Icade Sa Ord

Hello and welcome to the CART results as of March 31, 2020 for call. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call and this can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. Today, we have Nicolas Joly, Chief Executive Officer, and Christelle de Robillard, Chief Financial Officer, as our presenters. I will now hand you over to Nicolas Joly to begin today's conference. Thank you.

Thank you. Good morning, everyone. This is Nicolas Joly speaking. Well, thank you all for being here today on this call. I'm with Christelle de Robillard, our new Chief Financial Officer, and this morning we are very pleased with Christelle to present the main figures and events for ICAD for the first quarter of 2024. This presentation will, of course, be followed by a Q&A session. So to start, the key takeaways of the first quarter were as follows. Firstly, at our investor day on the 90th of February, we announced our new strategic plan for 2024-2028 named Reshape. For the record, Reshape is based around four priorities. First, continue adapting our office portfolio to new uses by leveraging on our portfolio of well-positioned office assets, which account for 86% of our offices. Second, Accelerate diversification by focusing on three asset classes with growing markets and a solid track record for ICAD, light industrials, student housing, and data centers. Third, develop and invest building 2050 city, a mixed-use and sustainable city. Fourth, maintain a solid financial policy by adapting the pace and volume of our investments to our financial KPIs. In terms of business activity, real estate markets remained pretty calm over the first quarter, in line with 2023. Against this backdrop, the property investment business reported a 3.8% increase in revenue, driven especially by the effects of indexation. The property development business also reported a 14.4% increase in economic revenue, thanks in particular to the residential backlog built up by the end of 2023. Besides, it should be noted that the Annual General Meeting was held last Friday on the 90th of April, at which the following items were approved. The proposed dividend of 4.84 euros per share, paid in full in cash, and the SEON climate and SEON biodiversity resolutions, And we will come back to this later in the presentation. Finally, we will confirm the 2024 guidance and give you a brief update on the first reshape project announced at the Invest Today. So let's dive into the performance by business line on slide seven and start with the property investment activity. Well, the leasing market has got off to a mixed start, in line with last year, with a take-up of 450,000 square meters in the Paris region. The dynamics reflect continued polarization and the need to focus on assets that meet the highest standards in terms of location, services, flexibility, and of course ESG performance. The investment market, meanwhile, is still at a standstill with only 900 million euros invested in Paris region, which is a minus 64% compared with the same period in 2023. In this environment, the property investment teams have signed or renewed 23 leases covering more than 14,000 square meters, worth 3.8 million euros in annualized headline rental income, with a world of 6.9 years. Among the 11,000 square meters of new signature, Schneider Electric signed an additional 3,700 square meters in the Eden building, currently under development, bringing total pre-laid space in the building to 71%. The main renewal was for an office space of over 2,000 square meters in Rangis. The financial occupancy rate stood at 87.8%, as of 30 March 2024, stable compared to the end of December 2023. Q1 2024 confirmed the stronger operating momentum of well-positioned office and light industrial assets, whose occupancy rate is above 91%. These two asset classes accounted for more than 94% of revenue secured by rental activity in Q1 2024. As for the property development market, continuing the trend seen in 2023, it was marked in Q1 2024 by a further slowdown in activity, with orders from individual buyers down by around minus 30% compared with the same period in 2023. Against this backdrop, ECAD continued to outperform the market, with orders from individual buyers down by 21% in volume. These orders were supplemented by institutional orders, the proportion of which was higher than at the start of 2023, with a 50% increase in volume, although the number remains relatively small at this stage. In this context, we expect margins to be negatively affected because of two main effects. Firstly, this higher part of block sales, given that they traditionally have a lower profitability than individual sales, And secondly, the decrease in prices, as highlighted in this slide through the difference between the volume and value effects. Globally, the total volume of orders fell by a contained 6% in volume and 16% in value. As expected, the backlog is down by 6.5% to 1.7 billion euros compared with December 2023. In these conditions, As already explained during our full year results, we will remain cautious in our property development business over the coming months. Firstly, we continue to target a total order rate at 70% before launching new projects. Secondly, we are continuing to review our operations in order to confirm their economic viability, concerning certain operations if necessary, and selling some land if needed. This rigorous management of new operations is reflected in a decrease in the volume of started projects of minus 63% and a reduction in the inventory of homes for sale of minus 19% in volume compared with the same period in 2023. This quarter, ECAD once again demonstrated its ability to be a forerunner committed to climate and biodiversity issues. In the first quarter, ECAD set itself apart by having two separate resolutions, CERN climate on the one hand and CERN biodiversity on the other hand, voted on and approved by the general meeting last Friday, respectively at 99.3% and 98.7%. We are the first company in France to have two separate resolutions voted on, allowing us to commit with our shareholders and present the results of our low-carbon and biodiversity actions in relation to our objectives for 2030. In addition, ECAD has confirmed its commitment to the Energy Efficiency Program, which has enabled to reduce the energy consumption of the property investment portfolio by a further minus 5% over the winter 2023-2024, following a minus 20% reduction over the previous winter. Lastly, in the first quarter of 2024, ICAD was awarded a Coup d'Or for its I5 building in La Défense by the French Institute for the Energy Performance of Buildings, with energy savings of more than 36% achieved between October 2021 and December 2023. I-5, which offers an excellent level of services and outstanding environmental performance, will become the group's new headquarters from December 2024. I'll now hand over to Christelle for a detailed update on the development of our business revenue.

Thank you, Nicolas. Let's move directly to slide 12, in which we present the trend in consolidated revenue in Q1 2024. Despite markets remaining under pressure, total IFRS revenue rose from 286.7 million euros to 322 million euros, representing an increase of 12.3%. This 322 million euros comprises mainly 94 million euros of gross rental income from property investment activities, and €223 million of consolidated revenue from property development business. Moving now to slide 13. Gross rental income from property investment amounted to €93.7 million for the first quarter 2024, up 3.8% compared with the same period in 2023. On a like-for-like basis, Gross rental income rose by 1.7%, driven by indexation represented 5.1%. As highlighted in this slide, increase in gross rental income on a like-for-like basis was more marked in the well-positioned office and light industrial segments at 5.1% and 7.1%, respectively, illustrating the relevance of our portfolio segmentation. Let's jump directly to the next slide, presenting the results of the property development division. You can see here the economic revenues, which are made up of consolidated revenue plus the share of revenue from jointly controlled entities. Economic revenue from property development rose by 14.4%, from €227 million to €259 million. This growth was driven by the sale of €25 million of the residential backlog built up in 2023 and €8 million of land sales. This increase in land sales is a good illustration of the adjustment of our portfolio that Nicolas was just mentioning earlier. It should also be noted that the first quarter of 2023, used as a benchmark, was marked by a particularly low volume of revenue. Indeed, as you can see in this slide, sales accounted for just 17.5% of total annual sales, compared with an historical level over 20% in 2021 and 2022. Let's finally have a look at our financial structure on slide 15. As you can see, ECAD has a strong balance sheet, which was further strengthened following the completion of the first stage of the disposal of the healthcare division in July 2023, generating 1.45 billion euros of proceeds. In particular, ECAD benefits from a very strong liquidity position at 2.9 billion euros at the end of 2023, including cash and undrawn credit lines. So we do not have any short-term refinancing risk, bearing in mind that the next bond maturities are in November 2025 for 500 million euros and in 2026 for 750 million euros out of 1.1 billion euros. I'll give the floor back to Nicolas to conclude on the outlook for 2024.

Thank you, Christelle. Well, to conclude, I wanted to share with you firstly the progress of some of the projects we presented at the Invest Today as part of Reshape. While the market remains calm, our teams are fully mobilized to implement the new plan. So this slide illustrates the progress recently made every operational pillar reshape. On the first pillar, adapt office portfolio to new demands, we focus there on the Champs-Élysées project, which is composed of prime offices and retail. This project is a very good illustration of our capacity to provide adapted services to our customers. This building will offer indeed best ESG labels with aim of reducing energy consumption access to outdoor spaces through a rooftop dedicated to tenants and large bicycle storage areas. This project is progressing as planned, with work scheduled to start in 2025. In the meantime, we are creating value through short-term leases with €3 million revenues over an 18-month period. On the second pillar, accelerated diversification, Well, the Ottawa project is a good example of development on light industrial segment. Here also, project is progressing as planned with work scheduled to start in 2025. Another example is the project called City Park in Levallois, a mixed-use program emerging from an obsolete and monolithic tertiary building that will be converted into student housing. Since our investor day, we managed to obtain building permits in March 2024. Finally, on the third pillar, develop and invest in 2050 city, I'd like to mention the project time consisting of housing development in Saint-Denis on one of the group's historic land reserves. This project also reached a milestone with building permission filed in March and expected to be granted later this year. With regard to guidance, based on the activity at the end of March 2024, ECAT confirms that it expects net current cash flow from the group strategy cooperation to be between 2.75 and 2.90 euros per share at the end of 2024. In addition, the residual non-consolidated interest in the healthcare business should generate additional net current cash flow of around 80 cents per share based on the current shareholder base. Regarding the next milestones, I confirm the payment of the remaining part of the 2023 dividend on the 4th of July 2024, after ex-dividend on the 2nd of July, and of course the presentation of ICAD's Altria results on the 22nd of July. Thank you very much for your attention, and we shall now open the floor to the Q&A session.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll now take our first question from, for one, LaRouche Joubert with OdoBHF. Your line is open. Please go ahead.

Hi. Hello. Thank you very much for this presentation. I would have two questions, if I may. So my first question would be on the leasing activity in offices. How your visibility has evolved during the quarter, both on well-positioned and to be repositioned offices, with regard to the leases that you have signed in Q1 and the leases that you will still need to renew in 2024? And maybe my second question would be how confident are are you now to meet the requirement of S&P in terms of net debt plus equity of below 40%?

Okay. Thank you very much, Florent. Well, as for the first question on the leasing activity, well, I'd say that there are no major changes regarding the expiry schedule in 2024 from what we've shared with you in February. We tried at this time two months ago to give you as much visibility as we could. So I would say that out of the 78 million euros of rents concerned by potential expiry this year, we are still expecting roughly 40 million euros of certain departures that come mostly from the one asset that needs to be repositioned and from the exception of the pulse building on the well-positioned asset. The public building hosting the Olympic Committee, as you know, and accounting for 10 million euros out of those 40 million euros. So globally, there's no major changes from what we've seen during the first quarter, saying also that a large part of those rents concern the Q4. As far as S&P, maybe Christelle, you want to take this one?

Yeah, so regarding your question on S&P, so maybe it's worth reminding that there was a recent disclosure of S&P in which you also that there is now a negative outlook. This negative outlook reflects both difficult market conditions in the property development and office segment. Over the next 12 months, by the way, S&P has already taken into account the additional slight deterioration in the group ratio. But at the same time, as you were mentioning, there was quite good news since S&P revised the target of debt-to-capital ratio below 40%, whereas it used to be towards 35% previously, factoring actually the positive influence of our main shareholder, Caisse des dépôts et consignations. So clearly, yes, we are confident in our capacity to reach this target. And so far, as we mentioned in the Reshape roadmap, we have a pillar, per se, to keep a rigorous and prudent financial policy. So this slight upward of the ratio will help us to... to be in line with these guidelines.

And it's also worth noting, Florent, that there was absolutely no finance impact in the short term because for us, there's no need of refinancing. As you know, the next bond maturity is at the end of 2025. And if you look at the bond market, there's already a premium if you look at ECAD in comparison with the other BBB plus rated companies.

Okay, thank you. Thank you very much.

Thank you. And we'll now move on to our next question from Veronique Mertens with Kempen. Your line is open. Please go ahead.

Hello, good morning all. Thank you for taking my questions. Also two from my side. I was wondering if there's any update on disposals or any discussions ongoing there. Obviously still the investment market in Paris seems to be very muted, but happy to also hear your take on the current situation.

Okay. Well, as you say, well, the investment market is definitely at a standstill. I think we have never seen a first quarter like this one since 2010, maybe. So as for what we are concerned, if we talk about the healthcare disposal, there's no major changes from what we shared two months ago. Once again, there are some interest. from third-party investors, but we want to stick to our policy, saying that there's absolutely no rush for us to sell some assets to opportunistic buyers with large discounts, definitely. But if we take a look at the investment market, indeed, during the past month, there were only a few transactions, if not outside of Paris, as we already shared in the presentation. So pretty calm indeed.

Okay, thank you. And we're obviously looking towards the half-year evaluations being almost May. Can you maybe shed some light on current discussions? Is there still a significant haircut to come in your view?

Yeah, well, about that, maybe firstly, as a reminder, as you know, over the past 12 months, the adjustment was minus 17.5% for us. So that leads from the peak in June 2022 from a global adjustment of minus 23% over the past 18 months. So the global yield of the portfolio, as you know today, is 7.5% and 6.7% on the well-positioned assets. So definitely a large part of the risk premium has been restored. We will be getting the first feedback from the appraisers in the coming weeks regarding the valuation that has to be made in June. So given the fact that we just mentioned that the investment market is totally frozen at this stage, we remain cautious because of the fact there was only a few, if none, transactions. So maybe there's room for further value adjustment, but definitely, in our view, most of it is behind us now.

Okay, that's very clear. Thank you. And maybe one last one from my side. And looking at the occupancy level of the light industrial, it did come down a bit. Is that more of a one-off? Because obviously the light flag was on the positive side. I'm curious if you expect to restore that towards the end of the year.

Yeah. Well, I'd say that on the light industrial, I mean, on the first quarter, it's not necessarily representative. As you know, we have already 11% of the portfolio composed of light industrial assets, but it's still a small perimeter. It's one small effect which can be structural, but not necessarily meaning that there's an issue on the light industrial part.

Okay, thank you very much.

Okay, thank you.

Thank you. As a reminder, once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. And we'll now move on to our next question from Celine Suhoyen. with Barclays. Your line is open. Please go ahead.

Hi, Nicola. I've got three questions, so I'm going to say them all at the same time. On the first one, ICAT Promotion, can you explain how much inventory you're currently holding in units? And by that, I mean units finished and unsold, and how many units you're planning to build and the pre-sale for these My second question will be for Christelle. Now that you've joined the company, you've joined before, after the plan was announced, and I would love to hear if you think it is sensible and whether you are planning to make any changes on it. And the third question, a more broad one, but your shares have strongly derated post the announcement of the strategy plan. I'd be interested to hear what you think did not go into the market in your view. Thank you.

Okay. Well, maybe I'll take your last question from the start. Well, I think regarding the market, there are three things to have in mind. First one is about the real estate sector. Second one is about subsectors, I would say. And the third one is about ECAD catalyst and strategic plan. Well, the first point about the real estate market is definitely the real estate market globally is struggling. Everyone is waiting for the major catalyst and the interest rates start decreasing. Hopefully, it will come in the following months. If you take the second point about subsectors inside the real estate sectors, Some subsectors are struggling more than others, and definitely offices are struggling, and also property development. So that's not an easy one for us. And on the third point, as for ICAD, as I say, in the short term, I think we are penalized by our operational profile, as I just said. About the strategic plan, well, globally, we get good feedback on the strategic plan, saying that it's consistent with who we are, what we intend to do. But it's definitely a mid-long-term plan. So as everyone is focusing on the short term, everyone is waiting for catalyst before diving in. The main conclusion is that people think differently. We are cheap at the current stock level. That's the feedback we've got, but people are waiting for catalyst. Catalyst being macro catalyst, as I just said, about the interest rate, but also a catalyst at the scale of ECAD about achieving concrete steps in the disposal and the proceeds, and also achieving concrete operational steps in the main pillars of reshape. And as you saw, all the teams are now committed to deliver those concrete steps as we just shared during the presentation. So I think that's for your question about our view on the market, but also happy to have your feedbacks when we meet next time. And as for the first question about ECAD promotion, so as you see, we are quite cautious on the new development we have. We still have a strong backlog that will help deliver the activity in 2024. But the main question is more about the pipeline in 2025. As you saw, we've postponed once again some works launches in order to be more and more cautious. And we think that indeed, if 2023 was quite a year, 2024 will still remain full of uncertainty. And we expect some pressure, of course, on both the revenues and the margins. And maybe the last one was for Christelle.

Thank you for this personal question. So, indeed, as you all know, I took up my position at the beginning of March almost six weeks ago now. But luckily enough, I had the opportunity to exchange beforehand with Nicolas on the strategy that was disclosed at the investor day, at which I had the opportunity to take part, actually. Since my arrival, I have been pleased to note many, many things in the company, but in particular, committed and mobilized team in a challenging short-term environment. a real culture of innovation and a long-standing know-how in terms of ESG, and last but not least, a customer-oriented approach with a strong willingness to position customers at the heart of the business with aim to offering the best experience possible. So clearly, to answer directly your question, no, I don't intend to change the strategy, and I'm fully in line with the strategy that we presented in which shape, my real priority will be twofold. First one, to position the financial direction as a business partner so as to bring full financial support to our two divisions to achieve this ambition and objective that we set out in this strategic plan. And secondly, of course, at the same time, My role will be to ensure to maintain a solid balance sheet and a present financial policy, which is, as you know, the fourth pillar of reshapes.

Thank you, Christophe.

Thank you.

Thank you. And we'll now move on to our next question from Adam Shepton with Green Street. Your line is open. Please go ahead.

Thank you for the cool presentation. Just a quick one on the property development division. So unusually high contribution from land sales, 9.5 million euros. Do we see that as a one-off or are we likely to see more significant land sales supporting the revenue line throughout 2024?

Yeah, well, about that, it definitely illustrates that we want to be opportunist in order to protect the balance sheet. We pay strong attention to our working capital. These 8 million land sales were mainly supported by one sale in Bondy of an historic land sale. So it illustrate the fact that we are keeping on being opportunistic and we want to have a strong focus, as Christelle said, on our balance sheet and protecting the working capital. So, yeah, it's been opportunistic, but we keep on reviewing our options.

Just to be clear, that flows into the net current cash flow, am I right? As income effectively? Yeah. So I'm just sort of wondering on the guidance on net current cash flow, are you able to say what's assumed in terms of land sales? Can we see sort of 8 million a quarter for the rest of the year or not?

It's been already included. I mean, it does not impact the view we have on the guidance.

Yeah, okay.

All right, thank you.

Thank you. And we'll now take our next question from Mark Motze with Bank of America. Your line is open. Please go ahead.

Thank you very much. Good morning, all. I have four questions which are relatively straightforward. The number one is, what would be the life-or-life rental growth if we were looking at the net rental income, not the gross rental income?

Well, I don't think that KPI people are used to share, Marc, on this one. What's your question behind that?

Is it above or below the plus 1.7% or plus 3.8% overall?

We haven't made the exercise so far. We...

Yeah, we'll check that. What's your question beneath that, Marc?

Well, gross, it's one line, and net, it's another line, which is after some cost, and we just wanted to know if the cost has increased or not, and therefore, if it's plus 3.8%, it's plus 3.8% at the net level, or if it's above, below.

No, but there's no significant and major change in the cost, and we also... shared information about the cost. So about the cost, what could impact in the months and years to come might be maybe the rise in vacancy to be a repositioned asset. But apart from that, if the occupancy ratio keeps steady, there are no major impacts to be expected. So we still think that on the growth rent is relevant as a KPI. But we'll look closely to that if we want

And clearly, this will be part of our H1 results when we disclose the full results. But at the end of March 2024, we only disclose revenue at this stage. So that's why we haven't had a look at that.

Thank you. My second question is about what is the losing spread you've been able to achieve potentially well-positioned light industrial and other in Q1 leasing spread. So meaning the difference between new rent compared to passing rent.

Yeah, well, as for that, it's pretty in line with what we've shared during the investor day. I mean, when we are relating the asset, we usually stick to the ARVs. I think in the Q1, I have in mind one or two deals that we were slightly even above the ARVs. So globally, we are at the ARVs, and by doing so, we are crystallizing, list by list, you know, the negative potential reversion that we've shared globally during the strategic plan presentation, which is, for the record, on the well-positioned assets, on average, a global minus 8.7%.

That's for the well-positioned offices.

Yeah, exactly. Because reversion does not make sense for the one asset that needs to be repositioned. As we've already said, I mean, those won't be offices anymore in the mid-long term. So it does not make sense to compare the rents. And for those ones, we are fighting for every euro, basically, protecting the cash flow basis. as long as we come with the repositioning scenario and secure the plan by obtaining some building permits with the local authority. So, in our view, reversionary potential only makes sense for the one asset that remains in their own asset class.

Okay. So, my third question is about the repositioned... to be repositioned offices. Is that essentially assets moving from being let to being empty? Or there is an element of... of relating as well into the modern 2.7 million.

No, no. On those assets, the strategic view we have is turning those assets from offices to anything but offices. And as you know, this can be student housing like Le Valois. This can be residential like the Renault headquarters in the Place Robinson. That can be hotels like Helsinki Yenna. And in the meantime, that does not necessarily mean that those assets will remain empty. On the contrary, we are having some really pragmatic discussion with the tenant in place in order to secure as much cash flow as possible. During the interim period, we need to obtain the building permit from the local authorities. And basically have in mind that as we've shared two months ago, the average world is roughly two years on those assets accounting for 53 million euros per year.

Okay. And my final question is around your development business. What sort of embedded EBIT or EBITDA margin do you think you have based on Q1 numbers?

Well, of course, in Q1, we don't share those figures. We give you more details, of course, during the half-year result. What I would say that, as you saw, the Q1 is historically quite a low part of the revenues compared to the year. What we say about that is that we are cautious about the property development business this year. after the year 2023, even if the revenues are backed mostly by the strong backlog we have from 2023, we want to remain cautious, expecting, as I said, some pressures on the revenues, the margin, and of course the cash flows.

And put it differently, is your margin still positive or it has moved into negative territory? Because backlog is one thing, but the margin is Yeah, definitely. On the remaining 5%, 10% of units you're selling.

Of course, as I said, there's some pressure on the margin due to the fact that with block sales, with the part of block sales increasing, the part of sales for which the margin is lower is increasing. And there's also the decrease of price, as you saw in the presentation. So that's the reason why we expect some pressure on the margin and be happy to share some more details in the Alpshare Resort.

Thank you very much. I appreciate it.

Thank you.

Have a good day. You too.

Thank you. There are no further questions in queue. I will now hand it back to Nicolas for closing remarks.

Okay. Well, thank you, everyone. We were happy to start the week with you. Looking forward to seeing you in the next weeks or months. Continue sharing. Until then, be sure that all the teams are focusing on implementing Reshape at every level of the company. So looking forward to seeing you again. Have a nice day. Have a nice week. Bye-bye.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may not.