Spain’s Colonial to invest up to €500m in 2015

Spain's largest listed property firm Inmobiliaria Colonial is planning to ride the recovery wave after unveiling almost half a billion in profits in 2014.

Colonial, which reported writedowns of over €5 bn in the years following the collapse of the local property market, is back on the investment trail with plans to invest between €300 mln and €500 mln in acquisitions as well as development opportunities, CEO Pere Vinolas told PropertyEU.

'We will not passively invest in stock,' Vinolas said. 'There is a lack of investment product in Spain and the market is going through a yield compression so we prefer to focus on the value-add segment and on the creation of value through redevelopments and repositionings.’

The company, which owns about €5.7 bn of prime office buildings in Spain and France, is believed to have bid for the €130 mln headquarters of Ahorro in Madrid and is already investing in a number of development opportunities both in Spain and in France.

SFL, the group’s French arm and a Paris-listed REIT, is due to deliver the 33,200 m2 Cloud project in the Paris CBD in the second half of this year.

The planned investments will be funded solely with the company’s own equity resources, which have grown strongly following a €1.26 bn capital increase carried out last year. The operation allowed Colonial to gain new investors including the Qatar Investment Authority and the Villar Mir Group, which currently own 13% and 24% respectively.

Last week, the company reported its first profits since 2011 in the 2014 financial year and unveiled a 9.6% growth in the like-for-like value of its assets. Similarly, net asset value rose 6.3% over 2014. The company’s loan-to-value is currently around 40%.

‘These results are a consequence of the evolution of the Spanish and French economies,’ Vinolas said. ‘Spain is going from strength to strength. The expectations for GDP growth are being constantly revised upwards, and we are already experiencing a positive result from this. Values keep rising and rents are also starting to bottom out, although the main driver of value growth remains yield compression as a result of the huge amount of capital chasing Spanish real estate.’

In addition to foreign investors looking to access the market, a number of newly-launched REITs are aggressively scouting for opportunities in Spain, having raised vast amounts of cash in their IPOs last year. As a result, the investment market has already started to diversify outside the first-tier cities (Madrid and Barcelona) into the regions or secondary locations.

‘It is very complicated to find the right product because there is a lot of money chasing the same opportunities,’ said Vinolas. ’Investors are moving into secondary markets because they have raised equity and they are under pressure to spend it. On the other hand, we already have 75% of our portfolio in prime CBDs, because we have built it up in the past and it has taken us a few years to get to where we are now. This is not something other players can offer and marks the distinction between Colonial and the rest of the listed market.’

Vinolas claims the company offers the investor community ‘an efficient and viable platform’ to access Spanish real estate. Although the company has not converted to REIT status (known as Socimi in Spain), at the moment it benefits from the same level of fiscal efficiency while avoiding the operational restraints that face REITs. This is made possible by tax loss carry forward, whereby the losses occurred in the difficult years can be brought forward to offset profits in later years, he explained.

‘We have no plans to convert to REIT status because we have the same financial advantages and more flexibility on the operational side. Particularly when it comes to investing ,we can focus on adding value and we don’t have the obligation to buy income-producing assets.’