12 February 2015 – El Economista
Since the first Socimi debuted on the stock exchange – Entrecampos was the pioneer at the end of 2013 – seven companies of this kind have now floated on the stock market. And according to Jesús González Nieto, the Vice-President and CEO of the Alternative Investment Market (el Mercado Alternativo Bursátil or MAB) the number of listed Socimis will increase this year to include seven or eight more, with two of them planning to go public this quarter.
Nevertheless, market sources close to these transactions claim that the number of vehicles of this kind preparing to go public is even greater: with “up to fifteen” (currently involved in the process).
“Around fifteen Socimis are planning to go public within the next year, with assets ranging from €20 million to €400 million”, said one of the people responsible for placing the shares of these new real estate companies in the market. “Most of them are investments being made by foreign funds in Spain, which are buying up premium assets (hotels and above all, shopping centres). In parallel, there is a stream of hoteliers, who are seeing the benefits of putting their hotels into these vehicles because it allows them to dissociate the business from the properties”, he added.
According to the same source, there are two main reasons as to why non-residents above all are incentivised to constitute Socimis. Firstly, it is easier to exit an investment in one of these type of companies than it is to exit an investment in a specific building, “Socimis represent an easier way of buying (when you have a view) to sell”, he said. And secondly, there are tax advantages: Socimis are exempt from paying corporation tax, and also receive a 95% discount oon property transfer tax. For investors, however, the main appeal of these companies is that the rules require them to distribute 80% of the companies’ gross operating profits in the form of dividends, although at the moment, none of them are expected to make a profit this year.
“For these types of Socimis, those that are businesses, the average IRR of their portfolios is at least 8%”, say a number of financial sources. But amongst the fifteen Socimis that are preparing to float, there are also some property managers. As such “families are using these vehicles as a way of organising their assets to convert immovable property into movable property, whereby allowing it to be easily distributed”, they explain.
The regular stock market or MAB?
What remains to be seen is the market they will choose to list on – namely, the regular stock market or the MAB? The latter allows these types of companies to be valued on a discounted cash flow basis rather than on the basis of their NAVs (net asset values), which is the more accurate ratio used for valuing real estate assets in general and REITs (the US version of Socimis) in particular.
To date, the stats are as follows: of the seven Socimis that have debuted on the stock market in recent years, three have done so on the MAB (Entrecampos, Mercal and Promorent). And the other four have listed on the regular stock exchange: Lar España, Merlin Properties, Hispania and Axia. But, what determines whether these companies list on one market or another? “In reality, all of the Socimis that list today should do so on the MAB. Nevertheless, some of them have jumped onto the regular stock exchange because the investment funds behind them are subject to regulation 401k, which requires them to list on an official exchange, and MAB does not quality; it is regulated but not official. This means that some Socimis were forced to list on the regular stock exchange”, say market sources.
For the time being, the only thing we know about the six or eight companies on MAB’s radar (where they may list, according to comments made by MAB’s Vice President on Wednesday) are their timelines. “Two this quarter” and another “three or four before the summer”. One of them is “a very big player, with a large volume of capital”.
González Nieto explained that he regrets the slow speed of the mechanisms that process the files of these companies; a Socimi has two years from when it first registers to fulfil all of the conditions required to begin its activity, which means that this year is the deadline for those that first signed up in 2013. It is time for the interested parties to “get on with their homework if they regard it as a good opportunity”, he said.
Original story: El Economista (by C. García and J. Gómez)
Translation: Carmel Drake