FIBRA Monterrey plans to divest its underperforming and highly vacant office properties to redirect those resources into the industrial sector, where it has identified greater opportunities for growth and profitability. This strategic shift is expected to significantly improve the company's financial performance in the coming years.

This asset reallocation was recently demonstrated by selling an office building with nearly 13,000 square meters of gross leasable area (GLA) in San Pedro Garza García, Nuevo León. This property, which had been vacant since the second half of 2021 following Axtel’s departure, accounted for 24% of FIBRA Monterrey’s corporate GLA in Monterrey, according to SiiLA data. The $15 million sale will strengthen the trust’s cash flow.

FIBRA Monterrey’s strategy extends beyond this sale. The company has received offers exceeding 650 million pesos (approximately $34.3 million) for other underperforming office properties, representing more than half the value of this portfolio.

According to the trust’s management, the company plans to use the funds from these office sales and potential future sales to invest in industrial projects. Alternatively, if market conditions are favorable, they may opt to repurchase their own certificates to try to boost their value.

Industrial Expansion

The company plans to invest $700 million in industrial assets. So far, FIBRA Monterrey has completed the acquisition of the “Aerotech” portfolio in Querétaro for $83.3 million and signed a binding agreement to acquire the “Batach” portfolio in Monterrey for approximately $199.1 million, with the expectation of finalizing and beginning to liquidate this transaction during the third quarter of 2024. Additionally, the company has initiated expansions worth up to $63.6 million.

These moves represent about $346 million, equivalent to 49.4% of the $700 million investment target. However, FIBRA Monterrey is still evaluating and negotiating new acquisitions worth $555.5 million and additional expansions worth $35.4 million. This means that if all planned acquisitions and expansions are completed, the company will exceed its original target, underscoring its growth expectations in the industrial sector over the next six to nine months.

Liquidity and Fair Value

The plan to divest from the office sector to invest in industrial assets is also designed to improve the liquidity of FIBRA Monterrey’s Real Estate Trust Certificates (CBFIs).

Liquidity refers to the ease with which these certificates can be bought or sold on the market. So far, in 2024, the liquidity of its CBFIs has increased from $0.4 to $1.8 million daily, indicating growing interest in these instruments, driven by expectations of future buybacks or portfolio improvements. However, according to FIBRA Monterrey, the current trading price of its CBFIs does not reflect the fair value they should have, given their cash generation capacity. This highlights the importance of strategies to align market value with the fundamental value of the company’s portfolio.

Industrial vs. Offices

The industrial sector accounts for 73.8% of FIBRA Monterrey’s rental income, compared to 24.8% generated by office properties and 1.4% by commercial properties. However, the trust’s office properties have proven less profitable than its industrial warehouses.

Currently, the occupancy rate of its office properties is 75.3%, significantly lower than the 98.9% in the industrial sector. Additionally, revenue growth over the past year was only 2.3% in offices, compared to 7.4% in the industrial sector. This reflects lower demand and profitability in the office market, which faces considerable vacancy rates and relatively short lease terms, averaging three years, compared to the industrial sector, where leases have an average term of 5.6 years.

In contrast, the industrial sector has experienced a boom, driven by factors such as the growth of e-commerce and the relocation of supply chains, leading to sustained increases in rental prices and high occupancy rates. The profitability of these industrial assets is reinforced by a dollar lease spread that, according to FIBRA Monterrey, has exceeded inflation by 10.6% in 2024 renewals. This dynamism makes industrial warehouses a safer and more profitable bet for FIBRA Monterrey, which seeks to maximize returns for its investors in an uncertain economic environment.

FIBRA Monterrey’s approach goes beyond simply reconfiguring its portfolio; it is a strategy that aims to balance risk and reward in a constantly evolving market.

By shifting capital from lower-yielding assets to a more stable sector with greater growth opportunities, the company is steadfast in its commitment to optimize its immediate profitability and strengthen its long-term growth prospects. This move is both a strategic plan and a comprehensive redefinition of its real estate value in an environment where success depends on anticipating and adapting to market-transforming trends.

To stay up to date on trends and the performance of institutional players in the Mexican industrial real estate market, visit SiiLA FIBRA Analytics or contact us at contacto@siila.com.mx.