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How To Ride The Wave Of The SOCIMIs

6 September 2015 – Cinco Días

Hispania, Axiare, Lar España and Merlin, the new protagonists/players

They are the new stars of the real estate sector. In just over a year, the four SOCIMIs listed on the continuous market have acquired assets worth over 5,5 billion, and more than 8 billion if we count the not yet completed purchase of Testa, former subsidiary of Sacyr, by Merlin Properties. But they will not stop here. They have attracted resources of small investors, in addition to institutional ones, very quickly. They have financing and are optimistic in their confidence of economic recovery.

The Socimis (Spanish listed real estate investment trusts) have their own tax system, which allows them not to pay the corporate income tax in return for the obligation to distribute dividends annually. They are the Spanish version of the US Reits or French Siic. Their assets are intended for rent properties, mainly offices and shopping centers.

“I really like these companies and we have a recommendation to buy into this four big ones,” says Ignacio Romero, an analyst of Banco Sabadell. “The regime of the SOCIMIs is very attractive because it obliges to pay dividends and being listed allows an easy entry and exit(?) of capital. I also like that this is a model that has worked well in other countries, attracting both institutional and retail investors, “he adds.

Sabadell analyst believes that the effect of these listed companies has an upward trend, because they are going to benefit in coming months from a positive cycle in the real estate. Although this is also their greatest weakness. “The only problem is precisely the possibility of economic stagnation and good prospects for the sector not fulfilling,” thinks Romero.

Although other analysts also feel uncertain about the prices SOCIMIs are paying for the properties, as they have funding and buy at higher prices than in previous years. Still, the expert of Sabadell mitigates this aspect, since in any case, SOCIMIs can see how their acquisitions have risen in a few months.

Another advantage for the investors in the big four (Merlin, Axiare, Hispania and Lar España) is the unanimous confidence in their management teams, because all of them are run by professionals with ample experience in the financial and real estate world.

Merlin Properties

It has become the industry giant. The Socimi Merlin Properties already has 77% stake in Testa, up to now patrimonial subsidiary of Sacyr group, and has submitted a bid for the remaining capital. When the integration ends, scheduled for 2016, the new company will have more than 5 billion euros in assets, as reported by the company to the CNMV (Comisión Nacional del Mercado de Valores) at the time of acquisition. It will then become the largest rental space real estate in Spain.

It went public in June 2014 and is managed by a team partly from Deutsche Bank, headed by Ismael Clemente. Among its main shareholders are Marketfield (6.7%), EJF (5.0%) and UBS (4.7%) funds. Through the first semester, it had property worth 2,415 billion euros, or 2,861 billion if taking into account 25% of Testa assets (as that was the share in ex-filial of Sacyr for June 30).

Its market volume is around 3,4 billion, mainly coming from two capital increases: one of 613 million (in February) and another 1,033 billion (in August). However, the stock has barely moved from just 10 euros with which it debuted on the market (same amount for all four Socimis). In so far this year, the stake in Testa revalued to around 11%.

Last February, the company announced it would distribute dividend for the first time, at least 60 million euros for the financial year 2015. This remuneration, to be paid entirely in cash, will mean more than 0.45 euros per share, which will be distributed partly as dividend and partly as return of share premium. It will be paid in two installments, one this month and the other in 2016.

Merlin has 904 assets, including a portfolio of BBVA head offices and a shopping center Marineda (A Coruña). From the subsidiary of Sacyr, for which it paid 1,793 billion, come such important assets as the Torre PwC, one of the four skyscrapers north of Paseo de la Castellana in Madrid, and the headquarters of Endesa and L’Oreal. “It has the best assets, all prime, in the best location, which brings it a very stable cash flow, at the moment thanks to the offices of BBVA,” says an analyst from a Spanish management company. “Although I personally think they have paid a high premium buying Testa, since they have received ground and residentials worth nothing,” he adds. In the first half, it was by far the SOCIMI with best net result, 119 million, even though not being at full capacity, which will come when the merger with Testa is complete and incomes rise.

Hispania

At the moment the SOCIMI with the best result in the stock market. From 10 euros per share, with which it began in March 2014, up to 15 euros, standing today in the vicinity of 13 euros and more than one billion of capitalization.

Hispania is managed by Azora company, with Concha Osácar as the president. It is owned by the investors George Soros (11.1% stake) and John Paulson (9.8%), and several funds, such as FMR, Fidelity and Cohen & Steers. It has properties worth 710 million. In April, it closed with a capital increase of 337 million.

Moreover, Hispania agreed with the Barceló group creation of Bay, the first SOCIMI specialized in hotels. With the addition of this portfolio, its properties worth amounts to 1.133 billion. It has just submitted a profit of 10.9 million in the first half and has a net asset value per share of 10.82 euros. As yet it has not distributed dividend.

“The value(bonds?) has had a long run, as comes to expectations, because hotels, of high quality and in tourist sites, will provide a great cash flow. The biggest worry comes from other smaller assets, such as offices in secondary locations, with bigger potential, but with higher risk as well, “says the expert of the Spanish management company, who prefers not disclose his name.

Axiare

Went public on Madrid market in July 2014. In the year, the stock appreciation took close to 9%, although going down from 12.79 euros achieved in March. It is owned by Citigroup, Deutsche Bank, Perry Partners and JP Morgan. Its CEO is Luis Lopez de Herrera-Oria, who was director of the listed Prima Inmobiliaria

Axiare Patrimonio has already invested 806 million in properties, of which 72% are offices. In June it covered a capital increase of 394.6 million, with the aim of raising the necessary funds to continue its investment plan. “This company has shown that they know how to buy well,” said Romero of Sabadell. In fact, its assets have already risen by 11%, according to the report of first half results, which gave 31.3 million in benefits. Axiare has already paid dividends, despite its young age, of 0.04 euros per share.

Lar España

“Specialists in malls, they are buying well, but clearly have not yet completed their portfolio,” says the analyst of Sabadell. The strategy of Lar España (managed by the Lar Group and directed by Miguel Pereda, one of its executives) is buying at a good price, improving the management of commercial centers and supporting the economic recovery. So far this SOCIMI has purchased assets valued at 852.6 million, including 12 retail outlets worth 588.7 million.

Among the shareholders are Franklin Templeton (15%), Pimco (12.5%), Bestinver (4%) and Ameriprise Financial (4%) funds. Its share is still below the price of the debut, but has already been able to distribute dividend of 0.033 euros per unit. “The target dividend yield of the company would be 5%, once all planned investments are made and assuming a normal development of the real estate activity in Spain,” note in the SOCIMI.

Original story: Cinco Días

Translation: Lee La