the company operates with
14 different hotel brands, from which 7 are not yet in operation, and 4 operators:
Grupo Posadas, GRT, Marriott, and Starwood. With its recent partnerships with
Marriott and Starwood, FIHO plans to increase its exposure to international brands,
which currently represent just 1.8% of its operating portfolio of hotels. On the other
hand, FINN has expanded its operations from 14 hotels to 31 in operations (3 under
development), increasing their brands from 3 to 11 (96% global recognized brands)
and its hotel operators from 4 to 6. Additionally, with its announced developments it
already has agreements to include 2 additional international brands: Courtyard and
Fairfield Inn & Suites (Marriott brands).
Accodring to our estimates, FIBRA Inn’s 2014
acquisitions have averaged an accretive 9.3%
average net NOI cap rate. We find positive that at
least this company has been recently disclosing
historical operating information on their acquisitions (such as occupancy, ADR, RevPAR), as it
improves FINN’s market valuation towards its fair
value (currently undervalued), in our view.
Regarding profitability of these historical acquisitions, is hard to tell exactly how much
value has been brought to the table, given the limited information lodging companies
release to the market, in general (on the sector’s strong competition). On the next
page we enlist all the announced investments of HCITY, FINN and FIHO, from which
we have determined the cost per key, metric used by some lodging companies.
However, this metric can not be used to compare the profitability of investments, as
the cost /key varies depending on the specific characteristics of the hotel’s market, its
segment and brand, among other factors. What is known is that FINN and FIHO have
similar investments strategies that consider target acquisition cap rates of 10.0% for
stabilized properties and of 11.0% - 12.0% for developments. In the case of HCITY,
profitability levels are higher due to the economies of scale it is able to reach as an
integrated developer. In 2014, the company reached ROIC levels of 13.4% for its
established (mature) hotels.
17
Historical Announced Investments From Main Lodging Companies (2013-2014)
C o m pa ny
H o tel N ame
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
FIHO
F IH O
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
F IN N
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
HCITY
H C IT Y
Fiesta A mericana A guascalientes
Real Inn M exicali
Gamma Lausana Tijuana
Fairfield Inn Lo s Cabo s
Co urtyard Ciudad del Carmen
Fiesta Inn Lo fts Ciudad del Carmen
Fiesta Inn Lo fts / One M o nclo va
M icro tel Inn Saltillo
Gamma Fussio n 5 Leo n
To rre A mericas 1500
Real Inn Guadalajara
One P erisur
Ho tel To reo Servicio Selecto
Co urtyard Vallejo
Fairfield Inn & Suites Vallejo
Sherato n A mbassado r M o nterrey
Fiesta A mericana Grand M o nterrey Trebo l
Live A qua M o nterrey Trebo l
Fiesta Inn Oaxaca
One P uebla FINSA
Fiesta Inn P uebla FINSA
Fiesta Inn Lo fts Queretaro
A C A ntea Queretaro
Fiesta Inn San Luis P o to si Oriente
Fiesta Inn Lo s M o chis
Fiesta Inn Ciudad Obrego n
Fiesta Inn Tlalnepantla
Fiesta Inn To luca
Fairfield Inn & Suites Villahermo sa
Fiesta Inn Xalapa
One Xalapa
Fiesta Inn / One Cuernavaca
T o tal
Fairfield Inn & Suites Ciudad del Carmen
M icro tel Inn & Suites Chihuahua
M icro tel Inn & Suites Ciudad Juarez
Wyndham Garden Chihuahua
Casa Grande Delicias
Co urtyard Saltillo
Wyndham Garden Irapuato
Wyndham Garden Celaya
Wyndham Garden Leo n
Wyndham Garden Silao
Camino Real Guanajuato
Wyndham Garden Guadalajara
A lo ft Guadalajara
Ho liday Inn M exico City
Cro wne P laza M o nterrey
M arrio tt P uebla
M icro tel Inn & Suites Culiacan
M icro tel Inn & Suites To luca
Ho liday Inn A ltamira
Fairfield Inn & Suites Co atzaco alco s
T o tal
City Express La P az
City Express Cabo San Lucas
City Suites Cabo San Lucas
City Junio r Ciudad del Carmen
City Junio r Ciudad del Carmen
City Express Irapuato
City Express Salamanca
City Express P lus M exico City
City Suites M exico City
City Express M exico City
City Express M o nterrey
City Express P lus M TY Nuevo Sur
City Express Oaxaca
City Express Salina Cruz
City Junio r P uebla
City Express Tehuacan
City Suites P uebla
City Express Cananea
City Junio r To luca
City Express B o cas Tabasco
City Junio r Villahermo sa
City Express Ciudad Victo ria
City Express M atamo ro s
City Express A pizaco
City Express Tuxpan
T o tal
T ype O f
Inv e s t m e nt
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
Develo pment
Develo pment
Develo pment
Develo pment
A cquisitio n
Develo pment
A cquisitio n
Develo pment
Develo pment
Develo pment
Develo pment
A cquisitio n
Develo pment
Develo pment
A cquisitio n
A cquisitio n
A cquisitio n
Develo pment
Develo pment
A cquisitio n
Develo pment
A cquisitio n
A cquisitio n
A cquisitio n
Develo pment
A cquisitio n
A cquisitio n
A cquisitio n
33
Develo pment
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
Develo pment
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
A cquisitio n
Develo pment
20
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
Develo pment
27
N um be r O f
R o o ms
192
158
140
128
130
124
103
139
165
189
197
144
130
121
124
229
180
46
145
126
123
50
175
140
125
135
131
144
134
119
126
280
4 ,5 9 2
108
113
186
115
89
180
102
150
126
143
105
186
142
214
219
192
129
113
98
180
2 ,8 9 0
124
136
28
109
124
122
119
159
39
124
135
89
115
138
103
116
113
108
72
98
102
108
136
108
113
104
108
2 ,9 5 0
C o nt ribut io n P e rio d
H o t e l S e gm e nt
Lo c a t io n
1Q2014
3Q2013
3Q2014
2Q2014
M id-2015E
M id-2015E
4Q2014
1H2015E
2Q2014
4Q2015E
3Q2013
3Q2015E
4Q2015E
1Q2016E
1Q2016E
4Q2014
4Q2015E
4Q2015E
3Q2013
3Q2013
3Q2013
4Q2014
4Q2015E
3Q2014
4Q2015E
2Q2014
2Q2013
2Q2013
3Q2015E
1Q2014
1Q2014
4Q2014
Full Service
Limited Service
Select Service
Limited Service
Select Service
Select Service
Select Service
Limited Service
Select Service
Select Service
Limited Service
Limited Service
Select Service
Select Service
Limited Service
Full Service
Full Service
Full Service
Select Service
Limited Service
Select Service
Select Service
Select Service
Select Service
Select Service
Select Service
Select Service
Select Service
Limited Service
Select Service
Limited Service
Select & Limited
A guascalientes
B .C. No rte
B .C. No rte
B .C. Sur
Campeche
Campeche
Co ahuila
Co ahuila
Guanajuato
Jalisco
Jalisco
M exico City
M exico City
M exico City
M exico City
Nuevo Leo n
Nuevo Leo n
Nuevo Leo n
Oaxaca
P uebla
P uebla
Queretaro
Queretaro
San Luis P o to si
Sinalo a
So no ra
State o f M exico
State o f M exico
Tabasco
Veracruz
Veracruz
M o relo s
3Q2015E
4Q2014
4Q2014
4Q2014
4Q2014
3Q2015E
3Q2013
1Q2014
1Q2014
2Q2014
3Q2013
4Q2014
2Q2014
4Q2013
4Q2014
3Q2013
4Q2014
4Q2014
2Q2014
3Q2015E
Limited Service
Limited Service
Limited Service
Full Service
Full Service
Select Service
Limited Service
Limited Service
Limited Service
Limited Service
Full Service
Limited Service
Select Service
Full Service
Full Service
Full Service
Limited Service
Limited Service
Full Service
Limited Service
Campeche
Chihuahua
Chihuahua
Chihuahua
Chihuahua
Co ahuila
Guanajuato
Guanajuato
Guanajuato
Guanajuato
Guanajuato
Jalisco
Jalisco
M exico City
Nuevo Leo n
P uebla
Sinalo a
State o f M exico
Tamaulipas
Veracruz
4Q2013
4Q2014
4Q2014
1Q2014
1Q2014
4Q2013
4Q2014
2Q2013
3Q2013
4Q2013
3Q2014
4Q2014
3Q2014
4Q2014
4Q2013
4Q2013
4Q2013
1Q2014
3Q2014
4Q2013
4Q2014
2Q2014
4Q2014
4Q2014
4Q2014
3Q2014
4Q2014
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
Limited Service
B .C. Sur
B .C. Sur
B .C. Sur
Campeche
Campeche
Guanajuato
Guanajuato
M exico City
M exico City
M exico City
M exico City
M exico City
Nuevo Leo n
Nuevo Leó n
Oaxaca
Oaxaca
P uebla
P uebla
P uebla
So no ra
State o f M exico
Tabasco
Tabasco
Tamaulipas
Tamaulipas
Tlaxcala
Veracruz
Inv e s t m e nt
(M X$ M M )
$ 227
$ 125
$ 120
$ 110
$ 255
$ 255
$ 80
$ 112
$ 120
$ 246
$ 132
$ 285
TB D
$ 230
TB D
$ 182
$ 600
TB D
$ 170
$ 90
$ 130
$ 45
$ 212
$ 126
$ 113
$ 110
$ 88
$ 143
$ 110
$ 141
$ 80
$ 268
$ 4 ,9 0 5
$ 189
$ 79
$ 66
$ 125
$ 78
$ 190
$ 98
$ 156
$ 166
$ 91
$ 242
$ 208
$ 240
$ 400
$ 385
$ 389
$ 60
$ 72
$ 109
$ 163
$ 3 ,5 0 5
$ 89
$ 97
$ 21
$ 66
$ 76
$ 87
$ 85
$ 170
$ 30
$ 58
$ 97
$ 95
$ 82
$ 147
$ 48
$ 55
$ 69
$ 77
$ 55
$ 70
$ 62
$ 77
$ 83
$ 77
$ 81
$ 75
$ 77
$ 2 ,10 9
C o s t P e r Ke y
( M X $ '0 0 0 )
$ 1,184
$ 791
$ 857
$ 859
$ 1,962
$ 2,056
$ 777
$ 806
$ 727
$ 1,302
$ 671
$ 1,979
TB D
$ 1,901
TB D
$ 796
$ 3,333
TB D
$ 1,172
$ 714
$ 1,057
$ 900
$ 1,211
$ 900
$ 900
$ 815
$ 669
$ 991
$ 821
$ 1,184
$ 635
$ 957
$ 1,0 6 8
$ 1,749
$ 702
$ 356
$ 1,084
$ 880
$ 1,056
$ 957
$ 1,039
$ 1,319
$ 638
$ 2,300
$ 1,117
$ 1,692
$ 1,869
$ 1,757
$ 2,025
$ 467
$ 635
$ 1,108
$ 904
$ 1,2 13
$ 717
$ 717
$ 763
$ 610
$ 610
$ 717
$ 717
$ 1,068
$ 763
$ 470
$ 717
$ 1,068
$ 717
$ 1,068
$ 470
$ 470
$ 610
$ 717
$ 763
$ 717
$ 610
$ 717
$ 610
$ 717
$ 717
$ 717
$ 717
$ 7 15
18
Mexico’s Hotel Industry, At Its Inflection Point
Our investment thesis relies strongly on the long-term attractive fundamentals of the
Mexican lodging industry, sustained by the more positive outlook of the overall
economic performance for the years to come (GDP growth rates above 2.7%). It
goes without saying that despite the recent announced cuts in public infrastructure
investments in 2015, Mexico’s economy will show an improvement as compared to
the two preceding years.
For the longer term, we see a much stronger economic growth on the back of the
implementation of its approved economic reforms. We find the energy one as
particularly beneficial for the RE industrial, office and lodging sectors, as it will
detonate new additional demand for these type of spaces and hotel rooms in the
north, gulf and southeast regions of the country, from the national and foreign
investments it will be attracting to these markets. As we will go through in this report,
we believe that despite the sharp decline in oil prices, the positive longer term
prospects from the energy reform in the country remain. Expected investments from
the first round (first auction projects) of the energy reform in 2015 will not stop.
However, we do believe that current oil prices will result in a delay in other oil
production projects (reduction of capital expenditures) due to the tighter short-term
cash flow generation from global firms.
As a recap, the following are the topics covered in this section, beginning with the
macroeconomic part followed by the fundamentals of the lodging RE sector:
■ Macro Outlook For 2015
i)
Key Assumptions Is For Oil Prices To Bottom In 1Q2015
ii) GDP To Increase Between 2.7%- 3.0% In 2015, USD @MX$13.85 At YE.
■ Lodging Industry: Mexico’s Moment Has Arrived
i)
The U.S. 1960s’ And U.K. 1980s’ Lodging Evolution Experience
ii) Transformational Drivers Of The Mexican Lodging Industry
iii) Main Infrastructure Projects In Mexico
iv) Improving The Mexican Rail Industry
v) The Energy Reform Will Bring Additional Investments In The LT
vi) The Mexican Auto Industry, Another Key Driver Of Growth
vii) The Strategic Aerospace Industry
viii) The Bottom Line: Mexico’s Lodging Industry Growth Potential
Macro Outlook For 2015
Key Assumption Is For Oil Prices To Bottom In 1Q2015
According to Gustavo Teran, Actinver’s Head of Research, “Our most important
assumption is that oil prices touch bottom in 1Q2015 but rebound at a very slow pace
with WTI ending the year at USD68 and the Mexican blend at USD62 (averaging only
USD60 / USD53 in the year). However, notwithstanding the potential 50% fall in oil
export revenues in 2015, oil accounts for only 6% of Mexican GDP, while
manufactured product exports, which represent a near 20% of GDP, expand at an
estimated 8% clip benefiting largely from a faster-paced US economy and a devalued
currency”.
GDP To Increase Between 2.7%- 3.0% In 2015, USD @MX$14.30 At Year-End
“Our Mexico 2015 GDP projection from our economic team is a range of 2.7% - 3.0%
with the USD ending the year at MX$14.30 and averaging MX$14.60. Though the oil
slide has impacted the peso and the prospect of fed funds increases in 2015 will
further pressure the currency, our view is that the strong long term fundamentals of
the Mexican economy, grounded on structural reforms, fiscal discipline, solid central
bank stewardship and reserves, will provide ample support to the currency. We
project inflation will reach 3.1% in 2015” (Gustavo Teran).
19
Regarding interest rates in Mexico, our economics team anticipates a +50bps
increase in the lending rate by YE2015. As previously mentioned, under this macro
environment, the lodging industry’s outlook is positive. Regarding the potential
negative impact from the expected increase in interest rates we think it would have a
limited effect on lodging RE players.
In terms of the impact of a 50 bps increase in interest rates on the valuation of RE
assets, we believe it will be compensated by additional organic growth coming from
the implied improvement in the economy (higher RevPARs). Furthermore, the
negative historical correlation of interest rates vs. U.S. REITs’ share prices should
not be the same for REITs in emerging markets like Mexico, with stronger growth
prospects in the RE industry. In other words, FIBRAs with a sound growth
component and value creation potential (reflected in dividend /CBFI growth) should
be less correlated to interest rates, following more their equity component. At the
end, the expected rise in interest rates is not material for FIBRAs. This is the case of
FIBRA Inn.
Mexico's GDP Growth Forecasts
4.5%
4.0%
USD-MX$ Forecasts
3.9% 3.9%
3.8%
3.9%
2.5%
14.3
14.2
$ 14.0
2.8%
3.0%
14.7
$ 14.5
3.4%
3.5%
$ 15.0
$ 13.5
2.0%
2.0%
13.0
$ 13.0
1.2%
1.5%
12.9
$ 12.5
1.0%
$ 12.0
0.5%
0.0%
$ 11.5
2011 2012 2013 2014 2015 2016 2017 2018
Source: Actinver.
Source: Actinver.
Interest Rate Forecasts
Mexico's CPI Forecasts
9.0%
8.0%
6.6%
7.0%
2011 2012 2013 2014 2015 2016 2017 2018
7.0%
7.5% 7.7%
4.5%
4.1%
4.0%
5.8%
6.0%
5.0% 5.0%
4.3%
5.0%
4.0%
3.0%
4.1%
3.0%
3.0%
2.0%
3.5%
3.5%
4.4%
3.5%
3.1%
3.0%
2.2%
1.0%
0.0%
2.5%
2011 2012 2013 2014 2015 2016 2017 2018
Source: Actinver.
2011 2012 2013 2014 2015 2016 2017 2018
Source: Actinver.
20
Lodging Industry: Mexico’s Moment Has Arrived
Mexico’s evolution over the last 30 years towards a more mature (service-oriented)
economy, along with its achievement of a certain level of economic and political
stability, is indicative that the country has reached an inflection point for its lodging
industry, the point at which a market evidences a boost in travel and lodging. Mexico
is poised to experience the faster, internally-driven economic growth experienced by
the U.S. in the 1960s, when it reached maturity with an economy driven by tertiary
activities (advanced personal and professional services, as well as experience-based
businesses).
In order to achieve that, Mexico still needs to accomplish a higher dynamism through
the implementation of its structural reforms and stronger investments in infrastructure
(as delineated in the Government’s National Infrastructure Plan). This will sustain the
country’s expanding middle class, economic growth, foreign direct investment, and
consequently, this economic progression, will derive in a spike in lodging growth.
“Business travelers and tourists are increasingly
seeking standards and consistency while owners
want access to larger reservation systems to
boost occupancy” (Jones Lang LaSalle).
We are basing this thesis on a paper developed by the RE industry expert Jones
Lang LaSalle (‘Economic transformation drives Latin America’s lodging industry’), as
it provides a complete analysis of the LatAm’s lodging industry, with a view that we
share. We are using Mexico’s case, thus we have intensified its particular analysis.
The U.S. 1960s’ And U.K. 1980s’ Lodging Evolution Experience
To begin with, we use the historical experience of the U.S. and U.K. economies as it
is a clear example and indicative of the evolution of travel and leisure development in
other countries, such as Mexico. According to JLL, the size, nature and sophistication
of a country’s hotel industry is directly related to the structure of that country’s
economy, which at the end represents the relative level of economic ascent.
The progression at which economies tend to advance towards maturation can be
categorized into 3 steps: 1) primary activities (agriculture), 2) industrial, and 3)
tertiary (personal, professional services and experience businesses). Tertiary
activities, particularly the ones generated by the private sector, have the greatest
impact on demand for travel, lodging and leisure. One of the fundamental reasons
behind this is that the evolution from agricultural to tertiary activities goes
accompanied by an increase in white collar professionals (implying superior GDP per
capita), who travel more for business and leisure, and in turn demand more hotel
rooms.
Economies’ Progression
Source: JLL.
As it is being observed in Mexico nowadays, the larger and more diversified sources
of lodging demand (types of clients and geographical dispersion), the higher the
growth potential and value creation hotel companies (/FIBRAs) can experience. Such
is the case of Hoteles City Express, benefitting through the development and delivery
of homogeneous hotel products across clearly identified price segments (brands and
markets), centralized sales and marketing offices, and reservation systems.
21
U.S. Employment By Segment
100%
8%
10%
32%
35%
28%
60%
24%
20%
18%
80%
55%
20%
18%
27%
80%
40%
2%
3%
37%
40%
1950
1960
52%
46%
0%
1980
2010
Source: JLL, The Economic Ascent of the
Hotel Business, Actinver.
Mexico's Employment By Segment 2014
80%
61%
60%
40%
24%
14%
20%
1%
0%
Not
Specified
Primary
Source: INEGI, Actinver.
Secondary
Tertiary
According to an analysis by Paul Slattery (book: ‘The Economic Ascent of the Hotel
Business, Second Edition’), a lodging inflection point emerged as a trend in the U.S.
in the 1960s, and in the U.K. during the 1980’s, when both economies reached a
~60.0% composition of service-oriented (tertiary) activities. From that point, lodging
demand began to increase at a stronger pace in both countries as a whole. During
the period from 1960 to 1980, the United States experienced a continued increase in
tertiary activities, from a 60% to an 80% weight of employment (mainly driven by
private services), with a pronounced decline in agriculture and industrial activities. As
a result, lodging demand increased significantly, leading to a 220% increment in the
number of hotel rooms supplied in the country, from 1,500 to 4,800.
The economic transformation of the U.S. has relevance for Mexico given the
importance of the political, economic and cultural relationship between both countries. In the case of the U.K., the relation with Mexico deals more with the dramatic
economic reforms Margaret Thatcher implemented in the country in 1979. The
implementation of these reforms had a clear impact on specific sectors in the U.K.,
which contributed to the evolution towards a more robust service-oriented economy.
Similar to other LatAm countries like Brazil, the Mexican economy has reached the
economic inflection point, with a 61% composition of tertiary activities (INEGI’s
statistics). Nonetheless, it is not sufficient by itself to continue with the country’s
transformation that ultimately boosts lodging demand. Several key drivers of the
economic transformation need also to be executed, such as: i) infrastructure
development, ii) implementation of structural reforms, and iii) access to higher
education. In conjunction with these drivers, which ultimately stimulate white collar
workforce and middle class growth, Mexico will also benefit from additional lodging
growth triggers such as: a) foreign direct investment (from its solid manufacturing
competitiveness and strategic location); and b) its demographics (growing working
population).
In the following pages we are going through the key transformational drivers of the
Mexican economy, some of which have already been put in place:
Tra nsforma tiona l Drive r
Me xic o's Ca se
Ma c roe c onomic P olic y
The Central Banks is independent. Policies have maintained
stability in inflation and long- term interest rates. Macroeconomic
stability.
De mogra phic s
The country has a young population (46% below the age of 24);
stable and low population growth rates; and a growing middle
class.
Home O wne rship
Mexico has i) subsidized housing / lending programs, ii) lender
protection, and iii) increasing home ownership.
G loba l Tra de
Mexico has become a magnet of FDI from its attractive business
environment, large network of free trade agreements (world's
largest), developed economic sectors, and its highly competitive
cost profile.
Infra struc ture Inve stme nt
The country has ~USD440 billion of published infrastructure
investment projects (562) in the transportation, energy, gas, oil,
and tourism sectors over the next 3 years.
Civil And S oc ia l
Mexico did progress on equal opportunity and employment
through the implementation of its Labor Reform in late 2012, which
mainly aims at increasing formalization. Mexico offers minimum
wages, and public and private healthcare and education.
Ec onomic De c e ntra liza tion
Since the 1980s, the Mexican economy has decentralized
gradually. There are state and local governments, targeted
infrastructure and development programs/projects.
22
Demographic Trend To Boost Demand For Hotel Services
Demographics is an important contributor to Mexico’s economic growth, so important
that it prevented the country from registering a zero GDP growth last year, we
believe. Mexico’s population (second largest in LatAm) is expected to reach an
estimated ~138 million by 2030, representing a 21% increase from 2010.
The future of an economy is heavily determined
by its evolving demographics. It plays a key role
in the local lodging industry’s long-term growth.
A relevant positive characteristic in Mexico is its higher proportion of youth compared
to developed countries. With an estimated 46% of the population under the age of
24, Mexico’s economy will benefit from a growing working population, rising
consumption levels and increased tax revenues.
According to the “Consejo Nacional de Poblacion”, or CONAPO, the youngest age
group (0-14 years old) will decrease at a CAGR of 1.0% from 2010 to 2050. People
with ages between 15 and 24 years will also represent a minor portion of the total
population (decreasing at a CAGR of 0.9% from 2010 to 2050). In contrast, the two
oldest age groups (25-64 years old and 64+ years old) will grow at a CAGR of 0.5%
and 3.8%, respectively, during the same projected period. The latter will become the
largest economic driver in the country as 75 million people are expected to be
economically active by this time. This age bracket should drive demand of hotel
services from business and leisure travelers.
Population Forecasts 2015-2035
Mexican Population Pyramid 2020E
160
140
Million inhabitants
120
114.3
121.0
127.1
132.6
137.5
91 - 95
141.8
Today
2020E
81 - 85
71 - 75
Age range
100
80
Women
Men
61 - 65
51 - 55
41 - 45
60
31 - 35
40
21 - 25
11 - 15
20
0-5
0
2010
2015
2020
Source: CONAPO, Actinver.
2025
2030
-6
2035
-4
-2
0
2
4
6
Inhabitants (MM)
Growing Middle-Income Class In Mexico
One of the main transformational drivers for the local lodging industry is the growth of
the middle-income class (MC) as it derives into a greater mass of potential users of
hotel services.
Mexico’s GDP per capita of USD15,930, which is only ~30% of that of the U.S., has
maintained a steady growth since the North American Free Trade Agreement
(NAFTA) in 1994. We strongly believe that Mexico will strengthen its position as a
key manufacturing hub in North America through major investments in infrastructure
(transportation, energy, communications, housing), education and health. This will
provide new employment opportunities (job creation) for its growing labor force.
Furthermore, as Mexico is able to capitalize the benefits from the energy reform,
promoting both on-shore shale oil and gas projects, as well as off-shore conventional
oil and gas projects, it will accelerate its economic growth. Without accounting for the
potential impact of the energy reform, the International Monetary Fund (IMF) already
expects Mexico’s GDP per capita to reach USD18,130 by 2016, representing a
CAGR of 4.4%
23
Mexico's GDP per capita PPP (USD)
Thousand US dollars
20
18
16
13.97
14.22
2007
2008
14
13.27
13.95
14.62
15.31
15.93
16.63
17.36
18.13
12
10
8
2009
2010
2011
2012
2013
2014
2015
2016
Source: IMF, Actinver.
According to the AMAI (Mexican Market Research Agency), the local middle-income
class (from low MC [D+] to high MC [C+]) has increased steadily since 2000, from a
total of 60% to 70%E (current) of the Mexican population (considering cities with
more than 50k inhabitants). We highlight several factors behind this development,
same which should continue driving Mexico’s progress in the years to come:
According to an analysis by the Mexican
Economist Luis De La Calle, the reduction in the
fertility rate and the economic stability have been
key factors in the development of the middleincome class in Mexico.
■ Economic growth and stability. Mexican GDP per capita has consistently
grown over the last ten years, from an annual income of USD11.9k to USD15.9k.
■ Controlled inflation levels.
■ Reduction in the size of the families. Local families have become more
conscious about the implications of having many children: less resources for their
education, health and professional development. Mexican families now have an
average of 2.0 children, significantly below the 7.3 mean of the 60’s.
■ Stronger participation of women in the labor force. The rate of women in the
labor force (15 to 64 years) has risen from 37.5% in 1980 to 44.5%. This has
been a strong driver of the MC expansion as joint revenues accumulated per
family are the country’s main MC originators, different from what is observed in
other countries, where the individual contribution represents a higher proportion.
New Incentives For Home Ownership
Mexico’s Financial Reform brought new incentives to homeownership. For starters, it
allows the transfer of mortgages from one bank to another with low transfer costs and
fees. Before the reform, for a mortgage transfer, the borrower had to pay an opening
commission (1.5% - 2.5% of the mortgage) and notary fees which range from 2.5% to
9.0% of the property’s appraisal value (according to Condusef), making it nearly
impossible for a borrower to transfer its mortgage.
Secondly, mortgage issuers are no longer able to condition a mortgage loan to other
services, which is commonly known as tied-sells. Lastly, the reform includes lender
protection laws, making easier for them to demand guarantees. Altogether, these
changes will catalyze the competitiveness in the country, increasing homeownership,
in our view.
24
Mexico, A Magnet Of Foreign Direct Investment
Manufacturing Labor Costs (USD/hour)
In 2013, Mexico took the second position as receiver of foreign direct investment
(FDI) in LatAm, after Brazil, reaching USD38 billion (boosted by the $13 billion
purchase of the rest of Modelo by Anheuser-Busch InBev). Up to September 2014,
Mexico received another ~USD15.3 billion, according to the Economy Ministry.
Manufacturing, accounted for 60% of the total FDI, but in 2013 it reached 74%. The
auto sector has been a relevant driver of manufacturing activity, representing one
fifth of all manufacturing in the country and ~4% of its GDP. By country, the U.S. has
been by far the largest investor in Mexico, representing 47% of the total FDI.
Norway
Switzerland
Belgium
Sweden
Denmark
Australia
Germany
Finland
Austria
France
Netherlands
Ireland
Canada
U.S
Japan
Italy
U.K
Spain
New Zeland
Singapore
Rep. of Korea
Israel
Greece
Argentina
Portugal
Czech Rep.
Slovakia
Brazil
Estonia
Taiwan
Hungary
Poland
Mexico
Philippines
This is widely explained by the fact that Mexico has become a global manufacturing
hub for many international companies. And this has not been driven only by its
proximity to the largest consumption market, but also by the following aspects that
have improved the country’s global competitiveness and attractiveness: 1) labor
costs; 2) manufacturing (utilities) costs; 3) facility of operation; 4) operation (tax)
costs; 5) accessibility to a wide number of markets (through its free trade
agreements); 6) low transportation costs; 7) infrastructure; and 8) macroeconomic
stability. We believe that Mexico is currently in an unsurpassable global position to
benefit from its manufacturing activity. All of this means business, and business
drives lodging demand.
Competitive Labor Costs, Looking South To Mexico
Mexico has become one of the most competitive manufacturing countries worldwide
due to the significant savings in labor costs its offers. According to a research by
KMPG (Competitive Alternatives 2014), Mexico is the lowest-cost country from the
study (the only emerging country considered). Mexico offers a 18.7% cost advantage
over the U.S., higher than the 7.2% offered by its other NAFTA partner, Canada.
0
20
40
As part of its study, KPMG examined the significance of the cost factors for the
services and manufacturing sectors. According to its results, the most sensitive cost
factor that a company considers when deciding the location of a project’s investment
is by far labor costs, representing a relative significance of 44% to 66% against other
key-location sensitive cost factors, such as facility costs, transportation costs, utility
costs, cost of capital, and taxes. Labor costs include wages and salaries, employerpaid statutory plans, and other employee benefits. It is worth noting that the study
ranges 12 manufacturing sector operations: aerospace, agri-food, automotive,
chemicals, electronics, green energy, medical devices, metal components, plastics,
precision manufacturing, pharmaceuticals, and telecommunications.
60
Source: U.S. BLS (2012), Actinver
Relative Significance of Key Location- Sensitive Cost Factors
S e rv ic e s
M a nuf a c t uring
74% - 90%
52% - 64%
9% - 11%
13% - 16%
44% - 60%
31% - 42%
5% - 7%
7% - 10%
F a c ilit y c o s t s (o ffice, facto ry, leasing)
T ra ns po rt a t io n c o s t s (ro ad, sea, air)
Ut ilit y c o s t s (electricity, natural gas)
C o s t o f c a pit a l (depreciatio n, financing)
4 % - 16 %
N .A .
1% - 1%
0% - 7%
2% - 6%
7% - 24%
2% - 8%
9 % - 2 1%
T a xe s
Inco me taxes
P ro perty taxes
Other taxes
2 % - 10 %
0% - 11%
0% - 0%
0% - 1%
6 % - 14 %
4% - 11%
1% - 3%
0% - 1%
La bo r c o s t s
Salaries and Wages
Statuto ry P lans
Ohter benefits
S o urc e : KP M G C o m pe t it iv e A lt e rna t iv e s 2 0 14 , A c t inv e r.
Labor Cost Com parison, Per Em ployee
S a la rie s & Wa ge s
A verage per
Emplo yee (USD)
Rank
N o rt h A m e ric a
C a na da
M e xic o
Unit e d S t a t e s
E uro pe
F ra nc e
G e rm a ny
It a ly
N e t he rla nds
Unit e d Kingdo m
A s ia P a c if ic
A us t ra lia
J a pa n
T o t a l La bo r
A verage per
Emplo yee (USD)
Rank
$ 65,504
$ 29,105
$ 70,125
6
1
7
$ 89,038
$ 40,648
$ 102,249
3
1
9
$ 56,126
$ 75,715
$ 60,848
$ 64,433
$ 58,925
2
10
4
5
3
$ 93,450
$ 104,440
$ 92,287
$ 93,074
$ 82,930
6
10
4
5
2
$ 73,210
$ 71,607
9
8
$ 99,093
$ 94,067
8
7
S o urc e : KP M G C o m pe t it iv e A lt e rna t iv e s 2 0 14 , A c t inv e r.
25
Even when compared to China, Mexico has become much more attractive as a
manufacturing hub. Years ago, China’s low-cost labor force wages, a weak yuan,
and high investment, made it a very attractive manufacturing location. Many U.S.
companies headed there. However, over time, the yuan appreciated, wage inflation
picked up, and supply chains turned more complicated, which together made
transportation costs less affordable. For example, the number of days required to
transport a container by sea from China and from Mexico to important distribution
and consumer centers such as New York, Los Angeles, Hamburg, and Cape City,
differ significantly between the two. It takes 6 days to transport merchandise from
Mexico to New York, while it takes 31 days when parting from China. This translates
into a higher total cost that is not longer sustainable for manufacturing companies in
the U.S. and other countries.
Comparison Of Transportation Routes Between Mexico And China
Source: PRO Mexico, Secretaria de Economia, Actinver.
According to our forecast (based on recent years trend) labor costs in China are now
29% higher than those in Mexico. This reflects the magnitude of the rising trend
China has presented since 2005, when their costs were 66% lower.
$3.50
50%
$3.00
29% 40%
$2.50
30%
$2.00
20%
$1.50
10%
-66%
$1.00
0%
$0.50
-10%
$0.00
-20%
2005
China
2006
2007
2008
Mexico
2009
2010
2011
2012
China's YoY Change
2013 2014E
Mexico's YoY Change
Source: WSJ, TACNA Services, Actinver.
26
YoY Change
Wages (USD/Hour)
Mexico vs. China's Manufacturing Wages (USD/hour)
Mexico Has Become A Clear Manufacturing Winner
This has resulted in many U.S. companies searching for new alternatives to offshore
their operations, with Mexico being the most competitive place to manufacture goods
(probably the most cost-competitive place to manufacture certain goods for all over
the globe). Some of these companies include Caterpillar, Chrysler, Stanley Black &
Decker and Callaway Golf, which have expanded their operations in Mexico.
This has supported a growth of ~30% since 2010 of trade between U.S. and Mexico,
to USD507 billion annually. Please recall that foreign direct investment (FDI) in
Mexico last year reached a record USD35 bn. Over the past few years, manufactured
goods from Mexico have represented a larger share of the U.S. import market, with
roughly 14% of its total, according to the International Monetary Fund, while China’s
share has declined.
Geographical Distribution Of Trade
Mexico is also benefited from the North America Free Trade Agreement (NAFTA)
and other international free trade agreements, which together add 12 (with 44
countries), making Mexico the most open country to international trade in the world.
This gives it preferential access to more than 1.2 billion potential customers and add
up to 60% of the world’s GDP.
Also, Mexico has a better manufacturing cost profile than many countries, including
Russia, India and China. Average electricity costs are ~4% lower in Mexico vs.
China, and the average price of industrial natural gas is ~63% lower, according to a
study by the Boston Consulting Group.
Moreover, the facility of operation, as measured by the procedures and time required
to open or close a business, or to obtain a construction permit (critical to success in
international business) is more attractive in Mexico than other manufacturing
countries. In Mexico, investors require only 6 procedures and 9 days to open a
business, and 10 procedures and 69 days to obtain a construction permit. These
numbers are noticeably lower than Brazil (119 days to open), India (27 days to open)
or China (33 days), according to PRO Mexico (Secretary of Economy).
Source: Terrafina, Actinver.
All together, these factors, along with the country’s infrastructure and macroeconomic
stability (previously covered) makes Mexico a clear global winner for manufacturing
operations and investments, in our view.
A Stronger Investment In Infrastructure Is Coming
Infrastructure developments are key drivers of economic growth as they provide
higher communication, transportation / connectivity, as well as cheaper electricity.
They also help make possible new business and commerce requiring more business
travel. At the time an investment project takes place in a specific location, its lodging
occupancy reaches a maximum level, as available rooms are demanded by workers
and executives of the project. As the project reaches completion, hotel supply
demanded tends to increase.
Mexico currently has ~USD440 billion of published infrastructure investments, within
562 projects in the transportation, energy, gas and oil sectors (main drivers of lodging
demand). The majority of these investments form part of the country’s National
Infrastructure Program (NIP) for the 2014-2018 period, which also aims at other
sectors such as Water, Health and Housing. The total program represents a total
investment of MX$7.7 trillion (USD$587 billion). Mexico’s Minister of Finance and
Public Credit, Luis Videgaray, mentioned that the NIP will have an impact on
economic growth and will contribute with between 1.8 to 2.0 percentage points to the
GDP by the end of the current administration (2018) and is expected to generate
350,000 new jobs to the Mexican economy. It is worth noting that recently, Mexico’s
government announced cuts to some of 2015 infrastructure investments, such as
fast-train projects Mexico-Queretaro and in Yucatan. However, current ongoing
projects such as Mexico City’s new airport, will derive into higher lodging demand in
the long-term.
27
Investment highlights from the Mexican PNI are the following:
■ 262 oil, energy and gas projects totaling USD300.0 billion;
■ 217 transportation investments totaling USD49.5 billion; including 2 bullet trains
that will connect Mexico City with the cities of Toluca and Queretaro; and
■ 83 tourism related projects amounting to USD13.9 billion.
Main Infrastructure Projects In Mexico
From the aforementioned investments, we highlight 4 of the most relevant projects in
Mexico for the following years: 1) ‘Mexico Conectado’ / USD270.0 million; 2) New
Mexico City International Airport (NAICM) / USD13.0 billion; 3) Lazaro Cardenas Port
expansion / USD300.0 million; and 4) Passenger (PAX) bullet trains Mexico City Queretaro and Mexico City - Toluca / USD6.2 billion.
1) ‘Mexico Conectado’ (Connected Mexico) / USD270.0 million investment. This
project was launched by Mexico’s Ministry of Communications and Transport (SCT)
in 2013 seeking to boost broadband, free Internet access across the country. It
covers the deployment of broadband lines in over 250,000 public spaces, including
schools, government institutions, public plazas and hospitals by 2018. By July 2014,
officials said they have covered 40,000 sites and that the number will rise to 65,000
by the end of the year. Through this project, the governments aims at expanding
internet penetration to 60% of the population, currently at 36.5%, according to INEGI.
Mexico Conectado’s Broadband Coverage
Source: SCT, Actinver.
The development of the ‘Mexico Conectado’ project comprises 5 phases:
■ Installation of State Coordination Committees. For each of the 32 federal entities,
these committees define the universe of sites and public spaces to be covered, as
well as their available assets and specific needs.
■ Planning. The inventory of sites and public spaces to be connected is conformed,
the minimum floor of required broadband is defined, and the information on the
field is validated.
■ Tender. Design and execution of the tender process.
■ Implementation. Network deployment to offer connectivity.
■ Operation. Administrative, operational and technical monitoring.
28
New Mexico City International Airport (NAICM)
2) New Mexico City International Airport (NAICM) / USD13.0 billion investment.
The NAICM is another project launched by the SCT intended to replace Mexico City’s
current airport due to its saturation and capacity limits to remain competitive at an
international level. It is worth noting that it is one of the 3 largest airport infrastructure
projects in the world.
Mexico City’s airport plays a key role for the country’s economy, as it attends 1/3 of
the total passengers in Mexico, and 56% of the goods traded by air with the rest of
the world. The current AICM will not be able to attend new demand coming from new
investments and would limit Mexico’s economic growth expected for the years to
come on its capacity constraints.
The NAICM will have 6 runways with capacity of triple simultaneous operations (1
million /year) and 120 million PAX annually (vs. current AICM’s capacity of 32 million
PAX). It is expected to become the 3rd largest in terms of capacity, after LondonBritain airports (172 million PAX) and the new airport of Istanbul (150 million PAX).
Source: T21mx, Actinver.
The New AICM will have a LEED platinum
certification. The project has been designed to
use clean local energy among other factors
required to obtain such certification.
The NAICM will have 24 new water treatment
plants, access to drinking water, a 25 km sewer
system, waste disposal control, green areas
(including a new 670-hectare new metropolitan
forest). Given its location, it will also reduce noise
levels in the city.
The total estimated investment for the NAICM is USD13.0 billion (MX$169,000 Bn),
from which 58% will be financed through public funds and 42% trough the private
sector (banking credits and bonds). The resources will be mainly used for the
development of the airport’s infrastructure, which includes a terminal, the airport
traffic control tower, runways and auxiliary facilities.
The project comprises 2 phases:
■ Phase 1: Consists of 3 simultaneous runways with a capacity of 550k operations
and 50 million PAX per year, 94 contact gates, and 42 remote positions. This
phase is expected to be completed in 5 years.
■ Phase 2: In this phase the NAICM will reach its maximum capacity of 120 million
PAX per year with 6 runways and 1 million operations.
As shown in the exhibit below, the NAICM will be located at a 10km distance from the
current airport, in the municipality of San Salvador Atenco. The NAICM is expected to
have a 300 sqkm of impact zone, covering 14 municipalities within MCMA.
Location For New Mexico City International Airport (NAICM)
NAICM
Source: Google Earth, Actinver.
29
Connectivity Of Lazaro Cardenas Port
3) Lazaro Cardenas Port expansion / USD300.0 million investment. This project
by SCT was granted to APM Terminals, an international container operating
company from the Netherlands (part of Maersk Group), with a 32-year concession. It
includes the design, construction and operation of a new terminal at Lazaro
Cardenas port, representing a USD300.0 million investment. This new terminal is
part of the Mexican government’s plan to double port capacity over the next 6 years
to meet estimated growth coming mainly on the Trans-Pacific trade corridor.
The 1st phase of the construction of this Terminal 2 (TEC2) will include 750 meters of
quay, 5 ship-to-shore cranes, 22 automatic stacking cranes and two railway cranes. It
will be able to accommodate large container vessels. According to APM Terminals,
the first 300 meters of quay will be ready in 1Q2015, followed by the installation of
the container-handling equipment. The completed terminal is expected to add 4.0
MM TEUs of annual throughput capacity, scheduled to open in the first half of 2016.
The port’s actual container movement is 1.3 MM TEUs per year.
Source: Handbook Puerto Lazaro Cardenas, Actinver.
Mexico's Commercial Cargo Participation
Altamira
14%
Lazaro
Cardenas
24%
Veracruz
18%
Manzanillo
21%
Others
23%
The project also considers an intermodal transport corridor linking Lazaro Cardenas’
marine terminal with APM Terminal’s intermodal facility in Mexico City, facilitating
trade with the central region.
New terminal to boost long-term growth. Kansas City (KCS), exclusive provider of
rail service in Lazaro Cardenas, expects to observe sustainable double-digit revenue
growth at the port with the new APM Terminals’ facility. KSC registered a 19% yearover-year increase in intermodal traffic from Lazaro Cardenas in 3Q2014, mainly on
the back of inputs into Mexico’s automotive and white goods manufacturing sectors.
Other players such as SSA Marine (company in which Fernando Chico Pardo has a
49% stake) and Hutchinson Port Holding (marine terminal operators) are also
expanding operations at the port. On September, 2014, Hutchinson Port finished the
2nd phase of a USD193 MM investment in a container terminal upgrade. It included a
new dock and yard, as well as the instasllation of 7 super-post-Panamax cranes and
18 yard cranes, according to BNamericas. On October 4, 2013, SSA Mexico
commenced vehicle processing operations. Vehicles manufactured in the country
were loaded for export to Latin American destinations aboard the NYK Line vessel,
and MV TALIA. SSA Marine is also involved in the construction and operation of a
major RoRo (Roll-on/Roll-off) facility. It will offer 600 meters of waterfront, 2 berthing
positions dedicated to RoRo vessels, 42 hectares of storage yard, and an array of
vehicle services. When all of the ongoing projects at Lazaro Cardenas port are built
out, its capacity will reach 6 to 6.5 million TEUs, making it a global competitive port.
Lazaro Cardenas Port’s Map
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
Specialized Container Terminal
Multipurpose Terminal I
Multipurpose Terminal II
Bulk Grain Terminal
Dismantling Ship Terminal
Bulk Mineral Terminal
Coal Terminal
Metal & Mining Terminal
Fertilizers Terminal
Fluids Terminal
Health Inspection Checkpoint
Yard for Storage
Vegetable Oil Terminal
Specialized Container Terminal II (Under Construction)
Specialized Automotive Terminal (Under Development)
Multipurpose Terminal III
Strategic Bonded Warehouse (Under Development)
Transport Logistics Activities Centre
Port Parking
Local Maritime Custom
Natural Liquefied Gas Terminal (Project)
Coal Terminal II (Project)
Shipyard (Project)
30
Mexico City – Queretaro Train Project Map
4) Passenger (PAX) bullet trains Mexico City - Queretaro and Mexico City - Toluca / USD6.2 billion investments. The Mexican government, through the SCT, has
in stand-by three passenger train projects worth MX$97.0 billion (USD7.4 billion), two
of which will connect Mexico City with the cities of Toluca and Queretaro, and one
that will traverse tourist destinations along the Yucatan peninsula in the southeast
region of Mexico. Both public and private funds will be used to build the projects,
according to the SCT.
The Mexico City - Queretaro train will cost ~USD3.3 billion. Its route will consist of
237 kilometers (147 miles). Before the government postponed indefinitely this
project, CAF and Bombardier were two of the companies that reiterated their
interests in participating, subject to the final bases of the second tender. This project
was expected to conclude by 2H2017 and will be the first of its kind in LatAm. We
expect to hear news of this project during 2016.
Source: SCT, NIP, Notimex, Actinver.
The Mexico City - Queretaro bullet train’s travel
time will be of 1hr and 2 minutes, 2 hours less as
compared to the current travel time spent by car.
Recap on Queretaro’s industrial market: It is one of the key transportation centers
in Mexico, located in an equidistant distance from Monterrey, Guadalajara, and
Mexico City. It has good access to some of the main commercial ports (Manzanillo
and Tampico) and has a well educated labor force. QRO’s market is experiencing a
solid economic growth, driven by investments from companies dedicated to hightech, mainly from the aerospace sector. Queretaro’s industrial landscape has also
been expanded by other sectors, including home appliances, auto parts, food &
beverage, ITC’s, and agro industries. Some companies representing these sectors
include GE, Samsung, Kellogg’s, Siemens, Bel-corp, and Mitsubishi Electric.
The Mexico City - Toluca train will cost ~USD2.9 billion. The electric train will travel
at speed of up to 160kph along its 57.7km route between Observatorio in Mexico City
and Zinacantepec in the State of Mexico. The line will have four stations (Bus
Terminal, Metepec / Toluca Airport, Lerma, Santa Fe) and 2 terminals (Observatorio
and Zinacantepec). Pre-operation testing is expected to start in 4Q2017.
Recap on Toluca’s industrial market: It is located 30 minutes from MCMA, is an
interesting option for companies aiming to move and seeking an alternative in the
central region. This reason, along with the car manufacturing demand for space, has
led to steady growth in this market in recent years.
Mexico City – Toluca Train Project Map
The Mexico City - Toluca train travel time will take
39 minutes and is expected to transport 270,000
PAX a day, cutting journey times by 90 minutes
and potentially reducing the flow of vehicles by
more than 200,000 a day.
31
The Yucatan Transpeninsular fast train project will cost ~USD1.2 billion. This
project was announced since 2011 and it was initially expected to be executed in
2012. However, its execution an development plans were delayed on the project’s
size-related complications and characteristics. Same as with the other projects, this
was postponed indefinitely as part of the recent cuts of the government to its
expending. Once reactivated, this project is expected to represent a USD1.2 billion
investment in which, since the beginning, ASUR (Mexican airports’ operator) has
being interested in participating.
The project consists of the necessary works to implement a fast train with an average
speed of 120 kilometers per hour in a route of 336 kilometers between Merida,
Yucatan, and Punta Venado, Quintana Roo. It is estimated that at least one million
passengers per year travel through this train (400 passengers daily). In addition, it is
expected thousands of tons of cargo to be transported by the railroads. According to
the SCT, cargo transportation costs would be reduced by 55%.
In its first stage, the route will start in Merida,
Yucatán up to Punta Venado, Quintana Roo,
going through Tixkokob, Tekantó, Tunkás, Dzitás
and Chemax. The stations will be located strategically in Izamal, Chichén Itzá, Valladoid and
Cobá, highly frequented places by foreign visitors. In its second stage, the project plans to join
Progreso and extend the route to Uxmal and
Campeche. On the other hand, Quintana Roo’s
states will be connected to Cancun.
Yucatan Transpeninsular Train Project
Transpeninsular Train
Highway
Source: LMB, SCT, Actinver.
Improving The Mexican Rail Industry
Apart from the PAX fast trains under way, the Mexican government also plans to
extend its rail services to improve connectivity with the U.S.. As aforementioned,
Mexico is driving U.S. corporations to build factories in the country and then ship their
goods back to the north. With an improved railroad infrastructure, raw materials and
goods will be shipped south from the U.S. and finished products will be transported
north from Mexico. This service will turn more reliable and shippers will shift their
operations to trains, especially intermodal, on its cost advantage.
According to the media, the government has been working on projects that will
support the rail industry’s growth. For instance, the recent proposal for amending the
Customs Law includes a provision that enables railroad as a vehicle for importing
and exporting merchandise. A second one is the freight project for the Honda plant in
Guanajuato (Bajio), which operations were initially intended for transporting out of
factory, delivering to trailers for crossing the NAFTA road to export. And lastly, as we
have already mentioned for the case of the port of Lazaro Cardenas, upcoming
expansions for the ports of Veracruz, Guaymas and Manzanillo will be also intermodal friendly, which increases possibilities for railway connection at some point.
32
The Energy Reform Will Bring Additional Investments In The Long Term
Location Of Oil Investment Projects In Mexico
We would like to highlight the importance of the energy reform on LT economic
growth, as it will have a clear impact in the hotel sector. Mexico’s oil and gas
industries will create 0.5 million jobs by 2018 and 2.5 million new jobs by 2025, many
of which will be along the Texas-Mexico border. Foreign and local participants of the
petrochemical, oil and natural gas industries will invest near USD100 billion over the
next years.
Despite the sharp decline in oil prices, the positive longer term prospects from the
energy reform in the country remain. Expected investments from the first round (first
auction projects) of the energy reform in 2015 will not stop. However, we do believe
that current oil prices will derive in a delay in other oil production projects (CapEx
reduction) due to the tighter short-term cash flow generation from global firms.
Area
Volume
(MMBOE)
Blocks /
Fields
Deep Waters
1,591
11
Area Perdido Project
3,222
17
Deep Waters
2,678
28
South
8,927
62
Chicontepec & Non-Conventional
1,204
32
Land, shallow waters and extraheavy oils
724
11
Non-Conventional
142
8
Source: SENER, Actinver.
Mexico’s Shale Gas Reserves
The first phase which contemplates conventional projects (excluding shale gas and
oil) are already attracting global companies (including from the U.S. and Canada),
given the long-term nature of the investments and their higher profitability (breakeven in the range of USD20-30 /bbl). We also think that given the tighter economics
of oil production from shale resources in the U.S. (particularly in Texas) companies
will turn the look to Mexico’s energy reform projects.
With the benefits of the energy reform, namely lower energy costs, Mexico’s
manufacturing position will improve even further. Apart from Pemex investments and
co-investments with private companies in the oil sector, long-term investments in
shale gas could become quite relevant as Mexico has one of the world’s largest
resource bases (17 trillion cubic feet of proved natural gas reserves), which could
support increased natural gas reserves and production. While the southern region
contains the largest share of proved reserves, the northern region has the potential to
be the center of growth in future reserves, as it contains almost 10 times as much
probable and possible natural gas reserves.
Most of Mexico’s shale gas reserves are located in the northeast and east-central
regions, as observed in the following exhibit (Mexico’s Shale Gas Reserves). The
Burgos Basin, which accounts for the majority of Mexico’s technically recoverable
shale gas resources, begins in Eagle Ford in Texas. It is considered by EIA to be
Mexico’s most promising prospect and a prolific source of natural gas production.
According to the U.S. Energy Information Administration's (EIA) assessment of world
shale gas resources, Mexico has an estimated 545 Tcf of technically recoverable
shale gas resources (6th largest in the world).
Chihuahua is one of the states with the largest gas pipeline network in the country,
which go to main cities (Cd. Juarez, Delicias, Cuahutemoc and Parral). Five
additional pipelines are cunder construction with an investment of MX$29 billion,
intended to reach Sinaloa and the port of Lazaro Cardenas. The energy reform will
detonate the exploitation of energy deposits in the region.
We believe that Monterrey (north region), along with the gulf and southeast regions
of the country, will be one of the main beneficiaries from this reform. As the most
important industrial center in Mexico, Monterrey is poised to receive significant
inflows from FDI that will be originated by this reform. The expected growth in the
energy sector will also have indirect effects on manufacturing and services. All of this
means business, and business means lodging demand.
Source: EIA.
33
The Mexican Auto Industry, Another Key Driver Of Growth
Mexico’s auto industry has been the main driver of the economy during the last
quarters, contributing with over 20% of the total manufacturing activity and with ~4%
of the country’s total gross domestic product (GDP). It is quite remarkable that
Mexico has become the 8th largest light vehicle manufacturer in the world, with a
3.6% share of its output. Furthermore, it is also the 4th largest exporter of light
vehicles, just below Germany, Japan, and South Korea, which are home countries of
some of the largest OEM manufacturers. This has also translated in job creations,
higher wages, and a boost to middle-class growth.
According to the Mexican Automotive Industry Association (AMIA), Mexico produced
2.9 million light vehicles in 2013 (+1.7% vs. 2012), reaching a record level. In its last
publication, AMIA announced that Mexico’s output increased 9.8% YoY in 2014 to
3.2 million units. Exports represented 82% from the total, rising 9% YoY to 2.6 MM
units. In the last month of 2014, light commercial vehicle production totaled 208.5
thousand units, which was a record-high number, increasing 27% YoY.
Light vehicle production in the last 12 months has
already surpassed the 3.10 million expectation for
2014 from the industry experts.
This remarkable performance is expected to continue during the following years.
According to forecasts from IHS Automotive, AMIA, and Mexico’s Auto Parts National
Industry Association, and MexicoNOW, light vehicle production in Mexico will reach
3.5 million in 2015 (+9% YoY), to therefore increase at a 7% CAGR until 2020.
Mexican Total Light Vehicle Production (Annual)
U.S. Light Vehicle Sales (SAAR)
5.0
5.0
4.5
3.5
3.0
2.6
2.9
2.9
3.2
3.5
3.7
18.0
16.8
17.0
16.0
15.2
15.3
2012
2013
15.0
Million units
Million units
4.0
4.0
4.3
4.6
2.5
2.0
12.4
13.0
12.0
1.5
11.0
1.0
10.0
0.5
9.0
0.0
13.5
14.0
11.1
10.2
8.0
2011
2012
2013
2014 2015E 2016E 2017E 2018E 2019E 2020E
Source: Bloomberg, Amia, Actinver.
2008
2009
2010
2011
2014
Source: Bloomberg, Actinver.
It is worth saying that this has been mostly driven by the U.S. market. In that country,
sales based on a seasonally adjusted annualized rate (SAAR) increased to 16.8 MM
in 2014 from the previous year level of 15.3 MM units (+10% YoY), maintaining its
strong momentum.
This strong U.S. auto sales observed during 2014 is expected to continue in 2015.
Some of the factors behind this positive behavior are: i) high incentives by automakers, ii) low interest rates, iii) increasing employment rate, iv) improving consumer
confidence, v) recovery of the U.S. housing market, and vi) lower oil prices. Also, the
improvement in the overall U.S. economy is leading banks and sellers to offer more
car loans at lower interest rates and longer maturities, causing a higher replacement
demand for new cars (from older used cars) and auto parts. More recently, the rapid
decline in gasoline prices has also added to this behavior.
However, Mexican auto industry outstanding growth has also been explained by the
large investments made by original equipment manufacturers (OEMs) during the last
four years. According to MexicoNOW, this investment totaled USD12 billion, from
which USD6.45 billion were for new plants from GM, Daimler, Nissan, VW, Mazda,
Honda, Audi, Chrysler, and Ford.
34
With the investment from new OEMs, establishing production facilities in the country,
Mexico’s auto industry is becoming a more diversified place in terms of OEMs. The
local market has production facilities of 9 OEMs (Nissan, Toyota, Ford, Chrysler, GM,
Fiat, Honda, Mazda and VW), and already expecting investments (already
announced) from 4 additional auto makers (BMW, Audi, Hyundai and Kia).
We highlight the latest OEM investment announcements: BMW and Hyundai-Kia. On
July 2, 2014, Germany-based BMW said it plans to invest USD1 billion in a new
factory in Mexico. This would be the company’s second plaint in North America, and
is expected to produce 150,000 cars per year (1 and 3 model series). The facility will
be located in San Luis Potosi, employing 1,500 people, according to Bloomberg.
On the other hand, Hyundai and Kia have plans to enter the Mexican market with a
production plant. Their new manufacturing facility would require a total investment of
USD1 billion and would deliver 300,000 vehicles a year. It is expected to be located
in Monterrey, Nuevo Leon.
Light Vehicle Manufacturers In Mexico
Tijuana
Hermosillo
Chihuahua
378,000 u/yr
610,000 u/yr
Saltillo
Ramos Arizpe
63,000 u/yr
320,000 u/yr
400,000 u/yr
190,000 u/yr
302,400 u/yr
Monterrey
300,000 u/yr
San Luis Potosi
360,000 u/yr
Aguascalientes
100,000 u/yr
550,000 u/yr
El Salto
60,000 u/yr
Silao
360,000 u/yr
330,000 u/yr
Salamanca
Celaya
230,000 u/yr
200,000 u/yr
Toluca
Puebla
Cuautitlan
Morelos
500,000 u/yr 150,000 u/yr
100,000 u/yr 140,000 u/yr 562,000 u/yr
324,000 u/yr
300,000 u/yr
Source: Companies’ data, Reuters, Bloomberg, press articles, Actinver.
We already mentioned the main magnets for foreign direct investment in Mexico,
however, OEMs also find particularly attractive its large and qualified auto parts
supplier base. As an example is Nemak (subsidiary of ALFA Corp), a local auto parts
producer with annual sales of over USD4.8 billion, which is ranked among the top
100 global auto parts supplier, as the #52 according to Automotive News.
35
Investments for the auto sector are expected to continue. We have identified
investments and projects made during 2014 (some of which have not been completed so far) from auto part suppliers, OEMs, and other auto-industry related companies
for a total of USD9.15 billion, including those of Hyundai-Kia and BMW.
In the following exhibit, we present the breakdown by markets of the aforementioned
investments. Please note that we are using different colors to identify the different
industrial regions of Mexico: blue for the north region, green for Bajio, purple for the
central region, and orange for the southeast region. We use this as reference in all
the maps shown in this report.
Mexican Auto Industry: Main Projects / Investments In 2014
Coahuila
Chihuahua
Baja California
Katzkin (auto seats): USD12 MM
Paccar (truck assembly, OEM): USD400 MM,
new truck models assembly
Santek (auto screens and electronic parts):
USD5 MM
Sonora
Bosch (high tech auto products):
USD240 MM
Delphi (auto harnesses): USD109 MM,
new engineering projects
Electrical Wring System: USD10 MM
Federal Mogul (machining and
stamping): USD29 MM
Yazaki (harnesses and assemblies):
USD12 MM
TE Connectivity (cables and
components): USD54 MM
Chrysler (auto OEM): USD164 MM, expansion for Tigershark
engines
ISE Metal (metal stamping): USD12 MM
Sumitomo (electric wiring systems): USD19 MM, distribution
center
W.E.T. Sistemas Automotrices: USD6 MM, second plant
construction
Nuevo Leon
Accuride Corp (break systems for trucks): USD40 MM, new plant
Daimler (truck assembly, OEM): USD19 MM, bus-assembly plant
expansion
Mercedes-Benz (buses assembler): USD20 MM, expansion, new
assembly line
Ternium (steel): USD1,000 MM, 2 new plants
Aguascalientes
Tamaulipas
Beyonz (engine, transmission, and suspension
Eagle Industry (air conditioning system
Howa Textile Industry (auto interiors): USD20
MM, new plant
Jatco (auto transmissions): USD220 MM, 2nd plant
construction
Nissan (auto OEM): USD14 MM, diesel engines
Vesta (RE developer): USD57 MM, Nissan A2
complex suppliers park
Toyoda Gosei (auto parts): USD8 MM
TRW (seatbelts division): USD6 MM, expansion
Alcom (radios and electrical wiring): USD18.5 MM,
expansion
KSM (electric harnesses): USD1.5 MM
Posco (steel): USD23 MM
San Luis Potosi
GM (auto OEM): USD131 MM, transmissions
plant expansion
BMW (auto OEM): USD1,000 MM, new plant
JTEKT Corp (electric power steering
Midori Anzen (steel): USD38 MM, expansion
Ronal Group (aluminum wheels): USD125 MM
Jalisco
Continental (R&D center): USD29 MM
Daido Metal Co (electro-mechanic components and
bearings): USD46 MM, new plant
Honda (auto OEM): USD7 MM, CR-V plant expansion
Bosch (high-tech products): USD460 MM, services
and R&D center
Veracruz
Continental (auto tires): USD3.9 MM
Guanajuato
Denso (auto alternators): USD51.4 MM, expansion
Eagle Ottawa (auto leather products): USD40 MM
GM (auto OEM): USD349 MM, new transmissions plant
GKN Driveline (powertrain shafts): USD40 MM
Hanwa Steel (prints sheets for vehicles): USD40 MM
Hella (auto lighting): USD100 MM
Hirotec Tooling de Mexico (tools / doors): USD59 MM,
expansion
Mazda (auto OEM): USD770 MM, Mazda 3 sedan and
engines
NSK (engine components): USD70 MM
Pirelli (tires): USD200 MM
Posco MPPC (steel): USD25.4 MM
Showa Corp.(electric steering systems): USD50 MM
T-Stech (transmission and suspension parts): USD47 MM
VW (auto OEM): USD118 MM, new engines configuration
Hidalgo
Queretaro
BRP (recreational vehicles):
USD100 MM
Mitchell Plastics (plastic
injection): USD20 MM
Mitsubishi Electric
Automotive (auto
Trope Autoparts (metal
stampings): USD65 MM
State of Mexico
Bosch (high tech auto
products): USD300 MM
Daimler Trucks (truck
assembly, OEM): USD45
MM, expansion, equipment
modernization
GM (auto OEM): USD211
MM, Toluca’s expansion
complex
Dina (bus assembler, OEM): USD14 MM
Puebla
Alstom (electric power gen.): USD9.7 MM
Audi (auto OEM): USD1,300 MM, Q5
model
Concours Mold Mexicana (mold
manufacturing): USD6.5 MM, plant
expansion
Source: Companies’ data, Reuters, Bloomberg, press articles, Actinver.
36
The Strategic Aerospace Industry
The aerospace industry is becoming another key long-term growth driver for the
Mexican economy. It is a strategic sector for the development of the country on its
competitive manufacturing advantages and its relevant potential impact on the
Mexican GDP. Nowadays Mexico is the 6th provider of the U.S. aerospace industry
and one of the main players in the world (number 15).
The industry has also led to an increase in demand for industrial RE space and
lodging on its sound growth rates. It has registered a CAGR of 19% during the last 7
years. The main beneficiaries are definitely the industrial FIBRAs and lodging
companies with exposure to the sector in the markets of Queretaro, Baja California
Norte, Sonora, Chihuahua and Nuevo Leon.
The local sector comprises 270 companies (79% MNF, 11% MRO and 10% D&I) and
support entities (the majority being certified by global NADCAP and AS9100), which
employ more than 34,000 high-level professionals in 18 states. It is worth noting that
Mexico’s highly-qualified and competitive labor force has become another
competitive advantage. As a matter of fact, the advanced reengineering center of GE
in Queretaro designs the jet Genx turbine, used in the Boeing 787 fleet. There are
currently ~745,000 university students in the careers of Engineering and Technology,
which represents the largest source of engineering talent of America.
Additional job creation from this sector has a greater impact on the economy on its
higher remuneration and growth record. According to FEMIA (Mexican Federation of
the Aerospace Industry), salaries in the aerospace industry are equivalent to 1.4
times the salaries of other manufacturing sectors.
According to the last published data on the sector, in 2012 exports reached
USD5,040 million (87% to the U.S.) and the foreign direct investment (FDI) was
USD1,300 million, accumulating USD4,200 million in the last 4 years. Local and
foreign investments amounted to USD15,000 million in that year.
Strong momentum expected to remain in the long-term. Mexico’s aerospace
industry will maintain its solid double-digit growth rates for the years to come,
sustained by its positive momentum and through the implementation of a national
strategic program developed by the Secretary of Economy and FEMIA.
The National Strategic Program of the Aerospace Industry is based in 5 strategies: 1)
promotion and development of the internal and external markets, 2) strengthening
and development of the industry’s capacities, 3) development of the necessary workforce, 4) technology development, and 5) development of transversal factors such as
an institutional framework, a specific support program for the sector, financing,
among others.
Aerospace Companies In Mexico
500
450
400
350
300
250
200
150
100
50
0
Accumulated FDI (USD million)
Employment - Professionals
450
350
238
120,000
110,000
100,000
$ 50,000
80,000
$ 40,000
60,000
$ 30,000
31,000
40,000
65
20,000
38,000
2011
2015
Source: Vesta, FEMIA, Actinver.
2020
$ 48,000
$ 27,500
$ 19,300
$ 20,000
10,500
$ 10,000
$ 4,300
$0
0
2004
$ 60,000
2004
2011
2015
2020
2004
2011
2015
2020
37
The program’s objectives are the following: i) to place Mexico among the 10 top
global aerospace players (from its current 15th position), ii) to have annual exports of
USD12.0 billion, iii) to employ 110,000 people, and 4) to make it represent 50% of
the national industrial manufacturing. According to Vesta, more than 20k commercial
aircraft will be placed in the next 8 years in the country.
Mexico’s Key Aerospace Locations
Design &
Engineering
In addition to the National Strategic Program of the Aerospace Industry, strategies
are being developed in order to define the specialization that each of the federal
entities will maintain in the industry, given their capacities and industrial niches. This
specialization comprises the following divisions:
Components
Manufacturing
Recycling &
Reconversion
Aircraft
Assembly
Source: ProMexico, FEMIA, Actinver.
Maintenance
1)
2)
3)
4)
5)
design and engineering,
recycling and reconversion,
aircraft assembly,
maintenance, and
manufacturing of components
We highlight the characteristics on the main markets of the Mexican aerospace
industry (based on information from the Secretary of Economy, FEMIA and ProMexico) as follows:
Chihuahua. The maturity reached by the aerospace industry in this market has
enable it to attract strategic projects from leading companies on high-tech, and dual
goods & restricted use. The specialization of this market has been identified as
precision manufacturing.
Industry experts expect this market to become the most important in high-tech, dual
goods and precision manufacturing in LatAm by 2016. For that same year, they
anticipate Chihuahua to reach USD1.3 billion of exports, with a 30% surplus,
representing a 20% growth per year and a 100% surplus increment. By year 2021, it
will reduce its dependence on imported molds, tools and specialized services by 50%
from its actual level.
Baja California. The strategy of this market is focused on providing services based
on high-value knowledge (KPO) for the aerospace and defense aerospace industries
(A+D). It presents the potential to develop fuselage systems and power plants, as
well as to become an important manufacturing provider with integrated value chains.
Sonora. This market is based on the development of the supply chain with a focus
on innovation, particularly in turbines manufacturing, as well as the generation of
specialized labor force for the specific needs of the industry. Sonora will follow
medium- and long- term strategies that will place it as a global leader in the
manufacture of turbines.
Queretaro. Given the characteristics of the market, Queretaro has the potential of
specializing in the design of turbines and in advanced MRO. It is also concentrated in
the manufacturing and assembly of complex fuselage parts and the engineering for
the design of turbines.
Other markets with capacities established in the aerospace sector are Nuevo Leon,
Jalisco, Tamaulipas and Coahuila (please refer to the exhibit on the left).
A Glimpse To The Global Aerospace Market
The global aerospace market has a value of ~USD450 billion, from which the United
States has a 45% share. Countries that follow are France, England, Germany and
Canada. Worldwide, the countries that are presenting the higher growth rates
besides the top 5 are: China, Brazil, India, Singapore and Mexico. This countries
account together for 7% of the industry’s global sales.
38
The Bottom Line: Mexico’s Lodging Industry Growth Potential
The evidence that the key transformational drivers of the lodging industry (economic
stability, growing middle income class, investments in infrastructure, FDI, structural
reforms, etc.) are taking place in the country, justifies the idea that Mexico’s lodging
industry moment has arrived.
“Business travelers and tourists are increasingly
seeking standards and consistency while owners
want access to larger reservation systems to
boost occupancy” (Jones Lang LaSalle).
Based on the analysis of infrastructure investments, expected population growth, and
the application of a 4.7% CAGR to quality lodging supply for the period 2014-2022
(slightly above projected GDP growth), JLL estimates 155,256 net new quality hotel
rooms in the country, from its current 350,744 rooms. Chained hotels are expected to
present the highest growth rate, at 8.1%, particularly in regional markets (driven by
the energy reform and the auto sector). The share of independent quality hotels will
decrease from 54.9% to 41.7%.
It is also worth recalling that the expectation is that the presence of FIBRAs and
CKDs will continue boosting market liquidity, which will give hotel developers more
favorable exit strategies and lead to more new development projects. Additionally,
FIBRAs and CKDs will maintain a development strategy to achieve yield (with a
target limit of developments as a percentage of their portfolios).
According to the hotel supply ratio (HSR), Mexico’s lodging penetration will improve
from 2.9 to 3.9, which would still compare below that of the U.K. of 8.6. It is worth
noting that from the sample of 4 LatAm countries (Brazil, Colombia, Peru and
Mexico), Mexico has the highest HSR (2.7 in 2012), presenting the most developed
hotel market in the region. This is partially explained by its proximity to the U.S. and
to being in the top 10 tourist destinations worldwide.
Hotel Room Supply In LatAm
Source: JLL, The Economic Ascent of the Hotel Business, IHS Global Insight.
39
Growth Plans Of Global Hotel Companies In Mexico
Global hotel companies, along with other sector participants such as Hoteles City
Express, Fibra Inn, Fibra Hotel, Grupo Hotelero Santa Fe, are set to benefit from the
strong growth potential of the Mexican lodging industry.
Global hotel firms see Mexico as the most attractive lodging market in Latin America,
reason why the country is their main focus to expand their operations. They also find
listed FIBRAs as attractive vehicles to support their growth due to the good
commercialization muscle they represent to introduce new hotel brands into the
market. The growth plans of the main global hotel companies in the country are the
following:
■
Hilton plans to incorporate 33 new hotels in Mexico by 2016, reaching a total of
64 hotels in the country, an interesting growth as compared to the 9 hotels it
opened between 2012 and 2013. The 33 new hotels represent an investment of
USD340 MM – USD360 MM.
■
JW Marriot expects to open 34 new hotels in Mexico by 2017, adding up 60
hotels. According to Craig Smith, LatAm and Caribbean president for JW Marriot,
such growth will be done through FIBRAs. FIBRA Inn has already signed a
contract with Marriott to develop 15 hotels under its brands during the next 4
years, while FIHO has signed an agreement with it to open 20 hotels by 2017.
■
IHG expects to invest USD677 MM in the development of 28 hotels in the next 3
years. From these 28 hotels, some could be linked or developed through FIBRA
Inn. HCITY has a pipeline to open 31 hotels by 2015, from which 8 will be
opened by year end.
■
Starwood currently has 26 hotels with 9 global brands in Mexico, and has LOIs
for 14 additional hotels (7 already in construction). Mexico is a focus point for
Starwood’s growth strategy in LatAm.
■
Wyndham has a shorter history operating in Mexico, however, it mentioned that
Mexico has become its top priority for expanding its operations based on the
country’s higher growth prospects as compared to Brasil, Colombia and Peru.
From the 114 hotels Wyndham expects to open in LatAm, 30% will be built in
Mexico. FINN has franchise agreement with Wyndham to operate its global
brands.
■
Currently Accor has 11 hotels in Mexico, their growth plans for the next 5 years
include 49 new hotels of their brands Ibis and Sofitel in the country. The chain
considers to grow through FIBRAs.
Location Of Investments / Market Opportunities
Lodging players are targeting their investments in the markets that present the most
attractive growth opportunities, mainly on their industrial sectors’ expectations.
Specifically, there are 4 industrial sectors that are experiencing a growth phase:
Automotive, electronics, aerospace and medical equipment; and there are 3 other
sectors that present a relevant growth potential on the back of the energy reform:
energy, oil and natural gas. For simplicity we are putting together these 3 sectors in
the petrochemical sector henceforth. The regional lodging markets will present the
highest supply-demanded growth rate (CAGR 2014-2022 of 8.8%) as they will benefit
the most by the expected performance of these industrial sectors, in our view.
Growing Industrial Sectors
Sectors With Attractive Growth Potential

Automotive

Electronics

Energy

Aerospace

Medical Eqpt.

Oil

Natural Gas
40
We have performed an analysis in order to identify the specific markets (cities) that
will benefit by the aforementioned industrial sectors. This analysis includes the
sectors’ exposure of the main industrial markets of Mexico as well as the country’s
main business corridors. It explains more clearly how hotel companies have chosen
the markets where they have made their historical investments, and gives us a better
idea of where they would be targeting their new investments.
For instance, it shows that the north (Tijuana, Nogales, Chihuahua, Saltillo, Nuevo
Laredo, MTY, Matamoros, San Luis) and the Bajio regions (GDL, Guanajuato,
Queretaro, Hidalgo, Aguascalientes) have the highest exposure to the auto sector.
The markets of Mexicali, Nogales, Juarez, Monterrey, Reynosa, San Luis, Durango,
GDL, Aguascalientes, Queretaro and Toluca are set to receive the benefits from the
aerospace sector’s growth. While most of the markets located in the Gulf basin, as
well as MTY, will experience stronger growth rates driven by the energy reform.
Main Business Corridors And The Sectors’ Exposure Of The Main Industrial Markets Of Mexico
Main Business Corridors
Chihuahua
Nuevo Laredo
• Automotive
• Logistics
Mexicali
Energy, Petrochemical and Exports
• Precision &
• Automotive
• Machinery & Eqpt.
Industrial, Manufacture, Logistics and
Advanced Manuf.
• Electronics
• Aerospace
Exports NAFTA
• Aerospace
• Plastics
• Metal Mechanic
Nogales
Maquila Exports and Logistics
• Processed Food
• Medical
• Precision & Advanced • Aerospace
Mining
• Metal Mechanic
• Food / Beverage
Tijuana
Manuf.
• Automotive
• Textile
Agriculture Exports NAFTA
• Metal Mechanic
• Electronics
• Metal Mechanic
Monterrey
• KPO
Saltillo
• Textile
• Plastics
Ciudad Juarez
• Electronics
•
Automotive
• Automotive
• Furniture
• Medical Products
• Aerospace
Industrial Regions
• Medical Eqpt.
• Cement & Const.
Logistics
• Electronics
• Electronics
• I.T.
• Metallurgical
• Mining
• Automotive
North Region
• Appliances
• Appliances
• Metal Mechanic
• Medical Eqpt.
Bajio Region
• Medical Eqpt.
•
Processed
Food
• Electronics
• Industrial Design
Central Region
• Chemical
Reynosa
Southeast Region
• Aerospace
• Electronics
• Precision &
Durango
• Medical Eqpt.
• Chemical
Advanced Manuf.
• Agroindustry
• Electronics
• Logistics
• Textile
• Plastics
San Luis Potosi
• Mining
• Precision &
• Medical
• Automotive
• Metal Mechanic
Advanced Manuf.
• Food / Beverage
• Agroindustry
• Aerospace
• Software Design
• Metal Mechanic
• Chemical
• Processed Food
• Renewal Energy
• Textile
• Appliances
• Wood
• KPO & BPO
• Aerospace
• Cement
• Precision &
• Plastics
Advanced Manuf.
•
Precision
& Advanced
Matamoros
• Renewal Energy
Manuf.
• Metallurgical
• KPO
• Electronics
• Metallurgical
• Automotive
Sinaloa
• Electronics
Yucatan
• Precision &
• Agroindustry
• Textile
• Agroindustry
Advanced Manuf.
• Processed Food
•
Food
/ Beverage
• Processed Food
• Medical
• Metal Mechanic
• Aerospace
Zacatecas
• Petrochemical
• Renewal Energy
• Renewal Energy
• Biotech
• Agroindustry
• Textile
• Naval Eqpt.
• KPO & BPO
• Processed Food
• Aerospace
• BPO
• Mining
• Automotive
Hidalgo
• Tourism
• Metal Mechanic
• Medical
• Textile
• Autoparts
• Tourism
• Mining
Campeche
• Renewal Energy
• Automotive
• Petrochemical
• Tourism
Aguascalientes
• Processed Food
• Agroindustry
• Agroindustry
• Metal Mechanic
• Textile
• Textile
• Petrochemical
•
Processed Food
• Metal Mechanic
• ITs
Tabasco
Guadalajara
• Chemical
• Precision &
• BPO
• Petrochemical
Guanajuato (Bajio)
• Agroindustry
• BPO
Advanced Manuf.
• Food / Beverage
• Automotive
• Electronics
• Electronics
• Agroindustry
• Agroindustry
• Software / Tech.
• Autoparts
• Metal Mechanic
• Textile
Metallurgical
• Aerospace
Michoacan
• Autoparts
• Electronics
• Textile
•
Agroindustry
• Steel
•
Precision
&
• Automotive
• Software Design
• Processed Food
Advanced Manuf.
• Food / Beverage
Queretaro
Mexico
City
• Industrial Design
•
Steel
Chiapas
• Chemical
Logistics
• Logistics
• KPO
• Plastics
• Agroindustry
• Pharmaceutical • Aerospace
• Aerospace
• Textile
• Food / Beverage
• Biotech
• Processed Food
• Processed Food
• Renewal Energy
Oaxaca
Veracruz
• Chemical
• Automotive
• BPO & KPO
• Renewal Energy
Puebla
• KPO
• Biotech
• Agroindustry
• Agroindustry
• Metal Mechanic
• Software Design
• Tourism
• Textile
• Pharmaceutical
•
Processed
Food
• Petrochemical
• Precision &
• KPO
• BPO
• Automotive
•
Petrochemical
Toluca
•
Pharmaceutical
Advanced Manuf.
• Metal Mechanic
• BPO
• Logistics
•
Metallurgical
• Plastics
• Plastics
Industrial Sector Type
• Tourism
• Automotive
• Tourism
• Electronics
• Food / Beverage
• Aerospace
• Naval Eqpt.
• Biotech
Mature Sector
• Aerospace
• Software Design
•
Software
Design
•
Processed
Food
• Precision &
Emerging Sector
• Processed Food
• KPO
• Automotive
Advanced Manuf.
Service Sector
• Textile
• ITs
• Petrochemical
• Chemical
• KPO & BPO
• Medical Products
• ITs
• BPO
• BPO
Source: SE, HCITY, Actinver.
41
Sectors' Exposure Of Lodging Investments 2014
Automotive
20
Others
18
Petrochemical
14
Agroindustry
12
Electronics
10
Medical Eqpt.
9
Aerospace
9
Logistics
8
Textile
5
Pharmaceutical
5
0
5
10
15
20
25
Note: Others refer to Steel, TIs, Chemical, Software Design,
Maquila
Source: Actinver.
We have also analyzed 2014 investments of FINN, HCITY and FIHO according to
their locations and industrial sector(s) exposure. From 53 announced investments by
these companies, 20 are exposed to the auto sector, 14 to the petrochemical, 10 to
electronics, 9 to medical equipment, and 6 to aerospace. We believe that new 2015
investments will be more concentrated in markets exposed to main manufacturing
sectors, while for the longer term we anticipate a higher concentration in the energy,
oil and natural gas (petrochemical) sectors given their LT growth prospects.
C o m pa ny
C it y
State
S e c t o r( s ) E xpo s ure
# O f H o t e ls
FINN
Chihuahua
Chihuahua
A ero space
2
FIHO
Queretaro
Queretaro
A ero space / A uto mo tive
2
FINN
Ciudad Juarez
Chihuahua
A ero space / M aquila
1
FIHO
Ciudad Obrego n
So no ra
A gro industry
2
HCITY
Tehuacan
P uebla
A gro industry
1
FINN
Culiacan
Sinalo a
A gro industry / Fo o d
1
HCITY
A pizaco
Tlaxcala
A gro industry / Fo o d
1
FIHO
Lo s M o chis
Sinalo a
A gro industry / Others
1
FIHO
Xalapa
Veracruz
A gro industry / P etro chemical
2
FIHO / FINN
Leo n
Guanajuato
A uto mo tive
2
FIHO
San Luis
San Luis P o to si
A uto mo tive
1
FIHO / FINN
Saltillo
Co ahuila
A uto mo tive
2
FINN
Silao
Guanajuato
A uto mo tive
1
FIHO
A guascalientes
A guascalientes
A uto mo tive / Others
1
FINN
Celaya
Guanajuato
1
HCITY
P uebla
P uebla
1
HCITY
M atamo ro s
Tamaulipas
1
HCITY
M exico City
Distrito Federal
Lo gistics / Others
2
FIHO
Tijuana
B aja Califo rnia No rte
M aquila / A uto mo tive
1
FIHO / HCITY
Villahermo sa
Tabasco
P etro chemical
2
FINN
Co atzaco alco s
Veracruz
P etro chemical
1
FINN
A ltamira
Tamaulipas
P etro chemical
1
FINN / HCITY
Ciudad del Carmen
Campeche
P etro chemical
3
HCITY
Do s B o cas
Tabasco
P etro chemical
1
HCITY
Ciudad Victo ria
Tamaulipas
P etro chemical
1
HCITY
Tuxpan
Veracruz
P etro chemical
1
HCITY
Salamanca
Guanajuato
P etro chemical
1
HCITY
P araiso
Tabasco
P etro chemical
1
FINN
Delicias
Chihuahua
P harmaceutical / Textile
1
FIHO / FINN / HCITY
M o nterrey
Nuevo Leo n
Several
4
FIHO / FINN
Guadalajara
Jalisco
Several
2
FINN / HCITY
To luca
State o f M exico
Several
2
FIHO
M o nclo va
Co ahuila
Steel / A uto mo tive
2
T o tal
53
Overall, this is how FINN and HCITY have delineated their investment strategies. As
shown below, they have expanded their presence in key industrial markets.
FINN’s Geographical Presence
HCITY’s Geographical Presence
Source: FINN, Actinver.
Source: HCITY, Actinver.
42
PAX Traffic Performance, Evinces The Greater Growth Prospect Markets
Passenger (PAX) traffic performance becomes another key point we are using to
support the idea on the most attractive markets for lodging investments (focus of
hotel companies), as it shows where business are being conducted in Mexico and
where new investments are taking place. Recall that the higher investments and
development of a market, the higher its lodging demand, reflected in higher hotel
occupancy levels. It is true that apart from this, each market has its particularities that
affect differently its lodging performance and evolution from other markets, however
the central idea generally works. Anyhow we have designated the next section of this
report for a more complete analysis on each of the major local lodging markets, as to
better understand their specific characteristics.
For the analysis on PAX traffic performance we have used historical statistics from
the Mexican airport operators AICM, ASA, OMA, ASUR, GAP, and other entities
(such as the one operating Toluca’s airport) for the 2010-2014 period (post-crisis).
CAGR of total traffic is compared against average GDP growth for the same period,
in times. As can be observed in the exhibit below, PAX traffic performance has been
stronger in markets with exposure to the aerospace, automotive, oil, energy, and/or
natural gas sectors (navy blue color). System-wide PAX traffic growth generally
trends around ~1.5x GDP growth. Markets above this level present the most
attractive growth prospects for the lodging industry, according to this analysis.
It is worth noting that Tepic’s PAX traffic, the one posting the second highest growth
from the sample, is still below pre-crisis levels, differently from the rest of the airports.
The same case applies to Colima’s airport, also operated by ASA. The markets with
growth rates above 4.0x GDP growth are: Reynosa (Aerospace, Electronics, Medical
Eqpt.), Campeche (Petrochemical), Minatitlan (Petrochemical), Aguascalientes (Auto,
Aerospace, Electronics), San Luis Potosi (Auto, Electronics, Aerospace), Matamoros
(Electronics, Automotive, Medical Eqpt.) and Villahermosa (Pertochemical, Auto).
We also highlight Monterrey’s market, which has been more recently experiencing a
PAX traffic growth of 3.1x GDP growth. This market will be one of the most
beneficiaries of the energy reform given its unique position in the north region
(exposure to the natural gas sector) and the sophistication of its industrial market. So
far, it is already expected that foreign an local participants of the petrochemical, oil
and natural gas industries will invest ~USD2,500 MM in the next 3 years. This effect
will not be limited to the lodging sector, but also to the office and industrial ones.
Total Passenger Traffic CAGR 2010-2014 (In Times GDP Growth)
12.0x
Exposed To Aerospace, Automotive And/Or Petrochemical Sectors
Other Airports
10.0x
8.0x
6.0x
4.0x
Total Airports Growth
2.0x
Source: SCT, Airport Operators, Actinver.
43
Puerto Vallarta
Chihuahua
San José del Cabo
La Paz
Cozumel
Hermosillo
Tijuana
Durango
Oaxaca
Cd Júarez
Cuiliacan
Merida
Guadalajara
Manzanillo
Monterrey
Cd. Del Carmen
Cd. Victoria
Tamuin
Huatulco
Palenque
Cancun
Veracruz
Mexico City
Tuxtla Gutierrez
Bajio
Loreto
Tampico
Torreon
Villahermosa
Chetumal
Matamoros
Campeche
San Luis Potosí
Aguascalientes
Reynosa
Minatitlan
Colima
Pto Escondido
Tepic
Queretaro
0.0x
Appreciation Potential In Local ADRs
ADRs Of Quality Hotels
Brazil
As mentioned in the first section, average daily rates (ADRs) in Mexico reached precrisis levels in real terms in 2013, after registering a consistent improvement in
performance (CAGR of 4.4% in peso terms) following the recession and the H1N1
virus in 2009. Since 2H2013, ADRs have moderated their performance as a
consequence of the weaker than anticipated economic environment. During 2014,
hotel companies were more cautious in raising rates, averaging a 2.3% year-overyear increment to MX$1,586 as of 3Q2014 (avg. ADR for quality lodging supply in the
country). FINN and FIHO have registered below-inflation increases of 1.9% and 3.0%
in their LTM same-store ADRs, respectively. As HCITY was more aggressive
increasing its rates during 2013, this year it has achieved a lower 0.8% growth to
MX$720, but with a stronger +6.1% YoY rise in RevPAR.
$ 259
Peru
$ 211
Colombia
$ 183
C&S America
$ 171
Canada
$ 169
U.S.
$ 160
Mexico
Higher lodging supply demanded will result in a LT appreciation in local ADRs. We
believe that RevPAR performance goes beyond GDP performance given stronger
structural and fundamental factors that are moving demand in the evolving local
industry. However, there’s a historical correlation between ADRs and GDP that can
not be overlooked, as it finally dictates the short-term rates’ trend in the market.
$ 122
Ecuador
(USD)
$ 108
$0
$ 100
$ 200
$ 300
Source: JLL, FINN, Actinver.
Some market participants believe that Mexican ADRs have a strong growth potential
given their significant discount as compared to other LatAm markets. According to
information from Jones Lang LaSalle, local ADRs (for quality lodging supply) are
below those of Colombia (-33.6%), Peru (-42.4%) and Brazil (-53.1%). As compared
to the U.S., Mexico has a 24.1% discount, and of 29.0% as compared to the average
of Central and South America’s countries. In our view, it would be incorrect to believe
that Mexico has the potential to reach Brazilian levels of ADR, as rates are
determined according to the specific characteristics of each market. As we go in the
following section, even in the same country, each submarket (city) has quite different
ADRs across hotel segments. However, we do think that, as the local lodging
industry evolves and becomes more sophisticated, there would certainly be a catchup in ADRs to those of mature countries, such as the U.S.
The Brazilian lodging industry is similar to the
Mexican regarding its transformational phase.
Nonetheless, it would be wrong to compare its
ADRs against Mexico given the differences both
hotels’ markets have.
$0
2012
2013
RevPAR
Occupancy Rate
$ 714
$ 691
2012
2013
RevPAR
2014 (LTM)
Occupancy
$0
2014 (LTM)
Occupancy
62%
$ 122
58%
56%
$ 75
$ 75
$ 122
$ 61
$ 105
$ 40
57%
$ 59
$ 60
60%
58%
$ 80
54%
$0
52%
2011
ADR
2012
2013
RevPAR
2014 (LTM)
Occupancy
Source: Smith Travel Research, JLL, Actinver.
44
Occupancy Rate
62%
$ 100
$ 20
63%
2012
2013
RevPAR
62%
$ 104
64%
64%
$ 120
Occupancy Rate
64%
$ 576
$ 900
$ 568
$ 874
$ 547
$ 525
$ 835
$ 600
$ 820
ADR (MX$)
65%
57%
Mexico's Historical KPIs (As Of 3Q2014)
65%
2011
ADR
$ 682
2011
ADR
66%
$ 800
$ 200
58%
Source: HCITY, Actinver.
66%
64%
59%
56%
2014 (LTM)
Occupancy
FIHO's Historical KPIs (As Of 3Q2014)
$ 400
58%
$ 440
$0
60%
$ 414
52%
$ 413
$ 150
$ 1,000
$ 300
61%
60%
59%
$ 450
54%
ADR (USD)
2011
ADR
56%
ADR (MX$)
58%
$ 603
$ 1,002
$ 609
$ 983
$ 583
$ 971
$ 531
$ 200
56%
$ 600
$ 405
62%
60%
$ 948
ADR (MX$)
$ 400
60%
60%
$ 800
62%
61%
$ 750
Occupancy Rate
62%
$ 1,000
$ 600
HCITY's Historical KPIs (As Of 3Q2014)
64%
$ 720
FINN's Historical KPIs (As Of 3Q2014)
Mexico’s Main Lodging Markets And Submarkets
Lodging markets covered in this section:
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
Nuevo Leon (Monterrey)
Mexico City
Jalisco (Guadalajara)
San Luis Potosi
Guanajuato
State of Mexico
Queretaro
Tamaulipas
Veracruz
Campeche
B.C. Norte
Chihuahua
Coahuila
Sonora
Puebla
We have identified 15 main lodging markets in Mexico, according to their growth
prospects and relevance for the investment strategies of the hotel companies and
FIBRAs. By regions, 7 of these markets are located in the North (Nuevo Leon, B.C.
Norte, Chihuahua, Coahuila, Sonora, Tamaulipas and San Luis Potosi), 3 in the
Central (Mexico City, State of Mexico and Puebla), 3 in the Bajio (Guanajuato,
Jalisco and Queretaro) and 2 in the Southeast (Campeche and Veracruz).
Each market has its own characteristics, with particular demand and supply drivers.
Even some of the submarkets contained in each market have their differences. Most
of that deals with their structural situations, sectors attended, location, access to
other markets, security-related issues. Thus, we find relevant to present a general
overview, as well as the outlook for each of the 16 main lodging markets and their
main submarkets. At the end, this gives us a much greater sense of the direction that
the operations of the listed lodging companies and FIBRAs will take, as well as a
better understanding of their investment strategies, we think. These overviews and
outlooks are based on information from the industry expert HVS. Key drivers for the
lodging industry to keep in mind are: demographics, FDI, industrial activity, PAX
traffic performance, access and transportation, competition, occupancies, ADRs.
We begin by introducing 7 of the 8 hotel markets located in Mexico’s Golden Triangle
(GT), a 495,000 sqkm area (25% of the country’s territorial extension) between MTY,
GDL and Mexico City that concentrates 80% of the country’s GDP generation. The
largest hotel activity is concentrated here given its elevated activity in the automotive,
aerospace, manufacturing, commerce, logistics, agricultural, and other industries, as
well as its high transportation connectivity. Its high terrestrial and air connectivity is
key to the importance of the area, with 4 of the 10 most important highways crossing
through it, including the “Industrial, Manufacture, Logistics and Exports NAFTA”
corridor as well as the “Mining” corridor. Furthermore, 3 of the 5 most important
airports are located within the GT, moving ~50% of Mexico’s total passenger traffic.
The GT is comprised by 8 markets: Nuevo Leon, San Luis Potosi, Aguascalientes,
Jalisco, Guanajuato, State of Mexico, Queretaro, and Mexico City. It concentrates
46% of the country’s population (60% of the economically active). Additionally, 70%
of international trade occurs here and 80% of the auto industry is located within it.
Mexico’s “Golden Triangle”
Source: Actinver.
Then, the markets belonging to the “Energy, Petrochemical and Exports” corridor are
covered: Tamaulipas, Veracruz and Campeche; followed by other North markets with
exposure to the auto, aerospace, electronics and medical eqpt. sectors: B.C. Norte,
Chihuahua, Coahuila, Sonora and San Luis. Finally is Puebla’s market, also relevant
given its exposure to the auto sector and increasing participation in aerospace.
45
Nuevo Leon (North Region)
Nuevo Leon
Market Overview: Nuevo Leon is the third-largest economy in the country,
representing 7.1% of Mexico’s GDP, with a population of 4.9 million (4.2% of
Mexico’s total population), the state ranks 3rd in GDP per capita (MX$221,790).
Currently the state has the 5th largest working age group on the country with 66.4%
of the total population between 15 and 65, the demographic bonus is positive for the
next 5 years, in which the state could reach a 67.8%.
Nuevo Leon is a frontier state that has the ideal logistics location for doing business
in the North American market. Its dynamism, labor productivity and industrial diversity
have attracted more than 2,200 foreign firms to the following sectors: metal
mechanic, home appliances, automotive, information technologies and aerospace,
among others. During 2013 Nuevo Leon had a total FDI of USD420.3 MM, equivalent
to 1.1% of Mexico’s total FDI. Most of the FDI was directed toward the manufacturing
industry, followed by the construction and electrical industries.
Nuevo Leon: FDI
$ 6,000
350%
300%
USD (Million)
$ 5,000
250%
$ 4,000
200%
150%
$ 3,000
100%
$ 2,000
50%
0%
$ 1,000
-50%
$0
-100%
2008
2010
2012
FDI
1H2014
Change YoY
MTY: PAX Traffic Performance
8,000
PAX (000's)
7,000
15%
CAGR: 6%
10%
6,000
5%
5,000
0%
4,000
-5%
3,000
-10%
2,000
-15%
1,000
-20%
0
'10
'11
PAX
'12
'13
■
'14
YoY Change
60%
5.0
55%
4.0
50%
3.0
45%
2.0
40%
1.0
35%
0.0
Occupancy Rate
Installed Room Nights (Millions)
Nuevo Leon: Inventory & Occupancy
6.0
As aforementioned we believe that Monterrey, along with the gulf and southeast
regions of the country, will be one of the main beneficiaries from the energy reform.
As the most important industrial center in Mexico, Monterrey is poised to receive
significant inflows from FDI that will be originated by this reform. The expected
growth in the energy sector will also have indirect effects on manufacturing and
services. Furthermore, the announcement of the construction of KIA Motors
assembly plant in Pesqueria, N.L., which will require and investment of USD$1,000
million and will have the capacity to build 300 thousand vehicles, will generate an
additional investment of USD500 million from the suppliers of the company. All of this
means business, and business means lodging demand.
Main Markets:
-25%
'09
Nuevo Leon is a key point in the North American Free Trade Agreement (NAFTA),
being the connecting point to the U.S. with the highway Mexico – Nuevo Laredo,
additionally 2 other important highways cross by the state (Veracruz – Monterrey and
Mazatlan Matamoros). The main airport is located in Monterrey; it is the fourth largest
in the country, with an average daily traffic of 18,500 passengers. From the years
2009 – 2014 the airport grew at a CAGR of 5.4%, and it registered a relevant growth
of 11.1% receiving 7,129 thousand passengers, of which almost 85% were domestic.
Monterrey’s metropolitan area. It occupies the 2nd place in terms of industrial
activity. It is the city with the highest income per capita in Mexico, with a modern
infrastructure and a highly-educated labor force. The city has long been
considered an industrial powerhouse within Mexico, as a result of a strong steel
industry. Recent investment announcements by KIA Motors have strengthened
the automotive and auto parts production industries in the state, complementing
the presence of Nemak (subsidiary of ALFA corp), a local auto parts producer
with annual sales of over USD4.8 billion, which is ranked among the top 100
global auto parts supplier as the #52 according to Automotive News; Daimler’s
truck assembly plant; and Mercedes-Benz buses assembly plant. Additionally,
Monterrey has long been home to world-class manufacturers of diverse products
as home appliances, glass products and cement. Recently the city has become a
key location for investments from international corporations such as Sony,
Toyota, Whirpool, Heiniken, Navistar, Dell, Boeing, and G.E. partly due to the
ratification of NAFTA in 1994. MTY’s economy is driven by: i) manufacturing
exports to the U.S., given its proximity; as well as by ii) the local demand of
goods and services, which makes it an important site for logistics. Ten of the
twenty leading companies in Mexico are headquartered in Monterrey (Cemex,
Banorte, Gruma, FEMSA, Alfa, Soriana, among others), as well as three of the
most renowned universities in Latin America.
30%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Source: HVS, Actinver.
46
Lodging Characteristics & Outlook: Nuevo Leon’s lodging supply is still relatively
small compared to the business market size; it represents 2.6% of the countries
lodging supply. Thus, it still presents significant growth opportunities for lodging
companies. Monterrey is one of the least fragmented markets, with a low presence of
independent hotel owners (36%), while 55% and 9% are owned by international and
regional chains, respectively. Some of the hotel brands with presence in the city are
Quinta Real, Safi, Holiday Inn, Hampton Inn, Best Western, Wyndham Garden,
Comfort Inn, Novotel, Camino Real, Crowne Plaza, Holiday Inn Express, City
Express Hotel, among others.
Occupancy rates in the state have had a difficult time recovering to pre-crisis levels.
Lowest levels of 41.2% were seen in 2011. It is worth noting that, in addition to the
economic crisis and the H1N1 outbreak, Monterrey suffered a material wave of
violence, the worst part being observed between 2011 and 2012. In 2013, rates
reached 52.5% which is still far below maximum levels of 58.0%. Monterrey’s lodging
market is mainly comprised by business-class hotels, but with an ample supply in
limited-service, select-service and full-service. The low fragmentation existent is a
positive factor for ADRs, which currently are within a range of MX$1,250 –
MX$2,900.
We believe that new investments in the state will generate additional lodging
demand, expecting occupancy rates to rise during 2015 and 2016. Additionally, due
to the high ownership of international chains in the country, ADRs determined in USD
might be already reflecting the appreciation in the USD, raising the market average
rates. As a key market, all hotel operators have presence here, including FINN,
FIHO, HCITY, and GHSF. Monterrey was one of the 5 entities with the highest
concentration of investments within the lodging sector. We expect this trend to
continue giving the market’s strong dynamics, evinced in its PAX traffic performance.
47
Mexico City (Central Region)
Mexico City
Market Overview: Mexico City’s is the largest contributor of the country’s GDP, with
16.4% of the total. It has a population of 8.9 million (7.6% of Mexico’s total) and of
~22.5 million taking into account its metropolitan area. Mexico City ranks 2nd in GDP
per capita with MX$277,433. Currently it has the largest working age group of the
country with 69.2% of the population between the ages of 15 - 65. It is worth noting
that this entity is currently enjoying its demographic peak, being the only city in the
country with a negative demographic bonus for the next 15 years, dropping to an
estimated 68.7% in 2020 and to 66.5% in 2030. Mexico City has also been for long
the city with the highest FDI in the country. In 2013 the FDI amounted USD24.8
billion, which represented 63.3% of the county’s FDI and a +253% YOY growth.
Mexico City: FDI
$ 250
300%
250%
USD (Billion)
$ 200
200%
150%
$ 150
$ 100
50%
0%
-50%
$0
-100%
2008 2009 2010 2011 2012 2013 1H14
FDI
Change YoY
Mexico City: PAX Traffic Performance
30,000
PAX (000's)
Main Markets:
100%
$ 50
14%
CAGR: 7%
25,000
9%
20,000
4%
15,000
-1%
10,000
-6%
5,000
0
-11%
'09
'10
PAX
'11
'12
'13
'14
YoY Change
70%
65%
60%
10.0
55%
50%
5.0
45%
Occupancy Rate
15.0
40%
0.0
35%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
■
Mexico City: It is one of the most dynamic cities of the global economy. It is
LatAm’s financial center and Mexico’s political, economic and cultural capital.
Furthermore, it is home to several important national office headquarters and
both national and international corporations. Its economic activity is highly
diverse, with a variety of industries, such as business services, technology,
government, automotive, retail, professional services, logistics, and financial and
insurance institutions. GE, Mazda, Danone, Microsoft, Nestlé, KPMG, BCG,
Delloite, DHL, Pfizer, Barclays, among others are just a sample of companies
based in the city.
Lodging Characteristics & Outlook: Mexico City’s lodging supply is the second
largest in the country, representing 9.0% of Mexico’s total. Although the market has
maintained its dynamism, increasing occupancy, its inventory has grown at a slower
pace than the country’s average due to the maturity of the market. In the past years,
the city’s lodging market has grown at a 0.8% CAGR.
Lodging supply in the city is still highly fragmented, especially considering the size
and economic implications of the city. Nearly 48% of the hotel supply is owned by
independents, 33.5% by international and 18.5% by national chains. The market’s
size and low penetration levels represent an opportunity for institutional lodging
companies and FIBRAs. On the back of that, and given its relevance for the industry,
hotel companies will continue expanding their operations in this market.
Practically, all of the hotel-chained local and international brands have presence in
the city, including: Camino Real, Sheraton, Marriot, City Express, Live Aqua, Holiday
Inn, NH, Novotel, Presidente Intercontinental, W, Krystal Grand, etc..
Mexico City: Inventory & Occupancy
Due to its economic relevance, Mexico City is the starting and ending point of several
important highways, such as Mexico–Nogales (“NAFTA Agricultural Export” corridor),
Mexico–Nuevo Laredo, Mexico–Tuxpan and Mexico–Veracruz. At the same time,
Mexico City’s airport is the country’s busiest and Latin America's second largest
airport in terms of PAX traffic, with a daily average of 90,000 passengers. This airport
currently generates 35,000 direct jobs and ~15,000 indirect jobs in the area. From
2009 to 2014 it presented a CAGR of 7.2% and grew 8.6% YoY in 2014.
Mexico City is one of the few markets in which occupancy rates reached pre-crisis
levels since 2011. The lowest levels were registered during 2009, falling more than
10 percentage points to 45.7%. Nevertheless, during 2013 occupancy rates reached
64.8%, the highest levels from the last decade. The city has one of the most mixed
and varied lodging markets, with high participation of both, business and leisure
demand. The supply in the city is highly diversified with an ample number of
segments (limited, select and full service) and brands (national, international and
independent). Said this, ADRs can vary in a range from MX$1,000 up to MX$3,500.
The expected rise in quality lodging demand should drive ADRs’ performance in the
following years.
Occupied Rooms
Occupancy Rate Mx
48
Jalisco (Bajio Region)
Jalisco
Market Overview: Jalisco is the 4th largest economy in the country, representing
6.3% of the GDP, with a population of 7.6 MM (6.5% of Mexico’s total), and a GDP
/capita of MX$123.7 k. It has a working age group of 64% of its population, and a
positive demographic bonus for the next 15 years, reaching 66.0% in 2030E. In 2013
Jalisco had a total FDI of USD957 MM (+10.7% YoY), 2.4% of Mexico’s total. Most of
the FDI was directed to manufacturing, followed by accommodation and commerce.
It is worth mentioning that Guadalajara’s metropolitan area is considered to have the
highest investment attraction potential in Mexico.
USD (Billion)
Jalisco: FDI
$ 20
$ 18
$ 16
$ 14
$ 12
$ 10
$8
$6
$4
$2
$0
250%
200%
150%
100%
50%
0%
-50%
-100%
2008 2009 2010 2011 2012 2013 1H14
FDI
Change YoY
Source: Actinver.
GDL: PAX Traffic Performance
15%
CAGR: 6%
10%
5%
PAX (000's)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
0%
-5%
-10%
-15%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
Jalisco: Inventory & Occupancy
54%
52%
15.0
50%
48%
10.0
46%
44%
5.0
42%
0.0
40%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
20.0
Jalisco is highly integrated with the U.S. and Canada through the NAFTA, as 3
important highways cross by Jalisco: i) The Pacific corridor; ii) Mexico–Nogales
(NAFTA Agricultural Export corridor); and iii) Manzanillo–Tampico. It also has 2
international maritime ports and 2 international airports. The main airport is located in
Guadalajara, and it is the 3rd largest in the country, after Mexico City and Cancun
airports, with an average daily traffic of 23,500 PAX. This airport had a CAGR of
6.2% 2009-2014 and increased 7.3% in 2014. Today it transports 8,695 annual PAX,
of which 34% are international.
Main Markets:
■
Guadalajara: 2nd largest city in Mexico and one of the ten largest in LatAm
(GDP terms). It’s one of Mexico’s strategic markets, with a highly trained and
capable labor force, a solid transportation network, a highly diversified economy
and access to suppliers. GDL’s market (also known as Mexico’s “Silicon Valley”)
is focused on the production of high-technology assets, which has caused it to
consolidate as the largest in the country. Furthermore, this market has started to
grow as a result of the boom of the automotive industry in the Bajio region, and it
has become an auto parts supplier for different auto-related companies and
OEMs. Guadalajara continues being target for new investments from the auto,
food, logistics, metallurgical, textile, electronics, and software sectors.
GDL is one of the most important and fastest growing economies of the country,
and is one of the most attractive for FDI, which boosts economic activity, travel,
and consequently, lodging demand. Hotel demand in the area comes mainly
from two sources i) GDL’s Expo for meeting and conventions; and ii) ‘Ciudad
Creativa Digital’ project, which is focused on creating and strengthening the
digital design, software, and the film & video games industries. This project is
expected to drive new foreign investments and incentivize job creation.
Lodging Characteristics & Outlook: Jalisco’s lodging supply is the 3rd largest of
the country (7.9% of the total). Its inventory has shown a 2.9% CAGR (2008-2013),
similar to the country’s 2.1%, but significantly better than the growth pace of Mexico
City (+0.8%), which has a similar number of rooms. It covers all the hotel market
segments. GDL is one of the most fragmented markets, with a high presence of
independent hotel owners (68.0%), while 19% and 13% are owned by international
and regional chains, respectively. This fragmentation is not typical for a developed
market, which represents investment opportunities in the city. Fiesta Americana, Riu,
Quinta Real, Real Inn, Camino Real, Crowne Plaza, Starybridge, Holiday Inn
Express, City Express and Aloft are a sample of hotel within the market.
Jalisco has had a difficulties in recovering to pre-crisis occupancy levels. Lowest
levels of 44.0% were seen in 2009, currently at 47.5% (vs. pre-crisis of 49.0%).
Nevertheless, GDL has higher rates than Jalisco’s average, with levels of 58.0%. It is
mainly a business-class destination, with a high fragmentation adding a series of low
price competitors to the market with lower ADRs. GDL’s current average is
~MX$900, which we considered low given the market’s characteristics. There is also
a high-end business market in the city, attended by the full-service hotel supply, with
average ADRs of MX$1,650. Along the positive prospects for its main industries, the
fragmentation in the market shows and investment hotel opportunity in the city. We
expect ADRs to increase as the share of independent hotels starts to decrease.
49
San Luis Potosi (North Region)
San Luis Potosi
Market Overview: San Luis Potosi is located within the Golden Triangle in northern
Mexico. It is bordered by 9 states, making it the state with the most neighboring
states (Nuevo León, Coahuila, Tamaulipas, Veracruz, Hidalgo, Querétaro, Jalisco,
Guanajuato and Zacatecas). SLP’s GDP represents 2.0% of Mexico’s total GDP, with
a population of 2.7 million (2.3% of Mexico’s total population) and a GDP per capita
of MX$110,355, lower than the country’s average of MX$129,055. Additionally the
state has a productive age group of 61.7%, with a positive demographic bonus for
the next 15 years reaching 65.1% in 2030.
USD (Million)
San Luis Potosi: FDI
$ 600
2500%
$ 500
2000%
$ 400
1500%
$ 300
1000%
$ 200
500%
$ 100
0%
$0
-500%
2008
2010
2012
FDI
1H2014
Change YoY
SLP: PAX Traffic Performance
PAX (000's)
350
50%
CAGR: 13%
40%
300
30%
250
20%
200
10%
150
0%
100
-10%
50
-20%
0
-30%
'09
'10
'11
'12
PAX
'13
'14
YoY Change
3.5
54%
3.0
52%
2.5
50%
2.0
48%
1.5
46%
1.0
44%
0.5
42%
0.0
40%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
SLP: Inventory & Occupancy
Unoccupied Rooms
Occupancy Rate
San Luis Potosi has a high national and international connectivity, being crossroads
to several economic corridors such as the NAFTA Industrial, Manufacturing, Logistics
and Export Corridor (México - Nuevo Laredo) and the Energy, Petrochemical and
Exporting Corridor through the branch road of the Veracruz – Monterrey Highway.
Furthermore, SLP’s airport had an outstanding growth in 2014 (+42.9% YoY), with an
average CAGR 2008-2014 of 12.6%.
Main Markets:
■
400
Because of its geographic location, San Luis Potosi offers easy and quick access to
investors, consumers and suppliers that allow companies to operate with low costs
and competitive profitability levels. These advantages are sustained by the state’s
natural wealth and infrastructure as well as its continuous progress in technological
integration of their industrial, commercial, mining, craft and services activities. During
2013 the state had a total FDI of USD509 million, equivalent to 1.3% of Mexico’s total
FDI and nearly 4 times the FDI received by the state during 2012. Most of the FDI
was directed toward the manufacturing industry.
San Luis Potosi. Capital city of the state with a strategic location for trade, halfway between Mexico City and the United States border, directly linked to Mexico
City and the border cities of Brownsville, McAllen and Laredo in Texas, where a
high rate of foreign commerce is carried out. Moreover it has easy access to the
ports of Tampico and Altamira on the Gulf of Mexico, as well as the Lazaro
Cardenas and Manzanillo ports on the Pacific coast. This location has made the
state the largest logistics hub in the country and one of the main industrial and
trade centers, with a prolific manufacturing industry. Some of the companies
located in SLP include L’Oreal, Caterpillar’s distribution center, Mabe, ABB,
Estafeta, FedEx, Link, DHL, Ryder, and UPS. WTC Industrial San Luis Potosi is
a world class industrial & logistic development unique in its type, offering a rail
road terminal, customs office on site, Free Trade Zone (RFE), and the most
complete real estate services in the market. It is located near the most important
highway and rail road in Mexico (the NAFTA Highway and the NAFTA Railroad).
This free trade zone in San Luis Potosi was the first in Mexico to explore the
global trend toward efficient logistical and commercial benefits, allowing the
temporary introduction of foreign, national or nationalized goods to the zone, for
manufacturing and assembly (to be processed and/or repaired), storage,
distribution (custody and management), and exhibition or sale.
Lodging Characteristics & Outlook: This lodging supply represents 1.5% of the
country’s total lodging supply. During the last 5 years the SLP’s supply has grown at
a faster pace than the country’s average, with a CAGR (08’ – 13’) of 3.1%.
Additionally, it has one of the less fragmented industries, with nearly 42% of
independent hotels. International chains own ~26.0% of the market, while national
and regional chains own 32.0%.Holiday Inn Express, La Quinta Inn, Real Inn, Ibis,
City Express, One, Courtyard, are some of the brands with presence in the market.
Occupancy Rates have had a hard time recovering since the crisis, where rates fell
to 45.3% from 53.1%, nevertheless lowest levels of 43.8% were seen until 2012,
recovering significantly to 47.8% during 2013 as a result of government efforts in
leisure lodging demand.
50
Nevertheless the state’s supply is still dominated by business-class hotels,
particularly from the limited-service and select-service segments, which currently
have an average ADR of MX$1,200. The key location and recent investments in the
state will keep strengthening the demand in the state, which thanks to efforts of the
local government will be complemented by leisure demand. We believe airport
activity is already reflecting an increase in visitation. We expect occupancy rates to
rise to levels of a mixed leisure market in the midterm, which are in a range between
55% and 65%.
51
Guanajuato (Bajio Region)
Guanajuato
Market Overview: Guanajuato is bordered by the states of Jalisco, Zacatecas, San
Luis Potosi, Queretaro, and Michoacan, in the region known as Bajio. Guanajuato is
the 7th largest economy in the country, representing 3.9% of Mexico’s GDP, with a
population of 5.7 million (4.8% of Mexico’s total). Guanajuato ranks 22nd in GDP per
Capita (MX$103,290). It has a positive demographic bonus for the next 20 years. Its
productive age group currently represents 62.4% of the population, but expectations
aim higher for the next two years, reaching 65.2% and 65.4% in 2020 and 2030,
respectively, according to CONAPO.
During 2013, Guanajuato was the most attractive state within the Bajio region for
foreign direct investment (FDI), and the 7th in the country, capturing US$884 million
(2.3% of total FDI) in 2013, an increase of 17.6% vs. 2012, according to INEGI. It is
worth mentioning that 54% of the total FDI perceived in Guanajuato was directed to
the automotive industry.
Guanajuato: FDI
$ 900
$ 800
140%
USD (Million)
$ 700
$ 600
90%
$ 500
$ 400
40%
$ 300
$ 200
-10%
$ 100
$0
-60%
2008 2009 2010 2011 2012 2013 1014
FDI
Change YoY
GTO: PAX Traffic Performance
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
CAGR: 18%
1,200
PAX (000's)
1,000
800
600
400
200
0
'09
'10
'11
PAX
'12
'13
Guanajuato’s international airport is relatively small, serving less than 10 airlines.
Traveling to the state is mostly done overland. However, the airport is growing at a
fast phase, driven by the market’s industrial expansion. It grew at a CAGR of 18.3%
in the period 2009-2014, +22.4% in 2014. The airport currently receives 1.2 million
passengers per year (40.4% international) with expectations to increase. Celaya’s
airport is also relevant, but only serves local destinations.
As we have mentioned, Guanajuato’s economy is highly dependent on the industrial,
food, textile and automotive industry, in the proportion that these industries grow and
as the interest of foreign and local enterprises is focused on Guanajuato and the
Bajio region the need of business-class lodging will keep growing.
1,400
This state in general, has important economic implications, as 3 of Mexico's 10 major
highways pass through (Mexico City-Nuevo Laredo, Queretaro-Ciudad Juarez and
Manzanillo-Tampico). Manufacturing, commerce and agricultural activities represent
more than 50% of the states GDP and total employment.
'14
Main Markets:
■
Guanajuato: Capital city of Guanajuato, which combines significant industrial
activity with an agricultural base, as well as a major commercial sector. The auto,
textile and chemical industries have remained cornerstones of the market. In
addition, the agricultural, and food industries also account for an important part of
Guanajuato's economy. Guanajuato’s hotel demand also relies on the city’s
cultural attractiveness for local and international travelers.
■
Leon: The largest city in Guanajuato. Its main industry is leather, producing and
offering shoes, boots, belts, jackets, and other leather accessories to both
national and international markets. Its first-class services and hotel industry
make it one of the most important centers in Mexico. Leon has a deep hotel
demand as it is the city from the Bajio region with the highest occupancy
(according to SecTur) and is the most important market due to its economic
activity. This city is also one of the most benefited by Bajio’s growth, capturing
more demand for hotel services as compared to other cities in the region. Its
lodging supply is the most complete in terms of services and facilities, which
makes it the most attractive.
■
Silao: An agricultural, industrial and logistics center, with a wide variety of farm
crops, dairy production plants, as well as automotive plants, such as General
Motors’ truck and SUV assembly plant. Additionally, Guanajuato Puerto Interior,
a logistics complex comprised by 4 industrial parks, has attracted several firms to
establish within this Silao’s complex. Some of these are Pirelli, Volkswagen,
Nestle, Hiroshima Aluminuim, among others. Silao is a small market with just 3
chain-hotels: Holiday Inn Express, Wyndham Garden (FINN) and City Express.
YoY Change
55%
6.0
5.0
50%
4.0
45%
3.0
40%
2.0
35%
1.0
0.0
30%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
Guanajuato: Inventory & Occupancy
52
■
Irapuato: Second-largest city in the state, with agriculture as its main industry,
but the textile and automotive ones becoming more relevant. Some of the
companies established in Irapuato are: Ford Motors, Nestlé-Purina, Lala,
Danone, Nike, Adidads, Reebok, among others. The leading hotel in the city is
FINN’s Wyndham Garden, located in the main avenue in front of FSHOP’s Plaza
Cibeles super regional shopping center, the city’s most important.
■
Celaya: One of the most important industrial and car manufacturing centers of
Guanajuato and Bajio, with several industrial parks and assembly plants, as well
as a growing food industry. Some of the main companies with presence in
Celaya are: Honda, Mazda, Mabe, Whirpool, De Acero, Sigma Alimentos
(ALFA), Gamesa and distribution centers of Coca Cola FEMSA, PepsiCo, Bimbo
and Lala, among others.
Lodging Characteristics & Outlook: Guanajuato’s lodging supply has maintained
its dynamism, with increasing inventory due to the growth in commercial and
industrial activities in the state. During the last 5 years the growth in Guanajuato’s
lodging supply has outpaced the country’s, with a CAGR (2008–2013) of 3.9%.
Currently the state’s supply represents 3.5% of the county’s total supply. Lodging in
Guanajuato is still highly fragmented, with ~45% of independent hotels. However,
presence of national and international chains is starting to increase, with a stronger
recognized-brands’ presence that include: Camino Real, Holiday Inn, Hotel Mision,
One, among others.
Occupancy rates have had a significant recovery since its lowest level of 34.9%
observed in 2009, with an increase of more than 10 percentage points in 4 years,
reaching 46.6% in 2013. It is relevant to note that in the same period room supply
had an increase of 18.2% which makes the recovery seem stronger (new rooms
were not fully absorbed by demand). Performing a theoretical exercise in which we
assumed that lodging supply (room nights available) would have been maintained
unchanged since 2008, the occupancy rate (occupied room nights 2013 / room nights
available 2008) would have reached 55.1% by 2013.
Guanajuato’s market is dominated by business-class hotels mainly from the limitedservice and select-service segments, which currently have an average ADR of
MX$1,100. However, due to the high visitation of several national and international
companies based in the state, ADRs can go as down as MX$800, as most chained
hotels have volume agreements with them. The state has also strong leisure markets
such as San Miguel de Allende which is highly popular among international travelers.
In these markets ADRs can reach MX$2,300 due to the presence of full-service
chains. Several hotel chains are including the Bajio as a key region for their
investment strategies, given its attractive growth prospects for its industries. On the
back of that, occupancy and ADRs are expected to grow as demand expands and
the market’s fragmentation is reduced.
53
State Of Mexico (Central Region)
State Of Mexico
Market Overview: The State of Mexico is the second-largest economy and has the
largest population in the country, representing 9.2% and 13.8% of the country’s total
GDP and population, respectively. Nevertheless it has one of the lowest GDPs per
capita, with MX$86,312, ranking 25th in the country. The state has a productive age
group of 66.5% and a positive demographic bonus for 2020.
For the last 3 years the state has been on the top five states with more foreign direct
investment. During 2013 it amounted to USD1,187 million, representing 3.0% of the
country’s total FDI. The State of Mexico has a strategic geographical location, a high
level of infrastructure and an excellent logistics’ development rate. Most of the FDI in
the state is directed to the manufacturing industry, commerce, and Real Estate.
150%
The State of Mexico has a high land connectivity due to its closeness to Mexico City
and the Bajio region. Three of the country’s main highways cross through the state
(Mexico–Nogales, Mexico–Nuevo Laredo, Mexico–Tuxpan and Mexico–Veracruz),
being the connection point between Mexico City, the North and Bajio regions.
100%
Main Markets:
50%
■
State Of Mexico: FDI
$ 1,800
$ 1,600
USD (Million)
$ 1,400
$ 1,200
$ 1,000
$ 800
0%
$ 600
$ 400
-50%
$ 200
$0
-100%
2008 2009 2010 2011 2012 2013 1H14
FDI
Change YoY
Toluca: PAX Traffic Performance
3,000
30%
CAGR: -19%
20%
2,500
PAX (000's)
10%
2,000
0%
1,500
-10%
-20%
1,000
-30%
500
-40%
0
-50%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
6.0
55%
5.0
50%
4.0
45%
3.0
40%
2.0
35%
1.0
30%
0.0
25%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
State Of Mexico: Inventory & Occupancy
Toluca: The capital of State of Mexico, is one of country’s largest industrial
centers. Industrial activities in Toluca employ almost 40% of the total working
force. The recent opening of roads and highways make the city an important
logistical center due to its connections with the México–Queretaro and Occidente
highways. The logistics and automotive industries complemented by other
industrial activities such as food and beverage production and distribution, textile,
electronics and pharmaceutical are the city’s main activities.
The city has several industrial parks with presence of foreign and domestic
companies. Some of the most important located in the area are: Exportec I,
Exportec II, Parque Industrial Lerma, Parque Industrial Cerrillo I, Parque
Industrial Cerrillo II, Parque Industrial El Coecillo, and Parque Industrial Toluca
2000, while some of the companies present in the parks are General Motors,
Chrysler, Daimler-Freightliner, BMW, Nissan, Autos Mastretta, Italika, Peugeot
and Volvo. Developers that have significant activity here are Vesta, Frisa,
E-Group and Prologis.
Previous to the fall of the local carrier Mexicana in 2010, Toluca’s airport had
become an alternative for airlines that didn’t have enough slots in Mexico City’s
airport, which was at its maximum capacity. After Mexicana’s suspension of
operations, the industry suffered and adjustment that caused airlines that
operated in Toluca to shift to Mexicana’s left slots. As a consequence, Toluca’s
PAX traffic decreased drastically (-19% CAGR from 2009 to 2014) and has not
been able to recover. It currently serves nearly half of the passengers it had in
2010. This had a negative impact in its lodging industry. Toluca government’s
efforts are focused on reactivating the airport. As of January 2015, it is expected
that Aeromexico will restart operations at Toluca’s airport, with 2 connecting
flights to Tokyo, with intermediate stops in Monterrey and Guadalajara. Foreign
carriers TAR and Spirit are already operating 1 route each, with expectations to
open additional routes in the short term. The airport is also in negotiations with
Southwest airlines to introduce new operations at the airport.
Lodging Characteristics & Outlook: State of Mexico’s lodging supply has not been
able to recover to 2009 pre-crisis levels, which is also a consequence of the low
performance of the airport. During the last 5 years the state’s lodging supply has
grown at a 0.7% CAGR. Currently its hotel room supply represents 2.9% of the
county’s total. Toluca has one of the less fragmented lodging supply markets in the
country, with 44.0% of the share owned by international chains, 26.0% by regional
chains and only 30.0%% owned by independents. Some of the brands present here
are Camino Real, Holiday Inn, One, Courtyard, City Express, Microtel Inn & Suites,
Del Rey Inn, among others.
54
During 2013 occupancy rates fell to 34.6%, the lowest levels of the past decade. It is
worth noting that occupancy levels in the State of Mexico have never been over
41.0%. Business traveling in the area relies on Toluca’s market, which is the strong
industrial arm of the state. Occupancy rates in this city are above the state’s average,
reaching levels of 50.0%. Both HCITY and FIBRA Inn have presence in the Toluca’s
airport area, with 2 hotels each. In the case of FINN, the recently acquired Microtel
Inn & Suites has an occupancy of 60%, which high given the market’s standard. For
the case of its Holiday Inn Express & Suites, occupancy is lower, at an estimated
~45% (select segment). According to HCITY’s management, both of its hotels in the
area (City Express Junior and City Express) have mature-level occupancies, above
competition.
Hotels In The Toluca’s Airport Area
Airport
City Express Jr.
Independent
One
Courtyard
Independent
City Express
Holiday Inn Express & Suites
Microtel Inn & Suites
Independent
The market is dominated by limited-service hotels, which fit the nature of the city’s
industry. ADRs are in average around MX$870.
For the next years we do not expect lodging supply in this market to grow at a faster
pace, but we do expect the measures taken in the airport to rise passenger traffic,
visitation, and occupancy levels. Once these rates reach more mature levels (above
50%), we could expect new hotel investments in the market.
55
Queretaro (Bajio Region)
Queretaro
Market Overview: Queretaro, part of the Bajio region, has a GDP that represents
2.0% of Mexico’s total. It has a population of 1.9 million (1.6% of Mexico’s total
population), and ranks 7th in GDP per capita (MX$159,613). Queretaro has a
working age group of 64.4% and a positive demographic bonus for the next 15 years.
During 2013 Queretaro had a FDI of USD558 million, (1.4% of Mexico’s total FDI.
Most of the FDI) targeted mostly toward the manufacturing and commerce industry.
USD (Million)
Queretaro: FDI
$ 800
100%
$ 700
80%
$ 600
60%
Main Markets:
40%
$ 500
20%
$ 400
■
0%
$ 300
-20%
$ 200
-40%
$ 100
-60%
$0
-80%
2008
2010
2012
FDI
1H2014
Change YoY
Queretaro: PAX Traffic Performance
450
400
60%
CAGR: 30%
40%
PAX (000's)
350
300
20%
250
0%
200
150
-20%
100
-40%
50
0
-60%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
60%
3.5
55%
3.0
2.5
50%
2.0
45%
1.5
1.0
40%
0.5
0.0
Occupancy Rate
Queretaro: Inventory & Occupancy
4.0
Queretaro has a great location, equidistant from Mexico, Monterrey and Guadalajara,
reason why it is a key point for industrial and logistics’ operations. It also has good
access to some of the main commercial ports (Manzanillo, Tampico and Veracruz),
which makes it one of the country’s key transportation centers. Two of Mexico’s 10
main highways cross by the state, one of which is an important piece of the NAFTA
corridors (Queretaro – Cd. Juarez and Mexico - Nuevo Laredo). The main airport is
located in Queretaro the fastest growing passenger traffic in the country, growing at a
CAGR of 30.0% during the last 5 years, and growing 32.5% in 2014. We believe
Queretaro will keep being one of the favorite states for FDI, strengthening and
diversifying its economic activities.
Queretaro. One of the fastest growing and most dynamic cities in the country,
with diverse industries attracting new developments and business. During the
past years, Queretaro’s economic growth has been driven by investments from
companies dedicated to high-tech, mainly from the aerospace sector. Its
aerospace industry is currently worth ~USD1.2 billion, and represents 36% of
Mexico’s production. Bombardier was the first, arriving to the city in 2005. Since
then, it has registered a double digit annual growth. This growth has also
extended to other aerospace industry services like: Aerotech’s industrial park
(located next to the city’s airport), Queretaro’s Aerospace Park, and AeromexicoDelta’s aircraft maintenance hub (largest repair and overhaul facility in LatAm).
Queretaro’s industrial landscape has also been expanded by other sectors,
including home appliances, auto parts, food & beverage, ITC’s, and agro
industries. Some companies representing these sectors include GE, Samsung,
Kellogg’s, Siemens, Bel-corp, and Mitsubishi Electric .
Lodging Characteristics & Outlook: For the last 6 years Queretaro’s lodging
market has been the 3th fastest growing, just behind Nayarit and Quintana Roo, with
a CAGR (08 – 13’) of 5.4% vs. 2.1% of Mexico. currently the state’s hotel room
supply represents 1.8% of the county’s total supply. The lodging supply in Queretaro
is still highly fragmented, with nearly 60.0% of independent hotels, 20.0% owned by
international chains and 20.0% by regional chains. Some of the brands present are
City Express, City Express Jr. Casa Inn, Double Tree, Encore, Holiday Inn, Fiesta
Americana, amongst others.
Occupancy rates here are still recovering pre-crisis levels. Lowest levels of 41.2%
were seen in 2009, ever since, they have been registering an upward trend, reaching
54.4% in 2013, but still behind maximum levels of 56.3% (2007). Queretaro’s lodging
market is mainly comprised by business-class hotels. Nevertheless it also has an
important leisure market, due to its wine route. Limited and select service hotels are
predominant in the state, currently average ADRs are within a range of MX$1,000 –
MX$1,500.
Queretaro’s lodging market has been highly dynamic even through the crisis, with
both inventory and occupancy rates growing YoY. We believe Queretaro will keep
being spotlight for new investments, which generates lodging demand. We expect
occupancy levels to reach pre-crisis levels in the short term.
35%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
56
Tamaulipas (North Region)
Tamaulipas
Market Overview: Tamaulipas’ GDP represents 3.0% of the country’s total GDP,
has a population of 3.4 MM and has a GDP /capita of MX$131,923 is similar to the
countries average of MX$129,055. The state has the 8th largest working age group
(65.5%) and a positive demographic bonus for the next 5 years.
Tamaulipas offers investors very competitive conditions, highly qualified and
specialized human capital in its main clusters: electrical-electronic, auto parts,
chemical and petrochemical, information technologies, metal-mechanic, aerospace
and medical industries. During 2013 Tamaulipas was the 9th state with most FDI
investment, with a total investment of USD735 million which represents 1.9% of
Mexico’s total FDI, and an increase of 92% vs the investment made in the state
during 2012. It is worth noting that this state still presents some concerns related to
insecurity, particularly in Matamoros, Reynosa and Nuevo Laredo, where recent
news talk about the presence of drug cartels. Hopefully this this situation is solved
soon.
Tamaulipas: FDI
$ 800
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
$ 700
USD (Million)
$ 600
$ 500
$ 400
$ 300
$ 200
$ 100
$0
2008
2010
2012
FDI
1H2014
Change YoY
Tamaulipas is an international key trade location, due to its border with the U.S. and
its sea ports. It has 7 sea ports, from which 2 are international maritime ports and 5
are coastal shipping ports. Two main highways cross through the state, the
Matamoros’s branch road to the Veracruz – Monterrey highway, also known as the
Energy, Petrochemical and Exporting Corridor, and the transversal highway Mazatlan
- Matamoros. During the past 5 years, Reynosa’s airport has grown at outstanding
rates, with a CAGR of 17.0%. Despite insecurity, this airport registered an increase of
20.4% in 2014.
Main Markets:
■
Reynosa. Located in the border with the U.S., is connected to McAllen, Texas by
three international bridges: McAllen-Hidalgo-Reynosa Intl. Bridge, PharrReynosa Intl. Bridge, and Anzalduas Intl. Bridge. Through these bridges, international trade between Mexico and the U.S. is facilitated. Reynosa’s industrial
Market (~29.3 million sqf of space, with 10 industrial parks) attracts companies in
the electronics, logistics and automotive sectors. International corporations such
as Panasonic, R. R. Donelley, LG, Steelcase, Motorola, Bissel, Home Depot,
H.E.B. and Lowe’s have presence in the market. Reynosa also has an important
Pemex gas pipeline distribution center.
■
Nuevo Laredo. Another border city with high level of manufacturing activity.
Nuevo Laredo is a key logistics hub, with a complex infrastructure to expedite
merchandise flow between Mexico and the U.S. It offers trade services by land or
railroad, merchandise distribution, and consulting services. Logistic companies
are also attracted to this market because of its easy access and infrastructure for
international crossing.
■
Matamoros. Its economy is mostly represented by U.S. exports from
approximately 140 maquiladoras. Low lease rates have prevailed in Matamoros
during the last years, which have caused companies to expand and install their
operations within market.
■
Altamira. A port city on the Gulf of Mexico. Its port business is mostly
containerized cargo for ocean-going ships. The ports strategic locations allows
for speedy access to any market in the world, located only 500 km from the US
border, and near the main economic centers in Mexico. The strategic planning of
the Port Industrial Complex allows importing raw goods on a large scale to
service the local industry, as well as national and international distribution of
finished goods with attractive logistical costs. This market is considered to form
part of a corridor that is comprised of cities with important oil activity, which is
expected to increase as a result of the Energy Reform. Altamira hosts companies
with activity in the port, such as Weatherford, Halliburton, Vopat, Dupont,
Nhumo, Dyanosol, ICA, Pemex, KOF Femsa, Mexichem, Iberdrola and Posco.
PAX (000's)
Reynosa: PAX Traffic Performance
500
450
400
350
300
250
200
150
100
50
0
50%
CAGR: 17%
40%
30%
20%
10%
0%
-10%
-20%
'09
'10
'11
'12
PAX
'13
'14
YoY Change
7.0
55%
6.0
50%
5.0
45%
4.0
40%
3.0
35%
2.0
30%
1.0
25%
0.0
20%
'08
'09
'10
Unoccupied Rooms
Occupancy Rate
'11
'12
'13
Occupied Rooms
Series4
Occupancy Rate
Tamaulipas: Inventory & Occupancy
57
Lodging Characteristics & Outlook: Tamaulipas’ lodging supply suffered a
decrease in the past years, during 2013 it decreased almost 20%, while in average
the past 5 years the supply has decreased 5.8% per year. The fall in supply can be
explained by the closing of approximately 14 hotels, mostly from the leisure segment.
Some of them have closed only temporarily due to the low visitation, which was
caused by a wave of violence and extremely cold weather. These properties plan to
reopen when tourism is reactivated. While Reynosa has a highly fragmented market
(66.5% independents, 15.0% international, 18.5% national), Nuevo Laredo is one of
the 3 less fragmented markets (33.0% independents, 35.0% international, 32.0%
national). Due to its closeness to the U.S., Nuevo Laredo’s market has been forced
to offer higher quality lodging, decreasing the independent and low quality hotels.
One, Fiesta Inn, Holiday Inn, Hampton Inn, City Express and Real Inn are some of
the brands present in the market.
The negotiation between the government of Tamaulipas and the company Keppel
Offshore and Marine resulted in an investment for the construction of the first primer
offshore drilling shipyard to build jackup drilling rigs in the area for a total value of
USD 400 million, which will generate approximately 4,000 direct jobs. Currently, there
is a lack of hotel offerings and most of the hotels are either local or independent
hotels.
Occupancy rates have increased significantly, since their lowest levels of 28.9%
observed during 2010. In 2013 occupancy rates reached 53.0%, the highest levels of
the last decade. It is worth noting that most of the increase in occupancy is due to the
decrease in demanded hotel supply, which reflects a more mature and healthy
market. Previously the state had a mixed composition, with both business and leisure
lodging demand. During the past years, however, the leisure market has deteriorated
due to security and climate concerns but the business segment is gaining
importance. The market is dominated by limited and select service hotels, with
average ADRs of MX$980. We believe business-class lodging will increase notably in
the short term due to energy reform projects in the area. In fact, Reynosa’s airport is
showing a strong increase in visitation which is immediately reflected in lodging
supply.
58
Veracruz (Southeast Region)
Veracruz
Market Overview: Veracruz is located in eastern Mexico, bordered by the states of
Tamaulipas, San Luis Potosí, Hidalgo, Puebla, Oaxaca, Chiapas, Tabasco, as well
as a significant share of the coastline of the Gulf of Mexico. Veracruz’s GDP is the
5th largest economy of the country, representing 5.4% of the total GDP. It also has
the third largest population, with nearly 7.9 million citizens, representing 7.9% of the
country’s total population. Its GDP /capita of MX$103,091 is far below the country’s
average, ranking 21st. Veracruz has a working age group of 64.1%, and a positive
demographic bonus for the next 5 years.
Veracruz: FDI
$ 500
1400%
1200%
1000%
800%
600%
400%
200%
0%
-200%
-400%
-600%
USD (Million)
$ 400
$ 300
$ 200
$ 100
$0
-$ 100
-$ 200
2008
2010
2012
FDI
1H2014
Change YoY
20%
CAGR: 6%
1,200
15%
1,000
10%
PAX (000's)
Veracruz has a key trade location and will be largely benefited from the energy
reform. Veracruz is where the Energy, Petrochemical and Exporting Corridor is
originated (Veracruz – Monterrey), it has 10 sea ports, from which 5 are international
maritime ports and 5 are coastal shipping ports. These ports are responsible for most
of the imports and exports of the country including that of the automotive industry.
The state also has 3 airports, the largest located in Veracruz, followed by the one in
Minatitlan and the smallest in Poza Rica. During the last 5 years Veracruz’s and
Minatitlan’s airport have had a solid performance with a CAGR of 6.3% and 10.0%
respectively. In 2014, Minatitlan’s airport continued outpacing the main airport,
growing 34.2% YoY vs. Veracruz’s 14.5%.
Main Markets:
Veracruz: PAX Traffic Performance
1,400
Veracruz has more than 700 kilometers of coast and ten sea ports, which are the
gateway to the Atlantic Ocean and provide endless foreign trade possibilities.
Veracruz offers investors high competitive advantages because of its climate
diversity, land relief, geographic location and proven energy potential. The main
sectors in the state are: energy, industrial, commerce services, trade, tourism and
agribusiness. During 2013, the state received a net FDI of USD452 million which was
more than 10 times the investment received during 2012, and represented 1.9% of
the country’s total investment.
800
5%
600
0%
400
-5%
200
-10%
0
■
Veracruz. A major port city located in the Gulf of Mexico. The port is the main
economic engine of the state and the principal port for most of Mexico’s imports
and exports, especially for the automotive industry. In 2015, Friopuerto Veracruz,
the first temperature controlled facility located within Puerto Gulf of Mexico, will
open its doors. In its first phase it will have more than 2,500 sqm covered and a
storage capacity for 3,500 tons (22,000 cubic meters). Friopuerto has invested
MX$85 million in this facility. The new facilities at Friopuerto Veracruz will allow
importers and exporters to move larger volumes through the Port of Veracruz,
which will also benefit the transport sector for there will be greater demand for
refrigerated transport.
■
Minatitlan. Home to the oldest refinery and third largest in Mexico, Lazaro
Cardenas. Currently this refinery produces 160,000 barrels per day. Nevertheless, the refinery underwent an expansion that started in 2003 to bring the
capacity of the plant up to 240,000 barrels per day, which according to Pemex
should be reachable in the short-term.
■
Coatzacoalcos. Also a port city, dominated by the oil and petrochemical
industries. Four big industrial petrochemical complexes are located near the city
(Pajaritos, Cosoleacaque, Morelos and Cangrejera) making it one of the most
important concentrations in the world. Pemex Petroquimica subsidiary is headquartered in Coatzacoalcos and 85% of its production is concentrated there.
PEMEX’s Ethylene 21 plant is currently under construction here. The city
includes the following major companies: Weatherford, Haliburton, Dowell
Schlumberger, Comesa, Cotemar, Grupo Idesa, Pemex, Cydsa and Mexichem.
-15%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
14.0
55%
12.0
50%
10.0
8.0
45%
6.0
4.0
40%
2.0
0.0
Occupancy Rate
Veracruz: Inventory & Occupancy
35%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
59
Lodging Characteristics & Outlook: During the last 5 years the growth in
Veracruz’s lodging supply has outpaced the country’s, with a CAGR (08’ – 13’) of
3.2% vs. 2.1% of Mexico. The state’s hotel room supply is the 4th largest in Mexico
representing 6.0% of the total country’s supply. Nevertheless lodging in the state is
still highly fragmented, with nearly 70% of independent hotels, 14.5% of international
chains and 15.5% of national chains. Camino Real, Howard Johnson, Comfort Inn,
Fiesta Inn, Fiesta Americana are some of the brand present in the market.
Occupancy rates have had a rough time recovering pre-crisis levels, falling
consecutively YoY from 2006 (highest levels 51.2%) up to 2012. During 2013
occupancy levels reaches 47.4%, being the highest occupancy in the last 7 years. It
is word mentioning that as room supply grows, it is harder to increase or even
maintain occupancy levels, new hotels usually reach mature hotels occupancy after 3
years. Coatzacoalcos currently has an average overall occupancy rate of 66% with
demand growth potential. Due to the LT benefits from the Mexican Energy Reform,
there is an expected positive impact on Veracruz, which will benefit the performance
of its lodging market.
Veracruz’s market is dominated by business-class hotels mainly from limited-service
and select-service, which currently have an average ADR of MX$1,000, nevertheless
the state has also strong leisure attraction such as Los Rapidos. We expect
occupancy and ADRs to increase in the next years, anticipating a major business
class demand due to energy investment projects.
60
Campeche (Southeast Region)
Campeche
Market Overview: Campeche is the 6th largest economy in the country, representing
5.0% Mexico’s GDP, with a population of less than a million (0.7% of Mexico’s total
population). However, Campeche has the highest GDP per capita of MX$878 k. The
state has a productive age group of 65.2% of the population, and a positive
demographic bonus reaching 67.0% in 2020. In 2013 Campeche registered negative
flows of USD$136 MM in FDI (stronger local investments). Nevertheless, it is one of
the main spotlights of Mexico’s energy reform. It is worth mentioning that the NIP
2014-2018 considers 4 Pemex energy projects in Campeche with a total investment
of MX$562 billion (17.0% of Pemex energy projects).
USD (Million)
Campeche: FDI
$ 150
300%
$ 100
200%
100%
$ 50
0%
$0
-100%
-$ 50
-200%
-$ 100
-300%
-$ 150
-400%
2008 2009 2010 2011 2012 2013 1H14
FDI
Change YoY
Campeche: PAX Traffic Performance
250
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
CAGR:16%
PAX (000's)
200
150
100
50
0
'09
'10
'11
PAX
'12
'13
'14
YoY Change
56%
2.5
54%
2.0
52%
1.5
50%
48%
1.0
46%
0.5
44%
0.0
42%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
Campeche: Inventory & Occupancy
Two of the 10 main highways of the county pass through Campeche, conforming
what is known as the “Energy-Petrochemical” corridor. The state also has 14 sea
ports (8 international) as well as 2 international airports one located in Ciudad del
Carmen and the other in Campeche. The airport located in Ciudad del Carmen is
substantially bigger than Campeche’s, but during the past years the latter has shown
an important growth, with a CAGR of 16.3% from 2009 to 2014 (+14.6% in 2014).
As aforementioned, Campeche’s economy is highly dependent on the petrochemical
sector. Thus, the implementation of the energy reform should encourage local and
foreign investments which will catalyze lodging demand.
Main Markets:
■
Ciudad del Carmen and Campeche are two of the most important operation
centers of Pemex. The most productive oil field in Mexico, Ku-Maloob-Zaap, is
located offshore in the bay of Campeche, as well as one of the largest oil fields
Canterell. The first is in its maximum level of production since 2010, while
Cantrell’s production has fallen drastically, producing only 10% of its maximum
production. Since 1979, 15,000 MM barrels have been extracted in Cantarell.
Recently, Pemex informed that for 2015 they expect a daily crude oil production
of 2.4 million barrels, from which 850,000 barrels will be produced in KuMaloob-Zapp and 272 thousand in Cantarell. The fields will be productive at least
until 2030, which maintains favorable conditions for the petrochemical industry in
Campeche. Due to its high levels of oil production, Campeche is one of the most
important economies of the country.
Ciudad del Carmen hosts front-offices of firms such as Weatherford, Haliburton,
Dowell Schlumberger, Comesa, Cotemar, Grupo Carso, Compañia Perforadora
Mexico and Pemex.
Lodging Characteristics & Outlook: During the past years Campeche’s lodging
supply has grown almost 3 times faster than the county’s average. In the same
period, its lodging supply (1.3% of the county’s total) has shown a CAGR of 5.9% vs.
2.1% of Mexico. The hotel industry is highly fragmented here, with 66.5% of the
share owned by independents, 14.0% by regional chains, and 19.5% by international
chains. Some of the brands with presence in the market are Best Western, City
Express, Hotel Plaza, City Express Jr., Holiday Inn and Fiesta Inn. FIBRA Inn is
currently developing a Fairfield Inn & Suites in Ciudad del Carmen.
Occupancy rates have been more defensive than other markets, above 50% over the
last 10 years (currently at 65% in Cd. Del Carmen) which reflects a strong and stable
demand in the state. In 2009, average occupancy felt just 51.3%. For the next years
we expect an increase in demand, as a result of a rise in business travels.
Campeche has a mixed lodging market; while its business-class has a high and
stable demand due to the low seasonality of the petrochemical industry, its leisure
lodging complements with high weekend occupancy rates. The business-class hotels
are mainly limited-service hotels which currently have an average ADR of MX$1,000.
61
Baja California Norte (B.C.) (North Region)
Baja California Norte
Market Overview: B.C.’s GDP represents 2.8% of Mexico’s GDP, with a population
of 3.3 MM (2.8% of Mexico’s total) and a GDP /capita of MX$128.5 k (vs. Mexico’s
avg. of MX$129.1 k). Currently it has the 4th largest productive age group with 66.5%
of the population between 15 and 65 years old. In 2013, B.C. was the 8th largest
receiver of FDI with a net influx of USD$802 MM, +47.6% YoY (2.0% of Mexico’s
total FDI). Most of the investment were directed to secondary activities, such as
mining, oil & gas extraction, construction and advanced manufacturing. It is highly
benefited by the NAFTA, with 2 of the 3 most transited frontiers of the world (Tijuana
–San Diego and Mexicali–Calexico), with an avg. daily traffic of 60,000 people.
USD (Million)
Baja California: FDI
$ 900
100%
$ 800
80%
$ 700
60%
$ 600
40%
$ 500
20%
$ 400
0%
$ 300
-20%
$ 200
-40%
$ 100
-60%
$0
B.C. has 2 of the country’s 10 main highways (Mexico–Nogales, also known as
“NAFTA Agricultural Export” corridor and the Transpeninsular B.C. highway). It also
has 8 sea ports (6 international) and 4 international airports, being Tijuana’s airport
the most important followed by Mexicali’s. From 2009 to 2014 Tijuana’s airport grew
at a CAGR of 5.2% and grew 2.8% in 2014, receiving 4,373 thousand annual PAX.
B.C.’s economy is highly dependent on the electronics and medical industries, and
has been for several years in the eye of foreign investors. Its exposure to the auto
and aerospace sectors has also expanded in the last years.
Main Markets:
■
Tijuana: located 17 miles south of San Diego, has access to 2 of the most
important ports in Mexico. Much of the growth of its manufacturing sector has
been in medical products (with over 31,000 jobs), where new firms like Surgical
Specialties and CE Medical are establishing facilities to join Wilson Greatbatch,
Medtronics and Welsh Allyn. Tijuana has become one of America’s largest
clusters of electronics, due to its key location for Japanese and Korean firms
dedicated to the electronics industry. Its proximity to Southern California and its
large, skilled, diverse, and relatively cheap workforce, makes it an attractive city
for foreign companies looking to establish extensive industrial parks composed of
assembly plants (maquiladoras). Companies that have set up maquiladoras in
Tijuana include Hyundai, Sony, BMW, Toyota, Dell, Samsung, Kodak, Bimbo,
GE, Nabisco, Ford, Microsoft, Cemex, Philips, Jaguar, Sanyo and Volkswagen.
■
Mexicali: border city located south of Calexico, CA. It has a strong agricultural
base; years ago Mexicali was an important center for cotton production for
export, until synthetic fabrics reduced the worldwide demand for the fiber.
Currently, horticulture is the most successful agricultural activity. Nevertheless,
as of the last decade its economy relies in assembly plants including companies
like, Selther, Daewoo, Mitsubishi, Honeywell, Paccar, Vitro, and Bosch.
-80%
2008 2009 2010 2011 2012 2013 1H14
FDI
Change YoY
PAX (000's)
Tijuana: PAX Traffic Performance
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
15%
CAGR: 5%
10%
5%
0%
-5%
-10%
-15%
-20%
'09
'10
'11
'12
PAX
'13
'14
YoY Change
55%
6.0
5.0
50%
4.0
45%
3.0
40%
2.0
35%
1.0
0.0
30%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
B.C.: Inventory & Occupancy
Lodging Characteristics & Outlook: B.C.’s lodging supply has grown at a slower
pace than Mexico’s avg. due to its proximity to the U.S., considering than the driving
time its main cities to the U.S. is less than 45 min. With similar ADRs in limited
service hotels across the border, international business travelers may rather stay in
San Diego or Calexico, especially for insecurity concerns. During the last 5 years its
lodging supply has shown a CAGR 2008-2013 of 1.8% vs. Mexico’s 2.1%. Currently,
B.C.’s room supply represents 3.0% of the county’s total. Lodging here is still highly
fragmented, specially in Tijuana, were 63.5% of the hotels are independent and
might not have the quality that business travelers look for. Mexicali has a less
fragmented market with only 21.5% of independents; nevertheless, this is due to the
presence of leisure hotel chains. Some brands present in these markets are City
Express, Fiesta Inn, City Express Jr. and Holiday Inn Express.
Occupancy rates have had a slow recovery since its lowest levels of 34.7% in 2010,
increasing up to 40.7% in 2013, but still below previous levels of 49.1% (2006).
B.C.’s lodging market is comprised by both business and leisure properties. To the
extent that B.C.’s main industries grow and more companies settle their assembly
plants here, the demand of business-class lodging will keep growing. Average ADR
for business-class hotels is ~MX$1,250 while leisure hotels reach up to $2,800.
62
Chihuahua (North Region)
Chihuahua
Market Overview: Chihuahua’s GDP represents 2.8% of Mexico’s total GDP, with a
population of 3.6 million (3.1% of Mexico’s total population) and a GDP per capita of
MX$115,926, which is similar to the country’s average of MX$129,055. Additionally
the state has a productive age group of 64.5%, with a positive demographic bonus
for the next 5 years reaching 65.3% in 2020E.
In 2013 Chihuahua was the 2nd most attractive state for foreign direct investment,
after Distrito Federal, with a net influx of USD$1,900 million (4.9% of Mexico’s total
FDI), and more than twice of the FDI it had in 2012 (USD $745 million). Additionally,
Chihuahua has been within the top 6 states with most FDI since 2011. It is worth
mentioning that more than half of the total investment was targeted to Ciudad Juarez.
Chihuahua is one of the states with the largest gas pipelines’ infrastructure in the
country, which is mainly located in Delicias, Ciudad Juarez and Parral.
USD (Billion)
Chihuahua: FDI
$ 20
$ 18
$ 16
$ 14
$ 12
$ 10
$8
$6
$4
$2
$0
200%
150%
100%
50%
0%
-50%
-100%
2008 2009 2010 2011 2012 2013 1H14
FDI
Change YoY
Chihuahua: PAX Traffic Performance
1,200
CAGR: +5%
1,000
PAX (000's)
About 55% of the MX$228.5 billion total national gas pipeline investment projects for
the next 3 years (including 7 of the 8 main gas projects; and about 4,000 km of the
total 8,000 km of gas pipelines to be constructed in the country) will be located in
Chihuahua, making it the main development pole of the energy industry. For the
coming years, we expect Chihuahua to have an increase in business activity and
business travel driven by its gas pipelines’ projects.
15%
Main Markets:
10%
■
Ciudad Juarez: Located 25 km south from El Paso, Texas, with a driving time
from one city to another of less than 30 min, is the largest border in terms of
commercial and passenger traffic worldwide. The city is one of the largest
manufacturing markets in Mexico, one of the most dynamic border cities and the
largest industrial real estate market. Ciudad Juarez has a strong presence of the
automotive, medical, home appliances, and electronics sectors, with more than
300 assembly plants located in the city. DHL, Ultimex, Rogers Foam, Delphi,
Electrolux, A.O. Smith, Foxconn, Wistron, and Johnson and Johnson, are some
of the companies based in the market. There is also a strong presence of the
maquila industry as a result of its proximity to the U.S. border.
■
Chihuahua: Located 372 km away from the U.S. border, this is a consolidated
market with a dynamic and diverse industry and one of the most relevant cities in
the country from an economic viewpoint. It is an important industrial center for
the aerospace sector in Mexico as well, concentrating over 30 companies,
including OEMs such as Cessna, Textron, Hawker Beechcraft, and Honeywell.
This market is also driven by the automotive sector with the presence of Ford,
and other autoparts’ companies; construction-related firms such as Cementos
Chihuahua and Interceramic; and the processed food sector with companies like
Grupo Bafar.
■
Delicias: This smaller market, where FIBRA Inn recently acquired a Casa
Grande Hotel (the most recognized hotel in the city), has a strong presence of
the pharmaceutical, medical, rubber and textile industries. The demand of this
location is mainly driven by pharmaceutical firms like Bayer, Rimsa and Sanofi.
800
5%
600
0%
400
-5%
200
-10%
0
This state, as other border states is highly benefited by the NAFTA. It possess the
most transited border of the world (Ciudad Juarez–El Paso), with daily avg. traffic of
75,000 people. The Queretaro–Ciudad Juarez highway, also known as the “Mining”
Corridor, is one of the most important corridors in Mexico, starting in Queretaro and
crossing all the way up to the U.S.. Additionally, Chihuahua has 2 international
airports, one located in Ciudad Juarez and the other in Chihuahua. From 2009 to
2014 Chihuahua’s airport grew at a CAGR of 5.2%, and +8.6% in 2014, receiving
962 thousand PAX. Ciudad Juarez’s airport (~750,000 PAX /year) showed a 4.0%
CAGR for the same period, and a stronger 9.4% growth in 2014.
-15%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
60%
8.0
55%
6.0
50%
45%
4.0
40%
2.0
35%
0.0
30%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupancy Rate
Chihuahua : Inventory & Occupancy
Occupied Rooms
Occupancy Rate Mx
63
Lodging Characteristics & Outlook: In 2013 Chihuahua reached a total lodging
supply of 21,479 rooms, being the 6th largest supply in the country and representing
4.1% of Mexico’s total supply. During the last 5 years Chihuahua’s supply has grown
twice as fast as the country’s average, at a CAGR of 4.4%. The market is dominated
by independent hotel owners, who have 50.0% of the supply, while 35.3% is owned
by regional chains and 14.7% by international chains. City Express, City Express Jr.,
Microtel, Quality Inn, Real Inn, Comfort Inn, Best Western, Casa Grande and Fiesta
Inn are some of the brands present in the market. Chihuahua’s lodging market is
comprised mainly by limited service business class hotels, which currently have an
average ADR of MX$950.
Chihuahua’s occupancy rates peaked during 2008 to levels of 58.2%. Ever since, a
series of factors have made occupancy rates fall, including: the global financial crisis
in 2009, the ‘influenza’ outbreak in the country in that same year, and violence and
insecurity concerns. The combination of these 3 factors has delayed Chihuahua’s
overall occupancy recovery. During 2012 levels dropped down to 40.1% and slightly
recovered in 2013 to 42.0%. This market will continue presenting a recovery path, led
by the improving U.S. economy, the general recovery in external demand and lower
insecurity concerns. The automotive and aerospace sectors will continue boosting
industrial activity in the market and we find upside potential on new investments
related to the energy reform. This is already being reflected in increases in air PAX
traffic.
64
Coahuila (North Region)
Coahuila
Market Overview: Coahuila is the 9th largest economy in the country, representing
3.4% the GDP. It has a population of 2.9 million inhabitants, which represent 2.4% of
Mexico’s total. The state ranks 5th in GDP /capita with MX$179,468 per year. It has a
productive age group of 64.7%, with positive prospects for 2020, when it could reach
66.7%.
In 2013 Coahuila was the 4th receiver of FDI in Mexico, with a total investment of
USD$1,294 MM (3.3% of Mexico’s total FDI), quadrupling the FDI received in 2012.
For the coming years Coahuila will maintain significant local and foreign investments.
For 2015, Peñoles will investment USD$230 MM in the state to expand its chemical
plant. Furthermore, it is expected that in March 2015, the mining cluster Petroleo de
Coahuila will publish the shale gas exploration map for the entity. Companies
interested in the extraction or processing of the hydrocarbon will be able to present
their investment projects.
USD (Million)
Coahuila: FDI
$ 1,400
700%
$ 1,200
600%
500%
$ 1,000
400%
$ 800
300%
$ 600
200%
100%
$ 400
0%
$ 200
-100%
$0
-200%
2008
2010
2012
FDI
1H2014
The Mexico–Piedras Negras highway is one of the most important highways in
Mexico (part of the “Industrial, Manufacture, Logistics and Exports NAFTA” corridor),
starting in Mexico City and crossing by Coahuila all the way up to the border with the
U.S.. Additionally Coahuila has 5 international airports which are relatively small; the
most important being located in Torreon. From 2009 to 2014 this airport recorded a
CAGR of 5.8%. Nevertheless since 2011 it has grown at double digits. In 2014 it
registered a 12.1% YoY growth. As we have mentioned, Coahuila’s economy is
highly dependent on the gas, metal, food, and automotive industries. We believe that
PAX traffic is already reflecting an important growth in Coahuila’s industrial activity,
which should translate in an increase in its lodging demand.
Main Markets:
Change YoY
Source: Actinver.
■
Saltillo and Ramos Arizpe: Both enjoy proximity to Monterrey and a more
stable labor force as compared to the border markets. With Monterrey’s long
established steel industry, Saltillo and Ramos Arizpe have developed through the
years complementary industrial lines, most notably in auto manufacturing. As a
result, both cities have become a key center for the global automotive industry,
producing ~10% of the total petro-engines in N.A.. They have a highly trained
labor force, existent production infrastructure, access to large demographic
markets, and an ample base of suppliers. The light and heavy weight vehicle
manufacturing is represented by Chrysler, GM, Freightliner, John Deere, and
FIAT. Companies related to the automotive sector based in these markets
include Faurecia, Magna and Matcor. These sectors have driven the markets’
growth. Logistic companies have also an important presence in Saltillo.
■
Torreon: Along other 3 cities (Gomez Palacio, Matamoros and Ciudad Lerdo)
comprise what is known as La Comarca Lagunera, the 9th largest metropolitan
area in the country and one of Mexico’s most important economic and industrial
centers. Currently, the metal industry is one of the most important in Torreon due
to the presence of Industrias Peñoles, who has established the most important
lead smelter, silver refinery, and electrolytic zinc refinery facilities of Mexico and
LatAm in the city, in which precious and semi-precious metals such as silver,
gold, lead, zinc, cadmium and other chemical byproducts are produced.
Torreon: PAX Traffic Performance
600
15%
CAGR: 6%
10%
PAX (000's)
500
5%
400
0%
300
-5%
200
-10%
100
-15%
0
-20%
'09
'10
'11
'12
PAX
'13
'14
YoY Change
3.5
55%
3.0
50%
2.5
2.0
45%
1.5
1.0
40%
0.5
0.0
35%
'08
'09
'10
Unoccupied Rooms
Occupancy Rate
'11
'12
'13
Occupancy Rate
Coahuila: Inventory & Occupancy
The dairy industry and farming-related activities are the second most important
industries in Torreon’s metro area, due to the presence of Grupo Lala, which was
born in La Comarca Lagunera and is today the leading company of the industry
in Mexico. Lastly, industrial activities such as the textile, electronics, automotive
assembly plants, and other light manufacturing facilities also account for an
important part of Torreon’s economy. Delphi, John Deere, Metzler, Johnson
Controls, Takata, Caterpillar, Wrangler and Hanes are some of the companies
with presence in the city.
Occupied Rooms
Series4
65
Lodging Characteristics & Outlook: During the last 5 years Coahuila’s lodging
supply has grown at a 2.5% CAGR, which is similar at the average country lodging
supply growth (2.1%). Currently the state’s hotel room supply represents 1.8% of the
county’s total supply. Coahuila’s lodging market is within the less fragmented
markets in the country, with nearly 45.0% owned by independents, 29.7% by
international chains and 25.3% by national chains. It important to note that 45.0% is
still a high independent hotels ratio compared to more developed markets such as
US, in which less than 20% are independent. Quality Inn, Camino Real, Holiday Inn,
One, Quinta Real, Fiesta Inn, Marriot and Hampton Inn are some of the brands
present in the state.
Up to 2013, occupancy rates in Coahuila have not been able to recover from 2008
levels of 52.9%, the highest rates observed before the crisis. In 2012 there was an
improvement towards 47.0% levels, nevertheless it felt to 45.1% during 2013, mainly
due to an increase of 11.0% on the state’s lodging supply. As we mentioned before,
the increase in airport activity is a positive signal for an immediate rise in occupancy
rate, which should be reflected during the following years.
Coahuila in general has a low tourism activity, which makes the lodging market highly
dependent on business-class hotels, which in part justifies lower occupancy rates,
due to the lack of weekend visitation. Coahuila’s supply is mainly concentrated in
limited-service and select-service hotels, which currently have an average ADR of
MX$1,000.
66
Sonora (North Region)
Sonora
Market Overview: Sonora is located in northwest Mexico, bordered by the states of
Chihuahua, Baja California, Sinaloa, U.S. states of Arizona and New Mexico and it’s
also adjacent to the Gulf of California. Sonora’s GDP represents 2.9% of the
country’s total GDP; its population of 2.8 million represents 2.4% of Mexico’s total
population and it’s GDP per capita of MX$158,587 ranks 8th in the country. Sonora
has a working age group of 64.8%, and a positive demographic bonus for the next 5
years.
Sonora offers first-class infrastructure and provides efficient relationships between
high-level research centers and a dynamic business environment supported by the
state. During 2013 Sonora had a FDI of USD134 million (0.3% of Mexico’s FDI),
duplicating the FDI received in 2012. Most of the investment was directed toward the
manufacturing sector.
USD (Million)
Sonora: FDI
$ 1,400
300%
$ 1,200
250%
$ 1,000
200%
150%
$ 800
100%
$ 600
50%
$ 400
0%
$ 200
-50%
$0
-100%
2008
2010
2012
FDI
1H2014
Sonora is a key trade location, with the NAFTA agricultural corridor (Mexico Nogales) crossing through the state to United States. It has 7 sea ports, from which 2
are international maritime ports and 5 are coastal shipping ports. The state has
several small international airports; the largest and most important is located in
Hermosillo followed by Ciudad Obregon’s airport. Hermosillo’s airport is 6 times
larger than Cd. Obregon’s, with an average daily traffic of 3.5 thousand passengers.
During the last 6 years, Hermosillo’s airport has had a CAGR of 3.0% and marginally
grew 0.1% in 2014.
Main Markets:
■
Hermosillo. Is the capital and main economic center of the state. It contains
almost all of the state's manufacturing activity, which is predominated by
automobile manufacture. For the last decades industrial and manufacturing
sector have been the most dynamic in the city, currently the state has about 30
manufacturing plants and more than 10 industrial parks in which over 100
smaller manufacturing enterprises have settled employing about 30% of the city’s
population and nearly 20% of the state’s population. Other than cars, these
manufacturing enterprises products include: televisions, computers, textiles, food
processing, mobile phones, printing, chemicals, petroleum products and plastics.
Some of the most important enterprises in the sector are Ford and Lanix
electronics. Additionally the aerospace industry has been growing during the last
decade, during June 2014 TE connectivity opened a new plant which required an
investment of USD20 million, being the 64th company of the aerospace industry
located in the state.
■
Ciudad Obregon. Second largest city in the state; its primary economic activities
are agriculture, industry, cattle farming, fishing commerce and aquaculture.
Agriculture is still the primary economic activity, with one of the most important
irrigation systems in the country.
■
Cananea. Has a mining based economy, with nearly 80% of the population’s
economy directly or indirectly supported by the industry. The largest mining
companies are Buenavista del Cobre (co-owned by Southern Copper Corp. and
Grupo Mexico) and Minera Maria (owned by Minera Frisco). Industry is the
second most important activity in the local economy, with several maquiladoras
located in the city with diverse mining side business activities such as cable
assembly and steel production. Stewart Connector Systems de México, S.A.;
Fundidora de Cananea, S.A. and Road Machinery Company de México, S.A. are
some of the most important, providing together 600 jobs in diverse activities,
from cable assembly to production of steel.
Change YoY
Source: Actinver.
Hermosillo: PAX Traffic Performance
1,300
8%
CAGR: 2%
6%
1,250
4%
PAX (000's)
1,200
2%
1,150
0%
1,100
-2%
-4%
1,050
-6%
1,000
-8%
950
-10%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
6.0
60%
5.0
55%
4.0
50%
3.0
45%
2.0
40%
1.0
0.0
35%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Unoccupied Rooms
Occupancy Rate
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
Sonora: Inventory & Occupancy
Lodging Characteristics & Outlook: Sonora’s lodging supply represents 2.5% of
the country’s total lodging supply. During the last 5 years its supply has grown at a
slightly faster pace than the country’s average, with a CAGR (08’ – 13’) of 2.8% vs.
2.1% of Mexico.
67
Additionally, Hermosillo has a highly fragmented industry, with nearly 63.5% of the
supply owned by independent hotels, only 10.5% by international chains and 26.0%
by national and regional chains. Ibis, City Express, Fiesta Americana, Holiday Inn
Express and Fiesta Inn are some of the hotels present in the market.
Occupancy rates are still recovering pre-crisis levels, lowest levels were seen until
2010 (45.7%), ever since occupancy has been increasing YoY, reaching 52.1%
during 2013, which is close to 55.5% maximum levels. The state has a mixed leisure
market, while during the week business visitation is high, it also has several beaches
such as, San Carlos, Guaymas, Puerto Peñasco, among others visitation in these
beaches is mostly national. The business-class hotels are mainly limited-service with
a current average ADR of MX$950. While leisure’s ADRs are near MX$1,900.The
growth of the aerospace industry and the establishment of new companies of the
industry as well as a strengthening automotive industry are one of the strongest
drivers of the state, which in the short term may reflect in lodging supply demand
increase.
68
Puebla (Central Region)
Puebla
Market Overview: Puebla is located in central Mexico, bordered by the states of
Veracruz Hidalgo, México, Tlaxcala, Morelos Guerrero and Oaxaca. The state is the
tenth-largest economy in the country, representing 3.2% of Mexico’s GDP, with a
population of 6.0 million (5.1% of Mexico’s total population), and a GDP per capita of
MX$80,690, which is lower than the country’s average of MX$129,055. Currently
Puebla has one of the smallest working age groups with 61.8% of the population,
notwithstanding the demographic bonus is positive for the next 15 years reaching up
to 65.4% by 2030.
USD (Million)
Puebla: FDI
$ 1,400
500%
$ 1,200
400%
$ 1,000
300%
$ 800
200%
$ 600
100%
$ 400
0%
$ 200
$0
-100%
2008
2010
2012
FDI
1H2014
Change YoY
■
Puebla: PAX Traffic Performance
PAX (000's)
30%
CAGR: -4%
350
20%
300
10%
250
0%
200
-10%
150
100
-20%
50
-30%
0
-40%
'09
'10
'11
PAX
'12
'13
'14
YoY Change
5.0
65%
60%
4.0
55%
3.0
50%
2.0
45%
40%
1.0
35%
0.0
30%
'05 '06 '07 '08 '09 '10 '11 '12 '13
Occupied Rooms
Occupancy Rate Mx
Occupancy Rate
Puebla: Inventory & Occupancy
Unoccupied Rooms
Occupancy Rate
Puebla is an important connecting point between central Mexico and the Yucatan
Peninsula. Important economic corridors pass through the state, the highway Mexico
– Puebla – Progreso, which is part of the Energy, Petrochemical and Exporting
Corridor is one of the most important, as well as the highway Puebla – Oaxaca – Cd.
Hidalgo. The main airport is located in Puebla but it is relatively small, considering its
location, specially the closeness with Mexico City, and the high connectivity, most of
the visitation is done overland. From the years 2009 – 2013 PAX traffic suffered an
average decrease of -4.5% per year. In 2014 it recorded a 2.4% YoY decline.
Main Markets:
400
The state of Puebla has a strategic location, 120 kilometers from Mexico City and
300 kilometers from the international port of Veracruz. The state’s most important
sectors include the following: automotive and auto parts, metal mechanic, chemicals,
plastics, apparel, furniture, fresh and processed foods, mining and information
technologies. During 2013 the state was the 3rd with most FDI in the country, with a
net influx of USD1,321 million, equivalent to 2.4% of Mexico’s total FDI and more
than 2 times the FDI received by the country during 2012. Most of the FDI was
directed toward the manufacturing industry.
Puebla. The main economic engine in the market is the Volkswagen plant. This
automobile plant and the numerous auxiliary plants and businesses that support
it represent the city’s larger employers. Puebla will continue strengthening within
the automobile industry with the opening of the Audi manufacturing plant, which
is scheduled to produce its first fleet of vehicles in 2016. By 2016, Altom’s
geothermal power plant “Los Humeros III – Phase A” will start operations as well,
the investment required for this project will be USD43 million. FINSA’s industrial
park is another important economic center, where companies such as DHL and
Oxxo have settled their local operations. Additionally, professional service
companies, such as Deloitte and KPMG support the overall strength of the area.
Lodging Characteristics & Outlook: Puebla’s lodging market is one of the few
markets that maintained inventory growth and occupancy rates through the crisis.
During the last 5 years the growth its lodging supply has outpaced the country’s, with
a CAGR (08’ – 13’) of 4.1% vs. 2.1% of Mexico, currently the state’s hotel room
supply represents 2.5% of the county’s total supply. The lodging in Puebla is highly
fragmented, with nearly 68.5% of independent hotels, nevertheless presence of
national and international chain is starting to grow. La Quinta Inn, Presidente
Intercontinental, Holiday Inn, Best Western, City Express, NH, One, amongst others.
Occupancy rates resisted to the crisis, increasing constantly YoY, even through
2009. During 2013, Puebla reached occupancy of 60.8%, the highest level from the
past decade. This occupancy levels reflect a mixed market, with important business
and leisure demand. Said this, Puebla’s supply is very diverse, catering for different
markets and different travel occasions, offering limited, select and full-service supply.
As aforementioned, highly fragmented markets usually have lower ADRs due to the
high supply of low-priced rooms. Currently, limited and select service hotels in
Puebla have an ADR range that goes in average from MX$850 to MX$1,100, while
full-service hotels have an average ADR of $1,400. As a relevant market, FINN,
HCITY and FIHO have presence here.
69
Equity Research
FIBRA INN
FIBRA / Lodging
February 16, 2015
Booking At Attractive Low Fares
Buy
Local Ticker:
Last Price:
MX$ 16.30
Low
Price Target 2015:
MX$ 19.50


FINN14
Liquidity:
Change in T.P.
Change in Estimates
Dividend Yield 2015:
19.6% E. Return
Quarterly Review

Other
Total Return:
Sound Track Record Of Investments, More Is About To Come. Since its IPO, FINN has
announced MX$4,884 million (~USD 330 MM) worth of investments, including the acquisition
of 23 hotels (4,512 rooms), 3 developments (540 rooms), and room expansions at 5 of the
properties (+409 rooms). As compared to its initial portfolio comprised by 8 properties, these
investments represent a 158% increase in properties’ value, or of +26% if we consider the
acquisition IPO portfolio (6 hotels) as part of the initial portfolio. Different from the market’s
belief, acquisitions have been accretive as they have been closed at an entry NOI cap rate of
8.6% (according to our estimates). Considering only 2014 acquisitions, the NOI cap rate has
been even higher at 9.3%. Following its recent subscription offer, FIBRA Inn reached a total
fire-power of MX$4,375 MM, which will be deployed during the next 6 quarters in the trust’s
identified pipeline of 43 hotels worth M$8,644 MM, including both acquisitions (27 hotels)
and developments (16).
110
105
Return Index
■ In this report we are introducing a new earnings model. We have dedicated sections
on: i) FINN’s sound capabilities as hotel operator, ii) an analysis of historical
investments, iii) a portfolio that would make sense to acquire in the market.
25.4%
Stock performance
■ We are reinitiating coverage on FIBRA Inn with a year-end 2015 target price (TP) of
MX$19.50 per CBFI (+19.6% capital appreciation) and a BUY recommendation.
■ FINN is now better positioned to capture a stronger growth from the consolidation
of the local lodging industry, through: i) its diversified portfolio, ii) sound operating
capabilities, iii) tangible pipeline, and iv) enhanced organizational structure.
5.8%
100
95
90
85
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
FINN13
IPC
Market Data:
7,123
7,747
(13.30 - 17.96)
Free Float:
Better Positioned With An Enhanced Organizational Structure To Address LT Growth.
FINN’s recent changes to its organizational structure should not be overlooked as they are
material changes from which the trust will largely benefit in the following years. We find two
key implications: 1) Accelerated growth; and 2) the recruitment of an experienced COO from
Grupo Posadas, the hotel operator of its closest competitor FIBRA Hotel.
Reinitiating Coverage With A YE2015 TP Of MX$19.50 /CBFI And A BUY Rating. This
fair value implies a 19.6% potential capital appreciation over FINN’s current trading price of
MX$16.30, and a total expected return of 24.8% taking into account our 5.8% estimated
dividend yield. We have determined our target price through a DDM valuation model, which
is based on a 10-year explicit holding period. To discount our dividend forecasts, we have
calculated FIBRA Inn’s discount rate assuming a 5.0% adjusted RFR (using a prospective
3.5% base 10-year U.S. Treasury [Rf] plus a country risk premium [CRP] of 1.5%), a Real
Estate risk premium of 5.5%, and a 1st year levered beta of 0.696. Also, we are assuming a
terminal growth rate of 2.59%, which is the mid-cycle Mexico’s GDP growth in Mexico. It
implies a FWD NOI cap rate of 7.7%. FINN currently trades at 0.92x price to NAV.
2014
2015
2016
2017
861
319
268
252
0.86
0.81
1,635
616
522
476
1.09
0.99
2,354
909
784
572
1.30
1.17
2,557
1,000
867
616
1.40
1.24
6.7%
5.7%
5.3%
4.8%
7.9%
6.7%
6.7%
5.8%
8.8%
7.6%
8.0%
6.9%
9.6%
8.3%
8.6%
7.5%
Financials (MX$ MM)
FIBRA Revenues
Net Operating Income (NOI)
EBITDA
Funds From Operations (FFO)
FFO/CBFI (MX$)
CAD/CBFI (MX$) [Cash Available for Distibution]
Valuation
NOI Cap Rate (%)
EBITDA Cap Rate (%)
FFO Yield (%)
Dividend Yield (%)
Real Estate
+52 (55) 1103 6600 x4334
Actinver
83%
9.7
Contents
71
Table of Contents
Executive Summary……..…………………………………….
74-75
Investment Positives ……………………………………………….
74
Investment Risk Factors …………………………………………..
75
Sound Track Record Of Accretive Acquisitions …………...…..
76
Sound Capabilities As Hotel Operator …………...…..…………..
77-79
Analysis TripAdvisor Reviews Of FINN’s Sample Of Hotels …..
79
Changes To Organizational Structure, To Address LT Growth
80-81
FINN’s Latest Acquisitions …………………..……………………..
81-85
6-Hotel Portfolio: Microtel Inn & Suites And Casa Grande
Hotels …………………………………………………………….….
82-83
Crowne Plaza MTY Airport Hotel ……………..………………….
83-84
Limited-Service Hotel In Guadalajara, Re-Branded To
Wyndham ………………………………………………………...…
84-85
Changes To FINN’s Structure Of Fees ……...…………..………..
85-86
Fees’ Structures Of Mexican FIBRAs (REITs) ……………..…...
86
Pipeline Of Investments …………………………………...………..
87
FIBRA Inn’s LOI With HCITY …………………………………......
87
A Portfolio That Would Make Sense To Acquire ……...………..
88
FIBRA Inn’s Fire-Power ……………………………….…...………..
89
Guidance For 2015-2016 ………………………………………....
89
Assumptions For The Use Of Fire-Power ……………...…….....
89
FIBRA Inn’s Financial Forecasts ……...…………….…...………..
90-91
FINN’s 2015-2016 Revenues ……………………………………..
90
2015-2016 NOI & EBITDA …….…………………………………..
90
2015-2016 FFO, CAD & Distributions …………………………...
90-91
Dividend Discount Model (DDM) Valuation ……….…...………..
92-93
Net Asset Value (NAV) Valuation Approach ……...…...………..
93-94
Our FINN’s Earnings Model ……………………..…...…...………..
95-99
Rental Revenues From Select And Limited Service Hotels …..
95
Rental Revenues From Full Service Hotels ………………….....
96
72
Fees / Expenses Paid To Related Parties ……………………....
96-97
Operating And Revenues Model …………...…………………....
97-98
Operating Model’s Property Book As Of 4Q2014 ….....……….. 100-101
Forecasted Operating Metrics By Segments ……..…...………..
102
Forecasted Income Statement / Valuation Metrics …...………..
103
Forecasted Balance Sheet / Leverage Ratios …….…...………..
104
Forecasted Cash Flow Statement …………….…….…...………..
105
Forecasted Distributions / Dividends ………..…….…...………..
106
Company Profile ……………………………………….…...………..
107
73
Executive Summary
FINN is a Mexican Real Estate Investment Trust (REIT) created to build, acquire,
develop and lease hotel properties throughout Mexico under 3 different segments:
Full, Limited and Select Service. It has 34 hotels with 5,716 rooms located in 14
states of Mexico (3 properties under development). FINN has franchise agreements
with IHG, Wyndham, Hilton, Starwood and Marriott to operate their global brands (10
in total). The company also operates the Crowne Plaza and Casa Grande hotel
brands.
Investment Thesis: Positives

Diversified Portfolio Of 12 Hotel Brands (10 International), In 14 States Of
Mexico, And Within 3 Segments (Limited, Select And Full Service). We like
FINN’s high exposure to recognized global hotel brands, representing 96% of its
total hotels. Furthermore, it has been diversifying it through its 3 different hotel
segments, with a more balanced portfolio, with 23% of limited-service, 45% of
select, and 32% of full service, from its initial portfolio which was 100% select.

Sound Hotel Operating Capabilities Of Its Management Reflected On TopNotch Profitability Levels. Messrs. Victor and Joel Zorrilla have been in the
industry all their adult life, belonging to a family dedicated to the lodging business
for over 50 years. Their deep experience is reflected in the significant
improvements they have achieved in several of FINN’s acquired hotels. We
believe that through the recent incorporation of Mr. Rafael de la Mora Ceja as
the new Director of Hotel Operations of FINN, this could be further enhanced.

Increased Competitive Advantages Through Recent Changes In Corporate
Structure. Recent changes on FINN’s organizational structure should not be
overlooked as they are material changes from which the trust will largely benefit
in the coming years. We find two key implications: accelerated growth, and the
recruitment of experienced COO from Gpo. Posadas, FIHO’s hotel operator.

Relevant Growth Potential Through Visible Pipeline Worth MX$8.6 Billion.
FIBRA Inn has an identified pipeline of investments of 43 hotels, including both
acquisitions (27 hotels) and developments (16), worth M$8,644 MM (MX$5,763
MM / 61% of acquisitions, and MX$2,881 MM / 39% of developments). This
pipeline is located in 18 states of Mexico, representing a total 6,918 rooms, and
1.4 times FINN’s properties’ value as of YE2014. By region, most of the hotels
are located in the central and south regions (63% / 27 hotels), followed by the
west (19% / 8 hotels).

Sound And Accretive Track Record Of Investments (3,304 Rooms Acquired
+ 540 Under Development, +138% Vs. Initial Portfolio). According to an
analysis we performed for each of FINN’s acquired hotels, leaving apart the 3
hotels currently under development, the entry NOI cap rate has been 8.6%
(weighted average for all acquisitions), representing a +138bps spread against
FINN’s historical implied NOI forward cap rate (cap rate arbitrage). Thus, value
has been generated so far, different from what might be the market’s perception,
given FINN’s current market value discount to its net asset value.

Committed, Experienced And Highly Institutional Management Team. Apart
from their experience and high institutional standards, FINN’s sponsors (Hoteles
Prisma mainly) maintains a relevant skin in the game, with a 17% stake.

Attractive Growth Prospects Of The Mexican Lodging Industry. We expect
FINN to continue benefiting from the consolidation of the local lodging industry.
High quality lodging supply will increase at a 4.7% CAGR 2014-2022, as per our
estimates. Chained hotels are expected to present the highest growth rate, at
8.1%. The share of independent quality hotels will decrease from 55% to 42%.
74
Investment Thesis: Risk Factors

Small Cap FIBRA With Low Liquidity In The Market. With a market value of
USD480 million, FIBRA Inn is still an small cap FIBRA, with an average daily
trade of ~USD700 thousand. This could become one of our main risk factors that
could prevent it to reach our 2015 fair value.

Lower Than Expected Economic Growth In Mexico. The lodging industry is
highly cyclical and dependent on the overall strength of the country’s economic
activity. Thus, a slowdown in Mexico’s economic activity will have a direct and
immediate impact on average daily rates (ADRs) and occupancy levels, affecting
FINN’s hotel operations.

High Exposure To Travel Disruptions. Including those related to: i) domestic
and international political and geopolitical instability that could adversely affect
travel conditions; ii) security issues and criminality activity, which has been
recently making noise in the states of Tamaulipas (Nuevo Laredo, Reynosa,
Matamoros) Zacatecas, Guerrero and Michoacan; iii) natural disasters such as
hurricanes, tsunamis, earthquakes, or other unusual weather patterns; iv) health
concerns including pandemics and epidemics, such as the HINI flu, avian flu,
SARS, or Ebola; v) terrorist attacks; vi) financial situation of domestic or
international airlines or land transportation companies that could negatively
impact the lodging industry and tourism in general.

Difficulty To Deploy Its Fire-Power (~MX$4.3 Bn) Through New Accretive
Acquisitions. Particularly considering competition in the market from other
institutional players, as well as FINN’s target acquisition cap rate of >10%.

Development / Expansion risk for current or new properties. FIBRA Inn’s
short- and medium-term growth depends partly on expansions and development
of new hotels. Any delay and unexpected increase in construction costs of the
trust’s developments, as well as potential negative specific-market changes,
could adversely affect FINN’s operations and dividend per CBFI performance.
This is one of the reasons why FINN is focusing on acquisitions rather than
developments in its growth strategy.

Interest rates sensitivity. Interest rates volatility (rising rates) might reduce the
spread between a FIBRA’s NOI and real market rates, lowering its attractiveness. Rising interest rates cause RE values to decline due to its relatively fixed
nature of cash flows from leases and the time value of money. However,
increasing interest rates also imply an expanding economic activity, which
translates into higher rents for a FIBRA (in FINN’s case into higher RevPARs).
Rising interests rates can be compensated through a fast increase in NOI
(increased cash flow).

Potential ST impact on dividends from the recent issuance of new CBFIs in
the market. As we will observe, FINN’s 4Q2014 dividend per CBFI will show the
impact from the trust’s rights offering of November 2014, in which it increased by
69.2% the total number of CBFIs outstanding to 437 million through its recent
subscription. Thus dividend per CBFI estimated at MX$16.11 cents will be 30.6%
lower as compared to the dividend distributed in 3Q2014, while as a total amount
it will be 17.4% higher, of MX$70.4 million. Nonetheless, as FINN continues
acquiring new properties throughout the year, as we are already anticipating, the
dividend per CBFI will continue increasing, reflecting additional value generated
by the trust.

Oversupply Or Reduction In Demand For Hotel Rooms. With this risk we
refer mainly to specific market and hotel segment conditions (not for the overall
Mexican lodging industry), which would adversely affect occupancy and
revenues at FINN’s hotels.
75
Sound Track Record Of Accretive Acquisitions
FINN's Historical Acqs. Cap Rate Sperad
Since its IPO (March 13, 2013), of which 60.2% was placed locally and 39.8% within
international investors under rule 144A in the U.S. and Reg S outside the U.S, FINN
has announced total investments of MX$4,884 million (~USD 330 MM), including the
acquisition of 23 hotels (3,563 rooms), 3 developments (540 rooms), and room
expansions at 5 of the properties (+409 rooms). Without taking into consideration the
trust acquisition portfolio announced as part of its IPO, investments total MX$3,783
million (20 hotels and 3,143 new rooms). As compared to its initial portfolio of 8
properties, these investments represent a 158% increase in properties’ value, or of
+26% if we consider the acquisition IPO portfolio as part of the initial portfolio.
Cap Rate Spread (bps)
500
300
138bps
100
-100
According to an analysis we performed for each of FINN’s acquired hotels, leaving
apart the 3 hotels currently under development, the entry NOI cap rate has been
8.6% (weighted average for all acquisitions), representing a +138bps spread against
FINN’s historical implied NOI forward cap rate (cap rate arbitrage). Thus, value has
been generated so far, different from what might be the market’s perception, given
FINN’s current market value discount to its net asset value. It is worth noting that our
estimated cap rate was calculated by including taxes and acquisition-related
expenses into the formula.
-300
-500
Source: Actinver estimates.
Based on our analysis, there have been basically 4 hotels that have not reached so
far a stabilized NOI cap rate level close to FINN’s estimated figures, as their NOI
generation has been affected mainly by: i) market-specific conditions, which have led
to lower than expected ADR and/or occupancy levels; and ii) temporary effects from
room expansions. Regarding market-specific conditions, we are assuming that they
are unchanged in the future preferring being conservative with NOI at those hotels.
On the other hand, 3 hotels have outperformed even FINN’s stabilized expectations
already, particularly the Wyndham Garden Leon, Guanajuato, through a re-branding
process from its previous Mexico Plaza local brand. Its increment of ~18% in ADRs
and occupancy levels towards ~78% (from previous 58%) is expected to be followed
by other Bajio hotels (Irapuato, Celaya, Celaya, Silao and Guadalajara) in which
FINN is implementing the same strategy through its sound hotel operating capacity.
As we will show later in this report, this capacity has derived in significant
improvements at the trust’s hotels, some of which have been also applied to the
hotels underperforming NOI expected generation. There is additional organic growth
potential for those hotels in particular that we are not factoring in our projection yet.
If we only consider 2014 acquisitions, FIBRA Inn’s investment cap rate has been
superior, at 9.3%, as shown in the graph below. The trust’s acquisition performance,
in terms of the hotels’ short-term NOI generation, has been more consistent. It is true
that there exists upside potential considering FINN’s target stabilized cap rates of
10.0%, and we see a renewed, more solid corporate structure capable of achieving it.
Even so, we are being conservative in our projections assuming new acquisition NOI
cap rates of between 8.75% and 9.0%. This still reflects value not being recognized.
FINN's NOI Cap Rates Of Historical Acquisitions
14.0%
Hotels' NOI Cap Rates (%)
12.0%
10.0%
9.3%
8.0%
8.6%
6.0%
4.0%
2.0%
0.0%
1
2
3
4
5
6
7
Acquisition IPO Portfolio
8
9
10
11
12
13
14
15
16
Other 2013 Post-IPO Acquisitions
17
18
19
20
21
22
23
2014 Acquisitions
Source: Actinver estimates.
76
Sound Capabilities As Hotel Operator
FINN’s mgmt. team members have transmitted to the FIBRA their large experience
as hotel operators at Hoteles Prisma (created in 2001). In the particular cases of Mr.
Victor Zorrilla (Chairman of the Technical Committee) and Mr. Joel Zorrilla (VP of
Corporate Strategy), experience is deeper, as they have been in the industry for a
lifetime, belonging to a family dedicated to the lodging business for over 50 years.
The Zorrillas initiated their trajectory in the 1950’s, working at the “Hotel Rio” (Rio
DoubleTree then, now iStay) in Monterrey, and since 1993 they have been dedicated
to the development, operation and mgmt. of hotels. Their relation with international
hotel chains is also quite remarkable. They introduced the first Hampton Inn by Hilton
(1993) and Courtyard by Marriott (2000) hotel brands in LatAm, and they developed
the first Holiday Inn Express hotel under its new image in Mexico, in 2008. Mr. Joel
Zorrilla, for instance, is representative of IHG Owners Mexico before the World
Committee of the Priority Club Rewards of IHG. Through their experience, they are
able to detect improvement opportunities within the international brands they manage
and operate in Mexico, and discuss them with the hotel chain owners of such brands.
All of this is reflected in the significant improvements they have achieved in several of
FINN’s acquired hotels. In some others, which have not been able to improve yet, are
in the process of doing so, driven by recent initiatives being implemented. Next we
present details on the 4 hotels that have not achieved the trust’s expected operating
performance, the reasons behind it, as well as some of the initiatives being taken by
FINN in order to improve them. Then, we present different hotel-specific case studies
as to show the aforementioned turnaround operating capabilities FIBRA Inn has. We
believe that through the recent incorporation of Mr. Rafael de la Mora Ceja as the
new Director of Hotel Operations of FINN, this could be further enhanced.
FIBRA Inn’s Hotels With A Revelant Operating Turnaround Following Their Acquisition
Holiday Inn MTY Valle
Holiday Inn Express & Suites MTY Airport
Wyndham Garden Irapuato
Wyndham Garden Leon
Model NOI Cap Rate: 13.3% vs.
10.1% announced


Higher than expected
occupancy: 2015E Model
implied of 78.0% vs. 68.0% Est.
Month to date occupancy at
88.0%.
Improvements



Increase of ~17.5% in ADRs.
Re-branding from Mexico Plaza
to Wyndham Garden.
Complete hotel refurbishing.
Source: FINN, Actinver’s estimates (ADRs, occupancies, cap rates).
77
FIBRA Inn’s Hotels With Operating Improvement Opportunities
Holiday Inn Express Guadalajara UAG
Model NOI Cap Rate: 6.9% vs. 9.9% announced
Incorporation of 99 rooms (+99%).
 Lower than expected ADRs: 2014E Model implied ADR of MX$1,110 vs.
MX$1,311 Est.
Holiday Inn Express Toluca Tollocan
 Lower than expected occupancy: 2014E of 36.2%.
 Competition from Courtyard and Fiesta Inn.
 Lower than expected ADRs: 2014E Model implied ADR of MX$771.
Improvements:
 Complete hotel overhaul.
 Old corporate account recovery and addition of new clients.
 Improved complimentary services like ground transportation and cocktails.
Camino Real Guanajuato
 Incorporation of 50 rooms (+48%).
 Lower than expected occupancy: 2015E Model implied of 60.0%.
Improvements:
 ADRs have increased ~14%
 First Camino Real hotel in FINN’s portfolio.
Holiday Inn Mexico City Coyoacan (Tlalpan)
 Lower than expected occupancy: Model implied of 62.5% vs. 68.0% Est.
 Lower than expected ADRs: 2014E Model implied ADR of MX$1,127 vs.
~MX$1,303 Est.
Source: FINN, Actinver’s estimates (ADRs, occupancies, cap rates).
It is also worth highlighting that FIBRA Inn’s managers closely monitor reviews from
third-party lodging websites such as TripAdvisor, which we believe is essential for
any lodging company, and useful for us to have a better sense of the level of quality
of the hotels from the companies under coverage. As part of FINNs operations’
improvement objectives at each of the trust’s hotels, they find key addressing their
guests’ concerns and feedback, looking for hotel managers to reply and attend these
reviews as soon as possible. And just as FINN does, we have performed an analysis
of TripAdvisor’s guest reviews. In this website, guests assign scores to the hotels’ in
6 categories (location, sleep quality, rooms, service, value and cleanliness) with 5
possible rating levels, from terrible (1) to excellent (5).
We used a sample covering 12 hotels of FIBRA Inn, 4 random properties for each of
the 3 segments: limited, select and full service. The average rating level for this
sample was 3.875, which is quite remarkable, falling within the very good traveler
experience, close to excellence. 75% of the sample hotels were rated with 4.0.
Following comments from the guests who review the hotels is also very useful for this
type of analysis, we think.
78
Analysis Of TripAdvisor Reviews Of FINN’s Sample Of Hotels
Trip Advisor Sample Reviews On FINN’s Limited- (LS), Select- (SS) and Full-Service (FS) Hotels
SS
SS
SS
SS
LS
LS
LS
FS
LS
FS
FS
FS
Source: Trip Advisor, Actinver.
79
Changes To Organizational Structure, To Address LT Growth
On February 3, 2015, FIBRA Inn announced changes to its organizational structure,
with the objective of promoting the FIBRA’s growth strategy. The changes are the
following:
■
Victor Zorrilla (Chairman of the Technical Committee) will now only
concentrate on FINN’s strategy of delivering accretive growth (role he has
performed until now), as well as focusing on the trust’s corporate governance.
Previously, Mr. Victor Zorrilla was Chief Executive Officer (CEO) and Chairman
of the T.C.
■
Oscar Calvillo (Chief Executive Officer – CEO) is now taking the position of
CEO, in which he will execute FINN’s vision and long-term growth strategy by
focusing on 3 key areas: i) overseeing the profitability of operations by
maximizing income, implementing processes, improving client service, and
ensuring that the trust has the necessary human capital; ii) identifying acquisition
and development opportunities; and iii) value creation for CBFI holders. Mr.
Oscar Calvillo previously served as Chief Financial Officer (CFO) of FINN.
■
Joel Zorrilla (VP of Corporate Strategy), among other responsibilities, he will
be responsible for the trust’s strategic aspects including relationships with
international chains, hotel owners (for acquisition opportunities) and key
investors. Mr. Joel Zorrilla was previously Chief Operations Officer (COO) of the
company.
■
Rafael de la Mora Ceja (Chief Operations Officer – COO / Director of Hotel
Operations). Mr. de la Mora is being introduced to FINN’s management team.
He previously worked for Grupo Posadas (since 1994), holding various positions:
Director of Corporate Operations, Managing Director of Hotelera Posadas,
Director of the Office of Transformation and Strategy, and Managing Director of
Resorts.
■
Fernando Rocha Huerta (Director of Acquisitions and Development). Mr.
Rocha joined FINN on December 1, 2014. His main responsibility is the
supervision of all the hotel acquisitions’ processes, as well as the coordination of
the development of hotels throughout all the stages.
■
Chief Financial Officer (CFO). This position will continue being performed by
Mr. Oscar Calvillo until a new director is hired.
These changes on FINN’s organizational structure should not be overlooked as they
are material changes from which the trust will largely benefit in the coming years. We
find two key implications:
1) Accelerated Growth. These changes reinforce FIBRA Inn’s corporate structure
by leaving Victor Zorrilla, Joel Zorrilla, and Oscar Calvillo to focus on the
company’s growth strategy. FINN is now set to increase its scale through the
deployment of the resources raised in its recent rights-offering (MX$2,832
million). It is worth noting that as of today it is the second smallest FIBRA in
terms of market capitalization. The correct execution, through value generation,
of its fire-power would support the long-term consolidation of FINN as a more
relevant player in the Mexican lodging industry.
2) Recruitment Of Experienced COO From Its Closest Competitor. FINN not
just hired Rafael de la Mora, highly experienced in hotels’ operations, but it took
from Grupo Posadas, FIHO’s key hotel operator. Note that Mr. Rafael de la Mora
previously worked for Grupo Posadas, FIHO’s main hotel operator.
Therefore, FINN is now better positioned, with additional competitive advantages that
should be recognized by the market, in our view. We just should now wait to hear for
good news regarding the recruitment of the trust’s new CFO.
80
It is also worth noting that these changes do not imply additional costs to the FIBRA,
as these costs correspond to FINN’s Advisor and/or its affiliates, to which the trust
pays the Advisory fee for its asset management (0.75% of gross asset value).
Finally, it is also relevant to note that the aforementioned changes do not suggest
any modifications to FINN’s Technical Committee, which continues being comprised
by 8 proprietary members (Victor Zorrilla, Joel Zorrilla, Oscar Calvillo, Jose Clariond,
Robert Dotson, Juan Carlos Hernaiz, Adrian Jasso and Jose A. Gomez Aguado) and
5 independent members (Adrian Garza, Rafael Gomez, Everardo Elizondo, Hector
Medina and Marcelo Zambrano).
FINN’s New Organizational Structure
FINN’s Latest Acquisitions
Just in the last twelve weeks, FIBRA Inn closed 8 new hotel acquisitions at an
average announced stabilized NOI cap rate of 10.6%. Their total expected NOI
generation (using our forecasts) will be of MX$95.5 million, representing 15.5% of the
consolidated NOI generation we expect FINN to reach in full-year 2015. For them, we
are estimating an average NOI cap rate of 9.2% for 2015, in which we incorporate
taxes and other acquisition related expenses. Such cap rate is still 230bps above
FINN’s implied NOI cap rate for the same year. Value has been generated, FINN’s
price does not seem to reflect it yet.
The aforementioned acquisitions comprise i) a 6-property portfolio consisting of 4
Microtel Inn & Suites by Wyndham (limited service) and 2 Casa Grande branded
hotels (full service); ii) a Crowne Plaza (full service); and iii) a Mexico Plaza hotel
(limited service).
81
6-Hotel Portfolio: Microtel Inn & Suites And Casa Grande Hotels
This 6-hotel portfolio with a total value of MX$470 million including taxes and
acquisition expenses, was purchased with own resources from last year’s rights
offering in 3 parts: i) 2 Microtel hotels (Culiacan and Ciudad Juarez) with a total value
of MX$126.5 million on November 21, 2014; ii) 2 Casa Gande hotels (Chihuahua and
Delicias) for a total investment of MX$192.5 million on December 14, 2014; and iii) 2
additional Microtel properties for MX$151.5 MM on December 17, 2014.
It was an accretive acquisition for CBFI Holders, for which FIBRA Inn anticipates a
stabilized net operating income (NOI) of MX$50.8 million by YE2015. However, we
are estimating MX$43.6 million of NOI as we might be more conservative on
occupancy rates (average of 65.2% for the portfolio) and ADRs. Past experience
from impressive turnaround at acquired hotels could prove us wrong. The implied
forward stabilized NOI cap rate using FINN’s assumptions is 10.6%, including taxes
and acquisition-related expenses.
Brief Details Of The Hotels
Casa Grande Chihuahua (2013 occupancy: 64%, ADR MX$721, RevPAR
MX$460). It is located in Chihuahua, Chihuahua, in a premium area near 7 industrial
parks, the city’s business district and the Autonomous University of Chihuahua. Its
demand is driven by companies from various sectors including Honeywell
Aerospace, Textron, Visteon Corporation, Fokker Aerospace, Delphi, Ford,
Interceramic, Cementos Chihuahua, Grupo Bafar and American Industries, among
others. FINN plans to convert this hotel to a “Wyndham Garden” brand, investment
which is already included in acquisition-related expenses.
Casa Grande Delicias (2013 occupancy: 59%, ADR MX$770, RevPAR MX$457).
It is located in Delicias, a small city of Chihuahua with a relevant presence from the
pharmaceutical, medical, rubber and textile industries. Demand of hotel rooms in this
location is mainly driven by pharmaceutical companies such as Bayer, Rimsa and
Sanofi. As this is the most‐recognized hotel in the city, FINN will maintain its brand
unchanged, by means of a brand licensing agreement.
Microtel Inn & Suites by Wyndham Chihuahua (2013 occupancy: 77%, ADR
MX$683, RevPAR MX$523). It is located in Chihuahua, Chihuahua, in the highest
commercial growth area in the city, near the Fashion Mall and Plaza del Sol shopping
centers. Its demand is driven by corporate and industrial clients visiting the city’s
center and industrial areas. FINN expects the operation of this hotel to generate
synergies with hotel Casa Grande Chihuahua.
Microtel Inn & Suites by Wyndham Culiacan (2013 occupancy: 56%, ADR
MX$716, RevPAR MX$402). It is located in Culiacan, Sinaloa, a city with a growing
market in the agro industrial sector. The hotel is located in the new section of the city,
near a country club and Hospital Angeles, and with an 8-minute distance from
Culiacan’s airport. FINN expects demand of this hotel to increase due to certain
interstate agreements that have been signed.
Microtel Inn & Suites by Wyndham Toluca (2013 occupancy: 60%, ADR
MX$558, RevPAR MX$335). It is located in Toluca, State of Mexico, in the Metepec
are of the city, facing the Galerias Metepec shopping mall as well as Plaza Las
Americas. Toluca’s rooms demand is mainly driven by its wide industrial sectors’
offering, the Toluca’s International Airport, and the logistics’ sector.
Microtel Inn & Suites by Wyndham Ciudad Juarez (2013 occupancy: 48%, ADR
MX$616, RevPAR MX$295). It is located in Ciudad Juarez, Chihuahua, in a premium
area near the U.S. embassy and ~1 mile away from the Zaragoza international
bridge. According to FINN, the operation of this hotel is expected to generate
operating synergies together with the company’s Holiday Inn Express & Suites
Ciudad Juarez.
82
Details On The 6-Hotel Acquisition Portfolio
Crowne Plaza MTY Airport Hotel
On December 11, 2014 FIBRA Inn closed the purchase agreement for the Crowne
Plaza Monterrey Airport hotel, located in Apodaca, Nuevo Leon, next to the trust’s
Holiday Inn Express & Suites Monterrey Airport hotel. The agreed purchase price
was MX$351 MM, plus MX$33.8 MM related to taxes, acquisition expenses, and an
improvement of 28 rooms. It is worth noting that it is a relevant single-hotel
acquisition, representing 7.0% of FINN’s investment properties’ value as of 3Q2014,
and 81.3% as compared to the company’s last 6-hotel acquisition portfolio value.
This acquisition is projected by FINN at an estabilized NOI cap rate of 10.0%, and of
9.1% according to our 2015E estimates. FIBRA Inn expects this hotel to generate an
stabilized NOI of MX$35.1 million in 2015. The company’s estimated stabilized cap
rate reflects expected synergies to be developed with the Holiday Inn Express &
Suites that should reduce operating costs and improve revenue margins. The
Crowne Plaza hotel had occupancy of 64%, average daily rate (ADR) of MX$1,194,
and RevPAR of MX$766 in 2013.
Crowne Plaza Monterrey Airport
Source: TripAdvisor, Actinver.
83
A Full Service segment hotel. The hotel has 219 rooms and operates in the full
service segment, complementing the company’s Holiday Inn Express next to it. The
property is located 3 minutes away from Monterrey’s International Aiport, in the city’s
main industrial zone (containing 48.6% of total industrial inventory). According to
FINN, this hotel has been the leader in terms of occupancy and rates among the
hotels located in the airport area, a market known by its fierce competition.
It is worth noting that, with this acquisition, FIBRA Inn fulfilled its IPO commitments of
reaching 30 hotels by year-end 2014.
Limited-Service Hotel In Guadalajara, Re-Branded To Wyndham
On December 2, 2014, FINN additionally acquired a Mexico Plaza Guadalajara hotel
located in Andares, in the state of Jalisco. The agreed purchase price was MX$183
million, plus MX$24.7 million for taxes, acquisition expense and re-branding
expenses. A down payment of MX$90 million was made upon signing of the agreement and the remaining balance was paid in January 2015, when the final public
acquisition deed was expected to be completed. It is important to highlight that, upon
the agreement signing on early December, FINN started receiving income from the
operation of the property. With this acquisition, FINN increased its portfolio to 31
stabilized hotels and 3 under development, with 5,718 rooms (of which 645 are under
development).
GDL Andares Hotel & Market Highlights. The hotel has 186 rooms and operates
under the limited-service segment. An amount of Ps. 9.0 million, included in the
aforementioned acquisition expenses, will be used to re-brand the hotel to the
Wyndham Garden brand, which will take place during 2015. The property’s location
is strategic, as it is adjacent to the Andares and Puerta de Hierro Mall, which are the
most prestigious commercial and financial areas.
According to FINN the main sources of demand will come from: i) the Guadalajara
Expo for meetings and conventions; and ii) the Ciudad Creativa Digital project, which
is focused on creating and strengthening the digital design, software, film and video
games industries; and which is expected to drive foreign investment and incentivize
job creation. This is FINN’s fourth hotel in Guadalajara, which create synergies in
marketing strategies in this city.
Location Of Mexico Plaza Guadalajara Andares Hotel
84
Upside On The Hotel’s Valuation Through Re-Branding. FIBRA Inn mentioned
that the Mexico Plaza GDL Andares hotel currently has an occupancy rate of 50.6%
(cumulative from January to October 2014), an ADRs of MX$763 and a RevPAR of
MX$386. The company expects to improve occupancy and ADR through the rebranding of the hotel to Wyndham Garden, similar than previous acquisitions in the
Bajio Region from the same Mexico Plaza brand (Silao, Leon and Celaya).
According to our estimates, using Mexico Plaza GDL Andares’ current operating
indicators, FINN is acquiring the property at an entry (last 12 month) NOI cap rate of
~6.2%E. However, with an stabilized occupancy level of 68.0% and an increment of
17.5% in its current ADR, which is aligned with the increase derived from the rebranding in the Bajio hotels, the hotel will be reaching the company’s projected
10.0% NOI cap rate. It is worth noting that we have derived these figures according
to the average GOP margin of 37% to 40% from this specific hotel segment, as well
as its average property tax and insurance (as % of property value), from which we
finally reached our estimated NOI of the hotel. These are not the company’s
numbers, but our conclusions behind them. For 2015, we have an estimated NOI cap
rate of 8.2% for this property, which, once again, might be conservative.
Changes To FINN’s Structure Of Fees
FINN’s CBFI Holders approved the change of the trust’s fees structure during the
meeting celebrated on October 17, 2014. With the changes, the Advisory (Asset
Management) fee was increased from 0.5% of gross assets value, inflation-adjusted,
to 0.75%, while the acquisition fee, which totaled 3.0% of properties’ acquisition
value (1.5% of acquisition price + 1.5% of such contribution), was completely
eliminated. These changes became effective since that date.
We believe these are positive changes for the following reasons: 1) makes FINN’s
structure more transparent; 2) better aligns investors interests and therefore
improves market perception. Why is it different from FUNO’s past rejected proposed
change, which also considered the acquisition fee elimination? Because FINN is just
to start a more LT aggressive growth strategy which otherwise would imply higher
fees from acquisitions. FINN’s new fees structure might change in the future, for
instance towards a more investor-friendly structure, as the one of FMTY, for instance.
Market Perception Of Fee Structures
Advisory Fee
•
•
•
•
Acquisition Fee
•
•
•
Other Fees
•
Focus that seeks asset growth.
There has been no negative feedback from investors; however, international
comparables tend to industry internalization.
External advisor figure is a common practice among Mexican FIBRAs.
There has been negative feedback on these fees. There is a perception that it
does not align the interests of managers with those of investors.
Only two FIBRAs charge acquisition fees.
FIBRA Inn eliminated this fee in order to achieve a better interest alignment.
Some FIBRAs charge additional fees that are not well liked by the market:
performance fees, development fees, lease renewal fees.
Nonetheless, there are FIBRAs that, given their scale, have fewer impacts on
their stock price because of fee structures.
85
Fees’ Structures Of Mexican FIBRAs (REITs)
FUNO
Advisory Fee
• 0.5% of NAV (IFRS
Property value minus
debt, appraised
annually).
Terrafina
Macquarie
• 0.5% of Gross Asset
• 1.0% of Market Cap
Cost (inflation
adjusted).
(payable in advance
every 6 months).
• 3.0% total:
• 4.0% total, from rents
• 1.5% to 3.0% of rental
• 2.0% services fee (F2
collected:
income paid to a third
Sub) on lease
• 3.0% management
Property Management Fee
payments from prior
• 1.0% mgmt fee (F1
Sub) from lease income
and maint. fee collected
from tenants
party
• Property managers
on a 3-year lockup
period post-offering
fee from lease
payments
DANHOS
FIHO
FINN
• 1.0% of non• 0.75% of Gross
• 1.0% of NAV
depreciated book
Asset Value
(IFRS Property
value of assets,
(inflation
value minus debt).
excluding cash.
adjusted).
• 2.0% of total
• 5.0% of the total
revenues
payroll
effectively received.
• None
FSHOP
• 0.75% of Current Gross
• 7.5% of NOI
Asset Value (inflation
adjusted) + Investment
Cost of Non-Valued
• None
• 3.0% of Gross Income
(Rents), paid monthly
• 1.0% for accounting
support
• 10% [Mkt Cap at year- • 10% [Mkt Cap at yearFee
Performance
Fee
Frequency
• None
Lockup
Prologis
end - (Initial Mkt Cap *
1.09)]
• Paid and calculated
annually on a
cumulative basis ("high
water mark")
• Reinvested in
Terrafina's CBFIs with
a 6-month lockup
end - (Inflation Adj.
Initial Mkt Cap * 1.05)]
bi-annually on a
cumulative basis ("high
water mark")
• Reinvested in
Macquarie's CBFIs with
a 12-month lockup
• None
• None
• 10% [Mkt Cap at yearend - (Initial Mkt Cap *
1.09)]
• None
• None
• None
• None
annually on a cumulative
basis ("high water mark")
• Reinvested in Prologis
CBFIs with a 6-month
lockup
• 3% of assets acquired
Acquisition Fee
on third party
transactions; paid
proportionally when
there is a related party
Founder's Fee
• None
Termination Fee
• 5 times the annual
advisory fee - previously
paid advisory fees (only
during the first 5 years)
• None
• 1.5% of the initial
portfolio value
• None
• None
• None
• None
• None
• None
• None
• None
• None
• None
• None
• 10 times the
annual advisory
fee - previously
paid advisory fees
(only during the
• None
• None
• Administrative and
• None
performance fee will
still be received by the
administrator for the
next 10 years
• None
• 4.0% Contingent Fee
Development Fee
• None
• None
• None
• None
• None
• None
• None
equivalent to the total
costs from capital
improvements to existing
properties or new
property development
proyects
• Fee equal to certain
Leasing Fee
Employee Compensation
Plan (ECP)
• None
• None
• None
• None
• None
• None
• None
• 5% of total
outstanding CBFIs paid
over a 10-year period.
• None
• None
• None
• None
• None
• None
percentages of gross
• 5.0% in relation to
years 1-5 of the leasing
years 6-10 of the leasing
years ≥11 of the leasing
• None
• Retention objective 3to 5-year vesting period.
86
FINN's Breakdow n Of Future Pipeline
By Region
Acquisitions
Re gion
North
Northeast
Central & South
West
Tota l
# Hote ls
%
# Rooms
%
3
11%
418
10%
1
4%
94
2%
17
63%
2,587
61%
6
22%
1,144
27%
27
10 0 % 4 , 2 4 3 10 0 %
Developm ents
Re gion
North
Northeast
Central & South
West
Tota l
# Hote ls
%
# Rooms
%
0
0%
0
0%
4
25%
643
24%
10
63%
1,782
67%
2
13%
250
9%
16
10 0 % 2 , 6 7 5 10 0 %
By Hotel Segm ent
Acquisitions
S e gme nt
Full- Service
Select Service
Limited Service
Extended Stay
Tota l
Pipeline Of Investments
FIBRA Inn has an identified pipeline of investments of 43 hotels, including both
acquisitions (27 hotels) and developments (16), worth M$8,644 million (MX$5,763
MM / 61% of acquisitions, and MX$2,881 MM / 39% of developments). As observed
in the exhibit below, this pipeline is located in 18 states of Mexico, representing a
total 6,918 rooms, and 1.4 times FINN’s properties’ value as of YE2014. By region,
most of the hotels are located in the central and south regions (63% / 27 hotels),
followed by the west (19% / 8 hotels).
Among the brands found in the acquisitions’ pipeline we find Holiday Inn Express,
Wyndham Garden, Staybridge, Real Inn, Holiday Inn, Intercontinental, Crowne Plaza,
Ibis, Arriva Express and Mexico Plaza. Arriva Express is a brand from the Arriva
Hospitality Group, local hotel chain that operates 8 hotels under 4 own brands
(Crown Paradise, Vista, Arriva Express, and Suites Futura) and 1 franchise
(Staybridge) in the business and resort segments. The Arriva Express hotel subject
for acquisition has 166 rooms and is located in Guadalajara, close to the shopping
center Plaza del Sol (5-minute distance from Expo Guadalajara). Regarding new
construction hotels, FINN is contemplating the following brands: Courtyard, Fairfiled,
Hampton Inn, HCE, Hyatt Regency, Aloft, City Express and City Express Plus.
FIBRA Inn’s Footprint Of Future Pipeline (Acquisitions And Developments)
# Hote ls
%
# Rooms
%
13
48%
2,324
55%
12
44%
1,682
40%
1
4%
120
3%
1
4%
117
3%
27
10 0 % 4 , 2 4 3 10 0 %
Developm ents
S e gme nt
Full- Service
Select Service
Limited Service
Extended Stay
Tota l
# Hote ls
%
# Rooms
%
1
6%
200
7%
8
50%
1,397
52%
6
38%
898
34%
1
6%
180
7%
16
10 0 % 2 , 6 7 5 10 0 %
S o urc e : F IN N , A c t inv e r.
FIBRA Inn’s LOI With HCITY
It is worth remembering that on November 11, 2014, FINN announced a letter of
intent (LOI) with Hoteles City Express (HCE) to develop up to 10 hotels in various
locations throughout Mexico during 2015 and 2016 under any of HCE’s brands: City
Express, City Express Plus, City Express Junior or City Express Suites.
In accordance with this LOI, FINN will make all the necessary investments required
for the development and initiation of operations of the hotels. In addition, it
established that HCE will manage operations for at least six of the properties, while
FINN will manage up to 4 of them. It is relevant to note, however, that FINN is not
bound to develop the 10 properties, and we do not believe it to do so as FINN’s
management has reiterated their commitment of focusing on acquisitions to boost
dividend /CBFI expansion in the shorter term.
87
A Portfolio That Would Make Sense To Acquire
We believe that there are interesting larger acquisition opportunities in the Mexican
lodging market that could be potential targets for FINN. Particularly, after analyzing
some of the other local hotel chains in the country, we have found one portfolio that
would make perfect sense for FIBRA Inn’s hotel portfolio, not to mention that its
owners are regios (from Monterrey) as well. This portfolio, comprised of 13 hotels in
Mexico, belongs to Milenium, Mexican Hotel Group. Milenium’s portfolio is comprised
by 5 full- and 8 select-service hotels with a total of 2,801 rooms. As can be observed
in the exhibit below, 8 of the hotels are located in Monterrey. From the hotels, 3
operate under a local brand owned by Milenium, iStay. Relevant to note as well that
the iStay MTY Centro Historico hotel is precisely the previous DoubleTree Rio hotel
(Hotel Rio) where the Zorrilla family initiated its trajectory as hotel operators.
According to our estimates, this portfolio has a total value of MX$3,700 to MX$3,975
MM. We can not assure if the portfolio is available for acquisition and if it is, if it would
be accretive, but at least we know it perfectly suits FINN for the following reasons: i)
it belongs to an institutional player with high operating skills that could become a
strategic partner; ii) given their locations, synergies could be generated with FINN’s
existing hotels; iii) iStay local brand could eventually be further expanded through the
FIBRA’s muscle (own brand saves on royalties); iv) FINN has sufficient fire-power to
fund such potential acquisition; v) 90% of FINN’s fire-power would be deployed
rapidly (timing of deployment is relevant for ST divdends /CBFI).
Hotels’ Portfolio Of Milenium Hotel Group In Mexico
Presidente Intercontinental
Monterrey
Full-Service / 303 Rooms
Crowne Plaza
Monterrey
Holiday Inn Parque Fundidora
Monterrey
Holiday Inn Express Galerias
Monterrey
Select-Service / 170 Rooms
Holiday Inn Express Tecnologico
Monterrey
iStay Centro Historico
Monterrey
Crowne Plaza
Torreon
Holiday Inn Express
Torreon
Holiday Inn Express
Guanajuato
Holiday Inn Express Aeropuerto
Silao, Guanajuato
iStay
Ciudad Victoria
Holiday Inn
Tijuana
+ 1 iStay hotel located in Ciudad Juarez, from the Select-Service segment, with 147 rooms.
Source: Milenium, Actinver.
88
FIBRA Inn’s Fire-Power
After its subscription-type offering of last November, 2014, FIBRA Inn reached a total
fire-power of MX$4,375 million to fund new hotel investments. Through the rights
offering, the trust raised MX$2,832 million, from which it used MX$900 million to
prepay its existing debt. Additionally, it had MX$1,056 million committed for
announced investments from year-end 2014, which have been already liquidated.
Net cash on hand should be around MX$875 MM, and the trust’s capacity of raising
new debt in order to reach its target 33% loan-to-value (LTV) is MX$3,500 MM.
Guidance For 2015-2016
At the end of 2014, FINN announced its growth plans for the next couple of years, in
which it expects to add 15 hotels to its portfolio during 2015, and 15 more in 2016,
adding up to 45 hotels by 2015 and 60 by 2016. According to the trust, the future
acquisitions will comply with the established profitability criteria, consisting of
properties with stabilized NOI cap rates =10%, and the development of properties at
levels higher than 11.5%. Please recall that Fibra Inn has already identified a
portfolio of potential acquisitions and developments valued at MX$8.6 billion. The
guidance provided by the company is in line with its capacity to invest an annual
amount of MX$2,500 MM, similar to what we observed in 2014, in which FINN
announced 13 acquisitions and 3 developments for a total investment of MX$2,470
MM.
Assumptions For The Use Of Fire-Power
Following the trust’s guidance and available resources, we have incorporated the
following assumptions in our earnings model:
■
FINN develops 4 hotels under the HCE’s brands during 2015 and 2016. It
takes 9 months for the construction and development of each hotel with 120
average rooms (480 total rooms). Contribution for the first opened hotel starts in
2Q2016, and its ramp-up stage takes 36 additional months until becoming an
established hotel. The last developed hotel begins contributing by 2Q2017. The
total investment considered in these 4 developments is MX$412 million. These
developments represent 10.1% of FINN’s total fire-power deployment. Please
recall that FIBRA Inn’s main focus is on stabilized properties and its investments
will be largely targeted at acquisitions rather than developments. HCE brand
hotels will generate MX$39.0 MM of NOI by 2018 (more stabilized), representing
3.7% of FINN’s total NOI. We are assuming a conservative 9.5% development
cap rate here.
■
FINN acquires a total of 2,580 hotel rooms (4% limited-service, 41% select,
and 55% full) during 2015 and the first half of 2016. The breakdown implies 1
limited segment hotel, 5 select and 9 full service properties. Of course we are
using FINN’s average quarterly running-rate of MX$650 million of investments.
1,670 hotel rooms are acquired during 2015 and 910 additional during the
1H2016. By the end of 2Q2016 FINN would have already deployed all its firepower, reaching a 33% LTV. Regarding the total investment for these
acquisitions, of MX$3,660 million, we are expecting an implied NOI cap rate of
8.6%, which is also below FINN’s target of 10% (we are being conservative here
as well).
■
FINN leaves ~MX$250 million as minimum cash balance for the long-term.
We find relevant to mention that we are not parting from an estimated or target NOI
cap rate to reach NOI estimates. Instead, we are using average ADRs, occupancy
levels, and average GOP margins from each of the segments (limited, select and full
service) in order to reach our P&L forecasts for the acquired properties. The implied
NOI cap rate is therefore a result of our revenue forecasts.
89
FIBRA Inn’s Financial Forecasts
FINN: Hotel Rooms In Operation
10,000
CAGR:
30.4%
Total Rooms In Operation
9,000
8,536
FINN’s 2015-2016 Revenues
8,776
Based in our new earnings model, which we are introducing later in this report, we
expect FINN to register total FIBRA revenues of MX$1,635 million in 2015, which will
represent a 90% YoY growth. Room revenues will represent 93% of total revenues.
Top line will be driven by a full year contribution from FINN’s acquired properties
during 2014, including those covered in this note, as well as by new acquisitions
assumed to be closed this year through the use of the trust’s fire-power.
7,386
8,000
7,000
6,000
5,071
5,000
4,000
3,036
3,000
Total rooms in operation will increase 46% YoY by year-end 2015 to 7,386, while
available rooms will grow 67% (the aforementioned effect from 2014 acquisitions).
From FINN’s announced investments we are estimating the 3 developments of
Saltillo, Veracruz and Campeche to be completed (3Q2015 contribution estimated),
as well as the undergoing expansion at Altamira’s Holiday Inn hotel (+105 new rooms
by 2Q2015E). The consolidated occupancy rate we are expecting for the year is
63.1%, +3.3 percentage points above 2014, which occupancy was affected by room
expansions at 4 of the hotels, as well as by hotel re-brandings and the ramping-up of
the Aloft Guadalajara hotel. For ADRs we have an estimated average 4.9% increase
for all FINN’s hotels, some of which are being inflation-adjusted, while others have
higher growth rates as a result of the trust’s operating improvements. Our
consolidated ADR for 2015 is MX$1,038.
2,000
1,000
0
2013
2014
2015
2016
2017
Source: Actinver.
For 2016 we anticipate available rooms to register an additional 30.6% increase, with
total rooms in operation reaching 8,536. We expect an improvement in occupancy to
65.3%, with a 6.0% growth in ADRs (mix of new full service hotels acquired with
higher fares), which will result in a 9.8% expansion in revenue per available room
(RevPAR). This year 2 of the developed Hoteles City Express hotels are opened.
2015-2016 NOI & EBITDA
$ 1,200
35%
$ 1,000
34%
$ 800
33%
$ 600
32%
$ 400
31%
$ 200
30%
$0
EBITDA Margin
USD (Million)
FINN: NOI & EBITDA Forecasts
29%
2014
NOI ($)
Source: Actinver.
2015
2016
EBITDA ($)
2017
2018
EBITDA Margin (%)
After accounting for lodging direct, indirect costs and expenses and other operating
expenses (all of which we explain in “Our FINN’s Earnings Model” section of this
report) we arrive to a net operating income (NOI) of MX$616 million in 2015 (+93.3%
growth YoY) and of MX$909 million for 2016 (+47.5% YoY). The implied NOI margin
for 2015 will be 37.7%, 70bps above 2014. For 2016, it will expand to 38.6% due to
the benefits of a larger scale of FIBRA Inn from acquisitions (some economies of
scale created in administrative expenses). Our stabilized LT NOI margin is estimated
at 39.5%. Our 2014-2018 NOI CAGR is 35.1%.
Below the Advisory fee (now at 0.75% of GAV inflation adjusted) and other corporate
general and administrative expenses we reach an estimated EBITDA of MX$522
million in 2015 with a 32.0% margin (+80bps versus 2014). This would represent a
94.7% YoY growth. For next year our model assumes an additional 50.1% increase
to MX$784 MM, with a resulting margin of 33.3%. We are expecting an increase in
other corporate G&A expenses in 2015 (+40% YoY) and 2016 (+26% YoY) derived
from the trust’s larger scale. In line with FINN’s long-term guidance, we are
estimating a 34.5% stabilized EBITDA margin. Our 2014-2018 EBITDA CAGR is
36.2%.
2015-2016 FFO, CAD & Distributions
Funds from operations (FFO) will amount to MX$476.2 million in 2015, giving a
29.1% FFO margin. The 2.8 percentage points difference between the EBITDA and
the FFO margin comes from net interest expenses of MX$46 million. We are
considering that FINN starts raising debt to funds its pipeline of investments in
2Q2015, ending the year with MX$2,105 million of debt outstanding. For 2016 the
trust would have already raised MX$3,500 MM of total debt, thus our estimated FFO
of MX$572 MM for that year would have a lower 24.3% margin on higher interest
expenses.
90
We are adjusting the company’s FFO by leasing hotels’ maintenance CapEx, which
amount to MX$41.5 million in 2015 and MX$55.9 million in 2016. We have projected
maintenance Capex for all hotels as a percentage of appraisal or investments’
values, equal to 0.8% for a mature property. The resulting adjusted FFOs, or Cash
Available for Distribution (CAD) for 2015 and 2016 are MX$434.8 million and
MX$516.3 million, respectively.
We calculate total dividends parting from the company’s FFO after hotel maintenance
CapEx. Then, from that Adjusted FFO, we subtract i) changes in working capital,
excluding VAT reimbursements (as it would imply that the company distributes part of
its cash from the balance); and ii) debt amortizations, but excluding balloon and bullet
payments expected to be refinanced. At the end, that is the real distribution potential
a FIBRA has, its free cash flow to equity (FCFE). FINN’s implied total distributions as
a percentage of AFFO is 94.3% in 2015, 95.5% in 2016, and 99.5% average afterwards..
In addition, we would like to mention that FINN’s 4Q2014 dividend per CBFI will show
the impact from the trust’s rights offering of November 2014, in which it increased by
69.2% the total number of CBFIs outstanding to 437 million. Thus dividend per CBFI
estimated at MX$16.11 cents will be 30.6% lower as compared to the dividend
distributed in 3Q2014, while as a total amount it will be 17.4% higher, of MX$70.4
million. As FINN continues acquiring new properties throughout the year, as we are
already anticipating, the dividend per CBFI will continue increasing, reflecting
additional value generated by the trust. For 2015 we expect it to reach MX$93.82
cents, +18.8% versus 2014. Total distributions will amount to MX$410.0 million
(+76.1% YoY). For 2016, our model delivers dividend per CBFI of MX$1.12,
representing a 19.4% growth YoY. Total distributions for that year will be of
MX$493.0 million, +20.2% YoY. By 2018, when FINN will have already an stabilized
portfolio considering HCE brand hotels, we estimate a dividend per CBFI of 1.31,
+66.4% as compared to 2014. Its implied yield considering current CBFI trading
prices would be 8.0%.
FINN: Dividend /CBFI Forecasts
Total Dividends And CBFIs Forecasts
$59 $43 $60 $70
$0
250
200
150
100
50
$0.94
$1.00
$0.79
$0.80
$0.60
$0.40
$0.23
$0.20
$0.17
$0.23
$0.25 $0.26
$0.20 $0.22
$0.16
+9.4% YoY
$110 $113
$90 $97
$1.12
+19.4% YoY
$100
+20.2% YoY
$200
+9.4% YoY
300
$400
$1.23
CAGR:
15.8%
$1.20
350
$410
$233
400
Total CBFIs (Million)
$500
+76.1% YoY
Total Dividends (MX$ MM)
$493
$300
$1.40
450
$539
+18.8% YoY
+69.2%
$600
0
1Q
2Q
3Q
4Q 2014 1Q
Total Dividends ($)
Source: Actinver.
2Q
3Q
4Q 2015 2016 2017
Total CBFIs
$0.00
1Q
2Q
3Q
4Q
2014
1Q
2Q
3Q
4Q
2015 2016 2017
Source: Actinver.
91
Dividend Discount Model (DDM) Valuation
We are reinitiating coverage on FINN with a YE2015 target price (TP) of
MX$19.50 per CBFI. This fair value implies a 19.6% expected capital appreciation
over FINN’s trading prices of MX$16.30. We have determined this target price
through a DDM valuation model, as for FIBRAs, the expected stream of dividend
distributions are easier to predict (by law, FIBRAs have to distribute at least 95% of
their net fiscal income as dividends).
In our DDM valuation we are discounting total dividends per CBFI in order to reflect
any potential LT dilutive effect from the issuance of new CBFIs. For now we just
expect a marginal impact coming from FINN’s executive share-based compensation
plan which contemplates 3.0 MM new CBFIs to be granted to its CEO in 2016.
Our MX$19.50 TP /CBFI comes along with a BUY recommendation based on: i)
FINN’s appealing total return of 25.4% in 2015 (including our estimated dividend yield
of 5.8%); ii) its sound growth prospects for the following years; iii) its attractive
dividend /CBFI growth potential; iv) the positive outlook for the Mexican lodging
sector; v) its stronger position with a renewed corporate structure to capture the
benefits of the consolidation of the local industry; vi) its experienced and highly
institutional management team; vii) its diversified portfolio within hotel segments and
international brands; and viii) its solid profitability levels.
Dividend Discount Model (DDM) Valuation (MX$ MM)
Explicit Model 2015-2025
2015
Funds Available For Distribution (CAD)
Dividend Payout Ratio (% of CAD)
Cash Distribution
Return of Capital
Total Dividends Paid
Outstanding CBFIs (MM)
Total Dividends Per CBFI
EQR Discount Rate [Rf+Re]
10-Year U.S. Treasury
+ Country Risk Premium [CRP]
+ Mx-US Inflation Spread
Risk Free Rate [Rf]
Real Estate (RE) Risk Premium
FINN Relevered Beta
EQR Risk Premium [Re]
Modeled (Debt+Pref.) / Equity Ratio
Loan-to-Value (LTV) (%)
Present Value of Dividends /CBFI
$ 476
$ 124
$ 286
$ 410
437.0
$ 0.938
9.83%
3.50%
1.50%
1.00%
6.00%
5.50%
0.696
3.83%
29.03%
24.27%
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Terminal
$ 572
$ 516
95.5%
$ 141
$ 352
$ 493
440.0
$ 1.120
$ 616
$ 546
98.8%
$ 172
$ 367
$ 539
440.0
$ 1.226
$ 658
$ 583
99.3%
$ 208
$ 370
$ 578
440.0
$ 1.314
$ 696
$ 617
99.5%
$ 241
$ 373
$ 614
440.0
$ 1.395
$ 733
$ 651
99.5%
$ 277
$ 370
$ 647
440.0
$ 1.471
$ 766
$ 681
99.6%
$ 305
$ 373
$ 678
440.0
$ 1.541
$ 802
$ 715
99.5%
$ 337
$ 374
$ 711
440.0
$ 1.617
$ 840
$ 750
99.5%
$ 370
$ 376
$ 746
440.0
$ 1.696
$ 884
$ 791
99.5%
$ 408
$ 378
$ 787
440.0
$ 1.788
$ 921
$ 824
99.6%
$ 440
$ 381
$ 820
440.0
$ 1.864
$ 7,109
$ 6,156
$ 13,265
440.0
$ 30.147
10.43%
3.50%
1.50%
1.00%
6.00%
5.50%
0.805
4.43%
49.18%
34.20%
$ 1.015
10.46%
3.50%
1.50%
1.00%
6.00%
5.50%
0.811
4.46%
50.24%
34.29%
$ 1.005
10.49%
3.50%
1.50%
1.00%
6.00%
5.50%
0.816
4.49%
51.30%
34.83%
$ 0.975
10.52%
3.50%
1.50%
1.00%
6.00%
5.50%
0.822
4.52%
52.45%
35.39%
$ 0.935
10.56%
3.50%
1.50%
1.00%
6.00%
5.50%
0.829
4.56%
53.63%
35.96%
$ 0.891
10.59%
3.50%
1.50%
1.00%
6.00%
5.50%
0.835
4.59%
54.83%
36.55%
$ 0.842
10.63%
3.50%
1.50%
1.00%
6.00%
5.50%
0.842
4.63%
56.12%
37.15%
$ 0.797
10.67%
3.50%
1.50%
1.00%
6.00%
5.50%
0.849
4.67%
57.43%
37.77%
$ 0.754
10.71%
3.50%
1.50%
1.00%
6.00%
5.50%
0.856
4.71%
58.75%
38.40%
$ 0.716
10.75%
3.50%
1.50%
1.00%
6.00%
5.50%
0.864
4.75%
60.18%
39.04%
$ 0.671
10.75%
3.50%
1.50%
1.00%
6.00%
5.50%
0.864
4.75%
60.18%
39.04%
$ 10.856
DDM Valuation
Terminal Value Cap Rate
Present Value of Terminal Value
Present Value of FCFFs
DDM Implied Equity Value /CBFI
Outstanding CBFIs Est. (MM)
Fair Value per CBFI (MX$)
6.18%
$ 10.856
$ 8.599
$ 19.50
437
$ 8,502
For purposes of our DDM we emphasize the relevance of disaggregating dividends in
the form of cash distributions (based on net income) and dividends in the form of
return of capital (based on fiscal depreciation) as cash distributions are subject to a
30% withholding tax payment at the investor level (except for pension funds, which
are tax exempt). On the other hand, returns of capital are tax free for all investors.
FINN Last Price per CBFI
Expected Return to Fair Value
+ Dividend Yield 2015E
Total Expected Return
$ 16.30
19.6%
5.8%
25.4%
It is worth recalling that this value does not incorporate any additional acquisition or
development different from FIBRA Inn’s fire-power of MX$4,375 million. We are
assuming that FINN maintains its loan-to-value (non-depreciated assets) in line with
its 33% target for all our explicit period, implying debt refinancing at maturity.
Implied Forward NOI Cap Rate
7.72%
92
The DDM model is based on a hotel by hotel analysis with a 10-year explicit holding
period. To discount our dividend forecasts, we have calculated FIBRA Inn’s discount
rate assuming a 5.0% adjusted risk-free rate (using a prospective 3.5% base 10-year
U.S. Treasury [Rf] plus a country risk premium [CRP] of 1.5%), a Real Estate risk
premium of 5.5%, and a 1st year levered beta of 0.696. This beta was determined
through the average unlevered betas of its local and international peers.
To calculate our terminal value we have assigned a 2.59% LT growth rate, which is
Mexico’s mid-cycle GDP growth rate from 1993 to 2014. We believe this is the best
possible terminal growth rate we could use in our DCF for two main reasons: 1) as a
lodging company, FINN’s operating performance is highly correlated to the
performance of the local economy, which has experienced relevant crisis periods in
the past; and 2) even that FINN will detonating an aggressive growth strategy, it
should not last forever, thus, assigning a higher perpetual growth rate to our DDM
would be less accurate. Our implied forward NOI cap rate at our target price is
7.72%.
Net Asset Value (NAV) Valuation Approach
We are also presenting our Net Asset Value (NAV) valuation approach for FINN. As
this valuation method is static at a specific point in time, it does not reflect the longterm prospects of FINN. This is the main reason why we are not using this method as
a component to determine our target price.
According to our NAV, FINN is currently trading at a 8.0% discount to its NAV, at
0.92x P /NAV. Behind this calculation, we are first valuing FINN’s real estate (RE)
operations on a hotel by hotel basis. We have determined the hotels’ cap rates
according to our current NOI generation estimates of each of them. This NAV is
calculated using only the trust’s current announced acquisitions and developments.
To calculate the FIBRA cap rate we are incorporating a 0.9% spread to account for a
FIBRA premium over property-based cap rates. By dividing our estimated current
NOIs by their respective adjusted cap rates, we arrive at a MX$6,071 MM value for
RE Operations (MX$13.89 /CBFI).
Following that, we account for balance sheet assets by adding them to our RE
Operations Value. Particularly, we add the MX$432 MM construction in progress of
FINN’s 3 hotels developments of Veracruz, Campeche and Saltillo, as well as a 105room expansion at Altamira’s Holiday Inn hotel (valued at 1.25x P/BV as these will
generate NOI this year) and arrive to the Gross Real Estate (RE) Value. Cash after
debt repayment (MX$996 MM), and other tangible assets (MX$276 MM) are added
to the Gross Real Estate Value to reach the Gross Market Value of Assets.
Afterwards, we subtract FINN’s other liabilities (MX$149 MM) from the Gross Market
Value of assets to finally arrive at the Net Market Value of Assets (NAV) of MX$7,745
MM, which results in a P/NAV of 0.92x.
93
FIBRA Inn's Current Net Asset Value (NAV) - (MX$ MM)
Nominal
Property
Cap Rate
(%)
Premium
FIBRA vs
Prop. Cap
Rate (%)
FIBRA Cap
Rate
(%)
Current
Annualized
NOI
(MX$ MM)
Rooms
Current
Value
(MX$ MM)
Value /CBFI
(MX$)
10.2%
7.1%
14.4%
8.8%
7.6%
7.0%
4.0%
9.3%
6.2%
10.9%
9.8%
10.5%
10.1%
9.3%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
9.3%
6.2%
13.5%
7.9%
6.7%
6.1%
6.6%
8.4%
6.6%
10.0%
8.9%
9.6%
9.2%
8.4%
$ 23
$ 21
$ 10
$ 19
$ 20
$ 13
$ 13
$ 21
$ 16
$7
$7
$7
$ 39
$ 19
223
227
145
178
180
182
280
198
100
113
129
113
219
186
$ 244
$ 331
$ 71
$ 239
$ 295
$ 209
$ 204
$ 252
$ 241
$ 66
$ 79
$ 72
$ 417
$ 220
$ 0.56
$ 0.76
$ 0.16
$ 0.55
$ 0.67
$ 0.48
$ 0.47
$ 0.58
$ 0.55
$ 0.15
$ 0.18
$ 0.16
$ 0.95
$ 0.50
Real Estate (RE) Operations
7.9%
$ 482
$ 6,071
$ 13.89
Balance Sheet Assets
P/BV
Book Value
Value
Value /CBFI
Construction in Progress (3 Developments + Rooms Altamira)
Land Held for Future Development
Total Development and Land
1.25x
1.00x
$ 432
$ 11
$ 443
$ 540
$ 11
$ 551
$ 1.24
$ 0.02
$ 1.26
$ 6,622
$ 15.15
$ 996
$ 276
$ 1,272
$ 2.28
$ 0.63
$ 2.91
$ 7,894
$ 18.06
Value
Value /CBFI
$$$$ 149
$$$$ 0.34
Value
Value /CBFI
$ 7,745
$ 7,123
$ 17.72
$ 16.30
-8.0%
0.92x
Properties Capitalized Income
Hotel 1
Hotel 2
Hotel 3
Hotel 4
Hotel 5
Hotel 6
Hotel 7
Hotel 8
Hotel 9
Hotel 27
Hotel 28
Hotel 29
Hotel 30
Hotel 31
Gross Real Estate (RE) Value
Cash and Cash Equivalents
Other Tangible Assets
Other Balance Sheet Assets
$ 996
$ 276
$ 1,272
Gross Market Value of Assets
Balance Sheet Liabilities
Short-Term Debt
Long-Term Debt
Total Debt
Other Liabilities
Net Asset Value (NAV)
Net Market Value of Assets
Current Market Capitalization
Premium / Discount to NAV
P/NAV
$$$$ 149
94
Our FINN’s Earnings Model
FIBRA Inn as a lodging FIBRA or REIT, not only has a very different business model
as compared to FIBRAs from other RE asset segments, but its trust structure is a
completely different thing as well. This is why we developed a new earnings model
for FINN, which reflects last year’s changes to its hotel revenue structure.
Regarding that, we would like to recall that as a result of legislative modifications
contained in the new income tax law (effective since 2014), FINN’s Technical
Committee decided to change the revenue structure of the trust in late 2013 for two
main reasons: 1) to maintain strict adherence to the provisions established by the
law; and 2) avoid any material impact that would affect FINN’s profitability.
Basically, what this law states is that lodging FIBRAs should only receive income
originated from lodging to allow the lodging of people without receiving revenues
from additional services related to hospitality, such as food, consumptions, drinks,
telephone and Internet, conference rooms, among others. If its fiduciary receives
income from those services, the related trust will no longer be considered a trust that
meets requirements stipulated in Articles 223-224 of the ISR Law and will receive the
appropriate tax treatment stipulated in terms of the tax code. FINN’s structural
changes for its select, limited and full-service hotels, consist in the following:
Rental Revenues From Select And Limited Service Hotels
Lodging. This services are billed directly by FINN, which is also in charge for the
payment of these services’ relative costs and expenses. As for FINN’s limited and
select segment hotels, these services represent ~97% of total revenues, lodging
revenues are considered rental revenues by the law.
Other Services. For the remaining services which consist of the use of meeting
spaces, coffee break service, telephones, laundry and dry cleaning, and snack bars,
among others from the limited and select service segments, FINN rents the facilities,
directly to an operator, which provides such services. For that, FINN has established
rental agreements for each of the hotels with “Operadora Mexico”. Under these
agreements, FINN receives fixed rental revenues and transfers to Operadora Mexico
the supply of all service other than lodging. As a result, the latter receives directly
revenues from these services and becomes responsible of paying the costs and
operating expenses associated with them, as well as the respective income tax.
Given that other services are not relevant for these two hotel segments (~3% of total
revenues), FINN has established a monthly fixed rent equivalent to 55% of the
revenues from these services received by Operadora Mexico at the hotels. This way
FINN receives this revenue as rent and complies with the law.
Hotel Revenues’ Treatment Under FINN’s Current Structure
Select- And Limited- Service Hotels
Lodging
Services
FIBRA Inn
(Trust F/1616)
Lease
Spaces
Other Select
Services
Fixed
Rent
Operadora
Mexico
Full Service Hotels
Lodging
Services
FIBRA Inn
(Trust F/1616)
Fixed And Variable
Rent As % Of
Revenue From
Other Services
Lease
Spaces
Other Full
Services
Operadora Mexico
Trust
F/1765
95
Rental Revenues From Full Service Hotels
Lodging. This services are billed directly by FINN, which is also in charge for the
payment of these services’ relative costs and expenses. In the case of FINN’s full
service hotels, these services represent ~65% of total revenues, thus lodging
revenues are considered rental revenues by the law as well.
Other Services. For the remaining services previously mentioned, FINN also rents
the facilities, directly to an operator, which provides such services. For that, FINN has
established rental agreements for each of the hotels with “Operadora Mexico”. Under
these agreements, FINN receives fixed rental revenues and transfers to Operadora
Mexico the supply of all service other than lodging. As for the case of full service
hotels, other services represent a larger amount of total revenues (~35%), they are
registered and invoiced by a different trust entity (Trust F/1765). This trust pays
directly its inputs and expenses related to other full services, as well as salaries and
expenses related to personnel required for the provision of such services. Gross
profit derived from this operation will be then transferred to Operadora Mexico, which
will pay the respective income tax. For the use of these facilities, FINN has
established a monthly fixed rent as well, plus a variable rent component equivalent to
an average of 15% of revenues for other full services. These revenues together
represent ~27% of the total revenues received for these services. It is worth noting
that the rationale for FINN to have the Trust F/1765 in between is to have a thirdparty entity receiving the revenue amounts on which a percentage is applied to
determine the variable portion of rent at each of the full service hotels. This
guarantees full independence and transparency.
Fees / Expenses Paid To Related Parties
Following the changes of the trust’s revenue structure, the roles and compensation
schemes for FINN’s related parties, including its advisor, hotel operator and its payroll provider, remained unchanged. The advisory’s fee change applied since October,
2014, was independent from the change in the revenue structure.
Advisor. FIBRA Inn pays its external advisor a fee equivalent to 0.75% of gross real
estate assets’ value (inflation-adjusted) for planning and strategic services.
FIBRA Inn’s Business Related Parties
Provides Planning
And Strategic
Services
Advisor
Lodging
Services
FIBRA Inn
(Trust F/1616)
Pays Fees
Pays Fees
Provides
Payroll
Services To
Hotels
Provides
Payroll
Services To
Hotels
Other
Services
Pays Fees
FIBRA Inn
Integrated
Services
Provides
General Hotel
Operating
Services
Hotel Operator
Pays Fees
Operadora Mexico
Pays Fees
Trust
F/1765
96
Hotel Operator. The compensation structure of FINN’s hotel operator is comprised
by the following fees: 1) 2.0% of revenues; and 2) 10.0% of the hotels’ GOP. These
fees are divided in three equal amounts, each being paid by FINN, Operadora
Mexico, and Other Services Trust (F/1765).
FIBRA Inn Integrated Services. This entity offers FINN payroll services for the hotel
personnel, with the exception of general and maintenance managers, which are
employed by FINN’s management subsidiary (“Administradora de Activos Fibra Inn,
S.C.”). This way FINN complies with the requirements not to be considered a Passive
Foreign Investment Company (PFIC) for effects of federal income tax in the U.S. and
compliance with U.S. tax laws. The compensation for this outsourcing fee is 3.5% of
expenses incurred by payroll, taxes and related expenses.
Operating And Revenues Model
Our model was designed to deliver complete P&L forecasts for each individual hotel,
with the flexibility to do it by portfolios as well. We have performed a hotel by hotel
analysis for all of FIBRA Inn’s 34 properties, including the 3 hotels under
development. For new properties to be acquired and developed through the use of
the trust’s fire-power during 2015 and 2016, we have used more general
assumptions and packed them in 5 different portfolios.
Occupancies And Seasonality Factors
As FIBRA Inn’s hotels portfolio has not yet a much wide coverage in the country, its
occupancy rates are more sensitive to seasonal and temporary factors affecting the
different markets in which it has presence. For example, in 2Q2014 FINN’s
consolidated RevPAR declined 10.2% vs. 1Q2014, partially due to lower demand
from the Saltillo and other Bajio hotels in which room demand from the auto sector is
relevant. Prior to the production of new car models which begins in September, those
markets usually register a lag in activity from the auto sector. Furthermore, the
ramping-up of hotels in process of stabilization currently represent a relevant impact
on occupancies at the consolidated level.
For these reasons, we have estimated occupancies by hotel, and assigned them
seasonality factors in order to consider Holy Week holidays in Mexico (whether they
fall in 1Q or 2Q), as well as other market-specific as the ones mentioned above. This
is reflected in the resulting seasonality of GOP margins.
Average Daily Rates (ADRs)
We are also projecting ADRs by hotel by similar reasons as for occupancies. As
observed in some of the hotels acquired in the Bajio region, under the Mexico Plaza
brand and re-branded to Wyndham Garden, FIBRA Inn was able to make a
significant turnaround through its sound operating capacity, increasing ADRs by
17.5% from previous, before acquisition, levels (e.g., Wyndham Garden Leon). On
the other hand, there are hotels struggling to increment its occupancy, such as
Toluca’s Holiday Inn Express Tollocan, for which we assume below average growth
in ADRs. Consequently, our consolidated ADRs forecasts are a mix of all individual
assumptions.
We find positive that, since the acquisition announcement of the 4 Microtel Inn &
Suites and the 2 Casa Grande hotels in Chihuaha, Culiacan and Toluca, FINN has
been disclosing current operating information, including occupancy, ADRs and
RevPARs. Besides being more transparent, which is always positively perceived by
the market, this becomes very useful for estimating the hotels’ operating
improvement potential. Furthermore, we believe this improves FINN’s market
valuation towards its fair value (currently undervalued).
97
Lodging Direct And Indirect Costs & Expenses
In forecasting our lodging direct costs and expenses, we consider they corresponding
fixed and variable portions and determine them per room available, as well as the
seasonality they have throughout the year. Rooms’ costs and expenses vary by
hotel, depending on their locations and segments. Other lodging operating expenses
are highly correlated to rooms’ costs and expenses.
Indirect costs and expenses, which include administrative, maintenance, electricity,
royalties and advertising & promotion were analyzed in order to define their variable
and fixed components. We do so as we believe it is the best way to reflect the
RevPAR’s effect on GOP margins, making them mobile, instead of assigning static
margins for GOP forecasting independently from the hotels’ occupancy levels. The
result is that this way we can reach break-even points on each of the hotels or
portfolios of hotels. In the case of ramping-up hotels, this form of estimating costs
and expenses turns more relevant, given the negative cash flows hotels experience
at the beginning of their operations.
FIBRA Inn incurs in royalty expenses for all international and local recognized hotel
brands it operates. Royalties are fees calculated as a percentage of expenses, what
we do for each hotel.
Property Taxes And Insurance
Property taxes (predial) and insurance are fixed expenses which we forecast as a
percentage of RE property value, for which we use the hotels’ appraisal values.
These percentages, however, vary slightly, basically depending on each hotels’
location and segment, respectively.
Accounting And Fiscal Depreciations
We calculate accounting and fiscal depreciations based on 4 main components:
maintenance CapEx, appraisal value, capitalized broker fees, and the hotels’ building
to land ratio. Fiscal depreciation is estimated for the calculation of the trust’s net
fiscal income, from which it distributes the minimum 95% in dividends as required by
Mexican law.
Hotel Room Expansions & Maintenance CapEx
Expansion CapEx, referring to hotel room expansions such as the one currently
undergoing in Altamira’s Holiday Inn hotel (+105 rooms) are allocated by quarters,
and once finalized, are subject for our depreciation and maintenance CapEx
projections. Maintenance Capex for all hotels are calculated as a percentage of
appraisal or investments’ values.
In the following page we present a summarized 2014-2016 P&L output from one of
FINN’s hotels (Monterrey’s Hampton Inn Galerias), as an example of how is
integrated this part of the model.
98
Summarized Output Of P&L Projections For Monterrey’s Hampton Inn Galerias Hotel
FIBRA Inn: Operating Metrics / Hotels P&L
Operating Metrics / Hotels Revenues / GOP / NOI / EBITDA
Period
2014
1Q2015
2Q2015
3Q2015
4Q2015
2015
2016
Initial Portfolio
Hampton Inn - Monterrey - Nuevo Leon
Portfolio
Location
Property Type
Hotel Segment
Last Avg. Daily Rate - ADR (MX$)
Hotel Code Name
Contribution Date/Period
Acquisition Property Value (MX$ MM)
Operating Metrics
Number of Properties
Total Rooms (Initial)
Additional Rooms
Initial
Monterrey, Nuevo Leon
Hotel
Select Service
$ 917
MTYGA
1Q2013
$ 192
SC Galerias
223 rooms
Northeast
MX$ - Denominated
1
223
0
1
223
0
1
223
0
1
223
0
1
223
0
1
223
0
0.9692
66.9%
20,516
13,720
N.A.
$ 1,000
4.1%
4.1%
1
223
0
69.0%
1.0389
71.7%
20,516
14,707
N.A.
$ 845
3.6%
3.6%
1.0000
68.7%
81,395
55,853
$ 887
$ 906
43.6%
3.9%
0.9576
66.1%
20,070
13,261
N.A.
$ 968
4.1%
4.1%
1.0343
71.4%
20,293
14,483
N.A.
$ 955
4.2%
4.2%
1.0000
69.0%
81,395
56,170
N.A.
$ 942
4.0%
3.6%
1.0000
69.0%
81,618
56,323
N.A.
$ 980
4.0%
3.5%
365
31-Dec-14
90
31-Mar-15
91
30-Jun-15
92
30-Sep-15
92
31-Dec-15
365
31-Dec-15
366
31-Dec-16
$ 50.5
$ 1.4
$ 0.6
$ 12.8
$ 0.3
$ 0.2
$ 13.8
$ 0.4
$ 0.2
$ 13.7
$ 0.4
$ 0.2
$ 12.4
$ 0.3
$ 0.2
$ 52.8
$ 1.4
$ 0.6
$ 55.1
$ 1.5
$ 0.7
Lodging Direct Costs & Expenses:
Rooms' Costs & Expenses (MX$ MM)
Other Operating Expenses (MX$ MM)
Total Lodging Direct Costs & Expenses
-$ 12.7
-$ 0.5
-$ 13.2
-$ 3.5
-$ 0.1
-$ 3.6
-$ 3.3
-$ 0.1
-$ 3.5
-$ 3.2
-$ 0.1
-$ 3.3
-$ 3.3
-$ 0.1
-$ 3.4
-$ 13.2
-$ 0.5
-$ 13.7
-$ 14.0
-$ 0.5
-$ 14.5
Indirect Costs & Expenses:
Administrative
Maintenance
Electricity
Royalties
Advertising & Promotion
Total Indirect Costs & Expenses
-$ 9.1
-$ 1.8
-$ 3.2
-$ 3.4
-$ 2.1
-$ 19.6
-$ 2.6
-$ 0.5
-$ 1.0
-$ 0.9
-$ 0.7
-$ 5.6
-$ 2.6
-$ 0.5
-$ 1.0
-$ 0.9
-$ 0.5
-$ 5.5
-$ 2.5
-$ 0.5
-$ 0.9
-$ 0.9
-$ 0.6
-$ 5.5
-$ 1.7
-$ 0.3
-$ 0.4
-$ 0.8
-$ 0.4
-$ 3.7
-$ 9.4
-$ 1.9
-$ 3.3
-$ 3.6
-$ 2.2
-$ 20.3
-$ 9.9
-$ 2.0
-$ 3.5
-$ 3.7
-$ 2.2
-$ 21.3
Gross Operating Profit (GOP) (MX$ MM)
Gross Operating Profit (GOP) Margin
$ 19.1
36.9%
$ 4.0
30.2%
$ 5.2
36.6%
$ 5.3
37.6%
$ 5.7
44.5%
$ 20.2
37.2%
$ 20.7
36.6%
-$ 0.2
-$ 0.1
$ 191.8
-$ 0.04
-$ 0.02
$ 191.8
-$ 0.04
-$ 0.02
$ 191.8
-$ 0.04
-$ 0.02
$ 191.8
-$ 0.04
-$ 0.02
$ 191.8
-$ 0.2
-$ 0.1
$ 191.8
-$ 0.2
-$ 0.1
$ 191.8
$ 18.9
36.4%
$ 3.9
29.7%
$ 5.1
36.2%
$ 5.2
37.2%
$ 5.6
44.1%
$ 19.9
36.7%
$ 20.5
36.2%
Seasonality - Occupancy
Occupancy Rate
Available Rooms
Occupied Rooms
Reported Avg. Daily Rate - ADR (MX$)
Estimated Avg. Daily Rate - ADR (MX$)
Estimated ADR (YoY Change)
Inflation Effect Mx
Revenues
Days of Contribution in Period
Date EoP / Contribution
Room Revenues (MX$ MM)
Other Revenues (MX$ MM)
Rental Revenues (MX$ MM)
1
223
0
4Qs Formula Adjustment Occ. Rate Est.
Gross Operating Profit (GOP)
Property Taxes (Predial) (MX$ MM)
Insurance (MX$ MM)
Property Value (MX$ MM)
Net Operating Income (NOI) (MX$ MM)
Net Operating Income (NOI) Margin
99
Operating Model’s Property Book As Of 4Q2014
Hotel
Brand Name
Code
Total Portfolio
Limited Service
Hotel
Code Name
Wyndham Garden
Wyndham Garden
Wyndham Garden
Wyndham Garden
Fairfield Inn & Suites
Fairfield Inn & Suites
Wyndham Garden
BJXIR
BJXCE
BJXLE
BJXSI
VERCO
CAMCC
CHHMI
CULSI
TLCMI
CHHMJ
GDLWG
Hotel
Region
3
Hotel
City
4
Central & South
Irapuato
Central & South
Celaya
Central & South
Leon
Central & South
Silao
Central & South
Coatzacoalcos
Central & South Ciudad del Carmen
North
Chihuahua
North
Culiacan
North
Toluca
North
Ciudad Juarez
West
Guadalajara
Hotel
State
5
Hotel
Location
6
Guanajuato
SC Cibeles
Guanajuato
Hwy. MEX-QRO
Guanajuato
SC Centro Max
Guanajuato
Hwy. Leon-Silao
Veracruz
Blvd. Costero-Zab.
Campeche
31 Street
Chihuahua
Fashion Mall
Sinaloa
Los Angeles Hospital
State of Mexico
Airport
Chihuahua
SC Las Misiones
Jalisco
Andares
Hotel
Operator
7
Property
Portfolio
8
FINN - Mexico Plaza
FINN - Mexico Plaza
FINN - Mexico Plaza
FINN - Mexico Plaza
FINN
FINN
FINN
FINN
FINN
FINN
FINN - Mexico Plaza
Acquisition
Acquisition
Acquisition
Acquisition
Development
Development
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Contribution Number of Number of
Period
Properties
Rooms
9
10
64
34
5,457
11
1,530
11
1,530
3Q2013
1
102
1Q2014
1
150
1Q2014
1
126
2Q2014
1
143
3Q2015
1
180
3Q2015
1
180
4Q2014
1
108
4Q2014
1
113
4Q2014
1
129
4Q2014
1
113
4Q2014
1
186
Select Service
Hampton Inn
Hampton Inn
Hampton Inn
Hampton Inn
Holiday Inn Express
Holiday Inn Express
Holiday Inn Express
Holiday Inn Express
Aloft
Courtyard
MTYGA
SLWHA
REXHA
QROHT
SLWZO
JUAZO
TLUZO
MTYZO
GDLUA
CUNPC
TLUDR
GDLAL
SLWCM
Northeast
Northeast
Northeast
Central & South
Northeast
North
Central & South
Northeast
West
Central & South
Central & South
West
Northeast
Monterrey
Saltillo
Reynosa
Queretaro
Saltillo
Ciudad Juarez
Toluca
Monterrey
Guadalajara
Playa del Carmen
Toluca
Guadalajara
Saltillo
Nuevo Leon
Coahuila
Tamaulipas
Queretaro
Coahuila
Chihuahua
State of Mexico
Nuevo Leon
Jalisco
Quintana Roo
State of Mexico
Jalisco
Coahuila
SC Galerias
Saltillo Airport
Industrial Zone
Tecnologico
Airport Zone
SC Las Misiones
Airport Zone
Airport
UAG
Playacar
Tollocan
Las Americas
Galerias Saltillo
FINN
FINN
FINN
FINN
FINN
FINN
FINN
FINN
Op. Comercios Vallarta
FINN
FINN
Starwood
FINN
Initial
Initial
Initial
Initial
Initial
Initial
Initial
Initial
Acquisition IPO
Acquisition IPO
Acquisition IPO
Acquisition
Development
1Q2013
1Q2013
1Q2013
1Q2013
1Q2013
1Q2013
1Q2013
1Q2013
2Q2013
2Q2013
2Q2013
2Q2014
3Q2015
13
13
1
1
1
1
1
1
1
1
1
1
1
1
1
2,457
2,457
223
227
145
178
180
182
280
198
199
196
127
142
180
2Q2013
2Q2013
3Q2013
3Q2013
3Q2013
4Q2013
2Q2014
4Q2014
4Q2014
4Q2014
10
10
1
1
1
1
1
1
1
1
1
1
1,470
1,470
90
198
150
105
192
214
98
115
89
219
Full Service
Holiday Inn & Suites
Holiday Inn
Holiday Inn
Camino Real
Marriott
Holiday Inn
Holiday Inn
Wyndham Garden
Casa Grande
Crowne Plaza
GDLCT
MTYZV
PUELN
BJXCR
PBCMC
MEXCI
TAMAL
CHHWG
CHHDL
MTYCP
West
Northeast
Central & South
Central & South
Central & South
Central & South
Northeast
North
North
Northeast
Guadalajara
Monterrey
Puebla
Guanajuato
Puebla
Mexico City
Altamira
Chihuahua
Delicias
Monterrey
Jalisco
Nuevo Leon
Puebla
Guanajuato
Puebla
D.F.
Tamaulipas
Chihuahua
Chihuahua
Nuevo Leon
Centro Historico
Op. Comercios Vallarta Acquisition IPO
Valle Zone
FINN
Acquisition IPO
La Noria
Hoteles y Centros Esp. Acquisition IPO
Ave. Alhondiga
Camino Real
Acquisition
Hwy. MEX-PUE
FINN
Acquisition
Calzada de Tlalpan
FINN
Acquisition
Hwy. Tampico-Mante
FINN
Acquisition
Tecnologico Ave.
FINN
Acquisition
6 Oriente Ave.
FINN
Acquisition
Airport
FINN
Acquisition
100
Forecasted Operating Metrics By Segments
Period
2013
2014
2015
2016
2017
2018
Operating Metrics
FINN Initial Portfolio + Acquisitions
Number Of Rooms
Limited Service
Select Service
Full Service
Additional Rooms
Limited Service
Select Service
Full Service
Available Rooms
Limited Service
Select Service
Full Service
Occupied Rooms
Limited Service
Select Service
Full Service
Implied Occupancy Rate (%)
Limited Service
Select Service
Full Service
Average Daily Rate (ADR) (MX$)
Revenue Per Available Room (RevPAR) (MX$)
Initial Portfolio
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
8,536
1,870
3,508
3,158
910
0
381
529
3,033,816
637,740
1,265,637
1,130,439
1,980,627
409,310
804,518
766,799
65.3%
64.2%
63.6%
67.8%
$ 1,101
$ 719
8,776
2,110
3,508
3,158
0
0
0
0
3,178,640
745,550
1,280,420
1,152,670
2,088,061
475,244
830,049
782,768
65.7%
63.7%
64.8%
67.9%
$ 1,136
$ 746
8,776
2,110
3,508
3,158
0
0
0
0
3,203,240
770,150
1,280,420
1,152,670
2,119,431
502,715
832,357
784,359
66.2%
65.3%
65.0%
68.0%
$ 1,175
$ 778
1,613
0
296,792
184,856
62.3%
$ 693
$ 432
1,613
0
588,745
361,059
61.3%
$ 978
$ 600
1,613
0
588,745
383,135
65.1%
$ 1,036
$ 674
1,613
0
590,358
386,399
65.5%
$ 1,077
$ 705
1,613
0
588,745
389,473
66.2%
$ 1,118
$ 740
1,613
0
588,745
391,025
66.4%
$ 1,160
$ 770
810
0
149,040
83,830
56.2%
$ 675
$ 380
960
150
341,490
204,131
59.8%
$ 1,011
$ 604
960
0
350,400
224,392
64.0%
$ 1,064
$ 681
960
0
351,360
226,909
64.6%
$ 1,106
$ 714
960
0
350,400
228,906
65.3%
$ 1,145
$ 748
960
0
350,400
229,649
65.5%
$ 1,189
$ 779
613
0
93,104
64,589
69.4%
$ 847
$ 588
1,426
154
433,997
250,507
57.7%
$ 1,002
$ 578
1,531
105
549,365
351,013
63.9%
$ 1,064
$ 680
1,531
0
560,346
380,353
67.9%
$ 1,112
$ 755
1,531
0
558,815
381,982
68.4%
$ 1,157
$ 791
1,531
0
558,815
383,549
68.6%
$ 1,200
$ 824
540
0
99,360
17,885
18.0%
$ 1,029
$ 185
540
0
197,640
111,740
56.5%
$ 1,142
$ 646
540
0
197,100
128,121
65.0%
$ 1,182
$ 768
540
0
197,100
128,129
65.0%
$ 1,227
$ 797
Hotel
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
Developments 2014
7,386
1,630
3,127
2,629
1,775
100
670
1,005
2,323,800
511,690
1,004,875
807,235
1,465,548
315,340
621,667
528,541
63.1%
61.6%
61.9%
65.5%
$ 1,038
$ 655
Hotel
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
Acquisitions 2S2013-1S2014
5,071
1,170
2,277
1,624
304
0
150
154
1,389,628
185,350
809,131
395,147
830,504
109,497
472,277
248,729
59.8%
59.1%
58.4%
62.9%
$ 990
$ 591
Hotel
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
Acquisition IPO Portfolio
3,036
102
1,985
949
0
0
0
0
538,936
18,768
365,240
154,928
333,276
14,333
217,659
101,284
61.8%
76.4%
59.6%
65.4%
$ 718
$ 444
Hotel
101
Period
2013
2014
2015
2016
2017
2018
Operating Metrics
Acquisitions 2S2014
Hotel
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
HCITY Developments 2015-2016
1,072
0
25,396
14,806
58.3%
$ 773
$ 451
1,072
0
391,280
256,320
65.5%
$ 914
$ 598
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
1,072
0
391,280
259,734
66.4%
$ 984
$ 653
1,072
0
391,280
259,740
66.4%
$ 1,021
$ 678
240
0
41,160
13,520
32.8%
$ 844
$ 277
480
0
150,600
70,940
47.1%
$ 875
$ 412
480
0
175,200
98,403
56.2%
$ 908
$ 510
2,580
910
900,600
602,505
66.9%
$ 1,170
$ 783
2,580
0
941,700
628,904
66.8%
$ 1,215
$ 811
2,580
0
941,700
628,935
66.8%
$ 1,260
$ 842
Hotel
Number Of Rooms
Additional Rooms
Available Rooms
Occupied Rooms
Acquisitions Pipeline 2015-2016
1,072
0
392,352
259,201
66.1%
$ 950
$ 627
Hotel
1,670
1,670
344,650
232,803
67.5%
$ 1,115
$ 753
102
Forecasted Income Statement / Valuation Metrics
Income Statement (MX$ MM)
Period
Room Revenues
Rental Revenue
Other Revenue
FIBRA Revenues
YoY Change
Total Costs and Expenses Of Hotel Services
Lodging Direct Costs & Expenses
Indirect Costs & Expenses
YoY Change
NOI Margin
4Q2013
2013
2014
2015
2016
2017
2018
$ 8.7
$ 63.7
$ 10.4
$ 82.9
$ 8.7
$ 166.9
$ 27.2
$ 202.9
$ 809.0
$ 52.2
$$ 861.2
N.A.
$ 1,513.8
$ 120.8
$$ 1,634.6
89.8%
$ 2,177.0
$ 176.6
$$ 2,353.6
44.0%
$ 2,370.0
$ 187.2
$$ 2,557.1
8.6%
$ 2,488.5
$ 194.5
$$ 2,683.0
4.9%
-$ 12.9
-$ 2.4
-$ 10.5
$ 70.0
-$ 24.8
-$ 2.4
-$ 22.4
$ 178.1
84.5%
87.8%
-$ 542.5
-$ 213.2
-$ 329.2
$ 318.7
N.A.
37.0%
-$ 1,018.6
-$ 385.1
-$ 633.4
$ 616.1
93.3%
37.7%
-$ 1,439.5
-$ 543.7
-$ 895.8
$ 908.9
47.5%
38.6%
-$ 1,550.3
-$ 584.0
-$ 966.2
$ 999.9
10.0%
39.1%
-$ 1,614.6
-$ 607.3
-$ 1,007.4
$ 1,060.3
6.0%
39.5%
-$ 55.4
-$ 38.4
$ 522.3
94.7%
32.0%
-$ 76.5
-$ 48.6
$ 783.8
50.1%
33.3%
-$ 82.7
-$ 50.4
$ 866.9
10.6%
33.9%
-$ 86.0
-$ 52.3
$ 922.0
6.4%
34.4%
Advisory (Asset Management) Fee
Other Corporate G&A
EBITDA
YoY Change
EBITDA Margin
-$ 4.6
-$ 7.3
$ 58.3
-$ 11.6
-$ 10.9
$ 149.9
70.3%
73.9%
-$ 26.0
-$ 27.4
$ 268.3
N.A.
31.2%
Executive Share-Based Compensation
Depreciation
EBIT
EBIT Margin
-$ 4.6
-$ 36.1
$ 17.5
21.2%
-$ 14.9
-$ 48.0
$ 87.1
42.9%
-$ 18.5
-$ 108.9
$ 140.9
16.4%
-$ 18.5
-$ 185.1
$ 318.7
19.5%
-$ 4.6
-$ 227.2
$ 552.0
23.5%
$-$ 232.8
$ 634.0
24.8%
$-$ 235.5
$ 686.5
25.6%
Interest Expense
Interest Income
Net Foreign Exchange (FX) Gain / Loss
Net Income
$$ 8.3
-$ 0.1
$ 25.8
$$ 42.8
$ 17.0
$ 146.8
-$ 27.9
$ 11.9
-$ 6.4
$ 118.5
-$ 64.0
$ 18.0
-$ 9.8
$ 262.9
-$ 221.1
$ 9.5
-$ 9.2
$ 331.2
-$ 263.8
$ 12.7
-$ 2.7
$ 380.2
-$ 276.5
$ 13.0
-$ 1.6
$ 421.3
Other Non Cash Items
YoY Change
$ 0.1
$ 40.7
$ 66.5
-$ 17.0
$ 62.9
$ 192.7
$ 6.4
$ 127.4
$ 252.3
N.A.
$ 9.8
$ 203.6
$ 476.2
88.7%
$ 9.2
$ 231.8
$ 572.2
20.1%
$ 2.7
$ 232.8
$ 615.7
7.6%
$ 1.6
$ 235.5
$ 658.5
6.9%
Maintenance CapEx
Cash Available For Distribution (CAD) / AFFO
-$ 4.8
$ 61.7
-$ 16.2
$ 176.6
-$ 14.6
$ 237.7
-$ 41.5
$ 434.8
-$ 55.9
$ 516.3
-$ 69.5
$ 546.2
-$ 75.9
$ 582.6
Valuation Metrics
Period
NOI Cap Rate (LTM) (%)
EBITDA Cap Rate (LTM) (%)
FFO Yield (LTM) (%)
CAD Yield (LTM) (%)
Room Revenues Yield (LTM) (%)
Annualized Dividend Yield (%)
P/E (x)
P/FFO (x)
P/CAD (x)
P /Sales (x)
EV/EBITDA (x)
P/NAV [Book Value] (x)
E/CBFI (MX$)
FFO/CBFI (MX$)
CAD/CBFI (MX$)
BV/CBFI (MX$)
Dividend/CBFI (MX$)
Growth in E/CBFI (YoY)
Growth in FFO/CBFI (YoY)
Growth in CAD/CBFI (YoY)
Growth in Dividend/CBFI (YoY)
4Q2013
2013
2014
2015
2016
2017
2018
7.3%
6.1%
5.3%
5.0%
16.9%
4.6%
7.0%
5.9%
6.7%
6.1%
21.3%
5.8%
8.7%
7.5%
8.0%
7.2%
30.4%
6.9%
9.5%
8.3%
8.6%
7.6%
33.0%
7.5%
10.1%
8.8%
9.2%
8.1%
34.7%
8.1%
46.2x
21.7x
23.0x
6.4x
16.3x
0.77x
27.1x
15.0x
16.4x
4.4x
16.9x
1.02x
21.7x
12.5x
13.9x
3.0x
13.3x
1.04x
18.9x
11.6x
13.1x
2.8x
12.1x
1.06x
17.0x
10.9x
12.3x
2.7x
11.3x
1.09x
$ 0.4083
$ 0.8590
$ 0.8086
$ 16.79
$ 0.7900
$ 0.6015
$ 1.0898
$ 0.9948
$ 16.59
$ 0.9382
47.3%
26.9%
23.0%
18.8%
$ 0.7526
$ 1.3003
$ 1.1734
$ 16.17
$ 1.1205
25.1%
19.3%
17.9%
19.4%
$ 0.8641
$ 1.3993
$ 1.2413
$ 15.83
$ 1.2259
14.8%
7.6%
5.8%
9.4%
$ 0.9575
$ 1.4964
$ 1.3239
$ 15.50
$ 1.3145
10.8%
6.9%
6.7%
7.2%
103
Forecasted Balance Sheet / Leverage Ratios
Balance Sheet (MX$ MM)
Period
4Q2013
2013
2014
2015
2016
2017
2018
Total Assets
Current Assets
Trade and Account Receivables
Other Current Assets
Related Parties
Other Account Receivables
Value-Added Tax (VAT) Receivable
Non-Current Assets
Investment Properties / Investments In Progress & Projects
Equipment
Other Non-Current Assets
Other Assets, Net
Total Liabilities
Current Liabilities
Trade and Account Payables
Other Payables
Accounts Payable to Related Parties
Creditors for Property Acquisition
Short-Term Debt
Clients Prepayments
Other Current Liabilities
Non-Current Liabilities
Long-term Accounts Payable to Related Parties
Employee Benefits
Long-Term Debt
Other Non-Current Liabilities
Shareholders Equity
$ 4,881.9
$ 585.7
$ 385.6
$ 6.8
$ 193.3
$ 42.7
$ 7.7
$ 142.8
$ 4,296.2
$ 4,077.2
$ 218.9
$$ 0.1
$ 304.2
$ 301.9
$ 11.3
$ 4.9
$ 10.0
$ 275.5
$$ 0.2
$$ 2.3
$ 2.0
$ 0.2
$$$ 4,577.7
$ 4,881.9
$ 585.7
$ 385.6
$ 6.8
$ 193.3
$ 42.7
$ 7.7
$ 142.8
$ 4,296.2
$ 4,077.2
$ 218.9
$$ 0.1
$ 304.2
$ 301.9
$ 11.3
$ 4.9
$ 10.0
$ 275.5
$$ 0.2
$$ 2.3
$ 2.0
$ 0.2
$$$ 4,577.7
$ 7,475.6
$ 1,445.1
$ 1,107.7
$ 75.4
$ 262.1
$ 42.5
$ 18.8
$ 200.8
$ 6,030.5
$ 5,771.9
$ 258.5
$$ 0.1
$ 139.8
$ 137.6
$ 56.0
$ 5.3
$ 22.5
$ 18.0
$$ 11.2
$ 24.5
$ 2.3
$ 2.0
$ 0.2
$$$ 7,335.8
$ 9,599.0
$ 925.9
$ 386.7
$ 141.0
$ 398.2
$ 79.6
$ 35.2
$ 283.4
$ 8,673.0
$ 8,414.4
$ 258.5
$$ 0.1
$ 2,349.0
$ 241.7
$ 104.7
$ 9.9
$ 42.1
$ 18.0
$$ 21.0
$ 45.9
$ 2,107.3
$ 2.0
$ 0.2
$ 2,105.0
$$ 7,250.0
$ 10,958.5
$ 725.6
$ 236.2
$ 202.8
$ 286.6
$ 114.4
$ 50.7
$ 121.6
$ 10,232.9
$ 9,974.3
$ 258.5
$$ 0.1
$ 3,842.0
$ 339.7
$ 150.6
$ 14.3
$ 60.6
$ 18.0
$$ 30.3
$ 66.0
$ 3,502.3
$ 2.0
$ 0.2
$ 3,500.0
$$ 7,116.5
$ 10,836.7
$ 629.6
$ 201.8
$ 220.8
$ 207.0
$ 124.6
$ 55.2
$ 27.3
$ 10,207.1
$ 9,948.5
$ 258.5
$$ 0.1
$ 3,870.5
$ 368.2
$ 163.9
$ 15.6
$ 65.9
$ 18.0
$$ 32.9
$ 71.9
$ 3,502.3
$ 2.0
$ 0.2
$ 3,500.0
$$ 6,966.2
$ 10,710.5
$ 663.0
$ 215.2
$ 231.8
$ 216.0
$ 130.8
$ 57.9
$ 27.3
$ 10,047.5
$ 9,788.9
$ 258.5
$$ 0.1
$ 3,888.0
$ 385.7
$ 172.1
$ 16.3
$ 69.2
$ 18.0
$$ 34.6
$ 75.5
$ 3,502.3
$ 2.0
$ 0.2
$ 3,500.0
$$ 6,822.4
Total Liabilities and Shareholders Equity
$ 4,881.9
$ 4,881.9
$ 7,475.6
$ 9,599.0
$ 10,958.5
$ 10,836.7
$ 10,710.5
$-$ 1,108
$ 2,105
$ 1,718
3.3x
24.3%
21.9%
4.11x
29.0%
$ 3,500
$ 3,264
4.2x
34.2%
31.9%
3.79x
49.2%
$ 3,500
$ 3,298
3.8x
34.3%
32.3%
3.83x
50.2%
$ 3,500
$ 3,285
3.6x
34.8%
32.7%
3.99x
51.3%
Leverage Ratios
Total Debt (MX$)
Net Debt (MX$)
Net Debt-to-EBITDA (x)
Total Debt / Total Assets (%)
DSCR (N12M) (x)
Debt-to-Equity (D/E) (%)
0.0%
0.0%
9.63x
0.0%
104
Forecasted Cash Flow Statement
Cash Flow Statement (MX$ MM)
Period
Reported Net Income
Non-Cash Adjustments
Financing Activities:
Finance Costs Recognized in Profit for the Period
Investing Activities:
Interest Income
Changes in Working Capital
Operating Cash Flows
4Q2013
2013
2014
2015
2016
2017
2018
$ 118.5
$ 133.5
$ 262.9
$ 213.4
$ 331.2
$ 241.0
$ 380.2
$ 235.5
$ 421.3
$ 237.1
$ 9.1
$ 64.0
$ 221.1
$ 263.8
$ 276.5
-$ 6.1
$ 4.9
$ 260.0
-$ 18.0
-$ 107.4
$ 414.9
-$ 9.5
$ 138.6
$ 922.4
-$ 12.7
$ 87.5
$ 954.3
-$ 13.0
-$ 4.2
$ 917.8
-$ 2,044.1
-$ 96.6
-$ 4.0
-$ 92.6
$ 6.1
-$ 2,134.6
-$ 274.0
-$ 2,553.7
-$ 41.5
-$ 2,512.2
$ 18.0
-$ 2,809.6
-$ 109.0
-$ 1,678.1
-$ 55.9
-$ 1,622.2
$ 9.5
-$ 1,777.6
$-$ 207.0
-$ 69.5
-$ 137.5
$ 12.7
-$ 194.3
$-$ 75.9
-$ 75.9
$$ 13.0
-$ 62.9
Creditors for Property Acquisition
Debt Amortizations / Repayments
Debt Additions
Interest Expense (Cash)
Equity Capital Increase (Issue of CBFIs, Net of Costs)
Equity Capital Reductions
Distributions (Cash Dividends) to CBFI Holders
Financing Cash Flows
$-$ 901.1
$ 901.1
-$ 9.1
$ 2,832.2
-$ 60.0
-$ 166.4
$ 2,596.7
$$$ 2,105.0
-$ 64.0
$-$ 268.9
-$ 98.4
$ 1,673.8
$$$ 1,395.0
-$ 221.1
$-$ 336.1
-$ 133.1
$ 704.7
$$$-$ 263.8
$-$ 364.8
-$ 165.8
-$ 794.4
$$$-$ 276.5
$-$ 369.8
-$ 195.3
-$ 841.6
Net Change in Cash and Cash Equivalents
Cash, Cash Equivalents and Restricted Cash at BoP
FX Effect on Cash and Cash Equivalents
Cash, Cash Equivalents and Restricted Cash at EoP
$ 722.1
$ 385.6
$$ 1,107.7
-$ 721.0
$ 1,107.7
$$ 386.7
-$ 150.5
$ 386.7
$$ 236.2
-$ 34.4
$ 236.2
$$ 201.8
$ 13.3
$ 201.8
$$ 215.2
Acquisitions CapEx
Capital Expenditures
Maintenance CapEx
Expansion / Development CapEx
Interest Income
Investing Cash Flows
105
Forecasted Distributions / Dividends
Distributions / Dividends (MX$ MM)
Period
4Q2013
2013
2014
2015
2016
2017
2018
Taxable Income (Accounting Basis)
+ Depreciation (Accounting Basis)
- Depreciation (Fiscal Basis)
(+/-) Valuation Adjustment to Properties
(+/-) Net Foreign Exchange (FX) Gain / Loss
Other Non-Cash Items
Taxable Income (Fiscal Basis)
Legal Distribution @ 95%
+ Depreciation (Fiscal Basis)
$ 118.5
$ 108.9
-$ 198.1
$$ 6.4
$ 18.5
$ 54.3
$ 51.5
$ 198.1
$ 262.9
$ 185.1
-$ 346.1
$$ 9.8
$ 18.5
$ 130.1
$ 123.6
$ 346.1
$ 331.2
$ 227.2
-$ 424.2
$$ 9.2
$ 4.6
$ 148.0
$ 140.6
$ 424.2
$ 380.2
$ 232.8
-$ 434.7
$$ 2.7
$$ 181.1
$ 172.0
$ 434.7
$ 421.3
$ 235.5
-$ 439.6
$$ 1.6
$$ 218.9
$ 208.0
$ 439.6
EBITDA
+ Non-Cash Items
Gross Cash Flow
+ Interest Income
- Interest Expense
- Unused Financing Fees
- Maintenance CapEx
- Changes in Working Capital (Exc. VAT Reimbursements)
VAT Reimbursements
- Debt Amortizations (Exc. Est. Refinanced Balloon / Bullet Pymts)
Estimated Refinanced Balloon / Bullet Debt Payments
Adjusted CAD / Free Cash Flow To Equity (FCFE)
$ 268.3
$$ 268.3
$ 11.9
-$ 27.9
$-$ 14.6
$ 237.7
$ 62.9
-$ 57.9
$-$ 901.1
$ 300.5
$ 522.3
$$ 522.3
$ 18.0
-$ 64.0
$-$ 41.5
$ 434.8
-$ 24.7
-$ 82.6
$$$ 410.0
$ 783.8
$$ 783.8
$ 9.5
-$ 221.1
$-$ 55.9
$ 516.3
-$ 23.3
$ 161.8
$$$ 493.0
$ 866.9
$$ 866.9
$ 12.7
-$ 263.8
$-$ 69.5
$ 546.2
-$ 6.8
$ 94.2
$$$ 539.4
$ 922.0
$$ 922.0
$ 13.0
-$ 276.5
$-$ 75.9
$ 582.6
-$ 4.2
$$$$ 578.4
Total Dividends (MX$ MM)*
% of CAD (/AFFO)
Outstanding CBFIs (MM)
Total Distribution (Dividends Paid) per CBFI (MX$)
Dividend Yield In MX$ (@ Current CBFI Price)
Cash Distribution (MX$ MM)
Cash Dividend per CBFI (MX$)
Cash Dividend Yield (@ Current CBFI Price)
Return of Capital (MX$ MM)
Return of Capital per CBFI (MX$)
Return of Capital (@ Current CBFI Price)
FINN Last Closing Price (MX$)
Annualized Dividend Yield
$ 61.7
99.9%
258
$ 0.2388
1.4%
$7
$ 0.0268
0.2%
$ 55
$ 0.2120
1.2%
$ 182.6
N.A.
258
$ 0.7067
4.0%
$ 44
$ 0.1702
1.0%
$ 139
$ 0.5365
3.0%
$ 232.9
98.0%
437
$ 0.7900
4.6%
$ 20
$ 0.0539
0.3%
$ 213
$ 0.7361
4.3%
$ 410.0
94.3%
437
$ 0.9382
5.8%
$ 124
$ 0.2828
1.7%
$ 286
$ 0.6554
4.0%
$ 493.0
95.5%
440
$ 1.1205
6.9%
$ 141
$ 0.3196
2.0%
$ 352
$ 0.8009
4.9%
$ 539.4
98.8%
440
$ 1.2259
7.5%
$ 172
$ 0.3909
2.4%
$ 367
$ 0.8350
5.1%
$ 578.4
99.3%
440
$ 1.3145
8.1%
$ 208
$ 0.4726
2.9%
$ 370
$ 0.8419
5.2%
$ 17.22
5.5%
$ 17.22
4.0%
$ 15.75
4.6%
$ 16.30
5.8%
$ 16.30
6.9%
$ 16.30
7.5%
$ 16.30
8.1%
106
Company Profile: FIBRA Inn (FINN)
Deutsche Bank Mexico, S. A. Institucion de Banca Multiple Trust F/1616
The core
Asset Class / Sector(s):
FIBRA / Lodging
Country:
CBFI Holders Structure
Rating
Mexico
Mkt. Cap (USD MM):
478
Last Price (MX$):
Target Price 2015 (MX$)
16.30
Mkt. Cap (MX$ MM):
7,123
19.50
IPO Date:
Dividend Yield
5.8%
Avg. Daily $ (MX$ MM)
9.7
25.4%
Avg. Daily $ (USD MM)
0.7
Total Upside Potential
Hotel Rooms' Breakdown By Region
BUY
Control
Trust*
16.7%
13/03/2013
Company Description
FINN is a Mexican Real Estate Investment Trust (REIT) created to build, acquire, develop and lease hotel
properties throughout Mexico under 3 different segments: Full, Limited and Select Service. It has 34 hotels
with 5,716 rooms located in 14 states of Mexico (3 properties under development). FINN has franchise
agreements with IHG, Wyndham, Hilton, Starwood and Marriott to operate their global brands (10 in total).
The company also operates the Crowne Plaza and Casa Grande hotel brands.
Free
Float
83.3%
Investment Thesis - Positives
*Control Trust: Desarrollos Del Valle,
●North
●Bajio
●Central
●South
Augusta RE, Initial Trustees, Actinver.
48%
29%
20%
4%
Corporate Structure
Hoteles Prisma, Initial
Trustees, Actinver
Investment Thesis - Risk Factors
1) Small cap FIBRA with low liquidity in the market; 2) Highly cyclical / dependent on the overall strenght of
the country's economic growth (a slowdown has a direct and immediate impact on ADRs and occupancy
levels); 3) High exposure to travel disruptions (natural disasters, security concerns, epidemics); 3) Difficulty
to deploy its fire-power (~MX$4.3 Bn) through new accretive acquisitions; 5) Development / Expansion risk
for current or new properties; 6) FIBRAs' sensitivity to interest rates; 7) Potential ST impact on dividends
from the recent issuance of new CBFIs in the market.
Hotel
100.0%
Founders (51%) /
Guests (49%)
100%
Free Float
Control
Trust
83.3%
16.7%
Fibra Inn
Promotor
(Payroll)
Advisor
2015
2016
2017
2018
Room Revenues
1,514
2,177
2,370
2,488
3
Rental Revenue
121
177
187
195
5
FIBRA Revenues
1,635
2,354
2,557
2,683
7
-1,019
-1,439
-1,550
-1,615
10
616
909
1,000
1,060
24
YoY Change
93.3%
47.5%
10.0%
6.0%
25
NOI Margin
37.7%
38.6%
39.1%
522
784
867
922
31
YoY Change
94.7%
50.1%
10.6%
6.4%
32
EBITDA Margin
Total Costs and Expenses Of Hotel Services
EBITDA
39.5% 26
Operadora
Mexico (NonLodging)
Hotel
Operator
Management
Subsidiary
Key Operating Metrics
Total Rooms In Operation
2016
2017
2018
8,536
8,776
8,776
32.0%
33.3%
33.9%
2,323,800
3,033,816
3,178,640
3,203,240
263
331
380
421
46
Implied Occupancy Rate
63.1%
65.3%
65.7%
66.2%
476
572
616
658
52
Avg. Daily Rate (ADR) - MX$
1,038
1,101
1,136
1,175
88.7%
20.1%
7.6%
6.9%
53
4.9%
6.0%
3.2%
3.5%
435
516
546
583
59
2015
2016
2017
2018
9,599
10,959
10,837
10,710
926
726
630
387
236
202
Available Rooms
2015
7,386
Net Income
YoY Change
34.4% 33
Fibra Inn
Integrated
Services
FIBRA Inn
(F/1616)
Properties
100%
GLA Distribution by Asset Type
100%
1) Diversified portfolio: 12 hotel brands, 14 states of Mexico, 3 segments (limited, select and full service);
2) High exposure to recognized global brands (96% of total); 3) Solid profitability levels on its experience as
hotel operator; 4) Sound and accretive track record of investments (3,304 rooms acquired + 540 under
devel., +138% vs. initial portfolio); 5) Strong growth potential through visible pipeline worth MX$8.6 Bn (67%
acqs. / 33% devel.); 6) Cheap fee structure, representing 3.4% of total revs.; 7) Committed, experienced
and highly institutional mgmt. team; 8) Beneficiary of structural reforms.
YoY Change
Macroeconomic Assumptions
Total Assets
Current Assets
Restricted Cash (Reserve For Lenders)
Trade and Account Receivables
Investment Properties / Developments
Total Liabilities
Current Liabilities
2016
2017
2018
2.8%
3.4%
3.8%
3.9%
3
Mx Inflation (INPC)
3.1%
3.7%
3.8%
3.5%
663
4
U.S. Inflation (CPI)
1.9%
2.6%
2.3%
2.3%
215
5
Valuation Metrics / Yields
-
-
-
-
6
2015
2016
2017
2018
141
203
221
232
7
NOI Cap Rate (%)
7.0%
8.7%
9.5%
10.1%
398
287
207
216
8
EBITDA Cap Rate (%)
5.9%
7.5%
8.3%
8.8%
8,414
9,974
9,948
9,789
14
FFO Yield (%)
6.7%
8.0%
8.6%
9.2%
2,349
3,842
3,871
3,888
20
Dividend Yield (%)
5.8%
6.9%
7.5%
8.1%
242
340
368
386
21
P/E (x)
27.1x
21.7x
18.9x
17.0x
105
151
164
172
22
P/FFO (x)
15.0x
12.5x
11.6x
10.9x
Short-Term Debt
-
-
-
-
26
P/CAD (x)
16.4x
13.9x
13.1x
12.3x
Other Current Liabilities
46
66
72
75
28
P/NAV [Book Value] (x)
1.02x
1.04x
1.06x
1.09x
2,107
3,502
3,502
3,502
29
Growth in FFO/CBFI (YoY)
19.3%
7.6%
6.9%
2,105
3,500
3,500
3,500
32
Performance: Revenues (MX$ MM) / NOI and CAD Margins
Long-Term Debt
Shareholders Equity
-
-
-
-
33
7,250
7,117
6,966
6,822
2015
2016
2017
2018
263
331
380
421
3
-107
139
87
-4
9
3,000
36
2,500
37.7%
415
922
954
918
10
-274
-109
-
-
14
-2,554
-1,678
-207
-76
15
-2,810
-1,778
-194
-63
24
Acquisitions CapEx
-
-
-
27
1,674
-
705
-794
-842
35
-721
-151
-34
13
37
Cash and Cash Equivalents at BoP
1,108
387
236
202
38
Cash and Cash Equivalents at EoP
387
236
202
215
40
FIBRA Revenues
Reported Net Income
45.0%
38.6%
39.1%
40.0%
39.5%
2,000
35.0%
1,500
1,000
30.0%
26.6%
25.0%
21.9%
500
21.4%
21.7%
2017
2018
20.0%
-
15.0%
2015
FIBRA Revenues
2016
NOI Margin
CAD Margin
107
Margins
2015
Mx GDP Growth
Equity Research
HOTELES CITY EXPRESS
Equity / Lodging
February 16, 2015
Hotel Engineering
Buy
Local Ticker:
HCITY*
Last Price:
MX$ 23.70
Liquidity:
Medium
Price Target 2015:
MX$ 26.90


Change in T.P.

Change in Estimates
Dividend Yield 2015:
13.5% E. Return
Quarterly Review

Other
Total Return:
With Deep Pockets To Fund Its Aggressive LT Growth Plan. With fresh resources
(MX$2,578 million) from last year’s follow-on, HCITY has the resources to continue
detonating its strong growth strategy for the following years, deploying ~MX$1,600 million
per year in the construction of new hotels. We anticipate the opening of 22 hotels in 2015,
including 4 hotels pending from 2014, which will lead to a 23.2% year-over-year growth in
available rooms. Afterwards we expect the opening of 20 hotels per each 12-month cycle, as
delineated in HCITY’s business LT growth strategy. For the continued expansion of its hotel
network, the company will mainly focus on ownership and co-ownership of greenfield hotel
projects, representing ~75% of the company’s room expansion in the following years, while
the rest will correspond basically to managed hotels. As a result we project a 2014-2017
GAGR of 18.9% in total hotel rooms, and of 24.9% in HCITY’s adjusted EBITDA.
120
115
110
Return Index
■ In this report we are introducing our new HCITY’s earnings model. Furthermore, we
present a review on the company’s: i) business platform, ii) brands, and iii) growth
strategy for the coming years.
13.5%
Stock performance
■ We are reinstating coverage on HCITY with a year-end 2015 target price (TP) of
MX$26.90 per share (+13.5% capital appreciation) and a BUY recommendation.
■ We like HCITY on: i) its unique, profitable and scalable fully-integrated hotel
business model, ii) its solid growth track record, reputation and position, iii) its
highly recognized brands, iv) its experienced mgmt., and v) its large diversification.
0.0%
105
100
95
90
85
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
HCITY*
IPC
Market Data:
9,120
10,002
(20.02 - 27.20)
Free Float:
57%
10.1
Leading Hotels’ Profitability To Be More Evinced Through The Expansion Of The Hotel
Management Platform. Through its integrated model, HCE is able to generate economies
of scale and profitability levels like no other hotel chain in Mexico. Efficiencies are created
across the board, on HCITY’s i) strong capabilities as a low-cost developer; ii) operating
structure with state-of-the-art proprietary IT infrastructure; iii) proprietary marketing and
distribution platforms; and iv) deep hotel management expertise. All in all, these result in a
low break-even business model (at 30% occupancy) with avg. ROIC levels of 12% for its
established hotels. As the operations from hotel management expand, larger economies of
scale will result in a higher consolidated profitability. We anticipate an adjusted EBITDA
margin expansion of 240bps by 2017 to 35.4%.
Reinitiating With A YE2015 TP Of MX$26.90 /Share And A BUY Recommendation. This
fair value implies a 13.5% upside potential over its current trading prices. We have chosen a
DCF valuation method to determine HCITY’s fair value as it offers a deeper longer-term look
at fundamentals than other valuation methodologies. The implied forward EV /EBITDA
delivered through our TP is 16.5x, which is in line with the first standard deviation and below
HCITY’s average historical next-twelve-month (NTM) multiple of 17.7x.
2014
2015
2016
2017
1,395
252
461
472
109
0.37
1,709
317
558
568
148
0.38
2,097
433
714
725
180
0.47
2,563
581
908
920
235
0.61
13.1x
7.5%
70.4x
1.6%
15.3x
6.4%
61.6x
1.6%
13.4x
7.4%
50.7x
2.0%
11.5x
8.6%
38.8x
2.6%
Financials (MX$ MM)
Total Revenues
Operating Profit
EBITDA
Adjusted EBITDA
Majority Net Income
E/Share (MX$)
Valuation
EV /Adj. EBITDA (x)
EBITDA Cap Rate (%)
P /E (x)
Earnings Yield (%)
Real Estate
+52 (55) 1103 6600 x4334
Actinver
Contents
109
Table of Contents
Executive Summary……..……………………………………. 112-113
Investment Positives ……………………………………………….
112
Investment Risk Factors …………………………………………..
113
Fully-Integrated Hospitality Business Platform …………….….. 114-121
Low-Cost, High-Volume Hotel Developer ………...…………….. 115-116
Efficient Hotel Operating Structure ………..………….………..... 116-120


Analysis Of TripAdvisor Reviews Of HCE’s Sample Of
Hotels …..…………………………………………….………….
119
Further Efficiencies Through Environmentally-Friendly
Initiatives …..…………………………………………...……….
120
HCE’s Recognized Hotel Brands ………………………...……….. 121-122
Experienced Management Team ………………………...………..
123-124
Solid Corporate Governance ……………………………..………..
124
HCE’s Recognized Hotel Brands …….…………………..………..
125
HCE Financial Forecasts …..……………………………………….. 125-128
Treatment Of Consolidated Operations …………………….…... 125-126
HCITY’s 2015-2016 Revenues ………………………………....... 126-127
EBITDA / Adjusted EBITDA For 2015-2016 ….…………….......
127
2015-2016 Majority Net Income ……..……………………….......
127
Longer-Term (Remaining 9-YR Explicit Period) Assumptions ...
128
Discounted Cash Flows (DCF) Valuation Method ……………... 129-131
Our HCITY’s Earnings Model …………………………….………... 132-133
Master Property Book ………….…………………………………..
132
Occupancies / Available Rooms / ADRs …...…………………...
132
Other Revenue Lines / Costs And Expenses ….………..……...
133-134
HCITY’s Hotel Segments’ P&L Output ………………………......
133
Operating Model’s Property Book As Of 3Q2014 …….………... 134-135
Forecasted Operating Metrics By Segments ……….…………...
136
Forecasted Income Statement / Valuation Metrics ………….....
137
110
Forecasted Balance Sheet / Leverage Ratios / Return
Measures ………………………………………………...….………...
138
Forecasted Cash Flow Statement ……………...…….…………...
139
Company Profile ……………………...…………...…….…………...
140
111
Executive Summary
Hoteles City Express (HCE) is a leading fully-integrated hotel chain with most of its
operations being concentrated in Mexico. It is focused on providing quality, safe and
comfortable standardized accommodation, following international hospitality
standards. Through its integrated platform, HCE develops, acquires, manages and
franchises hotels in the economy and budget limited-service hotel segments,
targeting the value-conscious business travelers through 4 brands: City Express, City
Express Junior, City Express Suites and City Express Plus. It is highly diversified,
with presence in 53 cities among 30 states of Mexico, and 2 properties in LatAm
(Costa Rica and Colombia). HCE’s portfolio consists of 96 hotels with 10,907 rooms.
Investment Thesis: Positives

Unique, Profitable And Scalable Fully-Integrated Hotel Business Model.
Through its integrated model, HCE is able to generate economies of scale and
profitability levels like no other hotel chain in Mexico. Efficiencies are created
across the board, on HCITY’s i) strong capabilities as a low-cost developer; ii)
operating structure with state-of-the-art proprietary IT infrastructure; iii)
proprietary marketing and distribution platforms; and iv) deep hotel management
expertise. All in all, these result in a low break-even business model (at 30%
occupancy).

Solid Track Record, Reputation And Position. Through new-construction
hotels, HCE has increased its portfolio at a CAGR of 30.4% during the 20032014 period. Given the positive fundamentals of the Mexican lodging industry
and HCITY’s position, we expect an additional 68.2% expansion in the
company’s total rooms by 2017. This will represent a 25% CAGR in adj. EBITDA.

Highly Recognized Hotel Brand. Hoteles City Express brand has become a
widely recognized brand associated with superior value and consistent service
for business travelers within the limited-service segment. This has been
achieved through the high-quality hospitality service offered by the company’s
marketing and distribution activities. HCE’s brand has a value that is not
precisely recognized in its market valuation.

Scale. HCE has become the third largest hotel chain in Mexico in just a few
years. By continuously gaining market share from mom & pops, it dominates the
limited-service lodging segment with more than double the number of hotels from
its next institutional competitor, Grupo Posadas, with its One brand. This
considerable scale relative to its competitors within the segment, particularly
when compared to independent hotel owners, enables HCITY to achieve further
operating efficiencies generated through: i) an operation with standardized
mgmt. platform and set of business guidelines; ii) working with large corporate
clients; iii) negotiation at better terms with suppliers in the hospitality industry; iv)
marketing strategies and programs that allow HCE to reach a larger guest base.

Experienced Management Team. HCE has an experienced and very
institutional management team, like few other companies have in the lodging
sector, in our view among the best in Mexico. The company’s outstanding track
record and success supports our view. As previously mentioned, HCITY’s 6 top
managers have a combined experience of more than 100 years in the lodging
industry. They have developed more rooms than any other hotel chain during the
last 5 years (with information from the Mexican Secretary of Tourism).

Large Diversification Across Mexico. With 96 hotels and 10,907 rooms in
operations, through its 4 different brands, has presence in 53 cities among 30
states of Mexico, and 2 properties in LatAm (Costa Rica and Colombia). HCITY
expects to increase its brand coverage in markets with a high demand of hotel
rooms, in which at least one but not all of its brand have presence already.
112
Investment Thesis: Risk Factors

Lower Than Expected Economic Growth In Mexico. The lodging industry is
highly cyclical and dependent on the overall strength of the country’s economic
activity. Thus, a slowdown in Mexico’s economic activity will have a direct and
immediate impact on average daily rates (ADRs) and occupancy levels, affecting
HCITY’s hotel operations.

High Exposure To Travel Disruptions. Including those related to: i) domestic
and international political and geopolitical instability that could adversely affect
travel conditions; ii) security issues and criminality activity, which has been
recently making noise in the states of Tamaulipas (Nuevo Laredo, Reynosa,
Matamoros) Zacatecas, Guerrero and Michoacan; iii) natural disasters such as
hurricanes, tsunamis, earthquakes, or other unusual weather patterns; iv) health
concerns including pandemics and epidemics, such as the HINI flu, avian flu,
SARS, or Ebola; v) terrorist attacks; vi) financial situation of domestic or
international airlines or land transportation companies that could negatively
impact the lodging industry and tourism in general.

Changes In Laws And Regulations. This includes fiscal policies and zoning
ordinances and the related costs for HCITY to comply with such laws and
regulations. New laws and regulations within different states could also lead to
longer new-construction hotel construction and development processes.

Sensitivity To Interest Rates And FX Fluctuations. As a Real Estate (RE)
company, HCE is exposed to increases in interest rates (higher costs of debt)
and FX, which could reduce the availability of financial institutions to continue
funding the company’s investments. Given the company’s 45% LTC financing
strategy, it will need to tap the debt markets during the following years.

Expansion Outside Mexico. Even though HCITY’s growth strategy will be
concentrated in the country, as it still offers significant opportunities given its low
penetration levels from quality hotel room supply, the company also intends to
penetrate specific markets in LatAm, where it currently has 2 properties. This
strategy will bring additional different country-specific risks, such as political,
geopolitical, as well as risks associated with FX, interest rates and inflation from
the countries where it plans to expand, not to mention the additional time HCE’s
management should dedicate to that strategy.

Development / Expansion Risk For Current Or New Properties. This includes
a potential increase in construction costs, including the cost of land, cement,
steel, labor, and FF&E, as well as development delays.

Oversupply Or Reduction In Demand For Hotel Rooms. With this risk we
refer mainly to specific market and hotel segment conditions (not for the overall
Mexican lodging industry), which would adversely affect occupancy and
revenues at HCE’s hotels.

Costs Associated With Renovations. In order to maintain high quality
standards and consistency across its hotels’ network, HCE needs to allocate
resources for the maintenance and renovations at its operating hotels. Increases
in costs associated with these renovations could deteriorate the company’s cash
flow generation.
113
Fully-Integrated Hospitality Business Platform
Hoteles City Express (HCE) business model involves the full integration of hotel
development, ownership, management, marketing, franchising and distribution, all in
which the company has vast experience and capacity, evinced in its top-notch
operating profitability levels. This model gives HCE flexibility and control with respect
to its investment costs, growth profile, management, commercial strategy, distribution
and guest experience.
As a fully-integrated lodging company, HCITY also has the flexibility to deploy its
resources on projects that maximize ROIC, while pursuing other growth opportunities
that should arise through co-investments with third-parties and management
contracts. According to HCE’s management, ROIC from its hotels reached 13.4% in
2014. In 2013, the achieved average ROIC for its owned and co-owned established
hotels was 12.0%.
Before going through the different business segments, we would like to note that
HCE was structured as a company (C-Corp) instead as a FIBRA, as its integrated
business model (highlighting its strong development capabilities) and growth strategy
was more suited for this type of vehicle. Furthermore, HCE requires to reinvest all its
operating cash flow in new construction hotels at this stage of the company’s growth
cycle. Thus we would not expect it to distribute any dividends, at least until year-end
2019, when the company will be able to fund new investments with its own cash flow.
As we know, lodging FIBRAs are involved mainly in hotel ownership, and to a lesser
extent to hotel development and management, which is left to experienced thirdparties. However, FIBRA Inn might argue that it also has ample know-how as hotel
operator from their past experience in Hoteles Prisma (+30 years). FINN’s hotel
operator currently manages 29 of its 34 hotels (including developments for 2015).
HCITY’s Fully Integrated Hotel Business Model
Development
• +20,000 rooms
developed by HCE team
• Highly standardized
designs and
specifications.
 Low / predictable costs
 Benefits of scale on
development process.
•
•
Solid historical ROICs.
Control over
investment’s costs.
Hotels’ Ownership
• 35 owned hotels
• 25 co-owned hotels
• 12 leased hotels
• Main focus on owned and
co-owned hotels.
 Participation of 50%+
in co-owned hotels.
 Partners contribute the
land and/or capital and
knowledge on the local
market.
Management And
Franchising
• 20 managed hotels
• 4 franchised hotels
• Leading operating
margins in the industry.
• Rooms’ design, furniture
and standardized
processes.
• Brand licenses through
Franchise Contracts.
Marketing And
Distribution
• Solid brand positioning
• Majority of bookings
through own channels
• Loyalty program: City
Premios.
• Corporate contracts and
local agreements.
• Efficient and targeted
marketing.
• High-end technology and
digital platforms.
FIBRAs
Independent Hotels
Source: HCE, Actinver.
114
Low-Cost, High-Volume Hotel Developer
One of HCITY’s key strengths deals with its strong capabilities as a developer. The
company’s streamlined and systematic development processes, combined with i) its
high development volume and continuous flow of construction projects, ii) highly
standardized hotel designs, and iii) ample experience of third-party constructors with
HCE’s hotels, allows it to benefit from economies of scale and preferential
contracting and pricing for inputs. At the end this is reflected in HCE’s superior hotel
profitability within the sector.
HCE’s strategy is primarily focused on greenfield hotel developments (just for
reconversions of existing buildings so far), as these properties cost less than
acquiring, re-modeling o re-positioning outdated properties. By doing so, the
company also support the long-term value of its investments, without having to incur
in significant maintenance CapEx and enables it to maintain its standards of quality
and safety and achieve easier its target ROIC. HCITY has been able to develop new
hotel rooms at an average cost of MX$650,000 under its City Express brand (82% of
total owned and co-owned hotels), or MX$598,000 excluding properties developed in
Mexico City, Costa Rica and Colombia, using the average from 2011 to 2013. To put
it in perspective, announced acquisitions within the segment, from FIBRA Inn and
FIBRA Hotel, averaged MX$903,000 in 2014.
Location scouting and market research process. HCITY’s development process
takes 9 months on average, from ground-breaking to hotel opening. However, the
strategic site location and scouting process begins ~9 months before (visibility of 18
months before opening). The company’s dedicated market research and scouting
teams undertake several levels of analyses to select prime site with maximum
revenue potential within these areas. HCE’s top management is deeply involved in
the selection process, bringing to the table their vision on which would be the most
attractive markets for the construction of new hotels according to their industrial
markets’ expected N18M dynamics, as well as other lodging market characteristics.
HCE’s target is to have 20 to 23 plots of land in its balance as part of its N12M
growth plan. As of 3Q2014 the company had 23 land parcels without construction.
HCITY’s Hotel Development Capabilities
Proven InHouse Hotel
Development
Expertise
Predictable
Costs And
Time Of
Delivery
Maintenance,
Renovations
And
Improvements
Scalable
Infrastructure
International
Standards
115
After a land parcel is acquired, it then passes through the permitting, and in some
cases zoning, processes which vary according to the subject municipal, state or
federal requirements.
HCE’s development team has developed more
than ~20,000 hotel rooms in the aggregate
through its members careers. This is another key
difference of Hoteles City Express against other
market participants.
Construction and development process. The company’s hotels are constructed by
independent contractors selected by HCE through competitive and transparent
bidding processes based on project cost, contractor experience, track record, and
technical qualifications. HCE’s own development team follows the bidding process
and realized on-site project management. Contractors follow HCE’s highly detailed
and standardized designs during the construction stage, which enhances HCITY’s
ability of meeting budget and timing expectations. Furthermore, the standardized
room size, layout and furniture, fixtures and equipment (FF&E) contributes to the
company’s efficiency and control of quality.
Renovations and improvements. For established operating hotels, the company
applies a strict set of guidelines for their remodeling and general maintenance. This
enables it to have better cost control with upgrades and improvements, as well as a
consistent quality. In a visit I realized last week to two HCE’s hotels in Toluca, I
precisely experienced an ongoing painting at the City Junior hotel, a relatively new
property, just as part of its general maintenance to keep it fresh.
Efficient Hotel Operating Structure
In addition to the company’s development segment, full integration allows HCE to
diversify its sources of revenues among the operation of own hotels, as well as fees
collected from the management and sales platform, and fees from hotels owned by
third-parties, including franchises. As both the owner and operator of hotels, HCITY
can effectively implement business practices and manage hotels in a profitable way,
enhancing quality, room distribution, and critical aspects related to its marketing
programs, reservations and training of employees.
HCE’s hotel operation and management activities fall within its 5 different hotel
segments by ownership: owned, co-owned, leased, managed and franchised. A brief
description of each of these hotel segments is shown below.
Brief Description Of HCE’s Hotel Segments By Ownership
Owned Hotels
•
•
•
•
100% ownership by HCITY - consolidated
Developed by HCE.
Prior to construction the project is approved at the relevant subsidiary.
Financed with 55% equity / 45% debt.
Co-Owned Hotels
•
•
•
•
50+% ownership by HCITY - consolidated
Partners frequently contribute land and/or equity and provide local market insight.
Financed with a combination of equity and, to a lesser extent, debt.
Minority interest reflected on balance sheet.
Leased Hotels
•
•
•
•
0% ownership by HCITY – consolidated hotel revenues and op. income
Lease of hotels from third-party owners.
Typical lease contracts run for 15 years, with 5-year renewal options.
Fixed lease payments depending on hotels’ total cost and variable payments as a %
of room revenues in certain cases.
•
•
•
•
•
0% ownership by HCITY
HCE licenses its brand to the hotel property owners under management contracts.
Typical contract has a minimum term of 15 years (5-year renewal option).
Mgmt. contracts contain right of first offer to acquire the managed hotel.
Hotels’ administration according to HCE’s established specifications.
•
•
•
•
0% ownership by HCITY
HCE franchises its brand to 3rd party hotel owners under franchise agreements.
Minimum term of agreement is of 15 years with 5-year renewal options.
HCE is not involved in the operation, but the owner is required to meet established
commercial and operating specifications and strict quality standards.
Managed Hotels
Franchised Hotels
116
Hotel Portfolio By Ownership 4Q2014
Consolidated
~80%
Franchised
4%
Owned
36%
Managed
21%
Leased
13%
CoOwned
26%
As of 4Q2014, the company’s total portfolio was comprised by 35 owned hotels
(36%), 25 co-owned (26%), 12 leased (13%), 20 managed (21%) and 4 franchised
(4%). As we will cover in the following pages, HCE’s growth strategy will be
concentrated mainly in owned and co-owned hotels (75% of new hotel
constructions), and managed third-party properties (25%).
HCE’s efficiency is not limited to its operating activities, including sales, human
resources, IT infrastructure and hotel operations. It is also extended to its marketing
and distribution business segment, which at the end is complimentary to the
company’s hotel management.
Sales. Starting with the sales unit, HCE has a sales department responsible for
monitoring each hotel’s performance and that of the local market through its
knowledge on it. Data analyzed includes daily occupancy rates and ADR from the
company’s hotel and those from competitors. From the development process of each
hotel, this department is also in charge of developing its specific pre-opening strategy
in order to reach the target occupancy levels since the beginning of its ramping-up
stage.
Human Resources. The company’s human resource department is responsible for
maintaining adequate an well-trained staff at HCE’s hotels, while focusing on
minimizing employee turnover. This department uses continuous and standardized
training programs including group training, individual development and coaching by
fellow employees in order to achieve objectives. HCE has employee manuals that
ensure standardized training across all the company’s hotels, and it monitors their
training through e-learning program, making guest experience very similar
independently from the visited property. Through these initiatives, the company also
lowers the staff required on each hotel. On average, its properties operate with 21
employees per 100 installed rooms (0.21 employees /room), well below the Mexican
system-wide index of 0.91 employees per room.
HCE intends to continue investing in updating its
systems on a continuously basis and evaluate the
need of new or different IT platforms to enhance
the management and marketing of its hotels.
IT Infrastructure. HCE uses modern and sophisticated technology that is critical to
the efficiency and success of its operations as it is key for price optimization and to
maintain quality across all hotels. HCE’s proprietary state-of-the-art IT infrastructure
platforms enable HCITY to monitor hotel operations and adjust to the market in realtime, manage its various reservations channels and its entire room inventory from
one central repository and respond to guest needs and inquiries made throughout the
network. The repository of room inventory also ensures the company to accurately
and quickly manage reservations through different proprietary and third-party
channels. Along its IT infrastructure, HCE has also developed web-based, digital and
mobile device-based applications that allow guests to conveniently book and manage
reservations. They have been well received by guests, as, according to the company,
~13% of its reservations have been made via these applications and City Access,
HCITY’s internet reservation system.
Hotel Operation. We believe HCE’s top management combined 100+ years of
experience in the lodging industry is key for reaching top hotel operating efficiency.
Operations are led from the company’s central office in Mexico City, where managers
monitor all aspects related to hotels’ performance, quality and guest service. The
central administration department is in charge of monitoring all hotels and setting
operating benchmarks. Along the corporate administration team, it also consolidates
financial statements on a monthly basis and identifies cost-cutting opportunities.
Regarding its centralized yield management, HCITY has an ADR control system for
all its hotel operations, which enables it to respond in real-time to the market and
adjust rates, distribution channels and marketing accordingly, very similar to how
airlines work with their yield management. Regarding procurement, HCE’s scale
becomes an advantage for the efficient management of supplies for all hotels. Many
of the products are sourced centrally in order to benefit from more favorable prices
obtained in large-scale orders, but certain products are also sourced locally, when it
turns more cost-efficient (e.g. breakfast food).
117
Operating Efficiency Across The Organization
Sales
• Hotel-specific pre-opening
strategy.
• Local customer
agreements.
• Hotel level budgeting
based on local market
knowledge.
Human Resources
• Focus on minimizing
employee turnover.
• Continuous and
standardized training
programs.
• Employee satisfaction
surveys.
IT Infrastructure
• Proprietary IT
infrastructure platforms
enable real-time
monitoring for rapid
decision making and yield
management.
• State-of-the-art
reservations platform.
Hotel Operations
• Standardized job
functions and employee
training.
• Elimination of nonessential amenities.
• Centralized inventory and
yield management.
• Economies of scale in
hotel supplies
procurement.
Quality Assurance. As for the lodging industry, guest satisfaction is a key element
to follow, HCITY also employs several methods of quality assurance in order to
increase the likelihood that its guests receive consistent quality service. For that, it
has dedicated a quality control department, and its central management carries unannounced site visits to evaluate hotels’ services, standards and image, as well as
how closely on-site management is adhering to the company’s general guidelines,
policies and procedures.
In addition, the company utilizes a “mystery guest” program carried out by
independent third-party consultants who evaluate hotels’ facilities and service by
staying as guests at the hotels on an anonymous basis. Finally, HCE also follows
guests electronic surveys offered at chekout, reviews them and responds to
concerns. It also monitors reviews from third-party lodging websites such as TripAdvisor, which we believe is essential for any lodging company, and useful for us to
have a better sense of the level of quality of the hotels from the companies under
coverage. And just as HCE does, we have performed an analysis of TripAdvisor’s
guest reviews. In this website, guests assign scores to the hotels’ in 6 categories
(location, sleep quality, rooms, service, value and cleanliness) with 5 possible rating
levels, from terrible (1) to excellent (5).
We used a sample covering 8 HCE’s hotels in Mexico City, as well as a random pairs
in both Monterrey and Guadalajara. The average rating level for this sample was 3.5,
which falls within the very good traveler experience. There was just 1 hotel rated as
average, City Express Monterrey Santa Catarina. Following comments from the
guests who review the hotels is also very useful for this type of analysis, we think.
TripAdvisor’s Hotel Guests Reviews
Source: TripAdvisor, Actinver.
118
Analysis Of TripAdvisor Reviews Of HCE’s Sample Of Hotels
Trip Advisor Sample Reviews On HCITY’s Hotels In Mexico City, Monterrey and Guadalajara
MEX
MEX
MEX
MEX
MEX
MEX
MEX
MEX
MTY
MTY
GDL
GDL
Source: Trip Advisor, Actinver.
119
Further Efficiencies Through Environmentally-Friendly Initiatives
In addition to the company’s consistent procurement of consistent quality and
accessibility across its hotels, it builds its properties to be compliant with national and
international fire, safety and environmental standards. HCE’s hotels are specifically
designed to meet environmentally-friendly initiatives which further enhance
operational efficiency.
The company has obtained LEED certifications (USGBC) at 6 of its hotels, and is in
the process of obtaining such certification for an additional 7. Also it has 6 hotels
certified by EDGE (IFC), with 8 more in process of certification. Furthermore, HCITY
is in the process of having all its hotels certified by the Biosphere Responsible
Tourism program, a joint certification of UNESCO and the Institute of Responsible
Tourism. As of October 2014, 27 of its hotels were already certified, expecting the
rest to be so by 2016.
As a result of the experience from its 6 EDGE-certified hotels, the company has
reduced on average by 30% and 40% their energy and water use, respectively, as
compared to similarly positioned properties as of the time of the certification.
HCE’s Green Initiatives
In HCE’s DNA. Why?
• Because it cares.
• Because its guests and
partners care.
• Because it strictly
complies with regulations.
• Because it makes
business sense.
30% and 40% reductions
in energy and water use,
respectively, at EDGEcertified hotels.
LEED Certification
(USGBC)
EDGE Certification
(IFC)
• First hotel in
• First certified
LatAm certified.
• 6 certified hotels
+7 in process of
certification.
building
worldwide.
• 6 hotels certified
+8 in process of
certification.
Biosphere
Biosphere
Responsible
Tourism
Responsible
(UNESCO)
• First hotel chain
worldwide in
process of
certification.
• 28 certified hotels
+the rest of hotels
expected to be
certified by 2016.
Leading Proprietary Marketing And Distribution Platforms
HCE’s success is also deeply supported by its proprietary marketing and distribution
platforms, which encompass market intelligence, marketing programs, the central
reservation system (CRS), corporate sales, corporate alliances and PR & publicity.
These platforms not only have positioned Hoteles City Express brand as a highly
recognized brand in the country, with the status of a “well-known brand” by the
Mexican Industrial Property Institute (IMPI, local intellectual property authority), but
also they allow for that the majority of the bookings go through their channels. Today
HCE has more than 7,500 corporate accounts and locally managed agreements,
which represent ~60% of the company’s room nights occupied. 87% of total
reservations are made through HCITY’s own channels (53% through its CRS and
26% through electronic channels).
HCITY additionally has several corporate alliances, mainly with airlines (Aeromexico,
Interjet, Volaris and Avianca-Taca), whose clients can book room nights at HCE’s
hotels simultaneously with the purchase of an airline ticket. It is worth saying that the
company will continue to pursue these type of targeted marketing programs in order
to increase its visibility among key populations.
120
City Premios loyalty program. Within the marketing programs, HCE has a fastgrowing loyalty program named City Premios that has over 370k subscribers. Points
earned through the program can be used for goods and services across a large
variety of retail stores, airlines, restaurants, entertainment venues and rental car
agencies. According to the latest disclosed information from HCITY, reservations at
its hotels made by City Premios’ members represent 20% of all reservations.
HCITY believes that the strength of its loyalty program, in addition to the 87% of its
reservations made through its proprietary reservations systems or through other
direct channels or relationships, demonstrates a strong consumer identification with
its brand.
HCITY’s Proprietary Marketing And Distribution Platforms
Leading Marketing And Distribution Platforms In Mexico
Multi-Channel Proprietary CRS
Marketing
Intelligence
Marketing
Programs
Central
Reservations
System (CRS)
Corporate
Sales
Corporate
Alliances
PR And
Publicity
HCE’s Recognized Hotel Brands
Hoteles City Express targets the limited-service hotel segment, which has the highest
growth potential in Mexico, economy and budget, through 4 different brands: 1) City
Express, 2) City Junior, 3) City Express Plus, and 4) City Express Suites. We believe
that this segment offers the greatest long-term growth opportunities in the local
lodging market given the business segment it attends (the largest and fastest
growing) as well as its short ‘action range’. Its compact market covers a radius of just
1 kilometer, giving it a stronger growth potential. For instance, Hoteles City Express
has 2 hotels (HCE Plus and HCE) in the Paseo de la Reforma Corridor with a 4
blocks (0.5 km) distance between them, both with occupancy levels above 65%. The
company finds room to have 35 hotels in the Mexico City market.
Brief descriptions of each of HCITY’s hotel brands, as well as the total number of
hotels and rooms the company has on each of them as of today, are shown in the
following exhibit.
121
HCE’s Four Targeted Limited-Service Hotel Brands
Description
•
•
Flagship brand.
•
Economy
segment.
• Budget segment
• Extended-stay
brand.
Essential
amenities.
• Flagship brand.
• City Express
brand.
• Same quality but
• Apartment-style
smaller rooms.
product located in
premium locations
with select design.
layout.
• Economy segment.
Avg. Room Size
23 sqm (248 sqf)
17 sqm (183 sqf)
30 sqm (323 sqf)
23 sqm (248 sqf)
Avg. Daily Rate
MX$600 – 1,200
MX$500 - 750
MX$750 – 1,700
MX$1,000 – 1,500
Rooms Per Hotel
100 - 150
105 - 134
26 - 120
70 - 150
Number Of Hotels
72 (75%)
13 (14%)
6 (6%)
5 (5%)
Number Of Rooms
8,313 (75%)
1,484 (14%)
393 (4%)
717 (7%)
Target: Value Conscious Business Travelers
These hotel brands give service to value conscious domestic business travelers
looking for comfortable accommodations with international quality and safety
standards tailored to their needs at affordable prices. Through its four hotel brands,
HCE offers a range of ADRs from MX$500 to MX$1,700, targeting the largest
combined segments of business travelers in Mexico. The company continuously
performs in-house market research to assess the effectiveness of its brand
architecture and to adapt it as necessary to respond rapidly to changes in the limitedservice hotel segment. This strong price-value proposition has helped HCITY to gain
market share by achieving a greater penetration of its brand against other brands
with which it competes in Mexico. The next exhibit shows HCE’s brand segmentation
as of YE2014.
HCITY’s Market Segmentation By Brands (Announced Rate, Quality And Scale)
Target Segment
Select Service
$1,500
Bubble size indicates
number of hotels
$1,400
Courtyard
Hampton Inn
Hilton Garden Inn
City Plus
$1,300
NH Hotels
Announced Rate (MX$)
$1,200
Fiesta Inn
$1,100
Holiday Inn Express
$1,000
City Suites
Economy
$900
Real Inn
Budget
Microtel
$800
City Express
One Hotels
$700
$600
Ibis
$500
City Junior
Hotel Quality (Stars)
$400
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
Source: Companies information, HCE, Actinver.
122
6.5
Experienced Management Team
HCE has an experienced and very institutional management team, like few other
companies have in the lodging sector, in our view among the best in Mexico. The
company’s outstanding track record and success supports our view. As previously
mentioned, HCITY’s 6 top managers have a combined experience of more than 100
years in the lodging industry. They have developed more rooms than any other hotel
chain during the last 5 years (with information from the Mexican Secretary of
Tourism).
Most of the management team members have been in HCE since is foundation, and
their experience encompasses key lodging areas: investment, development,
financing, management, operations, marketing and distribution.
Set forth below are the name, position, and a brief description of the business
experience of each Hoteles City Express’ management team members:
Luis E. Barrios Sanchez (CEO). Mr. Barrios is Chairman of the Board of Directors.
Mr. Barrios has over 25 years of hospitality industry experience and has been
Chairman of the Board and Chief Executive Officer since inception. Prior to
co-founding our company in 2002, he held several top management positions at
Grupo Posadas, one of the largest hotel operators in Latin America, including Chief
Executive Officer (1994-1999) and Chief Financial Officer (1986-1993). He was
responsible for leading Grupo Posadas’ IPO in 1992.
Mr. Barrios also participates in the Board of Directors of Corporacion Actinver, S.A.B.
de C.V., Consejo Consultivo Metropolitano de NAFINSA, Asociacion Mexicana de
Hoteles de la Ciudad de México, A.C. and Asociación Mexicana de Cadenas de
Hoteles. Mr. Barrios holds a degree in Systems Engineering from the Universidad
Iberoamericana, as well as a Master’s degree in Business Administration from the
University of Texas.
Roberto Palacios Prieto (CFO). Mr. Palacios has been with the company since
2006. Mr. Palacios is responsible for finance, planning, administration, business
development and legal activities. Mr. Palacios has managed the structuring,
capital-raising and debt financing supporting the development of hotels during his
tenure at Hoteles City. Prior to joining Hoteles City, Mr. Palacios served as
Operations Director in Grupo Dupuis and previously worked for the investment banking division of Goldman, Sachs & Co. and Protego (Evercore Partners). Mr. Palacios
holds a Business Administration degree from the Instituto Tecnológico Autónomo de
Mexico, as well as a Master’s degree in Business Administration from Stanford
University Graduate School of Business.
Rogelio Avendaño Martinez (COO). Mr. Avendaño has been with HCE since 2003
and has over 20 years of industry specific expertise in hotel management, operations
and human resources. Mr. Avendaño has had direct managerial hotel responsibilities
with Posadas (in Fiesta Americana and Fiesta Inn), InterContinental Hotels Group
(Crowne Plaza and Holiday Inn) and other hotel brands. Mr. Avendaño holds a
degree in Business Administration and has completed advanced management
studies through the IPADE and ITESM / IE executive business studies programs.
Blanca A. Herrera Colmenero (Chief Marketing and Franchise Services Officer).
Ms. Herrera joined the company in 2002 and was previously a manager in the market
research and marketing team of Posadas. Ms. Herrera obtained broad experience in
market research by initiating her career at Fomento Turistico Banamex. Ms. Herrera
has more than 20 years of experience in the tourism industry and has led the
company’s marketing, commercial and distribution initiatives. Ms. Herrera holds a
degree in Tourism from the National Polytechnic Institute and has completed
advanced management studies through IPADE’s executive business studies
program.
123
Francisco J. Fabregat Ramirez (Chief IT and Systems Officer). Mr. Fabregat has
been with HCE since 2002 and previously headed the IT department at GMAC
Mexico, Posadas, and Serfin (now Banco Santander). Mr. Fabregat has over 20
years of experience in technology management and IT infrastructure development.
Mr. Fabregat designed the company’s IT platform and enhanced and implemented
the product. Mr. Fabregat holds an engineering degree in Information Technology
and Systems and various advanced certifications from IT hardware and service
providers.
Abelardo Loscos Nahoul (Corporate Finance and IR Director). Mr. Loscos joined
the company in 2011 and is responsible for corporate finance, risk management and
investor relations activities, and reports to the Chief Financial Officer. Prior to joining
the company, Mr. Loscos was Vice President of Global Banking at HSBC Mexico. He
also previously worked in the investment banking division at Goldman, Sachs & Co.,
focusing on Latin America generally and Mexico in particular. Mr. Loscos holds a
degree in Business Administration from the Instituto Tecnológico Autónomo de
Mexico, as well as a Master’s degree in Business Administration from IESE Business
School.
Solid Corporate Governance
On HCITY’s corporate governance we find relevant to note that it is aligned with best
practices of the market. Its Board of Directors is comprised by a large majority (89%)
of independent board members (8) (Armando J. Garcia Segovia, John Timothy
Morris, Juan L. Elek Klein, Ricardo Maldonado Sosa, Eduardo R. Azcarraga Perez,
Francisco Andragnes, Sergio del Valle Cantu, and Jose I. Mariscal Torroella). The
only related member is Luis Barrios, Chairman of the Board and CEO.
HCE’s Board of Directors is comprised by 6 committees: i) Audit, ii) Corporate
Practices, iii) Planning and Finance, iv) Procurement and Construction, v)
Compensation, and vi) Nominating, as shown below. As required by the Mexican
Securities Law, members of the Audit and Corporate Practices committees are 100%
independent.
HCE’s Board Of Directors Committees
Audit
Corporate Practices
Planning And Finance
(100% Independent)
(100% Independent)
(established by HCE)
Board Of Directors
Procurement And
Construction
Compensation
Nominating
(3 members)
124
HCITY’s Business Growth-Strategy For The Coming Years
As stated by the company's management, HCE’s primary business growth-strategy is
to continue leveraging its integrated business platform, maintaining a highly visible
growth pipeline through the continuous identification of opportunities throughout
Mexico. For the continued expansion of its hotel network in the country, the company
will mainly focus on ownership and co-ownership of greenfield hotel projects. As we
already mentioned, these two hotel types will represent ~75% of the company’s room
expansion in the following years, while the rest will correspond basically to managed
hotels (minimum increase in franchises). HCITY intends to grow its development
capabilities up to ~20 hotels per 12-month cycles in the coming years.
Through this strategy, HCITY expects to increase its brand coverage in markets with
a high demand of hotel rooms, in which at least one but not all of its brand have
presence already. At the same time, the development of new hotels will continue
replacing obsolete or old room inventory belonging to mom & pops (non-chained
hotels), throughout the company’s target markets. It goes without saying that the
company will continue rolling renovations of its existing properties to ensure that its
guests can continue relying on its hotels for superior quality in its target segments.
However, HCE leaves the door open to engage in strategic and opportunistic
acquisitions of existing properties in markets where there is a general scarcity of sites
available for the development of new-construction hotels.
Furthermore, HCE will continue reinvesting a significant portion of its management
and franchise services’ fees in its brands in order to improve further is market
position in the country and to penetrate specific markets in LatAm. The latter not
being contemplated in the short-term.
HCE Financial Forecasts
Treatment Of Consolidated Operations
Before going forward with our HCITY’s earnings forecasts, we would like to
emphasize that the company’s consolidated operations come basically from two
different business segments, or entities: the Real Estate Owner subsidiary and the
Hotel Management subsidiaries. Thus, HCE’s consolidated financial statements
result from the combination of the operations from hotel ownership and hotel
management.
Hotel Operation. Revenues from hotel operation are basically generated from rooms
and other hotel revenues from HCE’s owned, co-owned and leased hotels. Because
of the company’s focus on the limited-service hospitality segment, ~95% of its hotel
operation revenue is derived primarily from rooms, and ~5% from food & beverage,
guest services and other amenities. Operating costs and expenses include those
directly attributable to the hotels’ operation (room expenses, payroll, promotional and
sales expenses, utilities, maintenance expenses, property taxes and insurance).
Hotel Management. Revenues come primarily from mgmt. fees charged to all hotels.
In this unit, HCE also collects revenues from hotel development services to both own
hotels (intercompany transactions), as well as to hotels owned by 3rd-parties. Selling
& administrative expenses are attributable to the hotel mgmt. segment and include
corporate expenses related to managing hotels on a consolidated basis. The most
relevant expenses within this category include: salaries, administrative, call center,
marketing & advertising, corporate office rent, legal fees and severance payments for
operational staff, sales & marketing offices, hotel development and supervision
teams and administration, accounting, legal corporate finance and corporate human
resources and IT departments, as well as the office of the senior mgmt.
125
As HCE’s own hotels enter into the same long-term hotel mgmt. contracts with the
company’s Hotel Management subsidiaries as with any 3rd-party hotel owner, the
hotel management segment receives management and other fees from that
segment. Under IFRS (IAS 27), these mgmt. fees charged to the hotel operation
segment (accounted for as revenues in the hotel mgmt. segment) are eliminated as
both revenues of the hotel mgmt. segment and expenses of the hotel operation
segment, while costs and expenses of the hotel mgmt. segment are not eliminated.
HCE's Corporate Structure
Hote le s City Expre ss
Hote l O wne rship
Hote l Ma na ge me nt And Fra nc hising
Owned Ho tels
Co -Owned Ho tels
Leased Ho tels
M anaged Ho tels
Franchised Ho tels
Ownership
100%
50%+
0%
0%
0%
Revenues
Ro o m Revenues
Other Revenues
Ro o m Revenues
Other Revenues
Ro o m Revenues
Other Revenues
M anagement Fees
Incentive Fees
M arketing Fees
Develo pment Fees
P re-Operating Fees
Ro yalties' Fees
B o o kings' Fees
M arketing Fees
Develo pment Fees
P re-Operating Fees
Eliminatio ns
Eliminatio ns
Co sts & Expenses
Lo dging Direct
Indirect Co sts
P ro perty Taxes
Insurance
Ho tel M anagement
P re-Operating
Lo dging Direct
Indirect Co sts
P ro perty Taxes
Insurance
Ho tel M anagement
P re-Operating
Lo dging Direct
Indirect Co sts
P ro perty Taxes
Insurance
Ho tel M anagement
P re-Operating
Leasing Of P ro perties
S&A Expenses
S&A Expenses
D&A Ho tels
D&A Ho tels
D&A Equipment
D&A Equipment
D&A Equipment
Co rpo rate Expenses
Co nso lidated
M ino rities
B o tto m Line
Other Inco me / No n-Recurring Expenses
Net Financial Result
Inco me Taxes
M ino rity Interest
Ma jority Ne t Inc ome
S o urc e : H C E , A c t inv e r.
HCITY’s 2015-2016 Revenues
We expect HCE to open 22 new hotels in 2015 (+2,640 rooms), reaching 118 hotels,
and 20 more in 2016 (+2,400 rooms), leading to 138 total hotels. For 2015 we are
including the 4 properties that have been already announced but have not yet
opened. The resulting anticipated rooms’ growth will be of 24.2% in 2015 and 17.7%
in 2016.
Following the company’s growth strategy, we are assuming that 75% of the newconstruction hotels will correspond to owned and co-owned hotels, with a blended
78% ownership. The remaining 25% is for managed hotels. We are not including any
additional franchised hotel for the next years.
Based in our new earnings model, which we are introducing in the “Our HCITY’s
Earnings Model” section, we expect HCITY to reach MX$1,709 MM of consolidated
revenues (+22.5% YoY) in 2015, consisting of MX$1,618 MM of revenues from hotel
operation (+22.0% YoY), and MX$90.9 MM of hotel mgmt. (+31.1% YoY).
126
For 2016 we anticipate total revenues of MX$2,097 million (MX$2,001 MM from hotel
operation and MX$95.9 MM from hotel management), representing a 22.7% YoY
increase.
We have reached these revenue forecasts by assuming a 58.3% consolidated
occupancy for the 4.43 million available rooms expected for 2015. By hotels’ maturity
we anticipate a 63.4% occupancy for established hotels (59.8% of the total) and of
49.9% for non-established hotels (40.2% of the total). As we will show in major detail
in the next section, we have built our revenues and operating model in such a way
that it separates established from non-established hotels according to each hotel’s
months in operations. For non-established properties we assign general ramp-up
assumptions for their 36-month maturity phase. Once matured, our model makes
their transition to the established hotels’ segment. Our estimated occupancy rates
are a reflection of that.
Turning to 2016, we expect consolidated occupancy to reach 59% (64% of
established hotels, and 52.3% of non-established). As the years pass and HCE’s
portion of non-established hotels decrease, occupancy levels will get closer to those
of established hotels at ~64%. In a similar way, cash flow generation will increase,
with pre-operating expenses and development CapEx becoming smaller.
Regarding average daily rates (ADRs), we expect a 3.0% YoY increase in 2015 to
MX$769, and of 3.7% YoY in 2016 to MX$797. New, non-established hotels have
been opened with ~10% higher ADRs, which in the long-run will generate a
consolidated above-inflation growth.
EBITDA / Adjusted EBITDA For 2015-2016
It is worth noting that HCITY isolates EBITDA from pre-operating expenses from new
hotels in order to reach a normalized, adjusted EBITDA, as during the company’s
strong-growth phase, these expenses become more relevant and distorts its real
operating cash flow generation capacity.
For 2015 HCITY will register a 21.1% increase in its EBITDA, which will amount to
MX$558 million, a 32.6% margin. The adjusted EBITDA will be MX$568.1 million
(+33.2% YoY), with a resulting 33.8% margin. For 2016 we expect a MX$713.9 MM
EBITDA (34.0% margin, +36.5% YoY change) and an adjusted EBITDA of MX$724.7
million (34.6% margin, +27.6% YoY expansion).
2015-2016 Majority Net Income
At the bottom line we expect HCITY to register MX$148.0 million in 2015, representing a 35.6% YoY growth. By share, earnings will be of MX$34.46 cents, a +4.1%
increase taking into consideration the company’s ~MX$2,578 MM follow-on (+109.7
million new shares, 40% of previous total outstanding). The consequent net margin
will be of 8.7% this year.
Behind this line we also consider MX$163.1 MM of interest expenses from the total
debt at year-end of MX$2,811 million. Following its investment plan, we are
assuming that HCITY will continue with its 45% loan-to-cost (LTC) financing strategy.
Cash on hand will generate MX$67.8 MM interests during the year, and income tax
expenses will reduce EBT by MX$49.6 MM. For the latter we are contemplating a
22% effective tax rate, in line with the company’s expectations. Non-controlling
interests, which we estimate based on net income generated by co-owned hotels and
the corresponding stake on them of HCITY’s partners, are estimated at MX$28.0
million. For next year we anticipate majority net income of MX$179.9 million with an
8.6% margin.
127
Longer-Term (Remaining 9-YR Explicit Period) Assumptions
For the rest of our model’s explicit period (9 more years), we are assuming the
following:
■
The company opens 20 new hotels from 2017 to 2019, reaching a total of 198.
Before 2019 ends, according to our model, HCE will have enough potential as to
fund further growth (20 hotels per year) going forward with its own cash flow
generation capacity. Evidently, we are maintaining the company’s 45% LTC
financing strategy. For 2020 we assume that HCITY opens half of the hotels (10)
and stops there, leaving the remaining 5 years of our explicit period with no
additional hotels. We are doing so as to better reflect HCITY’s long term cash
flow generation potential and to avoid leaving 1) all of our DCF’s fair value to
terminal assumptions, and 2) the model’s last year cash flow with a relevant
amount of CapEx, that at the end will results in a less accurate valuation
(perpetuity growth and other assumptions left to the analyst’s criteria in order to
reach a fair value).
■
For our long-term ADRs we are just assigning a Mexican inflation growth rate,
besides the aforementioned effect from higher ADRs in new non-established
hotels.
■
For established hotels, occupancies are left in stable mature 64% levels.
■
Debt is refinanced, maintaining a loan-to-value (to depreciated properties’ value)
of 36.5%.
■
We are not considering any dividends’ distribution.
Our valuation assumptions are included in the following section.
128
Discounted Cash Flows (DCF) Valuation Method
We are reinitiating coverage on HCITY with a year-end 2015 target price (TP) of
MX$26.90 per share. It implies a 13.5% upside potential over its current trading
prices. We have chosen a DCF valuation method to determine HCITY’s fair value as
it offers a deeper longer-term look at fundamentals than other valuation methods.
Given HCE’s long-term growth story, it is precisely the method that suits better for it,
in our view. A multiples valuation becomes less accurate and more assumptionsdriven, as the company’s forward multiples are not comparable to multiples from the
rest of its local and global competitors. On the other hand, a Sum-Of-The-Parts
(SOTP) methodology, if performed by independent DCF’s for each of the business
units (hotel management and hotel operation), becomes quite challenging given their
relevant intercompany transactions. At the end, we have forecasted our cash flows
for each of the two business segments, which should result in the same consolidated
DCF valuation.
Discounted Cash Flows (DCF) Model (MX$ MM)
Explicit Model 2015-2025
2015
2016
2017
2018
2019
Operating Profit (EBIT)
Cash Taxes
Effective Cash Tax Rate
NOPLAT
Depreciation & Amortization (D&A)
Maintenance CapEx
Expansion / Development CapEx
Changes in Working Capital (ΔWC)
Free Cash Flow to the Firm (FCFF)
$ 317
-$ 50
22.0%
$ 267
$ 241
-$ 66
-$ 1,450
$ 11
-$ 996
$ 433
-$ 61
22.0%
$ 372
$ 281
-$ 78
-$ 1,540
$ 14
-$ 951
$ 581
-$ 80
22.0%
$ 501
$ 328
-$ 93
-$ 1,598
$ 17
-$ 846
$ 703
-$ 94
22.0%
$ 609
$ 376
-$ 110
-$ 1,570
$ 17
-$ 678
$ 828
-$ 114
22.0%
$ 714
$ 427
-$ 128
-$ 1,533
$ 18
-$ 502
EQR Discount Rate [Rf+Re]
10-Year U.S. Treasury
+ Country Risk Premium [CRP]
+ Mx-US Inflation Spread
Risk Free Rate [Rf]
Real Estate (RE) Risk Premium
HCITY Relevered Beta
EQR Risk Premium [Re]
After-Tax Cost of Debt [Kd (1-T)]
Effective Cash Tax Rate
Modeled (Debt+Pref.) / Equity Ratio
WACC
10.98%
3.50%
1.50%
1.00%
6.00%
5.50%
0.905
4.98%
4.87%
22.0%
39.02%
8.59%
11.27%
3.50%
1.50%
1.00%
6.00%
5.50%
0.959
5.27%
4.87%
22.0%
47.23%
8.25%
-$ 879
11.55%
3.50%
1.50%
1.00%
6.00%
5.50%
1.008
5.55%
4.87%
22.0%
54.82%
7.88%
-$ 727
11.46%
3.50%
1.50%
1.00%
6.00%
5.50%
0.993
5.46%
4.87%
22.0%
52.54%
8.00%
-$ 538
11.37%
3.50%
1.50%
1.00%
6.00%
5.50%
0.977
5.37%
4.87%
22.0%
50.03%
8.12%
-$ 367
DCF Valuation
Present Value of Terminal Value
Firm Value
Net Debt
Non-Controlling Interest
DCF Implied Equity Value
Outstanding Shares Est. (MM)
Fair Value per Share (MX$)
HCITY Last Price per CBFI
Expected Return to Fair Value
+ Dividend Yield 2015E
Total Expected Return
Implied FWD EV /EBITDA
$ 9,563
$ 1,122
$ 10,686
-$ 450
$ 784
$ 10,351
385
$ 26.90
$ 23.70
13.5%
0.0%
13.5%
16.5x
2020
2021
2022
2023
2024
2025
Terminal
$ 942
-$ 135
22.0%
$ 808
$ 472
-$ 147
-$ 711
$ 17
$ 439
$ 1,023
-$ 153
22.0%
$ 870
$ 501
-$ 163
$$ 11
$ 1,220
$ 1,072
-$ 169
22.0%
$ 903
$ 507
-$ 174
$$6
$ 1,242
$ 1,117
-$ 185
22.0%
$ 932
$ 512
-$ 180
$$6
$ 1,271
$ 1,167
-$ 202
22.0%
$ 965
$ 519
-$ 186
$$6
$ 1,304
$ 1,215
-$ 220
22.0%
$ 995
$ 525
-$ 192
$$6
$ 1,334
$ 21,953
11.41%
3.50%
1.50%
1.00%
6.00%
5.50%
0.983
5.41%
4.87%
22.0%
50.94%
8.08%
$ 297
11.30%
3.50%
1.50%
1.00%
6.00%
5.50%
0.964
5.30%
4.87%
22.0%
48.02%
8.21%
$ 760
11.20%
3.50%
1.50%
1.00%
6.00%
5.50%
0.945
5.20%
4.87%
22.0%
45.16%
8.34%
$ 709
11.10%
3.50%
1.50%
1.00%
6.00%
5.50%
0.927
5.10%
4.87%
22.0%
42.40%
8.46%
$ 664
11.01%
3.50%
1.50%
1.00%
6.00%
5.50%
0.910
5.01%
4.87%
22.0%
39.74%
8.57%
$ 622
10.91%
3.50%
1.50%
1.00%
6.00%
5.50%
0.894
4.91%
4.87%
22.0%
37.20%
8.66%
$ 581
10.91%
3.50%
1.50%
1.00%
6.00%
5.50%
0.894
4.91%
4.87%
22.00%
37.20%
8.66%
$ 9,563
Our MX$26.90 /share TP comes along with a Buy recommendation. Besides its
attractive upside potential, we like HCITY for the following reasons: 1) it is well
positioned, with very-well recognized brands, in the hotel segment with the highest
LT growth potential, to continue benefiting from the consolidation of the Mexican
lodging industry; 2) its sound LT growth potential (adjusted EBITDA CAGR of +25%
for 2014-2017); 3) its solid profitability (ROIC of 12% of established hotels), achieved
through efficiencies generated across its fully-integrated business model; 4) its
experienced and highly institutional management team; 5) the solid momentum
experienced in the local lodging sector; and 6) the company’s strong growth trackrecord through new-construction hotels.
DCF assumptions: To discount our FCFF forecasts, we have calculated HCITY’s
discount rate assuming a 6.0% adjusted risk-free rate (using a prospective 3.5%
base 10-year U.S. Treasury [RF] plus a country risk premium [CRP] of 1.5% and a
Mx-U.S. inflation spread of 1.0%), a Real Estate risk premium of 5.5%, and an
unlevered beta of 0.651, which results in a 0.905 levered beta for 2015.
129
We determined our target beta for HCITY by considering the average betas from its
local competitors, and its global lodging peers (Accor, Choice, Hilton, Marriott,
Wyndham, Millennium, InterContinental, NH and La Quinta). Our final 0.651 beta was
basically reached through the average from these peers (90% weight). For the
remaining 10% weight we also took into account HCITY’s statistical beta for the last 2
years.
We are using evolving WACCs in our DCF in order to account for changes in equity
[EQR] discount rate, the cost of debt [Kd] and HCITY’s modeled (Debt + Preferred) /
Equity ratio. For the first year of our DCF, the resulting EQR and WACC are 10.98%
and 8.59% respectively.
To calculate our terminal value we have assigned a 2.59% LT growth rate, which is
Mexico’s mid-cycle GDP growth rate from 1993 to 2014. We believe this is the best
possible terminal growth rate we could use in our DCF for two main reasons: 1) as a
lodging company, HCITY’s operating performance is highly correlated to the
performance of the local economy, which has experienced relevant crisis periods in
the past; and 2) even that HCE will continue executing its aggressive growth
strategy, it should not last forever, thus, assigning a higher perpetual growth rate to
our DCF would be less accurate.
The implied forward EV /EBITDA delivered through our MX$26.90 /share TP is 16.5x,
which is in line with the first standard deviation (16.5x) and is below HCITY’s average
historical next-twelve-month (NTM) multiple of 17.7x. It is even below HCITY’s
current forward multiple of 17.0x, which is at an 4% discount to the historical
average.
HCITY: Forward (NTM) EV /EBITDA Multiple
21.0x
20.0x
NTM EV /EBITDA (x)
19.0x
18.7x
18.0x
17.6x
17.0x
17.0x
16.5x
16.0x
15.0x
14.0x
Jul-13
Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14
Source: HCITY, Bloomberg, Actinver.
As compared to its global peers, HCITY trades at a 17% premium in terms of 2015’s
estimated EV /EBITDA multiple, and of 12% for 2016, which we believe is justified
given HCITY’s superior operating profitability, growth prospects, and its solid position
in Mexico’s growing quality lodging market. As compared to the local peers, which
are basically lodging FIBRAs, HCITY trades at more similar multiple and implied
EBITDA cap rate levels, even at slight discounts, when it has higher profitability
levels. Nonetheless, as local peers belong to a different asset class (meaning
FIBRAs, not straight equity) they are not 100% comparable.
130
Relative Valuation Of Selected Lodging Peers
Tic ke r
C- Corps
AC FP
CHH.US
HLT.US
MAR.US
WYN.US
MLC.LN
IHG.LN
NHH.SM
LQ.US
Compa ny
Na me
Country
Accor
Choice
Hilton
Marriott
Wyndham
Millennium
InterContinental
NHH
La Quinta
France
U.S.
U.S.
U.S.
U.S.
U.K.
U.K.
Spain
U.S.
La st P ric e
(Loc a l $ )
$ 45.41
$ 61.75
$ 28.57
$ 79.40
$ 90.57
$ 560.50
$ 2,588
$ 4.54
$ 21.59
Ave ra ge C- Corps
FIBRAs / REITs
FINN13.MM
FIBRA Inn
FIHO12.MM FIBRA Hotel
Mexico
Mexico
$ 16.30
$ 20.30
Ave ra ge FIBRAs / REITs
HCITY * . MM Hote le s City
Me xic o
$ 22.70
Ma rke t Ca p
(US D)
$ 11,955
$ 3,593
$ 28,131
$ 22,497
$ 10,919
$ 2,794
$ 9,382
$ 1,806
$ 2,822
EV / EBITDA (LTM)
2 0 15 E
2 0 16 E
EBITDA Ca p Ra te
2 0 15 E
2 0 16 E
EBITDA Ma rgin
2 0 15 E
2 0 16 E
EBITDA G rowth
2 0 15 E
2 0 16 E
11.1x
17.3x
13.7x
15.2x
9.4x
10.1x
13.5x
15.3x
10.9x
10.1x
15.4x
11.9x
13.8x
N.A.
10.4x
12.2x
12.3x
9.7x
9.0%
5.8%
7.3%
6.6%
10.7%
9.9%
7.4%
6.5%
9.1%
9.9%
6.5%
8.4%
7.3%
N.A.
9.6%
8.2%
8.2%
10.4%
17.9%
29.9%
24.6%
11.5%
24.1%
27.3%
42.2%
11.7%
38.6%
18.9%
30.2%
25.2%
11.8%
24.2%
28.0%
43.3%
13.4%
39.5%
11.0%
9.2%
10.6%
12.2%
6.1%
5.9%
10.3%
20.8%
8.4%
9.7%
8.6%
10.9%
9.9%
5.3%
5.6%
9.0%
21.6%
8.9%
$ 10 , 4 3 3
12 . 9 x
12 . 0 x
8.0%
8.5%
25.3%
2 6 . 1%
10 . 5 %
10 . 0 %
$ 477
$ 638
16.9x
21.8x
13.3x
14.1x
5.9%
4.6%
7.5%
7.1%
32.0%
25.0%
33.3%
27.1%
94.7%
42.7%
50.1%
65.5%
$ 558
19 . 4 x
13 . 7 x
5.2%
7.3%
28.5%
30.2%
68.7%
57.8%
$ 6 12
15 . 5 x
13 . 6 x
6.4%
7.4%
32.6%
34.0%
2 1. 1%
28.0%
S o urc e : B lo o m be rg's c o ns e ns us , A c t inv e r.
131
Our HCITY’s Earnings Model
With this report we are also introducing our completely new earnings model for
HCITY. The model was developed in such a way we could rapidly incorporate every
single new hotel opening announcement, without losing any details along the
company’s consolidated operations, which we described before.
Master Property Book
Our operating and revenues model begin with a master book in which all existing
properties and assumed new-construction hotels for the years to come, are
introduced. Regarding our pipeline assumed hotels, we introduce expected opening
dates for each of them (this way we can distribute more precisely openings throughout the years), as well as the type of investment (by ownership with a respective
percentage / hotel segment) and number of rooms. With that inputs our model
recognized the hotel’s land acquisition (considering a 18-month visibility period)
going backwards, as well as its CapEx deployment during its construction and
development phase. For each hotel brand we have also forecasts on cost per key.
Previous to the opening of the hotel our model also reflects its respective preoperating expenses.
Occupancies / Available Rooms / ADRs
Depending on the opening date of each of the hotels, our model recognizes if it is a
non-established or an established property, separating them in these two drawers.
This is basically done so we can better sensitize the ramping-up stage (occupancy
rates) of the non-established hotels, which lasts 36 months in average. For that we
have incorporated a maturity curve which applies the same for all hotels, which we
believe is valid considering the company’s large diversification by markets and
brands. Once a non-established hotel reaches maturity at month 36, it makes an
automatic transition to the established hotels’ drawer.
As new hotels today still represent a relevant portion of the company’s total rooms,
we are also sensitizing the days of operations each new opened hotel will have
during the quarter depending on its opening date, so our available rooms’ forecasts
are more precise.
We will not go at major detail on ADRs, but they are basically estimated by hotel
segment.
Other Revenue Lines / Costs And Expenses
Regarding costs and expenses, which include lodging direct (rooms’ costs and
personnel) and indirect expenses (general & administrative, advertising & promotion,
energy, maintenance) we have considered their fix (~40%) and variable portions
(~60%) and forecasted them by available rooms as to have the occupancy and ADR
sensitivity reflected in our gross operating profit (GOP) margins, which, as a
consequence are not static and do reflect swings in occupancies. For instance, with
an occupancy of 30%, our hotels’ EBITDA margin go to break-even. Other below the
GOP line expenses such as property taxes and insurance are estimated separately.
Certain differences such as leasing expenses from leased hotels are also
considered. Please recall that leasing contracts run for 15 years, with fixed payments
depending on the hotels’ total cost and variable payments as a % of room revenues
in certain areas.
Forecasts for hotel management are a little bit more sophisticated as we have to
consider 8 different types of fees, 3 of which depend whether the hotel is managed or
franchised and 2 apply to all HCITY’s hotels, which at the end derive in some
eliminations from intercompany operations. Hotel development fees become quite
relevant as they represent a large portion of the hotel management segment’s net
revenues (39% in 2015).
132
Selling and administrative expenses are forecasted differently, depending on whether
they are “fixed” (inflation-adjusted kind of) expenses or variable. All of these
expenses include salaries, phone & communication, leasing of properties (different
from the ones of leased hotels), agencies’ commissions, professional & legal fees,
travel expenses, advertising, rent of equipment, maintenance and others.
HCITY’s Hotel Segments’ P&L Output
Next we present the summarized output of our P&L statements by hotel segments,
which are the result of our operating and revenues models. It is worth noting that we
present the summarized output of our operating model as well in the following pages,
along with our forecasted consolidated financial statements.
HCITY: Hotel Segments' P&L
Period
2014
2015
2016
2017
2018
$ 1,332.3
$ 1,245.1
$ 87.2
$ 69.4
$ 1,401.7
-$ 748.0
-$ 192.8
-$ 12.4
$ 448.5
$ 1,617.8
$ 1,512.0
$ 105.8
$ 90.9
$ 1,708.7
-$ 921.1
-$ 220.1
-$ 10.4
$ 557.2
$ 2,001.4
$ 1,870.5
$ 130.9
$ 95.9
$ 2,097.4
-$ 1,123.5
-$ 249.9
-$ 10.7
$ 713.3
$ 2,449.7
$ 2,289.5
$ 160.3
$ 113.3
$ 2,563.0
-$ 1,360.5
-$ 283.7
-$ 11.1
$ 907.6
$ 2,915.3
$ 2,724.6
$ 190.7
$ 128.6
$ 3,043.9
-$ 1,634.6
-$ 319.5
-$ 11.6
$ 1,078.2
$ 1,245.1
$ 87.2
$ 1,332.3
-$ 328.9
-$ 334.4
$ 669.0
50.2%
$ 649.6
48.8%
-$ 49.3
-$ 16.0
-$ 12.4
-$ 278.4
-$ 2.7
$ 290.8
$ 1,512.0
$ 105.8
$ 1,617.8
-$ 408.7
-$ 415.5
$ 793.6
49.1%
$ 769.5
47.6%
-$ 56.1
-$ 16.6
-$ 10.4
-$ 338.1
-$ 3.2
$ 345.0
$ 1,870.5
$ 130.9
$ 2,001.4
-$ 504.8
-$ 513.2
$ 983.3
49.1%
$ 954.1
47.7%
-$ 58.9
-$ 17.2
-$ 10.7
-$ 418.3
-$ 4.0
$ 444.9
$ 2,289.5
$ 160.3
$ 2,449.7
-$ 617.9
-$ 628.2
$ 1,203.6
49.1%
$ 1,168.3
47.7%
-$ 61.2
-$ 17.9
-$ 11.1
-$ 512.0
-$ 4.9
$ 561.2
$ 2,724.6
$ 190.7
$ 2,915.3
-$ 749.2
-$ 761.6
$ 1,404.5
48.2%
$ 1,362.7
46.7%
-$ 63.4
-$ 18.5
-$ 11.6
-$ 609.3
-$ 5.8
$ 654.0
$ 338.5
$ 274.2
$ 64.3
$ 23.7
$ 362.2
$ 293.3
$ 68.8
-$ 90.9
-$ 92.4
$ 178.9
49.4%
$ 144.5
$ 34.4
$ 473.5
$ 405.8
$ 67.8
$ 33.1
$ 506.7
$ 434.2
$ 72.5
-$ 129.6
-$ 131.8
$ 245.3
48.4%
$ 209.1
$ 36.2
$ 616.0
$ 545.2
$ 70.8
$ 43.1
$ 659.1
$ 583.4
$ 75.7
-$ 166.2
-$ 168.9
$ 324.0
49.2%
$ 286.3
$ 37.7
$ 764.0
$ 690.8
$ 73.3
$ 53.5
$ 817.5
$ 739.1
$ 78.4
-$ 204.9
-$ 208.3
$ 404.3
49.5%
$ 365.7
$ 38.7
$ 904.5
$ 828.4
$ 76.0
$ 63.3
$ 967.8
$ 886.4
$ 81.3
-$ 248.7
-$ 252.9
$ 466.2
48.2%
$ 426.9
$ 39.3
$ 34.0
$ 278.4
$ 393.6
-$ 324.3
$ 69.4
-$ 5.8
$ 63.6
$ 47.3
$ 338.1
$ 515.6
-$ 424.7
$ 90.9
-$ 6.6
$ 84.3
$ 62.1
$ 418.3
$ 603.8
-$ 507.8
$ 95.9
-$ 7.5
$ 88.5
$ 77.4
$ 512.0
$ 718.2
-$ 604.9
$ 113.3
-$ 8.5
$ 104.8
$ 90.6
$ 609.3
$ 834.3
-$ 705.7
$ 128.6
-$ 9.6
$ 119.0
HCITY Consolidated (Hotel Operation + Hotel Management)
Hotel Operation Revenues (MX$ MM)
Room Revenues
Other Revenues
Net Hotel Management Revenues (MX$ MM)
HCITY Consolidated Revenues (MX$ MM)
Hotel Operating Costs And Expenses
Selling And Administrative Expenses
Hotel Pre-Operating Expenses
Hotel Operation And Management EBITDA (MX$ MM)
Hotel Operation
Other Revenues
Total Hotel Revenues (MX$ MM)
Net Operating Income (NOI) (MX$ MM)
Net Operating Income (NOI) Margin
Leasing Of Properties
Corporate Expenses
Hotel Pre-Operating Expenses
Hotel Management Expenses
Other Eliminations
Hotel Operation EBITDA (MX$ MM)
Hotel Management
Third-Parties Hotel Operation
Room Revenues Of Managed Hotels
Room Revenues Of Franchised Hotels
Other Revenues
Total Hotel Revenues (MX$ MM)
Total Revenues Of Managed Hotels
Total Revenues Of Franchised Hotels
GOP Of Managed Hotels
GOP Of Franchised Hotels
HCITY's Hotel Management
Hotel Mgmt. Revenues From 3rd Party Hotels (MX$ MM)
Revs. From Hotel Mgmt. Of HCITY's Hotel Operation (MX$ MM)
Gross Hotel Management Revenues (MX$ MM)
Eliminations
Net Revenues Hotel Management (MX$ MM)
Hotel Operation EBITDA (MX$ MM)
133
Hotel
Hotel
Number
Name
Code
Consolidated HCITY
Hotel Operation
Owned Hotels
City Express Junior
37
Mexicali
47
Ciudad Juárez
Investment
Type
Hotel
Ownership
Owned
Owned
100%
100%
Hotel
Country
Mexico
Mexico
Hotel
Location
Baja California
Chihuahua
Hotel
Region
Opening
Date
Number Of
Properties
Number Of
Rooms
Current
Hotel
Age (Years)
90
10,204
Current
Hotel
Maturity
Established
Rooms
NonEstablished
Rooms
5.3
6,625
3,579
7,900
3,743
234
106
128
5.1
5.8
5.5
6.0
5.0
Established
Established
5,222
2,634
234
106
128
2,678
1,109
N.A.
N.A.
N.A.
North
North
1-Feb-09
1-Mar-10
68
31
2
1
1
North
North
North
Bajio
Bajio
Central
Bajio
Bajio
North
Central
Central
Bajio
Bajio
North
North
North
Bajio
Bajio
North
Southeast
Southeast
Costa Rica
North
North
Colombia
1-May-03
1-Jul-03
1-Oct-03
1-Nov-03
1-Dec-03
1-May-04
1-Nov-04
1-Jul-06
1-Dec-06
1-Dec-06
1-Jan-07
1-Nov-08
1-Dec-08
1-Dec-08
1-Jun-09
1-Nov-10
29-Aug-11
16-Nov-11
31-Jan-12
5-Apr-12
24-Jul-12
7-Nov-12
20-Dec-12
20-Dec-13
20-Dec-13
25
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2,998
120
120
105
121
120
124
104
145
117
141
70
119
121
130
124
109
123
116
120
110
127
134
127
124
127
6.5
11.8
11.6
11.4
11.3
11.2
10.8
10.3
8.6
8.2
8.2
8.1
6.3
6.2
6.2
5.7
4.3
3.5
3.2
3.0
2.9
2.6
2.3
2.1
1.1
1.1
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Non-Established
Non-Established
Non-Established
Non-Established
Non-Established
Non-Established
2,013
120
120
105
121
120
124
104
145
117
141
70
119
121
130
124
109
123
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
985
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
116
120
110
127
134
127
124
127
1
2
3
4
5
7
10
17
19
20
21
30
33
35
40
49
56
61
63
64
66
69
71
78
80
City Express
Saltillo
San Luis
Monterrey Santa Catarina
Querétaro
León
Puebla
Irapuato
Guadalajara
Mexicali
Toluca
EBC Reforma
Lázaro Cárdenas
Silao
Monterrey Aeropuerto
Los Mochis
Nogales
Aguascalientes
Manzanillo
Ciudad Obregon
Campeche
Villahermosa
San José
Tijuana Insurgentes
La Paz
Cali
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
34
City Express Suites
Toluca
Owned
100%
Mexico
State of Mexico
Central
1-Dec-08
1
1
91
91
6.2
6.2
Established
91
91
N.A.
N.A.
24
36
77
City Express Plus
Insurgentes Sur
El Angel
Patio Universidad
Owned
Owned
Owned
100%
100%
100%
Mexico
Mexico
Mexico
Mexico City
Mexico City
Mexico City
Central
Central
Central
1-Jul-07
1-Jan-09
18-Dec-13
3
1
1
1
420
159
137
124
5.0
7.6
6.1
1.2
Established
Established
Non-Established
296
159
137
N.A.
124
N.A.
N.A.
124
2,893
371
134
113
124
2.5
2.6
5.7
1.1
1.0
Established
Non-Established
Non-Established
1,674
134
134
N.A.
N.A.
1,219
237
N.A.
113
124
Co-Owned Hotels
City Express Junior
42
Tijuana
79
Puebla Autopista
84
Cd. Del Carmen Aeropuerto
Mexico
Coahuila
Mexico
San Luis Potosi
Mexico
Nuevo Leon
Mexico
Queretaro
Mexico
Guanajuato
Mexico
Puebla
Mexico
Guanajuato
Mexico
Jalisco
Mexico
Baja California
Mexico
State of Mexico
Mexico
Mexico City
Mexico
Michoacan
Mexico
Guanajuato
Mexico
Nuevo Leon
Mexico
Sinaloa
Mexico
Sonora
Mexico
Aguascalientes
Mexico
Colima
Mexico
Sonora
Mexico
Campeche
Mexico
Tabasco
Costa Rica
Costa Rica
Mexico
Baja California
Mexico
Baja California Sur
Colombia
Colombia
Co-Owned
Co-Owned
Co-Owned
50%
50%
50%
Mexico
Mexico
Mexico
Baja California
Puebla
Campeche
North
Central
Southeast
1-Jun-09
20-Dec-13
17-Feb-14
25
3
1
1
1
9
11
18
22
25
31
48
50
51
52
54
58
59
62
67
68
81
82
86
City Express
Ciudad Juárez
Reynosa
Tampico
Hermosillo
Coatzacoalcos
Pueb la Angelópolis
Poza Rica
San Luis Univ.
Minatitlán
Mérida
Culiacan
Playa del Carmen
Puebla Autopista
Ciudad del Carmen
Queretaro Jurica
Durango
Cananea
Irapuato Norte
Dos Bocas Tabasco
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
Co-Owned
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Chihuahua
Tamaulipas
Tamaulipas
Sonora
Veracruz
Puebla
Veracruz
San Luis Potosi
Veracruz
Yucatan
Sinaloa
Quintana Roo
Puebla
Campeche
Queretaro
Durango
Sonora
Guanajuato
Tabasco
North
North
North
North
Southeast
Central
Southeast
North
Southeast
Southeast
North
Southeast
Central
Southeast
Bajio
North
North
Bajio
Southeast
1-Oct-04
1-Feb-05
1-Nov-06
1-Apr-07
1-Aug-07
1-Nov-08
1-Mar-10
1-Dec-10
1-Mar-11
1-Apr-11
1-Jun-11
13-Sep-11
4-Oct-11
20-Dec-11
25-Sep-12
16-Oct-12
10-Dec-13
20-Dec-13
29-May-14
19
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2,252
114
104
124
120
118
118
118
109
109
130
133
135
108
129
135
120
98
122
108
4.7
10.4
10.0
8.3
7.9
7.5
6.3
5.0
4.2
4.0
3.9
3.7
3.4
3.4
3.2
2.4
2.3
1.2
1.1
0.7
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Established
Non-Established
Non-Established
Non-Established
Non-Established
Non-Established
1,540
114
104
124
120
118
118
118
109
109
130
133
135
108
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
712
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
129
135
120
98
122
108
74
89
City Express Suites
Santa fe
Puebla Autopista
Co-Owned
Co-Owned
50%
50%
Mexico
Mexico
Mexico City
Puebla
Central
Central
15-Aug-13
26-Sep-14
2
1
1
111
39
72
0.9
1.5
0.4
Non-Established
Non-Established
N.A.
N.A.
N.A.
111
39
72
73
City Express Plus
Santa fe
Co-Owned
93%
Mexico
Mexico City
Central
15-Jun-13
1
1
159
159
1.7
1.7
Non-Established
N.A.
N.A.
159
159
134
Hotel
Hotel
Number
Name
Code
Leased Hotels
City Express Junior
27
Toluca
45
Cancun
46
Tlaquepaque
55
Veracruz
60
Tuxtla Gutierrez
12
23
26
43
72
88
6
Investment
Type
Hotel
Ownership
Hotel
Country
Hotel
Location
Hotel
Region
Opening
Date
Number Of
Properties
Number Of
Rooms
Current
Hotel
Age (Years)
Current
Hotel
Maturity
Established
Rooms
NonEstablished
Rooms
1,264
529
106
106
107
104
106
7.1
4.9
7.0
5.3
5.0
3.6
3.3
Established
Established
Established
Established
Established
914
423
106
106
107
104
N.A.
350
106
N.A.
N.A.
N.A.
N.A.
106
Leased
Leased
Leased
Leased
Leased
0%
0%
0%
0%
0%
Mexico
Mexico
Mexico
Mexico
Mexico
State of Mexico
Quintana Roo
Jalisco
Veracruz
Chiapas
Central
Southeast
Bajio
Southeast
Southeast
1-Feb-08
1-Nov-09
1-Feb-10
1-Jul-11
28-Oct-11
12
5
1
1
1
1
1
City Express
Cancun
Celaya
Tepozotlán
Veracruz
Chetumal
D.F. Central de Abastos
Leased
Leased
Leased
Leased
Leased
Leased
0%
0%
0%
0%
0%
0%
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Quintana Roo
Guanajuato
State of Mexico
Veracruz
Quintana Roo
Mexico City
Southeast
Bajio
Central
Southeast
Southeast
Central
1-Mar-05
1-May-07
1-Dec-07
1-Sep-09
6-Mar-13
18-Sep-14
6
1
1
1
1
1
1
709
128
104
109
124
109
135
5.5
10.0
7.8
7.2
5.5
1.9
0.4
Established
Established
Established
Established
Non-Established
Non-Established
465
128
104
109
124
N.A.
N.A.
244
N.A.
N.A.
N.A.
N.A.
109
135
City Express Suites
Anzures
Leased
0%
Mexico
Mexico City
Central
1-Apr-04
1
1
26
26
10.9
10.9
Established
26
26
N.A.
N.A.
0
N.A.
N.A.
N.A.
N.A.
18-Dec-14
22-Dec-14
23-Dec-14
28-Dec-14
81
81
1
1
1
1
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
-2.5
-2.5
0.2
0.1
0.1
0.1
Non-Established
Non-Established
Non-Established
Non-Established
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
2,304
1,911
109
109
5.4
3.7
1.0
1.0
Non-Established
1,403
1,010
N.A.
N.A.
901
901
109
109
City Express Plus
Pipeline Hotels - Hotel Operation
Average All-Brands
93
Monterrey Nuevo Sur
94
Matamoros
95
Salamanca
96
Villahermosa
Hotel Management
Managed Hotels
City Express Junior
83
Cd. Del Carmen Isla de Tris
Owned
Owned
Owned
Owned
100%
100%
100%
100%
Mexico
Mexico
Mexico
Mexico
Nuevo Leon
Tamaulipas
Guanajuato
Tabasco
North
North
Bajio
Southeast
Managed
0%
Mexico
Campeche
Southeast
13-Feb-14
22
18
1
1
8
13
28
32
39
41
44
53
57
70
75
76
85
87
90
City Express
Nuevo Laredo
Tepatitlán
Mazatlán
Tijuana Río
Tula
Zacatecas
Saltillo Sur
Torreón
Buenavista
Xalapa
Oaxaca
Salina Cruz
Tehuacan Puebla
Monterrey Norte
Apizaco
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
Managed
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Tamaulipas
Jalisco
Sinaloa
Baja California
Hidalgo
Zacatecas
Coahuila
Coahuila
Mexico City
Veracruz
Oaxaca
Oaxaca
Puebla
Nuevo Leon
Tlaxcala
North
Bajio
North
North
Bajio
North
North
North
Central
Southeast
Southeast
Southeast
Central
North
Central
1-Aug-04
1-Apr-05
1-Jun-08
1-Dec-08
1-Mar-09
1-Jun-09
1-Dec-09
1-May-11
5-Sep-11
11-Dec-12
2-Oct-13
23-Oct-13
26-Mar-14
12-Aug-14
29-Sep-14
15
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1,637
107
80
110
131
103
109
107
115
103
126
103
116
108
115
104
4.3
10.5
9.9
6.7
6.2
6.0
5.7
5.2
3.8
3.4
2.2
1.4
1.3
0.9
0.5
0.4
Established
Established
Established
Established
Established
Established
Established
Established
Established
Non-Established
Non-Established
Non-Established
Non-Established
Non-Established
Non-Established
965
107
80
110
131
103
109
107
115
103
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
672
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
126
103
116
108
115
104
15
65
City Express Suites
Querétaro
San Luis Potosi
Managed
Managed
0%
0%
Mexico
Mexico
Queretaro
San Luis Potosi
Bajio
North
1-Dec-05
23-Jul-12
2
1
1
165
45
120
5.9
9.2
2.6
Established
Non-Established
45
45
N.A.
120
N.A.
120
0
N.A.
N.A.
N.A.
N.A.
City Express Plus
Franchised Hotels
City Express Junior
Chihuahua
Franchised
0%
Mexico
Chihuahua
North
1-Mar-09
4
1
1
393
105
105
7.1
6.0
6.0
Established
393
105
105
N.A.
N.A.
N.A.
City Express
Tuxtla Gutiérrez
Chihuahua
Morelia
Franchised
Franchised
Franchised
0%
0%
0%
Mexico
Mexico
Mexico
Chiapas
Chihuahua
Michoacan
Southeast
North
Bajio
1-Dec-05
1-Mar-06
1-Jul-08
3
1
1
1
288
124
104
60
8.3
9.2
9.0
6.6
Established
Established
Established
288
124
104
60
N.A.
N.A.
N.A.
N.A.
City Express Suites
0
N.A.
N.A.
N.A.
N.A.
City Express Plus
0
N.A.
N.A.
N.A.
N.A.
30
30
1
1
N.A.
N.A.
N.A.
N.A.
-2.2
-2.2
0.3
0.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
38
14
16
29
Pipeline Hotels - Hotel Management
Average All-Brands
91
Ciudad Victoria
Managed
92
D.F. Satélite
Managed
0%
0%
Mexico
Mexico
Tamaulipas
Mexico City
North
Central
29-Oct-14
31-Oct-14
Non-Established
Non-Established
135
Period
2014
2015
2016
2017
2018
Operating Metrics
HCITY Initial Portfolio + Acquisitions
Number Of Rooms
Established
Non-Established
Additional Rooms
Available Rooms
Established
Non-Established
Occupied Rooms
Established
Non-Established
Established
Non-Established
Established
Non-Established
Established
Non-Established
10,907
6,976
3,931
1,578
3,596,193
2,333,848
1,262,345
2,132,532
1,455,973
676,558
59.3%
62.4%
53.6%
$ 746
$ 724
$ 794
$ 442
$ 451
$ 426
13,547
8,095
5,452
2,640
4,430,095
2,747,122
1,682,973
2,581,438
1,742,162
839,276
58.3%
63.4%
49.9%
$ 769
$ 745
$ 818
$ 448
$ 473
$ 408
15,947
9,329
6,618
2,400
5,266,962
3,148,325
2,118,637
3,118,713
2,011,375
1,107,338
59.2%
63.9%
52.3%
$ 797
$ 770
$ 845
$ 472
$ 492
$ 442
18,347
10,907
7,440
2,400
6,129,415
3,702,310
2,427,105
3,689,083
2,365,469
1,323,613
60.2%
63.9%
54.5%
$ 827
$ 799
$ 877
$ 498
$ 511
$ 478
20,747
13,547
7,200
2,400
7,005,415
4,607,455
2,397,960
4,246,746
2,944,210
1,302,536
60.6%
63.9%
54.3%
$ 854
$ 829
$ 910
$ 518
$ 530
$ 494
8,406
5,573
2,833
945
945
2,811,024
1,850,746
960,278
1,677,744
1,154,621
523,123
59.7%
62.4%
54.5%
$ 746
$ 724
$ 794
$ 445
$ 451
$ 433
10,206
6,446
3,760
1,800
1,800
3,351,150
2,201,355
1,149,795
1,972,039
1,396,015
576,024
58.8%
63.4%
50.1%
$ 766
$ 745
$ 818
$ 451
$ 473
$ 410
12,006
7,461
4,545
1,800
1,800
3,954,636
2,515,167
1,439,469
2,354,412
1,606,848
747,564
59.5%
63.9%
51.9%
$ 794
$ 770
$ 845
$ 473
$ 492
$ 439
13,806
8,406
5,400
1,800
1,800
4,601,430
2,882,865
1,718,565
2,772,070
1,841,841
930,229
60.2%
63.9%
54.1%
$ 825
$ 799
$ 877
$ 497
$ 511
$ 475
15,606
10,206
5,400
1,800
1,800
5,258,430
3,474,990
1,783,440
3,189,266
2,220,525
968,741
60.7%
63.9%
54.3%
$ 854
$ 829
$ 910
$ 518
$ 530
$ 494
2,501
1,403
1,098
633
633
785,169
483,102
302,067
454,787
301,352
153,436
57.9%
62.4%
50.8%
$ 747
$ 724
$ 794
$ 433
$ 451
$ 403
3,341
1,649
1,692
840
840
1,078,945
545,767
533,178
609,399
346,147
263,252
56.5%
63.4%
49.4%
$ 776
$ 745
$ 818
$ 439
$ 473
$ 404
3,941
1,868
2,073
600
600
1,312,326
633,158
679,168
764,301
404,526
359,774
58.2%
63.9%
53.0%
$ 805
$ 770
$ 845
$ 469
$ 492
$ 448
4,541
2,501
2,040
600
600
1,527,985
819,445
708,540
917,012
523,628
393,384
60.0%
63.9%
55.5%
$ 833
$ 799
$ 877
$ 500
$ 511
$ 487
5,141
3,341
1,800
600
600
1,746,985
1,132,465
614,520
1,057,480
723,684
333,795
60.5%
63.9%
54.3%
$ 855
$ 829
$ 910
$ 517
$ 530
$ 494
Hotel Operation
Number Of Rooms
Established
Non-Established
New Rooms
Non-Established
Available Rooms
Established
Non-Established
Occupied Rooms
Established
Non-Established
Established
Non-Established
Established
Non-Established
Established
Non-Established
Hotel Management
Number Of Rooms
Established
Non-Established
New Rooms
Non-Established
Available Rooms
Established
Non-Established
Occupied Rooms
Established
Non-Established
Established
Non-Established
Established
Non-Established
Established
Non-Established
136
Forecasted Income Statement / Valuation Metrics
Period
2013
2014
2015
2016
2017
2018
$ 292.5
17.6%
$ 13.7
$ 306.2
17.1%
$ 1,055.7
18.5%
$ 48.3
$ 1,104.0
18.4%
$ 1,326.0
25.6%
$ 69.3
$ 1,395.3
26.4%
$ 1,617.8
22.0%
$ 90.9
$ 1,708.7
22.5%
$ 2,001.4
23.7%
$ 95.9
$ 2,097.4
22.7%
$ 2,449.7
22.4%
$ 113.3
$ 2,563.0
22.2%
$ 2,915.3
19.0%
$ 128.6
$ 3,043.9
18.8%
-$ 248.7
-$ 148.5
-$ 50.9
-$ 49.3
-$ 910.5
-$ 569.7
-$ 177.2
-$ 163.7
-$ 1,134.8
-$ 716.4
-$ 210.0
-$ 208.5
-$ 1,381.8
-$ 921.1
-$ 220.1
-$ 240.7
-$ 1,654.4
-$ 1,123.5
-$ 249.9
-$ 281.0
-$ 1,971.8
-$ 1,360.5
-$ 283.8
-$ 327.5
-$ 2,330.3
-$ 1,634.6
-$ 319.6
-$ 376.1
-$ 8.5
-$ 0.0
-$ 16.0
$ 1.1
-$ 11.2
$ 2.9
-$ 10.4
$ 0.6
-$ 10.7
$ 0.7
-$ 11.1
$ 0.9
-$ 11.6
$ 1.0
YoY Change
EBIT Margin
$ 49.0
53.6%
16.0%
$ 178.6
45.2%
16.2%
$ 252.3
41.3%
18.1%
$ 317.1
25.7%
18.6%
$ 432.9
36.5%
20.6%
$ 580.9
34.2%
22.7%
$ 703.1
21.0%
23.1%
EBITDA
YoY Change
EBITDA Margin
$ 98.3
39.5%
32.1%
$ 342.2
28.0%
31.0%
$ 460.7
34.6%
33.0%
$ 557.8
21.1%
32.6%
$ 713.9
28.0%
34.0%
$ 908.5
27.2%
35.4%
$ 1,079.2
18.8%
35.5%
Adjusted EBITDA
YoY Change
Adjusted EBITDA Margin (%)
$ 106.8
45.0%
34.9%
$ 358.2
28.1%
32.4%
$ 471.9
31.7%
33.8%
$ 568.1
20.4%
33.2%
$ 724.7
27.6%
34.6%
$ 919.6
26.9%
35.9%
$ 1,090.8
18.6%
35.8%
Interest Expense
Interest Income
Profit Before Tax (EBT)
-$ 28.6
$ 15.1
$ 1.1
$ 32.9
-$ 106.2
$ 38.2
-$ 2.2
$ 102.5
-$ 111.0
$ 40.4
-$ 15.4
$ 157.6
-$ 163.1
$ 67.8
$ 3.8
$ 225.7
-$ 229.5
$ 72.6
$ 0.7
$ 276.7
-$ 313.8
$ 86.5
$ 11.1
$ 364.7
-$ 350.6
$ 74.3
$ 2.1
$ 429.0
Income Tax Expense
Consolidated Net Income
Non-Controlling Interests
Majority Net Income
YoY Change
Net Margin (%)
-$ 4.8
$ 28.1
-$ 9.7
$ 18.4
81.5%
6.0%
-$ 18.8
$ 83.7
-$ 11.2
$ 72.6
N.A.
6.6%
-$ 32.3
$ 125.3
-$ 16.2
$ 109.1
50.4%
7.8%
-$ 49.6
$ 176.0
-$ 28.0
$ 148.0
35.6%
8.7%
-$ 60.9
$ 215.9
-$ 35.9
$ 179.9
21.6%
8.6%
-$ 80.2
$ 284.5
-$ 49.2
$ 235.3
30.8%
9.2%
-$ 94.4
$ 334.6
-$ 59.5
$ 275.1
16.9%
9.0%
Revenues From Hotel Operation
YoY Change
Revenues From Hotel Management
HCITY Total Revenues
YoY Change
Total Costs And Expenses
Hotel Operating Costs And Expenses
Depreciation And Amortization (D&A)
Expenses Asociated With New Hotel Openings
Other Income / Non-Recurring Expenses
4Q2013
Valuation Metrics
Period
EBITDA Cap Rate (LTM) (%) - To FV
Adjusted EBT Yield (LTM) (%) - To Mkt. Cap
Earnings Yield (LTM) (%) - To Mkt. Cap
Hotel Revenues Yield (LTM) (%) - To Mkt. Cap
FCFE Yield (LTM) (%) - To Mkt. Cap
FCFE Yield (LTM) (%) - To FV
P /E (x)
EV /EBITDA (x)
EV /Adj. EBITDA (x)
P /Adj. EBT (x)
P /Sales (x)
P /NAV [Book Value] (x)
P /E To Growth Ratio (PEG) (NTM) (x)
E /Share (MX$)
Adj. EBT /Share (MX$)
BV /Share (MX$)
Growth in E /Share (YoY)
Growth in Adj. EBT /Share (YoY)
4Q2013
2013
2014
2015
2016
2017
2018
5.3%
2.1%
1.2%
19.3%
-10.9%
-10.2%
5.3%
2.1%
1.2%
19.3%
-10.9%
-10.2%
7.5%
2.5%
1.6%
19.8%
-15.1%
-18.8%
6.4%
2.4%
1.6%
17.7%
-5.1%
-5.4%
7.4%
3.0%
2.0%
21.9%
-8.0%
-7.5%
8.6%
3.9%
2.6%
26.9%
-7.8%
-6.7%
9.3%
4.7%
3.0%
32.0%
-15.2%
-12.0%
83.4x
18.8x
18.0x
59.1x
5.5x
1.40x
1.65x
83.4x
18.8x
18.0x
59.1x
5.5x
1.40x
1.65x
70.4x
13.4x
13.1x
44.7x
5.5x
1.09x
1.98x
61.6x
15.5x
15.3x
41.1x
5.3x
1.27x
2.86x
50.7x
13.6x
13.4x
33.0x
4.3x
1.23x
1.65x
38.8x
11.7x
11.5x
25.8x
3.6x
1.18x
2.29x
33.2x
10.7x
10.6x
21.4x
3.0x
1.13x
1.65x
$ 0.0670
$ 0.1138
$ 15.71
$ 0.2892
$ 0.3883
$ 15.71
$ 0.3695
$ 0.5771
$ 18.26
$ 0.3846
$ 0.5765
$ 18.72
$ 0.4676
$ 0.7173
$ 19.28
$ 0.6116
$ 0.9190
$ 20.02
$ 0.7149
$ 1.1092
$ 20.89
27.8%
48.6%
4.1%
-0.1%
21.6%
24.4%
30.8%
28.1%
16.9%
20.7%
137
Forecasted Balance Sheet / Leverage Ratios / Return Measures
Period
4Q2013
2013
2014
2015
2016
2017
2018
Total Assets
Current Assets
Cash And Cash Equivalents
Trade And Account Receivables
Recoverable Taxes
Non-Current Assets
Property, Equipment And Leasehold Improvements, Net
Other Non-Current Assets
Other Assets, Net
$ 7,416.3
$ 1,950.8
$ 1,687.3
$ 63.2
$ 33.6
$ 166.8
$ 5,465.5
$ 5,449.9
$ 3.0
$ 12.6
$ 7,416.3
$ 1,950.8
$ 1,687.3
$ 63.2
$ 33.6
$ 166.8
$ 5,465.5
$ 5,449.9
$ 3.0
$ 12.6
$ 10,129.7
$ 3,788.5
$ 3,435.8
$ 81.0
$ 63.7
$ 208.0
$ 6,341.1
$ 6,321.6
$ 3.7
$ 15.8
$ 11,309.2
$ 3,692.2
$ 3,260.3
$ 99.2
$ 78.1
$ 254.7
$ 7,617.0
$ 7,596.7
$ 4.5
$ 15.8
$ 12,406.9
$ 3,452.0
$ 2,921.8
$ 121.8
$ 95.8
$ 312.6
$ 8,954.9
$ 8,933.5
$ 5.6
$ 15.8
$ 13,700.6
$ 3,381.1
$ 2,733.3
$ 148.8
$ 117.1
$ 382.0
$ 10,319.5
$ 10,296.9
$ 6.8
$ 15.8
$ 14,191.8
$ 2,567.6
$ 1,798.1
$ 176.7
$ 139.1
$ 453.7
$ 11,624.2
$ 11,600.3
$ 8.1
$ 15.8
Total Liabilities
Current Liabilities
Other Taxes, Accrued Expenses And Other Liabilities
Income Tax Payable
Derivative Financial Instruments
Short-Term Debt
Direct Employee Benefits
Deferred Revenues
Employee Benefits
Derivative Financial Instruments
Long-Term Debt
Deferred Income Tax
$ 2,390.3
$ 242.6
$ 44.7
$ 84.7
$ 4.2
$$ 107.9
$ 1.1
$ 2,147.7
$ 15.9
$ 1.1
$ 10.7
$ 1,966.6
$ 153.4
$ 2,390.3
$ 242.6
$ 44.7
$ 84.7
$ 4.2
$$ 107.9
$ 1.1
$ 2,147.7
$ 15.9
$ 1.1
$ 10.7
$ 1,966.6
$ 153.4
$ 2,344.6
$ 574.7
$ 70.7
$ 133.2
$ 11.5
$$ 357.2
$ 2.2
$ 1,769.9
$ 24.0
$ 1.7
$ 15.1
$ 1,566.3
$ 162.8
$ 3,322.8
$ 545.3
$ 86.6
$ 163.1
$ 14.0
$$ 278.9
$ 2.7
$ 2,777.5
$ 29.4
$ 2.0
$ 15.1
$ 2,531.6
$ 199.4
$ 4,128.8
$ 593.2
$ 106.2
$ 200.2
$ 17.2
$$ 266.2
$ 3.4
$ 3,535.6
$ 36.0
$ 2.5
$ 15.1
$ 3,237.3
$ 244.7
$ 4,983.4
$ 658.8
$ 129.8
$ 244.6
$ 21.0
$$ 259.3
$ 4.1
$ 4,324.6
$ 44.0
$ 3.0
$ 15.1
$ 3,963.3
$ 299.0
$ 5,123.3
$ 657.9
$ 154.2
$ 290.5
$ 25.0
$$ 183.4
$ 4.9
$ 4,465.4
$ 52.3
$ 3.6
$ 15.1
$ 4,039.2
$ 355.1
Shareholders Funds
Controlling Interest
Non-Controlling Interest
$ 5,026.0
$ 4,322.1
$ 704.0
$ 5,026.0
$ 4,322.1
$ 704.0
$ 7,785.1
$ 7,026.0
$ 759.1
$ 7,986.4
$ 7,202.0
$ 784.4
$ 8,278.2
$ 7,417.9
$ 860.3
$ 8,717.3
$ 7,702.4
$ 1,014.9
$ 9,068.5
$ 8,037.0
$ 1,031.6
Total Liabilities and Shareholders Equity
$ 7,416.3
$ 7,416.3
$ 10,129.7
$ 11,309.2
$ 12,406.9
$ 13,700.6
$ 14,191.8
$ 2,074
$ 387
1.1x
38.1%
28.0%
0.71x
48.0%
$ 2,074
$ 387
1.1x
38.1%
28.0%
0.71x
48.0%
$ 1,924
-$ 1,512
-3.3x
30.4%
19.0%
1.08x
27.4%
$ 2,811
-$ 450
-0.8x
37.0%
24.9%
1.41x
39.0%
$ 3,503
$ 582
0.8x
39.2%
28.2%
1.60x
47.2%
$ 4,223
$ 1,489
1.6x
41.0%
30.8%
1.78x
54.8%
$ 4,223
$ 2,424
2.2x
36.4%
29.8%
2.33x
52.5%
2.5%
2.9%
5.9%
4.5%
4.3%
2.5%
2.9%
5.9%
4.5%
4.3%
2.1%
2.6%
6.3%
4.0%
3.8%
2.5%
3.1%
6.6%
4.6%
4.4%
3.2%
3.7%
7.2%
5.4%
5.1%
3.6%
4.4%
7.3%
5.8%
5.5%
4.1%
4.7%
7.5%
6.5%
6.2%
Leverage Ratios
Total Debt (MX$)
Net Debt (MX$)
Net Debt-to-EBITDA (x)
Total Debt / Total Assets (%)
DSCR (N12M) (x)
Debt-to-Equity (D/E) (%)
Profitability / Return Measures
Return On Equity (ROE) (NTM) (%)
Non-Cash ROE (NTM) (%)
Return On Invested Capital (ROIC) (NTM) (%)
Return On Capital Employed (ROCE) (NTM)(%)
Return On Assets (ROA) (NTM) (%)
138
Forecasted Cash Flow Statement
Period
Profit Before Income Tax
Non-Cash Adjustments
Other Adjustments
Financing Activities:
Investing Activities:
Changes In Working Capital
4Q2013
2013
2014
2015
2016
2017
2018
$ 32.9
$ 42.9
$$ 33.6
-$ 14.3
-$ 35.0
$ 60.2
$ 102.5
$ 158.0
$$ 109.4
-$ 33.6
-$ 108.6
$ 227.6
$ 157.6
$ 216.5
-$ 13.6
$ 112.3
-$ 37.4
-$ 13.9
$ 421.6
$ 225.7
$ 236.8
-$ 77.7
$ 163.1
-$ 67.8
$ 11.1
$ 491.2
$ 276.7
$ 280.3
-$ 96.8
$ 229.5
-$ 72.6
$ 13.8
$ 630.9
$ 364.7
$ 316.4
-$ 129.4
$ 313.8
-$ 86.5
$ 16.5
$ 795.6
$ 429.0
$ 374.0
-$ 153.9
$ 350.6
-$ 74.3
$ 17.1
$ 942.4
CapEx - Property, Equipment And Leasehold Improvements
Net Cash Outflow On Acquisition Of Subsidiaries
Net Outflow On Exchange Of Assets
Other Assets
Interest Income
-$ 255.1
$$-$ 9.3
$ 15.1
-$ 249.4
-$ 994.2
-$ 66.6
$$ 7.3
$ 38.2
-$ 1,015.4
-$ 1,123.1
$$-$ 3.2
$ 40.4
-$ 1,085.9
-$ 1,515.7
$$$$ 67.8
-$ 1,447.9
-$ 1,617.9
$$$$ 72.6
-$ 1,545.2
-$ 1,690.9
$$$$ 86.5
-$ 1,604.4
-$ 1,679.6
$$$$ 74.3
-$ 1,605.2
Debt Additions
Interest Expense (Cash)
Other Assets, Net
Equity Capital Increase (Issue Of Shares, Net Of Issue Costs)
Equity Capital Reductions
Increase / Decrease In Non-Controlling Interests
Distributions (Cash Dividends) To Shareholders
Non-Controlling Interest Dividends Paid
Payments To Acquire Non-Controlling Interests
-$ 171.3
$ 340.4
-$ 27.0
$$ 8.0
$$ 0.1
$-$ 4.6
$$ 145.5
-$ 412.2
$ 784.7
-$ 98.0
$$ 1,568.7
$$ 200.5
$-$ 4.6
-$ 105.5
$ 1,933.7
-$ 519.0
$ 385.0
-$ 126.2
$$ 2,594.2
$$ 78.1
$-$ 1.8
-$ 27.5
$ 2,382.8
-$ 353.4
$ 1,244.2
-$ 163.1
$$$$ 53.4
$$$$ 781.1
-$ 278.2
$ 971.8
-$ 229.5
$$$$ 111.8
$$$$ 575.9
-$ 255.1
$ 985.3
-$ 313.8
$$$$ 203.8
$$$$ 620.3
-$ 257.1
$ 259.3
-$ 350.6
$$$$ 76.2
$$$-$ 272.3
-$ 43.6
$ 1,771.0
-$ 40.1
$ 1,687.3
$ 1,146.0
$ 555.0
-$ 13.7
$ 1,687.3
$ 1,718.5
$ 1,687.3
$ 30.0
$ 3,435.8
-$ 175.6
$ 3,435.8
$$ 3,260.3
-$ 338.5
$ 3,260.3
$$ 2,921.8
-$ 188.6
$ 2,921.8
$$ 2,733.3
-$ 935.1
$ 2,733.3
$$ 1,798.1
Cash, Cash Equivalents and Restricted Cash at BoP
FX Effect / Hedging Valuation Effects on Cash and Cash Equivalents
Cash, Cash Equivalents and Restricted Cash at EoP
139
Company Profile: Hoteles City Express (HCITY)
Hoteles City Express, S.A.B. de C.V.
The core
Asset Class / Sector(s):
CBFI Holders Structure
Equity / Lodging
Country:
Rating
Mexico
Mkt. Cap (USD MM):
612
Last Price (MX$):
Target Price 2015 (MX$)
23.70
Mkt. Cap (MX$ MM):
9,120
26.90
IPO Date:
Dividend Yield
0.0%
Avg. Daily $ (MX$ MM)
10.1
13.5%
Avg. Daily $ (USD MM)
0.7
Total Upside Potential
Hotel Rooms Breakdown By Region
BUY
IFC &
ALAC
7.0%
14/06/2013
Free
Float
57.0%
Morgan
Stanley
RE
Fund
9.0%
Company Description
HCITY is a leading Mexican fully-integrated hotel chain. It is focused on providing quality, safe and
comfortable standardized accommodation in the economy and budget limited-service hotel segments .
HCE develops, acquires, manages and franchises hotels with 4 different brands: City Express, City
Express Junior, City Express Suites and City Express Plus. It has presence in 53 cities among 30 states
of Mexico, and 2 properties in LatAm. HCE’s portfolio consists of 96 hotels with 10,907 rooms.
Other*
Holders
27.0%
●LatAm*
Investment Thesis - Positives
2%
*Holders with no more than 5% stake each.
1) Unique, profitable and scalable fully-integrated hotel business model; 2) Strong capabilities as a lowcost developer; 3) Solid operating structure with state-of-the-art proprietary IT infrastructure; 4) Proprietary
marketing and distribution platforms; 5) Deep hotel management expertise; 6) Solid track record, reputation
and position; 7) Highly recognized hotel brand; 8) Scale (enables HCITY to achieve further operating
efficiencies); 9) Experienced management team; 10) Large diversification across Mexico.
●North
●Bajio
●Central
●South
36%
17%
20%
24%
* Costa Rica and Colombia.
GLA Distribution by Asset Type
Corporate Structure
Investment Thesis - Risk Factors
1) Lower than expected economic growth in Mexico as it is highly cyclical and dependent on the overall
strenght of the country's economic activity; 2) High exposure to travel disruptions including those related
to: political and geopolitical instability, security issues and criminality activity, natural disasters, health
concerns, terrorist attacks, among others; 3) Changes in laws and regulations; 4) Sensitivity to interest
rates and FX fluctuations; 5) Expansion oustide Mexico; 6) Development / Expansion risk for current or
new hotels; 6) Oversupply or reduction in demand for hotel rooms; 7) Renovations' costs.
Hotel
100.0%
Free Float
Other
Holders
MS RE
Fund
IFC &
ALAC
57%
27%
9%
7%
Hoteles City
Express (HCITY)
100%
Revenues From Hotel Operation
Revenues From Hotel Management
YoY Change
Managemen
t Subsidiary
2015
2016
2017
2018
1,618
2,001
2,450
2,915
3
91
96
113
129
5
1,709
2,097
2,563
3,044
6
7
Hotel
Mgmt.
Mexico
22.5%
22.7%
22.2%
18.8%
-1,382
-1,654
-1,972
-2,330
317
433
581
703
39
-241
-281
-328
-376
34
558
714
908
1,079
43
YoY Change
21.1%
28.0%
27.2%
18.8%
44
EBITDA Margin
32.6%
34.0%
35.4%
35.5% 45
Available Rooms
568
725
920
1,091
Implied Occupancy Rate
33.2%
34.6%
35.9%
148
180
235
8.7%
8.6%
9.2%
9.0% 65
Macroeconomic Assumptions
2015
2016
2017
2018
Mx GDP Growth
11,309
12,407
13,701
14,192
3
3,692
3,452
3,381
2,568
3,260
2,922
2,733
Trade And Account Receivables
99
122
78
96
Total Costs And Expenses
Depreciation And Amortization (D&A)
EBITDA
Adjusted EBITDA
Adjusted EBITDA Margin (%)
Majority Net Income
Net Margin (%)
Current Assets
Managemen
t Subsidiary
Managemen
t Subsidiary
Intl.
Invest.
Vehicle
RE
Owner
Costa Rica
&
Colombia
Chile CoOwnership
Key Operating Metrics
2015
2016
2017
2018
13,547
15,947
18,347
20,747
4,430,095
5,266,962
6,129,415
7,005,415
58.3%
59.2%
60.2%
60.6%
769
797
827
854
3.0%
3.7%
3.8%
3.3%
2015
2016
2017
2018
2.8%
3.4%
3.8%
3.9%
Mx Inflation (INPC)
3.1%
3.7%
3.8%
3.5%
4
U.S. Inflation (CPI)
1.9%
2.6%
2.3%
2.3%
1,798
5
Valuation Metrics / Yields
149
177
6
2015
2016
2017
2018
117
139
7
P /E (x)
61.6x
50.7x
38.8x
33.2x
47
35.8% 49
275
63
Number Of Rooms
Avg. Daily Rate (ADR) - MX$
YoY Change
255
313
382
454
8
EV /EBITDA (x)
15.5x
13.6x
11.7x
10.7x
7,597
8,934
10,297
11,600
10
P /Sales (x)
5.3x
4.3x
3.6x
3.0x
3,323
4,129
4,983
5,123
14
P /NAV [Book Value] (x)
1.3x
1.2x
1.2x
1.1x
545
593
659
658
15
P /E To Growth Ratio (PEG) (NTM) (x)
2.9x
1.6x
2.3x
1.7x
87
106
130
154
16
EBITDA Cap Rate (LTM) (%) - To FV
6.4%
7.4%
8.6%
9.3%
Taxes, Accrued Exp. And Other Liabilities
163
200
245
290
17
Earnings Yield (LTM) (%) - To Mkt. Cap
1.6%
2.0%
2.6%
3.0%
Short-Term Debt
279
266
259
183
20
FCFE Yield (LTM) (%) - To Mkt. Cap
-5.1%
-8.0%
-7.8%
-15.2%
2,777
3,536
4,325
4,465
22
Growth in E /Share (YoY)
4.1%
21.6%
30.8%
16.9%
2,532
3,237
3,963
4,039
26
Performance: Revenues (MX$ MM) / NOI and CAD Margins
Total Liabilities
Current Liabilities
Long-Term Debt
Shareholders Funds
246
298
361
426
7,986
8,278
8,717
9,069
2015
2016
2017
2018
226
277
365
429
3
Profit Before Income Tax
Interest Income
3,500
29
11
14
17
17
13
491
631
796
942
14
-1,516
-1,618
-1,691
-1,680
16
68
73
86
74
20
-1,448
-1,545
-1,604
-1,605
21
-353
-278
-255
-257
23
781
576
620
-272
33
-176
-338
-189
-935
35
Cash and Cash Equivalents at BoP
3,436
3,260
2,922
2,733
36
Cash and Cash Equivalents at EoP
3,260
2,922
2,733
1,798
38
3,000
40.0%
32.6%
34.0%
35.4%
35.5%
35.0%
30.0%
2,500
25.0%
2,000
20.0%
1,500
15.0%
1,000
8.7%
8.6%
9.2%
9.0%
500
10.0%
5.0%
-
0.0%
2015
2016
2017
EBITDA Margin
2018
Net Margin (%)
140
Margins
Property, Plant And Equipment, Net
Property Operating Revenues
Recoverable Taxes
Hotel
Mgmt.
LatAm
9
Total Assets
Managemen
t Subsidiary
Equity, Economic, Quantitative and Fixed Income Research Departments
Equity Research
Gustavo Terán Durazo,
CFA
Senior Analysts
Head of EquityResearch
(52) 55 1103-6600 x1193
gteran@actinver.com.mx
Martín Lara
Telecommunications, Media and
Financials
(52) 55 1103-6600x1840
mlara@actinver.com.mx
Carlos Hermosillo Bernal
Consumption
(52) 55 1103-6600 x4134
chermosillo@actinver.com.mx
Pablo Duarte de León
FIBRAs (REITs)
(52) 55 1103-6600 x4334
Pablo Abraham Peregrina
Mining, Metals, Paper and
Conglomerates
(52) 55 1103-6600x1395
pabraham@actinver.com.mx
Ramón Ortiz Reyes
Cement, Construction and Concessions
(52) 55 1103-6600 x1835
rortiz@actinver.com.mx
Federico Robinson Bours
Carrillo
Energy, Chemicals and Industrial
(52) 55 1103-6600 x4127
frobinson@actinver.com.mx
Juan Ponce
Telecommunications, Media and
Financials
(52) 55 1103-6600x1693
jponce@actinver,com.mx
Enrique Octavio Camargo
Delgado
Energy, Chemicals and Industrial
(52) 55 1103-6600x1836
ecamargod@actinver.com.mx
José Antonio Cebeira
González
Consumption
(52) 55 1103-6600x1394
jcebeira@actinver.com.mx
Mauricio Arellano Sampson
Mining, Metals, Paper Conglomerates ,
Cement, Construction and Concessions
(52) 55 1103-6600 x1835
marellanos@actinver.com.mx
Junior Analysts
Economic and Quantitative Research
Ismael Capistrán Bolio
Head of Economic and Quantitative
Research
Jaime Ascencio Aguirre
Economy and Markets
Santiago Hernández Morales
Quantitative Research
Roberto Ramírez Ramírez
Quantitative Research
Roberto Galván González
Technical Research
(52) 55 1103-6600 x6636
(52) 55 1103-6600 x1100
(52) 55 1103-6600 x4133
(52) 55 1103-6600x1672
(52) 55 1103 -66000 x5039
icapistran@actinver.com.mx
jascencio@actinver.com.mx
shernandezm@actinver.com.mx
rramirezr@actinver.com.mx
rgalvan@actinver.com.mx
Fixed Income Research
Araceli Espinosa Elguea
Head of Fixed Income Research
(52) 55 1103 -66000 x6641
aespinosae@actinver.com.mx
Jesús Viveros Hernández
Fixed Income Research
(52) 55 1103 -66000 x6649
jviveros@actinver.com.mx
141
Disclaimer
Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock
Exchange main Price Index (IPC)

StrongBuywith an extraordinary perspective. According to the analyst, in the next twelve months, the valuations of stock
and/or prospects for the sector are EXTREMELY FAVORABLE

Buy. According to the analyst, in the next twelve months, the stock’s valuation and / or prospects for the sector are VERY
FAVORABLE

Neutral. According to the analyst, in the next twelve months, the valuation of stock and / or sector ARE NEUTRAL OR
FAVORABLE but with a similar perspective to the IPC

Belowmarket. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NOT
POSITIVE

Sell. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NEGATIVE, or
likely to worsen

In reviewwith positive outlook

In review with negative or unfavorable perspective
ImportantStatements.
a)
Of theAnalysts:
“The analysts in charge of producing the Analysis Reports:
Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González,
Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Ana Cecilia González Rodríguez; Carlos Hermosillo Bernal;
Santiago Hernández Morales; Martín Roberto Lara Poo; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico
Robinson Bours Carrillo; Gustavo Adolfo Terán Durazo; Jesús Viveros Hernández, declare”:
b)
1.
"All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All
recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided
or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly,
with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services.
2.
"None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuers underhis
coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position
during the twelve months prior to the preparation of this report. "
3.
"Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their
assertiveness regarding the performance that is actually observed in the values object of the recommendation"
4.
"Analysts maintain investments subject to their analysis reports on the following issuers: AC, ALFA, ALPEK, ALSEA, AMX,AZTECA,
CEMEX, CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, GRUMA, ICA, IENOVA, KOF, LAB, LIVEPOL,
MEXCHEM, OHLMEX,POCHTEC, TLEVISA,SORIANA, SPORTS, VESTA, WALMEX.
On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver
1.
Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations
contained in the reports of analysis to ensure future business relationship.
2.
All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned
in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V.
GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to
the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts
will be affected by the profitability gained by Actinver Group and its subsidiaries.
3.
At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any
investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports,
representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of
the question, except for the following: * AEROMEX, BOLSA A, FINN 13, FSHOP 13, SMARTRC14.
4.
Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following
issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP and FUNO.
This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.
To see our analysts change of recommendations click here.
142

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