Inmobiliaria Colonial’s CEO Pere Viñolas says he expects to continue to see strong revaluations across the company’s office-focused property portfolio after posting a 10% like-for-like value rise in the first half of the year.
‘We expect to continue to report this pace of growth for a while as we enjoy a bumper cycle in Spain where assets – particularly in prime locations in the main CBD markets – are benefitting from strong rental prospects,’ Viñolas explains, speaking to PropertyEU in an interview.
On a like-for-like basis, the group’s €11 bn-plus office-focused portfolio will see rental income rocket from €367 mln at present to a forecast €522 mln by 2022 exclusively thanks to lease reversions and asset management initiatives. ’This means that we will be able to deliver strong growth to our shareholders without having to seek new acquisitions but by just working with the assets we already have,’ he notes.
Despite these premises, Colonial has been on the M&A trail in Spain and abroad for the past 12 months. It first took over and incorporated listed peer Axiare, increasing its exposure to the Madrid office market. Earlier this year, it also bought an additional 22% stake in its French subsidiary SFL from the Qatari sovereign wealth fund QIA, taking its controlling stake in the Paris-based office firm to 81%.
While the Spanish acquisition allowed the group to take advantage of the positive market cycle in the country, the French deal reflected Colonial’s flight-to-quality investment strategy, Viñolas adds. ‘There are two main rationales for this operation,’ he explains. ‘On the one hand, the acquisition simplifies the group’s shareholding structure, with QIA no longer holding a stake at a subsidiary level. On the other, it makes economic sense as the transaction is value accretive for Colonial’s shareholders.’
Valued at roughly €718 mln, the deal is being carried out at a price of €69.6 per share, reflecting a 19% discount on SFL's last reported NAV of €85.7 per share. The operation will result in a 4% increase in Colonial's net asset value per share and allowed the group to become the first Spanish REIT with a BBB+ rating from S&P.
Full integration
Following closing, Colonial will hold 81% of SFL, without the French REIT losing its tax-efficient regime [the 60% shareholding threshold for the French structures does not apply when the parent company is also a REIT]. There are currently no plans to take full control, adds Viñolas. ‘As of today, a full integration is not completely in our interest, as it would add an additional level of complexity to our corporate structure.’ Although no action is expected in the short term, he doesn’t rule out a full integration in the long term.
France currently represents just over 30% of Colonial’s total portfolio, with the group ideally aiming for a 50% exposure to this market in the future, says Viñolas. ‘We don’t have specific targets, but broadly speaking we would be comfortable with a portfolio equally split between France and Spain.’ He continues: ‘Spain is more of a growth oriented market, which can deliver superior returns, but has a higher volatility. France on the other hand offers less growth potential, but is more stable and resilient.’
Colonial’s portfolio is over 90% made of offices in Madrid, Paris and Barcelona, with a roughly 70% exposure to the central business districts of these three cities. There are no plans at this stage to enter new markets, according to Viñolas. ‘As of today we see enough sizable investment opportunities in the main cities of France and Spain. I think there is no advantage in spreading our efforts to expand to a new international market.’
Valued at around €11 bn, the office portfolio encompasses 108 buildings with 1.86 million m2 of space as well as a 340,000 m2 development pipeline. In addition to the office assets, the group also retains some €500 mln of retail and logistics properties, says Viñolas. ‘We have a clear strategy of remaining focused on offices although there isn’t currently a specific intent to divest the other asset classes,’ he notes. ‘We are open to retain a small exposure to certain asset classes, except for the retail sector which we are likely to exit in the future.’
This article first appeared in EuroProperty, the weekly publication of PropertyEU.
