Distressed property companies and banks burdened with bad real estate debt are obscuring the opportunities in France. As usual in stricken markets, some operators – notably LaSalle of the US and Britain’s American-owned Heron – see worthwhile prospects of buying cheaply in France.
That view underlines Hermes Pension Fund Management’s decision last October to sell its largest overseas asset to Société Foncière Lyonnaise (SFL) in exchange for a 24% shareholding in the company. Hermes, the manager of the UK’s Post Office and BT pension funds, chipped in the 40,000 m2 Louvre des Antiquaires, a mix of office and retail space valued at more than £90m.
Following the Hermes deal, the SFL portfolio was valued by Jones Lang Wootton at FFr 5.5bn. From SFL’s perspective, the transaction was designed to rebalance the portfolio away from its traditional residential base. This strategy is likely to continue in the future, ahead of a stronger French property market.
SFL now has 32.5% of its 230,149 m2 portfolio in offices; 16.5% in retailing and 49% in professional/residential. On the basis of a recent analysis of the French market, retail is likely to feature more prominently in the future.
French insurance company Group Victoire traditionally owned around 80% of SFL before Victoire was acquired by the British insurance company Commerical Union. The transaction with Hermes sees Commercial Union France’s stake in SFL reduced to 54%.
SFL has a market capitalisation of FFr 2.68m, making it the country’s eleventh-largest quoted property company. It has been considered the sleeping beauty of the French property market because of its prime central Paris addresses. The portfolio has taken 150 years to assemble and has traditionally been valued conservatively.
Despite is heritage as a cumbersome, traditional “foncère”, the management of SFL understands the need for working the portfolio hard to maximise the cash flow, and is actively seeking tenants for its empty buildings.
Now the pace at SFL is picking up, Mark Townsend of UK-quoted French Property Trust, which owns a small shareholding, believes that the company will adopt a more aggressive strategy. This should be reflected in the dividend, forecast to grow at above the rate of inflation.
Also a reflection its past, the company has z Property Trust, which owns a small shareholding, believes that the company will adopt a more aggressive strategy. This should be reflected in the dividend, forecast to grow at above the rate of inflation.
Also a reflection its past, the company has zero debt, and the year-end result for 1995 is likely to show net cash in the balance sheet. In the first half of last year, pre-tax profits were up by 4.46% to FFr 47.7m. As a result of the 1995 deals, SFL will have, on a pro-forma basis, a turnover of FFr 285m compared with FFr 170m previously.
Société Foncière Lyonnaise
37 Rue de Rome
75008 Paris
tel +33 1 44 70 21 12
