Event in Progress:
View the latest research on other companies in the sector.
For the fourth consecutive quarter, nominal market rents were flat in Barcelona, Paris and Madrid. In 2024 Colonial’s reported numbers will benefit from the leasing of space at the Fondation Cartier in Paris from Q3 23. The cost of debt shouldn’t exceed 2.5% through to 2026.
Inmobiliaria Colonial Inmobiliaria Colonial SOCIMI SA
Strong revenue growth, +8% EPS beat vs Consensus Revenue was up +8% at EUR183m (vs EUR170 in 1H 22 and EUR184m of VA Consensus expected for 1H23). LfL rental growth came at 10% above the 5.5% recorded in H1 2022 (Paris +10% LfL, Madrid +13% LfL and Barcelona +2% LfL). LfL main drivers were release spreads +7% in Q2 23 and the indexation of rents (+6%), while occupancy did not move much during the quarter and remained flat QoQ at 97%. Recurring Net Profit was up +14% YoY to EUR87m, or EUR0.16/sh (+14 YoY), +8% above consensus expectations of EUR80m (EUR0.15/sh). Positive and ''cautious'' message regarding FY23 guidance Colonial has confirmed the EPS guidance towards the upper range (FY23 EPS between EUR0.28 - EUR0.30/sh). That said, given the strong 1H and that consensus is already at EUR0.31/sh for FY23, we believe management could have lifted the guidance. Property value was only down -3%; a new correction is likely at the end of 2023 We saw a small valuation correction of 3%, in line with our expectations for 1H23. The correction reflected c. 57bps of yield expansion YoY and was partially offset by rental growth and the contribution from developments/renovations. We expect a second correction by year end of c. 4%. No news regarding Mendez Alvaro Although the commercialization of the project started at the end of 2022, there has not been any relevant pre-lets yet. Commercial efforts and initiatives are noticeable, and Management expects to materialize the client''s interest in the project over the coming quarters. Earnings, rating and target price changes We have adjusted our figures to reflect higher than expected rent increases and better operational performance. Our TP increases to EUR6.6 (from EUR6.4/sh). However, despite Colonial''s undemanding valuation, we believe there is limited scope for the stock to rerate, struggling to anticipate catalysts in the near term, and we continue to see much of the positive operational performance already...
Paris CBD is totally full, with an occupancy rate of 100%. Occupancies in Barcelona and Madrid CBDs started to rise again in Q2 23 according to Colonial. At the consolidated level, rental growth (including inflation) has wiped out half of the 8% fall in valuation attributable to the yield shift.
Q1 23 wasn’t marked by strong negative news from Spain. Paris remains healthy. End-market rents are almost flat everywhere in nominal terms despite significant inflation.
Strong operational performance, guidance reiterated 1Q 23 results came in line with expectations, with earnings up by 5% YoY to EUR7cts/share, on track to hit the FY23 guidance of EUR0.28-0.30cts/sh, which has been reiterated by the management. We saw good growth in rents of 10% LfL driven by indexation (+6%), price increases (+6% release spreads) and a slight improvement in occupancy. Occupancy at all-time highs The occupancy rate remains historically high at 97%, offering limited earnings upside if successfully let. In Madrid, 2.7% of the portfolio is currently vacant, while 16.4% of Barcelona s portfolio is vacant. Commercial activity has been positive in the first 3m, letting 45k sqm (vs 51k sqm in Q1 23), down 12% YoY; of which 27k sqm are new lettings and the rest being renewals. Mendez Alvaro (South of Madrid) marketing started in Q4 22, but there are no prelets yet According to the company, the project has generated considerable interest in the market. However, we have not seen any prelets yet. We expect the project to add c. EUR24m in annual rents during the coming years. That said, we see Colonial''s development program as highly dependent on this project given the size and the CAPEX committed to this particular project. Although we acknowledge that the marketing of the project has just begun, we are more sceptical than consensus about the s/t and m/t letting rates of the large spaces involved given the location of the asset. Neutral unchanged; Undemanding valuation, but lack of catalysts We recently initiated on the stock with a Neutral rating (see MERLIN PROPERTIES / COLONIAL: Having a yield day in Spanish real estate). Despite its undemanding valuation, we believe there is limited scope for the stock to rerate, and we struggle to identify catalysts in the s/t and m/t. We believe the current level of profitability the company offers in the context of higher interest rates for longer is unattractive (FFO yield of 6.5% between...
We reinitiate on Merlin Properties with an Outperform rating and Colonial with a Neutral rating. While valuation is undemanding in both cases, Merlin''s more attractive profitability, healthier balance sheet and more compelling development plan lead us to prefer it to Colonial. Likewise, we see Merlin as better placed to capitalize on a Spanish economy that is growing ahead of the Euro Area, and that should also benefit from diversified exposure to logistics and commercial real estate. Too much punishment for Spanish real estate? We expect Spanish real estate momentum to improve thanks to a Spanish economy that is holding up better than expected, with inflation moderating and wage increases abating, likely turning real wage growth positive in 2023. We expect Spanish GDP to grow by c. 35bps above the Euro Area average between 2023-24, and we see the Spanish banking sector as well-funded and with still enough appetite to sustain real estate growth. Offices running out of steam, but we turn positive on logistics and Commercial RE in Spain The office market polarization in large cities has been a tailwind for office pure play Colonial, though we expect limited rent increases above inflation in offices going forward given inflation levels (being passed through to tenants) and the recent deceleration seen in releasing spreads. Instead, we turn positive on Shopping Centres, as we see consumer confidence holding up well, and on Logistics, thanks to e-commerce growth, which we expect to absorb new logistics developments. Head-to-Head: We see Merlin''s risk/reward ratio as more attractive Merlin''s 2023e FFO yield of 7.7% compares with 5.8% for Colonial, with a healthier balance sheet (33% LTV vs 37% of Colonial) and in our view with a more compelling development plan. Undemanding valuation vs NTA values, but profitability looks strong We expect profitability to drive stock returns and Merlin''s higher profitability to be sustained over time. Our 10Y DCF...
COL COL MRL MRL
Despite indexation, the FY 23 guidance is for flat to slightly-growing recurring EPS per share. The ambition of growing EPS by 60% between 2021 and 2024 was neither confirmed nor implied.
Colonial is still benefitting from high rents and decent occupancy ratios aside from the 18% voids in Barcelona (two marketable buildings following recent delivery). The next significant refinancing in 2023-24 (in advance of a €1bn repayment scheduled in 2025) will tell which portion of FFO is at risk.
Colonial posted “amazing figures” (à la Trump) even if such a performance wasn’t recognised by the stockmarket. The NAV per share was up 10% yoy but the share price was down 48%. Why?
The assets performed well in Q1 22 with Gross Rental Income (GRI) up 4.1% (2.7% lfl). €1.5bn of acquisitions in FY 22-23 will push the top-line higher.
Following its asset-stripping phase, Colonial is back to its net-buyer strategy. It intends to acquire €1.5bn of assets in 2022-23, weighing 12% of its December 2021 GAV.
Strategic vacancy supported rising consolidated vacancy: from 4.9% in H1 21 to 6.6% in Q3 21. The latter reached 8% in Spain. Nevertheless, end-market parameters don’t show strong issues despite the ECB’s first warning about European commercial real estate.
Following Gecina’s H1 21 earlier this week, no major surprises have occurred. The portfolio’s performance was stable overall, as was end-market rents in Spain. Downward recurring profit in FY 21 was confirmed. This should precede a catch-up attributable to the nice deliveries planned in Paris in 2022-24, if vacancy stays low in the current standing portfolio by this horizon.
Colonial will acquire the missing 18% of Société Foncière Lyonnaise (listed, not covered), its key French subsidiary, in a cash, shares and asset deal. It won’t modify Colonial’s profile deeply.
Recent disposals and rising vacancy in Q4 20 percolate into a lower revenue in Q1 21. Profits will be down in FY 21. The pre-let portion of the company’s pipeline should support recovering recurring EPS in FY 22.
Before the strong building commissionings planned in 2022-24 in the City of Paris, Colonial has accelerated its disposals in FY 20. Even if this has weighed on the top line, it has secured the balance sheet. Rising vacancy everywhere should pervade in end-market rents in FY 21-22. It has started in Spain already.
Share: