Aedifica Sicafi Bruxelle

You will find the full slide deck on the website as usual, but we will walk you through, of course, the financial slides and then add some more color to some of the portfolio slides. So I suggest that without further ado, I can pass on to Ingrid and she'll explain to you the financials that we made public this morning.

Okay, good morning. So first of all, the income statement and the APRA earnings. So we reported APRA earnings of 85.8 million. When you express that on the denominator, it's still standing at 36 million of average shares over the first six months of this financial year. This will give you an APRA EPS of 2.36 euros per share. So the nominal amount of the upper earnings, the 85.8, is an increase of 27% compared to the previous year. When we look a little bit more into detail, rental income went up with 21%, so standing at 130 million. The operating charges were well under control, as demonstrated by an increasing EBIT margin of 84%. Then we have the financial charges, 15.6 million, a bit below the amount of last year, on the back of an average cost of debt that also went down and that stands at 1.3% at the end of June. There's an increasing impact of the corporate taxes related to the fact that the portfolio is growing outside of Belgium, where corporate taxes are paid. And the net result, a net result of 239 million, mainly driven by the changes in fair value of the investment properties of 160 million. On a like-for-like basis, there's an increase in the fair value of the investment properties of 2.5%. This half year, we also noted the impact of the increase of the long-term interest rates on the fair value changes in the financial assets and liability that went up with 65 million. So the net result per share stands at 6.57 euros per share. And a little bit more detail on the increase of the rental income, so year on year basis rental income went up by 21%, mainly driven by the acquisitions and deliveries. You can see that, especially in Germany, there was an important portfolio that was acquired in 2021, which is positively influencing the increase in the rental income and also the portfolio expansion that we have seen in the UK. In Finland, on average, we are expecting that projects will be delivered for approximately 100 million on a yearly basis. So this is also a constant element in the increase of the rental income. Now, when you look at it on a like-for-like basis, you can see that the like-for-like expressed in the group currency euro stands at 4.2%. In each country, there is an increasing impact in the like-for-like. In all countries, there is an indexation taking place of the rent of income. In some countries like Germany, this can be delayed or kept, also explaining the reason why the like-for-like in Germany is lower than the average that you see in the other countries. In the United Kingdom, In most of the rental agreements, there is a cap standing at 4% of the indexation. Still, you see a like-for-like of 6.3% in the UK. This is still driven by the fact that at the end of 2021, there was an important rent negotiation with two tenants that just positively influencing the like-for-like. If I would split up the 4.2% like for like, I could say that 2.4% is related to indexation, 1.1% related to rent negotiations, so mainly the impact in the UK, and 0.7% is related to the currency impact of the UK assets. Then moving over to the balance sheet, so a total balance sheet of 5.6 billion with an increase in the investment properties of 381 million, mainly driven by the acquisitions of approximately 175 million, but also the changes in fair value of 116 million. Then on the equity side, you can see the increase in the equity of 377 million, taking into account the capital increases that took place before the end of June. So this is ABB and a smaller contribution in kind that took place in May. The contribution in kind that took place at the beginning of July is not yet included in the equity. Then we have the impact of the result of the year, the 239 million, and the payout of the dividend minus 118 million. Dividend was paid in May. Financial liabilities, so there you can see an increase in financial liabilities of 78 million. The roll forward of the APRA NTA, so APRA NTA that was reported at the end of June stands at 78.44 euros per share, which is an increase of 3% taking into account the APRA NTA at the end of December. So including the APRA result, the increase of the property value increases and the cash payout of the dividend. Our financial policy is to have a debt-to-asset ratio that is below 50%. This would mean that we report a debt-to-asset ratio of 41% at the end of June. There is still investment capacity of 1 billion before the 50% would be reached. But we are a little bit more conservative in the current volatile climate and the market circumstances. So for that reason, we think that it would be best to have a debt to asset ratio that does not go too much above the 45%. And that would mean that there is an investment capacity of approximately 400 million. You can also see a little bit more of the conservative approach in the leverage on this slide. So over the past 12 years, Edifica maintained an average debt-to-asset ratio of 45%. In the past, it happened that the debt-to-asset ratio went above 50% following NMA. Then afterwards, a capital increase took place, lowering the debt-to-asset to a level where we could further extend the portfolio. More recently, we anticipate a little bit and started to have a debt to asset ratio that remains below the 45%. But it's also putting the company actually in a good position and having a strong balance sheet in case opportunities might show up in the second year hub to be in a position to analyze and to consider investment and further portfolio expansion. Then the financial debt. So the reported financial debt at the end of June is 2.1 billion. The credit rating has been reaffirmed by S&P. So there was the annual review that took place in July with a reconfirmation of the BBB rating with a stable outlook. More and more of the financing is done on a sustainable basis, so the drawn debt already included 27% of sustainable financing, and we have also signed new sustainability linked credit lines, which will be drawn in the coming months. Most of the debt is on an unsecured basis, so the secured part is less than 4%. Now, refinancing and funding being one of the main teams of the past six months. So what we have been doing, taking into account the increase of the cost of debt that we saw in the debt capital markets, we have been mainly focusing on attracting new financing with banks. Some of them were existing banks, but also some new banks. In total, we have signed for over 420 million of new credit facilities. This also includes GDP financing, so the portfolio in the UK is expanding. And for that reason, to have a natural hedge on the balance sheet, we have also increased the debt expressed in GDP. So there was already a debt outstanding of 180 million in GDP, to which we added 160 million. When we take into account all those credit facilities that were signed over the past six months, we can say that the average blended credit spread, so taking into account Euro and GDP debt, was approximately 100 basis points. And all those facilities have a tenor of five years. So all in all, I think the refinancing and the new financing that was attracted over the past six months is still done. at a cost, a credit margin that is very much in line to the one in the past. So on this slide, you can see on the left-hand side the liquidity. So we have committed credit facilities for 3.3 billion, out of which 2.1 billion is drawn at the end of June. We still have a commercial paper program with short-term commercial paper outstanding that represented 239 million at the end of June. But for this, we always have committed credit lines as a backup. If you do not take into account the short-term commercial paper, that means that we have a liquidity of over 900 million to finance the portfolio expansion and the execution of the committed pipeline and no major debt maturities to be handled in 2022 and even 2023. And finally, on the interest rate hedging, so at the end of June, we reported that 83% of the debt is hedged by derivatives, so mainly being swaps or by fixed-rated debt. The average maturity of the hedging stands at 6.4 years. We also did some new hedging in the second half of July, taking into account the decrease that we have recently seen in the long-term interest rates. So that means that if you would include those hedges signed up during summertime, the hedging ratio would be close to 90%. Okay, handing over to Stefan.

Thank you, Ingrid. I will walk you through some of the slides and try to comment a little bit more on some of the evolutions that we see in the market. So not focusing too much on just conveying the data that you can read yourself. Perhaps starting with the segment breakdown of our portfolio. I think it is clear that we remain very focused on elderly care and senior housing. It's now up to 87% of the portfolio. We still believe that this is the most relevant market segment in healthcare in Europe, also because of what we believe to be a very good funding mix that it offers to the operators, meaning they have access to social security money, so public financing of their activities. but also they have access to some private funding sources being the daily rates that they are charging to their residents and in the future that will be the baby boom generation. I think it's important to bear that in mind when we talk later on about inflation because we clearly see some indications that operators have some pricing power and that they are able to push down inflation towards the residents. Looking at the future, we also see opportunities in terms of further diversification towards other segments. We still have the possibility to widen the scope going into other care segments, and that also could be useful from a youth perspective, making sure that we seize the right opportunities in the healthcare market environment. When looking at the geographical breakdown, actually nothing much to be said. It's clear that the four core countries today, Belgium, Germany, Netherlands, UK, Finland, actually five, remain at more or less the same level as you've seen in the past. We've just added Spain a couple of days ago by announcing our fourth. first project in the Spanish market. So you will see in the near future some growth in these other countries, but in itself nothing much to be said. I'm going to skip the slides in which we give an overview for each country. If need be, we can use them afterwards if you would have specific questions, because I would like to focus a bit more on the tenants. Bear with me, almost there. Yes, you will. So when looking at the whole of the portfolio, you will find, well, basically 280 tenants that we're working with, but that when you look at the groups behind it, we're talking 130 tenant groups. It is a well-diversified portfolio. You will find the European consolidators, the bigger European profit players in the portfolio, Corian, Colise, or PEA are the main examples. You will find lots of national profit players that are growing rapidly, for instance, in Germany, Adurit, in Belgium, Vulpea, and then some of the UK players that we have in the but you also will find not-for-profit and public players. Specifically in the Dutch market, we do work a lot with not-for-profit players or operators. We do see in the Finnish market the impact of public operators in the portfolio growing. But that is a picture that you have seen before. I'm going to use this slide to comment a little bit on and anticipate perhaps some questions about pressure on operator margins, inflation pushback, things like that. When looking and talking to operators today, it is clear that there are concerns about wages increasing in certain countries. We see energy, of course, energy cost is increasing for operators and you have the general cost inflation environment, which we all know, and it's also impacting rents. But I think that we can be very clear first of all from a difficult perspective that when looking at rent collection we do not see any material payment delinquency today. We are not engaged in any discussions with operators about base rent levels. So there is nothing really to be reported on that side. When talking about indexation itself, once again, I can confirm that we do not see any material impact as we speak. Looking at what's happening today, we're now reaching in certain countries indexation levels of close to 10%. Of course, operators complain about this when they see this coming their way, but when we start conversations with them, look into the numbers, in the end it is not leading to any material changes in the rent collection as such today. We'll see how it goes for the second half, depending also on what will happen with inflation, of course. But the thing is that we have some indications that these cost increases that operators are facing are to a certain extent already compensated by increases in their income. We have seen in certain countries that the public funding of operators is increasing. For example, I have been giving already in past is that wage increases in the Flemish region in Belgium are compensated by increases in public funding. We have seen some increases in funding in the UK. So there are some events taking place. But mostly what we also start to see right now is that operators are able also to increase daily rates. We've seen some evidence in Belgium, we've seen some evidence in Germany, where some wage increases are now being compensated by increases in daily rates that are charged to residents. So it's happening as we speak, and we think that this is on the back of rising occupancy. So occupancy clearly is going upwards throughout the portfolio, resident occupancy that is, in Europe. And I think it is enhancing the pricing elasticity or the pricing power of the operators. So basically, it looks like the sector is once again showing a lot of resilience. Putting this into numbers is a bit difficult right now because we're So we're waiting for the operational KPI to come in so that we can analyze in the next coming weeks and months. But first indications that we have, and you all know that the transparent markets are Belgium and the UK, whereas lots of other countries, it's much more difficult to get analytical numbers from operators. But when we look at occupancy in Belgium and UK, we see it going upwards. Belgium, for certain regions, and talking about Flanders and Wallonia, they're actually almost back at pre-COVID levels. We also see the positive impact on rent cover. It's moving upwards towards pre-COVID levels. Maybe a little bit behind occupancy, but that seems to be normal, I guess. UK, similar message. We see occupancy going up, so moving away from the lower 80s, gradually going to the higher 80s. We do also see for some of the tenants already today that the rent covers are clearly improving. So once again hopefully we can confirm this after the summer when we get more detailed information. But basically the message being here that we have some clear indications that tenants seem to be coping with the situation so we'll see how it goes for the next 6 to 12 months. What I already mentioned, so that we're very focused on profit operators, but it is reflecting the consolidation that is going on in the European markets and more specifically amongst private profit driven operators and 2% of the operators are Public used to be 3%, but that has to do with the overall growth of the portfolio. When more specifically looking at the Finnish portfolio, where we have these public operators, basically municipalities that are becoming our tenants, we do see in the Finnish pipeline more and more municipalities appearing as future tenants. And we see that Reuvaatlant is quite successful in winning these standards, so that is... relatively or quite promising looking at the future. We've also added the slides that we've shown already in the past about quality of care and more specifically how quality of care is being controlled throughout Europe. We use normally these slides to talk a little bit about the OPEA situation, but since there is nothing really new to be said, I hope you won't mind that I'm skipping these slides. Once again, if you have specific questions, more than willing to come back to it. Maybe moving on to the lease maturity. Once again, nothing really changed within the portfolio. Lease maturity remains at 20 years. Throughout the portfolio, you have It's broken down by country on the right side of the slide and the occupancy is still standing at 100%. Age of buildings, once again, nothing much changed. All in all, the portfolio is relatively new. you will see that, if I'm not mistaken, more than 60% of the portfolio is younger than 15 years. We've changed the methodology of this slide already in the previous quarter, so now we're actually breaking down each building into the seven different parts so that we have a much more clear view on how old exactly the portfolio is. So basically new wings of a building count as new, but the older parts of the building still count as being older. So it's not as if we count the whole building as new because we've added one wing to the building. And then this slide, this is what I wanted to get to. So what is basically happening with fair value in the portfolio and what do we see happen in the investment markets today? You probably already read that the like for like fair value growth of the portfolio stands at 2.5%. We have seen fair value growth in all of the countries that we are doing business in today. But when looking at the markets today, the investment markets, we do not upwards as we speak today so clearly there is not yet any impact to be flagged from rising interest rates on prime yields in the healthcare market segment this being said when looking at deals we are starting to see some mixed signals meaning that we already flagged I think when doing road shows over the past couple of weeks that there is quite a lot of volume coming to the market. We already said that we were very curious to see what would happen with all of these portfolios that are up for sale today. Now, actually what we see happening today is that some of these transactions have been pulled by the sellers. probably an indication that they did not get the pricing that they were hoping for. We already have also some indications that there might be an increased execution risk for sellers. Speaking from our own experience, we have seen sellers coming back to us on operations transactions where we were not by far not the highest bidders but they're coming back because highest bidders were not able to execute and they're now looking clearly for deals for deal certainty and coming back to talk to Edifica But on the other hand, we also see some of these portfolios still, well, at least we'll see if sales will be executed, but we still see very competitive tenders, very low yields being offered. So it is a bit of mixed signals that we see happening in the market today, but we clearly believe that that will be offering perhaps some opportunities for Edifica and actually already today in the future. And then talking about the grid pipeline, standing at 820 million euros today. Can you see on the slide that Germany is still good for the main part of this pipeline, with some growing activity in the UK, of course, in Finland, where we have our own development activities that we need to do. important to us, but also Ireland is appearing in this slide nowadays. When looking at execution and timing of execution of this pipeline, you will see that we're still expecting quite a lot of deliveries towards the end of this year. So basically it's one third this year, one third next year, one third in 2024. uh but if you allow me to add a bit more information to this um first of all um if you want to split between own development activity of edifica group and forward deals that we're doing with uh developers and operators i think uh that i you will find that the own development activity is roughly good for 22 of the 820 million euros it's the activity in finland and sweden whereas a bit more than 75%, basically these are forward deals that we're doing with third-party developers and or operators, meaning that in those cases the real development is with these third parties. When looking at the yield on cost for the development pipeline, The average yield on cost now is standing at 5.3%, which is slightly higher than what we showed the market at the end of the first quarter. So we see the yield going upwards. If you want to split between own development activity and forward deals, it's roughly the same message. when doing own development deals, that the average yields are above 6%. Saying averages, of course, when you're doing something in the city center of Helsinki, it will be at a somewhat lower yield compared to other parts of the country, but the average remains above 6%, whereas the forward deals, the average remains above, slightly above 5%. When looking at the execution risk of the pipeline, I think it's good to flag that, well, at least you can deduct already from the slide that roughly 70% of these projects will be delivered in the next 18 months, so in the very near future. But when we look at it with some background information, we see that a bit more than 80% of this portfolio is already in a very advanced stage of planning. And by advanced stage of planning, we actually mean that we're well beyond obtaining the building permit. We're actually in advanced stage of planning construction and we are under construction. To us, that is important because we have seen from experience that the main execution risk in today's market is not so much in the construction sites that you are able to start. It is much more in the previous stages when, for instance, waiting for a building permit and then having to negotiate construction contracts with construction companies. This is where surprises sometimes pop up and could lead to postponing or even withdrawing projects. And last but not least, if we look at what happened with this development pipeline over the past half year, actually we were able to add 26 projects. So even in today's market environment, yes, we're still able to add projects and we're still able to negotiate projects within the margins that we want to see. 14 projects were delivered. but also seven projects were withdrawn in mutual agreement with the parties involved. So basically what we're doing is focusing a lot on the active risk management of this committed pipeline, meaning that we want to make sure that yield stays sufficiently high, that execution risks are under control. And when I mentioned seven projects were withdrawn, it is almost always the combination of building permits taking too long to be obtained in combination with rising construction costs and in rising interest rates which is basically creating risk for all the parties involved and which is actually allowing us to then negotiate with the developer that we do not want to be committed on the project if we do not see it landing within a reasonable timing and with reasonable execution risks. It also allows us to keep the total volume of this committed pipeline under control and within the boundaries of what we can finance also based on the balance sheet. So this pipeline, which we think still is of very high quality and with a well-controlled execution risk, is giving you an idea of the future portfolio growth, maybe adding to that the investment activity. Now, looking back at the first half year, you have seen that we announced for a bit more than half a billion euros of new deals throughout Europe. And when you look at the map, you see that we have been very active in the UK and in Ireland. but not exclusively. Looking towards the second half year, I think that or at least we expect that we will be in line with the guidance that we have given at the beginning of the financial year. So we have mentioned numbers of roughly 800 million euros of new deals that will be announced with some 450 million euros of immediately cash flow generating deals. So basically we can confirm today that we are well on track to deliver according to this guidance. The question is whether we will do more or not is something I will go into immediately, but maybe now switching first of all to the outlook that we have given.

So the outlook. So the changes that we have made to the guidance that was given to the market in February First of all, the rental income. So before we set rental income of 269 million, now you can see 273 million. The main differences are coming, first of all, of the new hypothetical investments. So we see them entering in the portfolio sooner than originally anticipated. So as just mentioned by Stefan, we made the assumption that there would be 800 million of new hypothetical investments out of which 450 million will be cashflow generating. Year to date, we have already made announcements for approximately 260 million of cashflow generating assets. And we have also identified the remaining 200 million and expecting that they might enter into portfolio in Q3 already. So this is slightly ahead of the previous budget. and that means an increase in the rental income. Another point that is influencing the rental income in a positive way is the fact that there are a bit less asset disposals. First, we had said approximately 100 million. Now it will be closer to 55 million. And then a third point regarding the rental income increase is related to indexation, which is above our previous assumptions. So all those assumptions, they will lead to APRA earnings of 177 million. So compared to the 175 million previously announced. So this is an increase in the APRA earnings. Taking into account the increase in the average number of shares. So the average numbers of shares for the full year will be slightly above 38 million. So that means an APRA EPS of 4.64. But this combined with the debt-to-asset ratio, which is 5% lower than what we had originally said. So in the original guidance, there was a debt-to-asset ratio that would be close, but just below 50%. And now we can say that by the end of the year, we are anticipating a debt-to-asset ratio that will still be below 45%. So once again, confirming the fact that we now have a strong balance sheet and putting us in a good position for further portfolio expansions.

Maybe as a general conclusion and before we go into the questions, looking a little bit beyond the next six months at what we expect will be happening with healthcare real estate and more specifically also elderly caring senior housing in Europe, Basically what we are expecting, I think in that perspective we can send out a very strong and Buddhist message, is that looking two to three years down the road, meaning by 2025, mid-20s, we expect to see occupancy in care homes going at very high levels again. Why is that? Because of a combination of two things that are happening today. First of all, we know that aging will start accelerating as of the mid-20s. This is the point in time where the post-World War II baby boom generation will start turning 80. On the other hand, when looking at the macroeconomic situation today, we are expecting some slowing down in the production of new capacity, meaning development activity could slow down in Europe. But we also see that operators sometimes are hesitating to add new capacity, uh not because they're questioning the business case or they don't see the demand but basically they're more struggling with availability of staffing today in certain regions which is holding them back to launch you in certain regions to launch new developments this being said when you combine the two i think it is very clear in our view that business case of operators will keep improving from occupancy perspective in the next coming years, actually even to the point that we expect to go back to a situation of waiting lists in certain regions. We actually already have some indications of that today in certain regions. So that will improve occupancy, it will improve pricing power, it will probably also drive prices for residents upwards. So this is basically what we're expecting in the medium term. Now, very short term, it's clear that we're also taking into account lots of uncertainty in the macroeconomic environment, but also in the geopolitical environment today in Europe for the next six months. And perhaps 12 to 18 months, we'll see how it goes. Nevertheless, when looking at the situation of Edifica today, meaning what is happening within operations, what are the reactions that we're getting from our tenants, how is our balance sheet looking, we feel actually very comfortable, meaning that we are ready to seize opportunities and perhaps grow faster, do more than what we are expecting today. But on the other hand, we're also ready for worst-case scenarios. If we need to hibernate, we can. We can execute the pipeline without seeing debt-to-asset ratios moving sky-high. So we are in a very comfortable situation. And actually, it's the same way that we are looking at our EPS guidance today. We're very comfortable with the EPS guidance that we have given. So I'll let you draw your own conclusions about it, whether or not you like the EPS guidance or not. But basically, we're comfortable with this guidance, meaning there is also some room to do better, but that will, from our view, largely depend on what will happen in the next months in Europe.