Tag: margins

Hotels Suffer from the First Decrease in Overnight Stays since 2012

24 January 2019 – Expansión

The record number of tourists registered in 2018 has not removed the bitter taste from the mouths of Spanish hoteliers, who are starting to suffer from symptoms that the sector is worn out. In 2018, Spanish hotels recorded the first decrease in the number of overnight stays in six years. A moderate decrease, of –0.1%, according to data from INE, but one that has not been seen since 2012, when Spain was in the midst of the financial crisis.

Spain is receiving more tourists than ever, and they are increasing their spending year on year, but they are also gradually reducing their average stay, and some of the demand is opting for alternative destinations, such as Turkey, which are competing on price, which is eroding the margins of many hotels at home (…).

According to data from Exceltur, Spain lost 21 million overnight stays in 2018, due to a decrease in the average stay. The boom in low-cost airlines, amongst other factors in the sector, has favoured the democratisation of tourism. Increasingly more people are travelling, but they are doing so for shorter periods. Whilst in 2008, the average stay was 9.4 days, it is now 7.4 days.

That change can be observed most easily amongst overseas tourists, who account for 65.8% of overnight stays and who decreased the number of nights spent in Spain by -0.4%, whereas domestic tourists increased their overnight stays by +0.4%.

The change in trend is being observed primarily in the traditional beach and sun markets, and in the most important months for the sector, in the height of the summer. In the Canary Islands, the primary destination for international tourists, accounting for almost one third of all overnight stays, visits by foreigners decreased by 3.6%(…).

According to explanations provided recently by the Head of Research at Exceltur, Óscar Perelli, these decreases reflect “the recovery of competitor countries”. Hotels, especially those on the beach, are being affected by competition in terms of prices from countries such as Turkey, Egypt and Tunisia. Those markets have recovered around 12 million tourists in recent years and they are still 20% below the levels they reached before their own crises (…).

Travellers from the United Kingdom and Germany account for 46% of all of the overnight stays made by non-resident visitors, and yet, there was a -0.9% decrease last year in the case of British tourists.

As a result, many hotels are trying to compete through promotional packages and cost reduction policies, and so prices barely increased in 2018. The Index of Hotel Prices from INE reflects a 1.5% increase in hotel tariffs, barely three decimal points above inflation for the year, making it the lowest rise in prices since 2013.

In terms of tourists who increased their hotel stays by the most, those who have to travel long distances, including visitors from the US (6.1%) are also the travellers who spend the most (€113 per tourist per day, compared with €98/tourist/day for those visiting from traditional markets), and so representatives in the sector recommend focusing promotional strategies to attract tourists from those countries.

Original story: Expansión (by Inma Benedito)

Translation: Carmel Drake

Neinor Evaluates Rental Market but Insists on Maintaining its Margins

31 October 2018 – El Economista

Neinor Homes sees a clear business opportunity in the rental market in Spain. Nevertheless, it is not going to enter the segment if doing so would reduce its profit margin.

That is according to Juan Velayos (pictured above), the CEO of the firm, who indicates that Neinor “must be clear about what it is and what it wants to be, and we want to be a property developer, and as such, our profitability is sacred”. On that basis, Velayos recognises that “there is a clear business opportunity in that sector and very few companies have the capacity that we have to produce rental homes”.

In fact, he says that “many players who want to take positions in the rental market are approaching us, and although I am not going to close an operation tomorrow, we are evaluating lots of options, whenever they are coherent with our business model. Common sense tells me that we ought to be capable of meeting that need in the market and for the business to be profitable for Neinor”, said Velayos.

The property developer, which had managed to multiply its operating EBITDA by four by the end of September, to reach €9.5 million, expects to close this year in the black, “in a comfortable way”, highlights Velayos, who believes that the firm’s EBITDA at the end of December will amount to around €50 million, in line with the consensus of the market.

At the end of September, the firm had recorded a loss of €1.2 million and revenues of €156 million. “The most interesting aspect is that €100 million of that turnover came from the development arm, whilst €32 million came from the Legacy business and €23 million from Servicing”, highlights the director.

Neinor has committed to handing over 1,000 homes this year, spread across 14 promotions. “Nine of them have already been handed over and during the last quarter, the keys to the remaining five will be handed over, given that they now have their final construction certificate”, specifies the director, who assures that the 1,000 units are almost all pre-sold. “We only have 2% left, which we have not been marketing because we are waiting until the end to maximise the price of the best units”.

“We have been on a journey that has involved a lot of work over the last three years and now we are starting to hand over a significant volume of homes, which actually represent more than all of our major competitors put together. Neinor started first and so now we are reaping the rewards”, highlights Velayos.

Specifically, the company has an order book comprising 3,049 homes, which represent a volume of pre-sales of €1.019 billion. Moreover, comparing units with the same characteristics, the property developer has managed to achieve an 8.2% increase in prices and has also increased its margin to 28%.

That has allowed the firm to handle rising construction costs, which have increased by 3.8%, without any problems. Those costs “are expected to continue to rise, by 6%, but we will also seek to increase our margins”, says Velayos.

For next year, the company has set itself the target of handing over 2,000 homes in 31 developments where building work is already underway. “We also have some very solid pre-sales figures for 2019 of 78%; and the rest are not being marketed, given that the best way of protecting our margin is to wait to sell those units”, explains the CEO of Neinor (…).

Currently, the company has one of the largest land banks with capacity for 13,700 homes (…).

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

Socimis & Property Developers: Two Sides of the Same Coin

4 March 2018 – Expansión

Property developers and Socimis are two sides of the same coin on the stock market. The two large segments of the listed real estate sector in Spain are moving at different speeds on the stock market after the 2017 results season. Whilst the Socimis, which specialise in the rental of non-residential buildings, are maintaining their cruising speeds, the purely residential property developers are being punished by investors, especially in the case of Neinor.

The company led by Juan Velayos has recorded a share price decrease of 18% this year, reaching its lowest levels since it started trading on the stock market at the end of March last year.

The property developer has just presented its results for 2017, which reveal that it registered a loss of €4.6 million despite generating revenues of €225 million. Moreover, just €77 million of the revenue figure proceeded from the property development business, with the delivery of 313 homes, a rate that is well below the 4,000 units that the firm promises to reach within two years (2020). For 2018, its objective is to hand over 1,000 homes. Investors have penalised the announcement that the company is not going to be able to maintain the volume of house deliveries forecast in its initial roadmap either this year or next.

Punishment

The market’s reaction against Neinor has been virulent. “The time it takes to obtain licences is getting longer and the curve of expected deliveries for 2019 is being delayed until 2020”, explains Velayos, who acknowledges that “we measured poorly”. The company has revealed that it is going to change its strategy of buying only “finalist” land (plots that already have the necessary licences for development) and is going to invest €200 million buying land under management, which is more abundant in terms of supply but which will involve much longer construction times.

Like Neinor, Aedas is also trading below its debut price on the stock market. Its share price has lost just over 9% of its value so far this year and did not vary following the results. During its first year of activity, the real estate company created with land purchased by the fund Castlelake over the last few years recorded revenues of €38.6 million, with a net margin of €12.2 million and a loss of €40.1 million. The losses are due primarily to non-recurring expenses relating to the company’s stock market debut, which had a negative impact of €31.55 million, and a one-off cost of €26.1 million linked to the incentive plan for senior management (…)

Following the cumulative punishment this year, the discount on the net value of their assets amounts to around 5% in the case of Neinor and reaches the double digits in the case of Aedas. But, are they attractive prices? (…). For the time being, analysts are maintaining their ‘buy’ recommendations for the pair (…).

Moreover, the experts consider that both Neinor and Aedas have a bullish potential of around 35% from their current levels (…).

In the case of the classic real estate companies, the results have been varied. Quabit (…) saw its turnover decrease significantly, by more than 80%. The company has handed over just six homes this year, after years focusing on its financial restructuring and the sale of its stock. Now, it has launched an ambitious business plan, which will allow it to resume its property development activity and its share price is up by 6% on the stock market so far this year.

Meanwhile, the Socimis are experiencing a different reality. The four large real estate investment companies (…) debuted on the stock market in 2014 with a combined valuation of €2.6 billion and no assets on their balance sheets. Now, their combined market capitalisation stands at more than €9.3 billion and their portfolios are worth more than €18.6 billion. Including Colonial, the combined profit of these companies has grown by almost €1 billion YoY.

The valuations of the Socimis are much more adjusted. The large players have closed the first two months of the year with share price gains of between 4% and 5%, with the exception of Axiare, which has been limited by the takeover price set by Colonial (…).

Original story: Expansión (by Rocío Ruiz and Enrique Utrera)

Translation: Carmel Drake

Neinor Homes Had 60 Active Developments During Q1

27 April 2017 – Observatorio Inmobiliario

Neinor Homes accelerated its development activity during the first quarter of 2017 by beginning construction of three developments and launching another seven. By the end of the period, it had 60 active developments, corresponding to almost 4,000 homes, according to a statement made by the Company in the presentation of its quarterly results to the CNMV. The reported margin of the work-in-progress projects was around 22% higher than the Company’s target margin.

Juan Velayos, CEO of Neinor Homes, highlighted that “the company has had a magnificent performance during the first quarter, placing it well on the path to fulfil the objectives for the year. Pre-sales have been exceptionally high in what is traditionally a slow quarter. The acquisition of land is continuing with margins exceeding targets and the company’s development activity is accelerating, focused on protecting the margin. One development was successfully completed and the complementary lines of business are continuing to generate cash to finance the growth of the development activity”.

At the presentation of its quarterly results, Neinor Homes also highlighted the acquisition of seven buildable plots of land for €51.6 million for the construction of almost 700 homes. According to the company, all of the acquisitions have a target margin of around 20%.

The property developer also declared pre-sales worth €116 million, relating to 319 homes during the first quarter. The cumulative pre-sales for the year “exceed expectations by 60% in terms of volume and by 46% in terms of the number of homes. The company recorded a 4.5% increase in prices during the quarter and cumulative pre-sales amounted to €483 million and 1,511 homes”, according to its results report.

Meanwhile, the company reported that “the complementary lines of business are continuing to generate cash to finance the growth of the development activity: legacy sales amounted to €57 million, 1% above their accounting value and 41% above the cumulative forecast for the year. Servicing generated revenues of €6.5 million, 4% higher than the cumulative forecast for the year”.

Original story: Observatorio Inmobiliario

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

C&W: Spain Will Be A Key Country For RE Lenders In 2016

22 February 2016 – Mis Oficinas

Spain will continue to represent a very attractive market for entities wanting to lend money to the real estate sector in 2016, according to “The European Lending Trends” report published by Cushman & Wakefield, the global leader in real estate services. This conclusion has been drawn on the basis of surveys completed by 60 European lenders, who contributed €80,000 million in loans to the real estate sector in 2015.

11% of the entities that responded to the questionnaire expressed a clear interest in granting loans to (companies in) Spain over the coming months. That figure is higher than the 9% obtained in the previous report compiled by Cushman & Wakefield. This upward swing in Spain is the largest increase recorded in Europe.

Meanwhile, the survey shows that average financing conditions have also improved in Spain. In Madrid, average leverage levels are close to 59% (previously they stood at 54%), whereby surpassing those recorded in comparable cities – Milan stood at 57% and Lisbon at 50%. Similarly, average margins have reduced, but Madrid still generates returns of 185 bps, well above those recorded in the established markets of central and northern Europe. In the previous report, average margins in Madrid amounted to 210 bps.

According to Pablo Kindelán, Associate in the Capital Markets team at Cushman & Wakefield, “this report confirms a trend that is mirroring real estate investment in Spain, with significant interest from investors, record levels of activity and decreasing yields. The improvement in financing conditions highlighted in this report can only serve to facilitate investment activity”.

According to the report, average loan-to-value, LTV, ratios in Europe range between 55% and 66%, with the highest ratios recorded in Frankfurt and Paris (64%), followed by London (63%). The debt funds are willing to lend at higher LTVs than those typically granted by commercial banks and institutions, and only a few lenders want to expand through speculative developments.

In terms of margins, there are significant variations in the averages by country. In this sense, Stockholm records margins of 130 bps, Frankfurt and Paris generate margins of 140 bps, whilst Lisbon registers margins of 250 bps. Milan is the only other city (in Europe) where margins exceed 200 bps. (…).

Original story: Mis Oficinas

Translation: Carmel Drake