The Experts’ Favourite Socimi: Merlin Properties

6 July 2015 – Cinco Días

With a market capitalisation of just over €2,100 million, Merlin Properties has become the largest listed company in the Spanish real estate sector. Following the clean up undertaken by the Spanish real estate sector during the years following the burst of the housing bubble in 2007, the Socimis have become the new players in the market. Socimis are required by law to distribute dividends amounting to at least: 80% of the net profit generated from their income; a minimum of 50% of the profits obtained from the transfer of property or shares (the remainder is devoted to other property or shares over a three-year term); and 100% of their capital gains, which guarantees that shareholders receive regular returns.

This special feature makes these instruments a good investment option, although only for investors that have a long-term view. In this context, of the nine Socimis that are now listed on the stock exchange (of which roughly half trade on the MAB)….Merlin Properties is the experts’ favourite. During its first year on the stock market, the Socimi’s share price rose by 21% and by the time it celebrated its first birthday on the Spanish stock exchange last month, Merlin Properties featured on the watchlist of ten analysts, most of which are major players in the market, such as UBS, Goldman Sachs, BBVA and Santander. All of them recommend that investors buy shares in the Socimi and they also assign a potential share price increase of more than 16%. (…).

One of the most important transactions that the company has undertaken in recent months has been the purchase of Testa for a consideration of €1,793 million, to be paid over a period of one year. The company led by Ismael Clemente reached an agreement with the construction company Sacyr to acquire its subsidiary in an operation that will be completed in successive stages, and must be finalised before 30 June 2016. As part of the first phase of this agreement, Testa’s Board of Directors has completed a capital increase, whereby Merlin Properties has taken control of 25% of the company.

Sabadell analyses the operation as follows, “Merlin believes it can achieve its target return of 10% p.a. with this investment and we agree. We expect Testa to perform positively over the next few years. The increase in the spread between real estate and sovereign yields (around 300 basis points) is positive for this asset”, says the firm, which has a target price for Merlin of €12.65 over the next 12 months and a “buy” recommendation. (…).

Another one of the most attractive aspects is the shareholders’ remuneration. The company has announced that it has the capacity to distribute dividends of a minimum of €60 million in 2015, which would represent an EPS of €0.30 per share after the increase and therefore a dividend yield of 2.6%.

Original story: Cinco Días (by Virginia Gómez Jiménez)

Translation: Carmel Drake