Tag: credit rating

El Corte Inglés Puts a RE Portfolio Worth Between €1.5bn & €2bn Up For Sale

21 December 2018 – Expansión

El Corte Inglés is preparing to shatter the real estate market. The distribution giant has engaged PwC to sell a mega-portfolio containing 130 properties with a valuation of between €1.5 billion and €2 billion, which would represent the largest divestment undertaken by the company to date.

The operation includes a large variety of assets, all of which are non-strategic, and includes shopping centres (not large department stores), logistics warehouses, supermarkets, offices and land. Once the period for receiving offers has closed and depending on the offers themselves, El Corte Inglés will reserve the right to reduce the size of the portfolio. According to market sources, the firm’s intention is not to find a single buyer but rather to slice up the assets into packages.

Real estate portfolio

The company chaired by Jesús Nuño de la Rosa is whereby accelerating the divestment plan launched to reduce debt with a view to obtaining an investment grade rating from the ratings agencies over the medium term.

El Corte Inglés is one of the main owners of real estate assets in Spain, with a portfolio worth more than €17 billion, larger even than those owned by the large Spanish Socimis, Merlin and Colonial, whose asset portfolios were worth €12.2 billion and €11.2 billion, respectively, as at June, and those of the large real estate companies such as Amancio Ortega’s Pontegadea, whose assets were worth €8.8 billion at the end of 2017.

With this large exposure to property, El Corte Inglés is taking advantage of the investor appetite in the market for real estate assets to clean up its balance sheet. Last year, real estate investment reached a new record with transactions worth €18.7 billion, including corporate operations, which represented an increase of 46%. Excluding purchases by companies, the investment figure also reached a historical maximum of €10.8 billion, according to data from CBRE.

In the framework of this plan, this summer, the company sold its centres in Parquesur and La Vaguada, both in Madrid to Unibail Rodamco, the largest operator of shopping centres in Europe. Those assets have a surface area of 20,000 m2 each and were sold for €160 million.

Original story: Expansión (by R. Arroyo & V. Osorio)

Translation: Carmel Drake

Colonial’s Board Approves Conversion Of Company Into A Socimi

25 May 2017 – Expansión

Colonial is going to propose to its shareholders that the firm turn itself into a listed real estate investment company (Socimi), according to a statement issued on Tuesday by the group to Spain’s National Securities and Exchange Commission (CNMV).

The company has explained that the measure, which has already been adopted by the Board of Directors, will be subjected to a vote at the next General Shareholders’ Meeting, scheduled to be held on 29 June.

The real estate company explained that becoming a Socimi “would not involve any change in the group’s corporate strategy or in its business plan” and that, by contrast, it would mean that the profits and cash flow would increase “significantly”.

Specifically, Colonial wants to adopt this structure retrospectively, with effect from 1 January 2017.

In addition, the company states that becoming a Socimi would have a positive impact of €72 million on its own funds, as it would allow it to pull back some of the provisions accounted for in 2016.

Colonial also highlights that with this step, the effective tax rate would be reduced to 0% and also, that the group would be able to continue using a “tax shield”, amounting to more than €1,300 million to structure investment or divestment operations.

Moody’s assigns a Baa2 rating to Colonial

On the other hand, on Tuesday, the agency Moody’s assigned a credit rating of Baa2 (investment grade) to Colonial, with a stable outlook.

In this sense, it is worth noting that the company already saw its rating improve on 19 April this year, when S&P increased its debt rating to BBB (investment grade) from BBB- (low investment grade), also with a stable outlook, to become the Spanish real estate company with the highest credit rating in the sector.

Original story: Expansión

Translation: Carmel Drake

S&P: Banks Will Sell Off €35,000M In Toxic Assets In 2017

25 January 2017 – Cinco Días

S&P Global Ratings is convinced that there is going to be a new wave of M&A activity in the Spanish financial sector, as a result of the low return environment, which is putting downwards pressure on banks’ margins, and the rising regulatory costs.

The high volume of non-productive assets on the balance sheets of most entities is also having a negative impact on their accounts, which is pushing them towards mergers, said the Director General of Financial Institutions at S&P, Jesús Martínez, yesterday. The Director considers that these consolidation processes will help smaller entities improve their returns.

The Bank of Spain and most of the major financial institutions in Spain share this idea and are convinced that there will be a second round of mergers over the medium term. These mergers will join the one that Bankia and BMN are likely to complete in July.

In its forecasts for the year ahead, the ratings agency considers that the Spanish financial sector will be supported by the “robust” economic recovery that is happening in Spain at the moment, as well as by the improvements that are being seen in employment and in the real estate sector. It believes that the latter is key for the improvement of banks’ yields. In fact, it thinks that the banks will manage to considerably reduce the property they hold on their balance sheets this year, decreasing the balance from €183,000 million at the end of 2016 to around €148,000 in 2017.

This is the first time that the foreclosed asset balance will fall below its 2010 level (€175,000 million), according to data provided by S&P.

Non-productive assets in the Spanish banking sector peaked at €320,000 million in 2012 if we take into account the foreclosed assets that were transferred to Sareb by the nationalised bank. In 2016, the volume of foreclosed assets decreased by around €37,000 million, according to S&P. Between 2016 and 2017, the total decrease is expected to amount to around €70,000 million.

Nevertheless, the ratings agency warns that the sector will be affected by certain risks resulting from the crisis, such as the high volume of non-productive assets that the entities hold on their balance sheets, or the difficulties involved in increasing returns given the very low interest rates that are putting pressure on margins in the income statement.

Despite that, the agency considers that the banks may continue to offset this decrease in returns and the pressure on margins through the lower provisions that they are having to make, as a result of the reduction in non-productive assets, which is expected to continue over the next few years. S&P forecasts that the risk outlook for the financial sector will decrease, which will cause it to review its ratings. (…).

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation: Carmel Drake

Merlin Considers How To Exit Residential Sector In 2016

1 March 2016 – Expansión

On Monday, Merlin Properties presented its results for 2015, its first full year, which closed with a net profit of €49.1 million, slightly lower than the figure it recorded in the previous year (€49.7 million). It also announced a 277% improvement in revenues to €214.5 million, following the consolidation of Testa from the second half of the year onwards.

The acquisition of Testa from Sacyr for €1,794 million involved the incorporation of a residential portfolio, comprising more than 1,519 units spread across eleven buildings. These assets are peripheral for Merlin, which focuses on the office, shopping centre and logistics platform segments.

The President of the Socimi, Ismael Clemente, explained that the objective of the company is to divest that business during 2016 and he indicated that a joint venture is the most likely option.

Clemente revealed that Merlin is working with three investors and explained that this operation, which would result in the departure of 10 people from Merlin’s workforce, would involve designing a co-management structure, as well as exchange equations or contribution calculations.

The residential business accounts for 5% of Merlin’s balance sheet, with a value of around €288 million. “Our maximum priority is to achieve the excellent execution of the operation that we are going to carry out”, said the Director, who ruled out any negative effect on his divestment plans from the political uncertainty.

Regarding the unwinding of its positions in hotel assets, which do not form part of its core business either, Clemente said that the Socimi will act in line with “pragmatic” criteria and in accordance with the performance of the portfolio.

Bond issue

Merlin also announced yesterday that it had obtained an investment grade BBB credit rating from Standard & Poor’s, one notch below the rating for the Kingdom of Spain, which will enable the group to go to the bond market and improve its financial structure.

In this sense, the company is planning a corporate bond issue of between €800 million and €1,000 million, probably in two tranches. The issue, conducted through the parent company, will probably be listed in Luxembourg to reduce its average cost of debt from the current level of 2.4%.

Merlin also announced a distribution to shareholders of, at least, €140 million, which represents a 133% increase with respect to the previous year.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Wanda Sounds Out Market Re: Sale Of Edificio España

4 February 2016 – Expansión

The Wanda Group has started to sound out the real estate market regarding its possible sale of Edificio España. A priori, the group’s only requirement is that the transaction price be at least equal to the amount the Chinese company paid Banco Santander when it acquired the property in 2014, in other words, €265 million.

However, unless those terms are relaxed, the operation has little chance of success. According to the first round of preliminary conversations, investors with a potential interest in acquiring the skyscraper would be willing to pay between €180 million and €220 million. That amount could increase to €240 million if the Local Heritage Committee changes its mind and allows the demolition of the building’s façades; however, that is unlikely, at least until there is a change in the Government of the Community of Madrid (which chairs and holds a large majority on the board of that body), but in any case, the figures fall well short of the amount set originally by the holding company led by Wang Jianlin.

Although the sale of Edificio España is now its preferred option, Wanda has not yet ruled out the possibility of pushing ahead with the renovation of the property, which would involve the construction of around 300 luxury homes, a 200-room hotel and a five-storey shopping centre, with a budget of €700 million. The last meeting with the representatives of the capital’s Town Hall was held last Wednesday, and the only message to emerge from it was that the company’s spokespeople did not declare that they are planning to abandon the project, despite weeks of speculation to that effect.

There is also a third hypothetical scenario, assuming that the sale of the building does not go ahead and that Wanda rules out the option of renovating the property without demolishing the façades. This option, which Jianlin’s company is currently evaluating, would involve keeping the property in its portfolio for four years, whilst they wait for a change in Madrid’s government, which may result in urban planning actions that would not require it to conserve the skyscraper’s external structure.

Real estate sources indicate that the only option that the Chinese tycoon is not considering is that of abandoning the operation as he does not want to send the message that he has lost money. They also say that Edificio España is still a very attractive asset, thanks not only to its location, but also to the combination of authorised uses (hotel, residential, commercial). (…).

Although the renovation project has not been ruled out completely, the company has now rescinded the contracts that it had signed with several architectural firms and legal advisors in Madrid. It is keeping its sales office open in the hope that it may help the group achieve its goal of transferring the skyscraper to a new owner.

Meanwhile, Grupo Wanda suffered a further setback yesterday, in addition to the huge losses it has experienced on the stock market since the start of the Chinese crisis last summer: the ratings agency Fitch lowered its credit rating to BBB from BBB+, on the basis of lower sales forecasts for 2016 and 2017.

Original story: Expansión (by Luis M. De Ciria, M. Belver and R. Bécares)

Translation: Carmel Drake

S&P Assigns Investment Grade Rating (BBB-) To Colonial

13 May 2015 – El Mundo

Within the next few months, Colonial will launch its first bond issue amounting to more than €1,000 million.

The company is seeking to refinance some of its debt (€1,040 million, i.e. 40.5% of its total liabilities).

The company Colonial has obtained a ‘BBB-’ rating from Standard & Poors, making it the first Spanish real estate company to achieve an ‘investment grade’ rating. It intends to use (that rating) to debut on the capital markets in the coming months with a bond issue of more than €1,000 million.

Through this operation, the real estate company, in which the Villar Mir Group holds a stake, is seeking to refinance €1,040 million of debt, i.e. 40.5% of the company’s liabilities.

Specifically, it is seeking to take advantage of the conditions in the market to extend the maturity period (of its debt) and reduce its financing costs, according to market sources.

Colonial has engaged Morgan Stanley, BBVA, Banco Sabadell, CaixaBank, Crédit Agricole, ING and JP Morgan to coordinate the operation.

The company will begin a ‘road show’ within the next few days in the main European markets, to analyse demand for the up-coming launch of what would also be the first bond issue by a Spanish real estate company.

Colonial will specify the amount and other terms and conditions of the operation once it has completed the so-called ‘demand evaluation’ phase, according to a communication made to Spain’s National Securities Market Commission (CNMV).

Phase of growth

The real estate company will therefore debut on the capital markets at the same time as it embarks on its new growth strategy, having completed its restructuring, refinancing and recapitalisation plan at the beginning of last year, through which it reduced its debt and opened up its share capital to new shareholders.

As part of the new phase, Colonial has expressed its interest in Realia and has also said that it would be willing to evaluate a possible purchase of Testa, the real estate subsidiary of Sacyr, in the event that the group decides to sell the company rather than list (some of) it on the stock exchange.

These corporate movements are taking place during the current period of recovery in the real estate sector in Spain, after several years of decreases – the recovery has attracted interest from international investors.

Colonial owns a portfolio of office buildings for rent in the prime business districts of Paris, Madrid and Barcelona, which together have (a surface area of) almost one million square metres. Through this debt restructuring program, the real estate company is seeking to ensure not only that its assets are ‘prime’, but also its liabilities.

Original story: El Mundo

Translation: Carmel Drake