Investor presentation

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1 Investor presentation 2017 Clément Lecuivre Deputy General Manager CFO Tel: +33 (0) Claude Rouchon Head of Group Treasury Tel: +33 (0)

2 Contents 1 Profile, Governance, Mission and Strategy 2 Secure business model 3 - Financial overview of consolidated entities 4 - Funding policy and risk management 5 - Appendices a Non-consolidation of the Social Housing Entities b Focus on the Intermediate Housing project c Corporate Social Responsibility 2

3 Section 1: Profile, Governance, Mission and Strategy 3

4 SNI is fully integrated within CDC French State (AA/Aa2/AA) S&P/Moody s/fitch Ratings Since 2004, SNI has been a Caisse des Dépôts (CDC) strategic shareholding. Before 2004, SNI was directly owned by the French State. SNI is fully consolidated in CDC s Group accounts and prudential model. (AA/Aa2/AA) S&P/Moody s/fitch Ratings 100% SNI (AA-/F1+ Fitch Ratings) SNI is a semi-public limited Company, owned by a public entity (SA d économie mixte)*. As such, it is considered by Fitch as a Public Sector Entity. Group SNI entities implement their strategy on the basis of CDC s key strategic transitions, i.e.: - demographic transition - digital transition - territorial transition - energy transition Strong support from CDC: A capital increase of 400 million should be effective in million to be paid up before June * The capital of a Société d économie mixte (SEM) is held by one or more public-sector entities

5 SNI is fully integrated within CDC SNI is governed by a Board of Directors and Supervisory Board ( Directoire and Conseil de Surveillance, respectively). The Supervisory Board is chaired by CDC s CEO ( Directeur Général de la CDC ). SNI fully applies CDC s governance rules. Board of directors and committees: Audit Committee Compensation and Benefits Committee Strategic Committee In addition, SNI has set up a Tenant Defense Partnership Committee (40% of which is made up of SNI tenants) CDC s Risk and Internal Control Unit CDC s Commitments Committee Annual objectives with half-yearly reports The chairman of SNI s Board is also a member of CDC s Executive Committee SNI is supervised by the French Court of Auditors. * The capital of a Société d économie mixte (SEM) is held by one or more public-sector entities 5

6 Mission: a public real estate company Housing is one of the main priorities of CDC s strategic plan, which includes a public program to support the social and residential housing market. Managing and developing housing for public-sector entities or public servants: More than 70% of rental income is generated by public-sector entities or public servants SNI provides 10,000 units of housing in police barracks Management of public-sector real estate assets (e.g. 9,200 units belonging to the Ministry of Defense) Acquisition and leasing of 3,500 dwellings as part of a general partnership with EDF (total investment 808 million). Rents paid directly and exclusively by EDF under a firm 12-year lease. Contribution to public policy by providing emergency shelter to people experiencing severe social hardship (homeless persons, refugees, ) through SNI s subsidiary ADOMA. ADOMA is a joint venture between SNI (56%) and the French State (42%). Supporting social housing public policies through a group of 13 regulated social housing entities (ESHs) owned by ADESTIA 6

7 SNI Corporate Social Responsibility SNI implements a proactive sustainable development plan based around 3 major challenges (see appendix c) : - Promoting social equity - Economic efficiency - Environmental protection In 2015, the CSR rating agency VIGEO conducted an audit of SNI s practices and business model and social responsibility KPIs have been defined to provide a clear understanding of the Group s efforts. 7

8 SNI Group Organization chart Caisse Des Dépôts 100% Groupe SNI Intermediate housing dwellings Asset Management Social Housing Integration through housing (ADOMA : dwellings) SNI 5 regional branches dwellings SGP AMPERE Gestion (approved by AMF) 100% ADESTIA dwellings (through 13 entities) Sainte Barbe 99,99% (Moselle) dwellings Intermediate Housing Fund (FLI) 19,14% (349 dwellings) Intermediate Housing State Fund (20 dwellings) Consolidated entities : - SNI, Sainte-Barbe, SGP AMPERE Gestion and ADESTIA - FLI and ADOMA are accounted for by the equity method. Social Housing: financially controlled but not consolidated by SNI due to strict financial and regulatory controls (see appendix a) SNI Group owns and manages around dwellings. 8

9 SNI s key figures as of 2016 Property portfolio: units of housing Turn-over: 549 million in rental income Asset overview: dwellings delivered dwellings under construction dwellings sold Intermediate housing program (see appendix b) : dwellings ordered at the end of 2016 on 3 different investment vehicles (i.e., 441 residential projects) 9

10 Strategic focuses Recent achievements: Between 2010 and 2016, almost 20,000 dwellings were delivered (including 2,147 units in 2016). Consolidation of the 13 ESH investments owned by SNI into ADESTIA (holding). Hemisphère Fund ( 200 million): In order to create a new range of emergency accommodation through the transformation of former hotels; Ampere Gestion (Asset manager) and Adoma (Property manager) launched a new long-term real estate fund. Social housing in the Overseas departments: SNI has been mandated by the French government to create or renovate dwellings over the next 5 years. During this period, SNI will hold a call option to acquire a majority stake in the 6 overseas social housing entities (more than dwellings) Group strategic focuses: Since 2014 SNI has been focusing on the development and construction of 12,000 units of intermediate housing Extensive program of sales designed around the plan and based on criteria such as geographical attractiveness or management, demographic or financial ratios generating strong capital gains 10

11 Section 2: A secure business model 11

12 SNI mainly operates in areas where demand for housing is strong owned by SNI 12

13 SNI boasts very low vacancy rates and rental arrears Vacancy rates under 2% in 2016, as a result of an ambitious action plan to rent vacant units. The proportion of outstanding rents has steadily decreased, reaching a very low level at the end of 2016 (0.74%). 13

14 Energy efficiency Strong building maintenance policy: annual expenditure is over 9% of rents, plus capex Sustainable & green development: through an ambitious, multi-annual works programme, the average energy consumption of SNI Group has already been cut by 25% in 8 years ( ). Proportion of deliveries certified «Habitat & Environnement» ensuring : - A or B environmental performance - Low energy consumption - Better acoustic insulation - Use of high quality materials. As well as cutting energy consumption, the multi-annual works programme has helped reduce average emissions. To preserve bio-diversity, 68% of the new projects are in «non-urban sprawl» zones. 14

15 Section 3: Financial overview 15

16 Strong profitability Key figures for 2016 : Net Rental Income : 516M. Growth of c.3% p.a. Capex (net of subsidies) : 411M Net income : 118,3 M (average of 126 M over the last 4 years) ROE: 7.7% 16

17 Strong financial ratios 17

18 Conservative LTV calculations Despite strong development, LTV remained stable at 44% in The high real asset value of SNI s portfolio is based on conservative inputs in terms of profitability and value per square meter. The valuation method has been audited and approved by CDC s Risk Committee. Fair value of assets in M : Valuation method 1- Asset value < 2.5M => Internal valuation using discounted cash flows, local market benchmarks 2- Asset value > 2.5M => External valuation performed by a firm of independent appraisers, Cushman & Wakefield ASSET Investment Property M 31/12/2016 LIABILITIES Equity M Debt M Other Assets Other liabilities M M M M 18

19 SNI s liquidity is structurally strong and safely invested Cash (incl. liquid securities) amounted to EUR 588M at year-end 2016 (balance-sheet position) Cash is mainly invested in money market funds Gross return 2016: 2.72%. SNI has implemented regulated cash pooling agreements with its subsidiaries: 1. investment management mandates are documented in accordance with the French Monetary and Financial Code (code monétaire et financier) 2. SNI s liquidity position is ring-fenced in line with social housing funding needs 19

20 Section 4: Funding policy and risk management 20

21 A very long debt maturity profile The long debt maturity profile matches SNI s long-term asset portfolio Amount of debt as of 31/12/2016 : 3.7 billion Average maturity : 18 years Forecast capital redemption limited to EUR 172 M on average over next 15 years Thanks to the strong credit risk profile, the refinancing risk has been eliminated by issuing very long term debt Undrawn and committed credit lines (up to EUR 264 M), Resilient excess cash position (over 600 M on average in 2016). Since 2012, SNI has provided a liquidity pool to ensure the redemption of private placements. 21

22 Strategic start in capital markets Strategy: secure loans and access to capital markets 2016, stable Fitch rating (AA-/F1+) CDC DFE is the 2 nd largest debt provider Since 2012: full compliance with International Financial Reporting Standards (IFRS) CDC-DFE 15% 2016 new transactions in capital markets: EUR 160M unsecured NSV Average maturity: 18 years (from 14 to 50Y) Well-diversified bank pool 22

23 Strict hedging policy for liabilities SNI s interest rate hedging policy aims to keep long-term interest payments constant, thereby protecting SNI against changes in variable rates Micro hedging - (IFRS 9): SNI aims to maintain hedging positions until the underlying debt matures, i.e., these transactions are not speculative investments 23

24 SNI: decreasing reliance on secured debt Since 2004, mortgage collateral has declined in importance Mortgages (10.4%) are strictly limited to specific regulated social housing funding More than 70% of total indebtedness is covered by a CDC ownership clause : 51% 24

25 The European Investment Bank (EIB) 2 recent loans - SNI : 500M committed in 2015 to finance the intermediate dwellings directly developed by the SNI - ADESTIA (100%-owned by SNI) : 200M being negotiated to strengthen the equity of the ESHs, to contribute to the development of social housing and to improve the quality of the existing social housing stock. 25

26 Conclusion & highlights 1- Strong credit rating: rated AA- by Fitch Ratings, SNI is firmly integrated within the French public sector and CDC s long-term strategy thanks to its status, ownership, governance and mission 2 Sustainable business model: a public-sector real estate company operating in the social, intermediate and private housing sectors and generating secure, stable and predictable cash flows 3 - Financial strength, steady income: strong profitability, prudent liquidity management 4 - Funding strategy: loan secure debt and capital markets 26

27 Appendices 27

28 a Non-consolidation of the Social Housing Entities 28

29 Social housing entities (ESH) are not included in the consolidated scope CNC (French national accounting body) ruling No E of 4 July 2001 states that social housing entities (ESH) may not be consolidated: Social housing entities assets may be transferred or sold only to another social housing entity subject to government authorization, Dividend payments are tightly regulated, Share prices are strictly controlled. However, SNI closely supervises ESH s activities and strategic priorities through its presence on their boards and committees. In terms of financial support, SNI s strategy is to rely on the ESH s financial autonomy and existing guarantee mechanisms: SNI s internal stress tests show that a pause in property development translates into a strong and rapid improvement in the ESH s financial position, Housing sales programs and cash pooling arrangements between ESHs are organized under SNI s control, Approximately 75% of the ESH s debt is guaranteed by local authorities. 29

30 b Focus on the Intermediate Housing project 30

31 Targeting the demand in urban areas Acquisition of new housing units only through VEFA contracts ( Vente en l Etat Futur d Achèvement ), i.e. forward purchase programmes ( off-plan ): 1 Intermediate housing projects integrated into mixed programmes No risk on building costs Construction started after 1 st January 2014 Wholly-owned buildings Integration within mixed programmes 25% of social housing within the total programme (not acquired by the fund) Developers will retain a certain amount of risk to ensure alignment of interests 2 Housing adapted to tenants needs Housing adapted to tenants and to social and demographic trends: majority of 2-room and 3-room units Compact floor areas: 54 sqm on average Maximum of one parking space per unit in order to minimize vacancy 3 Housing that complies with high construction and energy performance standards Property developers required to comply with tender specifications specifically defined by SNI Selection of projects based on certification criteria to guarantee construction quality (acoustics, energy performance, accessibility, etc.) and sustainability Energy performance equal or higher than the RT 2012 standard

32 The intermediate housing plan: focus on highdemand areas in France Areas selected in the Investment proposal Description of targeted investments Selection of cities where the residential market is the largest in terms of Abis, A and B1 areas covering: 1 % of the French territory 25% of the French population 42% of French demographic growth potential over the next 20 years Areas selected based on economic and demographic criteria: Gap between market rents and social rents Average income of inhabitants Gap between market rents and social rents Demographic prospects Housing supply (current and projected) Areas Location Rent ceilings Abis Paris and inner suburbs 16.82/sqm/month A B1 Paris outer suburbs / French Riviera from Montpellier to Menton / Geneva suburbs / Lille / Lyon Other cities with over 250,000 inhabitants 12.49/sqm/month 10.06/sqm/month 32

33 Development pipeline: 35,000-unit intermediate housing development plan Regulatory benefits and obligations Reduced VAT : 10% (versus 20% normally) Exemption from property tax : 20 years 50% of assets have to be kept for at least 10 years, 15 years for the remainder Investments focused in supply-constrained areas Geographical distribution : Paris, Paris suburbs and selected locations in major regional metropolitan areas outside of the capital. Selection of locations based on micro-local external studies and on SNI s track record in managing its intermediary housing portfolio. Retention by the property developers of a part of the risk Key points of the investment Secured and indexed rents Average gross rental profitability : 4.5% Investment in locations where there is a minimum 12%-15% gap between applicable rent and market rents, with an intermediary rent ceiling to take account of : minimal vacancy risk secured indexation over the entire business plan period Discount of 20% at acquisition Acquisition at negotiated price : discount of approximately 20% over market rents in selected areas Formats adapted to needs Investment mostly in 2-3 room housing units in line with the identified long-term needs of the French population Energy efficiency : compliant with European Directive 2010/31/UE (< 50 Kwh/m² PE) 33

34 The Intermediate Housing funding framework Private investors fund (18 institutional investors mainly insurance companies) FLI A single investor : the French State through a real estate investment scheme (OPCI) SNI Key features Equity raised: 1,045m Financing (40% LTV): 690m Investment capacity: 1,735m Targeted portfolio: 10,000 units of housing Equity: 1bn Financing (57% LTV): 1,315m Investment capacity : 2.315m Targeted portfolio: 13,000 units of housing Additional equity: 900 M Financing (60% LTV) 1,350m Investment capacity : 2,250m Targeted portfolio: 12,000 units of housing Funding requirement 690M 1,315M 1,350M Already Identified Deutsche Hypo : 120M CDC DFE : 190M Crédit Agricole : 70M BNP Paribas : 100M EIB : 500M (Junker Investment Plan) EIB: 500M Still needed Complementary financing : 210M 850M over a 5-year period through NSV or Long Term Debt 4 5 years NSV (private equity) 787M 34

35 Global overview of intermediate housing operations under contract Intermediate housing investment overview 31/12/2016 Operations under contract and already delivered Localisation FLI SOLINTER SNI TOTAL Zone A 60% dwellings 69% dwellings 73% dwellings 66% dwellings Zone Abis 8% dwellings 8% dwellings 7% dwellings 8% dwellings Zone B1 32% dwellings 23% dwellings 20% dwellings 26% dwellings Typology Average nb of dwellings for one operation 33 dwellings 30 dwellings 37 dwellings 33 dwellings Average size 57 m² Ha 56 m² Ha 56 m² Ha 57 m² Ha Average rent 12,27 /m²/month 12,33 /m²/month 11,91 /m²/month 12,18 /m²/month Off-plan average price 3072 /m² 3154 /m² 2992 /m² 3066 /m² Market positionning Discount from average off-plan price -26,6% -20,5% -18,6% -23,2% Discount from average market rent -13,0% -13,5% -13,0% -13,1% Average gross return 4,79% 4,69% 4,78% 4,77% Invest target : 4,8% EIB : 4,5% EIB : 4,5% 35

36 c - Corporate Social Responsibility 36

37 Corporate Social Responsibility 37

38 Corporate Social Responsibility 38

39 Useful links

40 Disclaimer This document is provided confidentially, for informational purposes only and may not be reproduced, transmitted or disclosed in whole or in part to any other person. This document should in no way be considered as a solicitation, an invitation or an offer to purchase or subscribe for any securities issued by SNI. It cannot be considered (wholly or partly) as a basis for any contract or any commitment. Accordingly, it does not treat the specific investment objectives, financial situation or particular needs of any recipient. You should seek your own advice on legal, regulatory, tax, financial, investment or accounting issues to the extent that you think it necessary to make your own choice of investment, hedging and trading (including decisions relating to the suitability of an investment in SNI securities) based on your own analysis and not on any opinion expressed in this document. 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