Last year’s purchase of Société Fonciére Lyonnaise gave the Spanish firm a French presence and it is expanding its city-centre office assets at home
Inmobiliaria Colonial has grown at a considerable rate. The company’s portfolio has increased by 80% to €5.35bn since 2001, aided by the acquisition of French property group Société Fonciére Lyonnaise (SFL) last year.
A 49% share price re-rating in the first half of this year increased the market capitalisation of the group to around €2.4bn (from €816m in 2001) and rental income has risen 178% in one year to June 2005.
The company has just invested €351.7m in the Madrid office sector and plans to invest a further €350m in its main speciality, the office sector in Paris, Barcelona and Madrid. It also sold €334.5m of non-core assets in the first half of this year.
Albert Casajuana, director of strategy, planning and investor relations at Colonial, attributes this to activities across all aspects of the company’s business: “The figures for the first half of this year were good because we sold assets in Barcelona – and the volume was very high. But the office rental business is also performing very well. So our ordinary activities are growing and increasing the margins, but the disposals are also increasing the profits.”
The company’s growth is mainly due to a change in strategy instigated following an overhaul in 1994. Spanish savings bank La Caixa, which is Colonial’s main stakeholder, appointed a new management team, followed in 1999 by a refloat on the Spanish stock exchange after a six-year break. The changes initiated a focus on offices, with Colonial investing in modern office buildings in the business districts of Madrid and Barcelona.
“In 1994 the company decided to concentrate on the office sector so when we undertook our flotation we said we would do this, concentrating on Madrid and Barcelona. Later, when we bought SFL, we continued the same strategy in Paris,” says Casajuana.
He adds: “We had some retail and residential assets and we were selling all these, as was SFL before its acquisition by Colonial. These assets had lower profits than the office buildings.”
Investing in the best locations
Today, 84% of the group’s assets are in offices in three cities: 54% of the assets are in Paris, 26% in Madrid and 20% in Barcelona (which is where the company held 61% of its assets in 2001). “We invest in modern office buildings in the business districts; we try to have quality buildings in the best locations.” The company also has a €1bn residential development and land business, which is primarily concentrated in Madrid and Catalunya.
In September this year Colonial negotiated to swap a 6.2% stake in the company for seven office buildings owned by Mutua Madrileña in Madrid’s Paseo de la Castellana business district, in a deal that made the insurance company Colonial’s second largest stakeholder.
“We have improved our position in Madrid at a time when the city’s market has good recovery expectations, and Mutua has a €1.5bn portfolio in Madrid,” says Casajuana.
Following the €351.7m office swap, over the next two years Colonial plans to invest the same sum again into the office sector. While diversification has not been ruled out, the company says it only plans to hold 25% of its assets in other sectors – the transformation is half way to completion, with logistics property now accounting for 13% of the company’s office portfolio.
Casajuana is positive about recovery prospects for the Madrid market and foresees that from 2005, Colonial will be able to increase rents in the city centre. “We are optimistic about Spanish city centres in 2006,” he says. “We think the markets are showing better performance in Madrid and Barcelona because growth in the economy is higher than in France or in Germany.
“Madrid is probably a more advanced market in terms of recovery. So we are looking at the city-centre market and rents are growing. But while we are optimistic about Spain, in the short term we are more optimistic about Paris – rents are growing in Spain but we are not looking at increasing rents in the Paris market.”
Colonial’s exposure to the Paris market was mainly gained through its acquisition of SFL in 2004 (see box). The French property company, which holds €2.32bn of retail and office assets, has enabled Colonial to concentrate the majority of its office exposure in Paris. It also gave Colonial the benefit of a local management team with knowledge of the Paris market.
Colonial’s rental income advanced 178% to €143m in the year to June 2005, and €88.6m of this was generated in France. “In terms of value, half of our assets are in Paris, but in terms of area, each city has a third of our assets,” says Casajuana. “The value is higher in Paris, but in terms of area it’s a third of our portfolio.”
Spanish market less volatile
Casajuana believes the company has chosen to invest in cities that are more robust in their relation to the cyclical nature of the office market: “Each city has its main characteristics; Barcelona, for instance, is less volatile than others,” says Casajuana.
“The Spanish market is generally less volatile than the London market, and Paris is very conservative with few variations in the rents. In general, offices can be more risky but have higher profitability.
“We are very comfortable managing property in these cities. However, we are also open to studying other cities, because that is our obligation to shareholders – we are studying all markets in the eurozone.”
Colonial also has €149.6m committed to 80,000m² of office developments — 47% of which are already completed. This involves developing and refurbishing office buildings or refurbishing blocks of flats.
There are also plans to develop a 10,000m² office building at 22@ Barcelona — a new business district which will be built on 220ha of former industrial land.
www.inmocolonial.com
| Colonial at a glance |
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■ Established in 1946 ■ The value of the company’s entire portfolio was €5.35bn at the end of June 2005, €4.8bn of which is office rental property ■ Colonial was refloated in 1999 after being delisted in 1993 ■ Pre-tax profits for the first half of 2005 were €288.4m, compared to €22m for the first half of 2004 ■ Spanish savings bank La Caixa is the controlling shareholder, with a 48% share ■ Colonial’s share price was re-rated in the first six months of 2005, taking the company’s market capitalisation to more than €2.4bn ■ The company’s net asset value stands at €40.63 per share – up 9.8% over the past six months and 19.1% over the past 12 months |
| Colonial finds Paris match with Société Fonciére Lyonnaise
In June 2004 Colonial secured 95% of the share capital of French property company Société Fonciére Lyonnaise (SFL) in a friendly takeover deal (although shortly after reduced its stake to 79.5%). The deal allowed Colonial to double its net asset value in one year from €2.6bn in 2003 to €5.3bn at the end of 2004. In 2004 the market re-valued Colonial by advancing its market quotation by 59% – putting the market capitalisation of the company above €2bn for the first time. Jaap Fit, an analyst at Kempen, says: “They had to finance the deal fully with debt, and high leverage is not something that is usual for Colonial. But it was a successful acquisition; also by looking at the share price, the market reacted very favourably.” SFL’s exposure to the market formed an ideal fit with Colonial’s strategy; 72% of the French company’s 389,000m² portfolio – which included properties such as the Louvre business centre, Edouard VII complex, and Washington Plaza – was in the central business district of Paris. “SFL was the highest quality portfolio around on the listed French property sector,” says Fit. “A few years back Colonial had an interest in buying SFL but the deal didn’t go through. Colonial is focused on high-quality office properties in the business district, so SFL fitted well with the type of portfolio the company had in Spain.” In September this year, SFL paid Merrill Lynch Global Principle Investments €140m for a 22,000m² office building in the Les Miroirs complex in La Défense, Paris. |
