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Shopping malls have experienced down values in Europe since 2018 but Offices reached their tops in February 2020. We now anticipate a 10-15% cut in values, as a minimum. It was 18% in 2008-09. We now factor it in our model for Gecina.
Gecina
One again, in FY 19, revaluations were very positive in the French Offices’ market. Provincial assets (Lyon, Bordeaux…) registered 7% valuation growth (mostly in H2 19). It led Gecina’s net capitalisation rate to 3.90% (Offices, all areas) with another slight yield compression of 20bp. The latter favoured the best central locations, while the inner and outer rings of the City of Paris were much less resilient. Gecina’s recent share price reaction confirmed vulnerability to macros. Negative stance is maintained.
The Q3 19 set of figures demonstrated the resilience of Gecina’s assets, i.e. its Prime Offices and apartments in the very heart of the City of Paris. There was no red flag but some fragilities have become progressively more concrete in both the first and second rings around the City.
Confirming market information, the Offices segment of the City of Paris signed another good half, including a slight yield compression of 14bp. The trend weakened clearly in La Défense where we can worry about the coming over-supply and was negative in both the 1st and 2nd rings around Paris (rental values are now in negative territory).
The Parisian office market shows remarkably robust figures in terms of vacancy and rents in Q1 19. Nevertheless, we cannot consider it as completely immune to macro issues. We therefore adopt a more cautious stance by adjusting both the target price and recommendation.
Good FY 18 figures. The good pipeline ensures 2019-2021 average 4% growth in revenue and net recurring profit in our view. However current Capitalization Rates on some assets are approaching the limit of potential value destruction.
Gecina continued benefiting from positive trends in the Paris Region office market, particularly in Paris CBD. Demand remained good, pumping up rental prices.
Gecina benefited from positive trends in the office market in Paris and favourable funding conditions (targeting LTV below 40%). Rental activity was supported by the lack of available spaces (in Paris mostly, where 89% of Gecina’s portfolio is located). Management raised its earnings guidance to +8% (vs. +6% previously) growth in recurrent EPS and an organic growth of +2% for offices (as estimated in our model). We stick to our earlier positive stance on the stock.
Gecina’s GRI increased by 3.5% yoy (2.1% lfl) to €558.9m (higher that estimates), and EBITDA was up by 3.8% yoy, to €453.5m. This has led to a 4.6% increase in recurrent net income to €363.5m, exceeding the company’s initial expectations. The performance was driven by Eurosic’s integration and the optimisation of financial expenses. We will revise upwards our numbers, including Eurosic’s integration.
Gecina published its H1 17 figures. Gross rental income accounted for €240.6m, down by 7.27% on a yearly basis (+1.6% lfl). EBITDA stood at €183.6m, a decline of 8.8% yoy. The financial occupancy rate for the period came to 95.5%, stable yoy. LTV stood at 29.3%, down by 100bp compared to FY16. The property portfolio at €13bn increased by 9.6% over six months (c. 76% in offices, 22% in traditional residential and 2% in student residences). Net financial debt amounted to €3,936m (c. 70% long-term bonds), down by 17% yoy. The average cost of debt came to 2.1% for the first half of 2017, down slightly (-10bp) compared with 2016. Gecina renewed its executive committee around Méka Brunel, with five new members. It created two business units for Offices and the Residential portfolio, and recruited two executive directors to head up these units.
- Gecina announced the coming merger with Eurosic to form the fourth largest REIT player in Europe (GAV €19bn) and the first Office player in Continental Europe GAV €15bn. Eurosic is currently worth €6.2bn GAV and owns offices that represent 86% of total GAV. 83% of the office assets is located in Greater Paris. - The acquisition at net yield of 5.1% will be financed by a combination of debt and a rights issue (€2.5bn financing bridge, o/w €1.5bn bond issuance and the remaining in a rights issue. The merger is to take place in September 2017.
As a remainder FY16 was marked by revenues at €540m, down 6% yoy, an expected decline following the disposal of Gecimed, and the lack of immediate EPS accretive acquisitions. Revenues also came in flat on an organic basis, on the still lagging indexation and negative reversions from rent renegotiations done in 2015. EPS at €5.52 declined by 1.7% yoy, and the dividend was increased by 4% to stand at €5.20/share. The financial position remained strong with an LTV now at 29.4% which is expected to increase to above 30% in 2017, while cost of debt decreased by 50bp to 2.2% and average debt maturity increased to 6.7% from 5.7% yoy. The year-end was also marked by the arrival of the new CEO Meka Brunel, who plans on accelerating the group’s current value creation strategy. As such, 2017 will be marked by shareholder value creation through a share buy-back of €300m. Excluding potential investments and disposals, management guides for a decrease in FY17 EPS of 5-6%.
Gecina published its 9m figures. GRI stood at €419.2m, down -1.3% yoy (-0.7% lfl). EBITDA at €345.3m is down 2.6% yoy and net income at €273m, up 2.9% yoy. Cost of debt now stands at 2.2% (1.7% on drawn debt, and management has secured €194m of disposals in Residential assets. The group has revised its EPS guidance for FY16, now targeting 7% growth excluding Gecimed, from 5% previously.
Gecina published its H1 16 figures with GRI at €298m, up 8.2% yoy, supported by T1&B and PSA, and flat on an lfl basis, with indexation remaining low (+0.3%) and renewals and renegotiations in offices impacting organic growth. Triple net NAV stood at €128.6, gaining 4.8%, and the group share EPS gained 15.4% yoy to €3.16.
Gecina has just announced a public offer on Foncière de Paris and proposed cash of €150 per FdP share, or an exchange of 6 Gecina shares for 5 shares of FdP. The proposal stands at a 10% premium on the offer previously proposed by Eurosic. As reminder, in March 2016, Eurosic offered €136 per share, for shares of FdP or a premium of 1.5% on the group’s FY15 NAV. An interesting battle, wait and see.
We have updated our model on Gecina to capture more aggressive expectations for Paris. Gecina published Q1 16 results with GRI at €147m, up 7.3% yoy and flat lfl as expected. EBITDA stood at €122.6m, up 8.3% and net income at €96.8m gained 16% yoy. The group has confirmed its target of net income growth of above 5% excluding Gecimed.
*We have updated our model on the group’s positive FY15 figures. We maintain our positive stance on the French office pure play but hold a wait-and-see position on future investments and/or extra dividend payment* *FY 15 figures:* * GRI at €574.6m was up 6% and came in above expectations of €572m. Recurrent net income GS climbed by +12.2%, and EPS at €5.61 gained 8.6% and stood marginally in line with our expected (€5.60) and the revised guidance. The dividend was announced at €5.00 per share, also beating our expectations of €4.98. * 2015 has been a dynamic year for Gecina with a total of €1.9bn of acquisitions and developments and €1.9bn of disposals including the Gecimed portfolio. * The strong growth in triple net NAV (+21.2% to €122.7/share) above both our expectations and consensus was supported by gains on disposals and yield compressions. The portfolio's value gained 24.5% yoy and 10.8% lfl to now stand at €12.9bn (including Gecimed). The office portfolio experienced the strongest growth at +14.4% lfl, with Paris increasing by as much as 19.2% lfl. An impressive growth mainly supported by yield compressions: -80bp to 5.17%. * The financial position also remains strong with net debt increased to €4.7bn, decreasing the average cost of debt to 2.2% from 3%, and the LTV now stands at 36.4%
Gecina published its H1 15 figures with GRI at €276.2m, down 1.1% lfl, impacted by negative reversions and limited indexation. The NAV stood at €103.9m, 3% below our FY15 expectations and the group share EPS was up 1.1% yoy to €2.74. The pipeline has been increased to 23.3% of the total portfolio, now standing at €2.8bn (from 16.5% at FY14), o/w 6.4% is committed. And management has made an upward revision of its FY15 guidance with net income growth now expected between +6% and +9% and GRI lfl growth maintained at -1% for FY15.
We have updated our figures following the announcement of the coming acquisitions of an Office portfolio in La Défense and Paris T1&B and PSA’s historic headquarters in Avenue de la Grande Armée in Paris. The portfolio acquired for €1.24bn is expected to be EPS accretive immediately (signature in August 2015). T1&B are let to Engie (GDF Suez) with 12 and 10 years leases respectively and PSA holds a lease until 2017-18. Gecina also raised a €500m, 2% coupon bond to help finance the acquisition. Management has revised its bottom line guidance for FY15 to growth of at least 6%, from stable previously.
