Unlocking Investment Potential in Mexico. The Case of FIBRA Nova and Its Capital Reimbursement Returns

When it comes to investment opportunities, Mexican REITs or FIBRAs have emerged as a magnet for savvy investors, boasting returns that outshine other equity debt instruments. In fact, a staggering 57% of FIBRA distributions can be attributed to capital reimbursements, as unveiled by data from SiiLA. For instance, let's take a closer look at FIBRA Nova's performance in the second quarter of 2023, when its capital reimbursements soared to an impressive 194.5 million pesos (over 10.5 million dollars). This translated to an eye-catching distribution of nearly 58 cents per share or CBFI.

So, what exactly is capital reimbursement? A capital reimbursement occurs when FIBRAs give investors more money than they actually earned on their properties through rents or other cash flows. Because this type of distribution does not correspond to the FIBRAs' earnings, the capital refund is a return of money on the amount invested by the shareholder. This means that for each share or CBFI, investors receive money that amortizes the value of their original investment.

It is essential to mention that capital reimbursement doesn't chip away at shareholders' actual stakes in FIBRAs. However, it does influence how the return on investment is calculated when shareholders sell their shares. This is because the capital reimbursement adjusts the book value of the initial investment, or in simpler terms, it modifies the basis of the invested capital only for the calculation of the investment's performance in terms of gains or losses from the time of acquisition to the point of divestment (LISR, Article 188, Section IX).

FIBRA Nova's case offers a compelling illustration of the investment potential return inherent to real estate trust funds nationwide. Although this FIBRA refrained from distributing dividends as part of its fiscal outcome —these dividends signify payments proportional to the income generated from FIBRA's asset operation or usufruct— in six years, it did deliver to its shareholders over 55% of the original value of their CBFIs, harkening back to the third quarter of 2017. These reimbursements stand as dividends for capital reimbursement.

This effectively translates to FIBRA Nova giving back a proportionate equivalent of 10.8 pesos for each of its 2017 shares, initially valued at 19.5 pesos per CBFI. Such a level of investment return casts an alluring contrast when juxtaposed against other debt-based equities, like the Federation Treasury Certificates (CETES), issued by the federal government through the Bank of Mexico.

Over the last six years, FIBRA Nova's annual return rate (from capital reimbursement) has stood firm at 9.2%. In contrast, the return on investment for a 364-day CETE clocked in at an annual 7.7% over the same period. This discrepancy emphatically underscores FIBRAs' potential as a stalwart choice for investors seeking stable opportunities with steady growth within the commercial real estate sector.

In a financial landscape marked by continual shifts, FIBRAs' capacity to offer substantial and sustainable returns cements them as a promising alternative on Mexico's economic horizon. To further explore this and other investment prospects, delve into SiiLA REsource or drop us a line at contacto@siila.com.mx.