Hispania has concluded its first full year of operation in 2015 with results that have surpassed expectations. In less than 18 months, not only have we invested all the capital obtained after the flotation and part of the accelerated bookbuild offering, but our asset portfolio has appreciated by 14.7% compared with its purchase price to 1,425 million euro. The three investment segments - offices, hotels and residential - have performed exceptionally well from the start, with high rental income amounting to 37.8 million euro in 2015.
All this has been achieved thanks to Hispania’s firm and clear strategy that has guided our activity since the start, based on the search for attractive acquisitions, impeccable execution of its repositioning and outstanding management in terms of cost improvement, occupancy and rentals.
With the continuous idea of creating a solvent portfolio, in 2015 we invested 841 million euro, more than twice the figure in 2014, with a net expected return of 7.1%. Net attributable earnings per share amounted to €0.90, 190% up on the figure for 2014 and net asset value per share (EPRA NAV) grew by 16% on 2014 to €11.69 per share. These results will allow Hispania to complete its process of transforming into a SOCIMI and pay its first dividend in 2016, barely two years after its incorporation.
Excellent results in a slightly more complicated environment than expected.
Although the sectors in which Hispania’s activity is focused performed solidly in 2015, the international macroeconomic setting, above all in the second half of the year, has become increasingly difficult. To this has been added the situation of domestic political instability in the first half of 2016.
Spanish GDP grew by 3.2% in 2015, the biggest rise since the start of the crisis in 2008. In this environment of general growth, the real estate sector performed better than most, with increased demand against a backdrop of stabilisation, rising rents and yield compression. The performance of the sector has been consistent in residential housing, where the levels of activity increased; in the office market, which registered a rise of over 20% in contracts for spaces; and above all, in the tourism sector, which posted a record number of tourists in Spain, at 68 million visitors.
Despite all this, the Spanish stock market has been impacted by the situation of instability, leading to a negative trend in its general index, the IBEX-35. However, the medium-cap and particularly small-cap indices in which we are listed performed better, as did the FTSE EPRA/NAREIT Global State Index, the index specialised in real estate companies, thus demonstrating yet again the good performance of the markets in which Hispania is present. Hispania’s shares have benefited from the company’s strong investment activity and the progress made in portfolio management. It maintained its stability when the market gave signs of some exhaustion at the end of the year. Our share price started the year at €10.8 and closed 31 December at €13.1 per share, reaching a high of €15 in August 2015.
Leaders in vacational hotel investment
Of the 841 million euro of investment in 2015, 633 million euro (75%) corresponded to hotel investments. The most important hotel operation in 2015 was undoubtedly the purchase of 76% of the vacational portfolio of the Barceló Group, which includes 16 hotel assets and some 6,100 keys, located mainly in the Canary Islands, one of the priority areas in Hispania’s hotel strategy. In addition to this operation, Hispania acquired assets managed by other important operators, such as Sandos and the Atlantis Group, to add to its hotels managed by operators that include Meliá and NH.
At the close of the year, Hispania had 27 hotel properties and 8,234 keys, valued at 845 million euro, which accounted for nearly 60% of the total portfolio, making it the Company’s main focus.
Spain is the third most popular tourist destination in the world, after the U.S. and France, and the biggest in terms of holiday beds, at around 850,000 keys and a varied and quality visitor base, for which the most important source countries are the UK, Germany and France. Spain is also the only European Union country that offers an all-year-round holiday destination: the Canary Islands. The Canary Islands are a priority zone for Hispania’s investment, with nearly 70% of the total value of its hotels.
The annualised return of the hotel portfolio on Hispania’s cost of investment was 8.9% in 2015, making it the asset class with the greatest potential return for the Company, and one of the highest when compared with other types of real estate assets. This is particularly true when the return takes into account the high quality of assets in which the Company is investing and the low risk to which it is exposed, thanks to the fixed and variable contracts with guaranteed minimum incomes.
This important hotel portfolio offers us a significant critical mass when it comes to negotiating with future sellers and operators, and also for generating synergies in management. The Company plans to continue with its strong commitment to this sector and to double the size of the portfolio. The aim is to keep beting strongly on this segment and manage to duplicate its size, creating a Spanish holiday catalogue with high-return assets, managed by various operators and with a portfolio of stable income, anchored in agreements with a significant component of fixed return, but with sufficient exposure to the growth in holiday tourism in Spain.
Even after three consecutive years of record tourist numbers, the outlook for the Spanish holiday hotel sector is highly promising and confirms the positive trend in assets that are already in the portfolio. An example are those in the portfolio managed by the Barceló Group, which started the first quarter of 2016 with an increase of 40.4% in income from bookings for February, March and April.
Solid office portfolio
Within the office business, 8 new assets were acquired, with an investment of 146 million euro, 17% of the total investment in 2015.
Hispania has continued to strengthen its presence in the most important business and central areas in Madrid, Barcelona and Malaga. The year ended with a total of some 154,000 square metres of gross leasable area and a valuation of 405 million euro.
Hispania has followed its investment discipline rigorously, not becoming involved in situations of excessive competition in its investments and avoiding overpaying for them. Proof of this is the average acquisition cost of €2,389/sqm, which represents a discount of around 9% on the market price according to CBRE valuations, and the potential return on the investment cost of 6.7%, which is one of the highest in the sector.
Hispania’s aim is to continue investing and growing in offices, provided that the quality of the portfolio and its attractive returns can be maintained. Our strategy continues to be to purchase high-quality assets at attractive prices in consolidated areas, and through their repositioning to convert them into the highest quality assets in each zone. We pledge to offer our tenants the best quality/rent ratio.
Having completed 2015 with an occupancy rate of 77%, Hispania has begun 2016 with a net rented area of nearly 6,104 sqm, which gives us an occupancy rate of 81%. The rental market should continue its good performance in 2016. Our Company’s aim is to achieve an average occupancy rate of 90% by the end of the year, and to continue to increase the average rents in its portfolio, thanks to the quality of its buildings and the major repositioning work that is being undertaken.
Unique exposure to the residential rental market
Hispania has continued to increase its portfolio of residential units under rent, with the purchase in 2015 of a complex of 285 flats in Madrid in the Sanchinarro area, one of the most established and most attractive for first homes, for 61 million euro.
At the close of 2015, the residential portfolio was valued at €175 Mn. Although it is the smallest of the three types of assets in which we invest, it is by no means the least attractive.
The residential portfolio has been acquired with an average discount of 22% on the retail price for its areas and by the close of the year has already registered a revaluation of 15.8% compared to its acquisition. In addition, rentals grew in average a 7% in 2015, thanks to the good performance of the market in general and the major repositioning plan that Hispania has carried out on all its residential assets. This growth has achieved up to 15% in residential units Isla del Cielo as a result of its reposition.
The housing market in Spain revived in 2015, with an increase in housing valuations of 2.4% on the previous year and 6.7% on 2011. This trend is expected to continue in 2016, in which we expect a steady revaluation of our housing portfolio. Combined with the lack of quality product for rent and the growing appetite for rental among the younger generations, this makes us fully confident in the capacity of this part of our portfolio to achieve very attractive returns in line with Hispania’s objectives.
2016, a further year of sustained and sustainable returns for Hispania
Hispania began 2016 with assets of 1,425 million euro in its portfolio, acquired at very attractive prices and with a potential return of 7.7% on their acquisition cost, one of the highest in the sector. In terms of its financial health, Hispania’s debt levels continue below 30%, with an average cost of all its debt of 2.7% and the capacity for continued growth in its investment.
The hotel portfolio, much of which is already stabilised, will generate significant earnings and cash starting in the first quarter. Given the positive trend in the sector in general, and of the Canary Islands in particular, it should generate a gross yield of over 9%. The office and residential portfolios will continue with major work on the repositioning and improvement in the quality of all our assets, gradually stabilising towards the end of 2016, with the aim of achieving our target occupancy levels of around 90%.
With respect to the markets in general, Hispania begins the year with good prospects in its three segments: an excellent momentum in the holiday market, which is expected to continue; a solid and growing office rental portfolio; and a residential market that continues to consolidate its recovery.
In 2016 one of the milestones we set ourselves at our stock-market flotation will also be achieved: the complete transformation of Hispania into a SOCIMI, and together with this, the first distribution of earnings for our shareholders, in 2016, from the cash that we hope to generate in the new year.
Our goal continues to be to generate higher returns than those of the market in general, thanks to our rigorous investment strategy and the active management of all our investments. Hispania aims to generate above-market returns, regardless of the point of the cycle.
Moreover, Hispania continues to be committed to its duty to protect the environment, participating in sustainable development and complying with society’s demands in this respect. 2016 will be an important year for us, including starting the process of obtaining the BREEAM certification for our office buildings. At the same time, we will continue to make improvements in our waste management, energy efficiency and emissions reduction, responsible consumption of water and reduced consumption of materials in all our assets.
Nothing we have achieved all this year would have been possible without the efficient work carried out by our manager Azora and the dedication, quality and excellence of its executives. It is only right to thank them here for their efforts and the results achieved.
Lastly, in my own name and in that of all the members of the Board of Directors, I would like to thank our investors for having continued to put their trust in Hispania, and reaffirm our commitment and that of the management team to continue to dedicate all our efforts to ensure that Hispania remains a model of good governance, investment discipline and profitability.
Rafael MirandaChairman of Hispania Activos Inmobiliarios