“Paper” real estate funds – which focus on investing in fixed-income securities linked to inflation or CDI (certificate of deposit between banks) – have been the darlings of investors in this sector in recent years. However, the passion for these industrial investment firms sparked a reverberation with the announcement of deflation as measured by the IPCA (Extended Consumer Price Index) in July – and the possibility of a turbocharged dividend cut for portfolios.
“Paper” funds are shielded from inflation and interest rate advances precisely because they buy the securities that go along with the rise in these indices, and “paper” funds boast an average appreciation of 27% in the past two years, according to the Teva Index of Paper Real Estate Funds. . In this period, “brick” funds – which invest directly in real estate – fell 2.3%. Ifix, the B3’s most traded index of FIIs, is down 3.21%.
But it’s the growing profits from “paper” funds that really win over investors. In this year’s top ten payers list – through July – nine are FIIs that invest in securities such as Certificates of Real Estate Receivables (CRI).
Explanation of the gains for these fisheries companies is precisely the rise in the Selic Index – which rose from 2% in January 2021 to 13.75% now – and the increase in indices such as the IPCA, which accumulated 11.89% in the 12 months that ended in June. . It turns out that the tide has turned. In July, the country recorded a contraction of 0.68%, according to data released on Tuesday (9) by the Brazilian Institute of Geography and Statistics (IBGE). It was the lowest result in the entire historical series of the index.
If “paper” funds — or CRI funds, as they are also known — are surfing the rise of indices, what will happen to them now as prices fall? According to analysts I interviewed InfomoneyThe investor’s decision-making will depend on his strategy and the profile of the fund in his portfolio.
Moreover, they noted that the deflation scenario is a one-off and should not be considered the end of the line for “paper” FIIs.
Discover the step-by-step guide to living on income with FII and receiving your first rent in your account in the next few weeks, without having to own property, in a free semester.
What is the impact of the downturn on the “paper” fishery industries?
Among the fixed income securities that a “paper” fund portfolio can consist of is the CRI, a tool used by companies in the sector to raise money in the market.
In practice, companies in the real estate sector have to “package” the future revenue they have to receive – such as rents or installments for the sale of apartments, for example – into a security (CRI) that is sold to investors. In general, CRI includes a fixed rate return and a monetary correction by an index, which is usually the CDI or IPCA rate.
According to Yuri Bialoskorski, real estate fund manager at More Invest, the IPCA downturn will have a different impact on different real estate receivables. It is reported that not all portfolios distribute the cash correction of the CRI to shareholders on a monthly basis – a model that mitigates the impact of low inflation on transfers to investors.
Bialoskorski sees a more complex scenario for FII that cash reformulation is a profit and distributes the update to the dividend paid to shareholders. In this case, the fixed rate return of the CRI will cover the negative result of the IPCA, reducing the profit transfer.
He warns that “unless the directors have prepared themselves with a dividend reserve for distribution, the funds may have months without distribution, depending on the downturn.”
Bialoskorski considers the negative IPCA in July to be a one-off and a result of recent tax changes, particularly with regard to fuel prices. According to IBGE, gasoline prices fell 15.48% and ethanol prices fell 11.38% last month.
“Such effects are known in Brazil and only lead to a temporary change in inflation, which reduces the IPCA in the month of fiscal change and increases in subsequent quarters,” confirms the Director of More Invest.
Selling, keeping or buying “paper-based” FIIs?
In line with Bialoskorski, Philip Souza, an analyst at Levante Corp — the company’s arm of Levante Investimentos — stresses that investors should consider, before making a decision, that the downturn scenario is a one-off.
The real estate fund specialist recalls that in 2020, the IPCA came in negative and, in fact, temporarily reduced the dividend payout from some FIIs from receivables. However, the natural transfer was completed in the following months.
He cites the example of Kinea’s high yield (KNHY11) which, after the IPCA contracted in April and May 2020 – by 0.31% and 0.38% respectively, reduced earnings levels by R$0.90 in February of that year, up to R$0.90. 0.30 in the following months. However, the analyst notes that distribution has recovered in the aftermath of 2022.
FII KNHY11 Dividend Date in 2020
Souza also remembers that FIIs usually pass the inflation score on average two months after the index is released. He explains that “the dividend distributed by the portfolio in August includes inflation in June.”
Another point that investors should realize before making any portfolio changes due to the IPCA result is their investment strategy, notes Marks Gonsalves, an analyst at Nord Research.
For those highly exposed to ‘paper’ FIIs [mais de 40% da carteira] Looking only at short-term profits, it might make sense to take advantage of this moment to reduce positions in this type of fund,” he recommends.
In the case of investors in a more balanced position, with less than 30% in “paper” trade investors, Gonçalves believes this is not the time to sell. In some cases, the analyst sees an opportunity to buy.
“Depending on the decline that some funds have recorded, it may be an opportunity to increase the position in a particular portfolio with the aim of making gains later,” he says.
Gonçalves stresses that investing in real estate funds is medium and long-term and specific factors — such as the downturn in July — temporarily affect returns, but that doesn’t mean the fund will lose all of its value.
Discover the step-by-step guide to living on income with FIIs and receiving your first rent in your account in the next few weeks, without the need to own property, in a free semester.
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