Aedifica NV/SA

The highlights, Ingrid, will go into more details about the financial results as published this morning. Very short, we will be touching upon some of the major KPI of the portfolio and then, of course, give you our review of what we think will be happening in terms of healthcare real estate and healthcare real estate markets in Europe in the near future. So, this being said, and hopefully by now, So you'll feel that it works. Fair enough. Okay, without surprise, I guess most of you have seen these numbers this morning already. I think on the one hand, we can be relatively proud that we are presenting to the market quite robust and solid results. with an APRA earnings coming in at 110 million euros, so up 28% compared to last year, on the back of rental income that has shown like-for-like growth of 5.1%. But Ingrid will go into that in more detail immediately. Leading to an APRA EPS at June 30 of 2.5%. per share, which is based on the average number of outstanding shares at that point in time, so pre-equity race that was finalized early July. But nevertheless, allowing us to slightly upgrade the guidance that we have been given for the full year. Looking at the other side of the slide, we show a quite strong balance sheet with a debt-to-asset ratio that post-equity raises now down to 39.3%, having raised equity up to €406 million. growth in the first half of 2023. And also presenting, I think, in terms of liquidity availability of credit lines, a very strong balance sheet. Once again, Ingrid will go into that in full detail. And also early July, we got the confirmation of S&P about the credit rating, a BBB flat with a stable outlook. Numbers in the middle, we will be talking about them when we scroll through the portfolio slides, maybe quickly drawing your attention to the pipeline that we will be talking about in somewhat more detail to give you an idea of how we see evolving that pipeline in the near future. This being said, moving then to the next slide, which I can do myself probably. Yes, this is a slide I think that clearly shows how times have changed, so the investment activity of IDifica in the first half of 2023 in the end boils down to 40 new development projects that we added to the pipeline, roughly 90 million to be invested, and an activity that is almost exclusively focusing on Finland with one Spanish project. So if you compare these two numbers in the past, I think it's clear what I mean when I say the market has clearly changed. On the other hand, we see 19 projects being developed out of the development pipeline for roughly 121 million euros, and it also gives an indication about the way that we see the pipeline evolving, meaning that the absolute numbers will come down in the near future. I don't think with lots of surprises in there. If you take today's portfolio with investment properties at roughly 5.6 billion euros and you add the pipeline, we will cross the 6 million euro bar in the near future. This being said, maybe one number that needs some explanation on this slide is that you will find assets classified as held for sale 115 million euros. 150 million guidance that we have given in terms of asset rotation for 2023, minus 35 million sales that already took place in the first half. This being said, you probably noticed in the press release that we confirmed having signed purchase agreements for the five OPEA assets in Brussels. They are in the 115 and we also can confirm that we are in the market or will be in the market in the next couple of weeks with two small portfolios in two countries and we're also expecting some asset sales in other countries towards the end of the year. So basically the message here being that we still think that the guidance that we have given in terms of asset rotation towards the end of the year can be reached. This being said, I think we can switch them to the finances, Ingrid.

Okay. So, on the income statement, as mentioned by Stéphane, we reported upper earnings of 110 million, an increase of 28% compared to the previous year. You can see that this is on the back of a strong operating result, plus 20%, mainly driven by the increase in rental income of 18%, combined with a good cost control as expressed by the EBIT margin that went up from 83.8% towards 85.4%. Then we have the financial charges, minus 25 million, an increase of more than 9 million compared to the previous year. The average cost of debt stands at 1.9% after the first six months. Then we go to the corporate taxes. So the corporate taxes are showing a plus this time on the back of the one-off refund that we received in the Netherlands. regarding the attention of the FBE status, so it covers the period of 2016 up to 2021. So this leads to the upper earnings of €110 million or expressed on a per share basis of €2.76 per share. Then the net result, a net result of €56 million or €1.42 per share. influenced by the changes in fair value of the investment properties, minus 82 million. On a like-for-like basis, during the first six months, there is a minus 1.2% in the valuation of the investment properties. You can also see some impact of the FPE status related to the reversal of the deferred tax liabilities of approximately 20 million. Then we will dive a little bit more into the increase of the rental income. So for the first six months of 2022, we report rental income of 131 million. To make the bridge towards the 154 million at the end of June 2023, there is a contribution of 8 million related to the indexation. Some rent negotiations, mainly top-up rents in the UK portfolio of 1.1 million. There is some impact related to the disposals, 0.5 million. And then we have the contributions from the deliveries and the acquisitions that took place in June 2022, or only contributed for a couple of months in 2022, leading to the rental income of 154 million. When we look at it on a percentage basis, you can see that the increase of 18% is mainly coming out of the UK, Finland and Ireland. On a life-for-life basis, there is an increase of plus 5.1%, which can be split into an impact of the rent indexations, plus 5.4%. plus 0.6% related to rent negotiations. And then there's a negative impact coming from the exchange currency of minus 0.9%. In most of the countries, we succeed quite well in transferring the impact of the indexation towards their tenants. There are two countries, Germany and the UK, where caps are in place and where you will see a lower number for the like for that. Then on the debt-to-asset ratio, so at the end of June, we reported a debt-to-asset ratio of 45.6%. That does not take into account yet the proceeds of the capital increase that were received at the beginning of July. So the performer calculation of the DTA would be 39.3%. We have a financial policy of keeping the debt-to-asset ratio in the low 40%, with a maximum of 45%. And also by year end, we are expecting that we will be somewhere around 39-40%. Then on the credit facilities, so total outstanding financial debt of 2.6 billion. We have the first financial debt resources. So 60% is coming out of bank financing and 40% is placed on debt capital markets. Over the past period, we have mainly been focusing on bank financing. So you can see that in the first year half, we reported 300 million of early refinancing and also new credit lines. And also in July, we signed an additional loan of 60 million. We can show strong KPIs related to the financial debt. So you can see that the interest cover ratio is 6.2 times. And also by year end, we are expecting that it still will be above 5%. This is supported by the fact that we can keep the average cost of debt around 2%. so allowing to keep the interest-cover ratio above five times. Net debt to EBITDA that was reported at the end of June stands at 2.5 times. This will further reduce because the debt will be reduced with the proceeds of the capital increase, so we are expecting that by year-end this will be below nine times. Also take into account that this net debt to EBITDA ratio is not adjusted to take into account that we have some projects that are under development. So already some debt that is outstanding while they are not yet contributing to the EBITDA. Then, as already announced by Stéphane, we had the annual review of our credit rating and S&P reconfirmed a BBB flat rating with a stable outlook. We have a well-spread debt maturity profile. So taking into account the proceeds of the capital increase at the end of July, we still have 926 million available on committed credit lines. So the refinancing that you can see in this graph, so for 2023, it's actually concerning the short-term commercial paper for which we have full backup lines in place. And then to summarize on the interest rate hedging, so at the end of June, we reported a hedge ratio of 86%. Following the capital increase, this will further increase to around 100%. And also for the years to come, we expect to have a hedge ratio above 95%. The average maturity of the hedging is 5.3 years.

letting you know that there will be room for questions after the presentation. Two ways of bringing the questions to us. The preferred way is by using the chat box. So if you have questions, please use the chat box. You could also raise your hand and then ask the question directly to us, but then we will have to unmute you. So bear this in mind. Now, this being said, portfolio analysis, As far as the healthcare segments in which we are investing are concerned, absolutely no surprises. Up to 88% in line with the recent past of our portfolio is focused on mainly elderly care and senior housing, with some children daycare centers exclusively in the Nordics and 7% other segments. diversification once again no surprises the four main countries in the portfolio remain belgium germany uk and finland finland the only country as you know where we are developing ourselves with the exception of sweden but then we're talking about somewhat smaller countries in the portfolio maybe to be flagged there the netherlands standing at 12 but uh specifically also ireland where the percentage is increasing as we are delivering on some of the projects that we announced in previous years in the Irish market. So I think you also will see some further growth of the Irish portfolio as we all are actually in the month of July have been delivering some other projects in Ireland. Switching then to the tenants, we have been talking about tenants a lot during the road shows end of June when doing the equity race. So, if you don't mind, I will not be repeating myself and going through the whole explanation once again. This being said, the situation is still quite similar to what we explained a couple of weeks ago, meaning that when you look at European operators, you will find UK operators performing actually very well in today's market, with quite positive KPIs in terms of EBITDA and rent cover, whereas continental operators are facing somewhat more of a time gap between cost increases and revenue increases, a time gap that will have to be closed by improving occupancy, which we see happening in most of the geographies, and by increasing the revenue per resident, which is also something that we, to a certain extent, already see happening in most of the geographies. And then on the other extreme side of the spectrum, you have the German operators that are clearly facing the biggest time gap, where What we keep hearing from German operators' expectations are that it probably could take another 12 months before they really can close this time gap, meaning rebalance revenue with increased costs. I guess if there are more questions, we will address them afterwards, but the situation, as I said, remains fairly unchanged. Which also means that, as we said during the roadshows at the end of June, that we think that we have a quite good understanding of the risks in our portfolio and that, based on what we know today, do not expect anything materially going wrong in our portfolio. which is not to say that there aren't any risks. This is clearly a market where there is an increased risk of incidents. A bit more about the tenants. As you know, 90% of our tenants are profit operators. This is actually no surprise there, because this is a result of the consolidation wave that took place over the past 10 years in most European countries. This being said, profit only represents one third of all European operators, so there is quite a lot to be done. when looking at the not-for-profit and public operators in today's portfolio. They only represent 10%, but maybe the 3% public operators. This is really only Finland here. In the Finnish portfolio today, if we look at the tenants, we reach already 18%, so 1.8% of public operators being Finnish municipalities. in the Finnish portfolio, and that also reflects when you look at the previous slide for the whole of the portfolio, the 3% public operators. Okay, without any surprise, these features remain unchanged. The vault of the portfolio remains at 19 years, but also important, I think, in today's market occupancy is remains at 100%. So this still is a portfolio which is backed by stable long-term cash flows. And then I think something that needs a bit more attention in today's market is the valuation of the portfolio. Looking at the end of the first half of the year at the gross yield on fair value, you will find an average number now of 5.8%, or in terms of EPRANET initially yields 5.2%, but I think that more important is the like-for-like valuation over the previous quarters, which you see on the right side of the slide. where at the end of last year, over Q4, we reported a negative adjustment of minus 1.2%. It was down to minus 0.8% at the end of the first quarter of 2023, and today, at the end of the second quarter of 2023, we clearly see a somewhat smaller number of minus 0.5%. So it looks like the adjustments, the negative adjustments, are gradually maybe fading out. It's too soon to be said that at least more than stabilizing and going down. You will find on the slide also the split over the different countries. I don't think there's anything specifically that needs more explanation. Basically, when we look at the near future, smaller negative adjustments towards the end of the year, but probably could be even below the minus 0.5 that we have shown in Q2. But I think that it's more or less in line with market expectations, at least for healthcare real estate. Portfolio growth, and then we're talking about our pipeline, and I think this is also one of the features that needs some more attention. Two main messages here. What we present at the end of the first half year is a pipeline for a gross amount of slightly below 600 million euros. If you compare to the previous quarters and the previous years, these amounts have been much bigger, so they're coming down, and we expect to see uh this amount coming down in the future we'll go into that immediately uh the 600 million that uh is a gross amount of which 400 more or less has to be spent uh in the mostly in the next two years you will find that on the slide uh in this in the middle graph this being said uh one of the other features is that we also expect to see the cost going upwards. So the outstanding amount should come down, yield on cost should go up. And that actually already you can see in the geographical split, people remembering this type of graphs in the previous quarters and previous years, you will remember that the main part of the portfolio in terms of projects was located in the German market. What we now and that our main market has become Finland with 27% of the pipeline. And this is actually, I think, what we expect to see also in the future. Basically, what is happening in the portfolio is that the forward deals that actually were negotiated over the past couple of years are now being delivered, entering the portfolio, and the focus is shifting clearly to the projects where we, can get better yields and better yields on costs and also still see some fair value gains. And that clearly is where we are developing ourselves, namely in the Finnish market, where we are targeting initial yields on costs above 6%, IRRs well above 6%, And maybe looking back to the first half of 2023, the Finnish projects that have been delivered still are showing fair value gains above 15, slightly above 15%. So this is, I think, what you should also expect to see more and more towards the future, this shift towards a bit more Finnish projects. Then, as I mentioned before, we expect to see the outstanding amount decreasing. This is basically what we're expecting towards the end of the year. So we already delivered another 65 million euros, mainly Irish projects in the month of August. And we're actually expecting to see a net decrease of roughly €80 million towards the end of the year. The net decrease is a combination of deliveries for a bigger amount, of course, than €80 million, but combined with some add-ons that we expect once again, some new projects that will be starting in the Finnish market mainly, leading us to an expectation to see a pipeline of roughly €450 million towards the end of the year. Looking further, so to 2024, but this is not taking into account any changes in the market. We also expect to see the number coming down even a bit more. But once again, that's under the assumption that we will not add a lot of new projects that depend on market circumstances that we will be talking about immediately afterwards. So basically, outstanding number coming down, yield and cost should go up now. This being said, this brings us down to the outlook. So what do we expect towards the end of 2023? So I will let Ingrid first of all go through the numbers.