At Least Five Socimis Prepare To Debut On The MAB

17 May 2016 – El Economista

The real estate sector is booming. Its appeal has barely declined despite the political uncertainty, in fact the creation of new Socimis seems unstoppable and over the next six months, at least five more Socimis are expected to debut on the Alternative Investment Market (MAB), where 15 other similar companies are already listed. The banks are also keen to get involved in the action.

The market capitalisation of the five soon-to-be-listed Socimis will exceed €1,500 million, according to Antonio Fernández, Chairman of Armabex, which is preparing to launch as the registered advisor of these companies.

The figure will continue to grow gradually, given that the political uncertainty has not curbed investors’ interest in these vehicles, which have a special tax framework that allows them to not pay tax on their profits, provided they distribute 80% of those profits as dividends. In this way, Fernández says that he has around 40 files on the table from Socimis wanting to debut on the stock market over the next few months. “They all have very different profiles and we are receiving proposals almost every day”, he explained.

Although the names cannot be revealed yet, the Director said that one of the five Socimis is focused on the hotel sector and its initial market capitalisation amounts to €220 million. Similarly, he says that a company focusing on homes for rent with assets worth €100 million, will also debut on the MAB soon.

The fact that that specialist Socimis are starting to flourish and establish themselves in Spain is a “very good sign”, according to the sector. With this type of vehicle, the market is managing to secure money from private investors, which due to their size are not able to commit to significant investments individually in the real estate sector.

Now they have several entry points and can select both the type of assets they like, as well as the yield that they want to obtain. Moreover, the specialist Socimis are also arriving hand in hand with wealthy Spanish families, which have been accumulating assets for years and can now take advantage of the new tax benefits. That is the case of the Socimi created by the property developer Tomás Olivo through his company General de Galerias Comerciales. With a portfolio of six shopping centres, whose star asset is La Cañada (Marbella), and hundreds of other assets (land, premises and homes), it is positioning itself as the third largest Socimi behind Merlin (Ibex 35) and Hispania (Stock Exchange).

According to experts, the value of its portfolio may exceed €1,000 million. (…).

And it is not only wealthy Spanish families who are making use of these vehicle; foreign capital is also backing them and one company, financed by capital from Latin America, will soon make its debut on the stock market. On the other hand, Domo is another company that is preparing to list on the stock market, as its Chairman, Feliciano Conde, announced last year, when he explained that the company would be tailored to medium-sized investors “so that they can participate in the returns generated from the purchase of land, and the subsequent rental and sale of the homes”. The market capitalisation of that company, the first property development Socimi, will amount to €50 million.

Original story: El Economista (by Alba Brualla)

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

Home Loans Drop To Lowest Level Since 2006

3 November 2015 – Cinco Días

In November 2008, after fifteen years of continuous growth, the debt held by households peaked at more than €912,000 million. As the economic crisis hit, unemployment rose and wages were devalued, families began to get rid of those liabilities as they tried to rebuild their accounts. And according to statistics from the Bank of Spain, it seems that the process is not over yet. In September, total household debt decreased again to reach its lowest level since 2006 – €728,747 million. The difference between these two figures represents a decrease of €185,000 million.

The collapse of the mortgage market has played a decisive role in this deleveraging process, with mortgages representing more than two thirds of household debt. In November 2008, loans taken out to purchase homes amounted to almost €680,000 million and in the seven years since then, that figure has decreased by 16.5% to reach €567,000 million. A difference of €112,000 million and suggesting the weight of housing in the process to reduce household debt: six out of every ten euros relating to the reduction of household liabilities have corresponded to loans linked to house purchases.

The overall picture of debt in the three major sectors (companies, households and public administrations) shows divergent trends. In November 2008, the figure amounted to €2.6 billion, of which €1.25 billion (48.7%) was in the hands of companies, encouraged by the tax benefits to take out debt and by the facilities that the banks offered on their loans. They were followed by households, with €913,000 million (35.4% of the total), and then public administrations, with €405,740 million (15.7% of the total). By September 2015, the figures and percentages had changed significantly. Now the public sector holds most of the total debt figure (€2.7 billion). In August (the latest available data), public administrations held debt amounting to €1,050,000 million (38.8%), followed by companies, with €927,000 million (34.2%) and households, with €729,000 million (27%).

The two main findings to be drawn from the analysis of this data are that public debt has tripled in both percentage and relative terms, and the speed of the adjustment has been much greater for companies than for families. Company liabilities have decreased by €330,000 million in seven years, which means that its weight over the total Spanish debt has decreased by 14 points in the same period.

Original story: Cinco Días (by Carlos Molina)

Translation: Carmel Drake

Testa Becomes A Socimi & Puts Its Residential Portfolio Up For Sale

29 September 2015 – Expansión

The real estate company Testa is making progress with its integration with the Socimi Merlin Properties. Yesterday, the company held an extraordinary shareholders’ meeting to approve a change in the corporate structure of the real estate company into a listed real estate investment company (Socimi).

The decision comes after an agreement was made between Sacyr and Merlin in June to sell Testa for €1,793 million. Currently, the Socimi led by Ismael Clemente (pictured above) controls 77% of Testa’s capital and is expected to own 100% of the shares before the end of June 2016.

The Socimi-conversion will apply (retrospectively) from 1 January 2015, which means that Testa may benefit this year from the tax advantages afforded to this kind of company, although they have yet to be quantified.

At the meeting yesterday, the shareholders approved the appointment of Ismael Clemente as a Director of Testa; he currently also serves as the Chairman and CEO of Merlin Properties. In addition, Miguel Ollero, a Director of Merlin, was also appointed as an independent Director of Testa, following the resignation of Juan María Aguirre Gonzalo.

Following the entry of these two new Directors, Testa’s governing body comprises seven members, including the Chairman, Fernando Rodríguez Avial and the CEO, Fernando Lacadena.

Once the purchase of the whole company has been completed, the two companies will merge into a single Socimi. The new Merlin Properties will have assets worth around €5,000 million.

Having taken control of Testa, the Directors of Merlin have decided to divest the real estate company’s residential portfolio, which contains around 1,500 homes. They have engaged two consultancy firms to coordinate this process, which is expected to begin within two weeks.

Potential purchasers of the portfolio include other Socimis and investment funds.

In addition to the sale of this package of properties, which generates annual rental income of €10.5 million, Merlin has also announced that it will sell the portfolio of hotels currently owned by Testa, before the end of the year.

Merlin’s shares closed trading on the stock exchange yesterday at €10.72 per share, up 0.33%, taking its market capitalisation to €3,461.3 million, whilst the market capitalisation of Testa is €2,055.5 million.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake