FIBRA Uno Plans Mega-Merger of Three Industrial Portfolios: A Collection of 487 Properties Spanning 11.6 Million m²

FIBRA Uno (FUNO) has presented a firm offer to consolidate the "FUNO" (6.1 million square meters), "Jupiter" (from e-Group, with 1.5 million square meters), and "Terra" (from FIBRA Terrafina, with 3.9 million square meters) industrial portfolios. This initiative is designed to establish Mexico's most significant industrial investment vehicle, encompassing 487 properties strategically positioned across 23 states. With a combined gross leasable area (GLA) of 11.6 million square meters and an additional six million square meters of land reserves, this consolidation has the potential to expand its size by over 50%. The initiative is poised to leverage Mexico's nearshoring, e-commerce, and logistics opportunities, instilling confidence in its potential for success.

It's important to note that the combined portfolio would have an occupancy rate of 97.8% and would be so extensive that, in terms of GLA, it would be 2.6 to 8.3 times larger than the industrial portfolios of the largest national FIBRAs.

According to FUNO, the offer involves a merger of equals, with no premiums or overpricing, ensuring a fair and equitable deal. This merger is projected to generate estimated economic benefits of $3 billion for investors in the new investment vehicle and maximize the value of Terrafina's stock certificates (or CBFIs). The trust estimates that post-merger, each Terrafina CBFI would be valued at a minimum of 49.63 pesos (or $2.80), with potential for improvements and additions, including a cash component. This price represents a 10% to 40% increase over the highest and lowest trading values of Terrafina's CBFIs over the past five months, according to data analyzed by SiiLA.

The management team of the new vehicle is expected to be independent and internalized, adhering to high corporate governance standards. This commitment to autonomy and transparency implies that the management will focus on enhancing investor returns and ensuring compliance with the best decision-making and operational oversight practices. For its consolidation, FUNO has requested that the Terrafina Technical Committee oversee the process. The proposal will be valid for 45 natural days starting May 24, 2024, and its implementation will be subject to review processes, conditions, and necessary approvals from the involved parties.

Financial Indicators of the Merger

In a statement to the Mexican Stock Exchange, FUNO reported that the merger of the "FUNO," "Jupiter," and "Terra" industrial portfolios would generate approximately 14,860 million pesos (about $833 million) in revenue. Of this revenue, 13,867 million pesos (around $777 million) is expected to be net operating income (NOI), with a margin of 93.3%. This margin indicates that, after covering operating expenses, 93.3% of the revenue will become operating profits. Additionally, an EBITDA of 12,705 million pesos (about $712 million) is estimated, with a margin of 85.5%. In this case, the EBITDA margin, which measures earnings before interest, taxes, depreciation, and amortization, reflects high operational efficiency and cash-generating capability.

FUNO's proposal also presents a capital structure predominantly (95%) in dollars, with a well-distributed maturity profile over the next 25 years. Having most of its debt in dollars could be advantageous if dollar interest rates are lower than those in pesos. However, it also carries exchange rate risks if the peso depreciates, as more pesos would be needed to pay the same debt in dollars or if insufficient dollar revenue is generated to offset the impact of exchange rate fluctuations. Moreover, spreading maturities over the next 25 years means that debt payments will not be heavily concentrated in any single year, helping to avoid liquidity issues.

The trust's proposal also indicates that 67% of the combined portfolio's financial obligations would have a fixed rate, providing stability against exchange rate fluctuations and interest rate increases. In addition, it indicates that only 9% of the debt would be secured, indicating less reliance on specific assets as collateral.

With this optimized capital structure, FUNO expects the new investment vehicle to achieve a credit rating of BBB/Baa2. This suggests that the vehicle would have adequate capacity to meet its financial obligations despite being susceptible to adverse economic conditions. Consequently, the vehicle could access reduced financing costs, as investors typically demand lower interest rates from issuers with lower credit risk.

FUNO is not the only company seeking to add FIBRA Terrafina's portfolio to its investment holdings. At least five other investors, including FIBRA Prologis and FIBRA Monterrey, are vying to consolidate the largest industrial portfolio in Mexico. For more information, explore SiiLA REsource or contact us at contacto@siila.com.mx.