Bloomberg News

Gecina Speeds Apartment Sales as Rising Debt Cost Erodes Profit

October 24, 2011

Oct. 24 (Bloomberg) -- Gecina SA, Europe’s largest publicly traded office landlord, is stepping up asset sales to cut debt as rising interest payments erode earnings.

Gecina aims to sell as many as 15 Paris apartment blocks to raise 500 million euros ($692 million) by the end of June 2012, Chairman Bernard Michel said at a press conference in the French capital today. The proceeds will be used entirely to pay off debt, he said.

Michel replaced Christophe Clamageran as chief executive on Oct. 4 following a clash over whether to use asset sales to reduce borrowings or finance development projects. Gecina expects to raise 1.5 billion euros selling buildings including the Paris apartments, reducing debt to 40 percent of assets by mid-2012 from 43.9 percent in June this year.

“The time is for financial rigor rather than developing offices, given the impact of the economic crisis,” Michel said at an earnings presentation. “We need to be much more prudent.”

Profit excluding disposals and asset value changes, known as recurrent income, fell to 239.8 million euros, or 3.93 euros a share, from 261.9 million euros, or 4.30 euros, a year earlier, the Paris-based company said in a statement today.

Gecina fell 1.02 euros 1.5 percent, to 68.39 euros as of 1:18 p.m. Paris time. The stock has fallen 17 percent this year, giving the company a market value of 4.3 billion euros.

Earnings are being eroded by higher borrowing and swap costs linked to the corporate bonds the company sold last year as an alternative to bank loans.

Debt Cost Rises

Gecina’s average cost of borrowing rose by 75 basis points to 4.15 percent, lifting its financial expenses by 34 percent to 143 million euros. A basis point is 0.01 percentage point.

The company raised 647 million euros in the first nine months from the sale of offices, warehouses, distribution centers and apartments, it said today. Gecina has agreed to another 155 million euros of sales that haven’t been completed.

Gecina hired a group of banks to sell the apartment blocks in Paris next year to institutional investors, it said without being more specific. Residential properties, mostly apartments in Paris, represented about 29 percent of Gecina’s 12.5 billion euros of assets in the first half.

“There’s interest from insurance companies and funds,” Michel said today. “Investors are looking to put their money in a less-risky sector.”

Former CEO Clamageran joined Gecina in November 2009 and sought to increase Paris-region office projects and developments by 80 percent to 9 billion euros by 2014. He set up about 1.15 billion euros of office development projects, chiefly in the Paris region.

The asset sale plan “doesn’t change the medium-term strategy,” Michel said. “We want to remain the No. 1 office owner in Europe.”

--Editors: Ross Larsen, Andrew Blackman.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net


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