Open Letter to the Board of Realia Business S.A.
LONDON, Nov. 30, 2018 /PRNewswire/ --
Mr. Juan Rodríguez Torres
Chairman of the Board
REALIA BUSINESS, S.A.
Av. Del Camino de Santiago, 40
28050 Madrid
By registered mail
30 November 2018
Dear Mr. Rodríguez Torres:
We refer to the €149 million capital increase that Realia Business, S.A. ("Realia" or the "Company") is proposing to carry out, as announced by the Company on November 15 in an hecho relevante, as amended on November 16 (the "Capital Increase"), as well as our previous letter of 20 November 2018 conveying our concerns in relation to the Capital Increase.
We note that Realia and its Board of Directors have neither responded to nor even acknowledged receipt of our letter.
Nor, it seems, has Realia provided any meaningful insight as to why the company needs to conduct the Capital Increase – where Inversora Carso has declared its intention to subscribe any shares not taken up by minorities – for capital that we believe it does not need.
Indeed, the prospectus published on 27 November 2018 setting out the conditions of the Capital Increase offers a limited rationale that, in our view, does not ring true:
- First, the prospectus affirms that EUR 120 million will be used to cancel the debt of the housebuilding arm of Realia; however, the prospectus omits the fact that, as shown by Realia's September 2018 accounts, the net debt of the housebuilding arm is actually around EUR 92 million as there is over EUR 27 million of cash in the business.
- Second, the prospectus affirms that Realia's development of 301 units in the four identified projects will cost EUR 95 million – implying a construction cost of close to EUR 316,000 per unit, given that Realia already owns the land on which those units are going to be built. We believe that this is a clear exaggeration of the real cost per unit. On average, we calculate that other listed housebuilders in the country (Metrovacesa, Aedas, Neinor, Quabit and Inmobiliaria del Sur) have a range of 46-50% urbanization and construction costs for their units as a percentage of the selling price of around EUR 250,000 on average, indicating that the construction cost of units in Spain is rather in the EUR 115,000-125,000 per unit range. As such, Realia will in all likelihood only require at most EUR 35 million to bring these promotions to full completion, assuming no pre-sales and no bank financing, which is generally available in the Spanish market at present once a level of presales of 30% of the project is achieved. As such, we believe that actual cash needs of the company are likely to be within the actual EUR 27 million cash balance of Realia's housebuilding arm.
Separately, we note a recent press article disclosing a "swap" by Realia in Leganés in February 2018 of a plot of land with a market value of EUR 4 million in exchange for a land bank that may be worth up to EUR 40 million.1 With this land asset swap, the company has apparently disposed of an unproductive piece of rural land and has instead received several high-potential land plots for commercial use situated across the road from its Plaza Nueva shopping centre. The Leganés agreement also seems to give Realia the right to receive EUR 8 million in interest from the Leganés municipality2. This would clearly be a material transaction to Realia and relevant to the dubious need for the Capital Increase. However, Realia has not informed the market of any aspect of the transaction either through a "hecho relevante" or in its quarterly accounts.
We reiterate the concerns raised in our earlier letter. We intend to continue to evaluate the terms of the Capital Increase, the disclosure contained in the prospectus and other relevant matters and communicate our concerns to you as well as to the market.
Sincerely,
Polygon Global Partners LLP
Contact:
Polygon Global Partners LLP
[email protected]
SOURCE Polygon Global Partners LLP
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