We provide our view on the bonds issued by Mexican REITs (Fibras) in this publication. We are also updating our investment ideas for both USD and MXN bonds in line with the potential catalysts that could affect the bonds in this sector in the near future. We believe that a 25% tariff on Mexican exports could have a direct negative impact on industrial-related companies (e.g., Prologis-Terrafina (Baa3/Nr/BBB), Fibra Monterrey or Corporación Inmobiliaria Vesta (Vesta: Baa3/BBB-/BBB-). as it could add uncertainty to the nearshoring phenomena and, as a result, delay or cancel leases in some Mexican REITs. We would prefer to remain on the side-lines in Vesta and industrial Fibras at the moment.
A decision made by Mexican fiscal authorities granted permission for FUNO (Baa3/Nr/BBB) to carve out its industrial portfolio, which could mean that NEXT, FUNO’s industrial vehicle, could seek to go public in an IPO after March or when the tariff rhetoric dies down. Fibra Prologis’ consolidation with Terra continues, as Prologis has not been able to acquire 95% of Terra’s shares in the open market. We think that once Prologis acquires these shares in full it will tender for Terra bonds, since these seem more expensive that Prologis’ financing costs.
It is worth noting that since President Trump took office, we have seen some Z-spread widening of more than 25bp in VESTA 31s and TERRA 29s and a spread contraction of c. 25bp for FUNO 30s, despite the additional bond supply in January. We believe FUNO’s diversification could be defensive in a scenario of commercial tariff attacks. Funo’s fundamentals could also be on a path to improvement, explained by its ability to improve its debt maturity profile and mitigating liquidity risk. Two other positives are that the company also plans to make an asset sale for at least USD200mn, as reported in its last earnings, and the improvement in NOI is in line with a better scenario in the office space as occupancy ratio increases in line with employees returning to work. We are keeping our long positions in FUNO 30s and adding FUNO 32s and 34s to our list in this sector. It is also worth noting that if FUNO proceeds with the IPO of NEXT some bonds could be transferred to NEXT potentially impacting their price.
Lastly, in the MXN credit market we believe FUNO and other Fibras MXN-bonds have a high price vs. the higher yields of FUNO’s USD bonds. On a currency hedge basis, the USD-bonds have a yield difference of 100bp in MXN-terms to MXN bonds. In this sense, we would prefer to be invested in the USD-bonds. We also expect the MXN-credit market to remain attractive for many Fibras to issue in, and we expect solid demand levels from local players that would likely limit the repricing of these instrument despite the lagged price.