Socimi Vitruvio to Sale its Industrial Assets worth €12.8M

2 November 2018 – La Información

The Socimi Vitruvio, which focuses on the residential market, wants to take a new step on its journey and get rid of its industrial assets. In this way, the Socimi, which has Joaquín López-Chicheri as its CEO, will focus on the residential sector, above all, although without neglecting its commercial assets or offices. On the other hand, it will dispose of the least glamorous part of its real estate portfolio, its logistics warehouses.

This part of its business, worth €12.8 million, according to the company’s own accounts, generates a return of 9.3% – the highest of any of its divisions – and has an occupancy rate of 100%. Despite that, the company’s plans involve forgetting about these types of assets, which they consider to be “residual” and “non-strategic”.

“We have always thought that residential is the safest type of asset”, say sources at the company. On the other hand, they recognise that diversification is due, in large part, to the need to generate higher profits to access dividend payments to shareholders. “Residential has the capacity to generate a lower recurring return, unless you assume one more level of risk”, said the CEO of the firm.

Where are this Socimi’s industrial assets located? The firm led by López-Chicheri owns properties of an industrial nature in Mercamadrid and Yunquera de Henares, a town close to Guadalajara.

The first of them, located in the aforementioned distribution platform, has a market value of €2.82 million, which represents a price of €526/m2. The second, on an industrial estate in the town of Yunquera de Henares, Guadalajara has a market value of €5.2 million. That asset has a surface area of 13,587 m2 and a price of €381/m2.

The Socimi that now wants to divest the logistics component of its assets has a “patrimonialist” vision, according to its CEO. In this way, the firm has diversified its assets to reduce risks. “The portfolios that traditional patrimonialist firms have are normally distributed between residential, well-located commercial premises and offices. And that is what Vitruvio has”, said the executive.

This real estate investment company was constituted in June 2014, under the Socimi tax regime. Since then, it has undergone several capital increases – raising almost €30 million in total – to acquire assets and position itself ahead of its stock market debut.

The bell was rung in July 2016, two years after its creation, at a price of €12.63 per share and with 126 shareholders. Nowadays, Vitruvio’s shares are listed on the Alternative Investment Market (MAB) through the fixing system – with two daily auctions – at a price of €13.70 per share.

In January of that same year, the company carried out its largest capital increase to date raising €11.5 million. Thanks to that, the number of assets increased along with their value to exceed €100 million.

Original story: La Información (by Lucía Gómez)

Translation: Carmel Drake

Podemos & the Tax Authorities Negotiate a Stricter Fiscal Framework for Socimis

11 September 2018 – Expansión

Podemos and the Government are studying measures to put a stop to the “rental bubble in Spain’s largest cities”, which Pablo Iglesias argues is being caused by the tax advantages being afforded to the Socimis.

The Tax Authorities and Podemos are negotiating a stricter fiscal framework for Socimis. That is according to sources at the negotiations, and to an announcement made by the leader of Podemos, Pablo Iglesias (pictured above, right), after his meeting with the President of the Government, Pedro Sánchez (pictured above, left), on Thursday.

Iglesias spoke of an “understanding” on this point and of advances in the negotiations. Although the fiscal framework of these real estate investment companies has always been under Podemos’s spotlight, it did not mention it in the document that it sent to the Tax Authorities in August detailing its requests, in exchange for its support of the Budgets. But, that was not a question of “limited demands”, according to sources at Podemos, who are now negotiating measures with the Executive to put a stop to the “rental bubble in Spain’s largest cities”. And, in Podemos’s opinion, the beneficial legislation afforded to Socimis explains this bubble, and it needs to be addressed urgently. Iglesias will spend tomorrow questioning Sánchez in the control session of the Government in Congress regarding the “measures that the Executive plans to adopt to put an end to the rental housing bubble”.

“We need to discourage the promotion of these types of companies, which foster the bubble model, undermine the public coffers and represent an affront to competition. We think that the special framework for Socimis, whose main feature consists of a Corporation Tax rate of 0%, needs to be reversed”, said Podemos recently in a document (…).

In this latest document, Podemos therefor, therefore, to put an end to this zero tax rate for Socimis, compared with the nominal tax rate of 25% (…). The negotiations with the Tax Authorities are based on the premise that Podemos wants to bring the tax rates for Socimis in line with those applicable to other companies. However, it does not rule out that the measures agreed will be aimed at having more control over their tax framework.

Zapatero’s Government created Socimis in 2009 in an attempt to revitalise the real estate market, inspired by the REITs (Real Estate Investment Trust) from the Anglo-Saxon world. They enjoy a very beneficial tax framework. Their Corporation Tax rate is 0%, provided they fulfil certain requirements: the minimum share capital must amount to at least €5 million (…); the funds must be invested in properties; a minimum of 80% of the profits obtained from rental must be distributed as dividends; and at least 80% of the value of the assets in urban buildings must be leased for at least three years.

Unlike the Sicavs, there is no requirement for Socimis to have a minimum number of shareholders, but their shares must be admitted for trading on a regulated market (…).

Following the economic recovery and the boom in the real estate market since 2013, the Socimis are enjoying a golden period (….).

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

MAB’s 31 Socimis Must Prove Their S/H Liquidity By Friday

8 March 2017 – Invertia

The deadline that the Alternative Investment Market set for Socimis to demonstrate greater liquidity in terms of their share capital, is looming. By Friday, at least €2 million of the respective share capital of those entities must be held by minority shareholders in each case. Any Socimi that fails to comply with this requirement will be expelled from the alternative stock market.

Last year, the Alternative Investment Market (MAB) produced a circular, which, amongst other things, sought to increase the liquidity of the shares of its Listed Real Estate Investment Companies (Socimis). The Socimis represent a very important segment in this small MAB market, but the negotiation of their shares stands out for all the wrong reasons – due to its absence. Having said that, it should be noted that the large Socimis, which are listed on the continuous stock market – including the one company that trades on the exclusive Ibex, namely Merlin – do have more than acceptable movements in their shares.

In this way, a significant difference is being established between the 31 Socimis whose shares are traded on the MAB and the four whose stocks are listed on the continuous market. In addition to Merlin, the group of Socimis whose shares are actively traded comprises: Axiare, Lar and Hispania.

Friday represents the deadline for all of the Socimis to comply with the minimum capital distribution requirements, whose aim is to generate more liquidity (…).

Article 3.2 of the MAB’s circular states that: “In the case of Socimis, for the shares of such a company to be traded on the MAB, a minimum number of those shares must be owned by shareholders that hold less than 5% of the company’s share capital, and that minimum number must comply with either one of the following magnitudes:

– An estimated market value of €2 million.

– 25% of the shares issued by the company.

The calculation above will include shares placed at the disposal of the liquidity provider to perform this function. The effective diffusion of those shares should happen within a maximum period of one year following their incorporation onto the MAB”.

The MAB established a period of one year for the Socimis to adapt to this shareholder composition requirement. In other words, Socimis that were operational on 9 March 2016 and before, must comply now (by Friday) and those that have joined since that date will have one year to comply following their incorporation onto the market.

The Socimi Paradox

Socimis first emerged in 2013, boosted by a very favourable tax treatment of 0% in terms of Corporation Tax. The reason, according to the experts, was to revive the real estate market that attracted so many overseas investors to Spain in search of bargains that the real estate crisis had left behind.

In this way, the Government was trying to strengthen the real estate investments of large families with a very advantageous tax vehicle. (…).

Nevertheless, most of the Socimis are owned by wealthy families and companies owned by very few people, which are achieving remarkable savings in terms of Corporation Tax. This means that in many cases, it does not make sense to sell shares in these Socimis given that their founding owners do not want to offload those shares. Nevertheless, the entities are required to be publicly listed with the aim of ensuring that company information is generally available. The act of listing forces these companies to be more transparent in terms of information.

However, Friday’s deadline for the MAB’s circular could force some of the Socimis out on the street and therefore, losing their tax benefits. (…).

Original story: Invertia

Translation: Carmel Drake

Do The Socimis Represent A Good LT Investment?

31 May 2016 – Expansión

After a great 2015 on the stock market, the Socimis have slowed down their pace (of growth) on the stock exchange during the first five months of the year. The four largest firms in the market, Merlin, Hispania, Lar and Axiare have all recorded losses in their market capitalisations, amounting to 14.79%, 6.64%, 5.48% and 1.21%, respectively, even though their businesses are continuing to perform well and their results for the first quarter more than fulfilled analysts’ expectations. Why are their shares not soaring on the stock market in 2016? What are the expectations for these companies over the medium and long term?

Analysts agree that there will be a before and after in the general elections because few sectors are as sensitive to the political landscape as the real estate market and because at stake is the tax regime applicable to these vehicles, which specialise in leasing out properties, and which currently enjoy significant tax benefits. On the one hand, they are exempt from Corporation Tax and they also enjoy rebates of 95% on other taxes.

With some important milestones on the horizon, no one expects to see any great joy in the short term. “The political uncertainty means that some of these companies are trading below their net asset value. At the moment, we do not know whether the next Government will encourage real estate investment”, explains Alejandro Martín, from Metagestión. And these concerns are shared by the large international analysis firms. Companies such as Goldman Sachs have reduced their outlook to neutral for some of the major companies in the sector, until the political panorama becomes clearer.

“Until the elections, the Socimis are going to move in a sideways-downwards range”, says José Lizán, manager at Auriga, who thinks that the market’s greatest fear involves a possible change in the tax regime for these vehicles, which would likely happen if Unidos Podemos obtains any weight in a future Government. The coalition has already announced that it plans to make changes to the rules of the game for Sicavs, Socimis and private equity firms. (…).

Over the long term

But expectations change radically (provided the largest threats facing the sector do not materialise) over the medium and long-term, in light of the strategies that the Socimis have put in place and the evolution of their results quarter by quarter. The four largest Socimis almost tripled their profits during the first three months of 2016, to €73 million, with average annual yields of around 5%. (…).

For José Lizán, the best strategy is to “purchase with a 10 or 12 year outlook. The Socimis’ shares are going to perform like bonds”. The manager at Auriga backs the four largest listed companies in the sector because “they made their first purchases at significant discounts in prime areas of Spain’s largest (regional) capitals. Now, occupancy rates are increasing in the major cities and the operational side of their businesses is going very well. In addition, they are taking out debt whilst interest rates are very low”. (…).

Original story: Expansión (by E. Utrera)

Translation: Carmel Drake

Political Uncertainty Deters Real Estate Investment

31 May 2016 – Expansión

The political uncertainty in Spain is hanging over the real estate sector, which, despite continuing to be active, is not shining with the same splendour that it did in 2015. Specifically, real estate investment during the first quarter of the year exceeded €2,100 million, which represents a 25% decrease with respect to 2015, according to data from CBRE.

The segment most affected by this slowdown was offices, where investment declined by 70% during the first three months of the year, to €180 million. Meanwhile, investment in retail amounted to around €770 million, almost 45% less. By contrast, investment in the logistics sector amounted to €200 million, compared with €80 million in the same period a year earlier. In other sectors – residential and hotels – investment amounted to more than €1,000 million, compared with €885 million during Q1 2015.

Pedro Lacambra, manager at Ibercaja Gestión, explained that the Spanish real estate market is showing signs of a slowdown, which is accentuated in certain business segments, such as offices. The expert said that Socimis account for 40% of all investment in offices, and that they are having to raise new funds to grow and invest in assets. Moreover, he said that the office business requires greater demand for space from existing companies, as well as the appearance of new companies and multinationals arriving in Spain. For Lacambra, the current panorama of political uncertainty does not encourage any of these scenarios.

Meanwhile, Daniel Pingarrón, market strategist at IG, considers that the political uncertainty is weighing down more on the Socimis and real estate companies than on players in other sectors. “ The stock exchanges and financial markets are more globalised and depend a lot less on politics and local factors. By contrast, the real estate sector is more sensitive, as we have seen with Operación Chamartín and Operación Campamento”.

In this sense, the analyst thinks that some investors are waiting for the uncertainty surrounding the formation of the future Government to be resolved before entering Spain.

Taxation of the Socimis

The analyst at Selfbank, Victoria Torres, explains that the political uncertainty that currently exists in Spain is one of the factors that is significantly affecting the real estate sector, which is very sensitive to the legislation in force. “There is a fear that a change in Government could increase the tax charges for Socimis. For that reason, we are not seeing any massive sales, but rather defensive moves to reduce positions until after the General Election”, explains Torres.

Torres thinks that these companies are helping to boost a depressed sector thanks to the tax benefits that they enjoy, amongst other reasons. Socimis pay Corporation Tax at a special rate of 0%, receive a 95% rebate on Stamp Duty (AJD) and Property Transfer Tax (ITP) on capital gains, and do not retain the dividends distributed to their shareholders, which include both individuals and corporations.

For Torres, the new concerns over the sector come at a key moment for the firms, especially Hispania, which is preparing a €231 million capital increase. (…).

Gonzalo Sánchez, analyst at Gesconsult, shares the same view. For him a more or less similar Government would benefit these companies. “Behind the Socimis are overseas investors, who want to have their money where they can see it and to avoid the chance of any nasty surprises”, he added. (…).

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Socimis Fear Rise Of Left-Wing Coalition, Unidos Podemos

26 May 2016 – El Economista

Since 9 May 2016, when the political leaders of Podemos, Pablo Iglesias (pictured above, right), and Izquierda Unida, Alberto Garzón (pictured above, left), announced their intention to stand together in the upcoming General Election on 26 June, the possibilities of them beating the Socialist Party and, even, forming a Government, have increased considerably (the D’Hondt electoral law penalises minority groups).

The fact that Unidos Podemos has become a real option, according to the latest polls, is being felt on the stock exchange in sectors such as real estate. The Socimis have seen an average decrease in their share prices of 1.5% since 10 May, which represents a difference of 3.6 percentage points with respect to the Ibex 35, which has risen by 1.6% during the same period.

In its election manifesto, the purple party – which now has the support of IU – proposes reforming the tax regime for Socimis (as well as for the Sicavs). The real estate vehicles are currently exempt from paying Corporation Tax, provided they fulfil certain requirements, such as distributing 80% of their net profits as dividends.

“What it (the regime) does is raise the taxation (liability) up to the shareholders. They bear the taxation through their remuneration in the form of capital income (provided their share stakes exceed 5%), says Ana Hernández, an expert in Socimis.

Merlin Properties, the largest Socimi in the market, with a market capitalisation of €3,100 million (more than twice the size of the second largest firm, Hispania), is suffering more than most from the downward trend. Within the last month, short positions of the company’s shares have almost tripled, from representing 0.4% to 1.15% on 13 May, according to data prepared by the CNMV. Meanwhile, its share value had decreased by 20% since the last General Election was held on 20 December, more than double the 8% drop that the Ibex 35 has seen during the same period.

Concern amongst investors

“There is noise (in the market)”, acknowledged sources in the sector, although “maybe it is excessive”. (…).

“Spain is an attractive country for real estate investment” said Jesús Amador, analyst at Bankinter, who recognises, nevertheless, that the latest “initiatives” motivated by Town Halls close to Podemos “may influence” the investments made by the Public Administration, following “the cuts to investment for Operación Chamartín, the controversy with Plaza de España and the problems in Barcelona”. (…).

The left-wing coalition proposes a minimum tax rate for Companies of 15%, which, in the absence of more data, would also become the future tax rate for the Socimis. “If they make the work more complicated”, said the President of one Spanish firm, “they will kill many of them off”.

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

Translation: Carmel Drake