Spanish Small & Midcaps: Axiare

Axiare performanceAxiare headquarters

Since its stock market debut in July 2014, the trend in Axiare’s share price has been positive and it has appreciated 45%. This is the best performance of all the listed Socimis, outpacing the IBEX-35  index by 57% (it fell 12% over the period). The rise in the company’s NAV per share has reflected this upbeat trend, increasing over 30% in three years.

Company description and investment strategy

Axia Real Estate (Axiare) is one of four Socimis which started trading on the stock market in 2014, given the improvement in the outlook for Spain’s property market that same year. The other three were: Hispania, Lar España and Merlin Properties. Axiare’s market capital is 1 billion euros.

The Socimi’s business involves buying property assets for renting out later.

For example, Class A offices, or those with the potential to be so, in prime business centres and areas in Madrid and Barcelona. Or logistic platforms in the main distribution corridors and consolidated commercial locations throughout the country. Axiare’s investment philosophy consists in buying property with which it considers it can create value by managing it well.

At end-2015, the company’s portfolio was valued at 859 million euros, of which 72% were offices in premium locations in Madrid and Barcelona. The company’s main shareholders are: Inmobiliaria Colonial with 15%, T. Rowe Price (9.8%), Citigroup (9.2%), GAM Holding (5.75%), JP Morgan Chase (5.8%) and Deutsche Bank (5%). The remaing 49.5% is free-float.

Portfolio of assets

At the end of Q3’16,  3T2016, Axiare’s portfolio of assets consisted of 32 properties, with a gross leasable area of 666.000 m2. The investment in these properties totalled 837 million euros, with a gross value of 1.049 billion, according to an independent valuation by CBRE at June 30, 2016.

The value of the portfolio in September last year was divided up into offices (67.5%), logistic platforms (19.5%) and other commercial assets (13%), mainly warehouses. Axiare’s disciplined investment policy has allowed it to acquire top quality assets at an average discount of 15.7% compared with the replacement cost of the portfolio. 

At the end of Q3, the occupancy rate was 86.8%, rising by 88 bps over the quarter and 890 bps in comparable terms. The company aims to reach 90% by end-year.

From a competitive point of view, Axiare is doing better than the market. The rental market is gaining momentum and investor interest in the limited Grade A space available is also increasing. Of the SOCIMIs, Axiare is the most exposed to the recovery in Spain’s real estate sector, given the fact its portfolio is diversified across various sectors which are benefiting from the recovery (like hotels). Furthermore, there are no private contracts in its portfolio which represent an important part of the valuation.

9Mths 2016 results

Axiare’s 9 months results were in line with consensus and did not have any significant impact on the share price. Gross revenues from rentals rose 22.5% to 30.47 million euros, while EBITDA increased by 27% to 22.5 million and net profit rose 145% to 91.3 million.

General expenses rose 30.8% to 4.6 million euros in the nine-month period. The company put together its business structure and its team in 2015, the total mpact of which was felt in 2016.

Financial costs increased by 145% to 5.2 million euros, as the company continued increasing its leverage to finance growth. Recurrent net profit rose 10.9% to 17.3 million euros.

Financial situation

At the end of the third quarter, Axiare’s gross debt stood at 387.5 million euros. Its cash position was 267 million euros at end-September, taking net debt to 128 million, including financial derivatives. The gross loan/value ratio at the end of the quarter was 36.5% compared with 38.8% at end-2015. The company’s objective is to limit its leverage to 50-60% of the value of the assets in portfolio (just taking into account the debt related to these assets).

The average cost of debt is 2.3%, up 30 bps from December 2015. The debt’s average maturity is 8 years.

Valuation and analysts’ recommendations

Axiare is trading at a premium to the sector, both in terms of EV/EBITDA and price/book value.

Furthermore, it’s trading at an over 6% premium to its June 2016 NAV. Merlin is also trading at a premium to its NAV, although this is less (3%), while Hispania and Lar are trading at a discount. Our view is that the market is discounting the possibility that Colonial will launch a full bid for Axiare. That said, we believe such a move on the part of Colonial is complicated, while Axiare is trading at a premium to NAV given the dilution it would mean for the former’s shareholders.

Bloomberg analysts’ consensus estimates a target price for Axiare of 14.47 euros per share, offering a potential upside of 5%. Over half the analysts (57%) have a buy recommendation on the stock, while 28.5% have a hold and just 14.5% a sell.