Icade (ICAD) Earnings Call Transcript & Summary

Hello Everyone, I'm [indiscernible] happy to be here with you and Icade management at its half year results presentation. As you will see in a few minutes, Icade delivered strong result in first half 2022, which is, given the current environment, a really strong performance. Thanks to the hard work and involvement of our teams, the performance of the 3 business lines is well oriented backed by the solid fundamentals of each of our markets. So the Board of Directors and I would like to thank Icade teams. At the same time, Icade's balance sheet is strong to cope with the new financial environment and this diversified business model is home to fast volatile environment. More than ever in these challenging times, the Board and the management remain fully aligned to cope with complexity and volatility and to ensure long-term performance. Our strategic priorities and targets for 2022 remains unchanged. Olivier will come back on it further. For example, I would like to mention Icade's strong commitment to fight climate change and to reduce the carbon footprint of its assets. In whole first half of 2022, we announced a ambitious low-carbon pathway with higher goals with a 1.5 degrees pathway. Icade still remains committed to it's far reaching goals for preserving biodiversity. All of these items were included in the same climate and biodiversity resolutions approved by 99.3% of the shareholders at Icade's General Meeting. I thank for your attention, and I will now turn it over to Olivier Wigniolle who will present our results. Thanks.

Thank you, Frederic, and good morning, everyone. Thank you for being with us this morning, and welcome again to open our headquarter. It's always a real pleasure to see you in person here. And welcome also to those who are behind their screen in Paris, London or Amsterdam. So I am with Victoire Aubry, our CFO. And after our presentation, and as usual, we will have a Q&A session with the entire executive committee of Icade, so please don't hesitate to some questions by e-mail or by phone even during the presentation. So our meeting this morning is dedicated to the first half result. And I will, of course, elaborate on the outlook for 2022 and beyond. In terms of overall context, first, I think it is clear now that the sanitary situation is fully stabilized in France and the situation in our different markets is more or less back to normal compared to 2020 or to 2021, it's a real good news. However, as you know, the macroeconomic or geopolitical and the financial environment have been very volatile over the last 6 months, leading to lately, some complexity and direct consequences on our businesses. In this context and after now more than 2.5 years of crisis and various shocks, I really do think that Icade has been very agile and reactive. So let's now jump into the figures with a brief overview and I'm on Page 7. So I think it's a strong set of results for the first half of 2022. Our current cash flow increased by plus 7.1%, up to EUR 205 million. On a per share basis, it stands at EUR 2.7, a plus 5% growth, including, I think it's important to highlight the impact of the significant disposal completed in 2021 and in 2022. And this figure is clearly above our expectation. Our EPRA NAV NDV stand at EUR 7.8 billion, which is EUR 103 per share, plus 13.8% compared to the end of 2021. And it's a plus 19.9% year-on-year. Victoire will come back to that and Victoire will elaborate on this significant growth, deriving from the interest rate evolution. But I think it's important to highlight that this is also deriving from the structure of our liability and from our hedging policy. And we will benefit from both during the coming years. We are also highlighting the EPRA NAV NTA, with 1.8% growth at EUR 96.2 per share. And this is a plus 5.2% year-on-year. On the liability side, debt indicators clearly reflect the robustness of our balance sheet and even more important in the current financial environment. Improvement on the LTV at 38.8% and ICR among the highest of the market at 6.6% and an aging policy that is very conservative on 94% on our of our total debt. Now on Slide 9, you have the other main result figures and KPI. I won't comment them extensively, and we will come back to them in a few minutes. But to summarize, the good performance on both net current cash flow and NAV is the result of a solid business performance across our 3 different business lines, combined with an active management of the balance sheet. In terms of gross rental income total rents increased by plus 3.9% and up to EUR 285 million group share. And we have a solid prior earnings up by plus 6.6%. Regarding portfolio valuation, it stands at EUR 12.2 billion on group share. Broadly stable due to significant disposal in the office portfolio. On a like-for-like basis, the valuation of our 2 portfolios are up plus 1.3% for offices and plus 2.4% for health care. And in average, blended figure, it is a plus 1.7%. Our financial occupancy rate for the Office portfolio stand at 87%. It's a slight decline compared to the end of 2021, which was impacted by disposal of mature and fully let asset combined with the completion of 2 promising new buildings, but that are not yet fully let. For Icade Promotion, our development subsidiary, the strong momentum continuing during the first 6 months of the year. Revenues amount to EUR 574 million, up 7%, and the net current cash flow is up by plus 19%. So again, on our 2 main group KPIs, group net current cash flow up by plus 7.1%. And the NAV per share, as already said, is up by plus 1.8% for the NAV and plus 13.8% for our NBV NAV compared to the end of 2021 and much more compared to the end of June 2021. I won't comment on the next 2 slides because they are summarizing our main achievement over the first part of the year 2022. And as we will go into the detail, I won't comment to slide, but I think it's really fair to say that Icade remains very active on the operational and financial side and also very focused on CSR and on our low carbon strategy. So let's go directly to the performance by the business line on Slide 14, and let's start with the office investment business line. So regarding our office portfolio, let me begin by emphasizing once again the strength of our tenant base. It is not a new fact, but 71% of our revenue come from large company from CAC 40 SBF 120 or government agencies. Therefore, one of the strength of our office portfolio is clearly the credit rating of our tenant. 64% of them are ranked at a very low risk. Second topic I would like to address and it's the topic of the moment, it's inflation. I know this is not intuitive, but the impact of inflation is positive as inflation boost the indexation. As a reminder, as you know, 100% of the office leases in France are indexed on indexes integrating a significant inflation component. 75% of our leases are indexed and on indices called Ilac and 25% of other indices called ICC and ILC and all of them, they have a strong component reflecting inflation. So with the rise in the various indices since Q3 2021, the average indexation that is reflected in our H1 figures for the office rental income is a plus 2%. And the impact for the whole year is estimated roughly at plus 3% with a stronger effect in the second half of the year. A word on our listing activity in the market, which is now under normalization. Leasing activity remained quite strong with more than 60,000 square meters newly signed or renewed in our portfolio. So -- and they represent an additional income of EUR 11 million and a weighted average lease break at 6.8 million acres. If you take into account all the leases already signed but not yet started, they represent a total amount of additional rental income of EUR 16 million. All in all, and once again, in a market under normalization and in the context of dynamic asset rotation and significant disposal, gross rental income group share stood at EUR 181 million, which is a slightly negative figures, but is, in our view, a very resilient operational activity. And Victoire will come back in the detail on the evolution of the rental income in the financial section. Let's move now to Slide 15. After more than EUR 500 million of disposal in 2021, we managed to dispose 2 buildings in the first part of the year for more than EUR 400 million. So we completed the sale of the Millénaire 4 building, 25,000 square meters asset located in the north of Paris, EUR 486 million. And we completed also the sale of a building called Gambetta, 20,000 square meter asset located in the east of Paris for EUR 2,019 million (sic) [ EUR 219 million ]. So those 2 transactions were achieved at prices in line with the valuation at the end of 2021. And both transactions are showing a double-digit attractive IRR demonstrating again the strong appetite of investors for core asset and the attractiveness and liquidity of the Icade office portfolio. As a reminder, we target an annual average volume of disposal of EUR 500 million to EUR 600 million, which means that there is a little bit more to come this year. Now on Slide 16. So a few words on our fee development pipeline. Combining started an uncommitted project, the pipeline at the end of June represents an amount of EUR 1.3 billion. It is a plus EUR 400 million compared to the end of December 2021. And so the started part of the pipeline represents more than 15% of the total and it is made up of 8 selective project petalevel of 40%. You have the detail of the pipeline in the appendix. Among those projects, we have a project called Next in Lyon This is a 15,000 square meters office refurbishment project, and it was fully pre-let in June this year. And the project will be completed by the end of June 2024. So that's the very good news. One of our most important projects is the project already well known called Edenn, 30,000 square meters office scheme in Nanterre already pre-let at a level of 60% to Schneider Electric. That will be the future of French headquartered and the building will be completed in 2025. So another new appealing project that is about to be launched is a building on Champs Élysées For sure, it's a location a bit unusual for Icade. So we will present this project more into the detail during our next Investor Day. So let's move now to Slide 18 about health care. So regarding the health care division, our rental income is strongly up with an increase year-on-year of plus 13% up to EUR 104 million on a group share basis. So the growth is mainly driven by the acquisition completed in the second part of 2021 mainly abroad in Portugal with the acquisition of 4 private clinics at the end of 2021, but also in Italy and in Germany. As a reminder, acute and post-acute care sector remain, by far, the largest contributors to our rental income with 83% of the total health care rental income. As for the Office division, nearly 100% of the Icade leases are indexed on indices integrating a significant inflation component. And as such, during the first semester, we recorded a plus 1.7% indexation impact on our rental income. So the more we will go into the year, the more we will capture indexation as a large part of our French leases are indexed in H2. And we expect also the effect to be plus 3% for the entire year. So the financial occupancy rate is unchanged at 100%. And the average lease break is circa 8 years significantly up versus the end of June 2021. A word now on our international exposure, which is a key part of our growth strategy. At the end of June, 15% of our gross asset value is located abroad with assets in Germany, in Italy, and more recently with assets in Portugal where we entered 6 months ago with 4 private hospital. And also in Spain with 6 assets, including both acute care and nursing home facilities. Over the last 6 months, we also had new top tenants to the portfolio, with namely Gruppo Villa Maria in Italy, ColiséE and IMO EYE in Spain and Lusiadas in Portugal. So at the wrap-up this performance again reflects the resilient profile of the Healthcare portfolio with regular and growing cash flow while capturing inflation progressively. Now on Slide 19. So let's review now what we achieve in terms of investment during the last 6 months for Icade Santé. So we have kept implementing our discipline and, I think, selective acquisition plan with EUR 167 million of transaction, out of which closed nearly EUR 120 million where asset acquired in Southern Europe. So as you could see, the international portfolio diversification is clearly on its roadmap. In Spain, we had 6 long-term facilities to our portfolio operated by Police Group, a new tenant for Icade Santé as well as a private clinic operated by Miranza We also closed the second acquisition of a private hospital. It's a bit unusual in Italy out of a portfolio of 4 private hospital signed with Gruppo Villa Maria in 2021. And this acquisition represents a 26-year rated average lease break, which is for sure quite attractive. Going forward, Project Center exclusivity represent, at the end of June, EUR 500 million of potential new investment reviewed by [ Xavier ] and the team. The pipeline, which is already signed and which remains significant, represent more than EUR 430 million of investment to be completed by the end of 2025 with a growing share of international investment roughly 70%. On the world pipeline, we expect EUR 22 million of additional rental income. So as of today, at the end of June, we have already completed 35% of our EUR 3 billion investment plan, which is a plan by the end of 2025. But -- and last but not least, we recently closed the sale portfolio for private clinic to optimize the portfolio in France for EUR 78 million. So this transaction has been closed with a 10% premium above appraisal value. Again, the market appetite for Healthcare related asset is even stronger now. And therefore, we really do think that we have a potential upside on top of our NAV valuation. Let's move now to Slide 21. And for our third business client, property development with Icade Promotion. So Icade Promotion post again, I think, an excellent performance in H1 2022. The economic revenue stood at EUR 574 million, which is a plus 7% compared to H1 2021. So this performance is clearly driven by a very strong demand for Residential and the dynamic in Q2 was particularly strong. Icade Promotion posted commercial activity much higher than 2019, 2020 and 2021 with nearly 50 commercial launches for a total of more than 2,000 apartment in a market that remain clearly under supply. In this context, new housing orders for the semester stood at EUR 678 million, 15% growth in value. So it's a good result of Icade Promotion are also due to the office segment with the volume of office sales up 5% at EUR 192 million. Regarding this figure, let me highlight two transaction with an off-plan scheme sold to Goldman Sachs in [ Romania ] even Goldman Sachs invest in the suburb of Paris. -- relate to the French Ministry of Finance and representing more than 33,000 square meters, EUR 447 million and the signature of another off-plan scheme sold to Enea in Lyon for EUR 20 million. So the momentum continued in July after the end of the semester for the Epic transaction. And Icade promotion has signed an agreement with a leading investor, a German investor for a refurbished office building in La Pardo in Lyon for more than 13,000 square meters, representing an additional turnover of nearly EUR 55 million. But maybe more important, as you could see on the right-hand side of the slide, is that the operating margin is up At 5.5%, which is plus 50 bps compared to last year and we will come back to that. But clearly, Icade Promotion has been able to manage the other hot topic which is the increasing construction costs. So the midterm future for Icade Promotion is also quite well oriented. And we have a very solid driver to deliver the growth for Icade Promotion. An example is the Know-how in low carbon construction. Icade Promotion was awarded 2 new significant innovative project. Also the ramping up for renovation and refurbishment scheme with a real potential in the redevelopment of office building. And let me also highlight the NOR of Icade Promotion in large land plots redevelopment. And during the first part of the year, Icade Promotion has recently signed with some partners, the acquisition from of 70 former industrial sites to be converted and redeveloped. And the last driver, which could be a selective external growth with the acquisition of a regional developer in Occitania The name of the developer is M&A promotion. It's an M&A transaction, but that's the name also of the developer. So this transaction represents an additional EUR 170 million revenue over the next 3 years. So if you look at the forward KPIs, Icade Promotion, they are strongly up. The medium-term revenue potential for Icade Promotion amount to EUR 8.3 billion, probably by end of 2025, 2026, up 9% compared to the same figure at December 2021. It includes several things, but it includes the backlog plus 5% in residential at EUR 1.7 billion. And it includes also a controlled Residential land portfolio, not acquired but control, representing EUR 3.1 billion of potential revenue, which is a plus 14% compared to the same figure at the end of December 2021. So all the indicators of Icade promotion are well oriented, and we are really confident in our capacity to reach the target for 2025, which is just to remind you, which is a revenue of around EUR 1.4 billion. and a margin close to 7%. I'm now handing over to Victoire for the detail of our financial results. Victoire, the floor is yours.

Thank you, Olivier, and hello, everyone. Before going into the details of the income statement, let me briefly remind you of the changes that have been made to the presentation of the accounts since December 2021. Two improvements: first, we decided to change the accounting method for the valuation of investment properties to fair value method instead of historical costs previously, of course, H1 2021 results have been restated; second, we opted in 2021 for an economic presentation of the P&L with all P&L indicators presented in group share. It is intended to better reflect the economic contribution of each business unit, starting with the top line in the P&L. And also, once again, H1 2021 has been restated. Back to our June '22 results. I'm on Slide 25. As Olivier said in his opening comments, Icade delivered solid H1 financial results. Let's go into details of the income statement of the Office and Healthcare investment divisions. EPRA earnings for those divisions stood at EUR 193 million up plus 6.6%. This reflects a solid growth in rental income of our investment divisions growing by nearly 4% to EUR 285 million and a net to gross rental income ratio that remains at a strong level, with almost 93%. Regarding the efficiency performance, the EPRA cost ratio, excluding vacancy costs, improved by 110 bps and remain below 10% and reflecting a strong management of administrative expenses. Those 2 positive items explain the strong performance of pro earnings from property investment by nearly 7% above our expectation. I would like also to remind that health care is a significant contributor of the total results of the investment business of Icade with a contribution of 42%. Let's jump on Slide 26 that shows the performance by activity. First, the financial result of the office investment division remain very resilient and solid, as Olivier said before. In the context of dynamic asset rotation with EUR 500 million of disposal in 2021 and more than EUR 400 million of the first part of 2022. The gross rental income of the office division stood at EUR 181 million, slightly negative compared to 2021. The 2021 acquisition, I remind you, Equinove and Prairial assets as well as completion of Fresk and Origine, 2 significant projects delivered in 2021, partially offset the impact of disposal. So excluding the impact of 2021 and 2022 disposals, the gross rental income of harvest will be nearly up plus 6%. On a like-for-like basis, firstly, the decrease is in line with our expectations, and it reflects 3 main impacts: first, the evolution of the financial occupancy rate, as explained to you. This indicator has been impacted by the disposal of fully let mature assets as well as the completion of 2 major buildings for which a part is still vacant. But we also have a positive plus 2% indexation effect in H1 2022, which offset partially the first impact. and the full year impact of indexation is expected to reach plus 3%. Third, a consequence of the renewal of the leave of our most important tenants, AXA in 2021 and 75,000 square meters of offices for an additional 9 years term. This renewal clearly reinforce rental but continue to have negative impact on a like-for-like basis in H1. On the top of that, we continue to manage carefully our operating costs. It is for us a very important topic, especially in the context of more challenging environment. And again, the evolution of our EPRA cost ratio, excluding vacancy is, I think, a good illustration of this. And we also benefit -- continue to benefit from the positive impact of our attractive cost of debt. As a result, pro earnings for the hopes division posted a solid growth by 6.4% at EUR 112 million. Now in terms of Healthcare division, all the indicators are well positioned. Gross rental income grew by 13.4%, driven by a further expansion in France and Southern Europe. On a like-for-like basis, the growth is mainly due to the positive impact of indexation, plus 1.7%. The rent -- the net rental income reflects a high net gross rent and income ratio around 98% among the highest in the health care sector. Thus, EPRA earnings grew by nearly 7% to EUR 81 million group share. To recap, our investment activities have remained dynamic, thanks to a very resilient activity of our Office Investment division and continuing growing performance of -- for Healthcare One. Let's now switch to the result of our property development activity, cap promotion. Probably is a pretty solid H1 result I'm on Slide 27. The operational and financial performance observed in 2021 as continued in 2022 and is reflected in our results. Economic revenues grew by 7% to EUR 574 million, driven by both residential and office dynamic activities. Revenues from Residential segment rose by 4% to EUR 475 millions represents 83% of the total activity. This segment is particularly supported by a strong demand and also a scarcity of offer. In H1, the market did not show any sign of slowdown. Revenues from the half year segment grew by 27%, reflecting the solid business momentum. I also want to highlight that we improved our operating margin by 0.5 bps to 5.5%, thanks as Olivier just commented to, first, higher volume, obviously; second, residential prices that remain well oriented; and third, thanks to our capacity to manage inflation to manage inflationist environment with an appropriate monitoring of technical costs. Thus, net current cash flow contribute for a total of EUR 13 million, which represents a plus 19% growth. We are now the key point regarding the group net on cash flow. I'm on Slide 28. Net grant cash flow increased by more than 7% to EUR 205 million, as I told you just before, driven by the performance and the contribution of all of our 3 business lines, that shows, once again, the strength of our diversified business model. By activity, office investment net current cash flow grew by 4% and again, thanks to the resilient activity and an improvement in cost of financing. Healthcare division generated a plus 7% growth in net current cash flow, driven by its strong expansion plan. has commented just before. The property development business recorded a sharp 19% increase in net grown cash flow. On a per share basis, it represents an increase of 5% to EUR 2.7 per share, I remind you the slight dilutive impact on a per share basis comes from the 2021 scrip dividend. Let's now move on liability part on which the company has continued a very active and optimized management through the semester. First, I'm on Page 3. First, Icade issue last January, a new EUR 500 million green bond, bringing the total amount of green bonds outstanding to EUR 1.7 billion. This bond was issued at attractive conditions, 8 years, 1% coupon, which allow us to continue to decrease our cost of debt at 1.19% end of June, minus 10 bps. Second, the group announced in early March, the early redemption of the EUR 279 million bond maturing in 2023. Our next important financing maturity is now in 2024. This operation also allows Icade to maintain maturity of debt around 6 years. Icade Santé has also continued to strengthen and empower its liabilities with 2 operations, including the signature of revolving credit facilities for EUR 400 million with a 5-year maturity conclude on very attractive terms. Debt indicators all improved as LTV ratio is down 135 bps at 38.8% and ICR stood at 6.6x compared to 6x in December 2021. Looking now at the interest rate exposure. It is important to notice, as I said before, there is no debt maturity before 2024 and even 2025 for bonds. Thanks to a very conservative engine policy for several years, done in very attractive conditions, we benefit from a conservative level of hedge at 94% end of June and 80% until 2024. Notice also that the variable debt maturity, 3 years benefits from aging instrument maturity of 6 years. On top of those very positive characteristics, the group benefits from a comfortable liquidity position to face short-term financing needs, EUR 800 million in cash and EUR 1.9 billion in credit facilities. All in all, our balance sheet is, in our view, very well adapted to face the rising interest rate environment. All these liability management policies will indeed help us to significantly slow down the impact of rising interest rates. And to be more concrete, let's quickly comment on Page 31 or 4 key debt metrics that show how solid is our balance sheet. Cost of debt, as I said before, continue to drop and stood at 1.19% and an all-time low. Debt on EBITDA ratio continued to decrease at 10.7x as of June. Our LTV ratio, as I said, significantly decreased by 135 bps at 38.8% and another key KPI also to illustrate the soundness of our credit profile, the ICR, it exceeds 6 multiples at 6.6%. We are more than comfortable. All those KPIs show you how strong we are to face a new financial environment. Turning now to valuation part. The Slide 33 shows the evolution of the valuation of the office and health care portfolio. Physical markets remains strong and well oriented during the first part of the year with active transactions and no sign of valuation slowdown. So as you can see on this slide, we have positive trends on both portfolios on a like-for-like basis. First, for office portfolio, evolution on a like-for-like basis is a plus 1.3%, reflecting, in particular, dynamic markets and continuing cap compression yield in the regional and also continuing strong demand for labs and small business premises supporting our business parks valuation. The value of our Office portfolio stand at the end of June at EUR 8.2 billion. The minus 2.3%, as reported by is mainly reflects or net disinvestment position end of June, minus EUR 274 million. Healthcare, the value of our Healthcare portfolio stands at the end of June 2022 at nearly EUR 4 billion on a group share basis, a plus 2.6% on a reported basis and also a 2.4% on a like-for-like basis. This reflects the continuing growth plan in the division. And also, as I mentioned just before, a continuing cap compression in line with the attractiveness of the asset class. The positive like-for-like performances on our office and health care portfolio directly is fully in line with what we -- what happened in the physical market in H1. The gap of appreciation between the physical and the listed real estate market is therefore difficult to rationalize. So Slide 34 presents the evolution for NAV, EPRA NDV and EPRA NTA. I'm on slide, 34, sorry. The solid operational and financial performances have been made and reflect in the growth, of course, in the growth EPRA NDV amount end of June at EUR 103 per share, a strong 13.8% growth over 6 months and plus 20% on a year-on-year basis. Also thanks to a more -- one more time, the very attractive average cost of debt of the group, which had significant positive impact on EPRA NDV, plus EUR 9 per share in 6 months and which will allow us with our strong hedging policy to manage a new financial environment in the coming years. EPRA NDV stood as of end of June at EUR 96.2 per share and delivered a plus 1.8% growth and plus 5.2% year-on-year. To conclude this financial section, a view of our diversified business models through the NAV KPI. I'm on Slide 35. Based on EPRA NPV on a group share basis, office and development represents 63% of the valuation of Icade, whereas Healthcare division represents 37%. On the right side, we provide figures for the combined financial statements of the Healthcare Property Investment division. EPRA NTA stood end of June at EUR 4 billion in total. EUR 97.9 per share, up 2%, all detailed figures are available on Icade website. Thank you for your attention. And now I leave the floor to Olivier for the last part of the presentation.

Thanks, Victoire. Let's talk now about the future about outlook. To start, I will say that we are at Icade more than concerned by our share price and it's an understatement. And I do recognize that we don't understand reason for such a discount on NAV above 50%. So even more when it's a target price at this level of discount. And probably the reason for that is that we -- I mean, the company, the analysts and the investors are not seeing the same future for Icade. And as you know, share price is all about future, unfortunately not about past result. So therefore, I think it's important for us to give you our vision of our future. So talking about the future, about our outlook, there are 4 reasons why we are very confident and let me present each of them. The first, our portfolio is clearly more than resilient. Second, the growth of health care portfolio will continue. Third, we do confirm Icade Promotion road map. And fourth, indexation will more than offset the rising cost of financing. And these 4 for reasons are not just convincing statement, and I will elaborate on each of them. But it gives us a strong visibility on our cash flow and dividend. To start about our office portfolio, and we do say that our portfolio is more than resilient. When you talk to large corporates, Dax, Veolia, BNPP, the public agency, those are large corporates that are the bulk of [indiscernible] what did you want in terms of corporate real estate in terms of a [indiscernible] building? To summarize, I think they weren't forcing -- they want good location, especially in terms of public transform. They want affordable buildings in terms of rental values. They want a high level of services and they want also a high level of environmental specification. And you know quite well our portfolio, you have visited a large part of our portfolio and are really doing the Four key criteria for large corporates. It's exactly what we have in our portfolio. It's exactly the characteristic of our office building. And I am meeting a lot of our tenants I'm meeting a lot of very large corporate and I don't think that they are very numerous to have any project to come back in the CBD of Paris for the reason I just mentioned. So in the -- about our office portfolio in this slide, what we want to highlight, I want -- if I have to summarize my message, I would say cash is king or maybe more cash flow is king. The average cap rate of our portfolio stands at 5.5%, significantly above the 10-year renovate and significantly above our average cost of debt. And still above the current cost of financing, which means that we still have an accretive leverage on our portfolio. And those that are in the real estate market for decades. I think hopefully, that they will confirm that when interest rates are rising, the valuation of buildings that are the most impacted are, I think, the low cap rate asset. And just to remind you that when we are at 5.5%, the primes in the CBD of Paris was around 2.6% at the end at the end of last year. Talking about Healthcare, the second reason to be confident on our Healthcare portfolio. Again, cash flow is king. Not in this line, you will find that in the appendices, but the average cap rate of our Healthcare portfolio is 4.9%. And the portfolio is 100% fully let with long-term leases. I said in the trouble to the world, the appetite of the market for Healthcare, I said, continue to grow. And Healthcare is seen by a lot of institutional investors as a very safe harbor. And we have seen cap rate compression during the first half of the year. And there are some transactions that are ongoing in the market, and they will probably show again an additional cap rate compression. So the key question I think about for Icade and forecast is the following. We had to postpone the -- and clearly, the market conditions are not favorable for relaunch in the short term. So then how will you finance or will we finance our investment plan? The answer to that more than relevant question is that we have our option. And that's why we do confirm our investment plan. For sure, we are -- I think we are financially disciplined -- and we have already taken into account the new financial environment, which means that we have to chase for more structured transaction for more greenfield project for more special situation. in order to keep attractive acquisition prices. And to finance that, the options I was mentioning are the following. First, the existing shareholders of Icade Santé, including Icade the shareholders of Icade Santé, they are supportive, and they have still a strong appetite for the asset class. And believe me, Icade new issue to finance our stake in 2022 and even in 2023 in Icade Santé investment volume. So another option is to attract you shareholder on a private basis for investors that are appetite for Healthcare real estate. Icade Santé is really seen as a trophy asset and among life insurance company, retail asset manager or pension fund, I think there is a lot of appetite for health care real estate. And the third option is for sure the IPO. It's clearly on all for the time being and let's see when the market condition will be better. And even is for sure, we have been very disappointed to have to postpone the IPO last September. At the end of the day, to have today 58% of the growing and sustainable cash flow at Icade Santé is finally a good news for Icade. For the third reason why we are really confident on our future is that with a high level of confidence, we do confirm Icade Promotion road map. I'll just remind you the road map is a revenue of EUR 1.4 billion and a margin at 7% by the end of 2025. So the key question for Icade Promotion is how do you manage the issue of the rising construction cost is the key question because on the revenue side, no doubt that the market and the demand are there. The demand is strong for residential. And as I said, also for brand in new office buildings that are pre-let. And even if the cost of mortgages has increased for our client, it is still a little bit below 2%. It remains really attractive on a long-term perspective for our private individual clients. So to answer the key question of the way we do manage construction cost, I think there is no magic in the answer. The answer to that complex question is a combination of several elements. First, what we have seen during the recent week is that maybe the cost of construction seems to stabilize, let's see, but clearly, nothing to compare to what we have seen during Q1. We will also, for the reason I mentioned, we will also continue to benefit from current attractive sales price. And for sure, we have is probably the most important. We have adapted our construction process with less general contractors and more separate contractors. And we have also already started to adapt the pricing of plots of land that we are acquiring for the development of our new scheme. Having said, we don't have currently any acquire plots of land on our balance sheet with the cost of price with the cost of price issue. So the road map is fully confirmed. So the strong -- the fourth reason to be confident for the -- for Icade future. In fact, the question is about the rising cost of the financing, how to manage that. With the increasing level of interest rate impact negatively our cash flow. So as of today, when I look at the next 3 years, our answer is no. And how is it possible? First, look at our debt schedule, really comfortable for the next 3 years. Due to that schedule, our average cost of debt will remain below 2% until the end of 2025. So we have more than 3 years to adapt our investment strategy and our financial policy. And our interest cover ratio will remain by the end of 2025, clearly around 4x. So we are really comfortable. And this is 1 of the reasons why S&P confirmed last week, our BBB+ rating with a stable outlook for Icade and Icade Santé. But now let's go into the Slide 43. I think this slightly is key to understand why we are confident about the impact of cost of refinancing. What we have done here, we have compared the impact of indexation and the impact of increasing interest rates on our financing. So it's a forecast where everything being equal, which is in my view a very conservative assumption, but it's a starting point. So you have the level on the left-hand side of the slide, you have the assumption that we have taken into account for indexation and the cost of refinancing that we will take into account for the future. So the basis of our calculation for revenues is EUR 565 million on-rent, which is the amount of round for 2022 on a group share basis. So the results are the following. The impact of the indexation for the next 3 years, over the next year will be close to EUR 100 million. It's accumulated figures. It's EUR 100 million. And if you look at the impact of the increasing refinancing cost, it will represent EUR 55 million over the next 3 years. So when you look at this kind of figure, that's why we do think that we have really a strong visibility to deliver growth in our net current cash flow and dividend over the next 3 years. So now time to conclude the presentation with the guidance for 2022. And now I'm on the right slide on Slide 44. For sure, our guidance is subject to the non-declaration of the sanitary situation and to the possible negative consequences the geopolitical context, if any. But we confirm with a high level of confidence, our guidance for 2022, which is a net current cash flow per share expected up plus 4%, excluding the impact of 2022 disposal. You have seen that for the first semester, it's plus 7% and plus 5% per share, including the impact of disposal. And the net current cash flow of the Healthcare division will be up by plus 5% to 6%. And finally, the 2022 dividend, subject to the general meeting approval in 2022 will be up by plus 3% to 4%. As you know, our current plan ends in December 2022 for the current plan out of 4 years, we went through 3 years of quite severe crisis. So at the end of the year, for sure, we will make a final assessment of the past period. But I really do think that it's fair to say that Icade has been able to cope with this crisis and shocks that occurred since 2020. But what is important for investors is not the past, again, is the future. So we will come back to you on the occasion of our Investor Day, which will be held this year on November 28. And to explain what we will do in the future and the management, the Board are really confident in the fact that Icade will continue to deliver an attractive total return for our investors. Thank you for your attention and are ready to answer with the team to your question. Do we have question?

We have a first question. If the -- just give a few seconds to the Executive Committee to arrive on stage. We are ready.

Florent Joubert from ODDO BHF. So I would have 3 questions. The first question is on offices and the occupancy rate. So do you have any advancement in our disruption of our Fresk and Origine? And also maybe do you have any challenge in terms of [indiscernible] to come by the end of 2023. So that will be the first question. Second question also maybe on the offices and on disposals. I understood that you expect more disposals in 2022. But in the other side, we understand that investment market is not so liquid today in Paris region. So could you please give us maybe a little bit more color on where you are on this process? And maybe a third question on health care. So you say that you have the possibility to attract new shareholders on further terms. So does that mean that you have already started some discussions with some potential candidates.

So on your 3 question, on occupancy rate. Hopefully, we will have some good news on price Fresk in the near future. Still trying to find some tenants for the remaining part of Origine. So let's see what will be the situation by the end of the year. But I think those 2 buildings are in their respective submarkets. They have a lot of competitive advantages, for sure, and the market is softer than in the past. But we are confident with the fact that in the coming months, those 2 buildings will be fully let. We have no other challenges because if you look -- if you look at our pipeline, there are -- there's no new delivery except building, which is fully pre-let in 2023. The other challenges will be in 2024 and '25 when Edenn will be completed, as you have seen our project in -- next is already fully pre-let. So I think the challenges are not on new delivery and there was a statement, and we are talking to our existing tenant to when they have to renew the leases to renew a bit like we have done with AXA at the end of last year. So the market is complex because the overall economic context is complex, but I really do think that Emmanuel and the team is performing is this complex market quite well. In terms of disposal, in terms of volume, if you look at the market for the first 6 months, it was a significant increase compared to last year, I think plus 29% at EUR 12.5 billion, the investment market. The forecast of some broker is that the market should be softer in the second part of the year. Let's see. As I said, we have disposed EUR 400 million. Our plan is to do a little bit more. But back to my 2 comment, I think the kind of building that we are putting in the market with cap rate which are between 4.5% to 5% for institutional investors, such as life inference company, retail asset manager in French SAP or pension fund, who is additional investors, they are really risk adverse. They are looking for long-term cash flow. So if you put this kind of -- and they have to take into account the fact that now sovereign french 10-year rates is at 1.6, 1.7 compared to 0.2 at the beginning of the year. But I think on the count of building that we put on the market, that's probably a segment of the market, good buildings fully let cap rate between 4.5% to 5%. I think this segment of the investment market should be protected. Again, it's not to talk about my colleagues, but when you start at cap rate at 2.5, 2.6 to absorb or to have said the increasing interest rate is probably a little bit difficult. On health care, the key message that we have the capacity especially you have seen that we have done EUR 167 million during the first 6 months of the year. Cash out is less than that because they are in these figures, you have forward purchase. So the cash out is limited for 2022. We have the capacity with the minority shareholders of Icade Santé to finance the growth. You are probably aware of the fact that there will be some significant portfolio in the market by the end of this year. We are talking about portfolio of 6, 7, maybe more than that EUR 100 million. So if we will have appetite for such a portfolio, that will be an opportunity to go and to see if we need some additional equity to finance that. For the time being and due to the volume and even if we are ahead of our road map, we don't need any additional equity. So the common shareholders of Icade Santé will find -- if we will move for a significant portfolio for sure, we will try to find some new equity. And after the fact that we have postponed the IPO, we have received clear indication of interest of investors that could be interested to enter in a private vehicle. So I think really, we have option to finance a significant growth in 2022 for Healthcare and for Icade Santé, if any. Are there question in the room or by phone or by e-mail. By phone? Two question. First one.

First question comes from the line of Stéphane Afonso from Invest Securities.

So 4 questions on my side, if I may. The first 1 on the Office division. So do you still target an occupancy rate of above 90% by the end of the year? And also, could we have an idea of the reversion rate and also for the Office division. So I understand that the EPRA earnings increased by 6.4%, mainly due to lower operating costs. Could we assume this improvement in OpEx as normative? And finally, regarding the current climate of rising interest rates, how comfortable are you with the yield on cost of your committed and uncommitted office pipeline.

Emmanuel, do you want to answer these 4 questions about the office portfolio. Do you have a microphone? You need one.

Just to everything, but for the financial occupancy rate, as Olivier said, the occupancy rate will increase, for sure, for the end of the year for 3 reasons. First, for the -- thanks to the already signed leases, but not yet started. And for the good result of negotiation with the tenant of our building Fresk We hope and we are very confident to full this building before the end of the year. And also for the dynamic leasing activity in our park of ranges which will be confirmed in the next 6 months of this year. The other question, it was...

Lower operating costs.

We are -- we continue to...

On the reversion, we have in the portfolio, I think, a slightly negative reversionary potential. It's primary on minus 4, minus 5%. And let's see because revolution, it's when you have a break option once you renew leases. So it's not day one. So it will depend on the indexation. It will depend on the evolution of the market. But at the end of June, if we look at reversion in what you compare fair market rental values given by the appraised by the expert compared to the existing rent. So we have a slight reversion in the portfolio, but we have taken that into account for the forecast of our cash flow in the future. Operating costs, for sure, as Emmanuel said, we have lower operating cost in the first 6 months. We'll try to do our best to have the same kind of improvement in the second part of the year. For sure, when the market is a little bit more complex, you are very cautious on what you spend and how you manage our cost. It is true for cost at the level of the portfolio, but it's also true at the level of administrative cost. I think the company is very disciplined on that. Hopefully, we will have the same kind of improvement. I'm sorry, but I didn't catch your fourth question, your fourth question. Could you repeat it again or someone could repeat me the question. .

Yes, it's about your yield on costs on the committed pipeline and uncommitted pipeline in the Office division.

It's more than 5% exactly 5.1%.

The question is how comfortable are you with that number?

When we give a figure, let's exit we are reasonably comfortable. Having said that, some buildings are pre-let. So the yield on cost of a building such as Next, we are really comfortable with the building is fully pre-let. We will deliver a small hotel in 2023. For sure, we know the yield on cost. We have -- if you look at the significant amount in the pipeline, we have a building in [indiscernible]. It's partially related to for the hotel part. So we have the office part, which is not let. We are comfortable with the level of rent that we have taken into account in the business plan. let's see how we will be able to pre-let or not the building. And there is no question about the cost, the cost of the blink because the contract with the general contractor has been already signed. We have no issue on the cost side of the business plan. If you look at other, we are about to launch this significant project on the [indiscernible] I think we have, I'd say, realistic and conservative assumption, both for the cost of the refurbishment and for the future rental value. So again, on buildings that are pre-let really comfortable with the future revenue. And on the cost side, on the pipeline because now it's probably more an issue than in the past. I think that the kind of relationship that we have with contractors, with general contractor or separate contractor allow the kind of relationship that we have allow Icade for sure, we have to face the inflation on a rising cost. If you compare for the same kind of a technical specification, if you compare the same amount today compared to 1 year ago, in our view, the increase probably plus 8% to 10%. So it's above the general inflation in France. But we really do think that we should be able to manage that both for the pipeline for the office portfolio, but it's also true for the Development division. For the health care pipeline, it's a bit different because we just signed a contract when we clearly know what will be the future revenue. This means that we have a building in the pipeline, which are already 100% pre-let. And we signed only contracts when we also at the same time, the contract with the general contractor. So we don't have this kind of question on the pipeline for the Healthcare, for the Healthcare division.

And maybe one last question on [indiscernible] development. So the others are up 15% in value but decreased by 4% in volumes. And I understand that there were more building permits credit in France in H1. So having saying that, could you give us more color on the time frame to clear your talks.

[Foreign Language] If you could translate the answer for.

We're observing an undersupply significant with 70,000 flats on the offer. It's more than 30% less than the average. So with this demand with a still strong demand on solvent demand. We are able to sell our offers. And about the permit, the building permit, we can say that the mayors are able to deliver them in the last year. We have obtained nearly 7,000 plus in permits. So the offer is in a good range.

Okay. But -- so you're saying less in volumes and you have more building permits graded. So what about your capacity like to clear your stocks -- the evolution of the stock during the H1 and maybe for the years to come?

On top of private individual clients, we have a block sale. And as far as I remind in the first part, we didn't sign any significant blocks there. We will sign a lot -- there is no risk that the level stop for sale by the end of the year will increase. We have no stock which is finished and completed. So we have clearly, for the time being, a positive view on the evolution of the market. We have said that we have launched 50 schemes during the first part of the year. 26 of them were launched in June. And that's why you don't have in the number of new orders because when you launch a scheme mid-June or end of June, you will see the increasing numbers of new orders just in the second part of the year. But as Emmanuel said, we have the available stock for sale, which is in the current market. The most important topics for developers. I think we have a written question also. Could you -- now we have another question by phone and after [indiscernible] the written question, please.

The next question comes from the line of Marc Mozzi from Bank of America.

Marc?

Yes. Thank you very much for providing us with a better improvement in your accounting. In that field, what would be your optionally accounted on consolidated LTV? Because I understand your health care has a lower LTV ratio than the rest of the group. So what would be that production you consolidated LTV, if you have any clue.

We have.

I'm sure.

On group share basis...

[indiscernible] for me, that's from Marc.

Yes, yes. It's -- your question is about LTV group share basis. I don't have directly the figure mark. So I'm sorry, I will answer it to you, but I will give you this. No problem.

Okay. Because I think it would be closer to what the EPRA is now targeting as LTV.

Discussion [indiscernible] the way to calculate the LTV. The new rules will be implemented by the end of the year and do not remark. We will apply the new rules when they will be taken into account. But your comment was right. We -- the level of leverage is not the same between Icade balance sheet and Icade Santé. But again, and as we have always presented, a part of the debt at the level of Icade is dedicated to Icade Santé. It was used to finance the increase of capital of Icade Santé. [indiscernible], could written question?

The question comes from Ben Richford. In fact, there are 3 questions which are connected. Assuming the NBV reflects a mark-to-market of debt and derivatives at 30th of June, how would that have changed to today, given dynamic debt markets? Question number two, what would be the impact of marking credit spreads as well as swap rates? Question number three, how do you expect the changes in debt market to be reflected in property yields and capital growth.

That's 3 question for you, Victoire.

So as I explained it to you just before, the NAV and NDV include fair value of our global debt and also derivatives and interpret as you said, a significant amount. It's plus EUR 9 per share. And just to give you more flavor, we can say a translation in concrete level of debt for Icade so far today. if I have to issue a bond maturity today, the coupon will be [ 3.75 ] just compare that to what we have done beginning of January. And regarding our aging policy and the derivatives we had in the balance sheet. It is so far a level of cost around 0.25 for the global amount of swap we have -- and if I have to hedge my balance sheet today, it will be around [ 250 ], sorry, bps. So a quite significant increase. So clearly, it's -- that's why we had this significant impact on the NDV end of June. For the third part of your question, it's -- we can go back to the slide, Olivier comment just before regarding the risk premium between I don't know the number at the prime risk, which is -- which shows you the premium risk compared to sovereign bonds. And in our point of view, there is a quite yes, thank you very much. a quite significant buffer to absorb quite important increasing rates because after the significant increase we have seen during the first part of the year on the sovereign bonds. You can see the risk premium remain at nearly 400 bps on the office division. And on the Healthcare side, it's merely the same. And on the top of that, on the Healthcare side, you have quite very significant competitivity in the market and strong appetite, which remain very active since the beginning of the year. So in our point of view, regarding the profile of the yield of our portfolio we remain quite confident to say that we have got some buffer to absorb the rising interest in costs.

I think we have one additional question by phone, [ Thierry ]. Yes, go ahead.

Next question comes from the line of Celine Huynh from Barclays.

I just have one question. Can you help us understand your office valuation because your like-for-like going to go with negative your like-for-like valuation growth was positive and your peers have been reporting negative like-for-like valuation growth outside of Paris. What kind of assumptions do you appraises taking into account. Any color really.

Sorry, Celine, didn't catch the beginning of your question. Could you just repeat, please?

Yes. I think it was more about your office valuation because your like-for-like rental growth was negative, but your like valuation growth was positive. How do we reconcile this?

Okay. Antoine de Chabannes responsible for portfolio management and for the valuation process, we'll answer your question. Is the difference the like-for-like evolution of the valuation and the like-for-like evolution of the revenue?

Yes, exactly. And regarding the like-for-like , it's due to -- it's positive and regarding -- it's on a reported basis, it's negative due to the disposal of 2 major assets in Paris. And that is to say regarding the rent evolution, it's declining.

I think in addition to what Antoine said, so I understand that you could be surprised to have a like-for-like positive evolution of valuation and a like-for-like negative evolution of the revenue because I think that's the bulk of your question. So we have improvement in cap rate for the regional cities. And for some business park and part of the business part. So you could have a -- with a stable revenue, you could have a positive evolution of valuation. And even in a building such as the bidding led to accept . You could have a decrease in terms of revenue. This is not the case we don't have any positive evolution. But the decrease of the revenue is not comparable to the evolution of valuation. And the reason why is because we have signed a new -- a new lease for the next 9 years. And therefore, you have a small cap rate compression just because you have another compared to 1.5 years in the last valuation. So that's explained the difference between the evolution like-for-like for revenues and valuation. Thank you very much for your attention. Thank you very much to be there or behind your screen. If you have additional questions, do not hesitate to send them to Victoire and Sophie or myself. We'll be more than happy to revert to you as quickly as possible. Thank you very much. Goodbye.