Pontegadea UK, one of Amancio Ortega’s main real estate companies, reported its first losses in its history in 2023, in a context of deterioration in the British real estate market and high interest rates. Last year’s losses come after the notable and unusual delay in approving the annual accounts for the 2022 financial year, which led to the sudden dismissal of the auditor of this subsidiary, EY, who was only reviewing its accounts for a year, after “difficult discussions” on the depreciation of the value of its assets during the 2022 financial year.
As Expansión reported on Thursday, Pontegadea UK sent a letter to the British Trade Registry on behalf of its until now auditor, EY, in which the company communicates its resignation and the reasons for its decision, as required British regulations.
After “extensive and difficult discussions with management on these matters,” EY had to conduct “additional audit procedures that were not planned” to complete its work. Its audit report on the 2022 accounts was approved (without reservation) on February 24. The accounts were drawn up four days earlier, almost a year later than usual. Pontegadea blames his former auditor for this delay.
Pontegadea UK’s accounts for the 2023 financial year are not yet available. According to sources from Amancio Ortega’s estate, “they are in progress”: “We had to request two extensions for 2022 due to delays in the EY audit report”, they indicate. But figures are already available. In 2023, the British subsidiary records the first red figures since its creation. It lost 2.7 million pounds (around 3.2 million euros), according to the latest accounts of Hills Place SARL, the instrumental company without employees based in Luxembourg with which Ortega controls 100% of this subsidiary in the United Kingdom .
In the letter explaining its resignation, dated October 4, EY highlights that during the review of Pontegadea UK’s 2022 accounts, it identified “certain conclusions relating to the impairment tests carried out by the company’s management in relation to the balance of investment properties”. »
After completing this work, Pontegadea UK “has decided to commission another audit firm to examine the financial statements corresponding to the financial year ending December 31, 2023,” explains EY in its letter. According to industry sources, the chosen one is Deloitte. This firm, another of the so-called “Big Four”, was already auditing Pontegadea UK until the appointment of EY, from the creation of the subsidiary in 2013 until the 2021 financial year and Deloitte does not confirm this appointment .
EY does not comment on this matter and refers to the letter sent to the UK Companies Registry. For his part, Pontegadea reduces the gap to “a problem of timingnot being able to meet the deadlines we require. Ortega’s estate assures that “there were no problems with the auditor” and emphasizes that the 2022 accounts are free of reservations.
The EY letter emphasizes that the breakup was not peaceful. The firm explains that this unforeseen additional work for Pontegadea UK has resulted in “significant additional delays and costs” and that “discussions regarding these additional costs remain pending at the date of our resignation”. For its work for the subsidiary in the 2022 financial year, Pontegadea UK paid EY 100,000 pounds, the same amount its predecessor Deloitte received a year earlier.
EY has been appointed to replace Deloitte as auditor of Pontegadea UK in 2023. In the case of Inditex, Spain’s largest listed company, the former Ernst & Young was also chosen in 2022 by the textile group to replace Deloitte as auditor for that year, 2023. and 2024. EY also audits the Pontegadea group. But since this year, not for its British activities.
The small losses recorded by Pontegadea UK in 2023 contrast with the profits of almost 360 million pounds (around 432 million euros) it recorded between 2013 and 2021, an average of around 42 million pounds annual profits. The streak was interrupted in 2022, when it was already touching the red numbers. In the year of these “difficult discussions” with EY due to the deterioration of its property portfolio, it had a turnover of £112.3 million (£111.8 million in 2021), but its profit was fell to a low of 1.2 million pounds, compared to a record 50.4 million pounds a year earlier.
The reason for this was precisely the deteriorations that had to be recorded in the value of its properties “due to the weakening of the real estate investment market, with returns influenced by macroeconomic factors such as rising interest rates and inflation. These market conditions remained throughout 2023,” he explains in his accounts.
These provisions amount to 46.7 million in 2022, almost ten times more than the 4.9 million a year previously, Deloitte still being auditor. Pontegadea began to recognize these deteriorations in 2020. The year of the start of the pandemic, the great confinement, the total shutdown of the office market and the rise of teleworking, the deteriorations were 3.7 million. In 2022, they skyrocketed and now the subsidiary is already in loss, according to the accounts of its Luxembourg owner.
Pontegadea UK’s 2022 financial year report signed by Amancio Ortega’s right-hand man, José Arnau, indicates that the rents it obtains from its tenants have remained “stable” during this financial year, but that “the profit Gross decreased due to an increase in repair costs. Operating profit was 19.1 million pounds, compared to 66.7 million in 2021.
2.7 billion
The United Kingdom is, after the United States, Amancio Ortega’s preferred market for purchasing assets. With some 2,700 million euros of real estate, this subsidiary is one of the most important in Pontegadea. With this group, Spain’s richest man controls just over half the capital of the Ibex’s largest company and is diversifying its multimillion-dollar assets into sectors such as bricks. Today, for the first time in a decade, the owner of Inditex is preparing its first sale of offices: a building in the center of Paris valued at around 80 million euros that it has just put up for sale, as Expansión reported Thursday.
The founder of the largest Spanish company has a fortune of 120.2 billion euros, according to Forbes, thanks to his 59.294% stake in the textile group, the dividends of which he partly invests in bricks around the world entire via Pontegadea. Last Monday, Ortega deposited half of the 2.845 million that he will collect in 2024 alone from the textile multinational. That day, his foundation announced the creation of a fund of 100 million to help the municipalities affected by DANA.
Since 2020, Pontegadea’s UK operations have been dependent on a Spanish company, Pontegadea GB 2020, created to isolate the risk of its UK operations into a separate company which owns Luxembourg-based Hills Place. In December 2019, a few weeks before Brexit came into force, this Luxembourg company paid Pontegadea a dividend of 81 million, at the then exchange rate.
The British subsidiary has continued its operations in recent years. Last summer it began negotiations with the Hines fund to acquire the Mint Building office building, a 5,500 square meter building in the center of Edinburgh, for an estimated price of £45 million.
London is one of Ortega’s favorite cities. In 2023, Pontegadea UK bought the former BBC offices in the expensive central Fitzrovia district from the Abrdn fund for £82 million. In 2022, it purchased a 30,000 square meter office building in Glasgow (Scotland), next to Central Station, for around €240 million.
The Zara founder’s biggest purchase in the London capital was The Post Building in 2019, for around €700 million. There he also acquired, among other properties, two properties on Oxford Street; 21 Saint-Jacques; the headquarters of the Río Tinto mining company also on Santiago Square; Almack House and Devonshire House, a gigantic building in Picadilly, among others.
In its real estate investments, Ortega commits to office buildings in good condition, located in the best locations in large cities and which bring secure income, in addition to hotels and commercial premises. In recent times, it has also acquired logistics platforms and luxury residential buildings. Its real estate portfolio already has more than 18 billion assets in market value, according to its last update in 2022.
