Shopping Centers Today International

NOV 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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off in 2005, when legislation was passed to exempt individual investors from taxes on earned dividends, though not from the 20 percent capital-gains tax, says Sérgio Belleza Filho, president of São Paulo–based Fundo Inmobiliário Consultoria, a REIT consulting firm. Of the country's 260 REITs, 106 trade on the stock market. "We have many REITs because the vast majority have just one asset, be that an office build- ing or a stake in a shopping mall," said Belleza. "This is changing slowly, with the industry creat- ing larger funds like the U.S. REIT model." Belleza Filho estimates that the country's trusts hold combined assets of roughly $18 billion. Retail and shopping centers account for nearly 18 percent of the overall investment. Of the 18 Bra- zilian REITs that invest in shopping centers, only six have ownership stakes in more than one retail center. The other 12 own just one mall or a chunk of one, he says. REITs have been making steady progress in Costa Rica. The first one was launched in 1999, and there are now 17, with combined assets of nearly $1.2 billion, according to Victor Chacón, executive director of Cámara de Fondos de Inversión, Costa Rica's trade group for investment funds. Retail centers account for nearly one-quarter of the over- all gross leasable area held by these trusts. And the bulk of investors are individu- als and small businesses, with pension funds accounting for about 3 percent, says Chacón. "Small investors have a high appetite for this type of investment," said Chacón. "Costa Rica even has a second- ary market for REITs." Relative to other property sectors, Costa Rica's retail real estate produces the highest investment returns, because most are well- positioned shopping centers with high oc- cupancy and rents, Chacón says. Though the investment pace has slowed, Costa Ri- can trusts continue to invest actively, with some $105 million of new assets added in during the first half of this year. Looking ahead, Latin America industry experts say REITs will con- tinue to make inroads. "Brazil's cur- rent high-interest-rate scenario is cy- clical," said Belleza Filho. "There are several excellent [REIT] business opportunities emerging." Rey de Castro points to the importance of REITs being equity and not debt. "That's key in cyclical countries like ours, without the financial stability of, say, Germany and the United States," he said. "For a Latin American developer, it's very dif- ferent to hold a debt than a fund's investment in its property, since the first will demand payment regardless of the shape of the economy. For a cyclical business like real estate, a REIT's capital structure is much healthier." SCT REITs fuel Mexico's growth Mexico is home to 10 REITs — called Fibras — with a combined market capitalization of about $15.5 billion. This is not bad, con- sidering that in 2011 there was only one. "Fibras' investment has been so significant that the 15 million square meters they own account for 25 percent of Mexico's retail, in- dustrial and office gross leasable area," said Armando Rodríguez, an analyst at Mexico City–based Signum Research. What has made these so popular is that they were the first form of Mexican invest- ment to pay regular dividends, mostly quar- terly, says Rodríguez. Fibras boast some 3.6 million square meters of mall space, amount- ing to 22 percent of the overall gross leasable area they control, excluding investments in hotels, he points out. Furthermore, thanks to a combination of cash flow, approved credit and reimbursement of an aggregate value tax, they have enough resources to add as much as 15 million square meters. The most active retail Fibras are Fibra HD, Fibra Macquarie, Fibra Shop and Fibra Uno. The last cited in that list is Mexico's largest, with 16 retail centers totaling nearly 702,200 square meters in the aggregate. Fibra Shop, meanwhile — the only REIT specializing exclusively in retail real estate — also has 16 shopping centers and said in Au- gust that it would buy six more by year-end. Grupo Danhos was the first Mexican mall developer to create a Fibra — the 2-year-old Fibra Danhos. Another mall developer, Grupo Acosta Verde, has announced its intention to follow suit. Planigrupo, too, has publicly pondered creating its own Fibra. "We wanted to keep up with the competition by having access to capital markets to develop pend- ing projects that would have otherwise been impossible to develop," said Elías Mizrahi, director of investor relations at Mexico City– based Fibra Danhos. Before the firm created the Fibra, capital used for financing projects was borrowed mainly from the banks or from friends and family. "Fibras give developers the opportunity to access cheaper and more-liquid financ- ing sources, be that capital or debt," said Mizrahi. "Fibras are the Mexican stock ex- change's asset class that has raised the most resources in recent years in international mar- kets. We believe there are even more growth and investment opportunities." — MBP N o v e m b e r 2 0 1 5 / S C T 37 S é r g i o B e l l e z a F i l h o , p r e S i d e n t o F S ã o p a u l o – B a S e d F u n d o i n m o B i l i á r i o C o n S u l t o r i a

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