Deloitte: Hispania & Lar Are The Most Profitable Socimis

7 June 2016 – El Confidencial

They have been accused of: buying up assets expensively, skewing the market by paying stratospheric prices, heating up the market on its way to recovery, when it still needs time for supply and demand to adjust…the Socimis have been accused of many things, but for all their successes and failures, the reality is that they are all managing to generate more profitability than other types of investments, such as fixed and variable income, with average operating yields (net gain over initial investment) of between around 4% and 6%.

And the story goes on and on, because if we add to those figures the fact that Socimis have an easier time when it comes to obtaining financing from financial institutions – they are being offered spreads of just 1.5% – such as in the bond market – an area that several Socimis (Colonial, Merlin and Lar) have already ventured into and which Hispania hopes to explore soon, – the final yield on their investments will amount to 10%-11%.

A recent study by Deloitte, which was published last Wednesday in the Foro MedCap organised by the Spanish Stock Exchange and Markets (BME), highlights the success that these investment vehicles are enjoying, after it has analysed the gains that they are making on their investments from several perspectives. As the table in the article shows, Hispania and Lar España are, in that order, the two companies that are achieving the highest operating returns in the sector with respect to their initial investments.

Colonial, the only large listed Spanish real estate company that has not adopted the Socimi structure yet because it has tax credits from prior year losses, appears slightly behind, with an operating yield of 3%. But as Alberto Valls, Partner of Financial Advisory at Deloitte, explained, this figure is distorted by the high weight that Colonial’s French subsidiary SFL has in its portfolio. SFL is an authentic jewel in the crown of this group but because it focuses on the high-end office market in Paris, it offers lower yields in exchange for holding better assets and it does not include the exchange operation with Finaccess, which the Group will approve on 28 June.

The other side of the coin: the stock market.

Merlin, Colonial, Hispania, Axiare and Lar have an aggregate net asset value (gross value less debt) of €7,576 million, in line with the combined market value of these companies, which stands at €7,655 million. Nevertheless, if we look at each company in detail, we see that Axiare is the Socimi that has managed to best to gain the trust of investors, listing as it does with a discount premium on its NAV of 11.5%, followed by Colonial, with a discount premium of 8%. In exchange, the stock market value of Lar is 8% lower than its asset value, a difference which amounts to -3.5% and -1.5% in the cases of Merlin and Hispania, respectively, figures that indicate that those companies still have some way to go on the stock market.

Despite that punishment, if we compare the evolution of these companies on the stock market over the last two years (all of these Socimis debuted on the stock exchange in 2014) with the performance of the Ibex, we see that, according to Deloitte’s report, whilst the sample of companies increased their values by 18%, Axiare’s share value rose by 34%, Hispania’s by 22%, Merlin and Colonial by 18%, and Lar by 6%. Despite this improved behaviour, the Spanish companies in the sector are lagging behind their European counterparts, given that the EPRA index, which groups together the main real estate companies in Europe, reported an (average) increase of 23%, exceeded only by Axiare.

From this international perspective, the experts agree that, far from heading for another (real estate) bubble, there is still a long way to go in our country and that the phenomenon unleashed in the last two years with the eruption of Socimis in the stock market, is also being experienced in other countries, encouraged by the real estate recovery, surplus liquidity and the need to find returns of around 4% with controlled risks in a zero and negative interest rate environment. (…).

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

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