Investor presentation

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1 Investor presentation April 20, 2016 Marianne Laurent CFO Tel: +33 (0) Claude Rouchon Director of 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 - Focus on Intermediate Housing 6- Focus on the French State Fund 2

3 Section 1: Profile, Governance, Mission and Strategy

4 SNI is fully integrated within CDC French State (AA/Aa2/AA) S&P/Moody s/fitch Ratings SNI is the largest landlord in France. Since 2004, SNI has been a Caisse des Dépôts (CDC) strategic shareholding. Before 2004, SNI was directly owned by the French State. (AA/Aa2/AA) S&P/Moody s/fitch Ratings 100% SNI (AA-/F1+ Fitch Ratings) SNI is fully consolidated in CDC s group accounts and prudential model. 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. Groupe SNI entities implement their strategy in line with CDC s key strategic transitions, i.e.: Demographic transition Digital transition Territorial transition Energy transition 4 * 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 SNI fully applies CDC s governance rules. Board of directors and commitees : Audit Committee Compensation and Benefits Committee Strategic Committee In addition, SNI has set up a Defense Partnership Committee 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. 5 * The capital of a Société d économie mixte (SEM) is held by one or more public-sector entities

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, local authorities or government departments: 70% of rental income is generated by public-sector entities or government departments SNI provides 10,000 units of housing in police barracks Management of public-sector real estate assets (e.g. 9,400 units belonging to the Ministry of Defense) Acquisition and leasing of 3,700 dwellings as part of a general partnership with EDF. The dwellings will accommodate EDF employees and rents will be paid directly by EDF under firm 12-year leases. Total investment is currently estimated at EUR 844 million, including EUR 684 million in new debt. Supporting social housing public policies through a group of 13 regulated social housing entities (ESHs). Contribution to public policy of providing emergency shelter to people experiencing severe social hardship (homeless persons, refugees, ) through SNI s subsidiary ADOMA. ADOMA is a joint venture between SNI and the French State. SNI s holds a 56% stake in ADOMA following the 47M capital increase carried out in June

7 SNI Group Organization chart Caisse Des Dépôts 100% Groupe SNI Intermediate housing dwellings Asset Management Social Housing dwellings (through 13 entities) Integration through housing (ADOMA : dwellings) SNI 5 Etablissements dwellings SGP AMPERE Gestion (agréée AMF) 100% Sainte Barbe 99,99% (Moselle) dwellings Intermediate Housing Fund (FLI) 19,14% Intermediate Housing State Fund Consolidated entities : - SNI, Sainte-Barbe, SGP AMPERE Gestion - FLI and ADOMA are accounted for by equity method. Social Housing: not consolidated by SNI due to strict financial and regulatory controls (see exhibit ) 7

8 Keys figures & Strategic focuses Flow for 2015: 534 million collected rents dwellings delivered dwellings under construction dwellings sold Recent achievements: - Between 2009 and 2015, more than 20,000 dwellings were delivered (including 3,085 units in 2015). - Since 2013 : SNI is in charge of a multi-annual development plan dedicated to EDF employees (public electricity utility) comprising 3,700 dwellings. All construction projects should be completed before December At the end of 2015, 2,400 dwellings had already been delivered. Group strategic focuses: - Since 2014, SNI has been focusing on the development and construction of 35,000 units of intermediate housing over the 5 next years via 3 investment vehicles (see next slides). - 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. 8

9 Section 2: A secure business model

10 SNI mainly operates in areas where demand for housing is strong 10

11 SNI boasts very low vacancy rates and rental arrears Vacancy rates remained close to 2% in 2015 as a result of an ambitious action plan to rent vacant units. The proportion of outstanding rents remained at a very low level in 2015 (0.77%). 11

12 SNI s Corporate Social Responsibility SNI is deploying a proactive plan to promote sustainable development around 3 major challenges : - Promotion of social equity - Economic efficiency - Environmental protection In 2015, the CSR (Corporate Social Responsibility) rating agency VIGEO conducted an audit of SNI s practices and business model. Social responsibility Key Performance Indicators have been defined to provide a clear understanding of the Group s efforts in this area. 12

13 Energy efficiency Strong building maintenance policy : annual maintenance expenditure is over 9% of rental income, plus capex Energy performance Sustainable & green development: thanks to an ambitious multi-annual works program, SNI Group s average energy consumption has already decreased by 24% in 7 years ( ). Source: SNI 13

14 Section 3: Financial overview

15 Strong profitability Key figures for 2015 : Net Rental Income : 503M. Growth average 2% per year Capex (net of subsidies) : 609M Net income : 131.7M (average of 134 M over the last 4 years) ROE: 9.3% 15

16 Strong financial ratios 16

17 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 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 31/12/2015 LIABILITIES Equity M Debt * M Other Assets * Other liabilities M M M M * Including ESH cash pooling M 17

18 SNI s liquidity is structurally strong and safely invested Cash and cash equivalents (incl. liquid securities) amounted to EUR 544 m at year-end 2015 (balance-sheet position) Cash is mainly invested in money market funds and bank term deposit 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 18

19 Section 4: Funding policy and risk management

20 A very long debt maturity profile The long debt maturity profile matches SNI s long-term asset portfolio Amount of debt as of 31/12/2015 : 3.7 billion Average maturity : 15 years Forecast redemption of principal limited to EUR 176m 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 bank credit lines (up to EUR 264 m), Strong cash surplus (over 500 M on average in 2015). 20

21 Strategic start in capital markets Strategy: Mainly capital markets + loan secured (as Livret A index provide by CDC) 2015, upgraded Fitch rating (AA-/F1+ with stable outlook) From 2012: full compliance with International Financial Reporting Standards (IFRS) 2015 new transactions in capital markets: EUR 85M unsecured -- NSV /standalone Average maturity: 15 years General agreement with EIB : 500M dedicated to intermediate housing Well-diversified bank pool 21

22 Strict hedging policy for liabilities SNI s interest rate hedging policy aims to keep longterm 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 22

23 SNI: Unsecured debt with OC clause Unsecured debt enjoys a CDC ownership clause at 50% Since 2004, mortgage collateral has declined in importance Mortgages (11.5%) are strictly limited to funding specifically for regulated social housing 23

24 Conclusion & key points 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 resources : strong profitability, prudent liquidity management 4 - Funding strategy: mainly capital markets 24

25 Section 5: Focus on Intermediate Housing

26 Targeting demand in urban areas 1 2 Intermediate housing incorporated into mixed programmes Housing suited to tenants needs Acquisition of new housing units only through VEFA contracts ( Vente en l Etat Futur d Achèvement ), i.e. off-plan sale programmes: No risk on building costs Construction started after 1 st January 2014 Wholly-owned buildings Incorporation into mixed programmes 25% of social housing in the programmme as a whole (not acquired by the fund) Developers will retain part of the programme risks to ensure alignment of interests Housing adapted to tenants and to social and demographic trends: majority of 2-room and 3-room units Compact floor areas: 54sqm average Maximum of one parking space per housing unit in order to minimize vacancy 3 Housing 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 to / better than the RT 2012 standard 26

27 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 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 : 4.8% Investment in locations where there is a minimum 12%-15% gap between the 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 prices 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) 27

28 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 Paris 2 nd ring / French Riviera from Montpellier to Menton / Geneva suburbs / Lille / Lyon 12.49/sqm/month B1 Other cities with over 250,000 inhabitants 10.06/sqm/month 28

29 The intermediate housing plan: development vehicles The 3 SNI Group investment vehicles that form part of the intermediate housing development plan Private investors fund (18 investors ) FLI SNI A single investor : French State through a real estate investment scheme (OPCI) Investment capacity: 1,735M Target : 10,000 dwellings Investment capacity: 2,250M Target : 12,000 dwellings Investment capacity: 2,315M Target : 13,000 dwellings A target portfolio of 35,000 dwellings A 5 year investment period A single investment management structure under the responsability of SNI (asset & property management) and AMPERE Gestion (fund management) Global financing requirements of 3,355M As of ,200 dwellings launched 1,000 dwellings at the signature stage 46% of investment targets had been identified at the beginning of dwellings launched 600 dwellings at the signature stage The pace of development should mirror that of the French State OPCI. 200 dwellings launched 250 dwellings at the signature stage SNI has been appointed as one of the property managers of this fund. 29

30 The Intermediate Housing funding framework Private investors fund (18 institutional investors mainly insurance companies) FLI SNI A single investor : French State through a real estate investment scheme (OPCI) Equity 1,045M (mainly insurance and public sector companies) 900M (through capital increase from CDC) 1,000M Financing Need 690M 1,350M 1,315M Already Identified Deutsche Hypo : 120M (with a possible additional 130M) DFE : 190M (with a possible additional 171M) European Investment Bank : 500M Junker Investment Plan through EIB : 500M (currently being negociated) Still needed 79M (bank loans) 850M (funding needs over the next 4 years) 815M (funding needs over the next 4 years) 30

31 Section 5: Focus on the French State Fund

32 Investment capacity of the French state fund Equity committed by the French State at the launch of the fund: 750 M Maximum equity ticket of the French State: 1,000 M + 57 % leverage i.e. a 2,300 M investment capacity (13,000 units of housing) 1,300m 2,300m 1,000m Equity Debt Assets First portfolio of units of housing (launched : 200 ; Under signature : 250 ; Reservations: 1078) including: 6% in A bis 67% in A 27% in B1 32

33 Legal structure of the French state fund French State SNI 100% SPPICAV (SAS) Asset manager AMPERE Gestion 100% SAS SAS: Simplified joint stock company Intermediate housing 33

34 Financing strategy ( 1,315m requirement) of the French state fund Short-term bank debt raised for the development phase Private bond debt / EIB : 100% of long-term debt draw-downs Financing of the acquisition investment ramp-up through short-term debt Refinancing of the short-term debt by long-term debt with the following characteristics: No refinancing risk throughout the business plan (for a 25-year fund) Non-recourse debt with no guarantees from the French State but ownership clause being discussed Non-mortgage financing being sought in a loan format (NSV, Euro PP ) No interest rate risk exposure (fixed or hedged rate) Flexible repayment profile in order to fit with the disposal plan Compliance with the legal maximum indebtedness of SPPICAV and of banking covenants if appropriate, including in stress tests EIB loan through the Juncker investment plan is currently being negotiated (maximum capacity 500M ) 34

35 Appendices

36 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. 36

37 Strong attractiveness and resilience of the French residential market 37

38 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. The accuracy, timeliness, completeness or suitability of the information or opinions contained in this document are not guaranteed and may not serve as the basis for any purpose whatsoever. Neither SNI, nor its affiliates, advisors or agents shall be liable for any reason (negligence or other) for any loss arising from the use of this document or its contents or any other consequences associated with its use. Some information in this document is forward-looking in nature, including information on projects, plans, goals, strategies, future events, profits or future earnings, capital expenditure, funding needs, plans or intentions relating to acquisitions, competitive advantages and weaknesses and business strategies of SNI, as well as developments that SNI anticipates taking into account in the industrial, political and legal environment in which it operates and any other information that is not historical in nature. By their nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and there is a risk that predictions, forecasts, projections and other forward-looking statements will not be realized. SNI does not guarantee that these forecasts will materialize. These statements constitute, in each case, only one of many feasible scenarios and should in no way be considered as the most likely outcome. These statements are valid as of the date on which they are prepared. Any opinion expressed in this document is subject to change without notice and SNI does not take responsibility for updating or revising any forward-looking information, resulting from new information, future events or any other facts. This document does not constitute a prospectus under implementing Directive 2003/71/EC (the Prospectus Directive ") applicable in each member state of the European Economic Area (each, a "Member State"). 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In the United Kingdom, this document shall be distributed and addressed only to ( a) persons who have professional experience in matters relating to investments in accordance with Article 19 (1 ) of the Financial Services and Markets Act 2000 (the " FSMA ") (Financial Promotion) Order 2005 or ( b) to high net worth entities in accordance with Article 49 (1) of the Order, and other persons to whom it may lawfully be communicated or ( c) qualified investors within the meaning of Rule s86 (7) of the FSMA (all such persons forming the "Eligible Persons"). The securities to which this document relates shall be available only to eligible persons, and any invitation, offer or commitment to subscribe, purchase or acquire such securities is only available to or may only bind eligible people. Any person who is not an eligible person should not act or rely on this document or its content. Neither this document nor a copy of it may be distributed or transmitted, directly or indirectly, in the United States of America or to a U.S. citizen (as defined in Rule 902 of Regulation S of the Securities Act of 1933, as amended [the " Securities Act " ] ). The distribution of this document may in certain jurisdictions, be restricted by law and persons receiving it must seek information on and observe such restrictions. Failure to comply with these restrictions may constitute a violation of local regulations from these other jurisdictions. Neither this document nor any copy of it may be kept in your possession, reproduced, redistributed or published, in whole or in part to any other person. By attending this presentation you agree to be bound by the foregoing limitations. 38