In H1 2019, Sareb added €880 million worth of properties to its balance sheet, 46.5% more than it added in H1 2018. This increase comes as a result of the company’s new business strategy aimed at converting developer loans into properties – a far more liquid asset class. The €880 million correspond to a mixture of 9,343 properties (land, as well as residential and commercial properties), that will now be easier to sell in the market.
During the first half of 2019 the company continued to divest assets, reducing its loan and property portfolio (residential, land and commercial assets) by €719 million, according to Sareb’s H1 2019 Business Report published today .
As at 30 June 2019, developer loans made up 62% of Sareb’s asset portfolio, with their value standing at €20,793 million. Properties accounted for the remaining 38%, with housing representing 19%, land 15%, and commercial properties the rest.
In the six and a half years since it was founded, Sareb has reduced its original loan portfolio by 47.2%. In H1 2019 alone the company reduced it by 5.2%. The amount of properties on its books has remained fairly flat, given that over the years property sales have been offset by the addition of new assets. Since it was founded, the company has divested €17,145 million in properties and loans, equating to 34% of its original portfolio.
As well as reducing its assets under management, Sareb is also committed to using its revenue to cancel the senior debt that it issued to acquire its initial asset portfolio and that is underwritten by the Spanish state. Since it was first created, Sareb has repaid almost €15,021 million in debt.
Business activity in H1 2019
In terms of its business activity, Sareb saw its revenues dip slightly in H1 2019, primarily as a result of ramping up its loan to property conversion strategy, but also owing to the fact that its portfolio was smaller than the previous year. This conversion strategy forms part of its bid to safeguard and maximise the value of assets under management.
During H1 2019, company revenue fell by 33.2% to €1,052.70 million. There was a particular decline in loan revenues, which dropped 45.1% y-o-y following the company’s decision to preserve the value of its loans by converting them into collateral property. This performance is in line with company forecasts.
Sareb’s new strategy also aims to mitigate losses incurred via institutional loan sales, as the discounts required for these types of transactions in the current market context fail to safeguard the value of the portfolio managed by the company.
Despite the drop in revenue from loans under management, this area provided €539.9 million of revenue during H1 2019. As set out in the Business Report, at the end of H1 Sareb had 12,915 debtors, down 9.7% y-o-y. The company has stepped up the legal proceedings relating to its loan portfolio, although donations in lieu and foreclosures continue to account for the majority of its transactions.
The decline in property management and sales (residential, land and commercial assets) was less pronounced, down 13.6% to €512.7 million at the end of June.
In this regard, a notable decision by the company was to keep certain assets, such as land with strong commercial potential, on its balance sheet in order to develop them itself in the future. The lion’s share of the company’s revenues come from residential sales (housing and ancillary properties), which were impacted by the company’s decision to limit sales via its Sales Growth Plans (PDVs), which allow developers that hold debt with Sareb to market assets held as collateral via their balance sheets.
Income from property management and sales accounted for 48.7% of total revenue during H1 2019.
Between January and June 2019, the company finalised several strategic projects that it launched during H2 2018, which primarily focus on adding value to properties and seeking specialist management solutions for them.
During H1, the company created a vehicle called Árqura Homes, with the objective of developing over 17,000 properties across Spain by 2027. This Bank Asset Fund (FAB) received land and developments, both under construction and temporarily suspended, from Sareb with a total value of €811 million. Värde Partners will take a 10% stake in these assets. These assets will be managed by Aelca, one of the leading real estate developers in Spain.
The company has also made progress in the rental market. In 2017, it created a Socimi specialising in rental housing, called Témpore Properties, to further drive the divestment of its portfolio. At the close of H1 2019, the company had sold 75% of its shares to TPG Real Estate Partners (TREP).
Contribution to Sustainable Development Goals (SDG)
Sareb’s H1 2019 Business Report can be found on the company’s website and was published in line with the International Integrated Reporting Framework, as well as the Global Reporting Initiative (GRI) Standards relating to publications of sustainability reports.
Aside from information regarding the company’s business activity during H1 2019 and since its creation, the report also covers Sareb’s social impact and its contribution to several of the United Nations’ Sustainable Development Goals (SDG). These actions include the company’s divestment activity, the reduction of its senior debt underwritten by the Spanish state, its drive to boost economic growth in various regions and its affordable social housing schemes.