Why Institutional Investors Are Buying Colonial Shares
In recent months, Colonial has been at the center of a flurry of strategic moves. The Ibex 35 real estate company reported a 9% write-down in the value of its portfolio, driven by higher interest rates, reducing it by 1.157 billion euros. Yet operating results improved year over year, with solid occupancy across properties, delivering the largest recurring profit in the company’s history and signaling plans to raise its dividend further.
Colonial’s stock price has been in a downward trend, trading below pandemic lows and around levels last seen between 2014 and 2017 after the bursting of Spain’s real estate bubble, which hastened its rescue and recapitalization.
In this challenging market environment, a number of institutional investors have been accumulating Colonial stock in recent months. In March 2022, the Puig family investment vehicle disclosed a 3% stake, which grew to almost 7.4% in May 2023 and has since continued to rise, approaching 8%. In August of the previous year, Corporación Financiera Alba, the March family’s investment arm, bought 3% for a total of 5% by year-end. A further milestone was set by Fundación La Caixa, which expanded its holdings to 3% in 2024 after a decade without purchasing shares.
Today, roughly 65% of the company’s equity is held by long-term institutional investors. The sovereign wealth fund of Qatar leads with a 19% stake, followed by Mexican entrepreneur Carlos Fernández-González (14.8%) and Colombian investor Alejandro Santo Domingo (7.1%). Other notable shareholders include BlackRock, whose position shifts over time, and Crédit Agricole.
Why Are Institutions Interested in Colonial?
The motives behind this institutional interest are varied. First, the market price does not reflect the true value of Colonial’s assets. According to its 2023 annual results, the company’s properties, net of debt, are valued at about €9.95 per share, while the stock trades around €5 to €5.5, implying a substantial discount of roughly 50% versus real estate value. This gap translates into a compelling price-to-assets proposition for investors.
In line with this, Colonial’s profitability, measured by the dividend yield relative to the share price, ranges between 4.9% and 5.4%, depending on the exact price. CBRE notes that purchasing a high-quality, central Madrid or Barcelona building would yield roughly 4.75% to 4.9%, which trails the dividend Colonial pays when the costs of acquisition are considered.
Prime Central Properties
Investors who have joined or increased their stake in Colonial know the business intimately. They see the people who manage and operate the assets and understand the tenants who occupy them. The company’s portfolio is largely occupied by highly creditworthy tenants that respond well to annual rent escalations, which are indexed to inflation. In the last year, Colonial raised rents by about 8%, outpacing many European peers such as NSI, Merlin Properties, Covivo, and Gecina. Most of Colonial’s assets are located in prime or central business district areas, which tend to be the most resilient during downturns and recover quickly when markets rebound. Well-located properties are more attractive to buyers compared with those on the outskirts.
Differences Between Offices in the United States and Spain
One reason for Colonial’s recent stock weakness, according to analysts, is the U.S. office market. In several major U.S. cities, high vacancy and the shift to remote work have reduced demand, with employees traveling longer distances to offices. This contrasts with Spain, where commuting times are shorter in Madrid and Barcelona. In Barcelona’s 22@ district, a slow uptick in vacancy is tied to the completion of ongoing projects, but overall the Spanish market remains tighter.
In Spain, occupancy runs near 100% in Paris, which accounts for a large portion of Colonial’s rent roll, and around 97% in Madrid and 85% in Barcelona. With Barcelona having fewer assets, these figures are still higher than those of most European real estate firms, a sign of the asset quality on offer.
Almost €3 Billion of Idle Liquidity
Within this scenario, Colonial also sits on substantial liquidity, estimated at about €2.857 billion, a level close to its market capitalization just above €2.9 billion. This cash buffer could fund single-asset acquisitions or entire portfolios. Colonial has a track record of pursuing strategic transactions, having previously acquired Axiare, a deal valued at around €1.7 billion, through a public takeover in 2018.
The management team has also signaled interest in geographic expansion. In a interview with the business vertical Actividades, Juan José Brugera, the chairman, suggested that within 10 to 15 years the company could double its size and operate in new countries such as Germany or Italy.
As interest rate stabilization takes hold, capital markets and real estate activity are starting to wake up. Market participants anticipate a potential window for Colonial to re-enter a buying stance in the months ahead, following dispositions of over €550 million in mature assets.