Case Study

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Foncière des Regions INVESTOR REPORT

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Foncière des Régions is a holding company of real estate investment

(REIT) companies that own residential and commercial properties in 8

countries (mostly Europe). Its business comes from the rental and

leasing of properties (including hotels, residential building and car lots)

over 70% of which is office space in France and Italy. Its biggest clients

are major companies the largest of which is France Telecom which

rented half of Fonciere's office space in France. Other major customers

are Telecom Italia, Electricite de France and IBM. Widely recognized

properties include one of France's tallest skyscrapers Tour Gan (also

known as CB21) and Carré Suffren in Paris.

Fonciere des Regions was created in 1963 as Garages Souterrains de

Metz an operator of underground garages/parking lots. Most growth

happened in the 21st century beginning with key acquisitions and

leaseback agreements with EDF, AXA, AGF between 2000 and 2004. In

2000 it acquired housing developer Sovakle. The Company opted for

the SIIC legal status in 2003. In 2004 the division dealing with hotels,

Foncière des Murs was formed.

CONTACT

Finance

30, Avenue Kléber

75208 Paris France

[email protected]

[email protected]

www.foncieredesregions.fr

mailto:[email protected]

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Overview

Through subsidiaries Fonciere

operates in France, Italy, UK,

Luxembourg, Germany (EM), Belgium

(NC), USA (73% of Red Sail Real Estate

Holding USA Inc. which is based in LA,

NYC, and Chicago) and Portugal.

In 2013 rental income (€526 million)

came mostly from the offices business

segment (62%), German residential

(15%), hotel and service sector (8%)

and other activities (15% remaining).

The occupancy rate is of 96%,

generating a vacancy rate of only 4%

(The occupancy rate “H1 2014” is

96.7%, excluding Logistics, 95.8%

including Logistics. The occupancy

rate rose 0.3% for Offices France to

96.1%, following leases signed in the

first half in Tour CB 21, which is now

nearly 97% rented).

Dividend is of €4.20, proposed by

Shareholders’ Meeting (04/28/2014).

The percentage of “Green Building” is

of 41.3%, and it will grow up in next 4

years of 18.7%, as we can see on the

chart.

The Shareholding capital is composed

by 44.6% Public, 27.6% Delfin Group,

13.41% Covea Finance Group, 7.6%

Assurances Du Credit Mutuel, 7.4%

Credit Agricole Group, 0.3% Treasury

Shares.

Divisions (these three are separate

publicly traded companies) in order

of size are:

Foncière Développement

Logements controls all of the

company's French (in Ile-de-

France) and Germany (Bavaria,

Nort h Rhine-Westphalia, Lower

Saxony) residential properties

which include apartments and

condominiums. Marceau,

Triname and Garonor France III

are among numerous

subsidiaries managed through

the division.

Foncière des Murs is a SIIC that

provides hospitality services in

addition to its function as

landlord of hotels and

restaurants.

Foncière Europe Logistique is

the subsidiary that controls

assets relating to Logistics in

France and Germany.

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Highlights

In partnership with Crédit

Agricole Assurances, Foncière

des Régions acquired the future

Campus Eiffage, a new 24,000

sqm building designed by Jean-

Michel Wilmotte.

Launch of Cœur d'Orly, one of

the major Grand Paris urban

projects, with construction of

“Askia”, an initial building with

18,500 sqm of office space,

which is 50% pre-leased.

Launch of the Green Corner

project in St-Denis, 70% leased

to the Haute Autorité de Santé,

with a delivery date set for the

end of 2015.

Foncière des Régions and B&B

Hôtels signed a partnership

agreement for the

development of nine new

hotels in Germany over the next

three years.

Euromed Center: Louvre Hôtel

decided to install a four-star

Golden Tulip hotel in the

Marseille complex to be

underwritten by Foncière des

Régions and Crédit Agricole

Assurances.

Foncière des Régions increased

its stake in its subsidiary Foncière

Développement Logements

and bolstered its position in the

German residential market. This

represents an investment of

nearly €1 billion.

Foncière des Régions was

awarded for the quality of its

financial reporting through the

EPRA Award Gold for its 2012

Reference Document, and for

extra-financial reporting,

earnings the EPRA Award Silver

for its 2012 Sustainable

Development Report.

Foncière des Régions was

included in four of the NYSE

Euronext – Vigeo indices:

"France 20", "Eurozone 120",

"Europe 120" and "World 120".

Foncière des Régions

successfully carried out a new

ORNANE issue for €345 million

and completed a private bond

placement for the amount of

€180 million.

Real Estate Investment Strategy

Foncière des Régions is a leading

player in commercial property and, as

such, has developed its asset base

around the key and characteristic

value of partnership. With an

aggregate portfolio value of €16

billion (€10 billion in Group share),

Foncière des Régions is now the

recognised partner of companies and

municipalities, which it supports in

developing property strategies.

With a strong presence in the Offices

market alongside Key Accounts,

Foncière des Régions is active in the

profitable markets of the Paris region

and Grand Paris, the major

metropolitan regional areas and

Northern Italy, through its subsidiary

Beni Stabili.

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Foncière des Régions is also extending

its business to two other sectors, the

Hotels & Service sector and the

Residential sector in Germany. Its

pioneering and relevant approach

led it to identify the potential of these

two sectors and to deploy its expertise

to establish a leading presence on

these two markets.

As a listed property investment

company, Foncière des Régions has

established reliable and long-term

relationships with its various

stakeholders—tenants, municipalities,

property operators, investors and co-

investors, suppliers, shareholders and

others.

Foncière des Régions is attentive to its

partners’ needs. Its ambition is to

develop a high performance property

entity that can adapt to the

expectations of users in a controlled

economic process that is both

responsible and sustainable.

Portfolio

Foncière des Régions' defines a

dynamic and tailored property policy

has the dual objective of enhancing

value to existing portfolio and

designing the property world of the

future. Through targeted negotiations,

performance-seeking management

processes and tailored development

projects, Foncière des Régions is firmly

ensconced in a portfolio

enhancement strategy.

At the same time, the company

constantly offers buildings in sync with

tenants’ needs. In accomplishing this,

Foncière des Régions remains attuned

to stakeholder concerns, carries out

surveys, analyses best practices in the

sector and builds the skill sets of its

employees.

Foncière des Régions has a thorough

understanding of all the business

areas of the property chain, from

asset and property management

through to development and

technical aspects. The company

combines this 360° expertise with a

long-term vision to support its partners,

companies and municipalities, for the

duration of their property projects.

Foncière des Régions can place itself

directly alongside the strategic issues

of its stakeholders through its use of

partnership committees with each of

its Key Accounts.

Using its partnership culture as a

mainstay, Foncière des Régions

quickly established a sustainable

development roadmap based on

high performance results, an

ambitious works program and a daily

support system to ensure effective

management for its tenants.

Below it is the list of major asset.

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Breakdown Portfolio (Destination

and Geographical Area)

France Office: The France

Offices indicators are presented

at 100% and as Group share

(GS). Assets held partially are

the following:

- The Tour CB 21 75% owned

- Carré Suffren 60% owned

- The Eiffage properties

located at Vélizy (head

office of Eiffage

Construction and Eiffage

Campus, the head office of

Eiffage Groupe) 50.1%

owned (fully consolidated)

- The DS Campus and New

Vélizy properties 50.1%

owned (equity method)

- Euromed Center 50% owned

(equity method)

- Askia, 1st office building in

the Cœur d’Orly project,

25% owned.

The proportion of the “Core”

portfolio is 17.64%, the

proportion of the Value-added

portfolio is 13.1%, the remaining

is performed by Secondary

asset. Rent revenues

(annualized) is €255 million.

Italy Office: Listed on the Milan

Stock Exchange since 1999,

Beni Stabili is the leading listed

Italian property company (SIIQ

– Italian version of the SIIC

regime). Its assets consist largely

of offices located in cities in

northern and central Italy,

particularly Milan and Rome.

The company has a portfolio of

€4.1 billion at the end

of June 2014.

Hotel/Service Sector: Foncière

des Murs (FDM), which is 28.3%

owned by Foncière des

Régions, is a listed real estate

investment company (SIIC)

specialising in the service

sector, especially in hotels,

healthcare, and retail. The

Company’s investment policy

favours partnerships with the

leading operators in their

business sector, in order to offer

secure returns to its

shareholders. The company has

a portfolio of €3 billion

dedicated to this business.

The portfolio is composed by

59.7% Hotels, 5.46% Healthcare

and the remaining Rental

Premises, as we can see in the

table below

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Germany and France

Residential: Foncière des

Régions operates in the

residential sector through its

subsidiaries, Immeo Wohnen in

Germany, and Foncière

Développement Logements in

France. With 41,000 housing

units, 75% of which are located

in Germany (25% in France),

Foncière des Régions ranks

among the leading operators,

especially in Germany, with

assets valued at €3.3 billion.

Germany has genuine potential

for value creation through its

growth markets in the

residential sector. Foncière des

Régions' strategy in this business

line is to geographically diversify

its locations, reinforcing its

holdings in vibrant, attractive

cities such as Berlin, Dresden

and Leipzig. The annualized rent

for this business is estimated of

€207 million (2014).

Logistics: Annualized rent for this

business are estimated of €18.7

million.

Portfolio Comparison With The

Main Competitors

Seen the breakdown of our portfolio,

we can see that in term of type and

geographic position of assets, it is fully

diversificated. We can compare our

portfolio in these terms with those of

the principal competitors. Compared

to:

Inmobiliaria Colonia, our

company has a better

diversification in term of

geographic position; in fact

INMB Colonial has assets only in

Spain and France (only in Paris).

Deutsche Wohnen, our

company has a better

diversification in terms of

geographic position and

destination of assets; in fact DTS

Wohnen has mostly residential

assets in Germany.

IGD, our company has a better

diversification in terms of

geographic position and

destination of assets; in fact IGD

has mostly retail assets in Italy.

Sacyr has a fully diversificated

portfolio in term of destination

of asset, like ours, but

investment only in Spain.

Patrizia Immobilien has a

portfolio like Sacyr, but

investment mostly in Germany.

Unibail Rodamco, in the last

year it was registered an high

volatility of the stock price.

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Stock Technical Analysis*

Concerning the value of the stock of

Foncière des Régions, we can note

how it grew up last year, passing from

62.75€ to to 76.77€ (28/11/2014), with

a minimum of 59.62€ and a maximum

of 81.90€. The trend of the stock is

clearly a rising one, gaining the

22.34% so better than the -0.8%

registered the previous year. This is a

very strong signal of how the market

appreciate the asset allocation of the

company and the strategies

developed by its top management.

Moreover they decided to pay a

lower dividend of 2.926€ with a

dividend yield of 4.09%, a P/E ratio of

25.68€ and an EPS of 2,99€ in 2014,

rather than the 4.2€ distributed to the

shareholders in 2013, for a dividend

yield of 7.05%. This is useful for

understanding how the company’s

business is creating value for the

stakeholders without the need of

paying high dividend also to attract

new investors. Looking at other

indicator, Foncière des Régions

presents a market Beta of 0.94 respect

to the 0.78 of the average of the

sector, this mean that although our

stock is more risky than the market

itself, they anyway manage their

business more actively, respect to the

other competitors of the industry,

giving the possibility to offer more

profit to its investors. This is something

you should really pay attention to, as

for a company in the real estate

sector it is not so easy to be active

respect to the market, this indicates

that the company is able to diversify

its risk and to do it in a way that

create value for the shareholders. So

buying this stock you are not buying

just the solidity and the profitability of

the real estate market, but you are

adding to these important factors also

diversification and active strategies in

order to make sure your investment.

Giving a view to the market to which

Foncière des Régions is linked to, the

CAC40 index of Paris stocking

exchange, we can say that there is a

rising trend in the last two years; it only

registered a bad loss in October 2014

due to the crisis of Greek bonds and

Athen’s index, but it is something that

shocked many other indexes among

Europe, so it is not an intrinsic problem

of the French market but an

exogenous shock, that moreover has

been already recovered, so that now

the price is coming back to the peak

of the year and rising without

problems since the mid of October to

now. Another important indicator to

consider for this stock is the gross

margin, that for a company involved

in the real estate business is incredibly

high, in fact it is at a level of €91.34 in

the last year respect to the €45.59

average of the competitors, so more

than the double. As we are talking

about a real estate company, we

can’t forget to mention the Price to

book ratio, it stands at a level of at

Price trend 2013-2014

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1.17 respect to the average of 1.74 of

the industry; the fact that the ratio of

Foncière des Régions is so lower than

the competitors is not something to

worry about, in fact it has to be

interpreted as the market reflects

perfectly the value of the underlying

assets of the company. This is

something very important for our

analysis, in fact it is commonly known

that real estate companies have high

price to book ratio because they

have so valuable assets in their

balance sheets but the market often

tends not to value them entirely in the

stock’s price because for the not so

much efficient management of the

business. While a P/B ratio growing in

the last year means that the market

recognizes the strategies of the

company and includes all the value

of the assets in the price meaning also

that the way how the business is

managed is so much better than the

competitors.

So if you were not convinced just by

the portfolio allocation of this

company, its market positioning and

the stock analysis should give you a

360° view of the real value of this

investment, showing the high

possibility to make very good profits

taking such a low risks (standard

deviation’s level deeply low). All of

this has been possible managing such

a solid business like real estate in a

very dynamic way.

*(Yahoo Finance Data 29/11/2014)

Stock Comparison With The Main

Competitors

Concerning the stock’s return in the

last 12 months of the other possible

investment we can note that

Immobiliaria Colonia has registered a

-0.53%, indicating a very weak

reliability of the investors for this stock.

Also Sacyr last year have had a loss

but so more deep, in fact it left on the

market the 19.21% of its value.

Although Patrizia Immobiliaren

registered a huge +54.66% in the last

year you must consider that this stock

has a really high beta respect to the

deutsche market, and last year the

Dax30 index grew consistently, so the

strong correlation with the market is

the reason of such returns. Also

Deutsche Wohnen performed very

well, registering a +31.54%, but we

know that they are fully invested in

the Deutsche RE market, that had a

very positive return last year. Whereas

there are really few things to say

about the performance of IGD, whose

investor’s only gained a +0.95% on the

stock’s value.

Ratio Analysis**

In this section, we introduce an

analysis of the principal competitors

based on their financial ratios. We will

see two of the most common Equity

Side ratios, Price/Earnings and

Price/Book Value, and the most used

assed side ratio: the EV/EBITDA; this

type of ratio is the most reliable,

because it is not influenced by

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amortization. In the table we can see

the values of these ratios for our

companies analyzed.

In the cells where are a value equal

to zero, it means that the ratio loses

significance, because it is negative

(this is the result of a simplification).

In the tables above you can see the

average of the ratios and (below) the

ratios of Foncière des Régions.

Looking at the P/E, our company has

a value of 11.53 (14.78 average), it

means that, for the same level of

profitability, the price of the Foncière

des Régions Stock is lower. In fact,

computing the theoretical price of

the stocks (31/12/13) linked to that

ratio, we get a price of €84.55 (we got

it multiplying the P/E of the

competitors for the earnings ”per

share” of our company), while the

stock’s price was €62.75; this can be

interpreted or as the market

underrates the stock, or as our

company is more risky. But, our

analysis shows that this second

hypothesis is less probable, because

Foncière des Régions has a fully

diversificated portfolio. The same

words can be spent about the

EV/EBITDA; don’t forget, this ratio

takes into account the whole value of

the firm.

By the analysis of the ratio Price/Book

of Foncière des Régions compared to

the average of the competitors, we

can underline a little weakness; in fact

this ratio had a value of 0.91,

downside the average. This ratio

represents the report between Market

Value and Book Value. Usually an

higher value of this ratio shows a

better valuation of the market,

compared to the accounting data.

However this ratio doesn't move away

so much from the average. Moreover

this value will be higher in the 2014

going near 1.17; so it's adjusting on

the average of the competitors.

Therefore, considering this analysis

and the previous examination of the

portfolio, it is showed a general

positive framework.

**(Bloomberg Data 31/12/13)

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