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Good day, and welcome to the Foncière des Régions Activity Q1 2018 Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Tugdual Millet, CFO of Foncière des Régions. Please go ahead, sir.
Yes, thank you and good afternoon, everyone. Thank you for attending this first quarter result conference call. So I will go directly to the Page 4. And I will start with, obviously, a quick update on the purpose merger with Beni Stabili that has been announced last Friday. The next step is the Foncière des Régions and Beni Stabili board that will be held by the end of May, and by then, work will be performed by the Beni Stabili related party committee to assess the Foncière des Régions proposed parity. In the meantime, you have probably seen that S&P has confirmed the Foncière des Régions current rating, BBB, and has given a positive outlook to the Beni Stabili rating, BBB-. And last, we have also started to buy Beni Stabili share, as announced, and till now, we're about around 1% of the share capital so far. Currently, the Beni Stabili share price is trading in line with the implied parity that we announced last week. Then we can move to the activity of this first quarter, Page 6. And together with the EUR 386 million of disposal on a group share basis that we've done so far, you will find the detail in the appendix, we continue to find attractive investment opportunities in our different markets, and specifically, in German Resi where we continue to expand at attractive conditions and always with strong growth prospects. Year-to-date, this is EUR 195 million of acquisition that we've done in Berlin, in Hamburg and Dresden with an average price of EUR 2,300 per square meter and reversion potential of more than 30%. Page 7. More than ever, developing new building is the key driver of our future growth on office with high yield on cost, low letting risk and strong value creation expectation, specifically in Paris and Milan. During this first quarter, we have signed a preletting agreement on 1/3 of the 26,000 square meter project in the southwest part of Milan with Aon. Aon is a company that is also one of our important tenants in Paris. The project is yielding 7% and will be delivered in 2019 and 2020.Page 8. Development projects are also driving our investment strategy in Paris CBD with an interesting build that we've done recently. During this first quarter, we have sold off 2 office buildings, avenue Kléber, occupied by FDR team to a pension fund who sold us at the same time an existing building that will be fully restructured after the tenant departure by the end of the year. We sold off 2 buildings at EUR 20,600 (sic) [ EUR 21,600 ] per square meter on a 3.3% yield and we acquired the building, the Jean Goujon, at EUR 15,800 per square meter. Basically, with a CapEx program of EUR 3,000 per square meter, we expect value creation potential of around 20% at delivery. At delivery also, FDR could move together all its team in this unique building. On the rental -- on the rent side, Page 10, we are experiencing acceleration of rental growths. With all our markets positioned positively, we are delivering higher rental performance. On Offices, thanks to strong increase in the take-up in Paris and Milan, we are renting more rapidly on new buildings with higher rents than expected. The 2.5% like-for-like rental growth on French Office has to be compared with plus 1% last year. And on the other side, the 2.2% in Milan has to be compared with 2.4% last year. Page 11 on German Resi, the scarcity of the supply in Berlin is continuously supporting rental growth. And thanks to this positive market dynamic, together with tenant churn, we delivered a 5.1% like-for-like rental growth and 6.2% on Berlin only. Finally, on Hotels, Europe end market are well oriented, hence a plus 5% performance on variable rents in France and Belgium and 3.6% in Spain on the portfolio that we bought beginning of last year. On Page 12. We have been able to achieve a 3% like-for-like rental growth for this first quarter. This has to be compared with 2% last year and the revenue for this first quarter amounted to EUR 146 million with a strong decrease on Italian Office following TI disposal and nonstrategic asset disposal and an increase on German Resi and Hotels following the investment that has been done last year and beginning of this year. Last, the French and Italian Office performance is mainly driven by indexation and occupancy rate effects. As a conclusion. To summarize this first quarter, the performance that has been strong and the strategic moves that we announced -- that will be announced make these first 3 months quite dynamic and solid. The choices that we made position ourselves positively to continue to size asset protection opportunity and benefit from the positive rental cycle to deliver strong results. That's it for this first quarter result. Our next event will be held on the 29th of May when we will announce our new identity. This new identity will rely more on real estate operator than on Foncière and will rely more on Europe than on ratio. Thank you very much, and then back to you for your questions.
[Operator Instructions] And our first question comes from Robert Woerdeman of Kempen.
It's Robert, Kempen. Your like-for-like growth in your French Office portfolio was pretty decent, 2.5%. However, 1.5% was actually from vacancy reductions, as you mentioned yourselves as well. What would be a run rate for, let's say, later 2018 and 2019 on your Office portfolio based on the lettings that you're currently negotiating and assuming that the occupancy rate count increase much more?
Well, let's say that this 2.5% is basically what we expect roughly for the full year. This estimate is done on what we expect in terms of mix of departure and reletting. We can expect a bit more, I hope, from indexation, but that would be mostly for the, I would say, the end of the year. And on the reversionary potential, it's fairly low because it has been plus 0.2%. But the amount of, I would say, surfaces that we re-let is also quite low and we do not anticipate that to increase a lot during the full year.
Okay, that's clear. And then with respect to German Residential and Hotels, also pretty decent numbers there. You think that you can keep this run rate throughout the year as well?
Let's say on German Resi, you have -- you need to have in mind that the Mietspiegel has gave -- has given the effect during second half of 2017. So we have the full effect of Mietspiegel indexation on Berlin in the first half, so that should slightly decrease during the second half. And on the other side, we still see very strong performance on the re-letting on the reversionary side so we expect that to be around 5% between, let's say, 4.5% to 5% on the full year. And last, on Hotels, we expect this to be done, I would say, the transfer, the full year also. Again, what we announced was plus 2.5% on the full year. We expect that to be a bit higher than this level considering the performance that we see year-to-date.
And we'll hear next from Valerie Guezi of Exane.
I just have one question on your German acquisition. If I look at the yield, I think you see it's currently 3.6% and it's going to go to 4.3% in 2 years possibly in vacant space. So I just wanted to understand how you get from the 3.6% to this 4.3%? Do you also take part of the 30% reversion? Or is it excluding this reversion? I just want to understand if you would continue on that.
Yes. Basically, this is the effect of mostly from the increase on the vacancy rates that is focused on one asset where we can directly let that market rent. So we will benefit from, I would say, the full effect of that, I think, even much earlier than in 2 years. And we will have also the full effect that is not yet in the current yield of the Mietspiegel that will apply to the tenant. It's an ongoing process, but that we will have in the next 12 months.
Okay. So this -- and this 30% reversion potential, that excludes this effect as well?
Yes.
And your next question comes from Jaap Kuin of ING.
Just a question on the Beni synergies, if I may. I heard you say on the call that the synergies were split 50-50 on cost and finance. So I was just hoping you could shed a bit of light on exactly what type of cost you expect to cut? And in terms of the financing synergies, whether this is kind of a run rate or if that is just for this year and we can maybe expect more going forward with additional Beni debt rolling over? So if you could just highlight those, the split of the synergies you mentioned last Friday.
Yes, basically, what we said on last Friday was to say that based on our deep knowledge of what we can do on Beni, we identified around EUR 5 million of synergies so mix of, let's say, cost and financing. I cannot go at this stage that much more into details. What I can say is that, on the cost side, the most important part is due to the fact that tomorrow there will be any more governance cost and listed cost and all those things. And on financing, that would be mostly from refinancing of existing bond debt.
[Operator Instructions] And at this time, there are no other questions in the queue. I do apologize, we do have one more that is queued up. We'll go to Vladimir Minot of Invest Securities.
Just a quick question. Could you show us a bit more details on the like-for-like growth in the major regional cities in France, which was quite impressive at plus 6.2%?
Yes, thank you for this question. So the 6.2% is basically mostly due to occupancy, mostly on the asset that we delivered at the beginning of 2017 in January in Lyon where we had some delay in the effective date of the tenant moving in the building. And it's also coming from the program of Euromed Center. So mostly due to occupancy effect.
And on the market front, in Lyon for instance, do you see an increase for the primest assets this time as we can see in Paris or Milan?
Yes, yes. On -- we are mostly exposed on la Part-Dieu. As you probably know, we just launched the second phase of Silex development, so Silex 2, which is a building in -- just 50 meters from Silex 1. And what we expect in terms of difference with the last trend that we signed last year is around 10% increase in the economic trend versus what we have been able to deliver 1.5 years ago.
[Operator Instructions] And there are no other questions in the queue. I'll turn things back to you, Mr. Millet, for any additional comments.
Okay. Thank you, everyone, for attending this call and I wish you a good day. Thank you. Bye-bye.
And so again, that does conclude our call. We would like to thank you for your participation. You may now disconnect.