ANF Immobilier is a real estate company specializing in city centers of large French regional cities. It chooses to invest and develop its expertise in cities looking to the future, which harbor a strong ambition for urban renovation involving public authorities and private partners. ANF Immobilier’s strategy also relies on the knowledge of local markets and therefore comes with a strong presence in these cities. ANF Immobilier’s core business consists of developing property complexes in city centers or in new districts in the making. For this, the Company identifies the revaluation potential of an area − always in a context of urban transformation − and invests in medium- term real estate projects of renovation or construction. Currently, the Company mainly plans to invest in tertiary sector projects.
ANF Immobilier has been implementing this strategy in Lyon and Marseille since 2005 and in Bordeaux since 2011. In this way and on a like-for-like basis, rental income increased by 11% per year on average in seven years. Equipped with a fixed cost structure and in order to ensure the financial security of its ambition, the Company had acquired a portfolio of performing hotel properties in 2007 which it sold in 2012. Indeed, the realization of successful rental revaluations helped steer investments towards ANF Immobilier’s core business. Moreover, in 2012, ANF Immobilier noted that the revaluation of most of its Lyon properties was complete. It was therefore natural that the Company sold its mature assets in order to continue its development. The disposal of the hotel and Lyon properties will enable ANF Immobilier to implement its growth strategy, based on value creation.
A €240 million acquisition plan has been put into place, supplemented by investments to the tune of €170 million in current renovations and projects in Marseille and Lyon. At the same time, the Company is continuing its disposal policy for more than €200 million, in particular on housing. ANF Immobilier will continue to invest in regional provincial cities like Lyon, Bordeaux and Marseille where it is already present, without excluding the possibility of expanding to other cities, with the aim of establishing a lasting presence there. Acquisitions will mainly relate to tertiary sector assets (offices, retail premises or hotels). The Company is thereby refocusing on its core business, i.e. the renovation and restructuring of property complexes in large French regional cities. On the strength of this refocus, the Company envisages a medium term growth in rental income along three lines: renegotiating leases at higher rates linked to the property’s growth potential, value creation from already identified and secured projects and a major acquisition program. ANF Immobilier estimates that it can operate various real estate levers to increase rental income to approximately €67 million by 2017. Moreover, the Company intends to maintain a strong financial capacity, which, in its opinion, is a key characteristic of its strategy. ANF Immobilier intends to ensure its financial stability through moderate reliance on debt, asset disposal and maintenance of attractive dividends. Lastly, it is noted that excluding technical vacancies (works in progress and natural tenant rotation), the vacancy rate for ANF Immobilier’s properties is limited to residential properties in Marseille and is around 33%.
FORECAST RENTAL INCOME FROM 2012 TO 2017
Strong growth in rental income
With its high-potential assets, currently around €700 million in Marseille and more than €100 million in Lyon and Bordeaux, ANF Immobilier is becoming a real estate company that is firmly focused on growth. The Company expects to achieve €67 million of rental income in the medium term, with such income currently representing – pro forma of disposals in progress − more than €30 million. Its strategy of raising its rental income is based on three key priorities: restructuring and renovating its buildings and developing its land reserves with identifi ed development projects. In addition to these growth drivers, ANF Immobilier has embarked on an acquisitions strategy to improve the yield on its portfolio.
In Marseille, ANF maintains a very high potential asset base of over €700 million. The Company is implementing innovations in asset management not only to improve the quality of its assets, but also to generate more revenue. Restructuring its built assets primarily consists of large-scale renovation of buildings to significantly improve services offered to new tenants, across all commercial, office, and residential asset categories. These measures should reduce the residential vacancy rate in Marseille as new renovated apartments come onto the market. Moreover, these investments will also capture the very substantial potential for renegotiating leases at higher rates. The Company is therefore going to start refurbishment linked to high quality real estate services on some of its buildings to make them accessible to persons with reduced mobility. ANF Immobilier currently estimates that additional rent potential amounts to more than €6 million on Haussmann-style buildings in Marseilles and Lyon. Furthermore, the Company plans to invest a total amount of €67 million as part of the refurbishment of its growing real estate assets in Marseille.
Firstly, the Company believes that Haussmann-style properties in Marseille are capable of producing a 7% organic growth in rental income per year by 2017. Therefore, ANF Immobilier expects more than €8 million in new rental income in the medium term from re-letting retail premises and offices, renewals and indexation.
Moreover, Haussmann-style assets held in Lyon contain an additional rent potential of almost €1 million.
The residential vacancy rate has remained at a high level. Of course, ANF Immobilier intends to re-let a number of currently vacant apartments after refurbishment. Such a move should generate nearly €2 million in rental income in the medium term.
However, the Company plans to sell most of the vacant spaces in Marseille which is expected to represent a shortfall of more than €4 million by 2017. In addition, the entire divestment program is expected to represent a shortfall of about €10 million.
ANF Immobilier believes that it is in a position to offset the loss of rental income caused by the disposals with the potential for renegotiating existing assets.
In addition to its Haussmann-era properties, ANF Immobilier’s city-center portfolio includes particularly well-located land suitable for the construction of new buildings. Guided by very strict investment discipline, ANF Immobilier intends to create new developments on these lands. Thus the Company has already secured six major real estate projects within its existing portfolio to envisage an increase in its rents in the near future. The Company estimates that an amount of €108 million still needs to be allocated in projects that have already been identified in Marseilles and Lyon.
ANF Immobilier’s objective is to generate a return on invested capital (ratio of rent to the project cost price) of higher than 8%, so additional rents from the completion of these projects should be in the region of €15 million. These projects are described in more detail in the “Project” section.
Five of these projects are located in Marseille around the Rue de la République and the Euroméditerranée zone. In Lyon, the Company continues its project to improve the area around Printemps, a property complex located on the Place de la République. The delivery of ANF Immobilier’s projects will be spread over time: three projects are due for delivery in 2014, two projects launched later, will generate additional rents in 2015 and 2017.
Backed by its acknowledged expertise in regional city-center residential and tertiary sector real estate, ANF Immobilier intends to further develop expertise in new locations where it has detected potential. Based on criteria combining local characteristics associated with the development of the metropolis and basic real estate project qualities, ANF Immobilier will examine projects in sufficient depth to ensure selectivity, especially with respect to the prospects for value creation. In particular, ANF Immobilier is focusing on existing infrastructure or projects under development designed to improve the interconnectedness of the city nationally. In Lyon and Marseille, the Company has noted the importance of new high-speed rail connections for regional development, with a certain impact on asset valuation. Moreover, ANF Immobilier wishes to invest in assets located in cities where robust and concrete urban development initiatives are under way. Lyon and Marseille are prime examples of cities where city- center revitalization programs have considerably increased their attractiveness and commercial exposure.
Bordeaux is ANF’s third hub. Its first real estate investment was carried out here in 2011 in the Bassins à Flots district. Since then, ANF has already taken over 600 sqm of retail premises also located in the Bassins à Flots. In Bordeaux, ANF is also particularly interested in the Euratlantique sector which should eventually benefit from the positive impact of the new high- speed rail connection. Investments in high value-added real estate operations in large French regional cities, guided by the same profitability criteria, will thus sustain growth in medium term. To date, the Company has reviewed several investment projects that are primarily located in the two target districts identified in Bordeaux. ANF plans to invest more than €200 million in the medium term, which should generate more than €16 million in additional rental income.
With regard to acquisitions, therefore, ANF will maintain the €13 million investments already committed and will invest an estimated €200 million in new acquisitions. Moreover, disposals of around €150 million, especially in Marseille, should contribute to funding these programs. The minimum return for investments in large regional cities targeted by ANF Immobilier is 7%. The Company intends to shift the balance of its property portfolio towards tertiary sector assets. The amount per asset could be between €15 million and €30 million. Projects would be partially financed from the proceeds of disposals completed and partially by bank borrowings.
ANF Immobilier’s financial profile illustrates the soundness of the Company and its capacity to implement its strategy in a sometimes uncertain economic environment. This large financial capacity not only provides the security to execute its transactions, but also generates shareholder confidence and the ability to intervene directly in the market. Therefore, the limited reliance on debt combined with asset disposal will allow the Company to maintain attractive dividends.
Reliance on debt
ANF Immobilier is currently one of the least leveraged French listed real estate companies in the industry, with a debt ratio of 33%. The Company has always exercised caution with respect to funding its investments. Thus, the Company intends to finance this growth while maintaining a debt level below the industry average, so that the Loan-To-Value ratio does not exceed 40-45%.
ANF Immobilier’s available lines of credit on December 31, 2012 stood at €98.5 million, in contracts agreed with different banks for an average term of 5.5 years. Funding for its investment program for 2013 and 2014 is therefore secure. Moreover, the Company seeks to anticipate its financial reimbursements especially with regard to refinancing.
ANF Immobilier operates a very prudent interest rate policy with debt drawn down hedged at fixed rates. Moreover, the Company has hedged €160 million at a fixed rate in advance for maturities of up to 2018 at an average fixed rate, before credit margins, of less than 2.40%.
Its asset trade-off strategy involves dynamic rotation of assets to optimize the value attained. The Company will continue its sales of mature assets comprising a significant amount of residential properties.
An asset disposal program which should represent €238 million has been launched for the period 2013-2017. These sales will primarily involve residential areas in Marseille. Nevertheless, the Company does not rule out the disposal of offices or car parks. Such disposals will in particular enable funding of the acquisitions strategy.
However, ANF Immobilier believes that it is in a position to offset the loss of rental income caused by the disposals (€11 million) with the potential for renegotiating existing assets.
ANF Immobilier seeks to foster shareholder loyalty with an attractive dividend policy. Therefore, since the implementation of its new strategy in 2005, the dividends paid by ANF Immobilier to its shareholders have always been subject to regular growth in line with the Company’s improved cash flow. The dividend has risen 7% per year on average since 2005.
The Company develops a listed real estate company’s activity, like the acquisition and then enhancement of property complexes, followed by the disposal of the latter upon maturity, in order to share the proceeds with its shareholders and to enable reinvestment in new property complexes. Thus, the sale of mature assets in Lyon and the B&B hotels − under favorable conditions − represents the phase of a cycle that precedes new investments for ANF. In view of this, the Company paid its shareholders a dividend of €6.64 per share and proposed a share buyback offer to them for more than €312 million. On the whole, by disposing of the mature assets in Lyon and the B&B hotels, the Company was able to transfer close to the equivalent of €17.90 per share to its shareholders.
The remainder of the dividend proposed to the Shareholders’ Meeting to be held on May 6, 2013 is €1.00 per share. €17.90 per share has already been paid as dividends at the end of 2012 for the disposal of the Lyon properties and the B&B hotels. In 2013, ANF Immobilier expects like-for- like rental income of more than 14%; the Company’s rental income is expected to total €35 million in 2013.
With its high-potential assets, ANF Immobilier is a real estate company that is firmly focused on growth with a presence in three of the largest provincial cities in France.