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Growth has always been the company's objective, through increasing profitability, improving the quality of property holdings, and favoring the stock's liquidity. This objective is more important than ever in a quickly consolidating economic environment. For Simco, growth must be 'chosen' with respect to the 'fundamentals' of the business: remain concentrated on the 'savoir-faire' of the group, developing and exploiting the building park concept through investment, rentals, management and sales, in blocks or parcels; focus on Paris and the Paris region, a high quality market where the group is well implanted; diversify the nature of holdings along two lines--a dominant share of lodgings (which stabilize the group's business and assure it of recurring revenues in the long term) and a significant share of office buildings, which boost profits in growth periods through reactions to market conditions.
Simco S.A., an acronym for Société d'Investissements Immobiliers et de Construction (which translates roughly as Company of Real Estate Investment and Construction), is one of the top three property groups in France and one of the top seven in all of Europe. The company's Paris focus has given it a number of prime locations in that city, one of the world's top real estate markets. At the end of 1999, Simco held title to 217 buildings and building parks, including more than 800,000 square meters of rental space across 11,200 apartments, 48,000 square meters of commercial real estate, 197,000 square meters of office space, and 15,900 parking spaces. This total of more than 1.3 million square meters was worth an estimated EUR 2.48 billion. The acquisition of fellow Parisian real estate group Société des Immeubles de France (SIF), announced in the summer of 2000, was expected to further boost Simco's holdings to more than EUR 3.6 billion. The acquisition of SIF, which specialized in office space, complemented Simco's focus on residential rentals--generally some 60 percent of Simco's portfolio, with a large number of high-end Haussmann-era apartments--at a time when the market for office space was growing strongly. The company's largest shareholder has long been insurance giant Axa, which held more than 45 percent of the real estate group's stock in 1999.
Renting Paris in the 1950s and 1960s
The beginnings of Simco S.A. date back to the formation of CEFI S.A.R.L. in 1956, which was formed with capital of just FFr 120,000. CEFI was formed to respond to a growing housing crisis in Paris. At the end of the Second World War, legislation enacted to protect apartment renters--including caps on rent increases--resulted in a near stoppage of new apartment building construction. By the mid-1950s, the shortage of affordable housing had reached crisis proportions; the severe winter of 1954 in particular had exposed the vulnerability of lower income groups and the lack of proper housing. Pressure was placed on the government to enact new legislation to encourage the construction of rental apartment buildings for the lower and middle-income groups. The resulting construction boom transformed Paris, particularly the outskirts of the city.
One of the factors leading to the construction of new buildings was the creation, in 1958, of a new class of real estate companies. This class was the Société Immobilières Conventionnée, or SIC, and provided tax advantages for the construction of housing for middle-income populations. These tax advantages thereby compensated real estate groups for their loss of income due to the rent control that was enacted a decade earlier.
As the Paris building market began to grow, CEFI grew as well. In the early 1960s, the company prepared to take advantage of new legislation to be enacted that was to create a new type of real estate group, with its own set of financial and tax advantages. In 1963, CEFI renamed itself Union Immobilière d'Investissement UNIFIMO S.A., with a capitalization of FFr 1 million. The company anticipated the passage of new legislation creating the Sociétés Immobilières d'Investissment, or SII, which allowed real estate groups to raise capital by making public offerings on the stock exchange. UNIFIMO converted to SII status in November 1967 and retained that status until the early 1990s. This status marked the company's growth, particularly as the law creating the SII category stipulated that all buildings constructed by SII-type real estate companies were required to adhere to a strict proportion of 75 percent residential rental apartments and 25 percent commercial rental space.
Meanwhile, the building boom that had begun at the end of the 1950s took on new vigor in the 1960s, especially outside of Paris as the city saw the rise of a huge new suburban ring. The opening of the RER train network serving these new areas helped relieve the housing congestion of Paris itself, and gave new opportunities to the real estate industry. Another boost to the real-estate market--if not to the beauty of Paris itself--came in 1967, when changes were made to a number of the city's long-held building codes. In particular, one 19th century code had limited building height to 20 meters (five stories), while another required the alignment of buildings to the street. The new changes allowed building heights to reach 37 meters--some new buildings reached ten stories--and buildings were allowed to break from the alignment with the street. Thus, the housing market saw the rise of a whole new type of building complex, often containing hundreds of apartments in several linked buildings. The new modern buildings became highly sought after among Parisian renters.
The opening real estate market provided by the new building codes encouraged UNIFIMO to expand not only its holdings but also it capital. In 1967, the company acquired two of its rivals--Simco and IFF--and in order to emphasize its growing commitment to new building construction, took on the name of its Simco acquisition, which stood for Société d'Investissements Immobiliers et de Construction ('Real Estate Investment and Construction').
Growth by Acquisition in the 1970s--80s
It soon became apparent that acquisitions would be an important part of Simco's growth. The company made another important purchase in the mid-1970s, when it took over rival SAGIMO in 1975. By that time, Simco had built up a strong portfolio of modern apartment complexes, including a number of buildings in the western suburbs of Paris. Yet the company's primary focus remained on the Parisian market proper. The adoption of a new building code in 1977 once again tightened construction requirements, renewing the requirement that buildings be aligned to the city's streets, while instituting new height requirements based on the width of the new sites' streets.
Building code changes were just one factor in the rapidly slowing new construction market in Paris, however. Another significant factor was the impact of an economic recession, which had begun with the Arab Oil Embargo in the early 1970s and lasted in France through the late 1980s. The depressed economy not only discouraged new building construction and lead to new housing shortages, but also encouraged the consolidation of the city's real estate groups. Simco was to prove a leader in this trend, making a series of significant acquisitions in the 1980s and 1990s.
Instead of simply boosting its real estate holdings with each acquisition, Simco used an acquired company's portfolio of buildings to balance and re-orient its own portfolio. As such, an important part of Simco's activity became its arbitrage of its own and newly acquired buildings. This enabled Simco to increase the value and scope of its properties, while also maintaining the 75--25 split of residential/commercial properties required by regulation governing its SII status.
Among Simco's most important acquisitions in the 1980s were those of UPH in 1984 and IMMINDO in 1988. The first of these, UPH, gave Simco some 1,500 residential apartments and 38,000 square meters of retail and office space, including a number of residential buildings in Lyon and other provincial cities. From this acquisition, Simco kept more than 400 residential apartments, including two buildings in Paris's 15th arrondissement, as well as several of UPH's province locations. Simco also kept an important part of UPH's non-residential portfolio, including its 16,000 square meter office and retail space in the Gamma towers near the Gare de Lyon train station. This space was located in what was later to become an important financial district. Almost all of UPH's buildings that were kept by Simco dated either from the 1960s or the mid-1970s, giving the company a relatively large increase in its modern building portfolio.
The IMMINDO acquisition presented similar opportunities for Simco. Focused on Paris and the immediate surrounding area, IMMINDO brought a portfolio of 16 buildings representing more than 800 residential apartments and some 13,500 square meters of offices and retail space, almost all of which had been constructed since the 1970s. Of the 16 buildings acquired with IMMINDO, Simco kept 12, including a building still under construction and not completed until 1989. Once again, Simco rebalanced its assets, maintaining the 75--25 split (both UPH and IMMINDO had been oriented more along a 61 percent residential/39 percent non-residential proportion) required by SII status.
Changes in the Early 1990s
The late 1980s had seen a brief but intense building boom that was to result, as was the case elsewhere in the world, in a glutted office building market as the worldwide economy shrunk back in the early 1990s. In France, and in the Paris area in particular, the resulting extended recession depressed the building market into the late 1990s. Simco took a three-prong approach to its development in the new decade.
First, In 1992 the company made another large scale acquisition, this time of COGIFI, whose holdings included 27 building complexes containing 2,400 residential apartments and more than 44,000 square meters of office and retail space. In detail, COGIFI's holdings included a largely modern park of buildings, most of which had been built in the late 1960s and early 1970s, as well as a focus on the Parisian suburbs. There were also five buildings in the provinces and a strong portfolio of central Parisian buildings. Simco sold many of the buildings acquired through COGIFI, but kept some 70 percent of the Paris center locations, adding another 16,000 square meters of prime Paris office space to its holdings.
At the same time, Simco prepared to abandon its status as an SII company in order to rebalance its holdings to take advantage of the new economic situation in its sector. Freed of the requirements placed on it as an SII, Simco was able to change the balance of its park, shifting closer toward a 60--40 split of residential and non-residential properties.
More than ever, arbitrage became the company's central focus, as it stepped up its long-held policy of building acquisitions and building sales in order to maintain a portfolio reflecting current market demands. This third part of the company's 1990s development played an important part in the transition of Simco's holdings from a largely middle-income residential group to a more high-end of the Parisian market. By 1996, Simco had built itself into the largest of the real estate groups quoted on the Paris stock exchange, and one of the largest in the overall Paris market.
A Real Estate Giant for the 21st Century
As the economic and building crisis finally eased toward the end of the 1990s, Simco prepared to take on another scale. In 1997, the company bought up rival group Compagnie des Immeubles de la Plaine Monceau (CIPM), the second-largest quoted real estate company. CIPM was worth some FFr 6.8 billion in market capitalization and boasted a portfolio of 114 buildings, equaling nearly 680,000 square meters of space. In addition to 55,000 square meters of office space, CIPM controlled nearly 4,000 apartments--nearly 40 percent of which were so-called 'Haussmann' apartments.
The 'Haussmann' designation referred to Baron Haussmann--named as prefect by Napoleon III in 1853--who had transformed Paris by instituting a new street grid and defining a new building code. The Haussmann-style buildings, constructed mainly in the second half of the 19th century, came to evoke Paris itself, and, by the end of the 1990s, were among the city's most expensive rental locations. Simco's acquisition of CIPM gave it more than 50 Haussmann-era buildings and expanded its presence into nearly every one of Paris's arrondissments. Among CIPM's other holdings had been a number of other prestigious buildings as well, some of which dated to the 17th century.
The merger of CIPM into Simco took most of the following year. Upon completing the integration of CIPM's operations with its own, Simco began looking for new acquisition possibilities. The rebounding French economy had thrust the office space sector in full gear, and Simco moved to take advantage of these developments. At the same time, the Paris market was seeing a rapid consolidation--a trend driven especially by the appearance of foreign investment capital (particularly British and American) eager to gain footholds in the highly sought-after Parisian real estate market.
Simco was frustrated in its next two acquisition attempts, however, after its targets--Sefimeg and Immobilière Batibail--were both snapped up by rival Gecina. Gecina also took Simco's place in the top three of Parisian real estate groups. It was not until mid-2000 that Simco was at last able to announce its next successful acquisition. This time the company agreed to acquire Société des Immeubles de France (SIF), a company which was at that time classified as the 20th-largest European real estate group. Prior to the merger, Simco was classified as the 11th-largest European real estate group; adding SIF to Simco, however, allowed the company to move into the number seven spot. The company then boasted a capitalization of more than EUR 2.1 billion, and a portfolio estimated at nearly EUR 3.7 billion.
The SIF acquisition was most likely not to be Simco's last, as the company moved to protect its position in the rapidly consolidating European real estate market. Indeed, at the same time that the company announced its SIF acquisition, it also announced its agreement to purchase three office buildings, for a price of EUR 240 million. Meanwhile, Simco remained committed to maintaining the high quality of its building portfolio, earmarking some FFr 2 billion in assets that it was preparing to sell off in the first years of the new century.
Principal Subsidiaries: SCI Franco-Russe; GIE Gessi; Locare S.A.; Parigest S.A.; SCI Paris St. Michel; SCI Ternes-Opéra; SCI Vouillé-Nanteuil.
Principal Competitors: Gécina S.A.; Klépierre S.A.; Unibail S.A.; Société Foncière Lyonnaise S.A.; Foncière Euris S.A.; Rue Impériale de Lyon S.A.
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