GECINA - REFERENCE DOCUMENT 2017

02

COMMENTS ON THE FISCAL YEAR Financial resources

2.2.5

CREDIT RATING

Gecina is monitored by both Moody’s and Standard & Poor’s: Moody’s upgraded Gecina’s credit rating from Baa1 to A3 on December 22, 2016 and changed the outlook from neutral to ■ negative in June 2017 following the announcement of the acquisition of Eurosic and pending completion of the disposal plan; Standard & Poor’s, for its part, revised its outlook up from BBB+ stable outlook to BBB+ positive outlook on October 25, ■ 2016 and confirmed this credit rating following the announcement of the transaction with Eurosic.

2.2.6 Gecina’s interest rate risk management policy is aimed at hedging the company’s exposure to interest rate risk. To do so, Gecina uses fixed-rate debt and derivative products (mainly caps and swaps) in order to limit the impact of interest rate changes on the Group’s results and to keep the cost of debt under control. In financial year 2017, Gecina incorporated Eurosic’s hedge portfolio (derivatives and fixed-rate debt) and optimized the new combined unit in line with the overall strategy being: maintaining an optimal hedging ratio; ■ adapt its hedging portfolio following fixed-rate bond ■ issues, the integration of the Eurosic portfolio and changes in the current and future debt volume following the completion of the disposal plan; raising the average maturity of hedges (fixed-rate debt ■ and derivative instruments); and securing low interest rates for the long-term. ■

MANAGEMENT OF INTEREST RATE RISK HEDGE

To this end, Gecina has: put in place €1,700 million in fixed-rate debt following ■ bond issues in June and September (average maturity of 11.6 years); terminated €1,045 million in nominal swaps with an ■ average maturity of 5.3 years; repaid €274 million of bonds outstanding with an average ■ maturity of 2.4 years as part of the repurchase in September. The combination of these transactions also lengthened the average duration of the Group’s firm hedge portfolio to 7.5 years at the end of 2017 compared to 7.3 years at December 31, 2016. As of December 31, 2017, based on the level of projected debt, the hedging ratio averages 70% (excluding caps) over the next seven years.

The chart below shows the profile of the hedge portfolio:

in € million

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

2018

2019

2020

2021

2022

2023

2024

Caps

Fixed rate debt + swaps

Gecina’s interest rate hedging policy is implemented at Group level and on the long-term; it is not specifically assigned to certain loans. As a result, it does not meet the accounting definition of hedging instruments and the change in fair value is posted to the income statement. Measuring interest rate risk Gecina’s anticipated net financial debt in 2018 is 95% hedged against interest rate increase (depending on observed Euribor rate levels, due to caps).

Based on the existing hedge portfolio, contractual conditions as at December 31, 2017, and anticipated debt in 2018, a 50 basis-points increase in the interest rate would generate an additional expense in 2018 of about €8 million. A 50 basis-points fall in interest rates would result in a reduction in financial expenses in 2018 of about €8 million.

38 GECINA - REFERENCE DOCUMENT 2017

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