Altarea

Altarea has chosen the SIIC (French REIT) regime for its property assets, which mandates the annual distribution of most profits as dividends to shareholders. French law does not require these dividends to be entirely in cash. Since 2019, 3m shares have been issued under dividend scrips, compared to 16m shares at the end of 2018.

Due to the REIT regime and recent net losses in the Development segment, changes in corporate taxes for French big corporates will not affect Altarea from 2025 to 2027.

In 2021, Altarea announced negotiations for the transformative acquisition of Primonial for €1.9bn, a multi-product platform in France, including asset management of French private retail RE funds (SCPIs). To finance this acquisition, Altarea raised €350m in cash at the end of 2021. In March 2022, it abandoned the deal, leading to a legal battle. Initial findings in February 2025 were favourable to Altarea. Given the stakes for Primonial’s owners, a lengthy legal battle is expected. Due to the clear outcome of the first instance, no discount is applied to Altarea related to this dispute. However, the final outcome remains a risk until proceedings conclude.

Altarea has provided guidance in recent years amidst an unstable market environment, often not achieving or delaying targets. This reflects unprecedented market momentum continuing into 2024. A sustained market recovery could reverse this trend, but short-term prospects remain uncertain.

In 2023, Altarea anticipated a stable dividend of around €10, payable 50/50 in shares/cash. In 2024, the dividend was €8, paid entirely in cash or 75% in shares and 25% in cash. The same terms apply for 2025. For 2026, Altarea plans a stable dividend without specifying payment terms. This remains well below initial 2023 expectations. The option to pay dividends in shares indicates a priority to reduce debt, which continues in 2025.

Medium-term guidance aims to return to the €300m nominal FFO generated in 2019. At the start of 2024 (€101m FFO in 2023), Altarea planned to reach this by 2027-28. By early 2025 (€127m FFO in 2024), a 2028-29 horizon seems more realistic. This assumes a rapid turnaround in the Development division, which we find unlikely given the sector’s inertia and medium-term financial risks. The return to this historic FFO level (nominal, not adjusted for in-between inflation) suggests that Altarea expects a significant contribution from its new businesses by 2027-29. The extent of this contribution from Logistics or Data Centres, for example, to the medium-term profitability objective is not known. We may therefore be required in the future to significantly revise our consolidated FFO estimates upwards if Altarea succeeds in converting one-off capital gains into permanent and sustainable value creation.

Altarea’s holding structure, a Partnership (French “Commandite”), ensures control continuity for the Taravella family, maintaining strategic and management consistency. Its impact on valuation is discussed in our Valuation section.

Since its IPO, Altarea has used credit-oriented metrics not aligned with EPRA standards, complicating valuation comparisons with peers. Missing metrics include proportionate LTV excluding duties, NAV by business, and proportionate ICR. Altarea does not publish ratios like reversion potential, incentives granted etc.

In Property businesses, non-recurring items are identifiable, but in Development, they are less clear. Since 2008, recurring net income totalled €1.4bn, while group share net income was €0.4bn, indicating €1bn in non-recurring items. This questions the use of recurring FFO for valuation and the adequacy of the 25% long-term retained cash dividend or the EV/EBITDA ratio for the development division at Altarea’s published NAV.

The €5bn portfolio and 1m square metres include third-party managed assets, contributing little to income but providing a broader shareholder wealth picture. From an AuM perspective, this is accurate.

This communication policy has been consistent since the IPO, though some details have been lost over time. This affects transparency and analysis compared to peers, particularly in Property. We apply a discount via the Joker analyst view in the Governance section. However, this communication is necessarily integrated over time by the stock and bond markets, as well as the credit rating agencies.

At the end of 2024, Altarea’s partners had a €145m receivable, about 7% of market cap. This receivable is primarily a cash pool using equity methods, with no dilution risk identified. Remuneration terms for this loan are unspecified. Like Commercial Paper and hybrids, covenants exclude third-party loans. We consider this in our risk assessment. It was restated in our valuation multiples too.

Rents and royalties on concessions are partially recorded below EBITDA, not included in debt metrics (ND/EBITDA or ICR at Altarea standards) but considered in FFO Group share which is a stable cash metric. One can note that non-recurring items are significant long-term compared to recurring EBITDA.

Since the 2004 IPO, the equity method’s contribution to EBITDA has grown, reflecting more partnerships, especially in Tertiary Development, where equity investments account for a third of recurring EBITDA. In Residential Development, risk sharing often involves minority shareholders, absorbing 13% of recurring net profit since 2017. It was restated in our valuation multiples too.

Altarea’s key development subsidiary (Altareit, listed, not covered) allows for balance sheet deductions, mainly for Retail Property. Greater financial information granularity, particularly in EPRA standards, would improve precision, nevertheless.

Minorities (excluding hybrid debt) represented €1.2bn in 2024, compared to €1.7bn pure shareholder equity (before €0.4bn intangibles deduction). The Equity Method share was €358m versus a NAV of €2.3bn (Altarea methodology), a substantial portion of Altarea’s value. Limited information is available on the financial structure of vehicles consolidated by Equity Method.