Annual report 2008 - Altarea Cogedim

Business review
I. Business review
ALTAREA is a property investment company specialising in
shopping centres and a multi-product developer. The company
develops all asset classes, including shopping centres, offices,
housing and hotels.
ALTAREA’s development business in retail is mainly for own account.
This has helped build a portfolio consisting exclusively
of shopping centres with a value of €2.3 billion and generating
an annualised gross rental income of €142 million at 31 December
2008.
Property development in other asset classes is exclusively for
third parties. With financial risk under control, this business
line increases the Group’s overall yield.
1. Highlights of 2008
1.1 Strengthening ALTAREA’s financial
structure
In July 2008, ALTAREA raised €374.5 million in the
form of rights issue followed by a private placement (1).
Subscribed mainly by existing shareholders (Founders,
Predica, Foncière des Régions, Swiss Re), the capital
increase at €170 per share allowed pension fund ABP to
acquire a stake in the company as a strategic shareholder
with around 6% of share capital.
The Group currently presents solid indicators in terms of
both liquidity (2) and balance sheet ratios (3) , allowing it to
cope with the current financial crisis without abandoning
its business model based on creating properties generating
high yields and managing a portfolio of shopping centres.
The commitments identified by the Group are currently
fully covered by available cash (commitments to invest in
shopping centres and development commitments, expenses
etc) and no major loan repayments are due until mid-2013.
Over the next few months, ALTAREA will continue to monitor
the solidity of its balance sheet and may adapt its pace of
expansion and the signature of new commitments in view of
preserving its liquidity and balance sheet solidity.
ALTAREA’s main bank covenants (consolidated loan-tovalue
ratio of less than 65% and interest coverage ratio of
over 2) should be able to withstand any further deterioration
in economic conditions.
1.2 Restructuring of the property
development business and adjustment
in the acquisition value of Cogedim
At the end of 2008, ALTAREA’s property development
business underwent operating and legal restructuring
centred around Cogedim, with the adjustment of Cogedim’s
acquisition value in the Group’s accounts.
On 23 December 2008, Cogedim and Compagnie ALTAREA
Habitation were merged in order to combine all of the
Group’s property development activities within a single
entity. After the merger, the new company was transferred
to Altareit, ALTAREA’s 99.6%-owned subsidiary listed on
Euronext Paris.
This simplification of the Group’s organisational structure
marks the completion of Cogedim’s operational integration
into the ALTAREA Group, while also distinguishing its
shopping centre investment activities from its property
development activities for 1:3 parties. In relation to
the merger, on the basis of the reports of independent
appraisers, ALTAREA wrote down the acquisition value of
Cogedim in its accounts, representing a cumulative impact
of -€210 million after tax.
Despite this value adjustment, Cogedim still managed to
outperform the market. Revenues recognised according to
the percentage of completion method increased by 29% yearon-year,
while reservations of new homes fell by just 17% (4)
compared with a decline of 38% for the market as a whole (5) .
1.3 Shopping centres: continuing the value
creationmodel
For the existing portfolio, capitalisation rates increased
from 5.11% to 5.76%. This represents a loss in value of
€254 million on a like-for-like basis excluding the effect
of rents, or a fall of 12%. This loss was partly offset by
indexation and asset management, which had a positive
impact of €82 million (+4%).
The ALTAREA Group opened six shopping centres in 2008
developed on a proprietary basis, representing a total net
floor space of 78,000 m², five of which are in France and
28
(1) This capital increase was the subject of an offer document (“note d’information“) approved by the AMF and registered under number 08-0129 on 13 June 2008
(2) Cash of €482 million
(3) LTV of 53% compared with a consolidated bank covenant of 65%
(4) Reservations of €557 million net of pull-outs
(5) Source: French Ministry of Ecology Group share