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Diversified SCPIs increase the pooling of rental risk

Large real estate companies offer investors a good compromise between risk and return. What about in the midst of the covid-19 health crisis? What types of SCPIs are afloat? Analysis of Jeremy Orféo, president and co-founder of the consulting firm Periance, specializing in real estate investment and stone paper.

What first assessment of the SCPI market can you do after this 1er quarter that suffered from the coronavirus crisis in the background?

First of all, the good reactivity of the management companies which knew how to react by being as close as possible to their tenants. In fact, a number of SCPIs have already communicated their figures for the first months of the year. We were able to gather readjusted forecasts but very slightly, that is an annual yield of 2.5 to 6.5% in 2020 versus 2.88% to 6.81% in 2019. This suggests an average of between 3.5% and 4%. The support measures implemented at the initiative of the managers have made it possible to give priority to helping the tenants most in difficulty by allowing them, for example, to stagger the rents. The impact of the health crisis will not be the same depending on the composition of the property portfolio and the managers’ investment strategy.

What types of SCPIs are the least impacted by the current crisis?

First, I think of Diversified SCPI geographically and / or sectorally. Indeed, depending on the country, the containment measures were not as strict as in France. In addition, in some countries, the reopening of certain businesses was already announced in April 2020, notably in Germany. Then, by positioning itself in different investment sectors, diversified SCPIs increase the pooling of rental risk. This is one of the main risks in this health crisis. These SCPIs have announced readjusted forecasts for 2020 more than 5% and even more than 6% for some. This is the case, for example, of the SCPIs of management companies such as Sogenial (SCPI “Cœurs de Régions”), “Corum”, Atland Voisin (SCPI “Epargne Pierre”), Novaxia AM (SCPI “Neo”) or Norma Capital (SCPI “Vendôme Régions”).

The SCPI of shops and offices who also have tenants in their portfolios who operate in an activity sector less exposed to a significant drop in their activity, are also holding their ground.
This is the case of trade sector and large food distribution, much less affected than that of restoration. All French people were able to do their shopping while the restaurateurs were subject to an administrative closure. There are moreover SCPIs of businesses which display forecasts greater than or equal to 5% for 2020. I am thinking in particular of the SCPI “Altixia Commerces” or the SCPI “Coeur de Ville”. Regarding the Office SCPI, the first results are very disparate from one SCPI to another. Some SCPIs have already prudently lowered their rent in the first quarter by 30% compared to that of 2019. Others display forecasts still above 4%, like the SCPI “Efimmo 1 of Sofidy”, or the office SCPIs of the management company “Perial AM” (PFO2 and PF Grand Paris), but also the SCPI “Epargne Foncière” of La Française AM.
Some quarterly installments are down in the range of 4 to 5% compared to the first quarter of 2019, while others are stable. But overall, the average performance of office SCPIs in 2020 could be less impacted than for retail SCPIs, and the results for the second quarter of 2020 should confirm this.

How do you explain the good results in the health, logistics and residential sectors?

In the health sector, tenants find it easier to sign very long-term leases, some can reach 20 or 25 firm years. The tenant is therefore committed to the long term. Otherwise, the real estate sector of health presents the specific and major characteristic of being uncorrelated of the market economy. The authorizations to operate the activities practiced there and their monitoring are generally supervised by the public authorities. The rental risk is therefore lower during a health crisis as we know it today.

Otherwise, the valuation of a health asset is less exposed to the notion of location than other asset classes. It is mainly based on property profitability, which is itself closely linked to the operator’s profitability. Two SCPIs that invest in these sectors: “Pierval santé” (Euryale AM) and “Primovie” (Primonial Reim).

Despite everything, the first signals show that confinement will have given a real boost to the digitalization of our working tools, of our way of consuming and living in general. This has favored the development of e-commerce and could therefore increase in the medium term logistics infrastructure needs adapted. This investment sector is favored by the SCPI “Activimmo” (Alderan) which confirms its forecast of 6% distribution for 2020 in its last quarterly bulletin.
Finally, residential real estate has so far been little impacted by the current crisis. The rent deferrals only concern companies. Also, the impact on rental income of SCPIs holding a property portfolio mainly consisting of housing property, should be very limited. This is the reason why we think that the SCPI “Kyaneos Pierre” could end up in the spotlight in 2020. This is shown by the readjusted forecast for 2020, which is included in 6% and 6.5%.

What do you think the question of telework and its impact on office property?

This is a legitimate question that has arisen everywhere since confinement. Large companies have taken the plunge and allowed their employees to telecommute. I don’t think confinement is questioning work “in the office”. It’s more a reflection on comfort at work. The real question that emerges from various studies on telework is “what could continue to improve the comfort of employees at work today?” ” A large majority of employees already work outside their “office”. I imagine it will take one or two days of remote work. I think that there can be no work organization without physical meetings and face-to-face exchanges between employees. Some management companies have already taken this aspect into account. They invest in flexible office buildings where the spaces are flexible, so that they can correspond to various uses, during the day, over the duration of the lease, and throughout the life of the building. In addition, the patterns of office space consumption are not the same today as they were 50 years ago and some very old SCPIs have adapted over the years. I am thinking for example of the SCPI “Epargne Foncière”, which has evolved over time since its creation in 1968.

What advice for those who have an investment project?

It all depends on the profile of the investor (wealth situation, family environment, level of taxation etc.) and his personal project. First, we must define the appropriate “arrangement” or mode of investment: credit, cash, life insurance, bare ownership etc. Second, the first quarter results confirm what we have always stood for at Periance. SCPIs must be chosen according to their performance engine, namely their real estate assets and the management company which manages the investment strategy. This is the work we do by “dissecting” the quarterly bulletins and the accounting elements appearing in the annual reports published each year by the management companies. Many indicators must be taken into account: the TOF, the reserves, the change in appraisal values, the change in the current result of the SCPI compared to the dividend paid, the number of buildings, the weight of tenants in the overall income of the SCPI etc… As much work as we “pre chew” for our customers. On the other hand, as the old saying goes, “you can’t put all your eggs in one basket”, and this also applies to SCPI. This is the reason why, as soon as investment budgets start to exceed amounts like 30,000 or 50,000 euros, you have to start diversifying your portfolio, by positioning yourself on 2 or 3 SCPIs, managed by different management.

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