MAGAZINE: French firm grows RE by 30,200% in six years

Six years ago, when its co-head of real estate Frédéric Jariel joined the company, it had just €33 mln of real estate – yes 33 million. Last quarter, the company’s real assets were valued at more than €10 bn.

Not that Jariel is trying to take the credit. But it is an astonishing figure. ‘We have managed quite rapid growth, but it is not all me, obviously!’ says the former Goldman Sachs Archon Group professional.

The seeds to strong growth were sowed many years ago as the Paris-based company began to evolve from a balance sheet investor to an international asset manager. Today it is a listed on Euronext Paris following a €1.5 bn IPO in March 2017.

With a total of €27.2 bn of assets, it manages a portfolio divided into four quadrants: private debt, real assets, private equity (including green energy investments), and liquid funds.

Jariel says the very first deal Tikehau Capital ever struck after being formed in 2004 was a real estate one in France in a joint venture with Goldman Sachs (the asset was sold 18 months later to a UK investor at a large profit). However, Tikehau Capital’s reputation grew more in the private debt space where its lending arm is still very much active, backing firms across industries from Parisian luxury brand, ba&sh, to a Spanish geotechnical engineering firm.

But within the past year, real assets (€10.2 bn) have surpassed private debt (€8.9 bn) to become the biggest division.

To reach that milestone, several real estate acquisitions took place, the biggest of them being the 2018 takeover of Sofidy, a major French public real estate asset management company with approximately €4.8 bn of property managed on behalf of more than 50,000 retail investors comprising a portfolio of over 4,200 commercial and office assets. The acquisition not only propelled Tikehau Capital as a major French real estate player but boosted the entire group’s AUM by over 30% to €20 bn – meeting the stated corporate goal some two years early.

Says Jariel: ‘I guess you could say we are still a teenager having been founded in 2004, but we have grown a lot. It is considered a success story.’
The company has opened 10 international offices outside France, spread across Europe, Asia and the US where it has a New York office. The group employs 570 people in 11 countries.

It is said that Tikehau Capital initially received backing from French insurance companies and large family offices. But international investors have followed, including the likes of Temasek, the private investment group of the government of Singapore.

As Jariel notes: ‘When we went public, it helped us get on the radar of foreign investors.’

Out of the box
Approximately two-thirds of Tikehau Capital’s €10 bn of real assets are within Sofidy, which continues to invest in small long-term-hold assets that can deliver a dividend yield to its retail investors.

The remaining one-third of the €10 bn sits mainly in a pan-European real estate value-add strategy that gained a slight reputation for maverick investments, and in something more exotic, a Singapore-listed real estate group called IREIT Global, which owns assets in Germany and Spain, and which is headed by London-based Tikehau Capital real estate professional, Louis d’Estienne d’Orves.

D’Estienne d’Orves took over as CEO of IREIT Global in April of this year having joined Tikehau in November 2018 as investment director in the real estate group (see box on IREIT Global’s unusual structure).

Commenting on Tikehau Capital and its path to growth, D’Estienne d’Orves observes how the company’s model was principally to invest from its balance sheet up until 2007-8, after which it began expanding managed funds. Now, as a listed asset management company, the whole group is getting closer to the milestone of €30 bn of AUM and it continues to grow in an eye-catching way. For example, despite the obvious financial headwinds from the Covid-19 crisis, in September the firm acquired Star America, a US company with $700 mln of infrastructure and real assets to expand its presence in North America.

Entrepreneurial ethos
One investor that knows the company very well, explains more: ‘We think our company is in a way very similar to Tikehau. Both companies are very entrepreneurial and enterprising in nature but at the same time have a very strong commitment to corporate governance and fiduciary duty to our shareholders.’

The investor added: ‘One big difference to other firms we have found working with Tikehau Capital is that their staff are extremely passionate about what they do. They are able to come up with a creative solution yet at all times understand the risk that they are taking.’

D’Estienne d’Orves and Jariel both attest to this enterprising spirit. ‘Tikehau Capital is very entrepreneurial,’ says Jariel. ‘We like people who can think out of the box.’

D’Estienne d’Orves adds: ‘To be honest I really enjoy it here. You have the teenage entrepreneurial spirit, and then the listed company, with a strong balance sheet with around €3 bn to help with investment into funds in the asset management arm. The company gives you the floor; you need to manage everything but at the same time there is a structure.’

Tikehau Capital is often a significant investor in the funds it manages, accounting for 15-25% of fund equity which gives third-party investors a certain confidence to also invest.

Europe milestones
The European real estate market took off in 2018 not only with the Sodify acquisition but also with the launch of Tikehau Real Estate Opportunities (TREO). The firm completed fundraising in February this year on €560 mln of equity, placing it on the top 10 of Europe real estate funds to hold a final close in H1 2020. 

For UK readers, though, probably the first time Tikehau Capital came on the radar was March 2019 when Tikehau Capital bought out of receivership the 190,000 ft 2 Nicholsons Shopping Centre in Maidenhead, south east England, alongside Areli Real Estate.

The timing was interesting. Retail property was being knocked sideways and this relatively unknown French asset manager came along with a game plan not to turn the shopping centre around but to completely alter its use into residential, office space and ground floor shops. This is exemplary of Tikehau Capital’s approach of ‘moving early into transforming real estate’, according to Jariel.

‘One thing we like to do is reposition and change use. The shopping centre in Maidenhead is a good example. For us, we bought a land bank. Here the strategy is to regenerate the city centre by creating a big mixed-use project where the majority is residential.

‘We do this quite a lot, we take the development risk. We take an asset that is not the right use for a location, and we transform it. We did this in the UK where we also have another shopping centre, the Walnuts in Orpington, and we did the same with a logistics asset near Paris. When we did that shopping centre deal in Maidenhead, we were really early birds on the repositioning strategy.

‘What we also like to do is sale-leasebacks. We bought a lot of property from EDF in France. In our first deal, we bought around 130 office and business assets spanning 300,000 m2 from Sofilo, the real estate company of EDF Group. In our second deal, we bought a mixed portfolio of around 200 office and business assets of around 400,000 m2 from the same company. What we do when the company vacates the space is repurpose the site to residential development. We like a lot the early play of residential development.’ 

Tikehau Capital continues to make investments for its value-added fund despite the disruption from Covid-19.  In August it completed the purchase of an office building in the Milanofiori business district of Milan for an undisclosed price.

Watching and waiting
With local teams in the UK, Spain, Italy, and the Benelux, Tikehau says it will remain patient. This is not a new approach given Covid-19, but a continuum. ‘We are very deal-orientated. We still like the UK. We think UK residential is interesting when there are good connections with London,’ says Jariel.

‘Our focus continues to be Western Europe. We still like the transforming into residential story. We like office if the rents are reasonable, hotels, and also sale-leaseback where we think we will see opportunities.

‘For the fund we just raised, we are just trying to invest it right. This is a challenging time, but our pipeline is good and if we find the right opportunity, we will invest. But we prefer to be right than quick.’

What’s in a name?
Tikehau Capital is one of the more exotic names among European investment firms, but where does it come from?

It is named after the French Polynesian island also known as ‘Pink Sand Island’, part of the Tuamotu Archipelago situated 340 km north east of Tahiti.

In the 1980s, French explorer Jacques Cousteau studied the island and declared it to have more fish species than any other in Polynesia.

The company was founded in 2004 with €4 mln of working capital by Antoine Flamarion and Mathieu Chabran who both worked at the principal investment arm of Merrill Lynch in Paris. Flamarion went on to work for Goldman Sachs in London in 1999. Chabran left Merrill Lynch to join the real estate debt team at Deutsche Bank, also in London.

Because non-French speakers reportedly struggle to pronounce the name ‘Tikehau’, the group decided to alter its logo to ‘TKO’.

COMPANY FACT FILE
NAME  Tikehau Capital
HQ  Paris
EMPLOYEES  550
OFFICES 11  Paris, London, Brussels, Milan, Luxembourg, Amsterdam, Madrid, Singapore, Seoul, Tokyo, New York
REAL ASSETS AUM   €10.2 bn
TOTAL AUM ALL ASSET CLASSES  €27.2 bn*
BUSINESS AREAS   Private debt, real assets, private equity, capital market strategies

*as at end-September 2020

Frédéric Jariel
Frédéric Jariel joined Tikehau Capital in 2014 and serves as co-head of real estate alongside former AXA IM – Real Assets CEO, Pierre Vaquier. Jariel was previously at Archon Group France, a subsidiary of Goldman Sachs, which he joined in 1996. There he held various positions at the European level. His latest appointments were as COO Europe and CEO of the French entity. He began his career with Coopers & Lybrand as an auditor.

Louis d’Estienne d’Orves
Louis d’Estienne d’Orves joined Tikehau Capital in November 2018 as an investment executive director in the real estate team having spent 10 years working at AXA IM - Real Assets, most recently as the co-head of European transactions - special situations. In April 2020, he was appointed CEO of IREIT Global, the real estate investment trust listed in Singapore, of which Tikehau Capital is a significant shareholder.

Case study: Nicholsons shopping centre, Maidenhead, UK
In March 2019, at a time when it was becoming clearer that retail property was suffering greatly as an asset class, Tikehau Capital emerged as a buyer of the 190,000 sqft2 Nicholsons Shopping Centre in Maidenhead, south east England. The purchase was made alongside UK-based Areli Real Estate via Tikehau’s pan-European value add fund.

As a dying asset, the Nicholsons centre looked a strange bet at first glance, especially since the previous owner had already hoped to turn the asset around. Private firm, Vixcroft, backed by Cheyne Capital bought it for £37 mln in 2015 and had plans to upgrade it, but top retailers left the centre and it fell into administration.

In a mark of just how far the value of the centre had fallen over a protracted period of time, Irish Life had bought the centre for £85 mln in 2007. Three years previously, Tikehau stepped in to acquire a last-mile logistics asset, Escoffier Park, next to Bercy2 shopping centre at Porte de Bercy, an entry point to Paris and included in the Metropole du Grand Paris project.

What both the Nicholsons Shopping Centre and the Paris logistics asset had in common was that Tikehau had a business plan to alter the use to mainly residential. Says Frédéric Jariel, co-head of real estate: ‘In Maidenhead, the strategy is to regenerate the city centre by creating a big, mixed-use project where the majority is to be residential with a small amount of office and retail on the ground floor. ‘For us, we have not bought a shopping centre. That’s the existing use but not the end-use. We do this quite a lot; We take an asset that is not the right use for the location, and we transform it.

‘We did the same with the logistics property near Paris where we are co-developing a mixed-use site of more than 240, 000 m2 with Bouygues Immobilier. We like to be very early in the asset transformation.’

IREIT Global: a two-way Europe-Asia partnership
Tikehau Capital has within its European network exposure to around €711 mln of European assets via a Singapore-listed property company which invests in income-producing office, retail, and logistics.

IREIT Global is said to have been the first REIT to list in Singapore in 2014, and it currently owns five freehold offices properties in Germany which accounts for 81% of the company’s assets, and four in Spain.

The Spanish office assets are in Barcelona and Madrid and were acquired from The Blackstone Group by Tikehau Capital and IREIT Global for €130 mln in December 2019. They were owned by Blackstone’s Spanish REIT, Corona Patrimonial.

Since April this year, Tikehau and Singapore’s City Development Limited upped their stake in IREIT Global to more than 50%, thus creating a strong alignment of interest with more than 5,000 unitholders.

At the end of October, IREIT Global managed to execute a €90 mln capital increase that was oversubscribed by 166%. Also, at the end of October, the Singapore company exercised a call option on Tikehau’s 60% remaining stake in the Spanish offices.

Of course, Covid-19 has presented challenges, but the portfolio remains resilient according to the latest financial update. The company managed to collect over 99% of rent due since March. The portfolio has 96.3% occupancy and during Q3, the company extended around 95% of leases due to expire in 2020.

IREIT Global CEO, Louis d’Estienne d’Orves, says the company focuses only on long term income in core European countries, excluding the UK. He told PropertyEU the company is now looking to expand geographies by investing in France, Benelux, and Italy.

Tikehau first invested in IREIT Global in 2016. CDL was an original investor and is itself a major listed Singaporean real estate company. Tikehau and CDL own the external management company of IREIT Global on a 50/50 basis. Through the arrangement, Tikehau brings in the European expertise and CDL the Asian real estate knowhow and pan-Asian links.