Grosvenor Continental Europe
The main focus of our business is retail property, one of the most attractive investments in Continental Europe because of its risk-return profile: we are active in this market in nine countries.
In France and Spain we also take tactical positions in the office market, where rental values are more volatile and correlated to economic cycles.
Colisée III and IV
Type Investment
Country France
City Paris
Sector Offices
Ownership Held in joint venture
Area 23,000m2
"Grosvenor now manages two of the Colisée buildings, which form part of a ‘Grade A’ office complex facing the Périphérique in Paris’s 17th arrondissement. They offer high-quality amenities to ease working life, such as cafeterias and restaurant areas, a gym and a swimming pool with a lunchtime swimming instructor."
Neil Jones
Chief Executive
Total return for the year amounted to 12.7%, of which about a quarter can be attributed to value creation. Revenue profit increased 136% to €66.1m.
Our retail and office strategies are pursued through our local teams in Paris, Madrid, Milan and Luxembourg. Our shopping centre strategy is implemented through Sonae Sierra, a specialist European shopping centre developer and manager in which we have joint control.
Strategy
Our strategy is to grow income from the creation and improvement of rental streams and from management services.
In terms of our short-term capital allocation, we will complete our sales programme in Spain, begun in 2006, and move to position ourselves for an eventual recovery in the market. We will maintain our exposure to France and increase it in Italy where we are building our business. Sector-wise, we will reduce office exposure and maintain retail.
Milestones
While we have been investing in Continental European markets for 12 years, 2008 marks the 10-year anniversary of our regional headquarters in Paris. We have since added Madrid and Milan as operational bases. The success of our philosophy of local teams, with local knowledge and local skills, is never more evident than in this culturally diverse region.
Sonae Sierra marked two significant milestones in 2007: the completion of Alexa, a 56,400m2 shopping centre in central Berlin, and entry into the Romanian market with the acquisition of one operating shopping centre in Ramnicu Valcea and the launch of two major projects in Craiova and Ploiesti. Alexa is Sonae Sierra’s first development in Germany and its popularity bears out the company’s strategy of offering modern and creative shopping environments to the German consumer.
Investment
Our retail investment programmes continued satisfactorily in France and picked up pace in Italy; both focus on high street and retail warehousing. We invested €230m in French offices on behalf of our joint venture with Dutch pension fund ABP and introduced Capmark as a 50% partner in the 23,000m2 Colisée III and IV office investment.
Our Spanish operation continued to bear fruit with a number of disposals, including the sales of two shopping centre projects held in joint ventures, generating €47.3m of profit (100%), and several industrial properties.
Sonae Sierra invested €231m in five shopping centres in Germany, Romania and Brazil.
Claye-Souilly
Type Investment
Country France
City Claye-Souilly
Sector Retail
Ownership Grosvenor Retail European Properties
Area 17,000m2
Tenants in this retail park in the outskirts of Paris, owned by a Grosvenor fund in which we co-invest, now include the retail brand DPAM in its first venture away from the high street. Grosvenor-managed funds have acquired five additional units nearby, giving us, as asset managers, greater scope to offer the public an interesting mix of shopping in one place.
Development
We have nearly completed construction of the 18,000m2 Phase I of the Omega Business Park in Madrid. The project has been pre-sold to Spanish fund Segurfondo Inversion FII. The 33,000m2 Phase II was also launched.
Sonae Sierra completed construction of four developments, adding 137,000m2 of gross lettable area to its portfolio in Spain, Germany and Portugal. 2008 and 2009 will see the inauguration of a further eight projects in Spain, Italy, Germany, Greece and Brazil, amounting to 272,000m2. Refurbishment of the iconic 120,000m2 Centro Colombo in Lisbon has begun and is due to complete in November 2008.
The shape of the portfolio
Total assets under management (including those managed on behalf of Grosvenor Fund Management) have grown 35% to €3.9bn. Our proprietary portfolio (€2.8bn) is spread across nine countries (see chart). Retail property accounts for 89.6%, with the remainder in commercial. 22% of our assets are held for development.
Sonae Sierra has total assets under management of €6.0bn in 47 shopping centres with 1.9m m2 and 6,900 lease contracts. The company has been awarded over 40 national and international awards including, in 2007, an ICSC ReSource Award for sustainable development and a DuPont Safety Award. Twelve shopping centres and projects were accredited with ISO14001 environment certification.
Outlook for 2008
In tighter credit conditions we expect new investment opportunities to emerge and are well positioned to take advantage of them. After a long period in which capital markets have driven returns, skilful management of property assets will now be the way to achieve ‘alpha’ returns.
We are accelerating sales of assets where we see little scope for increasing operating income and recycling the capital into investments with greater potential.
Neil Jones
Chief Executive
Proprietary portfolio
