Gradual recovery starting in 2025?
Gradual recovery starting in 2025?INITIATION COV.
The initiation of coverage allows us to encompass the majority of the French residential development market, including companies such as Nexity, Icade, Bouygues, Vinci, and Eiffage. Additionally, we monitor some non-covered entities like Kaufman & Broad and Bassac. This also enhances our coverage of the retail property sector in France, including Mercialys, Klépierre, URW, Hammerson, and Wereldhave, with the latter two pursuing exit strategies.
Altarea began over 30 years ago as an entrepreneurial venture. In France, it manages retail assets exceeding €2.1bn (group share) and generates €2.5bn annually from real estate development, primarily residential.
The target for 2028-29 is to restore FFO to the €300m level achieved in 2019, up from €127m recorded in 2024. To achieve this, Altarea aims to enhance its economic performance in residential development and significantly leverage contributions from its new ventures: solar farms, data centres, and logistics.
The retail property buffer
Altarea’s €2bn in assets (Group share), including Tier 1 shopping centres in France, closely align with its market cap of €2.5bn. These assets, under French REIT status, ensure consistent EBITDA. Additionally, Altarea manages approximately €3bn in assets for third parties, including asset management, minorities, and associates in JVs.
The 450,000 sqm owned by Altarea (Group share) represents a significant value reservoir, surpassing our estimated consolidated net debt (Group share). These assets provide a competitive advantage over less capitalised residential development peers.
The challenge of the French residential turnaround
In 2019, the Development division contributed two-thirds to the consolidated FFO of €300m. By 2024, this contribution declined to €47m out of a consolidated €127m, mainly due to a downturn in Residential Development. In response to market adjustments over the past two years, Altarea has swiftly adapted, aligning its offerings with market demands.
We anticipate the Residential market will remain risky in 2025 (refer to French Mortgages and our Nexity coverage). However, Altarea manages the skills to potentially outperform and increase market share. Nonetheless, we do not expect a return to the division’s historically high contribution levels (2019) in the near future.
New businesses and cash dividend
Altarea has utilised cash from asset disposals and reduced working capital in Residential development to accelerate growth in three new sectors: data centres, logistics, and solar farms. The group anticipates a significant, though unspecified, contribution to FFO in the coming years. We recognise the potential for capital gains but question their sustainability or merely strict recurring contribution.
A sustainable high-level cash dividend, such as €8-10 per share, depends on the rapid success of these new ventures. In the short term, we believe a proposed dividend of €8 at the 2026 AGM would exceed strictly recurring FFO for the third consecutive year.
A bit too early?
We are focusing on short-term indicators for the group’s two core businesses. In French Residential, we expect a gradual market recovery, with 2025 remaining uncertain. The second challenge is managing consolidated financial expenses by the decade’s end, influenced by long-term interest rate fluctuations.
These challenges are common among Property companies and Developers in our coverage. Altarea appears to understand these issues and is well-prepared to address them. Altarea benefits from an entrepreneurial management style that provides agility. High-quality retail assets, combined with an intermediate size that allows for flexibility, are two key advantages. However, these are insufficient for adopting a positive opinion immediately.
Altarea Cogedim is a real estate investment trust and development company. Co. is an active operator in the three main segments — retail, residential & office-hotels property — with the ability to design, develop, market & manage custom-tailored real estate products. In the Retail segment, Co. is active in real estate investment, development, asset management, providing services to third-party customers. In the Residential segment, Co. is a residential property developer. In the Office Property segment, Co. is a global operator active in all commercial property formats: high-rise buildings, business districts, corporate headquarters, renovation projects, green districts & luxury hotels.
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