Altarea

Altarea reports a diluted liquidation NAV using its proprietary methodology (mostly DCF applied to development businesses). The GAV lacks formal detail and is not published in EPRA standards. The structure of the FFO Group share is also not detailed.

We provide analytical insights, acknowledging the limited granularity of publicly available information, to facilitate a more precise valuation of Altarea. This is reflected in our 10% governance discount.

The articles of association provide for the dissolution of Altarea’s partnership (French “commandite”), compensated by issuing 120,000 new shares, representing 0.55% of the capital. Altarea indicates that this moderate dilution would also cover the dissolution of the limited partnership in Altareit. We have verified that the partner’s compensation is not excessive (see Governance section). Therefore, despite the partnership’s existence, we see no reason to apply a specific discount to Altarea as a whole.

The cash dividend paid to minority shareholders significantly influences stock market status. Since 2006, the AGM has approved €2.5bn in dividends, representing a 77% payout of FFO, with €1.5bn distributed in cash, equating to 48% of FFO. The remaining €1bn primarily results from the scrip dividend, either total or partial, selected by the reference shareholders, who currently hold 69% of the capital. This difference should be considered in the context of the current market cap of €2.5bn.

A DCF model is of limited relevance for property companies. Retail property assets constitute the bulk of Altarea’s value. This is also true for development models, whose economic performance is highly cyclical. We prefer the GAV/NAV approach over DCF valuation.

Due to limited public data, we assume 73% of Altarea’s consolidated debt relates to its shareholders, implying minority shareholders are underleveraged. We value the retail GAV at the 2024 appraisal value of €2.1bn (Group share, ex-transfer taxes), applying a 5% discount (€100m) to reflect current arbitrage opportunities for equivalent assets.

We value residential and tertiary development assets based on a mid-cycle EBITDA multiple for each segment. We do not adjust intangible assets, which are moderately significant at Altarea.

All residual equity method assets and development businesses are valued together at an EV of €1.7bn, including unrealised capital gains (AV est.) on data centre and logistics projects, 100% owned by Altarea.

Minority interests are primarily in retail property (€68m recurring FFO in this segment vs. €15m for the rest of the group in FY 23). We consider annual independent appraisals to provide a fair market value in mark-to-market terms, retaining their balance sheet value of €1.2bn. Minorities are therefore provided with a 6.6% FFO yield.

Public information is insufficient to determine the extent of specific debt in equity method segments. An EPRA LTV ratio would offer more precision in studying equity methods.

There are €0.2bn of hybrid securities (TSDI, subordinated notes) paying 3% in perpetuity. Credit agencies consider them equity equivalents since they are repayable after rated debt. We consider them 100% debt in valuation, despite their market value being theoretically lower than their book value. Shareholder loans are treated as cash debt.

We consider commercial paper as debt, but since 2024, there is no NEU-CP programme due to higher short-term rates. In our risk analysis (ICR and ND/EBITDA ratios, AV methodology), estimated outgoing rents payable by the concession business are deducted from EBITDA (approximately €15m in financial expenses under IFRS 16 are deducted from recurring EBITDA published by Altarea).

For real estate developers, book equity often serves as a reference point for market cap, which we monitor as a potential inflection point signal. This indicator does not appear positive for 2025.

Altarea’s NAV per share (company’s methodology, nominal and net of dividend scrip dilution) often returns to similar nominal levels at the cycle’s bottom: €112 in 2005, €109 in 2009, €124 in 2014, and €112 in 2023. Leverage is created during the cycle’s upswing, particularly when residential and tertiary development profits coincide.

For the past twenty years, the nominal value per share at the cycle’s bottom has been almost constant, with most shareholder returns from dividends, supplemented by potential returns (unrealised capital gains) during recovery phases or low interest rates.

Our valuation model does not incorporate a dividend discount method. The dividend is currently higher than Altarea’s FFO, thus questioning its sustainability. Altarea has guided for a stable dividend of €8 per share for 2025, payable in 2026. We readily admit that there remains a possibility of maintaining a dividend of around €8 p.a. over a transitional period, potentially several years, in the event of a series of capital gains on development operations in the Logistics or Data Centers segments. These capital gains could be of quite significant size in our opinion, but it remains to be seen whether these businesses can be materially converted into recurring operations bringing regular profits in the long term (i.e. “recurring FFO”). As far as the short term is concerned, we believe €8 would still exceed FFO in 2025-26. We include the corresponding new share creation in 2026 in our estimates.

Beyond that, we align the dividend with a sustainable payout ratio of 75-80% of expected published FFO, the latter being mostly based on Altarea’s “traditional” segments, thus considering a low contribution of further capital gains. We are not factoring in new share issues in out years. Our dividend expectation beyond 2026 (below €6) is significantly lower than Altarea’s long-term guidance, which was €10 in 2023, adjusted to €8 payable in 2025 and 2026. We will later consider revising the dividend level that we consider sustainable upward if: i/ the restart of Residential is stronger than expected at the moment or ii/ we are convinced that capital gains on the tertiary segment can be considered more recurrent.

If management maintains a nominal dividend of €8 per share, payable in cash, this would represent a cash dividend yield of approximately 8% at the current share price for minority shareholders. However, there is a risk of a nominal dividend reduction if interest rates remain high. A further adjustment could affect Altarea’s share price through changes in its stock market status: a €5 dividend, for example, representing a yield of approximately 5%, would no longer be differentiating.

We discuss additional valuation parameters in the Governance and Environment sections. Including Altarea’s entire debt, we estimate the EPRA LTV is above 42% (28% in Altarea credit-oriented methodology). This level remains reasonable, assuming business development recovers in the coming years, with EBITDA returning closer to mid-cycle levels.

A long-term observation of Altarea shows that the main shareholder benefit has come from dividends paid since the IPO. At the previous cycle’s peak, equity per share was €148 in 2007. It is €77 in 2024, closer to the cycle’s bottom. This is a nominal valuation before accounting for inflation and after deducting the increase in the number of shares largely due to scrip dividends.

With a 20% free float (approximately €0.5bn), Altarea is positioned as a French small cap with low liquidity. The stock benefits from a premium due to the cash dividend yield offered to minority shareholders. This cash dividend is supported by the majority block, which currently receives 75% of its dividends in new shares. The compensation of minority shareholders based on the current dividend cash would be around €53m annually, an amount we believe is sustainable if expressed in relation to FFO, ignoring the balance sheet.

As long as the nominal dividend remains high, Altarea benefits from its dividend yield status, which is favourable to the stock price.

Altarea has stated it will not require fresh cash in the near future. There are currently no substantial dilutive instruments outstanding. The reference shareholders’ option for scrip dividend demonstrates a need for balance sheet support, nevertheless.

At the cycle’s peak in 2021-22, the published NAV was €3.1bn vs. the current €2.3bn. The difference between NAV and our target price being roughly €0.3bn, it compares to a 100% GAV of €5bn according to Altarea methodology. This difference is primarily due to a more conservative approach to valuing the Development division.