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Fidelidade Cuts Real Estate After Investing €80 Million
21 April 2018
The Portuguese insurer will reduce its exposure to the real estate sector, referring to tighter solvency requirements.
Fidelidade, the former insurance arm of the Caixa Geral de Depósitos, now owned by China’s Fosun, is one of the country’s largest lessors, with a major real estate portfolio, much of which is concentrated in Lisbon and Porto. A boon for the company at a time when the real estate market is at a fever pitch and breaking records, but frequently a headache for its tenants. In recent weeks, the insurer has attracted controversy, as it has been besieged with charges that it is evicting tenants to benefit from the surging market, as was the case in Santo António dos Cavaleiros in Loures.
The insurer is selling off part of its real estate portfolio, 276 properties have been placed on the market. The sales coincide with its policy of increasing rents to market rates in contracts where it is allowed to do so. Jorge Magalhães Correia, president of Fidelidade, told Expresso that the company wants to remain a “major investor” in Portugal’s real estate market, “but with a different profile.” The executive added that the benchmark index for updating rents comes from the National Statistics Institute (INE).
Fidelity’s investment [in the real estate sector] is so large that it easily outstrips the European rules (regime II) for insurance companies’ solvency ratios. The rules have been in force since January 2016 and limit direct investment exposure in real estate to 2%. Fidelidade is at 14%, with €2.1 billion in direct investments in real estate, 70% of which is concentrated in Lisbon and Porto. That figure will fall substantially to €1.5 billion, or 9% to 10% of total assets, Mr Magalhães Correia stated. The tightening of European rules is a factor in the insurer’s decision to sell. Mr Magalhães Correia denied that the sales are designed to take advantage of the market rise, explaining that the insurer’s properties are listed on their balance sheet at market values.
The brake on its real estate investments comes after Fidelidade invested €80 million in 2017, one year after the law penalising real estate investments came into force. Magalhães Correia defended his actions by stating that the €80 million were mainly invested in urban rehabilitation. Examples of the use of the funds include the offices of Abreu Advogados and Vieira de Almeida in the riverside area of Lisbon.
Since the insurer was acquired by Fosun in 2014, Fidelidade has invested heavily in real estate, both in Portugal and abroad. It made significant acquisitions in the most iconic areas of Lisbon, purchased the headquarters of the Renaissance in Chiado and invested millions, as reported at the time, in the area adjacent to EDP’s new headquarters.
More Than 800 Lessors Under Pressure
Of the 276 properties that Fidelidade has for sale, 151 are residential; in these, the insurer has 1,299 tenants, of which 823 are covered by the urban rental program. These figures were provided by Magalhães Correia at a hearing in Parliament this week, after being summoned by the PS parliamentary group, after eight residents in three buildings that are owned by Fidelidade in the parish of Santo António dos Cavaleiros in Loures complained that they were being pushed out. Magalhães Correia denied the existence of any evictions, playing down the matter, explaining to the deputies that the situation is being resolved and that three of the tenants in question had already renewed their contracts, maintaining the same rental payments.
Magalhães Correia told Expresso that: “The 151 residential assets included in the sale process are comprised of several categories: 476 permanent leases, that is, of indefinite duration, which fall under the protection of the former Urban Rental Program (RAU); 423 fixed-term contracts that had been signed since 2012, in which the contracts’ temporary nature was contractually accepted; 186 leases entered into between the New RAU of 2006 and 2012, whose contracts which known from the beginning to have fixed terms. Moreover, “214 contracts entered into under the old RAU, which were transferred to the new RAU without being legally protected, for lack of requirements at the time of transition.”
At the hearing in Parliament, Magalhães Correia stressed that Fidelidade is complying with the law while remaining attentive to situations of social fragility. MEPs confirmed that the insurer – where Caixa Geral de Depósitos still holds 15% of the capital – will update the rent of the tenants to market values, but guaranteed that there would be exceptions. Mitigating circumstances such as effort rates and situations of vulnerability, such as diseases, will be taken into account. Rental costs will always be updated when the two, three and five-year contracts are renewed, he said. However, there will be cases where the rents will remain the same or will rise to a value still below market price (cases will be analysed on an individual basis).
Most of Fidelidade’s buildings in Lisbon, Magalhães Correia explained, are in prime areas, such as Avenidas Novas, Campo de Ourique, Belém and Chiado. These are areas where real estate prices have risen significantly, boosted by high levels of demand. Magalhães Correia affirmed his belief that many of the tenants in these areas belong “to the upper middle class.” Moreover, he warned the deputies to make sure they are not defending people with above-average incomes.
Magalhães Correia also assured that Fidelidade is doing everything possible to ensure that any future buyer of the properties respects the existing tenants’ social stratum while noting that the firm is open to the Lisbon City Hall exercising its preemptive rights with regards to a possible acquisition of the insurer’s properties. The executive also expressed a desire to participate in government and municipal affordable rental programs.
Original Story: Expresso – Anabela Campos / Isabel Vicente
Photo: D.R.
Translation: Richard Turner