Fibra Inn was among the first of the Hotel FIBRAs—the Mexican equivalent of REITs—which comes with its own set of challenges and opportunities.
MEXICO CITY—Being a first mover in any space comes not just with opportunities and advantages but the difficulties of being a trailblazer, and that’s something executives with Fibra Inn are well accustomed with.
As one of the earliest hotel FIBRAs, Fibra Inn has not only had to sell investors on its strategy but on hotels as an investment class and FIBRAs as an investment vehicle, according to Fernando Rocha, chief of acquisitions and development officer.
“We’re experienced in the hotel business, putting projects together and doing the leg work to understand the drivers, and that’s a not a role many in real estate (in Mexico) generally understand,” he said. “The asset class is very different from something like office or retail.”
FIBRAs are the Mexican equivalent of real estate investment trusts, which are considerably more prevalent and established in the U.S., but they have some differences both for regulatory and practical reasons.
Because there aren’t many existing developers of “REIT-quality” assets in Mexico, Rocha said his company and similar ones have to take on the role of developing themselves, something that’s not a consideration for the U.S. hotel REITs.
“Mexico is different than the U.S. in that it’s a mature hotel market, but it’s not a mature market from a development standpoint,” he said. “So we’re developers out of necessity. Since there are not really professional hotel developers, we have to come in and fill that void.”
Other regulatory differences include that FIBRAs are required to distribute a higher portion of taxable income to investors, there are different requirements for investment mixes and properties must be held by FIBRAs for four years to retain the tax benefits of the investment trust structure.
Rocha said his company is still evolving, growing and maturing. He said as time passed, the company’s portfolio of assets has shifted to focus more on full-service properties in major urban markets, but the company still has many legacy, noncore assets. He noted the company started its history focusing on select-service properties. The company currently has roughly 40 assets with a pair of Marriott International-branded hotels in the pipeline in Monterrey.
“We want to avoid developing in lower-barrier-to-entry markets with less upside,” Rocha said, noting those markets carry higher development risks.
While the company has been active in development, Rocha said the transactions market has been considerably more difficult of late, due to a significant bid-ask spread in Mexico.
“So instead we’re doing stock buybacks and executing on the projects we’ve already announced,” he said. “Our focus is getting our construction projects open and operating and (continuing) to create a strong pipeline of strong, sound projects.”
Rocha noted the company recently underwent a significant transition, changing from an external management structure to internal management. He said this came at the behest of investors who felt more comfortable with internal management.
“They preferred more alignment in objectives and direction, so we went through a very deep process of outside consulting to define if and how we should (make that change),” he said. “The outcome was that (an internal management structure) is a best practice and it needed to happen. So our board and trustees accepted it.”
Rocha said he sees the shift as a strategic advantage when trying to court investors, but his company, like other FIBRAs, is still trading at a discount to what they believe to be the true value of their assets. He said that’s a reality of doing business in Mexico.
“At the end of the day, most of our stock is in the hands of relatively few investors,” Rocha said. “So it’s literally in their hands. Since they’re long-term holders, typically there’s not a lot of liquidity in our stock in general. But we’re focused on creating and generating value.”
Overall, Rocha said he’s optimistic for the trajectory for his company and Mexico’s hotel industry in general.
“I see this industry as being in very exciting times,” he said. “And I think we’re in the right space and have the right model that allows us to capture value in a strong market. Our strategy is very clear, so it’s just a matter of execution.”