Recovery is a positive issue for Spanish property firms

Colonial and Uro to join trend for refinancing debt via bond issues, writes Alex Catalano

Spanish property companies are on a roll. With their prospects brightening by the day and the European Central Bank’s quantitative easing pushing bond rates down, they are tapping the capital markets for cheap debt.

Two restructured victims of Spain’s property crash, Inmobiliaria Colonial and Uro Property, plan issues to refinance a total of €2.34bn of bank debt, while one of the country’s new REITs, Lar Espana, has raised €140m for acquisitions.

Although bond yields rose amid market turbulence in mid-April, it still makes sense for companies to lock in long-term financing at current rates.

Spain’s hard-hit property market has lagged behind others, such as Ireland and the UK, in recovering, but with GDP growing and unemployment dropping, the outlook is becoming much sunnier.

Bart Gysens, Morgan Stanley’s real estate equities analyst, says: “We expect strong improvement; the uptick in capital values is very much driven by capital flows, but we are seeing longer lease lengths and some rental growth at the prime end.”

Colonial, once Spain’s second-biggest real estate company, will replace €1.04bn of syndicated bank debt with a bond, given a preliminary BBB Standard & Poor’s rating. The loan, with a 400bps spread over Euribor and maturing in December 2018, was originated as part of last year’s restructuring, which included a €1.26bn share issue. It accounts for about 40% of the group’s debt.

Uro Property is also looking to refinance its bank debt via a €1.3bn bond/securitisation. The company, which joined Madrid’s junior stock exchange as a REIT in March and owns 755 Santander branches (see box), was restructured last year.

 Uro cuts debt margin

This included extending €1.4bn of senior debt due to mature in 2014 to 2019 and amending the margin to 300bps over Euribor until 2017. The restructuring also changed the terms of the Santander leaseback deal, with leases now ranging from 22 to 33 years and options to extend further, while rents are index-linked.

Uro’s refinancing is structured as a special- purpose vehicle, Silverback, which will issue fixed-rate bonds backed by Santander’s branches and linked to the bank’s credit as a tenant. There will be 10-year and 17-year tranches, which are expected to price north of 3% and 3.5% respectively.

Fellow Spanish REIT Lar Espana issued €140m of seven-year bonds, with a 2.9% coupon, in February, to finance purchases. The bonds are secured on its €458.7m portfolio, all assets acquired since July 2014, including five shopping centres, four Madrid office buildings, retail warehouses, logistics facilities and a residential development.

It was the first Euro-denominated issue by a REIT on the Irish exchange and was placed mainly with foreign institutions.

 Root and branch changes to Santander deal

Simon Blaxland
Simon Blaxland

Uro Property is the latest incarnation of what started in 2007 as a highly leveraged private equity acquisition of 1,150 of Santander’s Spanish branches.

Sun Capital, Phoenix Life and Drago Real Estate paid €2.4bn for the portfolio, financing the deal with €1.6bn of seven-year senior debt and €273.1m of mezzanine. BNP Paribas provided €317m of shorter-term funding and the purchasers a €210m “participating” loan.

The deal soon turned sour as the financial crisis roiled the credit markets and Spanish property values collapsed. In 2012, Uro’s predecessor, Samos Servicios y Gestiones, started talks with its lenders, eventually leading to the 2014 refinancing and restructuring.

This involved a debt-for-equity swap with the mezzanine lenders; the senior loan was restructured and the senior lenders acquired a stake.

Consequently, Uro is 84% controlled by Santander, Atisha Holdings (formerly Sun Capital), Phoenix Life, CaixaBank and BNP Paribas, with most of the remainder held by hedge funds.

A management revamp ahead of Uro’s initial public offering on Madrid’s junior stockmarket brought in Simon Blaxland as CEO in January.

In April, Uro sold 381 Santander branches to AXA REIM for €308m, a figure implying a 10% rise in their value since the end of the year, which will help underpin the bond issue.