At Full Sail

Mexican REITs in the era of Trump

Mexican industrial REITs have soared nearly 20% since Trump took office.

Mexican industrial REITs, commonly known in the country as FIBRAS, have experienced a steady growth since Donald Trump took office, and have soared so far this year nearly 20%, setting aside market concerns of international manufacturers leaving the country in the wake of the protectionist rhetoric brought by the new US president.

In the following days after Trump’s electoral victory, FIBRAS dipped almost 10%, as the then President-elect had vowed to tear down the North American Free Trade Agreement (NAFTA), an accord that is the hearth of these REITs business to lease industrial spaces to multinationals that come to Mexico to manufacture goods at cheap prices that will be eventually exported into the US.

With Trump in the White House, investors deemed that industrial occupancy rates in Mexico were to decline, while the new leader of the first world power was claiming that he was to impose high taxes to importers manufacturing in its southern neighbor.

But since taking office, the president has continuously eased his discourse against trade with Mexico, and analysts have taken for granted that renegotiation of NAFTA will take place in the second part of the year, although the dates have not been agreed yet.

As a result, industrial FIBRAs have benefited greatly from this softer relation between the two commercial partners and were among the best performing stocks in the Mexican Stock Exchange (BMV) in Q1.
Terrafina (TERRA13) and Prologis (FIBRAPL) have gained 21% and 14%, respectively, whereas Funo (FUNO11) and Macquire (FIBRAMQ12) have advanced 14% and 2% each.

“We estimate that industrial FIBRAs could still have a 7.8% yield this year, adding the stocks appreciation and its dividend payments,” said Armando Rodriguez, senior analyst at Signum Research, a Mexican consultancy firm.

In addition to a more certain scenario around the free trade agreement, occupancy rates have remained solid for these REITs in the 1Q. So far the only company that has released its quarterly report is Prologis (FIBRAPL), and its occupancy report has hit a record high 97.4%. In other words, the so-called and feared “Trump effect” has done little to undermine its performance.

A key competitive advantage that these investment funds will have for the remainder of the year, is that tenants pay their monthly fee in US dollars, and the Mexican peso has depreciated strongly against the dollar over the last two years.

Even though the peso has slightly recovered to pre-Trump levels, the price to purchase a dollar with the Mexican currency is still about 10% more expensive than it was 12 months ago, a factor that it is expected to spur these companies’ income during 2017.

“As long as the occupancy rate keeps up at the current level, and also the peso is to remain cheaper against the dollar, the results of the four industrial FIBRAs is to be on the rise,” added Rodriguez.