Société de la Tour Eiffel - 2023 Annual results

2023 Annual results

Staying the course in a complex environment

The Board of Directors of Société de la Tour Eiffel, meeting on 7 March 2024, approved the annual and consolidated financial statements for the year ended 31 December 2023. The audit procedures for these financial statements have been completed, and the corresponding reports are in the process of being issued.

“2023 was a decidedly difficult year for the real estate sector, which, like many others, was penalised by an unstable macroeconomic environment and high interest rates, particularly in the second half. Against this backdrop, Société de la Tour Eiffel continued to adapt its portfolio prudently and consistently, in line with its roadmap.

On the back of the first transformations initiated in 2022, we were able to maintain dynamic activity, notably through the launch of major, innovative development projects, and always with a keen awareness of the social, economic and environmental challenges facing the real estate sector and the regions in which we operate. Driven by resilient fundamentals and highly committed teams, Société de la Tour Eiffel intends to stay the course in order to secure its rental flows, optimise its operations and thus effectively achieve the sustainable transformation of its portfolio,” said Christel Zordan, Chief Executive Officer of Société de la Tour Eiffel.

Continued measured implementation of the roadmap, adapted to a volatile environment...

§ Asset value down on a like-for-like scope, by 9.0% to €1.7bn

§ €54.2m in disposals carried out with a view towards transforming the portfolio

§ €126m in acquisitions and developments of assets with sound fundamentals

§ Loan-to-value ratio (LTV) under control at 43.3%

§ €450m in drawdown capacity

§ EPRA NTA of €40.8 per share, marked by the decline in portfolio value

§ Net Initial Yield EPRA Topped-up: 4.6%

… with a view to transforming the portfolio and returning to sustainable growth

§ Gross rental income of €83.1m, up 3.5% on a like-for-like basis, driven by indexation

§ 98% of 2023 rents collected to date

§ Occupancy rate EPRA stable at 78.0% (vs 78.1%)

§ Cost of debt down sharply at 1.22% thanks to interest rate hedging

§ Recurring net profit (EPRA earnings) of €45.8m, or €1.95 per share, boosted by financial income

§ Recurring cash flow per share of €2.03 (vs €1.83)

Update on the roadmap – Rollout adapted to the environment

Two years ago, Société de la Tour Eiffel unveiled a new roadmap to transform its asset portfolio in order to keep pace with social change in the short and long term. This transformation is reflected in a balanced focus on new asset classes with more mixed-use profiles (mixed-use urban projects, commercial assets, managed residential property, local logistics) and a presence in major regional cities, while maintaining its commitment to quality and environmental performance.

The Company's evolution has been accomplished using several tools: disposal of buildings that no longer suit the Group's new challenges, developments and redevelopments (some already identified others for the future), improved environmental performance of buildings, and investments in assets that are sustainably in tune with their market.

Moving towards greater responsibility

Société de la Tour Eiffel has made significant progress in terms of CSR, focusing on reducing its environmental footprint and making its assets more resilient to climate change. Its efforts include the complete collection of energy data and the target of reducing energy consumption by 25% between 2017 and 2030.

Within the workforce, 89% of employees have been trained on ESG challenges, and the company scored 98 on the Egapro professional equality index. On governance, the focus has been placed on anti-corruption, with training for all employees. These initiatives have been recognised with prestigious awards (EPRA sBPR Gold, EthiFinance Platinum, GRESB 4 stars, EcoVadis Platinum), highlighting the company's commitment to sustainable and ethical practices.

Disposal of buildings not suiting to the Group's challenges

Despite the fact that the property investment market has come to a virtual standstill, the Group was able to sell 4 assets for €54.2m in 2023, at prices in line with their latest appraisal values. Portfolio rotation is one of the pillars of our roadmap, and the slowdown in recent months is tending to draw out its implementation.

Identifying current and future internal developments

Work began last summer on the EvasYon development in Lyon (formerly Lyon Dauphiné), a mixed-use project comprising a 5,000 sqm office building and a 5,500 sqm co-living building. Completion of the structural work is underway, with completion scheduled for the fourth quarter of 2024. The co-living building was fully let with the signing of a 12-year off-plan lease agreement (BEFA) with a specialised operator.

At the Parc du Golf in Aix-en-Provence, construction began last summer on Jade, a 3,800 sqm office building. Structural work is underway, with completion scheduled for the first quarter of 2025.

At Puteaux, on the banks of the river Seine just outside the La Défense district, the Group has obtained final planning permission to build a 9,700 sqm office building. Work began in September 2023 and the demolition of the existing superstructure is underway; completion is scheduled for the fourth quarter of 2025.

In the Eiffel Nanterre Seine park, on available land, the Company has begun development work on Nanturra, a 5,400 sqm multi-storey business hotel under the proprietary LILK brand. This multi-purpose building concept is designed to meet the need for business space and last-mile logistics near urban centres, while incorporating key CSR issues. A second similar 7,580 sqm project has been launched at the Syrah site in Bobigny. Completion is scheduled for this summer and the first quarter of 2025 respectively.

The Aubervilliers site, which was freed-up in 2021, is ideally suited for an ambitious redevelopment project in line with the roadmap's mixed-use objective. In the meantime, the site is hosting Poush – France's first ever artist incubator project – turning it into an innovative and creative cultural space that will help project the image of Aubervilliers and the Greater Paris area.

These six projects are perfect examples of the property company's value creation strategy and are driving the development plan as administrative authorisations are obtained. The five projects launched (EvasYon, Puteaux, Nanturra, Syrah and Jade) represent a total of €10.5m in potential rental income.

Investments in properties in phase with their market

In 2023, the Group completed three acquisitions. The first, a restructured 2,750 sqm office building in the Bastille district in Paris, is fully let to TeamTO, an independent French animation studio, and TV and film producer, for a fixed term of nine years. The second, a restructured 1,325 sqm office building, is located in the 9th arrondissement of Paris. It is fully let to Morning Coworking, a major player in coworking that already operates some 40 locations in Paris and Neuilly-sur-Seine, for a fixed term of 12 years. Lastly, an off-plan purchase of 4,500 sqm of offices in Issy-les-Moulineaux (completion mid-2025) has been pre-let for 10 years, including 9 years firm, to Les Nouveaux Constructeurs. The foundations have been completed, with handover scheduled for the third quarter of 2025.

In addition, the foundations of the “Manufacture” in Lyon, a 4,000 sqm mixed-use, reversible office/housing/retail development, purchased off-plan, are also nearing completion, with handover scheduled for the third quarter of 2025.

These investments fit with the strategy to transform the portfolio, with a focus on high-quality locations, secure rental income and high-environmental performance buildings.

A portfolio being transformed…

As of 31 December 2023, property values totalled €1,717m: 79% in offices (€1,357m), 10% in business/logistics premises (€176m), 9% in mixed-use (€156m) with a still marginal presence in managed residential properties. All these properties are located in France, including 75% in Greater Paris (€1,289m). As part of the Group's ongoing efforts to enhance the quality of its portfolio, 79% of assets have been environmentally certified or are eligible for certification.

… to address major letting issues…

Deals were signed covering nearly €12m in annualised rents during the period, breaking down as €3.6m in new leases and €8.3m rolled over. Highlights included renegotiations with the Ministry of the Interior (10,390 sqm) in Asnières and ZF Mobility (3,140 sqm) in Puteaux, the signing of leases with Infratel Services (2,600 sqm) in Nanterre and Pro Distribution (2,336 sqm) in Sèvres, as well as the vacating of Avis (2,100 sqm) in Puteaux and the reduction in floor space at Baxter (2,900 sqm) in Guyancourt, resulting in the net loss of €2.7m in annualised rental income.

As of 31 December 2023, the financial occupancy rate (EPRA) was stable at 78.0% (vs 78.1% as of end-2022), and the average term and firm lease periods were 5.5 years and 3.1 years respectively (vs 5.6 and 3.0 years at the end of 2022). Restated for planned vacancies (redevelopment projects), the occupancy rate was 83.4% (vs. 84.1%).

… and that is productive in occupied properties: 98% of 2023 rents collected

As at the date of this press release, 97.5% of the €84.1m in total rents invoiced in 2023 has already been collected (vs 99.0% in 2022).

This performance is the fruit of the internalised property and rental management model, combining thorough selection with proximity to tenants to build a quality rental foundation.

Monitoring of tenant risk on the basis of Coface and Credit Safe ratings continues to indicate that 80% of the rental base consists of tenants belonging to the top two categories (low or very-low risk), thus demonstrating its resilience.

Increase in EPRA earnings to €2.0 per share, driven by financial income

On a like-for-like scope and excluding exceptional income, gross rental income increased by 3.5%, driven by indexation (+5.2%). The year benefited from the impact of acquisitions (+€2.7m), offsetting the loss of rental income on disposals (-€1.7m). Overall, rental income fell by 1.7% to €83.1m, as the 2022 financial year benefited from exceptional income from Bagneux (indemnity of €5.2m). Net rental income increased by 2.0%, benefiting from the ongoing streamlining of property charges.

Current EBIT came to €52.8m (vs €53.6m), reflecting an increase in operating costs (+€2.1m), in line with the adjustments made to the Group's structure, and a fall in fees for managing works for lessees.

Financial expense fell to €9.6m (vs €13.9m), with an average interest rate of 1.2% (vs 1.7%). This steep reduction is attributable to the more than favourable effect of hedging against rising interest rates. Part of this hedging, caps that became obsolete with rates close to 0, proved to be one of the main contributors to the change in income, generating exceptional income of €4.0m. Most of these caps were due to expire at the end of 2023. At the same time, the swaps used to maintain a relatively low interest rate will continue paying off until the end of 2024.

After taking into account other income and expenses, taxes and the earnings of companies accounted for using the equity method, EPRA earnings (recurring net profit) stood at €45.8m, or €1.95 per share (after taking into account the cost of perpetual subordinated debt instruments (TSDI) in EPRA earnings per share), or €1.71 stripping out exceptional income from interest rate hedges.

After all EPRA restatement adjustments (allocations, reversals, net gains on disposals and changes in the value of financial instruments), consolidated net income was negative €47.2m, compared with positive €4.0m in 2022.

Recurring cash flow for the period totalled €33.7m, or €2.03 per share (of which €0.24 attributable to exceptional interest income), vs €1.83 in 2022.

Sharp decline in net asset value, reflecting the adjustment in portfolio value

The valuation of the Company's assets as of 31 December 2023 was down 9.0% on a like-for-like scope compared with the end of 2022, and includes disparities between regions. This decline is the result of the sharp rise in interest rates, which pushed the average capitalisation rate used in the valuations to 5.80% (+45bp vs end-2022). Just under a third of this fall was limited by the effect of improved rental income.

Going concern NAV (EPRA Net Tangible Assets) per share fell from €49.1 to €40.8 at end-2023, mainly due to the adjustment in the value of the portfolio (-€9.4 per share). EPRA liquidation NAV (NDV) per share, which also includes the reduction in the value of hedging instruments, fell from €51.9 to €41.9.

Proposed dividend suspension

Given the macroeconomic uncertainties and the challenges of the portfolio, the Board of Directors will propose to the General Meeting of shareholders to suspend the dividend.

Société de la Tour Eiffel continues to transform its portfolio in a controlled, appropriate and supported manner

In an environment that remains highly volatile, Société de la Tour Eiffel is continuing to roll out its roadmap, adjusting its implementation to the turbulent market environment. It remains committed to the sustainable transformation of its portfolio, bringing it more in line with change in the French real estate market in terms of use, and environmental and social quality. This transformation is based on rigorous asset rotation and the reconstitution of a pipeline of ambitious and innovative development projects. The Company and its main shareholders will also continue to pay close attention to the Group's ability to seize market opportunities.

Through these initiatives, the Company aims to rebuild its cash flows by improving occupancy rates and margins, and to return to greater dividend-paying capacity and sustainable growth.

Calendar

§ 15 May 2024: General Meeting of Shareholders

§ 24 July 2024: 2024 half-year results (after market close)

§ February-March 2025: 2024 full-year results (after market close)

The presentation of the results will be available on the Group's website on the morning of Friday 08 March: Financial information – Société Tour Eiffel (societetoureiffel.com).

Contacts

Media relations

Laetitia Baudon

Consulting Director – Agence Shan

+33 (0)6 16 39 76 88

[email protected]

Investor relations

Aliénor Kuentz

Head of Client Relations – Agence Shan

+33 (0)6 28 81 30 83

[email protected]

About Société de la Tour Eiffel

With a property portfolio amounting to €1.7bn, Société de la Tour Eiffel is an integrated property company with a strong culture of services. This agile company operates in various asset classes, including offices, urban logistics, managed residential and retail, in Greater Paris and other major French metropolitan areas. An active player throughout the property cycle, it assists its tenants – companies of all sizes and sectors – through high-standard direct management of its properties. Société de la Tour Eiffel conducts a pro-active and transversal CSR policy that is an integral part of its strategic orientations.

Société de la Tour Eiffel is listed on Euronext Paris (B board) – ISIN code: FR0000036816 – Reuters: TEIF.PA – Bloomberg: EIFF.FP – Member of the IEIF Foncières and IEIF Immobilier France indices

www.societetoureiffel.com