Madrid-listed property firm Inmobiliaria Colonial is seeking shareholder approval for plans to convert the company to a Socimi, the Spanish version of a real estate investment trust (REIT).
Colonial said conversion to the Socimi regime would yield the company a number of benefits, including a reduction in its tax rate to 0%, significant increase in net profit and cash flow, greater access to institutional capital and increased share liquidity.
‘The conversion to the Socimi regime is a further step to back to normality, positioning the Colonial Group as an office REIT, an efficient investment vehicle widely known and very positively recognized by the international investor community,’ said Pere Viñolas, CEO of Colonial.
With an office portfolio valued at €8 bn at end-2016, Barcelona-based Colonial is the latest Spanish property company to convert to REIT status, underscoring the maturity of the market and growing appeal among institutional investors.
The list of Spanish REITs is currently headed by Madrid-based Merlin Properties, which shot to the top of the league following its takeover last year of peer Metrovacesa to create a combine with €9.3 bn of real estate assets under management. That deal followed the takeover in 2015 of Testa Inmuebles, the property arm of construction giant Sacyr, for €4.2 bn.
Merlin's €1.5 bn flotation on the Spanish stock exchange in 2014 was the largest IPO of a REIT ever registered in the EMEA region. Other REIT listings in recent years include Axiare Patrimonio Socimi which launched on the Madrid stock exchange in 2014 (€872 mln of AUM as at end-February 2016), and Hispania Activos Inmobiliarios.
The latest Spanish REIT to enter the scene is ORES Socimi, a joint venture real estate investment vehicle set up by financial services company Bankinter and international retail property specialist Sonae Sierra. ORES is listed on the alternative stock market MAB in Madrid and has raised €19.6 mln for investment in mainly high street retail and retail parks.
New-found confidence
Spain’s listed real estate companies experienced a period of major capital destruction after the outbreak of the global financial crisis due to a mountain of debt and plummeting asset values. At the time, the market capitalisation of Spain’s public real estate companies – which included the likes of Martinsa Fadesa, Colonial, Reyal Urbi, Sacryr Vallehermoso, Metrovacesa and Renta Corporacion - totalled some €44 bn. Although the current figure is a fraction of that, a new string of REITs is fast restoring credibility in the market.
'Spain is now the fastest growing economy in Europe, which would have been difficult to imagine two years ago,' Stefan Wundrak, head of European research at TH Real Estate, told a PropertyEU investment briefing in March. 'The positive momentum has been reflected in the market, as investment volumes in Iberia have defied the downward trend seen elsewhere in Europe.'
'Now everybody wants to be in Spain,' added Marta Cladera de Codina, head of Iberia at TH Real Estate. 'All investors are buying rental growth, because it is happening and we can see it. In offices we have still not reached the peak compared to previous cycles.' The issue, she said, is 'lack of core quality product for core investors.'
Following news of Colonial’s planned move to REIT status, credit agency Moody’s assigned a Baa2 rating to the company, with a stable outlook. The agency based its rating on the high quality of the office portfolio, as well as the diversification across three different markets (Paris, Madrid and Barcelona) and moderate leverage.
