Resilience and adaptability in a changing
world
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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version on businesswire.com: https://www.businesswire.com/news/home/20201021005830/en/
GECINA CONTACTS Financial communications Samuel
Henry-Diesbach Tel: +33 (0)1 40 40 52 22
samuelhenry-diesbach@gecina.fr Virginie Sterling Tel: +33 (0)1 40
40 62 48 virginiesterling@gecina.fr Press relations Julien
Landfried Tel: +33 (0)1 40 40 65 74 julienlandfried@gecina.fr
Armelle Miclo Tel: +33 (0)1 40 40 51 98 armellemiclo@gecina.fr
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