Hello, and welcome to Icade results as of September 30, 2023. My name is Alicia, and I will be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to Nicolas Joly, CEO, and Victoire Aubry, CFO, to begin today's conference. Thank you.
Good morning, everyone. Nicolas Joly speaking. Thanks a lot for joining this call today. I'm with Victoire Aubry, our CFO, and I'm going to present the main figures and key facts of the third quarter, 2023 for Icade. As mentioned, this presentation will be followed by a Q&A session. To sum up on slide five, in a market environment that remains complex, Icade posted solid operating performances in Q3 in its two businesses, which are Commercial Investment and Property Development, testifying to the group resilience. I would also like to remind you that we have a very solid balance sheet among the least leverage in the market, following the completion of the first stage of the sale of Icade Santé, which brought in EUR 1.4 billion in cash on the fifth of July.
We are currently pursuing the process of selling our residual stake in the Healthcare division, in particular by working on the possible entry of new investor alongside Primonial and the minority shareholders. The process of selling off our international assets has also been initiated. This quarter, Icade also demonstrated, once again, its performance and strong commitment to ESG. Indeed, Icade has been recognized by GRESB as a leader in the European diversified listed property category, with a five points improvement on last year's rating. Besides, Icade teams have been strongly committed to major initiatives aimed at improving the energy performance of buildings, accelerating the decarbonization of real estate, and developing solutions to adapt to climate change. For example, the teams have been fully mobilized to work towards the electrification of uses, a pillar of France's low-carbon energy strategy.
We have notably planned to install 1,300 charging stations for electric vehicles by 2025, and to accelerate the use of renewable energies, both in assets managed by commercial investments and in building constructed by Icade Promotion. Finally, in view of the solid results presented, we confirm the net current cash flow guidance communicated to the market last July, as well as the dividend policy previously presented. On slide six, at the end of September, Icade's consolidated revenues stand over EUR 1 billion, up 3.8% versus September 2022. On the commercial investment activity, the gross rental income is slightly down by 0.9% in the context of significant disposals in 2022. On a like-for-like basis, the performance is positive, plus 2.5%, carried by a very solid leasing activity and indexation on rents.
In a sharply declining property development market, Icade Promotion revenues remain solid, up 4.9% versus last year. This performance is mainly driven by the increase in block sales operation and the higher revenue from the commercial segment, due to the progress of work on major projects signed in 2022, and on execution of opportunistic transaction, such as the Taitbout transaction in H1 2023. On slide eight, let's now dive into the performance by business line and start with the commercial investment activity. The Commercial Investment division has evolved in a sluggish leasing and investment environment in 2023 year -to -date. On the rental market, the third quarter was quite better oriented than the first semester, with take-up down by 12% at the end of September, versus −22% at the end of June, compared with last year.
The investment market is still at a standstill, with volume down by almost 48% compared with the same period last year. In this environment, Icade's rental momentum is very solid, with over 150,000 sq m signed or renewed since the beginning of the year, of which 50,000 sq m in Q3 2023. These signatures and renewal represent an annual rental revenue of EUR 42 million, and a WALE of 5.7 years. This strong leasing activity confirms demand for assets that meet our customers' requirements in terms of centrality, environmental quality, high level of services, and flexibility. Two examples share with you signed in the third quarter to illustrate that.
Firstly, we signed two new leases for a total surface over 7,500 sq m in the building, La Défense 4-5-6 in Nanterre, less than one month after the departure of the previous tenant. Secondly, we finalized the commercialization of the Fresk building with a 6-year lease signed with Inserm. The dynamic leasing activity also illustrates the solid demand for our business parks. Since the beginning of the year, Icade signed and renewed circa 50,000 sq m in Paris or Rungis, with different types of assets such as offices, light industrials, or hotels after reconversion projects. The financial occupancy rate stood at 87.5% at the end of September, up 100 basis points versus June.
It was supported especially by EDF Renouvelables lease on the Origine building in Nanterre, and Inserm's lease on Fresk, bringing the occupancy rate for these two assets to 100%. On a like-for-like basis, gross rental income was up +2.5%. The growth was supported by positive impact of indexation, representing +4.6% over the first nine months of 2023. On slide nine, in terms of investment policy, we remain cautious and selective, as we have been in recent months. In July 2023, we acquired the remaining parts of the Ponant B building, ideally located in the 15th district of Paris, allowing us to hold full ownership of a 33,000 square meters real estate complex, and to envisage some value-adding transformation in the medium term.
With regard to investment in the development pipeline, they were limited at EUR 109 million over a period of nine months. Asset disposals are being managed opportunistically, with almost EUR 90 million already completed at the end of September, in line with NAV as of December 2022, and circa EUR 90 million under preliminary agreements. Relying on our very solid balance sheet, we do not anticipate any new transaction before the end of the year in a still wait-and-see investment market. Let's now move on slide 10, to the operational performance of the property development business line. As in June, the residential market is in sharp decline, with reservation down 35% compared to the same period last year. In this slowing environment, Icade Promotion is holding up well, with total orders down 22% in volume and 12% in value.
In this context, Icade Promotion priority is to monitor its balance sheet and to keep its working capital under control. Following from the first half year, Icade Promotion continued to focus on bulk sales in the residential segment. Sales to institutional are up by 15% in value and represent more than 45% of the total orders in volume as of September 30th, versus 35% last year at the same time. In addition, Icade remains very cautious in launching new operations. Projects launched since January 1 were over 60% pre-sold, and the construction starts are down 50% versus the budget as of September 30th. However, to be noted that fewer sales launches, higher bulk sales, and the downward adjustment of sales price should weigh on margins at the end of the year.
On the commercial side, although the sales were down sharply in the first nine months of the year, down 70% compared with the same period in 2022, Icade Promotion successfully signed in the third quarter some really nice transaction, like the signature of a VEFA agreement with a subsidiary of a leading bank group for the construction of a service sector property complex of almost 20,000 square meters in the Archipel Wacken business district in Strasbourg. As of September 30th, the backlog of Icade Promotion reached a solid EUR 1.7 billion, down circa 9% versus December 2022, but securing the sales expected for 2023. On slide 12, results to the end of September 2023 demonstrate Icade's operational resilience in a complex and volatile macroeconomic environment.
Icade continues to manage its balance sheet prudently, which has been strengthened by following the completion of the first stage of the disposal of its healthcare activities. In this context, Icade confirms its annual guidance, now expressed, as you know, on a pro forma basis, following the deconsolidation of the healthcare activities. The group pro forma net current cash flow per share is expected between EUR 2.95 and EUR 3.05 in 2023, including the effect of 2023 disposals. In addition to the pro forma guidance, Icade specifies the contribution of healthcare division this year, which represented EUR 1.25 per share for the first half of 2023.
Regarding the dividend policy, the board of directors confirms, subject to approval by the annual general meeting, the total 2023 dividend should be at least +10% higher than the 2022 dividend. The dividend will be made partly of the recurring dividend, based on minimum legal distribution obligation, and partly of special dividend for EUR 2.54 per share at least, resulting from healthcare step one disposal. On slide 13, we look forward to seeing you on February 19, 2024, for Icade's full year results. The teams and I are keeping on building the group's strategic orientation for the coming years, and are working on an operational rollout. We'll be happy to share Icade's new strategic plan with you, beginning of next year. So thank you for your attention, and now let's move on to the Q&A session.
As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. We are going to take now our first question from Stéphane Afonso, from Invest Securities. Your line is open now. Thank you. Sorry. Let me just open it. Sorry, I'm just having an issue to open his line, if you just give me a second. Yeah, it's open now. Sorry about that. You can go ahead now.
Good morning. Do you hear me?
Yeah, very well, Stéphane.
Okay. Thank you. So, I have a couple of quick questions. For the first one on offices, could we have the average reversion rate that was captured since the beginning of the year? And also, what proportion of the leases having a break or expiry this year has been secured at this stage? And finally, regarding the sharp slowdown in the SAP market, how confident are you in the ability of Primonial to secure stage two and three of Icade's disposal? Thank you.
Thank you very much, Stéphane. Well, as for, as for the offices, reversion, as you saw, we have some negative reversion on our renewals, on an average around 8%. And that is the reason why the like-for-like, as you see, is slightly below the global indexation rate. Keep in mind also that we had a specific deal with Veolia, because as you know, the global like-for-like is +2.5% with Veolia, but without Veolia, it would have been +4.4%. That's for the, the reversion. As for what is expected in 2024, we are working on those renewals. As you see, there's EUR 90 million, roughly, on discussion in 2024. We started securing significant part of that.
To give you some more detail about that, I'd say that 25% of those EUR 90 million are related to light industrial activities and not offices. So that could be actually an opportunity for us with some positive reversion to be expected on those ones. And as for the remaining 75% of those rents, I'd say that 60% are located in what we consider are well-positioned offices... So not significantly worried about that. And we are working on the remaining ones, and we are having some pragmatic discussion with the tenants, and that's also the reason why we are anticipating the potential reconversion of some of those assets. And as for the Healthcare business, and step two and three of the transaction.
So as for step two, the next stage of the stage two, our remaining stake in Icade Santé France, well, it relies on two pillars. The first one being using the inflows of Primonial. So keep in mind that Primonial has a commitment to use in priority those inflows for Icade Santé. But as you were highlighting, of course, the collection of those inflows is slowing down currently. So that's the reason why the focus is given on the second pillar, which is the potential entry of new third-party investors on Icade Santé, and we have some interest of some investors. And as for step three, regarding the international asset, the IHE portfolio, we have launched the marketing of the first asset in Portugal specifically. And we have some confidence in the execution of the asset sales.
Of course, in the current context of persistently high rates and slowdown in transaction, those steps may take longer than initially expected. But given our strong balance sheet, we are under no financial pressure, of course, and we will transfer those assets on conditions that we consider satisfactory. And until then, of course, as you know, Icade will benefit from the dividend increased by its residual participation in healthcare activities.
Thank you. Thank you very much.
We'll take now our next question from Florent Laroche, from Oddo BHF. Your line is open now. Thank you.
Good morning, Nicolas. Good morning, Victoire. So yes, maybe one question for me on the strategy. So you will present your new strategic plan on early 2024. So what would be your next your priorities for the next months? Have you any tangible example to provide to us? And maybe also a question on the property development. So you expect a downward adjustment of your margin at the end of the year, so is it possible maybe to have a little bit more color on that? Thank you very much.
Thank you, Florent. Well, effectively, effectively, we'll be happy to share with you strategic plan beginning of 2024. What we expect for the next months, it's what we are already doing for the past ones. I mean, we are on the ground interacting with our customer in order to clarify and identify future demands. We carry out very regular workshops with business leader in order to move forward on the operational variation of the roadmap. We also work to identify value creating verticals. So I'd say that the main goal is to present to you a strategic plan at the start of 2024, which is supported by concrete achievement, definitely. Because we think that it's not only about sharing convictions, but also trying to demonstrate what we wanna achieve.
As for the property development margin, of course, as you saw, there was an increase in the block sale because we have a strong focus on managing our balance sheet. There's a slowdown in the individual demand, so we expect that this will have an impact on lowering the level of margin. Of course, also, we expect net current cash flow below by the end of the year on the property development. But still, we are very confident on our guidance, given the fact that the financial products, especially from the cash, even from the Healthcare business, will be strong and stronger than expected due to the high raise in interest rates before the end of the year.
Okay. Thank you very much.
Thank you.
We'll take now our next question from Veronique Meertens, from Kempen. Your line is open now. Thank you.
Hey, good morning, all. Thank you for taking my questions. I want to follow up questions on the office market. You mentioned about the reletting for 2024, but what is still due for 2023? And in other words, what are your expectations for the occupancy rate in the coming quarters? Do you expect it to maintain this level? And then secondly, we've seen on the ImmoStat data that incentives, especially for the more secondary markets, have risen quite sharply. Can you elaborate what the incentives are for you for the recent relettings? Thank you.
... Yeah, thank you, Veronique. Well, as for the occupancy ratio, we think roughly should be maintained by the end of the year. We have some visibility for the transaction coming before the end of the year. So the occupancy rate should be maintained globally at the end of the year. As for the incentive, what we observe is definitely there's some rise globally on our market, on the level of those incentive. From time to time, it's possible, to give you an example, that we go above 30%, for example. We think we have to be pragmatic. The priority is to maintain our tenants and our buildings.
That's what we did, for example, with Veolia, and it allows us to enrich the strong partnership we have with our tenants. You know, we have some very large institutional companies, and we think we need to do that. But in any case, when we sign new leases or renewals, we do it at the market standard transaction, regarding both the rental values and the global level of incentives.
Okay, thank you very much. One follow-up question, about valuations. We're reaching towards the end of the year, so probably talks with the appraisers have started. Can you maybe shed some light on how those discussions are going? We've seen small transactions coming through, but some of the lots are curious to see how those discussions are running at the moment.
Yeah. So, keep in mind that in this quiet market, with very few transactions since the beginning of the year, we've already registered a decrease of -6.7% at the end of June 2023. This represents a decline from, of -12% on 12 months. Well, we believe that the decrease is likely to continue in the second half of 2023, and expect roughly a stabilization of the values in 2024, 2024. This is only the beginning of the discussion with the appraisers, but that's the feeling we get.
Okay, thank you. And any ballpark figure what we can expect for the second half, or is it still too early for that?
So, so sorry, Veronique , I didn't catch your question.
Do you have a ballpark figure, what kind of negative revaluation we can still expect in the second half, or is it still too early for that?
Too early. It's a little bit too early. We are under discussion with the broker.
Yeah, yeah, you know, we have twice a year the valuation campaign at the end of December and the end of June, from five independent property valuers, so it's just the beginning of the discussion.
Okay. That's very clear. Thank you.
We'll take now our next question from Ben Richford, from Société Générale. You can go ahead now. Thank you.
Hi. Two questions, please, on the development side. What discounts do you typically accept for bulk sales versus individual sales? And secondly, the sales cancellation rate has increased. It's about 30% now. What's the implications of this? Do you retain a deposit on these sales? How much is that? Do you change the policy with the expectation of more cancellations? Thank you.
Yeah, thank you. Well, as you know, so the main focus on our side is managing the working capital and balance sheet. That's the reason why we decide to accelerate on the bulk sales. To give you... I'd say roughly it has an impact on, I'd say, something like 5%-10% on the price. That's the reason why. As for the withdrawal rate, is it's indeed increasing with a rate at 31.5% for the first half compared to 28.5% for the full year of 2022. As of September 2023, the rate is roughly stable versus June 2023, at 30.9%.
So that's the reason why we think now it's globally stabilized, and we maintain, as we told, a strong focus on our Block Sales strategy to compensate that.
Okay, and just a little more detail on, so this is 30% of orders are canceled. Do you get a deposit that you hold on that, or?
Well, the main positive news is that we think that it's globally stabilized now. September was a bit difficult, but October is slightly better, I think. We don't necessarily expect some further increase in this withdrawal rate. I think, global rates have reached near the peak, actually. So it will be now rather a matter of time than a matter of increasing this rate.
Okay, understood. And how much cash are investors walking away from when they make the cancellation? How much deposit have they put up already?
No. Yeah, well, it, it really depends. As for those withdrawals , there's no such thing as some cash deposit regarding the individual, because it can depend, for example, about their ability, you know, to get the agreement from their bank. So this is a pre-requirement before coming to the definitive agreement. So that's the reason why.
Understood. So there's no deposit held?
No, no, not regarding individuals, of course.
Okay. Thank you. That's all, thanks.
Thank you.
As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. We are going to take now our next question from Allison Sun from Bank of America. The line is open now. Thank you.
Hi, good morning. Just one question from my side. Appreciate you disclosed the like-for-like gross rental income. Can you maybe tell us what's the range of your like-for-like net rental income, please? Thank you.
Hello, Allison.
Hello.
Yeah, yeah, Allison. Yeah. Yeah, we usually communicate on the growth rate and we don't communicate on the net rate.
Yeah, or maybe is that still a positive growth? Because given that the property expenses seems to grow really fast this year, any indication or not really?
Yeah. Yeah, yeah. That's right. There's on top of that, the impact of the vacancy. But apart from that, that's okay.
Okay. Thank you.
We'll take now our next question from Céline Soo-Huynh from Barclays. You can go ahead now. Thank you.
Hi. Hi, Nicolas. I got two questions. I'll take them one by one, if that's okay. The first question is that, can you explain what you're doing with the cash currently that's sitting on your balance sheet until it's invested?
Yeah. Hello. Hello, Céline. Yeah, of course. Well, the good news, the one good, good news from the environment globally is that we have an increase in the financial products due to the large rise of interest rates. So that's the first thing we do, we increase our level of financial products. We have also used our cash in order to reimburse EUR 100 million of credit loan. We've also used our cash in order to decrease our exposure to new CP from EUR 550 million to roughly EUR 200 million now. So that's the main news at this stage of our cash. And in the meantime, the remaining cash placed on our accounts, of course, make that, as I've already said, financial products should be higher than anticipated, given the rapid increase in investment rates.
So definitely we are not under pressure to use this cash. We are quite very comfortable to keep this in our balance sheet and to benefiting from a significant level of yield. As we said in the press release, it's 3.2% since the beginning of the year on average, and on a spot level today, those financial products represent around 4%. So clearly, no pressure, and we have the time to redeploy equity, and of course taking into account the current thought about the strategy plan.
And at the top, what was the rate that you budgeted into your, into your EPS guidance for this year?
Ah, that's a good question. Below that-
Yeah.
Of course, below that.
Okay. So there's a risk that you do better than that?
Yeah.
Exactly.
Yeah. That's-
Okay.
That's also the reason why, we are strongly confident about the guidance, even if we are evolving in a sluggish environment, concerning the property development sector, especially.
Okay. And then my second question is on Icade Promotion. The pre-sale threshold on housing is increasing from 30% to 60%, and in that 60% you disclosed, you say it, it includes institutional buyers.
Yeah.
These guys are likely to take 100% of the project. So I'm guessing it is really difficult at the moment to build new development for retail customers, since you can't reach the 60%. My conclusion would be that you're not building for retail customers currently. Can you correct me if that's right?
Well, actually, the 60% is an all-in-all level, including individuals and bulk sales.
Yeah.
Because some of you told us that the 30% or 40% we communicated end of July was a main focus on individuals, while at the same time, most of the operators on the market are communicating on a global, a global rate, including bulk sales. So that's the reason why we put this 60%, so that you have all the information. Basically, historically, we were rather around 30%-40%, bulk sales in a global operation. Mainly, our operation are a mix of individual sales and bulk sales, but the part of the bulk sales is increasing sharply, and that's the reason why, we are now at a global 60% pre-let before launching the works. Having in mind that considering the individual's threshold specifically, we've increased that level from 30% to 40%.
Okay, thank you.
Is that clear?
Yeah. Yeah, thanks.
We currently have no questions coming through. As a final reminder, if you would like to ask a question, please press star one now. As we don't have further questions, I will hand you back to Nicolas to conclude today's conference. Thank you.
Yeah, thank you very much. Well, we've been happy to share this Q3 result with all of you. Really looking forward to seeing you again in the coming weeks and months, and we'd be really happy to share with you our full year annual results in February, and also the main pillars of the strategic plan early 2024. So have a nice day. Have a nice week. See you soon. Bye-bye.
Bye-bye.
Thank you for joining today's call. You may now disconnect. Bye-bye. Thank you.