FIBRA Monterrey has formally initiated the process to acquire up to 100% of the real estate investment trust certificates (CBFIs) of FIBRA Terrafina. This May, the trust sought approval from the National Banking and Securities Commission (CNBV) and outlined its acquisition plan, which includes exchanging 2.80 FIBRA Monterrey certificates for each FIBRA Terrafina certificate.

This strategy is expected to increase the revenues of current FIBRA Terrafina certificate holders, with an investment return boost between 8% and 13.3%. This increase, measured as AFFO, reflects the actual income generated by the properties after covering maintenance expenses and other essential costs.

Moreover, the value of FIBRA Terrafina's shares or CBFIs is expected to rise following the completion of the purchase. According to FIBRA Monterrey, each Terrafina certificate could be valued at around 45 pesos after the transaction, representing a 6% increase over its average market value over the last three months, which was about 42.3 pesos, according to stock market data analyzed by SiiLA.

The merger of FIBRA Monterrey with FIBRA Terrafina will benefit both companies' investors, as its impact extends beyond the acquisition and revaluation of shares. This operation promises to increase FIBRA Monterrey's industrial inventory, streamline and double its operational flows, and significantly boost its liquidity in the stock market.

On the one hand, the merger would result in the most significant industrial portfolio nationwide, combining 3.9 million square meters from FIBRA Terrafina with 1.7 million from FIBRA Monterrey, totaling about 5.6 million square meters. This includes 382 properties with a 97.7% occupancy rate spread across 16 states. The majority (66% of the gross leasable area) are located in northern Mexico and focus on the automotive, capital goods, and transportation sectors. Additionally, this portfolio would include a land reserve of 1.3 million square meters for future developments.

On the other hand, the merger is expected to facilitate more operational and administrative economies of scale, improving the net operating income (NOI) and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins of the industrial assets of both FIBRAs. In 2023, the industrial portfolios of FIBRA Terrafina and FIBRA Monterrey had NOI margins of 93.2% and 96.1%, respectively, and EBITDA margins of 81.5% and 83% (including non-industrial assets).

Stock Market and Financial Structure

The merger between the two trusts would also significantly increase the ease with which their certificates can be bought and sold in the market, known as stock marketability. This is because the resulting entity would be larger and have more liquidity, attracting more investors and increasing the value of their shares. Since 2016, the average daily trading volume of both FIBRAs has grown and is expected to continue this trend. With the merger, the combined transactions of FIBRA Monterrey ($1.4 million in Q1 2024) and FIBRA Terrafina ($4 million in Q1 2024) would reach over $5.4 million.

Additionally, the merger would strengthen their financial structure, increase capital management flexibility, and improve their credit profile. Data analyzed by SiiLA indicates that these companies' combined debt would maintain a healthy balance between secured and unsecured debts, with a predominance of the secured, indicating prudent risk management. Moreover, most debt would have a fixed rate, providing predictability in interest payments against market fluctuations.

This would imply a reduction in the overall debt level, setting it at 27.9% and improving the net debt to EBITDA ratio to 3.4 times, indicating manageable leverage and a solid capacity to cover financial obligations.

Furthermore, the merged entity would have an average debt term of 4.2 years, offering sufficient time to adapt to changing market conditions before facing principal debt maturities. This reinforcement of the capital structure, along with increased cash and available credit lines, would provide greater solidity to finance operations and future expansions without compromising financial stability.

However, before all this occurs, the next steps for the merger include completing a detailed analysis of the transaction's feasibility, considering fiscal, financial, and legal aspects, and conducting a thorough purchase audit. Then, FIBRA Monterrey holders' authorization will be sought to proceed with the transaction and issue new CBFIs to FIBRA Terrafina holders. Once all necessary approvals are obtained, including those from the CNBV and COFECE, a public offer will be launched.

For more information about this and other transactions in the commercial real estate market, explore SiiLA REsource or contact us at contacto@siila.com.mx.