The 5 best FIIs for 2023: analysts suggest focusing on “paper” funds, malls and 3 other sectors

After a 2022 full of challenges, the real estate fund market starts 2023 with no expectation of experiencing a more serene new year. The list of hurdles may have narrowed, but investors will need to be aware of the factors affecting FII operations and quotes. The good news is that, even in the face of this scenario, there are opportunities on the stock exchange, analysts underline.

In recent weeks the Money info analyzed reports from analyst firms and brokers and listened to specialists on the most promising real estate funds for the coming year.

The list of market favorite funds for 2023 includes FIIs from urban income, credit, logistics, shopping malls and hybrid segments. There are also portfolios with a dividend yield rate (dividend yield) up to 13% in the last 12 months, as in the case of CSHG Receivings Imobiliários (HGCR11) – one of the most cited.

The compilation aggregates funds that ended 2022 trading near or below fair value, considering the P/VPA (price over book value) of FIIs.

The closer the indicator is to 1, the closer the stock gets to fair value. Above this level, the stock trades at a premium and below, at a discount. At this point, the highlight is Bresco Logística (BRCO11), whose P/VPA is at 0.80 – which would represent a 20% discount. Check out the other preferred funds for 2023 and their details:

Sources: Suno, Eleven Financial, XP, Clube FII, Levante, Inter, brokerage reports and Economatica (27/12/2022)

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What to expect from “paper” FIIs in 2023

In 2022, the FII market started with the threat of strong inflationary pressures, an interest rate hike in progress and the restrictions imposed by the Covid-19 pandemic still in an advanced stage. Furthermore, there were expectations for the stock’s behavior in the midst of the closest presidential election in history.

In general, the challenges have diminished in 2023 and today are mainly focused on uncertainties about the country’s fiscal balance, which could affect the economy’s base interest rate, the Selic, a hugely important factor for the behavior of real estate funds.

The higher the Selic rate – which finished the year at 13.75% annually – the more lucrative fixed income becomes, which ends up attracting variable income investors, including real estate funds.

The part of the FII market that is hedged against rising interest rates are credit, or “paper” credit, investing in fixed income securities linked to inflation rates or the CDI (Interbank Certificate of Deposit) rate – an indicator of fixed income that accompanies the Selica variation.

In this way, when inflation or interest rates rise, the income of “paper” FIIs tends to rise, increasing the volume of dividends distributed. And the opposite is also true. In periods of declining indices, this asset class ends up reducing returns and losing attractiveness, as happened in the third quarter of 2022, when there was deflation.

“What should be observed by investors is whether the current level [da taxa Selic] should be maintained and possibly if the rate were to start falling soon”, observes Michele Costa, partner of Brio Investimentos. “Higher rates, therefore, are advantageous for ‘paper’ funds, with securities indexed to the CDI”.

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CSHG Property Loans (HGCR11)

One of the market’s favorite “paper” FIIs to capture Selic’s current level is CSHG Recebíveis Imobiliários (HGCR11), which currently has a net worth of R$1.56 billion.

According to the latest management report, released in November, real estate credit certificates (CRIs) currently account for 85% of the portfolio’s portfolio. The remaining balance is intended mainly in units of other FIIs.

Among the CRIs, the document specifies, 54% are indexed by the Extended Consumer Price Index (IPCA) and 46% by the CDI.

“Given the fiscal deterioration scenario and lower expectations of a decline in the Selic rate in 2023, we have opted for vehicle entry [recomendação de compra do fundo] for greater exposure to the Cdi”, points out Gustavo Caetano, FIIs analyst at Inter. “The HGCR11 has an important diversification across the different indices, which brings greater stability in its cash flow and, consequently, in the distribution of earnings over the reference horizon”.

In 12 months, the dividend yield of HGCR11 is at 13.05%, the highest among the most promising FIIs for 2023.

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How are the “brick” FIIs in 2023?

Brick funds have had their revenues impacted in recent years by restrictions imposed during the Covid-19 pandemic, especially portfolios targeting shopping malls and office developments with reduced foot traffic over the period.

The increase in the Selic rate – which went from 2% at the beginning of 2021 to the current 13.75% per annum – also contributed to devaluing the “brick” FIIs, given the greater attractiveness of fixed income.

Right now the financial market fears that a possible increase in spending by the Lula government will force the central bank to hold the current Selic level longer than expected. The concern has raised future interest rates in the country, a move that further boosts the yield on fixed income and reduces the attractiveness of “brick” FIIs.

Brick funds end up potentially suffering the most [com a expectativa de juros maiores]postponing the expectation of a recovery in the segment, which was underway”, evaluates Maria Fernanda Violatti, FIIs analyst at XP.

Even so, many “brick” funds trade below book value, given the fair value of the portfolios. This presents an opportunity for investors given the quality of these portfolios, including 2023 market favorites in the shopping, urban rental, hybrid and logistics segments.

Vinci Shopping Centers (VISC11)

The shopping segment has been one of those that has suffered the most in recent years with the restrictions imposed by the Covid-19 pandemic. In the most critical periods, the businesses had to close their doors, seriously compromising the revenues of the FIIs in the sector.

In 2022, with the resumption of the movement of people, developments began to pick up and, in some cases, even exceeded the pre-pandemic results.

November sales in the Vinci Shopping Centers (VISC11), for example, recorded an increase of 11.2% compared to the same period in 2019 – before the spread of Covid.

The performance reinforces Raul Grego, FIIs analyst at Eleven Financial, optimism with the fund, although the specialist expects a challenging year for the shopping segment.

“Keeping interest rates high is challenging for continued strong double-digit growth in the industry, but we still expect sales to grow in line with inflation,” he predicts. So, we see that sector real estate fund dividends should show growth, as vacancy is relatively low in assets,” she adds.

With a gross leasable area (GLA) of 220 thousand square meters, VISC11 has in its portfolio the participation in 19 projects located in 12 different states. The current portfolio occupancy rate is 93.9%, the highest in the last twelve months.

The trade fund is currently trading around 10% off and has a dividend yield by 8.37% in 12 months.

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Bresco Logistics (BRCO11)

With a net worth of 1.796 billion reais, Bresco Logística owns 11 properties which, together, reach a GLA of 446,000 square meters. 59% of them are located in São Paulo, a prime region for the segment.

As pointed out in the latest portfolio management report, 93% of lessees are classified as investment grade – low risk of default. Over 90% of these tenants are related to the retail, e-commerce and consumer goods segments.

Ten BRCO11 properties also boast a high quality classification and are currently let to companies such as Pão de Açúcar, Magazine Luiza, Natura, Mercado Livre, Americanas, Carrefour, BRF and Whirlpool.

“Given its high asset quality and excellent occupancy history, BRCO11 is our bet for the logistics warehouse market in 2023,” says real estate fund analyst Daniel Marinelli in a report by BTG Pactual.

He underlined that the fund has essential characteristics in choosing a good real estate fund, such as the quality of management, the quality of the assets, the predictability in the distribution of dividends and the potential for operational improvement.

In a monthly compilation made by Money info – with portfolios recommended by ten brokers – Bresco Logística has been the most recommended FII for purchase for over a year.

Currently, the portfolio faces a legal dispute with Pão de Açúcar, a tenant of the fund, who has sold one of the leased properties and does not agree on the payment of the termination penalty.

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TRX Real Estate (TRXF11)

Considered an urban income fund, TRX Real Estate invests in commercial real estate, especially in the retail segment. Among the tenants of the fund are names such as Assaí, Pão de Açúcar, Sodimac, Extra and Carrefour. With a GLA of nearly 441,000 square feet, the fund’s portfolio includes 49 properties in 13 states.

According to the management team, 97% of lease agreements are atypical – long-term, with no review of values. The percentage tends to offer more security to investors, according to an article by Marcos Baroni, head of real estate fund research at Suno Research.

“In other words, there are very important clauses that defend the interests of the fund and, consequently, of its shareholders,” explains Professor Baroni, as he is also known. He points out that the average maturity of TRXF11 bonds is 14.3 years.

TRX Real Estate ended 2022 trading slightly above book value and, over the past 12 months, has shown a dividend yield by 10.19%.

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Kinea real estate income (KNRI11)

Representative of the segment of hybrid real estate funds – which invest in more than one asset class – Kinea Renda Imobiliária is currently the fourth largest FII in the sector in terms of equity: almost R$ 3.9 billion.

The fund has 21 properties in its portfolio, including 12 commercial properties and nine logistics centres, for a total GLA of 765,000 square metres. The current vacancy is 1.74%.

The spaces are found predominantly in São Paulo, even in regions considered noble, such as Vila Olímpia, Itaim, Avenida Paulista and Pinheiros. FII of Kinea also has four properties in Rio de Janeiro and two in Minas Gerais. The portfolio currently has 95 tenants linked mainly to the corporate and industrial sectors.

Kinea Renda Imobiliária is one of Eleven Financial’s bets in the hybrid real estate fund segment in 2023, as Grego points out, in a report from the analyst house.

“[O fundo está entre os] which we believe have the best risk-return ratio, with solid fundamentals, a high occupancy rate and a very good quality portfolio,” he explains.

Grego also notes that KNRI11 currently has strong capital gains potential. The portfolio started the year trading at approximately 87% of book value.

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