30 Sep

SOCIMIs on the Alternative Equity Market

We recently wrote about the four SOCIMIs, Spanish REITs, – Merlin Properties, Hispania, Axiare and Lar Socimi- that are currently listed on the Madrid Stock Exchange.

Today we want to discuss the other SOCIMIs, those that are listed on what is called the Alternative Equity Market or MAB. (in Spanish: “Mercado Alternativo Bursátil”). Since our previous post on the subject (less than a month ago), four more companies have been listed on the Alternative Equity Market, currently adding up to a total of ten.

We must first detail the reasons behind the transformation of a limited liability company, which is used to hold property, to a SOCIMI, a Real Estate Investment Trust. We think that, compared with large SOCIMIs (formed as ad-hoc investment vehicles in which the achievement of volume and funding are paramount) this second group has different motivations. These range from tidying up real estate portfolios of wealthy families, to grouping assets and income in a specialised tax efficient vehicle, raising funds from the public to finance business expansion or obtaining liquidity for people who share ownership of property with stable income.

It is still early to assess the performance or success of these companies, because of the ten listed on the Alternative Equity Market, seven are not even a year old. And although for some of them we could dig out more of their corporate history, through the results of the original companies, we have limited our work to their background, scope, founders and the investment strategy that they seem to be adopting.

Alternative Equity Market SOCIMI top-ten

Listing on Alternative Equity Market

Year/month

NameInvestmentsMarket cap Sep 2015 (millions)
2013/11Entrecampos CuatroDiversified€ 108,8
2013/12PromorentHousing€ 4,2
2014/07Mercal InmueblesDiversified€ 30,7
2015/03Uro PropertyBank branches€ 147,7
2015/06FidereSocial housing€ 217,8
2015/07Trajano IberiaDiversified€ 98,8
2015/09Autonomy Real EstateOffices€ 84,7
2015/09Corpfin Capital Prime Retail IIRetail€ 23,3
2015/09ObsidoHotels€ 19,7
2015/09Zaragoza PropertiesRetail, single asset€ 67,4

 

Of the ten companies on the Alternative Equity Market, four are relatively modest vehicles from the standpoint of equity, with market cap under € 30M: Promorent, Mercal, Obsido and Corpfin.

Another four are, for this market, medium-sized companies with market cap of around € 70 to € 100 million: Zaragoza Properties, Autonomy, Trajano Iberia and Entrecampos Cuatro.

And finally the two largest: Uro Property (€ 148 M market cap) and Fidere (€ 218 M)

Alternative Equity Market; from bottom to top

Promorent. Was formed by the Pavon Olid family (Madrid Vision bus business). Net profit 2014 – € 0. Market cap has decreased from € 5.7 M (2013), to € 4.6 M (2014) to € 4.1M (today). 61% Housing.

Obsido. Based in Marbella. Two founding partners, Joaquin Hinojosa and Hakan Tollefsen –a Norwegian national-. They target resort hotels in the Spanish coast and have already bought two in the Costa del Sol. Both 3-stars with 142 rooms in total, the Marbella Inn and the Diana Park. Their expectation is to raise equity for further investment.

Corpfin. Javier Basagoiti, former CEO of Martinsa Fadesa, started this business in 2008. They have in fact formed two SOCIMIs, the one listed and Prime Retail Corpfin Capital III still pending to be listed. Both invest jointly, 60% and 40%, through a non-SOCIMI company. They own 17 high street retail units and a retail park in Avila. An interesting success story has been the purchase, renovation, letting to Apple and subsequent sale of a store in the Colon street of Valencia, next to the El Corte Inglés department store.

Mercal Properties. It owns leased retail (46% of the total) and a medical centre –a hospital in Estepona- 45%. But also land for about the same value as the leased properties. Profit in 2014 € 1.7 M. 50% debt. Its net worth is € 14.3 M. Low liquidity in the MAB.

Zaragoza Properties. Intu Properties -a UK REIT- acquired last January the shopping centre and retail park Puerto Venecia from Orion Real Estate Fund III. Price was € 451 M, including debt of € 225 M, maturity 2020. It did so through its subsidiary Intu Zaragoza, of which they own 70%, after selling 30% of it to the Canada Pension Plan Investment Board. This SOCIMI holds a share of the property. Centro Venecia is 95% occupied and generates € 22.4 M annual revenue.

Autonomy. Robert Gibbins, a former JP Morgan and Lehman Brothers executive, founded this company originally in 2003. In 2013 they formed Autonomy Spain Real Estate Opportunities Fund III (Onshore) -based in Cayman Islands-, connected to Autonomy Capital (Jersey) LP, which it is said manages US $ 4,800 M. in assets. The reorganization of several companies has been used to form this SOCIMI 2012.

It invests in offices: 1) Four buildings in the Omega Business Park, in Alcobendas, with 33,500 m2 in total, of which at least two were acquired from Grosvenor for € 19 M. Except for British Petroleum, it has proved very difficult to find tenants for this business park, that has been nearly empty for several years; 2) a building at Gran Via 4, in Madrid, of 4,900 m2, acquired from Nova Caixa Galicia acquired for € 19.6 M and 3) two buildings in the 22@ area of Barcelona, ​​Pallars street, with 12,600 m2 lettable area. Net profit in 2014 was € 0,4 M after a loss in 2013. The company does not declare the occupancy rates of its buildings, which seems almost essential to assess its current performance.

Trajano Iberia is a company recently formed by Deutsche Bank Wealth Management. The aim is to acquire shopping malls, offices and logistics buildings, excluding residential. To date it has not made any investment.

Entrecampos Cuatro is owned almost 100% by the Segura Rodriguez family. It has been formed to group and manage rental property that they have owned for many years. Net profit 2014 € 3,3 M. Total assets € 90.6 M, equity € 59.3 M. 64% are complete buildings, office and residential. The latest annual accounts published on its website correspond to 2012. In 2014 the company made a capital reduction to offset losses.

Uro Property paid, in 2007, € 2040 M for 1,152 Banco Santander branch offices, leased back to the Bank for 25 years. The company was then called Samos and it was connected to, or controlled by, Oleguer Pujol. As of August 31st the company owns 755 branches, following the sale of the “Yellow Portfolio”, composed of 381 units, to AXA Real Estate for € 308 M. The high leverage used for that purchase, together with other allegedly criminal actions (see about Athisa below) led the company to practical bankruptcy, to the point that on June 30th its balance sheet showed accumulated losses for € 508 M.

To re-establish its financial viability, several creditors, including Banco Santander, have now agreed to capitalize part of their debt and as a result the current shareholders are Banco Santander (24%) –creditor, shareholder and occupier-, Atisha Holding (21,7%), CaixaBank (14,9%), Phoenix Life -formerly Pearl Group- (14,4%) and BNP Paribas (8,8%), among others. Despite the sale of 381 branches to AXA Real Estate and the debt restructuring, the balance sheet shows liabilities for € 1,673 M against equity of € 100 M.

As part of the restructuring the new shareholders agreed to transform the company into a SOCIMI, with minimum free-float and the permanence of existing shareholders in their capital by at least one year. Atisha Holding, the second largest shareholder, remains a serious contingency, as the UDEF -“Unidad de Delincuencia Económica y Fiscal”- and the antifraud general attorney department investigate the possible embezzlement by the  Oleguer Pujol organization of up to € 470 M. They appear to have used a complex network of companies, of which Atisha has been a part, spread in tax havens, from the Virgin Islands to the Isle of Man.

Fidere, is one of the several investments of Blackstone in Spain. This SOCIMI owns 23 housing developments with 2,688 social flats, mostly in Madrid. They include 1,200 units purchased from EMV Madrid and 944 from Sareb around Madrid and Barcelona. Although the potential of this acquisitions, as management is improved, is high, some difficulties have arisen by rent arrears and the current political and social climate, backed by the Madrid government, which considers that tenants’ eviction for non payment should be avoided at all costs.  In 2014, Fidere, with assets of € 210 M recorded a € 1.7 M profit after losses, of almost the same amount, in 2013. In August 2015 Fidere has acquired “Ferrocarril Intermediación y Patrimonios” and with it another 406 apartments. It shows that, despite some difficulties, Blackstone is committed to the business.

In short: a motley crew

Difficult, we believe, for a not well-seasoned investor to discern what investment to make in this group of companies on the Alternative Equity Market.

  • Fidere –Blackstone and Zaragoza Propeties -Intu- are instrumental to the interests of big investors and their future evolution should be tracked.
  • Uro Property, is a company with obvious problems -not only financial- which creditors and shareholders are trying to fix. Autonomy is an opportunistic vehicle with some –in the current market- higher risk investments.
  • Promorent is very small and Mercal also small.
  • Of the two specialized companies, Obsido has made a modest start in hotels but has no track record; Corpfin, in retail, seems to make sense but it has to grow and has a rather complex structure for its size.
  • And Trajano Iberia, which is a vehicle with solid support, has not bought anything yet.


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