"There are Opportunities for Aestiam's SCPI, and We Plan to Be There"

Caroline Courvoisier. - Your SCPI “Le Patrimoine Foncier” has been at the top of our ranking for several years. However, it dates back to 1964. What's your secret for maintaining balance in such a competitive market, especially given that some older SCPIs have faltered in the past year?

Laurent Le. - I think there's a simplistic dichotomy between « old » and « new » SCPIs. We still lack sufficient distance to evaluate the performance of « new » SCPIs over the long term. For the others, it's important to understand what we mean by « old » SCPIs: in reality, most of these SCPIs made a large portion of their acquisitions over the past decade. However, this was a time when the real estate market was bullish, largely due to suppressed rates. The underperformance of some « old » SCPIs can be explained by these recent acquisitions when prices were still high. It's further compounded when the acquisitions were made on challenging markets, like the office spaces in Grand Paris, which have been impacted by the COVID-19 crisis and changes in usage.

Setting aside the advantage of fixed capital, the main reason for the success of our SCPI “Le Patrimoine Foncier” is, on the contrary, an acquisition timeline that could be deemed judicious in hindsight. The second reason is our very strong specialization in our assets, especially in Paris city center offices, where the rents have increased the most and vacancy rates are at their lowest. Currently, the offices that are most under strain are those in the first ring suburbs, such as Saint-Denis, Saint-Ouen, Malakoff, Montrouge and La Défense; areas we have little to no exposure in.

Finally, the third aspect is our rather prudent management strategy, which allows us to generate steady returns. At Aestiam, we have a track record that spans 50 years. When we review our SCPI performances, we find that regardless of the acquisition decade, we have achieved capital gains as of December 31, 2023. This confirms the effectiveness of our acquisition strategy and our long-term management capabilities.

Annonce

CC. - Asset management: is this one of your fundamental focuses?

Laurent Le. - Indeed, this is a focus to deepen our DNA. My goal is to place even more emphasis on the property management of our buildings.

In our profession, big acquisitions, strategic sales or large restructurings are often highlighted, emblematic actions that make management tangible for savers. But it is important not to lose sight of the fact that it's the everyday, less visible actions that ensure the long-term performance of our buildings. These involve meticulous and ongoing work that maintains and increases the value of our buildings, that allows us to obtain higher rents by renewing our leases or attracting new tenants.

In my opinion, the future performance will be increasingly generated by these rental management actions and the completion of work to improve the energy performance and comfort of our building's users.

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CC. - Are you involved in an energy transition approach?

Laurent Le. - Real estate plays a crucial role in the production and consumption of CO2, as well as in land use, biodiversity, water usage, and waste treatment. Our involvement in the fight against climate change and the preservation of the planet is therefore essential. I am fully engaged in this approach and encouraged by the evolution of our investors' expectations in recent years.

Two of our SCPI have obtained the ISR label (Socially Responsible Investment), following a « Best in Progress » approach to improve their environmental and social performance, with a strong emphasis on reducing carbon emissions. We are also preparing a strategic plan to strengthen our efforts in terms of energy renovation.

CC. - Reducing the carbon footprint of buildings, particularly Haussmannian buildings in Paris, is not a straightforward task. How do you plan to evolve your portfolio?

Laurent Le. - Indeed, it is a challenge, but one that we are undertaking with conviction. Haussmannian buildings might be among the most environmentally virtuous. Generously built, they were designed to be adaptable. They meet the current needs of businesses without requiring heavy transformation work, unlike buildings from the '70s, sometimes demolished and rebuilt after only 50 years. In the future, real estate will have to draw inspiration from this capacity to change without generating substantial amounts of greenhouse gases.

CC. - What are the acquisition strategies you wish to develop for your SCPIs?

Laurent Le. - Today, one often hears that the market context is favorable for acquisitions, with a drop in prices that makes this moment particularly opportune. This is a strong argument that I agree with. Additionally, the diversification of our portfolios is crucial.

First, offices adapted to users' needs have a promising future. The average value of the buildings we manage today is between 2 to 3 million euros. These are small and medium-sized office spaces. They meet expectations, particularly in terms of space reduction due to remote work, especially when they are well-located. This element of centrality is critical in the long term, favoring areas like Paris, its western crescent, and regional metropolises.

We also favor local businesses in downtown areas of large metropolises since businesses in some medium-sized cities suffer from desertification. We avoid investing in secondary shopping centers, except very selectively. On the other hand, we are interested in retail parks on city outskirts. These areas offer moderate rents and cheap products, thus meeting consumer demand during periods of limited purchasing power.

For hotels, we see a long-term trend favoring leisure tourism rather than business hotels. Health is also a promising sector, linked to the aging population.

CC. - So you clearly fall within the dynamic of diversified REITs?

Laurent Le. - The categorization into office and retail REITs was relevant a decade or fifteen years ago, but today, real estate has evolved. Diversification has become widespread, even if thematic REITs remain valid as long as the strategy is clear for the shareholders. In my view, a strategy solely focused on offices or retail, for instance, is no longer adequate. We need to further specify the strategy to adapt to a market that's constantly evolving and increasingly heterogeneous.

CC. - The year 2023 was one of turmoil for the REIT market. Some savers seem to have lost confidence while others believe that the drop in the price of certain funds allows for investing under better conditions. What can you say to these two types of investors?

Laurent Le. - The answer varies depending on the investment strategy and the choice of REITs. Investing in a fund that still presents a risk of a decrease in value can be dangerous, whereas other REITs, which have already made most of their correction, may offer interesting opportunities.

It is crucial to choose REITs with a solid portfolio and a long-term strategy to generate regular income. Therefore, it's vital to ensure these funds can consistently generate rents while monitoring asset valuation.

The recent real estate crisis has also served as a reminder that capital is not guaranteed, a reality often forgotten after decades of stability and growth. This reminder is significant as it emphasizes that while REITs are less volatile than stocks, they are not risk-free. It is essential to be honest and transparent with shareholders about this. The careful selection of assets and portfolio diversification are key to minimizing this risk.

CC. - In recent years, we have seen the emergence of new investment methods: online platforms, cashback, automatic reinvestment, division of shares... Do you wish to include Aestiam in these new trends?

Laurent Le. - Today, we observe a modernization, digitization and rejuvenation of investors. This increased diversity compels us to diversify our distribution and adjust our operations. It is still too early to discuss the specific changes we will implement. However, this period of innovation in the SCPI world is extremely stimulating and I am fully committed to this drive for modernization to better meet the expectations of our current and future subscribers.

All this hubbub shows that SCPIs are not outdated products, but on the contrary, they are full of vitality.

CC. - Are you considering new launches?

Laurent Le. - What I can say is that we will focus on improving and creating value for our existing SCPIs. Even if new SCPIs are launched, our priority will always be to enhance our existing assets. There are opportunities to be seized with our existing SCPIs in the interest of our current and future shareholders, and we fully intend to answer the call.