Tag: corporate governance

Mirabaud: Concerns Grow Regarding Socimi Corporate Governance

2 February 2017 – Expansión

Under the magnifying glass / Remuneration systems based on asset values, such as those used by Merlin and Lar España, have been criticised in the market, above all given that these real estate companies are not actually performing that well on the stock market.

(…). Last summer, some critical voices began to be heard, when Metagestión, a Spanish investment firm, lashed out against Lar’s remuneration scheme. Now, a report from Mirabaud about the real estate market and, specifically, about the Socimis, openly states that “corporate governance is still a problem in the sector”.

In addition to Lar España, the report analyses Hispania, Axiare and Merlin Properties. The analysts express their “concern about the high incentives that the real estate companies have to grow, regardless of the conditions in the market”. Mirabaud’s financial experts explain that “on the basis of conversations that we have had with several experts, there is growing discomfort regarding the corporate governance of Spain’s real estate companies”.

Variable bonuses

Socimi’s are managed in one of two ways: internally, when the management team forms part of the Socimi, such as in the case of Merlin and Axiare; and externally, where the management team forms part of another company, which in turn manages the Socimi, such as in the case of Lar España and Hispania, which are managed by Grupo Lar and Azora, respectively. Irrespective of this management structure, the remuneration that the directors receive can also take two forms.

On the one hand, the directors may receive a management fee by way of fixed or basic remuneration. Then, they may be assigned a bonus over the medium or long-term, on the basis of various parameters. As a general rule, the benchmark used is the evolution of the net value of the assets under management, excluding capital increases. This bonus is known as a performance fee and it is what is concerning investors the most. In some cases, these fees are received through a share delivery program.

One of the most talked about aspects is the basis upon which this incentive is calculated, namely: the growth in the asset value of the company (NAV), given that this is conditioning the market and forcing companies to carry out capital increases to continue buying assets. With the exception of Axiare, “the other real estate companies under analysis all carried out capital increases in 2016” explain the analysts, who add that, in the majority of cases, the operations that were performed were “debatable”. (…).

Provisions

In the case of Hispania, the incentive is not linked to NAV, but instead to the volume of profits recorded and distributed to the shareholders as cash flow. “Everything seems to indicate that the incentives will remain at similar levels and will continue to be paid until 2020, but their calculation will have to be adapted to reflect an operational company, which means that they will have to be linked to the NAV or the share price. We think that it is very likely that the incentives will have to be provisioned for once the company no longer has a clear settlement date”, states the report from Mirabaud.

The latent criticisms have emerged at a time when, despite the fact that the Socimis have expanded their portfolios, their performance on the stock exchange has been mediocre to say the least. With the exception of Axiare, the other large Socimis have been trading below their maximum share prices for the last year and a half. As such, between 2014 and the first half of 2016, the net asset value (NAV) by share had decreased in the case of Lar and Merlin (by -15% and -1%) and had grown very modestly in the case of Hispania (14%), compared with that of Axiare (30%) and other groups in the sector, such as Colonial (43%).

Original story: Expansión (by M.Á. Patiño and R. Arroyo)

Translation: Carmel Drake

Procisa Group Undergoes A Corporate & Financial Makeover

30 December 2016 – Expansión

Procisa, the group owned by the Cereceda family, which in turn owns La Finca, the business and luxury residential complex, in Pozuelo de Alarcón (Madrid) has embarked upon a profound corporate and financial restructuring process involving: a capital injection amounting to €395 million; the entry of the US fund Värde; and the strengthening of its corporate governance.

In terms of the corporate changes, from now on, the company will be organised around the Grupo La Finca holding company, which will in turn own three separate companies: La Finca Global Assets, dedicated to the real estate business and to the operation of the high-end office market; La Finca Casablanca, which will construct the largest luxury residential development containing more than 500 homes; and La Finca Real Estate, upon which the group’s future development will hinge.

Under the framework of this operation, the US fund Värde, owner of Dospuntos (the former real estate division of Sanjose) and owner of a stake in Aliseda, Banco Popular’s real estate asset manager, has acquired 39% of La Finca Global Assets. The US private equity firm, which manages more than $40,000 million in assets around the world, has been one of the most active investors in Spain since the outbreak of the crisis.

Portfolio

By virtue of the agreement signed yesterday, Värde, which must have paid around €130 million for its stake, will become a shareholder of the current office buildings in the portfolio and of the new projects in this area of the business. In addition to the La Finca business park, La Finca Global Assets’s properties include a property located on Calle Marcelo Spínola – a business centre comprising seven seven-storey buildings – and another property on Calle Martínez Villergas, comprising three seven-storey buildings.

Meanwhile, the La Finca business park, covering 220,000 m2 of premium rental space, comprises 20 buildings, 16 of which are used as offices plus the remaining four, located in the centre of the complex, which are used to provide the necessary services to the users of these offices. The complex’s current tenants include technological companies such as Orange and Microsoft.

In terms of the injection of funds, the company has signed a financing agreement with a syndicate led by Société Générale, CaixaBank and Santander amounting to €395 million, which it will use to pay off existing debt and tackle new projects. According to the latest available balance sheet, Procisa’s debt amounts to €525 million.

Specifically, the subsidiary La Finca Casablanca is planning to construct a development containing 515 luxury and exclusive homes, a shopping and leisure centre, as well as sports facilities and a golf course, in the south of Pozuelo de Alarcón.

New directors

Meanwhile, the group owned by the Cereceda family has strengthened its corporate governance by hiring some new directors. Susana García-Cereceda, the current Chairman of Procisa and one of the heiresses of the family empire created by the businessman Luis García Cereceda, who died in 2010, will lead the holding company and each of its subsidiaries, as the CEO.

In addition, Grupo La Finca will hire Jorge Morán as the Vice President of the holding company. (…). Moreover, Värde will join the Board of La Finca Global Assets with the appointment of three board members. (…).

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

War Between NH’s Presidents Over HNA’s Role On The Board

2 June 2016 – Cinco Días

The investment funds that hold share capital in NH and critics of the role played in the hotel chain by HNA’s Directors have obtained the support of a heavyweight: the co-President of the Hesperia Investor Group, José Antonio Castro, who is also the second largest shareholder with a 9.27% stake.

José Antonio Castro, representative of Hesperia and co-President of the hotel chain, has acknowledged in a letter to two of the investment funds that hold stakes in NH, namely Henderson and Taube, that “a clear conflict of interest exists in the company for our shareholder HNA, following its agreement to purchase Carlson Rezidor and in particular, for the Board member and co-President, Charles B. Mobus”.

In his letter, Castro noted that NH’s Board of Directors ruled on 10 May that the role played by Mobus as advisor to the purchase of Carlson Rezidor did not compromise his position as the co-President of NH. At that meeting, the hotel’s management body agreed to put the necessary mechanisms in place to analyse a possible conflict of interest with HNA’s representatives. “However, that committee has not been created yet”, he said.

Hesperia’s representative confirms that his position regarding Mobus has changed with respect to the view he held at the Board meeting on 10 May and he justifies that decision by explaining that the HNA representative had informed some of the company’s shareholders that he had been authorised by the Board to go ahead with the Carlson Rezidor transaction. “That is not true. He tried (to obtain approval), that part is true, but the Board was not in agreement”.

Castro also justifies his change of heart by explaining that Mobus informed shareholders “that the Board of Directors knew that he was acting as advisor to the transaction. But, that is not true. He never told them”, he states in the letter, in which he also confirms that Mobus’ role is to advise HNA in its plans for the hotel industry, which involves the consolidation of its subsidiaries, something that he acknowledges, according to Castro, in the letters sent to other shareholders about the integration of NH and Rezidor or between NH and Carlson.

The businessman also acknowledges that during the last 20 days, NH has had “poor corporate governance”. In this way, Castro thinks a new Board meeting should be convened to review the latest agreements reached with respect to HNA’s possible conflict of interest.

Original story: Cinco Días (by L. Salces)

Translation: Carmel Drake

NH Appoints 2 New Directors Despite Protests From HNA

22 June 2015 – Cinco Días

On Friday, the fund Oceanwood, which controls 7.58% of NH’s share capital, managed to take a seat on the hotel chain’s Board of Directors, despite HNA’s efforts to the contrary. HNA had tried to avoid the appointment of any new directors, by requesting the inclusion of an additional item on the agenda of the shareholders’ meeting, to limit the number of Board members to 11, even through the company’s bylaws provide for a maximum of 20.

The Chinese group HNA, which holds a 29.5% stake in the hotel chain, justified its proposal as being “in the interests of greater legal certainty”, even though the investment funds (other NH shareholders) had requested a seat on the board. HNA’s position meant that the funds’ entry depended on one of the existing seats being vacated.

Although the item (the vote regarding a reduction in the size of the Board) is still on the agenda of NH’s shareholders’ meeting, which will be held on 29 June, the management body decided to appoint two new directors on Friday, in support of their goal to strengthen “their commitment to transparency and good governance”. And so, Alfredo Fernández Agras was appointed as a proprietary director, at Oceanwood’s request, and Koro Usarranga Unsain was appointed as an independent director. These appointments must now be ratified by the shareholders.

Thus, NH has 13 members on its Board of Directors once more; the number had decreased to 11, after Intesa San Paolo’s exit from the hotel chain’s share capital. The company said yesterday that “the new governance structure strengthens the composition of the Board of Directors over the long term and achieves representation of all stakeholders in line with best corporate governance practices”. According to the company, the decision was taken by “unanimous vote of all of its Board members”.

The fund Oceanwood acquired capital in the hotel group after Santander placed 8.5% of its capital in the market. Santander had, in turn, received the stake from Grupo Inversor Hesperia as payment for some of its debt. BlackRock and Henderson then also became shareholders. These funds requested that NH’s Board strengthen the role of its independent directors to prevent the Chinese group HNA from strengthening its stake and position on the management body, without launching a takeover – it is not obliged to do so until its shareholding exceeds 30% – . HNA has four seats on NH’s board, compared with Hesperia, which has two.

Original story: Cinco Días (by L.S.)

Translation: Carmel Drake

Hispania Enters The FTSE EPRA/NAREIT Index

9 June 2015 – Hispania Press Release

Hispania Activos Inmobiliarios, S.A., (hereinafter, Hispania), announces its inclusion in the real estate index FTSE EPRA / NAREIT, the main benchmark for European real estate. Hispania’s inclusion in the index will become effective from 22 June.

The FTSE EPRA/Nareit Global Estate Index is an indicator managed by the European Public Estate Association (EPRA) that is designed to represent general trends in real estate equities worldwide. In order to form part of the index, companies must: generate a significant gross operating profit (EBITDA) from real estate; report their audited annual accounts in English; comply with a minimum specific liquidity requirement; and have a minimum free-float market capitalization.

The members of this index share standards of financial information between each other and with investors, as well as information about corporate governance practices. Hispania’s membership of this index will increase its visibility to international investors and provides a seal of quality and transparency in the global field of listed property.

Original story: Hispania Press Release

Edited by: Carmel Drake