Interview with the Managing Director of Immorente Invest, Khalil Mengad

Khalil Mengad.

Quarterly distribution, profitability between 5.5 and 6.5% per year, firm long-term leases as a source of security, new investments in the pipe… Immorente Invest claims to be able to offer sustainable returns to its shareholders.

Le Matin: Immorente Invest plans to invest in 2022-23 between 200 and 300 million dirhams in new assets. How do you intend to finance these acquisitions?

Khalil Mengad: Immorente Invest is now a cash positive company and does not carry any financing debt. The company maintains its debt capacity intact to finance its future investments, whether through the financial market or bank debt. It should also be noted that the company wishes to continue to take advantage of the opportunity offered by the Casablanca Stock Exchange in terms of raising capital.

Have you already identified these assets?

We are currently working on opportunities that correspond to the investment strategy of Immorente Invest and that touch on several sectors such as industry, offices, logistics, health and education, among others.
Immorente Invest’s investment strategy involves several axes:
• Acquisition of leased real estate assets.
• “Build-to-suit” which means that we build on behalf of a future tenant and according to precise specifications.
• “Sale & Lease Back” which consists in acquiring a real estate asset from an economic actor, who remains in his own premises by passing from the status of owner to that of tenant.
The last two options allow economic players to release their investment capacity by allocating it to their core business instead of mobilizing their funds in real estate.

You have announced an upcoming drop in your occupancy rate to 90% at the end of H1 2022. How is the office real estate market doing at the moment, what are your expectations for it?

The office market suffered until 2020 from an undersupply of quality products, but with the advent of new office areas and the entry of new players such as OPCIs, the supply on the market is shrinking. found revitalized.
This new offer will allow companies to find offices more suited to their needs. This will spawn a game of musical chairs in which one company could exit one asset and be extended by another. The latency time between a tenant moving out and re-letting can temporarily reduce the occupancy rate.
Concerning Immorente Invest, the diversity of assets and tenants as well as the duration of the leases allow its occupancy rate against strong variations. Indeed, half of our leases have been concluded for long periods of almost 10 years. The other half is made up of multi-tenant offices, which greatly limits the impact in the event of the departure of a tenant on our turnover and our performance.

Given your future investments and changes in the rent of your current tenants, but also the end of leases to come in H1 2022, what is your anticipation on real estate products for 2022 and for the next five years?

As a real estate company, our business model allows a certain resilience of our turnover and our returns over time. Indeed, we anticipate a stability of these indicators on the existing scope. Our investment program increases Immorente Invest’s real estate portfolio and, proportionally, our turnover.
Immorente Invest’s business plan therefore makes it possible to continue to offer a resilient return over time, in line with our history of returns paid to our shareholders since our IPO. In recent years, we aim to distribute a return of between 5 and 6 DH per share.

We risk entering a generally inflationary period, what would be the impact on the value of your assets? On the rents collected? On the value of the title Immorente? On the cost of your future acquisitions?

The international context and the post-Covid recovery are undoubtedly increasing the prices of many products and inputs. But we cannot anticipate the duration of the tension on the supply in relation to the currently expected inflation.
That being said, empirically, we know that a prolonged inflationary period tends to increase the value of real estate assets, hence the reputation as a safe haven par excellence.
To analyze the impacts, it is necessary to distinguish the real estate assets already integrated from the future real estate assets.
The value of existing assets would, in our view, vary very little despite inflation. A potential rise in the interest rate that could result from prolonged inflation accompanied by a strain on liquidity and drive down the value of assets should be offset by future growth in rents (often foreseen in contracts).
This is the case of Immorente Invest’s portfolio. Consisting of nearly one billion DH of existing assets, we believe that its value will not undergo significant variation.
Regarding real estate assets to be built, their production cost would probably be impacted by the increase in the price of raw materials. The impact of this higher production cost on the location price will depend on the law of supply and demand in the market.
We believe that rental prices in the office segment could not increase compared to their current level due to the arrival of a substantial supply of new buildings. On the other hand, the factory location price should continue to be supported by the continued development of the industrial sector in Morocco. We therefore believe that the increase in the construction costs of future factories could be passed on to location prices.
The course of Immorente Invest depends on a multitude of endogenous and exogenous factors. It is transmitted by the overall behavior of the Casablanca Stock Exchange, the professional real estate market, but also our results.
Our latest results have also demonstrated the resilience of our model, particularly in the face of crises. Indeed, Immorente Invest was distributed over the years 2020 and 2021, marked by the pandemic, respectively 6.5 and 6 DH per share in line with our announcements.

Can the shortages of certain building materials have an impact on the renovations required at the end of the lease for a relocation? What impact could this have on your occupancy rate?

We do not anticipate any additional impact on our occupancy rate, because our real estate assets are of high quality and benefit from a continuous maintenance program, which allows us to anticipate any shortage.

You have set up a distribution plan for your shareholders with a quarterly rate instead of a single annual distribution, why?

Indeed, since September 2021, we have started to distribute the return to Immorente Invest shareholders on a quarterly basis, i.e. four times a year instead of once.
The quarterly distribution is easy for our company, because we distribute to our shareholders all the rents collected reduced by charges and taxes. It positions Immorente Invest more as an alternative to direct rental investment through the acquisition of apartments or studios with the complexity that this can cause for their owners in terms of management of unpaid bills, relocations, repairs, administrative procedures …
This new distribution scheme allows, in particular, our shareholders not to wait a whole year before receiving the return from the rents.
Concretely, we had planned 4 distributions: in April, July, September and December. All distributions will be of the same amount, except for July, which will be higher, as it occurs after the publication of the accounts.
Quarterly distribution is an innovation at the Casablanca Stock Exchange, but it remains a fairly common practice among international stock exchanges. We took this opportunity to thank the Casablanca Stock Exchange and Maroclear for their valuable assistance in the realization and implementation of this quarterly distribution.

How have your returns evolved so far?

Immorente Invest recently announced the yield which will be distributed in 2022 and which totals 5.5 DH per share. It should be remembered that historically distributed yields relate to around MAD 6 per share. This performance demonstrates the resilience of rental properties in macro-economically complex periods.

To this expectation, our distribution track record since our IPO in 2018 has enabled the shareholders who have accompanied us to achieve a return between 5.5 and 6.5% regardless of the economic situation. This places Immorente Invest among the best yielding stocks on the Casablanca Stock Exchange, while presenting a limited risk profile thanks to its underlying premium professional real estate and its first-tier tenants.

What is the target profitability you are looking for for office real estate, specific real estate (factories, logistics, health, etc.), for shops?

For the next two years, we are looking for assets that will allow us to consolidate our objective of distributing a return of 5 to 6 DH per share to our shareholders.

What are the durations of the commercial leases on which you invest?

Market practice regarding the length of leases differs from asset to asset and depending on its end use. As a general rule, offices are rented for firm terms of 3 years renewable when industrial, school or clinical assets are leased for a longer term of 10 years firm.


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