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Real Estate

The COVID-19 Impact on Latin American Fibras (REITs)

4 MIN READ June 25, 2020
Latina American versions of REITs have been appearing in many countries throughout Latin America, with Mexico (Fibras) and Brazil (FIIs) leading the market. During our latest GRI eMeeting, Fibras, RE investors, developers and financial institutions discussed the impact COVID-19 has had on their portfolios and operations in the last months.

The COVID-19 Impact on Latin American REITs

Renegotiations are being done on a case-by-case basis, depending on the type of asset. Some players are seeing this as an opportunity to strengthen long-term relationships with tenants. A peruvian (Fibra) commented that it keeps its assets in different vehicles, and so far the impact negotiations have had on returns has been minimal. It has not really affected returns for rent assets. Where they have experienced some changes are in their for-sale assets, particularly in a vehicle that is for residential for-sale assets. It is also important to keep investors informed and stay in contact with tenants. 

For a Mexican Fibra, 40 percent of their tenant base has asked for some sort of relief during this pandemic, and it has been difficult for them to do a full discount on the rent income since these types of vehicles depend on that income. A strategy implemented is using security deposit to help wave some rents, along with 6-9 month term financing. It has worked well and collection levels are currently at 95 percent. Nevertheless, June will be a more challenging month as the economy reopens. 

Another positive thing for this Fibra is that since late October 2019, it had a great quantity in its balance sheets, and paired with putting acquisition programs on hold, it was able to keep high liquidity levels throughout the pandemic. Cash is King, especially in times of crisis as it provides leverage to carry out future actions. Having available lines of credit and having a couple of years of cash equivalent of annual rent are also very helpful. Liquidity should remain as business as usual, and a member shared that the Fibra does not like high levels of leverage, even though the Bank of Mexico allows for 50 percent leverage of over asset value. The Fibra does not exceed 25-30 percent of leverage as it provides fire power and peace of mind to take advantage of new investment opportunities. This model has proven to work and will continue to implement those optics. 

Monterrey is the most developed industrial market in Mexico and perhaps in Latin America due to its proximity to the US and the newly signed TMEC that will be in effect on July 1. The US is currently experiencing a deficit in production due to the lockdown which has heavily impacted many suppliers. There is great pressure on the automotive industry, and a slow, yet steady economic recovery can be expected. 

Fibras on the Lookout for Investment Opportunities

There are big opportunities on the horizon for the industrial and logistics sectors in Latin America. The pandemic has accelerated the demand for last mile assets due to the growing penetration of e-commerce in the region. Fibras and FIIs that focus on industrial assets continue to diversify their portfolio. During the discussion, 60 percent of GRI Club members agreed that their most preferred assets for acquisitions in the short term are logistics and industrial assets, followed by multifamily with 29 percent. Members also believe that there will be opportunities in mixed education assets as they shift to in-class and virtual curriculums. 

A Brazilian player pointed out that there are opportunities in the country’s secondary market in the FIIs industry as many prices have gone down 20-30 percent in the last months. The market also has good AAA assets trading at lower prices than usual. A member shared that is on the search for logistics assets close to primary cities. The coworking segment also continues to expand rapidly in Brazil. 

Is it the right time for an IPO and follow-ons? 

73 percent of GRI members said that it is definitely not a good time while only 23 percent said it was a good option. Nevertheless there is a player taking the leap of faith and is going forward with an IPO for its vehicle. A member shared that a new Fibra was approved early last year, and it has been pushed due to the pandemic. Nobody was expecting for something like this to occur, nevertheless they will go ahead with an IPO to secure some assets. The Fibra remains attractive in the market and will continue to be in the long term. It will be a small IPO due to the elevated demand the vehicle has received and the valuation secured was at a decent price with a good structure and tenants. 

This article is a discussion brief of the eMeeting:
COVID-19 Impact on Latin American REITS and Real Estate Investment Vehicles  which took place on June 8. Some of the GRI Club members that participated are: Angelo Ferraretto, (Integral Brei), Javier Llaca (Fibra MTY), José Rubén Velarde (Credicorp Capital), Luisa González (PEI Asset Management), Roger Kinkead (MMG Bank Corporation).
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