Financial Times - September 25 2009
BBVA, Spain’s second-biggest bank, on Friday completed one of Spain’s largest sale and leaseback deals after agreeing the €1.15bn ($1.6bn) disposal of almost 950 branches and other properties.
The bank said it would book an extraordinary gain of €830m on the deal, which it would assign to provisions against future bad loans. It is the latest of several similar deals, under which companies sell their own buildings to specialist funds and then rent them back. That deal comes as BBVA prepares a €2bn convertible bond issue.
The operations have provided one of the few bright spots in a severely depressed commercial property market in Spanish cities, where capital values have fallen by about 50 per cent in the past two years.
The best known transaction was that of Santander, BBVA’s main competitor and the eurozone’s largest lender. A year ago it completed the €1.9bn sale and leaseback of its huge purpose-built headquarters, complete with golf course, on the outskirts of Madrid.
The country’s smaller savings bank networks have also been looking for buyers to free up much-need capital, but property agents report that interest is generally limited to well-known names.
Iberdrola, Spain’s largest electricity group, also cast around for a deal on its Madrid headquarters before deciding against a sale.
BBVA said on Friday it had agreed a long-term sale and leaseback to Tree Inversiones Inmobiliarias, a subsidiary of Deutsche Bank’s RREEF Limited. The fund has acquired an initial 948 properties – mainly bank branches – but there were reports on Friday that it, or another buyer, might take on more later in the year.
BBVA, which was not hit directly by the US subprime crisis but faces rising bad loans in the domestic market, described the accord with Deutsche as “flexible”.
Most Spanish lenders have been closing branches and reducing full-time staff in response to the economic crisis. In keeping with this, special clauses in the leaseback deal will allow BBVA to vacate up to 6 per cent of the branches, and replace properties at present included in the deal with others. This would permit it “flexibility in the management of the network”, it said.
Many banks globally have been exploring real estate sale and leaseback programmes to increase capital, particularly those that have been forced to take government bail-out money.
The sale of real estate can have a strong benefit for a bank’s tier one capital ratio, a key balance sheet measure. Banks not in distress also see it as an easy way to raise cash. Few regard owning real estate as a core part of their operations.
Credit Suisse is selling a building in Canary Wharf, London, for example, and people close to the bank say that the sale of real estate was part of a longstanding strategy to focus on core banking operations.
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