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Signum Research

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Joaquín Sánchez

Joaquin Sanchez, CFA
12.sep.17

Signum Perspectives

FIBRA HD ANNOUNCES DEBT ISSUANCE

Fibra HD (FIBRHD) has announced a debt certificate program amounting to MXN$2.5 billion. It will consist of an initial issuance of MXN$1.2 billion, possibly at the beginning of next month, and pay an interest rate linked to the Udibono and TIIE. The issuance will make the Fibra’s debt policy more aggressive compared to when it first sought funding, since when there have been no significant debt issuances above recoverable VAT.

It is important to mention that the current portfolio and acquisition pipeline give the Fibra a natural hedge based on portfolio renewals linked to inflation. However, management does not rule out meeting a percentage of the debt to avoid strong fluctuations in Funds from Operations (FFO) in the short and medium term.

After the issuance, the Fibra’s Loan to Value (Debt/Assets) should be around 22%, which is healthy and below the sector average at end 2017-II (26%).

The proceeds from the issuance will be mostly used to buy a portfolio consisting of six buildings in the commercial, office, industrial, and car agency leasing headings totaling 68,732 m2. The investment will total MXN$1.360 billion and be met by the debt issuance; the remaining amount will be met by a CBFI payment representing the Fibra’s capital stock.

Management believes these acquisitions will be profitable in line with the Cap Rate of previous transactions of around 10.0%. We also expect the portfolio to generate more diversified lessees and less income concentration, which should mitigate the risk of vacancy and result in lease stability.

FIBRHD believes that once the buildings are acquired, the top 10 tenants will represent less than 34% of the portfolio’s total surface area, below the previous quarter’s 45%.

Economies of scale will also be generated from a reduction in management platform costs to a level of 55 bp on the value of assets compared to 140 bp since the beginning of operations, which could offset additional costs related to the debt service.

The Fibra currently has search processes in place for new properties with attractive locations with potentially similar Cap Rates based on the acquisition price.

We continue to have an upbeat medium-term outlook for the Fibra, but believe that current distributions continue to show a relative lag compared to interest rates on fixed-income instruments. FIBRHD’s quarterly distribution reflects dividend yield of 7.9% based on current CBFI prices.

Going forward, we expect the new portfolio to result in gradually better distributions; however, given that the current monetary policy environment is broadly linked to that of the US, there is still no inflection point that would suggest decreases in financing costs and greater appetite for yield-related instruments from investors, which will put pressure on the CBFI price and the sector as a whole.

We will provide more information about the final results of the debt placement and acquisition pipeline as soon as we are able. Our rating is HOLD and our CBFI target price is under review.



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