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Hello, and welcome to the Gecina's conference call business at September 30, 2022. My name is Caroline, and I will be your coordinator for today's event. [Operator Instructions] On the call today, we have Benat Ortega, CEO; Nicolas Dutreuil, Deputy CEO in charge of Finance; and Samuel Henry-Diesbach, Head of Financial Communications. I will now hand over the -- to your host, Samuel Henry-Diesbach, Head of Financial Communications, to begin today's call. Thank you.
Good morning, and hello, to everyone. Thank you for being with us for this conference call related to our business activity in Q3 2023 (sic) [ 2022 ]. I'm Samuel Henry-Diesbach, and I'm here with Benat Ortega, CEO; and Nicolas Dutreuil, our Deputy CEO in charge of Finance.
After a quick introduction by Benat regarding our performance for this quarter, Benat, Nicolas, and I will be happy to answer all the questions you may have. And I'll hand the floor to Mr. Ortega.
Hi, everyone. Thank you for being with us this morning. As you may have seen already in the press release published yesterday, our performance has been particularly robust this quarter again, bringing therefore confidence for the quarters to come. It's clear that the performance we are able to deliver this year may contrast with uncertainty that seems to worry stock market. But to us, this is largely due to our strength, the quality of our portfolio that provides visibility and high capacity to perform well. As you may have seen, reversionary potential remains strong. We've been able to capture 16%, 1-6, uplift in rents in average on our portfolio this year over the last 9 months and even almost 30% in Paris City. We have also, at the same time, the capacity to capture the benefits of indexation over the next months. And the second strength is obviously the quality of our balance sheet with financial expenses hedged at slightly more than 90% until end of '24, but also have in mind that 75% is hedged until 2028, with an average debt maturity of more than 7 years. Since we are talking about the liabilities, I would like to add a few things about what we have done in the last months. We have improved liquidity significantly by extending or renewing EUR 600 million of responsible credit lines with an average duration of more than 7 years and a margin which is consistent with the previous margins. So we are super happy and thankful to our partners, the banks. We have, therefore, no liquidity issues since the surplus liquidity of more than EUR 1 billion is covering all our maturities for drawn debt through to 2027.
At the same time, on the operating side, the combination of several supportive factors is delivering the acceleration of our performance. One, like-for-like rental growth is up by 4%, while it was 3% at end of June and 2% at end of March. So clearly, we see an acceleration of our like-for-like growth. I have in mind that as a consequence, the third quarter is delivering a 6% growth against the third quarter of 2021.
Obviously, 3 elements: the increase in occupancy rates during this quarter after several quarters of improvements. Indexation is progressively contributing to our like-for-like growth but still pretty low at 1.5% contribution. And a significant rental reversion, as I said, 16% in Q3. Obviously, it will deliver more growth over the next quarters. This is very true for our office business, but same goes with our resi business since we have accelerated also on rental reversion on our resi business. And now on Q3, reversion is more than 10% on our residential portfolio. So like-for-like growth clearly is an improvement factor.
Pipeline. The pipeline contribution is now positive. And most of the deliveries are now secured because we have a very high level of pre-letting on those deliveries for 2022 and 2023. How do we achieve that? Through quite iconic transactions in the CBD. We closed our Boétie pipeline project, which is now 100% let. We have relet our 64 Lisbonne building to a luxury brand. And those deals, combined with the 3 Opera, so facing the Opera Garnier in Paris, we have achieved those deals above EUR 950 per square meter, which is amazing for those locations.
In terms of also iconic deals or results, I think our achievement on our student housing portfolio is amazing. Since we posted 18% like-for-like growth on that business, largely due to an improvement in occupancy, but also like I commented during Q2, a significant improvement in our pricing power on that business.
And then the last element on those quarterly results, we have achieved for the first time, I think, to be #1 in offices by resi this quarter. So we are very happy to announce that today. So we are now ranked first in Western Europe for the Office real estate -- for real estate company. We're also AAA rating by MSCI.
So as a conclusion, obviously, a lot of uncertainties, we are careful and cautious on interest rates, obviously. But thanks to our precautionary management of our balance sheet, but also our strong performance, we are happy to be able to confirm our objectives for 2022. And therefore, we confirm recurrent net income target at EUR 5.55 per share as announced in June 2022, which is up by 4.3% compared to 2021. After that quick introduction, obviously, we are -- Nicolas, Samuel, and I are available to answer your questions.
[Operator Instructions] We will take our first question from line Jonathan from Goldman Sachs.
A couple of questions. First of all, just on the occupancy rate. If we look at September, you're up 20 basis points. Can you comment on, first of all, where the Office -- do you think where that's going to go? Do you have more potential to take it up from the current level of 92.3%? Have you already signed contracts with the pockets that are planned, and you highlighted the strong performance of student residencies and yet the occupancy rate was down in September. So is that a seasonal pattern? Or is there anything else that we should think about for this business? That's the first question, please. Second part, and obviously, you haven't updated your valuations as part of this release, but can you perhaps help us understand where you think valuation is heading? Some investors think that the properties with the low yield need to reprice the most in terms of taking deals to more of a 4% rent and something that Prime will be more resilient. So what do you see currently in the market regarding that debate?
Thank you, Jonathan, for those questions. Occupancy obviously, we are working hard to improve that occupancy rate. What we say that the average occupancy, which drives the rents up for the quarter, is an average one. But we -- as an anticipation for future quarters, our occupancy rate spot has also increased by more than 100% -- 100 basis points, not 100%, sorry. So -- and I think we have room to improve that occupancy over the next quarters. I'm sure we are working hard on that, and there is no reason we can't achieve it. Student housing, we are back to pre-COVID levels in occupancy around 1% below, but -- same but we improved significantly our rates. I think where we can improve still is, let's say, the -- not September because September we are where we wanted to be, high prices and high occupancy. But maybe next year, we will try to improve a bit the April to July period. So we'll work on that. No worries. On valuation, it's too early. Just to comment, you may see on leasing market, the investment market is always a small proxy of where the demand is. We see a great demand on central location, vacancies, low rents. As you can see, we have achieved rents above EUR 950 in Opera District that shows that the appetite is still super there. So we see a reversion, we see appetite, and obviously, having yields moving faster where there is leasing demand against places where the demand is not there any more, sounds to me a bit well, but we don't comment that more.
Anything like what are you seeing in terms of transactions currently and the [indiscernible] in Paris? Are you seeing those adjusted results of negotiation started 6 months ago? Or do you see -- do you expect more transactions to happen to the sort of similar levels towards the end of the year as to what's happening currently?
To be fair, we are not massive sellers, so we don't see that part of the market, but the -- but my intuition is that, yes, the market has slowed down. It doesn't mean that the market has repriced, but the market has slowed down in terms of volume. That's more an impression than figures. I think we'll have to wait for brokers to deliver information.
I think we still have questions. Caroline, can you please transfer the next question?
Yes, the line is open now for [ Stefan Offen ].
Yes, and thank you for the presentation. Three questions from my side. So the first one on the Office division. Could we have the reversion rate that was captured during the first 9 months of the year outside Paris?
And also in regards to the Offices, what could we expect for the next 3 years in terms of negative impact due to new assets to be transferred to the pipeline?
And finally, could we have an idea of the spread in terms of financing costs between the bond market and the bank lending market?
Maybe on the last one. So the banking market, as you know, that what we have renewed our undrawn bank facility. So the cost within our P&L is majorly noncommitment fees. That's pretty super limited. The spreads on our bank facilities, if we draw the debt is below the spread -- it's below the spread. So it's -- in terms of spread, it's cheaper than going on the bond market today, but obviously, it's a confidential information. So I will not go through the details, but -- so the spread are -- seem super tight on those bank loans. And obviously, interest rates are what they are. Assets transferred on pipeline, we have moved, in fact, and that was communicated already in June, Marbeuf, into the pipeline. So that's an asset in [indiscernible] of Paris, where we have quite a big ambition on that. That would be a landmark building, where I think we do great stuff and work should start over the next weeks. So we have emptied the building. We are currently clearing the building, and we will launch those refurbishment products, the ideas to create more square meters, more valuable square meters, terraces by changing the technical equipment and bring that to the best CSR standard.
Okay. But just one question about that. So do you think that you will have a net positive impact of the pipeline for the next 2 years?
We never comment 3 years in advance. But what we gave was indication of what the pipeline will deliver. And yes, this quarter, our pipeline is starting to deliver. And obviously, the next quarter, it should be a rationally improving our cash flow, yes. We gave the details of our pipeline in June.
And the reversion rates outside Paris?
The reversion rate outside Paris is slightly negative. We had a negotiation, I remember in Colombes, I think, which was not an easy game.
I think the reversion -- that's why we communicate over a long period of time. I think the reversion in some places are not easy. The beauty -- and I remember several comments on that. I think the beauty of Gecina is that 75% of our portfolio is in Paris and Neuilly, 85% is in Boulogne, Issy-les-Moulineaux, Levallois, and I think that's the best strength of the company. So depending on where the transaction lies, when it's not in Paris, obviously, you have different figures. But I think, bear in mind, that 85% of our portfolio is composed of Paris, Boulogne, Levallois and Neuilly, which is still a very, very, very enthusiastic market.
We'll take the next question from Ben Richford from SocGen.
Just it seems like there's no adjustment really for the new economic reality that we face, which surprises me. I mean, I think we're seeing a new paradigm shift across real estate in terms of pricing. Should you not be doing something an adjustment for that? Should you not be looking to dispose more if the market is still there, which isn't the case in many markets across Europe? For the pipeline, have you changed the pre-leasing requirements before you commit to new schemes? What adjustments have you made for what's happened over the last 6 months. It seems that there isn't a change.
Listen, you are not very fair with us. We just renegotiated more than 2 years in advance of our bank facilities. We issued more than EUR 1 billion bonds before the interest rate grew to 0.9% in average for 11 and 15 years. We sold the difficult asset in Ile-de-France early this year. We are securing actively most of our pipeline in an accelerated way at an excellent trend. You know what else? REIT is leasing the buildings at good rents for long durations, streamlining the portfolio. I think we have sold billions of assets over the last year to streamline that portfolio, and like I said, more than 75% of it is now in Paris and Neuilly and having an excellent balance sheet.
So -- and we are steadily, firmly continuing doing that. We are not in an urgent way because we try to anticipate. So we try to do everything in advance. So that's why bank facilities from '24 and '25. That's what we have done this quarter. I think nobody was asking us to do so. But we felt that having no liquidity topic until 2027 was not a bad idea. So we manage the bond markets before the interest rate grew, and we secured the spreads and the liquidity access on our bank facilities this quarter. I think it's not a bad job.
Good. I partly wanted to provoke that. So thank you. And I would agree that certainly balance sheet-wise, you've gotten yourself into a good position that 2027 is a better number than many in terms of offsetting any future near-term maturities. Part of that thinking as well, I guess it doesn't include the committed CapEx. So if you included that as well. How does that look? I know you've got -- you last put some numbers out at the half year. But what is your total CapEx committed?
Yes, we will do that in the same way as we usually do, we'll do it prudently in advance.
So just some of the -- so the total capital committed on development, including the new office you moved into the pipeline, what would that be in aggregate in the next 2 years?
What we said over the next 6 years or 5 years, it's EUR 600 million. I think it's by '26 or '27 million, EUR 600 million. And that should deliver EUR 90 million, EUR 9-0 million rent on an annual basis.
Great. So it's a good return on marginal spend. Okay. And then just a final question. It seems that you're not detecting any pull back in terms of occupier demand yet. I guess Office is a cyclical business. And if we are heading towards a tighter economic environment, recession, it would be natural for Office demand to pare back. How do you see that evolving over the next 18 months?
That's not an easy question. I think we will have -- that's why we try to accelerate on leasing our pipeline. That's why we try to improve our occupancy. I think we are not -- we are still with capacity to improve our occupancy. So even if leasing demand decrease because we are very centrally located and vacancy is at 2%, I think we can cope with that. But obviously, that will be more complex to manage. But I don't see that as a material risk for us based on where our occupancy stands today. That's a bit my point. It's more relative than in absolute terms. But in relative terms, I think we have room to keep it where it is or even improve, yes.
[Operator Instructions] We will take the next question from line of Celine Huynh from Barclays.
Can you talk about what you'd like to do with the Office development in the control and certain pipeline, whether it still makes sense to go ahead with these projects, given that 4.8% low on cost, especially that yields are starting to move out and we have a weaker economic outlook.
That part of the pipeline, which is not committed is obviously something we review super frequently based on profitability and expected profitability. So I will not comment much more on that. I think we'll try to assess what is the leasing demand, where the costs go and what is the return. On the value -- to drop again, like I commented earlier, for the time being, the leasing market is super active in Paris, where most of our portfolio is. And I think a long-term driver of an office portfolio is the rental evolution and scarcity of offer when you deliver good products. So agility, obviously, reviewing each time the returns and pressing on the button when we think there is demand. But for the time being, we still see demand.
Thank you. It appears there's no further questions.
Okay. Thank you very much, everyone, for listening us. Obviously, if you have other questions, Samuel is there to answer it or me or Nicolas and see you next time early 2023. Have a nice day.