Explanatory variables of the capitalization rates of REITS in Mexico

Abstract

A fundamental variable to understand the value and price in the REIT market is the capitalization rate of net operating income over time; The objective is to determine the implicit capitalization rate assumed by the market, to explain its level or value based on market and financial variables of each REIT in Mexico. The method to estimate capitalization rates is with the net asset valuation methodology, while the random forest regression method is used to analyze their level or value. The results indicate that the variables that most explain or determine the capitalization rates of the majority of REITS in Mexico are the occupancy rate of the properties, as well as the interest rates of the local market (CETES91 days and Bono M10 years). It is concluded that investors or the market prioritize the flow through the entire generation of all the real estate assets of the REITS, in addition to the return or risk-free opportunity cost paid by the money market.