Gecina – Earnings at December 31, 2020
Empowering shared human experiences at the heart of our sustainable spaces
- Like-for-like rental income growth: +3.0% for offices (+2.3% overall)
- Recurrent net income per share: €5.72
- EPRA Net Tangible Assets (NTA) of €170.1 per share (-1.7% year-on-year)
- Ongoing portfolio rationalization, with €539m of sales secured
- LTV of 33.6%(including duties), -40bp year-on-year
- Mobilization to support customers and societal commitments
PARIS–(BUSINESS WIRE)–Regulatory News:
Gecina (Paris:GFC):
Resilient model withstanding the health shock
- Gecina’s markets and operational resilience
– Close to 99% of rent collected in 2020, normalized collection for the first quarter of 2021
– Rents signed up in 2020: +2% higher than pre-crisis market rents (market rental values)
– Reversion potential still positive (+6%), particularly at the heart of Paris (+20%)
– Lettings down, but significant upturn in commercial expressions of interest since September 2020
– Lease signed in the last few days for 11,600 sq.m of Carré Michelet in La Défense
– Portfolio value stable over the year (-0.1% like-for-like)
Strategic choices confirmed faced with the uncertainty
- Centrality continuing to outperform
– Outperformance in terms of rent and capital growth in the most central areas of scarcity
- Healthy and flexible financial structure further optimized
– LTV including duties down -40bp to 33.6%, average debt maturity of 7.1 years
– Average cost of debt down to 1.3% (1.0% for the cost of drawn debt)
- Residential strategy continuing to deliver performance, while preparing for the future
– +7.2% reversion achieved on tenant rotations in 2020
– Subsidiarization of the portfolio in H1 and partnership with Nexity to accelerate the portfolio’s development
- Polarization of investment markets in Gecina’s strategic areas
– Value growth for central Paris offices (+2.7% over 12 months) and for residential (+6.7% over 12 months)
– Value adjustment for offices in more peripheral sectors (-7.6% outside of Paris City)
Proactive anticipation and transformation strategy
- 162,000 sq.m of rental transactions with a “bespoke” approach depending on the areas
– Reversion potential captured in Paris City (+25% in the CBD 5,6,7, +12% for the rest of Paris)
– Firm maturity of leases extended outside of Paris and Neuilly (to 5.3 years vs 4.6 years at end-2019)
- Acceleration underway with the digitalization of our activities and the deployment of our client-centric brand YouFirst
– Client portals / web app, operational CRM, virtual visits, brokers portal, etc. to improve our competitive positioning, help build loyalty among our clients, strengthen commercial performance, differentiate our rental offering and optimize our buildings’ operating expenditure and energy bills
- Ongoing portfolio rationalization
– €539m of sales secured and €474m completed with an average premium versus the latest free appraisal values of +4.7%
– Our Office portfolio in central sectors further strengthened (66% in Paris City at end-2020)
- Pipeline of 23 projects to be delivered by 2024
– Concentrated in the Paris Region’s most central sectors, with 82% in Paris City or Neuilly-sur-Seine
– Expected yield on cost of around 5.3%, supporting future value creation
– €120m to €130m of additional IFRS rental income to come from the pipeline that is already committed or to be committed shortly, as well as work underway to market space still to be let for the 2019 and 2020 deliveries
CSR commitments reflected in concrete results
– For our assets: office CO² emissions reduced by -50% over the last 12 years (i.e. 13.9 tons/sq.m/year), exceeding the 2020 targets
– For our liabilities: 44% responsible bank lines
– Environmental performance criterion incorporated into long-term incentive plans
– Performance recognized with leading sustainability ratings, positioning Gecina as one of the top-performing companies in its industry (GRESB 92/100, MSCI AAA, Sustainalytics 8,8, ISS B- and CDP A list)
Mobilization to support customers and societal commitments
- Mobilization to support tenants, suppliers and people affected by the crisis
– Rent waived in the second and fourth quarters for very small businesses and certain SMEs operating in sectors that were ordered to shut down, rent deferrals and monthly instalments offered for nearly 5% of the annual rental base for offices
– Payment schedules maintained for suppliers
– Vacant student residences made available to healthcare workers and women victims of domestic violence
Stable 2020 dividend proposed at the General Meeting
- €5.30 per share for 2020 to be paid in cash
– Dividend yield on the share price1 of around 4.5%
– Payment of an interim dividend of €2.65 per share at early March and payment of the €2.65 per share balance in July
2021: a transition year
- Following the impact of the sales completed in 2020 and the assets with strong value creation potential freed up for redevelopment, a slowdown in indexation in 2021 and extended letting timeframes, recurrent net income (Group share) per share is expected to contract in 2021 to around €5.3 per share2.
- Over the longer term, the projects from the “committed” and “to be committed” (controlled and certain) pipeline and the normalization of the lettings rate for the assets delivered in 2019 and 2020 are expected to generate €120m to €130m of additional annualized rental income (IFRS), thanks exclusively to these internal dynamics developed by the Group
Key figures
| In million euros | Dec 2019 | Dec 2020 | Change (%) | Like-for-like | ||
| Offices | 548 | 534 | -2.7% | +3.0% | ||
| Traditional residential | 106 | 106 | +0.3% | +0.9% | ||
| Student residences (Campus) | 20 | 18 | -6.3% | -6.0% | ||
| Gross rental income | 673 | 658 | -2.3% | +2.3% | ||
|
|
|
|
| |||
| Recurrent net income (Group share)3 | 438 | 421 | -4.0% |
| ||
| Per share (€) | 5.95 | 5.72 | -3.9% |
| ||
|
|
|
|
| |||
| LTV (excluding duties) | 36.0% | 35.6% |
|
| ||
| LTV (including duties) | 34.0% | 33.6% |
|
| ||
|
|
|
|
|
| ||
| Portfolio value (€m) | 20,051 | 19,738 | -1.6% | -0.1% | ||
|
|
|
|
|
| ||
| EPRA Net Reinstatement Value (NRV) per share | 190.0 | 187.1 | -1.5% |
| ||
| EPRA Net Tangible Assets (NTA) per share | 173.1 | 170.1 | -1.7% |
| ||
| EPRA Net Disposal Value (NDV) per share | 167.8 | 163.0 | -2.9% |
| ||
| Diluted EPRA NAV per share – previous format | 175.8 | 172.8 | -1.7% |
| ||
|
|
|
|
|
| ||
|
| ||||||
Resilient performance faced with the uncertainty linked to the effects of Covid-19
c.99% of rent for 2020 already collected, with a normalized collection rate for the first quarter of 2021
For offices, 98.5% of rents (including ground-floor retail units) have been collected.
Nearly 0.1% were cancelled as part of the measures put in place by the Group to support very small business tenants operating in sectors that were shut down during the second and fourth quarters.
For the remaining 1.4% of rent not collected to date (representing c.€10m including taxes and charges), with part corresponding to deferred payments granted to tenants, while the rest of the amounts are subject to rent recovery proceedings. The volume of rent still to be collected was significantly reduced during the second half of the year, down from almost €20m at end-June 2020.
Part of these receivables that have not been collected to date justifies the provisions recorded in the accounts at end-December 2020, impacting the Group’s rental margin for €5.5m.
The rent collection rate for the first quarter of 2021 is to date in line with the usual rate observed.
Gecina has also used Dunn & Bradstreet ratings to assess its tenants’ risk profiles. 83% of the Group’s rental base comes from tenants in the top two categories (very low risk or low risk). Although this rate is down slightly since June 30, when it was 86%, logically reflecting the deterioration in the economic environment, this is still high, confirming the Group’s solid rental base.
Rental income up +2.3% like-for-like
Gross rental income for 2020 came to €658m, up +2.3% like-for-like and down -2.3% on a current basis, primarily reflecting the impact of disposals and several projects launched for redevelopment.
The like-for-like performance represents +2.3% (+€12m), outperforming indexation (1.6%) by +0.7pts. This outperformance factors in positive rental reversion across all asset classes, as well as a lower vacancy level.
On a current basis, the -2.3% decrease primarily reflects the impact of sales carried out in 2019 and 2020 (-€32m) and the assets transferred to the pipeline for redevelopment (-€22m), partially offset by like-for-like growth (+€12m), the delivery of nine buildings (+€18m) and the recent acquisitions in Paris and Neuilly (+€8m).
| Gross rental income | 2019 | 2020 | Change (%) | ||
| In million euros |
|
| Current basis | Like-for-like | |
| Offices | 548.2 | 533.6 | -2.7% | +3.0% | |
| Traditional residential | 105.7 | 106.0 | +0.3% | +0.9% | |
| Student residences (Campus) | 19.7 | 18.4 | -6.3% | -6.0% | |
| Total gross rental income | 673.5 | 658.0 | -2.3% | +2.3% | |
Annualized rental income
Annualized rental income (IFRS) came to €627m, down €38m from December 31, 2019. This contraction reflects the impact of the sales completed in 2020 (-€17m) and tenant departures from buildings with strong value creation potential transferred to the pipeline (-€11m), as well as buildings that will not be operational for at least one year due to lighter refurbishment work (-€11m). These departures are partially offset by the impact of new acquisitions and building deliveries (+€9m). The rest of the change is linked to like-for-like growth and the slowdown in activity for student residences.
Note that this annualized rental income includes €18m from assets intended to be vacated shortly for redevelopment (controlled and certain pipeline) and €3m from buildings covered by preliminary sales agreements at end-2020.
At end-2020, the office portfolio’s occupancy rate (spot) was 91.1%, taking into account the slower lettings rate (vs. a “normalized” average financial occupancy rate of 93.8% in 2019).
| Annualized rental income (IFRS) |
| |
| In million euros | Dec-19 | Dec-20 |
| Offices | 539 | 502 |
| Traditional residential | 106 | 106 |
| Student residences (Campus) | 20 | 19 |
| Total | 665 | 627 |
Offices: trends still positive in the most central sectors
Like-for-like, office rental income is up +3.0%.
This increase reflects an improvement in indexation (+1.7%), as well as the positive reversion effects (+0.4%), particularly in Paris’ Central Business District, and a reduction in the vacancy rate, primarily in the Western Crescent, with further space let in the Be Issy and Octant-Sextant buildings.
Restated for the rent waivers granted to very small businesses and SMEs in the second and fourth quarters, the like-for-like growth rate is +3.3%.
Management of the lease expiry schedule in 2020: capturing positive reversion in Paris City, anticipating end dates and extending the term of leases in peripheral areas where reversion is negative
The leases signed4 in 2020 show a headline reversion rate of around +25% for the CBD and Paris 5/6/7, and +12% for the rest of Paris, compared with a negative rate outside of Paris, with -6% for the Western Crescent/La Défense and -15% for the rest of the Paris Region.
Gecina has managed its lease expiry schedule with a proactive approach in the Paris Region’s less central sectors with a focus on extending the firm maturity of leases in peripheral areas. As a result, the slightly negative reversion recorded in 2020 (-2%) is linked primarily to the relative weighting of the renegotiations carried out in secondary sectors, which were higher than usual in 2020, but does not reflect a deterioration in rental conditions.
On a current basis, rental income from offices is down -2.7%.
This change reflects the impact of the non-strategic assets sold in 2019 and 2020 (-€31m), including the sale of the Park Azur building in Montrouge, PM2 in Gennevilliers and Le Valmy in Montreuil, partially offset by the impact of the six buildings delivered in 2019 and two in 2020, with 81% let, located primarily in Paris City, as well as La Défense.
| Gross rental income – Offices | Dec 31, 2019 | Dec 31, 2020 | Change (%) | |
| In million euros |
|
| Current basis | Like-for-like |
| Offices | 548.2 | 533.6 | -2.7% | +3.0% |
| Paris City | 290.6 | 289.8 | -0.3% | +1.9% |
| – Paris CBD & 5-6-7 | 177.8 | 178.2 | +0.2% | +1.6% |
| – Paris CBD & 5-6-7 – Offices | 141.0 | 143.4 | +1.8% | +2.5% |
| – Paris CBD & 5-6-7 – Retail | 36.9 | 34.8 | -5.6% | -1.7% |
| – Paris – Other | 112.8 | 111.6 | -1.1% | +2.5% |
| Western Crescent – La Défense | 182.7 | 182.1 | -0.4% | +5.4% |
| Paris Region – Other | 53.7 | 42.9 | -20.1% | +4.6% |
| Other French regions / International | 21.1 | 18.8 | -11.1% | +0.0% |
YouFirst Residence (traditional residential): resilience confirmed
Like-for-like, rental income from traditional residential properties is up +0.9%.
This performance takes into account indexation of +1.1%, as well as a positive reversion effect (+0.4%) on the apartments relet. The rents for new tenants are around +7.2% higher than the previous tenant’s rent on average since the start of the year. The change in the occupancy rate is not particularly significant, but represents a negative contribution of -0.4%.
On a current basis, rental income shows a slight increase, up +0.3% to €106.0m, with organic trends offsetting the impacts of the ongoing vacant unit-based sales program.
YouFirst Campus (student residences): solid although facing a challenge with Coronavirus
Rental income from student residences is down -6.3% on a current basis and -6.0% like-for-like, reflecting the impact of the health crisis through the closure of universities and graduate schools, resulting in the departure of certain tenants.
The year’s like-for-like performance benefited from positive indexation (+1.0%) and positive reversion (+0.1%), but was adversely affected by a Covid-19 effect on vacancies (-6.3%), linked in particular to the departure of international students. The remaining -0.8% is linked to the commercial measures offered as a result of the health crisis.
Gecina has continued to see encouraging signs: the start of the new academic year in September 2020 recorded a particularly satisfactory occupancy rate, with 95% of rooms let (spot occupancy rate at end-October), 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. For the last quarter of 2020, the average occupancy rate for student residences was nearly 92%, close to the previous year’s level.
While the health context calls for a lot of caution regarding this market segment, 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.
Market trends still favorable in Gecina’s preferred sectors
Investment market still dynamic, particularly in the most central sectors
Although the volumes invested in commercial real estate in the Paris Region are down (-33%) compared with 2019, they are still nearly +16% higher than a long-term average5, reflecting the strong appetite among investors for real estate, particularly in an environment of persistently low rates and therefore sustainable risk premiums, as well as strong risk aversion.
In a flight to safety, investors have therefore focused on segments with strong levels of resilience, including quality offices located in the most central areas, and of course residential assets. In 2020, 44% of the amounts invested in commercial real estate were concentrated in Paris City, compared with just 32% in 2019. This growing selectivity among investors reflects a polarization of the markets, supporting relatively favorable trends for capital value growth in Gecina’s preferred segments.
Office rental market: rental volume contraction and confirmation of rent levels in Paris
Take-up at end-2020 is down by almost -45% compared with 2019. However, this marked contraction masks a significant upturn in rental activity in September and October, with strong growth in expressions of interest in the properties to be let by the Group. On average, the number of expressions of interest received by Gecina from September to December was +16% higher than the situation before the health crisis (over January and February) and +228% higher than the level seen between April and July 2020.
The 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. These elements indicate that the slowdown in transactions is transitional and temporary to some extent, due to the slowdown in decision-making processes and an aversion to moving in the short term, rather than any structural shift in appetite among tenants.
BNPPRE estimates that the decision-making process (timeframe for transformation of demand) was extended by almost +16% in 2020 for premises over 5,000 sq.m, and also indicates that the percentage of cancelled negotiations during the lockdowns was particularly low (12% for the first lockdown between March and May, and just 4% for the second lockdown in October and November), illustrating the resilience of tenant appetite despite a temporary break in the market.
While the volume of rental transactions is significantly lower than 2019 (-45%) due to the sharp slowdown in commercial activity during the lockdown, immediate supply and rental values showed a solid level of resilience, particularly in the Paris Region’s most central sectors. For Paris CBD, the vacancy rate, although mechanically higher as a result of the slowdown in take-up due to the economic environment, is still at a very low level of 3.4%, according to Cushman & Wakefield.
In 2020, headline rental values are not down overall (rents for existing properties up slightly, with +0.5% (source: Immostat over 12 months)), while this trend is driven by central markets and especially high-quality assets at the heart of Paris’ Central Business District. The scarcity of immediate supply and future supply at the heart of Paris is continuing to support the robust trends seen for the central sectors in the last few quarters. In Paris City, rents on new-build properties are trending up in Paris (+5% year-on-year, according to Cushman & Wakefield). However, trends are less marked and even show a slight downturn outside of Paris City (La Défense, Western Crescent, Inner or Outer Rims), particularly for existing properties.
Thanks to this good resilience for central markets, the average reversion potential (spread between current market rents and the rents in place in our portfolio) came to around +6%, primarily due to the portfolio’s most central sectors and particularly Paris’ CBD, where it represents +20%.
The residential market trends are also still particularly favorable for Gecina, in markets affected by a persistent structural residential supply-side shortfall, especially in Paris City, where immediate supply levels are not covering rental demand at the heart of the city.
Return to the office: a reality in Paris, ahead of other major cities
At end-September, public data (source: Google Mobility Workplaces) indicated that traffic levels in Paris workplaces were only -34% less than a normalized situation, whereas they were 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 was consistent with the Group’s indicative estimates obtained by surveying a sample of clients and footfall levels in company restaurants across its buildings.
This return to the office, with Paris seeing a stronger and quicker trend than other major international cities, has also been observed after the second lockdown. At end-January, the weekly average return to the office figure was -31% compared with a “normalized” situation, close to the level from September and October 2020, despite the restrictive health measures currently in force, including a curfew from 6pm.
The trend is less sustained in other countries, and particularly in Greater London, where the return to the office figure was around -55% for the last week of January.
Residential market: proving its resilience
The residential market in France has proven its resilience, despite an economic context disrupted by the coronavirus crisis.
Average sales prices have increased significantly. The Chambre des Notaires de Paris reports that apartments increased in value by around +6% year-on-year at end-November, in both Paris and the Paris Region.
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”.
Robust rental activity subject to a significant slowdown during the second quarter, but still reflecting encouraging prospects for reversion at the heart of the most central sectors
Over 162,000 sq.m let in 2020
Since the start of 2020, Gecina has let, relet or renegotiated over 162,000 sq.m. This volume of transactions compares favorably with previous years, with 165,000 sq.m in 2019, highlighting the intense activity carried out by Gecina’s teams despite the context of a significant slowdown in transactions on the market in 2020.
This volume of transactions does not take into account the leases signed since the start of the year, including a nine-year lease mid-February for 11,600 sq.m of Carré Michelet, delivered in 2019 in La Défense, which will come into effect in the second half of 2022, taking this building’s letting rate up to 83%.
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.
Management of the lease expiry schedule: “bespoke” approach
Capturing positive reversion in Paris, anticipating end dates and extending the term of leases in peripheral areas where reversion is negative
The leases signed in 2020 (relettings, renewals and renegotiations) show a headline reversion rate of around +25% for the CBD and Paris 5/6/7, and +12% for the rest of Paris, compared with a negative rate outside of Paris, with -6% for the Western Crescent/La Défense and -15% for the rest of the Paris Region.
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.
To anticipate the leases scheduled to expire in 2021, the Group secured early renewals on a certain number of leases in secondary sectors and especially the Inner Rim, recording negative reversion potential in exchange for extending the residual term of leases in these areas.
This proactive management of lease expiry schedules in the Paris Region’s less central sectors increased the relative weighting of lettings in these secondary areas (outside of Paris and Neuilly), which represented 56% of rental transactions in 2020 (compared with around 40% of consolidated rental income).
As a result, the slightly negative reversion potential recorded in 2020 (-2%) is linked primarily to the relative weighting of the renegotiations carrie
Contacts
GECINA
Financial communications
Samuel Henry-Diesbach
Tel: +33 (0)1 40 40 52 22
[email protected]
Virginie Sterling
Tel: +33 (0)1 40 40 62 48
[email protected]
Press relations
Julien Landfried
Tel: +33 (0)1 40 40 65 74
[email protected]
Armelle Miclo
Tel: +33 (0)1 40 40 51 98
[email protected]
