Gecina (GFC) Earnings Call Transcript & Summary

Hello, and welcome to the Gecina Business at September 30, 2023 Conference Call. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand over the call to your host, Mr. Benat Ortega, the CEO; and Nicolas Dutreuil, the Deputy CEO of Finance, to begin today's conference. Thank you.

Good morning to everyone and thank you for being online with us this morning for this conference call related to our business activity in Q3 2023. I'm Samuel Henry-Diesbach, and I'm here with Benat Ortega, CEO; and Nicolas Dutreuil, Deputy CEO in charge of finance. After a quick introduction by Benat regarding our performance since the beginning of the year, Benat, Nicolas and I will be happy to answer the question you may have. I now hand the floor to Mr. Ortega.

Hello to everyone, and thank you for being with us this morning. Before we can answer your questions, I would like to quickly comment our performance and recent achievements. This quarter has been particularly robust again and confirms our good momentum. We've been able to post strong rental growth at the end of September at 7.3% in total and even 8.1% on offices. This is far stronger than what we've been posting last year at the end of 2022 when rental growth was only 2% for the group. This is the result of the combination of strong organic rental growth, reaching more than 6% and a positive and strong contribution from the pipeline. Like-for-like growth has been supported not only by indexation, 4.6%, but also occupancy rate improvement by 130 bps and rental uplift along tenant rotation, 14% in average. As a fact, the rental uplifts are still at high levels, reaching on offices 26% in Paris City in average and 14% in total for the office, suggesting today, again, a large outperformance from Central Paris over the peripheries. The residential portfolio shows a rental uplift now reaching 13%, 1-3, and a strong improvement when compared to what the group were able to grab these past years. Remember, 10% last year, around 6% between 2018 and 2021 and below 2% before. On the 2 portfolios, offices and resi, our efforts to improve our operational performance and our products and allocations are key to deliver these releasing spreads. On top of this like-for-like performance, our 7.3% rental growth is also supported by a positive contribution from the pipeline, thanks to recent deliveries. Indeed, the pipeline contributes by EUR 16.4 million, taking into account the delivery of l1ve and Boetie buildings in the Paris CBD and the 157 Charles de Gaulle in these. And the effect of building vacated mid-2022 to be redeveloped with their delivery schedule in 2025, Icone-Marbeuf and Flandre 27 canal in Paris, both now in Paris. You already know that the group was able to sell EUR 1 billion of assets in H1 this year, 10% above last appraisal values and with a cash flow yield effect of around 2.5%. Since then, we have continued and EUR 111 million have been secured from disposals and are today under preliminary agreements. Here again, with a yield below 3% and still above appraisal values with almost 8% premium. These opportunistic deals further improve the group balance sheet, obviously, in the context of significantly slower investment market these last months. But in our view, the biggest news from this quarter is on the re-leasing side, with 2 major assets of our pipeline now fully let. The 35 Capucines building in Paris CBD, a bit more than 6,000 square meters, which is scheduled for delivery during the first half of 2024, led to a luxury group and [ Alofa ], all the office space is now fully let. But more importantly, a rare operation for Paris CBD markets, named Mondo, 30,000 square meter building now fully pre-let to one single large French corporate member of CAC 40. Such an operation is relatively exceptional given the size and the location and having this asset fully let more than a year before completion perfectly illustrates the strength of Paris City office markets and the quality of the refurbishments delivered by Gecina. To date, 100% of the office space to be delivered in '23 or '24 is now fully let with rental levels, which are higher than initially anticipated. We are now working on the leasing of the assets that we'll deliver in 2025 in Paris City, Icone-Marbeuf, and 27 Canal-Flandre again. Following this quarter, Gecina is confirming its growth forecast for 2023. Remember, we raised our guidance midyear when publishing our half-year results, initially expecting our recurring net income per share to grow by 4% to 6%. We now confirm our new targets that recurring net income group share is expected to reach EUR 5.9 to EUR 6 per share and thus delivering 6% to 8% growth per share in 2023 in the context of good leasing markets I just explained, solid indexation of our rents and the good contribution from the pipeline. And all that combined with Gecina's long-term long debt maturities and active hedging policy that enables to limit the impact of interest rate rise on the group's financial expenses for 2023. Nicolas, Samuel and I are now available to answer the questions you may ask. Thank you.

[Operator Instructions] We will take the first question from line, Florent Laroche-Joubert from ODDO to begin to this call.

So congratulations for the leasing of Mondo. So maybe a first question. So could you maybe come back to the conditions why this group of CAC 40 has signed at Mondo in which conditions. This would be my first question. And my second question will be on the investment market. So as you noted on your side, any changes in the behaviors between buyers and sellers in the offices market this last week and what would be for use a wide condition to start looking at opportunities for acquisitions.

Thank you, Florent, for your question, questions, by the way. Why did they sign with us? I think it's a combination of several factors. Obviously, we can't communicate on the name because they need to announce that to their employees before we communicate on who it is or will be not too detailed. But the idea behind signing such a lease is, one, the quality of the assets, I think we -- within the marketing, we said we have built and designed Mondo after COVID and thinking by 3 dimensions, which have been convincing for the clients. Obviously, the location is clear, so I will not comment on that. The first one was ultra flex. So we have designed Mondo to allow someone that would commit for long term to be capable to use that in different ways the assets. So large floor plates, unique in Paris, more than 3,500 square meters of floor plates, gives a lot of flexibility, we thought with external services, a lot of gardens, a lot of services, restaurants, which will be extremely vibrant. So that flexibility is key for a large corporate to take a long-term commitment. Second, it was ultra lively. So we have thought that asset to be extremely lively, open to the city with a lot of new food offer services and so on. So being lively, being capable to attract talents, being capable to attract back employees to their office was key, and the third was ultra green, it's a super low-carbon building. And I think we are convinced also that tenant who come into our building also through the general policy by Gecina to be excellent in operations and excellent in efficiency in terms of energy. And I think it's a combination between an excellent building in terms of design, green, but also the fact that we will operate that in a super lean manner. So those 3 reasons, I would say, have been key. Regarding investment markets and behaviors and so on, I think the market is still quiet. There is a limited number of buyers. So for the time being, it's pretty quiet. So we have been quite active, as you saw since the beginning of the year. It's not easier than before. So it's still pretty quiet, to be honest. We -- there is a lot of rumors about people wanting to sell secondary assets and so on. But remind you, there is not so many players that are willing to buy especially secondary location, secondary assets. So still pretty quiet.

We will take the next question from line, Stephane Afonso from Invest Securities.

Yes. Two questions on my side. And the first one on the Western Crescent portfolio. What could we expect in terms of renewals or departures over the next 12 months? And also on this part of the office portfolio, could we have an idea of the reversion rate that was captured at this stage? And regarding the fact that incentives are still increasing in this area.

The vast majority of the assets that we own on the Western Crescent is in Boulogne and in La Defense. As I said during previous calls, La Defense has been secured recently for long, so we have no specific expiries over the next several years, in fact. Regarding Boulogne, we have a series of assets, but same no major expiry over the next 12 months. Obviously, they will come later in time, in '26, in '27 and so on. But for the time being, no specific expiries over the next 12 months?

And now we own also a couple of assets in Neuilly. So theoretically, Neuilly is considered as being the Western Crescent even in this market, is moving like a Parisian market. But the same in Neuilly, in that we have fully let a couple of buildings during the last months. So here again, no specific issues coming in the next 12 months.

But Neuilly, there is more opportunity, by the way, when we have an expiry because then clearly that market is as tense as Paris. So.

Ok. And on the reversion please?

On the reversion, same, I think as we don't have so many expiries, there is no specific pressure. Obviously, the rents and the prime rents are not growing as fast as indexation so -- in those markets, except [ new again ] So obviously, we will have to monitor that situation over time.

We will take the next question from Ana Escalante from Morgan Stanley.