Affine gears up for new acquisitions, slashes dividend

French REIT Affine plans to resume acquisitions in 2014 after having focussed on sales of non-core assets and portfolio restructuring for the past three years.

Affine, a Paris-based SIIC focusing on commercial real estate, has halved the number of assets in its portfolio from 120 to 60 since the credit crisis and simplified its corporate structure with the takeover of AffiParis, its subsidiary focussed on assets in the French capital.

‘This is a time to look back at what we have done over the past few years,’ CEO Maryse Aulagnon said during a presentation of the company's annual results last week. ‘We have focussed on improving the occupancy rate of the portfolio, diminishing corporate expenses and significantly reducing the number of assets to concentrate on sizable buildings. This has represented a great effort on our part.’

Commenting on the months ahead, Aulagnon said that the company plans to resume an active investment programme which may include the purchase of developments, if they are at least 60% prelet. The company will focus on the French regions which provide better returns, she added, and will also consider investments with partners. ‘Our priorities in 2014 will be the investment programme, improving rental income and lowering administrative costs and vacancy rates,’ she said.

In 2013, the company made one single acquisition with the purchase of the remaining 50% stake it did not already own in the 25,000 m2 Jardins des Quais complex in Bordeaux. It bought the interest from its Belgian subsidiary Banimmo for a price of around €25 mln.

To retain capital for new acquisitions, the company’s management is proposing to reduce the 2013 dividend to €0.9 per share but has pledged to reintroduce a dividend of ‘at least’ €1 per share from 2014. Dividends will be paid fully in cash.

In response to analysts’ remarks about the decline of Affine’s payout ratio from 75% of EPRA earnings in 2011 to 63% in 2013, Aulagnon said the reduction is a result of a number of factors including higher distribution requirements for French REITs. ‘Our compulsory distribution rate has recently been increased to up to 95% and our EPRA earnings have dropped. In addition, lower dividends will allow us to put some capital aside for new investment,’ she said. EPRA earnings per share dropped 17% from €1.73 in 2012 to €1.44 in 2013 but are expected to recover next year, according to Aulagnon.

In the year to December 31, 2013, Affine posted a loss of €8.8 mln compared to a profit of €4.7 mln a year earlier. The result was largely attributable to over €18 mln of writedowns on its real estate assets. Co-CEO Alain Chaussard said the decline reflected ‘false expectations’ for assets which eventually proved difficult to let.

Chaussard: ‘This includes an office building in the eastern part of Paris which was vacated by Nissan. The tenant left two years ago and we are still trying to find a new occupier. We thought it was time to depreciate the building by €3 mln. We have another vacant asset near Lyon. We have adjusted its value ahead of its sale. Another building let to the Atomic Energy Agency is being sold to its tenant in 2014 and we have already adjusted the value by €2.2 mln.'

Looking forward to 2014, Chaussard and Aulagnon conceded that it is always difficult to forecast the impact of depreciations, but said they are ‘rather optimistic’ that the portfolio should retain its value in 2014. The company managed €594 mln of assets at year-end 2013.

Affine’s assets showed a 0.9% increase in like-for-like rents over 2013, largely due to a rise in the occupancy rate which reached 90.9%, from 87.8% in 2012. Rental income fell from €41 mln in 2012 to €34 mln last year as a result of disposals. ‘We did not reinvest proceeds from sales in new acquisitions so we have seen a decrease in rental income,’ Aulagnon explained.

Net asset value per share fell from €28.2 in 2012 to €25 last year, reflecting the 3.8% reduction in the fair value of buildings.