SCPI: Should You Choose Newer Ones Over Older Ones?
Although newer SCPI funds appear to offer more attractive returns and greater diversification, it is crucial for investors to weigh the pros and cons of selling or holding onto their shares in older SCPI funds.
In the real estate investment trust (SCPI) market, newer companies appear to be outperforming older ones. More diversified and with greater liquidity, they sometimes offer gross returns exceeding 5%. In this context, what should you do with your investments in older SCPIs? Should you sell them to buy shares in newer SCPIs?
Newer SCPIs: Superior Performance
An annualized return of over 10%
Newer SCPIs (launched after 2020) still have sufficient cash on hand to invest. They are taking advantage of falling real estate prices to make attractive investments and understand the importance of diversifying their assets. For example, those that own nursing homes (Ehpad) are largely unaffected by the decline in share prices: they address a real need related to housing for seniors. Demand is growing and is expected to increase even further in the coming years.
It’s no surprise that they offer an annualized yield of over 10%. It currently has the highest payout ratio on the market. This is the case for Iroko Zen (7%), Transitions Europe (8.16%), and Remake Live (7.79%). Sofidynamic and Mistral Sélection are projecting returns for 2024 of around 8%.
Among the SCPIs that have suffered the most in recent months are management companies such as Génépierre, Accimo Pierre, and Laffitte Pierre. These managers own real estate portfolios consisting primarily of office space, an asset class that has struggled in recent years. Companies are increasingly reluctant to invest in large office spaces on the outskirts of major cities, due to the rise of remote work and flexible office arrangements, as well as the retirement of many baby boomers who have not been replaced.
This further reduces property values as demand weakens. Real estate investment trusts (SCPIs) that have historically invested in small- or medium-sized properties are faring better, especially when their assets are located in the heart of major metropolitan areas, where vacancy rates are low.
A Decline in Realization Values
According to figures from the French Association of Real Estate Investment Trusts (Aspim), in 2023, the realization values per share of SCPIs declined. The decline was approximately -10.3%. The sharpest declines were seen among companies specializing in “offices.” SCPIs that have invested more heavily in logistics or the residential sector are the ones experiencing the smallest declines.
Keep or Sell Your Shares: What Should You Do as an Investor in a Long-Established SCPI?
Faced with falling share prices for long-established SCPIs, shareholders whose portfolios consist primarily of office properties have two options: they can hold onto their shares or sell them. If you’ve owned your shares for more than ten years, you’ve already recouped your initial investment. The idea of selling to invest elsewhere is likely the right one. In addition, there are now fee-free SCPIs that may be attractive for your investments.
Wait for the market to stabilize
Otherwise, it may be a good idea to hold onto your shares a little longer, until the market stabilizes. This strategy makes sense because a recent government order has brought some order back to the SCPI sector. Among the measures that have taken effect, it is worth noting that SCPIs will now be able to directly or indirectly acquire renewable energy production facilities to lease or operate them. This means they can invest in solar panels or wind turbines.
They will also be required to conduct a semi-annual valuation of their assets: the value of their shares must reflect market conditions as accurately as possible.
The minimum amount capped at 150 euros per share has been eliminated. Management companies will be able to offer lower prices. All of these factors could give established funds a bit of a boost.
