French property : the market and the indices
1. Results of the EDHEC IEIF Commercial Property France index
Since June 30th 2008, when the index shifted to a monthly frequence, the performance of
the EDHEC IEIF Commercial Property France has experienced 2 separate phases :
- From June 30th 2008 to January 31st 2009, the price index lost -10.19% (-7.23% in
total return) ;
- From January 31st 2009 to September 30th 2009, the price index gained 12.08%
(15.68% in total return).
Even though dividends remained stable, the share prices fell, then a correction brought them
roughly back up to their value of June 2008.
Monthly performance of EDHEC IEIF
commercial property France
Evolution in price
4,00% Evolution in revenue (quaterly dividends)
3,00%
2,36% 2,18%
1,56% 1,73% 2,16%
2,00% 1,38%
1,15%
1,00% 0,61%
0,00%
-1,00%
-1,12% -0,98%
-1,94% -1,38%
-2,00%
-3,00%
-2,92%
-4,00% -3,71%
08/2008 09/2008 10/2008 11/2008 12/2008 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009
Source : IEIF
2. Comparison with other indicators of French commercial property
In order to define the positioning of the EDHEC IEIF commercial property France index, let
us compare it with both listed property and appraisal values.
The pricing of property through the EDHEC IEIF index is the result of a transparent market
process confronting bid and offer of shares. Therefore the EDHEC IEIF commercial property
France index provides transactionnal values, for which cash has really been exchanged.
IEIF – Quelques éléments de réflexion sur les indices immobiliers – octobre 2009 1
Contrary to listed property companies, SCPI1 don’t use financial leverage to finance their
acquisitions, and are not negociated in real-time. Hence a lower volatility than listed property
companies, which use leverage massively.
Pricing through appraisals is a radically different process. The value of a building is usually
determined through comparison with transactions of similar buildings and/or through a
capitalization rate calculated after the risk premium investors ask for. Therefore appraisal
values are not the result of a transaction, but of a model.
EDHEC IEIF index, listed property index
and appraisal values
EDHEC IEIF Commercial Property France
1 100 Capital growth IPD France
Euronext IEIF SIIC France
1 007
1 000
935
900
Capital growth IPD
2nd semester 2008 :
800 Capital growth IPD
-7.5%
2nd semester 2009 :
-7.5%
700
600
500
08
09
08
08
08
08
08
09
09
09
09
09
09
09
09
09
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
06
07
08
09
10
11
12
01
02
03
04
05
06
07
08
09
Source : IEIF, Euronext, IPD. Base 1000 at 30th June 2008
These three indicators of French commercial property shows :
- As for the EDHEC IEIF index and the listed property index : a decrease in price
during the second half of 2008, followed by a catchup during the first semester of
2009. This movement is of much narrower amplitude for EDHEC IEIF than for listed
property.
- As for the semestrial indicator of commercial property appraisal values, a continuous
downward trend (a same decrease of -7.5% during the second semester of 2008 and
the first semester of 2009).
3. Why has the EDHEC IEIF commercial property France index gone up during
the first semester of 2009?
The gap between the upward trend of the EDHEC IEIF commercial property France price
index and the downward trend of appraisal values can be explained in many ways, that all
have to do with the characteristics of French mutual property funds :
1
Sociétés Civiles de Placement Immobilier, French unlisted mutual funds that compose the universe of the
EDHEC IEIF index.
IEIF – Quelques éléments de réflexion sur les indices immobiliers – octobre 2009 2
3.1- The funds underlying the EDHEC IEIF index have a discount to NAV
The SCPI that constitute the EDHEC IEIF commercial property France index are globally
discounted to their portfolio value. This has been so for more than 10 years.
Premiums and discounts to NAV
for the 26 funds of the current EDHEC IEIF index
31 dec. 2007 31 dec. 2008
Maximum discount -28% -43%
Maximum premium 7% 13%
Average -13% -18%
Source : IEIF
At 31st december 2008, SCPI in the index had reached the greatest discount in their history,
with a capitalization 18% lower than their NAV. Some SCPI had a discount to NAV of more
than 40%. Within this framework, the rise of share prices during the first semester of 2009
can be seen as a mechanical catchup.
Comparaison with SIIC2 is interesting in this respect : at the end of 2007, SIIC had a 26%
premium to their NAV. After the dramatic fall in stock prices in 2008, their discount to NAV
had reached 49%. During the first semester of 2009, SIIC prices bounced up to a 42%
discount at 30th June 2009.3 Admittedly, excessive discounts to NAV and attractive
capitalization rates can account for the bulk of this upward trend.
3.2- SCPI yields before the crisis were relatively high
The average yield of the funds in the index at the end of 2008 was 6.16% (instant yield :
6.81%).
This is the consequence of a revenue-oriented management of these funds, in compliance
with the demands of their individual investors, which are risk-averse and long-term.
These relatively high yields at the end of 2008, after share prices had fallen by 9.22% in
average over the year have clearly fostered a rise in prices. The slight rise that occured
couldn’t deteriorate the yield.
4. Using the EDHEC IEIF commercial property France index
The purpose of the EDHEC IEIF commercial property France index is to take into account,
within a monthly transactional index, the evolutions of the fundamental data that impact the
property market. Over the medium term, the EDHEC IEIF index delivers the risk/return profile
of the direct property market. Over the short term, the index is a leading indicator of
individual investors’ perception of the commercial property market – without the interference
of stockmarket volatility.
2
Tax-transparent listed property companies, a French equivalent of UK-REITs.
3
SIIC’ use of financial leverage clearly reinforces discounts and premiums. If we use a deleveraged indicator of
SIIC performance premium at the end of 2007 was at 11% and discount at 31st December 2008 was 32%, a figure
that was brought to 22% at 30th June 2009. (Source : IEIF)
IEIF – Quelques éléments de réflexion sur les indices immobiliers – octobre 2009 3
About the EDHEC IEIF Commercial Property (France) Index
The EDHEC IEIF Commercial Property (France) Index was created by IEIF (Institut de
l’Épargne Immobilière et Foncière) and the EDHEC Risk and Asset Management Research
Centre, in collaboration with the global competitiveness centre Finance Innovation, and with
the support of Groupe UFG. It measures the monthly performance of an aggregate portfolio
of unlisted funds, without financial leverage, with a capitalisation of €7.5 billion, and
representative of the performance of French commercial property.
The EDHEC IEIF Commercial Property (France) Index is:
• transaction-based: the data used come from the buy and sell prices for fund shares
• monthly: it is published on the 10th of each calendar month; it has been published
since September 2008
• long: the base date is December 1980.
IEIF indices, as well as their composition and construction methods, can be downloaded at
http://www.ieif.fr
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Contact:
For further information, please contact:
Hélène Bédon-Rouanet, IEIF:
Tel.: +33 (0)1 44 82 63 37 – E-mail: helene.bedonrouanet@ieif.fr
Séverine Anjubault, EDHEC:
Tel.: +33 (0)4 93 18 78 63 – E-mail: severine.anjubault@edhec-risk.com
IEIF – Quelques éléments de réflexion sur les indices immobiliers – octobre 2009 4