Listed RE Companies’ Values Soared By 30% In 2015

29 March 2016 – El Confidencial

(…). Colonial, Merlin, Hispania, Realia, Axiare and Lar, the six largest listed RE companies (in Spain), have been the drivers of the recovery that maligned the property sector until recently and, they are also, the major beneficiaries of the recent change of pace.

During the last year, these companies have been the value of their assets soar by between 25% and 30%, depending on whether one looks at their gross asset value (GAV) or net asset value (EPRA NAV). Although this spectacular rate of growth has been driven in large part by the commitments made by these companies to the recovery of the sector, in the form of lots of purchases, the data also reflects an improvement in the underlying valuations of many of their assets.

That positive trend has been felt most acutely in the segments in which these companies mainly operate, in other words, in the office, hotel and shopping centre segments, as well as the logistics business. By contrast, the residential and land segments have barely entered the portfolios of these companies.

As the table in the original article shows (see link below), the GAV or market value of the real estate investments made by these six companies increased by 25.7% last year, an improvement that in the case of Colonial was also seen in its stake in the French firm SFL, in the case of Merlin, in the purchase of Testa, and in the case of Hispania, in a leap driven by the consolidation of its hotel Socimi Bay, whilst in the case of Axiare and Lar (the latter publishes fair values), the figures simply reflect the high investment rate recorded last year.

But if we take the EPRA NAV as the reference indicator, which reflects the net value of the assets, in other words, which discounts the debt and excludes certain concepts that are not expected to materialise with certainty, we see that the improvement in valuations is even greater, reaching almost 30% on average (in the case of Realia, the NNAV value has been taken as that was the figure published).

Neverthless, this increase in asset values has not been reflected in the same proportion in the share prices of the companies. Although all of them recorded increases last year, and important milestones were reached, such as Merlin’s incorporation into the Ibex 35, the improvement in share prices fell a long way below the variations in the value of their assets.

Stock market

The company that performed best on the stock exchange last year was Realia, whose share price shot up by 49%, thanks to the takeover war between Carlos Slim and Hispania to take control of the company. Despite losing the battle, the Socimi led by Concha Osácar and Fernando Gumuzio was, alongside Axiare, the next best performer on the stock market, closing 2015 with an increase of 20%; whilst the company led by Luis López de Herrera Oria recorded an increase of 21.9%. Meanwhile, Colonial’s share price rose by 16.3%; Merlin Properties was up by 15.1% and Lar España’s rose by 3%.

Nevertheless, most of those gains have evaporated already this year, as the real estate companies have also suffered from the poor start to the year that has been seen on stock markets around the world. Almost all of them have recorded share price decreases during the first quarter, the only exceptions being the company led by Pere Viñolas, which has risen by 4.6%; and Realia, whose share price is being driven by a second takeover bid from Slim, and by the demands from Polygon to increase his offer of €0.80 per share. (…) According to the company’s own annual report, its NNAV per share amounts to €1.20.

Original story: El Confidencial (by R. Ugalde)

Translation: Carmel Drake

The Fund Polygon Asks Slim To Raise His Bid For Realia

15 March 2016 – Expansión

The British fund Polygon is legally mobilising itself to try to obtain the maximum value from Realia. The fund, which controls an 8.53% stake in Realia through various financing vehicles, considers that the price of €0.80 per share that the Mexican tycoon Carlos Slim is offering in his takeover bid “is clearly a long way from a fair price”. The fund, which is headquartered in London, is demanding at least €1.78 per share, more than double the bid price. In letters to the National Securities Market Commission (CNMV) and the Board of the real estate company, Nicolas Dautigny, one of the Directors of European Investment at Polygon, says that the price of €0.80 per share that Slim is proposing, through Inmobiliaria Carso, “is not fair” and “significantly undervalues the company’s assets”.

The letters, to which Expansión has had access, copy in the law firm Araoz y Rueda Abogados, advisors to Polygon, and thereby begin the legal procedure to demand a higher price for the takeover.

In its letter to the Board of Realia, Polygon urges the governing body to engage an independent investment bank and to look for “alternative buyers” for the company “in order to maximise its value”. “Otherwise, Slim will take control of Realia without paying the fair price”, he adds.

Meanwhile, in its nine-page letter to the CNMV, the fund lists a number of arguments that, in its opinion, justify that the price of the takeover bid should be higher. The first is the net asset value (NAV) per share that the company itself assigns its assets. According to Polygon, the company has set a net asset value of €1.40 per share. That should be the starting point. Polygon says that the takeover bid should be higher than that price because “the value of the assets published by the company is too conservative compared with other companies in the sector in terms of the appreciation of its real estate assets in Spain in 2015”. Specifically, “if we apply the same increase that Colonial saw in its assets during 2015, i.e. 16%, then Realia has a NAV value of €1.78 per share”, explains Polygon.

Serious violation

Polygon warns the CNMV about the financing agreements between Slim and Realia, which are happening in parallel to the takeover, and says that it understands that “the Board’s duty of neutrality has been breached” by Realia, which may constitute a “serious violation” of the Securities Market Act, and it calls upon the CNMV to investigate this matter.

Original story: Expansión (by M. Á.Patiño)

Translation: Carmel Drake