Joint Venture And Asset Consolidation Will Drive Industrial Expansion

Key Takeaways

• Expansion in logistics and industrial assets positions the company for growth through increased rental income and strong tenant demand in key markets.
  
• Proactive financial management and retail recovery strengthen balance sheet health and support ongoing earnings and margin improvements.
  
• Structural segment headwinds, currency pressures, and rising costs threaten revenue growth while integration risks and changing market dynamics may hamper operational and financial performance.

Catalysts

Fibra UNO Trust was established as a Real Estate Investment Trust on January 12, 2011, by Fibra UNO Administración, SA de CV (the "Settlor") and Deutsche Bank México, SA, Institución de Banca Múltiple, División Fiduciaria (the "Trustee" or "Deutsche Bank").

• The formation of a joint venture with Fibra NEXT and the consolidation of industrial assets are expected to deepen Fibra UNO's exposure to the fast-growing logistics and industrial segment, driven by sustained market demand from nearshoring and supply chain relocation. This is likely to improve revenue growth and NOI as higher-yield industrial assets become a larger share of the portfolio.
  
• Industrial segment rents are currently 31% below market rates, and with 50% of the portfolio set to roll over in the next three years, there is significant embedded rental growth potential as leases are repriced to market. This is poised to drive strong top-line revenue growth and improve margins.
  
• Robust industrial occupancy near 97% and outsized leasing spreads-18.4% in pesos and 12.3% in dollars-reflect tight supply and strong tenant demand in prime logistics locations such as Mexico City. Sustained high occupancy and rental rate increases support long-term EBITDA and cash flow resilience.
  
• Fibra UNO's proactive capital recycling and potential asset divestments, combined with capital inflows from joint ventures, are set to reduce leverage and improve credit metrics. Lower net debt/EBITDA is expected to improve financing costs and net margins, supporting distributable earnings growth.
  
• Rising consumption and increased foot traffic in retail assets-now surpassing pre-pandemic levels-indicate ongoing benefits from Mexico's expanding middle class and urbanization, supporting stable or growing retail revenues and long-term NOI growth.

Fibra UNO Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fibra UNO's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.8% today to 39.5% in 3 years time.
• Analysts expect earnings to reach MX$13.2 billion (and earnings per share of MX$3.46) by about July 2028, up from MX$9.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, up from 10.4x today. This future PE is greater than the current PE for the MX REITs industry at 8.1x.
• Analysts expect the number of shares outstanding to decline by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.7%, as per the Simply Wall St company report.

Fibra UNO Future Earnings Per Share Growth

Risks

• Sustained peso appreciation against the dollar is negatively impacting dollar-denominated rental income and overall revenue growth, particularly in the industrial and retail segments, potentially pressuring future revenues and earnings.
  
• Gravity of declining occupancy, most notably in the office segment (now at 82.2%) and the industrial segment (down 80 bps QoQ), may signal overexposure to segments facing long-term structural headwinds like remote work and office decentralization, which could suppress revenue growth and compress net operating income over time.
  
• Ongoing variable cost inflation-such as insurance expenses rising 13.3% QoQ and select service costs outpacing inflation-risks contracting net margins, especially as the company remains exposed to above-inflation increases in key expenses.
  
• Execution risk surrounding the joint venture (JV) with Fibra NEXT and the internalization process could create integration, regulatory, or asset management complexities that disrupt expected synergies, delay balance sheet improvements, and limit leverage reduction, impacting net earnings and cost of capital.
  
• Reliance on raising leasing spreads through below-market legacy contract resets-especially in the industrial portfolio-could lose momentum if market dynamics shift (e.g., slowing nearshoring or CRE oversupply), raising risk for lower-than-expected NOI and hampering long-term FFO growth.

Valuation

• The analysts have a consensus price target of MX$31.6 for Fibra UNO 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$38.0, and the most bearish reporting a price target of just MX$21.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$33.4 billion, earnings will come to MX$13.2 billion, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 16.7%.
  
• Given the current share price of MX$27.04, the analyst price target of MX$31.6 is 14.4% higher.
  
• 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.