Gecina – Business at September 30, 2020

Nachrichtenquelle: Business Wire (engl.)
21.10.2020, 18:59  |  116   |   |   

Regulatory News:

Gecina (Paris:GFC):

Solid operating performance

  • Gross rental income up +2.7% like-for-like (+3.5% for offices), with +5% including the assets delivered recently following a redevelopment operation (+6% for offices)
  • Contraction of -0.7% on a current basis linked to the realignment around central sectors and the redevelopments launched
  • 96% of rent for the first nine months already collected, with 98% including the deferrals negotiated
  • Fourth quarter in line with previous years for collection levels
  • Positive headline reversion achieved since the start of the year with around +15%

Group’s core markets resilient for the most central office sectors and residential assets

  • €473m of sales completed and under preliminary agreements since the start of the year, achieving an average premium of around +5% versus the latest appraisal values
  • Investment market: trends still supportive for residential and central sector offices
  • Rental market: market rents that are not weakening, particularly at the heart of Paris City, despite longer letting timeframes
  • Return to the office: already a reality in Paris, compared with other major cities like London and New York

Resilience and flexibility of the Group’s model

  • Healthy balance sheet at end-June: LTV including duties of 33%, average debt maturity of 7.1 years,
    €4.4bn of undrawn credit lines
  • Continued transformation and deployment of YouFirst to support Gecina’s agility and the responsiveness of its teams
  • Creation of a dedicated subsidiary and partnership for residential, supporting agility and making it possible to capitalize on development opportunities

Residential strategy continuing to be rolled out

  • Partnership agreement signed with Nexity to build around 4,000 homes for middle-class households in the Paris Region and major regional hubs across France

Gecina raises its recurrent net income guidance for 2020 to €5.70 per share, at the top end of the range announced in July

  • Improvement in visibility for the rest of 2020, enabling the Group to clarify its recurrent net income targets for 2020
  • Gecina now expects recurrent net income (Group share) per share for 2020 to be at the top end of the range reported in July

Gross rental income

Sep 30, 2019

Sep 30, 2020

Change (%)

In million euros

 

 

Current basis

Like-for-like

Offices

407.2

404.2

-0.7%

+3.5%

Traditional residential

79.2

79.3

+0.2%

+0.9%

Student residences

14.3

13.4

-6.0%

-6.7%

Total gross rental income

500.6

496.9

-0.7%

+2.7%

Solid performance for the first nine months of 2020 despite the uncertainty linked to the health crisis, with a third quarter reflecting a normalization of rent collection

96% of rent for the first nine months already collected (98% including rent deferrals with the majority to be paid over the coming weeks)

For offices, 96% of rents (including ground-floor retail units) have been collected, benefiting in particular from progress with the collection of outstanding second-quarter rent.

For the remaining 4% not collected to date, nearly half corresponds to deferred payments granted to tenants, while the rest of the amounts are primarily subject to rent recovery proceedings and a limited level of rent has been written off (c. 0.4%).

This performance confirms the trend for a normalization of rent recovery rates, underway since the second quarter. It also reflects the sound financial position of Gecina’s tenants, as confirmed by the classification with the Dun & Bradstreet ratings, which found that 86% of our tenants at end-June belonged to the top two categories (very low risk or low risk).

To date, the collection rate for fourth-quarter rent is more advanced than in previous quarters and, overall, is consistent with levels observed for the same period last year.

Rental income up +2.7% like-for-like, with -0.7% on a current basis

Gross rental income came to €496.9m at end-September, with a slight contraction of -0.7% linked primarily to a solid like-for-like performance and the impact of acquisitions and deliveries from the development project pipeline offsetting almost all the impact of sales and transfers of assets with strong potential to the pipeline for redevelopment.

The like-for-like performance shows +2.7% growth, significantly outperforming indexation, thanks in part to positive rental reversion, as well as the letting of vacant buildings on the like-for-like scope.

Gross rental income

Sep 30, 2019

 

Sep 30, 2020

 

Change (%)

In million euros

 

 

 

 

Current basis

 

Like-for-like

Offices

407.2

 

404.2

 

-0.7%

 

+3.5%

Traditional residential

79.2

 

79.3

 

+0.2%

 

+0.9%

Student residences

14.3

 

13.4

 

-6.0%

 

-6.7%

Total gross rental income

500.6

 

496.9

 

-0.7%

 

+2.7%

On a current basis, organic growth and the contribution by the assets delivered in 2019 and early 2020 globally offset the loss of rent resulting from the sales completed during this same period and the transfers of buildings with strong value creation potential to the pipeline.

The slight contraction of -0.7% reflects the impact of organic growth (+€11m) and acquisitions, combined with the delivery of assets from the development pipeline (+€23m), offsetting the loss of rent resulting from sales of non-strategic assets since the beginning of 2019 (-€25m of gross rental income) and the buildings transferred to the pipeline for redevelopment (-€12m).

This performance benefited from like-for-like growth of +2.7%, factoring in +1.7% indexation and a reduction in the Group’s vacancy rate for the like-for-like scope, as well as the positive reversion achieved across all activities.

However, the current economic context could lead to a contraction in the contribution to like-for-like growth from indexation in particular over the coming half-year periods, while the effects of the sales and transfers of assets to the pipeline will continue to impact rental income in 2021.

Note that this like-for-like performance does not include the impact of the letting of assets delivered recently following redevelopment operations. Including these assets, this rate is close to +5%.

Offices: trends still positive in the most central sectors

Gross rental income - Offices

Sep 30, 2019

 

Sep 30, 2020

 

Change (%)

In million euros

 

 

 

 

Current basis

 

Like-for-like

Offices

407.2

 

404.2

 

-0.7%

 

+3.5%

Paris City

215.7

 

218.7

 

+1.4%

 

+2.5%

- Paris CBD & 5-6-7 - Offices

105.6

 

107.5

 

+1.8%

 

+2.5%

- Paris CBD & 5-6-7 - Retail

27.3

 

26.2

 

-4.1%

 

-0.5%

- Paris - Other

82.7

 

85.0

 

+2.7%

 

+3.8%

Western Crescent - La Défense

135.2

 

139.4

 

+3.1%

 

+5.8%

Paris Region - Other

40.1

 

32.3

 

-19.4%

 

+4.7%

Other French regions / International

16.2

 

13.8

 

-14.7%

 

-2.7%

Like-for-like, office rental income is up +3.5%.

This increase reflects +1.8% indexation, as well as the positive reversion achieved (+0.5%), particularly in Paris’ Central Business District (+1.3%), and a reduction in the vacancy rate, primarily in the Western Crescent and the rest of the Paris Region, particularly with further space let in the Be Issy building (Issy-les-Moulineaux), Portes de La Défense (Colombes) and Octant-Sextant (Levallois).

For the retail portfolio in Paris’ Central Business District (CBD), rental income is down -0.5% like-for-like, impacted by the cancellation of second-quarter rent for the very small businesses operating in sectors shut down during the lockdown period.

During the first nine months of 2020, the most central sectors once again benefited from a stronger “reversion” effect than the other sectors. This outperformance can be seen for the first half of the year, as well as the third quarter. For instance, the leases signed over the period show a headline reversion rate of around +15%, with +25% for the CBD and Paris 5/6/7 and +16% for the rest of Paris City, compared with a lower or even negative rate for the other sectors.

For 2020, the performance levels recorded, particularly on the Paris Region’s most central markets, enable Gecina to confirm expected office rental income growth of around +3% like-for-like, despite the caution required faced with the effects of the economic crisis resulting from the Covid-19 health shock.

On a current basis, rental income from offices is down -0.7%, reflecting:

- The impact of sales of non-strategic assets in 2019 and early 2020 (-€25m, including the sales of the Le Valmy building in Montreuil, Park Azur in Montrouge, Leclerc in Neuilly and Foy in Paris),

- The transfer of buildings with strong value creation potential to the pipeline with a view to being redeveloped shortly (-€12m),

- The impact of the seven buildings delivered (+€15m), including six in 2019 (Ibox, MAP, Penthemont 2, Friedland and Pyramide in Paris, and Carré Michelet in La Défense) and the delivery of the Rue de Madrid building in Paris’ CBD during the third quarter of 2020,

- The like-for-like performance detailed above,

- The impact of the acquisitions made (+€7m), primarily including Carreau de Neuilly.

Overall, the positive like-for-like trends seen in Paris City are being driven mainly by the impact of rental reversion illustrating the good level of office markets at the heart of Paris, combined with a still high level of indexation.

YouFirst Residence (traditional residential): visibility and resilience

Like-for-like, rental income from traditional residential properties is up +0.9%.

This performance takes into account indexation of +1.2%, as well as the positive reversion achieved (+0.4%) on the apartments relet since the start of the year at around +7% higher than the previous tenant’s rent on average. The change in the occupancy rate is not significant, but represents a negative contribution of -0.4% due to the health crisis, which temporarily increased the reletting timeframe for vacant apartments.

On a current basis, rental income shows a slight increase, up +0.2% to €79.3m, with organic trends offsetting the impacts of the ongoing vacant unit-based sales program.

YouFirst Campus (student residences): solid although facing a challenge with the virus

Rental income from student residences is down -6% on a current basis and -6.7% like-for-like, reflecting the temporary impact of the health crisis in the second and third quarters through the closure of schools and universities, resulting in the departure of certain tenants.

The like-for-like performance for the first nine months of the year benefited from positive indexation (+0.8%) and a reversion rate that was still positive although low (+0.1%), but was adversely affected by a Covid-19 effect (-7.7%), linked primarily to the reduced occupancy rates, following the departure of international tenants in particular.

The start of the new academic year in September 2020 saw a particularly satisfactory occupancy rate, with 95% of rooms let (spot occupancy rate at end-September and forecast for end-October 2020), with very similar levels to the start of the academic year in September 2019, which points to an encouraging situation for the whole of the 2020-2021 academic year.

This performance reflects Gecina’s ability to replace international students (particularly from outside the Schengen Area) who are not yet able to travel internationally again with predominantly French students. It is also benefiting from YouFirst Campus’ growing independence from external letting platforms, making it possible to manage occupancy with a finer grained approach and to network the Group’s student residences.

Core markets continuing to show positive trends for the Group’s preferred sectors

Office rental market with volumes contracting, but market rents confirmed in Paris

Take-up at end-September 2020 is down by almost -46% compared with the first nine months of 2019. However, this marked contraction masks a significant upturn in rental activity in September, with strong growth in the number of visits and expressions of interest in the properties to be let by the Group.

Nevertheless, this slowdown in the volume of transactions reflects the longer timeframes for decisions to be made and a wait-and-see attitude in a context of economic uncertainty for many tenants, preferring to keep their current premises rather than moving.

However, levels of available supply are still extremely limited, although they show a slight increase, at the heart of Paris City, where the vacancy rate is still persistently low (2.9%). As a result, market rents in Paris City continue to show slightly positive trends, reflecting the solidity and resilience of the most central office markets despite the context. These trends confirm a significant level of reversion potential at the heart of the CBD and in the rest of Paris City in markets that are continuing to move in a positive direction for landlords.

For reference, more than 70% of Gecina’s office portfolio is located in Paris or Neuilly-sur-Seine/Levallois, where the scarcity of available assets and their attractive central positioning will ensure a strong level of resilience for the coming half-year periods.

For the peripheral areas where Gecina has scaled back its exposure considerably since 2015, rental values are still relatively stable. However, the situation there is slightly less favorable than in the heart of Paris, with a slight increase in tenant incentives following a small shift in power for relationships between landlords and tenants where the vacancy rate was already high, confirming the negative reversion risk for certain sectors which Gecina was already anticipating at the end of 2019.

This change in the market is not specifically linked to the Covid-19 shock, but factors in the manifestation and acceleration of an expected trend, which had previously led Gecina to ramp up its disposals in peripheral areas in the last few years in order to further strengthen its portfolio’s exposure to the most central sectors, and particularly Paris City and Neuilly-sur-Seine.

The rental market therefore shows a form of polarization, with an outlook that is still positive for Gecina’s preferred central sectors and a decline in visibility for secondary areas.

Illustrating this, more than 75% of rent payments due for the Group by end-2021 concern buildings located in Paris City and Neuilly-sur-Seine, or assets that will be vacated to enable buildings with strong value creation potential to be redeveloped.

Investment market still solid, particularly in the most central sectors

Although the volumes invested in commercial real estate in the Paris Region are down compared with 2019, this does not reflect a move away by investors, whose appetite for real estate remains strong. Above all, this downturn reflects an exceptional year for investments in 2019, with close to €30bn for the Paris Region1. Moreover, the volumes invested since the start of the year are still nearly 7% higher than the 10-year average, down slightly from 2018, but higher than 2017, even though these two years were already particularly dynamic.

In a persistently low rate environment, appetite for property is being strengthened by a sustainable risk premium. Once again, investors’ appetite for this asset class is reflected in a flight to safety as they prefer segments with strong levels of resilience, including quality offices located in the most central areas, and of course residential assets. This growing selectivity among investors could confirm a polarization of the markets, supporting relatively favorable trends for value growth in Gecina’s preferred segments.

The market data reported by Immostat for the Paris Region at end-September 2020 therefore shows value growth for properties in Paris City, with values climbing by nearly +2% to +5% in three months, while the other sectors seem to be trending down (-2% for the Western Crescent and La Défense, -3% for the Inner Rim and -7% for the Outer Rim). Although these data must be considered with caution, they clearly indicate contrasting trends between the various sectors, as well as positive trends for Gecina’s preferred sectors.

Major transactions have been finalized in the last few weeks, confirming domestic and international investors’ appetite for office real estate in the Paris Region and the good level of the most central markets.

Some iconic operations have been completed in the last few weeks, including the sales of the Toko project in Paris’ 17th arrondissement and a building occupied by Adidas in the 9th arrondissement with average capitalization rates of below 3%, as well as the sale of the One Monceau building and the 144 Rivoli and 173 Haussmann buildings in Paris’ Central Business District. These five transactions on their own represent almost €1bn, while other transactions are currently being finalized at the heart of Paris City.

Outside of the capital, some major deals have also been completed for iconic buildings and/or buildings with strong rental visibility in the Western Crescent’s most central sectors in particular, including part of the Citylights complex in Boulogne-Billancourt or even the Shift building in Issy-les-Moulineaux. On their own, these two transactions represent an investment volume of over €1.1bn.

Return to the office: already a reality in Paris, ahead of other major cities

At end-September, public data (source: Google Mobility Workplaces) indicate that traffic levels in Paris workplaces were only -34% less than a normalized situation, whereas they are still down by almost -58% in New York (Manhattan) and -63% in London.

This indication that employees are “returning to the office” for companies whose premises are located in Paris is consistent with the Group’s indicative estimates obtained by surveying a sample of clients and footfall levels in company restaurants across its buildings.

Moreover, according to Apple (source: Apple Mobility Transit), the number of people using public transport at September 30 was slightly higher than at the start of the year in Paris, while levels are still down -24% in London and -49% in New York.

Residential market: proving its resilience

The residential market in France proved its resilience during the first nine months of the year, despite an economic context disrupted by the coronavirus crisis. Market rents continued to appreciate in the second quarter, although the pace of growth decreased slightly.

However, average sales prices have increased significantly. The Chambre des Notaires de Paris reports that Parisian apartments increased in value by around +8% year-on-year at end-June, with +6.6% growth in the Paris Region for existing properties.

In a study published in October 2020, BNP Paribas Real Estate found that investment volumes are down for the year, linked in part to the temporary suspension of discussions with institutional investors during the lockdown period, as well as a lack of available supply for sale. The broker estimates that this asset class is becoming a true safe haven for investors, indicating that “prime rates are likely to drop over the coming months in view of investors’ appetite for this resilient asset class and the scarcity of supply”.

Group occupancy rate still high

The average financial occupancy rate at end-September 2020 was 93.2%, stable compared with June 30, 2020 and down slightly since end-2019. Note that the average financial occupancy rate reported here is on a current basis. Like-for-like, it is up +10bp year-on-year to 95.2%.

The -120bp year-on-year contraction is linked primarily to the delivery of partially vacant buildings, on which certain leases that have already been signed have not yet come into effect (including Carré Michelet), and the sale of fully occupied buildings (Park Azur in Montrouge, Le Valmy in Montreuil), offsetting the progress made with letting partially vacant buildings during the first nine months of 2019 (e.g. Be Issy and Octant-Sextant), as well as the acquisition of almost fully occupied buildings (including Carreau de Neuilly). As a result, the occupancy rate for the office portfolio is down year-on-year to 93.1%, although stable overall over three or six months.

For the student residence portfolio, the financial occupancy rate is down -6.4pts year-on-year to 79.0%, reflecting the impact of the Covid-19 crisis and the departure of international students in particular. However, the spot occupancy rate for student residences at the start of the new academic year in September 2020 was close to usual occupancy for this period of the year, with around 95%.

For the traditional residential portfolio, the financial occupancy rate is down slightly to 97.1%, linked to the slowdown in letting processes during the lockdown period.

Average financial occupancy rate (current basis)

Sep 30, 2019

Dec 31, 2019

Mar 31, 2020

Jun 30, 2020

Sep 30, 2020

Offices

94.2%

93.8%

93.0%

93.2%

93.1%

Traditional residential

97.7%

97.6%

97.7%

97.6%

97.1%

Student residences

85.4%

88.0%

93.9%

82.1%

79.0%

Group total

94.4%

94.1%

93.6%

93.4%

93.2%

Letting activity down, but confirming rental values for the most central sectors

While the volume of rental transactions is significantly lower than 2019, naturally impacted by the lockdown period and the longer timeframes for companies to take decisions against a backdrop of economic uncertainty, letting activity has picked up again significantly since September, particularly in terms of the number of visits and expressions of interest for a certain number of properties that are currently being let.

Over 87,000 sq.m let since the start of 2020

Since the start of 2020, Gecina has let, relet or renegotiated over 87,000 sq.m, representing almost €61m of annualized headline rental income.

The performance levels achieved once again show a clear rental outperformance for the Paris Region’s most central sectors and especially Paris City, despite the uncertainty linked to the potential consequences of the health crisis.

Headline reversion on transactions signed during the first nine months of the year (relettings, renewals and renegotiations) came to an average of over +15%, driven up by transactions in the heart of Paris, particularly on relettings (close to +30% in the CBD and +20% for the rest of the city). Reversion came in significantly positive for lease renewals at the heart of Paris, but lower or even negative for the Paris Region’s peripheral sectors.

These performance levels, achieved through tenant rotations, confirm the Group’s strategic focus on the most central sectors and especially the heart of Paris City.

€473m of sales completed or under preliminary agreements since the start of the year, with a premium of nearly +5% versus the latest appraisal values

Since the start of the year, Gecina has sold or secured sales for €473m (with €356m already completed by end-September), recording a premium of around +5% versus the latest appraisal values, with an average loss of rental income of around 3.3%.

More than half of the sales completed at end-September correspond to the sale of the Le Valmy building, located on the border of Paris and the city of Montreuil in Eastern Paris, while the remaining sales primarily concerned office assets from the previous Eurosic scope that were still to be divested, in Paris and the Paris Region.

Strategy taking shape with a growing residential ambition

On October 1, Gecina and Nexity signed a strategic partnership agreement with a view to developing up to 4,000 new housing units over four years in Paris, the Paris Region and major urban hubs across France on behalf of Gecina’s residential subsidiary.

Under this partnership, a joint co-development company will be set up, with 60% owned by Nexity and 40% by Gecina. By identifying opportunities and launching operations in line with the ambitions and requirements of both partners, each group will be able to further strengthen its expertise, giving Gecina the possibility to get involved from the development stage alongside Nexity. The buildings developed in this way will be acquired by Gecina’s residential subsidiary based on conditions that will be defined between the two parties for each building proposed.

Following the creation of the subsidiary grouping together all of the Group’s traditional residential assets – YouFirst Residence – during the first half of the year, Gecina will be able to benefit from a second complementary non-exclusive tool supporting its ambition to grow the size of its residential portfolio in order to be able to benefit from scale effects.

Other information for the third quarter of 2020

Settlement of a tax dispute from 2003 in favor of Gecina

The French State Council then the Administrative Court of Appeal in Versailles ruled in favor of Gecina concerning the conditions for calculating its 2003 corporate income tax before the SIIC real estate investment trust tax system came into force.

Approximately €14m will therefore be returned to Gecina, recognized in the accounts over the second half of 2020 (outside of recurrent net income).

Unfavorable decision for Gecina concerning a dispute with Abanca: the Group intends to appeal

In connection with the claim filed by Abanca in Madrid in 2015, calling for Gecina to pay €48.7m in relation to guarantee letters of engagement allegedly signed in 2008 and 2009 by Mr Joaquín Rivero (Gecina’s former executive), the Madrid Court of Appeal confirmed the ruling of the Court of First Instance of Madrid, which sentenced Gecina to pay this sum and interest for late payment to Abanca. Following this ruling, a provision of around €60m (including interest for late payment) will be recorded in the accounts - outside of recurrent net income - in the second half of 2020.

Gecina considers that this situation is the result of Joaquín Rivero’s fraudulent acts and disputes the Spanish courts’ decision. The Group is therefore appealing against this ruling in Spain and is vigorously pursuing its actions initiated in France, for both civil and criminal proceedings, in connection with this case.

Arlette Dome: all residual risks definitively cleared

For reference, and as detailed in the Universal Registration Document (URD), in 2012 Gecina discovered the existence of four promissory notes issued fraudulently between 2007 and 2009 in Gecina’s name, presented by the Spanish company Arlette Dome to Banco de Valencia to guarantee loans granted by this bank. At the time, Gecina filed a complaint with the Spanish courts, and in January 2020 they officially acknowledged that these promissory notes were fraudulent, discharging Gecina from any liability.

All of the residual risks have therefore been fully and definitively cleared.

Gecina raises its guidance for 2020

The improvement in the Group’s visibility against the backdrop of a disrupted year in 2020, and the confirmation of Gecina’s operational adaptability, resilience and financial flexibility enable it to raise its recurrent net income guidance for 2020.

Gecina now expects recurrent net income per share of €5.70 for 2020, raising its guidance and positioning it at the top end of the range reported in July when it released its half-year earnings, which initially expected recurrent net income (Group share) per share of between €5.55 and €5.70.

The increase in its 2020 guidance reflects the solid performance achieved since the start of the year and the good level of real estate markets in the most central sectors, as well as rent recovery, which is now consistent with usual standards overall, while the interest rate environment is expected to continue to be favorable for some time.

About Gecina

As a specialist for centrality and uses, Gecina operates innovative and sustainable living spaces. The Group owns, manages and develops Europe’s leading office portfolio, with nearly 97% located in the Paris Region, and a portfolio of residential assets and student residences, with over 9,000 apartments. These portfolios are valued at 20 billion euros at end-June 2020.

Gecina has firmly established its focus on innovation and its human approach at the heart of its strategy to create value and deliver on its purpose: “Empowering shared human experiences at the heart of our sustainable spaces”. For our 100,000 clients, this ambition is supported by our client-centric brand YouFirst. It is also positioned at the heart of UtilesEnsemble, our label setting out our commitment to the environment, to people and to the quality of life in cities.

Gecina is a French real estate investment trust (SIIC) listed on Euronext Paris, and is part of the SBF 120, CAC Next 20, CAC Large 60, Euronext 100, FTSE4Good, DJSI Europe and World, Stoxx Global ESG Leaders and Vigeo indices. In 2020, Gecina was awarded the maximum A rating in the CDP climate change rankings.

www.gecina.fr

1 Highest level to date since Immostat tracking (2004)

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Gecina – Business at September 30, 2020 Regulatory News: Gecina (Paris:GFC): Solid operating performance Gross rental income up +2.7% like-for-like (+3.5% for offices), with +5% including the assets delivered recently following a redevelopment operation (+6% for offices) Contraction of …

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