What Is A Fibra?

FIDEICOMISO DE INFRAESTRUCTURA Y BIENES RAÍCES

Is an investment trust vehicle under Mexican law dedicated to the acquisition and development of real estate assets in Mexico intended for leasing. FIBRAs are similar to real estate investment trusts, or REITs, in the United States. This vehicle provides a new investment opportunity for investors.

 

The introduction of FIBRAs as an investment vehicle in Mexico and the establishment, in 2004, of the tax regime applicable to FIBRAs (through the securities it issues) represent a new kind of security available to investors. The legal structure of a FIBRA resulted from reforms enacted over the past several years to (i) various provisions of the Mexican tax laws and regulations, (ii) operating, trading and other Mexican regulations, (iii) the investment regime of the Mexican pension fund administrators (Administradoras de Fondos para el Retiro, or AFORES) permitting the tax-friendly investment in FIBRAs by Mexican pension funds and (iv) annual tax regulations issued by the Ministry of Tax (misceláneas fiscales).

 

In particular, recent regulations under the investment regime for the AFORES have classified FIBRAS as “structured instruments.” As a result, Mexican mutual funds specializing in retirement funds (Sociedades de Inversion Especializada en Fondos para el Retiro, or SIEFORES) may direct resources to CBFIs issued by FIBRAs, subject to their investment limitations (for SIEFORES 2, a maximum of 10%, and SIEFORES 3, 4 and 5, a maximum of 15% of their net assets, observing their diversification criteria provided in Order 15-19 of the Retirement Savings System National Commission (CONSAR). In addition, certain private Mexican pension funds, subject to compliance with the applicable provisions of Article 224 of the Mexican Income Tax Law, may invest up to 10% of their reserves in CBFIs issued by FIBRAs.

 

In addition, the macroeconomic stability of the Mexican economy in the last 17 years has facilitated the development of income-producing properties in Mexico, mainly in major and mid-size cities.

Main benefits of investing in a Fibra

  1. The potential for a high return on investment—on a cash basis—relative to other investments due to the requirements for distribution of net taxable income, and the potential for capital appreciation of CBFIs commensurate with increases in value of the real properties held by the FIBRA.
  1. The potential for a high return on investment—on a cash basis—relative to other investments due to the requirements for distribution of net taxable income, and the potential for capital appreciation of CBFIs commensurate with increases in value of the real properties held by the FIBRA.
  1. Broader diversification with respect to geographic exposure and property type for investors seeking to invest in the Mexican real estate market or generally for an investor’s investment portfolio.
  2.  
  3. FIBRAs may serve as a vehicle to attract foreign investment into Mexico.

  4. Applicable tax benefits

General comparison of mexican fibras and U.S. Reits

The rules and regulations governing FIBRAs under Mexican law have similar, as well as certain analogous, but nonetheless different, characteristics to the rules and regulations governing REITs under U.S. federal income tax law. The table below highlights the principal differences between FIBRAs and U.S. REITs:

DISTRIBUTIONS

INVESTMENT FOCUS

INCOME TEST

OTHER CONSIDERATIONS

MEXICAN FIBRA'S

  • Must distribute at least 95% of the net taxable income to investors annually.
  • Must invest at least 70% of total assets in real estate or rights derived from it.
  • Remaining 30% must be held in Federal Government securities registered in the National Securities Registry or in shares of debt-instrument investment mutual funds.
  • Real estate must be leased or held for lease, unless it is in process of being developed.
  • FIBRAs may provide financing to third parties for the acquisition or construction of real property secured by mortgages created on the leased assets.
  • Properties must be held by the FIBRA and not be sold for at least four years after completion of development or acquisition (it fully developed) in order to retain tax benefits regarding that property.
  • Mexican resident individuals without business activity are exempt from income tax on the sale of FIBRA-related CBFIs or shares insofar as the corresponding sale is made through the Mexican Stock Exchange or a recognized market, as defined by the Mexican Income Tax Law.
  • Non-Mexican holders of CBFIs are generally subject to Mexican withholding tax on distributions with respect to a FIBRA’s net taxable income at a rate of 30% subject to a reduction or exemption for certain classes of investor.
  • Non-Mexican holders of CBFIs are generally not subject to Mexican income or withholding tax on sales of CBFIs, provided such sales are through the Mexican Stock Exchange or a recognized market, as defined in the Mexican Income Tax Law.
  • FIBRAs are not entitled to deduct any distribution paid from taxable income or credit any income tax paid as a result of such distribution, in terms of the Mexican Federal Income Tax Law.

U.S. REITS

  • Must distribute at least 90% of net taxable income, with certain adjustments, to investors annually.
  • Must invest at least 75% of its total assets in real estate assets (equity and debt), government securities, cash and cash items (including receivables).
  • Must derive at least 75% of their gross income from qualified real estate related sources, including rent from real property, and must derive at least 95% of their gross income from such real estate related sources, and other sources of passive income.
  • Subject to 100% penalty tax on sales of property “primary held for sale to customers in the ordinary course of business".
  • Not more than 25% of assets may consist of stock in taxable REIT subsidiaries, or TRS.
  • Non-U.S. holders generally are not subject to U.S. federal income and withholding tax on sales of such shares, provided that the REIT is publicly traded and the investor has held no more than 5% of the REIT’s publicly traded class of stock or the REIT is “domestically Non-U.S. holders are generally subject to a 30% if U.S. federal withholding tax, subject to reduction under an applicable income tax treaty, on dividend distributions from REITs that are attributable to operations income, and on capital gain distributions as long as the REIT is publicly traded and the investor has held no more than 5% of the REIT’s publicly traded class of stock.
  • REITs are entitled to deduct dividends paid from taxable income, providing generally for exemption from corporate level U.S. federal income tax.

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