New Industrial Properties Will Attract Tenants, But Margins May Decline Due To Macro Risks

Key Takeaways

• Strong leasing performance and low lease expiration schedule ensure stable revenue and upward pressure on rents, enhancing net operating income.
  
• Strategic land acquisitions and favorable macroeconomic factors position the company for long-term growth in industrial space development and revenue potential.
  
• Geopolitical uncertainties and financing challenges may negatively impact FIBRA Macquarie's industrial portfolio and revenue growth, despite a strong liquidity position.

Catalysts

FIBRA Macquarie México (FIBRA Macquarie) (BMV:FIBRAMQ) is a real estate investment trust (fideicomiso de inversión en bienes raíces), or FIBRA, listed on the Mexican Stock Exchange (Bolsa Mexicana de Valores) targeting industrial, retail and office real estate opportunities in Mexico, with a primary focus on stabilized income-producing properties.

• FIBRA Macquarie's successful industrial development program, including secured tenants for new properties and additional buildings nearing completion, suggests potential future revenue growth from expanded Gross Leasable Area (GLA).
  
• Strong leasing performance in 2023 and sustained double-digit re-leasing spreads into 2024 and expectations into 2025 indicate upward pressure on average rents, contributing to increased revenue and net operating income (NOI).
  
• The company's low lease expiration schedule for 2025 reduces income volatility, providing stable revenue and earnings even in a cautious market environment.
  
• Strategic land acquisitions in key markets such as Guadalajara and Monterrey enhance long-term revenue potential by positioning the company for additional industrial space development.
  
• Favorable macroeconomic factors such as Mexico’s nearshoring incentives and infrastructure investments could bolster demand for industrial space, contributing to revenue growth and potentially favorable financing conditions impacting net margins.

FIBRA Macquarie México Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FIBRA Macquarie México's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 253.9% today to 56.2% in 3 years time.
• Analysts expect earnings to reach MX$3.5 billion (and earnings per share of MX$4.44) by about March 2028, down from MX$11.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from 2.1x today. This future PE is greater than the current PE for the MX Industrial REITs industry at 4.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.81%, as per the Simply Wall St company report.

FIBRA Macquarie México Future Earnings Per Share Growth

Risks

• The threat of tariffs and broader geopolitical uncertainties could negatively impact Mexico's export economy, which would potentially affect FIBRA Macquarie's industrial portfolio performance, leading to decreased revenue and NOI.
  
• Higher interest expenses could offset some of the growth in AFFO and NOI, especially considering the ongoing investments in FIBRA Macquarie's industrial growth program, impacting net margins and earnings.
  
• The industrial market in Monterrey and other border markets could face potential weakening due to deceleration related to nearshoring and USMCA uncertainties, which may slow revenue growth and increase vacancy rates.
  
• Financing costs associated with new developments could strain the company’s balance sheet, particularly if revenue from these investments does not materialize as quickly as expected, which may lead to lower net margins.
  
• Although FIBRA Macquarie has a healthy liquidity position, any deterioration in macro conditions could pressure its leverage metrics, possibly affecting earning stability and future investment capabilities.

Valuation

• The analysts have a consensus price target of MX$36.567 for FIBRA Macquarie México based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$43.13, and the most bearish reporting a price target of just MX$32.48.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$6.3 billion, earnings will come to MX$3.5 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 16.8%.
• Given the current share price of MX$30.99, the analyst price target of MX$36.57 is 15.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.