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Signum Research

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Joaquín Sánchez

Joaquin Sanchez, CFA
25.sep.18

Signum Perspectives

FUNO presentation at AMIB Debt Sub Committee

We recently attended the AMIB’s Debt Analysis Sub Committee meeting in which Fibra Uno (FUNO) talked about its prospects and current financial situation. The Fibra mentioned its business model and detailed its advantages compared to other real estate developers. It also discussed its debt strategy and recent bond placement.

Management began by explaining the long-term outlook for the real estate business, which includes not only value generation from rents, but also property surplus value in line with the country’s economic and demographic growth.

They also mentioned the industry situation and emphasized that while there is a lot of supply, there is also a lot of demand, which has been driven by consumption. This has contributed to significant market absorption, a trend that should continue in the medium term. As there are no custom-built offices in Mexico, office building capacity is quickly used up, which in turn drives demand.

The company’s size enables it to negotiate construction material prices, which translates into more competitive lease prices. An example of this are the offices located in the Reform corridor where the average price per square meter is US$30 compared to FUNO’s price of US$28 per m2. FUNO’s experience as a real estate developer also plays an important role, enabling it to build efficient buildings that meet clients’ demands.

FUNO is one of the Fibras with the highest occupancy rates of the sector; indeed, occupancy reached around 94% of the total portfolio in the second quarter of the year.

Regarding debt, management emphasized that it plans to continue with its conservative profile. FUNO has a Loan-to-Value (Debt/Assets) of around 32%. An important aspect of the debt profile is that only 3% is asset backed, giving it the flexibility to resort to a bank loan that can be secured by a range of assets in the event of adversity. FUNO’s average cost of financing is currently 7.5%.

Last week, the company successfully placed around P$9.2 billion in bonds. Around P$3.8 billion of that corresponded to the reopening of FUNO 17, while the rest corresponded to a new floating rate issuance with a 4.6-year term. The proceeds from the issuance will enable the company to continue with the development of its project pipeline, which so far includes ten projects with a gross leasable area of 738,890 m2 that is set to generate annual revenues of P$2.2 billion. Furthermore, the issuance enabled the company to refinance debt in order to extend its debt schedule by five and ten years.

Management was upbeat about the challenges associated with the government changeover because the real estate business has longer cycles than government mandates. Regarding decentralization of government ministries, FUNO has a presence in other states besides Mexico City.

We remain upbeat about FUNO, but believe that in the current interest rate and risk-free instrument environment, market valuations could remain volatile overall in the short term. We have a BUY rating on FUNO with a Q419 target price of P$29.0 per CBFI.



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