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Shares in French Cegereal jump on 2017 results, special div; eyes capital raise

Campus Hanami © D.R.

Shares in Paris office REIT/SIIC Cegereal, controlled by US firm Northwood, jumped 8% Friday after it reported 2017 IFRS net profit up by 51% at €62.4m and a €4.1 special dividend. Its CEO told Business Immo that, to expand, the firm may raise new equity.

Cegereal noted in a results release that total return in its stock over the last 12 months has been 12.5%, with net asset value growth of 7.3% primarily driven by a rise in portfolio value and a distribution ratio of 5.1%. Its shares, which have held in a tight range around €38 in recent years, surged 7.98% to €40.60 by Friday's close on Euronext, and were last trading above €41. "Backed by institutional investors, Cegereal is ready to pursue its growth strategy and carry out further acquisitions," said CEO Jerome Anselme in a results release.

EPRA NNNAV last year rose above the current stock price to €43.8 per share, up €3.4 due to the valuation upgrade, though dividend distributions had a negative impact of €2.1, it said. Consolidated earnings growth added €1.3 per share, rent-free periods for new tenants and changes in the value of bank debt each added €0.2. Last year Cegereal took rental income of €51.3m, up 8.6% from 2016, of which €9.5m was contributed by its Hanami office complex acquired in 2016 in the western Paris suburb Rueil Malmaison.

EPRA earnings for 2017 climbed 15.9% to €32.7m like for like, with Hanami accounting for €5.2m of total. IFRS net income amounted to €62.4m, up 51.2% from €41.3m thanks to improvements in the cost of debt made in 2016 and 4.0% growth in portfolio value last year. At 31 December 2017, Cegereal's debt ratio stood at 53.4%, up slightly from 52.1% at end-2016. Cegereal cut the average cost of debt to 1.4% by the end of last year.

The company has been controlled since 2016 by Northwood Investors, a New York-based private equity group, which bought control from a German Commerzbank fund. Northwood now owns 55.4% of equity; Singapore's GIC has another 25.3%, and French insurer AXA owns 5.2%.

While Cegereal will propose an April distribution of an exceptional dividend of €4.1 per share, costing around €54m, Anselme told BI's Francois Perrigault on Friday that it will call on its shareholders in a capital raise if necessary. He gave no further details.

Cegereal has in recent years owned and managed four office assets in and around Paris, which were worth €1.17bn at year-end 2017, up from €967m 12 months earlier. Its new plans, catching the market by surprise, come just four months after the sudden departure of long-time CEO Raphael Tréguier last October.

Anselme told BI: "In 2017 we looked at about 30 dossiers - including five seriously - and were close to signing two." But he added: "We don't have any deals near to closing in the immediate future but we are open now to make new acquisitions." Even if Cegereal is unlikely to look outside Paris for acquisitions, the REIT could still evolve its investment strategy in terms of risk profile and asset size. "We consider we have the teams and the know-how to go out and find a value-added asset, with some rental vacancy for example, as we have 91% occupancy rate on our current portfolio and six years of average lease duration... Our smallest asset, the Hanami complex, is worth a little over €150m but we could still buy a smaller building if it offered, among other things, the services that are expected by tenants these days."

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