BENEFICIARIES
REPORT BY: PROTECTIVE COMMITTEE 2020
TABLE OF CONTENTS
I.
LETTER OF THE CHAIRMAN
II.
INTRODUCTION AND PURPOSE
III.
COMPANY OVERVIEW
IV.
EXECUTIVE SUMMARY
V.
FINANCIAL INFORMATION
VI.
ADDITIONAL INFORMATION
VII. ANNEX
I.
LETTER FROM THE CHAIRMAN BY: JOSÉ RAÚL ARIAS
DEAR BENEFICIARIES: On behalf of the Protector’s Committee we are pleased to present this first Beneficiary Report, that will serve as a bi-yearly method of communication with the Beneficiaries under the principles of transparency and accountability. It is the first time that the Protective Committee of the SF Trust has produced this type of report since the passing of our Founder Mr. Paul Ziegler and the creation of the Trust in 2017. These past three years we have been focused on maintaining his legacy and business leadership and creating value over the short, medium and long term. We are confident this document will provide a more complete view of our strategy, governance, performance and prospects at a dynamic time for the sector that the companies held under the SF Trust participate in. It is our duty to act with transparency and accountability in accordance with the trust obligations in our role of stewards of the trust assets. As you are aware, this year’s events have impacted all industries, ours not being the exception; there are many lessons in this dynamic and changing environment dealing with the pandemic crisis that will make us improve all our competences and future plans. We are determined to manage this challenge with our commitment and industry knowledge. We will accompany our market initiatives with improvements in our business and operations. Our restructuring efforts and effective cost management over the past three years have enabled us to successfully turn around our business. Going forward, we will continue to exercise care and discipline in managing cost while improving our operational excellence. With the beneficiaries’ wellbeing at heart, we have taken concrete steps to safeguard their benefits in the future by diversifying the company’s liquid assets and thereby reducing the risk of any interruption in the flow of benefits. The Committee is very pleased with the composition of the Management Team and the background, skills and experience that each member brings to Ultrapark. We are also confident that with our investments in people, technology and facilities, the solid foundations are now in place to deliver on our accelerated strategy over the coming years. To conclude, I would like once again thank all employees at Ultrapark, the management team and my colleagues on the Committee for their hard work and strong commitment. I would also thank our customers and business partners for their loyalty and close ties. And, finally, I would like to thank you, our beneficiaries, for supporting us as we execute the next steps in our strategy and focus resolutely on ensuring that Ultrapark reaches its next level.
II.
INTRODUCTION AND PURPOSE:
One of the challenges of succession of business leadership for Ultrapark, is to ensure business continuity, innovation and quality to our customers. Our main responsibility is to remain faithful to our Founder`s commitment to excellence in business and continuous improvement and sharing our values by building a strong culture of ethics and results. This first Beneficiary Report outlines the last three years of business initiatives and results in compliance with our duty of acting in good faith and in accordance with the Trust steward the trust assets for the benefit of our beneficiaries and providing reasonable information about the investment and management of the trust fund.
III.
COMPANY OVERVIEW
Ultrapark is the best business partner that a global company eager to install operations in Costa Rica could hope for. Our 30 years of experience in the construction and maintenance of more than 200 thousand square meters in AAA quality offices leased mainly to Fortune 500 companies present in Costa Rica, are the greatest testament to the excellence of our service and the added value of our proposal.
EXECUTIVE SUMMARY
1)
In recent years Costa Rica has suffered certain structural problem even
before the Covid-19 crisis, such as high unemployment, low growth rates in internal production, increased inequality, loss of competitiveness and fragility of public finances. Likewise, private investment has remained depressed.
2)
Within
this
context,
the
Free
Zone
Sector
(which
includes
manufacturing and services) has been the exception, showing constant investment figures above US$2B per year in the last 10 years, reinforcing Ultrapark's investment thesis focused on service companies within the Free Zone regime.
3)
Covid-19 has emphasized two necessities: protect life and safeguard
livelihoods. In both aspects we have made efforts directed at our employees as well as our clients and their employees.
IV.
4)
A potential structural change could emerge if work-from-home
strategies are permanently implemented by Companies. This trend might reduce de demand for office space, customers may move out to other locations seeking lower prices or smaller areas, or for other strategic reasons.
5)
Covid-19
also
put
pressure
on
global
demand,
increasing
unemployment and demise of companies that were negatively impacted by the pandemic.
6)
Outlook for the Free Zone sector and specifically for the Services
Industry is challenging and will be based on economic recovery in the U.S., Asia and Europe. Opportunities will come from the growing need of U.S. companies to move operations to closer locations, within the US time zones, that have laws that protect intellectual property and benefit from reduced travel time and distance.
7)
As a result of the Free Zone Regime’s past success and the negative outlook for other real wstate asset
classes, Costa Rican and Central America developers are visualizing the Free Zone Regime as the asset class to be developed in the following years. Consequently, an increase in price reduction is expected in connection with fewer clients and smaller area requirements.
8)
We currently have 38 clients, the majority of which are overseas companies. The most representative
clients includes:
McKinsey, Entserv, Amazon, Walmart, Fisher Scientific, Roche, Concentrix, National
Instruments, Thomson Reuters, Uber, Fujitsu, and Bombardier. These clients employ more than 12,000 in their operations.
9)
The Protective Committee supported an aggressive commercial strategy performed by the
management team, that started early on 2018.
This key strategy enables us to renegotiate lease period
extensions, including buildout and furniture upgrades and rent to market prices. This implies an extension of the lease terms and gives Ultrapark a competitive flexibility during the next two coming years. By 2021 there is any contract expiration on the roadmap and just four contracts will expired on 2022.
10)
The average remaining term of the lease contracts is 4.8 years. Our current occupancy rate stands at
72%, in order to sustain this rate we deem it essential to take some preemptive measures, therefore, in the next few years we will focus our efforts on mainly 3 components: a. Take advantage of the opportunity that nearshoring, reshoring, and cost reduction generate and lease the available areas based on our One-Stop Shop competitive advantage. b. Maintain our current customers, by continuing to offer them the best service and help them return to normal operations (considering the new normal). c. Maintain the high level of satisfaction of the end users, by enhancing of common areas and services.
11)
As part of our growth strategy, based on the market studies presented by CINDE, we have completed
a new investment with the acquisition of strategically located real estate property in San José, within the area designated as part of the Technological City Project that the Municipality of San Jose is promoting. CINDE’s study recommended the development of office projects in San José’s downtown. This property allows Ultrapark to offer an expanded portfolio of options to current and prospective clients as its location is particularly strategic given the proximity to high density areas and its accessibility to public transportation services. (train and bus).
V.
FINANCIAL INFORMATION
The following information details the total assets and liabilities of the Trust, information that is provided to the Trustee at least annually.
IN US$M
DEC2018A
DEC2019AT
Total Assets1
394.5
415.3
Liabilities
26.7
22.1
Deferred Tax
27.4
28.2
Equity
114.1
136.1
Investment Property Revaluation Gain2
226.3
228.9
Revenues
34.6
35.8
Earnings before Tax3
15.8
17.4
Margin before Tax
45.8%
47.5%
Notes: 1 Total assets include the amount of US$228.9 as a result of the revaluation of the investment property (Buildings) based on International Financial Reporting Standards #40.
Investment Property Revaluation Gain: Engineering Appraisal Methodology (replacement cost minus depreciation) was used to determine this gain and was made by an external party. Fair value resulted from cash flow projections will be made in following years, as per request from the external Auditors and the lower value will be included in the financial statements.
2
Operating Earnings do not include Investment Property Revaluation Gain. Based on Audited Financial Statement B Based on preliminary and unaudited Financial 3
A
VI.
A.
ADDITIONAL INFORMATION
Corporate Restructuring and Governance
The Protective Committee, exercising its power to direct the Trustee and its role as investment advisor, shall have the power to determine the appropriate corporate structure for any entity that is part of the Trust Estate (whether directly or indirectly), including the power to direct the Trustee in any corporate restructuring, including but not limited to mergers and transfers of assets between any such entity, and the formation or incorporation of new entities that become part of the Trust Estate. Further, the Protective Committee shall prepare corporate governance provisions or policies that should be implemented at each level of the corporate structure of the entities that part of the Trust Estate and shall have the power to direct the Trustee to implement any such corporate restructure and governance provisions acting as shareholder of such entities.
The following initiatives were undertaken in order to professionalize the business and to assure continuity: 1) Establishment of Corporate Governance Best Practices. 2) Policy setting, procedures and manuals is a working process that needs continuous reviews. 3) Protective Committee Governance: Monthly or bimonthly meetings and extraordinary meetings as a result of Trust or business necessities. In addition, support by creation of temporary task force based on business requirements. 4) Minutes of Protective Committee are sent on a regular basis to Northern Trust for record keeping. 5) Executive Committee in place: weekly meetings to follow up the strategy and business results
B.
Organizational structure
1) New organizational structure is in place and aligned with our business strategy. 2) Establishment of management and head department roles and responsibilities. 3) Accountability for decision making by leaders of functional direction areas and their support departments.
C.
Culture and values
1) Leadership transition: as a result of the succession process, the management team has reinforced their commitment and accountability for business continuity. 2) Values and principles: inspired by the legacy of our founder Mr. Paul Ziegler. The leadership team was involved and represented the vision that inspired the following values: Integrity, Quality, and Innovation. 3) Environmental Health and Safety: Keeping everyone safe in any workplace is more than just rules and regulations. We have a strong commitment to create a strong safety culture by full compliance with industry standards and follow local regulations and international requirements. Reinforced them by guidance and regular training to all employees. 4) Tzedakah Our Founder´s Legacy Philanthropy in the spirit of tzedakah builds trusting relationships and recognizes contributions of time, effort, and insight. Our Founder´s legacy taught us that Tzedakah has two aspects: one with the hand and one with the heart. “Whoever gives tzedakah to the poor with a sour expression and in a surly manner, even if he gives a thousand gold pieces, loses his merit. One should instead give cheerfully and joyfully, and empathize with him in his sorrow as it is said, (Job 30:25) “Did I not cry for him whose day is difficult? Did my soul not grieve for the poor?” Speak to him with compassion and comfort as it is said (Job 29:13) “And I gladden the heart of the widow.” Laws of Gifts to the Poor Chapter 10.
Sillas colgantes Lateral COWORK, ULTRALAG
Tribu azul Lateral COWORK, ULTRALAG
CafeterÃa Lateral COWORK, ULTRALAG
a.
Corporate Social Responsibility & Philanthropic Efforts
In accordance to Trust dispositions and on the on the written direction of the Protective Committee, the Trustee shall distribute to one or more funds or institutions that are organizations formed and operated exclusively for religious, charitable, scientific, literary, artistic or educational purposes, which are recognized and qualified for tax exemption in the United States, in the country of incorporation or formation or in the country where such organizations carry out operations, as the Protective Committee, in the Trustee’s discretion, shall select the Charitable Organization. In accordance with the terms of the Trust certain philanthropic efforts the Protective Committee will start by the last quarter of 2021 a strategy implement a selection process to fund a scholarship for training or specialization of a medical doctor from Costa Rica (one per each calendar year) in the field of oncology at MD Anderson Cancer Center in Houston, Texas, subject to the terms of the Trust including that such candidates return and practice in Costa Rica for at least five years after completing such training or specialization. In addition, With the presence of Ultrapark, our communities were strengthened and the development of small businesses and shops around the innovative buildings was promoted. In addition, there have been productive chains that have
vitalized the local industry. The promotion of education has also been a fundamental axis of Ultrapark's social impact both by the transfer of knowledge that these companies transmit daily to their workers, and by the specific promotion that Ultrapark has had in schools in the area. An ambitious internal program of promotion of its operators was launched, together with another technological training plan called ACTIM Zones, for young people in Carpio, the largest migrant settlement in Central America for the proactive development of the Arts, Science, Technologies, Ingenuity and Mathematics together with the SIFAIS Foundation, a non-profit organization that promotes an ingenious construction revolution in vulnerable areas. An ambitious internal program was launched along with a technological training plan called ACTIM Zones, for young people in the Carpio area of Costa Rica which is the largest migrant settlement in Central America. The program strives to promote the proactive development of the Arts, Science, Technologies, Ingenuity and Mathematics together with the SIFAIS Foundation, a non-profit organization that promotes an ingenious construction revolution in vulnerable areas. The program was supported by the IDB, CINDE, and the Ministry of Science and Technology and a group of private companies.
Zonas ACTIM, programa de RSE UTRAPARK Development Group
75 jรณvenes de comunidades vulnerables, son los beneficiarios de Zonas ACTIM
Zonas ACTIM de ULTRAPARK, en alianza con Fundaciรณn SIFAIS.
Jรณvenes se especializan en carreras STEM
b. Image, reputation, and customer relationship management 1) The main challenge as a result of the succession processes was to send a robust message to all stakeholders that business is under control and to assure business growth and continuity. Our facilities have been strengthened to be aligned with our costumer's necessities of well-being and employee retention. 2) A rebranding strategy was implemented including refreshing the logo, colors and fonts and establishment of new slogan “Leading the Way to Success�. 3) Increased efforts to improve customer retention strategies. 4) Focus on social media to allow real-time communication and trends tracking as well as a new webpage and social media profiles (Facebook, Instagram, and LinkedIn). 5) Increased presence in media (magazine and newspaper) to preserve the top of mind with clients and brokers.
c.
Compliance
1) Operations procedures were implemented to ensure quality. 2) Strengthening of Anti-Bribery Policy. 3) Risk Mapping Analysis to proactively identify and mitigate risks. 4)
Successful compliance of obligations required by the free zone regime
(Procomer ) including reviews and audits on a yearly basis as well as the timely submission of the required annual operations report.
d.
Assets and Liabilities
Ultrapark continues to show strong client portfolio characteristics such as diversification, terms of contracts, and quality of clients as well as maintaining low financial leverage in comparison to industry which provide a competitive advantage and a strength particularly in adverse economic situations such as current Covid-19 crisis.
e.
Management systems:
1) New Enterprise Resource Planning system (ERP) by SAP Business was implemented. This is a key investment in a software map of business functional activities by improving accuracy rate of results, increasing the flexibility of operations and improving productivity are some of the core objectives of the new ERP. 2) Another effort is the acquisition of Softland a specialized software to manage human resource data. 3) Decision making: The Administration team is in charge of strategy setting, implementation and results evaluation. 4) Communication: As part of strategic plan we will able to come up with two reports per year in order to inform our beneficiaries with our main business efforts and results. 5) Building a Culture of Transparency and Record keeping: One key initiatives for business continuity is to build a strong culture of transparency and alignment to our mission and vision statements, that helps us to provide a framework for dialogue between all employees, and customers that provide a point of common ground, where all parties can gather on to make hard decisions and resolve conflicts. Understand that culture is just as much of a competitive asset for Ultrapark as any piece of real estate or intellectual property, and equally deserving of investment and development. Building transparency will be a deliberated effort product policy setting and continuous feedback and reinforcementMinutes of Trustee`s meetings are documented and sent to the Trust. 6) The financial statements are audited by recognized firms (Big Four) and in the last two years has been audited by Deloitte
Procomer: The Foreign Trade Promoter is the government agency tasked with granting and monitoring the free zone regime (the law requires regular audits).
D.
Annexes
Edificio, ULTRALAG
Edificio, ULTRALAG
Edificio 12, ULTRAPARK II
Murales, ULTRAPARK II
Wellness Center, ULTRAPARK I
Edificio, ULTRAPARK I
Auditorio Paul Ziegler
JardĂn, ULTRAPARK I