Gecina S.A.

Good morning to everyone. Thank you for being online with us this morning for this conference call related to our Business Activity in Q3 2023.

I'm Samuel Henry-Diesbach and I'm here with Benat Ortega, CEO; and Nicolas Dutreuil, Deputy CEO in charge of Finance. After a quick introduction by Benat regarding our performance since the beginning of the year, Benat, Nicolas and I will be happy to answer the question you may have.

I now have the floor to Mr. Ortega.

Hello to everyone and thank you for being with us this morning. Before we can answer your questions, I would like to quickly comment our performance and recent achievements.

This quarter has been particularly robust again and confirms our good momentum. We've been able to post strong rental growth at the end of September at 7.3% in total and even 8.1% on offices.

This is far stronger than what we've been posting last year at the end of 2022 when rental growth was only 2% for the group. This is the result of the combination of strong organic rental growth, reaching more than 6%, and a positive and strong contribution from the pipeline.

Like-for-like growth has been supported not only by indexation 4.6%, but also occupancy rates improvement by 130 bps and rental uplift along tenant rotation 14% in average. As a fact, the rental uplifts are still at high levels, reaching on offices 26% in Paris City in average and 14% in total for the office, suggesting today, again a large outperformance from central areas over the Paris regions.

The residential portfolio shows a rental uplift now reaching 13%, 13%, and a strong improvement when compared to what the group were able to grab these past years, remember 10% last year, around 6% between 2018 and 2021 and below 2% before. On the two portfolios offices and resi, our efforts to improve our operational performance and our products and their locations are key to deliver these releasing spreads.

On top of the slide for our last (ph) performance, our 7.3% rental growth is also supported by a positive contribution from the pipeline, thanks to recent deliveries. Indeed, the pipeline contributes by EUR16.4 million, taking into account the delivery of l1ve and Boetie buildings in the City of Paris CBD and the 157 Charles de Gaulle in Neuilly.

And the effect of building vacated mid-2022 to be redeveloped with their delivery schedule in 2025, Icone-Marbeuf and Flandre-27 Canal in Paris, both are in Paris. You already know that the group was able to sell EUR1 billion of assets in H1 this year, 10% above last appraisal values and with a cash flow yield effect of around 2.5%.

Since then, we have continued and EUR111 million have been secured of disposals and are today under preliminary agreements. Here again, with a year below 3% and still above appraisal values with an almost 8% premium.

These opportunistic deals further improve the group balance sheet, obviously, in the context of significantly slower investment markets, these last months. But in our view, the biggest news from this quarter is on the leasing side with two major assets of our pipeline now fully let.

The 35 Capucine building in Paris CBD, a bit more than 6,000 square meters, which is scheduled for delivery during the first half of 2024, led to a luxury Group and a law firm. All the office space is now fully let.

But more importantly, a rare operation for Paris CBD market named Mondo, 30,000 square meter building, now fully pre-let to one single large French corporate, member of CAC 40. Such an operation is relatively exceptional, given the size and the location and having this asset fully let more than a year before completion perfectly illustrates the strength of Paris City office market and the quality of the refurbishments delivered by Gecina.

Today, 100% of the office space to be delivered in ‘23 or ‘24 is now fully let with rental levels which are higher than initially anticipated. We are now working on the leasing of the assets that will deliver in 2025 in Paris City, Icone-Marbeuf and 27 Canal-Flandre again.

Following this good quarter, Gecina is confirming its growth forecast for 2023. Remember we raised our guidance mid-year, when publishing our after-year results, initially expecting our recurring net income per share to grow by 4% to 6%.

We now confirm our new target that recurring net income Group share is expected to reach EUR5.9 to EUR6 per share and thus delivering 6% to 8% growth per share in 2023, in the context of good leasing markets, I just explained, solid indexation of our rents, and the good contribution from the pipeline. And all that combined with Gecina's long term, long debt maturity and active hedging policy that enables to limit the impact of interest rates rise on the Group's financial expenses for 2023.

Nicolas, Samuel and I are now available to answer the questions you may have. Thank you.

Hello, Benat. Hello, Nicolas.

Hello, Samuel. So thank you for this shorter presentation.

So congratulations for the leading of Mondo. So maybe first question, so could you maybe come back to the conditions, why this group of CAC 40 has signed at Mondo in which conditions?

This would be my first question. And my second question will be on the investment market.

So have you noted on your side any changes in the behavior between buyers and sellers in the offices market this last week, and what would be for you the right condition to start looking at opportunities for acquisitions? Thank you very much.

Thank you, Florent for your question -- questions by the way. Why did they sign with us?

I think, it's a combination of several factors. Obviously, we can't communicate on the name because they need to announce that to their employees before we communicate on who it is.

So I will be not too detailed, but the idea behind signing such a lease is, one, the quality of the assets. I think within the marketing, we said we have built and designed Mondo after COVID and thinking by three dimensions which have been convincing for the clients.

Obviously the location is clear, so I will not comment on that. The first one was [indiscernible].

So we have designed Mondo to allow someone that would commit for long term to be capable to use that in different ways the assets. So large four plates, unique in Paris, more than 3.5000 square meters of per-let, gives a lot of flexibility with thoughts with external surfaces, a lot of gardens, a lot of services, restaurants, which will be extremely vibrant.

So that flexibility is key for a large corporate to take a long-term commitment. Second, it was [indiscernible].

So we have thought that asset to be extremely lively, open to the city, with a lot of new food offer services and so on. So being lively, being capable to attract talents, being capable to attract back employees to their office was key.

And the third was Ultra Green (ph). It's a super low carbon building.

And I think we have convinced also that tenant to come to our building also through the general policy by Gecina to be excellent in operations and excellent in efficiency in terms of energy. And I think it's a combination between an excellent building in terms of design, green, but also the fact that we will operate that in a super lean manner.

So those three reasons I would say have been key. Regarding investment markets and behaviors and so on, I think the market is still quiet.

There is a limited number of buyers. So for the time being, it's pretty quiet.

So we have been quite active as you saw since the beginning of the year. It's not easier than before.

So it's still pretty quiet to be honest. There is a lot of rumors about people wanting to sell, secondary assets and so on, but mind you there is not so many players that are willing to buy, especially secondary locations, secondary assets.

So it's still pretty quiet.

Okay. Thank you very much.

Welcome.

Yes. Good morning and thank you for the presentation.

Two questions on my side. The first one on the Western Crescent portfolio.

What could we expect in terms of renewals or departures over the next 12 months? And also on this part of the office portfolio, could we have an idea of the reduction rate that was captured at this stage and regarding the fact that incentives are still increasing in this area?

Thank you.

The vast majority of the assets that we own on the Western Crescent is in Boulogne and in La Défense. As I said during previous calls, La Défense has been secured recently for long, so we have no specific expires over the next several years, in fact.

Regarding Boulogne, we have a series of assets, but same, no major expiry over the next 12 months. Obviously, they will come later in time, in ‘26, in ‘27 and so on, but for the time being, no specific expires for the next 12 months.

And we have also a couple of assets in Neuilly. So theoretically Neuilly is considered as being the Western Crescent, even in this markets is moving like a Parisian market.

But the same in Neuilly, you've seen that we have a fully let a couple of buildings during the last months. So here again, no specific issues coming in the next 12 months.

Neuilly is more an opportunity, by the way, when we have an expiry, because clearly that market is as tense as Paris.

Okay. Thank you.

On the reduction. please.

On the reduction same, I think as we don't have so many expiries, there is no specific pressure. Obviously, the rents and the prime rents are not growing as fast as indexation so in those markets except Neuilly again.

So obviously, we will have to monitor that situation over time.

Okay. Thank you.

That's useful.

Good morning. My question is also related with the investment market.

You flagged that in the last few months there's been a slowdown in the number of transactions. But when looking at market reports, it looks like transactional prices, transaction price decline is accelerating, also in Central Paris, like some market reports point to a decline of 11% year-to-date, 6% in the third quarter.

Could you please comment on that, what do you think the likely decline in prices could be in the second half and how that will impact your final year valuation as of December? And also given the different expectations in buyers and sellers, where do you see deals going to in order to find a common ground for both of them?

First, I think we have proven that our portfolio was [indiscernible]. So, against the general market, which is a bit quiet, you saw that we sold EUR1.1 billion of assets with premium compared to last year value.

So I think what we have tried to prove this year is the fact that we are not a proxy of general markets. Our assets are not managed in the same way.

The type of tenants we can attract in our buildings are not the same, that's the general market,. so that's first.

I will not comment on obviously on our presence at the end of the year, that would be for our call in February. Maybe on the markets, I think one needs to combine and to look at the yield effects.

And we have been taking a yield effect for now 12 months or 18 months. The significant one event in Paris, 10% to 15% down, even in Paris, that was the slide that we showed in July.

But then you need to look at what is the rental uplift and the rental growth behind it. So I think it's quite complex.

Again, the market is quiet, but we need to be quite specific on where the market grows, so that's obvious. The yield effect is active, even in Paris.

And that you show, you see that in our presence, our previous presence. I think over the last 24 months, the evolution was 14%, 14% in our presence, the yield effect.

So it's already in place, it might continue. We will have again like restaurants sets over time.

But even if it continues, you've seen that we have a very strong balance sheet and what we've done during the year in terms of disposals will be at the end of the year very helpful in terms of impact on our balance sheet. When you look at what we have sold, and as Benat said, it was more than EUR1 billion of assets.

It's representing almost 15% of our debt beginning of the year, meaning that what we've done during the year is clearly a strong deleveraging of Gecina. And so, of course, having a company being able in case of to absorb adjustment in values within.

Okay. Thank you very much.

Hi. Good morning.

Congratulations on the very good results. I have two questions.

First of all, on this Mondo building, I wonder if you could give us a ballpark as the level you are leaving at right now for this building. And secondly is on your leverage.

Do you feel comfortable with your current leverage including metrics like LTV, net debt to EBITDA and do you have any further plans to reduce it? Thank you.

Yeah. On Mondo for the timing, the transaction is still quite in the confidentiality mode.

I think we are happy with the level, it's higher than what we expected. So for the time being, we stay there, but it's pretty good level of rent achieved.

But that's also linked to the scarcity of qualitative offer and supply that you have in Paris. On the debt matrix, I think we have proven that we can manage that situation.

We are at 32% LTV. We have no JV, no debt, no secure debt.

We have a long term, very long term edging policy. So I think we have proven to be a pretty robust and disciplined company.

Okay. Thank you.

If I can add one more, that's actually following Ana's question. I know you cannot really give us too many details on the full-year valuation, et cetera.

But what kind of conversation you are having with the valuers in the past three months? Do you have any comment on the Paris office market or how the cap rate should involve in their view.

Thank you.

Listen, we are still at the very beginning of the work with them. They are supposed to give us a field (ph) view, I think in two or three weeks from now.

So we'll have a better view by the beginning of November. But obviously, we are talking about the 31st of December accounts and we are early October.

So I think we will monitor the situation. Again, the best way, in fact, to prove the quality of our portfolio is to show what we have done.

And again, this quarter, it's small volumes, okay, but we have disposed below 3% again. So we are not always a full proxy of the market.

Okay. Thank you very much.

Hi. Good morning.

Just two questions. Firstly on the disposals you've made and the yield on that.

How much of that was influenced by vacancy, if you -- a portion say any of the -- for the vacancy what would the yield have been? And then secondly, just any strategic thoughts you have on residential, whether you see long term, you want to continue owning student residences, for example?

Thank you.

Yeah. On disposals, yes, it was influenced by vacancy because we sold two vacant secondary assets offices, but even the ones that were occupied were at 3%.

And obviously, back to Ana's question, I don't see so many reports pointing out that this we have done this year. Look, we have been selling what, almost 10 assets, excluding the one on Champs Elysees that you, tell me is a bit atypical, but still and all of them were done below 3% beyond.

And that's nowhere within the reports because it has been done one by one and most of the time without brokers, so that's one. And second, on the resi, you saw that we have been raising significantly a reduction over time.

We still have a lot to do. It's not easy, in fact, to deliver growth on resi.

So it's a very industrial business. We have been beefing up digital.

We have been beefing up quality of design, quality of services, somehow being a bit more proactive to raise rents, and that's paying off for the time being. So we are still on working mode there, but I'm quite enthusiastic about the way we have been revamping our business model on that.

Thank you.

Yes. If there are no further questions, we can close this call, but thanks a lot for attending this call this morning.

We'll meet in the coming weeks, probably some of you guys, along with conferences and roadshows potentially. Please note that our next publication will be for full year 2023, the 14th of February after market closed.

And please remember in the meantime that we are all available, if you have any follow-up questions, so feel free to give us a call. Have a good day.

Bye.