Earnings call: Gecina reports growth and robust strategy in 2023 results

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Earnings call: Gecina reports growth and robust strategy in 2023 results
Credit: © Reuters.

In the latest earnings call, Gecina (GFCP.PA) CEO Benat Ortega presented the Full Year 2023 Results, highlighting the company's resilience and strategic growth in a challenging commercial real estate market. Gecina reported an 8.2% increase in recurring net income per share, reaching EUR 6.01, and announced asset sales totaling EUR 1.3 billion, which exceeded appraisal values. The company's focus on environmental sustainability was evident with a 10% reduction in energy consumption and a 20% decrease in CO2 emissions. Looking ahead, the CEO forecasts a recurring net income growth of between 5.5% and 6.5% for 2024, surpassing consensus estimates. Strong leasing activity and preleasing successes, such as the full occupancy of the Mondo project, were also underscored.

Key Takeaways

  • Recurring net income per share increased by 8.2% to EUR 6.01.
  • Asset disposals totaled EUR 1.3 billion, above appraisal values.
  • Energy consumption and CO2 emissions reduced by 10% and 20%, respectively.
  • Recurring net income expected to grow between 5.5% and 6.5% in 2024.
  • Strong leasing activity with significant rental uplifts and full preleasing of the Mondo project.
  • Ranked number one out of 100 European REITs for ESG performance.
  • Over 90% of debt hedged until 2027, with strong credit ratings.
  • Launch of new initiatives in student housing and serviced offices.

Company Outlook

  • Gecina expects recurring net income to grow between EUR 6.35 and EUR 6.4 per share in 2024.
  • The company has secured €1.7 billion in new financing this year.
  • Focus on growth opportunities in the leasing market and demand for premium operated and serviced properties.

Bearish Highlights

  • Valuation declines have impacted the company, although financial expenses remain under control.
  • Yield levels have shifted up, indicating caution in the market.

Bullish Highlights

  • Gecina's portfolio remains the most liquid in the REIT industry, with a stable loan-to-value ratio of 34%.
  • The company has delivered 2 new projects and has 9 more in the pipeline for the next 12 months.
  • Strong demand for prime office assets, with an occupancy rate expected to remain stable.


  • Rental uplifts and ERP evolutions were sometimes negative outside of Paris.

Q&A Highlights

  • CEO Ortega discussed the normalized rent yield for the CBD office market, acknowledging a market shift but expressing confidence in the company's position.
  • The company is open to potential accretive acquisitions but remains focused on high-return projects.
  • Dividend payout to be revisited next year in line with increased cash flow.

In conclusion, Gecina demonstrated a strong financial performance and strategic foresight in its Full Year 2023 Results Call. The company's commitment to growth, sustainability, and shareholder value was evident, positioning it favorably for the upcoming year.

Full transcript - None (GECFF) Q4 2023:

Operator: Hello, and welcome to Gecina Full Year 2023 Results Call. My name is Alicia, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to Benat Ortega, CEO; and Nicolas Dutreuil, Deputy CEO in charge of Finance, to begin today's conference. Thank you.

Benat Ortega: Good morning to all of you, and thank you for attending this 2023 earnings presentation by Gecina. You've probably seen our key figures already. We are very proud today to summarize what our teams have achieved this year in a challenging context for commercial real estate but demonstrating the unique positioning of our company. Some key figures illustrating that. Our recurring net income per share is up by 8.2% in 2023 at EUR 6.01 per share, beating the upper range of our guidance. Our balance sheet is robust with a broadly stable LTV close to 34% even after a serious decline in valuation, and debt is hedged at fixed cost, in average for the five coming years, at 92%. Our ESG leadership has been confirmed, thanks to our energy efficiency plan put in place mid-2022, with energy consumption down by 10% and CO2 emissions by 20% in one year. We do expect our recurring net income to grow again in '24, between EUR 6.35 and EUR 6.4 per share, and up again by 5.5% to 6.5%, beating here again as well the consensus. If we look at the solid results in 2023 with a strategic view, we'd like to highlight the fact that we have taken decisive initiatives to build the road for further growth. One, despite muted investment market, Gecina sold this year EUR 1.3 billion of assets above appraisal values and with an average yield of 2.5%. These disposals are not only accretive on cash flow but will allow the group to fund a value-creative pipeline in the next years. Two, despite a serious valuation decline by more than 10% in '23, LTV is broadly stable, still around 34% and providing agility and room for maneuver for the future. Three, our strong leasing activity with a double-digit average rental uplift and further improvement in our occupancy provides visibility for organic rental growth. And four, the strength of our financial hedging structure has been significantly improved, notably thanks to the EUR 1 billion decrease in net debt, and the prelisting of our pipeline provides, again, visibility for our cash flow growth. Let's dig into more details of our strong performance this year. Looking at the recurring P&L in 2023, it's fair to say that we have managed to improve several drivers to cash flow growth. The 6.5% rental growth, driven by like-for-like performance in the pipeline, has been amplified by better service charges management, while SG&A were kept under control despite inflation, thus leading to a 7.8% EBITDA growth. On top of that, strong hedging and disposals in 2023 kept financial expenses under control. Cost of drawn debt remained at 1.1%, leading to a recurring net income growth by 8.2%. Let's move now to rental growth, up by 6.5%. Like-for-like growth was up by EUR 34 million. In addition, the pipeline contributed to EUR 22 million, offset by only EUR 15 million from disposals, thanks to a very low 2.45% average yield. Regarding the EUR 34 million like-for-like rental growth, as anticipated, indexation played a crucial role in 2023, more than doubling the impact on cash flow achieved last year. But on top of that, very importantly, at the same time we are passing inflation in our rents, we have been able to capture uplift in rents and also improve occupancy again, resulting from strong achievements of our teams in the markets where we operate. On the office portfolio, 2023 was particularly robust with close to 160, 000 square meters let or prelet by Gecina this year. This is 60%, 6-0, more than in 2022. You can see on this slide a few examples of deals that we have signed this year with a great rental uplift. In total, we have achieved 14% re-leasing spreads on renewals and re-leasing transactions. Average occupancy rate increased by 90 bps, now close to 94%, and 100% of the pipeline for '23 and '24 has been secured and is now fully let or prelet. The most emblematic transaction is obviously the full preleasing of our Mondo project to Publicis Group. With circa 30, 000 square meters in the CBD of Paris and the long-term lease, this is the largest lease ever signed by Gecina. The project will be delivered in Q3 2024. Obviously, our teams have been very successful in designing a unique project, fully aligned with today's corporate requirements at a time when location, CSR, food offer and cutting-edge services are crucial. No need to comment that this transaction has been done in the context of strong appetite by corporates to improve talent development, creativity and collaboration in their organization. On the residential side as well, our performance has been excellent, fair to insist on the fact that this year again, our capacity to raise reversion improved again, with an average uplift in rents between former new tenants now of around 13%, 1-3. On top of the strong like-for-like dynamics, rental growth has been strongly supported by a positive net contribution from the pipeline of around EUR 22 million. The contribution turned positive in 2022 and increased further in 2023, thanks to four significant project deliveries shown on the slide. In our view, the tenants list of those projects illustrates the diversity and the quality of our market, with names like Sanofi (EPA: SASY ) (NASDAQ: SNY ) in pharma, LVMH in luxury, BCG in consulting or Eight Advisory in financial services. We just commented on our rental growth. In this chart, it is interesting to note that while EBITDA was growing by EUR 38 million this year, our cost base gathering financial expenses, operating expenses, rental expenses and taxes, only increased by around EUR 3 million, leading to a strong cash flow growth in 2023 by more than 8%. We will come back on financial expenses later during this presentation. Other record achievements this year on the ESG side. For the first time this year, Gecina was ranked number one amongst 100 European REITs. We achieved also a top score on -- with other agencies, MSCI, CDP, ISS or Sustainalytics. And have in mind that these great things are based on our 2022 reporting, and significant further improvements have been achieved since then. Gecina decreased energy consumption and CO2 emissions, which respectively decreased by 10% and 20% this year with an ambitious energy saving plan I commented earlier this year. Last but not least, on CSR, 100% of our portfolio is now certified. This is a strong improvement versus 2022, when 87% of our office portfolio in operations was certified, thanks to 23 new assets now certified by BREEAM in '22. I would like to focus on the quality of the certification. More than 80% are qualified at least at a very good score. And looking at the very best scores, excellent and outstanding, this is still 61% of our portfolio, which is classified in these two categories, something quite unique on commercial real estate globally that proves again the long-term commitment of Gecina on CSR. This year has been obviously animated by questions around valuation changes and potential consequences this could have on us, on REIT business models and performance. Some context on those valuations. It's actually a fact that investment markets have muted in 2023 in volumes. That's true everywhere, even in central location where we operate. But maybe two or three comments on this topic. First, we saw a significant increase in cash inflows in real estate by occupiers. Our LVMH deal on Champs-Élysées is one of them, and they are historically not taken in the official statistics by ImmoStat or real estate brokers. And maybe second comment, liquidity dried up everywhere, but still, we saw appetite for small assets in Paris, and we also played a role there. We commented earlier on our achievements on leasing. This was achieved in the context of structural shortage of qualitative office spaces in Paris and strong demand. As a consequence, market trends have moved differently. ERV moved up in Paris, and while EMV were flattish or down in most other locations. What are the consequences on valuation? A homogeneous yield effect, largely driven by macroeconomic drivers and muted investment market at around minus 10% to minus 12% in 6 months and even 18% on 12 months, showing the strong adjustment in values driven by this changing paradigm. A different rental effect being positive in the most central areas, 5% in Paris City, for instance, only on negative outside. Note, in addition, the strong resilience of our residential portfolio was largely helped by our leasing achievement in the last 2 years. Consequently, NAV NTA is down to EUR 144 million. The decrease is mainly driven by appraisals. So clearly challenging investment markets. However, we are a bit different. Gecina achieved an exceptional score on disposals with EUR 1.3 billion of mature assets above last appraisal values and with an exit yield of 2.5% in average. Even if we exclude the emblematic disposals of the Louis Vuitton store in Champs Elysee, our teams have been extremely proactive and innovative to source investors for more than EUR 500 million of offices and residential assets, with a 5% premium over last appraisal and at the yield close to 3% in average. We are very proud to say that given the low yields of these disposals, they are positive on all operational and debt metrics as being accretive on cash flow and NTA but also enhancing LTV, net debt-to-EBITDA and ICR while mechanically increasing financial liquidity and hedging position of the group. The first consequence of these disposals is that we kept the LTV broadly unchanged in '23, at a conservative low level of 34% despite a severe valuation adjustment downwards since -- on the market this year. We improved also our hedging position with no additional cost. As of today, our debt is fully hedged in 2024, and hedging will progressively phase out after years but remaining over 90% until 2027. In average, our debt is hedged at 92% for the next 5 years, and a very large part of this hedging was signed before January 2022, so at very attractive commission. Have in mind that our current average cost of debt is 1.1% on gross debt. The consequence is that we benefit from strong rating, A- by S&P and A3 by Moody's (NYSE: MCO ). And Gecina maintained along a challenging year undisputable access to all funding sources and great confidence by our financing partners. EUR 1.7 billion of opportunistic new financing have been secured this year with bonds, bank loans and renewed undrawn credit lines at roughly the same level of margin than pre-2022 conditions. As a result, all our bond maturities for the coming five years are covered by the EUR 4.1 billion net credit lines available, with maximum credit spreads already secured as we can draw those lines in case bond markets are too expensive. Being solid and performing well today with a robust balance sheet, gives us the opportunity to focus further on the optimization of our path for growth ahead. The leasing market on residential and offices are sound, and new trends can offer us the opportunity to even improve our business performance. Talent management is a crucial theme for corporate and those young talents set to concentrate in our region. We have worked to further improve our buildings to answer the increasing appetite for premium operated and service properties. Internally, we have engaged the merger of our student housing and residential teams who are believing in digital capacity fueled by one unique operating residential platform adapted to all types of tenants, students, young talents, middle-age families or corporates, in all our buildings. At this stage, 220 flats have been furnished already with no additional CapEx as we lease furniture. 12 buildings are to be enhanced, adding co-working spaces and fitness’s for tenants and 195 apartments should progressively be optimized in size to better match our clients' needs. On the office segment, Gecina also launched a new approach, so to meet emerging appetite for fully equipped service, flexible premium workspace. We started with 3 full floors at L'Opera (NASDAQ: OPRA ) in Paris CBD and then 2 more buildings with great success so far. While actively working on our products, like I just said, we've been delivering 2 new projects in H1 for a total of circa 20,000 square meters, including the prime office building in Boétie in Paris CBD and the residential project in Ville d'Avray. In the 12 coming months, 9 projects representing 84,000 square meters and EUR 46 million of potential rents are to be delivered, including 3 office projects in Paris CBD, the 35 Capucines and Mondo and 1 in Montrouge, as I said, already fully prelet. Next in the line will be 2 projects in Paris to be delivered in 2025, Marbeuf and 27 Canal. On top of that, work is in progress on 3 additional large projects in Paris and Neuilly for around 90,000 square meters in total, which are already partially vacated. Obviously, those projects will be launched when we get the permit for potential deliveries expected in '27 with great return on CapEx, as you can see. As a conclusion, those achievements, leasing pipeline, disposals, debt management in 2023 have paved the way for cash flow growth in '24. Gecina, therefore, expects the recurring net income group share to be around between EUR 6.35 and EUR 6.4 per share, meaning a growth between 5.5% and 6.5% in 2024. Thanks for listening, and we are now ready for questions you may ask.

Operator: [Operator Instructions] We'll take now our first question floor from Florent Laroche-Joubert from ODDO BHF.

Florent Joubert: Thank you very much for this presentation. I would have three questions. So my first question, I would like to come back on the valuation of the assets. So how do you analyze the current valuation of your assets now after the adjustment in H2 impact for offices? And so do you expect still a further adjustment beyond year-end 2023? Or do you think that maybe we have -- which we are not far from a low point? My second question will be on your appetite for further disposals in 2024 or your appetite for opportunistic acquisition in 2024. So do you see any opportunities? And my third question, so what is the room that you can have a Gecina to further increase the occupancy rate? And how do you assess the appetite today of tenants in offices for 2024?

Benat Ortega: Thank you, Florent, for your questions. On valuations, I think valuations, it's a reflection of the overall market. I think we have demonstrated this year that, in fact, with that EUR 1.3 billion disposals above book value, that we were serious on valuations. So that's first element. I think we've been able to achieve on top of Louis Vuitton more than EUR 500 million disposals, and they are all above book value, that 3% yield. So that's the first answer to your question. Maybe the second is when we look at those yields now, they have recreated a risk premium against the sovereign bonds, especially in France, which was not the case and not taking into account the growth potential that we have in our properties. And maybe a third element, which is I think we suffered clearly a decrease in valuation, but our LTV is still at 34%, so we have ample ways, in fact, to manage that. And that's why I was talking about agility and capacity to move. That LTV, is clear the strength for the company, and that's why we are confident about cash flow growth. When you look at the valuation, it tends to be an issue for corporates, which have high leverage pushing them to make dilutive disposals, and I'm not sure we are in that situation. So that leads to your second question, which is about disposals. I think we have always said that we were opportunistic on disposals. So we'll continue to be the same. As you might have seen in 2023, we have been, let's say, aggressive in the prices and the yields we were asking to buy us because we believe in our portfolio and we believe in our rental growth. So we will continue to be opportunistic. Same goes for acquisition. We want to deliver growth for our shareholders. So we will be very careful. But obviously, if we see opportunities, we will look at them. And the last point, which is occupancy, since I came at Gecina, I've been always careful, in fact, to over-guide occupancy. I think there is always a frictional vacancy in an office portfolio. So where we are, I think we can move around those figures, maybe improve a bit, maybe it will decrease after a departure of a tenant. So I think we are fine with that, that occupancy. What I said, and that was the example of Mondo or the preleasing we have seen is, clearly, there is appetite for prime office assets. And I think we have a unique positioning, not only on the locations but also on the way we design, on the way we think the services. Mondo was unique in terms of food offer. It's not the classical corporate restaurant, but it was designed as a food hall, as a meeting place, as a collaborative place living all day long, and I think all those elements play a crucial role, in fact, to drive appetite for our assets.

Operator: We'll take now our next question from Jerry Tyrrell from Natixis.

Unidentified Analyst: Hi, everybody. Thanks for taking my question. I have a specific question on capital allocation. It's more like looking at your disposals. It looks like to be the, I would say, best assets of your portfolio. Have you considered selling the La Défense and other categorized assets within your portfolio to reduce these shaded bars in the valuation slide? And I would say the full question is also about the financing of your pipeline. Pipeline is impressively delivering value. I'm just considering if 5% for the committed is high enough currently. And would the disposal be an opportunity or a way to fund it? And is the pipeline growing in the future?

Benat Ortega: Yes. Two different questions. I think on disposals, I wouldn't say we sold the best of the best. I would invite you to come and visit what we have sold. We sold an office building in Cergy-Pontoise. We sold the residential assets in Courbevoie. We sold another one at the end of the 13th hour this morning in Paris. So I think there has been a full diversity of what we have sold, on top, obviously, of the Louis Vuitton store, which was atypical. On selling La Défense, I think in a portfolio, you have always the best assets and the worst assets. I think what is key, I think, in the conversation today is to look at the quantity -- the investment markets are pretty muted anyway. So the question is how liquid is your portfolio. And I think there, we are unique. I think with those valuation changes, and everybody can make his own judgment, but I think we are owning the most liquid portfolio of the whole REIT industry. So it gives us room for maneuver, in fact, to dispose mature assets at zero yields. And coming to your second question, I think, when comparing disposals in the pipeline, you should envisage, in fact, the way we use the proceeds of disposals, which is investing in CapEx. And as mentioned on the 2 slides, in fact, the returns on CapEx are massive. And when you compare those 2.5%, 3% yields by the disposal, we are more than doubling and sometimes tripling on some projects the return on CapEx, which is the way we use the proceeds of the disposal. So yes, the pipeline is accretive. And again, the pipeline is concentrated on the best part.

Nicolas Dutreuil: Yes. And maybe another way to look at it is that a large part of the investment cost of a project is coming from the existing value of our assets, meaning that, of course, when we are posting a drop in value of our portfolio, it means that the raw material we will use for projects tomorrow has been also impacted, meaning that the next project should have an adjusted yield and cost compared to the one that we have posted today.

Unidentified Analyst: Okay. Just one point about the rental uplift, if you don't mind. Could you give us more colors about the development, the recent development of it? Thank you.

Benat Ortega: You were mentioning the developments already committed?

Unidentified Analyst: I mean no, sorry, the rental uplift, how it has developed or evolved recently. Because I have in mind, I mean, over 20% uplift within Paris. So this is the good side of it. And maybe the other side is out of Paris. So could you just comment and give us more color about how it has evolved recently?

Benat Ortega: Yes, sure. As you might have seen in the valuation, which is somehow an indirect way to look at that situation, the ERP evolutions and the uplifts in Paris were super strong and, obviously, flattish or sometimes negative. So depending on which are the leases coming to expiration, we have a different average between Paris and outside Paris, leading to a different figure. But I think overall, we have a 14% uplift in rents. And that's the way we should look at Gecina, which is a corporate. And obviously, every year, we have some expiries in locations which are more difficult. And we play a very pragmatic way. And when we need to decrease rents, we decrease rents. And therefore, you can see that through those three factors, which is uplift, but also occupancy and we grew occupancy at group level, and we grew rents at up level also.

Operator: We've got now one more question from Adam Shapton from Green Street.

Adam Shapton: Thanks for taking the question. Just a quick one on some of your, I guess, sort of more entrepreneurial or slightly differentiated rental income. So firstly, on the student housing, how material is the sort of non-student or the young worker part that you mentioned in terms of demand? And how -- what sort of premiums can you achieve in terms of rent paid by those tenants over students? And then a similar question on serviced offices or that provision that you have. What sort of premium was it over conventional headline rents you're able to achieve and where you're sort of installing those types of spaces?

Benat Ortega: Yes, sure. Thank you for your questions. Thank you for your questions. On student housing, as you know, the occupancy in student housing is generally lower than what we were experiencing on the rest of residencies. So we took and we learn from sometimes the competitors on what is done elsewhere in the world. And we saw that there was -- in fact, the young adults, so people starting their jobs are former students. And we were losing occupancy, mainly April to July, when those people started to work. So we have enlarged, in fact, our leasing, in fact, to those young adults petty recently. We started late last year. Still, it's some percentages. So it's a pretty small number, but we will try, in fact, to grow occupancy at first by compensating the departure of some students during summer by young adults or trainees during that period of time. So we -- so that's our first step. And second, we'll see if we can drive some additional rents from those people, which are, let's say, more financial capacity to pay rents on those assets. But for the time being, we are more working on improving occupancy on student housing and still to be -- still in progress. On offices, in fact, it's the same. We try to learn from other geographies, especially in London, and we saw clearly an appetite for super prime, super-serviced offices. And that's why we tested that idea on the best of what we have, which is at L'Opera typically. And we fully service furnished equipped partitions, in fact, 3 floors there. And the uplift compared to euro, if you deduct all service charges, cost of the services, the cost of partitioning and so on, we are reaching uplift between 20% and 30% compared to the, let's say, rent as-is situation. Still in testing mode. It's proving successful, but we are deploying that on more floors. It's small floors. And by the way, it's really to address typically small private equity funds or head offices of companies which are maybe on the countryside in France and looking for super prime. So it's a test. So far, it's proving successful.

Adam Shapton: Okay. Just to be clear, that premium after all your operational costs of delivery, sounds like it's of sort of [inaudible] managed service. Is that right?

Benat Ortega: Yes. It's the net rent against the [inaudible]

Adam Shapton: Okay. Great. And just one more quick question on that was typically what -- how long are those occupiers signing for, for that kind of space?

Benat Ortega: Sorry? The duration of the lease?

Adam Shapton: Yes, exactly.

Benat Ortega: Basically, the same duration as leases of that size in Paris, like three years. In France, those small services are rented on three, six, nine year leases. It's not really different. I would say, between two and three years depending on the guy. So not really different.

Adam Shapton: Not like a short term. Okay.

Benat Ortega: And have in mind that the 8.4 year average term duration at Gecina that we sign is composed, most of the time, by nine or 12-year leases on the large services, and those three or six year firms on those smaller services. That leads to 8.4 lease year average.

Operator: We'll take now our next question from Alex Kosterine from Barn National Campaign.

Unidentified Analyst: Hi, good morning. Thank you for taking questions. I have one on the 2024 guidance. I was wondering what sort of assumptions you have flowing into that. So for example, regarding like-for-like rental growth, do you exclude any disposals into the numbers? And also, to what extent will developments of existing assets affect the rents for 2024? Thanks.

Benat Ortega: You have mentioned the key metrics behind the guidance. We don't aim at itemizing too much our guidance. But obviously, an indexation with Dareau, uplifting rent from the transaction we achieved this year with Dareau. We are delivering two, three large projects in the second half of this year. So obviously, we drive the rents up with a positive contribution from the pipeline. We are talking about Mondo. We are talking about 35 Capucines and Montrouge, which are fully let already. And disposals, as you saw, are pretty -- have a pretty minimal impact on cash flow because it's relatively close to the marginal cost of debt. So we have not taken a specific assumption on that. Again, like I said earlier on this call, we are super opportunistic. So nothing specific to mention on that.

Nicolas Dutreuil: And maybe one specificity regarding Gecina, which is linked to a financing structure, which is when you look at our guidance, of course, one of the key metrics could have been the impact of the increase of the interest rate on our cost of debt, which, as you have seen, thanks to the level of hedging that we have, should not impact our cost of debt for next year.

Benat Ortega: Which sounds pretty unique in the REIT universe. So far, we have been looking at the guidance of most of our colleagues. Interest rates are hitting severely guidance, which is not our case, thanks to, one, hedging and, second, the net debt reduction that we achieved last year.

Operator: I'll take now the next question from Bruno Duclos from Invest Securities.

Bruno Duclos: Hi, thank you for taking my question. Could you give us more color on the Experiences initiative that you mentioned in the press release in term of CapEx and extra revenues?

Benat Ortega: Yes. Thank you for the question. I like that one. There is no CapEx because the idea behind Experiences is to increase, in fact, the capacities on the revenue generation capacities of our buildings. So typically, if you take an example, we have a series of rooftops on top of our buildings which are our common parts, and we have started, in fact, to create a new ambience by leasing them for, let's say, pop-up activities, events at night, not disturbing obviously, our office tenants. So we do that in summer. We do that in -- at night or weekends, but it's generating roughly EUR 1 million this year. And the second is when we have projects where we can cover the building, so generating advertising revenues, we will not cover all our buildings, but obviously, the ones which are under works, we can make some money there. So that's a bit the idea. And so that's in terms of revenue production. If we look at a different way, in fact, what we tried to achieve also is to -- we talked about liveliness and the importance of having a lively building and promoting that idea and driving a bit our tenants, sometimes it's our tenants which are asking for that. We try to create a different view of the office building, which is sometimes a bit boring, by organizing those kinds of events. So we have a small team internally, and we have external partners. In fact, that provides a bit more liveliness to our buildings on moments which are more quiet.

Bruno Duclos: Yes. And there is no revenue involved for the tenants of the building?

Benat Ortega: It's open to all kind of tenants. So if a tenant wants to use our platform, he is more than welcome.

Bruno Duclos: Okay. My second question is regarding indexation. So basic one, which in -- what indexation are you expecting for 2024 for offices? And the second question is, which indexation is taken into account in the appraisals for 2025?

Benat Ortega: I don't have the indexation for '25 in my mind. But for '23, have in mind that ILAT, which is the main index, the main index is that roughly 6%, so still pretty high. So obviously, to drive, in fact, the rents up next year, again, with a lag effect like you saw in 2022 and 2023. And someone told me that indexation is planned at 2% in '25. So I have the answer now in the appraisals.

Operator: We'll take now our next question from Thomas Rothaeusler from Deutsche Bank AG (NYSE: DB ).

Thomas Rothaeusler: Hi, good morning, everybody. Actually, one question. You refer to your balance sheet providing opportunistic financial headroom. How would you actually quantify this? And could you provide more color on any acquisition opportunities?

Benat Ortega: Yes. What we said was we have agility and capacity, in fact, to opportunity sales, disposals or acquisition opportunities. So far, we have not seen anything which is really attractive or more attractive than what we can do on our current portfolio. That's why I was mentioning the three projects on which we are working. That should drive better returns than buying assets for the time being. But we are like always -- we have been super active in sourcing investors who buy our assets, and we have the same energy to look for potential accretive acquisitions. But so far, nothing really specific.

Operator: As we don't have more questions coming through their phone, we can take now the webcast questions.

Samuel Diesbach: Yes. We have a question from Allison Sun. Can you give us a breakdown on 2024 EPS growth? What's index impact, financing costs, disposal, et cetera?

Benat Ortega: That, we already answered on a little bit guidance, yes.

Samuel Diesbach: Yes. And Allison, you can find -- so for the current year on Page 16, and then you can find the limit on the guidance otherwise for 2024. Inna Maslova. Considering the significant outward yield shift on your portfolio, the profitability of the office development pipeline has declined. At what yield on cost level will you be looking to commence new developments going forward?

Benat Ortega: Again, the two ways to look at return on development. The one is return on CapEx, and I think we've shown on the different slides that we have a great return on CapEx, from 6% to 8%. So compared to the way we have financed it, it's super accretive. The other way is to look at the total cost, including the property valuations plus the CapEx. And obviously, rents are up, and property valuations are down. So it's driving long term and for the next ones, yields up. So I think on both ways, thanks to those great rental appetites that we see in our markets, we are still super positive on them.

Samuel Diesbach: Benjamin Legrand: you have kept your dividend flat this year despite growing recurring net income. How about next year's? Do you see any growing dividend considering your confidence regarding further growth?

Benat Ortega: Yes, sure. Like I mentioned, the group has kept the dividends flat while cash flow was decreasing with the payout around 100% in, I think, 2020 or 2021. So we are growing the cash flow, and we want to recreate a decent payout. But as you can see, we are now at 88%. Cash flow will increase again next year, and we will revise it next year, but we take a cautious approach on balance sheet, as you can see. In fact, to better seize opportunities and be agile, so I think that dividend is in the same way, in the same perspective. So we are happy to keep it and paying in cash. Again, when we look at the landscape of risk, a bit everywhere. Cash payments in full with a good payout, in my view, is showing clearly confidence for the future.

Samuel Diesbach: Benjamin Legrand, Kepler Cheuvreux: So a question that's about the valuations. If the appraisals have considered the transaction that we have achieved around 3%, not considering LVMH buildings.

Benat Ortega: Sure, it's a bit frustrating, but that's the way the market looks at it. I think the -- if we look at it positively, those -- some transactions have occurred around those deals, 4%, which is, in fact, close to what we have in our appraisal books if you take also reversion. And it gives a bit of view on maybe less muted markets in the future. So I'm looking at it positively. We are not obliged, in fact, not to perform and overperform. So I think that's what we have done, and we'll try to continue. So those 3% yield transactions or below because it's in average, so selling of deals were below 3%. And even some that has been signed in December, so a bit frustrating, but we are very pragmatic. So -- and we will continue to be also. Come back and see assumptions to value your property portfolio. I think we will deep dive into that question and answer you separately. I think what is in your presence is it's a view that we have a cash flow growth, so it's -- there is an implication on occupancy, but we will have to check exactly the details.

Nicolas Dutreuil: Yes, because, in fact, it's not the Gecina assumption that's clearly the present assumptions. And what they are doing is a building-by-building and even lease-by-lease approach, considering what are the statistics that the tenants stay or leave at the end of the lease and how long it will take to release the asset depending on its location. So that's the reason why there is not one single figure to look at, but it's a little bit more complicated. I'm not sure that assumptions are very different from what we are seeing today in the market in our portfolio.

Samuel Diesbach: Great. Currently, we have a question on the phone, if we can be connected.

Operator: Yes. So we'll take the question from Stéphanie Dossmann from Jefferies.

Stephanie Dossmann: Yes. Hello, everyone. I just wanted to follow up on valuation and actually, the tone has been evolving quite a lot since Q3 and yields expanding still on the office market, clearly. And the -- we see clearly that the yield impact was a bit harsh. I was just wondering, and I know it's difficult to answer this question, but what would be, in your view, a normalized rent yield, I would say yield on the CBD office market currently? Because we are seeing, as you know, a great transaction on your trophy assets, but other transactions in the market were closer to 4% or 4.2%, let's say. And the real estate brokers are closer to 4.5%. So I was just wondering what's your view on that, if you have any. Thank you.

Benat Ortega: Yes. So in fact, you have always a bias in the views of the different players of the market. So the -- our view is that the consensus which is shown by the appraisals is that yield has shifted up. We continue and -- except one flagship, which is obvious, which is the Vuitton store, the assets were more classic buildings. So I will not say that what we have done was on exceptional assets. We have not sold any one on [inaudible] or L'Opera, or boulevard des Capucines, or rue de la Boétie, or those assets. We have some stuff on the street that you even don't know if you don't live in Paris. Brokers are pushing the rates up in their views in order to accelerate the investment market, the real estate brokers. We saw some transactions significantly below what they say. So I think it's still complex to predict. That's why I was cautious in H1, cautious in Q3, still cautious for those annual results. It looks like the margin; the risk premium is constituted again. And again, there is still a significant reversion there. So that answers a question of Pierre-Emmanuel on how do you reconcile your 4.1% yield to the current 5.4% -- 4.5% yield observed on the market? One, I think 4.5% is not observed. I have a list of transaction that was done below. And second is that you need to take into account reversion there. If you have an asset that you signed a lease 5 years ago, you have a significant reversion bedded. And obviously, those yields are applicable to prime rents, which have increased in the meantime. So obviously, on the large portfolio with all kind of expiries, you have an average yield, which -- initial yield which might differ at certain times from the general consensus. But I think valuators have done a significant adjustment in valuation, a good job. They have tried to give a fair view of what we own and somehow not really taking into account our competitive advantages as a large REIT but as small market consensus, yes. But again, the question is -- I see a lot of questions on valuation. The question is, so what. I think -- there are no dilutive divestment by Gecina to be expected. We have accretive pipeline that we can finance through our low LTV. We still have reversion in late session embedded, driving our cash flow up for '24. So I understand all the questions, but I think we are in a very sound situation and very happy of our achievements this year. I'm very proud from the job that has been done by our teams, leasing, investment, development, debt management. I think we've done a great job.

Operator: And as we don't have further questions, I will hand you back to Benat to conclude today's conference. Thank you.

Benat Ortega: Thank you all for listening this call, attending this presentation and see you soon. Thank you.

Operator: Thank you for joining today's call. You may now disconnect. Thank you.

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