Recovery of prices in B3 and beginning of monetary easing in Brazil intensifies emissions of new shares
08/15/2023
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Maria Fernanda Violatti — Foto: Divulgação
The recovery of stock market prices in recent months and the beginning of the Selic interest rate cut cycle are starting to unlock offerings of real estate funds. At the end of June, two public offerings attracted attention: the ninth issue of quotas of CSHG Logística, the portfolio with the largest number of investors in the segment (350,000) and which moved almost R$1.6 billion, and XP Malls, which raised R$937.5 million in two issues in a row, attracting 50,000 shareholders in the tranche aimed at retail investors.
At the Brazilian Securities and Exchange Commission (CVM), Capitânia and XP Habitat registered operations totaling R$600 million in July, and the queue under analysis has increased considerably since then. Overall, the regulatory body is evaluating more than R$4.5 billion, excluding offerings of funds dedicated to the agro-industrial chain (Fiagro). According to Anbima statistics, until July, R$10.9 billion in operations flooded the market. Last year, the segment raised R$24.7 billion.
The mix brings more cases of “brick” funds, which have physical real estate in the portfolio, after a season predominantly of “paper” portfolios, composed of credit assets that serve as backing to finance the sector, such as Real Estate Credit Bills (LCIs), Certificates of Real Estate Receivables (CRIs) and Mortgage Bills (LHs). “Since 2020, managers have been waiting for a window for new issuances,” said Maria Fernanda Violatti, head of listed funds at XP. “Now, we have the beginning of the interest rate reduction cycle, and you can still make acquisitions at favorable prices.”
Among the names that already test the investor’s willingness to cases more linked to the real economy are BTG Pactual, Vinci Partners, GTIS Brasil, Riza, Unimed Investcoop, TRX Real Estate, and Capitânia Malls.
Capitânia’s fund focused on mall holdings is already running with around R$200 million in net assets. Caio Conca, the partner responsible for the segment at the fund manager, said that since the sector is predominantly of individuals – almost all of the 2.2 million investors in about 480 funds listed on B3 — it takes longer to react to the improvement in the macroeconomic scenario, while the stock and foreign exchange markets “respond in real-time.”
In July, the Real Estate Investment Funds Index (IFIX), which indicates the average performance of stock prices, reached 3,200 points — its highest level since December 2019. However, said Mr. Conca, as prices were significantly depreciated, the funds are generally still below their asset value. This means that, in practice, the share is being traded at a price below the value of the assets that make up its portfolio. “Some funds were being priced at 50% of their value and went to 85%,” he said.
In 2022, the discount of the shares of brick real estate funds reached 33%, just above the average of the portfolios that make up IFIX, said Ms. Violatti of XP. According to a report signed by the specialist, the average discount of IFIX funds was 5% at the end of July. In the recovery process of recent months, the brick class has advanced more, and the difference between the equity value and the market value is 3.1%, below that observed in paper funds, 6.4% on average.
Historically, the premium of brick funds over 10-year NTN-Bs fluctuates between 150 bp and 200 bp, but the current gap is 350 bp, which is “well out of line with the midpoint of the curve,” said Michel Wurman, who leads BTG Pactual’s real estate assets division. “This data comes together with another: in past interest rate drop cycles, the average appreciation [of portfolios with real estate] was 20%. There is history to back it up, hence the confidence in a recovery by analyzing the technical factor alone.”
A chunk of that was frontloaded from mid-May, but there is still room for more. “If managers have interesting investment opportunities, with the recovery of shares, it is normal to see the increase in offers, and that is the movement that began to happen,” said Mr. Wurman. “The market gains price, liquidity, and depth; that’s the sequence.” For some subclasses, it makes sense to attract funds, he said. BTG itself has an operation out there, from the 12th issue of its logistics fund, to raise almost R$600 million, but, in times of silence, Mr. Wurman does not comment on the operation.
Funds with mall assets were the fastest to recover, already trading at a small premium on B3. “There are offerings after offerings for some names, especially those with large portfolios. There is already a chance to issue because, in the past, they were using debt instruments, a necessity during the pandemic, and then interest rates went up. Now, they can better equalize funding, reduce this exposure or make acquisitions,” said Ms. Violatti.
The recomposition of prices should have one more step, recalled Mr. Conca of Capitânia, which is the revision of the valuation of the properties, performed annually. “Generally, the fiscal year of the funds is in December. That is, the last evaluation was made in the context of uncertainties at the end of last year. I have no doubt they will go up now.”
The greater liquidity of assets on the stock exchange also feeds back a more favorable cycle for the sector, including new offerings, said Anita Scal, partner and investment director at Rio Bravo. “The secondary market has heated up; there is no longer that difference to the equity value, and our retail and logistics funds have already passed [have been traded with a premium]. And we see a lot of correlation between periods of falling interest rates and brick offerings,” he said. “We will see several operations, including Rio Bravo, throughout the semester.”
The executive remained tight-lipped about which segments should be targeted to comply with the secrecy that CVM requires in public offerings. On the management side, she said the art will be in selecting which assets to buy. In addition to the malls’ segment, which has shown dynamism, logistics has never lost appeal, especially portfolios with warehouses near major capital cities.
Brunno Bagnariolli, CIO of Mauá Capital, also predicts a second round of issuance in three months, driven by the appreciation of brick fund shares. According to him, most of the current fundraising is being driven by institutional investors, who are anticipating the return of retail investors into the class with a focus on capital gains.
Individuals are showing a preference for paper funds because they have a more defensive profile. “In that second moment, they will reach the brick funds,” he said. “Retail has also come back well in the secondary, in the already established funds. We have strong signs of recovery.”
Mauá – now under Jive Investments, with XP as a minority partner – had higher-than-expected demand in the second issue of its real estate receivables fund. The asset manager raised R$467 million from 11,000 investors through XP independent financial advisers. That’s what brought the equity of the paper fund to R$930 million and more than 20,000 shareholders.
EQI Investimentos will debut in the brick fund segment with capital raising in the final stages for a high-end real estate project in Santa Catarina. “We wanted to make our debut where the company was born, which has a thriving real estate market,” said Ettotre Marchetti, CEO. Then, the idea is to invest in projects in São Paulo and Rio. “I don’t see an exhaustion of these two markets. We had a period of few launches in recent quarters because of the high Selic rate, but with interest rates going down, the most profitable projects will return.”
The sector that still suffers from vacancies is corporate buildings. Ms. Scal mentioned that Rio Bravo’s corporate fund went from a 35% vacancy rate in the most critical phase of the pandemic to 15%, and the goal for April 2024 is to reduce it to 4.4%. “There is better occupancy; leases are faster with the market returning, with shorter grace periods and discounts. It has an ‘upside’ for shareholders.”
*Por Adriana Cotias, Liane Thedim — São Paulo, Rio de Janeiro
Source: Valor International