European real estate companies are worth half the value of their buildings on the stock market

The European stock market now allows the largest real estate companies and developers on the continent to buy with discounts on the appraised value of their properties that reach 67% for German companies or 60% for real estate companies that invest in housing, according to data from the Association of European Real Estate Companies (EPRA).

Thomas Osborne
Thomas Osborne
23 October 2022 Sunday 15:46
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European real estate companies are worth half the value of their buildings on the stock market

The European stock market now allows the largest real estate companies and developers on the continent to buy with discounts on the appraised value of their properties that reach 67% for German companies or 60% for real estate companies that invest in housing, according to data from the Association of European Real Estate Companies (EPRA). “The stock market is extreme for good and for bad”, recognized Pere Viñolas, president of the employers' association and CEO of the Colonial socimi, during his speech at The District trade show. Viñolas stressed that European companies are suffering from the exit of large US investment funds, who are pessimistic about the war and the energy crisis that the continent is suffering. "In addition, investors see interest rates rise and therefore reduce the value of real estate" (since they capitalize the value of rents). According to Viñolas, "investors need us to show them that inflation also raises rents, that we have the capacity to apply the CPI to rents."

Enrique Martínez-Laguna, Vice President of CBRE Spain, recalled that currently the real estate companies that have shopping centers as assets are listed at an average discount of 53%, those of offices 52% or logistics companies 29%. Only storage companies are quoted at a premium of 3%, "because there are hardly any". In Spain, the average discount of listed companies with respect to the value of their buildings is 52%, a figure similar to the average for continental European countries (51%).

Ismael Clemente, CEO of Merlin Properties, explained that we Europeans “like to talk about the value of the company, but in times of upheaval the market goes back to basics: the cash flow you generate and the capacity you have to increase it. And you can't do more." In the opinion of Miguel Pereda, president of the Lar group, “the market does not move so much with numbers as with perceptions. And we can do little with perception.”

Oriol Barrachina, president of the Cushman consultancy

Inés Arellano, director of Merlin Properties, recalled that a stock market discount of 10-15% on the value of the assets is usually considered acceptable, “but today the difference is extreme”.

The price difference could allow large investors to acquire the real estate portfolios of the listed companies paying half of what they buy for the buildings: in the case of Colonial, buildings valued at 9,000 million could be acquired for 3,400 million by launching a takeover bid.

In reality, however, it is not so easy. The representative of one of the US funds that attended the fair acknowledged that they prefer to buy building by building. “It allows you to better understand the situation and the real state of each property” than relying only on the documentation that the company has sent to the stock market. A takeover bid, as was seen in the war for control of Metrovacesa, runs the risk that shareholders will not accept it if they are not convinced by the price, even if it is the market price.