A new era for French REITs?

Philippe Le Trung

Philippe Le Trung is the CEO and founder of VIEWS+S Consulting, which produces real estate and financial analysis as well as recommendations for its clients. The company also advises players (especially investors) involved in the listed real estate sector on strategic and corporate finance-related issues.

The ‘French-style’ real estate model was upheld by EUR 1.2 billion of fresh capital in 2019, explicitly seeing listed companies with little liquidity and sticky strategic shareholders being very successful in financing their growth through the stock market. Despite the growing level of uncertainty surrounding the capital markets, there are signs that this trend might continue in 2020.
The French SIIC sector has been developing since 2003 when the REIT tax transparency regime was first introduced. It resembles the common law applied to listed property companies elsewhere in the world, with a number of specific features:

  • SIICs often have core shareholders, who may be the company’s founders or long-term investors. They sit on the board of directors and are involved in the company’s governance. So, these listed companies have smaller free floats than other European property companies of a similar size.

  • SIICs are often diversified, with real estate assets in various sectors and various regions.

  • SIICs are true real estate operators and their role extends beyond mere ownership of the assets. They have expertise in property planning, development and management (coworking, hotels, conferences, etc.).

These three features are interlinked to some extent. They are also consistent with a SIIC’s objectives, which include taking a long-term approach, diversifying risk and acquiring the capacity to perform through its own know-how and thus not rely exclusively on growth trends in its underlying property markets. To caricature, one could say the opposite model would be that of property companies with no core shareholders and large free floats that specialise in a specific asset class and that enable stock investors to allocate their capital by sector.
One could also claim that a ‘French-style’ property model exists; this model involves core shareholders, business profiles that are often diversified and a ‘value-added’ dimension through the development and management of assets on behalf of third parties. To go even further, one might say that 2019 marked the beginning of a new era in the development of the SIIC sector. Several companies that went public when the SIIC regime was first created in 2003 (Argan, Foncière Inéa and Selectirente) have well and truly taken on a new dimension.
We noted eight equity issues in 2019, enabling SIICs to raise EUR 1.2 billion of fresh capital (capital increases in cash, contribution in kind paid in new shares and scrip dividends).
Below we list the main factors involved in the SIIC sector’s rapid development:

  • Existing core shareholders have contributed significantly to its growth (circa. EUR 830 million), but new long-term shareholders have also taken the opportunity to invest in the sector (circa. EUR 410 million). It is interesting to note that France’s SIIC sector manages to draw in fresh capital even when the usual criteria of stock liquidity do not apply.

  • Predica is the strategic shareholder that most increased its exposure to the SIIC sector in 2019, investing EUR 267 million of capital. Primonial Capimmo became a new shareholder on several occasions.

  • Core shareholders now include not only the usual founders and insurers but also asset management companies specialising in real estate (Tikehau, Primonial, Amundi) and family offices.

In addition, Gecina announced in December 2019 that it is spinning off its residential division, paving the way for core shareholders to move in (whether the subsidiary is listed or not) in order to finance the entity’s growth; they might even include Gecina’s own core shareholders. This is a prime example of appetite among strategic investors for the SIIC sector.
Finally, 2020 should see Covivio rising equity from its shareholders. The company offers its shareholders the opportunity to receive their dividends in the form of new shares.