Limited Liability Company (société anonyme) with a share capital of €69.268.392 Registered address: 31 Boulevard des Bouvets – 92000 NANTERRE
572 045 151 RCS NANTERRE
Update of the 2009 reference document Financial statements as of June 30, 2010
In accordance with Article 212-13 of the General Regulations of the French Autorité des marchés
financiers (“AMF”), this update of the reference document was filed on November 2, 2010 with the
AMF. It comes as an addition to the reference document filed with the AMF on March 22, 2010 under the number D.10-0132.
The reference document and its update can be used for a financial transaction if completed with a securities note that has received a visa from the AMF.
Copies of the reference document update are available free of charge from SILIC, 31 Boulevard des Bouvets, 92000 Nanterre.
General Information
This document updates SILIC’s Reference Document filed with the AMF on March 22, 2010 under the number D.10-0132 (the “2009 Reference Document"). In this update of the 2009 Reference Document, the term “Company” refers to SILIC and the term “Group” refers to the group made up of the Company and all of its consolidated subsidiaries.
This update of the 2009 Reference Document (the “2009 Reference Document Update”) contains information about the Group’s objectives as well as certain forward-looking statements. Generally, objectives and forward-looking statements can be identified by the use of the future or conditional tense and by words such as “believes”, “expects”, “may”, “estimates”, “intends”, “plans”, “anticipates” and “should” or variations of these words and similar expressions. Fulfilment of these objectives and forward-looking statements depends on future circumstances or events. The forward-looking statements and information about objectives may be affected by known or unknown risks, uncertainties and other factors and the Group’s actual future result, performance and achievement may differ significantly from what is forecast or implied in the forward-looking statements. Such factors may include changes in the economic and trading environment, as well as the risk factors described on pages 59 to 65 and 149 to 151 of the 2009 Reference Document. Potential investors should carefully consider the risk factors described on pages 59 to 65 and 149 to 151 of the 2009 Reference Document before making their investment decision. The occurrence of all or some of these risks may have a material adverse effect on the Group’s business, financial position and results or on its ability to meet its objectives.
1. Interim report ... 4
1.1 2010 half year financial report ... 4
1.1.1 The rental activity and the management of the property portfolio at 30 June 2010... 5
1.1.2 Investments in the first half of 2010... 5
1.1.3 Property portfolio valuation and net asset value at 30 June 2010 ... 7
1.1.4 Sources of finance and debt at 30 June 2010 ... 10
1.1.5 Major risk areas ... 14
1.1.6 First half 2010 results... 14
1.1.7 Corporate events at 30 June 2010... 17
1.1.8 Main transactions with related parties ... 18
1.1.9 Outlook ... 19
1.2 Financial Statements as of June 30, 2010... 20
1.2.1 Consolidated Financial Statements as of June, 30, 2010... 20
1.2.2 Notes ... 25
1.3 Statement by the responsible person for the 2010 half year financial report... 60
1.4 Statutory Auditors’ review report on the interim financial information ... 61
1.5 Rectification to the 2009 Reference Document ... 62
2. Update of the 2009 Reference Document risk factors... 63
3. Organisational chart at 30 September 2010 ... 68
4. Administrative, management and supervisory bodies and senior management ... 69
5. Share ownership at 30 September 2010... 74
6. Annual information documents ... 75
6.1 Corporate publication on the French " Bulletin des Annonces Légales Obligatoires "... 75
6.2 Press release since March 22, 2010 ... 75
6.2.1 Permanent regulated information - List of the press releases... 75
6.2.2 October 22, 2010 press release: Quarterly financial information ... 76
6.2.3 June 28, 2010 press release : SILIC's Orly-Rungis business park: successful transformation - Now an office park that is both economically attractive and environmentally sound 77 6.2.4 June 28, 2010 press release : SILIC's Axe Seine Défense building, constructed to meet current environmental considerations, has just been awarded international BREEAM certification at the Very Good level... 80
6.2.5 September 16, 2010 press release: T7 tramway will have three stops in SILIC's Orly-Rungis office park ... 81
6.2.6 September 17, 2010 press release: La Défense Nanterre-Préfecture - SILIC delivers the Grand Axe 2 building to AXA France... 81
7. Responsible persons... 82
7.1 Responsible for the 2009 Reference Document Update ... 82
7.2 Statement by the person responsible of the 2009 Reference Document Update... 82
8. Person responsible for external audit ... 83
1.
Interim report1.1 2010 half year financial report
The indicators of the first half of 2010 brought further evidence of the recovery in the take-up of the Ile de France office market. With more than one million square meters leased in the first six months of the year, the growth compared to the first half of 2009 exceeded 16%. However, this improvement mainly benefited the Paris market, while the inner and outer suburbs recorded a weaker recovery in take-up.
Turning to the investment market, the first half fell short of expectations, with only €2.3 billion committed to office property in the Paris region. Concerns about the strength of the economic recovery, following a severe financial crisis, still seem to prevent investors from taking risks.
With a property portfolio of nearly 1.2 million m², of which more than 80% are offices, and its positioning in the main economic centres, SILIC is at the heart of the Paris region. This core strength, which guarantees sustainable future growth, as well as the diversity of its offering, both in terms of geographical location and of the products offered, and the quality of its property management, underpin and vindicate the Company's business model and demonstrate its current and future ability to adjust to the trends prevailing in the office property markets of the Paris region. Despite the economic downturn, which has affected every business sector, SILIC benefited from its positioning in the property market and improved its financial performance and the strength of its balance sheet during the first half of the year:
- Rental income grew by 2.6% compared to the first half of 2009 to €86 million, as recent acquisitions of fully-let buildings more than offset the negative indexation effect.
- Combined with tight management of operating expenses, this positive trend helped the margin rise to 87.05% and drove EBITDA up by more than 3.6% to €77.3 million.
- Net financial expense grew to €19.3 million, versus €14.9 million in the first half of 2009, in line with the increase in the outstanding debt resulting from the developments and investments made in late 2009 and early 2010. Note that in the first half of 2009, this item had benefited from €1.9 million in capital gains upon the disposal of financial instruments. - The investments of the period were sustained at €147.2 million, of which €72.8 million were
spent on the acquisition of a fully-let building in La Défense-Nanterre-Préfecture. The main development projects in Orly Rungis, La Défense-A86 and Saint Denis are on track and in line with the planned budgets. They implement at every stage the Group's sustainable development policy, which involves on the one hand the certification of new buildings and on the other setting strict architectural, esthetical and environmental criteria.
- Our financial resources were strengthened by a 7-year, €60 million corporate bank facility, thus raising the total amount that SILIC has at its disposal to nearly €1.6 billion.
- The value of property assets grew by 4.7% to €3.3 billion. This supported replacement NAV per share, which stood at €110.71 at the end of June, versus €111.76 at the end of 2009, despite the distribution of the dividend in May 2010.
- As already announced, the cash flow was stable, excluding the impact of the disposal of derivative instruments in 2009, and came to €59.0 million.
1.1.1 The rental activity and the management of the property portfolio at 30 June 2010
SILIC's rental business recovered well in the first half, as reflected by the very sharp increase in the number of new leases (around sixty) in the first half of 2010 (56,510 m² at 30 June 30 2010, compared to 19,217 m² at 30 June 2009 and 46,220 m² for all of 2009).
This demonstrates that the Company's rental offering is well suited to address the current concerns of corporate managers, which are mainly to streamline locations and cut overheads. On an annualised basis, these contracts will generate additional rental income of €12.2 million, versus €3.1 million in the first half of 2009).
SILIC's let space was unchanged at 951,650 m² (953,000 m² at 31 December 2009): At the end of the first half, the acquisition of a 14,500 m² fully-let building in La Défense-Nanterre-Préfecture offset the negative net flow of tenants on a comparable structure basis at 30 June 30 (-16,900 m²). The occupancy rate of lettable space was also stable at 87.3%, versus 87.5% at 31 December 2009.
With respect to the net flow of incoming and outgoing tenants, the average rent for incoming tenants was €234 per m², versus €146 per m² for outgoing tenants.
The average rent on the let portfolio continued rising steadily, reaching €183 per m² at 30 June 2010 (versus €181 per m² at end-2009).
Rental income increased by 2.6% during the first half, from €83.7 million at 30 June 2009 to €86 million at 30 June 2010, as the acquisition of a fully-let building more than offset the impact of the decline in the construction cost indices used for the indexation of rents.
Given the quality of our customer base and despite the deterioration in the business climate, tenant defaults remained virtually nil (€0.5 million, or 0.4% of rental income excl. V.A.T.) in the first half of 2010. Due dates were met, with virtually all claims being collected in the month following their due date. Moreover, due to the fact that our rents are well aligned with the market, the impact on the Company's accounts of lease renegotiations was negligible (€0.7 million), as expected.
1.1.2 Investments in the first half of 2010
In line with 2009, the first half of 2010 was very busy in terms of investments as SILIC was able to take advantage of some new acquisition opportunities in a market that remained favourable to investors with ready cash.
These acquisitions complement the Group's ongoing development programme in its core business areas, which continued according to plan.
Meanwhile, SILIC continued to invest in refurbishing and adapting buildings and business parks to meet tenant requirements and expectations.
All in all, investment expenditure totalled €147.2 million during the first half: H1 2010 Investments (€M) 3,0 15,9 73,2 55,1 Acquisitions Construction Refurbishment Other Portfolio development
In the first half of 2010, development expenditure was mainly allocated to the Company's core business area, La Défense – A86, as well as to Orly-Rungis and Saint-Denis.
Like in the previous years, La Défense-A86 benefitted most from SILIC's policy of investing in areas that will drive future growth. SILIC invested a total of €95.3 million in the area:
- In La Défense-Nanterre-Préfecture, we acquired for €72.8 million a fully-let 14,500 m² office building, generating a secure yield of 6.9% until 2018 (for 85% of the rent). The acquisition was carried out via the purchase of 100% of the shares of the 21/29 rue des Fontanot joint stock company.
- At the same time, we continued the work on the additional 17,000 m² Grand Axe extension that has been pre-let to AXA and completion in the third quarter has been confirmed. In the first half, SILIC will have spent €14.4 million on this €96.0 million project, which is returning 7.1%.
As soon as this building has been delivered, the Nanterre-Préfecture business area will become the main contributor to the Company's rental income and cash flow with office space of 175,000 m², ahead of the Orly-Rungis historical business park.
- In Nanterre-Seine, the 25,000 m² Axe-Seine office building is being completed. This project is expected to generate annual rental income of €7.3 million when it is fully let on a total projected construction cost of €79.8 million (of which €8.1 million during the first half).
In Orly-Rungis, the Group's historical business area with office space of nearly 400,000 m², the Company continued the gradual development of the area's enormous potential with the construction of the 15,000 m² "Montréal" office building, which was started at the end of 2008 and will be delivered in the first half of 2011. Expenditure recognised in first half of 2010 amounted to €14.7 million.
Montréal is expected to generate a yield of 9.0% on a total projected construction cost of around €45.7 million.
As soon as it is let, we will launch one of the projects that we have in our pipeline.
Saint-Denis Landy will become SILIC's fourth core business area in the next few years, alongside
Orly-Rungis, La Défense-A86 and Roissy-Paris Nord 2.
The construction work of the first 23,000 m² office building, called "Cézanne", which was started as soon as the land was acquired in 2009, continued as planned. Expenditure recognised during the half year was €15.8 million.
The project is expected to generate annual rent of €6.2 million by mid-2011 on a total projected cost of €76.0 million including land and borrowing costs.
The second building, called "Sisley", with 22,000 m² of office space, is ready to start as soon as the first is substantially let.
In all of these business areas, the studies and preparatory work required for the projects that were intended to be launched as soon as the buildings under development had been fully-let were carried out at a total cost of €2 million.
Refurbishment of buildings in service
The project to redevelop and extend the Fresnes retail park entered an active phase end of 2009, with the conversion of an existing multi-purpose property into retail and office space. The work to be completed by mid-2011 includes the construction of an underground car park, refurbishment of the existing façades and a complete overhaul of the facilities and traffic flows, bringing the total cost of the project to €38.6 million, (of which €13.0 million in the first half of 2010).
In addition, 3,900 m² of office space located mainly in Orly-Rungis have been re-let after refurbishment work totalling €1.8 million. Work was still in progress for 13,000 m² at the end of June, in particular in Paris Nord 2 and Orly-Rungis.
Maintenance of business parks and improvement of amenities
SILIC has invested €3.0 million in maintaining and replacing technical equipment as well as improving tenant services at its various business parks.
Excluding future borrowing costs, the remaining expenditure required to complete all the work described above amounted to €82.9 million and is fully covered by allocated credit facilities.
1.1.3 Property portfolio valuation and net asset value at 30 June 2010
Property investment market
The initial signs of a recovery in the Paris region office market seen in the fourth quarter of 2009 failed to carry over into the first half of 2010, as transaction volumes in the Paris region, estimated at €2.3 billion1, remained historically low.
The uncertain economic and financial environment, along with higher vacancy rates and lower rents, led investors to prefer recent assets offering secure revenues, although there are very few of these.
This segment accounted for most of the transactions and led to a contraction in the yield of the best products, which had been raising continuously for several half years.
Valuation at 30 June 2010
In this environment, the updating of the valuation of SILIC'S property portfolio, which has been carried out by the same independent appraisers as in previous years, using the same methods, highlights two key factors:
An incipient decline in the yields afforded by the property in service,
The firm tone of rental values in the market segments in which SILIC operates, despite a decline in the indexation of rent.
The open market value stood at €3,333.3 million, versus €3,183.5 million at end of 2009, an increase of 4.7%, including investments made during the period:
(€ million) 30.06.2010 % 31.12.2009 %
Property in service 2 815,8 84% 2 737,7 86%
Property under development 334,5 10% 262,8 8%
Land 183,0 5% 183,0 6%
Total 3 333,3 3 183,5
The portfolio in service is estimated at €2,815.8 million at end June 2010 and represents 84% of the total property portfolio.
This gives an average net yield of 7.0% versus 7.1% at end December 2009, reflecting a slight decrease in yields after the rises in 2008 and the first half of 2009 and the stabilisation in the second half of 2009.
The decline in rates was homogenous and affected all the assets and geographical locations:
(€ million) 2009 Buildings in service R ep la ce m en t v a lu e A v er a g e y ie ld R ep la ce m en t v a lu e A v er a g e y ie ld R ep la ce m en t v a lu e A v er a g e y ie ld R ep la ce m en t v a lu e A v er a g e y ie ld R ep la ce m en t v a lu e A v er a g e y ie ld A v er a g e y ie ld Offices 729,5 6,9% 1 062,1 6,3% 302,2 7,5% 169,2 7,3% 2 263,0 6,7% 6,9% Multi-purpose buildings 186,6 8,3% 122,3 7,1% 43,1 7,3% 131,7 8,3% 483,7 7,9% 8,1%
Retail and services 57,4 7,1% 9,4 5,8% 2,4 8,2% 69,2 7,0% 7,5%
Total 973,5 7,3% 1 193,8 6,4% 347,7 7,5% 300,9 7,9% 2 815,9 7,0% 7,1% 2009 figures 971,4 7,5% 1 119,0 6,5% 347,7 7,5% 299,6 7,9% 2 739,8 7,1% 6,9% 2008 figures 935,9 7,2% 1106,4 6,1% 343,5 7,3% 282,5 7,9% 2 668,3 6,9%
Total Orly-Rungis Défense-A86 Roissy-Paris Nord
2 Other parks
Office buildings (€2,263.0 million) are valued on the basis of a 6.7% average net yield. On net
rental income of €213 per m², this gives an average value of €3,164 per m².
Multi-purpose space (€483.7 million) is valued on the basis of a 7.9% average yield. On net rental
income of €104 per m², this gives an average value of €1,306 per m².
Retail space, mainly at the Fresnes retail park, services and other premises (€69.2 million)
generate an average rent of €91 per m².
All in all, the value of the portfolio in service stood at €2,437 per m² at 30 June 2010 (versus €2,400 per m² at end 2009).
The value of the portfolio in service increased by 2.9%, reflecting the acquisitions and disposals of assets during the half year:
On a comparable structure basis, that is excluding completions, acquisitions and disposals, the value of the portfolio in service stood at €2,739.9 million at end-June 2010, versus €2,735.1 million six months earlier, an increase of 0.2%.
Yields fell by an average of 14bp, which increased the portfolio value by €55.6 million, whilst the drop in rental income, which only reflected the decline in the indexation, had an impact on the portfolio value of – €50.8 million.
Acquisitions: the 21/29 rue des Fontanot building acquired during the half year in La Défense-Nanterre-Préfecture added €75.9 million to the portfolio value, slightly more than its acquisition cost (€72.8 million).
Disposals: we sold a 4,635 m² building in Fresnes for €3.2 million, which compares to its valuation of €2.6 million on 31 December 2009 (+23%).
Buildings under construction or development were valued at €334.5 million.
The four new construction projects in La Défense-Nanterre-Préfecture (17,000 m²), Nanterre-Seine (25,000 m²), Orly-Rungis (15,000 m²) and Saint-Denis (23,000 m²), together with the second construction project scheduled in Saint-Denis (22,000 m²), for which the land has been purchased and planning consents obtained, were assigned a value on completion of €467.1 million, giving a net yield of 6.5%.
After deducting the cost of remaining work, financing costs and the "development margin" from the value of non pre-let projects, these developments contributed €315.4 million to the valuation at end of June 2010.
This represents an unrealised capital gain of €58.2 million on a cost estimated at €257.2 million at 30 June 2010.
The building under construction at Fresnes was valued, in its state on 30 June 2010, at €19.1 million.
Land and land reserves were valued at €183.0 million.
Land reserves include building land sufficient for 69,000 m² of space at Orly-Rungis, Nanterre-Seine and Villebon, and additional building potential at Orly-Rungis of almost one million m², only part of which is included in the valuation.
Net asset value
Replacement net asset value amounted to €110.71 per share at 30 June 2010. After deducting transfer taxes and marking financial instruments to market, liquidation NAV came to €96.13 per share:
30.06.10 2009 30.06.09
Restated consolidated shareholders' equity (1) 000 € 697 665 752 619 728 769
Capital gains on property assets, replacement value 000 € 1 217 713 1 181 537 1 168 547
Replacement net asset value 1 915 378 1 934 156 1 897 316
Number of shares excluding treasury shares 000 17 301 17 306 17 245
Replacement net asset value, per share Euro/sh 110,71 111,76 110,02
Registration tax €/action (8,13) (7,74) (7,60)
Fair value of financial debt €/action (6,46) (3,63) (3,15)
Liquidation net asset value, per share Euro/sh 96,13 100,40 99,27
(1): To calculate replacement NAV, IFRS equity has been restated for the market value of derivative financial instruments.
At €110.71 per share, the replacement net asset value declined by €1 per share compared to end-2009, mainly as result of the distribution of earnings in the first half.
110,71 111,76 +1,32 -4,65 +0,19 +2,09 80 85 90 95 100 105 110 115 120
2009 Plus value latente Earnings Distribution Other 30.06.2010
Légend : Plus–value latente = unrealised capital gain (inaccessible)
1.1.4 Sources of finance and debt at 30 June 2010
Despite the adverse financial and banking environment, leading to tight credit conditions, SILIC continued to strengthen its investment programme by setting up new facilities with its banking partners and maintaining its policy of hedging the long term interest rate risk.
These transactions confirmed the company's recognized credit quality:
Debt remains moderate and there is further borrowing capacity left for future investments, the cost of debt, which is capped, secures the profitability of the assets,
Sources of financing and liquidity
In the first half of 2010, SILIC obtained a corporate bank facility of €60 million from one of its historical banking partners, thereby strengthening its financial resources. This 7-year facility lengthens the average maturity of the company's debt and contributes to a smoother repayment schedule.
Its all-in cost of 115 bp, confirms that margins have come down since the second half of 2009. All in all, at 30 June 2010 SILIC had secured €1,592.4 million in credit facilities with the main French banks, with an average maturity of 4.25 years:
€383.9 million (24%) in mortgage loans and leasebacks with a residual maturity of 7.3 years,
€1,130.0 million (71%) in corporate loans and credit lines with a residual maturity of 3.2 years,
€78.5 million (5%) in overdraft facilities.
These facilities are due to be refinanced very gradually at an average rate of 8% per year in 2010 and 2011, and then around 20% per year for the three following years:
Financing sources 383,9 1 130,0 78,5 Mortgages Credit lines Overdraft
Timetable of confirmed financing sources
106,3119,0 273,2262,5336,5 114,7 35,0 65,4 46,1 155,3 0 100 200 300 400 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019+ (€ M )
Utilised borrowing capacity
Utilised borrowing capacity stood at €1,334.9 million (84%) at 30 June 2010. This represents a €169.2 million increase compared with the end 2009 level of €1,165.7 million, mainly due to investments made during the period and the distribution of the dividend:
Change in debt in H1 2010 1 165,7 1 334,9 59,0 80,4 147,2 0,6 800 900 1 000 1 100 1 200 1 300 1 400 2 009 Cash-Flow
Dividend Capex Other 2 010
(€
M
)
Utilised borrowing capacity
1 334,9
257,5 Used
Cost of finance and interest rate risk management
Bank debt has been contracted at floating rates and SILIC has therefore established an interest
rate risk hedging policy designed to limit the impact of interest rate fluctuations over time and to secure a positive spread between the yield on its assets and their cost of finance.
The cost of finance averaged 4.09% in the first half year of 2010 and was unchanged compared to the first half of 2009 (4.10%), as the rise in banking margins was offset by the continuous drop in short-term interest rates.
In addition, SILIC took advantage of the decline in anticipated medium and long term interest rates to increase significantly the hedging of its long term (10 year) exposure at historically attractive rates.
However, the drop in anticipated rates sharply drove down the fair values of the hedging instruments (- €111.7 million versus - €62.7 million end-2009).
Change in average outstanding debt 2008-2010 762 259 198 1.050 1,32 0,64 0,55 0,78 2,23 2,68 -15050 250 450 650 850 1050 (€ M )
Fixed Capped Average Euribor Margin Hedge Change in cost of finance
2008-2010 0 1 2 3 4 5 6 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 M aximum cost Overall cost of finance
3 M Euribor H1 2009 H1 2010
FINANCIAL STRUCTURE AND COVENANTS
On debt of €1,334.9 million, the loan to value ratio (LTV) stood at 40.0% on 30 June 2010. The interest coverage ratio (EBITDA to net financial expense) was between 3.1x and 4.0x (depending on whether or not expenses related to work in progress are included).
These ratios leave SILIC with significant leeway relative to the strictest bank covenants. They give SILIC a very robust financial position in the current financing environment and significant additional borrowing capacity.
Debt concerned
(1)
Covenants 30.06.10 2009 30.06.09
Net bank debt 94% Ratio < 0.45 for 20% 40,0% 36,6% 35,4%
Market value of assets Ratio < 0.50 for 74%
EBITDA 86% Ratio < 3.0 for 9% 3.12 - 4.00 3.69 - 4.54 4.16 - 5.01
Interest paid on bank loans (2) Ratio < 2.5 for 54% Ratio < 2.0 for 23%
Market value of assets 19% Ratio >2 4,63 3,96 4,19
Mortgaged assets
Mortgage loans 39% Ratio < 0.20 for 21% 11,5% 12,4% 10,8%
Market value of assets Ratio < 0.25 for 18%
Market value of assets 38% Amount > €1,000m for 22% 3 333 3 184 3 068
Amount > €1,500m for 16%
Net asset value 20% Amount > €800m 1 915 1 934 1 897
(1) : Based on authorised debt, excluding any cross default clauses..
(2) : Depending on facility, capitalised interest included in or excluded from "interest paid on bank loans". The threshold of 3 relates to a "capitalised interest excluded" ratio.
1.1.5 Major risk areas
A detailed description of the risks and uncertainties that could have a material impact on the Company's financial position and results is provided in the 2009 annual financial statements (pages 59 to 65 and 149 to 151).
These risk areas have not changed significantly during the half year, neither in their nature, nor in their level. They mainly include the following:
Sector risk related to the ownership and management of property assets for rental purposes.
A policy of holding assets with a long term perspective, the high number of leases, as their term and dispersion smooth out the fluctuations of the rental market, and maintaining a good fit between the level of rents relative to market levels can help mitigate these exposures.
Financial risk:
• Credit, client and/or banking risks: The quality of the tenant base and the internal procedures for monitoring and controlling customers protect the Company against exposure to an individual name. All the financial transactions are carried out with leading financial institutions.
• Liquidity risk: SILIC is careful to maintain a well balanced financial position so that it can fund its growth and secures confirmed undrawn credit lines in an amount sufficient to cover at least the estimated financing required over the next year.
• Interest rate risk: the Company's cautious hedging policies reduce the exposure to the risk of a rise in interest rates.
1.1.6 First half 2010 results
The interim consolidated financial statements at 30 June 2010 presented in condensed form have been prepared on the basis of international financial reporting standards (IFRS). New standards and revisions to existing standards which have come into effect since 1 January 2009 did not have a material impact and the 2010 financial statements are therefore directly comparable to the published 2009 financial statements.
The strong growth in 2009 was followed in the first half of 2010 by a consolidation in the Company's operating and financial performance.
Rental income come to €86.0 million, up 2.6% on the year-earlier period, as the acquisitions of fully-let buildings in 2009 and early 2010 more than offset the drop in the indexation of rents. All in all, the average rent continued rising and reached €183 per m².
As already announced, the cash flow was stable, excluding the impact of the disposal of derivative instruments in 2009, and came to €59.0 million.
(€ million) 30.06.2010 30.06.2009 %
Rental income 86,0 83,7 2,6%
Owners' charges -2,8 -3,4
Cost of vacancies -2,5 -2,4
Other charges -0,3 -1,0
Net rental income 83,2 80,3 3,5%
Fee income 2,9 2,3
Overheads -8,8 -8,0
Personnel -5,6 -5,1
Other charges -3,2 -2,9
EBITDA 77,3 74,6 3,6%
Net financing cost -19,3 -14,9
Other items 1,0 1,0
Cash-flow from ordinary operations 59,0 60,7 -2,7%
o/w recurring cash-flow 59,0 58,8 0,3%
Gross rental income
SILIC'S gross rental income continued rising in the first half of 2010 (+2.6% compared to the first half of 2009):
Changes in scope added € 5.2 million to rental income (+6.2%).
The acquisition of a 14,500 m² office building in La Défense-Nanterre-Préfecture at the beginning of the year contributed €2.3 million to the increase (out of an annual potential contribution of €5.0 million) and magnified the "full year" impact of the 2009 acquisitions and completions, the management of which generated additional revenue of €1.6 million.
The re-letting of 2 redeveloped buildings, including SILIC'S former Paris head office, contributed €0.8 million to the increase in rental income (out of an annual potential contribution of €2.3 million) while the "Miami" building, completed in 2009, generated additional rental income of €0.7 million.
The withdrawal for development of several buildings led to a €0.2 million loss of rental income compared with 2009.
On a comparable structure basis, rental income dropped by €2.9 million (3.5%) and mainly
suffered from the decline in the cost of construction indices. The rare rent renegotiations during 2009 reduced income by €0.7 million, as expected.
All in all, the average rent of the property let, came to €183 per m², up compared to the level at 31 December 2009 (€181 per m²).
Owner's expenses
Owner's expenses directly related to management of the properties and not billed to tenants represented 3.2% of rental income in the first half of 2010:
Tenant default remained virtually nil (€0.5 million, or 0.4% of the rental income excl. VAT) in the first half of 2010, despite the continued deterioration of the business climate. Due dates were met, with virtually all claims being collected in the month following their due date.
The cost of vacant property, at €2.5 million, versus €2.3 million a year earlier, suffered from the dip in the average occupancy rate of the property portfolio. The service charge recovery rate thus ebbed by 0.4 point to 91.3% versus 91.7% at the end of June 2009.
Fee income
SOCOMIE'S property management and letting business for non-group clients, which had contracted sharply in 2009 due to the economic downturn, recovered in the first half of 2010 and grew by 23% over one year. Property letting fees thus came to €2.9 million at the end of June 2010 versus €2.3 million at the end of June 2009.
SOCOMIE incurred a loss of €0.9 million on total interim revenue of €5.3 million. Operating costs
The operating costs represented 9,9% of total revenue at the end of June 2010 (9.3% at the end of June 2009).
EBITDA
EBITDA, which measures the Company's operating performance, totalled €77.3 million, versus €74.6 million in the first half of 2010, an increase of 3.6%, which was substantially better than the growth in rental income. The EBITDA margin thus came to 87.0%, in line with the uptrend seen in previous years.
Net financial expense and cash flow
Net financial expenses represented €19.3 million in the first half of 2010, versus €14.9 million in the previous year. 2009 had benefited from the disposal of derivative instruments, which generated capital gains of €1.9 million and reduced the net financial expense.
In addition to this non-recurring item, the rise resulted exclusively from the increase in the volume of debt relative to the buildings in service, since the cost of finance remained flat at 4.09%, versus 4.10% in the first half of 2009. Buildings let or acquired in 2009 and 2010 therefore generated additional financial expense, which reduced the net profit by €2.3 million (mainly Miami in Orly-Rungis, Arcas, Reflet Défense and Fontanot in Nanterre-Préfecture).
Financial expense allocated to ongoing construction projects amounted to €5.4 million and has been capitalised.
Taking account of non-cash items, i.e. the amortisation of issue expenses (€0.5 million) and changes in the market value of derivates that do not qualify for hedge accounting under IFRS (€3.2 million), the cost of debt shown in the income statement amounts to €23.0 million.
Pre-tax ordinary cash-flow amounted to €59.0 million, up 0.3% compared to the recurring cash
flow in the first half of 2009. The gross recurring cash flow declined by 2.7%.
Consolidated net profit
AS SILIC has elected to use the cost model to measure its investment property, revaluation adjustments had no impact on net profit.
The disposal of a building in Fresnes, for €3.2 million generated a capital gain of €1.6 million. After depreciation and changes in the fair value of derivatives that do not qualify for hedge accounting, consolidated net profit came to €22.9 million (-9,2%).
1.1.7 Corporate events at 30 June 2010
During its meeting of 9 February 2010, the Board of Directors:
o duly noted the replacement of the permanent representative of Groupama S.A., with Christian Collin replacing Helman le Pas de Sécheval,
o duly noted the resignation of Philippe Carraud as Director and decided to coopt Helman le Pas de Sécheval, for the remainder of his predecessor's term of office,
o duly noted the resignation of Groupama Vie as Director and decided to coopt Groupama Gan Vie, for the remainder of its predecessor's term of office,
o duly noted the resignation of Dominique Schlissinger as Director as of 10 February and decided to coopt François Netter, for the remainder of his predecessor's term of office, o duly noted the resignation of Jean-Paul Bertheau as Director,
o duly noted that Dominique Schlissinger, Chairman & Chief Executive Officer, was required to stand down as of 10 February 2010 having reached the legal age limit of 65, pursuant to articles L.225-48 and L.225-54 of the French Commercial Code, being noted that Philippe Lemoine's office as Deputy Managing Director ends at the same time as that of the Chairman and Chief Executive Officer,
o decided to amend from 10 February 2010, the terms governing the Executive Management office by separating the offices of Chairman of the Board and Chief Executive Officer,
o elected François Netter as Chairman of the Board from 10 February 2010 for the term of his office as Director, in other words, until the conclusion of the Annual General Meeting held to approve the financial statements for the year ending on 31 December 2011. o elected Philippe Lemoine as Chief Executive Officer from 10 February 2010 until he
reaches the legal age limit, thus ensuring the continuity of the Executive Management of the Company.
At the Combined Ordinary and Extraordinary Shareholders Meeting of 7 May 2010, the shareholders:
o re-elected Generali IARD and Georges Ralli, who are due to retire by rotation, for a further term of six years,
o ratified the cooptations of Groupama Gan Vie and François Netter and Helman Le Pas de Sécheval, voted by the Board at its 9 February 2010 meeting,
o elected Brigitte Sagnes Dupont as independent Director in addition to the current members of the Board for a term of six years ending at the conclusion of the Annual General Meeting held to approve the financial statements for the year ended 31 December 2015,
o decided to raise the annual Directors' fees to €200,000,
o renewed all of the powers relating to capital increases, which had expired, taking into account the new regulatory environment and the AMF recommendations.
Furthermore, the Board of Directors used the authorisations granted by the Shareholders Meeting in the field of employee saving plans and the distribution of bonus shares:
o As a result of the employee saving plan investments made by the Company's employees in 2010, SILIC'S Corporate Employee Savings Fund subscribed 8,257 new shares at a
o The Company awarded 8,000 bonus shares to employees under the following terms: 1,200 bonus shares were allocated to each of the corporate officers, contingent
upon the performance of the Company, with a lock-up of 50% until the end of their term of office;
5,600 bonus shares to all employees with at least two years of seniority within the Company.
o As a reminder, in 2008, 6,000 bonus shares were allocated to SILIC'S employees, following a decision by the Board of Directors on 7 May 2008. On 7 May 2010, the Board noted the acquisition of 5,875 shares under this plan for 2008; the transaction was carried out by allocating treasury shares and not by increasing the share capital.
As of 30 June 2010, the Company held 18,208 treasury shares:
5,000 shares representing 0.03% of the share capital were held following direct purchases.
The movements of shares were related to the execution of the liquidity contract: Purchases: 89,261 shares at an average unit price of €83.47 excluding fees, Sales: 79,034 shares at an average unit price of €84.24 excluding fees.
These movements raised to 13,208, the number of shares held in connection with the liquidity agreement.
As has been the case for all transferable securities, the performance in the first half of 2010 of the shares of property companies was affected by the strong decline in the stock market. After reaching a high in March, the sector's benchmark indices (cum dividend) fell sharply until May before stabilising since then.
In almost unchanged daily trading volumes and higher exchanged capital from one year to the next, the SILIC share closed at €81.00 at the end of June 2010. It was down 5.22 % ex-coupon compared to 31 December 2009. Calculated with the €4.65 ex-coupon reinvested, the drop was only 4.71%, compared to – 5.24% for the EPRA Eurozone Return Index and – 5.60% for the Euronext IEIF REIT Europe index.
Note that over an 18-month period (January 2009 / June 2010), SILIC'S share returned 30.3%. During the same period, the EPRA Eurozone Return Index gained 35.6% and the Euronext
IEIF REIT Europe index 26.3 %.
The Company was not informed of any ownership threshold crossing in the first half. As of 30 June 2010, the Company had 96 employees.
1.1.8 Main transactions with related parties
No transaction with related parties that would be likely to have an impact on the Company's financial position and performance has been entered into during the past half year.
Ongoing transactions with related parties are detailed in the appendix of the interim financial statements.
1.1.9 Outlook
While SILIC'S results increased sharply in 2009, 2010 has been a year of consolidation in terms of business volumes and results against the backdrop of a still challenging economic environment.
Drawing on its major strengths, namely a diversified offering, a high-quality portfolio, a cautious strategy and the confidence of its shareholders, SILIC intends to push ahead with its growth plan and maintains the forecast of higher rental income in 2010 as well as its target of stable cash-flow before non-recurring items.
1.2 Financial Statements as of June 30, 2010
1.2.1 Consolidated Financial Statements as of June, 30, 2010
CONSOLIDATED BALANCE SHEETS
Assets (€ thousands) Notes 30.06.10 2009 30.06.09
Investment property 8 1 862 782 1 817 404 1 767 023
Investment property under development 9 252 820 184 577 132 456
Plant & equipment 1 025 1 114 1 159
Intangible assets 132 139 152
Financial assets 11 348 404 2 442
Total non-current assets 2 117 107 2 003 638 1 903 232
Receivables
- Trade receivables 12 23 275 13 675 23 743
- Other receivables 13 15 329 12 994 15 345
Cash and cash equivalents 14 10 979 6 982 51 542
Total current assets 49 583 33 651 90 630
CONSOLIDATED BALANCE SHEETS
Equity and liabilities (€ thousands) Notes 30.06.10 2009 30.06.09
Equity
Share capital 15 69 273 69 235 69 830
Consolidated reserves 493 767 575 890 579 370
Consolidated net profit 22 912 44 749 25 246
Total equity 585 952 689 874 674 446
Minority interests
Non-current liabilities
Financial liabilities 18 1 443 557 1 223 327 1 184 298
Security deposits 35 492 35 657 35 920
Provisions for liabilities and charges 19 1 383 1 418 1 150
Tax and social security liabilities 20 3 311 125 250
Total non-current liabilities 1 483 743 1 260 527 1 221 618
Current liabilities
Provisions for charges 19 93 108 1
Trade payables 10 782 8 912 10 771
Tax and social security liabilities 20 14 274 4 769 12 416
Other current liabilities 21 71 846 73 099 74 610
Total current liabilities 96 995 86 888 97 798
Total liabilities 1 580 738 1 347 415 1 319 416
CONSOLIDATED INCOME STATEMENT
(€ thousands) Notes 30.06.10 2009 30.06.09
Gross rental income 1 85 958 167 672 83 746
Service charge income 1 26 622 48 590 25 555
Service charge expense 1 (29 163) (53 189) (27 854)
Other property operating expenses (194) (2 145) (1 069)
Net rental income 83 223 160 928 80 378
Fee income 26 2 866 4 829 2 333
Staff costs 1 (5 568) (9 677) (5 149)
Other administrative expenses 1 (3 243) (6 441) (2 925)
Other income and expense 44 (19) 11
EBITDA 77 322 149 620 74 648
Depreciation of properties (32 421) (65 726) (30 373)
Other depreciation, amortisation and provisions (564) (1 279) (338)
Operating profit 44 337 82 615 43 937
Net financing cost 29 (23 008) (37 866) (18 691)
Gains or losses on disposal of investment properties 1 583
Pre-tax profit 30 22 912 44 749 25 246
Income tax 31
Net profit 32 22 912 44 749 25 246
Minority interests - -
Attributable to equity holders of the parent 22 912 44 749 25 246
Earnings per share 33 1.32 2.59 1.46
Diluted earnings per share 33 1.30 2.53 1.43
OTHER ITEMS OF OVERALL INCOME
(€ thousands) Notes 30.06.10 2009 30.06.09
Net profit 32 22 912 44 749 25 246
Gains and losses recognised in equity
- Fair value changes 11 (46 433) (19 852) (11 965)
Total net profit (23 521) 24 897 13 281
Minority interests - - -
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(€ thousands) Notes Number of shares issued
Shares
outstanding capital Share
Non-distributable reserves Distributable reserves and earnings
Other equity Total
At 1 January 2009 17 447 615 17 235 862 69 790 439 920 242 922 (18 734) 733 898 - -
Total net profit
Net profit attributable to equity holders (13 725) 38 971 25 246
Changes in fair value of hedges (11 965) (11 965)
Total net profit (25 690) 38 971 - 13 281
Transactions with owners -
Changes in share capital 9 881 9 881 40 94 473 607
Dividends paid (74 095) (74 095)
Movements in treasury shares -
Acquisitions (152 659) (9 611) (9 611)
Sale/cancellation 151 610 3 9 547 9 550
Stock options 816 816
Other changes -
Total transactions with owners 9 881 8 832 40 913 (73 622) (64) (72 733)
At 30 June 2009 17 457 496 17 244 694 69 830 415 143 208 271 (18 798) 674 446 - -
Total net profit
Net profit attributable to equity holders (6 237) 25 740 19 503
Changes in fair value of hedges (7 887) (7 887)
Total net profit (14 124) 25 740 - 11 616
Transactions with owners -
Changes in share capital 62 224 62 224 248 1 2 924 3 173
Dividends paid 3 3
Movements in treasury shares -
Acquisitions (113 518) (9 364) (9 364)
Sale/cancellation (210 879) 112 460 (843) 43 (17 835) 27 915 9 280
Stock options 720 720
Other changes -
Total transactions with owners (148 655) 61 166 (595) 764 (14 908) 18 551 3 812
At 31 December 2009
17 308
841 17 305 860 69 235 401 783 219 103 (247) 689 874
Total net profit
Net profit attributable to equity holders 11 (8 329) 31 241 22 912
Changes in fair value of hedges (46 433) (46 433)
Total net profit (54 762) 31 241 - (23 521)
Transactions with owners -
Changes in share capital 15 9 457 9 457 38 186 584 808
Dividends paid (80 411) (80 411)
Movements in treasury shares -
Acquisitions 15 (100 136) (8 376) (8 376)
Sale/cancellation 15 84 909 19 7 175 7 194
Stock options 26 302 302
Other changes 82 82
Total transactions with owners 9 457 (5 770) 38 589 (79 827) (1 201) (80 401)
At 30 June 2010
17 318
CONSOLIDATED CASH FLOW STATEMENT
Uses (-) and Sources (+) (€ thousands) 30.06.10 2009 30.06.09
OPERATING ACTIVITIES 57 763 128 749 63 037
Cash flow
Net rental income 83 223 160 928 80 378
Fee income 2 866 4 829 2 333
Operating expenses (8 800) (16 118) (8 074)
Other income and expense 33 (19) 11
EBITDA 77 322 149 620 74 648
Non-cash staff costs 1 024 1 631 910
Net financial expense 29 (19 320) (32 927) (14 894)
Pre-tax ordinary cash flow 59 026 118 324 60 664
Non-operating income and expense
Income tax 30
Net cash provided by operating activities 34 59 026 118 324 60 664
Selling costs and other deferred charges
Exit tax (125) -
Change in working capital requirement (1 263) 10 550 2 373
INVESTING ACTIVITIES (145 438) (238 574) (91 731)
Sale of property 3 150
Investment in property (81 333) (238 238) (91 564)
Other capital expenditure (86) (125) (74)
Impact of changes in scope 8 (67 134)
Other investment (35) (211) (93)
FINANCING ACTIVITIES 69 439 104 800 85 228
Increase in equity 622 3 237 513
Net purchases/sales of treasury shares (1 718) (145) (61)
Dividend payout (80 411) (74 092) (74 095)
Increase in borrowings 136 096 115 875 158 871
Change in finance lease liabilities 14 850 59 925
CHANGE IN CASH AND CASH EQUIVALENTS (18 236) (5 025) 56 534
Opening cash and cash equivalents (35 771) (30 746) (30 746)
1.2.2 Notes
1. GENERAL INFORMATION
SILIC is the leading business park operator in the Paris region. It is a major player in office property, with a developed portfolio of 1,165,000 m² at 30 June 2010.
Socomie, a wholly-owned subsidiary of SILIC, is responsible for developing, managing and marketing the group’s business parks. It also provides services for third parties.
The group employs 96 people.
SILIC shares are listed on NYSE-Euronext Paris, Segment A and are eligible for deferred settlement (SRD).
The Board of Directors approved the interim consolidated financial statements for the half year ending 30 June 2010 at its meeting of 27 July 2010.
2. SIGNIFICANT EVENTS
After a year of strong growth in 2009, the first half of 2010 was characterised by the consolidation of SILIC's operating and financial performance.
Rental income increased by 2.6% to €86.0 million, compared to the first half year 2009, as acquisitions of fully-let buildings in 2009 and early 2010 more than offset the drop in the indexation of the rents. All in all, the average rent continued rising and reached €183 per m².
EBITDA increased by 3.6% to €77.3 million, outpacing revenue growth.
As announced, cash flow was unchanged excluding the impact of the sale of derivative instruments in 2009, and reached €59.0 million.
In the first half of 2010, investments totalled €147.2 million, half of which was spent on the acquisition of a 13,800 m² office building in Nanterre-Préfecture and the other half on the construction work on 80,000 m² in progress at the end of 2009.
Sources of financing were strengthened by €60 million, to total €1,592.4 million, of which €1,334.9 million were used as of 30 June. €257.5 million are available to complete projects in progress and finance new investments.
The property portfolio was valued at €3,333.3 million including transfer taxes at 30 June 2010, giving a replacement net asset value of €110.71 per share.
3. CONSOLIDATION PRINCIPLES
SILIC's consolidated financial statements of the first half of 2010 for the 6 months ending on 30 June 2010 have been prepared in condensed form and in accordance with the International Accounting Standard 34 (IAS) "Interim Financial Reporting". As these are condensed accounts, they do not include all the information required by the International Financial Reporting Standards (IFRS) for the establishment of the annual financial statements and must therefore be read together with the consolidated financial statements of the Group prepared in accordance with the IFRS standards as adopted by the European Union for the fiscal year ended 31 December 2009.
include the IAS/IFRS standards published by IASB as well as the interpretations published by IFRIC and that have been adopted by the European Union. These standards are available on the
European Commission website
(http://ec.europa.eu/internal_market/accounting/ias_fr.htm#adopted-commission)
The main accounting standards used during the preparation of the consolidated financial statements are described below.
The new interpretations and amendments of standards in force since 1 January 2010 and applicable to SILIC are the following:
• IFRIC 15 – Agreement for the construction of real estate • IFRS 3 Amended – Business Combinations (Phase 2)
• Amendment to IAS 27 – Consolidated and separate financial statements
• Amendments to IAS 39 – Financial instruments: Recognition and Measurement – Eligible covered items
The main new interpretations and amendments of standards in force since 1 January 2010 and that are not applicable to SILIC are the following:
• IFRIC 12 - Service concession arrangements
• IFRIC 16 - Hedges of a net investment in a foreign operation • IFRIC 18 - Transfers of assets from customers
• IFRIC 17 - Distributions of non-cash assets to owners
• Amendment to IFRS 5, IFRS 2 and April 2009 annual improvement process of existing standards
The standards and interpretations adopted by the European Union but not effective for the current year, or those adopted by IASB or IFRIC but not yet adopted by the European Union at 30 June 2010 did not give rise to an early adoption.
Among these, only the following standards and interpretations are applicable to the SILIC group, although the impact of their adoption, which is currently being reviewed by the management, would not appear to be significant:
• Amendment to IAS 32 – Financial instruments - Ranking of right issues • IFRIC 19 – Extinguishing financial liabilities with equity instruments
• May 2010 annual improvement process of existing standards, in particular IFRS 7 Financial instruments – Presentation in appendix, IAS 34 – Interim Financial Reporting – Disclosures on significant events and operations and IAS 1 – Presentation of financial statements – Disclosures on changes of the statement of comprehensive income.
The preparation of the financial statements in accordance with the IFRS standards requires making a number of essential accounting estimates. The management is also needs to use its judgment for the adoption of the Group's accounting policies. The areas in which the stakes are the highest in terms of judgment or sophistication or those for which assumptions and estimates are significant for the consolidated financial statements are detailed in note 6.
3.1 SCOPE OF CONSOLIDATION
All companies over which SILIC has exclusive control or exercises significant influence are fully consolidated from the date of acquisition. At this time, we draw a distinction between:
• The property investment companies whose sole business is to rent the buildings in their portfolio. Viewed as isolated acquisitions of assets, they are recognised pursuant to IAS 40.
• The companies whose takeover corresponds to the acquisition of a business as per IFR 3 Amended, in other words, which itself consists of a set of inputs, processes applied to inputs and possibly outputs, and not only of an asset or a group of related assets and liabilities and that this set or group can be conducted or managed as a business.
At 30 June 2010, the scope of consolidation was as follows:
Company Address Reg. no. Business % control holding % Consolidation method
SA SILIC 572 045 151 00063 investment Property 100.00% IG
SCI SEPAC 332 725 399 00031 investment Property 100.00% 100% IG
SAS FONCIERE
NANTEUIL 410 352 645 00031 investment Property 100.00% 100% IG
Sarl EPP PERIPARC 422 115 097 00038 Holding company 100.00% 100% IG
Sarl du NAUTILE 349 991 042 00012 investment Property 100.00% 100% IG
SCI JCB2 378 589 998 00053 investment Property 100.00% 100% IG
SAS HAVANE 501 587 216 00129 investment Property 100.00% 100% IG
SAS 21-29 RUE DES
FONTANOT 48 494 992 000 033 Property investment 100.00% 100% IG SAS SOCOMIE 31 bd des Bouvets 92000 Nanterre 318 306 207 00046 management Property 100.00% 100% IG
SILIC acquired 100% of the securities of the 21/29 rue des Fontanot, joint stock company, which owns a 13,800 m² office building in Nanterre-Préfecture in early 2010 (Note 8). Due to its nature, this transaction is viewed as the acquisition of an isolated asset pursuant to IAS 40.
The Group owns no none-consolidated holdings.
3.2 YEAR-END
4. SIGNIFICANT ACCOUNTING POLICIES
4.1 Property portfolio
The portfolio consists of investment properties intended to be held for the long-term, although certain assets may be acquired or sold depending on future opportunities.
Property assets are stated at cost, being either the acquisition cost for properties that have been
acquired or contributed, or the cost price of new construction or redeveloped properties. The acquisition cost includes all expenses and transfer taxes related directly to the purchase. The cost price of property assets includes all direct construction-related expenses such as works, fees, internal management costs and interest charges incurred during the construction period. Properties acquired under finance leases are recognised in the same way as owned properties. The acquisition cost corresponds to the principal amount outstanding due to the lessor plus any contract acquisition expenses.
Within each building, components which need replacing at regular intervals are identified and accounted for separately.
The following components have been identified and valued at their actual cost where the relevant information was available, or otherwise by analogy with similar buildings developed by SILIC:
- Building structure (external envelope and services); - External rendering;
- Technical equipment; - Fixtures and fittings.
The property portfolio (land and buildings) was revalued by independent appraisers on 1 January
2003 at the time of election for SIIC tax status.
All redevelopment, renovation and refurbishment work is capitalised:
- Redevelopment consists in the complete transformation of an existing building and is similar to new construction (alterations to the external envelope, changing floor areas, remodelling the space, etc…),
- Renovation consists in the redevelopment of part of a building, where the total utilisation period remains unchanged;
- Refurbishment consists in improving the level of services offered to tenants (e.g. air conditioning, etc.).
Similarly, replacement work on building components (weatherproofing, heating systems, etc.) is capitalised.
The cost of ongoing maintenance work designed to keep the property portfolio in a proper state of repair is expensed as incurred. This principally concerns repairs to the common parts of a business park or a building and repairs to premises upon a change of tenant.
Building work is accounted for using the percentage of completion method. The residual financial commitment, being the total of all future expenditure until completion, is recorded as an off-balance sheet item.
On each reporting date, investment property is measured at amortised cost, revalued on 1
January 2003 where applicable.
Investment and owner-occupied property is depreciated by component on a straight-line basis
over the following periods:
- New office and light industrial buildings located in business parks:
- Building structure: 40 to 60 years depending on the nature of the building; - External rendering: 40 years,
- Technical equipment, weatherproofing: 20 to 25 years; - Fixtures and fittings: 10 years.
Acquired existing buildings are depreciated over a period that takes account of their age.
- Renovations:
- Structural modifications: residual depreciation period for the buildings concerned;
- Other components: by component, using the same criteria as for a new building. - Refurbishment: by component, 10 to 25 years.
- Land developments: 60 years.
Marketing fees paid to third parties are capitalised and amortised over the firm period of the lease.
Investment property is valued on an open market basis building by building, using an
independent external appraiser. The open market value is updated on a half-yearly basis.
The same firm is used for periods of three years renewable in order to ensure continuity, but the appraisal teams are in any event changed every six years. Fees are paid on a fixed-rate basis and are not linked to the appraisal values.
The valuation methods used comply with the European Valuation Standards published by the European Group of Valuers' Associations (TEGoVA) and with the recommendations made by the Conseil National de la Comptabilité and the Autorité des Marchés Financiers.
Open market value is the price at which an asset or property right can be sold at any given time under normal market conditions and is determined as follows:
- by comparison with current market prices for property assets of a similar type and in a similar location (direct comparison method);
- and by capitalising the net rental income using current market yields2 observed in the market (capitalisation method).
Net rental income is calculated as actual rents plus potential rents on vacant premises,less property expenses not charged to tenants under the terms of their lease and expenses related to vacant premises based on the estimated period required for reletting. Where a property has structural vacancies, the corresponding rental income is also deducted.
Assets are valued on the basis of their state of repair on the date of valuation.
However, properties under development (new construction and redevelopments) are valued at their projected completion value less all costs not yet incurred and interest charges. If less than 60% of the space has been pre-let on the valuation date, an additional amount is deducted from the projected completion value to take account of the risk inherent in the property development business.
The open market value is expressed as "disposal value" when transfer taxes and acquisition-related expenses are excluded and "replacement value" when they are included.
If there is a significant fall in the replacement value of a business park, a detailed cash flow analysis is carried out and an impairment loss recognised where necessary in addition to the depreciation charge.
On 30 June 2010, the date of the last independent appraisal, the replacement value of each business park was, as in previous years, higher than its carrying value.
4.2 Other non-current assets
Plant & equipment and intangible assets principally comprise equipment, furniture and software, which are depreciated over a period of 5 to 10 years.
Financial assets comprise prepayments and FNAIM security deposits accounted for at amortised cost.
Other non-current assets also include derivative financial instruments eligible for hedge accounting, which are measured at fair value.
4.3 Revenue and operating receivables
Leases entered into by the Group as landlord are commercial leases governed by the 1953
decree. They meet the criteria for classification as operating leases under IAS 17, as SILIC retains the majority of the risks and rewards inherent in ownership of the assets.
Rental income is recognised according to the payment terms of each lease. However, the impact
of any rent-free periods and step rents, where material, is spread over the period for which the tenant has made a firm commitment.
In the event of a dispute, only the undisputed portion of the rental income is recognised, in accordance with IAS 18.
Fee income represents fees charged for property management and marketing services provided
to non-Group companies.
Trade receivables are initially measured at their fair value, discounted at the effective interest rate
where applicable. They are subsequently measured at amortised cost on each reporting date. Trade receivables past due are reviewed on a case-by-case basis and if necessary provided for in full with no set-off against security deposits held. Tenant credit balances arising either due to advance rent payment or an excess of service charges over those actually due, are recognised as "other liabilities" (advances and downpayments received).
