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ANNUAL REPORT

2015 VOLUME 1


ANNUAL REPORT

2015


LETTER FROM THE CEO

TRX grew significantly from 2007, the year it was founded,

pany. This gave us the benefit of centralized financial, op-

to 2014, when we completed a vigorous expansion cycle.

erational and back-office controls with the flexibility and

Since the company’s inception, we had always envisioned

agility of a smaller company.

a large structure, comprised of several strategies that we viewed as synergistic and complementary. We achieved

We concluded a thorough review of all our process-

this by expanding into multiple business lines and into

es, redefined roles and functions and hired key staff to

new geographies, focusing initially in Brazil and subse-

strategic positions. With the assistance of specialists,

quently in the American market.

we implemented a project focused on promoting human talent and fostering growth. With this, we achieved what

2015 was a challenging year for Brazil. The deepest finan-

we consider the optimal structure and the ideal team to

cial crisis in Brazilian history affected the entire econo-

carry out our business plan. We also enhanced corporate

my, including the key markets and sectors we focus on.

governance standards, improved financial and operating

Throughout last year, we decided to overhaul and optimize

metrics and perfected reports and project monitoring.

our internal structure, seeking to better position the company for future growth in the years to come. We previously

In addition to all these measures, we continued focused

used a matrix structure: all our companies shared a com-

on all our companies and business lines. All our strat-

mon team, streamlined by our real estate development

egies are today fully operational, with active projects,

process. This system worked well during our initial years,

funds and mandates, with a strong pipeline and revenue

when we focused mainly on corporate real estate solu-

backlog.

tions. However, with the increase of our business lines and products offered, each with distinct characteristics and

Once these adjustments and improvements were con-

investment cycles, we redesigned and improved our or-

cluded, we worked hard to show this to the market and

ganizational structure – multisector teams were split into

to our investors. Our focus for the next several years will

smaller, dedicated groups, each within a specific company

be to grow and consolidate each of our business lines, so

and strategy. This allowed us to have dedicated specialists

that each one becomes a leader in its segment. With this

for each product and business line, significantly improving

completed, we can look back to what we set out to do in

our business model. Each business line was segmented

2007 and conclude we have laid the basis for sustained,

into a standalone entity, under a common holding com-

long-term growth and value creation.

Luiz Augusto F. do Amaral CEO - Group TRX April 2016 Edition.


ANNUAL REPORT

2015 VOLUME 1

01.

ECONOMIC SCENARIO

06

02.

HIGHLIGHTS OF THE YEAR

08

03.

I N V E S T O R R E L AT I O N S

10

04.

C O R P O R AT E G O V E R N A N C E A N D C O M P L I A N C E

11

05.

S U S TA I N A B I L I T Y

12

06.

HUMAN DEVELOPMENT

16

07.

B U S I N E S S S T R AT E G I E S

18

07.1

TRX INDUSTRIAL

20

07.2

T R X C O R P O R AT E

28

07.3

T R X R E TA I L

30

07.4

TRX RESIDENTIAL

32

07.5

TRX INFRASTRUCTURE

34

07.6

TRX CREDIT | DCM

07.7

T R X FA C I L I T Y M A N A G E M E N T

36 37


01. Economic Scenario 2015

The recessive scenario that characterized the coun-

- offices, retail space, and logistics and industrial

try’s economy in 2015 resulted in profound fiscal,

warehouses.

economic, and political crises, which resulted in a significant loss of confidence. This credibility crisis

Recently, when the SELIC target rate was at lower

led to an increase in inflation and an increase in ba-

levels and inflation under control, real interest rates

sic interest rates, which affected the Brazilian real

were higher than those seen today. At the end of

estate market significantly.

2013, for example, the SELIC target rate was around 10.0% annually. Real interest rates, after discount-

Higher nominal interest rates, which are based

ing for inflation, were around 3.86% per annum. At

on the SELIC target rate, led to uncertainty with

the end of 2015, in contrast, inflation far exceed-

regards to the occupancy of corporate real estate

ed the Government’s target rate, and real interest

assets; the market also experienced a supply and

rates hovered around 3.23% annually.

demand mismatch, due to the excessive supply of projects and a weaker demand. This led to a strong

These numbers show that comparing the CDI rate

selling movement in real estate funds, resulting in a

(risk-free rate, based off the SELIC target rate) with

sharp deterioration in real estate prices.

the profitability of dividends from real estate funds and other investment vehicles that hold real assets

6

The market generally uses the SELIC target rate set

is not an adequate comparison. Analyzing the af-

by the Central Bank, which was increased to 14,25%

ter-tax real interest rate would be more appropriate

last year, as a reference for comparing the profit-

when evaluating these types of investments. Histor-

ability of real estate investments with other fixed

ically, real assets in Brazil have protected investors

income investment products. We do not believe

and companies in an inflationary environment, and

this is the best manner to evaluate real estate in-

are therefore considered natural hedges against

vestments, especially within the corporate market

periods of rising prices.

ANNUAL REPORT

2015


ECONOMIC SCENARIO 2015

As for the increase in real estate vacancy rates, it is

additional demand without sufficient supply. Today’s

worth noting that lease prices for certain real estate

environment provides such opportunities: acquisition

segments, such as warehouses and office space, fa-

of land at attractive prices and an incentive to start a

vor a Flight to Quality movement, since companies are

new investment cycle, which will translate into avail-

relocating to newer and better located facilities. This

able supply in three to five years.

represents an opportunity for companies to negotiate better conditions when searching for more efficient fa-

Analyzing the triple-A warehouse market, it is worth

cilities. On the other hand, with the expected economic

highlighting that there are 10.8 million square meters

recovery and a rebalancing of supply and demand over

of available GLA (gross leasable area) in Brazil, accord-

the medium term, we see room to renegotiate property

ing to data compiled by Colliers in 2015. As a compari-

lease rates, benefiting investors who are willing to in-

son, the United States has 832 million square meters of

vest in such assets.

GLA, according to data compiled by Jones Lang LaSalle in 2015. The market in the United States is 77 times

Projects developed under the Build to Suit format,

larger than in Brazil. While Brazil has 53.28 square

which comprise the majority of TRX Group’s portfolio,

meters per thousand inhabitants, the US boasts 2,568

have greater cash flow predictability and are more re-

square meters per thousand inhabitants. Considering

silient during periods of crisis. This is especially true

only the South Florida market, there is over 66.1 million

since these contracts do not allow for lease revisions

square meters of warehouse space.

during their term. Finally, targeting mature markets, TRX has been deThe current environment also offers several opportu-

veloping over the last three years operations in the

nities to develop new projects. The real estate cycle

United States. We increased our strategic presence in

for large scale projects is long – many projects can

2015 with the acquisition of new assets in the US. For

take over two years to get approved, plus an additional

TRX, diversifying our presence in over more than one

12 months for the construction of warehouses and an

market is key. While one region may present attractive

additional 24 months for the construction of corporate

opportunities for asset purchases, as it is the case in

buildings.

Brazil, another may present ideal conditions for asset disposals. By being positioned in various regions and

During the crises, virtually all developers scale back

markets, TRX can take full advantage of the best con-

investments. However, when the crises do come to an

ditions in each location, providing growth opportunities

end, the existing inventory will be absorbed, creating

even in challenging environments.

7


02. H i g h l i g h t s o f t h e Ye a r

TRX Day for the first time in Miami

TRX Residential begins operations

We took the traditional TRX Day event to Miami, in

We acquired assets in the North American residential

the United States.

market.

DORAL 1 enters TRX Industrial in the United States

Renault operation is delivered

We began industrial operations in the United States

We delivered the first phase of the Quatro Barras (PR)

and developed the TRX Doral 1 logistics park, which is

logistics part to Renault. The project was built using the

located near the Miami International Airport.

best processes available for sustainability and energy efficiency.

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ANNUAL REPORT

2015


HIGHLIGHTS OF THE YEAR

TRX Infrastructure develops projects

TRX Facility closes contract with Unijorge

We began the construction of a rear port terminal in

Jorge Amado University Center optimizes costs by

São Francisco do Sul (SC).

20% under TRX Facility’s management.

Logbras has a new shareholding structure Our real estate development company, focused on logistics parks, underwent corporate restructuring.

Piracicaba wins leveling award The Piracicaba Logistics Condominium won the Award for Planeness and Leveling, given by the National Association for High Performance Floors and Floor Coverings (Anapre).

MetroFit is recognized Internationally The Santo André (SP) self storage project was elected the best in the world for the award Facility of the Year 2015, given by Mini-Storage Messenger.

9


03. Investor Relations Though 2015 was a year marked by many difficulties for the majority of sectors in the Brazilian economy, it was a moment for TRX to reinforce the group’s solidity in the market. We took advantage of this moment to grow even closer with our current investors and to increase our relationship base. TRX Day, an event that we have held annually since 2008 to present the company’s next steps, has contributed to TRX entering into new segments. In May, in the São Paulo edition of the event, we will present new products and will bring new investors on board. In 2015, we took the event to the United States for the first time. TRX Day Miami was strategic in that it publicly made our presence official in the country, where we have already structured a solid base of operations and have formed a team of excellent professionals. The plan to expand TRX abroad started three years ago, before the crisis intensified in Brazil. Nonetheless, we planted the company’s flag in North America in 2014, when we began to offer investment options to our base of Brazilian investors who reside outside Brazil. 2015 was also an important year for us to improve our management reports and to intensify our relationship with the current investors in our funds, regardless of whether these funds are open or closed, by means of periodical meetings. We have also kept bi-annual meetings with the company’s investor base on our calendar. Whether in Brazil or in the United States, we are always ready to accommodate the investors that are already part of our portfolio, as well as those who intend to invest funds in assets that are under the management or development of the TRX Group. Our channels are open to answer questions and present, in the most transparent manner possible, all of our investment operations and how they are managed.

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ANNUAL REPORT

2015


04. Corporate Governance and Compliance

To continue the constant improvement of the group’s corporate governance and compliance framework, TRX invested in actions to update its rules, policies, and applicable manuals throughout 2015. As such, we strengthened the frameworks that regulate the governance of the companies that form the TRX Group, revitalized our compliance rules, and put anti-corruption policies into place. One of the great milestones of the year was an internal restructuring undertaken in order to offer autonomy to the companies inside the TRX Group. Our companies now act with increased corporate, financial, and managerial independence. They continue, however, to report to TRX Holding on strategic matters, thus guaranteeing the companies have a healthy level of independence, yet remaining aligned with the group. We are also updating our compliance manual, and will adopt a set of conduct rules that are much more in-depth than those being used by others in the market. One of the principal milestones in this update has been that, though the company is not public, we have adopted a Material Fact Disclosure Policy to normalize the practices and conducts that are indispensable to achieve the level of transparency that this dynamic requires. This has also been a period in which we have developed and implemented anti-corruption policies. In addition to internal trainings and the creation of reporting channels, we have created processes and mechanisms to ensure that the companies and employees that make up the TRX Group are not involved in corruption scandals. With clear compliance, corporate governance, and anti-corruption rules and policies in place, TRX stands out for its adoption of best practices, thus putting it on par with the best asset management companies in the world and being a reference in Brazil. 11


05. Sustainability TRX is focused on developing sustainable projects, especially projects related to energy efficiency and the rational use of water, both of which lead to cost savings for tenants while simultaneously reducing environmental impacts. In 2015, we made great gains in this sense. Our operations follow the rules laid out by two of the most renowned certification agencies in the world: LEED (Leadership in Energy and Environ-

mental Design), an international certification system used in 143 countries worldwide, and AQUA, an international certification system for sustainable building that was developed out of the French association DĂŠmarche HQE

(Haute QualitĂŠ Environmentale). Certifying a project implies that development costs will be increased by 20 to 25 percent. However, to generate less environmental impact, it is necessary to invest in the construction chain as a whole. For example, all projects listed below use LED lighting, a technology that is more expensive than traditional light bulbs but that is more efficient and lasts longer.

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ANNUAL REPORT

2015


S U S TA I N A B I L I T Y

Quatro Barras (PR)

Quatro Barras – construction 97% complete.¹

Offering 18% greater energy efficiency and reduction

sures were built with thermal and acoustic protections,

in water use, as compared to a traditional warehouse,

which eliminate the need for artificial ventilation and

and a 37% reduction in energy use for the administrative

keep the interior temperature at a comfortable lev-

building: this is the goal set by Quatro Barras, a project

el. Such actions generate less environmental impact

we developed specifically for Renault.

and lead to savings for the tenant. In the administrative building, a high performance climate control sys-

By means of the generation of solar energy via photovol-

tem that operates by using gases that do not harm the

taic panels, all energy consumed by the administrative

ozone layer was installed.

building is produced on site. Leftover energy is directed to the warehouse and external lighting system. The

Quatro Barras also has a rainwater reuse system that

warehouse uses automated LED bulbs. The system also

supplies water, free of waste, to toilets and urinals. All

combines artificial and natural lighting systems, guar-

unused captured water passes through a filtration pro-

anteeing that energy is consumed only when necessary,

cess and is slowly disposed of in a stream in the region

and creating an ideal environment for employees and for

- a natural destination for the rainwater. In the external

the operation. The project was built with concrete that is

area, where trucks circulate, flooring that allows for

partially composed of recycled material, as well as with

the slow infiltration of rainwater has been installed.

special paints and adhesives that do not harm the environment.

Showers contain timers that prevent water waste and use water that is heated by solar panels. Fur-

To incentivize alternative means of transport, we devel-

thermore, faucets are equipped with timers and wa-

oped a bicycle stand for employees, reserved parking

ter-flow restrictors to ensure that water is consumed

spaces for electric cars, and created a bus stop that is

responsibly.

accessed by two municipal public transport lines. Our project also has an environmental preservation The warehouse was also developed to include natural

area, which was revitalized through the planting of na-

ventilation. Furthermore, the warehouse’s lateral clo-

tive trees of the region.

¹ Data refers to December 2015. 13


S U S TA I N A B I L I T Y

Embu das Artes (SP)

This project – composed of a storage warehouse and an

All preservation areas and existing natural water sourc-

administrative building - is being developed for AMBEV

es on the site were kept intact, restored through the

and has an energy efficiency rate of approximately 15%.

planting of trees native to the region, and registered in

In order to adapt the land to the intended masterplan,

the Property Title in order to guaranteed that these ar-

a consistent earth-moving project was carried out that

eas remain preserved. We also donated native seedlings

lowered the original level by 40 meters.

to the Embu das Artes City Hall. These seedlings will be planted in a linear park near the development.

The warehouse contains a natural ventilation system and the project’s external illumination system employs photoelectric sensors. The site contains special parking spaces for electric cars and employees that carpool have access to preferential parking spaces. The site will also contain a bicycle stand and bus stop where municipal public transport lines can be accessed. The project was built with a concrete that is partially composed of recycled material, as well as with special paints and adhesives that do not damage the ozone layer. The air conditioning system projected for the site’s administrative areas is a high performance system that

Embu – construction 17% complete and earthworks are

does not use gases that are harmful to the environment.

90% complete.¹

Guarulhos (SP) Currently under development, the Guarulhos operation

inside the condominium. Such actions make it so artificial

project, though still not certified, incorporates the learning

cooling systems are unnecessary.

from the other projects in its conception. This guarantees the implementation of important measures needed to en-

The warehouses’ lighting systems are a combination of

sure the integrity of the environment. Furthermore, it re-

natural light and artificial LED lights, thus guaranteeing

duces costs for the tenant, differentiating the product from

efficient consumption of energy.

others in the modular condominium market. The project respects protected green spaces and promotes the regeneration of vegetation through planting native seedlings. Care with rainwater is also taken on site by means of the installation of permeable pavement in the areas where trucks circulate and through directing rainwater to a lake located on the land. The site also includes natural ventilation and thermal treatment of coverings to maintain the internal temperature of the development at the correct level for the operations that will be carried out ¹ Data refers to December 2015.

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ANNUAL REPORT

2015

Guarulhos – construction 31% completed.¹


S U S TA I N A B I L I T Y

Cabreúva (SP)

The Cabreúva development demanded above average efficiency: the warehouse that Luft Logistics Healthcare needs must be kept at 22 ºC, and temperatures can only vary between plus or minus 1 ºC. Guaranteeing the correct temperature to store the company’s pharmaceutical and cosmetic products all year round requires a significant high level of energy consumption. This situation led us to design and install a high performance thermal lateral closure and covering system that, combined with the highly efficient industrial climate control system, guaranteed the site operates at a level of energy efficiency of 11% as compared to a traditional warehouse. We also developed a system to revert rainwater captured on site to the environment. In addition to that, we have also developed a system to treat all sewage generated on site and dispose of treated water into a nearby stream. The site will also contain preferential parking spaces for electric cars and for employees who carpool, as well as a bicycle stand for employees. In the external area, where trucks circulate, flooring that allows for the slow infiltration of rain water has been installed, further guaranteeing the return of water to the environment.

Level of energy efficiency

11% as compared to a traditional warehouse.

CabreúvaConstruction

100% complete.1

¹ Data refers to December 2015. 15


06. Human Development The past year was also very important for us internally: by means of a differentiated methodology, we have begun to focus even more on our human capital. For this endeavor, we have contracted the services of VIR - Human Development Clinic - Training and Assistance in Psychology, Education, and Art. VIR offers its services to TRX through the clinic’s Integrated Approach. This method makes it possible for our processes to offer opportunities for continual growth to our collaborators, from the CEO to contract employees. In this sense, we offer our team profile evaluations, individual and group feedback sessions, relational dynamics, and individual, pair, and group counseling sessions, in addition to out of office workshops and dynamics. By means of self-discovery and self-improvement programs, we invest in our employees so that they can perfect their performances, as well as their interpersonal relationships. We have a singular understanding of the professional as a human being and of how the professional’s interpersonal relationships should be conducted. For this reason, internal issues and complaints are received by our Human Development so that each professional has access to outlets and to psychological support and orientation.

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ANNUAL REPORT

2015


HUMAN DEVELOPMENT

We see the support of the company’s growth through a

human lens.

We understand that each collaborator is

unique.

The Integrated Approach also assumes that personal development should be given space inside the company. We know that the evolution that comes as a result of this growth and improvement is naturally paralleled in the domains of a professional’s private and professional lives. In addition, all of our activities and improvements are continuous. In total, we spent 708 hours involving our entire team in these types of activities in 2015. Considering the premise that our employees spend a great deal of their lives at TRX, we aim to make this journey one of learning and development for each of our staff members. In 2016, we will continue this process and will structure the area of development and assistance to offer even more to our professionals. We see the support of the company’s growth through a human lens: the objective of this set of new actions is to act in such a way that decisions are made with a view that is dynamic and austere, and that takes into account the profound relationships that make up the company, as well as the company’s challenges. With this positioning, we stand out in the Brazilian financial segment, and stand out from companies in other areas, since we recognize that we are responsible for the human development of the professionals at all levels of the company’s hierarchy. Using this philosophy and organizational culture as a base, we understand that each collaborator is unique and, inside each individuality, each professional can develop as much in his or her professional life as in his or her personal life.

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ANNUAL REPORT

2015


ANNUAL REPORT

2015

BUSINESS S T R AT E G I E S

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07.1 Business Strategies

TRX Industrial Provide logistics spaces with modern and efficient

finished developments while simultaneously offering

platforms: this is one of TRX’s missions. In 2015, we in-

opportunities to companies with longer-term projects.

vested in sustainable operations and especially invested in optimized operations for industrial and logistics

As a result of the current economic scenario, we also

assets. With a complete range of products - available

identified good opportunities to start new construc-

for immediate occupation, build to suit, or for purchase

tion projects and develop new plots of land at highly

of an asset and subsequent sale as a Sale-Leaseback²

attractive and competitive design costs. The scenario

operation –, we seek to offer industrial and logistics

has also brought good opportunities in terms of lower

solutions in the country’s main centers of consumption,

competition and a possibility to invest in more dynamic

from north to south.

business opportunities while reducing the overall cost of construction.

With the direction the economy took last year - and our reflections on upcoming economic cycles - offering Tri-

In the long term, with the investments TRX made in

ple A logistics condominiums to the market is a solu-

2015 during this cycle of economic contraction, we have

tion that not only guarantees the quality of the entire

a stock of projects that are ready to launch when the

production chain, but that also reduces costs. This is

market begins to expand again. Along these lines, we

our Fly to Quality thesis. In other words, by means of

have an even more ample portfolio of modern logistics

our operation’s technical quality and the strategic lo-

condominiums - in contrast to the Brazilian market,

cation of our assets, we are able to deliver more ef-

which is, in large part, composed of very old assets that

ficiency to our clients, thus reducing their operational

tend to be owned by the companies themselves. We

costs to highly competitive levels in the medium and

have identified a strong trend towards outsourcing as-

long terms.

sets by companies and we are fully prepared to service these companies when the economy recovers.

We rely on the strategic location of our projects, which are always close to large commercial centers, possess

Given that the maturation cycle of our projects lasts

numerous access routes, and use advanced technology

from five to seven years, TRX is positioning itself in a

to guarantee energy and water efficiency. Our projects

strategic moment, given that costs to develop new proj-

are also optimized spaces (which allows for storage in

ects are currently lower and that the projects will be

a reduced amount of space) which allows us to offer

finished in a more positive economic scenario.

companies complete solutions. To carry out these operations, we count on four busiThe difficult economic year that was 2015 certainly

ness strategies: 1. Build to Suit¹ on “stand alone” plots

backed our Fly to Quality thesis, since companies need-

of land; 2. Development of logistics parks on our own

ed to optimize their processes and guarantee savings

strategic plots of land through Build to Suit¹ operations;

in their production chains. Given our ample portfolio,

3. Construction of modular condominiums for immedi-

we were able to offer options to companies that need

ate occupation; and 4. Sale-Leaseback² operations.

¹ In a Build to Suit operation, we build new projects to a tenant’s specifications. ² In a Sale-Leaseback operation, we acquire existing properties and then lease them back to the same company under a long term contract.

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ANNUAL REPORT

2015


B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

LOGBRAS Logbras has more than

With the goal of making Logbras one of the largest and most relevant

2.5

corporate restructuring. The real estate development company, focused

million m2 of land, with a possible ABL of 762,177.49 m².

industrial and logistics asset platforms in Brazil, the company underwent on logistics parks, is now controlled by Maori Holding S/A, a group made up of TRX, Marcos Amara, and Carlos Wizard Martins. With the majority participation, we have reinforced our presence not just with operators like Logbras, but also with investors. Maori Holding S/A acquired the 45% that Property Brasil held in the company and absorbed the 10% that was already held by the TRX Group. As such, Maori now holds 55% of the company’s shares and controls the company. Caixa Econômica Federal, which held a part of the original company, has remained part of the company though FI-FGTS and holds the remaining 45%. After this shareholder restructuring, the executive board was kept as it is, with the goal of continuing to expand Logbras by increasing its portfolio of products through the development of speculative projects on existing plots of land. In addition to Build to Suit operations, Logbras will also execute Big Box and modular warehouse projects. Logbras will continue with its strategy of buying plots of land and developing large logistics parks for storage and distribution primarily of the Build to Suit category. The company has six logistics parks in the cities of Cabreúva (SP), Embu (SP), Hortolândia (SP), Itatiba (SP), Quatro Barras (PR) and Salvador (BA). Ten other logistics parks are planned for development over the next decade.

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B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

Modular Logistics Condominiums PIRACICABA (SP) With an approximate investment of R$ 100 million, we

The TRX Piracicaba logistics condominium won the Award

ended 2015 as one of the largest and most technical-

for Planeness and Leveling in the “Concrete Flooring” cat-

ly advanced logistics condominiums in the Campinas

egory. The award was given by the National Association

metropolitan area. Additionally, we were the only Triple

for High Performance Floors and Floor Coverings (Ana-

A condominium in the Piracicaba region. With the in-

pre). This recognition demonstrates that the leveling of the

auguration of this project, TRX intensified its plans to

construction project will contribute to a greater durability

lease the space in the first quarter of 2016. As a result

of the machinery that will be used in this operation, as it

of TRX’s pioneering effort with this project, the compa-

causes less impact and wear and tear on the machinery.

ny’s thesis was proven: we identified clients while still

In addition, it increases the efficiency and speed at which

in the operation’s development phases.

merchandise can be transported inside the warehouse.

Next to the Luiz de Queirós Highway (SP-304), which connects the Bandeirantes Highway (SP-348) with the Anhanguera Highway (SP-330). Total area of 67,988.31 m², divided into 24 modules with areas of 2,751.83 m².

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ANNUAL REPORT

2015


B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

GUARULHOS (SP) Developed to be one of the largest Triple A logistics

of 2016 with active tenants. The operation has an LED

condominiums in the region, construction on the Gua-

lighting system, which reduces tenant energy costs by

rulhos modular park began in 2015, with an investment

up to 50%. This type of system also requires less main-

of R$ 210 million. Built 14 kilometers from the Gua-

tenance and lasts up to four times longer than other

rulhos International Airport, the logistics condomini-

types of equipment, which in turn causes less environ-

um is scheduled to initiate operations in the first half

mental impact given the reduced amount of waste.

The condominium contains modules for up to 32 companies. Minimum area is 2,772 m². ABL is 95,343 m² and the condominium is located next to the Presidente Dutra Highway (SP-60), close to the new Bonsucesso section, before the toll station.

SANTA CRUZ (RJ) Rio de Janeiro is the second largest logistics market in Brazil, with 17.8% of the gross national absorption, second only to São Paulo (45.4%). Though the segment here experienced difficulties in 2015 as a result of fluctuations in the oil and gas industry, the availability rate for assets is 15%, which is considered a balanced rate by ENGEBANC REAL ESTATE.¹ Throughout the past year, we focused on raising capital for the Santa Cruz operation, which required R$ 55 million in investment by FIP Modular Santa Cruz, one of the investors in which is BVEP (BV Empreendimentos and Participações S.A), which is controlled by Votorantim Bank S.A. In all, R$ 140 million is being invested in this operation. We expect to obtain licenses in the first half of 2016. Construction will be initiated thereafter.

Located close to Brasil Avenue and to Lower Fluminense. ABL of 94,775.87 m² and modules with areas ranging from 1,338.33 m² to 29,504.06 m².

1

ENGEBANC REAL ESTATE: consulting firm specialized in market research and real estate development studies, among other activities. The firm

aids in making strategic decisions in the real estate and civil construction segments.

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B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

Logistics Parks CABREÚVA (SP) In 2015, we delivered the Cabreúva logistics park. The project is a Build to Suit operation with Luft Logistics Healthcare, which stores medication in an area of 55.8 thousand m². For this reason, its warehouse is totally modern: medications must be stored at a constant temperature ranging between 21 ºC and 23 ºC. In this park, two other Build to Suit warehouses are available for operations.

Located next to Dom Gabriel Paulino Bueno Couto Highway (SP-300) at kilometer 84. The plot’s total area is 293,796 m² and constructed area is 128,013 m². Warehouses range from 14,105 m² to 71,557 m².

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2015


B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

QUATRO BARRAS (PR) Also last year, we delivered the first phase of the Quatro Barras (PR) to Renault. This project is comprised of a distribution center and an office building. The warehouse will hold stock pieces and accessories. The second and third phases of the projects, which are expansion projects, are scheduled to finish in 2017 and 2019, respectively. One of TRX’s most modern parks, Quatro Barras was built so that the entire operation is sustainable and efficient (see more in the Sustainability chapter).

Located on the East Rodoanel Contorno at kilometer 71 in Quatro Barras, Paraná. The warehouse’s area is 61,445 m².

25


B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

EMBU DAS ARTES (SP) We have completed 100% of the earthworks and will

ed in the city of Embu das Artes. The project will con-

deliver the first phase of this operation to Ambev in

tain an operational support building, a leisure area, a

2016. Ambev will use the warehouse to store beer.

maintenance area, a garage for forklifts and trucks,

With a total area of 340,801.16 m² upon which logistics

an area for supplying diesel and gas, sewage treat-

operations can be developed, the plot of land is locat-

ment states, an electricity cabin, and generators.

Located next to Rodoanel Mário Covas (SP-021) at kilometer 30. Potential ABL of 30,493 m².

Build to Suit ITAITINGA (CE) We closed a 15 year contract with BRF to store food products in a climate controlled operation. In all, R$ 84 will be invested in 23,273 m² of constructed area, accounting for the refrigerated warehouse and the office building. We will begin construction in February 2016 and will finish in December of the same year.

Located next to BR 116 at kilometer 24 in the city of Itaitinga. Total area is 90,079 m² and the project is located 19 kilometers away from the current BRF distribution center in Fortaleza (CE).

Sale-Leaseback ISCAR (SP) In July 2015, we sold the operation to Iscar. The project, which is located in Vinhedo (SP), was resold to the same company. The property, acquired in 2011 by means of a Sale-Leaseback operation carried out by TRX L11, was divested as a preventative action taken by TRX to avoid potential losses in our portfolio. We identified a risk of the operation remaining vacant as a result of internal changes at Iscar. Thus, we assertively divested the operation.

26

ANNUAL REPORT

2015


B U S I N E S S S T R AT E G I E S - T R X I N D U S T R I A L

TRX Investments 2015 was a decisive year for TRX Investment. During

per year; it has 6 million inhabitants, growing 1% per

this period, we began our first development project

year. This region also includes three ports and three

on North American soil and validated our business

important domestic and international airports. The in-

plan, which is focused on the development of modu-

dustrial real estate market in South Florida has 350

lar warehouses in Miami. With the construction of TRX

million square feet, or 33 million meters squared. The

Doral 1 distribution warehouse - close to the Miami

vacancy rate for industrial real estate is 4% in the sec-

International Airport - we began industrial operations

tor as a whole, and is 1% for modular projects, like

in the United States.

TRX’ Doral 1. Because of this strong local economy and high demand for our product, we have already

Using a floor plan that will contain 14 modules, each

identified corporations who are interested in TRX

with 15,000 square feet and 30 foot ceilings, TRX Doral

Doral 1, which has a total expected investment of US$

1 will serve companies which need on-site offices and

29 million. We have also been successful in identifying

separate truck parks for cargo handling. Typical us-

future industrial projects for 2016.

ers are import / export companies, companies which distribute imported products, and service companies

For the coming year, we at TRX Investments will pre-

with work related to the Miami International Airport.

pare to expand our platform to locations inside the

Construction is scheduled to finish in 2017.

Miami metropolitan area and in Broward and Palm Beach counties. We will also increase our investor

TRX’s operations in the United States, in the first

base, searching for investments from Latin America

phase of expansion in this market, are located in three

and the United States, in addition to investments orig-

counties in South Florida. Our outlook could not be

inating from Brazil. We will also be sourcing additional

more positive: this region has a Gross Domestic Prod-

project types like core plus repositioning plays for ex-

uct (GDP) of US$ 300 Billion which is growing at 4.3%

isting products.

TRX Capital Partners Our first investment vehicle, TRX Capital Partners, has been successful in raising funds for the industrial and residential sectors. The focus of this fund, like the other funds in the TRX Group, is the industrial sector, as 90% of total investments are in said sector. The fund offers an estimated return of 13.8% per year, with taxes and administration fees taken into consideration. With a minimum investment of US$ 250 thousand per investor, TRX Capital Partners was developed to offer opportunities to investors at various levels in the North American real estate market.

27


07.2 Business Strategies

TRX Corporate The effects of a weak economy were also felt by the corporate segment. In 2015, the sector was affected by two factors: companies searching for more aggressive leasing contracts and, simultaneously, a high density of corporate office space launches. This economic slowdown, in conjunction with a large supply of new developments, brought down rental values. On one hand, some companies that lease out office space in typical contracts suffer as a result of this new market configuration, losing many tenants or part of their revenues. On the other hand, companies that operate with long term contracts, agile strategies, and highly modern and efficient properties resist these moments. This latter is the case of TRX. By using solid and atypical (long term) contracts, we have initiated eight Build to Suit operations: six for Atento and two for Contax. In April, Atento started occupying our development in Guarulhos, which was delivered in the first half of 2015. This ten-year contract will remain in effect until July 2025. In total, the three-story building has 7,000 m² of ABL and received R$41.5 million of investment. During 2015, we also proactively positioned ourselves with regards to our few typical contracts. Upon identifying an adverse economic scenario, we had to be agile and to position ourselves to retain our tenants. We were able to do both successfully; however it has been a difficult period.

The three-story building has

7,000m² of ABL.

41.5

million of investment.

28

ANNUAL REPORT

2015


B U S I N E S S S T R AT E G I E S - T R X C O R P O R AT E

One of our clients, Peugeot, leased an entire building with us and later requested to leave the property. We were able to revert this situation and the company continues to lease two floors in the building. Though we registered losses, in keeping the company as a client, we have been able to cover all the costs associated with the building (taxes, security costs, and maintenance costs) without using resources from the investment fund. We would like to point out that when this property was acquired by TRX, we had already envisioned new possibilities for its use, such as preparing it to become a multi-tenant property, as we are now doing. Under such an arrangement, we can count on contracts with numerous tenants instead of just one. The characteristics of this property that most caught our attention when we bought it were: location, quality of the asset, and the possibility to easily convert the building into a condominium without the need for a large investment. Therefore, we ended 2015 maintaining the typical contracts we have in our portfolio by means of renegotiation and by maintaining tenants without impacting our investors. In addition to that, we see new opportunities in companies that need offices that require only one floor of a building, for example. The past year taught us many important lessons and strengthened our attitude towards adversity. We know that the corporate office spaces that were launched in the market (TRX did not launch any properties in 2015) were conceived at least three years prior, when the economic scenario was different than it is now. Economic cycles - and their respective highs and lows - are complex. Nonetheless, we know that it is possible to face these challenges, as we have been doing. When the market heats up again, and, consequently, rental levels begin to rise, TRX will be prepared to meet new demands with its ample portfolio of corporate properties.

29


07.3 Business Strategies

TRX Retail TRX Retail has consistently advanced in its most recent business cycle. With the MetroFit brand, we have proved the self storage concept in the São Paulo metropolitan area. We developed and opened an operation in Santo André, which was named the best new self-storage facility in the world and was given the North American award Facility of the Year 2015 by Mini-Storage Messenger, a publication that follows self-storage companies in various countries. MetroFit Santo André competed with more than 100 other operations, and was the overall winner of the competition, as it was the best in terms of brand, location, and architectural design, among other criteria. The past year was also very important for MetroFit internally: we built a cohesive team and improved our internal processes. We took advantage of the weak

MetroFit Marginal

30

ANNUAL REPORT

2015

economy to make our operation even more efficient, with more rigid controls. We also made certain that we understood and fully met the complex demands of the market in São Paulo. In the company’s past two years in particular, we achieved rapid growth - in an infant market - by maintaining the highest standards of quality at our facilities and in customer service. In this sense, 2015 was very important for us in terms of developing marketing strategies and assertive communication campaigns about self-storage solutions and about how said solutions benefit the companies and residents of São Paulo. In one year, we tripled our client base and doubled our occupancy rate. Furthermore, the two operations have had continual positive net absorption rates.


B U S I N E S S S T R AT E G I E S - T R X R E TA I L

MetroFit Santo André

During the past year, we also proved to the market that self-storage is well suited for residential areas. MetroFit is the first company to open a facility in a high-end residential neighborhood. The Santo André location, localized in the Jardim neighborhood, exceeded our original lease-up projections. Furthermore, residential clients have demonstrated the highest demand for our solution in the region. At the Marginal location, which is located in a commercial area, the result has been the opposite: the majority of our clients are companies who see our storage unites as an optimized solution for their logistic needs.

the moment, there is little active competition from other segments and there are many vendors facing liquidity issues. We see the next period as a cycle of opportunities that will allow us to expand geographically inside the city of São Paulo, as well as expand to other cities such as Rio de Janeiro and Belo Horizonte. Furthermore, we are especially confident moving forward since we have proved that the demand for self-storage is repressed, both in strong and in weak economic moments.

During 2015, we also began construction on a hybrid unit: a facility in Alphaville that will house a Decathlon retail store in the same development as our venture. In addition, we approved the project for a location in São Caetano. Construction will begin in mid-2016.

For these reasons, we know that the current phase is extremely positive for our business. In addition, São Paulo City Hall created adequate rules for business models pertaining to the activity of self storage, opening up new opportunities and facilitating the taxation of the segment. The year was also important because we are now members of Secovi and the association of Brazilian self storage companies (ASBRASS).

Given the fragile economic moment, we have identified great opportunities to acquire new properties and real estate in strategic locations inside urban areas. At

We are on the right path to make MetroFit a leader in this market and a company that is institutionally recognized for offering self-storage solutions with excellence.

ABL of the Locations Marginal

Santo André

Alphaville

São Caetano

4,800 m² 5,900 m² 5,700 m² 6,500 m² 31


07.4 Business Strategies

TRX Residential The US real estate is unique: after the market went through one of the worst crises in its history in 2008, it only took a few years for investment and liquidity to return. One of the reasons for this rapid recovery was a key characteristic of the market: it is dynamic, with active investors in search for capital allocation. It was in this scenario that TRX’s attention was caught. We identified safe opportunities in the US residential space where every state has landlord-tenant statutes that clearly outline steps to be taken for eviction, providing an investor driven environment.

TRX built a coherent strategy that includes the acquisition of existing assets and new developments, in well-located target markets, adding value and monetizing overall investment by disposition or refinancing via capital markets. In 2015, we engaged in two different strategies: the repositioning of distressed Single-Family Homes and the acquisition of existing Multi-Family Homes. With these two strategies, we offer investors excellent value added opportunities.

Multi-Family Homes: group of apartments intended to be 100% leased properties.

1

Ashley Lakes

Before

After

Single-Family Homes

Before 32

After

ANNUAL REPORT

2015


B U S I N E S S S T R AT E G I E S - T R X R E S I D E N T I A L

Last year, we focused on building a strong foundation for

ments and opportunities for the best results.

our business. During this period, we executed partnerships with local operators and invested in communica-

Our mission is to guarantee to our investors the best op-

tion with investors in order to make them aware of deals

portunities available in residential assets. In the midst

and to increase their understanding of the dynamic of

of numerous options, only critical analysis can guaran-

the North American market.

tee the best investments and returns. Among our recent acquisitions, we would like to highlight Viera Plantation

Aside from doing excellent deals, our goal is to be able

(Plantation, FL) and Ashley Lakes (Boyton Beach, FL),

to use its performances with investors and prepare them

where we will increase appeal to tenants by improving

for future opportunities. In the past five years, the real

the look and feel of the properties.

estate market in the United States has increased dramatically. As a result, prices today are very close to those

In 2016, our goal is to scale our investments in the USA

of the pre-crisis in 2008. For this reason, we believe this

and provide our investors with safe and, especially, prof-

moment requires caution when underwriting invest-

itable investments.

Viera Plantation

Before

After

OUR STRATEGIES Multi-Family Development and Acquisition

Special Situations Developments

Value added Development and Acquisition of class A and

Different opportunities within the residential space that

B assets in target areas with recognizable revenue in-

are related to TRX’s strategy, like a mixed-use project or

crease and exit or refinance via capital markets.

also a very well located ultra-luxury condo development.

Repositioning of Single-Family Homes A strategy that involves the acquisition of class C and D single-family homes at distressed prices in target markets that exhibit favorable demographics and long-term economic trends. Value creation through cost-efficient, high-quality renovations and selling packages of rent-stabilized properties to large funds and aggregators or selling them on the retail marketplace.

33


07.5 Business Strategies

TRX Infrastructure In addition to investing in real estate, in 2014 TRX diversified its portfolio with operations related to the lacking Brazilian logistics chain. We defend two theses: that there are many opportunities for operations connected to agribusiness and to bulk liquid storage. Agribusiness can be considered a Brazilian oasis: it is a market that grows independently of the greater economic moment and it is a market in which Brazil acts with a great deal of propriety and on a global scale. For this reason, we developed a rear port terminal in SĂŁo Francisco do Sul (in the Brazilian state of Santa Catarina). The terminal is the most modern in the country and will carry the fertilizers stored therein directly to rail cars. In 2015, we began construction of a terminal inside the port area of SĂŁo Francisco do Sul, for which we received a 20 year bank loan - a clear demonstration of confidence in the soundness of our project. The rear port terminal will help avoid truck traffic and will optimize train traffic in the region. Currently, trains transport grains to the port and return to the interior of the state of Santa Catarina only partially filled (around 25%). With the rear port terminal, which will be inaugurated in the second half of 2016, the rail cars will make the return trip totally filled with fertilizers.

Cargo Trucks

is equivalent to

rail car The SĂŁo Francisco do Sul (SC) terminal

will handle

1.8 million tons of fertilizer

34

ANNUAL REPORT

2015

which is equivalent to

rail cars per year


B U S I N E S S S T R AT E G I E S - T R X I N F R A S T R U C T U R E

of fertilizers used in Brazil are imported

and enter the country through its ports.

The Paranaguรก (PR) terminal will have an annual storage capacity of

2.5 million

t he e q

tons of grains

ent of val i u

cargo ships

Additionally, we will invest in a port terminal designated for the storage of grains, such as soy and corn, as well as sugar, in Paranaguรก (PR). Last year, we obtained authorization to expand the local port with this operation, which will required investments of R$200 million. Our second strategy, that of bulk liquid storage, will also be operated out of Paranaguรก and will be initiated in 2016. We will acquire terminals in order to develop a platform to store fuels throughout the country. To do so, we have created a joint venture with a global trading company. With these operations, TRX Infrastructure has demonstrated its expertise in strategic logistics investments, increasing its portfolio beyond the real estate market. With significant returns in the infrastructure sector, we are focused on the most interesting assets in the logistics chain. Furthermore, we are avoiding sectors that are intimately tied to global economic expansion, such as the mining industry, or industries that suffer direct impacts with changing foreign exchange rates, such as containers and imports. Therefore, independently of the economic recovery, the agribusiness and fuel sectors experience strong logistic pressures, a fact that adds value to our terminals since we provide solutions to our clients.

35


07.6 Business Strategies

TRX Credit DCM TRX Credit fulfilled an even greater role in 2015. On

mance. TRX raised a R$27 million financing package

the back of adverse economic conditions, with credit

to develop a call center in the city of Parnamirim, Rio

become scarcer and a rising interest rate environment,

Grande do Norte. Funds were raised through a private

obtaining financing has become extremely challenging

placement CRI.

for companies in Brazil. TRX Credit emerges as an alternative financing solution, helping companies raise

Last year we structured and launched our first FIDC (Fun-

cash buffers or refinance existing debt. With bank lend-

do de Investimentos em Direitos Creditorios, or Receiv-

ing portfolios decreasing, TRX has been able to source

ables Fund), targeting R$100 million. We are also struc-

attractive opportunities.

turing two additional FIDC funds, with a goal of raising an additional R$200 – 300 million by the end of 2017.

We offer tailor-made credit and financing solutions, whether directed to the real estate segment or for gen-

TRX offers customized credit and financing solutions

eral corporate purposes. In 2015, we reached R$700

to clients. Our investors benefit from robust structures

million in financing transactions structured and dis-

which provide a diversified investment option, whether

tributed by TRX. Our goal is to reach R$ 1 billion by the

through direct transactions or through credit funds. In

end of 2016.

addition, TRX has vast expertise in credit analysis and in structuring bonds and loans, as well as managing

Our platform includes a proprietary securitization com-

credit funds.

pany, which, coupled with our real estate expertise, allows us to offer customized solutions including Real

Our engineering and real estate know-how provide

Estate Receivable Certificates (CRIs), and other instru-

many benefits to companies and to investors: from the

ments secured by real assets to raise funds with inves-

initial project assessment to the actual property devel-

tors. We also structure and manage corporate credit

opment, our hands-on approach helps mitigate risks

funds, which invest in debt and receivables.

associated with the projects. In the eight years since our founding, we have cemented our reputation as a

36

One of the highlights of 2015 was a financing transac-

leader in the real estate and financial markets, allow-

tion we structured for the French company Teleperfor-

ing us to meet client and investor needs.

ANNUAL REPORT

2015


07.7 Business Strategies

TRX Facility Management

TRX Facility Management has always operated under a

service, as well as to a 30% increase in user satisfaction.

clear philosophy: optimize productivity, improve opera-

In addition, throughout the first quarter of last year, TRX

tions, and reduce costs for numerous types of corpora-

Facility Management’s processes were put into practice

tions. Our work involves a deep analysis of the process-

at all of the institution’s locations. This implementation

es that affect a company but that are not considered as

led to a 50% increase in productivity per area and a 20%

core business. As such, we are able to identify an orga-

optimization of labor costs.

nizations’s challenges and offer customized solutions. Given the excellent results achieved with Unijorge, our We provide to our clients the organizational security

focus is to work on increasing our contact with the ed-

they need to be able to maintain total focus on their

ucational business segment in 2016. We also plan to

business activities and to avoid investing precious time

invest in a new shared management solution, making

and energy on issues that fall outside the scope of

it so that various companies can share the cost of a

their day to day operations. TRX Facility Management’s

contract while each receives a totally customized solu-

greatest differential is that it develops indicators that

tion. A corporation’s challenges, generally speaking,

are not only monitored in real time, but that are also

include: security services, cleaning and maintenance

interpreted by our highly-trained technical team. Us-

services, legal issues, tax classifications (in particular,

ing this analysis as a base, we are thus able to propose

ensuring that tax classifications are appropriate for

measures for restructuring long-term actions , pro-

each type of business activity) and the accumulation of

cesses and procedures in contracts (which typically

employee functions (which can lead to labor lawsuits

last between 24 and 36 months), whereby generating

and resulting liabilities).

significant results for our clients. The economic moment in which Brazil currently finds In 2015, TRX Facility Management began working with

itself is marked by crisis and by a less than optimistic

the Jorge Amado University Center (known as Unijorge)

macroeconomic outlook. In such a moment, TRX Facili-

in the Brazilian state of Bahia. This center has more than

ty Management’s work, which is focused on the contin-

300 classrooms (a total area of 80,000 m²) and is used by

ual delivery of quality, innovative solutions, and mea-

more than 25,000 students. In our first month working

sures to reduce operational costs, is now essential to

with Unijorge, the application of TRX FM´s methodology

organizations that want and need to maintain economic

led to a 90% reduction in time spent providing customer

growth, regardless of their size or market segment.

37


Av. Nações Unidas, 8501 - 31° andar CEP 05425-070 - Pinheiros - São Paulo - SP Tel. 55 11 4872.2600 Fax. 55 11 4872.2601 www.trx.com.br Miami - FL - USA 600 Brickell Ave. Suite 2025 - Zip Code 33131 Main: + 1 (786) 408 6105 www.trxinvestments.com April 2016 edition. Produced by

Annual Report 2015 - TRX - English  
Annual Report 2015 - TRX - English  
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