«Some segments such as offices and shopping centres have been more affected, but all REITs, have, to a larger or smaller extent, seen their assets’ values decrease due to contract terminations, renegotiation of the terms in already existing contracts and the drop in terms of rental demand in some areas», added Javier Basagoiti during a debate organised by Asocimi, Grant Thornton and Renta 4.
On occupancy contracts’ compliance, Javier Díez Aguilera, director of the Renta 4’s Corporate Finance department explained that «some companies had problems in paying their assets’ rental contracts, and, in some cases, these situations led to increases caused by delays, lower occupancy, contract renegotiations and rent suspensions».
Despite the impossibility of quantifying with precision the impact these measures had in terms of asset valuation, Javier Díez Aguilera noted that «some REITs have already registered impairment and loss of value on their assets on their financial statements from the 30th of June». And he further advanced that «this analysis also shows that the impact of the impairments led to a, in some cases significant, reduction in terms of capitalisation on the REITs which have enough liquidity», it can be read in a release.
Distribution of dividends places liquidity in «trouble»
The Spanish REITs’ requirement to distribute dividends may, under the current circumstances, jeopardise the liquidity of those companies.
Javier Basagoiti explained why: «REITs devalued in 2020 having to recover the lost value in the coming years through countable revenue recognition should integrate those numbers in the calculation of the dividends to be distributed amongst their shareholders and partners. This situation may seriously jeopardise the liquidity of some REITs if they are forced to distribute the dividends generated by the overturning of an impairment which did not generate any cash entry», he concluded.
Grant Thornton’s partners Eduardo Cosmen, Fiscal’s partner and national director; Fiscal’s partner Fernando Vírseda and David Calzada, partner and Assessment managing director in Madrid assumed that «the solution should always start by applying good criteria, both in terms of its regulations and in terms of its interpretation, offering legal security and economic stability, for which the consolidation of a common position from all REITs is necessary, unlike what the tax authority has done». In their opinion, these are «measures that ought to be consensual and proactive, clarifying that overturning the impairments does not allow their distribution, as is already the case in other situations, where neither the overturning nor the provision of impairments has any impact on the revenues in terms of distributing dividends. It would also be worth to include, within the restrictions to the distribution of dividends, the existence of negative results in previous years which are still pending compensation».
In this sense, as stated by them, «any solution that is adopted will have a greater impact with a larger consensus amongst the REITs and with the support, or at least, acceptance of the tax authority».