Pontegadea UK, one of Amancio Ortega’s main real estate companies, declared the first losses in its history in 2023, in a context of deterioration in the British real estate market and high interest rates. The losses of last year come after the notable and unusual delay in approving the annual accounts for the 2022 financial year, which has resulted in the sudden dismissal of the auditor of that subsidiary, EY, who had only been reviewing its accounts for a year, after “difficult discussions.” ” on the impairment of the value of its assets in fiscal year 2022.
As Expansión reported this Thursday, Pontegadea UK has sent a letter to the British Commercial Registry from its until now auditor, EY, in which the firm communicates its resignation and the reasons for its decision, as required by United Kingdom regulations.
After “extensive and difficult discussions with management on these issues”, EY had to carry out “additional audit procedures that were not planned” to complete its work. Its audit report on the 2022 accounts was approved (without qualifications) on February 24. The accounts were formulated four days earlier, nearly a year later than normal. Pontegadea blames the delay on his former auditor.
Pontegadea UK accounts for the financial year 2023 are not yet available. According to sources from Amancio Ortega’s estate, “they are in process”: “We had to request two extensions for 2022 due to the delays in the EY audit report,” they indicate. But there are already figures available. In 2023, the British subsidiary recorded the first red numbers since its creation. It lost 2.7 million pounds (about 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 his resignation, dated October 4, EY points out that in the review of Pontegadea UK’s 2022 accounts it identified “certain findings in relation to the impairment tests carried out by the company’s management in relation to with the balance of investment properties.”
After completing these works, Pontegadea UK “decided to appoint another audit company to review the financial statements corresponding to the year ended December 31, 2023,” explains EY in its letter. According to industry sources, the chosen one is Deloitte. This firm, another of the four so-called ‘Big Four’, already audited Pontegadea UK until the appointment of EY, from the creation of the subsidiary in 2013 until the 2021 financial year. Pontegadea and Deloitte do not confirm this appointment.
EY does not comment on this matter and refers to the letter sent to the United Kingdom Companies Registry. For his part, Pontegadea reduces the discrepancy to “a problem of timingof not being able to meet the deadlines that we require.” Ortega’s estate assures that “there has been no problem with the auditor” and emphasizes that the 2022 accounts are clear of qualifications.
The EY letter points out that the breakup has not been peaceful. The firm explains that these unforeseen extra works for Pontegadea UK have entailed “significant additional time and cost” and that “discussions regarding these additional fees remain unresolved 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 as its predecessor, Deloitte, received a year earlier.
EY was appointed to replace Deloitte as auditor of Pontegadea UK in 2023. In the case of Inditex, the largest Spanish 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, as of this year, not to its British business.
The small losses that Pontegadea UK recorded in 2023 contrast with the profits of nearly 360 million pounds (about 432 million euros) that it recorded between 2013 and 2021, at an average of about 42 million pounds of annual profits. The streak was cut in 2022, when it already touched red numbers. In the year of those “difficult discussions” with EY due to the deterioration of its property portfolio, it had a turnover of 112.3 million pounds sterling (111.8 million in 2021), but its profit sank to a minimum of 1.2 million of pounds, compared to the record of 50.4 million pounds a year earlier.
The reason 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 impacted by macroeconomic factors such as the rise in interest rates and inflation. These market conditions have remained during 2023,” he explains in his accounts.
These provisions amounted to 46.7 million in 2022, almost ten times more than the 4.9 million a year before, with Deloitte still as auditor. Pontegadea began to recognize these deteriorations in 2020. The year of the start of the pandemic, the great confinement, the total stoppage 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 losses, according to the accounts of its Luxembourg owner.
The report for the 2022 financial year of Pontegadea UK signed by Amancio Ortega’s right-hand man, José Arnau, indicates that the rents it obtains from its tenants remained “stable” in that financial year, but that “the gross profit has decreased due to an increase of 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 favorite market to buy assets. With some 2,700 million in real estate, this subsidiary is one of the most important in Pontegadea. With this group, the richest man in Spain controls just over half of the capital of the largest company on the Ibex and diversifies his multimillion-dollar assets in sectors such as brick. Now, for the first time in a decade, the owner of Inditex is preparing his first divestment of offices: a building in the center of Paris valued at around 80 million that he has just put up for sale, as Expansión reported on 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, whose dividends he invests in part in bricks around the world through 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 100 million fund to help municipalities affected by DANA.
Since 2020, Pontegadea’s British business has been dependent on a Spanish company, Pontegadea GB 2020, created to isolate the risk of its business in the United Kingdom in a separate firm that owns the Luxembourg-based Hills Place. In December 2019, weeks before Brexit became effective, this Grand Duchy firm paid Pontegadea a dividend of 81 million, at the exchange rate then.
The British subsidiary has continued to undertake 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 property in the center of Edinburgh, at an estimated price of 45 million pounds.
London is one of Ortega’s favorite cities. In 2023, Pontegadea UK bought former BBC offices in the central and expensive neighborhood of Fitzrovia 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 big purchase in the London capital was The Post Building in 2019, for around 700 million. There he has also acquired, among other properties, two properties on Oxford Street; 21 St. James; the headquarters of the Río Tinto mining company also in St. James Square; Almack House, and Devonshire House, a gigantic building in Picadilly, among others.
In his real estate investments, Ortega is committed to office buildings in good condition in the best locations in large cities that return secure income, in addition to hotels and commercial premises. In recent times, it has also purchased logistics platforms and luxury residential buildings. Its real estate portfolio already has assets worth more than 18,000 million at market value, according to its latest update in 2022.
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