Fibra UNO's proposed industrial mega-merger aims to create Mexico's largest industrial REIT by combining three portfolios into 487 properties with a GLA of 11.6 million square meters (i.e., 124 million sq ft). The merged entity is expected to generate 14,860 million pesos (i.e., $833 million) in revenue, positioning it as the dominant industrial REIT in Mexico. However, the merger faces significant risks, including antitrust concerns from COFECE, rising labor costs, border criminal activity, scrutiny of Chinese investments, and a strengthening peso, which could increase operational costs and reduce profitability.
Emerging Real Estate Digest reported earlier in May that Fibra MTY was studying the acquisition of Terrafina's industrial properties to become Mexico's largest industrial property owner. Terrafina is the second-largest industrial REIT in Mexico, with a market cap of nearly $2 billion.
In the May article, we reported that Fibra UNO, Mexico's largest REIT, was exploring options to acquire Terrafina's properties. A recent report from SiiLA, a Texas-based real estate data provider focused on Latin America, provides details on Fibra UNO's merger plan.
Fibra UNO's Merger Plan
Fibra UNO's proposed "mega-merger" aims to combine three industrial portfolios, creating Mexico's largest industrial investment vehicle. This new entity would encompass 487 properties with a gross leasable area ("GLA") of 11.6 million square meters (i.e., 124 million square feet). The merged entity would significantly surpass Fibra Prologis, which is currently the second-largest industrial holder by GLA and the largest by market cap in Mexico, in both valuations and GLA.
The 11.6 million square meters of industrial would come from e-Group (1.5 million square meters), Fibra UNO''s current industrial holdings (6.1 million square meters), and Fibra Terrafina (3.9 million square meters).
According to a statement to the Mexican Stock Exchange, the merged entity would generate approximately 14,860 million pesos (i.e., $833 million) in revenue with an NOI of 13,867 million pesos (i.e., $777 million), implying an operating margin of 93.3%.
Related Articles:
Prominent Industrial REIT in Mexico Eyed By Multiple Investors
Mexico's REITs: Progress of Aligning Management with Investors
Mexico Industrial Might be the Biggest Bubble in the History of LATAM Real Estate
Negligent Management of the US-Mexico Border Impacting Nearshoring
Mexico Nearshoring: A Great Real Estate Opportunity Could Be Taking Shape
Merger Risks Investors & Analysts Are Contemplating
Regulatory/Antitrust Risks
The merger would be one of the largest property transactions in Mexico's history. Its dominant position could raise antitrust concerns, necessitating approval from regulators. The Federal Economic Competition Commission ("COFECE") would oversee the review, potentially finding that the new entity's pricing power could significantly raise rents, harming the overall economy. Additionally, owning most of the prime industrial properties in Mexico could lead to concerns about the barriers to entry the merged entity might establish to block competitors.
Market Risks
Nearshoring has been a boon for Mexico's industrial sector but there are vulnerabilities emerging casting doubt that current trends will continue. Mexico's labor costs are rapidly rising and severe labor shortages recently caused Toyota to temporarily shut down one of its plants in Mexico.
Criminal activity along the border is raising alarms with most American carriers refusing to transport containers across the border. Threats of cargo theft and violence are increasing requiring expensive and stringent security measures which delay shipments and escalate costs.
Chinese investments in Mexico are under increasing scrutiny by Washington, D.C., which alleges that Mexico is moving products through the country to wrongfully take advantage of the USMCA framework to circumvent tariffs. The next USMCA sitdown is scheduled for 2026, and the two leading contenders for the next American presidency have objected to this practice. If Chinese investors and businesses are excluded, what happens to nearshoring?
Lastly, the hype around nearshoring has caused industrial property values to skyrocket by 35% to 50% in key areas such as Monterrey and Mexico City. This potential overvaluation makes the industrial market particularly vulnerable to economic shocks, exacerbated by factors such as a strengthening peso, poor transportation infrastructure, and persistent power delivery challenges.
Super Peso
The strengthening of the Mexican peso poses a considerable risk to Fibra UNO's merger ambitions. The merged entity would have a significant portion (approximately 95%) of its assets and debts denominated in U.S. dollars, and an appreciating peso increases operational costs and reduces profitability. These currency fluctuations would make the merged entity less attractive and more challenging to manage. Concentration is beneficial when conditions are favorable, but problematic when they are not.
Comments