Goals/Strategy

Strategy

In 2005, three things were clear:

Firstly, existing rent levels were below market benchmarks, particularly in Lyons in the retail sector. This low rent situation was accentuated by a high level of residential vacancies in Marseilles.

Secondly, the Lyons and Marseilles properties were located in extremely attractive areas. In fact, rue de la République in Lyons represents a leading retail thoroughfare, with a substantial and steady fl ow of pedestrians. In Marseilles, rue de la République runs from the Vieux-Port – the main tourist and historic district – to the new Joliette district opening out into Euroméditerranée.

Finally, these two streets in Lyons and Marseilles have very strong potential due to the strong growth of these two cities. Lyons in effect positions itself as a regional capital with boundaries extending beyond France. Marseilles, on the other hand, has seen renewed growth, notably since the launch in 1995 of the Euroméditerranée urban renewal and economic development plan, but more recently on the back of the decision of EU culture ministers to endorse Marseilles as European Capital of Culture in 2013.

Since then, ANF has been able to implement its strategy of increasing rents in two key ways: fi rstly, by restructuring its properties and secondly by renovating them. On top of this, the land reserves have been put to work, with ANF carrying out major developments. This strategy should enable ANF to increase its rental income by around €41 million within 5 years at constant scope and thereby raise it to around €106 million by 2014. Since 2005, rental income at constant scope has risen by over 50%, while overheads have been optimised. As a result, EBITDA was up 2.5 points to 80% in 2009. The Company’s goal is to achieve EBITDA of around 85% by 2014. Debt levels should remain under 40%.

Enhancing the value of properties

The potential for rent increases represents a major store of rental income growth. The table opposite shows the breakdown by asset segment and city of the additional income expected from the progressive upward review of leases as they expire. In total, this represents close to an additional €9 million that should materialise by 2014.

In Marseilles, the marketing of ground fl oor retail premises in less than two years was a success. ANF has supported the installation of its tenants by means of variable rents, based on store revenues, with ANF being guaranteed a minimum rent. The opening of retail premises on rue de la République in Marseilles has been confi rmed by rising rents in this segment, as regards the guaranteed portion of the rent.

On top of this will come the cutting of residential vacancies, which remains a major challenge for ANF. The start of renovation work on properties located in the mid-section of the street should make it possible to market this surface area. The Company could ultimately generate an additional €3 million in rental income when re-letting these units at market rents.
Across Lyons and Marseilles, ANF still has 167 leases under the 1948 regime. These 15,234 square metres currently generate average rent of around €4.10 per square metre per month.

Planned developments

ANF has begun to enhance the value of its land reserves in Marseilles by putting together value-creating developments. ANF’s goal is to generate a return on invested capital of over 8%, with the additional rental income from these developments thus being around €29 million.

The challenging economic climate has meant that ANF is taking a cautious approach to its planned developments. First and foremost, ANF has obtained all the necessary permits to carry them out, but above all, ANF endeavours to fi nance and market a development before starting to build. The total budget for the work thereby planned is €335 million, €58 million of which relates to developments underway.

Furthermore, as part of its asset rotation policy, in 2009 ANF already began a disposal programme involving a total of close to €100 million over 3 years. The fi rst year of this programme was successfully concluded with the effective disposal of €55 million worth of buildings at prices in line with those in the December 2008 appraisals.

The assets sold involved properties in areas that are not strategic for ANF. It mainly involved predominantly residential buildings, thereby making it possible to rebalance the portfolio. Finally, the disposal of buildings with a large number of vacant units in Marseilles may help cut the vacancy rate and enable the Company to reinvest in better- performing assets.

RENT FORECASTS FOR 2014-2015 *

^* At constant scope.