Mexico's Fibra investment vehicles buck market trend

Mexico’s Fibra investment vehicles are bucking a negative investment trend, boasting double-digit growth and sparking interest marked by the recent US$841mn deal between Fibra Uno and Finsa. 

In that transaction, announced November 14, Finsa, Mexico’s largest developer of industrial parks, agreed to sell 74 properties to Mexico’s Fibra Uno, considered the largest and most diversified real estate operator in Latin America. 

The deal represents the largest real estate sale in the region this year. 

Properties included in the deal are in cities such as Ciudad Juárez, Monterrey, Tijuana, Querétaro, Zacatecas and Aguascalientes. 

FIBRAS ON FIRE

Proving to be an effective tool for project finance and providing investment security similar to REITs traded in the US, the Fibra investment vehicle is dedicated to the acquisition and development of real estate and infrastructure projects.

The S&P/BMV industrial index for Fibras trading on Mexico’s primary stock exchange (BMV) underscores the recent strength of the securities in the last year, showing 23.3% annual increase. 

SOURCE: BMV

The index's performance comes as Mexico is contending with near zero growth in 2019 amid investor uncertainty surrounding the policies of President Andrés Manuel López Obrador and deepening global economic deceleration. 

With real estate Fibras humming, a specialized version of the trust, dubbed Fibra E, has seen strong interest but several delays in reaching the market in the last year and a half.  

Fibra E is a mechanism launched by the government in 2015 to promote energy and infrastructure projects in the face of an economic slowdown and falling oil prices.

However, the last placement of Fibra E securities was launched in June 2018 by engineering and construction firm Promotora y Desarrolladora Mexicana (Prodemex) for 6.14bn pesos (US$317mn).

Since then, there has been discussion of at least two new Fibra E’s coming to the secondary stock exchange (BIVA). One, called “Fibra E Orión” for now, seeks to buy CKDs holding assets or mature projects in the infrastructure and energy sector which are about to be divested.

Originally planned for launch in September, the Orión trust would channel opportunities for private investment linked to the federal government, such as concessions or service delivery schemes, including roads, waterworks, prisons and social rehabilitation, as well as clean energy, ports, telecommunications, storage and transportation of oil and gas.

Another potential Fibra E on the BIVA has the potential for a 6bn-peso IPO, according to local daily El Economista, adding the Fibra has the backing of former finance minister José Antonio Meade. 

Though no date is set for launch, this Fibra E, unlike previous issuances, would enter the market without a pre-established portfolio of stabilized assets, projects, or operating history. 

FIBRA UNO

Under the terms of the Finsa deal, which was carried out in partnership with private equity fund Walton Street Capital Mexico, Fibra Uno's (FUNO) new properties encompass a total gross leasable area (GLA) of 1.26Mm2, an occupancy rate of 95.1%, an average lease-contract term of around 4.5 years, and average monthly rent of US$4.6 per m2 as of August 31, according to an analysis of the deal by Fitch Ratings.

Fibra Uno is the first real estate investment trust in Mexico and has consolidated a portfolio with 8.7Mm2 of profitable area, of which 4Mm2 correspond to the industrial segment.

FUNO’s head of investor relations, Jorge Pigeon, said that by buying Finsa's 74 properties operating profits for 2022 could reach 21.4bn pesos (US$1.1bn), an annual growth of 39.5%.

However, Pigeon was also quoted as saying in local media that the Fibra real estate market in Mexico is still undergoing consolidation and often not fully understood. 

"Eventually Mexico will get there, we are not there today,” Pigeon said, highlighting Fibra Uno's pioneering role.

Ratings agencies suggested the move would add pressure to Fibra Uno’s credit rating, but added the size and diversification of the firm should help it maintain its footing.  

“This credit risk is partially offset by the expected increase in the market value of FUNO's enormous footprint, supported by the improvement in the mix of portfolio properties and the stability of cash flow,” Moody’s Investors Service's leading Fibra Uno analyst, Juan Acosta, said. 

He added that a revenue increase is expected from recently delivered, but not yet stabilized projects, other recently acquired properties, and projects in their final stage of development.