Tag: ibex 35

The Socimis Consolidate Their Positions As RE Kings

1 April 2016 – Cinco Días

When the Socimis began to emerge timidly in 2014, few thought that they would become the key and crucial factor behind the change in the real estate cycle in Spain. The four largest companies alone, excluding the dozen other companies listed on the Alternative Investment Market, have managed to double the value of the properties that they own in the last year, to take the total to €9,235 million.

The key behind this change has been two-fold. Firstly, the acquisition that the Socimi Merlin Properties closed last year, of Testa from Sacyr, which doubled its size. Secondly, the large number of international funds that have relied on these Spanish managers to enter the domestic real estate market, where opportunities are now arising after the tough years of the property crisis.

Socimis are a type of company that is exempt from paying corporation tax in exchange for having the obligation to distribute dividends each year. Their structure is similar to the more established Anglo-Saxon REITs, which control properties that are leased out (offices, shopping centres, hotels..). The most obvious risk is that they drive up the prices of these kinds of assets, because they set short-term timeframes for investing the money they raise from investors.

Merlin Properties

The largest of these companies in Spain is Merlin Properties, chaired by Ismael Clemente, an experienced former director of Deutsche Bank. This Socimi has managed to sneak into the crème de la crème of the business world by listing on the Ibex 35 since the beginning of the year. Almost all of the funds that control its capital are international, with very diluted individual shareholdings. The largest block belongs to BlackRock, which owns a 5% stake.

(…). Merlin’s portfolio amounts to €6,052 million, and comprises offices (36%), retail premises (31%), shopping centres (11%), hotels (6.6%) and residential assets for lease (4.8%). (…). In December, the entity announced that it expects to issue bonds with a BBB rating. The company currently has a market capitalisation of approximately €3,370 million.

Hispania

Thanks to its partnership with Barceló, Hispania has become another one of the major players in the sector. (…). In total, Hispania now owns properties amounting to more than €1,425 million, comprising hotels (59%), offices (29%) and residential properties (12%). (…).

The multi-millionaire George Soros owns 16% of the company, meanwhile John Paulson owns a 9.9% stake. (…).

Lar España

One of Lar España’s most recent operations has been the announcement that it will invest €145 million in the construction of Sevilla’s largest shopping centre. The Socimi, managed by Grupo Lar, has gradually specialised in these types of assets, which now account for almost 70% of its business volume.

The company is currently listed with a market capitalisation of €340 million. Its other assets include a small residential portfolio (7%), as well as logistics assets (8%) and office buildings (17%).

Axiare Patrimonio

The company is led by Luis López de Herrera-Oria, a veteran in the real estate sector (…). Its shareholders include several funds – also international – such as Citigroup, Deutsche Bank, Gruss, JP Morgan Chase, Perry Partners and Pelham Capital.

It has doubled its portfolio of assets in the last year to €859 million, thanks to the appreciation in the value of its assets and new acquisitions. 72% of its portfolio relates to offices and 15% comprises logistics assets.

Original story: Cinco Días (by Alfonso Simón Ruiz)

Translation: Carmel Drake

Merlin Delays Hotel Portfolio Sale Until June 2016

23 December 2015 – El Economista

Merlin Properties is certain that it wants to divest the hotel portfolio that it inherited from Testa, the former real estate subsidiary of Sacyr, which it acquired in June for €1,800 million, from its balance sheet within five years. Nevertheless, the company expects that it will not begin the sales process until the second half of 2016. The reason for its decision to delay this divestment until June is a question of regulations.

The aim of the Socimi was to use the money from the sale to reduce its indebtedness, which amounted to €2,939 million at the end of the third quarter, and to undertake new investments. The problem is that according to the rules that apply to Socimis, Merlin must allocate at least 80% of its profit from the sale as extraordinary dividend, which does not fit with the company’s plans.

“We are analysing other legal options to avoid this. Our analysis and its implementation will take some time”, explain sources at the group.

One of the possible options includes the launch of a new Socimi that will be dedicated solely to the hotel business; another includes the creation of a company containing all of these assets, which would then be sold and, in that way, the hotels would be sold all together, without the need to allocate 80% of the profits to shareholder remuneration.

According to Fernando Lacedena, CEO of Testa, the Socimi is focusing on the integration of both companies at the moment, “that is our primary objective”.

In addition, Merlin has just completed the refinancing of €1,700 million of Testa’s debt with a group of ten entities and it is preparing itself for a €850 million bond issue.

Sale of Testa Residencial

The Socimi, which has just joined the Ibex 35, has also launched its divestment of Testa Residencial. In this case, the tax considerations do not apply in the same way, since the 1,519 homes and 26 retail premises that it has put up for sale all sit within a separate company.

“The residential business is very ordered within Testa, it all sits within a single entity and therefore, the operation does not involve the movement of any assets or the transfer of any shares”, says Lacadena, who says that “this makes the transaction a lot easier, since it does not involve the partial divestment of some assets to one investor and other assets to another investor”.

The completion of this operation, which could amount to €280 million and is known as Project Crete, was scheduled for this year, however, even though “there has been lots of interest”, Lacadena explains that it may be delayed until the beginning of next year.

The Director explains that the price is not a critical element in this sale, however, like in any process, there are certain details that must be agreed. In this case, the company has an associated debt, which amounts to €100 million and therefore, “we need the financial institutions to be open to changing the ownership of that debt (before we can proceed)”.

Moreover, the sale of Testa Residencial will involve the transfer of the professional team that manages the business. In total, the workforce comprises around 40 people, between the Servicers and the Residential team. In this sense, the Director was keen to highlight that the integration of the two companies will not result in any redundancies.

Original story: El Economista (by Alba Brualla and Javier Mesones)

Translation: Carmel Drake

Merlin Properties Will Join The Ibex 35 On 21 Dec

11 December 2015 – El Boletin

Spain’s stock market index has 35 members once more. The Socimi Merlin Properties is going to join the Ibex 35, taking over the vacant spot left by Abengoa following its expulsion after it requested to file for creditor bankruptcy in light of its dire financial situation.

The Socimi will join the index on 21 December. The adjustment to the Ibex 35 will happen once the trading session has closed on Friday 18 December (…). In this way, the withdrawal of the Sevillian renewable energy company, which had been expected to be a temporary measure, takes on a more definitive character.

Moreover, three companies are changing their applicable coefficient for the calculation of the key indicator on the Spanish stock market. CaixaBank and Indra will both take on a coefficient of 80% instead of the 60% and 100% that they previously held respectively, as a result of recent changes in their shareholder groupings. OHL will also see its weight reduced as it decreases its capital from 80% to 60%, according to a statement by the Technical Advisory Committee (‘Comité Asesor Técnico’ or CAT) of the Spanish stock market.

Both Merlin Properties, the star of the recent acquisition of Testa Inmobiliaria, the former real estate subsidiary of Sacyr; and Cellnex, the former telecommunications subsidiary of Abertis, were heavily tipped by the experts to be the candidates to take over from the Andalucían renewable energy company.

On Thursday, Merlin’s shares suffered a 1.27% decrease, falling to €11.66 per share. Nevertheless, so far this year, the real estate company’s share price has increased by more than 16%, during which time the Ibex 35 has lost 4.7% of its value.

Original story: El Boletin

Translation: Carmel Drake

Listed RE Companies Worth More Than €9,000M

12 June 2015 – Expansión

The real estate sector is in fashion on the stock market. Merlin’s recent agreement to purchase Testa is in itself testament to that. After years of decline, the expected growth of this sector has encouraged many investors, including large property magnates such as George Soros and Carlos Slim, to look for opportunities in RE shares, which were hit very hard during the crisis.

The fourteen real estate companies that are currently listed on the Spanish stock market – excluding those that have been suspended from trading – have all recorded gains in 2015, with increases exceeding 30% in the cases of Quabit, Inmobiliaria Sur, Realia and Montebalito. The positive sentiment in the sector has enabled the joint market capitalisation of the twelve listed Spanish real estate companies to reach €9,009 million, up 31% from the €6,821 million recorded at the beginning of the year. That is the highest figure recorded since 2009, but it falls far short of the €30,000 million that the 14 listed real estate companies in Spain were trading at when the crisis began in July 2007.

The recent resurgence in the Spanish real estate sector has been very closely related to the debut on the stock exchange of the Socimis – companies that are dedicated to the business of real estate rental and focus on paying dividends to their shareholders. In fact, the largest real estate company by market capitalisation on the Spanish stock exchange is a Socimi, Merlin, with a value of €2,248 million, which may increase when it finalises its purchase of Testa. The company, which began trading on 30 June 2014, has increased in value by more than 28% since its IPO, and some analysts have already placed it in the pool of possible securities to join the Ibex 35. The real estate sector has not been represented in the selective index since Colonial’s departure in April 2008.

Moreover, Colonial is now the second largest company in the sector, with a market capitalisation of €2,205 million. The company has benefitted in recent years from the entry of important investors (into its share capital), led by the Villar Mir Group. Its value has increased by more than 140% since 2014.

Original story: Expansión (by A. Monzón)

Translation: Carmel Drake

Political Uncertainty and Populism Threaten RE Recovery

1 June 2015 – El Economista

The electoral success of Manuela Carmena (Ahora Madrid) in Madrid and Ada Colau (Barcelona En Comú) in Barcelona has started to take its first victims in the real estate sector. Barely a week has passed since the elections and “some investors have already suspended deals to purchase property in Spain”, warn certain sources close to the negotiations.

The uncertainty regarding the possible political agreements has hit the property sector hard, “just when it was starting to recover”. In Madrid and Barcelona alone, large urban projects amounting to €14,000 million have already been called into question.

Major construction companies, financial institutions and large international funds are involved in these developments, including the Chinese magnate Wang Jianlin, who came to Spain with plans to invest around €4,000 million and who now see his real estate plans for the country being endangered.

“Right now, the sector is beginning a process of paralysis in certain segments. All of the investors are waiting for the possible political agreements to be settled so that they can carry out transactions”, explain sources in the sector.

“The is a great deal of uncertainty and considerable ungovernability in many cases, as well as expected increases in taxes and public spending, coupled with the suspension of forecast investments, which may result in the withdrawal of foreign capital”, they warn.

This situation may result in “an important step backwards for the emerging recovery”, given that it comes at a time when the real estate sector was really beginning to take off; record levels of investment were recorded last year. Before the elections, experts predicted that the level of transactions was going to continue (this year), but following recent events, “it is now very difficult to make forecasts”. These warnings coincide with others made this week by several important businessmen, such as the Chairman of OHL, Juan Miguel Villar Mir, who said that (political) groups such as Podemos put Spain’s economic recovery in danger. In a similar way, the markets have penalised the election results and the Ibex 35 recorded a loss of 2.91% last week.

(…)

The urban plans proposed by Carmena and Colau leave most of the major projects, both those already underway as well as those still to be awarded, up in the air. In Madrid, they endanger million-euro developments such as Operación Chamartín, the Madrid Río shopping centre, Operación Mahou-Calderón, the Canalejas complex, Operación Edificio España, la Ciudad de Justicia and even Operación Campamento.

Whilst in Barcelona, projects such as La Maquinista and Heron City shopping centres, the refurbishment of the Nou Camp and urban developments in the surrounding area, the ski slope in the free trade zone of Barcelona SnowWorld and the conversion into hotels of iconic buildings such as Torre Agbar, the Deutsche Bank building on Passeig de Gracia or Project Núñez i Navarro are also at risk.

(…)

Original story: El Economista (by Alba Brualla and Javier Mesones)

Translation: Carmel Drake

The Top 7 Banks Reduce Their Exposure To Toxic RE Assets

3 March 2015 – El País

In 2014, loans to property developers and the overall volume of unpaid debt held by the top 7 banks decreased significantly, whereas the number of homes and plots of land they held increased.

Spain’s real estate bubble was largely a credit bubble. The excess amounts committed during the boom years subsequently gave way to a severe economic and financial crisis that forced Spain to ask its European partners to come to the rescue, to clean up the majority of its savings banks. The large banks were not immune from these excesses, but their higher levels of diversification, their capacity to attract private capital and their more professional management limited the damage (they suffered). All of this meant that even the healthy entities have had to undertake long and expensive clean up processes, which are still on-going for the most part. As part of this process, Spain’s listed banks managed to reduce their overall volume of problem real estate assets for the first time in 2014, according to data from their recently published annual reports.

The seven banks that form part of the IBEX 35 index (Santander, BBVA, CaixaBank, Bankia, Sabadell, Popular and Bankinter) closed last year with non-performing and substandard loans to property developers and unpaid homes, plots of land and other real estate assets amounting to €125,000 million. That balance represented a reduction of €7,000 million compared with the previous year. These are gross figures. If we look at the volume of provisions, the volume of as yet uncovered toxic risk decreased to just under €65,000 million, having decreased by €4,000 million in one year.

Overall, the reduction in toxic assets was exclusively driven by loans, since the real estate assets held by the banks (homes, developments, plots of land and shares held in real estate companies) continued to increase despite the fact that the entities have also been stepping on the accelerator in terms of sales. The banks are still seizing, foreclosing and receiving deeds in lieu of payment, for more properties than they are managing to sell.

A large proportion of the debt from the bubble is completing its cycle in this way. The banks have increasingly less exposure in terms of loans to property developers; the amount held by these seven entities decreased from €85,179 million to €68,086 million during the year. Furthermore, the volume of loans to property developers classified as normal, or up to date, also decreased. Now, only €18,000 million of these loans are considered as healthy, i.e. a quarter of the total. A large proportion of the loans went from being healthy to substandard or non-performing. And from there, to being written off (when loans are removed from the balance sheet and 100% of the losses arising from non-payment are provisioned) or to being classified as foreclosed properties (due to the foreclosure of the property or the handing over of deeds in lieu of payment). In 2013, only the volume of healthy loans decreased; doubtful and foreclosed debt increased, i.e. the volume of toxic assets grew. In 2014, the volume of non-performing loans decreased so significantly that, although the number of properties increased, the overall volume of “potentially problematic” real estate assets (as defined by the Bank of Spain) decreased for the first time. Until now, the only reduction in toxic assets (or rather transfer) happened when the banks transferred much of their developer exposure to Sareb, the bad bank.

In terms of properties, the largest increase related to plots of land, the asset that it is hardest to market. The banks have made provisions against almost 60% of the original value (of the plots of land they hold), but some plots have lost even more of their value and the entities are still reluctant to sell at a loss. There is barely any demand, transactions are relatively scarce and the banks are still seizing land from property developers unable to repay their loans. Thus, the volume of land in the hands of the seven IBEX 35 banks closed 2014 at a record high of €28,127 million, up €2,500 million compared with the end of 2013. Given the difficulties the banks are facing to find developers to purchase this land for construction, they are starting to adopt formulas that allow them to share the risk with the developers in exchange for providing the land.

The number of homes coming from from unpaid mortgages is also increasing. Specifically, the volume increased by €1,000 million last year, to €14,161 million. In this case, the increase was largely due to a delay in foreclosures. Procedures to seize homes that began at the height of the crisis are only now reaching their conclusion, even though the mortgage default rate seems to have already hit its peak.

The picture is also very different between the entities. Bankinter holds the badge of honour; it was the only one of the seven entities that avoided the temptation of the housing bubble. Its exposure to the sector was extremely low and it has hardly any doubtful debts or foreclosed properties. Next in line is Bankia, although in this case, the clean up of its balance sheet is less impressive: since it was achieved through the transfer of the bulk of its toxic assets to Sareb and the acceleration of the provisions against those assets that remained on its balance sheet.

Of the major banks, the entity that has done the most to clean up its real estate exposure is Santander. Its toxic property assets now account for only 15.3% of its lending to the private sector in Spain and just 1.5% of its consolidated assets. One step below are CaixaBank and BBVA. The entity chaired by Isidro Fainé has the highest level of provisions and the bank led by Francisco González benefits greatly from the international diversification of its business.

Sabadell is a special case. It appears to have high exposure to toxic assets, but a significant portion is covered through an asset protection scheme (that it acquired) when it purchased CAM. The entity with the most work left to do on the clean up front is Popular. Even though it has boosted the sales of homes, it has the highest volume of toxic assets and the lowest level of coverage of any of the seven entities.

Original story: El País

Translation: Carmel Drake

Big Banks Record Losses Of €3,600m, Hit By Real Estate

9 February 2015 – El Mundo

The Ibex-listed financial institutions have doubtful balances and a portfolio of foreclosed homes amounting to €120,000 million.

During 2014, they sold more than 20,000 properties for a combined value of €11,700 million.

It will take Spanish banks two more years to “digest” the property binge that they enjoyed during the years of economic boom. The annual accounts of the listed entities – with the exception of Bankia, which has not yet published its results – show that, despite the recovery in the banking sector, the real estate sector continues to be a heavy burden – it generated losses of more than €3,600 million in 2014.

The indicators show signs of optimism, including the decrease in the default rate – which currently stands at 12.75% for the sector as a whole – and the decrease in doubtful assets by more than €20,000 million over the last year. However, the banks recognise that their exposure to the real estate sector will continue to be a hindrance throughout 2015 and 2016 at least, two years during which the market is expected to absorb most of the foreclosed assets (amounting to €60,000 million) accumulated by Santander, BBVA, Caixabank, Bankia, Sabadell, Popular and Bankinter.

The gross credit exposure to developers of these seven entities (all of which are listed on the Ibex) amounted to €103,000 million at the end of last year, although it should be noted that the figure for Bankia relates to the third quarter 2014.

From this quantity, just over €61,000 million is classified as doubtful (i.e. a non-payment of some kind has been recocorded) or sub-standard (credits that are currently being paid, but which are expected to go into arrears). According to the entities, this figure is lower than last year, due to the refinancings, recoveries and maturities that have taken place over the last year. But it is still a volume that requires a significant provision balance to cover the potential losses. Overall, the seven banks analysed recorded a total coverage against doubtful debts of €38,900 million at the end of 2014.

Last year was the first year in which the entities significantly reduced their provision coverage, following five years of crisis. “The results from the real estate sector clearly show the less negative impact that has resulted from the clean up of loans to developers and foreclosed real estate assets” says BBVA, a bank that recorded losses of €876 million in this area. Despite the size of the figure, it is 30% smaller than the €1,252 million losses recorded by the entity a year earlier.

Caixabank is the entity whose results have been hardest hit by the activity in the real estate sector. On 30 January, its CEO, Gonzalo Cortázar, predicted that the housing burden would have an impact on its financial results in 2015 and 2016 that this impact would “still be significant, although the digestion will be prolonged on a decreasing scale.

Santander has managed to reduce its loans to developers by 34% in the last year and has increased its coverage to 54%, but its annual results are still negative, with the entity led by Ana Botín recording a loss of €583 million.

Sabadell’s losses were even greater – €999 million and it has a gross exposure to the real estate market of €26,958 million, the highest in the sector, taking into account the foreclosed assets of CAM.

Fewer discounts

Bankia, Bankinter and Popular do not publish results about their respective real estate businesses. Popular is the bank that holds the greatest number of problem assets (doubtful and foreclosed assets) in proportion to the size of its balance sheet. It has loans amounting to €13,061 million in this category, with a coverage level of 44%. But the figures that really jump out are the volume of foreclosed homes, developments and land (€14,169 million) held by the entity, which closed the year with sales of €1,503 million.

Last year, some entities sold some of their house sale divisions. Altogether, these seven entities offloaded more than 20,000 units for a total value of €11,700 million. Sabadell was the most active bank in terms of house sales, generating €2,744 million. Various sources agree that 2014 was characterised by a reduction in the discounts applied, which in some cases, meant that the income received was actually higher than the recorded book value.

Some entities, such as BBVA and Sabadell, have an Asset Protection Scheme (Esquema de Protección de Activos or EPA) in place, following their acquisitions of Unnim and CAM, respectively. This insurance allows them to cover any additional deteriorations on their balance sheets over the next few years, through the Frob. Sabadell has recognised that it may start to use this financial cushion this year.

With the exception of Bankia, none of these companies has transferred assets to Sareb, the bad bank that absorbed loans to developers, and foreclosed homes and land, from entities that received public aid in the rescue of 2012.

Original story: El Mundo (by Javier G. Gallego)

Translation: Carmel Drake

Bami Newco Files For Voluntary Liquidation

30 January 2015 – Inmodiario

Bami Newco, the real estate company controlled by Joaquín Rivero, which filed for bankruptcy in mid-2013, has now filed for liquidation, according to a ruling issued by the Commercial Court number 2 in Madrid. The company, which has debts of €652 million, proposed its liquidation under the Bankruptcy Law, after it was unable to reach a refinancing agreement with its lender banks.

Bami holds assets amounting to €726 million to meet its liabilities, according to a report published by the insolvency administrator in mid-2014.

The company was founded in 2007 after exiting Metrovacesa’s share capital, a real estate company in which Bami become the controlling shareholder following the takeover it launched in 2004.

The new real estate company voluntarily filed for bankruptcy after, at the end of 2012, Rivero and the Soler family also declared bankrupt the companies through which they channelled the stakes (16.6% and 15.6%, respectively) they then held in the French real estate company Gecina. In 2013, they sold the debt linked to those investments, which were guaranteed by Gecina’s own shares, to the funds Blackstone and Ivanhoé Cambridge.

The company voluntarily filed for bankruptcy after failing to reach a long-term refinancing agreement with its bank syndicate that would have given it the financial stability necessary to continue its activity.

The company has a portfolio of office buildings located in the North of Madrid, totalling 127,500 square metres, with an average occupancy rate of 90%, backed by long-term contracts with highly solvent clients, including several Ibex 35 companies. Moreover, the company had plans to construct two buildings in the “Adequa” business park, which would have resulted in an additional 27,000 sqm.

Bami closed 2012 with a loss of €15 million, as a result of the cancelation of its derivative hedges and the impairment loss it recorded on buildings that had not yet become operational.

Despite having paid the interest on its debt on a timely basis since its constitution, and although most of its debts were due to mature this year, the real estate company decided that filing for bankruptcy was essential, since without long-term, stable financing, the business will be unable to develop its property portfolio and carry out its projects.

Original story: Inmodiario

Translation: Carmel Drake

Gomez-Pintado: “We Will See Real Estate Companies On IBEX 35 Again”

8/01/2015 – Expansion

Juan Antonio Gomez-Pintado, the newly named chairman of Madrid’s Association of Developers, abbreviated to Asprima by its name in Spanish, holds a degree in Economics from the Esite business school and a Master degree in Real Estate and Construction Management.

Mr Gomez-Pintado (pictured) stepped into the chairman’s shoes when long-standing president Jose Manuel Galindo had left.

His ample, 30-year experience in the sector, first acquired in family office Agofer and then in Via Celere, pushed him to take an immediate decision about reorganization of the association’s structure.

“We must overcome an organizational paralysis. Before the recession, we had 276 members and now we are only 70. Our number-one goal is to get back our associates, and we have been doing it successfully so far. Some people disagreed with the previous management and now they are returning”, pointed out Mr Gomez-Pintado. The executive hopes to band together “125 to 150 members”.

Apart from getting the number of real estate firms back, Asprima’s new head works on better image of the entire industry. “I want to show a positive picture to the future society. We significantly contribute to job creation and the Spanish GDP. True, there have been some shameful cases, but that happens in every sector. The Public Administration has demonized us a lot”, he assures.

“We are an essential tool for Spain’s economic recovery as the industry encompasses 1.2 million jobless people”, the chairman adds.

The new growth stage has nothing to do with the previous boom. “We will be much more reasonable and instead of 800.000 homes, we will build 225.000. Besides, we will focus on the rehabilitation business and the Socimis” (REITs).

In this context, Mr Gomez-Pintado believes that the new players in the sector like Real Estate Investment Trusts or Socimis or servicers will play a relevant role in this beginning chapter for Asprima. “The Ibex 35 [the benchmark stock exchange market index of Spain’s principal bourse, translator’s note] will illuminate with big property managers again. On one side, there are the banks which have sold their REO platforms and now can go for trading, and on the other, there are the international funds teaming up with local companies [like Monthisa and Lar] to generate value within five-to-seven years”.

Next, Asprima will modernize and recycle both the member companies and the businessmen. To achieve that, the association will put a pressure on exchange of the knowlegde among the associates, something not practiced ever before. “We need all the real estate firms to be the leading ones because only one of such cannot be running the sector”, the chairman concludes.

 

Original story: Expansión (by Rocío Ruiz)

Translation: AURA REE