15 August 2017

UP 40% IN THE YEAR

Merlin, Colonial, Hispania, Axiare and Lar Espanã increased their stock market values by almost 25% and have put real estate worth more than 1.7 billion euros on the market since the end of 2016. The socimi's rise this year has been meteoric and their prominence in the Spanish real estate market is indisputable.  In just one year, Merlin, Colonial, Hispania, Axiare and Lar España have increased their total gross asset value by almost 40% to €24.2 billion. This compares to a 25% increase in the Spanish stock market in general. Colonial, which in June converted itself to a socimi structure with retroactive effect to January, conferring special tax status, has increased the gross value of its assets in the last twelve months by almost 15%, to 8.66 billion euros. This has led the company to increase its profits by 90%, to 437 million euros. The share price of the group chaired by Juan José Bruguera, which has appreciated by 36% since the end of 2016, is at all-time highs, with a total market capitalization of 3.174 billion euros. According to the latest available data, Merlin, which will submit its semi-annual accounts on September 22, ended March with a gross asset value of 10.026 billion euros, up 62%. So far this year, the company has increased its stock market value by 12% to 5.430 billion euros, making it the largest listed real estate company in Spain. One of the most active socimis this year in terms of acquisitions has been Axiare. The group, led by Luis López de Herrera-Oria, ended the first half of the year with a portfolio valued at €1.709 billion, up 63%. Just in the first half of the year, Axiare acquired six office and logistics assets in Madrid and Barcelona for a total of €215 million. The company has a market capitalization of €1.294 billion, 30% more than the €993 million it was valued at in December 2016. Hispania added almost €2.340 billion in assets in the year to June, up 44% compared to the same period in 2016. The company owned by George Soros increased its net profit by 35% to €185 million, and its value on the IBEX stock exchange is close to 1.700 billion euros, compared to €1.213 billion at the close of last year. For its part, Lar España finished the semester with 31 assets in its portfolio whose value reached 1.448 billion euros, up 38%. The company, which counts Pimco as an investor, had its profits go up by 50% in the first half of the year, to 65 million euros, and its market capitalization already exceeds 750 million euros, 22% more than at the end of 2016. After the intense investment activity of the last three years, the Spanish REITs have entered a new phase in their strategy, accelerating turnover in their assets to lock in gains on their original investments, at a time when investors are eager for opportunities and the market is in full swing. With the asset sales, the socimis are looking to bring in new capital to make new purchases. In addition, these investment vehicles can now take advantage of the fact that some of their assets have already met the minimum requirement to hold onto investments for three years before they can be sold to generate capital gains. The socimis have sold or are planning to sell assets in the coming months for a combined value of more than 1.7 billion. Just a few weeks ago, Colonial sold the OECD’s headquarters in Paris. SLF, a French branch of the real estate company, reached an agreement for the sale of the property known as In&Out. Although the group did not disclose the amount of the transaction, market sources put it at around 450 million euros, a premium of more than 25% over its last sale price. The transaction is expected to be officially registered during the second half of the year. Colonial “continuously” revises the value creation potential of each property with a view to future disinvestments. Merlin has been one of the most active Spanish REITs in terms of asset turnovers. After selling off its residential investments after its merger with Metrovacesa, and selling office buildings and branches in France last year for an aggregate amount of 226 million euros, the company agreed, at the end of 2016, to sell 19 hotels to the French real estate company Foncière des Regions for €535 million.

New opportunities

Hispania, the socimi managed by the Azora Group, reached an agreement in June to sell its Aurelio Menéndez office building for €37.5 million, an increase of 39% in its valuation since December 2016. In parallel, it has continued with its plan to sell off its residential portfolio, selling 25 assets in the Isla del Cielo and Sanchinarro buildings. Hispania also finalized the sale of its office assets to Swiss Life, including 25 assets in Barcelona, Madrid and Málaga, for 510 million euros, as reported by Expansión on August 8. Hispania, which plans to liquidate itself by March 2020, six years after listing, will focus on its hotel portfolio, in which it continues to invest to reposition assets. Shareholders voted to extend the investment period until December 31 for this reason. Lar España will also begin to rotate assets in the coming months to obtain new funds with which to undertake acquisitions in retail, its main business, and logistics. It expects to deliver a luxury real estate development in Madrid, on 99 Lagasca street, which it owns together with its largest shareholder, Pimco. The delivery of this development should generate sales of about 210 million euros, half of which will go to Pimco. The luxury development’s units are being sold at an average price of 11,000 euros per square meter and the asset has a surface area of 21,000 square meters. At the end of June, pre-sales had reached 65%. Company sources indicated that Lar España will continue to focus on asset turnovers to generate value and focus on offices, where it believes that there are more opportunities. Axiare stated that it will analyse new opportunities at the end of 2017, when some of its assets will start to reach the three-year mark on its portfolio. "Turnover will be selective, just as our purchases were. Assets will be analysed on a case by case basis and any decisions will be based on market opportunities," it added. Original Story: ProOrbyt Expansion - Rebeca Arroyo Translation: Richard Turner

  11 August 2017 The four largest companies are quoted above the net value of their assets.

Shares of the four largest Spanish Socimis (REITs) are worth more than their net asset values (NAV) for the first time ever, and analysts continue to mostly recommend buying these securities

The fierce appetite for Spanish real estate has led the four largest Spanish socimis to trade above their net asset values (NAV), something that hasn’t been seen since the financial crisis. Over the last few weeks, one after another, the shares of Colonial, Merlin, Hispania and Axiare have exceeded the price of the assets in their portfolios, an indicator of the interest that exists for this type of investment vehicle. This, moreover, has occurred even after the significant appreciations their portfolios seen in recent times. Axiare, historically better regarded by investors, is trading at 5% above its estimated EPRA net asset value of 15.3 euros per share (June 2017). This measure reflects the net value of the assets of a company that corresponds to each security and serves as a barometer of market perception: if shares are trading above the measure, then investors believe that the company’s assets will appreciate further. In the case of Hispania, its share is quoted at 2.2% above NAV; while for both Merlin and Colonial, the only two companies in the list that are included in the Ibex 35 index, and can, therefore, be a target of investment by those institutions that are limited to investing in reference indices, this difference in their favour is 1.5% and 0.8%, respectively.

Socimi	EPRA NAV per share (€)	Market Price (€)	Difference (%)
Axiare	15,3	16,05	4,9
Hispania	15,12	15,46	2,2
Merlin Properties	11,36	11,53	1,5
Colonial	8,07	8,14	0,8
Lar España	9,28	8,44	-9

  The exception to this rule, among the companies in the Spanish Continuous Market, is Lar España, which continues to trade 9% below the value of its assets. The company, headed by José Luis del Valle, is the only one in the sector focused on the shopping centre segment, although it also has residential and logistical assets, representing around 11% of its portfolio. Its forthcoming sale is seen as a given in the sector.

A history of consolidation

Since they began to arrive on the scene in the spring of 2014, these vehicles have been placing ever greater bets on specialization and size, strategies that have led three of the socimis, Merlin, Colonial and Axiare, to concentrate most of their assets in offices. Precisely, one of the factors motivating investors and that explains part of the strong appreciations is their confidence in future increases in incomes from office spaces. "Income will continue to grow consistently in Madrid and Barcelona both in CBDs (central business districts) and in new districts," Bankinter said in its latest semi-annual property market report. Hispania is the only company of its kind to specialize in hotels, and its portfolio is already the largest in Spain, making it a unique platform to take advantage of the historic highs that tourism is reaching in Spain (80 million tourists are expected to visit Spain in 2017). In addition, the real estate market is experiencing extremely benign conditions, as low interest rates, excess liquidity and the gradual recovery in housing has in turn triggered renewed investment appetite for Spanish real estate, contributing to the strong increase in assets prices in these companies’ portfolios. "After many years of negativity, it is nice to be optimistic about the Spanish economy and real estate sector, and it is why we have invested in some companies that are able to take advantage of it," said Cobas, the investment fund managed by Francisco García Paramés, in its latest quarterly report.  The fund recently took positions in Merlin and Lar, in addition in several developers. The question now is whether, after this rally, these companies have exhausted their potential or if they still have room to grow. According to the majority of analysts at Bloomberg: the party isn’t over.

Compañía	Buy (%)	Hold (%)	Sell (%)
Merlin Properties	52,2	43,5	4,3
Colonial	40	35	25
Hispania	61,9	28,6	9,5
Axiare	58,8	29,4	11,8
Lar España	53,8	38,5	7,7
Source: Bloomberg

  52.2% of experts recommend buying in the case of Merlin, compared to 4.3% that recommend selling; for Hispania, the balance is 61.9% compared to 9.5%; for Axiare, it is 58.8% compared to 11.8%; for Lar España, positive recommendations reached 53.8%, with negative ones limited to 7.7%; while Colonial received the most half-hearted recommendations, though 40% of analysts still recommended buying shares, versus 25% that suggested selling shares. These forecasts that go hand in hand with the positive expectations surrounding the Spanish economy. Socimis are one of the main routes that investors are using to take advantage of this scenario: "to ride the recovery in GDP, invest in offices, and take advantage of the hotel and tourism boom, you should buy shares in Hispania, and to take advantage of the recovery of consumption, you should buy Lar, which is a specialist in shopping centres, "says Antonio Fernández, president of Armabex. Original Story: El Confidencial - Ruth Ugalde Translation: Richard Turner