Colonial Is Coming Back To The Battle

ColonialSpain Socimis already trade at big discounts to NAV

Fernando Rodríguez | In just three years real estate firm Colonial moved from being on the brink of bankruptcy to the preferred stock to capitalize the announced and definitive recovery of the property sector. After joining the Ibex35 and changing into a Socimi, the company’s appeal to investors has increased.

Group Villar Mir has ended this month its definitive exit from Colonial. Indeed three years ago the industrial group led a very complex operation to save the property company with a billionaire capital rise, which enabled Colonial to reorganize its finances and start developing a dramatic change of business model.

The stock inclusion in the Ibex 35 in June boosted its recent developments as many of the investment funds that must include this index in their portfolios have been maintaining positions in the company. The cherry on the cake has been Colonial’s transformation into a Socimi.This is likely to change the investors’ focus on the firm’s dividend yield. According to Xabier Brun, portfolio manager at Solventis, the company has been changing its business model in last years.

It was a real estate developer-construction company then but has become a sheer manager, just areal-state investment trust’. What makes Colonial different from its peers is a tangible point- its assets portfolio for office rentals in ‘prime’ zones of Madrid, Barcelona and Paris is unique-, and other tangible, which is the capacity of adding an extra charm to their buildings management.

Along with the restructuring and reorganising process, Colonial has started a growth strategy with investments of €1.76 billion including the acquisition of new buildings, an increase of its stake in the French Société Foncière Lyonnaise (SFL) –responsible for 70% of the company’s rentals income– and the entrance of another Socimi Axiare in the firm’s equity. In opinion of Rodrigo García, analyst at XTB.

“Colonial clearly reflects what is happening in the Spanish property market, which is resurfacing after a long time of suffering. Even though we still are in pre-crisis levels, prices show an increase in the activity sector as well as of new possibilities.”

Analysts of real estate market are supporting those positive macroeconomic outlook. UBS recently pointed in one of its notes that the recovery of Spain housing sector is gaining momentum due to “impressive economic growth and low interest rates.” Also a BBVA Research’s report about the situation of the country’s property market forecast an upside of prices as they have adjusted by 40% during the crisis and have hardly increased by 5% in the recovery stage.

Goldman Sachs is very optimistic about Colonial’s position. The financial company has recently recommended to buy the stock with a target price of 9 euros and a potential upside of 22% against current its current levels. Goldman Sachs’s experts now prefer specialized real property companies like Colonial:

“Its position in some the most ‘prime’ assets of Europe will allow to have a growth over counterparts”.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.