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Biggest Fibra Uno Purchase Is Winning Over Shareholders

Fibra Uno Administracion SA, Mexico’s biggest real estate investment trust, is getting investors’ support for its latest shopping spree as shareholders bet the purchases will translate into higher earnings.

The REIT agreed to buy the Samara commercial complex in Mexico City for 5.4 billion pesos ($409 million), Fibra Uno said on July 24. It was the company’s largest purchase and the second announced in as many days. While its plan to pay for Samara with stock will dilute existing shares, Fibra Uno has gained 4.7 percent since the announcement, while the BMV Fibras index of seven Mexican REITs has fallen 0.2 percent.

Fibra Uno, the first to test Mexico’s tax-advantaged REIT structure, has used acquisitions to boost its stock-market value 16-fold to $10 billion in the three years since going public, turning the company into the world’s biggest diversified property trust, according to data compiled by Bloomberg. Mexico City-based Fibra Uno’s track record is giving investors confidence the latest purchase will increase income.

“I have never seen another company like Fibra Uno in terms of speed and capacity to generate value” through acquisitions, Pablo Duarte de Leon, an analyst with Corp. Actinver SAB. who recommends buying the shares, said in a telephone interview. “Despite the short-term dilution effect, it’s very important that they’ve been this active doing major deals.”

Among 21 analysts tracked by Bloomberg, 16 recommend buying Fibra Uno shares, four recommend holding them and one has a sell recommendation. The stock has rallied 144 percent since its 2011 initial public offering, topping all peers on an offer-to-date basis.

Theater, Hotel

Fibra Uno projects that the Samara property, located in the Santa Fe neighborhood of Mexico’s capital, will generate 460 million pesos of net operating income in the next 12 months. The 144,000-square-meter (1.55 million-square-foot) lot has a fitness center, nine-screen movie theater, shopping mall, office space and a 290-room hotel. Fibra Uno has its headquarters at the complex.

Separately, the company said on July 23 that it paid 412.2 million pesos for the 38,250-square-meter La Viga office property in Mexico City. That property generates annual net operating income of 35 million pesos, or 69 million pesos if fully occupied, according to Fibra Uno.

The company also has begun to formalize the purchase of real estate under its so-called R-15 plan, announced in May. Under the plan, Fibra Uno will buy 15 pre-identified properties for 23.5 billion pesos, including office buildings in the business districts of Mexico City and Guadalajara.

‘Add Value’

“We will keep growing at this pace as long as the market presents us with opportunities that add value,” Gonzalo Robina, the company’s deputy chief executive officer, said in a telephone interview from Mexico City.

Robina previously worked in a real-estate division of Deutsche Bank AG and founded MexFund, which was subsequently sold to Fibra Uno, he said. His partners in the El-Mann family, including chief executive Andre and technical committee chairman Moises, started real-estate investment vehicle e-Group in the 1970s, according to Fibra Uno’s website.

Key to Fibra Uno’s success is its practice of acquiring property at a discount, according to Credit Suisse Group AG, which recommends buying the shares. Fibra Uno has been executing deals at an average capitalization rate of 8.4 percent, Credit Suisse analysts led by Vanessa Quiroga wrote in a July 27 research note. Cap rates, which measure investment yield, are net operating income divided by purchase price. The company trades at a 6.2 percent capitalization rate based on projected 2015 income, according to Credit Suisse.

Valuation Gap

The valuation gap is an arbitrage opportunity for shareholders, Credit Suisse analysts wrote. Quiroga has a price target of 58 pesos for Fibra Uno, meaning she expects the shares to advance 22 percent in the next 12 months. Credit Suisse didn’t make Quiroga available for additional comments.

The acquisitions are “accretive for the company, and they speak to the good performance it’s having,” Luis de la Cerda, who oversees about 328 billion pesos as chief investment officer of pension fund Afore Sura, said by phone from Mexico City. “They’re adding a lot of value for the investor at the end of the day.”

Sura participated in the Fibra Uno IPO in 2011 and has added shares in subsequent offerings, according to de la Cerda.

Fibra Uno shareholders approved 1.25 billion new shares this year, giving the company more resources to make deals. It raised about 24 billion pesos in a follow-on share sale earlier this year.

Recent Moves

Dan McGoey, a Citigroup Inc. analyst, wrote on July 29 that investors should sell Fibra Uno because the company’s recent moves already are incorporated into its stock price.

“The shares are fairly valued,” he wrote.

Citigroup didn’t respond to a request to interview McGoey.

Jose Roberto Solano Perez, an analyst with Monex Casa de Bolsa in Mexico City who recommends buying Fibra Uno shares, said that while the company isn’t the only Mexican REIT making acquisitions at attractive prices, it is the most prolific dealmaker among them.

Fibra Uno’s net operating income climbed 109 percent to 1.72 billion pesos in the second quarter. Revenue also rose 109 percent, to 1.98 billion pesos, compared with the 1.76 million-peso average of four analyst estimates compiled by Bloomberg.

Fibra Uno’s growth is likely to translate into cash flow for investors, Solano Perez said. REITs pay out a portion of the rents they collect as dividends to investors.

“The fundamentals are more than enough to keep a positive outlook for the rest of the year,” he said in an interview. “The REIT is accelerating the incorporation of new assets with the goal of eventually translating them into a higher dividend.”

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