2022 was a good year for the Real Estate FIBRAs, and what about 2023?

Investment means change over time, generating in financial institutions the search for new alternatives to enrich client portfolios, and an attractive alternative is to invest in Real Estate Fibras.

It can be seen that an option that protects money against inflation and even devaluation, generating profits, is when buying real estate, obtaining income through rents, or, where appropriate, selling it with a capital gain. However, with the pandemic, properties have been on display much longer than sellers estimated to recoup their investment, and in many cases, they have been forced to move prices to bring them within reach of what buyers could afford. In the case of rents, property owners also run certain risks, such as finding tenants with little commitment to pay rent or causing damage to the property.

If you turn to see the stock market, you will find the Real Estate Investment Trusts (Fibras) that are another alternative to invest in Real Estate, with less exposure to the risks mentioned above and where a high amount of resources will not be required. . With the Fibras, diversification is obtained in sectors such as the industrial (attracting greater appetite through Nearshoring), commercial, offices, hotels, among others; diversification in properties located in different parts of the country; and with the diversity of tenants.

The Real Estate FIBRAs Sector is little more than 10 years old and they are vehicles for financing the acquisition and/or construction of real estate for the purpose of leasing or acquiring the right to receive income from the rental of said assets. According to the Mexican Stock Exchange (BMV), the first Fibra Inmobiliaria was listed on this exchange in 2011.

Why is it interesting to invest right now? Interesting returns on investment can be highlighted. For example, in 2019 prior to the pandemic, if the S&P/BMV Fibras Index, made up of the 10 most-traded Real Estate FIBRAs, is taken as a reference, its return was almost 40% (Source Bloomberg) considering dividends. During this 2022, they have had a good positive performance of 12.59% (as of December 23 according to Bloomberg),

Some advantages can be mentioned such as:

• In the stock market you can buy and sell on business days and stock market hours, being an advantage to have the money back with immediate liquidity.
• Dividends are a big draw for Fibras. This is one of the main characteristics, since it is considered as a hybrid instrument that enjoys benefits similar to those offered by a debt instrument, like a kind of fixed income, but also has variable income as in shares. This translates into two sources of return: 1) flow as income, since the dividend tends to increase as the value of real estate grows in line with inflation (the Law that regulates FIBRAs determined that they have to pay at least 95% of the Net Tax Result (RFN) of each year to the holders of the CBFIs through distributions) and 2) the capital gain, since it is exempt from taxes (unlike owning a property, where the selling party must pay approximately 35% on the capital gain, and in the case of a rental property, the same percentage on the rental earnings).

The Mexican Law indicates that said distributions must be made at least once a year, which is the result of the Fibra operation for the rent of the properties that make up the portfolio of each one and is totally independent of what happens with the price of securities on the market.

What would be important to consider for 2023? With the advice of an investment expert, certain factors can be identified for choosing the Real Estate Fibras in the portfolio, such as: the periodicity of the distributions, (this is the same as if income is received from a property); liquidity; healthy leverage; the level of profitability or income generated by each of the properties against its value through the Cap Rate; that have a high Dividend Yield (which is the yield per distribution); identify the difference between the CBFI value and the intrinsic value; among others.

On the other hand, there are also vehicles such as ETFs that, in a single exposure, it will be possible to acquire the most marketable Fibras, since this will replicate the Index, optimizing time for the investor to evaluate each of the Fibras, but obtaining from the vehicle the Exposure to the sector in a diversified way.

By investing in Fibras Inmobiliarias, you can own, to a certain extent, the most well-known and iconic large commercial, hotel or residential complexes in the country.

*D. Carolina Soto Cota es executive eirector ETF’s – BBVA Asset Management.

deliacarolina.soto@bbva.com