There is a growing risk within the French residential development end-market for 2027—a view shared by management. In recent years, the company has positioned itself to address this emerging risk.
Residential development: a tough year (or years) ahead?
Management shares our view that a specific risk is emerging for FY 27. We also believe this could potentially spill over into FY 28. In either scenario, it is likely that news flow—both for the sector as a whole—may be negative over the coming quarters, at least regarding trends in sales volumes and revenue.
A key element of the investment case for Altarea hinges on the speed at which the profitability of its Residential Development division recovers—not only in terms of margins, but also in absolute euro terms at the EBITDA and bottom-line levels. Should the sector-wide crisis worsen, even a decent margin might not prevent a slowdown in the pace of profit growth, and by extension, the growth of consolidated FFO. While this challenge is shared by all its peers, Altarea benefits from greater agility, thanks to both its size and its entrepreneurial culture. In our view, it remains well-equipped to face the challenges of 2027–2028.
The performance for the first nine months of 2026 does not yet fully reflect the impact of rising yields on French sovereign debt, nor the fragility of France’s sovereign credit rating. When one also considers construction costs—and the fact that the revenues of both Altarea and the broader sector are heavily dependent on orders from institutional investors—it raises concerns about the vulnerability of a core revenue stream. While a focus on preserving margins is entirely understandable, should external constraints become sufficiently severe, the priority must be to safeguard the company’s operational foundation—specifically its core expertise and the associated fixed cost base. For these reasons, market consensus may need to temper its expectations regarding the recovery of FFO for 2027 and beyond.
Furthermore, management has consistently remained committed to maintaining a high nominal dividend. It has long been our view that this dividend is excessive when weighed against the overall risk profile—for instance, risks linked to the end-market. Depending on how the situation in France evolves, we cannot rule out a potential recalibration of the dividend payable in 2028 to better align it with the recurring FFO that can reasonably be expected on an annual basis over the medium term (excluding capital gains).
Retail Property
Rental growth remains strongly correlated with tenant sales in Altarea’s shopping centers—hovering around 1%. At present, we have no indication as to how book values for the French retail sector might evolve nationwide; however, in Altarea’s case, organic rental growth is insufficient to protect book values against, for instance, a shift in capitalization rates. Yield compression could be a primary driver for a revision of our NAV per share sometime in 2027.
The current share price appears low enough to justify our positive rating, even when accounting for a potential dividend recalibration in 2028 and a contained erosion of the NAV stemming from potential pressure on retail assets. To address this, we believe Altarea holds several highly monetizable assets, notably in Spain. Although the optimal window of opportunity may have closed for the time being—due to shifts in interest rates—Altarea is not lacking in resources. The company still faces what could be a challenging period over the coming quarters; this is true for the entire sector, yet Altarea possesses distinct advantages compared to other, more vulnerable players. Nexity will release its Q3 26 results tomorrow, October 22, after the market closes.
