17 October 2016 – El Economista
There are 29 listed Socimis on the Spanish stock market, of which 24 are listed on the Alternative Investment Market (MAB). And there are lots more on their way. All of them are subject to the following basic conditions: they must have a minimum share capital of €5 million, distribute 80% of their profits as dividends and hold each rental property in their portfolios for at least three years. But, other than that, they are all completely different.
Socimis, which is the acronym for collective listed real estate investment companies, have come to replace the former real estate companies, which are now just shadows of their former selves (firms such as Quabit and Inmobiliaria Colonial) in a country where investing in property is the typical thing to do. “For every one million euros invested or saved in financial assets, another €25 million is invested in property in Spain”, according to Antonio Fernández, Chairman at Armabex.
Arrival of foreign capital
A few years ago, the Socimis found the perfect breeding ground for construction in Spain. Following the real estate boom, which did away with much of the sector and the subsequent burst of the price bubble, overseas investors decided that it was time to return to Spain. From there, the large Socimis were born in our market, such as Merlin Properties, Hispania, Lar España and Axiare, which all have significant overseas shareholders.
Fernández called these companies the Alpha Socimis – they are used by overseas investors to enter the Spanish real estate market because “by buying shares in them, they are, in turn, acquiring major buildings in the country’s largest cities”. By contrast, the Beta Socimis are those that focus on the development of their assets and, therefore, they make investments (capex).
According to the latest data from Eurostat, house prices in Spain rose by 3.8% YoY during the second quarter of 2016, i.e. by almost one percentage point more than the 2.9% increase registered across the Eurozone as a whole. As such, the increase in house prices has now been higher in Spain than across the EU (on average) for seven months in a row.
The different types of Socimis
– On the one hand, we have the large Socimis in the market. If an investor is looking for real estate vehicles, such as Merlin Properties, he should know that he is mainly investing in high quality homes and premises that will generate regular rental income. In addition, they are monitored by at least ten brokerage houses, such as in the case of Lar España. According to Bloomberg, these two companies, along with Axiare and Merlin, i.e. the four large players in the Spanish market, all have “buy” recommendations.
– On the other hand, we have the mainly family-run Socimis, where “there may be just a single person taking the decisions”, said Fernández, “and that involves risk”, even more so when they are dealing with single assets that could be sold at any time. Five Socimis have been constituted on that basis, with just one property. (…). A fair few others own between three and five properties only.
– There are also Socimis that own land. “It is worth noting that their returns are higher because they involve greater risk”. According to the expert, these firms rent land and invest in it, which means that, in many cases, the company does not generate any profits and therefore it does not distribute dividends to its shareholders. (…).
– And there are also Socimis that more closely resemble funds of funds, in other words, Socimis that invest in other Socimis, but that do not possess their own assets. Corpfin Capital holds four Socimis under its structure; and Optimum Re Spain Socimi manages several real estate funds.
Original story: El Economista (by Laura de la Quintana)
Translation: Carmel Drake