Armabex: The Avalanche Of Socimis Continues

17 October 2016 – El Economista

There are 29 listed Socimis on the Spanish stock market, of which 24 are listed on the Alternative Investment Market (MAB). And there are lots more on their way. All of them are subject to the following basic conditions: they must have a minimum share capital of €5 million, distribute 80% of their profits as dividends and hold each rental property in their portfolios for at least three years. But, other than that, they are all completely different.

Socimis, which is the acronym for collective listed real estate investment companies, have come to replace the former real estate companies, which are now just shadows of their former selves (firms such as Quabit and Inmobiliaria Colonial) in a country where investing in property is the typical thing to do. “For every one million euros invested or saved in financial assets, another €25 million is invested in property in Spain”, according to Antonio Fernández, Chairman at Armabex.

Arrival of foreign capital

A few years ago, the Socimis found the perfect breeding ground for construction in Spain. Following the real estate boom, which did away with much of the sector and the subsequent burst of the price bubble, overseas investors decided that it was time to return to Spain. From there, the large Socimis were born in our market, such as Merlin Properties, Hispania, Lar España and Axiare, which all have significant overseas shareholders.

Fernández called these companies the Alpha Socimis – they are used by overseas investors to enter the Spanish real estate market because “by buying shares in them, they are, in turn, acquiring major buildings in the country’s largest cities”. By contrast, the Beta Socimis are those that focus on the development of their assets and, therefore, they make investments (capex).

According to the latest data from Eurostat, house prices in Spain rose by 3.8% YoY during the second quarter of 2016, i.e. by almost one percentage point more than the 2.9% increase registered across the Eurozone as a whole. As such, the increase in house prices has now been higher in Spain than across the EU (on average) for seven months in a row.

The different types of Socimis

(…).

– On the one hand, we have the large Socimis in the market. If an investor is looking for real estate vehicles, such as Merlin Properties, he should know that he is mainly investing in high quality homes and premises that will generate regular rental income. In addition, they are monitored by at least ten brokerage houses, such as in the case of Lar España. According to Bloomberg, these two companies, along with Axiare and Merlin, i.e. the four large players in the Spanish market, all have “buy” recommendations.

– On the other hand, we have the mainly family-run Socimis, where “there may be just a single person taking the decisions”, said Fernández, “and that involves risk”, even more so when they are dealing with single assets that could be sold at any time. Five Socimis have been constituted on that basis, with just one property. (…). A fair few others own between three and five properties only.

– There are also Socimis that own land. “It is worth noting that their returns are higher because they involve greater risk”. According to the expert, these firms rent land and invest in it, which means that, in many cases, the company does not generate any profits and therefore it does not distribute dividends to its shareholders. (…).

– And there are also Socimis that more closely resemble funds of funds, in other words, Socimis that invest in other Socimis, but that do not possess their own assets. Corpfin Capital holds four Socimis under its structure; and Optimum Re Spain Socimi manages several real estate funds.

Original story: El Economista (by Laura de la Quintana)

Translation: Carmel Drake

The RE Sector Attracts Overseas Investors Once More

12 April 2016 – Cinco Días

(…) Overseas capital is focusing on the property market once again. And Spain is one of the main European markets for offices, hotels and logistics. Madrid and Barcelona are leading the charge and the Socimis at the forefront of the revitalisation of the market. (…)

According to data from the Foreign Investment Register, published by the Ministry of Finance, the construction sector and real estate-related activities secured almost €7,700 million of direct foreign investment in 2015, i.e. 34.5% of the total. As such, one out of every three euros of international funds received by the Spanish economy last year was invested in the property sector.

Productive foreign investment (that which generates activity and employment) grew for the third consecutive year, to close 2015 with an increase of 11%, to €21,724 million. Of that amount, €4,706 million, i.e. 21.7%, was allocated to the construction of residential buildings and property development, compared with €1,762 million in 2014….Meanwhile, real estate-related activities (sales, purchases and rentals) accounted for 13.8% of the total, i.e. €2,992 million. (…).

In the context of this new activity, the Socimis have emerged as the main supporters of the market. The large Socimis experienced a real boom in 2015, when they flooded the MAB with their stock exchange debuts and came close to tripling their profits, which rose from €89.5 million in 2014 to €251.2 million last year, according to data from the CNMV.

Within the last year, the four largest Socimis (Merlin Properties – which has been listed on the Ibex 35 since December -, Hispania – thanks to its partnership with Barceló -, Lar España and Axiare Patrimonio) have doubled the value of the properties they own, to more than €9,200 million in total. (…).

The Socimis accounted for 41% of all funds invested in the purchase of real estate assets in 2015 – they spent €5,237 million on asset transactions. In this way, the increase in the volume of their investments amounted to 129%, in particular due to Merlin’s purchase of Testa for almost €1,800 million.

Wealthy individuals and several international funds have invested fully in these investment vehicles, attracted by the low prices in the sector and the tax advantages on offer (Socimis are exempt from paying corporation tax). The Qatar sovereign fund is trying to become the largest shareholder in Colonial; it now owns almost 30% of the Catalan real estate company.

George Soros has strengthened his commitment to Hispania, in which the millionaire John Paulson holds a stake of almost 10%. Carlos Slim controls Realia…Amancio Ortega, with his investment arm Pontegadea, now manages a very interesting and diverse asset portfolio.

The experts agree that the sector has left behind the turbulent times that it experienced following the burst of the real estate bubble. It is undergoing a period of normalisation and stabilisation – albeit a long way from its pre-crisis levels – and it is facing a new environment, with sustainable growth, in a market that is more mature and more professional.

Original story: Cinco Días (by Pablo Pico)

Translation: Carmel Drake