Spanish SOCIMIs Could Suffer A Major Setback With A Tax Burden Of 15%


There are currently 83 SOCIMIs listed in Spain. Four of them in the main market (Colonial, Merlín Properties, Lar España and Árima Real Estate), two (Colonial and Merlín Properties) included in the blue chip IBEX 35 index and the remaining 79 in the BME Growth market. At December 2019, the SOCIMIs had a market capitalisation of 25.733 billion euros. This is according to the second edition of the report on the evolution of the SOCIMI market, carried out by BME and the real estate consultancy firm JLL. As a result of Covid-19, at the end of June their market value stood at 21.268 billion euros, a decline of more than 17%.

In terms of income, at the end of 2019 the SOCIMIs recorded 2.06 billion euros, 8% up year-on-year. EBITDA stood at 1.7 billion euros, 22% over the figure for 2019. Net profit reached 2.5 billion euros, 11% more, and net cash generation was over 500 million.

With regard to shareholder remuneration, the SOCIMIs analysed in the report distributed 1.254 billion euros in dividends in 2019, a year-on-year increase of over 60%.

The SOCIMIs’ financial health, measured by their capacity to generate annual cash flow, has allowed them to reduce leverage levels to 38% of their assets’ market value.

Jesús González Nieto-Márquez, Managing Director of BME Growth, flagged how the stock market has acted as a catalyst for the real estate sector. It has found an ideal way to access new investors and attract capital through the official listing.

“The SOCIMIs play a leading role in the real estate market, providing extra capacity to attract financing and more transparency. This is also true of the financial market. Thanks to these vehicles it has investment products linked to real estate rental and a greater risks diversification in investors’ portfolios.”

In addition, since 2013, the SOCIMIs have benefited from a tax regime adapted to that of traditional REITs. In the next few years, the success of the model will depend on the institutions providing legal security and a certain flexibility in compliance with tax and regulatory requirements, in accordance with the practice of neighbouring countries.

For the time being, and in the wake of the presentation of Spain’s draft budget for 2021 , the Socimis could receive a major setback. The Government will impose a tax burden of 15% on these real estate vehicles. At the moment there are no details of this measure. But, if the draft is finally approved, it could be the already known tax on undistributed profits. According to Banco Sabadell analysts, “this measure would not have a relevant impact either on the companies’ cash flow or valuations. This is because they distribute an amount of dividend higher than the taxable base.”

If finally it is a new tax on net profit (regardless of whether it has been distributed or not), it would be more difficult to estimate what the impact may be. However, it would be “clearly negative because of the effect on cash flow, the increase in the risk premium associated with investing in real estate assets in Spain.” As explained by the experts:

“With respect to the hypothetical impact on the cash flow, this is not evident as companies could deduct the expense in amortizations and other deductible costs. A general tax of 15% could have an impact on EPS of -9% (and a similar impact on valuation). Whatsmore, other deductible expenses such as negative taxable income, relevant in the case of companies such as Colonial and Merlin Properties, would have to be taken into account.”

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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.