Fibra Macquarie CEO sees ‘danger’ of price bubble for Mexico’s REITs

Fibra Macquarie CEO sees ‘danger’ of price bubble for Mexico’s REITs

Fri, Jul 26 2013

By Gabriel Stargardter

MEXICO CITY (Reuters) – There is a danger that the growing value of Mexico’s real estate investment trusts could form a property price bubble, the head of Macquarie’s Mexican REIT said on Friday. The trusts, known locally as fibras, issue certificates that function much like shares on the stock exchange, and allow investors to participate in Mexico’s property market without owning buildings. But the extra liquidity generated by the funds, which have posted dizzying gains on the local bourse in recent months, has led some to suggest an inflated price bubble is around the corner, possibly resulting in painful price adjustments.Jaime Lara, the chief executive of Fibra Macquarie (FIBRAMQ12.MX: QuoteProfileResearchStock Buzz), Mexico’s top performing trust, said a price bubble could form. But he added that sensible industry-wide acquisitions, coupled with a possible upcoming interest rate hike, would dampen gains.

“There is a danger,” Lara said in an interview, noting he had seen prices rising steadily. “The only way for us to defend against that is to be very cautious with new acquisitions.”

The fibras have proved popular since their market debut in 2011, and six are now listed on the Mexican stock exchange.

Fibra Macquarie (FIBRAMQ12.MX: QuoteProfileResearchStock Buzz), part of Australian bank Macquarie (MQA.AX: QuoteProfileResearchStock Buzz), has risen more than 85 percent this year, while Fibra Uno (FUNO11.MX: QuoteProfileResearchStock Buzz) and Fibra Hotel (FIHO12.MX: QuoteProfileResearch,Stock Buzz) have both gained more than 30 percent. Mexico’s IPC index .MXX has dropped more than 6 percent over the same period.

With more fibras lining up to list by the day, the speed at which the market overheats could increase as funds compete for a shrinking asset pie. Fibra Shop FSHOP12.MX had a spotty debut on Wednesday, while Fibra Danhos said on Friday it was preparing its IPO.

Fibra Macquarie, which on Thursday posted second-quarter net profits of 720.3 million pesos ($55.5 million), is banking on an improving U.S. economy and the benefit that brings Mexico’s manufacturers, Lara said.

He said the fund, which focuses on commercial real estate, also expects to profit from a government-backed scheme to promote re-urbanization. The policy, which seeks to combat urban sprawl and lure development back into city centers, has left some of Mexico’s top homebuilders, including Homex (HOMEX.MX: Quote,ProfileResearchStock Buzz), Urbi (URBI.MX: QuoteProfileResearchStock Buzz) and Geo (GEOB.MX:QuoteProfileResearchStock Buzz) on the verge of bankruptcy.

The troubled homebuilders, which hold large swaths of increasingly worthless land outside cities, have also been saddled with flagging sales and a heavy debt burden.

“There’s going to be more residential development and at the same time, that’s going to be accompanied by commercial real estate,” Lara said.

Lara also acknowledged that Mexico’s challenging security situation, in which over 70,000 people have died in drug-related violence since 2007, could impede growth.

The fund mainly holds properties in Mexico’s industrialized north, which has also been the scene of some of the worst atrocities in Mexico’s drug war.

“I think that the worst part is over,” he said. “As time goes by and as the violence continues to recede, more companies are going to explore those markets. From an economic perspective, it makes a lot of sense to be next to the border with the U.S.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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