Spanish real estate companies face their particular challenge on this day black tuesday. The negotiation underway between the Spanish Government and its partners to eliminate the tax regime enjoyed by socimis causes a drop of more than 4.5% in Merlin Properties, while Inmobiliaria Colonial plummets by more than 3.5%. Thus, these two values are at the bottom of the Ibex 35 while analysis firms such as Bankinter withdraw their purchase recommendations on these two values due to the possibility that the dividends of these companies will be affected.
Last Monday the PSOE and Sumar closed an agreement on tax matters that affects investment groups in real estate assets (socimis), in addition to other measures that would affect the real estate market and the price of real estate. Specifically, the proposal of the Government and its partners would be focused on eliminating the special tax regime, currently exempt if they distribute at least 80% of the dividend among its shareholdersto become taxed with the general corporate tax rate of 25%.
The measure represents a setback for these companies that enjoy a privileged position in tax matters and which, to date, benefits the shareholder. Spanish SOCIMIs are attractive in their high dividend yield in a sector that has a uniform profit distribution policy. As an example, the most conservative investor usually buys shares of companies such as Inmobiliaria Colonial or Merlin Properties when the return on their dividend exceeds that of bonds or Treasury bills.
But this may change if Spanish SOCIMIs stop paying taxes at 1% or less. Bankinter’s analysis department considers that the PSOE agreement with its partners would be bad news for these companies and their shareholders. “Going to pay taxes at 25% would reduce your ability to generate cash and its ability to pay dividends. Furthermore, the sector would lose attractiveness for foreign investors in favor of other European markets where they do have this tax regime,” the firm commented. In fact, this leads Bankinter to cut its recommendation from buy to sell.
However, the agreement may remain a dead letter, given that the proposal will be included in the general budgets that require an absolute majority to be approved (more than half of the chamber). Therefore, there is a possibility that the measure will not go ahead or that nuances will be included in the rule, such as levying 25% of the corporate tax. only in the part of the profit that is not distributed via dividendaccording to market sources.
Although this Tuesday there were revisions to the target price of more analysis firms that follow these two companies and which is collected by the FactSet data aggregator. Although Merlin is facing its worst session since September 2022, the market consensus estimates that it is still time to take positions in the company that offers a potential of 32% up to its target price of 13.53 euros.
On the other hand, Inmobiliaria Colonial will present its third quarter results this Thursday. From Renta 4 They do not expect surprises on the debt side. “The Loan to value ratio should be around 36.5% in a quarter without asset review,” commented the investment bank’s analyst, Javier Díaz. Although the expert sets his target price at 7.75 euros with an overweight recommendation, the market consensus lowers it to 6.95 euros with an average recommendation of hold.
At current prices, the twelve-month Spanish debt offers a yield of 2.52% in the secondary market while the Colonial’s profitability stands at 5.1% and Merlin’s 4.9%. That is, the dividend of the Ibex 35 SOCIMIs doubles that of the Spanish debt in an environment of falling interest rates in the eurozone that reduces the financing costs of a sector with normally high debt ratios.
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