section

Annual Report 2015
Operational
model
19 | Mission, vision and values
21 | Creation of the value chain
22 | Investment methodology
33 | External management model
37 | Hispania’s corporate responsibility and sustainability
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Mission, vision and values
Vision
To construct a portfolio of real-estate
assets in the hotel, office and
residential segments, with an
intrinsically high potential to generate
rentals and appreciation by a careful
selection of each asset, execution and
achievement of attractive acquisition
prices and the definition and
implementation of individual
strategies for repositioning
and rental.
Secure
above-market
returns through
attractive acquisitions in
terms of risk-return and active
asset management.
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ANNUAL REPORT 2015
Mission
ANNUAL REPORT 2015
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Values
Strict corporate governance
It is a listed company managed externally by Azora, an
independent manager with more than €3.800 Mn under
management, and supervised by a Board of Directors with
a majority of independent members.
Experience and excellence
A sophisticated focus geared to the extraction of value inherent in
complex situations. Experience in real-estate investment, promotion
and management, as well as capital markets, finance, and mergers
and acquisitions, with the aim of creating added value.
Rigour in investment
Stringent investment criteria, risk analysis and
management, to ensure the construction of a quality
portfolio capable of generating attractive returns that
are sustainable in the long term.
Alignment with investors
The Azora management team is closely aligned with the
interests of shareholders through its investment in
Hispania, its commitments to exclusivity and its
remuneration scheme.
Transparency
Hispania forms part of the main benchmark index for the European real-estate sector:
the FTSE EPRA/Nareit Global Estate Index. It is also a member of the European Public
Real Estate Association (EPRA), with which it shares the commitment to transparency
and standardisation of reporting to capital markets.
20
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Value
chain
creation
• Board of Directors dominated
by independent members.
• Stringent investment and risk
analysis and management
criteria.
• Structure of incentives that
ensures the alignment of
interests with those of the
shareholders.
• Internal governance structure
focused on the value added
creation.
Azora Team
Selection of Strategy
• Years of accumulated
experience and
unquestioned integrity.
• Portfolio diversified by assets - hotels,
offices and residential - and by sources
of value - generation of rentals and
asset appreciation.
• Size and depth of the
team, with experience
across all the real-estate
value chain.
• Diversity of capacities:
real estate, consulting,
restructuring, M&A and
capital markets.
• Excellence.
• High-quality assets.
• Superior
returns.
• Unique opportunities: assets with
intrinsic value linked to complex
situations that demand structured
solutions as well as off-market
acquisitions.
• Diversified in
source and
different type of
investments.
• Active real-estate management.
• Sustainable.
• Flexibility in investment and
management and ability to react to the
real-estate cycle.
• Ethical framework that
promotes best practice.
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Generation
of value for
our
investors
ANNUAL REPORT 2015
Corporate Governance
Hispania aims to create a portfolio of high-quality real estate assets through
its investments and Azora’s active management, investing mainly in hotels,
offices and residential properties in Spain. As a secondary aspect of its
business, Hispania also considers investment in other types of real estate
assets, provided it can obtain the expected return for its shareholders.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
ANNUAL REPORT 2015
Investment
methodology
Hispania’s objective is to generate return through
the use of investment opportunities that arise in
the Spanish real estate market. In this way, in line
with its criteria for action, Hispania is accumulating a diversified portfolio of high-quality assets
whose strategic repositioning contributes to
the objectives it has set. The focus is on assets
whose location, quality and potential to produce
stable cash flows in the long term create greatest
value for shareholders.
Hispania basically invests in hotels, offices and
residential buildings that are completed, good
quality turnkeys, located in established zones
22
(Madrid, Barcelona and holiday areas) and, selectively, in other major cities. There is an investment
limit per asset of 100 million euro of shareholders’
funds. Other types of assets and development
opportunities may also be studied, with an investment limit of 20% of gross asset value (GAV).
The aim is to achieve a return of 15% with a
selection of assets with the potential to generate
stable cash flows or capable of gaining value over
time, while achieving a balance between returns
through management, designing and implementing active and appropriate strategies, and the
possibility of generating capital gains.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Methodology
- Good reputation with an
extensive network of
contacts.
- Proven capacity for
execution.
- Well-prepared team focused
on the business.
Attractive entry
prices with clear
possibilities for
repositioning
Ability to manage
complex operations
- Companies in complex
situations.
- Initial purchase of debt to gain
access to ownership.
- Corporate transactions.
Intensive asset management
- Ambitious and extensive capex improvement plan.
- Active management of the portfolio occupancy
rate.
- Consolidated relations with the main tenants
and hotel operators.
- Joint ventures.
- Residential management through an asset
management platform controlled by the Azora
Group (51%).
High revaluation, low
risk and independence
from the market
situation
High-quality portfolio
that benefits from future
recovery of rental and
valuation levels
23
ANNUAL REPORT 2015
Off-market
acquisitions
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
ANNUAL REPORT 2015
Hotels
Hispania only invests in hotel businesses in key
and high return holiday locations, as well as selective zones in top-grade urban areas. Through this
investment criteria, Hispania has built a a diversified and differentiated asset portfolio that strengthens the unique characteristics of each of the
properties and highlights the significant unrealised value in some urban properties, capable of
offering a stable return in a strong market with
solid prospects and possibilities.
In 2015, Hispania and the Barceló Group created
a hotel alliance focused on the holiday segment.
The agreement has been a linchpin of Hispania’s
ambitious plan to continue to increase its hotel
portfolio through the purchase or contribution of
new hotels. The aim is to double its size, creating
a unique Spanish holiday portfolio with assets
24
H
managed by a variety of operators that are leaders
in this market.
The hotel management strategy includes initiatives aimed at:
• Improving the quality of the assets.
• Repositioning the assets by selecting the most
appropriate operator.
• Correcting the operational models by implementing good practice in the management of
hotel assets.
As of 31 December 2015 Hispania had a total of
8,234 keys divided into 27 hotels and 2 shopping
centres.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
1,915
Peninsula*
KEYS
1,398
Canary Islands
Balearic Islands
KEYS
6,050
Tenerife
KEYS
Arrecife
Santa Cruz
de Tenerife
G
Las Palmas
de Gran Canaria
A
B
C
D
Canary Islands
6,050
KEYS**
A
Barceló Varadero – 312 keys
B
Meliá J.del Teide – 299 keys
C
Sandos San Blas – 331 keys
D
Barceló Las Margaritas – 484 keys
Dunas Don Gregory – 241 keys
Dunas Suites & Villas – 301 keys
Dunas Maspalomas – 205 keys
Dunas Mirador – 436 keys
Gran Canaria
F
E
Fuerteventura
E
Barceló Jandía Mar – 485 keys
Barceló Jandía Playa – 634 keys
F
Barceló Fuerteventura – 486 keys
Barceló Castillo Beach – 480 keys
G
Gran Bahía Real – 242 keys
Suite Atlantis – 383 keys
H
Barceló Teguise – 305 keys
Barceló Lanzarote – 426 keys
(*) Excluding Hotel Maza, as it is a non-strategic asset for the company.
(**) Including the portfolio of Dunas Hotels & Resort wich execution was still pending at the end of the period.
25
Puerto
del Rosario
ANNUAL REPORT 2015
H
Lanzarote
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Balearic Islands
I
Barceló Pueblo Ibiza – 346 keys
L
Barceló Ponent Playa – 432 keys
J
Barceló Cala Viñas – 330 keys
M
Barceló Pueblo Menorca – 374 keys
K
Barceló Pueblo Park – 275 keys
N
Barceló Hamilton – 158 keys
Peninsula*
ANNUAL REPORT 2015
Barcelona
1,915
KEYS
Menorca
Palma
de Mallorca
J
I
K
M
Madrid
San Sebastián
de los Reyes
N
Mallorca
M30
O
Ibiza
Huelva
Málaga
P
KEYS
U
MADRID
L
1,398
S
Q
V
Almería
R
M40
T
O
Barceló Isla Cristina – 341 keys
S
Hesperia Ramblas – 70 keys
P
Guadalmina – 178 keys
T
NH Pacífico – 62 keys
Q
Vincci Málaga – 105 keys
U
NH SS de los Reyes – 99 keys
R
Barceló Cabo de Gata – 229 keys
V
Holiday Inn Bernabéu – 314 keys
(*) Excluding Hotel Maza, as it is a non-strategic asset for the company.
26
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Office
buildings
O
ANNUAL REPORT 2015
Hispania focuses on office properties located in the
most consolidated business districts of Madrid and
Barcelona. It looks for office buildings in decentralised or secondary zones in the city centre, as well
as making one-off investments in central business
districts (CBDs), focusing on the highest quality
assets or assets that after reform and repositioning
could enter into this category.
The office management strategy includes the
following aspects:
27
• Long-term sustainability analysis of the different
sub-markets and products.
• Active management of tenants.
• Repositioning and improvement of building
functionality.
• Optimisation of occupancy levels.
Currently, Hispania has 25 buildings in its portfolio,
making up a total of 153,621 sqm.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Prime
secondary
area
83,727
sqm
Barcelona
39,506
sqm
ANNUAL REPORT 2015
Madrid
26,100
sqm
Madrid
Business district
G
Business
district
MADRID
F
EC
CHAMARTÍN
MONCLOA
ARAVACA
Malaga
M30
4.288
sqm
B
D
A
HORTALEZA
M30
SALAMANCA
RETIRO
26,100
sqm
A
Ppe. Vergara 108 - 6,724 sqm
E
C. Azcárraga 5 - 3,547 sqm
B
Ppe. Vergara Auditorio - 4,815 sqm
F
Orense - 1,535 sqm
C
C. Azcárraga 3 - 5,138 sqm
G
Avda. Burgos - 762 sqm
D
Pechuán - 3,579 sqm
28
CBD Area
CIUDAD LINEAL
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
P
ALCOBENDAS
Madrid
J
LAS ROZAS
Prime secondary
area
I
Foster Wheeler – 11,058 sqm
K
Ramírez Arellano – 6,364 sqm
Murano – 7,574 sqm
L
M40
MADRID
CHAMARTÍN
MONCLOA
ARAVACA
América – 9,272 sqm
M Altamar – 5,219 sqm
Barcelona
M30
H
BARAJAS
K L
I
S
SAN BLAS
AP7
SALAMANCA
M30
MONCADA
Y REIXACH
CERDANYOLA
SANT CUGAT
DEL VALLÈS
C58
RETIRO
BADALONA
N Arcis – 4,691 sqm
Talos – 3,636 sqm
B20
O Av. de Bruselas – 3,458 sqm
P
Poeta R. Morales – 2,763 sqm
BARCELONA
39,506
sqm
Q
ON Building – 6,908 sqm
R
Les Glòries – Diagonal – 9,519 sqm
Les Glòries – Gran Vía – 8,680 sqm
S
Cristal – 11,088 sqm
T
Plaza Les Glòries – 3,311 sqm
29
L’HOSPITALET
DE LLOBREGAT
B10
R
Q
T
ANNUAL REPORT 2015
J
sqm
N
H Cristalia Play – 10,928 sqm
Torre 30 – 11,417 sqm
Mizar – 7,348 sqm
83,727
M O
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
ANNUAL REPORT 2015
Residential
Hispania invests in residential properties located in
established urban areas in Madrid and Barcelona,
and occasionally in other provincial capitals, which
represent a sustainable and accredited demand over
time. It prioritises whole buildings for rent with the
aim of creating value through active asset management. This gives a good return on investment thanks
to a smart capex deployment, leading to significant
increases in income and revaluation.
The residential asset strategy includes the following
aspects:
• Improvements in buildings to bring them up to
maximum quality standards.
30
R
• Optimisation of occupancy levels.
• Proactive building maintenance.
• Excellent service for tenants.
• Economies of scale in cost management.
• Efficient back-office processes (invoicing, collection, settlement, etc.).
Currently Hispania has 4 buildings and a portfolio
of 684 homes totalling 66,873 sqm (including the
commercial premises acquired in the Sanchinarro
complex).
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
484
UNITS
Madrid
Barcelona
Madrid
SAN SEBASTIÁN
DE LOS REYES
ALCOBENDAS
UNITS
LAS ROZAS
A
C
MAJADOHONDA
M30
MADRID
M40
BARAJAS
CHAMARTÍN
MONCLOA
ARAVACA
484
UNITS
ANNUAL REPORT 2015
200
B
A
Sanchinarro – 285 units
B
San Sebastián de los Reyes – 84 units
C
Majadahonda – 115 units
31
SAN BLAS
SALAMANCA
RETIRO
M30
SAN MARTIN
DE PROVENSALS
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
C31
EL BESOS I
EL MARESME
C33
Barcelona
C31
ANNUAL REPORT 2015
Plaça de les
Glóries Catalanes
D
l
gona
ia
Av. D
D
Isla del Cielo – 200 units
SANT MARTI
200
B10
EL POBLENOU
UNITS
CIUTADELLA
32
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
External
management
model
The Azora Group was founded in 2003, and has
developed into a multi-disciplinary investment and
management platform made up of more than 340
professionals and over 3,800 million euro in real
HOTELS
H
OFFICES
Led by
Javier Arús
Team
13
estate assets under management in Spain, Europe
and the United States. It is one of the most important companies of its kind in Spain, and can act
across the whole value creation chain, from the
planning, structuring and execution of investments
to repositioning of assets, new developments and
integrated asset management.
Azora contributes a management team made
up of executives with wide-ranging experience in
real estate management and development, investments, structuring, mergers and acquisitions
and the capital markets, in Spain and also in the
European and American markets.
O
RESIDENTIAL
Led by
Jean Marc Parnier
Javier Rodríguez Heredia
Team
8
R
Led by
Javier Rodríguez-Heredia
Team*
126
(*) Azora’s servicing platform manages all residential units managed by Azora in Hispania and other funds.
33
ANNUAL REPORT 2015
The management of the investment strategy and
profit generation from the Hispania asset portfolio
is in the hands of Azora Gestión S.G.I.I.C., S.A., an
entity regulated by the Spanish Securities Market
Commission (CNMV) and part of the Azora Group,
with which it signed a framework agreement granting Hispania exclusivity in investments in Spain,
except for student halls of residence during an
initial part of the investment period.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
ANNUAL REPORT 2015
Management
team
Juan del
Rivero
Cristina García-Peri
Chairman of
Azora Capital
Managing Director of Hispania
Activos Inmobiliarios
Juan del Rivero is Chairman of Azora Capital. He is
also director and member of the Advisory Council
of Uría & Menéndez, and member of the Alternative
Investments Committee of Omega Capital. His is
also Advisor for StormHarbour.
Before joining Grupo Azora in May 2012, he
worked for 23 years in Goldman Sachs as head
of Investment Banking for Spain and Portugal,
Marketing Manager for Europe (1994), President for
Spain and Portugal and partner from 2002. During
this period Goldman Sachs became recognised
as a benchmark investment bank, leading operations such as the privatisation and sale of family
companies to international investors. Before that,
for a year he headed up the asset management
department of Banco Santander de Negocios and
was executive director of Chase Manhattan Bank
in Madrid.
34
Before joining the Azora Group in 2011, she worked for 16 years in the
investment banking sector, 2 years in Merrill Lunch (two years) and 14
years in JP Morgan.
She began her career in investment banking in J.P. Morgan, where for
four years she held a number of positions in M&A. For ten years she was
then Managing Director responsible for Corporate Equity Derivatives for
Europe, the Middle East and Africa. Her last two years in investment
banking were in Merrill Lynch, where as well as continuing to head up
Corporate Equity Derivatives for Europe, the Middle East and Africa, she
was head of Equity Capital Markets for Spain and Portugal.
Cristina García-Peri is Managing Director of Hispania, and responsible
for Corporate Development and Strategy at the Azora Group. She is also
director of EVO Banco and Chair of its Risks Committee. In addition, she is
secretary of the Board of Trustees of the NGO Plan International in Spain.
Cristina graduated in E2 in ICADE in Economics and Business with Summa
Cum Laude in 1986. She later took an MBA in Harvard Business School,
which she completed in 1990.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Jean Marc
Parnier
Javier
Rodríguez-Heredia
Javier Arús
Head of the Offices
segment
Investment Manager of
the Offices segment and
Residential segment
Investment Manager of
the Hotels segment
Before joining the Azora Group, Jean Marc worked
for 15 years for the Bouygues Immobilier group,
the biggest French development group. Initially he
was regional manager for Catalonia, and starting
in 1999 general manager of Bouygues Inmobiliaria,
the group’s subsidiary for Spain and Portugal. In
2005 he was appointed general manager for
Europe for the whole group, and was head of the
subsidiaries in Spain, Portugal, Germany, Belgium
and Poland. Throughout his career Jean Marc has
developed, constructed and sold around 200,000
square metres of offices and commercial property
to institutional investors. In his current period in the
Azora Group, he has acquired more than 100,000
square metres of offices in Europe.
Javier Rodríguez-Heredia is a specialist in offices
and restructuring operations. Recently, he has led
special situations within the Spanish real estate
market, such as the acquisition from the SAREB
fund of a sub-stake of €437 Mn in the syndicated
loans of a real estate company.
Before joining the Azora Group in 2007, Javier
had a varied professional experience. He worked
for 15 years as a consultant at McKinsey&Co,
in the automotive sector (as President of the
Automotive Distribution Association) and in the
energy sector (as general manager for Corporate
and International Development of Corporación
Eólica CESA, S.A.).
35
Javier Arús has headed the restructuring of the
Carey fund after its management was mandated
to the Azora Group. This restructuring has led to
a favourable conclusion of most of the existing
litigation, the refinancing of the vehicle and the
reduction of Carey debts. As a result, the fund was
withdrawn from the pre-insolvency proceedings it
was subject to before its management by Azora,
and thus its viability was assured.
Before joining the Azora Group in 2010, he worked
for 15 years in Banco Santander, where he held a
variety of positions within the group in investment
banking, asset management and private banking.
In 2004 he was appointed general manager of
Banco Santander Suisse and in 2007 head of the
Santander Private Banking International Division.
ANNUAL REPORT 2015
Jean-Marc Parnier joined the Azora Group in May
2007 to head up the investment and management
wing of Azora Europe, the Azora Group’s office investment vehicle in Europe. Currently he is responsible
for the whole offices segment of Azora Capital.
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
ANNUAL REPORT 2015
Investment Management
Agreement (IMA)
On 21 February 2014 Hispania and Azora signed
the Investment Management Agreement (IMA),
which regulates and sets out the group’s main
strategic lines of investment.
The IMA sets out the issues that are reserved
for the Board and the Executive Committee,
the general lines of some policies such debt
and liquidity management, and the pillars of
Corporate Governance in Spain, including the
composition of the Board of Directors (most of
whose members must be independent, including its Chairman) and how to handle possible
conflicts of interest.
It also establishes the remuneration scheme for
Azora’s management work, including a fixed and
variable part:
Base fees (fixed):
1.25% per year, calculated on EPRA NAV.
Incentive fees (variable)
Which depends on the earnings distributed
to shareholders as cash flows, structured as
follows:
•
The management company will only have
the right to receive Incentive Fees once the
shareholders have obtained an internal rate
of return of 10%.
•
Azora will receive maximum Incentive Fees
equivalent to 20% of the total cash available
to distribute between the shareholders and
manager above the contributions made by
shareholders.
The duration of the IMA is six years from the stock
market flotation of Hispania. It can be extended
by mutual agreement at any time in this period,
with the approval of the shareholders.
The IMA’s investment policy establishes an initial
investment period of three years starting with
the stock market flotation, which is currently in
force.
36
Hispania at a Glance / Letter from the Chairman / Operational model
Strategy / Corporate Governance / 2015 / About this report
Hispania’s
corporate
responsibility
and sustainability
Compliance with the law and good practice in Corporate Responsibility and
Sustainability is a key aspect of management and an essential factor for
generating value and improving economic efficiency.
Hispania and
its stakeholders
Hispania observes and complies with the best
corporate governance practices with the aim
of generating confidence and transparency for
domestic and foreign investors, and to establish
a sound relationship with the rest of its
stakeholders through appropriate segmentation
of functions, duties and responsibilities.
In addition, transparent communication of activities for both investors and the
rest of society is one of the pillars of Hispania’s strategy and ethics. It offers
full and timely documentation of its investments and the subsequent work it
carries out on its assets on the website http://www.hispania.es/.
37
ANNUAL REPORT 2015
Hispania is aware that the vision and expectations of the stakeholders with
whom it relates helps prioritise actions to be carried out and the resources
invested in the business. Hispania has an ongoing relationship with its investors and extends this relationship to tenants, suppliers, external advisors and
key environmental and social organisations.