An expression we use a lot in Belgium is :
All Belgians are born with a brick in their stomach.
Belgium has a high percentage of real estate ownership, compared to the rest of the world. Over 70% of families own their home. (We also have a high percentage of savings rate per capita)
The Brussels stock market reflects that warm sentiment towards bricks.
17 companies on the Brussels stock market are our local version of REITs. They receive tax advantages in lieu for some restrictions : 80% of profit must be paid out in dividends, one property cannot be more then 20% of net assets value, free float must be at least 30% and gearing must be lower then 65%.
A few years back the dividend was promoted with a tax of only 15%, but a cash hungry government changed that again to 30%.
I must admit, I had high hopes turning the pages of the annual reports of these companies. Our REITs have a good reputation with Belgian private shareholders because of the conservatism and the dividend.
Also, I have a bias for real estate, since I am the happy owner of some shares in British Real Estate holding Daejan and had a good run in the beginning of my investing life with Belgian real estate stocks.
Will my hopes be justified?
This is how the Real Estate looks like were I grew up.
The building process could be up to a 100 years.
If calculated would the CAGR of the net asset value beat the market ?
First, some pointers on how I look at it. The Real Estate stocks I like have a low debt-to-assets ratio when real estate is expensive (even hoard some cash or secure loan facilities for future use) and a high debt-to-assets ratio when real estate is dirt cheap.
Think Equity Commenwealth.
Real Estate Holdings are mostly financial holdings, in my book. They loan capital and they rent out at a higher percentage to the capital. For the day-to-day running of the buildings, you can hire the right kind of people.
Of course, they have to be able to grow NAV per share at a reasonable clip. What is the value in being a Real Estate professional when you cannot spot what is cheap when it is cheap and how you can add value – either by investing or sitting on your but?
In my experience you get those advantageous reflexes when there is high insider ownership.
Let’s have a look how our 17 companies score on those criteria:
|Wereldhave Belgium||shopping centra||29,33%||65,90%|
|Vastned Retail Belgium||retail||27,90%||65,40%|
|Warehouses Estates Belgium||shopping centra||29,30%||47,56%|
|Home Invest Belgium||residential||51,41%||26,70%|
|Xior Student Housing||student rentals||45,67%||18,12%|
|Retail Estates||shopping centra||51,07%||10,45%|
|QRF||high street retail||48,73%||6,40%|
|Cofinimmo||office + care service||41,00%||5,60%|
|Aedifica||care service real estate||43,80%||0,00%|
|Care Property Invest||care service real estate||48,00%||0,00%|
|Intervest Offices||office + warehouses||39,00%||0,00%|
When a bank or fund or insurer owns shares, I don’t consider it private ownership.
Immo Moury comes with a great reputation, through their sister company Moury Construct – a family owned, cash rich, conservative real estate developer in Wallonie.
Moury Construct is the kind of company I wouldn’t mind owning when the price would ever come down to earthling levels, but seems to be perpetually priced for the heavens.
But Immo Moury is a microcap of only 25 million. And the track record so far is unimpressive.
Wereldhave Belgium is the Belgian daughter of the Dutch Wereldhave. I couldn’t readily find who the major shareholder is of Wereldhave “Holland”, apart from the fact the billionaire Aat van Herk is buying retail real estate stocks heads over heels, including Wereldhave.
Hand in hand with the brick-and-mortar shops they are housing, Wereldhave has been suffering badly the last couple of years.
Now, retail and retail real estate is not dead, but it smells funny.
When things smell funny, that’s when there are deals to be done.
Let’s have a look at what is cheap based on last year’s NAV and dividend :
|cie||activity||dividend received 10y||5% net yield (-30% tax)||price 14/03/20||P/NAV|
|Vastned Retail Belgium||retail||18,445||40,6||38,3||0,75|
|Wereldhave Belgium||shopping centra||32,669||72,8||68||0,77|
|QRF||high street retail||4,837||11,2||14,6||0,77|
|Retail Estates||shopping centra||22,015||61,6||59,4||0,93|
|Intervest Offices||office + warehouses||10,983||21,42||21,5||0,99|
|Home Invest Belgium||residential||27,125||67,9||102||1,07|
|Warehouses Estates Belgium||shopping centra||24,101||58,1||54,4||1,09|
|Xior Student Housing||student rentals||3,43||18,76||41,85||1,16|
|Cofinimmo||office + care service||40,39||77,42||124||1,23|
|Aedifica||care service real estate||15,134||42||87,9||1,51|
|Care Property Invest||care service real estate||4,375||10,36||25,3||2,05|
We see a trend: retails suffer, smart warehouses (the kind used to ship e-commerce) and “care” real estate (resting homes for the elderly) are popular.
Part of that is because you have a melting ice cube at one side and a growing market with long term contracts on the other side.
Nowhere are those prices cheap enough for me. When I bought Daejan the were trading under 60% of NAV and grew NAV per share at something like 9% CAGR.
Now, Daejan paid a measly dividend. So when you are pleased with a 5% uncertain dividend, you know what to do. (Providing you don’t have to pay a double dividend tax).
Question remains : can one of our “star” companies in the list justify their high valuation, simply because they grew NAV at a stupendous rate in the last decade? Let’s have a look:
|NAME||activity||CAGR NAV 10y
|Xior Student Housing||student rentals||8,42%||3,41%|
|Home Invest Belgium||residential||5,75%||6,87%|
|Care Property Invest||care service real estate||5,13%||4,80%|
|Aedifica||care service real estate||4,18%||7,01%|
|Retail Estates||shopping centra||3,60%||5,61%|
|Warehouses Estates Belgium||shopping centra||2,53%||3,63%|
|Wereldhave Belgium||shopping centra||2,39%||3,19%|
|Vastned Retail Belgium||retail||2,33%||1,66%|
|Intervest Offices||office + warehouses||0,57%||-1,97%|
|Cofinimmo||office + care service||0,50%||-1,64%|
|QRF||high street retail||-3,09%||-7,77%|
Bringing it all together, none of the Belgian darling Real Estate Holdings are my cup of tea at the moment – because of their valuation. Even after the recent sell-off.
Those who combine enough insider ownership, lowish gearing and some CAGR are way to expensive for my cheap ass.
Although I would be happy to own them when the markets crash even further, you always have to take in account their might be high ROIC, high growth quality out there that is flirting for my money.
Owning them at that moment, would be for “investing income” reasons, I guess.
So, what would you buy at this moment? Is there one of the holdings I have to look deeper into to, because I am just too blind to see? Do let me know !