Icade (ICAD) Earnings Call Transcript & Summary

Hello, everyone. I'm very pleased to be here with you on Icade's management at its full year presentation. This full year results are also the opportunity for me to recognize Icade's strong performance in 2022, both operational and financial. As you will see in a few minutes, Icade delivered a strong set of results in 2022, even better than we had expected in a particularly volatile and challenging year, which makes the performance even stronger. Thanks to the hard work and involvement of our team's performance of the 3 business lines is well oriented, backed by the solid fundamentals of each of our markets. As we did in July, the Board of Directors, and I would like to thank Icade's teams. At the same time, Icade's balance sheet has been strengthened and is ready to cope with the new financial environment. 2022 marks the end of the strategic plan, which as we had the opportunity to tell at the Investor Day, has achieved its objectives in more than complex environment between 2019 and 2022. In 8 years, Olivier has successfully carried 2 strategic plan and allowed the group to transform depth to reinforce the leadership of our 3 business while accelerating CSR ambition and putting strike on the 1.5 degrees pathway. So Board and I are more than grateful. As Olivier second term of office comes to an end on April 21, the Board of Directors has decided to appoint a new CEO by the next AGM, the latest. He or she will be responsible for defining a new strategy adapted to Icade's real estate and financial environment, which is complex and volatile, but full of opportunities for the years to come. I thank you for your attention, and I will now turn it over to Olivier and Victoire, who will present our results. Thanks.

Thank you, Frederic and good morning, everyone. I don't know which slide I have on the screen. Which one -- this one is the right one, Terry, thank you. So thank you for being with us this morning, and welcome once again to open our headquarter. So I am with Victoire Aubry, our CFO. And after the presentation, as usual, we will have a Q&A session with the entire Executive Committee of Icade. So please don't hesitate to send a question by e-mail or by phone even during the presentation. So as Frederic said, our meeting this morning is dedicated to the 2022 results and the outlook for 2023. So let's now jump into the figures with a brief overview, and I am on Page 8. So in line with the half year results that we have presented in July. I'm sorry, Terry, which slide I have on the screen because it is changing. The right one. Okay, thank you. Sorry. So in line with the results that we have presented in July for the -- the half year result, we do think that the full year 2022 are strong, to say really strong. So if you look at the figure, to start with the current cash flow, it increased by plus 7% up to EUR 417 million, including, I think it's important to remind that the impact of the significant disposal that we have completed in 2021 and 2022. On a per share basis, it stands at EUR 5.5 plus 5.9% growth. So this growth is clearly driven by the 3 business lines and is clearly above our guidance that was already upgraded in November 2022. So this is mainly due to a high level of activity for Icade promotion at the end of the year, but also due to higher indexation and lower interest rate compared to our forecast. So our EPRA NAV NDV stand at EUR 7.7 billion, which is EUR 101.4 per share, plus 11.9% compared to the end of 2021. So this significant increase is clearly due to the level of interest rates compared to our cost of debt. And for the NAV NTA, it stands at EUR 89.8 per share, which represents a minus 5% compared to the end of last year. Again, it's the impact of the level of interest rate on -- mainly on the fixed building valuation. Victoire will come back to that and we elaborate once again on the appealing structure of our liabilities and our hedging policy. And we have to keep in mind that we will continue to benefit from both during the coming years. On the liability side, debt indicators continue to reflect the robustness of our balance sheet further reinforced in 2022, a slight improvement of the LTV at 39.3%, a very -- ICR among the highest on the market at 6.4 and a very conservative hedging policy on 96% of our total debt. So let's now jump into the detail of our 2022 activities for each of our business lines. So regarding our office portfolio, let me smart -- let me start by commenting the solid -- very solid leasing activity with 200,000 square meters signed or renewed in 2022. Icade is probably the leading player in letting transaction in the office market in 2022. And this volume represents an annual rental income of EUR 50 million and an average lease term of roughly 6 years. So this volume also included 2 significant renewals with 2 of our major and long-term tenant reflecting also our ability to keep our tenants on the long term that really do appreciate the kind of properties that we propose to them. So the first 1 is Veolia, actual then to renew 100% of its 45,000 square meters located in the north of Paris in Aubervilliers for an additional 6 years that will start in 2025. And ClubMed has also renewed their 12,000 square meters headquarter located in Pont de Flandre, where we had our Investor Day for an additional 3 years. Important also to notice that we had no significant departure occurred during or announced in 2022. So let me also comment once again on the robustness of our tenant base. It is not a new fact, but more than 70% of our revenue comes from large companies of the CAC 40, SBF 120 or government agencies. Therefore, I think that one of the strength of our office portfolio is clearly the credit rating of our tenants with more than 60% of them that are ranked at a very low risk of credit. All in all, in the context of the significant volume of asset rotation with more than EUR 1 billion of disposals since 2021, gross rental income stood at EUR 355 million. It's a slightly negative figure, reflecting, in our view, a very resilient operational activities for our office portfolio. Victoire will come back to the rental income and cash flow evolution in the financial section. A word on the financial occupancy rate, it stood at 88% at the end of December 2022, higher compared to the end of June, also improving on a like-for-like basis year-on-year. I'm now moving on Slide 12. So we had a disposal volume of more than EUR 600 million in 2022 including 3 assets sold with an average cap rate of less than 4.5%. I think it's very satisfying, interesting figures. So Icade has achieved clearly the objective that we had set for 2022 in terms of disposal plan. And the asset rotation within the portfolio will continue. And the 2022 disposal plan is already 30% achieved with a little bit more than EUR 150 million under preliminary agreement with an average yield for office building around 4%. So the liquidity of the market, in our view, is really still there. So Icade has also been able in 2022 to size opportunity during the second half of the year with the acquisition of a building called Défense Parc in Nanterre, which is one of the favorite location in our portfolio. So we bought this building for EUR 63 million with a very appealing cash and cash yield around 7%. So clearly, our acquisition team at Icade is able to source special situation and appealing opportunities. So this building is fully let to first-rate tenants and present a potential for value creation through renewals and future redevelopment. Now moving to Slide 13. A few words on our development pipeline. So the started part of the pipeline represent, as of today, EUR 751 million and is made up of 9 selective projects which are pre-let at the level of 54%. For this level of pre-letting, which has significantly increased include the 3 of the 4 projects to be delivered in 2023 that are already fully let. Among those projects in our pipeline, you will find a project to convert an office space into a data center in the Portes de Paris business park in the north of Paris and it has been added in the start-up projects. So combined with the increased share of projects located in regional cities, this new data center project illustrates the acceleration and increasing diversification of the pipeline in 2022, in line with the current market trends. Let's now move to health care. I am on Slide 15 now. So we recorded, in 2022, a solid growth in our rental income, up 12% year-on-year at EUR 211 million on a group share basis. So clearly, this growth is mainly driven by the record acquisition volume completed in 2021 in France and also abroad, including Portugal, Italy and Germany. As a reminder, acute and post-acute care sector remain the largest contributors to our rental income with 84% of the total health care rental income. So in our view, it's a clear advantage in the current market, acute care assets are performing probably better than the nursing home segment. Our core investment thesis, as you know, at Icade Santé, focus on acute care assets and appear today more than relevant. Growth in our rental income was also fueled by indexation. As you could see, the impact in 2022 is plus 2.5%. Another achievement to note this year is that we managed to maintain a solid average lease break at circa 8 years even with less new acquisition. And also, we successfully renewed 9 leases, leading to a plus 0.6 year impact on our rated average lease break. Finally, a quick comment on the robustness of the rental base with 85% of our rental income made by -- made up by health care operating companies belonging to the top 5 on their respective market, acute care or nursing home. These standards are the largest and best-in-class operators with namely Elsan and Hamza the top acute care players in France and Europe or Korian and Coach top operators in nursing home. And this player are probably more stable and more resilient than the average. And this will contribute to the global performance going forward. So to wrap up on health care, the solid 2022 performance reflects the more than resilient profile of the portfolio with regular and growing cash flow. Now slide on Slide 16, let's talk about our health care investment that we have closed in 2022. So for sure, it was a new financial environment that we had to cope with. And the portfolio valuation proved to be more than resilient, with a plus 2.2% growth like-for-like. So this figure reflecting the continued attractiveness of the asset class, especially for acute care facilities. It's clearly based on real market transaction carried out in 2022. So -- but with this new financial context, we had also to adapt our investment policy, and we remain more than very selective and very disciplined. So the volume of investment amounts to EUR 242 million in 2022, out of which nearly EUR 150 million we closed abroad, mainly in Spain and Italy, maintaining our road map towards international diversification. So as a reminder, this figure compared with the EUR 740 million invested in 2021. So -- but we really fully assume this drop in investment volume due to the new financial environment. Let's move now to the third business line of Icade, Property Development with Icade Promotion and I'm now on Slide 18. So Icade Promotion post, I will say, once again this year, a very strong performance. The economic revenue stood at EUR 1.26 billion, which is a plus 17% compared to 2021. So this performance still driven by demand that remained very strong for residential was also -- as you could see, was also supported by a sustained commercial activity throughout the year with even an acceleration at the end of the year. So we had in 2022 has completed 78 commercial launches, 20 more than in 2021. And in a market that remains clearly undersupplied. And in this context, new housing order for Icade Promotion and for the period exceeded 6,000 units, 6,000 apartments, which is a growth of plus 10% in terms of value and more or less stable in terms of number. So the good result of Icade Promotion are also due to the office segment with the volume of office sale, representing EUR 413 million in 2022. So regarding this figure, let me highlight once again to a significant transaction. The first 1 is an off plan scheme sold to Goldman Sachs in Romainville east of Paris. So it could be surprised to see Goldman Sachs at new Romainville, but we sold them a building there, nearly 50,000 square meters significantly pre-let to the French government. And the second significant transaction is a refurbishment scheme for -- sold to Union Invest for -- of an existing office building in Rhône for more than 13,000 square meters and representing a turnover of nearly EUR 55 million. Important also key figures at the top of the right of the slide, especially the operating margin continues to improve at 6.2% 120 bps above the 2021 figures. So we will come back to that. But clearly, Icade Promotion has been able to manage the topic of increasing construction cost and rising cost of financing. And for the future, Icade Promotion combined and will continue to benefit from a very solid market fundamentals and a well-adapted offer, based, I think, on the very strong expertise of the team and that are in line with the new market expectation. And that's why our medium-term forward indicators are very well oriented. So the global medium-term revenue potential for Icade Promotion amounts to EUR 8.7 billion, that you could see on the slide, which is a figure up by 14% year-on-year. And this figure includes the backlog by plus 6.5% and by plus 12% for the residential segment at EUR 1.8 billion. And it also includes a controlled residential land portfolio, not a cried but control representing of potential revenue, 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, revenue of around EUR 1.4 billion and a margin close to 7%. And 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. As Olivier said in his opening comments, Icade delivered a solid set of results for 2022. Let's go into detail and comment the income statement of the Property Investment division. I'm on Slide 22. EPRA earnings for those divisions stood at EUR 382 million, roughly up by 6%. This reflects the combination of a continued growth in rental income by nearly plus 3% to EUR 565 million, notice that also the net to gross rental income ratio remains at a strong level with almost 95%. The EPRA earnings solid growth also comes from an efficient management of operating and financial cost. To illustrate that the EPRA cost ratio, excluding vacancy costs, improved during the year by 240 basis points and stood at around 10%, certainly remaining one of the lowest level in the sector. Let's jump on Slide 23 that shows performance by portfolio. First, the financial result for the Office Investment division remained very resilient and solid, fully in line and even above our 2022 budget. The gross rental income of the Office division stood at EUR 355 million, slightly negative compared to 2021 in the context of high volume of disposal, more than EUR 1.1 billion over the last 2 years. Excluding the impact of those disposals, the gross rental income of offices will be up nearly plus 5%. On a like-for-like basis, rental income remains nearly stable reflecting an active management of rental activity in an office market under normalization. In particular, as Olivier said, we signed significant renewals since 2 years with historical tenants, with under control reversion, average portfolio reversion in '22, it's minus 2.9%, offset by a positive indexation confirmed at plus 3% on a full year basis. We delivered solid EPRA earning growth for these divisions, thanks also to a careful management of our operating costs and the positive evolution of the financial cost, continued decrease in cost of debt on a full year basis, combined with a lower volume needs in the context of disinvestment. Net debt decreased by EUR 300 million in this division. Thus, the EPRA earnings for the Office division posted a steady growth by plus 5.1% at EUR 221 million. Regarding the Healthcare division, all the indicators are well oriented. Gross rental income grew by nearly 12%, mainly driven by 2021 International acquisition, as Olivier highlighted. On a like-for-like basis, the growth is mainly due to positive impact of indexation, plus 2.5%. The net rental income reflects a high net gross rental ratio, above 97%. Thus, EPRA earnings grew by nearly 7% for this division to EUR 161 million group share. To conclude, our investment activity posted in 2022, 1 more time, solid growth. Let's now switch to the result of our property development activity, Icade Promotion. I'm on Page 24. As Olivier has commented just before, Icade Promotion posted again this year, a strong performance. The continued good momentum in terms of commercial activity is clearly reflected in our results. Economic revenues grew by 17% to EUR 1.257 billion, driven by both residential and commercial activities. Revenue from residential segment rose by 14% to EUR 1 billion that represents 83% of the total activity. This segment is partially supported by strong demand scarcity of offer globally in the market and in the meantime, a well positioned at Icade's Promotion's offer. On top of a good commercial performances, I also want to highlight that we improved our operating margin by 120 basis point to 6.2%. And it's not only because of increasing volume, it's also thanks to residential prices which remains well oriented and also to the capacity to manage inflationary environment with an appropriate monitoring of technical costs. In the current context, it has also to be highlighted. Finally, Icade Promotion net current cash flow stood at EUR 37 million, plus EUR 13 million in 1 year. So to summarize, what about the group net current cash flow? I'm on Slide 25. We had a net current cash flow increased by 7% to EUR 417 million, significantly up in 1 year, thanks to positive contribution of all the 3 business lines. Office Investment net current cash flow grew by plus 5%, once again, albeit a net disinvestment position and a more demanding letting market. Healthcare division generated plus 6.6% growth in the net current cash flow driven by the full year effect of 2021 acquisition. Sorry, just a technical problem. As I mentioned just before -- sorry, for this interruption. And as I mentioned just before the Property Development business recorded a sharp plus 43% increase in net current cash flow. On a per share basis, it represents an increase of nearly 6% to EUR 5.5 per share, above our last guidance revised last November. Let's now move to liability part on which the company has continued a very active and optimized management through the year. It's fair to say that we managed to further reinforce the financial structure even in the disruptive environment, we know, high volatility and sharp increase in interest rates. First, as you can see, the average cost of debt continued to decrease. It is 1.25% for 2022, down year-on-year. It was 1.29% in '21. Definitely an historical low point. Among these main things that we have done during the year. Icade issue an 8-year maturity, EUR 500 million bond in January 2022 at a coupon of 1%. Of course, also, we took advantage of our strong hedging policy. We had limited impact of the rising interest rate in 2022. On that topic, taking advantage of a favorable window in July and in December, we reinforced Icade Santé aging position by subscribing EUR 350 million of derivatives. All in all, 96% of the total debt at the end of 2022 is either fixed rate or hedged. Second topic on which Icade has been very active and even proactive, debt maturity. We designed last quarter of 2022 to continue to secure our debt schedule and were renewed by anticipation of credit bond clients with a 5 to 7 years extension in maturity for a total amount of EUR 200 million with our historical bond partners, all done in good condition with limited increase of less than 50 bps on the credit spread, no impact on interest rate, component given our aging position. Right now, the next bond maturity is 2025. Of course, on Icade Santé side 2023 will be focused on the refinancing of the bridge to bond. We also put on appendix additional slides, including one on liquidity. Our liquidity position represents end of December, EUR 2.5 billion, covering 3.5 years of capital and interest. And to finish on liability management, let me tell you that 100% of Icade 2022 financings were sustainable. Don't hesitate if in the Q&A session, if you have any questions on those topics. Finally, a quick view now on the key debt ratio. I'm on Slide 28. Our LTV decreased by 80 bps to 39.3%. The interest cost ratio is now above 6x at 6.4 multiples. We have displayed on this line, the ratio followed by employes fully comfortable with a strong BBB+ rating and the net debt-to-EBITDA ratio continued to decrease at 10.1x as of December. As a conclusion for this part, and as I had the opportunity to say it during the previous presentation, our balance sheet is, in our view, very well adapted to face a new financial environment. We continued in 2022 to reinforce it, and we will continue to do so in 2023 to maintain a comfortable BBB+ rating by S&P. Turning now to valuation part. The Slide 30 shows the evolution of the valuation of the office and health care portfolio. First, a general comment for both portfolios. While physical markets remained strong and well oriented during the first part of the year with no sign of valuation slowdown, I remind you, the valuation was up 1.7% like-for-like end of June, positive H2 valuation reflects the effect of the tougher financial environment and a more weight and the physical market. The value of our office portfolio stand at the end of December to EUR 7.7 billion group share, the minus 7.5% change on a reported basis includes the effect of the net in 2022 as well as investment down 30% compared to '21. It represented EUR 355 million versus EUR 452 million in 2021. It's one of the direct consequences of the new financial environment and a good illustration of our agility and investment policy. On a like-for-like basis, the 4.8% decrease as I told just before from a pressure value reflecting in H2. But let me align that, in particular, the continuing solid momentum outside the Paris region and in business premises in our business parks. Even in the current context, we had positive like-for-like evolution on this part of the portfolio. Let's now comment on the value of our health care portfolio, EUR 4.1 billion on a group share basis were impacted by a significant reduction in the investment policy, fully assumed, as Olivier said, the growth by 4.1% in on a reported basis is mainly explained by the like-for-like growth by plus 2.2% driven by a dynamic H1 and a stable H2. All in all, the portfolio end of 2022 represent an amount of EUR 18.8 billion group share and a total like-for-like evolution of minus 2.5%. On a 100% basis, the combined portfolio represents EUR 15.1 billion. To conclude this part, the Slide 31 present the evolution of our NAV, EPRA NDV and EPRA NTA. The solid operational and financial performances we have been commented are supporting of our NAV. Now to be more precise, the EPRA NDV, EUR 7.7 billion, which includes on top of fair value of assets, the fair value of fixed rate debt and derivatives was up by nearly 12% to EUR 101.4 per share, reflecting the very attractive average cost of debt of the group over offering the evolution of valuation. On EPRA NTA side, it stood at EUR 6.8 billion, EUR 89.8 per share, down 5%, in line with the change in value of the property investment portfolio on a like-for-like basis. Just have in mind that the health care contribution represents EUR 2.6 billion, 38% of the total NAV NTA of the group. Data on health care are available on the Icade Santé website. Just a comment on the stock price at EUR 44.56 per share last Friday, a market cap at EUR 3.4 billion, the discount is above 50%. To conclude this financial section a word on our dividend policy for 2022. I'm on Page 33. The Board of Directors will propose to the Annual General Meeting, the payment of a dividend of EUR 4.33 per share, an increase of plus 3.1% compared to last year. This amount represents a conservative payout of 78.7% and a dividend yield of 10.8% and attractive level indeed, but I will not comment again the level of the stock price. Still subject to the approval by the general meeting, the dividend will be paid in 2 installments. The interim dividend of EUR 2.16 per share will be paid on cash on March 2. Finally, dividend will be early -- will be paid early July. I now leave the floor to Olivier for the CSR results and the conclusion.

Thanks, Victoire. So I'm now on Slide 35. I indeed wanted to report on the concrete results of our ambitious CSR policy, which, as you know, has been further strengthened in 2022 and in particular, our low-carbon strategy. I will just remind you that Icade has announced, in the first quarter 2022, an even more ambitious low-carbon pathway which has been approved by the SBTi in early October. So the result that we have achieved in 2022 in terms of reducing carbon footprint are well oriented across the 3 business lines, as you could see on the slide. And between 2019 and 2022, and just to remind you that 2019 is the starting point, the carbon intensity for office property investment was down by minus 29%, down by 4.5% for health care and down by 5% for property development. So those results are perfectly in line with the 1.5 degrees pathway and have been achieved, thanks to a concrete action detailed on the right side of the slide. And you have more information that are disclosed in the appendixes and in our dedicated CSR report. Finally, I will take -- I would like to take this opportunity to point out that Icade was also 1 of the 10 French-listed company that has presented Say On Climate and Biodiversity Resolution in 2022. The resolution has been approved by over 99%. And this was a new milestone in Icade's commitment to the fight against climate change and the preservation of biodiversity. And Icade will submit a new resolution to the 2023 General Meeting detailing the result of the action that was taken as part of our CSR strategy. Now moving to Slide 37 for the priorities for 2023. Again, I am on Slide 37. So based on the good result for 2022 in a particularly complex and volatile economic and financial environment and in line with the 2023 outlook that we have presented at the end of November during our Investor Day, so the priorities for 2023 are the following: for offices, clearly to focus on letting transaction, the market is rolling back to normal, but we will focus on letting transaction and also on disposal plan in order to continue the rotation within the portfolio just in order to recycle the capital. For health care, as we -- as I said, we will continue a selective growth due to the new financial environment. And we will focus, I would say, once again, on the liquidity of Icade Santé. For property development, we will continue to deliver the 2025 road map. And as you could have seen, the forward indicators are still quite well oriented. In CSR, no change. And clearly, the alignment with the 1.5 degrees low-carbon pathway is a key priority for Icade. And in terms of finance, we will continue, as Victoire said, to strengthen our balance sheet. So this is the 5 -- let's say, 5 priorities for 2023. It's now time to conclude with the guidance, and I'm on Slide 38. So for the cash flow 2023, it will be stable to slightly up excluding -- sorry, the impact of 2023 disposal. And as for the dividend policy, it will remain in line with the net current cash flow evolution and with a payout ratio at circa 80%. So it's now time to conclude. As you have understood, today is my last presentation of Icade results. Just want to say that we -- with the team I'm quite proud of the journey and the results that we have delivered since 2015. Just to remind you 1 figure when we joined the company in 2015, the cash flow for the year 2015 was at EUR 300 million and we finished the period with a cash flow at EUR 417 million, which is an increase of 40% over the period, including COVID including very special 2022 year. So we are proud of these results. And I just want to say also that with the very experience team that we have at Icade with the development pipeline, with the land bank of the company and all the other competitive advantage of Icade, I'm very confident in the growth potential and in the bright future for Icade. Thank you for your attention, and we are now ready to answer your question with Frederic, Victoire and the team.

[Operator Instructions] I am handing it back to the speaker to take the questions from the room.

Go ahead, Florent.

Okay. So I would have 3 questions. So my first question on the offices. So how confident are you now after the decline of 5% in the valuation of assets? How confident are you to execute your disposal plans at this value during the current environment of wait-and-see approach. In health care, so we understand that you will also focus in 2023 on the liquidity event of Icade Santé. So will it be possible maybe to have more colors in terms of timeline and what could help you to take the decision to launch this liquidity event? And maybe my third question would be for Frederic Thomas. So you seem to have a solid management team and experienced CEO. So what has motivated for the appointment of a new CEO? What are you looking for in terms of profile for this new CEO and what will be his guidelines?

Thanks Florent. Frederic, do you want to start with the last question, and I will answer for the 2 after.

[Foreign Language]

[Interpreted] I need first to underline the fact that Olivier Wigniolle has led his 2 terms with great success, operating very successfully in the 3 business lines with a very strong performance in the office property investment environment despite tough headwinds with extremely great health care performance.

[Foreign Language]

[Interpreted] There was very hard work done on the financial level despite a very adverse situations, which led the company to deliver a very robust, a very strong balance sheet.

[Foreign Language]

[Interpreted] And let us not forget the extremely ambitious goals with respect to CSR, with respect to low carbon knowing that this falls within a trajectory, and there is more to come.

[Foreign Language]

[Interpreted] So after these very fine 2 terms, the Board is actually not at all dissatisfied with Olivier Wigniolle's performance. And there's no diverging views at all between the Board and the CEO. But considering that after these very 2 fine terms, on the back of a new strategic plan, it was now time to take a fresh look with a new CEO on board.

[Foreign Language]

[Interpreted] And the first goal of the new CEO will be to submit a new strategic plan, which will be discussed and approved by the Board of Directors.

Thanks, Frederic, for your answer. Back to your 2 other questions, Florent. In terms of disposal plan, that's the reason why we have started a little bit earlier this year and we have already closed 30% of the target that we have in mind, which is always between EUR 500 million to EUR 600 million per year. I don't know, Emmanuel, if you are as confident as I am. What I could say, clearly, the market has entered into a bit of wait-and-see attitude during the last quarter, waiting for repricing for office building. But what we do see in the market is that still some buyers with liquidity especially retail asset manager. And I think that the kind of properties that we have in our portfolio with cash-on-cash return between 5% to 6%, and clearly, they fit quite well with their investment criteria. In my view, let's see how the market will move. But my view is that when you have office building which is kind of cash-on-cash return, the impact of the increasing interest rate and also will be more limited than compared to assets, which are very low cash-on-cash return. But let's see, that's the plan to dispose EUR 500 million this year. We also do that because we want to make sure that our valuation are clearly close to what are the market pricing. And again, the kind of asset, clearly, the market is risk-adverse. So what we do put in the market is core office building, brand new or refurbished office building with a midterm, long-term cash flow, good tenant at what we have already done, and we will continue. And let's see, in July, and let's see, by the end of this year, what will be the final volume and what will be the pricing. But again, more than EUR 150 million has already been achieved. Healthcare liquidity, it's -- for sure, it's -- let's say, like this, a long story for Icade because the initial plan was to do that in 2020. For COVID reason, we had to postpone that once in 2021. We tried to deliver the IPO in September 2021 for the reason that -- it was not possible. We had to postpone that in 2022. Clearly, the market, the war in Ukraine, the shock on financial -- in the financial environment made that 2022 was not possible again. So I really do think that 2023 would be the year of the liquidity event. The only comment I will make on that is that IPO will not be the route that the Board and the management would should because clearly, even if the situation is better, we don't think that the context is appropriate enough to launch once again an IPO. So we are studying as we say other scenarios or scenario, Victoire, I don't know which is the appropriate wording. Are there questions in the room or by telephone or by e-mail, Terry, I don't know?

If there are no questions from the room, we'll take the first question from the audio from Stéphane Afonso of Invest Securities.

Maybe the best way is to go through them one by one. So the first one on Office division. What can we expect for the vacancy rate by the end of the year?

Emmanuel, do you want to answer?

The vacancy rate at the end of the year is expected stable.

And my second question, also on Office division and also on the ongoing review of the Paris plan fairly some offices could be impacted by changes in their use. So to what extent are you exposed with the full year review? And also what about your margin project in Millénaire?

We don't have any building concerned by the new bioclimatic and we have only 2 assets in Paris center. And in the -- for Millénaire we are not have because of the new of Paris. So we are not concerned.

For those who are not specialist, the point is that the city of Paris is intending to release new Urban planning regulation with a significant request to have social housing in the middle of office building. No political comment on that, but it may impact the valuation of some office building. But as Emmanuel said, this is -- that will not be the case for our portfolio.

Okay. And regarding your office pipeline, could you elaborate a bit more on your costs? I understand that change that much at 5.3%, it means that you don't have much lever on target rent and target costs? And also your average cap rate on offices is already at 5.4%. So in that regard, could we assume that you will not create value on this project? And if the cap rates continue to increase, is it fair to assume that the value creation will be negative?

You want to answer? Just before the answer of Emmanuel, it is true that it takes time to launch office projects. So when you launch a project in 2022 -- 2021 and the market is moving, we had to cope with the evolution of cap rate, but also we had to cope with the increasing cost of those projects. But I can confirm that as of today, even if it's fair to say that the value creation will be more limited compared to 2 years ago, for sure. We have no project where we have to face a negative result of the development.

Just to understand, at this stage, how much of the value creation of the project is already embedded in Icade?

We don't -- we have a valuation process. So there is no value creation taken into account in the NAV or in the P&L. Those projects are also evaluated by external experts, and they do take into account the real cost of the project and also their anticipation of the cap rate at completion. And in terms of rental revenue, it depends if the building is pre-let or not, and they take into account if it is pre-let, what we do sign. And if it's not, it is their anticipation of what will be the rental value. I don't know if we have in mind the value creation at the end of 2022 if we compare valuation to the cost of project. But we will revert to you with the precise figure.

And finally, on the Healthcare division, so according to the press, we understand that French hospital to be or private are facing a sharp increase in their cost base. And also, they are asking for a sharp increase in their price? And also, we understand that 30% of private hospitals are in deficit. So my question is how many of your acute care assets are in deficit in France? And how confident are you with your current level of trend?

Xavier, you want to understand -- to answer -- to understand for sure, but also to answer.

Well understood. So indeed, the French hospitals are facing increases in their cost structure due to inflation and other costs inflation. As you know, there is a campaign for setting the new tariffs each year on March 1. So it's, let's say, cooking for now at the government level. There will probably be an increase in tariffs. The question is always how the global level of expenses is managed by the French government and balanced between increases in volumes and increases in prices. So we expect the global turnover of our tenants to continue to increase. It has been the case for decades. But there might be some impact on the profitability due to a lower or higher indexation of the costs compared to increase in prices. But we see it's a bit early to answer correctly this question as the dices are set in early March.

And regarding deficits, so you don't have any assets that are in deficit right now?

So what we are monitoring is the operational profitability, so the EBITDA before rent compared to our rents. And we have unlimited cases where this ratio is proven to be unsatisfying. But otherwise, it's -- no, it's globally under control, and we still have reported good figures on internal reporting for year 2022.

Okay. And maybe one last question on Icade Promotion. Could we have an idea of the stock of projects that is launched or completed but still not solved? And also, how has it evolved in the last year?

We have made a 78 launch -- commercial launch last year is 20 more than 2021. But the is supply well positioned in this market. The market is still under supplied. So we have already sold the half of this offer. And the pace of sales is quite good. We have adapted our sales price to have a good commercial rate now. We have nearly 1 year of sales in offer not more. We have 30 apartments in stock. It's nearly EUR 10 million.

So the value of the stock which is completed but not sold is more than limited. It's close And I will say it's probably the case. The performance of Icade Promotion is really good, but it's the case for most of the developer no stock completed but not sold because as Emmanuel said, the market is clearly undersupplied. There is one other question by phone. Yes, go ahead.

Yes. We'll now move on to our next question from Jonathan Kownator at Goldman Sachs.

The first one would be, please, on renewals and relettings, both in offices and in health care, obviously, you've had a number of successes in your recent renewals. Could you comment on the reversion achieved on the leases separately, please, on offices and also on health care, given also the previous question that we had on the increasing costs for operators?

Xavier, do you want to start and then Emmanuel?

Okay. Let's start with health care. Jonathan, so regarding reletting on the health care portfolio, generally, we achieved to maintain the last level of rent, rental value. Then, we commit generally to additional CapExes without necessarily this CapExes to yield an additional rent. So I would say the reversion to put it in simple terms would be 0 on the solid positive or negative. And in some, let's say, specific cases, we may enter into a discussion about lowering a bit the level of rent, but that's only for, let's say, special cases. In 2022, it was not the case.

How much is the CapEx as a percentage of the value of the lease usually, please?

So what we achieved, depending on the situation, but the last known situation, it was -- I would check exactly between 5% and 10%, but I will check exactly the number.

Okay. And there's no other incentives that are provided in the rent, right?

No.

Emmanuelle, for offices?

So for office portfolio, we -- this year, we managed to renew 22 leases. It's representing almost 100,000 square meters. And it's always signed with slightly level above market level with lease incentives in line of the market conditions and the negative reversion of this renewable leases represent around minus 3% of reversion.

Okay, Emmanuelle. I think we have some written questions. There is one for you, Victoire. How do you see the evolution of the cost of debt by the end of 2025 for Icade?

Clearly, as I said during the presentation, 2022 is a low point. So it means that we will forecast a slight increase in our cost of debt, depending, of course, what we will be able to do during the year. But clearly, the trend is an increase for 2023.

So there is another written question which is, do you think that the disposal plan will be sufficient enough in order to keep the LTV at the current level? I will answer the other way around. I think Icade is adapting the disposal plan in order to make sure that the LTV ratio will not increase. So based on the question of Florent, we will adapt to what will be the valuation of the market and then we will adapt the volume of disposal because clearly, in terms of financial policy, in order to keep the LTV ratio stable, not to say to have it slightly decreasing is clearly the target for Icade. Terry, do we have a last question by phone?

Yes, we do. We have a question from Marie Dormeuil at Green Street. Her line dropped, I'm not sure. And we'll move on to another question from Celine at Barclays.

I have a question for you, Olivier. Olivier, you're living in the middle of the strategic plan, what does that mean for this current strategic plan? And should we expect a new CEO to set a new one? That would be my first question. And the second one on a more personal note, Olivier, what are your plans for the after Icade?

Well, I am registered for the Marathon des Sables at the end of April. So that's the first target for the end of April. No, I think as Frederic said, the end of my second mandate is the end of the strategic plan. If you look at the history of Icade, you won't find any CEO that has made more than 2 mandates. I don't know if it's -- the story is repeating again, but that -- and I think it's fine because it's fit with related cycle. So clearly, 2023, we are entering a new cycle. So it's not me with the team that they are proposal on the table. But you have to adapt the proposal to what are -- what is the new cycle, which is clearly, and you could say, unfortunately, downward cycle, I think, for the state and clearly, probably for the next 2, 3 years. That's a matter of fact. So I think it will be the role of the team and the new CEO to -- and I think it's a good thing to wait a bit before to have a new strategic plan because you just don't know exactly what will be the final outcome of the market. So in fact, to have a year 2023 a bit like a transition year. I really do think it's quite well adapted for a company such as Icade because you have to wait a bit. And if you look at some of the my colleagues, they have said that also they will postpone before to release a new strategic plan because a plan makes sense when you know exactly where the market is going. And frankly, for the time being, there are a certain level of uncertainty. After the Marathon des Sables regarding myself, I am just around 60. So the plan is not to retire, but it's a bit too soon to make any announcement. Thank you very much, all of you for having attend this presentation. And for those who are with us, you have a coffee and a buffet. Thank you very much. And again, if you have any other additional questions, do not hesitate to send them to the team. We will be more than happy to revert to you.