Hello, welcome to Icade results as of March 31st, 2023 conference call. My name is Priscilla, I'll be your coordinator for today's event. Please note this call is being recorded, your lines will be on listen only. If you require assistance at any point, please press star zero, you'll be connected to an operator. In today's call, we have Victoire Aubry, the CFO, Nicolas Joly, the CEO, and Anne-Sophie Lanaute, the head of IR. I will now hand you over to your host, Nicolas Joly, the CEO, to begin today's conference. Please go ahead, ma'am.
Good morning, everyone. I am Nicolas Joly. I'm here with Victoire Aubry, our CFO, and Anne-Sophie Lanaute, our Investor Relation. It's a real pleasure for me to be here today. Very excited to have the opportunity to lead Icade and its teams. I wanted firstly to pay tribute to the work carried out by Olivier Wigniolle and the many successes achieved over the past eight years. I also want to sincerely thank the Board of Directors, its Chairman, Frédéric Thomas, for entrusting me with such mission. After roughly 20 years in the industry, starting at Unibail office division and spending 15 exciting years at Casino and Mercialys in real estate development and M&A transaction, I'm honored to open this new chapter at a turning point in Icade's equity story.
I will be immediately working with the executive team, employees, and all stakeholders. As you know well, our sector is going through a period of heightened uncertainty and volatility. The future positioning of Icade will need to reflect this new environment and draw on its natural strength, the many areas of expertise in health, and a strengthened balance sheet given the transaction on Icade Santé. This, in order to seize the opportunities that will open up. I look forward to seeing you once I've settled in. Now let's move on to the presentation of the Q1 figures and Q&A session. Victoire, the floor is all yours. Many thanks.
Thank you very much, Nicolas. Good morning, everyone. Before commenting the 1st quarter numbers, just a few words regarding the overall macroeconomic environment. As in 2022, the macroeconomic environment and the financial environment continued to be volatile over the three months of the year, still marked by a persistent financing rates maintenance at high levels in a context of continued policy of raising rates by central banks to fight against persistent inflation. It obviously makes our businesses, both investment in offices and development in residential, even more challenging. It means it makes the main Q1 announcement, the healthcare transaction, even more relevant for Icade. The significant deleveraging of the balance sheet before the end of the year will enable Icade to get through the coming down real estate cycle more comfortably.
Let's go now to slide five to start the presentation with the key takeaways of the period I would like to share with you this morning. First, in this context, I mentioned just before, Icade's operational indicators remained resilient during the quarter, reflecting, once again, solid fundamentals of our businesses. In term of revenues, the total amount group share and excluding healthcare, I will come back to that, stood at EUR 300 million, globally in line with our quarterly year expectation, slightly above in offices, thanks to better level of indexation, and below for Icade Promotion, but I will elaborate in a few minutes.
Unsurprisingly, second takeaway for the period is the announcement mid-March of the exclusivity agreement between Icade and Primonial for the sale of Icade Santé, a significant transaction secured for an amount of EUR 1.4 billion and in condition in line with December 2022 NAV, allowing Icade to deliver one of its first 2023 priority liquidity event of Icade Santé. The third takeaway is directly linked with the previous one. This transaction of Icade Santé especially offers the opportunity to deleverage significantly our balance sheet before the end of the year. We will continue to benefit from a solid rating at BBB+ with a stable outlook. Don't hesitate to have a look on the S&P publication the day after the announcement of the healthcare transaction in March 2023.
In that respect, let me remind you that LTV, including duties, is expected at the end of 2023 and before capital allocation, around 31% based on budget assumption regarding the valuation part. The net debt to EBITDA ratio should be close to eight times. Fourth, we held our general meeting last Friday, and I wanted to highlight two resolution approvals. First, the AGM approved the payment of dividends of EUR 4.33 per share, an increase of plus 3.1% compared to last year, and important to highlight, fully paid in cash. Finally, the board proposed a second climate on climate and biodiversity resolution for the second year in a row, approved in 2023 by more than 98%.
I have a dedicated slide in this presentation. Let's now move on slide six with the figures of our revenues, and let me start with a word on the accounting treatment for the healthcare business. Indeed, in anticipation of the full deconsolidation of the healthcare business as of the closing of the first stage, we applied in our Q1 reporting the accounting standard IFRS 5 relating to non-current assets held for sale and discontinued operations. As a consequence, the group revenues for Q1 2023 do not include the contribution of the healthcare business, and the comparable period has been restated, of course. Total revenue group share for the first quarter stands at EUR 300 million.
This amount mainly reflects first, slight decrease of revenues for the office division, -2.8, a solid performance in our view, in the context of significant disposal in 2022. I remind you we were net disinvestors last year. Excluding the impact of 2022 disposal, gross rental income would have risen by 3.7% on a reported basis. A second comment on Icade Q1 revenues, the significant slowdown on the residential market reflected in the Q1 turnover of Icade Promotion, after also a particularly dynamic commercial performance in 2022, especially in Q4. Let's move on the operational performance of each business line, starting with our office property division. I'm on slide eight.
As far as the market is concerned, you will have all in mind the ImmoStat data which were released 10 days ago, sorry, it is fair to say that the leasing activity remained quite in the first quarter. In this context, Icade's asset management activity remained strong in Q1, with nearly 60,000 sqm newly signed or renewed over the three months. This volume represents an annual income of nearly EUR 14 million and a weighted average lease break of six years. There are several things to note here. First, three major renewals covering nearly 40,000 sqm signed in line with the market trends. It includes the renewal of the lease with the retailer Système U, covering nearly 21,000 sqm in the Paris Orly- Rungis Business Park for a nine-term with a break option after six years.
It also includes the renewal of the lease with Adecco for 13,000 sqm in Lyon for a nine-year term, with also a break option after six years. Those renewals come after significant renewals in 2022, including the 45,000 sqm leased with Veolia, our third largest tenant, for nine-term lease, and the 12,000 sqm leased with Clemme in the Pont Flon Business Park for a three-year term. Second comment on leasing activity. A prelet on 7,500 sqm in the Portes de Paris Business Park signed with Equinix, a data center operator, for a nine-year term with no break option. The signature brings to more than 21,000 the volume rented by this operator in the business park.
Third comment, interesting also to note the continuing attractiveness of the Parc Paris Orl y-Rungis with new leases covering more than 500 sqm . This includes a prelet of 300 sqm signed with a subsidiary of VINCI Energies for a nine-year term, and also a 1,200 sqm signed for the setup of a food hall, confirming attractiveness of the business park for the gastronomy sector. I remind you that Pierre Hermé and Lenôtre have already settled in this territory. Those significant signatures demonstrate the ability of the office property division to maintain or attract tenants in our office portfolio, even in a competitive market, thanks to the quality of our buildings, good centrality, high level of technical and CSR criterias, and the high level of services offered.
Asset rotation, it continue with EUR 150 million under preliminary agreement with an average yield for office buildings around four. We should be in a position to announce very soon a new disposal, bringing the total volume to roughly EUR 200 million. Given the financial impact of the Icade Santé liquidity operations and the implied cash-in, Icade will pursue its disposal plan using an opportunistic approach without any pressure. The gross rental income is concerned, it stood at EUR 83.3 million for offices and business parks, in line with our budget. I said before, the slight decrease by EUR 2.4 million compared to the same period in 2022 reflects solid performance in our view in the context of high volume of disposal.
On a like-for-like basis, gross rental income was up 2.8 for the office and business park segments, driven by the positive impact of indexation at around +5% in Q1 2023. For the next quarter, we should have an indexation effect above 5% or even close to 6%, implying upside on our conservative budget assumptions. I would add that there is no question about the company's ability to pass on the indexation. As a conclusion for the half-day division, a solid start to the year in term of leasing activity in a very quiet market, and an opportunistic approach on asset rotation, both disposal and investment side, taking into account the current market conditions. Let's move on the operational performance of the development business line. I'm on slide nine. A first comment on the market. All player are observing a market downturn in Q1.
This is not surprising and is mainly due to the rise in interest rates over the last 15 months, which has led to a wait and see attitude from institutional investors and a reduction of households borrowing capacity. This trend obviously impacted the Q1 indicators with an economic revenue that took EUR 127 million, down 14%, and housing orders from individuals down 15% in value. I remember you, the market is down 37% right now for the first part of the year. Those numbers come after a very strong sales performance in 2022, with a record number of orders and revenues up more than 17% over the year, particularly supported in the last quarter.
The decrease in housing orders also reflects an unfavorable base effect since a significant volume of bulk sales were signed in Q1 2022, whereas most bulk sales in 2023 are expected to be signed in the following quarters. In this context, Icade Promotion continue to be agile and adapt. The teams have taken action to cope with the new situation, such as an increased focus on the stock of unsold and completed units, which was down 22 year-on-year. Closer monitoring of commercial policy, price adjustments and sales promotions. An effort to adapt projects and recalibrate land values and an analysis of ways to adjust structural costs to this new context.
As far as the medium term is concerned, Icade Promotion combined and will continue to benefit from solid market fundamental and a well-adapted offer based on the strong expertise of the team and in line with the new market expectation. Let me illustrate my comment with the two flagship projects in the slide. First, Icade and Duval won a significant tender to develop a large mixed-use project in Saint-Nazaire, including 340 housing units, office space, hotel and sport campus, securing 2024 revenues and following. Second, second example, the commercial launch of Neugy project has start well with orders for 40% of the project. This after work project relates to the conversion of a hotel into 166 residential units over more than 16,000 sqm .
As of end of March, leading indicators for revenues remain high and will support the volume of revenue for 2023, despite the market downturn. The total backlog stands at EUR 1.8 billion, stable compared to Q1 2022, and slightly down compared to end of December, securing the company ability to deliver a stable revenue for the full-year 2023. I would like now to share a few words on the announcement on healthcare, transforming transaction, aiming at fully the healthcare activity by the end of 2025. I'm on page 11. We held a dedicated conference call on March 14th, and you can find a dedicated press release on our website. Let me remind you the main outlines of this structuring operation and to give you a progress report. First, a few figures to present this very transforming operation for the group.
The transaction represent one more time an amount of EUR 3 billion to be paid in cash, including EUR 2.6 billion for Icade's stakes in its healthcare business based on NAV December 2022. On the top of this EUR 2.6 billion, we have shareholder loan of EUR 400 million with Icade Santé and Icade Healthcare Europe. The disposal of Icade Santé will occur with three stages. The first one relates to the sale of 60% of our stake in Icade Santé for an amount of EUR 1.4 billion. On top of that, repayment of Icade Santé shareholder loan to Icade for EUR 50 million. This first stage will occur by the end of July 2023. The second stage to occur by end of 2025 is the disposal of our remaining stake in Icade Santé.
On the top of that, the third stage of the transaction is the disposal of our stake in Icade Healthcare Europe, which represent an additional amount of EUR 0.3 billion paid on 2022 valuation, plus EUR 0.3 billion of shareholder loan. One more time, the rational and attractiveness for Icade shareholder are numerous. We have highlighted on this page five different elements. First, compression of liquidity and according to the current shareholder's priority. Second, crystallization of the value of the healthcare property investment division and unlock capital gains on its investment in healthcare. Thirdly, and this is related to my previous comments, those capital gains imply the special dividend of approximately EUR 700 million, payable within two years of each sale being made. The substantial cash generated by transaction will also help Icade to fortify its balance sheet, as I said before, and deliver.
I mentioned in my introduction was ex- LTV was expected significantly down as of the end of 2023. Last but not least, the cashing represent a fantastic additional room for capital allocation. Icade will be able to focus on its two remaining businesses, sizing potential growth opportunities in a market at the bottom of the cycle, in accordance with the new roadmap, which will be announced by Nicolas as soon as we will be ready. In term of progress, all condition precedent and preliminary steps are currently being addressed and should be finalized in time for the first stage to be completed between June 30 and the end of July 2023. I'm here talking about usual conditions such as consultation of the employee representative bodies or obtaining the IMF documentation of specific authorization. I'm now on slide 13.
As mentioned in my preliminary comments, the board proposed a sound climate biodiversity resolution for the second year in a row, and this resolution was approved by more than 90%. As last year, this resolution covers the low carbon policy and ambition, which were reinforced at the beginning of 2022, as well as the results which are well-oriented, notably with a decrease in the carbon intensity for each business in 2022, especially on our office investment division, with a decrease of the carbon footprint by 29% over the period 2019-2022. Notice that our carbon ambitions and the methodology to calculate it were approved last October by the SBTi, a world reference organization in the field.
Last but not least, the Financial Times informed us last week of our presence in the climate leader ranking, which aim to identify the European companies that best succeed in reducing their gas emissions. In Q1, Icade also announced new commitments to biodiversity and soil protection. New commitments to 2030 are as follows, sorry. Renaturalize 100% of new construction on the property development division and in the business park of Foncière Tertiaire by 2030. Biodiversity support solution for 90% of the office division assets. Voluntary contribution to the restoration or conservation of ecosystems through rigorously selected programs. As you can see, our commitments on CSR topics remain strong and are in the heart of our businesses.
Let's go now to slide 15 to conclude this presentation of our Q1 2023 reviews and to give you some outlook. As indicated on several occasions in this presentation, the environment remains complex and volatile, and so a certain wait and see attitude in the various markets. In this context, it is fair to highlight that the business line posted solid performances in the first quarter, reflecting the robustness of the fundamentals and the group's ability to adapt to market conditions. Icade confirmed today's guidance for 2023, as announced at the end of February. In terms of guidance, group net current cash flow per share is expected in 2023 stable to slightly positive, excluding the impact of 2023 disposal.
The impact of the liquidity transaction on the 2023 net current cash flow will be specified when the first page, stage closing is announced and by the end of July 2023 at the latest. In term of dividend policy, the evolution should be in line with the pro forma Q1 net current cash flow change, with a payout ratio of approximately 80%. The Icade Santé liquidity transaction, once fully complete, will generate a total capital gain of around EUR 1.2 billion, resulting in a total distribution obligation of around EUR 710 million. The timing of the exceptional distribution will depend on the actual pace of disposal at each stage. It should be noted that the SIIC regime provides for the possibility of spreading each of the capital gain distribution obligation over two years.
Thus, the assessment of the amount of the exceptional dividend for the year 2023, as well as the timing of its of the payment, will be specified at the end of the announcement of the closing of the first stage of the transaction. I thank you for your attention. Now Nicolas and I, and Sophie and I are ready to answer to your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. We'll go with our first question from Véronique Meertens from Kempen. Please go ahead. Your line is open.
Hey, good morning, all. Thank you very much for the presentation. Two questions from my side. Could you elaborate on the assumptions you have for your NCCF guidance? Do I understand correctly that revenues for commercial are expected to stay stable year-over-year? Also curious to see what your like-for-like performance expectation for the office segment is. You mentioned that the indexation, trend upwards, but curious to see, what the reversion is, what your assumption is on the reversion on the relettings. In line with that, could you highlight what the reversion was on the relettings that you did during Q1? Thank you.
Okay. First, first part of your question regarding the net loan cash flow expectation on a full-year basis. As I said just before, we confirm our guidance. I mean by that, we could have a stable, not to say slightly positive. It will certainly depend on the performance of the Icade Promotion division. As you said, perhaps there is a little bit more volatility. As you notice, certainly the market is clearly a slowdown, highlighting the slowdown, a significant slowdown in 2023. Clearly, if we have to be cautious, it's on the development division. So far, the team confirmed that we will be able to maintain a turnover stable on a full-year basis.
One of the key topics will be, of course, to be focused on the margin, to be sure that it will remain stable, to secure the net current cash flow. Right now, we confirm that we will be able to maintain our guidance. On the second, your second question regarding the like-for-like evolution on the office side. It's not an easy question. It's certainly fair to say that we could expect, as I said in my presentation, a little bit higher level of positive impact of indexation on a full-year basis. In the meantime, all markets are very competitive. You know, you understand that our focus is to maintain our tenants in our portfolio.
Because we are in a very competitive market, it means that we could have when we have our new role, some negative reversion. I will remain cautious on a full-year basis. I can just tell you that we will be able to maintain a like-for-like trend as we have announced for the Q1. It's difficult for me to be more precise.
Okay. Thank you. That's already very helpful.
Thank you. We will move on to our next participant. Florent from Oddo BHF, please go ahead. Your line is open.
Yes, good morning. This is Florent Laroche-Joubert from Oddo BHF. Thank you for this presentation. Actually I would have maybe two questions. The first one on the disposal of Icade Santé. On that point, first question, could you please tell us how we can be confident of the fact that you will be able to dispose Icade Santé under the three stages that you have presented us, and specifically for the stage number three? This is maybe the first question on Icade Santé. Second question of Icade Santé, could we expect maybe already an exceptional dividend in 2023? My second question would be more for Nicolas Joly.
What will be your priorities for the next month in terms of capital allocation and investment? What sort of opportunities do you want to take? Could we expect maybe some acceleration in the development of your current land banks? Thank you very much.
Do you want to answer?
Yeah. Hello, Florent. I will take the second question. Well, regarding the use of proceeds, of course, it's a very legitimate question, and I understand that everyone is eager to know more details on this. As you all know, I started working at Icade last Friday. As you can imagine, it's definitely too early to comment, as I want to make sure that any decision will be thoroughly analyzed and discussed with the rest of the team as well as our board of directors. To answer on my priorities, my priority is definitely to get to know the teams and get to work with them immediately. Of course, also an in-depth review of the portfolio will be one of my top priorities. Be sure, I will keep you informed in due time.
Okay.
Hi Florent. For your first question, regarding your first question, how to be sure we will secure all the stage of the operation. First, I remember you, Primonial is an asset manager, so it's not possible for him to put, we can say a binding offer for the full transaction on the table. We have, we can say a strong agreement to organize the each stages and to secure each stages of the transaction, and especially for the third one regarding the Icade Healthcare Europe subsidiary. We have until the end of, we can say Primonial has got until the end of 2024 to organize the transaction, and it will be at some, we can say incentive fees for that.
So clearly, it's an organization, we can say, fully well, we can say, wide secured. Of course it will depend on the appetite of the market in the meantime. It has to be done and closed before end 2024. It's in my view, a quite secured organization. If it not, if there is no possibility to sell it, we never know, we will have, we'll continue to have the benefit of the dividend of the revenues of the assets. There is no significant stake. In addition, just have in mind that the stake of Icade in the Icade Healthcare Europe, Icade Healthcare Europe subsidiary, it's EUR 0.3 billion.
It's not the most significant part of our exposure. Last comment, we have a shareholder loan with this subsidiary, and the agreement, it's clear in the agreement that we will be reimbursed before the end of 2024 whatever it happens. It's important to have this in mind. Your second question, exceptional dividend in 2023. Clearly, it is a board decision. To be fully transparent with you, the board so far has not got decided if there will be exceptional dividend in 2023. Of course, there will be an exceptional dividend, but I don't know if it will be paid in 2023 or as usual in beginning of 2024. Okay. Thank you very much.
Thank you. We will move on to our next participant, Stéphane Afonso from Allinvest Securities. Please go ahead. Your line is open.
Yes, good morning, thank you for taking my questions. The first one on your office portfolio, could you give us the reversion rate that was captured in, during the first quarter? If possible, to comment also on incentives? Also on offices, at this stage, what occupancy rate are you forecasting by the end of the year? Maybe one last question on Icade Promotion. How do you see evolving your orders this year? Also, have you seen some changes on land pricing? In that regard, how confident are you in maintaining your margin this year? Maybe one follow-up question, could you be more specific on regarding the incentives related to the third stage?
Your first question regarding office division. Let's see. Yes, reversion. Reversion on Q1, sorry. Reversion in Q1, it's an average of around -6% to -8%, depending the renewals that we have in front of us. It's a trend we have. It's -6% and -7% compared to previous level of lease. As we noticed and as we said, as you noticed and as we said, it's fully in line with the last ERV level in the market. Important to have that because we are renew, it's renewals of old leases. That's why the reversion is a bit negative. Your second question about cap rate at the end of the year, you mean level of valuation?
No. No, no. Occupancy rate, sorry.
Oh, occupancy rate. Sorry. Occupancy rate before the end of the year. We could expect a slight increase before the end of the year. We are expecting, you know, a significant announcement with the transaction of the letting of the remaining part of Origine building. It's not already certain. I remain cautious, but it could have a very positive impact on the occupancy rate of the group. It is clearly one of the key points to improve this level before the end of the year. Last question about Icade Promotion. What is our expectation regarding the orders level before the end of the year? Clearly, we are expecting a slight decrease with in line with the current level of the market.
I remember you, our level is quite stronger than the market right now at the end of Q1. Clearly, we just begin to use the price, prices level to adapt our ability to increase reservation and so to increase our sales. I can just tell you that March and April are better, seems to be better than January and February because we began to active such a level. We are very cautious, of course. We know that the market will not be easy, but we remain confident to be able to do better than the market. Your last question is about our ability to maintain our margin, if I understand well.
It's a key question because as I said just before, we will use the price on a, on a commercial point of view, we will use the prices level. Clearly, we will have to pick a grid, to keep a grid attention on our margins. That's why we are already focused on operational costs and structural costs. Also, it will be a key topic to maintain our margin for, in this year, of course, we will be focused on this objective. You have also another question related to the incentive on the stage, on Icade Santé, on the disposal of Icade Santé, the last part, the remaining stake of Icade Santé. It's the last question you have. That's it?
Yes.
Okay. It's incentive as every asset, you know, asset.
Asset manager.
Asset manager. It's incentive exactly as every asset manager. It's linked to the volume of the disposal, and they will benefit from fees at each disposal. I cannot give you the level. It's not, it's not public. I'm sorry. I don't want to tell you the figures, but clearly it's a good way to motivate Primonial as the main, To focus on this, on this execution of the disposal of the Icade Healthcare Europe assets.
At least could we have a range?
As usual, you know, in a market, it's between a 0.5%-0.2%. I don't know. I know, but it's all right.
Thank you.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll move on to our next participant, Jonathan Kownator from Goldman Sachs. Please go ahead, sir. Your line is open.
Good morning. Thank you for taking my question. On the property development business, I think you're saying your cancellation rate has increased to 26.9%. Can you just help us understand again, how you calculate that cancellation rate and the trends that you're seeing in the market underlying that, up to what point your clients can cancel? Thank you.
The calculation of the cancellation rate, I propose that I will call back you, Jonathan, because clearly it's a technical question, and I don't have the answer so far. It's fair to say that we have an increase of this rate during the first part of the year. What I can tell you is that since a few weeks, it's slowed down, and it's maintaining at this level. We will go back to you for for to precise answer to the question.
Thank you.
It's clearly, I'm sure you have in mind why the cancellation rate increased. It's mainly due to the level of mortgage rates, you know. It is a direct impact of the rising interest rate in the market.
Sure. Of course.
Also important to have in mind that the behavior of the buyer, meaning by that, physical person or investor institutional. The mix will also have an impact of this, of this level. We are expecting higher contribution of investor institutionals. We will have certainly a decreased impact globally in the coming months.
Okay. Thank you.
Thank you. Ladies and gentlemen, if you have any questions, please press star one.
I don't-
It appears there is no further questions at this time. I'd like to turn the conference back to the host for any additional closing remarks. Thank you.
Thank you very much for your time and.
Yeah. Thank you all. Should you have any further question, we'll be happy with Victoire and Anne-Sophie to answer them. Looking forward to seeing you soon, and have a nice day. Bye-bye.
Have a nice day. Bye-bye.
Thank you for joining today's call. You may now disconnect. Have a nice day, everyone.