Good day, welcome to Gecina 2023 half year earnings call. During today's presentation, all the participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question at any time, please signal by pressing star one on your telephone keypad, or you may submit your question via the web platform. This meeting is being recorded, at this time, I'd like to hand the call over to your host, Beñat Ortega, CEO. Please go ahead, sir.
Good morning to all of you, and thank you for attending this H1 earnings presentation. You've probably seen already our key figures. To summarize our results during first half of 2023, I would like to point four key elements. Our recurring net results per share is up 7.5% versus H1 2022, with a like-for-like rental growth nearing 7%, favored by indexation, positive re-leasing spreads, and occupancy rate increase. Second, following the disposal of EUR 1 billion of assets in H1, 10% above appraisal values, and with an exit yield of 2.5% in average, all debt metrics have been improved. For instance, LTV is down 150 basis points in 6 months, now standing at 32.2%. Our debt is now 95% hedged in average over the period 2023-2027.
These disposals have also positive impacts on net debt to EBITDA, ICR, and liquidity, and have an accretive impact on earnings per share this year. 3, our ESG leadership has been further reinforced, thanks to an efficient soberness plan put in place mid last year. In the last six months, we have optimized energy consumption of our portfolio by 17% and CO2 emissions by 21%, on the road towards carbon neutrality by 2030. Last but not least, those strong achievements, supported by several trends on our markets, provided outperformance, and therefore we raised our guidance for 2023. We now expect for the full year, a recurring net result per share, up to EUR 5.9 to EUR 6 per share, an increase by 6%-8% versus 2022. Let's dig now more into details into strong operational performance this half year.
As shown on the graph, the recurring net result in H1 is up by 7.5%, largely driven by a strong like-for-like contribution, EUR 19 million. This performance is reinforced by a positive contribution from the pipeline, with four assets delivered since early 2022. Financial expenses slightly increased in H1, but average cost of debt is stable since summer last year, thanks to our hedging policy. We'll come back in, on this with more details later during this presentation. On the like-for-like rental growth, I just mentioned, EUR 19 million, up 6.9%, it has been supported by all drivers positively oriented. We are in a growing dynamic quarter after quarter, with indexation following the inflation last year, contributing significantly to our cash flow growth. It will continue to feed like-for-like growth in the coming quarters.
We have improved occupancy for several quarters also, leading to a contribution by 1.9%, and 0.7% comes from the uplifting rents from our last leasing negotiation. Obviously, the performance book in H1 is supported by so-solid operational achievements on all our businesses. If we look specifically on our well-located office portfolio, we have signed 84,000 sq m of new leases, let, relet, or renewed year to date. Gecina teams have been able to secure +15% uplifting rents through tenants rotation, mostly thanks to central location, where reversionary potential captured even reached 33% in Paris City.
Occupancy rates also have increased by 100 basis points as a result of strong leasing activity since the beginning of 2022. Pre-leasing of all the projects to be delivered in the next 12 months stands at 82% as of today, thanks to all that leasing activity. In a context where prime buildings are very rare in Paris, Gecina has been able to secure several operations at new prime rents reference around or above EUR 1,000 per square meter per year, including 2 new deals signed in Q2: 35 Capucines, to be delivered in 2024, and the 24 Saint-Dominique in the 7th district before the departure of Boston Consulting Group that has recently moved to our iconic l1ve assets. These transactions clearly confirm the new reference for prime rents in Paris CBD.
These confirmed prime rents don't really come as a surprise, given the strong polarized market in the core locations, where vacancy rates are at 2% in Paris City. Something you may admit is quite singular when compared to other megalopolis worldwide. This is due to supply-demand imbalance in favor of landlords in Paris City, where 44% of the take-up occurs, but only 14% of the supply of the Paris Region is there. Consequently, market rents have grown by 8% in Paris CBD in 1 year, while immediate supply is decreasing further downtown. As a reminder, we do own 85% of our office portfolio in core locations, namely Paris, Neuilly-sur-Seine, which provides good inflation edge and natural reversionary potential. On our resi business as well, trends are very solid in H1.
On traditional resi, we are now able to capture 13% re-leasing spread along tenants rotation. As a reminder, this figure was 10% in 2022, and 6% in average from 2017 to 2021. Clearly acceleration in uplifts. We are currently in a make and loan approach on our resi business, furnishing upfront, adding more services into our buildings to deliver better growth in the future. It's a lot of work. On top of this strong like-for-like dynamics on offices and resi, pipeline is delivering quarter after quarter, a better contribution to our cash flow growth.
This contribution turned positive in 2022 and increased further in H1 2023, thanks to four significant project deliveries since early 2022, including in 2022, the 157 Charles de Gaulle in Neuilly, led to Sanofi, mostly, and l1ve in CBD, I mentioned, to Boston Consulting Group and other companies. In H1 2023, the delivery of the office building Boissy, fully led to Eight Advisory and a residential program in Villejuif. On cash flow, financial expenses went up by EUR 9 million in H1 versus last year. Let's take some time to dig into that. Average debt, net debt in H1 2023 increased by around EUR 240 million versus H1 2022, contributing to financial expenses increase, this half 2023. It's a temporary effect because of our EUR 1 billion disposals achieved late in June.
Second driver comes from the aging portfolio, and more specifically from the caps. As a reminder, our debt for 2023 is fully hedged, and 18% of that is made by caps. During H1 2022, Euribor was negative, and caps were not active then. On this part of the debt, net interest, in average, was therefore negative in H1 2022, at around -0.4%. In summer 2022, rates have increased, and those caps have triggered at a cap rate of 0.2%, stabilizing that cost of debt since then. Therefore, temporary effect on the debt volume, but also temporary effect on the edging. Again, H1 versus H1 is negative, but H2 versus H2 will be equal. Financial results were solid, but we have also accelerated on our ESG strategy.
In 2022, as a leader in our industry regarding ESG, we launched an ambitious energy efficiency plan, aiming to significantly optimize energy consumption and carbon footprint of our portfolio in operations. This is more than 2,400 sensors, which have already been installed in the office portfolio so far, covering 100% of our portfolio, of which 1,002 have been added these 6 months, enabling each building operating conditions to be adjusted in real time with weather and a real occupation of our building with a view to optimize quickly its performance. We held these 12 months, more than 300 interactions with our tenants to favor the sobriety plan deployment we were proposing over our portfolio in operations. Also, Gecina has built a dedicated task force teams that is gradually being deployed. To date, 47 assets have been already fully reviewed.
This plan is proving successful, even exceeding our initial hopes. Energy consumption has consequently been optimized by 17% in 6 months. That should be compared to an average decrease per year, around 5% for Gecina since 2008, while the market average were decreasing its energy consumption by 2% in average per year. This is another powerful tool for Gecina on the road towards our net zero carbon strategy by 2030. To date, carbon emission on our portfolio decreased by 75% since 2008, when we started to set up early targets on that field. Cash flow, ESG. These first quarters have also been animated by numerous questions regarding valuation changes in a context of uncertainties.
We need to underline the fact that the current office investment markets are driven by different trends, especially for the more central areas of Paris region. It's a fact that investment markets have shrunk in H1 in volume. Such limited liquidity has core cap rates upward by appraisals, having therefore, a negative impact on valuations. On the other hand, this is what you see on the right-hand side chart of this slide, the very polarized rental markets in favor of the more central locations, drove rental dynamics very differently between locations. A positive rental effect on the more central area is therefore positively supporting valuations. Placing these two effects in H1 brings an instructive color for valuation moves versus end-2022. The yield effect adjustments contribute negatively by around 7% in six months, rental effects impact is heterogeneous.
Positive in Paris by 5% versus minus 6% in peripheral locations. Given Gecina's portfolio centrality, like-for-like valuation change is at minus 4% in the office perimeter, and is showing a strong resilience as well on the residential portfolio, down 2% only. Consequently, NCNAV is down 6%. Limited decrease, thanks to a moderate leverage effect, with an LTV around 32% today, but also capital gains on our disposals achieved year-to-date. We've been able to sell EUR 1 billion of assets in H1 on a relatively muted investment market, but with a 10% premium above book value at end of 2022, and a 2.5% exit rental yield. These transactions are made of 6 assets, including 3 office buildings in the CBD, 1 office building in the outer ring, 1 residential building in Courbevoie, and the well-known 101 Champs-Élysées.
Quite diversified in terms of disposals. Such disposals will not only enhance our financial structure, which was already strong, but it will also fully secure the financing of our pipeline ahead, and will bring opportunistic headroom or firepower in case potential attractive deals would occur ahead. Yes, all our debt metrics are positively impacted by these transactions. LTV and net debt will be down or lower. Liquidity, hedging position, and ICR are also reinforced as well. On top of that, all operational metrics are also improved, with assistive impact on regarding net results and NTA with a premium, but also on our average net initial yield. It's one more step ahead of the delivering process that has been driven by the company between 2017 and 2021, that brought our LTV down regularly at around 32% again today.
Since 2018, we've been net seller by an average of EUR 650 million per year, and the LTV has been reduced by 8 points to 32% today, while improving significantly our portfolio. Selling mature on peripheral assets and investing in our pipeline in Paris and Orly. On top of the disposals, we have been securing EUR 600 million of new financing. Combined, those two combined, so disposals and new financing, Gecina's liquidity position is significantly improved to EUR 4.1 billion. The available excess liquidity today reached EUR 2 billion at end of June. It was EUR 1 billion six months ago, covering all refinancing needs until 2028 at stable net debt. This is one more year than what we've published by end 2022. Our hard work this half, first half, has significantly reinforced our hedging position.
On the left hand side of the chart, you can see how our hedging position has been reinforced these past months. Today, our debt is fully hedged for 2023, hedging will progressively fade year after year, but remaining over 90% until 2027. In average, our debt is hedged at 95% from now to end 2027, providing visibility on our cost of debt. Following all those announcements, disposals, and strong operational successes, S&P has already reconfirmed our credit rating at A-. If we move to the pipeline, because the proceeds of those disposals are meant to, on the long term, to fund our pipeline as well. In H1 2023, we've been delivering two new projects for a total of 20,000 square meters, including a prime office building, fully let, and a residential project in Ville-d'Avray.
These two projects will contribute to cash flow growth in 2023 and 2024. Not only 2023 and 2024, because the committed pipeline currently under works, will contribute to our cash flow growth over the coming years by around EUR 70 million on an annual basis. Most of these deliveries are expected in 2024 and 2025, and early 2025, by the way, with large and emblematic projects in the CBD, such as Mondo or Icon, or 35 Capucines I mentioned earlier. In the coming 12 months, two office projects are set to be delivered in Paris CBD and Moreau, and are already pre-let at 82%. With good signs, these figures should improve shortly. Such pipeline in appealing locations, driven by the lack of qualitative products available for tenants, feed our confidence for growth ahead.
As already mentioned, we have decided to accelerate capital rotation with the idea to redeploy capital by selling mature assets into promising and value-creative projects of developments in the same locations. In order to maintain or even grow our pay or our exposure to central locations. The weight of central areas into our rental income basis will raise infinite once delivered and led by 260 basis points. The conclusion, this first half has been a strong operational half year, supported by positive trends on our core markets, despite a quite uncertain and challenging financial context. Above that, we've been able to accelerate our capital allocation strategy with EUR 1 billion of disposals.
Although new, the new reality today requires cautiousness and agility, but considering our reinforcing position, our operational performance exceeding our expectations and the pipeline, we are raising our guidance for 2023, now expecting the recurring net result per share to be up by 6% to 8% this year, between EUR 5.9 and EUR 6 per share. Thank you for your attention. Nicolas Dutreuil, our Deputy CEO, and Samuel Henry-Diesbach, is back, we are now available to answer your questions.
Thank you, Beñat Ortega. As a reminder, to ask a question over the phone, please signal by pressing star one on your telephone keypad, and please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. You may also submit your question via the web platform. Just type in your question and click Send. Again, please press star one to ask a question. We will pause for just a moment to allow you to signal. Our first question comes from Florent Laroche-Joubert from Oddo. Please go ahead.
Hi, good morning. Thank you very much for this presentation. I would have three questions, if I may. First question, would it be possible, we have seen that you have strong revision as this semester. Would it be possible to have maybe more colors on what could be your potential of revision for the next coming period? The second question would be on the valuation of assets. We have seen the correction in valuations in your presentation, what could we expect in 6 months by doing the same exercise? My third question, what would be the visibility that we could have on the dividend for 2023 and 2024? Thank you very much.
Hello, Florent. Thanks for your questions. I will take them randomly. Visibility on dividends, obviously, it's way easier when cash flow is up to give visibility, but obviously, that will be a decision by early next year for 2023. We'll not give any guidance on the dividend we will propose to the general assembly in next year. Obviously, it gives comfort to deliver a good dividend. On valuation, you know, we try, you know, it's H1 results. H2 results or full year results will be next year in February. That will be the good timing to comment, in fact, the end 2023 valuations.
We have done a serious exercise, you know, reviewing one by one all the assets with our presence, being sure that all the assumptions are rational. We will see. I think what we have proven by our disposals also is that we are investment teams which are capable to sell above group values, which is also a good sign for me, of the strength and the quality of our portfolio. I mean, maybe the last, and maybe the last topic on that, and that's linked to the 2 questions. Yes, we have a significant, you know, re-leasing spread when we sign leases. You saw that we grew reversion from 7%-15% in Q2.
We think we have, especially in Paris, where you have seen ERV growing significantly recently, a significant headroom to grow our rents there. That comes a bit on valuation. We see a growth potential on rents, growth potential, thanks also to indexation, which have grown our cash flow base. At the same time, values have increased yield significantly in H1, with an impact by 7%, like I mentioned. I think all that comes together.
Okay. Okay, thank you very much.
Thank you. As a reminder, to ask a question at this time, please signal by pressing star one, or submit your question by the web platform. The next question comes from Thierry Cherel from Natixis. Please go ahead.
Hello, everybody. Thanks for taking my question. I have three questions. The first one is, have you withdrawn any marketing, sales, I mean, disposals, regarding the EUR 1 billion you've disposed? Is there any marketing you have just withdrawn to understand if you have tried to just sell the most attractive one? Second is, how much you are from the trough in term of the valuation of your portfolio. Third is about the letting of the pipeline. It looks like you have rush up to fulfill the vacancy rate. I guess in such a rising rent environment, market rent, I mean, you could have waited to have a better valuation. Just understanding the rationale behind that. Thank you.
Thanks, Thierry, for your questions. On withdraw, marketing of disposals, no, that's not the way we do it. We have a tailor-made investment approach, trying to understand for each asset, what could be the targets. If you see what we have sold, in fact, we have been very precise on the way to dispose assets. I don't believe in wide marketings in the current investment market, we need to be super proactive and precise. We have, when you look at the list of deals we have done, we have gone to where the pockets of money were available at attractive price for us. That has been our strategy for now, the last months.
asing and leasing strategy, and managing the vacancy rate, I think, you know, we are a pragmatic company. We are a medium, long-term company. So when we see an attractive leasing deal, good quality company, we don't keep the buildings empty to grow ERV. So I think, you know, every year we have leasing volumes anyway. So, you know, where, on the markets where we are, where we are dominant, what we try to do is step by step, moving the rents up. So that's what we have done on the CBD. We have been the first one to lease at 1,000 EUR and maybe only, the only ones for now. We have done the same in Neuilly.
We just signed excellent deals in Boulogne above EUR 500, which were above the last transactions. Step by step, as a leader, we try to push the rents up when we think it's relevant. Keeping empty the buildings to move the ERVs up theoretically, I'm not a huge fan of it. Getting the cash flow and moving to the next one.
Maybe on your first question regarding valuation, if we consider that the top of the values were half last year, H1, end of H1, 2022, when you combine the decrease we get in H1 this year and the decrease of H2 last year, it's an aggregate decrease of minus 7%, globally speaking, on the whole portfolio of Gecina. Having said that, if you are more focused on the yield impact, in fact, you can consider that during the last years, we've been compensating a decompression in cap rates with an increase in ERVs, already beginning of 2022 and even end of 2021.
If you look globally to how our cap rates have moved, and this yield effect on our valuation for the last 24 months, it's a decrease by 14% that we had on this two -year period .
Thank you very much.
Compensated obviously by a rent effect with positive ERV growth and cash flow growth. That's why combined, you don't see that decrease, but obviously the yield effect has been already taken, up to 14% in our valuation, and we have in appendix, a dedicated slide on slide 26, on slide 47, sorry, that, you know, you will find the details, location by location.
Thank you. By the way, if I may, just asking the question, I really appreciate the slide 25 on the yield effect, rent effect. What would have been the rent effect, yield effect, and maybe cost effect regarding the pipeline portfolio?
You know, we just shown this first half an increase in the ROI of our pipeline because of, you know, optimized works and better rental conditions. We grew our ROI on the pipeline, on the committed pipeline, by 30 basis points. The situation is even improved for our pipeline projects in terms of ROI.
Okay. Thank you very much.
Thank you. It seems there are no further questions in the phone queue, but we have a few questions on the web platform, so we'll switch over to the web questions. Over to you, sir.
We have first question from Bruno Duclos, Invest Securities, which is: To what extent do you see working from home impacting your business, in particular when renewing leases and that all the tenants reducing the surface let stage?
Yes. Thank you, Bruno, for the questions. Yeah, the working from home has obviously an impact on different impacts depending on the locations. We have seen for some tenants a decrease in surface because they are optimizing through flex, the square meters they are using. On the other hand, some of the companies are taking more square meters to have more meeting rooms because the office becomes a collaborative space more than a computer space. That's effect number one, which is not clear, in my view, more reducing quantity of commuters overall more than increasing. At the same time, we see a strong appetite from tenants from centrality.
At some point, if you want to bring back your employees to the office to grow creativity, to improve communication inside the company, and so on, you need to be well located. That's what we have seen in the last trends, which is a concentration on the best transportation hubs, especially public transport. Car is less easy to use these days, clearly a concentration on transportation hubs. That has improved clearly the take-up on Paris, and some are also in La Défense as well.
The second question from Bruno still: How can we estimate the cost of upgrading the residential portfolio to environmental requirements as a % of current value portfolio? Do you intend to sell some of these residential assets?
The second one is easier. Yes, there is no. As I said, we have the idea, and we have decided to accelerate capital allocation. If we think, some of the assets, independently, if it's resi or offices, have a lower potential in terms of value creation, then can be disposed, if we can find a buyer at a good price. It's, we have no specific view on if it's office or resi. The second on the cost to upgrade, we are currently assessing it. It costs some money, but as you can see, in fact, our portfolio is not that much.
The rents are pretty low in our resi portfolio, in my view. I think it will come with value creation. That's what we are working on. That's why I was saying that we are working hard on our resi portfolio, in fact, to grow the services, to improve the flats, and to get the maximum potential of that portfolio. That will come along. We have no cliff in terms of CapEx. As you may remember, I don't know if I told you that end 2022, we have only 4% of our resi portfolio, which is F and G, which is the flats that will not be eligible for rent starting in 2028.
It's a super minor part of the portfolio, and it's only when we need to release, and obviously, we'll have to renovate those flats, and we'll cope with that issue. There is no cliff, it will come along the value creation, in my view.
Chip Tan is asking: Please, could you explain a little further on why the digitalization of the letting process appears to have impacted negatively the student housing occupancy in Q2?
Interesting question. You are looking at the details. Yes, indeed. In fact, we have clearly improved the occupancy on our student housing since 2020. In fact, that's thanks to digitalization, because now a tenant can book a flat from New York or Singapore fully digitally. That has driven clearly an acceleration in occupancy for our portfolio. That's majority. In for certain situations, you know that students tend to stay shorter for some of the programs, and digitalization is clearly accelerating it. We have removed the human flavor of our youth host manager, which were located on site and knew which were the programs of the people staying a full year, and some staying only 3 months or 6 months.
In order to optimize occupancy, especially in Q2, we were, in the past, humanly, favoring the students staying longer. Learn from mistakes, so we have kept the full digital process, but for next year, we will add a human validation to be sure that we don't take too many students that stay too short period of time in our residencies.
A question from Serge Demirdjian: beside the pipeline, any investment opportunities considered in the current market? That's the question, sir, in the current market.
We are, you know, like we do for the investments, we are opportunistically looking at the market. So far, nothing really interesting that we have seen.
Several question from Ina Masova, Degroof Petercam. The first one is: Can you please give us more color on the components of the guidance uplift? Second, more specifically on indexation and repayments of commercial paper. Second question is: Would you consider reducing your exposure further to La Défense and non-fund allocations? The last question, but you answered already: Do you see any attractive opportunities arising in the market today?
Components of guidance uplift, like you saw, we sold EUR 1 billion of assets at a super tight yield. Obviously, there is a relative aspect with compared to our initial budgets and therefore guidance. We have improved, in fact, what we thought was our leasing program for 2023. There is basically half reduction from disposals and half better operational performance against our budgets, again. On La Défense and, like I said, we are optimistic on disposals. If we can sell. The disposals are there to improve the average quality of our portfolio. That's what we mentioned a lot, is we are first redeploying capital into central location through our pipeline.
Again, 260 basis points of rental income will be up, thanks to that reallocation from what we have done in H1. The intention is to continue, so we have several ways to do it. No specific points. I think we have the La Défense portfolio is pretty reduced as you see now. Again, 85% of the portfolio is in excellent locations. Optimizing the quality is for sure a general intention that we keep, but with no rush.
A question from Celine Huynh, Barclays, which say that the EUR 1 billion sale at 2.5% cap rate was kind of unexpected, and she's wondering if there can still be some opportunity to sell at this price on the market assets that we would have in our portfolio in a context where cap rates have gone up. We prefer to positively surprise the market. If we can do it again, we surely do. The investment market is limited, but there is still appetite for qualitative assets. We will see. I don't like to provide guidance on disposals. We have one of the strongest balance sheets in continental Europe, so there is no rush.
I think having no rush is also a way to optimize disposals, because people don't see us as a distressed seller, and we have attractive assets. We do it professionally, with no rush, and try to find the right balance in terms of capital allocation.
Paul Roques, Rothschild, is asking: What is the marginal cost of your debt today, all in? In case interest rates stay at this level, what is the minimum yield on cost you would require for the pipeline?
Yeah, today, if we look at our marginal cost of debt, meaning when we are raising some commercial paper on the market, we are at 3.5%, more or less.
Maybe we can switch to additional question that we have on the call.
Certainly. We have a question from Jacques Perdriel from Heitman. Please go ahead.
Thanks, guys. Sorry, my question was answered. I was wondering what was in the guidance in terms of the capital recycling and repayment of the commercial paper yielding 3.5%, but I think you gave the answer earlier. That's all for me. Thank you.
Thank you very much for listening to our call. Thank you for your questions, and happy to meet you in person as soon as possible. Have a great summer if we don't meet in the meantime.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.