Gecina: 2016 earnings

PARIS--()--Regulatory News:

Gecina (Paris:GFC):

Solid earnings

  • Recurrent net income (Group share) stable (+7.1% restated for the impact of the Healthcare sale)
  • EPRA triple net NAV up +7.7% to 132.1 euros per share, with nearly +12% including the dividend paid out in 2016

Balance sheet further strengthened

  • Improvement in credit ratings with Moody’s (A3) and S&P (BBB+/positive outlook)
  • 29.4% LTV excluding duties, cost of drawn debt representing 1.7%, ICR at 4.9x
  • Average maturity of debt of 6.7 years and of rate risk hedging of 7.3 years
  • Gecina returning capital to shareholders with a share buyback program for up to 300 million euros

Like-for-like office rental growth positive again from 2017

  • Buoyant market, supporting Gecina's portfolio and strategy
  • Further reduction in the market vacancy rate in Paris City to 3.5%, close to an all-time low…
  • …reflecting a shortage of quality properties, which is positive for Gecina's positioning
  • Major lettings successes since the start of 2016, with nearly 95,000 sq.m let, prelet, relet or renegotiated

Value creation potential further strengthened in 2016

  • Seven new projects representing over 100,000 sq.m launched in 2016 in the Paris Region’s best sectors
  • Nearly 100 million euros of additional rental income expected from the committed pipeline (deliveries in 2017 – 2019)

Solid embedded growth for the medium term

  • Temporary contraction in recurrent net income expected for 2017 due to the high volume of sales and new redevelopments
  • Average embedded annual growth in recurrent net income for 2018-2021 expected to reach 5% to 7% thanks to the pipeline
  • Dividend up +4% to 5.2 euros per share for 2016, highlighting Gecina’s confidence in growth outlook

Total return strategy confirmed and accelerated …

…around the four core strategic pillars defined at the start of 2015 with three new driving forces for acceleration:

  1. Optimization of the capital allocation and confirmation of our investment discipline
  2. Review processes aiming to improve the diversification portfolio's profitability
  3. Redefinition of priorities around operational sources of value creation

Key figures1

In million euros   Dec 31, 15   Dec 31, 16   Change (%)
Gross rentals   574.6   540.0   -6.0%

(-0.5% like-for-like)

Recurrent net income (Group share) 349.2

347.42

-0.5%

(+7.1% excluding impact of healthcare sale)

Per share (in euros)   5.61   5.52   -1.7%
Diluted EPRA triple net NAV (block) 122.7 132.1 +7.7%
Dividend per share   5.00  

5.203

  +4.0%

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1 All the figures presented in this document exclude any impact for IFRS 5 as well as the costs linked to the offer for Foncière de Paris, representing 4.2 million euros
2 Restated for costs linked to the departure of the previous Chief Executive Officer, recurrent net income represents 349.7 million euros (+0.1%)
3 Subject to approval by the General Meeting

Strong focus on creating value and rationalizing the portfolio in 2016

Following on from an exceptional year for its portfolio’s rotation in 2015, Gecina maintained its firm focus on rationalizing its portfolio and creating value in 2016.

The Group has secured nearly 2.0 billion euros of sales of real estate assets, delivering an immediate accretive impact on NAV, with 644 million euros excluding the healthcare portfolio’s sale and an average premium of around +15% versus the latest appraisal values, capitalizing on favorable conditions on the investment market to maximize value extraction by divesting mature or non-strategic assets.

Alongside this, Gecina secured nearly 321 million euros of new investments in 2016 in the best business districts in the Paris Region, at the heart of Paris (rue Guersant, rue de Madrid) and in the Southern Loop of Paris’ Western Crescent (Be Issy in Issy-les-Moulineaux), through operations with strong potential for creating value.

The total pipeline for development and redevelopment operations is up to over 3.7 billion euros, despite the delivery of two major projects in 2016 (City 2 and Le Cristallin in Boulogne).

Seven new development projects were launched in 2016, thanks to the new investments secured during the year (Be Issy and rue de Madrid), as well as five new redevelopment operations that started up in 2016 on assets within the portfolio after the properties were vacated (three new projects in Paris City, with the other two located in Neuilly and Levallois-Perret). Gecina's pipeline for committed projects is up to over 1.5 billion euros (versus 910 million euros at end-2015), based on 15 operations, with nearly 90% located in Paris City and the Western Crescent's best sectors (Issy-les-Moulineaux, Neuilly and Levallois). This committed pipeline will have a significant accretive impact on NAV as the work progresses and on recurrent net income when the projects are delivered, expected for 2017 to 2019.

NAV climbed +7.7% to 132.1 euros per share in 2016, with an increase of around +9.5 euros per share, driven primarily by the total return strategy rolled out, particularly with capital gains from sales, as well as growth in the value of assets acquired recently or under development. Including the 5 euro dividend paid in 2016, the total property return performance comes out at nearly +12%.

Recurrent net income (Group share) was stable in 2016 compared with 2015 (-0.5%). Restated for costs linked to the departure of the previous Chief Executive Officer, recurrent net income represents 349.7 million euros (+0.1%). This performance factors in significant changes in scope, particularly with the major acquisitions made in 2015 (primarily the T1&B buildings in La Défense and the PSA Group's current headquarters in Paris' CBD), as well as sales of mature and non-strategic assets concentrated primarily over 2016 (sales of the healthcare portfolio and office buildings located in non-strategic areas for Gecina). The performance for 2016 also reflects the continued optimization of financial expenses, down -28.3%, with an overall average cost of debt of 2.2% (down 50 bp) and a significant increase in the maturity of drawn debt and rate hedging.

Very positive market environment for central sectors, particularly in Paris City

Take-up in Paris City - where Gecina holds 54% of its office portfolio – climbed +14% in 2016, accounting for nearly half of the total volume of transactions for the Paris Region, while immediate supply is down -30%. The vacancy rate for Paris City is close to an all-time low, with 3.5%, reflecting a shortage of quality properties. CBRE reports that a growing percentage of transactions are motivated by a preference for central locations, recognized as a productivity factor, while also making it possible to limit staff turnover, particularly for high value-added employees. These positive trends are in line with Gecina's expectations and confirm the relevance of the Group's realignment strategy announced at the start of 2015.

The delivery of projects currently under development is expected to cover these growing needs, which will accelerate if this trend is reinforced by businesses relocating as a result of Brexit.

Fresh momentum: accelerating the implementation of Gecina's strategy

Gecina is confirming its main strategic guidance as presented at the start of 2015 and will continue building on its progress from the last few years around four core pillars for creating value (Value added investments, opportunistic disposals, Harnessing value from our own portfolio and innovation), with its ambition to accelerate the process underway.

Gecina's teams are already working on the following three drivers for acceleration:

  1. Optimizing the allocation of capital and confirming our investment discipline
    With a view to optimizing its capital allocation, taking into account the fact that investment opportunities that meet Gecina's criteria are rare today, Gecina is launching a program to buy back its own shares for up to 300 million euros. This operation will make it possible to ramp up its dynamic growth and value extraction approach, while maintaining significant firepower (the maximum proforma LTV on this operation would be close to 32%), in order to be able to capitalize on opportunities for investment that may arise over the coming year.
  2. Carrying out reviews with a view to improving the diversification portfolio's profitability
    Gecina plans to consider all potential scenarios concerning its diversification portfolio with a view to maximizing this division's profitability for its shareholders. Gecina's teams have already launched a review looking into this, which will be communicated on subsequently.
  3. Redefining our priorities around operational sources of value creation
    Gecina aims to accelerate its effective creation of value by prioritizing pre-letting processes for assets under development, in addition to optimizing its build costs. Real estate innovation will also be positioned to help drive value creation, with an approach to provide cross-business support for the Group's activities. Lastly, the Group also needs to prioritize the capturing of new strong-potential investment opportunities, without modifying its investment criteria, in terms of financial aspects or locations.

Outlook for the short and medium term

2017 will be marked by these strong choices made by Gecina in terms of value extraction, particularly the asset sales completed in 2016 and the launch of work to redevelop five buildings that were previously occupied, in order to optimize their value extraction.

In 2017, recurrent net income, restated for the impact of the healthcare sale, is expected to contract by nearly -5% to -6%4. This expected performance reflects the combined impact of underlying growth, which is expected to reach around +2% to +3%5, and the start of redevelopment projects, which will be accretive when they are delivered, expected primarily for 2018 and 2019.

Gecina therefore has very strong potential for growth and value extraction through its pipeline in particular, as well as positive trends for the Group's preferred sectors. In view of this, average recurrent net income growth (CAGR) over the medium term (between 2018 and 2021) is expected to come in at around +5% to +7%6.

As a result, considering the Group’s confidence in its outlook for the medium term, Gecina plans to submit a proposal at the general meeting for a dividend up +4% to 5.20 euros per share for 2016.

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4 These objectives do not include assumptions for any sales or investments and may therefore be revised up or down depending on opportunities for investments and sales during the year
5 Including the impact of sales (excluding healthcare) in 2016, deliveries of assets in 2016 and 2017, and organic growth
6 This objective may be revised up or down depending on opportunities for investments and sales

Méka Brunel, Chief Executive Officer: “Our strategic project is moving forward, and we firmly believe that the direction taken by the Group since early 2015 is the right one for the future. In an environment marked by the end of rate cuts, it is essential to move more quickly and not curb our ambitions. Today, even more than in the past, we need to be selective, responsive and flexible, in a market that will involve not only new risks, but also new opportunities that will need to be capitalized on effectively. A dynamic approach therefore needs to be set in motion to give the Group's ambitions a new dimension. Our operational performances from 2016 are solid and encouraging, and our pipeline offers a source of value creation and growth that is unrivalled in continental Europe, in order to better serve our shareholders in the future”.

Bernard Michel, Chairman: “The strategy put in place at the start of 2015 is already delivering benefits, as shown by our results for 2016. Acknowledging the major work accomplished by Gecina's teams, the Board of Directors believes that the strategy can be ramped up again in order to accelerate our effective creation of value. The Board is aware of Gecina's strategic potential and is therefore embarking on this new phase in the Group's history with confidence”.

Financial Calendar

Business at March 31, 2017
April 26, 2017

Annual General Meeting
April 26, 2017

Rental income in line with the Group’s forecasts

Gross rental income came to 540 million euros in 2016, down -6.0%, reflecting the significant changes in scope from the last two years. Like-for-like, rental income shows a moderate contraction of -0.5%.

Like-for-like, this moderate contraction of -0.5% at end-2016 is consistent with the Group’s expectations. It factors in the level of indexation, which is still low (+0.2%), and the slightly negative reversion resulting from renegotiations in 2015, some of which came into effect at the start of 2016. Like-for-like growth has also been impacted by the departure of a tenant from a building located in the Outer Rim, while part of the space vacated has already been relet. Excluding just this asset, rental income is stable like-for-like (+0.1%).

On a current basis, the -6.0% reduction is linked primarily to the high volume of sales completed and particularly the healthcare portfolio's sale, finalized on July 1, 2016. This drop also reflects the sales programs rolled out in 2015 and 2016, making it possible to achieve significant capital gains on residential assets, as well as mature or non-strategic office buildings. Lastly, the change in rental income on a current basis also factors in the temporary loss of rental income from office buildings with strong value creation potential, on which redevelopment work has been launched following their tenants' departures.

Over the period, the additional rent generated by acquisitions and deliveries made in 2015 and 2016 totaled +46.1 million euros, with the T1&B buildings in La Défense, PSA-Grande Armée in Paris' CBD, City 2 in Boulogne-Billancourt, Guersant-2 in Paris and four student residences.

On the other hand, the loss of rental income resulting from sales represents -70.5 million euros, with -37.1 million euros from the healthcare portfolio's sale and -33.4 million euros resulting from sales of commercial and residential assets in 2015 and 2016, particularly in Gentilly, Boulogne-Billancourt, La Garenne-Colombes, Neuilly, Suresnes and Rueil Malmaison. The change in rental income also reflects the impact of the building redevelopment projects launched in 2015 and 2016, representing a loss of rent of around -8.2 million euros.

Gross rental income   Dec 31, 15   Dec 31, 16   Change (%)
In million euros Current basis   Like-for-like
Group total 574.6 540.0 -6.0% -0.5%
Offices 364.2 372.9 +2.4% -0.5%
Traditional residential 121.3 113.7 -6.2% -0.3%
Student residences   12.0   14.0   +17.5%   -1.6%
Healthcare and other   77.1   39.4   -49.0%   NA
 

Offices: rental income up thanks to the Group’s growing specialization

On a current basis, rental income from offices is up +2.4% thanks in particular to the impact of the acquisition of the T1&B buildings in La Défense and PSA’s current headquarters in Paris’ CBD in the second half of 2015, as well as acquisitions immediately generating rental income that were finalized in 2016 (City 2 in Boulogne-Billancourt, Guersant-2 in Paris). Over the year, these acquisitions offset the impact of sales and redevelopments (particularly the Paris-Guersant 1 building in 2015, as well as the Octant-Sextant assets in Levallois, Paris-Ville l’Evêque, Paris-Friedland and a real estate complex in Neuilly in 2016).

Like-for-like, rental income is down slightly, with -0.5%, in line with the Group’s expectations. This slight contraction factors in a particularly low level of indexation (+0.2%) and the latest impacts of the renewals and renegotiations granted in 2015 and early 2016 on suburban Paris assets in return for extending the maturity of their leases. Like-for-like growth notably reflects the impact of the departure of Oracle, which vacated part of the Crystalys building in Vélizy at the end of August 2015 (in the Paris Region's Outer Rim). Today, this space has been partially relet. Excluding just this asset, like-for-like growth would be positive, with +0.3% for 2016.

Like-for-like rental income growth is already positive for Paris City (+1.4%), confirming the first signs of rents picking up again in central sectors.

In view of the improvement in rental market conditions in the Paris Region’s most central sectors, the like-for-like change in office rental income is expected to be positive in 2017.

Gross rental income – Offices   Dec 31, 15   Dec 31, 16   Change (%)
In million euros Current basis   Like-for-like
Offices 364.2 372.9 +2.4% -0.5%
Paris City 186.3 189.9 +1.9% +1.4%
Paris CBD - Offices 98.7 106.8 +8.3% +1.0%
Paris CBD - Retail units 35.0 35.9 +2.6% +3.2%
Paris excl. CBD 52.6 47.2 -10.4% +0.6%
Western Crescent - La Défense 137.0 147.3 +7.5% -2.0%
Other   41.0   35.7   -12.8%   -5.9%
 

Market trends mixed, but favorable for Gecina’s preferred sectors

The trends observed for 2016 confirm Gecina’s confidence in the Paris Region’s most central business sectors picking up again. Although they reveal an upturn in take-up across the entire Paris Region, the Immostat statistics published recently show significantly contrasting trends within the region. While the most central areas and particularly Paris City have reached a rental turning point, the situation is still more delicate for more peripheral areas (Inner and Outer Rims), although Gecina has very few assets in these sectors.

Take-up shows an average increase of +7% for the Paris Region compared with 2015, but the most central sectors have continued to account for the majority of the volume of transactions recorded. Take-up for Paris City climbed +14% in 2016, while the volume came in 32% higher than the 10-year average, accounting for nearly half of the total volume of transactions for the Paris Region. However, trends for the rest of the region are less positive, with an increase in take-up of only +1%, lower than the 10-year averages, particularly in more peripheral areas in the Inner and Outer Rims.

Immediate supply levels are also contracting, with an average of -10% for the Paris Region. However, once again, the trends are very mixed and more positive for the most central sectors. While immediate supply levels are down -30% for Paris City and -7% for the Western Crescent and La Défense, they show only a moderate reduction for peripheral sectors (-5% for the Inner Rim and -2% for the Outer Rim). For Paris City, following the contraction in available supply, it now represents only 15% of total immediate supply for the Paris Region.

As a result, the average vacancy rate for Paris City, reported by BNP Paribas Real Estate, is now down to less than 3.5% (vs. 5% at end-2015), highlighting the shortage of quality assets and moving close to an all-time low. On average for the Paris Region, this rate is down from 7.4% to 6.7%.

The outlook in terms of available supply within one year suggests that the market balance will continue to be favorable in 2017. The lack of available supply for quality premises in the region's most central sectors is expected to support rental trends and confirm the moderate upturn in market rents seen primarily in Paris and La Défense.

Diversification portfolios

Rental income from traditional residential assets is virtually stable like-for-like (-0.3%), primarily due to no impact for indexation in 2016. On a current basis, the -6.2% contraction primarily factors in the program to sell apartments on a unit basis when they become vacant as tenants naturally free up assets.

The student residence portfolio achieved strong growth in rental income (+17.5%) in 2016, driven by the major deliveries seen in the third quarter of 2015 in Paris, Bagnolet, Palaiseau-Saclay and Bordeaux. Like-for-like, rental income is down -1.6%, notably factoring in a temporary increase in the vacancy rate linked to work to overhaul the IT and operational systems in a residence in the Paris Region; excluding this residence, like-for-like growth comes out at +0.8%.

Occupancy rate stable and still high

The average financial occupancy rate for 2016 came to 95.5% excluding healthcare (95.9% including the healthcare portfolio), stable over six months and down slightly year-on-year, linked primarily to the delivery of Le Cristallin, which had not been let by the end of 2016. Indeed, this rate does not take into account the lease signed in January 2017 with the Renault Group to rent all of this asset.

Average financial occupancy rate   Dec 31, 15   Jun 30, 16   Sep 30, 16   Dec 31, 16
Offices 95.8% 95.4% 95.5% 95.5%
Diversification 97.0% 95.9% 95.5% 95.6%
Residential 97.7% 97.1% 96.9% 96.6%
Student residences   91.7%   88.7%   87.2%   89.1%
Group total excluding healthcare   96.1%   95.5%   95.5%   95.5%
Healthcare 100.0% 100.0% 100.0% 100.0%
Reported Group total   96.6%   96.2%   96.0%   95.9%
 

Significant lettings successes since the start of 2016

Gecina has secured major lettings transactions since the beginning of 2016, with nearly 95,000 sq.m let, prelet, relet or renegotiated. For instance, the Group has signed leases with CREDIPAR for the “Pointe Métro 2” building in Gennevilliers (10,000 sq.m), with the Orange Group for “SKY 56” in Lyon Part-Dieu (16,000 sq.m), with the Renault Group for “Le Cristallin” in Boulogne-Billancourt (11,600 sq.m), and with the Caisse Régionale RSI Ile-de-France for “Dock-en-Seine” (9 000 sq.m). Considering the discussions that are underway, Gecina is confident about the volume of transactions that will be able to be achieved in 2017.

Recurrent net income (Group share) stable

Recurrent net income (Group share) is almost stable year-on-year at 347.4 million euros (-0.5%). Excluding the costs linked to the departure of the previous Chief Executive Officer, recurrent net income (Group share) shows a very slight increase, up to 349.7 million euros (+0.1%).

This stability reflects the impact of the acquisitions made in 2015 (including T1&B in La Défense and PSA’s current headquarters in Paris' CBD), as well as the continued optimization of financial expenses, which, during the year, offset the impact of the healthcare portfolio's sale (finalized on July 1, 2016) and the new projects launched to redevelop buildings after they have been vacated.

In million euros   Dec 31, 15   Dec 31, 16   Change (%)
Gross rental income   574.6   540.0   -6.0%
Net rental income 526.2 498.9 -5.2%
Services and other income (net) 8.3 1.3 -83.8%
Salaries and management costs (62.1) (63.2) +1.7%
EBITDA 472.4 437.0 -7.5%
Net financial expenses (119.8) (86.0) -28.3%
Recurrent gross income 352.5 351.0 -0.4%
Recurrent minority interests 0.2 (0.2) NA
Recurrent tax (3.5) (3.4) -2.2%

Recurrent net income (Group share) 7

  349.2   347.4   -0.5%

The rental margin represents 92.4%, up 80 bp year-on-year, driven by the improved margin for the office portfolio, benefiting from the fully let, single-tenant assets acquired in 2015 being integrated into Gecina’s portfolio, with their higher rental margins than the Group average. The rental margin for offices also reflects the impact of the restatement of rental management fees previously recognized as revenue from “services and other income”. Like-for-like, the office rental margin is up +0.1%.

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7 Recurrent net income excludes the costs linked to the offer for Foncière de Paris, representing 4.2 million euros

    Group   Offices   Residential   Healthcare
Rental margin at Dec 31, 2015 - reported   91.6%   94.0%   81.1%   99.4%
Rental margin at Dec 31, 2015 - excl. healthcare 90.4%
Rental margin at Dec 31, 2016 - reported   92.4%   95.5%   81.0%   98.9%
Rental margin at Dec 31, 2016 - excl. healthcare 91.9%
 

Lower cost and higher average maturity for debt and hedging

Gecina has continued to optimize its liabilities, capitalizing on a particularly positive environment to make progress on all its financial indicators.

Net financial expenses are down -28.3% year-on-year to 86.0 million euros, thanks to the optimization work carried out in 2015 and 2016 in a very positive market environment.

Overall, the average cost of debt (including undrawn credit lines) came to 2.2% for 2016, compared with 2.7% in 2015, down -50bp.

As a result of this strong reduction in the average cost of debt and financial expenses, Gecina’s ICR shows a significant increase for the year, up from 3.9x at the end of 2015 to 4.9x at end-2016.

In addition to optimizing the average cost of debt, Gecina has capitalized on favorable market conditions to increase its average maturity to 6.7 years (versus 5.7 years at end-2015).

Gecina has also significantly strengthened hedging for its debt.

At December 31, 2016, 77% of debt was hedged on average for the next seven years, with the average maturity of this hedging up to 7.3 years at end-2016 from 5.8 years one year previously.

Net debt totaled 3,582 million euros at December 31, 2016, down 1,135 million euros for the year, resulting from a predominantly net seller profile in 2016.

At end-2016, Gecina's LTV represented 27.7% including duties and 29.4% excluding duties, down -7.0 pts from end-2015 (36.4% excluding duties). This reduction primarily reflects the high volume of sales completed in 2016, and particularly the healthcare portfolio's sale, finalized on July 1.

In addition, Gecina has 1.9 billion euros of available liquidity, making it possible to cover all its credit maturities through to 2020.

Thanks to the Group’s balance sheet, Gecina has a particularly high level of financial headroom, enabling it to be extremely opportunistic, flexible and responsive on the investment market.

Ratios   Covenant   Dec 31, 16
Loan to value (block, excl. duties)   < 55%   29.4%
EBITDA (excluding disposals) / net financial expenses > 2.0x 4.9x
Outstanding secured debt / net asset value of portfolio (block, excl. duties) < 25% 6.5%
Net asset value of portfolio (block, excl. duties) in million euros   > 6,000 – 8,000   12,171
 

2.0 billion euros of sales secured or completed in 2016, with 644 million euros excluding healthcare

In line with the Group's ambition to accelerate its portfolio rotation, Gecina has completed or secured nearly 2.0 billion euros of sales since the start of 2016 (excluding duties, Group share), including the sale of the Group's healthcare portfolio, which was finalized on July 1.

The amount of sales completed or secured excluding the healthcare portfolio represents 644 million euros, including 483 million euros finalized with a premium of around +15% versus the latest appraisal values and an exit yield of approximately 4.2% based on expected annualized rents for 2016.

Agreement to sell the healthcare portfolio for 1.35 billion euros, with a premium of around 16%

Gecina finalized the sale of its healthcare portfolio to Primonial Reim on July 1, 2016. The transaction represented a total of 1.35 billion euros (including commissions and fees), with a net yield of 5.9% and a premium of around 16% versus the latest appraisal values. For reference, the value retained in the accounts at end-2015 already reflected the price agreed on with the buyer.

339 million euros of office sales completed or secured in 2016

Since January 1, 2016, the Group has completed or secured nearly 339 million euros of office sales, 319 million euros of which have already been finalized, primarily in Rueil-Malmaison, Suresnes and Neuilly. These operations show an average premium versus the end-2015 appraisals of almost 7.3%, with a loss of rental income of approximately 4.7% based on expected annualized rents for 2016.

305 million euros of residential sales completed or secured, with 189 million euros on a unit basis, achieving a premium of around 34% versus the appraisal values

In 2016, Gecina completed or secured 189 million euros of vacant unit-based residential sales, with 162 million euros already completed on, achieving a premium of around 34% compared with their appraisal values, while the loss of rental income for Gecina represents 3.2%. At end-December 2016, nearly 28 million euros of sales were subject to preliminary agreements. Alongside this, Gecina has secured 113 million euros of block residential sales, also achieving a significant premium versus the latest appraisals (around 19%).

Over 321 million euros of new investments secured

Alongside these sales, Gecina has already secured over 321 million euros8 of new investments in assets for development or redevelopment that will be delivered in 2018 and 2019.

This amount concerns the acquisition of three assets, including one off-plan in Issy-les-Moulineaux, while the other two assets - 34 rue de Guersant and 7 rue de Madrid, at the heart of Paris - are already being redeveloped or could benefit from redevelopment programs.

During the first half of the year, Gecina signed an agreement with the developer PRD Office to acquire the “BE ISSY” office building off-plan, with delivery in 2018. This asset, located in Issy-les-Moulineaux, in the Southern Loop of Paris’ Western Crescent, will offer a gross leasable area of around 25,000 sq.m and 258 parking spaces. The transaction represents a total of 161 million euros including commissions and fees. Based on current market rents, Gecina expects this operation to achieve a net yield on delivery of 6.7%.

At the start of the second half of 2016, Gecina also acquired a building at 34 rue Guersant (Paris 17th) for nearly 51 million euros. This building, currently occupied by CBRE under a lease that will end in 2017, is adjacent to another asset already owned by Gecina at 32 rue Guersant, which is under redevelopment. The two buildings will be able to represent a combined complex with 20,000 sq.m of space, which is rare at the heart of Paris, while potentially offering significant operational synergies.

Lastly, the Group has acquired a 10,500 sq.m asset located at 7 rue de Madrid (Paris 8th), in Paris' CBD. This asset, which is currently vacant, is now being redeveloped, taking the total volume of investment up to almost 109 million euros, with a net yield on delivery of nearly 6.4%.

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8 Total amount of investments secured including acquisition prices and outstanding capex through to project deliveries

Buoyant project pipeline creating value over the short, medium and long term

In 2016, Gecina's pipeline grew to over 3.7 billion euros, despite the delivery of the “City 2” and “Le Cristallin” buildings in Boulogne-Billancourt. More than 41% of this portfolio is made up of committed projects (1.54 billion euros), with 19% controlled and certain projects (0.70 billion euros), on which work will start up when their current tenants leave, while 40% (1.49 billion euros) is made up of projects identified within Gecina's portfolio, but when tenant departures are not yet certain.

Seven new projects representing over 100,000 sq.m of offices were launched this year in Paris, Neuilly, Levallois-Perret and Issy-les-Moulineaux.

In total, the pipeline for committed projects could generate up to 100 million euros of additional rental income.

1.54 billion euros of committed projects with deliveries expected primarily for 2018

The committed pipeline is up to 1.54 billion euros (versus 0.91 billion euros at end-2015), with an average yield on delivery of around 6.4% expected, offering significant value creation potential given the project locations. Half of this committed pipeline is concentrated in Paris City, with 37% in the Western Crescent (Levallois, Neuilly and Issy-les Moulineaux).

The year-on-year increase in the committed pipeline (+628 million euros), despite the delivery of two buildings (City 2 and Le Cristallin), reflects the inclusion of seven new committed projects:

  • Two acquisitions of projects and assets for redevelopment (“Be Issy” in Issy-les-Moulineaux and Paris-Madrid).
  • Launch of redevelopment work on five buildings located in Paris City, Levallois and Neuilly, with their deliveries expected primarily for 2018. These five new redevelopment projects represent a total investment volume of around 614 million euros.
  • The “City 2” and “Le Cristallin” buildings, which were delivered in the first half of 2016, represented only 258 million euros.

At end-2016, 463 million euros were still to be invested on committed projects, with 276 million euros in 2017, 170 million euros in 2018 and 17 million euros in 2019.

0.70 billion euros of “controlled & certain” projects over the short or medium term, exclusively in Paris' CBD

The “certain” controlled pipeline concerns the assets held by Gecina that are currently being vacated and for which a redevelopment project aligned with Gecina’s investment criteria has been identified. These projects will therefore be launched over the coming half-year or full-year periods. These “certain” projects that have not yet been committed to represent a combined total of 0.70 billion euros (versus 1.2 billion euros at end-2015). This reduction reflects the launch of redevelopment work for the “Octant-Sextant” and “20 Ville l’Evêque” buildings in the first half of the year, as well as a real estate complex in Neuilly and another two buildings in Paris during the second half of the year. The “certain” controlled pipeline is now concentrated exclusively in Paris' CBD, through projects with indicative delivery dates from 2020 to 2021.

1.49 billion euros of “controlled & likely” projects over the longer term, with 87% in Paris City

The “probable” controlled pipeline covers the projects identified and owned by Gecina that may require pre-letting (for greenfield projects in peripheral locations within the Paris Region) or cases when tenant departures are not yet certain over the short term.

    Immostat   Delivery   Space   Total   Already   Still to   Est. yield   Exit yield   Pre-
Projects sector date investment invested invest on cost on delivery letting
(sq.m) (€m) (1) (€m) (2) (€m) (net) (exp.) (%)
Paris - 55 Amsterdam Paris non-CBD Q1-17 12,300 101 95 6 7.5% 0%
Lyon - Gerland Lyon Q2-17 20,300 52 46 5 8.4% 100%
Levallois - Octant Sextant New Western Crescent Q1-18 37,500 222 167 55 7.2%
20 Ville l'Evêque New Paris CBD Q1-18 6,400 69 60 9 5.4%
Paris - Guersant Paris non-CBD Q3-18 14,100 127 94 34 6.1% 0%
Lyon Part Dieu - Sky 56 Lyon Q3-18 30,700 133 69 64 6.9% 83%
Paris – IBOX (previously Sunflower) Paris non-CBD Q3-18 19,400 163 108 55 5.9% 0%
Issy les M. - Be Issy New Western Crescent Q3-18 25,000 161 74 86 6.7%
Paris - Friedland New Paris CBD Q4-18 2,000 23 18 6 5.7%
Undisclosed project (3) New Paris Q4-18 182 159 23 5.2% (3)
Neuilly New Western Crescent Q2-19 14,500 116 90 26 5.9%
Paris - 7, Rue de Madrid   New   Paris CBD   Q3-19   10,500   109   64   45   6.4%        
Total offices               >192,700   1,458   1,044   414   6.4%   4.6%    
Marseille - Mazenod Other regions Q2-17 3,700 14 11 4 6.7% 5.3% NA
Puteaux Valmy – Skylights Western Crescent Q2-17 4,000 21 7 14 6.4% 5.0% NA
Puteaux - Rose de Ch.       Western Crescent   Q2-18   7,400   43   13   30   6.9%   5.0%   NA
Total student residential               15,100   79   31   48   6.7%   5.0%    
TOTAL committed projects               >207,800   1,538   1,075   463   6.4%   4.6%    
                                         
Controlled and certain           2020-2021   47,300   698   538   159   4.8%   3.9%    
Controlled and probable           2019-2024   199,400   1,489   618   871   6.7%   4.9%    
                                         
Total pipeline               >454,500   3,724   2,231   1,493   6.2%   4.6%    

(1) Total investment for the committed pipeline = latest appraisal value from when the project started up + total build costs. For the controlled pipeline = latest appraisal to date + operation's estimated costs
(2) Includes the value of plots and existing buildings for redevelopments
(3) This project, which is currently occupied, is classed as committed since the tenant's departure has been firmly agreed on for the end of the first half of the year

Portfolio value up +3.8% like-for-like in 2016

The portfolio value (block) represents 12,078 million euros, up +3.8% (+4.6% on a unit value basis) like-for-like compared with December 31, 2015. This increase in value includes a very slightly positive rent effect, indicating the effective upturn on the rental market.

Like-for-like, the office portfolio value is up +4.3%, reflecting a +6.4% increase in value for the Paris portfolio. The other sectors recorded lower increases, with +1.7% growth for the Western Crescent and La Défense, while the other sectors are virtually stable (Paris Inner and Outer Rim and Lyon). These appraisals reflect a 22 bp compression of capitalization rates for offices to 4.65% on a like-for-like basis since the end of 2015.

The valuation retained for Gecina’s residential portfolio is up +2.2% like-for-like for the period.

The average capitalization rate for Gecina’s portfolio, including the residential portfolio on a block value basis, comes to 4.60%, with an -18 bp compression over one year.

Breakdown by segment   Appraised values   Net capitalization rates   Like-for-like change
In million euros   2016   2015   2016   2015   Dec. 2016 vs. Dec. 2015
   
Offices / Retail   9,434   8,892   4.65%   4.87%   +4.3%
Paris City 5,125 4,710 4.22% 4.50% +6.4%
Paris CBD - Offices 2,609 2,576 4.42% 4.48% +0.8%
Paris CBD - Retail units 1,298 1,098 2.64% 3.04% +19.0%
Paris excl. CBD 1,218 1,036 6.21% 6.71% +6.0%
Western Crescent - La Défense 3,399 3,392 5.01% 5.09% +1.7%
Other 910 790 6.14% 6.32% +0.7%
Residential (block)   2,644   2,667   4.37%   4.45%   +2.2%
Healthcare   0   1,316   NA   NA   NA
Group total 12,078 12,875 4.60% 4.78% +3.8%
Total unit value   12,788   13,531           +4.6%
 

NAV growth supported by the strategy and favorable market trends

Diluted EPRA triple net NAV (block) came to 132.1 euros per share, with strong growth of +7.7% year-on-year. The total return performance represents nearly +12%, including the 5 euro dividend paid out in 2016.

Diluted EPRA NAV (block) represents 133.8 euros per share, up +7.1%.

This performance reflects a compression of capitalization rates for offices in Paris in particular, and a slightly positive business plan effect, as well as the impacts of Gecina’s total return strategy, through high levels of capital gains on sales that have been completed or are underway (+1.3 euros per share), combined with the increase in the value of assets acquired recently, and the portfolio under development (+2.9 euros per share).

NAV per share growth represents +9.5 euros for 2016 and can be broken down as follows:

  • Dividend: - €5.0
  • Impact of recurrent net income: + €5.5
  • Value adjustment on assets like-for-like: + €6.2
  • Net value increase for 2016 acquisitions and pipeline: + €2.9
  • Net capital gains from sales completed or underway: + €1.3
  • Fair value adjustment on financial instruments, debt and bond redemptions: - €0.9
  • Other: - €0.5

On a unit value basis, diluted EPRA NAV represented 143.6 euros per share at end-2016, compared with 133.7 euros per share at December 31, 2015, up +7.3%.

    Dec 31, 15   Jun 30, 16   Dec 31, 16
In million euros  

Amount /

number of

shares

 

€ /

share

 

Amount /

number of

shares

 

€ /

share

 

Amount /

number of

shares

 

€ /

share

Fully diluted number of shares   63,327,690     63,370,944     63,402,484  
Shareholders' equity under IFRS 7,736 7,961 8,276
+ Receivable from shareholders 157.1 -
+ Impact of exercising stock options 57.5 35.2 17.7
Diluted NAV 7,793 €123.1 8,153 €128.7 8,294 €130.8
+ Fair value reporting of properties, if amortized cost option is adopted 86.6 87.9 92.9
- Increase in transfer duties -72.9 0.0 0.0
+ Optimization of transfer duties 74.3 71.4 68.9
- Fair value of financial instruments 26.8 62.5 29.5
- Deferred tax linked to impacts of entry into SIIC system 1.8 0.0 0.0
= Diluted EPRA NAV 7,910 €124.9 8,375 €132.2 8,485 €133.8
+ Fair value of financial instruments (26.8) (62.5) (29.5)
+ Fair value of liabilities (113.4) (165.2) (78.9)
+ Deferred tax linked to impacts of entry into SIIC system (1.8) 0.0 0.0
= Diluted EPRA triple net NAV   7,768   €122.7   8,147   €128.6   8,377   €132.1
 

Outlook for 2017 and the medium-term

2017 will be marked by Gecina's strong choices in terms of value extraction, particularly the sales of mature and non-strategic assets in 2016, as well as the launch of work to redevelop five previously occupied buildings (including three at end-2016) in order to optimize its extraction of value creation potential. In 2017, recurrent net income, restated for the impact of the healthcare sale, is expected to contract by nearly -5% to -6%9. This expected performance reflects the combined impact of underlying growth, which is expected to reach around +2% to +3%10 including the impact of sales (excluding healthcare) and the start of work to redevelop buildings from the portfolio after they have been vacated.

Gecina therefore has very strong potential for growth and value extraction through its pipeline in particular, as well as positive trends for the Group's preferred sectors in terms of real estate investment. In view of this, average recurrent net income growth (CAGR) over the medium term (between 2018 and 2021) is expected to come in at around +5% to +7%11.

As a result, considering the Group’s confidence in its outlook for the medium term, Gecina plans to submit a proposal at the general meeting for a dividend up +4% to 5.20 euros per share for 2016.

__________________

9 This objective may be revised up or down depending on opportunities for investments and sales during the year
10 Including the impact of sales (excluding healthcare) in 2016, deliveries of assets in 2016 and 2017, and organic growth
11 This objective may be revised up or down depending on opportunities for investments and sales

Gecina, a leading real estate group

Gecina owns, manages and develops property holdings worth 12.1 billion euros at end-2016, with nearly 97% located in the Paris Region. The Group is building its business around France’s leading office portfolio and a diversification division with residential assets and student residences. Gecina has put sustainable innovation at the heart of its strategy to create value, anticipate its customers' expectations and invest while respecting the environment, thanks to the dedication and expertise of its staff.

Gecina is a French real estate investment trust (SIIC) listed on Euronext Paris, and is part of the SBF 120, Euronext 100, FTSE4Good, DJSI Europe and World, Stoxx Global ESG Leaders and Vigeo indices. In line with its commitments to the community, Gecina has created a company foundation, which is focused on protecting the environment and supporting all forms of disability.

www.gecina.fr

2016 earnings

APPENDIX

1- FINANCIAL STATEMENTS

CONDENSED INCOME STATEMENT AND RECURRENT INCOME

At the Board meeting on February 23, 2017, chaired by Bernard Michel, Gecina's Directors approved the financial statements at December 31, 2016. The audit procedures have been performed on these accounts, and the certification reports have been issued after verifying the information contained in the annual report, included in the reference document.

In million euros - Excluding application of IFRS 5   Dec 31, 15   Dec 31, 16   Change (%)
Gross rental income   574.6   540.0   -6.0%
Net rental income 526.2 498.9 -5.2%
Services and other income (net) 8.3 1.3 -83.8%
Salaries and management costs (62.1) (63.2) +1.7%
EBITDA 472.4 437.0 -7.5%
Net financial expenses (119.8) (86.0) -28.3%
Recurrent gross income 352.5 351.0 -0.4%
Recurrent minority interests 0.2 (0.2) NA
Recurrent tax (3.5) (3.4) -2.2%
Recurrent net income (Group share) (1)   349.2   347.4   -0.5%
Gains from disposals 91.0 48.4 -46.8%
Change in fair value of properties 1,238.7 530.0 -57.2%
Depreciation and amortization (10.0) (18.9) +89.1%
Change in value of financial instruments (51.6) (26.0) -49.6%
Bond redemption costs and premiums 0.0 (64.2) NS
Costs linked to the public offering for Foncière de Paris 0.0 (4.2) NS
Other   (8.1)   1.1   NS
Consolidated net income (Group share)   1,609.3   813.5   -49.5%
(1) EBITDA less net financial expenses and recurrent tax, and restated for costs linked to the offer for Foncière de Paris
 

CONSOLIDATED BALANCE SHEET

Excluding application of IFRS 5

ASSETS   Dec 31, 15   Dec 31, 16       LIABILITIES   Dec 31, 15   Dec 31, 16
In million euros         In million euros        
 
Non-current assets 11,049.1 11,546.9 Capital and reserves 7,751.4 8,289.7
Investment properties 10,188.3 10,430.6 Share capital 474.5 475.8
Buildings under redevelopment 766.6 1,038.7 Additional paid-in capital 1,897.1 1,910.7
Buildings in operation 61.9 61.1 Consolidated reserves 3,755.0 5,076.1
Other property, plant and equipment 7.2 7.4 Consolidated net profit 1,609.3 813.5
Intangible assets 5.6 6.3 Capital and reserves attributable to owners of the parent 7,735.8 8,276.0
Long-term financial investments 6.8 2.8 Non-controlling interests 15.6 13.7
Investments in associates 3.6 0.0
Non-current financial instruments 9.2 0.0 Non-current liabilities 3,564.2 3,230.9
Deferred tax assets 0.0 0.0 Non-current financial debt 3,501.4 3,158.8
Non-current financial instruments 35.2 31.0
Current assets 2,186.3 798.8 Deferred tax liabilities 0.0 0.0
Properties for sale 1,842.7 547.4 Non-current provisions 27.6 41.0
Trade receivables and related 82.5 105.9
Other receivables 91.1 67.7 Current liabilities 1,919.9 825.1
Prepaid expenses 23.6 17.6 Current financial debt 1,362.3 481.6
Current financial instruments 0.0 1.5 Current financial instruments 0.8 0.0
Cash and cash equivalents 146.4 58.6 Security deposits 54.2 49.3
Trade payables and related 383.6 211.7
Current taxes due & other employee-related liabilities 37.8 41.2
Other current liabilities 81.2 41.3
                   
TOTAL ASSETS   13,235.4   12,345.7 TOTAL LIABILITIES   13,235.4   12,345.7
 

2- INVESTMENTS DURING THE YEAR

In million euros   2016
Maintenance capex / lfl portfolio 52
Pipeline investments / Development 228
Of which, capitalized financial expenses 6
Acquisitions   123
Total investments in 2016   403
 

3- FACTORS FOR LIKE-FOR-LIKE RENTAL INCOME CHANGES IN 2016 VS 2015

Offices (74.5% of Group rental income excluding Healthcare)

Like-for-like change   Indexes   Business effect   Vacancy   Other
-0.5%   +0.2%   -1.1%   +0.4%   0.0%

Residential (25.5% of Group rental income excluding Healthcare)

Like-for-like change   Indexes   Business effect   Vacancy   Other
-0.5%   0.0%   +0.1%   -0.5%   0.0%
 

4- RENTAL RISKS

Gecina's tenants operate across a very wide range of sectors responding to various macroeconomic factors.

Breakdown of tenants by sector (offices - based on annualized rents):

        2016
Public sector       10%
Insurance 2%
Other 3%
Banking 5%
Real estate 3%
Industry 13%
IT 3%
Luxury goods - retail 13%
Media - television 1%
Services 40%
Telecoms       6%

Volume of rental income by three-year break and end of leases:

In million euros   2017   2018   2019   2020   2021   2022   2023   > 2023
Three-year breaks 68 70 74 16 32 20 15 75
End of leases   34   30   43   38   58   16   31   119

5- FINANCING

5.1 Debt structure

Gecina’s gross financial debt represented 3,640 million euros at December 31, 2016, compared with 4,863 million euros at end-2015; net financial debt came to 3,582 million euros at end-2016, down 1,135 million euros, primarily linked to sales completed during the year.

The main characteristics of the debt are as follows:

Debt structure    
    Dec 31, 2016   Dec 31, 2015
Gross financial debt (in million euros) (1) 3,640 4,863
Net financial debt (in million euros) 3,582 4,717
Gross nominal debt (in million euros) (1) 3,616 4,814
Unused credit lines (in million euros) 2,245 2,410
Average maturity of debt (in years, restated for available credit lines) 6.7 years 5.7 years
LTV 29.4% 36.4%
LTV (including transfer taxes) 27.7% 34.7%
ICR 4.9x 3.9x
Secured debt / portfolio value   6.5%   7.7%

(1) Gross financial debt = Gross nominal debt + impact of the recognition of bonds at amortized cost + accrued interest not due + other items

Breakdown of gross nominal debt:

    Dec 31, 16
Bonds   67%
Corporate loans 1%
Mortgage loans 21%
Finance leases 1%
Short-term resources covered by long-term credit lines   10%

5.2 Debt schedule

The following table presents the schedule for Gecina's financing facilities at December 31, 2016, including unused credit lines:

Maturities       2017       2018       2019       2020       2021       >2021
In million euros       272       270       788       885       916       2,376
                                   

All the credit maturities for the next three years are covered by the unused credit lines (2,245 million euros) at December 31, 2016. In addition, 100% of drawn debt (after factoring in undrawn credit lines) has a maturity of over three years and nearly 70% has a maturity of over five years.

In line with the 2016 bond issue, the company has adapted its short-term hedging portfolio, with 23 million euros paid out.

5.3 Bank covenants

Gecina's financial position at December 31, 2016 is compliant with the various limits likely to affect the conditions for repayment or early repayment clauses in the various credit agreements.

The following table presents the position for the main financial ratios covered under the agreements:

Ratios   Benchmark standard   Position at

Dec 31, 16

Loan to value (block, excl. duties)   < 55%   29.4%
EBITDA (excluding disposals) / net financial expenses > 2.0x 4.9x
Outstanding secured debt / net asset value of portfolio (block, excl. duties) < 25% 6.5%
Net asset value of portfolio (block, excl. duties) in million euros   > 6,000 – 8,000   12,171
 

6- ANNUALIZED GROSS RENTAL INCOME

The change in annualized rental income between December 31, 2015 and December 31, 2016 reflects Gecina's strategic choices. From 507 million euros (excluding healthcare) at end-2015, annualized rental income came to 479 million euros at end-2016 (down –5.4%), primarily due to the impact of sales (excluding healthcare) carried out during the year (-21 million euros, -4.1%), in addition to five assets that are now being redeveloped following their tenants’ departures (-17 million euros, -3.3%), which will have an accretive impact on Gecina’s rental and valuation aggregates. The significant changes in scope conceal a positive business plan effect (change in the vacancy rate, rental reversion on acquisitions and deliveries) of around +10 million euros, i.e. +2.0%.

Annualized rental income corresponds to the effective rental position on the year-end reporting date. As such, it does not take into consideration lettings or properties vacated, or sales or acquisitions of buildings that would not have an impact by the year-end reporting date.

In million euros   IFRS-2015   IFRS-2016
Offices   376   350
Traditional residential 117 114
Student residences   14   15
Total excluding healthcare   507   479
Healthcare   79   NA
Total 586 479
 

7- PAYOUT

A proposal will be submitted at the General Meeting on April 26, 2017 to approve a cash payout of 5.2 euros per share in relation to 2016.

Once the dividend for 2016 has been released for payment, a 50% interim payment (2.6 euros) will be made on March 8, 2017, followed by the balance on July 7, 2017.

This document does not constitute an offer to sell or a solicitation of an offer to buy Gecina securities and has not been independently verified.

If you would like to obtain further information concerning Gecina, please refer to the public documents filed with the French Financial Markets Authority (Autorité des marchés financiers, AMF), which are also available on our internet site.

This document may contain certain forward-looking statements. Although the Company believes that such statements are based on reasonable assumptions on the date on which this document was published, they are by their very nature subject to various risks and uncertainties which may result in differences. However, Gecina assumes no obligation and makes no commitment to update or revise such statements.

Contacts

GECINA
Financial communications
Samuel Henry-Diesbach
Tel: +33 (0)1 40 40 52 22
samuelhenry-diesbach@gecina.fr
or
Virginie Sterling
Tel: +33 (0)1 40 40 62 48
virginiesterling@gecina.fr
or
Press relations
Brigitte Cachon
Tel: +33 (0)1 40 40 62 45
brigittecachon@gecina.fr
or
Armelle Miclo
Tel: +33 (0)1 40 40 51 98
armellemiclo@gecina.fr

Contacts

GECINA
Financial communications
Samuel Henry-Diesbach
Tel: +33 (0)1 40 40 52 22
samuelhenry-diesbach@gecina.fr
or
Virginie Sterling
Tel: +33 (0)1 40 40 62 48
virginiesterling@gecina.fr
or
Press relations
Brigitte Cachon
Tel: +33 (0)1 40 40 62 45
brigittecachon@gecina.fr
or
Armelle Miclo
Tel: +33 (0)1 40 40 51 98
armellemiclo@gecina.fr