Auctions of Sareb’s assets
Sareb has unofficially informed that sale of assets’ portfolios to professional investors will be made through competitive auctions by invitation.
The assets and portfolios on sale are not public. In this respect, Sareb has facilitated a telephone number (+34 902 27 27 32) to be used by professional investors interested in acquiring assets. Sareb will invite investors it deems appropriate to each sale at its discretion.
Initial activity balance
As from the beginning of the marketing of its assets at the end of February up until the end of May Sareb has sold approximately 700 real estate assets and has obtained a total income of approximately EUR 500 million. Transactions involving other 800 properties are in the pipeline and there are preliminary purchase offers for over 2,200 properties.
Among the deals closed by Sareb during this period it is worth mentioning the sale of a EUR 35 million stake of a syndicated loan of Metrovacesa (one of the major Spanish real estate companies).
Among the on-going deals, Sareb recently initiated the auction for the sale of a portfolio of loans of Metrovacesa, Realia and Colonial (other major Spanish real estate companies) amounting to a total face value of EUR 1,200 million, the so-called project Bermudas.
Sareb´s has made public that one of its strategic objectives is to boost lease incomes maximizing profitability of its assets. Around 8,000 properties are already leased which represent 25% of the total income of Sareb until May (retail clients most of them).
In this respect, the Spanish government has recently approved Law 4/2013, of June 4, on measures for the promotion of the lease market for housing, including amendments in the general Spanish lease and procedural laws aimed to grant additional protection to landlords and ease and speed up the eviction of the breaching tenants.
Loans vs. real estate assets
Sareb currently has 107,000 real estate assets and 90,600 loans and credits amounting to a total of EUR 50.8 billion. However, only approximately 20% of such amount corresponds to the estate assets and 80% to loans and credits. Sareb does not hold retail mortgage loans.
Geographical distribution of the real estate assets
Sareb has also made public preliminary information regarding the geographical distribution of its real estate assets. The land and real estate properties owned by Sareb are mainly geographically distributed as follows:
- Sareb holds 15,075 land assets of which 33.7% is urban land mostly located in Madrid (16.6%), Valencia (16.1%), Andalucía (15.2%), Cataluña (15.2%) and Murcia (7%).
- Sareb holds 55,727 houses mainly located in Cataluña (23.7%), Valencia (16.3%), Andalucía (11.4%), Madrid (10.9%) and Castilla La Mancha (7.5%).
Apparently, the volume of sales closed by Sareb up until May is below the initial expectations. In this respect, Sareb has decided to renounce to the 25% premium over transfer value that it initially aimed to include in all the asset prices and has thus adjusted its prices to market levels. Such premium was set for the purposes of assuring investors the return compromised (around 12%).
Experts say that given the volume of properties currently held by Sareb, this measure may have important effects in terms of the adjustment of the real estate market prices in Spain.
By the end of June the Spanish Government published a bill of law setting new tax benefits in favor of Sareb and entities engaging with Sareb. The proposal is foreseen to be approved by the Spanish Parliament after summer and will imply Sareb benefiting from the qualification as credit institutions for the purposes of certain tax benefits as well as investors/debtors benefiting from certain Stamp Duty exemptions. It is expected that these amendments will enter into force retroactively with effects as from 1 January 2013.
More specifically, the novelties imply that: (i) the general limitation to the deduction of net financial expenses under the Corporate Income Tax (capped at 30% of EBITDA) will not apply to Sareb; and (ii) Sareb will be exempt from withholding tax applicable to interest and fee/commission payments received which derive from loans transferred to the same by aided banks.
In addition, the notarial deed creating security for the financing of real estate asset acquisitions to Sareb (or from entities directly or indirectly controlled by Sareb or from FABs) will be exempt of Stamp Duty (which ranges from 1% - 2% of the maximum secured liability) during the time period that the FROB maintains exposure to the mentioned entities. Also, the notarial deed documenting the refinancing and/or amendment of mortgage loans where Sareb is the creditor (or entities directly or indirectly controlled by Sareb or FABs) shall be exempt of Stamp Duty.
Finally, it is foreseen that the contributions or transfers of real estate assets carried out by Sareb shall not be computed for Business Activity Tax purposes, which entails a reduction of taxation for Sareb under said local tax.
As the activity of Sareb increases structuring alternatives begin to attract interest. In particular, Sareb has unofficially informed that it expects that in forthcoming deals investors will be using, apart from FABs, Spanish real estate listed companies (known as SOCIMIs - equivalent to REITS) and/or the so-called special dwellings lease companies. See below a brief summary of these alternatives:
FABs: these vehicles were specifically created upon the creation of Sareb and Sareb intends to use them in open and competitive processes. Contrary to traditional portfolios’ transactions, the use of FABs may consist in a joint venture between the buyer and Sareb (as co-investors). According to Sareb this co-investment structure should entail benefits for both parties:
Advantages for Sareb
Advantages for Investors
- Professional management: the investor supplies a “servicer” with experience in other markets.
- Sareb follows the asset over a period of time and may benefit from increase in value.
- Sareb obtains income from day one.
- Access to a flexible vehicle, tailored by type of assets, amount or structure.
- Exempt from the payment of Income Tax for Non-Residents, when the investor is a non-resident and has no permanent establishment in Spain.
- The co-financing by Sareb implies a lower capital contribution.
Sareb has unofficially informed that it is in the process of negotiating the creation of the first FAB which will result in a joint-venture between Sareb and the winning bidder of the so called project Bull.
SOCIMIs: Spanish regulations on SOCIMIS were approved back in October 2009, however, it was not until last December, when several amendments where included in such regulations, that investors have begun to be interested in this real estate investment vehicle. In fact, Sareb itself could be looking to create a SOCIMI with the intention of benefiting from its tax advantages. For the incorporation of this type of vehicle it is necessary to meet certain requirements such as being a company with assets on lease (at least 80% of its assets), most of its income shall derive from lease rents (at least 80%) and having a minimum share capital of EUR 5 million.
Special dwellings lease companies: these are ordinary companies which its main business activity is the lease of dwellings located in Spanish territory (constructed, promoted or purchased). They are subject to a reduced income tax regime (4/3.5%, as the case may be), always provided that lease income represents at least 55% of their total annual income or, alternatively, that 55% of the value of the assets of the company is eligible to produce income. For benefitting from this tax regime, special dwellings lease companies need to comply with certain requisites, e.g. the number of houses leased or offered to lease shall be at any time more than 8 and the houses are leased or offered to lease for a period of more than 3 years. These companies may be admitted to listing.
Financing of the acquisition of Sareb’s assets
Santander, Caixabank and Sabadell have launched specific financing programmes to make available the granting of credit to purchasers of real estate assets owned by Sareb or linked as collateral to credits owned by Sareb. The said banks will provide financing for a maximum amount of EUR 1,000 million each until 31 December 2014 to this type of debtors.
The financing is mainly addressed to the acquisition of residential properties by retail clients but it may be extended to the acquisition of non-residential real estate such as hotels, offices and other commercial real estate. Also, the banks offer the possibility of financing professional clients offering advantageous conditions regarding loans and leasing facilities.
The financing agreements will also serve the purpose of providing funding for the purchase of properties grouped in Bank Assets Funds (FABs). This may be another incentive for investors to use FABs to structure their acquisitions of properties.
Internal rules of conduct and general principles for contracting with suppliers of goods and services
Internal rules of conduct
On 20 May Sareb approved its rules of conduct which establish internal policies setting the ethical code that Sareb, its directors and employees and other relevant entities contracting with Sareb shall comply with.
These rules of conduct set a number of principles which shall rule the activity of the obliged persons. In particular, these rules oblige employees to give written notice of any potential conflict and to refrain from intervening in decision-taking processes affecting their own interests. Directors and employees (and family members of directors and employees) in possession of non-public information shall not acquire or lease assets owned by Sareb.
Furthermore, in order to preserve the objectivity and impartiality in its decision processes Sareb prohibits its directors and employees the acceptance of gifts and invitations from clients.
General principles for contracting with suppliers of goods and services
Sareb has also established the principles to be followed when contracting the services of external advisors and the provision of goods and services. In order to achieve the best conditions and mutual benefits strengthening transparency, competitiveness and non-discrimination of advisors and suppliers.