Icade (ICAD) Earnings Call Transcript & Summary

Welcome to the Icade 2026 9 Months Trading Update Conference Call. [Operator Instructions]. Now I will hand the conference over to the speakers, Nicolas Joly, CEO; and Bruno Valentin, CFO. Please go ahead.

Good morning, everyone, and thank you for joining us today. With Bruno Valentin, I'm pleased to present Icade's 9 months 2026 trading update. I will begin with the key highlights and performance of our businesses. Bruno will take you through our revenue figures before I return to our full year outlook and 2026 dividend. And as usual, we will conclude with a Q&A session. So let's start on Slide 5. There are 5 main messages. First, following the agreement announced in July to sell the Portuguese healthcare portfolio, we are pleased to announce the closing of the transaction. This will generate approximately EUR 115 million of net proceeds for Icade. Second, we've taken a new step in our office strategy by acquiring a controlling interest in Comet, a key player in corporate events and office services. This reflects our strong conviction that office use is changing and that greater flexibility and a broader range of services are essential to enhancing our offering. Third, operating activity remained subdued in the third quarter against the backdrop of further market slowdown and higher interest rates since the summer. In property investments, approximately 103,000 square meters have been signed or renewed since the beginning of the year with a financial occupancy rate of 85.4% at the end of September. In Property Development, after momentum in the first half of the year, residential orders are now down 1.4% in volume and 8.5% in value year-on-year. Fourth, we confirm our 2026 group net current cash flow guidance of between EUR 2.90 and EUR 3.10 per share. This includes EUR 2.25 to EUR 2.45 from strategic operations and approximately EUR 0.65 from nonstrategic operations. Finally, we can now provide some further clarity on the 2026 dividend. The EUR 255 million capital gain on the sale of Marignan will significantly increase net profit for the year. Consequently, the Board of Directors is considering proposing a dividend based on Icade SA distributable profit with a scrip dividend option. I will come at the end of the presentation. Let's now turn to Slide 7 and the completion of the Portuguese asset disposal, further reducing our health care exposure. Following the agreement signed in July, the sale of all the shares in the fund holding Portuguese Healthcare assets was completed in October. The [indiscernible] fund was owned 50% by Praemia Healthcare and 49% by Iasho. A selective capital reduction in Icade's favor will enable us to receive a share of the disposal proceeds exceeding our ownership interest. Net proceeds for Icade will, therefore, total approximately EUR 115 million. This transaction has no impact on the group 2026 net cash flow. Together with the sale of Marignan in the first half, this closing demonstrates the tangible progress has been made on our asset rotation strategy. Turning now to Slide 8. In July, we acquired an 81.5% controlling interest in Comet, a key player in the corporate events industry. The total investment for Icade is approximately EUR 40 million. Founded in 2016, Comet combines 3 complementary businesses, organizing corporate events, providing services in office buildings and offering flexible workspaces. It operates 12 locations in Paris and the Parisian region, serving a client base that includes many large companies. The office market is undergoing profound change. Clients increasingly look beyond the building itself to workplace quality, services and user experience. Comet enables us to respond to those expectations and move beyond a purely asset-focused approach. Let's now move to our leasing activity on Slide 9. In Property Investment, the third quarter made a limited contribution to the leasing activity recorded since the start of the year. We signed or renewed approximately 10,000 square meters during the quarter, bringing the year-to-date total to approximately 103,000 square meters. This transaction represents EUR 34 million in annual headline rents with an average firm commitment of 8.5 years. The financial occupancy rate stood at 85.4% at the end of September, relatively stable compared with 85.9% in June. Office occupancy remained between 89% and 90%, while light industrial occupancy stood at 87.7%. Our priority remains tenant retention, new lettings and proactive management of lease expiries. Slide 10 illustrates another operational achievement, the delivery in August as planned of a new fully leased data center at the Portes de Paris Business Park. The delivery increases Icade's exposure to the data center asset class. Our operational portfolio now comprises 6 data centers with leading operators, including Equinix and Digital Realty. Together, these assets represent 28 megawatts of total IT capacity and EUR 6.7 million of annual headline rents. These assets are owned under a power shell model in which we provide the building shell and the connection to the electricity grid. We are also exploring for larger projects, partnership-based operating models to enhance returns, particularly for the Rungis data center project. Let's now turn to Property Development on 11. After a dynamic first half, we observed a slowdown in residential activity during the first quarter with buyers adopting a more waiting approach. At the end of September, residential orders totaled 2,776 units, representing a slight decline of 1.4% in volume compared to last year. In value terms, orders were down 8.5%. The decline in value was more pronounced than in volume, largely reflecting the mix of books. In this environment, we remain cautious and selective. We maintain a high level of presales before starting construction at approximately 80%. Against a weak market backdrop, backlog stood at EUR 1.5 billion, representing approximately 19 months of revenue. I will now hand over to Bruno for the review of our 9 months revenue figures.

Thank you, Nicolas, and good morning, everyone. Let's move to Slide 13. Total IFRS consolidated revenue amounted to EUR 887 million for the first 9 months of 2026, a decline of 3.9%. Gross rental income from property investment came to EUR 250 million, down 5% on a reported basis. I will explain the difference between reporting and like-for-like performance on the next slide. Property IFRS revenue amounted to EUR 622 million, down 4.4% year-on-year. Other revenue reached EUR 15 million compared with EUR 9 million last year. This includes almost EUR 5 million of revenue from Comet. Before reviewing the revenue bridge, a word on liquidity. At the end of September, the group continued to have a strong liquidity position of EUR 2.2 billion net of commercial paper, covering debt payment up to 2030. In May, we also issued EUR 150 million bonds, which improved our financial position and renewed EUR 450 million in loan credit lines. We've also continued to reduce gross debt in line with the objective of ReShapE strategic plan, repaying EUR 460 million of bond in June and EUR 290 million mortgage loan by loan held by SAS Tour EQHO in September, after regaining full ownership of the asset in July. Gross income decreased to EUR 250 million, a reported decline of 5%. The main impact is the scope perimeter with minus EUR 11 million, mainly due to asset disposal in 2025, partly offset by the delivery of Edenn, the Schneider headquarter in Nanterre. On a like-for-like basis, the decline was more limited at 0.9%. Within that total, office retail income increased by 0.6%, whereas light industrial rental income declined by 2.3%, adversely affected the decline in the construction cost index in 2025. Looking at the breakdown, rent indexation contributed 0.5% to like-for-like growth, while tenant departure and negative reversion on renewals reduced rental income by 0.5% and 0.9%, respectively. On Slide 15, economic revenue from property development amounted to EUR 696.4 million, representing a decline of 4.4%. Consistent with the trend observed in the first half, the decline in property development revenue was driven by the sharp drop in commercial activity. This reflects the completion of major projects in previous years and the absence of new sales during the period. Residential revenue, by contrast, remained relatively stable. With that, I will hand back to Nicolas for the outlook and the 2026 dividend.

Thank you, Bruno. So let's turn to Slide 17. Based on our performance over the first 9 months and our expectations for the remainder of the year, we confirm our 2026 group net current cash flow guidance of between EUR 2.90 and EUR 3.10 per share. This includes between EUR 2.25 and EUR 2.45 per share from strategic operations and approximately EUR 0.65 per share from nonstrategic operations. That contribution is already secured through the EUR 48.5 million dividend paid by Praemia Healthcare in May. The economic and financial environment has become more challenging since the summer with political uncertainty in France and higher interest rates. We remain focused on our road map and discipline in our financial management. Our EUR 15 million cost reduction plan has already been completed. Investments remain selective, and we will maintain this discipline in 2027 to preserve financial flexibility. Looking ahead to 2027, we remain cautious and will announce our guidance when we publish our full year results in February. And let me now address the 2026 dividend under consideration on Slide 18. First, it is worth highlighting that the sale of Marignan generated a substantial capital gain of approximately EUR 255 million in 2026. This gain will contribute significantly to net profit for the year. To comply with distribution requirements while prudently managing the balance sheet, the Board of Directors is considering proposing a 2026 dividend equal to Icade SA distributable with a scrip dividend option. Any such proposal would be submitted for approval at the general meeting to be held in 2027. To conclude, this trading update illustrates further execution of our disposal plan, including the Portuguese closing in October, alongside the acquisition of Comet and the delivery of another fully leased data center. As for operations, the activity remains subdued, but our 2026 guidance is unchanged. Our focus remains disciplined execution, selective investments, cost control and long-term value creation. I would like to sincerely thank the team that are committed every day to delivering our roadmap, managing capital carefully, and serving our clients in a demanding environment. Thank you very much for your attention. Bruno and I are now ready to take your questions.

[Operator Instructions] The next question comes from Florent Laroche-Joubert from ODDO BHF.

So I would have 2 questions, if I may. I can go by one. My first question would be on your -- on the option for the scrip dividend. So would it be possible maybe to give more color on the modalities that you would like to set up? And maybe is there any constraints, for example, with the CDC, your first shareholder to take -- to have the dividend in shares whether in cash?

Okay. Florent, well, indeed, as I said the Board is considering the option for shareholders to receive on the basis we've shared the dividend in shares. Of course, further details will be provided our full year 2026 results in February and then submitted to the general meeting. As for the shareholder for us, it's too early to comment on any individual shareholder intention. But as I said, and we have indicated that this has already been shared with the Board, already discussed with the Board that supported this approval. So any decision by CDC, for example, to receive its dividend in share would be for the CDC to make and potential ownership threshold implication you are referring at are a matter for CDC, clearly. What I can say is that similar issues have already been addressed by other shareholders and comparable situation in the market. That's what to say. So clearly, more details to be shared during the full year results in February.

Okay. And so maybe my second question and maybe my second question would be on the comments that you have made on your guidance for 2027. So I think it's quite unusual to make a comment in October for the next year. So why -- could you maybe tell us more why you have done this specific comment? Is there any attachment point to look at for 2027?

Yes. Thanks for this question. Well, starting with '26, as I said, we confirm the '26 guidance, which is always a good news in an unpredictable environment we are currently living in. If we look a bit further, well, we are all aware of the situation, clearly, with huge uncertainty worldwide, but also in France and high rise in interest rates. And for those reasons, that's why we do not believe it would be cautious or responsible to make a firm commitment over a 15-month horizon as of today on a low point, referring to what we've said previously as of today, October 2026. So this is the reason why we decided at this not to reiterate formally that 2026 would mark the low point for strategic current cash flow. That is the reason why we are referring to 2027 guidance that would be shared in February. Having said that, clearly be sure that our ambition remains unchanged, clearly, that all the team, as I said, are fully committed to it. We continue to execute our strategy with determination, rigorous operational and financial discipline. And as I said, we've already delivered EUR 15 million cost saving plan. That's the one thing we can control in an unpredictable environment. Hopefully, that answers your question and the reference we are making to our 2027 guidance.

The next question comes from Stéphane Afonso from Jefferies.

I have 3 questions, if I may. The first one on dividend. What payout ratio should we assume to the core cash flow to best approximate the SIIC requirements on core activities? I have in mind that last year, the SIIC requirement translated into a 50% payout on core cash flow. So should we assume this as a good proxy? That's my first question.

Okay. Stéphane, maybe I'll take that. On this, maybe just as a reminder, SIIC regulation allowed us to cap the distribution to the distributable profit. That's the reason why we are referring to that this year because in 2026, the Marignan disposal generated EUR 255 million in capital gains, as shown in the presentation. And this capital gain will make a high contribution to Icade SA distributable profit for the year. So given this, the Board has responded favorably to the proposal to cap the full year 2026 dividend at Icade SA distributable profit for the year.

Yes. I'm sorry.

Yes, just to complete on that. Therefore, this year to estimate the 2026 dividend, you should rather focus on Icade SA distributable profit and not on the SIIC distribution requirements. So this distributable profit will be supporting strongly by the capital gain in Marignan. Of course, it will also depend on several other components, including, of course, the changes in the asset valuation. And it is therefore too early to give a precise figure, and we will assess the position at year-end. It's not possible to do that before that, and we will disclose the dividend with the full year results next February. But that's the way you should focus at.

Yes. But -- okay. Maybe if we can do a sum of the parts. So for instance, so you have the EUR 255 million capital gains on Marignan. So you will have to distribute 50% of that. You received EUR 0.60 on the Praemia Healthcare dividend. So basically, we need to distribute 100% of it. But the remaining part on the core activities is very difficult to assess because the distributable profit of Icade is on a tax base. So what I'm trying to understand and to assess is should we use the same payout that we saw in last year dividend on the core cash flow, meaning that it was 50% on the net current cash flow core activities. That's my question.

Yes. Well, once again, there's no need for you to estimate the SIIC obligation the way you are calculating it. Once again, that's the reason why because the focus on dividend will be the distributable profit because we are able to cap the distribution at distributable profit when distributable profit is lower than the SIIC obligation. That's what I said. And that is why we are giving you some details on Marignan capital gain.

Okay. Maybe I will [indiscernible].

And of course, we... Yes, Sure. Do not hesitate.

Okay.

But clearly, the major contribution will be from this capital gain. We cannot, today, October, communicate on any potential payout ratio considering the fact that there are additional components that will weigh on the distributable profit, including the changes in asset valuation as it did on previous years, for example.

And maybe could we expect any office disposal by the end of the year that could dilute the capital gains of Marignan?

No, no. No, no. Nothing major to expect by the end of the year. That's the reason why today, we give you the figures. And until then, we were not giving the figures. But now we are at the end of October. So we have sufficient visibility by the end of the year, the reason why we are sharing this information.

And maybe one question on the scrip. So I understand that you intend to propose the scrip. But given the current on asset values and your credit rating, what gives you the confidence that you can afford to pay the full dividend in cash if no shareholders choose the scrip? And actually, what is the stance of the CDC on the scrip and also S&P?

Clearly, the reason why we are considering a scrip, we think it's the right way to balance the protection of the balance sheet, clearly, while managing capital. As I said to Florent, any decision by CDC to receive its dividend in share would be, of course, for CDC to make and exactly the same for Predica or any individual shareholder. But once again, it's not solely our intention to propose that. We've already had that, discussed that with the Board that unanimously supported this proposal. That is the reason why...

And your base case scenario, what should be, I would say, like a percentage in terms of take-up on the scrip to make you comfortable with your credit rating? Let us say like...

Today, of course, there's nothing to add on that. We've run several scenarios, of course, before going to the Board to say that, but we are comfortable with what we are sharing today. But once again, it's too early to say this is the base case. This is the main case. This is the worst case. This is the best case. But we are comfortable with what we are suggesting today, given the unanimous support of the Board.

Okay. And maybe one last question, if I may, on Icade Promotion. So given the sharp slowdown in Q3 and last year's strong Q4, what should we expect in terms of total orders for the full year and if possible, for next year because it's very important for the cash flow recovery trajectory.

Yes. Clearly, well, as for that, indeed, the lower reservation in Q3 that was on our performance over the first 9 months. Yes, reservation are now done 1.4% in volume and 8.5% in value, as I said. Maybe just a word on the value. As I said during the slide, decline in value due to this Q3 reflects a less favorable product mix in bulk sales. There were lower unit price than in 2025. I'm thinking notably of 2 premium projects we had in Neuilly and Roquebrune-Cap-Martin in 2025. You were highlighting the very strong Q4 we had in 2025. Indeed, this was quite exceptional last year. So this will come with a favorable effect in Q4. So we expect by the end of the year to be lower than the last year, clearly in this Q4 due to this base effect. It's a bit honestly difficult to see anything on '27 given the world uncertainty. Clearly, what we can say about the market is that interest rates could widen the demand, particularly, I think, among first-time buyers. We are monitoring this very closely. Today, we have not seen on top of that, a major increase in cancellation rates, clearly. But, all in all, I think the most significant factor is clearly household confidence, which is clearly binding in France given the current situation. So that's the reason why we are cautious in the assumptions we are making and also the reason why we haven't reiterated formally that we expect '26 to be a low point on the strategic cash flows.

Because like -- okay. Yes, I understand that Q4 was strong last year, but it was also in 2024. On average, it accounts for 50% of total orders. So if I look at the Q3 trend, so it's down like 40%. What should we expect for Q4 in 2026? I know you cannot give visibility on 2027...

No.

But at least we can have maybe a sense of the trajectory for Q4.

Yes. As I said, Q4 is always stronger than the other quarter. But what I was saying is that '25 Q4 was exceptional, even compared to the other Q4 '24, et cetera. So what we expect in Q4 is stronger than the other quarter, but clearly lower than the '25, given the world context and given the base effect we had in '25.