Tag: fixed income

Insurers’ Interest In Real Estate Investments Rebounds

10 November 2017 – Grupo Aseguranza

Needs must. That is the main reason that has led – indeed, almost forced – Spain’s insurance companies to look at real estate assets as another, better alternative to achieving additional returns, which are not currently being generated in the financial markets (…).

The second reason that has caused the insurance sector to focus more intently on investment in the real estate sector has been the recovery of the rental market, primarily the office segment, which is where the majority of investments from the insurance sector are targeted (…).

The third reason for the increase in real estate investments stems from the Solvency II regulations. According to this regulation, properties require a provision equivalent to 25% of their appraisal value for capital consumption purposes, which is below those required for other formulae such as variable income, which need almost 50%.

More in Madrid than Barcelona

These 3 reasons have served as fuel to boost investment by insurance companies in properties. (…) In this sense, the stock of properties, measured in square metres, increased by 2.8% during 2016, from 3 million m2 in 2015 to 3.27 million m2 in December 2016. The growth in Madrid amounted to 7.5%, whilst in Barcelona, the figure decreased by 0.3%; in the rest of Spain, it increased by 0.4%.

According to data from ICEA, the Spanish insurance companies hold €287,000 million in their investment portfolio: of those, 3 out of every 4 euros are invested in fixed income and 3.7% is invested in property.

2017 will depend on the buffer required

Miguel Ángel Rodríguez, the ICEA’s external collaborator, in conversation with Aseguranza, highlighted that the increase in real estate investments this year will depend to a large extent on the capital buffer that the insurance companies need to have. The economic conditions are ripe, but the insurance sector is always conservative. The only numerical reference is the survey performed for the report “Real estate investments in the Spanish insurance sector. Data as at 2016”, which shows that only 7% of companies are considering divesting their properties, whilst almost 40% are planning to increase this kind of investment.

The report also asks how the entities are planning to undertake these new property purchases: more than half of them, 52%, are inclined to invest directly, compared to 12% who would do so indirectly, in other words, through investment vehicles. The remaining 36% would combine both methods (…).

Returns of 3%

Another fact that the report measures is the annual operating return on the appraisal value that insurance companies can expect to obtain from their real estate. On average, the figure amounts to 2.9%, with the highest yield being reported in Barcelona (+3.4%), compared to Madrid and the rest of Spain (+2.8%).

By type of property, the highest returns for insurance companies are generated by parking spaces (+4.5%), followed by commercial properties (+4%), offices (+2.8%) and homes (0.1%).

Along with profitability, appraisal values also rose in 2016, by 1.7% per m2. They grew by 1.3% more in Barcelona than in Madrid. Similarly, the vacancy rate stood at 18.8%, almost the same as in 2015. Meanwhile, the average rental income on properties owned by insurance companies rose by 0.3% to reach €12.27/m2/month. In Madrid, rents cost €18.60/m2/month and in Barcelona €12.80/m2/month.

Original story: Grupo Aseguranza (by Manuel Chicote)

Translation: Carmel Drake

Aguirre Newman: Office Inv’t Down As Socimis Less Active

14 July 2016 – Expansión

A smaller supply of assets and less investor pressure, as well the political uncertainty in the absence of a stable Government and the fears of a possible slowdown in economic growth around the world have caused investment in offices in Madrid and Barcelona to dip during the first half of the year.

Specifically, the volume of investment in offices in Madrid amounted to €700 million during H1 2016, which represented a 35% decrease compared to the same period last year (€1,076 million). Meanwhile, in Barcelona, investment decreased by 15% to €270 million, according to a report prepared by Aguirre Newman.

The study highlights that the Socimis, which accounted for between 40% and 45% of total investment volumes in 2014 and 2015, cut back their investment activity significantly during the first half of the year, to account for just 3% of the total. By contrast, one of the most active players during H1 was Colonial.

The Director General of the Investment division at Aguirre Newman, Alejandro Campoy, explains that the Socimis – which have been very active over the last two years – have focused more on managing their acquired assets during the last few months. Nevertheless, he expects them to resume their investment activity during the second half of the year and to account for 15% of total investment.

According to the consultancy firm, the political uncertainty, which should be resolved within the next few weeks, combined with the positive performance of the Spanish economy will benefit investment activity, especially from overseas institutional investors. In this way, it forecasts that investment in offices will amount to between €3,000 million and €3,500 million by the end of the year, albeit below the record reached in 2015, which was boosted by Merlin’s purchase of Testa.

The report reflects that low yields on fixed income, which are actually negative in certain cases, and the high degree of volatility surrounding equities, accentuated by Brexit, means that the appeal of the real estate sector will continue to increase as an alternative for channelling savings.

In terms of the behaviour of rental prices in Madrid and Barcelona, they are continuing the good trend started last year across all of the areas analysed and are expected to continue to rise over the coming months.

Original story: Expansión (by R. Arroyo)

Translation: Carmel Drake

Which Hotels Are Most Sought After By The Socimis?

22 June 2016 – Hosteltur.com

Javier Arús, Head of Investments at Hispania, spoke at a conference last week entitled “Spain: Hotspot for international hotel investment”, organised by the Real Estate Alumni Club of Instituto de Empresa at the IE Business School.

There, he highlighted that the number of operations involving asset repositionings are on the rise, such Hispania’s acquisition of the Ibizan hotel chain San Miguel last week for €32 million. That deal involved the purchase of three mid-range hotels in Ibiza, where significant investments will be made to reposition the properties and convert them into premium assets. This type of operation, “with hotels in very attractive destinations and excellent locations, allows us to develop new products, almost from scratch, and obtain very significant resturns on our investments”, said Arús.

The Head of Investments at Hispania also spoke about the contractual relationships that exist between the Socimi and the operators of the hotels it has acquired to date. He stressed his firm’s preference for mixed lease contracts, which guarantee a minimum level of rental income and offer a variable rental income component to complement the fixed revenue stream. (…).

Meliá’s commitment

Meanwhile, Ángel Luis Rodríguez, Vice-President of Portfolio Management at Meliá Hotels International confirmed that the hotel chain is not currently entertaining the possibility of structuring its assets under a Socimi framework. Rather, the firm has committed itself to the creation of a very specialised real estate manager within the existing company structure, without any need to legally separate the hotel manager’s assets. Moreover, it is focusing its efforts on investing in technology and in core assets. 80% of the hotels in its portfolio operate under management frameworks.

Rodríguez agrees with Javier Arús that there are excellent opportunities to be had from “measured” repositioning of vacation hotel assets. By way of example, he described Meliá’s Calviá Beach project and highlighted the increase in value and quality that it has represented for a tourist destination such as Magaluf. There, the chain, which operates 3,200 rooms, has adopted a deliberate strategy that has allowed it to increase RevPar (revenues per available room) in the area by between 70-80% in a short period of time and with a very limited Capex investment.

Its brand-focused strategy is allowing the company to “enjoy a ‘virtuous circle’: brand strategy + investment in repositioning = increase in ARR (average room rate) and RevPar – Greater client satisfaction and loyalty – Increase in asset value – Better segmentation of customers – Higher direct sales – Higher Returns”.

The three speakers (Javier Faus, President of Meridia Capital also spoke), all experts in the hotel sector, agree that Spain may be able to maintain the level of growth in the hotel sector, if its supply is renewed and updated to reflect the expectations of international tourists, who are genuinely very fond of our country. They also highlight the importance of professionalising the operation of assets and investing in technology to deepen client knowledge and loyalty.

Original story: Hosteltur.com

Translation: Carmel Drake