28 January 2015 – El Confidencial
Telefónica has begun to shed some of its real estate weight. And it is doing so at a time when investors are no longer planning their moves in the market, they are actually closing transactions. According to sector sources, the company led by César Alierta has completed the sale of five buildings for €65 million in recent months and is now looking for a buyer for four other properties, for which it expects to receive another €60 million.
The listed company has designed a real estate efficiency plan for 2014 and 2015, which includes the sale of nine buildings that will become totally obsolete in less than a decade, in the face of impending technological change. The company itself recognises that with the proceeds, it will be able to finance the investments required to adapt its business to the changing times. Telefónica will continue to lease the buildings as the tenant – known in real estate parlance as sale & leaseback – for between seven and ten years, so that once the lease contract is up, the new owners will have full use of the properties.
Currently- and although the market expects the company to put new assets up for sale – Telefónica is looking for a buyer for three buildings in Madrid (in Calle Irún; close to Plaza de Santo Domingo; and in Moratalaz) and one in Barcelona, in the La Sagrera neighbourhood.
The building in Plaza de Santo Domingo, a few metres from Madrid’s Gran Vía, is a very attractive asset due to its location, as well as for its urban classification as residential. Although Telefónica will remain as the tenant for several years, the future buyer of the property may later convert the building into homes in an area where residential property is in short supply. Similarly, the building in Calle Irun, just a ten-minute walk from Plaza de España and Principe Pío train station, could also be converted into homes in the future. The final property for sale in Madrid, measuring 5,800 square metres, is located in Moratalez and is also for residential use, just like the one in La Sagrera, Barcelona.
Indeed, seven of the nine buildings put up for sale by Telefónica are classified as residential. Only two of them are not. The first, a building in Valencia that was acquired by the owner of Embutidos Martínez, is located in the Plaza del Ayuntamiento and has seven floors and a surface area of almost 4,000 square metres. The second, Telefónica’s historical headquarters in Bilbao, on Calle Buenos Aires, was sold a few weeks ago and measures 5,500 square metres and is classified for alternative commercial use.
Investors’ appetite outside of Madrid and Barcelona
“Investors have seized the opportunity to acquire landmark assets that have great potential for future development and meanwhile, obtain very competitive rents, guaranteed by an AAA tenant. This has facilitated a very agile sales process, which has lasted less than two months, clearly demonstrating the market’s appetite for well-located buildings that have good lease contracts to guarantee yields over the medium and long term”, says Pablo Méndez, Investment Director at Aguirre Newman.
Moreover, the assets are strategically located in the centre of some of Spain’s most important cities, which has helped to boost their appeal. “It is especially striking that investors are showing interest in buildings in cities such as Bilbao, San Sebastián and Valencia. This shows that the perception of risk is continuing to decline in the real estate market and that investors are now more willing to take positions in cities that are regarded as secondary to prime markets, such as Madrid and Barcelona”, said Patricio Palomar, Director of Office Advisory and Alternative Investment at CBRE.
He adds that “for this type of product, it is also very important that domestic investors, like family offices and private firms, are more agile in their ability to take decisions and get offers on the table as this gives them a competitive advantage with respect to foreign buyers with more institutional capital, such as insurance companies, fund managers and those with more sophisticated vehicles”.
These are not the first and they certainly will not be the last non-strategic assets to be sold by the company, given that over the coming years, it will have to gradually get rid of many of them following the demise of analogue technology and the digitalisation of all equipment. “Telefónica serves as an example of good wealth management. It knows that in a few years copper cable connections are going to become completely obsolete and that in a ten years, telephone cables will no longer be used; all connections will be fibre optic”, says Patricio Palomar.
“The sale of these assets demonstrates very professional management by a corporation such as Telefónica, which has a clear strategic vision for the business. Given that the type of activity that takes place in these buildings is destined to disappear, the company ensures through these sales that its services will continue for as long as necessary, until the move happens over to the new technology. In addition, it affords it a line of financing that is cheaper than many others and it could choose to use this liquidity to grow its core business, which is much more about providing telecommunications services than investing in real estate” he concludes.
Original story: El Confidencial (by Elena Sanz)
Translation: Carmel Drake