The Benefits of Investing in FIBRAs. Diversification and Growth in Mexico's Real Estate Market

Mexican REITs (or FIBRAs) are gaining popularity as investment vehicles in Mexico. Since their inclusion in the Fiscal Miscellaneous Law in 2004, these trusts have generated opportunities for economic growth, stability, and investment portfolio diversification, fundamentally reshaping intelligent decision-making in the financial realm. Over the last five years, the value of their shares or certificates in the stock market has surged by 64%, as reported by SiiLA. This surge reflects the investors' confidence in the country's real estate market and FIBRAs.

Investing in FIBRAs offers a plethora of competitive advantages. First and foremost, they simplify real estate investments by enabling anyone to participate in the real estate market without assuming the burden of property management and maintenance. It's worth noting that these investments encompass a wide array of real estate assets across various sectors. Diversifying real estate portfolios mitigates investment risks by cushioning against market fluctuations, which might otherwise be tied to a specific industry or market.

Another significant benefit of investing in FIBRAs is their regulation by government bodies (such as Banxico, CNBV, and CONSAR) and stock exchanges (like BMV and BIVA). In Mexico, the Income Tax Law outlines the requisites for forming and operating FIBRAs (Articles 187 and 188). This regulation is designed to ensure transparency and safeguard the interests of investors. For instance, the law mandates that FIBRAs are obligated to distribute at least 95% of their taxable income to shareholders, thereby contributing to dividend payments. However, dividend payments might sometimes be reduced or suspended due to reinvestment in assets that bolster the trust's value.

Thirdly, FIBRAs offer tax advantages compared to traditional corporate structures (like SA, SAB, or SAPI). For instance, they are exempt from Capital Gains Tax (ISR) on capital gains when a shareholder realizes economic gains from selling their shares (or CBFIs) at a price higher than the acquisition price, following an increase in CBFIs' prices. Another tax advantage is the investor's obligation to declare dividends or distributions received as "rental income." Tax payment in this scenario results in ISR withholdings, which, for the most part, can be credited as a balance in favor of the declarant or investor. This applies with certain exceptions, such as dividends received by pension funds (AFOREs) and those exceeding taxable income labeled as "capital reimbursement," which are also tax-exempt. Additionally, gains derived from the reevaluation of assets are tax-exempt as long as they are linked to properties held by the FIBRA for a minimum of five years.

Fourthly, FIBRAs can generate steady income streams from property rentals, translating into regular distributions to FIBRA investors, thereby creating a reliable source of passive income and liquidity. By being listed on the stock exchange, these trusts attract funds from an investing public, which are subsequently employed to reinvest in portfolios or improve properties. This dynamic tends to amplify the value of FIBRAs and even give rise to variations in their share value, resulting in their market value differing from their asset value, thereby creating diverse investment opportunities. In fact, the financial (EBITDA), operational (NOI), and profitability (FFO and AFFO) margins of FIBRAs tend to trend upwards.

Curious to learn more about FIBRA's performance in Mexico? Explore SiiLA FIBRA Analytics, where you can access trusts' portfolios and real estate financial data in real-time. If you have inquiries about access, feel free to contact us at contacto@siila.com.mx.