INTERVIEW: Gecina unveils new value-add strategy

French listed property firm Gecina is embarking on a new ambitious value-add strategy focused on offices and aimed at consolidating the firm’s leading position for offices in Paris, according to its CEO Philippe Depoux.

‘We are planning to focus on larger offices in the city centre of Paris and in mature office districts near the capital city, as well as on the Part Dieu district of Lyon,’ Depoux told PropertyEU. The Paris-listed giant will implement a value-add strategy focused on the acquisition of iconic buildings in need of repositioning or redevelopment, he added.

‘But we plan to be more selective than ever regarding locations,’ Depoux noted, added that the company will consider investments primarily in Paris’ city centre, La Défense, Boulogne, Issy-les-Moulineaux, Neuilly-sur-Seine, as well as the Part Dieu district in Lyon. By being active in a small number of locations, the company hopes to gain a critical mass in certain areas enabling it to provide shared services among tenants of different buildings. ‘In some areas we already have such a strong presence that we can organise a network between our buildings. The idea is to be able to provide tenants the possibility to use the services next door.’

The company’s recent acquisitions are indicative of the new strategy. In March, the company signed a preliminary agreement to acquire the Sky 56 office project in Lyon’s Part Dieu from developers Icade Promotion and Cimad for €136 mln, including commissions and fees, or €4,164 per m2. The scheme, which already has a building license in place, will offer 30,700 m2 of leaseable space across 13 floors and 328 parking spaces on delivery in April 2018. Nearly 25% of the total space is already prelet to the developers, Icade and Cirmad. The expected yield on cost of the investment is 7%.

In February, it invested €188 mln in the off-market acquisition of the 28,500 m2 City 2 building in Boulogne-Billancourt. The asset, leased to Solocal Group for 10 years, was bought from developer BNP Paribas Real Estate and is expected for delivery at year-end 2015. ‘The market is incredibly hot. There is huge competition for core buildings, but we are willing to take on some letting risk,’ Depoux said.
The group’s main priority this year is to reduce its exposure to non strategic assets through opportunistic sales and then reinvest the proceeds in new office buildings, Depoux added. In total, Gecina owns €10.3 bn of assets, €6.5 bn of which are offices.

As part of this strategy, Gecina is considering the sale of a portion of its €1.1 bn healthcare portfolio while continuing with the gradual disposal of its low-yielding residential holdings. ‘We are currently looking into an opportunistic sale of a part of the healthcare portfolio. The housing portfolio is also non-core and we’ll be looking to sell the units to private buyers as they are vacated. The natural rotation of this portfolio every year is about 15% so this is the best way for us to optimise its value.’

Gecina’s new investment strategy reflects a strategic change in the group’s shareholding structure, which last year saw the end of a 10-year ownership by Spanish investor Metrovacesa. The Spanish investor sold its €1.5 bn stake in the French firm to four major international shareholders; Norway's Norges Bank, France's Credit Agricole Assurances, US investor Blackstone and Canada's Ivanhoe Cambridge. Metrovacesa sold 16.8 million Gecina shares - its entire stake - at €92 a share. The value represented a 16% discount to Gecina's closing price of €110 on the day of the announcement and a 10% discount to its net asset value.

Blackstone and Ivanhoe Cambridge already held 23.03% of Gecina after agreeing on a debt-for-equity swap earlier this year with former Gecina CEO Joaquin Rivero and ally Bautista Soler. They took a further 6.92% in the company, bringing the total holding to 29.87% - just under the 30% required by law to launch a full bid. Credit Agricole Assurances already had an 8.56% stake and brought its stake to 13.4%. Norges Bank - which manages the giant Norges Pension Fund Global – acquired a 9% stake, bringing the total holding to 9.7%.

Depoux: ‘Our Spanish ownership lasted 10 years - years of glory and years of difficulties. This story ended in 2014 when we turned to some of the most professional owners currently active in France’s property market. Today, our profile is much more institutional and this is positively reflecting on the share price, which is showing a very good trend in the recent past. In addition, the new shareholders leave good space of autonomy to the company’s management.’

Looking forward to the coming months, the company is planning to hit the acquisition trail for the first time since the crisis although there is no fixed investment target, Depoux added. ‘We used to be more than 50% leveraged and we are now at 36.7%. I would like the company to have a loan to value of 40%. This would give us a €500 mln immediate spending power. But leadership is not only a matter of size but also a matter of quality of the portfolio.’

In terms of disposals, the company has a target of €800 mln for 2015, he added. ‘We are expecting funds from operations to remain at least stable in 2015, taking into account the planned sales volume. But we are actually more ambitious than this. We will look to bring down the cost of debt which should result in a slightly positive FFO in 2015. Also, I’m totally convinced that after six years of gloomy letting market we are now entering a new positive cycle which in 2015 will be characterized by shy rental growth.’