Do The Socimis Represent A Good LT Investment?

31 May 2016 – Expansión

After a great 2015 on the stock market, the Socimis have slowed down their pace (of growth) on the stock exchange during the first five months of the year. The four largest firms in the market, Merlin, Hispania, Lar and Axiare have all recorded losses in their market capitalisations, amounting to 14.79%, 6.64%, 5.48% and 1.21%, respectively, even though their businesses are continuing to perform well and their results for the first quarter more than fulfilled analysts’ expectations. Why are their shares not soaring on the stock market in 2016? What are the expectations for these companies over the medium and long term?

Analysts agree that there will be a before and after in the general elections because few sectors are as sensitive to the political landscape as the real estate market and because at stake is the tax regime applicable to these vehicles, which specialise in leasing out properties, and which currently enjoy significant tax benefits. On the one hand, they are exempt from Corporation Tax and they also enjoy rebates of 95% on other taxes.

With some important milestones on the horizon, no one expects to see any great joy in the short term. “The political uncertainty means that some of these companies are trading below their net asset value. At the moment, we do not know whether the next Government will encourage real estate investment”, explains Alejandro Martín, from Metagestión. And these concerns are shared by the large international analysis firms. Companies such as Goldman Sachs have reduced their outlook to neutral for some of the major companies in the sector, until the political panorama becomes clearer.

“Until the elections, the Socimis are going to move in a sideways-downwards range”, says José Lizán, manager at Auriga, who thinks that the market’s greatest fear involves a possible change in the tax regime for these vehicles, which would likely happen if Unidos Podemos obtains any weight in a future Government. The coalition has already announced that it plans to make changes to the rules of the game for Sicavs, Socimis and private equity firms. (…).

Over the long term

But expectations change radically (provided the largest threats facing the sector do not materialise) over the medium and long-term, in light of the strategies that the Socimis have put in place and the evolution of their results quarter by quarter. The four largest Socimis almost tripled their profits during the first three months of 2016, to €73 million, with average annual yields of around 5%. (…).

For José Lizán, the best strategy is to “purchase with a 10 or 12 year outlook. The Socimis’ shares are going to perform like bonds”. The manager at Auriga backs the four largest listed companies in the sector because “they made their first purchases at significant discounts in prime areas of Spain’s largest (regional) capitals. Now, occupancy rates are increasing in the major cities and the operational side of their businesses is going very well. In addition, they are taking out debt whilst interest rates are very low”. (…).

Original story: Expansión (by E. Utrera)

Translation: Carmel Drake