Gecina S.A.

Yes. Good morning, and hello to everyone, and thank you for being with us online this morning for this conference call related to our business activity in Q1 2023.

So 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 in this first quarter, Benat, Nicolas and I will be happy to answer the questions you may have.

And I hand the floor to Mr. Ortega.

Hi, everyone, and thank you for being with us this morning. Before we can answer to your questions, I would like to quickly comment our performance and achievements since the start of this year 2023.

As you may have seen already in the press release published yesterday, our performance has been particularly robust this quarter again and confirms the confidence we brought along our 2022 earnings published earlier in February. Once again, this quarter, it's clearly the performance we are able to deliver that may contrast with uncertainty that seems to worry stock markets nowadays.

To us, this performance is largely due to our strength, our portfolio, our balance sheet and obviously, I must say, the know-how of our teams. All drivers for rental growth are positively oriented, and all of them marked an acceleration against 2022.

I'm referring to occupancy, releasing spreads, indexation and pipeline contribution to our rental growth. First, the acceleration of like-for-like growth that achieved 7.3% in Q1 and even nearing 8% in offices and 5% on resi.

This acceleration when compared to the 4.4% like-for-like rental growth posted in '22, is clearly supported by operational performance from '22, but also in '23. This performance is driven by the portfolio that provides visibility and high capacity to perform in these locations.

Reversionary potential remains strong. We've been able to capture a releasing spread of 30% in Paris and 7% in average for our whole portfolio.

And in our residential business, we are improving our releasing spreads, now reaching 11%. The contribution of -- from indexation is 4.2% in our like-for-like in Q1, while it was 2.1% for the whole year 2022.

And occupancy rates have increased by 280 bps in 12 months and even 340 bps for offices, reflecting clearly an active demand for Gecina's assets in our locations. Like-for-like performance in Q1 [ is ] our confidence for fiscal year '23.

Note, however, that the occupancy rates gradually improved during 2022 and particularly at the end of the year, meaning that the base effect is expected to mechanically decrease and ease over the second half of '23. Year-on-year rental growth also strongly performed at almost 9% and even nearing 10%, thanks to the positive contribution of our pipeline by EUR 4 million, reflecting the impact of the deliveries of l1ve building at the end of '22 and 157 Charles de Gaulle in Neuilly.

Both assets are fully let offsetting Icone in Marbeuf and Flandre assets that were vacated in '22 and so transferred into our pipeline, like we said during our earnings call in February. On disposals, our achievements are robust.

Also year-to-date, EUR 147 million of assets have been sold or under preliminary agreements today. This is -- these disposals have been achieved or secured with premiums over our last appraisal by more than 6%.

60% of these sales concerns residential assets and nearly 75% are located outside Paris. Most of these disposals, obviously, are under preliminary agreements and have been very recently secured.

They should be finalized in the coming weeks or months. It's also fair to insist as well on our robust debt structure that most of you have in mind already.

As you know, in terms of sensitivity of the Group's average cost of debt, Gecina's rate hedging policy stands out through the long maturity of our hedging instruments, 7 years, making it possible to sustainably -- to protect the average cost of debt. From '23 to '25, 90% of our debt is hedged on average against changes in the Euribor.

More importantly, it seems important also to underline the fact that during the first quarter, the Group has been able to further strengthen its liquidity position. Again nearly EUR 175 million of new credit lines have been set up.

But good news also that we have included a new European bank in our pool with an average maturity of 7 years. These new credit lines are renewing ahead of schedule, showing quite great confidence because EUR 130 million were maturing in '24 and are based on equivalent financial conditions.

As a consequence, we are able to comfortably reiterate our guidance for '23 and the results published at the end of '22 and the trends we are still observing during this first quarter reflects the very good rental market in which we are. And this robust operational performance is being further strengthened by the gradual upturn in indexation, the improvement of occupancy, but also the positive uplift in rents we are achieving through tenant rotation.

The pipeline is positively contributing to our net rental income growth, and it's expected to ramp up as the major buildings were -- delivered in '22 and '23 are fully let. Gecina's long-term debt maturity and active rate hedging policy is enabling us to limit the impact of interest rates rise in '23.

Therefore, we expect a net recurring income to reach EUR 5.80 to EUR 5.90 per share in '23, meaning a growth between 4.3% and 6.1%. Thank you for listening that.

And Nicolas, Samuel and I are now available to answer your questions.

2 questions from my side. Positive to see that you managed to secure some additional disposals already in the Q1.

Interesting to see that mainly in the resi segment. Is that a segment where we could see more -- I'm curious to also hear your thoughts on that market -- at this point in time?

And then secondly, on your reversionary potential, and again, the 30% in Paris CBD offset quite a bit by -- to asset in Peri Defense, I understand. But what's your expectations for the rest of the year?

And more specifically, what you're currently seeing in La Defense for reversionary potential for this year?

I'll take those 2. On disposals, as we said earlier, we have no specific need to dispose, but we said we will be opportunistic on our disposal strategy.

So we've seen some traction on that segment, and that's why we decided to dispose on assets on the resi side. It shows that we have a premium on our appraisals, which is a good news, and we will continue to be opportunistic on that.

So we'll see what will happen on the next months. On reversion, obviously, you saw that we had a negative reversion on Peri Defense.

It represents 3% to 4% of our portfolio. So when we look at reversion, I think we need to look at it as a trend more than a pure quarter-by-quarter reversion.

So the bond duration of those deals are almost -- half of the deals we have achieved during this Q1, but we see good trends still in Paris, specifically. So that reversion should grow, but we will have to make those deals before claiming a higher reversion.

But obviously, I think it's more the bond duration during this quarter that leads to that smaller amount compared to last year.

And what do you see in terms of incentive rates on new lettings?

They are pretty flat.

Maybe 2 questions for me. On your disposals, so would it be possible maybe to give us more color on who are the type of buyers?

And do you see these opportunistic buyers on your side? How do you clarify today the wait-and-see approach in the investment market?

So that would be my first question. My second question, maybe more on the leasing side.

I think remembering that at the beginning of the year, you told us that you were -- maybe expected a double-digit uplift for 2023 in offices. So is it something that is still expected after this Q1 or maybe you have changed your mind?

Yes, on disposal, I think, like you saw quarter 1 figures on investment markets. Maybe 2 trends.

The first one is clearly globally for Paris region, decrease -- a significant decrease in the investor market, so showing that the market has dried a lot. But at the same time, a pretty decent investment volumes downtown Paris.

Long-term equity players still at -- [ stay ] smaller volumes. So obviously, it's a more complex market to read.

But again, we are opportunistic on our disposal strategy. So we are actively monitoring it, and we'll see what happens later.

And yes, long-term equity players, most of the time. On the leasing side, yes, I think we have a drop in our reversion during this quarter, but we think we will grow that amount, like I said earlier.

To what extent, I'm always prudent in what I say. But yes, the leasing trends are still favorable.

And again, remember that 75% of our portfolio is in Paris, 85%, if we include Boulogne and [ Neuilly ]. So that's why I was saying on the medium term, the bond duration should improve our average reversion.

Just 1 question from my side, and it's more a big picture question. So I just wonder if you can comment a little bit on the take-up or the investment sentiment you have seen in the first quarter of the general market?

Because -- I know Gecina is still doing a good job, but based on some broker report, we're seeing a quite dramatic falling down in both the letting take-up and also the investment volume. Do you feel that's the sentiment right now?

The -- Yes, the sentiment on the broker side is not good as the volumes are lower and they live on volume and not on stock. We were expecting Gecina decrease in the big pictures of take-up as -- and like we said, 50% of the demand was concentrated on Paris, while it was only 10% of the available space.

So mechanically, the leasing volumes were expected at least on our side to decrease. The demand is still there.

Companies are taking more time to decide, but we still see some -- we still see active demand on where we are operating. But obviously, yes, the sentiment is a more smaller leasing volume for the whole Paris region.

But I think, like we said, there is a clear polarization of that market. And I think same apply to the investment market, which is quiet, like I said, with volumes which are smaller.

But then again, quite a diverse situations across the whole Paris region. So yes, it's a more complex market to win, but I think leasing demand is driving both take-up and investment volumes.

Yes. Allison, maybe to add a few things -- few figures on the global market, but look at the available supply in the market for offices per [ areas ].

And you will see that in Paris City, the supply has even further decreased in Q1 versus end 2022 in the central location. So it means that even if the take-up decreased, that's largely due partly to a lack of supply and the supply is even decreasing further in the more central areas of the Paris region, so Paris City.

And as Benat was saying, if you split the central and the peripheral locations in terms of investments, you will see that figures are totally different, showing the polarization of the investment market as well.

Following up perhaps from the previous question, how can we think about the valuation of your occupancy rates? I mean, obviously, you've made great progress.

You've highlighted in particular towards the end of last year. Where you -- main leading challenges at this stage?

And do you think that occupancy rate will continue to go up? Or is it going to stabilize?

Or on the contrary, are you expecting big release in space during 2023?

In terms of occupancy, yes, we have reached again historical high levels of occupancy. So we are not expecting to further increase significantly, but we don't see neither strong challenges that drive our occupancy rate significantly down.

So we more see a flattish occupancy during this year. But obviously, it's not our target.

We try to grow it, but we don't see materially it growing.

And for indexation, I assume it's going to continue growing a bit. Is that a fair assumption?

Yes. It's a complex calculation to see the impact on cash flow growth from indexation, as we discussed a lot.

But yes, indexation is flowing into our cash flow. And then we'll have to go look at all the base effects because we are passing high indexation since the end of last year, and it will very much depend on how the inflation flows.

But it looks like, yes, inflation is still pretty high, in line also with interest rates, which are still pretty high, but we should see indexation for quite a while, yes.

And that's for the like-for-like. But in addition to that, the other driver we have on the top line is a development pipeline.

As you've seen, it has contributing positively to our rent for Q1. And of course, as we said, it should continue on this trend for the future.

So thank you for everything. As you know, all the team remains available if you have any follow-up questions coming in the days ahead.

Enjoy the rest of your day. And hopefully, we're going to meet soon and for next publication by the end of [ June ].

Have a good day. Bye.