Altarea

Altarea, a French real estate company, has been operating for over 30 years in residential and commercial real estate development, with significant activity in the retail property segment. The company is almost entirely French. Typically, its activities respond to distinct cycles, mitigating risk. However, recent years have seen concurrent crises. Currently, while Altarea’s assets perform well, market and operational challenges focus on a recovery in real estate development, primarily influenced by interest rates on 10- to 20-year maturities.

Altarea has demonstrated adaptability to new environments. A stabilising French residential market is now a bit more likely, with 2025-26 still posing risks, though the worst of the residential development crisis seems behind us.

Founded in 1994 by Alain Taravella, Altarea is a French real estate group that went public in 2004. The Taravella family remains the major shareholder. Initially, the group managed a couple of commercial assets on top of a small development business, reinvesting profits and leveraging debt to finance group development.

Today, its main expertise lies in owning and managing investment-oriented retail assets and real estate development, primarily residential but also commercial. In the early 2000s, Altarea expanded into Italy. In 2007, it increased its residential development exposure by acquiring COGEDIM. In 2011, it acquired RueDuCommerce, later sold to Carrefour in 2015. Over 30 years, Altarea has acquired, built, renovated, or converted large-scale commercial assets, mainly in France (see Intercontinental in Marseille, First tower in La Défense, Cap 3000 shopping mall in Nice and Montparnasse station in Paris). In 2019, it acquired a stake in Woodeum (wood buildings), holding 100% since 2023.

In June 2021, Altarea proposed a merger with Primonial group, raising €350m in cash in advance. The deal was abandoned in 2022 and is currently under trial, with initial results in February 2025 favouring Altarea. The core businesses, Property and Development, offer low operational but strategic synergies, stabilising the consolidated portfolio. We will analyse them separately, with minimal focus on developing side businesses like photovoltaics or asset management.

Altarea manages a retail asset portfolio of 1m sqm, primarily in France, with some assets in Italy and Spain. This size has remained stable for a decade, with significant changes in ownership. Owned square metres decreased from 650,000 in 2011 to 450,000 in 2023, while minority shareholders’ holdings increased from 150,000 in 2012 to 400,000 in 2024. Assets managed for third parties have remained stable since 2018 at around 200,000 sqm.

The second major development is the shift from “local retail” to larger shopping centres, such as Avenue 83 in Toulon and Cap 3000 in Nice. This shift favours higher quality with fewer ground but improved risk-reward. Group share assets were €3.0bn between 2016 and 2018, then €2.2bn in 2024, returning to 2013 nominal levels. Large malls accounted for 46% of Retail GAV in 2013 (group share), increasing to 62% in 2024.

The ownership structure of many assets, including Cap 3000, means most revenues and EBITDA from this €5bn asset base are fully consolidated, though minority interests impact the P&L.

Despite managing €5bn in 100% AuM, the market remains fragmented, and Altarea’s market share is in the low single digit. Prime assets rarely change hands and are typically held by leading property companies such as Klépierre or URW. Due to stagnant growth in new space, market share reallocations are infrequent, and retail assets are generally buy-and-hold investments.

Looking ahead, we expect minimal or no growth in retail ground in France, driven by environmental constraints (“ZANs”) and the existing surplus of developed land, which is often unoccupied, distressed, or in need of revitalisation in a couple of secondary locations. For Altarea, we foresee limited growth in owned asset, with few new authorisations anticipated. Altarea’s growth is likely to stem from increased nominal rents due to the scarcity of prime locations, contingent on GDP growth, or from a more aggressive M&A strategy. The impact of e-commerce and stagnant GDP may continue to pose challenges. We believe in the resilience of malls, although their golden age appears to be behind us.

Since 2011, residential development has accounted for 75% of consolidated revenue, 32% of recurring EBITDA, and 37% of net profit (group share). This business is focused on France, with Altarea holding nearly 100%. Its market share is estimated at 5% for individual investors, 9% for institutional investors, and 6% nationally.

From 2007 to 2022, new building construction benefited from low mortgage interest rates and favourable tax schemes. Strong household solvency maintained high volumes, absorbing rising construction costs. These drivers weakened between 2022 and 2024, exposing the market’s reliance on low interest rates. Housing bookings in multi-family housing fell by a third from the 2019-22 peak, with a decline in individual housing partly offset by low-rent housing orders.

The private sector, including Altarea, is now about 60% dependent on institutional orders (almost public) and 40% on individuals. Support measures in early 2025 aim to boost first-time buyers’ solvency (see “PTZ”), but not other individual bookings. After significant institutional apartment acquisitions from 2020-24, a slowdown became a material threat in late 2024. A recovery requires a combination of smaller housing sizes, lower long-term rates, and nominal wage increases to restore buyer solvency if new-build prices remain stable.

To significantly improve volumes and revenues for developers, as well as their profits (refer to our Money Making section), a combination of factors must materialise: i) a stimulus through the reduction of the size of marketed properties, for which Altarea is well-prepared; ii) a decrease in long-term interest rates; and iii) sustained nominal wage increases to restore buyers’ solvency, assuming new property prices remain stable in nominal terms. Without two or a combination of these factors, a market with low volumes may persist, offering developers respectable margins, albeit on lower revenues.

Despite the significant market attrition, with the disappearance of many small property developers since 2022, it is noteworthy that the market share of leading companies (including Altarea, Icade, and Nexity, all being covered companies) has not significantly increased. In our view, the real estate development sector in France has not yet undergone the necessary adaptation or transition, partly due to public support. To clarify, state intervention has prevented a severe market correction, leaving it fragmented (with the leader, Nexity, holding approximately 11% of the market). Until 2024, public procurement has largely favoured major developers, as evidenced by the overweighting of institutional bookings in the backlogs of Altarea and other groups we cover.

During a recovery phase, market leaders are expected to capture additional volumes and increase their market share. Only with healthy balance sheets will they benefit from significantly improved pricing conditions on top of rising revenue. We understand that in recent years, Altarea’s divestment decisions in certain segments (see Retail) have aligned with the development business cycle, preserving its expertise and associated free options. The gradual deleveraging accompanying this aims to enhance the group’s overall risk profile, in our view (derisking).

In the broader macroeconomic context and considering “mega-trends,” a significant question is emerging regarding the housing demand in France over the next 20 years. This is linked to demographics (ageing population coupled with a recent rapid decline in birth rates, which is a newer trend in France) and the high cost of housing, which may lead to changes in usage patterns. Consequently, we believe there is a real possibility that the new housing market size may trend downwards over the next 20 years (see our “Worth Knowing” section on this). In this scenario, agile developers specialising in a specific type of offering or geographic region may have a preferential position over broad, national, and mass-market models. In this context, we believe Altarea’s size and philosophy are well-suited.

Side businesses have generated 12% of revenue and 8% of consolidated EBITDA since 2008, with a third from partnership transactions. This segment contributes approximately 7% of long-term net profit (group share), with high volatility.

This business line is heavily reliant on the macroeconomic environment for large-scale projects with extended maturity periods. It experiences significant inertia during economic downturns due to ongoing projects and similarly during economic recovery due to the resumption of design and financing activities.

Regarding office spaces, we foresee remote working and potential future impacts of AI as risks rather than opportunities. Consequently, we expect a prolonged period of low contribution from this business line, extending beyond 2027, after the completion of existing projects. However, outside of office spaces, there is a substantial pool of potential projects, such as conversions, renovations, and transformations, which can provide opportunities for Altarea, especially through partnerships. By the end of 2024, the backlog of €214m suggests a minimal contribution from this business line to consolidated profits in the near term.

Altarea’s market share is negligible nationally, but it has expertise in large-scale transactions. Altarea’s platform allows testing of adjacent market niches, such as renewable energies, following the acquisition of Prejeance Industrial in 2023 for €140m. Despite a growing 1 GW portfolio, this business coupled with other side businesses are not expected to contribute significantly to recurring profit growth soon.

The aggregation of assets results in a multifactor growth profile. Alongside recurring retail revenues, there is significant volatility in development businesses. After a threefold decrease between 2019 and 2023 (from €300m to €101m, Group share), Altarea expects consolidated recurring profits to triple between 2023 and 2028. This expectation highlights the cyclicality of the group’s business, necessitating a strong and rapid recovery in development, particularly in residential. We believe the consolidated accounts will continue to reflect this volatility, albeit cushioned by recurring property retail profits. In the current residential development cycle, a sharp recovery could occur, but we consider the likelihood of this happening in 2025-26 to be low.

Retail assets serve as a profit buffer and are a distinctive feature of Altarea compared to many competitors, providing a competitive advantage. For instance, Nexity has divested nearly all significant assets to manage its debt. Beyond a “fundamental bottom-of-cycle” value, Altarea’s profile and valuation will remain partly cyclical. Monitoring a substantial recovery in residential development will be crucial, as it could significantly impact the share price.

We do not categorise Altarea as a growth play. This is supported by the long-term observation of NAV per share and the evolution of FFO net of inflation. Historically, Altarea has prioritised significant dividend distribution. It is challenging to pay large dividends while pursuing strong growth under acceptable risk conditions, unless risks are taken during opportune market phases. This is the key question for 2025-30: a period of ongoing uncertainty in the residential development sector, yet with potential opportunities in retail property.

In real estate, transformative transactions often occur at or near the peak of a cycle. For Altarea, the acquisition of Cogedim and the Primonial project exemplify this trend. Currently, the cycle is more mature, and Altarea’s balance sheet has strengthened due to recent asset disposals and a €350m cash capital increase in 2021. Beyond transformative deals, we anticipate potential value-creating transactions, such as selective land acquisitions or share-based mergers, facilitated by the partnership status.

Following a decade of refocusing retail property assets, a significant acquisition in the Retail segment, paid in shares, is possible. This would be viewed positively.

In the Development segment, we do not foresee substantial acquisitions. Instead, we expect market share gains driven by a cycle recovery, which will help manage working capital needs. A major acquisition in this segment would be viewed negatively. In side businesses, we anticipate tactical M&A operations or initiatives of moderate size relative to the consolidated scope.

International operations are not a priority for Altarea, despite past ventures in Italy and Spain. Their contribution is low in terms of NAV and revenue, despite high-quality assets in Retail and Italian train stations. Altarea’s focus remains on the French market, with some international-class assets like Cap 3000 in Nice. In our opinion, this type of asset remains very liquid if needed.

Altarea does not provide a detailed strategic roadmap. Given the cyclical nature of its businesses and the current low visibility in the construction market, this approach appears prudent. It allows the group to remain flexible and responsive, avoiding rigid adherence to a specific strategy. This adaptability is a hallmark of entrepreneurial management.

In times of high risk or reduced visibility, such as the present, we find guidance unreliable for assessing the investment case. We prefer a top-down approach. This strategy can be adjusted if conditions improve, allowing Altarea to pursue more aggressive opportunities under acceptable risk conditions.