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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to the Gecina business at March 31, 2024. I will now hand you over to your host, Benat Ortega, CEO, joined by Nicolas Dutreuil, Deputy CEO in charge of Finance to begin today's conference. Thank you.
Hello to everyone, and thank you for being with us this morning. Before we can answer your questions with Nicolas and Samuel, I would like to quickly comment on our performance and recent achievements. As you may have seen already in the press release published yesterday, our performance has been solid this quarter again, and we can confirm our initial guidance with a net current cash flow growth by 5.5% to 6.5% for the whole year. Indeed, for the first quarter, the group's rental income is up by 6.2% like-for-like, driven first by a solid indexation that remains high with a contribution by 5.2% during this period. Have in mind that the last ILAT index for offices is up by 6 to 5.6%. On top of that, the rental market shows a net performance by the most central sectors of Paris region. Vacancy rate in Paris is, therefore, historically low, 2.3% in Paris CBD, showing a further year-on-year decrease. And the stable take-up in Q1 '24 versus Q1 '23 for the entire Paris region is driven by Paris City and Neuilly, where take-up has grown by nearly 50%, thanks to some large transactions. In this context, Gecina again captured a robust level of rental uplift in this quarter, plus 16% on average, close to 30% in Paris City. Those uplifts have a 1.2% contribution for the first quarter, coming on top of the 5.2% indexation impact. Thanks to our strong balance sheet that allows us to optimize our capital allocation, we can post a 4.2% rental growth on a current basis. With a limited impact of the massive disposals completed since the start of 2023, EUR 1.3 billion with an average premium of 8% versus last appraisals and a loss of rental income of 2.5% only and the positive impact of our development program. Ahead of 2024, we are already working on our growth perspective over the medium term. With a robust financial structure, 34% LTV and a surplus liquidity nearing EUR 4.1 billion, significantly improved in 2023. Gecina is moving forward to prepare next year. During the first quarter, we have even improved our liquidity profile with EUR 0.7 billion new bank credit lines expiring in '25 to '27 renewed with an average maturity of seven years. We are preparing also three major redevelopment projects in Paris and Neuilly to be hopefully launched over the next 12 months as we are in the building permit phase. This would increase our potential for cash flow growth, obviously, and will bring additional value creation potential. These projects represent nearly EUR 0.5 billion of investment to be made with a EUR 35 million to EUR 40 million net additional rents over time. Alongside this, since the end of 2023, we are improving our capacities to optimize revenues on existing assets for both residential and office properties. At this stage, the new solutions have been rolled out for almost 4,000 square meters of offices, and Gecina has identified around 13,000 square meters in the short term in offices. On the resi side, around 450 apartments are currently in the scope to date. Finally, note as well that the group has sold in Q1 EUR 44 million of assets, once again, slightly above appraisal values with an average yield below 3%. Given this solid set of results, we can reiterate our guidance for '24 with the recurring net income Group share expected to reach 6.35 to 6.40 per share in '24 and up by 5.5% to 6.5%. Thank you. And now, Nicolas, Samuel and I are now available for the questions you may have.
[Operator Instructions] We will take our first question from Eva [indiscernible] from Invest Securities.
This is Stéphane Afonso. Thank you for this presentation. I have two questions, if I may. The first one regarding the new project. So, I understand that you are targeting a yield on cost between 7% to 8%. It's quite a huge improvement compared to the 5% I have in mind for your controlled pipeline at the end of last year. So maybe could you give us more color on how did you manage such increase in the yield in the context in which I do not see a decrease in construction costs? So that's my first question.
Thank you for the question. In fact, maybe you've done the calculation, 35 divided by 500. What we are referring when we call investment, it's about asset allocation. It's additional CapEx that we may put in the assets against the additional rents. So that's where you find that revenue. Obviously, the way we were communicating on our development pipeline was new rent against existing value of the asset plus CapEx, but that's less relevant when we talk about asset allocation. So, it's really new cash in in the assets, again, additional rent where you can find those additional CapEx.
So globally, it's about 5% compared to the same level as we could see?
Yes, probably a bit better, I would say.
And just one last question. If I'm right, I understand that the leases having a break or expiry this year represent about 25% of your rental base. So, would it be possible to give us more granularity in terms of location or the main assets that are of concern this year?
It's about breaks and lease expiries, I would say. I think there is an appendix that we presented at the end of last year. I don't have that in mind. But I would say it's pretty in line with the averages of our portfolio. There is nothing really specific on that this year.
Our next question comes from Florent Laroche-Joubert from ODDO BHF.
I would've one question more on the investment market in offices. What's your view today on the appetite on the investment market in offices? And what's your view also on the valuation of the assets and maybe your first discussion that you can have with [us] for the campaign of [indiscernible] 2024.
Thank you. I think we had a call one month or two months ago on our annual earnings. So, I think the market has not changed dramatically. Like I said, I think they are pretty muted outside Paris. Seeing decent appetite for prime assets inside the city. So, in my view, no major evolution. It looks to be a bit easier, but no major evolution on my side. And on valuation, I think, again, we will see -- we have not started to have this [discussion] appraisal. So, I don't have anything to mention so far.
And maybe your appetite to dispose more assets in 2024 because so we can see that, so you only dispose EUR 44 million of assets. So, have you a big appetite to dispose this year?
Same answer like some months ago. I think we -- the beauty of our balance sheet is to remain optional. So, if we can achieve great results we'll do, otherwise, we'll continue with our plan, which is improving our asset portfolio and growing the company. So, nothing specific to mention, even if we are like always, monitoring acquisition and disposals in an optimized way.
We'll take our next question from Adam Shapton from Green Street.
Two quick ones. Just on residential occupancy, you're not spreading out student residences now. Is that a gain there? Just to confirm, is that the seasonal student occupancy that's driving the gains there? Question one. And then the other question on your serviced office solutions. You say the near-term opportunity is about 13,000 square meters. How large do you think that opportunity could be in the medium term? And can you talk a bit about the economics? What kind of premiums are you getting for this product versus conventional office once you take into account the additional costs?
Thank you for your question, Adam. On the first one, yes, like I referred to last time, we are trying to optimize the average occupancy throughout the year on the student housing portfolio. So yes, it's significantly driven by that. And so far, we have been -- you know that classically, student housing occupancy decreased sharply starting in April, May down to July, and then we are full in September. So, we have launched our young adult initiative. And so far, it's paying up. So, you don't really see that in Q1 because Q1, most of the time, we are almost full. But that would drive a bit better. And so, it's proving successful so far. So, the teams are very active on that. So that's first question. The second one on serviced office. We are still in testing mode. So far, we have been successful on small four plates. So, the plan I was referring to over the short term, it's mainly small surfaces that we have in our small assets in Paris. And when looking at the expiries over the next 12, 18 months, we think that we can deploy that initiative there. And obviously, over time, we'll assess if we can do that on larger surfaces or we keep that on small surfaces. The clientele is quite high end on those from hedge funds to private equity funds to small lawyer firms. So, it's pretty high end. And we are achieving uplifts compared to large trends almost by 100% sometimes. And when we compare to ERV because we are always talking about the reversionary potential for our portfolio inside Paris. Against ERV, we can be 25%, 30% in average.
And just to be clear with that, does that take into account the additional costs [indiscernible]
Yes, that's net of all CapEx, additional operating expenses and so on. So, it's really net-net. But so far, it's pretty small. So that's why I'm still prudent my style, so I'm pretty prudent. So, so far, it's proving successful. We'll enlarge that and over time, reassess each time the capacities, the profoundness of the market on those type of services. But so far, it's proving successful.
We will take our next question from Veronique Meertens from Van Lanschot Kempen.
Just one question from my side. Looking at the like-for-like of Paris City, it's slightly below indexation. Is it correct that that's mainly coming from a change in occupancy? And do you have any view on how that's evolving forward and then yes, for the next 12 months?
Maybe two elements. So, you know that indexation is a compound between several indexes, ILAT offices, ILC for retail and the index applicable to resi. So, you can have different indexation in our portfolio depending on how much retail represents typically. So ILC was lower than ILAT. So, one indexation its slightly below the average of the group. And the second is occupancy, we referred to that previously in the calls, typically, when BCG left our Saint-Dominique assets last year to go to live, the asset was empty. We have redone basically our conditioning and we have already released that asset. So, once we redeliver the asset, and it's already released so that should bounce back. So yes, there is an impact by occupancy on Paris CBD. And as there is demand for assets, there was no upside to redo the assets completely. So, there is a small period that work.
So it means that a part of this indexation, in fact, we are getting it through the uplift in rent we have between two tenants.
Yes. But [reversion is] [indiscernible].
Our next question comes from Allison Sun from Bank of America.
I wonder what do you guys think about share buyback? Because it looks like the implied is around 5%. It looks really cheap. Any plan on that front?
No, specific plan on that. For the time being, we are focusing on [repaying] capital in our development projects. Like I said, we are working hard to be capable to launch them. And you know that scarcity in Paris is coming partially by the complexity to get building permits. So, we are working hard on that. And again, we have almost EUR 0.5 billion to invest. And like I commented, a pretty decent profitability. So that's our first and major task these days.
It appears there are no further questions. So, I will hand back to you, Mr. Ortega for any additional or closing remarks. Please go ahead.
Thank you all for listening. Thank you for your questions, and see you soon. Bye-bye.