In addition to the risk factors described in the 2009 Reference Document, in particular (i) the financial risks, (ii) the risk of the property offering not being suited to market conditions, (iii) the risk of inadequate presentation in the financial statements, (iv) the risks of non-compliance with the Company's commitment rules, (v) the health and safety risks, (vi) the risks of breach of the law or internal regulations, (vii) the risks of serious damage to property in the portfolio and (viii) the risks of information system breakdown, the investor is urged to take the following risks into account. All significant risks that the Company has identified at the date of the Update of the 2009 Reference Document are described in the 2009 Reference Document on page 59 to 65 and page 149 to 151, as supplemented by the information below. However, other risks and uncertainties not known to the Company at this time, or that it currently deems insignificant, might also affect its business adversely. If any or some of these risks were to materialise, the Company's activities, financial position, results and outlook could be significantly affected.
2.1 Risks associated with general economic conditions
The operations, financial position, results and outlook of the Company and the valuation of its assets are influenced by national and international economic conditions, in particular economic growth rates, interest rates, the unemployment rate in France, the method of calculating indexed lease payments and the trends in various indices, as well as by available investment alternatives (financial assets, indices, etc.).
Variations in economic conditions or deterioration of those conditions could have a significant adverse effect on the Company's operations, financial position and results, notably through: (i) a decrease in demand for its commercial property projects, (ii) a decline in the occupancy rate and the rental prices obtained on letting or reletting its properties and (iii) a fall in the valuation of its property portfolio.
2.2 Risks associated with conditions in the property market
The Company operates primarily in the office property sector. In addition to the risk factors associated with each asset, the Company's activity is subject to the vagaries of this business sector, in particular its cyclical nature.
The value of the Company's portfolio depends on conditions in the market for office property. The state of a property market, whatever it happens to be, is subject to fluctuations, in particular of rents and property prices, attributable to supply and demand in the market and conditions in the general economy, in which cycles are hard to predict. The strategy and policies followed by the Company aim to limit the adverse effects of these risks. The Company may nevertheless not always be able to implement its leasing strategy, its investments and, where applicable, its divestments at a moment when market conditions are favourable, or it may be forced to defer such transactions because of fluctuations in the property market.
In general, an unfavourable trend in the property market could have an adverse effect on the Company's investment policy, on investors' assessments of the value of its portfolio, and on its operations, financial position, results or outlook. In particular, a downturn in the property market could have a significant adverse effect on the financing terms available to the Company.
2.3 Risks of geographic and sectoral concentration (commercial property operations concentrated in the three main office districts of the Paris region)
The Company's business and its property holdings are concentrated in the three main office districts of the Paris region, namely La Défense Nanterre-Préfecture, Orly-Rungis and Roissy-Paris Nord 2. As a consequence, economic conditions, property risks and risks of any kind affecting the Paris region could have a significant effect on the Company's operations, financial position or results. At June 30, 2010, office space accounted for approximately 80 % Company's portfolio. A deterioration of conditions in the rental market for office space in the Paris region could have a significant effect on the Company's operations, financial position or results.
2.4 Risks associated with asset valuation
At 31 December and 30 June of each year, the Company calculates its revalued net asset value per share (replacement value and liquidation value). The calculation consists in adding (subtracting) unrealised capital gains (losses) to adjusted consolidated equity. The gains or losses represent the difference between the market values estimated by independent appraisers and the carrying amounts in the consolidated financial statements.
The net book value of the Company's portfolio in its consolidated financial statements under IFRS is based on the historical cost of acquisition and thus does not reflect the current realisable value of the assets in the portfolio.
The market value estimated by appraisers depends on their assessment of the relation between supply and demand in the property markets (sales transactions and rental transactions), interest rates, general economic conditions and numerous other factors that could vary significantly with the business climate.
Besides the portfolio in service and the current building projects, the Company’s real-estate assets are also made up of plots of land and land reserves (evaluated at €183.000.000 as of June 30, 2010), the valuation of which depends on the implementation of the potential real estate projects which could be carried out therein and on assumptions and projected surveys retained by the Company.
Consequently, the appraised value of the Company's assets might diverge from the realisable value assuming a sale, and this could have an adverse effect on the Company's financial position and results. Similarly, the revalued net asset value calculated by the Company could vary significantly if the values estimated by appraisers rise or fall.
2.5 Risks associated with lease renewals and reletting
When existing leases expire, the Company might be unable to renew them or relet the properties concerned on terms as favourable as those of the expiring leases, or without experiencing longer vacancy periods, owing to macroeconomic and property market conditions. In particular, the Company might be unable to attract enough tenants or desirable companies to let its office space and might not succeed in maintaining satisfactory occupancy rates and rental income, and this could have an adverse effect on its operations, financial position and results.
2.6 Risks associated with developing new property assets (property development risks) The Company conducts a property development business for its own account through its project development department, which is staffed by building specialists and assisted by recognised outside experts. This business entails a number of risks associated with: (i) controlling construction costs (meeting budgets and timetables), which could run up against technical difficulties or delays, (ii) obtaining administrative authorisations or permissions from third parties, which may be granted late or denied, (iii) obtaining financing on favourable terms, (iv) achieving high lease-out rates (letting all the space at satisfactory rental prices) given the risks associated with marketing properties of this kind.
These risks can cause investment projects to be delayed or cancelled or completed at a higher cost than initially planned, and this could affect the Company's financial position and results.
2.7 Risks associated with the competitive environment
The Company faces strong competition in its commercial property business.
In its property management and development business, the Company is in competition with numerous other players, some of which have more financial strength, bigger portfolios or greater development capacity than the Company, or in some cases are better positioned regionally or locally. These advantages may enable significant market rivals to bid on calls for tenders on development projects at financial terms that do not necessarily meet the Company's investment criteria, and this could give rise to uncertainties concerning the growth forecasts for its business.
The Company's rental business is likewise subject to strong competitive pressure. The competition could come from current or future development projects in the same market segment and same region or from leases offered on financial terms that do not meet the Company's objectives. In particular, development of new office space near existing Company sites and renovations or additions at competing office sites could have an adverse effect on the Company's operations, financial position and results.
2.8 Risks associated with the Company's financing
The Company's strategy relies in large measure on borrowing to finance its growth. This mode of financing could in future cease to be available at all on advantageous terms, or it could become substantially more costly. This could happen if there is a crisis in the capital markets or if events occur that affect the property sector. It could happen because of restrictions imposed by loan covenants or because of any change in the operations, financial position or ownership of the Company that could adversely influence investors' or lenders' perceptions of the Company's credit quality or investment appeal and thereby limit the Company's ability to expand its business by developing new assets or expanding existing assets.
2.9 Risks associated with tenant insolvency
The Company's ability to collect rental income depends on the solvency of its tenants. Tenant insolvency risks are greater in office property than in other segments because the relative size of each tenant is larger and the earnings impact of an insolvency is therefore more pronounced.
Although the Company's customer base is highly diversified and the Company takes the tenant's credit quality into consideration before signing a lease, significant late payments or payment
2.10 Risks associated with subcontracting
The Company uses the services of outside service providers and is consequently exposed to the risk of poor contract performance by these providers and the risk that a provider may become insolvent. In conducting its rental business, the Company relies on outside providers for such tasks as maintenance of lifts, cleaning of common areas, rehabilitation and renovation work and cleaning of building exteriors. If certain outside service providers or suppliers were to go out of business, become insolvent or fail to perform as required under their contracts, the result could be a decrease in the quality of service provided by the Company and an increase in the corresponding cost. Poor contract performance or insolvency on the part of the Company's outside service providers could thus have a significant adverse effect on its operations, financial position and results as well as on its reputation.
2.11 Legal and regulatory risks and risk of losing SIIC tax status
The Company must comply with numerous regulations in various areas, especially land use planning, construction, operating authorisations, cleanliness and safety, environmental impact, lease rights (indexation of rents in particular), company law and taxation, most notably the provisions of the SIIC regime. Changes in the applicable regulatory framework could require the Company to alter its operations, its assets or its strategy, and could thereby affect the value of its portfolio, its financial position or its results, and could increase its expenses or slow or even prevent certain investment projects.
The Company has elected SIIC tax status, under which it is exempt from corporate income tax on its property business provided its meets certain requirements, notably regarding distribution of its earnings. If the Company failed to meet these requirements, it would be subject to corporate income tax under ordinary law for the financial years concerned, and this could have an adverse effect on its results. The same outcome would ensue in the event that one or more shareholders acting in concert obtain control of more than 60% of the Company's shares or voting rights.
Failure by the Company to comply with the requirements for SIIC tax status could affect its financial position and results. The eligibility criteria for SIIC tax status and the associated tax exemption could also be modified by the legislature or by interpretation of the tax administration.
Changes of this kind could give raise to instructions from the tax administration, the details of which are not known at the date of the 2009 Reference Document Update. Future modifications of the SIIC tax status could have a significant adverse effect on the operations, financial position and results of the Company.
2.12 Environmental and health risks
The activity of the Company is subject to various regulations regarding the environment and public health. Its assets may be exposed to problems related to asbestos, termites or lead. In its capacity as owner of its buildings, equipment installations or land, the Company might be deemed liable for failing to meet its obligation to monitor and control these facilities. Having its responsibility as landlord put to the test could have an adverse on the Company's operations, outlook and reputation. To limit these risks, the Company follows a preventive policy of detecting and analysing problems and, where needed, undertaking the work required to bring the facilities into compliance with environmental standards. Substantial compliance upgrades or the entry into force of stricter environmental regulations could have an adverse effect on the attractiveness of the Company's assets and operations and could entail additional spending that would affect its financial position and results.
2.13 Risks associated with the cost and availability of suitable insurance cover
The Company believes that the nature of its insured risks and the amount of cover that it carries are consistent with customary practice in its business sector.
However, the Company could be faced with an increase in the cost of its insurance policies, or it could suffer losses not fully covered by the insurance it has taken. Moreover, given the size of the portfolio to be insured and the level of cover sought, it may be unable to obtain appropriate insurance cover at acceptable cost, and the Company may find it impossible to insure against all or part of certain risks. The cost of appropriate insurance cover, or the unavailability of it in the event of a loss, could significantly affect the valuation of the Company's portfolio and its operations, financial position and results.
2.14 Risks associated with the structure of the Company's ownership
At the date of the Update of the 2009 Reference Document, Groupama S.A. directly or indirectly holds 42.07% percent of the shares and voting rights of the Company. Groupama S.A. is therefore in a position to exert decision-making power at general meetings, and might consequently make decisions in shareholder meetings adopted or rejected.
Groupama S.A. is also a member of the board of directors of the Company. It is possible that the economic objectives of the Company will not always be aligned with those of Groupama S.A. and that conflicts of interest could therefore arise. Although the Company believes the probability of a conflict of interest arising is low, it cannot rule out the possibility. If such a conflict were to materialise, it could have an adverse effect on the Company's operations, financial position or results.
In addition, Groupama S.A., the Company's largest shareholder, could increase or decrease its equity interest in the Company, and this could affect SILIC's share price.