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.