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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
CHRISTOPHE KULLMANN, CHAIRMAN OF THE MANAGEMENT BOARD, FONCIERE DES REGIONS: (Interpreted). Ladies and gentlemen, we have some late-comers coming in. Good morning everybody. I will share with you the half year performance of FDR, Fonciere des Regions together with Olivier and Denis and everybody else present in this room. We will try to take your question and answer them as best we can.
Here is a brief reminder of FDR's strategy. We are a pan European real estate investment company with a strong emphasis on offices. Our situation is stable in terms of value compared to with our year end figures. On a consolidated basis our portfolio comes to EUR17.8 billion, 67% of that in offices, and three other sectors as well business premises, logistics and residential housing.
Our residential housing business is mostly located in Germany, and management of our activities is performed by all three platforms in France, Italy and Germany.
In the first half year we saw that our share ownership structure, as well as the stock exchange situation kept being beefed up. We have two main shareholders, two major companies, Leonardo Del Vecchio is in control of Delfin and Charles Ruggieri is in control of Batipart. And these partnerships have been beefed up. GE sold some of its assets in the -- in this half year.
We've also reactivated our Treasury stock buyback program. And since June we have acquired about 14 million shares; average price came to EUR79. Our stock exchange situation has been approved now that we have entered the SBF120.
You know our strategy very well already. It is based on long term partnerships with major accounts. And we rely on a very high occupancy rate, long term agreements and long term debt, which is highly secure. Our strategy also includes the divestment of assets at maturity and we also have value creating projects to secure our cash flow.
Our first half year has been favorable, even though we're operating in a difficult environment. Last February we talked about our yearly performance and we talked about this uncertain environment that we operating in. Now, this environment is tougher. What has this meant?
Well, it means that credit conditions have tightened. I'm not saying that banks are no longer lending money. They are lending less and at a higher cost. So, credit conditions have tightened, but banks are still around to lend money on this market. And there is also talk of a financial crisis since last summer. The financial crisis is still around. It's not over and this has led to an economic slowdown. Just read the papers, this economic slowdown is just around the corner. I think you are in a better position than I am to talk about this.
So, what has been the impact on our real estate sector? Well, the first major impact has been a slowdown in real estate transactions in the first half year 2008, but this is true in the rest of Europe as well. It's not specific to France or Italy.
But if we stick to France, I believe that transaction volumes for the first half year in the office sector has gone down significantly compared to last year, minus 58% according to the latest comparative figures between the first half year 2008 and the first half year 2007. Let us not forget that H1 '07 was extremely significant with major operations. And so, we have gone back to 2005 transaction levels. 2005 wasn't that bad a year in terms of realistic transactions.
Here's another impact; there has been a slight dip, about 18% of what is called demande [plisse] in France, request for investments. And this has led to capitalization rates going up again and this has been acknowledged by market operators.
But we have good news as well. Rent indexation is favorable. Rental income is on the rise. And you'll see the figures for FDR a little later. So, rental income is faring well and the vacancy rates are still extremely low throughout our businesses, whether in France or Italy. The situation is different from what you find in the UK or other countries where vacancy rates have increased quite a bit.
As far as FDR is concerned, our performance is in line with our objectives. I have tried to summarize the situation. I won't go into much detail here, because we'll expand on this further later, but we have pursued our active asset management policy via a strengthening of our partnerships with our major tenants.
High occupancy rates are over shooting 80% throughout our scope. And we announced an objective in terms of disposals, EUR1 billion. And this objective has been reached in terms of disposals and also disposal agreements. And we have done this is in favorable economic conditions, because the average margin for disposals today over shoots 8%.
We have also decided to adapt the way we manage our pipeline considering changes in our environment and we have also delivered the Dassault Systemes world headquarters in Velizy in due time and in line with technical aspects. We have also strengthened our management teams.
The key figures have been published this morning, but Denis will tell you more about them. What is significant here is the increase in recurring cash flow. Recurring cash flow per share more than plus 5.4% and our triple net -- net asset value per share comes to EUR108.2.
So, what does this mean in terms of strengthening our management team? This is our current flowchart. We have strengthened our management team. Pascal Crambes has joined our team. He's been with us a couple of months now. He's in charge of real estate development operations and also Philippe Le Trung. You all know him already. And he will join us by September. He will be in charge of Financial Communication and Capital Markets. The idea is for Mr. Le Trung to help us raise equity to fund further developments and also maintain our Group's current situation.
Denis Moscovici is the Corporate Secretary, Mr. Mazzocco's in charge of the Italy offices. Mr. Esteve's in charge of the French offices. As far as Dedicated Pure Play Subsidiaries and Funds, Yan Perchet is in charge.
We've added the Real Estate Fund's item to this business, because we have about EUR1.3 billion under management and our objective is to use the tax status of OPCRs in France in order to put together specific deals -- specific projects. So, we are positioning ourselves and in the coming days we will request approval from the AMF, the French SEC. And Thierry Beaudemoulin is in charge of our residential business.
Let me say a few words about our business before handing over to Olivier. I'd like to get to an important aspect, the change in appraisal values considering the tougher environment in which we operate. Globally speaking in our scope we have acknowledged an increase of 40 bps in terms of appraisal values. There have been two major exceptions however, Italy is one.
Capitalization rates are stable, between December 31 and June 30 for two main reasons. Number one, the arbitrage plan is faring well. In Italy we sold about EUR305 million worth of assets in the first half year, with margin of about 20% compared with appraisal values. These aspects have been integrated by experts into Beni Stabili's portfolio valuation. And second reason, the average lease term in Italy is extremely long, and this also has to be factored into the appraisal values.
Now with regard to FDM, the capitalization rate has increased by only 15 bps for two reasons. Well, the first reason is the same as for Italy, term lease -- rather lease terms. And also, FTM assets can be compared with commercial assets for which, at least at this point, the increase in capitalization rates which has been acknowledged by experts is lower than for...
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