Icade Sa Ord

Good day and welcome to ECAD 2024 Half-Year Results presentation hosted by Nicolas Jolie, CEO, and Christelle de Rovia, CFO. Throughout today's presentation, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. You may register for questions at any time by pressing star 1 on your telephone keypad. And now I'd like to hand the call over to Mr. Nicolas Jolie, CEO. Please go ahead, sir.

Thank you. Hi, everyone. Good morning. Nicolas Joly speaking. Thank you all for being today around the call. I am with our CFO, Christelle de Robillard. So this morning, we are pleased to present ECAD's results for the first half 2024. This presentation will be, of course, followed by a Q&A session. So let's move to slide four for an overview of the main messages for the first half of the year. The investment division showed resilience with revenue growth supported by indexation and by the well-positioned office and light industrial segments. In addition, the fall in asset valuation was contained this out-year. On the property development side, the operational performance reflected an environment that remained challenging. The volume of orders stabilized in H1 2024 compared to the same period last year. But the pressure on prices remained high, in particular on bulk sales. This has led us to be even more cautious in launching new projects and to carry out an exhaustive review of our operations portfolio. The group's balance sheet remained solid, particularly in terms of liquidity, even though it reflected a lack of disposal in the first half of the year. Against this backdrop, ECAD confirms its guidance announced in the 19th of February 2024. We will come back to this later. Finally, we will take advantage of this presentation to give an update on the progress made in the implementation of the reshaped strategic plan by sharing with you the first concrete steps that have been taken. On page 5, you will find the key figures for the first half of the year. At group level, ECAD posted a solid net current cash flow equal to €169 million. Cash flow from strategic activities or e-property investment and property development was stable at €111 million. And AVNTA decreased by around 7% to €62.6 per share against the backdrop of a contained fall in valuation in H1 2024. In terms of liabilities, the LTV ratio reached 35.9% at the end of June, compared with 33.5% at the end of 2023, given the absence of disposal during the first semester. Net debt to EBITDA stood at 11.4 times at the end of June 2024. This ratio was impacted by the one-off impairment charges booked on the property development business following the portfolio review. In the property investment business, gross rental income came to €188 million, up 4.1% on a like-or-like basis, driven in particular by the effect of indexation. The gross asset value of the portfolio came to €6.6 billion, which is a limited 3.8% decline on a like-or-like basis. The APRA net initial yield was 5.2%. In the property development business, economic revenues were stable at 583 million euros, supported by the consumption of the backlog built at the end of last year, while the margin was negatively impacted by impermanence, which we will detail later. So let's move on to page 6. During the first half year, we have again demonstrated our ability to pioneer climate issues and commits to reflection and concrete action, particularly in relation to energy consumption management. At the 2024 general meeting, ICAD set itself apart by being the first listed company in Europe to submit two separate resolutions on climate and biodiversity to the vote of its shareholders. These two resolutions were approved by a very wide margin, over 98%. Our commitment has been highlighted and rewarded during last month. For the third consecutive year, the financial town indeed recognized ICAD's commitment to combating climate change, ranking the group in first place among French real estate companies. ICAD also obtained the Q-Plex Award, an initiative sponsored by the French Energy Regulatory Commission, attesting the quality and adaptability of its energy management policy. Let's look now at performance by business division, starting with commercial investment. The commercial investment division continued to operate in H1 2024 in a sluggish leading-end investment environment. The rental market in the Paris region is slightly decreasing compared with last year, with a 5% fall year-on-year, but an expected volume of around 1.8-1.9 million square meters for 2024, in line with last year. Transactions above 5,000 square meters were slightly up compared with 8-1-2023. The polarization of the market has continued, although demand has been shifting away from Paris CBD. Indeed, take-up in Paris excluding CBD was up 81% year-on-year and La Défense up 4%. The vacancy and incentive have continued to grow in recent months. Outside the Paris region, rental activity was down by 21% according to the Q1 2024 latest published data, but prime rent and vacancy up up well. The investment market is still sluggish with an investment volume of less than 6 billion euro down almost 30% year-on-year. Transactions focused mainly on primer sets for deals below €100 million. Given the improvement in the risk premium, we are seeing some early signs of prime yield stabilization, primarily in more central districts. So let's turn to slide 10 to see how ICAD has performed in this environment. Against the backdrop I just described, ICAD recorded a good level of leading activity. with around 56,000 square meters signed or renewed in the first half of the year. These signatures and renewals represent an annual rental income of 16 million euros and a world of 6.3 years. The good rental momentum was driven by the two main asset classes, namely well-positioned office and light industrial assets, which accounted for 87% percent of the 16 million euros of additional income. In addition, the occupancy rate remains above 90 percent for these two asset classes. The dynamic rental activity also illustrated the good level of demand for our business parks, with almost 12,000 square meters let in the Rangis Business Park and 7,000 square meters let in the Port de Paris Business Park. On page 11, we thought it was important to provide you with an update on 2024 lease maturities compared with the situation at the end of December 2023 since we now have good visibility until the end of the year. In H1 2024, we managed to defer 25 million euros of lease maturities beyond the present year. As of the 30th of June 2024, we expect to lose more than €30 million in annual revenues out of the €37 million of maturities expiring in H2, most of which will relate, as we've already said, to the Pulse building and to assets to be repositioned. Let's move on to page 12, related to the current pipeline. It represents additional revenues of €45 million on an annual basis including €21 million by the end of 2025. We have good visibilities over these revenues, as 82% of which are secured following the continued marketing of the Eden building to Schneider Electric during the first semester. The pipeline represents relatively limited capex of €288 million by 2027. The diversified projects in the pipeline are also consistent with the reshaped strategic plan. and include well-positioned offices in central locations, as well as data centers and a project to convert offices into a hotel. All these projects will comply, of course, with the highest environmental standards. And to illustrate the further future diversification of our portfolio, slide 13 shows the progress we made up to now on data centers projects. Firstly, the data center to be led to Equinix, located in the Port de Paris Business Park, has progressed according to plan. Work is due to start next October, with delivery scheduled for Q3 2025. Secondly, we've reached an important milestone in the hyperscale data center project located in the Paris-Orly-Ranges Business Park. We have indeed secured access to energy from RTE, for the requested 130 megawatt power by 2031. In line with the pillars of ReShape's strategic plan, we have also made progress in analyzing the office portfolio to be repositioned and in carrying out conversion projects for certain assets. In particular, in H1 2024, the investment division sold the ARCAD asset to the property development division with a view to converting it into housing schemes. Located in Plessis-Robinson, this program is co-developed with SEMPRO, the local urban planning agency, and this asset was sold in line with the NAV as of December 2023 with a view to developing a mixed-use district comprising shops and 650 homes and aiming for the top environmental certifications. As of June 2024, the portfolio of assets to be repositioned represents a growth asset value of roughly 700 million euros, or 12% of the total portfolio compared with 14% at the end of December 2023. Future projects have already been identified for 63% of this value. Let's move on to slide 15. In July 2024, ICAD successfully signed agreements to sell two core assets located in Marseille, for a total of approximately 45 million euros. These transactions were concluded on an average yield of 6%, in line with the prime rate observed in the region, and demonstrate the group's ability to sell its well-positioned assets in line with the latest appraisal value. Let's now move on to the operational performance of the development business line. So the property development market was once again very challenging in H1 2024. In addition to a persistently high interest rates environment and to an unfavorable tax scheme, there were also political uncertainties in France with legislative election in July and forthcoming changes in government. Furthermore, support for activity from social and intermediate housing institutional investors should be lower this year after a strong contribution in 2023 in supporting activity. As an example, CDC Habitat should continue to support the housing market in 2024, but with a 30% to 35% reduction in orders. Let's turn now to slide 18 to see how OCAD is performing in this environment. The Property Development Division recorded 2,110 orders down by 1% in volume terms and 8% in value terms. Orders for homes sold individually dropped by 6% in volume, nevertheless outperforming the market, which was down 21% year-on-year. Volume on bulk orders continued to grow by 5%, but nowhere near the levels seen last year. In terms of value, there was a clear downward pressure on bulk sales. with orders down 5% in value despite this increase in volume. In this context, the group has been even more selective with a pre-sold rate on operations launched in H1 over 80% compared with 59% for the same period last year. Same launches were done 40% year on year compared with minus 30% in H1 2023. In slide 19, we are happy to present a new project illustrating the complementary nature of our two business lines. The Development Division indeed completed in July the acquisition of another to-be-repositioned asset from the Investment Division. Located in the center of Lyon, this office tower will be converted into roughly 100 high-end housing units by the end of 2026. 47 social housing units have already been sold in bulk in July 2024 to the social landlord, Lyon Métropole Habitat. In H1 2024, the development division demonstrated again its expertise in mixed use project, which is a key component of the 2050 city. In June 2024, We inaugurated a large-scale campus dedicated to soft industries, technologies, and services, comprising seven assets built on a site of almost seven hectares. The PUIM campus is a genuine demonstration of our expertise in large-scale mixed-use projects with a positive impact on nature. In addition, in H1 2024, ICAD Promotion began work to build a digital and emerging technologies campus in the south of France. These works are part of a property development contract representing 53 million euros signed in June 2023. The delivery expected in September 2026. It's worth noting that this is a first milestone in a wider project that could potentially include also student housing. I now turn the floor over to Christelle to present the financial results.

Thank you, Nicolas. Now, let's move on to the presentation of our H1 2024 financial results. Net current cash flow from strategic operations remains stable at 111 million euros compared to June 30th, 2023. This is the result of differences in performance between the business lines. The Property Investment Division Net Earned Cash Flow increased strongly by 35 million euros compared with H1 2023, especially thanks to higher rental income and lower finance expenses. The Property Development Business Net Earned Cash Flow decreased by 34.5 million euros compared with H1 2023, due to one of impairment losses on project in the portfolio. I will come back to this later in detail. Overall, the group's net current cash flow stood at 169 million euros, reflecting the impact of the disposal of the healthcare business on cash flow. Let's move on slide 23. As of June 30th, 2024, April NAV per share was 62.6 euros, declining roughly by 7%. This year-on-year change is due in particular to the evolution in the value of the property investment portfolio, representing 3.3 euros per share and the interim dividend paid in March 2024 for 2.4 euros per share. Let's dive into the financial performance of Property Investment Division in slide 25. There are three messages to take away from this slide. Firstly, the Property Investment Division revenues came to €188 million in April 2024, up €7 million on a year-on-year basis. Secondly, the life-for-life growth was solid at plus 4.1%, supported by the positive impact of indexation, plus 5.5%. This positive effect was partly offset by the effects of ceiling departure, minus 1.2%, and negative reversion and renewal, minus 0.2%. Lastly, growth was driven by the performance of the well-positioned offices and light industrial segments, which saw revenues rise respectively by 6.4% and 7.8% on a life-or-life basis. As previously mentioned, the net year-on-cash flow of property investment division was sharply plus 35% year-on-year. This is a result of higher revenues, lower costs, thanks in particular to a decrease in energy costs and some positive one-off effects, and of the improvement in the financial results driven by the combined effect of a lower cost of debt and higher finance income on cash invested. Slide 27 focuses on changes in the value of the investment portfolio. As Nicolas mentioned, the value adjustment was contained at minus 3.8% on a like-or-like basis. Disposal and investment did not have a significant impact. The EPRA net initial yield was 5.2%, marginally lower than in December 2023, reflecting the one-off impact of one franchise, as the calculation of this indicator is now based on invoice strength rather than IFRS strength, in accordance with EPRA recommendations. The EPRA top-tops net initial yield is 6.3%, up 0.2% on December 31, 2023. Slide 28 illustrates the slowdown in value adjustments in our portfolio. In H1 2024, we saw a slight increase of 0.7% in the valuation of light industrial assets, an asset class that has shown its resilience over the past 24 months. For offices, the adjustments over the first half of the year were less tremendous than over the previous three half-years, with a 3.6% decline in well-positioned offices and a 7.3% decrease in to-be-repositioned offices. Overall, both asset classes are currently valued at 26% and 46% less than they were 24 months ago. Let's jump on the property development results on Phase 30. Given the market context previously described by Nicolas, ICAD teams conducted a comprehensive and in-depth review of the project portfolio. This review led to the recognition of significant impairment losses totaling 85 million euros before tax, i.e. 63 million euros after tax. The impact on net current cash flow amounted to minus 34 million euros and is linked to the adjustment of price bridge on ongoing projects. The impact on non-current cash flow was minus 29 million euros and related to the rise down of study costs and the depreciation of land prices for reconfigured or discontinued projects. As a result, the net current cash flow from prophecy development is at minus 21 million euros at the end of June, compared with 14 million euros in H1 2023. It should be noted that, excluding the effect of impairment, the division net current cash flow would be relatively stable, thanks in particular to rigorous operational cost management, which has a positive impact of nearly plus 6 million euros, compared with the same period last year. Let's move on to debt management. The H1-2024 performance was marked by a very good financial result. Apart from income coming from the residual stake in the healthcare business, composed of interest on the loan to IHE Healthcare Europe and dividends received from this entity, the increase in the financial results reflects a rigorous management of cost of debt and an optimization of cash management. On the one hand, the cost of debt remains very low and has even improved in H1 2024 to 1.52% compared with 1.60% at December 31, 2023, thanks to additional hedging. The projected 2024 debt is also fully hedged. On the other hand, the group recorded substantial income this half year, up by 19 million euros, compared with the same period in 2023, with an average cash volume of 1.2 billion euros invested at around 4%. Let's move on to slide 34. ECAD maintained a very strong liquidity position of 2.4 billion euros, covering its debt maturities until mid-2028. In addition, in the first half of 2024, we successfully bought back 350 million euros of bonds, enabling us to proactively manage the debt maturity schedule and reduce the next 2025 and 2026 bond maturities. Site 35 presents our key balance sheet ratio as of June 30th, 2024. LTV was up 2.4 points at 35.9%, reflecting the change in the value of the property portfolio and the absence of asset disposals in H1 2024. At 11.4 times, the net debt to a BDA ratio as of June 30th, 2024, resulted from the impact on a BDA of the impairment losses booked on the property development business. This impact accounted for 2.7 points of the increase in the ratio. Let's move on to slide 36 for an update on the disposal of the healthcare business. During the first half of the year, discussions on stages two and three continued, but no new milestones have been reached so far. Nevertheless, we confirm the disposal strategy of healthcare activities remain the same, and the terms and conditions of stages two and three are unchanged. As for stage 3, the marketing of the Italian asset portfolio has started to generate interest from prospective investors. It should be noted that the value of the healthcare portfolio remains stable at minus 2% over the semester, given the resilience of this asset and the solidity of the CMS. I'll hand over to Nicolas for the conclusion and details on the guidance.

Many thanks, Christelle. Based on the group's results as of the 30th of June 2024 and expectations for H2, ECAD reaffirms its guidance of a total net current cash flow between 3.55 and 3.70 euros per share for the full year 2024. This is made up of firstly the net current cash flow from strategic activities between 2.75 and 2.90 euros per share, and secondly, from net current cash flows from discontinued activities of circa 80 cents per share. In property investment division, we showed good resiliency in the first half of 2024 and benefited from strong income on invested cash. For H2, we anticipate a lower growth in cash flow for this business line compared to H1. given the departures of some tenants and the decrease in investment income. In the property development business, we expect a stabilization following a major adjustment in H1 2024. On the net current cash flow to be expected from discontinued activities, we have now a good visibility as it is secured at the end of June at 95%. Well, to wrap up, I would say that ECAD navigated through an environment that remained quite challenging in the first half of 2024. With a number of indicators showing resilience, our financial and operational performance reflects our ability to adjust to changing market conditions without losing sight of our long-term goals. We achieved indeed some meaningful first steps in the deployment of our 2024-2028 reshape roadmap, and I look forward to updating you on our progress. Thank you very much. And with that, let's start the question and answer session.

Thank you, sir. Ladies and gentlemen, as a reminder, to ask a question, please signal by pressing star 1. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. And please make sure the mute function on your phone It's switched off to allow your signal to reach our equipment. We will now take our first question from Stéphane Afonso from Invest Securities. Please go ahead. Your line is open.

Yes, good morning, and thank you for the presentation. I have three questions, if I may. The first one regarding offices, would it be possible to share the reversion rate captured in H1 for well-positioned assets? Secondly, in terms of disposals, what proportion of non-core offices do you intend to sell to ICAT Promotion? And finally, could you give us more color on the progress of discussions about the next steps of ICAT Santé disposals? What could we expect by the end of the year? Thank you.

Okay. Thank you. Thank you, Stéphane. Well, as for the reversion for the well-positioned assets, well, the signatures, And renewals were, as always, in line with the ARVs. So did the incentives, in line with the market practice. Globally, we stick to the global figures shared during the first semester. And at this point, there is no updated figure to disclose regarding the global reversionary potential on well-positioned assets. Maybe you can consider, I'd say, in the mid-term, a slight decrease. Because as indexation continues to impact positively and strongly the rent, as you saw in H1, of course, the ARVs are going up, but not at the same pace. But globally, we were in line with what we've already shared. Our second question about disposal to be sold to ICAP promotion. Well, there's no specific target, but I mean, it really depends on the project. Honestly, you know that on the one asset to be repositioned at the end of the day, the strategic view on that is to sell those assets, but we need to have a proper reconversion plan. Sometimes ECAD Promotion is the best partner to do so because we are fortunate enough to have the toolbox in-house. That's what we did in the Plessis-Robinson. That's what we did in Lyon-Lafayette. But, I mean, we can also do that with other partners. So no specific target. in mind. And as for the healthcare disposal, well, as Crystal said, you know that there's absolutely no change in our strategy. And I mean, executing stages two and three are one of our top priorities. And as already shared, in our view, it's not a matter of execution, it's more a matter of timing. And to be more specific, on stage two, where we have regular discussions with Premier Rem, the former Premier Rem, and other third-party investors. Some concrete steps have been taken during the first semester to renegotiate the liquidity conditions offered to shareholders, since the investment thesis is not necessarily the same for new investors than the existing minority shareholders. in addition to the quite stabilization of the value in our view, should facilitate the entry of new investors. As for Stage 3, as Crystal said, well, the marketing of the Italian portfolio is ongoing. It's an attractive portfolio. The Premier Reim team and the shareholders have selected a bank to structure the proper process. we've already received some unsolicited first expression of interest on some assets of the portfolio. So that's where we stand today. Well, bear in mind that globally, this is definitely a resilient asset class that delivers strong, predictable cash flows, steady cash flow, delivering steady dividends, as you saw, because it enables us to have a secured more than 95% of the cash flow coming from the discontinued activities during the first semester.

Thank you, Nicolas. I have just one last question, if I may. Sure. Would it be possible to share the like-for-like growth of ICAT Santé appraisal values in H1, please? Sorry? The like-for-like growth of ICAT Santé appraisal values in H1.

We don't disclose the life-for-life growth in ICAD-Santé, but what we disclose in an estimation of a decrease of an average 2% both on IHE and the Premier Health Care.

Okay. Thank you very much.

You're welcome. We will now take our next question from Valerie Jacob from Bernstein. Please go ahead.

Hi, good morning. So I've got three questions. My first question is about the property development business. You said you expect a stabilization in H2, and I just wanted to clarify what that means, because you took 34 million right down in H1. Does that mean that we can expect to come back to around 15 million, or does that mean something else for H2 in the future? My second question is about your tenant departure. You had a lot of tenants exercising their lease, their break option, sorry, in this year. You've got 16% of leases potentially expiring in 2025, and I was wondering if you expect, you know, such high amount of departure as well, or if you already have some visibility. My last question is about your project in Lyon and in Plessis. I was wondering if you could share some profitability number so we can understand the sort of math behind repositioning this asset from office to residential. Thank you.

Okay. Thank you, Valérie. Well, maybe to start with the property development, well, as you saw earlier, So due to the uncertainty of the global environment and what we've observed through our discussion with institutionals on bug sales, we indeed run this comprehensive review of the portfolio. That led to the significant impermanent loss we just shared. This is a one-off impact. So therefore, we do not expect additional deterioration of the net current cash flow in H2. So to answer your question, this should lead to a mechanical increase of the margin rate at the end of the year compared to the figures shared for the first semester. Globally, I would say that even if there can be some positive signs in development activities with individuals, we think that those signs need to be confirmed first. that we are going through a complex environment from political, tax, and economic points of view. And in our view, uncertainty shall lead to greater selectivity in our project. So that's what we do. That's what we did with the operational launches in the H1, as you saw. And that's what we intend to do for the months to come. Maybe to keep on talking about property development, coming to your third question, on the 2B reposition asset that has been bought from ICAD Promotion, we do not usually share the specific figures, but the idea, especially because we also have some third parties involved, for example, in Plessis Robinson, is to do so at market practice. So there's profitability for ICAD Promotion on this operation in line with the usual on the market, and it's indeed worth pointing out that we were able to do so by selling the asset at the NAV. And as for your second question, I'd say, related to the expiry schedule on the investment division, well, you know it was important for us to share with you from the start as much visibility as we had on the leading expiry schedule. already 16 million euros of rent losses have been indeed crystallized over the H1. As we've always said, most of the break options and expiries rather concern the H2. Indeed, that's the reason why we expect a total amount on this semester above 30 million euros of rent losses out of the 37. Due to the fact that those losses are mostly due to 2B reposition assets and the one specific asset of Perl's Building hosting the Olympic Committee. Well, of course, there are some challenges still ahead in 2025, but the major part was on 2024 on the expiry schedule. But have in mind, once again, that due to the fact, talking about the earnings, due to the fact that most of the departures are in H2 2024. Of course, it will slightly wire on the earnings in 2024, but also have a full year impact on the earnings in 2025.

Thank you.

You're welcome. We will now take our next question from Celine Suin from Barclays. Please go ahead.

Hi, Nicola. I've got two questions for you. The first one is that if we analyze the H1 net current cash flow, it seems to be running slightly ahead of the guidance. And you also said that the net current cash flow in H2 should not be lower than in H1. So is there a chance of a beat here at full year, or why are you being extra cautious? The second question is on EJ promotion. The land portfolio value was written down by 9% in H1. If pricing remains the same as today, What kind of profit margin would you expect going forward? In other words, did you write down that length properly enough to be able to generate a profit going forward? Thank you.

Yeah. Hello, Celine. Thank you for your question. Well, regarding the guidance, I'd say that from the start, and I think we were pretty clear with Christelle on that, we were really cautious in defining the guidance, given the uncertainty on the context, especially on the property development operations, so that was the reason why we were able to offset that and reaffirm the guidance. There were also some positive results helping to offset those significant losses in H1, coming from the efforts made on the operational cost management. Also, as you saw, better performance on the investment division and the financial products. From where we stand today, we now have stronger visibility on the H2, of course. We've also secured most of the net current cash flow coming from the discontinued activity. So that's the reason why we are able to confirm the guidance. Nevertheless, as I said earlier, talking about the property development, we really think that we are facing some uncertainty globally, politically speaking. on the tax and economic point of view. So that's the reason why we are still thinking we need to be cautious, but we are confident in the guidance being maintained as of today.

Regarding your second question in terms of e-calc promotion, depreciation, and the impact of the margin, so as you understood during our presentation, those impairments are the result of an exhaustive and in-depth portfolio review. to take into account the current environment, and particularly regarding bulk sales. It conducted us to make an impairment on more than 200 projects out of 500 total projects, so that is to say nearly 40% of our portfolio. If the current macroeconomic political environment doesn't change, that is to say under ESO conditions, we can consider that all provisions have been accounted during this first half semester. As Nicolas explained, we don't expect further deterioration of net current cash flow in H2. So mechanically, it will lead to an increase of the margin rate at the end of 2024. Even if, once again, as we are evolving in a cautious and in a political environment which is still uncertain, we remain cautious for the following months.

Sorry, thank you so much. Can I follow up with another one? We've got a new government in France. Are you getting any signal from the new government on some kind of return of subsidies to help house builders that are not doing great at the moment?

No, honestly, it's really too early to have some signal, even more globally, frankly. What we've observed during the past week is that it didn't have a strong impact on the activity, even if it was a really short period of time. But on the property development business, there was no major change on individuals' behavior. And as for the property investment division, as you saw, we managed to sign as planned, on the timing plan, the two pre-sale agreements we had in mind. So no major change in the short term, but it's really too early to tell, to have some signals and to have a proper view of what to expect in the months to come.

Right. So Nicolas, you're kind of saying as well that we've gone through the worst for agent promotion and the only way is up, right?

Well, you know, I really prefer to be cautious. We'll be more and more selective. We'll be focusing, as you saw, on new operations. taking into account the new environment criteria, focusing on the project with the good margin, high level of pre-commercialization, but have in mind that the political agenda in France is still uncertain. Soon, it will also be the municipal election in the town, so all this uncertainty definitely is not favorable to business in our view. So that's the reason why we keep paying attention on our cost and everything and the selection of the operations. So, in my view, too early to tell the worst is behind us.

Thank you.

Welcome.

We'll now take our next question from Florent Laroche-Joubert from Odor BHF. Please go ahead. Florent Laroche-Joubert, your line is open.

Yes, good morning, Nicolas. Good morning, Christelle. Yeah, can you hear me?

Yeah, yeah, very good. Good morning, Florent.

Hello, Nicolas. Hello, Christelle. Can you hear me?

Yeah, sure, sure.

Okay, okay. So good morning. Yes, I would have two questions. My first question would be on the occupancy rate in the OPC's wealth position and on the light in this wealth. So you have had a good leasing activity in the semester, but however, the occupancy rates for these two segments has decreased. And so I would like to know if we could have maybe more color on that. And my second question would be on the valuation of the assets, maybe for H2. How do you see the next evolution for H2 in terms of valuation of these assets?

Yeah. Well, good morning again, Florent. Thanks for your question. Well, about the occupancy rate, well, globally on the two main asset class, well-positioned and light industrial, it maintains itself above 90%. So, I mean, it's all the usual, I would say. But have in mind that it will be also impacted, especially the well-positioned offices, by the departures of the Olympic Committee on the Pulse building. We have a deep conviction in this asset. That's the reason why it's on well position. But of course, it will impact the occupancy ratio at the end of the year. So just to give you some perspective on that. And as for the valuation of the asset, maybe first of all, a reminder from where we come from. Since the peak in June 2022, over those two years, So the global adjustment for ICAD was minus 26%, so quite significant. Of course, it varies from one asset class to another. I think the 2B reposition asset has been almost cut by half. The exact figure is minus 46%, so close now to 2,000 euros per square meter on this asset class, so quite significant. We saw that the adjustment is really slowing down in H1 compared to the last period. So, definitely, the main part of the adjustment is behind us. I think the evaluators did a great job restoring the risk premium. And have in mind also, I really think that's one of ECAD's specificities, that two-thirds of our portfolio is going through a double-check expertise process. So this gives some comfort also to us on the figures. From what is ahead of us, I say that the first point will still depending, of course, on central bank decision and inflation data, but would appear hopefully that the rate cut is underway. Hopefully, nevertheless, we remain also cautious. Of course, some of the value adjustments are still possible from one asset class to another on the second semester. But clearly, the main part is behind us now, and you see that what we've been able to achieve in Marseille is that we are finding some liquidity on some well-positioned assets, too.

Thank you.

We will now move to our next question.

Okay, so that means that now you see some appetite of investors.

Well, yeah, yeah, Florent. I'm still connected. Yeah, yeah, we hear you well.

You hear me? Yes, yes, I'm here.

Okay, so to answer your question, yeah, we saw some appetite, for example.

Yes, my question, my full web question is, yes, I can hear you.

Okay, so we saw some appetite from investors on the Marseille assets marketing, for example. We had for each asset four to five offers, so there's some appetite back, but still bear in mind the global figures we've shared on the investment market still remaining very sluggish in a whole. So slightly better, but definitely we are still facing headwinds.

Okay, so thank you very much. Thank you, Paul.

Thank you. We will now move to our next question from Mark Motzi from Bank of America. Please go ahead.

Very good morning, everyone. I have some follow-up questions on different topics we've addressed during this Q&A. The first one is, I'm not sure to understand precisely what has been your losing spread, i.e., the new rent difference versus the patent rent for your office portfolio.

Yeah, I can take the question one by one if you want, Marc. So on this one, what I said, what we've observed on the reversion crystallized, I would say, lease by lease is roughly in line with the overall negative reversion potential of minus 8.7% shared during the first quarter. So globally, we signed a DARV crystallizing least by least this reversionary potential, and we are in line with the market. If that answers your question.

Minus 9% is the same number for H1 than for Q1.

Yeah, roughly. Of course, those are average numbers, so sometimes we can achieve better, sometimes we can achieve a bit lower than that, but on average, we'll stick to this.

Okay. That's clear. On your net current cash flow, I'm just trying to get my head around what has been the big moving part. So, you've if I'm correct, you've been achieving a better top line from your investment properties, so meaning the rental business. You have reduced cost. You have greater income from your cash. And finally, you have this negative impact from your negative margin from your property development. And overall, that helps you to maintain your net current cash flow guidance for the year. The way I should understand it, I'm just trying to make my head around what's going to happen in H2, because if we have less indexation in H2, but the same 9% negative reversion, potentially flat-ish, if I understand correctly, results from your development activity, no more cost reduction, and same number in terms of income about profit from your financial, from your cash position. I'm just trying to understand how the math worked for not having the minus 34% impact on your property development, not having any impact on your overall guidance for the year. Just trying to get some clarity here. Sure.

Well, to answer your question, I think that was a good wrap-up Maybe just on top of that, have in mind when defining the guidance, initially, we were pretty clear on the fact that we decided to be cautious on this guidance. So, this cautiousness also has set a part of the impairment that we've crystallized. But once at that, indeed, you get some positive results on the activity of the investment division, some efforts on the cost management and our cost structure, and the Of course, some strong financial products, especially better than expected because due to a delay in the decreasing of interest rates, and those offset indeed major parts of the impairments from the property development. As for the second semester, well, mechanically, as these impairments are one-off impact, that's what we said, as for the property development division should have bettered a bit during the DH2 because we do not intend to reconduct some new impairment loss specifically on the property development. So that should help. And on the other hand, on the investment division, of course, it will slow down a bit due to the fact that we have some departures on the one hand and that the financial products should lower B2. That's for this point. Regarding the attention we pay on the cost, being our cost structure or the vacancy cost. I mean, it's permanent attention we have on field, and the teams are committed to achieve some efforts on that, and we still will, being able to adapt also to the global environment evolution. Does that answer all your questions?

Yeah, and I have two follow-up questions on that one. Number one is, what has been your like-for-like rental growth, but on a net basis? This is a question I've been asking in Q1, just to make sure that we're not having leakage between growth and net.

Yeah. Yeah, I know you keep asking the question, so I will keep giving the same answer. That's not something we are focusing on, but we are focusing on the vacancy cost. Maybe, Christelle, if you want to complement a bit on this.

Yeah, maybe to give you some color, Marc, and the life-or-life situation. on net rental income. First of all, you saw that there is an improvement in gross rental income, mainly driven by indexation and good performance of well-positioned assets and light industrial. That's the first driver. The second driver is indeed a slight improvement in cost. We noticed a decrease in energy costs, which played positively on the vacancy cost, and on top of that, we also had some one-off improvements on some other expenses, like tax rebates especially. All in all, we continue, as Nicolas was just mentioning, to monitor closely the cost over the next month, maybe to give you some color about the months to come, we will have some tenant departure expected in H2 as we explained. So mechanically, we are expecting an increase in vacancy costs. But at this stage, at end of H1, we had a slight improvement.

Okay. And the final one is, I have two more. The next one is on API earnings. You're not providing any more API earnings?

Yes, we are. Yes, we are?

Okay.

Yeah, yeah, of course.

Sorry, it's been a very busy morning, so I'm having a big time.

No, no, you have a specific session on all APRA KPI, so you don't hesitate if you don't sign it, but normally you should.

And everything you mentioned as earnings is post-minority, right? Sorry, Marc? Or non-controlling interest.

Let's put it that way. We specified, so maybe as you will see, if you haven't seen it yet, we conducted an exhaustive review of our KPI, and for each KPI, we precise the scope of calculation. So normally, you will find it for EPRAS earnings. It's really compliant with EPRAS recommendations, so... After minority, if I'm not mistaken.

Yeah, and on the prior earnings, Marc, it's on page 2425 of the press release.

Okay, brilliant. I'll look at it. And the final one is on your net debt to EBITDA, which is now skyrocketing to above 11 times. Is there any ongoing discussion with your credit agencies around it?

We have a current discussion with a credit agency, SNP. Maybe you saw, by the way, that our current rating was reiterated a few days ago. and normally we are expecting a retracement by SNP of the impairment booked on the property development side. It was the case for other peers because it is one of effects.

Okay, so the restatement of your rating has been based, included as kind of impairment you've had. They agree to to take on board that this is a one-off and that does not deteriorate your financial KPIs.

We gave them some color about all that. So, yes, it took into account those elements.

Okay. Super. That's it for me. Thank you very much.

Thank you.

Sorry for being that long.

No, no, no.

Pleasure.

Thank you. We will now move to our next question from Adam Chempton from Green Street. Please go ahead.

Good morning, team. Thanks for the presentation, taking the question. Two quick ones on healthcare disposals. On the Italian portfolio being marketed, is that sold? What proportion of the shareholder loan would that cover? Would that cover all of it or proportion of it. And the second question is just on dividends from healthcare. Are you confident that those dividends will be stable or growing next year? There's plenty going on in the healthcare market in terms of operations. To the extent that you still own those states next year, maybe the year after. Are you confident that the dividends will remain at least stable?

Yeah. So maybe on the second question about the dividend, of course, it has to be a decision from the board of the dedicated SPV. What we can say is that, as we said, this is resident asset class. Those assets are fully let. They are delivering some steady predictable cash flow. So fortunately, dividends will follow and I mean, it's globally shared between the shareholders who have some dividend coming from those SPV. So we don't have precise figures, but that's the overall philosophy on that. And on our first question, you were talking about valuations or a disposal? Sorry, couldn't heard you well.

So just on the Italian portfolio, the IHE portfolio, What proportion of IHE did that represent?

Yeah, it's roughly 40% of the international SPV, roughly.

Okay, so a successful sale of that portfolio would mean the shareholder loan was fully repaid along with it.

Well, it depends and also has to be shared with the existing minority shareholder. But all in all, it's a significant part of the international SPVs portfolio, definitely, yeah. Okay.

That's good. Thank you. That was it.

Thanks a lot.

Thank you.

Thank you. As a reminder, to ask a question, please signal by pressing star 1. I'll now take our next question from Jonathan Kaunager from Goldman Sachs. Please go ahead.

Good morning. Thank you for taking my questions. Just two follow-up questions, please. One on the property development. So you indicated that you've revalued quite a number of projects. Do you expect to launch less projects from here? And so do you expect lower volumes? And if that's the case, would that have had an impact already in the next year? Or is it like a two-year lag to think about? That's question number one. And number two, you've indicated a good leasing momentum. Obviously, it remains a tough market. You had indicated already at your capital market today, obviously, departures for assets to be repositioned. So, interesting to understand any change. There's just your... expectations at the capital market today? Are you leasing better than you expected, or are you anticipating now additional departures in 2025, amongst other? Thank you.

Yeah. Well, on the – thank you, Jonathan. Good morning. Well, on the property development, indeed, we went through this comprehensive review. Now we are – As I said, we are deeply convinced that the certainty shall lead to greater selectivity. And as you saw, the one project we launched were above 80% pre-commercialization rate. We've delayed and postponed, I think, minus 40% of the operational launch in H1 compared. So we are definitely much more selective. We are focusing On the margin now now that we've rebate Indeed through this review our expectation taking into account The new normal I would say so we are not obsessed by the the top line and turnover We have a focus also on the margin So of course there might be a slight decrease on the turnover in the in the year to come after that On the mid-long term, it's really hard to say from what I've said for the global political environment, the municipal elections that are coming up. Our main focus is on selectivity, once again.

Okay, so the impact you're saying is rather next year as opposed to this year?

Yeah, usually we are pushing ahead something like 12 to 18 months of activity through backlog. The backlog is slightly down, I think minus 7%. The housing backlog is roughly stable, I think O-, but we are slowing down on the commercial part, especially offices development. We had quite some strong activity. Those are delivered now, most of them. Nevertheless, we were able to manage to sign two interesting office developments in Lyon and Villeurbanne. But globally, I think the backlog on the commercial part is minus 35%, something like that. So that's for the activity to come. And as for the leading momentum on the investment division, well, that's what we've said with Christelle. Roughly, we're in line with what we shared with the market in terms of reversionary potential. To be fully transparent with you, if you are looking a bit ahead of us, I think the gap between the current rent and the RV might slightly widen a little due to the fact that there are still some strong indexation this year, as you know, 5.5%, pushing up the existing rents. And, of course, the RVs are stabilizing or doing well, but not at the same pace. So I'd say that apart from that, we are in line because we always sign at the ERV or above. And as for the departures, we knew it was a major issue for us, but also for you to try, you know, to assume some numbers in the future. So we tried to give you as much visibility as possible in February, and we came with this at least 40 million euros of certain departures. Now we have more visibility after an extra semester. And so on top of those certain departures at the end of last year, of course, we've crystallized some additional ones, and that's where we stand today, 16 million crystallized over H1, and we think a total amount on H2 that might be above an extra 30 million euros. That's our view on that.

Okay. Very helpful. Thank you.

Thank you. Thank you. There are currently no further questions in the phone queue.

Okay? Please go ahead, sir.

Yeah, it's been a good discussion. Thanks for your question. We, of course, remain at your entire disposal with the whole team to answer any additional questions you might have. Happy to give you answers on that. And thanks for this discussion. Looking forward to seeing you again in the coming days. Thank you very much. Thank you. This concludes today's conference call.

Thank you for your participation. Ladies and gentlemen, you may now disconnect.