LatinFinance - March/April 2015 - 50

for Fibras to hit the market in 2002,
but discrepant state tax codes stalled
implementation.
Fibra Uno, started by Mexico's El-Mann
family and run by André El-Mann Arazi,
issued the first Fibra initial public offering
in March 2011. The offering garnered $301
million, with shares priced at 19.20 pesos
each.
"They had some difficulty in the initial
deal," says Michael Fitzgerald, a partner at
law firm Paul Hastings, which has advised
on 12 of the Fibras' 16 public offerings as
of February. "They reduced the size of the
IPO and priced it at a lower level than they
wanted because people had to be educated,
particularly the pension funds, to what
a Fibra is. They had not seen a financial
instrument like that before in Mexico."
Fibra Uno hasn't had a problem raising
equity since. In June, it issued its third
follow-on sale of stock, raising $2.5 billion,
with international investors jumping on
board. From its IPO, the price of certificates
in the trust more than doubled to 44.45
pesos by January 2015.
This year may be more difficult, says
El Mann. "For us, our model is to come
often to the markets, both equity and debt
markets. We have been doing a good job in
our company but now I think in this year
we will face different challenges," he told
LatinFinance's 2015 Latin America Capital
Markets Roundtable in January. But he
argues the troubles will be surmountable.
"We expect strong growth in the future.
Our market in Mexico is still very attractive
in our sector."
Finding a niche
About half of Mexico's Fibra market belongs
to Fibra Uno. It has acquired more than
700,000 square meters of office buildings,
industrial parks, and retail spaces and
plans to make another $1.5 billion worth
of purchases this year. El Mann says the
opportunities are great.
"Our population is still in need of many
spaces: office spaces and retail spaces and
of course all the housing to supply, all the
retail that is needed in Mexico."
Other entrants have focused their
businesses on subsectors.
"It's uncommon to participate in all real
estate segments and do it efficiently and
generate attractive profits," says Augusto
Arellano, a senior director at Evercore. "I
think the market will continue specializing."
Fibra Prologis, which buys industrial
properties, raised 8 billion pesos in an

50 L ATINFINA NCE.COM - March/April 2015

JORGE LÓPEZ DE CÁRDENAS
FIBRA SHOP

"THE NAME OF THE
GAME HAS BEEN
GROW, GROW, GROW
- ACQUIRE, ACQUIRE,
ACQUIRE"

initial public offering in March 2014. Later
that year, FHIPO, which buys residential
mortgages and isn't technically a Fibra,
raised close to 8 billion pesos, and Fibra
Monterrey, which invests in office space,
raised more than 2 billion pesos.
But Mexico's Fibras haven't been free
from market turbulence. In December,
Fibra Inn, which buys hotels, issued a
private offering to its shareholders instead
of going to the market.
"The last quarter of 2014 was a very
tough quarter economically: the volatility,
the exchange rate fluctuations, the oil
prices, and all the expectations for a rise
in interest rates," says Lizette Chang, an
investor relations press officer at Fibra Inn.
"If we would have gone to the open market,
we would have had a lot of trouble raising
all that equity."
Two months earlier, Fibra Shop, which
purchases shopping centers, suspended a
follow-on issue because other Fibras were
coming to market and shareholders were
not willing to lower share prices, says López
de Cárdenas.
Further afield
The smaller, more-specialized Fibras are
also planning to expand their portfolios.
Fibra Shop has stakes in 14 properties
and is looking at a dozen more this year.
Fibra Inn is looking to double its portfolio
by the end of 2016, and Fibra Danhos,
which is diversified, is planning to increase
its property holdings 27% a year for the next
three years.
"Some of the very large and attractive
portfolios have already been sold, but that
doesn't mean there aren't opportunities,"
says López de Cárdenas, of Fibra Shop. "We
could double what Fibras have."
Barring an economic calamity, Mexico's
real estate industry is set to grow rapidly,
projects Softec, a Mexican commercial real

estate company. The firm expects office
space in the country's largest cities, Mexico
City, Monterrey and Guadalajara, to double
by 2025 compared with 2010 levels and
retail space in those cities to grow even
faster. Mexico is also expected to become
the seventh largest residential housing
market in the world, according to data from
PricewaterhouseCoopers.
"There is always going to be space in
the Fibra market, provided that the Fibras
bring something new to the table, that they
innovate. This will create a very solid and
strong market in the end, which is in the
interest of all the Fibras," says Elias Mizrahi,
head of investor relations at Fibra Danhos.
FHIPO, which listed last year, has a
contract with state mortgage lender,
Infonavit, which generates about 70% of all
mortgages.
"When we reach 70% or 80% of
the resources, we will be looking for
opportunities to leverage the vehicle to
keep growing. So we behave like a Fibra,"
says Alfredo Vara, FHIPO's chief executive
officer, adding that the trust may take on
debt in August.
Fibras, unlike their US counterparts, can
only leverage up to 50%, which limits the
amount of debt they can take on.
"Nevertheless, we expect that with the
current low rates, some of the existing
vehicles will raise debt until they reach the
limit, before coming back to the [equity]
market," says Tasias of BBVA Bancomer.
In late January, Fibra Uno tapped the
local bond market for a 10 billion peso
issue. Other Fibras, such as Fibra Inn, have
syndicated loans, and others, such as Fibra
Shop and Fibra Danhos, are looking to the
bond market.
"We going to acquire debt before we
go back to the market, because it seems
prudent to have a certain leveraging," says
Mizrahi.
Down the street from Torre Mayor,
construction workers are building the Torre
Diana, named after the nearby monument,
Fuente de la Diana Cazadora, or the
Fountain of Huntress Diana. The building,
in which Fibra Uno invested $50 million, is
scheduled to be completed by the end of
this year and will house 32 floors of office
space.
"I think you're going to see a lot of
development in the REIT space, not just
additional equity REITs, but existing
REITs will tinker with what they have
to create new financial products," says
Fitzgerald. LF
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