Icade (ICAD) Earnings Call Transcript & Summary

[Interpreted] Hello, everyone. I'm happy to meet with you again. Last year at about the same period, we are far from believing that we would be finding ourselves in such a dire economic and financial crisis, which has impacted us very much in the corporate real estate sector. We've wanted to maintain this meeting in this very special format while maintaining the critical part that is information sharing.

So good morning, everyone. I hope you are all fine and safe wherever you are. So as Frederic said, we did think it was important to maintain our Investor Day in this difficult time. We do assume that you are really keen to receive as much information as possible on the way we are coping with the crisis and as much information as possible on how we will maneuver over the next few months and what will be our strategy for the next 2 or 3 years. Hopefully, due to the fact that the crisis is not over, you will also accept that maybe we may not have all the answer to your question. And so due to the second lockdown and due to the sanitary rule in force in France, our investor meeting this year will be 100% remote and digital. So we will have 4 different parts: So a presentation after the introduction of Frederic, a presentation by Victoire Aubry, our CFO, and myself followed by a Q&A session. Do not hesitate to send us questions by e-mail or telephone. Two, market presentation on office and health care on free access. Therefore, you could watch them whenever you want. And also three, digital asset tour, office care and development also on free access. And if everything is working well, I'm sure it is, you have received by e-mail the links to watch market survey and asset tool. And you have also received the document of our presentation. So let's move on. Part 1 is about a key question. And I'm sure a key question for you analyst and investor is how we are going through the crisis. And to that key question, my answer, if I have to summarize, it will be better than expected in the spring. And even as most of the corporates, we are impacted by the COVID crisis, we really want to highlight that our businesses remain strong, not to say very strong. What I mean by that so let's go to Page 8 of the presentation. We are here talking about the office investment, our office portfolio. And since the beginning of the crisis, 2 elements appear to be a real plus for Icade. We have very high-quality talent and a very resilient leasing activity. And if you go into the detail, I know that we have already given some of these figures but we wanted really to repeat them, we have 4 important elements: First one, 88% of our rental income come from solid, not to say very solid tenants. B, our occupancy rate at the end of September stands at 92.1%. Three, less than 10% of our rents derived from tenants belonging to sector that are the most impacted by the crisis, such as airlines, plane industry, hotel [ artery ] so it's limited. And 4, due, I think, to the skill and involvement of our asset management team and due to the very good value for many of our office building, we were able to lease or to renew more than 130,000 square meters since the beginning of 2020, which is really an achievement. And in terms of our financial results, 93% of collection rate for the Q3 and 98% for Q2. Our default rate is less than 2%. And the like-for-like growth of our rental income is plus 2.1% compared to 2019. And these figures are, I think, quite satisfying. And finally, our rental income at the end of September was more than resilient. It increased by 4.5%. Now on Page 9. I think the other way around, sorry. So what is the impact on the crisis on the office portfolio of Icade? We do say that the impact is, in our view, limited. I won't say that there is no impact but it's fair to say again that the impact is limited. Again, in our view, it's due to the quality and the characteristic of our office portfolio. As you know, we had, in France, our first lockdown 2 months, in March, April and beginning of May. And we have now a second lockdown that started at the end of October. It's still an ongoing concern. So what have we done during those 2 very special period? But we have helped and supported our tenants. We have accepted monthly payments, in some cases, deferred payment. And for very small businesses, we have also even accepted to cancel the rent for Q2. And we are considering to make an additional effort for November. And if we are acting so, it's because a good tenant for landlord is a tenant who is able to pay the rent. And a reasonable effort today is better than a much higher cost due to vacancy or default tomorrow. They have been also very reactive in implementing adequate and appropriate and sanitary measure in our office building in order to facilitate and to speed up the return of our tenants in our buildings. All our office building, we are ready to reopen the 11th of May, which means the first day after the end of the lockdown. And now more than 90% of our tenants are back to the office, sure, with more work from home than planned previously and I will come back to that. The final impact of the crisis on the net cash flow of our office portfolio should be around EUR 6 million for 2020, which is a limited impact. So in some cases, it was fair, in our view, to ask our tenants a counterpart to our support. Therefore, we were able in some cases to postpone the next lease break as a counterpart of our effort. And at mid-November, more than 60% of the break option that could have been exercised in 2021 have been postponed. Moving now to Page 10. So another impact of the crisis is clearly on the office letting market. As you probably know, the volume of letting transaction should be much more limited for sure in 2020. We are talking about probably minus 45% but also in 2021. We have much more detailed figures in the market today that we are provided -- providing to you that you could watch after the presentation. That's why we have been very reactive also in our view to adapt our development pipeline to the current letting market. And we have this possibility, we have this flexibility because most of the schemes that are in our pipeline are developed on-site that are part of our historical land bank and that are belonging to Icade so we don't control this pipeline. And we have already postponed the launching of schemes that represent in value, EUR 800 million. And we will launch them only when there will be pre-let. So overall, our pipeline amount now still to EUR 1.5 billion. And it's important to highlight in our view that for schemes that will be completed in 2021, they are already pre-let at the level of 64%. And we will remain very active to properly manage the development pipeline but clearly with less speculative development on the short term. And -- but we would like to be ready for any design and build project to be ready for any upturn of the market. And we will also propose to local authority to converse of our project into a residential scheme. What does it mean? If you look at Page 11, I think, as you know most of our land bank, not to say 100% of our land bank is dedicated to office building. And one of our competitive advantages at Icade is that the land bank we have on our balance sheet is quite significant. But the valuation of that land bank is based on historical cost in order to be able to be flexible on the timing to use the land bank. So at the end of June 2020, this land bank represented close to 900,000 square meters for a group NAV value of only EUR 105 million. So as I said, the land bank used to be dedicated 100% to offices and activities such as labs or light storage. And due to the result of local election that occurred in June, where we have the most significant part of our land bank in the North or South of Paris, local authorities may now be ready to accept, to convert part of this land into residential schemes. And we have already started this in our business park of Rungis in the south of Paris with development of 180 apartments and we will start very soon a second phase. So in the north of Paris between Paris and near [ Nouvelle Ville ], we do think that maybe 40% to 50% of the land bank could be transformed into residential, which is clearly, in our mind, a very interesting opportunity for the coming years, talking about synergies that it will be an additional business for our subsidiary, Icade Promotion. On Page 12, a few word about asset rotation and about recycling the capital. As you know, our current plan for the capital management and allocation of our office portfolio is to recycle the capital, which means to sell core assets and office building in order to reinvest in our development pipeline. Over the last 5 years, we have been quite active in doing so and you have the figures on Slide 12. In terms of disposal, you may remember that in 2019, it was a record year for Icade with more than EUR 1.1 billion of disposal. And in order to limit the impact on current cash flow, no major disposal was planned this year. And we were also waiting for the final answer of our current partner on -- to echo on that topic. They will not exercise their option this year due to the crisis that impact also the commercial real estate investment market in South Korea. And we will see in 2021 how the situation will evolve. Back to recycling the capital. And even if we will have less capital needs for the development pipeline in the coming years, probably we will resume an opportunistic normal disposal at a level which is again a normal rotation within our office portfolio. Our DNA at Icade is really to transform a piece of land into a core asset and then to realize the values that created and to realize capital in order to recycle them and we will continue to do so. And I will comment furthermore how we will use the proceeds of future disposal. Let's talk now about health care. And now I'm on Slide 14. Health care and real estate is usually seen as a defensive asset class. And when you look at the more than limited impact of the crisis on health care, on real estate, the defensive character of this asset class is more than justified. Especially for the Icade health care portfolio, our portfolio is -- and by far, the most appealing health care real estate portfolio in France, not to say now in Europe. And we are talking of the portfolio that represents more than EUR 5 billion in terms of value. It's 100% fully let. 90% of the gross rental income is coming from short-term facilities. 85% is coming from first-class tenant. And the average lease term of 7.3 years with a probability of renewal, which is close to 100%. And the rent collection at the end of Q2 is over 97%. So our health care portfolio is really more than strong. And I would like to emphasize that in terms of recurring cash flow, health care represents now around 40% of the global group net current cash flow. I think it's really valuable during the current period. Page 15, I'm sure this is not your point of view but we sometimes hear or read that the current crisis may have a negative impact on private health care operating companies. We really do think it is exactly the opposite. If you look at what happened in France for acute care operating companies, they have been a key player during the spring sanitary crisis. And the French government has immediately supported them, financially speaking, in order to make sure that they will continue to act alongside with the public sector to take care of the COVID-19 patient. Furthermore, French government gave private health care operating company very appealing midterm perspective for their revenue, plus 3.5% for 2021 in terms of health care spending at the national level. And for nursing facilities, operating companies, it is true that due to the COVID-19 crisis, they had to face a very difficult situation. When you know that the average age of the client, of a patient of the nursing home in Europe is over 80, you can easily understand why the difficult situation occurred. But everywhere in Europe, the need to take care of an aging population that is growing very quickly and significantly, the needs are to be satisfied. And in most of the country, local authorities are pushing the development and financing the development of private solution of private operating companies. And because at the end of the day, the cost of dependency will be always lower with private operating companies, profit or nonprofit, compared to the public sector, it's a matter of fact everywhere in Europe. So our clear and very strong view is that our partner that are the leading private health care operating companies in Europe will have at the end of the crisis a stronger and broader development perspective for the next 10 years. And as a consequence of that, health care real estate will be an asset class even more appealing compared to now. And become, not to say -- to state the European leader of this asset class is still one of our strategic goal. Page 16 now. And that's why we do think the asset class is very appealing. We do confirm our growth objective. Just to remind you that for our plan 2019, 2022, we did plan and announce a target of EUR 2.5 billion of acquisition volume. We have been quite active in 2020 even with the crisis. The year is not yet ended but we have already closed more than the EUR 280 million and not only in France but also in Italy and in Germany, 2 of our target countries. Third business line, our development subsidiary Icade Promotion and I'm now on Page 18. Clearly, this business line has been the most impacted by the crisis. Just to remind you that 100% of our construction site and our sales offices have been stopped and closed during 2.5 months with the first lockdown. And as a consequence, as accounting consequence due to the parked accounting principle, we were not able to book a large part of our 2020 revenue. So it means that at the end of September, we have minus 15% in terms of revenue compared to 2019. But if you restate this figure of the lockdown impact, it would have been a growth of plus 21%. An impact of the second lockdown on development should be much more limited due to the fact that construction works are authorized in France and notary offices are still open. And even if our sales office still closed, our full digital marketing and sale process allow Icade Promotion to limit the impact of the lockdown. And on top of that, we have been able to close a much more block sale with institutional investors in order to balance the loss of individual and private clients. So at the end of the year, we should be able to show a number of sales higher compared to last year, which is a very good news for future revenues in 2021 and 2022. Moving now to Page 19. So for pure development, we -- as I just said, we do think that Icade Promotion, their midterm perspective for residential development are quite well oriented, very strong fundamental for the residential demand. We have strong and new appetite from institutional investors for the asset class. And we should need for a new low-carbon scheme and building will boost the business over the next [indiscernible]. And if you look at our forward KPI at Icade Promotion, they are well oriented. We have a backlog of EUR 1.3 billion and a midterm volume of potential revenue of EUR 7 billion, which represent more than 20,000 residential unit. And finally, we had recently some very good news from the French government that has confirmed the 2 important residential incentive system called Pinel and PTZ will be extended by the end of 2022. This is a very good news and this will balance the fact that post local election that occurred in June 2020 in France. It is true that some new mayors are probably more reluctant to grant building permit. But for this business line, we therefore confirm our ambitious road map target of EUR 1.4 billion in terms of revenue. But this target due to the crisis of the COVID-19 has to be postponed, I would say, only by 1 year. So our businesses are strong and resilient, also is our balance sheet. Victoire, could you elaborate on that?

Of course, Olivier. Thank you very much. Thanks, Olivier. Good morning, everyone. Yes, our balance sheet remains solid. Our balance sheet is solid. I propose to jump on Page 21 and just focus first on our shareholding structure and our governance we clearly have strong support to go through the crisis with our 2 first shareholder. The first one, Caisse des Dépôts et Consignations, so historical shareholder of Icade, with 39% of the equity; and Crédit Agricole Assurances that increased its exposure from 5% to 19% in 2016, both with long-term vision and fully aligned with the executive team. In addition, the governance of the company with diversified, high-level expertise, 5 independent board members, specialized committees chaired by independent and independent Vice Chairwoman, it represents an additional and complementary solid support for the management team. But back to concrete KPI and illustration of our balance sheet structural strength. I'm on Page 22. First of all, we can remember Icade's strong debt ratio as of end of June. LTV at 39.3%, ICR of 5.2 multiples, net debt to EBITDA 11.5 multiples. We improved also in the meantime our liquidity position during the first part of the year, EUR 2.1 billion of total revolving credit facilities, giving Icade a quite comfortable liquidity position especially well appreciated by the rating agency. The cash position end of October remains comfortable also, more than EUR 900 million, allowing to face easily the second lockdown and to go through this period. It's also a good opportunity to underline the fact that we still haven't drawn down any revolving credit facilities even at the peak of the crisis, well appreciate also by our bond partners. In summary, we have strong debt ratio, far below our covenants and solid liquidity position with cash and asset position covering nearly 5 years of principal and interest payment. One step beyond, we can go on Page 23. You have got here the sensitivity of our key ratio, LTV and NAV, to variation of office evaluation. I know that for the time being, it's quite difficult to appraise the train offices valuation will take. First, what we can say that so far, we have not noticed tangible evolution of the price in the market regarding the last transaction. Nevertheless, we have done the job for you. Even when we're taking into account sensitivities on offices valuation down 15%, our LTV ratio will be stressed to around 43%. The LTV -- the NAV, sorry, will decrease to EUR 75 per share. On the second hand, regarding the Q1 share price at EUR 64.5 per share pictured on last Thursday aftermarket. With a discount to NAV end of June of 30%, we just would like to underline the fact that if we neutralize the health care NAV component at the level of June, a quite reasonable assumption regarding our peers listed in health care, the current level of stock represent an implicit discount to the office NAV of 41%. Thus one conclusion, we are fully able to absorb significant decline in value. Our debt ratio remain well below covenants. And now just one question for you. Isn't the current level of stock at an excessively undervalued level? Additional comments to conclude this section dedicated to a healthy balance sheet. I jump on Page 24. The strength of our balance sheet is also recognized by all main counterparts. First, the rating agencies, Standard & Poor's renewed our BBB+ stable outlook rating after the annual review done in July both for Icade and its subsidiary dedicated in health care, Icade Santé. Second, our banking partners are also confident in Icade, offering us the opportunity to strengthen our revolving credit facilities with an average maturity of 6 years. This is not common in the current market, by the way. Alignment of all covenants by 60% hasn't been an issue at all. Third, the credit market and our focus on sustainable finance with a great success of the social bond of Icade Santé issued in September. And I'm also proud to record the post solidarity revolving credit facilities and innovation in the sustainable finance market. Finally, the rolling of Icade's credit spread at the same level even better as our peers since September is the perfect illustration of the recognition of the strength of our credit profile. We are also resilient and proactive. I propose to go on Page 26. The resilience of the company is, first of all, reflect in its results at the end of September as announced in the quarterly results. Investment division posted strong rental income growth, up 6.9%, plus 4.5% for offices, plus 14.8% for health care. Property development revenues down 15%, a decrease that reflects the impossibility of recognizing the turnover for 2.5 months. Without this exceptional impact, the revenues should have been up 21%. We have confirmed also an impact of EUR 30 million of the health crisis on the net cumulative cash flow, including the second lockdown period. Let me remind you that 2/3 of this impact will be recovered in 2021 and beyond. Thus, our full year guidance is also confirmed today. Net term cash flow expected at $4.8 per share, fully in line with the first guidance announced mid-February, excluding the impact of the crisis and plus 5% excluding the impact of 2019 disposals and the 2020 COVID crisis. Yes, our results are resilient. Let's jump to Page 27 right now. On the top of that, our diversified business model is clearly a real advantage at this time. As it is a mix of different business, we know that sometime our model can bring complexity. But let me tell you one thing in the current context. Our diversified model is clearly a concrete advantage. So based on revalued equity, Icade is a combination of businesses presenting different risk profile, allowing generation of regular cash flow while creating value creation. This clearly allows us to deliver attractive TSR since 2016, double-digit TSR. What is even more important in the current context is that it also offer us the opportunity, if necessary, to adapt the balance between all 3 development businesses to the market cycles and risk appetite level. And also in the meantime, we will adapt within each business line the level of risk we want to take regarding our priorities, pre-rental, secured pipeline, residential. That's why having a diversified business model is clearly a real advantage and even more in the current market. Beyond our business model, our responsiveness and ability to anticipate change in another offer strength. But I let Olivier take over with the office of tomorrow by Icade.

Thanks, Victoire. We have to talk about that because the way we do say that we are resilient and proactive, I think it's necessary to go a little bit more into the detail for each of our business lines. So the first one is, for sure, the office of tomorrow. And we are on Page 28. I would like to talk about what is probably one of the challenges that we will have to address in the coming year, which is the future of office because there is a future for office if you have any doubt about that. As I have already mentioned, 90% of our tenants are now back to the office. It's fair to say that with the high level of work from home for their employees. But work from home may increase after the COVID crisis but will not be the core future of work in office. And most of our tenants, they had work from home agreements implemented long ago before the COVID crisis. And keep also in mind that the situation in France regarding work from home is clearly significantly different compared to what it is to U.K. or the U.S. We at Icade and other players, we have recently undertaken polls and survey with our tenant and the larger corporate in France about topic. And in those surveys, our tenants told us that they have now 4 major concerns with corporate office billing. The first one is they have to manage the new mix between work from home and from office. The second challenge that they want to have much more flexibility on contracts and on location, which means that they don't want to have a single large headquarter, maybe a smaller one with different other location. The third concern that they do have is about air safety and also about digital building management and all those elements are now a must have for office building. And finally, the fourth concern that they do express is that they want to have a cost optimization and very efficient office premises. So in our office portfolio at Icade, the type of services that we do already provide to our customer, the average and a very affordable rent of our different location. The new digital app that we have developed to manage our office building and our new flex office offer Imagin'Office, I will come back to that. And we are really confident with that are the appropriate answer to the concern that have been expressed by large corporates of our tenant base. The office of tomorrow by Icade will be smart, cost efficient, flexible and safe. And the new normal for office tomorrow will be it's a bit like for software to provide office as a service to our customer. And we do think we are ready to address those challenges. And our current portfolio is really a strong basis for that. And the new development will also reinforce for that. Fortunately, we will be able to organize the presentation of our 2020 annual results in the Origine building in Nanterre, our largest development scheme. And that will be delivered in February or March and you will have a real proof of what I am saying. On Page 29, just to give you an example of the type of answer that we are developing at Icade to address the new challenges of the office market. I'm talking about an initiative that we are calling Imagin'Office. It's a business unit of our Icade. It's our flex office offer to our tenant. It's not about co-working. It's much more about fully equipped premises in order to limit CapEx for our tenant. It's about office management solution in order to manage office location for them, in order to have our tenant more focused on their core business. It's about flexible contract for part of their premises. For sure, the 9 years from lease or 12 years from lease for a very large headquarter is probably something of the past. So we have to be able to manage the flexibility. And we have also developed with Imagin'Office numerous in-house, additional services. And we are also, which is quite new for a landlord, we are also providing business contents and events in order to give something different and more than just premises and furniture. Imagin'Office is one of the answer of our office -- one of our answer for the office of tomorrow. We have already developed 2 locations. We have launched that during the lockdown and will develop several other new locations. For health care, when we say that we are resilient and proactive, just to mention or to remind that we are right on track to achieve the gold and target that we have announced in 2018. And our business model, I think, is really more valuable than just investing in health care asset. It's because at Icade, we have the capacity to build long-term partnerships with operating company. And this is key for the performance of Icade Santé. Just to remind you that we have the capacity at Icade to design, to build and also to manage health care facilities that are quite complex. And regarding this, to illustrate what I am saying, just to remind you, the first transaction that we have closed with ORPEA this summer. And I think this first transaction with ORPEA is very promising. We have also closed 2 smaller transactions with 2 regional players in France. And I think the main challenge is different compared to the office segment. But the real challenge for health care is to be able to combine the growth of the portfolio, we are ambitious, with the financial discipline due to the fact that there is a very high liquidity around the asset class and probably even more after the crisis. But we at Icade, we will keep our discipline. We will keep our investment criteria. And I think our acquisition team has by far the most confirmed track record during the last 5 years. And our investment pipeline is quite appealing. We have more than EUR 400 million in the exclusivity or preliminary agreement that we should be able to close in 2020 and '21. So for the coming years, we do confirm what we have already announced our acquisition plan of EUR 2.5 billion. At the end of June this year, we have already closed 50% of that or the remaining 50%. The expansion of our European platform. We, have started to build the team in Germany. We will consider to do that in Italy. And hopefully, we will be able to open a third country at the beginning of 2021 in Spain. And I know it is an important topic for you. We have already planned to have the liquidity of our portfolio by the end of 2022. We do not postpone the date, we do not change the date. And what do we say? We want to realize part of our capital gain and the value created in our health care subsidiary. A few word about another topic but when we say we are resilient in a topic, and I'm on Page 21, it's about low carbon. Clearly, that's the future of the real estate industry. Just an example to illustrate what I am saying, if you look at the French recovery plan launched in September by the French government, most of the resources of this plan will be allocated to low-carbon topics. And the capacity to build a low-carbon building with efficiency will be key in the coming years for several reasons that we have described here on Slide 31. And at Icade, the environment challenges, I think, embedded in our strategy are in line with our purpose. But the additional challenge now is to be able to transform CSR commitments that we have taken into business opportunity. And if you look at Slide 32, you could see that our 3 different business lines are really now fully committed to that environmental goal. And we have described here on Page 32 the different objectives that are really crystal clear and ambitious, the road map that we have implemented to reach the target and already the tangible result that we were -- that we have already delivered. And we have made at Icade significant training effort in our team -- for our team. And we have now strong in-house, low-carbon skill in order to be able to be one of the leader of the low-carbon construction. And we really do think that it will be a real competitive advantage for the near future. So in terms of talking about future, going now to Page 33 and 34. So what's the future for Icade? We really do think that our outlook is really bright. And what is our outlook and why we do think so? On Page 34, we are summarizing, we are describing what we will do for the next 3 years. And we have summarized what I have already presented for our investment portfolio. We will do 4 things: First one, resumption of the normal rotation within the office portfolio and by the end of 2022, the liquidity of Icade Santé. On top of that, as I said, we will adapt, not cancel. We will adapt the development pipeline to the current office letting market. And we will use the proceeds coming from those different elements to finance the growth of Icade Santé because the growth is quite significant, still 50% of the investment plan to be delivered. And also, we will reduce our LTV ratio. I will come back to that but we think it is relevant to do so in the current period. For Icade Promotion, our development subsidiary and also for the way we will use our land bank, I think we will maneuver properly by using part of this land bank for residential schemes. And for Icade Promotion, it will be a significant additional business. And Icade Promotion will focus mainly on the growth of our residential development business but still with the same cap in terms of capital allocation of 10%. We do think we have the capacity to be agile. And therefore, we will adapt our strategy, our business mix and our risk profile to the current situation. In terms of financial policy, what does it mean? We do think that we have been, hopefully you will share my view, and we will still remain very, very disciplined. As I said, we plan to -- in a period during which volatility will be much higher, during which visibility will be probably more limited, we do think it is reasonable to deleverage a bit our balance sheet even if the cost of debt will probably remain very attractive during the period. And we have also to combine properly the deleveraging of the balance sheet and the impact on the cash flow because when you do think -- when you do sell core assets, you also sell on the cash flow of the building. So we therefore will reach that target and we will adapt our balance sheet but smoothly over the next 2, 3 years than our new target in terms of LTV ratio compared to the 40%, which is currently the figure. Our new target is now more 36%, 37% by the end of 2023. We will also continue to deliver, I think, an attractive dividend yield but probably with a more conservative payout ratio. And that's why for year 2020, we do confirm a dividend of EUR 4 per share, which represent a payout ratio of 83%, which is less compared to the 90% of the previous period. But at the current level, we say unfortunately, of the share price, this represents a dividend yield of 6.1%. Dividend yield should be lower than that if you do assume, as Victoire explained, that the fair value of our share is probably higher than the current share price. On top and even if we do not need any new equity but in order to grant some advantages to our long-term shareholders, we will propose the next Annual General Meeting to have a script dividend option for part of our dividend. I think it's a good and smooth way also to strengthen our balance sheet even if the balance sheet is already still very solid and robust. So we will also adapt our financial policy to the new economic environment and while continuing to deliver to our shareholder I think what is attractive return as we have done in the previous period. So it's probably time now to conclude this presentation. So the crisis is not over for sure. But we do assume to say that we remain confident, and we remain confident as we said due to our strength, due to our balance sheet, due to our outlook. Due also to the fact that our people at Icade, I think, are really professional and committed to the firm. And this presentation is also the opportunity for me to publicly thank them for what they have done to cope with the COVID crisis. And as you have understood, we do not plan any major shift in our strategy. But we do intend to adapt our business mix, our risk profile to the current environment. And our strategic target for year 2021, 2023 are the following and as you can see, they are quite similar to the previous objective. The first one, and I put that at the beginning, just to make sure that it is clear for everyone. We want to be the European leader in healthcare, real estate. And we are right on track to achieve this target. We want to be the leader of the office of tomorrow. Some others are talking about the office post-COVID, you could use another word that you like. So we want to be the leader of the office of tomorrow in the greater Paris area, we will have to adapt our offer, and we have already started to do so. We want to be or to remain a key player in residential development in France due to the fact that we consider that outlook for this business is quite attractive. And finally, we want to be best-in-class for low-carbon construction, which is really the future of our industry. So we do have what we think are a very ambitious goal for -- that we have described above. And we have this ambitious goal despite the current uncertainty and the current travel environment. We have also the strong conviction that as from every crisis, some opportunities will probably derive from this period. And Icade will be in a position to benefit from them if any. So maybe to finish, let me had a more maybe philosophical conclusion. I agree this is a bit unusual for an investor presentation, but this period is so special. I will conclude with the quote of Seneca, the Roman philosopher of the first century. And maybe you know this quote Seneca said, "Life is not about waiting for the storm to pass, life is about learning to dance in the rain. " That's what Icade will do, not just to wait for the end of the crisis. But -- and we have already started. We will react fast to adapt ourselves to this new environment and we want to make sure that the company will be at the end of the crisis, as strong as it was at the beginning of it. Thank you for your attention. And now with Victoire and COMEX (sic) EXCOM, I am more than happy to answer your question.

[Foreign Language] We have 4 questions, Pierre-Emmanuel Clouard, in English, from Kepler Cheuvreux. First question in English. What is your central assumption on asset valuation change to calculate your LTV ratio targeted in 2023? [Foreign Language] Second question. That the decision is not done yet, but can you give us your favorite solution to grant liquidity on Icade Santé as of now? [Foreign Language] Third question. Your 2021 lease renegotiation, you mentioned 1 month ago that you already secured 60% of leases. Why is this number not higher at the end of November? Does it concern a large tenant or several small ones? [Foreign Language] Fourth question. Finally, on the call option of the EQHO Tower, can we expect an extension of this option for 2021?

Thank you, Pierre-Emmanuel, for your 4 questions. I will try not to forget one of them. The first question is about the central assumption for valuation over the next 3 years in order to reach the new level of LTV ratio that we have defined as a financial policy. When you give such a target, for sure, we have a business plan ahead of us, and we have included a lot of parameters. And for sure, valuation of our portfolio is a key -- is one of the key assumptions among others, because you have also the volume of acquisition, you have also the volume of disposal. What we do think -- and again, valuation of our portfolio, is part of the result of our asset management action, but it's also part of the result of the market evolution. We do assume over the period that probably health care asset will continue to increase in terms of value, let's say, like-for-like, I think probably a little of cap compression depending also of the country. The cap compression will probably not be the same in Italy, in Germany, in France or in Spain, but due to the liquidity around the asset class, we do think that those assets continue to -- will continue to increase in terms of valuation. For offices, we do think that, especially for core asset, which mean asset that are fully let. Probably the liquidity is still very high around. So we do not see, and for the time being a significant move in terms of cap rate. But I think it's fair to say that probably you could have a decrease in terms of rental values, and therefore, that will impact the value of office building. And we have included, especially for 2020 and 2021, a slight decrease for our office valuation. But the result in terms of a target for the loan-to-value ratio at the end of 2023 will be a goal, and we will have to adapt our transaction to that target. The second question, as far as I remember, sorry, I have to read it -- to read it again. Well, what is our preferred option for the liquidity of Icade Santé? Again the decision, and I think it's important to highlight. It means, if I have to make a decision today, it would be probably, I say that an IPO of the subsidiary, probably something that is probably quite interesting for all the shareholders of Icade Santé. When you look at the premium to NAV of comparable, if any, even if our portfolio is probably bigger than the 2 listed health care REITs in Europe but that will be. But again, there are other options such as to have other investors in a private vehicle, for sure, the appetite is really strong. And we have a lot of, let's say, mark of interest for our portfolio. So I think we have to decide and to move for the best option. For the level of renewal for 2021, 60% is a mix of small and large tenant. The figure is the same. The figure is at the end of September. So we are still ongoing discussion for some of the tenant, it was known before the crisis that they will leave the building. We have a significant building in Lyon and it was known before the crisis that the tenant will leave, and it will be one, I think, the most appealing new redevelopment scheme over the next 2 or 3 years. So I think that the situation is normal. It is true also that the second lockdown has less, less impact on our tenant compared to the first lockdown. And therefore, they are not asking us too much additional support. And therefore, discussion that take more time. You may have seen in the press that the French government has asked an additional effort from landlords for the second lockdown, but it's more for small and retailers. Fourth question on to Tower EQHO, our Korean partner, they have an option till the end of this year. As I was saying during the presentation, we know now that they will not exercise their option. An option as a price. So we won't just renew the option into 2021, if they have some appetite to buy the remaining part of Tower EQHO. We will sit with them how to structure a potential transaction. But for the time being, there is no clear decision on the way we will move forward with our Korean partner. There is 1 question by telephone. Okay.

Our first question from the phone lines comes from the line of Jonathan Kownator from Goldman Sachs.

I have 3, if I may, one on residential development in the broad sense. First of all, could you give us some guidance on how you expect margins to recover in these businesses. It has been perhaps a bit slower-than-expected in the past? And also, just to clarify on the residential side, you've said that you want to use your land bank, which was for office investments in the end and turn it to residential development. So just to clarify that you're not expecting to hold any finished residential inventory in the end. So that's the second question. And just if you can highlight this. This is quite a strategic shift, obviously, for the use of your land bank? And the last question is really around low carbon and obsolescence of your existing parks. Just to confirm if you have any big expiries where you expect tenant departures in the near future, particularly on some of your business parks and how the obsolescence might lead to an increase in CapEx in the context of low carbon is something that you can absorb even you may have limited pricing power to charge a higher rent for these costs in the future?

So on your first 2 questions, Jonathan. No, we don't have any plan for the time being to keep residential on our balance sheet, but we have this probably -- this opportunity to use part of the land bank to make some residential scheme. Which is a change compared to the past. And I think that in the current environment, it will give us the opportunity to use faster the land bank that we have. It will be an additional potential business for our development subsidiary, Icade Promotion. And the target we have in terms of margins at a bit like what we have done this year may be in the future, block sales will represent more than in the past. And it is true there is a difference in terms of margin, if you do block sale compared to sell unit by unit. But the risk is completely different because you are able to sell the entire scheme at the beginning of it. So we will do that. And if you look at what we are doing in the north of Paris, the capacity of the market is probably between 30,000 to 40,000 square meters of offices each year. If we are still able to do so. But on top of that, we are able develop some residential scheme, I think it will be quite interesting. Emmanuel, do you want to answer the question for how do we manage CapEx at renewal with our tenants in order to fit our role and their role in terms of low carbon?

[Foreign Language] [Interpreted] When concerning our parks, we have each year, a major environmental CapEx planned in order to improve the carbon footprint for all our assets. This is what we have started to do for the past years, and we do it regularly whether it's for the facilities that have been released or that is what we have done for Club Méditerranée. We have invested several millions in work in order to upgrade the carbon footprint and the environmental quality for all of our assets.

But we do plan to invest to reach such goal, and you have seen that the target to reduce our carbon footprint is quite, we're right on track. And it is true that in our CapEx investment each year, there is a part of that, which is clearly dedicated to the decrease of the carbon footprint of our portfolio. I think there is another question by telephone, yes.

Our next question comes from the line of Alvaro Soriano from Bank of America.

Three quick questions, if I may. The first one on dividend. Of course, you announced dividend paid in share. Could you specify the benefits for your main shareholder? And also, if there is any limitation for case support in terms of ownership for covenants purposes? Then also, perhaps the second question is on valuation of your development pipeline of your land bank. What can we expect if you move from commercial projects to residential projects in the north of Paris. Is there any figure you could share or the price has already taken into account those -- that new type of asset in the equation? And then the third question is on Slide 30. You disclosed EUR 34 million of CapEx, I believe, to upgrade some health care facilities operated by Elsan. Is this something that we expect going forward or is a one-off from what I know, health care should be like triple net leases with very little maintenance CapEx. So if you could say something on that quantity, those EUR 34 million.

Okay. On the first question on the dividend, Victoire, could you answer? For the third question, Xavier, and I will come back to the pipeline on the north of Paris.

Okay. Regarding the dividend. So the assumption so far is to pay next year, part of the dividend on a scrip form, meaning by that, part of the dividend will be paid not by cash, but by share. So it's quite part of the financial policy. We decide to also reinforce and strengthen our balance sheet. So I hope it's answering your question.

Just if I may add on top of what Victoire said, it's not a question of covenants because we are far from our covenants. During the crisis, we have also significantly increased our credit revolving facilities. That's why we are no more precise than that. We will see at mid-February, what will be the situation. Again, the crisis is not over. We do expect a better situation over the next 3 weeks in France in terms of sanitary situation, but we are not 100% sure, we are cautious, and we take that in advance, and we will see in February, what final portion of the dividend should be proposed as an option as a scrip dividend. On Elsan CapEx, Xavier?

Good morning. Just to give you a quick answer on that. So on these figures of EUR 34 million that is on Slide 30. You'll find in fact, 2 types of CapEx, EUR 10 million consisting in CapEx that accompanied renewal of several leases with Elsan, and that's part of an upgrading program that we co finance with Elsan. And you have EUR 24 million of CapEx. So EUR 24 million, more than 2/3 of that. That consists in development CapEx. So additional extension or refurbishment that yield additional yields, for us as well. So you have that split on this EUR 34 million.

And for your question on the land bank pipeline, we -- local election in France occurred in June in some cities where we are implemented. We had some political changes, so we have to discuss and to negotiate. It takes a bit of time to change the planning rules. So again, it will be for residential development for part of the land bank, and those locations are still very confirmed for offices. We are probably launching -- we will probably launch new office building very soon in the north of Paris. So we are very confident with the location, but the market is very limited. We have a very large and very significant event. We do have the capacity which was not possible in the past time for something like this, political reasons, it was not possible. It was not just a question of we can change our mind, it's -- we have now probably this possibility. We have to negotiate and maybe launch or start of a new development with a new proclamation for the north of Paris, could be probably in 2022, that's what we do -- we do expect for the time being. And again, we do see that as a real plus. We have another question, written question, yes.

We have 1 question in English from Leonardo Coccia from Clearance Capital. Could you please comment which areas of your office portfolio, you have identified, to use as source for disposals in 2021. Are you confident to be able to dispose of office assets at book value in 2021?