Monday, January 24, 2011

Societe de la Tour Eiffel, the first French Real Estate Investment Trust

The Societe de la Tour Eiffel is a French Real Estate Investment Trust (Société d’investissements immobiliers cotée - SIIC) based in Paris. It is the first REIT in France, beginning with 2004, and specializes in office buildings and business parks in France, and also owns warehouses, light industrial areas, and nursing home in the South of France.
European REITs first appeared in the Netherlands (1969), and then subsequently in Belgium (1995), France (2003), and the United Kingdom (2007), Germany (2007) and Italy (2007).
They each have their own unique characteristics but also share common traits due largely to the fact that they are often competing for the same investors. European REITs are generally publicly-listed vehicles with corporation structures that make long-term investments in real estate and are exempt from corporation taxation provided certain dividend requirements are met.
When, in 2003, France allowed REITs this probably was the final shoot to start the REITs-race in Europe. The listed real estate market in France has increased multi-fold since then and further growth is expected.
In a sense therefore , the Societe de la Tour Eiffel, the first French Real Estate Investment Trust (SIIC) based in Paris, can be credited with pioneering this movement.
As noted by Mr. Mark Inch, Chairman, Société de la Tour Eiffel, the company started out as the managers of the Eiffel Tower (Tour Eiffel), but became just a shell company after losing that concession to the Paris town authorities in 1979.
It was put up for sale by its owner, HSBC, in 2003 and bought by two investors, Mr. Inch and Mr. Robert Waterland with the backing of Soros Real Estate Investors. This is the first time that a listed company was setup and run by people from property world as against financial companies. Both Mr. Inch and Mr. Waterland are two long standing property professionals with backing of private equity and prompted by their knowledge of the US Reit industry.
Mr. Inch graduated from University of Oxford and Insitut Superieur d'Etudes Politique de Paris. He started his career in 1973 in the real estate sector working for Jean-Claude Aaron. In 1979, he joined the Banque Arabe et Internationale d’Investissement (BAII) and from 1985 to 1990 he was Executive Director of the Bank and Chairman of its real estate subsidiary. In 1990, he founded Franconor, a real estate consulting business. He then co-founded Awon Groupe in 1995. Mr. Inch is also Director of Fondation de la Societe de la Tour Eiffel and Federation des Societes Immobilieres et Foncieres and Manager of Bluebird Holding SARL, Bluebird Investissements SARL and SNC Albion, Managing Director and Chairman of Osiris Gestion de Entidades S.L.U. and Manager of Cergy La Bastide SNC and Manufacture Colbert SNC..
“We are primarily pursuing a bottom up property approach as opposed to institutional top down financial/fiscal approach of most other French property companies. The Company has a portfolio of properties located throughout France, mainly in Paris and Ile-de-France region, as well as in Lyon, Marseille, Nantes, Strasbourg, Caen and others,” he said.
The company was transformed at the outset of 2004 into a Société d’Investissement Immobilier Cotée, the first new entity under the relevant legislation promulgated in 2003. The company made an initial series of acquisitions concentrating on properties with long leases to quality tenants at modest rents.
Quoted on the Euronext Paris Exchange, the company pursues a strategy focused on the ownership and the development of quality office and business space capable of attracting a wide range of tenants in both established and emerging locations. It focuses on the acquisition and retention of high-yielding property assets, secured on long-term leases to quality tenants and has a high dividend payout policy secured from these income streams and enhanced by a selective disposal policy, he said.
Following a first capital increase of € 11 millions in December 2003, the company made a new cash call in July 2004 of € 123 millions with a € 210 million banking credit line being negotiated shortly afterwards. At the end of the year, the property portfolio stood at € 266 millions.
The first half of 2005 saw an additional € 105 millions of commitment however a quantum leap was made at the end of the year with the acquisition of Locafimo, a property company comprising 35 assets totaling 300,000 m² of floor space valued at € 285 millions.
This major transaction was partly financed by a capital increase of € 157 millions. In 2006, the company undertook a comprehensive review of its portfolio including a first disposal of non strategic assets (€45 millions of sales) whilst a move into the development area echoed increasing tenant demand for new buildings capable of providing efficient space at reasonable cost.
The company’s growth enabled a progression to continuous trading on the B compartment of Euronext in March 2006. The following June, the company was included in the European Public Real Estate Association index. In May of the same year, Tour Eiffel Asset Management , Mark Inch and Robert Waterland’s management company, was integrated as a fully owned subsidiary dedicated to the mother company’s portfolio management. End 2006, the portfolio was valued at nearly € 1 billion and extended to 622,907 m².
At the outset of 2007, the company initiated another significant transaction with the purchase of Parcoval for € 110 millions. This acquisition completed and consolidated the company’s position in the business park market notably as Parcoval was a significant co-owner in various parks alongside Locafimo which had been acquired one year earlier.
As a result of its selective disposal strategy and successful marketing of new developments, the portfolio at the end of 2007 amounted to 710 000 m², valued at € 1.2 billion of commitments.
Following 4 years of exceptional growth, the company adopted a more prudent outlook focused on maintaining cash flow through tenant retention and the concerted marketing of development projects.
This said, four modest acquisitions totaling € 40 millions were made and a 18 000 m² built-to-suite office development for Alstom was launched at Massy. Construction was also started on the 14 000 m² speculative office development in Vélizy due for delivery in 2010.
In all, some 50 000 m² of new developments were delivered, of which half was in the Parcs Eiffel, further rejuvenating the profile of the company’s portfolio. At the same time, disposals totaling € 90 millions were made and a major credit facility extended to 2013 was renegotiated with the company’s bankers. At year end, the portfolio comprised 713 323 m² for an unchanged valuation of € 1.104 billion despite the overall drop in market values.
In the wake of the worsening financial crisis in 2009, the company further concentrated
on the consolidation of its cash flow. The core portfolio demonstrated considerable resilience in the face of unfavourable market conditions whereas the new properties completed the previous year leased up satisfactorily, notably the Porte des Lilas, and the new business park deliveries at le Bourget, Marseilles and Bordeaux.
The 18 000 m² Massy Ampère office development was delivered to Altsom and some € 43 millions of asset disposals were achieved. At the end of the year, the portfolio extended to 670 103 m² valued at € 1 058 M reflecting the fact that the added value of new developments offset the effect of reduced values and asset disposals.
Following two years of recession, consolidation remains the order of the day against a background of gradual market recovery, notably in terms of capital values. The company continues to consolidate its cash flow whilst adjusting its financing to changed market perceptions.
Mr. Inch noted that while the French market is very attractive to foreign investors today, this was not the case ten years ago. While traditionally international investors have always invested in the United Kingdom, France was always a closed club.
“This started changing ten years ago and international investors started making a beeline. Three main policy changes can be credited with this. The first is the change in international lease durations, stamp duties and taxation policies,” he said
Earlier, the lease terms available to investors were 3, 6 and 9 years which proved to be restrictive. It has now been changed to 6, 9 and 12 years. In addition, the cost of doing business was very high, as the conveyancing stamp duty was 19.6 percent of each value as against one percent in UK. Today it is 5 percent in France and 4 percent in UK.
Finally, France used to tax both income and capital gains, which was a major disadvantage. , However, over the past ten years, policies have changed and France is the investors choice for the euro zone wand has even exceeded the UK market.
The commercial property market is much larger than UK at 52 million sq meters, and the occupational structure is much more diversified.
While they are two different market both UK and France are complementary, with different types of growth and income..
France has a whole lot to offer tourists and investors alike, which creates a really diverse property market. If anyone is looking for an investment opportunity in France, they will be glad to know that the possibilities are practically endless.
“It has always been an ideal location for property investors, especially. Even now, the real estate industry in France is booming despite the economic woes hovering over most of the world.”
Indeed, a stable market is hard to find these days, so it is nice to know that there are many advantages of investing in France.
“Whether you are an American, European, or Asian investor, you can potentially make good profits by investing in France. Even if you have never invested in anything before, you should be able to find a profitable investment opportunity in France” he said.