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Mexico's New Market Vogue: Property Investment Trusts

Armando Tovar
April 12, 2013

After a quiet two-year incubation period, domestic and foreign investors are piling into Mexican real estate investment trusts, which are strongly outperforming the wider stock market.

The trusts, known as fibras, are similar to REITs (real estate investment trusts) and issue certificates that function much like shares on the bourse.

The first fibra appeared in 2011 with the debut of Fibra Uno , which was the only trust until late 2012.

But since November, five other fibras have muscled in on the market: Fibra Hotel, Fibra Macquarie, Fibra Inn and Terrafina.

"The attraction at the heart of the fibra is the ability to invest in property without having to buy a building," said Andre El-Mann, chief executive of Fibra Uno.

Fibra Uno's latest 22 billion peso ($1.8 billion) offering on the Mexican stock exchange, its third so far, was the largest of the previous quarter, edging out a 12.1 billion peso issue by Grupo Sanborns, Mexican tycoon Carlos Slim's retail company.

Fibra Uno is up 12.8 percent year-to-date, compared to a 0.75 percent rise in Mexico's main stock index. Fibra Macquarie is up 13.3 pct, while Fibra Hotel has risen 15.2 percent.

Of five listings in the last quarter, three were by fibras.

Because the trusts are obliged to pay out 95 percent of their taxable income in dividends to their shareholders, they must keep issuing certificates to fund expansion.

Mexico's business properties look attractive compared to countries like Chile, Colombia and Brazil, analysts say, with Mexico City rents 40 percent below those of Sao Paulo.

The success of the fibras coincides with new President Enrique Pena Nieto's ambitious economic reform agenda that has stoked interest in Mexico's booming financial sector.

The fibras also offer a way to bet on infrastructure outlay and investment plans expected under the new government, said Rick Hoss, portfolio manager of Euro Pacific Latin America fund.

"With these REITs not only do we like the stability and ... the dividend but we think that the capital appreciation associated with it is probably the best opportunity."

In Fibra Uno's first offering it sold 3.6 billion pesos of stocks at 19.50 pesos a hit. Two offerings later, they trade above 44 pesos, marking a 126 percent increase since the first offering and putting other local shares in the shade.

Manuel Gutierrez, the head of Credit Suisse Mexico, said half of the most recent investors in fibras have been foreign, many from the United States and Europe.

In total, Fibra Hotel and Fibra Inn, which are focused on the hotel sector, and Fibra Macquarie and Terrafina, focused on industrial property, have issued about 32.8 billion pesos.


Some fear the fibras may be heading toward a bubble.

"It's very fashionable and with all the money involved ... there's more demand, so logically the price will go up because the supply is unchanged," said El-Mann.

In the past, properties were owned by families who used them as a stable form of income. But in the last decade, an increasing number of private consortiums entered the market.

Fibra Uno began with just 13 properties in its portfolio. By the end of 2012 it had 279 on its books, and analysts expect its share price to hover around 50 pesos by year's end.

That poses a headache for regulators and those running the fibras. Pedro Aspe of investment advisory firm Evercore Partners, expects up to 20 new fibras will enter the market in the next five years.

The slew of new fibras cropping up demand recognition. Luis Tellez, head of Mexico's stock market, said he is eyeing whether to include some fibras on the benchmark IPC index, or even whether in the future to grant them their own index. (Additional reporting by Elinor Comlay and Dave Graham; Writing by Gabriel Stargardter; Editing by Simon Gardner and Chris Reese)