Real estate funds lose BRL 1.8 billion with default – 04/16/2023 – Market

After the real estate funds of logistic warehouses suffered with the default of large retailers, the lack of payments now affects the performance of four funds that invest in CRIs (Certificates of Real Estate Receivables).

The Hectare CE funds, owned by Hectare Capital, Devant Recebíveis Imobiliários, owned by Devant Asset, and the Tordesillas and Versailles funds, owned by RCap Asset, have accumulated a devaluation of around 40% on the Stock Exchange since the beginning of the year. Together, they have approximately 550,000 shareholders.

Since the beginning of the year, the market value of the four funds has already collapsed by around BRL 1.79 billion, from BRL 3.97 billion at the end of December to BRL 2.17 billion on April 13, according to data compiled by the TradeMap platform, a 45% devaluation.

The report contacted the companies Hectare, Devant, RCap and RTSC and gave a deadline of one week, but they did not respond until the publication of this text.

Also known as paper funds, this type of application lends the money raised from investors to finance works, especially in the retail and tourism sectors. To do this, they buy shares of the CRIs issued by the companies responsible for the projects, in exchange for a fixed rate of remuneration, which generally provides for the periodic payment of interest.

Throughout the Selic (basic interest rate) high cycle, these funds were among the favorites of investors, since the securities they buy are indexed by the CDI, which was on an upward trajectory, or the IPCA (National Broad Consumer Prices), also at high levels.

The rise in interest rates, however, increased the size of the companies’ debt, which began to have difficulties paying all obligations with the funds.

“The fall in recent months was the market trying to anticipate this worsening in the credit conditions of securities in fund portfolios”, says Marx Gonçalves, analyst of real estate funds at Nord Research.

The managers responsible for the funds have the same controller, the RTSC group, in addition to having debt issued by the same companies.

“A problem that happened is that, as the funds grew in size, there was no diversification, with the risk being concentrated on the same debtors”, says Leonardo Veríssimo, real estate fund analyst at Guide Investimentos.

Among the companies that issue CRIs in default are GPK (Gramado Parks), responsible for tourist developments in the municipality of Rio Grande do Sul, WAM Holdings, which operates in the multi-property sector, and Circuito de Compras, which operates the Feira da Madrugada shopping center in Brás, in Sao Paulo.

According to calculations by the analyst at Guide, defaulted securities represent relevant slices in the portfolios, around 14% in the case of Tordesillas, almost 48% in Versailles, and around 30% and 22% in Hectare and Devant funds, respectively. “If we have new relevant facts about an increase in defaults, the tendency is for funds to fall more in price”, he says.

In investing in Circuito de Compras, another RCap fund, XBXO11’s only investment in its portfolio is a FIP (Participation Investment Fund) that controls the enterprise in the central region of São Paulo.

In this case, the investors’ money contributed to the CRIs was used to make a loan for an enterprise indirectly held by one of the funds of a management company that makes up the same economic group as the others, with the funds, therefore, at both ends, both as partners of the business and as creditors, says Veríssimo, from Guide.

The conflict related to the case of the Feira da Madrugada mall led to a complaint with the CVM (Securities and Exchange Commission).

Company that structured certificates belongs to the same group

The company responsible for structuring many of the CRIs present in the portfolios, Fortesec, is also a subsidiary of RTSC.

Fortesec informed in a note that defaulting CRIs are being renegotiated and that all changes in the macroeconomic scenario have been considered.

“Fortesec has the same controller as the managers — a common model in the financial market and adopted by several large institutions. These managers approved in their regulations the purchase of operations issued by Fortesec”, informed the company.

Gonçalves, from Nord, says, however, that the shared model adopted by the managers and the CRI structuring company is not usually observed in most of the market. “They are an exception, and there is even some controversy in relation to this adopted model.”

FII Club partner and finance professor, Arthur Vieira de Moraes explains that, according to market rules, in cases where there is a risk of conflict of interest, the manager calls a shareholders’ meeting and needs to obtain the approval of at least 25% of the investors to proceed with the operation. “As the shareholder’s money is involved, the manager explains the conflict and it is up to the shareholder to decide.”

He says these funds are known as “high yield”, or high yield, and traditionally carry a higher level of risk in exchange for a higher expected return.

“If the funds offer a high return, it is because they invest in riskier assets”, he says, adding that it is common to find securities in the portfolios with remuneration rates in the double digits. “Investors should be aware that they are taking on a much greater risk.”

In Moraes’ opinion, the drop registered in the funds is exaggerated, considering that, even if the CRIs do not pay the outstanding debts, the operations have guarantees to be executed.

Gonçalves, from Nord, says that, with a macroeconomic scenario in which interest rates and inflation continue at high levels, he sees no room for a recovery of funds in the short term.

According to the analyst, there are paper funds that run less risk, known as “high grade”, or investment grade, and bricks, which invest in corporate slabs, with more favorable prospects for investors looking for alternatives to compose their portfolios.

Funds cut dividends distributed to shareholders

The managers announced important reductions in the payment of dividends to shareholders, one of the main attractions of the category.

Devant informed, on the 10th, that it will distribute R$ 0.70 per share in April, down 22% from March. Hectare will make the payment of BRL 0.50 per share, down 28.5%. At Versailles, the dividends will be R$ 0.03, down 50%, while Tordesilhas informed that it will not distribute dividends in the month.

According to a February management report by Hectare and Devant, when some of the CRIs in the portfolio already showed signs of financial insufficiency to honor their commitments, the macroeconomic scenario of high interest rates and the pandemic contributed to the problems, in addition to the proposed strategies involving a higher level of risk.

“In addition to the particularities of each asset, the macroeconomic scenario exerts a significant influence on the performance of operations. It is important that investors have this sensitivity when analyzing the performance of any investment product”, indicated Devant.

Hectare pointed out that the fund’s strategy “goes beyond what is traditionally practiced by the market average, aiming at greater profitability through exposure to segments considered less obvious and operations with a more complex structure.”

Still according to Devant’s managers, the movement in the fund’s recent quotations may be related to a recent worsening of the macroeconomic scenario, but mainly to the herd effect. “Concept that defines the same behavior of several individuals without there being rationality for it.”

---

Funds facing difficulties after CRI defaults

• Background: EC Hectare
• Code: HCTR11
• Market cap: BRL 1.16 billion
• Number of shareholders: 208.9 thousand
• Drop in 2023: -47.6%

• Fund: Devant Real Estate Receivables
• Code: DEVA11
• Market value: BRL 733.8 million
• Number of shareholders: 133.2 thousand
• Drop in 2023: -40.1%

• Fund: Tordesilhas Empreendimentos Imobiliários
• Code: TORD11
• Market value: BRL 133.2 million
• Number of shareholders: 107.3 thousand
• Drop in 2023: -48.3%

• Fund: Versailles Real Estate Receivables
• Code: VSLH11
• Market value: BRL 144.5 million
• Number of shareholders: 95.2 thousand
• Drop in 2023: -46.7%

Sources: TradeMap and Bloomberg