Merlin, Hispania And Axia Could Raise More Than €1,340M

5 May 2015 – Expansión

The real estate investment companies are trading at record highs, and (their share prices) still have potential (to increase), say analysts.

The real estate sector is back in fashion. The current liquidity surplus, together with the scarcity of alternative investments, minimum interest rates and low financing costs have led to the resurgence of properties. In this way, the (share prices of the) 4 real estate companies (Socimis) that are listed on the stock exchange (another 5 are listed on the Alternative Investment Market or MAB) have risen by 20% on average during the year and are trading close to record highs. And yet, all of them have “buy” recommendations from the majority of the analysis firms that follow them.

Gaining in size

In this context, Merlin Properties, Hispania (which is not strictly a Socimi, but which has a similar profile) and Axia Real Estate are seeking to raise capital to fully benefit from their investment opportunities. The three entities could raise more than €1,340 million.

The first one to take the plunge was Merlin, which announced a capital increase of 64.6 million shares (50% of the volume in circulation) on 15 April amounting to a value of €613.8 million. The new shares are being issued at €9.50, which represents a discount of 27% on the trading price on the day before the announcement. The subscription period ended on 2 May. The new shares from the capital increase, which are underwritten by UBS, Credit Suisse and Goldman Sachs, amongst other entities, will begin to trade on 12 May. “The transaction makes sense because we believe that the current upwards cycle in terms of revenue and ratings may last for 2 or 3 more years”, say sources at Banco Sabadell. The analysis firm advises investors to “buy” these shares, as do the other five analysts that cover this security. “We believe in the experience and know-how of the management team at Merlin to “play” the upwards property cycle and gain a profit”, they add.

One of Merlin’s main strengths is its size. Analysts calculate that the company may have almost €1,400 million to invest. “It is able to access large transactions that other companies cannot, such as the purchase of Testa”, says Juan Moreno, analyst at Ahorro Corporación. That transaction that would have the blessing of the market if, as it being discussed, the acquisition of 30% of the company is agreed for €500 million, without the payment of a premium over the NAV (net asset value).

Meanwhile, last week Hispania increased its capital by €337 million through an accelerated placement amongst institutions, without the right to preferential subscriptions.

The company, in which George Soros holds a stake, tried to lead the purchase of Realia last March. In the end, Carlos Slim was the “cat that got the cream”, through FCC, but experts liked the design of the operation. “Hispania is innovative in the transactions it proposes. For example, it seeks to enter (companies) by purchasing debt, restructuring that debt and then buying the company at a lower price”, says Moreno. The expert also highlights the recent alliance signed between Hispania and Barceló to create a Socimi to invest in the hotel sector.

Three of the four analyst firms that follow the security advise investors to “buy”. In terms of Axia, the Socimi has announced its intention to increase its capital by 36 million shares (100% of its capital) for a value of €396 million. For the time being, the market does not know whether the current shareholders will have preferential subscription rights. But, in any case, the experts like the security, which has increased in value by 10.77% during the year. Two of the three firms that follow it advise investors to ”buy” and the third advise investors to “hold”. The share price may increase by 8.7% to €13.10.

Original story: Expansión (by C. Sekulits)

Translation: Carmel Drake

Up To 15 Socimis Are Planning To Go Public In 2015

12 February 2015 – El Economista

Since the first Socimi debuted on the stock exchange – Entrecampos was the pioneer at the end of 2013 – seven companies of this kind have now floated on the stock market. And according to Jesús González Nieto, the Vice-President and CEO of the Alternative Investment Market (el Mercado Alternativo Bursátil or MAB) the number of listed Socimis will increase this year to include seven or eight more, with two of them planning to go public this quarter.

Nevertheless, market sources close to these transactions claim that the number of vehicles of this kind preparing to go public is even greater: with “up to fifteen” (currently involved in the process).

“Around fifteen Socimis are planning to go public within the next year, with assets ranging from €20 million to €400 million”, said one of the people responsible for placing the shares of these new real estate companies in the market. “Most of them are investments being made by foreign funds in Spain, which are buying up premium assets (hotels and above all, shopping centres). In parallel, there is a stream of hoteliers, who are seeing the benefits of putting their hotels into these vehicles because it allows them to dissociate the business from the properties”, he added.

According to the same source, there are two main reasons as to why non-residents above all are incentivised to constitute Socimis. Firstly, it is easier to exit an investment in one of these type of companies than it is to exit an investment in a specific building, “Socimis represent an easier way of buying (when you have a view) to sell”, he said. And secondly, there are tax advantages: Socimis are exempt from paying corporation tax, and also receive a 95% discount oon property transfer tax. For investors, however, the main appeal of these companies is that the rules require them to distribute 80% of the companies’ gross operating profits in the form of dividends, although at the moment, none of them are expected to make a profit this year.

“For these types of Socimis, those that are businesses, the average IRR of their portfolios is at least 8%”, say a number of financial sources. But amongst the fifteen Socimis that are preparing to float, there are also some property managers. As such “families are using these vehicles as a way of organising their assets to convert immovable property into movable property, whereby allowing it to be easily distributed”, they explain.

The regular stock market or MAB?

What remains to be seen is the market they will choose to list on – namely, the regular stock market or the MAB? The latter allows these types of companies to be valued on a discounted cash flow basis rather than on the basis of their NAVs (net asset values), which is the more accurate ratio used for valuing real estate assets in general and REITs (the US version of Socimis) in particular.

To date, the stats are as follows: of the seven Socimis that have debuted on the stock market in recent years, three have done so on the MAB (Entrecampos, Mercal and Promorent). And the other four have listed on the regular stock exchange: Lar España, Merlin Properties, Hispania and Axia. But, what determines whether these companies list on one market or another? “In reality, all of the Socimis that list today should do so on the MAB. Nevertheless, some of them have jumped onto the regular stock exchange because the investment funds behind them are subject to regulation 401k, which requires them to list on an official exchange, and MAB does not quality; it is regulated but not official. This means that some Socimis were forced to list on the regular stock exchange”, say market sources.

For the time being, the only thing we know about the six or eight companies on MAB’s radar (where they may list, according to comments made by MAB’s Vice President on Wednesday) are their timelines. “Two this quarter” and another “three or four before the summer”. One of them is “a very big player, with a large volume of capital”.

González Nieto explained that he regrets the slow speed of the mechanisms that process the files of these companies; a Socimi has two years from when it first registers to fulfil all of the conditions required to begin its activity, which means that this year is the deadline for those that first signed up in 2013. It is time for the interested parties to “get on with their homework if they regard it as a good opportunity”, he said.

Original story: El Economista (by C. García and J. Gómez)

Translation: Carmel Drake

Santander To List 2% Of Its Socimi And Whereby Avoid CIT

6 February 2015 – El Confidencial

Desperate times call for desperate measures. That is the proverb that Banco Santander is going to apply to a problem that has arisen after it sold a network of 1,152 bank branches bearing the red flame to a group of investment funds in 2007. The entity, which had to take the branches back when the investment company that had taken ownership of them filed for bankruptcy, is going to float that company on the stock exchange as a Socimi, and whereby avoid paying Corporation Tax. Oleguer Pujol, amongst others, was involved with the original investment company.

The main objective of the transaction that Santander and the other creditors that seized control of Samos Servicios for the non-payment of a €2,000 million loan is to float the newly named Uro Properties on the Alternative Investment Market (Mercado Alternativo Bursátil or MAB). In fact, none of the current shareholders, which includes Santander itself – the largest, with a stake of almost 25% – as well as Caixabank, which entered through the back door and BNP Paribas, all primary lenders, are planning to sell or reduce their stakes in the Socimi.

The transaction will involve listing the company with the placement of a maximum of 2% of its capital, the minimum requirement. With such a small amount of floating capital or free floating capital, Uro Properties is only allowed to list on the MAB, even though its total assets are worth €1,600 million. As such, it will become the largest real estate company on the Spanish stock market. None of the other Socimis that followed the same path in 2013, such as Hispania, Lar, Axia or Merlin Properties, are equal in size.

Since the shareholders are not going to sell their old shares or proceed to offer new ones, like the other Socimis mentioned above have done, the only apparent purpose for listing Uro Properties is to benefit from the tax regimes offered to these kinds of companies. According to Law 11/2009, dated 29 October 2009, these real estate companies pay Corporation Tax at a rate of 0%.

To maximise the tax savings even further, the shareholders of Uro Properties Holding SA have created a parent company in Luxembourg, under the name Ziloti Holding SARL. The shareholders have already asked the MAB for permission to list their shares, as soon as possible, specifically, before the end of February.

From success to failure

The background to Uro Properties dates back to 2007, when Emilio Botín invented a transaction, which other large multinationals later went onto to make fashionable in Spain: the sale of properties to investment funds to obtain sizeable gains in exchange for staying as tenants and paying rent. It is what is called sale and leaseback. The purchasers of Santander’s 1,152 branches were Pearl Insurance, Sun Capital and Drago Real Estate, which were advised by Oleguer Pujol, now accused of crimes against the Treasury, and Luis Iglesias, who was arrested after his home was search, but not charged, according to an official spokesman.

The three funds paid €2,040 million and Santander generated profits of €850 million. But the collapse in the valuation of the real estate assets themselves and the loss of the bank’s credit rating led to an adjustment in the appraisal value of the branches – which were guaranteeing the loan – of more than €400 million. This meant that the purchasers were no longer able to service the loans they had taken out to finance the purchase.

Following the bankruptcy of Samos Servicers, Santander, which had borne most of the financing risk by granting mezzanine debt, had to convert that loan into capital. This meant that it went from being a creditor of the company to a shareholder in the renamed Uro Properties. BNP Paribas, Caixabank, Société General, Royal Bank of Scotland, Barclays and a group of German and Austrian banks, including Bayerische and Raiffessen, did the same thing.

Original story: El Confidencial (by Agustín Marco)

Translation: Carmel Drake

Axia Has Acquired An Office And 5 Warehouses For €69.33m

1 August 2014 – Estrategias de Inversión

The largest investment was in Alcobendas (Madrid), where it acquired an office building for €28.75 million.

This is proving to be a busy week for the Socimis – on Thursday, Hispania, Merlin and Lar all reported that they have made a number of investments, amounting to €377.1 million, and these companies are continuing to close transactions on Friday. In addition, Axia has invested €69.33 million buying a number of buildings.

Specifically, the company has announced the purchase of an office building in Alcobendas (Madrid) from IVG Institutional Funds for €28.75 million. The building has a gross leasable area (GLA) of 17,266 square metres, plus 396 parking spaces.

It has also acquired three logistics warehouses located in Cabanillas del Campo (Guadalajara), with a GLA of almost 37,877 square metres, for €16.68 million. Two of the warehouses belonged to Parques Industrialises Nuevas Áreas de Actividad Gran Europa and the other one was owned by Altamira Santander Real Estate.

Finally, Axia has also purchased a warehouse in Azqueca de Henares (Guadalajara) with a GLA of approximately 35,781 square metres and another in Dos Hermanas (Sevilla), with a total GLA of 42,466 square metres, for a total price of €23.90 million.

Original story: Estrategias de Inversión

Translation: Carmel Drake