FIBRAs vs CKDs: What Are They and What Are the Differences Between These Investment Vehicles in Mexico?

CKDs and FIBRAs are exposed to financial risks related to interest rates, exchange rates, inflation, and liquidity, among others. However, CKDs are also particularly exposed to risks associated with construction projects, which can be delayed due to regulatory issues or other circumstances.

Despite the potential for higher risks in CKDs compared to FIBRAs due to their long-term nature limiting investor liquidity, their returns can also be more attractive than those of FIBRAs, primarily targeted at individuals seeking capital flow stability over time through distributions.

According to Jacobo, two significant differences in terms of income and investment between these two investment vehicles should be highlighted.

Firstly, anyone, whether an individual or institution, can invest in FIBRAs through a brokerage house. In contrast, CKDs are limited to institutional investors. In fact, CKDs were created between 2009 and 2010 to meet the needs of AFOREs and SIEFOREs, which were looking for investment vehicles that generated higher returns than traditional instruments such as stocks and bonds. Therefore, the leading investors in CKDs today are AFOREs, which can invest up to 20% of their resources in CKDs. In the case of FIBRAs, no investment limit is imposed on AFOREs.

Secondly, the operation of these two vehicles is different, with FIBRAs being more straightforward and liquid compared to CKDs.

With FIBRAs, investors buy certificates on the Mexican Stock Exchange (BMV) just like they would purchase any other stock. This means that a shareholder can acquire or sell shares during the BMV's operating hours and observe daily changes in their value. In contrast, this is not the case with CKDs. Since they are instruments limited to institutional actors, all transactions occur in the primary market, where capital is raised to finance organizations and projects, and they do not reach the secondary market, where stocks are bought and sold. This means a group of investors is formed, including AFOREs, SIFOREs, companies, banks, and brokerage houses interested in investing in a project. Due to the lack of a secondary market, selling acquired shares or obtaining immediate liquidity is problematic since these investments are long-term. If a CKD investor needs liquidity, they must wait until the CKD's maturity or sell their shares to other group members.

Due to their characteristics, the source and profitability of income from FIBRAs and CKDs differ. While FIBRAs primarily generate income from property rentals, typically part of stabilized portfolios, CKDs' income depends on the so-called "underlying," i.e., the value of the ongoing project.

However, despite the stable dividend income generated by FIBRAs, there is a debate about their performance. According to Jacobo Rodriguez, "During the pandemic, it was observed that the price of many FIBRAs dropped significantly, more than dividends could compensate for, leading to questions about whether these instruments are truly defensive or conservative due to the variability in their price, which is sometimes not offset by dividend income."

Despite the challenges in adverse economic times, both FIBRAs and CKDs are secure and profitable investment tools in terms of return on investment and tax matters.

In this regard, the Roga Capital specialist noted that although CKD dividends are subject to Income Tax (ISR) like any business activity, which can be as high as 35%, depending on each case, the tax burden is 10% on capital gains. "If you buy a CKD share for 10 pesos and sell it for 11 pesos, only the one-peso difference is subject to the 10% tax," he explained.

In contrast, FIBRAs are taxed under the lease income regime, which allows more flexibility in deductions. Unlike CKDs, FIBRAs' dividends are not considered accumulative income, as they are rental income. This implies that they are not reported alongside other types of income, allowing strategies to reduce tax burdens. Furthermore, FIBRAs do not generate taxes on gains related to the sale of shares.

In Mexico's commercial real estate market, FIBRAs and CKDs are safe and stable investment vehicles that offer different approaches and business structures. If you wish to learn more, explore SiiLA REsource or contact us at contacto@siila.com.mx.