26 January 2015 – Expansión
2015 / The entity and the funds Värde Partners and Kennedy Wilson are undertaking an active process to contact investors and whereby accelerate the sale of its portfolios of flats and land to improve profitability.
Top priority. The bank led by Ángel Ron is stepping down on the accelerator to remove property from its balance sheet, with the aim of returning to profitability. Popular has set itself a target of selling €2,000 million worth of property during 2015, which would represent an increase of 33% with respect to 2014. Thus revealed Francisco Sancha, CFO at Popular, in a recent meeting with analysts.
Popular already set a record by selling €1,500 million of real estate assets in 2014, which represented a twofold increase on its sales in 2013 and a 50% increase on its combined sales in 2013 and 2012. It closed last year exceeding its own initial sales expectations of €900 million.
The speed of Popular’s sales has a lot to do with the strategic agreement that the entity, led by Ángel Ron, signed with the investment funds Värde Partners and Kennedy Wilson in 2013. The funds acquired a majority stake in Popular’s Unidad de Negocio Especializado (UNE or Specialist Business Unit), which comprises its real estate subsidiary, Aliseda, and manages foreclosed assets and developers’ portfolios. Ownership of the properties and loans lies with the bank.
The architect of the agreement, which includes an extendible 10-year exclusivity period, was Sancha, the former director of the UNE. Its current head, the Director General of Subsidiaries, Rafael de Mena, predicts a “magnificent” 2015 in terms of the property sales. “We are definitely facing a change with respect to real estate management”, he explained to Expansión. “Aliseda is becoming an industrial service company, which combines knowledge of the local market with input from industry partners”, he says.
To provide strong support to its initiative, Popular has appointed a sales coordinator for its commercial network, since its branches are the main channel for its property sales. It has also shortened the process for foreclosing assets in exchange for the payment of debt, to increase the volume of assets it has available for sale. “The portfolio has grown by 54%”, says the Director General of Subsidiaries, who is convinced that the bank has already incorporated best business practice into its processes.
But, he expects wholesale transactions to drive the boom in sales. “The bank has undertaken an active process of contacting investors”, says De Mena. He met with more than 70 during the course of last year. As a result of this intense work, the entity completed the sale of 500 subsidised homes to Blackstone for €80 million, against the clock, during the last few days of 2014. The sale of another portfolio in December took the amount of wholesale transactions to €160 million and the number of homes to 1,000. Thus, in total, Popular offloaded 7,700 homes in 2014, an increase of 128% on the previous year. Furthermore, the bank sold land amounting to €250 million to local developers, which represented an increase of 95%.
The bank also wants to maximise its sales through the internet, which currently accounts for only 2% of transactions. It will launch a new website during the first half of the year and is preparing itself for a battery of commercial attacks through its Aliseda portal.
The entity will also benefit from the “tail winds” resulting from the improvement in the real estate market, according to De Mena “We closed 2014 with the feeling that the deepest and longest property crisis of the last four to hit Spain since the 1970s, was coming to an end” he says. Not only are property prices stabilising, supply is certain geographical areas is drying up, says the director, who senses “a recovery in property development in 2015, which will clearly intensify in 2016”.
Popular has a gross real estate exposure of €32,400 million, the highest of any entity in the Spanish banking sector in absolute terms. Accelerating its exit from property and progressing with its initiative to focus on lending to SMEs, in an environment of fierce competition, are both key to improving its profitability. Its return on equity (ROE) amounted to 2.45% at the end of the third quarter 2014.
Original story: Expansión (by Alicia Crespo)
Translation: Carmel Drake