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BeginnerBrazilian REITs · Lesson B3.1 · Module B3

Brick funds: the fund that owns buildings

Module B3: The types of FII

11 slides~5 minquiz at the end

In this lesson

  • From the lease to you
  • The yearly rent adjustment math
  • Vacancy: brick's first risk
See the slides
Logistics warehouse aisle with pallet racks and boxes

Brazilian REITs · Lesson B3.1

The fund that owns buildings

The income comes from rent — and every kind of property carries a different risk.

Where the income comes from

From the lease to you

  1. The fund's propertywarehouse, store, office
  2. Leasetenant, term and adjustment index
  3. Rentcomes in every month
  4. Youreceive the income

Malls add a percentage of store sales plus parking revenue.

The segments

Not all brick is the same

  • Office buildingssuffer when the area has too much supply
  • Logisticswarehouses, often on long leases
  • Mallsincome follows store sales
  • Urban retailstreet stores and supermarkets

Plus: hospitals, schools, hotels, bank branches and residential.

Do the math

What a warehouse rents for

50,000 m²×R$ 25per m²=R$ 1,250,000per month
R$ 1,250,000×1.0454.5% IPCA inflation=R$ 1,306,250per month, the next year

Illustrative figures. The adjustment index (IPCA or IGP-M) is written in the lease.

The life of a lease

Rent runs on a calendar

  1. Year 1Signingtenant, amount, term and index
  2. Every anniversaryAdjustmentrent rises with the index
  3. End of termRenew or renegotiatethe rent may go up or down
  4. If they leaveVacancyempty space, zero income from it

Brick's first risk

An empty building pays nobody

−25%

of revenue when 1 of 4 identical warehouses goes empty

And costs keep running: condo fees, property tax and upkeep of the empty space stay with the fund.

Opposite risks

Two properties, two kinds of risk

Office floor in an oversupplied area

  • Many tenants share the risk
  • Competition pushes rents down
  • Shorter leases

Warehouse on a 10-year lease

  • Predictable income for years
  • One tenant: if it leaves, income vanishes
  • Rent locked to what the lease says

Remember this

Three ideas from this lesson

  1. Rental incomeA brick fund owns the buildings and lives on its leases.
  2. Yearly adjustmentRent rises by the lease's index once a year.
  3. Vacancy is risk #1And each segment has its own way of going empty.

Quick test · 1 of 2

Where does a logistics FII's income come from?

See answer

Rent. The fund owns the warehouses and collects from tenants every month. CRI interest is how paper funds earn (next lesson).

Quick test · 2 of 2

R$ 1,000,000 rent and a 4% adjustment. What's the new rent?

See answer

R$ 1,000,000 × 1.04 = R$ 1,040,000 per month, from the lease anniversary on.

Lesson complete

Next lesson

B3.2Beginner · Lesson B3.2Paper funds: the fund that lends moneyNo building to rent: the fund lends, collects interest and depends on the borrower paying.Continue
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Image credits
  • Handi Boyz LLC · Pexels · Pexels License — Pexels
  • Karola G · Pexels · Pexels License — Pexels

Educational content, written for learners. Not investment advice.