Sacyr Invites Alternative Offers For Testa

8 May 2015 – Expansión

The construction group has engaged Lazard to coordinate offers for its real estate subsidiary Testa. It was initially planning to place 30% of the shares on the stock exchange (but is now open to alternative proposals).

Sacyr was going to place 30% of Testa‘s shares on the stock exchange, but the widespread interest expressed in the market has caused the construction group to change its strategy. The company, which had proposed a public offering (IPO) of 30% of Testa’s shares to the CNMV, is currently evaluating several alternatives: to continue with the plan to place some shares in the market with qualified investors; to join forces with an institutional partner such as a Socimi or international fund; and in the meantime, it does not rule out the sale of 100% of its subsidiary. Moreover, it is also considering a fourth option, which would have a much greater strategic significance, namely the integration of Testa with a large group in the sector, in this case, Colonial, to create the largest Spanish real estate company and one of the largest in Europe.

Sacyr has engaged Lazard to carry out this process. The investment bank has instructed the various investors that are interested in Testa to make a non-binding offer for the company.

Proposals will be welcomed both for the 30% stake that Sacyr had initially planned to place on the stock exchange, as well as for the entire share capital. Lazard has given interested parties until today to present offers, say sources close to the process. One player that is interested in acquiring the real estate company is Merlin Properties. The largest Socimi by market capitalisation has acknowledged its interest in participating in Testa’s capital. Now, Merlin would be willing to acquire Testa in partnership with other investors and purchase 100% of the company, according to sources in the sector.

Corporate movement

Sacyr is also studying a possible integration of Colonial and Testa. For the time being, the conversations are very preliminary between Sacyr and the real estate company whose primary shareholder is Juan Miguel Villar Mir.

The merger of both companies would create a giant with more than two million square metres of leasable surface area in prime areas of Madrid, Barcelona and Paris and a combined turnover of €400 million. Testa’s market capitalisation amounts to €2,098 million and Colonial’s is €1,977 million.

Sources involved in the process confirm the interest shown by Colonial. The final decision will depend on the other options that Sacyr has on the table. The placement of a percentage of new shares in Testa on the stock market (a maximum of 30%) forms part of the action plan designed by Sacyr to regularise the finances of its subsidiary and provide it with greater liquidity. The shareholders of the real estate company, controlled by Sacyr (99.2%), approved an ‘accordion operation’ in February, involving a €1,197 million contribution to shareholders, comprising a €527 million ordinary dividend and a €669 million reduction in share capital.

This transaction is, in turn, subject to a simultaneous capital increase that would enable Testa to reconstruct its balance sheet through the inflow of around €500 million. It is during this phase that Colonial may enter the fray.

The real estate company chaired by Juan José Brugera is exploring growth opportunities in Spain after cleaning up its balance sheet in 2014 with a capital increase of €1,263 million, which involved the entry of Juan Miguel Villar Mir, along with Mora Banc and Qatar Investment into the share capital of the real estate company. Villar Mir is currently the owner of 24.5% of Colonial, after buying a new block of 1.46 million shares (in recent weeks).

According to experts, the potential merger of Colonial and Testa makes sense in business terms, since both companies specialise in the rental of buildings; exclusively office buildings in the case of Colonial and shopping centres and homes in the case of Testa.

Nevertheless, the change in ownership may have an impact on the financial structure of the companies, with guarantees linked to new investments and changes of control. At the end of 2014, Colonial’s net debt amounted to €2,545 million and Testa’s amounted to €1,688 million.

Original story: Expansión (by R. Ruiz and C. Morán)

Translation: Carmel Drake

Student Halls In Spain: A Wise Alternative Investment?

17 February 2015 – Idealista

When we talk about real estate investment in Spain, we tend to mean the purchase of offices, hotels and shopping centres. Nevertheless, there is another type of property that may also generate high returns: student halls of residences. However, unlike in other European countries, this accommodation does not totally convince investors looking for assets in Spain. The lack of companies that know how to optimise them, and the shortage of the ideal product are some of the reasons why no transactions are being closed in this segment, despite considerable interest.

Spain had around 1.41 million students enrolled in universities during the academic year 2013-2014, according to the Ministry for Education, Culture and Sport. That is, a little over 3% of the Spanish population were university students. This percentage places Spain ahead of other countries such as Germany and France. The majority of these students (77%) studied courses in their home province, but 20% moved to another province to study and around 3% were from overseas.

Delving more deeply into their lifestyle: approximately 64% of university students live at home with their parents or other family members. At the other extreme, those who live away from home only have two options: rent (either in a shared house or on their own) or live in halls of residence. Specifically, only 2.8% choose to stay there.

In the opinion of the experts consulted, these figures are justified by the “very low” availability of public university halls. “Although there are significant cultural differences, certain aspects indicate that the market for university halls of residence in Spain will have to converge with that of the rest of Europe”, says a report published by JLL.

The consultancy firm is convinced by its analysis that the implementation of the Bologna education reforms will promote cross-border studying between European universities, “which tend to have much high percentages of students living in halls”. In Spain, it is normal for students to opt for this type of accommodation during the first and second years only.

“The flow of students travelling to study in other countries will increase over the coming years and not only in relation to Erasmus placements”, says Patricio Palomar, Director of Office Advisory and Alternative Investment at CBRE. In his opinion, issues such as the language (Spanish), the lifestyle and the affordable prices in comparison with neighbouring countries, are just a few of the attractions that draw many foreign students to choose Spain as their destination.

The main drawbacks

Unnim, the entity created from the merger of Cajas de Manlleu, Sabadell and Terrassa, is active in this market. The bank, which was acquired by BBVA in 2011, inherited this line of business from Caixa Terrassa. The former caja constructed its first hall of residence on the Avenida Parallel, 101, in the Poble Sec neighbourhood of Barcelona back in 2007.

According to the latest data available for Unnim, this business line generated a return of 7%. Sources in the sector explain that the net return on these types of assets can reach 10%, well above the rates offered by offices, hotels and shopping centres. In countries such as the UK and USA, this business generates returns of between 11% and 15%.

Juan Manuel Ortega, Director of Investment Offices at JLL, recognises that British firms are over-valuing these types of assets in Spain. These investors are looking for halls of residences that are larger than 5,000 m2 and that have between 60 and 150 rooms. Palomar also acknowledges this trend “the same funds that operate in the UK for example are looking (for opportunities) in Spain. The problem is that the same product is not available in other countries”.

Palomar maintains that student halls in Spain are obsolete and that many of them are stuck in the 1960s. That does not happen in cities such as Amsterdam where student accommodation is modern, hotel-like and less than 10 years old.

Another one of the pitfalls that affects this business is the ownership of these spaces. Most belong to the public universities, many of which have serious financial problems and cannot afford to finance the investment needed to optimise the assets. At the same time, they cannot sell the land and allow private companies to enter the sector.

This has a very direct effect on competition; it is low, which does not lead to an improvement in the facilities either. Similarly, experts recognise that the administration of these complexes is not simple, they require professional management.

Nevertheless, Palomar states that new student halls of residence are appearing in the outskirts of cities and near private business schools. “I think Spain should focus on other kinds of tourism, beyond the holiday market; educational and health tourism (have significant potential)”.

A trickle of transactions

The lethargy in this market is such that transactions are very scarce. The last known deal involved the purchase of the Galdós halls of residence in Madrid in 2012. The British firm, Knightsbridge Student Housing paid €20 million for the property, it was the first acquisition made by the company outside of the UK. Knightsbridge Student Housing was created in 2010 with the backing of Oaktree Capital Management.

Another of the most talked about transactions involved Lazora (Concha Osácar) when it acquired the Resa Group in 2011. Resa was created in 1994 and currently manages more than 8,000 beds in 32 halls of residence. The construction company Acciona also has give halls of residence (in Albacete, Cádiz, Castellón, Lleida and Murcia), which it has tried to sell in the past.

Further proof that this branch of real estate activity in Spain is still light years away from what is happening in other countries, is that Socimis dedicated to student accommodation already exist overseas. In 2013, GCP Student Living constituted the first REIT (Real Estate Investment Trust) in the UK.

Original story: Idealista (by Estefania Fonseca)