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

Banco Popular Records Losses Of €137M In Q1

8 May 2017 – La Vanguardia

Banco Popular recorded losses of €137 million during the first quarter of 2017, its first set of accounts to be published since Emilio Saracho (pictured above) took the helm. And it is clear that he has not escaped from the fallout of the property sector, the evil that tormented his predecessor Ángel Ron. In fact, the loss in Q1 is primarily explained by a €496 million provision against the entity’s real estate portfolio.

Compared to the previous year, the panorama is completely different. During the first quarter of 2016, Popular recorded a profit of €94 million. The need to clean up and strengthen the balance sheet means that the numbers have gone into the red, but the new provisions increase the coverage ratio to 45.2%, with €570 million in non-performing assets and raise the default rate to 51.4%, according to figures published by the entity on Friday.

The bank is going through a difficult time, it registered losses of almost €3,500 million last year. To stay afloat, on Friday, the entity ruled out selling assets “in an indiscriminate way”, given that it will take the decisions that it considers appropriate “always taking into account the value that may be generated for the shareholders”, according to the bank’s CEO, Ignacio Sánchez-Asiaín.

Popular is looking to sell both WiZink and Totalbank if it receives good offers for them and has said that the bank is holding “advanced conversations” for the sale of its non-strategic assets.

Similarly, the director revealed that Project Sunrise, which had been driven by Ron and which sought to place the entity’s real estate assets into a type of bad bank, has been “completely abandoned”. “If we don’t have to recognise any extraordinary provisions, of course, we expect to generate profits this year”, he added.

Popular lost €800 million in deposits in February due to the relevant events that marked the transformation of the entity and reductions in its rating by the credit rating agencies.

Nevertheless, the bank is “succeeding” in recovering deposits and specified that in this sense there is a monthly volatility, which means that Popular is not “worried” by what has happened over the last few months.

The accounts reflect gains of €180 million in the retail business, where the bank specialises in SMEs. The volume of loans granted decreased by 5.6% to €100,859 million, with a default ratio that rose to 14.91%, compared to 12.68% a year before. (…).

Meanwhile, the real estate activity recorded losses of €317 million. Property sales amounted to €459 million, with an 18.5% increase in retail sales, at the same time as the sale of real estate loans reached €402 million.

As the end of the quarter, the capital ratio amounted to 11.91%, above the requirement of 11.375%.

Original story: La Vanguardia

Translation: Carmel Drake

Bankia & Apollo Go To Court Re Sale Of Finanmadrid

3 October 2016 – Expansión

Both entities are waiting for the discrepancies that arose from the sale of Finanmadrid to be resolved. The sale was completed in 2013 for €1.6 million

Fracciona Financiera Holding, the subsidiary of Apollo, filed the first lawsuit, in which it claimed €8.5 million from Bankia due to discrepancies in the sale and purchase contract based on the determination of the sales price for Finanmadrid.

The contract included clauses that have an impact on the basis of the evolution of various parameters. These conditions have been common in multiple sales operations closed in the financial sector since the outbreak of the crisis. The asset protection schemes (EPA), which cover the buyers of former savings banks, are the most visible example of these types of operations.

Bankia has responded to the lawsuit filed by Apollo, with its own claim for €6.4 million.

Finanmadrid, which used to specialise in offering consumer credit through retailers and car dealerships, has now been integrated into Avant Tarjetas, a subsidiary of Evo Banco, controlled by Apollo. Previously, it was integrated into Fracciona Financiera Holding. In the company’s accounts from last year, the audit report explains that “in the opinion of the company’s legal advisors, an unfavourable outcome from the lawsuit (with Bankia) is remote, nevertheless, the shareholder (Apollo) would financially support any contingency that may arise in the event that no provision has been recognised”.

Before the integration, Finanmadrid reduced its share capital by €2.24 million to absorb losses and so it was left at €2.79 million.

Apollo’s claim against Bankia forms part of a broad range of claims against the entity chaired by José Ignacio Goirigolzarri. In total, the bank faces claims amounting to €390 million, not including the claims relating to its debut on the stock market and the sale of its preference shares.


The largest claim, amounting to €165 million, is one presented by ING Belgium, BBVA, Santander and Catalunya Banc against Bankia, ACS and Sacyr. (…).

The construction group Rayet also claims €78.2 million from Bankia for what it considers are accounting irregularities and for differences in the valuation of plots of land linked to the debut of Astroc on the stock market in 2006, an operation piloted by the former Caja Madrid.

The bank has 305 legal proceedings open relating to derivatives with claims amounting to €38.8 million.

Original story: Expansión (by E. del Pozo)

Translation: Carmel Drake

Meliá’s Profits Up By 18% Despite One-Off Impacts

26 February 2016 – Expansión

Meliá ended 2015 with a net attributable profit of €36 million, which represents a 18% increase compared with the previous year. The hotel chain said, however, that the two periods are not comparable, given that last year’s figures were affected by a higher tax rate, following the results of tax inspections launched in 2014 regarding corporation tax settlements made between 2009 and 2012.

In this regard, and in order to reflect the possible impact of these actions, Meliá made a provision amounting to €33 million. The hotel chain also clarified that having analysed the possible consequences in the years open to inspection, it does not expect any significant additional impact on the consolidated accounts in the future. “The company is cooperating with the authorities and hopes to reach a satisfactory agreement”, added the company in a document that it submitted to Spain’s National Securities Market Commission (CNMV).

Puerto Rico

Excluding extraordinary effects, such as a €29 million impairment on the Group’s hotel in Puerto Rico, and the provisions required for the aforementioned tax adjustment, Meliá’s net profit before tax amounted to €67 million, up by 200%.

In 2015, the company generated revenues of €1,738 million, which represents a 16% increase (compared with 2014).

The chain highlighted the strong performance of all its divisions in the hotel business, which allowed it to increase its revenues per available room (RevPAR) by 15.1%, thanks to the improvement in the general environment and economies in its key markets, as well as its strategy for branding and repositioning its products.

According to the financial plan, Meliá’s net debt amounted to €768.8 million at the end of the year, which represented a reduction of €216 million with respect to 2014.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Bank Of Spain Plans Provision Changes From June

16 January 2016 – El Confidencial

The Bank of Spain wants credit institutions to incorporate new accounting standards, prepared by the European Commission with a view to 2018, into the presentation of their results from June onwards. The change represents the further tightening of the multi-million provisions that the sector has been recognising in recent year, given that, from now on, the banks will have to adjust their accounts to take into account expected losses on each one of their loans rather than incurred losses. The measure will result in significant volatility, which may affect banks’ results for the first half of this year.

As a result, the accounting legislation known as Circular 4, which was first published in 2004 and established public information standards for financial entities, will have to be adapted to the new criteria presented by the International Accounting Standards Board (IASB). That body that has worked on the definition of the standards captured within IFRS 9, which, in turn, will replace those currently in force across the whole of Europe under the definition of IAS 39. The adaptation of the entire accounting system comes at a particularly critical time for the Spanish banking sector, which has had to undergo a restructuring process in recent years under the local anaesthetic of a rescue, which was requested in June 2012. (…).

The first drafts of the legislation being managed by the institution led by Luis Linde include apparent relief for credit entities given that the Bank of Spain plans to try and eliminate the infamous and onerous category of sub-standard risks. This classification forces banks to recognise provisions in successive phases within a pre-determined calendar against loans that may be affected by a subjective incidence of default. (…).

Sub-standard loans, which are unique and exclusive to banking regulations in Spain, will move onto a better life, but in exchange, a new index is going to be created, known by the title “special monitoring”. This will have, where appropriate, a greater impact on the financial statements of credit institutions. In its future circular, the Bank of Spain is going to require that banks put strict calculation models in place to ensure the expected loss of all of their loans from the moment they are granted and over the whole life of the investment. When a loan becomes doubtful, the entities will have to recognise the entire provision in one go, with the resulting momentary hit to the income statement.

Another novelty arising from the accounting changes will be the disappearance of the generic provision, which has been one of the main hallmarks of financial regulation in Spain. The generic provision will be substituted by a collective provision, which…must forecast expected losses on the entire loan portfolio up to one year ahead. The reform will be cushioned by a transitory process, which is currently being subjected to consultation with the financial institutions themselves, which must have their own business models in order to classify the quality of their investments. (…)

Original story: El Confidencial (by José Antonio Navas)

Translation: Carmel Drake

Cerberus, Apollo & TPG To Bid For Bankia’s Remaining RE

17 June 2015 – El Confidencial

Bankia will receive non-binding offers for its final real estate portfolio this week. (…)

Cerberus, Apollo, Texas Pacific Group (TPG) and Oaktree are four of around ten candidates that have asked for information to submit their proposals for this portfolio, however, they are expected to demand a discount of close to 35%.

According to sources close to the transaction, Credit Suisse, the bank advising the deal, expect to receive the first non-binding offers for the final part of the property portfolio that still sits on Bankia’s balance sheet. Initial assessments indicate that the cheques will amount to around €2,500 million, which would represent a discount of 40% with respect to the €4,213 million gross valuation of the portfolio, reported in Bankia’s results for Q1.

However, the bank led by José Ignacio Goirigolzarri already recognised provisions, amounting to €1,308 million, against the initial figure at which the finished properties, assets under construction and land were valued when they were put on the market several years ago, and so the net value of the portfolio on the balance sheet is currently €2,905 million. The majority of that amount (€2,161 million) relates to funding to buy homes, i.e. from flats and homes foreclosed due to non-payment.

But, despite this recognition of losses by Bankia’s management team, the potential buyers consider that the value of this portfolio may be lower. According to their calculations, the portfolio is worth around €2,500 million, which would represent a discount of 40% on the original amount and an additional 14% below the price at which the public bank has the assets recorded on its balance sheet.

As such, if that were to be the final sale price, Bankia would have to recognise additional provisions amounting to €400 million. Nevertheless, sources close to the bank point out that these initial valuations are only an approximation, a reference for investors who are going to bid to purchase the portfolio, and in fact, bidders may have to offer a premium in order to win the auction.

Furthermore, the same sources indicate that Goirigolzarri is not going to accept any offers below the valuation performed by an independent advisor (€2,905 million net), since in his opinion, that valuation already reflects the drop in homes and property prices since the burst of the real estate bubble.

The situation may be read in two different ways. The first is that the portfolio comprises what is considered to be “absolute rubbish”, in which case the assets would be worth much less. The second is that, given the great interest from institutional funds to invest in property, one of them may approach the €3,000 million asking price that Bankia has set.

Sources close to the transaction say that the current owners of the portfolios sold by Santander – Apollo -, Bankia – Cerberus – , CaixaBank – TPG, plus other funds, such as Oaktree, Starwood, Goldman Sachs and Blackstone will submit bids this week. Loan Star, which recently purchased Kutxabank’s real estate arm for €1,900 million, has also requested the documentation, but sources say that it will not bid in the end.

Nevertheless, if the bids do not meet the figure expected by Bankia, the portfolio may be divided up to obtain the highest possible revenue from it. (…)

Original story: El Confidencial (by Augstín Marco)

Translation: Carmel Drake