Colonial's losses reach $1.1 billion due to declining real estate values.

Feb 29, 2024 at 12:43 p.m. ET (Reuters) - Spanish real estate group Inmobiliaria Colonial on Thursday reported a net loss of 1.02 billion euros ($1.10 billion) for the full year 2023, driven by a 9 percent drop in the value of its assets due to higher interest rates.

The company generated a net profit of €8 million in 2022. Real estate companies, such as Colonial and its rival Merlin Properties, generate profits from the rental of their assets and are required to include in their results the impact of updated valuations of their properties, conducted every six months.

"Colonial's asset deprecation was below the average of other European real estate companies, which was between 15% and 25%," CEO Pere Vinolas told reporters.

Central banks' tight monetary policy to fight inflation is weighing on the sector, hampering real estate investment, Vinolas said. The ECB has kept interest rates at an all-time high since September and has consistently rejected the idea of cutting rates, believing wage growth is still too fast to begin lifting restrictive policies.

"The real estate sector is awaiting further clarity on the path of monetary policy, but inflation expectations are now more focused than a year ago, so the fundamentals for a recovery in real estate investment are on the table," added Vinolas.

The group reported a 7% year-on-year increase in its operating result in 2023 to €172 million.

EPS is expected to remain stable this year, subject to the development of its divestment policy. The company has made divestitures of €723 million in 2023 and forecasts additional asset sales of around €500 million this year to reduce its net debt.

Colonial shares on the Standardized Index are down 23% year-to-date. (Reported by Matteo Allievi and Jakub Olesiak; Edited by David Latona and Jana Harvey)

By Matteo Allievi and Jakub Olesiak © Reuters - 2024.