FIBRA Hotelera Mexicana went public Friday on the Mexican stock exchange, becoming Mexico’s first hotel-focused real estate investment trust, or Fideicomiso de Inversión en Bienes Raíces de Mexico.
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| Jonathan Kracer |
The Mexican REIT sold 194.4 million shares at a price of MXN18.50 ($1.39) per share for a total of MXN3.6 billion MXN (about $277.7 million), representing 71% of the outstanding shares and excluding the over-allotment. Including the over-allotment option, the initial public offering amount is MXN4.1 million ($319.3 million).
The share price rose 5.2% to MXN$19.46 ($1.50) on its first day of trading.
FIBRA Hotel’s IPO makes it Mexico’s second REIT, or FIBRA. The FIBRA is a relatively new concept in Mexico, beginning with the $300-million IPO of FIBRA Uno, a Mexican REIT formed to acquire a broad range of Mexican commercial real estate assets. Since its offering, FIBRA Uno has raised an additional $700 million through a second share offering in March. The stock’s value has risen about 70% since its IPO, as Mexican private-pension funds known as Administradoras de Fondos para el Retiro and other institutional investors seek access to the local real estate market.
FIBRA Uno has shown the FIBRA model, thus far, appears to be working. And, it carries with it several benefits, such as generating liquidity for the Mexican real estate sector and providing access for private-pension funds, local investors, and international institutional investors to the real estate market via an affordable and liquid instrument.
The changing landscape
Despite the drug-related violence that has hampered Mexico’s national security, political stability, and image in recent years, Mexico’s economy is growing strong. According to the International Monetary Fund, gross domestic product grew 4% in 2011 and is projected to grow another 3.6% in 2012, continuing almost a decade of healthy economic performance.
Mexico’s hotel sector is also poised for robust growth, bolstered by political reforms aimed at reducing violence nationwide.
Investor interest has skyrocketed since FIBRA Uno successfully went public in 2011, and several other public investment vehicles focused on the Mexican hotel sector have emerged to file listings with the Bolsa Mexicana de Valores (Mexican stock exchange). These listings, which are compared in the chart below, include two FIBRAs—FIBRA Hotel and Asesor de Activos Prisma—and the Certificados de Capital de Desarrollo Hospitality Equity Partners.
Slightly different than FIBRAs, CCDS instruments are hybrid debt and equity securities that allow investors to participate in private equity-type projects through public fund structures similar to special purpose acquisition companies in the U.S. HEPCK is one such blind-pool CCDS fund that is targeting qualified institutional investors and plans to invest in Mexican hospitality and leisure real estate assets.
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The reach of FIBRAs and CCDS funds proves domestically significant and also is extending beyond Mexican borders. In recent years, foreign private investment funds have accumulated large pools of Mexican real estate assets, many of which will likely be concentrated in FIBRAs and divested in the BMV. One such example is the Australian-affiliated Macquarie Mexico Real Estate Management, which has submitted preliminary filing documents to list its portfolio of Mexican industrial real estate assets on the BMV.
The outlook for Mexican FIBRAs
With the upcoming IPOs of several FIBRAs, the next few months undoubtedly represent an evolving time for this burgeoning Mexican industry.
Successful IPO candidates usually have low amounts of leverage, access to strong brands, and experienced management teams. FIBRA Hotel, FIBRA Inn, and HEPCK all meet these requirements.
Nonetheless, FIBRAs remain closely held by their sponsors, which retain sizeable ownership of these entities and a dominating presence on their board of directors. Over time, outside investors likely will demand a more diversified board to ensure balanced corporate governance.
Additional near-term hurdles for hotel FIBRAs include the limited availability of branded, institutional-quality hotels, increased competition for assets, and the clash between local and international deal-making practices. (For example, a Mexican investor’s request for private deals to help ensure personal safety versus today’s growing pressure for more open, transparent transactions and standardized financial reporting.)
In Mexico, private investors historically have been the main source of capital for the Mexican lodging real estate sector. But times are changing.
FIBRAs represent an important emerging industry, and one that is poised to generate substantial liquidity for the Mexican hospitality sector. Despite some challenges, the long-term outlook for Mexican hotel FIBRAs appears favorable.
Jonathan Kracer is managing principal of Sion Capital LLC, a hospitality and real estate consulting and investment firm focused on the North American, Latin American and Caribbean regions, with offices in Miami and Mexico City. Kracer is a recognized expert on the Mexican hotel sector and has completed advisory assignments in more than 50 different Mexican markets. He can be reached via email at info@sioncapitalco.com. More information about Sion Capital LLC can be found at www.sioncapitalco.com.
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