Aedifica Sicafi Bruxelle

Good morning, everybody. I hope everybody hears us loud and clear. Welcome to the annual results presentation for 2023. Starting first of all with some practical comments. We will walk you through a presentation as the first part of this conference, and then there will be time available for a Q&A after the presentation. The presentation itself will be based on a selected number of slides from the Roadshow slide deck. The full slide deck is available on the website as of now. So I think that we can start without further ado and I'll let Ingrid start with commenting on the 2023 results. Ingrid, it's yours.

So good morning, probably already had the chance to have a look on our press release that was issued this morning, but we will quickly go to the income statement. So we reported EPRA earnings of 290 million, an increase of 21% compared to the previous year. When you take into account the increased number of shares following the capital increase, this leads to an EPRA earnings per share of 5.02 euros. compared to the 4.76 of previous year. So rental income was up with 15%. The EBIT margin slightly improved from 84.6% towards 84.9%, an increase of 16% in the operating results. Then there was an increase in the financial charges, taking into account the increased interest rates. but the average cost of debt remained at a very decent level of 1.9%. Then we have the current taxes, where we have some unusual movements this year related to the FBE status in the Netherlands. So we received a refund for the period 2016 to 2021, and this was reflecting an amount of 9 million. On top of that, also for 2023, no current taxes were booked in the Dutch entities. As most of you are aware, this regime is expected to disappear from the 1st of January 2025. Then we start including the non-cash elements. The most important one is the changes in fair value of the investment properties, minus 143 million. On a like-for-like basis, the investment properties lost 1.9%. We saw the most significant decreases in fair value occurring in the German and the Swedish portfolio, but also noticed a positive fair value change in the UK on the back of a strong rent cover of the Then there's a decrease in the mark-to-market of the financial derivatives, so the hedging instruments, minus 50 million, related to the decrease of the long-term interest rates. We booked a goodwill impairment, so it's the goodwill that is outstanding on the shares of Hoyvatelat. The goodwill impairment is related to the increased average cost of capital. And there was a deferred tax income of 24 million related to the FBE regime that will lead to a restating of the tax base for the Dutch assets. So that leads to a net result of 24 million or on a per share basis 0.56 euros. On this slide, you can see the increase in the rental income plus 15% on a year-on-year basis. So the most significant contributions in the increase of the rental income are related to the acquisitions and deliveries, mainly taking place in Finland and in Ireland. And there's also the impact of the indexation. On a like-for-like basis, the indexation represents 5.6% in group currency. So this you can see more into detail on this slide. So here you can see the increase in rental income. So the 15% split out by country, but also the like for like calculation by country. For each of the countries, the number is presented in the local currencies. And then at the end, we have the group currency, the 5.2% increase in like for like rental income, which can be split, like I said before, into 5.6% regarding rent indexations, 0.1% rent renegotiations, and minus 0.5% related to the exchange rate differences. There are two countries, Germany and the UK, where there are caps in place on the indexation. Then we have the roll forward of the upper earnings, the increase of 21%, mainly supported by the increase of rental income of 41 million. Operating costs went up with the increase of the portfolio side, but we were able to slightly improve the EBIT margin. Then we have the impact of the financial charges and then a little bit of an unusual movement in the taxes, plus 13 million compared to the previous year. explained by the 9 million one-off refund and also the current taxes that were applicable in 2022 in the Dutch entities, but did not occur in 2023, which is representing an amount of more or less 4.5 million. Moving over to the balance sheet. So we are pleased that we can say that the debt to asset ratio at the end of the year is below 40%, so 39.7%. This is well within the financial policy that we have set up, where we aim to have a debt to asset ratio around 40% with a maximum of 45%. Theoretically speaking, this would mean that we could do additional investments for almost 600 million before reaching 45%, or we could absorb negative portfolio valuation of minus 12% before we would have hit the 45% threshold. This is actually something that you can see on the next slide, so this slide is giving an estimate on how the DTA will evolve in the course of 2024. It's a dark blue line. This is without taking any negative portfolio valuations into account, but it does take into account the execution of the committed pipeline. So you can see in that base scenario that we are expecting that by year end the debt to asset ratio will be slightly below 41%. Then we did some sensitivity testings, assuming that for the coming quarters, first of all, there would be a negative valuation of minus 0.5%. So in total, the portfolio would lose 120 million. And then we had some scenarios which are a little bit more pessimistic with more negative portfolio valuations. Main message is that we believe that the portfolio is resilient enough that even in a scenario where we would lose more than 350 million of the portfolio value, by the end of 2024, the debt-to-asset ratio can stay well below the threshold of 45%. A couple of words on the credit facilities. So we have a total financial debt outstanding at the end of December of 2.2 billion. In the course of 2023, we were able to do a lot of refinancing with banks, in total almost 650 million. So we still have very good access to bank financing. On average, the credit spread that is applicable on those refinances is around 150 basis points, and it's with a tenor between three to six years. So we can still show very strong financial KPIs. We have a BBB credit rating with a stable outlook with S&P, and we are very well within the thresholds that were set out to stay within the BBB space. The interest cover ratio stands at 5.9 times and the net debt to EBITDA ratio decreased towards 8.4 times. Average cost of debt at a very decent 1.9%. And in the meantime, out of all our financing, 50% is related to sustainability linked KPIs. Almost all of the debt within the group is on an unsecured basis. So we have very little unencumbered assets that represent approximately 4% of the total portfolio value. All accredited facilities, there's an average rate of debt maturity of 4.4 years. So at the end of December, we have 911 million headroom available on committed credit lines to finance CAPEX and liquidity needs. And this is even after deducting the replacement for the short-term commercial pay. So in our business plan, when we take into account the execution of the committed pipeline, there are no financing needs that occur until the end of 2025. As you can see in the graph, in 2024, we have very little debt maturities to be handled, a total of 170 million existing mainly out of undrawn credit facilities. Then the interest rate retching, at the end of December, 96%. The weighted average hedge maturity stands at 5.1 years. Also in 2024 and 2025, we are expecting that the unhedged portion of the debt portfolio will be around 10 to 15%. And then starting from 2027, there is a decrease in the hedges that we have in place. These hedges are actually the main contributors of keeping the average cost of debt around the 1.9%. And also in the outlook for 2024, we are expecting that the average cost of debt will be around 2.2%. Our dividend policy. So on global, we distribute approximately 80% of the APRA earnings of the company. For 2023, the announced dividend is 3.80 euros per share. which represents a payout ratio of 76%. It also means that there are retained earnings that will stay within the company and reinforce the balance sheet. Currently, there is still a withholding tax, a reduced withholding tax of 15% that is applicable. Following the Brexit, there is currently a transitional regime that makes that the UK assets are still included in the calculation of the 80% threshold of the portfolio in residential European healthcare real estate. This transitional regime will stay in place until the end of 2025. So we are expecting that until the end of 2025, the reduced withholding tax regime will be in place. And to summarize the outlook that we are giving for 2020, So there is an increase in rental income of 5%. We are expecting for the year 2024 rental income of 330 million and upper earnings of 223 million, an increase of 1.5% compared to 2023. Like I just explained, by the end of 2024 we are expecting that our DTA will be slightly below 41%, but this is not taking into account any assumptions on portfolio valuation changes. We still have the committed pipeline. In 2024 we are expecting that there will be deliveries of almost 300 million out of this pipeline. And in our outlook, we also include an assumption on asset disposals You can see on the slide the assumptions that we have made on the foreign exchange. And then maybe also a couple of words on the tax regime, because also in 2024 there will be some one-off elements. First of all in the Netherlands. So early February, we received the final tax assessments regarding 2022 in the Dutch entities, and therefore there will be a refund of 4.2 million in 2024 in the books. And in 2024, we are expecting that we also will be in FBE, so no current taxes will occur in the Dutch entities. Then since the 1st of February, the UK wheat regime, came effective, so that means that in the UK we will have one month of current taxes that will occur for the month of January and also going forward on some limited activities that are out of scope of the UK wheat gene. And then the first distribution from the UK wheat whole scope will take place in 2025. There will be a net withholding tax on those dividend distributions of 15%, but this will occur for the first time in 2025. So in 2024, there's no assumption of withholding taxes on the dividend coming from the UK entities included in the outlook. This outlook is a bit of a conservative approach in the way that we have very limited assumptions on hypothetical investments. We have the execution of the committed pipeline, and we also assume that in Finland, Hoivatilat will continue the developments like we have seen in the past. This does not mean that we do not think there are possibilities for additional investments. But currently the probability is a little bit more or less to predict. Stefan will comment a little bit more on that during his presentation and they are not included in the outlook so far. So this means that we are expecting APRA EPS of 4.70 euros per share for the full year 2024 with an increased dividend of 3.90 euros per share. I'm handing over to Stefan for the strategy.

Okay, thank you Ingrid. What I will do is walk you through some of the main topics regarding the portfolio. So once again, this is not a full portfolio presentation. You will find that on the website. Maybe quickly starting with some surprised looking back at the investment activity of Edifica over 2023 that was of course a quite limited activity given the market conditions in 23 but mainly also pointing out here that we focused more on the Finnish market where as a developer we still see potential also in terms of Well, both in terms of getting yields which are reflecting the cost of capital and allowing us to show some development margins in these projects. But that was the past. So then looking at the situation in terms of tenants, I think this is probably one of the main topics that we need to address nowadays, given that the market apparently still has some concerns about operator health. This is a slide that you know, showing our exposure to the operators. Maybe a couple of comments regarding some of the names that you see on the slide, starting with Clarion, which is the new name of Corian, still our most important tenant in the portfolio, roughly 10%. But this being said, this is exposure towards the Belgian and the Dutch market. We only have one asset outside of these markets with Clarion, which is in Germany. I guess everybody is well aware of the fact that Clarion announced that they are willing to sell the Dutch-Belgian Opco. As far as we can tell, but this is market gossip, they are working on it as we speak. Now, if they would be successful in doing this, our exposure to Clarion will drop to, I think, 0.3%, one asset in Germany. Another message in this regard is that we are absolutely happy with our Dutch-Belgian Clariam portfolio, so that in itself we do not consider to be a risk at all. Maybe one of the other names that needs some comments is Opea. You will see that Orphea dropped from, I think, fourth or fifth position in the past towards 3% now. So our exposure was reduced on the back of the restructuring of the Belgian Orphea portfolio. You probably have read that we were able to sell the five assets in Brussels. That means that today our Orphea exposure is roughly 1% in Belgium. 1% in the Netherlands and 1% in Germany. Once again, without anything specific to be mentioned, this portfolio is performing very well. Also, something worthwhile mentioning is that on the back of this restructuring of the Brussels OPEA portfolio, our total exposure to the Brussels market across the board, across tenants, It's now down to 1 point, roughly 1.75%, so well below 2%. And actually, we also expect to see that percentage even declining further in 2024. So our, we think that we clearly de-risked the portfolio in that respect. And then maybe one last comment. Speck Gruppe is now appearing as one of the somewhat bigger tenants in our portfolio, roughly 3%. This is a result of the active management that we applied specifically in the German market, aiming at de-risking the German portfolio. What we did there is transfer some of the MDA assets, which were ramping up assets towards spec group, which, in our view is 1st of all, an operator showing a stronger balance sheet. So better credit risk. But secondly, and even more importantly, also an operator with a. much better embedded in the local market. So having better access to staffing and in a much better position to do the ramping up of these assets. So that was really a matter of proactively de-risking the portfolio. So looking at this slide today, I think we can with some confidence say that we do believe that the portfolio is in quite good shape and actually compared to the situation last year, de-risked. Then we made an effort to show to the market a bit more transparency regarding the operators and the underlying KPI of the operators. You heard me explaining in the past that this requires a lot of effort in Europe. Not every country and not all operators are willing to be quite transparent. But we focused on occupancy, which is probably the indicator which is more easily to show to the market and to get the information from the operators. So what you see on the slide, and this is the first time that we are showing such a slide, is the occupancy of the mature assets in the main countries of the portfolio. Mature assets meaning assets that are under operations for at least two years, so we're not taking into account the assets under ramping up or at least for the first two years after delivery of these assets. Now, what you will see here, and we could go into full detail for each of the countries, but I'm not going to do that right now. To be quite honest, the exact percentages that you see are in itself not so important. The main message here is that we clearly see in all of the main countries, mature assets showing occupancy well above 80%. And I think you heard us explaining in the past that 80%, it is some sort of rule of thumb, but it is definitely, if you are above 80%, it's more or less the comfort zone where you need to be to show long-term profitability in this sector. And this is actually what we see throughout the portfolio. By the way, Finland is not on the slide because their operators are definitely not transparent. but we can refer to Attendo's reporting regarding their Finnish portfolio, and they are one of our main clients in Finland, and they're also talking about an 85% occupancy in Finland. Also important here, and perhaps the most important message, is the trend. What we try to do is for these mature assets, based on the coverage that we have, and you see the percentages, is compare the situation end of September September 23 to end of September 22, which is the like for like that you see. And also there you see an increased occupancy over that period. So the trend is clearly positive. Then switching to the next step. And once again, referring to what we have been telling you during these type of conferences in the past, what we try to do is monitor resident occupancy, but also what is happening with the revenue per resident, because that should go up for operators in order to compensate for the increased costs that they have been facing since 2022. Now, first of all, starting with the one country where we do have almost full transparency and where operators are performing extraordinarily well, and that is the UK. What you do see here is the evolution of the rent cover for the mature assets in our UK portfolio, both on a 12-month period and on a quarterly basis. Now, if you look at September 23, you will see an average rent cover for our UK portfolio well over two. So that is actually quite exceptional in today's market. So a very healthy UK operator market. But talking then about continental Europe. I'm not going to repeat everything that we have been seeing in the recent months, just confirming that we do see positive trends also in terms of revenue per resident, which in most of the countries is going upwards. The country that was clearly lagging behind was Germany. And this is where today, for the first time, we can also be much more confident in saying that we do clearly see positive trends today also in the German market. And if we quickly walk into a couple of things that are worthwhile flagging here. Now, first of all, and this is German portfolio. They told us that they are in the process or have finalized the process of renegotiating I-costs, so investment costs, which basically are covering the building costs for them, and that they see increases of up to 25%, some cases even higher than 25%. Now, this is anecdotal information, but it is something that we hear across the German portfolio. Clear increases of investment costs. Secondly, we hear from lots of German operators in our portfolio that there are also in the process of renegotiating care rates. And they are flagging that they expect to see significant increases also in terms of care rates. This has not been quantified yet. I must confirm. This is once again, anecdotal information, but these type of messages we didn't get from care operators until a couple of months ago. So we see both in terms of high costs and carrots that apparently the German market is starting to react to the reality. important in the German market also because the system is so strict and if you do not comply you immediately are confronted with admission bans. Now there is a new personal assessment act in place in Germany since the summer of 2023 which could lead to the softening of quota for staffing, meaning that it will be much more tailor-made for each of the individual care homes based on the care needs of the residents in a specific care home and the available staffing in But it is the first start of at least reducing the pressure of this staffing quota in the German market is once again something that is quite new. And then maybe last but not least, is that we hear specifically from the somewhat larger operators in the German market and in our portfolio. is that they have been making huge efforts in terms of trying to deal with the administrative backlog of the local social welfare offices, meaning they have been hiring themselves extra staff to work more on the negotiations with these local social welfare offices and to get finally the payment of outstanding claims they had. This has to do with the increase in the end. trying to summarize this quickly, as is related to the increased wages for German caretakers, which have led to higher rates that operators have to charge to their residents, and then residents that are not able to pay having to switch from self-payer to social welfare-backed payers. Now, the social welfare offices, they had a backlog in dealing with these requests, And what we now hear from German operators is that they are working on the backlog and that they see the money coming through. So the cash is coming their ways. So basically what we see in the German market, or at least is what our operators are telling us, is that they are starting to see similar increases in their revenue as what we hear in other European markets. And that even as far as staffing is concerned, there might be a first step towards somewhat softening the value rigid system in Germany. So basically looking at the market with much more confidence than we did in the past. Then going through the other slides, this will be much more quickly. This gives you an idea of who the operators are. No surprise that 90% are private profit-driven operators, 6% are not-for-profit operators, and 4%, which is actually more than it used to be, are public operators, and this is mainly in our Finnish portfolio, where today we are, I think, close to 20% of the Finnish assets for which we have municipalities as operators. By the way, on one of the previous slides, you probably have noticed that the Finnish municipalities in themselves already are 4% of our tenant risk. Then walking through some of the slides, which probably will not come as a surprise, the vault of the portfolio remains at a very high 19 years. Occupancy rate remains at 100%. And then I think something which is more of interest today is what happened in terms of portfolio valuation. Now you will see on the left side of the slide that we are now at an average fair value yield of the portfolio standing at 5.8%, but I think that the right side of the slide will be of more interest. Looking at 2023, we have seen a like-for-like decline in the value of roughly 2%, but I'm going to focus also a bit more on the the column showing you the change in fair value for the last quarter of the year. There you will see a minus 0.6% first message here that's clearly in line with the simulations that you have seen in one of the slides that Ingrid has shown you when we tried to predict what could happen with the debt to asset ratio. So we're clearly in the better case scenarios here. Secondly, also pointing out that in three of the countries today, we already see what might be a sort of bottoming out or slightly positive value evolution, which is clearly the UK. We have seen this now for three quarters in a row, but this time also in Finland and in Ireland. Moving then to the committed pipeline, this is probably the third main topic to be flagged to the market. If you look at the pipeline But if we look at what really needs to be spent, that is down to 245 million euros. So 168 million euros already was invested in construction sites that are ongoing at the end of the year. This is a portfolio, as you know, that is 100% pre-led. So once these projects will be delivered, that will lead to an extra 23 million of rental income. If you look at the yield today, it stands at 5.6% on costs. No doubt that if you would want to add new projects, it will not be at these yields and at much higher yields. The portfolio is something I will give an indication when talking about our medium term outlook. Maybe back to the pipeline itself. Also important here is to note that where in the past we had a lot of exposure to the German market in terms of projects, now this clearly shifted to the Finnish market. So 28% of the to be delivered projects are located in Finland and then to the UK market. So it's another 19%. Now, if I add to that the Irish market, another 10%, and I come to the conclusion that 57% of the projects that are to be delivered in the near future will be delivered in countries where And now referring back to one of the previous slides, valuation today has, or at least in the last part of 2023, was no longer negative. So that in itself, I think, is important to point out. Then, and this is the second graph you see on the slide, and I'm switching to the next slide. forward from, and this is on the right side of the slide, towards the end of 2024, we expect to deliver another, as Ingrid Rogletti mentioned, roughly 300 million euro. So by the end of this year, the pipeline will be at 120 million euro, if we do not add new projects, of course. But this also means that the historic forward deals that have been made in the recent past and before the market started to change will actually all almost fade out in 2024. Maybe also important to flag is, and that is what you see on the left side of the slide, is that there is also some room for us to actively manage this committed pipeline, meaning that, and you will see in what we show in the roll forward from 2022 to 2023, that we cancel throughout the year 82 million of projects but there was a reason that allowing us or at least an element allowing us to cancel some of these projects that could have been fact that developers were not respecting deadlines in terms of building permits or were not able to deliver within the agreed budget. So that allowed us to cancel five to six projects. those were low yielding projects and when I say low yielding it's really around five and even some cases even slightly below five percent but on the other hand we did add some projects mainly in the Finnish market but we're clearly talking yields on costs above six percent so there is some room for some active management of this pipeline. Okay, and then, and this is probably the final slide I'm showing you, Ingrid has given you the outlook for 2024, which is a quantified outlook. What I'm willing to do here is just give you our idea of the way that we are looking at the medium-term future. So basically what we do expect to see in the next three years towards the end of 2026. No surprise that, first of all, we remind you of the strong fundamental theories of this sector. You heard me explaining this in the past, maybe just pointing out that we now start to see more and more signs in the countries, and certainly in countries also like Belgium, where professional associations of operators are really starting to flag to the authorities that they need extra capacity in the future to deal with the aging phenomenon. And we're not talking in the next 10 years, we really are talking in the second half of the decade. So the pressure is clearly rising in the market, that is one thing. Secondly, when we then look at IDifica, I think that we are in a good position to start thinking about future growth, meaning that we have the balance sheet allowing us to do so. The portfolio is performing very well right now. We are showing an EPS and a DPS mainly, which is still only roughly 80% of our EPS. But even more important is that when we look At a base case scenario, I mean a scenario in which there would be hardly any investment possible for ETIFICA, in that scenario we still expect to see the EPS slightly increasing towards 2023. That is a scenario in which we execute the pipeline and have very limited additional investments, mainly in Finland. Even in that scenario, we do expect to see a slight increase of the EPS towards 2026. This being said, it is not the scenario that we think is the most likely or the most probable scenario. Why? Once again, referring to the strong fundamentals, the fact that the pressure this market is rising but also the fact that we start to see opportunities in the market that could and will be a creative if we see these opportunities you have seen two small examples in the recent past small deal that we did in finland end of last year and the fact that we were able to buy 50 percent of the gv from korea in the netherlands at conditions that we believe to be creative so what we are actually doing right now and this is also explaining the way that we are looking at investment opportunities today. We are trying to seize some of these opportunities to show to the market that this is a market where there is still a lot to be done and to be expected. But we're today not willing to push or stretch the balance sheet or to push the DTA to a level where the market would start dissipating new capital increases. So we do want to avoid that type of overhang. It is basically a way of showing to the market, and I think that that will be the main message that we will explain to the market, that operators are performing better right now, that there are still opportunities and there still is a lot of demand in this market, so that we actually are looking with a lot of confidence towards the future and towards the medium-term future. I think that we can conclude here.