I have interviewed Foncière des Régions’ Christophe Kullmann several times over my 12-year career and he has always struck me as a modest, down-to-earth executive. Even now, when I ask him in a phone interview what he sees as his main accomplishments at the helm of the French company, the man who turned a €100 mln business with 25 staff in Metz, France into a €21 bn property conglomerate with 850 employees across Europe, says he feels luck has played a big role.
‘We were able to create a real team and we have been working happily together for quite a while now,’ Kullmann says. ‘It was interesting for me to see the evolution of the business during these past 17 years and to be able to manage the company during all these different cycles.’
Not only has expansion been staggering under Kullmann’s tenure, but the business focus has completely changed since he took the helm of the company in 2001. ‘When I took charge FdR invested in the French regions and focused on sale-and-leasebacks. Today we are a true European platform with less than half of the portfolio in France and most of it focused on Greater Paris, and no longer on the regions,’ says Kullmann.
To reflect this evolution, the company decided 18 months ago to change its name and come up with a brand that would exemplify the new spirit of the group. ‘We are a major operator in several European capitals but we had a French name which was impossible to pronounce in other countries,’ Kullmann remarks dryly.
The new name, Covivio, was unveiled at the end of May this year. It embodies the company’s partnership-focused culture (where CO stands for collaboration), as well as the French origins of the group and the ever-evolving nature of the business (VIVIO stands for the French immobilier vivant, or living real estate). 'This is the right time for us to change our name,' adds Kullmann. 'We have undergone significant development over the last few years. Covivio reflects what we are today: a European company that operates at the heart of urban areas in motion; a single team united under a common banner.'

RESTRUCTURING DRIVE
The rebranding marks the completion of a long simplification process which has seen FdR (now Covivio) exit a number of asset classes including retail, logistics and parking to refocus on offices in France and Italy, hotels in Europe and residential assets in Germany.
Under this strategy, aimed at making the business more straightforward and attractive for equity investors, Covivio recently merged its two hotel units into one platform and also took its French non-core residential unit private, with a view to divesting it in the long run.
But the main pillar of the restructuring drive is the recently announced proposal to take over the group’s 52.4%-owned Italian arm Beni Stabili to combine the office portfolios in France and Italy under a single platform. Kullmann sees the operation as a natural step forward for the business. ‘The operation was well received by analysts and investors because the market was expecting it; it was more a matter of when we would be doing it, rather than if we were going to do it,’ he comments. Covivio’s shares spiked by up to 8% in the days following the announcement.
Covivio has owned a major stake in Beni Stabili since 2007 but it has only been in the past three years that the group has tightened its control over the Italian subsidiary. Following the replacement in late 2015 of Italian CEO Aldo Mazzocco by Kullmann as new head of the Italian unit, Covivio started to prepare the ground for a merger, embarking on a strategy to reshape and align Beni Stabili’s portfolio with its own. As such, the Italian subsidiary has been refocusing on offices in Milan, which currently represent 64% of the total portfolio (up from 49% in 2015), while reducing its exposure to the telecom portfolio from 41% of total assets in 2015 to 23% at present in an effort to diversify its tenant base.

SINGLE OFFICE PLATFORM
Kullmann: ‘A single office platform has several advantages, not just in terms of simplification of governance and the business in general. We will be able to finance the activities with Covivio’s balance sheet, which is a strong benefit today given the situation Italy is currently in. It will also be easier to work together as a team: it is important that all of the group’s staff feels part of the same story.’
Covivio first announced in April that it was planning to take full control of Beni Stabili in a deal which is expected to boost its earnings and have a slightly accretive impact on EPRA Earnings and NAV per share. The company is offering 8.5 of its shares for every 1,000 Beni Stabili shares, representing an 8% premium to the three-month average share price on the day prior to the announcement. In conjunction with the offer, Covivio is also buying Beni Stabili shares on the market to reach a stake of just under 60%, the maximum shareholding allowed for a REIT to retain its tax-efficient status.
The merger, which would lift Covivio's portfolio value to roughly €15 bn, has already been approved by both boards but will also need backing from two-thirds of shareholders at the Covivio and Beni Stabili extraordinary general meetings slated for early September. It is expected to complete by the end of 2018.
With a portfolio of €4.2 bn and a €800 mln development pipeline, Beni Stabili is the largest office REIT in Italy. The Milan-based firm is active in real estate development and investment, with assets largely focused on its home city.

NEW COMBINE
Market experts say a merger with Covivio should benefit Beni Stabili's shareholders, who will enjoy significantly increased liquidity and a higher dividend per share ratio as well as exposure to a more diversified portfolio. After the merger, the new combine will have a market cap of €7.3 bn with a 51% free float. Major shareholders will include Delfin, the vehicle of Italian entrepreneur and Luxottica founder Leonardo del Vecchio, which will hold a 27% stake, while French insurers Covéa, Crédit Agricole Assurances and ACM will hold roughly 7-8% each.
The strategy for the Italian activities will remain unchanged following the merger, says Kullmann. ‘We will continue to focus on offices in Milan, which are planned to account for 90% of the portfolio by 2022, up from 64% today.’
Like its parent company, Beni Stabili has been seeking to exit the retail asset class in the recent past. Last year it sold a portfolio of nine high street retail assets for €120 mln to a client of CBRE GIP as well as a high street building at Via Verri in Milan to Amundi for €92 mln. PropertyEU also recently reported that the Italian REIT has put a portfolio of five shopping centres valued at over €200 mln on the market. BNP Paribas Real Estate is advising on the sale process which encompasses 142,500 m2 of gross space across Italy and is expected to appeal to opportunistic investors such as TPG, Tristan, Orion, Pradera and Partners Group.

RESIDENTIAL AND HOTELS
Although offices represent the bulk of the group’s portfolio, it is Covivio’s two other business lines which have been showing the strongest growth and the highest returns (on a relative basis) in the recent past. The group’s German residential assets, held through the 62%-owned Covivio Immobilien dedicated structure, reported a 5.1% like-for-like increase in revenues in the first three months of the year, versus 2.5% for the French office portfolio. Roughly €200 mln worth of housing acquisitions were carried out in the first quarter, with more planned for the rest of the year as part of plans to increase the group’s exposure to the German residential sector.
Similarly, the group’s 42%-owned hotel arm, newly rebranded as Covivio Hotels, has just entered the UK with the acquisition of a portfolio of 14 four and five-star UK hotels from Starwood Capital for a total investment of £858 mln (€976 mln). The hotels are being leased to InterContinental Hotels Group (IHG), which will rebrand and operate them as part of its luxury and upscale brands portfolio.
The operation, with a target yield of 6%, is in line with the group’s growth strategy in the sector as well as with plans to move upmarket in the hotel real estate industry. ‘We entered Spain last year and went to the UK this year and we will continue to expand in these markets as well as in France and Germany. We’d also like to enter Italy, where the hotel industry is less structured,’ Kullmann says.
Covivio entered the European hotel property sector in 2005 and has since built up a €5.8 bn portfolio across the UK, Germany, France, Spain and the Netherlands. Asked why the group is so eager to expand across Europe with the hotel business, while the office activities remain focused on France and Italy, Kullmann says hotels are much less management-intensive. ‘With hotels we need a very strong relation with the hotel operators which most of the time are looking to expand in new markets. Offices, on the other hand, remain a local business. We are involved in long-term processes with the municipalities and other local authorities and we manage the assets directly. We also need to have connections with local tenants.’

New focus on flexible office space
In addition to its traditional office offer and in line with a general trend of expansion for flexible office space, Covivio embraced the co-working concept in March this year with the launch of its own brand, Wellio. Since then, the group has opened three French locations, two in Paris and one in Marseille, and is looking to open its first facility in Milan at the beginning of next year. In total, the group is aiming for a total of 70,000 m2 of co-working spaces by 2022, although scaling up the business is not a priority, says Kullmann. ‘What is important for us is the capacity to offer these services and address this need directly, following our tenants in what their requests are today. It gives us an understanding of the direction the market is taking, which is that of increased services, more comfort, and more flexible lease terms.’

PERSONAL PROFILE
Born in Metz in 1965, Christophe Kullmann has spent his whole career in real estate. He started in 1992 as finance director at Immobilière Batibail, the French Ruggieri family’s holding firm, which became part of larger peer Gecina following a merger in 1999. Meanwhile, Charles Ruggieri’s Batipart vehicle had taken a controlling stake in Covivio (GSFR at the time), and Kullmann – Ruggieri’s confidant - was put at the helm of the company in 2001. Over the past 17 years Kullmann has been able to transform a €100 mln business focused on the French regions into a €21 bn European property group. He is also the president of the French Federation of Real Estate Companies (FSIF), a trade association for the listed real estate sector.

COMPANY PROFILE
Covivio is a listed real estate developer and investor focused on offices in France and Italy, residential in Germany and hotels across Europe. With 850 staff, the company is based in Paris and owns a €21 bn portfolio with a development pipeline valued at over €5 bn. Following the completion of its planned merger with Italian REIT Beni Stabili, expected by year-end, Covivio will have a dual listing in Paris and Milan and retain its French tax-efficient REIT status.