Care Property Invest S.A.

Good morning and welcome to you all joining us for the Earnings Call 2024 and the Strategic Outlook 2025 for Care Property Invest. For those who do not know me, my name is Patrick Coutenier. I joined Care Property Invest a couple of months ago and I succeeded to Peter van Heukelom as CEO of the company as of the 1st of January. I was initially trained as a financial auditor and spent almost 30 years with a fine company called KBC Group in very diverse positions, primarily in corporate banking and investment banking. I was general manager for different regions in the country and I was also CEO of KBC Securities for a number of years. Lately I was also active in wealth management for the ultra high net worth entrepreneurial client segment. I was thrilled to join Care Property Invest as it is a company in a business that is quite dear to me. I have always been very interested in equity markets and real estate, and I think it's very challenging times in this business, which was quite appealing to join the company. I will host this call together with Philip van Zeebroeck who is undoubtedly familiar to you as Philip is the CFO for already a number of years of Care Property Invest. So thanks for joining us and I now give the word to Philip to help us through some key features of the company to kick off the presentation.

Hi, good morning everyone. I will start with some key features of the company as on the 31st of December 2024. Financially, we have portfolio of 1.3 billion euros made up of financial leases and the ever diluting historical portfolio of currently about 17%. Investment properties, the new portfolio build up after 2014, currently 1.1 billion euros. We have an income of 69.6 million euros and EPRA earnings of just below 40 million euros. For 2024, we have an EPS of 1.07 euros per share and a dividend of 1 euro per share. And as you all know, our dividend is subject to a discounted withholding tax of 15%. We are active in four countries, Belgium, the Netherlands, Spain and Ireland in 151 sites. In terms of risks, everything is under control. We have an EPRA LTV of 45.4% and headroom of 55 million euros, which we increased with an additional 30 million euros at the beginning of 2025. On the 31st of December 2024, our share traded at a discount of 37.4%.

being a healthcare REIT we are of course a cyclical stock thank you Philip why don't we address a number of investor concerns or potential investor concerns right up front in the meeting we are aware that some doubts are raised on our growth strategy and growth potential We are aware of that, but are convinced that although we are a quite small player in the market compared to some peers, we still have the potential for growth in the future and in the near future. The market conditions are quite challenging, but we have access to equity, to funding by banks and other providers of liquidity in case good opportunities can be found. We are aware that you have a somewhat higher leverage than some of our peers, though we are convinced it is mitigated by the wallet share of the public sector in our portfolio for many years to come. The quality of our buildings is quite above average. It's buildings of a young age and also with a very fine energy efficiency today. In terms of portfolio valuation, we are quite confident that valuation can be stable for the coming years. At least the expected corrections will not be of a nature that will jeopardize our operations or our conservative risk profile. In terms of interest rate evolution, we are quite well hedged, still leaving some room to benefit from short-term interest rate declines. So, we wanted to address these concerns upfront in the meeting. And, um, and I'll give the word to Philip to delve into the financials more in detail. Before excuse me. Before that, I want to. look at the overview of the acquisitions and completions we realized in 24 and actually one beginning 25 the very nice project of Blumendaal that was announced in 24 but was actually realized in the first month of the year 25 and the other completions in 24 are actually two projects in the Netherlands two projects in Spain, and actually a quite large project in Ireland. As to the planned completions in 2025 that are still in the pipeline, we have a nice project in Spain, in Elche, as well as a Dutch project in Almelo. And now I give the word to Philip to dive into the financials. So this is actually the agenda for the rest of the presentation. Now we dive into the figures.

We start with some reassurance on the operational KPIs and on the financial health of our tenants. We have a rent collection rate of 99% and an occupancy rate of 100%, but the real occupancy rate also went up to 93.4%. Average indexation, I'll come back to that later on, is at 1.6%. And so we expose of a well-managed portfolio in well-chosen geographies. In terms of solvency, like I said, EPRA LTV at 45.4%. And a very limited amount of commitments still to pay 2.5 million euros. Stable valuation, I will also come back to that. If you look at EPS 2024, 1.07 euros per share, the dividend of 1 euro, and also the outlook for the guidance of the financial year 2025, we also gave the same figures, so 1.07 euros per share as an EPS guidance and 1 euro as a DPS guidance. We still see some increase in our rental income over the year 2025 from 69.6 million euros to 73 million euros. On the next slide, you can see our P&L statement. So you can see that going from 2023 to 2024, we see a growth of 5.6% to just under 70 million euros in rental income. Our cash operating costs is at 15% it slightly went down, so there is a slight improvement, and it is of course our ambition and our target to keep operating costs under control. In terms of taxes, it was kind of stable for next year for 2025 with the abolishment of the FBI and the local greed regime in the Netherlands, we expect an additional amount of 800,000 euros in corporate income taxes. On the next slide, you can see how the rental income has grown from 2023 to 2024, with acquisition still the main contributor to this growth. Here you can see an overview of the like-for-like change in the different countries contributing to this growth. And you can see that indexation was lower in Belgium and the Netherlands being over 80% of our total portfolio. In Belgium 1.45% and the Netherlands 0.86%. So that's why we have this figure of 1.5%. If you look at our balance sheet, we can see that the growth that we still realized in 2024 is visible in the item investment properties. If you look at the like-for-like portfolio valuation, we are now at an overall valuation yield of 5.6%. Year on year, there was a decrease in valuation of 0.6%. being the fourth quarter at the same figure, 0.6%, which has to do with a stricter approach of our Spanish valuers. We expect that this impact will be mitigated over the course of 2025 as indexation of our rental income in Spain will balance out this negative impact. You can also see on the next slide, where we show the valuation yields per country, that Spain is now at the highest level, being at 5.88%. Debt ratio is under control, it's very stable, just above 45% and at a healthy level. As I mentioned before, we have limited future cash-outs, 2.5 million euros, and being the projects in the Netherlands, Almelo, and in Spain, Elche, which will be delivered in the first half of next year. Bloemendaal, the acquisition that we made, is not yet in the debt ratio because the closing was early 2025. We have a healthy maturity wall, as you can see. And as I mentioned, we added another 30 million euros to the headroom of 55 million euros in the beginning of this year. So we have plenty of headroom to meet our financial obligations. interest rate this is an important point to make that our cost of debt has declined compared to the third quarter from 3.25 to 3.22 percent on the back of decreasing Euribor's so this means that for 2025 as Euribor's will come down further there will be a further decrease of our financial costs This is something you can also see in the hedge ratio and the future evolution of our hedge ratio, we are well hedged, you can see that we have a room of about 15%, but we can take advantage of this declining variables. dividends per share. So despite the fact that we have to pay 800,000 euros in additional corporate income taxes, we are able to maintain the same EPS compared to 2024 at the level of 1.07 euros per share. And of course, the dividend also remains stable at one euro being a payout ratio of 93%. And of course, dividends are subject to 15% withholding tax discounted rate. We don't have any signal that this discounted withholding tax rate would be abolished. shareholder structure is very stable. We are now at a part of private investors of 62% and institutional investors of 38%. Of course, we take the interest of all our shareholders in account and we know that to private investors, our health and our sustainability of our dividend is of utmost importance.

Maybe some words on our historical portfolio of service flats. As you might know, we have some 2000 assisted living apartments that are actually leased to municipalities, public sector or not-for-profit clients. The total book value of this historical portfolio is about 163 million. The fair value is 215 million. And still this is a rather conservative estimation of the value of the future cash flows. This represents 17% of our real estate portfolio and 25% of our total rental income. The runoff of these historical leases is well spread over the next 17 years almost. In the beginning these projects were financed back to back and at a certain point in time the financing was more integrated in a global company financing. But here you have a nice schedule of the runoff of the initial building rights for the projects over the coming 17 years. And the corresponding debt that is linked to these financings up to a certain year. So it's a gradual runoff of these leases and actually we have waited for the changes in the government of the municipalities to proactively reach out to all these Parties in order to discuss potential extensions of these leases for the future. And the way we approach this is actually, let's say, very solution oriented. We can obviously renew leases. we can refinance or finance necessary sustainability investments or upgrades to make these buildings future proof, or we can actually engage into sale and leaseback constructions with the public sector. We have known these people for many years. We still have in our development team the people that actually built, designed these buildings in the past. We are quite knowledgeable about these buildings and we are probably best placed to find a solution with the municipalities for the future. Having said that, it's early days to see to what this will lead. We are engaging over the last months in the first discussions and it's far too soon or too early to give a very good indication to what this will lead today. Filip will give you some insight in the dynamics of our core markets.

As I said, the company is active in four markets, being Belgium, 64%, the Netherlands, 19%, Spain, 9%, and Ireland, 8%. So all countries are in the Eurozone, so there is no currency, and also in the European Economic Area, which is important for the discounted withholding tax regime. Of course, being geographically diversified means that there is a diversification of the operating risk and, of course, a spread of the political risk. We are convinced that the four markets are all four attractive markets. We can see the same demographic evolution in the four countries. We can see that there is a shortage of beds already, which will only increase over time. So demographic pressure keeps on building up. And of course, each of the four markets has its own merits in terms of government spending on elderly care and on the overall landscape of operators. If you look at Belgium, and so by far the biggest market for our company, we can see a mature market with a system of operational licenses, which creates a limit on supply of pets. Gross prime yields in this market that we currently see is 5.5 to 5.7%. If we look at the underlying occupancy rate in our portfolio, it increased in 2024 to 93.5%, being well above breakeven level. Demographic trends, of course, as in all countries we are active in, are favorable. If we then go to the Netherlands, the Netherlands has a very generous government support for elderly care. we can see interesting yields and gross prime yields at 5.8%. And although the underlying occupancy rate is at the lowest in all four countries at 89%, and it increased compared to 2023, it is well above breakeven level for the Dutch market. There is an enormous demand and an additional 100,000 beds needed until 2040. Spain is the country in Europe with the oldest population by 2050, and so aging of the population is very significant. We can see that it is the only country in our portfolio where real occupancy rates have declined. This has to do with one asset that has come to maturity, being in operation for two years, but which will gradually fill up. So we don't see any problems there. And also in Spain, this 93.6% is well above breakeven level. We can see already currently a shortfall of 100,000 bets. Yields are attractive at 5.5. These are all prime yields for all countries. So being at an ideal location with an ideal operator. And then the last country is Ireland. And so Ireland has a real occupancy rate of 96%, so although it was already high in 2023, it even increased, which shows you that there is an enormous shortage in beds. Ireland has an attractive government support also for elderly care, and we can see that gross prime yields for nursing homes are about 5.5%.

Maybe some light on the focus for the coming year. I think we clearly can state that the focus remains on the four existing geographic markets. Every market still offers opportunities for growth, and with the current setup of the company, it's perfectly manageable to grow in these four markets. If we grow, if we invest in new opportunities, we will not loosen on our financial discipline. We are well aware that we want to preserve our conservative metrics and nature DNA of the company. And we also are aware of the expectations from investors that new projects must contribute to value creation in the future. Therefore, we clearly state that every investment we make should be EPS-accretive. over a period of three years' time, which is perfectly acceptable given that many projects are sometimes development projects that take some years. But on the other hand, our leases are very often 20 years or 25 years. So for us, this is an acceptable criterion to judge new projects. We also want to dynamically manage our existing historic portfolio of leased service flats, as I explained, and actually the way we enter into these discussions with municipalities is really with a multi-solution approach and trying to find a win-win with these clients for the future. In case the leases are not extended, capital is recycled by care property that can be invested in other projects. So we continue to focus on a strong financial structure, we continue to have a sound hedging policy, illustrated by the outstanding debt and the outstanding hedges, and also we have a very well diversified borrower base and debt portfolio. We have enough facilities available, though no excessive facilities as we also monitor the cost efficiency. And we want to stand for dividend stability for our shareholders. We also manage dynamically the existing portfolio of buildings and unlike other players in the market we do not come up with already well-defined divestment programs for the simple reason that our portfolio is quite sound and quite healthy and quite young. But of course we look opportunistically at the market, at the buildings And the criteria we would take into consideration is the future-proof nature of the buildings, the quality of our operators and the profitability of the transaction. we clearly also want to be a partner for the different stakeholders in the business and where possible want to contribute to the sector innovation and potential innovative concept we still have designers in our development team we have development capabilities and we are looking at our ambition to eventually increase the development activity within our operations Sustainability, although the omnibus regulation comes into place, is still key and an important part of our strategy. When we engage in new projects, the due diligence of the building is a very important element in our assessment, as well as the assessment of the business plan of the operator. Maybe some words on the governance. There are some changes in the governance of the company. First of all, we have changed the executive committee of the company since a couple of months. In the past, there were two directors who were part of the executive committee, but who were not full-time equivalent operational in the company. This has been changed with the addition of our chief legal counsel and chief business development officer to the executive committee. and we have some board changes upcoming. Some people who have served the company for a very long time and were very instrumental for the growth of the company over that period will leave the board of directors and we have carried out a diligent exercise and we have been looking for qualitative new directors for the company that can bring the company to the next level based on a well-defined competence mix in terms of gender international experience sector knowledge proven leadership and experience in the business and in risk and governance. We will be in a position soon to come up with the names of the new directors and right now they are subject to approval from the FSMA and the General Assembly. We have also upgraded or updated our renovation policy for the executive committee after some market sounding with a number of investors and parties that could help us in this. And together with the other members of the executive committee, we decided to increase the skin in the game. As people would call it, we will increasingly invest in the company. which underpins the long-term commitment of the people in the executive committee. We also increased the alignment with investors in the definition of our long-term KPIs. And there is also an obligation to use part of long-term incentive plans for building up the stake in the company by the management. I give the word to Philip again for some more detail specifically on our sustainability strategy.

Yes, on this slide you can see the overall sustainability strategy. The main focus, of course, of the company is investing in sustainable buildings and improve the energy efficiency of our buildings. On the next slide, you can see the overview of the energy performance of our portfolio. You can see that already in 2023, with 132 kilowatt hours per square meter, we were ahead of our peers and we managed to improve this figure to 128 kilowatt hours per square meter. we target an energy usage of 110 kWh per square meter by 2030. So this is something that we are actively working on to monitor our buildings, to do audits on our buildings and improve their energy efficiency, because we believe this will also support the valuation of our portfolio. And this is an important point that we want to make. If you look at the valuation yield of our portfolio and compare it to Peers, that is this quality and the age of the portfolio is an important aspect to take into account. All our targets are validated by SBTI and of course a significant part of our remuneration is linked to ESG APIs. In terms of CSRD, we are almost ready indeed with the omnibus regulation. We have to assess internally what we will do with it, but we are definitely on track.

So maybe to close the first part of the presentation, we want to highlight some key takeaways that really apply to our company. I think we are clearly a purely healthcare Belgian REIT. We are part of the EPRA index. Four core countries. um there's a lot of expertise and track record in the public and the private sector we have a nicely spread portfolio of energy efficient buildings and actually our company our investment portfolio is inflation proof we are kind of an inflation hedge in terms of organization I think we are a lean and mean and agile organization structure that allows for future growth in all the markets where we are present. We have access to funding. We have sustainable relationships with key stakeholders, operators, banks, investors. And we have committed an investor-aligned management team geared to create long-term value growth. I think the profitability of the company is in line with the conservative risk profile, and the aim is clearly to keep it that way. The cash flows are quite stable. We still have 25% of income on the public sector. We have quite good cost control and financial discipline and a sustainable dividend policy that is beneficial as a result of the 15% withholding