Gecina SA

PAR:GFC

Earnings Call Transcript 2023-Q1

[Operator]

Hello and welcome to Gecina Q1 2023 Activity Conference call. My name is Priscilla and I'll be your coordinator for today's event. [Operator instructions]. I will now hand you over to your host, Mr. Samuel Henry-Diesbach to begin today's conference, please go ahead, Sir.

[Samuel Diesbach]

Yes, good morning. Hello to everyone and thank you for being with us online this morning for this conference call related to our business activity in Q1 2023. I am Samuel Diesbach and I am here with Beñat Ortega, our CEO and Nicolass Dutreuil, Deputy CEO in charge of Finance. After we have a quick introduction by Beñat, regarding our performance in this first quarter, Beñat, Nicolas and I will be happy to answer the question you may have.

And I hand the floor. Mr. Ortega?

[Beñat Ortega, Chief Executive Officer]

Hi everyone, and thank you for being with us this morning. Before we can answer to your questions I would like to quickly comment our performance and achievements since the start of this year, 2023. As you may have seen already in the press released, published yesterday, our performance has been particularly robust this quarter again and confirms the confidence we brought along our 2022 earnings published earlier in February.

Once again, this quarter is clearly the performance, we are able to deliver that may contrast with uncertainty that seems to worry stock markets nowadays. To us, this performance is largely, largely due to our strength, our portfolio, our balance sheet, and obviously I would say the know-how of our teams. All drivers for rental growth are positively oriented and all of them marked an acceleration against 2022.

I'm referring to occupancy, releasing spreads, indexation and pipeline contribution to our rental growth. First, the acceleration of like-for-like growth, that achieved 7.3% in Q1 and even nearing 8% in offices and 5% on resi. This acceleration when compared to the 4.4% like-for-like rental growth posted in '22 is clearly supported by operational performance from '22, but also in '23.

This performance is driven by the portfolio, that provides visibility and high capacity to perform in these locations. Reversionary potential remains strong. We've been able to capture a releasing spread of 30% in Paris and 7% in average for our old portfolio. And in our residential business, we are improving our relating spreads, now reaching 11%. The contribution of -- from indexation is 4.2% in our, like-for-like in Q1, well, it was 2.1% for the whole year, 2022. And occupancy rates have increased by 280 bps in 12 months and even 340 bps for offices, reflecting clearly on active demand for Gecina's assets in our locations.

Like-for-like performance in Q1 fits our confidence for fiscal year '23. Note, however, that the occupancy rate gradually improved during 2022 and particularly at the end of the year, meaning that the base effect is expected to mechanically decrease and ease over the second half of '23.

Year-over-year rental growth also strongly performed at almost 9% and even nearing 10%, thanks to the positive contribution of our pipeline by €4 million, reflecting the impact of the deliveries of live building at the end of '22 and 157 Charles de Gaulle. Both assets are fully lit; of setting icon in Marbeuf and France assets that were vacated in '22 and so transferred into a pipeline, like we said during our earnings score in February.

On disposals, our achievements are robust. Also, year-to-date, 150 -- €147 million of assets have been sold or under preliminary agreements today. This is the -- these disposals have been achieved or secured with premiums over our last appraisal by more than 6%. 60% of these sales concerns residential assets, and nearly 75% are located outside Paris. Most of these disposals obviously are under preliminary agreements and have been very recently secured. They should be finalized in the coming weeks or months. It's also fair to insist as well on our robust debt structure that most of you have in mind already.

As you know, in terms of sensitivity of the group's, average cost of debts, Gecina’s rates, aging policy sends out through the long maturity of it -- our edging instruments, seven years making possible a sustainable to protect the average cost of debt. From '23 to '25, 90% of our debt is edged, on average against changes in the Euribor. More importantly, it seems important also to underline the fact that during the first quarter, the group has been able to further, for instance, its liquidity position.

Again, nearly €175 million of new credit lines have been set up, but, good news also that, we have included a new European bank in our pool, with an average maturity of seven years. These new credit lines are renewing ahead of schedule, showing quite great confidence because 130 million were maturing in '24 and are based on equivalent financial conditions. As a consequence, we are able to comfortably reiterate our guidance for '23 and the results published at the end of '22 and the trends we are still observing during this first quarter, reflects the very good rental market in which we are.

And this reverse operational performance is being further strengthened by the gradual upturn in the indexation, the improvement of occupancy, but also the positive output in rents we are achieving through tenants rotation. The pipeline is positively contributing to our net rental income growth and, and it's in expected to ramp-up as the major buildings were delivered in 2021, Q3 are fully let.

Gecina’s long-term debt maturity and active rate aging policy, is enabling us to limit the impact of interest rate rise in '23. Therefore, we expect a net recurring income to reach €5.80 to €5.90 per share -- euro per share in '23, meaning a growth between 4.3% and 6.1%.

Thank you for listening that and Nicolas, Samuel and I are now available to answer your questions.

[Operator]

Thank you, sir. [Operator instructions]. We have take our first question from Veronique Meertens from Kempen. Please go ahead. Your line is open.

[Veronique Meertens, Kempen]

Hey, good morning. Well, thank you for the big indexation and congratulations on the, on the solid operational results. Two questions from my side. Positive to see that you managed to secure some additional disposals, already in the Q1. Interesting to see that mainly in the resi segment. Is that a segment where we could see more and curious to also hear your, your thoughts on that market at this point in time?

And then secondly, on your reversionary potential, again, the 30% in Paris CBD offset quite a bit by two assets in Peri-Défense. I understand, but what's your expectations for the rest of the year and more specifically what you're currently seeing in La Défense for diversionary potential for this year?

[Samuel Diesbach]

Thank you very for your questions. I'll take those two. On this poll, as we said earlier we have no specific need to dispose, but we, we said we would be opportunistic on our disposal strategy. So the so we've seen some, some traction on that segment and that's why we, we decided to dispose an asset on the resi side. It shows that we have a premium on our appraisal, which is good news, and we will continue to be opportunistic on that. So, so we'll see what, what will happen on the next month.

On, reversion, obviously you saw that we had a negative reversion on the on, on Peri-Défense. You know, it's, it represents 3% to 4% of our portfolio. So when we look at reversion, I think we need, we need to look at it as a trend more than a pure quarter-by-quarter reversion. So, so the duration of those deals are almost half of the deals we have achieved during this Q1. But we see good trends still in, Paris specifically; so that reversion should grow, but we will have to make those deals before claiming an higher version. But obviously I think it's more the duration during this quarter that leads to that smaller amount compared to last year.

[Veronique Meertens, Kempen]

Okay, thank you. That's, that's very clear. And what, what do you see in terms of incentive rates, on new rates on new Latins?

[Samuel Diesbach]

They are pretty flat.

[Veronique Meertens, Kempen]

Okay. That's clear. Thank you very much.

[Operator]

Thank you. We'll move on to our next participant Florent from Oddo BHF. Please go ahead. Your line is open.

[Florent Laroche-Joubert, Oddo BHF]

So hi Beñat, Nicolas and Samuel. I also, thanks for this short presentation. Maybe two questions for me on, on your, this also, would it be possible maybe to give us more clues on who are the type of buyers and do you see this opportunity buyers on your side? What -- how do you qualify today is a wait and see approach in the investment market? So that would be my, my first question.

My second question may be more on the leasing side. I think remember when that at the beginning of the year, you told us that you were maybe expected a double digit uplift for 2023 offices. So is it something that is still expected after this Q1 or maybe you have changed your mind?

[Samuel Diesbach]

Thank you for your questions. Yeah, yeah. On disposal. I think, like you, you saw quarter one figures on investment markets maybe two trends. The, first one is clearly globally, for Paris region a decrease, a significant decrease in the vestment market. So showing that the market has dried a lot, but at the same time you're pretty decent investment volumes downtown Paris.

Long-term equity players still at, at stake, smaller volumes. So obviously it's, it's a more, you know, complex market to read. But again we are opportunistic on our disposal strategy, so we are actively monitoring it. And, and, and we'll see what, what happens later. And, and, and yeah, long-term equity players most of the time.

On the leading side, yes I think we have a drop in, in our reversion during this quarter, but we, we think we will grow that amount, like I said earlier, to what extent, I'm always prudent in what I say, but yes, the, the leasing trends are still favorable. And, and, and again remember that 75% of our portfolio is in Paris 85%, if we include Boulogne-Issy. So the, that's why I was saying on, on the median term, the duration should, improve our average reversion.

[Florent Laroche-Joubert, Oddo BHF]

Okay. Okay, thank you.

[Operator]

All right. Thank you once [Operator instructions]. We'll move on to our next participant, Allison Sun from Bank of America. Please go ahead. Your line is open.

[Allison Sun, Bank of America Merrill Lynch]

Hi good morning. Congratulations on this good result. Just one question from my side, and it's more a big picture question. So I just wonder if you can comment a little bit on the take up or the investment sentiment you have seen in the first quarter of the general market because I know Justina is still doing a good job, but based on some broker report, where we're seeing quite dramatic falling down in both the Latin take up and also the investment volume. Do you feel that's the sentiment right now? Thank you.

[Beñat Ortega, Chief Executive Officer]

Thank you, Allison. The yeah, the sentiment on the broker side is not good, as the volumes are lower and, and they live on, on volume, on stock. We, we were expecting a just now decrease in the, in the big pictures of, of take-up as, and like we said, 50% of the demand was concentrated on Paris, while it was only 10% of the available space, so mechanically leasing volumes were expected, at least on our side, to decrease.

The, demand is still there. Companies are taking more time to decide but we still see some, we still see activity demand on where we are operating. But obviously, yeah, the sentiment is, is a more a smaller leasing volume for the whole Paris region. But I think, like, like we said there is a clear polarization of, of that market. And I think same, same apply to the investment market, which is quiet, like I said with volumes which are smaller, but then again, quite diverse situations across the whole Paris region. So, so yeah, it's, a more complex market to read, but I think leasing demand is driving both take-up and, and investment volumes.

[Allison Sun, Bank of America Merrill Lynch]

Oh, okay. Thank you.

[Samuel Diesbach]

Yeah. Ali, maybe to add few things, few figures on the global market, but look at the available supply on the market for offices per areas, and you will see that in Paris City, the supply is even further decreased in Q1 versus end 2022 in the central location. So it means that even if the takeout decreased, that's largely due partly to a lack of supply. And the supply is even decreasing further in the more central areas of the Paris region. So Paris City, and as Beñat was saying, if you, if you split the some part in the peripheral locations in terms of investments, you will see that figures are totally different showing the polarization investment market as well.

[Allison Sun, Bank of America Merrill Lynch]

Thank you, Samuel.

[Operator]

Thank you. We'll move on to our next participant, Jonathan Kownator from Goldman Sachs. Please go ahead. Your line is open.

[Jonathan Kownator, Goldman Sachs]

Good morning. Thank you for taking my questions. Following up, perhaps from the previous question, how do, how can we think about the evaluation of your occupancy rate? I mean, obviously you've, you've made great progress, you've highlighted in particular towards the end of last year. Were you main leading challenges at this stage? And do you think that occupancy rate will continue to go up or is it going to stabilize? Or on the contrary, are you expecting to being gracious like during 2023? Thank you.

[Samuel Diesbach]

Hi Jonathan. Thank you for the question. In terms of occupancy, yes, we have reached again historical high levels of occupancy. So we are not expecting to further increase significantly, but we don't see neither strong challenges that drive occupancy rates significantly down. So, so we, we more see a flattish during this year. But obviously it's, it's not, a target. We try to grow it, but we don't see materially it growing.

[Jonathan Kownator, Goldman Sachs]

Okay, fair enough. And, and for indexation, I assume it's going to continue growing a bit, is that a fair assumption?

[Nicolass Dutreuil, Deputy CEO in charge of Finance]

Yeah, it's, a complex calculation to see the impact on cash-flow growth from indexation as, as we discussed a lot. But yeah, so indexation is flowing in into our cash flow. And then we have to look at, you know, all the base effects because we are passing, I inflate indexation since the end of last year. And it will very much depend on, on how the inflation flows, but it looks like, yes, inflation still is still pretty high in line also with interest rate, which are still pretty high. But we, we should see indexation for quite a while. Yes,

[Samuel Diesbach]

And that's for the, like, for like, but, but in addition as that, you know, that the other driver we have on, on, on the top line is is a development pipeline as you've seen it has contributing positively to rent for Q1. And, and of course, as we said, it should continue on this trend for the future.

[Jonathan Kownator, Goldman Sachs]

Perfect. Thank you.

[Operator]

Thank you. Appear, there is no further questions at this time. I'd like to turn the conference back to the host for any additional or closing remarks. Thank you.

[Samuel Diesbach]

So thank you for everything as you know all the team remains available if you have any further questions coming in the days ahead. Enjoy the rest of your day and hopefully we're going to meet soon and for next publication by the end of July. Have a day. Bye.

[Operator]

Thank you for joining today's call. You may now disconnect.