Morgan Stanley predicts drops for Merlin and Colonial’s portfolios

Morgan Stanley predicts drops for Merlin and Colonial’s portfolios

The greatest impact should be felt on Merlin Properties’ portfolio, with a reduction on its Net Asset Value (NAV) of around 8% until the end of the year. On the other hand, Colonial’s NAV should suffer a smaller reduction of around 5%. This difference is caused, according to Morgan Stanley, to the largest concentration of buildings in prime areas within the portfolio belonging to the REIT led by Pere Viñolas.

Behind these predictions are the effects of the pandemic on the office units. It should be noted that this segment constitutes nearly 50% of Merlin Properties’ portfolio and around 91% of Colonial’s portfolio. The adoption of remote working, the safety and social distancing measures required and the workers’ apprehension about returning to the offices at this stage might affect the offices’ levels of occupancy and, as a consequence, its value on the market revealed Morgan Stanley in a study to which daily newspaper Eje Prime had access.

Results of the semester do not yet reflect predictions

For now, the results of the first semester concerning the NAV reveal a different reality. Merlin Properties saw its NAV increase 3.8% y-o-y, registering 7.365 million euro in June. Colonial too had its NAV increase of 6,5% y-o-y, registering 5.697 million euro.

On the other hand, the impact on rents is expected. The REIT led by Ismael Clemente was already expecting an impact on its rentals’ revenues since it decided to extend until the end of the year the discounts on the rents of retail spaces affected by the crisis. During the first semester, the rents’ revenues reached 259.4 million euro, 2.2% lower than last year. REIT Colonial also maintains its predictions concerning the end of the year, which include a 2% drop on rental revenues. Negotiations with the tenants are behind this projection.

2021 is expected to be less hard

The return to normalcy expected for next year may reduce the impact on real estate portfolios. Morgan Stanley expects Merlin Properties to be able to reduce the drop, in terms of the value of its assets, to 3%. As for Colonial, the same prediction is set at 5%.

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