Gecina S.A.

Hello. Good morning, everyone.

Thank you for attending today to this 2022 earnings presentation at our head office, even if we have strike today in Paris, or using the webcast for this 2022 earnings. I'm very pleased to talk to you after almost 10 months as the CEO.

And it's a great opportunity to look at everything we've been able to achieve this year. We have been very active both on operations and the balance sheet.

Our performance over '22 has been strong as we have been able to capture the benefits from supporting leasing markets. And our strategy, based on centrality and proactive CSR, bring therefore confidence for the coming year.

Maybe to start with KPIs. We have been able to lease 100,000 square meters let, re-let or renewed in 2022, bringing an average positive reversion of 24% and increased our occupancy by 210 basis points in offices, especially during H2.

As a consequence, gross rents are up by 4.4% on a like-for-like basis versus 3% in H1. Our recurring net result is up by 4.5% as we have also improved our cost base in '22.

This is an achievement in an inflationary environment. NTA is down 2.3%, reflecting the impact of cap rate increase, largely offset by a positive rental effect.

Note that NDV is up by 6% in 12 months. This is the result of our unique hedging policy.

Hedging and liquidity position have been improved by renewing or raising EUR 2.5 billion of debt in 2022. We will propose during the next AGM that our 3 -- EUR 5.3 per share of dividend for 2022 will be paid fully in cash in '23.

And finally, our recurring net result guidance for '23 is planned to be between EUR 5.8 and EUR 5.9 per share and, hence, a 4% to 6% growth. Let's move now to a quick dive into our achievements on offices and resi markets.

Regarding offices in 2022, as I said, we have signed 100,000 new leases -- square meters of new leases in our office portfolio. 75% of those leases are related to renewals or re-lettings with a 24% uplift in rents.

15% of those leases have been signed on vacant assets, therefore, supporting occupancy rate increase. And almost 10% on assets under development, projects delivered in '22 or to be delivered in '23 are now fully let or pre-let.

Clearly, we have accelerated in H2, both on reversion and occupancy, thanks to those high leasing volumes mentioned earlier. The momentum gradually improved along the year.

Uplift captured is now at 24% for the whole year, but was 13% in H1. And occupancy rate at end of '22 is 100 basis points above its level at the end of H1.

As an evidence of solid achievement from Gecina's team and hard work, transaction has beaten new records along the year. In the early 2022, several leases on prime assets in the CBD were signed above EUR 900 per square meter, setting the references for the prime rents at that time.

Midyear, we moved up prime rents around EUR 950; and later in H2, around EUR 1,000. This increase in prime rents is particularly interesting when considering reversionary potential.

Since our track record moved up quicker than indexation in central location, creating a gap with the leases that we have signed some years ago. This very favorable context is supported by a solid market momentum, still driven by the evidence of market polarization in favor of central location.

In Paris City, for example, take-up grew quicker than in the rest of Paris region. And if you combine this strong take-up with the available supply that is decreasing, vacancy is close to all-time low.

Another way to illustrate this polarization is to look at the theoretical time frame to absorb vacant stock. Not only this absorption rate pace is faster in Paris, Neuilly and Boulogne, 85% of Gecina's portfolio than in other places of Paris region, but also this time frame decreased in these locations this past 3 years while it was growing in other locations.

Polarization is thus gradually increasing. On resi, clearly, our operational performance came as well in 2022.

We have improved dramatically our teams, our processes. As a consequence, rental reversion captured in 2022 has reached 10%.

This must be compared to 1.9% in average from 2014 to 2017 and 6.4% in 2018 to 2021. And our resi business offers new business opportunities for the years ahead that we have just started to investigate in 2022.

We plan to better operate resi with our YouFirst brand. With more services and new high-end clientele, our buildings will be more hybrid, like mixing student and young adults, for example, to deliver better growth in occupancy and net rents.

If we continue on our operational performance in 2022, again, KPIs have been positively oriented on energy consumption and CO2 emission, respectively, decreasing by 6% and 18% in 1 year on our office portfolio. Certification rate also grew up to 87%.

And importantly, 100% of our assets under development are targeting the best levels of certifications regarding energy, but also biodiversity, connectivity and well-being. You know our ESG ambition is part of Gecina's DNA.

But we can do more without CapEx. Doing so requires on-live and real data.

Our buildings have been equipped with CO2 and temperature sensors in 2022 to pilot more efficiently our buildings. 100% of our office assets are now equipped.

And for example, already 2,300 sensors have been installed in our residential portfolio. Once implemented, we can now interact more efficiently with tenants on real time and closely monitor actions to save savings and closely monitor our suppliers also.

In this context, we have launched an ambitious plan earlier this year with actions to be implemented in all our buildings. And additionally, we target to fully review in '23, 1 building per week.

We have dedicated a full team, including some suppliers, to review those assets. And the plan, based on the first results we have achieved in 2022 for the first ones, is to achieve 20% energy decrease without CapEx after those in-depth asset reviews.

In 2022, thanks to the operational achievements mentioned before, all cash flow drivers are -- have been positively oriented for Gecina. We have clearly accelerated on like-for-like rental growth, indexation, occupancy rate, reversionary every quarter in 2022 and especially in H2.

Like-for-like rents are, therefore, 4.4% up at the end of 2022, while it was 3% in H1 and minus 0.4% in 2021. And we can be confident that 2023 to follow this improving trend.

When looking at each component of our like-for-like rental growth, indexation contributes to, let's say, only 2.1% in 2022. The impact has been gradually increasing quarter after quarter.

And there is still room to improve, obviously, since the last index for ILAT, so the office index in France, is at 5.9%. Bear in mind that the last index for resi in France is at 3.5%.

Occupancy rate increase also contributes to our like-for-like growth for 1.8% in 2022. Clearly, occupancy rate increased in '22, almost 200 basis points in all our businesses.

We have a positive momentum in rental markets, but we have also quicker processes for letting, supported by digital, not as well that assets delivered in '21 and '22 have been largely let now. And this improvement in occupancy rate should positively contribute to our like-for-like growth in '23.

Reversion contributes to like-for-like growth for 0.5% in '22. As I said, both offices and resi uplifts are very sound.

On top of the like-for-like rental growth, the pipeline contributed positively to the rental income growth in '22. Net of rental loss for assets transferred to pipeline, the net contribution from our pipeline came at plus EUR 5 million.

Bear in mind in that figure that live asset was delivered in H2, and we'll have a stronger impact, obviously, in '23. As you all know, Gecina has been particularly active in terms of disposals between 2018 and 2021 with EUR 3.2 billion of assets sold since then following the acquisition of Eurosic.

And that have contributed to the relatively low LTV that we are benefiting off today. The consequence is, however, that our 2022 earnings were cut from some rents linked to these disposals, around EUR 0.5 billion in 2021.

If we exclude the impact of these disposals achieved in 2021, the remaining earning dynamics is particularly strong, as shown on that chart. It would approach EUR 33 million earning gain, so almost EUR 0.5 per share in 1 year only, driven by like-for-like contribution, the pipeline, but also a very controlled cost base that we have decreased by EUR 6 million despite inflation and a stable cost of debt.

Let's turn now on capital value. Contrary to leasing markets, investment markets have been a bit more quiet in '22, especially in H2.

Important to note, however, that Paris City has been okay, especially recently small assets. I would like to highlight that 70% of our assets within our portfolio in Paris are composed by assets below EUR 100 million, and this gathered more than 100 assets both in offices and resi.

In this context, portfolio valuation are slightly down in 2022. Cap rates have moved upwards by 30 bps in average, leading to a negative effect of 5%.

But on the other hand, positive rental effect logically clearing to partially offset this, 6% in Paris, 4.2% in Neuilly and Boulogne, but negative for other locations like La Défense, as you can see on the slide. NTA is down, therefore, moderately by 2.3% to EUR 1.72 per share.

Even if live portfolio is down, Gecina has created value on the pipeline, not as well that the rise in interest rate, therefore, NAV NDV, so the liquidity value of the company is up by 6% to EUR 183.8 per share, driven by a EUR 14 revaluation per share coming from the mark-to-market of our debt and financial instruments. This last point means that debt management is becoming crucial assets for our company.

During 2022, while debt markets were quite complex to read, we have even improved our positions on that front. Indeed, we have been able to raise EUR 750 million of new unsecured debt at an average fixed cost of 1.36% and an average for 11 years maturity through a bond issued in January, good momentum, but also 2 hybrid solutions with swaps in August '22 when the markets were favorable and private taps on our existing bonds in December and January '23.

I'm pretty sure only very few players in the sector have been able and had the capacity and the opportunity to raise such new debt at these conditions in 2022. New bonds, but also credit lines.

Since the beginning of the year, Gecina secured EUR 1.8 billion of new undrawn credit lines. We have decided to anticipate the renewal of our credit lines expiring in the coming years and have achieved to secure them for 7 years in average at equivalent terms.

Consequently, our liquidity position is particularly strong, as you can see in the slide. Short term and midterm, 90% of our financial expenses are hedged at excellent conditions for 2023 to 2025, not as well, and I think that's unique, that 50% of our bonds are expiring after 2030.

Quick dive into our pipeline. Strong activity in 2022, again, maybe I can highlight the 157 Charles de Gaulle building in Neuilly, fully let, slightly below EUR 700 per square meter.

This is significantly higher than previous prime rents in that location and our expectations. Also l1ve that was delivered in H2 with more than 33,000 square meters let, pre-let by the way, through BCG, Roland Walters -- Robert Walters and a group within the luxury industry.

This asset will therefore contribute to future rental growth in 2023 as it was delivered late in the year. We mentioned in the H1 results that we had launched in Paris CBD a new project, 13,000 square meter asset refurbishment program, 32 Marbeuf, now called Icône.

Construction cost has been fully secured now, below the expected cost, thanks to an excellent collaboration with the construction company. The asset will be delivered in 2025, and we target an uplift of 60% in rents versus the previous tenants.

2023 will be active again in terms of contribution from the pipeline with deliveries of 4 new projects, both in offices and in residential, bringing on an annual basis, so not quarter next year, EUR 15 million with a limited amount of CapEx to be spent on those projects EUR 63 million. And if we look a bit longer term or midterm, between '23 and '25, the committed pipeline could generate additional rents around EUR 80 million while requiring a bit less than EUR 500 million additional CapEx with a good ROI, but also an excellent return on the new CapEx.

To conclude this presentation, we can summarize '22 saying that: one, operational performance has been robust on all KPIs with H2 being even better than H1; two, this should help, obviously for all the reasons mentioned earlier, our performance for '23; three, although we are not immune totally, our proactive debt management built in 2022 and in the previous years is proving to be efficient and provides visibility for '23; and four, pipeline is set to contribute further to our rental growth in '23 onwards. In that context, pretty complex and calling for caution.

But given the visibility provided by our portfolio, our achievements and our balance sheet, we are confident that recurring net income per share should reach the range of EUR 5.80 to EUR 5.90 per share in '23, so growing by between 4.3% to 6.1% versus 2022. This concludes our presentation.

And we are, Nicolas, Samuel and I, now happy to answer the questions you may have.

We have a first question from Florent.

Florent Joubert from ODDO BHF. So I would have 3 questions, so if I may.

So first, on the leasing side, so if we assume similar conditions in 2023 than in 2022, how -- what could we expect in terms of leasing volume or maybe reversion also? So you have a very strong reversion in 2022 and also maybe in terms of evolution of occupancy rate.

So that would be my first question. Second question, so you have a -- you provide some visibility on the cost of debt.

So would it be possible to have a further view on what could be the cost of debt for 2023 and 2024? And maybe the third question on approvals.

So we are in a wait-and-see mode today. So what should be confident on this valuation?

And were you ready to buy assets at these levels and in which locations?

Thank you. Maybe on leasing, I think we can have volatility on the volume.

So I will not that much comment on volume. I think reversion is planned to be pretty okay.

So we'll see if we can achieve the results of this year, but I think we still have room for maneuver on reversion next year. And same on occupancy, historically, we have decreased occupancy in '21, and I think we are reaching up, have in mind that the spot vacancy rate is around 95% at the end of this year, but there is volatility during the year.

But I think we can improve a bit occupancy. So reversion, I think we will be double digit, obviously, we hope; and occupancy, same, a bit better.

On cost of debt, I think we have a slide on that. We are very much covered, 90% of the debt is covered, and therefore, we have just a risk on the remaining on -- and it depends on the curve.

So I will let you do the calculation.

Which is not very complicated to do, in fact, because now that we secured 90% at 1.2%. So you can make your assumptions on the 10% remaining, and you should get a number.

So of course, it could [ increase ] a little bit. But as you've seen, what we've done during the year, we have continued to secure low interest rates on margins.

So of course, we will not get the full impact of today's market condition in the coming years.

And on appraisal within -- I think we have done the job on appraisals. If we just take the example of the La Défense, which is a small portion of our portfolio, but the -- you know that La Défense is pushing a lot our earnings because we have let very recently our assets.

And you see that we are posting a negative evolution of that portfolio. So I think the fact that liquidity is still pretty there on small assets in Paris prime and, like I mentioned, a large portion of our portfolio there is composed by those assets, so I think we have done the job.

It's pretty flat like you see because we have rental growth, but I think we have done the job and your presence have done the job on the cap rate expansion in all -- and looking quite wide the variety of our portfolio. So when you look at each of the locations, I think we have done the job very seriously.

And when it relates to acquisition, I think it's time for agility. So we'll see how the market evolves.

And if we see qualitative assets to improve our portfolio and our earnings trajectory, so nothing specific to comment on that. Agility.

Peter Papadakos, Green Street. Two questions.

Maybe one on the 24% reversion, is it somehow possible to give us a range of what the reversion would be on like an IFRS basis rather than potentially on a headline versus passing or with that CapEx -- significant CapEx being spent? I guess I'm just trying to get to more like a like-for-like reversion as opposed to -- obviously, you're doing asset management and you're achieving 24%, but it will be better for us to understand a little bit of that dynamic.

That's one question. And the second question is a little bit on the residential growth.

On the 1st of October 2020, there was a press release about a joint co-development company. You were going to sort of deliver 4,000 units over the next 4 years.

So with 18 months to go, can you give us an update on how many you've delivered? And what's the update on that front?

On reversion, I think the -- when you look at some transactions that we have signed, for example, in Lisbonne, we have just renewed or re-let the asset without any CapEx. So we can achieve -- and just because of -- like we commented, prime rents have grown faster than indexation.

So naturally, when the assets are well located and of good quality, we can deliver a significant reversion. So I would say it has not been pumped by CapEx, that reversion.

As you know that we have a pipeline, but it's more where, like I said, [ we'll now work ] to get 50%, 60% reversion. But I would say that the like-for-like business is pretty sound where we operate.

It's lower, obviously, outside Paris. That's why we have that average.

But I would say that it's not specifically planned by CapEx. On incentives, it's pretty stable in Paris, pretty higher elsewhere.

So it depends on the momentum the lease you signed the average. So I would say that it's not that much influenced by those 2 elements.

It's really that vacancy is low, and we have a better bargaining power and we are quite demanding. I think what we have tried to prove also there is that each time, because we have a good product but also because we have quite active leasing teams, because we have a spread over the business that allows us to know all the opportunities, because the beauty of having so many assets is that there is no tenant looking for square meters that we don't know is looking for square meters, and that gives a bit an advantage towards some of our peers and to push the rents up.

So that's the first question. On the resi growth, I think -- and you might know that the context in terms of price of cost of debt has changed a bit.

So I think expansion plans, that's why I was not commenting that much on acquisitions. I think we are careful on managing our balance sheet.

2022 has been very much on that. We are happy where we are, but we are careful.

So that's why I think that, that partnership has not grown that much, building 4,000 units, just 1 portion needs a lot of capital. And it doesn't look that that's interesting.

Over the period anyway, we have secured around 1,000 units, not only with Nexity, but other players. And it's around EUR 0.5 billion, right, of investment case.

A little bit less...

A bit less with EUR 300 million -- EUR 200 million to EUR 300 million to still be spent.

And maybe if I can just add something regarding the partnership. In fact, it was not a commitment to buy for us or to sell or to produce for Nexity, meaning that it was, of course, depending on the agreement we can reach operation by operation.

My first question is, well, there is currently an ongoing review of the Paris urbanistic plan with some of it which could be impacted by a change in their use. Are your assets impacted by this review of the urbanistic plan?

And marginally, what impact do you see for the market?

The -- yes, the Paris City is reviewing the urbanistic plan. We are following that precisely.

Remember that we, at Gecina, have both offices and resi, and we have an ambitious ESG strategy. So I think when we look at the key highlights of the plan, it's pretty in line with our strategy.

So I think we need to assess which assets, what we should do with it, how profitable it is, but we don't see any major issue. When you look at typically Marbeuf, we had no specific issue to get the building permit on that asset.

So it's always a discussion. It takes some time.

That's somehow protection for [ recyclers ], which have invested on a regular basis in the asset. So we have no massive need to go to get building permits.

And we are quite agile on the way we manage building authorizations. So for the time, we are closely looking at it.

For the impact on the market, I think the market is still waiting for the end results, and we will see. But I think it means those plans that are more demanding towards investors means also that you need more professionalism and a lot of expertise, in fact, to develop assets within the capital cities.

So I think all in all, companies like us will benefit from that situation, especially those that are capable to manage both office and resi.

The [ forfeited money ], if you are replacing some office spaces by residential given the difference of price per square meter for these assets?

Yes, 2 stuff. Yes, we are transforming offices into resi.

You know that we launched a year ago, I think, [ rue de Rome ] on the 14,000 small assets, transformed from offices to resi. I think in a certain number of situations, you can make a profitable project out of it if you can build more, for example.

So that's one. So yes, we do, but when it's profitable.

And second, in Paris, we have some assets which are already hybrid. So I have in mind [ l'Opéra 35 ] where we have like 3 or 4 floors of offices and 2 floors of resi.

So this is something anyway which is manageable. Bear in mind that, that transformation from office to resi becomes compulsory when you go for a building permit on specific plots and specific areas.

So it's anyway not spread over all type of properties.

Fair enough. And maybe could you provide us with an update on the work-from-home issue?

Do -- have you seen some companies renewing their leases with smaller surfaces? And according to you, what is the new standard in terms of work from home for the Paris market?

The -- 2 or 3 topics within it. Today, when we look at the days taken by employees, we are in the range of 1 to 1.5 days a week.

The agreements built by the companies are more in the range from 2 to 2.5. But actually, people are taking less, at least in Paris, less days than what they are allowed to because they like -- we are somehow social animals and they like to gather.

Second, yes, we see less square meters taken by companies in general. When they decide to move, they take, I don't know, 20%, maybe a bit more surface than before.

And third, and that's the consequence, it means that it makes some savings for them. And for the time being and because they have the need to bring back the people to the office, they have difficulties to recruit.

Most of the time, they try to take better offices. And they take green offices with biodiversity or greenery.

They take -- they try to get more meeting rooms, more collaborative places, and this is what we produce at Gecina. And I think part of the reasons why we have achieved the reversion is because people are taking less square meters, but better square meters.

One question. Do you expect, in 2023, your disposal volume?

How does that compare with 2022? Because I try to figure out in your guidance that your earnings will be between EUR 5.8 to EUR 5.9, and how much in that is reflecting the rental loss from the disposal you will have in 2022 and 2023?

Within the guidance, we have planned some disposals. We don't communicate the exact -- the composition of our growth.

We have plans on disposals, obviously. We will, like I said, we will be agile both in acquisition and disposals.

And when we look at the impact on our earnings, it's pretty limited, rather neutral.

I would like to ask you about the level of incentives, whether you could provide a little bit more color on that. A market report suggests that incentives in Central Paris are up to 15%, 16% and above 30% in La Défense.

So what are you seeing, that the [ level or figure ] recently since and especially in your future pipeline of pre-lets?

The incentives -- first, La Défense, typically, they were signed, what, 2 years ago. So it was secured during COVID times and before the current period.

And I think the teams have done a fantastic job to secure them before it started to be a bit more complex. We have never -- and I am very there, but I think we have signed 40%, 45% leases at Gecina even in those locations.

And we have just renewed leases with a lower than 30% incentives even on La Défense and Peri Défense locations. And within Paris, we are more in the range of 15%.

So the incentives are pretty stable in Paris.

Okay. I think we have no questions on the line.

Thank you very much for attending today. Thank you for your questions, and see you soon.

Bye-bye.

Thank you. Bye.