Icade Sa Ord

So, hello. I'm really happy to welcome you today to ICAD Orly Rangis Business Park, and I'd like to thank all the people who are online. Well, today's agenda is quite busy. We will start with a presentation on 2023 annual results, lasting around 45 minutes, and then at 11 a.m., the Executive Committee and I will be pleased to present ICAD's new strategic plan for 2024-2028. Finally, we'll be offering this afternoon an asset tour of our business park. As an introduction to the day, I'd like firstly to invite you to listen to a few words from the Chairman of the Board, Frédéric Thomas.

Hello, everyone. We are delighted to welcome you to ICAS Paris-Orléans Business Park today, and I'm sorry I can't be with you in person. As you will see, the Paris-Orly-Ragis Business Park is a showcase for ICAD's expertise and an illustration of what a new kind of development can look like. It's more and more a real neighborhood which is being transformed to meet the expectations of our tenants and residents. It features greater accessibility, an environment that's more respectful of nature and biodiversity, and services that make everyday life more enjoyable. After 10 months as CEO, Nicolas Joly will present ICAD's new roadmap today, following the sale of ICAD Sante in a challenging economic and financial climate. It's a roadmap that enables ICAD to set clear goals for the future in a market undergoing profound change. Through this message, I want to assure Nicolas Joly of my full support. I would also like to assure you of the full confidence that of all the members of the Board of Directors in the roadmap and its implementations over the coming years. For the past 70 years, ICAD has been evolving, weathering crises and adapting to new challenges. And this is what we intend to continue doing in the years to come. Thank you for your attention and have a lovely day.

Well, so I therefore propose to continue with the presentation of the 2023 annual results. This presentation will, of course, be followed by a Q&A session. So let's move to slide five to give you an overview of the year 2023. Well, in a nutshell, 2023 was marked by a major shift in ECAT strategy with the disposal of the healthcare business and the group refocusing on its core businesses, commercial investment and property development. On an operational point of view, the key word for 2023 was resiliency, with group cash flows at 4.62 euros per share, And the strategic activities, i.e. commercial investment and property development, represented a net current cash flow of 3.07 euros per share above the guidance. The commercial investment business was, as I said, resilient, with rental income of 364 million euros, supported by a plus 2.2%, like-for-like growth, and a strong rental activity with almost 243,000 square meters signed or renewed. In a very complicated market context for the development business, our property development division sales rose slightly to 1.29 billion euros, and the margin, as expected, decreased to 3.8%. On the balance sheet in an high interest rate environment, we saw an adjustment in the values of our asset at minus 17.5% like for like over the past year. This translated into a decrease in NAV and TA to 67.2 euros per share. Nevertheless, the group benefits from a very strong balance sheet, strengthened by the disposal of DLTR activities. In that respect, The group's LTV stood at a very comfortable 33.5% at the end of the year, and the level of liquidity was very high at 2.9 billion euros, covering our debt maturities until 2028. Financial expenses were under control thanks to a very robust hedging policy, enabling us to post a solid ICR of 5.6 times. In terms of dividend, we will be proposing a dividend of 4.84 euros per share, up 11.8% on 2022, partially supported by the dividend coming from the health care. First of all, I'd like to come back to the cell of our health care activities and make a clear point on where we exactly stand today. On July 5, 2023, ICAD announced the sale of its World Health Care Division, resulting in the deconsolidation of these activities. And as you know, this sale comes into three stages. Stage 1, completed on the 5th July 2023, involved the sale of 63% of ICAD's stake in ICAD Santé to Primonial REM and Sogecap for a total amount of 1.45 billion euros, and the transfer of both the asset management and the former ICATSanté teams to Primonial Rennes. Stage 2 consists of the sale of ICATS 23% stake in Premier Health Care, which is the new name of ICATSanté, for an estimated amount of circa 800 million euros at the 31st December 2023. This sale process... which we still envisage within a 2024-2025 timeframe, could be carried out gradually through the acquisition of additional shares by Primonial REM entities and or through the purchase of residual shares by third-party institutional investors. Regarding the conditions of Stage 2, Primonial REM has made firstly the commitment to allocate funds raised by its Cap Santé Fund, And secondly, it is incentivized to execute this stage. Stage 3 will involve the sale of ICAD's healthcare Europe portfolio, meaning Italy, Portugal, and Germany's assets. At the 31st December 2023, it represents an amount of circa 500 million euros, of which 190 million euros is a shareholder loan between ICAD and IHU. Regarding this loan, should be noted that it was initially carried at 100% by ICAD and was refinanced between December 2023 and January 2024 by all the shareholders in proportion to their ownership in IHR, enabling ICAD to receive €132 million. So let's now look at performance by division, starting with commercial investments. Well, you all know that the commercial investment division evolved in a sluggish leasing and investment environment in 2023. On the leasing side, take-up in Paris region was down 17% on 2022, with a percentage of total demand outside Paris CBD of around 77%, underpinned by attractive incentive and scarcity in the CBD. We are also seeing a shift in tenants' expectations for offices that meet the highest standards in terms of centrality, environmental quality, high services level, and flexibility. Total investment volume in France was down 51% compared to 2022, and overall the investors rather focused on small and prime transactions, waiting for yields to adjust to the new financial environment. Some recent deals were now set in new landmarks, restoring the sector's attractiveness in the medium term. Let's move on to slide 13 to see how ECAD performed in this environment. Against this backdrop, ECAD posted a record rental activity with 243,000 square meters signed or renewed this year, representing an increase of plus 20% compared with 2022. These signatures and renewals represent annual rents of 63 million euros and a world of 5.6 years, confirming the resiliency of this portfolio. Good rental momentum concerns the two main asset classes, namely office and light industrials. Offices accounted for almost 181,000 square meters. These leases were signed on terms in line with market rental values. Light industrial and other assets represented 62,000 square meters. The dynamic of rental activity also illustrates the strong demand for our business parks. The financial occupancy rate stood at 87.9% at the end of December, which is slightly up on 2022. It is supported in particular by EDF Renouvelable, leased on the origin building in Nanterre, and the Insomly, some fresh, bringing the occupancy rates for those two assets to 100%. As a reminder, our tenant base is a key differentiating asset for ICAD with 70% of it made up of public institutions and large corporates diversified in terms of sectors. we are able to offer this customer office or industrial premises that meet their expectations in terms of surface, area, location, quality, and price, as well as a wide range of services and turnkey solutions. In terms of investment policy, we remain cautious and selective as we've been in recent months. In July 2023, we acquired the remaining parts of the Ponombe building, ideally located in the 15th district of Paris, giving us now full ownership of a 33,000 square meter property complex and enabling us to envisage value enhancing transformation in the medium term. Investments in the development pipeline, as you can see, were limited to 125 million euros for 2023. Asset disposals were managed opportunistically for almost 146 million euros in line with the December 2022 NAV. So let's now take a more forward-looking point of view and discuss the current pipeline for our commercial investment activities. For several months now, the pipeline has been rigorously reviewed in order to limit investment to assets that meet changing usage patterns and tenant expectations and to project with a satisfactory financial equilibrium. At 31 December 2023, the investment pipeline amounted to €907 million, representing €334 million of future investment for circa 45 million euros of additional rental income. So, as you can see, our pipeline is diversified with, for example, data center project with Equinix or a hotel conversion project you will see in Régis. In the office segment, we've adopted a very selective approach. The one and only project we've added is the retail and office project at the 2933 Champs-Élysées. We will, of course, come back to this later with Emmanuel while presenting our strategy plan. In addition, our pipeline is well secured, with four out of five projects to be delivered in 2024 and 2025 already fully pre-let. So let's now move on to the operational performance of the development business lines. The year 2023 was marked by a slowdown in the overall property development market as a result from a very high interest rate environment and to a lesser extent the phasing out tax incentives. This translates into a 35 drop in individual orders and commercial launches while the inventory of home for sales increased by plus 2%. So now let's move on to slide 19 to see that Against this backdrop, ECAP has a strong focus on block sales to institutional investors, in particular intermediate housing providers, social landlords, and operators that partially offset the lowering demand from individuals. These block sales accounted for almost 3,600 units in 2023 and growth in value of plus 18%. Institutional investors thus accounted for 67% of the volume orders in 2023. This very strong momentum in block sales explains the resilience of our operating indicators. That's the reason why reservation fell by only minus 7% in value and minus 13% in volume in a global market down by minus 26%. The backlog at 1.84 billion euros also remains solid and stable compared with 2022, supported by a plus 5% increase in the residential backlog linked to orders from institutional investors. So let's move on to slide 20. See that in this new market, the property development division has adapted its strategy to further secure new projects and rebuild the margin of new operations. This means, on the one hand, increasing the minimum order rate and the pre-commercialization rates also reach 75% by 2023. On the second hand, conducting an in-depth review of the land portfolio to assess the economic viability of the project, adjust their financial parameters, such as land prices and payment schedules, and or reduce cancel operations that are no longer suited to the market context. Three times more operations have been abandoned this year than in 2022. So this greater selectivity explains the minus 20% year-on-year drop in inventory of home for sale and the minus 16% year-on-year drop in construction starts. In the medium term, greater selectivity in terms of operations has impacted our land portfolio significantly. down by minus 13% to 2.82 billion euros. And now let's move on to the presentation of our financial results for the full year 2023. In 2023, the group's net current cash flow amounted to 350.6 million euros or 4.62 euros per share. 232.6 million euros of this amounted came from our strategic activities, commercial investment and property development businesses. Cash flow from healthcare activities in 2023 represented €118 million. €95 million is coming from H1 cash flows before the disposal, and €23 million in H2 2023 are mainly coming from an interim dividend for 2024 and the interest rate, interest income on the shareholder loan to IACHO. We reported a current cash flow from our strategic activities of €232.6 million, i.e. €3.07 per share, above the guidance which we had communicated at €2.95, €3.05 per share in July. Main variations stem mostly from the development business which reported a decline in net current cash flow of 24 million euros due to lower sale prices, depreciation on land, and higher net borrowing costs. This decline was more than offset by the plus 27 million euros increase in finance income over the period. So let's focus for now in more details on the commercial investment business. As far as the gross rental income is concerned, it was pretty stable in 2023 versus 2022 at €364 million. On a like-for-like basis, performance was positive, as you know, plus 2.2%, mainly carried by indexation on rents, plus 4.7%, and partially offset by the reversion effect. Concerning the net to gross rental income ratio, we were penalized by the increase in vacancy costs. Financial results improved significantly thanks to tight control of our finance expenses and also to income from cash investments made in 2023. As a result, net cash flow from the commercial investment business rose by around 10% to 228.8 million euros. Moving on now to the property development activity, see that economic sales amounted to 1.3 billion euros in the 31st of December 2023, up plus 3% on 2022. This was the result of a limited decline in sales in the residential business and an increase in the contribution from the commercial segment. Thanks to progress on ongoing projects, as well as the opportunistic sales of the Tedbou building shared in July. As already mentioned, in Q3 2023, margins came under pressure in the second half of the year, and the overall margin was down to 3.8%, due to lower prices linked to block sales and land depreciation. With regard to valuations, we saw in 2023 a large increase in capitalization rates, reflecting the rise in interest rates that began two years ago. For ICAB, this meant a like-for-like decline in portfolio value of minus 17.5% over 12 months and minus 22.9% since June 2022. The average yield on our portfolio is now 7.5%, which represents an increase of plus 150 basis points compared with 31st December 2022. Decreases in value vary greatly depending on the asset considered. For example, you see that offices that we consider as well positioned, i.e. those for which we have a long-term conviction as to their tertiary use, fell by minus 16.8%. On the other hand, offices that need to be repositioned because they won't meet tenant demands in the long term, they were down by minus 33%. And the assets in the light industrial segment were down by only minus 3.1%. Of course, we will come back to this segmentation and its consequences when we will present during the next hour a strategy plan. So the downward trend in the value of our asset resulted in a drop in our APRA NTA per share of around 25%. As of 31st of December 2023, the APRA NTA landed at 67.2 euro per share. So now let's move on to slide 28 for a look at the group liabilities. On the balance sheet, the completion of first stage of the health care disposal enabled us to significantly reduce our net debt to €3 billion versus €6.6 billion at the end of 2022 and to substantially improve our LTV and net debt to EBDA ratios. As of 31st of December, the LTV ratio, including duties, stood at 33.5%, down 6 points on last year, despite pressure on valuations. The net debt to EBITDA ratio came out at 7 times, a strong improvement on the previous 10.1 times in 2022. In terms of liquidity, ECAT has a very solid position at 2.9 billion euros, including cash and Android credit line. This liquidity covers our debt maturities until 2028. As we have already indicated, we will also use part of our cash to proactively manage our upcoming debt maturities, particularly bonds. In 2023, we continue to proactively manage our financing, and in particular, given our excess cash position, we reduce short-term maturities by lowering our new CP outstanding and repaying part of the 2024-2026 maturities. We also consolidated our liquidity profile by refinancing 100% of our unrolled credit lines maturing in 2024-2025, for €755 million. In 2023, ECAD pursued its commitment to sustainable finance by making 100% of bank financing responsible backed by either ESG objectives or green use of proceeds. As already mentioned, we also effectively manage our cash investment with around €870 million invested at three Finally, on page 31, we confirmed our tight control on the financial results. Indeed, thanks to our conservative hedging policy, our average cost of debt rose to 1.56% compared with 1.25% in 2022, while the ICR ratio remained very high at 5.6%. In terms of exposure to interest rate risk, ECAD strengthened its aging position with the entry into force at the end of 2023 of 125 million euros of forward starting swap contracted in 2021. Future estimated debt for the next three years is fully aged. And in line with the policy given at the time of the actual result, The Board of Directors will propose to the Annual General Meeting the payment of a dividend of 4.84 euros per share, which is up plus 11.8% on the 2022 dividend. This includes 2.54 euros per share of dividend following the Stage 1 of health care disposal. The dividend yield is, as you can see, 13.6%. based on the share price on the 29th of December 2023. So the dividend will be paid in two installments. Firstly, an interim dividend of 50%, i.e. 2.42 euros per share, paid in early March. And secondly, the balance paid in early July. So let's turn to our CSR performance. As you know, we have strong ambition on CSR and are fully dedicated to define concrete operational objectives and action plans. In 2023, our two businesses posted very solid performance in terms of carbon intensity, consistent with objectives aligned with a 1.5 Celsius degree trajectory validated by the BTI in October 2022. In particular, we are very proud to announce this year that that ECAT has joined the A-list of the carbon disclosure project, placing it among the sector leaders in terms of transparency and performance on climate change. So on slide 34, you see that carbon intensity in the commercial property division failed by 35% between 2019 and 2023, with a target of 60% by 2030. In particular, this was due to One, improving building efficiency and decarbonization of energy sources. Secondly, the implementation of the energy sobriety program. And thirdly, the rollout of environmental committees and climate commitment leases over 200,000 square meters, enabling tenants to be fully involved in the reduction of carbon emissions. The carbon intensity of the property development business was down minus 12% over the period 2019-2023, with a target of minus 41% by 2030. The reduction in carbon intensity was especially explained by the use of low-carbon energy sources, for 79% of projects launched in 2023, and the development of mixed timber and concrete construction for 17% of the projects. As we remain cautious in our sourcing, 100% of our wood source is sourced from responsibly managed forests. To conclude, I suggest we move on to the 2024 outlook. Well, in a new interest rate environment, the real estate market is undergoing deep changes and remains uncertain in 2024, particularly for the property development activity. As a result, ECAD expects in 2024 a net current cash flow from its strategic activities between 2.75 and 2.90 euros per share in 2024. In addition... The non-consolidated shares in healthcare activities should generate additional net current cash flow of circa 80 cents per share on the basis of the current ownership. So the 2023 results demonstrate the resilience of ECAD's portfolio and reflect the commitment and performance of all our teams, asset management, property development, ESG, or finance. And thanks to a solid balance sheet, I'm convinced that the group will be able to size new growth opportunities in this market-adjusting period. Thank you very much for your attention, and now let's move on to the Q&A session. We will answer every question.