Colonial, clear beneficiary of increasing rents and very low interest rates

Banc Sabadell | 2019 guidance for Inmobiliaria Colonial: They expect rents of 350 million euros and profit per share of 0.26 euros/share (in both cases in line with BS estimates).

In the calculation of incomes, the sale of logistical assets in August 2019 must be taken into account. In future years they expect to increase the dividend per share at a double digit rate (vs +12% in 2019/2021 BS estimate).

Perspective for rents. They are optimistic compared to the perspectives for rents in the three cities where they are (Paris, Madrid and Barcelona) because occupation is very low in the best zones and this is generating upward pressure facing increases in demand. The differential of prices in renovations are positive and this should continue in future quarters.

Portfolio value. There are also positives in this aspect because the differentials compared to sovereign bonds are at historic highs (c.+400 bp in the case of Immobiliaria Colonial). So it seems logical to see additional compression in the yields from the portfolio of offices.

Portfolio in development. There are no novelties in this chapter apart from another project, of the 12 in portfolio, has bee pre-rented which raises to around 27% the percentage of associated incomes which have been guaranteed through signed contracts.

Rotation of assets. They are analysing assets worth 1 billion euros, which does not mean that they are going to make purchases for this amount given that most of the operations will not go ahead. As for disinvestments, they have already done all those they are going to do in 2019.

Balance sheet. They are comfortably in the LTV range of 36% to 40% although the decisive factor when deciding the level of leverage is the credit rating. Their objective is to maintain the current level although they do not rule out improving it in the medium term.

The message has been optimistic although there are few novelties in the presentation. It must be taken into account that this is the third event of this type in 2019 so far, so there is little that has not been said before. We still have a positive vision of the sector in general and of Colonial in particular because it is a clear beneficiary of the current scenario of increasing rents and very low interest rates. We reiterate our recommendation of Buy, while we are revising our Objective Price (before 11.15 euros/share).