Tag: equity

HIG Acquires Malaga Residential Complex

24 January 2017 – Property Week

A client of the private equity firm HIG Capital has acquired the 430-unit Valle Romano apartment complex in Estepona, Málaga.

The property, which includes swimming pools, restaurants and a gym, has a total surface area of about 495,000 sq ft.

“This is our seventh investment in Spain in the past three years”, said Riccardo Dallolio, Managing Director at HIG in London.

“Spain represents an important part of our European strategy and we continue to seek additional small and mid-cap, value-add, investment opportunities to increase HIG’s presence in this market”.

HIG is based in the USA but has offices in 8 countries around the world, and currently manages more than €22bn of equity capital.

Original story: Property Week (by Emanuele Midolo)

Edited by: Carmel Drake

Citi Seeks New Shareholders For Uro Property

20 May 2016 – Expansión

Uro Property, the Socimi that owns a quarter of Santander’s branch network in Spain, may see a change in its shareholders in the coming months. The company that holds 84% of its share capital, Ziloti Holdings, has given Citi a mandate to study possible shareholder changes.

This mandate comes in the face of interest from some of the current shareholders to exit the company, given that they were forced to acquire shares in the first place when their debt was converted into capital in 2014.

The main shareholders of Uro Property – both through Ziloti and otherwise – are Santander, with 22.7%; Atisha Holding, the former Sun Group, with 18.9%; Phoenix Life Assurance, with 14.6%; CaixaBank, with 14.5%; BNP Paribas, with 9.2%; and other private investors and international entities.

Citi will mainly look for investors amongst the large pension funds, insurance companies and investment funds.

The departure of the shareholders was vetoed until March under an institutional agreement reached following the recapitalisation of Uro.

The renewal of the shareholder base is one of the outstanding milestones for the company, which owns 755 Santander branches in Spain. It refinanced its debt last year and cancelled a swap, whereby reducing the financing costs of its €1,300 million debt from 6% to 3.35%. Last year, the Socimi sold 381 branches to Axa for €308 million, recording a capital gain of €27 million.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Sareb Expects To Pay Its Bondholders A €1,000M Coupon

13 May 2016 – Expansión

Sareb’s shareholders are fully aware that they will never receive any dividends. Neither the private institutions, mostly banks and insurance companies, which own 55% of the so-called bad bank; nor the State, which controls the remaining 45% stake through the FROB (‘Fondo de Reestructuración Ordenada Bancaria’ or Fund for the Orderly Restructuring of the Banking Sector) expect to receive any returns on their capital, in accordance with the company’s original business plan.

But the institution led by Jaime Echegoyen (pictured above) plans to repay them by other means. Sareb is hoping to pay its shareholders a coupon of €1,000 million, over its remaining twelve years of life, in return for the subordinated debt that they subscribed to, to get it on its feet, according to sources close to the bad bank.

In order to provide the company with sufficient own funds, the shareholders subscribed to convertible subordinated bonds amounting to €3,600 million, which were added to the €1,200 million of pure capital that had been contributed by its investors, to take its own funds to €4,800 million.

Accounting circular

The new accounting framework established by the Bank of Spain, which came into force last year, forced Sareb to individually appraise all of its assets and adjust them to reflect market value and, in this way, to undertake a thorough clean up (of its balance sheet), which resulted in significant losses and additional capital requirements.

To cover those without resorting to a capital increase, the company capitalised debt amounting to €2,170 million. In this way, only the remaining subordinated debt holders (who hold €1,429 million) will end up receiving the coupon.

Before the shareholders receive the interest amounting to 8% p.a., Sareb will have to generate sufficient consolidated profit before tax and cash and, also, have paid the interest rates on the senior bonds that it issued to the former rescued savings banks in return for the foreclosed assets and property developer loans that they transferred to it.

Two annual payments

After the shock of the accounting circular, the so-called bad bank is confident that it will be able to leave behind its losses and break even in 2017, before generating profits in 2018, the date when the bondholders will begin to receive the annual coupon for the first time.

Nevertheless, their remuneration would not necessarily be reduced in the event that Sareb has to wait until 2019 generating any profits, given that the amount of interest accrued in 2018 would be rolled into the receipt for the following year. Thus, on the payment date, they could receive the annual payment for the current year as well as for the previous year. They may not receive more than two payments.

Santander and CaixaBank

The conversion of debt into capital, approved by Sareb’s General Shareholders’ Meeting at the beginning of May, did not affect the subordinated debt stakes held by each one of the bondholders, most of whom are also shareholders. As such, and until the operation goes ahead, Santander is the largest private bondholder, with a 16.6% stake, amounting to €237 million.

The next largest bondholder is CaixaBank, which holds 12.2% of the debt, worth €174 million, followed by Sabadell, with a 6.6% stake (€94 million) and Popular, with a 5.7% stake (€81 million). Meanwhile, the State holds debt amounting to €656 million, through the 45.9% stake that it owns through the Frob.

Original story: Expansión (by A.Crespo and S.Arancibia)

Translation: Carmel Drake

Banks Recognise Provisions For 15% Of Their Stakes In Sareb

25 January 2016 – Expansión

Accounting Circular / The “bad bank” is going to recognise losses amounting to almost €2,000 million on its credits and loans in its 2015 accounts.

The banks accept that their investments in Sareb have been a fiasco, but to protect their income statements in 2015, they have decided to make provisions for just 15% of their exposures, in line with the proportion recommended by their auditors. Nevertheless, some of the banks calculate that, in a best case scenario, they will actually have to write off half of their investments.

Sareb is trying to redefine its proposed business plan in the face of the new accounting obligations imposed by the circular prepared by the Bank of Spain (last year), which is forcing the bad bank to revalue all of its assets, at market prices, before the end of this year.

Although the field work has not yet been completed, sources close to the company acknowledge that the new valuations will significantly affect its provisioning requirement and, as a result, the company will generate sizeable losses in 2015, which will force it to reduce its share capital of €1,200 million, to almost zero, and to convert some of its subordinated debt, €3,600 million in total, into share capital to restore the company’s equity balance.

Accounting losses

Initially, Sareb estimated that the new accounting circular may force it to make provisions amounting to more than €500 million, which would have meant recognising losses in 2015, given that fewer assets were also sold last year, but as the process to value the assets on its balance sheet has progressed, that figure has increased to such an extent that certain shareholders now expect that “the provisions required against its non-property assets will amount to almost €2,000 million”.

Sources at the bad bank indicate that the additional provisions are due, above all, to the accounting requirements imposed by the Bank of Spain and have little to do with the actual deterioration of the company’s balance sheet. The reason is that the accounting circular does not allow Sareb to offset actual losses against unrealised gains, unless those gains are generated by the same type of asset as the losses. “And therein lies the problem”, according to sources close to the company, given that it seems that whilst the losses on the bank’s non-property assets (credits and loans) may amount to as much as €2,000 million, the valuation of its real estate portfolio is likely to generate gains of almost €1,500 million. The losses must be registered in the income statement, but the gains may only be recognised when they actually materialise.

These figures, which will be finalised at Sareb’s board meeting in February or March, when the entity’s accounts for 2015 and business plan to 2027 are approved, are the ones that have forced Sareb’s shareholders (the FROB with a 45% stake, the banks, except BBVA, which did not want to participate, several insurance companies and one real estate firm) to make provisions to cover their exposures and reflect the losses in their results for 2015. The main point is that the effort that the banks have made (Bankinter has already revealed its provisions when it presented its results, and the other banks will do so as and when they publish their accounts) is limited to providing against 15% of their total risk, capital and subordinated debt, when at least some of the banks admit, in reality, that “in the best case scenario, we are going to have to recognise losses equivalent to half of our investments”. (…).

It seems that the entities have agreed with their auditors to make limited provisions in 2015 in the knowledge that they will have to make further provisions against their exposures to Sareb during 2016.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sareb Unlikely to Acheive Any Of Its Goals For First 5 Years

29 December 2015 – Economía Digital

Sareb, the bank that was formerly chaired by Belén Romana and which, following her resignation, is now led by Jaime Echegoyen (pictured above, centre), is about to close its third year of activity. And it is doing so with a great deal of uncertainty over whether it will be able to fulfil the four main objectives it set itself in 2012.

Those objectives were: to reduce its balance sheet by 44% by December 2017; to repay 49.9% of its €50,781 million ordinary debt by that date; to have sold 45,000 homes, also by that date; and to guarantee shareholder returns of between 13% and 14%.

Unrealistic goals

The majority of its shareholders, even initially, did not expect to receive such high returns. But it seems like the other objectives are not going to be easy to acheive either, above all the main one: to repay €25,000 million of its debt within the next two years, half of which it paid out to acquire its 197,500 assets (more than 107,000 real estate assets and almost 91,000 financial assets).

Despite the work performed over the last three years, and having repaid €8,500 million of the €50,781 million that it must return to the savings banks that transferred those assets, it is a long way from achieving the objective set out for the company’s first five years of operation. To repay half of its ordinary debt between 2016 and 2017, it must fork out around €16,000 million.

Untenable position with increasing interest rates

And all of this is happening in an enviable situation in terms of interest rates, which meant that Sareb was able to reduce its financing costs, by lowering the spread on the renewal of its bonds, at the end of the first half of the year and will do so again at the end of 2015. In the event of an increase in interest rates, which will happen, sooner or later, the situation will automatically worsen.

The first step that Sareb must take to be able to repay half of its debt by the end of 2017 involves reducing its balance sheet by 44%. So far, as at June 2015, it had reduced its assets by just 14%. And then only thanks to the good performance of the financial assets, which decreased by more than €7,000 million, given that, by contrast, the value of its real estate assets has barely changed from the initial balance of €11,357 million.

Minimal reduction in assets

That lack of variation in terms of the value of its real estate assets is due to the fact that the sales that have been made fall well short of the 45,000 house sales forecast between 2013 and 2017, and because the foreclosure of property developer mortgages have ended up increasing the number of properties on the bad bank’s balance sheet.

At the end of 2015, Sareb still owns more than 90,000 of the 107,000 real estate assets that were transferred to it when it was first created, in February 2013, despite numerous campaigns launched in December by both the bad bank and by the servicers entrusted with the sale of these assets.

New accounting circular

And as if that were not enough, the Bank of Spain published a new accounting circular earlier this year. It was both expected and feared by Sareb, and it obliges the bad bank to individually value its assets at market prices, compared with the criteria used when they were transferred, which involved average discounts by asset type.

In theory, the accounting impact of the measure is not expected to alter the revenues streams and, if, as expected, new provisions are required, then they will be drawn from the conversion into capital of the amounts required from the €3,600 million subordinated debt in issue and subscribed to by around thirty investors. Those investors include the State, through the FROB, which is the main shareholder, with €1,652 million, followed by all of the main banks, with the exception of BBVA.

Original story: Economía Digital (by Juan Carlos Martínez)

Translation: Carmel Drake

Metrovacesa To Carve Out Property Development Business

28 December 2015 – El Economista

Metrovacesa will hold an extraordinary shareholders meeting on Tuesday (29 December) to approve its division into two companies, so that it can segregate its entire land, development and house sale business, currently controlled by Santander, into a separate company.

This development activity will be transferred into a newly created company, called Metrovacesa Suelo y Promoción, which will take on assets and liabilities with a net value of €1,000 million.

This new company will have the same shareholders, with the same percentage stakes as Metrovacesa’s currently ownership structure. Therefore, in addition to Santander, which will control 72% of Metrovacesa, the other shareholders with be BBVA with a 19.4% stake and Banco Popular, with a 8% stake.

Meanwhile, the current Metrovacesa company will retain the the real estate business, in other words, it will continue to hold the portfolio of properties (with a combined surface area of 1.1 million m2) comprising office buildings, shopping centres and hotels, mainly located in Madrid and Barcelona, which are operated under lease agreements.

This operation to separate the businesses into different companies forms part of the debt restructuring programme that the real estate company is working on ahead of the “significant maturity” of its liabilities, primary linked to the real estate developer business, which fall due in the third quarter of 2016.

The ultimate goal is to capitalise this debt, strengthen the company’s equity and thereby guarantee the future viability and profitability of the two businesses, according to the company’s comments in its carve-out plan.

Segregation process

The division of the current Metrovacesa entity into two companies will take place through a process involving three successive capital increases, which will be approved at the shareholders’ meeting on Tuesday.

The first increase will be non-monetary, but will involve the shareholder banks contributing certain real estate assets to the company. The second increase will involve the capitalisation of the debt held by these entities for conversion into new shares.

Meanwhile, the third increase will be monetary and will be aimed at the minority shareholders who still hold shares representing 0.073% of Metrovacesa’s share capital, so that their stakes are not diluted.

Once these capital increases have been completed, the new Metrovacesa Promoción y Suelo company will proceed make a block acquisition of all of the assets relating to this business from Metrovacesa.

This final carve-out step will be ratified at another extraordinary shareholders’ meeting, scheduled for 12 January, when the board of the new company will also be appointed.

In this way, Metrovacesa is embarking upon a new phase in its history, years after Santander and other banks took control of the real estate company, by foreclosing the debt held by its former owners, and excluded it from the stock exchange.

Original story: El Economista

Translation: Carmel Drake

Metrovacesa Approves Capitalisation Of €751M Loan

29 April 2015 – Expansión

The real estate company Metrovacesa, owned by Santander, BBVA, Sabadell and Popular, received the green light from its shareholders yesterday to convert a €751 million loan granted by three of its owner banks into equity.

Santander, the primary shareholder in Metrovacesa, which holds a 55.89% stake after it took over Bankia’s shareholding; BBVA, which owns 18.3%; and Sabadell, which owns 13.04%, granted a loan to the real estate company for €751 million in January. Now, the three banks have converted the refinanced loan into shares through this increase. Thanks to this transaction and the sale of its stake in Gecina, Metrovacesa has reduced its debt to €2,409 million, compared with the balance of more than €5,000 million that it accumulated last year.

In parallel to this transaction, a further increase has been agreed, through monetary contributions and pre-emptive subscription rights, for €0.9 million, aimed at minority shareholders.

At their meeting, the shareholders also approved the appointment of four new directors, which means that the management body will comprise 11 members. The new appointments include Rodrigo Echenique, Abel Matutes and Juan Ignacio Ruiz de Alda, representing Banco Santander and Manuel Castro, from BBVA.

Metrovacesa also approved its accounts for 2014. The real estate company reduced its losses by 50% taking its consolidated loss to €186 million compared to €349 million in 2013, according to sources close to the company. Meanwhile, the parent company recorded a loss of €21.6 million.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

New Investment Formula: Buy-To-Let Cooperatives

5 March 2015 – Expansión

Investing in the Spanish real estate sector has been not only an option, but almost an obligation for large investors in recent years, both Spanish and international. But, what about small savers? Do they have any options left to fall back on?

Away from the real estate companies that are listed on the stock market, there is an investment proposal that involves buying homes to let them out. Nevertheless, this model has not been operated on a professional basis in the past. Now, the Spanish company Alquiler Seguro, which specialises in the management of rental contracts for both tenants and landlords, has decided to launch a cooperative project involving homes intended for rental, which are designed precisely for that purpose from the outset. “Last year, we realised that our most frequent transactions involved clients who were owners of some properties and at the same time, tenants of others”, explains Gustavo Rossi, Chairman of Alquiler Seguro. “A change is happening in the market, whereby young people, who are accessing housing through the rental market, are becoming good savers whilst also being tenants”, adds Antonio Carroza, CEO of the company.

The executives of Alquiler Seguro propose that these tenants use their savings to purchase homes, for an average price of €120,000, which offer investment returns after 18-24 months (the time taken to construct the properties). “These are homes that are designed to be rented out; they are expected to generate returns of between 3.5% and 6% and achieve an investment return within ten years”, says Carroza.

Currently, the company has two developments underway, both located in Madrid, in the neighbourhoods of Carabanchel and López de Hoyos. “We have chosen areas where there is demand from tenants and prices (of the properties) are affordable”.

Both developments offer financial support. “Our model is 50% equity and 50% bank financing. Entities are willing to subsidise some of the land purchase since the properties have (already) been sold to the cooperative members”.

“In the case of these two projects, each investor has acquired one home, but the goal is to move towards a model that does not involve horizontal divisions, but rather one in which many investors buy the whole development. We already have several plots of land in our portfolio that we intend to develop in this way”, says Rossi.

It is not the only buy-to-let investment project that the company is working on. “We are also evaluating the possibility of creating a Socimi, where investors contribute assets instead of capital but, at the moment, that is not a profitable model, due to the expenses associated with municipal gains”.

Original story: Expansión (by R. Ruiz)

Translation: Carmel Drake

Hispania And Barceló Create A Resort Hotel Socimi

25 February 2015 – Hispania Press Release

Hispania and Barceló create a resort hotel Socimi (REIT) with 16 hotels and an initial targeted investment of 421 million euro.

The first investment will be the acquisition of 3,946 keys (11 hotels and 1 shopping centre) plus the option to acquire additional assets reaching more than 6,000 keys (16 hotels) and 2 shopping centres currently owned by Grupo Barceló

Hispania will invest 339 million euro for an 80.5% stake in the new company, which will become a subsidiary of Hispania

The new REIT will be the first hotel REIT exclusively focused on holiday resort, targeting a minimum of 12,000 keys in Spain

Hispania Activos Inmobiliarios, S.A. has communicated to the Spanish Stock Market Regulator, CNMV, that its subsidiary Hispania Real SOCIMI, S.A.U, (hereinafter “Hispania”) has signed an agreement with Grupo Barceló (hereinafter, Barceló) for the creation of the first hotel REIT focused on the holiday resort segment; an industry in which Spain is one of the leaders worldwide.

Part of this agreement includes the acquisition by Hispania in an initial phase of 11 hotels (3,946 keys) and 1 shopping centre. Later on, Hispania will have the option to acquire 5 additional hotels (2,151 keys) along with a second shopping centre. The agreement is subject to the successful completion of the due diligence process.

Once the transaction is completed and the option on the 5 additional hotels executed, Hispania will have invested 339 million euro, obtaining an 80.5% stake in the new REIT. Grupo Barceló will maintain 19.5% with the option to reach up to 49% through future capital increases.

Barceló will remain as the operator of the acquired hotels through lease contracts with an initial term of 15 years.

The valuation of the 16 hotels and 2 shopping centres amounts to 421 million euro. It is expected that the REIT, following the execution of the option, will have an initial equity of 187 million euro and a syndicated loan amounting to 234 million euro. Hispania’s capital contribution will amount to a maximum amount of 151 million euro (total attributable investment of 339 million euro).

The initial asset portfolio will have pro forma rental income of approximately 45 million euro (40 million euro pro forma 2014).

The Barceló assets included in this agreement comprise most of its resort portfolio in Spain, located in the Canary Islands, Andalusia and the Balearic Islands; touristic destinations which have had a strong performance during the last few years and are expected to continue consolidating their position in the future. Out of the 16 hotels, more than 90% of the rooms available are 4* category and are leaders in their respective influence areas.

Hispania and Barceló have agreed to invest together an additional 35 million euro in the short term in order to complete the repositioning and updating of some of the properties.

“Spain is the third most important touristic destination in the world, preceded only by France and the United States”, commented Concha Osácar, Board Member of Hispania. “Spain has almost twice the number of resort keys than the United States, as well as a well-diversified tourist base, with British, German and French visitors representing more than 50% of the total. This illustrates the opportunities which the industry offers in Spain”.

The agreement signed between Hispania and Barceló will allow them to start an ambitious plan focused on increasing the portfolio of the new REIT, through hotel acquisitions or incorporations of existing hotels. The purpose is at least, to duplicate the size of the initial portfolio, creating a Spanish resort portfolio managed by different leading hotel operators.

According to Concha Osácar, “our objective and that of our partner Barceló, is that the new entity becomes the first listed REIT focused solely on hotel resorts, with a diversified portfolio in terms of hotel operators, and a steady income base, through lease contracts with a strong fixed income component and enough exposure to the future increase of the Spanish tourism market. The objective of the new REIT for Hispania and Barceló, is to become an instrument with which to attract institutional capital for the Spanish hotel industry, creating new sources of capital for the hotel industry”.

From Barceló’s perspective, “as a result of this transaction, we are creating a solid alliance with one of the most active investors in the industry”. According to Barceló’s CEO, Raúl González, “after this transaction we will be in leading position to benefit from the concentration process that should take place in the Spanish hotel industry”.

Hispania has invested a total of 112 million euros, including capex for 2015, in 6 hotels (5 acquired in 2014 and 1 in 2015) managed by different hotel operators (Meliá, NH and Vincci), which could be included into the new REIT; this decision will be made by the partners during the second half of 2015.

Hispania will have invested 100% of the net proceeds raised

With this agreement, Hispania will have committed a total investment of c. 800 million euros in a total of 44 assets since its IPO on 14 March 2014.

Original press release: Hispania

Edited by: Carmel Drake